a7254k
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August, 2023
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation
of registrant's name into English)
13/F, One International Finance Centre,
1 Harbour View Street, Central,
Hong Kong, China
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F X
Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No X
If
"Yes" is marked, indicate below the file number assigned to the
registrant
in
connection with Rule 12g3-2(b): 82-
NEWS RELEASE
30 August 2023
PRUDENTIAL PLC HALF YEAR 2023 RESULTS: DELIVERING A STRONG
PERFORMANCE AND STRATEGIC UPDATE
Prudential plc ("Prudential"; HKEX: 2378; LSE: PRU) today announced
its financial results for the six months ended 30 June 2023 along
with a strategic update.
Performance highlights on a constant
(and actual) exchange rate basis1
●
New business profit2 up
39 per cent (36 per cent) to $1,489 million, with 17 of our life
markets delivering growth3,
16 of which by double digits. Excluding the effect of interest rate
and other economic movements, new business profit was up 52 per
cent (48 per cent)
●
APE sales4 up
42 per cent (37 per cent) to $3,027 million
●
Adjusted operating profit5 up
6 per cent (4 per cent) to $1,462 million
●
Operating free surplus generated from in-force
insurance and asset management business6 down
(2) per cent ((4) per cent) to $1,438 million
●
EEV operating profit7 up
22 per cent (19 per cent) to $2,155 million. EEV shareholders
equity is $43.7 billion, equivalent to 1,588 cents per
share
●
GWS shareholder capital surplus over GPCR of $15.5
billion8,
equivalent to a cover ratio of 295 per cent8 (31
December 2022: 307 per cent)
●
Adjusted IFRS equity9 of
$36.4 billion, up 4 per cent10 from
31 December 2022, equivalent to 1,324 cents per share. Annualised
Contractual Service Margin11 growth
of 8 per cent.
●
First interim dividend of
6.26 cents per
share, up 9 per cent10 with
guidance for 2023 and 2024 of expected annual growth between 7-9
per cent
Strategic update
Alongside interim results, CEO Anil Wadhwani announced a new
purpose and strategy following the completion of his strategic and
operational review.
Prudential's new purpose statement - For Every Life, For Every
Future - reflects its mission to be the most trusted partner and
protector for this generation and generations to come, by providing
simple and accessible financial and health solutions.
Prudential's new strategy will build a sustainable growth platform,
through targeted investment in structural growth markets across
Asia and Africa by:
●
Enhancing
customer experiences to drive higher acquisition and loyalty for
lifetime value creation;
●
Technology-powered
distribution with a focus on agency and bancassurance productivity
and activation;
●
Unlocking
the health opportunity by disciplined implementation of best
practices across all our markets;
●
More
consistent execution across each of our markets, driven through
changes in our organisational model and technology platform;
and
●
Prioritising
value creation, focusing on the generation of free surplus that can
be used to invest in new business at attractive returns, core
capabilities and strategic opportunities, as well as return capital
to shareholders via dividends.
We believe our new strategy will accelerate value creation for all
our stakeholders through operational and financial discipline, with
two key financial objectives:
●
Growing New Business Profit at 15-20 per cent
compound annual growth between 2022 and 202712;
●
Achieving double-digit compound annual growth in
operating free surplus generated from in-force insurance and asset
management business between 2022 and 202712.
Summary financials
|
Half year
2023 $m
|
Half year
2022 $m
|
Change on
AER basis1
|
Change on
CER basis1
|
New business profit2
|
1,489
|
1,098
|
36%
|
39%
|
Operating free surplus generated13
|
1,024
|
1,224
|
(16)%
|
(15)%
|
Operating free surplus generated from in-force insurance
and
asset management business6
|
1,438
|
1,503
|
(4)%
|
(2)%
|
Adjusted operating profit5
|
1,462
|
1,411
|
4%
|
6%
|
IFRS profit (loss) after tax
|
947
|
(1,505)
|
n/a
|
n/a
|
|
|
|
|
|
|
30 Jun
2023
|
31 Dec 2022
|
|
Total
|
Per share
|
Total
|
Per share
|
EEV shareholders' equity
|
$43.7bn
|
1,588¢
|
$42.2bn
|
1,534¢
|
IFRS shareholders' equity
|
$17.2bn
|
623¢
|
$16.7bn
|
608¢
|
Adjusted IFRS shareholders' equity9
|
$36.4bn
|
1,324¢
|
$35.2bn
|
1,280¢
|
Commenting on his first Interim results and strategic update, CEO
Anil Wadhwani, said: "The
interim results demonstrate the power of our multi-engine,
multi-channel business model across Asia and Africa. The business
performed strongly in the first half of 2023, with new business
profit up 39 per cent14.
(up 52 per cent14 on
an ex-economics basis - i.e. excluding the effect of interest
rates). APE sales were up 42 per cent14 to
$3,027 million and this sales momentum continues into the current
third quarter.
"Our agency channel has rebounded strongly in all segments as Covid
restrictions ended, reporting 89 per cent14 growth
in new business profit on an ex-economics basis. The bancassurance
channel maintained margins (on an ex-economics basis) despite lower
sales in Singapore, Vietnam and the Chinese
Mainland.
"13 of 22 life markets3 recorded
positive Health & Protection new business profit growth. We
continue to see increased agency adoption of digital tools. In 2022
agents using PRULeads, our activity and leads management engine,
were 30 per cent more productive15.
"Prudential has a great franchise with 175 years of history, top
three positions16 in
12 of our 14 Asia life markets and 4 of our 8 Africa life markets,
scale in both agency and bancassurance, and more importantly the
trust of our 18 million
customers. We also have in-house investment capabilities with
Eastspring managing over $220 billion of
assets.
"We have today announced that we will do things differently in the
way we run Prudential. With a clear strategy, operational and
capital allocation priorities, we are focused on delivering
sustainable value for all our stakeholders: employees, customers,
shareholders and our communities.
"We are excited to write the next chapter of growth at
Prudential."
Market overview and outlook
In the first half of 2023, in Hong Kong, both domestic and Chinese
Mainland Visitor segments performed particularly well. APE sales
from the Domestic segment grew 68 per cent and the Chinese Mainland
Visitor segment has seen a significant increase in sales following
the opening of the border with the mainland in February 2023.
Prudential increased market share across segments and achieved the
number one position in both the offshore business and in the agency
channel17. Demand
for savings products across the Hong Kong business continues to be
strong with volumes reflecting increased savings case sizes
compared to 2019. Product mix in terms of new policy count has
started to normalise. Customer experience improvements in digital
onboarding and underwriting and enhanced multi-currency options
have improved both health and protection and savings offerings. In
Macau, the recruitment of agents has commenced, following the
opening of the branch. The new licence completes Prudential's
footprint in all 11 cities in the Greater Bay Area, which has a
population of over 85 million18.
In the Chinese Mainland, the company's focus in the first half of
2023 was taking decisive steps to drive a more balanced product
mix. At the start of the second quarter we actively withdrew
certain guaranteed savings product from both agency and
bancassurance channels. As a consequence, both agency and
bancassurance channels reduced the proportion of short-term pay
non-participating products sold in favour of higher quality and
higher margin annuity and longer premium payment term products,
particularly affecting volumes in the bancassurance channel in the
second quarter. Agency still performed very strongly with APE sales
up 25 per cent14 and
productivity18 up
53 per cent. Overall, new business profit was marginally down by
(3) percentage points14 on
an ex-economics basis. Margins for both agency and bancassurance
improved, and in aggregate rose by 7 percentage points, on an
ex-economics basis. In Taiwan, APE sales grew by 28 per
cent14 and
new business profit increased with good performances from both
existing and new bank partners. Participating products and tailored
customer segmentation led to the business significantly
outperforming the market.
Our businesses in ASEAN reflect our leading positions and the
strength of our diversified multi-channel distribution franchise in
this region.
●
Malaysia grew APE sales by 12 per
cent14 and
new business profit by 11 per cent14 and
had a
leading net promoter score in both conventional and Takaful
business.
●
Indonesia APE sales grew 42 per
cent14 and
new business profit grew 22 per cent14 -
with agency APE up particularly strongly at 51 per
cent14 and
with new business profit per active agent in the period up 77 per
cent. Customer medical benefits were upgraded contributing to
margins reducing by 6 percentage points.
●
The Philippines delivered 13 per
cent14 growth
in new APE sales, with strong growth in active agents and new
business profit. In Q1 2023, it was the number one player by sales
in the market19.
●
Singapore showed a resilient
performance with
APE sales down (3) per cent14 and
new business profit down (20) per cent14 as
we maintained market positioning, despite challenging operating
conditions.
●
In Vietnam, industry sales fell 31 per cent
largely due to weakness in the bancassurance
channel20.
We outperformed the market, reporting APE sales down (18) per
cent14,
with agency APE sales up 34 per cent14.
New business profit was down overall.
In India, there was continued strong momentum and high
quality growth: new business profit was up in the first
half, reflecting APE sales growth of 15 per cent14 and
an improvement of margin. Agency APE Sales grew 29 per
cent14,
with over 17,000 new agent recruits and over 100 new distribution
partners secured.
In Africa, we delivered a strong performance with
new business profit up reflecting broad based growth across all
channels and all eight African markets recorded double
digit13 APE
sales growth. Overall Africa saw 31 per cent14 APE
sales growth and an 18 per cent increase in the number of active
agents since the equivalent period in the prior year. It had over
220 members qualifying for 'million dollar round table' status in
2022.
At Eastspring, funds under management increased to $228 billion,
reflecting net inflows of $3.3 billion (excluding
money market funds and net redemptions from funds managed on behalf
of M&G plc) and
positive market movements. Operating profits were up 14 per
cent14 to
$146 million.
Consumers in Asia remain resilient despite the challenging
environment. While the outlook for Asian markets is mixed, our
momentum in the first half has continued into the third quarter.
This underscores the strength of our multi-market growth engine
backed by our diversified channel mix, which is key to driving
sustainable value in the long term.
Notes
1.
Further
information on actual and constant exchange rate bases is set out
in note A1 of the IFRS financial statement. All results are
presented in US dollars.
2.
New business
profit, on a post-tax basis, on business sold in the period,
calculated in accordance with EEV Principles. See the basis of
preparation to the EEV basis results for further
explanation.
3.
Of our 14 Asia
life markets and 8 Africa life markets
4.
APE sales is a
measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the year for all insurance products,
including premiums for contracts designated as investment contracts
under IFRS. It is not representative of premium income recorded in
the IFRS financial statements. See note II of the Additional
financial information for further explanation.
5.
'Adjusted IFRS
operating profit' refers to adjusted IFRS operating profit based on
longer-term investment returns from continuing operations and is
stated after excluding the effect of short-term fluctuations in
investment returns against long-term assumptions and other
corporate transactions. This alternative performance measure is
reconciled to IFRS profit for the period of $947 million (2022:
$(1,505)million) in note B1.1 of the IFRS financial
results.
6.
Operating free
surplus generated from in-force insurance business represents
amounts emerging from the in-force business during the year before
deducting amounts reinvested in writing new business and excludes
non-operating items. For asset management businesses, it equates to
post-tax operating profit for the year. Restructuring costs are
presented separately from the business unit amount. Further
information is set out in 'movement in Group free surplus' of the
EEV basis results.
7.
EEV operating
profit is based on longer-term investment returns and is stated
after excluding the effect of short-term fluctuations in investment
returns and other corporate transactions, and excludes the effect
of changes in economic assumptions and the mark-to-market value
movement on core borrowings.
8.
Estimated GWS
capital position reflects eligible Group capital resources in
excess of the Group prescribed capital requirements (GPCR)
attributable to the shareholder business, before allowing for the
2023 first cash interim dividend. Further detail on the estimated
GWS capital position, including the basis of preparation, is
included in note I(i) of the Additional financial
information.
9.
IFRS
shareholders equity plus contractual service margin net of
reinsurance and related tax adjustments. See note C3.1 in the IFRS
financial results for further information.
10.
On an actual
exchange rate basis.
12.
The objectives
assume exchange rates at December 2022 and economic assumptions
made by Prudential in calculating the EEV basis supplementary
information for the year ended 31 December 2022, and are based on
regulatory and solvency regimes applicable across the Group at the
time the objectives were set. The objectives assume that the
existing EEV and Free Surplus methodology at December 2022 will be
applicable over the period.
13.
Operating free
surplus generated from insurance and asset management operations
after investment in new business but before restructuring costs.
Definition and further information is set out in 'Movement in Group
free surplus' of the EEV basis results.
14.
On a constant
exchange rate basis.
15.
Measured by
cases per agent
16.
As reported at
full year 2022 unless specified. Sources include formal (e.g.
competitors results release, local regulators and insurance
association) and informal (industry exchange) market share. Ranking
based on new business (APE sales, weighted full year premium or
full year premium depending on availability of data) or total
weighted revenue premiums, except for Hong Kong based on in-force
premiums. Ranking for FY2020 for Cameroon.
17.
Source: HKMA
Q1 2023 market statistics.
18.
Source: The
Guangdong-Hong Kong-Macao Greater Bay Area Development
Office.
19.
Q1-2023 based
on Weighted First Year Premium, Philippines Insurance
Commission.
20.
H1
2023 Vietnam Actuarial Network.
Contact:
Media
|
|
Investors/analysts
|
|
Simon Kutner
|
+44 (0)7581 023260
|
Patrick Bowes
|
+852 9611 2981
|
Sonia Tsang
|
+852 5580 7525
|
William Elderkin
|
+44 (0)20 3977 9215
|
Sophie Sophaon
|
+852 6286 0229
|
Darwin Lam
|
+852 2918 6348
|
We expect to announce our Half Year 2023 Results to the Hong Kong
Stock Exchange and to the Financial Media
at 12.00pm HKT - 5.00am UKT -
12.00am ET on Wednesday, 30 August 2023.
The announcement will be released on the London Stock Exchange
at 2.00pm HKT - 7.00am UKT -
2.00am EST on Wednesday, 30 August.
A pre-recorded presentation for analysts and investors will be
available on-demand from 12pm HKT - 5.00am UKT - 12.00am ET on
Wednesday, 30 August 2023 using the following link:
https://www.investis-live.com/prudential/64d25bbb0120c60d00e4d387/yelll.
A copy of the script used in the pre-recorded video will also be
available on Prudential plc's website from 12pm HKT - 5.00am UKT -
12.00am ET on Wednesday, 30 August 2023.
A Q&A event for analysts and investors will be held at 4.30pm
HKT - 9.30am UKT - 4.30am ET on Wednesday, 30
August. We
offer the option to join us in person or
virtually.
Registration to join the Q&A event in person, at the Four
Seasons Hong Kong, 8 Finance Street, Central, Hong
Kong
To register to attend the event in person, please contact:
investor.relations@prudentialplc.com.
Registration to view the Q&A event online
To register to watch the event and submit questions online, please
do so via the following link:
https://www.investis-live.com/prudential/64d25e0c2be9e41300d405cd/twbbb.
The webcast will be available to watch afterwards using the same
link.
Dial-in details
A dial-in facility will be available to listen to the event and ask
questions: please allow 15 minutes ahead of the start time to join
the call (lines open half an hour before the call is due to start,
i.e. from 4.00pm HKT - 9.00am UKT - 4.00am ET).
Dial-in: +44 (0) 20 3936 2999 (UK and international) / 0800 358
1035 (Freephone UK), Participant access
code: 759398. Once participants have entered this code their
name and company details will be taken.
Transcript
A transcript of the Q&A event will be published on the results
centre page of Prudential plc's website on Monday, 4
September.
Playback facility
Please use the following for a playback facility: +44 (0) 20 3936
3001 (UK and international), replay code 949060. This will be available from approximately 9.00pm
HKT - 2.00pm UKT - 9.00am ET on Wednesday, 30 August until 6.59am
HKT on Thursday, 7 September - 11.59pm UKT - 6.59pm ET on
Wednesday, 6 September.
About Prudential plc
Prudential plc provides life and health insurance and asset
management in 24 markets across Asia and Africa. Prudential's
mission is to be the most trusted partner and protector for this
generation and generations to come, by providing simple and
accessible financial and health solutions. The
business has dual primary listings on the Stock Exchange of Hong
Kong (2378) and the London Stock Exchange (PRU). It also has a
secondary listing on the Singapore Stock Exchange (K6S) and a
listing on the New York Stock Exchange (PUK) in the form of
American Depositary Receipts. It is a constituent of the Hang Seng
Composite Index and is also included for trading in the
Shenzhen-Hong Kong Stock Connect programme and the Shanghai-Hong
Kong Stock Connect programme.
Prudential is not affiliated in any manner with Prudential
Financial, Inc. a company whose principal place of business is in
the United States of America, nor with The Prudential Assurance
Company Limited, a subsidiary of M&G plc, a company
incorporated in the United Kingdom.
https://www.prudentialplc.com/
Strategic and operating review
Prudential has a broad footprint across Asia and Africa that
provides access to a total market that is estimated will generate
almost $1 trillion1 of
incremental annual gross written premium in 2033 compared with
2022. We are a well-established brand name2,
having operated for 175 years globally and 100 years in Asia. We
have top-3 positions in 12 of our 14 Asian life
markets3 and
4 of our 8 African markets. Overall, 18 million4 customers
have had the confidence to choose Prudential. We are the only large
Asian focused insurer to have scale in both agency and
bancassurance, as well as in-house investment capabilities with
Eastspring managing over $220 billion of
assets.
In February 2023 Anil Wadhwani joined as Group CEO. In his first
six months he undertook a thorough strategic and operational review
of the Group, meeting our customers, people, distributors,
partners, regulators, investors and other capital providers.
Following these discussions, Prudential is setting out, alongside
the 2023 Interim Results, our revised purpose and strategy for the
Group, reflecting strategic, operational and capital allocation
priorities for the next five years to 2027.
Throughout Prudential's 175 years in operation, we have a long
history of evolving to meet the ever-changing needs of the markets
in which we operate and the customers we serve. Today we are
announcing that we will do things differently in the way we run
Prudential based on clear strategic, operational and capital
allocation priorities.
Our Purpose
Our purpose is our platform to say who we are, what we do and where
we are going as an organisation. We have revised it to make it
clearer and differentiate Prudential from others in the market. It
defines 'why' we are in this business and what it is we try to
achieve as custodians of stakeholder value for the long
term.
Our new purpose is: For Every Life, For Every
Future.
Our mission is to be the most trusted partner and protector for
this generation and generations to come by providing simple and
accessible financial and health solutions.
"For Every Life" speaks
to our ambition to meet the huge under-served needs of potentially
four billion people5 across
our markets in Asia and Africa. With the collective wisdom of our
talented people, we will partner with customers to improve their
health and financial understanding so that they can build the life
they want.
"For Every Future" speaks
to our ambition to add value to the wider community, for a more
sustainable and inclusive future. We are here to protect this
generation, just as we have previous generations, and those we are
yet to meet.
Our Strategy
Our strategy sets out how we will deliver on our purpose over the
next five years to 2027.
We believe consistent delivery of our strategy will create value
for all our stakeholders: employees, customers, shareholders and
the communities in which we operate. Our
strategy will be implemented to build a sustainable growth
platform, through targeted investment in structural growth markets
across Asia and Africa.
The implementation of our strategy will prioritise:
●
Enhancing
customer experiences to drive higher acquisition and loyalty for
lifetime value creation.
●
Technology-powered
distribution with a focus on agency and bancassurance productivity
and activation.
●
Unlocking
the health opportunity by disciplined implementation of best
practices across all our markets.
●
More
consistent execution across each of our markets, driven through
changes in our organisational model and technology
platform.
●
Prioritising
value creation, focusing on the generation of free surplus that can
be used to invest in new business at attractive returns, core
capabilities and strategic opportunities as well as return capital
to shareholders via dividends.
Our strategy comprises the following components:
a)
Organisational model. A
change in our organisational model will be key to the delivery of
our strategy. Today we have 24 life insurance and asset management
local market operations that are largely fragmented with different
processes on key customer journeys, different standards for
measuring distribution performance and inconsistent execution of
our brand. We will implement changes to this model that we believe
will help support the drive for quality sales and improve the
economic value we can generate from our
business.
b)
Multi-market growth engines. The
strength of our capital gives us the opportunity to invest in the
multiple growth engines across Greater China, our markets within
the Association of Southeast Asian Nations (ASEAN), India and
Africa. Our approach to these markets is further discussed
below.
c)
Strategic pillars. Three
initiatives that will drive our growth:
1.
Enhancing customer experiences;
2.
Technology-powered distribution; and
3.
Transforming our health business model.
d) Group-wide enablers:
1.
Open-architecture technology platform
2.
Engaged people and high-performance culture; and
3.
Wealth and investments capabilities.
e)
Financial value creation. Our
financial model means we are a natural growth compounder, with new
business growing our embedded value that converts into free surplus
available for reinvestment and distribution. We believe our
strategy will accelerate value creation for our stakeholders
through operational & financial discipline.
a) Organisational model
We have an opportunity to drive more operating leverage by
replicating best practice at pace and scale across all our markets.
This organisational model will be designed using the following key
principles:
●
Designed
to have the customer at the heart of what we do;
●
Continued
empowerment of local market CEOs and leaders of the businesses to
deliver customer solutions and focus on what matters most in each
market;
●
The
establishment of centres of excellence and shared services across
many of the functional groups - for example health, technology and
data analytics - to deliver economies of skill and
scale;
●
Collaboration
between the local markets and the centre with roles and
responsibilities clearly defined; and
●
Setting
values that will help define the ways of working. The 'how'
alongside the 'what' will therefore be an important part of our
Group reward mechanism.
To deliver on our strategy, we will need to build capabilities,
particularly across our three strategic pillars of customer,
distribution and health, with technology and data being common to
all three.
We believe these changes in our organisational model will help us
drive greater consistency of experience, as well as economies of
scale, providing value for both our customers and our
shareholders.
b) Multi-market growth engines
A key differentiator for our business is the breadth of our access
to the world's fastest-growing markets. Our markets are expected to
more than double in size creating an almost $1 trillion growth
opportunity1.
Growing twice as fast as the rest of the world6,
the rapidly rising middle-class population in Asia is expected to
increase the awareness of, and demand for, protection and wealth
management solutions.
Asia still has low levels of life insurance penetration relative to
more mature markets like the UK7,
demonstrating our runway for growth. State provision of pensions
and social security is limited, leading to vast health, protection
and mortality gaps. In Asia, penetration is in the low single
digits7 with
protection out of pocket spend four times larger than the
US8,
creating a large and growing unmet need.
Our strategic planning has taken into account how growth will be
delivered across the following four regions within our geographical
footprint:
o
Throughout
this geography we seek to sustain quality growth.
o
In the Chinese Mainland, we have an established
partner, CITIC, which gives us access to over 80 per cent of GDP
and licenses to operate in 100 cities. We are one of the top three
international players9 there
with a distinctive multi-channel platform. We have an opportunity
to make our agency channel larger and more productive,
complementing our multiple bancassurance
partnerships.
o
In Hong Kong, we have revitalised our business,
not only through the traction seen in the Chinese Mainland visitor
segment but also by ensuring we continue to grow our domestic
business. With our recently opened Macau branch, we are present in
all 11 cities in the Greater Bay Area10 that
has an extended population of over 85 million
people11.
o
In Taiwan we are the number one foreign
player12 having
developed a sustainable bancassurance channel with good
margins.
o
ASEAN includes a diversified range of markets.
Collectively, these markets have a combined population of more than
600 million people13 which
can provide a crucial counterbalance that ensures we are not
over-dependent on one single geography.
o
We have the largest multi-channel distribution
franchise in this region with more than 40,000 active
agents24,
or 60 per cent of the Group's total active agents. We have
established bank partners including Standard Chartered, UOB and
VIB.
o
We have a prominent brand and reputation across
the region, and are among the leading franchises across
Singapore14,
Malaysia15 and
Indonesia16 (including
the number one position in Sharia across both
Malaysia15 and
Indonesia16)
plus top 2 positions in the fast-developing markets of the
Philippines17,
Vietnam18,
Cambodia19 and
Laos20.
o
In
Thailand, we continue to grow through our bancassurance
business.
o
Our
strategy will seek to leverage this leading platform across these
markets.
o
In India we will seek to grow our franchises,
which will be important to our scale in Asia. With over 1.4 billion
people and where the share of health expenses paid out-of-pocket
are as high as 50 per cent22,
India is a compelling opportunity. We are exploring options to
address the health opportunity in India.
o
We
have a successful partner in ICICI Bank and continue to work
closely with them on both life and asset management.
o
Though
making a relatively small contribution to our overall new business
profit today, Africa's high growth rates present a longer-term
opportunity.
o
We
are focusing on the highest value markets where we have the
strongest competitive advantage.
c) Strategic pillars
1. Enhancing customer
experiences
In order to succeed in its broader new business profit objective,
Prudential is committed to evolving from being organised around
products and channels to become the most trusted partner to our
customers.
The priorities are:
●
Acquisition
by personalised targeting: We will focus our data and technology
resources to drive up the quality of leads from social media and
our ecosystem of partners so that agents can more easily identify
opportunities for engagement;
●
Segmentation
by life stage: To develop impactful propositions for our customers
we will build an understanding of what our customers need based on
life stages;
●
Differentiated
propositions: To meet customer demand for comprehensive solutions
we will develop comprehensive solutions integrating products with
health, well-being and wealth services as a one stop proposition
for our target segments; and
●
Simple
tech-enabled journeys: To build competitive advantage in acquiring
and retaining customers over their lifetimes, we will seek to
curate a seamless end-to-end journey via a unified, scalable
technology platform. With PruServices, we are increasingly able to
offer self-service for simple enquiries, service and claims
anytime, anywhere.
Our customer-centric strategy aims to deliver top quartile
relationship net promotor scores by 2027 which will support greater
retention and acquisition of customers. With a retention ratio
already close to 90 per cent23,
we will focus on expanding our share of wallet with existing
customers over their lifetime.
2. Technology-powered
distribution
As a leading Asia focused insurer with scale in both agency and
bancassurance channels, we are very well-placed for customer
access. These channels will be complemented by our new digital
customer interactions and continuous training and development of
our agency force and bancassurance partners.
Agency
Prudential has one of the leading agency forces in Asia, with a
total of over 70,000 active agents24 and
7,000 agents qualifying for Million Dollar Round Table (MDRT)
status38.
Our businesses in the Chinese Mainland, Hong Kong, Malaysia,
Philippines, Singapore, Thailand and Vietnam in particular show
higher active agent rates than the average across the Group. The
future success of our agency channel will be driven by continuous
improvements in productivity and the number of active agents. To
drive this, the following five priorities to boost productivity for
agency have been identified:
●
Upskilling
the agency force: Conversion of part-time into full-time career
agents;
●
Refocusing
agents from being solely focused on sales to being a trusted
adviser;
●
Quality
recruitment: We will focus our recruitment approach into one
centred on tailored and strategic talent sourcing;
●
Training
and development: That seeks to ensure we are developing the next
generation of highly productive agents; and
●
Enhancing
customer servicing and embedding technology: We will embed digital
tools that allow agents to spend more productive time with their
customers.
These changes will support our ambition to increase agency new
business profit by 2.5 to 3 times by 2027 through significantly
increasing the number of active monthly agents and more than
doubling new business profit per agent.
Bancassurance
Bancassurance provides us with significant scale and is an
important source of new business. It allows us access to large
numbers of customers in multiple locations using third party
infrastructure. Prudential currently has more than 200 bank
partners of which 10 are strategic. We have succeeded in improving
bancassurance margins over time and believe there remains
significant growth runway to increase the penetration of insurance
products into this customer base.
For us to drive a successful bank partnership model, it is
essential for us to:
●
Broaden
our proposition to multiple customer segments;
●
Engage
with our customers when and how they want with hybrid, omni-channel
platforms;
●
Utilise
effective, targeted marketing supported by data
analytics;
●
Reward
our bank partners for outcomes that deliver for the customer and
create value; and
●
Establish
an operating cadence with our bank partners that ensures we deliver
all of the above.
Implementing these changes will help drive our ambition by 2027 to
increase new business profit from bancassurance by 1.5 to 2 times.
This will be driven by increasing the penetration of our two major
strategic partners from circa 8 per cent in 2022 to circa 9-11 per
cent by 2027 and by supporting our margin by increasing the
contribution of health and protection products.
3. Transforming our health
business model
There is a major health insurance opportunity in Asia. Across Asia,
individuals are reliant on private healthcare providers and have
high out of pocket spend of around 40 per cent7.
For many years Prudential has had substantial health and protection
businesses in Malaysia, Indonesia, Hong Kong and Singapore. In
2022, the Group generated over $2 billion in gross earned premiums
from health insurance.
There are substantial opportunities to grow the Group's footprint
across other markets and we believe we can build value in extending
beyond reimbursement. We want to become a trusted partner to our
customers, playing a much-needed coordinating role across their
healthcare journeys.
This ambition will require:
●
Upgraded
core health insurance capabilities. We will equip our distribution
force with the knowledge and tools to offer more advanced products
and value-added services. We will drive technical and operational
efficiency through data-led risk-based pricing and
straight-through-processing in underwriting and claims. Claims will
be further managed by partnering with panels of preferred medical
providers and using Artificial Intelligence (AI) and data analytics
to detect and reduce fraud; and
●
Expanding
our role from payer to partner by connecting health care journeys,
such as disease prevention, diagnosis, rehabilitation or chronic
illness management. Our strategy is an asset-light approach
focusing on digital integration with preferred partners along the
health care continuum.
Delivering this efficiently across our markets will require
enhanced capabilities with best practice replicated across all our
markets.
We believe these actions will support our ambition for our health
insurance Net Promotor Score to be top quartile by 2027, driving
retention of existing customers and attracting new ones, and for
our health new business profit to more than double from 2022 to
2027.
d) Group wide enablers
To support the execution of our strategy we will have three
groupwide enablers. We believe this will both support our ambition
for growth and management of our in-force business.
1. Open-architecture technology
platform
A strong technology platform is important for all three strategic
pillars in delivering superior customer and distribution
experiences. It is more significant today given the pace of change
with developments in AI. Pulse
will remain our customer engagement application, but we will
transform the underlying technology platform using the following
design principles.
●
Open-architecture
design that ensures we can quickly adopt new market innovations and
engage with partners' ecosystems in a seamless manner;
●
A
data platform to which we can apply generative AI and data
analytics to create actions and insights;
●
Refreshed
operating model where there is greater collaboration between the
central technology team and local markets; and
●
Appropriate
governance and protections for our customer data and business
integrity.
2. Engaged people and high-performance
culture
An engaged workforce is critical to deliver our
strategy.
We aim to create an environment that allows our people to thrive,
recognised through a top-quartile employee net promoter score for
our people. We will focus on the following principles to create
this:
●
Upgraded
talent capabilities, particularly within the areas of customer,
distribution, health and technology;
●
Development
of a robust internal talent pipeline, facilitate mobility and
acquire capabilities in the market where they do not exist
internally; and
●
Values-based
leadership and aligned reward structured to help build a culture
that is customer-led and performance-driven.
3. Wealth and investments
capabilities
Asia's household wealth stood at over $150 trillion in
202125,
broadly in line with North America and considerably more than
Europe. By 2030 Asia and Africa will represent three-quarters of
the global working age population. We believe there is scope for
increasing participation in wealth management propositions across
our markets, including differentiated propositions for affluent
customers. Our wealth capabilities are currently focused in
Singapore and Hong Kong, while our investment capabilities in
Eastspring span 11 markets and manage over $220 billion of
assets.
We believe that we can further leverage our internal proprietary
capabilities by focusing on the following priorities:
●
Providing
distribution support to our top agents with a more holistic suite
of tools to identify the needs of our affluent
customers;
●
Customising
investment solutions at a much faster speed-to-market than is
possible using a third party; and
●
Improving
consistency of investment performance through high-performance
investment teams.
As an asset manager, it is our ambition to deliver outperformance
relative to benchmarks. As a responsible asset owner we are
supporting a just and inclusive transition to net-zero and we are
targeting a 55 per cent reduction in our weighted average carbon
intensity (WACI) by 203026.
e) Financial value creation
Delivery of our new strategy will accelerate value creation through
operational and financial discipline, underpinned by improving
customer, agency and bank partner propositions, as well as
capturing economies of scale through our organisational model and
technology platform.
We are able to invest capital to write new business that generates
three times the amount invested, at internal rates of return above
25 per cent with less than four-year payback periods. Over the last
10 years, new business contributed $27 billion of growth to our
embedded value, and EEV related to our life and asset management
business almost tripled.
Our ability to invest at attractive returns will drive our capital
allocation priorities which are as follows:
●
We
will continue to target resilient capital buffers such that the
Group shareholder coverage ratio is above 150 per cent of the
shareholder Group prescribed capital requirements to ensure the
Group can withstand volatility in markets and operational
experience;
●
Otherwise,
our priority for allocating capital will be re-investing in new
business. Our resilient capital position allows us to prioritise
investment in new business with an aim to write quality new
business while managing the initial capital strain and capturing
the economic value at attractive returns.
●
Our
next priority is investing around $1 billion in core capabilities,
primarily in the areas of Customer, Distribution, Health and
Technology;
●
Our
dividend policy remains linked to net operating free surplus
generation which is calculated after investment in new business and
capability investment;
●
We
will invest in inorganic opportunities where there is good
strategic fit; and
●
All
investment decisions will be made against the alternative of
returning surplus capital to shareholders but given the abundance
of organic and inorganic opportunities ahead of us, we are
confident that in the near-term we will be reinvesting capital at
attractive returns.
To generate capital to allocate to these priorities we will also
prioritise managing our in-force embedded value to ensure maximum
conversion into free surplus over time. Over the next five years,
based on the economic and other assumptions and methodology that
underpinned our EEV reporting at the end of 2022, we expect to
transfer over $11 billion from VIF and required capital to
operating free surplus generated from our in-force insurance
business at the end of 2022. This is before allowing for the
incremental effect of new business and any return on the underlying
assets backing that surplus. We will drive improved emergence of
free surplus by managing claims, expense and persistency in each
market. As set out above, this additional free surplus will enable
our continued investment in profitable new business at attractive
returns, as well as in our strategic capabilities, and support
payments of dividends.
To support our ambition for growth, we have the following
overarching objectives:
●
Over the next five years to 2027 we will look to
grow new business profits27 across
all our markets more consistently, with an objective of 15-20 per
cent compound annual growth from the level of new business profits
achieved in 2022*.
●
Also over the next five years to 2027, we will aim
for double-digit compound annual growth in Operating free surplus
generated from in-force insurance and asset management
business34,
from the level achieved in 2022*.
Objectives Summary*
New business profit
|
Full Year 2022
|
Objective 2027
|
Amount
|
$2.2 billion
|
$4.4 - $5.4 billion
|
change % (compound annual rate)
|
|
15-20%
|
|
|
|
Operating free surplus generated from
in-force insurance and asset management business34
|
Full Year 2022
|
Objective 2027
|
Amount
|
$2.8 billion
|
>$4.4 billion
|
change % (compound annual rate)
|
|
Double digit
|
*The objectives assume exchange rates at December 2022 and economic
assumptions made by Prudential in calculating the EEV basis
supplementary information for the year ended 31 December 2022, and
are based on regulatory and solvency regimes applicable across the
Group at the time the objectives were set. The objectives assume
that the existing EEV and Free Surplus methodology at December 2022
will be applicable over the period.
Financial performance for the first half of 2023
New business profit27 from
the Group increased 39 per cent28,
with 16 of our life markets21 delivering
double digit growth28,
led by Hong Kong. This reflects increased APE
sales29 (up
42 per cent28 to
$3,027 million) partially off-set by interest rate and other
economic movements reflected under the active basis of our EEV
methodology. Excluding these effects new business profit was up 52
per cent28.
Our agency channel generated new business profit of $1,002 million
up 74 per cent28 (2022:
$575 million28),
reflecting an increase in APE sales of 96 per
cent28 to
$1,507 million (2022: $768 million28)
as sales recovered following the border reopening between Hong Kong
and the Chinese Mainland. Reflecting this, our agency channel
contributed 67 per cent of the Group's new business profit (2022:
54 per cent) and 50 per cent of the Group's APE sales (2022: 36 per
cent). Excluding the effects of interest rate and other economic
movements reflected under the active basis of our EEV methodology,
new business profit from agency business was up 89 per
cent28.
New business profit from our bancassurance channel declined to $401
million (2022: $449 million28),
as a result of lower APE sales of $1,098 million (2022: $1,125
million28),
and adverse economic impacts in many markets along with proactive
actions taken by our business in the Chinese Mainland, CITIC
Prudential Life (CPL). These actions sought to diversify sales in
order to achieve both a more balanced product mix and improved
margins. Excluding the effects of interest rate and other economic
movements, the bancassurance new business margin was broadly
consistent with the prior year, with the positive product mix
effects in CPL being offset by product mix in Singapore as the
market reacted to increased interest rates.
Eastspring's funds under management and advice increased by 3 per
cent30 to
$227.7 billion at 30 June 2023, from $221.4 billion at 31 December
2022, reflecting inflows from both external
clients35 and
our life business as well as positive market
movements.
From 1 January 2023, the Group has adopted the revised
international accounting standard for insurance business, IFRS 17.
Group adjusted IFRS operating profit based on longer-term
investment returns (adjusted operating profit) for the first half
of 2023 was $1,462 million, 6 per cent28 higher
than the first half of 2022 calculated on the new IFRS 17 basis.
This reflects a 14 per cent28 increase
from our asset management business and a decline in central
expenses of 11 per cent28,
reflecting both lower interest costs and corporate expenses. IFRS
profit after tax for the first half of 2023 was $947 million (2022:
loss of $(1,511) million33 on
a constant exchange rate basis, loss of $(1,505)
million33 on
an actual exchange rate basis) with markets movements more muted
than in the prior year.
Additional commentary on the performance in the first half of 2023
is included in the operational performance by market section and
the financial review below.
Outlook
We believe a new strategy focused on operational and financial
discipline provides an opportunity to accelerate value creation for
all our stakeholders and to build a sustainable growth platform,
through targeted investment in structural growth markets across
Asia and Africa.
We will deliver this through:
●
Enhancing
customer experiences to drive growth and lifetime
value;
●
Upgrading
the technology of our distribution forces with a focus on improving
productivity and activation rates;
●
Seeking
to unlock the opportunity in health by disciplined implementation
of best practices at scale across all our markets; and
●
Driving
more consistent performance across each of our
markets.
Consumers in Asia remain resilient despite the challenging
environment. While the outlook for Asian markets is mixed, our
momentum in the first half has continued into the third quarter.
This underscores the strength of our multi-market growth engine
backed by our diversified channel mix, which is key to driving
sustainable value in the long term. Prudential is focused on
delivering this for all our stakeholders: employees, customers,
shareholders and the communities in which we operate.
New business performance by market
The following commentary provides an update on the new business
performance for each of the Group's segments. Discussion of the
financial performance of the Group and its segments, including
adjusted operating profit, is contained separately in the Financial
review section of this report.
Chinese Mainland - CITIC Prudential Life (CPL)
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
APE sales ($m)
|
394
|
507
|
(22)%
|
|
474
|
(17)%
|
New business profit ($m)
|
171
|
217
|
(21)%
|
|
203
|
(16)%
|
New business margin (%)
|
43
|
43
|
-
|
|
43
|
-
|
Amounts included in the table above represent the Group's 50 per
cent share.
Prudential's life business in the Chinese Mainland, CPL, is a 50/50
joint venture with CITIC, a leading Chinese state-owned
conglomerate. CPL
was our second largest contributor to the Group's APE sales in the
first half of 2023 which were delivered through a balanced mix of
agency and bancassurance sales. CPL saw APE
sales29 decrease
by (17) per
cent28 to
$394 million
largely driven by lower volumes sold through the bancassurance
channel partly offset by double digit APE sales growth in the
agency channel and higher overall health and protection APE sales
compared with the same period in 2022.
The new business profit27 for
CPL declined (16) per
cent28 in
the first half of 2023, compared with the same period in 2022. This
was driven by lower sales volumes and adverse economics. Excluding
the effects of interest rate and other economic movements new
business margin improved by seven percentage points, compared with
remaining flat after the effects of economics.
Delivering customer-led solutions
During the first half of 2023, CPL continued to develop customised
products addressing customers' needs at different life stages.
Whole life protection products were specifically developed to meet
the needs of customers and sales doubled versus last year. CPL have
expanded the retirement and planning concierge village network to
cover 22 institutions in seven cities.
Multi-channel distribution
CPL continues to focus on building a professional, high-quality
agency force, with a strong understanding of our health, protection
and retirement planning products. Following the removal of Covid-19
restrictions, APE sales through the agency channel grew 25 per
cent28 compared
with the same period in 2022. A significant improvement in agent
productivity was achieved with the APE sales per active
agent24 increased
by more than 50 per cent28.
CPL had over 800 agents with production levels that qualify for the
Million Dollar Round Table (MDRT) in the first half of
2023.
CPL's bancassurance APE sales were impacted by our proactive
actions to diversify in order to achieve both a more balanced
product mix and improved margins. While we saw an increasing level
of demand from the market for high interest-rate guarantee
products, CPL has chosen to rebalance its sales between whole-life
products and higher margin annuity and longer-premium payment term
products. This rebalancing is expected to contribute to both
increased new business margin and better alignment with the
retirement regime promoted by the national agenda. CPL further
continues to build its bancassurance distribution network, adding
six new bancassurance partners over the past 12 months, and the
number of bank branches increasing by more than 7 per cent to over
6,600 branches across the Chinese Mainland.
Hong Kong
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
APE sales ($m)
|
1,027
|
227
|
352%
|
|
227
|
352%
|
New business profit ($m)
|
670
|
211
|
218%
|
|
211
|
218%
|
New business margin (%)
|
65
|
93
|
(28)ppts
|
|
93
|
(28)ppts
|
Our business in Hong Kong increased APE sales29 more
than four times28 to
$1,027 million in the first half of 2023, with growth across all
distribution channels, following the re-opening of the border with
the Chinese Mainland and subsequent increase in cross-border
traffic. We also saw strong growth of 68 per
cent28 in
our domestic segment supported by new product launches and customer
campaigns. We significantly outperformed the market and increased
our market share, based on latest available market
information31.
As a result, we ranked number one in the offshore business and
number one in the agency channel31.
New customer acquisitions accounted for some 54 per cent of APE
sales in the period36.
This performance is indicative of the continued demand and value of
Hong Kong life products for Chinese Mainland customers, providing
them access to international investment opportunities with
diversification in terms of currency and asset class, and access to
sophisticated healthcare products. Our strong multi-channel
distribution capabilities have meant that we are well-positioned to
capture the full breadth of customer demand following the
re-opening of the border between Hong Kong and the Chinese
Mainland.
New business profit27 more
than tripled28 to
$670 million, largely driven by the increase in APE sales and a
favourable shift in channel mix given the strong growth in agency.
This was partly offset by a shift in product mix with a higher
proportion of savings products from the Mainland Chinese business
and the impact of higher interest rates under the active basis we
adopt for our EEV methodology. Excluding the effects of interest
rate and other economic movements new business margin would have
been 10 percentage points higher.
Delivering customer-led solutions
Our business continues to develop its health and protection
business. In the first half of 2023, we launched a new
comprehensive multiple critical illness product which addresses
customers family protection needs at different life stages. Our
multi-currency savings product launched in 2022 has attracted
strong demand from both the domestic and Chinese Mainland customers
in the first half of 2023. Customer segmentation has increased our
ability to identify and address specific customer needs, including
across the family segment, the golden-age segment - with
peace-of-mind retirement solutions - and the young adult segment.
Cutting across these segments we also enhanced our wealth solutions
for high-net-worth customers by prioritising service, flexibility
and liquidity and saw these customers generating around 70 per cent
of Hong Kong's new business profit. We recently opened our Macau
branch, further strengthening our footprint in the Greater Bay
Area, a region with a population of over 85
million11.
Multi-channel distribution
Our agency APE sales increased by more than six
times28 in
the first half of 2023 from the low levels seen in 2022,
contributing more than 72 per cent of APE sales in the first half
of 2023. APE sales to both Chinese Mainland and domestic customers
grew substantially in the period. Agency APE sales for domestic
customers more than doubled in the first half of 2023 while
business levels for customers from the Chinese mainland recovered
to pre-Covid-19 levels during the second quarter. We recruited
nearly 1,200 agents in the first half of 2023 and are on track to
recruit 4,000 agents by end of 2023. Our active
agents24 increased
by 75 per cent with an improvement in agent productivity (measured
by APE per active agent) by 2.8 times. We are the leader in the
agency channel with a 33 per cent market share based on the latest
available market statistics at the end of the first
quarter.
We are a leading major insurer in the bancassurance channel,
excluding bank owned operations, and achieved a substantial growth
in both APE sales and new business profit through the bancassurance
channel during the first half of 2023, underpinned by initiatives
to deepen customer penetration. Our broker channel also delivered
significant growth in APE sales following the reactivation of our
broker network and return of Chinese Mainland
business.
Indonesia
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
APE sales ($m)
|
150
|
110
|
36%
|
|
106
|
42%
|
New business profit ($m)
|
61
|
52
|
17%
|
|
50
|
22%
|
New business margin (%)
|
41
|
47
|
(6)ppt
|
|
47
|
(6)ppts
|
APE sales29 for
our business in Indonesia grew by 42 per
cent28 to
$150 million in the first half of 2023, supported by
double-digit28 growth
across both agency and bancassurance channels. Product innovations
helped deliver growth, with APE sales for health and protection
business increasing by 44 per cent28,
and growth in unit-linked APE sales of 37 per
cent28.
Growth in health and protection APE sales were assisted by
repricing actions and medical riders upgrades.
Overall new business profit27 grew
by 22 per cent28 to
$61 million, supported by strong growth in APE sales, offset in
part by the impact of the medical rider upgrades which resulted in
lower margins.
Delivering customer-led solutions
Our customer-first approach in designing and delivering solutions
contributed to double-digit28 growth
in APE sales for our unit-linked product compared with a decline in
the market for this product segment. We have revamped our
unit-linked product propositions with enhanced benefits along with
an upgrade to our sales and operational processes in response to
new regulations governing the design, sale, and management of
unit-linked products (commonly known as PAYDI in the market).
Further, we upgraded our flagship medical reimbursement riders with
increased limits and enhanced benefits including the introduction
of telehealth benefits and traditional medicine treatments which
were well received by our customers.
Multi-channel distribution
As part of our transformation programme initiated in 2022, we
accelerated agency channel growth by revamping our sales management
model, upgrading our training programme, and redesigning our
compensation scheme to incentivise quality sales and productivity
growth. These initiatives contributed to a 51 per
cent28 increase
in agency APE sales alongside a significant improvement in agency
productivity.
In the bancassurance channel, we delivered APE sales growth of 15
per cent28 in
the first half of 2023. Sales momentum was particularly pronounced
in higher income customer tiers. New business profit from the
bancassurance channel increased by 14 per cent28,
reflecting greater APE sales volume including from Privilege
Banking customers. Over the longer term we see significant
opportunities for growth in all customer segments given low
insurance penetration in the broader market, our existing
partnerships and the added potential for new
partnerships.
Malaysia
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
APE sales ($m)
|
185
|
172
|
8%
|
|
165
|
12%
|
New business profit ($m)
|
73
|
70
|
4%
|
|
66
|
11%
|
New business margin (%)
|
39
|
41
|
(2)ppts
|
|
40
|
(1)ppts
|
Overall APE sales29 increased
by 12 per
cent28 to
$185 million in the first half of 2023, as sales momentum in our
life businesses improved during the period.
New business profit27 increased
by 11 per cent28,
supported by the growth in APE sales and a favourable product mix,
with a slight margin dilution reflecting a greater proportion of
sales coming from bancassurance.
Delivering customer-led solutions
We continue to develop new and innovative products to address the
evolving needs of our customers. For instance, we strengthened our
health and protection offerings within the Takaful segment, by
introducing a medical solution (PruBSN Damai) that provides
coverages for mental illnesses, preventative care, and treatments
based on advance medical technologies. We also enhanced our
unit-linked offerings by launching a Syariah compliant socially
responsible fund (Takafulink Dana ESG Global).
For our mature affluent customers looking for a strong savings
proposition to either maximise potential returns or offer
diversification through a diverse range of local and global funds,
we launched an investment-linked savings product (PruElite Plus).
For our young family segment, we launched a pre-natal care plan
(PruMY Child Plus) for parents who are seeking protection for both
mother and infant at one of most important life stages for the
family. The product's innovative features include early protection
for pregnancy from 13 weeks onwards, coverage for pregnancy
complications, all structural congenital conditions (first in the
market), emergency c-section for early delivery (first in the
market) and child development disorders.
We also launched a new marketplace with more than 1,000 healthcare
services from our notable healthcare service providers in over 200
locations nationwide, from medical check-up, diagnostic test,
vaccination, and even subscription program to improve customer
health and promote healthy habits.
Multi-channel distribution
We continued to drive sustainable growth of our agency through
quality recruits, new agent activations, intensive training,
leadership development and digital enhancement. We have a
structured program of support and training for agents and leaders
at each stage of their careers. We also focus on training our
agents to provide quality advice to our customers. Following these
initiatives, our agency channel has delivered
double-digit28 new
business profit growth in the first half of 2023 compared to the
same period last year, despite a marginal decrease in APE
sales.
Our bancassurance channel delivered strong growth in the first half
of 2023 as we continued to collaborate with our bank partners,
including Standard Chartered, UOB and BSN, to strengthen our
distribution platforms and offer product solutions to each bank
partner's customer segments. Product launches for bancassurance
included a hassle-free protection solution for Citibank customers
covering 15 types of infectious diseases and new credit shield
solution that enabled a successful transition of more than 90,000
credit card customers. We are well positioned to capture the
opportunities from the merger of UOB and Citibank's consumer
business in Malaysia, which has provided potential access to an
incremental 600,000 customers.
Singapore
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
APE sales ($m)
|
386
|
390
|
(1)%
|
|
398
|
(3)%
|
New business profit ($m)
|
198
|
244
|
(19)%
|
|
249
|
(20)%
|
New business margin (%)
|
51
|
63
|
(12)ppts
|
|
63
|
(12)ppts
|
Overall APE sales29 for
our business in Singapore declined by (3) per
cent28 to
$386 million, with higher interest rates providing a challenging
operating environment especially in the first part of the period.
Sales of single premium participating products through the
bancassurance channel were particularly affected by movements in
interest rates in the period, compared with an elevated level of
sales in the comparative period. APE sales from health and
protection products grew by 11 per cent28 in
the first half of 2023 compared with the first half of
2022.
New business profit27 declined
by (20) per cent28 to
$198 million, reflecting the lower mix of higher margin single
premium participating products, alongside lower APE sales and
adverse economics. We saw an improvement in product mix in the
second quarter as compared with the first, with a higher proportion
of individual health and protection business. This had a beneficial
impact on margins in the second quarter, a trend which continued
into July.
Delivering customer-led solutions
In 2023, we continue to drive our segment-led customer strategy in
each of the high-net-worth, affluent, mass-market and enterprise
segments. We enhanced our product offerings in the first half of
2023 to meet the health and wealth needs of our customers. We
rolled out a suite of product offerings and professional advice
through our network of financial consultants, financial advisers
and our bank partners.
Within the affluent segment, we relaunched our flagship wealth
accumulation products taking into account the voice of customers
and improving its overall competitiveness. For younger mass market
segments, we are offering affordable plans that guarantees stable
income should customers be affected by disability. Our enterprise
benefit business also delivered good growth with APE sales
increasing by 17 per cent28,
covering around 3,000 small-to-medium enterprises and over 200,000
employees.
We continue to improve our customer experience, leveraging digital
and technology in our day-to-day operations. Over 75 per cent of
policies went through instant underwriting engines, which improve
productivity and turnaround time. We have eGIRO in place with all
banks; this allows customers to set up direct debit to pay their
premiums within minutes. The quality of our customer service is
reflected by a high customer retention ratio of over 95 per cent
and improvement in net promoter score across purchasing, servicing
and claims touchpoints.
Multi-channel distribution
APE sales for the agency channel increased by 2 per
cent28 in
the first half of 2023 compared with the same period last year.
Sales momentum has accelerated in the period, with APE sales in the
second quarter being 7 per cent28 higher
than the first. Individual health and protection APE sales grew 24
per cent28 in
the second quarter of 2023 compared with the first quarter,
demonstrating our agents' continued focus on medical reimbursement
and critical illness products.
Bancassurance APE sales declined by (10) per
cent28 in
the first half of 2023. Increases in interest rates significantly
reduced single premium participating business, which accounted for
a large proportion of sales in the first half of 2022. We have
re-activated the sales of investment-linked plans, which now make
up over 23 per cent of APE sales for the channel. We further
widened our regular premium investment-linked proposition and
witnessed strong response for our new product offerings, improving
the resilience of the business and providing flexibility to our
customers over the long term.
Demonstrating the benefit of our multi-channel distribution
capabilities and balanced product mix, APE sales from regular
premium product grew by 49 per cent28 and
contributed over 86 per cent of APE sales in the first half of
2023.
We also entered the fast-growing Financial Adviser (FA) channel in
April, with over 100 FAs in place. Prudential Financial Adviser is
the first financial advisory firm in the Group, and its official
start of operations marks an important milestone for our business.
Prudential Financial Adviser will offer a wide range of products
and services including general insurance and wealth solutions, in
addition to Prudential's core solutions.
Growth markets and other
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
APE sales ($m)
|
885
|
807
|
10%
|
|
762
|
16%
|
New business profit ($m)
|
316
|
304
|
4%
|
|
290
|
9%
|
New business margin (%)
|
36
|
38
|
(2)ppt
|
|
38
|
(2)ppt
|
The Growth markets and other segment includes our businesses in
India, Thailand, Vietnam, the Philippines, Taiwan, Cambodia, Laos,
Myanmar, and Africa. Our APE sales29 increased
by 16 per
cent28 to
$885 million in the first half of 2023, with strong double-digit
growth28 in
India, Thailand, the Philippines, Taiwan and Africa offset in part
by decline in the APE sales for Vietnam. New business
profit27 was
up 9 per
cent28 to
$316 million, largely reflecting the increase in APE sales, offset
in part by shift in country mix due to lower sales in
Vietnam.
India
Our business in India, ICICI Prudential Life, is an associate in
which we hold 22 per cent voting rights. ICICI Prudential Life is
listed on the National Stock Exchange (NSE) and the Bombay Stock
Exchange (BSE). APE sales for India grew by 15 per
cent28,
with a well-diversified distribution network enabling the company
to reach a wider cross-section of customers to drive growth. New
business profit grew in the first six months of 2023 compared with
the same period in the prior year, reflecting APE sales growth and
an improvement in new business margin.
ICICI Prudential Life has continued to grow its distribution
channels by recruiting over 17,000 new agents in the first half of
2023. Further, ICICI Prudential Life entered into over 100 new
partnerships during the period, with the total number of
partnerships reaching more than 990 including 39
banks.
ICICI Prudential Life has a comprehensive product suite to address
varied customer needs through different life stages. In the first
half of 2023, ICICI Prudential Life launched an innovative
long-term savings product (ICICI Pru Gold) designed to enable
customers meet their diverse income requirements, and a first of
its kind debt fund in the life insurance market (ICICI Pru Constant
Maturity Fund) in view of the prevailing interest rates
trend.
Thailand
In Thailand, our APE sales grew by 20 per
cent28 in
the first half of 2023, reflecting double-digit28 growth
in bancassurance through our partnerships with TTB and UOB, and a
substantial increase in the contribution from employee benefit (EB)
solutions. We continue to be one of the top three life insurance
companies operating in the bancassurance channel37.
New business profit increased driven by higher APE sales, while the
new business margin declined due to lower interest rates in
Thailand and growth in lower-margin EB
business.
The integration of Citibank's operations with UOB supported a 14
per cent28 increase
in APE sales for the bancassurance channel in the first half of
2023. Our EB solutions also experienced significant growth, adding
over 75,000 new lives assured over the period.
We continue to refresh our customer propositions to address the
evolving health, wealth and protection needs of the Thai
population. Our innovative new health propositions, including
family cover, have been well received by customers. An ongoing
focus on excellent customer experience through digital
transformation of our on boarding, servicing and claims processes
has lifted our already market-leading net promoter score
higher.
Vietnam
The overall life insurance sector was significantly impacted by a
fall in consumer confidence and this resulted in the industry
reporting a (31) per cent sales decline in the first half of 2023.
However, our business in Vietnam outperformed the market with
a (18) per
cent28 decline
in APE sales in the first half of 2023. The decline in APE sales
from the bancassurance channel was partially offset by strong
growth in our agency business with an improvement in agent
productivity. Agents that are qualifying for the MDRT have more
than tripled in the first half of 2023. New business profit
declined, reflecting lower APE sales, offset in part by an
improvement in new business margin from a more favourable channel
mix and economic conditions.
In Vietnam, around 83 per cent of our new business policies are
processed by smart underwriting engines, providing our customers a
quick and seamless onboarding journey, while three out of four
claims were processed with the assistance of automated solutions to
reduce waiting time.
We extended our exclusive bancassurance partnership with Vietnam
International Bank until 2036, developing new industry-leading
quality standards and contributing to the healthy and sustainable
development of bancassurance in Vietnam.
The Philippines
In the Philippines, overall APE sales grew by 13 per
cent28 in
the first half of 2023, driven by growth in our agency channel. We
continue to grow our agency channel in the Philippines with a 32
per cent growth in new recruits in the first half of 2023. New
business profit increased, largely reflecting growth in APE
sales.
Taiwan
In Taiwan, APE sales grew 28 per
cent28 in
the first half of 2023, reflecting growth across both bancassurance
and broker channels. We have outperformed the market which reported
a contraction of (1.3) per cent in the first half of 2023. New
business profit increased, supported by an increase in APE sales,
offset in part by a lower proportion of health and protection
sales.
An innovative comprehensive participating product, with protection
benefits or long-term care benefits was introduced to meet
diversified needs of customers, especially the young working
population. In addition to a whole suite of customer-centric
products, we also launched a new value-added service covering
eye-care and medical transportation service for elderly
customers.
Africa
Despite higher inflation leading to macro-economic uncertainties,
APE sales for Africa grew by 31 per cent28 in
the first half of 2023, reflecting a strong performance across all
distribution channels with all eight markets achieving
double-digit28 growth
in APE sales5.
In Africa, Prudential has an established agency force and saw an 18
per cent increase in the number of active agents since the
equivalent period in the prior year. In addition, Prudential Africa
has access to over 1,000 bank branches, digital, telecommunication
and intermediary partnerships. Our ongoing investment in digital
innovation and robust systems to digitise processes will allow us
to grow at scale and provide seamless experience to better service
our customer needs. Our businesses in Kenya, Zambia, and Nigeria
all launched digital self-service portals to assist in improving
customer service. Improved product mix, alongside the growth in APE
sales, led to an increase in new business
profit.
Eastspring
|
|
Actual exchange rate
|
|
|
Constant exchange rate
|
|
Actual exchange rate
|
|
Half year 2023
|
Half year 2022
|
Change
|
|
Half year 2022
|
Change
|
|
Full year 2022
|
Change
|
Total funds under management or advice ($bn)
|
227.7
|
222.3
|
2%
|
|
222.7
|
2%
|
|
221.4
|
3%
|
Adjusted operating profit ($m)
|
146
|
131
|
11%
|
|
128
|
14%
|
|
260
|
n/a
|
Fee margin based on operating income (bps)
|
31bps
|
28bps
|
3bps
|
|
27bps
|
4bps
|
|
29bps
|
2bps
|
Cost/income ratio (%)
|
53%
|
55%
|
(2)ppts
|
|
56%
|
(3)ppts
|
|
55%
|
(2)ppts
|
IFRS profit after tax ($m)
|
132
|
117
|
13%
|
|
114
|
16%
|
|
234
|
n/a
|
Eastspring has a presence in 11 Asian markets as well as
distribution offices in North America and Europe. We are a top-10
asset manager in six of these markets managing or advising
$227.7 billion
in assets. The firm is well placed to address the saving and
investment needs of customers across the region through a team of
300 investment professionals with local market
expertise.
Eastspring's total funds under management and advice (referred
collectively as funds under management below) increased
by 3 per
cent30 to
$227.7 billion
at 30 June 2023 (31 December 2022: $221.4 billion on an actual
exchange rate basis), reflecting favourable net flows from external
clients (excluding M&G plc) and our life insurance business as
well as positive market movements. The overall asset mix has
remained stable and diversified across both clients and asset
classes.
With favourable market conditions at the start of the year, client
interest and sales momentum were positive. The overall net inflows
from third parties (excluding money market funds and funds managed
on behalf of M&G plc) were $1.9 billion during the first half
of 2023. Further, there was a net inflow of $1.4 billion from our
life insurance business. However, this was more than offset by net
outflows of $(7.1) billion following the redemption of the funds
managed on behalf of M&G plc. A further fund transfer out of
Eastspring by M&G plc of $1.1 billion is anticipated in the
second half of the year.
Leveraging our integrated investment platform and rigorous
investment framework, Eastspring's longer-term investment
performance has improved significantly, with 59 per cent of funds
under management outperforming their benchmarks32 on
a three-year basis (June 2022: 41 percent, December 2022: 39 per
cent). This reflects the strong relative and absolute returns
generated by the suite of strategies managed by in-country teams
and equity strategies managed by our regional team in Singapore. On
a one-year basis 35 per cent of funds under management outperformed
their benchmarks32 (June
2022: 58 percent, December 2022: 59 per cent), with this measure
impacted by the relative performance of some of our larger
multi-asset portfolio solutions. The absolute returns achieved by
our multi-asset portfolio solutions remained positive, and we have
observed improved performance, in both relative and absolute terms,
on a year-to-date basis as new measures to enhance performance in a
sustainable manner take effect.
Notes
1.
Source: Swiss
Re forecast (July 2023).
2.
Source: Kantar
survey.
3.
As reported at
full year 2022 unless specified. Sources include formal (e.g.
competitors results release, local regulators and insurance
association) and informal (industry exchange) market share. Ranking
based on new business (APE sales, weighted full year premium or
full year premium depending on availability of data) or total
weighted revenue premiums, except for Hong Kong based on in-force
premiums. Ranking for FY2020 for Cameroon.
4.
A life
customer is defined as an individual or entity who holds one or
more policies with a Prudential life insurance entity, including
100 per cent of customers of the Group's joint ventures and
associate. Group business is a single customer for the purpose of
this definition.
5.
Source: United
Nations, Department of Economic and Social Affairs, Population
Division , World Population Prospects 2022.
6.
Source:
Brookings Institution: The unprecedented expansion of the global
middle class (2017).
7.
Source: Swiss
Re No 3/2023: World insurance: stirred, and not shaken - Insurance
as percentage of GDP.
8.
World Health
Organisation. Out of pocket as % of Total Health Expenditure. Asia
calculated as the average of the out-of-pocket
percentages.
9.
Ranking among
foreign insurers. Source: CBIRC and company disclosures as at
FY22.
10.
Across Hong
Kong, Macau and the Chinese Mainland
11.
Source: The
Guangdong-Hong Kong-Macao Greater Bay Area Development
Office
12.
Source: Taiwan
Life Insurance Association FY22
13.
Source:
Economist Intelligence Unit 2023
14.
Source: Life
Insurance Association of Singapore (LIA). Q1
2023
15.
Source: Life
Insurance Association of Malaysia for conventional business and
Insurance Services Malaysia (ISM) for Takaful business. Q1
2023
17.
Source:
Philippines Insurance Commission. Q1 23
18.
Source:
Vietnam Actuarial Network data sharing. Q1 23
19.
Source:
Insurance Association of Cambodia (IAC). Q1 23
20.
Gross written
premiums for 2021 (sourced from Axco Insurance
Report)
21.
Of our 14 Asia
life markets and 8 Africa life markets
22.
Source: Swiss
Re: The Health protection gap in Asia (2018)
23.
FY22 Excluding
India, Africa, Myanmar and Laos
24.
Active agents
as of 30 June 2023 and represents agents who have at least sold one
new policy.
25.
Source: Credit
Suisse - Global Wealth Report 2022
26.
Our investment
portfolio includes both listed equities and corporate bonds, where
the assets are managed on our main portfolio management system and
emissions data is available from our external data provider. Other
asset classes were excluded from the calculation in absence of data
or industry standard. This also excludes assets held by joint
venture and associate businesses, and assets in unit-linked funds
as we do not have full authority to change the investment
strategies of these. The full scope and basis can be found at
https://www.prudentialplc.com/~/media/Files/P/Prudential-V13/esg-report/assurance-statement-2022.pdf
27.
New business
profit, on a post-tax basis, on business sold in the period,
calculated in accordance with EEV Principles.
28.
On a constant
exchange rate basis
29.
APE sales is a
measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the year for all insurance products. See
note II of the Additional unaudited financial information for
further explanation.
30.
On an actual
exchange rate basis
31.
Source: HKIA
Q1 2023 market statistics
32.
The value of
assets under management at 30 June 2023 in funds which outperform
their performance benchmark as a percentage of total assets under
management at 30 June 2023, excluding assets in funds with no
performance benchmark.
33.
Comparatives
for 2022 have been restated to reflect the retrospective
application of IFRS 17. See note A2.1 to the financial statements
for further information and reconciliation.
34.
Operating free
surplus generated from in-force insurance business represents
amounts emerging from the in-force business during the year before
deducting amounts reinvested in writing new business and excludes
non-operating items. For asset management businesses, it equates to
post-tax operating profit for the year. Restructuring costs are
presented separately from the business unit amount. Further
information is set out in 'movement in Group free surplus' of the
EEV basis results.
35.
Excluding
funds managed on behalf of M&G plc
36.
Individual
business only
37.
Source:
Thailand Life Assurance Association Q2 2023
Financial review
During the first half of 2023, we delivered growth across many of
our key value measures, with broad-based growth in new business
profit2 driving
higher EEV operating profit and EEV. Within IFRS, adjusted
shareholders' equity3 also
increased reflecting the profit for the period and a higher
contractual service margin (CSM). The first half of 2023 saw a
reduction in the macroeconomic volatility with small reductions in
government bond yields in many of our Asian markets and with the US
10-year yield falling by 8 basis points to 3.81 per cent. A mixed
performance was seen in respect of equity index levels, with the
S&P 500 index increasing by 16 per cent and the MSCI Asia
excluding Japan equity index by 2 per cent, while the Hang Seng
index fell by 4 per cent. Overall 2023 market movements had a
relatively muted impact on EEV and adjusted shareholders'
equity3,
when compared with 2022.
As in previous years, we comment on our performance in local
currency terms (expressed on a constant exchange rate basis) to
show the underlying business trends in periods of currency
movement, unless otherwise noted.
The removal of all Covid-related restrictions, in particular the
reopening of the border between Hong Kong and the Chinese Mainland
and the rebound of APE sales1,
led to new business profit increasing 39 per
cent4 to
$1,489 million. This was underpinned by a 42 per
cent4 growth
in APE sales in the first half of 2023, which in absolute terms,
exceeded the pre-pandemic levels of 2019. Excluding the effects of
interest rates and other economic changes, given our active EEV
reporting basis, new business profit increased by 52 per
cent4.
Group EEV operating profit increased by 22 per
cent4 to
$2,155 million, largely due to higher new business profits from
insurance business, an increase in the profit from Eastspring, our
asset management business, and a reduction in central costs. The
operating return on embedded value5 was
10 per cent compared with 8 per cent in the first half of 2022.
After allowing for the payment of the external dividend and
economic effects, such as changes in interest rates, and currency
movements, the Group's embedded value at 30 June 2023 was $43.7
billion (31 December 2022: 42.2 billion6),
equivalent to 1,588 cents per share (31 December 2022: 1,534 cents
per share6).
The operating free surplus generated from in-force insurance and
asset management business7 during
the period was $1,438 million, down (2) per cent4.
Higher investment in new business of $(414) million (2022: $(268)
million4)
from higher APE sales and business mix effects, led to total
operating free surplus generated from life and asset management
business7 reducing
to $1,024 million (2022: $1,200 million4).
The Group implemented IFRS 17, the new accounting standard for
insurance contracts in the first half of 2023 with comparatives
restated accordingly. In line with the preliminary guidance
provided with the group's 2022 results, the Group shareholders'
equity at 1 January 2022, the date of transition, increased by $1.8
billion to $18.9 billion and 2022 full year adjusted operating
profit8 fell
by $653 million to $2,722 million. The full year 2022 saw a loss
after tax of $(997) million on an IFRS 17 basis. While IFRS 17 is
an important accounting change, resulting in changes to the timing
of profit recognition compared with the previous IFRS 4 approach,
it does not change the total level of profit generated. As a
result, it does not change the economics of our business. Our
embedded value framework, which is linked to the Group's regulatory
position and consequently future capital generation, is in our view
more representative of shareholder value. The
Group also implemented IFRS 9 Financial Instruments from 1 January
2023, with no material impact on the Group's financial statements.
Further details on the transition to IFRS 17 and IFRS 9 are
included in the IFRS financial results.
Group IFRS adjusted operating profit8 was
$1,462 million, up 6 per cent4 in
the first half of 2023, largely as a result of lower central costs
and higher profits from Eastspring, our asset management business.
The Group's total IFRS profit after tax for the period was $947
million, an improvement on the 2022 loss after tax of $(1,511)
million on a constant exchange rate basis ($(1,505) million on an
actual exchange rate basis) which largely reflected significant
negative short-term fluctuations from higher interest rates in the
first half of 2022. This compared with a relatively smaller
decrease in interest rates in 2023. Adjusted shareholders' equity
increased to $36.4 billion (31 December 2022: $35.2
billion6)
driven by an increase in IFRS shareholders' equity (up 3 per
cent6)
and an increase in the Contractual Service Margin (CSM) (up 4 per
cent6).
The CSM benefited from both positive economic and other effects as
well as the contribution from new business and unwind. Using a
longer-term normalised return for Variable Fee Approach (VFA)
business, the unwind and new business contribution would have
exceeded the release in the period.
Our Group's regulatory capital position, free surplus and central
liquidity positions remain robust. The Group's leverage remains
near the bottom of our target range at 20 per cent, estimated on a
Moody's basis9.
As a result, supported by a clear and disciplined capital
allocation policy, the Group is well positioned, with considerable
financial flexibility including leverage capacity, to take
advantage of the growth opportunities ahead.
The Group capital adequacy requirements are aligned with the
established EEV and free surplus framework by comparing the total
eligible Group capital resources with the Group's Prescribed
Capital Requirement (GPCR). At 30 June 2023, the estimated
shareholder surplus above the GPCR was $15.5
billion10 (31
December 2022: $15.6 billion6)
and cover ratio 295 per cent11 (31
December 2022: 307 per cent before allowing for the debt redemption
in January 2023).
Our capital priorities have been set out alongside our new
strategy. These confirm the focus on managing the in-force
portfolio to support investment in quality new business as well as
investing in core capabilities. We expect to invest around $1
billion in enhancing our core capabilities across our three
strategic pillars of Customer, Distribution and Health. This
investment will be mostly weighted between 2023 and 2025. We have
maintained our dividend policy, as described later in this report,
and in line with that policy the directors have approved a dividend
of 6.26 cents per share (2022: 5.74 cents per
share6). Recognising
the strong conviction we have in the Group's revised strategy, when
determining the annual dividend we intend to look through the
investments in new business and investments in capabilities and
expect the annual dividend to grow in the range 7 - 9 per cent per
annum over 2023 and 2024.
We believe that the Group's performance in the first half of the
year positions us well, as we implement the new strategy, to meet
our financial objectives to grow new business profit and
consequently in-force insurance and asset management operating free
surplus generated, as detailed in the strategic and operating
review.
IFRS profit
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Actual exchange rate
|
|
Half year 2023
$m
|
Half year 2022
$m
|
Change %
|
|
Half year 2022
$m
|
Change %
|
|
Full Year 2022
$m
|
Adjusted operating profit based on longer-term investment returns
before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPL
|
164
|
132
|
24
|
|
124
|
32
|
|
271
|
Hong Kong
|
554
|
598
|
(7)
|
|
597
|
(7)
|
|
1,162
|
Indonesia
|
109
|
118
|
(8)
|
|
113
|
(4)
|
|
205
|
Malaysia
|
165
|
193
|
(15)
|
|
184
|
(10)
|
|
340
|
Singapore
|
270
|
313
|
(14)
|
|
320
|
(16)
|
|
570
|
Growth markets and other
|
374
|
337
|
11
|
|
323
|
16
|
|
728
|
Insurance business
|
1,636
|
1,691
|
(3)
|
|
1,661
|
(2)
|
|
3,276
|
Asset management
|
146
|
131
|
11
|
|
128
|
14
|
|
260
|
Total segment profit
|
1,782
|
1,822
|
(2)
|
|
1,789
|
-
|
|
3,536
|
Other income and expenditure:
|
|
|
|
|
|
|
|
|
Net investment income and other
items
|
(28)
|
(4)
|
n/a
|
|
(4)
|
n/a
|
|
(44)
|
Interest payable on core structural
borrowings
|
(85)
|
(103)
|
17
|
|
(103)
|
17
|
|
(200)
|
Corporate expenditure
|
(115)
|
(150)
|
23
|
|
(150)
|
23
|
|
(276)
|
Total other income and expenditure
|
(228)
|
(257)
|
11
|
|
(257)
|
11
|
|
(520)
|
Restructuring and IFRS 17 implementation costs
|
(92)
|
(154)
|
40
|
|
(152)
|
39
|
|
(294)
|
Adjusted operating profit
|
1,462
|
1,411
|
4
|
|
1,380
|
6
|
|
2,722
|
Short-term fluctuations in investment returns
|
(287)
|
(2,820)
|
90
|
|
(2,806)
|
90
|
|
(3,420)
|
Gains attaching to corporate transactions
|
-
|
62
|
n/a
|
|
62
|
n/a
|
|
55
|
Profit (loss) before tax attributable to shareholders
|
1,175
|
(1,347)
|
n/a
|
|
(1,364)
|
n/a
|
|
(643)
|
Tax charge attributable to shareholders' returns
|
(228)
|
(158)
|
(44)
|
|
(147)
|
(55)
|
|
(354)
|
Profit (loss) for the period
|
947
|
(1,505)
|
n/a
|
|
(1,511)
|
n/a
|
|
(997)
|
IFRS earnings per share
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Actual exchange rate
|
|
Half year 2023 cents
|
Half year 2022 cents
|
Change %
|
|
Half year 2022 cents
|
Change %
|
|
Full year 2022 cents
|
Based on adjusted operating profit, net of tax and non-controlling
interest
|
45.2
|
40.6
|
11
|
|
39.9
|
13
|
|
79.4
|
Based on profit (loss) for the period, net of non-controlling
interest
|
34.5
|
(55.1)
|
n/a
|
|
(55.4)
|
n/a
|
|
(36.8)
|
Adjusted operating profit8 reflects
that the assets and liabilities of our insurance businesses are
held for the longer term and the Group's belief that the trends in
underlying performance are better understood if the effects of
short-term fluctuations in market conditions, such as changes in
interest rates or equity markets, are excluded.
Group IFRS adjusted operating profit was $1,462
million, up by 6 per cent4 largely
reflecting a 14 per cent increase in profit generated by
Eastspring, our asset management business and lower central costs.
Adjusted operating profit for insurance business was marginally
lower (down (2) per cent4)
with economic movements in 2022 reducing the level of longer-term
net investment result (which is based on opening asset values) and
experience variances being higher than in the prior year as
discussed further below.
Our business in the Chinese Mainland, CPL, delivered 32 per
cent4 growth
in adjusted operating profit to $164 million, primarily driven by
an increase in longer-term net investment result, as it has a
higher investment base following increased sales of savings
products in recent periods. There was also a benefit from improved
claims experience in the period. During the first half of the year
CPL has taken actions to diversify its sales in order to achieve a
more balanced product mix, with a higher proportion of annuity and
longer premium payment term products.
In Hong Kong, adjusted operating profit was $554 million, down (7)
per cent4.
A higher release of CSM, aided by increased new business sales, was
more than offset by both a reduction in favourable claims
experience in HY23, as all Covid restrictions were removed, and a
reduced net investment return, reflecting a lower opening asset
balance following adverse market movements in
2022.
In Indonesia, adjusted operating profit was (4) per
cent4 lower
at $109 million, reflecting unfavourable morbidity experience on
medical reimbursement products following the removal of Covid-19
restrictions and a reduction in the release of CSM reflecting the
maturity of the business given lower sales levels in prior
periods.
In Malaysia adjusted operating profit declined by (10) per
cent4 to
$165 million, primarily driven by a normalisation of claims
experience as the number of medical reimbursement cases returned to
pre-pandemic levels.
In Singapore, adjusted operating profit decreased by (16) per
cent4 to
$270 million, reflecting the impact of adverse market movements in
2022 which suppressed both the opening CSM and investments
balances, resulting in a lower CSM release and a reduced net
investment return. The business saw increased expenses as it
continued to invest in distribution capabilities and
technology.
The businesses comprising our Growth markets and other segment
generated adjusted operating profit of $374 million, up 16 per
cent4.
This reflects an increase in the CSM release aided by new business
growth and recent product mix changes and the effect of a one off
sales tax provision established in HY22.These effects are partially
offset by higher adverse experience variances as we continue to
invest in distribution and other capabilities.
Insurance business analysis of operating profit
drivers
The table below sets out the key drivers of the Group's adjusted
operating profit for the insurance business as described in note
B1.3 of the IFRS financial results.
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Actual exchange rate
|
|
Half year 2023
$m
|
Half year 2022
$m
|
Change %
|
|
Half year 2022
$m
|
Change %
|
|
Full year 2022
$m
|
Adjusted Release of CSM15
|
1,178
|
1,212
|
(3)
|
|
1,189
|
(1)
|
|
2,265
|
Release of risk adjustment
|
107
|
98
|
9
|
|
96
|
11
|
|
179
|
Experience variances
|
(92)
|
(19)
|
n/a
|
|
(13)
|
n/a
|
|
(66)
|
Other insurance service result
|
(85)
|
(134)
|
37
|
|
(128)
|
34
|
|
(204)
|
Adjusted insurance service result
|
1,108
|
1,157
|
(4)
|
|
1,144
|
(3)
|
|
2,174
|
Net investment result on long-term basis
|
612
|
653
|
(6)
|
|
632
|
(3)
|
|
1,290
|
Other insurance income and expenditure
|
(45)
|
(83)
|
46
|
|
(80)
|
44
|
|
(98)
|
Share of related tax charges from joint ventures and
associates
|
(39)
|
(36)
|
(8)
|
|
(35)
|
(11)
|
|
(90)
|
Insurance business (adjusted operating profit)
|
1,636
|
1,691
|
(3)
|
|
1,661
|
(2)
|
|
3,276
|
|
|
|
|
|
|
|
|
|
The release of CSM is the principle source of our IFRS 17 insurance
business adjusted operating profit. The adjusted CSM
release15 in
HY23 of $1,178 million (2022: $1,189 million4)
equates to an annualised release rate of circa 11 per cent, broadly
similar to the circa 10 per cent release rate seen in 2022 and
consistent with the 2023 release expected as at the end of FY22. As
we grow new business profit, in line with our recently announced
objective, we would expect this to compound the growth of the CSM
and hence lead to adjusted operating profit growth over
time.
The release of the risk adjustment of $107 million (2022: $96
million4)
represents the expiry of non-market risk in the period. As
expected, this release is a relatively stable proportion of the
opening balance as compared with the corresponding rate in the
prior year.
Experience variances of $(92) million (2022: (13)
million4)
comprise largely of claims and expense variances (those impacting
past or current service rather than future service which is
reflected in CSM). Claims variances reflect unfavourable morbidity
experience on some medical reimbursement products following the
removal of Covid-19 restrictions. Expenses variances reflect higher
spend to support our continued investment in enhancing our
multi-channel distribution capabilities and in embedding technology
to enhance the customer experience.
The other insurance service result of $(85) million (2022: $(128)
million4)
reflects losses on contracts that are described under IFRS 17 as
'onerous', either at inception or because changes in the period
result in the CSM being exhausted. It does not mean these contracts
are not profitable overall as the CSM does not allow for real world
returns, which are earned over time.
The net investment result of $612 million (2022: $632
million4)
largely reflects the long-term return on assets backing equity and
capital and long-term spreads on business not accounted for under
the variable fee approach. The long-term rates are applied to the
opening value of assets and so falls in asset values over 2022 saw
this income reduce in the first half of 2023. This effect was
moderated by growth in the General Measurement Model asset base
from new business in recent periods and renewal
premiums.
Other income and expenditure of $(45) million (2022: $(80)
million4)
mainly relates to expenses that are not directly related to an
insurance contract as defined under IFRS 17. In the first half of
2022 these expenses included a charge for the establishment of a
sales tax provision that has not been repeated in the current
period.
Movement in Contractual Service Margin
The CSM balance represents a discounted stock of unearned profit
which will be released over time as services are provided. This
balance increases due to additions from profitable new business
contracts sold in the period and the unwind of the in-force book.
It is also updated for any changes in expected future
profitability, where applicable, including the effect of short-term
market fluctuations for business measured using variable fee
approach. The release of the CSM, which is the main driver of
adjusted operating profit, is then calculated after allowing for
these movements.
In a normalised market environment, if the contribution from new
business and the unwind of the CSM balance is greater than the rate
at which services are provided, then the CSM balance will increase.
The new business added to the CSM will therefore be an important
factor in building the CSM and we expect the compounding effect
from the new business added to the CSM over time to support growth
in IFRS 17 adjusted operating profit in the future. The recently
announced objectives for EEV new business profit growth will act to
support such CSM growth.
The table below sets out the movement of CSM over the
period.
Contractual Service Margin - Net of Reinsurance
|
|
|
Half year 2023
$m
|
Net opening balance at 1 Jan
|
19,989
|
New contracts in the period
|
1,196
|
Unwind*
|
760
|
Balance before variances, effect of foreign exchange and CSM
release
|
21,945
|
Economic and other variances
|
289
|
CSM balance before release
|
22,234
|
Release of CSM to income statement
|
(1,177)
|
Effect of movements in exchange rates
|
(237)
|
Net balance at the end of period
|
20,820
|
*The unwind of CSM presented in this table reflects the accretion
of interest on general measurement model contracts, as presented in
note C3.2 to the IFRS financial results, together with the unwind
of variable fee approach contracts on a long-term normalised basis.
This differs from the presentation in note C3.2 to the IFRS
financial results by reallocating $630 million from economic and
other variances to unwind.
Profitable new business in the first half of 2023 grew the CSM by
$1,196 million which combined with the unwind of the CSM balance
shown in the table above of $760 million, increased the CSM by
$1,956 million. This increase exceeded the release of the CSM to
the income statement in the period of $(1,177) million,
demonstrating the strength of our franchise and its ability to
deliver future growth in CSM and ultimately adjusted new business
profit.
Other movements in the CSM reflect economic and other variances to
update the CSM for changes in expected future profitability
including the impact of short term market effects of business
accounted for under the variable fee approach. In the first half of
2023 'economic and other variances' includes $52 million for new
riders added to existing base savings contracts. The incremental
value from such sales in not included within the new business
contribution to CSM because our IFRS17 approach considers insurance
contracts as a whole. In contrast, EEV will include this amount as
new business. The remainder of the positive variance includes the
effects of the small reductions in bond yields in many of our
markets. Movements in exchange rates had a negative impact of
$(237) million impact on the closing CSM. Overall the CSM grew by
an annualised growth rate of 8 per cent.
Asset management
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Actual exchange rate
|
|
Half year
2023 $m*
|
Half year
2022 $m*
|
Change %
|
|
Half year
2022 $m*
|
Change %
|
|
Full year
2022 $m*
|
Change %
|
|
|
|
|
|
|
|
|
|
|
External funds under management* ($bn)
|
88.7
|
81.5
|
9
|
|
79.2
|
12
|
|
81.9
|
8
|
Funds managed on behalf of M&G plc ($bn)
|
2.4
|
9.3
|
(74)
|
|
9.6
|
(75)
|
|
9.3
|
(74)
|
External funds under management ($bn)
|
91.1
|
90.8
|
-
|
|
88.8
|
3
|
|
91.2
|
-
|
|
|
|
|
|
|
|
|
|
|
Internal funds under management ($bn)
|
107.8
|
105.4
|
2
|
|
107.0
|
1
|
|
104.1
|
4
|
Internal funds under advice ($bn)
|
28.8
|
26.1
|
10
|
|
26.9
|
7
|
|
26.1
|
10
|
Total internal funds under management or advice ($bn)
|
136.6
|
131.5
|
4
|
|
133.9
|
2
|
|
130.2
|
5
|
|
|
|
|
|
|
|
|
|
|
Total funds under management and advice ($bn)
|
227.7
|
222.3
|
2
|
|
222.7
|
2
|
|
221.4
|
3
|
|
|
|
|
|
|
|
|
|
|
Total external net
flows**,
|
1,857
|
(1,786)
|
n/a
|
|
(1,681)
|
n/a
|
|
(1,586)
|
n/a
|
|
|
|
|
|
|
|
|
|
|
Analysis of adjusted operating profit
|
|
|
|
|
|
|
|
|
|
Retail operating income
|
210
|
196
|
7
|
|
187
|
12
|
|
392
|
n/a
|
Institutional operating income
|
141
|
136
|
4
|
|
137
|
3
|
|
268
|
n/a
|
Operating income before performance-related fees
|
351
|
332
|
6
|
|
324
|
8
|
|
660
|
n/a
|
Performance-related fees
|
2
|
4
|
(50)
|
|
4
|
(50)
|
|
1
|
n/a
|
Operating income (net of commission)
|
353
|
336
|
5
|
|
328
|
8
|
|
661
|
-
|
Operating expense
|
(185)
|
(184)
|
(1)
|
|
(181)
|
(2)
|
|
(360)
|
n/a
|
Group's share of tax on joint ventures' adjusted operating
profit
|
(22)
|
(21)
|
(5)
|
|
(19)
|
(16)
|
|
(41)
|
n/a
|
Adjusted operating profit
|
146
|
131
|
11
|
|
128
|
14
|
|
260
|
n/a
|
Adjusted operating profit after tax
|
132
|
117
|
13
|
|
114
|
16
|
|
234
|
n/a
|
|
|
|
|
|
|
|
|
|
|
Average funds under management or advice by Eastspring
|
$228.8bn
|
$241.8bn
|
(5)
|
|
$239.7bn
|
(5)
|
|
$229.4bn
|
n/a
|
Fee margin based on operating income
|
31bps
|
28bps
|
3bps
|
|
27bps
|
4bps
|
|
29bps
|
2bps
|
Cost/income ratio17
|
53%
|
55%
|
2ppts
|
|
56%
|
3ppts
|
|
55%
|
2 ppts
|
*
Unless otherwise stated
**
Excluding funds managed on behalf of M&G plc and money market
funds in case of net flows.
Eastspring, the Group's asset management business, had total funds
under management and advice12 (FUM)
of $227.7 billion at 30 June 2023 up $6.3 billion from 31 December
2022 (on an actual exchange rate basis) reflecting positive market
movements and inflows from third parties (excluding M&G plc)
and the Group's life businesses.
Third-party net inflows (excluding money market funds and funds
managed on behalf of M&G plc) in the first half of 2023 were
$1.9 billion (2022: net outflows of $(1.8)
billion6),
reflecting strong net flows into retail funds. This was more than
offset by the net outflows of $(7.1) billion in the first half of
2023 (2022: $(0.7) billion6)
from the expected redemption of funds managed on behalf of M&G
plc.
Despite the increase in closing FUM discussed above, average FUM
decreased by (5) per cent4 compared
with the same period in 2022 to $228.8 billion as a result of
market movements in the prior year. Eastspring's adjusted operating
profit increased by 14 per cent4 to
$146 million in the first half of 2023, reflecting a net investment
gain (as compared with a net investment loss in the prior year) on
shareholders' investments including seed capital. Excluding the
gains and losses on shareholders' investments from both periods,
operating profit was (5) per cent4 lower,
consistent with the decline in average FUM and the cost/income
ratio was marginally higher. Favourable mix effects from higher
retail sales and the investment gains noted above contributed to a
higher fee margin of 31 bps (2022: 27bps).
Other income and expenditure
Central costs (before restructuring and IFRS 17 implementation
costs) were 11 per
cent4 lower
in the first half of 2023 as compared to prior period, reflecting
the benefit of the targeted reduction of head office costs and the
redemption of a senior debt instrument in January 2023. Interest
payable on core structural borrowings reduced by
$18 million
in the first half of 2023 compared with the prior period. Total
head office expenditure was $(115) million
(2022: ($150) million4).
Restructuring costs of $(92) million
(2022: $152 million4)
reflect the Group's substantial and ongoing IFRS 17 project, and
one-off costs associated with regulatory and other initiatives in
our business. IFRS
17 costs are expected to decrease from 2024 leading to
restructuring costs reverting over time to the lower levels
typically incurred historically.
IFRS basis non-operating items
Non-operating items from continuing operations in the period
consist of negative short-term fluctuations in investment returns
of $(287) million (2022: $(2,806) million4).
These short-term fluctuations principally arise from the impact of
falling interest rates on both the actual investment return, with
the divergence from the longer term return included in short-term
fluctuations, and the General Measurement Model (GMM) discount
rates, which, amongst other effects, increases the best estimate
policyholder liabilities.
IFRS effective tax rates
In the first half of 2023, the effective tax rate on adjusted
operating profit was 15 per cent (2022: 21 per cent). The decrease
from the 2022 effective tax rate primarily reflects the recognition
of a deferred tax asset in relation to historical tax losses, due
to an increase in forecast taxable profit in the UK tax group.
Excluding the impact of this credit, the effective tax rate in the
first half of 2023 would be 18 per cent.
The effective tax rate on total IFRS profit in the first half of
2023 was 19 per cent (2022: negative 12 per cent), reflecting a
reduction in the level of investment losses on which no tax credit
is recognised.
Work is ongoing to assess the potential impact from the
Organisation for Economic Co-operation and Development (OECD)
proposals to implement a global minimum tax rate of 15 per cent.
Some jurisdictions where Prudential has taxable presence, including
the UK, either have implemented the proposals or intend to
implement the proposals effective for 2024 onwards. Other
jurisdictions where Prudential has taxable presence, including Hong
Kong, intend to implement the proposals for 2025
onwards.
Shareholders' equity
Group IFRS shareholders' equity
|
|
|
|
|
Half year 2023 $m
|
Half year 2022 $m
|
Full year 2022 $m
|
Profit/(loss) for the period
|
947
|
(1,505)
|
(997)
|
Less non-controlling interest
|
(3)
|
(3)
|
10
|
Profit after tax for the period attributable to
shareholders
|
944
|
(1,508)
|
(1,007)
|
Exchange movements, net of related tax
|
(185)
|
(529)
|
(603)
|
Other external dividends
|
(361)
|
(320)
|
(474)
|
Other movements
|
30
|
(252)
|
(121)
|
Net increase (decrease) in shareholders' equity
|
428
|
(2,609)
|
(2,205)
|
Shareholders' equity at beginning of the period
|
|
|
|
As previously reported
|
16,731
|
17,088
|
17,088
|
Effect of initial application of IFRS 17 & IFRS 9, net of
tax
|
-
|
1,848
|
1,848
|
Shareholders' equity at end of the period
|
17,159
|
16,327
|
16,731
|
Shareholders' value per
share16
|
623¢
|
594¢
|
608¢
|
|
|
|
|
Adjusted shareholders'
equity16
|
36,445
|
|
35,211
|
Group IFRS shareholders' equity increased from $16.7 billion at the
start of 2023 (after allowing for the effects of IFRS 17 and IFRS
9) to $17.2 billion at 30 June 2023. This largely reflects profit
generated during the period, offset by dividend payments
of $(0.4)
billion, and exchange movements of $(0.2)
billion.
In the first half of 2023, the Group completed the disposal of its
remaining interest in Jackson, the Group's former US business, for
cash of $273 million. This gave rise to a gain of $8 million
compared to the carrying value of this interest at 31 December 2022
that is included in other movements. Following the adoption of IFRS
9, the income statement is unaffected by this
transaction.
The IFRS adjusted shareholders' equity represents the sum of Group
IFRS shareholders' equity and CSM, net of tax. Group's IFRS
adjusted equity increased to $36.4 billion at 30 June 2023 (31
December 2022: $35.2 billion6)
reflecting increases in IFRS shareholders' equity and the CSM. A
full reconciliation to shareholders' equity is included in note
C3.1 of the IFRS financial results.
EEV basis results
EEV basis results
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
$m
|
Half year 2022
$m
|
Change %
|
|
Half year 2022
$m
|
Change %
|
New business profit
|
1,489
|
1,098
|
36
|
|
1,069
|
39
|
Profit from in-force business
|
844
|
1,001
|
(16)
|
|
985
|
(14)
|
Operating profit from insurance business
|
2,333
|
2,099
|
11
|
|
2,054
|
14
|
Asset management
|
132
|
117
|
13
|
|
114
|
16
|
Other income and expenditure
|
(310)
|
(410)
|
24
|
|
(407)
|
24
|
Operating profit for the period
|
2,155
|
1,806
|
19
|
|
1,761
|
22
|
Non-operating profit (loss)
|
182
|
(5,314)
|
n/a
|
|
(5,307)
|
n/a
|
Profit (Loss) for the period
|
2,337
|
(3,508)
|
n/a
|
|
(3,546)
|
n/a
|
Dividends paid
|
(361)
|
(320)
|
|
|
|
|
Foreign exchange movements
|
(475)
|
(1,198)
|
|
|
|
|
Other movements
|
19
|
(258)
|
|
|
|
|
Net increase (decrease) in EEV shareholders' equity
|
1,520
|
(5,284)
|
|
|
|
|
EEV shareholders' equity at 1 Jan
|
42,184
|
47,355
|
|
|
|
|
Effect of HK RBC
|
-
|
229
|
|
|
|
|
EEV shareholders' equity at end of period
|
43,704
|
42,300
|
|
|
|
|
% New business profit/average EEV shareholders' equity for
insurance business operations*
|
8%
|
5%
|
|
|
|
|
% Operating profit/average EEV shareholders' equity
|
10%
|
8%
|
|
|
|
|
* Excluding goodwill attributable to equity holders
|
|
|
|
|
|
|
|
Actual exchange rate
|
EEV shareholders' equity
|
30 Jun 2023 $m
|
31 Dec 2022 $m
|
Represented by:
|
|
|
CPL
|
3,131
|
3,259
|
Hong
Kong
|
17,496
|
16,576
|
Indonesia
|
1,763
|
1,833
|
Malaysia
|
3,557
|
3,695
|
Singapore
|
7,060
|
6,806
|
Growth
markets and other
|
7,172
|
6,688
|
Embedded value from insurance business excluding
goodwill
|
40,179
|
38,857
|
Asset management and other excluding goodwill
|
2,772
|
2,565
|
Goodwill attributable to equity holders
|
753
|
762
|
Group EEV shareholders' equity
|
43,704
|
42,184
|
EEV shareholders' equity per share
|
1,588¢
|
1,534¢
|
EEV new business profit and APE sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
|
|
Constant exchange rate
|
|
Half year 2023 $m
|
Half year 2022 $m
|
Change %
|
|
Half year 2022 $m
|
Change %
|
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
CPL
|
394
|
171
|
507
|
217
|
(22)
|
(21)
|
|
474
|
203
|
(17)
|
(16)
|
Hong Kong
|
1,027
|
670
|
227
|
211
|
352
|
218
|
|
227
|
211
|
352
|
218
|
Indonesia
|
150
|
61
|
110
|
52
|
36
|
17
|
|
106
|
50
|
42
|
22
|
Malaysia
|
185
|
73
|
172
|
70
|
8
|
4
|
|
165
|
66
|
12
|
11
|
Singapore
|
386
|
198
|
390
|
244
|
(1)
|
(19)
|
|
398
|
249
|
(3)
|
(20)
|
Growth markets and other
|
885
|
316
|
807
|
304
|
10
|
4
|
|
762
|
290
|
16
|
9
|
Total
|
3,027
|
1,489
|
2,213
|
1,098
|
37
|
36
|
|
2,132
|
1,069
|
42
|
39
|
Total new business margin
|
|
49%
|
|
50%
|
|
|
|
|
50%
|
|
|
EEV operating profit increased by 22 per cent4 to
$2,155 million, reflecting a 14 per cent4 increase
in the operating profit for the insurance business, largely
reflecting higher new business profit, a 16 per
cent4 increase
in the operating profit for the asset management business and an
improvement in central costs. The operating return on embedded
value5 was
10 per cent (2022: 8 per cent6).
The operating profit from the insurance business increased 14 per
cent4 to
$2,333 million, largely reflecting a 39 per cent4 increase
in new business profit to $1,489 million following a strong growth
in APE sales, partly offset by a (14) per cent4 lower
profit from in-force business of $844 million. The profit from
in-force business is driven by the expected return and effects of
operating assumption changes and experience variances. The expected
return was marginally lower at $1,117 million (2022: $1,161
million4),
reflecting a lower opening balance to which the expected return is
applied, as a result of economic movements in 2022. Operating
assumption changes and experience variances were negative $(273)
million on a net basis compared with $(176)
million4 in
2022. This reflects the elevated expenses supporting the continued
investment in enhancing our multi-channel distribution capabilities
and in embedding technology to enhance the customer experience
together with unfavourable morbidity experience on some medical
reimbursement products following the removal of Covid-19
restrictions.
Detailed discussion of new business performance by segment is
presented in the Strategic and Operating review.
The non-operating profit of $182 million (2022: loss of $(5,307)
million4)
is largely driven by lower interest rates and increasing equity
markets over the period leading to increased asset values with a
consequential favourable impact on future
profits.
Overall, EEV shareholders' equity increased to $43.7 billion at 30
June 2023 (31 December 2022: $42.2 billion6).
Of this, $40.2 billion (31 December 2022: $38.9
billion6)
relates to the insurance business operations, excluding goodwill
attributable to equity holders. This amount includes our share of
our India associate valued using embedded value principles. The
market capitalisation of this associate at 30 June 2023 was circa
$10.0 billion, which compares with a publicly reported embedded
value of circa $4.3 billion at 31 March 2023.
EEV shareholders' equity on a per share basis at 30 June 2023 was
1,588 cents (31 December 2022: 1,534 cents6).
Group free surplus generation
Free surplus is the metric we use to measure the internal cash
generation of our business operations and broadly reflects the
amount of money available to our operational businesses for
investing in new business, strengthening our capacity and
capabilities to grow the business, and potentially paying returns
to the Group. For
our insurance businesses it largely represents the Group's
available regulatory capital resources after allowing for the
prescribed required regulatory capital held to support the policies
in issue, with a number of adjustments so that the free surplus
better reflects resources potentially available for distribution to
the Group. For our asset management businesses, Group holding
companies and other non-insurance companies, the measure is based
on IFRS net assets with certain adjustments, including to exclude
accounting goodwill and to align the treatment of capital with our
regulatory basis. Operating free surplus generation represents
amounts emerging from the in-force business during the year, net of
amounts reinvested in writing new business. For asset management
businesses, it equates to post-tax adjusted operating profit for
the year. Further information is contained in the EEV financial
results.
Analysis of movement in Group free surplus
|
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|
Half year 2023
$m
|
Half year 2022
$m
|
Change %
|
|
Half year 2022
$m
|
Change %
|
Expected transfer from in-force business and return on existing
free surplus
|
1,529
|
1,446
|
6
|
|
1,410
|
8
|
Changes in operating assumptions and experience
variances
|
(223)
|
(60)
|
(272)
|
|
(56)
|
(298)
|
Operating free surplus generated from in force
business
|
1,306
|
1,386
|
(6)
|
|
1,354
|
(4)
|
Asset management
|
132
|
117
|
13
|
|
114
|
16
|
Operating free surplus generated from in-force insurance and asset
management business
|
1,438
|
1,503
|
(4)
|
|
1,468
|
(2)
|
Investment in new business
|
(414)
|
(279)
|
(48)
|
|
(268)
|
(54)
|
Operating free surplus generated from insurance and asset
management business before restructuring costs
|
1,024
|
1,224
|
(16)
|
|
1,200
|
(15)
|
Central costs and eliminations (net of tax):
|
|
|
|
|
|
|
Net
interest paid on core structural borrowings
|
(85)
|
(103)
|
17
|
|
(103)
|
17
|
Corporate
expenditure
|
(115)
|
(150)
|
23
|
|
(150)
|
23
|
Other
items and eliminations
|
(21)
|
(10)
|
(110)
|
|
(10)
|
(110)
|
Restructuring and IFRS 17 implementation costs (net of
tax)
|
(88)
|
(146)
|
40
|
|
(144)
|
39
|
Net Group operating free surplus generated
|
715
|
815
|
(12)
|
|
793
|
(10)
|
Non-operating and other movements, including foreign
exchange
|
(125)
|
(1,805)
|
|
|
|
|
External cash dividends
|
(361)
|
(320)
|
|
|
|
|
Increase (decrease) in Group free surplus before net subordinated
debt redemption
|
229
|
(1,310)
|
|
|
|
|
Net subordinated debt redemption
|
(397)
|
(1,699)
|
|
|
|
|
Increase (decrease) in Group free surplus before amounts
attributable to non-controlling interests
|
(168)
|
(3,009)
|
|
|
|
|
Change in amounts attributable to non-controlling
interests
|
(5)
|
(5)
|
|
|
|
|
Free surplus at 1 Jan
|
12,229
|
14,049
|
|
|
|
|
Effect of HK RBC
|
-
|
1,360
|
|
|
|
|
Free surplus at end of period
|
12,056
|
12,395
|
|
|
|
|
Free surplus at end of period excluding distribution rights and
other intangibles
|
8,409
|
8,589
|
|
|
|
|
Our Group generated an operating free surplus from insurance and
asset management operations before restructuring
costs13 of
$1,024 million, down (15) per cent4.
Operating free surplus generated from in-force insurance and asset
management business7 was
down (2) per cent4 to
$1,438 million as a result of elevated operating variances,
reflecting on-going investment in the Group's multi-channel
distribution capabilities and unfavourable morbidity experience on
some medical reimbursement products following the removal of
Covid-19 restrictions. The cost of investment in new business
increased by 54 per cent4 to
$(414) million reflecting the increase in APE sales of 42 per
cent4 and
changes in business mix. After allowing for lower central costs and
restructuring and IFRS 17 costs, total Group free surplus
generation was down (10) per cent4 to
$715 million.
After allowing for short-term market and currency losses, the
redemption of debt (which is treated as capital for free surplus
purposes), and the external dividend payment, free surplus at 30
June 2023 was $12.1 billion in line with the opening balance.
Excluding distribution rights and other intangibles, free surplus
was $8.4 billion (31 December 2022: $8.4 billion6;
30 June 2022: $8.6 billion6).
Greater China presence
Prudential has a significant footprint in the Greater China region,
with businesses in the Chinese Mainland (through its holding in
CPL), Hong Kong (together with its branch in Macau) and
Taiwan.
The table below demonstrates the significant proportion of the
Group's financial measures that were contributed by the Greater
China region:
|
Gross premiums earned*
|
|
New business profit
|
|
Half year
|
Full year
|
|
Half
year
|
Full year
|
|
2023 $m
|
2022 $m
|
2022 $m
|
|
2023 $m
|
2022 $m
|
2022 $m
|
Total Greater China**
|
6,478
|
6,983
|
13,103
|
|
922
|
503
|
912
|
Total Group**
|
13,051
|
14,609
|
27,783
|
|
1,489
|
1,098
|
2,184
|
|
|
|
|
|
|
|
|
Percentage of total
|
50%
|
48%
|
47%
|
|
62%
|
46%
|
42%
|
*
The gross earned premium includes the Group's share of amounts
earned from joint ventures and associates as disclosed in note II
(vi) of the Additional financial information.
**
Total Greater China represents the amount contributed by the
insurance businesses in Hong Kong, Taiwan and the Group's share of
the amounts earned by CPL. The Group total includes the Group's
share of the amounts earned by all insurance business joint
ventures and associates.
Dividend
Reflecting the Group's capital allocation priorities, a portion of
capital generation will be retained for reinvestment in organic
growth opportunities and for investment in capabilities, and
dividends will be determined primarily based on the Group's
operating capital generation after allowing for the capital strain
of writing new business and recurring central costs. Dividends are
expected to grow broadly in line with the growth in the Group's
operating free surplus generation, and will be set taking into
account financial prospects, investment opportunities and market
conditions.
The Board applies a formulaic approach to first interim dividends,
calculated as one-third of the previous year's full-year ordinary
dividend. Accordingly, the Board has approved a 2023 first interim
cash dividend of 6.26 cents per share (2022: 5.74 cents per
share8).
Recognising the strong conviction we have in the Group's revised
strategy, when determining the annual dividend we intend to look
through the investments in new business and investments in
capabilities and expect the annual dividend to grow in the range 7
- 9 per cent per annum over 2023 and 2024.
Group capital position
Prudential applies the Insurance (Group Capital) Rules set out in
the GWS Framework issued by the Hong Kong Insurance Authority
("HKIA") to determine Group regulatory capital requirements (both
minimum and prescribed levels). The GWS Group capital adequacy
requirements require that total eligible Group capital resources
are not less than the GPCR and that GWS Tier 1 group capital
resources are not less than the GMCR. More information is set out
in note I(i) of the Additional financial information.
The Group holds material participating business in Hong Kong,
Singapore and Malaysia. Alongside the regulatory GWS capital basis,
a shareholder GWS capital basis is also presented which excludes
the contribution to the Group GWS eligible Group capital resources,
the GMCR and the GPCR from these participating funds.
|
30 Jun 2023
|
|
31 Dec 202224
|
|
Shareholder
|
Policyholder*
|
Total**
|
|
Shareholder
|
Policyholder*
|
Total**
|
Group capital resources ($bn)
|
23.4
|
14.0
|
37.4
|
|
23.2
|
12.6
|
35.8
|
of which: Tier 1 capital
resources14 ($bn)
|
16.4
|
1.7
|
18.1
|
|
15.9
|
1.5
|
17.4
|
|
|
|
|
|
|
|
|
Group Minimum Capital Requirement ($bn)
|
4.6
|
1.0
|
5.6
|
|
4.4
|
0.9
|
5.3
|
Group Prescribed Capital Requirement ($bn)
|
7.9
|
11.3
|
19.2
|
|
7.6
|
10.1
|
17.7
|
|
|
|
|
|
|
|
|
GWS capital surplus over GPCR ($bn)
|
15.5
|
2.7
|
18.2
|
|
15.6
|
2.5
|
18.1
|
GWS coverage ratio over GPCR (%)
|
295%
|
|
194%
|
|
307%
|
|
202%
|
|
|
|
|
|
|
|
|
GWS Tier 1 surplus over GMCR ($bn)
|
|
|
12.5
|
|
|
|
12.1
|
GWS Tier 1 coverage ratio over GMCR (%)
|
|
|
323%
|
|
|
|
328%
|
*
This allows for any associated diversification impacts between the
shareholder and policyholder positions reflected in the total
company results where relevant.
**
The total company GWS coverage ratio over GPCR presented above
represents the eligible group capital resources coverage ratio as
set out in the GWS framework while the total company GWS tier 1
coverage ratio over GMCR represents the tier 1 group capital
coverage ratio.
As at 30 June 2023, the estimated shareholder GWS capital surplus
over the GPCR is $15.5 billion10 (31
December 2022: $15.6 billion8),
representing a coverage ratio of 295 per
cent11 (31
December 2022: 307 per
cent6)
and the estimated total GWS capital surplus over the GPCR
is $18.2 billion
(31 December 2022: $18.1 billion6)
representing a coverage ratio of 194 per
cent (31 December 2022: 202 per
cent6).
Operating capital generation in the first half of 2023 was $0.7
billion after allowing for central costs and the investment in new
business. This was offset by the payment of external dividends of
$(0.4) billion to reflect payment of the 2022 second interim
dividend and other capital movements of $(0.4) billion, largely
reflecting the redemption of a senior debt instrument in January
2023.
The Group's GWS position is resilient to external macroeconomic
movements as demonstrated by the sensitivity disclosure contained
in note I(i) of the Additional financial information, alongside
further information about the GWS measure.
Financing and liquidity
The Group manages its leverage on a Moody's total
leverage9 basis,
which takes into account gross debt, including commercial paper,
and also allows for a proportion of the surplus within the Group's
with-profits funds. The Group's leverage target is to be between 20
and 25 per cent on a Moody's total leverage9 basis
over the medium term. Moody's have not stated how they will
calculate leverage under IFRS 17 but have indicated that they might
consider up to 50 per cent of any company's CSM as equity. This has
yet to be incorporated into Moody's formal methodology and hence
has not been incorporated into the Group's target above. At 30 June
2023 , we estimate that our Moody's total leverage was 20 per cent
(31 December 2022: 21 per cent6,
before allowing for the £300 million senior bonds redeemed in
January 2023). This would reduce to circa 14 per cent (31 December
2022: 15 per cent6,
before allowing for the £300 million senior bonds redeemed in
January 2023) if a 50 per cent equity credit for the CSM was
provided.
Prudential seeks to maintain its financial strength rating with
applicable credit rating agencies, which derives, in part, from its
high level of financial flexibility to issue debt and equity
instruments, which is intended to be maintained in the
future.
Net core structural borrowings of shareholder-financed
businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 Jun 2023 $m
|
|
30 Jun 2022 $m
|
|
31 Dec 2022 $m
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
Borrowings of shareholder-financed businesses
|
3,949
|
(389)
|
3,560
|
|
4,266
|
(193)
|
4,073
|
|
4,261
|
(427)
|
3,834
|
Less holding company cash and short-term investments
|
(3,314)
|
-
|
(3,314)
|
|
(2,143)
|
-
|
(2,143)
|
|
(3,057)
|
-
|
(3,057)
|
Net core structural borrowings of shareholder-finance
businesses
|
635
|
(389)
|
246
|
|
2,123
|
(193)
|
1,930
|
|
1,204
|
(427)
|
777
|
Moody's total leverage9
|
20%
|
|
|
|
|
|
|
|
21%
|
|
|
The total borrowings of the shareholder-financed businesses from
continuing operations were $3.9 billion17 at
30 June 2023. After the balance sheet date, the Group redeemed a
€20 million medium-term note as it fell due on 10 July
2023
On 20 January 2023 the Group redeemed £300 million ($371
million) senior bonds as they reached their maturity. In addition,
the Group has a $750 million perpetual note that reached its first
call date in January 2023 at which time the Group's management
elected not to call it. We retain the right to call this security
at par on a quarterly basis hereafter. The Group's remaining
securities have contractual maturities that fall between 2029 and
2033. Further analysis of the maturity profile of borrowings is
presented in note C5.1 to the IFRS financial results.
On 2 March 2023 the Group's parent company, Prudential plc,
transferred all of its borrowings to a wholly-owned indirect
subsidiary, Prudential Funding (Asia) plc. Prudential plc has
provided a guarantee to holders of the debt instruments in the
event of default by Prudential Funding (Asia) plc. Other terms of
the borrowings, and the value recognised by the Group, were
unchanged by this transfer.
In addition to its net core structural borrowings of
shareholder-financed businesses set out above, the Group has
structures in place to enable access to funding via the medium-term
note programme, the US shelf programme (the platform for issuance
of SEC registered bonds in the US market), a commercial paper
programme and committed revolving credit facilities. All of these
are available for general corporate purposes. Proceeds from the
Group's commercial paper programme are not included in the holding
company cash and short-term investment balance.
Prudential plc has maintained a consistent presence as an issuer in
the commercial paper market for the past decade and had $529
million in issue at 30 June 2023 (31 December 2022: $501
million6).
As at 30 June 2023, the Group had a total of $2.6 billion of
undrawn committed facilities, expiring in 2026. Apart from small
drawdowns to test the process, these facilities have never been
drawn, and there were no amounts outstanding at 30 June
2023.
Cash remittances
The definition of holding company cash and short-term investments
was updated, with effect from 31 December 2022, following the
combination of the Group's London office and Asia regional office
into a single Group Head Office in 2022. The inclusion of amounts
previously managed on a regional basis increased holding company
cash and short term investments by $0.9 billion at 31 December
2022.
Holding company cash flow
|
|
|
|
|
|
Actual exchange rate
|
|
|
Half year 2023
$m
|
Half year 2022
$m
|
Change %
|
Net cash remitted by business units18
|
1,024
|
1,009
|
1
|
Net interest paid
|
(40)
|
(117)
|
66
|
Corporate expenditure
|
(155)
|
(124)
|
(25)
|
Centrally funded recurring bancassurance fees
|
(160)
|
(220)
|
27
|
Total central outflows
|
(355)
|
(461)
|
23
|
Holding company cash flow before dividends and other
movements
|
669
|
548
|
22
|
Dividends paid
|
(361)
|
(320)
|
(13)
|
Operating holding company cash flow after dividends but before
other movements
|
308
|
228
|
35
|
Issuance and redemption of debt
|
(371)
|
(1,729)
|
79
|
Other corporate activities
|
282
|
159
|
77
|
Total other movements
|
(89)
|
(1,570)
|
94
|
Total holding company cash flow
|
219
|
(1,342)
|
116
|
Cash and short-term investments at the beginning of the
year
|
3,057
|
3,572
|
(14)
|
Foreign exchange and other movements
|
38
|
(87)
|
144
|
Cash and short-term investments at the end of the
period
|
3,314
|
2,143
|
55
|
Remittances from our businesses were $1,024 million (2022: $1,009
million6).
Remittances were used to meet central outflows of $(355) million
(2022: $(461) million6)
and to pay dividends of $(361) million.
Central outflows include net interest paid of $(40) million (2022:
$(117) million6),
which is net of interest and similar income earned on central cash
balances in the first half of 2023, largely on balances brought
into the updated definition of holding company cash and short-term
investments. In addition, lower interest payments were made on core
structural borrowings in the first half of 2023 as compared with
the same period in the prior year.
Cash outflows for corporate expenditure of $(155) million (2022:
$(124) million6)
include cash outflows for restructuring costs.
Other cash flow movements included net receipts from other
corporate activities of $282 million (2022: $159
million6 net
payments) comprising largely of proceeds received from the sale of
our remaining shares in Jackson Financial Inc. as well as dividends
receipts. In January 2023 the Group redeemed senior bonds as they
reached their maturity at a cost of $371
million.
The Group will continue to seek to manage its financial condition
such that it has sufficient resources available to provide a buffer
to support the retained businesses in stress scenarios and to
provide liquidity to service central outflows.
Notes
1.
APE sales is a
measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the year for all insurance products. See
note II of the Additional unaudited financial information for
further explanation.
2.
New business
profit, on a post-tax basis, on business sold in the period,
calculated in accordance with EEV Principles.
3.
IFRS
shareholders equity plus contractual service margin net of
reinsurance and related tax adjustments. See note C3.1 in the IFRS
financial results for further information.
4.
On a constant
exchange rate basis.
5.
Operating
return calculated as operating profit (annualised by multiplying by
two) divided by the average EEV shareholders' equity for continuing
operations. See note II(x) of the Additional unaudited financial
information for definition and calculation.
6.
On an actual
exchange rate basis.
7.
Operating free
surplus generated from in-force insurance business represents
amounts emerging from the in-force business during the year before
deducting amounts reinvested in writing new business and excludes
non-operating items. For asset management businesses, it equates to
post-tax operating profit for the year. Restructuring costs are
presented separately from the business unit amount. Further
information is set out in 'movement in Group free surplus' of the
EEV basis results.
8.
'Adjusted
operating profit' refers to 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 results.
9.
Calculated
with no adjustment for the value of contractual service margin in
equity and with 50 per cent of the with-profits estate treated as
equity.
10.
Estimated GWS
capital resources in excess of the GPCR attributable to the
shareholder business, before allowing for the 2023 first cash
interim dividend. Prescribed capital requirements are set at the
level at which the local regulator of a given entity can impose
penalties, sanctions or intervention measures. The estimated GWS
group capital adequacy requirements require that total eligible
Group capital resources are not less than the
GPCR.
11.
Estimated GWS
coverage ratio of capital resources over GPCR attributable to the
shareholder business, before allowing for the 2023 first cash
interim dividend.
12.
30 June 2023
total funds under management or advice including external funds
under management, money market funds, funds managed on behalf of
M&G plc and internal funds under management or
advice.
13.
For insurance
operations operating free surplus generated represents amounts
emerging from the in-force business during the period net of
amounts reinvested in writing new business and excludes
non-operating items. For asset management business it equates to
post-tax operating profit for the period. Restructuring costs are
presented separately from the business unit amount. Further
information is set out in 'movement in Group free surplus' in the
EEV basis results.
14.
The
classification of tiering of capital under the GWS framework
reflects the different local regulatory regimes along with guidance
issued by the HKIA.
15.
Adjusted
release of CSM reflects an adjustment to the release of CSM figure
as shown in note C3.2 of the IFRS financial results of $1 million
(Half year 2022: $11 million, Full year 2022: $23 million) for the
treatment adopted for adjusted operating purposes of combining
losses on onerous contracts and gains on profitable contracts that
can be shared across more than one annual cohort. See note B1.3 to
the IFRS financial results for more
information.
16.
See note II of
the Additional financial information for definition and
reconciliation to IFRS balances.
17.
See note C5 of
the IFRS financial results for further details on the Group's
borrowings.
18.
Net
cash amounts remitted by businesses are included in the holding
company cash flow, which is disclosed in detail in note I(iv) of
the Additional financial information. This comprises dividends and
other transfers from businesses.
Risk review
Enabling effective risk-based decision-making in a complex
world
In the face of significant market volatility and uncertainty,
Prudential's Group Risk Framework, risk appetite, and robust
governance have continued to enable the business to manage and
control its risk exposure dynamically and effectively throughout
the first half of 2023, in order to support the Group's strategy of
delivering sustainable value for all our stakeholders: employees,
customers, shareholders and the communities in which we operate.
This section explains the main risks inherent in the business and
how Prudential manages those risks, with the aim of ensuring an
appropriate risk profile is maintained.
1 Introduction
The Group
Prudential has continued to focus on executing its strategy across
Asia and Africa, underpinned by its structural growth markets,
breadth of distribution channels and strong capital base. Going
forward, Prudential will be focused on driving more consistent
performance and accelerating value creation
by changing our organisation model, building multi-market growth
engines, investing in our three strategic pillars of customer,
distribution and health, which are supported by our three enablers
of technology, people and culture, and wealth and investments
capabilities.
The Group Risk, Compliance and Security (RCS) function continues to
provide risk opinions, guidance, assurance and engagement with
Prudential's Group-wide supervisor, the Hong Kong Insurance
Authority (IA), on critical activities, while overseeing the risks
and implications to the ongoing business in order to ensure the
Group remains within its approved risk appetite, at all times,
against the backdrop of increased complexity of the macroeconomic,
geopolitical and regulatory environments.
The first half of 2023 was characterised by declining though still
elevated inflation, high interest rates and economic uncertainties,
set against reconfigured national alliances and competition for
energy and natural resources. The ongoing impacts to the Group are
multifaceted and may be pronounced. These include increased
strategic and business risks, as well as increasing insurance,
product and customer conduct risks. For the Group's customers,
these wider geopolitical, macroeconomic and climate change related
circumstances may increase uncertainty over livelihoods, elevate
costs of living, and cause challenges in affordability for
essential needs and services, including insurance products -
perhaps at times when they may be most needed. The complexity of
meeting regulatory expectations on these issues, as governments
increasingly focus on them, is expected to increase. Prudential
will need to meet these challenges for its business and those of
its customers in a fair and equitable way. At the same time, the
Group will be expected to navigate the volatile financial
environment to ensure it remains robustly capitalised and its
liquidity position is resilient to sustainably deliver for the
needs of its customers and the societies in which it operates.
These are the key themes underpinning this
report.
Against this backdrop, the Group continues to effectively leverage
its risk management, compliance and security experience in more
mature markets, applying it to its growth markets as appropriate to
their respective risks and the extent of their challenges in this
changed world, and reflective of opportunities, customer issues and
needs, and local customs. Prudential will continue to apply this
holistic and coordinated approach in managing the increasingly
dynamic, multifaceted and often interconnected risks facing its
businesses.
Macroeconomic and market environment
The global economy has remained resilient but continues to face
various challenges. Headline inflation has moved down since
mid-2022 on the back of declining food and energy prices, but core
inflation has remained above central bank targets after the full
reopening following the Covid-19 pandemic, reflecting the strong
demand for services as well as the tight labour markets fuelling
wage gains, particularly in the US and the UK. The improved yet
elevated inflation environment has led central banks to continue
raising rates. Further interest rate increases are expected to be
implemented to attempt to rein in inflation, but tighter monetary
conditions could exert downward pressures on growth. In emerging
markets, inflation has been less severe and monetary tightening is
broadly expected to have reached its peak. While inflation, after
having reached decades-high levels in 2022, may have peaked in most
markets where the Group operates, there are structural risks to
inflation persistence, concerns of a wage-price spiral,
constraining real incomes and growth to an extent capable of
triggering a global recession.
Following the lifting of all pandemic-related restrictions,
economic growth in the Chinese Mainland has not been as strong as
the government's original plans, which has led to the loosening of
both monetary and fiscal policies to improve the momentum of its
economic recovery. For example, the Chinese Mainland has initiated
new policy stimulus with another round of policy easing to boost
consumption and private sector investment, including targeted
liquidity injections into the property market, which remains
lacklustre. Moreover, as the Chinese Mainland is a key driver for
the global economy, its weak growth as well as unpredictable
regulatory risk could weigh on the broader Asia region and the
global economy's vitality going forward. Nevertheless, the Group
has benefited from the reopening of the Chinese Mainland's border
with Hong Kong, as evidenced by large increases in
sales.
This environment of higher global interest rates and meaningful
recession risk is putting pressure on banks' balance sheets and
margins, which has also contributed to the demise of three
significant regional banks in the US and raised concerns of a
repeat of the Global Financial Crisis. The larger banks also have
material unrealised losses on bonds due to the sharp increase in
rates, and while they are well capitalised, the risk of a run on
deposits due to social media and digital banking is heightened.
This could result in uncertainties in the credit market with a
pullback in both credit supply and credit demand and lead to a
sharper tightening in global credit conditions. This would be
broadly associated with weaker global growth, as well as
country-level recessions that are deeper and longer than would
otherwise be the case. With interest rates rising, Africa has seen
an increase in external debt servicing costs. The rising debt
servicing burden could lead to a trade-off for governments in the
region between paying down debt obligations and funding longer-term
social projects. The domestic debt exchange programme in Ghana is
an illustration of the impact of tighter financial conditions.
Similarly, weaker exchange rates in emerging markets where the
Group operates may have adverse impact on Prudential's consolidated
financial statements upon the translation of results into the US
dollar, the Group's reporting currency. While the impact for the
Group is immaterial, the devaluation in mid-June 2023 of the
Nigerian naira is notable.
The macroeconomic landscape and financial markets are expected to
remain challenging and highly uncertain. Ad-hoc events can disrupt
market conditions unexpectedly. For example, the polarised
political landscape in the US raised the prospect that the federal
government could be forced into a technical default on its debt if
an agreement could not be reached to raise the debt ceiling in May
2023, which temporarily led to heightened volatility in the
markets. The capital and liquidity position of the Group and its
local businesses continues to be actively monitored by Prudential
as concerns remain from policymakers and regulators around
liquidity and solvency of the financial system. Challenging
macroeconomic conditions could also negatively impact the Group's
new business growth, investment performance, in-force surplus
generation plans and expense management.
Geopolitical landscape
The US-Chinese Mainland relationship continues to be a key focus of
geopolitical tension in 2023, which resulted in risk-off sentiment
towards the Chinese Mainland, leading to different degrees of
decoupling affecting world supply chains and creating tougher
business conditions. In turn, this has exerted pressure on
policymakers in other geographies, including the Asian markets in
which the Group operates.
The Chinese Mainland diplomacy has become more active following the
Party Congress in March 2023, reflecting the importance it has
placed on trying to stabilise its external environment while
managing domestic economic pressures. President Xi's visit to
Russia highlighted the continuing importance of Russia's
relationship with the Chinese Mainland, and saw no progress to
resolve the conflict in Ukraine. The Chinese Mainland and Russia
are considering expanding the use of local currencies for trade
settlements to reduce reliance on the US dollar. The Chinese
Mainland also hosted a number of political meetings with leaders
from Asia, Europe and Latin America, with visits by European
leaders in April 2023 and US cabinet members in June and July 2023.
Tensions over Taiwan remain elevated, in particular after Taiwan's
President Tsai met with US House Speaker McCarthy in California in
April 2023.
Bilateral relationships between India and the Chinese Mainland are
expected to remain tense, largely due to long-standing border
disputes. India continues to impose severe curbs on Chinese
investments and has put material constraints on remittances back to
the Chinese Mainland. India and the US have agreed to enhance their
defence and trade relationships with an eye on the Chinese
Mainland's perceived growing assertiveness in the Indo-Pacific
region.
The Russia-Ukraine conflict has been protracted and remains
uncertain and complex. The direct implications for the Group are
immaterial, and have been regularly monitored and considered in the
Group's broader scenario analysis and planning. However, challenges
to supply chains, technologies and access to raw materials and
energy will remain where national security concerns are heightened.
Over the longer-term, the conflict, and the diplomatic and economic
reactions to it, could contribute to an acceleration towards
'de-risking' specific policy areas such as technology or the
divergence of markets into more distinct trading blocs, limiting
the scope for flows of people, capital and data between blocs,
increasing the potential operational and reputational risks for
companies continuing to trade and operate between these
blocs.
Geopolitical developments may trigger important legislative or
regulatory changes that adversely impact Hong Kong's economy or its
international trading and economic relationships, and may result in
adverse sales, operational and product distribution impacts to the
Group due to the territory being a key market which also hosts
Group head office functions.
Societal developments
Global economic uncertainties with the rise in interest rates and
elevated inflation, on top of the ongoing challenges of the uneven
rebound from the pandemic, are increasingly putting pressure on
household affordability and may exacerbate existing structural
inequalities within societies. Government and supervisory attention
is being increasingly focused on the cost of living crisis taking
shape across many of the Group's markets and the contribution of
the corporate sector to government tax revenues. These developments
have implications for Prudential in terms of how it engages with
its customers, who will, in some markets, experience real
challenges in affording or maintaining insurance products at their
current level of coverage. This may happen at times when that
protection is needed most, and when such customers increasingly
represent the vulnerable in society. In Asia, there is an
increasing expectation from governments for private companies to
help with affordability issues, for example, by introducing
moratoria on price increases, to extend the regulatory definitions
of 'vulnerable' customers to explicitly include those in need due
to the current economic pressures, and to continue to promote
financial inclusion in a difficult economic environment. Prudential
will continue to carefully balance affordability and the impact on
customers with the need to reprice products where
necessary.
A high inflation environment, combined with recessionary concerns,
and societal and regulatory expectations of support, may also
heighten existing challenges in persistency for insurers. As has
always been the case, Prudential will continue to engage with
governments, regulators and supervisors on these issues. As a
matter of course, the Group regularly assesses the suitability and
affordability of its products, and aims to reduce their perceived
complexity whilst increasing the transparency of their costs and
benefits. These aims, as well as the Group's increasing focus on
the sustainable digital distribution of its health and protection
products via its digital platform, help to expand the financial
inclusion of Prudential's products and improve customer
outcomes.
The Group looks to retain the positive changes that Covid-19
accelerated, including those related to changes in traditional
working practices and the use of digital services, technologies and
distribution methods to customers, while monitoring and mitigating
the potential increase in technology, data security or misuse and
regulatory risks that these may bring. Prudential is exploring new
ways of working and, as a responsible employer, is reflecting
thematic trends through a coordinated suite of activities related
to the upskilling of its workforce, and increasing flexibility,
inclusivity and psychological safety in the workplace. The Group
continues to monitor emerging social trends, including those linked
to environmental change and the impacts to developing market
societies associated with the transition to a lower-carbon global
economy. A just and inclusive transition is central to the Group's
strategy and Prudential recognises the interests from a wide range
of stakeholders in the way it manages ESG and climate-related
risks. The Group continues to recognise the importance of financial
inclusion and the ways in which the Group's products and services
meet the changing needs of affected societies. Its risk management
framework is regularly reviewed to ensure the Group is best
positioned to manage the changing nature of these wide-ranging
risks, including activities to promote a transparent culture, and
active encouragement of open discussion and learnings from
mistakes.
Regulations
Prudential operates in highly regulated markets, and as the nature
and focus of regulations and laws evolve, the complexity of
regulatory compliance (including with respect to economic
sanctions, anti-money laundering and anti-corruption) continues to
increase and represents a challenge for international businesses.
Geopolitical tensions have increased uncertainties and the
long-term complexity of legal and regulatory compliance for
Prudential's businesses operating across multiple jurisdictions.
Whilst the complexity of sanctions driven by the geopolitical
conflicts is elevated, the Group is experienced in managing this
and has in place risk tolerance frameworks to deal with complex and
conflicting risk trade-offs to guide executive
decisions.
The rapid pace and high volume of regulatory changes and
interventions, and swiftness of their application including those
driven by the financial services industry, have the potential to
increase strategic and regulatory risks for the Group's businesses.
There has been an increased regulatory focus by the HKIA,
Prudential's Group-wide supervisor, in particular on capital and
solvency, customer experience, investment management, governance
and sustainability and climate-related topics. In the Chinese
Mainland, a new regulator, the National Administration of Financial
Regulation (NAFR), officially replaced the China Banking and
Insurance Regulatory Commission on 18 May 2023 to centralise the
oversight of the financial industry with the aim to strengthen and
improve its financial supervision through deepening the financial
regulatory sector reform, enhancing the quality and effectiveness
of financial regulation, and promoting full coverage of financial
regulation in the sector. Customer protection is also centrally
supervised by the NAFR.
Regulatory focus on the financial services industry remains broad
and often concurrent, and includes areas such as customer conduct
and protection, information security and data privacy and
residency, third-party management, systemic risk regulation,
corporate governance and senior management accountability.
Sustainability and climate-related regulatory and reporting
developments continue to develop at pace, both globally and in
Asia. Developments in domestic and international capital standards
continue to move forward, for example, the International Insurance
Capital Standard (ICS) is being developed by the International
Association of Insurance Supervisors (IAIS) due for adoption in
2025. Changes in regulations related to capital have the potential
to change the extent of capital sensitivity to risk factors. The
new accounting standard IFRS 17, effective from 1 January 2023, is
mandatory for the Group given its UK domicile and its dual primary
listings. Prudential's portfolio of transformation and regulatory
change programmes have the potential to introduce new, or increase
existing, regulatory risks and supervisory interest while
increasing the complexity of ensuring concurrent regulatory
compliance across markets driven by potential for increased
intra-Group connectivity and dependencies.
In jurisdictions where Prudential operates with ongoing policy
initiatives and regulatory developments which impact the way
Prudential is supervised including demanding corresponding controls
and maintaining the capabilities of fulfilling the existing or new
regulations. These developments continue to be monitored by the
Group at a market and global level and these considerations form
part of the Group Risk Framework and ongoing engagement with
government policymakers, industry groups and
regulators.
2 Risk
governance
a System
of governance
Prudential
has in place a system of governance that embeds a clear ownership
of risk, together with risk policies and standards to enable risks
to be identified, measured and assessed, managed and controlled,
monitored and reported. The Group Risk Framework, owned by the
Board, details Prudential's risk governance, risk management
processes and risk appetite. The Group's risk governance
arrangements are based on the 'three lines' model. The 'first line'
is responsible for taking and managing risk, while the 'second
line' provides additional challenge, expertise, oversight and
scrutiny. The role of the 'third line', assumed by the independent
Group-wide Internal Audit function, is to provide objective
assurance on the design, effectiveness and implementation of the
overall system of internal control. The Group-wide RCS function
reviews, assesses, oversees and reports on the Group's aggregate
risk exposure and solvency position from an economic, regulatory
and credit ratings perspective.
In
2023, continuous efforts have been made to ensure the
appropriateness of the level of Group governance that promotes
individual accountability in decision-making and supports the
overall corporate governance framework to provide sound and prudent
management and oversight of the Group's business. The Group also
continuously reviews the Group Risk Framework to ensure ESG
considerations, which form an integral part of the wider Group
governance, including climate risk considerations are appropriately
reflected in policies and processes, and embedded within all
business functions.
b Group
Risk Framework
i. Risk governance and
culture
Prudential's
risk governance comprises the Board organisational structures,
reporting relationships, delegation of authority, roles and
responsibilities, and risk policies that have been established to
make decisions and control activities on risk-related matters. The
risk governance structure is led by the Group Risk Committee,
supported by independent Non-executive Directors on the risk
committees of the Group's major businesses. The Group Risk
Committee approves changes to the Group Risk Framework and the core
risk policies that support it. The Committee has direct lines of
communication, reporting and oversight of the risk committees of
the Group's major businesses. The Chief Risk and Compliance
Officers of the Group's major businesses and the managing directors
of the Group's Strategic Business Groups are also invited to the
Group Executive Risk Committee, the advisory committee to the Group
Chief Risk and Compliance Officer. The Chief Risk and Compliance
Officers of the Group's major businesses also attend Group Risk
Committee meetings on a rotational participating
basis.
Risk
culture is a strategic priority of the Board, which recognises its
importance in the way that the Group conducts business. A
Group-wide culture framework is under review to support the revised
purpose and strategy for the Group. The Responsibility and
Sustainability Working Group supports its responsibilities in
relation to implementation of the culture framework, as well as
embedding the culture aspects of the Group's ESG strategic
framework and overseeing progress on diversity and inclusion
initiatives. The culture framework provides principles and values
that are embedded in the ways of working across the Group's
functions and locations and defines how Prudential expects business
to be conducted to achieve its strategic objectives, informs
expectations of leadership and supports the resilience and
sustainability of the Group. The components of the culture
framework support sound risk management practices by requiring a
focus on customers, longer-term goals and sustainability, the
avoidance of excessive risk-taking, and highlighting acceptable and
unacceptable behaviours. This is supported through the inclusion of
risk and sustainability considerations in performance management
for key executives; the building of appropriate skills and
capabilities in risk management; and by ensuring that employees
understand and care about their role in managing risk through open
discussions, collaboration and engagement. The Group Risk Committee
has a key role in providing advice to the Remuneration Committee on
risk management considerations to be applied in respect of
executive remuneration.
Prudential's
Group Code of Business Conduct and Group Governance Manual,
supported by the Group's risk-related policies, are regularly
reviewed and include guiding principles on the day-to-day conduct
of all its people and any organisations acting on its behalf.
Supporting policies include those related to financial crime,
covering anti-money laundering, sanctions, anti-bribery and
corruption and conduct. The Group's third-party and outsourcing
policy requires that human rights and modern slavery considerations
are embedded across all of its supplier and supply chain
arrangements. Procedures to allow individuals to speak out safely
and anonymously against unethical behaviour and conduct are also in
place.
Further
details on the Group's ESG governance arrangements and strategic
framework are included in the Group's 2022 ESG report.
ii. The risk management cycle
Risk identification
In
accordance with provision 28 of the UK Corporate Governance Code
and the GWS guidelines issued by the HKIA, top-down and bottom-up
processes are in place to support Group-wide identification of
principal risks. An emerging risk identification framework also
exists to support the Group's preparations in managing financial
and non-financial risks expected to crystallise beyond the
short-term horizon. The Group performs a robust assessment and
analysis of these principal and emerging risk themes through the
risk identification process, the Group Own Risk and Solvency
Assessment (ORSA) report and the risk assessments undertaken as
part of the business planning review, including how they are
managed and mitigated, which supports decision-making.
The
Group's emerging risk identification process recognises the dynamic
materiality of emerging risk themes, for example, the recent
antitrust concerns raised within the Net Zero Insurance Alliance
leading to member withdrawals. Such concerns have not spread to the
Net Zero Asset Owner Alliance, of which Prudential is a member. The
concept of dynamic materiality is also considered relevant in the
context of the Group's monitoring of emerging themes relevant to
ESG and climate-related risks, including reputation
risk.
The
ORSA is the ongoing process of identifying, measuring and
assessing, managing and controlling, monitoring and reporting the
risks to which the business is exposed. It includes an assessment
of capital adequacy to ensure that the Group's solvency needs are
met at all times, as well as stress and scenario testing, which
includes climate scenarios and reverse stress testing. The latter
requires the Group to ascertain the point of business model failure
and is another tool that helps to identify the key risks and
scenarios that may have a material impact on the Group. The risk
profile assessment is a key output from the risk identification and
risk measurement processes and is used as a basis for setting
Group-wide limits, management information, assessment of solvency
needs, and determining appropriate stress and scenario testing. The
Group's principal risks, which are reported and managed by the
Group with enhanced focus, are reviewed and updated on a regular
basis.
Risk measurement and assessment
All
identified risks are assessed based on an appropriate methodology
for that risk. Quantifiable risks, which are material and mitigated
by holding capital, are modelled in the Group's internal model,
which is used to determine the Group Internal Economic Capital
Assessment (GIECA) and is subject to independent validation and
processes and controls around model changes and
limitations.
Risk management and control
The
Group's control procedures and systems focus on aligning the levels
of risk-taking with the Group's strategy and can only provide
reasonable, and not absolute, assurance against material
misstatement or loss. The Group's risk policies define the Group's
appetite to material risks and set out the risk management and
control requirements to limit exposure to these risks. These
policies also set out the processes to enable the measurement and
management of these risks in a consistent and coherent way,
including the flows of management information required. The methods
and risk management tools employed to mitigate each of the Group's
principal risks are detailed in section 3 below.
Risk monitoring and reporting
The
Group's principal risks are highlighted in the management
information received by the Group Risk Committee and the Board,
which also includes key exposures against appetite and developments
in the Group's principal and emerging risks.
iii. Risk appetite, limits and
triggers
The
Group is cognisant of the interests of the broad spectrum of its
stakeholders (including customers, investors, employees,
communities and key business partners) and that a managed
acceptance of risk lies at the heart of its business. The Group
seeks to generate stakeholder value by selectively taking exposure
to risks, mitigated to the extent it is cost-effective to do so,
and where these are an outcome of its chosen business activities
and strategy. Those risks for which the Group has no tolerance are
actively avoided. The Group's systems, procedures and controls are
designed to manage risk appropriately, and its approach to
resilience and recovery aims to maintain the Group's ability and
flexibility to respond in times of stress.
Qualitative
and quantitative expressions of risk appetite are defined and
operationalised through risk limits, triggers and indicators. The
RCS function reviews the appropriateness of these measures at least
annually. The Board approves changes to the Group's aggregate risk
appetite and the Group Risk Committee has delegated authority to
approve changes to the system of limits, triggers and
indicators.
Group
risk appetite is defined and monitored in aggregate by the setting
of objectives for its capital requirements, liquidity, and
non-financial risk exposure, covering risks to stakeholders,
including those from participating and third-party businesses.
Group limits operate within these expressions of risk appetite to
constrain material risks, while triggers and indicators provide
additional defined points for escalation. The Group Risk Committee,
supported by the RCS function, is responsible for reviewing the
risks inherent in the Group's business plan and for providing the
Board with a view on the risk/reward trade-offs and the resulting
impact to the Group's aggregated position relative to Group risk
appetite and limits, including non-financial risk
considerations.
a.
Capital requirements. Limits
on capital requirements aim to ensure that in both business as
usual and stressed conditions, the Group maintains adequate capital
in excess of internal economic capital requirements, achieves its
desired target credit rating to meet its business objectives, and
supervisory intervention is avoided. The two measures in use at the
Group level are the GWS group capital requirements and internal
economic capital requirements, determined by the Group Internal
Economic Capital Assessment (GIECA).
b.
Liquidity. The
objective of the Group's liquidity risk appetite is to help ensure
that appropriate cash resources are available to meet financial
obligations as they fall due in both business as usual and stressed
scenarios. This is measured using a liquidity coverage ratio which
considers the sources of liquidity against liquidity requirements
under stress scenarios.
c.
Non-financial risks. The
non-financial risk appetite framework is in place to identify,
measure and assess, manage and control, monitor and report
effectively on material non-financial risks across the business.
The non-financial risk appetite is framed around the perspectives
of its varied stakeholders, takes into account current and expected
changes in the external environment, and provides limit and trigger
appetite thresholds for non-financial risk categories across the
Group's locations. The Group accepts a degree of non-financial risk
exposure as an outcome of its chosen business activities and
strategy, and aims to manage these risks effectively to maintain
its operational resilience and its commitments to customers and all
stakeholders and avoid material adverse financial loss or impact to
its reputation.
3 The
Group's principal risks
The delivery of the Group's strategy in building long-term value
for all our stakeholders, focusing on high-growth business in Asia
and Africa, exposes Prudential to risks. The materialisation of
these risks within the Group or in its joint ventures, associates
or key third-party partners may have a financial impact and may
affect the performance of products or services or the fulfilment of
commitments to customers and other stakeholders, with an adverse
impact on Prudential's brand and reputation. This report is focused
mainly on risks to the shareholder but includes those which arise
indirectly through policyholder exposures and third-party business.
The Group's principal risks, which are not exhaustive, are detailed
below. The Group's risk management cycle (detailed above) includes
within its scope the processes for prioritising and determining the
relative significance of ESG and climate-related risks, as well as
those associated with implementing the Group's externally
communicated commitments. The Group's 2022 ESG report includes
further detail on the ESG and climate-related risks which
contribute to the materiality of the Group's principal risks
detailed below, including those related to the Group's operational
and financial resilience, data privacy requirements and
expectations, the regulatory landscape and the implementation of
the Group's strategy. Further details on specific risks faced by
the Group are set out in the section headed 'Risk
factors'.
Risks to the Group's financial situation (including those from the
external macroeconomic and geopolitical environment)
The global economic and geopolitical environment may impact on the
Group directly by affecting trends in financial markets and asset
values, as well as driving short-term volatility.
Risks in this category include the market risks to our investments
and the credit quality of our investment portfolio as well as
liquidity risk.
|
Global economic and geopolitical conditions
With geopolitical tensions high as national alliances and blocs
evolve, the jostling of the current world order and the increasing
prioritisation of national security (widely defined) have become
key determinants of macroeconomic policy, with geopolitical and
macroeconomic uncertainties being intertwined. Geopolitical
developments and tensions, macroeconomic conditions, and broad
policy-driven regulatory developments (see below), at times
interconnected in the speed and manner in which they evolve, drive
the operating environment and risk landscape for the Group and the
level of its exposure to the principal risks outlined
below.
Macroeconomic and geopolitical developments are considered material
to the Group and can potentially increase operational and business
disruption, regulatory and financial market risks, and have the
potential to directly impact Prudential's sales and distribution
networks, as well as its reputation. The potential impacts to the
Group are included in the disclosures on Risk factors.
Market risks to our investments
The value of Prudential's direct investments is impacted by
fluctuations in equity prices, interest rates, credit spreads,
foreign exchange rates and property prices. There are also
potentially indirect impact through the value of the net equity of
its joint ventures and associates. Although inflation remains at
decades-level highs in certain global markets, the Group's direct
exposure to inflation remains modest. Exposure mainly arises
through an increase in medical claims obligations, driven by rising
medical prices. This exposure can be effectively managed by the
business' well-established practice and ability to reprice
products. Challenges for insurers linked to affordability and
existing challenges in persistency are detailed in the Insurance
Risks section below.
The Group has appetite for market risk where it arises from
profit-generating insurance activities to the extent that it
remains part of a balanced portfolio of sources of income for
shareholders and is compatible with a robust solvency position. The
Group's market risks are managed and mitigated by the
following:
-
The
Group market risk policy;
-
Risk
appetite statements, limits and triggers;
-
The
Group's capital and asset liability management committees and the
Group's asset and liability management policy;
-
Asset
and liability management activities, which include management
actions such as changes in asset allocation, bonus revisions,
repricing and the use of reinsurance where
appropriate;
-
The
Group Investment Committee and Group Investment
Policy;
-
Hedging
using derivatives, including currency forwards, bond
forwards/futures, interest rate futures and swaps, and equity
futures;
-
The
monitoring and oversight of market risks through the regular
reporting of management information;
-
Regular
deep dive assessments; and
-
The
Group Critical Incident Procedure (GCIP), which defines specific
governance to be invoked in the event of a critical incident, such
as a significant market, liquidity or credit-related event. This
includes, where necessary, the convening of a Critical Incident
Group (CIG) to oversee, coordinate, and where appropriate, direct
activities during a critical incident.
●
Interest rate
risk, including asset liability management
(ALM). Interest rate risk is driven by
the impact of the valuation of Prudential's assets (particularly
government and corporate bonds) and liabilities, which are
dependent on market interest rates. Prudential's appetite for
interest rate risk requires that assets and liabilities should be
tightly matched for exposures where assets or derivatives exist
that can cover these exposures. Interest rate risk is accepted
where this cannot be hedged, provided that this arises from
profitable products and to the extent that such interest rate risk
exposure remains part of a balanced exposure to risks and is
compatible with a robust solvency position.
Sustained
inflationary pressures have driven interest rates higher, these
have the potential to increase further in the near-to-medium term,
and may impact the valuation of fixed income investments and reduce
fee income. The Group's risk exposure to rising interest rates also
arises from the potential impact to the present value of future
fees for unit-linked based businesses, such as in Indonesia and
Malaysia, as well as the impact to the present value of the future
profits for accident and health products, such as in Hong Kong.
Exposure to higher interest rates also arises from the potential
impact to the value of fixed income assets in the shareholder
funds.
The
Group's risk exposure to lower/decreased interest rates arises from
the guarantees of some non-unit-linked products with a savings
component, including the Hong Kong and Singapore participating and
non-participating businesses. This exposure results from the
potential for an asset and liability mismatch, where long-dated
liabilities and guarantees are backed by short-dated assets. When
this duration mismatch is not eliminated, it is monitored and
managed through local risk and asset liability management
committees and Group risk limits consistent with the Group's
appetite for interest rate risk.
The
Group Capital and ALM Committee is a management committee
supporting the identification, assessment and management of key
financial risks to the achievement of the Group's business
objectives. The Committee also oversees ALM, solvency and liquidity
risks of the local businesses as well as the declaration and
management of non-guaranteed benefits for participating and
universal life lines of business. Local business units are
responsible for the management of their own asset and liability
positions, with appropriate governance in place.
The
objective of the local business unit ALM process is to meet
policyholder liabilities with the returns generated from the
investment assets held, while maintaining the financial strength of
capital and solvency positions. The ALM strategy adopted by the
local business units considers the liability profile and related
assumptions of in-force business and new products to appropriately
manage investment risk within ALM risk appetite, under different
scenarios in accordance with policyholders' reasonable
expectations, and economic and local regulatory requirements.
Factors such as the availability of matching assets,
diversification, currency and duration are considered as
appropriate. The assumptions and methodology used in the
measurement of assets and liabilities for ALM purposes conform with
local solvency regulations. Assessments are carried out on an
economic basis which conforms to the Group's internal economic
capital methodology.
●
Equity and
property investment risk. The shareholder exposure to
equity price movements arises from various sources, including from
unit-linked products where fee income is linked to the market value
of funds under management. Exposure also arises from participating
businesses through potential fluctuations in the value of future
shareholders' profits and where bonuses declared are based broadly
on historical and current rates of return from the business's
investment portfolios, which include equities. The Group has
limited acceptance for exposures to equity risk, but accepts the
equity exposure that arises on future fees (including shareholder
transfers from the participating business).
The
material exposures to equity risk in the Group's businesses include
CPL's exposure to equity risk through investments in equity assets
for most of its products, including participating and
non-participating savings products and protection and unit-linked
products. The Hong Kong business and, to a lesser extent, the
Singapore business contribute to the Group's equity risk exposure
due to the equity assets backing participating products. The
Indonesia and Malaysia businesses are exposed to equity risk
through their unit-linked products, and in the case of Malaysia
exposure also arises from participating and unit-linked
business.
●
Foreign
exchange risk. The geographical diversity of
Prudential's businesses means that it has some exposure to the risk
of foreign exchange rate fluctuations. Some entities within the
Group write policies, invest in assets or enter into other
transactions in local currencies or currencies not linked to the
Group's reporting/functional currency, the US dollar. Although this
limits the effect of exchange rate movements on local operating
results, it can lead to fluctuations in the Group's US
dollar-reported financial statements. This risk is accepted within
the Group's appetite for foreign exchange risk. In cases where a
non-US dollar denominated surplus arises in an operation which is
to be used to support Group capital or shareholders' interest (ie,
remittances), this currency exposure may be hedged where considered
economically favourable. Further, the Group generally does not have
appetite for significant direct shareholder exposure to foreign
exchange risks in currencies outside the markets in which it
operates, but it does have some appetite for this on fee income and
on equity investments within participating funds. Where foreign
exchange risk arises outside appetite, currency swaps and other
derivatives are used to manage the exposure.
Liquidity risk
Prudential's liquidity risk arises from the need to have sufficient
liquid assets to meet policyholder and third-party payments as they
fall due, considered under both business-as-usual and stressed
conditions. It includes the risk arising from funds composed of
illiquid assets and results from a mismatch between the liquidity
profile of assets and liabilities. Liquidity risk may impact market
conditions and valuation of assets in a more uncertain way than for
other risks like interest rate or credit risk. It may arise, for
example, where external capital is unavailable at sustainable cost,
where derivatives transactions require a sudden significant need of
liquid assets or cash to post as collateral to meet derivatives
margin requirements, or where redemption requests are made against
funds managed for external clients (both retail and institutional).
Liquidity risk is considered material at the level of the Group.
Prudential has no appetite for any business to have insufficient
resources to cover its outgoing cash flows, or for the Group as a
whole to not meet cash flow requirements from its debt obligations
under any plausible scenario. The Group has significant internal
sources of liquidity sufficient to meet its expected cash
requirements for at least 12 months from the date the financial
statements are approved, without having to resort to external
sources of funding. The Group has a total of $2.6 billion of
undrawn committed facilities that can be made use of, expiring in
2026. Access to further liquidity is available through the debt
capital markets and the Group's extensive commercial paper
programme. Prudential has maintained a consistent presence as an
issuer in the market for the past decade.
A number of risk management tools are used to manage and mitigate
liquidity risk, including the following:
-
The
Group's liquidity risk policy;
-
Risk
appetite statements, limits and triggers;
-
Regular
assessment and reporting by the Group and business units of
Liquidity Coverage Ratios which are calculated under both base case
and stressed scenarios;
-
The
Group's Liquidity Risk Management Plan, which includes details of
the Group Liquidity Risk Framework as well as analysis of Group and
business units liquidity risks and the adequacy of available
liquidity resources under business-as-usual and stressed
conditions;
-
The
Group's Collateral Management Framework, which sets out the
approach to ensuring business units using derivatives have
sufficient liquid assets or ability to raise liquidity to meet
derivatives margins;
-
The
Group's contingency plans and identified sources of
liquidity;
-
The
Group's ability to access the money and debt capital markets;
and
-
The
Group's access to external committed credit
facilities.
Credit risk
Credit risk is the potential for loss resulting from a borrower's
failure to meet its contractual debt obligation(s). Counterparty
risk, a type of credit risk, is the probability that a counterparty
to a transaction defaults on its contractual obligation(s) causing
the other counterparty to suffer a loss. These risks arise from the
Group's investments in bonds, reinsurance arrangements, derivative
contracts with third parties, and its cash deposits with banks.
Credit spread risk, another type of credit risk, arises when the
interest rate/return on a loan or bond is disproportionately low
compared with another investment with a lower risk of default.
Invested credit and counterparty risks are considered a material
risk for the Group's business units.
The Group's holdings across its life portfolios are mostly in local
currency and with a largely domestic investor base, which provides
support to these positions. These portfolios are generally
positioned towards high-quality names, including those with either
government or considerable parent company balance sheet support.
Areas which the Group is actively monitoring include ongoing
negative developments in the global banking sector, effects of the
global economic slowdown on the invested assets, the impacts of the
tightening of monetary policy in the Group's key markets, higher
refinancing costs, heightened geopolitical tension and
protectionism, negative developments in the Chinese Mainland
property sector and more widely across the Chinese Mainland
economy, as well as high indebtedness in African countries. The
impacts of these trends, which are being closely monitored, include
potential for deterioration in the credit quality of the Group's
invested credit exposures, particularly due to rising funding costs
and overall credit risks, and the extent of downward pressure on
the fair value of the Group's portfolios. The Group's portfolio is
generally well diversified in relation to individual
counterparties, although counterparty concentration is monitored in
particular in local markets where depth (and therefore the
liquidity of such investments) may be low. Prudential actively
reviews its investment portfolio to improve the robustness and
resilience of the solvency position. The Group has appetite to take
credit risk to the extent that it remains part of a balanced
portfolio of sources of income for shareholders and is compatible
with a robust solvency position. Further detail on the Group's debt
portfolio is provided below.
A number of risk management tools are used to manage and mitigate
credit and counterparty credit risk, including the
following:
-
A
credit risk policy and dealing and controls policy;
-
Risk
appetite statements and portfolio-level limits;
-
Counterparty
limits framework and concentration limits on large
names;
-
Collateral
arrangements for derivative, secured lending reverse repurchase and
reinsurance transactions which aim to provide a high level of
credit protection;
-
The
Group Executive Risk Committee and Group Investment Committee's
oversight of credit and counterparty credit risk and sector and/or
name-specific reviews;
-
Regular
assessments and deep dives, including of individual and sector
exposures subject to elevated credit risks; and
-
Close
monitoring or restrictions on investments that may be of
concern.
The total debt securities at 30 June 2023 held by the Group's
operations were $80.4 billion (31 December 2022: $77.0 billion).
The majority (84 per cent, 31 December 2022: 84 per cent) of the
portfolio are investments either held in unit linked funds or
support insurance products where policyholders participate in the
returns of a specified pool of investments1.
The gains or losses on these investments will largely be offset by
movements in policyholder liabilities2.
The remaining 16 per cent (31 December 2022: 16 per cent) of the
debt portfolio (the 'shareholder debt portfolio') are investments
where gains and losses broadly impact the income statement, albeit
short-term market fluctuations are recorded outside of adjusted
operating profit.
●
Group
sovereign debt. Prudential invests in bonds
issued by national governments. This sovereign debt holding within
the shareholder debt portfolio represented 51 per cent or $6.7
billion3 of
the total shareholder debt portfolio as at 30 June 2023 (31
December 2022: 41 per cent or $4.9 billion of the shareholder debt
portfolio). The particular risks associated with holding sovereign
debt are detailed further in the disclosures on Risk
factors.
●
The
total exposures held by the Group in sovereign debt securities at
30 June 2023 are given in note C1 of the Group's IFRS financial
statements.
●
Corporate debt
portfolio. In the shareholder debt
portfolio, corporate debt exposures totalled $5.8 billion of which
$5.5 billion or 94 per cent were investment grade rated (31
December 2022: $6.6 billion of which $6.1 billion or 93 per cent
were investment grade rated).
●
Bank debt
exposure and counterparty credit risk. The banking sector represents a
material concentration in the Group's corporate debt portfolio
which largely reflects the composition of the fixed income markets
across the regions in which Prudential is invested. As such,
exposure to banks is a key part of its core investments, as well as
being important for the hedging and other activities undertaken to
manage its various financial risks. Exposure to the sector is
considered a material risk for the Group. Derivative and
reinsurance counterparty credit risk exposure is managed using an
array of risk management tools, including a comprehensive system of
limits. Prudential manages the level of its counterparty credit
risk by reducing its exposure or using additional collateral
arrangements where appropriate.
At 30 June 2023:
-
94 per cent of the Group's shareholder portfolio
(excluding all government and government-related debt) is
investment grade rated4.
In particular, 60 per cent of the portfolio is
rated4 A-
and above (or equivalent); and
-
The Group's shareholder portfolio is well
diversified: no individual sector5 makes
up more than 15 per cent of the total portfolio (excluding the
financial and sovereign sectors).
The Group's sustainability and ESG-related risks
These include sustainability risks associated with environmental
considerations such as climate change (including physical and
transition risks), social risks arising from diverse stakeholder
commitments and expectations and governance-related
risks.
|
Material and emerging risks associated with key ESG themes may
undermine the sustainability of a business by adversely impacting
its reputation and brand, ability to attract and retain customers,
investors, employees and distribution and other business partners,
and increasing regulatory compliance and litigation risks, and
therefore the results of its operations and delivery of its
strategy and long-term financial success. As custodians of
stakeholder value for the long term, Prudential seeks to manage
sustainability risks and their potential impact on its business and
stakeholders through a focus on the Group's revised purpose, and
transparent and consistent implementation of its strategy in its
markets and across operational, underwriting and investment
activities. The Group also supports a just and inclusive transition
to a lower-carbon global economy that places the societies of
developing markets at the forefront of considerations, as well as
provides greater and more inclusive access to good health and
financial security that meets the changing needs of societies,
promotes responsible stewardship in managing the human impact of
climate change and building human and social capital with its broad
range of stakeholders. It is enabled by strong internal governance,
sound business practices and a responsible investment approach,
with ESG considerations integrated into investment processes and
decisions and the performance of fiduciary and stewardship duties,
including voting and active engagement decisions with respect to
investee companies, as both an asset owner and an asset manager.
Climate risk, the Group's reporting against the recommendations of
the Task Force on Climate-Related Financial Disclosures (TCFD) and
progress on the Group's external climate-related commitments is a
priority focus for the Group Risk Committee for 2023.
Regulatory interest and developments continue to increase globally
and in Asia, and sustainability and ESG-related risks are high on
the agenda of both local regulators and international supervisory
bodies such as the International Association of Insurance
Supervisors (IAIS) and the International Sustainability Standards
Board (ISSB), which published its inaugural sustainability and
ESG-related disclosure requirements in June 2023. The Group
continues to actively engage with, and respond to, discussions,
consultations and supervisory information-gathering exercises.
Details of the Group's sustainability and ESG-related risks are
included in the disclosure on Risk factors.
As local regulatory requirements on climate risk management and
disclosures develop, the Group continues to leverage and share its
Group-wide experience and knowledge with its local businesses on
their ESG policies and approaches, both to provide support and to
help drive consistency in their continuing embedment across
Prudential's businesses. The Group Risk Framework continues to be
critically evaluated and updated where required to ensure both
sustainability and ESG-related considerations and risks to the
Group, and the external impact from the Group's activities, are
appropriately captured.
Risk management and mitigation of sustainability and ESG risks at
Prudential include the following:
-
A
focus on enhancing access to good health and financial security,
and in connection with our stakeholders, ensuring responsible
stewardship of ESG and climate-related issues; clear governance
arrangements, both in the definition of the roles and
responsibilities of the Board and management committees for aspects
of sustainability and ESG risks and through the Group Governance
Manual, which include ESG and responsible business practice-linked
policies, and the Group Code of Business Conduct;
-
The
continued embedding of sustainability and ESG risk within the Group
Risk Framework and risk processes, including:
o
Consideration
of the potential for dynamically-changing materiality in emerging
environmental, social and governance themes and risks through
emerging risk identification and evaluation processes;
o
Definition
of appropriate (and longer) time horizons with respect to climate
risk management and the requirement to consider time horizons where
required in risk-based decision-making;
o
Reflection
in the risk taxonomy that the Group can be both impacted by
sustainability and ESG issues as well as having an impact on these
in the external world ('double materiality');
o
The
applicability of the Group's Model Risk and UDA Risk Policy to the
tools used for the aggregation of the Group's carbon intensity
metrics across its investment portfolios; and
o
Deep
dives into emerging and increasingly material ESG themes, including
climate-related risks, and development of Board-level and broader
training.
- Integrating
ESG considerations into investment processes and responsible supply
chain management; and
- Participation
in networks and industry forums and working groups such as the Net
Zero Asset Owner Alliance (NZAOA), Principles for Responsible
Investment (PRI) and CRO Forum to further develop understanding and
support collaborative action in relation to sustainability and ESG
risks such as climate change and promoting a just and inclusive
transition.
Further information on the Group's ESG governance and ESG strategic
framework, as well as the management of material ESG themes, are
included in the Group's 2022 ESG report.
Risks from the nature of our business and our industry
These include the Group's
non-financial risks including operational and transformation risks
from significant change activity, information security and data
privacy risk, risks associated with the Group's joint ventures and
associates, and risks related to regulatory compliance, as well as
insurance risks and customer conduct risks assumed by the Group in
providing its products.
|
Non-financial risks
The complexity of Prudential, its activities and the extent of
transformation in progress creates a challenging operating
environment and exposure to a variety of non-financial risks which
are considered to be material at a Group level. Prudential accepts
a degree of non-financial risk exposure as an outcome of its chosen
business activities and strategy.
Alongside the non-financial risk appetite framework, other risk
policies and standards that individually engage with specific
non-financial risks, including outsourcing and third-party
management, business continuity, fraud, financial crime, technology
and data, operations processes and extent of transformation are in
place. These policies and standards include subject matter
expert-led processes that are designed to identify, assess, manage
and control non-financial risks, detailed below. These activities
are fundamental in maintaining an effective system of internal
control, and aim to ensure that non-financial risk considerations
are embedded in key business decision-making, including material
business approvals and in setting and challenging the Group's
strategy. These activities include:
-
Reviews
of key non-financial risks and challenges within Group and business
unit business plans during the annual planning cycle, to support
business decisions;
-
Corporate
insurance programmes to limit the financial impact of operational
risks;
-
Oversight
of risk management during the transformation life cycle, project
prioritisation and the risks, interdependencies and possible
conflicts arising from a large portfolio of transformation
activities;
-
Screening
and transaction monitoring systems for financial crime and a
programme of compliance control monitoring reviews and regular risk
assessments;
-
Internal
and external review of cyber security capability and defences;
and
-
Regular
updating and risk-based testing of disaster recovery plans and the
Critical Incident Procedure process.
The Group's non-financial risks, which are not exhaustive, are
detailed below:
●
Operations and
process controls risk. This is the risk of failure to
adequately or accurately process different types of operational
transactions, including customer servicing, and asset and
investment management operations. The risk of operational
processing errors can arise from human error, system issues or
control gaps, and may occur across different types of operational
tasks or activities. These errors can also lead to suboptimal
customer experience and lower operational efficiency. Apart from
the direct financial impacts of inaccurate processing, indirect
costs may include regulatory penalties, reputational damage and
resources spent to amend the errors. The Group aims to manage the
risk effectively by maintaining operational resilience and
honouring commitments to customers and stakeholders, whilst
avoiding material adverse financial loss or impact on its
reputation.
●
Transformation
risk. Transformation risk remains a
material risk for Prudential, with a number of significant change
programmes under way which, if not delivered and executed
effectively to defined timelines, scope and cost, may negatively
impact its operational capability, control environment, reputation,
and ability to deliver its strategy and maintain market
competitiveness. This risk may be further elevated as Prudential
implements the revised strategy for the Group. Prudential's current
portfolio of transformation and significant change programmes
include (i) the implementation and embedding of large scale
regulatory/industry changes such as the implementation of IFRS 17;
(ii) the expansion of the Group's digital capabilities and use of
technology, platforms and analytics; and (iii) improvement of
business efficiencies through operating model changes, including
those relating to the Group's central, asset management and
investment oversight functions. Further detail on the risks to the
Group associated with large-scale transformation and complex
strategic initiatives is included in the disclosures on Risk
factors.
The
Group therefore aims to ensure that, for both transformation and
strategic initiatives, strong programme governance is in place with
embedded risk expertise to achieve ongoing and nimble risk
oversight, with regular risk monitoring and reporting to risk
committees. The Group's transformation risk framework is in place
alongside with the Group's existing risk policies and frameworks
with the aim to ensure appropriate governance and controls are in
place to mitigate these risks.
●
Outsourcing
and third-party risks. The Group's outsourcing and
third-party relationships require distinct oversight and risk
management processes. The Group has a number of important
third-party relationships, both with market counterparties and
outsourcing partners, including distribution, technology and
ecosystem providers. In Asia, the Group maintains material
strategic partnerships and bancassurance arrangements. These
arrangements support the delivery of high level and cost-effective
services to customers, but also create a reliance on the
operational resilience and performance of outsourcing and business
partners. The Group's requirements for the management of material
outsourcing arrangements have been incorporated in its Group
third-party supply and outsourcing policy, aligned to the
requirements of the HKIA's GWS Framework, and which outlines the
governance in place in respect of material outsourcing and
third-party arrangements and the Group's monitoring and risk
assessment framework. This aims to ensure that appropriate contract
performance and risk mitigation measures are in place over these
arrangements.
●
Model and user
developed application (UDA) risk. Erroneous or misinterpreted tools
used in core business activities, decision-making and reporting
could impact Prudential negatively. The Group utilises various
tools and they form an integral part of operational functions
including the calculation of regulatory or internal capital
requirements, the valuation of assets and liabilities, determining
hedging requirements, assessing projects and strategic
transactions, and acquiring new business via digital
platforms.
The
Group has no appetite for model and UDA risk arising from failures
to develop, implement and monitor appropriate risk mitigation
measures. Prudential's model and UDA risk framework applies a
risk-based approach to tools (including those under development)
which considers a broad range of stakeholders, including
policyholders, with the aim to ensure a proportionate level of risk
management.
Prudential's
model and UDA risk is managed and mitigated using the
following:
-
The
Group's Model and UDA Risk Policy and relevant
guidelines;
-
Annual
risk assessment (including model limitations, known errors and
approximations) of all tools used for core business activities,
decision-making and reporting;
-
Maintenance
of appropriate documentation for tools used;
-
Implementation
of controls with the aim to ensure tools are accurate and
appropriately used;
-
Tools
are subject to rigorous and independent model validation;
and
-
Regular
reporting to the RCS function and relevant risk and Board
committees to support the measurement and management of the
risk.
Technological
developments, in particular in the field of artificial intelligence
(AI) and the increased use of generative AI, pose new
considerations on risk oversight provided under the Group Risk
Framework. An oversight forum for the use of AI and key ethical
principles are in place and adopted by the Group with the aim to
ensure the safe use of AI.
●
Fraud
Risk. Prudential is exposed to fraud
risk, including fraudulent insurance claims, transactions, or
procurement of services, that are made against or through the
business. The Group's counter fraud policy is in place to set out
the required standards to enhance fraud detection, prevention and
investigation activities with the objective to protect resources to
support sustainable business growth. The policy also sets out the
framework to tackle fraud with the goals of safeguarding customers,
protecting local businesses and the Group's reputation, and
providing assurance that fraud risk is managed within appetite. The
Group continues to undertake strategic activities to monitor and
evaluate the evolving fraud risk landscape, mitigate the likelihood
of fraud occurring and increase the rate of detection. The Group
has a mature confidential reporting system in place, through which
employees and other stakeholders can report concerns relating to
potential misconduct. The process and results of this system are
overseen by the Group Audit Committee.
●
Financial
crime risk. As with all financial services
firms, Prudential is exposed to risks relating to money laundering
(the risk that the products or services of the Group are used by
customers or other third parties to transfer or conceal the
proceeds of crime); sanctions compliance breaches (the risk that
the Group undertakes business with individuals and entities on the
lists of the main sanctions regimes); and bribery and corruption
(the risk that employees or associated persons seek to influence
the behaviour of others to obtain an unfair advantage or receive
benefits from others for the same purpose).
Prudential
operates in some high-risk markets where, for example, the
acceptance of cash premiums from customers may be common practice,
large-scale agency networks may be in operation where sales are
incentivised by commission and fees, and concentration of exposure
to politically-exposed persons may give rise to higher geopolitical
risk exposure.
The
Group-wide policies on anti-money laundering, sanctions and
anti-bribery and corruption risks reflect the requirements
applicable to all staff in all offices and businesses. These
policies are also aligned with the Group's values and behaviours
that are expected across the business. Screening and transaction
monitoring systems are in place with ongoing improvements and
upgrades being implemented where required, and a programme of
compliance control monitoring reviews is in place across the Group.
The Group has continued to strengthen and enhance its financial
crime risk management capability through investment in advanced
analytics and AI tools. Proactive detective capabilities are being
implemented across the Group and delivered through a centralised
monitoring hub, to further strengthen oversight of financial crime
risks in the areas of procurement and third-party management. Risk
assessments are performed annually for businesses and offices
across all locations. Due diligence reviews and assessments against
Prudential's financial crime policies are performed as part of the
Group's business acquisition process.
●
Information
security and data privacy risk. Risks related to malicious
attacks on Prudential systems, service disruption, exfiltration of
data, loss of data integrity and the impact on the privacy of our
customer data continue to be prevalent, particularly as the
accessibility of attacking tools available to potential adversaries
increases. The frequency and sophistication of attacks,
particularly in relation to ransomware, continues to grow globally.
With a rapidly transforming technological landscape, continued
expansion of Cloud services, including the adoption of a hybrid
multi-cloud strategy partnering with third-party service providers,
and the increased scrutiny from regulators against a backdrop of
tightening data privacy regulations across Asia, security and
privacy risks are material at the Group level. To mitigate the
risk, the Group has adopted a holistic risk management approach,
which was designed not only to prevent and disrupt potential
attacks against Prudential systems but to also manage the recovery
process should an attack take place successfully. It is also well
understood that some attacks may still be successful despite the
layered security control defence-in-depth methodology that
Prudential and other mature organisations assume, and so it is
essential that the Group's security strategy encompasses a cyber
resilience theme focusing on its ability to respond and recover
from an attack in order to maintain its reputation and customer
trust.
Globally,
ransomware and distributed denial of services (DDoS) attacks have
increased markedly since early 2022, in part driven by the
Russia-Ukraine conflict. The Group has responded swiftly by
leveraging threat intelligence information to configure security
systems to mitigate any potential attacks, whether targeted or
collateral, from these events. Prudential also has a number of
defences in place to protect its systems from these types of
attacks, including but not limited to: (i) DDoS protection for the
Group's websites via web application firewall services; (ii)
AI-based endpoint security software; (iii) continuous security
monitoring; (iv) network-based intrusion detection; and (v)
employee training and awareness campaigns to raise understanding of
attacks utilising email phishing techniques. Cyber insurance
coverage is in place to provide some protection against potential
financial losses and the Group conducts simulation exercises for
ransomware attacks to assess and develop the effectiveness of
incident responses across its businesses. Cyber-attack simulation
exercises have been carried out to enhance
preparedness.
As
the Group continues to develop and expand digital services and
emerging products, its reliance on third-party service providers
and business partners who specialise in niche capabilities is also
increasing. In the first half of 2023, among many companies around
the world, the Group's businesses in Malaysia have been affected by
the global MOVEit, a vendor providing secured file transfer
services, data-theft attack where a zero-day vulnerability was
exploited with infringements to data security, integrity and
privacy, which as a result directly impacted the Group's reputation
and compliance with regulation and privacy requirements. Following
the threats, various actions have been taken, including isolating
the affected server, a thorough investigation, and customer and
authority notifications. Lesson learnt and potential enhancements
have been identified from the review and action plans have been
formulated to address these. The Group has also continued to
enhance its third-party management framework including the enhanced
security due diligence process when onboarding new business
partners and the ongoing monitoring of key business
partners.
The
key material risks can be summarised into three threat areas: (i)
ransomware attacks, (ii) supply chain compromise and (iii) service
disruption caused by cyber threats. In order for the Group to
manage these risks effectively, the security strategy encompasses
the ongoing maturity and development of protective and detective
controls, while further expanding and uplifting its ability to
react to and recover from successful attacks on both the Group's
system as well as third-party partner systems.
The
Group's Information Security and Privacy strategy is structured
with three key pillars:
-
Defending
the nation - To expand coverage and maturity of protective and
detective security controls in response to both the changing
technology landscape, such as the adoption of new Cloud services,
as well as the heightened threat actor risks. Within this pillar,
continued focus on Africa business units remains in order to help
ensure the same maturity level as Asia-based business units is
achieved.
-
Cyber
resilience - To build on a number of existing security processes
and formalise the development of an integrated cross-functional
incident management framework that is regularly tried and tested.
This includes further aligning Group incident management plans,
business unit incident management plans and cyber security incident
management plans along with executing a number of drills and
tabletop exercises. The drills and exercises will be conducted at
all levels including executive committee members and within the
business units while bringing in critical key business partners
such as cyber insurance providers and forensic investigation
partners.
-
Enabling
the digital journey - To focus on introducing and building out key
security controls within the digital ecosystem to ensure continued
enablement of the organisation's digital strategy while improving
customer experience and data security within the digital
ecosystem.
With
the aim to ensure the effectiveness of the Group's Information
Security and Privacy controls, the Group has established different
processes to review and validate the Information Security and
Privacy mechanisms deployed, which include setting up a dedicated
ethical hacking team to perform testing on the systems to identify
potential vulnerabilities, engaging with external consultants to
perform penetration testing on our systems and engaging external
consultants to perform independent assessments on both our Security
Operations Centre and the Information and Privacy function as a
whole to further improve the efficiency of the functions. A Bug
Bounty programme has been established to provide a secured and
official channel for external security practitioners to report
potential issues or vulnerabilities in our system. In addition, the
Group has subscribed to services from the independent security
consultants to continuously monitor our external security
posture.
The
centralised Technology Risk Management team leverages skills, tools
and resources across different technology domains to provide
advisory, assurance and operations support for holistic technology
risk management including information security and privacy. Based
on risk assessments, risk deep dives are performed on an ongoing
basis on different technology domains to provide assurance of
controls to manage technology risks. The Group Technology Risk
Committee provides Group-wide oversight of technology risks,
including information security and privacy. Technology risk
management is also performed locally within business units, with
inputs from subject matter experts and with oversight from local
risk committees. Work continues to be undertaken in 2023 to further
enhance the maturity of the hub and spoke technology risk operating
model which includes organisational structure improvements, policy
enhancements and enriched key risk indicators to provide a
quantifiable overlay to overseeing and managing technology risks.
The Group's internal audits also regularly include cybersecurity as
part of its audit coverage. The Board is briefed at least twice
annually on cyber security and privacy by the Group Chief
Information Security Officer (CISO) and is being engaged more
closely on cyber resilience with executive-level cyber tabletop
exercises and risk workshops conducted in 2022 and continuing in
2023 to ensure that members have the means to enable appropriate
oversight and understand the latest threats and regulatory
expectations. The Group Information Security, Privacy and Data
policies were developed with the aim to ensure compliance with all
applicable laws and regulations, and the ethical use of customer
data. In addition, these policies consider the requirements of a
range of supervisory guidelines including the international
standards on information security (ISO 27001/27002) and the US
National Institute of Standards and Technology's Cyber Security
Framework. Localised regulations or legal requirements are
addressed by local policies or standards.
Risks associated with the Group's joint ventures and
associates
Prudential operates, and in certain markets is required by local
regulation to operate, through joint ventures and other joint
ownership or third-party arrangements (including associates). A
material proportion of the Group's business comes from its joint
venture and associate in the Chinese Mainland and India
respectively. For such operations, the level of control exercisable
by the Group depends on the terms of the contractual agreements
between participants. As such, the level of oversight, control and
access to management information the Group is able to exercise over
the extent of the exposure to material risks at these operations
may be lower compared with the Group's wholly-owned businesses.
Further information on the risks to the Group associated with its
joint ventures and other shareholders and third parties are
included in the disclosures on Risk factors.
Insurance risks
Insurance risks make up a significant proportion of Prudential's
overall risk exposure. The profitability of the Group's businesses
depends on a mix of factors, including levels of, and trends in,
mortality (policyholders dying), morbidity (policyholders becoming
ill or suffering an accident) and policyholder behaviour
(variability in how customers interact with their policies,
including utilisation of withdrawals, take-up of options and
guarantees and persistency, ie, lapsing/surrendering of policies),
and increases in the costs of claims over time (claim inflation).
The risks associated with adverse experience relative to
assumptions associated with product performance and customer
behaviour are detailed in the disclosures on Risk factors. The
Group has appetite for retaining insurance risks in the areas where
it believes it has expertise and operational controls to manage the
risk and where it judges it to be more value creating to do so
rather than transferring the risk, and only to the extent that
these risks remain part of a balanced portfolio of sources of
income for shareholders and are compatible with a robust solvency
position.
Whilst Covid-19 has evolved into an endemic disease, the impact of
policyholders having deferred medical treatment during the pandemic
(latent morbidity impacts) continues to be experienced in a number
of markets. The implications from other factors such as long-term
post-Covid-19 symptoms (although there is currently no consensus on
the longer-term impact on morbidity) is being monitored.
Inflationary pressures driving higher interest rates may lead to
increased lapses for some guaranteed savings products where higher
levels of guarantees are offered by products of the Group's
competitors, reflecting consumer demand for returns at the level
of, or exceeding, inflation. A high inflation environment, and the
broader economic effects of recessionary concerns, may also
increase lapses, surrenders and fraud, as well as heighten premium
affordability challenges.
The principal drivers of the Group's insurance risk vary across its
business units. In Hong Kong, Singapore, Indonesia and Malaysia, a
significant volume of health and protection business is written and
the most significant insurance risks are medical claims inflation
risk, morbidity risk, and persistency risk:
●
Medical claims
inflation risk: A key assumption in these markets
is the rate of medical claims inflation, which is often in excess
of general price inflation. Where the cost of medical treatment
increases more than expected, resulting in higher than anticipated
medical claims cost passed on to Prudential, is a key risk. This
risk is best mitigated by retaining the right to reprice products
and appropriate overall claims limits within policies, either per
type of medical treatment or in total across a policy, annually
and/or over the policy lifetime. Medical reimbursement downgrade
experience (where the policyholder reduces the level of the
coverage/protection in order to reduce premium payments) following
any repricing is also monitored by the Group's businesses. The
risks to the Group's ability to reprice are included in the
disclosures on Risk factors.
●
Morbidity
risk: Prudential's morbidity risk is
managed through prudent product design, underwriting and claims
management, and for certain products, the right to reprice where
appropriate. Prudential's morbidity assumptions reflect its recent
experience and expectation of future trends for each relevant line
of business.
●
Persistency
risk: The Group's persistency
assumptions reflect recent experience and expert judgement,
especially where a lack of experience data exists, as well as any
expected change in future persistency. Persistency risk is managed
by appropriate controls across the product life cycle. This
includes review and revisions to product design and incentive
structures where required, ensuring appropriate training and sales
processes, including those ensuring active customer engagement and
high service quality, appropriate customer disclosures and product
collaterals, use of customer retention initiatives and post-sale
management through regular experience monitoring. Strong risk
management and mitigation of conduct risk and the identification of
common characteristics of business with high lapse rates is also
crucial. Where appropriate, allowance is made for the relationship
(either assumed or observed historically) between persistency and
investment returns. Modelling this dynamic policyholder behaviour
is particularly important when assessing the likely take-up rate of
options embedded within certain products.
Prudential's insurance risks are managed and mitigated using the
following:
-
The
Group's insurance policy, which sets out the Group's insurance risk
appetite and required standards for effective insurance risk
management by head office and local businesses, including processes
to enable the measurement of the Group's insurance risk profile,
management information flows and escalation
mechanisms;
-
The
Group's product and underwriting risk policy, which sets out the
required standards for effective product and underwriting risk
management and approvals for new, or changes to existing, products
(including the role of the Group), and the processes to enable the
measurement of underwriting risk. The policy also describes how the
Group's Customer Conduct Risk Policy is met in relation to new
product approvals and current and legacy products;
-
The
Group's counter fraud policy (see the Fraud Risk section
above);
-
In
product design and appropriate processes related to the management
of policyholders' reasonable expectations;
-
The
risk appetite statements, limits and triggers;
-
Using
persistency, morbidity and longevity assumptions that reflect
recent experience and expectation of future trends, and the use of
industry data and expert judgement where appropriate;
-
Using
reinsurance to mitigate mortality and morbidity risks;
-
Ensuring
appropriate medical underwriting when policies are issued and
appropriate claims management practices when claims are received in
order to mitigate morbidity risk;
-
Maintaining
the quality of sales processes, training and using initiatives to
increase customer retention in order to mitigate persistency
risk;
-
The
use of mystery shopping to identify opportunities for improvement
in sales processes and training;
-
Using
product repricing and other claims management initiatives in order
to mitigate morbidity and medical claims inflation risk;
and
-
Regular
deep dive assessments.
Business Concentration risk
Prudential operates in markets in both Asia and Africa via various
channels and product mix; although largely diversified at the Group
level, several of these markets are exposed to certain level of
concentration risks. From a channel concentration perspective, some
of the Group's key markets continue to rely on agency and some
markets rely on bancassurance. From a product concentration
perspective, some of the Group's markets focus heavily on specific
product types depending on the target customer segments.
Geographically, Greater China (Hong Kong, the Chinese Mainland and
Taiwan) region contributes materially to the Group's top and bottom
lines. To improve business resilience, the Group continues to look
for opportunities to enhance business diversification by building
multi-market growth engines as part of its strategy.
Customer conduct risk
Prudential's conduct of business, especially in the design and
distribution of its products and the servicing of customers, is
crucial in ensuring that the Group's commitment to meeting its
customers' needs and expectations are met. The Group's customer
conduct risk framework, owned by the Chief Executive Officer,
reflects management's focus on customer outcomes.
Factors that may increase conduct risks can be found throughout the
product life cycle, from the complexity of the Group's products and
services to its diverse distribution channels, which include its
agency workforce, virtual face-to-face sales and sales via online
digital platforms. Prudential has developed a Group Customer
Conduct Risk Policy which sets out five customer conduct standards
that the business is expected to meet, being:
1.
Treat
customers fairly, honestly and with integrity;
2.
Provide
and promote products and services that meet customer needs, are
clearly explained and that deliver real value;
3.
Manage
customer information appropriately, and maintain the
confidentiality of customer information;
4.
Provide
and promote high standards of customer service; and
5.
Act
fairly and timely to address customer complaints and any errors
found.
Prudential manages conduct risk via a range of controls that are
assessed through the Group's conduct risk assessment framework,
reviewed within its monitoring programmes, and overseen within
reporting to its boards and committees.
Management of Prudential's conduct risk is key to the Group's
strategy. Prudential's conduct risks are managed and mitigated
using the following:
●
The
Group's code of business conduct and conduct standards, product
underwriting and other related risk policies, and supporting
controls including the Group's fraud risk control
programme;
●
A
culture that supports the fair treatment of the customer,
incentivises the right behaviour through proper remuneration
structures, and provides a safe environment to report conduct
risk-related issues via the Group's internal processes and the
Speak Out program;
●
Distribution
controls, including monitoring programmes relevant to the type of
business (insurance or asset management), distribution channel
(agency, bancassurance, or digital) and ecosystem, to help ensure
sales are conducted in a manner that considers the fair treatment
of customers within digital environments;
●
Quality
of sales processes, services and training, and using other
initiatives such as special requirements for vulnerable customers,
to improve customer outcomes;
●
Appropriate
claims management and complaint handling practices;
and
●
Regular
deep dive assessments on, and monitoring of, conduct risks and
periodic conduct risk assessments.
Risks related to regulatory and legal compliance
Prudential operates in highly regulated markets and under the
ever-evolving requirements and expectations of diverse and dynamic
regulatory, legal and tax regimes which may impact its business or
the way it is conducted. The complexity of legal and regulatory
(including sanctions) compliance continues to evolve and increase,
representing a challenge for international businesses. Compliance
with the Group's legal or regulatory obligations (including in
respect of international sanctions) in one jurisdiction may
conflict with the law or policy objectives of another jurisdiction,
or may be seen as supporting the law or policy objectives of one
jurisdiction over another, creating additional legal, regulatory
compliance and reputational risks. These risks may be increased
where the scope of regulatory requirements and obligations are
uncertain, and where specific cases applicable to the Group are
complex. Regulatory risks cover a broad range of risks including
changes in government policy and legislation, capital control
measures, and new regulations at either a national or international
level. The breadth of local and Group-wide regulatory arrangements
presents the risk that requirements are not fully met, resulting in
specific regulator interventions or actions including retrospective
interpretation of standards by regulators. As the industry's use of
emerging technological tools and digital services increases, this
is likely to lead to new and unforeseen regulatory issues and the
Group is monitoring emerging regulatory developments and standards
on the governance and ethical and responsible use of technology and
data. In certain jurisdictions in which Prudential operates there
are a number of ongoing policy initiatives and regulatory
developments which will impact the way Prudential is supervised.
These developments continue to be monitored by the Group at a
national and global level and these considerations form part of the
Group's ongoing engagement with government policy teams, industry
groups and regulators. Further information on specific areas of
regulatory and supervisory focus and changes are included in the
disclosures on Risk factors.
Risk management and mitigation of regulatory risk at Prudential
includes:
-
Proactively
adapting and complying with the latest regulatory
developments;
-
Group
and business unit-level compliance oversight and risk-based testing
in respect of adherence with regulations;
-
Close
monitoring and assessment of our business and regulatory
environment and strategic risks;
-
The
explicit consideration of risk themes in strategic
decisions;
-
Ongoing
engagement with national regulators, government policy teams and
international standard setters; and
-
Compliance
oversight to ensure adherence with in-force regulations and
management of new regulatory developments, including those
associated with greenwashing risk arising from exaggerated,
misleading or unsubstantiated sustainability-related
claims.
Notes
1.
Reflecting
products that are classified as Variable Fee Approach
only.
2.
With
the exception of investments backing the shareholders' 10 per cent
share of the estate within the Hong Kong participating
fund.
3.
Excluding
assets held to cover linked liabilities and those of the
consolidated investment funds.
4.
Based
on middle rating from Standard & Poor's, Moody's and Fitch. If
unavailable, NAIC and other external ratings and then internal
ratings have been used.
5.
Source
of segmentation: Bloomberg Sector, Bloomberg Group and Merrill
Lynch. Anything that cannot be identified from the three sources
noted is classified as other.
Hong Kong listing obligations
The Directors confirm that the Company has complied with all the
code provisions of the Corporate Governance Code (HK Code) issued
by The Stock Exchange of Hong Kong Limited (the Hong Kong Stock
Exchange) set out in Appendix 14 to the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited (Hong Kong
Listing Rules) throughout the accounting period, except as
described below.
The Company does not comply with provision E.1.2(d) of the HK Code
which requires companies, on a comply or explain basis, to have a
remuneration committee which makes recommendations to the board on
the remuneration of non-executive directors. This provision is not
compatible with provision 34 of the UK Corporate Governance Code
issued by the Financial Reporting Council which recommends that the
remuneration of non-executive directors be determined in accordance
with the Articles of Association or, alternatively, by the board.
Prudential has chosen to adopt a practice in line with the
recommendations of the UK Corporate Governance Code.
Prudential has adopted securities dealing rules relating to
transactions by Directors on terms no less exacting than required
by Appendix 10 to the Hong Kong 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 Directors confirm that the financial results contained in this
document have been reviewed by the Audit Committee.
2023 first interim dividend
Ex-dividend date
|
7 September 2023 (Hong Kong, UK and Singapore)
|
Record date
|
8
September 2023
|
Payment date
|
19 October 2023 (Hong Kong, UK and ADR holders)
On or around 26 October 2023 (Singapore)
|
Forward-looking statements
This document contains 'forward-looking statements' with respect to
certain of Prudential's (and its wholly and jointly owned
businesses') plans and its goals and expectations relating to
future financial condition, performance, results, strategy and
objectives. Statements that are not historical facts, including
statements about Prudential's (and its wholly and jointly owned
businesses') beliefs and expectations and including, without
limitation, commitments, ambitions and targets, including those
related to ESG matters, and statements containing the words 'may',
'will', 'should', 'continue', 'aims', 'estimates', 'projects',
'believes', 'intends', 'expects', 'plans', 'seeks' and
'anticipates', and words of similar meaning, are forward-looking
statements. These statements are based on plans, estimates and
projections as at the time they are made, and therefore undue
reliance should not be placed on them. By their nature, all
forward-looking statements involve risk and
uncertainty.
A number of important factors could cause actual future financial
condition or performance or other indicated results to differ
materially from those indicated in any forward-looking statement.
Such factors include, but are not limited to:
●
current
and future market conditions, including fluctuations in interest
rates and exchange rates, inflation (including resulting interest
rate rises), sustained high or low interest rate environments, the
performance of financial and credit markets generally and the
impact of economic uncertainty, slowdown or contraction (including
as a result of the Russia-Ukraine conflict and related or other
geopolitical tensions and conflicts), which may also impact
policyholder behaviour and reduce product
affordability;
●
asset
valuation impacts from the transition to a lower carbon
economy;
●
derivative
instruments not effectively mitigating any exposures;
●
global
political uncertainties, including the potential for increased
friction in cross-border trade and the exercise of laws,
regulations and executive powers to restrict trade, financial
transactions, capital movements and/or investment;
●
the
longer-term impacts of Covid-19, including macro-economic impacts
on financial market volatility and global economic activity and
impacts on sales, claims (including related to treatments deferred
during the pandemic), assumptions and increased product
lapses;
●
the
policies and actions of regulatory authorities, including, in
particular, the policies and actions of the Hong Kong Insurance
Authority, as Prudential's Group-wide supervisor, as well as the
degree and pace of regulatory changes and new government
initiatives generally;
●
the
impact on Prudential of systemic risk and other group supervision
policy standards adopted by the International Association of
Insurance Supervisors, given Prudential's designation as an
Internationally Active Insurance Group;
●
the
physical, social, morbidity/health and financial impacts of climate
change and global health crises, which may impact Prudential's
business, investments, operations and its duties owed to
customers;
●
legal,
policy and regulatory developments in response to climate change
and broader sustainability-related issues, including the
development of regulations and standards and interpretations such
as those relating to ESG reporting, disclosures and product
labelling and their interpretations (which may conflict and create
misrepresentation risks);
●
the
collective ability of governments, policymakers, the Group,
industry and other stakeholders to implement and adhere to
commitments on mitigation of climate change and broader
sustainability-related issues effectively (including not
appropriately considering the interests of all Prudential's
stakeholders or failing to maintain high standards of corporate
governance and responsible business practices);
●
the
impact of competition and fast-paced technological
change;
●
the
effect on Prudential's business and results from, in particular,
mortality and morbidity trends, lapse rates and policy renewal
rates;
●
the
timing, impact and other uncertainties of future acquisitions or
combinations within relevant industries;
●
the
impact of internal transformation projects and other strategic
actions failing to meet their objectives or adversely impacting the
Group's employees;
●
the
availability and effectiveness of reinsurance for Prudential's
businesses;
●
the
risk that Prudential's operational resilience (or that of its
suppliers and partners) may prove to be inadequate, including in
relation to operational disruption due to external
events;
●
disruption
to the availability, confidentiality or integrity of Prudential's
information technology, digital systems and data (or those of its
suppliers and partners) including the Pulse platform;
●
the
increased non-financial and financial risks and uncertainties
associated with operating joint ventures with independent partners,
particularly where joint ventures are not controlled by
Prudential;
●
the
impact of changes in capital, solvency standards, accounting
standards or relevant regulatory frameworks, and tax and other
legislation and regulations in the jurisdictions in which
Prudential and its affiliates operate; and
●
the
impact of legal and regulatory actions, investigations and
disputes.
These factors are not exhaustive. Prudential operates in a
continually changing business environment with new risks emerging
from time to time that it may be unable to predict or that it
currently does not expect to have a material adverse effect on its
business. In addition, these and other important factors may, for
example, result in changes to assumptions used for determining
results of operations or re-estimations of reserves for future
policy benefits. Further discussion of these and other important
factors that could cause actual future financial condition or
performance to differ, possibly materially, from those anticipated
in Prudential's forward-looking statements can be found under the
'Risk Factors' heading of this document, as well as under the 'Risk
Factors' heading of Prudential's 2022 Annual Report. Prudential's
2022 Annual Report is available on its website at
www.prudentialplc.com.
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 Guidance
and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST
Listing Rules or other applicable laws and
regulations.
Prudential may also make or disclose written and/or oral
forward-looking statements in reports filed with or furnished to
the US Securities and Exchange Commission, the UK Financial Conduct
Authority, the Hong Kong Stock Exchange and other regulatory
authorities, as well as in its annual report and accounts to
shareholders, periodic financial reports to shareholders, proxy
statements, offering circulars, registration statements,
prospectuses, prospectus supplements, press releases and other
written materials and in oral statements made by directors,
officers or employees of Prudential to third parties, including
financial analysts. All such forward-looking statements are
qualified in their entirety by reference to the factors discussed
under the 'Risk Factors' heading of this document, as well as under
the 'Risk Factors' heading of Prudential's 2022 Annual
Report.
Cautionary statements
This document does not constitute or form part of any offer or
invitation to purchase, acquire, subscribe for, sell, dispose of or
issue, or any solicitation of any offer to purchase, acquire,
subscribe for, sell or dispose of, any securities in any
jurisdiction nor shall it (or any part of it) or the fact of its
distribution, form the basis of, or be relied on in connection
with, any contract therefor.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: 30 August
2023
|
PRUDENTIAL
PUBLIC LIMITED COMPANY
|
|
|
|
By:
/s/ Ben Bulmer
|
|
|
|
Ben
Bulmer
|
|
Group
Chief Financial Officer
|