Prudential Bancorp
Annual Report 2019

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We do life.

Prudential plc Annual Report 2019

 
 
 
 
 
 
 
2019 highlights

Prudential helps people de‑risk 
their lives and deal with their 
biggest financial concerns. 
We provide our customers 
with the freedom to face  
the future with confidence.

Our year in numbers

Summary financials

Adjustedoperatingprofitfromcontinuingoperations1

OperatingfreesurplusgeneratedfromcontinuingoperationsbeforeUS

EEVmodellingenhancements2,3

Lifenewbusinessprofitfromcontinuingoperations4

IFRSprofitaftertaxfromcontinuingoperations5

Netcashremittancesfrombusinessunitsfromcontinuingoperations6

LCSMshareholdersurplusoverGroupminimumcapitalrequirement7

2019

2018

$5,310m $4,409m

$3,764m $3,410m

$4,405m $4,707m

Changeonan
actualexchange
ratebasis8

Changeona
constantexchange
ratebasis8

20%

10%

(6)%

20%

10%

(6)%

$1,953m $2,881m

(32)%

(33)%

$1,465m $1,417m

$9.5bn

$9.7bn

3%

(2)%

–

–

Totalfull-yearordinarydividend

46.26 cents

TheGroup’s2020dividendwillbedeterminedunderthe
Group’sdividendpolicyfroma2019baseof36.84cents9

Notes
1

‘Adjustedoperatingprofit’referstoadjustedIFRSoperatingprofitbasedonlonger-term
investmentreturnsfromcontinuingoperations.Thisalternativeperformancemeasureis
reconciledtoIFRSprofitfortheyearinnoteB1.1oftheIFRSfinancialstatements.

2 Forinsuranceoperations,operatingfreesurplusgeneratedrepresentsamountsmaturingfrom

thein-forcebusinessduringtheyearlessinvestmentinnewbusinessandexcludes
non-operatingitems.Forassetmanagementbusinesses,itequatestopost-taxoperatingprofit
fortheyear.Furtherinformationissetoutinnote11oftheEEVbasisresults.

3 During2019,aspartoftheimplementationoftheNAIC’schangestotheUSstatutoryreserve
andcapitalframeworkenhancementsweremadetothemodelusedtoallowforhedging
withinUSstatutoryreportingwhichhavebeenincorporatedintotheEEVmodel.Thisresulted
inafallinoperatingfreesurplusof$(903)millionfromalowerexpectedtransfertonetworth.
Afterallowingforthis,operatingfreesurplusgeneratedis$2,861million,down16percenton
bothaconstantandactualexchangeratebasis.

transactions,amortisationofacquisitionaccountingadjustmentsandthetotaltaxcharge
fortheyear.

6 Netcashremittedbybusinessunitsareincludedintheholdingcompanycashflow,whichis

disclosedindetailinnoteI(iii)oftheAdditionalunauditedfinancialinformation.This
comprisesdividendsandothertransfersfrombusinessunitsthatarereflectiveofemerging
earningsandcapitalgeneration.

7 SurplusoverGroupminimumcapitalrequirementandestimatedbeforeallowingforsecond
interimordinarydividend.Shareholderbusinessexcludestheavailablecapitalandminimum
capitalrequirementofparticipatingbusinessinHongKong,SingaporeandMalaysia.2018
surplusexcludesM&Gplcandincludes$3.7billionofsubordinateddebtissuedby
PrudentialplcthatwastransferredtoM&Gplcon18October2019.Furtherinformation
onthebasisofcalculationoftheLCSMmeasureiscontainedinnoteI(i)oftheAdditional
unauditedfinancialinformation.

4 Newbusinessprofit,onapost-taxbasis,onbusinesssoldintheyear,calculatedinaccordance

8 FurtherinformationonactualandconstantexchangeratebasesissetoutinnoteA1ofthe

5

withEEVprinciples.
IFRSprofitaftertaxfromcontinuingoperationsreflectsthecombinedeffectsofoperatingresults
determinedonthebasisoflonger-terminvestmentreturns,togetherwithshort-terminvestment
varianceswhichfor2019weredrivenbynon-operatinglossesinJackson,corporate

IFRSfinancialstatements.

9 TheGroup’sdividendpolicywillbedeterminedfroma2019USdollarbaseof36.84centsper

share,representingthefull-yearordinarydividendfor2019of46.26centslessthe
contributionofthediscontinuedM&Gplcbusiness(9.42centspershare).

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationPositive Asia-led 
performance

 $5,310m +20%

adjusted operating profit from continuing operations1

46.26¢

full-year ordinary dividend

$9.5bn

LCSM shareholder surplus over Group  
minimum capital requirement7

 $1,953m 

IFRS profit after tax from continuing operations 
(2018: $2,881 million)

18,125

employees worldwide

$29.1m

community investment

20m

life customers

103,775hrs 

of volunteer service by 10,834 employees 

Contents

01 Group overview

Chairman’sstatement
GroupChiefExecutive’sreport

02 Strategic report

Ataglance
Ourbusinessmodel
Ourperformance
Ourbusinesses
GroupChiefFinancialOfficerand
ChiefOperatingOfficer’sreport
onthe2019financialperformance
GroupChiefRiskandCompliance
Officer’sreportontherisks
facingourbusinessandhow
thesearemanaged
ESGsummary

03
03
06

10
12
14
16
18
34

51

72

03 Governance

88
90
92
97
98
108

Chairman’sintroduction
BoardofDirectors
GroupExecutiveCommittee
Howweoperate
Riskmanagementand
internalcontrol
110
Committeereports
Statutoryandregulatorydisclosures 133
135
IndextoprincipalDirectors’
reportdisclosures

04 Directors’ 

136

138

remuneration report
Annualstatementfromthe
ChairmanoftheRemuneration
Committee
OurExecutiveDirectors’
remunerationataglance
Annualreportonremuneration
144
NewDirectors’remunerationpolicy 174
192
Additionalremuneration
disclosures

142

05 Financial statements

196

06 European Embedded Value 

330

(EEV) basis results

07 Additional information

Indextotheadditionalunaudited
financialinformation
Riskfactors
Glossary
Shareholderinformation
Howtocontactus

360
362

388
396
400
403

TheDirectors’ReportofPrudentialplcfortheyearended
31December2019issetoutonpages3to9,90to135and
362to403,andincludesthesectionsoftheAnnualReport
referredtointhesepages.

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CHAIRMAN’SSTATEMENT

Secondordinarydividend

25.97¢

Continuing 
to deliver  
long-term value

I am pleased to report that Prudential has produced a positive 
performance during 2019. We continue to focus on how we 
deliver for our customers, shareholders and wider stakeholders.

Prudentialhelpspeoplede-risktheir
livesandcopewiththeirbiggestfinancial
concerns,helpingthemtofacethefuture
withconfidence.Ourcontinuedprogress
in2019,ayearofconsiderableeconomic
uncertainty,isareflectionofourpurpose-
drivenapproach.

Oursuccessfulcompletionofthedemerger
ofM&GplcfromtheGroup,aheadof
schedulein2019,wasoneofthemost
complexchangestoourbusinessfor
manyyears.Iamproudofthewayour
peopleworkedtowardsthissignificant
achievementwhilecontinuingtoperform
forourcustomersandinvestors.

OurambitionforJacksonisthatitshould
playabroaderroleintheUSretirement
incomemarket,throughastrategyof
diversifyingitsproductrangeand
distributionnetwork.Inviewofthis,
Jacksonwillneedaccesstoadditional
investment,whichwebelievewouldbest
beprovidedbythirdparties.Overthe
pastninemonths,wehaveundertaken

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CONTINUED

significantworkwithouradviserstoassess
optionsforintroducingthird-partyfinance
intoJackson.TheBoardhasdetermined
thatthepreferredroutetoachievethisis
toseekalistingofJacksonintheUS,
subjecttomarketconditions.Wewill
nowbegindetailedengagementwithkey
stakeholders,withaviewtoensuringthat
Jacksonwillhavethecapitalstrengthas
aseparatelylistedbusinesstosupport
itscontinuedsuccessasabroadprovider
ofretirementsolutionsforAmerica’s
ageingpopulation.

Dividend
TheBoardhasapproveda2019second
interimordinarydividendof25.97cents
pershare,equivalenttothe19.60pence
persharepreviouslyannouncedin
thedemergerCircularalongsidethe
newdividendpolicyfortheGroup
post-demerger.

TheGroup’s2020dividendunderthis
newprogressivedividendpolicywillbe
determinedfroma2019USdollarbase
of36.84centspershare.

Board changes
AstronganddecisiveBoardisatthe
coreofawellruncompany.Therobust
governanceprovidedbyourBoardis
keytoensuringwecontinuetomeetallour
objectives.Developingtheskills,diversity
andexperienceofourBoardrequiresa
flexibleapproachandopennesstochange,
justastheGroup’sshapeisitselfchanging.
During2019,wemadeanumberof
changestotheBoard’scomposition,
allofwhichhavehelpedtoreinforceits
capabilitiesandpositionitstronglyfor
thefuture,andweputplansinplacefor
refreshingtheBoardintheyearstocome.
AmyYipjoinedusinSeptemberasa
Non-executiveDirectorandamemberof
theRemunerationCommittee,bringing
considerableexpertiseinfinancialservices
inChinaandSouth-eastAsia.Atthe
beginningofJanuary2020,Jeremy
AndersonjoinedusasaNon-executive
DirectorandamemberoftheRiskand
AuditCommittees,providingsubstantial
experienceininternationalfinancial
services,particularlyinauditandrisk
management.Iwouldliketowelcome

AmyandJeremytotheBoardandIwould
particularlyliketothankHowardDavies,
whowillstepdownfromtheBoardatthe
conclusionofthe2020AnnualGeneral
Meeting,forhissignificantcontribution
duringhistenureandhisleadershipofthe
RiskCommitteesinceitsinception.Jeremy
AndersonwillsucceedHowardasChairof
theRiskCommitteeattheconclusionofthe
AnnualGeneralMeetinginMay2020.

AttheendofJanuary2020,weannounced
thatShritiVaderawilljointheBoardon
1MayasaNon-executiveDirectorand
memberoftheNomination&Governance
Committee,andthatsheisexpectedto
succeedmeasChairoftheBoardandthe
Nomination&GovernanceCommitteeon
1January2021.Shritiisanexcellentchoice
forthefutureChair,andIlookforwardto
workingwithherontheBoardandduring
thetransition.

Our customers and 
wider stakeholders
Wearedeterminedtobuildnew
capabilitiesinourstructuralgrowth
markets,offeringourproductstomore
customersinAsiaacrossanincreasing
rangeofchannels;andreachingnew
customersinAfrica,oneofthefastest-
growingregionsintheworld.IntheUS,the
world’slargestretirementmarket,wearea
leaderinprovidingassetaccumulationand
incomeproducts.Theloyaltyofour
existingcustomerbaseisanimportant
sourceoffinancialresiliencefortheGroup,
andweworkcontinuouslytoimprove
serviceandoutcomes.Thenatureofour
businessmodelmeansthatweinvestour
customers’savingsincompaniesand
infrastructurethathelptodriveprosperity
andstrengthenthecommunitiesweserve.

Ourbusinessprovidessocialbenefitsto
ourcustomersandtotheircommunities.In
particular,wearecommittedtobroadening
accesstohealthcareandfinanceandto
providingsolutionstoissuesemerging
fromdemographicchange.Wearewell
awareoftheriskclimatechangepresents
andarebroadeningtheroleourbusinesses
canplayinthetransitiontoasustainable
economy.Weareasignatorytothe
recommendationsoftheFinancialStability

Board’sTaskForceonClimate-Related
FinancialDisclosures,andweare
deepeningourunderstandingoftherisks
facedbythebusiness.Wewillcontinue
toworkwithgovernments,regulators,
civilsocietyandotherbusinessesas
wedeveloparangeofapproachesto
theseissues.

TheBoardremainscommittedtoensuring
thatwemakeapositiveimpactacross
allouractivities.Youwillfindreferences
throughoutthisreporttothatimpact,
whileanoverviewofwhatwehavedone
acrossallareasofenvironmental,social
andgovernance(ESG)activityin2019
canbefoundinourESGSummaryon
page72ofthisreport.Furtherdetailsarein
our2019ESGReportonthePrudentialplc
website.

Our shareholders
TheBoard’sroleistorepresenttheinterests
ofalloftheCompany’sshareholders.We
havedeliveredsignificantchangetothe
businessduringaperiodofmacroeconomic
andindustryheadwinds,andwehave
steppedupourregularandfrankdialogue
withourshareholderstoensureweare
responsivetotheirprioritiesandconcerns,
whileensuringtheyfullyunderstandthe
widerbackdroptoourperformance.
Ongoingshareholderengagementenables
ustogatherimportantfeedbackthat
informsourdecisionsasaBoard.Forme
personally,thesediscussionsarehighly
valuableandtheideasandsuggestions
generatedareinvariablyusefulandalways
takenseriously.

Changesinthepolicyandregulatory
environmentinwhichweworkcan
haveasignificantimpactonourbusiness
andwhatwecandoforourcustomers.
Webuildanddeveloppositiveand
openrelationshipswithoursupervisors,
governmentsandcivilsociety,andweare
gratefulfortheconstructiveworkofour
regulators,inparticulartheHongKong
InsuranceAuthority.Welookforwardto
continuingtoworkcloselywiththeminto
thefuture.

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Duringearly2020,ourbusinesshasbeen
respondingwithagilitytotheglobal
challengesposedbythecoronavirus
outbreak.Wehavebeenproviding
customerswithadditionalbenefitsand
service,offeringadviceandflexible
workingoptionstocolleagues,and
collaboratingwithgovernmentstodirectly
supportaffectedcommunities.Thevirus
outbreakisalsoimpactingfinancial
markets.Wearemonitoringdevelopments
closelyandwillcontinuetobeproactivein
helpingourcolleaguesandcustomers.

Iwouldliketothankallmycolleagueson
theBoard,inmanagementandthroughout
thebusiness,andallourstakeholdersfor
theirsupportandforeverythingtheyhave
donetoensurethesuccessofPrudential
duringmytimeasChairman.

Looking forward
OurBoardishighlyresponsivetothe
interestsofourstakeholdersandwewill
continuetomakeimprovementstothe
structureoftheGroupwherewebelieve
theywillgeneratematerialbenefitsover
thelongterm.Wearewellpositionedto
benefitfromstrongstructuralgrowth
opportunitiesandcontinuetoprovide
benefitsforourcustomersandvalue
forourinvestorswellintothefuture.

Paul Manduca
Chairman

Our people
Ourbusinessisbuiltaroundourpurpose
andourstrategy,butitisourpeoplewho
implementthatstrategy.Inourbusinesses
aroundtheworldwehaveexcellentteams
workinghardtoensurewemeetour
commitmentstoourcustomers.The
needs,prioritiesandconcernsofour
colleaguesareafocalpointfortheBoard.
During2019,twoofourNon-executive
Directors,KaiNargolwalaforAsiaand
AfricaandTomWatjenfortheUSandthe
UK,wereappointedtoactasaconduit
betweenemployeesandtheBoard,and
theywillcontinuetodeepentheiractivity
inthisarea.Youcanreadmoreabouttheir
activitiesinthisareaonpage74of
thisreport.

Wearecommittedtoprovidinganinclusive
workingenvironmentinwhichwedevelop
ourtalent,rewardperformance,protect
ourpeopleandvalueourdifferences.
Diversityandinclusionisanimportant
priorityfortheGroup.Wearemakinggood
progressinthisareaandIamconfidentwe
willcontinuetodoso.

Wearecontinuingouractiveprogramme
ofcommunityinvestmentinourbusinesses
aroundtheworld.Aswecollectpremiums
inthemanymarketsinwhichweoperate,
wealsounderstandtheneedtohelpthose
communitiestostrengthenanddevelop.
Ourcontributionincludesprojects
coveringanumberofareassuchasSafe
Steps,whichprovidesadvicearound
naturaldisasters,roadsafetyandfirstaid;
FirstRead,whichhelpsparentstodevelop
theirchildren’snumeracyandliteracy;and
Cha-Ching,thefirstglobalfinancial
educationprogramme.Ourpeoplearound
theworldcontinuetomakearemarkable
effortvolunteeringtheirtimeandskillsfor
thebenefitoftheircommunities.Iam
particularlyproudofthesecontributions,
andIsupportthisvolunteeringactivity
personallythroughtheChairman’s
Challenge,ourflagshipinternational
volunteeringprogramme,whichbrings
teamstogetheracrosstheGrouptohelp
intheircommunities.Thisprogramme
continuestoappealtocolleagues,with
morethan5,400signingupin2019to
participateacross21projects.

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20%

Increaseinadjustedoperatingprofit
fromcontinuingoperations2

$1,953m

IFRSprofitaftertaxfromcontinuing
operations(2018:$2,881m)

Delivering  
profitable growth 
and positioning 
ourselves for  
the future

We have delivered a positive operating performance during 
2019, led by continued growth in our Asian business. 

Ourclearstrategyandfocusedexecution,
combinedwithimprovementsinour
operations,haveenabledusbothtodeliver
profitablegrowthandtopositionourselves
forcontinuedgrowthintothefuture.

Weexisttotakethefinancialriskout
ofthebiggesteventsinthelivesofour
customers,enablingthemtofacethe
futurewithconfidence.Inadditionto
fulfillingourtraditionalroleofproviding
lifeandhealthprotection,savings
opportunitiestomeetfamilygoalsand
retirementincome,weaspiretoleadin
newareasalignedwiththispurpose.
During2019,collectivelyourcontinuing
businessesagreedtopayover$29billion
toourcustomersinclaimsandsavings
pay-outs.Ourproductshelpconsumers
postponeandpreventill-healththrough
digitalinnovation,increaseaccessto
finance,andprovidesolutionsforanageing
world.Atthesametime,weareinvesting
ourcustomers’savingsintherealeconomy,
helpingtodrivesustainablegrowth.

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Aswestatedatourhalf-yearresults,in
ordertodiversifyatpace,Jacksonwillneed
accesstoadditionalinvestmentwhichwe
believewouldbestbeprovidedbythird
parties.Sincethen,wehaveundertaken
significantworkwithouradviserstoassess
optionsforintroducingthirdpartyfinance
intoJackson.TheBoardhasdetermined
thatthepreferredroutetoachievethisisto
seekalistingofJacksonintheUSindue
course,subjecttomarketconditions.

Accordingly,wearetodayannouncingthat
preparationshavecommencedfora
minorityinitialpublicoffering(IPO)of
Jacksonandhavealreadytakenanumber
ofmanagementactionstosupportthis
path.Wewillnowcommencedetailed
engagementwithkeystakeholders,witha
viewtoensuringthatJacksonwillhavethe
capitalstrengthasaseparatelylisted
businesstosupportitscontinuedsuccess
asabroadproviderofretirementsolutions
forAmerica’sagingpopulation.Wewill
provideanupdateatourHY20results
scheduledfor11August2020.

Macroeconomic environment
Thecoredemandforourlong-termsavings
andprotectionproductshasremained
strongdespiteuncertainconditionsin
themacroeconomicenvironment.
Acombinationoflowinterestrates,trade
disputesandvolatileinternationalpolitics
hascreateddifficultconditionsacross
manysectors.TheUSgovernment10-year
bondyieldfellto1.9percentattheendof
2019(2018:2.7percent).Equitymarkets
finished2019higherthanthestartofthe
year,especiallyintheUS,wherethe
S&P500indexwasup28.9percent,and
valuationsinthecreditmarketswerealso
elevatedwellabovehistoricnorms.
Wecontinuetomanageourbusiness
conservativelyforthelongterm,witha
cautiousallocationofshareholderfunds
andextensivehedgeprogrammesin
Jackson.Thesehedgeprogrammes
managetheeconomicrisk,with
considerationofthelocalregulatory
position,oftheguaranteescontained
withintheproductssoldtocustomers.

Ourbusinessisbuiltaroundlong-term
structuralopportunities.Inourfast-
growingmarketsinAsiathereisa
strongandgrowingneedforhealthand
protection,forsavingsopportunitiesand
forwaystoinvest,andthereisasignificant
gapforproductsthatmeetthoseneeds.
Bymeetingimportantfinancialneeds,we
expecttobuildlong-termrelationships
withourcustomers.Thistranslatesinto
recurringincomestreamsandlowlapse
rates,whichinturnproducehigh-quality
earnings.

Wearewellpositionedtomeetstructural
opportunities.Wearediversifiedby
geography,withoperationsin15markets
intheregion,throughourproducts
offeringhealthandprotection,savingsand
assetmanagement,andinourmixof
channels,providingourproductsthrough
ourlargeagencyforceandournetworkof
partnershipswithbanksacrosstheregion.
Wearealsoinnovatingatpaceandscaleto
digitalisethecustomerjourneyend-to-
end,anddeliveringnewvalue-added
solutions,suchasPulsebyPrudential,
ournewdigitalhealthapp.

IntheUS,wherethecontinuingtransition
ofmillionsofAmericansintoretirement
createsasubstantialopportunityfor
Jackson’sproducts,wehavedelivered
organicdiversificationandJacksonhas
paidadividendof$525million1.

During2019,wesuccessfullycompleted
thedemergerofM&GplcfromtheGroup,
enablingustofocusonstructuralgrowth
markets.Weareworkingcollaboratively
withournewGroup-wideregulator,the
HongKongInsuranceAuthority,andour
othersupervisorsacrossourmarkets.

TheUSistheworld’slargestretirement
marketwithtrillionsofdollarsexpectedto
movefromsavingsintoretirementincome
productsoverthenextdecade.Asa
top-twoannuityprovider,Jacksonisa
leaderinmeetingtheneedsofAmericans
whoaspiretoasecureretirementwitha
guaranteedincome.

Jackson’sambitionistoplaythefullestrole
possiblethroughastrategyofdiversifying
bothitsproductrangeanddistribution
network.Overtime,thisisexpectedtolead
toamorebalancedmixofpolicyholder
liabilitiesandenhancestatutorycapitaland
cashgeneration.

Financial performance
TheadjustedIFRSoperatingprofitbased
onlonger-terminvestmentreturns
(adjustedoperatingprofit2)for2019from
ourcontinuingoperationsincreasedby
20percentonbothaconstantandactual
exchangeratebasis,reflectingthe
continuedgrowthandresilienceofour
Asianbusinessesandthebeneficialimpact
ofstrong2019capitalreturnsondeferred
acquisitioncostamortisationintheUS.
TheIFRSprofitaftertaxfromcontinuing
operationswas$1,953millionin2019
(2018:$2,881milliononanactual
exchangeratebasis).Thisisaftera
$(380)millionpost-taxlossinJackson,
whereaccountingvolatilitycontinuesto
beexpectedgiventheeconomicnature
ofourhedgingprogrammeandtherelated
accountingmismatchesthatexist.

Alongsideourfinancialperformancewe
havemadesignificantinvestments,funded
regionallyandcentrally.During2019,this
includedtherenewalofourregional
strategicbancassurancealliancewith
UnitedOverseasBankLimitedforaninitial
feeof$853million,($301millionofwhich
waspaidin2019),enteringintoan
exclusivebancassurancepartnershipwith
SeABank,ouracquisitionof50.1percent
ofThanachartFundManagementCo.,Ltd
for$142million3andatotalinvestmentof
$619millionoffreesurplusinwriting
profitablenewbusinessinAsia,along
withaninvestmentof$539millioninfree
surplusinUSnewbusiness.

Asia
OurAsianoperationscontinuedtodrive
ourperformance.Thefast-growing
marketsofAsiaofferlong-termstructural
opportunitiesforus,withtheregion’s
growingpopulationhavingaclearand
increasingneedfortheproductswe
deliver.InsurancepenetrationinAsiais
only2.7percentofGDP,comparedwith
7.5percentintheUK4,whilemutualfund
penetrationisjust12percentinAsia,
comparedwith96percentintheUS5.

Wehavedemonstratedthestrengthofour
portfolioofbusinessesintheregionby
deliveringdouble-digitgrowthinAPE6
salesinsixmarketsandinnewbusiness
profit7ineight,reinforcingthevalueofour
diverseportfolioanddemonstratingthe
breadthofearningsstreamsandnew
businessspreadinAsia.

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OutsideHongKong,wedelivereda
17percent8increaseinAPE6salesanda
29percent8riseinnewbusinessprofit7.
WithinHongKong,ourdomesticbusiness
wasresilientdespitetheeffectofsocial
unrest,withAPE6salesgrowingby
8percent8.OurdomesticHongKong
businesshascontinuedtoexpandand
invest,drivenbynewhealth,protection
andretirementsolutionsandsupportedby
focusedsalesinitiatives.Fewervisitors
frommainlandChinacausedafallintotal
HongKongAPE6salesby11percent8and
afallinnewbusinessprofit7of12percent8.

Wehavecontinuedtoaccelerateourjoint
venturebusinessinChina,whereAPE6
salesovertheyearwere53percent8
higher,drivingnewbusinessprofit7growth
of38percent8.Werecentlyestablisheda
newbranchinShaanxi,our20thinthe
country,andaddedsevencitiesand
14salesandservicingoffices.Weare
developingrapidlyinanumberofourother
marketsintheregion,includingVietnam
andthePhilippines,whereAPE6sales
grewby12percent8and34percent8
respectivelyandwearemakinggood
progressinIndonesia,whereoursales
grewby23percent8intheyearincluding
41percent8inthesecondhalf.Overallour
Asialifebusinessesdelivered4percent8
growthinoverallAPE6salesanda
2percent8growthinoverallnew
businessprofit7.

Thebenefitsofourlongheldfocuson
writinghighquality,recurringpremium
business,contributingtoresilientand
broad-basedin-forcegrowthareevident
inthe12percent8increaseinrenewal
insurancepremium9and14percent8
increaseinadjustedoperatingprofit2,
withdouble-digitgrowth8ineight
insurancemarketsincluding24percent
adjustedoperatingprofitgrowthin
HongKongand20percent8growth
inmainlandChina.

Atthesametime,ourAsianassetmanager,
Eastspring,hascontinuedtogrowwell.
Averageassetsundermanagementwere
upby15percent(onanactualexchange
ratebasis),whileearningswereupby
18percent8andnetexternalinflows
totalled$8.9billion10.Eastspringis
continuingtoexpanditsfootprintinthe
region,andinDecemberacquireda
controllingstakeinoneofThailand’s
leadingassetmanagers,ThanachartFund
ManagementCo.,Ltd,withtheoptionto
acquiretheremainingequityinthis
businessinduecourse.

Wehavebroadandefficientchannels
inAsia,throughbothouragencyforce
andourbankpartners.During2019,we
continuedtostrengthenournetwork
ofbankpartnerships,renewingand
expandingoursuccessfulstrategicalliance
withUnitedOverseasBankinfivemarkets
acrosstheregionandsigningtwonew
partnershipagreementsinVietnam.

Wearecontinuingtodeliverdigital
innovationtosupportoursuccessful
agencyandbankchannels.Weare
diversifyingintonewareas,including
employeebenefitsinsuranceforboth
largeandsmallemployersintheregion,
andatthesametimewearebuildingnew
value-addedservicessuchasPulseby
Prudential,ournewend-to-enddigital
healthapp.

Africa
Wearecontinuingtomakegoodprogress
inournewermarketsinAfrica.In2019we
enhancedourgrowingscaleintheregion
byacquiringamajoritystakeinaleading
lifeinsureroperatinginCameroon,Côte
d’IvoireandTogo,whichhaveacombined
populationofmorethan65million.We
nowoperateineightmarketsinAfricawith
atotalpopulationofalmost400million.
In2019,theAfricabusinessdelivereda
76percent8increaseinAPE6salesto
$82million(2018:$47million).

US
IntheUS,ourproductinnovationand
distributionleaveuswellpositionedto
provideanageingpopulationwithfinancial
strategiesforstableretirements.TheUSis
theworld’slargestretirementsavings
market11,withapproximatelyfourmillion
Americansreachingretirementageevery
year12.Thistransitioncontinuestotrigger
theunprecedentedshiftoftrillionsof
dollarsfromsavingsaccumulationto
retirementincomegeneration13.

WeprovideproductsthatofferAmericans
theretirementstrategiestheyneed,
includingvariable,fixedandfixedindex
annuities.Ourdiversifiedproduct
approachhasenabledustodeliverAPE6
salesup8percent,withincreasesinboth
fixedindexandfixedannuityproducts.
Newbusinessprofit7declinedby
28percent,reflectinglowerinterest
ratesandchangesinproductmix.

IntheUS,wehaveoneoftheleading
distributionteams14.Weareagileand
successfulinlaunchingwelldesigned,
customer-centricproducts,have
successfulriskmanagementandhedge
programmesareinvestingintechnology
platformsandhaveaward-winning
customerservice.Wearecontinuingto
worktowardsfurtherdiversificationand
growth,withinahighlycompetitive
industry.

OurUSbusinesshastakenimportant
stepsinthedeliveryofitsdiversification
announcedwithourhalfyearresultsin
August2019andhasmaintainedacautious
approachtomanagingriskthroughits
dynamichedgingprogramme.The
financialresultsoftheUSbusinessreflect
theexecutionofthisstrategy.While
adjustedoperatingprofit2increasedby
20percentto$3,070million,theeffects
ofstrongUSequitymarketperformance
andlowerinterestratesintheperiod
ledtoapost-taxIFRSlossintheUSof
$(380)million.Wecontinuetoaccept
adegreeofvolatilityinourIFRSresults

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baseandfocusonhealthandprotection
products.Thesedrivers,combinedwith
thediversityoftheAsiaplatformand
qualityofitsexecution,areexpectedto
outweightheeffectsofanyoneperiod’s
newsales.

IntheUS,wehavecommenced
preparationsforaminorityIPOofJackson
asourpreferredroutetointroducethird
partyfinanceintoJackson.Aspreviously
announced,from2020Jackson’s
remittancesareexpectedtobemore
evenlyspreadoverthecalendaryearthan
inpriorperiods.

TheGroup’sstrategyremainsfocusedon
structuralgrowthopportunities.The
Groupwillprioritisetheconsiderable
attractiveinvestmentopportunities
availablewhenconsideringthe
deploymentofcapitalandapplying
itsprogressivedividendpolicy.

Interestrateshavedeclinedmaterially
in2019andaretrendinglowerin2020.
Equitymarketshavebeenvolatileandhave
declinedinthecurrentyeartodatefrom
theirpeaksinQ42019.Thesemarket
conditions,aswellasthecoronavirus
outbreak,createheadwindsinrespectof
near-termnewbusinessprofitandIFRS
fee-basedandspreadearnings.However,
ourperformancein2019demonstrates
thattheopportunitieswehaveidentified
areclearandlongtermandthatweare
addressingtheseopportunitieswell.We
arecontinuingtodelivergrowthbasedon
thestrengthofthoseopportunities,the
diversificationofourbusinessandthe
resilienceofourearnings.Iamconfident
that,withourclearfocusonourstructural
growthmarketsandourcontinuing
operationalimprovements,wewill
continuetodeliverprofitablegrowth
forourinvestorsandbenefitsforour
stakeholdersoverthemediumand
longterm.

Mike Wells
GroupChiefExecutive

sinceourhedgingprogrammeisbased
onmanagingtheeconomicrisksinthe
businessandprotectingstatutorysolvency
inthecircumstancesoflargemarket
movements.Furtherdetailisprovided
intheGroupChiefFinancialOfficerand
ChiefOperatingOfficer’sreport.

Outlook
Wecontinuetomonitorcloselythe
developmentofthecoronavirusoutbreak.
Ourpriorityisthehealthandwellbeingfor
ourcustomersandstaffduringthis
challengingtime.

Whilethecoronavirusoutbreakhasslowed
downeconomicactivityintheyeartodate
anddampenedoursalesmomentumin
HongKongandChina,weremain
confidentinthemediumtolong-term
prospectsoftheseeconomiesandtheir
respectiveinsurancesectors.Ourbroad
geographicspreadacrosstheregionand
thestrengthofourrecurringpremium
businessmodellendsconsiderable
resiliencetoourearnings.

Giventheimpactofthecoronavirus
outbreakontravelandactivityinthe
marketsinwhichweoperate,lowerlevels
ofnewsalesactivityinthoseaffected
marketsaretobeexpected.Ourbookof
existingbusinessisprovingresilientandwe
aretakingmeasurestomanagetheeffect
ofloweractivitywhilemaintainingour
investmentinproducts,distributionand
technology.Existingcustomersinboth
HongKongandmainlandChinacontinue
tocontributetotheirpolicieswith
premiumsbeingpaidthroughabroad
rangeofremotepaymentfacilities.

Thelongertermstructuraldriversofgrowth
inourAsiamarketsremainunchangedand
compelling.Theresilientandhighquality
natureoftheIFRSoperatingearnings
growthofourAsiabusinessremains
supportedbythecompoundingnatureofa
highlyenduringregularpremiumincome

Notes
1 During2019,theGroup’sholdingcompanycashflowwasmanagedinsterlingandsignificant
remittanceswerehedgedandrecordedonthatbasis.Amountsreceivedweretherefore
distortedbytheonwardstranslationintoUSdollars.ThedividendpaidbyJacksonintheUS
inUSdollarsin2019was$525million(2018:$450million).Theamountrecordedasreceived
intheholdingcompanycashflowwas$509million(2018:$452million).

2 AdjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsismanagement’s
primarymeasureofprofitabilityandprovidesanunderlyingoperatingresultbasedon
longer-terminvestmentreturnsandexcludesnon-operatingitems.Furtherinformationonits
definitionandreconciliationtoprofitfortheyearissetoutinnoteB1.1oftheIFRSfinancial
statements.

3 Cashpaymentsmadeover2019and2020.
4 Source:SwissReSigma2017.Insurancepenetrationcalculatedaspremiumsonpercent

ofGDP.Asiapenetrationcalculatedonaweightedpopulationbasis.
5 Source:InvestmentCompanyInstitute,industryassociationandLipper.
6 APEsalesisameasureofnewbusinessactivitythatcomprisestheaggregateofannualised

regularpremiumsandone-tenthofsinglepremiumsonnewbusinesswrittendownduringthe
yearforallinsuranceproducts,includingpremiumsforcontractsdesignatedasinvestment
contractsunderIFRS4.ItisnotrepresentativeofpremiumincomerecordedintheIFRS
financialstatements.SeenoteIIoftheAdditionalunauditedfinancialinformationfor
furtherexplanation.

7 Newbusinessprofitonapost-taxbasis,onbusinesssoldintheperiod,calculatedin

accordancewithEEVprinciples.

8 Year-on-yearpercentageincreasesarestatedonaconstantexchangeratebasisunless

otherwisestated.Asinpreviousyears,wecommentonourperformanceinlocalcurrency
terms(expressedonaconstantexchangeratebasis)toshowtheunderlyingbusinesstrends
inperiodsofcurrencymovement.

9 SeenoteIIoftheAdditionalunauditedfinancialinformationfordefinitionandreconciliation

toIFRSbalances.

10ExcludesMoneyMarketFunds.
11 Source:WillisTowersWatsonGlobalPensionAssetStudy2019.
12 AnnualEstimatesoftheResidentPopulationbySingleYearofAgeandSexfortheUnited

States:1April2010to1July2018.Source:USCensusBureau,PopulationDivision.

13 2016FederalReserveBoard’sTriennialSurveyofConsumerFinances.
14Source:IndependentresearchandMarketMetrics,aStrategicInsightBusiness:U.S.Advisor

Metrics2019,asof30September2019.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information02

Strategic report

10

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02

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At a glance

Our business model

Our performance

Our businesses 

Asia

United States

Group Chief Financial Officer and Chief Operating Officer’s report 
on the 2019 financial performance

Group Chief Risk and Compliance Officer’s report on the risks 
facing our business and how these are managed

ESG summary

Page

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prudentialplc.com 

Prudential plc Annual Report 2019

11

 
 
 
 
 
 
 
 
 
 
 
 
AT A GLANCE

Group at a glance

Focused on structural growth markets. 
Serving 20 million customers worldwide.

Asia growth
Pan-regional  
multi-channel network

Asia GDP growth projections ($) 
2015—20241

Health, protection, savings and 
asset management in 15 markets.

16.6tn

31.1tn

Top three position in nine 
life markets2.

Low insurance and mutual 
fund penetration.

Africa opportunity
Establishing a network with  
market-leading initiatives

Africa GDP growth projections ($) 
2015—20241

Building a presence in 
one of the world’s most 
under‑penetrated markets.

Operating in eight markets with a 
total population of almost 400 million.

0.7tn

1.2tn

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Our purpose
Our purpose is to help people de-risk their lives and 
deal with their biggest financial concerns. We provide 
our customers with the freedom to face the future 
with confidence.

Our strategy
Our strategy is to capture the long-term structural 
opportunities for our markets and geographies, while 
operating with discipline and seeking to enhance our 
capabilities through innovation to deliver high-quality 
resilient outcomes for our customers.

We aim to do this by:

 — Serving the protection and investment needs 

of the growing middle class in Asia;

 — Offering products to new customers in Africa, 

one of the fastest-growing regions in the world; and
 — Providing asset accumulation and retirement income 

products to US retirees. 

Structural growth over the last 20 years has allowed our 
business to reach the scale where it can support its long-
term goals through execution of its strategy 
and disciplined capital allocation. Prudential plc has 
a portfolio of businesses with access to the world’s 
largest and fastest-growing markets.

US retirement
Strength and flexibility of our distribution  
network gives us a distinctive advantage

Leading position in the 
retirement income industry.

US GDP growth projections ($) 
2015—20241

10,000 Americans reach 
retirement age each day for the 
next 20 years.

Largest wholesaling force 
in the annuity industry.

18.2tn

25.8tn

Note
1  GDP of markets in which Prudential plc operates as at 31 December 2019.  

2 

Source: IMF World Economic Outlook.
 Source: Based on formal (Competitors’ results release,  local regulators and 
insurance associations) and informal (industry exchange) market share data. 
Ranking based on new business (APE or weighted FYP depending on the 
availability of data).

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOUR BUSINESS MODEL

Evolving to serve  
the future customer 

Our trusted brands and strong distribution channels enable us to understand the growing 
needs of our customers for long-term savings and financial security, and to design products 
that meet those needs. By helping to build better lives and stronger communities and to fuel 
the growth cycle, we create long-term value for both our customers and our shareholders. 

Capturing structural opportunity

… and enhancing capabilities

We capture the structural opportunities 
by offering the products and solutions 
demanded by customers and wider society

We enhance our capabilities by developing 
our digital offerings and expanding our 
partnerships, further strengthening our 
distribution networks

Asia
Asia’s long‑term structural trends are powerful drivers of 
sustainable growth. These trends underpin a strong and growing 
demand for savings and protection across the region, as markets 
are challenged by low life insurance penetration and a large 
pension funding gap.

We are well placed to capture this opportunity, providing products 
that meet our customers’ needs and gaining political and regulatory 
support in our markets.

Asia
We continue to invest significantly in tech‑driven capabilities and 
partnerships to address developing customer demand. Significant 
developments include the launch of Pulse by Prudential, our health 
and fitness app, and 18 new digital partnerships across the region.

Our productive distribution footprint across Asia is diversified 
across a substantial agency force and bank partner network. 
Recent developments include the renewal of our UOB partnerships 
for 15 years, and a new partnership with OVO in Indonesia.

Africa
We have also continued to expand our presence in Africa, one of 
the world’s most under penetrated markets where the population 
is forecast to grow by a billion by 2045. In July, we completed our 
acquisition of a 51 per cent stake in a leading life insurer, Group 
Beneficial, operating in West and Central Africa. We now operate 
in eight markets with a population of almost 400 million.

US
In the US, an extra 22 million individuals will need retirement 
solutions by 20351, and pension provision has been declining2. 
We see a growing demand for retirement products and an ongoing 
shift to fee‑based solutions. Jackson is evolving its product range 
to address these needs.

Africa
We continue to grow and develop our footprint through our 
agency network and bancassurance partners. We are harnessing 
technology to improve customer service, innovate in distribution 
and build a business which is scalable.

US
We have invested in a single technology platform to deliver one 
of the most efficient and scalable operating platforms across 
the industry. Jackson is the clear leader in each variable annuity 
distribution channel3, and is well positioned to further enhance 
its market‑leading annuity position in the brokerage market.

Our product innovation and distribution strategies will enable 
us to capture the industry trends towards advisory‑based 
distribution models.

Operating with discipline

Risk management and disciplined allocation of capital underpin our activities

The Group has a proven track record of disciplined capital allocation. 
Our governance, processes and controls enable us to deal with 
uncertainty effectively, which is critical to the achievement of our 
strategy. Our Group Risk Framework and risk appetite allow us to 
control our risk exposure successfully throughout the year. 

   Read more in the Group Chief Risk and Compliance Officer’s 
report on page 51.

Notes
1  United Nations, Department of Economic and Social Affairs, Population Division (2019). 
World Population Prospects 2019, Online Edition. Rev. 1. Population aged 65 and over as 
at 2019 versus 2035.

2  US Department of Labor, ‘Private Pension Plan Bulletin Historical Tables and Graphs 

1975 – 2017’, September 2019.

3  ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is 

proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, 
complete, or timely. Neither Morningstar nor its content providers are responsible for any 
damages or losses arising from any use of this information. Past performance is no 
guarantee of future results. Morningstar www.AnnuityIntel.com Total sales by company 
and channel 3Q YTD 2019. Jackson ranks #1 out of 25 companies in the Independent 
NASD channel, #1 out of 19 companies in the Bank channel, #1 out of 15 companies in the 
Wirehouse channel, and #3 out of 19 companies in the Regional Firms channel.

14

Prudential plc Annual Report 2019 

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… creating high-quality resilient outcomes

… for our stakeholders.

>$29 billion

Customer claims incurred +10%8 on 2018

$5,310m

Adjusted operating profit1,4 +20%3 on 2018

$4,405m

New business profit1,2 ‑6%3 on 2018

$9.5bn

LCSM shareholder surplus5

2,103¢

EEV per share6

46.26¢

Full-year ordinary dividend per share
The Group’s 2020 dividend will be determined 
under the Group’s dividend policy from a 2019 
base of 36.84¢7

   The Group has a number of key performance 
indicators internally to measure financial 
performance. Read more on page 16.

Notes
1  From continuing operations.
2  New business profit, on a post‑tax basis, on business sold in the period, 

calculated in accordance with EEV principles.
3  Growth rates on a constant exchange rate basis.
4  Adjusted IFRS operating profit based on longer‑term investment returns. 
This alternative performance measure is reconciled to IFRS profit for the 
period in note B1.1 of the IFRS financial statements.

5  Surplus over Group minimum capital requirement and estimated before 
allowing for second interim ordinary dividend. Shareholder business 
excludes the available capital and minimum capital requirement of 
participating business in Hong Kong, Singapore and Malaysia. Further 
information on the basis of calculation of the LCSM measure is contained 
in note I(i) of the Additional unaudited financial information.
6  EEV shareholders’ funds at 31 December 2019 are not directly 

comparable to Group shareholders’ funds reported at 31 December 
2018, as the prior year balance included shareholders’ funds of 
M&G plc which, following demerger, are not part of the Group 
as at 31 December 2019. The reported 31 December 2018 EEV 
shareholders’ funds were 2,445 cents.

7  The Group’s dividend policy will be determined from a 2019 US dollar 
base of 36.84 cents per share, representing the full‑year ordinary 
interim dividend for 2019 of 46.26 cents less the contribution 
of the discontinued M&G plc business (9.42 cents).

8  Growth rates on an actual exchange rate basis.

Customers 
We provide financial security and wealth creation by providing 
the right products through appropriate distribution. In the light 
of technological advances and evolving customer needs, 
we actively embrace the latest technology and embed digital 
capabilities in our business.

  Read more on pages 18 to 33, 73, 76 and 77

Investors 
We aim to build long‑term shareholder value, exhibited in growing 
dividends and share price performance.

  Read more on pages 16 to 87

Government and regulators 
We monitor governmental, legislative and regulatory activity in the 
markets in which we operate, and meet periodically with government 
and regulator representatives, to help us understand their objectives, 
priorities and concerns, and how they affect or shape our business.

  Read more on page 74

Employees 
We provide an inclusive working environment in which we 
develop our talent, reward great performance, protect our people 
and value our differences, and we believe that such an environment 
is essential to enabling us to deliver our strategy.

  Read more on pages 74, 81 and 82

Communities 
We support communities where we operate, through investment in 
business and infrastructure, tax revenues and community support 
activities. Responsible and ethical behaviour are embedded in our 
business and flow into every part of what we do, from our financial 
performance and tax practices to the way we fight financial crime 
and deal with our suppliers. We take an active approach in helping 
tackle environmental and social challenges and recognise that we 
are responsible for understanding our impact on the environment 
and doing what we can to minimise any damage.

  Read more on pages 86 and 87

Sustainability 
All of our stakeholders require us to undertake the actions to build 
a sustainable business, which we do through our products and the 
development of our capabilities. Responsible investment is a key 
component of sustainability. We take an inclusive approach to 
responsible investments, seeking to integrate environmental, social 
and governance  considerations into our investment processes and 
stewardship activities through ownership practices and 
engagement with investee companies.

  Read more on pages 75, 77 to 80 and 84 to 86

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOUR PERFORMANCE

Measuring our performance

To create sustainable economic value for our 
shareholders we focus on delivering growth 
and cash while maintaining appropriate capital.

Profit, cash and capital1
Prudential takes a balanced approach to performance management across IFRS, EEV and cash. We aim to demonstrate how we generate 
profit under different accounting bases, reflecting the returns we generate on capital invested, and the cash generation of our business.

Adjusted IFRS operating profit based 
on longer-term investment returns 
(adjusted operating profit)2 $m 
The Group’s business involves entering 
into long‑term contracts with customers, 
and hence the Group manages its associated 
assets and liabilities over a longer‑term time 
horizon. This enables the Group to manage 
a degree of short‑term market volatility. 
Therefore, adjusted operating profit based 
on longer‑term investment returns gives a more 
relevant measure of the performance of the 
business. Other distorting items are excluded 
from adjusted operating profit to allow more 
relevant period‑on‑period comparisons of the 
trading operations of the Group, eg the effects 
of corporate transactions are excluded.

EEV new business profit3 $m 
Life insurance products are, by their nature, 
long term and generate profit over a number 
of years. Embedded value reporting provides 
investors with a measure of the future profit 
streams of the Group. EEV new business 
profit reflects the value of future profit 
streams which are not fully captured in 
the year of sale under IFRS reporting.

Group adjusted operating profit in 2019 is 
20 per cent higher on a constant and actual 
exchange rate basis compared with 2018. 
Adjusted operating profit from Asia life and 
asset management operations was up 
14 per cent on a constant exchange rate basis 
(13 per cent on an actual exchange rate basis). 
In the US, adjusted operating profit was up 
20 per cent reflecting a lower market related 
deferred acquisition cost amortisation charge.

EEV new business profit in 2019 decreased by 
6 per cent on a constant and actual exchange 
rate basis compared with 2018. New business 
profit generated by our Asian business was 
up 2 per cent on a constant exchange rate 
basis, with a 29 per cent increase from Asian 
businesses excluding Hong Kong. Hong 
Kong fell by 12 per cent broadly in line with 
the fall in APE sales given the decline in 
mainland China visitors in the second half of 
the year. US new business profit decreased 
by 28 per cent, with an increase in sales being 
more than offset  by a fall in interest rates and 
the planned diversification of product mix.

EEV operating profit3 $m 
EEV operating profit is provided as an 
additional measure of profitability. This 
measure includes EEV new business profit, 
the change in the value of the Group’s 
long‑term in‑force business, and profit from 
our asset management and other businesses. 
As with IFRS, EEV operating profit reflects 
the underlying results based on longer‑term 
investment returns.

Group EEV operating profit in 2019 
decreased by 12 per cent on a constant 
exchange rate basis (12 per cent on an actual 
exchange rate basis) compared with 2018. 
In addition to the decrease in new business 
profit described above, in force profit was 
lower due, in part, to falling interest rates. 

6,445

2,036

4,409

2018

5,177

470

+20%*

5,310

2019

–6%*

4,707

4,405

2018

10,098

2,232

2019

–12%*

7,866

6,905

2018

2019

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Operating free surplus 
generation4 $m  
Free surplus generation is used to measure 
the internal cash generation of our business 
units. For insurance operations, it represents 
amounts maturing from the in‑force business 
during the period, less investment in new 
business and excludes other non‑operating 
items. For asset management, it equates to 
post‑tax operating profit for the year.

Operating free surplus from continuing 
operations was $2,861 million in the year. 
This comprises $4,958 million generated from 
the in‑force business and asset management, 
up 12 per cent, before allowing for 
$(903) million of US EEV hedge modelling 
enhancements, new business strain of 
$(1,158) million, up 22 per cent following the 
planned diversification of sales in the US 
towards higher strain fixed index and fixed 
annuities, and restructuring costs of 
$(36) million.

Business unit remittances5 $m  
Remittances measure the cash transferred 
from business units to the Group. Cash flows 
across the Group reflect our aim of achieving 
a balance between ensuring sufficient net 
remittances from business units to cover 
the dividend (after corporate costs) and the 
use of cash for reinvestment in profitable 
opportunities available to the Group.

Cash remitted to the Group from continuing 
operations in 2019 amounted to 
$1,465 million, including $950 million from 
Asia (up 4 per cent) and $509 from the US 
(up 13 per cent). During 2019, the Group’s 
holding company cash flows were managed 
in sterling and significant remittances were 
hedged. If local currency remittances in Asia 
had been translated directly into US dollars 
then the growth rate in Asia remittances 
would have been 8 per cent. The dividend 
paid by Jackson was $525 million (2018: 
$450 million).

Group local capital summation 
method6 $bn
Following the demerger of M&G plc from 
Prudential plc, the Hong Kong Insurance 
Authority (IA) has assumed the role of the 
Group‑wide supervisor for the Prudential 
Group. The Group is no longer subject to 
Solvency II capital requirements and 
currently applies the local capital summation 
method (LCSM) that has been agreed with 
the Hong Kong IA to determine Group 
regulatory capital requirements (both 
minimum and prescribed levels).

The Group’s available capital, as recorded on 
a LCSM basis, covers the Group’s minimum 
capital requirement over three times. In 2019, 
capital generation from the in‑force business 
has been used to invest in new business, 
pay the external dividend and invest in new 
bancassurance agreements and a new Thai 
asset manager. After these impacts and 
market movements, LCSM surplus fell slightly 
from $9.7 billion at 31 December 2018 to 
$9.5 billion at 31 December 2019.

Key

  Continuing
  Discontinued
  Continuing

*Growth rates relate to continuing operations.

5,404

1,994

3,410

2018

2,259

842

−16%*

2,861

2019

+3%*

1,417

1,465

2018

2019

9.7

9.5

356%

309%

2018

2019

Notes
1  The comparative results shown above have been prepared using an actual exchange rate 
(AER) basis except where otherwise stated. Comparative results on a constant exchange 
rate (CER) basis are also shown in financial tables in the Chief Financial Officer’s report 
on our 2019 financial performance. Growth rates for 2018 to 2019 are on an AER basis.
2  Adjusted operating profit is management’s primary measure of profitability and provides 
an underlying operating result based on longer‑term investment returns and excludes 
non‑operating items. This alternative performance measure is reconciled to IFRS profit 
for the year in note B1.1 of the IFRS financial statements. 

3  The EEV basis results have been prepared in accordance with EEV principles discussed 

in note 1 of the EEV basis results. See note II of Additional unaudited financial information 
for definition and reconciliation to IFRS balances.

4  For insurance operations, operating free surplus generated represents amounts maturing 
from the in‑force business during the period less investment in new business and excludes 
non‑operating items. For asset management businesses, it equates to post‑tax operating 

profit for the period. Restructuring costs are presented separately from the operating 
business unit amount. Further information is set out in note 11 of the EEV basis results.

5  Cash remitted to the Group forms part of the net cash flows of the holding company. 

A full holding company cash flow is set out in note I(iii) of the Additional unaudited financial 
information. This differs from the IFRS consolidated statement of cash flows which 
includes all cash flows relating to both policyholders’ and shareholders’ funds. The holding 
company cash flow is therefore a more meaningful indicator of the Group’s central liquidity.

6  Surplus over Group minimum capital requirement and estimated before allowing for 

second interim ordinary dividend. Shareholder business excludes the available capital 
and minimum capital requirement of participating business in Hong Kong, Singapore and 
Malaysia. 2018 surplus excludes M&G plc and includes $3.7 billion of subordinated debt 
issued by Prudential plc that was transferred to M&G plc on 18 October 2019. Further 
information on the basis of calculation of the LCSM measure is contained in note I(i) of the 
Additional unaudited financial information.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOUR BUSINESSES

Asia

Continued progress 
towards our 
strategic priorities.

2019 performance highlights

 — Continued strong performance in key earnings and 

value metrics: adjusted operating profit up 14 per cent1 and 
European Embedded Value up 23 per cent2 to $39,235 million

 — We expanded our presence in China with a new branch 

in Shaanxi, the addition of seven cities and a strong start to 
our wholly owned private fund manager

 — We renewed our successful regional strategic bancassurance 
alliance with United Overseas Bank Limited (UOB) to 2034 
and expanded its coverage

 — We secured one of a few 100 per cent licences in Myanmar, 

our 13th life market in Asia

 — Eastspring total funds under management grew 

to $241 billion, up 25 per cent2

 — We developed over 160 products in 2019, contributing 

16 per cent of life new business profit

 — Our digital health SuperApp, branded Pulse by Prudential, 
is live in eight markets and over one million people have 
downloaded the app

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Asia

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Our business
Our business model is underpinned by 
the breadth and quality of our operations 
in the life insurance and asset management 
sectors. We have an outstanding 
reputation with customers and regulators 
alike and we operate in markets with 
compelling structural drivers that support 
sustained future growth. We have a 
top-three position in nine insurance 
markets in the region and have built an 
Asian asset management business with 
one of the largest regional market 
footprints. This diversity, combined with 
our continued focus on customer outcomes 
and profitability, has provided protection 
from cyclical headwinds.

We have made significant investments 
during 2019 to strengthen further and 
grow our Asia business. We renewed 
our successful regional bancassurance 
partnership with UOB until the end of 
2034 and expanded its coverage to include 
Vietnam as well as UOB’s digital bank, 
TMRW. We extended our life insurance 
footprint to Myanmar, our 13th life market, 
and acquired a controlling stake in 
Thanachart Fund which makes us the 
fourth largest mutual fund manager in the 
attractive Thailand market with a 
12 per cent market share. To date, over 
one million people have downloaded the 
‘Pulse by Prudential’ app since its launch. 
Our focus on growing our presence in 
China saw our reach expand to a further 
seven cities, bringing our footprint to 
94 cities, while our wholly owned private 
fund manager established in Shanghai 
in December 2018 has secured over 
one billion Yuan in its first year of operation.

We are able to translate these hallmarks 
of our business into financial success, 
with diversified growth in 2019 maintaining 
our strong track record of high-quality 
performance. We achieved a 14 per cent1 
increase in adjusted operating profit, with 
eight markets growing at a double-digit 
rate. This is supported by a 12 per cent1 
expansion in renewal premiums3, 
which reflects the long-term nature of 
our insurance business, and a 25 per cent2 
increase in funds under management at 
Eastspring helped by strong third party 
net-inflows of $8.9 billion4. We also 
delivered 29 per cent1 growth in new 
business profit outside Hong Kong, with 
eight markets expanding at a double-digit 
rate, which underpinned a 23 per cent2 
increase in European Embedded Value 
to $39,235 million.

prudentialplc.com 

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OUR BUSINESSES  
CONTINUED

Market opportunities
We seek to enhance the health and wealth 
of consumers in Asia by providing life 
insurance and asset management solutions 
to address their protection and savings 
needs at all ages. The industry remains 
in the early stages of development, 
as characterised by the low penetration 
rates across the region for both insurance 
and asset management, and low levels 
of financial inclusion. In particular, most of 
our markets are approaching the level of 
per capita annual income when demand 
increases sharply. As a consequence, Asia 
is predicted to contribute about two-thirds 
of the global life insurance growth in the 
next 10 years5 and achieve a share of 
42 per cent of the global insurance market 
by 2029 compared with just 32 per cent 
currently6. The Asia Pacific asset and 
wealth management industry is also 
expected to add about $13 trillion of 
assets under management between 2020 
and 20257.

There are many structural drivers 
supporting the significant growth 
potential in Asia. The health protection 
gap, estimated at $1.8 trillion8, is already 
substantial as consumers in Asia are 
under-insured and social safety nets 
remain limited. Meanwhile, medium-term 
economic growth prospects are superior 
to those of developed markets in the west, 
with continued income growth and rising 
wealth levels expected to raise the 
awareness of, and demand for, protection 
and wealth management solutions. 
Similarly, demographic trends are also 
favourable, as youthful emerging markets 
with growing working-age populations 
remain a core source of demand for 
traditional protection and savings products 
and more mature markets with ageing 
populations create demand for retirement 
and wealth management solutions.

While these secular trends offer attractive 
prospects, we remain vigilant and focused 
in our execution. We have carefully 
managed our businesses through a range 
of unforeseen external events during 2019, 
including heightened capital market 
volatility arising from trade tensions 
between the US and China, a slowdown 
in the growth of the Chinese economy, 
suppressed yields on US dollar and other 
Asian currency fixed-income instruments, 
and social unrest in Hong Kong that led 
to a notable decline in mainland China 
visitor arrivals. 

We have also embraced the opportunities 
brought about by government initiatives. 
Our widening product offerings and new 
partnerships support many Asian 
regulators’ vision to provide greater 
financial inclusion and promote the health 
and wellbeing of the people. For example, 
in Hong Kong we have seen strong demand 
for our annuity and medical reimbursement 
products that are eligible for tax incentives 
that were newly introduced by the 
government. We also successfully 
refreshed products of our Malaysia 
conventional business to comply with the 
new regulations on minimum allocation 
rate. In addition, our expertise in economic 
capital reporting, protection-focused 
business mix and conservative balance 
sheet position us well for the migration to 
risk-based solvency frameworks across 
the region. 

Strategic priorities
We run our business with a focus on 
customers, quality growth and profitability. 
We favour health and protection products 
due to their resilience to market cycles 
and healthy margins. Collectively, such 
products produced 67 per cent of our new 
business profit in 2019 and contributed to 
our high mix of regular premiums, which 
comprised 93 per cent of our APE sales 
in 2019 and 99 per cent of our life 
weighted premium income9. This results 
in 86 per cent10 of our life IFRS operating 
income (excluding other income) arising 
from insurance margin and fee income, 
which in turn supports stable profit 
progression across market cycles and 
strong returns on equity.

This performance also reflects the 
disciplined execution of our four strategic 
priorities, which align with the evolving 
sources of demand across the region 
and help position our business for 
continued growth.

Diversification
Adjusted operating profit 
by region
Full year 2019

$3,276m

+14%

11

1

10

9

8

7

6

5

2

4

3

Market
1 Hong Kong
Indonesia
2
Singapore
3
4
Eastspring
5 Malaysia
6 Vietnam
7 China
Thailand
8
9
Taiwan
10 Philippines
11 Others

Adjusted
operating
profit
$734m
$540m
$493m
$283m
$276m
$237m
$219m
$170m
$74m
$73m
$177m

Share 
of total 

Asia Growth
+24%
23%
−3%
17%
+14%
15%
+18%
9%
+10%
8%
+20%
7%
+20%
7%
+8%
5%
+10%
2%
+26%
2%
+30%
5%

Growth rate vs 2018 constant exchange rates

First, we seek to enhance the core 
of our existing business and made 
excellent progress in this regard in 2019. 
Significantly, our sales in Indonesia grew 
23 per cent1 in the full year and this growth 
accelerated to 41 per cent1 in the second 
half from 4 per cent1 in the first half, 
following a substantial reform of our 
agency channel and new product 
launches. We made successful business 
mix improvements in the Philippines by 
shifting towards higher-margin health and 
protection products, which resulted in a 
5 percentage point increase in APE sales 
mix11 for these products and supported the 
more than doubling of new business profit. 
On the distribution side, we have extended 
our exclusive partnership with UOB until 
the end of 2034 with an expanded scope 
to include Vietnam and UOB’s digital bank, 
TMRW, and have established an exclusive 
20-year partnership with SeAbank who 
have 1.2 million retail customers and almost 
170 branches in Vietnam.

20

Prudential plc Annual Report 2019 

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Secondly, we aim to create ‘best-in-class’ 
health capabilities. This is being delivered 
by enhancing customer access to 
healthcare products and services. Through 
our digital health SuperApp branded Pulse 
by Prudential, which is live in 8 markets, 
we collaborate with various digital partners 
and use artificial intelligence technology 
to offer users a wide range of affordable 
and easy-to-access consumer services 
such as health assessments, risk factor 
identification, triage, telemedicine, 
wellness and digital payment. Meanwhile, 
we have launched new protection products 
to meet the evolving needs of our 
customers, including two certified VHIS 
plans in Hong Kong and PRUCritical 
Benefit 88, our first standalone critical 
illness product in Indonesia. In 2019, 
we increased our new business profit 
from health and protection products by 
23 per cent in Asia ex-Hong Kong, as we 
expanded our APE sales of such products 
in seven markets with notable success in 
India, where such sales saw 50 per cent 
underlying growth12.

Thirdly, we plan to accelerate growth 
in Eastspring by expanding its product 
and distribution capabilities. We have 
continued to develop new solutions, 
including our first fund offerings in China 
and Thailand as well as fixed maturity plans 
in Taiwan, Singapore, Malaysia and India. 
We maintained our strong investment 
performance with 60 per cent of retail and 
institutional funds outperforming over the 
past year, collectively helping to attract 
strong net flows from third parties. This in 
turn raised our funds under management 
by 25 per cent2 to $241.1 billion. Further 
streamlining of our front and middle-office 
operations was delivered in 2019, following 
the completion of BlackRock’s Aladdin 
system implementation across 10 markets. 
Meanwhile, our disciplined focus on costs 
has led to further improvement in the 
cost-income ratio, which fell three 
percentage points to 52 per cent in 2019, 
and contributed to the 18 per cent growth 
in adjusted operating profit for the year to 
$283 million. Following our acquisition of 
majority stakes in Thanachart Fund and 
TMB Asset Management, Eastspring is 
now Thailand’s fourth largest mutual 
fund manager, with a market share of 
12 per cent13 and combined assets under 
management of $22 billion4.

Finally, we continue to expand our presence 
in China across both the insurance and 
asset management sectors. We recently 
established a new branch in Shaanxi, our 
20th in the country, and have added seven 
cities and 14 sales services offices in 2019, 
extending our reach to 94 cities and 229 
sales offices. Our current presence gives 
us access to 77 per cent of China’s 
population14 and 83 per cent of the 
insurance market15. Coupled with our 
continued strong focus on execution, 
our geographic expansion has helped us 
achieve strong NBP growth of 38 per cent, 
with strong double-digit growth across 
both the agency and bancassurance 
channels. Our life joint venture also recently 
received regulatory approval to establish its 
own asset management company, which 
will further strengthen our capabilities 
in savings and retirement products. 
Furthermore, our wholly owned private 
fund manager established in Shanghai 
in December 2018 has secured over 
one billion Yuan in its first year of operation.

Customers
We believe that excellent customer service 
has been key to our strong reputation and 
leading pan-Asia franchise. During 2019, 
we added a further 1.4 million new life 
customers18, bringing the total to over 
15 million life customers, of which about 
one-third are our health customers. 
Customer loyalty is high, as reflected 
by our strong retention ratio which has 
consistently remained in excess of 
90 per cent. The satisfaction and trust 
our customers have in our business also 
translates into a high proportion of repeat 
sales, which comprised 45 per cent of APE 
sales in 2019. The result of these dynamics 
is a portfolio of close to 25 million in-force 
policies, with each policyholder holding 
1.6 policies on average.

At Eastspring, the expansion in assets 
under management was driven by strong 
underlying growth of 26 per cent in 
external client funds, excluding the M&G 
related assets that were reclassified 
following the demerger. Overall external 
client funds reached $124.7 billion and 
contributed to 52 per cent of the total funds 
under management at the end of 2019.

Our customer centric health ecosystem, 
which empowers consumers to take 
control of their personal health and 
wellbeing in an affordable way any time 
and anywhere, has made a promising start. 
The number of individuals who have 
downloaded the Pulse by Prudential app 
has exceeded one million since launch in 
August 2019. Pulse will help us acquire and 
retain users at pace as we enhance its reach 
by expanding the scope of service and 
onboard new partners.

We continue to identify and target new 
customer groups and segments outside 
our traditional focus in the mass and 
affluent space in order to accelerate 
our future growth. We first expanded 
into the high net worth segment in 2018 
with Opus in Singapore, which provided 
a differentiated experience for our 
customers, including a dedicated service 
team, wealth planners and external experts 
covering trust and legal matters. APE sales 
in this segment delivered impressive 
growth of 46 per cent in 2019 to 
$76 million. Similarly, we also developed 
tailored offerings for SMEs, a segment 
that remains under-served and offers 
significant growth potential. This strategy 
is advanced through our all-inclusive 
platform, PRUworks, which provides a 
digitally-enabled HR solution for business 
owners and their employees, providing 
access to employee benefits and lifestyle 
programmes. In 2019, we achieved 
22 per cent growth in our employee 
benefits APE in Singapore17 and leveraged 
this experience to extend our coverage 
to Indonesia. We have also developed 
strategies to reach the digitally-savvy 
millennial segment through TMRW, 
UOB’s digital bank, and new partners 
such as OVO in Indonesia.

Products 
We offer a wide range of insurance 
products that are tailored to local market 
requirements and fast-changing individual 
needs, with 67 per cent of new business 
profit contributed by health and protection 
solutions and the rest by savings products 
that include participating, linked and other 
traditional products. The diversity and 
resilience of our business is supported 
by the continued enhancements we make 
to our product range, which include 
broadening coverage for new risks and 
adding innovative features. Indeed, last 
year 16 per cent of new business profit and 
55 per cent of external net inflows4 arose 
from the 166 products and 109 funds that 
were developed in 2019. 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOUR BUSINESSES  
CONTINUED

In Hong Kong, our new and innovative 
product offerings have contributed to 
the resilience of the domestic segment, 
which achieved 8 per cent APE sales 
growth in the full year. This growth 
accelerated to 12 per cent in the second 
half from 5 per cent in the first half despite 
the economic slowdown and social unrest. 
Our new qualified deferred annuity 
product was well received by customers 
in both the agency and bancassurance 
channels, and with sales of $162 million 
accounted for 11 per cent of our Hong 
Kong APE sales since its launch on 1 April 
2019. PruActive retirement marked our 
entry into the annuity market in Singapore, 
contributing 6 per cent to our Singapore 
APE sales since its launch in August. 
We also launched PRUHealth Cancer 
ReCover in Hong Kong, a first-in-market 
cancer protection plan tailored for 
cancer survivors and which also offers 
holistic homecare services to support 
in-home recovery.

The improvement of our Indonesia 
business, whose new business profit rose 
strongly by 39 per cent1 in 2019, was also 
helped by the broadening of our product 
offering. Following the success of our 
upgraded unit-linked product, PRUlink 
Generasi Baru, that was launched in late 
2018, we offered a number of new and 
refreshed products in 2019. To raise the 
productivity of our trainee agents we 
launched PRUCritical Benefit 88, our first 
standalone critical illness product, which 
accounted for around 10 per cent of the 
case count in this agent segment.  
Similarly, we refreshed our medical 
product, PRUprime Healthcare Plus, 
offering customers a simpler and faster 
process to upgrade health protection, 
and this was our best-selling product 
in Indonesia last year. We also plan to 
introduce new offerings to our critical 
illness and Shariah products, which 
we expect will help sustain the growth 
momentum in 2020.

We currently boast a number one position 
in agency APE sales in Hong Kong and have 
increased MDRT qualifiers by 35 per cent 
in our markets outside Hong Kong, 
reflecting our focus on agent recruitment, 
training and productivity across different 
markets. For example, in Indonesia, our 
segmented agency strategy is delivering 
positive early results and played a key role 
in driving APE sales growth in 2019, with 
the Elite segment growing APE sales by 
57 per cent to account for 25 per cent of 
total agency APE sales for the year.

Our partnerships also made exceptional 
progress last year. The bancassurance 
channel achieved APE sales growth of 
14 per cent1, with particularly strong 
performances in China JV and Vietnam 
and 24 per cent growth from UOB 
following the renewal of the strategic 
partnership at the beginning of the year. 
Meanwhile, we also extended our 
collaboration with new partners to widen 
our access to new customer segments, 
underlined by our new strategic 
partnership with OVO, the largest digital 
payment platform in Indonesia with access 
to 115 million devices. We anticipate that 
this partnership will significantly enhance 
our reach to digitally-savvy consumers in 
the country through the joint development 
of digital propositions that encompass 
health, wellness and wealth products. 
The experience will also help us in 
designing and managing distribution 
strategies in our existing markets as well as 
in targeting new or recent points of entry.

Distribution
We believe in a multi-channel strategy 
for our business which can adapt and 
respond flexibly depending on local market 
conditions. Our distribution network is 
one of the strongest and most diversified 
in the Asia region. We have over 600,000 
licensed tied agents across our life 
insurance markets, and this proprietary 
distribution channel is the core component 
of our success, comprising 83 per cent 
of our new business profit. We also have 
a leading bancassurance franchise that 
provides access to over 18,000 bank 
outlets through our strategic partnerships 
with multi-national banks and prominent 
domestic banks, which grew new business 
profit by 12 per cent in 2019. In recent 
years, we have also established 
non-traditional partnerships to broaden 
our reach further, with partners added 
in 2019 including Viettel, the largest 
telecommunications service provider 
in Vietnam. In total, we have more than 
300 life insurance and asset management 
distribution partnerships in Asia.

Our focus on the agency channel 
positions us well for sustainable growth, 
as customers continue to have a strong 
preference for face-to-face advice from 
a trusted financial adviser, especially 
regarding complex protection and wealth 
solutions. We have created a culture 
whereby agents aspire to attain 
membership of the Million Dollar Round 
Table (MDRT), an industry-recognised 
indicator of quality. We place great 
emphasis on agent professionalism and 
promote career progression by providing 
tailored training programmes that share 
experience and best practice across 
different markets. In addition, to further 
assist our agents during the sales process 
and enhance productivity we continually 
upgrade the tools at their disposal. 

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Prudential plc Annual Report 2019 

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New business profit by product
Full year 2019 %

4

1

3

2

1 Health and protection
2
Par
3 Non-par
Linked
4

67%
21%
5%
7%

New business profit by channel
Full year 2019 %

3

1

2

1 Agency
2 Bancassurance
3 Others

83%
15%
2%

Cambodia 
Life insurance
Market ranking19 
Population20 
Penetration6 

China
Life insurance
Market ranking19,21 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22 

Hong Kong
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22 

India24
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22 

Indonesia25
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8 
Eastspring
Funds under management22 

Japan
Eastspring
Funds under management22 

Korea
Eastspring
Funds under management22 

Laos
Life insurance
Market ranking19 
Population20 
Penetration6 

Malaysia26
Life insurance 
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22 

Philippines
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  

Singapore
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22 

Taiwan
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22  

Thailand
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22  

Vietnam
Life insurance
Market ranking19 
Population20 
Penetration6 
Average health protection  
gap per household8  
Eastspring
Funds under management22  

1st
32m
3.3%

$6,864

$11.8bn

3rd
108m
1.3%

$1,406

3rd
6m
6.2%

$13,776

$129.2bn

12th
24m
17.5%

$4,823

$8.0bn

8th
70m
3.6%

$287

$23.3bn

3rd
96m
1.6%

$1,251

$4.4bn

1st
16m
0.1%

4th
1.4bn
2.3%

$1,724

$7.8bn

2nd
7m
16.8%

$9,156

$5.0bn

2nd
1.4bn
2.7%

$1,382

$25.3bn

1st
271m
1.5%

$1,230

$5.6bn

$6.7bn

$12.2bn

Top 3
7m
0.0%

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Prudential plc Annual Report 2019 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOUR BUSINESSES  
CONTINUED

Digital
In the face of rapidly evolving customer 
needs and technological disruption, we 
actively embrace change and the latest 
technology. Our digital strategy is being 
executed in two waves. The first focuses 
on increasing automation and improving 
digital capabilities in our current business 
model for better customer experience 
leading to better business results. The 
second adds a new business model based 
on a customer centric digital ecosystem 
which is manifested in our SuperApp 
branded Pulse by Prudential.

First wave: Enhancing our current 
business model
In the first wave we are continually 
increasing the automation of our 
operations so as to improve both business 
efficiency and customer experience. For 
example, 83 per cent of all new business 
was submitted through e-point-of-sale 
technology in 2019, representing an 
increase of 11 percentage points year-on-
year, with the enhancement particularly 
pronounced in our bancassurance partners 
in Thailand, Taiwan and Malaysia. Our 
smart underwriting tool, which is now used 
in 64 per cent of all new sales, offers 
dynamic underwriting that streamlines the 
application process and communicates 
instant underwriting decisions to 
customers. We provide our rapidly 
growing digital-savvy customer-base with 
efficient and secure digital payment 
solutions, for example, through our recent 
partnership with Boost, a leading lifestyle 
e-wallet in Malaysia. We have established 
a strategic relationship with the global 
technology services company Tech 
Mahindra to leverage their scale and 
expertise in Cloud and Mobile to ensure 
faster deliveries across all markets.

At Eastspring, in addition to embedding 
BlackRock’s Aladdin system, we have 
also made other digital advancements, 
with our Malaysian entity winning the 
‘Fintech Innovation in Asset Management’ 
award in Asia Asset Management’s ‘2020 
Best-of-the-Best awards’. This reflected 
the continued enhancements to our online 
platform, myEastspring, which enables 
our clients to access, monitor and transact 
online and includes tools for our agents 
to help clients predict their future savings 
needs. We also launched a new digital 
facility that empowers members of the 
Employees Provident Fund to take control 
of their investments and make transactions 
at nearly zero cost. 

Prudential Corporation Asia automation rates trend

  New business e-submission
  Auto-underwriting

100%

80%

60%

40%

20%

0%

Dec-16

Dec-17

Dec-18

Dec-19

Second wave: Building an 
ecosystem-based business model
In the second wave, to aid the expansion of 
our role from providing protection to 
making customers healthier, we have 
added an ecosystem-based business 
model which is manifested in our Pulse by 
Prudential app. Built on the latest 
architecture, Pulse is scalable and is based 
on real data and artificial intelligence (AI) 
technology focusing on positive outcomes 
for customers and our businesses. This 
business model also uses a wide range of 
partnerships and the latest trends in health 
and wealth technology, allowing us to fulfil 
our strategic imperative to add prevention 
and postponement to our protection 
business. So far we have secured 18 
market-leading partners across an array of 
different elements. We believe this will 
help us to acquire users at pace and gain 
access to new data, whilst enabling our 
customers to enjoy a wide range of 
affordable healthcare and value-added 
services to help them live longer and 
healthier lives. Currently live in eight 
markets, Pulse will continuously improve as 
we roll out new functionalities, increase 
partnerships and learn from direct user 
feedback over time. 

The component of Pulse designed for 
the fast-growing small and medium 
enterprise (SME) segment in Asia is 
known as PruWorks. Following its 
launch in Singapore and Indonesia, we 
are now enhancing this further with a fully 
integrated, new administration system 
as well as direct connectivity to enhance 
customer experience for SMEs and their 
employees.

Corporate responsibilities
We have a large number of staff and agents 
across our life and asset management 
businesses across Asia, and an explicit 
inclusive approach to hiring and monitoring 
diversity. Progressively, we seek to ensure 
that mobility is not just seen as part of the 
opportunity provided to improve our 
individuals’ skills but is also a source of 
key competitive advantage as we take 
learnings from one operation and apply 
them in another. The change in the method 
of managing agents in Indonesia using 
techniques developed in Vietnam 
is a prime example of this.

24

Prudential plc Annual Report 2019 

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Highlights of key ecosystems partners

Ecosystem partners

Markets (to be) covered

Ecosystem elements

Regional

Malaysia

Indonesia

Regional

Regional

Hong Kong

Indonesia

Malaysia

Malaysia

Regional

Regional

Regional

Myanmar

Myanmar

Thailand

Vietnam

Thailand

Thailand

Health assessment, triage, AI symptom checker

Online consultation, telemedicine

Telemedicine

Telemedicine

Wellness, engagement and rewards

DNA testing

e-payment, alternative distribution channel

e-payment

Dengue alert

SME cloud computing

Data analytics and lead generation

UOB’s digital bank

Digital healthcare

Wellness, engagement and rewards

Digital service provider, Group business

Telecommunication and e-payment

Customers and behavioural data, alternative distribution

Telemedicine

We have long-standing and strong 
relationships with the regulators in the 
markets we operate in. This is built on a 
culture of compliance with the rules and 
our promotion of financial services in 
the context of public policy. To drive the 
insurance penetration rates in protection 
and savings products which are desired by 
governments and regulators in the region, 
we support the process of deepening 
capital markets, building robust regulatory 
and legal frameworks and enhancing 
financial literacy in the markets in which we 
operate, which in turn supports economic 

growth and stability. We see our 
investment appetite and risk management 
approach as contributing to the 
development and stability of the capital 
markets for the markets in which 
we operate. We actively engage with 
fellow market counterparties and 
governments to foster greater depth, 
transparency and liquidity of markets.

The responsible and sustainable 
management of our tax affairs also helps 
us to maintain constructive relations with 
our stakeholders and play a positive role 

in the economy. We take a long-term 
perspective and balance our responsibility 
to support our business strategy with 
our responsibility to the communities in 
which we operate, which need sustainable 
tax revenues. We understand the 
importance of paying the right amount 
of tax on time. We manage our tax affairs 
transparently and seek to build constructive 
relationships with tax authorities in all the 
countries in which we operate.

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CONTINUED

COVID-19 update
We continue to monitor closely the 
development of the coronavirus outbreak. 
Our priority is the health and wellbeing 
of our customers and staff during this 
challenging time. In China and Hong Kong, 
we were one of the first insurance 
companies to launch extra free protection 
and coverage against this disease. 
Similarly, in another eight Asian markets we 
are offering additional free hospital cash 
benefits and other lump sum benefits to 
customers diagnosed with this disease, 
alongside a series of measures and services 
to support affected customers in a timely 
manner, such as dedicated hotlines and 
simplified claims procedures. For our staff, 
we have put in place flexible work 
arrangements, for example on work hours 
and work location, as well as enhanced 
hygienic tools in the office.

While the coronavirus outbreak has slowed 
down economic activities in the year-to-
date and dampened our sales momentum 
in Hong Kong and China, we remain 
confident in the medium to long-term 
prospects of these economies and their 
respective insurance sectors. Our broad 
geographic spread across the region and 
the strength of our recurring premium 
business model lends considerable 
resilience to our earnings. We will continue 
to collaborate actively with the relevant 
governments and uphold our corporate 
and social responsibilities. This is 
exemplified by the recent donation of 
RMB15 million to support efforts in fighting 
against the disease by our joint ventures in 
China18. We will also continue to stand by 
our customers steadfastly and make them 
healthier with our ‘best-in-class’ health and 
protection capabilities.

Business outlook
Asia’s growth fundamentals and 
demographic trends remain robust and 
we expect will continue to support strong 
growth for the insurance and asset 
management industries in Asia.

We are well placed to capture these 
structural prospects given our market-
leading positions, focused strategic 
priorities, high-quality execution and 
expanding digital capabilities.

We have built a track record of consistent 
and resilient expansion across cycles over 
the past decades, and we are confident 
in continuing to replicate our past success 
and to make our customers in Asia healthier 
and wealthier in the years to come.

Nic Nicandrou
Chief Executive  
Prudential Corporation Asia

Notes
1 
2 
3  See note II of the Additional unaudited financial information for definition and reconciliation to 

Increase stated on a constant exchange rate basis.
Increase stated on an actual exchange rate basis.

IFRS balances.

4  Excludes Money Market Fund. 
5  Source: Allianz Global Insurance Market at a crossroads, May 2019. Global life insurance 

premium derived from total insurance premium.

6  Market penetration: Swiss Re (Sigma) – based on insurance premiums as a percentage of GDP 

in 2018 (estimated).

7  Source: PWC Asset & Wealth Management 2025 report.
8  Swiss Re Institute: The health protection gap in Asia, October 2018. Average gap per 

household is calculated as ‘total health protection gap divided by estimated number of 
households hospitalised under the mentioned gap range’. Report excludes Cambodia and 
Laos.

9  Weighted premium income comprises gross earned premiums at 100 per cent of renewal 

premiums, 100 per cent of first-year premiums and 10 per cent of single premiums.

10 Total insurance margin ($2,244 million) and fee income ($286 million) of $2,530 million divided 
by total life income excluding other income of $2,958 million (Comprised of total life income of 
$6,187 million less other income of $3,229 million). For discussion on the basis of preparation 
of the sources of earnings see note I(iv) of the Additional unaudited financial information.

11  APE sales mix refers to the proportion of total market APE sales accounted for by each 

product type.

12  Assuming no change in our shareholding.
13  Mutual fund market shares; mutual fund assets under management as at 31 December 2019.
14 Source: National Bureau of Statistics of China.
15  By life and health GWP in 2019.
16 Excluding India. 
17  Excluding broker channel.
18 RMB10 million by CPL and RMB5 million by Citic Pru FMC.
19 Based on full year 2019 or the latest information available. Sources include formal (eg 

competitors results release, local regulators and insurance association) and informal (industry 
exchange) market share data. Ranking based on new business (APE sales, weighted full year 
premium or full year premium depending on availability of data). Full year 2019 data is not yet 
available for Hong Kong; full year 2018 has been used instead.

20 United Nations, Department of Economic and Social Affairs, Population Division, World 

Population Prospects 2019 Revision.
21 Total joint venture/foreign players only.
22 Full year 2019 FUM reported based on the country where the funds are managed.
23 IFRS gross premiums earned for Asia segment.
24 Excludes Jiwasraya.
25 Includes Takaful sales and excludes Group business.

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Driving our business

Customers
In Asia, we focus our efforts on helping new and existing 
customers build better futures for themselves and their 
families, by helping to fill the savings and protection gap 
that exists in many markets in the region.

Products
We listen to our customers to help us understand their 
changing needs and tailor our design of product 
solutions and services.

Distribution
We are well-positioned in terms of the scale and 
diversity of our distribution to reach and serve our 
customers’ needs. At the core of our distribution 
model is face-to-face customer interaction that 
delivers high-quality, needs-based advice.

Investment for growth
Building on our strong track record, we are building 
for future growth by investing in new opportunities 
and capabilities.

Creating value and 
benefiting our stakeholders

+15m life customers

93%

of APE sales in regular premium

83% 

of all new business submitted through  
e-point-of-sale technology

+600,000 agents
Access to over 18,000 bank outlets

Now in 94 cities in China 
Launched over 160 insurance  
products and more than 100 funds
$241bn

Eastspring Investments’ total funds under management

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOUR BUSINESSES

United  States

2019 performance highlights

Providing America’s 
ageing population 
with financial strategies 
for their retirement 
through product 
innovation and 
developing market-
leading distribution 
capabilities.

 — Launches of Jackson’s RateProtector, a single premium, 

multi-year guarantee fixed annuity, as well as 
MarketProtector and MarketProtector Advisory fixed 
index annuity products, contributing to an 8 per cent 
increase in new business sales

 — Continued growth of advisory sales, with new business 
sales up 30 per cent as distribution models continue 
to evolve

 — Expanded advisory distribution footprint with 

Morgan Stanley, DPL Financial Partners, TD Ameritrade 
and RetireOne

 — Awarded ‘Contact Center World Class CX Certification’ 

and ‘Highest Customer Service for the Financial Industry’ 
awards by The Service Quality Measurement Group, Inc

 — Actively engaged with FinTech partners including 

Envestnet, MoneyGuidePro and eMoney

 — Adjusted operating profit up 20 per cent to $3,070 million 
and new business profit down 28 per cent to $883 million 

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United  States

The US is the world’s largest retirement 
savings market with approximately 
four million Americans reaching retirement 
age every year. This transition continues to 
trigger the unprecedented shift of trillions 
of dollars from savings accumulation to 
retirement income generation. 

However, these Americans face challenges 
in planning for life after work. For those 
nearing the end of their working careers, 
a financially secure retirement is at risk, 
due to insufficient accumulation of savings 
and the current combination of low yields 
and market volatility. Employer-based 
pensions are being withdrawn, and state 
and government plans are underfunded 
as the impact of increased administrative 
costs and lower interest rates continue to 
reduce the affordability of the post-war 
pensions model. Social security was 
never intended to be a primary retirement 
solution and today its long-term funding 
status is in question. 

Additionally, the life expectancy of an 
average retiree has significantly increased, 
lengthening the number of years for which 
retirement funding is needed.

To overcome these challenges, Americans 
need and demand retirement strategies 
that offer them the opportunity to grow 
and protect the value of their existing 
assets, as well as the ability to provide 
guaranteed income that will last 
throughout their extended lifetimes. 
Achieving this will reduce the gap many 
retirees face between income needed 
during retirement and the income they 
can generate from their retirement assets 
and social security. Reducing this gap is a 
public benefit as it helps reduce strain on 
supplemental government programmes 
for those in need.

Jackson believes that a retirement plan 
integrated with an income guarantee 
annuity will mitigate much of the risk of 
retirees running out of money during 
retirement. In response to this demand and 
the ongoing shift to fee-based solutions, 
Jackson has positioned itself with product 
innovation and distribution strategies to 
provide a wide spectrum of choice when 
selecting the retirement product that best 
fits customer needs. This will allow Jackson 
to enhance further our market-leading 
variable annuity position in the brokerage 
market, diversify in the fixed annuity and 
fixed index annuity space and grow in the 
advisory retirement solutions market. 
Jackson has demonstrated its ability to 
diversify during the year, growing the 
proportion of APE sales accounted for 
by fixed annuity, fixed index annuity 
and wholesale business to 34 per cent, 
from 19 per cent in the prior year.

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29

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OUR BUSINESSES  
CONTINUED

Customers and products
Through its distribution partners, Jackson 
provides products that offer Americans 
the retirement strategies they need, 
including variable, fixed and fixed index 
annuities. Each of these products offer a 
unique range of features tailored to meet 
the individual needs of the retiree as 
discussed below:

Variable annuity A Jackson variable 
annuity, with investment freedom, 
represents an attractive option for retirees 
and soon-to-be-retirees, providing both 
access to equity market appreciation 
and guaranteed lifetime income as an 
add-on benefit.

Fixed index annuity A Jackson fixed index 
annuity is a guaranteed product with limited 
market exposure but no direct equity 
ownership. It is designed to build wealth 
through a combination of a base crediting 
rate that is generally lower than a traditional 
fixed annuity crediting rate, but with the 
potential for additional upside, based 
upon the performance of the linked index. 
Jackson also provides access to guaranteed 
lifetime income as an add-on benefit.

Fixed annuity A Jackson fixed annuity is 
a guaranteed product designed to build 
wealth without market exposure, through 
a crediting rate that is likely to be superior 
to interest rates offered from banks or 
money market funds.

These products also offer tax deferral, 
allowing interest and earnings to grow 
tax-free until withdrawals are made.

Jackson has a proven track record in this 
market with its market-leading flagship 
product, Perspective II1. Jackson’s success 
has been built on its quick-to-market 
product innovation, as demonstrated by 
the development and launch of Elite Access, 
our investment-only variable annuity. 
Further demonstrating Jackson’s flexibility 
and manufacturing capabilities, and in 
response to the trend in financial services 
toward fee-based solutions, Jackson has 
launched Perspective Advisory II, Elite 
Access Advisory II and the innovative 
MarketProtector Advisory, the industry’s 
first fully-liquid advisory fixed index 
annuity, to serve advisers and distributors 
with a preference for advisory products.

In June 2019, Jackson launched 
RateProtector, a single premium, multi-year 
guarantee fixed annuity. RateProtector 
offers consumers the opportunity to 
protect and grow their assets through 
guaranteed interest rates that will not 
fluctuate during a select period, combined 
with the ability to defer taxes on any 
earnings until money is withdrawn.

Market reception for these products has 
been positive and these have contributed 
to the delivery of the organic diversification 
of Jackson sales in 2019, with new business 
APE sales up 8 per cent to $2,223 million 
(2018: $2,059 million). The planned 
transition to a more balanced portfolio has 
resulted in higher investment in new 
business in 2019 which over time is 
expected to enhance statutory capital and 
cash generation.

Jackson operates within a well-defined 
risk framework and takes into account  the 
expected cost of hedging when pricing 
its products. It aggregates financial risks 
across the company, obtains a unified view 
of its risk positions, and actively manages 
net risks through a hedging programme 
which aims to manage economic risk. Some 
accounting volatility is expected in periods 
of large market movements as was seen in 
2019, given the economic focus described 
above, and this has impacted IFRS 
profitability in the year, as further 
discussed in the Group Chief Financial 
Officer and Chief Operating Officer’s 
report. However, the benefits of Jackson’s 
hedging programme have been 
demonstrated in times of equity market 
decline, for example during the fourth 
quarter of 2018 and during the recent 
market turbulence. At the end of 2019 
Jackson’s surplus of available capital over 
required capital was $3,795 million after 
adopting the NAIC’s changes to its 
framework for variable annuities. This 
equates to a ratio of 366 per cent (2018: 
458 per cent using the previous NAIC 
framework). Jackson continues to monitor 
closely the recent changes in markets and 
take the appropriate actions through its 
dynamic hedging strategy. If these 
conditions persist management could take 
additional actions to assist in mitigating 
the impact.

Distribution 
Jackson distributes products in all 
50 states of the US and in the District 
of Columbia. Operations in the state of 
New York are conducted through a 
New York subsidiary. Jackson markets 
its retail products primarily through 
advice-based distribution channels, 
including independent agents, 
independent broker-dealer firms, regional 
broker-dealers, wirehouses and banks. 
For variable annuity sales, Jackson is the 
leader in the independent broker-dealer, 
bank and wirehouse channels2 and third 
in regional firms2.

Jackson’s distribution strength also sets 
us apart from our competitors. Our highly 
productive wholesaling force is the largest3 
in the annuity industry and is instrumental 
in supporting the independent advisers 
who help the growing pool of American 
retirees develop effective retirement 
strategies. Our wholesalers provide 
extensive training to thousands of advisers 
about the range of products and the 
investment strategies that are available to 
support their clients. Based on the latest 
available data, Jackson is the second most 
productive variable annuity wholesale 
distribution force in the US3.

In 2019, Jackson invested significant 
time and resources with fintech partners 
to help illustrate the benefits a lifetime 
income solution can provide within a 
comprehensive wealth management plan. 
This gives the financial adviser the 
necessary tools to customise according 
to the unique needs and goals of the client. 
Additionally, investment freedom within 
VA investment options allows the adviser 
to build a diversified portfolio that is 
customised to meet their clients’ individual 
priorities and preferences, rather than 
locking them into restrictive allocation 
models. Some of the fintech platforms 
where Jackson is actively engaged include 
eMoney, MoneyGuidePro and Envestnet.

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In 2019, Jackson announced distribution 
agreements with DPL Financial Partners 
(DPL), TD Ameritrade and RetireOne to 
provide our protected lifetime income 
solutions to independent registered 
investment advisers (RIAs). The 
collaboration expands Jackson’s 
distribution footprint and provides Jackson 
with access to new opportunities in the 
independent RIA channel. In addition to 
these new relationships, Jackson’s 
distribution partnership announced in late 
2018 with State Farm is targeted to roll out 
in the first quarter of 2020. These new 
partnerships show Jackson’s determination 
and progress on channel diversification.

Regulatory landscape
The regulatory outlook for the industry 
has improved since the passing of the 
Securities and Exchange Commission’s 
(SEC) Best Interest Regulation in June 
2019. This replaced proposed legislation 
known as the DOL Fiduciary Duty Rule. 
The SEC’s finalised rule creates a best 
interest standard of conduct for broker-
dealers and is designed to be ‘product 
agnostic’ meaning that it is not intended 
to give preference to or target any specific 
product. Instead, the rule enhances 
the diligence required when advising 
customers about suitable, albeit more 
complex, products such as variable 
annuities. The rule became effective 60 
days after being published in the Federal 
Register (12 July 2019) and includes a 
transition period until 30 June 2020. 

Despite lower interest rates, the life 
insurance industry saw increased total 
annuity sales as of the third quarter of 
2019, primarily due to a clearer regulatory 
environment and more aggressive 
product feature changes (ie withdrawal 
percentages) implemented by competitors. 
Higher industry sales of fixed annuities 
were offset slightly by lower variable 
annuity sales.

Regardless of the outcome of the SEC best 
interest standard, the regulatory disruption 
caused by the now rescinded DOL Rules 
has challenged the industry to review the 
ways in which investment advice is provided 
to American investors. Manufacturers will 
need to have the ability to provide product 
and system adaptations in order to support 
the success of various distribution partners 
in their delivery of the retirement strategies 
that investors need. Because of its strong 
distribution, leadership in the annuities 
market, best-in-class service and an 

efficient operation, we believe that Jackson 
is well positioned to take advantage of this 
opportunity.

In December 2019, the Setting Every 
Community Up for Retirement 
Enhancement Act (SECURE Act) was 
passed into law, bringing positive changes 
to the US retirement system. A significant 
change includes the portability of lifetime 
income products, permitting participants 
to preserve their lifetime income 
investments and avoid surrender charges 
and fees. Another provision of the Act 
clarifies the existing Employee Retirement 
Income Security Act safe harbour and 
removes ambiguity about the applicable 
fiduciary standard that currently acts as a 
roadblock to offering lifetime income 
benefit options under a defined 
contribution plan. Under this provision, 
for purposes of fulfilling their fiduciary duty 
to select an annuity provider, defined 
contribution plan fiduciaries may rely on 
representations from insurers regarding 
their status under state insurance laws. 
The enactment of these provisions, and 
the SECURE Act as a whole, are important 
steps in facilitating Americans’ ability to 
achieve financial freedom for life.

We believe that Jackson is well positioned 
to manage the impact of these regulatory 
changes and welcome the outcomes of the 
revised regulations.

At 31 December 2019, Jackson early 
adopted the new US regulatory regime 
enacted by the National Association of 
Insurance Commissioners in respect of 
variable annuities. The effect of this change 
is further discussed in the Group Chief 
Financial Officer and Chief Operating 
Officer’s report on the 2019 financial 
performance.

Corporate responsibility
As a provider of savings and protection 
products, stewardship is core to what we 
do. We recognise that to help our customers 
look to the future with confidence, we need 
to take a long-term view on a wide range 
of issues that affect our business and the 
communities in which we operate. To do 
this, we maintain a proactive dialogue with 
our stakeholders – customers, investors, 
employees, communities, regulators 
and governments – to ensure that we 
are managing these issues sustainably 
and delivering long-term value.

Jackson seeks to provide the best 
retirement solutions that we can, while 
striving to communicate information about 
those products in a fair and transparent 
way. In the US, Jackson continues to be 
a leader in shifting perspectives and 
simplifying the language around financial 
products. In 2018, Jackson led the creation 
of a groundbreaking, industry-wide 
coalition seeking to help mitigate America’s 
looming retirement crises, the Alliance 
for Lifetime Income. The Alliance is a 
tremendous leap forward in Jackson’s 
ongoing commitment to educating 
Americans about the importance of lifetime 
income in retirement planning.

At Jackson, we take an inclusive approach 
to responsible investment, seeking to 
integrate environmental, social and 
governance (ESG) considerations into 
our investment processes and stewardship 
activities through active ownership 
practices and engagement with investee 
companies. We also maintain the ability 
to exclude entities from our internal 
investment mandates, where their 
practices, policies or procedures conflict 
with our values, or where we see a need to 
explicitly recognise international consensus.

As a long-term investor, Jackson considers 
both financial and non-financial factors 
in our investment processes, decision-
making and ownership practices that 
may have a meaningful impact on our 
customers’ long-term investment 
outcomes. Similarly, as active asset owners 
of the capital we invest on behalf of our 
customers, we believe that due 
consideration of the various factors that 
can impact investment returns is part 
of our fiduciary duty to our customers.

Jackson also takes pride in helping 
the communities in which we operate, 
providing significant employment, 
tax revenues, charitable programmes and 
contributions, as well as the investment 
of general account assets, all of which 
provide valuable public services and build 
infrastructure for the benefit of the wider 
community and economy. 

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CONTINUED

Investment for growth 
We believe that a significant opportunity 
exists to reach even more American 
retirees and serve their needs with annuity 
products going forward. This is because 
there are trillions of dollars of adviser-
distributed assets across distribution 
platforms that have not historically been a 
focus for the business, such as the 
dual-registered investment adviser 
channel, which we can seek to access. The 
industry will need to remain flexible and 
cost-effective in making changes to 
product systems and processes. We 
continue to seek to understand and make 
the necessary adjustments to support the 
needs and demands of American retirees 
into the future.

Jackson is making significant investments 
in new technologies, which allows us to 
provide better service that will give our 
customers what they want, when they 
want it. These new technologies will also 
provide higher quality data so that our 
executives and staff across the business 
can make better informed decisions with 
regard to risk, and with how and where 
to invest.

Jackson’s competitive strengths are 
even more critical as we work towards 
diversification and growth, within a highly 
competitive insurance industry. The 
breadth and depth of our best-in-class 
distribution team, our agility and success in 
launching well designed customer-centric 
products, the continued success of our 
risk management and hedge programmes 
through many economic cycles, and our 
significant investment in technology 
platforms and award-winning customer 
service will provide Americans with the 
retirement strategies they so desperately 
need. Jackson’s discipline helps enable us 
to be positioned to potentially capture 
additional growth during times of transition 
into the future.

Michael Falcon
Chairman and  
Chief Executive Officer 
Jackson Holdings LLC

Notes
1  ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is 

proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, 
complete, or timely. Neither Morningstar nor its content providers are responsible for any 
damages or losses arising from any use of this information. Past performance is no guarantee 
of future results. Morningstar www.AnnuityIntel.com Total Sales by Contract 3Q YTD 2019. 
Jackson’s Perspective II for base states ranks #1 out of 927 VA contracts with reported sales 
to Morningstar’s quarterly sales survey as of 3Q YTD 2019.

2  ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is 

proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, 
complete, or timely. Neither Morningstar nor its content providers are responsible for any 
damages or losses arising from any use of this information. Past performance is no guarantee 
of future results. Morningstar www.AnnuityIntel.com Total sales by company and channel 
3Q YTD 2019. Jackson ranks #1 out of 25 companies in the Independent NASD channel, 
#1 out of 19 companies in the Bank channel, #1 out of 15 companies in the Wirehouse channel, 
and #3 out of 19 companies in the Regional Firms channel. 

3 

Independent research and Market Metrics, a Strategic Insight Business: U.S. Advisor Metrics 
2019, as of 30 September 2019.

4  LIMRA/Secure Retirement Institute, US Individual Annuity Participants Report 3Q YTD 2019.
5  2018 annual estimate. Annual estimates of the residential population by single year of age and 
sex for the United States: 1 April 2010 to 1 July 2018. U.S. Census Bureau, Population Division.

6  2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is 

proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, 
complete, or timely. Neither Morningstar nor its content providers are responsible for any 
damages or losses arising from any use of this information. Past performance is no guarantee 
of future results. Morningstar www.AnnuityIntel.com. Total Sales by Company & by Contract 
3Q YTD 2019. Jackson ranks #1 out of 677 VA contracts with reported sales in the 
Independent Channel in 3Q YTD 2019.
7  WealthManagement.com, FUSE research.
8  New advisers defined as producers who have not sold Jackson products since 2013.

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Driving our business

Creating value and 
benefiting our stakeholders

Customers
Many retirees or soon-to-be retirees face a reality of 
under-saving, having no guaranteed income source and 
the prospect of living longer than any prior generation. 
Jackson’s focus is to provide solutions to help address 
these concerns for the millions of Americans currently 
transitioning to and through retirement.

Average of 10,000 Americans retire per day5
Assisting four million customers 

with their financial needs

Products
Jackson’s products provide access to equity market 
growth, protection of principal, and a way of converting 
retirees’ savings into retirement income with a degree 
of certainty. With a long history of disciplined product 
design and prudent risk management, Jackson 
has earned and continues to earn trust from its 
key stakeholders.

#2 seller of individual annuities in the US4
Perspective II is the #1 selling variable annuity contract1
#1 selling variable annuity contract in the independent 

channel since 20036

Distribution
Jackson’s distribution teams set us apart from our 
competitors. Jackson’s annuity wholesaling force is the 
largest and one of the most productive in the industry, 
supporting thousands of advisers across multiple 
channels and distribution outlets.

Investment for growth
Jackson continues to invest in technology and innovative 
products to adapt efficiently and effectively to what 
our customers and regulatory environment require. 
Jackson launched an advisory version of our flagship 
product Perspective II, our innovative Elite Access 
product and our fixed index MarketProtector product 
to allow for penetration into untapped distribution.

Corporate responsibility
Jackson is committed to be a responsible partner 
with customers, employees, shareholders and 
the community.

Largest 

annuity wholesale distribution force in the US3

New partnerships with State Farm, Morgan Stanley, 

DPL financial partners, TD Ameritrade and RetireOne, 
adding significant distribution access

Ranked #2 overall in terms of Top Firms  

for Quality of Wholesalers7

Actively engaging with fintech partners Envestnet, eMoney 
and MoneyGuidePro

Approximately 24% of Jackson’s 2019 advisory annuity 

sales from new advisers8

Jackson Charitable Foundation reached more than 

1.75m students through partnership with Discovery 

Education, Junior Achievement USA and Ramsey Education, 
advancing financial education across the United States

1,840 associates 
volunteered 48,000+ hours in 2019

Through sponsorships, grants, matching gifts and volunteer 

support, Jackson provided $6.7m to charitable 

causes across the country

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Prudential plc Annual Report 2019 

33

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE

Maintaining focus on the  
execution of our strategy

 14%

increase in Asia adjusted operating profit1

$9.5bn

LCSM surplus6 over the Group 
minimum capital requirement 
(31 December 2018: $9.7bn)

Mark FitzPatrick
Group Chief Financial Officer  
and Chief Operating Officer

I am pleased to report that we maintained focus 
on the execution of our strategy alongside the 
successful completion of the demerger of M&G plc 
and that this has continued to deliver positive 
financial performance in 2019.

Growth has once again been led by our 
businesses in Asia, which reflects the 
benefits of our well positioned and 
broad-based portfolio, which has long 
focused on high quality, recurring premium 
business. In 2019, this saw our life 
businesses outside Hong Kong deliver 
overall new business profit growth of 
29 per cent1, and within this 10 markets 
increasing new business profit. While 
Hong Kong has seen a more challenging 
sales environment, the resilience of its 
business model is demonstrated by its 
24 per cent1 growth in adjusted operating 
profit, which contributed to the 14 per cent1 
increase in adjusted operating profit 
delivered by our overall Asia business.

Our US business took its first steps in the 
execution of its diversification strategy, 
broadened its presence across the US 
annuity market, delivered increased 
remittances to the Group, and early 
adopted the new National Association 
of Insurance Commissioners (NAIC) 
variable annuity framework. Jackson has 
successfully demonstrated its ability both 
to develop and distribute new products in 
order to diversify its product range. Over 

time, this will contribute to a more balanced 
mix of policyholder liabilities which 
will enhance statutory capital and cash 
generation. During 2019, this transition 
has resulted in a higher investment in 
new business than has been seen in 
recent periods, with resulting impacts 
on capital generation and new business 
profit margins.  

During 2019 our head office activities 
incurred costs of $(460) million (2018: 
$(490) million2). The demerger of M&G plc 
provides us with the opportunity to optimise 
the operating model of our Group functions 
across our head office. We are well 
advanced in developing and executing 
plans that will deliver total savings of circa 
$180 million3, targeting a revised run-rate 
from 1 January 20214. We have already 
completed the first phase of this work which 
will deliver annual savings5 of $55 million.

Over 2019, global equity markets rallied 
strongly. In the US markets the S&P 500 
index increased by 29 per cent over 
2019, but government bond yields were 
generally lower over the period, with the 
US 10 year government bond yield ending 
the year at 1.9 per cent (2018: 2.7 per cent). 

The impact of these market effects are 
most prevalent in the US’s results. 
Jackson’s hedging programme is focused 
on managing the economic risks in the 
business and protecting statutory solvency 
in the circumstance of large market 
movements. The hedging programme 
does not aim to hedge IFRS accounting 
results and this can lead to volatility in the 
IFRS results in periods of significant market 
movements, as was seen in 2019. In 
particular, while higher equity markets are 
expected to deliver ultimately increased 
profitability to Jackson through higher 
future fee income, this benefit is not fully 
recognised in the IFRS results in the short 
term. This contrasts with the impact on the 
derivatives within the hedging programme, 
designed to provide protection when 
markets fall, where rises in equity markets 
lead to short term losses in the IFRS results. 
These losses have been exacerbated by 
falling interest rates in 2019, which have led 
to an increase in the IFRS liabilities for the 
guarantees attaching to variable annuities 
given lower discount rates and lower 
assumed future separate account growth, 
impacting directly on the income 
statement. Collectively, these factors led 

34

Prudential plc Annual Report 2019 

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to an IFRS loss after tax of $(380) million for 
the US over 2019. The interest rate falls 
have also led to gains on bonds, which are 
recognised outside the income statement, 
and US’s IFRS segment shareholders’ 
equity increased from $7,163 million at the 
end of 2018 to $8,929 million at the end 
of 2019. EEV has fewer mismatches 
(for example future fee income is fully 
recognised), but fluctuations in interest 
rates also impact Jackson’s EEV results, 
since EEV discount rates and future 
expectations of separate account returns 
are based on current risk free rates. While 
our IFRS and EEV results in 2019 may 
therefore show a degree of volatility, we 
believe that the Jackson business is 
positioned to enhance its capital and cash 
generation over time as it continues to 
focus on the US retirement market 
opportunity. 

We have presented the results of the UK 
and Europe operations (referred to as 
M&G plc) as discontinued operations 
and have adopted the US dollar as our 
presentational currency which better 
reflects the economic footprint of our 
business going forward. Prior year 
comparatives have been restated, 
as required under IFRS. However 
comparative balance sheet amounts are 
not restated for discontinued operations. 
As in previous years, growth rates referred 
to are on a constant exchange rate basis 
unless otherwise stated. 

Adjusted operating profit before 
tax from continuing operations
Prudential’s adjusted IFRS operating profit 
based on longer-term investment returns 
(adjusted operating profit) from continuing 
operations increased in 2019 to 
$5,310 million (20 per cent higher on a 
constant and actual exchange rate basis). 
This increase was driven by higher earnings 
from our Asia life insurance and asset 
management operations, and by lower 
market-related DAC amortisation charges 
compared with the prior year in the US, as a 
result of the strong equity market returns 
achieved in 2019. Other income and 
expenditure generated a net cost of 
$(926) million (2018: $(967) million2). Of 
this, $(179) million related to interest costs in 
respect of debt instruments transferred to 
M&G plc on 18 October 2019 prior to 
completion of the demerger. Excluding 
these amounts, interest costs for the 
continuing Group would have been 
$(337) million, lower than 2018 following the 
redemption of debt in the first half of 2019. 

IFRS basis non-operating items 
from continuing operations
Non-operating items in 2019 consist of 
short-term fluctuations in investment 
returns on shareholder-backed business of 
negative $(3,203) million (2018: negative 
$(791) million on an actual exchange rate 
basis), the net loss arising from corporate 
transactions undertaken in the year of 
negative $(142) million (2018: negative 
$(107) million on an actual exchange rate 
basis), and the amortisation of acquisition 
accounting adjustments of negative 
$(43) million (2018: negative $(61) million 
on an actual exchange rate basis) arising 
mainly from the REALIC business acquired 
by Jackson in 2012.

The $(142) million cost of corporate 
transactions reflects gains from disposals 
offset by the $(407) million incurred in the 
year in connection with the demerger of 
M&G plc from Prudential plc, in line with our 
previous guidance. Further information is set 
out in note D1.1 to the financial statements.

Negative short-term fluctuations comprised 
positive $657 million (2018: negative 
$(684) million on an actual exchange rate 
basis) for Asia, negative $(3,757) million 
(2018: negative $(134) million) in the US 
and negative $(103) million (2018: positive 
$27 million on an actual exchange rate basis) 
in other operations.

Falling interest rates in certain parts of Asia 
led to unrealised bond gains in the year 
which are accounted for within non-
operating profit. In the US, rising equity 
markets and falling interest rates have 
resulted in negative effects primarily 
reflecting net losses on hedge instruments 
used to manage the market exposure of 
Jackson’s products and by changes in the 
IFRS value for these features. Further 
discussion of Jackson’s non-operating items 
is contained in the US section of this report.

After allowing for non-operating items, the 
total profit after tax from continuing items 
was $1,953 million (2018: $2,881 million2).

In addition to the effects seen above, falling 
interest rates resulted in unrealised gains of 
$2.7 billion being recognised outside the 
income statement as part of other 
comprehensive income, partially mitigating 
the adverse effect of market movements 
on the Group’s IFRS shareholders’ funds.

IFRS loss after tax from 
discontinued operations
In the period prior to demerger, 
$1,319 million IFRS profit after tax was 
recognised from the discontinued M&G plc 
business. On distribution to shareholders as 
a dividend in specie the net assets of the 

business were remeasured to the market 
value of M&G plc on listing, resulting in a 
gain of $188 million recognised within the 
loss from discontinued operations for the 
year. As a result of representing the 
historical results of M&G plc in US dollars 
(as opposed to sterling), a loss of 
$(2,668) million was recognised at the 
date of demerger representing cumulative 
foreign exchange differences held in the 
currency translation reserve. This arose 
from the fall in the sterling/US dollar 
exchange rate over the period since the 
currency translation reserve was established 
in 2004. This was matched by an equal and 
opposite gain in other comprehensive 
income resulting in no overall impact on 
shareholders’ funds. Reflecting the above, 
the total loss from discontinued operations 
after tax was $(1,161) million. The rest of 
this report focuses solely on the continuing 
operations of the Group.

IFRS effective tax rates
In 2019, the effective tax rate on adjusted 
operating profit based on longer-term 
investment returns from continuing 
operations was 15 per cent. This was 
unchanged from 2018.

The 2019 effective tax rate on total IFRS 
profit was negative (2) per cent (2018: 
16 per cent). The decrease in the 2019 
effective tax rate reflects increased 
derivative losses in the US where the 
effective tax rate on these items is higher 
(at 21 per cent) than the effective tax rate 
on profit from Asia operations.

Total tax contribution from 
continuing operations
The Group continues to make significant 
tax contributions in the jurisdictions in 
which it operates, with $2,168 million 
remitted to tax authorities in 2019. This 
increased from the equivalent amount of 
$1,829 million2 remitted in 2018, primarily 
due to the timing of when various tax 
payments became due.

Tax strategy
The Group publishes its tax strategy 
annually which, in addition to complying 
with the mandatory UK (Finance Act 2016) 
requirements, also includes a number of 
additional disclosures, including a 
breakdown of revenues, profits and taxes 
for all jurisdictions where more than 
$5 million tax was paid. This disclosure is 
included as a way of demonstrating that 
our tax footprint (ie where we pay taxes) 
is consistent with our business footprint. 
An updated version of the tax strategy, 
including 2019 data, will be available on 
the Group’s website before 31 May 2020.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE  
CONTINUED

Total segment profit from continuing operations

6,346

5,451

IFRS profit

Adjusted operating profit based on longer-term 

investment returns before tax from continuing 
operations

Asia
Long-term business
Asset management

Total Asia

US
Long-term business
Asset management

Total US

Other income and expenditure 

Total adjusted operating profit based on longer-term 

investment returns before tax and restructuring costs

Restructuring costs

Total adjusted operating profit based on longer-term  
investment returns before tax from continuing 
operations

Non-operating items:

Short-term fluctuations in investment returns on 

shareholder-backed business

Amortisation of acquisition accounting adjustments
Gain (loss) on disposal of businesses and corporate 

transactions

Profit from continuing operations before tax 

attributable to shareholders

Tax credit (charge) attributable to shareholders’ returns 

Profit from continuing operations for the year
Profit for the year from discontinued operations
Remeasurement of discontinued operations on demerger
Cumulative exchange loss recycled through other 

comprehensive income

(Loss) profit from discontinued operations for the year, 

net of related tax

Profit for the year

IFRS earnings per share

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

2,993
283

3,276

3,038
32

3,070

2,646
242

2,888

2,552
11

2,563

(926)

(967)

5,420
(110)

4,484
(75)

13
17

13

19
191

20

16

4

21
(47)

2,633
239

2,872

2,552
11

2,563

5,435

(933)

4,502
(73)

14
18

14

19
191

20

17

1

20
(51)

5,310

4,409

20

4,429

20

(3,203)
(43)

(142)

1,922

31

1,953
1,319
188

(2,668)

(1,161)

792

(791)
(61)

(107)

3,450

(569)

2,881
1,142
–

–

1,142

4,023

(305)
30

(33)

(44)

105

(32)
15
n/a

n/a 

(202)

(80)

(796)
(61)

(106)

3,466

(570)

2,896
1,092
–

–

1,092

3,988

(302)
30

(34)

(45)

105

(33)
21
n/a

n/a 

(206)

(80)

Actual exchange rate

Constant exchange rate

2019  cents

2018  cents

Change %

2018  cents

Change %

Basic earnings per share based on adjusted operating profit 

after tax from continuing operations 

175.0

145.2

21

146.0

20

Basic earnings per share based on:

Total profit after tax from continuing operations
Total (loss) profit after tax from discontinued operations

75.1
(44.8)

111.7
44.3

(33)
(201)

112.5
42.4

(33)
(206)

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Group capital position
Following the demerger of M&G plc from 
Prudential plc, the Hong Kong Insurance 
Authority (IA) is now the Group-wide 
supervisor for the Prudential Group. 
Ultimately, the Group will become subject 
to the Group-wide Supervision (GWS) 
Framework which is currently under 
development by the Hong Kong IA for 
the industry and is expected to be finalised 
in the second half of 2020. Until it comes 
into force, Prudential is applying the local 
capital summation method (LCSM) that 
has been agreed with the Hong Kong IA 
to determine Group regulatory capital 
requirements.

At 31 December 2019, the Group’s LCSM 
surplus over the Group minimum capital 
requirement (GMCR) was estimated at 
$9.5 billion on a shareholder basis6, 
equivalent to a solvency ratio of 
309 per cent, and compares with a 
like-for-like position at 31 December 2018 
of $9.7 billion and ratio of 356 per cent.

The high quality and recurring nature of the 
Group’s operating capital generation and 
disciplined approach to managing balance 
sheet risk is evident from the $2.5 billion 
of in-force capital generation in the period, 
which supported $0.6 billion of investment 
in new business (on an LCSM basis), 
inorganic investment in Asia along with 

external dividends. The movement in 
LCSM surplus also includes demerger 
and other capital related items. More 
information is set out in note I(i) of the 
Additional unaudited financial information. 
The Group’s LCSM position is resilient to 
external macro movements as 
demonstrated by the sensitivity disclosure 
contained in note I(i) of the Additional 
unaudited financial information, alongside 
further information on the basis of 
calculation of the LCSM measure.

The Group is no longer subject to 
Solvency II capital requirements nor 
regulated by the Bank of England.

Estimated Group LCSM capital position6

Available capital ($ billion)
Group minimum capital requirement (GMCR) ($ billion)
LCSM surplus (over GMCR) ($ billion)
LCSM ratio (over GMCR) (%)

31 December 2019

31 December 2018†

Total

Shareholder*

Total

Shareholder*

33.1
9.5
23.6
348%

14.0
4.5
9.5
309%

27.0
7.6
19.4
355%

13.5
3.8
9.7
356%

* The shareholder LCSM amounts exclude the available capital and minimum capital requirements of the participating business in Hong Kong, Singapore and Malaysia.
† Excludes M&G plc and includes $3.7 billion of subordinated debt issued by Prudential plc that was transferred to M&G plc on 18 October 2019.

Financing and liquidity
Net core structural borrowings of shareholder-financed businesses7

Subordinated debt substituted to M&G plc 

in 2019

Other core structural borrowings

Total borrowings of shareholder-financed 

businesses

Less: holding company cash and short-term 

investments

Net core structural borrowings of shareholder-

financed businesses

Gearing ratio*

31 December 2019  $m

31 December 2018  $m

IFRS
basis

–
5,594

5,594

Mark-to-
market 
value

–
633

633

EEV
basis

–
6,227

IFRS
basis

3,718
6,043

6,227

9,761

(2,207)

–

(2,207)

(4,121)

3,387

15%

633

4,020

5,640

20%

Mark-to-
market 
value

82
151

233

–

233

EEV
basis

3,800
6,194

9,994

(4,121)

5,873

* Net core structural borrowings as proportion of IFRS shareholders’ funds plus net debt, as set out in note II of the Additional unaudited financial information.

The total borrowings of the shareholder-
financed businesses decreased by 
$(4.2) billion, from $9.8 billion to $5.6 billion 
in 2019. This reflected the substitution of 
$4,161 million Tier 2 subordinated notes to 
M&G plc as part of the demerger (including 
£300 million 3.875 per cent Tier 2 
subordinated notes issued in July 2019), 
and the redemption of £400 million 
11.375 per cent Tier 2 subordinated notes 
in May 2019. The Group had central cash 
resources of $2.2 billion at 31 December 
2019 (31 December 2018: $4.1 billion), 

resulting in net core structural borrowings 
of the shareholder-financed businesses of 
$3.4 billion at end 2019 (2018: $5.6 billion).

In addition to its net core structural 
borrowings of shareholder-financed 
businesses set out above, the Group has 
access to funding via the medium-term 
note programme, the US shelf programme 
(the platform for issuance of SEC registered 
bonds in the US market), a commercial 
paper programme and committed 

revolving credit facilities. All of these are 
available for general corporate purposes.

Prudential plc has maintained a consistent 
presence as an issuer in the commercial 
paper market for the past decade and had 
$520 million in issue at the year end (2018: 
$601 million).

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Prudential plc Annual Report 2019 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE 
CONTINUED

As at 31 December 2019, the Group had a 
total of £2.0 billion of undrawn committed 
facilities, expiring in 2024. Apart from small 
drawdowns to test the process, these 
facilities have never been drawn, and there 
were no amounts outstanding at 
31 December 2019. 

In addition to the Group’s traditional sources 
of liquidity and financing, Jackson also has 
access to funding via the Federal Home Loan 
Bank of Indianapolis with advances secured 
against collateral posted by Jackson. Given 
the wide range of Jackson’s product set and 
breadth of its customer base including retail, 
corporate and institutional clients, further 
sources of liquidity also include premiums 
and deposits.

Cash remittances
Holding company cash flow7

Prudential plc seeks to maintain its financial 
strength rating which derives, in part, from 
the high level of financial flexibility to issue 
debt and equity instruments which is 
intended to be maintained and enhanced 
in the future.

From continuing operations
Asia
US
Other UK (including Prudential Capital)

Total net cash remitted from continuing operations
From discontinued operations
M&G plc

Net cash remitted by business units

Central outflows
Dividends paid
Other movements

Total holding company cash flow

Cash and short-term investments at beginning of year
Foreign exchange movements

Cash and short-term investments at end of year

Actual exchange rate

2019*  $m

2018*  $m

Change %

4
13
(88)

3

(19)

(5)

950
509
6

1,465

684

2,149

(522)
(1,634)
(1,999)

(2,006)

4,121
92

2,207

916
452
49

1,417

842

2,259

(572)
(1,662)
1,153

1,178

3,063
(120)

4,121

* The holding company cash flow describes the movement in the cash and short-term investments of the centrally managed group holding companies.

As highlighted in my report for the first 
half of 2019, holding company cash was 
expected to reduce in the second half of 
2019. Cash and short-term investments 
totalled $2.2 billion at the end of the year 
(2018: $4.1 billion on an actual exchange 
rate basis), commensurate with the 
reduced size of the Group post-demerger. 
The Group will seek to manage its financial 
condition such that it has sufficient 
resources available to provide a buffer to 
support the retained businesses in stress 
scenarios and to provide liquidity to service 
central outflows.

Cash remitted to the Group from 
continuing operations in 2019 amounted to 
$1,465 million, included $950 million from 
Asia and $509 million from the US. In 
addition, $684 million of remittances were 
received pre-demerger from M&G plc 
(excluding the $3,841 million pre-
demerger dividend used to offset the 
payment due to M&G plc in return for the 
substitution of debt). 

During 2019, the Group’s holding company 
cash flow was managed in sterling and 
significant remittances were hedged and 
recorded on that basis. Growth rates are 
therefore distorted by the onwards 
translation into US dollars for presentation 
purposes. If local currency remittances in 
Asia had been translated directly into 
US dollars8, then the growth rate in Asia 
remittances year-on-year would have been 
8 per cent (compared with 4 per cent 
shown in the table above). The dividend 
paid by the US in 2019 was $525 million 
(2018: $450 million). From 1 January 2020, 
holding company cash flow will be 
managed in US dollars and no such 
distortions will occur.

Cash remittances were used to meet 
central costs of $(522) million, pay 
dividends of $(1,634) million and meet 
other expenditure of $(1,999) million. 
Corporate expenditure includes net 
interest paid of $(527) million of which 
$(231) million relates to that expended 
on debt substituted to M&G plc. 
Corporate expenditure is net of receipts 
of $265 million in 2019 from tax received. 
The level of tax receipts is expected to 
decline sharply in 2020, and then is not 
expected to recur going forward given the 
demerger of UK operations and the level 
of UK income which can be used to offset 
central UK expenditure.

Other expenditure of $(1,999) million 
relates to amounts paid in connection 
with the demerger and other corporate 
transactions in the year, including the 
redemption of subordinated debt in the 
first half of 2019. Further information is 
contained in note I(iii) of the Additional 
unaudited financial information.

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Shareholders’ funds

IFRS

EEV

2019  $m

2018  $m

2019  $m

2018  $m

Adjusted operating profit after tax and non-controlling interests 

from continuing operations9

4,528

3,739

6,896

7,862

Profit after tax for the year9
Exchange movements, net of related tax
Unrealised gains and losses on US fixed income securities classified as 

available-for-sale

Demerger dividend in specie of M&G plc
Other dividends
Mark-to-market value movements on Jackson assets backing surplus 

and required capital

Other

Net increase (decrease) in shareholders’ funds
Shareholders’ funds at beginning of the year

Shareholders’ funds at end of the year

Shareholders’ value per share10,11

783
2,943

2,679
(7,379)
(1,634)

–
117

(2,491)
21,968

19,477

749¢

4,019
(714)

(1,446)
–
(1,662)

–
9

206
21,762

21,968

847¢

(645)
666

–
(7,379)
(1,634)

206
95

(8,691)
63,402

54,711

2,103¢

6,122
(1,574)

–
–
(1,662)

(127)
176

2,935
60,467

63,402

2,445¢

Group IFRS shareholders’ funds in the 
12 months to 31 December 2019 
decreased by 11 per cent to $19.5 billion 
(31 December 2018: $22.0 billion on an 
actual exchange rate basis) principally 
as a result of the demerger of M&G plc 
which reduced shareholders’ funds by 
$(7.4) billion. Excluding this effect, 
shareholders’ funds increased by 
$4.9 billion primarily as a result of profit 
after tax from continuing businesses of 
$1.9 billion, profit generated by M&G plc 
up to the date of demerger of $1.3 billion 
and unrealised gains on fixed income 
securities of Jackson of $2.7 billion 
following a decrease in US long-term 
interest rates. These amounts were 
offset by dividends paid in the year 
of $(1.6) billion.

The total return from continuing operations 
(including other comprehensive income) 
on Group’s closing shareholders’ funds for 
the year was 27 per cent12, after excluding 
items arising from the demerger of 
$528 million (being costs of undertaking 
the demerger and interest). The demerger 
alters the size of the Group’s shareholders’ 
equity and the nature of its operations, 
rendering a comparison with the prior year 
return on shareholders’ funds value 
unrepresentative.

The Group’s EEV basis shareholders’ funds 
at 31 December 2019 was $54.7 billion. 
This compares with $46.1 billion at 
31 December 2018 if the $17.3 billion in 
respect of the UK & Europe operations is 
excluded. The growth over the year is 
primarily driven by EEV profit from 
continuing operations of $4.2 billion, total 
inter-group dividends from M&G plc in the 
period before demerger of $5.5 billion less 
external dividends of $(1.6) billion. On a 
per share basis, the Group’s embedded 
value at 31 December 2019 equated to 
2,103 cents. More information on the 
Group’s EEV results are included in the 
segmental detail that follows.

Free surplus generation from 
continuing operations13
Free surplus generation is the financial 
metric we use to measure the internal cash 
generation of our business operations and 
is based (with adjustments) on the capital 
regimes that apply locally in the various 
jurisdictions in which the Group operates. 
For life insurance operations, it represents 
amounts emerging from the in-force 
business during the year, net of amounts 
reinvested in writing new business. For 
asset management businesses, it equates 
to post-tax adjusted operating profit for 
the year.

Operating free surplus generated from 
continuing operations before the 
adjustments to reflect hedge modelling 
changes and restructuring costs increased 
to $3.8 billion (2018: $3.5 billion1). This was 
after $(1,158) million of investment in new 
business (2018: $(946) million1).

Asia operating free surplus generation14 
increased by 13 per cent to $1,772 million 
in line with business growth, higher asset 
management earnings and stable levels 
of new business investment.

US operating free surplus generation 
before the 2019 hedge modelling changes 
was $2,028 million (2018: $1,895 million) 
with the increase from in-force business, 
including a one-off benefit from the 
integration of the John Hancock business, 
offset by higher new business investment. 
As part of the implementation of the 
NAIC’s changes to the US statutory reserve 
and capital framework enhancements were 
made to the model used to allow for 
hedging within US statutory reporting. As 
a consequence, the Group has chosen to 
utilise this new model within its EEV results, 
resulting in a $3.2 billion reduction in 
Jackson’s EEV at the start of the year and a 
subsequent fall in operating free surplus of 
$(903) million from a lower expected 
transfer to net worth. Further information 
is included in the US segmental discussion 
and in the EEV basis results. After allowing 
for this effect and restructuring costs, 
operating free surplus generation for the 
Group was down 16 per cent to 
$2,861 million.

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39

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE 
CONTINUED

Analysis of movement in free surplus for insurance and asset management operations13

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

10
25

10
n/a

(16)

3,462
(47)

3,415
–

3,415

10
23

10
n/a

(16)

Operating free surplus generated before restructuring costs 

and US EEV hedge modelling enhancements

Restructuring costs

Operating free surplus generated before US EEV hedge 

modelling enhancements

Impact of 2019 US EEV hedge modelling enhancements

Operating free surplus generated

Non-operating (loss) profit
Net cash flows paid to parent company
Foreign exchange movements on foreign operations, timing 

differences and other items

Total movement in free surplus from continuing operations
Free surplus at 1 January from continuing operations

Free surplus at 31 December from continuing operations

Analysis of operating free surplus generated from in-force life 
business and asset management before restructuring costs 
and US EEV hedge modelling enhancements

3,800
(36)

3,764
(903)

2,861

(568)
(1,475)

(172)

646
5,351

5,997

3,458
(48)

3,410
–

3,410

(1,649)
(1,368)

(991)

(598)
5,949

5,351

Asia
US

Total

1,772
2,028

3,800

1,563
1,895

3,458

13
7

10

1,567
1,895

3,462

13
7

10

This policy is expected to result, over the 
medium term, in future central outflows, ie 
dividends, debt interest costs and other 
central expenses (including central 
payments for bancassurance distribution 
agreements and restructuring costs) net 
of tax recoverables, being covered by 
remittances from business units.

The Board intends to maintain the Group’s 
existing formulaic approach to first interim 
dividends, which are calculated as one-third 
of the previous year’s full-year dividend.

Dividend
The Board has approved a 2019 second 
interim ordinary dividend of 25.97 cents 
per share, equivalent to the 19.60 pence 
per share previously indicated in the 
demerger Circular.

The Board considers dividends to be an 
important component of total shareholder 
return and adopted a progressive dividend 
policy for the Group following the 
demerger. The level of dividend growth 
will be determined after taking into account 
the Group’s capital generation capacity, 
financial prospects and investment 
opportunities, as well as market conditions. 
The Group’s 2020 dividend under the new 
progressive dividend policy will be 
determined from a 2019 US dollar base 
of $958 million15 (36.84 cents per share), 
equivalent to the circa £750 million 
previously disclosed in the Circular.

40

Prudential plc Annual Report 2019 

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Asia
Operational and financial highlights
Our 2019 Asia financial results reflect the 
benefits of our diverse and well-positioned 
portfolio across the Asia region, the 
resilience of the longer-term growth drivers 
in these markets, our long-held 
prioritisation of high quality, recurring 
premium life insurance business and 
focused execution on our key strategic 
priorities.

This is reflected in diversified growth, with 
10 markets expanding new business profit 
and our Asia ex-Hong Kong businesses 
growing new business profit by 
29 per cent. Our earnings continue to be 
supported by high quality drivers with a 
14 per cent increase in insurance margin, 
underpinned by our protection 
propositions for customers, alongside 
18 per cent growth in asset management 
earnings, helped by a 15 per cent increase 
in average funds under management. 

This led to a 14 per cent increase in overall 
Asia adjusted operating profit with eight 
insurance markets delivering double-digit 
growth. These drivers are also reflected in 
the EEV operating profit of $6,138 million 
(2018: $6,052 million1), driving a 
23 per cent increase in embedded value 
to $39.2 billion. At the same time, a 
13 per cent increase in operating free 
surplus generation14 supported a higher 
cash remittance of $950 million for the year.

New business profit
Adjusted operating profit*
EEV operating profit*
Operating free surplus generation*

* Before restructuring costs

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

3,522
3,276
6,138
1,772

3,477
2,888
6,070
1,563

1
13
1
13

3,460
2,872
6,052
1,567

2
14
1
13

New business performance
Life EEV new business profit and APE new business sales (APE sales) 

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

APE 
sales

New 
business 
profit

APE 
sales

New 
business 
profit

APE 
sales

New 
business 
profit

APE 
sales

New 
business 
profit

APE 
sales

New 
business 
profit

2,016
590
390
2,165

5,161

2,042
262
227
991

3,522

2,266
403
315
2,015

4,999

2,309
199
163
806

3,477

(11)
46
24
7

3

(12)
32
39
23

1

2,268
386
316
1,989

4,959

2,310
190
163
797

3,460

(11)
53
23
9

4

(12)
38
39
24

2

3,145

1,480

2,733

1,168

15

27

2,691

1,150

17

29

Hong Kong
China JV
Indonesia
Other life insurance markets

Total Asia

Total Asia excluding 

Hong Kong

Total new business margin

68%

70%

70%

Life insurance new business APE sales 
increased by 4 per cent to $5,161 million 
and related new business profit 
increased by 2 per cent with eight markets 
achieving double-digit growth in new 
business profit.

Lower levels of APE sales and new business 
profit in Hong Kong (down 11 and 
12 per cent respectively) were more than 
offset by higher overall APE sales and new 
business profit in markets outside Hong 
Kong (up 17 and 29 per cent respectively). 
Our Asia ex-Hong Kong businesses 
accelerated strongly, as new APE sales 
growth steadily increased throughout the 
year, with 11 per cent growth in the first 
quarter rising to 26 per cent growth in the 
fourth quarter.

We continue to favour health and 
protection products due to their resilience 
to market cycles and superior margins. 
Collectively, such products achieved new 
business profit growth of more than 
20 per cent outside Hong Kong and 
produced 67 per cent of our overall Asia 
new business profit in 2019. This also 
contributed to our high mix of regular 
premiums, which comprised 93 per cent 
of our APE sales in 2019.

Our partnerships also made encouraging 
progress last year. The bancassurance 
channel achieved APE sales growth of 
14 per cent, with particularly strong 
performances in our China joint venture 
and Vietnam and 24 per cent growth from 
UOB following the renewal of the strategic 
partnership at the beginning of the year.

In Hong Kong, our domestic business was 
resilient with new product launches and 
focused management actions leading to an 
8 per cent increase in local APE sales. This 
was supported by strong take-up of our 
new qualified deferred annuity product 
which accounted for 11 per cent of our 
Hong Kong APE sales since its launch on 
1 April 2019 as well as our VHIS plans, both 
of which are eligible for tax incentives that 
were newly introduced by the government. 
Our Hong Kong life insurance business 
serves the health and savings needs of 
both domestic as well as visiting mainland 
Chinese consumers. The social unrest 
drove a decline in mainland Chinese 
visitors in the second half of 2019 inhibiting 
sales to this segment which led to a 
41 per cent reduction in related APE sales 
compared with the second half of 2018, 
and to a 21 per cent reduction in APE sales 

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41

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
GROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE 
CONTINUED

over the year as a whole. Overall Hong 
Kong APE sales and new business profit 
were 11 and 12 per cent lower respectively.

In our China JV, APE sales were 
53 per cent higher at $590 million. This 
growth reflects a strong performance by 
both our agency and bancassurance 
channels with the latter reflecting the 
success of our strategy to drive increased 
branch activation. Higher volumes helped 
deliver an increase in new business profit 
by 38 per cent.

In Indonesia, the benefits of a recent 
restructuring of our agency channel and 
successful new product launches 
supported a 23 per cent increase in APE 
sales and this growth accelerated to 
41 per cent in the second half from 
4 per cent in the first half. The 39 per cent 
increase in new business profit reflected 
the benefit of increased volumes, as well 
as operational improvements from new 
product launches in the year.

The broad-based performance of our other 
life insurance markets led to a 9 per cent 
increase in related new sales, with 
particularly strong growth in the 
Philippines (34 per cent higher), while 
shifting towards higher-margin health 
and protection products. The 24 per cent 
increase in new business profit 
contribution from our other life markets 
is driven by higher new sales volumes, 
favourable assumption changes and 
modelling enhancements.

EEV basis results

New business profit
Business in force

Operating profit from long-term business
Asset management

Operating profit from long-term business and asset 

management before restructuring costs

Restructuring costs
Non-operating profit (loss)

Profit for the year

Other movements

Net increase (decrease) in embedded value

Embedded value at 1 January
Embedded value at 31 December

% New business profit/closing embedded value 

% Operating profit/closing embedded value 

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

1
(1)

1
18

1

(24)
259

68

3,460
2,383

5,843
209

6,052

(24)
(1,232)

4,796

2
(1)

1
20

1

(29)
259

68

3,522
2,366

5,888
250

6,138

(31)
1,962

8,069

3,477
2,381

5,858
212

6,070

(25)
(1,235)

4,810

(842)

(1,681)

7,227

32,008
39,235

9%

16%

3,129

28,879
32,008

11%

19%

Asia EEV operating profit increased 
marginally compared with the prior period 
to $6,138 million (2018: $6,052 million1), 
driven by the 2 per cent increase in life new 
business profit, balanced by a 1 per cent 
reduction in the contribution from in-force 
life business.

The development of the in-force life result 
of $2,366 million (2018: $2,383 million1) 
reflects a 4 per cent reduction in the 
expected return, partly offset by higher, 
favourable operating assumption changes 
and experience development. Under our 
active EEV assumption framework, the 
lower expected return is a function of lower 
period end interest rates leading to lower 
period end risk discount rates. These lower 
risk discount rates are applied to the 
opening embedded value in this analysis, 
and result in a lower expected return 
compared with the prior period, only 

partly offset by a higher starting embedded 
value position. Operating assumption and 
experience developments were positive 
at $824 million (2018: $769 million1) and 
are driven by favourable persistency and 
mortality/morbidity effects among other 
factors, and again reflect the high quality 
of our in-force life business.

Overall Asia segment embedded value 
increased by 23 per cent  to $39.2 billion 
(2018: $32.0 billion). Of this, $37.8 billion 
(2018: $31.0 billion) relates to the value of 
the long-term business. The remainder 
represents Asia asset management and 
goodwill which are carried at IFRS net asset 
value under the EEV framework.

The asset management segment operating 
profit after tax increased by 20 per cent to 
$250 million (2018: $209 million1), which is 
discussed in more detail below.

Non-operating profit was $1,962 million 
(2018: $(1,232) million1), mainly reflecting 
higher than assumed equity and fixed 
income returns in the period, partly offset 
by the effect of lower period end interest 
rates leading to a reduction in future 
assumed investment returns, among 
other factors.

42

Prudential plc Annual Report 2019 

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Asia analysis of movement in free surplus13

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

Operating free surplus generated from in-force life business 

and asset management before restructuring costs

Investment in new business

Operating free surplus generated before 

restructuring costs

Restructuring costs

Operating free surplus generated

Non-operating (loss) profit
Net cash flows to parent company
Foreign exchange movements on foreign operations, 

timing differences and other items

Total movement in free surplus 
Free surplus at 1 January

Free surplus at 31 December

2,391
(619)

1,772

(31)

1,741

1,195
(950)

(357)

1,629
2,591

4,220

2,215
(652)

1,563

(25)

1,538

(525)
(916)

(847)

(750)
3,341

2,591

Overall Asia operating free surplus 
generated14, after investment in new 
business, was $1,772 million, an increase 
of 13 per cent compared with the prior 
period, driven by higher in-force 
generation and a lower level of investment 
in new business. The 8 per cent increase in 
the in-force return reflects growth in the 
in-force life portfolio, favourable operating 
experience effects and strong growth in 
asset management earnings, which more 
than offsets less favourable economic 
effects. The level of investment in new 
business reduced by 4 per cent, despite 
higher new sales, and reflects the net 
impact of assumption changes and various 
country and business mix effects. In turn, 
this growth in operating free surplus 
generation supported an increased net 
cash remittance of $950 million for the year 
(2018: $916 million). Non-operating profit 
of $1,195 million mainly relates to the net 
effect of bond and equity gains across 
most Asia markets.

Local statutory capital
We maintained a resilient balance sheet 
with a robust shareholder LCSM surplus 
of $4.7 billion and coverage ratio of 
253 per cent at 31 December 2019 
(31 December 2018: $3.6 billion and 
244 per cent) supported by our expertise 
in risk management and a conservative 
approach to credit risk. We seek to 
safeguard our business from market 
volatility through our strong focus on 
protection products and our prudent asset 
and liability management strategy, which 
continues to be well-matched by both 
currency and duration. This is 
demonstrated by the relatively low 
sensitivity of our new business profit and 
our embedded value to a wide range of 
capital market fluctuations.

8
5

13

(24)

13

2,213
(646)

1,567

(24)

1,543

8
4

13

(29)

13

IFRS earnings
Overall, Asia adjusted operating profit 
increased by 14 per cent to $3,276 million, 
with life insurance earnings up 14 per cent 
and asset management earnings up 
18 per cent. Our Asia life insurance 
earnings growth is broad-based and at 
scale, reflecting the benefits of our focus 
on high quality recurring premium business 
and well diversified business portfolio. 
86 per cent16 of our total life income 
(excluding other income described below) 
arises from insurance margin and fee 
income, again supporting stable profit 
progression across market cycles.

Overall, eight insurance markets reported 
double-digit growth, with five delivering 
growth of 20 per cent or more. Six markets 
delivered annual adjusted operating profit 
of above $200 million and three in the 
region of $500 million or higher. At a 
market level, highlights include Hong Kong 
(up 24 per cent) driven by the high quality 
of its in-force growth, China JV (up 
20 per cent), Vietnam (up 20 per cent) and 
the Philippines (up 26 per cent). Adjusted 
operating profit in Indonesia of $540 million 
remains at a high level, but was 3 per cent 
below the prior period. 

prudentialplc.com 

Prudential plc Annual Report 2019 

43

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE 
CONTINUED

Profit margin analysis of Asia long-term insurance and asset management operations17

Actual exchange rate

Constant exchange rate

2019

2018

2018

Spread income
Fee income 
With-profits
Insurance margin
Other income

Total life income 
Expenses:

Acquisition costs
Administration expenses
DAC adjustments

Share of related tax charges from joint ventures 

and associates

Long-term insurance business pre-tax 

adjusted operating profit

Eastspring

Adjusted operating profit from long-term 
business and asset management before 
restructuring costs

Tax charge

Adjusted operating profit after tax for the 

year before restructuring costs

Non-operating profit after tax

Profit for the year after tax before 

restructuring costs

$m

321
286
107
2,244
3,229

6,187

(2,156)
(1,437)
430

(31)

2,993

283

3,276

(436)

2,840

885

3,725

Margin
bps

108
105
18

(42)%
(252)

$m

310
280
95
1,978
2,982

5,645

(2,007)
(1,374)
435

(53)

2,646

242

2,888

(411)

2,477

(662)

1,815

Our earnings continue to be based on 
high-quality drivers. The overall 
14 per cent growth in Asia life insurance 
adjusted operating profit to $2,993 million 
(2018: $2,633 million1) was driven 
principally by 14 per cent growth in 
insurance margin related revenues and 
reflects our ongoing focus on recurring 
premium health and protection products, 
and the associated continued growth of 
our in-force business. Renewal premiums10, 
reflecting the long-term nature of our 
insurance business, grew 12 per cent.

Fee income increased by three per cent, 
broadly in line with the increase in average 
unit-linked liabilities, while spread income 
rose by five per cent given changes in 
product and geographical mix and lower 
interest rates in the period.

With-profits earnings relate principally 
to the shareholders’ share in bonuses 
declared to policyholders. As these 
bonuses are typically weighted to the end 
of a contract, under IFRS, with-profit 
earnings consequently emerge only 
gradually over time. The 14 per cent 
growth in with-profits earnings reflects 
the ongoing growth in these portfolios.

Other income primarily represents 
amounts deducted from premiums to cover 
acquisition costs and administration 
expenses. As such, the 9 per cent increase 
in margin on revenues largely reflects 
ongoing business growth and the 
associated continued growth in overall 
premiums received. Acquisition costs 
borne by shareholders increased by 
8 per cent in relation to a 4 per cent 

Margin
bps

125
106
20

(40)%
(269)

Margin
bps

124
106
20

(40)%
(268)

$m

305
277
94
1,966
2,962

5,604

(1,991)
(1,359)
430

(51)

2,633

239

2,872

(408)

2,464

(665)

1,799

increase in overall APE sales. The ratio 
of shareholder acquisition costs to 
shareholder related APE sales (excluding 
with-profits related sales) reduced to 
66 per cent (2018: 69 per cent on an actual 
exchange rate) as a result of changes in 
product mix. Administration expenses, 
including renewal commissions, increased 
by 6 per cent reflecting ongoing business 
growth.

44

Prudential plc Annual Report 2019 

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Asset management

Total external net flows

External funds under management ($bn)
Internal funds under management ($bn)

Total funds under management ($bn)

Analysis of adjusted operating profit
Retail operating income
Institutional operating income

Operating income before performance-related fees
Performance-related fees

Operating income (net of commission)
Operating expense
Group’s share of tax on joint ventures’ adjusted operating profit

Adjusted operating profit

Adjusted operating profit post-tax

Average funds managed by Eastspring
Margin based on operating income
Cost/income ratio10

Eastspring delivered a strong performance 
in 2019 reflecting positive operating 
momentum and the benefit of recent 
acquisitions. Overall funds under 
management of $241.1 billion and adjusted 
operating profit of $283 million, are at 
record levels.

The increase in external funds under 
management to $124.7 billion (2018: 
$77.8 billion) reflected $8.9 billion18 (2018: 
$(2.1) billion18) in positive third-party net 
flows, favourable market performance and 
$7.5 billion from the TFUND acquisition in 

December 2019. In addition, following the 
demerger of M&G plc, $26.7 billion of 
M&G related assets have been reclassified 
to external from internal funds under 
management.

Third party net inflows were positive in both 
retail and institutional products and across 
both equity and fixed income funds, 
reflecting the benefit of new products and 
mandates. Overall funds under 
management were also supported by 
continued positive internal net flows 
resulting in total funds under management 
of $241.1 billion at year end (2018: 
$192.7 billion on an actual exchange 
rate basis). 

Actual exchange rate

2019  $m

2018  $m

Change %

8,909

(2,118)

n/a

124.7
116.4

241.1

77.8
114.9

192.7

392
244

636
12

648
(329)
(36)

283

250

336
230

566
23

589
(311)
(36)

242

212

60
1

25

17
6

12
(48)

10
(6)
–

17

18

$214.0bn
30bps
52%

$186.3bn
30bps
55%

15
–
(3) ppts

An increase in average funds managed 
by Eastspring of 15 per cent2 resulted 
in adjusted operating profit rising by 
18 per cent (up 17 per cent on an actual 
exchange rate basis) to $283 million 
and growth in operating income of 
10 per cent2. Disciplined cost management 
has led to an improvement in its cost-
income ratio10 to 52 per cent (2018: 
55 per cent on an actual exchange rate 
basis), with operating expenses increasing 
at a slower rate of 8 per cent (6 per cent 
on an actual exchange rate basis).

Return on segment equity
Asia return on closing IFRS shareholders’ funds

Operating return on closing shareholders’ funds (%)
Total comprehensive return on closing shareholders’ funds (%)

2019

26
36

2018

30
20

The benefit of our focus on profitable and capital efficient health and protection, with-profit and asset management businesses is evident 
in the attractive 26 per cent (2018: 30 per cent) return delivered on closing segment equity over 2019. 

prudentialplc.com 

Prudential plc Annual Report 2019 

45

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
United States
Operational and financial highlights
The financial performance of the US business in the period reflects the impact of the execution of the first steps of its strategic 
diversification together with the varying financial effects of strong US equity market performance and lower interest rates in the period. 
We have decided to adopt early as at 31 December 2019 the new National Association of Insurance Commissioners (NAIC) capital rules 
related to variable annuities and have made consequential updates to our EEV basis results. All of the results below reflect the whole US 
segment, except for the discussion on local statutory capital which covers Jackson National Life only.

New business profit
Adjusted operating profit*
EEV operating profit*
Jackson RBC ratio (%)

* Before restructuring costs

New business performance
Life EEV new business profit and APE new business sales (APE sales) 

Variable annuities
Elite Access (variable annuity)
Fixed annuities
Fixed index annuities
Wholesale

Total APE sales

% APE variable annuities
% APE other products

Total new business profit

New business margin

2019  $m

2018  $m

Change %

883
3,070
1,782
366

1,230
2,563
2,828
458

(28)
20
(37)
(92) ppts

2019  $m

2018  $m

Change %

1,270
200
119
382
252

2,223

66
34

883

40%

1,443
225
46
33
312

2,059

81
19

1,230

60%

(12)
(11)
159
1,058
(19)

8

(15)
15

(28)

Overall new US APE sales increased to $2,223 million (2018: $2,059 million), with the proportion of general account products (fixed 
annuities, fixed index annuities and wholesale business) at 34 per cent (2018: 19 per cent) of new sales reflecting our intention to 
diversify our product mix over time to balance the overall risk profile of Jackson better. This was supported by new product launches and 
additional distribution initiatives. New business profit was lower at $883 million (2018: $1,230 million). Of this $(347) million reduction, 
$(155) million is a result of lower interest rates and other changes in economic assumptions compared with the prior period. The 
remainder reflects the change in product mix and other assumption change impacts.

Movement in policyholder liabilities

At 1 January
Premiums
Surrenders
Maturities/deaths

Net flows

Addition for closed block of group pay-out annuities in the US
Transfers from general to separate account
Investment-related items and other movements

2019  $m

2018  $m

Separate 
account
 liabilities

General 
account and 
other liabilities

Separate 
account
 liabilities

General 
account and 
other liabilities

163,301
12,776
(12,767)
(1,564)

(1,555)

–
951
32,373

73,079
8,200
(4,575)
(1,823)

1,802

–
(951)
549

176,578
14,646
(11,746)
(1,449)

1,451

–
708
(15,436)

67,905
3,967
(4,465)
(1,238)

(1,736)

5,532
(708)
2,086

At 31 December

195,070

74,479

163,301

73,079

Overall US net flows were $0.2 billion over the year (2018: $(0.3) billion). Separate account net flows were negative at $(1.6) billion (2018: 
positive $1.5 billion), reflecting lower new sales of variable annuities in the period and expected higher levels of surrenders as the in-force 
book develops. Investment related movements reflect favourable investment performance driven by strong capital market returns. 
General account net flows were $1.8 billion (2018: $(1.7) billion), driven by higher new sales in the period. Total year-end policyholder 
liabilities were $269.5 billion (2018: $236.4 billion), with separate account liabilities at $195.1 billion and general account and other 
liabilities at $74.5 billion.

46

Prudential plc Annual Report 2019 

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GROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE CONTINUEDIFRS earnings
Profit margin analysis of US long-term insurance and asset management operations17

2019

2018

Spread income
Fee income 
Insurance margin
Other income

Total life income 
Expenses:

Acquisition costs
Administration expenses
DAC adjustments

Long-term insurance business pre-tax adjusted operating profit

Asset management

Adjusted operating profit from long-term business and asset 

management before restructuring costs

Tax charge

Adjusted operating profit after tax for the year before 

restructuring costs

Non-operating profit after tax

(Loss) profit for the year after tax before restructuring costs

Margin
bps

155
183

(49)%
(69)

$m

642
3,292
1,317
26

5,277

(1,074)
(1,675)
510

3,038

32

3,070

(437)

2,633

(3,013)

(380)

Margin
bps

112
182

(48)%
(68)

$m

778
3,265
1,267
14

5,324

(1,013)
(1,607)
(152)

2,552

11

2,563

(402)

2,161

(179)

1,982

Adjusted operating profit
US long-term adjusted operating profit was 
$3,038 million (2018: $2,552 million), and 
reflects the benefit of favourable market-
related DAC adjustments in the period 
compared with unfavourable DAC 
adjustments in the prior period. 

Fee income was marginally higher compared 
with the prior period, with the benefit of 
a 2 per cent increase in average separate 
account balances largely offset by a 
modest decline in the average fee margin17.

Spread income declined to $642 million 
(2018: $778 million) reflecting the 
combination of lower core spread income 
and lower income derived from swaps held 
for duration management purposes. The 
development of the core spread income 
was driven by the effect of lower invested 
asset yields and the full consolidation of 
the assets acquired with the John Hancock 
transaction towards the end of 2018, 
resulting in a reduction in the spread margin 
to 112 basis points (2018: 155 basis points).

Insurance margin primarily represents 
income from variable annuity guarantees 
and profits from legacy life businesses. This 
increased by 4 per cent to $1,317 million 
(2018: $1,267 million) mainly as a result of 
higher income from variable annuity 
guarantees.

Acquisition costs increased by 6 per cent, 
broadly in line with the 8 per cent increase 

in new APE sales. Administrative expenses 
increased from $(1,607) million in 2018 
to $(1,675) million in 2019, primarily as a 
result of higher asset-based commissions. 
Excluding these asset-based commissions, 
the resulting administration expense 
ratio would be 33 basis points (2018: 
34 basis points).

DAC adjustments, being the cost deferred 
on sales in the period net of amortisation of 
amounts deferred previously, of $510 million 
(2018: $(152) million) were favourable 
compared with the prior period, in part due 
to higher sales in the period. Over 2019, 
strong capital market returns resulted in a 
separate account investment performance 
materially in excess of that assumed within 
the DAC mean reversion formula which led 
to a favourable DAC deceleration effect of 
$280 million (2018: unfavourable DAC 
acceleration effect of $(259) million).

Non-operating items
The non-operating result was negative 
$(3,795) million pre-tax (2018: negative 
$(241) million pre-tax) and contributed 
to a net loss after tax of $(380) million 
(2018: net income $1,982 million).

In the US, Jackson provides certain 
guarantees on its annuity products, the 
value of which would typically rise when 
equity markets fall and long-term interest 
rates decline. Jackson charges fees for 
these guarantees which are in turn used to 

purchase downside protection, in particular 
options and futures to mitigate the effect of 
equity market falls. Under IFRS, accounting 
for the movement in the valuation of these 
derivatives, which are all fair valued, is 
asymmetrical to the movement in 
guarantee liabilities, which are not fair 
valued in all cases. Jackson designs its 
hedge programme to protect the 
economics of the business from large 
movements in investment markets and 
accepts the variability in accounting results. 
Non-operating losses of $(3,795) million in 
the year mainly reflect the effect of lower 
interest rates on guarantee liabilities and the 
impact of higher equity markets on both 
guarantee liabilities and associated 
derivatives given that the S&P 500 index 
ended the year 28.9 per cent higher than 
at the start of the year. While the resulting 
negative mark-to-market movements on 
these hedging instruments are recorded 
in the current year, the related increases in 
fee income that arise from the higher asset 
values managed, will be recognised and 
reported in future years.

In addition to the effects seen above, 
falling interest rates resulted in gains of 
$2.7 billion being recognised outside the 
income statement on bonds held by 
Jackson’s general account. In total, 
Jackson’s segment shareholders’ funds 
increased to $8,929 million (2018: 
$7,163 million).

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47

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information2019  $m

2018  $m

Change %

(28)
(45)

(38)
525

(37)

78
(124)

(282)

883
874

1,757
25

1,782

(5)
(3,802)

(2,025)

(342)

(2,367)

18,709

16,342

5%

11%

1,230
1,594

2,824
4

2,828

(23)
(1,695)

1,110

(654)

456

18,253

18,709

7%

15%

Economic assumption changes of 
$(1,201) million largely reflect the impact 
of lower interest rates in the period on the 
projected future fund growth rates for the 
variable annuity business. These projected 
lower growth rates reduce the expected 
growth in fund values for policyholders 
and hence the expected profitability for 
shareholders.

Overall segment embedded value ended 
the year at $16.3 billion (2018: 
$18.7 billion).

EEV basis results 

New business profit
Business in force

Operating profit from long-term business
Asset management

Operating profit from long-term business and asset management before 

restructuring costs

Restructuring costs
Non-operating loss

Profit for the year

Other movements (including dividends)

Net increase (decrease) in embedded value

Embedded value at 1 January

Embedded value at 31 December

% New business profit / closing embedded value 

% Operating profit / closing embedded value

EEV operating profit from the long-term 
business reduced to $1,757 million (2018: 
$2,824 million) reflecting lower new 
business profit in the period and a 
reduction in the level of expected return 
on business in force.

During 2019, following the implementation 
of the NAIC’s changes to the US statutory 
reserve and capital framework, 
enhancements were made to the model 
used to allow for hedging within US 
statutory reporting. As a consequence, 
the Group has chosen to utilise the 
model for its EEV reporting to update 
its allowance for the long-term cost of 
hedging, resulting in a $(3,233) million 
reduction in Jackson’s EEV at the start 
of the year.

The reduction in expected return from 
business in force reflects lower period end 
interest rates which reduce the expected 
unwind, and a lower starting balance of 
EEV shareholders’ funds compared with 
the prior period. 

This is a function of weak equity markets in 
the fourth quarter of 2018, and the 
adoption of a new hedge model as 
discussed above.

The EEV non-operating loss of 
$(3,802) million mainly includes negative 
$(3,233) million from the adoption of the 
new hedging model (as discussed above), 
and negative $(1,201) million from 
economic effects, offset by positive 
$876 million from favourable investment 
movements.

The investment return variances are driven 
by the benefit of strong capital market 
performance in the period leading to 
separate account returns materially in 
excess of those assumed, more than 
offsetting hedging losses on instruments 
held for risk management purposes.

48

Prudential plc Annual Report 2019 

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GROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE CONTINUEDUS analysis of movement in free surplus13

Operating free surplus generated from in-force life business and asset management 

before restructuring costs and EEV hedge modelling enhancements

Investment in new business

Operating free surplus generated before restructuring costs and EEV hedge 

modelling enhancements

Restructuring costs

Operating free surplus generated before EEV hedge modelling enhancements
Impact of 2019 EEV hedge modelling enhancements

Operating free surplus generated

Non-operating (loss) profit
Net flows paid to parent company
Timing differences and other items

Total movement in free surplus 
Free surplus at 1 January

Free surplus at 31 December

2019  $m

2018  $m

Change %

17
(80)

7
78

8
–

(40)

2,567
(539)

2,028
(5)

2,023
(903)

1,120

(1,763)
(525)
185

(983)
2,760

1,777

2,195
(300)

1,895
(23)

1,872
–

1,872

(1,124)
(452)
(144)

152
2,608

2,760

The US in-force business generated 
$2,567 million (2018: $2,195 million) prior 
to allowing for the change to the allowance 
for hedging costs discussed above. This 
included a $355 million benefit following 
the integration of the John Hancock 
business acquired in 2018. Offsetting this 
increase was a higher investment in new 
business (up 80 per cent to $(539) million). 
The increase in investment in new business 
to $(539) million (2018: $(300) million) is a 
function of a higher weight of general 
account new sales in the period.

Operating free surplus generated14 after 
allowing for the impact of changes to hedge 
modelling was $1,120 million.

Non-operating assumptions and variances 
related to free surplus development were 
$(1,763) million (2018: $(1,124) million) and 

reflect higher losses on hedge instruments 
compared with those assumed under the 
new basis. Circa $395 million of these 
hedge losses were incurred in managing 
the risk profile of the business as Jackson 
transitioned from the previous US statutory 
and reserving framework to the new 
framework following updates made by the 
NAIC which is further discussed below.

Local statutory capital – Jackson 
National Life (Jackson)
Jackson applies the US statutory reserve 
and capital framework required by the NAIC 
and adopted the NAIC’s changes to this 
framework for variable annuities with effect 
from 31 December 2019. This new capital 
methodology incorporates a unified 
approach to reserving and required capital 
determination. In addition, with effect from 

1 October 2019, Jackson chose not to renew 
its long-standing permitted practice to 
exclude unrealised gains on certain 
derivative instruments taken out to protect 
Jackson against declines in long-term 
interest rates. 

After adopting this new regime, the surplus 
of available capital over required capital (set 
at 100 per cent of the Company Action 
Level) was $3,795 million. This equated to 
a risk-based capital ratio of 366 per cent 
(2018: 458 per cent using the previous NAIC 
framework). An analysis of the estimated 
movement in Jackson’s risk-based capital 
position over 2019 is set out below. Jackson 
continues to remain within its existing risk 
appetite and expects the new capital regime 
to result in a more stable RBC ratio than 
under the previous regime, in low interest 
rate scenarios.

1 January 2019

Capital generation from new business written during 2019
Operating capital generation from business in force at 1 January 2019*

Operating capital generation 

Adoption of NAIC reforms (see above)
Other non-operating movements, including market effects and removal of the 

permitted practice

Dividends paid

31 December 2019

* Includes operating experience variances and the impact of John Hancock

Total 
available
 capital
$m

5,519

119
1,406

1,525

279

(1,577)
(525)

5,221

Required 
capital
$m

1,204

263
(125)

138

137

(53)
–

1,426

Surplus
$m

4,315

(144)
1,531

1,387

142

(1,524)
(525)

3,795

Ratio
 %

458

(75)
141

66

(17)

(104)
(37)

366

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49

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
Over the period, statutory operating 
capital generation of $1.4 billion increased 
the RBC ratio by 66 percentage points, 
comprising 118 percentage points 
($1.2 billion) from in-force capital 
generation, reduced by 75 percentage 
points ($(0.1) billion) for the capital strain of 
writing new business, and 23 percentage 
points ($0.3 billion) of one-off benefits 
related to the recent John Hancock 
acquisition. In line with the product 
diversification strategy previously outlined 
and Jackson’s accelerated sales growth 
of fixed index and new fixed annuity 
products, the capital strain from selling 
non-VA products was 64 percentage 
points of the total 75 percentage points 
of new business strain.

Non-operating and other capital movements 
reduced the RBC ratio by 121 percentage 
points ($(1.4) billion) due to:

 — adoption of the new capital regime 
at 31 December 2019, resulting in 
a one-off reduction in the RBC ratio 
of 17 percentage points;

 — one-off hedge losses in respect of 
managing through the changeover 
to the new regime representing a 
28 percentage point fall in the RBC ratio;

 — an increase in deferred tax assets not 
admitted as statutory capital, which 
reduced the RBC ratio by 26 percentage 
points, bringing the total non-admitted 
DTA to $0.9 billion at 31 December 
2019. $0.5 billion of this non-admitted 
DTA balance relates to hedge losses 
incurred in 2019 which are required to 
be spread over three years for tax 
purposes and so is expected to be 
carried forward to be deducted from 
Jackson’s taxable income in the next 
two years; and

 — other non-operating items that reduced 
the RBC ratio by 50 percentage points, 
primarily representing variable annuity 
net hedge losses in the period given 
asymmetries between the statutory 
accounting basis and the economics 
hedged by Jackson.

During 2019 Jackson remitted 
$(525) million to Prudential, representing 
around half of Jackson’s operating capital 
generation in the period (excluding John 
Hancock effects), which reduced the 
RBC ratio by 37 percentage points. 
As previously announced, from 2020 
Jackson’s remittances are expected to be 
more evenly spread over the calendar year 
than in prior periods.

In respect of the previously noted ongoing 
NAIC review of the C-1 bond factors in the 
required capital calculation, the expected 
implementation has been delayed to 2021 
or thereafter. After adoption of the new 
capital regime, the estimated reduction in 
RBC ratio under the current proposal is 
circa 10 to 20 points.

Return on segment equity
US return on closing IFRS shareholders’ funds.

Operating return on closing shareholders’ funds (%)
Total comprehensive return on closing shareholders’ funds (%)

2019

29
26

2018

30
7

The US operating return on segment equity was 29 per cent (2018: 30 per cent). The total comprehensive return on segment equity, 
including non-operating and other comprehensive income movements, described above, was 26 per cent (2018: 7 per cent). 

Notes
1  On a constant exchange rate basis.
2  On an actual exchange rate basis.
3  As compared with 2018 and before a planned $10 million increase in Africa costs as business 

grows.

4  Approximately half of the corporate expenditure is incurred in sterling and our assumptions 

forecast an exchange rate of £1=$1.2599.

5  From 1 January 2021.
6  Surplus over Group minimum capital requirement and estimated before allowing for second 
interim ordinary dividend. Shareholder business excludes the available capital and minimum 
requirement of participating business in Hong Kong, Singapore and Malaysia. Further 
information on the basis of calculation of the LCSM measure is contained in note I(i) of the 
Additional unaudited financial information.

7  Net cash remitted by business units are included in the holding company cash flow, which is 

disclosed in detail in note I(iii) of the Additional unaudited financial information. This 
comprises dividends and other transfers from business units that are reflective of emerging 
earnings and capital generation.

8  Using the relevant month-end spot rate.
9  Excluding profit for the year attributable to non-controlling interests.
10 See note II of the Additional unaudited financial information for definition and reconciliation to 

IFRS balances.

11  For EEV shareholders’ value per share, see note II(x) of the Additional unaudited financial 

information.

12  See note I(iii) of the Additional unaudited financial information for the basis of calculation.
13  For insurance operations, operating free surplus generated represents amounts maturing from 

the in-force business during the period less investment in new business and excludes 
non-operating items. For asset management businesses, it equates to post-tax operating profit 
for the period. Restructuring costs are presented separately from the operating business unit 
amount. Further information is set out in note 11 of the EEV basis results.

14 Operating free surplus generated before restructuring costs.
15  The pro forma dividend for 2019 of the $958 million represents the first interim ordinary 

dividend paid of $528 million (£428 million based on spot exchange rate at the payment date) 
plus the second interim ordinary dividend of $675 million (£510 million based on spot rate at 
31 December 2019) less the contribution of remittances from the discontinued M&G plc 
business to the second interim ordinary dividend of $245 million (£185 million based on spot 
exchange rates at 31 December 2019).

16 Total insurance margin ($2,244 million) and fee income ($286 million) of $2,530 million divided 
by total life income excluding other income of $2,958 million (Comprised of total life income of 
$6,187 million less other income of $3,229 million).

17  For discussion on the basis of preparation of the sources of earnings in the table see note I(iv) 

of the Additional unaudited financial information.

18 Excludes Money Market Funds.

50

Prudential plc Annual Report 2019 

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GROUP CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER’S REPORT ON THE 2019 FINANCIAL PERFORMANCE CONTINUEDGROUPCHIEFRISKANDCOMPLIANCEOFFICER’SREPORTONTHERISKSFACINGOURBUSINESS
ANDHOWTHESEAREMANAGED

Enabling business growth and change 
through risk management

TheGroupwelcomestheHongKong
InsuranceAuthority(IA)asitsnew
Group-widesupervisorandistransitioning
toanewsupervisoryframework.Amature
andwell-embeddedriskframeworkwill
enabletherepositionedbusinessto
capturetheopportunitiesinthegrowth
marketsinwhichitisnowfocusedwhile
operatingwithdiscipline.

The world economy
Economicgrowthworldwideslowedin
2019drivenbyacontractioninglobal
manufacturing,inparticularinthe
Eurozone,UKandsomeAsianeconomies.
Variousfactorscontributedtothis
slowdown,includinggeopoliticaltensions
(inparticularthosearoundtrade),steps
takeninChinatodeleverageitsfinancial
system,andtightenedfinancialconditions
intheUSduringthefirsthalfoftheyear.
Facedwiththeprospectofslowing
economicgrowthandcontinuedsubdued
inflation,themajorcentralbanksacross
NorthAmerica,EuropeandAsia
implementedsignificantchangesin
monetarypolicy,deployingboth
conventionalandnon-conventional
accommodation.TheUSFederalReserve
cutitsbenchmarkfederalfundsrateby
75basispointsover2019,whiletheECB
delivereda10basispointinterestratecut
andannouncedaresumptionofits
quantitativeeasingprogrammein
September.Atthestartof2020,the
prospectsforglobalgrowthinitially
appearedtohaveimprovedwiththe
signingofthe‘PhaseOne’initialtrade
agreementbytheUSandChinainJanuary
andsignsthatmacroeconomicdatawas
stabilisingthroughouttheEurozoneand
partsofAsia.Sincethenhowever,itis
becomingincreasinglyevidentthatthe
coronavirusoutbreakhasimpacted
economicactivityinHongKongandChina
withspillovertotherestoftheglobal
economy.Thishaspromptedtheworld’s
majorcentralbankstocommittomeasures
tomanagethepotentialeconomiceffects
andinearlyMarch2020theUSFederal
Reservecutitsbenchmarkfederalfunds
rateby50basispoints.Thisdemonstrates
thefragilityofanyimprovementinthe
growthoutlook,withgeopoliticalrisks
representinganothersourceofpotential
disruption,includingaresurfacingintrade
tensions,aresumptionoftheprotestsin
HongKongand,lookingforward,political
uncertaintythatmayarisefromtheUS

presidentialelectiontowardstheend
of2020.

Financial markets
Afteravolatile2018,whichwasmarked
bysharpfallsinequitymarketsinthefinal
quarter,2019sawasignificantrebound
withallmajorriskassets,particularlyglobal
equities,providingstrongreturnsover
thecourseoftheyear.Governmentbonds
alsosawgoodreturnsasyieldsdeclined
significantly,withtheUS10-year
governmentbondyieldfallingbycirca
80basispointsovertheyear.Corporate
bondsperformedsimilarlywell,withcredit
spreadstighteningandmirroringthe
strongequityreturnsobserved.Theyear
waslargelycharacterisedbyrelatively
defensiveinvestorsentimentanda
preferenceforhighercreditqualitywithin
assetclasses.Thispositiveperformance
wasfacilitatedbytheaccommodative
environmentdrivenbytheshiftin
monetarypolicybymajorcentralbanks,
butcameamidadeteriorationin
macroeconomicindicators,anincreasein
perceivedUSrecessionriskandthetrade
negotiationsbetweentheUSandChina
whichebbedandflowed,allofwhich
negativelyimpactedglobalrisksentiment.
Politicalheadlinesandthemonetarypolicy
shiftbycentralbanksweretheprimary
driversofcurrencymarketmovements
during2019,withtheUS-Chinatrade
negotiationsanddevelopments
surroundingtheUK’sdeparturefromthe
EUimpactingtheUSdollar(inparticular
theUSD-RMBrate)andUKpound
respectively.Fundingmarketscameunder
significantpressureinSeptemberwhena
suddenspikeinreporateswasobserved,
promptingtheUSFederalReserveto
interveneandinjectsignificantfunding
throughacombinationofpermanent
andtemporaryopenmarketoperations.
Globalfinancialmarketsremainhighly
susceptibletoreversalsinrisksentiment,
asdemonstratedinQ12020withthe
coronavirusoutbreak,whichhasincreased
marketdownsideriskssignificantly.

(Geo)political landscape
Thegeopoliticallandscapeover2019
continuedtoreflectaworldinanunsettled
stateoftransition.Somenationscontinue
tofacethechallengeofreconcilingthe
inter-connectednessoftheglobal
economywithheightenednationalistic
sentiment.Thishasplayedoutin

James Turner
GroupChiefRiskand
ComplianceOfficer

OurGroupRiskFrameworkandrisk
appetitehaveallowedustocontrolourrisk
exposuresuccessfullythroughouttheyear.
Ourgovernance,processesandcontrols
enableustodealwithuncertainty
effectively,whichiscriticaltothe
achievementofourstrategyofhelping
ourcustomersachievetheirlong-term
financialgoals.

Thissectionexplainsthemainrisks
inherentinourbusinessandhowwe
managethoserisks,withtheaimof
ensuringanappropriateriskprofileis
maintained.

1 Introduction
Group structure
On21October2019,just18monthsafter
announcingitsintentiontodoso,theGroup
completedthedemergerofM&Gplc,
markingthesuccessfulandcontrolled
deliveryofacomplexandhistoricchange
tothebusiness,inwhichtheRiskfunction
playedacentralrole.Anunsettled
macroeconomicandgeopolitical
environmentaddedtothechallengesin
completingastrategicinitiativeofthis
magnitudeandtothekeyobjectiveof
deliveringtwodistinctandstrongly
capitalisedgroups.Strongstewardshipwas
providedbytheRiskfunctionthroughrisk
opinions,guidanceandassuranceoncritical
activity,aswellasassessmentsandongoing
monitoringofexternalrisks.Atthesame
time,thefunctionretaineditsfocuson
managingtherisksoftheongoingbusiness
performingitsdefinedroleinprovidingrisk
managementsupportandoversight,aswell
asobjectivechallengetoensuretheGroup
remainedwithinitsriskappetite.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUPCHIEFRISKANDCOMPLIANCEOFFICER’SREPORTONTHERISKSFACINGOURBUSINESS
ANDHOWTHESEAREMANAGED
CONTINUED

internationaltradedisputes,notably
betweentheUSandChinaduring2019.
Increasingpolarisationhasbecomeadriver
ofgeopoliticalrisk,bothbetweennations
andwithinthem.Populationsappeartobe
increasinglyactiveinvoicingandacting
collectivelyontheirdiscontent.2019has
beendescribedas‘theyearofthestreet
protestor’withmassdemonstrations
havingtakenplaceacrosstheworld,
includinginSpain,France,HongKong,
IndiaandtheMiddleEastoverthecourse
oftheyearandcontinuinginto2020.
Aweakeningofcivilorderanddomestic
disruptionarepotentialconsequences,and
thisistestingtheresilienceofbusinesses
andgovernments.Asaglobalorganisation,
theGrouphasdevelopedplanstomitigate

businessrisksarisingagainstthisbackdrop
andengageswithnationalbodieswhere
itcaninordertoensureitspolicyholders,
employeesandotherkeystakeholders
arenotadverselyimpacted.

Regulations
Prudentialoperatesinhighlyregulated
markets,andthenatureandfocus
ofregulationandlawsremainsfluid.
Anumberofnationalandinternational
regulatorydevelopmentsareinprogress,
withacontinuingfocusonsolvencyand
capitalstandards,conductofbusiness,
systemicrisksandmacroprudential
policy.Someofthesechangeswillhave
asignificantimpactonthewaythatthe
Groupoperates,conductsbusiness

andmanagesitsrisks.Theseregulatory
developmentswillcontinuetobemonitored
atanationalandgloballevelandformpartof
Prudential’sengagementwithgovernment
policyteamsandregulators.Inadditionto
theevolvingregulatorylandscape,and
followingthecompletionofthedemerger
inOctober,Prudential’sGroup-wide
supervisorchanged,withtheHongKongIA
assumingtheroleinOctober2019.
Constructiveengagementcontinuesonthe
Group-wideSupervisionFramework(GWS)
thatwillapplytotheGroup,whichis
expectedtobefinalisedin2020.

Societal developments
Increasingly,astrongsenseofpurposefor
anenterpriseisbeingseenasadriverof

2 Key internal, regulatory, economic and (geo)political events over the past 12 months

 On25March,theHongKongIAandPrudentialplcsigntheRegulatory

 OverQ1,signscontinueofamoderationinUSgrowthandasharper

Q1 2019

Letterspecifyingthesupervisoryframeworkimmediatelyfollowingthe
demergerofM&Gplc.TheGrouphassinceagreedwiththesupervisorto
applythelocalcapitalsummationmethod(LCSM)todetermineGroup
regulatorycapitalrequirements.TheHongKongIA’sGroup-wide
SupervisionFrameworkisexpectedtobefinalisedinH22020.

 InIndonesia,theOtoritasJasaKeuangan(OJK)approves

‘grandfathering’ofPrudential’sexisting94.6percentshareholdinginPT.
PrudentialLifeAssurance,ourIndonesiansubsidiary,withfuturecapital
injectionsnotpermittedtoincreasethepercentageofforeignownership.

 InMarch,theGroupannouncesfurtherexpansioninWestAfricavia
theacquisitionofamajoritystakeinGroupBeneficial,aleadinglifeinsurer
operatinginCameroon,Côted’IvoireandTogo.Theacquisitioncompletes
inQ3.

slowdownintherestoftheworld,withEurope’sgrowthexpectations
droppingprogressivelythroughoutthequarter.Chinareportsitslowest
quarterlyGDPgrowthratein30yearsof6.2percent.Centralbank
rhetoricstartstoturndovish,andthisisoneofthefactorsdrivingtheS&P
500toitsbestquartersinceQ22009(risingby13.6percent),alongwith
returningpositiverisksentiment.Meanwhile,yieldsfallsharplyin
responsetothesofteningeconomicoutlookanddovishturnbycentral
banks.

 On29March,EIOPAreleasesadiscussionpaperonsystemicriskand
macroprudentialpolicyininsurance,settingoutitsthinkingonhowthis
areashouldbeaddressedinthe2020SolvencyIIreview.Thepaper
suggestsarangeofpotentialmacroprudentialtoolsandmeasures.

 InFebruary,inasummitinHanoi,theUSandNorthKoreafailtoreach
anagreementonnucleardisarmamentandaliftingofUS-ledinternational
sanctions.DonaldTrumpbecomesthefirstsittingUSpresidenttoenter
NorthKoreainJuneasthetwocountriesagreetoresumetalks,although
thesestallinQ4.

 Prudential’sPulseapplaunchesinAprilinMalaysia,providing

affordabledigitalhealthandwellnessservicestoconsumers.InJune,
PrudentialannouncesastrategicpartnershipwithOVOtooffercustomers
wellness,healthandwealthproductsandservicesinIndonesia.

 SuspensionoftheWoodfordEquityIncomeFundinJuneraises
questionsovertheabilityofthefundmanagementindustrytomeet
redemptionrequests,inparticularforthosefundsheavilyinvestedin
illiquidassets.

Q2 2019

 TheHongKongIAissuesitsGuidelinesonEnterpriseRiskManagement
inJuly,settingoutobjectivesandrequirementsonERMandtheOwnRisk
SolvencyAssessmentunderPillar2ofitsproposedRBCregimeforsolo
entities.

 InApril,thePRAissuesSupervisoryStatement(SS3/19)on‘enhancing

banksandinsurers’approachestomanagingthefinancialrisksfrom
climatechange’whichoutlinestheregulatoryexpectationsforfinancial
servicesfirmstoassessimpactsfromclimatechange.

Key

 Prudential
 Regulatory
 (Geo)political
 Markets/economies

 SeveralkeyelectionsareheldacrossAsiainthefirstandsecond
quarters.LegislativeelectionstakeplaceinThailandinMarch,with
theoutcomemarkingthecountry’sreturntocivilianrule;inAprilthe
incumbentPresidentWidodowinsthepresidentialelectioninIndonesia;
andinMaythelegislativeelectionsinIndiaseeavictoryforPrimeMinister
NarendraModi.Theelectionresultsalignbroadlytoconsensuspolls.

 FromJuneonwardsandcontinuingover2019,large-scale

demonstrationstakeplaceinHongKong,sparkedbyanextradition
billproposedbytheHongKonggovernment.

 GeopoliticaltensionsriseintheMiddleEastasIranannounces
astep-upinitsproductionofenricheduranium.ThisfollowstheUS’
withdrawalfromthe2015nucleardealanditssubsequentimpositionof
economicsanctions.Tensionsultimatelyspikeatthestartof2020when
theUSassassinatesIranianmilitaryleaderQassamSoleimani.

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long-termprofitability,andthisismaking
companiesevaluatetheirplacein,and
contributionto,society.The‘whyandhow’
abusinessactshasbecomearguablyat
leastasimportantaswhatitproducesor
theservicesthatitprovides.Similarly,
understandingandmanagingthe
environmental,socialandgovernance
(ESG)implicationsoftheGroup’s
businessisfundamentaltoPrudential’s
brand,reputationandultimately
long-termsuccess.Ensuringhighlevels
oftransparencyandresponsiveness
tostakeholdersisakeyaspectofthis.
Keysocialissueswithimplicationsfor
theGroupincluderisksarisingfrom
demographicchangesaswellasthose
arisingfromprivacyanddatasecurity
requirementsandexpectations.

Recentchangesindemographic,
geographicalandenvironmentalfactors
havedrivenpublichealthtrends,suchas
obesity,andchangedthenature,likelihood
andimpactofextremeeventssuchas
pandemics,withaconsequentialimpact
onPrudential’sunderwritingassumptions
andproductdesign.Giventheuniqueset
ofvariablesassociatedwithextreme
events,pastexperienceisnotanindication
ofthelikelyimpactorabilitytodealwith
futureoccurrences.Thecoronavirus
outbreakdemonstratestheunpredictable
natureofsucheventsandtheimpacton
thefunctioningofsociety,with
consequentialdisruptiontobusiness
operations,staff,customersandsales.
TheGroupisactivelymanagingthisimpact

includingassistingaffectedpolicyholders
andstaffinmeetingtheirneeds.

Insupportofincreasedsocialinclusion
andtomeetevolvingcustomerneeds,
theGroupisincreasingitsuseofdigital
services,technologiesanddistribution
methodsfortheproductsandservices
thatitoffers.Thisamplifiestherisksto
Prudentialassociatedwithregulations
andexpectationsinrelationtoprivacyand
datasecurity.ThesechangestotheGroup’s
useoftechnologyanddistributionmodels
havebroadimplications,touchingon
Prudential’sconductofbusiness,
increasingtherisksoftechnologyand
databeingcompromisedormisusedand
potentiallyleadingtonewandunforeseen
regulatoryissues.

Q3 2019

 Centralbankmonetarypolicybecomesincreasinglyaccommodative,

contributingtoareversalintheweaknessinriskassets.InAugust,
followingarecordhighinJuly,theS&P500correctsamidrecessionfears
andtradetensions.TheindexcontinuestostruggleinSeptemberbut
reboundsstronglyoverQ4.

 Governmentbondyieldsdeclinesignificantly,withthe10-yearUS
Treasuryyieldfallingbycirca50basispointsto1.5percentoverAugust
(representingacirca120basispointsdropovertheyear),itslowestrate
since2017.InJapanandEurope,thevolumeofnegative-yieldingdebt
surgessignificantly.

 FollowingthelaunchofICSfield-testingfor2019inApril,theGroup
submitsitsresultstotheIAISon31July2019.Thisisthelastfield-testing
exercisepriortothefinalisationoftheICS2.0specificationsandthestart
ofafive-yearmonitoringperiodin2020.

 InSeptember,USPresidentDonaldTrumpandChinesePresidentXi

Jinpingagreetoresumetradetalksfollowingearlierbreakdownsin
negotiationsinMayandAugust.TalkscontinuepositivelyintoQ4
culminatinginthesigningofa‘PhaseOne’tradedealbetweenthetwo
countriesinJanuary2020.

Q4 2019

 On21October2019,M&Gplc’ssharesbegintradingontheLondon
StockExchange,markingthesuccessfulcompletionofitsdemergerfrom
thePrudentialGroup.TheHongKongIAformallyassumesitsroleas
Group-widesupervisorforPrudentialplc.

 Eastspringsuccessfullycompletestheacquisitionof50.1percent

ofThanachartFund,whichmanages$7.5billionofmutualfundsin
Thailand,forcirca$142million,withanoptiontoincreaseitsownershipto
100percentinfuture.TheacquisitionmakesEastspringthefourth-largest
assetmanagerinThailand.

 Thebroadereconomiccyclecontinuestodeteriorate.USdomestic

databeginstoshoweconomicweaknessinNovember.Despitethis,
equitymarketsreachnewall-timehighsoverthequarter,supported
bycontinuedapplicationofaccommodativemonetarypolicyby
centralbanks.

 InSeptember,theECBdeliversapackageofeasingmeasures,including

arenewalofquantitativeeasing.Followingthis,theUSFederalReserve
lowersitsbenchmarkfederalfundstargetrateforthethirdtimeinfour
monthsinOctober.CentralbanksinChinaandotheremergingmarkets
turnmoredovishamidcontinuedweaknessineconomicdata.

 The26thAnnualConferenceoftheIAIStakesplaceinAbuDhabion14
and15November,anditisagreedthattheICSprojectwillmovefromField

TestingintotheMonitoringPeriodphaseandICSv2.0isreleased.The
HolisticFramework(HF)forsystemicriskisendorsedbytheFSBatthe
conferenceforimplementationbytheIAISin2020.TheFSBalsoconfirms
thatG-SIIdesignationswillbesuspendeduntilitsreviewin2022,although
anumberofthepreviousG-SIIrequirementsareincludedeitherintothe
InsuranceCorePrinciplesortheComFrame.

 FollowingtheEastAsiaSummitinBangkokinNovember,15ofthe16
negotiatingparticipantsagreetosignuptotheRegionalComprehensive
EconomicPartnership(RCEP),mostlikelyinQ12020,withIndiadeciding
nottoparticipate.

 HongKongenterstechnicalrecessioninQ3,withitseconomyshrinking

by2.9percentoverallover2019,astheprotests,whichpeakinviolence
duringNovember,impacttheterritory’seconomy.On27November,the
USpresidentsignstheHongKongHumanRightsandDemocracyActinto
law,requiringannualreviewsofHongKong’sspecialtradestatusunderUS
law,aswellassanctionsagainstanyofficialdeemedresponsibleforhuman
rightsabusesorforunderminingthecity’sautonomy.

 TheNationalAssociationofInsuranceCommissioners(NAIC)

implementschangestotheUSstatutoryreserveandcapitalframeworkfor
variableannuities,effectivefrom1January2020.Jacksonchoosestoearly
adoptthechangesat31December2019forUSstatutoryreporting.

Q1 2020

 InDecember,casesofwhatappeartobeviralpneumoniaarereported

inWuhan,China.InJanuary2020,thevirusisidentifiedasanovel
coronavirus(theresultingdiseasehassincebeennamedCOVID-19)and
overQ12020thousandsofcasesarereportedwiththevirusproceeding
tospreadtocountriesacrossAsiaandtheworld.

PrudentialCorporationAsiarollsoutAsia-wideinitiativesandacampaign
tosupportcustomersandstaff.

 Followingitslaunch,downloadsofPulsebyPrudentialexceedone

millioninFebruary2020.Thedigitalhealthplatformisnowoneofthemost
popularhealthandwellnessappsofferedbyaninsurerintheregion.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUPCHIEFRISKANDCOMPLIANCEOFFICER’SREPORTONTHERISKSFACINGOURBUSINESS
ANDHOWTHESEAREMANAGED
CONTINUED

3 Managing the risks in implementing our strategy
ThissectionprovidesanoverviewoftheGroup’sstrategy,thesignificantrisksarisingfromthedeliveryofthisstrategyandcurrent
riskmanagementfocus.Therisksoutlinedbelow,whicharenotexhaustive,arediscussedinmoredetailinsections5and6.

Our strategy

Significant risks arising from 
the delivery of the strategy

Risk management focus

Group-wide
Ourstrategyistocapture
thelong-termstructural
opportunitiesforourmarkets
andgeographies,while
operatingwithdiscipline
andseekingtoenhanceour
capabilitiesthroughinnovation
todeliverhigh-qualityresilient
outcomesforourcustomers.

Asia
Servingtheprotectionand
investmentneedsofthe
growingmiddleclassinAsia.

United States
Providingassetaccumulation
andretirementincome
productstoUSretirees.

Africa
Offeringproductstonew
customersinAfrica,oneof
thefastest-growingregions
intheworld.

Transformation risks 
around key change 
programmes, including 
those related to the 
Group’s digital strategy

Continuingthefocuson,andensuringconsistency
intransformationriskmanagementacrosstheGroup’s
businessunits.
Provisionofindependentriskassurance,challengeandadvice
onfirstlineprogrammeriskidentificationandassessments.

Group-wide 
regulatory risks

Information security 
and data privacy risks

Business disruption 
and third-party risks

Conduct risk

Financial risks

Persistency risk

Morbidity risk

Financial risks

Engagementwithnationalgovernments,regulatorsand
industrygroupsonmacroprudentialandsystemicrisk-related
regulatoryinitiatives,internationalcapitalstandards,andother
initiativeswithGroup-wideimpacts.
EngagementwiththeHongKongIAon,andimplementation
of,theGroup-wideSupervisionFramework,whichisexpected
tobefinalisedinH22020.

ContinuingtheimplementationoftheGroup-wide
organisationalstructureandgovernancemodelforcyber
securitymanagement.
Focusoncompliancewithapplicableprivacylawsacrossthe
Groupandtheappropriateuseofcustomerdata.

ContinuedapplicationoftheGroup’sglobalbusiness
continuitymanagement,withanenhancedfocuson
operationalresilienceasitrelatestocustomeroutcomes.
Applyingthedistinctoversightandriskmanagement
requiredovertheGroup’sthirdparties,includingitsstrategic
partnershipsforproductdistribution,non-traditionalservices
andprocessingactivities.

ContinuingtheenhancementoftheGroup-widecustomer
conductriskmanagementframeworkbuildingontheGroup’s
existingcustomercommitmentspolicy.

Maintaining,andenhancingwherenecessary,risklimitsand
implementingbusinessinitiativestomanagefinancialrisks,
includingassetallocation,bonusrevisions,productrepricing
andreinsurancewhererequired.

Implementationofbusinessinitiativestomanagepersistency
risk,includingadditionalpaymentmethods,enhancing
customerexperience,revisionstoproductdesignand
incentivestructures.Ongoingexperiencemonitoring.

Implementationofbusinessinitiativestomanagemorbidity
risk,includingproductrepricingwhererequired.Ongoing
experiencemonitoring.

Maintaining,andenhancingwherenecessary,risklimits,
hedgingstrategies,modellingtoolsandriskoversight
appropriatetoJackson’sproductmix.

Policyholder 
behaviour risk

Continuedmonitoringofpolicyholderbehaviourexperience
andreviewofassumptions.

TheGroupcontinuestoincreaseitsfocusonPrudentialAfrica’smostsignificantrisks,being
thoserelatedtophysicalandinformationsecurityandfinancialcrime,asitspresencethere
expandsandgrowsinmateriality.

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In2019,theGroupreviewedandupdated
itspoliciesandprocessesforalignment
withtherequirementsofitsnewGroup-
widesupervisor.Theframeworksrelating
tooversightoftransformationriskand
modelriskwerefurtherembeddedand
theGroupfocusedondevelopmentof
aGroup-widecustomerconductrisk
framework,buildingonitsexisting
customercommitmentspolicy.

Thefollowingsectionprovidesmore
detailonourriskgovernance,riskculture
andriskmanagementprocess.

4 Risk governance
a System of governance 
Appropriatelymanagedrisksallow
Prudentialtotakebusinessopportunities
andenablethegrowthofitsbusiness.
Effectiveriskmanagementistherefore
fundamentalintheexecutionofthe
Group’sbusinessstrategy.Prudential’s
approachtoriskmanagementmustbe
bothwellembeddedandrigorous,closely
alignedtotheGroup’skeystakeholders
andoperateacrosstheentiregroup.
Astheeconomicandpoliticalenvironment
inwhichweoperatechanges,itshould
alsobesufficientlybroadanddynamic
torespondtothesechanges.

Prudentialhasinplaceasystemof
governancethatpromotesandembedsa
clearownershipofrisk,processesthatlink
riskmanagementtobusinessobjectives
andaproactiveBoardandsenior
managementprovidingoversightofrisks.
Mechanismsandmethodologiestoreview,
discussandcommunicaterisksareinplace
togetherwithriskpoliciesandstandards
toensurerisksareidentified,measured,
managed,monitoredandreported.

How ‘risk’ is defined
Prudentialdefines‘risk’astheuncertainty
thatisfacedinimplementingtheGroup’s
strategiesandachievingitsobjectives
successfully,andincludesallinternalor
externalevents,actsoromissionsthathave
thepotentialtothreatenthesuccessand
survivaloftheGroup.Accordingly,material
riskswillberetainedselectivelywhenitis
consideredthatthereisvalueindoingso,
andwhereitisconsistentwiththeGroup’s
riskappetiteandphilosophytowards
risk-taking.

How risk is managed
Riskmanagementisembeddedacrossthe
GroupthroughtheGroupRiskFramework,
whichisownedbytheBoardanddetails
Prudential’sriskgovernance,risk
managementprocessesandriskappetite.
TheGroup’sriskgovernancearrangements
arebasedontheconceptofthe‘threelines
ofdefence’model,comprisingrisktaking
andmanagement,riskcontroland
oversight,andindependentassurance
andhasbeendevelopedtomonitorthe
riskstoourbusiness.TheaggregateGroup
exposuretoitskeyriskdriversismonitored
andmanagedbytheGroupRiskfunction
whichisresponsibleforreviewing,
assessing,providingoversightandreporting
ontheGroup’sriskexposureandsolvency
positionfromtheGroupeconomic,
regulatoryandratingsperspectives.

Risk management

Identified major risk categories

n

Risk identifi c ati o

Risk measure

m

e

n

t 

a

n

d

a

s

s

e

s

s

m

e

n

t

Risk governance  
and culture

Business 
strategy

Capital 
management

Stress and  
scenario testing

M

o

n

i
t

o

r 

a

n

d r
e

p

ort

a g e and control

n

M a

s to our fi nan cial sit u

liq

ark

M

Risk

et a

uidity ris

n

d  

k

n

t i o

a

E

g

c

e

o

o

n

p

o

o

l

m

i

t

i

i

c

c

a

a

l

n

r

d

i

s

k

s

u
r b

Risks from o
Operational, 
disruption and 
cyber risks

k
is
n r
o
i
t
a
m
r
o
f
s
n
a
Tr

Credit risk

s

I n

u

si

n

e

s

s

a

n

d

i

n

d

u

s

t

r

y

k

e  ris

c

n

u r a
C o n d u c t   r i s k

Group  
risk profile

t u r e

r

i s k   –  
S o c i a l
p e o p l e   a n d   c u l

G overnance risk

E

S

G

 ris

k

s

k

s

s  
ure
n ris
clo
sitio
ate dis
d tra
Clim

n

n
a

Regulatory capital 
developments

R

c

o

e

g

m

plia

ula
t
o
r
y 

n

c

e

s

n d regulatory risk

a l a

g

e

L

R

e

g

u

l

a

t

o

r

y

c

h

a

n

g

e

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
 
 
 
 
 
 
GROUPCHIEFRISKANDCOMPLIANCEOFFICER’SREPORTONTHERISKSFACINGOURBUSINESS
ANDHOWTHESEAREMANAGED
CONTINUED

— TheGroupworkstobuildskillsand

capabilitiesinriskmanagement,which
areneededbybothseniormanagement
andriskmanagementspecialists,while
attemptingtoallocatescarceresources
appropriately;and

— Employeesunderstandandcareabout
theirroleinmanagingrisk–theyare
awareofanddiscussriskopenlyas
partofthewaytheyperformtheirrole.

TheGroupRiskCommitteealsohas
akeyroleinprovidingadvicetothe
RemunerationCommitteeonrisk
managementconsiderationstobeapplied
inrespectofexecutiveremuneration.

Prudential’sGroupCodeofBusiness
ConductandGroupGovernanceManual
includeaseriesofguidingprinciplesthat
governtheday-to-dayconductofallits
peopleandanyorganisationsactingon
itsbehalf.Thisissupportedbyspecific
risk-relatedpolicieswhichrequirethat
theGroupactinaresponsiblemanner.
Theseinclude,butarenotlimitedto,
policiesrelatedtofinancialcrimecovering
anti-moneylaundering,financialcrimeand
anti-briberyandcorruption.TheGroup’s
third-partysupplypolicyensuresthat
humanrightsandmodernslavery
considerationsareembeddedacrossallof
itssupplierandsupplychainarrangements.
Embeddedprocedurestoallowindividuals
tospeakoutsafelyandanonymously
againstunethicalbehaviourandconduct
arealsoinplace.

TheESGExecutiveCommitteeisfocused
ontheholisticassessmentofESGmatters
materialtotheGroup,raisingmattersfor
Boarddecision-makingandoverseeing
theimplementationofresultingdecisions,
supportingthesustainabledeliveryofthe
Group’sstrategy.ItreportstotheBoard
throughtheGroupNominationand
GovernanceCommitteewhichcomprises
theGroup’sChairman,theSenior
IndependentDirector,andthechairsofthe
Audit,RemunerationandRiskcommittees
andisregularlyattendedbytheGroup
ChiefExecutive.

b Group Risk Framework
i Risk governance and culture
Prudential’sriskgovernancecomprisesthe
Boardorganisationalstructures,reporting
relationships,delegationofauthority,roles
andresponsibilities,andriskpoliciesthat
theGroupHeadOfficeandthebusiness
unitsestablishtomakedecisionsand
controltheiractivitiesonrisk-related
matters.Itincludesindividuals,Group-
widefunctionsandcommitteesinvolved
inoverseeingandmanagingrisk.

Theriskgovernancestructureisledby
theGroupRiskCommittee,supported
byindependentnon-executivedirectors
onriskcommitteesoftheGroup’smain
subsidiaries.Thesecommitteesmonitor
thedevelopmentoftheGroupRisk
Framework,whichincludesriskappetite,
limits,andpolicies,aswellasriskculture.

TheGroupRiskCommitteereviewsthe
GroupRiskFrameworkandrecommends
totheBoardanychangesrequiredto
ensurethatitremainseffectivein
identifyingandmanagingtherisks
facedbytheGroup.Anumberofcore
riskpoliciesandstandardssupportthe
Frameworktoensurethatriskstothe
Groupareidentified,assessed,managed
andreported.Inaddition,asetofpolicies
ownedbyotherGroupfunctionssupport
theeffectiveimplementationoftheGroup
RiskFramework.

CultureisastrategicpriorityoftheBoard,
whichrecognisesitsimportanceintheway
thattheGroupdoesbusiness.Risk
cultureisasubsetofPrudential’sbroader
organisationalculture,whichshapesthe
organisation-widevaluesthatweuseto
prioritiseriskmanagementbehaviours
andpractices.

RiskcultureformspartoftheGroup
RiskFrameworkandtheGroupworks
topromotearesponsibleriskculture
inthefollowingways:

— Seniormanagementinbusinessunits
promotearesponsiblecultureofrisk
managementbyemphasisingthe
importanceofbalancingriskwith
profitabilityandgrowthindecision-
making.Thisbalanceisincludedin
theperformanceevaluationofkey
individuals,includingbothsenior
managementandthosedirectly
responsibleforriskmanagement;

ii The risk management cycle 
Theriskmanagementcyclecomprises
processestoidentify,measureandassess,
manageandcontrol,andmonitorand
reportonourrisks.

Risk identification
Group-wideriskidentificationtakes
placethroughouttheyearastheGroup’s
businessesundertakeacomprehensive
bottom-upprocesstoidentify,assessand
documentitsrisks.Thisconcludeswith
anannualtop-downidentificationofthe
Group’sprincipalrisks,whichconsiders
thoserisksthathavethegreatestpotential
toimpacttheGroup’soperatingresultsand
financialconditionandisusedtoinform
riskreportingtotheriskcommitteesand
theBoardfortheyear.

Ourriskidentificationprocessalsoincludes
theGroup’sOwnRiskandSolvency
Assessment(ORSA)andhorizon-scanning
performedaspartofouremergingrisk
managementprocess.Inadditiontorisk
identification,theORSAisalsothe
ongoingprocessofassessing,controlling,
monitoringandreportingtheriskstowhich
thebusinessisexposed.Itincludesan
assessmentofcapitaladequacytoensure
thattheGroup’ssolvencyneedsaremet
atalltimesaswellasquantitativeand
qualitativeassessmentsoftheGroup’srisk
profileandsolvencyneedsonaforward-
lookingbasis,incorporatingtheGroup’s
strategyandbusinessplan.TheGroup’s
regularORSAreportwasproducedin
H12019,withanadditionalORSAreport
producedinOctober2019inanticipation
ofthecompletionofthedemergerofM&G
plcwhichincludedaforward-looking
assessmentofthepostdemergerGroup’s
capitalandliquiditypositionunderarange
ofstressesandscenarios.

Inaccordancewithprovision28oftheUK
CorporateGovernanceCode,aprocess
isinplacetosupportGroup-wide
identificationofthecompany’semerging
andprincipalrisksandthiscombinesboth
top-downandbottom-upviewsofrisks
attheleveloftheGroupanditsbusiness
units.TheBoardperformsarobust
assessmentandanalysisoftheseprincipal
andemergingrisksfacingthecompany
throughtheriskidentificationprocess,
theGroupORSAreportandtherisk
assessmentsundertakenaspartofthe
businessplanningreview,includinghow
theyaremanagedandmitigated,which
supportsdecision-making.

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Themethodsandriskmanagementtools
thattheGroupemploystomitigateeachof
itsmajorcategoriesofrisksaredetailedin
thefurtherriskinformationsectionbelow.

Risk monitoring and reporting
TheidentificationoftheGroup’skeyrisks
informsthemanagementinformation
receivedbytheGroupriskcommitteesand
theBoard.Riskreportingofkeyexposures
againstappetiteisalsoincluded,aswellas
ongoingdevelopmentsintheGroup’s
principalandemergingrisks.

iii Risk appetite, limits and triggers
TheGrouprecognisesthatinterestsof
itscustomersandshareholdersanda
managedacceptanceofriskliesatthe
heartofitsbusiness,andthateffectiverisk
managementcapabilitiesrepresentakey
sourceofcompetitiveadvantage.The
extenttowhichPrudentialiswillingtotake
riskinthepursuitofitsbusinessstrategy
andobjectivetocreateshareholdervalue
isdefinedbyanumberofqualitativeand
quantitativeexpressionsofriskappetite,
operationalisedthroughmeasuressuchas
limits,triggersandindicators.TheGroup
Riskfunctionisresponsibleforreviewing
thescopeandoperationoftheserisk
appetitemeasuresatleastannuallyto
determinethattheyremainrelevant.
TheBoardapprovesallchangesmadeto
theGroup’saggregateriskappetiteand
hasdelegatedauthoritytotheGroupRisk
Committeetoapprovechangestothe
systemoflimits,triggersandindicators.

Groupriskappetiteisdefinedand
monitoredinaggregateforfinancial
andnon-financialrisksbythesetting
ofobjectivesforitsliquidity,capital
requirementsandnon-financialrisk
exposure.Furtherdetailisincludedin
sections5and6,aswellascoveringrisks
toshareholders,includingthosefrom
participatingandthird-partybusiness.
Grouplimitsoperatewithinthese
expressionsofriskappetitetoconstrain
materialrisks,whiletriggersandindicators
providefurtherconstraintanddefined
pointsforescalation.

Capital requirements
Limitsoncapitalrequirementsaimto
ensurethattheGroupmaintainssufficient
capitalsuchthatinbusiness-as-usualand
stressedconditionsitexceedsitsinternal
economiccapitalrequirements,achieves
itsdesiredtargetratingtomeetitsbusiness
objectives,andsupervisoryintervention
isavoided.Thetwomeasurescurrently
inuseattheGrouplevelaretheregulatory
localcapitalsummationmethod(LCSM)
capitalrequirements(bothminimumand
prescribedlevels)andinternaleconomic
capital(ECap)requirements.Inaddition,
capitalrequirementsaremonitoredon
localstatutorybases.

TheGroupRiskCommitteeisresponsible
forreviewingtherisksinherentinthe
Group’sbusinessplanandforproviding
theBoardwithinputontherisk/reward
trade-offsimplicittherein.Thisreview
issupportedbytheGroupRiskfunction,
whichusessubmissionsfromlocalbusiness
unitstocalculatetheGroup’saggregated
positionrelativetotheaggregaterisklimits.

Liquidity
TheobjectiveoftheGroup’sliquidityrisk
appetiteistoensurethattheGroupisable
togeneratesufficientcashresourcesto
meetfinancialobligationsastheyfall
dueinbusiness-as-usualandstressed
scenarios.Riskappetitewithrespectto
liquidityriskismeasuredusingaliquidity
coverageratio(LCR)whichconsidersthe
sourcesofliquidityagainstliquidity
requirementsunderstressscenarios.

Non-financial risks
TheGroupisexposedtonon-financial
risksasanoutcomeofitschosenbusiness
activitiesandstrategy.Itaimstomanage
theseriskseffectivelytomaintainits
operationalresilienceanditscommitments
tocustomers,andtoavoidmaterialadverse
impactonitsreputation.

Stressandscenariotesting,whichincludes
reversestresstestingrequiringtheGroup
toascertainthepointofbusinessmodel
failure,isanothertoolthathelpsusto
identifythekeyrisksandscenariosthat
mayhaveamaterialimpactontheGroup.

Theriskprofileisakeyoutputfromthe
riskidentificationandriskmeasurement
processesandisusedasabasisfor
settingGroup-widelimits,management
information,assessmentofsolvency
needs,anddeterminingappropriatestress
andscenariotesting.TheGroup’sannual
setofprincipalrisksisgivenenhanced
managementandreportingfocus.

Risk measurement and assessment
Allidentifiedrisksareassessedbasedon
anappropriatemethodologyforthatrisk.
Allquantifiablerisks,whicharematerial
andmitigatedbyholdingcapital,are
modelledintheGroup’sinternalmodel,
whichisusedtodetermineeconomic
capitalrequirements.Governance
arrangementsareinplacetosupportthe
internalmodel,includingindependent
validationandprocessesandcontrols
aroundmodelchangesandlimitations.

Risk management and control
Thecontrolproceduresandsystems
establishedwithintheGroupare
designedtomanagetheriskoffailingto
meetbusinessobjectives.Thesefocuson
aligningthelevelsofrisk-takingwiththe
Group’sstrategyandcanonlyprovide
reasonable,andnotabsolute,assurance
againstmaterialmisstatementorloss.

Riskmanagementandcontrol
requirementsaresetoutintheGrouprisk
policies,andformpartoftheholisticrisk
managementapproachundertheGroup’s
ORSAprocess.Theseriskpoliciesdefine:

— TheGroup’sriskappetiteinrespectof

materialrisks,andtheframeworkunder
whichtheGroup’sexposuretothose
risksislimited;

— TheprocessestoenableGroupsenior

managementtoeffectthemeasurement
andmanagementoftheGroupmaterial
riskprofileinaconsistentandcoherent
way;and

— Theflowsofmanagementinformation
requiredtosupportthemeasurement
andmanagementoftheGroup’s
materialrisks.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUPCHIEFRISKANDCOMPLIANCEOFFICER’SREPORTONTHERISKSFACINGOURBUSINESS
ANDHOWTHESEAREMANAGED
CONTINUED

Risk management 
Risk identification
Riskidentificationcovers
Group-wide:

— Top-downriskidentification
— Bottom-upriskidentification
— Emergingriskidentification

Risk measurement 
and assessment
Risksareassessedinterms
ofmateriality.

Materialriskswhicharemodelled
areincludedinappropriately
validatedcapitalmodels.

Manage and control
Riskappetiteandlimitsallow
forthecontrolledgrowthofour
business,inlinewithbusiness
strategyandplan.

Processesthatsupportthe
oversightandcontrolofrisks
include:

— TheRiskandControl
Assessmentprocess.

— TheOwnRiskandSolvency

Assessment(ORSA).

— Groupapprovedlimitsand
earlywarningtriggers.
— Largeriskapprovalprocess.
— Globalcounterpartylimit

framework.

— Financialincidentsprocedures.
— Stressandscenariotesting,

includingreversestresstesting.

Monitor and report
Escalationrequirementsinthe
eventofabreachareclearly
defined.Riskreportingprovides
regularupdatestotheGroup’s
Boardandriskcommitteeson
exposuresagainstBoard-approved
appetitestatementsandlimits.
ReportingalsocoverstheGroup’s
keyrisks.

n

Risk identifi c ati o

Risk measure

m

e

n

t 

a

n

d

a

s

s

e

s

s

m

e

n

t

Risk governance  
and culture

Business 
strategy

Capital 
management

Stress and  
scenario testing

M

o

n

i
t

o

r 

a

n

d r
e

p

ort

a g e and control

n

M a

Risk governance and culture
Riskgovernancecomprisesthe
Board,organisationalstructures,
reportingrelationships,delegation
ofauthority,rolesandresponsibilities,
andriskpolicies.Riskcultureisa
subsetofbroaderorganisational
culture,andshapestheorganisation-
widevaluesusedtoprioritiserisk
managementbehaviours.

Capital management
Capitaladequacyismonitoredto
ensurethatinternalandregulatory
capitalrequirementsaremet,and
thatsolvencybuffersareappropriate,
overthebusinessplanninghorizon
andunderstress.

Business strategy
Businessstrategyandthebusiness
planprovidedirectiononfuture
growthandinformtheleveloflimits
onsolvency,liquidityandearnings
andforourkeyrisks.TheGroupRisk
functionprovidesinputandopinion
onkeyaspectsofbusinessstrategy.

Stress and scenario testing
Stressandscenariotestingis
performedtoassesstherobustness
ofcapitaladequacyandliquidity,
andtheappropriatenessofrisklimits.
Recoveryplanningassessesthe
effectivenessoftheGroup’srecovery
measuresandtheappropriateness
ofactivationpoints.

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5 Summary risks
Broadly,therisksassumedacrossthe
Groupcanbecategorisedasthoserelating
toitsfinancialsituation,itsbusinessand
industry,regulatoryandlegalcompliance
andthoserelatingtoESG.Principalrisks,
whethermaterialisingwithintheGroupor
atthirdpartiesonwhichtheGrouprelies,
mayhaveafinancialimpactandcould

alsoimpacttheperformanceofproducts
orservicesprovidedtocustomersand
distributors,anditsabilitytofulfil
commitmentstocustomers,givingrise
topotentialriskstoitsbrandandreputation.
Theserisks,whicharenotexhaustive,
aresummarisedbelow.Themateriality
oftheserisks,whethermaterialatthelevel

oftheGrouporitsbusinessunits,
isalsoindicated.Furtherinformation
onsomeoftheserisksandtherisk
managementandmitigationinplace
areincludedinsection6.TheGroup’s
disclosurescoveringriskfactorsarealigned
tothesamecategoriesandcanbefound
attheendofthisdocument.

Risks to the Group’s financial situation (including those from the external macroeconomic and geopolitical environment)
TheglobaleconomicandgeopoliticalenvironmentmayimpactontheGroupdirectlybyaffectingtrendsinfinancialmarkets
andassetvalues,aswelldrivingshort-termvolatility.

Risksinthiscategoryincludethemarketriskstoourinvestments,thecreditqualityofourinvestmentportfolioaswellas
liquidityrisk.

Global economic conditions
ChangesinglobaleconomicconditionscanimpactPrudential
directly;forexample,byleadingtoreducedinvestment
returnsandfundperformanceandliquidity,andincreasing
thecostofpromises(guarantees)thathavebeenmadetoour
customers.Changesineconomicconditionscanalsohavean

indirectimpactontheGroup;forexample,leadingtoa
decreaseinthepropensityforpeopletosaveandbuy
Prudential’sproducts,aswellaschangingprevailingpolitical
attitudestowardsregulation.Thisisariskwhichisconsidered
materialattheleveloftheGroup.

Geopolitical risk
Thegeopoliticalenvironmentcandirectlyimpactonthe
Groupinawiderangeofways.Financialmarketsand
economicsentimenthavebeenhighlysusceptibleto
geopoliticaldevelopmentsinrecentyears,withimplications
fortheGroup’sfinancialsituation.Geopoliticaltensionscan
resultinmasscivilprotestsand/ordisobedienceaswellasthe
impositionofrestrictiveregulatoryandtradingrequirements
bygovernmentsandregimes;increasingoperational,business

disruptionandregulatoryrisks,andpotentiallyimpacting
salesdirectly.DevelopmentsintheHongKongprotestsand
therecentCOVID-19outbreakacrossAsiaarebeingclosely
monitoredbytheGroupandplanshavebeenenactedto
ensurethatanypotentialimpacttothebusiness,our
employeesandcustomersaremanagedwithinourexisting
businessresilienceprocesses.

Market risks to our investments
ThisisthepotentialforreducedvalueofPrudential’s
investmentsresultingfromthevolatilityofassetprices,
drivenbyfluctuationsinequityprices,interestrates,
foreignexchangeratesandpropertyprices.

IntheAsiabusiness,themainmarketrisksarisefromthevalue
offeesfromitsfee-earningproductsaswellasfromthe
guaranteesofsomenon-linkedproducts.IntheUS,Jackson’s
fixedandvariableannuitybooksareexposedtoavarietyof
marketrisksduetotheassetsbackingthesepolicies.

Interestratesremainlowrelativetohistoricallevelsanda
persistentlylowinterestrateenvironmentposeschallenges
toboththecapitalpositionoflifeinsurersaswellastonew
businessprofitability.

Liquidity risk 
Thisistheriskofnothavingsufficientliquidassetstomeet
obligationsastheyfalldue,andtheGrouplooksatthisunder

bothnormalandstressedconditions.Thisisariskwhich
isconsideredmaterialattheleveloftheGroup.

Credit risk
TheGroup’sassetportfoliogivesrisetoinvestedcreditrisk,
beingthepotentialforareductioninthevalueofPrudential’s
investmentsdrivenbytheloweringofcreditqualityand
likelihoodofdefaults.TheassetsbackingtheJacksongeneral
accountportfolioandtheAsiashareholderbusinessmeans

creditriskisconsideredamaterialriskfortheGroup’s
businessunits.

TheGroupisalsoexposedtocounterpartydefaultrisk
throughactivitiessuchasreinsuranceandderivativehedging
aswellastheoperationalmanagementofcash.

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ANDHOWTHESEAREMANAGED
CONTINUED

Risks from the nature of our business and our industry
TheseincludetheGroup’snon-financialrisks(includingoperationalandfinancialcrimerisk),transformationrisksfrom
significantchangeactivityandtheinsurancerisksassumedbytheGroupinprovidingitsproducts.

Transformation risk
Thisistheriskarisingfromthedesignandexecutionof
amaterialandcomplexchangeinitiative,oracombination
ofinitiatives.

Anumberofsignificantchangeprogrammesarecurrently
inprogressthateffectboththeGroup’sstrategicvision,

enableitsfuturecompliancewithimpendingregulatory
changesandtomaintaintheGroup’smarketcompetitiveness.
Thebreadthoftheseactivities,andtheirconsequences,
includingthereputationalimpact,totheGroupshouldthey
failtomeettheirobjectives,meanthatthisriskremains
materialattheleveloftheGroup.

Non-financial risks 
AcombinationofthecomplexityoftheGroup,itsactivities
andtheextentoftransformationinprogresscreatesa
challengingoperatingenvironment.

Operationalriskistheriskoflossorunintendedgain
frominadequateorfailedprocesses,personnel,systems
andexternalevents,andcanarisethroughbusiness
transformation,introducingnewproducts,newtechnologies,
andenteringintonewmarketsandgeographies.
Implementingthebusinessstrategyandprocessesfor
ensuringregulatorycompliance(includingthoserelatingto
theconductofitsbusiness)requiresinterconnectedchange
initiativesacrosstheGroup,thepaceofwhichintroduces
furthercomplexity.TheGroup’soutsourcingandthird-party
relationshipsintroducetheirowndistinctrisks.Such
operationalrisks,iftheymaterialise,couldresultinfinancial
lossand/orreputationaldamage.Theserisksareconsidered
tobematerialattheleveloftheGroup.

BusinessdisruptionrisksmayimpactonPrudential’sability
tomeetitskeyobjectives,ensurecontinuityofservicesto
customers,andprotectitsbrandandreputation.TheGroup’s
businessresilienceisacorepartofawell-embeddedbusiness
continuitymanagementprogramme,whichcontributesto
thewideroperationalresilienceoftheGroup.

Informationsecurityanddataprivacyrisksaresignificant
considerationsforPrudentialandthecybersecuritythreat

continuestoevolvegloballyinsophisticationandpotential
significance.Thisincludestheriskofmaliciousattackon
itssystems,networkdisruptionandrisksrelatingtodata
security,integrity,privacyandmisuse.Thescaleofthe
Group’sITinfrastructureandnetwork(andtheservices
requiredtomonitorandmanageit),stakeholderexpectations
andhigh-profilecybersecurityanddatamisuseincidents
acrossindustriesmeanthattheserisksareconsidered
materialattheleveloftheGroup.

Prudentialandtheinsuranceindustryaremakingincreasing
useofemergingtechnologicaltoolsanddigitalservices,
orformingpartnershipswiththirdpartiesthatprovidethese
capabilities.Whilethisprovidesnewopportunities,opening
upmarkets,improvinginsightsandincreasingscalability,
italsocomeswithadditionalriskswhicharemanagedwithin
theGroup’sexistinggovernanceandriskmanagement
processes,includingadditionaloperationalrisksand
increasedrisksarounddatasecurityandmisuse.Automated
digitaldistributionchannelsincreasethecriticalityofsystem
andprocessresilienceinordertodeliveruninterrupted
servicetocustomers.

Aswithallfinancialservicesfirms,thenatureoftheGroup’s
businessanditsoperationsmeansthatitisexposedtofinancial
crimeriskssuchasthoserelatingtomoneylaundering,fraud,
sanctionscomplianceandbriberyandcorruption.

Insurance risks
ThenatureoftheproductsofferedbyPrudentialexposesit
toinsurancerisks,whichformasignificantpartoftheoverall
Groupriskprofile.

Theinsurancerisksthatthebusinessisexposedtobyvirtue
ofitsproductsincludepersistency risk(customerslapsing
theirpoliciesatdifferentlevelsthanexpected,andatypeof
policyholderbehaviourrisk);mortality risk(highernumber
ofpolicyholderswithlifeprotectiondyingthanexpected);
morbidity risk(morepolicyholderswithhealthprotection
becomingillthanexpected)andlongevity risk(policyholders
livinglongerthanexpected).Themedicalinsurancebusinessin
Asiaisalsoexposedtomedical inflation risk (theincreasing
costofmedicaltreatmentsbeinghigherthanexpected).

ThepricingofPrudential’sproductsrequiresittomake
anumberofassumptions,anddeviationsfromthese
mayimpactitsreportedprofitabilityandcapitalposition.
Acrossitsbusinessunits,someinsurancerisksaremore
materialthanothers.

Persistencyandmorbidityrisksareamongthemostmaterial
insurancerisksfortheAsiabusinessgiventhefocusonhealth
andprotectionproductsintheregion.

TheJacksonbusinessismostexposedtopolicyholder
behaviourrisk,includingpersistency,whichimpactsthe
profitabilityofthevariableannuitybusinessandisinfluenced
bymarketperformanceandthevalueofpolicyguarantees.

Conduct risk
Prudential’sconductofbusiness,especiallythedesignand
distributionofitsproductsiscrucialinensuringthatthe
Group’scommitmenttomeetingcustomers’needsand

expectationsaremet.TheGroup’sconductriskframework
isownedbythefirstlinewhichreflectsmanagementfocus
onachievinggoodcustomeroutcomes.

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Risks related to regulatory and legal compliance
Theseincluderisksassociatedwithprospectiveregulatoryandlegalchangesandcompliancewithexistingregulationsand
laws–includingtheirretrospectiveapplication–withwhichtheGroupmustcomplywithintheconductofitsbusiness.

Prudentialoperatesundertheever-evolvingrequirements
setoutbydiverseregulatory,legalandtaxregimes.The
increasingshifttowardsmacroprudentialregulationandthe
numberofregulatorychangesunderwayacrossAsiaandUS
(inparticularfocusingoncapitalrequirementsandconsumer
protection)arekeyareasoffocus.Regulatoryreforms
canhaveamaterialimpactonPrudential’sbusinesses.
From21October2019,Prudential’sGroup-widesupervisor
changedtotheHongKongIA.Asaresult,theGroupis
nowapplyingthelocalcapitalsummationmethod(LCSM)

todetermineGroupregulatorycapitalrequirements
(bothminimumandprescribedlevels).TheHongKongIA’s
Group-wideSupervision(GWS)Frameworkisexpected
tobefinalisedinthesecondhalfof2020.

Astheindustry’suseofemergingtechnologicaltoolsand
digitalservicesincreases,thisislikelytoleadtonewand
unforeseenregulatoryissues.TheGroupismonitoringthe
regulatorydevelopmentsandstandardsemergingaround
thegovernanceandethicaluseoftechnologyanddata.

The Group’s ESG-related risks
Theseincludeenvironmentalrisksassociatedwithclimatechange(includingphysicalandtransitionrisks),socialrisksthatarise
fromthediversepeopleandcommunitiesthattheGroupinteractswithandgovernance-relatedrisks.

AsaGroup,respondingeffectivelytothosematerialriskswith
ESGimplicationsiscrucialinmaintainingPrudential’sbrand
andreputation,andinturnitsfinancialperformanceand
deliveryofitslong-termstrategy.

Theseincludetheenvironmental risksassociated
withclimatechangeandtheimpactofthisonthebusiness,
suchasthephysicalimpactsontheGroup’soperational
resilience,underwritingassumptionsandclaimsprofile,
aswellastheimpacttolong-termassetvaluationsresulting
fromthetransitiontoalowcarboneconomy.Social risks
affectingPrudentialmayarisefrompublichealthand
demographicchanges(suchasincreasingobesityand
urbanisation),whichmayimpactonproductclaimsprofiles.
Socialrisksmayalsoarisefromafailuretoconsidertherights,

diversity,well-being,andinterestsofpeopleand
communitiesinwhichtheGroup,oritsthird-parties,
operates.ThisincludestheresponsibilitiestheGroup
assumesasaresponsibleemployer.Governance risks
mayarisefromafailuretomaintainhighstandardsof
corporategovernance(includingcommitteeindependence
anddiversity)seniormanagementbehavioursandoversight
ofkeyrisks.

PoliciesandprocedurestosupporthowtheGroupoperates
inrelationtocertainESGissuesareincludedintheGroup
GovernanceManual.FurtherinformationonhowPrudential
addressesmaterialrisksassociatedwithESGthemesare
includedintheESGSummary.

6 Further risk information
Inreadingthesectionsbelow,itisuseful
tounderstandthattherearesomerisks
thatPrudential’spolicyholdersassume
byvirtueofthenatureoftheirproducts,
andsomerisksthattheCompanyandits
shareholdersassume.Examplesofthe
latterincludethoserisksarisingfromassets
helddirectlybyandfortheCompanyorthe
riskthatpolicyholderfundsareexhausted.
Thisreportisfocusedmainlyonrisksto
theshareholderbutwillincludethose
whichariseindirectlythroughour
policyholderexposures.

6.1 Risks to the Group’s financial 
situation, including those from 
the external macroeconomic 
and geopolitical environment
a Market risk
(Audited)
Themaindriversofmarketriskinthe
Groupare:

— Investmentrisk,whichariseson

ourholdingsofequityandproperty
investments,thepricesofwhich
canchangedependingonmarket
conditions.Themaininvestmentrisk
exposurearisesfromtheportion
oftheprofitsfromtheHongKong
with-profitsfundswhichthe
shareholdersareentitledtoreceive;
thevalueofthefuturefeesfrom
thefee-earningproductsinthe
Asiabusiness;andfromtheasset
returnsbackingJackson’svariable
annuitiesbusiness;

— Interestraterisk,whichisdrivenby
thevaluationofPrudential’sassets
(particularlythebondsthatitinvestsin)
andliabilities,whicharedependenton
marketinterestratesandexposesitto
theriskofthosemovinginawaythatis
detrimental.TheGroup’sinterestrate
riskisdrivenbyJackson’sfixedannuity
business,thecostofguaranteesin
itsfixedindexandvariableannuity
business,andtheguaranteesofsome
non-unit-linkedinvestmentsavings
productsinAsia.Theimpactoflower
interestratesalsomanifeststhrough
reducedsolvencylevelsinsomeofthe
Asianbusinessesaswellasreduced
newbusinessprofitability;and

— Foreignexchangerisk,through

translationofitsprofitsandassetsand
liabilitiesdenominatedinvarious
currencies,giventhegeographical
diversityofthebusiness.

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ANDHOWTHESEAREMANAGED
CONTINUED

TheGrouphasappetiteformarketrisk
whereitarisesfromprofit-generating
insuranceactivitiestotheextentthatit
remainspartofabalancedportfolioof
sourcesofincomeforshareholdersandis
compatiblewitharobustsolvencyposition.

TheGroup’smarketrisksaremanaged
andmitigatedbythefollowing:

— TheGroupmarketriskpolicy;

— TheGroupAssetLiabilityCommittee
–afirst-lineriskmanagementadvisory
committeetotheGroupChief
ExecutiveOfficerwhichsupports
theidentification,assessmentand
managementofkeyfinancialrisks
significanttotheachievementof
theGroup’sbusinessobjectives;

— Riskappetitestatements,limits

andtriggers;

— Ourassetandliabilitymanagement

programmeswhichinclude
managementactionssuchasasset
allocation,bonusrevisions,repricing
andtheuseofreinsurancewhere
appropriate;

— Hedgingderivatives,includingequity

optionsandfutures,interestrateswaps
andswaptionsandcurrencyforwards;

— Themonitoringandoversightofmarket
risksthroughtheregularreporting
ofmanagementinformation;and

— Regulardeepdiveassessments.

Equity and property investment risk
InAsia,theshareholderexposuretoequity
pricemovementsresultsfromunit-linked
products,wherefeeincomeislinkedto
themarketvalueofthefundsunder
management.Furtherexposurearises
fromwith-profitsbusinesseswhere
bonusesdeclaredarebasedbroadlyon
historicalandcurrentratesofreturnfrom
theAsiabusiness’sinvestmentportfolios,
whichincludeequities.

InJackson,investmentriskarisesfromthe
assetsbackingcustomerpolicies.Equity
riskisdrivenbythevariableannuity
business,wheretheassetsareinvestedin
bothequitiesandbondsandthemainrisk
totheshareholdercomesfromproviding
theguaranteedbenefitsoffered.The
exposuretothisisprimarilycontrolledby
usingaderivativehedgingprogramme,
aswellasthroughtheuseofreinsurance
topassontherisktothird-partyreinsurers.

Whileacceptingtheequityexposurethat
arisesonfuturefees,theGrouphaslimited
appetiteforexposurestoequityprice
movementstoremainunhedgedorfor

volatilitywithinpolicyholderguarantees
aftertakingintoaccountanynaturaloffsets
andbufferswithinthebusiness.

Interest rate risk
SomeproductsthatPrudentialoffers
aresensitivetomovementsininterest
rates.AspartoftheGroup’songoing
managementofthisrisk,anumberof
mitigatingactionstothein-forcebusiness
havebeentaken,aswellasrepricingand
restructuringnewbusinessofferingsin
responsetorecentrelativelylowinterest
rates.Nevertheless,somesensitivityto
interestratemovementsisstillretained.

TheGroup’sappetiteforinterestraterisk
islimitedtowhereassetsandliabilities
canbetightlymatchedandwhereliquid
assetsorderivativesexisttocoverinterest
rateexposures.

InAsia,ourexposuretointerestraterisk
arisesfromtheguaranteesofsomenon-unit-
linkedinvestmentsavingsproducts,
includingtheHongKongwith-profitsand
non-profitbusiness.Thisexposureexists
becauseofthepotentialforanasset
andliabilitymismatch,wherelong-dated
liabilitiesandguaranteesarebacked
byshort-datedassets,whichcannotbe
eliminated,butismonitoredandmanaged
throughlocalriskandassetliability
managementcommitteesagainstrisk
appetitealignedwiththeGroup’slimit
framework.

Jacksonisaffectedbyinterestrate
movementstoitsfixedannuitybookwhere
theassetsareprimarilyinvestedinbonds
andshareholderexposurecomesfrom
themismatchbetweentheseassetsand
theguaranteedratesthatareofferedto
policyholders.Interestrateriskresults
fromthecostofguaranteesinthevariable
annuityandfixedindexannuitybusiness,
whichmayincreasewheninterestrates
fall.Thelevelofsalesofvariableannuity
productswithguaranteedlivingbenefits
isactivelymonitored,andtherisklimits
wehaveinplacehelptoensureweare
comfortablewiththelevelofinterest
rateandmarketrisksincurredasaresult.
Derivativesarealsousedtoprovide
someprotection.

Foreign exchange risk
ThegeographicaldiversityofPrudential’s
businessesmeansthatithassome
exposuretotheriskofforeignexchange
ratefluctuations.Someentitieswithinthe
Groupthatwritepolicies,investinassets
orenterintoothertransactionsinlocal
currenciesorcurrenciesnotlinkedtothe
USdollar.Althoughthislimitstheeffect

ofexchangeratemovementsonlocal
operatingresults,itcanleadtofluctuations
intheGroupfinancialstatementswhen
resultsarereportedinUSdollars.Thisrisk
isacceptedwithinourappetiteforforeign
exchangerisk.

Incaseswhereanon-USdollar
denominatedsurplusarisesinan
operationwhichistobeusedtosupport
Groupcapital,orwhereasignificant
cashpaymentisduefromasubsidiary
totheGroup,thiscurrencyexposure
maybehedgedwhereitisbelievedtobe
favourableeconomicallytodoso.Further,
theGroupgenerallydoesnothaveappetite
forsignificantdirectshareholderexposure
toforeignexchangerisksincurrencies
outsidethecountriesinwhichitoperates,
butitdoeshavesomeappetiteforthis
onfeeincomeandonnon-sterling
investmentswithinthewith-profitsfund.
Whereforeignexchangeriskarises
outsideappetite,currencyswapsand
otherderivativesareusedtomanage
theexposure.

b Credit risk
(Audited)
Prudentialinvestsinbondsthatprovide
aregular,fixedamountofinterestincome
(fixedincomeassets)inordertomatchthe
paymentsneededtopolicyholders.Italso
entersintoreinsuranceandderivative
contractswiththirdpartiestomitigate
varioustypesofrisk,aswellasholding
cashdepositsatcertainbanks.Asaresult,
itisexposedtocreditriskandcounterparty
riskacrossitsbusiness.

Creditriskisthepotentialforreductionin
thevalueofinvestmentswhichresultsfrom
theperceivedlevelofriskofaninvestment
issuerbeingunabletomeetitsobligations
(defaulting).Counterpartyriskisatype
ofcreditriskandrelatestotheriskofthe
counterpartytoanycontractweenterinto
beingunabletomeettheirobligations
causingustosufferloss.

TheGrouphassomeappetitetotakecredit
riskwhereitarisesfromprofit-generating
insuranceactivities,totheextentthatit
remainspartofabalancedportfolioof
sourcesofincomeforshareholdersandis
compatiblewitharobustsolvencyposition.

Anumberofriskmanagementtoolsare
usedtomanageandmitigatethiscredit
risk,includingthefollowing:

— Acreditriskpolicyanddealingand

controlspolicy;

— Riskappetitestatementsandlimits
thathavebeendefinedonissuers,
andcounterparties;

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— Collateralarrangementsforderivative,
securedlendingreverserepurchase
andreinsurancetransactions;

— TheGroupCreditRiskCommittee’s
oversightofcreditandcounterparty
creditriskandsectorand/orname-
specificreviews;

— Regularassessments;and

— Closemonitoringorrestrictionson
investmentsthatmaybeofconcern.

Debt and loan portfolio 
Creditriskalsoarisesfromthedebt
portfoliointheAsiabusinesscomprising
theshareholder,with-profitandunit-linked
funds,thevalueofwhichwas$74.7billion
at31December2019.Themajority
(67percent)oftheportfolioisinunit-
linkedandwith-profitsfundsand
soexposureoftheshareholdertothis
componentisminimal.Theremaining
33percentofthedebtportfolioisheld
tobacktheshareholderbusiness.

InthegeneralaccountoftheGroup’sUS
business,$58.5billionofdebtsecurities
areheldtosupportshareholderliabilities
includingthosefromourfixedannuities,fixed
indexannuitiesandlifeinsuranceproducts.

Theshareholder-backeddebtportfolio
oftheGroup’sotheroperationswas
$1.3billionasat31December2019.

Furtherdetailsofthecompositionand
qualityofourdebtportfolio,andexposure
toloans,canbefoundintheIFRSfinancial
statements.

Group sovereign debt 
Prudentialalsoinvestsinbondsissued
bynationalgovernments.Thissovereign
debtholdingsrepresented21percent
or$18.0billion1oftheshareholderdebt
portfoliooftheGroupasat31December
2019(31December2018:20percentor
$14.8billionoftheshareholderdebt
portfolioattributabletocontinuing
operations).Onepercentofthiswasrated
AAAand83percentwasconsidered
investmentgrade(31December2018:
84percentofthesovereigndebtholdings
attributabletocontinuingoperationswas
consideredinvestmentgrade).

Theparticularrisksassociatedwithholding
sovereigndebtaredetailedfurtherinour
disclosuresonriskfactors.

Theexposuresheldbytheshareholder-
backedbusinessandwith-profitsfundsin
sovereigndebtsecuritiesat31December
2019aregiveninnoteC3.2(d)ofthe
Group’sIFRSfinancialstatements.

Shareholder exposure by rating

AAA
AA
A
BBB
BBorbelow

6%
22%
32%
32%
8%

Shareholder exposure by sector

Government
Financial
Consumer,non-cyclical
Utilities
Industrial
Energy
Communications
Consumer,cyclical
Basicmaterials
Technology
Other

26.74%
25.72%
10.74%
10.72%
6.59%
6.34%
3.78%
3.61%
2.57%
2.09%
1.10%

Bank debt exposure and 
counterparty credit risk 
Prudential’sexposuretobanksisakeypart
ofitscoreinvestmentbusiness,aswellas
beingimportantforthehedgingandother
activitiesundertakentomanageitsvarious
financialrisks.Giventheimportanceof
itsrelationshipwithitsbanks,exposure
tothesectorisconsideredamaterialrisk
fortheGroup.

Theexposuresheldbytheshareholder-
backedbusinessandwith-profitsfundsin
bankdebtsecuritiesat31December2019
aregiveninnoteC3.2(d)oftheGroup’s
IFRSfinancialstatementsforcontinuing
operations.

Theexposuretoderivativecounterparty
andreinsurancecounterpartycreditriskis
managedusinganarrayofriskmanagement
tools,includingacomprehensivesystem
oflimits.Whereappropriate,Prudential
reducesitsexposure,buyscredit
protectionorusesadditionalcollateral
arrangementstomanageitslevelsof
counterpartycreditrisk.

At31December2019:

— 92percentoftheGroup’sshareholder
portfolioisinvestmentgraderated2.In
particular,61percentoftheportfoliois
rated2A-andabove(orequivalent);and

— TheGroup’sshareholderportfoliois
welldiversified:noindividualsector3
makesupmorethan15percentofthe
totalportfolio(excludingthefinancial
andsovereignsectors).

c Liquidity risk
(Audited)
Prudential’sliquidityriskarisesfromthe
needtohavesufficientliquidassetstomeet
policyholderandthird-partypayments
astheyfalldue.Thisincorporatestherisk
arisingfromfundscomposedofilliquid
assetsandresultsfromamismatch
betweentheliquidityprofileofassets
andliabilities.Liquidityriskmayimpacton
marketconditionsandvaluationofassets
inamoreuncertainwaythanforotherrisks
likeinterestrateorcreditrisk.Itmayarise,
forexample,whereexternalcapitalis
unavailableatsustainablecost,increased
liquidassetsarerequiredtobeheldas
collateralunderderivativetransactions
orwhereredemptionrequestsaremade
againstPrudentialexternalfunds.

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ANDHOWTHESEAREMANAGED
CONTINUED

Prudentialhasnoappetiteforliquidityrisk,
ieforanybusinesstohaveinsufficient
resourcestocoveritsoutgoingcashflows,
orfortheGroupasawholetonotmeet
cashflowrequirementsfromitsdebt
obligationsunderanyplausiblescenario.

TheGrouphassignificantinternalsources
ofliquidity,whicharesufficienttomeetall
ofourexpectedcashrequirementsforat
least12monthsfromthedatethefinancial
statementsareapproved,withouthaving
toresorttoexternalsourcesoffunding.
TheGrouphasatotalof£2.0billionof
undrawncommittedfacilitiesthatcanbe
madeuseof,expiringin2024.Accessto
furtherliquidityisavailablethroughthe
debtcapitalmarketsandanextensive
commercialpaperprogrammeisinplace,
andPrudentialhasmaintainedaconsistent
presenceasanissuerinthemarketfor
thepastdecade.

Anumberofriskmanagementtoolsare
usedtomanageandmitigatethisliquidity
risk,includingthefollowing:

— TheGroup’sliquidityriskpolicy;

— Riskappetitestatements,limits

andtriggers;

— RegularassessmentbytheGroup

andbusinessunitsofLCRswhichare
calculatedunderbothbasecaseand
stressedscenariosandarereported
tocommitteesandtheBoard;

— TheGroup’sLiquidityRisk

ManagementPlan,whichincludes
detailsoftheGroupLiquidityRisk
Frameworkaswellasgapanalysis
ofliquidityrisksandtheadequacy
ofavailableliquidityresourcesunder
normalandstressedconditions;

— Regularstresstesting;

— Ourcontingencyplansandidentified

sourcesofliquidity;

— TheGroup’sabilitytoaccessthe
moneyanddebtcapitalmarkets;

— Regulardeepdiveassessments;and

— TheGroup’saccesstoexternal
committedcreditfacilities.

6.2 Risks arising from the nature of 
the Group’s business and industry
a Transformation risk
Anumberofsignificantchange
programmesarecurrentlyrunninginorder
toimplementtheGroup’sstrategicvision,
complywithimpendingregulatorychanges
andtomaintainmarketcompetitiveness.
Manyoftheseprogrammesare
interconnectedwithcomplex
dependenciesand/oroflargescale,
andmayhavefinancialandnon-financial
implicationsiftheyfailtomeettheir
objectives.Additionally,theseprogrammes
inherentlygiverisetodesignandexecution
risks,andmayintroducenew,orincrease
existing,businessrisks.Theseinclude
anincreasedstrainontheoperational
capacity,newly-implementedcontrols
beingineffectiveorgeneralweakening
ofthecontrolenvironmentoftheGroup.
Implementingfurtherstrategicinitiatives
mayamplifytheserisks.Furthermore,
theseprogrammesrequireongoing
oversight,coordinatedindependent
assuranceandregularmonitoringand
consolidatedreporting,aspartofthe
Group’sTransformationRiskFramework,
tomitigatetheriskstothebusiness.

TheGroup’scurrentsignificantchange
programmesrelatetoanexpansionofits
useoftechnology,platformsandanalytics,
improvingtheefficiencyofcertainbusiness
functionsandprocesses(data,systems,
people)andtheestablishmentofnew
third-partyarrangements.TheGroup’s
transformationportfolioalsoincludes
programmesrelatedtoregulatorychange,
includingbutnotlimitedto,thetransition
totheHongKongIA’sGWSframework,
thediscontinuationofIBORsandthe
implementationofIFRS17–seesection
6.3forfurtherinformation.

b Non-financial risks
Inthecourseofdoingbusiness,theGroup
isexposedtonon-financialrisksarising
fromitsoperations,thebusiness
environmentanditsstrategy.Themain
risksacrosstheseareasaredetailedbelow.

Operational risk
Prudentialdefinesoperationalriskasthe
riskofloss(orunintendedgainorprofit)
arisingfrominadequateorfailedinternal
processes,personnelorsystems,orfrom
externalevents.Thisincludesemployee
error,modelerror,systemfailures,fraudor
someothereventwhichdisruptsbusiness
processesorhasadetrimentalimpactto
customers.Processesareestablishedfor
activitiesacrossthescopeofourbusiness,
includingoperationalactivity,regulatory
compliance,andthosesupportingESG
activitiesmorebroadly,anyofwhichcan
exposeustooperationalrisks.Alarge
volumeofcomplextransactionsis
processedbytheGroupacrossanumber
ofdiverseproductsandaresubjecttoa
highnumberofvaryinglegal,regulatory
andtaxregimes.Prudentialhasnoappetite
formateriallosses(directorindirect)
sufferedasaresultoffailingtodevelop,
implementormonitorappropriatecontrols
tomanageoperationalrisks.

TheGroup’soutsourcingandthird-party
relationshipsrequiredistinctoversight
andriskmanagementprocesses.Anumber
ofimportantthird-partyrelationships
existwhichprovidethedistribution
andprocessingofPrudential’sproducts,
bothasmarketcounterpartiesandas
outsourcingpartners,andnewITand
technologypartnersarebeingengaged.
InAsia,theGroupcontinuestoexpand
itsstrategicpartnershipsandrenew
bancassurancearrangementsandinAfrica
Prudentialiscontinuingitsexpansion
throughacquisitions.Thesethird-party
arrangementssupportPrudentialin
providingahighlevelandcost-effective
servicetoourcustomers,buttheyalso
makeusreliantontheoperational
resilienceandperformanceofour
outsourcingpartners.

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TheGroup’srequirementsforthe
managementofmaterialoutsourcing
arrangements,whichareinaccordance
withrelevantapplicableregulations,are
includedthroughitswell-established
Group-widethird-partysupplypolicy.
Third-partymanagementisalsoincluded
intheGroup-wideframeworkandrisk
managementforoperationalrisk(see
below).Third-partymanagementforms
partoftheGroup’soperationalrisk
categorisationsandadefinedqualitative
riskappetitestatement,limitsandtriggers
areinplace.

TheperformanceoftheGroup’score
businessactivitiesplacesrelianceonthe
ITinfrastructure,providedbyourexternal
ITandtechnologypartners,thatsupports
day-to-daytransactionprocessingand
administration.TheITenvironmentmust
alsobesecure,andanincreasingcyber
riskthreatneedstobeaddressedasthe
Group’sdigitalfootprintincreasesandthe
sophisticationofcyberthreatscontinueto
evolve–seeseparateinformationsecurity
risksub-sectionbelow.Exposureto
operationalandotherexternalevents
couldimpactoperationalresilienceby
significantlydisruptingsystems,operations
andservicestocustomers,whichmay
resultinfinancialloss,customerimpacts
andreputationaldamage.

Operationalchallengesalsoexistinkeeping
pacewithregulatorychanges.Thisrequires
implementingprocessestoensureweare,
andremain,compliantonanongoingbasis,
includingregularmonitoringandreporting.
Seesection6.3forfurtherdetailonthe
Group’sregulatoryandlegalrisks.

Business disruption risk
Prudentialrecognisesthatbusiness
disruptionisakeyrisktoeffectivebusiness
operationsanddeliveryofbusiness
services,andhasthepotentialtoimpact
ourcustomersandthemarketmore
broadly.TheGroupthereforecontinuously
seekstodevelopgreaterbusiness
resiliencethroughplanning,preparation,
testingandadaption.Businesscontinuity
management(BCM)isoneofanumber
ofactivitiesundertakenbytheGroup
SecurityfunctionthathelpstheGroup
toprotectitskeystakeholdersandits
systems,andbusinessresilienceisatthe

coreoftheGroup’sembeddedBCM
programme.TheBCMprogrammeand
frameworkareappropriatelylinkedtoall
businessactivities,andincludesbusiness
impactanalyses,riskassessments,incident
managementplans,disasterrecovery
plans,andtheexercisingandexecutionof
theseplans.Basedonindustrystandards,
theBCMprogrammeisdesignedto
providebusinesscontinuitythatmatches
theGroup’sevolvingbusinessneeds
andisappropriatetothesize,complexity
andnatureoftheGroup’soperations.
Prudentialisalsotakingabroader,
multi-functionalapproachtobuilding
greaterbusinessresilience,workingwith
ourexternalthird-partyprovidersand
ourservicedeliveryteamstoimproveour
abilitytowithstand,absorbandrecover
fromdisruptiontoourbusinessservices,
whileminimisingtheimpactonour
customers.TheGroupcontinuously
reviewsanddevelopsitscontingency
plansanditsabilitytorespondeffectively
whendisruptiveincidentsoccur,suchas
thoseresultingfromtheHongKongprotests
andtherecentCOVID-19outbreak.

Businessdisruptionrisksareclosely
monitoredbytheGroupSecurityfunction,
withkeyoperationaleffectivenessmetrics
andupdatesonspecificactivitiesbeing
reportedtotheGroupRiskCommittee
anddiscussedbycross-functional
workinggroups.

Information security risk 
and data privacy 
Informationsecurityriskremainsanarea
ofheightenedfocusafteranumberof
recenthigh-profileattacksanddatalosses
acrossindustries.Criminalcapabilityin
thisareaismaturingandindustrialising,
withanincreasedlevelofunderstanding
ofcomplexfinancialtransactionswhich
increasestheriskstothefinancial
servicesindustry.Thethreatlandscape
iscontinuouslyevolving,andthesystemic
riskofsophisticatedbutuntargeted
attacksisrising,particularlyduringtimes
ofheightenedgeopoliticaltensions.

Developmentsindataprotection
requirements,suchasGDPRthatcame
intoforceinMay2018andtheCalifornia
ConsumerProtectionActwhichcameinto
forceon1January2020,continuetoevolve

worldwide.Thisincreasesfinancialand
reputationalimplicationsforPrudentialin
theeventofabreachofits(orthird-party
suppliers’)ITsystems.Aswellasprotecting
data,stakeholdersexpectcompaniesand
organisationstousepersonalinformation
transparentlyandappropriately.Giventhis,
bothinformationsecurityanddataprivacy
arekeyrisksfortheGroup.Aswellas
havingpreventativeriskmanagementin
place,itisfundamentalthattheGrouphas
robustcriticalrecoverysystemsinplace
intheeventofasuccessfulattackonits
infrastructure,abreachofitsinformation
securityorafailureofitssystemsinorder
toretainitscustomerrelationshipsand
trustedreputation.

During2019,therevisedorganisational
structureandgovernancemodelforcyber
securitymanagementwasimplemented.
Thischangehasresultedinacentralised
Group-wideInformationSecurityand
Privacyfunction,leveragingskills,tools
andresourcesacrossthebusinessunder
a‘centreofexcellence’model.This
organisationalchangehasincreasedthe
Group’sefficiencyandagilityinresponding
tocybersecurityrelatedincidentsandhas
facilitatedincreasedcollaborationbetween
businessunitsleveragingtheirrespective
strengthsindeliveringtheGroup-wide
informationsecurityprogramme.

Thestrategicobjectivesoftheprogramme
includeachievingconsistencyinthe
executionofsecuritydisciplinesacross
theGroup,improvingvisibilityacross
Prudential’sbusinessesanddeployment
ofautomationtodetectandaddress
threats.Italsoincludesachievingsecurity
bydesignbyaligningsubjectmatter
expertisetotheGroup’sdigitaland
businessinitiativestoembedsecurity
controlsacrossplatformsandecosystems.
Implementationoftheoperatingmodel
andprogressagainstthesestrategic
objectiveshavecontinuedovertheyear.

TheBoardreceivesperiodicupdateson
informationsecurityriskmanagement
throughouttheyear.Groupfunctions
workwiththebusinessunitstoaddress
riskslocallywithinthenationalandregional
contextofeachbusinessfollowingthe
strategicdirectionoftheGroup-wide
informationsecurityfunction.

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ANDHOWTHESEAREMANAGED
CONTINUED

Financial crime risk
Aswithallfinancialservicesfirms,
Prudentialisexposedtorisksrelating
tomoneylaundering(theriskthatthe
productsorservicesoftheGroupare
usedbycustomersorotherthirdpartiesto
transferorconcealtheproceedsofcrime);
fraud(theriskthatfraudulentclaimsor
transactions,orprocurementofservices,
aremadeagainstorthroughthebusiness);
sanctionscompliance(theriskthatthe
Groupundertakesbusinesswith
individualsandentitiesonthelistsofthe
mainsanctionsregimes);andbriberyand
corruption(theriskthatemployeesor
associatedpersonsseektoinfluencethe
behaviourofotherstoobtainanunfair
advantageorreceivebenefitsfromothers
forthesamepurpose).

Prudentialoperatesinsomehigh-risk
countrieswhere,forexample,the
acceptanceofcashpremiumsfrom
customersmaybecommonpractice,
large-scaleagencynetworksmaybe
inoperationwheresalesareincentivised
bycommissionandfeesorwherethere
isahigherconcentrationofexposure
topolitically-exposedpersons.

TheGroup-widepolicieswehaveinplace
onanti-moneylaundering,fraud,sanctions
andanti-briberyandcorruptionreflectthe
values,behavioursandstandardsthatare
expectedacrossthebusiness.AcrossAsia,
screeningandtransactionmonitoring
systemsareinplaceandaseriesof
improvementsandupgradesarebeing
implemented,whileaprogrammeof
compliancecontrolmonitoringreviewsis
beingundertaken.Riskassessmentsare
performedannuallyathigherrisklocations.
Duediligencereviewsandassessments
againstPrudential’sfinancialcrimepolicies
areperformedaspartoftheGroup’s
businessacquisitionprocess.TheGroup
continuestoundertakestrategicactivity
tomonitorandevaluatetheevolvingfraud
risklandscape,mitigatethelikelihoodof
fraudoccurringandincreasetherateof
detection.

TheGrouphasinplaceamature
confidentialreportingsystemthrough
whichstaffandotherstakeholderscan
reportconcernsrelatingtopotential
misconduct.Theprocessandresults
ofthisareoverseenbytheGroup
AuditCommittee.

Group-wide framework and risk 
management for operational risk
Therisksdetailedaboveformkeyelements
oftheGroup’soperationalriskprofile.In
ordertoidentify,assess,manage,control
andreporteffectivelyonalloperational
risksacrossthebusiness,aGroup-wide
operationalriskframeworkisinplace.
Thekeycomponentsoftheframeworkare:

TheGroupOperationalRiskPolicy,
standardsandoperationalriskappetite
frameworksitalongsideotherriskpolicies
andstandardsthatindividuallyengage
withkeyoperationalrisks,including
outsourcingandthird-partysupply,
businesscontinuity,financialcrime,
technologyanddata,operations
processesandextentoftransformation.

— Applicationofariskandcontrol

assessment(RCA)process,where
operationalriskexposuresareidentified
andassessedaspartofaperiodical
cycle.TheRCAprocessconsidersa
rangeofinternalandexternalfactors,
includinganassessmentofthecontrol
environment,todeterminethe
business’smostsignificantrisk
exposuresonaprospectivebasis;

— Aninternalincidentmanagement

process,whichidentifies,quantifies
andmonitorsremediationconducted
throughrootcauseanalysisand
applicationofactionplansforrisk
eventsthathaveoccurredacross
thebusiness;

Thesepoliciesandstandardsinclude
subjectmatterexpert-ledprocessesthat
aredesignedtoidentify,assess,manage
andcontroloperationalrisks,including:

— Atransformationriskframeworkthat
assesses,managesandreportsonthe
end-to-endtransformationlifecycle,
projectprioritisationandtherisks,
interdependenciesandpossible
conflictsarisingfromalargeportfolio
oftransformationactivities;

— Internalandexternalreviewofcyber
securitycapabilityanddefences;

— Regularupdatingandtestingof

elementsofdisaster-recoveryplansand
theCriticalIncidentProcedureprocess;

— Ascenarioanalysisprocessforthe

— Groupandbusinessunit-level

quantificationofextreme,yetplausible
manifestationsofkeyoperationalrisks
acrossthebusinessonaforward-
lookingbasis.Thisiscarriedoutatleast
annuallyandsupportsexternaland
internalcapitalrequirementsaswellas
informingriskoversightactivityacross
thebusiness;and

— Anoperationalriskappetiteframework
thatarticulatesthelevelofoperational
riskexposurethebusinessiswilling
totolerate,coveringalloperational
riskcategories,andsetsoutescalation
processesforbreachesofappetite.

Outputsfromtheseprocessesand
activitiesperformedbyindividualbusiness
unitsaremonitoredbytheGroupRisk
function,whichprovidesanaggregated
viewoftheriskprofileacrossthebusiness
totheGroupRiskCommitteeandBoard.

Thesecoreframeworkcomponentsare
embeddedacrosstheGroupviatheGroup
OperationalRiskPolicyandStandards
documents,whichsetoutthekey
principlesandminimumstandardsfor
themanagementofoperationalriskacross
theGroup.

complianceoversightandtestingin
respectofadherencewithin-force
regulations;

— Regulatorychangeteamsinplace

toassistthebusinessinproactively
adaptingandcomplyingwith
regulatorydevelopments;

— Onfinancialcrimerisks,screening

andtransactionmonitoringsystems
areinplaceandaprogrammeof
compliancecontrolmonitoringreviews
isundertaken,aswellasregularrisk
assessments;

— Aframeworkisinplaceforemerging
riskidentificationandanalysisin
ordertocapture,monitorandallow
ustoprepareforoperationalrisks
thatmaycrystallisebeyondthe
short-termhorizon;

— Corporateinsuranceprogrammesto

limitthefinancialimpactofoperational
risks;and

— Reviewsofkeyoperationalrisksand

challengeswithinGroupandbusiness
unitbusinessplans.

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Theseactivitiesarefundamentalin
maintaininganeffectivesystemof
internalcontrol,andassuchoutputs
fromthesealsoinformcoreRCA,incident
managementandscenarioanalysis
processesandreportingonoperational
risk.Furthermore,theyalsoensurethat
operationalriskconsiderationsare
embeddedinkeybusinessdecision-
making,includingmaterialbusiness
approvalsandinsettingandchallenging
theGroup’sstrategy.

c Insurance risks
(Audited)
Insuranceriskmakesupasignificant
proportionofPrudential’soverallrisk
exposure.Theprofitabilityofitsbusinesses
dependsonamixoffactors,includinglevels
of,andtrendsin,mortality(policyholders
dying),morbidity(policyholdersbecoming
ill)andpolicyholderbehaviour(variabilityin
howcustomersinteractwiththeirpolicies,
includingutilisationofwithdrawals,take-up
ofoptionsandguaranteesandpersistency,
ielapsingofpolicies),andincreasesinthe
costsofclaims,includingthelevelof
medicalexpensesincreasesoverand
abovepriceinflation(claiminflation).

TheGrouphasappetiteforretaining
insurancerisksinordertocreate
shareholdervalueintheareaswhereit
believesithasexpertiseandcontrolsto
managetheriskandcansupportsuchrisk
withitscapitalandsolvencyposition.

TheprincipaldriversoftheGroup’s
insuranceriskvaryacrossitsbusinessunits.
AcrossAsia,whereasignificantvolume
ofhealthandprotectionbusinessiswritten,
themostsignificantinsurancerisksare
morbidityrisk,persistencyrisk,andmedical
inflationrisk.InJackson,policyholder
behaviourriskisparticularlymaterial,
especiallyinthetakeupofoptionsand
guaranteesonvariableannuitybusiness.

InAsia,Prudentialwritessignificant
volumesofhealthandprotectionbusiness,
andsoakeyassumptionistherateof
medicalinflation,whichisofteninexcess
ofgeneralpriceinflation.Thereisariskthat
theexpensesofmedicaltreatmentincrease
morethanexpected,sothemedicalclaim
costpassedontoPrudentialishigherthan
anticipated.Medicalexpenseinflationrisk
isbestmitigatedbyretainingtherightto
repriceourproductseachyearandby
havingsuitableoverallclaimlimitswithin
ourpolicies,eitherlimitspertypeofclaim
orintotalacrossapolicy.Prudential’s
morbidityriskismitigatedbyappropriate
underwritingwhenpoliciesareissuedand

claimsarereceived.Ourmorbidity
assumptionsreflectourrecentexperience
andexpectationoffuturetrendsforeach
relevantlineofbusiness.

TheGroup’spersistencyassumptions
reflectsimilarlyacombinationofrecent
pastexperienceforeachrelevantlineof
businessandexpertjudgement,especially
wherealackofrelevantandcredible
experiencedataexists.Anyexpected
changeinfuturepersistencyisalso
reflectedintheassumptions.Persistency
riskismanagedbyappropriatetrainingand
salesprocesses(includingactivecustomer
engagementandservicequality)and
managedlocallypost-salethrough
regularexperiencemonitoringandthe
identificationofcommoncharacteristics
ofbusinesswithhighlapserates.Where
appropriate,allowanceismadeforthe
relationship(eitherassumedorobserved
historically)betweenpersistencyand
investmentreturnsandanyadditionalrisk
isaccountedfor.Modellingthisdynamic
policyholderbehaviourisparticularly
importantwhenassessingthelikely
take-uprateofoptionsembeddedwithin
certainproducts.Theeffectofpersistency
ontheGroup’sfinancialresultscanvary
butdependsmostlyonthevalueofthe
productfeaturesandmarketconditions.

Prudential’sinsurancerisksaremanaged
andmitigatedusingthefollowing:

— TheGroup’sinsurance,productand

underwritingriskpolicies;

— Theriskappetitestatements,limits

andtriggers;

— Usingpersistency,morbidityand
longevityassumptionsthatreflect
recentexperienceandexpectationof
futuretrends,andindustrydataand
expertjudgementwhereappropriate;

— Usingreinsurancetomitigatemortality

andmorbidityrisks;

— Ensuringappropriatemedical

underwritingwhenpoliciesareissued
andappropriateclaimsmanagement
practiceswhenclaimsarereceived
inordertomitigatemorbidityrisk;

— Maintainingthequalityofsales

processes,trainingandusinginitiatives
toincreasecustomerretentioninorder
tomitigatepersistencyrisk;

— Usingproductrepricingandother

claimsmanagementinitiativesinorder
tomitigatemedicalexpenseinflation
risk;and

— Regulardeepdiveassessments.

6.3 Risks related to regulatory 
and legal compliance
RegulatoryrisksmayimpactPrudential’s
businessorthewayinwhichitis
conducted.Thiscoversabroadrangeof
risksincludingchangesingovernment
policyandlegislation,capitalcontrol
measures,andnewregulationsateither
nationalorinternationallevel.Inaddition
totherisksarisingfromregulatorychange,
thebreadthoflocalandGroup-wide
regulatoryarrangementspresentsthe
riskthatregulatoryrequirementsarenot
fullymet,resultinginspecificregulator
interventionsoractionsincluding
retrospectiveinterpretationofstandards
byregulatorswhichmayresultin
regulatorycensureorsignificantadditional
coststothebusiness.

On21October2019,theHongKong
IAbecamePrudential’sGroup-wide
supervisor,andtheGroupcontinues
toengagewiththesupervisoronthe
Group-wideSupervision(GWS)
Framework,whichisexpectedtobe
finalisedinthesecondhalfof2020.

Thefocusofsomegovernmentstoward
moreprotectionistorrestrictiveeconomic
andtradepoliciescouldimpactonthe
degreeandnatureofregulatorychanges
andPrudential’scompetitivepositionin
somegeographicmarkets.Thiscouldtake
effect,forexample,throughincreased
frictionincross-bordertrade,capital
controlsormeasuresfavouringlocal
enterprisessuchaschangestothe
maximumlevelofnon-domesticownership
byforeigncompanies.Thesedevelopments
continuetobemonitoredbytheGroup
atanationalandgloballevelandthese
considerationsformpartoftheGroup’s
ongoingengagementwithgovernment
policyteamsandregulators.

Effortstocurbsystemicriskandpromote
financialstabilityarealsounderway.
Attheinternationallevel,theFinancial
StabilityBoard(FSB)continuestodevelop
recommendationsfortheasset
managementandinsurancesectors,
includingongoingassessmentofsystemic
riskmeasures.TheInternational
AssociationofInsuranceSupervisors(IAIS)
hascontinueditsfocusonthefollowing
twokeydevelopments.

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CONTINUED

TheIAISisdevelopingtheICSaspartof
ComFrame.TheimplementationofICSwill
beconductedintwophases–afive-year
monitoringphasefollowedbyan
implementationphase.ComFramewill
moregenerallyestablishasetofcommon
principlesandstandardsdesignedtoassist
supervisorsinaddressingrisksthatarise
frominsurancegroupswithoperations
inmultiplejurisdictions.TheComFrame
proposals,includingICS,couldresultin
enhancedcapitalandregulatorymeasures
forIAIGs,forwhichPrudentialislikely
tosatisfythecriteria.TheAggregation
Methodisoneoftheapproachesbeing
consideredaspartoftheICSandthe
relatedproposalsarebeingledbythe
NationalAssociationofInsurance
Commissioners(NAIC).Alongsidethe
currentICSdevelopments,theNAICisalso
developingitsGroupCapitalCalculation
(GCC)forthesupervisionofinsurance
groupsintheUS.TheGCCisintendedto
bearisk-basedcapital(RBC)aggregation
methodology.IndevelopingtheGCC,
theNAICwillalsoconsiderGroupcapital
developmentsbytheUSFederalReserve
Board,whichwillinformtheUSregulatory
associationinitsconstructionofaUSgroup
capitalcalculation.

TheFSBhasendorsedanewholistic
framework(HF)forsystemicriskfor
implementationbytheIAISin2020and
suspendedG-SIIdesignationsuntila
reviewtobeundertakenin2022.Manyof
thepreviousG-SIImeasureshavealready
beenadoptedintotheinsurancecore
principles(ICPs)andComFrame–the
commonframeworkforthesupervision
ofinternationallyactiveinsurancegroups
(IAIGs).Prudentialislikelytosatisfythe
criteriaofanIAIGandthereforecontinue
tobesubjecttothesemeasures.TheHF
alsoincludesamonitoringelementforthe
identificationofabuild-upofsystemicrisk
andtoenablesupervisorstotakeaction
whereappropriate.TheIAIShasalready
consultedonanapplicationpaperonthe
liquidityriskelementsintroducedinto
theICPsandComFramewithafurther
consultationfocusedonmacroeconomic
elementsexpectedtofollowin2021.

IncertainjurisdictionsinwhichPrudential
operatestherearealsoanumberof
ongoingpolicyinitiativesandregulatory
developmentsthatarehaving,andwill
continuetohave,animpactontheway
Prudentialissupervised.Decisionstaken
byregulators,includingthoserelatedto
solvencyrequirements,corporateor
governancestructures,capitalallocation,
financialreportingandriskmanagement
mayhaveanimpactonourbusiness.

InMay2017,theInternationalAccounting
StandardsBoard(IASB)publishedIFRS17
whichwillintroducefundamentalchanges
totheIFRS-basedreportingofinsurance
entitiesthatprepareaccountsaccording
toIFRSfrom2021.InJune2019,theIASB
publishedanexposuredraftproposinga
numberoftargetedamendmentstothis
newstandardincludingthedeferralof
theeffectivedatebyoneyearfrom2021
to2022.Asaresultofcommentson
thisexposuredraft,theIASBplansto
redeliberateonanumberofareasofIFRS
17,withanamendedstandardexpectedto
beissuedinmid-2020.IFRS17isexpected
to,amongotherthings,includealteringthe
timingofIFRSprofitrecognition,andthe
implementationofthestandardislikely
torequirechangestotheGroup’sIT,
actuarialandfinancesystems.TheGroup
isreviewingthecomplexrequirements
ofthisstandardandconsideringits
potentialimpact.

IntheUS,variousinitiativesareunder
waytointroducefiduciaryobligationsfor
distributorsofinvestmentproducts,which
mayreshapethedistributionofretirement
products.Jacksonhasintroduced
fee-basedvariableannuityproductsin
responsetothepotentialintroduction
ofsuchrules,andweanticipatethatthe
business’sstrongrelationshipswith
distributors,historyofproductinnovation
andefficientoperationsshouldfurther
mitigateanyimpacts.

InAsia,regulatoryregimesare
developingatdifferentspeeds,drivenby
acombinationofglobalfactorsandlocal
considerations.Newlocalcapitalrules
andrequirementscouldbeintroducedin
theseandotherregulatoryregimesthat
challengelegalorownershipstructures,
orcurrentsalespractices,orcouldbe
appliedtosalesmadepriortotheir
introductionretrospectively,whichcould
haveanegativeimpactonPrudential’s
businessorreportedresults.

InJuly2014,theFinancialStabilityBoard
(FSB)announcedwidespreadreforms
toaddresstheintegrityandreliability
ofinter-bankofferrates(IBORs).The
discontinuationofIBORsintheircurrent
formandtheirreplacementwithalternative
risk-freereferenceratessuchasthe
SterlingOvernightIndexAverage
benchmark(SONIA)intheUKandthe
SecuredOvernightFinancingRate(SOFR)
intheUScould,amongotherthings,
impacttheGroupthroughanadverse
effectonthevalueofPrudential’sassets
andliabilitieswhicharelinkedto,orwhich
referenceIBORs,areductioninmarket
liquidityduringanyperiodoftransition
andincreasedlegalandconductrisksto
theGrouparisingfromchangesrequired
todocumentationanditsrelated
obligationstoitsstakeholders.

Riskmanagementandmitigationof
regulatoryriskatPrudentialincludes
thefollowing:

— RiskassessmentoftheBusinessPlan

whichincludesconsiderationofcurrent
strategies;

— Closemonitoringandassessment
ofourbusinessenvironmentand
strategicrisks;

— Theconsiderationofriskthemes

instrategicdecisions;and

— Ongoingengagementwithnational

regulators,governmentpolicyteams
andinternationalstandardsetters.

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Afailuretomaintainhighstandardsof
corporategovernancemayadversely
impacttheGroupanditscustomers,staff
andemployees,throughpoordecision-
makingandalackofoversightofitskey
risks,particularlyinjointventuresor
partnershipswherePrudentialdoes
nothavedirectoverallcontrol.Poor
governancemayarisewherekey
governancecommitteeshaveinsufficient
independence,alackofdiversity,skillsor
experienceintheirmembers,orunclear
(orinsufficient)oversightresponsibilities
andmandates.Inadequateoversightover
remunerationincreasestheriskofpoor
seniormanagementbehaviours.Prudential
operatesacrossmultiplejurisdictionsand
hasagroupandsubsidiarygovernance
structurewhichmayaddfurther
complexitytotheseconsiderations.

FurtherinformationonhowPrudential
addressesmaterialrisksassociated
withESGthemesisincludedinthe
ESGSummary.

changeincountriesinwhichPrudential,or
itskeythirdparties,operatecouldimpact
onitsoperationalresilienceandcould
changeitsclaimsprofile.Moreinformation
abouttheactivitiestheGroupis
undertakingtoincreaseitsunderstanding
andriskmanagementoftheseclimate-
relatedriskscanbefoundintheclimate
sectionoftheESGSummary.

SocialrisksthatcouldimpactPrudential
includetheemergingpopulationrisks
associatedwithpublichealthtrends(such
asanincreaseinobesity)anddemographic
changes(suchaspopulationurbanisation)
whichmayimpactcustomerlifestylesand
thereforemayimpactclaimsagainstthe
Group’sinsuranceproductofferings.Asa
lifeandhealthinsurer,wearecommitted
toplayingagreaterroleinpreventingand
postponingillnessinordertoprotectour
customers.Furtherinformationabouthow
weareinvestinginartificialintelligence
technologytoenableaccesstoan
affordableandqualityhealthcaredigital
offeringcanbefoundwithinthePulse
casestudyincludedintheESGSummary.
Othersocialrisksmayarisefromafailure
toconsidertherights,diversity,well-being,
andinterestsofpeopleandcommunities
inwhichtheGroup,oritsthirdparties,
operates.Theserisksareincreasedas
Prudentialoperatesinmultiplejurisdictions
withdistinctlocalculturesand
considerations.Asanemployer,theGroup
isalsoexposedtotheriskofbeingunable
toattract,retainanddevelophighly-skilled
staff,whichcanbeincreasedwhere
Prudentialdoesnothaveresponsible
workingpractices.

6.4 Environmental, social 
and governance risks
Thebusinessenvironmentinwhich
Prudentialoperatesiscontinuallychanging
andrespondingeffectivelytothose
materialrisksassociatedwithESGthemes
iscrucialinmaintainingPrudential’sbrand
andreputation,itsabilitytoattractand
retaincustomersandstaff,andinturnits
financialperformanceanditslong-term
strategy.TheGroupmaintainsactive
engagementwithitskeystakeholdersasit
respondstoESG-relatedmatters,including
investors,customers,employees,
governments,policymakersandregulators
initskeymarkets,aswellaswith
internationalinstitutions–allofwhomhave
expectationsinthisareawhichmaydiffer.

Policiesandprocedurestosupporthow
theGroupoperatesinrelationtocertain
ESGtopicsareincludedintheGroup
GovernanceManual.Prudentialmanages
keyESGissuesthroughamulti-disciplinary
approachwithfunctionalownershipfor
ESGtopics.TheESGExecutiveCommittee
coordinatestheseactivitiesandseeks,
asoneofitsaims,toensureaconsistent
approachinmanagingESGconsiderations
initsbusinessactivities,including
investmentactivities.Itissupported
byseniorfunctionalleadersand
representativesfromtheGroup’sbusiness
units,includingthechiefinvestment
officersoftheGroup’sassetmanagers.

Theenvironmentalrisksassociatedwith
climatechangeisoneESGareathatposes
significantriskstoPrudentialandits
customers.Theglobaltransitiontoalower
carboneconomycouldpotentiallysee
thefinancialassetsofcarbon-intensive
companiesre-priceasaresultoffacing
significantlyhighercostsordecreasing
demandfortheirproductsandservices.
Thespeedofthistransition,includingthe
extenttowhichitisorderlyandmanaged,
willbeinfluencedbyfactorssuchaspublic
policy,technologyandchangesinmarket
orinvestorsentiment.This‘transitionrisk’
mayadverselyimpactthevaluationof
investmentsheldbytheGroup.TheGroup
expectsthephysicalimpactsofclimate
change,drivenbybothspecificshort-term
climate-relatedeventssuchasnatural
disastersandlonger-termchangesin
thenaturalenvironment,toincreasingly
influencethelongevity,mortalityand
morbidityriskassessmentsofthe
Group’sproductofferings.Climate-driven

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationGROUPCHIEFRISKANDCOMPLIANCEOFFICER’SREPORTONTHERISKSFACINGOURBUSINESS
ANDHOWTHESEAREMANAGED
CONTINUED

Assessment of principal risks 
over the period
TheGroup’sbusinessplanimplementsthe
Group’sstrategicobjectivesthroughthe
businessmodelandactivitiesdiscussed
onpages12to15.Mattersconsideredas
partofthatplanningprocessincludedthe
impactofpursuingamorediversified
productmixintheUS,theimpactofthe
recentprotestsinHongKongonsales
andtheeconomicoutlookforHongKong.
Assessmentoftheriskstoachievingthe
projectedperformanceremainsanintegral
partoftheplanningprocess.TheGroup’s
approachtoriskmanagementanda
summaryofthekeyrisksfacingtheGroup
aresetoutonpages51to71.

ForthepurposesofassessingtheGroup’s
viability,theDirectorsconsideredthose
riskswheretheimpactofpossibleadverse
externaldevelopmentscouldbeofsuch
speedandseveritytopresentashockto
theGroup’sfinancialposition.Therisks
considered,fromthosedetailedonpages
59to61are:marketrisk,creditrisk,
liquidityriskandregulatoryrisk.The
Directorsconsideredthemacroeconomic
environmentandgeopoliticalrisksinthe
marketswhichtheGroupoperates,aswell
assubsequentlyconsideringtheimpactof
theoutbreakofcoronavirus(‘COVID-19’),
whichcouldtriggerwidereconomic
consequencessuchasslowdownor
recessioninkeyeconomiesandnegative
impactsintheglobalfinancialmarket.

AlloftheGroup’sactivitiesare
underpinnedbyongoingrisk
management,implementedviatheGroup
RiskFrameworkandriskappetitelimits
describedonpages55to58.TheGroup’s
managementofwiderenvironmental,
socialandgovernanceissuesthatcould
poseariskinthefuturetotheGroupis
setoutintheEnvironmental,Socialand
Governancesummaryreportonpages76
to87.Thisfocussupportsthesustainability
ofourbusinessoverthelongerterm.

TheGroupasawholeandeachofits
lifeassuranceoperationsaresubjectto
extensiveregulationandsupervision,
whicharedesignedprimarilytoreinforce
theGroup’smanagementofitslong-term
solvency,liquidityandviabilitytoensure
thatitcancontinuetomeetobligations
topolicyholders.Furtherdetailsonthe
currentcapitalstrengthoftheGroupare
providedonpages37to39.

Period of viability assessment
TheDirectorshaveassessedtheviability
oftheGroupforaperiodlongerthan
the12monthsrequiredbythegoing
concernstatement.

TheDirectorsperformedtheassessment
byreferencetothethree-yearplanperiod
to31December2022.Threeyearsis
consideredanappropriateperiodasit
representstheperiodcoveredbythe
detailedbusinessplanthatisprepared
annuallyonarollingthree-yearbasis.
Inapprovingthebusinessplan,the
DirectorsreviewedtheGroup’sprojected
performancewithregardstoprofitability,
cashgenerationandcapitalposition,
togetherwiththeparentcompany’s
liquidityoverthisthree-yearperiod.
Thisprojectioninvolvessettinganumber
ofeconomicandotherassumptionsthat
areinherentlyvolatileoveramuchlonger
reportingperiod.Suchassumptions
includeforeignexchangerates,interest
rates,economicgrowthrates,theimpact
onthebusinessenvironmentarisingfrom
geopoliticaleventsandcontinuedlevel
ofchangesinregulationandsupervision.

TheDirectorsaresatisfiedthatthis
periodissufficienttoenableareasonable
assessmentofviabilitytobemade.

Viability statement prepared in 
accordance with Provision 31 of the 
UK Corporate Governance Code
The Group’s longer-term prospects
Prudentialaimstomeetthesavingsand
investmentneedsofitscustomers,which
bytheirverynaturecanoftenbeovera
timeframeofmanyyears.Alignedwiththis
objective,inthemarketsinwhichit
operatesitseekstoprovideproductsand
servicesthatalignwithimportantglobal
socialneeds,suchasaccesstohealthcare,
protectionagainstpoverty,securityfor
ageingpopulationsandinvestmentin
infrastructureandtherealeconomy.
Prudentialisfocusedoncapturingthe
structuralgrowthopportunityarisingfrom
theseneeds.Thedriversforthisstructural
growth,suchasthelowpenetrationrates
acrosstheAsianregion,arediscussed
onpages18to27alongsidetheactivities
weundertooktoexpandourproductset
andcustomerreachduring2019.In
undertakingtheseactivitiesweaimtoboth
meettheevolvingneedsofourcustomers
andprovidesustainablegrowthforour
shareholders,whichwillultimatelyleadto
theviabilityofourbusinessoverthelonger
term.IntheUS,theGroupisfocusedon
deliveringproductsthatwillhelpmitigate
theworrymanyretireeshaveofrunning
outofmoneyduringretirement,as
employer-basedplansaredisappearing
andmanyindividualshaveinsufficient
accumulationofassetsovertheirworking
life.FurtherdetailsofhowJacksonis
meetingthisneedaresetoutonpages
28to33.

Aswellascapturingthestructuralgrowth
opportunitiesoutlinedabove,theGroup
seekstocontinuallyenhanceitscapabilities
withaviewtoremainingrelevantinan
ever-changingworld.Recentfocushas
beenondigitaldevelopmentandinvesting
innewandexistingpartnershipstoensure
ourproductsreachthecustomersweseek
toserve.InAsia,wedeveloped‘Pulseby
Prudential’HealthEcosystem,anall-in-one
digitalapp,andenteredintoanew
strategicpartnershipwithOVO,thelargest
digitalpaymentplatforminIndonesia.
IntheUS,wehavebeenactivelyengaged
withFinTechpartnerstohelpillustrate
thebenefitsalifetimeincomesolutioncan
providewithinacomprehensivewealth
managementplan.Thisisintendedtogive
thefinancialadviserthenecessarytoolsto
customiseaccordingtotheuniqueneeds
andgoalsoftheclient.

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Theimpactonthebusinessofknownareas
ofregulatorychangewhosefinancial
implicationscanbereasonablyquantified
isalsoconsideredaspartoftheplan.
Aswellasknownareasofregulatory
change,theGroupisexposedtotherisk
ofsuddenandunexpectedchangesin
regulatoryrequirementsattheGroupand
locallevels.Whileunexpectedchanges
cannotbefullyanticipatedandhence
modelled,theriskofregulatorychange
ismitigatedbycapitalheldbytheGroup
anditssubsidiariesinexcessofGroupand
localregulatoryrequirements,theGroup
anditssubsidiaries’abilitytogenerate
significantcapitalannuallythrough
operationaldeliveryandtheavailability
ofcompensatingactionsdesignedto
restorekeycapitalmetrics.

Conclusion on viability
Basedonthisassessment,theDirectors
haveareasonableexpectationthatthe
Groupwillbeabletocontinueinoperation
andmeetitsliabilitiesastheyfalldue
overthethree-yearplanperiodto
December2022.

Stress and scenario testing
Asnotedabove,underpinningthe
projectionsinthebusinessplanarea
numberofeconomicandother
assumptions.ToevaluatetheGroup’s
resiliencetosignificantdeteriorationsin
marketandcreditconditionsandother
shockevents,theserisksaregrouped
togetherintoscenarioswhicharethen
appliedtotheassumptionsunderlyingthe
businessplansconsidered.Forexample,
scenarioswereusedtoassessthepotential
impactofupordowninterestrate
movementscombinedwithcorporatecredit
spreadwidening,fallingequityvaluesand
insurancestresses(suchaschangesin
policyholderbehaviour,includinglapses,
andincreasedmorbidityinAsia),together
withtheimpactoncentralliquidityofa
scenarioassumingtheclosureofshort-
termdebtmarkets,aswellasadditional
callsonliquiditybythebusinessunits.

Thescenariostestedshowedthatthe
Groupwouldbeabletomaintainviability
overthethree-yearperiodunder
assessment,aftertakingaccountofthe
actionsavailabletomanagementto
mitigatetheimpactsoncapitalandliquidity
insuchscenarios.Inaddition,theGroup
conductsanannualreversestresstest
whichgivestheDirectorsan
understandingofthemaximumresilience
oftheGrouptoextremelysevereadverse
scenarios.Thisanalysisassistsin
identifyingmanagementactionsthat
couldbeimplementedtorestorethe
Group’scapitalandliquidityresources
fromextremepositions.Thisanalysisalso
informstheGroup’srecoveryplanand
liquidityriskmanagementplan.

Notes
1 Excludingassetsheldtocoverlinkedliabilitiesandthose

oftheconsolidatedunittrustsandsimilarfunds.

2 BasedonhierarchyofStandard&Poor’s,Moody’sand

Fitch,whereavailableandifunavailable,NAICandother
externalratingshavebeenused.

3 Sourceofsegmentation:BloombergSector,Bloomberg

GroupandMerrillLynch.Anythingthatcannotbeidentified
fromthethreesourcesnotedisclassifiedasother.Excludes
debtsecuritiesfromotheroperations.

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Purpose and responsibility

We exist to take the financial risk out of the biggest events in the lives of our customers, 
enabling them to face the future with confidence. As well as providing life and health 
protection, savings opportunities to meet family goals, and retirement income, 
we aspire to lead in new areas aligned with this purpose. 

We are helping consumers postpone 
and prevent ill-health through digital 
innovation, increasing access to finance 
and providing solutions for an ageing 
world. At the same time, we are investing 
our customers’ savings in the real economy, 
helping to drive sustainable growth. 
We are working every day to be a better 
and more sustainable business that 
continues, through our strong and clear 
sense of purpose, to have a positive impact. 
We are committed to delivering the best 
possible performance across all areas of 
our environmental, social and governance 
(ESG) activity, and we are continuing to 
develop to improve the way we work in the 
interest of all our stakeholders.

Non-financial information statement
We recognise that to help our customers 
de-risk their lives, we need to take a 
long-term view on a wide range of issues 
that affect our business and the 
communities in which we operate. 
To do this, we maintain a proactive dialogue 
with our stakeholders to ensure that we 
are managing these issues sustainably 
and delivering long-term value. Further 
information on our engagement with 
our stakeholders can be found in our 
Section 172 statement below.

This strategic report complies with the 
Non-Financial Reporting requirements 
contained in sections 414CA and 414CB 
of the Companies Act 2006. This ESG 

summary provides an overview of our 
activities and progress in 2019 across a 
range of areas in which we have helped 
to provide benefits to stakeholders 
throughout the markets in which we 
operate. For us, ESG means:

 — What we do – the products we offer, 

our customer service, our human capital 
and the assets we own and operate; and

 — How we do it – understanding our 
customers and providing suitable 
solutions that meet their needs, 
fostering long-term relationships 
with our stakeholders, investing in 
our people and making responsible 
investments, in order to generate 
sustainable long-term returns in line 

Responsible investment 
Environment  
Climate

Overview, relevant risks and 
associated management 
practices – page 78

Relevant KPIs: greenhouse 
gas emissions –  
page 84

People
Overview, relevant risks and associated  
management practices – page 81

Relevant KPIs: gender diversity – page 81

People
Overview, relevant risks and  
associated management practices 
– page 82

Employees

Environmental  
matters

Human rights

Group-wide policies  
and due diligence 
– pages 75 to 76

Anti-bribery  
and  
anti-corruption 
matters

Social  
matters

Business integrity
Overview, relevant risks and 
associated management practices 
– page 80

Business model 
– pages 14 to 15 

Principal risks
– pages 59 to 69

Communities 
Technology
Relevant KPIs: community 
investment, fundraising and 
donations, employee volunteering 
hours – page 86

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with our risk appetite, meet our 
customers’ needs and help build the 
communities in which we operate. 
Our ESG approach underpins the 
delivery of our strategy, generating 
sustainable earnings and resilient 
capital growth, enabling us to deliver 
on our promises to our customers. 
More detailed information on our ESG 
activities is available in our 2019 ESG 
report found at www.prudentialplc.com/
investors/reports/2019. 

UK Companies Act,  
Section 172 Statement
Section 172 of the UK Companies Act 
requires each Director to act in a way that 
he or she considers, in good faith, would be 
most likely to promote the success of the 
company for the benefit of its members as 
a whole. In doing this, Section 172 requires 
a Director to have regard (among other 
matters) to the needs of employees, 
suppliers, customers and other wider 
stakeholder interests. During 2019 we 
engaged with our various stakeholder 
groups closely and we took account of their 
concerns in our decision-making. Below 
we have outlined how we have engaged 
with our stakeholders and the outcome of 
that engagement.

How we meet our Section 172 duty
We ensure that our Board meets its duty 
under Section 172 of the UK Companies 
Act in a number of ways. A briefing note 
is circulated in advance of each Board 
meeting reminding Directors of their 
statutory duties under Section 172 
and reiterating who the Group’s key 
stakeholders are. The annual Board 
evaluation process takes into account how 
the operation of the Board affects the 
consideration of stakeholder issues and 
seeks to identify improvements in this area. 
We ensure that our Section 172 obligations 
are taken into account in our Board 
succession planning and training, 
stakeholder engagement is addressed 
in the Board’s Terms of Reference, and 
there is guidance for individuals who 
prepare Board papers that references 
Section 172 duties and our key 
stakeholders. We ensure that we take 
account of any conflicts between different 
stakeholder concerns, and resolve such 
conflicts as smoothly as possible at the 
highest level necessary. The Board ensures 
that it listens to and acts on the views of a 
diverse range of shareholders, from large 
institutions to individuals, recognising that 
different types of investor have different 
investment mandates and varied 

stewardship approaches. Information on 
the independence of our Non-executive 
Directors can be found in the Governance 
report on page 115. Through our Group 
Code of Business Conduct, we ensure that 
we maintain the highest standards of 
behaviour throughout our business. Our 
Group Code of Business Conduct sets out 
the standards the Board expects in relation 
to employee behaviour and our business 
units run mandatory training programmes 
to highlight the personal obligations 
applicable to each individual. The Board 
reviews both the content of the Group 
Code of Business Conduct and business 
unit compliance each year. Meanwhile our 
Group-wide whistleblowing programme, 
Speak Out, enables all stakeholders to raise 
concerns, helping to maintain the highest 
standards of behaviour.

Alongside continuing to build our business 
and serve the needs of our customers, 
during 2019 our main activity was the 
demerger of M&G plc from the Group, 
which we completed successfully on 
21 October 2019. The demerger had an 
impact for all our stakeholders, and we took 
steps to ensure that we engaged with all 
our stakeholder groups on the long-term 
consequences of this significant step in the 
history of our business. We are confident 
that this decision was the right one for the 
long-term interests of the Group.

Customers
Helping to de-risk the lives of our 
customers and deal with their biggest 
financial concerns is at the centre of what 
we do, and listening to and understanding 
their concerns is key to the sustainability of 
our business. We engage directly with our 
customers through face-to-face advice, 
contact centres, dedicated account 
managers, sales support units, business 
processing and servicing, mobile phone 
apps and telephone technical support 
teams. The outcome of our engagements 
with customers is transmitted through the 
business and used to shape the design of 
our products and how and where we 
distribute those products, and ultimately 
to inform strategic decisions made at Board 
level. Decisions about which markets to 
access, what kind of products to offer and 
how to develop our agency force, our bank 
partnerships and our digital capabilities, 
are all driven by an understanding of what 
customers want, based on engagement 
with those customers. 

During 2019, as well as making decisions 
on markets, products and platforms 
provided by the business, the Board paid 

close attention to the effect on customers 
of the progress towards and conclusion 
of the demerger of M&G plc, including 
steps to ensure that customers were 
not disadvantaged and ensuring that 
they were fully informed of developments 
and prepared for the demerger when it 
was concluded. Other concerns raised 
by customers during the year included 
service delivery and issues with business 
processing, and these were dealt with 
through the business units, applying the 
highest standards of professional care 
and service in line with our Customer 
Commitments Policy. 

Investors
We engaged with our investors through 
our annual and half-year reports, ESG 
Report and other regular reporting, 
including press releases and regulatory 
announcements. We held regular meetings 
with investors, including our Annual 
General Meeting, analyst meetings 
and investor roadshows, and a General 
Meeting to propose the demerger for 
approval by shareholders. Our Chairman 
met key investors on governance matters 
to address any other concerns they may 
have had, and our Senior Independent 
Director and the Chairs of our Board 
Committees made themselves available 
to meet investors. 

The main concerns of investors during 
this period were around the demerger, in 
particular its execution and timing, as well 
as the nature and strategy of the post-
demerger Group and our post-demerger 
dividend policy. The demerger was 
subject to shareholders’ approval and 
was approved in line with the Board’s 
recommendation. The demerger dividend 
policy was approved by the Board. 
Investors were also consulted on the 
principal changes to the Directors’ 
Remuneration Policy. To strengthen the 
alignment between Executive Directors 
and the workforce, the policy includes 
pension benefits for new Executive 
Directors of 13 per cent of salary and 
a reduction in the pension benefits of 
incumbent Executive Directors. Climate-
related financial risk also emerged as an 
issue of increasing importance to investors 
during the year, and we have responded 
to that concern by proceeding with our 
intensive work towards meeting the 
recommendations of the Financial Stability 
Board’s Task Force on Climate-Related 
Financial Disclosures (TCFD).

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CONTINUED

Colleagues
During 2019 two of our Non-executive 
Directors, Kai Nargolwala for Asia and 
Africa and Tom Watjen for the US and the 
UK, were appointed to represent employee 
interests in line with new requirements 
under the revised UK Corporate 
Governance Code. They both conducted 
formal meetings with colleagues, including 
town halls and smaller-group meetings, 
and informal activities, including job 
shadowing and floorwalking. The Board is 
updated biannually on their activity and 
reflections. Across the business, we also 
held a variety of events to engage with 
colleagues, including town halls, smaller-
group meetings and one-to-ones, and we 
used our various intranets for two-way 
communication, encouraging colleagues 
to submit questions and suggestions. 

In 2019 the key concerns of colleagues 
were around the demerger, including what 
it meant for jobs, working arrangements 
and transfer of roles to M&G plc, and what 
it meant for the future of the business. 
Throughout this process, we kept our 
people informed about the progress of the 
demerger and the outlook for the Group, 
responded to all questions promptly and 
transparently, and escalated concerns 
to senior executives and the Board as 
appropriate. Ahead of the demerger, 
we also initiated a consultation on a set of 
proposed changes to our pension schemes 
for all our UK colleagues. A formal 60-day 
consultation took place to enable 
colleagues to understand the proposed 
changes in detail and respond to them. 
One-to-one, group and education sessions 
were held, and we received individual 
feedback submissions and questions to our 
helpline. Having discussed and reviewed 
the feedback, the pensions proposals 
were updated for both defined benefit 
and defined contribution members. 
Colleagues were also concerned about the 
impact of the demerger on shares, share 
options and existing employee share plans. 
In response, the Remuneration Committee 
approved a method for converting the 
value of the demerger dividend in specie 
into additional Prudential plc shares in 
respect of outstanding share awards of 
employees. 

In order to support the Group’s strategic 
direction and the focus of our technology 
resources on the development of 
customer-facing applications, the Board 
took the decision to outsource certain IT 
infrastructure and operations activities that 
were previously performed in-house within 
Prudential Corporation Asia and Jackson. 

A significant factor in the choice of 
supplier was the strength of the employee 
proposition offered by the successful 
supplier. The vendor chosen committed to 
re-hire all identified impacted employees 
on substantially similar terms and 
conditions, for a minimum of 12 months. 
The firm was noted as a growing IT-focused 
service company, which would provide 
transferred staff with greater opportunities 
for growth and exposure and to work on 
new innovative technologies, and around 
97 per cent of the affected colleagues 
agreed to transfer to the new provider.

Regulators
Prior to the demerger of M&G plc, the 
Group was subject to the consolidated 
supervision of the UK’s Prudential 
Regulation Authority. Following the 
demerger, the Hong Kong Insurance 
Authority (IA) became Prudential’s 
Group-wide supervisor. We have engaged 
with both regulators on a regular basis, 
sharing an agreed range of management 
information. The Board receives regular 
updates on our engagement with the 
Hong Kong IA regarding the shape of its 
legislative and regulatory framework. Hong 
Kong IA applies principles and standards to 
the Group through existing requirements 
to ensure that we are a fit and proper 
controller of regulated insurance 
companies. Hong Kong IA’s principles 
include financial integrity, effective 
corporate governance and sound risk 
management. We undertook gap analysis 
of the Group’s policies and processes 
against Hong Kong IA requirements.

Governments
We regard governments and legislatures 
in the markets in which we operate as 
important stakeholders. We monitor 
governmental and legislative activity, 
and meet periodically with government 
ministers and officials, elected or 
permanent, and legislators, legislative 
committees and committee members, 
either bilaterally or as part of wider groups, 
to help us understand their objectives, 
priorities and concerns, and how they 
affect or shape our business. Across the 
many markets where we operate, the 
company engages governmental and 
political stakeholders (including ministers, 
officials and legislators) to inform and 
influence public policy debate in a range of 
areas, including regulatory development, 
financial inclusion, fairness and consumer 
protection, capital market development, 
sustainable finance, job creation and skills, 
tax policy, trade policy, demography and 
ageing, health and wellbeing, and the 

digital economy. During 2019 a number of 
key points emerged from these exchanges. 
One key area that arose and prompted 
action from us was life insurance 
penetration. Prudential was granted a life 
insurance licence from the Ministry of 
Planning and Finance of Myanmar, enabling 
us to start offering life insurance products 
and solutions in this market. Another was 
the gap in structural protection in Asia. 
After meeting with the former Deputy 
Prime Minister of Singapore, we committed 
to supporting the Global Asia Insurance 
Partnership for five years. A third area was 
digital innovation, and during the 2019 
UK-Singapore Economic and Financial 
Dialogue, Prudential Singapore expanded 
its PruFintegrate initiative to London. 
Another key area was financial inclusion, 
and in Zambia we partnered with the 
Securities and Exchange Commission and 
Junior Achievement Zambia to roll out our 
global financial education and responsibility 
programme for children, Cha-Ching.

Suppliers
Each of our critical suppliers has a 
nominated contact within Prudential, 
and we meet those suppliers on a regular 
basis to address concerns on both sides. 
Ahead of the demerger of M&G plc, 
we engaged with 217 suppliers in the UK 
to explain the impacts of the demerger 
and contracting changes. During 2019, 
we found that our suppliers were primarily 
concerned about revenue protection 
during the demerger. We introduced an 
e-procurement system in our London 
head office to improve the control and 
monitoring of our purchasing activities and 
to provide suppliers with greater visibility 
over their payments.

Civil society
We respond to ad hoc requests from NGOs 
and hold meetings with them throughout 
the year. Our AGM provides the Board with 
an opportunity to engage with a range of 
NGOs that are shareholders, and the Board 
also receives an annual update on our 
community investment activity. During 
2019, NGOs were primarily concerned 
with our climate impact, and in response 
we have proceeded with our work around 
meeting the recommendations of the 
TCFD, as well as closely monitoring our 
impact on the environment. In response to 
questions about our modern slavery risk, 
we conducted an analysis of all supplier 
spend in our London head office against 
the Walk Free Foundation’s Global Slavery 
Index. Further details will be available 
in our 2019 Modern Slavery Statement, 

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which will be published on the Group 
website in May.

How we govern ESG 
Our ESG Executive Committee leads on 
how we identify, manage and report on 
material ESG risks and opportunities. 
The ESG Executive Committee is chaired 
by our ESG sponsor, our Group Director 
of Communications, supported by senior 

leaders from Group functions across 
financial reporting, risk, governance 
and human resources, with representation 
from our business units. The ESG Executive 
Committee meets quarterly and raises 
matters to the Nomination & Governance 
Committee as appropriate.

We make sure that the ESG issues that 
are important to our stakeholders are 

understood and managed. This enables 
the Group to manage risks more effectively 
and better inform key decision-making. 
We strive to meet the expectations of 
our stakeholders in a transparent and fair 
manner, and this is underpinned by our 
comprehensive identification process, 
which enables us to address our material 
ESG issue effectively and constructively.

ESG policy framework – Group Governance Manual
The Group Governance Manual (GGM) establishes standards for managing key material ESG issues across the Group, setting out the 
policies and procedures to support how we operate. The GGM is used to ensure that we comply with relevant statutory and regulatory 
requirements. Our Group-wide policies relating to our identified material issues include:

Material ESG issues

Our Group-wide policies

Business integrity

The Group Code of Business Conduct details our required Standards of Business Conduct to be used across the 
Group and covers our employees and individuals or organisations acting on our behalf. The Code sets out our 
values around ownership, partnership and stewardship, and the personal standards we adhere to in the areas of: 
protection from financial crime, avoiding conflicts of interest, managing information, communicating as a Group 
and providing equality for our people.

Anti-Bribery and Corruption Policy covers our values for reputation, ethical behaviour and reliability. As an 
organisation we are focused on financial practices that align to those values and we prohibit corruption or bribery 
within our working practices.

Anti-Money Laundering and Sanctions Policy outlines how we prohibit money laundering or terrorist financing 
in our working practices, setting out how we establish parameters to prevent this taking place across the 
organisation and the commitment we have to comply with sanctions, laws and regulations by screening, 
prohibiting or restricting business activity, and following up through investigation.

Security Policy outlines our commitment to ensuring security aligns to industry recommended practice for 
managing our regulatory and legal obligations. This includes how we manage incidents under the ‘Speak Out’ 
programme, our whistleblowing process.

Tax Risk Policy includes our processes to manage tax-related risk, by identifying, measuring, controlling 
and reporting on issues considered an operational, reputational or regulatory risk.

Political Donations Policy outlines our position that as an organisation we do not donate to political parties.

Third-Party Supply Policy covers how we manage and oversee our third-party arrangements, through due 
diligence/ selection criteria, contractual requirements, the ongoing monitoring of such relationships and 
reporting and escalation. Additionally, our policy considers the requirements of the UK Modern Slavery Act 
and the principles of the UN’s Universal Declaration of Human Rights.

Customers

Customer Commitments Policy covers our five key commitments to our customers and how we assess, manage 
and report on these:

1  Treat customers fairly, openly and honestly;

2 

 Provide and promote a range of products and services that meet customer needs, are easy to understand 
and that deliver real value;

3  Maintain the confidentiality of our customer information (except where the law requires disclosure);

4  Provide and promote high standards of customer service and monitor these standards rigorously; and

5 

 Ensure that our complaints processes provide an effective and fair means of arbitration between the Group’s 
businesses and customers.

Environment

Environment Policy outlines our approach to understand and manage the direct environmental impact of 
the Group. This covers our measurement, monitoring, review and reporting of issues associated with our 
environmental performance.

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Material ESG issues

Our Group-wide policies

Responsible 
investment

Owing to the distinct investment risks faced by our asset management and ownership businesses, with each 
investing in different markets and asset classes, each business manages ESG-related matters through the pursuit 
of business-specific responsible investment policies. This is overlain by our Group-wide Responsible Investment 
Framework, aligned to our Group Code of Business Conduct and underpinned by our Group Responsible 
Investment Standards.

Technology

Privacy Policy governs the protection of data and complies with the General Data Protection Regulation.

People

Diversity and Inclusion Policy sets out how we foster an inclusive workforce and ensure all our employees are 
treated fairly and feel valued, and together have the diversity in skill sets and backgrounds that enriches the 
organisation. Our policy considers a range of diversity aspects of our employees, including gender, age, ethnicity, 
disability, sexual orientation and background. Further information on the diversity of our Board, our policy in 
respect of this, how this is implemented and the associated results in 2019 can be found in our Governance 
statement on pages 110 to 117. Employee Relations Policy outlines the way we engage our employees and 
motivate them to achieve success for the Group: promoting positive relationships with employees, 
representative organisations and trade unions, and maintaining a positive reputation for the treatment of 
employees. Performance and Learning Policy sets out the importance of our people and frames how we invest 
in their development to deliver against our strategy and the future success of the organisation. This includes our 
Performance Management Framework.

Remuneration Policy outlines our effective approach to appropriately rewarding our employees in a way that 
aligns incentives to business objectives and enables the recruitment, retention and incentivisation of high-calibre 
employees in line with our risk appetite and Group Reward Principles.

Talent Policy demonstrates how we attract and select the best people for roles that will ensure high performance 
in the short term and improve the longer-term succession and talent pipeline. It sets out our fair and effective 
approach to pursuing this.

Health and Safety Policy covers our employees, business partners, customers and others that may be affected 
by our operations. This details our health and safety core principles, our commitments and the measuring and 
reporting on our health and safety performance.

Communities

Community Investment Policy covers how we are committed to working with the communities in which we 
operate as active and supportive members. This also outlines our strategy for investing in the community and 
how we make investments and report against them.

Summary of ESG issues
Our key ESG issues can be categorised into 
the following areas: customers, responsible 
investments, climate, business integrity, 
people, technology, environment and 
supporting our communities.

Customers
Our relationships with our customers are 
at the heart of our business. We deliver 
products that meet their needs and help 
them to de-risk their lives, and we ensure 
that we treat them with the highest 
standards of care. We are continually 
innovating to find new ways to improve 
the products we deliver, how we deliver 
them and how we serve our customers.

Our customer commitments
Helping customers achieve their long-term 
financial needs through our products and 
services lies at the heart of our business 
strategy. Our Customer Commitments 
Policy applies to all members of the 
Prudential Group that deal directly 
or indirectly with customers. 
These commitments are: 

1 

2 

3 

4 

5 

 Treat customers fairly, openly 
and honestly

 Provide and promote a range of 
products and services that meet 
customer needs, are clearly explained 
and deliver real value 

 Maintain the confidentiality of our 
customer information 

 Provide and promote high standards 
of customer service 

 Act fairly to address customer 
complaints and any errors.

Customer-first brand commitment 
in Asia
In 2019 Prudential Corporation Asia 
launched its new brand commitment, 
‘Listening. Understanding. Delivering.’ 
The commitment reinforces our focus 
on human connections, simplicity 
and innovation for our customers. 
The commitment is about:

 — Focusing on customers, anticipating 
their needs and enhancing their 
experience with easy access to 
information and services;

 — Delivering comprehensive solutions 
for protection, health and wellness, 
savings and retirements; and

 — Capturing innovation with 

a human touch.

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In line with our commitment to help protect 
our customers’ health, we have continued 
our efforts to create best-in-class health 
capabilities by offering more 
comprehensive and flexible coverage and 
a wider range of value-added services. 
Across Asia, consumers, healthcare 
providers, insurers and governments are 
confronted with problems such as a rising, 
underinsured middle class and a growing 
ageing population. As lifestyles in Asia 
have changed and income levels have 
risen, there has been a rise in non-
communicable diseases such as diabetes. 
This has led to a growing demand for 
healthcare for more complex conditions, 
many of which require long-term treatment 
or management. We are taking steps to 
meet the needs of an ageing workforce and 
help people prepare for longer life. Our 
digital health tools aim to empower the 
broader consumer group to take control 
of their personal health and wellbeing 
anytime and anywhere. We also offer a 
wide range of insurance products that are 
tailored to local market requirements and 
fast-changing individual needs, such as 
Prudential Malaysia PRUMy Critical Care, 
which provides comprehensive financial 
protection against 160 critical illnesses, and 
Prudential Hong Kong’s first-in-market 
cancer protection plan for cancer sufferers.

Financial security in the US
In the US, for those nearing the end of 
their working careers, a financially secure 
retirement is at risk due to insufficient 
accumulation of savings and the current 
combination of low yields and market 
volatility. Through our distribution 
partners, Jackson provides products that 
offer Americans the retirement strategies 
they need. Jackson seeks to provide the 
best retirement solutions that we can, while 
striving to communicate information about 
those products in a fair and transparent 
way. Jackson continues to be a leader in 
shifting perspectives and simplifying the 
language around financial products. 

Expanding our distribution
We continue to expand our distribution 
platform in 2019, including by:

 — Completing our acquisition of a 

majority stake in a leading life insurer 
in West and Central Africa

 — Renewing our strategic Asian 

bancassurance alliance with United 
Overseas Banks, increasing its 
geographical scope

 — Signing long-term exclusive 
partnerships with two banks 
in Vietnam.

Customer care
We are committed to offering our 
customers the highest standards of 
professional care and service. We take 
our commitment seriously when training 
our personnel, who deliver service 
consistent with our values. Where 
customers have cause to complain to us, 
we have documented procedures in place 
to manage complaints received through 
multiple touchpoints, in a timely, robust 
and professional manner and in accordance 
with our Customer Commitments Policy 
and local regulatory requirements. 
Business units conduct analysis of 
complaints to understand their underlying 
causes, with the aim of reducing the 
overall number of complaints, and perform 
ongoing monitoring to identify issues that 
could lead to customer detriment and take 
prompt action to address any errors.

Awards
In Asia in 2019, we won awards for our 
services to customers in Hong Kong, 
Malaysia, Thailand and Vietnam, and in 
the US we won awards for the quality of 
our customer contact, our service and 
our digital initiatives.

Responsible investment
As a life insurer, asset owner and manager, 
we believe that the quality of corporate 
governance practices, and how companies 
manage the environmental and social 
aspects of their operations, can be material 
to delivering superior financial returns 
and longer-term shareholder value. 
Responsible investment at Prudential 
involves incorporating ESG factors into our 
investment decisions, alongside traditional 
financial analysis, to better manage risk 
and generate sustainable, long-term 
returns for our customers.

Responsible investment landscape
Across the Group’s footprint, the policy 
and regulatory landscape continues to 
evolve with respect to sustainable finance 
and ESG. For example, the Monetary 
Authority of Singapore (MAS) has 
signalled its commitment to promote 
sustainable practices by encouraging 
financial institutions to adopt ESG best 
practices and encourage the development 
of the green bond market. We are highly 
supportive of these efforts and are an 
active industry contributor, working closely 
with the regulator to advance this aim. 
Among policymakers, we continue to see 
increasing focus on the need to develop 
a view of the exposure of the insurance 
sector to climate-related financial risk. 
The Task Force on Climate-related 
Financial Disclosures (TCFD) 
recommendations were released in 2017 
to provide a framework for companies 
to develop voluntary, climate-related 
financial risk disclosures. Following Board 
discussion, Prudential plc became a 
signatory to the recommendations in 2018 
in order to meet the growing expectations 
of our investors and regulators, and to 
support the ambitions of our business units 
in the local markets in which we operate. 

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Strengthening our governance 
of responsible investment
Following the successful completion of the 
demerger of M&G plc in late 2019, we took 
the opportunity to further integrate our 
responsible investment activities within the 
ESG Executive Committee by extending 
membership of the Committee to the chief 
investment officers of our asset owner 
businesses.

Our Group-wide Responsible Investment 
Framework is designed to draw together 
the ESG-related approaches of our asset 
management businesses (Eastspring in 
Asia and PPM America in the US) and 
our asset owner insurance businesses 
(Prudential Corporation Asia in Asia and 
Jackson in the US). The ESG Executive 
Committee now maintains our Group-wide 
Responsible Investment Standards, 
which are based upon our Group Code 
of Business Conduct and set minimum 
requirements for each of our business 
units. These Group-level standards 
require all of our businesses to develop 
and maintain their own local responsible 
investment policies, which capture their 
own approaches to responsible investment 
and are appropriate to the jurisdictions in 
which they operate. The strength of the 
commitment of our asset management 
businesses to responsible investment and 
helping to build a sustainable financial 
system can be demonstrated by the fact 
that they are both signatories to the 
United Nations-supported Principles for 
Responsible Investment (Eastspring since 
February 2018 and PPM America since 
October 2018).

ESG integration in the 
investment process
Integrating ESG analysis into our 
investment processes is an ongoing activity 
that will continue to progress over time as 
the characteristics of each asset class and 
each of our investment strategies evolve. 
When making investment decisions, PPM 
America and Eastspring’s Singapore-based 
equity team look to identify all material 
risks to sustainable earnings for a company. 
ESG issues are incorporated into our 
fundamental analysis and integrated into 
our decision-making process when we 
believe they could have a material impact 
on a company’s valuation and financial 
performance. This analysis incorporates 
the governance of a company, as well as its 
social and environmental impact, including 
any plans or strategies to improve 
environmental performance and resilience, 
in our assessment of the drivers of 
longer-term returns.

In 2019, both PPM America and Eastspring 
made progress in enhancing the integration 
of ESG factors into their respective 
investment processes. Since implementing 
its Responsible Investment Policy in 2018, 
PPM America has continued to integrate 
ESG information in its processes, 
wherever possible, so that its investment 
professionals can assess and evaluate 
potential ESG risks. During 2019, the fixed 
income team at Eastspring Singapore 
built on its ESG approach and launched 
its first investment strategy focusing 
on sustainable bonds. For Eastspring 
Singapore’s fixed income team, assessment 
and monitoring of ESG factors are an 
integral part of the bottom-up credit 
research process. ESG issues are 
incorporated in the fundamental analysis of 
individual companies to assess their impact 
on an issuer’s financial performance, its risk 
of default and the valuation of the bonds it 
issues. This process involves an assessment 
of the quality of corporate governance, 
as well as material environmental and social 
issues that could have an impact on a 
business’s day-to-day operation, financial 
performance, and subsequently the ability 
to pay back its obligations.

Industry engagement, memberships 
and collaborative bodies
During 2019, Eastspring continued 
to engage with industry participants to 
promote awareness and understanding 
of responsible investment across Asia, 
organising a number of workshops in 
Asia to continue to help improve the 
understanding of climate-related risks 
across the region. These were jointly held 
in partnership with organisations including 
the Asia Investor Group on Climate Change 
(AIGCC), the World Wildlife Fund and ISS 
Climate. Eastspring is an active member 
of the AIGCC, which aims to create 
awareness among Asia’s asset owners 
and financial institutions about the risks 
and opportunities associated with climate 
change and low-carbon investing. 

Eastspring continued to participate 
in industry roundtable discussions 
throughout 2019 and was a Sustainable 
Finance panel member at Euromoney’s 
Asia Sustainable & Responsible Capital 
Markets Forum in June. In April, 
Eastspring Singapore also hosted a 
Bloomberg Buy-side Women’s Network 
on Responsible Investment and ESG 
Integration. Both Eastspring and Prudential 
Corporation Asia are members of the 
Asian Corporate Governance Association 
(ACGA), and during 2019 Eastspring 
contributed to a number of ACGA white 

papers on corporate governance in 
the China and Japan equity markets. 
Eastspring Indonesia also engaged with 
the ACGA regarding strategies related to 
improved corporate governance practices 
in relation to proxy voting. 

Climate 
We recognise that climate change presents 
long-term risks to the sustainability of our 
business, as well as a range of opportunities 
associated with the transition to a 
low-carbon economy. In 2018, following 
Board discussion, Prudential became a 
supporter of the recommendations of the 
Task Force on Climate-related Financial 
Disclosure (TCFD). This reflects both the 
growing expectations of our external 
stakeholders and colleagues, and the 
ambition among our businesses to develop 
their capabilities to pursue products and 
services aligned to the global need to 
address the impacts of climate change.

Risks and opportunities
We are committed to developing a more 
granular understanding of the diverse risks 
we face and to working collaboratively with 
governments, peers and business partners 
to identify opportunities at scale for our 
businesses. During 2019, we focused on 
enhancing access to ESG and climate risk 
data sources and the carbon footprinting 
of sample Asian investment portfolios. 
During 2020, our priorities are to 
determine the Group’s exposure to 
carbon-intensive sectors and companies, 
extend carbon footprinting across the 
Group’s investment book and to refine 
the initial stress testing of the investment 
book for climate-related scenarios. 

Governance
Our ESG Executive Committee, 
established in 2018, is focused on the 
holistic assessment of ESG matters material 
to the Group, raising matters to the 
Nomination & Governance Committee 
as appropriate. One of the ESG Executive 
Committee’s principal responsibilities is 
to oversee the Group’s progress towards 
fulfilling our commitment to report against 
the TCFD recommendations. This involves 
oversight of our Group-wide efforts 
to assess the climate-related risks and 
opportunities facing our businesses, 
and to subsequently identify and deliver 
the supporting implementation activities. 

Following the successful completion of the 
demerger of M&G plc in late 2019, we took 
the opportunity to increase Committee 
representation from our businesses in Asia.  
We also took steps to further integrate our 

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In order to assess our exposure to 
transition and physical risk, respectively, 
we have begun to explore the impact of 
temperature increase scenarios, over 
medium and long-term time horizons, 
on our investment portfolios. For this, 
we are using the guidance provided by the 
UK’s insurance regulator, the Prudential 
Regulation Authority, and informed by 
the IPCC, as part of the regulator’s August 
2019 stress test exercise. 

As a global business, we recognise the 
need for the Group to understand and 
mitigate the physical risks associated with 
climate change. The location of a significant 
number of our markets increases their 
vulnerability to climate change. Local 
environmental risks, including their 
potential short and medium-term impacts, 
are tracked and managed by our business 
units, with support from Group Risk and 
Security teams. This includes but is not 
limited to forecasts and reporting, business 
continuity advice and incident management 
planning. We manage the physical risk 
to our operations through comprehensive 
risk assessment during the selection of 
properties, including factors such as 
location, geography and weather events. 

Our business units manage morbidity and 
mortality risk by analysing our experience 
from our customers, supplemented by 
industry data and stress testing. We assess 
changes in morbidity and mortality that 
have been observed in the past and 
consider how they may emerge in the 
future. As a life and health insurer, we are 
committed to playing a greater role in 
preventing and postponing illness in order 
to protect our customers. We are investing 
in artificial intelligence technology to 
enable access to affordable and quality 
healthcare and enhancing our digital 
offering to help improve access to finance 
and health protection products. 

responsible investment activities within the 
ESG Executive Committee by extending 
participation on the Committee to the chief 
investment officers of our asset owner 
businesses, reflecting the increasing 
importance of our investment activities 
within the development of our overall ESG 
strategies. Committee members include: 
the chief investment officers of our asset 
management businesses (PPM America 
and Eastspring), the Chief Investment 
Officer of Prudential Corporation Asia, 
Jackson’s General Counsel, Prudential 
Corporation Asia’s Chief Operating Officer, 
and representatives from Group functions. 

The ESG Executive Committee meets 
quarterly and is required to report to the 
Board at least twice each year, with 
additional ad hoc reporting provided as 
necessary. The ESG Executive Committee 
reports to the Board through the Group 
Nomination & Governance Committee, 
which comprises the Group’s Chairman, 
the Senior Independent Director, and the 
chairs of the Audit, Remuneration and 
Risk Committees, and is regularly attended 
by the Group Chief Executive. 

Strategy
As an asset owner and asset manager, 
we rely on investment returns to fulfil 
the longer-term obligations of our saving, 
annuity and health and protection 
liabilities. We recognise that in the 
transition to a low-carbon economy, there 
may be a disorderly adjustment to the value 
of the assets that we hold, arising from 
regulatory and technological change. The 
physical impacts of climate change, such as 
rising temperatures, rising sea levels and 
increased occurrence of extreme weather 
events, may also impact the value of the 
Group’s assets. Such physical risks may 
also cause disruption to our customers, 
employees and property portfolio. 

We also recognise that climate-related 
opportunities can support the delivery 
of the Group’s strategy. For example, 
Eastspring is a member of the Sustainable 
Development Investment Partnership 
initiative, coordinated by the World 
Economic Forum with support from the 
OECD, working with others to scale the 
use of finance in sustainable infrastructure 
investments in emerging and developing 
countries. Since 2016, our US asset 
manager’s approach to ESG integration 
was a key factor in the sale of $55 million 
of utilities credits that generate electricity 
primarily by coal, and the purchase of 
$105 million of single-asset project bonds 
that generate 100 per cent of their 
electricity through renewables. 

As a life insurer, the potential impact of 
climate change on life expectancy 
(mortality risk) and medical health and 
well-being (morbidity risk) could impact 
the profitability of our protection and 
health insurance products respectively. 
The long-term impact of climate change on 
the life insurance sector is complex, as 
climate change acts in conjunction with 
other factors, including demographic and 
social change and rapid urbanisation, all of 
which place increased demand on health 
services. As the risks from climate change 
intensify, so will the consequences for 
humanity and the natural environment –
from disruptions in food, water and energy 
supplies to rising sea levels and increased 
occurrence of extreme weather events. 
In some regions, the negative impacts 
of climate change may have serious 
implications on public health, for example 
increasing the levels of life-threatening 
vector-borne diseases. Against this 
backdrop, there is a need for us to develop 
products and services that help to provide 
protection and support climate change 
adaptation. 

Risk management
As a long-term investor, the Group’s most 
significant exposure to climate-related risk 
is through our role as an asset owner and 
manager, with $543.9 billion of assets 
under management. Our portfolio is 
exposed both to physical risk and transition 
risk as a result of climate change and we are 
using a range of methodologies to develop 
a more accurate understanding of the 
carbon intensity of our asset book and its 
exposure under a range of climate change 
scenarios. Through this process, we are 
seeking to develop metrics for actionable 
insights, which will help to inform the 
Group’s Responsible Investment Standards 
and to direct our investments in the 
low-carbon economy, and reduce our 
exposure to climate risk. 

We have begun to assess the climate 
transition risk exposure of our portfolios 
using a third-party carbon footprinting data 
and software provider. Our Asian asset 
manager, Eastspring, has taken the lead 
across the Group in starting to measure 
and interpret the carbon footprint for listed 
equities in sample portfolios. This tool 
allows us to assess the carbon footprint 
of the portfolio constituents compared 
to historical constituents, the carbon 
efficiency of the portfolio, the exposure 
of a portfolio to fossil fuels, potential 
emissions from fossil fuels, the strength 
of carbon risk management relative to 
industry peers and a portfolio’s exposure 
to clean technology. 

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We continue to engage with policymakers 
and NGOs on this topic. We also work 
collaboratively with our peers through 
a range of networks, including the 
CRO Forum, the Asian Investor Group 
on Climate Change and ClimateWise. 
During 2019, we contributed to a 
ShareAction/AODP report entitled 
‘Insuring a low-carbon future’, exploring 
leading practice and common barriers 
in managing climate-related risks 
and opportunities.

Metrics and targets
We participate in external benchmarks 
that assess our management of climate 
change risks and opportunities. In 2019 
we continued to participate in CDP 
(formerly the Carbon Disclosure Project) 
and maintained our score with a B grading 
(2018: B). We continue to participate in 
ClimateWise, which in 2019 changed 
significantly to align itself with the TCFD 
framework. The Group score, similar to 
other organisations, is down from our 
previous submission (2019: 51, 2018: 78), 
but we remain committed to enhancing 
our climate change disclosures, in line 
with TCFD. Our scoring in CDP and 
ClimateWise is based on the performance 
of the pre-demerger Group, including 
M&G plc. We seek to minimise the 
impact of our direct operations on 
the environment. More detail on our 
environmental performance is included 
in the Environment section on page 84 
of this report. 

Business integrity 
We are strongly aware of our purpose, 
which is to help people de-risk their lives 
and deal with their biggest financial 
concerns. In line with this purpose, 
responsible and ethical behaviour 
are embedded in our business. 
Our governance framework is clear about 
our standards of behaviour and those 
standards flow into every part of what 
we do, from our financial performance and 
tax practices to the way we fight financial 
crime and deal with our suppliers.

Our Code of Conduct
Our governance framework, setting out 
the principles by which we conduct our 
business and ourselves, includes our 
Group Code of Business Conduct, which is 
a central feature of our Group Governance 
Manual. Our Group Code of Business 
Conduct sets outs the ethical standards 
that the Board expects of itself, our 
employees, our agents and others 
working on behalf of the Group. The Group 
Governance Manual consists of a range 
of policies covering all of our business 
units, setting out our principles for good 
governance. We review these policies on 
a regular basis to ensure that we meet the 
expectations of our stakeholders.

Financial strength 
We contribute to financial stability and 
sustainability in all of the markets in which 
we operate. We fulfil our purpose by 
seeking to provide products and services 
that align with important global social 
needs and thereby generate sustainable 
value for stakeholders. Our products and 
services are designed and delivered with 
that purpose clearly in mind. Through the 
combination of our consistent strategy, our 
diversified portfolio of businesses and our 
disciplined execution, we have continued 
to create long-term value for customers, 
shareholders and other stakeholders. 

Responsible tax practices 
The responsible and sustainable 
management of our tax affairs helps us 
to maintain constructive relations with 
our stakeholders and play a positive 
role in the economy. Tax revenues are 
fundamental to sustainable development 
in those communities.

We understand the importance of paying 
the right amount of tax on time. We 
manage our tax affairs transparently and 
seek to build constructive relationships 
with tax authorities in all the countries 
in which we operate. Our Tax Risk Policy 
outlines our processes to identify, 
measure, control and report on risk across 
four categories: technical judgements, 
operations, regulations and reputation.

Our tax strategy is published annually and, 
as well as complying with the mandatory 
requirements under the UK 2016 Finance 
Act, includes additional disclosures, 
including a breakdown of the types and 
amounts of taxes we pay globally, which 
includes taxes borne and collected on 
employee income, for example social 
security. Furthermore, we disclose the 
revenues, profits, average employee 

numbers and taxes on a country-by-
country basis where more than $5 million 
of tax was paid.

We are due to publish our updated 
tax strategy, which will include more 
information on the tax we paid in 2019, 
how we manage our tax affairs and the 
governance and management of tax risk, 
by 31 May 2020.

Fighting financial crime
We take the fight against money 
laundering, terrorist financing, bribery 
and corruption and fraud seriously and 
are committed to implement and maintain 
industry-leading policies and standards. 
In the majority of our markets we maintain 
business relationships with agents and 
intermediaries, who act on our behalf. 
We provide training to our staff to ensure 
they are familiar with international 
standards and best practice, as well as 
being well equipped to implement our 
policies in their respective markets. 

Our Group-wide financial crime policies 
were updated in 2019 to reflect the 
requirements of our new lead regulator, 
the Hong Kong Insurance Authority. 
Our Group anti-bribery and corruption 
policy provides guidance to our diverse 
businesses on gifts and hospitality and 
how we deal with government officials, 
and highlights the importance of due 
diligence when dealing with third parties.

All of our Group-level financial crime 
policies are cascaded down to local 
business units through regional compliance 
teams, which ensure adherence to the 
Group requirements and applicable laws 
and expectations of local regulators. These 
policies are part of the Group governance 
framework, with business units attesting 
their compliance in addition to compliance 
and internal audit reviews. 

The Group Risk Committee continues to 
review the effectiveness of the financial 
crime programme and the Group Financial 
Crime Compliance team regularly updates 
the Committee on risks and controls, 
and on the improvements made to 
processes in the financial crime framework. 
Any material matters on financial crime 
are reported to the Committee.

Whistleblowing
Our Group-wide whistleblowing 
procedures apply to all our colleagues 
and are supported by Speak Out, our 
Group-wide whistleblowing programme. 
Speak Out is available both internally and 
externally to staff, contractors, vendors, 

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agents, clients and the public, enabling 
reporters to raise concerns in a choice 
of languages through web and hotline 
channels. Reporters are able to log 
concerns covering a range of issues, 
including but not limited to anti-bribery 
and corruption, compliance breaches, 
discrimination and harassment and health 
and safety. Concerns are recorded by an 
independent third party and investigated 
by appropriately trained and skilled 
investigators. Qualitative programme 
improvements in 2019 included updates 
to the website, case management system 
upgrades, refreshed staff training and 
enhanced training for line managers. 
Since launching Speak Out in 2016, 
the number of concerns reported has 
increased by nearly 200 per cent. 

Supply chain 
Our Group Code of Business Conduct 
outlines the values and standards that are 
required by each of our suppliers. Our 
Group Third-Party Supply policy is core to 
our supply chain governance and specifies 
our position on supply chain management, 
setting out our approach to due diligence, 
selection criteria, contractual requirements 
and ongoing monitoring of relationships. 
Business units conduct due diligence 
before engaging with and ultimately 
selecting a new supplier. We perform 
regular due diligence, review meetings 
and audits where required, and our policies 
and procedures are supported by regular 
employee training exercises. In July 2019, 
we introduced the Workday platform, 
an e-procurement and general ledger 
system, at our London head office to 
improve the control and monitoring of 
purchasing activities. This system also 
allows us to better understand the 
composition of our supply chain and to 
automate our payments to help make sure 
we pay businesses in a timely way.

Being a responsible business also requires 
organisations to ensure that they meet and 
strive to surpass commitments to the UN’s 
Declaration of Human Rights. We act with 
integrity to ensure that modern slavery, 
human trafficking, child labour or any 
other issue that subjugates human rights 
is eradicated from our supply chain. 

People
We provide an inclusive working 
environment in which we develop our 
talent, reward great performance, protect 
our people and value our differences, 
and we believe that such an environment 
is essential to enabling us to deliver for our 
customers, shareholders and communities.

Diversity and inclusion 
Having the benefit of diverse perspectives 
and experiences within our organisation 
is important to our success and fulfilling 
our purpose. Diversity and Inclusion (D&I) 
is an important priority for Prudential and 
the Group HR Director is the executive 
sponsor for D&I across the Group. 
Through the Group D&I Policy we ensure 
that we provide equal opportunities to 
our workforce, fostering a collaborative 
and supportive environment in which 
our employees are treated with dignity 
and respect.

Our strategic, long-term approach to D&I 
is reviewed regularly to ensure that it 
remains outcomes-focused and enables 
Prudential plc to be appropriately placed 
to become a more diverse and inclusive 
organisation over time. The Board of 
Prudential plc is committed to recruiting 
the best available talent and appointing 

the best candidate for a role, from Board 
level to any role within the wider company, 
ensuring the necessary diversity of 
experience, skillsets and professional 
backgrounds. 

As a signatory to the HMT Women in 
Finance Charter since 2016, we have an 
externally disclosed target of having 
30 per cent women in senior management 
by the end of 2021. At 31 December 2019 
the figure was 28 per cent and we remain 
on track to meet our 2021 target. 

We give full and fair consideration to 
applications for employment by disabled 
people. If an employee incurs a disability 
while employed by us, efforts are made 
to continue their employment. Training, 
career development and promotion 
opportunities are equally applied for all 
our employees, regardless of disability.

Prudential headcount as at 31 December 2019

Gender diversity: senior management

72%

69%

71%

75%

83%

* Pre-demerger position

Male

Female

2019

28%

21 Oct 2019*

2018*

2017*

2012*

31%

29%

25%

17%

Gender diversity: all employees

Headcount

Total Male Female Undisclosed2 Unspecified3

Chairman and Independent 
Non-executive Directors

Executive Directors

Group Executive Committee (GEC) 
Includes Executive Directors

Senior managers

Excludes the Chairman,  
all Directors and GEC members

Whole company1
Full-time equivalent

 Includes the Chairman,  
all Directors, GEC members 
and Senior Managers

10

3

7

7

3

6

3

0

1

53

38

15

–

–

–

–

–

–

–

–

 18,125

 8,137

 9,914

41

33

Notes
1  Excludes Prudential Corporation Asia joint ventures.
2 

In many of our businesses, we provide our employees with the option to not disclose their gender. For these employees, 
gender is recorded as ‘undisclosed’.

3  No specification or information is captured on gender for an immaterial number of our employees. These employees 

are recorded as ‘unspecified’.

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ESG SUMMARY  
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Responsible working practices
We are committed to supporting human 
rights and to acting responsibly and with 
integrity at all times. Our policies are 
guided by the principles of the UN’s 
Universal Declaration of Human Rights 
and the International Labor Organization’s 
core labour standards, which are 
incorporated into our Group Code of 
Business Conduct, setting out our values 
and standards of employee behaviour, and 
into our Group Third-Party Supply Policy.

Our Group Employee Relations and 
Resourcing polices are available on the 
Group website at www.prudentialplc.com/
investors/governance-and-policies/
employee-relations-policy, along with our 
Board-approved Modern Slavery Act 
statement at www.prudentialplc.com/
investors/governance-and-policies/
modern-slavery-statement. Our business 
units implement policies and practices at 
a local level that aim to ensure compliance 
with statutory and regulatory requirements 
in the local labour market and the 
prevention of slavery, human trafficking 
and child and forced labour. Compliance 
with Group policies is certified annually 
through our Group Governance Manual 
attestation process.  

In 2019, we again participated in 
ShareAction’s Workforce Disclosure 
Initiative (WDI), which aims to create 
transparency for investors about how 
companies manage their workers, both in 
their direct operations and supply chains. 

Talent development 
Developing our people is key to achieving 
our strategic objectives as a responsible 
business and to the long-term success of 
the company. Prior to the demerger of 
M&G plc from the Group, we created two 
full boards and senior management teams 
for two FTSE 100 companies, providing 
individuals with development opportunities 
and career progression. Our priority now 
is to ensure that we have the diverse short, 
medium and long-term talent we need in 
an inclusive environment to deliver on the 
strategic priorities of the newly shaped 
organisation. Group HR focuses on 
developing senior leadership through an 
annual process of talent review, and we use 
succession planning to continue developing 
leaders and critical specialists, segmenting 
our talent to identify short, medium and 
long-term successors. We develop our 
senior executive leaders through a bespoke 
exercise based on their aspirations and 
the skillsets they need to continue to be 
successful, including fostering innovation, 
leading transformation and driving 

digital capability and execution through 
collaboration. The Board receives an 
in-depth talent review, led by the Group 
HR Director, once a year.

Employee engagement
We want to foster an environment in which 
employees feel empowered and which 
provides them with an opportunity to make 
an active contribution to the organisation 
and the communities we serve. We drive 
employee engagement through a number 
of initiatives, including colleague 
appreciation programmes, wellbeing 
programmes, networking opportunities 
with peers and senior leaders across 
functions and employee focus groups. In 
the US, Jackson’s Organisational Survey 
ensures that all associates have an 
opportunity to share their thoughts and 
make the organisation an even better place 
to work. The 2019 results show that 
associates are satisfied with their work and 
proud to be a part of Jackson. The areas of 
ethics and corporate responsibility were 
among the highest-scoring.

The Group’s community investment 
strategy is closely aligned with our business 
purpose and one of the principal themes 
is employee engagement. Many of our 
employees play an active role in their 
communities through volunteering, 
charitable donations and fundraising. 
Chairman’s Challenge is our flagship 
international volunteering programme, 
bringing people together across the Group 
to help their communities. More 
information is available in the Supporting 
our communities section on page 86.

The Board has considered options to 
ensure its decisions are informed by an 
appreciation of employees’ views and in 
line with expectations of the UK Corporate 
Governance Code.

Performance and reward 
We structure our reward arrangements to 
attract, motivate and retain high-calibre 
people. Our people contribute to the 
success of the Group and are rewarded 
accordingly. We recognise and reward high 
performance and are committed to a fair 
and transparent system of reward. Among 
our benefits, we offer employees 
competitive pension arrangements. 

We also believe in the importance of giving 
employees the opportunity to benefit 
from the Group’s success through share 
ownership, and operate share plans for 
employees in the UK and Asia. This 
includes the award-winning PruSharePlus 
plan, which enables employees in Asia to 

share in the longer-term success of the 
business and actively encourages share 
ownership and engagement. Similar 
all-employee share plans operate in 
the UK.

Executive remuneration
The Group’s executive remuneration 
arrangements reward the achievement of 
Group, business, functional and personal 
targets, provided that performance is 
aligned to the Group’s risk framework 
and appetite and that our conduct 
expectations, as well as those of our 
regulators and other stakeholders, are met.

For the seventh consecutive year, salary 
increases in 2019 for executives were 
aligned with the bottom of the range 
of pay budgets for the wider workforce. 
In order to strengthen the community 
of interest between executives and other 
shareholders, remuneration is linked to 
sustained performance over the longer 
term. For example, 40 per cent of Executive 
Directors’ bonus is deferred in shares 
for three years. The Remuneration 
Committee’s Terms of Reference were 
updated in 2019 to incorporate updates 
to the Corporate Governance Code and 
to reference the Hong Kong Insurance 
Authority’s remuneration requirements. 
More details on executive remuneration 
can be found in the Directors’ 
Remuneration Report on page 136.

Technology 
In the face of technological advancements 
and evolving customer needs, we actively 
embrace the latest technology and embed 
digital capabilities in our business model. 
We continually increase the automation 
of our operations in order to improve 
both business efficiency and customer 
satisfaction. 

Increasing access to digital health 
tools in Asia
Access to physicians remains a challenge 
for many communities across Asia. To aid 
the expansion of our role from providing 
protection to preventing and postponing 
adverse health events, we have launched 
Pulse by Prudential, an all-in-one digital 
app that forms the core component of our 
pioneering digital health proposition. 
Accessible to everyone, Pulse uses artificial 
intelligence-powered self-help tools and 
real-time information to offer holistic health 
management to customers in Asia. Pulse 
is an evolving platform and consists of a 
range of partnerships with health and 
technology companies. Our partnership 
with Babylon enables users to monitor their 
health status online. We are also working 

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with a range of local and regional partners 
to provide increasingly personalised health 
management services to consumers. For 
example, through our partnership with 
Tictrac, we are able to provide personalised 
wellness services to consumers by 
combining a user’s lifestyle signals from 
their apps and wearables with contextual 
information about their surroundings. This 
information helps guide users to achieve 
their health objectives, such as preventing 
diabetes or reducing stress levels, by 
establishing good nutritional and fitness 
habits or instilling behaviours that are 
beneficial to their health.

Using technology to enhance 
our capabilities
In 2019, Jackson invested significant time 
and resources with fintech partners to 
help illustrate the benefits a lifetime 
income solution can provide within a 
comprehensive wealth management plan. 
The fintech platforms where Jackson 
is actively engaged include eMoney, 
MoneyGuidePro, and Envestnet. 
The technology solutions provided by 
eMoney reach more that 60,000 financial 
professionals, serving nearly four million 
households nationwide. During 2019, 
Prudential Singapore strengthened its 
partner network of fintech, insurtech, 
healthtech and medtech companies with 
the third edition of its flagship innovation 
initiative – the PRU Fintegrate Partnership. 
Our smart underwriting tool, which is now 
used in 64 per cent of all new sales, offers 
dynamic underwriting that streamlines the 
application process and communicates 
instant underwriting decisions to 
customers.

Promoting financial inclusion, 
protection and participation 
In June, we announced a strategic 
partnership with OVO, a digital payments, 
rewards and financial services platform in 
Indonesia. Available on over 115 million 
devices, OVO is the preferred digital 
payments platform for Indonesians, with 
over 500,000 merchants and a presence 
in 319 cities. The partnership significantly 
enhances our reach to digitally minded 
consumers in one of Asia’s fastest-growing 
insurance markets and is a key step in our 
broader commitment to make health and 
wealth services affordable and accessible 
to all Asians. Recognising the high cost of 
and unequal access to healthcare in the 
Philippines, Pru Life UK, our life insurance 
business in the Philippines, has the ambition 
to make health accessible and affordable 
to all through the use of mobile digital 
health. In 2019 PruLife UK published an 

independent study, which it commissioned 
to examine the readiness of the country’s 
regulatory and legal framework to support 
the development of mobile digital health.

Information security 
As consumers seek on-demand, 24-hour 
access to our products and services, 
loss of access has the potential to have 
a significant impact on our customer 
relationships and our brand reputation. 
Furthermore, many of the social benefits of 
new technology, such as financial inclusion 
and greater access to primary healthcare, 
may not be realised. In this context, 
information risk remains an area of 
prominent concern and focus for ourselves, 
regulators and businesses globally. For us, 
information security is rated as a principal 
risk, demonstrating our continued 
commitment to securely managing the 
information our customers entrust to us. 

During 2019, we implemented a long-term 
shift from federated information security 
teams within each business unit to a single 
Group-wide team leveraging skills, 
experience and resource globally via a 
“centres of excellence” model. This new 
model will support collaboration and 
skills-sharing across the whole Group. 
Throughout 2019, the transition to the new 
model has been progressing under the 
newly appointed Group Chief Information 
Security Officer. To support the new 
model, we developed a new Global 
Information Security Policy, which came 
into force in 2020. The policy has been 
mapped to numerous international and 
local standards.

How we manage information 
security risk
Effective risk management is key to the 
successful execution of our objectives and 
the newly formed Group-wide Information 
Security and Privacy Committee defines 
and provides governance and the risk 
management framework for information 
security risks across the Group. This 
Committee meets at least quarterly and is 
a sub-committee of the Group Executive 
Risk Committee (GERC), which is chaired 
by the Group Chief Risk and Compliance 
Officer and of which the Group Chief 
Information Security Officer is a standing 
member. The Information Security team 
also works closely with the Group Risk 
function to define information security as 
a risk within the business. The Information 
Security team regularly reports on security 
risk and performance to the Group Risk 
Committee and the GERC, demonstrating 
the priority and level of executive oversight 

assigned to information security risk and 
the management of these risks. We monitor 
our information security risks through our 
Group-wide key performance indicators, 
which map to the industry-leading National 
Institute of Standards and Technology 
Cyber Security Framework and other 
frameworks.Our Security function retains 
its overarching commitment to protect the 
business, comply with all applicable laws 
and regulations, and support the growth 
of the Group securely.

In 2019 we launched several projects 
to enhance our approach to information 
security assurance using automation and 
analytics. In Asia we have introduced 
automated firewall rule analytics to provide 
deep-dive real-time reviews on the 
performance of our on-premise firewalls. 
Projects such as these are driving our 
approach to innovating our assurance 
processes to provide greater visibility in 
a faster and more efficient manner, while 
protecting the information entrusted to us.

Training, awareness and Board 
oversight of information security risk
Our staff are critical to protecting the 
information entrusted to us by our 
customers. Consequently, information 
security awareness training is integral to 
ensuring that our information and systems 
remain safe. All members of staff, including 
temporary staff, across all of our businesses 
are mandated to complete this training at 
least annually. Training is provided locally 
to support local languages and reflect any 
local regulatory and legal requirements. 
Completion is tracked within each 
business. This training is supplemented 
with simulated phishing campaigns 
quarterly to test how staff respond to these 
attacks in ‘real world’ scenarios. This focus 
extends to our Board and executives. 
Throughout the year our Non-executive 
Directors have access to one-to-one 
training, often delivered by the Group 
Chief Information Security Officer, on 
topics including cyber threat and privacy.

Incident response and resilience
While our aim at Prudential is always to 
prevent incidents wherever possible, we 
must ensure that we are prepared to 
respond to any incident in a timely and 
effective manner. Incident response plans 
are developed, maintained and tested 
regularly, and the Group Information 
Security & Privacy team maintains a close 
working relationship with business 
continuity and disaster recovery teams to 
ensure alignment of plans and support in 
the event of an incident. Regular scenario-

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CONTINUED

based testing of these processes serves 
both to confirm the effectiveness of the 
plans and provide assurance that staff, 
including senior executives, are prepared 
for such an event.

Privacy and data protection
In 2019, our focus was dedicated to 
maintaining awareness as well as 
enhancing and embedding activities that 
were implemented as part of the General 
Data Protection Regulation programme, 
in order to strengthen and sustain ongoing 
compliance. Our Group Privacy Office, 
which we established in 2018, continues to 
maintain oversight of privacy compliance. 
In addition, the Office works with Group 
businesses across Asia, Africa and the US 
to support and advise on ongoing privacy 
compliance as well as to provide a point of 
escalation for resolving data privacy issues.

Environment
We are determined to minimise our impact 
on the environment in line with our 
purpose of improving the lives of our 
customers and their communities. We are 
responsible for understanding our impact 
on the environment and doing what we can 
to minimise any damaging effects. We 
measure our environmental performance 
and take action to ensure that we improve 
that performance year after year.

Managing our direct impact
Our Group Governance Manual underpins 
all our activities, including minimising the 
direct impacts of our operations on the 
environment. Our Group Environmental 
Policy applies to our operational properties 
worldwide, guiding our approach to the 
management of the direct impacts of our 
business units, including compliance with 
environmental laws and regulations with 
respect to emissions, energy consumption, 
water use, waste disposal, environmental 
supply chain management and the 
adoption of risk management principles for 
all property-related matters. Business unit 
performance is monitored against the 
Group Environmental Policy and updates 
are provided to the Board. We participate 
in external benchmarks that assess our 
management of climate change risks 
and opportunities. More information 
is available in the Climate section on 
page 78 and information on our wider 
environmental impact can be found in 
the Responsible Investment section, 
on page 77. 

Global environmental 
targets framework 
In 2016 we developed a global 
environmental targets framework to 
drive improvements in environmental 
operational performance. This framework 
was aligned to the operational footprint of 
the pre-demerger Prudential Group and, 
as such, a number of targets are no longer 
relevant to the demerged Group. The 
Group’s new operational footprint provides 
an opportunity to develop targets that are 
more closely aligned with that footprint 
and our ambition in this area. During 2020, 
we are reviewing our global environmental 
targets framework for the demerged Group 
and new targets will be established to start 
from 2021.

The highlights of our 2019 environmental 
performance are available below. These 
metrics cover the performance of the 
demerged Prudential Group for 2019 and 
form the new baseline data from which 
we will measure future environmental 
performance. The demerged Prudential 
Group is 24 per cent smaller (based on 
headcount) than the Prudential Group 
including M&G plc. Consequently, the 
reported figures are much lower than the 
values reported in 2018. 

Our environmental performance
1  Energy and climate change – 
understanding our impacts, reducing our 
greenhouse gas emissions and developing 
longer-term actions
In 2019, our global energy use (for the 
provision of small power, heating and 
cooling) across our occupied estate was 
91,921 MWh. Across our occupied estate, 
our global absolute Scope 1 and 2 
(market-based) greenhouse gas emissions 
were 56,421 tCO2e. When normalised 
against net lettable floor area, our Scope 1 
and 2 emissions were 105 kg CO2e/m2. 
In Asia, we completed seven site 
assessments as part of our work towards 
achieving our target to conduct energy 
assessments of our 20 highest energy-
consuming sites. In the US, Jackson 
continues to reduce energy usage and 
decrease our carbon footprint, and in 
2019 completed a range of projects at 
our Corporate Way campus in Lansing, 
including installing high-efficiency rooftop 
CO2 sensors, high-efficiency water heaters, 
an energy recovery ventilation unit and a 
new dust-collector filtration system to 
reduce exhaust and recover energy in 
printing facilities.

As in 2018, we have disclosed our Scope 3 
air travel booked from the UK. We will 
continue to work with our business units 
across all of our regions to extend our 
Scope 3 emissions reporting. In 2019 our 
reported air travel emissions were 6,092 
tCO2e. During 2019 we chose to offset our 
air travel, covering both our reported and 
unreported emissions. 

Our full greenhouse gas emissions 
statement can be found below.

2  Construction and refurbishment – 
delivering sustainable outcomes through 
property projects and improved wellbeing 
of our employees 
Refurbishment projects and new office 
builds provide an opportunity to improve 
the environmental performance of our 
estate. Each business unit has the 
autonomy to deliver sustainable building 
certification most relevant to its region 
and develop standards or guidelines 
considered most appropriate in its market. 
Our new London office, which we 
occupied in April 2019, is rated as 
BREEAM Excellent. In Malaysia we have 
consolidated our headquarters operations 
into a new LEED Gold building in the Tun 
Razak Exchange, part of Kuala Lumpur’s 
new business and international Financial 
District. In order to align and promote 
sustainable best practices throughout the 
life-cycle of our occupied estate, Prudential 
Corporation Asia developed a Smart 
Leasing Toolkit and an Environmental 
Design and Construction Guide.

3  Waste and recycling – reducing 
the waste we generate and diverting 
waste from landfill through recycling 
and recovery 
During 2019, we generated 864 tonnes 
of waste in the UK and the US. The quality 
of the data being collected in Asia on waste 
continues to become more reliable and will 
be a focus area for ongoing reporting in 
2020. Of the UK and US total, 63 per cent 
was diverted from landfill through 
recycling, composting or incineration. 
Scope 3 carbon emissions associated with 
our waste are calculated at 42 tCO2e, a 
minor contribution to our overall corporate 
footprint in comparison with the energy 
use of our buildings and air travel. We 
continue to work with our suppliers to seek 
opportunities to increase recycling rates 
and decrease waste generation in the first 
instance.

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of our Scope 3 reporting and increase 
coverage where practicable. Our 2019 
reporting covers the period 1 October 
2018 to 30 September 2019. Please refer to 
our Basis of Reporting and supplementary 
reporting online for further detail on our 
methodology, reported consumption and 
drivers of variation.

4  Water consumption – assessing 
and reducing our use of water
In 2019, absolute use of water across our 
global occupied estate was 229,268 m3. 
When normalised against headcount, 
our use of water was 12.6 m3/employee. 
In the US, irrigation central control has 
been installed and activated for systems in 
part of Jackson’s Corporate Way campus.

Desktop software and mobile phone 
applications are being used to monitor 
water usage, providing automated shut-off 
capability should there be any breaks in 
water supply lines.

5  Sustainable procurement – partnering 
our supply chain to deliver sustainable 
solutions and source responsibly 
The continued support of our supply chain 
is key in becoming a sustainable business. 
Our procurement team ensures that 
environmental requirements are integrated 
into procurement frameworks and form 
part of the supplier selection criteria. 

Prudential plc – greenhouse gas 
emissions statement
We have compiled our global GHG 
emissions in accordance with the 
Companies Act 2006 (Strategic and 
Directors’ Reports) Regulations 2013. 
GHG emissions are broken down into three 
scopes; we have included full reporting for 
Scope 1 and 2 and select 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, 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 includes 
UK booked business travel for the 
occupied estate, global water consumption 
from the occupied estate and waste 
generated from occupied properties 
(UK and US). We continue to work with 
our business units to review the extent 

Group total (including continuing and discontinued operations)

Emissions source

Scope 1

Scope 2 – location based

Scope 2 – market based

Scope 3

Total scope 1 & 2

Total scope 1, 2 & 3

Carbon intensity

Kg per m2 – Scope 1 & 2

Tonnes per employee – scope 1 & 2

Kg per m2 – Scope 1, 2 & 3

Discontinued operations

Emissions source

Scope 1

Scope 2 – location based

Scope 2 – market based

Scope 3

Total scope 1 & 2

Total scope 1, 2 & 3

Carbon intensity

Kg per m2 – Scope 1 & 2

Tonnes per employee – scope 1 & 2

Kg per m2 – Scope 1, 2 & 3

2018

% change

2019

9,353

54,155

50,717

17,747

60,070

77,817

9,192(1)

56,543(1)

52,127

22,545

61,319

97,033

96

2.5

124

24

3.1

32

2%

(4)%

(3)%

(21)%

(2)%

(19)%

300%

(19)%

288%

2019

2,041

5,247

1,609

11,471

3,650

15,121

40

0.7

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Emissions source

Scope 1

Scope 2 – location based

Scope 2 – market based

Scope 3

Total scope 1 & 2

Total scope 1, 2 & 3

Carbon intensity

Kg per m2 – Scope 1 & 2

Tonnes per employee – scope 1 &2

Kg per m2 – Scope 1, 2 &3

2019

7,312

48,908

49,109

6,275

56,421

62,696

105

3.1

117

Data notes: 
Reporting period: 1 October 2018 to 30 September 2019. Baseline year: 1 October 2017 to 30 September 2018. Independent assurance: Deloitte LLP has provided limited assurance over selected 
environmental metrics in accordance with the International Auditing and Assurance Standards Board’s (ISAE3000 (Revised)) international standard. Consolidation (boundary) approach: Operational 
Control. Consistency with financial statements: The reporting period does not correspond with the Directors’ Report period (01 January 2019 to 31 December 2019) as it was brought forward by three 
months to improve the availability of invoice data and reduce reliance on estimated data. Prudential owns assets, which are held on its balance sheet in the financial statements, over which it does not 
have operational control. These are excluded from the data below. Assets not included on the balance sheet but held under an operating lease and where we have operational control are included. 
Emission factor: Scope 1 and 3 reporting uses the UK DEFRA 2019 GHG Conversion Factors. Scope 2 calculations use the IEA GHG 2019 Conversion Factors for location-based reporting. Market-based 
reporting uses supplier emission factors for our UK REGO-backed supply and RE-DISS factors where available. Accounting methodology: The Greenhouse Gas Protocol Corporate Accounting and 
Reporting Standard. Materiality threshold: Five per cent. Data restatements: (1) 2018 figure restated as accurate data became available from suppliers. 

Supporting our communities
Our community investment strategy is 
closely aligned with our business purpose 
and with our stakeholders’ concerns 
and interests, and is focused around 
four principal themes: social inclusion, 
education and life skills, disaster 
preparedness and employee engagement. 
We take an active approach in helping 
tackle environmental and social challenges. 
Our strong contribution, harnessing the 
commitment of our people, continues 
to improve lives and build communities, 
wherever we work.

Our approach to 
community investment 
Our relationships with our charity partners 
are long-term, involving support through 
both funding and skills-based employee 
volunteering. Our business units are 
guided by the Group’s strategy and 
framework for investing in the community, 
as laid out in our Group-wide Community 
Investment Policy, but within that 
framework they have the autonomy to 
manage their own community investment 
programmes. Our Group-wide Community 
Investment Policy sets minimum standards, 
as well as prohibiting political funding and 
contributions to religious organisations that 
have a clear aim to propagate a set faith.

Understanding the issues faced by local 
communities is part of being a responsible 
business, and those best placed to manage 
community investment are our local 
businesses. In Asia and Africa this is done 
through the Prudence Foundation, a 

unified charitable organisation governed 
by a statutory board of directors, which 
maximises the impact of our community 
investment across these regions.  
In the US, a governance committee of 
Jackson and the Jackson Charitable 
Foundation board of directors regularly 
review our community investment activity, 
strategy and spend.

The plc Board reviews the Group’s 
community investment performance 
and approves our strategy annually, 
while our Material Subsidiary Boards 
oversee corporate responsibility initiatives 
undertaken by our business units. 
Paul Manduca, Chairman of Prudential plc, 
is the Board sponsor for corporate 
responsibility.

Monitoring and measuring 
our programmes
We take a strategic, long-term approach to 
community investment, and we ensure that 
all our community investment activities 
meet our objectives. We use performance 
metrics aligned to the London 
Benchmarking Group (LBG) guidelines, 
which are used to monitor progress and 
guide the valuation of both cash and 
in-kind contributions, employee 
volunteering and management costs. 

In 2019, the Group spent $29.1 million 
supporting community activities. Direct 
cash donations to charitable organisations 
amounted to $20.6 million. The balance 
includes in-kind donations as set out on the 
Group website at www.prudentialplc.com/

about-us/esg/performance/community-
investment that are calculated in 
accordance with LBG guidelines. This 
included 10,834 employees who 
contributed 103,775 hours of volunteer 
service in their communities. Our 2019 
community investment reporting is assured 
by Deloitte LLP. Further information and 
Deloitte’s assurance statement can be 
found on the Prudential plc website at 
www.prudentialplc.com/about-us/esg/
performance/external-assurance-of-
responsibility-reporting.

2019 highlights
Volunteering across the globe
Many of our employees play an active role 
in their communities through volunteering, 
charitable donations and fundraising. 
Chairman’s Challenge is our flagship 
international volunteering programme, 
bringing people together across the Group 
to help their communities. The programme 
continues to appeal to colleagues, with 
over 5,400 signing up to participate across 
21 projects. Each volunteering project 
focuses on one or more of our community 
priorities and enables us to support both 
large, well established charities and 
innovative, smaller-scale activities with 
volunteers and financial support. As well as 
volunteering on behalf of the Chairman’s 
Challenge, employees around the Group 
volunteered on a huge range of other 
charitable projects, from providing 
disaster relief to mentoring schoolchildren 
supporting the elderly and skills-sharing.

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ESG SUMMARY  CONTINUEDPrudential RideLondon 
Prudential RideLondon is a major 
mass-participation and charity fundraising 
event in the UK which has raised more 
than £77.5 million for charity in the last 
seven years. In 2019 it raised more than 
£11.5 million for over 980 charities. 
We have sponsored the event since 
its inception in 2013, and in 2019 our 
community engagement partnership, 
PruGOals, supported 273 young people 
from 21 schools across the UK to improve 
their self-esteem, aspiration and 
educational outcomes. 

Political donations
It is the Group’s policy neither to make 
donations to political parties nor to incur 
political expenditure, within the meaning 
of those expressions as defined in the 
UK Political Parties, Elections and 
Referendums Act 2000. The Group did 
not make any such donations to incur any 
such expenditure in 2019.

More detailed information on 
our ESG activities is available in 
our 2019 ESG report found at  
www.prudentialplc.com/investors/
reports/2019

Early childhood development
The Prudence Foundation has supported 
the First Read programme since 2013, 
partnering with Save the Children to invest 
in early childhood care and development 
in Cambodia and the Philippines. First Read 
helps parents to develop their children’s 
numeracy and literacy skills by providing 
books in the local language or dialect, and 
encouraging them to read, sing and count 
together. It also helps parents understand 
the importance of healthy and nutritious 
food for their children’s development. 
Since 2013, more than 330,000 children 
and their parents have benefited through 
this home-based early childhood 
development programme, while over 
one million people have benefited 
indirectly through shared knowledge 
and resources developed from First Read.

Jackson Career Exploration Centre
In partnership with Junior Achievement 
of Middle Tennessee, Jackson has 
underwritten the Jackson Career 
Exploration Centre in JA Finance Park. 
This state-of-the-art programme serves 
seventh- to 12th-grade students across 
Middle Tennessee, combining hands-on 
classroom activities with real-world 
simulation, which allows students to put 
their money-management skills to the test, 
giving them a solid foundation for making 
intelligent personal finance decisions 
throughout their lives. The programme 
will host 10,000 students each school year, 
serving 22 counties in the region. 

Cha-Ching – the first global financial 
education programme 
Developed by Prudential to address the 
gap in financial literacy, Cha-Ching is a 
global financial education and responsibility 
programme for children aged from seven 
to 12. Now in its ninth year, the programme 
has expanded from its origins in Asia to the 
US and Africa. It has been very positively 
received in all markets, with strong 
feedback from parents, teachers, children 
and government stakeholders. 

Safe Steps
Safe Steps is a ground-breaking, Asia and 
Africa public service programme aimed 
at enhancing awareness about natural 
disasters, road safety and first aid through 
the dissemination of survival tips. The 
programme was created and developed 
by the Prudence Foundation. Principal 
partners involved in the programme’s 
development and continuing to support 
its roll-out are National Geographic, the 
International Federation of Red Cross and 
Red Crescent Societies and the Federation 
Internationale de l’Automobile. The 
programme continues to reach an 
estimated 250 million people every day 
across Asia through partnerships with 
government, humanitarian and private 
sector organisations.

Safe Schools 
During 2019, the Prudence Foundation 
continued to support the Safe Schools 
programme in partnership with Plan 
International and Save the Children in 
Cambodia, the Philippines and Thailand. 
This programme primarily focuses on 
disaster preparedness for students, 
teachers and local community members. 
Since 2013, almost 90,000 students 
and 43,000 adults have participated 
in the programme.

Strategic report approval 
by the Board of Directors
The strategic report set out on pages 
10 to 87 is approved by the Board of 
Directors.

Signed on behalf of the Board 
of Directors

Mike Wells
Group Chief Executive

10 March 2020

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Governance

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03

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Board of Directors

Group Executive Committee

How we operate

Risk management and internal control

Committee reports

Nomination & Governance Committee

Audit Committee

Risk Committee

Statutory and regulatory disclosures

Index to principal Directors’ report disclosures

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CHAIRMAN’S INTRODUCTION

Robust and transparent  
governance supporting our  
long-term sustainable success

Dear shareholder
Good governance encourages decisions 
to be made in a way that is most likely to 
promote the long-term sustainable success 
of the Company for the benefit of its 
members, taking into account the views 
and interests of the Group’s wider 
stakeholders. We aim to achieve this 
through a governance framework that 
supports decision-making, facilitates 
challenge, is continuously updated to 
meet the Group’s business needs, and 
encompasses a prudent system of internal 
controls and rigorous processes for 
identifying, managing and mitigating 
key risks.

Set out below are some of the principal 
strategic and governance items the Board 
has considered over 2019.

The demerger of M&G plc 
Following the announcement in 2018 of 
the Board’s intention to demerge M&G plc 
from the remainder of the Prudential 
Group, the demerger was completed 
on 21 October 2019 on an accelerated 
timetable. The effort by management and 
employees during the year to achieve this 
milestone should not be underestimated 
and the Board is grateful for the efforts of 
all those involved across the business. 

During 2019, the Board has been focused 
on overseeing the execution of the 
demerger in a manner that promotes the 
long-term sustainable success of both 
groups. A number of workshops were 
held outside the usual cycle of meetings to 
facilitate more detailed discussions about 
the execution of the demerger, taking into 
account all stakeholder interests and 
ensuring the effective delivery of this 
complex transaction, and to consider the 
challenges and opportunities facing both 
groups post-demerger. The Board has 
found these workshops to be valuable 
and intends to continue this approach, as 
appropriate, when addressing key strategic 
matters, to ensure that additional time to 
discuss and challenge is available. 

Time was spent ensuring M&G plc would 
have in place a suitable governance 
framework for a listed group at the point 
of demerger, including establishing a 
board with the desired skills and 
experience to progress M&G’s strategic 
aims. Consideration was also given to 
the allocation of capital and resources 
between the two groups. As part of these 
discussions the Board considered and 
managed potential conflicts of interests 
between the two groups in order to create 
a fair outcome. 

As Prudential no longer has operations 
in the UK and Europe, the Hong Kong 
Insurance Authority (the Hong Kong IA) 
has assumed the role of Group-wide 
supervisor. However, our long-standing 
governance framework has remained 
in place. 

Our purpose, culture and values
Prudential has been delivering on its 
purpose throughout its 171 year history 
and we have taken the opportunity 
presented by the demerger of M&G plc 
to improve the articulation and 
communication of this purpose. We help 
people de-risk their lives and deal with 
their biggest financial concerns, providing 
them with the freedom to face the future 
with confidence. We deliver economic 
and social benefits for our customers, 
our employees and the communities in 
which we operate, while creating financial 
benefits and delivering growing returns 
for our investors. A description of how 
Prudential considers and delivers on this 
purpose is set out in the ESG report on 
pages 72 to 87.

We recognise that culture is an important 
contributor to long-term success and 
sustainable growth. The Board dedicated 
time in 2019 to reviewing Prudential’s 
culture, focusing as part of our preparations 
for the demerger on the transition to 
our new operating environment and 
challenges. We made progress in defining 
and communicating our culture, 
recognising and rewarding behaviours 
that embody our culture, and measuring 
progress.

Now that the demerger is complete, we are 
focusing in more detail on how to shape our 
culture to support our changing business 
model and embrace new ways of thinking, 
working and leading. It is one of our 
key objectives to ensure that Prudential 
continues to be guided by its values and 
behaviours and demonstrates ongoing 
commitment to our stakeholders and to 
innovation, performance and excellence 
in execution.

We are developing plans for assessing and 
monitoring culture as we move forward, 
including regular reporting to the Board. 
Developing a shared culture and 
behaviours across multiple jurisdictions 
presents a number of challenges and so we 
are focusing efforts on developing a 
Group-wide culture framework, which 
includes a common purpose and shared 
mindsets, behaviours and capabilities but 
allows tailoring for local context.

Details of our risk governance and culture 
can be found in the Group Chief Risk and 
Compliance Officer’s Report on pages 51 
to 71. Our Group-wide Internal Audit 
function considers the risk and control 
culture of the organisation throughout its 
activities, and our Group Code of Business 
Conduct underlies everything we do, 
shaping our culture and linking culture 
explicitly to values and behaviours.

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I am pleased we have strengthened the 
Board’s composition further to ensure the 
Group is well-placed to develop and deliver 
on our strategic objectives post-demerger.

Effective governance is based on the 
appropriate level of oversight and 
challenge. As such, the methodology 
and results of our 2019 Board evaluation 
are set out on pages 102 and 103 and 
I hope reading this report will demonstrate 
to you the work that we have done in 
ensuring that oversight and challenge 
continue to ensure that the Board is 
promoting the long-term success of the 
Company. 

I hope that this report and the reports 
of my fellow Committee Chairs will 
demonstrate to you the work we have 
undertaken over the course of the year 
as well as the tangible and positive impact 
this has had on our business.

Paul Manduca
Chairman

Looking after our stakeholders 
and wider community initiatives
At Prudential, we recognise that our 
stakeholders are key to our long-term 
success. We seek to engage proactively 
with them, to understand their views and 
to take these views into account when 
making decisions. 

In response to the emphasis that the UK 
Corporate Governance Code places 
on wider stakeholders, the Board has 
designated two Non-executive Directors 
to represent the workforce at Board level 
and is taking action to improve oversight 
of workforce policies and practices in 
order to help ensure consistency with the 
Group’s culture and values, including a 
review of relevant policies to be completed 
in 2020. Further information about how 
the Board has taken into account the views 
of the Group’s key stakeholders, including 
employees, can be found on pages 73 to 76 
and 81 to 84. 

Our ESG Executive Committee has 
responsibility for identifying ESG themes 
and overseeing ESG reporting. This 
management Committee provides updates 
to the Nomination & Governance 
Committee. You can read more about our 
corporate social responsibility actions in 
the ESG summary and in our 2019 ESG 
report which will be published on our 
website. 

Board composition
The Nomination & Governance Committee 
has undertaken significant work during 
2019 to ensure that the Board’s skills 
and experience remain appropriate to 
formulate and oversee delivery of the 
strategy for the Group following the 
demerger and that there is an orderly 
and planned succession strategy in place 
for key roles.

We announced last year that my tenure 
as Chairman had been extended until 
May 2021 in order both to help oversee 
the demerger of M&G plc and to ensure 
continuing smooth governance afterwards. 
The early delivery of the demerger has 
focused the Board’s attention on 
succession planning. Following an 
extensive search which considered both 
internal and external candidates and which 
was led by Philip Remnant in his capacity 
as Senior Independent Director, we 
announced the appointment of Shriti 
Vadera as a Non-executive Director with 
effect from 1 May 2020. I intend to step 
down from the Board with effect from 
31 December 2020 and Shriti is expected 
to succeed me and become Chair of the 
Board and Chair of the Nomination & 
Governance Committee on 1 January 2021. 
I believe that Shriti is an excellent choice 
and I look forward to working with her 
during the transition to her becoming Chair.

I would also like to welcome Amy Yip and 
Jeremy Anderson to the Board and to thank 
Howard Davies, who will step down from 
the Board at the conclusion of the 2020 
Annual General Meeting, for his significant 
contribution during his tenure and his 
leadership of the Risk Committee since 
inception. As announced on 11 March 
2020, Jeremy will succeed Howard Davies 
as Chair of the Risk Committee at the 
conclusion of the Annual General Meeting 
in May 2020. 

I would also like to note the expansion 
of the roles of Mark FitzPatrick and James 
Turner, as announced on 10 July 2019, in 
preparation for the demerger. Mark’s role 
is now Group Chief Financial Officer and 
Chief Operating Officer. This extension 
of his responsibilities encompasses 
oversight of key Group support functions 
including Legal, Government Relations 
and Communications. James assumed 
responsibility for Compliance and became 
Group Chief Risk and Compliance Officer.

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Chairman

Relevant skills and experience 
Paul will continue to draw on his extensive 
experience in leadership roles and his 
knowledge of the Group’s core businesses, 
international markets and industry sectors, 
and his technical knowledge, to provide 
effective leadership during a period of change 
for the Group.

Paul has held a number of senior leadership 
roles. Notable appointments include serving 
as chairman of the Association of Investment 
Companies (1991 to 1993), acting as founding 
CEO of Threadneedle Asset Management 
Limited (1994 to 1999), global CEO of 
Rothschild Asset Management (1999 to 2002), 
directorships of Eagle Star and Allied Dunbar, 
holding the offices of European CEO of 
Deutsche Asset Management (2002 to 2005), 
chairman of Bridgewell Group plc and a 
director of Henderson Smaller Companies 
Investment Trust plc.

Other previous appointments include the 
chairmanship of Aon UK Limited and JPM 
European Smaller Companies Investment 
Trust Plc. From September 2005 until March 
2011, Paul was a non-executive director of 
Wm Morrison Supermarkets Plc, including as 
senior independent director, audit committee 
chairman and remuneration committee 
chairman. He was a non-executive director 
and audit committee chairman of KazMunaiGas 
Exploration & Production until the end of 
September 2012 and chairman of Henderson 
Diversified Income Limited until July 2017.

Paul is the Chairman of the Board. He initially 
joined the Board in October 2010 as the Senior 
Independent Director and member of the 
Audit and Remuneration Committees, roles 
he held until his appointment as Chairman in 
July 2012. On becoming Chairman, Paul was 
also appointed Chair of the Nomination & 
Governance Committee, having been a 
member of the Committee since January 2011. 

Chief Executive

Relevant skills and experience
Mike continues to develop the operational 
management of the Group on behalf of the 
Board, implementing Board decisions and 
leading the Executive Directors and senior 
executives in the management of all aspects 
of the day-to-day business of the Group.

Mike has more than three decades’ 
experience in insurance and retirement 
services, having started his career at the US 
brokerage house Dean Witter, before going 
on to become a managing director at Smith 
Barney Shearson.

Mike joined the Prudential Group in 1995 
and became Chief Operating Officer and 
Vice-Chairman of Jackson in 2003. In 2011, 
he was appointed President and Chief 
Executive Officer of Jackson, and joined 
the Board of Prudential.

During his leadership of Jackson, Mike was 
responsible for the development of Jackson’s 
market-leading range of retirement solutions. 
He was also part of the Jackson teams that 
purchased and successfully integrated a 
savings institute and two life companies.

Mike is Group Chief Executive, a position 
he has held since June 2015.

Other appointments 
 — International Advisory Panel of the 
Monetary Authority of Singapore
 — San Diego University Advisory Board

Paul Manduca
Chairman
Appointments

Board: October 2010
Chairman of the Board: July 2012
N&G  : July 2012

Age: 68

Michael Wells
Group Chief Executive
Appointments
Board: January 2011 
Group Chief Executive: June 2015 

Age: 59

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Following the change of Group-wide 
supervisor in October 2019 to the 
Hong Kong Insurance Authority, 
the composition of the Prudential 
Corporation Asia Limited board 
of directors mirrors the 
Prudential Board.

Board changes

Executive Directors

Key to Committee membership

Chair Chair
Audit Audit
N&G Nomination & Governance
Rem Remuneration
Risk
Risk

Non-executive Directors
As announced on 28 February 2019, 
Lord Turner stepped down from the  
Board with effect from the conclusion  
of the 2019 AGM held on 16 May 2019.

As announced on 10 May 2019,  
Amy Yip was appointed to the Board as  
a Non-executive Director and member  
of the Remuneration Committee with  
effect from 2 September 2019.

As announced on 10 December 2019, 
Jeremy Anderson was appointed to the 
Board as a Non-executive Director and 
member of the Risk and Audit Committees 
with effect from 1 January 2020. 

As announced on 30 January 2020, 
Shriti Vadera will join the Board as a 
Non-executive Director and member  
of the Nomination & Governance  
Committee with effect from 1 May 2020.

Executive Directors
As announced on 28 February 2019, 
in preparation for the demerger of  
M&G plc, Michael Falcon, John Foley 
and Nic Nicandrou ceased to be Directors 
of Prudential plc at the conclusion of the 
2019 AGM held on 16 May 2019. Michael 
Falcon and Nic Nicandrou maintained their 
positions as chief executives of their 
respective business units and as members 
of the Group Executive Committee.  
As the chief executive of M&G plc, 
John Foley ceased to be a member of the 
Group Executive Committee at demerger 
on 21 October 2019.

Mark FitzPatrick CA
Group Chief Financial Officer 
and Chief Operating Officer
Appointment

Board: July 2017 

Age: 51

James Turner FCA FCSI FRM
Group Chief Risk and 
Compliance Officer
Appointment

Board: March 2018 

Age: 50

Relevant skills and experience
Mark has a strong background across 
financial services, insurance and investment 
management, encompassing wide geographical 
experience relevant to the Group’s key markets.

Mark previously worked at Deloitte for 26 years, 
building his industry focus on insurance and 
investment management globally. During this 
time, Mark was managing partner for Clients 
and Markets, a member of the executive 
committee and a member of the board of 
Deloitte UK. He was a vice chairman of Deloitte 
for four years, leading the CFO Programme 
and developing the CFO Transition labs.

Mark previously led the Insurance & Investment 
Management audit practice and the insurance 
industry practice.

Mark is Group Chief Financial Officer and Chief 
Operating Officer, a position he has held since 
July 2019. He joined the Board as Chief Financial 
Officer in July 2017. 

Relevant skills and experience
Having held senior positions at Prudential for 
a number of years, James has a wide-ranging 
understanding of the business and draws on 
previous experience across internal audit, 
finance and compliance, as well as technical 
knowledge, relevant to his role.

James has led internal audit teams in UBS in 
both the UK and Switzerland. Prior to joining 
Prudential, James was the deputy head of 
compliance for Barclays plc. He also held a 
number of senior internal audit roles across the 
Barclays group, leading teams that covered the 
UK, the US, Western Europe, Africa and Asia 
retail and commercial banking activities.

James joined Prudential in November 2010 as 
the Director of Group-wide Internal Audit and 
was appointed Director of Group Finance in 
September 2015, with responsibility for delivery 
of the Group’s internal and external financial 
reporting, business planning, performance 
monitoring and capital and liquidity planning. 
He also led the development of the Group’s 
Solvency II internal model. 

James joined the Board as an Executive Director 
and Group Chief Risk Officer in March 2018. 
Prior to the demerger of M&G plc, he led the 
discussions with Hong Kong IA on the revised 
capital framework for the Group and in July 2019 
assumed responsibility for Group Compliance, 
becoming the Group Chief Risk and Compliance 
Officer, relocating to Hong Kong in August 2019. 

Other appointment 
 — West Bromwich Building Society 

(non-executive director)

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CONTINUED

Non-executive Directors

The Hon. Philip Remnant 
CBE FCA
Senior Independent Director
Appointments

Board: January 2013 
Audit  : January 2013 
N&G  : January 2013 
Rem  : January 2013 

Age: 65

Relevant skills and experience
Philip contributes experience across a number 
of sectors and in particular listed company 
experience and the financial services industry, 
including asset management, in the UK 
and Europe.

Philip was a senior adviser at Credit Suisse and 
a vice chairman of Credit Suisse First Boston 
(CSFB) Europe and head of the UK Investment 
Banking Department. He was twice seconded to 
the role of director general of the Takeover Panel. 
Philip also served on the board of Northern 
Rock plc and as chairman of the Shareholder 
Executive. Until July 2018, he also served on 
the board of UK Financial Investments Limited.

Philip joined the Board in January 2013 as a 
Non-executive Director, as Senior Independent 
Director and as a member of each of the Audit 
Committee, the Remuneration Committee 
and the Nomination & Governance Committee. 
He also chaired the M&G Group Limited board 
from April 2016 until October 2018. 

Other appointments 
 — Severn Trent plc
 — City of London Investment Trust (chairman)
 — Takeover Panel (deputy chairman) 

Jeremy Anderson CBE
Appointments

Board: January 2020 
Audit  : January 2020 
Risk  : January 2020 

Age: 61

Sir Howard Davies
Appointments

Board: October 2010 
Audit  : November 2010 
N&G  : July 2012 
Risk  : October 2010 

Age: 68

Relevant skills and experience
Jeremy contributes substantial leadership 
experience of the financial services sector 
across Asia and the US. He has extensive 
technical knowledge on audit and risk 
management, particularly concerning 
international companies. 

Jeremy joined KPMG Consulting in 1985 and 
held the role of Chief Executive Officer in 2001 
before being appointed as head of UK 
operations at Atos Origin and a member of the 
Management Board of Atos Origin SA in 2002. 
From 2006, following two years as head of 
financial services at KPMG UK, Jeremy held the 
role of KPMG’s head of financial services for 
Europe followed by head of clients & markets in 
2008. He served as KPMG’s Chairman of Global 
Financial Services until 2017. Jeremy also served 
on the board of the UK Commission for 
Employment and Skills, and now serves as a 
non-executive director and chairman of the 
audit committee of UBS Group AG.

Jeremy joined the Board in January 2020 as a 
Non-executive Director and member of the 
Audit and Risk Committees.

Other appointments
 — UBS Group AG  

(chairman of audit committee)

 — The Productivity Group
 — The Kingham Hill Trust

Relevant skills and experience
Howard has a wealth of experience in the 
financial services industry, across the Civil 
Service, consultancy, asset management, 
regulatory and academia. He also contributes 
his detailed knowledge of the Group’s key 
international markets including the UK, Europe, 
North America and Asia as well as international 
regulatory experience.

Howard was previously chairman of the Phoenix 
Group and an independent director of Morgan 
Stanley Inc.

Howard joined the Board in October 2010 as a 
Non-executive Director and Chair of the Risk 
Committee. He joined the Audit Committee in 
November 2010 and the Nomination & 
Governance Committee in July 2012. 

Other appointments
 — Royal Bank of Scotland (chairman)
 — China Banking and Insurance Regulatory 
Commission international advisory board
 — China Securities Regulatory Commission 
international advisory board (chairman)
 — Institut d’Études Politiques (Sciences Po)
 — Millennium LLC regulatory advisory board 

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Key to Committee membership

Chair Chair
Audit Audit
N&G Nomination & Governance
Rem Remuneration
Risk
Risk

David Law ACA
Appointments

Board: September 2015 
Audit  : May 2017 
Risk  : May 2017 
N&G  : May 2017 

Age: 59

Kaikhushru Nargolwala FCA
Appointments

Board: January 2012 
Rem  : January 2012
Risk  : January 2012

Employee Engagement 
Director: May 2019

Age: 69

Anthony Nightingale  
CMG SBS JP
Appointments

Board: June 2013 
N&G  : May 2015 
Rem  : May 2015 

Age: 72

Relevant skills and experience
David has experience across the Group’s key 
international markets including North America 
and Asia, and across a number of industry 
sectors. He contributes extensive technical 
knowledge of audit, accounting and financial 
reporting essential to his role as Chair of the 
Audit Committee.

David was the global leader of 
PricewaterhouseCoopers (PwC) insurance 
practice, a partner in PwC’s UK firm, 
and worked as the lead audit partner for 
multi-national insurance companies until his 
retirement in 2015. During his time at PwC 
David’s responsibilities also included 
leadership of PwC’s insurance and investment 
management assurance practice in London 
and the firm’s Scottish assurance division. 
David’s role as a director and CEO of 
L&F Holdings Limited and its subsidiaries 
(the professional indemnity captive insurance 
group which serves the PwC network and 
its member firms), ceased in July 2019.

David joined the Board in September 2015 as 
a Non-executive Director and member of the 
Audit Committee. David was appointed Chair 
of the Audit Committee and a member of the 
Risk Committee and of the Nomination & 
Governance Committee in May 2017.

Other appointment
 — University of Edinburgh (Member of the 

court and policy and resources committee)

Relevant skills and experience
Kai has experience across some of the Group’s 
key international markets, particularly Hong 
Kong and the wider Asian market. In addition to 
his experience with listed groups, he contributes 
knowledge of the financial services sector.

Kai spent 19 years at Bank of America and was 
based in Hong Kong in roles as group executive 
vice president and head of the Asia Wholesale 
Banking Group from 1990 to 1995. He spent 10 
years working for Standard Chartered PLC 
in Singapore as group executive director 
responsible for Asia governance and risk from 
1998 to 2007. Kai was chief executive officer 
of the Asia Pacific Region of Credit Suisse AG 
from 2008 to 2010 and now serves as director 
and chairman of their remuneration committee.

Kai has served on a number of other boards, 
including Singapore Telecommunications and 
Tate and Lyle plc.

Kai joined the Board in January 2012 as a 
Non-executive Director and member of the 
Remuneration and Risk Committees. Kai acts 
as a designated Non-executive Director for 
employee engagement matters as set out in the 
UK Code, for the Group’s workforce in Asia 
and Africa.

Other appointments
 — Clifford Capital Pte. Ltd (chair)
 — Credit Suisse Group AG
 — PSA International Pte Ltd
 — Co-Chair of Sustainable Finance Steering 

Committee formed by Temasek 
(effective 1 March 2020)

Relevant skills and experience
Anthony has long executive experience of 
listed companies and, in particular, extensive 
knowledge of Asian markets.

Anthony spent his career in Asia, where he 
joined the Jardine Matheson Group in 1969, 
holding a number of senior positions before 
joining the board of Jardine Matheson Holdings 
in 1994. He was managing director of the 
Jardine Matheson Group from 2006 to 2012. 
He was a member of the Hong Kong-APEC trade 
policy study group until 2018 and a member of 
the UK-ASEAN Business Council until 2019.

Anthony joined the Board in June 2013 as a 
Non-executive Director and member of the 
Remuneration Committee. He became Chair of 
the Remuneration Committee and a member of 
the Nomination & Governance Committee in 
May 2015.

Other appointments
 — Jardine Matheson Holdings (and other 
Jardine Matheson group companies)

 — Schindler Holding Limited (until 

19 March 2020)
 — Shui On Land Limited
 — Vitasoy International Holdings Limited
 — The Innovation and Strategic Development 

Council in Hong Kong

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CONTINUED

Non-executive Directors continued

Alice Schroeder
Appointments

Board: June 2013 
Audit  : June 2013 
Risk  : March 2018 

Age: 63

Thomas Watjen
Appointments

Board: July 2017 
Rem  : July 2017 
Risk  : November 2018 

Employee Engagement 
Director: May 2019 

Age: 65

Fields Wicker-Miurin OBE
Appointments

Board: September 2018 
Rem  : September 2018 

Age: 61

Relevant skills and experience
Alice has experience across the insurance, asset 
management, technology and financial services 
industries in the US.

Alice began her career as a qualified accountant 
at Ernst & Young. She joined the Financial 
Accounting Standards Board as a manager 
in 1991, overseeing the issuance of several 
significant insurance accounting standards.

From 1993, she led teams of analysts specialising 
in property-casualty insurance as a managing 
director at CIBC Oppenheimer, PaineWebber 
(now UBS) and Morgan Stanley. Alice was also 
an independent board member of the Cetera 
Financial Group and held the office of CEO 
and chair of WebTuner (now Showfer Media 
LLC), until its sale in 2017. She was also a 
director of Bank of America Merrill Lynch 
International until December 2018.

Alice joined the Board in June 2013 as a 
Non-executive Director and member of the 
Audit Committee. She became a member 
of the Risk Committee in March 2018. 

Other appointments
 — Quorum Health Corporation
 — Natus Medical Incorporated 

Relevant skills and experience
Tom has experience across the insurance, 
asset management and financial services 
industries as well as experience with listed 
companies in the UK and the US.

Tom started his career at Aetna Life and 
Casualty before joining Conning & Company, 
an investment and asset management provider, 
where he became a partner in the consulting 
and private capital areas. He joined Morgan 
Stanley in 1987, and became a managing 
director in its insurance practice.

In 1994 he was appointed executive vice 
president and chief financial officer of Provident 
Companies Inc.

He was a key member of the team associated 
with Provident’s merger with Unum in 1999 and 
was appointed president and chief executive 
officer of the renamed Unum Group in 2003, 
a role he held until May 2017. Tom also served 
on the board of Sun Trust Banks from 2010 until 
April 2019. In 2019, Tom joined the boards of 
LocatorX, Inc and in 2020 he joined the board 
of Arch Capital Group Limited.

Tom joined the Board in July 2017 as a 
Non-executive Director and member of the 
Remuneration Committee. He became a 
member of the Risk Committee in November 
2018. Tom acts as a designated Non-executive 
Director for employee engagement matters 
as set out in the UK Code, for the Group’s 
workforce in the US and UK. 

Other appointments 
 — Arch Capital Group Limited
 — LocatorX, Inc 

Relevant skills and experience
Fields has extensive international boardroom 
experience, combining knowledge of the 
Group’s key geographic markets with 
experience across the global financial 
services industry.

Fields started her career at Philadelphia National 
Bank in 1982 before joining Strategic Planning 
Associates (now Oliver Wyman) as a senior 
partner in 1989. She became chief financial 
officer and director of strategy at the London 
Stock Exchange in 1994, leader of the global 
markets practice of AT Kearney in 1998 and 
managing director of Vesta Capital Advisors 
in 2000. She was appointed to Nasdaq’s 
Technology Advisory Council in 2000 and 
was a member of the panel of experts advising 
the European Parliament on financial markets 
harmonisation for four years from 2002. 
She became a non-executive director and chair 
of the audit committee of Savills plc in 2002 
and a non-executive director and chair of the 
investment committee of the Royal London 
Group in 2003. Fields was also a non-executive 
board member at the Department for Digital, 
Culture, Media & Sport from January 2016 until 
January 2020. 

Fields joined the Board in September 2018 as 
a Non-executive Director and member of the 
Remuneration Committee.

Other appointments 
 — BNP Paribas
 — SCOR SE
 — Leaders’ Quest (partner) 

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Key to Committee membership

Chair Chair
Audit Audit
N&G Nomination & Governance
Rem Remuneration
Risk
Risk

Group Executive Committee

The Group Executive Committee (GEC) comprises the Executive Directors, the Chief 
Executive of each of Prudential Corporation Asia and Jackson Holdings LLC, the Group 
Human Resources Director and Group Chief Digital Officer. The GEC is a management 
committee constituted to support the Group Chief Executive, who also chairs the GEC. 
For the purposes of the Hong Kong Listing Rules, Senior Management is defined as the 
members of the GEC. 

Jolene Chen
Group Human Resources Director
Appointment to the GEC: June 2019 
Age: 60

Relevant skills and experience
Jolene is the Group Human Resources 
Director and Chief Human Resources Officer 
for Prudential Corporation Asia. She is also 
a member of the Prudential Corporation Asia 
Executive Board and a Councillor of Prudence 
Foundation, the community investment arm of 
Prudential in Asia.

Jolene has more than 30 years’ experience, 
including eight as Chief Human Resources 
Officer for Prudential Corporation Asia. Prior 
to joining us she spent over 21 years with 
multinational companies in a variety of 
resourcing, organisational design, talent 
management, learning and development 
and human resources roles.

Michael Falcon
Chief Executive Officer,  
Jackson Holdings LLC
Appointment to the GEC: January 2019 
Age: 57

Relevant skills and experience
Michael is Chief Executive Officer of Jackson 
Holdings LLC, which includes Jackson’s US 
subsidiaries and affiliates. Before joining 
Prudential in January 2019, he was based in 
Hong Kong as chief executive officer of Asia 
Pacific for J.P. Morgan Asset Management, a 
role he held from 2015, and was head of Asia 
Pacific funds from 2014. Michael is also a 
director of a number of Group subsidiaries 
within Jackson.

Michael joined J.P. Morgan Asset 
Management in New York as head of 
retirement in 2010, before which he was at 
Merrill Lynch in a number of roles including as 
head of the retirement group. He has served 
as a trustee and executive committee member 
of the Employee Benefit Research Institute 
(EBRI) and was founding chairman of the 
Advisory Board of EBRI’s Center for 
Retirement Income Research.

Nicolaos Nicandrou
Chief Executive,  
Prudential Corporation Asia
Appointment to the GEC: October 2009 
Age: 54

Relevant skills and experience
Nic became Chief Executive of Prudential 
Corporation Asia in July 2017 and is 
responsible for Prudential Corporation Asia’s 
life insurance and asset management business 
across 14 markets in Asia. Nic is also the 
chairman of CITIC-Prudential Life Insurance 
Limited.

Nic started his career at 
PricewaterhouseCoopers (PwC). Before 
joining Prudential as an Executive Director 
and Chief Financial Officer in 2009, he worked 
at Aviva, where he held a number of senior 
finance roles, including as Norwich Union 
Life’s finance director and board member, 
Aviva group financial control director, Aviva 
group financial management and reporting 
director and CGNU group financial 
reporting director.

Al-Noor Ramji
Group Chief Digital Officer
Appointment to the GEC: January 2016 
Age: 65

Relevant skills and experience
Al-Noor, who joined Prudential in 2016 in the 
newly-created role of Group Chief Digital 
Officer, is responsible for developing and 
executing an integrated, long-term digital 
strategy for the Group. 

Before joining Prudential, he worked at 
Northgate Capital, a venture capital firm in 
Silicon Valley, where he ran the technology-
focused funds. Prior to that, Al-Noor was at 
Misys, the financial services software group, 
and he has previously held leading technology 
and innovation roles at BT Group, Qwest 
Communications, Dresdner Kleinwort Benson 
and Swiss Bank Corporation.

Amy Yip
Appointments

Board: September 2019 
Rem  : September 2019 

Age: 68

Relevant skills and experience
Amy has extensive experience of China and 
South-east Asia following a 40-year career in 
banking, insurance, asset management 
and government.

Amy started her career at Morgan Guaranty Trust 
of New York in 1978 before joining the Management 
Analysis Centre in Boston and Hong Kong as a 
consultant in 1986. She became executive director 
of Rothschild Asset Management in Hong Kong 
in 1988, vice president of Citibank Private Bank 
North Asia in 1991 and executive director (Reserves 
Management) of the Hong Kong Monetary 
Authority in 1996. She was group head of wealth 
management of DBS Bank, chair of DBS Asset 
Management and chief executive officer of DBS 
Bank Hong Kong between 2006 and 2010. Since 
2011 she has been an adviser to Vita Green, 
a health supplements provider based in Hong 
Kong, and a founder and partner of RAYS Capital 
Partners, a Hong Kong investor in Asian equities.

Amy became a non-executive director of AIG 
Insurance Hong Kong Limited in 2011 and chair 
of its audit committee in 2017, a non-executive 
director and member of the compensation and 
nomination committees of Temenos Group AG 
in 2014, a non-executive director and member 
of the Technology Committee of Deutsche Börse 
AG in 2015 and a non-executive director of 
Fidelity Funds in 2017. In August 2019, she 
became the chair of the Asia Pacific advisory 
board of EFG Bank International.

Amy joined the Board in September 2019 
as a Non-executive Director and member 
of the Remuneration Committee. 

Other appointments 
 — AIG Insurance Hong Kong Limited
 — Deutsche Börse AG
 — Fidelity Funds
 — RAYS Capital Partners (founder partner)
 — Temenos Group AG

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97

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationHow we operate

This section tells you more about the Group’s governance, 
operation of the Board and Board roles. 

Group governance
Corporate governance codes – 
statement of compliance
The Company has dual primary listings in 
London (premium listing) and Hong Kong 
and has therefore adopted a governance 
structure based on the UK and Hong Kong 
Corporate Governance Codes (the UK and 
HK Codes). This report explains how the 
principles set out in the UK and HK Codes 
have been applied.

The Board confirms that, for the year under 
review, the Company has complied with 
the principles and provisions of the UK 
Code. In respect of provision 38 of the UK 
Code, Prudential has committed to aligning 
the level of pension contributions for newly 
appointed Executive Directors with that of 
the workforce. As recognised by the FRC’s 
Board Effectiveness Guidance, there are 
practical considerations in amending 
arrangements for incumbents.  Accordingly, 
Executive Directors who were in office 
before the 2018 UK Code came into force 
will have their pension contributions 
reduced over time, as described on page 
171 of the Directors’ remuneration report.

The Company has also complied with the 
provisions of the HK Code other than as 
follows: Provision B.1.2(d) of the HK Code 
requires companies, on a comply or explain 
basis, to have a remuneration committee 
which makes recommendations to a 
main board on the remuneration of 
non-executive directors. This provision 
is not compatible with provision 34 of the 
UK Code which recommends that the 
board determines the remuneration of 
non-executive directors. Prudential has 
chosen to adopt a practice in line with the 
recommendations of the UK Code.

The UK Code is available from: 
www.frc.org.uk

The HK Code is available from: 
www.hkex.com.hk

Our governance framework 
The Group has established a governance 
framework for the business, which is 
approved by the Board, and is designed 
to promote appropriate behaviours across 
the Group. The Nomination & Governance 
Committee reviews the Group Governance 
framework annually.

The governance framework includes the 
key mechanisms through which the Group 
sets strategy, plans its objectives, monitors 
performance, considers risk management, 
holds business units to account for 
delivering on business plans and arranges 
governance. 

The Group Governance Manual (the 
Manual) sets out the policies and 
procedures under which the Group 
operates, taking into account statutory, 
regulatory and other relevant matters. 
The Manual includes the Group Code 
of Business Conduct which is regularly 
reviewed by the Board. The Audit 
Committee monitors compliance with the 
Manual and the Risk Committee approves 
the Group risk framework and monitors 
compliance with it across the Group.

Business units manage and report 
compliance with the Group-wide mandatory 
requirements set out in the Manual 
through annual attestations. This includes 
compliance with our risk management 
framework, details of which are set out 
on pages 108 and 109 of this report.

The content of the Manual is reviewed 
regularly, reflecting the developing nature 
of both the Group and the markets in 
which it operates, with significant changes 
on key policies reported to the relevant 
Board Committee.

Subsidiary governance
Following the demerger of M&G plc, the 
Group is reviewing subsidiary governance 
to ensure this remains appropriate to the 
business and regulatory environment in 
which the Group operates. Reflecting 
changes in that environment, the 
composition of the Prudential Corporation 
Asia Limited board of directors now mirrors 
the Prudential Board and Board meetings 
are held concurrently. As part of demerger 
preparations, Prudential Corporation Asia 
Limited became the intermediate holding 
company for the Group’s subsidiaries in 
the US and Africa.

Dialogue between the Group Chair, Group 
Risk Committee Chair and Group Audit 
Committee Chair and their counterparts 
at subsidiary level provided an effective 
information flow throughout the year 
and these arrangements continue where 
relevant. Each of the Group Chair, Group 

Risk Committee Chair and Group Audit 
Committee Chair report to the Board or 
relevant Group Committee on the outcome 
of those dialogues, with any urgent issues 
being escalated between meetings 
as required. 

The Nomination & Governance Committee 
is responsible for oversight of governance 
arrangements for the material subsidiaries. 
This and other activities of the Nomination 
& Governance Committee during 2019 
are described on pages 110 to 117. 

Regulatory environment
Prior to the demerger of M&G plc on 
21 October 2019, the Group was subject 
to the consolidated supervision of the UK’s 
Prudential Regulation Authority (PRA) 
under Solvency II. Following completion of 
the demerger, the Group-wide supervisor 
is now Hong Kong’s Insurance Authority 
(Hong Kong IA).

Prior to demerger, Prudential undertook 
to maintain the Group-wide corporate 
governance framework for the Group 
post-demerger. This included maintaining 
appropriate internal controls for the 
oversight of the businesses, including in 
relation to conduct of business, the 
identification and mitigation of conflicts 
of interest and intra-group transactions. 
Prudential also undertook to maintain its 
group-wide risk management system and 
independent risk management function. 

Individual regulated entities within the 
Group continue to be subject to entity-level 
regulatory requirements in the relevant 
jurisdictions in which they carry on business. 

Interactions with regulators shape the 
Group’s governance framework and the 
Chairman and Group Chief Executive play 
a leading role in representing the Group to 
regulators and ensuring our dialogue with 
them is constructive.

Terms of reference for each of the Board’s 
principal Committees have been updated 
to ensure their duties align with the post- 
demerger business and regulatory regime.

Stakeholder engagement
The Board has identified the Group’s key 
stakeholders as including customers, 
investors, employees, regulators, civil 
society and suppliers. Examples of Board 

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engagement and discussion on stakeholder 
views as part of the Board decision-making 
process can be found on pages 73 to 76. 
Additional information can be found on 
our website at www.prudentialplc.com/
about-us/esg/our-approach

Employee voice
Having considered the suggested methods 
for strengthening workforce engagement 
as described in the UK Code, the Board 
concluded that the most appropriate 
method for achieving effective 
engagement, taking into account the 
international nature of the business and the 
geographic spread of the workforce, would 
be to designate a Non-executive Director 
based in Asia and a Non-executive Director 
based in the US to represent the workforce 
in those regions. During the year, the Board 
designated responsibility to Kai Nargolwala 
for engagement with the workforce in Asia, 
as well as in Africa, and to Tom Watjen for 
engagement with the workforce in the US, 
as well as staff in London. 

An initial framework of activities was 
established, combining both formal and 
informal interactions with employees as 
well as access to relevant material. In 
particular, during the course of the year Kai 
Nargolwala attended townhall sessions 
with staff in Singapore and Hong Kong, 
and Tom Watjen visited staff in Nashville in 
2019 and in London in January 2020. The 
key focus of those discussions was the 
impact on staff of organisational changes 
following the demerger. In addition, Tom 
Watjen and Kai Nargolwala received 
briefings from the Group HR Director on 
workforce-related matters. 

The Board received an initial update in 
December 2019 on activities undertaken 
during the year. The framework will be 
expanded in 2020 to provide the designated 
Non-executive Directors with further 
opportunities for interactions with the 
workforce and includes regular reporting to 
the Board on a six-monthly basis. This will 
include updates on activities undertaken 
and themes arising for the Board to consider. 
If necessary, key items will be escalated 
outside of the six-monthly reporting cycle 
and in addition, Kai Nargolwala and Tom 
Watjen will offer their insight to Board 
discussions and decisions as part of the 
Board’s consideration of the workforce as 
key stakeholders. They will also continue to 
work with the Group HR Director and the 
Company Secretary to identify key issues 
requiring engagement with the workforce, 
the most appropriate means of doing so 
and reporting on these activities. 

Shareholders 
The Board recognises the importance of 
maintaining an appropriate level of two-way 
communication with shareholders. 

Throughout 2019, Prudential engaged with 
institutional shareholders, focusing 
primarily on matters relating to the 
demerger of M&G plc and strategic 
direction following the demerger. The 
executive management team of the Group, 
Prudential Corporation Asia and Jackson 
met with key target investors as part of a 
demerger marketing programme. In 
October 2019, a General Meeting was 
convened to allow shareholders to consider 
and approve the demerger of M&G plc. 
Shareholders demonstrated their 
overwhelming support for the demerger 
resolution which received 99.4 per cent of 
votes in favour.

These demerger-related activities were 
held in addition to the Group’s usual full 
global programme of engagement with 
shareholders, potential investors and 
analysts, in the UK and overseas, which is 
conducted each year by the Group Chief 
Executive and the Group Chief Financial 
Officer and Chief Operating Officer, led by 
the Investor Relations team. The Group 
intends to maintain its regular engagement 
with investors and analysts which provides 
opportunity for the executive team to 
communicate progress and strategy 
outside of the financial reporting cycle. 
Going forward, this may include investor 
conferences or more specific events 
focused on particular aspects of our 
business.

The Group Chief Executive, Group Chief 
Financial Officer and Chief Operating 
Officer and Investor Relations team also 
attend major financial services conferences 
to present to, and meet with, the 
Company’s shareholders.

In 2019, as part of the investor relations and 
demerger marketing programme, over 320 
meetings were held with around 300 
individual institutional investors in the UK, 
continental Europe, the US and Asia.

The Group holds an ongoing programme 
of regular contact with major shareholders, 
conducted by the Chairman, to discuss 
their views on the Group’s governance. 
The Senior Independent Director offers 
meetings to major shareholders as needed. 
Engagement with institutional investors 
on the Directors’ Remuneration Policy and 
implementation is led by the Remuneration 
Committee Chair on an annual basis. 
This has allowed key investors to provide 
feedback on the Directors’ Remuneration 

Policy prior to its adoption proposed to 
shareholders at the 2020 Annual General 
Meeting. All Non-executive Directors, and 
in particular Committee Chairs, are available 
to meet with major shareholders on request. 

Shareholder feedback and key issues from 
these meetings are communicated to 
the Board. 

The Annual General Meeting is an 
opportunity for further shareholder 
engagement, for the Chairman to explain 
the Company’s progress and, along with 
other members of the Board, to answer any 
questions. The Committee Chairs each 
attend the Annual General Meeting and 
are available for shareholders who wish to 
ask questions on the activities of their 
respective Committees. 

Further information, including aggregate 
shareholdings, details of the 2019 Annual 
General Meeting and General Meeting as 
well as the 2020 Annual General Meeting, 
dividend payment dates, and confirmation 
of sufficiency of public float can be found 
in the shareholder information section on 
pages 400 to 402.

Operation of the Board
How the Board leads the Group
The Group is headed by a Board led by the 
Chairman.

The Board consists of 14 Directors, of 
which a majority, excluding the Chairman, 
are independent Non-executive Directors. 
Biographical details of each of the 
Directors can be found on pages 92 to 97 
and further details of the roles of the 
Chairman, Group Chief Executive, Senior 
Independent Director, Committee Chairs 
and the Non-executive Directors can be 
found on pages 104 to 106. 

The Board is collectively responsible to 
shareholders for the long-term sustainable 
success of the business through:

 — Approving the Group’s long-term 

strategic objectives, annual budgets 
and business plans, as recommended 
by the Group Chief Executive, and any 
material changes to them;

 — Monitoring the implementation of 

strategic objectives, annual budgets 
and business plans;

 — Establishing the Company’s purpose, 

values and strategy and satisfying itself 
that these are aligned with the Group’s 
culture; and

 — Assessing and monitoring culture, 
including alignment with policy, 
practices, behaviours and risk appetite.

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CONTINUED

Specific matters are reserved for decision 
by the Board, including: 

 — Approval of the three-year business 

and financial plan;

 — Responsibility for an effective system of 
internal control and risk management; 

 — Approving dividend policy and 
determination of dividends;

 — Approval of strategic projects; 

 — Approval of the Group’s full and 

 — Overseeing the Group’s corporate 

half-yearly results announcements and 
any other periodic financial reporting; 

social responsibility programmes; and

 — Ensuring effective engagement with, 
and encouraging participation from, 
key stakeholder groups. 

Key areas of focus – how the Board spent its time 
The Board held 10 meetings during 2019. The table below gives an indication of the key topics considered at each meeting. 

Feb Mar1 May

Jun

Jul

Aug

Sep

Oct

Dec

Strategy and implementation 

Approval and review of strategic priorities 
Strategic priorities monitoring
Approval of three-year operating plan
Strategic projects2
Group Chief Executive’s report

Report from Committee Chairs

Audit
Nomination & Governance 
Remuneration 
Risk

Financial reporting and dividends

Group Chief Financial Officer’s performance report
Full-year and 2018 second interim dividend
Half-year and 2019 first interim dividend
Cash, capital and operations reports

Business unit Chief Executive updates

Prudential Corporation Asia
Jackson
M&G3

Risk, regulatory and compliance 

Relationship with Regulators and Regulatory and compliance updates
Group Chief Risk and Compliance Officer’s report
Government relations

Governance and stakeholders

Governance updates
Culture and employee engagement
Board evaluation and actions tracking
Succession planning
Corporate responsibility reporting and ESG
Diversity and inclusion
Non-executive Directors’ fees
Investor updates including feedback on investor meetings 

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Notes
1  The Board held two meetings in March 2019.
2  Strategic projects considered during the year included the demerger of M&G plc, the acquisition of fund manager Thanachart in Thailand, entering into an exclusive bancassurance arrangement 

with Southeast Asia Commercial Joint Stock Bank, an IT outsourcing project as well as other confidential matters. 

3  The effective date of the demerger of  M&G plc was 21 October 2019.

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The Board held a separate two-day 
strategy event in June in the US. The Board 
also held four workshops during the year 
to discuss key strategic matters, focusing 
on the demerger of M&G plc and strategy 
for the Prudential Group post-demerger, 
facilitating more in-depth discussion and 
challenge ahead of formal meetings and 
decisions. One of the Board meetings in 

March 2019 was to consider the Group’s 
2018 full-year report only and the meeting 
in August 2019 was primarily to consider 
the Group’s 2019 half-year report and 
accounts. In addition to the March Board 
meeting, the Board received a separate 
in-depth update from the management 
team of Prudential Corporation Asia 
covering progress against strategic 

priorities, key risks facing the business 
in Asia, future opportunities, customer-
orientated initiatives, brand, culture, 
the Eastspring business and the activities 
of the Prudence Foundation.

Between meetings, the Board is provided 
with monthly update reports from 
management. 

Board and Committee meeting attendance throughout 2019 
Individual Directors’ attendance at meetings throughout the year is set out in the table below.

Chairman Paul Manduca2
Executive 
Directors

Nomination 
& Governance 
Committee
3 meetings
lll

Audit 
Committee
12 meetings

Board
10 meetings
llllllllll
llllllllll
Mike Wells
llllllllll
Mark FitzPatrick
llllllllll
James Turner
llll
Michael Falcon3
llll
John Foley3
llll
Nic Nicandrou3
llllllllll llllllllllll lll
Philip Remnant
llllllllll lllllllllll lll
Howard Davies
llllllllll llllllllllll lll
David Law
llllllllll
Kai Nargolwala
Anthony Nightingale llllllllll
llllllllll llllllllllll
Alice Schroeder
llll
Lord Turner4
llllllllll
Tom Watjen
Fields Wicker-Miurin llllllllll
llllllllll
Amy Yip5

lllll

lll

Remuneration 
Committee
8 meetings

Risk 
Committee
5 meetings

Joint Audit  
and Risk  
Committee
1 meeting

llllllll

l
lllll l
lllll l
llllllll lllll l
llllllll

lllll l
l
ll
llllllll lllll l
llllllll
llllllll

General
Meetings
2 meetings1 
ll
ll
ll
ll
l
l
l
ll
l
l
l
l
l
l
l
l

Non-
executive 
Directors

Notes
1 

In addition to the Annual General Meeting held in May each year, a General Meeting of shareholders was held on 15 October 2019. The purpose of the General Meeting was for shareholders to vote 
on the proposed demerger of M&G plc and election of Amy Yip as a Director of the Company. The nature of the business of the meeting meant that it was not considered necessary for the entire 
Board to be present. In addition to the Chairman and Senior Independent Director, each of the Executive Directors was present at the General Meeting and available to answer questions from 
shareholders about the business of the meeting. 

2  Paul Manduca recused himself from a meeting of the Nomination & Governance Committee which was convened to discuss his succession plans. Further information about Paul Manduca’s 

succession may be found in the Nomination & Governance Committee report. 

3  Michael Falcon, John Foley and Nic Nicandrou stepped down from the Board with effect from the conclusion of the AGM held on 16 May 2019. Michael Falcon and Nic Nicandrou each continue in 
their role as chief executive of their respective business units as well as their membership of the Group Executive Committee. John Foley maintained his position as chief executive of M&G plc and 
continued as a member of the Group Executive Committee until demerger on 21 October 2019. 
 Lord Turner stepped down from the Board with effect from the conclusion of the AGM held on 16 May 2019.

4 
5  Amy Yip was appointed a member of the Board and of the Remuneration Committee with effect from 2 September 2019.

Board and Committee papers are usually provided one week in advance of a meeting. Where a Director is unable to attend a meeting, 
his or her views are canvassed in advance by the Chairman of that meeting where possible.

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HOW WE OPERATE  
CONTINUED

Board effectiveness 
Actions during 2019 arising from the 2018 review
The performance evaluation of the Board and its principal Committees for 2018 was conducted internally at the end of 2018 through a 
questionnaire. The findings were presented to the Board in February 2019 and an action plan agreed to address areas of focus identified 
by the evaluation. 

The review confirmed that the Board continued to operate effectively during the year and no major areas requiring improvement were 
highlighted. 

Set out below are the themes, summary of actions and progress updates: 

Theme

Summary of actions

Progress

Board composition 
and process

 — Continuing work on Board succession with a focus 

 — During the year, Amy Yip joined the Board, 

on gender and geographic diversity.

 — Reduction in Board and Committee paper volume.

strengthening the overall diversity of skills, gender 
and experience.

Risk, capital 
and audit 

 — Cyber risk focus for Board agenda for 2019.
 — Board training on the Hong Kong IA regulatory 

regime.

Stakeholders

 — Review of stakeholder groups.
 — Review of workforce voice and its representation 

at Board level.

People

 — Develop diversity and inclusion reporting to the 

Board.

 — Ensure overseas and ‘home’ Boards give scope for 
Non-executives to meet colleagues below Group 
Executive Committee level.

 — Diversity remains a key factor in ongoing 
succession planning. The Nomination & 
Governance Committee reviews the diversity 
policy and how diversity initiatives align with 
strategic objectives.

 — Management is considering whether paper 
volumes can be further decreased as part of 
changes to the meeting structure post-demerger.

 — A cyber risk update was provided to a joint meeting 
of the Risk and Audit Committees in April 2019, to 
which all Board members were invited.
 — Board members were briefed on the new 
regulatory regime in December 2019.

 — Stakeholder groups are reviewed and reported on 
in the ESG Report, which was approved by the 
Board in March 2020.

 — Workforce engagement mechanisms were 

approved by the Board during the year and a 
report on engagement activities was reviewed at 
the Board meeting in December 2019. This will be 
an area of continued focus in 2020 as the 
framework of Non-executive Director engagement 
is developed and their reporting to the Board 
embedded.

 — The Board received an update on key initiatives 
to promote diversity and invest in talent for the 
long-term success of the Company.

 — The Nomination & Governance Committee will 

receive more reporting in this area going forward 
given its extended remit.

 — Both the Board visit to Hong Kong in March and 
the Board strategy session in Lansing in June 
provided opportunities for Non-executive 
Directors to meet with management below the 
Group Executive Committee level as part of 
presentations by Prudential Corporation Asia and 
Jackson management and in informal settings.
 — Non-executive Directors continue to engage 

directly with management as part of their meeting 
preparations, particularly for Committee meetings.

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2019 review and actions for 2020
The performance evaluation of the Board and its principal Committees for 2019 was conducted internally at the end of 2019 through a 
questionnaire. The findings were presented to the Board in February 2020 and an action plan agreed to address areas of focus identified 
by the evaluation. 

The review confirmed that the Board continued to operate effectively during the year and no major areas requiring improvement were 
highlighted.

Theme

Summarised actions 

Board composition 
and process

 — Continue to use workshops, as appropriate, to support discussions.
 — Monitor Board meeting arrangements in the post-demerger context and ensure strategic focus areas, 

including culture and values, continue to receive appropriate agenda time.

Risk, capital 
and audit 

 — Keep Board training in this area under review and schedule additional sessions as appropriate.

Stakeholders

 — Continue to develop and embed reporting by the designated Non-executive Directors on workforce 

engagement.

People

 — Continue to develop reporting on talent management, succession pipeline and Diversity & Inclusion, utilising 

the expanded role of the Nomination & Governance Committee.

In accordance with the UK Code, the 2020 Board evaluation will be externally facilitated. The process for identifying and appointing the 
external evaluator will be overseen by the Nomination & Governance Committee.

Committee effectiveness 
and evaluation
Committee Chairs have responsibility for 
ensuring each Committee operates 
effectively. In order for Committees to 
provide effective challenge to 
management, the Committee Chairs each 
encourage open debate and contributions 
from all Committee members. 

The effectiveness of each Committee is 
monitored via the annual Board 
effectiveness programme. Each 
Committee was found to be operating 
effectively. More details are set out in each 
of the Committee reports. 

Director evaluation
The performance of the Non-executive 
Directors and the Group Chief Executive 
during 2019 was evaluated by the 
Chairman in individual meetings. 

Philip Remnant, the Senior Independent 
Director, led the Non-executive Directors 
in a performance evaluation of the 
Chairman. 

Executive Directors are subject to regular 
review and the Group Chief Executive 
individually appraised the performance 
of each of the Executive Directors as part 
of the annual Group-wide performance 
evaluation of all employees. The Chair 
of the Risk Committee provides feedback 
to the Group Chief Executive on the 
performance of the Group Chief Risk and 
Compliance Officer. 

The outcome of each of these evaluation 
processes is reported to the Nomination 
& Governance Committee in February 
each year in order to inform the 
Committee’s recommendation for Board 
members to be put forward for re-election 
by shareholders. 

Executive Director performance is also 
reviewed by the Remuneration Committee 
as part of its deliberations on bonus 
payments.

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Directors
Board roles and governance

Chairman – Paul Manduca

The Chairman is responsible for the leadership and governance of the Board, ensuring its smooth and effective 
running in discharging its responsibilities to the Group’s stakeholders and managing Board business.

Managing Board business
 — Responsible for setting the Board agenda, ensuring the 
right issues are brought to the Board’s attention through 
collaboration with the Group Chief Executive and the 
Company Secretary 

Governance
 — Leading the Board’s determination of appropriate 

corporate governance and business values, including 
ethos, values and culture at Board level and throughout 
the Group

 — Facilitating open, honest and constructive debate among 
Directors. When chairing meetings, ensuring there is 
sufficient time to consider all topics, all views are heard 
and all Board members, and in particular Non-executive 
Directors, have an opportunity to constructively 
challenge management

 — Meeting with Non-executive Directors throughout the 
year. In 2019, the Chairman met with Non-executive 
Directors without Executive Directors being present on 
four occasions and also met with each Non-executive 
Director individually

 — Ensuring information brought to the Board is accurate, 

clear, timely and contains sufficient analysis appropriate 
to the scale and nature of the decisions to be made

 — Promoting effective reporting of Board Committee 

business at Board meetings through regular Committee 
Chair updates 

Membership and composition of the Board
 — Leading the Nomination & Governance Committee in 
succession planning and the identification of potential 
candidates, having regard to the skills and experience 
the Board needs to fulfil its strategy, and making 
recommendations to the Board

 — Considering the development needs of the Directors 
so that Directors continually update their skills and 
knowledge required to fulfil their duties, including 
the provision of a comprehensive induction for 
new Directors 

 — Maintaining an effective dialogue with the 

Non-executive Directors to encourage engagement 
and maximise their contributions

 — Working with the Company Secretary to ensure 

continued good governance

 — Acting as key contact for independent chairs of Material 

Subsidiaries1

 — Meeting with the independent chairs of the Group’s 

Material Subsidiaries1 on a regular basis and reporting 
to the Board on the outcome of those meetings 

Relationship with the Group Chief Executive
 — Discussing broad strategic plans with the Group 
Chief Executive prior to submission to the Board 

 — Ensuring the Board is aware of the necessary resources 

to achieve the strategic plan

 — Providing support and advice to the Group 

Chief Executive

Relations with shareholders and other 
stakeholders
 — Representing the Board externally at business, political 
and community level. Presenting the Group’s views and 
positions as determined by the Board

 — Playing a major role in the Group’s engagement 

with regulators

 — Balancing the interests of different categories of 

stakeholders, preserving an independent view and 
ensuring effective communication

 — Engaging in a programme of meetings with key 

shareholders throughout the year and reporting to the 
Board on the issues raised at those meetings

External positions
 — Approving Directors’ external appointments prior to 

them being accepted, taking into account the required 
time commitment and escalating consideration of 
conflicts of interests to the Nomination & Governance 
Committee as needed 

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Group Chief Executive – Mike Wells

Senior Independent Director – Philip Remnant

The Group Chief Executive leads the Executive Directors 
and senior executives and is responsible for the operational 
management of the Group on behalf of the Board on a 
day-to-day basis: 

 — Responsible for the implementation of Board decisions

The Senior Independent Director acts as an alternative 
conduit to the Board for shareholder concerns and leads the 
evaluation of the Chairman: 

 — Acts as a sounding board for the Chairman, providing 
support in the delivery of the Chairman’s objectives

 — Establishes processes to ensure operations are compliant 

 — Leads the Non-executive Directors in conducting the 

Chairman’s annual evaluation and leads the Chairman’s 
succession planning

 — Holds meetings with Non-executive Directors without 

management being present, typically at least once a year 
to evaluate the performance of the Chairman 

 — Offers meetings to major shareholders to provide them 

with an additional communication point on request and is 
generally available to any shareholder to address 
concerns not resolved through normal channels

with regulatory requirements

 — Sets policies, provides day-to-day leadership and makes 

decisions on matters affecting the operation, 
performance and strategy of the Group, seeking Board 
approval for matters reserved to the Board

 — Supported by the Group Executive Committee which he 
chairs and which receives reports on performance and 
implementation of strategy for each business unit and 
discusses major projects and other activities related to 
the attainment of strategy

 — Chairs the Chief Executive’s Committee meetings which 
are held weekly to review matters requiring approval 
under the Group’s framework of delegated authorities

 — Keeps in regular contact with the Chairman and briefs 

him on key issues

 — Meets with key regulators worldwide

 — Leads on day-to-day effective stakeholder engagement

Committee Chairs

Non-executive Directors

Each of the Committee Chairs is responsible for the effective 
operation of their respective Committees: 

 — Responsible for the leadership and governance of their 

Committee

 — Sets the agenda for Committee meetings

 — Reports to the Board on the activities of each Committee 
meeting and the business considered, including, where 
appropriate, seeking Board approval for actions in 
accordance with the Committees’ terms of reference

All of the Non-executive Directors are deemed to be 
independent and together have a wide range of experience 
which can be applied to attain the strategic aims of the 
Group through: 

 — Constructive and effective challenge 

 — Providing strategic guidance and offering specialist 

advice

 — Scrutinising and holding to account the performance 

of management in meeting agreed goals and objectives 

 — Works with the Company Secretary to ensure the 

 — Serving on at least one of the Board’s principal 

continued good governance of each Committee during 
the year

In addition to Committee duties, the Chairs of the Audit and 
Risk Committees act as key contact points for the 
independent chairs of the audit and risk committees of the 
Material Subsidiaries1

Committees 

 — Engaging with Executive Directors and other senior 

management at Board and Committee meetings as well 
as at training sessions and on an informal basis

 — Taking part in one-to-one meetings with the Group 

Strategy team and participation in the annual strategy 
session

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The Board has established four principal Committees. These Committees form a key element of the Group governance framework, 
providing effective independent oversight of the Group’s activities by the Non-executive Directors. Each Committee Chair provides an 
update to the Board on the matters covered at each Committee meeting, supported by a short written summary. The terms of reference 
for each Committee are reviewed at least annually. The functions of the principal Committees are summarised below.

Nomination & Governance 
Committee

Remuneration  
Committee

Chair
Paul Manduca

Chair
Anthony Nightingale

Audit  
Committee

Chair
David Law

 — Keeps leadership needs 
under review in support 
of the Group’s strategic 
objectives

 — Develops succession 
planning for the Board 
and senior executives 
based on merit against 
objective criteria 
promoting diversity in 
all areas

 — Oversees development 
of a diverse pipeline in 
succession planning 

 — Monitors the Group’s 
diversity initiatives

 — Recommends 

appointments to the 
Board, its principal 
Committees and 
appointments of 
non-executive chairs to 
the boards of Material 
Subsidiaries1

 — Oversees the 

governance of Material 
Subsidiaries1 and the 
Group’s overall 
governance framework

 — Ensures there is a formal 
and transparent process 
for establishing the 
Directors’ Remuneration 
Policy 

 — Responsible for the 

integrity of the Group’s 
financial reporting, 
including scrutinising 
accounting policies

 — Approves individual 

 — Monitors the 

effectiveness of internal 
control and risk 
management systems

 — Monitors the 

effectiveness and 
objectivity of internal 
and external auditors

 — Approves the internal 

audit plan

 — Recommends the 

appointment of the 
external auditor

remuneration packages 
of the Chairman, 
Executive Directors, 
senior executives and 
Material Subsidiary1 
non-executive directors

 — Approves the overall 

Remuneration Policy for 
the Group

 — Reviews the design and 
development of share 
plans and approves and 
assesses performance 
targets where applicable 
and ensures alignment 
with the Group’s culture 

 — Reviews workforce 

remuneration practices 
and policies when 
setting executive 
remuneration

Risk  
Committee

Chair
Howard Davies

 — Leads on and oversees 
the Group’s overall risk 
appetite, risk tolerance 
and strategy 

 — Approves the Group’s 
risk management 
framework and monitors 
its effectiveness

 — From 2020 the 

Committee has full 
responsibility for all 
aspects of compliance

 — Supports the Board and 

management in 
embedding and 
maintaining a supportive 
culture in relation to the 
management of risk 

 — Provides advice to 
the Remuneration 
Committee on risk 
management 
considerations to inform 
remuneration decisions

   See Nomination & 

Governance Committee 
Report on pages 110 to 117

   See Remuneration 

Committee Report on pages 
136 to 195

    See Audit Committee Report 

   See Risk Committee Report 

on pages 118 to 126 

on pages 127 to 132

Terms of reference for the principal 
Committees can be accessed at 
www.prudentialplc.com/investors/
governance-and-policies/board-and-
committees-governance

The Board has established a Standing 
Committee which can meet as required to 
assist with any business of the Board. It is 
typically used for ad hoc or urgent matters 
which cannot be delayed until the next 
scheduled Board meeting. 

All Directors are members of the Standing 
Committee and have the right to attend all 
meetings and receive papers. 

Notice of a Standing Committee meeting is 
sent to all Directors and if an individual is 
unable to attend, he/she can give 
comments to the Chairman or Company 
Secretary ahead of the meeting for 
consideration by the Standing Committee. 
Before taking decisions on any matter, the 
Standing Committee must first determine 
that the business it is considering is 
appropriate for a Committee of the Board 
and does not properly need to be brought 
before the whole Board. All Standing 
Committee meetings are reported in full 
to the next scheduled Board meeting. 

This governance structure allows for fast 
decision-making where necessary, while 
ensuring that the full Board has oversight 
of all matters under consideration and all 
Non-executives can contribute. Over 2019, 
the Company held three meetings of the 
Standing Committee.

Note
1  Following the demerger of M&G plc, the Group is reviewing 
subsidiary governance to ensure this remains appropriate 
to the business and regulatory environment in which the 
Group operates.

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Building Directors’ knowledge
Induction – new Directors
Amy Yip received a comprehensive induction, tailored to reflect her experience and position as a Non-executive Director. 
A summary of the general and specific induction programme for Amy Yip is set out below:  

General induction programme relevant to new Non-executive Directors

Understanding our governance

Understanding our business

 — Meetings with the Chairman and 
Group Chief Executive separately 
 — Explanation of Prudential’s corporate 

structure, Board and Executive 
Committee structure

 — Briefings on Group governance 
framework and key policies

 — Training as needed on the rules and 
governance requirements of the 
London and Hong Kong Stock 
Exchanges and on fulfilling the 
statutory duties of a Director

 — Explanation of the Group’s strategy and business plan
 — Tailored briefings with each business unit to gain 
a comprehensive understanding of each of their 
business models, product suites, pricing 
arrangements and governance structures 
 — Tailored meetings with all Group functions 
 — Comprehensive briefings on the regulatory 
environment in which the Group operates
 — Briefings on top risks and internal controls
 — Induction briefings and training as a whole give 

Directors an understanding of the interests of the 
Group’s key stakeholders

Role-specific induction programme  
for Amy Yip

 — Orientation to the work and 
role of the Remuneration 
Committee 

 — Updates on current UK 
remuneration topics

 — Meeting with the Chair of the 
Remuneration Committee to 
discuss the annual cycle of 
Committee work, its current 
focus and focus for 2020 and 
beyond 

Jeremy Anderson was appointed to the Board as a Non-executive Director with effect from 1 January 2020. His induction commenced 
in early 2020 and included a particular focus on risk matters to support his role as a member of the Risk Committee.

Continuing development 
of knowledge and skills
During 2019, the Board and its Committees 
received a number of technical and 
business updates as part of their scheduled 
meetings, providing information on 
external developments relevant to the 
Group and on particular products or 
operations. Below is an overview of how 
Directors are kept up to date: 

 — The Board holds an annual strategy 
session, which allows for detailed 
updates on each of the business units 
and deep dives on strategic direction 
and objectives for the Group. In 2019, 
these included a particular focus on the 
demerger of M&G plc and updates on 
the views of investors and other 
stakeholders;

 — The Board receives updates on brand, 

environment, health and safety, culture, 
diversity and inclusion and employee 
engagement activities, usually once 
a year;

 — The Board receives updates on corporate 
governance, political and regulatory 
developments in the US, UK, Europe 
and Asia and the dynamics of equity and 
currency markets at every scheduled 
meeting. Governance topics included 
gender pay gap reporting, the BEIS 
committee report on the future of audit 
and the Government’s response to it, the 
Hampton-Alexander review publication, 
guidelines from investment institutions, 
the Financial Reporting Council’s Lab 
report on climate-related corporate 
reporting and the publication of the 
updated Stewardship Code. The Board 
was also updated on the impact of the 
discontinuation of LIBOR; 

 — In April 2019, the Group ran a focused 

cyber security and information security 
update for members of the Risk and Audit 
Committees, which was particularly 
aimed at developing the knowledge 
of the Non-executive Directors;

 — The Board reviews each business unit in 
depth at least once a year and conducts 
periodic site visits as part of this. In 
2019, the Board received a presentation 
on Jackson Holdings. Other training 
included an overview of Jackson’s 
distribution and products;
 — The Nomination & Governance 

Committee received updates on the 
Climate Change and TCFD 
implementation as part of its expanded 
ESG remit; 

 — The Board and the Risk Committee 
receive regular updates on market 
developments and key risks. The Risk 
Committee reviews top risks on an 
annual basis and deep dives into 
specific topics in response to the 
identification of key risks. This review 
covers the financial, operational and 
strategic risks, whilst also identifying 
and addressing business environment 
and insurance risks within the Group;
 — The Risk Committee received updates 
on regulatory developments focusing 
on the supervision of the Prudential 
Regulation Authority and discussions 
with the Hong Kong IA on the new 
Group-wide regulatory framework. 
A deep-dive review of artificial 
intelligence and digital transformation 
was undertaken as well as updates on 
civil unrest in Hong Kong; 

 — The Audit Committee received updates 
on developments affecting financial 
reporting and the work of audit 
committees more widely. In 2019, this 
included financial reporting disclosure 
developments and audit industry 
updates. These updates included 
consideration of the accounting treatment 
of the M&G Group, information security, 
financial crime and fraud prevention, 
working capital arrangements and the 
implementation of IFRS 17; and

 — The Remuneration Committee receives 
updates on regulatory and governance 
developments affecting the Group’s 
remuneration arrangements. In 2019, 
these included updates on discussions 
with the Hong Kong IA on the new 
regulatory regime, compliance with the 
UK Corporate Governance Code 2018 
and guidelines from investment 
institutions. 

All Directors have the opportunity to 
discuss their individual development needs 
as part of the annual Board effectiveness 
review and are encouraged to request 
specific updates during the year. At the 
start of the year, suggested topics are 
shared with the Board for feedback. 
Directors are asked to provide a record of 
training received externally on an annual 
basis. All Directors have the right to obtain 
professional advice at Prudential’s expense. 
Board training materials are also made 
available, as relevant, to Group Executive 
Committee members, who have an 
opportunity to request any additional 
training as needed. 

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The Board is responsible for ensuring that 
an appropriate and effective system of risk 
management and internal control is in place 
across the Group. The framework of risk 
management and internal control centres 
on clear delegated authorities to ensure 
Board oversight and control of important 
decisions. The framework is underpinned 
by the Group Code of Business Conduct, 
which sets out the ethical standards the 
Board requires of itself, employees, agents 
and others working on behalf of the Group. 
The framework is designed to monitor and 
manage, rather than eliminate, the risk of 
failure to achieve business objectives, and 
can only provide reasonable and not 
absolute assurance against material 
misstatement or loss.

Internal control
The Group Governance Manual (the 
Manual) sets out delegated authorities 
and establishes the requirements for 
subsidiaries to seek approvals from, or 
report to, Group Head Office. Group-wide 
policies are included within the Manual, 
and standards are established through 
these policies and other governance 
arrangements. Internal controls and 
processes, based on the provisions 
established in the Manual, are in place 
across the Group. These include controls 
covering the preparation of financial 
reporting. The operation of these controls 
and processes facilitates the preparation of 
reliable financial reporting and the 
preparation of local and consolidated 
financial statements in accordance with the 
applicable accounting standards, and 
requirements of the Sarbanes-Oxley Act. 
These controls include certifications by the 
Chief Executive and Chief Financial Officer 
of each business unit with respect to the 

accuracy of information provided for use in 
preparation of the Group’s consolidated 
financial reporting, and the assurance work 
carried out in respect of US reporting 
requirements.

The Board has delegated authority to the 
Audit Committee to review the framework 
and effectiveness of the Group’s systems 
of internal control. The Audit Committee is 
supported in this responsibility by the 
assurance work carried out by Group-wide 
Internal Audit and the work of the business 
unit audit committees, which oversee the 
effectiveness of controls in each respective 
business unit. Details of how the Audit 
Committee oversees the framework of 
controls and their effectiveness on an 
ongoing basis, is set out more fully in the 
report on pages 118 to 126.

Risk management
A key component of the Manual is the 
Group Risk Framework, which requires all 
business units to establish processes for 
identifying, evaluating and managing the 
risks facing the business.

The Board determines the nature and 
extent of the principal risks it is willing to 
take in achieving its strategic objectives. 
The Board has delegated authority to the 
Risk Committee to assist it in providing 
leadership, direction and oversight of the 
Group’s overall risk appetite, risk tolerance 
and strategy, overseeing and advising on 
the current and potential future risk 
exposures of the Group, reviewing and 
approving the Group’s risk management 
framework, including changes to risk limits 
within the overall Board-approved risk 
appetite, monitoring the effectiveness of 
the risk management framework and 
adherence to the various risk policies. 

Regular activities are detailed in the report 
on pages 127 to 132.

The Group’s risk governance 
arrangements, which support the Board, 
the Risk Committee and the Audit 
Committee, are based on the principles of 
the ‘three lines of defence’ model: risk 
taking and management, risk control and 
oversight, and independent assurance.

Formal review of controls
A formal evaluation of the systems of risk 
management and internal control is carried 
out at least annually. Prior to the Board 
reaching a conclusion on the effectiveness 
of the systems in place, the report is 
considered by the Disclosure Committee 
and Audit Committee, with risk specific 
disclosures within the report also reviewed 
by the Risk Committee. This evaluation 
takes place prior to the publication of the 
Annual Report.

As part of the evaluation, the Chief 
Executive and Chief Financial Officer of 
each business unit, including Group Head 
Office, certify compliance with the Group’s 
governance policies and the risk 
management and internal control 
requirements. The Group Risk function 
facilitates a review of the matters raised in 
this certification process. This includes the 
assessment of any risk and control issues 
reported during the year, risk and control 
matters identified and reported by the 
other Group oversight functions and the 
findings from the reviews undertaken by 
Group-wide Internal Audit, which carries 
out risk-based audit plans across the 
Group. Issues arising from any external 
regulatory engagement are also taken 
into account.

First line of defence (risk taking and management)
 — Takes and manages risk exposures in accordance with the 

risk appetite, mandate and limits set by the Board;

 — Identifies and reports the risks that the Group is exposed to, 

and those that are emerging;

 — Promptly escalates any limit breaches or any violations of 
risk management policies, mandates or instructions;

 — Identifies and promptly escalates significant emerging risk 

issues; and

 — Manages the business to ensure full compliance with the 
Group risk management framework as set out in the 
Manual, which among other requirements, includes the 
Group Risk Framework and associated policies as well as 
approval requirements.

Second line of defence (risk control and oversight)
 — Assists the Board to formulate the risk appetite and limit 
framework, risk management plans, risk policies, risk 
reporting and risk identification processes; and

 — Reviews and assesses the risk-taking activities of the 

first line of defence, providing risk opinions and where 
appropriate challenging the actions being taken to manage 
and control risks. 

Third line of defence (independent assurance)
 — Provides independent assurance on the design, 

effectiveness and implementation of the overall system of 
internal control, including risk management and compliance.

Each business unit is required to implement a governance 
structure based on the three lines of defence model, proportionate 
to its size, nature and complexity, and to the risks that it manages.

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Lines of defence

Board

Board 

Nomination  
& Governance  
Committee

Remuneration   
Committee

Risk  
Committee 

Audit  
Committee 

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Executives

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Chief Executive 
Committee 

Group Chief 
Executive

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Group Executive 
Committee 

Group Asset and 
Liability Management  
Committee

Balance Sheet and 
Capital Management 
Committee

Management

Group Chief 
Financial Officer 
and Chief 
Operating Officer

Group Chief Risk 
and Compliance 
Officer

Group Executive 
Risk Committee 
(GERC)

GERC
Sub-committees 

Group Finance 

Chief 
Information 
Security Office

Group Risk, 
Compliance  
and Security

Group-wide 
Internal Audit

 Executive personnel 

 Exec/Management committees 

 Head office functions 

 Board-level committees 
 Direct reporting line 

 Regular communication and escalation

For the purposes of the effectiveness 
review, the Group has followed the FRC 
Guidance on Risk Management, Internal 
Control and Related Financial and Business 
Reporting. In line with this guidance, the 
certification outlined above does not apply 
to certain material joint ventures where the 
Group does not exercise full management 
control. In these cases, the Group satisfies 
itself that suitable governance and risk 
management arrangements are in place to 
protect the Group’s interests. However, 
the relevant Group company which is party 
to the joint venture must, in respect of any 
services it provides in support of the joint 
venture, comply with the requirements of 
the Group’s internal governance 
framework.

Effectiveness of controls
In accordance with provision 29 of the UK 
Code and provisions C.2.1, C.2.2 and 
C.2.3 of the HK Code, the Board reviewed 
the effectiveness and performance of the 
systems of risk management and internal 
control during 2019. This review covered 
all material controls, including financial, 
operational and compliance controls, risk 
management systems, budgets and the 
adequacy of resources, qualifications and 
experience of staff of the Group’s 
accounting, internal audit and financial 
reporting functions. The review identified 
a number of areas for improvement, and 
the necessary actions have been or are 
being taken. The Audit Committees at 
Group and subsidiary level collectively 
monitor outstanding actions regularly and 

ensure sufficient resource and focus is in 
place to resolve them within a reasonable 
time frame. This included oversight 
of M&G plc whilst it was a subsidiary 
of the Group.

The Board confirms that there is an 
ongoing process for identifying, evaluating 
and managing the significant risks faced by 
the Group, including the demerged M&G 
plc business prior to 21 October 2019, 
which has been in place throughout the 
period and up to the date of this report, and 
confirms that the system remains effective. 

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Committee reports

Paul Manduca 
Chair of the Nomination &  
Governance Committee

Committee members
 — Paul Manduca (Chair) 
 — Howard Davies
 — David Law 
 — Anthony Nightingale
 — Philip Remnant

Regular attendees
 — Group Chief Executive 
 — Group Human Resources Director 
 — Company Secretary 

Number of meetings in 2019:
Three. (Two regular meetings and an 
additional meeting to consider Chair 
succession, held in September.)

During the year, the Committee also 
recommended the appointment of Amy 
Yip to the Board as a Non-executive 
Director. Amy brings 40 years of 
experience in insurance, asset 
management and government gained 
across China and South-east Asia. 

Diversity
Improving gender diversity at Board level 
continues to receive considerable attention 
from the Committee and diversity in its 
wider sense is an important factor in 
identifying candidates for Board level 
succession. The Committee considers 
this when making recommendations and 
talent search agencies are briefed on the 
Group’s requirements in this respect 
when identifying candidates. Gender 
representation has improved at Board 
level during 2019, however there remains 
scope for improvement in this important 
area. Progress has been made via the 
appointment of Non-executive Directors 
and there is a continuing focus on the 
executive talent pipeline in order to 
increase diversity, in its widest sense, on 
both the Group Executive Committee and 
ultimately the Board. The Board exceeds 
the recommendation of the Parker review in 
respect of ethnic diversity. The Committee 
also considers the diversity of experience 
on the Board, including expertise across 
the geographical markets in which the 
post-demerger Group operates. 

The Committee has responsibility for 
reviewing and monitoring diversity 
initiatives across the Group as a whole. 
I am pleased that the Group remains on 
target by the end of 2021 to achieve 
30 per cent representation of women in 
senior leadership roles in accordance with 
our commitment to the HM Treasury 
Women in Finance Charter. 

Nomination & Governance 
Committee report
Dear shareholder
This report highlights some of the key areas 
of focus considered by the Committee 
during 2019. 

The Committee’s role has expanded 
recently to include taking a wider role in 
overseeing diversity initiatives, the wider 
talent pipeline, and receiving updates on 
ESG matters. Accordingly, the number of 
regular Committee meetings in 2020 will 
increase to three.

Ongoing succession planning
One of the Committee’s main roles is to 
ensure the Board retains an appropriate 
balance of skills to support the strategic 
objectives of the Group. As part of this, the 
Committee helps maintain a rigorous and 
transparent approach to the identification 
of candidates for appointment as Directors. 

A significant part of the Committee’s 
activities over 2019 was focused on 
determining the most appropriate 
combination of skills and experience 
needed by the Board to drive the strategic 
focus of the Group post-demerger as well 
as supporting the creation of the M&G plc 
board prior to demerger. This included 
consideration of my successor as Chair of 
the Board and as Committee Chair. Philip 
Remnant led discussions on my succession 
in his capacity as Senior Independent 
Director culminating in the announcement 
of the appointment of Shriti Vadera. 
A separate report from Philip is set out 
below. As a member of the Committee 
and ultimately as the new Chair of the 
Group, Shriti will have an opportunity to 
shape the future composition of the Board. 

In accordance with the UK Code, Howard 
Davies, who has been a member of the 
Board and Chair of the Risk Committee 
since its inception in 2010, will not be 
standing for re-election at the 2020 Annual 
General Meeting. The Committee has 
therefore been focused on identifying 
a suitable successor and recommended 
the appointment of Jeremy Anderson, 
who contributes substantial leadership 
and international experience in financial 
services, particularly in audit and 
risk. Having appointed Jeremy as a 
Non-executive Director with effect from 
January 2020, we subsequently announced 
that he would assume the role of Risk 
Committee Chair from the conclusion 
of the 2020 Annual General Meeting.

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ESG considerations
The Committee received updates 
on primary ESG-related reporting 
developments and the proposed approach 
to ESG reporting, and reports from the 
newly created ESG Executive Committee. 
The Committee also received updates on 
progress against implementing the Task 
Force on Climate-related Financial 
Disclosures, including how to quantify 
risks and their potential financial impact 
on the Group. 

Governance
Further changes have been made to the 
Committee’s Terms of Reference to reflect 
the Committee’s oversight of the process 
surrounding the annual evaluation of the 
effectiveness of the Board and its 
Committees. Committee members have 
taken a more active role in planning the 
Board evaluation in respect of 2019 and 
reviewed the actions arising from that 
evaluation. In 2020, the Committee will 
oversee the process for the appointment of 
an external specialist to conduct the next 
Board evaluation.

How the Committee spent its time during 2019 

The Committee continues to oversee 
governance arrangements for the Group’s 
subsidiaries to ensure they remain 
appropriate for the post-demerger Group.

The effectiveness of the Committee was 
reviewed as part of the annual Board 
evaluation, which confirmed that the 
Committee continued to operate 
effectively during the year and no major 
areas requiring improvement or action 
points were highlighted. Committee 
members noted that the focus in 2020 
should include continuing enhancements 
on Diversity and Inclusion reporting in 
respect of the executive pipeline and 
developing the Committee’s role in 
monitoring ESG strategy and reporting.

Feb

Sep

Oct

Year-end matters, re-election and tenure 

Review external positions, conflicts of interests and independence, time commitment, tenure and terms 
of appointment

Review performance of Chairman and Non-executive Directors

Review relevant disclosures in the Annual Report and Accounts

Recommend election of Directors by shareholders

Succession planning, diversity and appointments

Chairman

Non-executive Directors

Group Chief Executive

Executive Directors 

Group Executive Committee composition

Risk Committee Chair

Succession pipeline, diversity and inclusion governance

Governance and ESG

Membership review of principal Board Committees

Committee terms of reference 

Group governance framework

ESG, climate change and TCFD implementation update

Material Subsidiary governance

Subsidiary governance arrangements, board composition, non-executive succession planning and appointments 

Subsidiary board, chair and director evaluations

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Philip Remnant
Senior Independent Director

As announced on 30 January 2020, 
Shriti Vadera will join the Board with 
effect from 1 May 2020 as a Non-
executive Director and member of the 
Nomination & Governance Committee, 
and is expected to succeed Paul 
Manduca as Chair of the Board and 
Chair of the Nomination & Governance 
Committee on 1 January 2021. Paul will 
step down as Chair and as a Director 
with effect from 31 December 2020. 

Paul was first appointed to the Board 
in October 2010, meaning that the UK 
Code would have prescribed his 
retirement in October 2019. As I 
reported last year, the Board considered 
that it would have been disruptive for 
Paul to step down as Chair during a time 
of substantial change associated with the 
oversight and execution of the demerger 
itself and also for a period afterwards. It 
was expected that a search for a suitable 
successor to Paul would commence in 
2020, with the intention that he would 
not stand for re-election at Prudential’s 
Annual General Meeting in May 2021. 

However, the accelerated completion 
of the demerger meant it was considered 
appropriate to bring this timing forward. 

The search for suitable candidates was 
influenced by the views of the Board, 
taking account of the strategic needs of 
the post-demerger Group. Paul provided 
his views on the scope of the role and the 
individual attributes required. However, 
he recused himself from further 
discussions about the selection process. 

I am delighted that Prudential has been 
able to secure such a high calibre 
individual to succeed Paul. Shriti was the 
unanimous choice of the Board following 
a rigorous assessment of internal and 
external candidates from around 
the world. She has senior boardroom 
experience at complex organisations 
with extensive international operations, 
and strong strategic and financial 
services experience. 

Key matters considered during the year

Why it is important to Prudential

How is this considered

Key outcomes

Succession planning
Board composition
The Committee plays an 
important role in ensuring 
that the Board retains an 
appropriate balance of skills 
to support the strategic 
objectives of the Group and 
in ensuring that an effective 
framework of succession 
planning is maintained.

The Committee keeps succession plans for 
Executive and Non-executive Directors under review 
throughout the year and also considers the ongoing 
appointment of all Board members.

Succession plans are supported and informed by the 
results of the annual Board evaluation and individual 
Director evaluations. 

The Committee takes account of the size, structure 
and composition of the Board and its Committees, 
including existing knowledge, experience and 
diversity. In doing so, the Committee considers 
the Group’s strategic goals and anticipates future 
requirements, skills and experience.

Succession planning includes both longer-term 
options and emergency cover. 

In February 2020, the Committee concluded 
that each of the Directors in office at the time 
continued to perform effectively and was 
able to devote appropriate time to fulfil their 
duties and that collectively, the Board had 
an appropriate mix of skills and experience. 

The Committee considered the 
Non-executive Directors continued 
to demonstrate the desired attributes, 
contributing effectively to decision-making 
and exercising sound independent 
judgement in holding management 
to account. 

Accordingly, the Committee recommended 
to the Board those Directors standing for 
election at the 2020 Annual General Meeting.

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Why it is important to Prudential

How is this considered

Key outcomes

Succession planning for the Non-executive Directors and principal Committees
Succession planning for 
Non-executive Directors 
and the Board’s principal 
Committees ensures the 
Board is regularly refreshed 
and maintains appropriate 
levels of independent 
challenge to management.

The balance of Non-executive and Executive 
Directors required on the Board is considered on 
a regular basis, including the overall number, skills 
and experience. 

The Committee made use of a skills map which 
identifies skills, experience by sector, geography 
and technical skills, which are desirable for the 
Board as a whole, taking account of the Group’s 
strategic objectives. 

Succession planning for Non-executive Directors is 
supported by Egon Zehnder and Ridgeway Partners.

The Committee regularly reviews the membership 
of all principal Board Committees and makes 
recommendations to the Board as appropriate.

This year, the Committee considered the 
requirements for the role of Risk Committee Chair 
as Howard Davies will not stand for re-election at the 
2020 Annual General Meeting as his nine-year tenure 
will have ended.

When making recommendations, the Committee 
takes account of the current composition of each of 
the principal Committees, the skills and experience 
of the members and the strategic objectives of 
the Group. 

Executive Directors, Group Chief Executive and Group Executive Committee 
Executive succession planning 
helps to ensure continuous and 
effective leadership of the 
Group. 

The Committee reviews the succession plans in 
place for the Group Chief Executive, other Executive 
Directors and Group Executive Committee 
roles annually.

Succession plans for the Group Executive Committee 
were discussed with the Group Chief Executive to 
identify business requirements and to plan for future 
succession needs. 

Succession planning for Executive Directors and 
the Group Executive Committee includes both 
longer-term planning and emergency cover. 
External mapping is undertaken for Executive 
Directors to identify possible external candidates. 
Planning for emergency cover for Executive Directors 
is assisted by a broad annual review of talent across 
the Group and recognises the possible difficulties 
in identifying and attracting suitable talent on 
potentially short notice. 

During the year, the Committee 
recommended the appointment of Amy Yip 
as a Non-executive Director and member 
of the Remuneration Committee with effect 
from 2 September 2019. 

The Committee also recommended the 
appointment of Jeremy Anderson to the 
Board as a Non-executive Director and 
member of the Audit and Risk Committees 
with effect from 1 January 2020. 

Biographical details for Amy Yip and 
Jeremy Anderson are set out on pages 94 
and 97. 

The appointment of Amy Yip to the 
Remuneration Committee and Jeremy 
Anderson to the Audit and Risk Committees 
helped to refresh the membership of 
these Committees. 

Given his extensive experience in 
risk management, the Committee 
recommended that Jeremy Anderson 
succeed Howard Davies as Chair of the Risk 
Committee with effect from the conclusion 
of the 2020 Annual General Meeting. 

Shriti Vadera will join the Committee on her 
appointment in May 2020 to facilitate her 
transition to Chair of the Board and of the 
Committee, effective from 1 January 2021. 

The Committee received feedback on the 
performance of each Executive Director 
from the Group Chief Executive and 
confirmed the Executive Director 
succession plans.

The Committee also directed development 
and renewal of these plans through the 
Group HR Director, supported by Egon 
Zehnder in the case of the Group Chief 
Executive and by Talent Intelligence in the 
case of the other Executive Directors and 
Group Executive Committee roles.

The Committee discussed the changes 
to the Group Executive Committee roles 
brought about by the demerger and 
consequent shift in priorities and operating 
model, and agreed updates to succession 
plans as a result.

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Why it is important to Prudential

How is this considered

Key outcomes

Senior leadership below Group Executive Committee
The Committee has oversight 
of a diverse pipeline of 
leadership talent extending 
below the level of the Group 
Executive Committee and 
seeks to attract, retain and 
develop the next generation 
of emerging leadership.

The Committee considered succession planning 
for senior management below Group Executive 
Committee level which is supported by an annual 
update on talent and diversity at different levels of 
the organisation and includes consideration of risk 
retention mitigation initiatives such as leadership 
development programmes. This review is usually 
undertaken and reported on in the fourth quarter 
of each year and prior to 2019, was undertaken 
by the Board. Reporting on activities in 2019 was 
moved to February 2020 in order to allow for a fuller 
review of talent succession planning across the 
post-demerger business.

The focus was on building new capabilities 
to support the changing business model 
and future direction of the business. 
The internal pipeline was being rebuilt 
in support of new roles, new capability 
and increased complexity. 

Diversity
Board and Group Executive Committee 
Given the global reach of 
the Group’s operations, 
its business strategy and 
long-term focus, the Board 
makes every effort to ensure 
it is able to recruit Directors 
from different backgrounds, 
with diverse experience, 
perspective and skills. The 
diversity not only contributes 
to Board effectiveness but 
is essential for successfully 
delivering the strategy of 
an international business. 

The Group’s Diversity and Inclusion policy applies 
at all levels of the business including the Board and 
Group Executive Committee. 

The Committee is responsible for overseeing a diverse 
pipeline for the Board and other senior executives. 

The Board does not endorse quotas but is committed 
to recruiting the best available talent and appointing 
the most suitable candidate for each role, while at 
the same time aiming for appropriate diversity on 
the Board.

Succession plans are based on merit against clear 
objective criteria and promote diversity across 
gender, social and ethnic background and cognitive 
and personal strengths. 

An element of Executive Directors’ remuneration 
is based on achieving a diversity target. 
Further information is set out in the Directors’ 
remuneration report.

The Board considers that its diversity of 
experience and skills set has increased as 
a result of Board level succession in 2019.

The diversity of the Board, including skills 
and experience, of each Director is set out 
in the individual biographies of Directors 
on pages 92 to 97.

The Committee considers the pipeline for 
diverse talent below the Group Executive 
Committee level which remains strong, 
with 32 per cent female representation 
of those who report directly to the Group 
Executive Committee.

Further details of the gender make-up of 
the Board, the Group Executive Committee, 
management and employees can be found 
on page 81.

Process for appointing new Directors
The Committee assists the Board in ensuring that there is a formal, rigorous and transparent approach to the appointment 
of new Directors.

The Committee is involved from the start when a vacancy or a gap in the Board’s skills is identified. Led by the Chairman, and 
working with the Group Chief Executive and the Group Human Resources Director, a role specification is prepared, reflecting the 
desired skills and experience and the Group’s Diversity and Inclusion policy. This specification takes into account feedback from 
the Committee. Once agreed, specialist talent agencies are typically engaged to create a shortlist of candidates which is reviewed 
by the Committee and other stakeholders. Interviews with individuals then take place with selected Committee members and 
feedback is provided to all members. In this manner, a preferred candidate is selected and the Committee then recommends 
the individual to the Board for appointment. For the appointment of Executive Directors, the process is led by the Group Chief 
Executive working closely with the Chairman. The Senior Independent Director leads the Committee in the process of 
appointing a new Chairman.

Contemporaneously with this process, due diligence checks are undertaken on the candidate and Prudential liaises with the 
relevant regulatory authorities. The Committee is kept updated on this process as necessary.

Note
In addition to acting as search consultant in respect of the appointment of the Chair, the Chair of the Risk Committee and certain executive hires, Egon Zehnder also provides support for senior 
development assessments. Talent Intelligence also provides additional succession planning support to the Group below Group Executive Committee level. Ridgeway Partners also provided support 
for succession planning in respect of certain subsidiary company board committees. 

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Why it is important to Prudential

How is this considered

Key outcomes

Group-wide oversight
Following an update to its terms 
of reference in December 
2018, the Committee’s remit 
includes reviewing the Group’s 
diversity initiatives to see that 
these are in line with strategic 
objectives. 

The Group’s Diversity and Inclusion policy aims to 
provide equal opportunities for all who apply and 
who perform work for our organisation, irrespective 
of sex, race, age, ethnic origin, educational, social 
and cultural background, marital status, pregnancy 
and maternity, civil partnership status, any gender 
reassignment, religion or belief, sexual orientation, 
disability, or part time/fixed term work. 

The Committee keeps this under review across 
all its succession planning.

As part of the Group’s commitment to diversity, 
Prudential is a signatory to the HM Treasury 
‘Women in Finance Charter’ which aims to increase 
the number of women working in senior management 
in financial services companies. We have set a gender 
diversity target of 30 per cent women in senior 
management by the end of 2021.

In line with the Committee’s expanded 
remit, consideration was given to updating 
and developing the approach to overseeing 
talent development and Diversity and 
Inclusion initiatives across the Group. 
A review of the approach was subsequently 
provided to the Committee in February 
2020, including an update on activities 
across the Group’s business units and 
details of the 2020 Diversity & Inclusion 
and Talent strategy.

A description of the Group’s activities on 
Diversity and Inclusion can be found in the 
ESG summary. 

As at 31 December 2019 the percentage 
of women in senior management was 
28 per cent and the Group remains on track 
to meet the 30 per cent target by the end 
of 2021.

Non-executive Directors, independence, time commitment and terms of appointment
Independence
Monitoring and safeguarding 
the independence of the 
Non-executive Directors is 
essential to comply with their 
statutory and regulatory 
obligations. 

The Committee considers the independence of the 
Non-executive Directors as required by the UK Code 
and HK Listing Rules as part of any recommendation 
of the appointment of new Non-executive Directors 
and when recommending Non-executive Directors 
for election.

Independence helps ensure 
effective scrutiny of 
management and individual 
Executive Directors against 
agreed objectives.

Each Non-executive Director provides an annual 
confirmation of his or her independence as required 
under the HK Listing Rules. 

Prior to his appointment as a Non-executive Director, 
the Committee carefully considered the 
independence of Jeremy Anderson. In particular, 
the Committee reviewed the potential impact of his 
former position as a partner at KPMG (including any 
financial interest) which ended with effect from 
31 December 2017 and noted that he had not been 
involved in any way in the audit of Prudential plc 
or its subsidiaries. 

The Committee considered Jeremy Anderson’s 
independence with reference to the UK Code 
and HK Listing Rules, alongside relevant auditor 
independence and ethical guidance applicable in the 
UK and the US which generally recommend that 
independence of an external auditor is maintained by 
prohibiting a former partner from becoming a 
Director of an audit client for a period of two years 
after their employment has ceased. 

In line with US regulatory requirements, 
the Committee annually reviews the independence 
of the Audit Committee with reference to the 
requirements of the Sarbanes-Oxley legislation.

All Non-executive Directors were 
considered to be independent, taking 
into account UK and HK requirements. 

Although Howard Davies has exceeded the 
nine-year tenure suggested by the UK Code 
and Kai Nargolwala will exceed from January 
2021 (subject to re-election of Kai by 
shareholders in May 2020), both continue to 
demonstrate independence of judgement. 

Amy Yip and Shriti Vadera were deemed 
to be independent on appointment.

Prudential also deems Jeremy Anderson to 
be independent in accordance with the UK 
and HK Codes, notwithstanding his former 
position as a partner at KPMG, having taken 
account of all circumstances set out in the 
UK Code and other applicable guidance 
in other jurisdictions. On balance, the 
Committee and the Board concluded that 
Jeremy Anderson could be expected to 
demonstrate objectivity and independence 
of judgement noting that two years had 
elapsed since his position at KPMG 
(including any financial interest) ended. 

The members of the Audit Committee were 
considered to be independent within the 
meaning of the Sarbanes-Oxley legislation. 

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Why it is important to Prudential

How is this considered

Key outcomes

Time commitment
Setting out clear expectations 
on time commitment means 
Non-executive Directors are 
able to ensure they devote 
sufficient time for the proper 
performance of their duties.

The Committee reviews the time commitment 
required of the Non-executive Directors. Time 
requirements take account of preparation for and 
attendance at Board meetings and other regular 
commitments, as well as additional time that may 
be required for unforeseen events or future projects. 

All Non-executive Directors currently serve on 
at least one of the Board’s principal Committees, 
which requires an additional commitment of time 
dependent on the Committee and role. 

The Committee considers the external commitments 
of Non-executive candidates and on appointment, 
all Non-executive Directors confirm they are able to 
devote sufficient time to the Group’s affairs to meet 
the demands of the role.

All Non-executive Directors are required to discuss 
any additional commitments which might impact the 
time which he or she is able to devote to their role with 
the Chairman prior to accepting and the Chairman 
escalates to the Committee as appropriate.

Terms of appointment
It is important that the 
Non-executive Directors 
have clear terms of 
appointment which set out 
their duties towards Prudential 
and that their tenure is 
considered as part of ongoing 
succession activities. 

Non-executive Directors are appointed for an initial 
term of three years. 

Subject to review by the Committee and re-election 
by shareholders, it is expected that Non-executive 
Directors serve a second term of three years. After six 
years, Non-executive Directors may be appointed for 
a further year, up to a maximum of three years in total. 
Reappointment is subject to rigorous review as well as 
re-election by shareholders.

The Directors’ remuneration report sets out the terms 
of the Non-executive Directors’ letters of 
appointment and the terms of Executive Directors’ 
service contracts.

The tenure of each Non-executive Director is shown 
in the Directors’ remuneration report. 

The Committee concluded that the 
expected time commitment of 32.5 days 
per annum remained appropriate. 

The external commitments of Directors 
were considered as part of the Committee’s 
recommendation of Directors’ election 
at the next Annual General Meeting. 
Prudential recognises the need for 
Non-executive Directors to dedicate 
sufficient time to their role while also 
developing a wide range of experience 
and skills through seeking external 
appointments. 

The Committee considered and approved 
the appointment of Tom Watjen as a 
non-executive director of Arch Capital 
Group Ltd., a specialist financial services 
group with shares listed in Bermuda. The 
Committee considered the expected time 
commitment of the role and, taking into 
account any other commitments, concluded 
that he continued to have sufficient time to 
commit to his duties as a Non-executive 
Director. No conflicts of interest were 
identified in connection with the proposed 
appointment.

Kai Nargolwala, Anthony Nightingale, 
Philip Remnant and Alice Schroeder have 
all been in office for six years or more. 
When considering their re-election at 
the next AGM, the Committee considered 
their continuing appointment particularly 
carefully. The Committee recommended 
that they each serve for a further term of 
one year, subject to shareholder re-election.

Both Amy Yip and Jeremy Anderson 
were provided with letters of appointment 
confirming their duties and obligations. 
These letters are on standard terms 
applicable to all Non-executive Directors. 

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Why it is important to Prudential

How is this considered

Key outcomes

Conflicts of interest
Directors have a statutory 
duty to exercise independent 
judgement when carrying out 
their role and to avoid conflicts 
of interests. 

The Company has in place 
procedures to identify and, 
where necessary, mitigate 
potential conflicts of interest.

These processes help to ensure 
decisions are made in the best 
interests of the Company. 

Subsidiary governance
The Committee has an 
important role in reviewing 
the Group’s governance 
arrangements.

The Committee confirmed the 
authorisations with updates as appropriate. 

The Committee considered the external 
positions of Amy Yip, Jeremy Anderson 
and Shriti Vadera prior to recommending 
their appointment to the Board. 

The Board considers that the procedures 
for dealing with conflicts of interests 
operate effectively. 

In 2019, the Committee considered 
the outcomes of the board effectiveness 
reviews and individual non-executive 
director evaluations for each of Jackson 
National Life Insurance Company, Prudential 
Corporation Asia Limited, M&G Group 
Limited and The Prudential Assurance 
Company Limited. The Committee 
concluded that each of these boards 
remained effective and also approved the 
continued appointments of the non-
executive directors. 

The Committee was provided an update on 
the governance arrangements for Jackson 
National Life and Prudential Corporation 
Asia in October 2019. 

The Board has delegated authority to the Committee 
to identify and, where necessary, authorise any actual 
or potential conflicts of interest.

Prior to proposing Directors for election or 
re-election, the Committee considered the external 
appointments of Directors and reviewed existing 
conflict authorisations, reaffirming or updating 
any terms or conditions attached to authorisations 
where necessary.

The Chairman considers potential conflicts of interest 
in connection with proposed external appointments 
and escalates to the Committee for authorisation 
where a conflict or potential conflict could arise.

The Committee had oversight of the search for and 
appointment of candidates to the M&G plc board 
in preparation for the demerger. 

During the year, the Committee carried out various 
activities relating to subsidiary governance, which 
encompassed M&G Group Limited, The Prudential 
Assurance Company Limited, Jackson National Life 
Insurance Company, and Prudential Corporation 
Asia Limited until demerger, including: 

 — Reviewing succession planning arrangements 
for non-executive directors of the Group’s 
main subsidiaries; 

 — Considering the outputs of the 2018 performance 
review of the Group’s main subsidiary boards, 
chairs and directors. The effectiveness of the 
subsidiary boards were assessed using an internal 
process utilising questionnaires; and

 — Reviewing governance arrangements for the 
Group’s subsidiaries with a particular focus on 
changes to the risk and audit committee 
arrangements for Prudential Corporation Asia in 
the context of the demerger, reflecting that the 
composition of the Prudential Corporation Asia 
Limited board now mirrors the Prudential Board 
and Board meetings are held concurrently.

The Committee continues to oversee governance 
arrangements for the Group’s subsidiaries 
to ensure they remain appropriate for the 
post-demerger Group. 

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Dear shareholder
As Chair of the Audit Committee, 
I am pleased to present this report on 
the Committee’s activities during 2019. 
The Committee provides the Board with 
assurance as to the integrity of the Group’s 
financial reporting and, together with 
the Risk Committee, monitors the 
effectiveness of the second and third lines 
of defence, which are an integral part of 
our internal control environment.

With regard to the Group’s financial 
reporting, the Committee’s work is 
focused on ensuring appropriate financial 
accounting policies are adopted and 
implemented, and on assessing key 
judgements and disclosures. We also have 
throughout the year received updates on 
the programme to implement IFRS 17 given 
the significant system and accounting 
changes it entails.

The Committee held additional meetings 
during the year to focus on matters 
relating to the demerger of M&G plc. 
The Committee supported the Board’s 
review of the shareholder Circular 
and reviewed the various supporting 
processes and assurances received. 
When considering matters relating to the 
demerger, the Committee was conscious 
of the need to balance potential conflicts 
of interests between Prudential and 
M&G. The Committee also discussed the 
appropriate governance arrangements for 
the Group’s subsidiary audit committees 
post-demerger, together with associated 
transitional arrangements. I worked 
closely with the chair of the M&G plc audit 
committee to ensure a smooth transition 
of the oversight of the M&G business 
between the two committees.

External auditor
An important part of the Committee’s 
work consists of overseeing the Group’s 
relationship with KPMG LLP (KPMG), 
including safeguarding independence, 
approving non-audit fees and satisfying 
ourselves that it is in the best interests 
of shareholders to recommend the 
re-appointment of KPMG. During the 
year, we enhanced the review of their 
effectiveness by adding an interview 
process conducted by a senior KPMG 
partner, independent of the audit team, 
with senior management across the 
Group and with Committee members. 
The results were discussed directly with 
the Committee. Overall feedback was 
positive and the KPMG audit team is 
following up on areas where potential 
enhancements were highlighted. 

The Committee also requested earlier an 
enhanced review of the M&G half year 
key judgements, particularly longevity, 
in advance of the half year results 
announcement.

Under the relevant audit tender rules the 
Group is required to change audit firm no 
later than the 2023 financial year end. The 
Committee has previously agreed that in 
light of the significant change to the Group 
being undertaken, with the demerger of 
M&G plc, and the introduction of a new 
insurance accounting standard (IFRS 17) 
in the near term, that a new auditor should 
be engaged for the 2023 year end but that 
a competitive tender for the 2023 audit 
should commence in the first half of 2020. 
Planning for the tender has commenced 
and meetings with audit firms (not restricted 
to the ‘Big-Four’) have been held to assess 
their ability to tender in relation to the 
complexity of Prudential’s geographically 
diverse business and their barriers to 
becoming independent. A formal tender 
process to identify KPMG’s successor will 
be undertaken in the first half of 2020 and 
a Board decision is expected in July. 

Internal audit
Throughout 2019, the Committee 
continued to receive regular briefings from 
the Group Chief Internal Auditor. During 
the year, Group-wide Internal Audit (GwIA) 
undertook a programme of risk-based 
audits covering matters across the business 
units in addition to assurance work on the 
demerger and significant change 
programmes. The work undertaken by 
GwIA during the year was important in 
supporting the demerger, the Group 
maintaining a stable control environment 
through a period of significant change and 
the creation of two appropriately-sized, 
resourced and experienced independent 
internal audit functions.

The effectiveness of GwIA was assessed 
in 2019, together with a review of 
progress against suggested enhancements 
identified by the external review 
undertaken by Deloitte in 2017. I have 
met regularly with the Group Chief Internal 
Auditor and the Group-wide Quality 
Assurance Audit Director to discuss 
internal audit work and matters arising. 
The Committee has also asked that 
management responsible for rectifying 
some of the issues identified attend the 
Committee to ensure that appropriate 
action was being taken. The Committee 
also approved the 2019 and 2020 internal 
audit plans, which have taken account of 
the business and organisational changes 
arising from the demerger. 

David Law 
Chair of the Audit Committee

Committee members
 — David Law (Chair) 
 — Jeremy Anderson (from January 2020)
 — Howard Davies
 — Philip Remnant
 — Alice Schroeder

Regular attendees
 — Chairman of the Board
 — Group Chief Executive 
 — Group Chief Financial Officer 
and Chief Operating Officer

 — Group Chief Risk and 
Compliance Officer

 — Director of Group Finance
 — Director of Group Financial 
Accounting and Reporting

 — Company Secretary 
 — Director of Group Compliance 

(until January 2020)

 — Group Chief Internal Auditor
 — External Audit Partner 

Number of meetings in 2019:
Twelve. (Nine regular meetings were held, 
including four shorter meetings to discuss 
full-year and half-year reporting matters, 
and three additional meetings to consider 
demerger related activities. A joint meeting 
was also held with the Risk Committee.)

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COMMITTEE REPORTS  CONTINUEDCompliance
The Committee received updates on 
matters arising from the annual Compliance 
Plan throughout 2019. The plan focused 
on a number of areas to help strengthen 
the compliance framework, which is 
intended to aid the Group in meeting 
regulatory obligations, including 
monitoring compliance with key elements 
of the compliance framework such as 
conflicts of interest, anti-money laundering 
and anti-bribery and corruption policies. 
Following a change in management 
responsibility, Howard Davies and I agreed 
that, the Risk Committee should take on 
responsibility for all aspects of overseeing 
the compliance function with effect from 
1 January 2020.

Committee governance
The Committee works closely with the 
Risk Committee to make sure both 
Committees are updated and aligned 

on matters of common interest. Where 
responsibilities are perceived to overlap 
between the two Committees, Howard 
Davies and I agree the most appropriate 
Committee to consider the matter. During 
2019, there was one joint session which, 
similar to the prior year, focused on cyber 
and information security, more details of 
which are set out in the Risk Committee 
report on page 127. 

In advance of each of the main Committee 
meetings, I speak to the chairs of our main 
subsidiary audit committees and update 
the Committee on important points raised. 
I also report to the full Board after 
each Committee meeting on the main 
matters discussed. 

In April we held a private session as a 
Committee to discuss our evaluation and 
key objectives for the year. We assessed 
our performance against these objectives 

and I am pleased with the feedback 
received. The demerger, IFRS 17 and key 
accounting judgements were particular 
areas of focus. One area we will monitor 
for the future is how we are kept abreast 
of Asian market developments. One of 
my key focuses over the past two years 
has been the Group’s whistleblowing 
procedures. I regularly meet privately with 
the Group Resilience Director to discuss 
whistleblowing cases and their resolution. 
These are also discussed in private sessions 
with the Committee or the relevant local 
audit committee. The Committee also 
meets privately with GwIA and KPMG.

The effectiveness of the Committee was 
reviewed as part of the annual Board 
evaluation, which confirmed that the 
Committee continued to operate 
effectively during the year and no major 
areas requiring improvement were 
highlighted.

How the Committee spent its time during 2019 

Financial reporting and external auditor 

Periodic financial reporting including:

 — Full and half-yearly report and accounts
 — Key accounting judgements and disclosures, including tax
 — Solvency II results and governance processes  

(up to the demerger)
 — Associated audit reports

Audit planning, fees, independence, effectiveness 
and reappointment

Environmental, social and governance reporting

Internal control framework

Internal control framework including effectiveness

Internal audit

Status updates and effectiveness

Internal audit plan 

Compliance

Status updates 

Compliance plan

Financial crime and whistleblowing 

Financial crime prevention and whistleblowing – regular updates 

Governance and reporting

Updates from main subsidiary level audit committees

Internal governance framework including effectiveness

Business unit audit committee effectiveness and terms of reference

Committee terms of reference and effectiveness

Note
1  Two meetings were held in each of February and March 2019. 

Feb1 Mar1

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Matter considered

How the Committee addressed the matter

Financial reporting
Overview

Key assumptions 
and judgements

One of the Committee’s key responsibilities is to monitor the integrity of the financial statements and 
any other periodic financial reporting. This has primarily focused on the Annual Report and Accounts 
but also covers the Group’s environmental, social and governance report and Tax Strategy Report. 
The Committee also reviewed the 2018 Solvency and Financial Condition Report and associated 
Pillar 3 returns submitted to the Prudential Regulation Authority as required under the Solvency II 
regime. Post-demerger, this regime is no longer applicable.

In reviewing these and other items, the Committee received reports from management and, 
as appropriate, reports from internal and external assurance providers, which in some cases were 
provided at the explicit request of the Committee.

When considering financial reporting, the Committee assesses compliance with relevant accounting 
standards, regulations and governance codes. During 2019, the Group adopted IFRS 16 ‘Leases’ 
and, as described in note A3, this resulted in a recognition of $895 million right-of-use asset and 
an equivalent amount of lease liabilities on the balance sheet on day one. The Committee continued 
to receive updates on the Group’s plans to implement IFRS 9 ‘Financial Instruments’ and IFRS 17 
‘Insurance Contracts’, which are not expected to be effective before 2022. The approach to adopting 
these standards is further discussed in note A3.

The following sections set out the key assumptions, judgements and other matters considered as part 
of their review of the 2019 Annual Report and Accounts.

The Committee reviewed the key assumptions and judgements supporting the Group’s IFRS results, 
including those made in valuing the Group’s investments, insurance liabilities and deferred acquisition 
costs under IFRS, together with reports on the operation of internal controls to derive these amounts. 
It also reviewed the assumptions underpinning the Group’s European Embedded Value (EEV) metrics.

Assumption setting
The measurement of insurance liabilities are based on estimates of future cash flows, including those 
to and from policyholders, over a long period of time. These estimates can, depending on the type 
of business, be highly judgemental. The Committee considered changes to assumptions and other 
estimates used to derive IFRS insurance liabilities and EEV reporting. Peer benchmarking was 
considered where available. The key assumptions reviewed were:

 — Persistency, mortality, morbidity (including in relation to medical inflation) and expense 

assumptions within the Asia life businesses;

 — Policyholder behaviour (eg guaranteed benefit utilisation and persistency) and mortality 

assumptions affecting the measurement of Jackson guaranteed liabilities (see note C4.2(b) 
of the IFRS financial statements);

 — Economic assumptions, including investment return and associated discount rates; and
 — Changes to the allowance within EEV for future hedge costs in connection to the Jackson variable 

annuity business. This is discussed further in note 7 of the EEV basis results.

The Committee was satisfied that the assumptions adopted by management were appropriate. 
Further information on the effects of material changes to insurance assets and liabilities is included 
in note B3 to the IFRS financial statements and in the EEV basis results.

Valuation of investments
The Committee received information on the carrying value of investments in the Group’s balance 
sheet including information on how those values were calculated for those investments which require 
more judgement (for example private placement loans). Further information on the valuation of assets 
is contained in note C3 of the IFRS financial statements. The Committee satisfied itself that overall 
investments were valued appropriately.

Intangible assets including deferred acquisition costs (DAC) 
The Committee received information to enable it to review the more material intangible asset 
balances. This included the assumptions that supported the amortisation profile of the DAC balance 
in the US, as described in note A4.1 ‘Other items requiring application of critical estimates or 
judgements’ and whether there had been any indication of impairment of the Group’s distribution 
rights assets. The Committee was satisfied that there was no impairment of the Group’s intangibles 
at 31 December 2019. Further information is contained in note C5 of the IFRS financial statements.

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Matter considered

How the Committee addressed the matter

Other financial 
reporting matters

Demerger of M&G plc
The Committee reviewed the Class 1 Shareholder Circular prepared by management in accordance 
with the UK’s Listing Rules for the demerger of M&G plc in October 2019. Assurance was sought from 
external parties including the Group’s reporting accountant and financial advisers. The Committee 
reviewed the procedures undertaken to support the verification of material statements made in 
the Circular. The Committee reviewed drafts of documents throughout 2019 and so were able to 
comment on the approach and content throughout the process.

Change in presentation currency of the Group financial statements
Following the demerger of M&G plc, the Audit Committee approved management’s proposal to 
change the Group’s presentation currency in these financial statements from pounds sterling to US 
dollars. Given that a significant majority of the Group’s earnings post demerger are denominated in 
US dollars, the Group believes that the presentation currency change will give investors and other 
stakeholders a clearer understanding of Prudential’s performance over time. The Committee 
reviewed the methodology and process for the currency conversion as explained in note A1 of the 
IFRS financial statements. It also reviewed and agreed that, from 31 December 2019, the functional 
currency of the parent company had changed to US dollars from pounds sterling given the change 
to loans and dividend payments arising at that date.

Taxation
The Committee regularly receives updates on the Group’s tax matters and provisions for certain open 
tax items including tax matters in litigation. The Committee was satisfied that the level of provisioning 
adopted by management was appropriate. See note B4 of the IFRS financial statements.

Going concern and viability statements
The Committee considered various analyses from management regarding Group and subsidiary 
capital and liquidity prior to recommending to the Board that it could conclude that the financial 
statements should continue to be prepared on the going-concern basis and that the disclosures on 
the Group’s longer-term viability were both reasonable and appropriate. The Committee considered 
information on the risks to the Group’s liquidity and capital position when making this assessment.

Fair, balanced and understandable requirement
The Committee carried out a formal review of whether the Annual Report and Accounts were 
‘fair, balanced and understandable’ as required by the UK Corporate Governance Code. In particular, 
they considered whether the report gave a full picture of the Group’s performance in the year with 
important messages appropriately highlighted, the level of consistency between financial statements 
and narrative sections and whether performance measures were clearly explained. They also 
considered the prominence of alternative performance measures.

After completion of its detailed review, the Committee was satisfied that, taken as a whole, 
the Group’s Annual Report and Accounts were fair, balanced and understandable.

Parent company financial statements 
The Committee reviewed the parent company profit and loss account and balance sheet, which 
included the recoverability of the parent company’s investment in subsidiaries by assessing whether 
the net assets of the relevant subsidiaries, being an approximation of their minimum recoverable 
amount, were in excess of their carrying value at the balance sheet date and whether those 
subsidiaries have historically been profit making.

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Matter considered

How the Committee addressed the matter

External audit 
Review of effectiveness, non-audit services and auditor reappointment 
External audit effectiveness

The Group’s external auditor is KPMG LLP (KPMG) and oversight of the relationship with them is 
one of the Committee’s key responsibilities. The Committee reviews the effectiveness of the audit 
throughout the year taking into account:

 — The detailed audit strategy for the year and coverage of the highlighted risks;
 — Group materiality and how that is applied to the individual business units;
 — Insight around the key accounting judgements, including benchmarking, and the way KPMG 
applied constructive challenge and professional scepticism in dealing with management; 
 — The outcome of management’s internal evaluation of the auditor as discussed below; and 
 — Other external evaluations of KPMG, with a focus on the Financial Reporting Council’s Annual 

Quality Review.

There is an open dialogue on emerging risks and issues between the Group Lead Partner and 
Committee members via a regular schedule of meetings aligned to key reporting milestones. 
The Committee formally meets with the Group Lead Partner without management present.

Internal evaluation of KPMG was conducted using a questionnaire that was circulated to the 
Committee members, Material Subsidiary audit committee members, the Group Chief Financial 
Officer and the Group’s senior financial leadership for completion. A key component of the evaluation 
is the degree of challenge and robustness of approach to the audit. The survey asked 27 questions 
over four categories (audit quality and execution, team performance, process and communication) 
in relation to the 2018 audit. 

As noted above the Committee enhanced the 2019 effectiveness review by arranging for a series 
of interviews to be conducted by a senior partner independent from the engagement team. 

KPMG were given the opportunity to respond to the findings in the reports. As a result of the reports, 
KPMG proposed enhancements to the audit and team.

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Matter considered

How the Committee addressed the matter

Auditor independence 
and objectivity

The Committee has responsibility for monitoring auditor independence and objectivity and is 
supported in doing so by the Group’s Auditor Independence Policy (the Policy). The Policy is updated 
annually and approved by the Committee. It sets out the circumstances in which the external auditor 
may be permitted to undertake non-audit services and is based on four key principles which specify 
that the auditor should not:

 — Audit its own firm’s work;
 — Act as management or employees for the Group;
 — Have a mutual or conflicting interest with the Group; or
 — Be put in a position of being an advocate for the Group.

The Policy has two permissible service types: those that require specific approval by the Committee 
on an engagement basis and those that are pre-approved by the Committee with an annual monetary 
limit capped at no more than 5 per cent of the Group audit fee in the proposed year and capped at 
$65,000 (£50,000) individually. In accordance with the Policy, the Committee approved these 
permissible services, classified as either audit or non-audit services, and monitored the usage of 
the annual limits on a quarterly basis. Non-audit services undertaken by KPMG were agreed prior to 
the commencement of work and were confirmed as permissible for the external auditor to undertake 
in accordance with the Policy which complies with the rules and regulations of the UK Financial 
Reporting Councils’ Ethical Standard (2016), the US Securities and Exchange Commission (SEC) 
and the standards of the Public Company Accounting Oversight Board (PCAOB).

The Committee considered potential impacts on independence that could have arisen from the 
increase in non-audit services during the year, with the non-audit fee ratio increasing to 43 per cent 
(2018: 12 per cent). The increase was driven by non-audit services completed by KPMG in their role 
as reporting accountant for the demerger of M&G plc. The Committee concluded that as the Group’s 
auditor it was appropriate for KPMG to act as reporting accountant and this did not impair their 
independence. The audit partner was not involved in the delivery of services as the reporting 
accountant for the demerger and neither he nor members of the audit team are incentivised on, 
or rewarded in respect of, the provision of non-audit services to Prudential plc. 

In keeping with professional ethical standards, KPMG also confirmed their independence to the 
Committee and set out the supporting evidence for their conclusion in a report that was considered 
by the Committee prior to publication of the financial results.

During the year, the Committee considered the proposals put forward by the Financial Reporting 
Council in December 2019 in a revision to its Ethical Standard and Auditing Standards on the Policy. 
The Committee agreed to implement their proposals for the 2020 year end. The key change is to 
establish a specific ‘white-list’ of non-audit services that the external auditor will be permitted to 
perform. The Committee will continue to monitor developments to ensure the Group’s policies and 
processes around audit effectiveness and independence evolve in line with market practice.

The fees paid to KPMG for the year ended 31 December 2019 amounted to $30.4 million (2018: 
$24.4 million) of which $13.0 million (2018: $3.0 million) was payable in respect of non-audit services. 
Non-audit services accounted for 43 per cent (2018:12 per cent) of total fees payable. A breakdown 
of the fees payable to KPMG can be found in note B2.4 to the IFRS financial statements. Of the 
$13.0 million (2018: $3.0 million) non-audit services fees, $11.7 million (2018: $1.0 million) was for 
one-off services associated with the demerger of M&G plc. Excluding these one-off fees associated 
with the demerger, non-audit services accounted for 7 per cent (2018: 9 per cent) of total 
fees payable.

The remaining $1.3 million (2018: $1.5 million out of the remaining $2.0 million) of non-audit services 
fees was in respect of other assurance services. These services covered assurance over the Group’s 
assurance reports on internal controls of certain Group companies that are made available for third 
parties, comfort letter procedures to support debt raising in the year and Solvency II external 
disclosures up to the demerger. In all these cases, the audit firm was considered the most appropriate 
to carry out the work, given its knowledge of the Group and the synergies that arise from running 
these engagements alongside its main audit.

All non-audit services were pre-approved by the Committee and were in line with the Policy 
discussed above.

Fees paid to the auditor

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Matter considered

Reappointment

Audit tender

How the Committee addressed the matter

Based on the outcome of the effectiveness evaluation and all other considerations, the Committee 
concluded that there was nothing in the performance of the auditor which would require a change. 
The Committee therefore recommended that KPMG be reappointed as the auditor. A resolution to 
this effect will be proposed to shareholders at the 2020 Annual General Meeting.

The Committee acknowledges the provisions contained in the UK Code in respect of audit tendering, 
along with European rules on mandatory audit rotation and audit tendering. In conformance with 
these requirements, the Company will be required to change audit firm no later than for the 2023 
financial year end. The external audit was last put out to competitive retender in 1999 when the 
present auditor, KPMG, was appointed. Since 2005, the Committee has annually considered the 
need to retender the external audit service.

The Audit Committee assessed in February 2019 that in light of the significant change to the Group 
being undertaken, with the demerger of M&G plc, and the introduction of a new insurance accounting 
standard (IFRS 17) in the near term, that a new auditor should be engaged in time for the 2023 
year end. In conducting this review, the Committee concluded that it would be appropriate to 
commence a competitive tender for the 2023 audit in the first half of 2020. The planning for this tender 
process has commenced with the Committee Chair meeting with a number of firms, including firms 
outside of the ‘Big Four’, to assess interest and ability to tender for the audit, with focus on capability 
and resource to service the key Asian business units. This was supplemented by a formal request for 
information to those firms who indicated they would be interested in tendering. A formal invitation to 
tender will be issued to those firms that confirmed they are able to undertake the audit in March 2020, 
with the Committee’s recommendation of which firm to appoint to be considered for approval by the 
Board in July 2020. The tender process is being led by the Audit Committee with the support of 
Internal Audit and while the selection criteria are yet to be formally set, audit quality will be at the core 
of the decision.

The auditor tender timeline takes into account the complexity of the Group and the expected timing of 
the introduction of IFRS 17 and allows the appointee time to ensure they meet the audit independence 
requirements to which the Group is subject. The timing remains subject to the Committee’s normal 
annual review of auditor performance and recommendation to shareholders. 

The Company has complied throughout the 2019 financial year with the provisions of the Statutory 
Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender 
Processes and Audit Committee Responsibilities) Order 2014 issued by the Competition and 
Markets Authority.

In line with the Financial Reporting Council’s Ethical Standard, the rules and regulations of the SEC 
and the standards of the PCAOB, a new Group Lead Partner, Philip Smart, was appointed in respect of 
the 2017 financial year. Mr Smart is expected to be in place for a five-year term until the completion of 
the 2021 reporting cycle. A new Group Lead Partner will be required for the 2022 audit and an 
appropriate transition plan developed.

Second line oversight 
Compliance, financial crime prevention, whistleblowing
Compliance oversight

The Group Compliance Director provided the Committee with regular reports that included updates 
on: the progress against the 2019 Compliance Plan; key Compliance activities; the effectiveness of the 
Compliance function; results of Compliance monitoring reviews; material regulatory issues; and the 
impact of any regulatory change and the establishment of the Hong Kong IA as the Group-wide 
supervisor.

From 1 January 2020, the Risk Committee assumed responsibility for Compliance oversight from 
the Committee in order to align governance with changes to management’s reporting responsibilities.

Financial crime prevention

The Committee received the Annual Financial Crime Report that assessed the effectiveness of the 
Group’s systems and controls to manage financial crime risks. In addition the Committee received 
regular updates on anti-bribery and corruption, anti-money laundering and sanctions screening.

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Matter considered

Whistleblowing

Third line oversight  
Internal audit
Regular reporting

How the Committee addressed the matter

The Group continues to operate a Group-wide whistleblowing programme (‘Speak Out’), hosted 
by an independent third party (Navex). The Speak Out programme received ad hoc reports from 
a wide variety of channels, including a web portal, hotline, email and letters. Reports are captured, 
confidentially recorded by Navex, and flagged for investigation by the appropriate team. 

The Committee is responsible for oversight of the effectiveness of the Group’s whistleblowing 
arrangements. The Committee received regular reports on the most serious cases and other 
significant matters raised through the programme and the actions taken to address them. 
The Committee was also briefed on emerging Speak Out trends and themes. The Committee may, 
and has, requested further reviews of particular areas of interest.

The Committee reviews the Group’s Speak Out programme annually, satisfying itself that it continues 
to comply with regulatory and governance requirements. The Committee also considered the 
consistency of approach adopted across subsidiary audit committees. The Speak Out programme 
has been further strengthened during the year by enhanced training for managers and staff; 
improved mechanisms for reporters to feed back on their experience and case management 
workflow improvements that focus on tracking (post-investigation) management action and, 
where relevant, the Committee requested information on the sharing of lessons learnt. 

The Chair and Committee spent time privately with the Group Resilience Director to understand 
outcomes of investigations, ensure that investigations were adequately resourced and appropriately 
managed, that there had been no retaliation against anyone making a report and that investigations 
were not improperly influenced. 

A review of the Speak Out programme and its oversight is being undertaken in 2020. 

The Committee received regular updates from GwIA on audits conducted and management’s 
progress in addressing audit findings within agreed timelines. Any delays in implementing 
remediation actions were escalated to the Committee and given particular scrutiny. 

The independent assurance provided by GwIA formed a key part of the Committee’s deliberations 
on the Group’s overall control environment. During 2019, the areas reviewed included: change 
management and transformation (in particular relating to the demerger), financial controls, 
outsourcing and third-party supply, customer outcomes, cyber risk, compliance and regulatory 
and second line of defence. In addition, GwIA performed more business monitoring during 2019 to 
obtain a broader view of the business and enable more regular assessments of emerging risks and 
changes in the control environment. This has been achieved through a variety of methods including 
stakeholder discussions and an increasing use of data analytics.

The Group Chief Internal Auditor reports functionally to the Committee Chair and for management 
purposes to the Group Chief Executive, and also has direct access to the Chair of the Board. 
In addition to formal Committee meetings, the Committee meets with the Group Chief Internal 
Auditor in private to discuss matters relating to, for example, the effectiveness of the internal audit 
function, significant audit findings and the risk and control culture of the organisation.

The Committee Chair also meets with GwIA’s Quality Assurance Director to discuss the outcome 
of the quality reviews of GwIA’s work and actions arising. 

Annual internal audit plan 
and focus for 2020

GwIA now operates a rolling six-month approach to audit planning. The Committee approved the 
plan for the second half of 2019. It also considered and approved the Internal Audit Plan, resource 
and budget for the first half of 2020.

The 2020 Internal Audit Plan was formulated based on a bottom-up risk assessment of audit needs 
mapped against various metrics combined with top-down challenge. The plan was then mapped 
against a series of risk and control parameters, including the top risks identified by the Risk 
Committee, to verify that it is appropriately balanced between financial, business change, regulatory 
and operational risk drivers and provides appropriate coverage of key risk areas and audit themes 
within a risk-based cycle of coverage. Key areas of focus for 2020 include: strategic change initiatives, 
customer outcomes, cyber security, financial risk and financial controls, culture, outsourcing 
and digitisation.

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Matter considered

How the Committee addressed the matter

Effectiveness of Internal Audit

The Committee is responsible for approval of the GwIA charter, audit plan, resources, and for 
monitoring the effectiveness of the function. In addition, the Committee approved the new, 
post-demerger target operating model for internal audit in Prudential plc.

The Committee also assesses the effectiveness of GwIA through a combination of External Quality 
Assessment reviews, required every five years, and an annual internal effectiveness review.

A 2019 Internal Effectiveness review, performed by the GwIA Quality Assurance Director, was 
conducted in accordance with the professional practice standards of the Chartered Institute of 
Internal Auditors (CIIA) and assessed continued conformance with the CIIA guidance for Effective 
Internal Audit in the Financial Services (the CIIA Code). The review concluded that GwIA continued 
to comply with the requirements of internal audit policies, procedures and practices, and standards 
in all material respects relating to audit planning and execution, and continued to be aligned with 
its mandated objectives and maintained general conformance with the CIIA Code. 

During 2019, GwIA also continued to develop its practices with enhancements to methodology, 
approaches to audits and the use of data analytics. In preparation for the demerger, the function 
successfully completed the creation of two appropriately skilled and sized, independent internal 
audit functions, where previously there had been a single function.

The Committee is responsible for reporting and making recommendations to the Board on the 
effectiveness of Group-wide internal control and risk management systems.

The Committee considered the outcome of the annual review of the systems of internal control and 
risk management. This considered M&G plc to the extent it was relevant to the amounts disclosed 
within the Group 2019 financial statements. The review identified a number of areas for improvement 
and the necessary actions that have been, or are being, taken. The audit committees at Group and 
subsidiary level collectively monitor outstanding actions regularly and ensure sufficient resource and 
focus is in place to resolve them within a reasonable time frame. 

The Group Governance Manual sets out the policies and procedures by which the Group operates 
within its framework of internal governance, taking into account relevant statutory and regulatory 
matters. It is a platform for mandating specific ways of working across the Group and each business 
unit attests annually to compliance with:

 — Mandatory requirements set out in Group-wide policies, including matters which must be reported 

to the Group functions; and

 — Matters requiring prior approval from those parties with delegated authority.

The Committee reviewed the results of the Group Governance Manual annual content review and 
the results of the year end certification of compliance with Group Governance Manual requirements 
for the year ended 31 December 2019.

Internal control
Internal control and risk 
management systems

Governance
Group governance framework

Competence and experience

In relation to the provisions of the UK Code and HK Listing Rules, the Board is satisfied that David Law 
has recent and relevant financial experience and that the Committee as a whole has competence 
relevant to the sectors in which the business operates. 

Full biographies of the Committee members including experience and professional qualifications, 
are set out on pages 94 to 96.

The Board has determined that David Law qualifies as the Audit Committee financial expert under 
the requirements of Form 20-F.

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COMMITTEE REPORTS  CONTINUEDRisk Committee report
Dear shareholder
As Chair of the Risk Committee, I am 
pleased to report on the Committee’s 
activities and focus during 2019.

This will be my last report as Risk 
Committee Chair. Having served as a 
Non-executive Director and chaired the 
Committee since October 2010, I will not 
offer myself for re-election at the 2020 
Annual General Meeting. I would like to 
take this opportunity to thank my fellow 
Committee members for their diligence 
and also everyone on the Prudential team 
who has supported me and the Committee 
over the years. As announced on 11 March 
2020, Jeremy Anderson will succeed me 
as Chair of the Committee.

Committee operation
The Committee assists the Board in 
providing leadership, direction and 
oversight of the Group’s overall risk 
appetite, limits and strategy. It also 
oversees and advises the Board on current 
and future risk exposures of the Group, 
including those which have the potential 
to impact on the delivery of the Group’s 
Business Plan. The Committee reviews the 
Group Risk Framework and recommends 
changes to it for approval by the Board 
to ensure that it remains effective in 
identifying and managing the risks faced 
by the Group. 

The Committee received regular reports 
from the Group Chief Risk and Compliance 
Officer (CRCO), who is advised by the 
Group Executive Risk Committee (GERC). 
I provided feedback on the performance 
of the CRCO to the Group Chief Executive 
Officer as part of the annual evaluation 
of the Board and its members. 
The Committee also received regular 
reports from the Group-wide Internal 
Audit function and updates from other 
areas of the business as needed. 

Regulatory matters
On 25 March 2019 the Hong Kong 
Insurance Authority (Hong Kong IA) 
and the Group signed a Regulatory Letter, 
which outlines the interim supervision 
framework applicable to the Group 
until the Hong Kong IA’s Group-wide 
Supervision (GWS) Framework becomes 
effective. The required legislative process 
is expected to be finalised in the second 
half of 2020. The Committee considered 
the capital aspects of the Regulatory Letter 
as well as considering regular updates 
on GWS developments over the year.

The CRCO briefed the Committee 
regularly on developments in systemic 
risk regulation and the Insurance Capital 
Standards (ICS). We considered the 
results of ICS field testing in July and the 
implications of the IAIS announcement in 
November of a unified path to convergence 
of comparable group capital standards 
across jurisdictions. During the year, 
the Group remained subject to the policy 
requirements resulting from its prior 
designation in 2016 as a Global 
Systemically Important Insurer (G-SII). 
The Committee therefore considered 
and approved the Group’s 2019 Systemic 
Risk Management Plan, Liquidity Risk 
Management Plan and Recovery Plan.

Transformation risk, including 
the demerger, and other 
in-depth reviews
During 2019, a key area of consideration 
for the Committee was the risk associated 
with the Group’s portfolio of key strategic 
change initiatives, which included the 
demerger of M&G plc, as well as, notably, 
those related to IFRS 17, the Group’s digital 
transformation, LIBOR transition and 
further implementation of the Aladdin 
system. During the year, the Committee 
considered updates, risk opinions, 
guidance and assurance on this critical 
change activity. Ongoing reviews were 
also performed on the financial and 
non-financial risks to the execution of the 
demerger. The Committee considered 
and recommended for approval the risk 
disclosures included in the Prudential plc 
shareholder Circular published on 
25 September 2019. 

Howard Davies 
Chair of the Risk Committee

Committee members
 — Howard Davies (Chair)
 — Jeremy Anderson (from January 2020)
 — David Law 
 — Kai Nargolwala
 — Alice Schroeder 
 — Tom Watjen

Regular attendees
 — Chairman of the Board
 — Group Chief Executive
 — Group Chief Risk and 
Compliance Officer

 — Group Chief Financial Officer 
and Chief Operating Officer

 — Company Secretary
 — Group Chief Internal Auditor
 — Chief risk officers of the main 

subsidiaries and members of the Group 
Risk Leadership Team are invited to 
attend each meeting as appropriate. 

Number of meetings in 2019:
Five. (In addition a joint meeting was held 
with the Audit Committee in April 2019.)

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Information security and data privacy also 
received attention from the Committee 
in 2019. We reviewed progress achieved 
on the implementation of the Group’s 
information security and privacy operating 
model and received updates on the 
Group’s compliance with the EU’s General 
Data Protection Regulation (GDPR). 
In April 2019, a joint session with the Audit 
Committee on cyber security included an 
update on progress against the Group’s key 
2019 objectives in this area and included 
training aimed at enhancing the knowledge 
of Non-executive Directors on both the 
increasing regulatory expectations and 
the threats faced by the Group. 

Committee governance
The Committee works closely with 
the Audit Committee to ensure both 
Committees are updated and aligned 
on matters of common interest. Where 
responsibilities are perceived to overlap 
between the two Committees, David Law 
and I agree the most appropriate 
Committee to consider the matter. 
Aligned with the consolidation of the Risk, 
Compliance and Security functions under 
the leadership of the CRCO during 2019, 
the Committee assumed responsibility 
for Compliance oversight from the Audit 
Committee with effect from 1 January 
2020. The Committee considered and 
approved the Risk and Compliance plan for 
the first half of 2020 and will receive a plan 
for the second half of 2020 at mid-year.

The effectiveness of the Committee 
was reviewed as part of the annual Board 
evaluation, which confirmed that the 
Committee continued to operate effectively 
during the year and no major areas 
requiring improvement were highlighted. 

In-depth reviews were performed in 
existing and emerging high risk areas 
including the interest rate risk profile 
and asset liability management of our Asia 
business; Prudential’s artificial intelligence 
and digital transformation initiatives 
and their associated risks, ethical 
considerations and governance; together 
with the reinsurance arrangements in place 
across the Group. 

Risk appetite and principal risks
During 2019, the Committee reviewed the 
Group’s risk policies and proposed changes 
to the Group risk appetite statements. 
Aligned with these reviews, proposals 
to amend associated limits were also 
considered. The amendments were 
recommended and approved to reflect the 
changes in the Group’s risk profile and the 
evolving regulatory environment following 
the demerger.

The Committee also considered the 
principal risks facing the Group and 
received updates on these through the 
course of the year as well as reports 
from the chief risk officers of our main 
subsidiaries, who regularly attend 
Committee meetings. A fuller explanation 
of principal risks facing the Group and the 
way in which the Group manages these is 
set out in the Group Chief Risk and 
Compliance Officer’s report on pages 51 
to 71. During 2019, the Committee 
considered risk assessments and opinions 
on key areas covering the risks associated 
with the Group’s Business Plan, the Group’s 
revised dividend policy and executive 
remuneration, further details of which 
are noted below.

In respect of our principal risks, we 
continued to focus on the risks to the 
Group’s financial viability and non-financial 
sustainability including those arising from 
the external business and macroeconomic 
environment in which it operates; risks 
arising from the nature of the Group’s 
business and industry; and the risks around 
global legal and regulatory compliance. 
We regularly reviewed the strength of our 
capital and liquidity positions (including 
the results of stress and scenario analyses) 
and the impact of the transition to the 
Hong Kong IA’s Local Capital Summation 
Method (LCSM) in determining the 
Group’s regulatory capital requirements. 

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COMMITTEE REPORTS  CONTINUEDHow the Committee spent its time during 2019 

Markets and Group risk updates

Group risk updates

Main subsidiary updates

Risk Management

Group principal risk identification

Principal risk discussions

Business unit specific risk matters

Risk assessment of Business Plan

Risk function effectiveness 

Risk oversight of remuneration

Transformation risk

Demerger financial viability and operation resilience 

Information security and privacy

Regulatory matters

Regulatory matters

Risk framework

Internal model development and changes

Group risk appetite review

Risk limit updates

Risk policy framework refresh and updates

Risk-related compliance policies

Group-wide Internal Audit update

Governance and reporting 

Full and half-year risk disclosure

Global Systemically Important Insurer: Liquidity Risk Management Plan,  
Systemic Risk Management Plan and Recovery Plan

Own Risk and Solvency Assessment

Full and half-year ECap results

Group Regulatory and Compliance reporting

Committee terms of reference

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Matter considered

How the Committee addressed the matter

Risk framework 

The Group Risk Framework and risk policies were subject to both an annual review and a further 
specific update to ensure compliance with the Hong Kong IA Regulatory Letter. Changes were 
recommended by the Committee for approval by the Board. 

Annually, business units are required to assess and certify their compliance with the Group Risk 
Framework and associated policies as part of the annual Group Governance Manual certification 
process. The certification process is facilitated by Group Risk and Compliance and subject to oversight 
by the Committee.

The Committee conducted its annual review of risk effectiveness in February. It also considered 
the effectiveness of, and approved updates to, the Group Risk Mandate which formally sets out the 
purpose and responsibilities of the Group Risk function and its effectiveness in overseeing the 
key risks to the Group.

The Committee also reviewed the methodology and calibration of the Group internal model.

Risk appetite

The Committee is responsible for recommending changes in the Group’s overall risk appetite 
and tolerance to the Board for approval.

The Committee considered the revised Group Risk Appetite Statement and associated limits that 
would apply after the demerger of M&G plc. These were defined in aggregate for financial and 
non-financial risks by the setting of objectives for its liquidity, capital requirements and non-financial 
risk exposure.

Hong Kong Insurance 
Authority (IA)

In August 2018, it was announced that the Hong Kong IA would become the Group-wide supervisor 
for Prudential plc after the demerger of M&G plc.

Business Plan

Key updates on the discussions with the Hong Kong IA on the regulatory requirements applying 
immediately following the demerger, and those anticipated in the longer term, were provided to the 
Committee as part of the CRCO’s regular reporting.

As part of its role in overseeing and advising the Board on future risk exposures and strategic risks, the 
Committee reviewed Group Risk’s assessment of the Business Plan, which included key financial risks 
(including those associated with the macroeconomic environment, such as prolonged low interest 
rates) and non-financial risks (including those from the regulatory environment) to the post-demerger 
Group. The analysis reviewed included sensitivity assessments of the impact of various plausible 
scenarios.

As part of its review of the risk assessment of the Business Plan, the Committee approved proposed 
changes to Group Approved Limits. 

Own Risk and Solvency 
Assessment (ORSA)

The ORSA is a key ongoing process for identifying, assessing, controlling, monitoring and reporting 
the risks to which the Group is exposed and assessing capital adequacy over the business planning 
horizon. 

In April, the Committee considered the Group’s ORSA report, based on the Business Plan, prior to 
its approval by the Board. An additional ORSA report was considered by the Committee in October 
which included a forward-looking assessment of the demerged Group’s capital and liquidity position, 
and the outcome of a range of stress and scenario testing to inform the Committee of potential future 
capital solvency and liquidity levels.

Stress and scenario testing

The Committee is responsible for reviewing the outcome and results of stress and scenario testing, 
which is a key risk identification, measurement and management tool for the Group. 

Stress and scenario testing is a key component of the Group’s ORSA and the risk assessment of the 
Business Plan, as described above, as well as its Recovery Planning and Reverse Stress Testing (RST). 

The Group’s Recovery Plan, considered by the Committee in October, included an assessment of the 
effectiveness of the post-demerger business’s recovery options under market and idiosyncratic 
scenarios. An updated year-end 2018 RST exercise was performed for the post-demerger Group, 
which confirmed that it remains resilient to all business model failure scenarios considered. The 
Committee recommended the Group’s Recovery Plan and RST Report for approval by the Board.

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COMMITTEE REPORTS  CONTINUEDKey matters considered during the year continued

Matter considered

How the Committee addressed the matter

Global Systemically 
Important Insurer (G-SII)

The FSB has endorsed a new Holistic Framework for systemic risk management to be implemented 
by the IAIS in 2020 and suspended G-SII designations until a review is undertaken in 2022. 

Transformation activity 
and demerger of M&G plc

Group principal risks

In 2019, the Group remained subject to G-SII measures due to its prior designation in 2016. 
The Committee therefore considered, and recommended for approval by the Board, updated 
deliverables associated with this designation. These included the Systemic Risk Management Plan, 
Recovery Plan and Liquidity Risk Management Plan. Many of the G-SII measures have been adopted 
into the Insurance Core Principles and ComFrame – the common framework for the supervision of 
Internationally Active Insurance Groups (IAIGs). As Prudential is expected to satisfy the criteria of an 
IAIG these measures are anticipated to continue for the Group.

During 2019, a key area of consideration for the Committee was the demerger of M&G plc from the 
rest of the Group, which contributed to the portfolio of key strategic change activity across the Group. 
The Committee’s work included overseeing the conflict management process around the demerger. 
The Committee also discussed the appropriate governance arrangements for the Group’s subsidiary 
risk committees post-demerger and associated transitional arrangements.

The Committee was provided with updates on demerger and transformation activity throughout the 
year, and considered the results of risk opinions, guidance and assurance work. It received regular 
updates on the Group’s portfolio of key strategic change initiatives, including those related to IFRS 17, 
the Group’s digital transformation, LIBOR transition and implementation of the Aladdin system.

Ongoing analyses of the key financial risks to the execution of the demerger under various stress 
scenarios were provided to the Committee, as well as progress updates on operational 
separation activity. 

In particular, the Committee considered and approved changes to the following items, which were 
all updated to appropriately reflect the position of the demerged Group: risk assessment of the Group 
Business Plan; risk framework and policies; risk appetite and associated limits; ORSA report; and G-SII 
deliverables.

The Committee also considered the risk disclosures included in the Prudential plc shareholder 
Circular in advance of its publication. 

The Committee evaluated the Group’s principal risks, considering recommendations for promoting 
additional risks and changes in the scope of existing risks. The Committee received regular reporting 
on principal and emerging risks, external events such as the UK’s exit from the EU and the Hong Kong 
protests and mitigating actions over the course of the year within the Group CRCO’s regular report 
to the Committee. Further information about how the Group identifies emerging and principal risks 
can be found in the Group Chief Risk and Compliance Officer’s report.

These reports also provided the Committee with: regulatory updates; developments in the Group’s 
internal model; the implications of the developing global capital standards including the engagement 
with the Hong Kong IA on the development of an industry group capital and risk management 
framework; and developments in relation to the Group’s designation as a G-SII.

Deep dives

As part of its risk oversight responsibilities, the Committee also considers the result of ‘deep dive’ 
risk reviews performed over the year.

In 2019, these focused on risks embedded within the assets and liabilities and the portfolio 
of products in our US and Asia businesses and the Group’s digital transformation initiatives.

Information security 
and privacy

During 2019, updates were provided to the Committee on progress made in the implementation 
of the operating model for information security and privacy.

In April, in a joint session of the Risk and Audit Committee, an update on cyber security was provided 
on the latest regulatory expectations, an assessment of the threats facing the Group and the means 
to enable appropriate oversight. 

The Committee received regular updates on Group-wide information security and privacy metrics 
providing a view of security posture across the businesses.

Specifically in the key area of data privacy, the Committee received an update in February on progress 
on residual Group-wide activity to ensure compliance with General Data Protection Regulations. 
In November, the Committee was provided with an update on Group-wide privacy activities and 
emerging privacy regulations in the US and Asia.

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Matter considered

How the Committee addressed the matter

Jackson oversight

Remuneration

Compliance and 
audit reporting

The Committee received regular updates on the Jackson business throughout 2019 including in 
relation to the financial risk oversight of the business, which remains a key area of focus. Updates were 
provided to each Committee meeting on the effectiveness of the hedging programme and the impact 
of market movements on Jackson’s estimated Risk Based Capital ratio.

The Committee approved changes to limits used in the monitoring of the market and credit risks 
of the Jackson business. 

Additionally, the Committee considered the results of in-depth reviews performed on the 
methodology and assumptions of a tool for the estimation of Jackson capital adequacy under stress. 
In October, the Committee approved Jackson’s adoption of the NAIC Variable Annuity 
Reform Framework. 

The Committee has a formal role in the provision of advice to the Remuneration Committee on risk 
management considerations in respect of executive remuneration. It considered risk management 
assessments of proposed executive remuneration structures and outcomes during the year, making 
related recommendations to the Remuneration Committee for their consideration. The assessments 
considered included those relating to executives of M&G plc at the point of demerger and proposals 
relating to the Jackson bonus pool.

The Committee received regular reporting on key compliance risks and mitigation activity throughout 
the year. It also reviewed and approved updates to regulatory compliance risk-related policies 
including changes to the regulatory communications policy in advance of the transfer of Group-wide 
supervisory responsibilities from the PRA to the Hong Kong IA in October. 

The Committee received updates from Group-wide Internal Audit throughout the year relating 
to effectiveness of risk management and internal control systems and other matters relating to 
its responsibilities.

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COMMITTEE REPORTS  CONTINUEDStatutory and regulatory disclosures 

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) and 
to give a guarantee, security or indemnity 
in respect of a debt or other obligation 
of the Company.

Rules governing the appointment 
of Directors
The appointment and removal of 
Directors is governed by the provisions 
in the Articles of Association (the Articles), 
the UK Code, the HK Code (as appended 
to the Hong Kong Listing Rules) and the 
Companies Act 2006.

Director indemnities
Subject to the provisions of the Companies 
Act 2006, the Company’s Articles permit 
the Directors and officers of the Company 
to be indemnified in respect of liabilities 
incurred as a result of their office. Suitable 
insurance cover is in place in respect of 
legal action against directors and senior 
managers of companies within the Group.

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 other companies within 
the Group. These indemnities were in force 
for 2019 and remain so. Prior to the 
demerger of M&G plc qualifying pension 
scheme indemnity provisions were in place 
for the benefit of certain pension trustee 
directors within the Group. 

Financial reporting 
The Directors have a duty to report to 
shareholders on the performance and 
financial position of the Group and are 
responsible for preparing the financial 
statements on pages 196 to 318 and the 
supplementary information on pages 330 
to 357. It is the responsibility of the auditor 
to form independent opinions, based on 
its audit of the financial statements and 
its audit of the EEV basis supplementary 
information, and to report its opinions to 
the Company’s shareholders and to the 
Company. Its opinions are given on pages 
320 to 329 and page 359.

Company law requires the Directors to 
prepare financial statements for each 
financial year that give a true and fair view 
of the financial affairs of the Company 
and of the Group. The criteria applied in 
the preparation of the financial statements 
are set out in the Statement of Directors’ 
responsibilities on pages 319 and 358. 
Company law also requires the Board to 
approve the Strategic report. In addition, 
the UK Code requires the Directors’ 
statement to state that they consider the 
Annual Report and financial statements, 
taken as a whole, is fair, balanced and 
understandable and provides the 
information necessary for shareholders 
to assess the Company’s position and 
performance, business model and strategy.

The Directors are further required to 
confirm that the Strategic report includes 
a fair review of the development and 
performance of the business, with a 
description of the principal risks and 
uncertainties. Such confirmation is 
included in the statement of Directors’ 
responsibilities on page 319.

The Strategic report provides, on pages 
10 to 87, a description of the Group’s capital 
position, financing and liquidity. The risks 
facing the Group’s business are discussed 
in the Group Chief Risk and Compliance 
Officer’s report of the risks facing our 
business and how these are managed 
on pages 51 to 71.

The Directors who held office at the date 
of approval of this Directors’ report confirm 
that, so far as they are each aware, there is 
no relevant audit information of which 
the Company’s auditor is unaware; 

each Director has taken all the steps that 
he or she ought to have taken as a Director 
to make himself or herself aware of any 
relevant audit information and to establish 
that the Company’s auditor is aware of that 
information. This confirmation is given 
and should be interpreted in accordance 
with the provisions of Section 418 of the 
Companies Act 2006.

Going concern
In accordance with the guidance issued 
by the Financial Reporting Council in 
September 2014, ‘Guidance on Risk 
Management, Internal Control and Related 
Financial and Business Reporting’, after 
making sufficient enquiries the Directors 
have a reasonable expectation that the 
Company and the Group have adequate 
resources to continue their operations for 
a period of at least 12 months from the date 
that the financial statements are approved. 
In support of this expectation, the 
Company’s business activities, together 
with the factors likely to affect its future 
development, successful performance and 
position in the current economic climate, 
are set out in the Strategic report on pages 
10 to 87. The risks facing the Group’s 
capital and liquidity positions are referred 
to in the Strategic report on pages 51 to 71 
with further information on capital 
(including sensitivities) set out in note I(i) 
‘Group Capital Position’ within Additional 
unaudited financial information. 
In addition, the Directors considered 
the macro-economic environment and 
geopolitical risks in the markets which the 
Group operates, as well as the impact of 
the outbreak of coronavirus (‘COVID-19’). 
The Group’s IFRS financial statements 
include the details of the Group’s 
borrowings in note C6 on pages 280 and 
281, the market risks and liquidity analysis 
associated with the Group’s assets and 
liabilities can be found in note C3.4(a) on 
pages 256 to 258, policyholder liability 
maturity profile by business units in notes 
C4.2(iii) and C4.3(ii) on pages 266 and 267 
respectively, cash flow details in the 
consolidated statement of cash flows and 
provisions and contingencies in notes C11 
and D3. The Directors therefore consider it 
appropriate to continue to adopt the going 
concern basis of accounting in preparing 
the financial statements for the year ended 
31 December 2019.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationSTATUTORY AND REGULATORY DISCLOSURES  
CONTINUED

US regulation and legislation
As a result of its listing on the New York 
Stock Exchange, the Company is required 
to comply with the relevant provisions of 
the Sarbanes-Oxley Act 2002 as they apply 
to foreign private issuers and have adopted 
procedures to ensure such compliance. 
In particular, in relation to Section 302 
of the Sarbanes-Oxley Act 2002 which 
covers disclosure controls and procedures, 
a Disclosure Committee has been 
established, reporting to the Group Chief 
Executive, chaired by the Chief Financial 
Officer and comprising members of head 
office management. The work of the 
Disclosure Committee supports the Group 
Chief Executive and Chief Financial Officer 
in making the certifications regarding the 
effectiveness of the Group’s disclosure 
procedures.

Change of control 
Under the agreements governing 
Prudential Corporation Holdings Limited’s 
life insurance and fund management joint 
ventures with China International Trust & 
Investment Corporation (CITIC), if there is 
a change of control of the Company, CITIC 
may terminate the agreements and either, 
(i) purchase the Company’s entire interest 
in the joint venture or require the Company 
to sell its interest to a third party designated 
by CITIC, or (ii) require the Company to 
purchase all of CITIC’s interest in the joint 
venture. The price of such purchase or sale 
is to be the fair value of the shares to be 
transferred, as determined by the auditor 
of the joint venture. 

Customers
The five largest customers of the Group 
constituted in aggregate less than 
30 per cent of its total revenue from sales 
for each of 2019 and 2018.

Contract of significance
At no time during the year did any Director 
hold a material interest in any contract of 
significance with the Company or any 
subsidiary undertaking.

Securities dealing and 
inside information 
Prudential has adopted securities dealing 
rules relating to transactions by Directors 
on terms no less exacting than required by 
Appendix 10 to the HK Listing Rules and 
by relevant UK regulations. Having made 
specific enquiry of all Directors, the 
Directors have complied with these rules 
throughout the period. 

The Group has adopted an Inside 
Information Policy which includes 
guidance and procedures for the 
identification, dissemination and 
escalation of inside information as well as 
appropriate controls on the disclosure of 
such information in line with regulatory 
requirements. All staff are made aware 
of the policy and receive communications 
reminding them of their obligations when 
they work on any confidential matters 
in the business or are notified when the 
Company enters or exits a closed period. 

Requirements of Listing Rule 9.8.4
Information to be included in the Annual 
Report and Accounts under Listing Rule 
9.8.4 may be found as follows:

Listing Rule Description

Page

9.8.4 (4) Details of long-term 

incentive schemes 
required by Listing 
Rule 9.4.3

9.8.4 (10)  Contracts of 
Significance 
involving a Director

9.8.4 (12) Details of 

shareholder waiver 
of dividends

9.8.4 (13) Details of 

shareholder waiver 
of future dividends

168

134

401

401

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Index to principal  
Directors’ report disclosures

Information required to be disclosed in the Directors’ report may be found in the following sections:

Information

Section in Annual Report

Page number(s)

Disclosure of information to auditor

Statutory and regulatory disclosures

Directors in office during the year

Board of Directors

ESG summary

Employment practices

Greenhouse gas emissions

Charitable donations 

Political donations and expenditure

ESG summary

ESG summary

ESG summary

ESG summary

ESG summary

133

92 to 97

72 to 87

72 to 87

72 to 87

86

87

Remuneration Committee report

Directors’ remuneration report

136 to 173

Directors’ interests in shares

Agreements for compensation for loss of office 
or employment on takeover

Directors’ remuneration report

Directors’ remuneration report

Details of qualifying third-party 
indemnity provisions

Internal control and risk management

Powers of Directors

Governance report

Governance report

Governance report

Rules governing appointment of Directors

Governance report

Significant agreements impacted by a change 
of control

Governance report

Future developments of the business 
of the Company 

Group Chief Executive’s report

Post-balance sheet events

Note D4 of the notes on the Group financial statements

Shareholder information

Rules governing changes to the Articles 
of Association

Structure of share capital, including changes 
during the year and restrictions on the transfer 
of securities, voting rights and significant 
shareholders

Business review

Changes in borrowings

Dividend details

Financial instruments

Shareholder information and note C10  
of the notes on the Group financial statements

400, 401  
and 290

Group overview and Strategic report

Strategic report and note C6 of the notes on the 
Group financial statements

Group overview and Strategic report

Strategic report and Additional information

166

186

133

108 and 109

133

133

134

6 to 9

298

400

3 to 87

63, 64 and 280

4 and 40

51 to 71 and  
388 to 390

98

Corporate governance codes – 
statement of compliance

How we operate

In addition, the risk factors set out on pages 388 to 395 and the additional unaudited financial information set out on pages 362 to 387, are 
incorporated by reference into the Directors’ report.

The Directors’ report is signed on behalf of the Board of Directors by

Tom Clarkson
Company Secretary

10 March 2020

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Directors’ 
remuneration 
report

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G
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Annual statement from the Chairman of the 
Remuneration Committee

Our Executive Directors’ remuneration at a glance

Annual report on remuneration

New Directors’ remuneration policy

Additional remuneration disclosures

Page

138

142

144

174

192

This report has been prepared to comply with Schedule 8 of The Large and Medium-sized Companies 
and Groups (Accounts and Reports) (Amendment) Regulations 2013, The Companies (Miscellaneous 
Reporting) Regulations 2018, The Companies (Directors’ Remuneration Policy and Directors’ 
Remuneration Report) Regulations 2019, as well as the Companies Act 2006 and other related regulations.

The following sections were subject to audit: Table of 2019 and 2018 Executive Director total remuneration 
(the ‘single figure’) and related notes, salary information table in section entitled Remuneration in respect 
of performance in 2019, Pension entitlements, Long-term incentives awarded in 2019, Chairman and 
Non-executive Director remuneration in 2019, Statement of Directors’ shareholdings, Outstanding share 
options, Recruitment arrangements and Payments to past Directors and payments for loss of office.

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137

 
 
 
 
 
 
 
 
 
 
 
 
DIRECTORS’ REMUNERATION REPORT

Annual statement from the Chairman 
of the Remuneration Committee

Anthony Nightingale  
CMG SBS JP
Chairman of the Remuneration 
Committee

Dear shareholder,
I am pleased to present the 
Remuneration Committee’s report 
for the year to 31 December 2019.

The Committee’s report is presented 
in the following sections:

1 

2 

3 

 An ‘at a glance’ summary of the Group’s 
remuneration arrangements on pages 
142 and 143. This includes a summary 
of the key features of operation of the 
current Directors’ remuneration policy 
and outlines our proposed changes to 
the policy for 2020. The current policy 
was approved by shareholders at the 
2017 AGM;

 Our Annual report on remuneration 
on pages 144 to 173 which describes 
how the Committee applied the 
Directors’ remuneration policy in 2019 
and the decisions it has made in respect 
of 2020; 

 Our new Directors’ remuneration policy 
on pages 174 to 191 which describes 
how we propose paying Directors from 
14 May 2020.  This will be subject to an 
ordinary resolution of shareholders at 
the 2020 AGM; and

4 

 Supplementary information on pages 
192 to 195.

By way of preface, I would like to share 
the context for the key decisions the 
Committee took during 2019, in particular, 
the decisions we took in connection with the 
demerger, how we rewarded performance 
achieved during the year, the remuneration 
arrangements for those stepping down 
from the Board and the decisions relating 
to remuneration arrangements in 2020 
and the new Directors’ remuneration policy. 
In line with our approach to shareholder 
engagement and given the above, 
I corresponded with and met the majority 
of our major shareholders, as well as 
organisations that represent and advise 
shareholders during late 2019 and early 
2020. I am pleased to say that we have had 
the benefit of substantive feedback from 
41 per cent of our shareholder register 
and that the majority of shareholders 
and advisory bodies who provided input 
were content with our proposals and 
commended the manner in which we 
conducted the consultation process. 
On behalf of the Committee, I would like 
to thank the shareholders and advisory 
bodies for their engagement to date and 
look forward to continuing this open 
dialogue into the future. 

Further, I am delighted to welcome 
Amy Yip, who joined the Committee 
in September 2019.

Demerger-related decisions
The M&G plc business demerged from the 
Group with effect from 21 October 2019. 
As I described last year, the Committee 
established a set of principles to underpin 
decisions on remuneration relating to the 
demerger, including:

 — Executives should not be advantaged 
or disadvantaged by the demerger; 
the value of outstanding awards and 
their key terms (release dates, holding 
periods, malus and clawback provisions) 
should be unaffected;

 — Where performance conditions need to 
be revised, the new conditions should 
be no more or less stretching than those 
originally attached to the awards; and

 — Where the Committee has applied 

discretion, this will be disclosed clearly.

These principles were the basis for the 
decisions taken by the Committee, 
including the treatment of outstanding 
share awards which was set out in the 
Shareholder Circular published on 
25 September 2019 and voted upon and 
approved by shareholders at the October 
2019 General Meeting. This treatment, 

together with adjustments made to the 
targets of in-flight Prudential Long Term 
Incentive Plan (PLTIP) awards as a 
result of the demerger, are detailed in 
‘Remuneration decisions taken in relation 
to the demerger’ section of this report.

Changes to the executive team
The Company made a number of changes 
to the senior leadership team of the Group 
in preparation for the demerger. On 16 May 
2019, John Foley, Chief Executive of 
M&GPrudential, Nic Nicandrou, Chief 
Executive of Prudential Corporation Asia, 
and Michael Falcon, Chairman and Chief 
Executive Officer of Jackson Holdings LLC 
stepped down as Executive Directors of 
Prudential plc. They did not receive any 
loss of office payment in respect of their 
service as Executive Directors. Details of 
remuneration earned in respect of their 
service on the Prudential plc Board is 
provided in this report. When John Foley 
left the Group on the demerger of 
M&G plc, his outstanding PLTIP and 
deferred bonus awards were exchanged 
for replacement awards over M&G plc 
shares of an equivalent value and subject 
to equivalent malus and clawback 
provisions, and performance conditions 
which the Remuneration Committee of 
M&G plc determined were no more or 
less onerous than those which originally 
applied. Mr Foley’s 2019 bonus will be 
assessed and determined by M&G plc 
Remuneration Committee and will be paid 
by M&G plc. 

In July 2019 Mark FitzPatrick, in addition 
to his role as Group Chief Financial Officer, 
became Chief Operating Officer while 
James Turner, Group Chief Risk Officer, 
became additionally responsible for the 
Group Compliance function. Their titles 
were changed to reflect these new duties. 

In August 2019, Mr Turner relocated to 
Hong Kong to support our dialogue with 
the Hong Kong Insurance Authority 
(Hong Kong IA), our Group-wide 
supervisor from the date of the demerger. 
The Company supported Mr Turner’s 
relocation and, in order to recognise the 
expansion of his role and his development 
since joining the Board, he received 
an uplift in salary of 9 per cent and an 
increased bonus opportunity from 
160 per cent of base salary to 175 per cent 
from the date of his move. No changes 
were made to Mr Turner’s long-term 
incentive award level or to Mr FitzPatrick’s 
2019 remuneration arrangements.

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Key

  Continuing
  Discontinued (M&G plc)
  Continuing
   Continuing operations after  
hedge modelling changes
  Hedge modelling changes

Rewarding 2019 performance
Prudential’s executive remuneration arrangements reward the achievement of Group, business, functional and personal targets, 
provided that this performance is delivered within the Company’s risk framework and appetites, and that the conduct expectations of 
Prudential, our regulators and other stakeholders are met. 

As set out in the ‘Strategic report’ section earlier in this Annual report, the Group delivered results which demonstrate operating earnings 
growth and the benefits of the diverse portfolio in Asia. These results have been achieved in parallel with the demerger of the M&G plc 
business. The table below illustrates achievement of KPIs:

Performance measures

Group performance ($m)4

2018-2019 growth5

2019 bonus achievement6

+20% Above target, 

approaching 
stretch target level. 

Adjusted operating profit1
Prudential’s primary measure of 
profitability and a key driver of 
shareholder value.

Group free surplus generation2,3
A measure of the internal cash 
generation of our business units.

6,445

2,036

4,409

5,310

2018

2019

5,404

1,994

3,410

3,764
(903)

2,861

2018

2019

+10%

before hedge 
modelling changes

Business unit remittances7
Cash flows across the Group reflect 
our aim of achieving a balance between 
ensuring sufficient net remittances 
from business units to cover the 
dividend (after corporate costs) 
and the use of cash for reinvestment 
in profitable opportunities.

2,259

842

+3%

1,417

1,465

2018

2019

Adjusted operating 
profit accounted for 
35 per cent of Group 
financial bonus targets.

Above stretch 
target level.

Group free surplus 
generation accounted 
for 30 per cent of 
Group financial 
bonus targets.

Above target, 
approaching 
stretch target level. 

A cash flow measure 
was used to determine 
20 per cent of the 
Group financial 
bonus targets.

EEV new business profit
A measure of the future profitability 
of the new business sold during the 
year and indicates the profitable 
growth of the Group.

5,177
470

4,707

4,405

2018

2019

-6% 

reflecting economic 
conditions, US product 
mix changes and 
Hong Kong protest 
disruption. PCA ex 
Hong Kong +29%

Above target, 
approaching 
stretch target level. 

EEV new business 
profit accounted for 
15 per cent of Group 
financial bonus targets.

Notes
1 
2  For insurance operations, operating free surplus generated represents amounts maturing from the in-force business during the period less investment in new business and 

In this report ’adjusted operating profit’ refers to adjusted IFRS operating profit based on longer-term investment returns and are as previously reported. 

excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the period. Restructuring costs are presented separately from 
the underlying business unit amount.

3  Operating free surplus generated before US modelling changes. During 2019, as part of the implementation of the NAIC’s changes to the US statutory reserve and capital 
framework enhancements were made to the model used to determine the cost of hedging for US statutory reporting which have been incorporated into the EEV model, 
resulting in a fall in operating free surplus of $(903) million from a lower expected transfer to net worth. After allowing for this, operating free surplus generated is 
$2,861 million, down 16 per cent on a constant and actual exchange rate basis.

4  As reported basis.
5  Growth rates on continuing operations.
6  Executive Directors’ bonus awards have been assessed against targets that assumed M&G plc performance up to the date of demerger. Targets and the level of 

achievement are set out in the ‘Annual bonus outcomes for 2019’ section of the Annual report on remuneration.

7  Group cash flow includes BU remittances net of dividends and corporate costs.

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CONTINUED

2019 Adjusted operating profit was 
20 per cent higher than prior year on a 
constant exchange rate basis reflecting 
the performance outlined in the business 
performance review, which delivered a 
result approaching the Board approved 
stretch targets.

Group EEV new business profit was 
6 per cent lower than prior year on a 
constant exchange rate basis. This reflected 
the significant reduction in interest rates 
during the year and the challenging trading 
environment in Hong Kong in the second 
half of the year as a direct result of political 
unrest in the region. Excluding Hong Kong, 
Asia new business profit was 29 per cent 
above prior year and given the strong 
performance of NBP absent the Hong Kong 
protests, the Committee considered it 
appropriate to adjust the EEV new business 
profit target to reflect the reduction in 
Hong Kong sales driven by the protests, 
which was considered to be outside of 
management’s control. Allowing for this 
adjustment, Group EEV new business profit 
was between target and stretch target. 

Group free surplus generation was 
10 per cent higher than 2018 on a constant 
exchange rate basis, excluding the impact 
of EEV methodology changes outlined 
in the CFO report (Operating Free Surplus 
Generation is 16 per cent lower than 
prior year including the impact of EEV 
methodology changes). This result was 
above the Board approved stretch target.

All of our business units achieved target 
remittance levels, which were 3 per cent 
higher than 2018 for our continuing 
operations, enabling us to maintain 
significant cash stock at the centre, 
after dividends, corporate costs, demerger 
effects and investing in profitable 
opportunities within the business units. 
The business unit remittances contributed 
to Group cashflow, which approached 
the stretch target level. 

The Group achieved these results while 
maintaining appropriate levels of capital 
and while operating within the Group’s risk 
framework and appetites. The Committee 
believes that the bonuses it awarded to 
Executive Directors for 2019 (between 
93 per cent and 96 per cent of executives’ 
maximum AIP opportunities) appropriately 
reflect this performance.

Performance in 2019 has continued 
to deliver on the momentum achieved 
in recent years. The Group delivered 
total adjusted operating profits of 
$19,021 million in the 2017, 2018 
and 2019 financial years. Based on this 
strong cumulative adjusted operating 
profit performance over the period and 
performance against our sustainability 
scorecard, the Committee determined 
that between 61.75 and 68.75 per cent 
of the Prudential Long Term Incentive 
Plan (PLTIP) awards made to Executive 
Directors in 2017 would vest (depending 
on the business unit). These awards will 
be released to participants from April 2020. 
The portion of the awards related to 
Prudential’s total shareholder return (TSR) 
lapsed as TSR performance was ranked 
below median of the peer group.

The total 2019 remuneration or ‘single 
figure’ for the Group Chief Executive, 
Mike Wells, is 11.25 per cent lower than 
his total restated 2018 ‘single figure’, 
notwithstanding his exceptional leadership 
and personal performance. This chiefly 
reflects his housing support ending in 
November 2018 and the impact of the 
lower value of the 2017 PLTIP vesting 
compared to the 2016 PLTIP vesting due 
to lower share price growth over the 
performance period. 

Reviewing the Directors’ 
remuneration policy
Ahead of the renewal of the Directors’ 
remuneration policy at the AGM in 2020, 
the Committee carefully considered and 
debated a range of potential remuneration 
models, taking into account the demerger 
of the M&G plc business from the Group, 
the views of our shareholders, the UK 
Corporate Governance Code and the 
broader regulatory and competitive 
environment. The Committee concluded 
that the current model continues to connect 
remuneration with the achievement of the 
Group’s ambitious goals to build long-term 
shareholder value by continuing to focus 
on achieving sustainable, profitable growth 
and retaining a resilient balance sheet, 
with a disciplined approach to active capital 
allocation. In addition, the Committee 
decided to retain the key features of the 
current remuneration model since it is 
appropriate for a growth company, is well 
understood and drives the right behaviour 
and outcomes. On this basis, the 
Committee decided to retain the current 

remuneration model while making a 
number of improvements to ensure that it 
continues to be aligned with the Group’s 
remuneration principles, business priorities 
and evolving stakeholder expectations. 

The proposed new Directors’ remuneration 
policy set out on pages 174 to 191 has been 
designed to: 

1 Align reward with the strategic 
priorities and capital framework 
of the post-demerger business
The Committee intends to align the 
Prudential Long Term Incentive Plan 
(PLTIP) performance conditions with the 
strategic priorities of the post-demerger 
business by introducing a new a return on 
equity performance measure, operating 
return on average shareholders’ funds, 
for the 2020 PLTIP awards, incentivising 
the efficient use of capital as well as 
shareholder returns. Using this metric 
alongside our established metrics of 
Total Shareholder Return (TSR) and a 
sustainability scorecard will ensure that 
the full value of long-term incentive awards 
is attained only where capital is effectively 
deployed in a way which creates 
shareholder returns superior to those 
delivered by peers while conduct and 
diversity expectations are met. 

The proportion of 2019 long-term incentive 
awards which will vest for threshold 
performance was reduced to 20 per cent 
(from 25 per cent for previous awards). 
This level of threshold vesting is formalised 
in the 2020 policy and will apply to all 
future awards.

The proposed new Directors’ remuneration 
policy seeks to reintroduce a financial 
element to the bonus for the Group Chief 
Risk and Compliance Officer from 2020, 
effectively reverting to a similar approach 
used until 2015. Specifically, it is proposed 
that the 2020 bonus for this role is based 
on 40 per cent functional objectives, 
40 per cent Group financial measures and 
20 per cent personal measures. This is in 
line with the current draft of the Hong 
Kong IA’s guideline on the remuneration 
of key persons in control functions and 
reflects our view that it is important that 
this role and other control function staff 
continue to demonstrate long-term 
commercial sensitivity and are rewarded 
in a way which allows the Company to 
recruit the very best talent to these roles.

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In conclusion
I trust that you will find this report a 
clear account of the way in which the 
Committee has implemented the Directors’ 
remuneration policy during 2019 and of 
the Committee’s proposed new Directors’ 
remuneration policy.

Anthony Nightingale, CMG SBS JP
Chairman of the Remuneration Committee

10 March 2020

3 Foster alignment between 
the remuneration of executives 
and the wider workforce
The Committee is aware that the greater 
alignment of reward arrangements of 
executives with those of the wider 
workforce is an area of attention for many 
investors, particularly in light of the 
expectations set out in the UK Corporate 
Governance Code. The Committee intends 
to reflect this focus in a number of ways, 
including those set out below.

The Committee is mindful of the need 
for continued restraint in base salary 
increases. With effect from 1 January 
2020, salary increases of 2 per cent were 
awarded for all Executive Directors. 2020 
will be the eighth consecutive year in 
which the increases generally offered to 
executives have been below or close to 
the bottom of the salary increase budget 
ranges for the broader workforce. 

Subject to approval of the new Policy, 
it is proposed that Executive Directors 
recruited externally or internally from 
the date of the 2020 AGM will be offered 
pension benefits of 13 per cent of salary, 
aligned with the employer pension 
contribution available to the UK workforce. 
We also propose to reduce incumbent 
Executive Directors’ pension benefits 
from 25 per cent to 20 per cent of salary 
by May 2021. The Committee recognises 
that pension benefits are an increasingly 
important area of focus and believe that 
the proposal is an active step towards 
aligning executives with the wider 
workforce whilst recognising the existing 
contractual commitments in place. This is 
an area where market practice is evolving 
rapidly and one which the Committee will 
keep under close review.

Following the Hong Kong IA assuming 
the role of our Group-wide supervisor, 
Prudential ceased to be subject to 
Solvency II capital requirements. It is 
therefore proposed that the Solvency II 
underpin under the AIP and the  
Solvency II capital metric within the 
PLTIP sustainability scorecard are replaced 
with measures aligned to the Hong Kong 
IA capital framework. 

2 Strengthen the community 
of interest between executives 
and other shareholders 
The Committee has decided to build on the 
share ownership guidelines which apply 
to executives during their employment by 
introducing a formal, post-employment 
shareholding guideline. This guideline 
will require Executive Directors to hold 
their full in-employment share ownership 
guideline for a period of two years from 
the date of their retirement from the Board 
(or their actual shareholding from this date 
if lower). 

As described above, Mr FitzPatrick’s role 
expanded in July 2019 when he became 
Chief Operating Officer in addition to 
his role as Group Chief Financial Officer. 
In this capacity, he became responsible 
for a number of key Group functions 
including Legal, Government Affairs 
and Communications. In recognition 
of Mr FitzPatrick’s expanded role and 
responsibilities, together with the Board’s 
view of his strong performance, potential 
and criticality to the Group, the Committee 
propose increasing the value of his 2020 
long-term incentive award to 300 per cent 
of base salary (from 250 per cent at 
present). The Committee chose to 
recognise the increased scope of 
Mr FitzPatrick’s role in this way to 
promote stewardship and long-term focus. 

It is imperative that incentive payments 
are based on performance which is 
well-founded and sustainable. The 
Committee currently has the scope to 
reduce, cancel or recover these payments 
and intends to build on these discretionary 
powers in the 2020 policy by formalising 
and extending the circumstances which 
might trigger the use of malus and 
clawback to include non-financial issues 
and personal conduct which falls short 
of the Company’s expectations.

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141

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationOur Executive Directors’ 
remuneration at a glance

What performance means for Executive Directors’ pay
At Prudential, remuneration packages are designed to ensure a strong alignment between pay and performance. As you can see from the 
charts within the Annual statement from the Chairman of the Remuneration Committee, we are continuing to deliver profitable growth 
for our shareholders. This has been reflected in both the annual bonuses paid and the release of long-term incentive awards, as set out in 
the Annual report on remuneration.

In particular, the long-term incentives awarded to Executive Directors in 2017 had stretching performance conditions attached to 
vesting and were denominated in shares or ADRs. The value of the performance-related elements of remuneration is added to the fixed 
packages provided to Executive Directors to calculate the 2019 ‘single figure’ of total remuneration. The total 2019 ‘single figure’ for 
the Group Chief Executive is 11.25 per cent less than the total 2018 ‘single figure’. This chiefly reflects his housing support ending in 
November 2018 and the impact of the lower value of the 2017 PLTIP vesting compared to the 2016 PLTIP vesting due to lower share price 
growth over the performance period. The values for the current Executive Directors are outlined in the table below: 

Executive Director

Role

Mark FitzPatrick

James Turner2

Mike Wells

Group Chief Financial 
Officer and Chief 
Operating Officer
Group Chief Risk and 
Compliance Officer
Group Chief Executive

Fixed pay

Performance related

2019
salary

Pension and
 benefits

2019 bonus

LTIP vesting

2019 
single figure

2018 
single figure1

£760,000

£339,000

£1,279,000

£1,082,000

£3,460,000

£2,261,000

£678,000
£1,149,000

£507,000
£513,000

£1,052,000
£2,197,000

£303,000
 £2,860,000 

£2,540,000
£6,719,000

£1,913,000
£7,571,000

Notes
1  Revised 2018 single figure, in line with the regulations, reflecting the actual value of 2018 LTIP releases and additional dividends paid as set out in the notes to the 2018 single figure table. 
2  Mr Turner relocated to Hong Kong on 1 August 2019 and has since been paid in HK dollars. Exchange rate fluctuations will therefore impact the reported sterling value. Actual 

amounts paid and the rates of exchange used to convert into a single currency are set out in the Notes to the ‘single figure’ table in the Annual report of remuneration. 

Aligning 2020 pay to performance
The Committee awarded salary increases to the Executive Directors for 2020 of 2 per cent, which was below the lower end of the range 
of salary increase budgets for the wider workforce. 

As discussed in the ‘Annual statement from the Chairman of the Remuneration Committee’ and in the ‘Statement of implementation 
in 2020’ sections, in the interests of recognising Mr FitzPatrick’s expanded role and responsibilities and to support the promotion of 
stewardship and long-term focus, the Committee intends to increase the value of 2020 long-term incentive award to be made to the 
Group Chief Financial Officer and Chief Operating Officer within the limit provided for by the current Directors’ remuneration policy. 

Remuneration packages for 2020, effective 1 January 2020, are set out in detail in the Annual report on remuneration and are 
summarised below:

Executive Director

Role

Mark FitzPatrick
James Turner2
Mike Wells

Group Chief Financial Officer and Chief 

Operating Officer

Group Chief Risk and Compliance Officer
Group Chief Executive

Annual Incentive Plan (AIP)

2020 salary

Maximum 
bonus
(% of salary)

Bonus 
deferred
(% of bonus)

PLTIP 
award 
(% of salary)1

£776,000
HK$7,480,000
£1,172,000

175%
175%
200%

40%
40%
40%

300%
250%
400%

Notes
1  The PLTIP award is subject to a three-year performance period and a holding period which ends on the fifth anniversary of the award.
2  James Turner relocated to Hong Kong on 1 August 2019 and has since been paid in HK dollars. 

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Summary of proposed changes to the Directors’ remuneration policy

Current key elements 
of remuneration

0
2
0
2

1
2
0
2

2
2
0
2

3
2
0
2

4
2
0
2

5 Key features of operation  
2
of the current policy1
0
2

Outline of proposed changes  
for 2020

Fixed pay

Salary and 
benefits

Pension

Cash bonus

Deferred 
bonus

Prudential 
Long Term 
Incentive 
Plan (PLTIP)

Short-term 
variable pay
One-year performance 
assessed on financial 
or functional objectives 
and personal objectives, 
set with reference to 
business plans approved 
by the Board. Awards 
are subject to the 
achievement of a 
Solvency II capital 
underpin 

Long-term 
variable pay
Three-year 
performance assessed 
on a combination of: 

 — Financial measures; 

and/or

 — Total Shareholder 

Return (TSR) relative 
to international 
insurance peers; and

 — Sustainability 

scorecard of capital, 
conduct and 
diversity measures.

Share ownership 
guidelines

Share 
ownership 
guidelines

Performance 
period

Holding 
period

Salaries reviewed annually with 
increases generally aligned with 
those of the workforce. Benefits 
reflect individual circumstances and 
are competitive in the local market

Entitled to receive pension 
contributions and/or a cash 
supplement up to 25% of salary. 
Executive Directors based in 
Hong Kong receive this in addition 
to contributions into the Hong Kong 
Mandatory Provident Fund

No change to salary and benefits policy

Offer new, externally recruited and promoted 
Executive Directors pension benefits aligned 
with the UK workforce at 13% of salary and 
move incumbent Executive Directors towards 
a contribution rate of 20% of salary by 
14 May 2021

No change to Hong Kong Mandatory 
Provident Fund contributions for Executive 
Directors based in Hong Kong

The maximum opportunity is up to 
200% of salary

No change to opportunity levels2, payment 
scale, level of deferral or malus and clawback 

40% of bonus is deferred into shares 
for three years

Award is subject to malus and 
clawback provisions

The measures for the Group Chief 
Risk and Compliance Officer are 
based on functional and personal 
targets only 

Solvency II underpin replaced with a Pillar I 
capital underpin aligned with the Hong Kong 
IA3 capital framework

Reintroduce financial measures for the Group 
Chief Risk and Compliance Officer in line with 
current draft Hong Kong IA guideline and 
weight the 2020 bonus measures as follows: 
40% Group financial measures, 40% functional 
objectives and 20% personal measures

Formalise and extend the circumstances 
which might trigger the use of malus and 
clawback to include non-financial issues and 
personal conduct which falls short of the 
Company’s expectations

Maximum award under the Plan 
is 550% of salary although regular 
awards are below this level

Increase the regular award level for Group 
Chief Financial Officer and Chief Operating 
Officer to 300% of salary (from 250% of salary)

No change to award levels for other Executive 
Directors

Adopt a Return on Equity (RoE) measure 
within the PLTIP for all Executive Directors 
in addition to the relative TSR and the 
sustainability scorecard measures. In the 
scorecard, replace Solvency II capital with 
a measure aligned with the Hong Kong IA 
capital framework 

Weight of 2020 PLTIP measures as follows: 
50% TSR, 30% RoE and 20% sustainability 
scorecard

No other changes to the sustainability 
scorecard metrics and the 20% vesting for 
threshold performance to be formalised

Formalise and extend the circumstances 
which might trigger the use of malus and 
clawback to include non-financial issues 
and personal conduct which falls short 
of the Company’s expectations

Introduce a requirement that Executive 
Directors leaving the Board hold the lower of 
their actual shareholding at their retirement 
date and their in-employment share ownership 
guideline for a period of two years, subject to 
Remuneration Committee discretion

Awards are subject to a three-year 
vesting period from date of grant 
and a further two-year holding 
period from the end of the vesting 
period

Awards are subject to malus and 
clawback provisions

2019 awards have relative TSR and 
sustainability scorecard targets only

The proportion of 2019 awards 
which will vest for threshold 
performance was reduced to 20% 
(from 25% for previous awards)

Significant in-employment share 
ownership guidelines for all 
Executive Directors as follows:

 — 400% of salary for the 
Group Chief Executive

 — 250% of salary for other 
Executive Directors

Executives have five years from 
the later of the date of their 
appointment, or the date of an 
increase these guidelines, to build 
this level of ownership

Notes
1 
2  The Group Chief Risk and Compliance Officer’s maximum bonus opportunity was increased during 2019 to recognise his expanded role and development since joining 

‘Policy’ refers to the 2017 Directors’ remuneration policy.

the Board.
‘Hong Kong IA’ refers to the Hong Kong Insurance Authority, the Company’s Group wide supervisor following the demerger.

3 

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The Board has established Audit, Remuneration, Risk and Nomination & Governance Committees as principal standing committees 
of the Board. These committees form a key element of the Group governance framework.

The operation of the Remuneration Committee
Members
Anthony Nightingale (Chair of the Committee)
Kai Nargolwala
Philip Remnant
Thomas Watjen
Fields Wicker-Miurin
Amy Yip (member since 2 September 2019)

Individual Directors’ attendance at meetings throughout 2019 is set out in the ‘Governance’ section. 

Role and responsibility
The role and responsibilities of the Committee are set out in its terms of reference, which are reviewed by the Committee and approved 
by the Board on an annual basis, and which can be found on the Company’s website. The Committee’s role is to assist the Board in 
meeting its responsibilities regarding the determination, implementation and operation of the overall remuneration policy for the Group, 
including the remuneration of the Chairman, Executive Directors, Group Executive Committee and Company Secretary, as well as 
overseeing the remuneration arrangements of other staff within its purview.

The principal responsibilities of the Committee during 2019 were:

 — Determining and recommending to the Board for approval, the framework and policy for the remuneration of the Chairman, 

Executive Directors and other members of the Group Executive Committee;

 — Approving the design of performance-related pay schemes operated for the Executive Directors and other members of the Group 

Executive Committee, and determining the targets and individual payouts under such schemes;

 — Reviewing the design and development of all share plans requiring approval by the Board and/or the Company’s shareholders;

 — Approving the share ownership guidelines for the Chairman and Executive Directors and other members of the Group Executive 

Committee, and monitoring compliance;

 — Reviewing and approving individual packages for the Executive Directors and other members of the Group Executive Committee, 

and the fees of the Chairman and the Non-executive Directors of the Group’s material subsidiaries;

 — Reviewing and approving packages to be offered to newly recruited Executive Directors and other members of the Group 

Executive Committee;

 — Reviewing and approving the structure and quantum of any severance package for Executive Directors and other members 

of the Group Executive Committee to ensure they are fair and do not reward failure;

 — Ensuring the process for establishing remuneration policy is transparent and consistent with the Group’s risk framework and 

appetites, encouraging strong risk management and solvency management practices; 

 — Reviewing the workforce remuneration practices and related policies across the Group when setting the remuneration policy 

for Executive Directors, as well as the alignment of incentives and awards with culture;

 — Monitoring the remuneration and risk management implications of remuneration of senior executives across the Group, 

other selected roles and those with an opportunity to earn in excess of £1 million in a particular year; and

 — Overseeing the implementation of the Group remuneration policy for those roles within scope of the specific arrangements referred 

to in Article 275 of Solvency II.

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In 2019, the Committee met eight times. Key activities at each meeting are shown in the table below:

Meeting

Key activities

January 2019

Consider shareholder feedback received from consultation.

Early March 2019

Approve the 2018 Directors’ remuneration report; consider 2018 bonus awards for Executive Directors; consider 
vesting of long-term incentive awards with a performance period ending on 31 December 2018; approve 2019 
long-term incentive awards and performance measures; note an update on regulation affecting remuneration; 
note an update on the Board’s review of the Committee’s effectiveness; and review the appointment of the 
Committee’s independent adviser.

Mid-March 2019

Confirm 2018 annual bonuses and the vesting of long-term incentive awards with a performance period ending 
on 31 December 2018, in light of audited financial results; approve the revised total shareholder return (TSR) 
peer group for the 2019 PLTIP awards; and approve Executive Directors’ personal objectives for the 2019 annual 
incentive plan. 

May 2019

June 2019

July 2019

September 2019

December 2019

Approve the remuneration arrangements for those executives retiring from the Board; approve amendments 
to share plan rules and the remuneration terms of the Group Chief Risk and Compliance Officer’s relocation 
package; review the remuneration of senior executives across the Group, employees with a remuneration 
opportunity over £1 million per annum and employees within the scope of the Solvency II remuneration rules; 
note the remuneration sections of the draft Shareholder Circular and Demerger Agreement; and review the 
executive remuneration model and its appropriateness for the ongoing international business. 

Review proposals on Executive Directors’ remuneration arrangements; note an update on regulation affecting 
remuneration; review progress towards share ownership guidelines by the Chairman, Executive Directors and 
other Group Executive Committee members; and approve the expense approval process for the Group Chief 
Executive and Chairman; and approve the Chairman’s fees. 

Review an initial draft of the 2020 Directors’ remuneration policy; approve the Solvency II Remuneration Policy 
Statement for the 2018 performance year; and discuss the methodology for converting the dividend-in-specie 
(the ‘demerger dividend’) into additional Prudential plc shares for Prudential plc share plan participants.

Approve the draft 2020 Directors’ remuneration policy and review proposed 2020 remuneration arrangements 
for Executive Directors ahead of consultation with shareholders; note an update on regulation affecting 
remuneration; approve minor amendments to the share plan rules and adjustments to outstanding Options; 
review the indicative incentive outcomes for Group Executive Committee members transferring to M&G plc; 
and review the workforce remuneration dashboard. 

Review level of participation in the Company’s all-employee share plans and dilution levels resulting from 
the Company’s share plans; approve the Group Executive Committee members’ 2020 salaries and incentive 
opportunities; consider the annual bonus measures and targets to be used in 2020; consider shareholder 
feedback; review an initial draft of the 2019 Annual report on remuneration and the 2020 Directors’ remuneration 
policy; approve the Committee’s 2020 Schedule of Business; approve the fees for independent non-executive 
directors of Material Subsidiaries; review the Group’s remuneration arrangements and approve amendments 
to the 2020 Group remuneration policy in light of the draft Hong Kong IA Guideline on Group-Wide Corporate 
Governance; approve the Committee’s terms of reference for recommendation to the Board; and note an update 
on regulation affecting remuneration.

Additionally, a number of resolutions in writing were approved by the Committee between these meetings relating to the remuneration 
sections of the Circular and Demerger Agreement, the draft 2020 Directors’ remuneration policy, and matters relating to the demerger. 

The Chairman and the Group Chief Executive attend meetings by invitation. The Committee also had the benefit of advice from:

 — Group Chief Risk and Compliance Officer; 

 — Group Chief Financial Officer and Chief Operating Officer;

 — Group Human Resources Director; and

 — Director of Group Reward and Employee Relations.

Individuals are not present when their own remuneration is discussed and the Committee is always careful to manage potential conflicts 
of interest when receiving views from Executive Directors or senior management about executive remuneration proposals.

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CONTINUED

In line with our approach to shareholder engagement and given the additional context of the demerger and the review of the Directors’ 
remuneration policy, the Chairman of the Committee held meetings with shareholders and the principle advisory bodies (the Investment 
Association, Institutional Shareholder Services and Glass Lewis) to discuss decisions taken in respect of the demerger; the principle 
changes proposed as part of the renewal of the Directors’ remuneration policy; and Executive Directors’ remuneration arrangements 
for 2020. We have had the benefit of substantive feedback from 41 per cent of our shareholder register and are pleased that the majority 
of shareholders and advisory bodies who provided input were content with our proposals and commended the manner in which we 
conducted the consultation process. 

During 2019, Deloitte LLP was the independent adviser to the Committee. Deloitte was appointed by the Committee in 2011 following 
a competitive tender process. As part of this process, the Committee considered the services that Deloitte provided to Prudential and its 
competitors, as well as other potential conflicts of interest. Deloitte is a member of the Remuneration Consultants’ Group and voluntarily 
operates under their code of conduct when providing advice on executive remuneration in the UK. Deloitte regularly meets with the 
Chair of the Committee without management present. The Committee is comfortable that the Deloitte engagement partner and team 
providing remuneration advice to the Committee do not have connections with Prudential that may impair their independence and 
objectivity. The total fees paid to Deloitte for the provision of independent advice to the Committee in 2019 were £73,250 charged on 
a time and materials basis. During 2019, Deloitte gave Prudential management advice on remuneration, including advice on the new 
Directors’ remuneration policy, as well as providing guidance on the demerger, the deployment of Workday, capital optimisation, digital 
and technology, taxation, internal audit, real estate, global mobility and other financial, risk and regulatory matters. Remuneration advice 
is provided by an entirely separate team within Deloitte. As set out in the table above, the Committee reviewed Deloitte’s appointment in 
March 2019 and considered Deloitte to be independent. The Committee will conduct a competitive tender process for this appointment 
during 2020.

In addition, management received external advice and data from a number of other providers. This included market data and legal 
counsel. This advice, and these services, are not considered to be material. 

The effectiveness of the Committee was reviewed as part of the annual Board evaluation, which confirmed that the Committee 
continued to operate effectively during the year and no major areas requiring improvement or action points were highlighted. During the 
year, the Company has acted in a manner that is consistent with the appropriate provisions of the UK Corporate Governance Code 
regarding Directors’ remuneration.

Remuneration decisions taken in relation to the demerger
The M&G plc business demerged from the Group with effect from 21 October 2019. As disclosed last year, the Committee established 
a set of principles to underpin decisions on remuneration relating to the demerger, including:

 — Executives should not be advantaged or disadvantaged by the demerger; the value of outstanding awards and their key terms 

(release dates, holding periods, malus and clawback provisions) should be unaffected;

 — Where performance conditions need to be revised, the new conditions should be no more or less stretching than those originally 

attached to the awards; and

 — Where the Committee has applied discretion, this will be disclosed clearly.

These principles formed the basis for the treatment of outstanding share awards which was set out in the Shareholder Circular published 
on 25 September 2019 and approved by shareholders at the October 2019 General Meeting. In summary, employees of Prudential plc 
(including the Executive Directors of the Company) have:

 — Received the demerger dividend through which the demerger was effected, on their outstanding deferred bonus and long-term 

incentive awards in the form of additional Prudential plc shares. These will be released on the same timetable and to the same extent 
as their original share awards. The Committee decided that it was appropriate that, wherever possible, executives should be 
rewarded in the shares of the business which they continue to lead;

 — Received the demerger dividend on the shares they hold outright through the all-employee UK SIP plan in the form of M&G plc 

shares, in the same way as other shareholders; and

 — Had no adjustment made to the Options they hold under the all-employee UK sharesave plan, in line with the rules laid out by the 

UK tax authorities.

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Adjusting in-flight PLTIP performance conditions
The Committee decided that the financial targets for the 2017 and in-flight 2018 PLTIP awards should be adjusted to exclude the M&G 
plc components of the Plan on which the targets were based, with effect from the date of the demerger, in order to appropriately account 
for the period they are not part of the Group. The revised targets will be disclosed in the remuneration report for the year in which the 
awards vest. The 2019 PLTIP award targets exclude M&G plc performance from the point of demerger.

As set out in the announcement of Prudential’s 2019 half-year results, post-demerger, the Hong Kong IA assumed the role of the 
Group-wide supervisor for Prudential plc from the PRA. Prudential therefore ceased to be subject to Solvency II capital requirements 
and will no longer calculate or disclose a Solvency II position after 30 June 2019. The Group will ultimately be subject to the Group-wide 
Supervisory framework, which is currently under development by the Hong Kong IA. In the meantime, Prudential will apply and report 
the Hong Kong IA’s local capital summation method (LCSM), which was calculated and reported for the first time at Half Year 2019. 
LCSM was not calculated in previous Plans and therefore is not available to replace the Solvency II operating capital generation. 
As an alternative, operating free surplus generation (OFSG) will replace Solvency II operating capital generation for in-flight awards. 
While there are methodological differences between those two measures, OFSG is the closest proxy to LCSM that is available in the 
Board approved 2018 – 2020 and 2019 – 2021 Plans and OFSG and LCSM are both prepared using the same underlying local statutory 
capital positions.

Therefore the Committee agreed the Solvency II metric in the sustainability scorecard for in-flight PLTIP awards should be retained for 
the period to 30 June 2019 and then, for the remainder of each performance period, be replaced with the OFSG measure. Performance 
for these in-flight PLTIP awards will be assessed using a weighted average between Solvency II and OFSG achievement to reflect the 
portion of the performance period for which each was in place. 

No changes have been made to the TSR peer groups for outstanding awards held by Prudential plc staff. The TSR peer group for the 
2019 PLTIP awards was developed in anticipation of the demerger to reflect the post-demerged business, with extensive input from 
shareholders. 

Demerger share calculation
The demerger of M&G plc from Prudential plc was accomplished through a dividend in specie (the ‘demerger dividend’); with 
shareholders receiving one share in M&G plc for every share they hold in Prudential plc at the record time and date. The Committee 
approved the approach to converting the demerger dividend into additional Prudential plc shares and ADRs for those with outstanding 
awards at the date of the demerger. Prudential plc employees who held awards over Prudential shares or ADRs received the value of 
the demerger dividend in the form of additional Prudential plc shares or ADRs respectively. These additional shares/ADRs are managed 
in the same way as other dividend equivalents, that is they will vest on the same timetable and to the same extent as the original award. 

The Committee considered a number of approaches for converting the demerger dividend into additional Prudential plc shares/ ADRs. 
It decided to determine the number of additional Prudential plc shares/ADRs to be awarded as a dividend by dividing the average value 
of M&G plc shares during the five trading days immediately after the demerger by the Prudential plc share price/ADR price over a 
five-day period starting on the date on which the Prudential plc share and ADR prices reflected the removal of the M&G business. 
For share plan participants with ADR denominated awards, the sterling to US dollar conversion was based on an exchange rate averaged 
over five trading days immediately following the demerger.

TSR calculation
The Committee determined that the calculation of TSR for in-flight PLTIP awards should be adjusted to reflect the demerger of M&G plc. 
This involved the application of an adjustment factor calculated in line with standard methodologies. No changes have been made to the 
TSR peer groups for outstanding awards held by Prudential plc staff.

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CONTINUED

Table of 2019 Executive Director total remuneration (the ‘single figure’) 

£000s

Michael Falcon1,2,3
Mark FitzPatrick
John Foley2,4
Nic Nicandrou2,3,5
James Turner3,6
Mike Wells

Total

2019 
taxable 
benefits*

2019 
total 
bonus†

2019 
LTIP 
releases‡

2019 
pension 
benefits§

2019 
Other 
payments¶

Total 2019 
remuneration
the ‘single 
figure’^

Total 2019 
remuneration
the ‘single 
figure’ 
in USD 
($000)#

 126 
 149 
 114 
 141 
 338 
 226 

1,227
1,279
–
707
1,052
2,197

–
1,082
–
931
303
2,860

59
190
75
103
169
287

883

4,950
–
–
–
–
–

4,950

6,599
3,460
489
2,293
2,540
6,719

8,424
4,417
624
2,927
3,242
8,577

22,100

28,211

3,535

1,094

6,462

5,176

2019 
salary

237
760
300
411
678
1,149

* Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements, relocation/expatriate benefits and shares awarded due to 

participation in the Share Incentive Plan (SIP).

† The total value of the bonus, comprising both the 60 per cent delivered in cash and 40 per cent bonus deferred into Prudential plc shares or ADRs for three years. The deferred part of the 

bonus is subject to malus and clawback in accordance with the malus and clawback policies but no further conditions. 

‡ In line with the regulations, the estimated value of the 2019 PLTIP releases for all Executive Directors excluding John Foley has been calculated based on the average share/ADR price 
over the last three months of 2019 (£13.85/US$36.37) and includes the accumulated dividends delivered in the form of shares/ADRs. The Committee’s approach to determining the 
level of vesting for this award is set out in the ‘Remuneration in respect of performance periods ending in 2019’ section. The number of Prudential plc shares/ADRs under award have 
been adjusted in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. The actual value of vesting PLTIP awards, based on the share 
price on the date awards are released, will be shown in the 2020 report. In line with the requirements under the UK Companies (Miscellaneous Reporting) Regulations 2018, it is estimated 
that 6.2 per cent of the value of the 2019 LTIP releases is attributable to share price growth over the vesting period as awards were granted using a share/ADR price of £16.75/US$42.12 
for all Executive Directors other than Mark FitzPatrick and £18.005 for Mark FitzPatrick in 2017. The Committee concluded that no discretion will be applied in determining the 
remuneration resulting from the 2019 LTIP releases as a result of share price appreciation.

§ 2019 pension benefits include cash supplements for pension purposes and contributions into defined contribution schemes as outlined on page 151.
¶ The value of Mr Falcon’s buy-out award has been included in its entirety as it was granted without performance conditions during his period of Board service. The award vests in line 

with the original vesting schedule with the final tranche vesting 30 days commencing on the date of release of Prudential plc’s results for 2020.

^ Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed 

by Schedule 8 of Statutory Instrument 2013 No. 1981 - The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. 

# Total 2019 remuneration has been converted to US dollars using the exchange rate of 1 GBP to USD 1.2765. 

Notes
1  Michael Falcon was appointed to the Board on 7 January 2019 as Chairman and Chief Executive Officer, Jackson Holdings LLC. 
2  Michael Falcon, Nic Nicandrou and John Foley stepped down from the Board on 16 May 2019. The remuneration above was paid in respect of their service as Executive Directors. 
While salary and certain monthly paid benefits reflect what was actually delivered during the period, other benefits, bonus, LTIP releases and pension benefits are pro-rata for the 
period. The 2019 LTIP release for Mr Nic Nicandrou has been pro-rated for 28.5 months of the LTIP’s 36 month performance period to reflect his time as an Executive Director during 
the LTIP’s performance period. 

3  Michael Falcon, Nic Nicandrou and James Turner are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value. 
4  John Foley stepped down from the Board on 16 May 2019. He subsequently left the Company on the demerger of M&G plc from Prudential plc on 21 October 2019. As an Executive 
Director of Prudential plc during 2019 Mr Foley was eligible to receive a 2019 bonus award of up to 180% of salary. Since transferring to M&G plc it was agreed with M&G plc that 
his 2019 bonus will be assessed and determined by the M&G plc Remuneration Committee and will be paid by M&G plc. No 2019 bonus award has been paid to Mr Foley by 
Prudential plc.
  Mr Foley’s 2017-2019 PLTIP award has been exchanged for an equivalent award over M&G plc shares. Under the terms of the Demerger Agreement this replacement award should 
be of an equivalent value; with the same release schedule; subject to equivalent malus and clawback provisions and subject to performance conditions which are relevant to M&G plc 
and which are no more or less onerous than those which originally applied. 

The amount of any bonus payment (including any deferred component) to John Foley in respect of 2019 (including that awarded for performance and service during the 

pre-demerger period) and the vesting of Mr Foley’s replacement 2017-2019 long-term incentive award are due to be disclosed by M&G plc and described in the M&G plc Directors’ 
remuneration report as set out in the M&G plc 2019 Annual Report. These details were not known by Prudential plc prior to the finalisation of this report.

5  To facilitate Nic Nicandrou’s relocation to Hong Kong, benefits include £95,000 to cover accommodation.
6  James Turner relocated to Hong Kong on 1 August 2019 and since has been paid in HK dollars; benefits include £160,000 to cover accommodation.

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Table of 2018 Executive Director total remuneration (the ‘single figure’) 

Of which:

2018 
salary

745
781
1,023
249
867
521
1,126

2018 
taxable 
benefits*

89 
123 
396 
102
 70 
109 
407 

2018 
total 
bonus

1,241 
1,186
1,692 
–
4,935 
793 
2,133 

Amount
 deferred into 
Prudential 
shares†

Amount 
paid in cash

2018 
LTIP 
releases‡

2018 
pension 
benefits§

Total 2018 
remuneration
the ‘single 
figure’¶

 745 
 712 
 1,015 
 – 
 2,961 
 476 
 1,280 

 496 
474
 677 
 – 
 1,974 
 317 
 853 

– 
1,571
1,489
– 
2,983
360
3,623

186
195
258
62
217
130
282

2,261
3,856
4,858
413
9,072
1,913
7,571

Total 2018 
remuneration
the ‘single 
figure’ 
in USD 
($000)^

3,019
5,149
6,486
551
12,113
2,554
10,109

5,312

1,296 

11,980 

 7,189 

 4,791 

10,026

1,330

29,944

39,981

£000s

Mark FitzPatrick
John Foley
Nic Nicandrou1,6
Anne Richards2
Barry Stowe3,6
James Turner4
Mike Wells5

Total

* Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements and relocation/expatriate benefits.
† The deferred part of the bonus is subject to malus and clawback in accordance with the malus and clawback policies, but no further conditions. 
‡ In line with the regulations, the estimated value of 2018 LTIP releases has been recalculated based on the actual share/ADR price on the date awards were released, being £15.61 

for the April release. The restated value of those awards released in June also reflects dividends paid on those awards in June. In line with the requirements under the UK Companies 
(Miscellaneous Reporting) Regulations 2018,16.8 per cent of the value of the 2018 LTIP releases is attributable to share price growth over the vesting period as awards were granted 
using a share/ADR price of £12.99/US$37.29 in 2016. The Committee concluded that no discretion will be applied in determining the remuneration resulting from the 2018 LTIP releases 
as a result of share price appreciation.

§ 2018 pension benefits include cash supplements for pension purposes and contributions into Defined Contribution (DC) schemes.
¶ Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed 

by Schedule 8 of Statutory Instrument 2013 No. 1981 - The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

^ Total 2018 remuneration has been converted to US dollars using the exchange rate of 1 GBP to USD 1.3352. 

Notes
1  To facilitate Nic Nicandrou’s relocation to Hong Kong, Nic’s benefits include £267,000 to cover accommodation.
2  Anne Richards stepped down from the Board on 10 August 2018. The remuneration above was paid in respect of her service as an Executive Director.
3 
 Barry Stowe retired from the Board on 31 December 2018. 
4  James Turner was appointed to the Board on 1 March 2018.
5  To facilitate his appointment as Group Chief Executive and move to the UK in 2015, Mike Wells’s benefits include £311,000 to cover mortgage interest, which ceased effective 

30 November 2018. 

6  Barry Stowe and Nic Nicandrou are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value.

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Remuneration in respect of performance in 2019
Base salary
Executive Directors’ salaries were reviewed in 2018 with changes effective from 1 January 2019. When the Committee took these 
decisions it considered:

 — The salary increase budgets for other employees, which vary across our business units, reflecting local market conditions;

 — The performance and experience of each Executive Director; 

 — The relative size of each Executive Director’s role; and

 — The performance of the Group. 

As reported last year, after careful consideration by the Committee, all Executive Directors received a salary increase of 2 per cent. 
The 2019 salary increase budgets for other employees across our business units were between 2 per cent and 5.5 per cent. 

To provide context for the market review, information was also drawn from the following market reference points:

Executive

Role

Mark FitzPatrick

Group Chief Financial Officer and Chief Operating Officer

Michael Falcon1,2

Chairman and CEO, Jackson Holdings

John Foley2

Chief Executive, M&GPrudential 

Nic Nicandrou2

Chief Executive, Prudential Corporation Asia

James Turner3

Group Chief Risk and Compliance Officer

Mike Wells

Group Chief Executive

Benchmark(s) used to assess remuneration

 — FTSE 40
 — International insurance companies

 — Willis Towers Watson US Financial 

Services Survey

 — LOMA US Insurance Survey

 — FTSE 40
 — International insurance companies

 — Willis Towers Watson Asian 

Insurance Survey

 — FTSE 40
 — FTSE 50 insurers

 — FTSE 40
 — International insurance companies

Notes
1  Michael Falcon was appointed to the Board on 7 January 2019 as Chairman and CEO, Jackson Holdings LLC. His salary was reviewed on appointment. 
2  Michael Falcon, Nic Nicandrou and John Foley stepped down from the Board on 16 May 2019. 
3  James Turner relocated to Hong Kong on 1 August 2019. His remuneration was reviewed in light of his relocation.

In July 2019, the Group Chief Risk Officer became additionally responsible for the Group Compliance function and in August 2019, 
Mr Turner relocated to Hong Kong to support our dialogue with the Hong Kong IA. The Company supported Mr Turner’s relocation and, 
in order to recognise the expansion of his role and his development since joining the Board, the Committee determined an uplift in base 
salary of 9 per cent and an increased maximum bonus incentive opportunity from 160 per cent to 175 per cent of base salary were 
appropriate. No other changes were made during the year to Executive Directors’ maximum opportunities under either the annual 
incentive or the long-term incentive plans.

As a result, Executive Directors received the following salary increases:

Executive Director

Michael Falcon1
Mark FitzPatrick
John Foley1
Nic Nicandrou1
James Turner2
Mike Wells

2018 salary 

2019 salary

N/A
£745,000
£781,000

$800,000
£760,000
£797,000
HK$10,710,000 HK$10,930,000
£625,000 HK$7,330,000
£1,149,000

£1,126,000

Notes
1  Michael Falcon, John Foley and Nic Nicandrou stepped down from the Board on 16 May 2019. The annualised 2019 salaries above were paid in respect of their service as Executive 

Directors and pro-rated for the portion of the year for which they were Executive Directors. 

2  James Turner was appointed to the Board on 1 March 2018. The 2018 annualised salary above was paid in respect of his service as Group Chief Risk Officer. Mr Turner’s salary 

as at 1 January 2019 was £638,000. He relocated to Hong Kong on 1 August 2019 and his new annualised 2019 salary was paid in Hong Kong dollars. This was an annual base salary 
of HK$7,330,000. 

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Pension benefit entitlements
Pension benefit arrangements in 2019 are set out in the table below. The proposed arrangements for 2020 are described 
in the ‘Statement of implementation in 2020’ and in the ‘New Directors’ remuneration policy’ sections.

Executive Director

2019 pension benefit

Pension supplement of 25 per cent of salary, part of which 
is paid as a contribution to an approved US retirement plan.

Pension supplement in lieu of pension of 25 per cent of salary 
and a HK$18,000 employer payment to the Hong Kong 
Mandatory Provident Fund.

Life assurance provision

Two times salary

Eight times salary

Michael Falcon

Nic Nicandrou

James Turner

For the period 1 January 2019 to 31 July 2019: pension 
contribution to defined contribution plan and/or pension 
supplement in lieu of pension of 25 per cent of salary.

For the period 1 January 2019 to 31 July 
2019: up to four times salary plus a 
dependants’ pension

For the period 1 August 2019 to 31 December 2019: pension 
supplement in lieu of pension of 25 per cent of salary and a 
HK$18,000 employer payment to the Hong Kong Mandatory 
Provident Fund.

For the period 1 August 2019 to 
31 December 2019: eight times salary

UK-based executives

Pension contribution to defined contribution plan and/or 
pension supplement in lieu of pension of 25 per cent of salary.

Up to four times salary plus a dependants’ 
pension

John Foley previously participated in a non-contributory defined benefit scheme that was open at the time he joined the Company. 
The scheme provided an accrual of 1/60th of final pensionable earnings for each year of pensionable service. John received pension 
payments of £16,061 per annum which increased to £16,462 per annum from 1 April 2019, in line with the Consumer Prices Index. 
The pension will continue to be subject to statutory increases in line with the Consumer Prices Index. Mr Foley left the Company 
on the demerger of M&G plc from Prudential plc on 21 October 2019.

Annual bonus outcomes for 2019
Target setting
For the financial AIP metrics which comprise 80 per cent of the bonus opportunity for all Executive Directors apart from the Group Chief 
Risk and Compliance Officer, the performance ranges are set by the Committee prior to, or at the beginning of, the performance period. 
These ranges are based on the annual business plans approved by the Board and reflect the ambitions of the Group and business units, 
in the context of anticipated market conditions. The financial element of Executive Directors’ 2019 bonuses was determined by the 
achievement of four Group measures, namely adjusted operating profit, operating free surplus generation, EEV new business profit and 
cash flow, which are aligned to the Group’s growth and cash generation focus. The financial element of 2019 bonus award for the Chief 
Executive, Prudential Corporation Asia is similarly determined by business unit measures in addition to Group measures. The targets set 
assumed 10 months of M&G plc performance up to the date of demerger. 

Personal objectives comprise 20 per cent of the bonus opportunity for all Executive Directors apart from the Group Chief Risk and 
Compliance Officer, for whom this accounts for 50 per cent of the total bonus opportunity. These objectives are established at the start of 
the year and reflect the Company’s Strategic Priorities set by the Board. Functional objectives account for the remaining 50 per cent of the 
Group Chief Risk and Compliance Officer’s bonus opportunity. These are based on the Group Risk Plan and are developed with input 
from the Chairman of the Group Risk Committee. 

AIP payments are subject to meeting minimum capital thresholds which are aligned to the Group and business unit risk framework and 
appetites (as adjusted for any Group Risk Committee and/or business unit risk committees approved counter-cyclical buffers). 

The Committee seeks advice from the Group Risk Committee on risk management considerations to inform decisions about 
remuneration architecture and performance measures to ensure that risk management, culture and conduct are appropriately reflected 
in the design and operation of Executive Directors’ remuneration. 

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ANNUAL REPORT ON REMUNERATION  
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Performance assessment
The Committee determines the overall value of the bonus, taking account of the inputs described above and any other factors which 
it considers relevant. The table below illustrates the weighting of performance measures for 2019 and the level of achievement under 
the AIP: 

Executive Director

Michael Falcon2,3
Mark FitzPatrick
Nic Nicandrou2
James Turner4
Mike Wells

Weighting of measures
(% of total bonus opportunity)

Achievement against 
performance measures

Group 
financial 
measures

Business unit 
financial 
measures

Personal / 
functional 
objectives

Financial 
measures

Personal / 
functional 
objectives

2019 AIP 
outcome1,5 

(% of total bonus 
opportunity)

80%
80%
20%
–
80%

–
–
60%
–
– 

20%
20%
20%
100%
20%

96% 
96% 
96% 
N/A
96% 

91% 
95% 
97% 
93% 
92% 

95% 
96% 
97% 
93% 
96% 

Notes
1  All bonus awards are subject to 40 per cent deferral for three years and the deferred bonus will be paid in Prudential plc shares or ADRs. 
2  Michael Falcon and Nic Nicandrou stepped down from the Board on 16 May 2019. The bonus awards illustrated in the table above are in relation to their Board service only.
3  Michael Falcon is also eligible to receive 10 per cent of the Jackson bonus pool for 2019.
4  James Turner’s maximum bonus opportunity increased from 160 per cent of salary to 175 per cent of salary on 1 August 2019.
5  John Foley stepped down from the Board on 16 May 2019. He subsequently left the Company on the demerger of M&G plc from Prudential plc on 21 October 2019. As an Executive 
Director of Prudential plc during 2019, Mr Foley was eligible to receive a 2019 bonus award of up to 180 per cent of salary. Since transferring to M&G plc it was agreed with M&G plc 
that his 2019 bonus will be assessed and determined by the M&G plc Remuneration Committee and will be paid by M&G plc. No 2019 bonus award has been paid to Mr Foley by 
Prudential plc.

Financial performance
The Committee reviewed performance against the performance ranges at its meeting in February 2020. Group adjusted operating profit 
was approaching the stretch targets. Group free surplus generation exceeded the stretching targets established by the Board. All of our 
business units achieved target remittance levels, which were 3 per cent higher than 2018 for our continuing operations, enabling us to 
maintain significant cash stock at the centre, after dividends, corporate costs, demerger effects and investing in profitable opportunities 
within the business units. The business unit remittances contributed to Group cashflow, which approached the stretch target level. 
Group EEV new business profit was 6 per cent lower than prior year on a constant exchange rate basis. This reflected the significant 
reduction in interest rates during the year and the challenging trading environment in Hong Kong in the second half of the year as a direct 
result of political unrest in the region. Excluding Hong Kong, Asia new business profit was 29 per cent above prior year and given the 
strong performance of NBP absent the Hong Kong protests, the Committee considered it appropriate to adjust the EEV new business 
profit target to reflect the reduction in Hong Kong sales driven by the protests, which was considered to be outside of management’s 
control. Allowing for this adjustment, Group EEV new business profit was between target and stretch target.

The Committee considered a report from the Group Chief Risk and Compliance Officer which had been approved by the Group Risk 
Committee. This report confirmed that the 2019 results were achieved within the Group’s and business units’ risk framework and 
appetite. The Group Chief Risk and Compliance Officer also considered the effectiveness of risk management and internal controls, 
and specific actions taken to mitigate risks, particularly where these may be at the expense of profits or sales. The report also confirmed 
that the Group met minimum capital thresholds which were aligned to the Group and business unit risk framework and appetites. 
The Committee took into account this advice when determining AIP outcomes for Executive Directors.

The level of performance required for threshold, plan and maximum payment against the Group’s 2019 AIP financial measures and the 
results achieved are set out below:

2019 AIP measure

Group adjusted operating profit 
Group operating free surplus generated 
Group cash flow
Group EEV new business profit

Weighting

Threshold 
  ($m)

Target
  ($m)

Stretch target 
  ($m)

Achievement 
  ($m)

35%
30%
20%
15%

5,491
4,269
(375)
4,388

5,936
4,493
(118)
4,619

6,381
4,718
53
4,850

6,360
4,794
(7)
4,713

The Committee had regard to the achievement against the performance measures and the Group Chief Risk and Compliance Officer’s 
report and decided to apply a discretionary adjustment to the arithmetic outcome under the financial element of the 2019 bonus as 
discussed above. The impact of this adjustment was an increase in bonus awards of approximately 9.8 per cent for the Group Chief 
Executive and Group Chief Financial Officer and Chief Operating Officer. The Board believes that, due to the commercial sensitivity 
of the business unit targets, disclosing further details of these targets may damage the competitive position of the Group.

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Personal performance
As set out in our Directors’ remuneration policy, a proportion of the annual bonus for each Executive Director is based on the 
achievement of personal objectives including:

 — The executive meeting their individual conduct and customer measures; 

 —  The executive’s contribution to Group strategy as a member of the Board; and

 — Specific goals related to the function for which they are responsible and progress on major projects including the demerger. 

For 2019, the Committee decided that, in addition to personal objectives for which they were each accountable, the Executive Directors 
should be given shared objectives relating to the demerger in light of the importance this had for the Group. 

At the end of the year, the Committee considered the performance of all executives eligible for a Prudential plc bonus in respect of their 
2019 Board service against objectives established at the start of the year. At its meeting in February 2020, it concluded that there had 
been a high level of performance against these 2019 objectives. All executives met their individual conduct measures and each Executive 
Director made a significant contribution to the achievement of Group strategy during 2019. 

The below summarises performance against the shared and individual personal objectives for the current Executive Directors: 

Key shared 2019 objectives for Executive Directors

Achievement

Oversee the maintenance of appropriate 
financial resilience, within a set framework, 
across Group pre and post the planned 
demerger of M&G plc.

 — Successfully managed the Group’s credit rating agency relationship through the 

demerger with unchanged ratings, maintaining a resilient balance sheet with a robust 
shareholder LCSM ratio over Group minimum capital requirement of 309 per cent at 
31 December 2019 supported by our conservative approach to risk management and, 
in particular, to credit risk, through the transition from the PRA to the Hong Kong IA.

Proactively engage with the Hong Kong 
IA to embed the new risk and capital 
frameworks, supporting the Hong Kong 
IA in assuming the role of Group-wide 
supervisor.

Refresh Group Strategy post the demerger. 
Redevelop and embed the revised 
approach to Group capital allocation, 
which integrates risk-based decisions and 
funding with Group risk appetite and 
corporate strategy. 

 — Significant personal and team engagement in ascertaining, embedding and activating 

the new risk and capital framework.

 — Announced and executed on a clear allocation of future capital resources towards Asia. 
Made a decision to require Jackson to explore reinsurance and third-party financing for 
the execution of its future bolt on acquisitions above its internal capacity for capital 
generation; 

 — Maintained a financial strength rating in the AA- range. This rating derives, in part, 
from the high level of financial flexibility that we have to issue debt and equity 
instruments; and

 — Determined and communicated high and resilient RoE and cash generation from the 

Asian business model.

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Mark FitzPatrick

2019 key objectives

Achievement

Execute on all necessary steps to support 
the demerger of M&G plc from Prudential 
at the earliest opportunity.

 — Took day-to-day execution and management responsibility for the management 

of the demerger process, in particular designing and executing the process to achieve 
the required approvals of bond holders, shareholders and regulators.

Build and development of a new Group 
Treasury function and the material 
progression of IFRS 17 implementation in a 
way that aligns to the broader Group 
strategy and operating model.

Lead Group Strategy formulation and 
execution ensuring opportunities to evolve 
the business continue to be explored.

 — Recruited a new Group Treasurer and the established an effective Treasury team; 

 — Integrated the Treasury team in the existing Group Finance structures; and

 — Directed the implementation of IFRS 17, overseeing the design, resourcing of central 
functions and business unit specifications for consistent implementation into the 
Group’s accounting functions groupwide. Sponsored the team to select and manage 
mobilisation of global implementation partner and system vendors.

 — Led the strategic plan design and process from which was drawn the revised equity 

story to be used in the demerger documentation.

Recognising Mr FitzPatrick’s very strong performance against both his individual and shared personal objectives during 2019, 
the Committee judged that 19 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate. 

James Turner

2019 key objectives

Achievement

Act as a trusted adviser and partner to the 
Group Chief Executive and members of the 
Board/Group Executive Committee.

Drive the operation of the Risk and 
Compliance team as a Group-wide 
function promoting the collaboration of the 
teams across location. 

 — Ensured that key Board decisions in relation to the demerger were supported by clear 
and concise Risk opinions. These included consideration of external and internal 
financial and non-financial risks and scenarios relevant to the demerger timeline and 
readiness decisions, and contributed to the completion of the demerger of M&G plc 
on 21 October 2019; and

 — Assessed the risk management considerations to support the Group’s early adoption 

of the NAIC regulatory framework in Q4 2019.

 — Steered the operation of the combined Risk and Compliance functions, having taken 

additional responsibility for Group Compliance in July 2019.

 — Initiated significant operational and structural changes to align the newly formed 

Group-wide function more closely with the lead regulator and operational businesses 
in Asia and US; and

 — Directly supported re-alignment of the function with key operational businesses 
and the lead regulator with personal relocation to Hong Kong in August 2019.

Lead strategic communications between 
Prudential and key regulators and oversee 
the internal regulatory communication 
policy to ensure that responses are 
appropriate, complete and timely.

 — Positive and proactive engagement with both the PRA and Hong Kong IA ensuring 

our commitment of timely information flow to both Regulators was met and to support 
the successful handover of regulatory responsibilities on 21 October 2019;

 — Concluded discussions to confirm Hong Kong IA regulatory requirements in advance 

of the demerger;

 — Throughout 2019, led frequent and productive interaction with the Hong Kong IA 
and industry peers to support the drafting of Group-wide Supervisory standards 
which are expected to apply from the second half of 2020; and

 — Actively engaged with the Hong Kong IA and the Inaugural Regulatory College in 

October 2019, providing insight into the Prudential Group strategy, operations and 
risk and compliance frameworks to support the successful and complete transition 
of Group Regulator responsibilities by 21 October 2019.

Recognising Mr Turner’s very strong performance against both his individual and shared personal objectives during 2019, 
the Committee judged that 47 per cent of a maximum of 50 per cent attributable to personal objectives was appropriate. 

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Mike Wells

2019 key objectives

Achievement

Demonstrate personal leadership which 
effectively mobilises, secures and directs 
the team delivering the demerger of 
M&G plc from Prudential plc.

 — Took overall responsibility for the management of the demerger process, in particular 
gaining the required approvals of senior stakeholders. At the same time, conducted 
and continued significant relationship building for the PCA and Jackson businesses 
while focusing business unit leadership on operational delivery.

Develop the capability and effectiveness 
of the Group, ensuring that the culture 
fosters delivery, positive internal and 
external relationships and co-operation 
across the Group.

Develop plans to determine the Group’s 
exposure to climate-related risks and 
opportunities, and Group’s actions as a 
consequence and implement actions to 
increase connectivity between the Group 
and business units, including revisions 
to operating models.

 — Committed significant time and leadership resource to the extensive roadshow 

marketing of the demerger process; and 

 — Engaged employees through personal appearances and through the use of video 

and social media to support the demerger, communicating changes and addressing 
employees’ questions and concerns.

 — Enhanced membership of the Environmental, Social and Governance (ESG) Executive 

Committee to increase business unit representation;

 — Created a roadmap for the implementation of the recommendations of the Task Force 

on Climate-Related Financial Disclosures; and 

 — Enhanced access to ESG and climate risk data sources across the Group to support 
carbon footprinting work and initiated work on the stress-testing of the investment 
book against different climate change scenarios.

Recognising Mr Wells’s very strong performance against both his individual and shared personal objectives during 2019, the 
Committee judged that 18 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate.

Functional performance 
The Group Chief Executive and the Chair of the Group Risk Committee undertakes the assessment of performance against functional 
objectives for the Group Chief Risk and Compliance Officer. 2019 achievement is summarised below:

Summary of 2019 functional objectives

Achievement

Define and provide oversight of the 
Group’s adherence to the framework of the 
Group-wide risk and compliance policies, 
risk appetite and limits during 2019 and 
ensuring oversight responsibilities across 
the Group and business units, in accordance 
with internal and regulatory requirements. 

Establish strong Risk and Compliance 
capabilities across both in co-ordination 
with the M&G CRO and the M&G 
Compliance Director.

Deliver regulatory requirements, including 
those required under Solvency II until the 
point of demerger and the Hong Kong IA 
regulatory letter requirements thereafter.

 — Led discussions resulting in Board approval of revised Group Risk Appetite Framework, 
including incorporating revisions to regulatory capital requirements and a clear focus 
on non-financial risks; 

 — Successfully revised the defined system of policies, risk appetite and limits to reflect 
the new regulatory environment of the Group from the point of demerger and led the 
embedding of this across the Group; 

 — Provided key insights and analysis of emerging issues both in relation to the demerger 

and to broader business operations; 

 — Ensured two strong Risk and Compliance functions within Prudential and M&G in 

advance of demerger by overseeing the reallocation of resources, including people 
and technology and the build and revision of key risk framework elements for both 
businesses in advance of demerger; and

 — Delivered an extensive set of regulatory requirements under Solvency II until the point 
of demerger and under the Hong Kong IA regulatory letter from 21 October 2019 with 
increased frequency (for example to the Group’s Own Risk and Solvency Assessment) 
and significant changes (for example in terms of capital disclosures) as a result of 
the demerger.

In recognition of James Turner’s very strong performance against his functional objectives during 2019, the Committee judged that 
46 per cent of a maximum of 50 per cent attributable to functional objectives was appropriate. 

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The below summarises performance against the personal objectives for the Executive Directors who retired from the Board during the 
year and who remain employed by the Group:

Michael Falcon

Key objectives

Prioritise the success of the 
demerger of M&G plc from 
Prudential plc and support Group 
activities and synergy actions for 
the post-demerger environment.

Develop the capability and 
effectiveness of the Jackson team, 
ensuring that the culture fosters 
delivery, positive internal and 
external relationships and 
cooperation across the Group 
and develop and implement 
(as appropriate) opportunities 
to optimise Jackson’s capital 
deployment.

Achievement

 — Committed significant time and leadership resource to the extensive roadshow marketing 

of the demerger process. 

 — Refreshed leadership of Jackson in distribution and commercial areas to position for the 
retirement markets. Enhanced quality and frequency of Group-wide co-ordination for 
example, with Group Strategy and IT outsourcing; 

 — Delivered organic diversification by driving product and additional distribution initiatives 

to support Jackson’s intent to better balance the overall risk profile, and to provide a higher 
absolute level of capital thereby optimising Jackson’s capital deployment;

 — Determined and commenced programme from August 2019 of seeking inorganic opportunities 

with reinsurance and third-party financing, to deliver enhanced value to shareholders, taking into 
account the interests of customers, regulators, rating agencies and capital providers; 
 — Expanded advisory distribution footprint with Morgan Stanley, DPL Financial Partners, 

TD Ameritrade and RetireOne; 

 — Awarded ‘Contact Center World Class CX Certification’ and ‘Highest Customer Service for the 

Financial Industry’ awards by The Service Quality Measurement Group, Inc.; and

 — Actively engaged with FinTech partners including Envestnet, MoneyGuidePro and eMoney.

Recognising Mr Falcon’s very strong performance against both his individual and shared personal objectives during the year to 
16 May 2019, the Committee judged that 18 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate. 

Nic Nicandrou

Key objectives

Prioritise the success of the 
demerger of M&G plc from 
Prudential plc and support Group 
activities and synergy actions for 
the post-demerger environment.

Build, deploy and leverage 
digital enablers for customer 
proposition, operational 
efficiency and distribution and 
evolve the business operating 
model, improve ways of working 
and deepen capabilities of 
strategic importance.

Achievement

 — Committed significant time and leadership resource to the extensive roadshow marketing 

of the demerger process.

 — Commenced execution of Prudential Corporation Asia -wide digital strategy as part of the 
drive for high quality earnings and management of operating leverage through removal of 
duplication and modernisation of operating structures; 

 — Launched ‘Pulse by Prudential’ Health Ecosystem, an all-in-one digital app, and entered into 
a new strategic partnership with OVO, the largest digital payment platform in Indonesia and 
commenced the roll-out of this programme over the Prudential Corporation Asia businesses;
 — Through our Health Ecosystem, collaborated with various partners to offer users a wide range 
of affordable and easy-to-access value-added services such as health assessments, risk factor 
identification, triage, telemedicine, wellness and digital payment; 

 — Built on our distribution channels by renewing our regional strategic bancassurance alliance 
with UOB, entering into an exclusive bancassurance partnership with SeABank and by 
acquiring a majority stake in Thanachart Fund Management Co., Ltd; 

 — Conducted extensive business renewal of products and the expansion of distribution channels 
in Indonesia and Hong Kong as well as built execution plans for the fast-growing SME segment; 

 — Continued to expand our presence in China across both the insurance and asset management 
sectors, establishing a new branch in Shaanxi, our twentieth province launching our first fund 
offerings in China; 

 — 83 per cent of all new business was submitted through e-point-of-sale technology in 2019, 

representing an increase of 11 percentage points year-on-year; and 

 — Enhanced our growing scale in Africa by acquiring a majority stake in a leading life insurer 

operating in Cameroon, Côte d’Ivoire and Togo.

Recognising Mr Nicandrou’s very strong performance against both his individual and shared personal objectives during the year to 
16 May 2019, the Committee judged that 19 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate. 

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2019 Jackson bonus pool
In 2019, the Jackson bonus pool was determined by Jackson National Life Insurance Company’s profitability, remittances to Group and 
advisory sales. Financial performance in the period reflects the impact of strong equity markets, lower interest rates, and a more diverse 
product mix. Further detail on this performance is set out on pages 28 to 33. The Committee also considered performance in a number of 
key activities and the delivery against certain non-financial Group requirements. As a result of this assessment, the Committee 
determined that Michael Falcon’s share of the bonus pool for his service on the Board was $1,282,000. Forty per cent of this award 
is deferred into shares for three years.

2019 bonus awards
The Committee determined the following 2019 AIP awards on the basis of the performance of the Group and its business units and its 
consideration of the total bonus value in light of its view of all relevant circumstances, including:

 — The successful completion of the demerger of M&G plc from the Group;

 — The overall contribution of the executive; and 

 — Behavioural, conduct and risk management considerations.

40 per cent of all awards are deferred into shares for three years:

Executive Director

Role

Michael Falcon2,3
Mark FitzPatrick

Chairman and CEO, Jackson Holdings
Group Chief Financial Officer and Chief 

Operating Officer

Nic Nicandrou2
James Turner4

Chief Executive, Prudential Corporation Asia
Group Chief Risk and Compliance Officer

Mike Wells

Group Chief Executive

2019 salary1

$302,000
£760,000

HK$4,113,000
£372,000/
HK$3,054,000
£1,149,000

Maximum 
2019 AIP
(% of salary)

Actual 2019
AIP award
(% of maximum 
opportunity)

2019 bonus award 
(including cash and 
deferred elements)

100%
175%

180%
160%/
175%
200%

95%
96%

96%

93%
96%

£1,227,000
£1,279,000

£707,000

£1,052,000
£2,197,000

Notes
1  Salary paid in respect of services as an Executive Director.
2  Michael Falcon and Nic Nicandrou stepped down from the Board on 16 May 2019. The maximum bonus opportunities shown represent their annual opportunity as an Executive 

3 

Director. The 2019 bonus awards shown are in respect of their service as Executive Directors. 
In addition to the AIP, Michael Falcon also participates in the Jackson bonus pool. The figure reflects both payments. 40 per cent of both the AIP and Jackson bonus award pool 
amounts is deferred. 

4  The salary amounts shown above were actually delivered to Mr Turner for the portion of the year he was in the UK and the portion of the year he was in Hong Kong. Mr Turner’s 

maximum bonus opportunity increased from 160 per cent of salary to 175 per cent of salary on 1 August 2019 on his relocation to Hong Kong. The 2019 bonus award was pro-rated 
to reflect the portion of the year he was in the UK and the portion of the year he was in Hong Kong. 

5  John Foley stepped down from the Board on 16 May 2019. He subsequently left the Company on the demerger of M&G plc from Prudential plc on 21 October 2019. As an Executive 
Director of Prudential plc during 2019, Mr Foley was eligible to receive a 2019 bonus award of up to 180 per cent of salary. Since transferring to M&G plc it was agreed with M&G plc 
that Mr Foley’s 2019 bonus will be assessed and determined by the M&G plc Remuneration Committee and will be paid by M&G plc. No 2019 bonus award has been paid to Mr Foley 
by Prudential plc.

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CONTINUED

Remuneration in respect of performance periods ending in 2019
Prudential Long Term Incentive Plan (PLTIP) 
Target setting
Our long-term incentive plans have stretching performance conditions that are aligned to the strategic priorities of the Group. In 2017, 
all Executive Directors were granted awards under the PLTIP. In determining the financial targets the Committee had regard to the 
stretching nature of the three-year Business Plan for adjusted operating profit and capital positions as set by the Board. Further, in setting 
the conduct and diversity targets under the sustainability scorecard, the Committee considered input from Group-wide Internal Audit 
and the Group Chief Risk and Compliance Officer on conduct risk for the conduct measure and had regard to the Company’s 
commitment under the Women in Finance Charter for the diversity measure. 

The weightings of the measures are detailed in the table below: 

Executive Director1

Mark FitzPatrick
Nic Nicandrou8
James Turner9
Mike Wells

Adjusted 
operating 
profit 
(Group or 
business unit)3

Weighting of measures

Sustainability Scorecard

Solvency II 
operating 
capital 
generation4

ECap 
operating 
capital 
generation5

Conduct6

Diversity7

50% 
50% 
50% 
50% 

6.25%
6.25%
6.25%
6.25%

6.25%
6.25%
6.25%
6.25%

6.25%
6.25%
6.25%
6.25%

6.25%
6.25%
6.25%
6.25%

Group TSR2

25%
25%
25%
25%

Notes 
1  This table includes Executive Directors who served on the Board during 2019 with 2017 PLTIP awards. Nic Nicandrou and John Foley stepped down from the Board on 16 May 2019 
and John Foley subsequently left the Company on the demerger of M&G plc from Prudential plc on 21 October 2019. Mr Foley’s 2017 PLTIP award was exchanged for an equivalent 
award of M&G plc shares. The M&G plc Remuneration Committee is responsible for determining, approving and settling the release of the 2017 long-term incentive award to Mr Foley. 

2  Group TSR is measured on a ranked basis over three years relative to peers. 
3  Adjusted operating profit is measured on a cumulative basis over three years.
4  Solvency II operating capital generation is cumulative three-year Solvency II Group operating capital generation. As set out in the ‘Remuneration decisions taken in relation to the 

demerger’ section, Solvency II operating capital generation was replaced with Group free surplus generation from 1 July 2019.

5  This is cumulative three-year ECap Group operating capital generation, less cost of capital (based on the capital position at the start of the performance period).
6  Conduct is assessed through appropriate management action, ensuring there are no significant conduct/culture/governance issues that could result in significant capital add-ons 

or material fines.

7  Diversity is measured as the percentage of the Leadership Team that is female at the end of 2019. The target for this metric has been based on progress towards the goal that the 

Company set when it signed the Women in Finance Charter, where 30 per cent of our Leadership Team should be female by the end of 2021. 

8  Nic Nicandrou was granted this award when he was in the role of Chief Financial Officer. The performance measures attached to his PLTIP award did not change following his 

appointment to the role of Chief Executive, Prudential Corporation Asia in 2017. 

9  James Turner was granted this award when he was in his previous role of Director of Group Finance. 

As discussed in the section on ‘Remuneration decisions taken in relation to the demerger’, the Committee adjusted the performance 
conditions attached to the 2017 PLTIP awards in order to take account of the demerger, ensuring that the revised performance conditions 
are no more or less stretching than those originally attached to the awards. The performance assessment provided overleaf is based on 
these adjusted targets.

Under the Group TSR measure used for 2017 PLTIP awards, 25 per cent of the award vests for TSR at the median of the peer group 
increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basis since this has the benefit of 
simplicity and directness of comparison. No adjustments to the peer group has been made for the demerger. The peer group for the 2017 
awards is set out below:

Aegon
Aviva
Manulife
Standard Life

AIA
AXA
MetLife
Sun Life Financial

AIG
Generali
Old Mutual
Zurich Insurance Group

Allianz
Legal & General
Prudential Financial

Following the merger of Standard Life and Aberdeen Asset Management during the three-year performance period, the Committee 
determined that Standard Life would be retained in the peer group for the pre-merger period and the combined entity would be included 
in the peer group from the date of the merger for all outstanding PLTIP awards. In addition, following the demerger of Quilter from Old 
Mutual and Old Mutual’s delisting from the FTSE on 26 June 2018, the Committee determined that Old Mutual be retained as a TSR peer 
with no adjustment to its performance during the period prior to its demerger and delisting, and that Old Mutual’s TSR performance from 
the date of its demerger and delisting would track an index of the peers (excluding Prudential plc) for all outstanding PLTIP awards.

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Performance assessment
In deciding the proportion of the awards to be released, the Committee considered actual financial results against performance targets. 
The Committee also reviewed underlying Company performance to ensure vesting levels were appropriate, including an assessment of 
whether results were achieved within the Group’s and business units’ risk framework and appetite. The Directors’ remuneration policy 
contains further details of the design of Prudential’s long-term incentive plans. 

Group adjusted operating profit performance
Under the adjusted operating profit measure, 25 per cent of the 2017 awards vest for meeting the threshold adjusted operating profit 
target set at the start of the performance period, increasing to full vesting for performance at or above the stretch level. The table below 
illustrates the cumulative performance achieved over 2017 to 2019 compared to the adjusted Group targets which exclude M&G plc from 
the point of demerger: 

Group

Adjusted operating profit

2017-19 adjusted cumulative targets

Threshold 

Plan

Maximum

2017-19 
cumulative 
achievement

Vesting under 
the adjusted 
operating 
profit element

$15,063m

$16,737m

$18,411m

$19,021m

100%

The Committee determined that the cumulative adjusted operating profit target established for the PLTIP should be expressed using 
exchange rates consistent with the reported disclosures. Individual business units achieved between 86 per cent and 100 per cent 
vesting under this element. Details of business unit adjusted operating profit targets have not been disclosed as the Committee considers 
that these are commercially sensitive and disclosure of targets at such a granular level would put the Company at a disadvantage 
compared to its competitors.

TSR performance
Prudential’s TSR performance during the performance period (1 January 2017 to 31 December 2019) was ranked below median of the 
peer group. The portion of the awards related to TSR will therefore lapse.

Sustainability scorecard performance
Capital measure – Group Solvency II operating capital generation/Group operating free surplus generation
The vesting profile for the Group Solvency II operating capital generation and Group operating free surplus generation measure is binary, 
awarding full vesting for achieving plan and no vesting for any level of performance below plan. The weighted average of the adjusted 
Group Solvency II operating capital generation from 1 January 2017 to 30 June 2019 (target $7.4bn) and the Group operating free surplus 
generation from 1 July 2019 to 31 December 2019 (target $2.2 bn), which excludes M&G plc performance from the point of demerger, 
was in excess of the cumulative target and therefore generated 100 per cent vesting on this element.

Capital measure – Group ECap operating capital generation
The vesting profile for the Group ECap operating capital generation measure is binary, awarding full vesting for achieving plan and no 
vesting for any level of performance below plan. The adjusted cumulative Group ECap operating capital generation was below the target 
of $8.5bn (which excludes M&G plc from the point of demerger) and therefore generated a zero per cent vesting outcome on this 
element of the PLTIP. 

Details of cumulative achievement under the capital measures have not been disclosed as the Committee considers that these are 
commercially sensitive and would put the Company at a disadvantage compared to its competitors. The Committee will keep this 
disclosure policy under review based on whether, in its view, disclosure would compromise the Company’s competitive position.

Conduct assessment
The vesting profile of this element is binary with full vesting being awarded where there are no significant conduct/culture/governance 
issues that result in significant capital add-ons or material fines. On 30 September 2019, the FCA fined M&G plc £23,875,000 for failures 
related to the non-advised sale of annuities between July 2008 and September 2017. Since this occurred before the demerger of M&G 
plc from the Group, the Committee determined that the portion of the 2017 PLTIP awards related to conduct held by Group Executive 
Directors should lapse. 

Diversity assessment
On 31 December 2019, 28 per cent of our Leadership Team was female. Since this was above the 27 per cent level required for full 
vesting, the portion of the awards related to diversity that therefore vested was 100 per cent.

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PLTIP vesting 
The Committee considered a report from the Group Chief Risk and Compliance Officer which had been approved by the Group Risk 
Committee. This report confirmed that the financial results were achieved within the Group’s and business units’ risk framework and 
appetite. On the basis of this report and the performance of the Group and its business units described above, the Committee decided 
not to apply a discretionary adjustment to the arithmetic vesting outcome under the 2017 PLTIP awards and determined the vesting 
of each Executive Director’s PLTIP awards as set out below:

Executive Director

Mark FitzPatrick
Nic Nicandrou3
James Turner
Mike Wells 

 Maximum value 
of award at 
full vesting1

Percentage 
of the LTIP 
award vesting 

Number of 
shares vesting2

Value of 
shares vesting1 

£1,730,807
£1,882,617
£485,387
£4,576,469

62.5%
62.5%
62.5%
62.5%

78,104
67,255
21,903
206,517

£1,081,740
£931,482
£303,357
£2,860,260

Notes
1  The share price used to calculate the value of the PLTIP awards with performance periods which ended on 31 December 2019 and vest in April 2020 for all Executive Directors other 
than Mark FitzPatrick and in August 2020 for Mark FitzPatrick, was the average share price for the three months up to 31 December 2019, being £13.85. The number of Prudential plc 
shares under award has been adjusted in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. 

2  The number of shares vesting includes accrued dividends.
3  The vesting of Nic Nicandrou’s 2017 PLTIP award is in relation to his service as an Executive Director. 
4  John Foley stepped down from the Board on 16 May 2019. He subsequently left the Company on the demerger of M&G plc from Prudential plc on 21 October 2019. Mr Foley’s 

2017-2019 PLTIP award has been exchanged for an equivalent award over M&G plc shares. Under the terms of the Demerger Agreement this replacement award should be of an 
equivalent value; with the same release schedule; subject to equivalent malus and clawback provisions and subject to performance conditions which are relevant to M&G plc and 
which are no more or less onerous than those which originally applied. The vesting of Mr Foley’s replacement 2017-2019 long-term incentive award is due to be disclosed by M&G plc 
and described in the M&G plc Directors’ remuneration report as set out in the M&G plc 2019 Annual report. These details were not known by Prudential plc prior to the finalisation 
of this report.

Long-term incentives awarded in 2019
2019 share-based long-term incentive awards
The table below shows the awards of conditional shares made to Executive Directors who served on the Board in 2019 under the PLTIP 
and the performance conditions attached to these awards. Further details on the performance measures were disclosed on page 164 of 
the 2018 Annual Report.

Executive 
Director

Role

Michael Falcon1 Chairman and Chief Executive 

Number of 
shares or 
ADRs subject 
to award*

Percentage 
of awards 
released for 
achieving 
threshold 
targets‡

Face value 
of award†

Officer, Jackson

78,856

 $3,199,976 

20%

Mark FitzPatrick Chief Financial Officer

John Foley1,2

Chief Executive, 

123,376

 £1,899,990 

20%

M&GPrudential

129,383

£1,992,498 

20%

Nic Nicandrou1  Chief Executive, Prudential 

Corporation Asia

172,743

£2,660,242 

20%

James Turner

Group Chief Risk Officer

Mike Wells

Group Chief Executive 

103,571

£1,594,993 

20%

298,441

 £4,595,991 

20%

Weighting of 
performance conditions

Group TSR

Sustainability 
scorecard§

75%

75%

75%

75%

75%

75%

25%

25%

25%

25%

25%

25%

End of 
performance 
period

31 December 
2021

31 December 
2021

31 December 
2021

31 December 
2021

31 December 
2021

31 December 
2021

* Awards over shares were awarded to all Executive Directors other than Michael Falcon whose awards were over ADRs. 
† Awards for Executive Directors are calculated based on the average share price over the three dealing days prior to the grant date, being £15.40 for all Executive Directors other than 

Michael Falcon and an ADR price of US$40.58 for Michael Falcon.

‡ The percentage of awards released for achieving maximum targets is 100 per cent.
§ Each of the four measures within the sustainability scorecard has equal weighting. They are Group Solvency II operating capital generation, Group ECap operating capital generation, 

diversity and conduct. 

Notes
1  Michael Falcon, Nic Nicandrou and John Foley stepped down from the Board on 16 May 2019. 
2  John Foley left the Company on the demerger of M&G plc from Prudential plc on 21 October 2019. His 2017-2019 PLTIP award has been exchanged for an equivalent award over 

M&G plc shares. 

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Update on performance against targets for awards made in 2018 and 2019
As set out in the section on ‘Remuneration decisions taken in relation to the demerger’, the Committee has adjusted the performance 
conditions attached to the 2018 and 2019 awards in order to take account of the demerger, ensuring that the revised performance 
conditions are no more or less stretching than those originally attached to the awards. The performance update provided below is 
based on these adjusted targets. 

Group adjusted operating profit
Prudential’s Group adjusted operating profit performance between 1 January 2018 and 31 December 2019 was above the stretch target 
established for the 2018 PLTIP awards. Group adjusted operating profit was not used as a performance measure for the 2019 PLTIP awards.

TSR Performance
As at 31 December 2019, Prudential’s TSR performance ranked below the peer group median for the elapsed portions of the 2018 
and 2019 performance periods. 

Sustainability scorecard of strategic measures
Between 1 January 2018 and 31 December 2019, the Group also made good progress towards meeting the measures under the 
sustainability scorecard used for the 2018 and 2019 PLTIP awards:

 — Capital measure – Group Solvency II operating capital generation/Group operating free surplus generation 

For the elapsed portions of the 2018 and 2019 PLTIP performance periods, the Group’s Solvency II operating capital generation 
and the Group’s operating free surplus generation was above the established Plan levels for both awards.

 —  Capital measure – Group ECap operating capital generation 

For the elapsed portions of the 2018 and 2019 PLTIP performance periods, the Group’s ECap operating capital generation was 
below the Plan levels established for the both awards. 

 — Conduct measure 

During 2018 and 2019, there were no significant conduct/culture/governance issues that resulted in significant capital add-ons or 
material fines. This assessment is unaffected by the FCA fine since the issues identified relate to a period which ended in 2017.

 — Diversity measure 

As at 31 December 2019, 28 per cent of our Leadership Team was female. This represented strong progress against the threshold 
level that at least 27 per cent of the Leadership Team be female by the end of 2020 for the 2018 PLTIP award, and the threshold level 
that at least 28 per cent of the Leadership Team be female by the end of 2021 for the 2019 PLTIP award.

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Pay comparisons 
Performance graph and table
The chart below illustrates the TSR performance of Prudential, the FTSE 100 (as the Company has a premium listing on the London Stock 
Exchange) and the peer group of international insurers used to benchmark the Company’s performance for the purposes of the 2019 
PLTIP awards. The chart illustrates the performance of a hypothetical investment of £100 in ordinary shares of Prudential plc over the 
10-year period 1 January 2010 to 31 December 2019 compared to a similar investment in the FTSE 100 or an index of the Company’s 
peers. Total shareholder return is based on Returns Index data calculated on a daily share price growth plus re-invested dividends (as 
measured at the ex-dividend dates).

Prudential TSR vs FTSE 100 and peer group average – total return per cent over 10 years to December 2019
£

  Prudential 

  FTSE 100 

  Peer group

Note
The index of Prudential’s peers represents the average daily total shareholder return performance of the peer group used for the 2019 PLTIP awards (excluding companies not listed 
at the start of the period).

The information in the table below shows the total remuneration for the Group Chief Executive over the same period:

£000

2010

2011

2012

2013

2014

2015

2015

2016

2017

2018

2019

Group Chief 
Executive
Salary, pension 
and benefits
Annual bonus 
payment

(As % of maximum)
LTIP vesting
(As % of maximum)
Other payments

Group Chief 

Executive ‘single 
figure’ of total 
remuneration2

T Thiam T Thiam T Thiam T Thiam T Thiam T Thiam1 M Wells M Wells M Wells M Wells M Wells

1,189

1,241

1,373

1,411

1,458

613

1,992

2,244

1,872

1,815

1,662

1,570
(97%)
2,534
(100%)
–

1,570
(97%)
2,528
(100%)
–

2,000
(100%)
6,160
(100%)
–

2,056
(99.8%)
5,235
(100%)
–

2,122
(100%)
9,838
(100%)
–

704
(77.3%)
3,382
(100%)
–

1,244
(99.7%)
4,290
(100%)
–

2,151
(99.5%)
2,975
(70.8%)
–

2,072
(94%)
4,616
(95.8%)
–

2,133
(95%)
3,623
(62.5%)
–

2,197
(96%)
2,860
(62.5%)
–

5,293

5,339

9,533

8,702

13,418

4,699

7,526

7,370

8,560

7,571

6,719

Notes
1  Tidjane Thiam left the Company on 31 May 2015. Mike Wells became Group Chief Executive on 1 June 2015. The figures shown for Mike Wells’s remuneration in 2015 relate only to his 

2 

service as Group Chief Executive. 
 Further detail on the ‘single figure’ is provided in the ‘single figure’ table for the relevant year. The figures provided reflect the value of vesting LTIP awards on the date of their release 
other than for 2019 (for which an estimate is used). 

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20092010£347£208£20520114504003503002502001501005020192018201720162015201420132012Percentage change in remuneration 
The table below sets out how the change in remuneration for the Group Chief Executive between 2018 and 2019 compared to a wider 
employee comparator group: 

Group Chief Executive
All UK employees

Salary

2.0%
3.9%

Benefits

(44.5)%
(3.4)%

Bonus

3.0%
6.7%

The employee comparator group used for the purpose of this analysis is all UK employees. This is considered to be an appropriate 
comparator group as the Group Chief Executive’s remuneration arrangements are similar in structure to the majority of these employees 
and it reflects the economic environment where the Group Chief Executive is employed. For 2018 this group included employees in 
M&GPrudential and Group Head Office. For 2019, this group included UK-based Group Head Office employees only. Employees in 
M&G plc have been excluded from the calculation of average pay in 2019 as M&G plc demerged from Prudential plc on 21 October 2019. 
M&G plc employees are no longer within the Group and Prudential plc does not have any influence over or knowledge of pay decisions, 
including 2019 bonus awards, for employees within M&G plc. The salary increase includes uplifts made through the annual salary 
review, as well as any additional changes in the year; for example to reflect promotions or role changes. The decrease in benefits paid 
to the Group Chief Executive is driven by the cessation of the payment of mortgage interest on 30 November 2018. The decrease 
in benefits paid to all UK employees is due to the reduction in the cost to the Company of providing certain benefits. There has been 
no change to the level of taxable benefit coverage received by employees. 

Group Chief Executive pay compared with employee pay
To increase further transparency of executive remuneration and its alignment with the pay of other employees, we published our CEO 
pay ratio one year in advance of the disclosure becoming a requirement under the UK Companies (Miscellaneous Reporting) Regulations 
2018 in the 2018 Directors’ remuneration report. The employee comparator group used for the purpose of this 2018 analysis was all UK 
employees comprising employees in M&GPrudential and Group Head Office in 2018. In light of the demerger of the M&G plc business 
from Prudential plc on 21 October 2019, we have prepared the 2019 CEO pay ratio based on UK-based Group Head Office employees 
since Prudential plc no longer has any influence over or knowledge of pay decisions, including 2019 bonus awards, for employees within 
M&G plc. On this basis, the Committee has decided that the 2018 CEO pay ratio will not be restated in this report and that the 2019 CEO 
pay ratio will form the base year of reporting given the fundamental changes to the UK workforce which have resulted from the demerger. 

The table below compares the Group Chief Executive’s ‘single figure’ of total remuneration to that received by three representative 
UK employees in 2019. 

Year

2019

Method

Option B

25th 
percentile 
pay ratio

87 : 1

Median 
pay ratio

67 : 1

75th 
percentile 
pay ratio

43 : 1

Under the regulations there is a choice of three methodologies to determine the 25th, median and 75th full-time equivalent remuneration 
of our UK employees. This is the most recently collected data in accordance with the Equality Act 2010 (Gender Pay Gap Information) 
Regulations 2017 and includes all UK employees. The Company has chosen to use the 2019 hourly rate gender pay gap information as 
this method uses data that is aligned with other disclosures made under our gender pay gap reporting (‘Option B’ in the table above). 
The employees used in the calculations were identified using the most recent gender pay gap data for 2019, on 23 January 2020, 
following the end of the financial year. Base salary and total remuneration for these identified employees has then been calculated based 
on their actual remuneration for 2019. The Committee determined that the identified employees are reasonably representative since the 
structure of their remuneration arrangements is in line with that of the majority of employees within the UK-based Group Head Office 
workforce. The same methodology used for calculating the ‘single figure’ of the Group Chief Executive has been used for calculating the 
pay and benefits of these three UK employees.

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The salary and total remuneration received during 2019 by the indicative employees used in the above analysis are set out below: 

2019 salary
Total 2019 remuneration

25th 
percentile

£56,000
£77,000

Median

£74,000
£100,000

75th 
percentile

£110,000
£155,000

The Committee believes the median pay ratio is consistent with the pay, reward and progression policies for our UK-based Group Head 
Office employees. The base salary and total remuneration levels for the Group Chief Executive and the median representative employee 
are competitively positioned within the relevant markets and reflect the operation of our remuneration structures which are effective in 
appropriately incentivising staff, having regard to our risk framework, risk appetites and to rewarding the ‘how’ as well as the ‘what’ of 
performance.

Gender pay gap
Our UK business, Prudential Services Limited, is the employing entity for almost all of our London Head Office staff including the 
UK-based Group Chief Executive and his direct reports. Prudential Services Limited has recently reported its 2019 UK gender pay gap 
data and details can be found on the Group’s website. There has been a further narrowing of most of the pay gap figures. Where men 
and women perform similar roles, they are paid equally but the gender pay gap reflects that men and women are doing different roles. 
We remain focused on closing the remaining pay gap as soon as possible and on ensuring that we attract applicants from all backgrounds 
and create opportunities for all our employees to develop and progress in order to ensure that we have the diverse talent needed by 
the Group to better reflecting the communities we serve. However, the gender pay gap demonstrated the demographic profile of the 
business (and the financial services sector more widely): there is a greater proportion of males in more senior and front-office roles and 
a greater proportion of females in more junior, support and back-office non-finance roles. All the Group’s businesses are continuing to 
work on initiatives to increase the proportion of women in senior management and operating roles as part of the Group’s strategic focus 
on diversity and inclusion as described in the diversity and inclusion statement on our website. This important priority is reflected in the 
Group’s reward structure through the diversity measure attached to PLTIP awards granted from 2017 onwards.

Consideration of workforce pay and approach to engagement 
During the year, the Committee considered workforce remuneration and related policies in the business units across the Group. 
Information presented to the Committee, by way of a dashboard, included how the Company’s incentive arrangements are aligned with 
the culture and informed the Committee’s decision-making on executive pay and policy. By way of example, business unit salary increase 
budgets are considered as part of the year-end review of Executive Director compensation and salary increases.

As part of the Board’s wider initiatives, which included the appointment of designated Non-executive Directors who led on workforce 
engagement during the year as detailed in the ‘Governance’ section earlier in this Annual report, the Committee took additional 
measures in 2019 to explain how the remuneration of Executive Directors aligns with the wider company pay policy. The Company 
established a microsite on its intranet that outlines executive pay arrangements during the previous financial year and key areas of change 
for 2019. It explains to employees that total remuneration for Executive Directors is made up of a number of elements and is governed by 
both the Directors’ remuneration policy and the Group’s remuneration policy (which is also published on the Company’s website) with 
the relevant links to these documents. 

Relative importance of spend on pay
The table below sets out the amounts payable in respect of 2018 and 2019 on all employee pay and dividends:

All employee pay including M&G plc ($m)1,2
All employee pay excluding M&G plc ($m)1,3
Dividends including demerger dividend ($m)4
Dividends excluding demerger dividend ($m)4

2018

2,454
1,672
1,638
1,638

2019

2,143
1,466
8,582
1,203

Percentage 
change

(12.7)%
(12.3)%
423.9%
(26.6)%

Notes
1  All employee pay as taken from note B2.1 to the financial statements. 
2  This includes the costs of employment for M&G plc employees up to the demerger in October 2019.
3  This excludes the costs of employment of M&G plc employees for 2018 and 2019 in order to present a like for like comparison between the two years. 
4  Dividends taken from note B6 to the financial statements. 

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Chairman and Non-executive Director remuneration in 2019
Chairman’s fees 
The Chairman’s fee was reviewed by the Committee during 2019 and increased by 2 per cent to £765,000 with effect from 1 July 2019 
in order to reflect inflation.

Non-executive Directors’ fees
The Non-executive Directors’ fees were reviewed by the Board during 2019 and the basic fee was increased from £97,000 to £99,000, 
the Remuneration Committee Chair fee increased from £60,000 to £65,000 while the Nomination & Governance Committee member 
fee increased from £12,500 to £15,000. No other fees were increased. The Board also introduced a £30,000 fee for each designated 
Non-executive Director carrying out a workforce engagement role. 

Annual fees

Basic fee
Additional fees:
Audit Committee Chair
Audit Committee member 
Remuneration Committee Chair 
Remuneration Committee member 
Risk Committee Chair 
Risk Committee member
Nomination & Governance Committee Chair1
Nomination & Governance Committee member 
Senior Independent Director
Workforce engagement role 

From 
1 July 2018
  (£) 

From
1 July 2019
  (£) 

97,000

99,000

75,000
30,000
60,000
30,000
75,000
30,000
– 
12,500
50,000
N/A

75,000
30,000
65,000
30,000
75,000
30,000
–
15,000
50,000
30,000

Note
1  There is no fee paid for the role of Nomination  & Governance Committee Chair.

If, in a particular year, the number of meetings is materially greater than usual, the Company may determine that the provision of additional fees is fair and reasonable.

The resulting fees paid to the Chairman and Non-executive Directors are:

£000s

2019 fees

2018 fees

Chairman
Paul Manduca
Non-executive 
Directors
Howard Davies 
David Law
Kai Nargolwala1
Anthony Nightingale
Philip Remnant
Alice Schroeder
Lord Turner2
Thomas Watjen
Fields Wicker-Miurin
Amy Yip3

758

217
217
173
174
222
158
59
173
128
43

742

212
212
155
168
216
150
155
131
41
–

2019 
taxable 
benefits*

2018 
taxable 
benefits*

Total 2019 
remuneration: 
the ‘single 
figure’†

Total 2019 
remuneration: 
the ‘single
 figure’ in USD 
  ($000s)‡

Total 2018 
remuneration: 
the ‘single 
figure’†

Total 2018 
remuneration: 
the ‘single 
figure’ in USD 
  ($000s)‡

172

136

930

1,187

878

1,172

–
–
–
–
–
–
–
–
–

– 
–
– 
– 
– 
– 
–
–
–

217
217
173
174
222
158
59
173
128
43

277
277
221
222
283
202
75
221
163
55

212
212
155
168
216
150
155
131
41

283
283
207
224
288
200
207
175
55
–

Total

2,322

2,182

172

136

2,494

3,183

2,318

3,094

* Benefits include the cost of providing the use of a car and driver, medical insurance and security arrangements (including any tax thereon). 
† Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed 

by Schedule 8 of the Companies Act. The Chairman and Non-executive Directors are not entitled to participate in annual bonus plans or long-term incentive plans.

‡ Total remuneration has been converted to US dollars using the exchange rate of 1 GBP to 1.2765 USD for the 2019 single figure calculations and 1 GBP to 1.3352 USD for the 2018 

single figure calculations.

In 2019 Kai Nargolwala also received an annual fee of £250,000 in respect of his non-executive chairmanship of Prudential Corporation Asia Limited. 

Notes
1 
2  Lord Turner stepped down from the Board on 16 May 2019.
3  Amy Yip joined the Board and the Remuneration Committee on 2 September 2019.

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ANNUAL REPORT ON REMUNERATION  
CONTINUED

Statement of Directors’ shareholdings
The interests of Directors in ordinary shares of the Company are set out below. ‘Beneficial interest’ includes shares owned outright, 
shares acquired under the Share Incentive Plan (SIP) and deferred annual incentive awards, detailed in the ‘Supplementary information’ 
section. It is only these shares that count towards the share ownership guidelines. 

1 January 2019 
(or on date of 
appointment)

Total 
beneficial 
interest 
  (number of 
  shares)

During 2019

31 December 2019
 (or on date of retirement)

Share ownership guidelines

Number
of shares
 acquired 

Number
of shares
disposed

Total 
beneficial 
interest* 
  (number of 
  shares)

Number 
of shares 
subject to 
performance 
conditions†

Total interest
in shares

Share 
ownership 
guidelines‡ 

  (% of salary/fee)

Beneficial
interest as a
percentage of
basic salary/
basic fees§

42,500

–

–

42,500

–

42,500

100%

82%

–
28,333
329,834
295,085
20,876
812,252

9,514
9,066
70,000
50,000
6,916
14,500
6,719
10,340
1,000
–

51,988
43,968
129,385
138,162
72,942
313,142

–
–
78,889
134,555
13,194
149,122

299
–
–
–
–
–
–
–
3,500
–

–
–
–
–
–
–
–
–
–
–

51,988
72,301
380,330
298,692
80,624
976,272

9,813
9,066
70,000
50,000
6,916
14,500
6,719
10,340
4,500
–

157,712
382,627
355,323
419,946
255,145
946,508

209,700
454,928
735,653
718,638
335,769
1,922,780

–
–
–
–
–
–
–
–
–
–

9,813
9,066
70,000
50,000
6,916
14,500
6,719
10,340
4,500
–

N/A
250%
N/A
N/A
250%
400%

100%
100%
100%
100%
100%
100%
N/A
100%
100%
100%

N/A
140%
N/A
N/A
175%
1247%

147%
136%
1049%
749%
104%
217%
N/A
155%
67%
0%

Chairman
Paul Manduca 
Executive 

Directors
Michael Falcon1
Mark FitzPatrick
John Foley2
Nic Nicandrou3
James Turner
Mike Wells4
Non-executive 
Directors
Howard Davies 
David Law
Kai Nargolwala
Anthony Nightingale
Philip Remnant
Alice Schroeder5
Lord Turner6
Thomas Watjen7
Fields Wicker-Miurin
Amy Yip8

* There were no changes of Directors’ interests in ordinary shares between 31 December 2019 and 10 March 2020 with the exception of the UK based Executive Directors due to their 

participation in the monthly Share Incentive Plan (SIP). Mark FitzPatrick acquired a further 42 shares in the SIP and Mike Wells acquired a further 43 shares in the SIP during this period.

† Further information on share awards subject to performance conditions are detailed in the ‘Share-based long-term incentive awards’ section of the Supplementary information.
‡ Holding requirement of the Articles of Association (2,500 ordinary shares) must be obtained within one year of appointment to the Board. The increased guidelines for Executive 

Directors were introduced with effect from January 2013 and increased again in 2017. Executive Directors normally have 5 years from this date (or date of joining or role change, if later) 
to reach the enhanced guideline. The guideline for Non-executive Directors was introduced on 1 July 2011. Non-executive Directors normally have 3 years from their date of joining to 
reach the guideline. During 2019, the periods available to reach the guidelines for Executive Directors and Non-executive Directors were revised to recognise that shares they beneficially 
held in M&G post demerger no longer counted towards the guideline. Directors are expected to rebuild the value of their shareholding in line with the share ownership guidelines within 
a reasonable timeframe.

§ Based on the average closing price for the six months to 31 December 2019 £14.68. 

The Company and its Directors, Chief Executives and shareholders have been granted a partial exemption from the disclosure requirements under Part XV of the Securities and Futures 
Ordinance (SFO). As a result of this exemption, Directors, Chief Executives and shareholders do not have an obligation under the SFO to notify the Company of shareholding interests, 
and the Company is not required to maintain a register of Directors’ and Chief Executives’ interests under section 352 of the SFO, nor a register of interests of substantial shareholders 
under section 336 of the SFO. The Company is, however, required to file with the Stock Exchange of Hong Kong Limited any disclosure of interests notified to it in the United Kingdom. 

Notes
1  Michael Falcon was appointed to the Board on 7 January 2019. He stepped down from the Board on 16 May 2019. Total interest in shares is shown at the date he stepped down 

from the Board. For the 16 May 2019 figure, Michael Falcon’s beneficial interest in shares is made up of 25,994 ADRs (representing 51,988 ordinary shares). 

2  John Foley stepped down from the Board on 16 May 2019. Total interest in shares is shown at this date.
3  Nic Nicandrou stepped down from the Board on 16 May 2019. Total interest in shares is shown at this date.
4  For the 1 January 2019 figure, Mike Wells’s beneficial interest in shares is made up of 297,320 ADRs (representing 594,640 ordinary shares) and 217,612 ordinary shares. 
For the 31 December 2019 figure, his beneficial interest in shares is made up of 297,320 ADRs (representing 594,640 ordinary shares) and 381,632 ordinary shares.

5  For the 1 January 2019 figure, Alice Schroeder’s beneficial interest in shares is made up of 7,250 ADRs (representing 14,500 ordinary shares). For the 31 December 2019 figure, 

the beneficial interest in shares is made up of 7,250 ADRs (representing 14,500 ordinary shares).

6  Lord Turner stepped down from the Board on 16 May 2019. Total interest in shares is shown at this date.
7  For the 1 January 2019 figure, Thomas Watjen’s beneficial interest in shares is made up of 5,170 ADRs (representing 10,340 ordinary shares). For the 31 December 2019 figure, 

the beneficial interest in shares is made up of 5,170 ADRs (representing 10,340 ordinary shares).

8  Amy Yip was appointed to the Board on 2 September 2019.

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The bar chart below illustrates the Executive Directors’ shareholding as a percentage of base salary versus the share ownership guideline.

%

  Share ownership guidelines as % of salary 

  Beneficial interest as at 31 December 2019, as % of salary

Outstanding share options
The following table sets out the share options held by the Executive Directors in the UK Savings-Related Share Option Scheme (SAYE) 
as at the end of the period. No other directors participated in any other option scheme.

Date
 of grant

Exercise 
price
  (pence)

Market
 price at
31 Dec
 2019
  (pence)

Exercise period

Number of options

Beginning

End

Beginning 
of period Granted  Exercised  Cancelled Forfeited

Lapsed

End of 
period

Mark FitzPatrick 21 Sep 17
21 Sep 17
James Turner

1455
1455

1449 01 Dec 22 31 May 23
30 Jun 21
1449

01 Jan 21

2,061
1,237

–
–

–
–

–
–

–
–

–
–

2,061
1,237

Notes
1  No Directors exercised SAYE options in 2019.
2  No price was paid for the award of any option. 
3  The highest and lowest closing share prices during 2019 were £17.90 and £12.80 respectively.
4  All exercise prices are shown to the nearest pence.

Directors’ terms of employment and external appointments
Details of the service contracts of each Executive Director are outlined in the table below. The Directors’ remuneration policy contains 
further details of the terms included in Executive Director service contracts. Subject to the Group Chief Executive’s or the Chairman’s 
approval, Executive Directors are able to accept external appointments as non-executive directors of other organisations. Fees payable 
are retained by the Executive Directors.

Executive Directors
Michael Falcon
Mark FitzPatrick
John Foley
Nic Nicandrou
James Turner 
Mike Wells

Service contracts

External appointment

Date of contract

Notice 
period to the 
Company

Notice period 
from the 
Company

External 
appointment 
during 2019

Fee received 
in the period 
the Executive 
Director was a 
Group Director 

11 October 2018
17 May 2017
8 December 2010
27 April 2009
1 March 2018
21 May 2015

12 months
12 months
12 months
12 months
12 months
12 months

12 months
12 months
12 months
12 months
12 months
12 months

–
–
–
–
Yes
–

–
–
–
–
£60,000
–

Directors served on the boards of educational, charitable and cultural organisations without receiving a fee for these services.

Details of changes to the Board of Directors during the year are set out in the ‘Governance’ report.

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ANNUAL REPORT ON REMUNERATION  
CONTINUED

Letters of appointment of the Chairman and Non-executive Directors
Details of Non-executive Directors’ individual appointments are outlined below. The Directors’ remuneration policy contains further 
details on their letters of appointment. 

Chairman/Non-executive Director

Appointment by the Board

Notice period

Time on the Board at 2020 AGM

Chairman
Paul Manduca

Non-executive Directors
Philip Remnant
Howard Davies
David Law
Kai Nargolwala
Anthony Nightingale
Alice Schroeder
Thomas Watjen
Fields Wicker-Miurin
Amy Yip

15 October 2010 
(Chairman from July 2012)

12 months

9 years 7 months

1 January 2013
15 October 2010
15 September 2015
1 January 2012
1 June 2013
10 June 2013
11 July 2017
3 September 2018
2 September 2019

6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months

7 years 4 months 
9 years 7 months 
4 years 8 months 
8 years 4 months 
6 years 11 months 
6 years 11 months
2 years 10 months 
1 year 8 months 
8 months 

Note
On 10 December 2019 and 30 January 2020 the Company announced the appointment of Non-executive Directors, Jeremy Anderson and Shriti Vadera, to the Board effective 
1 January 2020 and 1 May 2020 respectively.

Recruitment and relocation arrangements
In making decisions about the remuneration arrangements for those joining the Board, the Committee worked within the current 
Directors’ remuneration policy approved by shareholders and was mindful of:

 — The skills, knowledge and experience that each new Executive Director brought to the Board;

 — The need to support the relocation of executives to enable them to assume their roles; and

 — Its commitment to honour legacy arrangements.

Appointing high-calibre executives to the Board and to different roles on the Board is necessary to ensure the Company is well positioned 
to develop and implement its strategy and deliver long-term value. As the Company operates in an international market place for talent, 
the best internal and external candidates are sometimes asked to move location to assume their new roles. Where this happens, the 
Company will offer relocation support. The support offered will depend on the circumstances of each move but may include paying for 
travel, shipping services, the provision of temporary accommodation and other housing benefits. Executives may receive support with 
the preparation of tax returns, but no current Executive Director is tax equalised. 

Michael Falcon 
Michael Falcon was appointed as Chairman and Chief Executive Officer, Jackson National Holdings LLC and joined the Board on 
7 January 2019. Details of his remuneration arrangements on appointment, including the terms of his buy-out awards, were disclosed 
in the 2018 Directors’ Remuneration Report. 

Details of the remuneration he received during 2019 in his role as Executive Director of Prudential plc, including his buy-out award, 
are set out in the 2019 ‘single figure’ table.

James Turner 
James Turner relocated to Hong Kong in August 2019 in order to support our dialogue with the Hong Kong IA. Relocation support 
was provided in line with the current Directors’ remuneration policy and included shipping of personal effects from the UK, temporary 
accommodation, a housing allowance for his permanent Hong Kong residence and support for visa applications and the preparation 
of necessary Hong Kong tax returns. Ongoing benefits will be provided in line with the local Prudential Corporation Asia policies. 
Since Mr Turner has moved with his school-aged child, he received education support on the same basis as other executives based 
in Hong Kong. 

Details of the remuneration he received during 2019 in his role as Group Chief Risk and Compliance Officer, including this relocation 
support are set out in the 2019 ‘single figure’ table.

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Payments to past Directors and payments for loss of office
The Committee’s approach when exercising its discretion under the policy is to be mindful of the particular circumstance of the departure 
and the contribution the individual made to the Group.

On 21 May 2019, the Company confirmed that John Foley, Chief Executive of M&GPrudential, Nic Nicandrou, Chief Executive of 
Prudential Corporation Asia, and Michael Falcon, Chairman and Chief Executive Officer, Jackson Holdings LLC, stepped down as 
members of the Prudential plc Board at the end of the Annual General Meeting on 16 May 2019 as part of our progress towards the 
demerger of M&G plc. They remained in their executive roles and continued to be members of the Group Executive Committee with 
Mr Foley leaving the Group on 21 October 2019 on the demerger of M&G plc. 

The remuneration of these executives was managed in line with the currently approved Directors’ remuneration policy and they have 
not received any loss of office payment in respect of their service as Directors. 

Michael Falcon
An annual incentive award has been paid to Michael Falcon for the whole of 2019 as he remained a member of the Group Executive 
Committee after leaving the Board. This award was determined on performance achieved when the 2019 results were known. 
Sixty per cent of it was paid in cash in the usual way, and 40 per cent was deferred into Prudential ADRs (to be released in the Spring 
of 2023). In addition, he was eligible to receive a 10 per cent share of the Jackson bonus pool of which 40 per cent is similarly deferred. 
These awards continue to be subject to malus and clawback provisions. 

Mr Falcon’s 2019 PLTIP award will vest in line with the original vesting date, subject to the satisfaction of the original performance 
conditions. These awards will also continue to be subject to the original malus and clawback provisions, and awards will remain subject to 
a two-year holding period following the end of the three-year performance period. The terms of Mr Falcon’s buy-out awards as disclosed 
in the 2018 Directors’ remuneration report have not been changed and awards will vest in line with the original vesting schedule. The 
number of Prudential ADRs over which options have been granted has been adjusted in line with the approach set out in the section on 
‘Remuneration decisions taken in relation to the demerger’. In November 2019, Mr Falcon exercised the first tranche of this replacement 
award. The gross value of the award exercised (which included dividend equivalents) was $464,198. Mr Falcon is the sole participant in 
this arrangement and no further awards will be made to Mr Falcon under this plan. 

Details of the remuneration received during 2019 in respect of his role as an Executive Director are set out in the 2019 single figure table.

John Foley
Following his retirement from the Board on 16 May 2019, John Foley’s employment with the Group ended on 21 October 2019 on the 
demerger of M&G plc and he continued as the Chief Executive Officer, M&G plc. The Committee determined that Mr Foley would not 
receive a bonus from Prudential plc for any part of the 2019 performance year. On the demerger date, Mr Foley’s unvested awards under 
the Prudential deferred AIP and the PLTIP were cancelled by Prudential plc. These awards were converted by M&G plc into awards over 
M&G plc shares in line with the M&G plc Directors’ remuneration policy. Further information on Mr Foley’s 2019 remuneration 
arrangements may be found in the M&G plc 2019 Directors’ remuneration report.

Nic Nicandrou 
An annual incentive award has been paid to Nic Nicandrou for the whole of 2019 as he remained a member of the Group Executive 
Committee after leaving the Board. This award was determined on performance achieved when the 2019 results were known. 
Sixty per cent of it was paid in cash in the usual way, and 40 per cent was deferred into Prudential plc shares (to be released in the 
Spring of 2023). This award continues to be subject to malus and clawback provisions. 

Details of the remuneration received during 2019 in respect of his role as an Executive Director are set out in the 2019 ‘single figure’ table.

Mr Nicandrou’s unvested awards under the Prudential deferred AIP will be released on the original timetable and remain subject to 
malus and clawback provisions. Outstanding long-term incentive awards will vest in line with the original vesting dates, subject to the 
satisfaction of the original performance conditions. The number of Prudential plc shares under award have been adjusted in line with 
the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. These awards will also continue to be 
subject to the original malus and clawback provisions, and awards will remain subject to a two-year holding period following the end 
of the three-year performance period. 

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CONTINUED

Barry Stowe
Barry Stowe retired as Chairman and Chief Executive, NABU on 31 December 2018. He remained as an adviser to the Group until his 
employment ended on 31 December 2019. Mr Stowe received US$1,466,000 in respect of salary, benefits, and pension between 
1 January and 31 December 2019. As disclosed in the 2018 Directors’ remuneration report, the Committee exercised its discretion in 
accordance with the approved Directors’ remuneration policy and determined that Mr Stowe should be allowed to keep his unvested 
2017 and 2018 PLTIP awards which will vest in line with the original vesting dates, subject to the satisfaction of the performance 
conditions under the plan rules, remain subject to malus and clawback provisions, and will be pro-rated for service to the date Mr Stowe 
retired from the Board to 31 December 2018. Mr Stowe was not eligible for a 2019 bonus and was not granted a 2019 PLTIP award. 

As set out in the section ‘Remuneration in respect of performance in 2019’ the performance conditions attached to Mr Stowe’s 2017 
PLTIP awards were partially met and 68.75 per cent will be released in 2020. The number of Prudential plc ADRs under award have been 
adjusted in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. The details of 
Mr Stowe’s award are set out below: 

Award

Prudential LTIP

Number of 
ADRs vesting1

Value of 
ADRs vesting2 

62,395

£1,777,756

Notes
1  The number of ADRs vesting include accrued dividends. 
2  The ADR price used to calculate the value was the average ADR price for the three months up to 31 December 2019, being US$36.37.

Tony Wilkey
Tony Wilkey stepped down from the Board on 17 July 2017 and his employment ended with the Group on 17 July 2018. As disclosed 
in the 2017 Directors’ remuneration report, the Committee exercised its discretion in accordance with the approved Directors’ 
remuneration policy and determined that Mr Wilkey should be allowed to keep his unvested PLTIP awards granted in 2017. This award 
will vest in accordance with the original timetable, subject to the original performance conditions, remain subject to malus and clawback 
provisions, and will be pro-rated for service. This is the last PLTIP award that will vest to Mr Wilkey. 

As set out in the section ‘Remuneration in respect of performance in 2019’ the performance conditions attached to Mr Wilkey’s 2017 
PLTIP awards were partially met and 61.75 per cent will be released in 2020. The number of Prudential plc shares under award have 
been adjusted in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. The details 
of Mr Wilkey’s award are set out below: 

Award

Prudential LTIP

Number of 
shares vesting1

Value of 
shares vesting2 

44,969

£622,821

Notes
1  The number of shares vesting include accrued dividend shares. 
2  The share price used to calculate the value was the average share price for the three months up to 31 December 2019, being £13.85.

Other Directors
A number of former Directors receive retiree medical benefits for themselves and their partner (where applicable). This is consistent 
with other senior members of staff employed at the same time. A de minimis threshold of £10,000 has been set by the Committee; 
any payments or benefits provided to a past Director above this amount will be reported. 

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Statement of voting at general meeting
At the 2017 Annual General Meeting, shareholders were asked to vote on the current Directors’ remuneration policy and at the 
2019 Annual General Meeting, shareholders were asked to vote on the 2018 Directors’ remuneration report. Each of these resolutions 
received a significant vote in favour by shareholders and the Committee is grateful for this support and endorsement by our 
shareholders. The votes received were:

Resolution

To approve the Directors’ remuneration 

Votes
for

% of votes
cast

Votes 
against

% of votes
cast

Total votes
cast

Votes 
withheld

policy (2017 AGM)

1,773,691,171

90.71 181,582,497

9.29

1,955,273,668

45,820,585

To approve the Directors’ remuneration 

report (2019 AGM)

1,948,451,528

95.71

87,313,483

4.29

2,035,765,011

6,608,034

Statement of implementation in 2020 
Base salary
Executive Directors’ remuneration packages were reviewed in 2019 with changes effective from 1 January 2020. When the Committee 
took these decisions, it considered the salary increases awarded to other employees in 2019 and the expected increases in 2020. 
The external market reference points used to provide context to the Committee were similar to those used for 2019 salaries. 

All Executive Directors received a salary increase of 2 per cent. The 2020 salary increase budgets for other employees across the Group’s 
business units were between 2.5 per cent and 5.1 per cent.

Pension entitlements from 2020
As set out in the Annual statement from the Chairman of the Remuneration Committee, externally or internally-recruited Executive 
Directors appointed on or after the date of the 2020 AGM will be offered pension benefits of 13 per cent of salary, aligned with the 
employer pension contribution available to the UK workforce and broadly reflecting the pension benefits for the workforce in locations 
across Asia and the US. The Committee intends to reduce incumbent Executive Directors’ pension benefits from 25 per cent to 
20 per cent of salary on the following basis:

 — From 14 May 2020 (the effective date of the new policy), incumbent Executive Directors’ pension benefits will be reduced to 

22.5 per cent of base salary; and 

 — From 14 May 2021, incumbent Executive Directors’ pension benefits will be reduced to 20 per cent of base salary.

In addition, statutory contributions will continue to be made into mandatory pension arrangements in the country in which the 
Executive Directors are based, in line with the local requirements.

Annual bonus
No changes have been made to the bonus opportunities for Executive Directors for 2020. 

In recent years, bonuses for the Group Chief Risk and Compliance Officer have been based entirely on a combination of personal and 
functional measures, an approach aligned with Solvency II remuneration requirements under the PRA. In 2020 the Committee has 
introduced a financial element in the bonus for the Group Chief Risk and Compliance Officer. The 2020 bonus for this role will be based 
on 40 per cent Group financial measures, 40 per cent functional objectives and 20 per cent personal measures. This is in line with the 
current draft of the Hong Kong IA’s guideline on the remuneration of key persons in control functions. It reflects the Committee’s view 
that it is important that this role and other control function staff continue to demonstrate long-term commercial sensitivity and are 
rewarded in a way which allows the Company to recruit the very best talent to these roles.

AIP payments for all Executive Directors have been previously subject to meeting Solvency II minimum capital thresholds which were 
aligned to the Group and business unit risk framework and appetites (as adjusted for any Group Risk Committee and/or business unit risk 
committees approved counter-cyclical buffers). This will be replaced with LCSM minimum capital thresholds aligned to the Group and 
business unit framework and appetites. No other changes have been made to the bonus performance measures and weightings for the 
other Executive Directors. 

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CONTINUED

2020 share-based long-term incentive awards
Award levels
No change to the PLTIP award levels of the Group Chief Executive of 400 per cent of base salary or the Group Chief Risk and Compliance 
Officer of 250 per cent of base salary are proposed. In recognition of Mark FitzPatrick’s expanded role and responsibilities in 2019, 
together with the Board’s view of his strong performance, potential and criticality to the Group, the Committee intends to increase the 
value of his long-term incentive award within the current policy limit for 2020 to 300 per cent of base salary (from 250 per cent at 
present). This approach is also considered to support the promotion of stewardship and long-term focus. 

Performance conditions
The post-demerger Prudential Group is focused on capturing the structural growth opportunity across the Asian and African markets 
under Prudential Corporation Asia, its Asian business unit. In the US, its business unit, Jackson, will seek to benefit from the growing 
retirement market and to provide enhanced cash generation to the post-demerger Prudential Group.

The Executive Directors’ long-term incentive awards will continue to be made under the PLTIP. The Company will look to build long-term 
shareholder value by continuing to focus on achieving sustainable, profitable growth and retaining a resilient balance sheet, with a 
disciplined approach to active capital allocation. As set out in the 2018 Directors’ remuneration report and following our conversations 
with investors last year, the vesting of the major part of 2019 awards under the PLTIP is dependent on the achievement of a relative TSR 
target. As also indicated in last year’s report, this was appropriate in the context of the demerger and the Committee intended to develop 
performance measures for 2020 and subsequent years in light of the evolving priorities of the business. 

To this end, the Committee will introduce a new return on equity performance measure, operating return on average shareholders’ 
funds, for the 2020 PLTIP awards, incentivising the efficient use of capital as well as shareholder returns. Using this metric alongside 
TSR and a sustainability scorecard will ensure that the full value of long-term incentive awards is attained only where capital is effectively 
deployed in a way that creates shareholder returns superior to those delivered by peers while conduct and diversity expectations are 
met. The weighting of measures for the 2020 PLTIP awards will be as follows:

 — Relative TSR (50 per cent of award); 

 — A return on equity measure (30 per cent of award); and

 — Sustainability scorecard of strategic measures (20 per cent of award).

The proportion of 2020 long-term incentive awards which will vest for threshold performance will remain at 20 per cent. This level of 
threshold vesting is formalised in the proposed 2020 Directors’ remuneration policy.

Since these measures are in line with the remuneration requirements for control staff under the draft Hong Kong IA Corporate 
Governance Guideline, the weightings of the Group Chief Risk and Compliance Officer’s PLTIP performance targets will be the same as 
that of the other Executive Directors. 

Relative TSR 
Under the Group TSR measure, 20 per cent of the award will vest for TSR at the median of the peer group, increasing to full vesting for 
performance within the upper quartile. TSR is measured on a local currency basis since this has the benefit of simplicity and directness 
of comparison. A comprehensive review of the TSR peer group which anticipated the Group’s post-demerger footprint was undertaken 
for the 2019 PLTIP awards. The companies were selected based on organisational size, product mix and geographical footprint. The peer 
group for 2020 PLTIP awards is the same as that used for 2019 and is set out below: 

Aegon
Great Eastern
Ping An Insurance

AIA
Lincoln National
Principal Financial

AXA Equitable
Manulife
Prudential Financial

China Taiping Insurance
MetLife
Sun Life Financial

Operating return on average shareholders’ funds 
Operating return on average shareholders’ funds is calculated as adjusted IFRS operating profit based on longer-term investment returns 
(‘adjusted operating profit’) after tax and net of non-controlling interests divided by average shareholders’ funds, is assessed at Group 
level. 20 per cent of the award will vest for achieving the threshold level of performance of 16.7 per cent, increasing to full vesting for 
reaching the stretch level of at least 22.9 per cent.

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Sustainability scorecard
Under the 2020 sustainability scorecard, performance will be assessed for each of the four measures, at the end of the three-year 
performance period. Performance will be assessed on a sliding scale. Each of the measures has equal weighting and the 2020 measures 
are set out below:

Capital measure: 

Cumulative three-year ECap Group operating capital generation relative to plan, less cost of capital (based on the 
capital position at the start of the performance period).

Vesting basis: 

20 per cent vesting for achieving Plan, increasing to full vesting for performance above stretch level. The plan 
figure for this metric will be published in the Annual Report for the final year of the performance period.

Capital measure: 

Cumulative three-year LCSM operating capital generation relative to plan

Vesting basis: 

20 per cent vesting for achieving Plan, increasing to full vesting for performance above stretch level. The plan 
figure for this metric will be published in the Annual Report for the final year of the performance period.

Conduct measure:  Through strong risk management action, ensure there are no significant conduct/culture/governance issues 

that result in significant capital add-ons or material fines.

Vesting basis: 

20 per cent vesting for partial achievement of the Group’s expectations, increasing to full vesting for achieving 
the Group’s expectations.

Diversity 
measure: 

Percentage of the Leadership Team that is female at the end of 2022. The target for this metric will be based on 
progress towards the goal that the Company set when it signed the Women in Finance Charter, specifically that 
30 per cent of our Leadership Team will be female by the end of 2021.

Vesting basis: 

20 per cent vests for meeting the threshold of at least 27 per cent of our Leadership Team being female at the 
end of 2022, increasing to full vesting for reaching the stretch level of at least 33 per cent being female at that date.

Changes in line with the 2020 Directors’ remuneration policy
Post-directorship share ownership
The Committee is building on the share ownership guidelines which apply to executives during their employment by introducing 
a formal, post-employment shareholding guideline. Executive Directors will, on leaving the Board, be required to maintain their 
in-employment share ownership guideline for a period of two years or their actual shareholding on the date of their retirement from the 
Board if lower. This obligation will be implemented by requiring retiring Executive Directors to obtain clearance to deal in the Company’s 
shares during the two years following their retirement in the same way as they must during the time on the Board. No changes have been 
made to Executive Directors’ in-employment share ownership guidelines. 

Chairman and Non-executive Directors
Fees for the Chairman and Non-executive Directors were reviewed in 2019 with changes effective from 1 July 2019, as set out under the 
‘Chairman and Non-executive Director remuneration in 2019’ section. The next review will be effective 1 July 2020. Fees for the 
Chairman will be paid in US dollars from May 2020. 

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New Directors’ remuneration policy

This section sets out the revised Directors’ remuneration policy which will be put forward to shareholders for a binding vote at the 
2020 AGM on 14 May 2020. If approved this policy will apply immediately for three years following the AGM. This policy has evolved 
from the current policy which was approved at the AGM held on 18 May 2017 and has applied from that date. 

As discussed in the Annual statement from the Chairman of the Remuneration Committee, the current policy has operated as intended. 
Full details of the existing policy can be found on pages 135 to 150 of the 2016 Annual Report or on our website at 
www.prudentialplc.com/investors/governance-and-policies/directors-remuneration-policy

During 2019, the Committee reviewed the policy, taking into account the demerger, the views of our shareholders, the new UK 
Corporate Governance Code, evolving market practice and the broader regulatory and competitive environment. It also considered 
workforce remuneration and related policies in the business units across the Group, including how the Company’s incentive 
arrangements are aligned with culture. Input was sought from the management team, while ensuring that conflicts of interest were 
suitably mitigated.

In reviewing the policy, alternative remuneration structures were considered. Following careful consideration, the Committee decided to 
retain the key features of the current remuneration model since it is appropriate for a growth company, is well understood and drives the 
right behaviour and outcomes. However, as described in the Chairman’s letter, the Committee felt that it was important to make changes 
to specific components in order to:

 — Align reward with the strategic priorities and capital framework of the post-demerger business; 

 — Strengthen the community of interest between executives and other shareholders; and

 — Foster alignment between the remuneration of executives and the wider workforce.

Fixed pay policy for Executive Directors 

Component and purpose

Operation

Opportunity

Annual salary increases for Executive 
Directors will normally be in line with the 
increases for other employees unless there 
is a change in role or responsibility.

Base salary
Paying salaries at a 
competitive level enables 
the Company to recruit 
and retain key executives.

Prudential’s policy is to offer all Executive Directors 
base salaries that are competitive within their 
local market.

The Committee reviews salaries annually with changes 
normally effective from 1 January. In determining base 
salary for each executive, the Committee considers 
factors such as:

 — Salary increases for other employees across 

the Group; 

 — The performance and experience of the executive;

 — The size and scope of the role;

 — Group financial performance; 

 — Internal relativities; and

 — External factors such as economic conditions and 
market data, taking into account the geographies 
and markets in which the Company operates.

While salaries are typically paid in the local currency 
of the country where the executive is based, the 
Committee may determine that the salary of an 
executive is set or paid in an alternative currency.

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Component and purpose

Operation

Opportunity

Benefits
Provided to executives to 
assist them in carrying out 
their duties efficiently.

Prudential’s policy is for the Committee to have 
the discretion to offer Executive Directors benefits 
which reflect their individual circumstances and are 
competitive within their local market, including:

Expatriate and relocation 
benefits allow Prudential 
to attract high calibre 
executives in the 
international talent 
market and to deploy 
them appropriately 
within the Group.

Provision for an income 
in retirement
Pension benefits provide 
executives with 
opportunities to save for 
an income in retirement.

 — Health and wellness benefits;

 — Protection and security benefits;

 — Transport benefits;

 — Family and education benefits;

 — All employee share plans and savings plans;

 — Relocation and expatriate benefits; and

 — Reimbursed business expenses (including any 
tax liability) incurred when travelling overseas 
in performance of duties.

Prudential’s policy is to offer all Executive Directors 
a pension provision that is competitive and appropriate 
in the context of pension benefits for the wider 
workforce.

Executives have the option to:

 — Receive payments into a defined contribution 

scheme; and/or

 — Take a cash supplement in lieu of contributions. 

In addition, Executive Directors may receive statutory 
contributions to mandatory pension arrangements 
in the country in which they are based in line with 
local requirements.

The maximum paid will be the cost to 
the Company of providing these benefits. 
The cost of these benefits may vary from 
year to year but the Committee is mindful 
of achieving the best value from providers.

New Executive Directors, either externally 
recruited or promoted from within the 
Company, will be entitled to receive pension 
contributions or a cash supplement (or a 
combination of the two) of 13 per cent of 
base salary.

Current Executive Directors are entitled 
to receive pension contributions or a cash 
supplement (or combination of the two) of 
22.5 per cent of base salary from the date 
of this Policy (a reduction from 25 per cent 
of base salary in the previous Policy) and 
20 per cent of base salary from 14 May 2021. 

In addition, statutory contributions will be 
made to mandatory pension arrangements in 
the country in which the Executive Directors 
are based, in line with the local requirements. 

Annual bonus policy for Executive Directors 

Annual bonus
Payments under the Annual Incentive Plan (AIP) incentivise the delivery of stretching financial, functional and/or personal objectives 
which are drawn from the annual business plan.

Operation

Currently all Executive Directors participate in the AIP. 

The AIP payments for all Executive Directors are subject to the achievement of financial, functional and/or 
personal objectives. 

Form and timing 
of payment

All Executive Directors are required to defer a percentage of their total annual bonus into Prudential shares. 
Currently all Executive Directors defer 40 per cent of their bonus for three years, with the remaining proportion 
of their bonus paid in cash following the end of the performance year.

The release of deferred bonus awards is not subject to any further performance conditions. Deferred bonus 
awards carry the right to accumulate an amount to reflect the dividends paid on the released shares during the 
deferral period. These dividend equivalents will normally be settled in shares, but there is the flexibility to deliver 
them in cash.

The Committee has the authority to apply clawback and/or a malus adjustment to all, or a portion of, the cash and 
deferred award elements of the bonus. More details about clawback and malus are set out below. See the ‘Policy 
on corporate transactions’ section for details of the Committee’s powers in the case of corporate transactions.

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Determining 
annual bonus 
awards

Opportunity

Performance 
measures

Amendments

Committee 
discretions

In assessing financial performance, the Committee determines the AIP award for each Executive Director 
with reference to the performance achieved against approved performance ranges. 

In assessing performance, the Committee will take into account the personal performance of the Executive 
Director and the Group’s risk framework and appetite, as well as other relevant factors. To assist them in their 
assessment the Committee considers advice from the Group Risk Committee on adherence to the Group’s 
risk framework and appetite and to all relevant conduct standards.

The Committee may adjust the formulaic outcome based on the performance targets to reflect the underlying 
performance of the Company by applying discretion within the limits of the Policy. The Committee will disclose 
in the next Directors’ Remuneration Report where discretion is used.

The maximum AIP opportunity is up to 200 per cent of salary for Executive Directors. Annual awards are 
disclosed in the relevant Annual report on remuneration.

The Committee has the discretion, for each Executive Director, to determine the specific performance conditions 
attached to each AIP cycle and to set annual targets for these measures with reference to the business plans 
approved by the Board. The financial measures used for the AIP will typically include profit and cash flow targets 
and payments depend on the achievement of minimum capital thresholds and operation within the Board 
approved risk framework and appetite. For the measures to be used in 2020, please refer to the Annual report 
on remuneration. 

No bonus is payable under the AIP for performance at or below the threshold level, increasing to 100 per cent 
for achieving or exceeding the maximum level.

The weightings of the performance measures for 2020 for all Executive Directors, other than the Group Chief Risk 
and Compliance Officer, are 80 per cent Group financial measures and 20 per cent personal measures. For the 
Group Chief Risk and Compliance Officer, the weightings of performance measures for 2020 are 40 per cent 
Group financial measures, 40 per cent functional objectives and 20 per cent personal measures. 

The Committee retains the discretion to adjust and/or set different performance measures and/or targets 
if events occur (such as a change in strategy, a material acquisition and/or divestment of a Group business, 
a change in share capital of the Company, a change in the capital framework, or the requirements of the 
Company’s regulators or a change in prevailing market conditions) which cause the Committee to determine 
that the measures and/or targets are no longer appropriate and that amendment is required so that they achieve 
their original purpose (or comply with such regulatory requirements).

The Committee may make amendments to the rules of the deferred bonus plan which it considers appropriate 
(such as amendments which benefit the administration of the plan) but it will not make any amendments which 
are incompatible with the approved Directors’ remuneration policy.

In determining awards under the AIP, the Committee retains the discretion to adjust the formulaic outcome 
against any or all measures if it considers that the outcome does not reflect the underlying financial or non-
financial performance of the participant or any member of the Group over the performance period and/or there 
exists any other reason why an adjustment is appropriate, taking into account such factors as the Committee 
considers relevant.

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Long-term incentive policy for Executive Directors 

Prudential Long Term Incentive Plan (PLTIP)
The Prudential Long Term Incentive Plan is designed to incentivise the delivery of:

 — Longer-term business plans; 

 — Sustainable long-term returns for shareholders; and

 — Group strategic priorities, such as disciplined risk and capital management.

Operation

Currently all Executive Directors participate in the PLTIP. 

Prudential’s policy is that Executive Directors may receive long-term incentive awards with full vesting only 
achieved if the Company meets stretching performance targets.

The rules of the PLTIP were approved by shareholders in 2013. Subsequent to this, minor amendments have 
been made to the rules to incorporate clawback provisions, provide for a holding period and to ensure participants 
were no better or no worse off as a result of the demerger of M&G plc from Prudential plc. 

Granting awards

The PLTIP is a conditional share plan: the shares which are awarded will ordinarily vest after three years to the 
extent that performance conditions have been met. If performance conditions are not achieved, the unvested 
portion of any award lapses and performance cannot be retested.

The PLTIP has a three-year performance period (although the Committee has the discretion to apply shorter 
or longer performance periods when the PLTIP is used for buy-out awards on recruitment – see the ‘Approach 
to recruitment remuneration’ section).

Holding period

Awards made under this Policy are normally subject to a holding period which ends on the fifth anniversary of the 
award (except for buyout awards made under the PLTIP or, for example, in the case of the death of an executive). 

The Company may sell such number of shares as is required to satisfy any tax liability that arises on vesting. 
The balance of shares will be subject to the holding period.

Determining 
the release 
of the award

The Committee has the authority to apply clawback and/or a malus adjustment to all, or a portion of, a PLTIP 
award. More details about clawback and malus are set out below.

Awards carry the right to accumulate an amount to reflect the dividends paid on the released shares, during the 
period between the awards being granted and the award vesting. Dividend equivalents will normally be settled 
in shares, but there is the flexibility to deliver them in cash.

Opportunity

The value of shares awarded under the PLTIP (in any given financial year) may not exceed 550 per cent of the 
executive’s annual basic salary.

Awards made in a particular year are usually significantly below this limit. 

In 2020, the Committee intends to make awards at the following levels under the PLTIP (as a percentage 
of base salary):

Group Chief Executive 

400 per cent

Group Chief Financial Officer and Chief Operating Officer 

300 per cent

Group Chief Risk and Compliance Officer 

250 per cent

The Committee would consult with major shareholders before making any increase to current award levels. 
Award levels are disclosed in the relevant Annual report on remuneration. 

The maximum vesting under the PLTIP is 100 per cent of the original share award plus accrued dividend 
equivalents.

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NEW DIRECTORS’ REMUNERATION POLICY  
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Performance 
measures

Committee 
discretions

The performance conditions attached to PLTIP 2020 awards for all Executive Directors are:
 — Relative TSR (50 per cent of award); 
 — A Return on Equity measure (30 per cent of award); and
 — Sustainability scorecard measures (20 per cent of award).
Using a Return on Equity metric alongside TSR and a sustainability scorecard will ensure that the full value of 
long-term incentive awards is attained only where capital is effectively created and deployed in a way which 
creates shareholder returns superior to those delivered by peers while conduct and diversity expectations 
are met.
The Committee may decide to attach different performance conditions and/or change the conditions’ weighting 
for future PLTIP awards. The performance conditions attached to each award will be disclosed in the relevant 
Annual report on remuneration.
Relative TSR is measured over three years. 20 per cent of this portion of each award will vest for achieving the 
threshold level of median, increasing to full vesting for meeting the stretch level of upper quartile. TSR is 
measured against a peer group of international insurers similar to Prudential in size, geographic footprint and 
products. The peer group for each award is disclosed in the relevant Annual report on remuneration.
Three year cumulative Return on Equity, defined as Operating return on average shareholder funds, calculated as 
adjusted IFRS operating profit based on longer-term investment returns (‘adjusted operating profit’) after tax and 
net of non-controlling interests divided by average shareholder funds, is assessed at Group level. Threshold and 
maximum achievement levels will be set at the beginning of the performance periods in line with the three-year 
business plan. 20 per cent of this portion of the award will vest for achieving threshold performance increasing to 
full vesting for meeting stretch targets.
Performance against the measures in the scorecard of sustainability measures is assessed at the end of the 
three-year performance period. For the 2020 awards these measures will be equally weighted. 20 per cent of this 
portion of the award will vest for achieving threshold performance increasing to full vesting for meeting stretch 
targets. The scorecard measures for each award are disclosed in the relevant Annual report on remuneration for 
the year of grant.
The Committee also considers advice from the Group Risk Committee on whether results were achieved within 
the Group’s and business units’ risk framework and appetite and to all relevant conduct standards.

For any award made under the PLTIP to vest, the Committee must be satisfied that the quality of the Company’s 
underlying financial performance justifies the level of reward delivered at the end of the performance period. The 
Committee receives data about factors such as risk management and the cost of capital to support their decision. 
The Committee has the discretion to alter or disapply the holding period if it believes that it is appropriate. See the 
‘Policy on corporate transactions’ section for details of the Committee’s powers in the case of corporate transactions.
The Committee retains the ability to amend the performance conditions and/or targets attached to an award and/
or set different performance measures (or to revise the weighting of measures) which apply to new or outstanding 
long-term incentive awards if:
 — events occur which cause the Committee to determine that circumstances relevant to the performance 

conditions have changed such that the measures described in this section are no longer appropriate; and 
 — that amendment is required so that they achieve their original purpose, provided the Committee is satisfied 
that the amended measure and/or target range will be a fairer measure of performance and no more or less 
demanding than the original condition. 

Examples of such events could include a change in strategy, a material acquisition and/or divestment of a Group 
business or a change in the share capital of the Company, a change in the requirements of the Company’s 
regulators or a change in prevailing market conditions. The Committee would seek to consult with major 
shareholders before revising performance conditions on outstanding awards under the PLTIP.
It is the intention of the Committee that PLTIP awards should normally reflect the outcomes of performance 
measures set. However, the Committee may, in its discretion, adjust (including by reducing to nil) the formulaic 
outcome under the PLTIP if it considers that:
(i)   the extent to which any performance condition has been met does not reflect the underlying financial or 

non-financial performance of the participant or any member of the Group over the performance period; or 

(ii)  there exists any other reason why an adjustment is appropriate, taking into account such factors as the 

Committee considers relevant, including the context of circumstances that were unexpected or unforeseen 
at the date of grant.

Amendments

The Committee may make amendments to the rules of the Plan which are minor and benefit the administration 
of the Plan, which take account of any changes in legislation, and/or which obtain or maintain favourable tax, 
exchange control or regulatory treatment. Otherwise no amendments may be made to certain key provisions 
of the PLTIP to the advantage of participants without prior shareholder approval.

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Share ownership guidelines for Executive Directors
It is imperative that the Company’s remuneration arrangements align the interests of executives and other shareholders. The following 
reinforces this alignment.

In-employment 
guidelines

Under the Articles of Association, all Executive Directors are required to hold at least 2,500 shares and have one 
year, from their date of appointment to the Board, to acquire these.

The share ownership guidelines for the Executive Directors during their employment are:

 — 400 per cent of salary for the Group Chief Executive; 

 — 250 per cent of salary for the Group Chief Financial Officer and Chief Operating Officer; and

 — 250 per cent of salary for the Group Chief Risk and Compliance Officer.

Executives normally have five years from the later of the date of their appointment or promotion, or the date of 
an increase in these guidelines, to build this level of ownership. Shares earned and deferred under the AIP are 
included in calculating the Executive Director’s shareholding for these purposes, as are shares held by members 
of an Executive Director’s household. Unvested share awards under long-term incentive plans are not included 
but vested share awards under long-term incentive plans which are subject to the holding period are included.

Progress against the share ownership guidelines is detailed in the ‘Statement of Directors’ shareholdings’ section 
of the Annual report on remuneration. 

Should an Executive Director not meet the share ownership guidelines, the Remuneration Committee retains the 
discretion to determine how this should be addressed, taking account all of the prevailing circumstances. In the 
absence of mitigating circumstances, if an Executive Director fails to comply with the share ownership guideline 
in the required timeframe and has not (in the opinion of the Remuneration Committee) taken reasonable steps 
to achieve compliance, despite encouragement to do so, then the Remuneration Committee may take steps 
including preventing the individual from selling shares/ADRs or mandating the use of any cash bonuses to buy 
Prudential plc shares/ADRs.

Post Directorship 
guidelines

When an Executive Director leaves the Board, they will be required to hold the lower of their actual shareholding 
on the date of their retirement from the Board and their in-employment share ownership guideline for a period 
of two years.

The Committee has the discretion to disapply or reduce this requirement in extenuating circumstances, for 
example if the Executive Director takes up a role with a Regulator or for compassionate reasons (such as genuine 
financial hardship or on death).

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Malus and clawback policy
As detailed in the policy table, the Committee may apply clawback and/or a malus adjustment to variable pay in certain circumstances 
as set out below. The Committee can delay the release of awards pending the completion of an investigation which could lead to the 
application of malus or clawback.

Malus 
(applies in respect of any 
annual bonus or long-term 
incentive award)

Allows unvested shares 
awarded under deferred bonus 
and LTIP plans to be forfeited 
or reduced in certain 
circumstances.

Clawback
Allows cash and share awards, 
including shares subject to the 
holding period, to be recovered 
before or after release in 
certain circumstances.

Circumstances when the Committee may exercise its discretion to apply malus or clawback to an award

Where a business decision taken during the performance period by the business which the participant 
leads has resulted in a material breach of any law, regulation, code of practice or other instrument that 
applies to companies or individuals within the business.

Where there is a materially adverse restatement of the accounts for any year during the performance 
period of (i) the business unit in which the participant worked at any time in that year; and/or (ii) any 
member of the Group which is attributable to incorrect information about the affairs of that business 
unit; or (iii) for awards made in 2020 or later, it becomes apparent that the calculation of payments was 
based on erroneous or misleading data or otherwise incorrect. 

Where an individual’s personal conduct during the relevant performance period has resulted in 
the Company, or any member of the Group, suffering significant reputational or financial damage; 
the potential to cause significant reputational or financial damage; and/or the material breach of the 
Group’s business code of conduct or law.

Where any matter arises which the Committee believes affects or may affect the reputation of the 
Company or any member of the Group.

Clawback may be applied:

 — For the PLTIP, where at any time before the fifth anniversary of the award date, and

 — For the AIP, where at any time before the fifth anniversary of the end of the bonus performance 

period 

where either (i) there is a materially adverse restatement of the Company’s published accounts in 
respect of any financial year which (in whole or part) comprised part of the performance period; or 
(ii) it becomes apparent that a material breach of a law or regulation took place during the performance 
period which resulted in significant harm to the Company or its reputation, and the Committee 
considers it appropriate, taking account of the extent of the participants’ responsibility for the relevant 
restatement or breach, that clawback be applied to the relevant participant; or (iii) for awards made 
in 2020 or later, it becomes apparent that the calculation of payments was based on erroneous or 
misleading data or otherwise incorrect.

Where an individual’s personal conduct during the relevant performance period has resulted in 
the Company, or any member of the Group, suffering significant reputational or financial damage; 
the potential to cause significant reputational or financial damage; and/or the material breach of the 
Group’s business code of conduct or law.

Notes to the remuneration policy table for Executive Directors
Committee’s judgement 
The Committee is required to make judgements when assessing Company and individual performance under the Directors’ 
remuneration policy. In addition, the Committee has discretions under the Company’s share plans, for example, determining if a leaver 
should retain or lose their unvested awards and whether to apply malus or clawback to an award. Exercise of such discretion during the 
year will be reported and explained in the next Annual report on remuneration. 

The Committee may approve payments or awards in excess of, in a different form to, or calculated or delivered other than as described 
above, where the Committee considers such changes necessary or appropriate in light of regulatory requirements. If these changes are 
considered by the Committee to be material, the Company will seek to consult with its major shareholders.

Determining the performance measures
The Committee selected the performance measures that currently apply to variable pay plans on the following basis:

AIP
The performance measures are selected to incentivise the delivery of the Group’s business plan, specifically to ensure that financial 
objectives are delivered while maintaining adequate levels of capital. Executives are also rewarded for the achievement of functional 
and/or personal objectives. These objectives include the executive’s contribution to Group strategy as a member of the Board, 
achievement of the Group’s strategic priorities and, for the Group Chief Risk and Compliance Officer, specific goals related to the 
Risk and Compliance function.

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PLTIP
Awards made under the PLTIP in 2020 are subject to the achievement of Return on Equity, relative TSR and a sustainability scorecard :

 —  Return on Equity was selected as a performance measure for the PLTIP because it is a familiar measure for investors, is comparable 

across the market and also aligns performance incentives to the generation of long-term shareholder value. 

 —  Relative TSR was selected as a performance measure because it focuses on the value delivered to shareholders – aligning the 

long-term interests of shareholders with those of executives. 

 —  A sustainability scorecard was selected to ensure an alignment with the Group’s strategic objectives, which are approved by the Board 

each year, and to reflect Prudential’s cultural values. 

The Committee may decide to attach different performance conditions and/or change the conditions’ weighting for future PLTIP awards.

Setting the performance ranges for financial targets
Where variable pay has performance conditions based on business plan measures (for example the financial metrics of the AIP and the 
Return on Equity element of the PLTIP) the performance ranges are set by the Committee prior to, or at the beginning of, the performance 
period. Performance is based on the annual and longer-term plans approved by the Board. These reflect the long-term ambitions of the 
Group and business units, in the context of anticipated market conditions. 

For market-based performance conditions (eg relative TSR) the Committee requires that performance is in the upper quartile, relative 
to Prudential’s peer group, for awards to vest in full.

Targets used to determine annual bonus outcomes will be disclosed in the Directors’ remuneration report for the year for which the 
bonus is paid.

Wherever possible, the targets attached to long-term incentive awards will be disclosed prospectively at the time of the award. 
Where long-term incentive targets are commercially sensitive, they will be published in the Annual Report for the final year of the 
performance period.

Key differences between Directors’ remuneration and the remuneration of the wider workforce 
Across the Group, remuneration is reviewed regularly with the intention that all employees are paid appropriately in the context of their 
local market and given their individual skills, experience and performance. The Committee regularly receives information on workforce 
remuneration and related policies and takes this into account when determining Executive Director remuneration, for example it 
considers salary increase budgets for the workforce when determining the salaries of Executive Directors. 

The remuneration principles that apply to Executive Directors are cascaded to employees as appropriate. Employees are regularly 
provided with an explanation of how decisions on executive pay are made and how they reflect the wider Company remuneration policy.

Legacy payments
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any 
discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above 
where the terms of the payment were agreed (i) before 15 May 2014 (the date the Company’s first shareholder-approved Directors’ 
remuneration policy came into effect); (ii) before this policy came into effect, provided that the terms of the payment were consistent 
with the shareholder-approved Directors’ remuneration policy in force at the time they were agreed; or (iii) at a time when the relevant 
individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the 
individual becoming or having been a Director of the Company. For these purposes ‘payments’ includes the Committee satisfying awards 
of variable remuneration and, in relation to an award over shares, the terms of the payment are ’agreed’ at the time the award is granted.

References to ‘shares’
In this policy, references to shares include American Depositary Receipts (ADRs). Directors may receive awards denominated in ADRs 
rather than shares.

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Scenarios of total remuneration
The chart below provides an illustration of the future total remuneration for each Executive Director in respect of their 
remuneration opportunity for 2020. Four scenarios of potential outcome are provided based on underlying assumptions shown 
in the notes to the chart. 

The Committee is satisfied that the maximum potential remuneration of the Executive Directors is appropriate. Prudential’s policy is to 
offer Executive Directors remuneration which reflects the performance and experience of the executive, internal relativities and Group 
financial and non-financial performance. In order for the maximum total remuneration to be payable:

 — Financial performance must exceed the Group’s stretching business plan;

 — Relative TSR must be at or above the upper quartile relative to the peer group;

 — The sustainability scorecard, aligned to the Group’s strategic priorities, must be fully satisfied; 

 — Functional and personal performance objectives must be fully met; and

 — Performance must be achieved within the Group’s risk framework and appetite.

The fourth scenario below illustrates the maximum potential remuneration (shown in the third scenario) on the assumption that the 
Company’s share price grows by 50 per cent over three years.

£000

12,000

10,000

8,000

6,000

4,000

2,000

1,099

100%

0

4,785

49%

28%

23%

3,175

44%

21%

35%

5,949

59%

23%

18%

5,369

52%

25%

23%

4,434

42%

30%

28%

3,032

37%

22%

41%

1,256

100%

11,037

64%

8,693

5,646

54%

50%

21%

29%

1,661

100%

27%

21%

19%

15%

Minimum

In line with
expectations

Maximum

Share price
growth

Minimum

In line with
expectations

Maximum

Share price
growth

Minimum

In line with
expectations

Maximum

Share price
growth

Mark FitzPatrick

James Turner

Mike Wells

  Fixed 

  Short-term incentives 

  Long-term incentives

Notes
The scenarios in the chart above have been calculated on the following assumptions:

Minimum

In line with expectations

Maximum

Share price growth

Fixed pay

Base salary at 1 January 2020.

Pension allowance for the year has been calculated  
at 22.5% of salary in line with this policy

Estimated value of benefits based on amounts paid in 2019.

James Turner is paid in HK$ and figures have been converted 
to GBP for the purposes of this chart.

Annual bonus

No bonus paid.

50% of maximum AIP.

100% of maximum AIP.

No PLTIP vesting.

Long-term  
incentives
(excludes  
dividends)

Vesting of 60% of award 
under PLTIP (midway 
between threshold and 
maximum)

Vesting of 100% of 
award under PLTIP. 

Vesting of 100% of 
award under PLTIP 
plus share price 
growth of 50 per cent 
over three years.

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Approach to recruitment remuneration
The table below outlines the approach that Prudential will take when recruiting a new Executive Director. This approach would also apply 
to internal promotions. 

The approach to recruiting a Non-executive Director or a Chairman is outlined on page 188.

Element

Base pay

Benefits 
and pension

Variable 
remuneration 
opportunity

Awards and 
contractual rights 
forfeited when 
leaving previous 
employer

Principles

Potential variations

The salary for a new Executive Director will be set using the 
approach set out in the fixed pay policy table on page 174.

The benefits for a new Executive Director will be consistent 
with those outlined in the fixed pay policy table.

The variable remuneration opportunities for a new Executive 
Director would be consistent with the limits and structures 
outlined in the variable pay policy table.

On joining the Board from within the Group, the Committee 
may allow an executive to retain any outstanding deferred bonus 
and/or long-term incentive awards and/or other contractual 
arrangements that they held on their appointment. These awards 
(which may have been made under plans not listed in this policy) 
would remain subject to the original rules, performance conditions 
and vesting schedule applied to them when they were awarded.

If an externally-appointed Executive Director forfeits one 
or more bonuses (including outstanding deferred bonuses) 
on leaving a previous employer, these payments or awards 
may be replaced in either cash, Prudential shares or options 
over Prudential shares with an award of an equivalent value. 
Replacement awards will normally be released on the same 
schedule as the foregone bonuses. 

If an externally-appointed Executive Director forfeits one or more 
long-term incentive awards on leaving a previous employer, these 
may be replaced with Prudential awards with an equivalent value. 
Replacement awards will generally be made under the terms of 
a long-term incentive plan approved by shareholders, and vest 
on the same schedule as the foregone awards. Where foregone 
awards were subject to performance conditions, performance 
conditions will normally be applied to awards replacing foregone 
long-term incentive awards; these will usually be the same as those 
applied to the long-term incentive awards made to Prudential 
executives in the year in which the forfeited award was made. 

The Committee may consider 
compensating a newly-appointed 
executive for other relevant contractual 
rights forfeited when leaving their 
previous employer.

The use of Listing Rule 9.4.2 to facilitate the 
recruitment of an Executive Director is now 
only relevant in ‘unusual circumstances’. 
The Committee does not anticipate using 
this rule on a routine basis but reserves 
the right to do so in an exceptional 
circumstance. For example, this rule may 
be required if, for any reason, like-for-like 
replacement awards on recruitment could 
not be made under existing plans.

This provision would only be used to 
compensate for remuneration forfeited 
on leaving a previous employer. 

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Policy on payment on loss of office 

Element

Principle

Potential variations

Notice periods

Outstanding 
deferred bonus 
awards

Unvested 
long-term 
incentive awards

If an Executive Director is dismissed for cause their 
contract would be terminated with immediate effect 
and they would not receive any payments in relation 
to their notice period.

Should an executive die, their estate would not be 
entitled to receive payments and benefits in respect 
of their notice period – provisions are made under the 
Company’s life assurance scheme to provide for this 
circumstance.

Should an Executive Director step down from the 
Board but remain employed by the Group, they would 
not receive any payment in lieu of notice in respect of 
their service as a Director.

The Company’s policy is that Executive Directors’ 
service contracts will not require the Company to give 
an executive more than 12 months’ notice without prior 
shareholder approval. A shorter notice period may be 
offered where this is in line with market practice in an 
executive’s location. 

The Company is required to give to, and to receive 
from, each of the current Executive Directors 
12 months’ notice of termination. An Executive Director 
whose contract is terminated would be entitled to 
12 months’ salary and benefits in respect of their 
notice period. The payment of the salary and benefits 
would either be phased over the notice period or, 
alternatively, a payment in lieu of notice may be made. 

In agreeing the terms of departure for any Executive 
Director, other than on death or disablement, the 
Company will have regard to the need to mitigate the 
costs for the Company, which would be reduced or 
cease if departing Executives secure alternative paid 
employment during the notice period.

The treatment of outstanding deferred bonuses will be 
decided by the Committee taking into account the 
circumstances of the departure including the 
performance of the Executive Director. 

Deferred bonus awards are normally retained by 
participants leaving the Company. Awards will vest on 
the original timetable and will not normally be released 
early on termination. 

Prior to release, awards remain subject to the malus 
terms originally applied to them. The clawback 
provisions will continue to apply. 

Any Executive Director dismissed for cause would 
forfeit all outstanding deferred bonus awards.

Should an executive die, outstanding deferred bonus 
awards will be released as soon as possible after the 
date of death.

Should an Executive Director step down from the 
Board but remain employed by the Group, they would 
retain any outstanding deferred bonus awards. 
These awards would remain subject to the original 
rules and vesting schedule applied to them when they 
were awarded.

The treatment of unvested long-term incentives will be 
decided by the Committee taking into account the 
circumstances of the departure including the 
performance of the Executive Directors. 

Where an Executive Director is determined to be a 
good leaver, unvested long-term incentive awards will 
normally subsist. These awards will ordinarily be 
pro-rated based on time employed, will vest on the 
original timescale and will remain subject to the original 
performance conditions assessed over the entire 
performance period. 

Good leavers are defined as injury or disability, 
retirement with the approval of the employing 
company, the employing company ceasing to be a 
member of the Group, the business in which the 
individual is employed being transferred to a transferee 
that is not a member of the Group, or any other 
circumstances at the discretion of the Committee. 
Individuals who die in service will also be treated as 
good leavers.

Where an individual is not determined to be a good 
leaver, unvested long-term incentive awards will lapse 
on cessation of employment.

Prior to release, awards remain subject to the malus 
and clawback terms and holding periods originally 
applied to them. 

Any Executive Director dismissed for cause would 
forfeit all unvested long-term incentive awards.

If the Committee has judged that the departing 
Executive Director should retain their unvested 
long-term incentive awards with the expectation that:

(i)   the Executive Director is retiring from their 
professional executive career; and/or 

(ii)  the Executive Director will not be seeking to secure 
alternative employment with another organisation 
of comparable size as the Company or that is within 
the financial services sector

the Committee retains the power to lapse all unvested 
long-term incentive awards should the Committee 
deem that the Executive Director has secured similar 
paid executive employment elsewhere.

On death, disablement and in other exceptional 
circumstances, the Committee has discretion to 
release unvested long-term incentive awards earlier 
than the end of the vesting period. The malus and 
clawback provisions will continue to apply.

Should an Executive Director step down from the 
Board but remain employed by the Group, an 
executive would retain any outstanding long-term 
incentive awards which they held on their change of 
role. These awards would remain subject to the original 
rules, performance conditions and vesting schedule. 

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Element

Principle

Potential variations

On death, disablement and in other exceptional 
circumstances, the Committee has discretion to 
release vested long-term incentive awards earlier than 
the end of the holding period. The malus clawback 
provisions will continue to apply.

Should an Executive Director step down from the 
Board but remain employed by the Group, they would 
retain any vested long-term incentive awards that 
remain subject to the holding period. These awards 
would remain subject to the original rules and release 
schedule applied to them when they were awarded 
(ie the holding period will continue to apply).

Any Executive Director dismissed for cause would not 
be eligible for any bonus that has not been paid.

Should an Executive Director die whilst serving as an 
employee a time pro-rated bonus may be awarded. In 
such circumstances, deferral will not be applied and 
the payment will be made solely in cash. 

The Committee may decide to award an executive 
stepping down from the Board but remaining with the 
Group a bonus pro-rated to reflect the portion of the 
financial year which had elapsed on the date of their 
change of role. This would be calculated with reference 
to financial, functional and/or personal performance 
measures in the usual way. The Committee may 
determine that a portion of such a bonus must 
be deferred.

Vested long-term 
incentive awards, 
subject to the 
holding period

Bonus for final 
year of service

Other payments

The treatment of vested long-term incentives will be 
decided by the Committee taking into account the 
circumstances of the departure.

Executive Directors will normally retain their vested 
long-term incentive awards that remain subject to the 
holding period. Normally these awards will be released 
in accordance with the original timescale and will 
remain subject to the holding period.

Prior to release, awards remain subject to the malus 
and clawback terms originally applied to them. 

The payment of a bonus for the final year of service will 
be decided by the Committee giving full consideration 
to the circumstances of the departure including the 
performance of the Executive Director. 

The Committee may award a departing executive a 
bonus which will usually be pro-rated to reflect the 
portion of the final financial year in which they served 
which had elapsed on the last day of their employment. 
Any such bonus would be calculated with reference 
to financial, functional and/or personal performance 
measures in the usual way. The normal portion of any 
such bonus awarded must be deferred. 

Consistent with other employees, Executive Directors 
may receive payments to compensate them for the 
loss of employment rights on termination. Payments 
may include:

 — A nominal amount for agreeing to non-solicitation 

and confidentiality clauses;

 — Directors and Officers insurance cover for a 
specified period following the executives’ 
termination date;

 — Payment for outplacement services; 

 — Reimbursement of legal fees; and

 — Repatriation assistance.

The Committee reserves the right to make additional 
exit payments where such payments are made in 
good faith:

 — In discharge of an existing legal obligation (or by 

way of damages for breach of such an obligation); or

 — By way of settlement or compromise of any claim 
arising in connection with the termination of a 
Director’s office or employment. 

Post-Directorship 
guidelines

When an Executive Director leaves the Board they will 
be subject to post-Director Share ownership guidelines. 

Further details are included in the section on ‘Share 
ownership guidelines for Executive Directors’.

Further details are included in the section on ‘Share 
ownership guidelines for Executive Directors’.

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Policy on corporate transactions 

Treatment

Deferred Annual Incentive Plan Awards

In the event of a corporate transaction (eg takeover, material merger, winding up etc), 
the Committee will determine whether awards will:

 — Vest in part or in full; 

 — Continue in accordance with the rules of the plan; and/or

 — Lapse and, in exchange, the participant will be granted an award under any other 

share or cash incentive plan which the Committee considers to be broadly equivalent 
to the award. 

Prudential Long Term Incentive Plan

In the case of a corporate transaction (eg takeover, material merger, winding up etc), 
the Committee will determine whether awards will:

 — Be exchanged for replacement awards (either in cash or shares) of equal value unless 
the Committee and successor company agree that the original award will continue; or

 — Vest in part or in full and be released.

Where awards vest/ are released the Committee will have regard to the performance 
of the Company, the time elapsed between the date of grant and the relevant event 
and any other matter that the Committee considers relevant or appropriate.

Service contracts 
Executive Directors’ service contracts provide details of the broad types of remuneration to which they are entitled, and about the 
kinds of plans in which they may be invited to participate. The service contracts offer no certainty as to the value of performance-related 
reward and confirm that any variable payment will be at the discretion of the Company. 

Copies of the service contract between the Prudential Group and each of the Executive Directors are available for inspection at 
Prudential’s registered office during normal hours of business and will also be available at any General Meeting of the Company. 
Details of the duration of the Executive Directors’ service contracts are set out in the ‘Directors’ terms of employment and external 
appointments’ section of the Annual report on remuneration.

Statement of consideration of conditions elsewhere in the Company
Across the Group, remuneration is reviewed regularly with the intention that all employees are paid appropriately in the context of 
their local market and given their individual skills, experience and performance. Each business unit’s salary increase budget is set with 
reference to local market conditions. The Committee considers salary increase budgets across the workforce when determining the 
salaries of Executive Directors. 

Prudential does not specifically consult with employees when setting the Directors’ remuneration policy: Prudential is a global 
organisation with employees and agents in multiple business units and geographies. We do have a mechanism for designated 
Non-executive Directors to gather employees’ views on a range of topics and for these views to be represented to the Board. As many 
employees are also shareholders, they are able to participate in binding votes on the Directors’ remuneration policy and annual votes 
on the Annual report on remuneration. 

Statement of consideration of shareholder views
The Committee and the Company undertake regular consultation with key institutional investors on the Directors’ remuneration policy 
and implementation. This engagement is led by the Committee Chairman and is an integral part of the Company’s investor relations 
programme. The Committee is grateful to shareholders for the feedback that is provided and takes this into account when determining 
executive remuneration.

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Remuneration policy for Non-executive Directors and the Chairman 

Fees

Benefits

Share Ownership Guidelines

Non-executive Directors do 
not currently receive benefits 
or a pension allowance or 
participate in the Group’s 
employee pension schemes.

Travel and business expenses 
for Non-executive Directors 
are incurred in the normal 
course of business, for 
example, in relation to 
attendance at Board and 
Committee meetings. The 
costs associated with these are 
all met by the Company, 
including any tax liabilities 
arising on these business 
expenses.

Under the Articles of 
Association, all Non-executive 
Directors are required to hold 
at least 2,500 shares and have 
one year, from their date of 
appointment to the Board, 
to acquire these.

It is further expected that 
Non-executive Directors will 
hold shares with a value 
equivalent to one times the 
annual basic fee (excluding 
additional fees for 
chairmanship and membership 
of any committees). 

Non-executive Directors will 
normally be expected to attain 
this level of share ownership 
within three years of their date 
of appointment.

Non-executive 
Directors

All Non-executive Directors receive a basic 
fee for their duties as a Board member. 
Additional fees are paid for added 
responsibilities such as chairmanship 
and membership of committees, acting 
as the Senior Independent Director or 
designation to carry out the workforce 
engagement role. Fees are paid to 
Non-executive Directors, subject to the 
appropriate deductions.

The basic and additional fees are reviewed 
annually by the Board with any changes 
effective from 1 July. In determining the 
level of fees the Board considers:

 — The time commitment and other 

requirements of the role;

 — Group financial performance;

 — Salary increases for all employees; and

 — Market data.

If, in a particular year, the number of 
meetings is materially greater than usual, 
the Company may determine that the 
provision of additional fees in respect 
of that year is fair and reasonable.

Should a new committee be formed, 
or the remit of an existing committee 
be materially expanded, the new or 
additional fees paid for the chairmanship 
or membership of the committee will be 
commensurate with the new or additional 
responsibilities and time commitment 
involved.

Non-executive Directors are not eligible 
to participate in annual bonus plans or 
long-term incentive plans.

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Chairman

Fees

Benefits

Share Ownership Guidelines

Under the Articles of 
Association, the Chairman is 
required to hold at least 2,500 
shares and has one year, from 
their date of appointment to 
the Board, to acquire these.

The Chairman has a share 
ownership guideline. This is 
currently one times the annual 
fee and it is normally expected 
that this level of share 
ownership would be attained 
within five years of the date 
of appointment.

The Chairman receives an annual fee for 
the performance of their role. This fee is 
agreed by the Committee and is paid to the 
Chairman in cash, subject to the 
appropriate deductions. On appointment, 
the fee may be fixed for a specified period 
of time. Following the fixed period 
(if applicable) this fee will be reviewed 
annually. Changes in the fee are effective 
from 1 July.

In determining the level of the fee for the 
Chairman the Committee considers:

 — The time commitment and other 

requirements of the role;

The Chairman may be offered 
benefits including:

 — Health and wellness 

benefits;

 — Protection and security 

benefits;

 — Transport benefits;

 — Reimbursement of business 

expenses (and any 
associated tax liabilities) 
incurred when travelling 
overseas in performance 
of duties; and

 — The performance and experience 

 — Relocation and expatriate 

of the Chairman;

 — Internal relativities;

 — Company financial performance; and

 — Market data.

The Chairman is not eligible to participate 
in annual bonus plans or long-term 
incentive plans.

benefits (where 
appropriate).

The maximum paid will be 
the cost to the Company of 
providing these benefits. 

The Chairman is not eligible 
to receive a pension allowance 
or to participate in the Group’s 
employee pension schemes.

Recruitment of a new Chairman or Non-executive Director
The fees for a new Non-executive Director will be consistent with the current basic fee paid to other Non-executive Directors (as set out 
in the Annual report on remuneration for that year) and will be reflective of their additional responsibilities as chair and/or members of 
Board committees.

The fee for a new Chairman will be set with reference to the time commitment and other requirements of the role, the experience of the 
candidate, as well as internal relativities among the other Executive and Non-executive Directors. To provide context for this decision, 
data would be sought for suitable market reference point(s). 

Notice periods – Non-executive Directors and Chairman
Non-executive Directors are appointed pursuant to letters of appointment with notice periods of six months without liability for 
compensation. A contractual notice period of 12 months by either party applies for the Non-executive Chairman. The Chairman would 
not be entitled to any payments for loss of office. Details of the individual appointments of the Chairman and Non-executive Directors 
are set out in the ‘Letters of appointment of the Chairman and Non-executive Directors’ section of the Annual report on remuneration.

For information on the terms of appointment for the Chairman and Non-executive Directors please see page 168. 

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Changes from 2017 policy
The proposed Directors’ remuneration policy generally reflects that approved by shareholders in May 2017. The principal differences 
are set out below. Additionally, minor changes have been made to provide alignment with the UK Corporate Governance Code and to 
generally improve clarity.

 — The Solvency II capital metric in the AIP and PLTIP scorecard is to be replaced with a Pillar I capital metric;

 — The weightings of the AIP performance measures for the Group Chief Risk and Compliance Officer are 40 per cent Group financial 

measures, 40 per cent functional objectives and 20 per cent personal measures. In the 2017 policy, the measures were entirely based 
on a combination of personal and functional measures;

 — A Return on Equity measure replaces the operating profit measure in the PLTIP;

 — Under the PLTIP, 20 per cent of each portion of the award will vest for achieving threshold performance. This change was 

implemented for 2019 PLTIP awards and it is now reflected in this policy. For prior awards, threshold performance resulted in 
25 per cent of awards vesting;

 — The Committee intends to make a 2020 PLTIP award of 300 per cent of salary to the Group Chief Financial Officer and Chief Operating 

Officer (increased from 250 per cent of salary);

 — From the date of this policy, current Executive Directors will receive pension contributions of 22.5 per cent of base salary, reducing 
to 20 per cent of base salary from 14 May 2021. New Executive Directors, either externally recruited or promoted from within the 
Company, will be entitled to receive pension contributions or a cash supplement (or a combination of the two) of 13 per cent of base 
salary. In addition, statutory contributions will continue to be made to mandatory pension arrangements in the country in which the 
Executive Directors are based in line with the local requirements. The 2017 policy offered all Executive Directors pension benefits 
of 25 per cent of salary; and

 — Executive Directors will, on leaving the Board, be required to hold the lower of their actual shareholding on the date of their retirement 

from the Board and their in-employment share ownership guideline for a period of two years. 

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Principles underlying the policy
In particular, when determining the new Directors’ remuneration policy the Committee had regard to a number of key principles 
as illustrated below and opposite:

Simplicity

The Committee has decided to retain the key features of the current policy. It continues to consist 
of fixed remuneration, annual and long-term incentives only.

Stakeholders are familiar with the operation of current reward arrangements and there is a 
demonstrable link between performance and reward outcome.

Risk

The Group Risk Committee formally provides advice to the Committee on risk management 
considerations to inform decisions over bonus payments and long-term incentive vesting levels.

The current policy provides the Committee with substantial flexibility to adjust incentive 
outcomes, to reduce or cancel unvested awards and to reclaim both bonus and long-term 
incentive payments. The Committee’s discretionary powers have been formalised and additional 
malus and clawback triggers for personal conduct introduced in relation to the AIP and PLTIP to 
take into account non-financial and individual factors.

The time horizon for our long-term incentives extends for five years, including the holding period 
on awards.

There are currently significant in-employment share ownership guidelines for all Executive 
Directors providing a material connection to the sustained success of the Company. Executives 
have five years from the later of the date of their appointment, or the date of an increase these 
guidelines, to build this level of ownership.

A post-employment shareholding requirement has been introduced for Executive Directors 
leaving the Board to maintain their in-employment share ownership guideline for a period of two 
years or their actual shareholding on the date of their retirement from the Board if lower, subject to 
Committee discretion. This obligation will be implemented by requiring Executive Directors 
retiring from the Board to obtain clearance to deal in the Company’s shares during the two years 
following their retirement.

Executive Directors recruited externally or internally from the date of the 2020 AGM will be 
offered pension benefits of 13 per cent of salary, aligned with the employer pension contribution 
available to the UK workforce. For existing Directors, pension benefits will be reduced from 
25 per cent to 20 per cent of salary by May 2021.

The conduct measure in the PLTIP rewards for appropriate management action in ensuring that 
there are no significant conduct/culture/governance issues that result in significant capital 
add-ons or material fines.

The pay arrangements for Executive Directors are aligned with that of the senior leadership team.

The vesting period attached to the long-term incentives reflects the time horizon of the business 
plan. The additional post-vesting holding period and post-employment shareholding requirement 
strengthens the community of interests between Executives and other stakeholders.

Alignment to culture

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Clarity

The Committee has consulted with the Company’s largest shareholders and their advisers on the 
changes to the policy and executive pay decisions before they are implemented.

Details on Executive Director pay are clearly set out in the Annual report on remuneration.

Proportionality

There are no incentive awards for below threshold performance. Financial targets are set against 
the Board approved Plan.

Under the PLTIP, 20 per cent of each portion of the award will vest for achieving threshold 
performance.

The Committee approves the termination arrangements of Executive Directors to ensure that 
there is no reward for failure.

The PLTIP leaver rules are another safeguard that there is no reward for failure under this plan.

The Committee’s discretionary powers have been formalised and additional malus and clawback 
triggers for personal conduct introduced in relation to the AIP and PLTIP to take into account 
non-financial and individual factors.

Predictability

The level of awards under incentive awards to Executive Directors at threshold, on-target and 
maximum levels are defined and have been outlined in the scenarios of total remuneration charts 
for the new policy.

Signed on behalf of the Board of Directors

Anthony Nightingale, CMG SBS JP 
Chair of the Remuneration Committee 

10 March 2020 

Paul Manduca
Chairman

10 March 2020

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
Additional remuneration disclosures

Directors’ outstanding long-term incentive awards
Share-based long-term incentive awards

 Conditional 
 share awards 
 outstanding 
at 1 Jan 
2019

 Year of
award

Plan 
name

Conditional 
 awards 
in 2019

Demerger 
 adjustment 
in 20191

  (Number of 
  shares)

  (Number of 
  shares)

101,360
106,611

15,687
16,499
19,094

123,376

207,971

123,376

51,280

33,116
27,940
89,439

4,324
13,842
16,029

103,571

Market 
price at 
date of 
award

  (pence)

1828
1750
1605.5

1279
1672
1750
1605.5

Dividend 
 equivalents 
on vested 
shares2
  (Number of 
  shares 
  released) 

Rights 
exercised 
in 2019

Conditional 
 share awards 
outstanding 
at 31 Dec 
2019

Rights 
lapsed 
in 2019

Date of
end of
 performance
period

  (Number of 
  shares)

117,047 31 Dec 19
123,110 31 Dec 20
142,470 31 Dec 21

–

–

–

382,627

1,905

20,697

12,419

– 31 Dec 18
32,264 31 Dec 19
103,281 31 Dec 20
119,600 31 Dec 21

150,495

103,571

34,195

1,905

20,697 12,419

255,145

332,870
263,401
257,813

40,765
39,900
46,188

1279
1672
1750
1605.5

298,441

19,174 208,043 124,827

– 31 Dec 18
304,166 31 Dec 19
297,713 31 Dec 20
344,629 31 Dec 21

854,084

298,441 126,853

19,174 208,043 124,827

946,508

Mark FitzPatrick PLTIP
PLTIP
PLTIP

James Turner

Mike Wells 

PLTIP
PLTIP
PLTIP
PLTIP

PLTIP
PLTIP
PLTIP
PLTIP

2017
2018
2019

2016
2017
2018
2019

2016
2017
2018
2019

Notes
1  The table above reflects the adjustments made to outstanding awards at the time of the demerger.
2  A dividend equivalent was accumulated on these awards. 

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Other share awards
The table below sets out Executive Directors’ deferred bonus share awards: 

Year of 
grant

Conditional
  share awards
 outstanding
at 1 Jan 
2019 
  (Number of 
  shares)

 Conditionally
 awarded
 in 2019
  (Number of 
  shares)

Dividends
 accumulated
in 20191
  (Number of 
  shares)

Shares
 released
 in 2019
  (Number of 
  shares)

Demerger 
 adjustment2

 Conditional
 share 
awards
 outstanding
 at 31 Dec 
2019
  (Number of 
  shares)

Date of 
end of 
restricted
period

Date of
 release

Market
 price at
date of
award

Market
 price at
 date of
 vesting or
 release 

   (pence)

  (pence)

Mark FitzPatrick
Deferred  

2017 annual 
incentive award

Deferred  

2018 annual 
incentive award

James Turner
Deferred  

2015 group 
deferred bonus 
plan award

Deferred  

2018

28,119

907

4,492

33,518 31 Dec 20

1750

2019

28,119

32,223

32,223

1,040

1,947

5,148

38,411 31 Dec 21

1605.5

–

9,640

71,929

2016

5,440

5,440

– 31 Dec 18 01 Apr 19

1279

1557

2018 annual 
incentive award

2019

20,605

20,605

664

664

5,440

3,291

24,560 31 Dec 21

1605.5

5,440

3,291

24,560

2016 112,720

112,720

– 31 Dec 18 01 Apr 19

1279

1557

Mike Wells 
Deferred  

2015 annual 
incentive award

Deferred  

2016 annual 
incentive award

Deferred  

2017 annual 
incentive award

Deferred  

2017

54,060

2018

48,664

2018 annual 
incentive award

2019

215,444

55,394

55,394

1,744

1,570

1,787

8,636

64,440 31 Dec 19

7,774

58,008 31 Dec 20

1672

1750

8,849

66,030 31 Dec 21

1605.5

5,101

112,720

25,259 188,478

Notes
1  A dividend equivalent was accumulated on these awards.
2  The table above reflects the adjustments made to outstanding awards at the time of the demerger.

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ADDITIONAL REMUNERATION DISCLOSURES  
CONTINUED

All-employee share plans
It is important that all employees are offered the opportunity to own shares in Prudential, connecting them both to the success of the 
Company and to the interests of other shareholders. Executive Directors are invited to participate in these plans on the same basis as 
other staff in their location.

Save As You Earn (SAYE) schemes
UK-based Executive Directors are normally eligible to participate in the HM Revenue and Customs (HMRC) approved Prudential 
Savings-Related Share Option Scheme. This scheme allows all eligible employees to save towards the exercise of options over 
Prudential plc shares with the option price set at the beginning of the savings period at a discount of up to 20 per cent of the market price.

Since 2014 participants have been able to elect to enter into savings contracts of up to £500 per month for a period of three or five years. 
At the end of this term, participants may exercise their options within six months and purchase shares. If an option is not exercised within 
six months, participants are entitled to a refund of their cash savings plus interest if applicable under the rules. Shares are issued to satisfy 
those options which are exercised. No options may be granted under the schemes if the grant would cause the number of shares which 
have been issued, or which remain issuable pursuant to options granted in the preceding 10 years under the scheme and any other option 
schemes operated by the Company, or which have been issued under any other share incentive scheme of the Company, to exceed 
10 per cent of the Company’s ordinary share capital at the proposed date of grant. In anticipation of the demerger of the M&G plc 
business the Company did not operate the SAYE in 2018 and it was relaunched in November 2019. 

Details of Executive Directors’ rights under the SAYE scheme are set out in the ‘Outstanding share options’ table.

Share Incentive Plan (SIP)
UK-based Executive Directors are also eligible to participate in the Company’s Share Incentive Plan (SIP). Since April 2014, all UK-based 
employees have been able to purchase Prudential plc shares up to a value of £150 per month from their gross salary (partnership shares) 
through the SIP. For every four partnership shares bought, an additional matching share is awarded which is purchased by Prudential plc 
on the open market. Dividend shares accumulate while the employee participates in the plan. If the employee withdraws from the plan, 
or leaves the Group, matching shares may be forfeited. 

The table below provides information about shares purchased under the SIP together with matching shares (awarded on a 1:4 basis) 
and dividend shares:

Mark FitzPatrick
James Turner
Mike Wells

Year of 
initial grant

 Share Incentive
 Plan awards 
held in Trust 
at 1 Jan 2019
  (Number of
   shares)

Partnership 
shares 
accumulated 
in 2019
  (Number of
   shares)

Matching 
shares 
accumulated 
in 2019
  (Number of
   shares)

Dividend 
shares 
accumulated 
in 2019
  (Number of
   shares)

 Share Incentive 
Plan awards 
held in Trust 
at 31 Dec 
2019
  (Number of
   shares)

2017
2011
2015

214
709
548

119
76
120

30
19
30

9
25
21

372
829
719

Cash-settled long-term incentive awards
This information has been prepared in line with the reporting requirements of the Hong Kong Stock Exchange and sets out Executive 
Directors’ outstanding share awards and share options. For details of the cash-settled long-term incentive awards held by one Executive 
Director, please see our 2018 Annual report on remuneration. 

Dilution
Releases from the Prudential Long Term Incentive Plan and the Prudential Agency Long Term Incentive Plan are satisfied using new issue 
shares rather than by purchasing shares in the open market. Shares relating to options granted under all-employee share plans are also 
satisfied by new issue shares. The combined dilution from all outstanding shares and options at 31 December 2019 was 1 per cent of the 
total share capital at the time. Deferred bonus awards will continue to be satisfied by the purchase of shares in the open market.

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Remuneration of the five highest-paid individuals and the remuneration of senior management
In line with the requirements of the Stock Exchange of Hong Kong Limited, the following table sets out, on an aggregate basis, the annual 
remuneration of i) the five highest-paid employees, and ii) senior management for the year ended 31 December 2019.

Of the five individuals with the highest emoluments in 2019, one was an Executive Director for the full year whose emoluments are 
disclosed in this report. The aggregate of the emoluments of the other four individuals for 2019 were are set out in the table below. 
In light of a change to the Board’s definition of senior management during 2019, senior management comprised the Executive Directors, 
plus from 1 August 2019, members of the Group Executive Committee. The table sets outs the aggregate of the emoluments paid to the 
senior management team:

Components of remuneration

Base salaries, allowances and benefits in kind
Pension contributions
Performance related pay
Payments made on appointment
Payments made on separation

Total

Their emoluments for 2019 were within the following bands:

 Five highest paid 

Senior management

  HK$000

28,727
4,598
124,502
49,505
62,681

270,013

£000

  HK$000

2,872
460
12,448
4,950
6,267

26,997

63,251
11,777
152,481
49,505
–

277,014

£000

6,324
1,178
15,246
4,950
–

27,698

Remuneration band HKD

7,500,001 – 8,000,000

8,500,001 – 9,000,000

10,000,001 – 10,500,000

25,000,001 – 25,500,000

34,500,001 – 35,000,000

39,500,001 – 40,000,000

48,000,001 – 48,500,000

62,500,001 – 63,000,000

67,000,001 – 67,500,000

83,500,001 – 84,000,000

92,000,001 – 92,500,000

Remuneration band GBP equivalent

Number of employees

Five highest 
paid

Senior 
management

749,888 – 799,880

849,873 – 899,865

999,850 – 1,049,843

2,499,625 – 2,549,618

3,449,483 – 3,499,475

3,949,408 – 3,999,400

4,799,280 – 4,849,273

6,249,063 – 6,299,055

6,698,995 – 6,748,988

8,348,748 – 8,398,740

9,198,620 – 9,248,613

–

–

–

–

–

–

1

1

1

–

1

1

1

1

1

1

1

–

–

1

1

–

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05

Financial 
statements

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05

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Index to Group IFRS financial statements

Parent company financial statements

Notes on the parent company financial statements

Statement of Directors’ responsibilities

Independent auditor’s report to Prudential plc

Page

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197

 
 
 
 
 
 
 
 
 
 
 
Index to Group IFRS financial statements

Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of financial position
Consolidated statement of cash flows

Page

199
200
201
203
204

Section

Page

Section

Notes to the primary statements
A 
A1
A2
A3
A4

Basis of preparation and accounting policies
Basis of preparation and exchange rates
Discontinued operations
New accounting pronouncements in 2019
Accounting policies
Critical accounting policies, estimates 
and judgements
New accounting pronouncements not yet effective

B
B1

B2

B3

B4

B5
B6

C
C1

C2

C3

A4.1

A4.2

B1.1
B1.2

B1.3

B1.4
B1.5
B1.6

B2.1
B2.2
B2.3
B2.4

B4.1
B4.2

B6.1
B6.2

C2.1
C2.2

C3.1
C3.2
C3.3
C3.4

Earnings performance
Analysis of performance by segment
Segment results
Short-term fluctuations in investment returns on 
shareholder-backed business
Determining operating segments and 
performance measure of operating segments
Segmental income statement
Other investment return
Additional analysis of performance 
by segment components
Acquisition costs and other expenditure
Staff and employment costs
Share-based payment
Key management remuneration
Fees payable to the auditor
Effect of changes and other accounting matters 
on insurance assets and liabilities
Tax charge from continuing operations
Total tax charge by nature of expense
Reconciliation of shareholder effective tax rate
Earnings per share
Dividends
Demerger dividend in specie of M&G plc
Other dividends

Financial position notes
Analysis of Group statement of financial position 
by segment
Analysis of segment statement of financial position 
by business type
Asia
US
Assets and liabilities
Group assets and liabilities – measurement
Debt securities
Loans portfolio
Financial instruments – additional information

C4

C5

C6

C7

C8

C9
C10
C11
C12

C13

D
D1

D2
D3
D4
D5
D6
D7

C4.1
C4.2 
C4.3 
C4.4

C5.1
C5.2

C6.1

C6.2

C7.1
C7.2
C7.3
C7.4

C8.1
C8.2

Policyholder liabilities and unallocated surplus
Group overview
Asia insurance operations
US insurance operations
Products and determining contract liabilities
Intangible assets
Goodwill 
Deferred acquisition costs and other 
intangible assets 
Borrowings
Core structural borrowings of 
shareholder-financed businesses
Operational borrowings
Risk and sensitivity analysis
Group overview
Asia insurance operations
US insurance operations
Asset management and other operations
Tax assets and liabilities
Current tax
Deferred tax
Defined benefit pension schemes
Share capital, share premium and own shares
Provisions 
Capital

C12.1 Group objectives, policies and processes 

C12.2
C12.3

for managing capital
Local capital regulations
Transferability of available capital
Property, plant and equipment

D1.1
D1.2

Other information
Gain (loss) on disposal of business 
and corporate transactions
Gain (loss) on disposal of business
Other corporate transactions 
Discontinued UK and Europe operations
Contingencies and related obligations
Post balance sheet events
Related party transactions
Commitments
Investments in subsidiary undertakings, 
joint ventures and associates

205
206
206
208
208

215

219
220

221

225
227
227

229
229
230
232
233
233

233
234
235
237

238
238

239

242

242
243

244
250
255
256

Page

262
262
265
267
268

276
277

280

281

282
283
285
289
289
289
289
290
290
292

292

293
294
295

296

296
296
297
298
298
298
299
299

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Consolidated income statement

Continuing operations:
Gross premiums earned
Outward reinsurance premiums

Earned premiums, net of reinsurance
Investment return
Other income

Total revenue, net of reinsurance 

Benefits and claims
Reinsurers’ share of benefits and claims
Movement in unallocated surplus of with-profits funds

Benefits and claims and movement in unallocated surplus of with-profits funds,  

net of reinsurance

Acquisition costs and other expenditure
Finance costs: interest on core structural borrowings of shareholder-financed businesses
(Loss) on disposal of businesses and corporate transactions

Total charges net of reinsurance

Share of profit from joint ventures and associates net of related tax

Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) note
Remove tax charge attributable to policyholders’ returns

Profit before tax attributable to shareholders’ returns
Total tax charge attributable to shareholders’ and policyholders’ returns
Remove tax charge attributable to policyholders’ returns
Tax credit (charge) attributable to shareholders’ returns

Profit from continuing operations
Discontinued UK and Europe operations’ profit after tax
Re-measurement of discontinued operations on demerger
Cumulative exchange loss recycled from other comprehensive income
(Loss) profit from discontinued operations

Profit for the year

Attributable to:

Equity holders of the Company
From continuing operations
From discontinued operations

  Non-controlling interests from continuing operations

Profit for the year

Earnings per share (in cents)

Based on profit attributable to equity holders of the Company:
  Basic

  Based on profit from continuing operations
  Based on (loss) profit from discontinued operations

  Diluted

  Based on profit from continuing operations
  Based on (loss) profit from discontinued operations

Note

2019  $m

2018*  $m

B1.4

B1.4

B1.4

B1.4

C4.1(iii)

C4.1(iii)

C4.1(iii)

B1.4

B2

D1.1

B1.4

D7

B1.1

B4.1

B4.1

D2

D2

D2

45,064
(1,583)

43,481
49,555
700

93,736

(85,475)
2,985
(1,415)

(83,905)
(7,283)
(516)
(142)

(91,846)

397

2,287
(365)

1,922
(334)
365
31

1,953
1,319
188
(2,668)
(1,161)

792

1,944
(1,161)
9

792

45,614
(1,183)

44,431
(9,117)
531

35,845

(26,518)
1,598
1,494

(23,426)
(8,527)
(547)
(107)

(32,607)

319

3,557
(107)

3,450
(676)
107
(569)

2,881
1,142
–
–
1,142

4,023

2,877
1,142
4

4,023

Note

B5

2019

2018*

75.1¢
(44.8)¢

30.3¢

75.1¢
(44.8)¢

30.3¢

111.7¢
44.3¢

156.0¢

111.7¢
44.3¢

156.0¢

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Group’s presentation currency from pounds sterling to US dollars (as 

described in note A1) and the reclassification of the Group’s UK and Europe operations as discontinued operations in 2019 (as described in note A2).

Note
This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those 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, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the 
cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
 
 
 
 
 
 
Consolidated statement  
of comprehensive income

Profit for the year from continuing operations
Other comprehensive income (loss) from continuing operations:
Items that may be reclassified subsequently to profit or loss
Exchange movements on foreign operations and net investment hedges:

Exchange movements arising during the year
Related tax

Valuation movements on available-for-sale debt securities: 

Net unrealised gains (losses) on holdings
Deduct net gains included in the income statement on disposal and impairment

Related change in amortisation of deferred acquisition costs 
Related tax

Total items that may be reclassified subsequently to profit or loss
Items that will not be reclassified to profit or loss
Shareholders’ share of actuarial gains and losses on defined benefit pension schemes:

Net actuarial (losses) gains on defined benefit pension schemes
Related tax

Total items that will not be reclassified to profit or loss

Other comprehensive income (loss) from continuing operations

Total comprehensive income from continuing operations

(Loss) profit from discontinued operations
Cumulative exchange loss recycled through profit or loss
Other items, net of related tax
Total comprehensive income from discontinued operations

Total comprehensive income for the year

Attributable to:

Equity holders of the Company
From continuing operations
From discontinued operations

Non-controlling interests from continuing operations

Total comprehensive income for the year

Note

2019  $m

2018*  $m

1,953

2,881

C5.2

D2

D2

D2

152
(15)

137

4,208
(185)
4,023
(631)
(713)

2,679

2,816

(108)
19
(89)

2,727

4,680

(1,161)
2,668
203
1,710

6,390

4,669
1,710
11

6,390

(39)
7

(32)

(2,144)
(15)
(2,159)
328
385

(1,446)

(1,478)

26
(5)
21

(1,457)

1,424

1,142
–
(605)
537

1,961

1,419
537
5

1,961

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Group’s presentation currency from pounds sterling to US dollars (as 

described in note A1) and the reclassification of the Group’s UK and Europe operations as discontinued operations in 2019 (as described in note A2).

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Consolidated statement 
of changes in equity

Year ended 31 Dec 2019  $m

Note

Share 
capital

Share
 premium

Retained
 earnings

Translation
 reserve*

Available-
for-sale
 securities 
reserves

Share-
holders’
 equity

Non-
controlling
 interests

Total 
equity

Reserves
Profit from continuing operations
Other comprehensive income (loss) from 

continuing operations:
Exchange movements on foreign 
operations and net investment 
hedges net of related tax

Net unrealised valuation movements 

net of related change in 
amortisation of deferred acquisition 
costs and related tax

Shareholders’ share of actuarial gains 
and losses on defined benefit 
pension schemes net of related tax

Total other comprehensive income (loss) 

from continuing operations

Total comprehensive income from 

continuing operations

Total comprehensive income (loss) from 

discontinued operations

Total comprehensive income for the year

Demerger dividend in specie of M&G plc
Other dividends
Reserve movements in respect of 

share-based payments 

Change in non-controlling interests
Movements in respect of option to 
acquire non-controlling interests

Share capital and share premium
New share capital subscribed 
Impact of change in presentation 

currency in relation to share capital 
and share premium

Treasury shares
Movement in own shares in respect of 

share-based payment plans
Movement in Prudential plc shares 

purchased by unit trusts consolidated 
under IFRS

Net increase (decrease) in equity
Balance at beginning of year

Balance at end of year

B6.1

B6.2

C10

C10

–

–

–

–

–

–

–

–

–
–

–
–

–

–

6

–

–

–

1,944

–

–

1,944

9

1,953

–

–

–

–

–

–

–

–
–

–
–

–

22

101

–

–

–

–

(89)

135

–

135

–

–

2,679

2,679

–

(89)

(89)

135

2,679

2,725

1,855

135

2,679

4,669

(1,098)

2,808

–

757

2,943

2,679

(7,379)
(1,634)

64
–

(143)

–

–

38

55

–
–

–
–

–

–

–

–

–

–
–

–
–

–

–

–

–

–

1,710

6,379

(7,379)
(1,634)

64
–

–
158

(143)

22

107

38

55

–

–

–

–

–

2

–

–

2

11

–

11

–
–

137

2,679

(89)

2,727

4,680

1,710

6,390

(7,379)
(1,634)

64
158

(143)

22

107

38

55

6
166

172

123
2,502

(8,242)
21,817

2,943
(2,050)

2,679
(2,491)
(467) 21,968

2,625

13,575

893

2,212

19,477

169
23

192

(2,322)
21,991

19,669

* The $2,808 million movement in translation reserve from discontinued operations is recognised in other comprehensive income and represents an exchange gain of $140 million on 

translating the results from discontinued operations during the period of ownership and the recycling of the cumulative exchange loss of $2,668 million through the profit or loss upon 
the demerger. The Group’s accounting principles on foreign exchange translation are described in note A1.

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201

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationCONSOLIDATED STATEMENT OF CHANGES IN EQUITY 
CONTINUED

Year ended 31 Dec 2018*  $m

Note

Share 
capital

Share
 premium

Retained
 earnings

Translation
 reserve

Available-
 for-sale
 securities 
reserves

Share-
holders’
 equity

Non-
controlling
 interests

Total 
equity

–

2,877

–

–

2,877

4

2,881

Reserves
Profit from continuing operations
Other comprehensive income (loss) from 

continuing operations:
Exchange movements on foreign 
operations and net investment 
hedges net of related tax

Net unrealised valuation movements 

net of related change in 
amortisation of deferred acquisition 
costs and related tax

Shareholders’ share of actuarial gains 
and losses on defined benefit 
pension schemes net of related tax

Total other comprehensive income (loss) 

from continuing operations

Total comprehensive income (loss) from 

continuing operations

Total comprehensive income from 

discontinued operations

Total comprehensive income (loss)  

for the year

Dividends
Reserve movements in respect of 

share-based payments 

Change in non-controlling interests
Movements in respect of option to 
acquire non-controlling interests

Share capital and share premium
New share capital subscribed 
Impact of change in presentation 

currency in relation to share capital 
and share premium

Treasury shares
Movement in own shares in respect of 

share-based payment plans
Movement in Prudential plc shares 

purchased by unit trusts consolidated 
under IFRS

Net increase (decrease) in equity
Balance at beginning of year

Balance at end of year

–

–

–

–

–

–

–

–

–

–
–

–

1

B6.2

C10

–

–

(9)
175

166

C10

(10)

(155)

–

–

–

–

–

–

–

–

–
–

–

22

–

–

–

–

21

21

(33)

–

(33)

–

–

(1,446)

(1,446)

–

21

(33)

(1,446)

(1,458)

2,898

(33)

(1,446)

1,419

1,218

(681)

–

537

4,116

(714)

(1,446)

1,956

(1,662)

92
–

(146)

–

–

39

69

–

–
–

–

–

–

–

–

–

–
–

–

–

–

–

–

(1,662)

92
–

(146)

23

(165)

39

69

(133)
2,635

2,508
19,309

(714)
(1,336)

(1,446)
979

206
21,762

2,502

21,817

(2,050)

(467)

21,968

1

–

–

1

5

–

5

–

–
9

–

–

–

–

–

14
9

23

(32)

(1,446)

21

(1,457)

1,424

537

1,961

(1,662)

92
9

(146)

23

(165)

39

69

220
21,771

21,991

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Group’s presentation currency from pounds sterling to US dollars (as 

described in note A1) and the reclassification of the Group’s UK and Europe operations as discontinued operations in 2019 (as described in note A2).

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prudentialplc.com

Consolidated statement  
of financial position

Assets
Goodwill
Deferred acquisition costs and other intangible assets
Property, plant and equipment note (i)
Reinsurers’ share of insurance contract liabilities
Deferred tax assets
Current tax recoverable
Accrued investment income
Other debtors
Investment properties
Investments in joint ventures and associates accounted for using the equity method
Loans
Equity securities and holdings in collective investment schemes note (ii)
Debt securities note (ii)
Derivative assets
Other investments note (ii)
Deposits
Assets held for sale
Cash and cash equivalents

Total assets

Equity
Shareholders’ equity
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 with-profits funds
Core structural borrowings of shareholder-financed businesses
Operational borrowings note (i)
Obligations under funding, securities lending and sale and repurchase agreements
Net asset value attributable to unit holders of consolidated investment funds
Deferred tax liabilities
Current tax liabilities
Accruals, deferred income and other liabilities
Provisions
Derivative liabilities
Liabilities held for sale

Total liabilities

Total equity and liabilities 

The parent company statement of financial position is presented on page 310.

Note

C5.1

C5.2

C13

C4.1(iv)

C8.2

C8.1

C1

C1

C3.3

C3.2

C3.4

C1

C4.1

C4.1

C4.1

C4.1

C6.1

C6.2

C8.2

C8.1

C11

C3.4

C1

31 Dec 2019 
$m
note (iii)

31 Dec 2018 
$m
notes (iii),(iv)

1 Jan 2018 
$m
notes (iii),(iv)

969
17,476
1,065
13,856
4,075
492
1,641
2,054
25
1,500
16,583
247,281
134,570
1,745
1,302
2,615
–
6,965

454,214

19,477
192

19,669

380,143
633
4,902
4,750
5,594
2,645
8,901
5,998
5,237
396
14,488
466
392
–

434,545

454,214

2,365
15,185
1,795
14,193
3,305
787
3,501
5,207
22,829
2,207
22,938
273,484
223,333
4,450
8,294
15,023
13,472
15,442

647,810

21,968
23

21,991

410,947
85,858
24,481
20,180
9,761
6,289
8,901
14,839
5,122
723
19,421
1,373
4,465
13,459

625,819

647,810

2,005
14,896
1,067
13,086
3,554
829
3,620
4,009
22,317
1,916
23,054
302,203
231,835
6,495
7,605
15,200
51
14,461

668,203

21,762
9

21,771

443,952
84,789
27,589
22,931
8,496
7,450
7,660
12,025
6,378
726
19,190
1,519
3,727
–

646,432

668,203

Notes
(i) 

(ii) 

(iii) 

(iv) 

As at 1 January 2019, the Group applied IFRS 16 ‘Leases’, using the modified retrospective approach. Under this approach, comparative information is not restated. The application 
of the standard has resulted in the recognition of an additional lease liability and a corresponding ‘right-of-use’ asset of a similar amount as at 1 January 2019. See note A3 and note 
C13 for further details. 
Included within equity securities and holdings in collective investment schemes, debt securities and other investments are $90 million of lent securities as at 31 December 2019 
(31 December 2018: $10,543 million, of which $107 million were from continuing operations).
The Group has adopted a change in its presentation currency from pounds sterling to US dollars at 31 December 2019 as described in note A1. Accordingly, the 31 December 2018 
and 1 January 2018 comparative statements of financial position and the 2018 related notes have been re-presented retrospectively from the previously published results. As a 
result of this change, the statement of financial position as at 1 January 2018 has been re-presented in accordance with IAS 1. 
The 31 December 2018 and 1 January 2018 comparative statements of financial position included discontinued UK and Europe operations.

The consolidated financial statements on pages 199 to 309 were approved by the Board of Directors on 10 March 2020. They were 
signed on its behalf:

Paul Manduca 
Chairman  

prudentialplc.com 

Mike Wells 
Group Chief Executive 

Mark FitzPatrick
Group Chief Financial Officer and Chief Operating Officer

Prudential plc Annual Report 2019 

203

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
 
Consolidated statement of cash flows

Continuing operations:
Cash flows from operating activities 
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns)
Adjustments to profit before tax for non-cash movements in operating assets and liabilities:

Investments 
Other non-investment and non-cash assets 
Policyholder liabilities (including unallocated surplus)
Other liabilities (including operational borrowings)

Investment income and interest payments included in profit before tax 
Operating cash items:

Interest receipts and payments
Dividend receipts
Tax paid

Other non-cash items

Net cash flows from operating activities

Cash flows from investing activities
Purchases of property, plant and equipment
Acquisition of business and intangibles note (i)
Disposal of businesses

Net cash flows from investing activities

Cash flows from financing activities
Structural borrowings of shareholder-financed operations: note (ii)

Issue of subordinated debt, net of costs
Redemption of subordinated debt
Fees paid to modify terms and conditions of debt issued by the Group
Interest paid 

Equity capital:

Issues of ordinary share capital
External dividends

Net cash flows from financing activities

Net (decrease) increase in cash and cash equivalents from continuing operations note (iii)
Net cash flows from discontinued operations note (iii)
Cash and cash equivalents at beginning of year
Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at end of year 

Comprising:

Cash and cash equivalents from continuing operations
Cash and cash equivalents from discontinued operations

Note

2019  $m

2018*  $m

2,287

3,557

(60,812)
(2,487)
56,067
5,097
(4,803)

4,277
978
(717)
(96)

(209)

(64)
(635)
375

(324)

367
(504)
(182)
(526)

22
(1,634)

(2,457)

(2,990)
(5,690)
15,442
203

6,965

6,965
–

2,236
(1,996)
(1,641)
860
(4,148)

3,912
744
(477)
308

3,355

(134)
(442)
–

(576)

2,079
(553)
(44)
(502)

23
(1,662)

(659)

2,120
(610)
14,461
(529)

15,442

9,394
6,048

C13

C6.1

D2

D2

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Group’s presentation currency from pounds sterling to US dollars 

(as described in note A1) and the reclassification of the Group’s UK and Europe operations as discontinued operations in 2019 (as described in note A2).

Notes
(i) 
(ii) 

(iii) 

Cash flows arising from the acquisition of business and intangibles includes amounts paid for distribution rights.
Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment 
subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash 
flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group are analysed in note C6.1.
The cash flows shown above are presented excluding any transactions between continuing and discontinued operations.

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prudentialplc.com

A   Basis of preparation 

and accounting policies

A1 Basis of preparation and exchange rates 

Prudentialplc(‘theCompany’)togetherwithitssubsidiaries(collectively,‘theGroup’or‘Prudential’)isaninternationalfinancialservices
group.TheGrouphasoperationsinAsia,theUS,Africaand,priortothedemergerofM&GplcinOctober2019,UKandEurope.The
Grouphelpsindividualstode-risktheirlivesanddealwiththeirbiggestfinancialconcernsthroughlifeandhealthinsurance,and
retirementandassetmanagementsolutions.On21October2019,theCompanycompletedthedemergerofM&Gplc,itsUKandEurope
operations,fromPrudentialplcresultingintwoseparately-listedcompanies.Ithasthereforereclassifiedtheseoperationsas
discontinuedinthesefinancialstatements(seenoteA2).

Basis of preparation
ThesestatementshavebeenpreparedinaccordancewithIFRSasissuedbytheInternationalAccountingStandardsBoard(IASB)andas
endorsedbytheEuropeanUnion(EU)asrequiredbyEUlaw(IASRegulationEC1606/2032).EU-endorsedIFRSmaydifferfromIFRS
issuedbytheIASBif,atanypointintime,neworamendedIFRShavenotbeenendorsedbytheEU.At31December2019,therewereno
unendorsedstandardseffectiveforthetwoyearsended31December2019whichimpacttheconsolidatedfinancialstatementsofthe
GroupandtherewerenodifferencesbetweenIFRSendorsedbytheEUandIFRSissuedbytheIASBintermsoftheirapplicationtothe
Group.Forfinancialyearsbeginningafter31December2020,theGroupwillprepareitsconsolidatedfinancialstatementsinaccordance
withUK-adoptedinternationalaccountingstandards,insteadoftheEU-endorsedIFRS.

TheDirectorsconsideritappropriatetoadoptthegoingconcernbasisofaccountinginpreparingthesefinancialstatementsasset
outintheGovernanceReportonpage121.TheparentcompanystatementoffinancialpositionpreparedinaccordancewiththeUK
GenerallyAcceptedAccountingPractice(includingFinancialReportingStandard101ReducedDisclosureFramework)ispresentedon
page310.TheGroupIFRSaccountingpoliciesarethesameasthoseappliedfortheyearended31December2018withtheexceptionof
theadoptionofthenewandamendedaccountingstandardsasdescribedinnoteA3.

Exchange rates
FollowingthedemergerofitsUKandEuropeoperations,theDirectorshaveelectedtochangetheGroup’spresentationcurrencyin
thesefinancialstatementsfrompoundssterlingtoUSdollarswhichbetterreflectstheeconomicfootprintofourbusinessgoingforward.
TheGroupbelievesthatthepresentationcurrencychangewillgiveinvestorsandotherstakeholdersaclearerunderstandingof
Prudential’sperformanceovertime.Thechangeinpresentationcurrencyisavoluntarychangewhichisaccountedforretrospectivelyin
thecomparativeinformationandallcomparativestatementsandnoteshavebeenrestatedaccordinglyapplyingtheforeignexchange
translationprinciplesassetoutbelow.

TheexchangeratesappliedforbalancesandtransactionsinthepresentationcurrencyoftheGroup,USdollars($),andother

currencieswere:

$ : local currency

China
HongKong
Indonesia
Malaysia
Singapore
Thailand
UK
Vietnam

Closing rate at 
31 Dec 2019 

Average rate
for 2019

Closing rate at
31 Dec 2018

Average rate
for 2018

Opening rate at 
 1 Jan 2018

6.97
7.79
13,882.50
4.09
1.34
29.75
0.75
23,172.50

6.91
7.84
14,140.84
4.14
1.36
31.05
0.78
23,227.64

6.87
7.83
14,380.00
4.13
1.36
32.56
0.79
23,195.00

6.61
7.84
14,220.82
4.03
1.35
32.30
0.75
23,017.17

6.51
7.82
13,567.00
4.05
1.34
32.59
0.74
22,708.16

Foreign exchange translation
InordertopresenttheconsolidatedfinancialstatementsinUSdollars,theresultsandfinancialpositionofentitiesnotusingUSdollarsas
functionalcurrency(iethecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates)mustbetranslatedintotheUS
dollars.Thegeneralprincipleforconvertingforeigncurrencytransactionsistotranslateatthefunctionalcurrencyspotrateprevailingat
thedateofthetransactions.Thisincludesexternaldividendsdeterminedandpaidtoshareholdersinpoundssterling.Prudentialwill
determineanddeclareitsdividendinUSdollarscommencingwithdividendspaidin2020,includingthe2019secondinterimdividend.
AllassetsandliabilitiesofentitiesnotoperatinginUSdollarsareconvertedatclosingexchangerateswhileallincomeandexpensesare
convertedataverageexchangerateswherethisisareasonableapproximationoftheratesprevailingontransactiondates.Theimpactof
thesecurrencytranslationsisrecordedasaseparatecomponentinthestatementofcomprehensiveincome.At31December2019the
functionalcurrencyoftheGroup’sparentcompanychangedtoUSdollars.TheGroupandparentcompanyhavechosen,for
presentationalpurposes,toretranslatetheirsharecapitalandsharepremiumasat31December2019usingtheclosingexchangerateas
atthatdate,andcomparativeamountsattherelativeclosingexchangerates.Theforeignexchangeadjustmentsarisingontheshare
capitalandsharepremiumbalancesof$2,797million(31December2018:$2,668million)adjustthetranslationreservemovementinthe
statementofothercomprehensiveincome.Asthisamountarisesonthetranslationoftheparentcompany’ssharecapitalandshare
premium,thecorrespondingimpacttothecurrencytranslationreserveof$980millionwillneverberecycledondisposalofanyforeign
operations.

During2019and2018,borrowingsthatareusedtoprovideahedgeagainstGroupequityinvestmentsinoverseasentitieswere
translatedatyearendexchangeratesandmovementsrecognisedinothercomprehensiveincome.Otherforeigncurrencymonetary
itemsaretranslatedatyearendexchangerateswithchangesrecognisedintheincomestatement.

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Prudential plc AnnualReport2019 

205

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA1 Basis of preparation and exchange rates continued

Certainnotestothefinancialstatementspresent2018comparativeinformationatconstantexchangerates(CER),inadditiontothe
reportingatactualexchangerates(AER)usedthroughouttheconsolidatedfinancialstatements.AERareactualhistoricalexchangerates
forthespecificaccountingperiod,beingtheaverageratesovertheperiodfortheincomestatementandtheclosingratesatthebalance
sheetdateforthestatementoffinancialposition.CERresultsarecalculatedbytranslatingpriorperiodresultsusingthecurrentperiod
foreignexchangerate,iecurrentperiodaverageratesfortheincomestatementandcurrentperiodclosingratesforthestatementof
financialposition.

Theeffectofforeignexchangemovementfromcontinuingoperationsarisingduringtheyearsshownrecognisedinother

comprehensiveincomeis:

Asiaoperations
Unallocatedtoasegment(otherfunds)

A2 Discontinued operations

2019 $m

2018 $m

194
(42)

152

(206)
167

(39)

TheGroupcompletedthedemergerofitsUKandEuropeoperations,M&Gplc,fromthePrudentialplcgroupon21October2019.In
accordancewithIFRS5‘Non-CurrentAssetsHeldforSaleandDiscontinuedOperations’,theresultsofM&Gplchavebeenreclassified
asdiscontinuedoperationsintheseconsolidatedfinancialstatements.

ConsistentwithIFRS5requirements,profitaftertaxattributabletothediscontinuedUKandEuropeoperationsin2019havebeen
showninasinglelineintheincomestatementwith2018comparativesbeingrestatedaccordingly,withfurtheranalysisprovidedinnote
D2.NotesB1toB5havealsobeenpreparedonthisbasis.

IFRS5doesnotpermitthecomparative31December2018and1January2018statementoffinancialpositiontobere-presented,as
theUKandEuropeoperationswerenotreclassifiedasheldforsaleatthesedates.Intherelatedbalancesheetnotes,prioryearbalances
havebeenpresentedtoshowtheamountsfromdiscontinuedoperationsseparatelyfromcontinuingoperationsinordertopresentthe
resultsofthecontinuingoperationsonacomparablebasis.Additionally,intheanalysisofmovementsinGroup’sassetsandliabilities
betweenthebeginningandendoftheyears,thebalancesofthediscontinuedUKandEuropeoperationsareremovedfromtheopening
balancestoshowtheunderlyingmovementsfromcontinuingoperations.

ProfitfromthediscontinuedUKandEuropeoperationsuptothedemergerispresentedintheconsolidatedincomestatementafter
theeliminationofintragrouptransactionswithcontinuingoperationswhereitisappropriatetoprovideamoremeaningfulpresentation
ofthepositionoftheGroupimmediatelyafterthedemerger.Thestatementofcashflowsispresentedexcludingintragroupcashflows
betweenthecontinuinganddiscontinuedUKandEuropeoperationsuptodemerger.

A3 New accounting pronouncements in 2019

IFRS 16 ‘Leases’
TheGrouphasadoptedIFRS16‘Leases’from1January2019.Thenewstandardbringsmostleaseson-balance-sheetforlesseesunder
asinglemodel,eliminatingthedistinctionbetweenoperatingandfinanceleases.

IFRS16appliesprimarilytooperatingleasesofmajorpropertiesoccupiedbytheGroup’sbusinesseswherePrudentialisalessee.
UnderIFRS16,theseleasesarebroughtontotheGroup’sstatementoffinancialpositionwitha‘right-of-use’assetbeingestablished

andacorrespondingliabilityrepresentingtheobligationtomakeleasepayments.Therentalaccrualchargeintheincomestatement
underIAS17isreplacedwithadepreciationchargeforthe‘right-of-use’assetandaninterestexpenseontheleaseliabilityleadingto
amorefront-loadedoperatingleasecostprofilecomparedtoIAS17.

AspermittedbyIFRS16,theGrouphaschosentoadoptthemodifiedretrospectiveapproachupontransitiontothenewstandard.

Undertheapproachadopted,thereisnoadjustmenttotheGroup’sretainedearningsat1January2019andtheGroup’s2018
comparativeinformationisnotrestated.The‘right-of-use’assetandleaseliabilityat1January2019aresetatanamountequaltothe
discountedremainingleasepaymentsadjustedbyanyprepaidoraccruedleasepaymentbalanceimmediatelybeforethedateofinitial
applicationofthestandard.

206

Prudential plc AnnualReport2019

prudentialplc.com

A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUED895

895

955
(60)

895

Total 
Group 
$m

955
210

1,165
(48)
(6)

1,111

Whenmeasuringleaseliabilitiesonadoption,theGroupdiscountedleasepaymentsusingitsincrementalborrowingrateat1January
2019.Theweightedaveragerateappliedis3.4percent.Theaggregateeffectoftheadoptionofthestandardonthestatementof
financialpositionat1January2019isshowninthetablebelow:

Effect of adoption of IFRS 16 at 1 January 2019

Assets
Property,plantandequipment(right-of-useassets)

Total assets

Liabilities
Operationalborrowings(leaseliability)
Accruals,deferredincomeandotherliabilities(accruedleasepaymentbalanceunderIAS17)

Total liabilities

Reconciliation of IFRS 16 lease liability and IAS 17 lease commitments

Continuing
 operations  
$m

Discontinued
  operations  
$m

Total 
Group 
$m

527

527

541
(14)

527

368

368

414
(46)

368

IFRS 16 operating lease liability shown in the table above
Addbackimpactofdiscounting

IFRS 16 operating lease liability on an undiscounted basis
Differenceinleaserentalpaymentsduetoprobablerenewalsorearlyterminationdecisionsreflectedabove
Other

Total operating lease commitments at 31 December 2018*

*AsdisclosedinnoteD5oftheGroup’sIFRSfinancialstatementsfortheyearended31December2018andafterexcluding$76millionfortheamountrelatingtocertainlease

commitmentsfromthecentraloperationstothediscontinuedUKwith-profitsfund.

TheGrouphasappliedthepracticalexpedienttograndfatherthedefinitionofaleaseontransition.ThismeansthatIFRS16hasbeen
appliedtoallcontractsthatwereidentifiedasleasesinaccordancewithIAS17andIFRIC4‘DeterminingwhetheranArrangement
containsaLease’enteredintobefore1January2019.Therefore,thedefinitionofaleaseunderIFRS16isappliedonlytocontracts
enteredintoorchangedonorafter1January2019.

TheGrouphasusedthefollowingpracticalexpedients,inadditiontotheaforementioned,whenapplyingIFRS16toleasespreviously

classifiedasoperatingleasesunderIAS17:

— Applyingasinglediscountratetoaportfolioofleaseswithsimilarcharacteristics.Accordingly,forsuchportfolios,theincremental

borrowingratesusedtodiscountthefutureleasepaymentswillbedeterminedbasedonmarketspecificrisk-freeratesadjustedwith
amargin/spreadtoreflecttheGroup’screditstanding,leasetermandtheoutstandingleasepayments;and

— Usinghindsightwhendeterminingtheleasetermifthecontractcontainsoptionstoextendorterminatethelease.

Other new accounting pronouncements
Inadditiontotheabove,thefollowingnewaccountingpronouncementswerealsoeffectivefrom1January2019:

— IFRICInterpretation23‘UncertaintyoverIncomeTaxTreatments’;
— AmendmentstoIAS28‘Long-termInterestsinAssociatesandJointVentures’;
— AmendmentstoIFRS9‘PrepaymentFeatureswithNegativeCompensation’;
— AnnualImprovementstoIFRSs2015-2017cycle;and
— AmendmentstoIAS19‘PlanAmendment,CurtailmentorSettlement’.

TheGrouphasappliedtheprincipleswithintheAmendmentstoIAS19‘PlanAmendment,CurtailmentorSettlement’whenaccounting
forthechangestothepensionbenefitsofitsUKdefinedbenefitschemesduringtheyear.Theotherpronouncementshavehadno
significantimpactontheGroupfinancialstatements.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA4 Accounting policies

NoteA4.1presentsthecriticalaccountingpolicies,accountingestimatesandjudgementsappliedinpreparingtheGroup’sconsolidated
financialstatements.Otheraccountingpolicies,wheresignificant,arepresentedintherelevantindividualnotes.Allaccountingpolicies
areappliedconsistentlyforbothyearspresentedandnormallyarenotsubjecttochangesunlessnewaccountingstandards,
interpretationsoramendmentsareintroducedbytheIASB.

A4.1  Critical accounting policies, estimates and judgements 
ThepreparationofthesefinancialstatementsrequiresPrudentialtomakeestimatesandjudgementsabouttheamountsofassets,
liabilities,revenuesandexpenses,whicharebothrecognisedandunrecognised(egcontingentliabilities)intheprimaryfinancial
statements.Prudentialevaluatesitsestimates,includingthoserelatedtolong-termbusinessprovisioningandthefairvalueofassetsas
required.Thenotesbelowsetoutthosecriticalaccountingpolicies,theapplicationofwhichrequirestheGrouptomakecriticalestimates
andjudgements.AlsosetoutarefurthercriticalaccountingpoliciesaffectingthepresentationoftheGroup’sresultsandotheritemsthat
requiretheapplicationofcriticalestimatesandjudgements.

(a) Critical accounting policies with associated critical estimates and judgements

Classification of insurance and investment contracts

IFRS4requirescontractswrittenby
insurerstobeclassifiedaseither
‘insurance’contractsor‘investment’
contracts.Theclassificationofthecontract
determinesitsaccounting.

Impacts$397.6billionofreported
contractliabilities,requiringclassification,
includingthoseheldbythejointventure
andassociate.

Judgementisappliedinconsidering
whetherthematerialfeaturesofa
contractgivesrisetothetransferof
significantinsurancerisk.



ContractsthattransfersignificantinsurancerisktotheGroupareclassifiedasinsurance
contracts.Thisjudgementismadeatthepointofcontractinceptionandisnotrevisited.

ForthemajorityoftheGroup’scontracts,classificationisbasedonareadilyidentifiable
scenariothatdemonstratesasignificantdifferenceincashflowsifthecoveredevent
occurs(asopposedtodoesnotoccur)reducingthelevelofjudgementinvolved.
ContractsthattransferfinancialrisktotheGroupbutnotsignificantinsuranceriskare
classifiedasinvestmentcontracts.Certaininvestmentcontractscontaindiscretionary
participatingfeaturesasdiscussedinIFRS4.Insurancecontractsandinvestment
contractswithdiscretionaryparticipationfeaturesareaccountedforunderIFRS4.
Investmentcontractswithoutsuchdiscretionaryparticipationfeaturesareaccountedfor
asfinancialinstrumentsunderIAS39.

Insurance business units

Asia

US

DiscontinuedUK
andEurope

Insurance contracts and 
investment contracts with 
discretionary participation 
features

— With-profitscontracts
— Non-participatingterm

contracts

— Wholelifecontracts
— Unit-linkedpolicies
— Accidentandhealth

policies

Investment contracts without 
discretionary participation 
features

— Minoramountsfora
numberofsmall
categoriesofbusiness

— Variableannuity

contracts

— Fixedannuitycontracts
— Fixedindexannuity

contracts

— Grouppay-outannuity

— Guaranteed
investment
contracts(GICs)
— Minoramountsof
‘annuitycertain’
contracts

contracts
— Lifeinsurance
contracts

— With-profitscontracts
— Bulkandindividual
annuitybusiness

— Non-participatingterm

contracts

— Certainunit-linked
savingsandsimilar
contracts

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A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUEDMeasurement of policyholder liabilities and unallocated surplus of with-profits

Themeasurementbasisofpolicyholder
liabilitiesisdependentuponthe
classificationofthecontractsunderIFRS4
describedabove.

Impacts$402.3billionofpolicyholder
liabilitiesandunallocatedsurplusof
with-profits.

Policyholderliabilitiesareestimatedbased
onanumberofactuarialassumptions(eg
mortality,morbidity,policyholder
behaviourandexpenses).

Measurementofinsurancecontract
liabilitiesandinvestmentcontractliabilities
withdiscretionaryparticipationfeatures

Asia insurance operations

US insurance operations (Jackson)

Discontinued UK and Europe 
insurance operations

Measurementofinvestmentcontract
liabilitieswithoutdiscretionary
participationfeatures

IFRS4permitsthecontinuedusageofpreviouslyappliedGenerallyAcceptedAccounting
Practices(GAAP)forinsurancecontractsandinvestmentcontractswithdiscretionary
participatingfeatures.

AmodifiedstatutorybasisofreportingwasadoptedbytheGrouponfirsttimeadoptionof
IFRSin2005.ThiswassetoutintheStatementofRecommendedPracticeissuedbythe
AssociationofBritishInsurers(ABISORP).AnexceptionwasforUKregulatedwith-
profitsfundswhichweremeasuredunderFRS27,‘LifeAssurance’asdiscussedbelow.

FRS27andtheABISORPwerewithdrawnfortheaccountingperiodsbeginninginorafter
2015.Asusedintheseconsolidatedfinancialstatements,theterms‘grandfathered’FRS
27andthe‘grandfathered’ABISORPrefertotherequirementsofthesepronouncements
priortotheirwithdrawal.Forinvestmentcontractsthatdonotcontaindiscretionary
participatingfeatures,IAS39isappliedand,wherethecontractincludesaninvestment
managementelement,IFRS15‘RevenuefromContractswithCustomers’applies.

Thepoliciesappliedineachbusinessunitarenotedbelow.Whenmeasuringpolicyholder
liabilities,anumberofassumptionsareappliedtoestimatefutureamountsduetoorfromthe
policyholder.Thenatureofassumptionsvariesbyproductandamongthemostsignificantis
policyholderbehaviour,particularlyintheUS.Additionaldetailsofvaluationmethodologies
andassumptionsappliedformaterialproducttypesarediscussedinnoteC4.2.

ThepolicyholderliabilitiesforbusinessesinAsiaaregenerallydeterminedinaccordance
withmethodsprescribedbylocalGAAP,adjustedtocomplywiththemodifiedstatutory
basiswherenecessary.Refinementstothelocalreservingmethodologyaregenerally
treatedaschangesinestimates,dependentontheirnature.InTaiwanandIndia,USGAAP
principlesareapplied.

ThesensitivityofAsiainsuranceoperationstovariationsinkeyestimatesand
assumptions,includingmortalityandmorbidity,isdiscussedinnoteC7.2.

ThepolicyholderliabilitiesforJackson’sconventionalprotection-typepoliciesare
determinedunderUSGAAPprincipleswithlockedinassumptionsformortality,interest,
policylapsesandexpensesalongwithprovisionsforadversedeviations.Forother
policies,thepolicyholderliabilitiesincludethepolicyholderaccountbalance.

ForthoseinvestmentcontractsintheUSwithfixedandguaranteedterms,theGroupuses
theamortisedcostmodeltomeasuretheliability.TheUShasnoinvestmentcontracts
withdiscretionaryparticipationfeatures.

ThesensitivityofUSinsuranceoperationstovariationsinkeyestimatesandassumptions,
includingpolicyholderbehaviour,isdiscussedinnoteC7.3.

TheUKregulatedwith-profitsfunds’liabilitiesaretherealisticbasisliabilitiesin
accordancewith‘grandfathered’FRS27.Therealisticbasisrequiresthevalueofliabilities
tobecalculatedasthesumofawith-profitsbenefitsreserve,futurepolicy-related
liabilitiesandtherealisticcurrentliabilitiesofthefund.

Theinterestratesusedinestablishingpolicyholderbenefitprovisionsforpension
annuitiesinthecourseofpaymentareadjustedeachreportingperiodandincludean
allowanceforcreditrisk.Mortalityratesusedinestablishingpolicyholderbenefitsare
basedonpublishedmortalitytablesadjustedtoreflectactualexperience.

Investmentcontractswithoutdiscretionaryparticipationfeaturesaremeasuredin
accordancewithIAS39toreflectthedepositnatureofthearrangement,withpremiums
andclaimsreflectedasdepositsandwithdrawals,andtakendirectlytothestatement
offinancialpositionasmovementsinthefinancialliabilitybalance.

Investmentcontractswithoutfixedandguaranteedtermsareclassifiedasfinancial
instrumentsanddesignatedasfairvaluethroughprofitorlossbecausetheresulting
liabilitiesaremanagedandtheirperformanceisevaluatedonafairvaluebasis.Wherethe
contractincludesasurrenderoption,itscarryingvalueissubjecttoaminimumcarrying
valueequaltoitssurrendervalue.

Otherinvestmentcontractsaremeasuredatamortisedcost.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA4 Accounting policies continued

A4.1  Critical accounting policies, estimates and judgements continued

Measurement of policyholder liabilities and unallocated surplus of with-profits continued

Measurementofunallocatedsurplusof
with-profitsfunds

Liabilityadequacytest

Unallocatedsurplusofwith-profitsfundsrepresentstheexcessofassetsover
policyholderliabilitiesdeterminedinaccordancewiththeGroup’saccountingpoliciesand
basedonlocalGAAPfortheGroup’swith-profitsfundsinHongKong,Malaysiaand,upto
itsdemerger,theUKandEuropeoperationsthathaveyettobeappropriatedbetween
policyholdersandshareholders.Theunallocatedsurplusisrecordedwhollyasaliability
withnoallocationtoequity.Theannualexcessorshortfallofincomeoverexpenditureof
thewith-profitsfunds,afterdeclarationandattributionofthecostofbonusesto
policyholdersandshareholders,istransferredtoorfromtheunallocatedsurpluseach
periodthroughachargeorcredittotheincomestatement.Thebalanceretainedinthe
unallocatedsurplusrepresentscumulativeincomearisingonthewith-profitsbusinessthat
hasnotbeenallocatedtopolicyholdersorshareholders.Thebalanceoftheunallocated
surplusisdeterminedafterfullprovisionfordeferredtaxonunrealisedappreciationor
depreciationoninvestments.

TheGroupperformsadequacytestingonitsinsuranceliabilitiestoensurethatthe
carryingamounts(netofrelateddeferredacquisitioncosts)and,whererelevant,present
valueofacquiredin-forcebusinessissufficienttocovercurrentestimatesoffuturecash
outflows.Anydeficiencyisimmediatelychargedtotheincomestatement.

Jackson’sliabilitiesforinsurancecontracts,whichincludethoseforseparateaccounts
(reflectingseparateaccountassets),policyholderaccountvaluesandguarantees
measuredasdescribedinnoteC4.2andtheassociateddeferredacquisitioncostasset,
aremeasuredunderUSGAAPandliabilityadequacytestingisperformedinthiscontext.
UnderUSGAAP,mostofJackson’sproductsareaccountedforunderAccounting
StandardsCodificationTopic944,FinancialServices–InsuranceoftheFinancial
AccountingStandardsBoard(ASC944)wherebydeferredacquisitioncostsareamortised
inlinewithexpectedgrossprofits.Recoverabilityofthedeferredacquisitioncostsinthe
balancesheetistestedagainsttheprojectedvalueoffutureprofitusingcurrentestimates
andthereforenoadditionalliabilityadequacytestisrequiredunderIFRS4.Thedeferred
acquisitioncostassetrecoverabilitytestisperformedinlinewithUSGAAPrequirements,
whichinpracticeisatagroupedlevelofthosecontractsmanagedtogether.

(b) Further critical accounting policies affecting the presentation of the Group’s results

Measurement and presentation of derivatives and debt securities of US insurance operations (Jackson)

Jacksonholdsanumberofderivative
instrumentsanddebtsecurities.The
selectionoftheaccountingapproachfor
theseitemssignificantlyaffectsthe
volatilityofprofitbeforetax.

$(4,225)millionoftheUSinvestment
returnintheincomestatementarisesfrom
suchderivativesanddebtsecurities.

Jacksonentersintoderivativeinstrumentstomitigateeconomicexposures.TheGroup
hasconsideredwhetheritisappropriatetoundertakethenecessaryoperationalchanges
toqualifyforhedgeaccountingsoastoachievematchingofvaluemovementsinhedging
instrumentsandhedgeditemsintheperformancestatements.Thekeyfactorsconsidered
inthisassessmentwerethecomplexityofassetandliabilitymatchinginJackson’sproduct
rangeandthedifficultyandcostofapplyingthemacrohedgeprovisionsunderIAS39
(whicharemoresuitedtobankingarrangements)toJackson’sderivativebook.

TheGrouphasdecidedthat,exceptforoccasionalcircumstances,applyinghedge
accountingusingIAS39toderivativeinstrumentsheldbyJacksonwouldnotimprovethe
relevanceorreliabilityofthefinancialstatementstosuchanextentthatwouldjustifythe
difficultyandcostofapplyingtheseprovisions.Asaresultofthisdecision,thetotal
incomestatementresultsaremorevolatileasthemovementsinthefairvalueofJackson’s
derivativesarereflectedwithinit.Thisvolatilityisreflectedinthelevelofshort-term
fluctuationsininvestmentreturns,asshowninnotesB1.1andB1.2.

UnderIAS39,unlesscarriedatamortisedcost(subjecttoimpairmentprovisionswhere
appropriate)undertheheld-to-maturitycategory,debtsecuritiesarecarriedatfairvalue.
TheGrouphaschosennottoclassifyanyfinancialassetsasheld-to-maturity.Debt
securitiesofJacksonaredesignatedasavailable-for-salewithvaluemovements,unless
impaired,beingrecordedasmovementswithinothercomprehensiveincome.
Impairmentsarerecordedintheincomestatement,asdiscussedinnote(c)below.

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A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUEDPresentation of results before tax attributable to shareholders

ProfitbeforetaxisasignificantIFRSincome
statementitem.TheGrouphaschosento
presentameasureofprofitbeforetax
attributabletoshareholderswhich
distinguishesbetweentaxborneby
shareholdersandtaxattributableto
policyholderstosupportunderstandingof
theperformanceoftheGroup.

ThetotaltaxchargefortheGroupreflectstaxthat,inadditiontothatrelatingto
shareholders’profit,isalsoattributabletopolicyholdersthroughtheinterestinwith-
profitsorunit-linkedfunds.FurtherdetailisprovidedinnoteB4.ReportedIFRSprofit
beforethetaxmeasureisthereforenotrepresentativeofpre-taxprofitattributableto
shareholders.Accordingly,inordertoprovideameasureofpre-taxprofitattributableto
shareholders,theGrouphaschosentoadoptanincomestatementpresentationofthetax
chargeandpre-taxresultsthatdistinguishesbetweenpolicyholdersandshareholders
returns.

Profitfromcontinuingoperationsbefore
taxattributabletoshareholdersis
$1,922millionandcomparestoprofit
fromcontinuingoperationsbeforetax
of$2,287million.

Segmental analysis of results and earnings attributable to shareholders

TheGroupusesadjustedIFRSoperating
profitbasedonlonger-terminvestment
returnsasthesegmentalmeasureofits
results.

TotalsegmentaladjustedIFRSoperating
profitfromcontinuingoperationsbased
onlonger-terminvestmentreturnsis
$6,346millionandisshowninnoteB1.1.

ThebasisofcalculationofadjustedIFRSoperatingprofitbasedonlonger-terminvestment
returnsisprovidedinnoteB1.3.

Forshareholder-backedbusiness,withtheexceptionofdebtsecuritiesheldbyJackson
andtheGroup’snewtreasurycompany,whicharetreatedasavailable-for-sale,and
assetsclassifiedasloansandreceivablesatamortisedcost,allfinancialinvestments
andinvestmentpropertiesaredesignatedasassetsatfairvaluethroughprofitorloss.
Short-termfluctuationsinfairvalueaffecttheresultfortheyearandtheGroupprovides
additionalanalysisofresultsbeforeandaftertheeffectsofshort-termfluctuationsin
investmentreturns,togetherwithotheritemsthatareofashort-term,volatileorone-off
nature.Theeffectsofshort-termfluctuationsincludeasymmetricimpactswherethe
measurementbasesoftheliabilitiesandassociatedderivativesusedtomanagethe
JacksonannuitybusinessdifferasdescribedinnoteB1.2.

Short-termfluctuationsininvestmentreturnsonassetsheldbywith-profitsfundsinHong
Kong,MalaysiaandSingaporedonotaffectdirectlyreportedshareholderresults.Thisis
because(i)theunallocatedsurplusofwith-profitsfundsisaccountedforasaliabilityand
(ii)excessordeficitofincomeandexpenditureofthefundsovertherequiredsurplusfor
distributionaretransferredtoorfrompolicyholderliabilities(includingtheunallocated
surplus).

(c) Other items requiring application of critical estimates or judgements

Deferred acquisition costs (DAC) for insurance contracts 

TheGroupappliesjudgementin
determiningqualifyingcoststhatshouldbe
capitalised(iethosecostsofacquiringnew
insurancecontractsthatmeetthecriteria
undertheGroup’saccountingpolicyfor
deferredacquisitioncosts).

TheGroupestimatesprojectedfuture
profits/marginstoassesswhether
adjustmentstothecarryingvalueor
amortisationprofileofdeferredacquisition
costassetarenecessary.

Impacts$14.2billionofdeferred
acquisitioncostsasshowninnoteC5.2(i).

Costsofacquiringnewinsurancebusinessareaccountedforinawaythatisconsistent
withtheprinciplesofthe’grandfathered’ABISORPwithdeferralandamortisationagainst
marginsinfuturerevenuesontherelatedinsurancepolicies.Therecoverabilityofthe
deferredacquisitioncosts(DAC)ismeasuredandtheDACassetisdeemedimpairedifthe
projectedmargins(whichareestimatedbasedonanumberofassumptionssimilarto
thoseunderlyingpolicyholderliabilities)arelessthanthecarryingvalue.Totheextentthat
thefuturemarginsdifferfromthoseanticipated,anadjustmenttothecarryingvaluewill
benecessaryeitherthroughanimpairment(iftheprojectedmarginsarelowerthan
carryingvalue)orthroughachangeintheamortisationprofile.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA4 Accounting policies continued

A4.1  Critical accounting policies, estimates and judgements continued

Deferred acquisition costs (DAC) for insurance contracts continued

Asia insurance operations

ForthosebusinessunitsapplyingUSGAAPtoinsuranceassetsandliabilities,as
permittedbythe‘grandfathered’ABISORP,principlessimilartothosesetoutintheUS
insuranceoperationsparagraphbelowareappliedtothedeferralandamortisationof
acquisitioncosts.ForotherbusinessunitsinAsia,thegeneralprinciplesofthe
‘grandfathered’ABISORPareapplied.Ingeneral,deferralofacquisitioncostsisshownby
anexplicitcarryingvalueinthebalancesheet.However,insomeAsiaoperationsthe
deferralisimplicitthroughthereservingbasis.

US insurance operations

Themostmaterialestimatesandassumptionsappliedinthemeasurementand
amortisationofDACbalancesrelatetotheUSinsuranceoperations.

TheGroup’sUSinsuranceoperationsapplyFASBASU2010-26on‘AccountingforCosts
AssociatedwithAcquiringorRenewingInsuranceContracts’andcapitaliseonlythose
incrementalcostsdirectlyrelatingtosuccessfullyacquiringacontract.

Fortermlifebusiness,acquisitioncostsaredeferredandamortisedinlinewithexpected
premiums.Forannuityandinterest-sensitivelifebusiness,acquisitioncostsaredeferred
andamortisedinlinewithexpectedgrossprofitsontherelevantcontracts.Forfixedand
fixedindexannuityandinterest-sensitivelifebusiness,thekeyassumptionisthe
long-termspreadbetweentheearnedrateoninvestmentsandtheratecreditedto
policyholders.

Forvariableannuitybusiness,akeyassumptionisthelong-terminvestmentreturnfrom
theseparateaccounts,whichfor2019is7.4percent(2018:7.4percent).Theimpactof
usingthisreturnisreflectedintwoprincipalways,namely:

— Throughtheprojectedexpectedgrossprofitsthatareusedtodeterminethe

amortisationofdeferredacquisitioncosts.Thisisappliedthroughtheuseofamean
reversiontechniquewhichisdescribedinmoredetailbelow;and

— Therequiredlevelofprovisionforclaimsforguaranteedminimumdeath,‘forlife’

withdrawal,andincomebenefits.

Inaddition,expectedgrossprofitsdependonmortalityassumptions,lapses(includingthe
relatedcharges),assumedunitcostsandfuturehedgecosts,whicharebasedona
combinationofJackson’sactualexperience,industrybenchmarkingandfuture
expectations.

Jacksonusesameanreversionmethodologythatsetstheprojectedlevelofreturnfor
eachofthenextfiveyearssuchthatthesereturnsincombinationwiththeactualratesof
returnfortheprecedingthreeyears(includingthecurrentyear)averagetheassumed
long-termannualreturn(grossofassetmanagementfeesandotherchargesto
policyholders,butnetofexternalfundmanagementfees)overtheeight-yearperiod.
Projectedreturnsafterthemeanreversionperiodrevertbacktothelong-terminvestment
return.Forfurtherdetailsoncurrentbalances,assumptionsandsensitivity,refertonote
C5.2(i).

Toensurethatthemethodologyinextrememarketmovementsproducesfutureexpected
returnsthatarerealistic,themeanreversiontechniquehasacapandfloorfeature
wherebytheprojectedreturnsineachofthenextfiveyearscanbenomorethan
15percentperannumandnolessthanzeropercentperannum(bothgrossofasset
managementfeesandotherchargestopolicyholders,butnetofexternalfund
managementfees)ineachyear.

JacksonmakescertainadjustmentstotheDACassetswhicharerecogniseddirectlyin
othercomprehensiveincome(‘shadowaccounting’)tomatchtherecognitionof
unrealisedgainsorlossesonavailable-for-salesecuritiescausingtheadjustments.More
precisely,shadowDACadjustmentsreflectthechangeinDACthatwouldhavearisenif
theassetsheldinthestatementoffinancialpositionhadbeensold,crystallisingunrealised
gainsorlosses,andtheproceedsreinvestedattheyieldscurrentlyavailableinthemarket.

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A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUEDCarrying value of distribution rights intangible assets

TheGroupappliesjudgementtoassess
whetherfactorssuchasthefinancial
performanceofthedistribution
arrangement,changesinrelevant
legislationandregulatoryrequirements
indicateanimpairmentofintangibleassets
representingdistributionrights.

Todeterminetheimpairedvalue,the
Groupestimatesthediscountedfuture
expectedcashflowsarisingfrom
distributionrights.

Affects$3.0billionofassetsasshown
innoteC5.2.

Financial investments – Valuation

Distributionrightsrelatetobancassurancepartnershiparrangementsforthedistribution
ofproductsforthetermofthecontractualagreementwiththebankpartner,forwhichan
assetisrecognisedbasedonfeespaid.Distributionrightsimpairmenttestingisconducted
whenthereisanindicationofimpairment.

Toassessindicatorsofanimpairment,theGroupmonitorsanumberofinternaland
externalfactors,includingindicationsthatthefinancialperformanceofthearrangementis
likelytobeworsethanexpectedandchangesinrelevantlegislationandregulatory
requirementsthatcouldimpacttheGroup’sabilitytocontinuetosellnewbusiness
throughthebancassurancechannel,andthenappliesjudgementtoassesswhetherthese
factorsindicatethatanimpairmenthasoccurred.

Ifanimpairmenthasoccurred,achargeisrecognisedintheincomestatementforthe
differencebetweenthecarryingvalueandrecoverableamountoftheasset.The
recoverableamountisthegreateroffairvaluelesscoststosellandvalueinuse.Valuein
useiscalculatedasthepresentvalueoffutureexpectedcashflowsfromtheassetorthe
cashgeneratingunittowhichitisallocated.

Financialinvestmentsheldatfairvalue
represent$388.1billionoftheGroup’stotal
assets.

TheGroupholdsthemajorityofitsfinancialinvestmentsatfairvalue(eitherthroughprofit
orlossoravailable-for-sale).Financialinvestmentsheldatamortisedcostprimarily
compriseloansanddeposits.

Financialinvestmentsheldatamortised
costrepresent$15.6billionoftheGroup’s
totalassets.

TheGroupestimatesthefairvalueof
financialinvestmentsthatarenotactively
tradedusingquotationsfromindependent
thirdpartiesorinternallydevelopedpricing
models.

Determination of fair value
ThefairvaluesofthefinancialinstrumentsforwhichfairvaluationisrequiredunderIFRS
aredeterminedbytheuseofcurrentmarketbidpricesforexchange-quotedinvestments
orbyusingquotationsfromindependentthirdpartiessuchasbrokersandpricingservices
orbyusingappropriatevaluationtechniques.

Theestimatedfairvalueofderivativefinancialinstrumentsreflectstheestimatedamount
theGroupwouldreceiveorpayinanarm’s-lengthtransaction.Thisamountisdetermined
usingquotedpricesifexchangelisted,quotationsfromindependentthirdpartiesor
valuedinternallyusingstandardmarketpractices.

Currentmarketbidpricesareusedtovalueinvestmentshavingquotedprices.Actively
tradedinvestmentswithoutquotedpricesarevaluedusingpricesprovidedbythird
partiessuchasbrokersorpricingservices.Financialinvestmentsmeasuredatfairvalue
areclassifiedintoathree-levelhierarchyasdescribedinnoteC3.1(b).

IfthemarketforafinancialinvestmentoftheGroupisnotactive,theGroupestablishesfair
valuebyusingquotationsfromindependentthirdparties,suchasbrokersorpricing
services,orbyusinginternallydevelopedpricingmodels.Priorityisgiventopublicly
availablepricesfromindependentsourceswhenavailable,butoverallthesourceof
pricingand/orthevaluationtechniqueischosenwiththeobjectiveofarrivingatafair
valuemeasurementwhichreflectsthepriceatwhichanorderlytransactionwouldtake
placebetweenmarketparticipantsonthemeasurementdate.Thevaluationtechniques
includetheuseofrecentarm’slengthtransactions,referencetootherinstrumentsthatare
substantiallythesame,discountedcashflowanalysis,option-adjustedspreadmodels
and,ifapplicable,enterprisevaluationandmayincludeanumberofassumptionsrelating
tovariablessuchascreditriskandinterestrates.Changesinassumptionsrelatingtothese
variablescouldpositivelyornegativelyimpactthereportedfairvalueofthesefinancial
investments.Detailsofthefinancialinvestmentsclassifiedas‘level3’towhichvaluation
techniquesareappliedandthesensitivityofprofitbeforetaxtoachangeinthevaluation
oftheseitems,arepresentedinnoteC3.1(d).

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA4 Accounting policies continued

A4.1  Critical accounting policies, estimates and judgements continued

Financial investments – Determining impairment of “available-for-sale” and “amortised cost” assets 

TheGroupappliesjudgementtoassess
whetherfactorssuchastheseverityand
durationofthedeclineinfairvalue,the
financialconditionandtheprospectsofthe
issuerindicateanimpairmentinvalueof
financialinvestmentsclassifiedas
‘available-for-sale’or‘heldatamortised
cost’.

Ifevidenceforimpairmentexists,valuation
techniques,includingestimates,arethen
appliedindeterminingtheimpairedvalue,
whichisbasedonitsexpectationof
discountedfuturecashflows.Ifthe
impairedvalueislessthanbookcost,an
impairmentlossisrecognisedintheincome
statement.

Affects$73.9billionofassets.

Forfinancialinvestmentsclassifiedas‘availableforsale’or‘atamortisedcost’,ifaloss
eventthatwillhaveadetrimentaleffectoncashflowsisidentified,animpairmentlossis
recognisedintheincomestatement.Thelossrecognisedisdeterminedasthedifference
betweenthebookcostandthefairvalueorestimatedfuturecashflowsoftherelevant
impairmentassets.Thelosscomprisestheeffectoftheexpectedlossofcontractualcash
flowsandanyadditionalmarket-pricedriventemporaryreductionsinvalues.

Available-for-sale securities
TheGroup’savailable-for-salesecuritiesareprincipallyheldbytheUSinsurance
operations.Forthesesecurities,theconsiderationofevidenceofimpairmentrequires
management’sjudgement.Inmakingthisdetermination,arangeofmarketandindustry
indicatorsareconsideredincludingtheseverityanddurationofthedeclineinfairvalue
andthefinancialconditionandprospectsoftheissuer.Thefactorsreviewedinclude
economicconditions,creditlossexperience,otherissuer-specificdevelopmentsand
futurecashflows.Theseassessmentsarebasedonthebestavailableinformationatthe
time.Factorssuchasmarketliquidity,thewideningofbid/askspreadsandachangein
cashflowassumptionscancontributetofuturepricevolatility.Ifactualexperiencediffers
negativelyfromtheassumptionsandotherconsiderationsusedintheconsolidated
financialstatements,unrealisedlossescurrentlyinequitymayberecognisedinthe
incomestatementinfutureperiods.

ForUSresidentialmortgage-backedandotherasset-backedsecurities,allofwhichare
classifiedasavailable-for-sale,impairmentisestimatedusingamodelofexpectedfuture
cashflows.Keyassumptionsusedinthemodelincludeassumptionsabouthowmuchof
thecurrentlydelinquentloanswilleventuallydefaultandassumedlossseverity.

Additionaldetailsonthemethodologyandestimatesusedtodetermineimpairmentsof
theavailable-for-salesecuritiesofJacksonaredescribedinnoteC3.2(e).

Assets held at amortised cost
Whenassetsheldatamortisedcostaresubjecttoimpairmenttesting,estimatedfuture
cashflowsarecomparedtothecarryingvalueoftheasset.Inestimatingfuturecashflows,
theGrouplooksattheexpectedcashflowsoftheassetsandapplieshistoricalloss
experienceofassetswithsimilarcreditrisksthathasbeenadjustedforconditionsinthe
historicallossexperiencewhichnolongerexist,orforconditionsthatareexpectedto
arise.Theestimatedfuturecashflowsarediscountedusingthefinancialasset’soriginalor
variableeffectiveinterestrateandexcludecreditlossesthathavenotyetbeenincurred.

Reversal of impairment losses
If,insubsequentperiods,animpaireddebtsecurityheldonanavailable-for-salebasisor
animpairedloanorreceivablerecoversinvalue(inpartorinfull)andthisrecoverycanbe
objectivelyrelatedtoaneventoccurringaftertheimpairment,thenanyamount
determinedtohavebeenrecoveredisreversedthroughtheincomestatement.

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A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUEDA4.2  New accounting pronouncements not yet effective
Thefollowingstandards,interpretationsandamendmentshavebeenissuedbutarenotyeteffectivein2019,includingthosewhich
havenotyetbeenadoptedintheEU.FollowingUK’swithdrawalfromtheEuropeanUnion,theGroupwillcontinuetopreparethese
statementsinaccordancewithIASBissuedstandardsasendorsedbytheEUuntiltheendofthetransitionperiodon31December2020.
ThisincludesaccountingstandardsalreadyendorsedbytheEUbutnotyeteffectiveaswellasanyneworamendedstandardsadopted
bytheEUbeforethe31December2020.Forfinancialyearsbeginningafter31December2020,theGroupwillberequiredtoprepare
financialstatementsinaccordancewithUK-adoptedinternationalaccountingstandards.TheGovernmentisintheprocessof
establishingtheUKEndorsementBoardtoundertaketheworkofassessing,endorsingandadoptinganyneworamendedInternational
AccountingStandardspublishedbytheIASB.

Thisisnotintendedtobeacompletelistasonlythosestandards,interpretationsandamendmentsthatcouldhaveamaterialimpact

ontheGroup’sfinancialstatementsarediscussed.

IFRS 9 ‘Financial instruments: Classification and measurement’
InJuly2014,theIASBpublishedacompleteversionofIFRS9withtheexceptionofmacrohedgeaccounting.Thestandardbecame
mandatorilyeffectivefortheannualperiodsbeginningonorafter1January2018,withearlyapplicationpermittedandtransitionalrules
apply.

TheGroupmettheeligibilitycriteriafortemporaryexemptionundertheAmendmentstoIFRS4fromapplyingIFRS9in2018andhas
accordinglydeferredtheadoptionofIFRS9untilthedatewhenIFRS17‘InsuranceContracts’isexpectedtobeadopteduponitscurrent
mandatoryeffectivedate.TheGroupmadeareassessmentduringtheyearfollowingthedemergeroftheUKandEuropeoperations
inOctober2019andconfirmedthatitremainedqualifiedforthetemporaryexemption.TheGroupiseligibleasitsactivitiesare
predominantlytoissueinsurancecontractsbasedonthecriteriaassetoutintheamendmentstoIFRS4.Thedisclosureofthefairvalueof
theGroup’sfinancialassets,showingtheamountsforinstrumentsthatmeetthe‘SolelyforPaymentofPrincipalandInterest’(SPPI)
criteriathatdonotmeetthedefinitionofheldfortradingoraremanagedandevaluatedonafairvaluebasisseparatelyfromallother
financialassets,asrequiredforentitiesapplyingthetemporaryexemptionisprovidedbelow.

WhenadoptedIFRS9replacestheexistingIAS39‘FinancialInstruments–RecognitionandMeasurement’andwillaffectthe

followingthreeareas:

The classification and the measurement of financial assets and liabilities 
IFRS9redefinestheclassificationoffinancialassets.Basedonthewayinwhichtheassetsaremanagedinordertogeneratecashflows
andtheircontractualcashflowcharacteristics(whetherthecashflowsrepresent‘solelypaymentsofprincipalandinterest’),financial
assetsareclassifiedintooneofthefollowingcategories:amortisedcost,fairvaluethroughothercomprehensiveincome(FVOCI)andfair
valuethroughprofitorloss(FVTPL).AnoptionisalsoavailableatinitialrecognitiontoirrevocablydesignateafinancialassetasatFVTPL
ifdoingsoeliminatesorsignificantlyreducesaccountingmismatches.

UnderIAS39,82percentoftheGroup’sinvestmentsarevaluedatFVTPLandtheGroup’scurrentexpectationisthatasignificant

proportionwillcontinuetobedesignatedassuchunderIFRS9.

TheexistingIAS39amortisedcostmeasurementforfinancialliabilitiesislargelymaintainedunderIFRS9.Forfinancialliabilities

designatedatFVTPLIFRS9requireschangesinfairvalueduetochangesinentity’sowncreditrisktoberecognisedinother
comprehensiveincome.

The calculation of the impairment charge relevant for financial assets held at amortised cost or FVOCI 
AnewimpairmentmodelbasedonanexpectedcreditlossapproachreplacestheexistingIAS39incurredlossimpairmentmodel,
resultinginearlierrecognitionofcreditlossescomparedtoIAS39.ThisaspectisthemostcomplexareaofIFRS9toimplementandwill
involvesignificantjudgementsandestimationprocesses.TheGroupiscurrentlyassessingthescopeofassetstowhichthese
requirementswillapply.

The hedge accounting requirements which are more closely aligned with the risk management activities of the Company
NosignificantchangetotheGroup’shedgeaccountingiscurrentlyanticipated,butthisremainsunderreview.

TheGroupisassessingtheimpactofIFRS9andimplementingthisstandardinconjunctionwithIFRS17aspermitted.Furtherdetails

onIFRS17areprovidedbelow.

TheparentcompanyandanumberofintermediateholdingcompaniesintheUKandnon-insurancesubsidiariesinAsiaadoptedIFRS
9in2018intheirindividualorseparatefinancialstatementswherethesestatementsarepreparedinaccordancewithIFRS,includingthe
UKFinancialReportingStandard101ReducedDisclosureFramework.Thepublicavailabilityofthefinancialstatementsfortheseentities
variesaccordingtothelocallawsandregulationsofeachjurisdiction.TheresultsfortheseentitiescontinuetobeaccountedforonanIAS
39basisintheseconsolidatedfinancialstatements.

ThefairvalueoftheGroup’sdirectlyheldfinancialassetsat31December2019and2018areshownbelow.The2018comparative
informationincludesfinancialassetsrelatedtoM&Gplc,whichwasdemergedfromtheGroupinOctober2019.Financialassetswith
contractualtermsthatgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterest(SPPI)asdefinedbyIFRS
9areshownseparately.Thisexcludesfinancialassetsthatmeetthedefinitionofheldfortradingoraremanagedandevaluatedonafair
valuebasis.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA4 Accounting policies continued

A4.2  New accounting pronouncements not yet effective continued

Financial assets, net of derivative liabilities, on the Group’s statement  
of financial position at 31 Dec 2019

Accruedinvestmentincome
Otherdebtors
Loans note (1)
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities note (2)
Derivativeassets,netofderivativeliabilities
Otherinvestments
Deposits
Cashandcashequivalents

Totalfinancialassets,netofderivativeliabilities

Financial assets, net of derivative liabilities, on the Group’s statement  
of financial position at 31 Dec 2018

Accruedinvestmentincome
Otherdebtors
Loans note (1)
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities note (2)
Derivativeassets,netofderivativeliabilities
Otherinvestments
Deposits
Cashandcashequivalents

Totalfinancialassets,netofderivativeliabilities

Financial assets that pass the 
SPPI test

All other financial assets, net of 
derivative liabilities

Fair value at 
31 Dec 2019
$m

Movement in
 the fair value
during the year
$m

Fair value at 
31 Dec 2019
$m

Movement in
 the fair value 
during the year
$m

1,641
2,054
13,484
–
56,365
–
–
2,615
6,965

83,124

–
–
517
–
4,114
–
–
–
–

4,631

–
–
3,614
247,281
78,205
1,353
1,302
–
–

331,755

–
–
2
44,250
5,594
(5,825)
44
–
–

44,065

Financial assets that pass the 
SPPI test

All other financial assets, net of 
derivative liabilities

Fair value at 
31 Dec 2018
$m

Movement in
 the fair value
during the year
$m

Fair value at 
31 Dec 2018
$m

Movement in
 the fair value 
during the year
$m

3,501
5,207
15,175
–
50,335
–
–
15,023
15,442

104,683

–
–
(658)
–
(2,102)
–
–
–
–

(2,760)

–
–
8,284
273,484
172,998
(15)
8,294
–
–

463,045

–
–
(233)
(21,843)
(4,464)
(1,256)
622
–
–

(27,174)

Notes
(1)
(2)

TheloansthatpasstheSPPItestinthetableaboveareprimarilycarriedatamortisedcostunderIAS39.FurtherinformationontheseloansisasprovidedinnoteC3.3.
ThedebtsecuritiesthatpasstheSPPItestinthetableaboveareprimarilyheldbyJacksonandareclassifiedasavailable-for-saleunderIAS39.Thecreditratingsofthesesecurities,
analysedonthesamebasisofthosedisclosedinnoteC3.2,areasfollows:

Available-for-sale debt securities that pass the SPPI test

AAA
AA+toAA-
A+toA-
BBB+toBBB-
BelowBBB-
Other

Totalfairvalue

31 Dec 2019 
$m

31 Dec 2018 
$m

1,117
11,328
15,140
17,972
814
9,994

56,365

830
9,236
13,009
18,232
1,074
7,954

50,335

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A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUEDTheunderlyingfinancialassetsoftheGroup’sjointventuresandassociatesaccountedforusingtheequitymethodareanalysedbelow
intothosewhichmeettheSPPIconditionofIFRS9,excludinganyfinancialassetsthatmeetthedefinitionofheldfortradingorare
managedandevaluatedonafairvaluebasis,andallotherfinancialassets.Fairvalueinformationforjointventuresandassociatesisalso
setoutinthetablebelow:

Financial assets, net of derivative liabilities, held by the Group’s joint ventures and 
associates accounted for using the equity method at 31 Dec 2019

Accruedinvestmentincome
Otherdebtors
Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Deposits
Cashandcashequivalents

Totalfinancialassets,netofderivativeliabilities

Financial assets, net of derivative liabilities, held by the Group’s joint ventures and 
associates accounted for using the equity method at 31 Dec 2018

Accruedinvestmentincome
Otherdebtors
Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Deposits
Cashandcashequivalents

Totalfinancialassets,netofderivativeliabilities

Financial assets that pass the 
SPPI test

All other financial assets, net of 
derivative liabilities

Fair value at 
31 Dec 2019
$m

Movement in
 the fair value
during the year
$m

Fair value at 
31 Dec 2019
$m

Movement in
 the fair value 
during the year
$m

161
329
197
–
–
521
513

1,721

–
–
–
–
–
–
–

–

–
–
–
5,999
6,080
–
–

12,079

–
–
–
444
86
–
–

530

Financial assets that pass the 
SPPI test

All other financial assets, net of 
derivative liabilities

Fair value at 
31 Dec 2018
$m

Movement in
 the fair value
during the year
$m

Fair value at 
31 Dec 2018
$m

Movement in
 the fair value 
during the year
$m

167
270
149
–
–
452
504

1,542

–
–
–
–
–
–
–

–

–
–
–
4,683
5,409
–
–

10,092

–
–
–
(375)
115
–
–

(260)

IFRS 17 ‘Insurance Contracts’
InMay2017,theIASBissuedIFRS17‘InsuranceContracts’toreplacetheexistingIFRS4‘InsuranceContracts’.Thestandard,whichis
subjecttoendorsementintheEUandotherregions,appliestoannualperiodsbeginningonorafter1January2021.InJune2019,the
IASBissuedanexposuredraftproposingamendmentstoIFRS17whichincludesadelayoftheeffectivedateofIFRS17byoneyearto
periodsbeginningonorafter1January2022.Asaresultofcommentsonthisexposuredraft,theIASBredeliberatedonanumberof
areasoftheIFRS17withanamendedstandardexpectedtobeissuedinmid-2020.TheIASBstaffhaveproposedthattheIASBBoard
delaytheeffectivedatebyafurtheryearto1January2023.TheIASBwillmakeadecisiononthisproposalatits16-20March2020
meeting.EarlyapplicationofIFRS17ispermittedafterthestandardhasbeenendorsed,providedtheentityalsoappliesIFRS9onor
beforethedateitfirstappliesIFRS17.TheGroupintendstoadoptthenewstandardonitsmandatoryeffectivedate,alongsidethe
adoptionofIFRS9.

IFRS4permittedinsurerstocontinuetousethestatutorybasisofaccountingforinsuranceassetsandliabilitiesthatexistedintheir

jurisdictionspriortoJanuary2005.IFRS17replacesthiswithanewmeasurementmodelforallinsurancecontracts.

IFRS17requiresliabilitiesforinsurancecontractstoberecognisedasthepresentvalueoffuturecashflows,incorporatinganexplicit

riskadjustment,whichisupdatedateachreportingdatetoreflectcurrentconditions,andacontractualservicemargin(CSM)thatis
initiallysetequalandoppositetoanyday-onegainarisingoninitialrecognition.Lossesarerecogniseddirectlyintotheincomestatement.
Formeasurementpurposes,contractsaregroupedtogetherintocontractsofsimilarrisk,profitabilityprofileandissueyear,withfurther
divisionsforcontractsthataremanagedseparately.

ProfitforinsurancecontractsunderIFRS17isrepresentedbytherecognitionoftheservicesprovidedtopolicyholdersintheperiod

(releaseoftheCSM),releasefromnon-economicrisk(releaseofriskadjustment)andinvestmentprofit.

TheCSMisreleasedasprofitoverthecoverageperiodoftheinsurancecontract,reflectingthedeliveryofservicestothe

policyholder.Forcertaincontractswithparticipatingfeatures(whereasubstantialshareofthefairvalueoftherelatedinvestmentsand
otherunderlyingitemsispaidtopolicyholders),theCSMreflectsthevariablefeetoshareholders.Forthesecontracts,theCSMis
adjustedtoreflectthechangesineconomicexperienceandassumptions.ForallothercontractstheCSMisonlyadjustedfornon-
economicassumptions.ThescopeofcontractssubjecttothevariablefeeremainsunderconsiderationbytheGroup.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationA4 Accounting policies continued

A4.2  New accounting pronouncements not yet effective continued

IFRS17introducesanewmeasureofinsurancerevenue,basedonthedeliveryofservicestopolicyholdersandexcludinganypremiums
relatedtotheinvestmentelementsofpolicies,whichwillbesignificantlydifferentfromexistingpremiumrevenuemeasures,currently
reportedintheincomestatement.InordertotransitiontoIFRS17,theamountofdeferredprofit,beingtheCSMattransitiondate,needs
tobedetermined.

IFRS17requiresthisCSMtobecalculatedasifthestandardhadappliedretrospectively.Howeverifthisisnotpracticalanentityis
requiredtochooseeitherasimplifiedretrospectiveapproachortodeterminetheCSMbyreferencetothefairvalueoftheliabilitiesatthe
transitiondate.TheapproachfordeterminingtheCSMwillhaveasignificantimpactonbothshareholders’equityandontheamountof
profitsonin-forcebusinessinfuturereportingperiods.

IFRS 17 Implementation Programme 
IFRS17isexpectedtohaveasignificantimpactastherequirementsofthenewstandardarecomplexandrequiresafundamentalchange
toaccountingforinsurancecontractsaswellastheapplicationofsignificantjudgementandnewestimationtechniques.Theeffectof
changesrequiredtotheGroup’saccountingpoliciesasaresultofimplementingthesestandardsarecurrentlyuncertain,particularlyas
therequirementsofthestandardcontinuetobedeliberatedbytheIASB.Thesechangescanbeexpectedto,amongotherthings,alter
thetimingofIFRSprofitrecognition.GiventheimplementationofthisstandardwillinvolvesignificantenhancementstoIT,actuarialand
financesystemsoftheGroup,itwillalsohaveanimpactontheGroup’sexpenses.

TheGrouphasaGroup-wideimplementationprogrammeunderwaytoimplementIFRS17andIFRS9.Theprogrammeisresponsible
forsettingGroup-wideaccountingpoliciesanddevelopingapplicationmethodologies,establishingappropriateprocessesandcontrols,
sourcingappropriatedataandimplementingactuarialandfinancesystemchanges.

AGroup-wideSteeringCommittee,chairedbytheGroupChiefFinancialOfficerandChiefOperatingOfficerwithparticipationfrom

theGroupRiskfunctionandtheGroup’sandbusinessunits’seniorfinancemanagers,providesoversightandstrategicdirectiontothe
implementationprogramme.Anumberofsub-committeesarealsoinplacetoprovidegovernanceoverthetechnicalinterpretationand
accountingpoliciesselected,programmemanagement,designanddeliveryoftheprogramme.

TheGroupismakingprogresstowardsprovidingIFRS17financialstatementsinlinewiththerequirementsforinterimreportingatits

effectivedate.

Other new accounting pronouncements
Inadditiontotheabove,thefollowingnewaccountingpronouncementshavealsobeenissuedandarenotyeteffectivebuttheGroupis
notexpectingthemtohaveasignificantimpactontheGroup’sfinancialstatements:

— RevisedConceptualFrameworkforFinancialReporting,issuedinMarch2018andeffectivefrom1January2020;
— AmendmenttoIFRS3‘BusinessCombinations’issuedinOctober2018andeffectivefrom1January2020;
— AmendmentstoIAS1andIAS8‘Definitionofmaterial’issuedinOctober2018andeffectivefrom1January2020;
— AmendmentstoIFRS9,IAS39andIFRS7‘Interestratebenchmarkreform’issuedinSeptember2019andeffectivefrom1January

2020;and

— AmendmentstoIAS1‘Classificationofliabilitiesascurrentornon-current’issuedinJanuary2020andeffectivefrom1January2022.

ForthoseIASBstandardsandamendmentsthathaveaneffectivedateafter31December2020,theGroup’sfinancialstatements
willbepreparedinaccordancewithUK-adoptedinternationalaccountingstandards,whichiscurrentlybeingfinalised,insteadof
EU-endorsedIFRS.

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A	BASIS	OF	PREPARATION	AND	ACCOUNTING	POLICIES		CONTINUEDB   Earnings performance

B1 Analysis of performance by segment 

B1.1 Segment results

Asia
Insuranceoperations
Assetmanagement

TotalAsia

US
Jackson(USinsuranceoperations)
Assetmanagement

TotalUS

Total segment profit from continuing operations

Other income and expenditure

Investmentreturnandotherincome
Interestpayableoncorestructuralborrowings note (ii)
Corporateexpenditure note (iii)

Totalotherincomeandexpenditure

Restructuringcosts note (iv)

Adjusted IFRS operating profit based on longer-term 

investment returns

Short-termfluctuationsininvestmentreturnson

shareholder-backedbusiness

Amortisationofacquisitionaccountingadjustments note (v)
(Loss)ondisposalofbusinessesandcorporatetransactions

Note

B3(a)

B3(b)

2019 $m

2018 $m

2019 vs 2018%

AER
note(i)

CER
note(i)

AER
note(i)

CER
note(i)

2,993
283

3,276

3,038
32

3,070

6,346

50
(516)
(460)

(926)

(110)

2,646
242

2,888

2,552
11

2,563

5,451

70
(547)
(490)

(967)

(75)

2,633
239

2,872

2,552
11

2,563

5,435

67
(523)
(477)

(933)

(73)

13%
17%

13%

19%
191%

20%

16%

(29)%
6%
6%

4%

14%
18%

14%

19%
191%

20%

17%

(25)%
1%
4%

1%

(47)%

(51)%

5,310

4,409

4,429

20%

20%

B1.2

D1

(3,203)
(43)
(142)

(791)
(61)
(107)

(796)
(61)
(106)

(305)%
30%
(33)%

(302)%
30%
(34)%

Profit from continuing operations before tax attributable 

to shareholders

Taxcredit(charge)attributabletoshareholders’returns

Profit from continuing operations
Profitfromdiscontinuedoperations
Re-measurementofdiscontinuedoperationsondemerger
Cumulativeexchangelossrecycledfromothercomprehensiveincome

B4

D2

D2

D2

(Loss) profit from discontinued operations

Profit for the year

Attributable to:
EquityholdersoftheCompany
Fromcontinuingoperations
Fromdiscontinuedoperations
Non-controllinginterestsfromcontinuingoperations



1,922
31

1,953
1,319
188
(2,668)

(1,161)

792

1,944
(1,161)
9

792

3,450
(569)

3,466
(570)

2,881
1,142
–
–

1,142

4,023

2,877
1,142
4

4,023

2,896
1,092
–
–

1,092

3,988

2,892
1,092
4

3,988

(44)%
105%

(32)%
15%
–
–

(45)%
105%

(33)%
21%
–
–

(202)%

(206)%

(80)%

(80)%

(32)%
(202)%
125%

(33)%
(206)%
125%

(80)%

(80)%

Basic earnings per share (in cents)

BasedonadjustedIFRSoperatingprofitbasedonlonger-term

investmentreturns,netoftax,fromcontinuingoperations note (vi)

Basedonprofitfortheyearfromcontinuingoperations
Basedon(loss)profitfortheyearfromdiscontinuedoperations

2019

2018

2019 vs 2018%

Note

AER
note(i)

CER
note(i)

AER
note(i)

CER
note(i)

B5

B5

B5

175.0¢
75.1¢
(44.8)¢

145.2¢
111.7¢
44.3¢

146.0¢
112.5¢
42.4¢

21%
(33)%
(201)%

20%
(33)%
(206)%

FordefinitionsofAERandCERrefertonoteA1.
InterestchargedtotheincomestatementondebtthatwassubstitutedtoM&GplcinOctober2019for2019was$(179)million(2018:$(128)million).

Notes
(i)
(ii)
(iii) CorporateexpenditureasshownaboveisprimarilyforheadofficefunctionsinLondonandHongKong.
(iv) Restructuringcostsincludegroup-widecostsincurredforIFRS17implementationin2019fromcontinuingoperations.
(v)
(vi)

AmortisationofacquisitionaccountingadjustmentsprincipallyrelatetotheREALICbusinessofJacksonwhichwasacquiredin2012.
Taxchargeshavebeenreflectedasoperatingandnon-operatinginthesamewayasforthepre-taxitems.FurtherdetailsontaxchargesareprovidedinnoteB4.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB1 Analysis of performance by segment continued

B1.2 Short-term fluctuations in investment returns on shareholder-backed business 

Asiaoperations note (i)
USoperations note (ii)
Otheroperations

Total

2019 $m

2018 $m

657
(3,757)
(103)

(3,203)

(684)
(134)
27

(791)

Notes
(i)


Asia operations 
InAsia,thepositiveshort-termfluctuationsof$657million(2018:negative$(684)million)principallyreflectnetvaluemovementsonshareholders’assetsandrelatedliabilities
followingdecreasesinbondyieldsduringtheyear.

(ii) US operations


Theshort-termfluctuationsininvestmentreturnsforUSinsuranceoperationsarereportednetoftherelatedcreditforamortisationofdeferredacquisitioncostsof$1,248millionas
showninnoteC5.2(i)(2018:debitof$(152)million)andcompriseamountsinrespectofthefollowingitems:

2019 $m

2018 $m

Netequityhedgeresult note (a)
Otherthanequity-relatedderivatives note (b)
Debtsecurities note (c)
Equity-typeinvestments:actuallesslonger-termreturn
Otheritems

TotalnetofrelatedDACamortisation

Notes
(a) Netequityhedgeresult



(4,582)
678
156
18
(27)

(3,757)

(78)
(85)
(42)
51
20

(134)










Thepurposeoftheinclusionofthisiteminshort-termfluctuationsininvestmentreturnsistosegregatetheamountincludedinpre-taxprofitthatrelatestotheaccounting
effectofmarketmovementsonboththevalueofguaranteesinJackson’svariableannuityandfixedindexannuityproductsandontherelatedderivativesusedtomanagethe
exposuresinherentintheseguarantees.Theleveloffeesrecognisedinnon-operatingprofitisdeterminedbyreferencetothatallowedforwithinthereservingbasis.The
variableannuityguaranteesarevaluedinaccordancewitheitherAccountingStandardsCodification(ASC)Topic820,FairValueMeasurementsandDisclosures(formerlyFAS
157)orASCTopic944,FinancialServices–Insurance(formerlySOP03-01)dependingonthetypeofguarantee.Bothapproachesrequireanentitytodeterminethetotalfee
(‘thefeeassessment’)thatisexpectedtofundfutureprojectedbenefitpaymentsarisingusingtheassumptionsapplicableforthatmethod.ThemethodunderFAS157requires
thisfeeassessmenttobefixedatthetimeofissue.Asthefeesincludedwithintheinitialfeeassessmentareearned,theyareincludedinnon-operatingprofittomatchthe
correspondingmovementintheguaranteeliability.Otherguaranteefeesareincludedinoperatingprofit,whichin2019was$699million(2018:$657million),netofrelated
DACamortisation.AstheGroupappliesUSGAAPforthemeasuredvalueoftheproductguarantees,thenetequityhedgeresultalsoincludesasymmetricimpactswherethe
measurementbasesoftheliabilitiesandassociatedderivativesusedtomanagetheJacksonannuitybusinessdiffer.

–Thevariableannuityguaranteesandfixedindexannuityembeddedoptionsbeingonlypartiallyfairvaluedunder‘grandfathered’USGAAP;
–Theinterestrateexposurebeingmanagedthroughtheotherthanequity-relatedderivativeprogrammeexplainedinnote(b)below;and
–Jackson’smanagementofitseconomicexposuresforanumberofotherfactorsthataretreateddifferentlyintheaccountingframeworkssuchasfuturefeesandassumed

Thenetequityhedgeresultthereforeincludessignificantaccountingmismatchesandotherfactorsthatdonotrepresenttheeconomicresult.Theseotherfactorsinclude:

volatilitylevels.



Thenetequityhedgeresultcanbesummarisedasfollows:

Fairvaluemovementsonequityhedgeinstruments*
Accountingvaluemovementsonthevariableandfixedindexannuityguaranteeliabilities
Feeassessmentsnetofclaimpayments

TotalnetofrelatedDACamortisation

2019 $m

2018 $m

(5,314)
(22)
754

(4,582)

399
(1,194)
717

(78)

*HeldtomanageequityexposuresofthevariableannuityguaranteesandfixedindexannuityoptionsasdiscussedintheGroupChiefFinancialOfficerandChiefOperating

Officer’sreport.



(b) Otherthanequity-relatedderivatives








Thefluctuationsforthisitemcomprisetheneteffectof:
–Fairvaluemovementsonfree-standing,otherthanequity-relatedderivatives;
–FairvaluemovementsontheGuaranteedMinimumIncomeBenefit(GMIB)reinsuranceassetthatarenotmatchedbymovementsintheunderlyingGMIBliability,whichis

notfairvalued;and

–RelatedamortisationofDAC.

Thefree-standing,otherthanequity-relatedderivatives,areheldtomanageinterestrateexposuresanddurationswithinthegeneralaccountandthevariableannuity
guaranteesandfixedindexannuityembeddedoptionsdescribedinnote(a)above.Accountingmismatchesarisebecauseofdifferencesbetweenthemeasurementbasisand
presentationofthederivatives,whicharefairvaluedwithmovementsrecordedintheincomestatement,andtheexposurestheyareintendedtomanage.

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B	EARNINGS	PERFORMANCE		CONTINUED 


(c) Short-termfluctuationsrelatedtodebtsecurities

2019 $m

2018 $m

(Charges)creditsintheyear:

Lossesonsalesofimpairedanddeterioratingbonds
Bondwrite-downs
Recoveries/reversals

Total(charges)creditsintheyear

RiskmarginallowancedeductedfromadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturns*



Interest-relatedrealisedgains(losses):
Gains(losses)arisingintheyear
Less:AmortisationofgainsandlossesarisingincurrentandprioryearstoadjustedIFRSoperatingprofitbased

onlonger-terminvestmentreturns

Relatedamortisationofdeferredacquisitioncosts
Totalshort-termfluctuationsrelatedtodebtsecuritiesnetofrelatedDACamortisation

(28)
(15)
1

(42)
109

67

220

(129)

91

(2)
156

(6)
(5)
25

14
104

118

(12)

(155)

(167)

7
(42)

*ThedebtsecuritiesofJacksonareheldinthegeneralaccountofthebusiness.Realisedgainsandlossesarerecordedintheincomestatementwithnormalisedreturns

includedinadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnswithvariationsfromyeartoyearincludedintheshort-termfluctuationscategory.Therisk
marginreservechargeforlonger-termcredit-relatedlossesincludedinadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsofJacksonfor2019isbased
onanaverageannualriskmarginreserveof17basispoints(2018:18basispoints)onaveragebookvaluesof$62.6billion(2018:$57.1billion)asshownbelow:

2019 

2018

Moody’s rating category (or equivalent under  
NAIC ratings of mortgage-backed securities) 

A3orhigher
Baa1,2or3
Ba1,2or3
B1,2or3
BelowB3

Total



Relatedamortisationofdeferredacquisitioncosts
RiskmarginreservechargetoadjustedIFRSoperating
profitbasedonlonger-terminvestmentreturnsfor
longer-termcredit-relatedlosses

Average
book value

$m

38,811
22,365
1,094
223
75

62,568

RMR

%

0.10
0.24
0.85
2.56
3.39

0.17

Annual
expected loss

Average
book value

$m

29,982
25,814
1,042
289
11

57,138

$m

(38)
(53)
(9)
(6)
(3)

(109)

19

(90)

RMR

%

0.10
0.21
0.98
2.64
3.69

0.18

Annual
expected loss

$m

(31)
(55)
(10)
(8)
–

(104)

22

(82)

InadditiontotheaccountingforrealisedgainsandlossesdescribedaboveforJacksongeneralaccountdebtsecurities,includedwithin
thestatementofothercomprehensiveincomeisapre-taxgainof$3,392millionfornetunrealisedgainsondebtsecuritiesclassifiedas
available-for-salenetofrelatedamortisationofdeferredacquisitioncosts(2018:chargeof$(1,831)million).Temporarymarketvalue
movementsdonotreflectdefaultsorimpairments.AdditionaldetailsofthemovementinthevalueoftheJacksonportfolioareincluded
innoteC3.2(b).

B1.3 Determining operating segments and performance measure of operating segments
Operating segments
TheGroup’soperatingsegmentsforfinancialreportingpurposesaredefinedandpresentedinaccordancewithIFRS8‘Operating
Segments’onthebasisofthemanagementreportingstructureanditsfinancialmanagementinformation.

UndertheGroup’smanagementandreportingstructure,itschiefoperatingdecisionmakeristheGroupExecutiveCommittee(GEC).

Inthemanagementstructure,responsibilityisdelegatedtotheChiefExecutiveOfficersofPrudentialCorporationAsia,theNorth
AmericanBusinessUnitand,uptothedateofdemerger,M&Gplcfortheday-to-daymanagementoftheirbusinessunits(withinthe
frameworksetoutintheGroupGovernanceManual).FinancialmanagementinformationusedbytheGECalignswiththesebusiness
segments.Theseoperatingsegmentsderiverevenuefrombothinsuranceandassetmanagementactivities.

On21October2019,theGroupcompletedthedemergerofM&GplcfromthePrudentialplcgroup,resultingintwoseparately

listedcompanies.Accordingly,UKandEuropeoperationsdonotrepresentanoperatingsegmentattheyearend.TheresultsofM&Gplc
havebeenreclassifiedasdiscontinuedoperationsintheseconsolidatedfinancialstatementsinaccordancewithIFRS5‘Non-current
AssetsHeldforSaleandDiscontinuedOperations’andhavethereforebeenexcludedintheanalysisofperformancemeasureof
operatingsegments.

Operationswhichdonotformpartofanybusinessunitarereportedas‘Unallocatedtoasegment’.Theseincludeheadofficecostsin

LondonandHongKong.TheGroup’sAfricaoperationsandtreasuryfunctiondonotformpartofanyoperatingsegmentunderthe
structure,andtheirassetsandliabilitiesandprofitorlossbeforetaxarenotmaterialtotheoverallfinancialpositionoftheGroup.
TheGroup’streasuryfunctionandAfricaoperationsarethereforealsoreportedas‘Unallocatedtoasegment’.

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B1 Analysis of performance by segment continued

B1.3 Determining operating segments and performance measure of operating segments continued
Performance measure
TheperformancemeasureofoperatingsegmentsutilisedbytheCompanyisadjustedIFRSoperatingprofitattributabletoshareholders
basedonlonger-terminvestmentreturns,asdescribedbelow.ThismeasurementbasisdistinguishesadjustedIFRSoperatingprofit
basedonlonger-terminvestmentreturnsfromotherconstituentsoftotalprofitfortheyearasfollows:

— Short-termfluctuationsininvestmentreturnsonshareholder-backedbusiness.Thisincludestheimpactofshort-termmarketeffects

onthecarryingvalueofJackson’sguaranteeliabilitiesandrelatedderivativesasexplainedbelow;

— Amortisationofacquisitionaccountingadjustmentsarisingonthepurchaseofbusiness.Thiscomprisesprincipallythechargeforthe

adjustmentsarisingonthepurchaseofREALICin2012;and

— Gainorlossoncorporatetransactions,suchasdisposalsundertakenintheyearandcostsconnectedtothedemergerofM&Gplc

fromPrudentialplc.

Determination of adjusted IFRS operating profit based on longer-term investment returns for investment 
and liability movements
(a)	 With-profits	business	
ForAsia’swith-profitsbusinessinHongKong,SingaporeandMalaysia,theadjustedIFRSoperatingprofitbasedonlonger-term
investmentreturnsreflectstheshareholders’shareinthebonusesdeclaredtopolicyholders.Valuemovementsintheunderlyingassets
ofthewith-profitsfundsonlyaffecttheshareholderresultsthroughindirecteffectsofinvestmentperformanceondeclaredpolicyholder
bonusesandtherefore,donotaffectdirectlythedeterminationofadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturns.

(b)	Unit-linked	business	including	the	US	variable	annuity	separate	accounts
Thepolicyholderunitliabilitiesaredirectlyreflectiveoftheunderlyingassetvaluemovements.Accordingly,theadjustedIFRSoperating
profitbasedonlonger-terminvestmentreturnsreflectthecurrentperiodvaluemovementsinboththeunitliabilitiesandthebacking
assets.

(c)	 US	variable	annuity	and	fixed	index	annuity	business
ThisbusinesshasguaranteeliabilitieswhicharemeasuredonacombinationoffairvalueandotherUSGAAPderivedprinciples.These
liabilitiesaresubjecttoanextensivederivativeprogrammetomanageequityandinterestrateexposureswhosefairvaluemovements
passthroughtheincomestatementeachperiod.

ThefollowingvaluemovementsforJackson’svariableandfixedindexannuitybusinessareexcludedfromadjustedIFRSoperating

profitbasedonlonger-terminvestmentreturns.SeenoteB1.2note(ii):

— Fairvaluemovementsforequity-basedderivatives;
— Fairvaluemovementsforguaranteedbenefitoptionsforthe‘notforlife’portionofGuaranteedMinimumWithdrawalBenefit

(GMWB)andfixedindexannuitybusiness,andGuaranteedMinimumIncomeBenefit(GMIB)reinsurance(seebelow);

— MovementsintheaccountscarryingvalueofGuaranteedMinimumDeathBenefit(GMDB),GMIBandthe‘forlife’portionofGMWB
liabilities,(seebelow)forwhich,underthe‘grandfathered’USGAAPappliedunderIFRSforJackson’sinsuranceassetsandliabilities,
themeasurementbasisgivesrisetoamutedimpactofcurrentperiodmarketmovements(ietheyarerelativelyinsensitivetotheeffect
ofcurrentperiodequitymarketandinterestratechanges);

— Aportionofthefeeassessmentsaswellasclaimpayments,inrespectofguaranteeliabilities;and
— Relatedamortisationofdeferredacquisitioncostsforeachoftheaboveitems.

Guaranteed benefit options for the ‘not for life’ portion of GMWB and equity index options for the fixed index 
annuity business
The‘notforlife’portionofGMWBguaranteedbenefitoptionliabilitiesismeasuredundertheUSGAAPbasisappliedforIFRSina
mannerconsistentwithIAS39underwhichtheprojectedfuturegrowthrateoftheaccountbalanceisbasedonthegreaterofUS
Treasuryratesandcurrentswaprates(ratherthanexpectedratesofreturn)withonlyaportionoftheexpectedfutureguaranteefees
included.Reservevaluemovementsontheseliabilitiesaresensitivetochangestolevelsofequitymarkets,impliedvolatilityandinterest
rates.TheequityindexoptionforfixedindexannuitybusinessismeasuredundertheUSGAAPbasisappliedforIFRSinamanner
consistentwithIAS39underwhichtheprojectedfuturegrowthisbasedoncurrentswaprates.

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B	EARNINGS	PERFORMANCE		CONTINUEDGuaranteed benefit option for variable annuity guarantee minimum income benefit
TheGMIBliability,whichissubstantiallyreinsured,subjecttoadeductibleandannualclaimlimits,isaccountedforusing‘grandfathered’
USGAAP.Thisaccountingbasissubstantiallydoesnotrecognisetheeffectsofmarketmovements.Thecorrespondingreinsuranceasset
ismeasuredunderthe‘grandfathered’USGAAPbasisappliedforIFRSinamannerconsistentwithIAS39‘FinancialInstruments:
RecognitionandMeasurement’,andtheassetisthereforerecognisedatfairvalue.AstheGMIBiseconomicallyreinsured,themarkto
marketelementofthereinsuranceassetisincludedasacomponentofshort-termfluctuationsininvestmentreturns.

(d)	Policyholder	liabilities	that	are	sensitive	to	market	conditions	
UnderIFRS,thedegreetowhichthecarryingvaluesofliabilitiestopolicyholdersaresensitivetocurrentmarketconditionsvaries
betweenbusinessunitsdependinguponthenatureofthe‘grandfathered’measurementbasis.

Movementsinliabilitiesforsometypesofbusinessdorequirebifurcationbetweentheelementsthatrelatetolonger-termmarket
conditionandshort-termeffectstoensurethatatthenetlevel(ieafterallocatedinvestmentreturnandchargeforpolicyholderbenefits)
theadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsreflectslonger-termmarketreturns.

ForcertainAsianon-participatingbusiness,forexampleinHongKong,theeconomicfeaturesaremoreakintoassetmanagement
productswithpolicyholderliabilitiesreflectingassetsharesoverthecontractterm.Consequently,fortheseproducts,thechargefor
policyholderbenefitsintheadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsreflectstheassetsharefeaturerather
thanvolatilemovementsthatwouldotherwisebereflectedifthelocalregulatorybasis(asappliedfortheIFRSbalancesheet)wasused.
ForothertypesofAsianon-participatingbusiness,expectedlonger-terminvestmentreturnsandinterestratesareusedtodetermine

themovementinpolicyholderliabilitiesfordeterminingadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturns.This
ensuresassetsandliabilitiesarereflectedonaconsistentbasis.

(e)	 Assets	backing	other	shareholder-financed	long-term	insurance	business
Exceptinthecaseofassetsbackingliabilitieswhicharedirectlymatched(suchasunit-linkedbusiness)adjustedIFRSoperatingprofit
basedonlonger-terminvestmentreturnsforassetsbackingshareholder-financedbusinessisdeterminedonthebasisofexpected
longer-terminvestmentreturns.Longer-terminvestmentreturnscompriseactualincomereceivablefortheperiod(interest/dividend
income)andforbothdebtandequity-typesecuritieslonger-termcapitalreturns.

Debt securities and loans 
Inprinciple,fordebtsecuritiesandloans,thelonger-termcapitalreturnscomprisetwoelements:

— Riskmarginreservebasedchargefortheexpectedlevelofdefaultsfortheperiod,whichisdeterminedbyreferencetothecredit

qualityoftheportfolio.Thedifferencebetweenimpairmentlossesinthereportingperiodandtheriskmarginreservechargetothe
adjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsisreflectedinshort-termfluctuationsininvestmentreturns;
and

— Theamortisationofinterest-relatedrealisedgainsandlossestoadjustedIFRSoperatingprofitbasedonlonger-terminvestment

returnstothedatewhensoldbondswouldhaveotherwisematured.

At31December2019,thelevelofunamortisedinterest-relatedrealisedgainsandlossesrelatedtopreviouslysoldbondsfortheGroup
wasanetgainof$916million(2018:$776million).

ForAsiainsuranceoperations,realisedgainsandlossesareprincipallyinterestrelated.Accordingly,allrealisedgainsandlossesto
datefortheseoperationsareamortisedovertheperiodtothedatethosesecuritieswouldotherwisehavematured,withnoexplicitrisk
marginreservecharge.

ForUSinsuranceoperations,JacksonhasusedtheratingsbyNationallyRecognisedStatisticalRatingsOrganisations(NRSRO)or
ratingsresultingfromtheregulatoryratingsdetailissuedbytheNationalAssociationofInsuranceCommissioners(NAIC)todetermine
theaverageannualriskmarginreservetoapplytodebtsecuritiesheldtobackgeneralaccountbusiness.Debtsecuritiesheldtoback
separateaccountandreinsurancefundswithheldarenotsubjecttoriskmarginreservecharge.Furtherdetailsoftheriskmarginreserve
charge,aswellastheamortisationofinterest-relatedrealisedgainsandlosses,forJacksonareshowninnoteB1.2note(ii)(c).

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB1 Analysis of performance by segment continued

B1.3 Determining operating segments and performance measure of operating segments continued
Equity-type securities
Forequity-typesecurities,thelonger-termratesofreturnareestimatesofthelong-termtrendinvestmentreturnsforincomeandcapital
havingregardtopastperformance,currenttrendsandfutureexpectations.Differentratesapplytodifferentcategoriesofequity-type
securities.

ForAsiainsuranceoperations,investmentsinequitysecuritiesheldfornon-linkedshareholder-backedbusinessamountedto

$3,473millionasat31December2019(31December2018:$2,733million).Theratesofreturnappliedin2019rangedfrom5.0percent
to17.6percent(2018:5.3percentto17.6percent)withtheratesappliedvaryingbybusinessunit.Theseratesarebroadlystablefrom
yeartoyearbutmaybedifferentbetweenregions,reflecting,forexample,differingexpectationsofinflationineachlocalbusinessunit.
Theassumptionsareforthereturnsexpectedtoapplyinequilibriumconditions.Theassumedratesofreturndonotreflectanycyclical
variabilityineconomicperformanceandarenotsetbyreferencetoprevailingassetvaluations.

Thelonger-terminvestmentreturnsfortheAsiainsurancejointventuresandassociateaccountedforusingtheequitymethodare

determinedonasimilarbasisastheotherAsiainsuranceoperationsdescribedabove.

ForUSinsuranceoperations,asat31December2019,theequity-typesecuritiesfornon-separateaccountoperationsamountedto
$1,481million(31December2018:$1,731million).Fortheseoperations,thelonger-termratesofreturnforincomeandcapitalapplied
intheyearsindicated,whichreflectthecombinationoftheaveragerisk-freeratesovertheyearandappropriateriskpremiumsare
asfollows:

Equity-typesecuritiessuchascommonandpreferredstockandportfolioholdingsinmutualfunds
Otherequity-typesecuritiessuchasinvestmentsinlimitedpartnershipsandprivateequityfunds

5.5%  to 6.7% 6.7%to7.2%
7.5% to 8.7% 8.7%to9.2%

2019

2018

Derivative value movements
Generally,derivativevaluemovementsareexcludedfromadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturns.The
exceptioniswherethederivativevaluemovementsbroadlyoffsetchangesintheaccountingvalueofotherassetsandliabilitiesincluded
inadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturns.Theprincipalexampleofderivativeswhosevaluemovements
areexcludedfromadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsarisesinJackson.

Equity-basedderivativesheldbyJacksonareasdiscussedaboveinsection(c)above.Non-equitybasedderivativesheldbyJackson

arepartofabroad-basedhedgingprogrammeforfeaturesofJackson’sbondportfolio(forwhichvaluemovementsarebookedinthe
statementofothercomprehensiveincomeratherthantheincomestatement),productliabilities(forwhichUSGAAPaccountingas
‘grandfathered’underIFRS4doesnotfullyreflecttheeconomicfeaturesbeinghedged),andtheinterestrateexposureattachingto
equity-basedproductoptions.

(f)	 Fund	management	and	other	non-insurance	businesses
Forthesebusinesses,thedeterminationofadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsreflectsthe
underlyingeconomicsubstanceofthearrangements.Generally,realisedgainsandlossesareincludedinadjustedIFRSoperatingprofit
basedonlonger-terminvestmentreturnswithtemporaryunrealisedgainsandlossesbeingincludedinshort-termfluctuations.Insome
instances,realisedgainsandlossesonderivativesandotherfinancialinstrumentsareamortisedtoadjustedIFRSoperatingprofitbased
onlonger-terminvestmentreturnsoveratimeperiodthatreflectstheunderlyingeconomicsubstanceofthearrangements.

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B	EARNINGS	PERFORMANCE		CONTINUEDB1.4 Segmental income statement
Premiums for conventional with-profits policies and other protection type insurance policies are recognised as revenue when due. 
Premiums and annuity considerations for linked policies, unitised with-profits and other investment type policies are recognised as 
revenue when received or, in the case of unitised or unit-linked policies, when units are issued. These amounts exclude premium taxes 
and similar duties where Prudential collects and settles taxes borne by the policyholder.

Policy fees charged on linked and unitised with-profits policies for mortality, asset management and policy administration are 

recognised as revenue when 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.

2019 $m

Total 
 segment

44,966
(1,575)

43,391
609

44,000
34
4,540
45,029

93,603

Asia

US

23,757
(1,108)

22,649
548

23,197
–
1,569
13,406

38,172

21,209
(467)

20,742
61

20,803
34
2,971
31,623

55,431

(29,119)
(5,157)
–

(54,734)
(1,402)
(20)

(83,853)
(6,559)
(20)

265

–

265

Unallocated to 
a segment
 (central
 operations)
note(vi)

Group total
 continuing
 operations

98
(8)

90
91

181
(34)
67
(81)

133

(52)
(724)
(496)

(407)

45,064
(1,583)

43,481
700

44,181
–
4,607
44,948

93,736

(83,905)
(7,283)
(516)

(142)

(34,011)

(56,156)

(90,167)

(1,679)

(91,846)

397

–

397

–

397

4,558
(365)

(725)
–

3,833
(365)

(1,546)
–

2,287
(365)

4,193

(725)

3,468

(1,546)

1,922

Grosspremiumsearned
Outwardreinsurancepremiums

Earnedpremiums,netofreinsurance
Otherincome note (i)

Totalexternalrevenuenotes (ii), (iii)
Intra-grouprevenue
Interestincome note (iv)
Otherinvestmentreturnnote B1.5

Totalrevenue,netofreinsurance

Benefitsandclaimsandmovementsinunallocatedsurplus

ofwith-profitsfunds,netofreinsurance

Acquisitioncostsandotheroperatingexpenditurenote B2,
Interestoncorestructuralborrowings
Gain(loss)ondisposalofbusinessesandcorporate

transactionsnote D1.1

Totalcharges,netofreinsuranceandlossondisposal

ofbusinesses

Shareofprofitfromjointventuresandassociates,

netofrelatedtax

Profit(loss)beforetax(being tax attributable to shareholders’ 

and policyholders’ returns) note (v)

Taxchargeattributabletopolicyholders’returns

Profit (loss) before tax attributable to shareholders’  

returns from continuing operations

Analysis of profit (loss) before tax attributable to 

shareholders’ returns from continuing operations:
AdjustedIFRSoperatingprofit(loss)basedonlonger-term

investmentreturns

3,276

3,070

6,346

(1,036)

5,310

Short-termfluctuationsininvestmentreturnsonshareholder-

backedbusiness

Amortisationofacquisitionaccountingadjustments
Profit(loss)ondisposalofbusinessesandcorporate

transactionsnote D1.1















657
(5)

(3,757)
(38)

(3,100)
(43)

265

4,193

–

(725)

265

3,468

(103)
–

(407)

(1,546)

(3,203)
(43)

(142)

1,922

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB1 Analysis of performance by segment continued

B1.4 Segmental income statement continued

Grosspremiumsearned note (vii)
Outwardreinsurancepremiums

Earnedpremiums,netofreinsurance
Otherincome note (i)

Totalexternalrevenuenotes (ii),(iii)
Intra-grouprevenue
Interestincome note (iv)
Otherinvestmentreturnnote B1.5

Totalrevenue,netofreinsurance

Benefitsandclaimsandmovementsinunallocatedsurplusof

with-profitsfunds,netofreinsurance note (vii)

Acquisitioncostsandotheroperatingexpenditurenote B2, note (vii)
Interestoncorestructuralborrowings
Lossondisposalofbusinessesandcorporatetransactionsnote D1.1

Totalcharges,netofreinsuranceandgainondisposal

2018 $m

Total 
 segment

45,562
(1,180)

44,382
479

44,861
123
4,142
(13,411)

35,715

(23,400)
(7,935)
(20)
(66)

Unallocated to 
a segment
 (central
 operations)
note(vi)

Group total
 continuing
 operations

52
(3)

49
52

101
(123)
68
84

130

(26)
(592)
(527)
(41)

45,614
(1,183)

44,431
531

44,962
–
4,210
(13,327)

35,845

(23,426)
(8,527)
(547)
(107)

Asia

US

21,989
(768)

21,221
412

21,633
56
1,450
(4,326)

18,813

(11,664)
(5,162)
–
(15)

23,573
(412)

23,161
67

23,228
67
2,692
(9,085)

16,902

(11,736)
(2,773)
(20)
(51)

ofbusiness

(16,841)

(14,580)

(31,421)

(1,186)

(32,607)

Shareofprofitfromjointventuresandassociates,

netofrelatedtax

Profit(loss)beforetax(being tax attributable to shareholders’ 

and policyholders’ returns) note (v)

Taxchargeattributabletopolicyholders’returns

Profit (loss) before tax attributable to shareholders’ 

returns from continuing operations 

Analysis of profit (loss) before tax attributable to 

shareholders’ returns from continuing operations:
AdjustedIFRSoperatingprofit(loss)basedonlonger-term

319

–

319

–

319

2,291
(107)

2,322
–

4,613
(107)

(1,056)
–

3,557
(107)

2,184

2,322

4,506

(1,056)

3,450

investmentreturns

2,888

2,563

5,451

(1,042)

4,409

Short-termfluctuationsininvestmentreturnsonshareholder-

backedbusiness

Amortisationofacquisitionaccountingadjustments
Lossondisposalofbusinessesandcorporatetransactionsnote D1.1

(684)
(5)
(15)

2,184

(134)
(56)
(51)

2,322

(818)
(61)
(66)

27
–
(41)

(791)
(61)
(107)

4,506

(1,056)

3,450

Notes
(i)

(ii)

IncludedwithinotherincomeisrevenuefromtheGroup’scontinuingassetmanagementbusinessof$453million(2018:$287million).Theremainingotherincomeconsists
primarilyofpolicyfeeincomefromexternalcustomers.Otherincomealsoincludes$3million(2018:$7million)relatingtothefeeincomeonfinancialinstrumentsthatarenotheld
atfairvaluethroughprofitorloss.
InAsia,externalrevenuefromnooneindividualmarketexceeds10percentoftheGrouptotalexceptforHongKonginboth2019and2018andSingaporein2019.Totalexternal
revenueofHongKongis$9,821million(2018:$10,307million)andSingaporeis$4,401million.

Interestincomeincludes$4million(2018:$5million)accruedinrespectofimpairedsecurities.
Thismeasureistheformalprofit(loss)beforetaxmeasureunderIFRSbutisnottheresultattributabletoshareholders.

(iii) DuetothenatureofthebusinessoftheGroup,thereisnorelianceonanymajorcustomers.
(iv)
(v)
(vi) Unallocatedtoasegmentincludescentraloperations(HeadOfficefunctionsandGroupborrowings),theGroup’streasuryfunctionandAfricaoperations.
(vii)

InOctober2018,Jacksonenteredintoa100percentreinsuranceagreementwithJohnHancockLifeInsuranceCompany(JohnHancockUSA)toacquireaclosedblockofgroup
pay-outannuitybusiness.Thetransactionresultedinanadditiontogrosspremiumsearnedof$5.0billionandacorrespondingincreaseinbenefitsandclaimsof$5.5billionforthe
increaseinpolicyholderliabilitiesandadecreaseinotheroperatingexpenditurefornegativecedingcommissionsof$0.5billionattheinceptionofthecontract.Therewasno
materialimpactonadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsortotalprofitasaresultofthetransaction.



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B	EARNINGS	PERFORMANCE		CONTINUEDB1.5 Other investment return
Investment return included in the income statement principally comprises interest income, dividends, investment appreciation and 
depreciation (realised and unrealised gains and losses) on investments designated as fair value through profit or loss, and realised gains 
and losses (including impairment losses) on items held at amortised cost and Jackson’s debt securities designated as available-for-sale. 
Movements in unrealised appreciation or depreciation of debt securities designated as available-for-sale are recorded in other 
comprehensive income. Interest income is recognised as it accrues, taking into account the effective yield on investments. Dividends on 
equity securities are recognised on the ex-dividend date and rental income is recognised on an accrual basis.

Realisedandunrealisedgains(losses)onsecuritiesatfairvaluethroughprofitorloss
Realisedandunrealised(losses)gainsonderivativesatfairvaluethroughprofitorloss
Realisedgainsonavailable-for-salesecurities,includingimpairmentpreviouslyrecognisedinother

comprehensiveincome

Realised(losses)onloans
Dividends
Otherinvestment(loss)income

Otherinvestmentreturn

2019 $m

2018 $m

49,809
(5,825)

(14,867)
705

185
(3)
1,000
(218)

15
(1)
740
81

44,948

(13,327)

RealisedgainsandlossesontheGroup’sinvestmentsfor2019recognisedintheincomestatementamountedtoanetlossof$2.0billion
(2018:anetgainof$2.5billion)fromcontinuingoperations.

B1.6 Additional analysis of performance by segment components
(a) Asia

Earnedpremiums,netofreinsurance
Otherincome

Totalexternalrevenue

Intra-grouprevenue
Interestincome
Otherinvestmentreturn

Totalrevenue,netofreinsurance

Benefitsandclaimsandmovementsinunallocatedsurplus

ofwith-profitsfunds,netofreinsurance
Acquisitioncostsandotherexpenditurenote B2
Gain(loss)ondisposalofbusinessesandcorporate

transactionsnote D1.1

Totalcharges,netofreinsuranceandgain(loss)ondisposal

2019 $m

Insurance

Asset
management

Eliminations

22,649
143

22,792

–
1,564
13,407

37,763

(29,119)
(4,925)

265

–
405

405

160
5
(1)

569

–
(392)

–

–
–

–

(160)
–
–

(160)

–
160

–

2018 $m

Total

21,221
412

21,633

56
1,450
(4,326)

18,813

Total

22,649
548

23,197

–
1,569
13,406

38,172

(29,119)
(5,157)

(11,664)
(5,162)

265

(15)

ofbusinesses

(33,779)

(392)

160

(34,011)

(16,841)

Shareofprofitfromjointventuresandassociates,

netofrelatedtax

Profitbeforetax(being tax attributable to shareholders’  

and policyholders’ returns)

Taxchargeattributabletopolicyholders’returns

Profitbeforetaxattributabletoshareholders’returns

Analysis of profit before tax:
AdjustedIFRSoperatingprofitbasedonlonger-term

investmentreturns

Short-termfluctuationsininvestmentreturnson

shareholder-backedbusiness

Amortisationofacquisitionaccountingadjustments
Profit(loss)ondisposalofbusinessesandcorporate

transactionsnote D1.1

291

4,275
(365)

3,910

106

283
–

283

2,993

283

657
(5)

265

3,910

–
–

–

283

–

–
–

–

–

–
–

–

–

397

319

4,558
(365)

4,193

2,291
(107)

2,184

3,276

2,888

657
(5)

265

4,193

(684)
(5)

(15)

2,184

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB1 Analysis of performance by segment continued

B1.6 Additional analysis of performance by segment components continued
(b) US

Earnedpremiums,netofreinsurance*
Otherincome

Totalexternalrevenue

Intra-grouprevenue
Interestincome
Otherinvestmentreturn

Totalrevenue,netofreinsurance

Benefitsandclaims*
Acquisitioncostsandotheroperatingexpenditure*
Interestoncorestructuralborrowings
Lossondisposalofbusinessesandcorporate

transactionsnote D1.1

Totalcharges,netofreinsuranceandlossondisposal

ofbusinesses

(Loss)profitbeforetax

Analysis of (loss) profit before tax:
AdjustedIFRSoperatingprofitbasedonlonger-term

investmentreturns

Short-termfluctuationsininvestmentreturnson

shareholder-backedbusiness

Amortisationofacquisitionaccountingadjustments
(Loss)ondisposalofbusinessesandcorporate

transactionsnote D1.1

2019 $m

Insurance

Asset
management

Eliminations

20,742
6

20,748

–
2,971
31,621

55,340

(54,734)
(1,343)
(20)

–

(56,097)

(757)

3,038

(3,757)
(38)

–

(757)

–
55

55

127
–
2

184

–
(152)
–

–

(152)

32

32

–
–

–

32

–
–

–

(93)
–
–

(93)

–
93
–

–

93

–

–

–
–

–

–

2018 $m

Total

23,161
67

23,228

67
2,692
(9,085)

16,902

(11,736)
(2,773)
(20)

Total

20,742
61

20,803

34
2,971
31,623

55,431

(54,734)
(1,402)
(20)

–

(51)

(56,156)

(14,580)

(725)

2,322

3,070

2,563

(3,757)
(38)

–

(725)

(134)
(56)

(51)

2,322

*InOctober2018,JacksonenteredintoanagreementwithJohnHancockLifetoreinsure100percentofthegrouppay-outannuitybusiness.Thetransactionresultedinanadditionto
grosspremiumsearnedof$5.0billionandacorrespondingincreaseinbenefitsandclaimsof$5.5billionfortheincreaseinpolicyholderliabilitiesandadecreaseinotheroperating
expenditurefornegativecedingcommissionsof$0.5billionattheinceptionofthecontract.TherewasnomaterialimpactonadjustedIFRSoperatingprofitbasedonlonger-term
investmentreturnsortotalprofitasaresultofthetransaction.

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B	EARNINGS	PERFORMANCE		CONTINUEDB2 Acquisition costs and other expenditure

Acquisitioncostsincurredforinsurancepolicies
Acquisitioncostsdeferredlessamortisationofacquisitioncosts note (i)
Administrationcostsandotherexpenditure* notes (ii),(iii)
Movementsinamountsattributabletoexternalunitholdersofconsolidatedinvestmentfunds

Totalacquisitioncostsandotherexpenditurefromcontinuingoperations

2019 $m

2018 $m

(4,177)
2,116
(5,019)
(203)

(7,283)

(4,313)
59
(3,877)
(396)

(8,527)

*The2018administrationcostsandotherexpenditureincludedacreditof$0.5billionforthenegativecedingcommissionsarisingfromthegrouppayoutannuitybusinessreinsurance

agreemententeredintobyJacksonwithJohnHancockin2018.

Notes
(i)

Thecreditforacquisitioncostsdeferredlessamortisationofthosecostsof$2,116million(2018:$59million)arisesinAsiaoperationsof$358million(2018:$362million)andinUS
operationsof$1,758million(2018:achargeof$(303)million)assetoutinnoteC5.2.Thecreditof$1,758millionforUSoperations(2018:achargeof$(303)million)comprises
additionalcostsdeferredintheyearof$807million(2018:$759million)drivenbyhighernewbusinesssalesandacreditof$951million(2018:achargeof$(1,062)million)forDAC
amortisation,drivenbythehedginglossesarisingin2019.

(ii) Duringtheyear,theGrouppaid$182millionofupfrontfeestomodifythetermsandconditionoftwosubordinateddebtinstruments,whichareexpensedtotheincomestatement
asdescribedinnoteC6.1.Allotherfeeexpensesrelatingtofinancialliabilitiesheldatamortisedcostin2019and2018arepartofthedeterminationoftheeffectiveinterestrateand
areincludedin‘Administrationcostsandotherexpenditure’above.
Totaldepreciationandamortisationexpenseisincludedin‘Acquisitioncostsincurredforinsurancepolicies‘,‘Administrationcostsandotherexpenditure’and‘Acquisitioncosts
deferredlessamortisationofacquisitioncosts’andrelatesprimarilytoamortisationofdeferredacquisitioncostsofinsurancecontractsandassetmanagementcontracts.The
segmentalanalysisofinterestexpense(otherthaninterestexpenseincorestructuralborrowings)anddepreciationandamortisationincludedwithintotalacquisitioncostsand
otherexpenditurewasasfollows:

(iii)

Asiaoperations:
Insurance
Assetmanagement

USoperations:
Insurance
Assetmanagement

Totalsegment
Unallocatedtoasegment(otheroperations)

Totalcontinuingoperations

Other interest expense

Depreciation and amortisation

2019* $m

2018 $m

2019* $m

2018 $m

(13)
–

(264)
(2)

(279)
(27)

(306)

–
–

(212)
–

(212)
(38)

(250)

(641)
(14)

901
(4)

242
(30)

212

(482)
(5)

(1,110)
(8)

(1,605)
(3)

(1,608)

*In2019,theseamountsalsoincludeinterestonleaseliabilitiesof$20millionanddepreciationonright-of-useassetsof$141millionrecognisedunderIFRS16.

B2.1 Staff and employment costs
TheaveragenumberofstaffemployedbytheGroup,forbothcontinuinganddiscontinuedoperations,duringtheyearsshownwas:

Asiaoperations
USoperations
Otheroperations*

Total continuing operations
Discontinued UK and Europe operations†

Total Group

2019

14,471
4,014
519

19,004
5,672

24,676

2018

16,798
4,285
676

21,759
6,447

28,206

*TheOtheroperations’staffnumbersincludestafffromcentraloperationsandAfricawhichareunallocatedtoasegment.
†AveragestaffnumbersofthediscontinuedUKandEuropeoperationsarefortheperioduptothedemergerinOctober2019.

Thecostsofemployment,forbothcontinuinganddiscontinuedoperations,were:

Wagesandsalaries
Socialsecuritycosts
Definedbenefitschemes*
Definedcontributionschemes

Total Group†

2019 $m

2018 $m

Continuing Discontinued

Group total

Continuing Discontinued

Group total

1,435
53
(91)
69

1,466

573
68
(5)
41

677

2,008
121
(96)
110

2,143

1,517
71
7
77

1,672

694
84
(46)
50

782

2,211
155
(39)
127

2,454

*Thecharge(credit)incorporatedtheeffectofactuarialgainsandlosses.Post-demergeroftheUKandEuropeoperations,theGroup’sdefinedbenefitschemescostsareexpectedtobe

negligible.SeenoteC9.

†TotalcostsofemploymentinthetableaboveincludethecostsofemploymentofthediscontinuedUKandEuropeoperationsuptothedemergerinOctober2019.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
B2 Acquisition costs and other expenditure continued

B2.2 Share-based payment
The Group offers discretionary share awards to certain key employees and all-employee share plans for all UK and a number of 
Asian locations.  

The compensation expense charged to the income statement is primarily based upon the fair value of the options granted, the vesting 

period and the vesting conditions.

The Company has established trusts to facilitate the delivery of Prudential plc shares under these plans. The cost to the Company of 

acquiring these newly issued shares held in trusts is shown as a deduction from shareholders’ equity.

(a) Description of the plans 
TheGroupoperatesanumberofshareawardplansthatprovidesPrudentialplcshares,orADRs,toparticipantsuponvesting.Theplans
inoperationincludethePrudentialLongTermIncentivePlan(PLTIP),thePrudentialAnnualIncentivePlan(AIP),savings-relatedshare
optionschemes,sharepurchaseplansanddeferredbonusplans.WhereExecutiveDirectorsparticipateintheseplans,detailsare
providedintheDirectors’remunerationreport.Inaddition,thefollowinginformationisprovided.

Share scheme

Description

Prudential Corporation Asia 
Long-Term Incentive Plan  
(PCA LTIP)

ThePCALTIPprovideseligibleemployeeswithconditionalawards.Awardsarediscretionaryand
vestafterthreeyearssubjecttotheemployeebeinginemployment.Vestingofawardsmayalsobe
subjecttoperformanceconditions.AllawardsaregenerallymadeinPrudentialshares,orADRs.In
countrieswhereshareawardsarenotfeasibleduetosecuritiesand/ortaxconsiderations,awardswill
bereplacedbythecashvalueofthesharesthatwouldotherwisehavevested.

Prudential Agency  
Long-Term Incentive Plan

CertainagentsinAsiaareeligibletobegrantedawardsunderthePrudentialAgencyLong-Term
IncentivePlan.TheseawardsarestructuredinasimilarwaytothePCALTIPdescribedabove.

Restricted Share Plan (RSP)

TheCompanyoperatestheRSPforcertainemployees.Awardsunderthisplanarediscretionary,and
thevestingofawardsmaybesubjecttoperformanceconditions.AllawardsaremadeinPrudential
sharesorADRs.

Deferred bonus plans

Savings-related share  
option schemes

TheCompanyoperatesanumberofdeferredbonusplansincludingtheGroupDeferredBonusPlan
(GDBP)andthePrudentialCorporationAsiaDeferredBonusPlan(PCADBP).Thereareno
performanceconditionsattachedtodeferredshareawardsmadeunderthesearrangements.

Employeesandeligibleagentsinanumberofgeographiesareeligibleforplanssimilartothe
HMRC-approvedSaveAsYouEarn(SAYE)shareoptionschemeintheUK.Duringtheyearended
31December2019eligibleemployeesparticipatedintheInternationalSavings-RelatedShareOption
SchemewhileeligibleagentsbasedincertainregionsofAsiacanparticipateintheInternational
Savings-RelatedShareOptionSchemeforNon-Employees.

Share purchase plans

EligibleemployeesoutsidetheUKareinvitedtoparticipateinarrangementssimilartotheCompany’s
HMRC-approvedUKSIP,whichallowsthepurchaseofPrudentialplcshares.StaffbasedinAsiaare
eligibletoparticipateinthePrudentialCorporationAsiaAllEmployeeSharePurchasePlan.



230

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B	EARNINGS	PERFORMANCE		CONTINUED(b) Outstanding options and awards 
ThefollowingtableshowsthemovementinoutstandingoptionsandawardsundertheGroup’sshare-basedcompensationplans:

Options outstanding under  
SAYE schemes

Awards outstanding under 
incentive plans

2019

2018

2019

2018

Number 
of options
millions

Weighted
 average
 exercise price 
£

Number of
 options 
millions

Weighted
 average
 exercise price 
£

Number of awards 
millions

Balanceatbeginningofyear:

Granted
Modification
Exercised
Forfeited
Cancelled
Lapsed/Expired
M&Gplcawardsderecognisedondemerger

Balanceatendofyear

Optionsimmediatelyexercisableatendofyear

4.9
0.6
0.3
(1.7)
–
(0.1)
(0.1)
(0.1)

3.8

0.9

12.10
11.13
11.95
10.87
12.87
12.82
12.93
13.37

12.38

11.33

6.4
0.3
–
(1.4)
(0.1)
(0.2)
(0.1)
–

4.9

0.8

11.74
13.94
–
10.85
12.25
12.43
12.60
–

12.10

10.37

32.8
13.4
4.3
(9.8)
(2.5)
(0.7)
(1.0)
(3.5)

33.0

33.6
10.7
–
(8.7)
(2.6)
–
(0.2)
–

32.8






OndemergeroftheM&GplcbusinessfromthePrudentialGroup,outstandingshare/ADRawardsforPrudentialplcparticipantswere
adjustedtoreceivethedemergerdividendintheformofadditionalPrudentialplcshares/ADRs,tobereleasedonthesametimetable
andtothesameextentastheiroriginalshareawards.InthecaseoftheInternationalSavings-RelatedShareOptionSchemeforNon-
Employeestheadjustmentstooutstandingoptionswereconfirmedasbeingfairandreasonablebyanindependentfinancialadviserin
accordancewiththerulesofthatplanandtheHongKongStockExchangeListingRules.

EmployeesofM&GplcweregrantedreplacementawardsoverM&Gplcshares,inexchangeforexistingGroupawardsoutstanding

underincentiveplans.Asdesignatedreplacementawardsweregranted,nocancellationwasrecognisedinrespectoftheoriginal
awards.AsthereplacementawardsareanobligationofM&Gplc,theseawardswerederecognisedbytheGroupondemerger.

M&GplcemployeeswithoutstandingSAYEoptionsondemergerweretreatedas‘goodleavers’,withboththevestingperiodand

numberofoptionsexercisablecurtailedondemerger.

TheweightedaveragesharepriceofPrudentialplcfor2019was£15.05(2018:£17.36).
ThefollowingtableprovidesasummaryoftherangeofexercisepricesforPrudentialplcoptionsoutstandingat31December:

Number outstanding 
(millions)

Outstanding

Weighted average  
remaining  
contractual life 
(years)*

Exercisable

Weighted average  
exercise prices 
£

Number exercisable 
(millions)

Weighted average  
exercise prices 
£

Between£9and£10
Between£11and£12
Between£13and£14
Between£14and£15

Weightedaverage

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

–
2.4
0.3
1.1

3.8

0.3
3.0
0.3
1.3

4.9

–
2.0
3.2
2.0

2.1

0.4
1.6
4.1
2.6

2.1

–
11.19
13.94
14.55

12.38

9.01
11.19
13.94
14.55

12.10

–
0.9
–
–

0.9

0.3
0.5
–
–

0.8

–
11.33
–
–

11.33

9.01
11.11
–
–

10.37

*Theyearsshownaboveforweightedaverageremainingcontractuallifeincludethetimeperiodfromendofvestingperiodtoexpirationofcontract.



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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB2 Acquisition costs and other expenditure continued

B2.2 Share-based payment continued
(c) Fair value of options and awards
Thefairvalueamountsestimatedonthedateofgrantrelatingtoalloptionsandawardsweredeterminedbyusingthefollowing
assumptions:

2019

SAYE options

2018

Prudential 
LTIP (TSR)

Granted in
 October 
2019

Granted in
 November 
2019

Other
 awards

Prudential 
LTIP (TSR)

SAYE 
options

Other 
awards

Dividendyield(%)
Expectedvolatility(%)
Risk-freeinterestrate(%)
Expectedoptionlife(years)
Weightedaverageexerciseprice(£)
Weightedaveragesharepriceatgrantdate(£)
Weightedaveragefairvalueatgrantdate(£)

–
22.14
0.97
–
–
16.07
6.32

3.66
25.58
0.31
3.96
11.12
13.94
2.90

2.10
23.92
1.60
3.47
11.18
13.77
3.35

–
–
–
–
–
–
15.39

–
24.03
1.19
–
–
17.46
6.64

2.52
21.09
0.97
3.94
13.94
16.64
3.29

–
–
–
–
–
–
17.04

Thecompensationcostsforallawardsandoptionsarerecognisedinnetincomeovertheplans’respectivevestingperiods.TheGroup
usestheBlack-ScholesmodeltovaluealloptionsandawardsotherthanthosewhichhaveTSRperformanceconditionsattached(some
PrudentialLTIPandRSPawards)forwhichtheGroupusesaMonteCarlomodelinordertoallowfortheimpactoftheseconditions.
Thesemodelsareusedtocalculatefairvaluesforshareoptionsandawardsatthegrantdatebasedonthequotedmarketpriceofthe
stockatthemeasurementdate,theamount,ifany,thattheemployeesarerequiredtopay,thedividendyield,expectedvolatility,
risk-freeinterestratesandexerciseprices.

Foralloptionsandawards,theexpectedvolatilityisbasedonthemarketimpliedvolatilitiesasquotedonBloomberg.ThePrudential
specificat-the-moneyimpliedvolatilitiesareadjustedtoallowforthedifferenttermsanddiscountedexercisepriceonSAYEoptionsby
usinginformationonthevolatilitysurfaceoftheFTSE100.

Risk-freeinterestratesaretakenfromswapspotrateswithprojectionsfortwo-year,three-yearandfive-yeartermstomatch
correspondingvestingperiods.For2019awardsissuedpriortodemerger,dividendyieldsaredeterminedastheaverageyieldovera
periodof12monthsuptoandincludingthedateofgrant,anddataisbasedonsterlingriskfreerates.For2019awardsissuedafter
demerger,dividendyieldsareestimatedbasedon£750milliontargetdividendincludedinthedemergerinvestorcircularanddatais
basedonUSdollarriskfreerates.ForawardswithaTSRcondition,volatilitiesandcorrelationsbetweenPrudentialandabasketof12
competitorcompaniesisrequired.Forgrantsin2019,theaveragevolatilityforthebasketofcompetitorswas23.10percent(2018:
21.32percent).CorrelationsforthebasketarecalculatedforeachpairingfromthelogofdailyTSRreturnsforthethreeyearspriortothe
valuationdate.MarketimpliedvolatilitiesareusedforbothPrudentialandthebasketofcompetitors.Changestothesubjectiveinput
assumptionscouldmateriallyaffectthefairvalueestimate.

(d) Share-based payment expense charged to the income statement
Totalexpenserecognisedin2019intheconsolidatedfinancialstatementsrelatingtoshare-basedcompensationis$181million(2018:
$191million),allaccountedforasequity-settled.

TheGrouphasnoliabilitiesoutstandingattheyear-endrelatingtoawardsthataresettledincash.

B2.3 Key management remuneration
KeymanagementconstitutestheDirectorsofPrudentialplcastheyhaveauthorityandresponsibilityforplanning,directingand
controllingtheactivitiesoftheGroupandfollowingreorganisationsduring2019,keymanagementalsoincludesothernon-director
membersoftheGroupExecutiveCommitteefromAugust2019.

Totalkeymanagementremunerationisanalysedinthefollowingtable:

Salariesandshort-termbenefits
Post-employmentbenefits
Share-basedpayments

2019 $m

2018 $m

25.2
1.5
13.1

39.8

22.0
2.0
19.0

43.0

Theshare-basedpaymentschargecomprises$8.4million(2018:$13.0million),whichisdeterminedinaccordancewithIFRS2‘Share-
basedPayment’(seenoteB2.2)and$4.8million(2018:$6.4million)ofdeferredshareawards.

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B	EARNINGS	PERFORMANCE		CONTINUEDB2.4  Fees payable to the auditor

FeespayabletotheCompany’sauditorfortheauditoftheCompany’sannualaccounts
FeespayabletotheCompany’sauditoranditsassociatesforotherservices:

Auditofsubsidiariespursuanttolegislation
Audit-relatedassuranceservices*
Otherassuranceservices
Servicesrelatingtocorporatefinancetransactions
Allotherservices

Totalfeespaidtotheauditor

Analysedinto:
Feespayabletotheauditorattributabletothecontinuingoperations:

Non-auditservicesassociatedwiththedemergeroftheUKandEuropeoperations†
Otherauditandnon-auditservices

FeespayabletotheauditorattributabletothediscontinuedUKandEuropeoperations

2019 $m

2018 $m

2.2

9.5
5.7
5.7
7.3
–

30.4

11.7
15.3

27.0
3.4

30.4

2.8

12.3
6.3
1.5
0.3
1.2

24.4

1.0
15.1

16.1
8.3

24.4

*Oftheaudit-relatedassuranceservicefeesof$5.7millionin2019(2018:$6.3million),$1.1millionrelatestoservicesthatarerequiredbylaw.
†Ofthe$11.7millionone-offnon-auditservicesfeesin2019associatedwiththedemergeroftheUKandEuropeoperations,$4.4millionwasforotherassuranceservicesand$7.3million

wasforservicesrelatingtocorporatefinancetransactions.In2018,the$1.0millionwasforallotherservicesassociatedwiththepreparationforthedemerger.

Inaddition,therewerefeesincurredbypensionschemesof$0.1million(2018:$0.3million)forauditservices.Thesepensionschemes
weretransferredtoUKandEuropeoperationsin2019aspartofthedemerger.

B3 Effect of changes and other accounting matters on insurance assets and liabilities

Thefollowingmattersarerelevanttothedeterminationofthe2019results:

(a) Asia insurance operations
In2019,theadjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturnsforAsiainsuranceoperationsincludesanetcreditof
$142million(2018:creditof$126million)representingasmallnumberofitemsthatarenotexpectedtoreoccur,includingtheimpactofa
refinementtotherun-offoftheallowanceforprudencewithintechnicalprovisions.

(b) US insurance operations
Changesinthepolicyholderliabilitiesheldforvariableandfixedindexannuityguaranteesarereportedaspartofnon-operatingprofit
andareasdescribedinnoteB1.2.

B4 Tax charge from continuing operations

Prudential is subject to tax in numerous jurisdictions and the calculation of the total tax charge inherently involves a degree of estimation 
and judgement. 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. 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, provisions are established based on 
management’s estimate and judgement 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 outcomes.

The total tax charge includes tax expense attributable to both policyholders and shareholders. The tax expense attributable to policyholders 

comprises the tax on the income of the consolidated with-profits and unit-linked funds. In certain jurisdictions, life insurance companies are 
taxed on both their shareholders’ profits and on their policyholders’ insurance and 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.

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 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 are substantively enacted at the end of the reporting period.

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233

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB4 Tax charge from continuing operations continued

B4.1 Total tax charge by nature of expense
Thetotaltaxchargeforcontinuingoperationsintheincomestatementisasfollows:

Tax charge

Attributabletoshareholders:

Asiaoperations
USoperations
Otheroperations

Tax(charge)creditattributabletoshareholders’returns

Attributabletopolicyholders:

Asiaoperations

Total tax (charge) credit 

2019 $m

Current  tax

Deferred  tax

Total

(306)
(307)
182

(431)

(130)

(561)

(162)
652
(28)

462

(235)

227

(468)
345
154

31

(365)

(334)

2018 $m

Total

(369)
(340)
140

(569)

(107)

(676)

Theprincipalreasonforthedecreaseinthetaxchargeattributabletoshareholders’returnsfromcontinuingoperationsistheincreasein
thetaxcreditonUSderivativelosseswhichlargelyoffsetthetaxchargeonAsiaprofitsin2019.

ThereconciliationoftheexpectedtoactualtaxchargeattributabletoshareholdersisprovidedinB4.2below.Thetaxcharge

attributabletopolicyholdersof$365millionaboveisequaltotheprofitbeforetaxattributabletopolicyholdersof$365million.Thisisthe
resultofaccountingforpolicyholderincomeafterthedeductionofexpensesandmovementonunallocatedsurplusesonanafter-taxbasis.

Thetotaltax(charge)creditcomprises:

Currenttaxexpense:
Corporationtax
Adjustmentsinrespectofprioryears

Totalcurrenttaxcharge


Deferredtaxarisingfrom:

Originationandreversaloftemporarydifferences
Impactofchangesinlocalstatutorytaxrates
Creditinrespectofapreviouslyunrecognisedtaxloss,taxcreditortemporarydifference

fromapriorperiod

Totaldeferredtaxcredit(charge)

Totaltaxcharge

2019 $m

2018 $m

(589)
28

(561)

235
7

(15)

227

(334)

(380)
15

(365)

(331)
11

9

(311)

(676)

Thereductioninthedeferredtaxchargefrom$311millionin2018toacreditof$227millionin2019principallyrelatestotheincreasein
thetaxcreditonUSderivativelosses,whicharetaxdeductibleoverathreeyearperiod.

In2019,ataxchargeof$709million(2018:chargeof$387millionfromcontinuingoperations),principallyrelatingtoanincreaseinthe

marketvalueonsecuritiesofUSinsuranceoperationsclassifiedasavailable-for-sale,hasbeentakenthroughothercomprehensive
income.

234

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prudentialplc.com

B	EARNINGS	PERFORMANCE		CONTINUEDB4.2 Reconciliation of shareholder effective tax rate for continuing operations
Inthereconciliationbelow,theexpectedtaxratesreflectthecorporationtaxratesthatareexpectedtoapplytothetaxableprofitorloss
oftherelevantbusiness.Wherethereareprofitsorlossesofmorethanonejurisdiction,theexpectedtaxratesreflectthecorporationtax
ratesweightedbyreferencetotheamountofprofitorlosscontributingtotheaggregatebusinessresult.

2019

2018

Asia
 operations
$m

US
 operations
$m

Other*
 operations
$m

Total
  attributable
 to share-
holders
$m

Percentage
 impact on
 ETR
%

Total
  attributable
 to share-
holders
$m

Percentage
 impact on
 ETR
%

AdjustedIFRSoperatingprofit(loss)basedon

longer-terminvestmentreturns

Non-operatingprofit(loss)

Profit(loss)beforetax

Expectedtaxrate:

Taxattheexpectedrate
Effectsofrecurringtaxreconciliationitems:

Incomenottaxableortaxableat

concessionaryrates

Deductionsnotallowablefortaxpurposes
Itemsrelatedtotaxationoflifeinsurance

businesses note (i)

Deferredtaxadjustments
Unrecognisedtaxlosses note (ii)
Effectofresultsofjointventuresand

associates note (iii)

Irrecoverablewithholdingtaxes note (iv)
Other

Total

Effectsofnon-recurringtaxreconciliation

items:
Adjustmentstotaxchargeinrelationtoprior

years

Movementsinprovisionsforopen

taxmatters note (v)

Demergerrelatedactivities note (vi)
Adjustmentsinrelationtobusinessdisposals

Total

Totalactualtaxcharge(credit)

Analysedinto:

TaxonadjustedIFRSoperatingprofit(loss)
basedonlonger-terminvestmentreturns

Taxonnon-operatingprofit(loss)

Actualtaxrateon:

AdjustedIFRSoperatingprofit(loss)basedon

longer-terminvestmentreturns:
Includingnon-recurringtaxreconciling

items

Excludingnon-recurringtaxreconciling

items
Totalprofit(loss)

*Otheroperationsincluderestructuringcosts.

3,276
917

4,193

20%
839

3,070
(3,795)

(725)

21%
(152)

(1,036)
(510)

(1,546)

19%
(294)

5,310
(3,388)

1,922

20%
393

(94)
40

(192)
(28)
–

(100)
–
5

(369)

(29)
10

(125)
(1)
–

–
–
5

(140)

4

(53)

17
–
(23)

(2)

468

–
–
–

(53)

(345)

(3)
5

–
(4)
46

–
59
3

106

(18)

(18)
76
(6)

34

(154)

4,409
(959)

3,450

22%
759

(71)
69

(128)
(55)
–

(83)
63
9

(196)

22.0%

(2.1)%
2.0%

(3.7)%
(1.6)%
–

(2.4)%
1.8%
0.3%

(5.7)%

20.4%

(6.6)%
2.9%

(16.5)%
(1.7)%
2.4%

(5.2)%
3.1%
0.7%

(126)
55

(317)
(33)
46

(100)
59
13

(403)

(20.9)%

(67)

(3.5)%

(4)

(0.1)%

(1)
76
(29)

(21)

(31)

(0.0)%
4.1%
(1.4)%

(1.1)%

(1.6)%

10
–
–

6

0.3%
–
–

0.2%

569

16.5%

436
32

437
(782)

(100)
(54)

773
(804)

666
(97)

13%

13%
11%

14%

16%
48%

10%

10%
10%

15%

15%
(2)%

15%

15%  note (vii)
16%  note (vii)

prudentialplc.com

Prudential plc AnnualReport2019 

235

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB4 Tax charge from continuing operations continued

B4.2 Reconciliation of shareholder effective tax rate for continuing operations continued
Notes 
(i)

(ii)

(iii)

(iv)

(v)

The$125million(2018:$111million)reconcilingiteminUSoperationsreflectstheimpactofthedividendreceiveddeductiononthetaxationofprofitsfromvariableannuity
business.TheprincipalreasonfortheincreaseintheAsiaoperationsreconcilingitemsfrom$17millionin2018to$192millionin2019reflectsanincreaseininvestmentgainsin
HongKongwhicharenottaxableduetothetaxableprofitbeingcomputedas5percentofnetinsurancepremiums.
The$46millionadversereconcilingiteminunrecognisedtaxlossesreflectslossesarisingafterthedemergeroftheGroup’sUKandEuropeoperationswhereitisunlikelythatrelief
forthelosseswillbeavailableinfutureperiods.
ProfitbeforetaxincludesPrudential’sshareofprofitaftertaxfromthejointventuresandassociates.Therefore,theactualtaxchargedoesnotincludetaxarisingfromprofitorloss
ofjointventuresandassociatesandisreflectedasareconcilingitem.
The$59million(2018:$63million)adversereconcilingitemsreflectslocalwithholdingtaxesondividendspaidbycertainnon-UKsubsidiaries,principallyIndonesia,totheUK.
ThedividendsareexemptfromUKtaxandconsequentlythewithholdingtaxcannotbeoffsetagainstUKtaxpayments.
Thecomplexityofthetaxlawsandregulationsthatrelatetoourbusinessesmeansthatfromtimetotimewemaydisagreewithtaxauthoritiesonthetechnicalinterpretationofa
particularareaoftaxlaw.ThisuncertaintymeansthatinthenormalcourseofbusinesstheGroupwillhavematterswhere,uponultimateresolutionoftheuncertainty,theamount
ofprofitsubjecttotaxmaybegreaterthantheamountsreflectedintheGroup’ssubmittedtaxreturns.Thestatementoffinancialpositioncontainsthefollowingprovisionsin
relationtoopentaxmatters.

Balanceatbeginningofyear

Movementsinthecurrentyearincludedin:
Taxchargeattributabletoshareholders
Othermovements*

Balanceatendofyear

$m

190

(1)
9

198

*OthermovementsincludeinterestarisingonopentaxmattersandamountsincludedintheGroup’sshareofprofitsfromjointventuresandassociates,netofrelatedtax.

(vi)

The$76millionadversereconcilingitemsinDemergerrelatedactivitiesrelatestonon-taxdeductiblecostsincurredinpreparationfor,orasaresultof,thedemergeroftheGroup’s
UKandEuropeoperations.

(vii) 2018actualtaxrateoftherelevantbusinessoperationsareshownbelow:

2018

Asia 
operations

US 
operations

Other
 operations

Total 
attributable to
 shareholders

AdjustedIFRSoperatingprofitbasedonlonger-terminvestmentreturns
Profitbeforetax

14%
17%

16%
15%

14%
13%

15%
16%



236

Prudential plc AnnualReport2019

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B	EARNINGS	PERFORMANCE		CONTINUED 
B5 Earnings per share

Accounting	principles
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders (after related tax and non-controlling 
interests) by the weighted average number of ordinary shares outstanding during the year, excluding those held in employee share trusts 
and consolidated investment funds, which are treated as cancelled.

For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential 

ordinary shares. The Group’s only class of potentially dilutive ordinary shares are those share options granted to employees where the 
exercise price is less than the average market price of the Company’s ordinary shares during the year. No adjustment is made if the impact 
is anti-dilutive overall.

Before 
tax
$m
B1.1

Note

Tax     
$m
 B4

2019

Non-
controlling
 interests
$m

Net of tax  
and non-
controlling
  interests
$m

Basic 
earnings
per share
cents

Diluted
  earnings
per share
cents

5,310

(773)

(9)

4,528

175.0¢

175.0¢

(3,203)

772

(43)

(142)

1,922

8

24

31

D2

–

–

–

(2,431)

(94.0)¢

(94.0)¢

(35)

(1.3)¢

(1.3)¢

(118)

(4.6)¢

(4.6)¢

(9)

1,944

75.1¢

75.1¢

(1,161)

(44.8)¢

(44.8)¢

783

30.3¢

30.3¢

Before 
tax
$m
B1.1

Note

Tax     
$m
 B4

2018

Non-
controlling
 interests
$m

Net of tax  
and non-
controlling
  interests
$m

Basic 
earnings
per share
cents

Diluted
  earnings
per share
cents

4,409

(666)

(4)

3,739

145.2¢

145.1¢

(791)

(61)

(107)

70

11

16

–

–

–

(721)

(28.0)¢

(28.0)¢

(50)

(1.9)¢

(1.9)¢

(91)

(3.6)¢

(3.5)¢

3,450

(569)

(4)

2,877

111.7¢

111.7¢

D2

1,142

4,019

44.3¢

44.3¢

156.0¢

156.0¢

BasedonadjustedIFRSoperatingprofitbasedon

longer-terminvestmentreturns

Short-termfluctuationsininvestmentreturnson

shareholder-backedbusiness

Amortisationofacquisitionaccounting

adjustments

Lossondisposalofbusinessesandcorporate

transactions

Basedonprofitfortheyearfromcontinuing

operations

Basedon(loss)fortheyearfromdiscontinued

operations

Basedonprofitfortheyear

BasedonadjustedIFRSoperatingprofitbasedon

longer-terminvestmentreturns

Short-termfluctuationsininvestmentreturnson

shareholder-backedbusiness

Amortisationofacquisitionaccounting

adjustments

Lossondisposalofbusinessesandcorporate

transactions

Basedonprofitfortheyearfromcontinuing

operations

Basedonprofitfortheyearfromdiscontinued

operations

Basedonprofitfortheyear


Weighted average number of shares* for calculation of:

Basicearningspershare
Sharesunderoptionatendofyear
Sharesthatwouldhavebeenissuedatfairvalueonassumedoptionprice

Dilutedearningspershare

*Excludingthoseheldinemployeesharetrustsandconsolidatedinvestmentfunds.

Number of shares (in millions)

2019

2,587
4
(4)

2,587

2018

2,575
5
(4)

2,576

prudentialplc.com

Prudential plc AnnualReport2019 

237

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationB6 Dividends

B6.1 Demerger dividend in specie of M&G plc
On21October2019,followingapprovalbytheGroup’sshareholders,PrudentialplcdemergedM&GplcitsUKandEuropeoperations
viaadividendinspecie.AsrequiredbyIFRIC17‘DistributionsofNon-cashAssetstoOwners’,thedividendhasbeenrecordedatthefair
valueofM&Gplcbeing$7,379million.

B6.2 Other dividends
First and second interim dividends are recorded in the period in which they are paid. Final dividends (if applicable) are recorded in the 
period in which they are approved by shareholders. 

Dividendsrelatingtoreportingyear:
Firstinterimordinarydividend
Secondinterimordinarydividend

Total

Dividendspaidinreportingyear:

Currentyearfirstinterimordinarydividend
Secondinterimordinarydividendforprioryear

Total

2019

2018

Centspershare

$m

Centspershare

20.29¢
25.97¢

46.26¢

20.29¢
42.89¢

63.18¢

528
675

1,203

526
1,108

1,634

20.55¢
42.89¢

63.44¢

20.55¢
43.79¢

64.34¢

$m


530
1,108

1,638

530
1,132

1,662

Dividend per share
The2019firstinterimordinarydividendof20.29centsperordinarysharewaspaidtoeligibleshareholderson26September2019.

Thesecondinterimordinarydividendfortheyearended31December2019of25.97centsperordinarysharewillbepaidon15May

2020toshareholdersontheUKregisteron27March2020(RecordDate),andtoshareholdersontheHongKongregisterat4.30pm
HongKongtimeontheRecordDate(HKShareholders).HoldersofUSAmericanDepositaryReceipts(USShareholders)willbepaid
theirdividendson15May2020.Thesecondinterimordinarydividendwillbepaidonorabout22May2020toshareholderswithshares
standingtothecreditoftheirsecuritiesaccountswithTheCentralDepository(Pte)Limited(CDP)at5.00pmSingaporetimeonthe
RecordDate(SGShareholders).

TheGroup’s2020dividendunderthenewprogressivedividendpolicywillbedeterminedfroma2019USdollarbaseof$958million
(36.84centspershare),equivalenttothecirca£750millionpreviouslydisclosedintheCircular.Thisrepresentsthefirstinterimordinary
dividendrelatingto2019of$528millionplusthesecondinterimordinarydividendof$675millionlessthecontributionofremittances
fromthediscontinuedM&Gplcbusinesstothesecondinterimordinarydividendof$245million.

PrudentialplcnowdeterminesanddeclaresitsdividendsinUSdollars,commencingwithdividendspaidin2020,includingthe2019

secondinterimdividend.ShareholdersholdingsharesontheUKorHongKongshareregisterswillcontinuetoreceivetheirdividend
paymentsineitherpoundssterlingorHongKongdollarsrespectively,unlesstheyelectotherwise.Shareholdersholdingsharesonthe
UKorHongKongregistersmayelecttoreceivedividendpaymentsinUSdollars.ElectionsmustbemadethroughtherelevantUKor
HongKongshareregistraronorbefore23April2020.ThecorrespondingamountpershareinpoundssterlingandHongKongdollarsis
expectedtobeannouncedonorabout30April2020.TheUSdollartopoundsterlingandHongKongdollarconversionrateswillbe
determinedbytheactualratesachievedbyPrudentialbuyingthosecurrenciesduringthetwoworkingdaysprecedingthesubsequent
announcement.HoldersofAmericanDepositaryReceipts(ADRs)willcontinuetoreceivetheirdividendpaymentsinUSdollars.
ShareholdersholdinganinterestinPrudentialsharesthroughtheCentralDepository(Pte)Limited(CDP)inSingaporewillcontinueto
receivetheirdividendpaymentsinSingaporedollarsatanexchangeratedeterminedbyCDP.
ShareholdersontheUKregisterareeligibletoparticipateinaDividendReinvestmentPlan.

238

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B	EARNINGS	PERFORMANCE		CONTINUED 
C  Financial position notes

C1 Analysis of Group statement of financial position by segment

Toexplaintheassets,liabilitiesandcapitaloftheGroup’sbusinessesmorecomprehensively,itisappropriatetoprovideanalysesofthe
Group’sstatementoffinancialpositionbyoperatingsegmentandtypeofbusiness.

By operating segment

Assets
Goodwill
Deferredacquisitioncostsandotherintangibleassets
Reinsurers’shareofinsurancecontractliabilities
Otherassets note (ii)
Investmentproperties
Investmentinjointventuresandassociatesaccountedforusing

theequitymethod
Financialinvestments note (v)
Cashandcashequivalents note (iii)

Total assets

Equity
Shareholders’equity
Non-controllinginterests

Total equity

Liabilities
Contractliabilities(includingamountsinrespectofcontracts

classifiedasinvestmentcontractsunderIFRS4)

Unallocatedsurplusofwith-profitsfunds
Corestructuralborrowingsofshareholder-financedbusinesses
Operationalborrowings
Otherliabilities note (iv)

Total liabilities

Total equity and liabilities

31 Dec 2019 $m

Unallo-
cated 
to a 
segment
(central
opera-
tions)
note(i)

Elimin-
ation
of intra-
group
debtors
and 
creditors

Group
total

43
58
4
3,339
11

–
1,407
2,515

7,377

–
–
–
(2,652)
–

969
17,476
13,856
9,327
25

–
–
–

1,500
404,096
6,965

(2,652) 454,214

Note

C5.1

C5.2

D7

Asia
 C2.1

US
 C2.2

926
5,154
5,458
3,208
7

–
12,264
8,394
5,432
7

1,500
131,499
2,490

–
271,190
1,960

150,242

299,247

10,866
155

11,021

8,929
–

8,929

(318)
37

(281)

–
–

–

19,477
192

19,669

C4.1

C4.1

C6.1

C6.2

115,943
4,750
–
473
18,055

269,549
–
250
1,501
19,018

139,221

290,318

150,242

299,247

186
–
5,344
671
1,457

7,658

7,377

–
–
–
–
(2,652)

385,678
4,750
5,594
2,645
35,878

(2,652) 434,545

(2,652) 454,214

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Prudential plc AnnualReport2019 

239

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC1 Analysis of Group statement of financial position by segment continued

Before elimination of intra-group debtors and creditors

31 Dec 2018 $m

By operating segment

Assets
Goodwill
Deferredacquisitioncostsandother

intangibleassets

Reinsurers’shareofinsurance

contractliabilities

Otherassets note (ii)
Investmentproperties
Investmentinjointventuresand

associatesaccountedforusing
theequitymethod
Financialinvestments note (v)
Assetsheldforsale
Cashandcashequivalents note (iii)

Total assets

Equity
Shareholders’equity
Non-controllinginterests

Total equity

Liabilities
Contractliabilities(includingamounts
inrespectofcontractsclassifiedas
investmentcontractsunderIFRS4)

Unallocatedsurplusof
with-profitsfunds

Corestructuralborrowingsof

shareholder-financedbusinesses

Operationalborrowings
Otherliabilities note (iv)
Liabilitiesheldforsale

Total liabilities

Note

C5.1

C5.2

C4.1

C4.1

C6.1

C6.2

Unallo-
cated
to a 
segment
(central
opera-
tions)
note(i)

Total
continuing
operations

Discon-
tinued
UK and 
Europe
operations

Elimin-
ation
of intra-
group
debtors
and 
creditors

634

1,731

14,936

249

–

–

12,024
12,385
14

3,581
9,044
22,815

(1,412)
(6,834)
–

Group
Total

2,365

15,185

14,193
14,595
22,829

1,262
338,969
–
9,394

945
208,553
13,472
6,048

–
–
–
–

2,207
547,522
13,472
15,442

389,618

266,438

(8,246)

647,810

Asia
 C2.1

634

US
 C2.2

–

3,741

11,140

3,537
4,987
6

8,485
4,569
8

1,262
103,016
–
2,789

–
232,955
–
3,827

119,972

260,984

–

55

2
2,829
–

–
2,998
–
2,778

8,662

8,175
12

8,187

7,163
–

7,163

(4,450)
11

(4,439)

10,888
23

10,911

11,080
–

11,080

–
–

–

21,968
23

21,991

93,248

236,380

50

329,678

193,020

(1,412)

521,286

3,198

–
102
15,237
–

–

–

3,198

16,982

–

20,180

250
418
16,773
–

9,511
640
2,900
–

9,761
1,160
34,910
–

–
5,129
26,768
13,459

–
–
(6,834)
–

9,761
6,289
54,844
13,459

111,785

253,821

13,101

378,707

255,358

(8,246)

625,819

Total equity and liabilities

119,972

260,984

8,662

389,618

266,438

(8,246)

647,810

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C	FINANCIAL	POSITION	NOTES		CONTINUEDNotes
(i)
(ii)



Unallocatedtoasegmentincludescentraloperations,theGroup’streasuryfunctionandAfricaoperationsaspernoteB1.3.
‘Otherassets’at31December2019includedproperty,plantandequipmentof$1,065millionrelatingtocontinuingoperations(31December2018:$1,795million,ofwhich
$482millionrelatedtocontinuingoperations).On1January2019,$527millionofright-of-useassetswasrecognisedforcontinuingoperationsuponadoptionofIFRS16
(seenoteA3).Movementsintheright-of-useassetsin2019isprovidedinnoteC13.

$3,191million(31December2018:$7,834million)areexpectedtobesettledwithinoneyear.Thesearefurtheranalysedasfollows:

Alsoincludedin‘Otherassets’areaccruedinvestmentincomeandotherdebtorsat31December2019of$3,695million(31December2018:$8,708million),ofwhich

31 Dec 
2019 $m

31 Dec 
2018 $m

Interestreceivable
Other

Totalaccruedinvestmentincome

Premiumsreceivableduefrom:

Policyholders
Intermediaries
Reinsurers
Otherreceivables

Totalotherdebtors

Total accrued investment income and other debtors

Analysedas:

Fromcontinuingoperations
Fromdiscontinuedoperations

1,064
577

1,641

574
4
216
1,260

2,054

3,695

2,221
1,280

3,501

576
4
277
4,350

5,207

8,708

4,356
4,352

8,708

(iii) Cashandcashequivalents


Cashandcashequivalentsconsistofcashatbankandinhand,depositsheldatcallwithbanks,treasurybillsandothershort-termhighlyliquidinvestmentswithlessthan90days
maturityfromthedateofacquisitionandareanalysedasfollows:

31 Dec 
2019 $m

31 Dec 
2018 $m

Cash
Cashequivalents

Total cash and cash equivalents

Analysedas:

HeldcentrallyandavailableforgeneralusebytheGroup
OtherfundsnotavailableforgeneralusebytheGroup,includingfundsheldforthebenefitofpolicyholders

Total cash and cash equivalents

Comprising:

Cash and cash equivalents from continuing operations
Cash and cash equivalents from discontinued operations

2,071
4,894

6,965

2,491
4,474

6,965

7,335
8,107

15,442

445
14,997

15,442

9,394
6,048

15,442



TheGroup’scashandcashequivalentsareheldinthefollowingcurrencies:USdollars52percent,poundssterling20percent,Euro1percentandothercurrencies27percent
(2018:USdollars38percent,poundssterling32percent,Euro15percentandothercurrencies15percent).

(iv) Accruals,deferredincomeandotherliabilitiesareanalysedasfollows(maturityanalysisisprovidedinnoteC3.4(a)):

Accrualsanddeferredincome
Othercreditors
Creditorsarisingfromdirectinsuranceandreinsuranceoperations
Interestpayable
FundswithheldunderreinsuranceoftheREALICbusiness
Otheritems

Total accruals, deferred income and other liabilities

Analysedas:

Fromcontinuingoperations
Fromdiscontinuedoperations

31 Dec 
2019 $m

31 Dec 
2018 $m

582
6,724
2,831
68
3,760
523

2,165
9,010
3,010
149
3,745
1,342

14,488

19,421

13,338
6,083

19,421

(v) Ofthetotalfinancialinvestmentsof$404,096millionasat31December2019(31December2018:$547,522million),$260,896million(2018:$304,843million)areduetobe

recoveredwithinoneyear.

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241

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC2 Analysis of segment statement of financial position by business type

Toshowthestatementoffinancialpositionbyreferencetothedifferingdegreesofpolicyholderandshareholdereconomicinterestofthe
differenttypesofbusiness,theanalysisbelowisstructuredtoshowtheassetsandliabilitiesofeachsegmentbybusinesstype.

C2.1 Asia

31 Dec 2019 $m

Total insurance

31 Dec 
2018 $m

With-
profits
business*

Unit-
linked
assets and
liabilities

Note

Other
business

Total

Asset
manage-
ment

Elimin-
ations

Total

Total

Assets
Goodwill
Deferredacquisitioncostsandother

intangibleassets

Reinsurers’shareofinsurance

contractliabilities

Otherassets
Investmentproperties
Investmentinjointventuresand

associatesaccountedforusingthe
equitymethod
Financialinvestments
Cashandcashequivalents

Total assets

Total equity

Liabilities
Contractliabilities(includingamounts
inrespectofcontractsclassifiedas
investmentcontractsunderIFRS4)
Unallocatedsurplusofwith-profitsfunds
Operationalborrowings
Otherliabilities

Total liabilities

327

327

599

–

67

152
1,210
–

–

–

5,072

5,139

–
237
–

5,306
1,584
7

5,458
3,031
7

–
76,581
963

–
24,628
356

1,263

1,263
29,982 131,191
2,334

1,015

–

–

926

634

5,154

3,741

–
(35)
–

5,458
3,208
7

3,537
4,987
6

–
1,500
– 131,499
2,490
–

1,262
103,016
2,789

15

–
212
–

237
308
156

78,973

25,221

44,556 148,750

–

–

9,803

9,803

1,527

1,218

(35) 150,242

119,972

–

11,021

8,187

C4.2

C4.2

65,558
4,750
302
8,363

23,571
–
21
1,629

26,814 115,943
4,750
446
17,808

–
123
7,816

78,973

25,221

34,753 138,947

–
–
27
282

309

– 115,943
4,750
–
473
–
(35) 18,055

93,248
3,198
102
15,237

(35) 139,221

111,785

Total equity and liabilities

78,973

25,221

44,556 148,750

1,527

(35) 150,242

119,972

*Thestatementoffinancialpositionforwith-profitsbusinesscomprisesthewith-profitsassetsandliabilitiesoftheHongKong,MalaysiaandSingaporeoperations.‘Otherbusiness’

includesassetsandliabilitiesofotherparticipatingbusinessesandothernon-linkedshareholder-backedbusiness.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC2.2 US

Assets
Goodwill
Deferredacquisitioncostsandother

intangibleassets

Reinsurers’shareofinsurancecontractliabilities
Otherassets
Investmentproperties
Financialinvestments
Cashandcashequivalents

Total assets

Total equity

Liabilities
Contractliabilities(includingamountsinrespect
ofcontractsclassifiedasinvestmentcontracts
underIFRS4)

Corestructuralborrowingsofshareholder-financed

businesses

Operationalborrowings
Otherliabilities

Total liabilities

Total equity and liabilities

31 Dec 2019 $m

31 Dec 
2018 $m

Total insurance

Variable
 annuity
 separate
 account 
assets and
liabilities

Fixed
 annuity,
GICs and
 other
business

Note

Asset
 manage-
ment

Total

Elimin-
ations

Total

Total

–

–

–

–
–
–
–
195,070
–

12,264
8,394
5,293
7

12,264
8,394
5,293
7
76,106 271,176
1,912

1,912

195,070 103,976 299,046

–

8,923

8,923

C4.3 195,070

74,479 269,549

C6.1

–
–
–

250
1,460
18,864

250
1,460
18,864

195,070

95,053 290,123

195,070 103,976 299,046

–

–
–
228
–
14
48

290

6

–

–
41
243

284

290

–

–

–

12,264
–
8,394
–
5,432
(89)
7
–
– 271,190
1,960
–

11,140
8,485
4,569
8
232,955
3,827

(89) 299,247

260,984

–

8,929

7,163

– 269,549

236,380

–
–

250
1,501
(89) 19,018

250
418
16,773

(89) 290,318

253,821

(89) 299,247

260,984

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities 

C3.1 Group assets and liabilities – measurement
The Group holds financial investments in accordance with IAS 39, whereby subject to specific criteria, financial instruments are required 
to be accounted for under one of the following categories: 

— Financial assets and liabilities at fair value through profit or loss – this comprises assets and liabilities designated by management as 

fair value through profit or loss on inception and derivatives that are held for trading. This includes instruments that are managed and 
the performance evaluated on a fair value basis and includes liabilities related to net assets attributable to unit holders of consolidated 
investment funds and, in Asia, policyholder liabilities for investment contracts without discretionary participation features. All 
investments within this category are measured at fair value with all changes thereon being recognised in investment return in the 
income statement;

— Financial investments on an available-for-sale basis – this comprises assets that are designated by management as available-for-sale 

and/or do not fall into any of the other categories. These assets are initially recognised at fair value plus attributable transaction costs. 
Available-for-sale assets are subsequently measured at fair value. Interest income is recognised on an effective interest basis in the 
income statement. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life 
of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. Except for foreign 
exchange gains and losses on debt securities, which are included in the income statement, unrealised gains and losses are recognised 
in other comprehensive income. Upon disposal or impairment, accumulated unrealised gains and losses are transferred from other 
comprehensive income to the income statement as realised gains or losses; and

— Loans and receivables – except for those designated as at fair value through profit or loss or available-for-sale, these instruments 
comprise non-quoted investments that have fixed or determinable payments. These instruments 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.

The Group uses the trade date method to account for regular purchases and sales of financial assets.

(a) Fair value measurement hierarchy of Group assets and liabilities 
Assets and liabilities carried at fair value on the statement of financial position
ThetablebelowshowstheassetsandliabilitiescarriedatfairvalueanalysedbyleveloftheIFRS13‘FairValueMeasurement’definedfair
valuehierarchy.Thishierarchyisbasedontheinputstothefairvaluemeasurementandreflectsthelowestlevelinputthatissignificantto
thatmeasurement.

Allassetsandliabilitiesheldatfairvalueareclassifiedasfairvaluethroughprofitorloss,exceptfor$58,302million(31December
2018:$52,025million)ofdebtsecuritiesclassifiedasavailable-for-sale,principallyintheUSoperations.Allassetsandliabilitiesheld
atfairvaluearemeasuredonarecurringbasis.Asof31December2019,theGroupdidnothaveanyfinancialinstrumentsthatare
measuredatfairvalueonanon-recurringbasis.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDFinancial instruments at fair value

Analysis of financial investments, net of derivative liabilities 

by business type from continuing operations

With-profits 
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Percentageoftotal(%)

Unit-linked and variable annuity separate account
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Percentageoftotal(%)

Non-linked shareholder-backed
Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Percentageoftotal(%)

Group total analysis, including other financial liabilities 

held at fair value from continuing operations

Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Investmentcontractliabilitieswithoutdiscretionaryparticipationfeaturesheld

atfairvalue

Netassetvalueattributabletounitholdersofconsolidatedinvestmentfunds
Otherfinancialliabilitiesheldatfairvalue

Totalfinancialinstrumentsatfairvalue
Percentageoftotal(%)

31 Dec 2019 $m

Level 1

Level 2

Level 3

Quoted prices
(unadjusted)
 in active 
markets

Valuation 
based on 
significant 
observable
market inputs

Valuation 
based on 
significant 
unobservable 
market inputs

25,850
40,291
57
(137)

66,061
90%

213,797
4,036
6
(1)

217,838
99%

–
3,638
23,600
7
(47)

27,198
29%

–
243,285
67,927
70
(185)

311,097

–
(5,973)
–

305,124
81%

3,268
4,485
103
(94)

7,762
10%

365
1,117
4
–

1,486
1%

–
87
61,035
1,569
(113)

62,578
66%

–
3,720
66,637
1,676
(207)

71,826

(1,011)
(23)
–

70,792
19%

254
6
–
–

260
0%

–
–
–
–

–
0%

3,587
22
–
1,301
–

4,910
5%

3,587
276
6
1,301
–

5,170

–
(2)
(3,760)

1,408
0%

Total

29,372
44,782
160
(231)

74,083
100%

214,162
5,153
10
(1)

219,324
100%

3,587
3,747
84,635
2,877
(160)

94,686
100%

3,587
247,281
134,570
3,047
(392)

388,093

(1,011)
(5,998)
(3,760)

377,324
100%

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.1 Group assets and liabilities – measurement continued

Analysis of financial investments, net of derivative liabilities 

by business type

With-profits 
Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Percentageoftotal(%)

Unit-linked and variable annuity separate account
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Percentageoftotal(%)

Non-linked shareholder-backed
Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Percentageoftotal(%)

Group total analysis, including other financial liabilities 

held at fair value

Loans
Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments(includingderivativeassets)
Derivativeliabilities

Totalfinancialinvestments,netofderivativeliabilities
Investmentcontractliabilitieswithoutdiscretionaryparticipationfeatures

heldatfairvalue

Borrowingsattributabletowith-profitsbusinesses
Netassetvalueattributabletounitholdersofconsolidatedinvestmentfunds
Otherfinancialliabilitiesheldatfairvalue

Totalfinancialinstrumentsatfairvalue
Percentageoftotal(%)

Analysedas:
Totalfromcontinuingoperations

With-profits
Unit-linkedandvariableannuityseparateaccount
Non-linkedshareholder-backed

Percentageoftotalcontinuingoperations(%)

TotalfromdiscontinuedUKandEuropeoperations
Percentageoftotaldiscontinuedoperations(%)

31 Dec 2018 $m

Level 1

Level 2

Level 3

Quoted prices
(unadjusted)
 in active 
markets

Valuation 
based on 
significant 
observable
market inputs

Valuation 
based on 
significant 
unobservable 
market inputs

–
66,636
39,750
183
(108)

106,461
57%

194,845
6,070
8
(3)

200,920
94%

–
3,764
22,525
77
(2)

26,364
24%

–
6,937
62,382
4,156
(1,568)

71,907
38%

643
12,388
4
(4)

13,031
6%

–
3
78,713
1,602
(2,241)

78,077
71%

2,168
621
1,033
5,508
–

9,330
5%

11
–
8
–

19
0%

3,886
24
472
1,198
(539)

5,041
5%

Total

2,168
74,194
103,165
9,847
(1,676)

187,698
100%

195,499
18,458
20
(7)

213,970
100%

3,886
3,791
101,710
2,877
(2,782)

109,482
100%

–
265,245
68,345
268
(113)

–
7,583
153,483
5,762
(3,813)

6,054
656
1,505
6,714
(539)

6,054
273,484
223,333
12,744
(4,465)

333,745

163,015

14,390

511,150

–
–
(8,727)
–

325,018
70%

49,914
182,833
21,077

253,824
81%

71,194
46%

(20,446)
–
(4,854)
(3)

137,712
29%

5,003
(82)
55,972

60,893
19%

76,819
50%

–
(2,045)
(1,258)
(4,335)

6,752
1%

(20,446)
(2,045)
(14,839)
(4,338)

469,482
100%

203
–
339

542
0%

6,210
4%

55,120
182,751
77,388

315,259
100%

154,223
100%

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C	FINANCIAL	POSITION	NOTES		CONTINUEDAssets and liabilities at amortised cost and their fair value 
Thetablebelowshowsthefinancialassetsandliabilitiescarriedatamortisedcostonthestatementoffinancialpositionandtheirfair
value.Cashdeposits,accruedincome,otherdebtors,accruals,deferredincomeandotherliabilitiesareexcludedfromtheanalysis
below,asthesearecarriedatamortisedcost,whichapproximatesfairvalue.

31 Dec 2019 $m

31 Dec 2018 $m

Level 2 
Valuation
based on
significant
observable
market 
inputs

Level 3 
Valuation
based on
significant
unobserv-
able market
inputs

Level 2 
Valuation
based on
significant
observable
market 
inputs

Level 3 
Valuation
based on
significant
unobserv-
able market 
inputs

Fair
value

Carrying
value

Fair
value

Carrying
value

1,865

11,646

13,511

12,996

3,691

13,714

17,405

16,884

–

(3,957)

(3,957)

(3,891)

–

(4,021)

(4,021)

(4,035)

(6,227)

(2,015)

–

–

(6,227)

(5,594)

(9,994)

–

(9,994)

(9,761)

(2,015)

(2,015)

(3,857)

(92)

(3,949)

(4,244)

(48)

(9,087)

(9,135)

(8,901)

(1,602)

(7,323)

(8,925)

(8,901)

Assets
Loans
Liabilities
Investmentcontractliabilitieswithout
discretionaryparticipationfeatures

Corestructuralborrowingsof

shareholder-financedbusinesses
Operationalborrowings(excluding

leaseliabilities)

Obligationsunderfunding,securities
lendingandsaleandrepurchase
agreements

Totalfinancialinstrumentscarried

atamortisedcost

(6,425)

(1,398)

(7,823)

(7,405)

(11,762)

2,278

(9,484)

(10,057)

Analysedas:
Totalfromcontinuingoperations
TotalfromdiscontinuedUKand

Europeoperations

(10,240)

(9,996)

756

(61)

(9,484)

(10,057)

Thefairvalueoftheassetsandliabilitiesinthetableabove,withtheexceptionofthesubordinatedandseniordebtissuedbytheparent
company,hasbeenestimatedfromthediscountedcashflowsexpectedtobereceivedorpaid.Whereappropriate,theobservable
marketinterestratehasbeenusedandtheassetsandliabilitiesareclassifiedwithinlevel2.Otherwise,theyareincludedaslevel3assets
orliabilities.Thefairvalueincludedforthesubordinatedandseniordebtissuedbytheparentcompanyisdeterminedusingquoted
pricesfromindependentthirdparties.Thesearepresentedaslevel2liabilities.

(b) Valuation approach for level 2 fair valued assets and liabilities
AsignificantproportionoftheGroup’slevel2assetsarecorporatebonds,structuredsecuritiesandothernon-nationalgovernmentdebt
securities.Theseassets,inlinewithmarketpractice,aregenerallyvaluedusingadesignatedindependentpricingserviceorquotefrom
third-partybrokers.Thesevaluationsaresubjecttoanumberofmonitoringcontrols,suchascomparisontomultiplepricingsources
whereavailable,monthlypricevariances,stalepricereviewsandvarianceanalysisonpricesachievedonsubsequenttrades.

Whenpricesarenotavailablefrompricingservices,quotesaresourceddirectlyfrombrokers.Prudentialseekstoobtainanumber
ofquotesfromdifferentbrokerssoastoobtainthemostcomprehensiveinformationavailableontheirexecutability.Wherequotesare
sourceddirectlyfrombrokers,thepriceusedinthevaluationisnormallyselectedfromoneofthequotesbasedonanumberoffactors,
includingthetimelinessandregularityofthequotesandtheaccuracyofthequotesconsideringthespreadsprovided.Theselected
quoteistheonewhichbestrepresentsanexecutablequoteforthesecurityatthemeasurementdate.

Generally,noadjustmentismadetothepricesobtainedfromindependentthirdparties.Adjustmentismadeinonlylimited

circumstances,whereitisdeterminedthatthethird-partyvaluationsobtaineddonotreflectfairvalue(egeitherbecausethevalueis
staleand/orthevaluesareextremelydiverseinrange).Theseareusuallysecuritieswhicharedistressedorthatcouldbesubjecttoa
debtrestructureorwherereliablemarketpricesarenolongeravailableduetoaninactivemarketormarketdislocation.Inthese
instances,pricesarederivedusinginternalvaluationtechniquesincludingthoseasdescribedbelowinthisnotewiththeobjectiveof
arrivingatafairvaluemeasurementthatreflectsthepriceatwhichanorderlytransactionwouldtakeplacebetweenmarketparticipants
onthemeasurementdate.Thetechniquesusedrequireanumberofassumptionsrelatingtovariablessuchascreditriskandinterest
rates.Examplesofsuchvariablesincludeanaveragecreditspreadbasedonthecorporatebonduniverseandtherelevantdurationof
theassetbeingvalued.Prudentialdeterminestheinputassumptionsbasedonthebestavailableinformationatthemeasurementdates.
Securitiesvaluedinsuchmannerareclassifiedaslevel3wherethesesignificantinputsarenotbasedonobservablemarketdata.

Ofthetotallevel2debtsecuritiesof$66,637millionat31December2019(31December2018:$63,247millionfromcontinuing
operations),$8,915millionarevaluedinternally(31December2018:$7,462millionfromcontinuingoperations).Themajorityofsuch
securitiesarevaluedusingmatrixpricing,whichisbasedonassessingthecreditqualityoftheunderlyingborrowertoderiveasuitable
discountraterelativetogovernmentsecuritiesofacomparableduration.Undermatrixpricing,thedebtsecuritiesarepricedtakingthe
creditspreadsoncomparablequotedpublicdebtsecuritiesandapplyingthesetotheequivalentdebtinstrumentsfactoringinaspecified
liquiditypremium.Themajorityoftheparametersusedinthisvaluationtechniquearereadilyobservableinthemarketand,therefore,
arenotsubjecttointerpretation.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.1 Group assets and liabilities – measurement continued

(c) Fair value measurements for level 3 fair valued assets and liabilities 
Reconciliation of movements in level 3 assets and liabilities measured at fair value
Thefollowingtablereconcilesthevalueoflevel3fairvaluedassetsandliabilitiesat1January2019tothatpresentedat31December2019.

Totalinvestmentreturnrecordedintheincomestatementrepresentsinterestanddividendincome,realisedgainsandlosses,

unrealisedgainsandlossesontheassetsclassifiedatfairvaluethroughprofitandlossandforeignexchangemovementsonanindividual
entity’soverseasinvestments.

Totalgainsandlossesrecordedinothercomprehensiveincomeincludesunrealisedgainsandlossesondebtsecuritiesheldas
available-for-saleprincipallywithinJacksonandforeignexchangemovementsarisingfromtheretranslationoftheGroup’soverseas
subsidiariesandbranches.



Reconciliation of 
movements in level 3 
assets and liabilities 
measured at fair value

Balanceat1January
DemergerofUKand
Europeoperations
Totalgains(losses)in
incomestatement*

Totalgains(losses)

recordedinother
comprehensiveincome

Purchases
Sales
Issues
Settlements

2019 $m

Equity
securities 
and
holdings in
collective
investment
schemes

Other
investments
(including
derivative
assets)

Debt
securities

Borrowings
attributable
 to with-
profits
businesses

Derivative
liabilities

Net asset
value
attributable
to unit
holders of
 consolidated
investment
funds

Other
financial
liabilities

Total

656

1,505

6,714

(539)

(2,045)

(1,258)

(4,335)

6,752

Loans

6,054

(2,509)

(440)

(1,498)

(5,513)

–

2,045

1,258

451

(6,206)

1

(11)

–
–
–
275
(234)

3
69
(1)
–
–

6

–
–
(7)
–
–

6

30

539

(6)
269
(193)
–
–

1,301

–
–
–
–
–

–

2018 $m

–

–
–
–
–
–

–

–

(28)

537

–
(2)
–
–
–

(2)

(11)
–
–
(143)
306

(14)
336
(201)
132
72

(3,760)

1,408

Balanceat31December

3,587

276

Balanceat1January
Totalgains(losses)in
incomestatement*

Totalgains(losses)

recordedinother
comprehensiveincome

Purchases
Sales
Issues
Settlements
Transfersintolevel3
Transfersoutoflevel3

6,543

(104)

(162)
83
(238)
373
(441)
–
–

Balanceat31December

6,054

502

51

(28)
167
(47)
–
–
11
–

656

885

5,985

(693)

(2,553)

(559)

(4,100)

6,010

(9)

540

(85)
889
(175)
–
–
–
–

1,505

(331)
1,605
(1,085)
–
–
–
–

6,714

36

34
–
–
–
–
–
84

(31)

89

7

579

133
–
–
–
406
–
–

111
–
–
(931)
76
–
(44)

36
–
–
(642)
364
–
–

(292)
2,744
(1,545)
(1,200)
405
11
40

(539)

(2,045)

(1,258)

(4,335)

6,752

*Ofthetotalnetgainsand(losses)intheincomestatementof$537millionforcontinuingoperationsin2019,$19millionrelatestonetunrealisedgainsandlossesoffinancialinstruments

stillheldattheendoftheyear(2018:$111millionofthe$579millionshownabovewasforcontinuingoperations,ofwhich$153millionrelatedtofinancialinstrumentsstillheldattheend
oftheyear),whichcanbeanalysedasfollows:

2019 $m

2018 $m

Equitysecuritiesandholdingsincollectiveinvestmentschemes
Debtsecurities
Otherinvestments
Derivativeliabilities
Netassetvalueattributabletounitholdersofconsolidatedinvestmentfunds
Otherfinancialliabilities

Total

(11)
–
34
–
–
(4)

19

(10)
3
133
36
(9)
–

153

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C	FINANCIAL	POSITION	NOTES		CONTINUEDValuation approach for level 3 fair valued assets and liabilities
Investmentsvaluedusingvaluationtechniquesincludefinancialinvestmentswhichbytheirnaturedonothaveanexternallyquoted
pricebasedonregulartrades,andfinancialinvestmentsforwhichmarketsarenolongeractiveasaresultofmarketconditions,egmarket
illiquidity.Thevaluationtechniquesusedincludecomparisontorecentarm’slengthtransactions,referencetootherinstrumentsthatare
substantiallythesame,discountedcashflowanalysis,option-adjustedspreadmodelsand,ifapplicable,enterprisevaluation.

TheGroup’svaluationpolicies,proceduresandanalysesforinstrumentscategorisedaslevel3areoverseenbyBusinessUnit
committeesaspartoftheGroup’swiderfinancialreportinggovernanceprocesses.Theproceduresundertakenincludeapprovalof
valuationmethodologies,verificationprocesses,andresolutionofsignificantorcomplexvaluationissues.Inundertakingtheseactivities,
theGroupmakesuseoftheextensiveexpertiseofitsassetmanagementfunctions.Inaddition,theGrouphasminimumstandardsfor
independentpriceverificationtoensurevaluationaccuracyisregularlyindependentlyverified.Adherencetothispolicyismonitored
acrossthebusinessunits.

At31December2019,theGroupheld$1,408millionofnetfinancialinstrumentsatfairvaluewithinlevel3.Thisrepresentslessthan

onepercentofthetotalfairvaluedfinancialassetsnetoffinancialliabilities.

Includedwithinthesenetassetsandliabilitiesarepolicyloansof$3,587millionat31December2019measuredastheloan

outstandingbalance,plusaccruedinvestmentincome,attachedtoacquiredREALICbusinessandheldtobacktheliabilitiesforfunds
withheldunderreinsurancearrangements.Thefundswithheldliabilityof$3,760millionat31December2019isalsoclassifiedwithin
level3.Thefairvalueoftheliabilitiesisequaltothefairvalueoftheunderlyingassetsheldascollateral,whichprimarilyconsistofpolicy
loansanddebtsecurities.Theassetsandliabilitiesbroadlyoffsetandthereforetheirmovementshaveminimalimpactonshareholders’
profitandequity.

ExcludingtheloansandfundswithheldliabilityunderREALIC’sreinsurancearrangementsasdescribedabove,whichamountedtoa
netliabilityof$173million,thelevel3fairvaluedfinancialassetsnetoffinancialliabilitieswereanetassetof$1,581million,whichareall
externallyvaluedandcomprisethefollowing:

— Otherfinancialinvestmentsof$1,301millionconsistingprimarilyofprivateequitylimitedpartnershipsheldbyJackson,whichare
externallyvaluedinaccordancewithInternationalPrivateEquityandVentureCapitalAssociationguidelinesusingmanagement
informationavailablefortheseinvestments;

— Equitysecuritiesandholdingsincollectiveinvestmentschemesof$276millionconsistingprimarilyofpropertyandinfrastructure

fundsheldbytheAsiaparticipatingfunds,whichareexternallyvaluedusingthenetassetvalueoftheinvestedentities;and

— Othersundryindividualfinancialinstrumentsofanetassetof$4million.

Ofthenetassetof$1,581millionreferredtoabove:

— Anetassetof$258millionisheldbytheGroup’sAsiaparticipatingfundsandthereforeshareholders’profitandequityarenot

impactedbymovementsinthevaluationofthesefinancialinstruments;and

— Anetassetof$1,323millionisheldtosupportnon-linkedshareholder-backedbusiness.Alloftheseinstrumentsareexternallyvalued
andarethereforeinherentlylesssubjectivethaninternalvaluations.Theseinstrumentsconsistprimarilyofprivateequitylimited
partnershipsheldbyJacksonasdescribedabove.IfthevalueofalltheseLevel3financialinstrumentsdecreasedby10percent,the
changeinvaluationwouldbe$132million,whichwouldreduceshareholders’equitybythisamountbeforetax.Allofthisamount
wouldpassthroughtheincomestatementsubstantiallyaspartofshort-termfluctuationsininvestmentreturnsoutsideofadjusted
IFRSoperatingprofitbasedonlonger-terminvestmentreturns.

(d) Transfers into and transfers out of levels 
TheGroup’spolicyistorecognisetransfersintoandtransfersoutoflevelsasoftheendofeachhalfyearreportingperiodexceptfor
materialtransferswhicharerecognisedasofthedateoftheeventorchangeincircumstancesthatcausedthetransfer.Transfersare
deemedtohaveoccurredwhenthereisamaterialchangeintheobservedvaluationinputsorachangeintheleveloftradingactivities
ofthesecurities.

During2019,thetransfersbetweenlevelswithintheGroup’sportfolio,excludingthoseheldbythediscontinuedUKandEurope
operations,wereprimarilytransfersfromlevel1tolevel2of$678millionandtransfersfromlevel2tolevel1of$1,121million.These
transferswhichrelatetoequitysecuritiesanddebtsecuritiesarosetoreflectthechangeintheobservedvaluationinputsandincertain
cases,thechangeintheleveloftradingactivitiesofthesecurities.Therewerenotransfersexcludingthoserelatedtothediscontinued
UKandEuropeoperations,intoandoutoflevel3intheyear.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.2 Debt securities 
ThisnoteprovidesanalysisoftheGroup’sdebtsecurities,includingasset-backedsecuritiesandsovereigndebtsecurities.

Withtheexceptionofcertaindebtsecuritiesclassifiedas‘available-for-sale’underIAS39asdisclosedinnotesC3.2(b)below,

whichprimarilyrelatetoUSinsuranceoperations,theGroup’sdebtsecuritiesarecarriedatfairvaluethroughprofitorloss.

(a) Credit rating
Debtsecuritiesareanalysedbelowaccordingtoexternalcreditratingsissued,withequivalentratingsissuedbydifferentratings
agenciesgroupedtogether.Standard&Poor’sratingshavebeenusedwhereavailable,ifthisisn’tthecaseMoody’sandthenFitchhave
beenusedasalternatives.FortheUS,NAICratingshavealsobeenusedwhererelevant(asshownin‘Other’inthetablesbelow).Inthe
tablebelow,AAAisthehighestpossiblerating.InvestmentgradefinancialassetsareclassifiedwithintherangeofAAAtoBBB-ratings.
FinancialassetswhichfalloutsidethisrangeareclassifiedasbelowBBB-.

Asia:

With-profits
Unit-linked
Non-linkedshareholder-

backed

Assetmanagement

US:

Non-linkedshareholder-

backed

Otheroperations

Totaldebtsecurities

Asia:

With-profits
Unit-linked
Non-linkedshareholder-

backed

Assetmanagement

US:

Non-linkedshareholder-

backed

Otheroperations

Totalcontinuingoperations

TotaldiscontinuedUKand
Europeoperations

Totaldebtsecurities

AAA 

AA+ to AA-

A+ to A-

31 Dec 2019 $m

BBB+
 to BBB-

Below BBB- 

Other
(including
NAIC rated)

5,205
770

1,611
14

1,154
–

8,754

21,911
135

6,050
–

10,300
1,211

39,607

5,863
674

6,293
112

15,229
–

28,171

5,874
2,074

4,639
–

18,489
–

31,076

2,382
522

3,749
–

1,995
55

8,703

AAA 

AA+ to AA-

A+ to A-

31 Dec 2018 $m

BBB+
 to BBB-

Below BBB- 

Other
(including
NAIC rated)

3,659
1,040

1,317
14

864
788

7,682

13,931

21,613

15,766
127

4,524
–

9,403
1,387

31,207

23,185

54,392

5,275
627

4,734
76

13,100
193

24,005

23,746

47,751

4,788
1,822

3,738
–

18,667
52

29,067

25,126

54,193

2,225
542

2,805
–

1,820
62

7,454

14,445

113,860

4,387

11,841

19,098

33,543

109,473

223,333

Total 

44,782
5,153

24,646
129

3,547
978

2,304
3

11,361
66

18,259

58,528
1,332

134,570

Total 

34,647
5,070

18,573
90

52,974
2,506

2,934
912

1,455
–

9,120
24

Thecreditratings,informationordatacontainedinthisreportwhichareattributedandspecificallyprovidedbyStandard&Poor’s,
Moody’sandFitchSolutionsandtheirrespectiveaffiliatesandsuppliers(‘ContentProviders’)isreferredtohereasthe‘Content’.
ReproductionofanyContentinanyformisprohibitedexceptwiththepriorwrittenpermissionoftherelevantparty.TheContent
Providersdonotguaranteetheaccuracy,adequacy,completeness,timelinessoravailabilityofanyContentandarenotresponsible
foranyerrorsoromissions(negligentorotherwise),regardlessofthecause,orfortheresultsobtainedfromtheuseofsuchContent.
TheContentProvidersexpresslydisclaimliabilityforanydamages,costs,expenses,legalfees,orlosses(includinglostincomeorlost
profitandopportunitycosts)inconnectionwithanyuseoftheContent.Areferencetoaparticularinvestmentorsecurity,aratingor
anyobservationconcerninganinvestmentthatispartoftheContentisnotarecommendationtobuy,sellorholdanysuchinvestment
orsecurity,nordoesitaddressthesuitabilityofaninvestmentorsecurityandshouldnotbereliedonasinvestmentadvice.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDCredit ratings for securities classified as ‘Other’
Securitiesforcontinuingoperationswithcreditratingsclassifiedas‘Other’canbefurtheranalysedasfollowsforAsiaandUSnon-linked
shareholder-backed.

Asia

Governmentbonds*
Corporatebondsratedbylocalexternalratingagencies

AAA
AA+toAA-
A+toA-
BBB+toBBB-
BelowBBB-andunrated

Other(asset-backedsecurities)†

TotalAsia

*99.7percentareinvestmentgrade(2018:92percent).
†Primarilyunrated.

US

ImplicitratingsbasedonNAICvaluations*

NAIC1
NAIC2
NAIC3-6

TotalUS†

31 Dec 
2019 $m

323

31 Dec 
2018 $m

46

184
958
345
91
32
1,610
371

2,304

239
702
241
39
25
1,246
163

1,455

31 Dec
2018 $m

Total

Total

31 Dec 2019 $m

Mortgage
-backed
securities

Other
securities

3,367
1
2

3,370

4,430
3,470
91

7,991

7,797
3,471
93

11,361

6,376
2,697
47

9,120

*TheSecuritiesValuationOfficeoftheNAICclassifiesdebtsecuritiesintosixqualitycategoriesrangingfromClass1(thehighest)toClass6(thelowest).Performingsecuritiesare

designatedasClasses1to5andsecuritiesinorneardefaultaredesignatedClass6.

†Mortgage-backedsecuritiestotalling$3,180millionat31December2019havecreditratingsissuedbyStandard&Poor’sofBBB-oraboveandhencearedesignatedasinvestmentgrade.

Othersecuritiestotalling$7,900millionat31December2019withNAICratings1or2arealsodesignatedasinvestmentgrade.

(b) Additional analysis of US insurance operations debt securities

Corporateandgovernmentsecurityandcommercialloans:

Government
PubliclytradedandSECRule144Asecurities*
Non-SECRule144Asecurities

Asset-backedsecurities(see note (c))

TotalUSdebtsecurities†

31 Dec 
2019 $m

31 Dec 
2018 $m

7,890
34,781
9,842
6,015

58,528

6,960
33,363
8,061
4,590

52,974

*A1990SECrulethatfacilitatestheresaleofprivatelyplacedsecuritiesunderRule144AthatarewithoutSECregistrationtoqualifiedinstitutionalinvestors.Therulewasdesigned

todevelopamoreliquidandefficientinstitutionalresalemarketforunregisteredsecurities.

†DebtsecuritiesforUSoperationsincludedinthestatementoffinancialpositioncomprise:

Available-for-sale
Fairvaluethroughprofitandloss

31 Dec 
2019 $m

31 Dec 
2018 $m

57,091
1,437

58,528

52,025
949

52,974

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.2 Debt securities continued
Movements in unrealised gains and losses on Jackson available-for-sale securities
Themovementinthestatementoffinancialpositionvaluefordebtsecuritiesclassifiedasavailable-for-salefromanetunrealisedloss
of$527milliontoanetunrealisedgainof$3,496millionasanalysedinthetablebelow.

Assetsfairvaluedatbelowbookvalue

Bookvalue*
Unrealisedgain(loss)

Fairvalue(asincludedinstatementoffinancialposition)

Assetsfairvaluedatorabovebookvalue

Bookvalue*
Unrealisedgain(loss)

Fairvalue(asincludedinstatementoffinancialposition)

Total

Bookvalue*
Netunrealisedgain(loss)

Fairvalue(asincludedinthefootnoteaboveintheoverviewtable

andthestatementoffinancialposition)

*Bookvaluerepresentscostoramortisedcostofthedebtsecurities.

31 Dec 2019
$m

Changes in unrealised 
appreciation reflected in 
other comprehensive income
$m

31 Dec 2018
$m

3,121
(27)

3,094

50,474
3,523

53,997

53,595
3,496

57,091

1,151

2,872

4,023

32,260
(1,178)

31,082

20,292
651

20,943

52,552
(527)

52,025

Jackson debt securities classified as available-for-sale in an unrealised loss position
(i) Fair value of securities as a percentage of book value
Thefollowingtableshowsthefairvalueofthedebtsecuritiesinagrossunrealisedlosspositionforvariouspercentagesofbookvalue:

Between90%and100%
Between80%and90%
Below80%

Total

(ii) Unrealised losses by maturity of security

1yearto5years
5yearsto10years
Morethan10years
Mortgage-backedandotherdebtsecurities

Total

31 Dec 2019 $m

31 Dec 2018 $m

Fair
value

3,083
11
–

3,094

Unrealised
loss

Fair
value

Unrealised
loss

(25)
(2)
–

(27)

30,136
900
46

31,082

(1,030)
(132)
(16)

(1,178)

31 Dec 
2019 $m

31 Dec 
2018 $m

(1)
(12)
(7)
(7)

(27)

(92)
(555)
(474)
(57)

(1,178)

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C	FINANCIAL	POSITION	NOTES		CONTINUED(iii) Age analysis of unrealised losses for the periods indicated
Thefollowingtableshowstheageanalysisofalltheunrealisedlossesintheportfoliobyreferencetothelengthoftimethesecurities
havebeeninanunrealisedlossposition:

31 Dec 2019 $m

31 Dec 2018 $m

Age analysis

Lessthan6months
6monthsto1year
1yearto2years
2yearsto3years
Morethan3years

Total

Non-
investment
 grade

Investment
 grade*

(1)
(1)
–
–
–

(2)

(20)
(1)
(1)
(1)
(2)

(25)

Total

(21)
(2)
(1)
(1)
(2)

(27)

Non-
investment
 grade

Investment
 grade*

(26)
(28)
(13)
–
(2)

(69)

(179)
(560)
(181)
(157)
(32)

Total

(205)
(588)
(194)
(157)
(34)

(1,109)

(1,178)

*ForStandardandPoor’s,Moody’sandFitchrateddebtsecurities,thosewithratingsrangefromAAAtoBBB-aredesignatedasinvestmentgrade.ForNAICrateddebtsecurities,

thosewithratings1or2aredesignatedasinvestmentgrade.

Further,thefollowingtableshowstheageanalysisofthesecuritieswhosefairvalueswerebelow80percentofthebookvalue:

Age analysis

Lessthan3months
3monthsto6months
Morethan6months

Totalbelow80%

31 Dec 2019 $m

31 Dec 2018 $m

Fair 
value

Unrealised
loss

Fair
value

Unrealised
loss

–
–
–

–

–
–
–

–

41
2
3

46

(13)
(1)
(2)

(16)

(c) Asset-backed securities
TheGroup’sholdingsinasset-backedsecurities(ABS),whichcompriseresidentialmortgage-backedsecurities(RMBS),commercial
mortgage-backedsecurities(CMBS),collateraliseddebtobligations(CDO)fundsandotherasset-backedsecurities,asat31December
2019areasfollows:

Asiaoperations: note (i)

Shareholder-backedbusiness
With-profitsbusiness

USoperations note (ii)
Otheroperations

Totalforcontinuingoperations
TotalfordiscontinuedUKandEuropeoperations

Grouptotal

31 Dec 
2019 $m

31 Dec 
2018 $m

189
369
6,015
–

6,573
–

6,573

154
299
4,590
566

5,609
8,503

14,112

Notes
(i)

OftheAsiaoperations’exposuretoasset-backedsecuritiesfortheshareholder-backedbusinessandwith-profitsbusinessat31December2019,100percent(31December2018:
99.8percent)areinvestmentgrade.

(ii) USoperations’exposuretoasset-backedsecuritiescomprises:

RMBS

Sub-prime(31Dec2019:2%AAA,3%AA,3%A)
Alt-A(31Dec2019:51%A)
Primeincludingagency(2019:23%AAA,61%AA,10%A)

CMBS(31Dec2019:76%AAA,16%AA,4%A)
CDOfunds(31Dec2019:46%AAA,38%AA,16%A),including$nilexposuretosub-prime
OtherABS(31Dec2019:16%AAA,11%AA,54%A),including$84millionexposuretosub-prime

Total(31Dec2019:50%AAA,24%AA,17%A)

31 Dec 
2019 $m

31 Dec 
2018 $m

93
116
862
3,080
696
1,168

6,015

122
134
562
2,477
17
1,278

4,590

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.2 Debt securities continued
(d) Group sovereign debt and bank debt exposure 
TheGroupexposuresheldbytheshareholder-backedbusinessandwith-profitsfundsinsovereigndebtsandbankdebtsecuritiesare
analysedbelow.Thetablesexcludeassetsheldtocoverlinkedliabilitiesandthoseoftheconsolidatedunittrustsandsimilarfunds.In
addition,thetablesbelowexcludetheproportionateshareofsovereigndebtholdingsoftheGroup’sjointventureoperations.

Exposure to sovereign debts 

Eurozone
UnitedKingdom
UnitedStates
Indonesia
Singapore
Thailand
Vietnam
OtherAsia
Other

Total

Analysedas:
Totalfromcontinuingoperations
TotalfromdiscontinuedUKandEuropeoperations

31 Dec 2019 $m

31 Dec 2018 $m

Shareholder-
backed
 business*

With-profits
funds

Shareholder-
backed
 business

With-profits
funds

–
615
9,526
420
230
1,416
2,900
2,722
143

17,972

–
–
20,338
–
3,514
–
–
562
32

24,446

481
4,109
7,192
359
209
1,173
2,383
2,266
159

18,331

14,848
3,483

18,331

560
3,837
15,102
–
2,112
–
–
1,103
282

22,996

16,740
6,256

22,996

*Includes$1.4billionofsovereigndebtheldbytheGroup’streasuryfunction,Africaoperationsandassetmanagementoperations.

Exposure to bank debt securities

Shareholder-backed business

Eurozone
UnitedKingdom
UnitedStates
Asia
Other

Total 

Analysedas:
Totalfromcontinuingoperations
TotalfromdiscontinuedUKandEurope

operations

With-profits funds 

Eurozone
UnitedKingdom
UnitedStates
Asia
Other

Total 

Analysedas:
Totalfromcontinuingoperations
TotalfromdiscontinuedUKandEurope

operations

Senior debt

Subordinated debt

31 Dec 2019 $m

31 Dec 2018 $m

Total

310
568
3,084
439
516

4,917

29
41
30
307
73

480

Tier 1

Tier 2

–
17
7
165
–

189

–
3
1
479
–

483

27
138
43
389
131

728

102
111
3
344
211

771

Total

27
155
50
554
131

917

102
114
4
823
211

1,254

Total

337
723
3,134
993
647

5,834

131
155
34
1,130
284

1,734

Total

608
1,714
3,397
754
821

7,294

5,910

1,384

7,294

1,243
2,794
3,477
1,293
2,305

11,112

1,639

9,473

11,112

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
(e) Impairment of US available-for-sale debt securities and other financial assets
InaccordancewiththeGroup’saccountingpolicysetoutinnoteA3.1,impairmentreviewswereperformedforavailable-for-sale
securitiesandloansandreceivables.

Duringtheyearended31December2019,achargeforrecoveriesnetofimpairmentof$17million(2018:creditof$19million)

wasrecognisedforavailable-for-salesecuritiesloansandreceivablesheldbyJackson.

Jackson,withthesupportofinternalcreditanalysts,regularlymonitorsandreportsonthecreditqualityofitsholdingsofdebtsecurities.
Inaddition,thereisaperiodicreviewofitsinvestmentsonacase-by-casebasistodeterminewhetheranydeclineinfairvaluerepresents
animpairment.Investmentsinstructuredsecuritiesaresubjecttoareviewoftheirfutureestimatedcashflows,includingexpectedand
stresscasescenarios,toidentifypotentialshortfallsincontractualpayments(bothinterestandprincipal).Impairmentchargesare
recordedonstructuredsecuritieswhentheCompanyforecastsacontractualpaymentshortfall.Situationswheresuchashortfallwould
notleadtoarecognitionofalossarerare.Theimpairmentlossreflectsthedifferencebetweenthefairvalueandbookvalue.

In2019,theGrouprealisedgrosslossesonsalesofavailable-for-salesecuritiesof$70million(2018:$55million)with51percent

(2018:49percent)oftheselossesrelatedtothedisposaloffixedmaturitysecuritiesofthetop10individualissuers,whichweredisposed
oftolimitfuturecreditlossexposure.Ofthe$70million(2018:$55million),$28million(2018:$6million)relatestolossesonsalesof
impairedanddeterioratingsecurities.

Theeffectofchangesinthekeyassumptionsthatunderpintheassessmentofwhetherimpairmenthastakenplacedependson
thefactorsdescribedinnoteA3.1.Akeyindicatorofwhethersuchimpairmentmayariseinfuture,andthepotentialamountsatrisk,
istheprofileofgrossunrealisedlossesforfixedmaturitysecuritiesaccountedforonanavailable-for-salebasisbyreferencetothetime
periodsbywhichthesecuritieshavebeenheldcontinuouslyinanunrealisedlosspositionandbyreferencetothematuritydateofthe
securitiesconcerned.

For2019,theamountofgrossunrealisedlossesforfixedmaturitysecuritiesclassifiedasavailable-for-saleunderIFRSinanunrealised
losspositionwas$27million(2018:$1,178million).NoteB1.2providesfurtherdetailsontheimpairmentchargesandunrealisedlossesof
Jackson’savailable-for-salesecurities.

C3.3 Loans portfolio
(a) Overview of loans portfolio
Loansareprincipallyaccountedforatamortisedcost,netofimpairmentexceptforcertainpolicyloansoftheUSinsuranceoperations
thatareheldtobackliabilitiesforfundswithheldunderreinsurancearrangementsandarealsoaccountedonafairvaluebasis.

Theamountsincludedinthestatementoffinancialpositionareanalysedasfollows:

Asia

With-profits
Non-linkedshareholder-backed

US

Non-linkedshareholder-backed

Otheroperations

Totalcontinuingoperations

TotaldiscontinuedUKandEurope

operations

TotalGroup

31 Dec 2019 $m

31 Dec 2018 $m

Mortgage 
loans
note(i)

Policy 
loans
note(ii)

Other 
loans

Total

Mortgage 
loans
note(i)

Policy 
loans
note(ii)

Other 
loans

Total

–
165

9,904
–

10,069

1,089
316

4,707
9

6,121

374
19

–
–

393

1,463
500

14,611
9

16,583

–
199

9,406
–

9,605

5,241

14,846

926
288

4,688
–

5,902

4

5,906

83
259

–
–

342

1,844

2,186

1,009
746

14,094
–

15,849

7,089

22,938

Notes
(i)
(ii)

Allmortgageloansaresecuredbyproperties.
IntheUS,$3,587millionofpolicyloansheldat31December2019(31December2018:$3,544million)arebackingliabilitiesforfundswithheldunderreinsurancearrangements
andareaccountedforatfairvaluethroughprofitorloss.Allotherpolicyloansareaccountedforatamortisedcost,lessanyimpairment.

(b) Additional information on US mortgage loans
IntheUS,mortgageloansareallcommercialmortgageloansthataresecuredbythefollowingpropertytypes:industrial,multi-family
residential,suburbanoffice,retailorhotel.Theaverageloansizeis$19.3million(31December2018:$17.8million).Theportfoliohas
acurrentestimatedaverageloantovalueof54percent(31December2018:53percent).

Jacksonhadnomortgageloanswherethecontractualtermsoftheagreementshadbeenrestructuredforbothyearsshown.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.4  Financial instruments – additional information
(a) Financial risk
Liquidity analysis
Contractual maturities of financial liabilities on an undiscounted cash flow basis
Thefollowingtablesetsoutthecontractualmaturitiesforapplicableclassesoffinancialliabilities,excludingderivativeliabilities
andinvestmentcontractsthatareseparatelypresented.Thefinancialliabilitiesareincludedinthecolumnrelatingtothecontractual
maturitiesoftheundiscountedcashflows(includingcontractualinterestpayments)duetobepaidassumingconditionsareconsistent
withthoseofyearend.

Financial liabilities

Corestructuralborrowings
ofshareholder-financed
businesses C6.1
Leaseliabilitiesunder

IFRS16

Otheroperational
borrowings

Obligationsunderfunding,
securitieslendingand
saleandrepurchase
agreements

Accruals,deferredincome
andotherliabilities

Netassetvalueattributable

tounitholdersof
consolidatedunittrusts
andsimilarfunds

Total
 carrying
value

1 year
or less

After 1
year to
5 years

After 5
years to
10 years

After 10
years to
15 years

After 15
years to
20 years

Over
20 years

No stated
maturity

Total
undis-
counted
cash flows 

31 Dec 2019 $m

5,594

630

2,015

105

145

941

1,146

388

188

888

113

232

648

37

1,132

8,901

2,067

5,476

1,902

278

14,488

9,172

636

5,998

5,998

–

1

–

–

–

–

18

2

–

248

–

268

–

1

–

–

–

–

1

3,725

6,512

–

–

–

702

2,495

9,723

4,431

14,488

–

5,998

8,156

39,918

Total

37,626

18,428

7,834

3,136

2,095

Financial liabilities

Corestructuralborrowings
ofshareholder-financed
businesses C6.1

Operationalborrowings
Obligationsunderfunding,
securitieslendingand
saleandrepurchase
agreements

Accruals,deferredincome
andotherliabilities

Netassetvalueattributable

tounitholdersof
consolidatedunittrusts
andsimilarfunds

Total
Analysedas:
Continuingoperations
DiscontinuedUKand
Europeoperations

Total

Total
 carrying
value

1 year
or less

After 1
year to
5 years

After 5
years to
10 years

After 10
years to
15 years

After 15
years to
20 years

Over
20 years

No stated
maturity

Total
undis-
counted
cash flows 

31 Dec 2018 $m

9,761
6,289

380
1,961

2,240
1,703

1,944
1,002

2,347
349

1,363
181

8,371
2,657

3,725
–

20,370
7,853

8,901

2,450

4,908

2,131

19,421

13,811

599

90

289

115

–

138

–

–

9,778

448

4,503

19,704

14,839

59,211

14,839

33,441

–

–

–

–

–

–

9,450

5,167

3,100

1,682

11,476

8,228

14,839

72,544

32,839

12,284

7,479

4,167

2,636

1,363

8,412

7,983

44,324

26,372

59,211

21,157

33,441

1,971

9,450

1,000

5,167

464

3,100

319

3,064

1,682

11,476

245

8,228

28,220

72,544

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C	FINANCIAL	POSITION	NOTES		CONTINUEDMaturity analysis of derivatives
Thefollowingtableshowsthegrossandnetderivativepositionstogetherwithamaturityprofileofthenetderivativeposition:

Carrying value of net derivatives $m

Maturity profile of net derivative position $m

Derivative 
assets

Derivative 
liabilities

1,745

4,450

(392)

(4,465)

Net
 derivative 
position

1,353

(15)

1 year
or less

1,353

372

After 1
year to
3 years

–

(10)

After 3
years to
5 years

After 5
years

Total
undiscounted
cash flows 

–

(5)

–

38

1,353

395

2019

2018

Themajorityofderivativeassetsandliabilitieshavebeenincludedatfairvaluewithintheoneyearorlesscolumn,representingthebasis
onwhichtheyaremanaged(ietomanageprincipallyassetorliabilityvalueexposures).TheGrouphasnocashflowhedgesand,in
general,contractualmaturitiesarenotconsideredessentialforanunderstandingofthetimingofthecashflowsfortheseinstruments.
Theonlyexceptionisthatin2018certainidentifiedinterestrateswapswereexpectedtobehelduntilmaturityforthepurposesof
matchingcashflowsonseparatelyheldassetsandliabilities.TheseswapswereclosedaspartofthepreparationforthedemergerofUK
andEuropeoperations.

Maturity analysis of investment contracts
Thetablebelowshowsthematurityprofileforinvestmentcontractsbasedonundiscountedcashflowprojectionsofexpectedbenefit
payments.Totalcarryingvalueofinvestmentcontractsat31December2019was$5,535millionasshowninthestatementoffinancial
position(31December2018:$110,339million,ofwhich$5,142millionwasfromcontinuingoperations).

31 Dec 2019

31Dec2018

Maturity profile for investment contracts from continuing operations $m

1 year
or less

1,557

1,409

After 1
year to
5 years

5,197

4,779

After 5
years to
10 years

3,866

3,352

After 10
years to
15 years

3,049

2,487

After 15
years to
20 years

3,196

2,830

Over
20 years

5,890

4,257

Total
undiscounted
cash flows

22,755

19,114

Mostinvestmentcontractshaveoptionstosurrenderearly,oftensubjecttosurrenderorotherpenalties.Therefore,mostcontractscan
besaidtohaveacontractualmaturityoflessthanoneyear,buttheadditionalchargesandtermofthecontractsmeantheseareunlikely
tobeexercisedinpracticeandthemoreusefulinformationistopresentinformationonexpectedpayment.

ThevastmajorityoftheGroup’sfinancialassetsareheldtobacktheGroup’spolicyholderliabilities.Althoughasset/liabilitymatching

isanimportantcomponentofmanagingpolicyholderliabilities(boththoseclassifiedasinsuranceandthoseclassifiedasinvestments),
thisprofileismainlyrelevantformanagingmarketriskratherthanliquidityrisk.Withineachbusinessunit,thisasset/liabilitymatchingis
performedonaportfolio-by-portfoliobasis.

Intermsofliquidityrisk,alargeproportionofthepolicyholderliabilitiescontaindiscretionarysurrendervaluesorsurrendercharges,
meaningthatmanyoftheGroup’sliabilitiesareexpectedtobeheldforthelongterm.MuchoftheGroup’sinvestmentportfoliosarein
marketablesecurities,whichcanthereforebeconvertedquicklytoliquidassets.

Forthereasonsprovidedabove,ananalysisoftheGroup’sassetsbycontractualmaturityisnotconsideredmeaningfultoevaluatethe

natureandextentoftheGroup’sliquidityrisk.

Credit risk
TheGroup’smaximumexposuretocreditriskoffinancialinstrumentsbeforeanyallowanceforcollateralorallocationoflossesto
policyholdersisrepresentedbythecarryingvalueoffinancialinstrumentsonthebalancesheetthathaveexposurestocreditrisk
comprisingcashandcashequivalents,deposits,debtsecurities,loansandderivativeassets,accruedinvestmentincomeandother
debtors,thecarryingvalueofwhicharedisclosedatthestartofthisnoteandnoteC3.4(b)belowforderivativeassets.Thecollateralin
placeinrelationtoderivativesisdescribedinnoteC3.4(c)below.NoteC3.3describesthesecurityfortheloansheldbytheGroup.The
Group’sexposuretocreditriskisfurtherdiscussedinnoteC7below.

Ofthetotalloansandreceivablesheld,$7million(31December2018:$18millionfromcontinuingoperations)arepasttheirduedate

butarenotimpaired.Ofthetotalpastduebutnotimpaired,$1millionarelessthanoneyearpasttheirduedate(31December2018:
$11millionfromcontinuingoperations).TheGroupexpectsfullrecoveryoftheseloansandreceivables.

Financialassetsthatwouldhavebeenpastdueorimpairedhadthetermsnotbeenrenegotiatedamountedtonil(31December2018:

$29millionfromcontinuingoperations).

Inaddition,during2019and2018,theGroupdidnottakepossessionofanyothercollateralheldassecurity.
Furtherdetailsofcollateralinplaceinrelationtoderivatives,securitieslending,repurchaseagreementsandothertransactionsare

providedinnoteC3.4(c)below.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.4 Financial instruments – additional information continued
Foreign exchange risk
Asat31December2019,theGroupheld8percentofitsfinancialassetsand25percentofitsfinancialliabilitiesincurrencies,mainlyUS
Dollar,otherthanthefunctionalcurrencyoftherelevantbusinessunitsorthecurrencytowhichthefunctionalcurrencyispegged
(egfinancialassetsandliabilitiesofUSdollardenominatedbusinessinHongKong).

Theexchangerisksinherentintheseexposuresaremitigatedthroughtheuseofderivatives,mainlyforwardcurrencycontracts

(noteC3.4(b)below).

Theamountofexchangelossrecognisedintheincomestatementin2019,exceptforthosearisingonfinancialinstrumentsmeasured

atfairvaluethroughprofitorloss,is$72million(2018:$88milliongainfromcontinuingoperations).

(b) Derivatives and hedging
Accounting principles for derivatives and embedded derivatives
Derivativefinancialinstrumentsareusedtoreduceormanageinvestment,interestrateandcurrencyexposures,tofacilitateefficient
portfoliomanagementandforinvestmentpurposes.

TheGroupdoesnotregularlyseektoapplyfairvalueorcashflowhedgingtreatmentunderIAS39.TheGrouphasnofairvalueand

cashflowshedgesunderIAS39at31December2019and2018.Allderivativesthatarenotdesignatedashedginginstrumentsare
carriedatfairvalue,withmovementsinfairvaluebeingrecordedintheincomestatement.

Embeddedderivativesareembeddedwithinothernon-derivativehostfinancialinstrumentsandinsurancecontractstocreatehybrid

instruments.EmbeddedderivativesmeetingthedefinitionofaninsurancecontractareaccountedforunderIFRS4.Whereeconomic
characteristicsandrisksoftheembeddedderivativesarenotcloselyrelatedtotheeconomiccharacteristicsandrisksofthehost
instrument,andwherethehybridinstrumentisnotmeasuredatfairvaluewiththechangesinfairvaluerecognisedintheincome
statement,theembeddedderivativeisbifurcatedandcarriedatfairvalueasaderivativemeasuredinaccordancewithIAS39.

Inaddition,theGroupappliestheoptionunderIFRS4tonotseparateandfairvaluesurrenderoptionsembeddedinhostcontracts

andwith-profitsinvestmentcontractswhosestrikepriceiseitherafixedamountorafixedamountplusinterest.

Derivatives held and their purpose
TheGroupentersintoavarietyofexchangetradedandover-the-counterderivativefinancialinstruments,includingfutures,options,
forwardcurrencycontractsandswapssuchasinterestrateswaps,cross-currencyswaps,swaptionsandcreditdefaultswaps.

Allover-the-counterderivativetransactions,withtheexceptionoftransactionsinsomeAsiaoperations,areconductedunder
standardisedISDA(InternationalSwapsandDerivativesAssociationInc)masteragreementsandtheGrouphascollateralagreements
betweentheindividualGroupentitiesandrelevantcounterpartiesinplaceundereachofthesemarketmasteragreements.

ThemajorityoftheGroup’sderivativesareheldbyJackson.Derivativesareusedforefficientportfoliomanagementtoobtaincost
effectiveandmanagementofexposuretovariousmarketsinaccordancewiththeGroup’sinvestmentstrategiesandtomanageexposure
tointerestrate,currency,creditandotherbusinessrisks.TheGroupalsousesinterestratederivativestoreduceexposuretointerestrate
volatility.Inparticular:

— USoperationsholdlargeamountsofinterest-ratesensitiveinvestmentsthatcontaincreditrisksonwhichacertainlevelofdefaultsis
expected.Thesebusinesseshavepurchasedsomeswaptionstomanagethedefaultriskoncertainunderlyingassetsandhence
reducetheamountofregulatorycapitalheldtosupporttheassets;and

— Someproducts,especiallyintheUS,haveguaranteefeatureslinkedtoequityindices.Amismatchbetweenguaranteedproduct
liabilitiesandtheperformanceoftheunderlyingassetsexposestheGrouptoequityindexrisk.Inordertomitigatethisrisk,the
relevantbusinessunitspurchaseswaptions,equityoptionsandfuturestobettermatchassetperformancewithliabilitiesunder
equity-indexedproducts.

Additional information on Jackson derivative programme
Jacksonentersintofinancialderivativetransactions,includingthosenotedbelow,toreduceandmanagebusinessrisks.These
transactionsmanagetheriskofachangeinthevalue,yield,price,cashflowsorquantityof,oradegreeofexposure,withrespectto
assets,liabilitiesorfuturecashflows,whichJacksonhasacquiredorincurred.

Jacksonusesfree-standingderivativeinstrumentsforhedgingpurposes.Additionally,certainliabilities,primarilytrustinstruments
supportedbyfundingagreements,fixedindexannuities,certainvariableannuityguaranteedbenefitfeaturesandreinsuredGuaranteed
MinimumIncomeBenefitvariableannuityfeaturesaresimilartoderivatives.Jacksondoesnotaccountforsuchitemsaseitherfairvalueor
cashflowhedgesasmightbepermittedifthespecifichedgedocumentationrequirementsofIAS39werefollowed.Financialderivatives
arecarriedatfairvalue,includingderivativesembeddedincertainhostliabilitieswherethesearerequiredtobevaluedseparately.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDTheprincipaltypesofderivativesusedbyJacksonandtheirpurposeareasfollows:

Derivative

Purpose

Interestrateswaps

Swaptioncontracts

Thesegenerallyinvolvetheexchangeoffixedandfloatingpaymentsovertheperiodforwhich
Jacksonholdstheinstrumentwithoutanexchangeoftheunderlyingprincipalamount.These
agreementsareusedtohedgeJackson’sexposuretomovementsininterestrates.

Thesecontractsprovidethepurchaserwiththeright,butnottheobligation,torequirethewriter
topaythepresentvalueofalong-durationinterestrateswapatfutureexercisedates.Jacksonboth
purchasesandwritesswaptionsinordertohedgeagainstsignificantmovementsininterestrates.

Treasuryfuturescontracts

ThesederivativesareusedtohedgeJackson’sexposuretomovementsininterestrates.

Equityindexfuturescontracts
andequityindexoptions

Thesederivatives(includingvariouscallandputoptionsandoptionscontingentoninterestrates
andcurrencyexchangerates)areusedtohedgeJackson’sobligationsassociatedwithitsissuance
ofcertainVAguarantees.Someoftheseannuitiesandguaranteescontainembeddedoptionsthat
arefairvaluedforfinancialreportingpurposes.

Cross-currencyswaps

Creditdefaultswaps

Cross-currencyswaps,whichembodyspotandforwardcurrencyswapsandadditionally,insome
cases,interestrateswapsandequityindexswaps,areenteredintoforthepurposeofhedging
Jackson’sforeigncurrencydenominatedfundingagreementssupportingtrustinstrumentobligations.

Theseswapsrepresentagreementsunderwhichthebuyerhaspurchaseddefaultprotectionon
certainunderlyingcorporatebondsheldinitsportfolio.ThesecontractsallowJacksontosellthe
protectedbondsatparvaluetothecounterpartyifadefaulteventoccursinexchangeforperiodic
paymentsmadebyJacksonforthelifeoftheagreement.

Hedging
TheGrouphasformallyassessedanddocumentedtheeffectivenessofthefollowingnetinvestmenthedgesunderIAS39.During2019,
upto31December2019,theGrouphaddesignatedperpetualsubordinatedcapitalsecuritiestotalling$3.7billion(31December2018:
$3.7billion)asanetinvestmenthedgetohedgethecurrencyrisksrelatedtothenetinvestmentinJackson.Accordingly,theforeign
exchangelossof$150million(2018:lossof$266million)ontranslationofPrudentialplc’sborrowingstopoundssterling(thefunctional
currencyofPrudentialplcuntil31December2019)isrecognisedinthetranslationreserveinshareholders’equityratherthantheincome
statement.Thisnetinvestmenthedgewas100percenteffective.

TheGrouphasnocashflowhedgesorfairvaluehedgesinplace.

(c) Derecognition, collateral and offsetting
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. 

The Group derecognises financial liabilities only when the obligation specified in the contract is discharged, cancelled or has expired.

Reverse repurchase agreements 
The Group is 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 in the statement of financial position but the right to receive the 
cash paid is recognised as deposits. 

At31December2019,theGrouphadenteredintoreverserepurchasetransactionsunderwhichitpurchasedsecuritiesandhadtakenon
theobligationtoresellthesecurities.Thefairvalueofthecollateralheldinrespectofthesetransactions,whichisrepresentedbythe
purchasedsecurities,was$1,011million(31December2018:$3,039millionfromcontinuingoperations).

Securities lending and repurchase agreements
TheGroupisalsopartytovarioussecuritieslendingagreements(includingrepurchaseagreements)underwhichsecuritiesareloanedto
thirdpartiesonashort-termbasis.Theloanedsecuritiesarenotderecognised;rather,theycontinuetoberecognisedwithinthe
appropriateinvestmentclassification.Totheextentcashcollateralisreceiveditisrecognisedonthestatementoffinancialposition.Other
collateralisnotrecognised.

At31December2019,theGrouphas$90million(31December2018:$107millionfromcontinuingoperations)oflentsecuritiesand

assetssubjecttorepurchaseagreements.Thecashandsecuritiescollateralheldorpledgedundersuchagreementswere$95million
(31December2018:$112millionfromcontinuingoperations).

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC3 Assets and liabilities continued

C3.4 Financial instruments – additional information continued
Collateral and pledges under derivative transactions
At31December2019,theGrouphadpledged$1,301million(31December2018:$2,896millionfromcontinuingoperations)
forliabilitiesandheldcollateralof$1,883million(31December2018:$810millionfromcontinuingoperations)inrespectofover-
the-counterderivativetransactions.Thesetransactionsareconductedundertermsthatareusualandcustomarytocollateralised
transactionsincluding,whererelevant,standardsecuritieslendingandrepurchaseagreements.

TheGrouphasenteredintocollateralarrangementsinrelationtoover-the-counterderivativetransactions,whichpermitsaleor

re-pledgingofunderlyingcollateral.During2019,theGrouphasnotsoldanycollateralheld(2018:nil).Asof31December2019,
thevalueofcollateralre-pledgedbytheGroupamountedto$nil(31December2018:$5millionfromcontinuingoperations).All
over-the-counterderivativetransactions,withtheexceptionoftransactionsinsomeAsiaoperations,areconductedunderstandardised
InternationalSwapsandDerivativesAssociation(ISDA)masteragreements.Thecollateralmanagementforthesetransactionsis
conductedundertheusualandcustomarytermsandconditionssetoutintheCreditSupportAnnextotheISDAmasteragreement.

Other collateral
At31December2019,theGrouphadpledgedcollateralof$3,299million(31December2018:$3,053millionfromcontinuing
operations)inrespectofothertransactions.ThisprincipallyarisesfromJackson’smembershipoftheFederalHomeLoanBankof
Indianapolisprimarilyforthepurposeofparticipatinginthebank’scollateralisedloanadvanceprogrammewithshort-termandlong-term
fundingfacilities.

Offsetting assets and liabilities 
TheGroup’sderivativeinstruments,repurchaseagreementsandsecuritieslendingagreementsaresubjecttomasternetting
arrangementsandcollateralarrangements.Amasternettingarrangementwithacounterpartycreatesarightofoffsetforamountsdue
toandduefromthatsamecounterpartythatisenforceableintheeventofadefaultorbankruptcy.TheGrouprecognisesamounts
subjecttomasternettingarrangementsonagrossbasiswithintheconsolidatedbalancesheets.

ThefollowingtablespresentthegrossandnetinformationabouttheGroup’sfinancialinstrumentssubjecttomasternetting

arrangements:

Financialassets:

Derivativeassets
Reverserepurchaseagreements

Totalfinancialassets

Financialliabilities:

Derivativeliabilities
Securitieslendingandrepurchaseagreements

Totalfinancialliabilities

Gross amount
included 
in the
consolidated 
statement of 
financial 
position
note(i)

1,708
953

2,661

(216)
(48)

(264)

31 Dec 2019 $m

Related amounts not offset in the consolidated
statement of financial position 

Financial
instruments
note(ii)

Cash
collateral

Securities
collateral
note(iii)

Net amount
note(iv)

(115)
–

(115)

115
–

115

(901)
–

(901)

86
48

134

(618)
(953)

(1,571)

–
–

–

74
–

74

(15)
–

(15)

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C	FINANCIAL	POSITION	NOTES		CONTINUEDFinancialassets:

Derivativeassets
Reverserepurchaseagreements

Totalfinancialassets

Financialliabilities:

Derivativeliabilities
Securitieslendingandrepurchaseagreements

Totalfinancialliabilities

Analysedas:
Financialassetsfromcontinuingoperations
FinancialassetsfromdiscontinuedUKand

Europeoperations

Totalfinancialassets

Financialliabilitiesfromcontinuingoperations
FinancialliabilitiesfromdiscontinuedUKand

Europeoperations

Totalfinancialliabilities

Gross amount
included 
in the
consolidated 
statement of 
financial 
position
note(i)

31 Dec 2018 $m

Related amounts not offset in the consolidated
statement of financial position 

Financial
instruments
note(ii)

Cash
collateral

Securities
collateral
note(iii)

Net amount
note(iv)

4,112
14,771

18,883

(4,062)
(1,602)

(5,664)

(1,606)
–

(1,606)

1,606
–

1,606

(2,149)
–

(2,149)

(211)
(14,782)

(14,993)

905
43

948

1,346
1,535

2,881

3,709

(308)

(435)

(2,947)

15,174

18,883

(1,637)

(4,027)

(5,664)

(1,298)

(1,606)

308

1,298

1,606

(1,714)

(2,149)

(12,046)

(14,993)

86

862

948

1,095

1,786

2,881

146
(11)

135

(205)
(24)

(229)

19

116

135

(148)

(81)

(229)

Notes
(i)
(ii)

(iii)
(iv)

TheGrouphasnotoffsetanyoftheamountsincludedintheconsolidatedstatementoffinancialposition.
RepresentstheamountthatcouldbeoffsetundermasternettingorsimilararrangementswheretheGroupdoesnotsatisfythefullcriteriatooffsetontheconsolidatedstatement
offinancialposition.
Excludesinitialmarginamountsforexchange-tradedderivatives.
Inthetablesabove,theamountsofassetsorliabilitiesincludedintheconsolidatedstatementoffinancialpositionwouldbeoffsetfirstbyfinancialinstrumentsthathavetherightof
offsetundermasternettingorsimilararrangementswithanyremainingamountreducedbytheamountofcashandsecuritiescollateral.Theactualamountofcollateralmaybe
greaterthanamountspresentedinthetables.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC4 Policyholder liabilities and unallocated surplus

The note provides information of policyholder liabilities and unallocated surplus of with-profits funds held on the Group’s statement of 
financial position:

C4.1 Group overview
(i) Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds notes (a), (b)

Balance at 1 January 2018
Comprising:

– Policyholder liabilities on the consolidated statement of financial position note (c)

(excludes $43 million classified as unallocated to a segment)

– Unallocated surplus of with-profits funds on the consolidated statement  

of financial position

– Group’s share of policyholder liabilities of joint ventures and associate note (d)

Reclassification of reinsured UK annuity contracts as held for sale
Net flows:

Premiums
Surrenders
Maturities/deaths

Net flows
Addition for closed block of group payout annuities in the US
Shareholders’ transfers post-tax
Investment-related items and other movements
Foreign exchange translation differences

Balance at 31 December 2018/1 January 2019
Comprising:

– Policyholder liabilities on the consolidated statement of financial position note (c)

(excludes $50 million classified as unallocated to a segment)

– Unallocated surplus of with-profits funds on the consolidated statement  

of financial position

– Group’s share of policyholder liabilities of joint ventures and associate note (d)

Demerger of UK and Europe operations
Net flows:

Premiums
Surrenders
Maturities/deaths

Net flows
Shareholders’ transfers post-tax
Investment-related items and other movements
Foreign exchange translation differences

Balance at 31 December 2019

Comprising:

Dis-
continued
 UK and 
Europe
operations
$m

Total
$m

Asia
$m
note C4.2

US
$m
note C4.3

99,890

244,483

244,946

589,319

85,089

244,483

226,715

556,287

4,700
10,101
–

17,607
(3,729)
(2,641)

11,237
–
(87)
(3,718)
(1,914)

–
–
–

18,613
(16,211)
(2,687)

(285)
5,532
–
(13,350)
–

18,231
–
(14,689)

18,707
(9,053)
(9,074)

580
–
(346)
(7,318)
(13,171)

22,931
10,101
(14,689)

54,927
(28,993)
(14,402)

11,532
5,532
(433)
(24,386)
(15,085)

105,408

236,380

210,002

551,790

91,836

236,380

193,020

521,236

20,180
16,982
–
–
10,374
–
– (210,002) (210,002)

3,198
10,374
–

20,094
(4,156)
(2,800)

13,138
(99)
12,824
1,299

20,976
(17,324)
(3,387)

247
–
32,922
–

132,570

269,549

–
–
–

–
–
–
–

–

–

–
–

41,070
(21,498)
(6,187)

13,385
(99)
45,746
1,299

402,119

385,492

4,750
11,877

– Policyholder liabilities on the consolidated statement of financial position

(excludes $186 million classified as unallocated to a segment)

115,943

269,549

– Unallocated surplus of with-profits funds on the consolidated statement  

of financial position

– Group’s share of policyholder liabilities of joint ventures and associate note (d)

Average policyholder liability balances note (e)

4,750
11,877

–
–

2019

2018

115,015

252,965

n/a

367,980

98,698

239,049

213,492

551,239

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
 
 
Notes 
(a) 

(b) 

(c) 

(d) 

(e) 

The items above represent the amount attributable to changes in policyholder liabilities and unallocated surplus of with-profits funds as a result of each of the components listed. 
The policyholder liabilities shown include investment contracts without discretionary participation features (as defined in IFRS 4) and their full movement in the year but exclude 
liabilities that have not been allocated to a reporting segment. The items above are shown gross of external reinsurance. 
The analysis includes the impact of premiums, claims and investment movements on policyholders’ liabilities. The impact does not represent premiums, claims and investment 
movements as reported in the income statement. For example, premiums shown above exclude any deductions for fees/charges; claims (surrenders, maturities and deaths) shown 
above represent the policyholder liabilities provision released rather than the claims amount paid to the policyholder. 
The policyholder liabilities of the Asia insurance operations at 31 December 2018 of $91,836 million were after deducting the intra-group reinsurance liabilities ceded by the 
discontinued UK and Europe operations of $1,412 million to the Hong Kong with-profits business, which were recaptured in October 2019 upon demerger. Including this amount, 
total Asia policyholder liabilities at 31 December 2018 were $93,248 million. 
The Group’s investment in joint ventures and associate are accounted for on an equity method basis in the Group’s statement of financial position. The Group’s share of the 
policyholder liabilities as shown above relates to life businesses of the China JV, India and the Takaful business in Malaysia. 
Average policyholder liabilities have been based on opening and closing balances, adjusted for acquisitions, disposals and other corporate transactions arising in the year, and 
exclude unallocated surplus of with-profits funds.

(ii) Analysis of movements in policyholder liabilities for shareholder-backed business

Balance at 1 January 2018
Reclassification of reinsured UK annuity contracts as held for sale
Net flows:

Premiums
Surrenders
Maturities/deaths

Net flows note
Addition for closed block of group payout annuities in the US
Investment-related items and other movements
Foreign exchange translation differences

Balance at 31 December 2018/1 January 2019

Comprising:

– Policyholder liabilities on the consolidated statement of financial position

(excludes $50 million classified as unallocated to a segment)

– Group’s share of policyholder liabilities relating to joint ventures and associate

Demerger of UK and Europe operations
Net flows:

Premiums
Surrenders
Maturities/deaths

Net flows note
Investment-related items and other movements
Foreign exchange translation differences

Balance at 31 December 2019

Comprising:

– Policyholder liabilities on the consolidated statement of financial position

(excludes $186 million classified as unallocated to a segment)

– Group’s share of policyholder liabilities relating to joint ventures and associate

Note
Including net flows of the Group’s insurance joint ventures and associate.

Dis-
continued
 UK and 
Europe
operations
$m

Total
$m

Asia
$m

US
$m

50,598
–

244,483
–

76,254
(14,689)

371,335
(14,689)

9,015
(3,278)
(1,396)

4,341
–
(1,608)
(1,626)

18,613
(16,211)
(2,687)

(285)
5,532
(13,350)
–

1,984
(2,692)
(2,996)

(3,704)
–
(2,637)
(3,313)

29,612
(22,181)
(7,079)

352
5,532
(17,595)
(4,939)

51,705

236,380

51,911

339,996

41,331
10,374
–

236,380
–
–

51,911
–
(51,911)

329,622
10,374
(51,911)

10,372
(3,610)
(1,168)

20,976
(17,342)
(3,387)

5,594
4,186
777

247
32,922
–

62,262

269,549

50,385  269,549 
–
11,877 

–
–
–

–
–
–

–

–
–

31,348
(20,952)
(4,555)

5,841
37,108
777

331,811

319,934 
11,877

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C4 Policyholder liabilities and unallocated surplus continued

C4.1 Group overview continued
(iii) Movement in insurance contract liabilities and unallocated surplus of with-profits funds
Further analysis of the movement in the year of the Group’s gross contract liabilities, reinsurer’s share of insurance contract liabilities 
and unallocated surplus of with-profits funds (excluding those held by joint ventures and associate) is provided below:

Balance at 1 January 2018
Income and expense included in the income statement note (c)
– continuing operations
– discontinued operations
Other movements note (d)
Foreign exchange translation differences

Balance at 31 December 2018/1 January 2019
Demerger of UK and Europe operations note (e)
Income and expense included in the income statement 

for continuing operations note (c)

Other movements note (d)
Foreign exchange translation differences

Balance at 31 December 2019

Gross 
insurance
 contract
 liabilities 
$m

Reinsurers’
 share of
 insurance
 contract
 liabilities
$m
note (a)

Unallocated
 surplus of
 with-profits
 funds 
$m

Investment
 contracts
$m
note (b)

(443,952)

13,086

(112,378)

(22,931)

512
11,497
13,375
7,621

(410,947)
87,824

(55,579)
–
(1,441)

548
14,727
(13,375)
(793)

14,193
(2,169)

1,795
–
37

(104)
(5,249)
859
6,533

1,494
227
(51)
1,081

(110,339)
105,196

(20,180)
16,982

(311)
(63)
(18)

(1,415)
(112)
(25)

(4,750)

(380,143)

13,856

(5,535)

Notes
(a) 
(b) 

(c) 

Includes reinsurers’ share of claims outstanding of $1,094 million (31 December 2018: $1,280 million).
This comprises investment contracts with discretionary participation features of $633 million at 31 December 2019 (31 December 2018: $85,858 million) and investment contracts 
without discretionary participation features of $4,902 million at 31 December 2019 (31 December 2018: $24,481 million).
The total charge for benefits and claims from continuing operations in 2019 shown in the income statement comprises the amounts shown as ‘income and expense included in the 
income statement’ in the table above of $(55,510) million (2018: $2,450 million) together with claims paid of $(29,585) million (2018: $(26,926) million), net of amounts attributable 
to reinsurers of $1,190 million (2018: $1,050 million).

(d)  Other movements for 2019 are for continuing operations only and include premiums received and claims paid on investment contracts without discretionary participating features, 
which are taken directly to the statement of financial position in accordance with IAS 39 and changes in the unallocated surplus of with-profits funds resulting from the recapture of 
the intra-group reinsurance agreement between the with-profits discontinued UK and Europe operations and Asia insurance operations prior to the demerger, which is eliminated 
in the income statement for the continuing operations of the Group. For 2018, in addition to premiums received and claims paid on investment contracts without discretionary 
participating features, other movements also included the reclassification of the reinsured UK annuity business as held for sale at 31 December 2018 and the changes in the 
unallocated surplus of with-profits funds resulting from actuarial gains and losses on the Group’s defined benefit pension schemes allocated to the with-profits funds of the 
discontinued UK and Europe operations, which were recognised directly in other comprehensive income. 
The balances of the discontinued UK and Europe operations are removed from the opening balances to show the underlying movement from continuing operations. The 
$2,169 million of reinsurer’s share of insurance contract liabilities in the table above excluded the intra-group reinsurance assets of $1,412 million for the with-profits business ceded 
to the Asia insurance operations.

(e) 

(iv) Reinsurers’ share of insurance contract liabilities
The measurement of reinsurance assets is consistent with the measurement of the underlying direct insurance contracts. The treatment 
of any gains or losses arising on the purchase of reinsurance contracts is dependent on the underlying accounting basis of the entity 
concerned.

Insurance contract liabilities
Claims outstanding

Total

Analysed as:
From continuing operations
From discontinued UK and Europe operations

31 Dec 2019  $m

31 Dec 2018  $m

Asia
note (a)

5,311
147

5,458

US
note (b)

7,447
947

8,394

Unallocated 
to a segment

Total

Total

4
–

4

12,762
1,094

13,856

12,913
1,280

14,193

12,024
2,169

14,193

Notes
(a) 
(b) 

The reinsurers’ share of insurance contract liabilities for Asia primarily relates to protection business written in Hong Kong.
The reinsurer’s share of insurance contract liabilities for Jackson as shown in the table above primarily relates to certain fully collateralised former REALIC business retained 
by Swiss Re through 100 per cent reinsurance agreements. Apart from the reinsurance of REALIC business, the principal reinsurance ceded by Jackson outside the Group 
is on term-life insurance, direct and assumed accident and health business and GMIB variable annuity guarantees.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDThe Group cedes certain business to other insurance companies. Although the ceding of insurance does not relieve the Group from 
its liability to its policyholders, the Group participates in such agreements for the purpose of managing its loss exposure. The Group 
evaluates the financial condition of its reinsurers and monitors concentration of credit risk from similar geographic regions, activities 
or economic characteristics of the reinsurers to minimise its exposure from reinsurer insolvencies. Of the reinsurers’ share of insurance 
contract liabilities balance of $13,856 million at 31 December 2019 (31 December 2018: $12,024 million from continuing operations), 
97 per cent (31 December 2018: 95 per cent from continuing operations) of the balance was from reinsurers with rating A- and above 
by Standard & Poor’s or other external rating agencies. 

Net commissions received on ceded business and claims incurred ceded to external reinsurers for Asia totalled $355 million and 
$552 million respectively during 2019 (2018: $294 million and $362 million, respectively). Net commissions received on ceded business 
and claims incurred ceded to external reinsurers for Jackson totalled $20 million and $630 million respectively during 2019 (2018: 
$9 million and $653 million, respectively). There were no deferred gains or losses on reinsurance contracts for Asia and Jackson in either 
2019 or 2018.

C4.2 Asia insurance operations
(i) Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds

Balance at 1 January 2018
Comprising:

Shareholder-backed 
business

With-
profits
 business
$m

Unit-linked
 liabilities 
$m

Other
 business
$m

Total 
$m

49,292

27,093

23,505

99,890

– Policyholder liabilities on the consolidated statement of financial position
– Unallocated surplus of with-profits funds on the consolidated statement of financial 

44,592

22,001

18,496

85,089

position

– Group’s share of policyholder liabilities relating to joint ventures and associate note (a)

Premiums 

New business 
In-force

Surrenders note (b) 
Maturities/deaths

Net flows
Shareholders’ transfers post-tax
Investment-related items and other movements note (c)
Foreign exchange translation differences note (d)

Balance at 31 December 2018/1 January 2019
Comprising:

– Policyholder liabilities on the consolidated statement of financial position
– Unallocated surplus of with-profits funds on the consolidated statement of financial 

position

– Group’s share of policyholder liabilities relating to joint ventures and associate note (a)

Premiums 

New business 
In-force

Surrenders note (b) 
Maturities/deaths

Net flows
Shareholders’ transfers post-tax
Investment-related items and other movements note (c)
Foreign exchange translation differences note (d)

Balance at 31 December 2019

Comprising:

4,700
–

1,542
7,050

8,592
(451)
(1,245)

6,896
(87)
(2,110)
(288)

–
5,092

1,904
2,359

4,263
(2,542)
(187)

1,534
–
(1,903)
(1,020)

–
5,009

1,449
3,303

4,752
(736)
(1,209)

2,807
–
295
(606)

4,700
10,101

4,895
12,712

17,607
(3,729)
(2,641)

11,237
(87)
(3,718)
(1,914)

53,703

25,704

26,001

105,408

50,505

20,846

20,485

91,836

3,198
–

1,611
8,111

9,722
(546)
(1,632)

7,544
(99)
8,638
522

–
4,858

1,837
2,361

4,198
(2,929)
(149)

1,120
–
1,663
363

–
5,516

2,419
3,755

6,174
(681)
(1,019)

4,474
–
2,523
414

3,198
10,374

5,867
14,227

20,094
(4,156)
(2,800)

13,138
(99)
12,824
1,299

70,308

28,850

33,412

132,570

– Policyholder liabilities on the consolidated statement of financial position
– Unallocated surplus of with-profits funds on the consolidated statement of financial 

65,558

23,571

26,814

115,943

position

– Group’s share of policyholder liabilities relating to joint ventures and associate note (a)

Average policyholder liability balances note (e)

2019

2018

4,750
–

–
5,279

–
6,598

4,750
11,877

58,032

27,277

29,706

115,015

47,548

26,398

24,752

98,698

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C4.2 Asia insurance operations continued
Notes 
(a) 

The Group’s investment in joint ventures and associate are accounted for on an equity method and the Group’s share of the policyholder liabilities as shown above relate to the 
life business of the China JV, India and the Takaful business in Malaysia.
The rate of surrenders for shareholder-backed business (expressed as a percentage of opening policyholder liabilities) was 7.0 per cent in 2019 (2018: 6.6 per cent).
Investment-related items and other movements in 2019 primarily represent equity market gains from the with-profits business and effects from lower interest rates. 

(b) 
(c) 
(d)  Movements in the year have been translated at the average exchange rates for the year ended 31 December 2019. The closing balance has been translated at the closing spot rates 

(e) 

as at 31 December 2019. Differences upon retranslation are included in foreign exchange translation differences.
Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the year, 
and exclude unallocated surplus of with-profits funds. 

(ii) Duration of policyholder liabilities
The table below shows the carrying value of policyholder liabilities and the maturity profile of the cash flows on a discounted basis, taking 
account of expected future premiums and investment returns:

Policyholder liabilities

Expected maturity:

0 to 5 years
5 to 10 years
10 to 15 years
15 to 20 years
20 to 25 years
Over 25 years

31 Dec 2019
$m

31 Dec 2018
$m

115,943

91,836

31 Dec 2019 
%

31 Dec 2018 
%

18
18
15
13
11
25

20
19
15
12
10
24

(iii) Summary policyholder liabilities (net of reinsurance) and unallocated surplus
At 31 December 2019, the policyholder liabilities and unallocated surplus for Asia operations (excluding joint ventures and associate), net 
of external reinsurance of $5,458 million (31 December 2018: $3,537 million), comprised the following:

Hong Kong
Indonesia
Malaysia
Singapore
Taiwan
Other operations

Total Asia operations

31 Dec 2019 
$m

31 Dec 2018 
$m

58,800
4,933
7,725
27,427
6,801
9,549

115,235

43,997
4,687
6,937
23,121
5,353
7,402

91,497

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
 
 
C4.3 US insurance operations
(i) Analysis of movements in policyholder liabilities 

Balance at 1 January 2018
Premiums 
Surrenders
Maturities/deaths

Net flows
Addition for closed block of group payout annuities in the US
Transfers from general to separate account
Investment-related items and other movements 

Balance at 31 December 2018/1 January 2019
Premiums 
Surrenders
Maturities/deaths

Net flows note (a)
Transfers from general to separate account
Investment-related items and other movements note (b)

Balance at 31 December 2019

Average policyholder liability balances note (c)

2019

2018

Variable
 annuity
 separate
 account
 liabilities 
$m 

176,578
14,646
(11,746)
(1,449)

1,451
–
708
(15,436)

163,301
12,776
(12,767)
(1,564)

(1,555)
951
32,373

Fixed 
annuity,
 GICs and 
other 
business
$m 

67,905
3,967
(4,465)
(1,238)

(1,736)
5,532
(708)
2,086

73,079
8,200
(4,575)
(1,823)

1,802
(951)
549

Total
$m 

244,483
18,613
(16,211)
(2,687)

(285)
5,532
–
(13,350)

236,380
20,976
(17,342)
(3,387)

247
–
32,922

195,070

74,479

269,549

179,186

169,940

73,779

69,109

252,965

239,049

Notes 
(a) 

(b) 

(c) 

Net inflows in 2019 are $247 million with new inflows into fixed annuity, fixed index annuity and the general account exceeding withdrawals and surrenders on this business, 
partially offset by net outflows from variable annuity business as the portfolio matures. 
Positive investment-related items and other movements largely represent positive separate account returns following the increase in the US equity market in the year and asset 
gains arising from declining bond yields. 
Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the year.

(ii) Duration of policyholder liabilities
The table below shows the carrying value of policyholder liabilities and maturity profile of the cash flows on a discounted basis at the 
balance sheet date:

31 Dec 2019

31 Dec 2018

Policyholder liabilities

195,070

74,479

269,549

Variable
 annuity
 separate
account 
liabilities
$m

Fixed 
annuity, 
GICs and 
other 
business
$m

Total
$m

Variable
 annuity
 separate
account 
liabilities
$m

163,301

Fixed 
annuity, 
GICs and 
other 
business
$m

Total
$m

73,079

236,380

Expected maturity:

0 to 5 years
5 to 10 years
10 to 15 years
15 to 20 years
20 to 25 years
Over 25 years

% 

41
27
16
9
4
3

% 

45
27
13
8
4
3

% 

42
27
15
9
4
3

% 

40
28
16
9
4
3

% 

51
24
12
7
3
3

% 

43
27
15
8
4
3

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC4 Policyholder liabilities and unallocated surplus continued

C4.3 US insurance operations continued
(iii) Aggregate account values
The table below shows the distribution of account values for fixed annuities (fixed interest rate and fixed index), the fixed account portion 
of variable annuities, and interest-sensitive life business within the range of minimum guaranteed interest rates as described in note 
C4.4(b). As at 31 December 2019, approximately 87 per cent (31 December 2018: 87 per cent) of Jackson’s fixed annuities, variable 
annuity fixed account options and interest-sensitive life business account values correspond to crediting rates that are at the minimum 
guaranteed interest rates.

Minimum guaranteed interest rate

> 0% – 1.0%
> 1.0% – 2.0%
> 2.0% – 3.0%
> 3.0% – 4.0%
> 4.0% – 5.0%
> 5.0% – 6.0%

Total

Fixed annuities and the 
fixed account portion of 
variable annuities

Interest-sensitive  
life business

31 Dec 2019 
$m

31 Dec 2018 
$m

31 Dec 2019 
$m

31 Dec 2018 
$m

6,952
12,994
13,701
1,561
2,236
278

37,722

9,660
8,646
12,832
1,623
2,285
286

35,332

–
–
270
3,018
2,597
2,031

7,916

–
–
291
3,049
2,683
2,168

8,191

C4.4 Products and determining contract liabilities

C4.4(a) Asia

Contract type

Description and material features

Determination of liabilities

With-profits and 
participating 
contracts

Provides savings and/or protection where 
the basic sum assured can be enhanced by 
a profit share (or bonus) from the 
underlying fund as determined at the 
discretion of the Company.

With-profits contracts are predominantly sold in Hong Kong, 
Malaysia and Singapore. The total value of the with-profits 
funds is driven by the underlying asset valuation with 
movements reflected principally in the accounting value 
of policyholder liabilities and unallocated surplus.

Participating products often offer a 
guaranteed maturity or surrender value.
Declared regular bonuses are guaranteed 
once vested. Future bonus rates and cash 
dividends are not guaranteed. Market 
value adjustments and surrender penalties 
are used for certain products where the law 
permits such adjustments. Guarantees are 
predominantly supported by segregated 
life funds and their estates.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC4.4(a) Asia continued

Contract type

Description and material features

Determination of liabilities

Term, whole life 
and endowment 
assurance 

Non-participating savings and/or 
protection where the benefits are 
guaranteed, or determined by a set of 
defined market-related parameters.

These products often offer a guaranteed 
maturity and surrender value. It is common 
in Asia for regulations or market-driven 
demand and competition to provide some 
form of capital value protection and 
minimum crediting interest rate 
guarantees. This is reflected within the 
guaranteed maturity and surrender values. 
Guarantees are borne by shareholders.

Unit-linked

Combines savings with protection, the 
cash value of the policy depends on the 
value of the underlying unitised funds.

Health and 
protection

Health and protection features are offered 
as supplements to the products listed 
above or sold as standalone products. 
Protection covers mortality or morbidity 
benefits including health, disability, critical 
illness and accident coverage.

The approach to determining the contract liabilities is generally 
driven by the local solvency basis. A gross premium valuation 
method is used in those local businesses where a risk-based 
capital framework is adopted for local solvency. Under the 
gross premium valuation method, all cash flows are valued 
explicitly using best estimate assumptions with a suitable 
margin for prudence.

This is achieved either through adding an explicit allowance for 
assumptions to deviate from best estimate or by applying an 
overlay constraint so that on day one no negative reserves (ie 
where future premium inflows are expected to exceed prudent 
future claims and outflows) are derived at an individual 
policyholder level, or a combination of both.

In Vietnam, the Company uses an estimation basis aligned 
substantially to that used by the countries applying the gross 
premium valuation method.

For India and Taiwan, US GAAP is applied for measuring 
insurance liabilities. For these businesses, the future 
policyholder benefit provisions for non-linked business are 
determined using the net level premium method, with an 
allowance for surrenders, maintenance and claims expenses. 
Rates of interest used in establishing the policyholder benefit 
provisions vary by operation depending on the circumstances 
attaching to each block of business.

The Hong Kong business unit applies a net premium valuation 
method to determine the future policyholder benefit 
provisions.

The attaching liabilities reflect the unit value obligation driven 
by the value of the investments of the unit fund. Additional 
technical provisions are held for guaranteed benefits beyond 
the unit fund value using a gross premium valuation method. 
These additional provisions are recognised as a component 
of other business liabilities.

The determination of the liabilities of health and protection 
contracts are driven by the local solvency basis. A gross 
premium valuation method is used in those countries where 
a risk-based capital framework is adopted for local solvency. 
Under the gross premium valuation method, all cash flows are 
valued explicitly using best estimate assumptions with a 
suitable margin for prudence. 

This is achieved either through adding an explicit allowance for 
assumptions to deviate from best estimate or by applying an 
overlay constraint so that on day one no negative reserves (ie 
where future premium inflows are expected to exceed prudent 
future claims and outflows) are derived at an individual 
policyholder level, or a combination of both.

The Hong Kong business unit applies a net premium valuation 
method to determine the future policyholder benefit 
provisions.

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C4 Policyholder liabilities and unallocated surplus continued

C4.4 Products and determining contract liabilities continued

C4.4(b) US

Contract type

Description and material features

Determination of liabilities

Fixed interest 
rate annuities

At 31 December 
2019, fixed interest 
rate annuities 
accounted for 
6 per cent 
(31 December 
2018: 7 per cent) of 
Jackson’s policy 
and contract 
liabilities.

Fixed interest rate annuities are primarily 
deferred annuity products that are used for 
asset accumulation in retirement planning 
and for providing income in retirement.

As explained in note A4.1, all of Jackson’s insurance liabilities 
are based on US GAAP. An overview of the deferral and 
amortisation of acquisition costs for Jackson is provided in note 
C5.2(i)(b).

With minor exceptions, the following is applied to most of 
Jackson’s contracts. Contracts are accounted for as investment 
contracts as defined for US GAAP purposes by applying a 
retrospective deposit method to determine the liability for 
policyholder benefits. 

This is then augmented by:

 — Any amounts that have been assessed to compensate the 

insurer for services to be performed over future periods (ie 
deferred income);

 — Any amounts previously assessed against policyholders that 

are refundable on termination of the contract; and

 — Any probable future loss on the contract (ie premium 

deficiency).

Capitalised acquisition costs and deferred income for these 
contracts are amortised over the life of the book of contracts. 
See the variable annuity section below for further discussion.

The interest guarantees are not explicitly valued but are 
reflected as they are earned in the current account liability 
value.

The policyholder of a fixed interest rate 
annuity pays Jackson a premium, which is 
credited to the policyholder’s account. 
Periodically, interest is credited to the 
policyholder’s account and in some cases 
administrative charges are deducted 
from the policyholder’s account. Jackson 
makes benefit payments at a future date as 
specified in the policy based on the value of 
the policyholder’s account at that date. On 
more than 90 per cent (2018: 94 per cent) 
of in-force business, Jackson may reset the 
interest rate on each contract anniversary, 
subject to a guaranteed minimum, in line 
with state regulations. When the annuity 
matures, Jackson either pays the contract 
holder the account value or a series of 
payments in the form of an immediate 
annuity product.

The policy provides that at Jackson’s 
discretion it may reset the interest rate, 
subject to a guaranteed minimum. 

Approximately 65 per cent (31 December 
2018: 64 per cent) of the fixed interest rate 
annuities Jackson wrote in 2019 provide for 
a (positive or negative) market value 
adjustment (MVA) on surrender. This 
formula-based adjustment approximates 
the change in value that assets supporting 
the product would realise as interest rates 
move.

Guaranteed minimum interest rate. At 
31 December 2019, Jackson had fixed 
interest rate annuities totalling $15.9 billion 
(31 December 2018: $16.1 billion) in 
account value with minimum guaranteed 
rates ranging from 1.0 per cent to 
5.5 per cent and a 2.88 per cent average 
guaranteed rate (31 December 2018: 
1.0 per cent to 5.5 per cent and a 
2.91 per cent average guaranteed rate), 
depending on the particular product, 
jurisdiction where issued and the date of 
issue. 

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
C4.4(b) US continued

Contract type

Description and material features

Determination of liabilities

Fixed index 
annuities

At 31 December 
2019, fixed index 
annuities 
accounted for 
5 per cent 
(31 December 
2018: 5 per cent) of 
Jackson’s policy 
and contract 
liabilities. 

Fixed index annuities vary in structure but 
are generally deferred annuities that 
enable policyholders to obtain a portion of 
an equity-linked return (based on 
participation rates, caps and spreads), and 
provide a guaranteed minimum return. 

The liability for policyholder benefits that represent the 
guaranteed minimum return is determined similarly to the 
liabilities of the fixed interest annuity above. The equity-linked 
return option within the contract is treated as an embedded 
derivative liability under US GAAP and therefore this element 
of the liability is recognised at fair value. 

The liability for the lifetime income rider is determined each 
period end by estimating the expected value of benefits in 
excess of the projected account balance and recognising the 
excess on a prorated basis over the life of the contract based on 
total expected assessments.

Most fixed index annuities are subject to 
early surrender charges for the first five to 
12 years of the contract. During the 
surrender charge period, the contract 
holder may cancel the contract for the 
surrender value. Jackson offers a fully 
liquid fixed index annuity product that 
has no surrender charges. 

Jackson hedges the equity return risk on 
fixed index products using offsetting 
equity exposure in the variable annuity 
product. The cost of hedging is taken into 
account in setting the index participation 
rates, caps or spreads. 

Guaranteed minimum rates are generally 
set at 1.0 to 3.0 per cent. At 31 December 
2019, Jackson had fixed index annuities 
allocated to indexed funds totalling 
$9.8 billion (31 December 2018: 
$7.6 billion) in account value with minimum 
guaranteed rates on index accounts 
ranging from 1.0 per cent to 3.0 per cent 
and a 1.46 per cent average guaranteed 
rate (31 December 2018: 1.0 per cent to 
3.0 per cent and a 1.77 per cent average 
guarantee rate).

Jackson offers an optional lifetime income 
rider, which can be elected for an 
additional fee.

Jackson also offers fixed interest accounts 
on some fixed index annuity products. At 
31 December 2019, fixed interest accounts 
of fixed index annuities totalled $4.3 billion 
(31 December 2018: $3.4 billion) in 
account value.

Minimum guaranteed rates on fixed 
interest accounts range from 1.0 per cent to 
3.0 per cent and a 2.75 per cent average 
guaranteed rate (31 December 2018: 
1.0 per cent to 3.0 per cent and a 
2.58 per cent average guaranteed rate).

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C4.4 Products and determining contract liabilities continued

C4.4(b) US continued

Contract type

Description and material features

Determination of liabilities

The liability for future benefits is determined under US GAAP 
methodology for limited-payment contracts, using assumptions 
as of the acquisition date as to mortality and expense plus 
provisions for adverse deviation.

Group pay-out 
annuities

At 31 December 
2019, group 
pay-out annuities 
accounted for 
2 per cent 
(31 December 
2018: 2 per cent) 
of Jackson’s policy 
and contract 
liabilities. 

Group pay-out annuities consist of a block 
of defined benefit annuity plans assumed 
from John Hancock USA and John Hancock 
New York. A single premium payment from 
an employer (contract holder) funds the 
pension benefits for its employees 
(participants). The contracts are tailored 
to meet the requirements of the specific 
pension plan being covered. This is a 
closed block of business from two 
standpoints: (1) John Hancock USA and 
John Hancock New York are no longer 
selling new contracts, and (2) contract 
holders (companies) are no longer adding 
additional participants to these defined 
benefit pension plans. 

The contracts provide annuity payments 
that meet the requirements of the specific 
pension plan being covered. In some cases, 
the contracts have pre-retirement death 
and/or withdrawal benefits, pre-retirement 
surviving spouse benefits, and/or 
subsidised early retirement benefits.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC4.4(b) US continued

Contract type

Description and material features

Determination of liabilities

Variable annuities 

At 31 December 
2019, variable 
annuities 
accounted for 
78 per cent 
(31 December 
2018: 75 per cent) 
of Jackson’s policy 
and contract 
liabilities.

The general principles for fixed annuity and fixed index annuity 
also apply to variable annuities.

The impact of any fixed account interest guarantees is reflected 
as they are earned in the current account value.

Jackson regularly evaluates estimates used and adjusts the 
benefit guarantee liability balances, with a related charge or 
credit to benefit expense if actual experience or other evidence 
suggests that earlier assumptions should be revised. 

The benefit guarantee types are further set out below:

Benefits that are payable in the event of death (guaranteed 
minimum death benefit)
The liability for Guaranteed Minimum Death Benefit (GMDB) is 
determined at each period end by estimating the expected 
value of benefits in excess of the projected account balance and 
recognising the excess rateably over the life of the contract 
based on total expected assessments. At 31 December 2019, 
these liabilities were valued using a series of stochastic 
investment performance scenarios, a mean investment return 
of 7.4 per cent (31 December 2018: 7.4 per cent) net of external 
fund management fees, and assumptions for policyholder 
behaviour, mortality and expense.

Benefits that are payable upon the depletion of funds 
(guaranteed minimum withdrawal benefit)
The liability for the Guaranteed Minimum Withdrawal Benefit 
(GMWB) ‘for life’ portion is determined similarly to GMDB 
above.

Provisions for benefits under GMWB ‘not for life’ features are 
recognised at fair value under US GAAP.

Non-performance risk is incorporated into the fair value 
calculation through the use of discount interest rates sourced 
from an AA corporate credit curve as a proxy for Jackson’s own 
credit risk. Other risk margins, particularly for policyholder 
behaviour and long-term volatility, are also incorporated into 
the model through the use of explicitly conservative 
assumptions. On a periodic basis, Jackson validates the 
resulting fair values based on comparisons to other models and 
market movements.

The value of future fees to offset payments made under the 
guarantees are established so that on day one no gain arises.

Variable annuities are deferred annuities 
that have the same tax advantages and 
pay-out options as fixed interest rate and 
fixed index annuities. They are also used 
for asset accumulation in retirement 
planning and to provide income in 
retirement. 

The rate of return depends upon the 
performance of the selected fund portfolio. 
Policyholders may allocate their investment 
to either the fixed account or a selection of 
variable accounts. Most variable annuities 
are subject to early surrender charges for 
the first three to nine years of the contract. 
During the surrender charge period, the 
contract holder may cancel the contract for 
the surrender value. Jackson offers some 
fully liquid variable annuity products that 
have no surrender charges. Subject to 
benefit guarantees, investment risk on the 
variable account is borne by the 
policyholder, while investment risk on the 
fixed account is borne by Jackson through 
guaranteed minimum fixed rates of 
interest. At 31 December 2019, 4 per cent 
(31 December 2018: 5 per cent) of variable 
annuity funds were in fixed accounts.

Jackson had variable annuity funds in fixed 
accounts totalling $7.8 billion 
(31 December 2018: $8.1 billion) with 
minimum guaranteed rates ranging from 
1.0 per cent to 3.0 per cent and a 
2.19 per cent average guaranteed rate 
(31 December 2018: 1.0 per cent to 
3.0 per cent and a 1.7 per cent average 
guaranteed rate).

Jackson offers a choice of guaranteed 
benefit options within its variable annuity 
product portfolio, which can be elected for 
additional fees. These guaranteed benefits 
might be expressed as the return of either: 
(a) total deposits made to the contract 
adjusted for any partial withdrawals, (b) 
total deposits made to the contract 
adjusted for any partial withdrawals, plus a 
minimum return, or (c) the highest contract 
value on a specified anniversary date 
adjusted for any withdrawals following that 
contract anniversary.

Jackson hedges these risks using derivative 
instruments as described in note C7.3.

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C4.4 Products and determining contract liabilities continued

C4.4(b) US continued

Contract type

Description and material features

Determination of liabilities

Variable annuities 
continued

Benefits that are payable at annuitisation (guaranteed minimum 
income benefit)
This feature is no longer offered and existing coverage is 
substantially reinsured, subject to deductibles and annual claim 
limits.

The direct Guaranteed Minimum Income Benefit (GMIB) 
liability is determined by estimating the expected value of the 
annuitisation benefits in excess of the projected account 
balance at the date of annuitisation and recognising the excess 
rateably over the life of the contract based on total expected 
assessments. 

Guaranteed Minimum Income Benefits are reinsured, subject 
to a deductible and annual claim limits. Due to the net 
settlement provisions of the reinsurance agreement, under the 
‘grandfathered’ US GAAP, it is recognised at fair value with the 
change in fair value included as a component of short-term 
fluctuations. Volatility and non-performance risk is considered 
as per GMWB above.

Benefits that are payable at the end of a specified period 
(guaranteed minimum accumulation benefit)
This feature is no longer offered.

Provisions for Guaranteed Minimum Accumulation Benefit 
(GMAB) are recognised at fair value under US GAAP. Volatility 
and non-performance risk is considered as per GMWB above.

Deferred acquisition costs (DAC)
Capitalised acquisition costs and deferred income for these 
contracts are amortised over the life of the book of contracts. 
The majority of Jackson’s DAC relates to its variable annuities 
business.

The present value of the estimated gross profit is computed 
using the rate of interest that accrues to policyholder balances 
(sometimes referred to as the contract rate). 

Estimated gross profits for the fixed interest rate annuities, fixed 
index annuities and variable annuities include estimates of the 
following, each of which will be determined based on the best 
estimate of amounts over the life of the book of contracts 
without provision for adverse deviation:

 — Amounts expected to be assessed against policyholder 

balances for mortality less benefit claims in excess of related 
policyholder balances;

 — Amounts expected to be assessed for contract 
administration less costs incurred for contract 
administration;

 — Amounts expected to be earned from the investment of 

policyholder balances less interest credited to policyholder 
balances;

 — Amounts expected to be assessed against policyholder 

balances upon termination of contracts (sometimes referred 
to as surrender charges); 

 — Assumptions for the long-term investment return for the 

separate accounts and future hedge costs; and

 — Other expected assessments and credits.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC4.4(b) US continued

Contract type

Description and material features

Determination of liabilities

For term and traditional life insurance contracts, provisions for 
future policy benefits are determined under US GAAP using 
the net level premium method and assumptions as of the issue 
or acquisition date as to mortality, interest, policy lapses and 
expenses plus provisions for adverse deviation for directly sold 
business and assumptions at purchase for acquired business. 

For universal life and variable universal life a retrospective 
deposit method is used to determine the liability for 
policyholder benefits. This is then augmented by additional 
liabilities to account for no-lapse guarantees, profits followed 
by losses, contract features such as persistency bonuses, and 
cost of interest rate guarantees.

Institutional products are classified as investment contracts, 
and are accounted for as financial liabilities at amortised cost. 
The currency risk on contracts that represent currency 
obligations other than US dollars are hedged using cross-
currency swaps.

Life insurance

At 31 December 
2019, life insurance 
products 
accounted for 
7 per cent 
(31 December 
2018: 9 per cent) of 
Jackson’s policy 
and contract 
liabilities.

Institutional 
products

At 31 December 
2019, institutional 
products 
accounted for 
1 per cent 
(31 December 
2018: 1 per cent) of 
Jackson’s policy 
and contract 
liabilities. 

Jackson discontinued new sales of life 
insurance products in 2012.

Life products include term life, traditional 
life and interest-sensitive life (universal life 
and variable universal life).

 — Term life provides protection for a 
defined period and a benefit that is 
payable to a designated beneficiary 
upon death of the insured. 

 — Traditional life provides protection for 
either a defined period or until a stated 
age and includes a predetermined cash 
value.

 — Universal life provides permanent 

individual life insurance for the life of 
the insured and includes a savings 
element. 

 — Variable universal life is a type of life 

insurance policy that combines death 
benefit protection with the ability for 
the policyholder account to be invested 
in separate account funds.

Excluding the business that is subject to the 
retrocession treaties at 31 December 2019, 
Jackson had interest-sensitive life business 
in force with total account value of 
$7.9 billion (31 December 2018: 
$8.2 billion), with minimum guaranteed 
interest rates ranging from 2.5 per cent to 
6.0 per cent with a 4.68 per cent average 
guaranteed rate (31 December 2018: 
2.5 per cent to 6.0 per cent with a 
4.67 per cent average guaranteed rate).

Institutional products are: guaranteed 
investment contracts (GICs), funding 
agreements (including agreements issued 
in conjunction with Jackson’s participation 
in the US Federal Home Loan Bank 
programme) and Medium Term Note 
funding agreements. 

GICs feature a lump sum policyholder 
deposit on which interest is paid at a rate 
fixed at inception. Market value 
adjustments are made to the value of any 
early withdrawals.

Funding agreements feature either lump 
sum or periodic policyholder deposits. 
Interest is paid at a fixed or index linked 
rate. Funding agreements have a duration 
of between one and 30 years. In 2019 and 
2018 there were no funding agreements 
terminable by the policyholder with less 
than 90 days’ notice. 

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C5 Intangible assets

C5.1 Goodwill
Business combination
Business acquisitions are accounted for by applying the purchase method of accounting, which adjusts the net assets of the acquired 
company to fair value at the date of purchase. The excess of the acquisition consideration over the fair value of the assets and liabilities of 
the acquired business is recorded as goodwill. The Group chooses the full goodwill method or the partial goodwill method to calculate 
goodwill on an acquisition by acquisition basis. Expenses related to acquiring new subsidiaries are charged to the income statement in the 
period in which they are incurred and not included in goodwill. Income and expenses of acquired businesses are included in the income 
statement from the date of acquisition.

Where the Group writes a put option over its non-controlling interests as part of its business acquisition, which if exercised triggers the 

purchase by the Group of the non-controlling interests, the put option is recognised as a financial liability at the acquisition date with a 
corresponding amount, deducted directly from shareholder’s equity due to the significant risks and rewards of ownership remaining with 
the non-controlling interests. Any subsequent changes to the carrying amount of the put liability are also recognised within equity.

Goodwill
Goodwill is capitalised and carried on the Group consolidated statement of financial position as an intangible asset at initial value less any 
accumulated impairment losses. Goodwill impairment testing is conducted annually and when there is an indication of impairment.

Goodwill shown on the consolidated statement of financial position at 31 December 2019 is wholly attributable to shareholders and 
represents amounts allocated to businesses in Asia and Africa in respect of both acquired asset management and life businesses.

Carrying value at beginning of year
Demerger of UK and Europe operations
Additions in the year
Disposals/reclassifications to held for sale
Exchange differences

Carrying value at end of year

31 Dec 2019 
$m

31 Dec 2018 
$m

2,365
(1,731)
299
–
36

969

2,005
–
503
(13)
(130)

2,365

Impairment testing
Goodwill does not generate cash flows independently of other groups of assets and thus is assigned to cash-generating units for the 
purposes of impairment testing. These 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 for impairment by comparing the cash-generating unit’s carrying amount, including any goodwill, with its 

recoverable amount. The Group’s methodology of assessing whether goodwill may be impaired for acquired life and asset management 
operations is discussed below:

For acquired life businesses, the Company routinely compares the aggregate of net asset value and acquired goodwill on an IFRS 
basis of the acquired life business with the value of the current in-force business as determined using the EEV methodology. Any excess 
of IFRS value over EEV carrying value is then compared with EEV basis value of current and projected future new business to determine 
whether there is any indication that the goodwill in the IFRS statement of financial position may be impaired. The methodology and 
assumptions underpinning the Group’s EEV basis of reporting are included in the EEV basis supplementary information in this Annual 
Report.

The goodwill in respect of asset management businesses comprised mainly the goodwill arising from the acquisition of Thanachart 
Fund Management Co., Ltd. (TFUND) in 2019 and TMB Asset Management Co., Ltd. (TMBAM) in Thailand in 2018. At 31 December 
2019, the recoverable amount of these businesses has been determined by calculating the value in use of each of these businesses 
(considered to be the cash-generating units) using a discounted cash flow valuation.

For TMBAM, the discounted cash flow valuation is based on the latest three-year plan and cash flow projections for the later years. 
For TFUND, which was acquired in December 2019, the valuation is based on the 10-year cash flow projections used in assessing the 
acquisition. The value in use for these acquired asset management businesses is particularly sensitive to a number of key assumptions 
as follows:

 — The set of economic, market and business assumptions used to derive the cash flow projections for the businesses;
 — The assumed growth rate on forecast cash flows beyond the terminal year of the cash flow projections after considering expected 
future and past growth rates. At 31 December 2019, a growth rate of 2.25 per cent has been used to extrapolate beyond the 
projection period (2018: 2.25 per cent in respect of TMBAM);

 — The risk discount rate applied in accordance with the nature of the businesses. The pre-tax discount rate applied at 31 December 

2019 was 9 per cent (2018: 9 per cent in respect of TMBAM); and
 — The continuation of asset management contracts on similar terms.

Management believes that any reasonable change in the key assumptions would not cause the recoverable amount of the asset 
management businesses acquired to fall below its carrying amount.

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
C5.2 Deferred acquisition costs and other intangible assets 
Intangible assets acquired on the purchase of a subsidiary or portfolio of contracts are measured at fair value on acquisition. Deferred 
acquisition costs are accounted for as described in note A4.1(c). Other intangible assets, such as distribution rights and software, are 
valued initially at the price paid to acquire them and are subsequently carried at cost less amortisation and any accumulated impairment 
losses. For intangibles other than DAC, amortisation follows the pattern in which the future economic benefits are expected to be 
consumed. If the pattern cannot be determined reliably, a straight-line method is applied. For software, the amortisation generally 
represents the licence period of the software acquired. Amortisation of intangible assets is charged to the ‘acquisition costs and other 
expenditure’ line in the consolidated income statement. Impairment testing is conducted when there is an indication of impairment.

Deferred acquisition costs and other intangible assets attributable to shareholders

From continuing operations
From discontinued operations

Total note (i)

Other intangible assets, including computer software, attributable to with-profits funds

From continuing operations
From discontinued operations

Total

31 Dec 2019 
$m

31 Dec 2018 
$m

17,409
–

17,409

67
–

67

14,865
143

15,008

71
106

177

Total of deferred acquisition costs and other intangible assets

17,476

15,185

(i)  Deferred acquisition costs and other intangible assets attributable to shareholders
The deferred acquisition costs and other intangible assets attributable to shareholders comprise:

Deferred acquisition costs related to insurance contracts as classified under IFRS 4 
Deferred acquisition costs related to investment management contracts, including life assurance contracts 

classified as financial instruments and investment management contracts under IFRS 4

Deferred acquisition costs related to insurance and investment contracts note (ii)

Present value of acquired in-force policies for insurance contracts as classified under IFRS 4 (PVIF)
Distribution rights and other intangibles

Present value of acquired in-force (PVIF) and other intangibles attributable to shareholders note (iii)

Total of deferred acquisition costs and other intangible assets note (a)

31 Dec 2019 
$m

31 Dec 2018 
$m

14,206

12,758

33

99

14,239

12,857

38
3,132

3,170

43
2,108

2,151

17,409

15,008

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C5.2 Deferred acquisition costs and other intangible assets continued
Notes
(a) 

Total deferred acquisition costs and other intangible assets attributable to shareholders can be further analysed by business operations as follows:

31 Dec 2019  $m

31 Dec 2018  $m

Deferred acquisition costs

Asia 
insurance

1,610
–
615

(257)
–
(257)
–
31

US 
insurance*
note (b)

11,113
–
807

(297)
1,248
951
–
–

–

1,999

(631)

12,240

Discontinued
 UK and Europe
operations

PVIF and other
 intangibles†

Total

Total 

134
(134)
–

–
–
–
–
–

–

–

2,151
(9)
1,179

(238)
(5)
(243)
(11)
103

15,008
(143)
2,601

(792)
1,243
451
(11)
134

14,700
–
1,666

(1,370)
(156)
(1,526)
(19)
(141)

–

3,170

(631)

17,409

328

15,008

Balance at 1 January
Demerger of UK and Europe operations
Additions‡
Amortisation to the income statement:

Adjusted IFRS operating profit based on 
longer-term investment returns

Non-operating profit (loss)

Disposals and transfers
Exchange differences and other movements
Amortisation of DAC related to net unrealised 
valuation movements on the US insurance 
operation’s available-for-sale securities 
recognised within other comprehensive 
income

Balance at 31 December

* Under the Group’s application of IFRS 4, US GAAP is used for measuring the insurance assets and liabilities of its US and certain Asia operations. Under US GAAP, most of the US 

insurance operation’s products are accounted for under Accounting Standard no. 97 of the Financial Accounting Standards Board (FAS 97) whereby deferred acquisition costs are 
amortised in line with the emergence of actual and expected gross profits which are determined using an assumption for long-term investment returns for the separate account of 
7.4 per cent (2018: 7.4 per cent), gross of asset management fees and other charges to policyholders, but net of external fund management fees. The other assumption impacting 
expected gross profits include mortality assumptions, lapses, assumed unit costs and future hedge costs. The amounts included in the income statement and other comprehensive 
income affect the pattern of profit emergence and thus the DAC amortisation attaching. DAC amortisation is allocated to the operating and non-operating components of the 
Group’s supplementary analysis of profit and other comprehensive income by reference to the underlying items.

† PVIF and other intangibles comprise present value of acquired in-force (PVIF), distribution rights and other intangibles such as software rights. Distribution rights relate to amounts 
that have been paid or have become unconditionally due for payment as a result of past events in respect of bancassurance partnership arrangements in Asia. These agreements 
allow for bank distribution of Prudential’s insurance products for a fixed period of time. Software rights include additions of $51 million, amortisation of $(33) million, disposals of 
$5 million, foreign exchange of $2 million and closing balance at 31 December 2019 of $85 million (31 December 2018: $70 million for continuing operations).

‡ In January 2019, the Group renewed its regional strategic bancassurance alliance with United Overseas Bank Limited (UOB). The new agreement extends the original alliance, 

which commenced in 2010, to 2034 and increases the geographical scope to include a fifth market, Vietnam, alongside the existing markets of Singapore, Malaysia, Thailand and 
Indonesia. As part of this transaction, Prudential has agreed to pay UOB an initial fee of $853 million (equivalent to SGD1,150 million) for distribution rights which are not dependent 
on future sales volumes. Of the $853 million, $301 million was paid in 2019, with another two instalments being payable in 2020 and 2021. After allowing for discounting, the 
amount included in additions in the table above is $834 million.

(b) 

The DAC amount in respect of US arises in the insurance operations which comprises the following amounts: 

Variable annuity business
Other business
Cumulative shadow DAC (for unrealised gains/losses booked in other comprehensive income)*

Total DAC for US operations

31 Dec 2019 
$m

31 Dec 2018 
$m

12,406
529
(695)

12,240

10,796
381
(64)

11,113

* A loss of $(631) million (2018: a gain of $328 million) for shadow DAC amortisation is booked within other comprehensive income to reflect the impact from the positive unrealised 

valuation movement of $4,023 million (2018: negative unrealised valuation movement of $(2,159) million). These adjustments reflect the movement from year to year, in the 
changes to the pattern of reported gross profit that would have happened if the assets reflected in the statement of financial position had been sold, crystallising the unrealised 
gains and losses, and the proceeds reinvested at the yields currently available in the market. At 31 December 2019, the cumulative shadow DAC balance as shown in the table 
above was negative $(695) million (31 December 2018: negative $(64) million).

(c) 

Sensitivity of US DAC amortisation charge
The amortisation charge to the income statement in respect of the US DAC asset is reflected in both adjusted IFRS operating profit based on longer-term investment returns and 
short-term fluctuations in investment returns. The amortisation charge to adjusted IFRS operating profit based on longer-term investment returns in a reporting period comprises:
—  A core amount that reflects a relatively stable proportion of underlying premiums or profit; and
—  An element of acceleration or deceleration arising from market movements differing from expectations.
In periods where the cap and floor features of the mean reversion technique (which is used for moderating the effect of short-term volatility in investment returns) are not relevant, 
the technique operates to dampen the second element above. Nevertheless, extreme market movements can cause material acceleration or deceleration of amortisation in spite of 
this dampening effect.

Furthermore, in those periods where the cap or floor is relevant, the mean reversion technique provides no further dampening and additional volatility may result.
In 2019, the DAC amortisation charge for adjusted IFRS operating profit based on longer-term investment returns was determined after including a credit for decelerated 
amortisation of $280 million (2018: $259 million charge for acceleration). The deceleration arising in 2019 reflects a mechanical decrease in the projected separate account return 
for the next five years under the mean-reversion technique. Under this technique, the projected level of return for each of the next five years is adjusted so that, in combination with 
the actual rates of return for the preceding three years (including the current year), the assumed long-term annual separate account return of 7.4 per cent is realised on average over 
the entire eight-year period. The deceleration in DAC amortisation in 2019 is primarily driven by the actual separate account return in the year being higher than that assumed. 
The application of the mean reversion formula (described in note A4.1) has the effect of dampening the impact of equity market movements on DAC amortisation while the 

mean reversion assumption lies within the corridor. At 31 December 2019, it would take approximate movements in separate account values of more than either negative 
26 per cent or positive 49 per cent for mean reversion assumption to move outside the corridor.

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
 
 
 
 
 
 
 
 
 
(ii) Deferred acquisition costs related to insurance and investment contracts 
The movements in deferred acquisition costs relating to insurance and investment contracts are as follows:

2019  $m

2018  $m

Insurance
 contracts

Investment
 contracts
note

Insurance
 contracts

Investment
 contracts
note

Balance at 1 January 
Demerger of UK and Europe operations
Additions
Amortisation
Exchange differences
Change in shadow DAC related to movement in unrealised appreciation of 

debt securities classified as available-for-sale

Balance at 31 December

12,758
(62)
1,411
699
31

(631)

14,206

99
(72)
11
(5)
–

–

33

12,406
–
1,324
(1,266)
(34)

328

12,758

85
–
35
(16)
(5)

–

99

Note
All of the additions of investment contracts are through internal development. The carrying amount of the DAC balance comprises the following gross and accumulated amortisation 
amounts:

Gross amount
Accumulated amortisation

Carrying amount

(iii) PVIF and other intangibles attributable to shareholders 

31 Dec 2019 
$m

31 Dec 2018 
$m

34
(1)

33

231
(132)

99

Balance at 1 January
Cost
Accumulated amortisation

Demerger of UK and Europe 

operations

Additions
Amortisation charge
Disposals and transfers
Exchange differences and other 

movements

Balance at 31 December 

Comprising:
Cost
Accumulated amortisation

2019  $m

2018  $m

PVIF
note (a)

Distribution
 rights
note (b)

Other 
intangibles
 (including
 software)

Total

PVIF
note (a)

Distribution
 rights
note (b)

Other
 intangibles
 (including
 software)

295
(252)

43

(1)
–
(5)
–

1

38

175
(137)

38

2,546
(587)

1,959

–
1,110
(196)
–

98

2,971

3,783
(812)

2,971

399
(250)

149

3,240
(1,089)

2,151

(8)
69
(42)
(11)

4

161

(9)
1,179
(243)
(11)

103

3,170

379
(218)

161

4,337
(1,167)

3,170

307
(258)

49

–
–
(5)
–

(1)

43

295
(252)

43

2,426
(423)

2,003

–
242
(190)
–

(96)

1,959

2,546
(587)

1,959

491
(334)

157

–
65
(49)
(19)

(5)

149

399
(250)

149

Total

3,224
(1,015)

2,209

–
307
(244)
(19)

(102)

2,151

3,240
(1,089)

2,151

Notes
(a) 

All of the net PVIF balances relate to insurance contracts. The PVIF attaching to investment contracts have been fully amortised. Amortisation is charged over the period of 
provision of asset management services as those profits emerge. 

(b)  Distribution rights relate to fees paid in relation to the bancassurance partnership arrangements for the bank distribution of Prudential’s insurance products for a fixed period of 

time. The distribution rights amounts are amortised on a basis to reflect the pattern in which the future economic benefits are expected to be consumed by reference to new 
business production levels.

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C6 Borrowings

C6.1 Core structural borrowings of shareholder-financed businesses
Accounting principles
Although initially recognised at fair value, net of transaction costs, borrowings, excluding liabilities of consolidated collateralised debt 
obligations, 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.

Central operations:
Subordinated debt substituted to M&G plc in 2019:

£600m 5.56% (30 Jun and 31 Dec 2018: 5.0%) Notes 2055 note (i)
£700m 6.34% (30 Jun and 31 Dec 2018: 5.7%) Notes 2063 note (i)
£750m 5.625% Notes 2051
£500m 6.25% Notes 2068
US$500m 6.5% Notes 2048

Total subordinated debt substituted to M&G plc in 2019 note (ii)

Subordinated and other debt not substituted to M&G plc:

US$250m 6.75% Notes note (iii)
US$300m 6.5% Notes note (iii)

Perpetual Subordinated Capital Securities

US$700m 5.25% Notes
US$1,000m 5.25% Notes
US$725m 4.375% Notes
US$750m 4.875% Notes

31 Dec 2019 
$m

31 Dec 2018 
$m

–
–
–
–
–

–

250
300

550

700
996
721
744

753
886
947
634
498

3,718

250
299

549

700
993
720
743

Perpetual Subordinated Capital Securities

3,161

3,156

¤20m Medium Term Notes 2023
£435m 6.125% Notes 2031
£400m 11.375% Notes 2039 note (iv)

Subordinated notes

Subordinated debt total
Senior debt: note (v)

£300m 6.875% Bonds 2023
£250m 5.875% Bonds 2029

Bank loans note (vi)

$350m Loan 2024
£275m Loan 2022

Total debt not substituted to M&G plc in 2019

Total central operations
Jackson US$250m 8.15% Surplus Notes 2027 note (vii)

Total core structural borrowings of shareholder-financed businesses note (viii)

22
571
–

593

4,304

392
298

350
–

5,344

5,344
250

5,594

23
549
508

1,080

4,785

375
283

–
350

5,793

9,511
250

9,761

Notes
(i) 

(ii) 

(iii) 

(iv) 
(v) 
(vi) 

(vii) 

In 2019, the Group agreed with the holders of these two subordinated debt instruments that, in return for an increase in the coupon of the two instruments and upfront fees totalling 
$182 million for both instruments, they would permit the substitution of M&G plc as the issuer of the instruments, together with other modifications of terms to ensure the debt 
meet the requirements of Solvency II. In accordance with IAS 39, this has been accounted for as an extinguishment of the old debt and the issuance of new debt, recognised at fair 
value. The debt was substituted to M&G plc in October 2019. The $182 million of upfront fees have been paid by Prudential plc and have been treated as a non-operating expense 
from continuing operations.
In 2019, Prudential plc transferred subordinated debt to M&G plc as part of the demerger. In addition to the subordinated debt held at 31 December 2018 as shown in the table 
above, the debt transferred included the further £300 million 3.875 per cent subordinated debt raised in July 2019
These borrowings can be converted, in whole or in part, at the Company’s option and subject to certain conditions, on any interest payment date, into one or more series of 
Prudential preference shares.
In May 2019, the Company redeemed its £400 million 11.375 per cent Tier 2 subordinated notes.
The senior debt ranks above subordinated debt in the event of liquidation.
The bank loan of $350 million was drawn in November 2019 at a cost of LIBOR plus 0.2 per cent. The loan matures on 7 November 2024. The £275 million bank loan was repaid by 
the Group in October 2019. 
Jackson’s borrowings are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Jackson.

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C	FINANCIAL	POSITION	NOTES		CONTINUED(viii)  The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group (including both continuing and discontinued operations) are 

analysed below:

2019

2018

Cash movements  $m

Non-cash movements  $m

Balance at
beginning
of year

9,761

8,496

Issue
 of debt

 Redemption
 of debt

Payment 
for change 
to terms 
of debt

Foreign
exchange
movement 

Demerger 
of UK 
and Europe
operations

Other
 movements

367

2,079

(504)

(553)

(182)

(44)

298

(232)

(4,161)

–

15

15

Balance
at end
of year

5,594

9,761

Ratings 
Prudential plc has debt ratings from Standard & Poor’s, Moody’s and Fitch. Prudential plc’s long-term senior debt is rated A2 by Moody’s, 
A by Standard & Poor’s and A- by Fitch.

Prudential plc’s short-term debt is rated as P-1 by Moody’s, A-1 by Standard & Poor’s and F1 by Fitch.
Jackson National Life Insurance Company’s financial strength is rated AA- by Standard & Poor’s and Fitch, A1 by Moody’s and A+ by A.M. Best.
Prudential Assurance Co. Singapore (Pte) Ltd.’s (Prudential Singapore) financial strength is rated AA- by Standard & Poor’s. 
All the Group’s ratings are on a stable outlook. 

C6.2 Operational borrowings

Borrowings in respect of short-term fixed income securities programmes – commercial paper
Lease liabilities under IFRS 16 note (a)
Non-recourse borrowings of consolidated investment funds note (b)
Bank loans and overdrafts 
Finance lease liability under IAS 17 note (a)
Other

Other borrowings note (c)

Operational borrowings attributable to shareholder-financed businesses

Non-recourse borrowings of consolidated investment funds note (b)
Lease liabilities under IFRS 16 note (a)
Other borrowings

Operational borrowings attributable to with-profits businesses note (d)

Total operational borrowings

Analysed as:
Total from continuing operations
Total from discontinued UK and Europe operations

31 Dec 2019 
$m

31 Dec 2018 
$m

520
371
1,045
29
–
377

406

2,342

–
259
44

303

601
–
448
115
25
82

222

1,271

2,153
–
2,865

5,018

2,645

6,289

1,160
5,129

6,289

Notes
(a) 

The Group adopted IFRS 16 that replaces IAS 17 as at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated (as 
described in note A3). The finance lease liabilities recognised under IAS 17 in the comparative was principally held by the discontinued UK and Europe operations. Further details 
on the Group’s IFRS 16 adoption and operating leases are provided in notes A3 and C13.
In all instances, the holders of the debt instruments issued by consolidated investment funds do not have recourse beyond the assets of those funds.

(b) 
(c)  Other borrowings mainly include senior debt issued through the Federal Home Loan Bank of Indianapolis (FHLB), secured by collateral posted with the FHLB by Jackson. 
(d)  Operational borrowings attributable to with-profits businesses at 31 December 2018 were mainly attributable to the discontinued UK and Europe operations ($4,994 million) held 

in consolidated investment funds.

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C7 Risk and sensitivity analysis

C7.1 Group overview
The Group’s risk framework and the management of the risk, including those attached to the Group’s financial statements including 
financial assets, financial liabilities and insurance liabilities, together with the inter-relationship with the management of capital have 
been included in the audited sections of the ‘Group Chief Risk and Compliance Officer’s Report on the risks facing our business and how 
these are managed’. 

The financial and insurance assets and liabilities on the Group’s balance sheet are, to varying degrees, subject to market and insurance 

risk and other changes of experience assumptions that may have a material effect on IFRS basis profit or loss and shareholders’ equity. 
The market and insurance risks, including how they affect Group’s operations and how these are managed are discussed in the Risk 
report referred to above.

The most significant items that the IFRS shareholders’ profit or loss and shareholders’ equity for the Group’s life assurance business 
are sensitive to, are shown in the following tables. The distinction between direct and indirect exposure is not intended to indicate the 
relative size of the sensitivity.

Type of business

Market and credit risk

Insurance and lapse risk

Investments/derivatives

Liabilities/unallocated surplus

Other exposure

Asia insurance operations (see also section C7.2)

All business

With-profits business 

Net neutral direct exposure (indirect exposure only)

Unit-linked business 

Net neutral direct exposure (indirect exposure only)

Non-participating 
business 

Asset/liability mismatch risk 

Credit risk

Interest rates for those
operations where the basis 
of insurance liabilities is 
sensitive to current market 
movements

Interest rate and price risk

US insurance operations (see also section C7.3)

All business

Currency risk

Variable annuity 
business

Net effect of market risk arising from incidence of guarantee 
features and variability of asset management fees offset by 
derivative hedging programme

Fixed index annuity 
business

Fixed index annuities, 
Fixed annuities and  
GIC business

Derivative hedge
programme to the extent
not fully hedged against
liability 

Credit risk and interest rate 
risk on investments
Profit and loss and
shareholders’ equity are
volatile for the incidence of
these risks on unrealised
appreciation of fixed
income securities classified
as available-for-sale
under IAS 39

Incidence of equity 
participation features and 
meeting contractual 
accumulation 
requirements

Interest rate risk on 
liabilities (meeting 
guaranteed rates of 
accumulation on fixed 
annuity products)

Mortality and 
morbidity risk
Persistency risk

Investment performance 
subject to smoothing 
through declared 
bonuses

Investment performance 
through asset 
management fees

Persistency risk

Risk that utilisation of 
withdrawal benefits 
or lapse levels differ 
from those assumed 
in pricing

Minimal lapse risk

Spread difference 
between earned rate  
and rate credited to 
policyholders

Lapse risk, but the
effects of extreme
events may be 
mitigated by the 
application of
market value
adjustments

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C	FINANCIAL	POSITION	NOTES		CONTINUEDDetailed analyses of sensitivity of IFRS basis profit or loss and shareholders’ equity to key market and other risks by business unit are 
provided in notes C7.2, C7.3 and C7.4. The sensitivity analyses provided show the effect on profit or loss and shareholders’ equity to 
changes in the relevant risk variables, all of which are reasonably possible at the relevant balance sheet date. In the equity risk sensitivity 
analysis shown, the Group has considered the impact of an instantaneous 20 per cent fall in equity markets. If equity markets were to fall 
by more than 20 per cent, 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 hedge positions within Jackson, where equity risk is greatest, would be rebalanced. The equity risk 
sensitivity analysis provided assumes that all equity indices fall by the same percentage.

The published sensitivities only allow for limited management actions such as changes to policyholder bonuses, where applicable. If 
the economic conditions set out in the sensitivities persisted, the financial impacts may differ to the instantaneous impacts. In this case 
management could also take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing 
investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to new business 
pricing and the mix of new business being sold. 

Following the adoption of US dollar as the Group’s presentation currency, the Group has no exposure to currency fluctuation from 
business units that operate in US dollars, or currencies pegged to the US dollar (such as Hong Kong dollars), and reduced exposure to 
currencies partially managed to the US dollar within a basket of currencies (such as Singapore dollars). Sensitivities to exchange rate 
movements in the Group’s key markets are therefore expected to be limited.

Impact of diversification on risk exposure
The Group benefits from diversification benefits achieved through the geographical spread of the Group’s operations and, within those 
operations, through a broad mix of product types. Relevant correlation factors include:

 — Correlation across geographic regions for both financial and non-financial risk factors; and
 — Correlation across risk factors for longevity risk, expenses, persistency and other risks.

Other limitations on the sensitivities include: the use of hypothetical market movements to demonstrate potential risk that only represent 
Prudential’s view of reasonably possible near-term market changes and that cannot be predicted with any certainty; the assumption that 
interest rates in all countries move identically; and the lack of consideration of the inter-relation of interest rates, equity markets and 
foreign currency exchange rates. 

C7.2 Asia insurance operations
Exposure and sensitivity of IFRS basis profit and shareholders’ equity to market and other risks
The Asia operations sell with-profits and unit-linked policies, and the investment portfolio of the with-profits funds contains a proportion 
of equities. Shareholder exposure to market risk on these products is muted given the shareholders share this risk with the policyholders 
through its joint participation in with-profits funds results or through fees that vary with the size of the unit-linked funds. Non-
participating business is largely backed by debt securities or deposits, which means that value of its assets fluctuate with interest rates. 
Depending on the reserving basis in the business unit, this may be offset by a consequential change in insurance liabilities as discount 
rates change accordingly. The Group’s exposure to market risk arising from its Asia operations is therefore at modest levels. 

Asia also sells regular premium health and protection business (which may attach to a unit-linked or other savings products). This 

exposes Asia to persistency, mortality and morbidity risk. This is discussed further below. 

In summary, for Asia operations, the adjusted IFRS operating profit based on longer-term investment returns is mainly affected by the 

impact of market levels on unit-linked persistency and other insurance risks. At the total IFRS profit level, the Asia result is affected by 
short-term value movements on the asset portfolio for non-linked shareholder-backed business offset by the impact of changing interest 
rates on the discount rate used to determine insurance liabilities.

(i) Sensitivity to interest rate risk 
Excluding with-profits and unit-linked businesses, the results of the Asia business are sensitive to the movements in interest rates, as 
described above.

For the purposes of analysing sensitivity to variations in interest rates, reference has been made to the movements in the 10-year 
government bond rates of the regions. At 31 December 2019, 10-year government bond rates vary from region to region and range from 
0.7 per cent to 7.2 per cent (31 December 2018: 0.9 per cent to 8.1 per cent). 

For the sensitivity analysis as shown in the table below, the reasonably possible interest rate movement used is 1 per cent for all local 

business units (subject to a floor of zero). 

The estimated sensitivity to the decrease and increase in interest rates is as follows:

Profit before tax attributable to shareholders
Related deferred tax (where applicable)

Net effect on profit after tax and shareholders’ equity

2019  $m

2018  $m

Decrease 
of 1% 

Increase 
of 1% 

Decrease 
of 1% 

Increase 
of 1% 

(705)
3

(702)

(744)
26

(718)

397
(19)

378

(430)
33

(397)

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C7.2 Asia insurance operations continued
The pre-tax impacts, if they arose, would mostly be recorded within short-term fluctuations in investments returns in the Group’s 
segmental analysis of profit before tax. 

The degree of sensitivity of the results of the non-linked shareholder-backed business of the Asia operations to movements in interest 
rates depends upon the degree to which the liabilities under the ‘grandfathered’ IFRS 4 measurement basis reflects market interest rates 
from year to year. This varies by local business unit. For example, for businesses applying US GAAP, the results can be more sensitive as 
the effect of interest rate movements on the backing investments may not be offset by liability movements. Further, the level of options 
and guarantees in the products written in the particular business unit will also affect the degree of sensitivity to interest rate movements. 
The direction of the sensitivity of the Asia operations as a whole in a given year can also be affected by a change in the geographical mix. 

In addition, the degree of sensitivity of the results is dependent on the interest rate level at that point of time.
At 31 December 2018 the sensitivities were dominated by the impact of interest rate movements on the value of government and 
corporate bond investments, which are expected to increase in value as interest rates fall to a greater extent than the offsetting increase 
in liabilities (and vice versa if rates rise). This arises because the discount rate in some operations does not fluctuate in line with interest 
rate movements. This feature remains for most local business units at 31 December 2019 and is evident in the ‘increase of 1%’ sensitivity. 
The ‘decrease of 1%’ sensitivity at 31 December 2019 reflects that some local business units’ liabilities become more sensitive at lower 
interest rates and the fluctuations in liabilities begin to exceed asset gains. As noted above, the results only allow for limited management 
actions, and if such economic conditions persisted management could take additional actions to help mitigate the impact of these 
stresses, including (but not limited to) rebalancing investment portfolios, increased use of reinsurance, changes to new business pricing 
and the mix of new business being sold. 

(ii) Sensitivity to equity price risk
The non-linked shareholder-backed business has limited exposure to equity and property investment (31 December 2019: 
$3,480 million; 31 December 2018: $2,740 million). The increase in 2019 reflects higher equity markets and business growth. Generally, 
changes in equity and property investment values are not directly offset by movements in non-linked policyholder liabilities. Movements 
in equities backing with-profits and unit-linked business have been excluded as they are generally matched by an equal movement in 
insurance liabilities (including unallocated surplus of with-profits funds).  

The estimated sensitivity to a 10 per cent and 20 per cent change in equity and property prices for shareholder-backed Asia other 

business (including those held by the Group’s joint venture and associate businesses), which would be reflected in short-term 
fluctuations in investment returns of the Group’s segmental analysis of profit before tax, is as follows:

Profit before tax attributable to shareholders
Related deferred tax (where applicable)

Net effect on profit after tax and shareholders’ equity

2019  $m

2018  $m

Decrease 
of 20%

Decrease 
of 10%

Decrease 
of 20%

Decrease 
of 10%

(864)
48

(816)

(432)
24

(408)

(709)
21

(688)

(355)
10

(345)

A 10 or 20 per cent increase in equity and property values would have an approximately equal and opposite net effect on profit and 
shareholders’ equity to the sensitivities shown above. The impacts at 31 December 2019 are similar to those at 31 December 2018, and 
reflect the growth in the business. 

(iii) Sensitivity to insurance risk
In Asia, adverse persistency experience can impact the IFRS profitability of certain types of business written in the region. This risk is 
managed at a local business unit level through regular monitoring of experience and the implementation of management actions as 
necessary. These actions could include product enhancements, increased management focus on premium collection, as well as other 
customer retention efforts. The potential financial impact of lapses is often mitigated through the specific features of the products, 
eg surrender charges, or through the availability of premium holiday or partial withdrawal policy features. The reserving basis in Asia 
is such that a change in lapse assumptions has an immaterial effect on immediate profitability.

Many of the business units in Asia are exposed to mortality and morbidity risk and a provision is made within policyholder liabilities to 

cover the potential exposure. If all these assumptions were strengthened by 5 per cent then it is estimated that post-tax profit and 
shareholders’ equity would decrease by approximately $77 million (2018: $73 million). Weakening these assumptions by 5 per cent 
would have a similar equal and opposite impact.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC7.3 US insurance operations
Exposure and sensitivity of IFRS basis profit and shareholders’ equity to market and other risks
Jackson’s reported adjusted IFRS operating profit based on longer-term investment returns is sensitive to market conditions, both with 
respect to income earned on spread-based products and indirectly with respect to income earned on variable annuity asset management 
fees. Jackson’s main exposures to market risk are to interest rate risk and equity risk.

Jackson is exposed primarily to the following risks:

Risks

Equity risk

Risk of loss

 — Related to the incidence of benefits related to guarantees issued in connection with its variable 

annuity contracts; and

 — Related to meeting contractual accumulation requirements in fixed index annuity contracts.

Interest rate risk

 — Related to meeting guaranteed rates of accumulation on fixed annuity and interest sensitive life 

products following a sustained fall in interest rates;

 — Related to increases in the present value of projected benefits related to guarantees issued in 

connection with its variable annuity contracts following a sustained fall in interest rates especially 
if in conjunction with a fall in equity markets;

 — Related to the surrender value guarantee features attached to the Company’s fixed annuity and 
interest sensitive life products and to policyholder withdrawals following a sharp and sustained 
increase in interest rates; and

 — The risk of mismatch between the expected duration of certain annuity liabilities and prepayment 

risk and extension risk inherent in mortgage-backed securities.

A prolonged low interest rate environment may result in a lengthening of maturities of the fixed annuity and interest-sensitive life contract 
holder liabilities from initial estimates, primarily due to lower policy lapses. As interest rates remain at low levels, Jackson may also have to 
reinvest the cash it receives as interest or proceeds from investments that have matured or that have been sold at lower yields, reducing 
its investment margins. Moreover, borrowers may prepay or redeem the securities in their investment portfolios with greater frequency 
in order to borrow at lower market rates, which exacerbates this risk. The majority of Jackson’s fixed annuities, variable annuity fixed 
account options and life products were designed with contractual provisions that allow crediting rates to be re-set annually, subject to 
minimum crediting rate guarantees. 

Jackson’s derivative programme, which is described in note C3.4(b), is used to manage the economic interest rate risk associated with 
a broad range of products and equity market risk attaching to its equity-based products. Movements in equity markets, equity volatility, 
interest rates and credit spreads materially affect the carrying value of derivatives that are used to manage the liabilities to policyholders 
and backing investment assets. Movements in the carrying value of derivatives combined with the use of US GAAP measurement (as 
‘grandfathered’ under IFRS 4) for the insurance contracts assets and liabilities, which is largely insensitive to current period market 
movements, mean that the Jackson total profit (ie including short-term fluctuations in investment returns) is sensitive to market 
movements. In addition to these effects the Jackson shareholders’ equity is sensitive to the impact of interest rate and credit spread 
movements on the value of fixed income securities. Movements in unrealised appreciation on these securities are included as movement 
in shareholders’ equity (ie outside the income statement). 

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C7 Risk and sensitivity analysis continued

C7.3 US insurance operations continued
(i) Sensitivity to equity risk
Jackson had variable annuity contracts with guarantees, for which the net amount at risk (NAR) is defined as the amount of guaranteed 
benefit in excess of current account value, as follows:

31 Dec 2019

Return of net deposits plus a minimum return

GMDB
GMWB – premium only
GMWB*
GMAB – premium only

Highest specified anniversary account value minus withdrawals 

post-anniversary
GMDB
GMWB – highest anniversary only
GMWB*

Combination net deposits plus minimum return, highest 

specified anniversary account value minus withdrawals 
post-anniversary
GMDB
GMIB†
GMWB*

31 Dec 2018

Return of net deposits plus a minimum return

GMDB
GMWB – premium only
GMWB*
GMAB – premium only

Highest specified anniversary account value minus withdrawals 

post-anniversary
GMDB
GMWB – highest anniversary only
GMWB*

Combination net deposits plus minimum return, highest 

specified anniversary account value minus withdrawals 
post-anniversary
GMDB
GMIB†
GMWB*

Minimum
 return‡
%

Account 
value
$m

Net amount
 at risk
$m

Weighted
 average
 attained age
Years

Period until 
 expected
 annuitisation 
Years

0-6%
0%
0-5%‡
0%

150,576
2,753
257
37

12,547
3,232
698

0-6%
0-6%
0-8%‡

8,159
1,688
140,529

2,477
16
14
–

69
51
52

687
616
7,160

66.9 years

67.7 years

70.0 years

0.5 years

Minimum
 return‡
%

Account 
value
$m

Net amount
 at risk
$m

Weighted
 average
 attained age
Years

Period until 
 expected
 annuitisation 
Years

0-6%
0%
0-5%‡
0%

125,644
2,450
251
34

10,865
2,827
682

66.5 years

67.1 years

5,652
80
25
–

1,418
400
113

0-6%
0-6%
0-8%‡

6,947
1,599
116,902

1,550
825
21,442

69.5 years

0.1 years

* Amounts shown for GMWB comprise sums for the ‘not for life’ portion (where the guaranteed withdrawal base less the account value equals to the net amount at risk (NAR)), and a ‘for 
life’ portion (where the NAR has been estimated as the present value of future expected benefit payment remaining after the amount of the ‘not for life’ guaranteed benefits is zero). 

† The GMIB guarantees are substantially reinsured.
‡ Ranges shown based on simple interest. The upper limits of 5 per cent or 8 per cent simple interest are approximately equal to 4.1 per cent and 6 per cent respectively, on a compound 

interest basis over a typical 10-year bonus period. For example 1 + 10 x 0.05 is similar to 1.04 growing at a compound rate of 4 per cent for a further nine years. The “Combination GMWB” 
category also includes benefits with a defined increase in the withdrawal percentage under pre-defined non-market conditions. 

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
 
 
 
Account balances of contracts with guarantees were invested in variable separate accounts as follows:

Mutual fund type:

Equity
Bond
Balanced
Money market

Total

31 Dec 2019 
$m

31 Dec 2018 
$m

121,520
19,341
30,308
956

172,125

99,834
17,705
25,349
1,049

143,937

As noted above, Jackson is exposed to equity risk through the options embedded in the fixed index annuity liabilities and guarantees 
included in certain variable annuity benefits as illustrated above. This risk is managed using an equity hedging programme to minimise 
the risk of a significant economic impact as a result of increases or decreases in equity market levels. Jackson purchases futures and 
options that hedge the risks inherent in these products, while also considering the impact of rising and falling guaranteed benefit fees.

Due to the nature of valuation under IFRS of the free-standing derivatives and the variable annuity guarantee features, this hedge, while 

highly effective on an economic basis, would not automatically offset within the financial statements as the impact of equity market 
movements resets the free-standing derivatives immediately while the hedged liabilities reset more slowly and fees are recognised 
prospectively in the period in which they are earned. Jackson’s hedging programme is focused on managing the economic risks in the 
business and protecting statutory solvency in the circumstances of large market movements. The hedging programme does not aim to 
hedge IFRS accounting results, which can lead to volatility in the IFRS results in a period of significant market movements, as was seen 
in 2019. 

In addition to the exposure explained above, Jackson is also exposed to equity risk from its holding of equity securities, partnerships in 

investment pools and other financial derivatives.

The estimated sensitivity of Jackson’s profit and shareholders’ equity to immediate increases and decreases in equity markets is 

shown below. The sensitivities are shown net of related changes in DAC amortisation.

Sensitivity to equity risk – Jackson

2019  $m

2018  $m

Decrease

Increase

Decrease

Increase

of 20% 

of 10% 

of 20% 

of 10% 

of 20% 

of 10% 

of 20% 

of 10% 

Profit before tax (net of related 

changes in amortisation of DAC) 

Related deferred tax

Net effect on profit after tax and 

shareholders’ equity*

964
(202)

256
(54)

1,848
(388)

770
(162)

1,347
(282)

544
(115)

74
(15)

(159)
33

762

202

1,460

608

1,065

429

59

(126)

* The table above has been prepared to exclude the impact of the instantaneous equity movements on the separate account fees. The sensitivity movements shown include those relating 

to the fixed index annuity and the reinsurance of GMIB guarantees. 

The above sensitivities assume instantaneous market movements while the actual impact on financial results would vary contingent upon 
the volume of new product sales and lapses, changes to the derivative portfolio, correlation of market returns and various other factors 
including volatility, interest rates and elapsed time. 

The directional movements in the sensitivities reflect the hedging programme in place at 31 December 2019 and 2018 respectively. 

The impacts shown under a decrease in equity markets reflect the mismatch discussed in note B1.2(ii)(a), with the gains on equity 
derivatives exceeding the increase in IFRS liabilities given the measurement basis applied. Following the equity market gains during 
2019, the equity call options held at 31 December 2019 act to limit losses on equity derivatives under equity market increases. If equity 
markets therefore increase the main effect is a reduction in liabilities as guarantees move further out-of-the-money. The sensitivities 
above reflect the actual hedging portfolio at 31 December 2019 and the nature of Jackson’s dynamic hedging programme means that the 
portfolio, and hence the results of these sensitivities, will change on an ongoing basis.

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C7 Risk and sensitivity analysis continued

C7.3 US insurance operations continued
(ii) Sensitivity to interest rate risk
Except in the circumstances of interest rate scenarios where the guarantee rates included in contract terms are higher than crediting rates 
that can be supported from assets held to cover liabilities, the IFRS measurement basis of fixed annuity liabilities of Jackson’s products is not 
generally sensitive to interest rate risk. This position derives from the nature of the products and the US GAAP basis of measurement. The 
GMWB features attached to variable annuity business (other than ‘for life’ components) are accounted for under US GAAP at fair-value 
and, therefore, will be sensitive to changes in interest rates, as discount rates and fund earned rates will be updated on an ongoing basis.
Debt securities and related derivatives are marked to fair value. Value movements on derivatives, again net of related changes to 
amortisation of DAC and deferred tax, are recorded within the income statement. Fair value movements on debt securities, net of related 
changes to amortisation of DAC and deferred tax, are recorded within other comprehensive income. The estimated sensitivity of these items 
and policyholder liabilities to a 1 per cent and 2 per cent decrease (with no floor of zero applied) and increase in interest rates is as follows:

2019  $m

2018  $m

Decrease

Increase

Decrease

Increase

of 2%

of 1%

of 2%

of 1%

of 2%

of 1%

of 2%

of 1%

Profit or loss:

Profit before tax (net of related 
changes in amortisation of 
DAC)

Related deferred tax

Net effect on profit after tax

Other comprehensive income:

Direct effect on carrying value of 
debt securities (net of related 
changes in amortisation of 
DAC)

Related deferred tax

Net effect on other comprehensive 

(6,238)
1,310

(2,815)
591

(4,928)

(2,224)

3,914
(822)

3,092

2,141
(450)

1,691

(4,502)
945

(3,557)

(2,188)
460

(1,728)

2,815
(591)

2,224

1,530
(321)

1,209

5,342
(1,122)

2,840
(596)

(5,342)
1,122

(2,840)
596

5,265
(1,105)

2,988
(628)

(5,265)
1,105

(2,988)
628

income

4,220

2,244

(4,220)

(2,244)

4,160

2,360

(4,160)

(2,360)

Total net effect on shareholders’ 

equity

(708)

20

(1,128)

(553)

603

632

(1,936)

(1,151)

These sensitivities above are shown for interest rates in isolation only and do not include other movements in credit risk that may affect 
credit spreads and valuations of debt securities. Similar to the sensitivity to equity risk, the sensitivity movements provided in the table 
above are at a point in time and reflect the hedging programme in place on the balance sheet date, while the actual impact on financial 
results would vary contingent upon a number of factors. The increase in the magnitude of the sensitivities at 31 December 2019 mainly 
reflects the lower interest rates at 31 December 2019 and the consequential reduction on assumed future separate account return, that is 
based on risk-free rates under grandfathered US GAAP. This has the effect of the IFRS liability reflecting a greater potential for 
policyholder payments under the variable annuity guarantees as interest rates fall. Jackson’s hedging programme is focused on 
managing the economic risks in the business and protecting statutory solvency under large market movements, and does not aim to 
hedge the IFRS accounting results.

(iii) Sensitivity to insurance risk
Jackson is sensitive to mortality risk, lapse risk and other types of policyholder behaviour, such as the utilisation of its GMWB product 
features. Jackson’s persistency assumptions reflect a combination of recent experience for each relevant line of business and expert 
judgement, especially where a lack of relevant and credible experience data exists. These assumptions vary by relevant factors, such as 
product, policy duration, attained age and for variable annuity lapse assumptions, the extent to which guaranteed benefits are ‘in the 
money’ relative to policy account values. Changes in these assumptions, which are assessed on an annual basis after considering recent 
experience, could have a material impact on policyholder liabilities and therefore on profit before tax. Any changes in these assumptions 
are recorded within short-term fluctuations in investment returns in the Group’s supplementary analysis of profit (see note B1.2).

In addition, in the absence of hedging, equity and interest rate movements can both cause a loss directly or an increased future 

sensitivity to policyholder behaviour. Jackson has an extensive derivative programme that seeks to manage the exposure to such altered 
equity markets and interest rates.

Note A4.1 describes the methodology applied by Jackson to amortise deferred acquisition costs. The amount of amortisation charged 

in any one period is sensitive to separate account investment returns. 

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC7.4 Asset management and other operations
(i)  Asset management 
The profit for the year of asset management operations are sensitive to the level of assets under management, as this significantly affects 
the value of management fees earned by the business in the current and future years. The Group’s asset management operations do not 
hold significant financial investments.

(ii) Other operations
At 31 December 2019, the financial investments of the other operations are principally short-term treasury bills held by the Group’s 
treasury function for liquidity purposes and so there is limited sensitivity to credit risk and interest rate movements.

C8 Tax assets and liabilities

Accounting policies on deferred tax are included in note B4.

C8.1 Current tax 
At 31 December 2019, of the $492 million (31 December 2018: $476 million from continuing operations) current tax recoverable, 
the majority is expected to be recovered more than twelve months after the reporting period. 

At 31 December 2019, the current tax liability of $396 million (31 December 2018: $411 million from continuing operations) includes 

$198 million (31 December 2018: $190 million from continuing operations) of provisions for uncertain tax matters. Further detail is 
provided in note B4. 

C8.2 Deferred tax
The statement of financial position contains the following deferred tax assets and liabilities in relation to:

2019  $m

Balance at 
1 Jan

Demerger of 
UK and Europe
 operations

Movement 
in income
 statement

Movement
 through other
 compre-
hensive
 income and
 equity

Other
 movements
 including
 foreign
 currency
 movements

Balance at 
31 Dec

Deferred tax assets
Unrealised losses or gains on investments
Balances relating to investment and insurance 

contracts

Short-term temporary differences
Capital allowances
Unused tax losses

Total

Deferred tax liabilities
Unrealised losses or gains on investments
Balances relating to investment and insurance 

contracts

Short-term temporary differences
Capital allowances

Total

–

(16)

144

1
2,979
19
162

3,305

–
(146)
(14)
–

(160)

(1,104)

1,053

(1,276)
(2,671)
(71)

(5,122)

–
233
65

1,351

60
1,069
(3)
8

1,118

(231)

(246)
(414)
–

(891)

–

–
(15)
–
–

(15)

(713)

–
19
–

(694)

(128)

(29)
1
(1)
(16)

(173)

118

15
(14)
–

119

–

32
3,888
1
154

4,075

(877)

(1,507)
(2,847)
(6)

(5,237)

Of the short-term temporary differences of $3,888 million relating to deferred tax assets, $3,068 million relating to the US insurance 
operations is expected to be recovered in line with the run off of the in-force book, and the majority of the remaining balances are 
expected to be recovered within 5 years.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationC8 Tax assets and liabilities continued

C8.2 Deferred tax continued
The deferred tax balances are further analysed as follows:

Asia operations
US operations
Other operations

Total continuing operations
Discontinued UK and Europe operations

Total Group

Deferred tax assets

Deferred tax liabilities

31 Dec 2019 
$m

31 Dec 2018 
$m

31 Dec 2019 
$m

31 Dec 2018 
$m

270
3,804
1

4,075
–

4,075

152
2,923
70

3,145
160

3,305

(2,146)
(3,091)
–

(5,237)
–

(5,237)

(1,601)
(2,150)
(20)

(3,771)
(1,351)

(5,122)

The taxation regimes applicable across the Group often apply separate rules to trading and capital profits and losses. The distinction 
between temporary differences that arise from items of either a trading or capital nature may affect the recognition of deferred tax assets. 
For the 2019 results and financial position at 31 December 2019, the following tax benefits and losses have not been recognised:

31 Dec 2019  $m

31 Dec 2018  $m

Tax benefits

Losses

Tax benefits

Losses

Trading losses
Capital losses

36
1

175
5

61
55

1
7

62
62

301
270

6
38

307
308

Continuing Discontinued

Total group

Continuing Discontinued

Total group

Of the benefit from unrecognised trading losses, $34 million will expire within the next ten years and the rest have no expiry date. 

Some of the Group’s businesses are located in jurisdictions in which a withholding tax charge is incurred upon the distribution of 
earnings. At 31 December 2019, deferred tax liabilities of $247 million (2018: $149 million from continuing operations) have not been 
recognised in respect of such withholding taxes as the Group is able to control the timing of the distributions and it is probable that the 
timing differences will not reverse in the foreseeable future.

C9 Defined benefit pension schemes

The Group has historically operated a number of defined benefit pension schemes in the UK, with all pension surplus and deficit 
attributable to subsidiaries of M&G plc except for 30 per cent of the surplus attaching to the Prudential Staff Pension Scheme (PSPS), 
which was allocated to Prudential plc. In preparation for the demerger of M&G plc, at 30 June 2019, the 30 per cent of surplus attaching to 
PSPS was formally reallocated to M&GPrudential Services Limited. All UK schemes left the Group upon the demerger of M&G plc 
and Prudential plc will incur no further costs in respect of these schemes. Outside of the UK, there are two small defined benefit schemes 
in Taiwan which have negligible deficits.

C10 Share capital, share premium and own shares

Shares are classified as equity when their terms do not create an obligation to transfer assets. Amounts recorded in share capital represent 
the nominal value of the shares issued. The difference between the proceeds received on issue of the shares, net of share issue costs, and 
the nominal value of the shares issued, is credited to share premium. Where the Company purchases shares for the purposes of employee 
incentive plans, the consideration paid, net of issue costs, is deducted from retained earnings. Upon issue or sale any consideration 
received is credited to retained earnings net of related costs.

Issued shares of 5p each fully paid

2019

Number of 
ordinary
 shares

Share capital
$m

Share premium
$m

Number of
 ordinary
 shares

2018

Share capital
$m

Balance at 1 January
Shares issued under share-based schemes
Impact of change in presentation currency

2,593,044,409
8,115,540
–

Balance at 31 December

2,601,159,949

166
–
6

172

2,502
22
101

2,587,175,445
5,868,964
–

2,625

2,593,044,409

175
1
(10)

166

Share 
premium
$m

2,635
22
(155)

2,502

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C	FINANCIAL	POSITION	NOTES		CONTINUEDOptions outstanding under save as you earn schemes to subscribe for shares at each year end shown below are as follows: 

31 Dec 2019

31 Dec 2018

Number of
 shares to
 subscribe for

3,805,447

4,885,804

 Share price range

from

1,104p

901p

to 

Exercisable 
by year

1,455p

1,455p

2025

2024

Transactions by Prudential plc and its subsidiaries in Prudential plc shares
The Group buys and sells Prudential plc shares (‘own shares’) either in relation to its employee share schemes or up until the demerger of 
its UK and Europe operations via transactions undertaken by authorised investment funds that the Group is deemed to control. The cost 
of own shares of $183 million at 31 December 2019 (31 December 2018: $217 million) is deducted from retained earnings. The Company 
has established trusts to facilitate the delivery of shares under employee incentive plans. At 31 December 2019, 8.4 million (31 December 
2018: 9.6 million) Prudential plc shares with a market value of $161 million (31 December 2018: $172 million) were held in such trusts, all 
of which are for employee incentive plans. The maximum number of shares held during the year was 14.1 million which was in March 
2019.

Within the trusts, shares are notionally allocated by business unit reflecting the employees to which the awards were made. On 

demerger, shares allocated to M&G plc were transferred to a separate trust established by M&G plc.

The Company purchased the following number of shares in respect of employee incentive plans. The shares purchased each month 

are as follows:

January
February
March
April
May
June
July
August
September
October
November
December

Total

Number
of shares

75,165
71,044
68,497
2,638,429
73,417
217,800
60,514
72,671
73,284
178,359
75,904
68,573

3,673,657

2019

Share price

Low
£

14.25
15.00
15.20
15.65
16.35
16.20
17.47
14.86
14.14
13.78
13.38
13.07

High
£

14.29
15.18
16.32
16.73
16.45
16.36
17.71
15.21
14.76
14.24
13.85
13.13

Cost*
$

1,384,926
1,390,865
1,385,182
54,052,710
1,550,109
4,484,773
1,321,427
1,318,593
1,318,767
3,148,811
1,309,146
1,178,206

Number
of shares

51,555
55,765
55,623
1,664,334
63,334
181,995
55,888
60,384
82,612
148,209
67,162
73,744

73,843,515

2,560,605

2018

Share price

Low
£

19.18
17.91
18.25
16.67
18.91
18.21
17.68
18.04
16.95
15.62
15.95
13.99

High
£

19.40
18.10
18.54
17.95
19.38
18.65
17.86
18.10
16.98
16.84
15.96
14.30

Cost*
$

1,378,409
1,402,089
1,432,155
40,997,710
1,636,433
4,432,511
1,308,608
1,404,285
1,829,814
3,223,238
1,382,514
1,323,949

61,751,715

* The cost in US dollars for the shares purchased each month shown has been calculated from the share prices in pounds sterling using the monthly average exchange rate. 

Prior to the demerger of UK and Europe operations in October 2019, the Group consolidated a number of authorised investment funds 
of M&G plc that hold shares in Prudential plc. In the prior year, at 31 December 2018, the total number of shares held by these funds was 
3.0 million and the cost of acquiring these shares of $25 million was included in the cost of own shares. The market value of these shares 
as at 31 December 2018 was $53 million. These funds were deconsolidated upon the demerger.

All share transactions were made on an exchange other than the Stock Exchange of Hong Kong.
Other than set out above, the Group did not purchase, sell or redeem any Prudential plc listed securities during 2019 or 2018.

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C11 Provisions

Provision in respect of defined benefit pension schemes C9
Other provisions note

Total provisions

Analysed as:
Continuing operations
Discontinued UK and Europe operations

Note
Analysis of movement in other provisions:

Balance at 1 January
Demerger of UK and Europe operations
Charged to income statement:
Additional provisions
Unused amounts released

Utilisation during the year
Exchange differences

Balance at 31 December

31 Dec 2019 
$m

31 Dec 2018 
$m

1
465

466

2019 
$m

1,151
(725)

188
(7)
(154)
12

465

222
1,151

1,373

427
946

1,373

2018 
$m

1,275
–

307
(24)
(349)
(58)

1,151

Other provisions for continuing operations comprise staff benefits provisions of $408 million (31 December 2018: $364 million) that are 
generally expected to be paid out within the next three years and other provisions of $57 million (31 December 2018: $63 million).

C12 Capital

C12.1 Group objectives, policies and processes for managing capital
(i) Capital measure
The Group manages its Group LCSM available capital as its measure of capital. At 31 December 2019 estimated Group shareholder 
LCSM available capital is $14.0 billion (31 December 2018: $13.5 billion).

(ii) External capital requirements
Following the demerger of the UK and Europe operations from Prudential plc, the Hong Kong Insurance Authority (IA) has assumed 
the role of the group-wide supervisor for the Prudential Group with the Group no longer subject to Solvency II capital requirements. 
Ultimately, Prudential plc will become subject to the Group Wide Supervision (GWS) framework which is currently under development 
by the Hong Kong IA and is expected to be finalised in the second half of 2020. 

Until Hong Kong’s GWS framework comes into force, Prudential will apply the local capital summation method (LCSM) that has been 

agreed with the Hong Kong IA to determine group regulatory capital requirements (both minimum and prescribed levels). The LCSM 
surplus represents the summation of available capital across local solvency regimes for regulated entities of the Group and IFRS net 
assets (with some adjustments) for non-regulated entities less the summation of local statutory capital requirements across the Group, 
with no allowance for diversification between business operations.

(iii) Meeting of capital management objectives
The Group minimum capital requirement has been met during 2019. Prior to the demerger of the UK and Europe operations, the Group 
capital requirement was met in accordance with the Solvency II regime. 

As well as holding sufficient capital to meet LCSM requirements at Group level, the Group also closely manages the cash it holds 

within its central holding companies so that it can:

 — Maintain flexibility, fund new opportunities and absorb shock events;
 — Fund dividends; and
 — Cover central costs and debt payments.

More details on holding company cash flows and balances are given in section I(iii) of the Additional unaudited financial information.

Reserve adequacy testing under a range of scenarios and dynamic solvency testing is carried out, including under certain scenarios 

mandated by the US and Asia regulators.

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C	FINANCIAL	POSITION	NOTES		CONTINUED 
The Group manages its assets, liabilities and capital locally, in accordance with local regulatory requirements and reflecting the different 
types of liabilities in each business unit. As a result of the diversity of products offered by Prudential and the different regulatory regimes 
under which it operates, the Group employs differing methods of asset/liability and capital management, depending on the business 
concerned.

The sensitivity of liabilities and other components of total capital vary depending upon the type of business concerned and this 

conditions the approach to asset/liability management.

C12.2 Local capital regulations
(i) Asia insurance operations
The local valuation basis for the assets, liabilities and capital requirements of significant operations in Asia are:

China JV
A risk-based capital, risk management and governance framework, known as the China Risk Oriented Solvency System (C-ROSS), 
applies in China. Under C-ROSS, insurers are required to maintain a core solvency ratio (core capital over minimum capital) and a 
comprehensive solvency ratio (available capital over minimum capital) of not lower than 50 per cent and 100 per cent, respectively. The 
China Banking Insurance Regulatory Commission is in the process of reviewing the C-ROSS formulae and parameters. The exact timing 
of updates is uncertain.

The actual capital is the difference between the admitted assets and admitted liabilities with trading and available-for-sale assets 
marked-to-market and other assets at book value. Policyholder liabilities are based on a gross premium valuation method using best 
estimate assumptions with a separate risk margin. 

Hong Kong
The capital requirements set out in the regulations vary by underlying risk type and duration of liabilities, but are generally determined as 
a percentage of mathematical reserves and capital at risk. 

Mathematical reserves are based on a net premium valuation method using assumptions which include a suitable margin for 
prudence. The valuation interest rate used to calculate these reserves is subject to a maximum that reflects a blend between the 
risk-adjusted portfolio yield and the reinvestment yield. The approach used to determine the reinvestment yield for reserving allows for 
average yields thus the impact of movements in interest rates are reflected in the valuation interest rate over time. The available capital is 
based on assets that are marked-to-market. The Hong Kong IA is in the process of developing a risk-based capital framework, targeted to 
be introduced by 2024, and has performed several quantitative impact studies over the past few years.

Indonesia
Solvency capital is determined using a risk-based capital approach. The available capital is based on assets that are marked-to-market, 
with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for 
prudence. Liabilities are zeroised at a policy level (i.e. negative liabilities are not permitted at a policy level). For unit-linked policies an 
unearned premium reserve is established.

Malaysia
A risk-based capital framework applies in Malaysia. The local regulator, Bank Negara Malaysia (BNM), has set a Supervisory Target 
Capital Level of 130 per cent below which supervisory actions of increasing intensity will be taken. Each insurer is also required to set its 
own Individual Target Capital Level to reflect its own risk profile and this is expected to be higher than the Supervisory Target Capital 
Level.

The available capital is based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation 
method using best estimate assumptions with a suitable margin for prudence. Liabilities are zeroised at a fund level (i.e. negative liabilities 
are not permitted at a fund level). The BNM has initiated a review of its RBC framework. An exposure draft on valuation of liabilities was 
issued in December 2019 to gather industry feedback. The exact timing of implementation of potential revisions is uncertain.

Market liberalisation measures were introduced by BNM in April 2009, which increases the limit from 49 per cent to 70 per cent on 
foreign equity ownership for insurance companies and Takaful operators in Malaysia. A higher foreign equity limit beyond 70 per cent for 
insurance companies will be considered by BNM on a case by case basis for companies who support expansion of insurance provision to 
the most vulnerable in Malaysian society. 

Singapore
A risk-based capital framework applies in Singapore. The regulator also has the authority to direct that the insurer satisfies additional 
capital adequacy requirements in addition to those set forth under the Singapore Insurance Act if it considers such additional 
requirements appropriate. The available capital is based on assets that are marked-to-market, with policyholder liabilities based on a 
gross premium valuation method using best estimate assumptions with a suitable margin for prudence. Liabilities are zeroised at a policy 
level (i.e. negative liabilities are not permitted at a policy level). The updated risk-based capital framework (RBC2) will come into effect on 
31 March 2020.

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C12.2 Local capital regulations continued
(ii) US insurance operations 
The regulatory framework for Jackson is governed by the requirements of the US NAIC-approved Risk-Based Capital standards. Under 
these requirements life insurance companies report using a formula-based capital standard, which includes components calculated by 
applying after-tax factors to various asset, premium and reserve items and a separate model-based component for market risk and 
interest rate risk associated primarily with variable annuity products. The 31 December 2019 Jackson local statutory results reflect early 
adoption of the NAIC regulatory framework reforms at the valuation date as agreed with the Department of Insurance Financial Services 
(DIFS), and Jackson’s decision not to renew its long-standing permitted practice with the DIFS, which allowed certain derivative 
instruments, taken out to protect Jackson against declines in long-term interest rates, to be included at book value in the local statutory 
returns. At 31 December 2019, these derivatives were held at fair value.

(iii) Asset management operations – regulatory and other surplus
Certain asset management subsidiaries of the Group are subject to local regulatory requirements. The movement in the year of the 
estimated surplus regulatory capital position of those subsidiaries, combined with the movement in the IFRS basis shareholders’ funds for 
unregulated asset management operations, is as follows:

Regulatory and other surplus

Balance at 1 January
Demerger of UK and Europe operations
Gains during the year
Movement in capital requirement
Capital injection
Distributions made to the parent company
Exchange and other movements

Balance at 31 December

Eastspring
 Investments

374

214
(32)
20
(173)
(27)

376

2019  $m

2018  $m

US

51

24
–
(30)
(40)
1

6

M&G

846
(846)
–
–
–
–
–

–

Total asset
 management

Total asset
 management

1,271
(846)
238
(32)
(10)
(213)
(26)

382

1,185
–
701
(7)
135
(531)
(212)

1,271

C12.3 Transferability of available capital
For Asia, the amounts retained within the insurance companies are at levels that provide an appropriate level of capital strength in 
excess of the local regulatory minimum. The businesses in Asia may, in general, remit dividends to parent entities, provided the statutory 
insurance fund meets the local regulatory solvency requirements and there are sufficient statutory accounting profits. For with-profits 
funds, the excess of assets over liabilities is retained within the funds, with distribution to shareholders tied to the shareholders’ share of 
declared bonuses. 

For Jackson, capital retention is maintained at a level consistent with an appropriate rating by Standard & Poor’s (currently rated AA-). 

Jackson can pay dividends on its capital stock only out of earned surplus unless prior regulatory approval is obtained. Furthermore, 
dividends that exceed the greater of statutory net gain from operations less net realised investments losses for the prior year or 
10 per cent of Jackson’s prior year end statutory surplus, excluding any increase arising from the application of permitted practices, 
require prior regulatory approval. 

Available capital of the non-insurance business units is transferable after taking account of an appropriate level of operating capital, 

based on local regulatory solvency requirements, where relevant.

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C	FINANCIAL	POSITION	NOTES		CONTINUEDC13 Property, plant and equipment

Property, plant and equipment comprise Group occupied properties and tangible assets. Following the adoption of IFRS 16 on 1 January 
2019 (as described in note A3), property, plant and equipment also includes right-of-use assets for operating leases of properties 
occupied by the Group and leases of equipment and other tangible assets. All property, plant and equipment, including the right-of-use 
assets under operating leases, are held at cost less cumulative depreciation calculated using the straight-line method.

The Group does not have any right-of-use assets that would meet the definition of investment property. As at 31 December 2019, total 
right-of-use assets comprised $569 million of property and $24 million of non-property assets, of which $18 million are attributable to 
shareholders.

Extension and termination options are included in a number of property and equipment leases across the Group. These are used to 
maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination 
options held are exercisable only by the Group and not by the respective lessor. The Group assesses at lease commencement whether it 
is reasonably certain to exercise the option. This assertion is revisited if there is a material change in circumstances. The undiscounted 
value of lease payments beyond the break period not recognised in the lease liabilities as at 31 December 2019 is $185 million.
A reconciliation of the carrying amount of these items from the beginning of the year to the end of the year is as follows:

2019  $m

2018  $m

Balance at 1 January
Cost
Accumulated depreciation

Opening net book amount
Demerger of UK and Europe operations†
Recognition of right-of-use asset on initial 

application of IFRS 16

Arising on acquisitions of subsidiaries
Additions
Depreciation and impairment charge
Disposals and transfers
Effect of movements in exchange rates

Balance at 31 December

Representing:
Cost
Accumulated depreciation

Closing net book amount

Analysed as:
Continuing operations

Discontinued operations

Group
 occupied
 property

Tangible
 assets

Right-
of-use
 assets

525
(105)

420
(143)

–
6
1
(9)
–
–

275

351
(76)

275

2,089
(714)

1,375
(1,170)

–
13
63
(77)
(11)
4

197

687
(490)

197

–
–

–
–

527
1
196
(141)
1
9

593

734
(141)

593

Group
 occupied
 property

Tangible
 assets

496
(97)

399
–

–
6
47
(14)
(11)
(7)

1,408
(740)

668
–

–
691
339
(170)
(92)
(61)

Total

2,614
(819)

1,795
(1,313)

527
20
260
(227)
(10)
13

Total

1,904
(837)

1,067
–

–
697
386
(184)
(103)
(68)

1,065

420

1,375

1,795

1,772
(707)

1,065

525
(105)

420

277

143

420

2,089
(714)

1,375

205

1,170

1,375

2,614
(819)

1,795

482

1,313

1,795

The Group has non-cancellable property subleases which have been classified as operating leases in 2019 under IFRS 16. The sublease 
rental income received for the leases is $11 million in 2019.

Tangible assets from continuing operations
At 31 December 2019, of the $197 million (31 December 2018: $205 million) tangible assets, $83 million (31 December 2018: $94 million) 
were held by the Group’s with-profits businesses. 

Capital expenditure: property, plant and equipment by segment
The capital expenditure in 2019 of $64 million (2018: $386 million of which $133 million related to continuing operations) arose as follows: 
$44 million (2018: $69 million) in Asia and $5 million (2018: $62 million) in US with the remaining balance of $15 million (2018: $2 million) 
arising from unallocated corporate expenditure.

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D1 Gain (loss) on disposal of business and corporate transactions

Income and expenses of entities sold during the period 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.

D1.1 Gain (loss) on disposal of business

Gain on disposals note (i)
Other transactions note (ii)

Total gain (loss) on disposal of business from continuing operations

2019  $m

2018  $m

265
(407)

(142)

–
(107)

(107)

Notes
(i) 

(ii) 

In 2019, the $265 million gain on disposals principally relates to profits arising from a reduction in the Group’s stake (from 26 per cent to 22 per cent) in its associate in India, ICICI 
Prudential Life Insurance Company, and the disposal of Prudential Vietnam Finance Company Limited, a wholly owned subsidiary that provides consumer finance.
In 2019, the $(407) million other transactions reflects costs related to the demerger of M&G plc from Prudential plc. These include the following amounts:
– $(78) million transaction related costs, principally fees to advisors; 
– $(182) million being the fee paid to the holders of two subordinated debt instruments as discussed in note C6.1(i); and
– $(147) million for one-off costs arising from the separation of the M&G plc business from Prudential plc.
In 2018, the $(107) million other transactions primarily related to exiting the NPH broker-dealer business in the US and costs related to the preparation for the demerger of M&G plc.

D1.2 Other corporate transactions
Acquisition of Thanachart Fund Management Co., Ltd. in Thailand
On 27 December 2019, the Group completed its acquisition of 50.1 per cent of Thanachart Fund Management Co., Ltd. (TFUND) from 
Thanachart Bank Public Company Ltd. (TBANK) and Government Savings Bank, with TBANK holding the remaining 49.9 per cent stake 
of TFUND. The acquisition complements the Group’s purchase of 65 per cent of TMB Asset Management, now TMBAM Eastspring, 
in September 2018.

The terms of the sale agreement include an option for the Group to increase its ownership to 100 per cent in the future. The Group has 

recognised, in line with IFRS, a financial liability and a reduction in shareholders’ equity of $130 million as of the acquisition date for the 
option, being the discounted expected consideration payable for the remaining 49.9 per cent.

The fair value of the acquired assets, assumed liabilities and resulting goodwill are shown in the table below: 

Assets
Other assets
Cash and cash equivalents

Total assets 
Other liabilities
Non-controlling interests*

Net assets acquired and liabilities assumed
Goodwill arising on acquisition*

Purchase consideration 

$m

28
2

30
(7)
(141)

(118)
260

142

* The goodwill on acquisition of $260 million is mainly attributable to the expected benefits from new customers and synergies. Refer to note C5.1 for changes to the carrying amount of 

goodwill during the year. The Group has chosen to apply the full goodwill method under IFRS 3, ‘Business Combinations’ for this acquisition, with non-controlling interests being 
measured at fair value on the acquisition date.

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D2 Discontinued UK and Europe operations

On 21 October 2019, the Group completed the demerger of its UK and Europe operations (M&G plc) from the Group, resulting in two 
separately listed companies. The Group’s UK and Europe operations have been reclassified as discontinued operations in these 
consolidated financial statements in accordance with IFRS 5 ‘Non-current assets held for sale and discontinued operations’.

The results and cash flows for the discontinued UK and Europe operations presented in the consolidated financial statements for the 

period of ownership up to the demerger in October 2019 are analysed below. 

Income statement

Earned premiums, net of reinsurance
Investment return and other income note (1)

Total revenue, net of reinsurance

Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance
Acquisition costs and other expenditure

Total charges, net of reinsurance

Discontinued UK and Europe operations’ profit before tax
Re-measurement of the UK and Europe operations on demerger note (2)
Cumulative exchange loss recycled from other comprehensive income

(Loss) profit before tax
Tax (charge) credit note (3)

2019  $m

10,920
22,292

33,212

(26,975)
(4,143)

(31,118)

2,094
188
(2,668)

(386)
(775)

2018  $m

(101)
(2,386)

(2,487)

6,645
(3,296)

3,349

862
–
–

862
280

(Loss) profit for the year from discontinued operations

(1,161)

1,142

Notes
(1) 
(2) 

(3) 

Includes share of profits from joint ventures and associates, net of related tax.
The re-measurement of the discontinued UK and Europe operations on demerger reflects the difference between the fair value of the UK and Europe operations and its net assets 
at the date of the demerger.
The tax (charge) credit wholly relates to the tax on the ordinary profits of the discontinued UK and Europe operations. 

Other comprehensive income

Cumulative exchange loss recycled through profit or loss
Other items, net of related tax

Other comprehensive income for the year from discontinued operations, net of related tax

2019  $m

2018  $m

2,668
203

2,871

–
(605)

(605)

The profit and other comprehensive income for the period from the discontinued UK and Europe operations were wholly attributable to 
the equity holders of the Company.

Cash flows 

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities*
Cash and cash equivalents divested on demerger

Net cash flows in the year
Net cash flows between discontinued and continuing operations*
Cash and cash equivalents at beginning of year
Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents on the consolidated statement of financial position at end of year

2019  $m

2018  $m

2,375
(454)
–
(7,611)

(5,690)
(436)
6,048
78

–

5
(478)
(137)
–

(610)
(842)
7,857
(357)

6,048

* The net cash flows between discontinued and continuing operations represents the net cash paid for dividend and other items from discontinued operations to continuing operations. In 
2019, the net cash flows of $(436) million primarily include pre-demerger dividend of $(3,841) million, other dividends of $(684) million offset by payment for the transfer of debt to M&G 
plc from Prudential plc prior to the demerger of $4,161 million.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationD3 Contingencies and related obligations

Litigation and regulatory matters
The Group is involved in various litigation and regulatory proceedings. These may from time to time include class actions involving 
Jackson. While the outcome of such litigation and regulatory issues cannot be predicted with certainty, the Company believes that their 
ultimate outcome will not have a material adverse effect on the Group’s financial condition, results of operations or cash flows.

Guarantees 
Guarantee funds in the US 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 type of business. The estimated reserve 
for future guarantee fund assessments is not significant. The directors believe that sufficient provision has been made on the balance 
sheet for all anticipated payments for known insolvencies.

The Group has provided other guarantees and commitments to third-parties entered into in the normal course of business but the 

Group does not consider that the amounts involved are significant.

Intra-group capital support arrangements
Prudential has put in place intra-group arrangements to formalise undertakings by Prudential to the regulators of the Hong Kong 
subsidiaries regarding their solvency levels. 

D4 Post balance sheet events

Dividends
The 2019 second interim ordinary dividend approved by the Board of Directors after 31 December 2019 is as described in note B6.

Coronavirus outbreak
The novel coronavirus outbreak, with thousands of cases reported in 2020 to date and the virus spreading to countries across Asia and 
the world, has disrupted the activity in the markets in which the Group operates, in particular Hong Kong and mainland China, and 
adversely impacted the economic conditions in the year to date. Given these conditions, lower levels of new business activity in affected 
markets are to be expected. Further details on the Group capital position are set out in note I(i) of the Additional unaudited financial 
information. 

The Group continues to monitor closely the development of the coronavirus outbreak and its impact on market conditions. If current 
economic conditions persist, management could take additional actions to mitigate the impact. These actions include, but are not limited 
to, rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to 
new business pricing and the mix of new business being sold.

It is not practicable to quantify the potential financial effect of the outbreak on the Group at this stage.

D5 Related party transactions

Transactions between the Company and its subsidiaries are eliminated on consolidation. 

The Company has transactions and outstanding balances with certain unit trusts, Open-Ended Investment Companies (OEICs), 
collateralised debt obligations and similar entities that are not consolidated and where a Group company acts as manager, which are 
regarded as related parties for the purposes of IAS 24. The balances are included in the Group’s statement of financial position at fair 
value or amortised cost in accordance with IAS 39 classifications. The transactions are included in the income statement and include 
amounts paid on issue of shares or units, amounts received on cancellation of shares or units and amounts paid in respect of the periodic 
charge and administration fee.

In addition, there are no material transactions between the Group’s joint ventures and associates, which are accounted for on an 

equity method basis, and other Group companies.

Key management personnel of the Company, as described in note B2.3, may from time to time purchase insurance, asset 

management or annuity products marketed by 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.

In 2019 and 2018, other transactions with key management personnel were not deemed to be significant both by virtue of their size 
and in the context of the individuals’ financial positions. All of these transactions were on terms broadly equivalent to those that prevailed 
in arm’s length transactions.

Additional details on the Directors’ interests in shares, transactions or arrangements are given in the Directors’ remuneration report. 

Key management remuneration is disclosed in note B2.3.

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D	OTHER	INFORMATION	CONTINUEDD6 Commitments

The Group has provided, from time to time, certain guarantees and commitments to third parties. 

At 31 December 2019, Asia operations had unfunded commitments of $2,013 million (31 December 2018: $1,554 million) primarily 

related to investments in infrastructure funds and alternative investment funds. At 31 December 2019, Jackson had unfunded 
commitments of $889 million (31 December 2018: $846 million) related to investments in limited partnerships and $796 million 
(31 December 2018: $440 million) related to commercial mortgage loans and other fixed income securities. These commitments 
were entered into in the normal course of business and a material adverse impact on the operations is not expected to arise from them.

D7 Investments in subsidiary undertakings, joint ventures and associates

(a)	 Basis	of	consolidation
The Group consolidates those investees it is deemed to control. The Group has control over an investee if all three of the following are 
met: (1) it has power over an investee; (2) it is exposed to, or has rights to, variable returns from its involvement with the investee; and (3) it 
has ability to use its power over the investee to affect its own returns. 

(i) Subsidiaries
Subsidiaries are those investees that the Group controls. The majority of the Group’s subsidiaries are corporate entities, but the Group’s 
insurance operations also invest in a number of limited partnerships.

The Group performs a re-assessment of consolidation whenever there is a change in the substance of the relationship between the 
Group and an investee. Where the Group is deemed to control an entity it is treated as a subsidiary and its results, assets and liabilities are 
consolidated. Where the Group holds a minority share in an entity, with no control over the entity, the investments are carried at fair value 
through profit or loss within financial investments in the consolidated statement of financial position.

(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 a number of these arrangements, the Group’s share of the underlying net assets may be less than 
50 per cent but the terms of the relevant agreement make it clear that control is jointly exercised between the Group and the third party. 
Associates are entities over which the Group has significant influence, but it does not control. Generally it is presumed that the Group has 
significant influence if it holds between 20 per cent and 50 per cent voting rights of the entity. 

With the exception of those referred to below, the Group accounts for its investments in joint ventures and associates by using the 
equity method of accounting. 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. The equity method of 
accounting does not apply to investments in associates and joint ventures held by the Group’s insurance or investment funds. This 
includes venture capital business, mutual funds and unit trusts and which, as allowed by IAS 28, ‘Investments in Associates and Joint 
Ventures’, are carried at fair value through profit or loss.

(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 schemes;
 — Limited partnerships;
 — Variable interest entities;
 — Investment vehicles within separate accounts offered through variable annuities;
 — Collateralised debt obligations;
 — Mortgage-backed securities; and 
 — Similar asset-backed securities.  

Collective investment schemes
The Group invests in collective investment schemes, which invest mainly in equities, bonds, cash and cash equivalents, and properties. 
The Group’s percentage ownership in these entities can fluctuate on a daily basis according to the participation of the Group and other 
investors in them. 

 — Where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity exceeds 50 per cent, 

the Group is judged to have control over the entity.

 — Where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity is between 20 per cent and 
50 per cent, 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 entity is managed by a Group asset manager, and the Group’s ownership holding in the entity is less than 20 per cent, 

the Group is judged to not have control over the entity.

 — Where the entity is managed by an asset manager outside the Group, an assessment is made of whether the Group has existing rights 
that gives 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 investment funds where 
it considers it has such ability.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationD7 Investments in subsidiary undertakings, joint ventures and associates continued

Where the Group is deemed to control these entities, they are treated as a subsidiary and are consolidated, with the interests of investors 
other than the Group being classified as liabilities, and appear as net asset value attributable to unit holders of consolidated 
investment funds. 

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 fair value through profit or loss within financial investments in the consolidated statement 
of financial position. 

Where the Group’s asset manager sets up investment funds as part of asset management operations, the Group’s interest is limited 
to the administration fees charged to manage the assets of such entities. With no participation in these entities, the Group does not retain 
risks associated with investment funds. For these investment funds, the Group is not deemed to control the entities but to be acting 
as an agent.

The Group generates returns and retains the ownership risks in investment vehicles commensurate to its participation and does not 

have any further exposure to the residual risks of these investment vehicles. 

Jackson’s separate account assets
These are investment vehicles that invest contract holders’ premiums in equity, fixed income, bonds and money market mutual funds. 
The contract holder retains the underlying returns and the ownership risks related to the underlying investments. The shareholder’s 
economic interest in separate accounts is limited to the administrative fees charged. The separate accounts are set up as separate regulated 
entities governed by a Board of Governors or trustees for which the majority of the members are independent of Jackson or any affiliated 
entity. The independent members are responsible for any decision making that impacts contract holders’ interest and govern the 
operational activities of the entities’ advisers, including asset managers. Accordingly, the Group does not control these vehicles. These 
investments are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position.

Limited partnerships
The Group’s insurance operations invest 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 interest in general partners 
and limited partnerships provide the Group with voting and similar rights to participate in the governance framework of the relevant 
activities in which limited partnerships are engaged in. Accounting for the limited partnerships as subsidiaries, joint ventures, associates 
or other financial investments depends on the terms of each partnership agreement and the shareholdings in the general partners. 

Other structured entities
The Group holds investments in mortgage-backed securities, collateralised debt obligations and similar asset-backed securities, 
the majority of which are actively traded in a liquid market. 

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. 

The majority of such vehicles are not consolidated. In these cases the Group is not the sponsor of the vehicles in which it holds investments 
and has no administrative rights over the vehicles’ activities. The Group generates returns and retains the ownership risks commensurate 
to its holding and its exposure to the investments. Accordingly the Group does not have power over the relevant activities of such vehicles 
and all are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position. 

The table below provides aggregate carrying amounts of the investments in unconsolidated structured entities reported in the Group’s 
statement of financial position: 

Statement of financial position line items

Equity securities and holdings in collective 

investment schemes

Debt securities

Total

31 Dec 2019  $m

31 Dec 2018  $m

Investment
 funds

Separate
 account 
assets

Other
  structured
  entities

Investment
 funds

Separate
 account 
assets

Other
  structured
 entities

23,620
–

23,620

195,070
–

195,070

–
6,574

6,574

27,021
–

27,021

163,301
–

163,301

–
14,113

14,113

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.

As at 31 December 2019, the Group does not have an agreement, contractual or otherwise, or intention to provide financial support 

to structured entities that could expose the Group to a loss.

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D	OTHER	INFORMATION	CONTINUED(a) Dividend restrictions and minimum capital requirements 
Certain Group subsidiaries and joint ventures are subject to restrictions on the amount of funds they may transfer in the form of cash 
dividends or otherwise to the parent company. 

Under UK company law, UK companies can only declare dividends if they have sufficient distributable reserves. 
Jackson is subject to state laws that limit the dividends payable to its parent company based on statutory capital, surplus and prior year 

earnings. Dividends in excess of these limitations require prior regulatory approval. 

The Group’s subsidiaries, joint ventures and associates in Asia may remit dividends to the Group, in general, provided the statutory 
insurance fund meets the capital adequacy standard required under local statutory regulations and has sufficient distributable reserves. 
For further details on local capital regulations in Asia please refer to note C12.2.

(b) Investments in joint ventures and associates
The Group has shareholder-backed joint venture insurance and asset management businesses in China with CITIC Group and a joint 
venture asset management business in India with ICICI Bank. In addition, there is an asset management joint venture in Hong Kong with 
Bank of China International Holdings Limited (BOCI) and Takaful insurance joint venture in Malaysia. 

For the Group’s joint ventures that are accounted for by using the equity method, the net of tax results of these operations are 

included in the Group’s profit before tax.

The Group’s associates, which are also accounted for under the equity method, include the Indian insurance entity (with the majority 

shareholder being ICICI Bank). In addition, the Group has investments in collective investment schemes, funds holding collateralised 
debt obligations, property funds where the Group has significant influence. As allowed under IAS 28, these investments are accounted 
for on a fair value through profit or loss basis. The aggregate fair value of associates accounted for at fair value through profit or loss, 
where there are published price quotations, is approximately $0.7 billion at 31 December 2019 (31 December 2018: $0.1 billion from 
continuing operations).

For joint ventures and associates accounted for using the equity method, the 12 months financial information of these investments up 

to 31 December 2019 (covering the same period as that of the Group) has been used in these consolidated financial statements.

The Group’s share of the profits (including short-term fluctuations in investment returns), net of related tax, and carrying amount of 

interest in joint ventures and associates, which are equity accounted as shown in the consolidated income statement at 31 December 
2019 is $397 million (2018: $319 million) for shareholder-backed business and comprises the following:

Share of profits from joint ventures and associates, net of related tax

2019  $m

2018  $m

Asia insurance operations
Asia asset management operations

Total segment and Group total

291
106

397

238
81

319

There is no other comprehensive income in the joint ventures and associates. There has been no unrecognised share of losses of a joint 
venture or associate that the Group has stopped recognising in the total income. 

The Group’s interest in joint ventures gives rise to no contingent liabilities or capital commitments that are material to the Group. 

(c) Related undertakings
In accordance with Section 409 of the Companies Act 2006 a list of Prudential Group’s subsidiaries, joint ventures, associates and 
significant holdings (being holdings of more than 20 per cent) 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 2019 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 financial statements. The Group’s consolidation policy is described in note A3.1(b). The Group also 
operates through branches. At 31 December 2019, there is no significant branch outside the UK.

Direct subsidiary undertakings of the parent company, Prudential plc (shares held directly or via nominees) 

Name of entity

Prudential Corporation Asia Limited

Classes of
 shares held

Proportion
 held

OS

100.00%

Registered office address and country of incorporation 

13th Floor, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

Prudential Group Holdings Limited

OS

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationD7 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued
Other subsidiaries, joint ventures, associates and significant holdings of the Group – no shares held directly  
by the parent company, Prudential plc or its nominees:

Name of entity

95th Avenue Retail Building, LLC

Aberdeen Standard Cash Creation Fund

Aberdeen Standard Singapore Equity

Aberforth Standard Global Opportunities Fund

Allied Life Brokerage Agency, Inc

AMUNDI FTSE China A50 Index ETF

BeGeneral Insurance S.A.

BeLife Insurance S.A.

Beneficial General Insurance S.A. 

Beneficial Life Insurance S.A. 

Beneficial Life Insurance S.A. 

BOCHK Aggressive Growth Fund

BOCHK Asia Pacific Equity Fund

BOCHK Balanced Growth Fund

BOCHK China Equity Fund

BOCHK Conservative Growth Fund

BOCHK Hong Kong Equity Fund

BOCHK US Dollar Money Market Fund

BOCI-Prudential Asset Management Limited

BOCI-Prudential Trustee Limited

Brier Capital LLC

Brooke (Holdco 1) Inc

Brooke Life Insurance Company

Centre Capital Non-Qualified Investors IV AIV Orion, LP

Centre Capital Non-Qualified Investors IV AIV-RA, L.P.

Centre Capital Non-Qualified Investors IV, L.P.

Centre Capital Non-Qualified Investors V AIV-ELS LP

Centre Capital Non-Qualified Investors V LP

CEP IV-A Chicago AIV LP

CEP IV-A CWV AIV LP

CEP IV-A Davenport AIV LP

CEP IV-A Indy AIV LP

CEP IV-A NMR AIV LP

CEP IV-A WBCT AIV LP

CITIC-CP Asset Management Co., Ltd.

CITIC-Prudential Fund Management Company Limited

CITIC-Prudential Life Insurance Company Limited

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

MI

U

U

U

LPI

U

OS

OS

OS

OS

OS

U

U

U

U

U

U

U

OS

OS

OS

OS

OS

LPI

LPI

LPI

LPI

LPI

LPI

LPI

LPI

LPI

LPI

LPI

MI

MI

MI

100.00%

901 S., Ste. 201, Second St., Springfield, IL, 62704-7909, USA

34.16%

28th Floor Bangkok City Tower, 179 South Sathorn Road, 
Thungmahamek, Sathorn, Bangkok 10120, Thailand

60.44%

20 Collyer Quay, #01-01, Singapore 049319

28.46%

100.00%

400 East Court Avenue, Des Moines, IA 50309, USA

38.67%

90, boulevard Pasteur, 75015 Paris - France

Immeuble WOODIN Center 1st Floor, Avenue Nogues, Plateaux, Abidjan, 
Cote d’Ivoire

51.00%

50.93%

50.04%

1944 Blvd de la République, BP 2328, Douala, Cameroon

51.00%

50.99%

2963 Rue De La Chance Agbalepedogan, P.B. 1115, Lome, Togo

65.61%

27/F., Bank of China Tower, 1 Garden Road, Hong Kong

26.29%

55.31%

71.35%

55.24%

21.94%

34.85%

36.00%

36.00%

12/F & 25/F, Citicorp Centre, 18 Whitfield Road, Causeway Bay, 
Hong Kong

100.00%

1 Corporate Way, Lansing, MI 48951, USA

100.00%

1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA

100.00%

1 Corporate Way, Lansing, MI 48951, USA

27.47%

2711 Centreville Road, Suite 400, Wilmington, DE 19808, USA

44.55%

27.16%

36.58%

37.66%

23.93%

615 South Dupont Highway, Dover, DE 19901, USA

23.97%

850 New Burton Road, Suite 201, Dover, DE 19904, USA

23.94%

615 South Dupont Highway, Dover, DE 19901, USA

23.94%

23.94%

23.94%

26.95%

49.00%

50.00%

Room 101-2, No.128 North Zhangjiabang Road, Pudong District, 
Shanghai, China

Level 9, HSBC Building, Shanghai IFC, 8 Century Avenue, Pudong, 
Shanghai, China

0507-0510, 1601-1616, East Tower, World Financial Centre, No.1 East 
Third Ring Middle Road, Chaoyang District, Beijing, 100020, China

Clairvest Equity Partners IV-A LP

LPI

23.90%

22 St Clair Avenue East, Suite 1700, Toronto, ON M4T 2S3, Canada

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D	OTHER	INFORMATION	CONTINUEDEastspring Asset Management Korea Co. Ltd.

OS

100.00%

Key to share classes:
LBG 
LPI 
MI 
MFS 
NSB 
OS 
PI 
PS 
U 

Limited by Guarantee
Limited Partnership Interest
Membership Interest  
Mutual Fund Shares
Non-stock basis
Ordinary Shares
Partnership Interest
Preference Shares
Units

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

100.00%

1 Corporate Way, Lansing, MI 48951, USA

Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 
50490 Kuala Lumpur, Malaysia

15th Floor, Shinhan Investment Tower, 70 Yoidae-ro, Yeungdeungpo-gu, 
Seoul 07325, Korea

Goodmorning Shinhan Tower 15F Yeoido Dong 23-2, Yeungdeungpo-gu, 
Seoul 150-010, Korea

100.00%

100.00%

71.97%

99.46%

OS

OS

OS

U

U

PI

U

90.00%

PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands

99.99%

26, Boulevard Royal, L-2449, Luxembourg

U

OS

100.00%

100.00%

Unit 306-308, 3/F Azia Center, 1233 Lujiazui Ring Road, China 
(Shanghai) Pilot Free Trade Zone, China

U

U

U

U

U

U

U

73.57%

26, Boulevard Royal, L-2449, Luxembourg

98.72%

82.24%

36.63%

99.85%

61.01%

49.96%

Name of entity

Curian Capital, LLC

Curian Clearing LLC (Michigan)

Eastspring Al-Wara’ Investments Berhad

Eastspring Global Smart Beta EMP Securities Investment 
Trust (H)

Eastspring Global Smart Beta EMP Securities Investor 
Trust (USD)

Eastspring Infrastructure Debt Fund L.P.

Eastspring Investment Asia Real Estate Multi Asset 
Income Fund

Eastspring Investment Asia Sustainable Bond Fund

Eastspring Investment Management (Shanghai) 
Company Limited

Eastspring Investments - Global Growth Equity Fund

Eastspring Investments - Global Low Volatility 
Equity Fund

Eastspring Investments - Global Technology Fund

Eastspring Investments - India Discovery Fund

Eastspring Investments- Japan Fundamental Value Fund

Eastspring Investments - Pan European Fund

Eastspring Investments - US High Yield Bond Fund

Eastspring Investments (Hong Kong) Limited

OS

100.00%

13th Floor, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

Eastspring Investments (Luxembourg) SA

Eastspring Investments (Singapore) Limited

Eastspring Investments Asia Oceania High Dividend 
Equity Fund

Eastspring Investments Asia Oceania U&I Bond Fund

Eastspring Investments Asia Pacific Equity Fund

Eastspring Investments Asian Bond Fund

Eastspring Investments Asian Dynamic Fund

Eastspring Investments Asian Equity Fund

Eastspring Investments Asian Equity Income Fund

Eastspring Investments Asian High Yield Bond Fund

Eastspring Investments Asian High Yield Bond MY Fund

Eastspring Investments Asian Infrastructure Equity Fund

Eastspring Investments Asian Investment Grade 
Bond Fund

Eastspring Investments Asian Low Volatility Equity Fund

Eastspring Investments Asian Multi Factor Equity Fund

Eastspring Investments Asian Property Securities Fund

Eastspring Investments Berhad

OS

OS

U

U

U

U

U

U

U

U

U

U

U

U

U

U

100.00%

26 Boulevard Royal, L-2449, Luxembourg

10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, 
Singapore 018983

Eastspring Investments Limited, Marunouchi Park Bldg., 2-6-1 
Marunochi, Chiyoda-ku, Tokyo, Japan 100-6905

100.00%

100.00%

99.93%

99.99%

26, Boulevard Royal, L-2449, Luxembourg

53.60%

92.59%

85.19%

78.33%

39.86%

86.36%

Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran 
TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

50.78%

26, Boulevard Royal, L-2449, Luxembourg

99.93%

97.27%

100.00%

97.72%

OS

100.00%

Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 
50490 Kuala Lumpur, Malaysia

Eastspring Investments China A Shares Growth Fund

Eastspring Investments Dragon Peacock Fund

Eastspring Investments Emerging Markets Star Players

U

U

U

100.00%

26, Boulevard Royal, L-2449, Luxembourg

53.18%

36.99%

Eastspring Investments Limited, Marunouchi Park Bldg., 2-6-1 
Marunochi, Chiyoda-ku, Tokyo, Japan 100-6905

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationD7 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued
Other subsidiaries, joint ventures, associates and significant holdings of the Group – no shares held directly  
by the parent company, Prudential plc or its nominees: continued

Name of entity

Eastspring Investments Equity Income Fund

Eastspring Investments European Inv Grade Bond Fund

Eastspring Investments Fund Management Limited 
Liability Company

Eastspring Investments Global Emerging Markets 
Bond Fund

Eastspring Investments Global Equity Navigator Fund

Eastspring Investments Global Market Navigator Fund

Eastspring Investments Global Multi Asset Income Plus 
Growth Fund

Eastspring Investments Greater China Equity Fund

Eastspring Investments Hong Kong Equity Fund

Eastspring Investments Incorporated

Eastspring Investments India Consumer Equity 
Open Limited

Eastspring Investments India Equity Fund

Eastspring Investments India Equity Open 
(Asset Growth Type)

Eastspring Investments India Equity Open Limited

Eastspring Investments India Infrastructure Equity 
Open Limited

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

U

U

MI

U

U

U

U

U

U

OS

OS

U

U

OS

OS

20.89%

Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran 
TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

99.28%

26, Boulevard Royal, L-2449, Luxembourg

100.00%

23rd Floor, Saigon Trade Center, 37 Ton Duc Thang Street, District 1, 
Ho Chi Minh City, Vietnam

97.03%

26, Boulevard Royal, L-2449, Luxembourg

100.00%

99.68%

99.99%

95.19%

93.10%

100.00%

874 Walker Road, Suite C, Dover, DE 19904, USA

100.00%

3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene 72201, Mauritius

68.69%

26, Boulevard Royal, L-2449, Luxembourg

28.90%

Eastspring Investments Limited, Marunouchi Park Bldg., 2-6-1 
Marunochi, Chiyoda-ku, Tokyo, Japan 100-6905

100.00%

3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene 72201, Mauritius

100.00%

Eastspring Investments Japan Dynamic MY Fund

U

27.65%

Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran 
TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

Eastspring Investments Limited

OS

100.00% Marunouchi Park Building, 6-1 Marunouchi 2-chome, Chiyoda-Ku, 

Tokyo, Japan

Eastspring Investments MY Focus Fund

Eastspring Investments North America Value Fund

U

U

21.40%

Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran 
TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

99.84%

26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments Services Pte. Ltd.

OS

100.00%

10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 
018983

Eastspring Investments SICAV-FIS – Alternative 
Investments Fund

Eastspring Investments SICAV-FIS – Asia Pacific 
Loan Fund

Eastspring Investments SICAV-FIS Universal USD 
Bond Fund

Eastspring Investments SICAV-FIS Universal USD 
Bond II Fund

Eastspring Investments Unit Trust – Dragon 
Peacock Fund

Eastspring Investments US Bond Fund

Eastspring Investments US Corporate Bond Fund

Eastspring Investments US High Inv Grade Bond Fund

Eastspring Investments US Investment Grade 
Bond Fund

Eastspring Investments US Strategic Income Bond Fund

Eastspring Investments US Total Return Bond Fund

U

U

U

U

U

U

U

U

U

U

U

100.00%

26, Boulevard Royal, L-2449, Luxembourg

100.00%

100.00%

100.00%

97.59%

10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 
018983

27.84%

26, Boulevard Royal, L-2449, Luxembourg

70.82%

91.67%

45.41%

100.00%

100.00%

304

Prudential plc Annual Report 2019 

prudentialplc.com

D	OTHER	INFORMATION	CONTINUEDKey to share classes:
LBG 
LPI 
MI 
MFS 
NSB 
OS 
PI 
PS 
U 

Limited by Guarantee
Limited Partnership Interest
Membership Interest  
Mutual Fund Shares
Non-stock basis
Ordinary Shares
Partnership Interest
Preference Shares
Units

Registered office address and country of incorporation 

10 Marina Boulevard, #32-01, Marina Bay Financial Centre, 
Singapore 018983

23rd Floor, Saigon Trade Center Building, 37 Ton Duc Thang Street, 
Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam

Name of entity

Eastspring Investments UT Singapore ASEAN 
Equity Fund

Eastspring Investments UT Singapore Select Bond Fund

Eastspring Investments Vietnam Navigator Fund

Eastspring Investments World Value Equity Fund

Classes of
 shares held

Proportion 
held

99.76%

77.80%

71.42%

U

U

U

U

92.88%

26, Boulevard Royal, L-2449, Luxembourg

Eastspring Overseas Investment Fund Management 
(Shanghai) Company Limited

OS

100.00%

Unit 306-308, 3/F., 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free 
Trade Zone, China

Eastspring Real Assets Partners

Eastspring Securities Investment Trust Co., Ltd.

First State China Focus Fund

First State Global Property A

Fubon China Currency Fund

OS

OS

U

U

U

100.00%

PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands

99.54%

4th Floor, No.1 Songzhi Road, Taipei 110, Taiwan

66.58%

70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland

52.26%

38 Beach Road, #06-11 South Beach Tower, Singapore 189767

20.59%

8F, No. 108, Sec 1, Tun Hwa, South Road, Taipei, Taiwan

Furnival Insurance Company PCC Limited

OS

100.00%

PO Box 34, St Martin’s House Le Bordage,  
St Peter Port Guernsey, GY1 4AU

GS Twenty Two Limited

Hermitage Management LLC

Hyde Holdco 1 Limited

ICICI Prudential Asset Management Company Limited

ICICI Prudential Life Insurance Company Limited

ICICI Prudential Pension Funds Management Company

ICICI Prudential Trust Limited

Invesco Fixed Maturity Selective Emerging Market 
Bonds 2024

Invesco Select 6 Year Maturity Global Bond Fund

INVEST Financial Company Insurance Agency LLC 
of Illinois

iShares Core MSCI Europe

iShares Fallen Angels High Yield Corporate Bond UCITS 
ETF Wing

iShares S&P 500 Financials Sector UCITS

iShares S&P 500 Utilities Sector UCITS ETF

OS

OS

OS

OS

OS

OS

OS

U

U

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

1 Corporate Way, Lansing, MI 48951, USA

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

49.00%

22.11%

22.11%

49.00%

12th Floor, Narain Manzil, 23, Barakhamba Road,  
New Delhi 110001, India

ICICI PruLife Towers, 1089 Appasaheb Marathe Marg, Prabhadevi, 
Mumbai 400025, India

12th Floor, Narain Manzil, 23, Barakhamba Road,  
New Delhi 110001, India

61.60%

8F, No 122, Tung Hua N. Rd. Taipei, Taiwan

68.28%

OS

100.00%

208 South LaSalle Street, Chicago, IL 60604, USA

U

U

U

U

21.26%

State Street Fund Services (Ireland) Limited, 78 Sir John Rogerson's 
Quay, Dublin 2, Ireland

47.36%

79 Sir John Rogerson's Quay, Dublin 2, D02 RK 57, Ireland 

22.98%

53.39%

Jackson Charitable Foundation Inc

NSB

100.00%

1 Corporate Way, Lansing, MI 48951, USA

Jackson Holdings LLC

Jackson National Asset Management LLC

Jackson National Life (Bermuda) Limited

Jackson National Life Distributors LLC

Jackson National Life Insurance Company

Jackson National Life Insurance Company of New York

Lasalle Property Securities SICAV-FIS

M&G Asia Property Trust

M&G Luxembourg European Strategic Value Fund

OS

OS

OS

OS

OS

OS

U

U

U

100.00%

1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA

100.00%

1 Corporate Way, Lansing, MI 48951, USA

100.00%

Cedar House, Hamilton, Bermuda

100.00%

1209 Orange Street, Wilmington, DE 19801, USA

100.00%

1 Corporate Way, Lansing, MI 48951, USA

100.00%

2900 Westchester Avenue, Suite 305, Purchase, NY 10577, USA

99.97%

11-13 Boulevard de la Foire, L-1528 Luxembourg

99.97%

8 Marina Boulevard, 05-02 Marina Bay, Financial Centre Tower 1, 
Singapore, 018981

50.24%

49 Avenue J.F. Kennedy, L-1855, Luxembourg 

M&G Real Estate Asia Holding Company Pte. Ltd.

OS

33.00%

10 Marina Boulevard, #31-03, Marina Bay, Financial Centre Tower 2, 
Singapore, 018983

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationD7 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued
Other subsidiaries, joint ventures, associates and significant holdings of the Group – no shares held directly  
by the parent company, Prudential plc or its nominees: continued

Name of entity

Manulife Asia Pacific Bond Fund

Manulife China Dim Sum High Yield Bond Fund

Manulife China Offshore Bond Fund

Manulife USD High Yield Bond Fund

Mission Plans of America, Inc

National Planning Holdings, LLC

Nomura Six Years Fixed Maturity Asia Pacific Emerging 
Market Bond Fund

Nomura Six Years Fixed Maturity Emerging Market 
Bond Fund

Nomura Six Years Ladder Maturity Asia Pacific Emerging 
Market Bond Fund

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

U

U

U

U

OS

OS

U

U

U

27.29%

9/F, No 89 Son Ren Road, Taipei, Taiwan

58.33%

39.57%

37.47%

100.00%

1999 Bryan Street, Suite 900, Dallas, TX 75201, USA

100.00%

1209 Orange Street, Wilmington, DE 19801, USA

33.30%

101 Tower, 30F, No. 7 Sec. 5, Xinyi Rd., Xinyi Dist., Taipei, Taiwan

42.14%

25.01%

North Sathorn Holdings Company Limited

OS

100.00%

3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa 
Subdistrict, Sathorn District, Bangkok, Thailand

PCA IP Services Limited

PCA Life Assurance Co. Ltd.

PCA Reinsurance Co. Ltd.

PGDS (US One) LLC

PPM America Capital Partners III, LLC

PPM America Capital Partners IV, LLC

PPM America Capital Partners V, LLC

PPM America Capital Partners VI, LLC

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 America, Inc

PPM CLO 2 Ltd.

PPM CLO 2, LLC

PPM CLO 2018-1 Ltd.

PPM CLO 3 Ltd.

PPM CLO 3, LLC

PPM CLO 4 Ltd.

PPM Funds - PPM Core plus Fixed Income Fund

PPM Funds - PPM Large Cap Value Fund

PPM Funds - PPM Long Short Credit Fund

PPM Funds - PPM Mid Cap Value Fund

OS

100.00%

13th Floor, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

OS

OS

OS

MI

MI

MI

MI

LPI

LPI

LPI

LPI

LPI

OS

OS

PS

PS

99.79%

8th Floor, No.1 Songzhi Road, Taipei, 11047, Taiwan

100.00%

Unit Level 13(A), Main Office Tower, Financial Park Labuan, Jalan 
Merdeka, 87000 Federal Territory of Labuan, Malaysia

100.00%

1209 Orange Street, Wilmington, DE 19801, USA

60.50%

874 Walker Road, Suite C, Dover, DE 19904, USA

34.50%

34.00%

32.00%

50.06%

49.97%

49.97%

59.94%

54.00%

100.00%

100.00%

PO Box 1093, Queensgate House, Grand Cayman KY1-1102, 
Cayman Islands

100.00%

4001 Kennet Pike, Suite 301, Wilmington, DE, 19807, USA

100.00%

Queensgate House, South Church Street, George Town, Grand Cayman 
KY1-1102, Cayman Islands

OS

100.00%

PO Box 1093, Queensgate House, Grand Cayman KY1-1102, 
Cayman Islands

PS

PS

MFS

MFS

MFS

MFS

100.00%

4001 Kennet Pike, Suite 301, Wilmington, DE, 19807, USA

100.00%

PO Box 1093, Queensgate House, Grand Cayman KY1-1102, 
Cayman Islands

100.00%

84 State Street, 6th Floor, Boston, MA 02109

99.96%

100.00%

99.57%

306

Prudential plc Annual Report 2019 

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D	OTHER	INFORMATION	CONTINUEDKey to share classes:
LBG 
LPI 
MI 
MFS 
NSB 
OS 
PI 
PS 
U 

Limited by Guarantee
Limited Partnership Interest
Membership Interest  
Mutual Fund Shares
Non-stock basis
Ordinary Shares
Partnership Interest
Preference Shares
Units

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

100.00%

774 Walker Road, Suite C, Dover, DE 19904, USA

Name of entity

PPM Holdings, Inc

PPM Loan Management Company LLC

PPM Loan Management Holding Company LLC

Prenetics Limited

OS

MI

MI

PS

100.00%

100.00%

14.27%

Pru Life Insurance Corporation of U.K.

OS

100.00%

Pru Life UK Asset Management and Trust Corporation

OS

100.00%

7th Floor, Prosperity Millennia Plaza, 663 King’s Road,  
North Point, Hong Kong

9th Floor, Uptown Place Tower 1, 1 East 11th Drive, Uptown Bonifacio, 
1634 Taguig City, Metro Manila, Philippines

2/F., Uptown Parade 2, 36th Street, Uptown Bonifacio,  
1634 Taguig City, Philippines

Prudence Foundation

LBG

100.00%

13th Floor, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

Prudential (Cambodia) Life Assurance Plc

OS

100.00%

20th Floor, #445, Monivong Blvd, Boeung Prolit, 7 Makara, Phnom Penh 
Tower, Phnom Penh, Cambodia

Prudential (US Holdco 1) Limited

Prudential Africa Holdings Limited

Prudential Africa Services Limited

Prudential Assurance Company Singapore (Pte) Limited

Prudential Assurance Malaysia Berhad*

Prudential Assurance Uganda Limited

Prudential BSN Takaful Berhad†

Prudential Corporation Australasia Holdings Pty Limited 
(in liquidation)

Prudential Corporation Holdings Limited

Prudential Five Limited (in liquidation)

Prudential General Insurance Hong Kong Limited

Prudential Group Secretarial Services HK Limited

Prudential Group Secretarial Services Limited

Prudential Holdings Limited

Prudential Hong Kong Limited

Prudential International Staff Pensions Limited

Prudential International Treasury Limited

Prudential IP Services Limited

Prudential Life Assurance (Lao) Company Limited

Prudential Life Assurance (Thailand) Public Company 
Limited

Prudential Life Assurance Kenya Limited

Prudential Life Assurance Zambia Limited

Prudential Life Insurance Ghana Limited

Prudential Life Vault Limited

Prudential Mauritius Holdings Limited

Prudential Myanmar Life Insurance Limited

Prudential Pensions Management Zambia Limited

Prudential Services Asia Sdn. Bhd.

OS

OS

OS

OS

OS

OS

OS

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

100.00%

5th Ngong Avenue, Nairobi, Kenya

100.00%

30 Cecil Street, #30-01 Prudential Tower, Singapore 049712

51.00%

Level 20, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak 
Exchange, Kuala Lumpur, Malaysia

100.00%

Kampala Road, Kampala, Uganda

49.00%

Level 8A, Menara Prudential, No. 10 Jalan Sultan Ismail, 50250 Kuala 
Lumpur, Malaysia

OS

100.00%

31 Highgate Circuit, Kellyville, NSW, 2155, Australia

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS

OS
PS

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

c/o Mazars LLP, 45 Church Street, Birmingham, B3 2RT, United Kingdom

100.00%

59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong

100.00%

13th Floor, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

4th Floor, Saltire Court, 20, Castle Terrace, Edinburgh, EH1 2EN, 
United Kingdom

100.00%

59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

13th Floor, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

5th Floor, Lao international Business and Tourist Center Project 
(Vientiane Center), Khouvieng Road, Nongchan Village, Sisattanak 
District, Vientiane Capital, Lao PDR

99.93%

9/9 Sathorn Building, 20th–27th Floor, South Sathorn Road, Yannawa, 
Sahtorn, Bangkok 10120, Thailand

100.00%

5th Ngong Avenue, Nairobi, Kenya

100.00%

Prudential House, Thabo Mbeki Road, Lusaka, Zambia

100.00%

35 North Street, Accra, Ghana

100.00%

98 Awolowo Road, South-West Ikoyi, Lagos, Nigeria

100.00%

3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius

100.00%

#15-01, 15th Floor, Sule Square, 221 Sule Pagoda Road, Kyauktada 
Township, Yangon, Myanmar

49.00%

Prudential House, Thabo Mbeki Road, Lusaka, Zambia

100.00%
100.00%

Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing, No. 1 Leboh 
Ampang, 50100 Kuala Lumpur, Malaysia

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationD7 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued
Other subsidiaries, joint ventures, associates and significant holdings of the Group – no shares held directly  
by the parent company, Prudential plc or its nominees: continued

Name of entity

Prudential Services Limited

Prudential Services Singapore Pte. Ltd.

Prudential Singapore Holdings Pte. Limited

Prudential Vietnam Assurance Private Limited

Prudential Zenith Life Insurance Limited

PT. Eastspring Investments Indonesia

PT. Prudential Life Assurance

PVFC Financial Limited

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

OS

OS

OS

OS

OS

OS

OS

OS

100.00%

1 Angel Court, London, EC2R 7AG, United Kingdom

100.00%

1 Wallich Street, #19-01 Guoco Tower, Singapore 078881

100.00%

30 Cecil Street, #30-01 Prudential Tower, Singapore 049712

100.00%

25th Floor, Saigon Trade Centre, 37 Ton Duc Thang Street, District 1, 
Ho Chi Minh City, Vietnam

51.00%

99.95%

13th Floor, Civic Towers, Ozumba Mbadiwe Avenue, Victoria Island, 
Lagos, Nigeria

Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, 
Indonesia

94.62%

Prudential Tower, JI. Jend. Sudirman Kav. 79, Jakarta 12910, Indonesia

100.00%

Suite 509, 5/F, One International Finance Centre, 1 Harbour View Street, 
Central, Hong Kong

REALIC of Jacksonville Plans, Inc

OS

100.00%

1999 Bryan Street, Suite 900, Dallas, TX 75201, USA

Reksa Dana Eastspring IDR Fixed Income Fund (NDEIFF)

Reksa Dana Eastspring Investments Alpha Navigator 
Fund

Reksa Dana Eastspring Investments Cash Reserve

Reksa Dana Eastspring Investments IDR High Grade

Reksa Dana Eastspring Investments Value Discovery

Reksa Dana Syariah Eastspring Syariah Equity Islamic 
Asia Pacific USD

Reksa Dana Syariah Eastspring Syariah Fixed Income 
Amanah

Reksa Dana Syariah Eastspring Syariah Money Market 
Khazanah

Reksa Dana Syariah Penyertaan Terbatas Bahana 
Syariah BUMN Fund

Rhodium Investment Fund

U

U

U

U

U

U

U

U

U

U

99.91%

78.29%

100.00%

91.04%

91.94%

94.37%

65.65%

99.93%

99.01%

99.98%

Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, 
Indonesia

Graha CIMB Niaga 21st Floor. Jl Jend Sudirman Kav 58,  
Jakarta - 12190, Indonesia.

10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, 
Singapore 018983

ROP, Inc

OS

100.00%

1209 Orange Street, Wilmington, DE 19801, USA

SCB SET Banking Sector Index (Accumulation)

Schroder Asian Investment Grade Credit

Schroder Emerging Markets Fund

Schroder Multi-Asset Revolution

Schroder US Dollar Money Fund

Scotts Spazio Pte. Ltd.

SINOPAC China High Yield Fixed Income Fund

Squire Capital I LLC

Squire Capital II LLC

Squire Reassurance Company II, Inc

Squire Reassurance Company LLC

Sri Han Suria Sdn. Bhd.

Staple Limited

U

U

U

U

U

OS

U

MI

OS

OS

OS

OS

32.08%

7-8th Floor, SCB Park Plaza 1, 18 Ratchadapisek Road, Chatuchak, 
Bangkok 10900, Thailand

41.08%

138 Market Street, #23-01 CapitaGreen, Singapore 048946

58.49%

63.81%

37.19%

HSBC Institutional Trust Service (Asia) Limited, 1 Queen's Road Central, 
Hong Kong.

45.00%

30 Cecil Street #23-02 Prudential Tower, Singapore, 049712

35.38%

9F No.39 Section 1, Chung Hua Road, Taipei, Taiwan

100.00%

1 Corporate Way, Lansing, MI 48951, USA

100.00%

100.00%

40600 Ann Arbor Road, East Suite 201, Plymouth, MI 48170, USA

100.00%

1 Corporate Way, Lansing, MI 48951, USA

51.00%

Suite 1005, 10th Floor Wisma Hamzah-Kwong Hing, No. 1 Leboh 
Ampang, 50100 Kuala Lumpur, Malaysia

OS

100.00%

3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa 
Subdistrict, Sathorn District, Bangkok, Thailand

Taishin Emerging Markets Bond Fund

U

28.78%

1F, No.9, Dehui St., Zhongshan Dist. Taipei, Taiwan

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D	OTHER	INFORMATION	CONTINUEDKey to share classes:
LBG 
LPI 
MI 
MFS 
NSB 
OS 
PI 
PS 
U 

Limited by Guarantee
Limited Partnership Interest
Membership Interest  
Mutual Fund Shares
Non-stock basis
Ordinary Shares
Partnership Interest
Preference Shares
Units

Name of entity

Templeton Asian Growth Fund

Thanachart Fund Management Co., Ltd.

Thanachart Long Term Fixed Income Fund

TMB Asset Management Co., Ltd.

UOB Smart Global Healthcare

UOB Smart Millennium Growth Fund

VFL International Life Company SPC, Ltd.

Wynnefield Private Equity Partners I, L.P.

Classes of
 shares held

Proportion 
held

Registered office address and country of incorporation 

U

OS

U

OS

U

U

OS

LPI

26.08%

8A, rue Albert Borschette, L-1246 Luxembourg

50.10%

27.79%

65.00%

35.44%

36.96%

No. 231, MBK Life Building, 5th-7th Floor, Ratchadamri Road, Lumpini 
Sub-district, Pathumwan District, Bangkok, Thailand

32nd FL, Abdulrahim Place, 990 Rama IV Rd, Silom, Bangrak, Bangkok 
10500, Thailand

23A, 25th Floor, Asia Centre Building, 173/27-30, 32-33 South Sathorn 
Road, Thungmahamek, Sathorn, Bangkok 10120, Thailand

100.00%

171 Elgin Avenue, Grand Cayman, Cayman Islands

99.00%

1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA

* Prudential Assurance Malaysia Berhad is consolidated at 100 per cent in the Group’s financial statements reflecting the economic interest to the Group.
† Prudential BSN Takaful Berhad is a joint venture that is accounted for using the equity method, for which the Group has an economic interest of 70 per cent for all business sold up to 

23 December 2016 and of 49 per cent for new business sold subsequent to this date.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationStatement of financial position  
of the parent company

31 December 

Non-current assets
Investments in subsidiary undertakings
Amounts owed by subsidiary undertakings

Current assets
Debtors:

Amounts owed by subsidiary undertakings
Other debtors

Tax recoverable
Derivative assets
Pension asset 
Cash at bank and in hand

Liabilities: amounts falling due within one year
Commercial paper
Derivative liabilities
Amounts owed to subsidiary undertakings
Tax payable
Deferred tax liability
Accruals and deferred income

Net current assets

Total assets less current liabilities

Liabilities: amounts falling due after more than one year
Subordinated liabilities
Debenture loans
Other borrowings

Total net assets

Capital and reserves
Share capital
Share premium
Profit and loss account

Shareholders’ funds

Profit for the year

Note

2019  $m

2018*  $m

5

6

7

8

6

9

8

8

8

10

10

11

10,444
2,000

12,444

6,352
4
66
–
–
54

6,476

(520)
–
(141)
(14)
–
(78)

(753)

5,723

18,167

(4,304)
(690)
–

(4,994)

13,173

172
2,625
10,376

13,173

2019  $m

12,255

13,787
–

13,787

7,520
6
53
6
88
28

7,701

(601)
(539)
(1,192)
(13)
(15)
(129)

(2,489)

5,212

18,999

(8,503)
(658)
(350)

(9,511)

9,488

166
2,502
6,820

9,488

2018  $m

1,390

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Company’s presentational currency from pounds sterling to US dollars 

(as described in note 2).

The financial statements of the parent company on pages 310 to 318 were approved by the Board of Directors on 
10 March 2020 and signed on its behalf.

Paul Manduca 
Chairman  

Mike Wells 
Group Chief Executive 

Mark FitzPatrick
Group Chief Financial Officer and Chief Operating Officer

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Statement of changes in equity  
of the parent company

$m

Balance at 1 January 2018
Impact of initial application of IFRS 9
Total comprehensive income for the year
Profit for the year
Actuarial gains recognised in respect of the defined benefit pension scheme
Foreign exchange translation differences due to change in presentation 

currency*

Total comprehensive income for the year

Transactions with owners, recorded directly in equity
New share capital subscribed
Dividends
Foreign exchange translation differences due to change in presentation 

currency*

Total contributions by and distributions to owners

Balance at 31 December 2018

Balance at 1 January 2019
Profit for the year
Actuarial losses recognised in respect of the defined benefit pension scheme
Foreign exchange translation differences due to change in presentation 

currency*

Total comprehensive income for the year

Transactions with owners, recorded directly in equity
New share capital subscribed
Share based payment transactions 
Dividend in specie of M&G plc
Dividends
Foreign exchange translation differences due to change in presentation 

currency*

Total contributions by and distributions to owners

Balance at 31 December 2019

Share
capital

175
–

–
–

–

–

1
–

(10)

(9)

166

166
–
–

–

–

–
–
–
–

6

6

Share
premium

Profit and
loss account

2,635
–

–
–

–

–

22
–

(155)

(133)

2,502

2,502
–
–

–

–

22
–
–
–

101

123

Total
equity

10,321
(12)

1,390
21

(428)

983

23
(1,662)

(165)

(1,804)

9,488

7,511
(12)

1,390
21

(428)

983

–
(1,662)

–

(1,662)

6,820

6,820
12,255
(75)

9,488
12,255
(75)

393

393

12,573

12,573

–
(4)
(7,379)
(1,634)

–

(9,017)

10,376

22
(4)
(7,379)
(1,634)

107

(8,888)

13,173

172

2,625

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Company’s presentational currency from pounds sterling to US dollars 

(as described in note 2). 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationNotes on the parent company  
financial statements

1 Nature of operations

Prudential plc (the Company) is a parent holding company. The Company together with its subsidiaries (collectively, the Group) is an 
international financial services group with its operations in Asia, the US, Africa and, prior to the demerger of M&G plc in October 2019, 
the UK and Europe. The Group helps individuals to de-risk their lives and deal with their biggest financial concerns through life and 
health insurance, and retirement and asset management solutions. On 21 October 2019, the Company completed the demerger of M&G 
plc, its UK and Europe business, from Prudential plc resulting in two separately listed companies. The Directors of the Company 
distributed its investment in M&G plc to the Company’s shareholders in the form of a dividend in specie. 

2 Basis of preparation

The financial statements of the Company, which comprise the statement of financial position, statement of changes in equity and related 
notes, are 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 in 

International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’) and endorsed by 
the EU, but makes amendments where necessary in order to comply with the Companies Act 2006 and has set out below where 
advantage of the FRS 101 disclosure exemptions has been taken. The Company has also taken advantage of the exemption under 
Section 408 of the Companies Act 2006 from presenting its own profit and loss account.

In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures: 

 — A cash flow statement and related notes; 
 — Disclosures in respect of transactions with wholly-owned subsidiaries within the Prudential Group;
 — Disclosure in respect of capital management;
 — The effects of new but not yet effective IFRSs; and
 — An additional balance sheet for the beginning of the earliest comparative period following the retrospective change in the accounting 

policy with respect to the presentation currency (as outlined further below).

As the consolidated financial statements of the Group include the equivalent disclosures, the Company has also applied the exemptions 
available under FRS 101 in respect of the following disclosures:

 — IFRS 2 ‘Share Based Payments’ in respect of Group-settled share-based payments; 
 — Disclosure required by IFRS 7 ‘Financial Instrument Disclosures’ and IFRS 13 ‘Fair Value Measurement’, except for the consequential 

amendments to IFRS 7 related to IFRS 9 which have not been adopted by the Group; 
 — IFRS 15, ‘Revenue from Contracts with Customers’ in respect of revenue recognition; and
 — IAS 1, ‘Presentation of Financial Statements’ in respect of presenting comparative information on change in presentation currency.

Following the disposal of M&G plc, the Company and Group will manage its central cash resources and remittances primarily in 
US dollars. At 31 December 2019, terms of the majority of loans payable to and receivable from subsidiary undertakings previously 
denominated in pounds sterling were amended to reflect US dollars. From 31 December 2019, dividend income and dividend declared 
by the Company will be denominated in US dollars. Accordingly, as at 31 December 2019, the primary currency of the Company’s 
financing and investment activities is US dollars and the functional currency of the Company changed from pounds sterling to US dollars 
prospectively from that date. The Company’s assets, liabilities and equity were redenominated into US dollars using the spot exchange 
rate at 31 December 2019. 

As a result of the change in functional currency, the Company has chosen to change its presentation currency to US dollars which is 
accounted for retrospectively. Prior periods have been restated into US dollars using closing rates at the relevant balance sheet date for 
assets, liabilities, share capital, share premium and other capital reserves. Items of total comprehensive income have been converted at 
the rate prevailing on the date of transaction, or at the average rate for the relevant year where this provides an equivalent measurement.  
The accounting policies set out in note 3 below have, unless otherwise stated, been applied consistently to both years presented in 

these financial statements.

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3 Significant accounting policies

Investments in subsidiary undertakings
Investments in subsidiary undertakings are shown at cost less impairment. Investments are assessed for impairment by comparing the 
net assets of the subsidiary undertakings with the carrying value of the investment.

Amounts owed by subsidiary undertakings
Amounts owed by subsidiary undertakings are shown at cost, less provisions. Provisions are determined using the expected credit loss 
approach under IFRS 9. 

Derivatives
Derivative financial instruments are held to manage certain macro-economic exposures. Derivative financial instruments are carried at 
fair value with changes in fair value included in the profit and loss account. Refer to Section 6.1 of the Group Chief Risk and Compliance 
Officer’s report for detail of the approach to market risk. 

Financial Instruments
Under IFRS 9, except for derivative instruments that are mandatorily classified as fair value through profit or loss, all of the financial assets 
and liabilities of the Company are classified as amortised cost. The Company assesses impairment on its loans and receivables using the 
expected credit loss approach. The expected credit loss on the Company’s loans and receivables, the majority of which represent loans 
to its subsidiaries, have been assessed by taking into account the probability of default on those loans. In all cases the subsidiaries are 
expected to have sufficient resources to repay the loan either now or over time (based on projected earnings). For loans recallable on 
demand the expected credit loss has therefore been limited to the impact of discounting the value of the loan between the balance sheet 
date and the anticipated recovery date. For loans with a fixed maturity date the expected credit loss has been determined with reference 
to the historic experience of loans with equivalent credit characteristics. 

Borrowings
Borrowings are initially recognised at fair value, net of transaction costs, and 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 transaction costs, is amortised through the profit and loss account to the date of maturity or, for subordinated 
debt, over the expected life of the instrument. Where modifications to borrowings do not result in a substantial difference to the terms of 
the instrument, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining expected life of 
the modified instrument. Where modifications to borrowings do result in a substantial difference to the terms of the instrument, the 
instrument is treated as if it had been extinguished and replaced by a new instrument which is initially recognised at fair value and 
subsequently accounted for on an amortised cost basis using the effective interest method. Any costs or fees arising from such a 
modification are recognised as an expense when incurred.

Dividends
Interim dividends are recorded in the period in which they are paid. 

Share premium
The difference between the proceeds received on issue of shares and the nominal value of the shares issued is credited to the share 
premium account.

Foreign currency translation
Transactions not denominated in the Company’s functional currency are initially recorded at the functional rate of currency prevailing on 
the date of the transaction. Monetary assets and liabilities not denominated in the Company’s functional currency, including borrowings 
that have been used to finance or provide a hedge against Group equity investments in overseas subsidiaries, are translated to the 
Company’s functional currency at year end exchange rates. The impact of these currency translations is recorded within the profit and 
loss account for the year.

As discussed above, the Company’s functional currency changed from pounds sterling to US dollars on 31 December 2019. 

The Company has also changed its presentation currency from pounds sterling to US dollars.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information3 Significant accounting policies continued

Tax
Current tax expense is charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of 
taxable amounts for the current year. To the extent that losses of an individual UK company are not offset, they can be carried back for 
one year or carried forward indefinitely to be offset, subject to restrictions based on future taxable profits, against profits arising from the 
same company or other companies in the same UK tax group.

Deferred tax assets and liabilities are recognised in accordance with the provisions of IAS 12 ’Income Taxes’. Deferred tax assets are 
recognised to the extent that it is regarded as 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 be applied to temporary differences when they reverse, 
using tax rates enacted or substantively enacted at the reporting date.

The Group’s UK subsidiaries each file separate tax returns. In accordance with UK tax legislation, where one domestic UK company is 

a 75 per cent owned subsidiary of another UK company or both are 75 per cent owned subsidiaries of a common parent, the companies 
are considered to be within the same UK tax group. For companies within the same tax group, trading losses may be offset against 
taxable profits arising in the same or future accounting periods for the purposes of determining current and deferred taxes.

Pensions
The Company historically assumed a portion of the pension surplus or deficit of the Group’s main pension scheme, the Prudential Staff 
Pension Scheme (‘PSPS’). The Company’s portion of the surplus was transferred to M&GPrudential Services Limited at 30 June 2019. 
Up until that date, the Company applied the requirements of IAS 19 ‘Employee Benefits’ (as revised in 2011) for the accounting of its 
interest in the PSPS surplus or deficit. The key items are highlighted below.

A pension surplus or deficit is recorded as the difference between the present value of the scheme liabilities and the fair value of the 
scheme assets. The Company’s share of pension surplus is recognised to the extent that the Company is able to recover a surplus either 
through reduced contributions in the future or through refunds from the scheme. 

The assets and liabilities of the defined benefit pension schemes of the Prudential Group are subject to a full triennial actuarial 
valuation using the projected unit method. Estimated future cash flows are then discounted at a high quality corporate bond yield, 
adjusted to allow for the difference in duration between the bond index and the pension liabilities, where appropriate, to determine their 
present value. These calculations are performed by independent actuaries.

The aggregate of the actuarially determined service costs of the currently employed personnel and the net income (interest) on the 
net scheme assets (liabilities) at the start of the period, is recognised in the profit or loss account. Actuarial gains and losses as a result of 
the changes in assumptions, experience variances or the return on scheme assets excluding amounts included in the net deferred benefit 
asset (liability) are recorded in other comprehensive income. The loss on transfer of the pension surplus transferred to M&GPrudential 
Services Limited has been recognised in the profit or loss account.

Share-based payments
The Group offers share award and option plans for certain key employees and a Save As You Earn (‘SAYE’) plan for all UK and certain 
overseas employees. The share-based payment plans operated by the Group are mainly equity-settled.

Under IFRS 2 ‘Share-based payment’, where the Company, as the parent company, has the obligation to settle the options or awards 

of its equity instruments to employees of its subsidiary undertakings, and such share-based payments are accounted for as equity-
settled in the Group financial statements, the Company records an increase in the investment in subsidiary undertakings for the value 
of the share options and awards granted with a corresponding credit entry recognised directly in equity. The value of the share options 
and awards granted is based upon the fair value of the options and awards at the grant date, the vesting period and the vesting 
conditions. Cash receipts from business units in respect of newly issued share schemes are treated as returns of capital within 
investments in subsidiaries.

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NOTES ON THE PARENT COMPANY FINANCIAL STATEMENTS  CONTINUED4 Reconciliation from the FRS 101 parent company results to the IFRS Group results

The parent company financial statements are prepared in accordance with FRS 101 and the Group financial statements are prepared 
in accordance with IFRS as issued by the IASB and endorsed by the EU. 

The tables below provide a reconciliation between the FRS 101 parent company results and the IFRS Group results.

Profit after tax
Profit for the financial year of the Company (including dividends from subsidiaries) in accordance 

with FRS 101 and IFRS
Accounting policy difference*
Share in the IFRS result of the Group, net of distributions to the Company†

Profit after tax of the Group attributable to shareholders in accordance with IFRS

Net equity
Shareholders’ equity of the Company in accordance with FRS 101
Accounting policy difference*
Share in the IFRS net equity of the Group†

Shareholders’ equity of the Group in accordance with IFRS

2019   $m

2018  $m

12,255
15
(11,487)

783

1,390
7
2,622

4,019

31 Dec 2019
  $m

31 Dec 2018
  $m

13,173
33
6,271

19,477

9,488
18
12,462

21,968

* Adjustment represents difference in accounting policy for expected credit losses on loan assets, the Company has adopted IFRS 9 while the Group applies IAS 39.
† The ‘share in the IFRS result and net equity of the Group’ lines represent the parent company’s equity in the earnings and net assets of its subsidiaries and associates.

The profit for the financial year of the Company in accordance with IFRS includes dividends received in the year from subsidiary 
undertakings of $9,599 million for the year ended 31 December 2019 (2018: $1,996 million). Dividends received in 2019 included 
dividends from M&G plc prior to demerger of $5,566m and dividends from US subsidiaries of $2,000m in the form of non-current 
debt instruments.

5 Investments in subsidiary undertakings

At 1 January
Capital injections and acquisitions
Distribution of M&G plc – cost of investment
Other disposals
Amounts in respect of share based payments
Other*

At 31 December

2019   $m

2018  $m

13,787
72
(3,730)
(13)
(123)
451

10,444

14,608
117
–
–
(81)
(857)

13,787

* Includes amounts relating to foreign translation differences arising on the retranslation of reserves due to the change in the Company’s presentation currency

Prior to the demerger of M&G plc from the Group in October 2019, the following transactions and restructuring occurred:

 — On 20 September 2019, the Company disposed of its investment in Prudential Capital Holding Company Limited to M&G plc, 

for consideration of $85 million. A gain on disposal of $73 million is recognised in the income statement. 

 — On 8 October 2019, the Company acquired Prudential Africa Holdings Limited from Prudential Group Holdings Limited, a subsidiary 

of the Company, in exchange for consideration of $49 million. On 15 October 2019, the Company subsequently transferred Prudential 
Africa Holdings Limited to Prudential Corporation Asia Limited under a share-for-share exchange. Additionally, in connection with 
this transaction, the Company increased its investment in Prudential Group Holdings Limited by $23 million. 

 — Also on 15 October 2019, shares in Prudential (US Holdco 1) Limited were transferred to Prudential Corporation Asia Limited under 

a share-for-share exchange. There was no change to the Company’s total investment in subsidiary undertakings as a result 
of this transfer. 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information5 Investments in subsidiary undertakings continued

On 21 October 2019 the Company distributed its equity shareholding in its subsidiary M&G plc as a dividend in-specie. In accordance 
with IFRIC 17 the value of dividend in-specie recognised as distribution within the statement of changes in equity was the fair value of 
M&G plc at the date of distribution. As also required by IFRIC 17, the difference between the fair value of M&G plc on distribution and the 
previous carrying value of the Company’s investment in M&G plc of $3,649 million is recognised as gain within profit for the year.

Amounts in respect of share-based payments of $(123) million (2018: $(81) million) comprise of $5 million (2018: $7 million) in respect 

of share-based payments reflecting the value of payments settled by the Company for employees of its subsidiary undertakings, 
less $(128) million (2018: $(88) million) relating to cash received from subsidiaries in respect of share awards.

Investments in subsidiaries held at 31 December 2019 have been assessed for impairment and no impairment was identified.
Subsidiary undertakings of the Company at 31 December 2019 are listed in note D7 of the Group financial statements.

6 Derivative financial instruments

Cross-currency swap
Inflation-linked swap

Total

31 Dec 2019  $m

31 Dec 2018  $m

Fair value 
assets

Fair value 
liabilities

Fair value 
assets

Fair value 
liabilities

–
–

–

–
–

–

6
–

6

–
539

539

Derivative financial instruments are held to manage certain macro-economic exposures. 

The change in fair value of the derivative financial instruments of the Company was a (loss) before tax of $(77) million (2018: gain of 

$27 million).

7 Pension scheme financial position

The majority of Prudential staff in the UK are members of the Group’s pension schemes. The largest scheme up to the demerger of M&G 
plc was the Prudential Staff Pension Scheme (the Scheme) which is primarily a closed defined benefit scheme. Historically, all pension 
surplus and deficit were attributable to subsidiaries of M&G plc in line with the Group’s allocation policy with the exception of 30 per cent 
of the surplus attaching PSPS, which was allocated to Prudential plc. In preparation for the demerger of M&G plc in 2019, at 30 June 2019, 
the 30 per cent of surplus attaching to PSPS of $20 million was formally reallocated to M&GPrudential Services Limited. After the 
demerger of M&G plc, the Company no longer has any interest in the defined benefit pension scheme recognised on its balance sheet. 

316

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NOTES ON THE PARENT COMPANY FINANCIAL STATEMENTS  CONTINUED8 Borrowings

Core structural borrowings note (i)
Subordinated liabilities note (ii)
Debenture loans
Bank loan

Other borrowings: note (iii)
Commercial paper

Total borrowings 

Borrowings are repayable as follows:

Within 1 year
Between 1 and 5 years
After 5 years

Core structural borrowings

Other borrowings

Total

31 Dec 2019
  $m

31 Dec 2018
  $m

31 Dec 2019
  $m

31 Dec 2018
  $m

31 Dec 2019
  $m

31 Dec 2018
  $m

4,304
690
–

4,994

–

4,994

–
414
4,580

4,994

8,503
658
350

9,511

–

9,511

–
748
8,763

9,511

–
–
–

–

520

520

520
–
–

520

–
–
–

–

601

601

601
–
–

601

4,304
690
–

4,994

520

5,514

520
414
4,580

5,514

8,503
658
350

9,511
–
601

10,112

601
748
8,763

10,112

Notes
(i) 
(ii) 
(iii) 

Further details on the core structural borrowings of the Company are provided in note C6.1 of the Group IFRS financial statements.
The interests of the holders of the subordinated liabilities are subordinate to the entitlements of other creditors of the Company.
These borrowings support a short-term fixed income securities programme.

During 2019, the Company redeemed its £400 million 11.375 per cent Tier 2 subordinated notes, and issued further subordinated debt 
for proceeds of $371 million, net of issue costs. 

In addition, during 2019, the Company agreed with the holders of two subordinated debt instruments to alter the terms and 

conditions of these instruments in exchange for an upfront fee and an increase in the coupon of the instruments. The upfront fee paid of 
$180 million has been recognised as an expense during the period within finance costs. The upfront fee and increase in coupon rates 
represent a significant change in the cash flows of each instrument and therefore, in accordance with IAS 39, has resulted in an 
extinguishment of the old debt and recognition of a new debt at fair value, resulting in a loss on revaluation of $208 million. 

On 18 October 2019, the Company transferred six subordinated debt instruments to M&G plc to implement a rebalancing of debt 
prior to demerger. The debt transferred included the two instruments revalued on alteration of terms discussed above. The Company 
recognised a gain of $208 million on the transfer, reversing the loss on revaluation of debt instruments discussed above.

In October 2019 the Company repaid its £275 million bank loan due to Standard Chartered Bank. 

9 Deferred tax liability

Deferred tax liability

Short-term temporary differences related to pension scheme

Total

10 Share capital and share premium

2019  $m

2018  $m

–

–

(15)

(15)

A summary of the ordinary shares in issue and the options outstanding to subscribe for the Company’s shares at 31 December 2019 is set 
out in note C10 of the Group financial statements.

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317

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information11 Retained profit of the Company

Retained profit at 31 December 2019 amounted to $10,376 million (31 December 2018: $6,820 million). The retained profit includes 
distributable reserves of $4,735 million and non-distributable reserves of $5,641 million. The amount of $5,641 million is not able to be 
regarded as part of the distributable reserves of the Company because the gains relate to intra-group transactions in which qualifying 
consideration was not received.

Under UK company law, Prudential may pay dividends only if sufficient distributable reserves of the Company are available for the 
purpose and if the amount of its net assets is greater than the aggregate of its called up share capital and non-distributable reserves (such 
as the share premium account) and the payment of the dividend does not reduce the amount of its net assets to less than that aggregate.

The retained profit of the Company is substantially generated from dividend income received from subsidiaries. The Group segmental 

analysis illustrates the generation of profit across the Group (see note B1 of the Group IFRS financial statements). The Group and its 
subsidiaries are subject to local regulatory minimum capital requirements, as set out in note C12 of the Group IFRS financial statements. 
A number of the principal risks set out in the ‘Report on the risks facing our business and how these are managed’ could impact the 
generation of profit in the Group’s subsidiaries in the future and hence impact their ability to pay dividends in the future.

In determining the dividend payment in any year the directors follow the Group dividend policy described in the Group Chief 

Financial Officer and Chief Operating Officer’s report section of this Annual Report. The directors consider the Company’s ability to pay 
current and future dividends twice a year by reference to the Company’s business plan and certain stressed scenarios.

12 Other information

a 

b 
c 
d 

e 

 Information on key management remuneration is given in note B2.3 of the Group financial statements. Additional information on 
directors’ remuneration is given in the directors’ remuneration report section of this Annual Report. 
 Information on transactions of the directors with the Group is given in note D5 of the Group financial statements. 
 The Company employs no staff.
 Fees payable to the Company’s auditor for the audit of the Company’s annual accounts were $0.1 million (2018: $0.1 million) and for 
other services were $0.1 million (2018: $0.1 million). 
In certain instances, the Company has guaranteed that its subsidiaries will meet their obligations when they fall due for payment.

13 Post balance sheet events

The second interim ordinary dividend for the year ended 31 December 2019, which was approved by the Board of Directors after 
31 December 2019, is described in note B6 of the Group financial statements.

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NOTES ON THE PARENT COMPANY FINANCIAL STATEMENTS  CONTINUEDStatement of Directors’ responsibilities 
in respect of the Annual Report and 
the financial statements

Thedirectorsareresponsiblefor
preparingtheAnnualReportandthe
Groupandparentcompanyfinancial
statementsinaccordancewithapplicable
lawandregulations.

Companylawrequiresthedirectorsto
prepareGroupandparentcompany
financialstatementsforeachfinancialyear.
Underthatlawtheyarerequiredto
preparetheGroupfinancialstatements
inaccordancewithInternationalFinancial
ReportingStandardsasadoptedbythe
EuropeanUnion(IFRSsasadoptedbythe
EU)andapplicablelawandhaveelected
topreparetheparentCompanyfinancial
statementsinaccordancewithUK
AccountingStandardsandapplicable
law(UKGenerallyAcceptedAccounting
Practice)includingFRS101Reduced
DisclosureFramework.

Undercompanylaw,thedirectorsmust
notapprovethefinancialstatementsunless
theyaresatisfiedthattheygiveatrueand
fairviewofthestateofaffairsoftheGroup
andparentCompanyandoftheirprofitor
lossforthatperiod.Inpreparingeachofthe
GroupandparentCompanyfinancial
statements,thedirectorsarerequiredto:

— selectsuitableaccountingpolicies
andthenapplythemconsistently;

— makejudgementsandestimatesthat

arereasonableandprudent;

— fortheGroupfinancialstatements,

statewhethertheyhavebeenprepared
inaccordancewithIFRSsasadopted
bytheEU;

— fortheparentcompanyfinancial

statements,statewhetherapplicable
UKaccountingstandardshavebeen
followed,subjecttoanymaterial
departuresdisclosedandexplained
intheparentcompanyfinancial
statements;and

— preparethefinancialstatementson
thegoingconcernbasisunlessitis
inappropriatetopresumethatthe
Groupandtheparentcompanywill
continueinbusiness.

Thedirectorsareresponsibleforkeeping
adequateaccountingrecordsthatare
sufficienttoshowandexplaintheparent
Company’stransactionsanddisclosewith
reasonableaccuracyatanytimethe
financialpositionoftheparentCompany
andenablethemtoensurethatitsfinancial
statementscomplywiththeCompanies
Act2006.Theyhavegeneralresponsibility
fortakingsuchstepsasarereasonably
opentothemtosafeguardtheassetsof
theGroupandtopreventanddetectfraud
andotherirregularities.

Underapplicablelawandregulations,
thedirectorsarealsoresponsiblefor
preparingastrategicreport,directors’
report,directors’remunerationreport
andcorporategovernancestatementthat
complywiththatlawandthoseregulations.

Thedirectorsareresponsibleforthe
maintenanceandintegrityofthecorporate
andfinancialinformationincludedon
theCompany’swebsite.Legislationin
theUKgoverningthepreparationand
disseminationoffinancialstatementsmay
differfromlegislationinotherjurisdictions.

ThedirectorsofPrudentialplc,whose
namesandpositionsaresetoutonpages
92to97confirmthattothebestoftheir
knowledge:

— thefinancialstatements,preparedin
accordancewiththeapplicableset
ofaccountingstandards,giveatrue
andfairviewoftheassets,liabilities,
financialpositionandprofitorlossof
theCompanyandtheundertakings
includedintheconsolidationtaken
asawhole;

— thestrategicreportincludesafairreview
ofthedevelopmentandperformance
ofthebusinessandthepositionofthe
Groupandtheundertakingsincluded
intheconsolidationtakenasawhole,
togetherwithadescriptionofthe
principalrisksanduncertaintiesthat
theyface;and

— theAnnualReportandfinancial

statements,takenasawhole,isfair,
balancedandunderstandableand
providestheinformationnecessary
forshareholderstoassessthe
Group’spositionandperformance,
businessmodelandstrategy.

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319

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationIndependent auditor’s report to the 
members of Prudential plc

1 Our opinion is unmodified
Wehaveauditedthefinancialstatements
ofPrudentialplc(“thecompany”)forthe
yearended31December2019which
comprise;

— theconsolidatedincomestatement,

consolidatedstatementof
comprehensiveincome,consolidated
statementofchangesinequity,
consolidatedstatementoffinancial
positionandconsolidatedstatement
ofcashflows,andtherelatednotes,
includingaccountingpoliciesin
noteA4;and

— theparentcompanystatementsof
financialpositionandofchangesin
equity,andtherelatednotes,including
thesignificantaccountingpoliciesin
note3.

Inouropinion:

— Thefinancialstatementsgiveatrue

andfairviewofthestateoftheGroup’s
andoftheparentcompany’saffairs
asat31December2019andofthe
Group’sprofitfortheyearthenended;

— TheGroupfinancialstatements
havebeenproperlypreparedin
accordancewithInternational
FinancialReportingStandardsas
adoptedbytheEuropeanUnion;

— Theparentcompanyfinancial

statementshavebeenproperly
preparedinaccordancewithUK
AccountingStandardsincluding
FRS101ReducedDisclosure
Framework;and

— Thefinancialstatementshavebeen
preparedinaccordancewiththe
requirementsoftheCompaniesAct
2006and,asregardstheGroup
financialstatements,Article4of
theIASRegulation.

Basis for opinion 
Weconductedourauditinaccordance
withInternationalStandardsonAuditing
(UK)(“ISAs(UK)”)andapplicablelaw.
Ourresponsibilitiesaredescribedbelow.
Webelievethattheauditevidence
wehaveobtainedisasufficientand
appropriatebasisforouropinion.
Ourauditopinionisconsistentwith
ourreporttotheauditcommittee.

Wewereappointedasauditorbythe
shareholdersinOctober1999.Theperiod
oftotaluninterruptedengagementisfor
the21financialyearsended31December
2019.Wehavefulfilledourethical
responsibilitiesunder,andweremain
independentoftheGroupinaccordance
with,UKethicalrequirementsincluding
theFinancialReportingCouncil(‘FRC’)
EthicalStandardasappliedtolistedpublic
interestentities.Nonon-auditservices
prohibitedbythatstandardwereprovided.

2 Key audit matters: our assessment of risks of material misstatement
Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceintheauditofthefinancialstatements
andincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)identifiedbyus,includingthose
whichhadthegreatesteffecton:theoverallauditstrategy;theallocationofresourcesintheaudit;anddirectingtheeffortsofthe
engagementteam.Wesummarisebelowthekeyauditmatters,indecreasingorderofauditsignificance,inarrivingatourauditopinion
above,togetherwithourkeyauditprocedurestoaddressthosemattersand,asrequiredforpublicinterestentities,ourresultsfromthose
procedures.Thesematterswereaddressed,andourresultsarebasedonproceduresundertaken,inthecontextof,andsolelyforthe
purposeof,ourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andconsequentlyareincidentaltothat
opinion,andwedonotprovideaseparateopiniononthesematters.

320

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Valuation of insurance contract liabilities and investment contract liabilities with discretionary participation 
features (2019: $380,776 million, 2018: $496,805 million). 
The risk compared to the prior year is unchanged. 
Refer to page 118 (Audit Committee report), page 208 (accounting policy) and pages 262 to 275 (financial disclosures)

The risk

Our response

TheGrouphassignificantinsurancecontractliabilities
andinvestmentcontractliabilitieswithdiscretionary
participationfeatures(policyholderliabilities)representing
88percentoftheGroup’stotalliabilities.

Subjective valuation 
Thisisanareathatinvolvessignificantjudgementover
uncertainfutureoutcomes,mainlytheultimatetotal
settlementvalueoftheselongtermpolicyholderliabilities.
Economicassumptions,includinginvestmentreturnand
associateddiscountrates,andoperatingassumptions
includingmortality,morbidity,expenses,utilisationof
guaranteesandpersistency(includingconsiderationof
policyholderbehaviour)arethekeyinputsusedtoestimate
theselongtermliabilities,inadditiontotheappropriate
designandcalibrationofcomplexreservingmodels.

Thespecificapplicationofthesejudgementstoindividual
segmentsisexplainedbelow.

FortheUSinsurancesegment,thevaluationofthe
guaranteesinthevariableannuity(‘VA’)businessiscomplex
asitinvolvesexercisingsignificantjudgementrelatedto
inputssuchasexpectedmarketratesofreturn,fund
performance,anddiscountrates,aswellasassumptions
suchasmortality,benefitutilisation,andpersistency.

FortheAsiainsurancesegment,thevaluationofthe
policyholderliabilitiesrequiressignificantjudgement
overthesettingofmortality,morbidity,persistency
andexpenseassumptions.

Theeffectofthesemattersisthat,aspartofourrisk
assessment,wedeterminedthatthevaluationof
policyholderliabilitieshasahighdegreeofestimation
uncertainty,withapotentialrangeofreasonableoutcomes
greaterthanourmaterialityforthefinancialstatements
asawholeandpossiblymanytimesthatamount.
ThefinancialstatementsnotesC7.2andC7.3disclosethe
sensitivitiesestimatedbytheGroup.

Weusedourownactuarialspecialiststoassistusinperforming
ourproceduresinthisarea.

Ourproceduresincluded:

Methodology choice
Weassessedthemethodologyforselectingassumptionsandcalculating
thepolicyholderliabilities.Thisincluded:

— Assessingthemethodologyadoptedforselectingassumptionsby

applyingourindustryknowledgeandexperienceandcomparingthe
methodologyusedagainstindustrystandardactuarialpractice;

— Assessingthemethodologyadoptedforcalculatingthepolicyholder
liabilitiesbyreferencetotherequirementsoftheaccountingstandard
andassessingtheimpactofcurrentyearchangesinmethodologyon
thecalculationofpolicyholderliabilities;

— Comparingchangesinmethodologytoourexpectationsderivedfrom

marketexperience;and

— Evaluatingtheanalysisofthemovementsinpolicyholderliabilities

duringtheyear,includingconsiderationofwhetherthemovements
wereinlinewiththemethodologyandassumptionsadopted.

Control operation
WeusedourownITspecialiststoassistusinperformingourprocedures
inthisareawhichincludedtestingofthedesign,implementationand
operatingeffectivenessofkeycontrolsoverthevaluationprocess.
Controlstestinginrespectofthevaluationprocessincludedassessment
andapprovalofthemethodsandassumptionsadoptedoverthe
calculationofpolicyholderliabilitiesaswellasappropriateaccessand
changemanagementcontrolsovertheactuarialmodels.

Our procedures for the US insurance segment also included:
Historical comparison 
— Assessingtheassumptionsrelatingtopolicyholderbehaviour(benefit
utilisationandpersistency)bycomparingtorelevantcompanyand
industryhistoricalexperiencedatainordertoassesswhetherthis
supportedtheyear-endassumptionsadopted.

Benchmarking assumptions and sector experience
— Assessingtheassumptionsforinvestmentmixandprojected

investmentreturnsbycomparingtocompanyspecificandindustry
dataandforfuturegrowthratesbycomparingtomarkettrendsand
marketvolatility.

— Utilisingtheresultsofourindustrybenchmarkingofassumptionsand
actuarialmarketpracticetoinformourchallengeofassumptionsin
relationtopolicyholderbehaviour.

Model evaluation
— Assessingthecashflowprojectionsinthereservingmodelsby

referencetotheinclusionofrelevantproductfeatures.Wehavealso
assessedtheimpactofmodellingandassumptionchanges
byinspectingpreandpostchangemodelrunsandcomparingthe
outcomesofthechangestoourexpectations.

— Independentlyrecalculatingtheliabilitiesforaselectionofindividual
policiestoassesswhethertheselectedmodelcalibrationhadbeen
appropriatelyimplemented.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationValuation of insurance contract liabilities and investment contract liabilities with discretionary participation 
features (2019: $380,776 million, 2018: $496,805 million). 
The risk compared to the prior year is unchanged. 
Refer to page 118 (Audit Committee report), page 208 (accounting policy) and pages 262 to 275 (financial disclosures)

The risk

Our response

Our procedures for the Asia insurance segment also included: 
Historical comparison 
— Evaluatingtheexperienceanalysisinrespectofthemortalityand
morbidityassumptionsbyreferencetoactualexperienceinorder
toassesswhetherthissupportedtheyear-endassumptionsadopted.

Benchmarking assumptions and sector experience
— Usingoursectorexperienceandmarketknowledgetoinform
ourchallengeoftheassumptionsintheareasnotedabove.

Model evaluation 
— Assessingthereservingmodelsbyconsideringtheaccuracyof
thecashflowprojectionsincludingbyreferencetotheinclusion
ofrelevantproductfeatures.Wehavealsoassessedtheimpact
ofmodellingandassumptionchangesbyinspectingpreandpost
changemodelrunsandcomparingtheoutcomesofthechanges
toourexpectations.

Assessing transparency
Weassessedwhetherthedisclosuresinrelationtotheassumptionsused
inthevaluationofpolicyholderliabilitiesarecompliantwiththerelevant
accountingrequirements.

Our result
Wefoundthevaluationofpolicyholderliabilitiestobeacceptable
(2018:acceptable).

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PRUDENTIAL PLC  CONTINUEDValuation of certain level 2 and level 3 investments held at fair value (2019: $77,203 million, 
2018: $181,757 million). 
The risk compared to the prior year is unchanged. 
Refer to page 118 (Audit Committee report), page 213 (accounting policy) and pages 244 to 261 (financial disclosures) 

The risk

Our response

TheGroup’sinvestmentsportfoliorepresents89percent
(2018:88percent)oftheGroup’stotalassets.

Weusedourownvaluationspecialistsinordertoassistusinperforming
ourproceduresinthisarea.

Subjective valuation 
Theareathatinvolvedsignificantauditeffortandjudgement
in2019wasthevaluationofcertainlevel2andlevel3
positionswithintheportfoliooffinancialinvestmentsheld
atfairvalue.Theseincludedunlisteddebtsecuritiesand
unlistedfundsthatarevaluedbyreferencetotheirNet
AssetValue(‘NAVfunds’).Forthesepositionsareliable
thirdpartypricewasnotreadilyavailableandtherefore
involvedtheapplicationofexpertjudgementinthe
valuationsadopted.

Thevaluationoftheportfolioinvolvesjudgement
dependingontheobservabilityandsignificanceofthe
inputsintothevaluationandtheconsequentimpactonthe
classificationofthoseinvestments,andfurtherjudgement
indeterminingtheappropriatevaluationmethodology
whereexternalpricingsourcesareeithernotreadily
availableorareunreliable.

Ourproceduresincluded:

Methodology choice
Weassessedtheappropriatenessofthepricingmethodologieswith
referencetorelevantaccountingstandardsaswellasindustrypractice.

Control operation 
Wetestedthedesign,implementationandoperatingeffectivenessof
keycontrolsoverthevaluationprocess,includingtheGroup’sreview
andapprovaloftheestimatesandassumptionsusedforthevaluation
includingkeyauthorisationanddatainputcontrols.

Tests of details
Forasampleofsecurities,weusedourvaluationspecialiststoassessthe
Group’sclassificationofassetswithinLevel2orLevel3byevaluatingthe
observabilityoftheinputsusedinvaluingthesesecurities.

Forasampleofunlisteddebtsecuritieswecomparedthepriceadopted
toourindependentlyderivedprice,usingourvaluationspecialists.

Theeffectofthesemattersisthat,aspartofourrisk
assessment,wedeterminedthatthevaluationofcertain
level2and3investmentsheldatfairvaluehasahigh
degreeofestimationuncertainty,withapotentialrange
ofreasonableoutcomesgreaterthanourmaterialityfor
thefinancialstatementsasawholeandpossiblymanytimes
thatamount.

WeagreedthevaluationsfortheNAVfundstothemostrecentNAV
statements.Toassessreliabilityofthesestatementswecomparedto
auditedfinancialstatementsofthefunds,whereavailable,orperformed
aretrospectivetestovertheNAVvaluationsforeachfundtoassessifthe
fundvaluationsreportedintheauditedfinancialstatementsintheprior
yearweremateriallyconsistentwiththemostrecentNAVvaluation
statementsavailableatthetime.

ThefinancialstatementsnotesC7.2andC7.3disclosethe
sensitivitiesestimatedbytheGroup.

Assessing transparency
Weassessedwhetherthedisclosuresinrelationtothevaluationoflevel2
and3investmentsheldatfairvaluearecompliantwiththerelevant
accountingrequirements.

Our result
Wefoundthevaluationoflevel2and3investmentsheldatfairvalue
tobeacceptable(2018:acceptable).

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323

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationAmortisation of US deferred acquisition costs (‘DAC’) (2019: $12,240 million, 2018: $11,113 million). 
The risk compared to the prior year is unchanged. 
Refer to page 118 (Audit Committee report), page 211 (accounting policy) and pages 277 to 279 (financial disclosures) 

The risk

Our response

DACrepresents3percent(2018:2percent)oftheGroup’s
totalassets.TheDACassociatedwiththeUScomponent,
whichrepresents86percentofthetotalDAC,involvesthe
greatestjudgementintermsofmeasurement.

Weusedourownactuarialspecialiststoassistusinperformingouraudit
proceduresinthisarea.

Ourproceduresincluded:

Subjective valuation
USDACrelatedtoannuitiesisamortisedinproportion
toestimatedgrossprofits.Keyassumptionsimpacting
estimatedgrossprofitsincludeassumptionssuchas
mortalityandpersistency,aswellastheassumptions
aroundlong-terminvestmentreturnandfuturehedge
costs.WeidentifiedtheamortisationofUSDACasakey
auditmattergiventhejudgementsinvolvedinselecting
theseassumptions.

Theeffectofthesemattersisthat,aspartofourrisk
assessment,wedeterminedthattheamortisationofUS
DAChasahighdegreeofestimationuncertainty,witha
potentialrangeofreasonableoutcomesgreaterthanour
materialityforthefinancialstatementsasawhole.The
financialstatementsnoteC7.3disclosesthesensitivities
estimatedbytheGroup.

Historical comparison
Assumptionsrelatingtopersistencyandmortalityarealsorelevanttothe
calculationoftheinsurancecontractliabilities.Seefurtherdetailinour
responsetothatrisk.

Wehavealsoassessedtheappropriatenessoftheassumptionsused
indeterminingtheestimatedfutureprofitprofileandtheextentofthe
associatedadjustmentnecessarytotheamortisationoftheUSDAC
asset.Ourworkincludedcriticallyassessingthejudgementsthat
determinethefutureprofitprofilesinthecontextofactualhistorical
experienceaswellasbyreferencetomarkettrends.

Our sector experience
Wechallengedthereasonablenessoftheselectedassumptionsrelating
toprojectedinvestmentreturnandfuturehedgecostsbasedonour
understandingofdevelopmentsinthebusiness.Ourworkincluded
comparingtheprojectedinvestmentreturnsagainsttheinvestment
portfoliomixandmarketreturndata.Additionally,weevaluated
management’sapproachforderivingtheassumptionforfuturehedge
coststhroughcomparisontoactuarialmarketpractice,andcorroborating
therationaleforanykeydifferences.

Tests of details
Weassessedtheaccuracyofthecalculationsperformedincluding
theextentoftheamortisationadjustmentdeterminedbasedonan
assessmentofthefutureprofitprofiles.

Assessing transparency
WeassessedwhetherthedisclosuresinrelationtotheamortisationofUS
DACarecompliantwiththerelevantaccountingrequirements.

Our result
WefoundtheamortisationofUSDACtobeacceptable
(2018:acceptable).

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PRUDENTIAL PLC  CONTINUEDRecoverability of parent company’s investment in subsidiaries – (2019: $10,444 million, 2018: $13,787 million) 
The risk is new in the current year. The risk relates to the parent company financial statements. 
Refer to page 118 (Audit Committee report), Refer to page 313 (accounting policy) and pages 315 to 316 (financial disclosures) 

The risk

Low risk, high value
Thecarryingamountoftheparentcompany’sinvestments
insubsidiariesrepresents55percent(2018:64percent)of
thecompany’stotalassets.Theirrecoverabilityisnotata
highriskofsignificantmisstatementorsubjecttosignificant
judgement.However,duetotheirmaterialityinthecontext
oftheparentcompanyfinancialstatements,thisis
consideredtobetheareathathadthegreatesteffectonour
overallparentcompanyaudit.

Our response

Ourproceduresincluded:

Tests of details
Comparingthecarryingamountof100%oftheinvestmentsinsubsidiaries
withtherelevantsubsidiaries’draftbalancesheettoidentifywhethertheir
netassets,beinganapproximationoftheirminimumrecoverableamount,
wereinexcessoftheircarryingamountandassessingwhetherthose
subsidiarieshavehistoricallybeenprofit-making.

Assessing subsidiary audits
Assessingtheworkperformedbythesubsidiaryauditteamsonallof
thosesubsidiariesandconsideringtheresultsofthatworkonthose
subsidiaries’profitsandnetassets.

Our result
WefoundtheGroup’sassessmentoftherecoverabilityoftheinvestment
insubsidiariestobeacceptable(2018:acceptable).

FollowingthedemergerofM&GplcfromtheGroupon21October2019,wenolongerconsiderthefollowingtobekeyauditmatters
for2019:

— Determinationofpensionasset(restrictedsurplus)inrespectofthedefinedbenefitpensionscheme.Asaresultofthedemergerand

associatedtransferofcertainfinancialbalancesbyPrudentialplctothedemergedentity,thebalanceisnolongermaterial.

— TheimpactofuncertaintiesduetotheUKexitingtheEuropeanUniononouraudit.Asaresultofthedemerger,theGroupnolonger
hasanytradingoperationsintheUKorEurope.Assuch,thefactorsgivingrisetoakeyauditmatterrelatedtotheseuncertaintiesare
nolongerrelevant.

3 Our application of materiality 
and an overview of the scope 
of our audit
MaterialityfortheGroupfinancial
statementsasawholewassetat
$298million(2018:$446million)
determinedwithreferencetoabenchmark
ofIFRSshareholders’equity(ofwhich
itrepresents1.5percent(2018:
2.0percent)).WeconsiderIFRS
shareholders’equitytobethemost
appropriatebenchmarkasitrepresents
theresidualinterestthatcanbeascribed
toshareholdersafterpolicyholderassets
andcorrespondingliabilitieshavebeen
accountedfor;weconsiderthatthisisthe
mostappropriatemeasureforthesizeof
thebusinessandthatitprovidesastable
measureyearonyear.Wecompared
ourmaterialityagainstotherrelevant
benchmarks(totalassets,totalrevenue
andprofitbeforetax)toensure
thematerialityselectedwasappropriate
forouraudit.

Wesetoutbelowthematerialitythresholdsthatarekeytotheaudit.

IFRS shareholders’ equity

$19.48bn

(2018:$21.97bn)

Group materiality
$298m(2018:$446m)

$298m
Wholefinancialstatementsmateriality
(2018:$446m)

$238m
Rangeofmaterialityat14components
($40mto$238m)(2018:$70mto$146m)

IFRSshareholders’equity
Groupmateriality

$15m
Misstatementsreportedtothe
auditcommittee(2018:$23m)

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationMaterialityfortheparentcompany
financialstatementsasawholewasset
at$40million(2018:$146million),
determinedwithreferencetoabenchmark
ofparentcompany’snetassets,ofwhich
itrepresents0.3percent(2018:
1.5percent).Thecomponentmateriality,
asdeterminedbytheGroupauditteam,
appliedtotheauditoftheparentcompany
financialstatementsasawholeislower
thanthematerialitywewouldotherwise
havedeterminedbyreferencetoitsnet
assets.

WeagreedtoreporttotheGroupaudit
committeeanycorrectedoruncorrected
identifiedmisstatementsexceeding
$15million(2018:$23million)inaddition
tootheridentifiedmisstatementsthat
warrantreportingonqualitativegrounds.

WesubjectedtheGroup’soperationsto
auditsforgroupreportingpurposesas
follows:

Ofthe14(2018:16)reportingcomponents
scopedinfortheGroupaudit,we
subjected10(2018:10)tofullscopeaudits
forgroupreportingpurposes,and4
(2018:5)toanauditofaccountbalances.
Thecomponentsforwhichweperformed
workotherthanfullscopeauditsforgroup
reportingpurposeswerenotindividually
significantbutwereincludedinthescope
ofourgroupreportingworkastheydid
presentspecificindividualauditrisks
thatneededtobeaddressedorinorder
toprovidefurthercoverageoverthe
Group’sresults.

Thecomponentssubjectedtofullscope
auditsincludedtheparentcompany;the
PrudentialAssuranceCompanyLimited
intheUKandtheinsuranceoperationsin
theUS,HongKong,Indonesia,Singapore,
Malaysia,Vietnam,andChina;andthe
fundmanagementoperationsofM&G.

Thecomponentssubjectedtoanaudit
ofaccountbalancesincludedPrudential
PensionsLimited,theinsuranceoperations
inThailandandTaiwan,andthefund
managementoperationsofEastspring
Singapore.Theaccountbalancesaudited
forThailandwerepolicyholderliabilities,
investments,deferredacquisitioncosts,
premiumsandclaims;theaccountbalances
auditedforTaiwanwerepolicyholder
liabilities,investments,anddeferred
acquisitioncosts;theaccountbalances
auditedforEastspringSingaporewere
otherincomeandexpenses;theaccount
balancesauditedforPrudentialPensions
Limitedweretotalinvestmentreturnand
benefitsandclaims.

Fortheremainingoperations,weperformedanalysisatanaggregatedGrouplevelto
re-examineourassessmentthattherewerenosignificantrisksofmaterialmisstatement
withintheseoperations.

ThesecomponentsaccountedforthefollowingpercentagesoftheGroup’sresults:

Group revenue 

Group profit before tax

97%

(2018:96%)

92%

(2018:97%)

FullscopeforGroupauditpurposes2019
Auditofaccountbalances2019
FullscopeforGroupauditpurposes2018
Auditofaccountbalancesandspecified
riskfocusedauditprocedures2018
Residualcomponents

93%
4%
93%

3%

FullscopeforGroupauditpurposes2019
Auditofaccountbalances2019
FullscopeforGroupauditpurposes2018
Auditofaccountbalancesandspecified
riskfocusedauditprocedures2018
Residualcomponents

74%
18%
91%

6%

Group total assets

Group shareholders’ equity

97%

(2018:97%)

93%

(2018:94%)

FullscopeforGroupauditpurposes2019
Auditofaccountbalances2019
FullscopeforGroupauditpurposes2018
Auditofaccountbalancesandspecified
riskfocusedauditprocedures2018

94%
3%
94%

3%

 Residualcomponents

FullscopeforGroupauditpurposes2019
Auditofaccountbalances2019
FullscopeforGroupauditpurposes2018
Auditofaccountbalancesandspecified
riskfocusedauditprocedures2018
Residualcomponents

83%
10%
89%

5%

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PRUDENTIAL PLC  CONTINUED4 We have nothing to report 
on going concern
TheDirectorshavepreparedthefinancial
statementsonthegoingconcernbasis
astheydonotintendtoliquidatethe
CompanyortheGrouportoceasetheir
operations,andastheyhaveconcluded
thattheCompany’sandtheGroup’s
financialpositionmeansthatthisisrealistic.
Theyhavealsoconcludedthatthereare
nomaterialuncertaintiesthatcouldhave
castsignificantdoubtovertheirability
tocontinueasagoingconcernforatleast
ayearfromthedateofapprovalofthe
financialstatements(“thegoing
concernperiod”).

Ourresponsibilityistoconcludeon
theappropriatenessoftheDirectors’
conclusionsand,hadtherebeenamaterial
uncertaintyrelatedtogoingconcern,to
makereferencetothatinthisauditreport.
However,aswecannotpredictallfuture
eventsorconditionsandassubsequent
eventsmayresultinoutcomesthatare
inconsistentwithjudgementsthatwere
reasonableatthetimetheyweremade,
theabsenceofreferencetoamaterial
uncertaintyinthisauditor’sreportis
notaguaranteethattheGroupandthe
Companywillcontinueinoperation.

InourevaluationoftheDirectors’
conclusions,weconsideredtheinherent
riskstotheGroup’sandCompany’s
businessmodelandanalysedhowthose
risksmightaffecttheGroup’sand
Company’sfinancialresourcesorability
tocontinueoperationsoverthegoing
concernperiod.Therisksthatwe
consideredmostlikelytoadverselyaffect
theGroup’sandCompany’savailable
financialresourcesoverthisperiodwere:

— Adverseimpactsarisingfrom

fluctuationsornegativetrendsinthe
economicenvironmentwhichaffectthe
valuationsoftheGroup’sinvestments,
widercreditspreadsanddefaultsand
valuationofpolicyholderliabilitiesdue
totheimpactofthesemarket
movements;and

— Severelyadversepolicyholderlapse

orclaimsexperience.

Asthesewererisksthatcouldpotentially
castsignificantdoubtontheGroup’sand
theCompany’sabilitytocontinueasa
goingconcern,weconsideredsensitivities
overthelevelofavailablefinancial
resourcesindicatedbytheGroup’s
financialforecaststakingaccountof
reasonablypossible(butnotunrealistic)
adverseeffectsthatcouldarisefromthese
risksindividuallyandcollectivelyand
evaluatedtheachievabilityoftheactions
theDirectorsconsidertheywouldtaketo
improvethepositionshouldtherisks
materialise.Wealsoconsideredless
predictablebutrealisticsecondorder
impacts,suchasfailureofcounterparties
whohavetransactionswiththeGroup
(suchasbanksandreinsurers)tomeet
commitmentsthatcouldgiverisetoa
negativeimpactontheGroup’sfinancial
positionandincreasedilliquiditywhichalso
addstouncertaintyovertheaccessibilityof
financialresourcesandmayreducecapital
resourcesasvaluationsdeclinewhilst
takingintoconsiderationdevelopmentsin
thewidereconomicenvironmentreflecting
factorssuchastheimpactofBrexitand
othersuchmacroeconomicevents.

Basedonthiswork,wearerequired
toreporttoyouif:

— Wehaveanythingmaterialtoaddor
drawattentiontoinrelationtothe
directors’statementinnoteA1tothe
financialstatementsontheuseofthe
goingconcernbasisofaccountingwith
nomaterialuncertaintiesthatmaycast
significantdoubtovertheGroupand
Company’suseofthatbasisforaperiod
ofatleastayearfromthedateof
approvalofthefinancialstatements;or

— TherelatedstatementundertheListing
Rulessetoutonpage133ismaterially
inconsistentwithourauditknowledge.

Wehavenothingtoreportinthese
respects,andwedidnotidentifygoing
concernasakeyauditmatter.

TheGroupauditteamheldaglobal
planningconferencewithcomponent
auditorstoidentifyauditrisksanddecide
howeachcomponentteamshouldaddress
theidentifiedauditrisks.TheGroupaudit
teaminstructedcomponentauditors
astothesignificantareastobecovered,
includingtherelevantrisksdetailedabove
andtheinformationtobereported.
TheGroupauditteamapprovedthe
componentmaterialities,whichranged
from$40millionto$238million(2018:
$70millionto$146million)acrossthe
components,havingregardtothesize
andriskprofileoftheGroupacrossthe
components.Theworkon13components
(2018:15components)wasperformed
bycomponentauditorsandworkonthe
remainingcomponent,whichwasthe
parentcompany,wasperformedbythe
Groupauditteam.

TheGroupauditteamvisitedall
componentauditorlocationsthat
performedafull-scopeaudit.Videoand
telephoneconferencemeetingswerealso
heldwiththesecomponentauditorsand
thosethatperformedanauditofaccount
balances.Atthesevisitsandtelephone
conferencemeetings,anassessmentwas
madeofauditriskandstrategy,thefindings
reportedtotheGroupauditteamwere
discussedinmoredetail,keyworking
paperswereinspectedandanyfurther
workrequiredbytheGroupauditteamwas
thenperformedbythecomponentauditor.

TheGroupteamalsoroutinelyreviewsthe
auditdocumentationofallcomponent
audits.Thisyearforonecomponentin
China,ajointventureoftheGroup,we
visitedthecomponentteaminDecember
andperformedapreliminaryfilereview.
AstheCoronaviruspreventedentryto
thecountrypostyear-end,andremote
accesstoauditdocumentationis
prohibited,weinsteadextendedour
oversightofthatcomponentteam
throughextendedtelephonediscussions
andexpandedreporting.

TheSeniorStatutoryAuditor,in
conjunctionwithotherseniorstaffinthe
Groupandcomponentauditteams,also
regularlyattendedBusinessUnitaudit
committeemeetings(thesewereheld
ataregionallevelforAsia)andparticipated
inmeetingswithlocalcomponentsto
obtainadditionalunderstanding,firsthand,
ofthekeyrisksandauditissuesata
componentlevelwhichmayaffectthe
Groupfinancialstatements.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationCorporate governance disclosures 
Wearerequiredtoreporttoyouif:

— wehaveidentifiedmaterial

inconsistenciesbetweentheknowledge
weacquiredduringourfinancial
statementsauditandthedirectors’
statementthattheyconsiderthatthe
annualreportandfinancialstatements
takenasawholeisfair,balancedand
understandableandprovidesthe
informationnecessaryforshareholders
toassesstheGroup’spositionand
performance,businessmodeland
strategy;or

— thesectionoftheannualreport
describingtheworkoftheAudit
Committeedoesnotappropriately
addressmatterscommunicated
byustotheAuditCommittee.

Wearerequiredtoreporttoyouifthe
CorporateGovernanceStatementdoes
notproperlydiscloseadeparturefrom
theprovisionsoftheUKCorporate
GovernanceCodespecifiedbythe
ListingRulesforourreview.

Wehavenothingtoreportinthese
respects.

5 We have nothing to report 
on the other information in the 
Annual Report
Thedirectorsareresponsibleforthe
otherinformationpresentedinthe
AnnualReporttogetherwiththefinancial
statements.Ouropiniononthefinancial
statementsdoesnotcovertheother
informationand,accordingly,wedonot
expressanauditopinionor,exceptas
explicitlystatedbelow,anyformof
assuranceconclusionthereon.

Ourresponsibilityistoreadtheother
informationand,indoingso,consider
whether,basedonourfinancialstatements
auditwork,theinformationthereinis
materiallymisstatedorinconsistentwith
thefinancialstatementsorouraudit
knowledge.Basedsolelyonthatworkwe
havenotidentifiedmaterialmisstatements
intheotherinformation.

Strategic report and 
directors’ report 
Basedsolelyonourworkontheother
information:

— wehavenotidentifiedmaterial

misstatementsinthestrategicreport
andthedirectors’report;

— inouropiniontheinformationgiven
inthosereportsforthefinancialyear
isconsistentwiththefinancial
statements;and

— inouropinionthosereportshave
beenpreparedinaccordancewith
theCompaniesAct2006.

Directors’ remuneration report
InouropinionthepartoftheDirectors’
RemunerationReporttobeauditedhas
beenproperlypreparedinaccordance
withtheCompaniesAct2006.

Disclosures of emerging 
and principal risks and 
longer‑term viability
Basedontheknowledgeweacquired
duringourfinancialstatementsaudit,we
havenothingmaterialtoaddordraw
attentiontoinrelationto:

— Thedirectors’confirmationwithinthe

viabilitystatementonpage70,thatthey
havecarriedoutarobustassessmentof
theemergingandprincipalrisksfacing
theGroup,includingthosethatwould
threatenitsbusinessmodel,future
performance,solvencyandliquidity;

— Theprincipalrisksdisclosuresonpages
51to71describingtheserisksand
explaininghowtheyarebeingmanaged
andmitigated;and

— Thedirectors’explanationinthe

viabilitystatementofhowtheyhave
assessedtheprospectsoftheGroup,
overwhatperiodtheyhavedoneso
andwhytheyconsideredthatperiod
tobeappropriate,andtheirstatement
astowhethertheyhaveareasonable
expectationthattheGroupwillbeable
tocontinueinoperationandmeetits
liabilitiesastheyfalldueovertheperiod
oftheirassessment,includingany
relateddisclosuresdrawingattention
toanynecessaryqualifications
orassumptions.

UndertheListingRuleswearerequiredto
reviewtheviabilitystatement.Wehave
nothingtoreportinthisrespect.

Ourworkislimitedtoassessingthese
mattersinthecontextofonlythe
knowledgeacquiredduringourfinancial
statementsaudit.Aswecannotpredict
allfutureeventsorconditionsandas
subsequenteventsmayresultinoutcomes
thatareinconsistentwithjudgmentsthat
werereasonableatthetimetheywere
made,theabsenceofanythingtoreport
onthesestatementsisnotaguarantee
astotheGroup’sandCompany’slonger-
termviability.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PRUDENTIAL PLC  CONTINUED6 We have nothing to report on the 
other matters on which we are 
required to report by exception
UndertheCompaniesAct2006weare
requiredtoreporttoyouif,inouropinion:

— Adequateaccountingrecordshavenot
beenkeptbytheparentcompany,or
returnsadequateforouraudithavenot
beenreceivedfrombranchesnotvisited
byus;or

— Theparentcompanyfinancial
statementsandthepartofthe
Directors’RemunerationReporttobe
auditedarenotinagreementwiththe
accountingrecordsandreturns;or

— Certaindisclosuresofdirectors’

remunerationspecifiedbylaware
notmade;or

— Wehavenotreceivedallthe

informationandexplanationswe
requireforouraudit.

Wehavenothingtoreportinthese
respects.

7 Respective responsibilities
Directors’ responsibilities 
Asexplainedmorefullyintheirstatement
setoutonpage319,thedirectorsare
responsibleforthepreparationofthe
financialstatementsincludingbeing
satisfiedthattheygiveatrueandfairview.
Theyarealsoresponsiblefor:suchinternal
controlastheydetermineisnecessaryto
enablethepreparationoffinancial
statementsthatarefreefrommaterial
misstatement,whetherduetofraudor
error;assessingtheGroupandparent
company’sabilitytocontinueasagoing
concern,disclosing,asapplicable,matters
relatedtogoingconcern;andusingthe
goingconcernbasisofaccountingunless
theyeitherintendtoliquidatetheGroupor
theparentcompanyortoceaseoperations,
orhavenorealisticalternativebuttodoso.

Auditor’s responsibilities 
Ourobjectivesaretoobtainreasonable
assuranceaboutwhetherthefinancial
statementsasawholearefreefrom
materialmisstatement,whetherdueto
fraud,orotherirregularities,(seebelow),
orerror,andtoissueouropinioninan
auditor’sreport.Reasonableassuranceisa
highlevelofassurance,butdoesnot
guaranteethatanauditconductedin
accordancewithISAs(UK)willalways
detectamaterialmisstatementwhenit
exists.Misstatementscanarisefromfraud,
otherirregularitiesorerrorandare
consideredmaterialif,individuallyorin

aggregate,theycouldreasonablybe
expectedtoinfluencetheeconomic
decisionsofuserstakenonthebasisofthe
financialstatements.

Afullerdescriptionofourresponsibilities
isprovidedontheFRC’swebsiteat
www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect
Weidentifiedareasoflawsandregulations
thatcouldreasonablybeexpectedtohave
amaterialeffectonthefinancialstatements
fromourgeneralcommercialandsector
experienceandthroughdiscussionwith
thedirectorsandothermanagement
(asrequiredbyauditingstandards),and
frominspectionoftheGroup’sregulatory
andlegalcorrespondenceanddiscussed
withthedirectorsandothermanagement
thepoliciesandproceduresregarding
compliancewithlawsandregulations.
Wecommunicatedidentifiedlawsand
regulationsthroughoutourteamand
remainedalerttoanyindicationsof
non-compliancethroughouttheaudit.
Thisincludedcommunicationfromthe
Grouptocomponentauditteamsof
relevantlawsandregulationsidentified
atgrouplevel.

Thepotentialeffectoftheselawsand
regulationsonthefinancialstatements
variesconsiderably.Firstly,theGroup
issubjecttolawsandregulationsthat
directlyaffectthefinancialstatements
includingfinancialreportinglegislation
(includingrelatedcompanieslegislation),
distributableprofitslegislationandtaxation
legislationandweassessedtheextentof
compliancewiththeselawsandregulations
aspartofourproceduresontherelated
financialstatementitems.

Secondly,theGroupissubjecttomany
otherlawsandregulationswherethe
consequencesofnon-compliancecould
haveamaterialeffectonamountsor
disclosuresinthefinancialstatements,for
instancethroughtheimpositionoffinesor
litigationorthelossoftheGroup’slicence
tooperate.Weidentifiedtheareaof
regulatorycapitalasthatmostlikelytohave
suchaneffectrecognisingthefinancialand
regulatednatureoftheGroup’sactivities.
Auditingstandardslimittherequiredaudit
procedurestoidentifynon-compliance
withtheselawsandregulationstoenquiry
ofthedirectorsandothermanagement
andinspectionofregulatoryandlegal
correspondence,ifany.Theselimited
proceduresdidnotidentifyactualor
suspectednon-compliance.

Owingtotheinherentlimitationsofan
audit,thereisanunavoidableriskthatwe
maynothavedetectedsomematerial
misstatementsinthefinancialstatements,
eventhoughwehaveproperlyplanned
andperformedourauditinaccordance
withauditingstandards.Forexample,
thefurtherremovednon-compliancewith
lawsandregulations(irregularities)isfrom
theeventsandtransactionsreflectedinthe
financialstatements,thelesslikelythe
inherentlylimitedproceduresrequiredby
auditingstandardswouldidentifyit.In
addition,aswithanyaudit,thereremained
ahigherriskofnon-detectionof
irregularities,asthesemayinvolve
collusion,forgery,intentionalomissions,
misrepresentations,ortheoverrideof
internalcontrols.Wearenotresponsible
forpreventingnon-complianceandcannot
beexpectedtodetectnon-compliance
withalllawsandregulations.

8 The purpose of our audit work and 
to whom we owe our responsibilities
ThisreportismadesolelytotheCompany’s
members,asabody,inaccordancewith
Chapter3ofPart16oftheCompaniesAct
2006.Ourauditworkhasbeenundertaken
sothatwemightstatetotheCompany’s
membersthosematterswearerequired
tostatetotheminanauditor’sreportand
fornootherpurpose.Tothefullestextent
permittedbylaw,wedonotacceptor
assumeresponsibilitytoanyoneother
thantheCompanyandtheCompany’s
members,asabody,forourauditwork,
forthisreport,orfortheopinionswe
haveformed.



Philip Smart  
(Senior Statutory Auditor) 
ForandonbehalfofKPMGLLP,
StatutoryAuditor

PublicInterestEntityAuditorrecognised
inaccordancewiththeHongKong
FinancialReportingCouncilOrdinance

CharteredAccountants
London

10March2020

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information06

European 
Embedded 
Value (EEV) 
basis results

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Prudential plc Annual Report 2019 

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06

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Index to EEV basis supplementary information

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332

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331

 
 
 
 
 
 
 
 
 
 
 
 
Index to European Embedded Value (EEV) 
basis results

Summarised consolidated income statement

Movement in shareholders’ equity

Summary statement of financial position

Notes on the EEV basis results

1

2

3

Basis of preparation

Results analysis by business area

Analysis of new business contribution 

4 Operating profit from long-term business in force 

5

6

7

8

9

Short-term fluctuations in investment returns 

Effect of changes in economic assumptions

Impact of NAIC reform, hedge modelling and other related changes in the US

Net core structural borrowings of shareholder-financed businesses

Gain (loss) attaching to corporate transactions

10 Analysis of movement in total net worth and value of in-force for long-term business

11 Analysis of movement in free surplus

12 Expected transfer of value of in-force business and required capital to free surplus

13 Sensitivity of results to alternative assumptions

14 Methodology and accounting presentation

15 Assumptions

16 Insurance new business

Statement of Directors’ responsibilities

Auditor’s report

Page

333

334

335

336

337

338

339

339

340

340

341

342

342

344

346

347

349

354

357

358

359

Description of EEV basis reporting
In broad terms, IFRS profit for long-term business reflects the aggregate of results on a traditional accounting basis. By contrast, EEV is a 
way of reporting the value of the life insurance business.

The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in 2016. 
The EEV Principles provide consistent definitions, a framework for setting actuarial assumptions and an approach to the underlying 
methodology and disclosures. All results are stated net of tax and converted using actual exchange rates (AER) unless otherwise stated. 
AER are actual historical exchange rates for the specific accounting period. 

332

Prudential plc Annual Report 2019 

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European Embedded Value (EEV) basis results

Summarised consolidated income statement

Continuing operations:
New business
Business in force

Long-term business
Asset management

Operating profit from long-term business and asset management
Other income and expenditure note (i)
Restructuring costs note (ii)

Operating profit from continuing operations
Short-term fluctuations in investment returns
Effect of changes in economic assumptions
Impact of NAIC reform, hedge modelling and other related changes in the US
Mark-to-market value movements on core structural borrowings
Loss attaching to corporate transactions

Non-operating loss from continuing operations

Profit for the year from continuing operations
(Loss) profit for the year from discontinued operations

(Loss) profit for the year

Attributable to:
Equity holders of the Company:
From continuing operations
From discontinued operations

Non-controlling interests from continuing operations

2019  $m

2018  $m

Note

Asia

US Group total

Group total

3,522
2,366

5,888
250

6,138

883
874

1,757
25

1,782

3

4

5

6

7

8

9

4,405
3,240

7,645
275

7,920
(923)
(92)

6,905
3,254
(1,868)
(3,457)
(466)
(207)

(2,744)

4,161
(4,797)

(636)

4,707
3,975

8,682
216

8,898
(969)
(63)

7,866
(3,335)
416
–
733
(100)

(2,286)

5,580
546

6,126

4,152
(4,797)
9

(636)

5,576
546
4

6,126

2019

2018

266.6¢

305.3¢

160.5¢
(185.4)¢
(24.9)¢

216.5¢
21.2¢
237.7¢

2,587

2,575

EEV basis basic earnings per share

Based on operating profit from continuing operations after non-controlling interests (in cents)
Based on (loss) profit for the year attributable to equity holders of the Company (in cents)

From continuing operations
From discontinued operations

Weighted average number of shares in the year (millions)

Notes
(i) 

(ii) 

EEV basis other income and expenditure represents the post-tax IFRS basis results for other operations (including interest costs on core structural borrowings, corporate 
expenditure for head office functions in London and Hong Kong, the Group’s treasury function and Africa operations) less the unwind of expected margins on the internal 
management of the assets of the covered business (as explained in note 14(i)(g)). 
Restructuring costs include group-wide costs incurred for IFRS 17 implementation in 2019 from continuing operations.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
Movement in shareholders’ equity

Continuing operations:
Operating profit from long-term and asset 

management businesses
Other income and expenditure
Restructuring costs

Operating profit (loss) from continuing 

operations

Non-operating profit (loss) from continuing 

operations

Profit (loss) for the year from continuing 

operations

(Loss) profit for the year from discontinued 

operations note (iv)

Profit (loss) for the year
Non-controlling interests
Foreign exchange movements on operations
Intra-group dividends and investment in 

operations note (i)
External dividends
Mark-to-market value movements on Jackson 
assets backing surplus and required capital

Other movements note (ii)
Demerger dividend in specie of M&G plc

Net increase (decrease) in shareholders’ 

equity

Shareholders’ equity at beginning of year

Shareholders’ equity at end of year

Representing:
Long-term business
Asset management and other
Goodwill note (v)

Shareholders’ equity at end of year

Shareholders’ equity per share at end of year note (iii)

Long-term business
Asset management and other
Goodwill note (v)

Shareholders’ equity at beginning of year

Shareholders’ equity per share at  

beginning of year note (iii)

2019  $m

2018*  $m

Asia

US

Other

Total 
continuing 
operations

 Discontinued
 UK and 
Europe 
operations

Group
total

Group
total

6,138
–
(31)

1,782
–
(5)

–
(923)
(56)

7,920
(923)
(92)

7,920
(923)
(92)

8,898
(969)
(63)

6,107

1,777

(979)

6,905

6,905

7,866

1,962

(3,802)

(904)

(2,744)

(2,744)

(2,286)

8,069

(2,025)

(1,883)

4,161

4,161

5,580

–

8,069
(6)
409

–

–

–

(4,797)

(4,797)

(2,025)
–
–

(1,883)
(3)
34

4,161
(9)
443

(4,797)

223

(636)
(9)
666

(1,270)
–

(525)
–

7,276
(1,634)

5,481
(1,634)

(5,481)
–

–
(1,634)

–
25
–

206
(23)
–

–
(40)
–

206
(38)
–

–
133
(7,379)

206
95
(7,379)

546

6,126
(4)
(1,574)

–
(1,662)

(127)
176
–

7,227
32,008

39,235

(2,367)
18,709

16,342

37,843
596
796

39,235

1,508¢

30,985
389
634

32,008

16,336
6
–

16,342

628¢

18,658
51
–

18,709

3,750
(4,616)

8,610
46,101

(17,301)
17,301

(866)

54,711

–
(892)
26

(866)

54,179
(290)
822

54,711

(33)¢

2,103¢

–

–
–
–

–

–

–
(4,616)
–

49,643
(4,176)
634

(4,616)

46,101

14,531
1,302
1,468

17,301

(8,691)
63,402

54,711

2,935
60,467

63,402

54,179
(290)
822

54,711

2,103¢

64,174
(2,874)
2,102

63,402

64,174
(2,874)
2,102

63,402

2,445¢

62,116
(3,621)
1,972

60,467

1,234¢

722¢

(178)¢

1,778¢

667¢

2,445¢

2,337¢

* The 2018 comparative results have been re-presented from those previously published to reflect the change in the Group’s presentation currency from pounds sterling to US dollars and 

the reclassification of the Group’s UK and Europe operations as discontinued operations in 2019 (see note 1).

Notes
(i) 

Intra-group dividends represent dividends that have been declared in the year. Dividends payable by the discontinued UK and Europe operations (M&G plc) to Prudential plc 
includes a $3,841 million pre-demerger dividend, cash dividends paid in the period of $684 million and restructuring impacts related to the demerger. Investment in operations 
reflects movements in share capital. The amounts included for these items in the analysis of movement in free surplus (note 11) for Asia are as per the holding company cash flow at 
transaction rates. The difference primarily relates to intra-group loans, foreign exchange and other non-cash items.

(ii)  Other movements include reserve movements in respect of the shareholders’ share of actuarial gains and losses on defined benefit pension schemes that were transferred to 

M&G plc at 30 June 2019, share capital subscribed, share-based payments, treasury shares and intra-group transfers between operations that have no overall effect on the Group’s 
shareholders’ equity.

(iii)  Based on the number of issued shares at the end of 2019 of 2,601 million shares (end of 2018/beginning of 2019: 2,593 million shares, beginning of 2018: 2,587 million shares).
(iv)  On 21 October 2019, the Group completed the demerger of its UK and Europe operations (M&G plc), resulting in two separately listed companies. The demerger dividend in specie 

of M&G plc has been recorded at the fair value of M&G plc at the date of the demerger. The difference between the fair value and its carrying value, together with profit earned up 
to the date of the demerger have been recorded as loss for the year from the discontinued UK and Europe operations.
Representing goodwill attributable to shareholders.

(v) 

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EUROPEAN EMBEDDED VALUE (EEV) BASIS RESULTS  CONTINUEDSummary statement of financial position

Assets less liabilities before deduction of insurance funds
Less insurance funds:*

Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds
Shareholders’ accrued interest in the long-term business

Less non-controlling interests

Total net assets attributable to equity holders of the Company

Share capital
Share premium
IFRS basis shareholders’ reserves

IFRS basis shareholders’ equity
Shareholders’ accrued interest in the long-term business

EEV basis shareholders’ equity

Representing

Continuing operations
Discontinued UK and Europe operations

EEV basis shareholders’ equity

31 Dec 2019
  $m

31 Dec 2018
  $m

396,241

549,264

(376,572)
35,234
(341,338)
(192)

(527,273)
41,434
(485,839)
(23)

54,711

63,402

172
2,625
16,680

19,477
35,234

54,711

54,711
–

54,711

166
2,502
19,300

21,968
41,434

63,402

46,101
17,301

63,402

* Including liabilities in respect of insurance products classified as investment contracts under IFRS 4.

The supplementary information on pages 333 to 357 was approved by the Board of Directors on 10 March 2020.

Paul Manduca
Chairman

Mike Wells
Group Chief Executive

Mark FitzPatrick
Group Chief Financial Officer 
and Chief Operating Officer

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Prudential plc Annual Report 2019 

335

Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationNotes on the EEV basis results

1 Basis of preparation

The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in 2016. 
The EEV Principles provide consistent definitions, a framework for setting actuarial assumptions and an approach to the underlying 
methodology and disclosures. Where appropriate, the EEV basis results include the effects of adoption of EU-endorsed IFRS. The 
Directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles.

The Group completed the demerger of its UK and Europe operations, M&G plc, from the Prudential plc Group on 21 October 2019. In 

line with the treatment of the results under IFRS, the EEV basis results for the Group’s UK and Europe operations have been reclassified 
as discontinued operations and removed from the Group’s key performance indicators (KPIs). In the subsequent notes, comparative 
amounts have been represented to show continuing operations only in order to present the results on a comparable basis. The Directors 
have also elected to change the Group’s presentation currency from pounds sterling to US dollars. The 2018 comparative results have 
been accordingly re-presented from those previously published for these changes (see note A1 of the Group IFRS financial statements for 
exchange rates used). 

Overview
Results prepared under the EEV Principles represent the present value of the shareholders’ interest in the post-tax future profits (on a 
local statutory basis) expected to arise from the current book of long-term business, after sufficient allowance has been made for the 
aggregate risks in that business. The shareholders’ interest in the Group’s long-term business comprises:

 — The present value of expected future shareholder cash flows from the in-force covered business (value of in-force business), less 

explicit allowance for the cost of locked-in required capital and the time value of financial options and guarantees across a range of 
economic scenarios;

 — Locked-in required capital, based on the applicable local statutory regulations, including any amounts considered to be required 

above the local statutory minimum requirements to satisfy regulatory constraints (the application of this principle to each business 
unit is set out below); and 

 — The shareholders’ total net worth in excess of required capital (free surplus). Free surplus is defined in note 11.

Required capital
For shareholder-backed business, the following capital requirements apply for long-term business:

 — Asia: the level of required capital has been set to an amount at least equal to local statutory notification requirements. For China JV life 

operations, the level of required capital follows the approach for embedded value reporting issued by the China Association of 
Actuaries (CAA) reflecting the China Risk Oriented Solvency System (C-ROSS) regime; and

 — US: the level of required capital has been set at 250 per cent of the risk-based capital (RBC) required by the National Association of 

Insurance Commissioners (NAIC) at the Company Action Level (CAL).

Key assumptions
The value of in-force business is determined by projecting post-tax future profits (on a local statutory basis) by product, using best 
estimate assumptions for operating factors such as persistency, mortality, morbidity and expenses. Explicit allowances are made for the 
cost of holding required capital under the applicable local statutory regimes and the time value of financial options and guarantees 
(TVOG). The TVOG is determined by weighting the probability of outcomes across a large number of different economic scenarios, and 
is less applicable to health and protection business that generally contain more limited financial options or guarantees. 

As well as best estimate assumptions for operating factors, the projected cash flows assume a level of future investment return and are 

discounted using a risk discount rate. Both the risk discount rate and investment return are updated at each valuation date in line with 
changes in the risk-free rates. During 2019, this has had an overall negative effect on new business and in-force profitability. Different 
products will be sensitive to different assumptions, for example, spread-based products or products with guarantees are likely to benefit 
from higher assumed investment returns.

Risk discount rates are set equal to the risk-free rate at the valuation date plus a product-specific allowance for market and non-market 

risks, excluding risks explicitly captured elsewhere such as via the TVOG. Products such as participating and unit-linked business will 
have typically a higher allowance for market risk as compared to health and protection products due to a higher proportion of equity-type 
assets within the investment portfolio. Other product design and business features also affect the risks attached to the emergence of 
shareholder cash flows, for example, the construct of with-profits funds in some business units can reduce the sensitivity of both 
policyholder and shareholder cash flows for participating products. Risk discount rates in any one business unit will reflect a blend of the 
risks attaching to the products written in that business.

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The value of future new business is excluded from the embedded value. 

A description of the EEV methodology and accounting presentation is provided in note 14, including an explanation of the delineation 

of profit between operating profit based on longer-term investment returns and non-operating items. Further details of best estimate 
assumptions are provided in note 15.

2 Results analysis by business area

The 2018 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The 2018 
CER comparative results are translated at 2019 average exchange rates for US dollars following the change in the Group’s presentation 
currency. 

Annual premium equivalents (APE) from continuing operations note 16

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

Annual
premium
equivalent

New
business
profit

Annual
premium
equivalent

New
business
profit

Annual
premium
equivalent

New
business
profit

Annual
premium
equivalent

New
business
profit

Annual
premium
equivalent

New
business
profit

Asia
US

Group total

5,161
2,223

7,384

3,522
883

4,405

4,999
2,059

7,058

3,477
1,230

4,707

3%
8%

5%

1%
(28)%

(6)%

4,959
2,059

7,018

3,460
1,230

4,690

4%
8%

5%

2%
(28)%

(6)%

Profit for the year

Continuing operations:
Asia
Long-term business
Asset management

Total

US
Long-term business
Asset management

Total

Operating profit from long-term business and asset 

management

Other income and expenditure
Restructuring costs

Operating profit from continuing operations

Short-term fluctuations in investment returns
Effect of changes in economic assumptions
Impact of NAIC reform, hedge modelling and other related 

changes in the US

Mark-to-market value movements on core structural 

borrowings

Loss attaching to corporate transactions

Total non-operating loss from continuing operations

Profit for the year from continuing operations
(Loss) profit for the year from discontinued operations

(Loss) profit for the year

Actual exchange rate

Constant exchange rate

2019  $m

2018  $m

Change %

2018  $m

Change %

5,888
250

6,138

1,757
25

1,782

7,920
(923)
(92)

6,905

3,254
(1,868)

(3,457)

(466)
(207)

(2,744)

4,161
(4,797)

(636)

5,858
212

6,070

2,824
4

2,828

8,898
(969)
(63)

7,866

(3,335)
416

–

733
(100)

(2,286)

5,580
546

6,126

1%
18%

1%

(38)%
525%

(37)%

(11)%
5%
(46)%

(12)%

(25)%
(979)%

(110)%

5,843
209

6,052

2,824
4

2,828

8,880
(936)
(61)

7,883

(3,333)
417

–

702
(99)

(2,313)

5,570
522

6,092

1%
20%

1%

(38)%
525%

(37)%

(11)%
1%
(51)%

(12)%

(25)%
(1,019)%

(110)%

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationNOTES ON THE EEV BASIS RESULTS 
CONTINUED

2 Results analysis by business area continued

EEV basis basic earnings per share 

Based on operating profit from continuing operations after 

non-controlling interests (in cents)

Based on (loss) profit for the year attributable to equity 

holders of the Company (in cents):

From continuing operations
From discontinued operations

3 Analysis of new business contribution

Actual exchange rate

Constant exchange rate

2019

2018

Change %

2018

Change %

266.6¢

305.3¢

(13)%

306.1¢

(13)%

160.5¢
(185.4)¢
(24.9)¢

216.5¢
21.2¢
237.7¢

(26)%
(975)%
(110)%

216.3¢
20.3¢
236.6¢

(26)%
(1,013)%
(111)%

Annual 
premium
equivalents 
(APE)
$m
note 16 

 5,161
 2,223

 7,384

Annual 
premium
equivalents 
(APE)
$m
note 16

 4,999
 2,059

 7,058

Present value
of new 
business
premiums 
(PVNBP)
$m
note 16

29,244
 22,231

51,475

Present value
of new 
business
premiums 
(PVNBP)
$m
note 16

 27,711
 20,593

 48,304

2019

New business
contribution
$m
note (i)

3,522
883

4,405

2018

New business
contribution
$m
note (i)

 3,477
 1,230

 4,707

New business margin

APE

%

68%
40%

60%

PVNBP

%

12.0%
4.0%

8.6%

New business margin

APE

%

70%
60%

67%

PVNBP

%

12.5%
6.0%

9.7%

Asia note (ii)
US

Group total

Asia note (ii)
US

Group total

Notes
(i) 

The movement in new business contribution from $4,707 million for 2018 to $4,405 million for 2019 from continuing operations is analysed as follows:

2018 new business contribution
Foreign exchange movement
Effect of changes in interest rates and other economic assumptions
Impact of US EEV hedge modelling enhancements note 7
Sales volume, business and product mix and other items

2019 new business contribution

(ii) 

Asia new business contribution is analysed as follows:

China JV
Hong Kong
Indonesia
Taiwan
Other

Total Asia

US
  $m

Group total
$m

Asia
  $m

3,477
(17)
(35)
–
97

3,522

1,230
–
(155)
(114)
(78)

883

2019  $m

2018  $m

262
2,042
227
75
916

3,522

AER

199
2,309
163
61
745

3,477

4,707
(17)
(190)
(114)
19

4,405

CER

190
2,310
163
56
741

3,460

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4 Operating profit from long-term business in force

Unwind of discount and other  

expected returns note (i)

Effect of changes in operating assumptions note (ii)
Experience variances and other items note (iii)

Total operating profit from long-term business 

in force

2019  $m

2018  $m

Asia

1,542
539
285

2,366

US

728
1
145

874

Group
total

2,270
540
430

Asia

US

1,626
457
298

1,176
154
264

Group
total

2,802
611
562

3,240

2,381

1,594

3,975

Notes 
(i) 

The movement in unwind of discount and other expected returns from $2,802 million for 2018 to $2,270 million for 2019 from continuing operations is analysed as follows:

2018 unwind of discount and other expected returns
Foreign exchange movement
Effect of changes in interest rates and other economic assumptions
Impact of US EEV hedge modelling enhancements note 7
Growth in opening value of in-force business and other items

2019 unwind of discount and other expected returns

Asia
  $m

1,626
(12)
(234)
–
162

1,542

US
  $m

Group total
$m

1,176
–
(104)
(210)
(134)

728

2,802
(12)
(338)
(210)
28

2,270

(ii) 

(iii) 

The 2019 effect of changes in operating assumptions of $539 million in Asia principally reflects the outcome from the annual review of persistency, claims and expense experience, 
together with the benefit of medical repricing management actions and the beneficial effect on the effective tax rate for China JV from changes to tax legislation in the first half 
of 2019.
In Asia, the 2019 effect of experience variances and other items of $285 million is driven overall by positive mortality and morbidity experience in a number of local business units, 
together with positive persistency variance from participating and health and protection products.

In the US, the effect of experience variances and other items is analysed as follows:

Spread experience variance
Amortisation of interest-related realised gains and losses
Other items

Total US experience variances and other items

5 Short-term fluctuations in investment returns

Asia
Hong Kong
Indonesia
Malaysia
Singapore
Taiwan
Thailand
Other

Total Asia note (i)

US
Investment return related experience on fixed income securities note (ii)
Investment return related impact due to changed expectation of profits on in-force variable annuity 

business in future periods based on current period separate account return, net of related hedging 
activity and other items note (iii)

Total US

Other operations

Group total

2019  $m

2018  $m

38
102
5

145

52
123
89

264

2019  $m

2018  $m

1,526
(14)
(20)
338
147
319
155

2,451

(737)
(103)
(109)
(311)
(37)
(61)
(16)

(1,374)

(243)

80

1,119

876

(73)

(2,057)

(1,977)

16

3,254

(3,335)

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
NOTES ON THE EEV BASIS RESULTS 
CONTINUED

5 Short-term fluctuations in investment returns continued

Notes
(i) 

(ii) 

(iii) 

For 2019, the credit of $2,451 million mainly represents the increase in bond and equity values in Hong Kong and higher than expected investment returns in Singapore, Thailand 
and Taiwan. The small losses in Indonesia and Malaysia represent bond gains being more than offset by lower than expected equity returns.
The net result relating to fixed income securities reflects a number of offsetting items as follows:
– The impact on portfolio yields of changes in the asset portfolio in the year;
– Credit experience versus the longer-term assumption (which in 2019 was positive); and
– The difference between actual realised gains and losses and the amortisation of interest-related realised gains and losses that is recorded within operating profit.
This item reflects the net impact of:
–  Changes in projected future fees and future benefit costs arising from the difference between the actual growth in separate account asset values of 24.1 per cent and that 

assumed of 4.8 per cent (geometric) (2018: actual growth of negative 5.4 per cent compared to assumed growth of positive 5.3 per cent (geometric)); and

–  Related hedging activity arising from realised and unrealised gains and losses on equity and interest rate derivatives compared to the updated expected long-term allowance 

for hedging costs recorded in operating profit, and other items.

6 Effect of changes in economic assumptions

Asia
Hong Kong
Indonesia
Malaysia
Singapore
Taiwan
Thailand
Other

Total Asia note (i)

US
Variable annuity business note (ii)
Fixed annuity and other general account business note (iii)

Total US

Group total

2019  $m

2018  $m

(853)
141
127
18
(142)
(220)
262

(667)

(1,556)
355

(1,201)

(1,868)

220
(126)
(25)
93
(19)
37
(27)

153

487
(224)

263

416

Notes 
(i) 

(ii) 

(iii) 

In 2019, the negative effect of $(667) million largely arises from movements in long-term interest rates, resulting in lower assumed fund earned rates in Hong Kong, Thailand and 
Taiwan, partially offset by the positive effect of lower risk discount rates in Indonesia and Malaysia in valuing future profits for health and protection business and the effect of 
changes to the basis of setting economic assumptions as described in note 14(i)(h) and note 15(i).
In 2019, the charge of $(1,556) million mainly reflects the effect of a decrease in the assumed separate account return, following the 80 basis points decrease in the US 10-year 
treasury yield over the year, partially offset by the increase in US equity risk premium  as described in note 15(i), resulting in lower projected fee income and an increase in projected 
benefit costs for variable annuity business. 
For fixed annuity and other general account business, the impact of $355 million reflects the increase in the present value of future projected spread income from the combined 
decrease in interest rates and credit spreads in the year.

7 Impact of NAIC reform, hedge modelling and other related changes in the US

Impact of NAIC reform adopted at 31 December 2019 note (i)
Impact of hedge modelling changes and other NAIC reform related changes note (ii)

Total EEV impact of NAIC reform, hedge modelling and other related changes in the US

2019  $m

37
(3,494)

(3,457)

Notes 
(i) 

The National Association of Insurance Commissioners (NAIC) has implemented changes to the US statutory reserve and capital framework for variable annuities, effective from 
1 January 2020. Jackson has chosen to early adopt the changes at 31 December 2019 for US statutory reporting and the Group has updated EEV accordingly. The impact on Group 
EEV is a $37 million benefit, with the increase in the cost of capital from higher capital requirements more than offset by the timing benefit from releasing policyholder liabilities 
earlier than previously anticipated. The impact on the various components of EEV as at 31 December 2019 is shown below. As discussed in note 14(i)(e), the below is based on 
a capital requirement of 250 per cent of the risk-based capital company action level and so the impact on free surplus is not equal to the effect on Jackson’s US statutory position.

Free
surplus
$m

Required
capital
$m

Total 
net worth
$m

Value of
in-force
business
$m

Total 
embedded 
value
$m

Impact of NAIC reform adopted at 31 December 2019

(64)

343

279

(242)

37

 Given that the NAIC reform was adopted at 31 December 2019, with the exception of the amounts shown above there are no other impacts from this change recorded in the 2019 
EEV consolidated income statement or in the analysis of movement in free surplus. If the changes had been adopted with effect from 1 January 2019, the Group’s 2019 EEV results 
would not be expected to be materially different.

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(ii) 

Following the implementation of the NAIC’s changes to the US statutory reserve and capital framework, enhancements were made to the model used to allow for hedging within 
US statutory reporting. As a consequence, the Group has chosen to utilise the enhanced model within EEV to update its allowance for the long-term cost of hedging under EEV 
economic assumptions. In common with established practice for such changes, the EEV income statement has been prepared on the basis that this change had been effected at the 
start of the year, at a cost of $(3,233) million, included in non-operating profit.

The initial impact on EEV is shown as a reduction in the value of in-force business as at 1 January 2019, and so the unwind of those cash flows over the year reduces the expected 
transfer to net worth and hence operating free surplus generation by $(903) million. This leads to an equal and offsetting benefit in short-term fluctuations as the excess of the actual 
cost of hedging in 2019 over the expected cost falls accordingly. There is no impact on total free surplus generation for 2019. See note 11 for the US free surplus results.

There were no changes to Jackson’s hedging philosophy during 2019, which continues to focus on the underlying economics of the products whilst managing the volatility in 
the statutory position. The revised allowance for the long-term cost of hedging is expected to give a more refined indication of the expected long-term cost of the dynamic hedging 
programme under EEV economic assumptions, albeit it is not intended to reflect the exact derivatives held at a given point in time. In common with other long-term assumptions, 
the allowance for the expected cost of hedging in EEV will be kept under review, particularly in light of future experience under the new variable annuity statutory capital regime. 

In addition to the enhancement to the cost of hedging described above, a number of other changes have been made to EEV reporting following the NAIC reform, coupled with 

the objective of bringing the EEV free surplus more in line with the US statutory basis of reporting. The total impact of these changes as recorded in EEV non-operating profit was 
$(261) million. A reconciliation of EEV free surplus to surplus under the Group’s LCSM capital measure at 31 December 2019 by segment is provided in note I(i) in the additional 
financial information.

8 Net core structural borrowings of shareholder-financed businesses

Holding company cash and short-term 

investments note (i)
Central borrowings:
Subordinated debt held post demerger  

of M&G plc note (ii)

Senior debt
Bank loan
Central funds before amounts substituted to 

M&G plc

Subordinated debt substituted to M&G plc 

in 2019 note (iii)

Total central borrowings

Total net borrowings for central operations

Jackson Surplus Notes

Net core structural borrowings of 

shareholder-financed businesses note (iv)

31 Dec 2019  $m

Mark-to-
market
value
adjustment

IFRS
basis

EEV
basis at
market
value

31 Dec 2018  $m

Mark-to-
market
value
adjustment

IFRS
basis

EEV
basis at
market
value

(2,207)

–

(2,207)

(4,121)

–

(4,121)

4,304
690
350

5,344

–

5,344

3,137

250

3,387

327
221
–

548

–

548

548

85

633

4,631
911
350

5,892

–

5,892

3,685

335

4,785
658
350

5,793

3,718

9,511

5,390

250

4,020

5,640

(138)
222
–

84

82

166

166

67

233

4,647
880
35

5,877

3,800

9,677

5,556

317

5,873

Notes
(i) 
(ii) 
(iii) 

(iv) 

Holding company includes central finance subsidiaries.
In May 2019, the Company redeemed its £400 million 11.375 per cent subordinated notes.
In October 2019, Prudential plc transferred subordinated debt to M&G plc as part of the demerger. In addition to the subordinated debt held at 31 December 2018 as shown in the 
table above, the debt transferred included the further £300 million 3.875 per cent subordinated debt raised in July 2019.
The movement in the value of core structural borrowings includes foreign exchange effects for pounds sterling denominated debts, which are included in ‘Exchange movements 
on foreign operations’. The movement in the mark-to-market value adjustment can be analysed as follows:

Mark-to-market value adjustment at beginning of year
Mark-to-market value adjustment on subordinated debt substituted to M&G plc at fair value at beginning of year
Charge (credit) in respect of mark-to-market movements included in the income statement*
Effect of foreign exchange movements for pounds sterling denominated debts

Mark-to-market value adjustment at end of year

* Relates to continuing debt only.

2019  $m

2018  $m

233
(82)
466
16

633

1,005
–
(733)
(39)

233

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NOTES ON THE EEV BASIS RESULTS 
CONTINUED

9 Gain (loss) attaching to corporate transactions

Gain on disposals note (i)
Other corporate transactions note (ii)

Total

2019  $m

2018  $m

178
(385)

(207)

–
(100)

(100)

Notes 
(i) 

(ii) 

In 2019, the $178 million gain on disposals mainly relates to profits arising from a reduction in the Group’s stake (from 26 per cent to 22 per cent) in its associate in India, ICICI 
Prudential Life Insurance Company, and the disposal of Prudential Vietnam Finance Company Limited, a wholly owned subsidiary that provides consumer finance.
In 2019, other corporate transactions undertaken by continuing operations resulted in an EEV loss of $(385) million (2018: $(100) million). This primarily reflects costs related to the 
demerger of M&G plc from Prudential plc.

10 Analysis of movement in total net worth and value of in-force for long-term business

Group
Shareholders’ equity at beginning of year
Demerger of UK and Europe operations

Shareholders’ equity at beginning of year from continuing 

operations note

New business contribution note 3
Existing business – transfer to net worth
Expected return on existing business note 4
Changes in operating assumptions and  

experience variances note 4

Restructuring costs

Operating profit from continuing operations
Non-operating profit (loss) from continuing operations

Profit for the year from continuing operations
Foreign exchange movements 
Intra-group dividends and investment in operations
Other movements

Shareholders’ equity at end of year note

Asia
Shareholders’ equity at beginning of year
New business contribution note 3
Existing business – transfer to net worth
Expected return on existing business note 4
Changes in operating assumptions and  

experience variances note 4

Operating profit based on longer-term 

investment returns

Non-operating profit

Profit for the year

Foreign exchange movements 
Intra-group dividends and investment in operations
Other movements

Shareholders’ equity at end of year

2019  $m

Free
surplus

Required 
capital

Total
net worth

Value of 
in-force 
business

Total
embedded
value

9,587
(4,676)

12,542
(6,513)

22,129
(11,189)

42,045
(3,342)

64,174
(14,531)

4,911
(1,158)
3,081
141

558
(5)

2,617
(568)

2,049
66
(1,633)
2

5,395

2,202
(619)
1,914
80

147

1,522
1,195

2,717

66
(1,108)
(253)

3,624

6,029
899
(613)
159

103
–

548
262

810
52
–
–

10,940
(259)
2,468
300

661
(5)

3,165
(306)

2,859
118
(1,633)
2

38,703
4,664
(2,468)
1,970

309
–

4,475
(1,534)

2,941
251
–
(2)

49,643
4,405
–
2,270

970
(5)

7,640
(1,840)

5,800
369
(1,633)
–

6,891

12,286

41,893

54,179

2,904
241
(320)
67

116

104
122

226

52
–
–

3,182

5,106
(378)
1,594
147

25,879
3,900
(1,594)
1,395

30,985
3,522
–
1,542

263

561

824

1,626
1,317

2,943

118
(1,108)
(253)

6,806

4,262
645

4,907

251
–
–

5,888
1,962

7,850

369
(1,108)
(253)

31,037

37,843

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US
Shareholders’ equity at beginning of year
New business contribution note 3
Existing business – transfer to net worth
Expected return on existing business note 4
Changes in operating assumptions and  

experience variances note 4

Restructuring costs

Operating profit based on longer-term 

investment returns
Non-operating profit (loss)

Profit (loss) for the year

Intra-group dividends and investment in operations
Other movements

2019  $m

Free
surplus

Required 
capital

Total
net worth

Value of 
in-force 
business

Total
embedded
value

2,709
(539)
1,167
61

411
(5)

1,095
(1,763)

(668)

(525)
255

3,125
658
(293)
92

(13)
–

444
140

584

–
–

5,834
119
874
153

398
(5)

1,539
(1,623)

(84)

(525)
255

12,824
764
(874)
575

(252)
–

213
(2,179)

(1,966)

–
(2)

18,658
883
–
728

146
(5)

1,752
(3,802)

(2,050)

(525)
253

Shareholders’ equity at end of year

1,771

3,709

5,480

10,856

16,336

Note
The net value of in-force business for continuing operations comprises the value of future margins from current in-force business less the cost of holding required capital for long-term 
business as shown below:

Value of in-force business before deduction of cost of capital and time 

value of options and guarantees

Cost of capital
Time value of options and guarantees*

Net value of in-force business
Total net worth

Total embedded value

31 Dec 2019  $m

31 Dec 2018  $m

Asia

US

32,396
(866)
(493)

31,037
6,806

37,843

11,417
(370)
(191)

10,856
5,480

16,336

Group
total

43,813
(1,236)
(684)

41,893
12,286

54,179

Asia

US

27,849
(721)
(1,249)

25,879
5,106

30,985

15,043
(377)
(1,842)

12,824
5,834

18,658

Group
total

42,892
(1,098)
(3,091)

38,703
10,940

49,643

* The time value of options and guarantees (TVOG) arises from the variability of economic outcomes in the future and is, where appropriate, calculated as the difference between an 
average outcome across a range of economic scenarios, calibrated around a central scenario, and the outcome from one central economic scenario, as described in note 14(i)(d). 
The TVOG and the outcome from the central economic scenario are linked; as the central economic scenario is updated for market conditions and the outcome reflects more or less of the 
guaranteed benefit payouts and associated product charges, there will be consequential changes to the TVOG.

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CONTINUED

11 Analysis of movement in free surplus

For EEV covered business, free surplus is the excess of the regulatory basis net assets for EEV reporting purposes (total net worth) over 
the capital required to support the covered business. Where appropriate, adjustments are made to total net worth so that backing assets 
are included at fair value rather than at cost to comply with the EEV Principles. In the Group’s Asia and US operations, assets deemed to 
be inadmissible on a local regulatory basis are included in net worth where considered recognisable on an EEV basis, with the exception 
of deferred tax assets in the US that are inadmissible under the local regulatory basis, which have been included in the value of in-force 
business (VIF) within the Group’s EEV results. Free surplus for asset management and other operations (including assets and liabilities 
of the Group’s central operations, the Group’s treasury function and Africa operations) is taken to be IFRS basis post-tax earnings and 
shareholders’ equity, net of goodwill attributable to shareholders, with subordinated debt recorded as free surplus to the extent that it is 
classified as available capital under the Group’s capital regime. A reconciliation of EEV free surplus to the Group’s Local Capital 
Summation Method (LCSM) surplus over Group minimum capital requirements is set out in note I(i) in the additional financial information.

Operating free surplus generated before impact 
of US EEV hedge modelling enhancements 
and restructuring costs

Impact of US EEV hedge modelling 

enhancements note 7

Operating free surplus generated before 

restructuring costs

Restructuring costs

Operating free surplus generated
Non-operating profit (loss) from continuing 

operations note (f)

Free surplus generated from discontinued 

operations note (g)

Free surplus generated in the year

Net cash flows paid to parent company note (h)
Demerger dividend in specie of M&G plc
External dividends
Foreign exchange movements on foreign 
operations, timing differences and 
other items note (i)

Net movement in free surplus
Balance at beginning of year

Balance at end of year note (j)

Representing:
Free surplus excluding distribution rights and 

other intangibles

Distribution rights and other intangibles

2019  $m

Continuing operations

Asia
note (a)

US
note (b)

Total
insurance
and asset
management

Discontinued 
UK and 
Europe 
operations

Other
note (e)

1,772

2,028

3,800

(923)

–

(903)

(903)

–

1,772
(31)

1,741

1,125
(5)

1,120

2,897
(36)

2,861

1,195

(1,763)

(568)

–

2,936

(950)
–
–

(357)

1,629
2,591

4,220

3,624
596

4,220

–

(643)

(525)
–
–

185

(983)
2,760

1,777

1,753
24

1,777

–

2,293

(1,475)
–
–

(172)

646
5,351

5,997

5,377
620

5,997

(923)
(56)

(979)

(448)

–

(1,427)

2,159
–
(1,634)

810

(92)
3,831

3,739

1,227
2,512

3,739

2,512

2,512

(684)
(7,379)
–

(426)

(5,977)
5,977

–

–
–

–

Group
total

2,877

(903)

1,974
(92)

1,882

(1,016)

2,512

3,378

–
(7,379)
(1,634)

212

(5,423)
15,159

9,736

6,604
3,132

9,736

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Operating free surplus generated before 

restructuring costs

Restructuring costs

Operating free surplus generated
Non-operating loss from continuing  

operations note (f)

Free surplus generated from discontinued 

operations

Free surplus generated in the year

Net cash flows to parent company note (h)
External dividends
Foreign exchange movements, timing 
differences and other items note (i)

Net movement in free surplus
Balance at beginning of year

Balance at end of year

Representing:
Free surplus excluding distribution rights and  

other intangibles

Distribution rights and other intangibles

2018  $m

Continuing operations

Asia
note (a)

US
note (b)

Total
insurance
and asset
management

1,563
(25)

1,538

1,895
(23)

1,872

3,458
(48)

3,410

(525)

(1,124)

(1,649)

–

1,013

(916)
–

(847)

(750)
3,341

2,591

2,050
541

2,591

–

748

(452)
–

(144)

152
2,608

2,760

2,733
27

2,760

–

1,761

(1,368)
–

(991)

(598)
5,949

5,351

4,783
568

5,351

Other

(969)
(15)

(984)

(29)

–

(1,013)

2,259
(1,662)

1,847

1,431
2,400

3,831

2,300
1,531

3,831

Discontinued 
UK and 
Europe 
operations

2,624

2,624

(891)
–

(58)

1,675
4,302

5,977

5,968
9

5,977

Notes
(a)  Operating free surplus generated by Asia insurance and asset management operations before restructuring costs can be analysed as follows:

Operating free surplus generated from   

in-force life business

Investment in new business note (c)

Long-term business
Asset management

Total Asia

2019  $m

2018  $m

% change

AER

CER

2,003
(652)

1,351
212

1,563

2,004
(646)

1,358
209

1,567

AER

7%
5%

13%
18%

13%

2,141
(619)

1,522
250

1,772

(b)  Operating free surplus generated by US insurance and asset management operations before restructuring costs can be analysed as follows:

Operating free surplus generated from in-force life business before 

EEV hedge modelling enhancements  note (d)
Impact of EEV hedge modelling enhancements note 7

Operating free surplus generated from  in-force life business
Investment in new business note (c)

Long-term business
Asset management

Total US

2019  $m

2018  $m

% change

2,542
(903)

1,639
(539)

1,100
25

1,125

2,191
–

2,191
(300)

1,891
4

1,895

16%
–

(25)%
(80)%

(42)%
525%

(41)%

Group
total

2,489
(63)

2,426

(1,678)

2,624

3,372

–
(1,662)

798

2,508
12,651

15,159

13,051
2,108

15,159

CER

7%
4%

12%
20%

13%

(c) 
(d) 

Free surplus invested in new business primarily represents acquisition costs and amounts set aside for required capital.
The increase in the US in-force free surplus generation before the EEV hedge modelling enhancements described in note 7 includes a $355 million benefit from the release of 
incremental reserves following the integration of the recently acquired John Hancock business.

(e)  Other operating free surplus generated for “other business” includes $(145) million (2018: $(103) million) of interest costs (net of tax) on debt that was substituted to M&G plc 

(f) 

(g) 

in October 2019.
Non-operating items include short-term fluctuations in investment returns, the effect of changes in economic assumptions for long-term business, the impact of NAIC reform, 
hedge modelling and other related changes in the US (as described in note 7) and the effect of corporate transactions (as described in note 9). In particular, for other business 
it includes $(383) million for demerger costs (post-tax). In addition, for 2018 this included the impact in the US of changes to RBC factors following the US tax reform, which were 
formally approved by the NAIC in June 2018. 
Free surplus generated from the discontinued UK and Europe operations in 2019 includes profit for the period of ownership up to the demerger in October 2019 and fair value 
adjustment at the date of the demerger.

(h)  Net cash flows to parent company for Asia operations reflect the flows as included in the holding company cash flow.

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NOTES ON THE EEV BASIS RESULTS 
CONTINUED

11 Analysis of movement in free surplus continued

(i) 

Foreign exchange movements, timing differences and other items represent:

Foreign exchange movements
Mark-to-market value movements on Jackson 
assets backing surplus and required capital
Other items (including intra-group loans and other   
intra-group transfers between operations and   
other non-cash items)*

2019  $m

Continuing operations

Total
insurance
and asset
management

99

206

(477)

(172)

US

–

206

(21)

185

Asia

99

–

(456)

(357)

* The Group total for other items in 2019 included the effect of the redemption of $0.5 billion of subordinated debt.

Foreign exchange movements
Mark-to-market value movements on Jackson assets 

backing surplus and required capital

Other items (including intra-group loans and other 
intra-group transfers between operations and 
other non-cash items) *

2018  $m

Continuing operations

Total
insurance
and asset
management

(64)

(127)

(800)

(991)

US

3

(127)

(20)

(144)

Asia

(67)

–

(780)

(847)

Other

91

–

719

810

Other

(170)

–

2,017

1,847

* The Group total for other items in 2018 included the effect of the net issuance of $1.5 billion of subordinated debt.

(j) 

Free surplus from continuing operations at 31 December 2019 represents:

Long-term business
Asset management and other

Total

2019  $m

Total
insurance
and asset
management

5,395
602

5,997

US

1,771
6

1,777

Asia

3,624
596

4,220

Discontinued 
UK and 
Europe 
operations

77

–

(503)

(426)

Discontinued 
UK and 
Europe 
operations

(377)

–

319

(58)

Other

–
3,739

3,739

Group
total

267

206

(261)

212

Group
total

(611)

(127)

1,536

798

Group
total

5,395
4,341

9,736

12 Expected transfer of value of in-force business and required capital to free surplus

The discounted value of in-force business and required capital for the Group’s continuing long-term business operations can be 
reconciled to the 2019 and 2018 total emergence of free surplus as follows:

Required capital note 10
Value of in-force business (VIF) note 10
Other items*

Total continuing long-term business operations

31 Dec 2019
  $m

31 Dec 2018
  $m

6,891
41,893
205

48,989

6,029
38,703
1,915

46,647

* ‘Other items’ represent the impact of the time value of options and guarantees and amounts incorporated into VIF where there is no definitive timeframe for when the payments will be 

made or receipts received. These items are excluded from the expected free surplus generation profile below.

Cash flows are projected on a deterministic basis and are discounted at the appropriate risk discount rate. The modelled cash flows use 
the same methodology underpinning the Group’s EEV reporting and so are subject to the same assumptions and sensitivities.

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The table below shows how the VIF generated by the in-force business and the associated required capital for the Group’s continuing 
long-term business operations is modelled as emerging into free surplus over future years.

Asia
US 

Group total

Asia
US

Group total

31 Dec 2019  $m

Expected period of conversion of future post-tax distributable earnings  
and required capital flows to free surplus

1-5 years

6-10 years

11-15 years

16-20 years

21-40 years

40+ years

8,561
6,408

6,335
4,735

14,969

11,070

30%

23%

4,394
2,424

6,818

14%

3,398
825

4,223

9%

7,715
302

8,017

16%

3,892
–

3,892

8%

Expected period of conversion of future post-tax distributable earnings and required  
capital flows to free surplus from continuing long-term operations

31 Dec 2018  $m

1-5 years

6-10 years

11-15 years

16-20 years

21-40 years

40+ years

7,993
8,824

16,817

36%

5,330
5,214

10,544

23%

3,518
2,256

5,774

12%

2,615
481

3,096

7%

6,876
157

7,033

15%

3,383
–

3,383

7%

2019 total as
 shown above

34,295
14,694

48,989

100%

2018 total as
 shown above

29,715
16,932

46,647

100%

13 Sensitivity of results to alternative assumptions

(i) Sensitivity analysis – economic assumptions
The tables below show the sensitivity of the embedded value as at 31 December 2019 and 31 December 2018 and the new business 
contribution for 2019 and 2018 for continuing long-term business to:

 — 1 per cent increase in the discount rates;
 — 1 per cent increase in interest rates, including consequential changes in assumed investment returns for all asset classes, market 

values of fixed interest assets and risk discount rates (but excluding changes in the allowance for market risk); 

 — 0.5 per cent decrease in interest rates, including consequential changes in assumed investment returns for all asset classes, market 

values of fixed interest assets and risk discount rates (but excluding changes in the allowance for market risk);

 — 1 per cent rise in equity and property yields;
 — 10 per cent fall in market value of equity and property assets (embedded value only); and
 — The Group minimum capital requirements under the LCSM in contrast to EEV basis required capital (embedded value only).

The sensitivities shown below are for the impact of instantaneous (and permanent) changes on the embedded value of long-term 
business operations and include the combined effect on the value of in-force business and net assets (including derivatives) held at the 
valuation dates indicated. The results only allow for limited management actions such as changes to future policyholder bonuses where 
applicable. If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown below. In this case 
management could also take additional actions to help mitigate the impact of these stresses. No change in the assets held at the valuation 
date is assumed when calculating sensitivities. If the changes in assumptions shown in the sensitivities were to occur, the effect shown 
below would be recorded within two components of the profit analysis for the following year, namely the effect of changes in economic 
assumptions and short-term fluctuations in investment returns. In addition, for changes in interest rates, the effect shown below for the 
US (Jackson) would also be recorded within mark-to-market value movements on Jackson assets backing surplus and required capital, 
which are taken directly to shareholders’ equity. In addition to the sensitivity effects shown below, the other components of the profit for 
the following year would be calculated by reference to the altered assumptions, for example new business contribution and unwind of 
discount and other expected returns, together with the effect of other changes such as altered corporate bond spreads.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
 
 
 
 
 
NOTES ON THE EEV BASIS RESULTS 
CONTINUED

13 Sensitivity of results to alternative assumptions continued

(i) Sensitivity analysis – economic assumptions continued
New business contribution from continuing long-term business

New business contribution note 3

Discount rates – 1% increase
Interest rates and consequential effects – 1% increase
Interest rates and consequential effects – 0.5% decrease
Equity/property yields – 1% rise

Embedded value of continuing long-term business

2019  $m

2018  $m

Asia

3,522

(715)
(46)
(121)
210

US

883

(22)
207
(123)
70

Group
total

4,405

(737)
161
(244)
280

Asia

3,477

(733)
(270)
77
174

US

1,230

(56)
126
(88)
154

Group
total

4,707

(789)
(144)
(11)
328

31 Dec 2019  $m

31 Dec 2018  $m

Asia

US

Group
total

Asia

US

Group
total

Shareholders’ equity note 10

37,843

16,336

54,179

30,985

18,658

49,643

Discount rates – 1% increase
Interest rates and consequential effects – 1% increase
Interest rates and consequential effects – 0.5% decrease
Equity/property yields – 1% rise
Equity/property market values – 10% fall
Group minimum capital requirements

 (5,263)
 (1,408)
 (28)
1,758
 (810)
175

 (509)
798
(686)
556
 (1,205)
221

 (5,772)
(610)
(714)
2,314
 (2,015)
396

 (4,193)
 (1,992)
466
1,326
 (602)
140

 (653)
152
 (348)
1,288
 (634)
276

 (4,846)
 (1,840)
118
2,614
 (1,236)
416

The directional movements in the sensitivities from 31 December 2018 to 31 December 2019 reflect the generally lower government 
bond yields and higher equity markets at 31 December 2019, and the actual hedging portfolio in place at both valuation dates, which 
varies due to the nature of Jackson’s dynamic hedging programme. 

(ii) Sensitivity analysis – non-economic assumptions 
The tables below show the sensitivity of the embedded value as at 31 December 2019 and 31 December 2018 and the new business 
contribution for 2019 and 2018 for continuing long-term business operations to:

 — 10 per cent proportionate decrease in maintenance expenses (for example, a 10 per cent sensitivity on a base assumption of $10 per 

annum would represent an expense assumption of $9 per annum);

 — 10 per cent proportionate decrease in lapse rates (for example, a 10 per cent sensitivity on a base assumption of 5 per cent would 

represent a lapse rate of 4.5 per cent per annum); and

 — 5 per cent proportionate decrease in base mortality (ie increased longevity) and morbidity rates. 

New business contribution from continuing long-term business operations

New business contribution note 3

Maintenance expenses – 10% decrease
Lapse rates – 10% decrease
Mortality and morbidity – 5% decrease

2019  $m

2018  $m

Asia

3,522

67
211
116

US

883

15
24
(2)

Group
total

4,405

82
235
114

Asia

3,477

53
206
93

US

1,230

15
32
5

Group
total

4,707

68
238
98

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Embedded value of continuing long-term business operations

Shareholders’ equity note 10

Maintenance expenses – 10% decrease
Lapse rates – 10% decrease
Mortality and morbidity – 5% decrease
Change representing effect on:

Life business
Annuities

31 Dec 2019  $m

31 Dec 2018  $m

Asia

US

Group
total

Asia

US

Group
total

37,843

16,336

54,179

30,985

18,658

49,643

411
1,459
1,323

1,323
–

200
624
94

168
(74)

611
2,083
1,417

1,491
(74)

323
1,238
1,063

1,063
–

227
788
180

250
(70)

550
2,026
1,243

1,313
(70)

14 Methodology and accounting presentation

(i) Methodology
(a) Covered business
The EEV basis results for the Group are prepared for ‘covered business’ as defined by the EEV Principles. Covered business represents 
the Group’s long-term insurance business (including the Group’s investments in joint venture and associate insurance operations), for 
which the value of new and in-force contracts is attributable to shareholders.

The EEV basis results for the Group’s covered business are then combined with the post-tax IFRS basis results of the Group’s asset 

management and other operations (including interest costs on core structural borrowings, corporate expenditure for head office 
functions in London and Hong Kong, the Group’s treasury function and Africa operations). Under the EEV Principles, the results for 
covered business incorporate the projected margins of attaching internal asset management, as described in note (g) below.

The definition of long-term insurance business comprises those contracts falling under the definition for regulatory purposes together 

with, for US operations, contracts that are in substance the same as guaranteed investment contracts (GICs) but do not fall under the 
technical definition. 

(b) Valuation of in-force and new business
The EEV basis results are prepared incorporating best estimate assumptions about all relevant factors including levels of future 
investment returns, persistency, mortality, morbidity and expenses, as described in note 15(iii). These assumptions are used to project 
future cash flows. The present value of the projected future cash flows is then calculated using a discount rate, as shown in note 15(i), 
which reflects both the time value of money and all other non-diversifiable risks associated with the cash flows that are not otherwise 
allowed for.

New business
In determining the EEV basis value of new business, premiums are included in projected cash flows on the same basis of distinguishing 
regular and single premium business as set out in the Group’s new business sales reporting.

New business premiums reflect those premiums attaching to the covered business, including premiums for contracts classified as 

investment contracts under IFRS. New business premiums for regular premium products are shown on an annualised basis. 

New business contribution represents profit determined by applying operating and economic assumptions as at the end of the period. 

New business profitability is a key metric for the Group’s management of the development of the business. In addition, new business 
margins are shown by reference to annual premium equivalents (APE) and the present value of new business premiums (PVNBP). These 
margins are calculated as the percentage of the value of new business profit to APE and PVNBP. APE is calculated as the aggregate of 
regular premiums on new business written in the period and one-tenth of single premiums. PVNBP is calculated as the aggregate of 
single premiums and the present value of expected future premiums from regular premium new business, allowing for lapses and the 
other assumptions made in determining the EEV new business contribution. 

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CONTINUED

14 Methodology and accounting presentation continued

Valuation movements on investments
With the exception of debt securities held by Jackson, investment gains and losses during the year (to the extent that changes in capital 
values do not directly match changes in liabilities) are included directly in the profit for the year and shareholders’ equity as they arise.

The results for any covered business conceptually reflect the aggregate of the post-tax IFRS basis results and the movements in the 

additional shareholders’ interest recognised on an EEV basis. Therefore, the start point for the calculation of the EEV basis results for 
Jackson, as for other businesses, reflects the market value movements recognised on an IFRS basis.

In determining the movements in the additional shareholders’ interest, for Jackson’s debt securities backing liabilities, the aggregate 
EEV basis results reflect the fact that the value of in-force business incorporates the discounted value of expected future spread earnings. 
This value is generally not affected by short-term market movements in debt securities that, broadly speaking, are held for the longer 
term. Consequently, within EEV total net worth, Jackson’s debt securities backing liabilities are held on a statutory basis (largely at book 
value), while those backing surplus and required capital are accounted for at fair value. Consistent with the treatment applied under IFRS, 
for Jackson’s debt securities classified as available-for-sale, movements in unrealised appreciation and depreciation on these securities 
are accounted for directly in equity rather than in the income statement, as shown in ‘Mark-to-market value movements on Jackson 
assets backing surplus and required capital’ in the statement of movement in shareholders’ equity.

(c) Cost of capital
A charge is deducted from the embedded value for the cost of locked-in required capital supporting the Group’s long-term business. The 
cost is the difference between the nominal value of the capital held and the discounted value of the projected releases of this capital, 
allowing for post-tax investment earnings on the capital.

The EEV results are affected by the movement in this cost from year to year, which comprises a charge against new business profit and 

generally a release in respect of the reduction in capital requirements for business in force as this runs off. 

Where required capital is held within a with-profits long-term fund, the value placed on surplus assets within the fund is already 

adjusted to reflect its expected release over time and so no further adjustment to the shareholder position is necessary. 

(d) Financial options and guarantees
Nature of financial options and guarantees in Prudential’s long-term business
Asia
Participating products in Asia, principally written in Hong Kong, Singapore and Malaysia, have both guaranteed and non-guaranteed 
elements. These products provide returns to policyholders through bonuses that are smoothed. There are two types of bonuses: regular 
and final. Regular bonuses are declared once a year and, once credited, are guaranteed in accordance with the terms of the particular 
products. Final bonuses are guaranteed only until the next bonus declaration.

There are also various non-participating long-term products with guarantees. The principal guarantees are those for whole-of-life 

contracts with floor levels of policyholder benefits that accrue at rates set at inception and do not vary subsequently with market 
conditions. 

US (Jackson)
The principal financial options and guarantees in Jackson are associated with the variable annuity and fixed annuity lines of business. 

Jackson issues variable annuity contracts for which it contractually guarantees to the contract holder, subject to specific conditions, 
either: a) a return of no less than total deposits made to the contract, adjusted for any partial withdrawals; b) total deposits made to the 
contract, adjusted for any partial withdrawals plus a minimum return; or c) the highest contract value on a specified anniversary date, 
adjusted for any withdrawals following the specified contract anniversary. These guarantees include benefits that are payable upon 
depletion of funds (Guaranteed Minimum Withdrawal Benefits (GMWB)) or as death benefits (Guaranteed Minimum Death Benefits 
(GMDB)). These guarantees generally protect the policyholder’s contract value in the event of poor equity market performance. Jackson 
hedges the GMWB and GMDB guarantees through the use of equity options and futures contracts, with an expected long-term future 
hedging cost allowed for within the EEV value of in-force business to reflect the equity options and futures expected to be held based on 
the Group’s current dynamic hedging programme and consideration of past practice. This allowance was re-estimated in 2019 following 
the NAIC reform for variable annuity business, as described in note 7. Jackson also historically issued a small amount of income benefits 
(Guaranteed Minimum Income Benefits (GMIB)), which are now materially fully reinsured.

Fixed annuities provide that at Jackson’s discretion it may reset the interest rate credited to policyholders’ accounts, subject to a 

guaranteed minimum return, depending on the particular product, jurisdiction where issued and the date of issue.

Jackson also issues fixed index annuities that enable policyholders to obtain a portion of an equity-linked return while providing a 

guaranteed minimum return, which is of a similar nature to those for fixed annuities.

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Time value
The value of financial options and guarantees comprises the intrinsic value (arising from a deterministic valuation on best estimate 
assumptions) and the time value (arising from the variability of economic outcomes in the future). 

Where appropriate, a full stochastic valuation has been undertaken to determine the time value of financial options and guarantees. 

The economic assumptions used for the stochastic calculations are consistent with those used for the deterministic calculations. 
Assumptions specific to the stochastic calculations reflect local market conditions and are based on a combination of actual market data, 
historic market data and an assessment of long-term economic conditions. Common principles have been adopted across the Group for 
the stochastic asset models, for example, separate modelling of individual asset classes with an allowance for correlations between 
various asset classes. Details of the key characteristics of each model are given in note 15(ii).

In deriving the time value of financial options and guarantees, management actions in response to emerging investment and fund 
solvency conditions have been modelled. Management actions encompass, but are not confined to, investment allocation decisions, 
levels of regular and final bonuses and credited rates. Bonus rates are projected from current levels and varied in accordance with 
assumed management actions applying in the emerging investment and fund solvency conditions. In all instances, the modelled actions 
are in accordance with approved local practice and therefore reflect the options available to management.

The time value of financial options and guarantees reflects how the market value of the assets (including derivatives) held to manage 
the liability portfolios are expected to vary across the range of economic scenarios considered. For instance, in some economic scenarios 
the derivative portfolio may project gains in excess of the cost of the underlying guarantees on an EEV basis.

If the calculation of the time value of options and guarantees results in a positive outcome for a particular product (for example for 
variable annuity business in the US at 31 December 2019) then the figure is capped at zero, reflecting the strong interaction between the 
outcome of the central economic scenario and the time value of financial options and guarantees in these circumstances, and the 
reported value of in-force business before deduction of cost of capital and time value of options and guarantees will reflect the outcome 
from the full stochastic valuation.

(e) Level of required capital
In adopting the EEV Principles, Prudential has based required capital on the applicable local statutory regulations, including any amounts 
considered to be required above the local statutory minimum requirements to satisfy regulatory constraints. 
For shareholder-backed businesses, the following capital requirements for long-term business apply:

 — Asia: the level of required capital has been set to an amount at least equal to local statutory notification requirements. For China JV life 

operations, the level of required capital follows the approach for embedded value reporting issued by the China Association of 
Actuaries (CAA) reflecting the C-ROSS regime; and

 — US: the level of required capital has been set at 250 per cent of the risk-based capital (RBC) required by the National Association of 

Insurance Commissioners (NAIC) at the Company Action Level (CAL).

(f)  With-profits business and the treatment of the estate
For the Group’s relevant Asia operations, the proportion of surplus allocated to shareholders from the with-profits funds has been based 
on the applicable profit distribution between shareholders and policyholders. The EEV methodology includes the value attributed to the 
shareholders’ interest in the residual estate of the in-force with-profits business. In any scenarios where the total assets of the life fund are 
insufficient to meet policyholder claims in full, the excess cost is fully attributed to shareholders. As required, adjustments are also made 
to reflect any capital requirements for with-profits business in Asia in excess of the available capital of the with-profits funds.

(g) Internal asset management
The in-force and new business results from long-term business include the projected future profit or loss from asset management and 
service companies that support the Group’s covered insurance businesses. The results of the Group’s asset management operations 
include the current period profit from the management of both internal and external funds. EEV basis shareholders’ other income and 
expenditure is adjusted to deduct the unwind of the expected margins on the internal management of the assets of the life funds for the 
period as included in ‘Other’ operations. The deduction is on a basis consistent with that used for projecting the results for covered 
insurance business. Accordingly, Group operating profit includes the variance between the actual and expected profit margin in respect 
of the management of the assets for the covered business.

(h) Allowance for risk and risk discount rates
Overview
Under the EEV Principles, discount rates used to determine the present value of expected future cash flows are set by reference to 
risk-free rates plus a risk margin. 

The risk-free rates are based on local government bond yields at the valuation date and are generally assumed to remain constant 

throughout the projection.

The risk margin reflects any non-diversifiable risk associated with the emergence of distributable earnings that is not allowed for 

elsewhere in the valuation. In order to better reflect differences in relative market risk volatility inherent in each product group, Prudential 
sets the risk discount rates to reflect the expected volatility associated with the expected future cash flows for each product group in the 
embedded value model, rather than at a Group level.

Since financial options and guarantees are explicitly valued under the EEV methodology, risk discount rates exclude the effect of 

these product features.

The risk margin represents the aggregate of the allowance for market risk, additional allowance for credit risk where appropriate, and 
allowance for non-diversifiable non-market risk. No allowance is required for non-market risks where these are assumed to be fully diversifiable. 

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CONTINUED

14 Methodology and accounting presentation continued

Market risk allowance
The allowance for market risk represents the beta multiplied by an equity risk premium. 

The beta of a portfolio or product measures its relative market risk. The risk discount rates reflect the market risk inherent in each 
product group and hence the volatility of product-specific cash flows. These are determined by considering how the profit from each 
product is affected by changes in expected returns on various asset classes. By converting this into a relative rate of return, it is possible to 
derive a product-specific beta.

Product level betas reflect the product mix at the valuation date to produce appropriate betas and risk discount rates for each major 

product group.

In 2019, the Group reconsidered the application of this methodology for certain Asia businesses to reflect a more granular assessment 
of the underlying market risks when determining the beta, alongside other refinements. These refinements resulted in the change in the 
risk discount rate for Vietnam shown in note 15(i)(a), and had an impact of $67 million via the effect of change in economic assumptions in 
note 6. There were small consequential effects on new business contribution and in-force operating profit, which were overall not 
material in the context of the Group’s results.

Additional credit risk allowance
The Group’s methodology allows for credit risk. The total allowance for credit risk is to cover expected long-term defaults, credit risk 
premium (to reflect the volatility in downgrade and default levels) and short-term downgrades and defaults.

These allowances are initially reflected in determining best estimate returns and through the market risk allowance described above. 

However, for those businesses largely backed by holdings of debt securities, these allowances in the projected returns and market risk 
allowances may not be sufficient and an additional allowance may be appropriate.

The practical application of the allowance for credit risk varies depending on the type of business as described below:

Asia
For Asia, the allowance for credit risk incorporated in the projected rates of return and the market risk allowance is considered to be 
sufficient. Accordingly, no additional allowance for credit risk is required. 

The projected rates of return for holdings of corporate bonds comprise the risk-free rate plus an assessment of long-term spread over 

the risk-free rate.

US (Jackson)
For Jackson, the allowance for long-term defaults of 0.17 per cent at 31 December 2019 (31 December 2018: 0.17 per cent) is reflected in 
the risk margin reserve charge that is deducted in determining the projected spread margin between the earned rate on the investments 
and the policyholder crediting rate. 

The risk discount rate incorporates an additional allowance for credit risk premium and short-term downgrades and defaults, 

as shown in note 15(i)(b). In determining this allowance, a number of factors have been considered, in particular including:

 — How much of the credit spread on debt securities represents an increased short-term credit risk not reflected in the risk margin 
reserve long-term default assumptions and how much is liquidity premium (which is the premium required by investors to 
compensate for the risk of longer-term investments that cannot be easily converted into cash at the fair market value). In assessing this 
effect, consideration has been given to a number of approaches to estimate the liquidity premium by considering recent statistical 
data; and

 — Policyholder benefits for Jackson fixed annuity business are not fixed. It is possible, in adverse economic scenarios, to pass on 
a component of credit losses to policyholders (subject to guarantee features), through lower investment returns credited to 
policyholders. Consequently, it is only necessary to allow for the balance of the credit risk in the risk discount rate.

The level of the additional allowance is assessed at each reporting period to take account of prevailing credit conditions and as the 
business in force alters over time. The additional allowance for variable annuity business has been set at one-fifth of the non-variable 
annuity business to reflect the proportion of the allocated holdings of general account debt securities.

Allowance for non-diversifiable non-market risks 
The majority of non-market and non-credit risks are considered to be diversifiable. An allowance for non-diversifiable non-market risks 
is estimated as set out below. 

A base level allowance of 50 basis points is applied to cover the non-diversifiable non-market risks associated with the Group’s 
covered business. For the Group’s businesses in less mature markets (such as the Philippines and Thailand), additional allowances are 
applied for emerging market risk ranging from 100 to 250 basis points. The level and application of these allowances are reviewed and 
updated based on an assessment of the Group’s exposure and experience in the markets. During 2019, the allowance for emerging 
market risk was removed for Indonesia, Taiwan and Vietnam reflecting the growth in the size of the businesses and increasing 
management exposure and experience in the local markets. For the Group’s business in more mature markets, no additional allowance 
is necessary.

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(i) Foreign currency translation
Foreign currency profits and losses have been translated at average exchange rates for the year. Foreign currency transactions are 
translated at the spot rate prevailing at the date of the transactions. This includes external dividends paid to shareholders. Prudential will 
determine and declare its dividend in US dollars commencing with dividends paid in 2020, including the 2019 second interim dividend. 
Foreign currency assets and liabilities have been translated at closing exchange rates. The principal exchange rates are shown in note A1 
of the Group IFRS financial statements.

(j) Taxation
In determining the post-tax profit for the year for covered business, the overall tax rate includes the impact of tax effects determined on a 
local regulatory basis. Tax payments and receipts included in the projected future cash flows to determine the value of in-force business 
are calculated using tax rates that have been announced and substantively enacted by the end of the reporting period. 

(ii) Accounting presentation
(a) Analysis of post-tax profit
To the extent applicable, the presentation of the EEV basis profit or loss for the year is consistent with the classification between operating 
and non-operating results that the Group applies for the analysis of IFRS basis results. Operating results are determined as described in 
note (b) below and incorporate the following:

 — New business contribution, as defined in note (i)(b) above;
 — Unwind of discount on the value of in-force business and other expected returns, as described in note (c) below;
 — The impact of routine changes of estimates relating to operating assumptions, as described in note (d) below; and 
 — Operating experience variances, as described in note (e) below. 

In addition, operating results include the effect of changes in tax legislation, unless these changes are one-off and structural in nature or 
primarily affect the level of projected investment returns, in which case they are reflected as a non-operating result. 

Non-operating results comprise:

 — Short-term fluctuations in investment returns; 
 — Mark-to-market value movements on core structural borrowings;
 — Effect of changes in economic assumptions;
 — Impact of NAIC reform, hedge modelling and other related changes in the US; and
 — The impact of corporate transactions undertaken in the year.

Total profit or loss in the year attributable to shareholders and basic earnings per share include these items, together with actual 
investment returns. The Group believes that operating profit, as adjusted for these items, better reflects underlying performance.

(b) Investment returns included in operating profit
For the investment element of the assets covering the total net worth of long-term insurance business, investment returns are recognised 
in operating results at the expected long-term rates of return. These expected returns are calculated by reference to the asset mix of the 
portfolio. 

For the purpose of determining the long-term returns for debt securities of Jackson for fixed annuity and other general account 

business, a risk margin reserve charge is included, which reflects the expected long-term rate of default based on the credit quality of the 
portfolio. For Jackson, interest-related realised gains and losses are amortised to the operating results over the maturity period of the sold 
bonds; for equity-related investments, a long-term rate of return is assumed (as disclosed in note 15(i)(b)), which reflects the aggregation 
of risk-free rates and the equity risk premium at the end of the reporting period. For variable annuity separate account business, 
operating profit includes the unwind of discount on the opening value of in-force business adjusted to reflect projected rates of return at 
the end of the reporting period, with the excess or deficit of the actual return recognised within non-operating results, together with 
related hedging activity variances.

(c) Unwind of discount and other expected returns
The Group’s methodology in determining the unwind of discount and other expected returns is by reference to the value of in-force 
business at the beginning of the year (adjusted for the effect of changes in economic and operating assumptions in the current year) and 
required capital and surplus assets.

(d) Effect of changes in operating assumptions
Operating profit includes the effect of changes to non-economic assumptions on the value of in-force business at the end of the reporting 
period. For presentational purposes the effect of changes is delineated to show the effect on the opening value of in-force business as 
operating assumption changes, with the experience variances subsequently being determined by reference to the assumptions at the 
end of the reporting period, as discussed below.

(e) Operating experience variances
Operating profit includes the effect of experience variances on non-economic assumptions, such as persistency, mortality, morbidity, 
expenses and other factors, which are calculated with reference to the assumptions at the end of the reporting period. 

(f) Effect of changes in economic assumptions
Movements in the value of in-force business at the beginning of the year caused by changes in economic assumptions, net of the related 
changes in the time value of financial options and guarantees, are recorded in non-operating results.

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CONTINUED

15 Assumptions

(i) Principal economic assumptions
The EEV basis results for the Group’s covered business have been determined using economic assumptions where both the long-term 
expected rates of return on investments and risk discount rates are set by reference to risk-free rates of return at the end of the reporting 
period. The risk-free rates of return are based on local government bond yields, which are generally assumed to remain constant 
throughout the projection, and are shown below for each of the Group’s insurance operations. Expected returns on equity and property 
asset classes and corporate bonds are derived by adding a risk premium to the risk-free rate based on the Group’s long-term view. In the 
majority of business units, equity risk premiums were increased during 2019 by 25 basis points from those applied at 2018. The related 
expected return on equity assets and risk discount rates have been increased accordingly. As described in note 14(i)(h), the resulting risk 
discount rates incorporate allowances for market risk, additional credit risk and non-diversifiable non-market risks appropriate to the 
features and risks of the underlying products and markets, after considering risks allowed for explicitly elsewhere in the EEV basis, such 
as cost of capital and the time value of the cost of options and guarantees.

The total profit that emerges over the lifetime of an individual contract as calculated under the EEV basis is the same as that calculated 

under the IFRS basis. Since the EEV basis reflects discounted future cash flows, under the EEV methodology the profit emergence is 
advanced, thus more closely aligning the timing of the recognition of profit with the efforts and risks of current management actions, 
particularly with regard to business sold during the year.

(a) Asia notes(2)(3)

China JV
Hong Kong notes (2)(4)
Indonesia
Malaysia note (4)
Philippines
Singapore note (4)
Taiwan
Thailand
Vietnam
Total weighted average note (1)

Risk discount rate %

New business

In-force business

Government bond  
yield %

Expected long-term 
inflation %

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

8.2
3.7
10.8
5.8
12.3
3.3
3.4
9.2
5.3
4.9

8.1
4.4
12.4
6.6
14.5
3.4
4.5
10.0
12.6
5.4

8.2
3.7
10.8
5.9
12.3
3.9
3.0
9.2
5.5
4.9

8.1
4.4
12.4
6.6
14.5
4.2
4.4
10.0
12.6
5.8

3.2
1.9
7.2
3.3
4.6
1.7
0.7
1.5
3.4

3.3
2.7
8.2
4.1
7.0
2.1
0.9
2.5
5.1

3.0
2.5
4.5
2.5
4.0
2.0
1.5
3.0
5.5

3.0
2.5
4.5
2.5
4.0
2.0
1.5
3.0
5.5

Notes 
(1) 

(2) 
(3) 
(4) 

Total weighted average risk discount rates for Asia shown above have been determined by weighting each business’s risk discount rates by reference to the EEV basis new business 
contribution and the net closing value of in-force business. The changes in the risk discount rates for individual Asia businesses reflect the movements in the local government bond 
yields, changes in the equity risk premiums, changes in the allowance for market risk as described in note 14(i)(h) and changes in product mix.
For Hong Kong, the assumptions shown are for US dollar denominated business. For other businesses, the assumptions shown are for local currency denominated business. 
Equity risk premiums (geometric) in Asia range from 2.9 per cent to 4.8 per cent (31 December 2018: 2.6 per cent to 4.5 per cent).
The geometric equity return assumptions for the most significant equity holdings of the Asia businesses are:

Hong Kong (US dollar denominated business)
Malaysia
Singapore

31 Dec 2019 %

31 Dec 2018 %

4.8
7.3
5.7

5.3
7.9
5.8

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(b) US

Risk discount rate:

Variable annuity:

Risk discount rate
Additional allowance for credit risk included in risk discount rate note 14(i)(h)

Non-variable annuity:
Risk discount rate
Additional allowance for credit risk included in risk discount rate note 14(i)(h)

Total weighted average:

New business
In-force business

Allowance for long-term defaults included in projected spread note 14(i)(h)
US 10-year treasury bond yield
Equity risk premium (geometric)
Pre-tax expected long-term nominal rate of return for US equities (geometric)
Expected long-term rate of inflation
S&P 500 equity return volatility note (ii)(b)

Note
Assumed new business spread margins are as follows:

Fixed annuity business*
Fixed index annuity business†
Institutional business

31 Dec 2019 % 31 Dec 2018 %

6.5
0.2

3.7
1.0

6.1
6.2
0.17
1.9
2.9
4.8
2.9
17.5

7.1
0.2

4.4
1.0

6.9
6.8
0.17
2.7
2.6
5.3
2.9
17.5

2019 %

2018 %

January to 
June 
issues

July to
 December 
issues

January to 
June 
issues

July to
 December 
issues

1.50
0.50
0.50

0.85
0.50
0.50

1.75
2.00
0.50

1.75
2.00
0.50

* Including the proportion of variable annuity business invested in the general account. The assumed spread margin grades up linearly by 25 basis points to a long-term assumption over 

five years.

† The assumed spread margin grades up linearly by 100 basis points over five years, increasing by a further 50 basis points to a long-term assumption at the end of the index option period 

(2018 issues: grades up linearly by 25 basis points to a long-term assumption over five years).

(ii) Stochastic assumptions
Details are given below of the key characteristics of the models used to determine the time value of financial options and guarantees as 
referred to in note 14(i)(d).

(a) Asia
 — The stochastic cost of guarantees is primarily of significance for the Hong Kong, Malaysia, Singapore, Taiwan and Vietnam businesses;
 — The principal asset classes are government bonds, corporate bonds and equity;
 — Interest rates are projected using a stochastic interest rate model calibrated to the current market yields;
 — Equity returns are assumed to follow a log-normal distribution;
 — The corporate bond return is calculated based on a risk-free return plus a mean-reverting spread;
 — The volatility of equity returns ranges from 18 per cent to 35 per cent for both years; and
 — The volatility of government bond yields ranges from 1.1 per cent to 2.0 per cent for both years.

(b) US (Jackson)
 — Interest rates and equity returns are projected using a log-normal generator reflecting historical market data;
 — Corporate bond returns are based on treasury yields plus a spread that reflects current market conditions;
 — The volatility of equity returns ranges from 17 per cent to 26 per cent for both years; and 
 — The standard deviation of interest rates ranges from 3.1 per cent to 3.3 per cent (2018: from 3.4 per cent to 3.7 per cent). 

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CONTINUED

15 Assumptions continued

(iii) Operating assumptions
Best estimate assumptions are used for projecting future cash flows, where best estimate is defined as the mean of the distribution of 
future possible outcomes. The assumptions are reviewed actively and changes are made when evidence exists that material changes in 
future experience are reasonably certain.

Assumptions required in the calculation of the time value of financial options and guarantees, for example relating to volatilities and 

correlations, or dynamic algorithms linking liabilities to assets, have been set equal to the best estimates and, wherever material and 
practical, reflect any dynamic relationships between the assumptions and the stochastic variables. 

Demographic assumptions
Persistency, mortality and morbidity assumptions are based on an analysis of recent experience, and reflect expected future experience. 
Where relevant, when calculating the time value of financial options and guarantees, policyholder withdrawal rates vary in line with the 
emerging investment conditions according to management’s expectations. When projecting future cash flows for medical 
reimbursement business that is repriced annually, explicit allowance is made for expected future premium inflation and separately for 
future medical claims inflation. 

Expense assumptions
Expense levels, including those of the service companies that support the Group’s long-term business, are based on internal expense 
analysis and are appropriately allocated to acquisition of new business and renewal of in-force business. For mature business, it is 
Prudential’s policy not to take credit for future cost reduction programmes until the actions to achieve the savings have been delivered. 
An allowance is made for short-term required expenses that are not representative of the longer-term expense loadings of the relevant 
businesses. At 31 December 2019 the allowance held for these costs across the Group was $313 million, mainly arising in Asia. Expense 
overruns are reported where these are expected to be short-lived, including businesses that are growing rapidly or are sub-scale.

For Asia, expenses comprise costs borne directly and costs recharged from the Group head office function in Hong Kong that are 

attributable to the covered business. The assumed future expenses for these businesses also include projections of these future 
recharges. Development expenses are allocated to Asia covered business and are charged as incurred.

Corporate expenditure, which is included in other income and expenditure, comprises expenditure of the Group head office function 
in Hong Kong that is not allocated to the covered business or asset management, primarily for corporate related activities that are charged 
as incurred, and expenditure of the Group head office function in London, together with restructuring costs incurred across the Group.

Tax rates
The assumed long-term effective tax rates for operations reflect the expected incidence of taxable profit and loss in the projected future 
cash flows as explained in note 14(i)(j). Except for the change in China JV effective tax rate as discussed in note 4, there has been no 
change in the effective tax rates applied for projecting future cash flows.

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16 Insurance new business

Continuing operations:

2019  $m

2018  $m

2019  $m

2018  $m

2019  $m

2018  $m

2019  $m

2018  $m

Single premiums

Regular premiums

Annual premium 
equivalents (APE)

 Present value of new 
business premiums 
(PVNBP)

Asia
Cambodia
Hong Kong
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam

South-east Asia including Hong Kong
China JV note (b)
Taiwan
India note (c)

Total Asia

US
Variable annuities 
Elite Access (variable annuity)
Fixed annuities
Fixed index annuities
Institutional

Total US

Group total note (d)

–
387
292
209
51
1,217
192
22

2,370
710
544
155

3,779

–
458
274
112
57
1,242
290
27

2,460
138
389
105

3,092

12,692
2,002
1,194
3,821
2,522

14,433
2,245
454
335
3,126

22,231

20,593

24
1,977
361
333
153
539
140
215

3,742
518
278
245

4,783

–
–
–
–
–

–

26
2,222
287
324
111
493
127
192

3,782
390
243
276

4,691

–
–
–
–
–

–

26,010

23,685

4,783

4,691

24
2,016
390
355
158
660
159
217

3,979
590
332
260

5,161

1,270
200
119
382
252

2,223

7,384

26
2,266
315
335
117
617
156
195

4,027
403
282
287

4,999

1,443
225
46
33
312

2,059

7,058

111
12,815
1,668
2,090
561
4,711
763
1,342

24,061
2,586
1,418
1,179

119
13,619
1,215
1,765
395
4,821
813
946

23,693
1,753
1,052
1,213

29,244

27,711

12,692
2,002
1,194
3,821
2,522

14,434
2,244
454
335
3,126

22,231

20,593

51,475

48,304

Notes
(a) 

The tables shown above are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profit for shareholders. 
The amounts shown are not, and not intended to be, reflective of premium income recorded in the Group IFRS income statement. 

(b)  New business in China JV is included at Prudential’s 50 per cent interest in the joint venture.
(c) 
(d) 

New business in India is included at Prudential’s interest in the associate (with effect from 27 March 2019: 22 per cent; 2018: 26 per cent).
In 2019, the Africa business sold new business APE of $82 million (2018: $51 million on an actual exchange rate basis, $47 million on a constant exchange rate basis). Given the 
relative immaturity of the Africa business, it is incorporated into the Group’s EEV basis results on an IFRS basis and is excluded from new business sales and profit metrics.

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Statement of directors’ responsibilities in 
respect of the European Embedded Value 
(EEV) basis supplementary information

The directors have chosen to prepare supplementary information in 
accordance with the European Embedded Value Principles issued by the 
European Insurance CFO Forum in 2016 (‘the EEV Principles’) using the 
methodology and assumptions set out in the Notes on the EEV basis results.

When compliance with the EEV Principles 
is stated, those principles require the 
directors to prepare supplementary 
information in accordance with the 
Embedded Value Methodology (EVM) 
contained in the EEV Principles and to 
disclose and explain any non-compliance 
with the EEV guidance included in the EEV 
Principles.

In preparing the EEV supplementary 
information, the directors have:

 — Prepared the supplementary 

information in accordance with the EEV 
Principles; 

 — Identified and described the business 

covered by the EVM;

 — Applied the EVM consistently to the 

covered business;

 — Determined assumptions on a realistic 

basis, having regard to past, current and 
expected future experience and to any 
relevant external data, and then applied 
them consistently;

 — Made estimates that are reasonable and 

consistent; and

 — Described the basis on which business 
that is not covered business has been 
included in the supplementary 
information, including any material 
departures from the accounting 
framework applicable to the Group’s 
financial statements.

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Independent auditor’s report to Prudential plc 
on the European Embedded Value (EEV) basis 
supplementary information

Opinions and conclusions arising 
from our audit
Our opinion on the EEV basis 
supplementary information is 
unmodified
We have audited the EEV basis 
supplementary information of 
Prudential plc (‘the Company’) for the 
year ended 31 December 2019 set out 
in the EEV basis results and Notes on the 
EEV basis results pages. The EEV basis 
supplementary information should be 
read in conjunction with the Group 
financial statements.

In our opinion, the EEV basis 
supplementary information of the 
Company for the year ended 31 December 
2019 has been properly prepared, in all 
material respects, in accordance with the 
European Embedded Value Principles 
issued by the European Insurance CFO 
Forum in 2016 (‘the EEV Principles’) using 
the methodology and assumptions set out 
in the Notes on the EEV basis results.

The purpose of this report and 
restrictions on its use by persons 
other than the Company 
This report is made solely to the Company 
in accordance with the terms of our 
engagement. Our audit work has been 
undertaken so that we might state to the 
Company those matters we have been 
engaged to state in this report and for no 
other purpose. To the fullest extent 
permitted by law, we do not accept or 
assume responsibility to anyone other than 
the Company for our audit work, for this 
report, or for the opinions we have formed.

Philip Smart

for and on behalf of KPMG LLP, 
Statutory Auditor 
Chartered Accountants 
London

10 March 2020

Respective responsibilities of 
directors and auditor
As explained more fully in the Directors’ 
Responsibilities Statement set out on 
page 358, the directors have accepted 
responsibility for the preparation of the 
supplementary information on the EEV 
basis in accordance with the EEV 
Principles. 

Our responsibility is to audit, and express 
an opinion on, the supplementary 
information in accordance with the terms 
of our engagement and in accordance with 
International Standards on Auditing (UK). 
Those standards require us to comply with 
the Financial Reporting Council’s Ethical 
Standard.

Scope of an audit of financial 
statements performed in 
accordance with ISAs (UK)
A description of the scope of an audit of 
financial statements is provided on our 
website at www.kpmg.com/uk/
auditscopeukco2014a. This report is 
made subject to important explanations 
regarding our responsibilities, as published 
on that website, which are incorporated 
into this report as if set out in full and 
should be read to provide an 
understanding of the purpose of this 
report, the work we have undertaken 
and the basis of our opinions.

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07

Additional 
information

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07

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Index to the additional unaudited financial information 

Risk factors

Glossary

Shareholder information

How to contact us

Page

362

388

396

400

403

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Index to the additional unaudited 
financial information

I  Additional financial information

(i) Group capital position

(ii) Funds under management

(iii) Holding company cash flow

(iv) Analysis of adjusted IFRS operating profit based on longer-term investment returns by driver from long-term 

insurance businesses

(v) Asia operations – analysis of adjusted IFRS operating profit based on longer-term investment returns by business unit

(vi) Reconciliation of expected transfer of value of in-force business and required capital to free surplus

(vii) Option schemes

(viii) Selected historical financial information

II Calculation of alternative performance measures

(i) Reconciliation of adjusted IFRS operating profit based on longer-term investment returns to profit before tax from 

continuing operations 

(ii) Calculation of IFRS gearing ratio

(iii) Return on IFRS shareholders’ funds

(iv) Calculation of IFRS shareholders’ funds per share

(v) Calculation of asset management cost/income ratio

(vi) Reconciliation of Asia renewal insurance premium to gross premiums earned

(vii) Reconciliation of APE new business sales to gross premiums earned

(viii) Reconciliation between IFRS and EEV shareholders’ equity

(ix) Calculation of return on embedded value

(x) Calculation of EEV shareholders’ funds per share

(xi) Calculation of new business contribution/embedded value

Page

363

367

368

369

372

374

378

380

382

382

382

384

384

384

385

385

386

387

387

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Additional unaudited financial information

I Additional financial information

I(i) Group capital position 
Following the demerger of M&G plc from Prudential plc, the Hong Kong Insurance Authority (IA) has assumed the role of the group-wide 
supervisor for the Prudential Group with the Group no longer subject to Solvency II capital requirements. Ultimately, Prudential plc will 
become subject to the Group Wide Supervision (GWS) framework which is currently under development by the Hong Kong IA for the 
industry and is expected to be finalised in the second half of 2020. Until Hong Kong’s GWS framework comes into force, Prudential will 
apply the local capital summation method (LCSM) that has been agreed with the Hong Kong IA to determine group regulatory capital 
requirements (both minimum and prescribed levels). Further detail on the LCSM is included in the basis of preparation section below.

For regulated insurance entities, the available and required capital included in the LCSM measure for Hong Kong IA Group regulatory 

purposes are based on the local solvency regime applicable in each jurisdiction. At 31 December 2019 the Prudential Group’s total 
surplus of available capital over the regulatory Group Minimum Capital Requirement (GMCR), calculated using this LCSM was 
$23.6 billion before allowing for the payment of the 2019 second interim ordinary dividend.

The Group holds material participating business in Hong Kong, Singapore and Malaysia. If the available capital and minimum capital 

requirement attributed to this policyholder business are excluded, then the Prudential Group shareholder LCSM surplus of available 
capital over the regulatory GMCR at 31 December 2019 was $9.5 billion before allowing for the payment of the 2019 second interim 
ordinary dividend. 

Estimated Group LCSM capital position based on Group Minimum Capital Requirement (GMCR) 

Available capital ($bn)
Group Minimum Capital Requirement ($bn) 
LCSM surplus (over GMCR) ($bn)
LCSM ratio (over GMCR) (%)

31 Dec 2019

Less
policyholder

(19.1)
(5.0)
(14.1)

Total

33.1
9.5
23.6
348%

Shareholder

14.0
4.5
9.5
309%

31 Dec 2018*

Less
policyholder

(13.5)
(3.8)
(9.7)

Total

27.0
7.6
19.4
355%

Shareholder

13.5
3.8
9.7
356%

* Excludes M&G plc and includes $3.7 billion of subordinated debt issued by Prudential plc that was transferred to M&G plc on 18 October 2019.

The shareholder LCSM capital position by segment is presented below at 31 December 2019 and 31 December 2018 for comparison:

Estimated Group shareholder LCSM capital position (based on GMCR)

Available capital
Group Minimum Capital Requirement
LCSM surplus (over GMCR)

Available capital
Group Minimum Capital Requirement
LCSM surplus (over GMCR)

31 Dec 2019  $bn

Shareholder

Total
Asia 

Less
policyholder 

26.8
8.0
18.8

(19.1)
(5.0)
(14.1)

Asia

7.7
3.0
4.7

Unallocated to
a segment

Group total

1.0
–
1.0

14.0
4.5
9.5

US

5.3
1.5
3.8

31 Dec 2018*  $bn

Shareholder

Total
Asia 

Less
policyholder 

19.6
6.3
13.3

(13.5)
(3.8)
(9.7)

Asia

6.1
2.5
3.6

Unallocated to
a segment

Group total

1.7
–
1.7

13.5
3.8
9.7

US

5.7
1.3
4.4

*Excludes M&G plc and includes $3.7 billion of subordinated debt issued by Prudential plc that was transferred to M&G plc on 18 October 2019.

The 31 December 2019 Jackson local statutory results reflect early adoption of the NAIC regulatory framework reforms at the valuation 
date as agreed with the Department of Insurance Financial Services (DIFS) and Jackson’s decision not to renew its long-standing 
permitted practice with the DIFS which allowed certain derivative instruments, taken out to protect Jackson against declines in long-term 
interest rates, to be included at book value in the local statutory returns. At 31 December 2019 these derivatives are held at fair value.

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I Additional financial information continued

I(i) Group capital position continued
Sensitivity analysis
The estimated sensitivity of the Group shareholder LCSM capital position (based on GMCR) to significant changes in market conditions is 
as follows:

Impact of market sensitivities

Base position 
Impact of:

20% instantaneous fall in equity markets
40% fall in equity markets note (1)
50 basis points reduction in interest rates 
100 basis points increase in interest rates
100 basis points increase in credit spreads note (2)

31 Dec 2019

LCSM
surplus 
$bn

9.5

1.5
(0.2)
(0.2)
(1.3)
(1.6)

LCSM
ratio 
%

309%

(9)%
(39)%
(17)%
(19)%
(36)%

Notes
(1)  Where hedges are dynamic, rebalancing is allowed for by assuming an instantaneous 20 per cent fall followed by a further 20 per cent fall over a four-week period.
(2)  US RBC solvency position included using a stress of 10 times expected credit defaults.

The sensitivity results above assume instantaneous market movements as at 31 December 2019, apart from the -40% equity sensitivity 
where for Jackson an instantaneous 20% market fall is assumed to be followed by a further market fall of 20% over a four-week period 
with dynamic hedges assumed to be rebalanced over the period. Aside from this assumed dynamic hedge rebalancing for Jackson in the 
-40% equity sensitivity, the sensitivity results only allow for limited management actions such as changes to future policyholder bonuses. 
If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown above. In this case 
management could also take additional actions to help mitigate the impact of these stresses. These actions include, but are not limited to, 
rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to 
new business pricing and the mix of new business being sold. 

Between 31 December 2019 and the end of February 2020, government bond yields and equity markets fell significantly in many 
countries. For example, US 10-year treasury yields fell by around 80 basis points and the US S&P 500 equity index fell by around 9% over 
the 2-month period. Based on economic conditions at the end of February 2020, the Group shareholder LCSM capital ratio (over GMCR) 
is estimated to be in the range of 270% - 280%, compared to 309% at 31 December 2019. This estimated capital ratio at the end 
of February is slightly higher than implied by the sensitivities above, mainly reflecting the benefit of management actions taken in the 
period which are not allowed for in the sensitivities. 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDAnalysis of movement in Group capital position 
A summary of the estimated movement in the Group shareholder LCSM surplus (based on GMCR) from $9.7 billion at 31 December 
2018 to $9.5 billion at 31 December 2019 is set out in the table below. 

Balance at beginning of year
Operating:

Operating capital generation from the in-force business
Investment in new business

Operating capital generation

Non-operating and other capital movements:

Non-operating experience (including market movements)
Adoption of NAIC regulatory reforms in the US
Corporate activities (excluding demerger items)
Demerger costs
Subordinated debt redemption
Demerger related impacts

M&G plc remittances
External dividends

Net dividend impact

Net movement in LCSM surplus

Balance at end of year

2019  $bn

9.7

2.5
(0.6)

1.9

(0.6)
0.1
(0.8)
(0.4)
(0.5)
1.0

0.7
(1.6)

(0.9)

(0.2)

9.5

The estimated movement in the Group shareholder LCSM surplus over 2019 is driven by: 

 — Operating capital generation of $1.9 billion: generated by expected return on in-force business net of strain on new business written 

in 2019. It includes the impact from the release of incremental reserves associated with the John Hancock acquisition in the US 
($0.4 billion) and interest paid prior to demerger on subordinated debt transferred to M&G plc ($(0.2) billion); 

 — Non-operating experience of $(0.6) billion: this includes the negative impact of higher equity markets on Jackson’s derivatives net of 
reserve movements partially offset by the positive impacts of market and exchange rate movements on Asia surplus over the year;
 — Corporate activities (excluding demerger items) of $(0.8) billion: this is the effect on LCSM surplus of corporate transactions in the 

period, principally arising from the extension of the UOB bancassurance distribution deal; 

 — Demerger costs of $(0.4) billion: this includes transaction related costs and other one-off costs arising from the demerger;
 — Subordinated debt redemption of $(0.5) billion: a reduction in surplus from the impact of debt redeemed during 2019;
 — Demerger related impacts of $1.0 billion: includes $3.8 billion of pre-demerger dividend paid by M&G plc, $1.0 billion of restructuring 
impacts prior to demerger and $0.4 billion from debt raised by Prudential plc on behalf of M&G plc, partially offset by $(4.2) billion 
from the transfer of subordinated debt to M&G plc prior to demerger; and

 — Net dividend impact of $(0.9) billion: this includes external dividends of $(1.6) billion paid during 2019 largely based on the Group 

prior to demerger net of regular remittances paid by M&G plc during 2019 prior to the demerger of $0.7 billion. 

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I Additional financial information continued

I(i) Group capital position continued
Reconciliation of Group shareholder LCSM surplus to EEV free surplus (excluding intangibles)

31 Dec 2019 ($bn)

Estimated Group shareholder LCSM surplus (over GMCR)
Increase required capital for EEV free surplus note (i)
Adjust surplus assets and core structural borrowings to market value note (ii)
Add back inadmissible assets note (iii)
Deductions applied to EEV free surplus note (iv)
Other

EEV free surplus excluding intangibles*

Asia

4.7
(0.6)
0.3
0.1
(0.9)
–

3.6

Unallocated to 
a segment

US

Group 
total

3.8
(2.2)
0.2
0.1
–
(0.1)

1.8

1.0
–
(0.2)
–
–
0.4

1.2

9.5
(2.8)
0.3
0.2
(0.9)
0.3

6.6

*As per the “Free surplus excluding distribution rights and other intangibles” from note 11 of the Group’s EEV basis results.

Notes:
(i) 

(ii) 

Required Capital under EEV is set at least equal to local statutory notification requirements for Asia (with China JV following the approach for embedded value reporting issued by 
the China Association of Actuaries (CAA) reflecting the C-ROSS regime) and at 250 per cent of the risk-based capital (RBC) required by the NAIC at the Company Action Level 
(CAL). This is higher than the solo legal entity statutory minimum capital requirements that are included in the LCSM surplus (over GMCR).
The EEV Principles require surplus assets to be included at fair value and central core senior debt held at market value. Within LCSM surplus, some local regulatory regimes value 
certain assets at cost and core structural borrowings are held at amortised cost. 
LCSM restricts the valuation of certain sundry non-intangible assets. In most cases these assets are considered fully recognisable in free surplus. As an exception to this, both 
LCSM surplus and EEV free surplus restrict the deferred tax asset held by Jackson to the level allowed to be admitted by the local regulator in local statutory available capital.
(iv)  Deductions applied to EEV free surplus primarily include the impact of applying the embedded value reporting approach issued by the CAA within EEV free surplus as compared to 
the C-ROSS surplus reported for local regulatory purposes. The $(0.9) billion predominantly arises from the requirement under the CAA embedded value methodology to establish 
a deferred profit liability within EEV net worth.

(iii) 

Reconciliation of Group IFRS shareholders’ equity to shareholder LCSM available capital position 

Group IFRS shareholders’ equity
Remove DAC, goodwill and intangibles
Add subordinated debt at IFRS book value
Valuation differences 
Other

Estimated Group shareholder LCSM available capital

The key items of the reconciliation as at 31 December 2019 are: 

31 Dec 2019
$bn

19.5
(18.2)
4.6
8.6
(0.5)

14.0

 — $(18.2) billion due to the removal of DAC, goodwill and other intangibles from the IFRS statement of financial position;
 — $4.6 billion due to the addition of subordinated debt, which is treated as available capital under LCSM but as a liability under IFRS; and
 — $8.6 billion due to differences on the basis of valuing assets and liabilities between IFRS and local statutory valuation rules, including 
reductions for inadmissible assets. The most significant difference arises in Jackson where local statutory reserves are reduced by an 
expense allowance linked to surrender charges. IFRS makes no such allowance but instead defers acquisition costs on the balance 
sheet as a separate asset (which is not recognised on the statutory balance sheet).

Basis of preparation
In advance of the GWS framework coming into force, Prudential applies the local capital summation method (LCSM) that has been 
agreed with the Hong Kong IA to determine group regulatory capital requirements (both minimum and prescribed levels). The 
summation of local statutory capital requirements across the Group is used to determine group regulatory capital requirements, with no 
allowance for diversification between business operations. The Group available capital is determined by the summation of available 
capital across local solvency regimes for regulated entities and IFRS net assets (with adjustments described below) for non-regulated 
entities. The Hong Kong IA has yet to make any final decisions regarding the GWS framework for the industry and it continues to consider 
and consult on the proposed legislation and related guidelines. The results above should not therefore be interpreted as representing the 
results or requirements under the industry-wide GWS framework and are not intended to provide a forecast of the eventual position. 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDIn determining the LCSM available capital and required capital the following principles have been applied:

 — For regulated insurance entities, available and required capital are based on the local solvency regime applicable in each jurisdiction, 
with minimum required capital is set at the solo legal entity statutory minimum capital requirements. The treatment of participating 
funds is consistent with the local basis; 

 — For the US insurance entities, available and required capital are based on the local US RBC framework set by the NAIC, with minimum 

required capital set at 100 per cent of the CAL RBC;

 — For asset management operations and other regulated entities, the shareholder capital position is derived based on the sectoral basis 
applicable in each jurisdiction, with minimum required capital based on the solo legal entity statutory minimum capital requirement;
 — For non-regulated entities, the available capital is based on IFRS net assets after deducting intangible assets. No required capital is 

held in respect of unregulated entities;

 — Investments in subsidiaries, joint ventures and associates (including, if any, loans that are recognised as capital on the receiving 

entity’s balance sheet) are eliminated from the relevant holding company to prevent the double counting of available capital; and
 — The Hong Kong IA has agreed that specific bonds (being those subordinated debt instruments held by Prudential plc at the date of 
demerger) can be included as part of the Group’s capital resources for the purposes of satisfying group minimum and prescribed 
capital requirements. Senior debt instruments held by Prudential plc have not been included as part of the Group capital resources 
and are treated as a liability in the LCSM results presented above (this is equivalent to a 15 per cent reduction in the Group shareholder 
LCSM coverage ratio (over GMCR)). Grandfathering provisions under the GWS framework remain subject to further consultation 
and the Hong Kong legislative process in due course.

I(ii) Funds under management
For Prudential’s asset management businesses, funds managed on behalf of third parties are not recorded on the statement of financial 
position. They are, however, a driver of profitability. Prudential therefore analyses the movement in the funds under management each 
period, focusing on those which are external to the Group and those primarily held by the Group’s insurance businesses. The table below 
analyses, by segment, the funds of the Group held in the statement of financial position and the external funds that are managed by 
Prudential’s asset management businesses. 

Asia operations:
Internal funds
Eastspring Investments external funds (as analysed note I(v))
Other†

US operations – internal funds
Other operations

Total Group funds under management – continuing operations

31 Dec 2019
$bn

31 Dec 2018*
$bn

141.9
124.7
–

266.6
273.4
3.9

543.9

112.5
77.8
22.2

212.5
237.0
5.8

455.3

* The 2018 comparatives have been adjusted from the previously published amounts to exclude the discontinued UK and Europe operations. Additionally, the comparatives have been 

adjusted to include cash and cash equivalents and to exclude assets held that are attributable to external unit holders of consolidated collective investment schemes to align to the current 
year’s presentation. 

† Other represents funds managed by Eastspring Investments on behalf of M&G plc, that were categorised as the internal funds of the UK and Europe operations prior to the demerger of 

M&G plc. Following the demerger, these funds have been reclassified to external funds under management of Eastspring Investments.

Note
Total Group funds under management from continuing operations comprise:

Total investments and cash and cash equivalents held by the continuing operations on the consolidated statement 

of financial position 

External and M&G plc funds of Eastspring Investments
Internally managed funds held in joint ventures and associate, excluding assets attributable to external unit holders 

of the consolidated collective investment schemes and other adjustments

Total Group funds under management from continuing operations

31 Dec 2019
  $bn

31 Dec 2018
  $bn

412.6
124.7

6.6

543.9

349.6
100.0

5.7

455.3

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationI Additional financial information continued

I(iii) Holding company cash flow
The holding company cash flow describes the movement in the cash and short-term investments of the centrally managed group holding 
companies and differs from the IFRS cash flow statement, which includes all cash flows in the year including those relating to both 
policyholder and shareholder funds. The holding company cash flow is therefore a more meaningful indication of the Group’s central 
liquidity.

During both 2019 and 2018 the cash and short-term investments of the central holding companies were managed in sterling, in line 

with the management of the Group’s external dividends. Following the change to the Group’s presentational currency, the holding 
company cash flow statement below is shown in US dollars and prior period amounts have been restated accordingly. Cash movements 
in the year have been converted from sterling into US dollars by using the month-end sterling to US dollar exchange rate for the month in 
which the transaction occurred. Cash balances at the start and end of the year have been translated from sterling to US dollars using the 
spot rates at 1 January and 31 December respectively. As an exception to the above, external dividends paid for both 2019 and 2018 have 
been translated at the exchange rate relevant to the day they were paid to ensure consistency with the financial statements. 

At 31 December 2019, the Group changed its basis of managing central cash-holdings from sterling to US dollars to better reflect the 

inflows from the Group’s operations post the demerger of M&G plc and its decision to declare dividends in US dollars from 2020. 
Therefore, in future reporting the holding company cash flow will be prepared directly in US dollars.

Net cash remitted by business units note  (a):
From continuing operations

Asia note (b)
US note (b)
Other operations
Total continuing operations

From discontinued UK and Europe operations

Net cash remittances by business units
Net interest paid note (c)
Tax received
Corporate activities

Total central outflows

Holding company cash flow before dividends and other movements
Dividends paid 

Operating holding company cash flow after dividends but before other movements
Other movements

Transactions to effect the demerger, including debt substitution note(d)
Demerger costs
Redemption of subordinated debt for continuing operations
Early settlement of UK-inflation-linked derivative liability
Other corporate activities relating to continuing operations note(e)

Total other movements

Total holding company cash flow
Cash and short-term investments at beginning of year
Foreign exchange movements

Cash and short-term investments at end of year

2019  $m

AER
2018  $m

950
509
6
1,465
684

2,149
(527)
265
(260)

(522)

1,627
(1,634)

(7)

(146)
(424)
(504)
(587)
(338)

(1,999)

(2,006)
4,121
92

2,207

916
452
49
1,417
842

2,259
(488)
190
(274)

(572)

1,687
(1,662)

25

2,071
(29)
(553)
–
(336)

1,153

1,178
3,063
(120)

4,121

Notes
(a) 
(b) 

(c) 
(d) 

Net cash remittances comprise dividends and other transfers from business units that are reflective of emerging earnings and capital generation. 
Significant cash remittances from business units were hedged into sterling using forward contracts during 2018 and 2019 and these contracts determine the amount of sterling 
recorded in the holding company cash flow for the relevant remittances. The implicit rates may therefore differ from that applied to present the holding company cash flow in US 
dollars. If local currency remittances in Asia had been translated directly into US dollars using the relevant month-end spot rate then the growth rate in Asia remittances year on year 
would have been 8 per cent (compared to 4 per cent shown in the table above). The dividend paid by Jackson in the US in US dollars in 2019 was $525 million (2018: $450 million).
The net interest paid in 2019 includes amounts on debt substituted to M&G plc shortly prior to its demerger of $231 million. 
Transactions to effect the demerger includes the transfer of subsidiaries and settlement of intercompany loans totalling $(193) million issuance of substitutable debt for cash of 
$367 million, receipt of the pre-demerger dividend of $3,841 million, and the substitution of M&G plc as issuer of sub-ordinated debt in place of Prudential plc (as discussed further 
in note C6 of the IFRS financial statements), which reduced Cash and short-term investments by $(4,161) million.

(e)  Other corporate activities relating to continuing operations primarily relates to the first instalment payable following the renewal of bancassurance arrangement with UOB of 

$253 million, ongoing centrally funded payments of bancassurance distribution rights and other items. 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDI(iv) Analysis of adjusted IFRS operating profit based on longer-term investment returns by driver from long-term 
insurance businesses
This schedule classifies the Group’s adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit) 
from continuing long-term insurance businesses into the underlying drivers using the following categories:

 — Spread income represents the difference between net investment income and amounts credited to certain policyholder accounts. 
It excludes the operating investment return on shareholder net assets, which has been separately disclosed as expected return on 
shareholder assets.

 — Fee income represents profit driven by net investment performance, being fees that vary with the size of the underlying policyholder 

funds, net of investment management expenses.

 — With-profits represents the pre-tax shareholders’ transfer from the with-profits business for the period.
 — Insurance margin primarily represents profit derived from the insurance risks of mortality and morbidity.
 — Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses 

(see below).

 — Acquisition costs and administration expenses represent expenses incurred in the period attributable to shareholders.
 These exclude items such as restructuring costs, which are not included in the segment profit, as well as items that are more 
appropriately included in other categories (eg investment expenses are netted against investment income as part of spread income 
or fee income as appropriate).

 — DAC adjustments comprise DAC amortisation for the period, excluding amounts related to short-term fluctuations in investment 

returns, net of costs deferred in respect of new business written in the period.

(a) Margin analysis of long-term insurance business – continuing operations
The following analysis expresses certain of the Group’s sources of adjusted IFRS operating profit based on longer-term investment 
returns as a margin of policyholder liabilities or other relevant drivers. Details on the calculation of the Group’s average policyholder 
liability balances are given in note (1). 

Spread income
Fee income 
With-profits
Insurance margin
Margin on revenues
Expenses:

Acquisition costs note (3)
Administration expenses 
DAC adjustments note (4)

Expected return on shareholder assets

Share of related tax charges from joint ventures and associate note (5)

Adjusted IFRS operating profit based on longer-term 

investment returns long-term business

Adjusted IFRS operating profit based on longer-term 

investment returns – asset management 

Total segment profit from continuing operations

Average
liability
note (1)
$m

86,887
208,217
58,032

Margin
note (2)
bps

111
172
18

7,384
303,204

(44)%
(103)

2019

Group
total

$m

963
3,578
107
3,561
3,035

(3,230)
(3,112)
940
220

6,062
(31)

6,031

315

6,346

US
note (c)
$m

642
3,292
–
1,317
–

(1,074)
(1,675)
510
26

3,038
–

3,038

32

3,070

Asia
note (b)
$m

321
286
107
2,244
3,035

(2,156)
(1,437)
430
194

3,024
(31)

2,993

283

3,276

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
I Additional financial information continued

I(iv) Analysis of adjusted IFRS operating profit based on longer-term investment returns by driver from long-term 
insurance businesses continued

2018  AER notes (6),(7)

Spread income
Fee income 
With-profits
Insurance margin
Margin on revenues
Expenses:

Acquisition costs note (3)
Administration expenses 
DAC adjustments note (4)

Expected return on shareholder assets

Share of related tax charges from joint ventures and associate note (5)

Adjusted IFRS operating profit based on longer-term 

investment returns long-term business

Adjusted IFRS operating profit based on longer-term 

investment returns – asset management

Total segment profit from continuing operations

Spread income
Fee income 
With-profits
Insurance margin
Margin on revenues
Expenses:

Acquisition costs note (3)
Administration expenses 
DAC adjustments note (4)

Expected return on shareholder assets

Share of related tax charges from joint ventures and associate note (5)

Adjusted IFRS operating profit based on longer-term 

investment returns long-term business

Adjusted IFRS operating profit based on longer-term 

investment returns – asset management

Total segment profit from continuing operations

Average
liability
note (1)
$m

74,803
204,456
47,548

Margin
note (2)
bps

145
173
20

7,058
284,985

(43)%
(105)

Average
liability
note (1)
$m

74,690
204,111
47,580

Margin
note (2)
bps

145
174
20

7,018
284,527

(43)%
(104)

Asia
note (b)
$m

310
280
95
1,978
2,810

(2,007)
(1,374)
435
172

2,699
(53)

2,646

242

2,888

Asia
note (b)
$m

305
277
94
1,966
2,790

(1,991)
(1,359)
430
172

2,684
(51)

2,633

239

2,872

US
note (c)
$m

778
3,265
–
1,267
–

(1,013)
(1,607)
(152)
14

2,552
–

2,552

11

2,563

Group
total

$m

1,088
3,545
95
3,245
2,810

(3,020)
(2,981)
283
186

5,251
(53)

5,198

253

5,451

2018  CER notes (6),(7)

US
note (c)
$m

778
3,265
–
1,267
–

(1,013)
(1,607)
(152)
14

2,552
–

2,552

11

2,563

Group
total

$m

1,083
3,542
94
3,233
2,790

(3,004)
(2,966)
278
186

5,236
(51)

5,185

250

5,435

Notes to the tables throughout I(iv) 
(1) 

For Asia, opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balances throughout the year. The calculation 
of average liabilities for the US is generally derived from month-end balances throughout the year as opposed to opening and closing balances only. The average liabilities for fee 
income in the US have been calculated using daily balances instead of month-end balances in order to provide a more meaningful analysis of the fee income, which is charged on the 
daily account balance. Average liabilities for spread income are based on the general account liabilities to which spread income is attached. Average liabilities used to calculate the 
administration expenses margin exclude the REALIC liabilities reinsured to third parties prior to the acquisition by Jackson.

The ratio of acquisition costs is calculated as a percentage of APE sales including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. 
The DAC adjustments contain a credit of $72 million in respect of joint ventures and associate in 2019 (2018: AER credit of $73 million).

(2)  Margin represents the operating return earned in the year as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus. 
(3) 
(4) 
(5)  Under IFRS, the Group’s share of results from its investments in joint ventures and associate accounted for using the equity method is included in the Group’s profit before tax on a 
net of related tax basis. These tax charges are shown separately in the analysis of Asia operating profit drivers in order for the contribution from the joint ventures and associate to 
be included in the margin analysis on a consistent basis as the rest of the Asia’s operations.
The 2018 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation. CER results are calculated by translating prior year 
results using the current year foreign exchange rates. All CER profit figures have been translated at current year average rates for US dollars to reflect the change in the Group’s 
presentation currency in 2019. For Asia, CER average liabilities have been translated using current year opening and closing exchange rates. 
The 2018 comparative results exclude the contribution from the discontinued UK and Europe operations. 

(7) 

(6) 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUED(b) Margin analysis of long-term insurance business – Asia

2019

Average
liability
note (1)
$m 

29,706
27,277
58,032

Margin
note (2)
bps 

108
105
18

Profit

$m 

321
286
107
2,244
3,035

(2,156)
5,161
(1,437) 56,984

(42)%
(252)

430
194

3,024

(31)

2,993

283

3,276

Profit

$m 

310
280
95
1,978
2,810

(2,007)
(1,374)
435
172

2,699

(53)

2,646

242

2,888

Spread income
Fee income 
With-profits
Insurance margin
Margin on revenues
Expenses:

Acquisition costs note (3)
Administration expenses
DAC adjustments note (4)

Expected return on shareholder assets

Share of related tax charges from joint 

ventures and associate note (5)

Adjusted IFRS operating profit based on 
longer-term investment returns – 
long-term business

Adjusted IFRS operating profit based on 
longer-term investment returns – 
asset management (Eastspring 
Investments)

Total Asia

(c) Margin analysis of long-term insurance business – US

2018 AER

2018 CER notes (6),(7)

Average
liability
note (1)
$m 

24,752
26,398
47,548

Margin
note (2)
bps 

125
106
20

4,999
51,150

(40)%
(269)

Average
liability
note (1)
$m 

24,639
26,053
47,580

Margin
note (2)
bps 

124
106
20

4,959
50,692

(40)%
(268)

Profit

$m 

305
277
94
1,966
2,790

(1,991)
(1,359)
430
172

2,684

(51)

2,633

239

2,872

Spread income
Fee income
Insurance margin
Expenses:

Acquisition costs note (3)
Administration expenses
DAC adjustments

Expected return on shareholder assets

Adjusted IFRS operating profit based on longer-term 

investment returns – long-term business

Adjusted IFRS operating profit based on longer-term 

investment returns – asset management 

Total US

2018

Average
liability
note (1)
$m 

50,051
178,058

Margin
note (2)
bps 

155
183

2,059
233,835

(49)%
(69)

2019

Average
liability
note (1)
$m 

57,181
180,940

Profit

$m 

642
3,292
1,317

Margin
note (2)
bps 

112
182

(1,074)
2,223
(1,675) 246,220

(48)%
(68)

510
26

3,038

32

3,070

Profit

$m 

778
3,265
1,267

(1,013)
(1,607)
(152)
14

2,552

11

2,563

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
I Additional financial information continued

I(iv) Analysis of adjusted IFRS operating profit based on longer-term investment returns by driver from long-term 
insurance businesses continued
Analysis of adjusted IFRS operating profit based on longer-term investment returns for US insurance operations 
before and after acquisition costs and DAC adjustments

Before 
acquisi-
tion
costs
and DAC
adjust-
ments

3,602

2019  $m

2018  $m

After 
acquisi-
tion
costs
and DAC
adjust-
ments

Before 
acquisi-
tion
costs
and DAC
adjust-
ments

Acquisition costs

Incurred Deferred

After 
acquisi-
tion
costs
and DAC
adjust-
ments

Acquisition costs

Incurred Deferred

(1,074)

807

3,602
(267)

3,717

(1,013)

760

3,717
(253)

(577)
280

(577)
280

(653)
(259)

(653)
(259)

Total adjusted IFRS operating profit based on 
longer-term investment returns before 
acquisition costs and DAC adjustments

Less new business strain

Other DAC adjustments – amortisation of 
previously deferred acquisition costs:
Normal
Deceleration (acceleration) 

Total adjusted IFRS operating profit based on 

longer-term investment returns

3,602

(1,074)

510

3,038

3,717

(1,013)

(152)

2,552

 I(v) Asia operations – analysis of adjusted IFRS operating profit based on longer-term investment returns 
by business unit
(a) Analysis of adjusted IFRS operating profit based on longer-term investment returns by business unit
Adjusted operating profit based on longer-term investment returns for Asia operations are analysed below. The table below presents 
the 2018 results on both AER and CER bases to eliminate the impact of exchange translation. 

Hong Kong
Indonesia
Malaysia 
Philippines
Singapore
Thailand
Vietnam

South-east Asia operations including Hong Kong
China JV
Taiwan
Other
Non-recurrent items*

Total insurance operations
Share of related tax charges from joint ventures and associate
Development expenses

Total long-term business
Asset management (Eastspring Investments) 

Total Asia

2019  $m

 2018  $m

2019 vs 2018 %

734
540
276
73
493
170
237

2,523
219
74
70
142

3,028
(31)
(4)

2,993
283

3,276

AER

591
555
259
57
439
151
199

2,251
191
68
68
126

2,704
(53)
(5)

2,646
242

2,888

CER

591
559
252
58
433
157
197

2,247
182
67
69
124

2,689
(51)
(5)

2,633
239

2,872

AER

24%
(3)%
7%
28%
12%
13%
19%

12%
15%
9%
3%
13%

12%
42%
20%

13%
17%

13%

CER

24%
(3)%
10%
26%
14%
8%
20%

12%
20%
10%
1%
15%

13%
39%
20%

14%
18%

14%

* In 2019, the adjusted IFRS operating profit based on longer-term investment returns for Asia insurance operations includes a net credit of $142 million (2018: $126 million on an AER basis) 

representing a small number of items that are not expected to reoccur, including the impact of a refinement to the run-off of the allowance for prudence within technical provisions.

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUED 
(b) Analysis of Eastspring Investments adjusted IFRS operating profit based on longer-term investment returns

Operating income before performance-related fees note (1)
Performance-related fees

Operating income (net of commission) note (2)
Operating expense note (2)
Group’s share of tax on joint ventures’ operating profit

Operating profit based on longer-term investment returns

Average funds managed by Eastspring Investments
Margin based on operating income*
Cost/income ratio†

2019  $m

2018  $m

636
12

648
(329)
(36)

283

566
23

589
(311)
(36)

242

$214.0bn
30bps
52%

$186.3bn
30bps
55%

Notes
(1)  Operating income before performance-related fees for Eastspring Investments can be further analysed as follows:

2019

2018

Retail
  $m

392

336

Margin*
  bps

Institutional‡
  $m

Margin*
  bps

52

50

244

230

18

18

Total
  $m 

636

566

Margin*
  bps

30

30

* Margin represents operating income before performance-related fees as a proportion of the related funds under management. Monthly closing internal and external funds 

managed by Eastspring have been used to derive the average. Any funds held by the Group’s insurance operations that are managed by third parties outside the Prudential Group 
are excluded from these amounts.

† Cost/income ratio represents cost as a percentage of operating income before performance-related fees. 
‡ Institutional includes internal funds.

(2)  Operating income and expense include the Group’s share of contribution from joint ventures (but excludes any contribution from associates). In the consolidated income statement 

of the Group IFRS basis results, the net post-tax income of the joint ventures and associates is shown as a single line item.

(c) Eastspring Investments total funds under management
Eastspring Investments, the Group’s asset management business in Asia, manages funds from external parties and also funds for the 
Group’s insurance operations. The table below analyses the total funds managed and Eastspring Investments. 

External funds under management note  (1):

Retail
Institutional*
Money market funds (MMF)

Internal funds under management*

Total funds under management note (2)

31 Dec 2019 
$bn

31 Dec 2018 
$bn

73.7
37.7
13.3
124.7
116.4

241.1

55.3
7.7
14.8
77.8
114.9

192.7

* The 2018 comparative internal funds under management of $114.9 billion included $22.2 billion of funds managed on behalf of M&G plc. Following the demerger, these funds have been 

reclassified to external funds under management in 2019.

Notes
(1) 

External funds under management – analysis of movements

At 1 January
Market gross inflows
Redemptions
Market and other movements

At 31 December

31 Dec 2019
  $m

31 Dec 2018
  $m

77,762
283,268
(276,215)
39,907

124,722

75,601
283,156
(283,271)
2,276

77,762

Note
The analysis of movements above includes $13,337 million as at 31 December 2019 relating to Asia Money Market Funds (31 December 2018: $14,776 million).

(2) 

Total funds under management – analysis by asset class

Equity
Fixed income
Alternatives
MMF

Total funds under management

31 Dec 2019

31 Dec 2018

$bn

107.0
116.2
3.4
14.5

241.1

% of total

44%
48%
2%
6%

100%

$bn

86.6
86.4
2.9
16.8

192.7

% of total

45%
45%
1%
9%

100%

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
 
I Additional financial information continued

I(vi) Reconciliation of expected transfer of value of in-force business and required capital to free surplus
The tables below show how the value of in-force business (VIF) generated by the in-force long-term business and the associated required 
capital is modelled as emerging into free surplus over the next 40 years. Although circa 7 per cent of the Group’s embedded value 
emerges after this date, analysis of cash flows emerging in the years shown in the tables is considered most meaningful. The modelled 
cash flows use the same methodology underpinning the Group’s embedded value reporting and so are subject to the same assumptions 
and sensitivities used to prepare our 2019 results.

In addition to showing the amounts, both discounted and undiscounted, expected to be generated from all in-force business at 
31 December 2019, the tables also present the expected future free surplus to be generated from the investment made in new business 
during 2019 over the same 40-year period for long-term business operations.

Expected period of emergence

2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040-2044
2045-2049
2050-2054
2055-2059

Undiscounted expected generation from 
all in-force business*

Undiscounted expected generation from
new business written*

31 Dec 2019  $m

Asia

1,963
2,088
1,941
1,965
1,895
1,874
1,917
1,891
1,858
1,761
1,687
1,666
1,614
1,596
1,590
1,556
1,557
1,563
1,550
1,535
7,360
7,055
7,073
6,468

US

1,523
1,445
1,412
1,500
1,574
1,528
1,514
1,497
1,415
1,333
1,265
1,152
1,001
759
690
610
514
396
312
243
977
–
–
–

Group
total

3,486
3,533
3,353
3,465
3,469
3,402
3,431
3,388
3,273
3,094
2,952
2,818
2,615
2,355
2,280
2,166
2,071
1,959
1,862
1,778
8,337
7,055
7,073
6,468

Asia

291
244
225
207
223
202
223
217
209
223
188
184
171
169
190
170
170
170
169
177
869
887
987
958

US

325
45
101
120
119
26
9
143
173
148
122
109
94
80
87
71
57
46
35
70
140
–
–
–

Group
total

616
289
326
327
342
228
232
360
382
371
310
293
265
249
277
241
227
216
204
247
1,009
887
987
958

Total free surplus expected to emerge in the 

next 40 years

63,023

22,660

85,683

7,723

2,120

9,843

* The analysis excludes amounts incorporated into VIF at 31 December 2019 where there is no definitive time frame for when the payments will be made or receipts received. It also 

excludes any free surplus emerging after 2059.

The discounted expected generation from new business written in 2019 can be reconciled to the new business profit for long-term 
business operations as follows:

Undiscounted expected free surplus generation for years 2020 to 2059
Less: discount effect

Discounted expected free surplus generation for years 2020 to 2059
Discounted expected free surplus generation for years after 2059

Discounted expected free surplus generation from new business written in 2019
Free surplus investment in new business
Other items†

EEV new business profit for long-term business operations

Asia

7,723
(4,211)

3,512
771

4,283
(619)
(142)

3,522

2019  $m

US

Group total

2,120
(721)

1,399
–

1,399
(539)
23

883

9,843
(4,932)

4,911
771

5,682
(1,158)
(119)

4,405

† Other items represent the impact of the time value of options and guarantees on new business, foreign exchange effects and other non-modelled items. Foreign exchange effects arise as 

EEV new business profit amounts are translated at average exchange rates and the expected free surplus generation is translated at closing rates.

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Prudential plc Annual Report 2019 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUED 
 
 
 
 
The undiscounted expected free surplus generation from all in-force business at 31 December 2019 shown below can be reconciled 
to the amount that was expected to be generated as at 31 December 2018 as follows:

Group

2018 expected free surplus 

2019 
$m

2020 
$m

2021 
$m

2022 
$m

2023 
$m

2024 
$m

Other 
$m

Total 
$m

generation for years 2019 to 2058

4,759

4,823

4,807

4,695

4,608

4,505

72,778

100,975

Demerger of UK and Europe 

operations

Less: Amounts expected to be 
realised in the current year
Add: Expected free surplus to be 

generated in year 2059*
Foreign exchange differences
New business
Operating movements
Non-operating and other 

movements†

2019 expected free surplus 

generation for years 2020 to 2059

Asia

2018 expected free surplus 

Less: Amounts expected to be 
realised  in the current year
Add: Expected free surplus to be  

generated in year 2059*
Foreign exchange differences
New business
Operating movements
Non-operating and other movements

2019 expected free surplus 

generation  for years 2020 to 2059

US

2018 expected free surplus 

(755)

(776)

(753)

(728)

(707)

(684)

(10,316)

(14,719)

(4,004)

–

–

–
25
289
28

–

–
24
326
(104)

–

–
25
327
(59)

–

–
23
342
(90)

–

(4,004)

1,205
467
7,943
(3,700)

1,205
590
9,843
(8,207)

–
26
616
(113)

(1,090)

(863)

(860)

(729)

(627)

3,486

3,533

3,353

3,465

3,469

68,377

85,683

2019 
$m

2020 
$m

2021 
$m

2022 
$m

2023 
$m

2024 
$m

Other 
$m

Total 
$m

(1,987)

–

–

–
25
244
63
(86)

–

–
24
225
(69)
(74)

–

–
25
207
(12)
(86)

–

–
23
223
(47)
(50)

–

(1,987)

1,205
467
6,533
(4,445)

1,205
590
7,723
(5,075)

–
26
291
(133)
(136)

1,963

2,088

1,941

1,965

1,895

53,171

63,023

2019 
$m

2020 
$m

2021 
$m

2022 
$m

2023 
$m

2024 
$m

Other 
$m

Total 
$m

–
–
–
–

–

–

–
–
–
–
–

–

generation  for years 2019 to 2058

1,987

1,915

1,842

1,835

1,831

1,746

49,411

60,567

generation  for years 2019 to 2058

2,017

2,132

2,212

2,132

2,070

2,075

13,051

25,689

Less: Amounts expected to be 
realised  in the current year

New business
Operating movements
Non-operating and other 

movements†

2019 expected free surplus 

generation  for years 2020 to 2059

(2,017)
–
–

–
325
20

–
45
(35)

–
101
(35)

–
120
(47)

–
119
(43)

–
1,410
745

(2,017)
2,120
(3,132)

–

–

(954)

(777)

(786)

(643)

(577)

1,523

1,445

1,412

1,500

1,574

15,206

22,660

* Excluding 2019 new business.
† Including impact of US EEV hedge modelling enhancements as described in note 7 of the EEV financial statements.

At 31 December 2019, the total free surplus expected to be generated from continuing operations over the next five years (2020 to 2024 
inclusive), using the same assumptions and methodology as those underpinning our 2019 embedded value reporting, was $17.3 billion 
(31 December 2018: $19.8 billion).

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationI Additional financial information continued

I(vi) Reconciliation of expected transfer of value of in-force business (VIF) and required capital to free surplus 
continued
At 31 December 2019, the total free surplus expected to be generated on an undiscounted basis in the next 40 years is $85.7 billion, 
$(0.6) billion lower than the $86.3 billion expected at the end of 2018 from continuing operations, with the $2.4 billion increase in Asia 
being more than offset by the $(3.0) billion decrease in the US. In Asia the increase from new business of $7.7 billion, together with 
favourable foreign exchange gains and operating assumption updates following the annual review of experience, more than offset the 
effect of generally lower interest rates across the region decreasing projected returns. At 31 December 2019 expected free surplus 
generation in Asia for the next 40 years is $63.0 billion (31 December 2018: $60.6 billion). In the US new business contributed $2.1 billion 
to expected free surplus generation. Operating, non-operating and other movements were $(3.1) billion, principally driven by the impact 
of lower interest rates and the effect of the NAIC reform, hedge modelling and other related changes described in note 7 of the EEV 
financial statements. At 31 December 2019 expected free surplus generation in the US for the next 40 years is $22.7 billion 
(31 December 2018: $25.7 billion).

Actual underlying free surplus generated in 2019 from life business in force at the end of 2018, before the impact of US EEV hedge 

modelling enhancements and restructuring costs, was $4.7 billion including $0.6 billion of changes in operating assumptions and 
experience variances. This compares with the expected 2019 realisation at the end of 2018 of $4.0 billion.

This can be analysed further as follows:

Transfer to free surplus in 2019 before impact of US EEV hedge modelling enhancements 
Expected return on free assets 
Changes in operating assumptions and experience variances

2019  $m

Asia

1,914
80
147

US

Group total

2,070
61
411

3,984
141
558

Underlying free surplus generated from in-force life business before impact of US 

EEV hedge modelling enhancements and restructuring costs*

2,141

2,542

4,683

2019 free surplus expected to be generated at 31 December 2018

1,987

2,017

4,004

* Underlying free surplus generated from in-force life business before restructuring costs in 2019 in the US was $1,639 million (Group total $3,780 million), after reflecting the $(903) million 

impact of US EEV hedge modelling enhancements  described in note 7 of the EEV financial statements.

376

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUED 
The equivalent discounted amounts of the undiscounted expected transfers from in-force business and required capital into free surplus 
shown previously are as follows:

Expected period of emergence

2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040-2044
2045-2049
2050-2054
2055-2059

Discounted expected generation from all
in-force business

Discounted expected generation from
new business written

31 Dec 2019  $m

Asia

1,890
1,910
1,674
1,608
1,479
1,397
1,363
1,281
1,206
1,088
991
938
863
819
783
737
709
682
651
619
2,631
2,060
1,730
1,294

US

Group total

1,468
1,313
1,212
1,212
1,203
1,105
1,034
966
865
765
690
595
496
345
298
256
210
151
118
90
302
–
–
–

3,358
3,223
2,886
2,820
2,682
2,502
2,397
2,247
2,071
1,853
1,681
1,533
1,359
1,164
1,081
993
919
833
769
709
2,933
2,060
1,730
1,294

Asia

279
218
189
165
169
147
158
147
134
137
109
99
88
82
86
76
73
70
66
67
292
244
232
185

US

Group total

320
42
92
102
100
22
7
98
114
90
70
59
48
39
39
30
23
18
13
24
49
–
–
–

599
260
281
267
269
169
165
245
248
227
179
158
136
121
125
106
96
88
79
91
341
244
232
185

Total discounted free surplus expected to 

emerge in the next 40 years

30,403

14,694

45,097

3,512

1,399

4,911

The discounted expected generation from all in-force business can be reconciled to the total embedded value for long-term business 
operations as follows:

Discounted expected generation from all in-force business for years 2020 to 2059
Discounted expected generation from all in-force business for years after 2059

Discounted expected generation from all in-force business at 31 December 2019
Free surplus of life operations held at 31 December 2019
Other items*

Total EEV for long-term business operations

* Other items represent the impact of the time value of options and guarantees and other non-modelled items.

31 Dec 2019
   $m

45,097
3,892

48,989
5,395
(205)

54,179

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationI Additional financial information continued

I(vii) Option schemes
The Group presently grants share options through three schemes and exercises of the options are satisfied by the issue of new shares. 
Executive directors and eligible employees based in the UK may participate in the Prudential Savings-Related Share Option Scheme. 
Executives and eligible employees based in Asia as well as, prior to the demerger of M&G plc from the Prudential Group, eligible 
employees of M&G plc based in Europe can participate in the Prudential International Savings-Related Share Option Scheme, while agents 
based in certain regions of Asia can participate in the Prudential International Savings-Related Share Option Scheme for Non-Employees. 
Further details of the schemes and accounting policies are detailed in note B2.2 of the IFRS basis consolidated financial statements.

All options were granted at nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services 
(excluding options granted to agents under the Prudential International Savings-Related Share Option Scheme for Non-Employees) or in 
excess of the individual limit for the relevant scheme. The maximum share entitlement of each participant under the relevant scheme for 
each option granted is limited to the total savings and any bonus or interest accumulated under that participant’s savings contract, 
divided by the exercise price. At 31 December 2019, the maximum number of shares issued or issuable under the schemes, which were 
approved by shareholders, to all participants would not exceed 1 per cent of the issued share capital of the Company in the preceding 
12-month period.

The option schemes will terminate as follows, unless the directors resolve to terminate the plans at an earlier date:

 — Prudential Savings-Related Share Option Scheme: 16 May 2023;
 — Prudential International Savings-Related Share Option Scheme: 19 May 2021; and
 — Prudential International Savings-Related Share Option Scheme for Non-Employees 2012: 12 May 2022.

The weighted average share price of Prudential plc for the year ended 31 December 2019 was £15.05 (2018: £17.36).

Particulars of options granted to directors are included in the Directors’ remuneration report on page 160.
The closing prices of the shares immediately before the date on which the options were granted during the year were £14.00 for the 
Prudential Savings-Related Share Option Scheme and £14.57 for the Prudential International Savings-Related Share Option Scheme for 
Non-Employees.

The following analyses show the movement in options for each of the option schemes for the year ended 31 December 2019. 

Prudential Savings-Related Share Option Scheme

Exercise period

Number of options

Date of
grant

Exercise
price £

20 Sep 13
23 Sep 14
22 Sep 15
22 Sep 15
21 Sep 16
21 Sep 16
21 Sep 17
21 Sep 17
29 Nov 19
29 Nov 19

9.01
11.55
11.11
11.11
11.04
11.04
14.55
14.55
11.18
11.18

Beginning

01 Dec 18
01 Dec 19
01 Dec 18
01 Dec 20
01 Dec 19
01 Dec 21
01 Dec 20
01 Dec 22
01 Jan 23
01 Jan 25

End

31 May 19
31 May 20
31 May 19
31 May 21
31 May 20
31 May 22
31 May 21
31 May 23
30 Jun 23
30 Jun 25

Beginning
of year

27,732
303,716
256,744
180,526
538,927
121,105
668,276
115,347
–
–

Granted

Exercised

Cancelled

Forfeited

Lapsed

–
(26,068)
– (153,721)
– (253,273)
–
(52,592)
– (269,207)
(19,769)
–
(20,814)
–
(2,791)
–
–
93,145
–
21,464

–
(3,145)
–
(6,291)
(12,855)
(5,676)
(62,176)
(6,573)
(322)
–

(1,664)
(2,097)
(1,458)
(540)
(10,376)
(1,086)
(20,565)
(1,030)
–
–

–
(8,790)
(2,013)
(17,963)
(20,687)
(17,330)
(62,585)
(12,013)
–
–

End of
year

–
135,963
–
103,140
225,802
77,244
502,136
92,940
92,823
21,464

2,212,373 114,609 (798,235)

(97,038)

(38,816) (141,381)

1,251,512

The total number of securities available for issue under the scheme is 1,251,512 which represents 0.048 per cent of the issued share 
capital at 31 December 2019.

M&G plc employees with outstanding options on demerger were treated as ‘good leavers’, with both the vesting period and number 

of options exercisable curtailed on demerger.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the 

current period was £14.69.

The weighted average fair value of options granted under the plan in the period was £3.35.

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDPrudential International Savings-Related Share Option Scheme 

Exercise period

Number of options

Date of
grant

Exercise
price £

20 Sep 13
23 Sep 14
22 Sep 15
22 Sep 15
21 Sep 16
21 Sep 17
21 Sep 17
18 Sep 18
18 Sep 18

9.01
11.55
11.11
11.11
11.04
14.55
14.55
13.94
13.94

Beginning

01 Dec 18
01 Dec 19
01 Dec 18
01 Dec 20
01 Dec 19
01 Dec 20
01 Dec 22
01 Dec 21
01 Dec 23

End

Beginning
of year

Granted

Exercised

Cancelled

Forfeited

Lapsed

31 May 19
31 May 20
31 May 19
31 May 21
31 May 20
31 May 21
31 May 23
31 May 22
31 May 24

18,378
4,413
4,860
2,700
10,776
9,820
3,298
22,005
1,076

77,326

–
–
–
–
–
–
–
–
–

–

(18,377)
–
(4,860)
–
–
–
–
–
–

(1)
(4,413)
–
(2,700)
(9,472)
(9,573)
(3,298)
(20,714)
(1,076)

–
–
–
–
(1,304)
(247)
–
(1,291)
–

(23,237)

(51,247)

(2,842)

–
–
–
–
–
–
–
–
–

–

End of
year

–
–
–
–
–
–
–
–
–

–

There are no securities available for issue under the scheme at 31 December 2019.

At the time of the demerger, the only participants with outstanding options in this plan were M&G plc employees. 
The outstanding options over Prudential plc shares did not vest at demerger. Instead, they have been exchanged for an equivalent 

grant in M&G plc shares. The M&G plc participants have been treated as ‘good leavers’.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the 

current period was £15.83.

There were no options granted under the plan during the current period.

Prudential International Savings-Related Share Option Scheme for Non-Employees

Exercise period

Number of options

Date of
grant

Exercise
price* £

9.01
20 Sep 13
23 Sep 14 10.00
9.62
22 Sep 15
9.62
22 Sep 15
9.56
21 Sep 16
9.56
21 Sep 16
12.59
21 Sep 17
12.59
21 Sep 17
12.07
18 Sep 18
12.07
18 Sep 18
9.62
02 Oct 19
9.62
02 Oct 19

Beginning

01 Dec 18
01 Dec 19
01 Dec 18
01 Dec 20
01 Dec 19
01 Dec 21
01 Dec 20
01 Dec 22
01 Dec 21
01 Dec 23
01 Dec 22
01 Dec 24

End

Beginning
of year

Granted

Modifi-
cation*

Exercised

Cancelled Forfeited Lapsed

31 May 19
31 May 20
31 May 19
31 May 21
31 May 20
31 May 22
31 May 21
31 May 23
31 May 22
31 May 24
31 May 23
31 May 25

235,987
459,165
261,478
376,672
326,596
197,057
263,827
172,291
184,780
118,243

–
–
–
–
–
–
–
–
–
–
– 307,835
– 202,788

– (235,987)
64,539 (153,463)
935 (260,499)
38,333
–
40,201 (207,203)
–
21,236
–
26,538
–
22,025
–
14,379
–
11,939
–
47,441
–
31,271

–
(5,192)
(979)
(6,750)
–
–
–
–
–
–
–
–

–
(1,298)
–
–
(250)
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–

End of
year

–
363,751
935
408,255
159,344
218,293
290,365
194,316
199,159
130,182
355,276
234,059

2,596,096 510,623 318,837 (857,152) (12,921)

(1,548)

– 2,553,935

* As a result of the demerger of M&G plc, the exercise price of the outstanding share options at 18 October 2019 and the total number of shares have been adjusted with effect from 

21 October 2019. These adjustments do not change the overall fair value of the options and were confirmed as being fair and reasonable by an independent financial adviser in accordance 
with the rules of that plan and the Hong Kong Stock Exchange Listing Rules.

The total number of securities available for issue under the scheme is 2,553,935 which represents 0.098 per cent of the issued share 
capital at 31 December 2019.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the 

current period was £15.06.

The weighted average fair value of options granted under the plan in the period was £2.90. 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
I Additional financial information continued

I(viii) Selected historical financial information of Prudential 
The following table sets forth Prudential’s selected consolidated financial data for the periods indicated. Certain data is derived from 
Prudential’s audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as 
issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU) and European Embedded 
Value (EEV). 

This table is only a summary and should be read in conjunction with Prudential’s consolidated financial statements and the related 

notes included elsewhere in this document. 

Income statement

IFRS basis results

Continuing operations:
Gross premiums earned 
Outward reinsurance premiums

Earned premiums, net of reinsurance 
Investment return 
Other income

Total revenue, net of reinsurance 

2019  $m

2018  $m 
note (v)

2017  $m 
note (v)

2016  $m  
note (v)

2015  $m 
note (v)

45,064
(1,583)

43,481
49,555
700

93,736

45,614
(1,183)

44,431
(9,117)
531

35,845

39,800
(1,304)

38,496
35,574
1,319

75,389

38,865
(1,375)

37,490
13,839
1,387

52,716

42,335
(1,045)

41,290
(1,648)
1,366

41,008

Benefits and claims and movement in unallocated surplus of 

with-profits funds, net of reinsurance
Acquisition costs and other expenditure
Finance costs: interest on core structural borrowings of 

shareholder-financed businesses 

(Loss) gain on disposal of businesses and corporate transactions

(83,905)
(7,283)

(23,426)
(8,527)

(63,808)
(8,649)

(42,881)
(7,846)

(29,912)
(8,166)

(516)
(142)

(547)
(107)

(548)
292

(488)
(322)

(477)
(70)

Total charges, net of reinsurance

(91,846)

(32,607)

(72,713)

(51,537)

(38,625)

Share of profits from joint ventures and associates, net of 

related tax

Profit before tax (being tax attributable to shareholders’ and 

policyholders’ returns) note (i) 

Tax (charges) attributable to policyholders’ returns 

Profit before tax attributable to shareholders’ returns 
Tax credit (charges) attributable to shareholders’ returns 

Profit from continuing operations
(Loss) profit from discontinued operations

Profit for the year 

Based on profit from continuing operations for the year 
attributable to the equity holders of the Company : 

Basic earnings per share (in cents)
Diluted earnings per share (in cents)

Dividend per share declared and paid in reporting period
Interim ordinary dividend/final ordinary dividend
Special dividend

397

319

233

200

261

2,287
(365)

1,922
31

1,953
(1,161)

792

75.1¢
75.1¢

2019

63.18¢
63.18¢

3,557
(107)

3,450
(569)

2,881
1,142

4,023

111.7¢
111.7¢

2018

64.34¢
64.34¢

2,909
(321)

2,588
(840)

1,748
1,333

3,081

68.0¢
67.9¢

2017

59.32¢
59.32¢

1,379
(210)

1,169
(119)

1,050
1,552

2,602

41.0¢
40.9¢

2016

69.72¢
55.20¢
14.52¢

2,644
(105)

2,539
(439)

2,100
1,841

3,941

82.3¢
82.2¢

2015

59.01¢
59.01¢

380

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUED 
 
 
 
 
 
Supplementary IFRS income statement – continuing operations

Adjusted operating profit based on longer-term investment 

returns note (ii)

Non-operating items

Profit before tax attributable to shareholders

Operating earnings per share after tax and non-controlling 

2019  $m

2018  $m 
note (v)

2017  $m 
note (v)

2016  $m 
note (v)

2015  $m  
note (v)

5,310
(3,388)

1,922

4,409
(959)

3,450

4,378
(1,790)

2,588

4,131
(2,962)

1,169

3,610
(1,070)

2,540

interest (in cents)

175.0¢

145.2¢

134.6¢

126.5¢

114.3¢

Supplementary EEV financial information   
EEV income statement – continuing operations

Operating profit based on longer-term investment returns note (ii)
Non-operating items

Profit attributable to shareholders from continuing operations

Operating earnings per share (in cents)

2019  $m

6,905
(2,744)

4,161

266.6¢

2018  $m 
note (v)

7,866
(2,286)

5,580

305.3¢

2017  $m 
note (v)

6,753
1,808

8,561

263.0¢

2016  $m 
note (v)

6,137
(2,278)

3,859

239.7¢

2015  $m 
note (v)

5,636
(1,270)

4,366

220.8¢

2019  $bn

2018  $bn

2017  $bn

2016  $bn

2015  $bn

EEV shareholders’ equity, excluding non-controlling interests

54.7

63.4

60.5

48.2

47.8

New business contribution – continuing operations 

Annual premium equivalent (APE) sales
EEV new business profit (NBP) (post-tax)

NBP margin (% of APE) 

Statement of financial position at 31 December

2019  $m

7,384
4,405

60%

2018  $m  
note (v)

2017  $m 
note (v)

2016  $m 
note (v)

2015  $m  
note (v)

7,058
4,707

67%

7,046
4,220

60%

6,989
3,820

55%

6,787
3,501

52%

Total assets
Total policyholder liabilities and unallocated surplus 

of with-profits funds

Core structural borrowings of shareholder-financed businesses
Total liabilities
Total equity

2019  $m

2018  $m

2017  $m

2016  $m

2015  $m

454,214

647,810

668,203

581,394

570,377

390,428
5,594
434,545
19,669

541,466
9,761
625,819
21,991

579,261
8,496
646,432
21,771

498,374
8,400
563,270
18,124

494,661
7,386
551,281
19,096

Other financial information at 31 December 

Funds under management note (iii)
Group shareholder LCSM surplus note (iv)

2019  $bn

2018  $bn

2017  $bn

2016  $bn

2015  $bn

543.9
9.5

455.3
9.7

452.0

374.8

348.7

Notes
(i) 
(ii) 

(iii) 

(iv) 

(v) 

This measure is the formal profit (loss) before tax measure under IFRS. It is not the result attributable to shareholders. 
Adjusted operating profit is determined on the basis of including longer-term investment returns. EEV and IFRS operating profits are stated after excluding the effect of short-term 
fluctuations in investment returns on shareholder-backed business gain or loss on corporate transactions and costs connected to the demerger of M&G plc from Prudential plc. 
Separately, for IFRS basis results, operating profit also excludes amortisation of acquisition accounting adjustments arising on the purchase of business. For EEV basis results, 
operating profit excludes the effect of changes in economic assumptions and the mark-to-market value movements on core structural borrowings for shareholder-financed 
operations. 
Funds under management comprise funds of the Group held in the statement of financial position and external funds that are managed by the Group’s asset management 
operations. The comparative results from 2015 to 2018 have been re-presented from those previously published to exclude the discontinued UK and Europe operations and for 
other adjustments as described in note I(ii).
The 2019 surplus is estimated under the LCSM regime, adopted by the Group following the demerger of its UK and Europe operations in October 2019, as discussed in note I(i), 
with 2018 comparative information re-presented on this basis. Prior to the demerger, the Group was subject to the Solvency II capital requirements.
The comparative results from 2015 to 2018 have been re-presented from those previously published for the demerger of the Group’s UK and Europe operations, M&G plc, 
in October 2019 which is reclassified as discontinued operations. 

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
II Calculation of alternative performance measures

The annual report uses alternative performance measures (APMs) to provide more relevant explanations of the Group’s financial position 
and performance. This section sets out explanations for each APM and reconciliations to relevant IFRS balances.

II(i) Reconciliation of adjusted IFRS operating profit based on longer-term investment returns to profit before tax 
from continuing operations 
Adjusted IFRS operating profit attributable to shareholders based on longer-term investment returns from continuing operations 
(operating profit) presents the operating performance of the business. This measurement basis adjusts for the following items within total 
IFRS profit before tax:

 — Short-term fluctuations in investment returns on shareholder-backed business; 
 — Amortisation of acquisition accounting adjustments arising on the purchase of business; and
 — Gain or loss on corporate transactions, such as disposals undertaken in the year and costs connected to the demerger of M&G plc 

from Prudential plc.

More details on how adjusted IFRS operating profit based on longer-term investment returns is determined are included in note B1.3 of 
the Group IFRS basis results. A full reconciliation to profit after tax is given in note B1.1.

II(ii) Calculation of IFRS gearing ratio 
IFRS gearing ratio is calculated as net core structural borrowings of shareholder-financed businesses divided by closing IFRS 
shareholders’ equity plus net core structural borrowings.

Core structural borrowings of shareholder-financed businesses
Less holding company cash and short-term investments

Net core structural borrowings of shareholder-financed businesses
Closing shareholders’ equity

Closing shareholders’ equity plus net core structural borrowings

IFRS gearing ratio

31 Dec 2019 
$m

31 Dec 2018 
$m

5,594
(2,207)

3,387
19,477

22,864

15%

9,761
(4,121)

5,640
21,968

27,608

20%

II(iii) Return on IFRS shareholders’ funds
Operating return on IFRS shareholders’ funds is calculated as adjusted operating profit net of tax and non-controlling interests divided by 
closing shareholders’ equity. Total comprehensive return on shareholders’ funds is calculated as IFRS total comprehensive income for the 
period net of tax and non-controlling interests divided by closing shareholders’ equity. Following the demerger of the UK and Europe 
operations in October 2019 and their treatment as discontinued, it is more meaningful to derive the 2019 return using profit from 
continuing operations and closing shareholders’ equity. The Group will be introducing a new return on equity performance measure for 
the Group’s 2020 Prudential Long-Term Incentive Plan (PLTIP) awards alongside other metrics. This measure is to be calculated as 
adjusted operating profit after tax and net of non-controlling interests, divided by average shareholders’ equity. Accordingly, the 
calculation of the return on IFRS shareholders’ funds going forward will be aligned to be based on average shareholders’ equity.

Detailed reconciliation of adjusted operating profit based on longer-term investment returns to IFRS profit before tax for the Group’s 

continuing operations is shown in note B1.1 to the Group IFRS basis results. 

382

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDContinuing operations

Asia

US

2019  $m

Unallocated 
to a segment
 (central
 operations)

Add back 
demerger-
related
items*

Adjusted
Group
(excluding
demerger-
related
items*)

179
(34)
–

5,489
(807)
(9)

Group

5,310
(773)
(9)

3,276
(436)
(6)

3,070
(437)
–

(1,036)
100
(3)

Adjusted operating profit based on longer-term 

investment returns
Tax on operating profit
Profit attributable to non-controlling interests

Adjusted operating profit based on longer-term 

investment returns, net of tax and  
non-controlling interests

Non-operating profit (loss), net of tax

IFRS profit for the year net of tax and  

non-controlling interests

Other comprehensive income, net of tax and 

non-controlling interests

IFRS total comprehensive income
Closing shareholders’ funds

Operating return on shareholders’ funds (%)
Total comprehensive return on 
shareholders’ funds (%)

2,834
885

2,633
(3,013)

(939)
(456)

4,528
(2,584)

3,719

(380)

(1,395)

1,944

192

3,911
10,866

26%

36%

2,679

2,299
8,929

29%

26%

(146)

(1,541)
(318)

n/a

n/a

2,725

4,669
19,477

23%

24%

145
383

528

–

528
–

–

–

4,673
(2,201)

2,472

2,725

5,197
19,477

24%

27%

* Demerger-related items comprise interest on the subordinated debt that was substituted to M&G plc prior to the demerger ($179 million pre-tax) and one-off costs of the demerger 

($407 million pre-tax).

Adjusted operating profit based on longer-term 

investment returns
Tax on operating profit
Profit attributable to non-controlling interests

Adjusted operating profit based on longer-term 

investment returns, net of tax and non-
controlling interests

Non-operating profit (loss), net of tax

IFRS profit for the year, net of tax and non-

controlling interests

Other comprehensive income, net of tax and 

non-controlling interests

IFRS total comprehensive income
Closing shareholders’ funds

Operating return on shareholders’ funds (%)
Total comprehensive return on 
shareholders’ funds (%)

2018  $m

Asia

US

2,888
(411)
(1)

2,563
(402)
–

2,476
(662)

2,161
(179)

1,814

1,982

(206)

(1,446)

1,608
8,175

30%

20%

536
7,163

30%

7%

* Given the significant changes of Group shareholders’ funds as a result of the demerger of the UK and Europe operations in October 2019, it is not meaningful to compare the 2019 and 

2018 returns on shareholders’ funds at a Group level. The 2018 comparatives have therefore excluded the presentation of a Group return on shareholders’ funds. Additionally, the 2018 
comparatives for Asia and US operations have been re-presented from those previously published to reflect the use of closing rather than opening shareholders’ funds to be on a 
comparable basis with the 2019 calculation.

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationII Calculation of alternative performance measures continued

II(iv) Calculation of IFRS shareholders’ funds per share
IFRS shareholders’ funds per share is calculated as closing IFRS shareholders’ equity divided by the number of issued shares at 
31 December 2019 of 2,601 million (31 December 2018: 2,593 million). The demerger alters the size of the Group’s shareholders’ equity 
and the nature of its operations, rendering a comparison with the prior year return on shareholders’ funds value unrepresentative.

Closing IFRS shareholders’ equity ($ million)
Shareholders’ funds per share (cents)

2019

Asia

10,866
418¢

US

8,929
343¢

Other

(318)
(12)¢

Group
total

19,477
749¢

II(v) Calculation of asset management cost/income ratio
The asset management cost/income ratio is calculated as asset management operating expenses, adjusted for commission and joint 
venture contribution, divided by asset management total IFRS revenue adjusted for commission, joint venture contribution, 
performance-related fees and non-operating items.

Operating income before performance-related fees note
Share of joint venture revenue
Commission 
Performance-related fees

IFRS revenue

Operating expense
Share of joint venture expense
Commission

IFRS charges

Cost/income ratio: operating expense/operating income before performance-related fees

 Eastspring Investments

2019  $m

2018  $m

636
(244)
165
12

569

329
(102)
165

392

52%

566
(250)
156
23

495

311
(133)
156

334

55%

Note
Operating income and expense include the Group’s share of contribution from joint ventures (but excludes any contribution from associates). In the consolidated income statement of the 
Group IFRS basis results, the net post-tax income of the joint ventures and associates is shown as a single line item. 

II(vi) Reconciliation of Asia renewal insurance premium to gross premiums earned
Reconciliation of Asia renewal insurance premium to gross earned premiums and calculation of Asia Life weighted premium income.

Asia renewal insurance premium
Add: General insurance premium
Add: IFRS gross earned premium from new regular and single premium business
Less: Renewal premiums from joint ventures

Asia segment IFRS gross premiums earned 

Asia renewal insurance premium (as above)
Asia APE (see Note II(vi))

Asia life weighted premium income

2019  $m

2018  $m

19,007
135
6,386
(1,771)

23,757

19,007
5,161

24,168

AER

17,165
120
6,421
(1,717)

21,989

17,165
4,999

22,164

CER

17,046
122
6,402
(1,657)

21,913

17,046
4,959

22,005

384

Prudential plc Annual Report 2019 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDII(vii) Reconciliation of APE new business sales to gross premiums earned 
The Group reports APE new business sales as a measure of the new policies sold in the period. This differs from the IFRS measure of 
gross premiums earned as shown below:

Annual premium equivalents (APE) from continuing operations
Adjustment to include 100% of single premiums on new business sold in the year note (a)
Premiums from in-force business and other adjustments note (b)

Gross premiums earned from continuing operations

2019  $m

7,384
23,409
14,271

45,064

2018  $m

7,058
21,318
17,238

45,614

Notes
(a) 
(b)  Other adjustments principally include amounts in respect of the following:

APE new business sales only include one tenth of single premiums, recorded on policies sold in the year. Gross premiums earned include 100 per cent of such premiums.

– 

– 

– 

– 
– 

 Gross premiums earned include premiums from existing in-force business as well as new business. The most significant amount is recorded in Asia, where a significant portion 
of regular premium business is written. Asia in-force premiums form the vast majority of the other adjustment amount;
 In October 2018, Jackson entered into a 100 per cent reinsurance agreement with John Hancock Life Insurance Company to acquire a closed block of group payout annuity 
business. The transaction resulted in an addition to gross premiums earned of $5.0 billion in 2018. No amounts were included in APE new business sales.
 APE includes new policies written in the year which are classified as investment contracts without discretionary participation features under IFRS 4, arising mainly in Jackson 
for guaranteed investment contracts and in M&G plc for certain unit-linked savings and similar contracts. These are excluded from gross premiums earned and recorded as deposits;
 APE new business sales are annualised while gross premiums earned are recorded only when revenues are due; and
 For the purpose of reporting APE new business sales, the Group’s share of amounts sold by the Group’s insurance joint ventures and associates are included. Under IFRS, joint 
ventures and associates are equity accounted and so no amounts are included within gross premiums earned.

II(viii) Reconciliation between IFRS and EEV shareholders’ equity
The table below shows the reconciliation of EEV shareholders’ equity and IFRS shareholders’ equity at the end of the year:

EEV shareholders’ equity
Less: Value of in-force business of long-term business note (a)
Deferred acquisition costs assigned zero value for EEV purposes
Other note (b)

IFRS shareholders’ equity

31 Dec 2019 
$m

31 Dec 2018 
$m

54,711
(41,893)
14,239
(7,580)

19,477

63,402
(42,045)
12,834
(12,223)

21,968

Notes
(a) 

The EEV shareholders’ equity comprises the present value of the shareholders’ interest in the value of in-force business, total net worth of long-term business operations and IFRS 
shareholders’ equity of asset management and other operations. The value of in-force business reflects the present value of expected future shareholder cash flows from long-term 
in-force business which are not captured as shareholders’ interest on an IFRS basis. Total net worth represents the net assets for EEV reporting that reflect the regulatory basis 
position, with adjustments to achieve consistency with the IFRS treatment of certain items as appropriate. 

(b)  Other adjustments represent asset and liability valuation differences between IFRS and the local regulatory reporting basis used to value total net worth for long-term insurance 

operations. These also include the mark-to-market value movements of the Group’s core structural borrowings which are fair valued under EEV but are held at amortised cost 
under IFRS. The most significant valuation differences relate to changes in the valuation of insurance liabilities. For example, in Jackson, IFRS liabilities are higher than the local 
regulatory basis as they are principally based on policyholder account balances (with a deferred acquisition costs recognised as an asset), whereas the local regulatory basis used 
for EEV reporting is based on expected future cash flows due to the policyholder on a prudent basis, with the consideration of an expense allowance, as applicable, but with no 
separate deferred acquisition cost asset.

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II Calculation of alternative performance measures continued

II(ix) Calculation of return on embedded value
Return on embedded value is calculated as the total post-tax EEV profit for the year as a percentage of closing EEV basis shareholders’ equity.

2019

Asia

US

Central
operations

Group
total

Adjusted
Group total
(excluding
demerger
related
items*)

Demerger
related
items*

EEV basis profit (loss) for the year from 

continuing operations, net of tax and 
non-controlling interests ($ million)

Closing EEV basis shareholders’ equity ($ million)

Total return on shareholders’ funds (%)

8,063
39,235

21%

(2,025)
16,342

(12)%

(1,886)
(866)

n/a

4,152
54,711

8%

(528)
(528)

n/a

4,680
55,239

8%

EEV basis profit for the year, net of tax and 
non-controlling interests ($ million)

Closing EEV basis shareholders’ equity ($ million)

Total return on shareholders’ funds (%)

2018†

Asia

US

4,808
32,008

15%

1,052
18,709

6%

* Demerger-related items comprise interest on the subordinated debt that was substituted to M&G plc prior to the demerger and one-off costs of the demerger.
† Given the significant changes of Group shareholders’ funds as a result of the demerger of the UK and Europe operations in October 2019, it is not meaningful to compare the 2019 and 

2018 returns on shareholders’ funds at a Group level. The 2018 comparatives have therefore excluded the presentation of a Group return on shareholders’ funds. Additionally, the 2018 
comparatives for Asia and US operations have been re-presented from those previously published to reflect the use of closing rather than opening shareholders’ funds to be on a 
comparable basis with the 2019 calculation.

Operating return on embedded value is calculated as the post-tax EEV operating profit for the year as a percentage of closing EEV basis 
shareholders’ equity.

EEV basis operating profit for the year from continuing operations,  

net of tax ($ million)

Closing EEV basis shareholders’ equity ($ million)

Operating return on shareholders’ funds (%)

2019

2018

Asia

US

Asia

US

6,138
39,235

16%

1,782
16,342

11%

6,070
32,008

19%

2,828
18,709

15%

386

Prudential plc Annual Report 2019 

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ADDITIONAL UNAUDITED FINANCIAL INFORMATION CONTINUEDII(x) Calculation of EEV shareholders’ funds per share
EEV shareholders’ funds per share is calculated as closing EEV shareholders’ equity divided by the number of issued shares at 31 December 
2019 of 2,601 million (31 December 2018: 2,593 million). EEV shareholders’ funds per share excluding goodwill attributable to shareholders 
is calculated in the same manner, except goodwill attributable to shareholders is deducted from closing EEV shareholders’ equity. 2018 
comparatives have been restated to show amounts attributable to continuing operations on a comparable basis.

Closing EEV shareholders’ equity ($ million)
Less: Goodwill attributable to shareholders ($ million)
Closing EEV shareholders’ equity excluding goodwill attributable 

to shareholders ($ million)

Shareholders’ funds per share (in cents)
Shareholders’ funds per share excluding goodwill attributable 

to shareholders (in cents)

Closing EEV shareholders’ equity ($ million)
Less: Goodwill attributable to shareholders ($ million)
Closing EEV shareholders’ equity excluding goodwill attributable 

to shareholders ($ million)

Shareholders’ funds per share (in cents)
Shareholders’ funds per share excluding goodwill attributable 

to shareholders (in cents)

31 Dec 2019

US

16,342
–

16,342
628¢

Other

(866)
(26)

Group
total

54,711
(822)

(892)
(33)¢

53,889
2,103¢

628¢

(34)¢

2,072¢

31 Dec 2018

US

18,709
–

18,709
722¢

Other

(4,616)
–

(4,616)
(178)¢

Group
total

46,101
(634)

45,467
1,778¢

722¢

(178)¢

1,753¢

Asia

39,235
(796)

38,439
1,508¢

1,478¢

Asia

32,008
(634)

31,374
1,234¢

1,209¢

II (xi) Calculation of new business contribution/embedded value
New business contribution/embedded value is calculated as the post-tax EEV new business contribution for the year as a percentage 
of closing EEV basis shareholders’ equity.

New business contribution ($ million)
Closing EEV basis shareholders’ equity ($ million)

2019

2018

Asia

3,522
39,235
9%

US

883
16,342
5%

Asia

3,477
32,008
11%

US

1,230
18,709
7%

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional information 
Risk factors

A number of risk factors affect Prudential’s 
operating results and financial condition 
and, accordingly, the trading price of its 
shares. The risk factors mentioned below 
should not be regarded as a complete and 
comprehensive statement of all potential 
risks and uncertainties. The information 
given is as of the date of this document, 
and any forward-looking statements are 
made subject to the reservations specified 
under ‘Forward-looking statements’.

Prudential’s approaches to managing 
risks are explained in the section of this 
document headed ‘Group Chief Risk 
and Compliance Officer’s Report on the 
risks facing our business and how these 
are managed’.

Risks relating to Prudential’s 
financial situation
Prudential’s businesses are 
inherently subject to market 
fluctuations and general 
economic conditions
Uncertainty, fluctuations or negative 
trends in international economic and 
investment climates could have a material 
adverse effect on Prudential’s business 
and profitability. Prudential operates in a 
macroeconomic and global financial market 
environment that presents significant 
uncertainties and potential challenges. 
For example, interest rates in the US and 
some Asian countries in which Prudential 
operates remain low relative to historical 
levels, and the transition to a lower carbon 
economy may impact on long-term 
asset valuations.

Global financial markets are subject to 
uncertainty and volatility created by a 
variety of factors. These factors include 
monetary policy in China, the US and 
other jurisdictions together with their 
impact on the valuation of all asset classes 
and effect on interest rates and inflation 
expectations, concerns over sovereign 
debt, a general slowing in world growth. 
Other factors include the increased level 
of geopolitical risk and policy-related 
uncertainty (including the broader market 
impacts resulting from the trade 
negotiations between the US and China), 
and socio-political, climate-driven and 
pandemic events and other outbreaks such 
as the recent coronavirus. The extent of 
financial market and economic impact of 
these factors may be influenced by the 
actions, including the effectiveness of 
mitigating measures, of governments, 
policymakers and the public. 

The adverse effects of such factors 
could be felt principally through the 
following items:

 — Lower interest rates and reduced 
investment returns arising on the 
Group’s portfolios including impairment 
of debt securities and loans, which 
could reduce Prudential’s capital and 
impair its ability to write significant 
volumes of new business, increase the 
potential adverse impact of product 
guarantees included in Jackson’s 
variable annuities and non unit-linked 
investment products in Asia, and/or 
have a negative impact on its assets 
under management and profit.

 — A reduction in the financial strength and 
flexibility of corporate entities which 
may result in a deterioration of the credit 
rating profile and valuation of the 
Group’s invested credit portfolio, as 
well as higher credit defaults and wider 
credit and liquidity spreads resulting 
in realised and unrealised credit losses.

 — Failure of counterparties who have 

transactions with Prudential (e.g. banks 
and reinsurers) to meet commitments 
that could give rise to a negative impact 
on Prudential’s financial position and 
on the accessibility or recoverability 
of amounts due or, for derivative 
transactions, adequate collateral not 
being in place.

 — Estimates of the value of financial 

instruments becoming more difficult 
because in certain illiquid or closed 
markets, determining the value at which 
financial instruments can be realised 
is highly subjective. Processes to 
ascertain such values require 
substantial elements of judgement, 
assumptions and estimates (which may 
change over time).

 — Increased illiquidity, which also adds 
to uncertainty over the accessibility 
of financial resources and may reduce 
capital resources as valuations decline. 
This could occur where external capital 
is unavailable at sustainable cost, 
increased liquid assets are required to 
be held as collateral under derivative 
transactions or redemption restrictions 
are placed on Prudential’s investments 
in illiquid funds. In addition, significant 
redemption requests could also be 
made on Prudential’s issued funds and 
while this may not have a direct impact 
on the Group’s liquidity, it could result in 
reputational damage to Prudential. The 
potential impact of increased illiquidity 
is more uncertain than for other risks 
such as interest rate or credit risk. 

In general, upheavals in the financial 
markets may affect general levels of 
economic activity, employment and 
customer behaviour. As a result, insurers 
may experience an elevated incidence of 
claims, lapses, or surrenders of policies, 
and some policyholders may choose to 
defer or stop paying insurance premiums. 
The demand for insurance products may 
also be adversely affected. In addition, 
there may be a higher incidence of 
counterparty failures. If sustained, this 
environment is likely to have a negative 
impact on the insurance sector over time 
and may consequently have a negative 
impact on Prudential’s business and 
its balance sheet and profitability. 
For example, this could occur if the 
recoverable value of intangible assets for 
bancassurance agreements and deferred 
acquisition costs are reduced. New 
challenges related to market fluctuations 
and general economic conditions may 
continue to emerge. 

For some non-unit-linked investment 
products, in particular those written in 
some of the Group’s Asia operations, it may 
not be possible to hold assets which will 
provide cash flows to match those relating 
to policyholder liabilities. This is 
particularly true in those countries where 
bond markets are not developed and in 
certain markets where regulated premium 
and claim values are set with reference 
to the interest rate environment prevailing 
at the time of policy issue. This results in 
a mismatch due to the duration and 
uncertainty of the liability cash flows and 
the lack of sufficient assets of a suitable 
duration. While this residual asset/liability 
mismatch risk can be managed, it cannot 
be eliminated. Where interest rates in 
these markets remain lower than those 
used to calculate premium and claim values 
over a sustained period, this could have 
a material adverse effect on Prudential’s 
reported profit and the solvency of its 
business units. In addition, part of the profit 
from the Group’s Asia operations is related 
to bonuses for policyholders declared on 
with-profits products, which are impacted 
by the difference between actual 
investment returns of the with-profits fund 
(which are broadly based on historical and 
current rates of return on equity, real estate 
and fixed income securities) and minimum 
guarantee rates offered to policyholders. 
This profit could be lower in particular in a 
sustained low interest rate environment.

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Jackson writes a significant amount of 
variable annuities that offer capital or 
income protection guarantees. The value 
of these guarantees is affected by market 
factors (such as interest rates, equity 
values, bond spreads and realised volatility) 
and policyholder behaviour. Jackson uses 
a derivative hedging programme to reduce 
its exposure to market risks arising on 
these guarantees. There could be market 
circumstances where the derivatives that 
Jackson enters into to hedge its market 
risks may not cover its exposures under 
the guarantees. The cost of the guarantees 
that remain unhedged will also affect 
Prudential’s results.

In addition, Jackson hedges the guarantees 
on its variable annuity book on an economic 
basis (with consideration of the local 
regulatory position) and, thus, accepts 
variability in its accounting results in 
the short term in order to achieve the 
appropriate result on these bases. 
In particular, for Prudential’s Group IFRS 
reporting, the measurement of the Jackson 
variable annuity guarantees is typically 
less sensitive to market movements than 
for the corresponding hedging derivatives, 
which are held at market value. However, 
depending on the level of hedging 
conducted regarding a particular risk type, 
certain market movements can drive 
volatility in the economic or local regulatory 
results that may be less significant under 
IFRS reporting.

Also, Jackson has a significant spread 
based business with a significant 
proportion of its assets invested in 
fixed-income securities and its results 
are therefore affected by fluctuations in 
prevailing interest rates. In particular, fixed 
annuities and stable value products written 
by Jackson expose Prudential to the risk 
that changes in interest rates, which are not 
fully reflected in the interest rates credited 
to customers, will reduce spread. The 
spread is the difference between the rate 
of return Jackson is able to earn on the 
assets backing the policyholders’ liabilities 
and the amounts that are credited to 
policyholders in the form of benefit 
increases, subject to minimum crediting 
rates. Declines in spread from these 
products or other spread businesses that 
Jackson conducts, and increases in 
surrender levels arising from interest rate 
rises, could have a material impact on its 
businesses or results of operations. 

As a holding company, Prudential 
is dependent upon its subsidiaries 
to cover operating expenses and 
dividend payments
The Group’s insurance and investment 
management operations are generally 
conducted through direct and indirect 
subsidiaries, which are subject to the 
risks discussed elsewhere in this 
‘Risk Factors’ section.

As a holding company, Prudential’s 
principal sources of funds are remittances 
from subsidiaries, shareholder-backed 
funds, the shareholder transfer from 
long-term funds and any amounts that may 
be raised through the issuance of equity, 
debt and commercial paper. 

Certain of Prudential’s subsidiaries are 
subject to applicable insurance, foreign 
exchange and tax laws, rules and 
regulations (including in relation to 
distributable profits) that can limit their 
ability to make remittances. In some 
circumstances, including changes to 
general market conditions, this could limit 
Prudential’s ability to pay dividends to 
shareholders or to make available funds 
held in certain subsidiaries to cover 
operating expenses of other members 
of the Group.

(Geo)political risks and political 
uncertainty may adversely impact 
economic conditions, increase 
market volatility, cause operational 
disruption to the Group and impact 
its strategic plans, which could have 
adverse effects on Prudential’s 
business and its profitability
The Group is exposed to (geo)political 
risks and political uncertainty in the 
markets in which it operates. Recent shifts 
in the focus of some national governments 
toward more protectionist or restrictive 
economic and trade policies, and 
international trade disputes, could impact 
on the macroeconomic outlook and the 
environment for global financial markets. 
This could take effect, for example, 
through increased friction in cross-border 
trade, such as implementation of trade 
tariffs or the withdrawal from existing 
trading blocs or agreements, and the 
exercise of executive powers to restrict 
overseas trade and/or financial 
transactions. The degree and nature 
of regulatory changes and Prudential’s 
competitive position in some geographic 
markets may also be impacted, for 
example, through measures favouring 
local enterprises, such as changes to the 
maximum level of non-domestic ownership 
by foreign companies.

(Geo)political risks and political uncertainty 
may also adversely impact the Group’s 
operations and its operational resilience. 
Increased (geo)political tensions may 
increase cross-border cyber activity and 
therefore increase cyber security risks. 
(Geo)political tensions may also lead to civil 
unrest and/or acts of civil disobedience. 
This includes the unrest in Hong Kong, 
where mass anti-government 
demonstrations have given rise to 
increased disruption throughout the 
region. Such events could impact 
operational resilience by disrupting 
Prudential’s systems, operations, new 
business sales and renewals, distribution 
channels and services to customers, 
which may result in a reduction in 
contributions from business units to the 
central cash balances and profit of the 
Group, decreased profitability, financial 
loss, adverse customer impacts and 
reputational damage. 

Prudential is subject to the risk 
of potential sovereign debt credit 
deterioration owing to the amounts 
of sovereign debt obligations held 
in its investment portfolio
Investing in sovereign debt creates 
exposure to the direct or indirect 
consequences of political, social or 
economic changes (including changes in 
governments, heads of state or monarchs) 
in the countries in which the issuers 
of such debt are located and to the 
creditworthiness of the sovereign. 
Investment in sovereign debt obligations 
involves risks not present in debt 
obligations of corporate issuers. In 
addition, the issuer of the debt or the 
governmental authorities that control the 
repayment of the debt may be unable or 
unwilling to repay principal or pay interest 
when due in accordance with the terms of 
such debt, and Prudential may have limited 
recourse to compel payment in the event of 
a default. A sovereign debtor’s willingness 
or ability to repay principal and to pay 
interest in a timely manner may be affected 
by, among other factors, its cash flow 
situation, its relations with its central bank, 
the extent of its foreign currency reserves, 
the availability of sufficient foreign 
exchange on the date a payment is due, 
the relative size of the debt service burden 
to the economy as a whole, the sovereign 
debtor’s policy toward local and 
international lenders, and the political 
constraints to which the sovereign debtor 
may be subject. 

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Moreover, governments may use a variety 
of techniques, such as intervention by their 
central banks or imposition of regulatory 
controls or taxes, to devalue their 
currencies’ exchange rates, or may adopt 
monetary and other policies (including to 
manage their debt burdens) that have a 
similar effect, all of which could adversely 
impact the value of an investment in 
sovereign debt even in the absence of a 
technical default. Periods of economic 
uncertainty may affect the volatility of 
market prices of sovereign debt to a greater 
extent than the volatility inherent in debt 
obligations of other types of issuers. 

In addition, if a sovereign default or other 
such events described above were to occur 
as has happened on occasion in the past, 
other financial institutions may also suffer 
losses or experience solvency or other 
concerns, which may result in Prudential 
facing additional risks relating to 
investments in such financial institutions 
that are held in the Group’s investment 
portfolio. There is also risk that public 
perceptions about the stability and 
creditworthiness of financial institutions 
and the financial sector generally might be 
adversely affected, as might counterparty 
relationships between financial institutions. 
If a sovereign were to default on its 
obligations, or adopt policies that devalued 
or otherwise altered the currencies in 
which its obligations were denominated 
this could have a material adverse effect on 
Prudential’s financial condition and results 
of operations.

Downgrades in Prudential’s 
financial strength and credit 
ratings could significantly impact 
its competitive position and damage 
its relationships with creditors 
or trading counterparties
Prudential’s financial strength and credit 
ratings, which are used by the market to 
measure its ability to meet policyholder 
obligations, are an important factor 
affecting public confidence in 
Prudential’s products, and as a result 
its competitiveness. Downgrades in 
Prudential’s ratings as a result of, for 
example, decreased profitability, increased 
costs, increased indebtedness or other 
concerns could have an adverse effect on 
its ability to market products, retain current 
policyholders, and on the Group’s financial 
flexibility. In addition, the interest rates at 
which Prudential is able to borrow funds 
are affected by its credit ratings, which are 
in place to measure the Group’s ability to 
meet its contractual obligations.

Prudential plc’s long-term senior debt is 
rated as A2 by Moody’s, A by Standard & 
Poor’s and A- by Fitch. 

Prudential plc’s short-term debt is rated as 
P-1 by Moody’s, A-1 by Standard & Poor’s 
and F1 by Fitch. 

Jackson’s financial strength is rated AA- 
by Standard & Poor’s and Fitch, A1 by 
Moody’s and A+ by A.M. Best. 

Prudential Assurance Co. Singapore (Pte) 
Ltd’s financial strength is rated AA- by 
Standard & Poor’s. 

All ratings above are on a stable outlook 
and are stated as at the date of this 
document. 

In addition, changes in methodologies and 
criteria used by rating agencies could result 
in downgrades that do not reflect changes 
in the general economic conditions or 
Prudential’s financial condition.

Prudential is subject to the risk 
of exchange rate fluctuations 
owing to the geographical diversity 
of its businesses
Due to the geographical diversity of 
Prudential’s businesses, Prudential is 
subject to the risk of exchange rate 
fluctuations. Prudential’s operations 
generally write policies and invest in assets 
denominated in local currencies. Although 
this practice limits the effect of exchange 
rate fluctuations on local operating results, 
it can lead to fluctuations in Prudential’s 
consolidated financial statements upon the 
translation of results into the Group’s 
presentation currency. This exposure is not 
currently separately managed. The Group 
now presents its consolidated financial 
statements in US dollars, which is the 
currency in which a large proportion of the 
Group’s earnings and assets and liabilities 
are denominated or linked to (such as the 
Hong Kong dollar, that is pegged to the US 
dollar). There remains some entities that 
are not denominated in or linked to the US 
dollar and transactions which are 
conducted in non-US dollar currencies. 
Prudential is subject to the risk of exchange 
rate fluctuations from the translation of the 
results of these entities and transactions 
and the risks from the maintenance of the 
Hong Kong dollar peg to the US dollar. 

Risks relating to Prudential’s 
business activities and industry
The implementation of large scale 
transformation, including complex 
strategic initiatives, gives rise to 
significant execution risks, may 
affect Prudential’s operational 
capacity, and may adversely impact 
the Group if these initiatives fail 
to meet their objectives
As part of the implementation of its 
business strategies and to maintain market 
competitiveness, Prudential undertakes 
large scale transformation across the 
Group. Many of these change initiatives, 
which currently focus on digitalisation, 
outsourcing initiatives and industry and 
regulatory-driven change, are complex, 
interconnected and/or of large scale. 
There may be adverse financial and 
non-financial (including operational, 
regulatory, conduct and reputational) 
implications for the Group if these initiatives 
are subject to implementation delays, 
or fail, in whole or in part, to meet their 
objectives. Additionally, these initiatives 
inherently give rise to design and execution 
risks, and may increase existing business 
risks, such as placing additional strain on 
the operational capacity, or weakening the 
control environment, of the Group. 

Implementing further initiatives related 
to significant regulatory changes, such as 
IFRS 17, and the transition to a legislative 
framework in Hong Kong for the group-
wide supervision of insurance groups 
(GWS Framework), may amplify these 
risks. Risks related to the GWS Framework 
are explained in the ‘Regulatory risks’ 
risk factor.

Adverse experience in the 
operational risks inherent in 
Prudential’s business, and those 
of its material outsourcing partners, 
could disrupt its business functions 
and have a negative impact on its 
results of operations
Operational risks are present in all of 
Prudential’s businesses, including the risk 
of direct or indirect loss resulting from 
inadequate or failed internal and external 
processes, systems or human error, fraud, 
the effects of natural or man-made 
catastrophic events (such as natural 
disasters, pandemics, cyber-attacks, acts 
of terrorism, civil unrest and other 
catastrophes) or from other external 
events. These risks may also adversely 
impact Prudential through its partners 
which provide bancassurance, 
outsourcing, external technology, data 
hosting and other services. 

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Exposure to such events could impact 
Prudential’s operational resilience and 
ability to perform necessary business 
functions by disrupting its systems, 
operations, new business sales and 
renewals, distribution channels and 
services to customers, or result in the 
loss of confidential or proprietary data. 
Such events, as well as any weaknesses 
in administration systems (such as those 
relating to policyholder records) or 
actuarial reserving processes, may also 
result in increased expenses, as well as 
legal and regulatory sanctions, decreased 
profitability, financial loss, customer 
conduct risk impacts and damage 
Prudential’s reputation and relationship 
with its customers and business partners. 

The recent social unrest and coronavirus 
outbreak, and measures to contain it, have 
slowed economic and social activity in 
Hong Kong and mainland China, and in the 
case of the coronavirus is having a broader 
global economic impact. While these 
conditions persist, the level of sales activity 
in affected markets are expected to be 
adversely impacted through a reduction in 
travel and agency and bancassurance 
activity. Extended travel restrictions in 
particular may also adversely impact 
product persistency in the Group’s 
Hong Kong business. Disruption to 
Prudential’s operations may also result 
where Prudential’s employees, or those of 
its service partners, are affected by travel 
restrictions; office closures and other 
measures impacting on working practices, 
such as the imposition of remote working 
arrangements; quarantine requirements 
under local laws and/or other psychosocial 
impacts.

Prudential’s business is dependent on 
processing a large number of transactions 
for numerous and diverse products. It also 
employs a large number of complex and 
interconnected information technology 
(IT) and finance systems and models, 
and user developed applications in its 
processes. The long-term nature of much 
of the Group’s business also means that 
accurate records have to be maintained 
securely for significant time periods. 
Further, Prudential operates in an 
extensive and evolving legal and regulatory 
environment (including in relation to tax) 
which adds to the complexity of the 
governance and operation of its business 
processes and controls. 

The performance of the Group’s core 
business activities and the uninterrupted 
availability of services to customers rely 
significantly on, and require significant 

investment in, IT infrastructure and 
security, system development, data 
governance and management, compliance 
and other operational systems, personnel, 
controls and processes. During times of 
significant change, the resilience and 
operational effectiveness of these systems 
and processes at Prudential and/or its third 
party providers may be adversely 
impacted. In particular Prudential and its 
business partners are making increasing 
use of emerging technological tools and 
digital services, or forming strategic 
partnerships with third parties to provide 
these capabilities. Automated distribution 
channels to customers increase the 
criticality of providing uninterrupted 
services. A failure to implement 
appropriate governance and management 
of the incremental operational risks from 
emerging technologies may adversely 
impact on Prudential’s reputation and 
brand, the results of its operations, its 
ability to attract and retain customers, its 
ability to deliver on its long-term strategy 
and therefore its competitiveness and long-
term financial success.

Although Prudential’s IT, compliance and 
other operational systems, models and 
processes incorporate governance and 
controls designed to manage and mitigate 
the operational and model risks associated 
with its activities, there can be no 
assurance as to the resilience of these 
systems and processes to disruption or that 
governance and controls will always be 
effective. Due to human error, among 
other reasons, operational and model risk 
incidents do occur from time to time and 
no system or process can entirely prevent 
them, although Prudential has not, to date, 
identified any such incidents that have had 
a material impact. Prudential’s legacy and 
other IT systems, data and processes, as 
with operational systems and processes 
generally, may also be susceptible to failure 
or security/data breaches. 

In addition, Prudential relies on the 
performance and operations of a number 
of bancassurance, outsourcing (including 
external technology and data hosting), and 
service partners. These include back office 
support functions, such as those relating 
to IT infrastructure, development and 
support, and customer facing operations 
and services, such as product distribution 
and services (including through digital 
channels) and investment operations. 
This creates reliance upon the resilient 
operational performance of these partners, 
and failure to adequately oversee the 
partner, or the failure of a partner (or of its 

IT and operational systems and processes) 
could result in significant disruption to 
business operations and customers and 
may have adverse financial, reputational 
or conduct risk implications. 

Attempts to access or disrupt 
Prudential’s IT systems, and loss 
or misuse of personal data, 
could result in loss of trust from 
Prudential’s customers and 
employees, reputational damage 
and financial loss
Prudential and its business partners are 
increasingly exposed to the risk that 
individuals or groups may attempt to 
disrupt the availability, confidentiality and 
integrity of its IT systems, which could 
result in disruption to key operations, 
make it difficult to recover critical services, 
damage assets and compromise the 
integrity and security of data (both 
corporate and customer). This could result 
in loss of trust from Prudential’s customers 
and employees, reputational damage and 
direct or indirect financial loss. The 
cyber-security threat continues to evolve 
globally in sophistication and potential 
significance. Prudential’s increasing profile 
in its current markets and those in which 
it is entering, growing customer interest in 
interacting with their insurance providers 
and asset managers through the internet 
and social media, improved brand 
awareness and the 2016 designation 
of Prudential as a Global Systemically 
Important Insurer (G-SII) could also 
increase the likelihood of Prudential being 
considered a target by cyber criminals. 
Further, there have been changes to the 
threat landscape and the risk from 
untargeted but sophisticated and 
automated attacks has increased. 

There is an increasing requirement and 
expectation on Prudential and its business 
partners, to not only hold customer, 
shareholder and employee data securely, 
but use it in a transparent and appropriate 
way. The risk of not securely handling or 
misusing data may be increased by the 
use of emerging technological tools which 
could increase the volume of data that 
Prudential collects and processes. 
Developments in data protection 
worldwide (such as the implementation of 
EU General Data Protection Regulation that 
came into force in 2018 and the California 
Consumer Protection Act that came into 
force on 1 January 2020) may also increase 
the financial and reputational implications 
for Prudential following a significant breach 
of its (or its third-party suppliers’) IT 
systems. New and currently unforeseeable 

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regulatory issues may also arise from the 
increased use of emerging technology, 
data and digital services. Although 
Prudential has experienced or has been 
affected by cyber and data breaches, 
to date, it has not identified a failure or 
breach, or an incident of data misuse in 
relation to its legacy and other IT systems 
and processes which has had a material 
impact. However, Prudential has been, 
and likely will continue to be, subject to 
potential damage from computer viruses, 
unauthorised access and cyber-security 
attacks such as ‘denial of service’ attacks 
(which, for example, can cause temporary 
disruption to websites and IT networks), 
phishing and disruptive software 
campaigns.

Prudential is continually enhancing its IT 
environment to remain secure against 
emerging threats, together with increasing 
its ability to detect system compromise and 
recover should such an incident occur. 
However, there can be no assurance that 
such events will not take place which may 
have material adverse consequential 
effects on Prudential’s business 
and financial position. 

Prudential operates in a number 
of markets through joint ventures 
and other arrangements with third 
parties, involving certain risks that 
Prudential does not face with respect 
to its consolidated subsidiaries
Prudential operates, and in certain markets 
is required by local regulation to operate, 
through joint ventures and other similar 
arrangements. For such Group operations, 
management control is exercised in 
conjunction with other participants. 
The level of control exercisable by the 
Group depends on the terms of the 
contractual agreements, in particular, 
those terms providing for the allocation of 
control among, and continued cooperation 
between, the participants. In addition, 
the level of control exercisable by the 
Group could be subject to changes in the 
maximum level of non-domestic ownership 
imposed on foreign companies in certain 
jurisdictions. Prudential may face financial, 
reputational and other exposure (including 
regulatory censure) in the event that any 
of its partners fails or is unable to meet 
its obligations under the arrangements, 
encounters financial difficulty, or fails 
to comply with local or international 
regulation and standards such as those 
pertaining to the prevention of financial 
crime. In addition, a significant proportion 
of the Group’s product distribution is 
carried out through arrangements with 

third parties not controlled by Prudential 
such as bancassurance and agency 
arrangements and is therefore dependent 
upon continuation of these relationships. 
A temporary or permanent disruption to 
these distribution arrangements, such as 
through significant deterioration in the 
reputation, financial position or other 
circumstances of the third party or material 
failure in controls (such as those pertaining 
to the third-party system failure or the 
prevention of financial crime) could 
adversely affect Prudential’s results of 
operations.

Adverse experience relative to 
the assumptions used in pricing 
products and reporting business 
results could significantly affect 
Prudential’s results of operations
In common with other life insurers, the 
profitability of the Group’s businesses 
depends on a mix of factors including 
mortality and morbidity levels and trends, 
policy surrenders and take-up rates on 
guarantee features of products, investment 
performance and impairments, unit cost 
of administration and new business 
acquisition expenses. The Group’s 
businesses are subject to inflation risk. 
In particular, the Group’s medical insurance 
businesses in Asia are also exposed to 
medical inflation risk.

Prudential needs to make assumptions 
about a number of factors in determining 
the pricing of its products, for setting 
reserves, and for reporting its capital levels 
and the results of its long-term business 
operations. Assumptions about future 
expected levels of mortality are of 
relevance to the Guaranteed Minimum 
Withdrawal Benefit (GMWB) of Jackson’s 
variable annuity business. 

A further factor is the assumption that 
Prudential makes about future expected 
levels of the rates of early termination 
of products by its customers (known as 
persistency). This is relevant to a number 
of lines of business in the Group, especially 
for Jackson’s portfolio of variable annuities 
and, in Asia markets, the health and 
protection products in Hong Kong, 
Singapore, Indonesia and Malaysia. 
Prudential’s persistency assumptions 
reflect a combination of recent past 
experience for each relevant line of 
business and expert judgement, especially 
where a lack of relevant and credible 
experience data exists. Any expected 
change in future persistency is also 
reflected in the assumption. If actual levels 
of future persistency are significantly 
different than assumed, the Group’s results 

of operations could be adversely affected.  
Furthermore, Jackson’s variable annuity 
products are sensitive to other types of 
policyholder behaviour, such as the 
take-up of its GMWB product features. 

In addition, Prudential’s business may be 
adversely affected by epidemics, 
pandemics and other effects that give rise 
to a large number of deaths or additional 
sickness claims, as well as increases to the 
cost of medical claims. Pandemics,  
significant influenza and other epidemics 
and outbreaks such as the recent 
coronavirus have occurred a number of 
times historically but the likelihood, timing, 
or the severity of future events cannot be 
predicted. The effectiveness of external 
parties, including governmental and 
non-governmental organisations, in 
combating the spread and severity of any 
epidemics could have a material impact on 
the Group’s loss experience.

Prudential’s businesses are 
conducted in highly competitive 
environments with developing 
demographic trends and continued 
profitability depends upon 
management’s ability to respond 
to these pressures and trends
The markets for financial services in the 
US and Asia are highly competitive, 
with several factors affecting Prudential’s 
ability to sell its products and continued 
profitability, including price and yields 
offered, financial strength and ratings, 
range of product lines and product quality, 
brand strength and name recognition, 
investment management performance and 
fund management trends, historical bonus 
levels, the ability to respond to developing 
demographic trends, customer appetite for 
certain savings products and technological 
advances. In some of its markets, 
Prudential faces competitors that are larger, 
have greater financial resources or a 
greater market share, offer a broader range 
of products or have higher bonus rates. 
Further, heightened competition for 
talented and skilled employees and agents 
with local experience, particularly in Asia, 
may limit Prudential’s potential to grow 
its business as quickly as planned. 
Technological advances may result in 
increased competition to the Group 
(including from outside the insurance 
industry) and a failure to be able to attract 
sufficient numbers of skilled staff.

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In Asia, the Group’s principal competitors 
include global life insurers together with 
regional insurers and multinational asset 
managers. In most markets, there are also 
local companies that have a material 
market presence. Jackson’s competitors 
in the US include major stock and mutual 
insurance companies, mutual fund 
organisations, banks and other financial 
services companies.

Prudential believes that competition will 
intensify across all regions in response 
to consumer demand, digital and other 
technological advances, the need for 
economies of scale and the consequential 
impact of consolidation, regulatory actions 
and other factors. Prudential’s ability to 
generate an appropriate return depends 
significantly upon its capacity to anticipate 
and respond appropriately to these 
competitive pressures.

Prudential is exposed to ongoing 
risks as a result of the demerger 
of M&G plc 
On 21 October 2019, Prudential 
completed the demerger of M&G plc and, 
in connection with the demerger, 
Prudential entered into a demerger 
agreement with M&G plc. Among other 
provisions, the demerger agreement 
contains a customary indemnity under 
which Prudential has agreed to indemnify 
M&G plc against liabilities incurred by the 
M&G group that relate to the business of 
the Group. Although it is not anticipated 
that Prudential will be required to pay 
any substantial amount pursuant to such 
indemnity obligations, if any amount 
payable thereunder is substantial this 
could have a material adverse effect on 
Prudential’s financial condition and/or 
results of operations.

Legal and regulatory risk
Prudential conducts its businesses 
subject to regulation and associated 
regulatory risks, including a 
change to the basis in the regulatory 
supervision of the Group, 
the effects of changes in the laws, 
regulations, policies and 
interpretations and any accounting 
standards in the markets in which 
it operates
Changes in government policy and 
legislation (including in relation to tax), 
capital control measures on companies 
and individuals, regulation or regulatory 
interpretation applying to companies in the 
financial services and insurance industries 
in any of the markets in which Prudential 
operates (including those related to the 

conduct of business by Prudential or its 
third party distributors), or decisions taken 
by regulators in connection with their 
supervision of members of the Group, 
which in some circumstances may be 
applied retrospectively, may adversely 
affect Prudential. The impact from any 
regulatory changes may affect Prudential, 
for example changes may be required 
to its product range, distribution 
channels, handling and usage of data, 
competitiveness, profitability, capital 
requirements, risk management 
approaches, corporate or governance 
structure and, consequently, reported 
results and financing requirements. 
Also, regulators in jurisdictions in which 
Prudential operates may impose 
requirements affecting the allocation of 
capital and liquidity between different 
business units in the Group, whether on 
a geographic, legal entity, product line or 
other basis. Regulators may also change 
the level of capital required to be held by 
individual businesses, the regulation of 
selling practices, solvency requirements 
and could introduce changes that impact 
products sold or that may be sold. 
Furthermore, as a result of interventions 
by governments in light of financial and 
global economic conditions, there may 
continue to be changes in government 
regulation and supervision of the financial 
services industry, including the possibility 
of higher capital requirements, restrictions 
on certain types of transactions and 
enhancement of supervisory powers. 

With effect from 21 October 2019, the 
group-wide supervisor of Prudential plc 
changed to the Hong Kong Insurance 
Authority (HKIA). Prior to the introduction 
of the proposed GWS Framework, the 
Group is being supervised on an interim 
basis in line with principles agreed with 
the HKIA. Until the GWS Framework is 
finalised the Group cannot be certain of the 
nature and extent of differences between 
the interim principles agreed with the HKIA 
and the specific regulatory requirements of 
the GWS Framework. With the agreement 
of the HKIA, Prudential is applying the 
Local Capital Summation Method (LCSM) 
to determine Group regulatory capital 
requirements. Any differences between 
these interim supervisory requirements 
and those that will be adopted under the 
GWS Framework may lead to changes 
to the way in which capital requirements 
are calculated and to the eligibility of the 
capital instruments issued by Prudential 
to satisfy such capital requirements. The 
Group’s existing processes and resources 
may also need to change to comply with 

the final GWS Framework legislation or any 
other requirements of the HKIA. The need 
to adapt to any such changes or to respond 
to any such requirements may lead to 
increased costs or otherwise impact the 
business, financial condition, results, 
profitability and/or prospects of the Group.

While the HKIA has agreed that the 
subordinated debt instruments Prudential 
has in issue can be included as part of the 
Group’s capital resources for the purposes 
of satisfying the capital requirements 
imposed under the LCSM under the 
interim principles agreed with the HKIA, 
the grandfathering provisions under 
the GWS Framework remain subject to 
the Hong Kong legislative process. 
If Prudential is ultimately not able to include 
the subordinated debt instruments it holds 
as part of the Group’s capital resources 
for the purposes of satisfying the capital 
requirements imposed under the GWS 
Framework it may need to raise additional 
capital, which may in turn lead to increased 
costs for the Group.

Currently there are also a number of other 
global regulatory developments which 
could impact Prudential’s businesses 
in its many jurisdictions. These include 
the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank 
Act) and its subsequent amendments 
in the US which provided for a 
comprehensive overhaul of the financial 
services industry within the US including 
reforms to financial services entities, 
products and markets, the work of the 
Financial Stability Board (FSB) in the area 
of systemic risk including the reassessment 
of the designation of Global Systemically 
Important Insurers (G-SIIs), and the 
Insurance Capital Standard (ICS) being 
developed by the International Association 
of Insurance Supervisors (IAIS). In addition, 
regulators in a number of jurisdictions 
in which the Group operates are further 
developing their local capital regimes. 
Across Asia this includes China, 
Hong Kong, Singapore, Thailand and India. 
There remains a high degree of uncertainty 
over the potential impact of such changes 
on the Group.

In November 2019 the FSB has endorsed 
a new Holistic Framework (HF), intended 
for the assessment and mitigation of 
systemic risk in the insurance sector, 
for implementation by the IAIS in 2020 
and has suspended G-SII designations until 
completion of a review to be undertaken 
in 2022. Many of the previous G-SII 
measures have already been adopted into 
the Insurance Core Principles (ICPs) and 

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ComFrame – the common framework for 
the supervision of Internationally Active 
Insurance Groups (IAIGs). Prudential is 
expected to satisfy the criteria to be an 
IAIG and would therefore be subject to 
these measures. The HF also includes a 
monitoring element for the identification 
of a build-up of systemic risk and to 
enable supervisors to take action where 
appropriate. The IAIS has already 
consulted on an application paper on 
the liquidity risk elements introduced into 
the ICPs and ComFrame with a further 
consultation focused on macroeconomic 
elements expected to follow in 2021. 
The IAIS continues to develop the ICS as 
part of ComFrame. The implementation 
of ICS will be conducted in two phases – 
a five-year monitoring phase followed by 
an implementation phase. ComFrame will 
more generally establish a set of common 
principles and standards designed to assist 
supervisors in addressing risks that arise 
from insurance groups with operations 
in multiple jurisdictions. The ComFrame 
proposals, including ICS, could result in 
enhanced capital and regulatory measures 
for IAIGs.

In July 2014, the FSB announced 
widespread reforms to address the 
integrity and reliability of inter-bank offer 
rates (IBORs). The discontinuation of 
IBORs in their current form and their 
replacement with alternative risk-free 
reference rates such as the Sterling 
Overnight Index Average benchmark 
(SONIA) in the UK and the Secured 
Overnight Financing Rate (SOFR) in the 
US could, among other things, impact the 
Group through an adverse effect on the 
value of Prudential’s assets and liabilities 
which are linked to or which reference 
IBORs, a reduction in market liquidity 
during any period of transition and 
increased legal and conduct risks to the 
Group arising from changes required to 
documentation and its related obligations 
to its stakeholders.

Various jurisdictions in which Prudential 
operates have created investor 
compensation schemes that require 
mandatory contributions from market 
participants in some instances in the 
event of a failure of a market participant. 
As a major participant in the majority of 
its chosen markets, circumstances could 
arise in which Prudential, along with other 
companies, may be required to make 
such contributions.

The Group’s accounts are prepared in 
accordance with current IFRS applicable 
to the insurance industry. The International 

Accounting Standards Board (IASB) 
introduced a framework that it described 
as Phase I which, under its standard IFRS 4 
permitted insurers to continue to use the 
statutory basis of accounting for insurance 
assets and liabilities that existed in their 
jurisdictions prior to January 2005. In May 
2017, the IASB published its replacement 
standard on insurance accounting (IFRS 17, 
‘Insurance Contracts’), which will have the 
effect of introducing fundamental changes 
to the statutory reporting of insurance 
entities that prepare accounts according 
to IFRS from 2021. In June 2019, the IASB 
published an exposure draft proposing a 
number of targeted amendments to this 
new standard including the deferral of 
the effective date by one year from 2021 
to 2022. As a result of comments on 
this exposure draft, the IASB plans to 
redeliberate on a number of areas of 
IFRS 17, with an amended standard 
expected to be issued in mid-2020. The EU 
will apply its usual process for assessing 
whether the standard meets the necessary 
criteria for endorsement. The Group is 
reviewing the complex requirements of this 
standard and considering its potential 
impact. The effect of changes required to 
the Group’s accounting policies as a result 
of implementing the new standard is 
currently uncertain, but these changes 
can be expected to, amongst other things, 
alter the timing of IFRS profit recognition. 
Given the implementation of this standard 
is likely to require significant enhancements 
to IT, actuarial and finance systems of the 
Group, it will also have an impact on the 
Group’s expenses.

Any changes or modification of IFRS 
accounting policies may require a change 
in the way in which future results will 
be determined and/or a retrospective 
adjustment of reported results to 
ensure consistency.

The resolution of several issues 
affecting the financial services 
industry could have a negative 
impact on Prudential’s reported 
results or on its relations with 
current and potential customers
Prudential is, and in the future may 
continue to be, subject to legal and 
regulatory actions in the ordinary course 
of its business on matters relevant to 
the delivery of customer outcomes. 
Such actions relate, and could in the 
future relate, to the application of current 
regulations or the failure to implement new 
regulations (including those relating to the 
conduct of business), regulatory reviews 
of broader industry practices and products 

sold (including in relation to lines of 
business already closed) in the past under 
acceptable industry or market practices 
at the time and changes to the tax regime 
affecting products. Regulators may also 
focus on the approach that product 
providers use to select third-party 
distributors and to monitor the 
appropriateness of sales made by them. In 
some cases, product providers can be held 
responsible for the deficiencies of 
third-party distributors. 

In the US, there has been significant 
attention on the different regulatory 
standards applied to investment advice 
delivered to retail customers by different 
sectors of the industry. As a result of 
reports relating to perceptions of industry 
abuses, there have been numerous 
regulatory inquiries and proposals for 
legislative and regulatory reforms. This 
includes focus on the suitability of sales of 
certain products, alternative investments 
and the widening of the circumstances 
under which a person or entity providing 
investment advice with respect to certain 
employee benefit and pension plans 
would be considered a fiduciary subjecting 
the person or entity to certain regulatory 
requirements. There is a risk that new 
regulations introduced may have a material 
adverse effect on the sales of the products 
by Prudential and increase Prudential’s 
exposure to legal risks. 

Litigation, disputes and regulatory 
investigations may adversely 
affect Prudential’s profitability 
and financial condition
Prudential is, and may in the future be, 
subject to legal actions, disputes and 
regulatory investigations in various 
contexts, including in the ordinary course 
of its insurance, investment management 
and other business operations. These legal 
actions, disputes and investigations may 
relate to aspects of Prudential’s businesses 
and operations that are specific to 
Prudential, or that are common to 
companies that operate in Prudential’s 
markets. Legal actions and disputes may 
arise under contracts, regulations 
(including tax) or from a course of conduct 
taken by Prudential, and may be class 
actions. Although Prudential believes that 
it has adequately provided in all material 
respects for the costs of litigation and 
regulatory matters, no assurance can 
be provided that such provisions are 
sufficient. Given the large or indeterminate 
amounts of damages sometimes sought, 
other sanctions that might be imposed and 
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as population urbanisation and ageing) 
may affect customer lifestyles and 
therefore may impact claims against the 
Group’s insurance product offerings. 
As a provider of insurance and investment 
services, Prudential has access to extensive 
amounts of customer personal data, 
including data related to personal health, 
and is therefore exposed to the regulatory 
and reputational risks associated with 
customer data misuse or security breaches. 
These risks are explained in the 
‘Information security and loss or misuse 
of data’ risk factor. The potential for 
reputational risks extends to the Group’s 
supply chains, which may be adversely 
impacted by factors such as poor labour 
standards and abuses of human rights by 
third parties. As an employer, the Group is 
also exposed to the risk of being unable to 
attract, retain and develop highly-skilled 
staff, which can be increased where 
Prudential does not have responsible 
working practices.

A failure to maintain high standards of 
corporate governance may adversely 
impact the Group and its customers, staff 
and employees, through poor decision-
making and a lack of oversight of its key 
risks. Poor governance may arise where 
key governance committees have 
insufficient independence, a lack of 
diversity, skills or experience in their 
members, or unclear (or insufficient) 
oversight responsibilities and mandates. 
Inadequate oversight over remuneration 
increases the risk of poor senior 
management behaviours. Prudential 
operates across multiple jurisdictions and 
has a group and subsidiary governance 
structure which may add further 
complexity to these considerations. 
Participation in joint ventures or 
partnerships where Prudential does not 
have direct overall control increases the 
potential for reputational risks arising from 
poor governance.

and disputes, it is possible that an adverse 
outcome could have an adverse effect on 
Prudential’s reputation, results of 
operations or cash flows.

from customers to institutional investors, 
employees, suppliers and regulators, all of 
whom have expectations in this area, which 
may differ. 

Changes in tax legislation may 
result in adverse tax consequences
Tax rules, including those relating to the 
insurance industry, and their interpretation 
may change, possibly with retrospective 
effect, in any of the jurisdictions in which 
Prudential operates. Significant tax 
disputes with tax authorities, and any 
change in the tax status of any member 
of the Group or in taxation legislation 
or its scope or interpretation could affect 
Prudential’s financial condition and results 
of operations.

Prudential’s Articles of Association 
contain an exclusive jurisdiction 
provision
Under Prudential’s Articles of Association, 
certain legal proceedings may only be 
brought in the courts of England and 
Wales. This applies to legal proceedings 
by a shareholder (in its capacity as such) 
against Prudential and/or its directors 
and/or its professional service providers. 
It also applies to legal proceedings 
between Prudential and its directors and/
or Prudential and Prudential’s professional 
service providers that arise in connection 
with legal proceedings between the 
shareholder and such professional 
service providers. This provision could 
make it difficult for US and other non-UK 
shareholders to enforce their 
shareholder rights.

Environmental, social 
and governance risks
The failure to understand and 
respond effectively to the risks 
associated with environmental, 
social or governance (ESG) 
factors could adversely affect 
Prudential’s achievement of its 
long-term strategy
The business environment in which 
Prudential operates is continually 
changing. A failure to manage those 
material risks associated with the ESG 
themes detailed below may adversely 
impact on the reputation and brand of 
the Group, the results of its operations, 
its ability to attract and retain customers 
and staff, its ability to deliver on its 
long-term strategy and therefore its 
long-term financial success. Ensuring high 
levels of transparency and responsiveness 
to stakeholders is a key aspect of this. 
ESG-related issues may also directly or 
indirectly impact key stakeholders, ranging 

The environmental risks associated with 
climate change is one ESG area that poses 
significant risks to Prudential and its 
customers. These risks include transition 
risks and physical risks. The global 
transition to a lower carbon economy could 
have an adverse impact on investment 
valuations as the financial assets of 
carbon-intensive companies re-price and 
could result in some asset sectors facing 
significantly higher costs and a disorderly 
adjustment to their asset values. The speed 
of this transition will be influenced by 
factors such as public policy, technology 
and changes in market or investor 
sentiment. This may adversely impact the 
valuation of investments held by the 
Group. The potential broader economic 
impact from this may adversely affect 
customer demand for the Group’s 
products. The physical impacts of climate 
change, driven by both specific short-term 
climate-related events such as natural 
disasters and longer-term changes to the 
natural environment, will increasingly 
influence the longevity, mortality and 
morbidity risk assessments of the 
Group’s underwriting product offerings. 
Climate-driven changes in countries in 
which Prudential, or its key third parties, 
operate could impact on its operational 
resilience and could change its claims 
profile. There is an increasing expectation 
from stakeholders for Prudential to 
understand, manage and provide 
increased transparency of its exposure 
to climate-related risks. Given that 
Prudential’s investment horizons are long 
term, it is potentially more exposed to the 
long-term impact of climate change risks. 
Additionally, Prudential’s stakeholders 
increasingly expect an approach to 
responsible investment that demonstrates 
how ESG considerations are effectively 
integrated into investment and 
engagement decisions, and fiduciary 
and stewardship duties. 

Social risks that could impact Prudential 
may arise from a failure to consider the 
rights, diversity, well-being, and interests 
of people and communities in which the 
Group, or its third parties, operates. These 
risks are increased as Prudential operates 
in multiple jurisdictions with distinct local 
cultures and considerations. Emerging 
population risks associated with public 
health trends (such as an increase in 
obesity) and demographic changes (such 

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A
Acquisition expenses
Acquisition expenses include the initial 
expenses and commissions incurred in 
writing new business less deferred costs.

Actual exchange rates (AER)
Actual historical exchange rates for the 
specific accounting period, being the 
average rates over the period for the income 
statement and the closing rates at the 
balance sheet date for the balance sheet.

Administration expenses
Administration expenses are expenses and 
renewal commissions incurred in managing 
existing business.

Alternative performance 
measures (APMs)
Alternative performance measures (APMs) 
are non-GAAP measures used by the 
Prudential Group within its annual reports 
to supplement disclosures prepared in 
accordance with widely accepted guideline 
and principles established by accounting 
standard setters, such as International 
Financial Reporting Standards (IFRS). 
These measures provide useful 
information to enhance the understanding 
of the Group’s financial performance. 
A reconciliation of these APMs to IFRS 
metrics is provided in additional financial 
information section of the annual report.

Annual premium equivalent (APE)
A measure of new business sales activity 
that is calculated as the aggregate of 
annualised regular premiums from new 
business plus one-tenth of single premiums 
on new business written during the period.

Asset-backed security (ABS)
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.

Assets under management (AUM)
Assets under management represent all 
assets managed or administered by or on 
behalf of the Group, including those assets 
managed by third parties. Assets under 
management include managed assets that 
are included within the Group’s statement 
of financial position and those assets 
belonging to external clients outside the 
Prudential Group, which are therefore not 
included in the Group’s statement of 
financial position. These are also referred 
to as ‘funds under management (FUM)’.

Core structural borrowings 
Borrowings which Prudential considers 
to form part of its core capital structure 
and exclude operational borrowings.

Credit risk 
The risk of loss if another party fails to meet 
its obligations, or fails to do so in a timely 
fashion.

Currency risk 
The risk that asset or liability values, 
cash flows, income or expenses will be 
affected by changes in exchange rates. 
Also referred to as foreign exchange risk.

D
Deferred acquisition costs (DAC)
Acquisition costs are expenses of an insurer 
which are incurred in connection with the 
acquisition of new insurance contracts or 
the renewal of existing insurance policies. 
They include commissions and other 
variable sales inducements and the direct 
costs of issuing the policy, such as 
underwriting and other policy issue 
expenses. Typically, under IFRS, an 
element of acquisition costs are deferred 
ie not expensed in the year incurred, and 
instead amortised in the income statement 
in line with the emergence of surpluses on 
the related contracts. 

Deferred annuities 
Annuities or pensions due to be paid from 
a future date or when the policyholder 
reaches a specified age.

Discretionary participation 
features (DPF)
A contractual right to receive, as a 
supplement to guaranteed benefits, 
additional benefits:

 — That are likely to be a significant portion 

of the total contractual benefits;

 — Whose amount or timing is 

contractually at the discretion of the 
issuer; and

 — That are contractually based on asset, 

fund, company or other entity 
performance.

Dividend cover 
Dividend cover is calculated as operating 
profit after tax on an IFRS basis, divided by 
the current year interim dividend plus the 
proposed final dividend.

Available for sale (AFS) 
Securities that have been acquired neither 
for short-term sale nor to be held to 
maturity. AFS securities are measured at 
fair value on the statement of financial 
position with unrealised gains and losses 
being booked in Other Comprehensive 
Income instead of the income statement.

B
Bancassurance
An agreement with a bank to offer 
insurance and investment products 
to the bank’s customers.

Bonuses 
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. These include 
regular bonus and final bonus and the rates 
may vary from period to period.

C
Cash remittances
Amounts paid by our business units to 
the Group comprising dividends and other 
transfers net of capital injections, which 
are reflective of emerging earnings and 
capital generation.

Cash surrender value 
The amount of cash available to a 
policy holder on the surrender of or 
withdrawal from a life insurance policy 
or annuity contract.

Closed-book life insurance business
A ‘closed book’ is essentially a group of 
insurance policies that are no longer sold, 
but are still featured on the books of a life 
insurer as a premium-paying policy. The 
insurance company has “closed the books” 
on new sales of these products which will 
remain in run-off until the policies expire 
and all claims are settled.

Collective investment schemes (CIS)
CIS is an open-ended investment fund 
of pooled assets in which an investor can 
buy and sell units that are issued in the form 
of shares. 

Constant exchange rates (CER)
Prudential plc reports its results at both 
actual exchange rates (AER) to reflect 
actual results and also constant exchange 
rates (CER) to eliminate the impact from 
exchange translation. CER results are 
calculated by translating prior year results 
using current period foreign currency 
exchange rates ie current period average 
rates for the income statements and current 
period closing rate for the balance sheet.

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E
Endowment product 
An ordinary individual life insurance 
product that provides the insured party 
with various guaranteed benefits if it 
survives specific maturity dates or periods 
stated in the policy. Upon the death of the 
insured party within the coverage period, 
a designated beneficiary receives the face 
value of the policy.

European Embedded Value (EEV)
Financial results that are prepared on 
a supplementary basis to the Group’s 
consolidated IFRS results and which are 
prepared in accordance with a set of 
Principles issued by the CFO Forum of 
European Insurance Companies in 2016. 
Embedded value is a way of measuring the 
current value to shareholders of the future 
profits from life business written based on 
a set of assumptions.

F
Fixed annuities (FA)
Fixed annuity contracts written in the US 
which allow for tax-deferred accumulation 
of funds, are used for asset accumulation 
in retirement planning and for providing 
income in retirement and offer flexible 
pay-out options. The contract holder pays 
the insurer a premium, which is credited to 
the contract holders’ account. Periodically, 
interest is credited to the contract holders’ 
account and administrative charges are 
deducted, as appropriate.

Fixed indexed annuities (FIA)
These are similar to fixed annuities in that 
the contract holder pays the insurer a 
premium, which is credited to the contract 
holders’ account and, periodically, interest 
is credited to the contract holders’ account 
and administrative charges are deducted, 
as appropriate. An annual minimum 
interest rate may be guaranteed, although 
actual interest credited may be higher and 
is linked to an equity index over its indexed 
option period.

Funds under management (FUM)
See ‘assets under management (AUM)’ 
above.

G
Group free surplus 
Group free surplus at the end of the period 
comprises free surplus for the insurance 
businesses, representing the excess of 
the net worth over the required capital 
included in the EEV results and IFRS net 
assets for the asset management and other 
businesses, excluding goodwill. The free 
surplus generated during the period 
comprises the movement in this balance 
excluding foreign exchange, capital and 
other reserve movements. Specifically, 
it includes amounts maturing from the 
in-force operations during the period 
less the investment in new business, 
the effect of market movements and 
other one-off items.

Group pay-out annuities
These are a closed block of defined benefit 
annuity plans assumed from John Hancock 
USA and John Hancock New York in 
October 2018, in which a single premium 
payment from an employer (contract 
holder) funds the pension benefits for 
its employees (participants). 

Group-wide Supervision (GWS) 
Framework
Regulatory framework which is currently 
under development by the Hong Kong 
Insurance Authority for the industry and 
is expected to be finalised in the second 
half of 2020.

Guaranteed annuities 
Policies that pay out a fixed amount 
of benefit for a defined period.

Guaranteed investment contracts 
(GICs) (US) 
Investment contracts between an 
insurance company and an institutional 
investor, which provide a stated rate of 
return on deposits over a specified period 
of time. They typically provide for partial or 
total withdrawals at book value if needed 
for certain liquidity needs of the plan.

Guaranteed minimum accumulation 
benefit (GMAB) (US) 
A guarantee that ensures that the contract 
value of a variable annuity contract will be 
at least equal to a certain minimum amount 
after a specified number of years.

Guaranteed minimum death benefit 
(GMDB) (US) 
The basic death benefit offered under 
variable annuity contracts, which specifies 
that if the owner dies before annuity 
income payments begin, the beneficiary 
will receive a payment equal to the greater 
of the contract value or purchase payments 
less withdrawals.

Guaranteed minimum income 
benefit (GMIB) (US) 
A guarantee that ensures, under certain 
conditions, that the owner may annuitise 
the variable annuity contract based on 
the greater of (a) the actual account value 
or (b) a pay-out base equal to premiums 
credited with some interest rate, or the 
maximum anniversary value of the account 
prior to annuitisation.

Guaranteed minimum withdrawal 
benefit (GMWB) (US) 
A guarantee in a variable annuity that 
promises that the owner may make annual 
withdrawals of a defined amount for the life 
of the owner or until the total guaranteed 
amount is recovered, regardless of market 
performance or the actual account balance.

H
Health and protection 
These comprise health and personal 
accident insurance products, which 
provide morbidity or sickness benefits and 
include health, disability, critical illness and 
accident coverage. Health and protection 
products are sold both as standalone 
policies and as riders that can be attached 
to life insurance products. Health and 
protection riders are presented together 
with ordinary individual life insurance 
products for purposes of disclosure of 
financial information.

Hong Kong Insurance Authority 
(Hong Kong IA or HKIA)
The HKIA is an insurance regulatory 
body responsible for the regulation 
and supervision of the Hong Kong 
insurance industry. 

I
In-force 
An insurance policy or contract reflected 
on records that has not expired, matured or 
otherwise been surrendered or terminated.

Internal vesting
Internal vesting relates to proceeds from 
a Prudential policy which the policyholder 
has decided to reinvest in a Prudential 
annuity product.

International Financial Reporting 
Standards (IFRS)
Accounting standards that all publicly 
listed groups in the European Union are 
required to apply in preparing consolidated 
financial statements.

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CONTINUED

Investment grade 
Investments rated BBB- or above for S&P 
and Baa3 or above for Moody’s. Generally, 
they are bonds that are judged by the rating 
agency as likely enough to meet payment 
obligations that banks are allowed to invest 
in them.

Investment-linked products 
or contracts 
Insurance products where the surrender 
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 investment or 
indices. Investment risk associated with 
the product is usually borne by the 
policyholder. Insurance coverage, 
investment and administration services 
are provided for which the charges are 
deducted from the investment fund assets. 
Benefits payable will depend on the price 
of the units prevailing at the time of 
surrender, death or the maturity of the 
product, subject to surrender charges. 
These are also referred to as unit-linked 
products or unit-linked contracts.

K
Key performance indicators (KPIs)
These are measures by which the 
development, performance or position of 
the business can be measured effectively. 
The Group Board reviews the KPIs annually 
and updates them where appropriate.

L
Liquidity coverage ratio (LCR)
Prudential calculates this as assets and 
resources available to us that are readily 
convertible to cash to cover corporate 
obligations in a prescribed stress scenario. 
We calculate this ratio over a range of time 
horizons extending to twelve months.

Liquidity premium
This comprises the premium that is 
required to compensate for the lower 
liquidity of corporate bonds relative to 
swaps and the mark to market risk premium 
that is required to compensate for the 
potential volatility in corporate bond 
spreads (and hence market values) at the 
time of sale. 

Local Capital Summation Method 
(LCSM) 
LCSM is the methodology used for the 
calculation of the Group’s regulatory 
capital requirements (both minimum and 
prescribed levels) together with related 
governance requirements. 

M
Money Market Fund (MMF)
An MMF is an open-ended mutual fund 
that invests in short-term debt securities 
such as US treasury bills and commercial 
paper. The purpose of an MMF is to 
provide investors with a safe place to 
invest easily accessible cash-equivalent 
assets characterised as a low-risk, 
low-return investment.

Mortality rate 
Rate of death, varying by such parameters 
as age, gender and health, used in pricing 
and computing liabilities for future 
policyholders of life and annuity products, 
which contain mortality risks.

Morbidity rate
Rate of sickness, varying by such 
parameters as age, gender and health, 
used in pricing and computing liabilities 
for future policyholders of health products, 
which contain morbidity risks.

N
National Association of Insurance 
Commissioners (NAIC)
The NAIC is the US standard setting and 
regulatory support organisation created 
and governed by the chief insurance 
regulators from the 50 states, the District 
of Columbia and five US territories.

Net premiums 
Life insurance premiums, net of reinsurance 
ceded to third-party reinsurers.

Net worth
Net assets for EEV reporting purposes 
that reflect the regulatory basis position, 
sometimes with adjustments to achieve 
consistency with the IFRS treatment of 
certain items.

New business margin 
The value of new business on an EEV basis 
expressed as a percentage of the present 
value of new business premiums expected 
to be received from the new business.

New business profit 
The profits, calculated in accordance with 
European Embedded Value Principles, 
from business sold in the financial reporting 
period under consideration.

Non-participating business 
A life insurance policy where the 
policyholder is not entitled to a share 
of the company’s profits and surplus, 
but receives certain guaranteed benefits. 
Examples include pure risk policies 
(eg fixed annuities, term insurance, critical 
illness) and unit-linked insurance contracts.

O
Operational borrowings 
Borrowings which arise in the normal 
course of the business. From 1 January 
2019, these also include all lease liabilities 
under IFRS 16.

P
Participating funds 
Distinct portfolios where the policyholders 
have a contractual right to receive at the 
discretion of the insurer additional benefits 
based on factors such as the performance 
of a pool of assets held within the fund, 
as a supplement to any guaranteed 
benefits. The insurer may either have 
discretion as to the timing of the allocation 
of those benefits to participating 
policyholders or may have discretion as to 
the timing and the amount of the additional 
benefits. For Prudential the most significant 
participating funds are for business written 
in Hong Kong, Malaysia and Singapore.

Participating policies or 
participating business 
Contracts of insurance where the 
policyholders have a contractual right 
to receive, at the discretion of the insurer, 
additional benefits based on factors 
such as investment performance, as a 
supplement to any guaranteed benefits. 
This is also referred to as with-profits 
business.

Persistency
The percentage of policies remaining 
in force from period to period.

Present value of new business 
premiums (PVNBP)
The present value of new business 
premiums is calculated as the aggregate of 
single premiums and the present value of 
expected future premiums from regular 
premium new business, allowing for lapses 
and other assumptions made in determining 
the EEV new business contribution.

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R
Regular premium product 
A life insurance product with regular 
periodic premium payments.

Rider 
A supplemental plan that can be attached 
to a basic insurance policy, with payment 
of additional premium.

Risk margin reserve (RMR)
An RMR is included within operating profit 
based on longer-term investment returns 
and represents a charge for long-term 
expected defaults of debt securities, 
determined by reference to the credit 
quality of the portfolio.

S
Separate account 
A separate account is a pool of investments 
held by an insurance company not in 
or ‘separate’ from its general account. 
The returns from the separate account 
generally accrue to the policyholder. 
A separate account allows an investor to 
choose an investment category according 
to his individual risk tolerance, and desire 
for performance.

Single premiums 
Single premium policies of insurance are 
those that require only a single lump sum 
payment from the policyholder.

Stochastic techniques 
Stochastic techniques incorporate results 
from repeated simulations using key 
financial parameters which are subject 
to random variations and are projected 
into the future.

Subordinated debt 
A fixed interest issue or debt that ranks 
below other debt in order of priority for 
repayment if the issuer is liquidated. 
Holders are compensated for the added 
risk through higher rates of interest. Under 
EU insurance regulation, subordinated 
debt is not treated as a liability and counts 
towards the coverage of the required 
minimum margin of solvency, with 
limitations.

Surrender 
The termination of a life insurance policy 
or annuity contract at the request of the 
policyholder after which the policyholder 
receives the cash surrender value, if any, 
of the contract.

Surrender charge or surrender fee 
The fee charged to a policyholder when 
a life insurance policy or annuity contract 
is surrendered for its cash surrender 
value prior to the end of the surrender 
charge period.

T
Takaful 
Insurance that is compliant with Islamic 
principles.

Term life contracts
These contracts provide protection for a 
defined period and a benefit that is payable 
to a designated beneficiary upon death 
of the insured.

Time value of options and 
guarantees (TVOG)
The value of financial options and 
guarantees comprises two parts, the 
intrinsic value and the time value. The 
intrinsic value is given by a deterministic 
valuation on best estimate assumptions. 
The time value is the additional value 
arising from the variability of economic 
outcomes in the future.

Total shareholder return (TSR) 
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.

U
Unallocated surplus 
Unallocated surplus is recorded wholly 
as a liability and represents the excess 
of assets over policyholder liabilities 
for Prudential’s with-profits funds. 
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.

Unit-linked products  
or unit-linked contracts 
See ‘investment-linked products 
or contracts’ above.

Universal life 
An insurance product where the customer 
pays flexible premiums, subject to specified 
limits, which are accumulated in an account 
and are credited with interest (at a rate 
either set by the insurer or reflecting 
returns on a pool of matching assets). 
The customer may vary the death benefit 
and the contract may permit the customer 
to withdraw the account balance, typically 
subject to a surrender charge.

V
Variable annuity (VA) (US) 
An annuity whose value is determined by 
the performance of underlying investment 
options that frequently includes securities. 
A variable annuity’s value is not guaranteed 
and will fluctuate, depending on the value 
of its underlying investments. The holder 
of a variable annuity assumes the 
investment risk and the funds backing a 
variable annuity are held in the insurance 
companies separate account.

Value of in-force business (VIF)
The present value of future shareholder 
cash flows projected to emerge from the 
assets backing liabilities of the in-force 
covered business.

W
Whole life contracts
A type of life insurance policy that provides 
lifetime protection; premiums must usually 
be paid for life. The sum assured is paid out 
whenever death occurs. Commonly used 
for estate planning purposes.

With-profits funds 
See ‘participating funds’ above.

With-profits contracts
For Prudential, the most significant 
with-profits contracts are written in 
Hong Kong, Malaysia and Singapore. 
See ‘participating policies or participating 
business’ above.

Y
Yield 
A measure of the rate of return received 
from an investment in percentage terms 
by comparing annual income (and any 
change in capital) to the price paid for 
the investment.

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Communication with shareholders 
The Group maintains a corporate website 
containing a wide range of information 
relevant for private and institutional 
investors, including the Group’s financial 
calendar: www.prudentialplc.com

Shareholder Meetings
The 2020 Annual General Meeting (AGM) 
will be held in the Churchill Auditorium at 
the QEII Centre, Broad Sanctuary, 
Westminster, London SW1P 3EE on 
14 May 2020 at 11.00am. 

Prudential will continue its practice of 
calling a poll 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. 

Details of the 2019 AGM and of the 
General Meeting held in October 2019, 
including the major items discussed at 
those meetings and the results of the 
voting, can be found on the Company’s 
website. 

In accordance with relevant legislation, 
shareholders holding 5 per cent 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 
Group 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. 

Company constitution 
Prudential is governed by the Companies 
Act 2006, other applicable legislation and 
regulations, and provisions in its Articles 
of Association (Articles). Any change to 
the Articles must be approved by special 
resolution of the shareholders. There 
were no changes to the constitutional 
documents during 2019. The current 
Memorandum and Articles are available 
on the Company’s website. 

Share capital 
Issued share capital 
The issued share capital as at 31 December 
2019 consisted of 2,601,159,949 (2018: 
2,593,044,409) ordinary shares of 5 pence 
each, all fully paid up and listed on the 
London Stock Exchange and the Hong 
Kong Stock Exchange. As at 31 December 
2019, there were 46,847 (2018: 47,260) 
accounts on the register. Further 
information can be found in note C10 
on page 290. 

Prudential also maintains secondary 
listings on the New York Stock Exchange 
(in the form of American Depositary 
Receipts which are referenced to ordinary 
shares on the main UK register) and the 
Singapore Stock Exchange. 

Prudential has maintained a sufficiency 
of public float throughout the reporting 
period as required by the Hong Kong 
Listing Rules. 

Analysis of shareholder accounts as at 31 December 2019 

Size of shareholding

1,000,001 upwards
500,001–1,000,000
100,001–500,000
10,001–100,000
5,001–10,000
1,001–5,000
1–1,000

Total

Number of 
shareholder 
accounts

% of total 
number of 
shareholder 
accounts

Number of 
shares

% of total 
number of 
shares

305
149
532
1,453
1,554
10,162
32,692

46,847

0.65
0.32
1.14
3.10
3.32
21.69
69.78

2,284,969,122
106,232,809
124,456,844
43,978,798
10,778,080
22,114,945
8,629,351

100

2,601,159,949

87.84
4.08
4.79
1.70
0.41
0.85
0.33

100

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Major shareholders 
The table below shows the holdings of 
major shareholders in the Company’s issued 
ordinary share capital, as at 31 December 
2019, as notified and disclosed to the 
Company in accordance with the Disclosure 
Guidance and Transparency Rules. 

As at 31 December 2019

BlackRock, Inc

Capital Group Companies, 
Inc.

Norges Bank

% of total 
 voting rights

5.08

4.9336

3.99

On 11 February 2020, Norges Bank 
notified that its holding had decreased to 
2.998 per cent of the Company’s issued 
share capital.

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 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 
the trustee on behalf of the registered 
owner 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 

Dividend information 

2019 second interim dividend

Ex-dividend date

Record date

Payment date

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 10 March 2020, Trustees held 
0.30 per cent 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 on pages 136 to 195.

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 and 
the Hong Kong Stock Exchange, as well as 
under the rules of some of the Group’s 
employee share plans. 

All Directors are required to hold a 
minimum number of shares under 
guidelines approved by the Board, 
which they would also be expected to 
retain as described in 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. 
Prudential seeks 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. The existing authorities to 
issue shares, and to do so without 
observing pre-emption rights, are due to 
expire at the end of this year’s AGM. 
Relevant resolutions to authorise share 
capital issuances will be put to 
shareholders at the AGM on 14 May 2020. 

Details of shares issued during 2019 and 
2018 are given in note C10 on page 290. 

In accordance with the terms of a waiver 
granted by the Hong Kong Stock 
Exchange, Prudential confirms that it 
complies with the applicable law and 
regulation in the UK in relation to the 
holding of shares in treasury and with the 
conditions of the waiver in connection with 
the purchase of own shares and any 
treasury shares it may hold. 

Authority to purchase own shares 
The Directors also require authority from 
shareholders in relation to the purchase 
of the Company’s own shares. Prudential 
seeks 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. This authority has 
not been used since it was last granted at 
the AGM in 2019. This existing authority is 
due to expire at the end of this year’s AGM 
and a special resolution to renew the 
authority will be put to shareholders at the 
AGM on 14 May 2020. 

Shareholders 
registered on 
the UK register 
and Hong Kong 
branch register

26 March 2020

Holders of US 
American 
Depositary 
Receipts

Shareholders with 
ordinary shares 
standing to the 
credit of their CDP 
securities accounts

–

26 March 2020

27 March 2020

27 March 2020

27 March 2020

15 May 2020

15 May 2020

On or about 
22 May 2020

A number of dividend waivers are in place in respect of 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. 
The dividends waived represent less than one per cent of the value of dividends paid during the year. 

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CONTINUED

Shareholder enquiries 
For enquiries about shareholdings, including dividends and lost share certificates, please contact the Company’s registrars: 

By post

By telephone

Register

UK register

Hong Kong register

Singapore register

ADRs

Equiniti Limited, Aspect House, Spencer Road, 
Lancing, West Sussex BN99 6DA, UK. 

Computershare Hong Kong Investor Services Limited, 
17M Floor, Hopewell Centre, 183 Queen’s Road East, 
Wan Chai, Hong Kong. 

Shareholders who have shares standing to the credit 
of their securities accounts with The Central Depository 
(PTE) Limited (CDP) in Singapore may refer queries to 
the CDP at 11 North Buona Vista Drive, #01-19/20 
The Metropolis Tower 2, Singapore 138589. Enquiries 
regarding shares held in Depository Agent Sub-accounts 
should be directed to your Depository Agent or broker.

JPMorgan Chase Bank N.A, PO Box 64504, St. Paul, 
MN 55164-0504, USA.

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 proxy 
form. The option to receive shareholder 
documents electronically is not available to 
shareholders holding shares through CDP. 
Please contact Equiniti if you require any 
assistance or further information. 

Dividend mandates 
Shareholders may have their dividends 
paid directly to their bank or building 
society account. If you wish to take 
advantage of this facility, please call 
Equiniti and request a Cash Dividend 
Mandate form. Alternatively, shareholders 
may download the form from  
www.prudentialplc.com/investors/
shareholder-information/forms

Shareholders on the UK or Hong Kong 
registers have the option to elect to receive 
their dividend in US dollars instead of 
pounds sterling or Hong Kong dollars 
respectively. More information may be 
found on our website www.prudentialplc.
com/investors/shareholder-information/
dividend/dividend-currency-election

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 and the timetable are available at 
www.shareview.co.uk/4/Info/Portfolio/
default/en/home/shareholders/Pages/
ReinvestDividends.aspx 

Tel 0371 384 2035
Textel 0371 384 2255
(for hard of hearing).
Lines are open from 8.30am to 5.30pm 
(UK), Monday to Friday.
International shareholders
Tel +44 121 415 7026

Tel +852 2862 8555

Tel +65 6535 7511

Tel +1 800 990 1135, 
or from outside the USA 
+1 651 453 2128 or log on 
to www.adr.com

Share dealing services 
The Company’s registrars, Equiniti, offer a 
postal dealing facility for buying and selling 
Prudential plc ordinary shares; please 
see the Equiniti address or telephone 
0371 384 2248. They also offer a telephone 
and internet dealing service, Shareview, 
which provides a simple and convenient 
way of selling Prudential shares. For 
telephone sales, call 0345 603 7037 
between 8.00am and 5.30pm, 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 
downloaded from our website  
www.prudentialplc.com/investors/
shareholder-information/forms or 
from Equiniti. Further information 
about ShareGift may be obtained on 
+44 (0)20 7930 3737 or from 
www.ShareGift.org

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How to contact us

Prudential plc
1 Angel Court 
London EC2R 7AG

Tel +44 (0)20 7220 7588 
www.prudentialplc.com

Board

Paul Manduca 
Chairman

Non-executive Directors

Philip Remnant 
Senior Independent Director

Jeremy Anderson

Howard Davies

David Law

Kai Nargolwala

Anthony Nightingale

Alice Schroeder

Tom Watjen

Fields Wicker-Miurin

Amy Yip

Media enquiries
Tel +44 (0)20 3977 9760  
Email: media.relations@prudentialplc.com

Group Executive Committee

Mike Wells  
Group Chief Executive 

Mark FitzPatrick
Group Chief Financial Officer 
and Chief Operating Officer 

James Turner
Group Chief Risk and  
Compliance Officer

Jolene Chen
Group Human Resources Director

Michael Falcon
Chief Executive Officer,  
Jackson Holdings LLC

Nic Nicandrou
Chief Executive, Prudential 
Corporation Asia

Al-Noor Ramji 
Group Chief Digital Officer

Business units

Prudential Corporation Asia
13th Floor
One International Finance Centre
1 Harbour View Street
Central
Hong Kong

Tel +852 2918 6300
www.prudentialcorporation-asia.com

Nic Nicandrou
Chief Executive,  
Prudential Corporation Asia

Jackson Holdings LLC
1 Corporate Way
Lansing
Michigan 48951
USA

Tel +1 517 381 5500
www.jackson.com

Michael Falcon
Chief Executive Officer,  
Jackson Holdings LLC

Shareholder contacts
Tel +44 (0)20 3977 9720
Email: investor.relations@prudentialplc.com

   UK Register private 

shareholder enquiries
Tel 0371 384 2035

International shareholders  
Tel +44 (0)121 415 7026

   Hong Kong Branch Register  

private shareholder enquiries
Tel +852 2862 8555

   US American Depositary 
Receipts holder enquiries
Tel +1 651 453 2128

   The Central Depository (Pte)  
Limited shareholder enquiries
Tel +65 6535 7511

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Group overviewStrategic reportGovernanceDirectors’ remuneration reportFinancial statementsEuropean Embedded Value (EEV) basis resultsAdditional informationPrudential’s office at Ludgate Hill, London; from The Building News, 1863.

HISTORY

Providing financial security since 1848

Successive generations have looked to 
Prudential to safeguard their financial 
security – from industrial workers and 
their families in Victorian Britain to 
20 million customers worldwide today. 
Our financial strength, heritage, prudence 
and focus on our customers’ long-term 
needs ensure that people continue to turn 
to our trusted brands to help them plan 
for today and tomorrow.

1848  Prudential is 
established as Prudential 
Mutual Assurance, Investment 
and Loan Association in Hatton 
Garden, London, offering loans 
and life assurance to 
professional people. From the 
beginning the figure of 
Prudence was adopted as the 
symbol to be used on the 
Company seal to represent the 
values of the business.  

To this day she still carries her 
arrow (signifying strength of 
purpose), serpent (the ancient 
symbol of wisdom) and mirror 
(representing self awareness).

1854  Prudential opens the 
Industrial Department to sell 
a new type of insurance, 
Industrial Insurance, to the 
working classes, for premiums 
of a penny and upwards.

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FORWARD-LOOKING STATEMENTS

This document may contain ‘forward-looking statements’ 
with respect to certain of Prudential’s plans and its goals and 
expectations relating to its future financial condition, performance, 
results, strategy and objectives. Statements that are not historical 
facts, including statements about Prudential’s beliefs and 
expectations and including, without limitation, statements 
containing the words ‘may’, ‘will’, ‘should’, ‘continue’, ‘aims’, 
‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘plans’, ‘seeks’ 
and ‘anticipates’, and words of similar meaning, are forward-
looking statements. These statements are based on plans, 
estimates and projections as at the time they are made, and 
therefore undue reliance should not be placed on them. By their 
nature, all forward-looking statements involve risk and uncertainty. 

A number of important factors could cause Prudential’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, future 
market conditions, including fluctuations in interest rates and 
exchange rates, the continuance of a sustained low-interest rate 
environment, and the impact of economic uncertainty, asset 
valuation impacts from the transition to a lower carbon economy, 
inflation and deflation and the performance of financial markets 
generally; global political uncertainties; the policies and actions 
of regulatory authorities, including, in particular, the policies and 
actions of the Hong Kong Insurance Authority, as Prudential’s 
new Group-wide supervisor, as well as new government 
initiatives generally; the impact of continuing application of 
Global Systemically Important Insurer or ‘G-SII’ policy measures 
on Prudential; the impact on Prudential of systemic risk policy 
measures adopted by the International Association of Insurance 
Supervisors; the impact of competition and fast-paced 
technological change; the effect on Prudential’s business and 
results from, in particular, mortality and morbidity trends, lapse 
rates and policy renewal rates; the physical impacts of climate 

change and global health crises on Prudential’s business and 
operations; the timing, impact and other uncertainties of future 
acquisitions or combinations within relevant industries; the impact 
of internal transformation projects and other strategic actions 
failing to meet their objectives; the risk that Prudential’s 
operational resilience (or that of its suppliers and partners) may 
prove to be inadequate, including in relation to operational 
disruption due to external events; disruption to the availability, 
confidentiality or integrity of Prudential’s IT, digital systems and 
data (or those of its suppliers and partners); any ongoing impact 
on Prudential of the demerger of M&G plc; the impact of changes 
in capital, solvency standards, accounting standards or relevant 
regulatory frameworks, and tax and other legislation and 
regulations in the jurisdictions in which Prudential and its affiliates 
operate; the impact of legal and regulatory actions, investigations 
and disputes; and the impact of not adequately responding to 
environmental, social and governance issues. These and other 
important factors may, for example, result in changes to 
assumptions used for determining results of operations or 
re-estimations of reserves for future policy benefits. Further 
discussion of these and other important factors that could cause 
Prudential’s actual future financial condition or performance or 
other indicated results to differ, possibly materially, from those 
anticipated in Prudential’s forward-looking statements can be 
found under the ‘Risk factors’ heading of this document.

Any forward-looking statements contained in this document speak 
only as of the date on which they are made. Prudential expressly 
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, the Hong Kong Listing Rules, 
the SGX-ST listing rules or other applicable laws and regulations.

1871  The Company 
becomes one of the first in the 
City to employ women. 
Calculating machines are also 
introduced, bringing efficiencies 
to the processing of an 
increasing volume of business.

1923  Prudential’s first 
overseas life branch is 
established in India, with the 
first policy being sold to a tea 
planter in Assam.

1994  Prudential 
Corporation Asia is formed in 
Hong Kong as a regional head 
office to expand operations 
beyond an existing presence 
in Malaysia, Singapore and 
Hong Kong.

2010  Prudential plc is 
listed on stock exchanges in 
Hong Kong and Singapore.

1879  Prudential moves into 
Holborn Bars, a purpose-built 
office complex designed by 
Alfred Waterhouse. The building 
becomes a London landmark.

1912  Following the 
National Insurance Act, 
Prudential works with the 
government to run Approved 
Societies, providing sickness 
and unemployment benefits 
to five million people.

1924  Prudential shares 
are floated on the London 
Stock Exchange.

1949  The ‘Man from the 
Pru’ advertising campaign 
is launched.

1986  Prudential acquires 
Jackson National Life Insurance 
in the United States.

1999  Prudential acquires 
M&G, pioneer of unit trusts in 
the UK and a leading provider 
of investment products.

2000  Prudential plc is 
listed on the New York Stock 
Exchange. Prudential becomes 
the first UK life insurer to enter 
the Mainland China market 
through its joint venture with 
CITIC Group.

2014  Prudential acquires 
businesses in Ghana and 
Kenya, marking its entry into 
the fast-growing African life 
insurance industry.

2019  Prudential demerges 
its UK and Europe business, 
M&G plc, in order to focus on 
its international business. 

Principal place of business  
in Hong Kong
13th Floor
One International Finance Centre
1 Harbour View Street
Central
Hong Kong

Prudential public limited company
Incorporated and registered  
in England and Wales

Registered office
1 Angel Court
London
EC2R 7AG

Registered number 1397169

www.prudentialplc.com

Prudential plc is a holding company, 
some of whose subsidiaries are authorised 
and regulated, as applicable, by the 
Hong Kong Insurance Authority and 
other regulatory authorities.

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Printed on Revive 100 Silk, a paper made from fibre 
derived from 100 per cent recycled pre- and post-
consumer waste; and Revive 100 Offset, which is made 
from 100 per cent recycled post-consumer waste. 

All material used in this report has been independently 
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Prudential plc is not affiliated in any manner with 
Prudential Financial, Inc., a company whose principal place 
of business is in the United States of America, or with 
the Prudential Assurance Company, a subsidiary of 
M&G plc, a company incorporated in the United Kingdom.