Additional unaudited financial information

The following table sets forth Prudential’s selected consolidated financial data for the periods indicated. Certain data is derived from Prudential’s audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU) and European Embedded Value (EEV).

This table is only a summary and should be read in conjunction with Prudential’s consolidated financial statements and the related notes included elsewhere in this document.

Income statement data

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  Year ended 31 December
  2011 £m 2010 £m 2009 £m 2008 £m 2007 £m
IFRS basis results          
Gross premium earned 25,706 24,568 20,299 18,993 18,359
Outward reinsurance premiums (429) (357) (323) (204) (171)
Earned premiums, net of reinsurance 25,277 24,211 19,976 18,789 18,188
Investment return 9,360 21,769 26,889 (30,202) 12,225
Other income 1,869 1,666 1,234 1,146 2,457
Total revenue, net of reinsurance 36,506 47,646 48,099 (10,267) 32,870
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (29,289) (40,518) (41,195) 10,824 (26,785)
Acquisition costs and other expenditure (5,005) (4,799) (4,572) (2,459) (4,859)
Finance costs: interest on core structural borrowings of shareholder-financed operations (286) (257) (209) (172) (168)
Loss on sale of Taiwan agency business (559)
Total charges, net of reinsurance (34,580) (45,574) (46,535) 8,193 (31,812)
Profit (loss) before tax (being tax attributable to shareholders’ and policyholders’ returns)(1) 1,926 2,072 1,564 (2,074) 1,058
Tax credit (charge) attributable to policyholders’ returns 17 (611) (818) 1,624 5
Profit (loss) before tax attributable to shareholders 1,943 1,461 746 (450) 1,063
Tax (charge) credit attributable to shareholders’ returns (449) (25) (55) 59 (354)
Profit (loss) from continuing operations after tax 1,494 1,436 691 (391) 709
Discontinued operations (net of tax) (14) 241
Profit (loss) for the year 1,494 1,436 677 (391) 950
Based on profit (loss) for the year attributable to the equity holders of the Company:          
Basic earnings per share (in pence) 58.8p 56.7p 27.0p (16.0)p 38.7p
Diluted earnings per share (in pence) 58.7p 56.6p 27.0p (16.0)p 38.6p
Dividend per share declared and paid in reporting period
(in pence)
25.19p 20.17p 19.20p 18.29p 17.42p

Supplementary IFRS income statement data

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  Year ended 31 December
  2011 £m 2010 £m 2009 £m 2008 £m 2007 £m
Operating profit based on longer-term investment returns(note 2) 2,070 1,941 1,564 1,212 1,152
Short-term fluctuations in investment returns on shareholder- backed business (148) (123) (123) (1,650) (51)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 21 (10) (74) (13) (1)
Costs of terminated AIA transaction (377)
Gain on dilution of Group’s holdings 30
Loss on sale and results of Taiwan agency business (621) 1 (37)
Profit (loss) from continuing operations before tax attributable to shareholders(note 2) 1,943 1,461 746 (450) 1,063
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and excluding 2010 exceptional tax credit) (in pence) 63.9p 62.0p 47.5p 38.1p 31.3p
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and including 2010 exceptional tax credit) (in pence) 63.9p 68.3p 47.5p 38.1p 31.3p

Supplementary EEV income statement data

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  Year ended 31 December
  2011 £m 2010 £m 2009 £m 2008 £m 2007 £m
Operating profit based on longer-term investment returns(note 2) 3,978 3,696 3,090 2,865 2,353
Short-term fluctuations in investment returns on shareholder- backed business (907) (30) 351 (4,967) 200
Mark to market value movements on core borrowings (14) (164) (795) 656 223
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 23 (11) (84) (14) (5)
Effect of changes in economic assumptions (158) (10) (910) (398) 632
Costs of terminated AIA transaction (377)
Gain on dilution of Group’s holdings   3
Profit on sale and results of Taiwan agency business 91 (248) 267
Profit (loss) from continuing operations before tax attributable to shareholders 2,922 3,107 1,743 (2,106) 3,670
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and excluding 2010 exceptional tax credit) (in pence) 115.7p 106.9p 88.8p 85.1p 69.2p
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and including 2010 exceptional tax credit) (in pence) 115.7p 113.2p 88.8p 85.1p 69.2p

New business data

New business excluding Japan(note 3)

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  Year ended 31 December
  AER
  2011 £m 2010 £m 2009 £m 2008 £m 2007 £m
Annual premium equivalent (APE) sales:          
– Asia 1,660 1,501 1,209 1,174 1,044
– US 1,275 1,164 912 716 671
– UK 746 820 723 947 910
– Total APE sales 3,681 3,485 2,844 2,837 2,625
EEV new business profit (NBP) 2,151 2,028 1,619 1,205 1,103
NBP margin (% APE) 58% 58% 57% 42% 42%

Statement of financial position data

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As of and for the Year Ended 31 December 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m
IFRS basis results:          
Total assets 273,580 260,806 227,754 215,542 219,382
Total policyholder liabilities and unallocated surplus of
with-profits funds
236,290 224,980 196,417 182,391 190,317
Core structural borrowings of
shareholder-financed operations
3,611 3,676 3,394 2,958 2,492
Total liabilities 264,420 252,731 221,451 210,429 213,218
Total equity 9,160 8,075 6,303 5,113 6,164

Other data

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As of and for the Year Ended 31 December 2011 £bn 2010 £bn 2009 £bn 2008 £bn 2007 £bn
Funds under management(note 4) 351 340 290 249 267
EEV shareholders’ equity, excluding non-controlling interests 19.6 18.2 15.3 15.0 14.6
Insurance Groups Directive capital surplus (as adjusted)(note 5) 4.0 4.3 3.4 1.5 1.9

Notes

  1. This measure is the formal profit (loss) before tax measure under IFRS but is not the result attributable to shareholders.

  2. Operating profits are determined on the basis of including longer-term investment returns. EEV and IFRS operating profits are stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions, the shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes, transaction costs arising from business combinations in the period and costs associated with the terminated AIA transaction. In addition, for EEV basis results, operating profit excludes the effect of changes in economic assumptions and the market value movements on core borrowings.

  3. Asia comparative APE new business sales prior to 2011 exclude the Japanese insurance operations, which ceased writing new business from 15 February 2010.

  4. Funds under management comprise funds of the Group held in the statement of financial position and external funds that are managed by Prudential asset management operations.

  5. The surpluses shown are before allowing for the final dividends for each year, which are paid in the following year. The 2011 surplus is estimated. Since 2007, following the sale of Egg Banking, Prudential has been subject to the capital adequacy requirements of the Insurance Groups Directive (IGD) which applies to groups whose activities are mainly in the insurance sector. Prior to the sale of Egg Banking, Prudential was subject to the capital adequacy requirements of the Financial Conglomerates Directive (FCD) which applies to groups with significant cross-sector activities in insurance and banking/investment services. Prudential was classified as an insurance conglomerate under the FCD. As the requirements for insurance conglomerates under the FCD are closely aligned to the requirements for insurance groups under the IGD, the move for Prudential from FCD to IGD did not result in a significant impact.

This classifies the Group’s pre-tax operating earnings from long-term insurance operations into the underlying drivers of those profits, using the following categories:

  1. Spread income represents the difference between net investment income (or premium income in the case of the UK annuities new business) and amounts credited to policyholder accounts. It excludes the longer-term investment return on assets in excess of those covering shareholder-backed policyholder liabilities, which has been separately disclosed as expected return on shareholder assets.

  2. Fee income represents profits driven by net investment performance, being asset management fees that vary with the size of the underlying policyholder funds net of investment management expenses.

  3. With-profits business represents the shareholders’ transfer from the with-profits fund in the period.

  4. Insurance margin primarily represents profits derived from the insurance risks of mortality, morbidity and persistency.

  5. Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses.

  6. Acquisition costs and administration expenses represent expenses incurred in the period attributable to shareholders. It excludes items such as restructuring costs and Solvency II costs, which are not included in the segment profit for insurance, as well as items that are more appropriately included in other source of earnings lines (eg investment expenses are netted off investment income as part of spread income or fee income as appropriate).

  7. DAC adjustments comprises DAC amortisation for the period, excluding amounts related to short-term fluctuations, net of costs deferred in respect of new business.

Analysis of pre-tax IFRS operating profit by source

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  2011 £m
  Asia US UK Unallocated Total

* Including restructuring and Solvency II implementation costs.

Spread income 88 730 247 1,065
Fee income 131 680 59 870
With-profits 38 293 331
Insurance margin 477 232 27 736
Margin on revenues 1,199 226 1,425
Expenses:          
Acquisition costs (766) (890) (127) (1,783)
Administration expenses (503) (412) (128) (1,043)
DAC adjustments 14 271 (5) 280
Expected return on shareholder assets 26 83 91 200
Long-term business operating profit 704 694 683 2,081
Asset management operating profit 80 24 357 461
GI commission 40 40
RPI to CPI inflation measure change on defined benefit pension schemes 42 42
Other income and expenditure* (554) (554)
Total operating profit based on longer-term investment returns 784 718 1,080 (512) 2,070

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  2010 £m
  Asia US UK Unallocated Total

* Including restructuring and Solvency II implementation costs.

Following the reduction in 2010 of the Group’s interest in the PruHealth and PruProtect businesses from 50 per cent to 25 per cent, the profits of these businesses have been shown as a single line in the insurance margin line in 2011, consistent with associate accounting principles. 2010 has been amended in light of this change.

Spread income 70 692 251 1,013
Fee income 122 506 60 688
With-profits 32 310 342
Insurance margin 392 188 12 592
Margin on revenues 1,018 194 1,212
Expenses:          
Acquisition costs (656) (851) (138) (1,645)
Administration expenses (467) (344) (113) (924)
DAC adjustments 2 517 (1) 518
Expected return on shareholder assets 19 125 98 242
Long-term business operating profit 532 833 673 2,038
Asset management operating profit 72 22 284 378
GI commission 46 46
Other income and expenditure* (521) (521)
Total operating profit based on longer-term investment returns 604 855 1,003 (521) 1,941

Margin analysis of long-term insurance business

The following analysis expresses certain of the Group’s sources of operating profit as a margin of policyholder liabilities or other suitable driver. Details of the Group’s average policyholder liability balances are given in D2(c), D3(c) and D4(c).

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  Total
  2011 2010
Long-term business Profit
£m
Average
Liability*
£m
Margin
bps
Profit
£m
Average
Liability*
£m
Margin
bps

* The average liability balance is generally calculated as the average of the opening and closing liability balances as this is seen as a good proxy for average balances throughout the year. Given the volatility in the year, the calculation of average liabilities has been refined for Jackson in two ways: (i) the average for both the general and the separate account balances is now derived from month-end balances throughout the year as opposed to opening and closing balances only, and (ii) liabilities held in the general account for variable annuity living and death guaranteed benefits have been excluded from the calculation of the average as no spread income is earned on these balances. The 2010 balances for Jackson have been amended for consistency albeit impacts are minimal.

The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales and Japan (2011: £nil; 2010: £7 million). Acquisition costs include only those relating to shareholders.

Following the reduction in 2010 of the Group’s interest in the PruHealth and PruProtect businesses from 50 per cent to 25 per cent, the profits of these businesses have been shown as a single line in the insurance margin line consistent with associate accounting principles. The UK’s 2010 analysis has been amended in light of this change.

Spread income 1,065 57,417 185 1,013 53,894 188
Fee income 870 68,298 127 688 56,822 121
With-profits 331 93,056 36 342 89,693 38
Insurance margin 736     592    
Margin on revenues 1,425     1,212    
Expenses:            
Acquisition costs (1,783) 3,681 (48)% (1,645) 3,492 (47)%
Administration expenses (1,043) 125,715 (83) (924) 110,716 (83)
DAC adjustments 280     518    
Expected return on shareholder assets 200     242    
Operating profit 2,081     2,038    

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  Asia
  2011 2010
Long-term business Profit
£m
Average
Liability
£m
Margin
bps
Profit
£m
Average
Liability
£m
Margin
bps

* The ratio for acquisition costs is calculated as a percentage of APE, including with-profits sales and Japan (2011: £nil; 2010: £7 million). Acquisition costs include only those relating to shareholders.

Spread income 88 5,623 157 70 4,393 159
Fee income 131 12,370 106 122 11,222 109
With-profits 38 11,775 32 32 10,135 32
Insurance margin 477     392    
Margin on revenues 1,199     1,018    
Expenses:            
Acquisition costs* (766) 1,660 (46)% (656) 1,508 (44)%
Administration expenses (503) 17,993 (280) (467) 15,615 (299)
DAC adjustments 14     2    
Expected return on shareholder assets 26     19    
Operating profit 704     532    

Analysis of Asian IFRS operating profit drivers

  • Spread income has increased by £18 million from £70 million in 2010 to £88 million in 2011, an increase of 26 per cent that predominantly reflects the growth of the Asian non-linked policyholder liabilities;

  • Fee income has increased by £9 million from £122 million in 2010 to £131 million in 2011, broadly in line with the movement in unit-linked liabilities following continued positive net flows into unit-linked business;

  • Insurance margin has increased by £85 million from £392 million in 2010 to £477 million in 2011, predominantly reflecting the continued growth of the in-force book, which contains a relatively high proportion of risk-based products. 2011 includes £38 million (2010: £19 million) of non-recurring items, reflecting assumption changes and other items that are not expected to reoccur in future periods;

  • Margin on revenues has increased by £181 million to £1,199 million in 2011, reflecting the ongoing growth in the size of the portfolio. During the year the new business mix has moved towards those countries that levy higher premium charges (eg Indonesia);

  • Acquisition costs have increased by 17 per cent from £656 million in 2010 to £766 million in 2011, ahead of the 10 per cent increase in sales. This trend is distorted by the changes in country mix, particularly by the reduction of sales in India. Excluding India, acquisition costs were 21 per cent higher compared to a 18 per cent increase in sales. The analysis above uses shareholder acquisition costs as a proportion of total APE. If with-profits sales were excluded from the denominators, the acquisition cost ratio would become 59 per cent (2010: 53 per cent). (Excluding India 2011: 61 per cent, 2010: 58 per cent);

  • Administration expenses have increased from £467 million in 2010 to £503 million in 2011. The administration expense ratio has improved from 299 bps in 2010 to 280 bps in 2011 as we continue to see the benefits of operational leverage; and

  • Expected return on shareholder assets has increased by £7 million to £26 million, principally reflecting higher shareholder assets and lower investment expenses in the period.

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  US
  2011 2010
Long-term business Profit
£m
Average
Liability*
£m
Margin
bps
Profit
£m
Average
Liability*
£m
Margin
bps

* The average liability balance is generally calculated as the average of the opening and closing liability balances as this is seen as a good proxy for average balances throughout the year. Given the volatility in the year, the calculation of average liabilities has been refined for Jackson in two ways: (i) the average for both the general and the separate account balances is now derived from month-end balances throughout the year as opposed to opening and closing balances only, and (ii) liabilities held in the general account for variable annuity living and death guaranteed benefits have been excluded from the calculation of the average as no spread income is earned on these balances. The 2010 balances have been amended for consistency, albeit impacts are minimal.

The ratio for acquisition costs is calculated as a percentage of total APE.

Spread income 730 28,274 258 692 28,532 243
Fee income 680 34,452 197 506 25,247 200
With-profits        
Insurance margin 232     188    
Margin on revenues        
Expenses:            
Acquisition costs (890) 1,275 (70)% (851) 1,164 (73)%
Administration expenses (412) 62,726 (66) (344) 53,779 (64)
DAC adjustments 271     517    
Expected return on shareholder assets 83     125    
Operating profit 694     833    

Analysis of US IFRS operating profit drivers

  • Spread income benefited by £113 million in 2011 from the effect of transactions entered into in 2011 and 2010 to more closely match the overall asset and liability duration (2010: £108 million). Excluding this effect, the spread margin would have been 218 bps (2010: 205 bps). The reported spread margin increased from 243 bps in 2010 to 258 bps in 2011. This is despite the downward pressure on yields caused by the low interest rate environment, the effect of which continues to be mitigated by reductions in crediting rates;

  • Fee income has increased by 34 per cent to £680 million in 2011, broadly in line with the growth in separate account balances. The growth in account balances during 2011 reflected the strong net flows from variable annuity business;

  • Insurance margin represents operating profits from insurance risks, including variable annuity guarantees and other sundry items. Positive net flows into variable annuity business with life contingent and other guarantee fees have primarily resulted in an improvement in the margin from £188 million in 2010 to £232 million in 2011;

  • Acquisition costs have increased in absolute terms compared to 2010, due largely to the significant increase in sales volumes. However, acquisition costs as a percentage of total APE is slightly lower at 70 per cent in 2011, with the decrease attributable to a reduced rate of marketing costs and lower average commissions;

  • Administration expenses increased to £412 million in 2011, compared to £344 million in 2010, primarily as a result of higher asset based commission paid on the larger 2011 separate account balance. These asset based commissions paid upon policy anniversary dates are treated as an administration expense in this analysis as opposed to a cost of acquisition, and are offset by higher fees. The administration cost was marginally higher at 66 bps (2010: 64 bps). Excluding trail commission amounts, the resulting administration expense ratio would be 46 bps (2010: 48 bps); and

  • DAC adjustments decreased by £246 million to £271 million in 2011 compared to £517 million in 2010. This mainly reflects additional DAC amortisation of approximately £166 million related to the reversal of the benefit received in 2008 from the mean reversion formula, as well as accelerated DAC amortisation of £66 million as separate account returns, were lower than 2010.

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  UK
  2011 2010
Long-term business Profit
£m
Average
Liability
£m
Margin
bps
Profit
£m
Average
Liability
£m
Margin
bps

* The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholders.

Following the reduction in 2010 of the Group’s interest in the PruHealth and PruProtect businesses from 50 per cent to 25 per cent, the profits of these businesses have been shown as a single line in the insurance margin line in 2011, consistent with associate accounting principles. 2010 has been amended in light of this change.

Spread income 247 23,520 105 251 20,969 120
Fee income 59 21,476 27 60 20,353 29
With-profits 293 81,281 36 310 79,558 39
Insurance margin 27     12    
Margin on revenues 226     194    
Expenses:            
Acquisition costs* (127) 746 (17)% (138) 820 (17)%
Administration expenses (128) 44,996 (28) (113) 41,322 (27)
DAC adjustments (5)     (1)    
Expected return on shareholder assets 91     98    
Operating profit 683     673    

Analysis of UK IFRS operating profit drivers

  • Spread income remains broadly unchanged from 2010 at £247 million (2010: £251 million). The margin has fallen from 120 bps to 105 bps principally due to 2010 benefiting from higher bulk annuity sales, partly offset by the benefit of portfolio restructuring undertaken in the year and higher yields being achieved on new individual annuity business;

  • Insurance margin has increased from £12 million in 2010 to £27 million in 2011, principally driven by an improvement in the profitability of PruHealth and PruProtect;

  • Margin on revenues represents premiums charges for expenses and other sundry net income received by the UK. Higher amounts were recorded in 2011 (£226 million) compared to 2010 (£194 million), reflecting higher sundry income and an increase in premiums from shareholder-backed retail business in 2011 as compared to 2010;

  • Acquisition costs as a percentage of new business sales has remained constant with 2010 at 17 per cent;

    The ratio above expresses the percentage of shareholder acquisition costs as a percentage of total APE sales. It is therefore impacted by the level of with-profit sales in the year. Acquisition costs as a percentage of shareholder-backed new business sales were 33 per cent in 2011 (30 per cent in 2010), due in part to the beneficial effect in 2010 of the higher level of bulk annuity transactions, which had a relatively modest level of acquisition costs;

  • Administration expenses have increased by £15 million to £128 million in 2011 primarily as a result of increased project expenditure, resulting in a marginally higher administration expense ratio of 28 bps in 2011 (2010: 27 bps); and

  • Expected return on shareholder asset has fallen from £98 million in 2010 to £91 million in 2011 following a reduction in assumed longer-term yields on assets backing shareholder capital.

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  2011 £m 2010 £m
China 11 5
Hong Kong 69 51
India 43 24
Indonesia 212 157
Japan 2 (6)
Korea 17 12
Malaysia 104 97
Philippines 5 2
Singapore 167 129
Taiwan bancassurance business 1 (4)
Thailand 4 2
Vietnam 35 43
Other 1 5
Non-recurrent itemsnote (ii) 38 19
Total insurance operationsnote (i) 709 536
Development expenses (5) (4)
Total long-term business operating profit 704 532
Eastspring Investments 80 72
Total Asian operations 784 604

Notes

  1. Analysis of operating profit between new and in-force business

    The result for insurance operations comprises amounts in respect of new business and business in-force as follows:

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      2011 £m 2010 £m
    New business strain (excluding Japan) (54) (56)
    Japan (1)
    New business strain (including Japan) (54) (57)
    Business in force 763 593
    Total 709 536

    The IFRS new business strain corresponds to approximately 3 per cent of new business APE premiums for 2011 (2010: approximately 4 per cent of new business APE).

    The strain reflects the aggregate of the pre-tax regulatory basis strain to net worth after IFRS adjustments for deferral of acquisition costs and deferred income where appropriate.

  2. Non-recurrent items of £38 million in 2011 (2010: £19 million) represents a small number of items that are not anticipated to reoccur in subsequent periods.

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  2011 £m
  M&G
note (i)
Eastspring
Investments
note (i)
PruCap US Total
Operating income before performance-related fees 706 196 122 249 1,273
Performance-related fees 21 6 27
Operating income* 727 202 122 249 1,300
Operating expense (426) (122) (66) (225) (839)
Operating profit based on longer-term investment returns 301 80 56 24 461
Average funds under management (FUM) 199.8 bn 51.1 bn      
Margin based on operating income 36 bps 40 bps      
Cost/income ratio 60% 62%      

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  2010 £m
  M&G
note (i)
Eastspring
Investments
note (i)
PruCap US Total
Operating income before performance-related fees 615 185 88 229 1,117
Performance-related fees 17 6 23
Operating income* 632 191 88 229 1,140
Operating expense (386) (119) (50) (207) (762)
Operating profit based on longer-term investment returns 246 72 38 22 378
Average funds under management (FUM) 186.5 bn 47.2 bn      
Margin based on operating income 34 bps 40 bps      
Cost/income ratio 63% 64%      

Note

  1. M&G and Eastspring Investments can be further analysed as follows:

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      M&G
      Operating income*
      Retail
    £m
    Margin
    of FUM†§
    bps
    Institutional
    £m
    Margin
    of FUM
    bps
    Total
    £m
    Margin
    of FUM
    bps
    2011 416 96 311 20 727 36
    2010 345 93 287 19 632 34

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      Eastspring Investments
      Operating income*
      Retail
    £m
    Margin
    of FUM
    bps
    Institutional
    £m
    Margin
    of FUM
    bps
    Total
    £m
    Margin
    of FUM
    bps

    * Operating income is net of commissions and includes performance-related fees, and for M&G carried interest on private equity investments.

    Margin represents operating income as a proportion of the related funds under management (FUM). Opening and closing internal and external funds managed by the respective entity have been used to derive the average. Any funds held by the Group’s insurance operations which are managed by third parties outside of the Prudential Group are excluded from these amounts.

    Cost/income ratio is calculated as cost as a percentage of income excluding performance-related fees.

    § As noted above, the margins on operating income are based on the average of the opening and closing FUM balances. For M&G, if a monthly average FUM had been used, the retail margins would have been 95 bps for 2011 and 2010.

    Institutional includes internal funds.

    2011 120 64 82 25 202 40
    2010 120 62 71 26 191 40

Change to accounting policy for deferral of acquisition costs for operations applying US GAAP measurement principles to insurance assets and liabilities from 1 January 2012

Background

Under the Group’s accounting policies the measurement of insurance assets and liabilities reflects the application of UK GAAP under the Modified Statutory Basis (MSB). This has been applied from when the Company first adopted IFRS in 2005, subject to subsequent policy improvements under IFRS 4. The MSB in turn is based on the codification in the 2003 ABI Statement of Recommended Practice which, subject to various restrictions, permits the use of local bases for overseas operations. Accordingly, since 2005, the insurance assets and liabilities of the Group’s US operations have been measured using US GAAP. This basis has also been explicitly applied to those Asian operations (namely India, Japan, Taiwan and Vietnam) where the local regulatory basis is not appropriate as a starting point for deriving MSB compliant results.

In October 2010, the Emerging Issues Task Force of the US Financial Accounting Standards Board issued Update No 2010-26 on ‘Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts’. The update was issued to address perceived diversity by companies preparing financial statements in accordance with US GAAP as regards the types of acquisition costs being deferred. Under US GAAP, costs that can be deferred and amortised are those that ‘vary with and are primarily related to the acquisition of insurance contracts’. The Update requires insurers to capitalise only those incremental costs directly related to acquiring a contract for financial statements for reporting periods starting after 15 December 2011. All other indirect acquisition expenses are required to be charged to the income statement as incurred expenses. Accordingly, the main impact of the Update is to disallow insurers from deferring costs that are not directly related to successful sales.

Under the Update, US insurers preparing financial statements under US GAAP can choose to make a prospective or a retrospective application. Under the prospective basis, the change is confined to the income statement from the date of adoption to incorporate
the additional charge for non-deferrable expenses for the activity of the reporting period. No changes are made to the results of comparative periods.

By contrast, under retrospective application, the deferred acquisition costs balances in the statement of financial position for comparative periods are reset so as to only defer those costs permitted by the Update. In the income statement, the net effect of the Update reflects:

  1. as for the prospective basis, the additional charge for non deferrable expenses for the activity of the reporting period, offset by

  2. a reduced charge for DAC amortisation reflecting the lower level of expenses that could be deferred on prior period activity.

Under the Group’s IFRS reporting, Prudential has the option to either continue with its current basis of measurement or improve its accounting policy under IFRS 4 to acknowledge the issuance of the Update. Prudential has chosen to continue with its current basis of measurement for reporting of its 2011 results and improve its policy in 2012 to apply the US GAAP update on the retrospective basis to the results of its US insurance operation, Jackson. The reason and timing for the change is to achieve consistency with the basis expected to be applied by peer competitor companies in the US market in their US GAAP financial statements. To ensure consistency, it is also intended to make the change on the retrospective basis in 2012 for the Asian operations that historically have effectively applied US GAAP for measuring insurance assets and liabilities.

Effect of change of policy in 2012

The results impact of the policy improvement to adopt the Update in 2012 is summarised in the tables shown below.

Effect of policy improvement in 2012 on comparative results for 2011 and full-year 2010

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  Year ended 31 December 2011 £m 6 months ended 30 June 2011 £m Year ended 31 December 2010 £m
Analysis of profit and earnings per share As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
Analysis of profit                  
Operating profit based on longer-term investment returns                  
Asian insurance operations(note (a)) 704 704 324 (2) 322 532 (10) 522
US insurance operations(note (b)) 694 (43) 651 368 (28) 340 833 (105) 728
Other operations 672 672 366 366 576 576
Total 2,070 (43) 2,027 1,058 (30) 1,028 1,941 (115) 1,826
Short-term fluctuations in investment returns (148) (72) (220) 113 (20) 93 (123) (75) (198)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 21 21 (7) (7) (10) (10)
Costs of terminated AIA transaction (377) (377)
Gain on dilution of Group holdings 30 30
Profit before tax attributable to shareholders (including actual investment returns) 1,943 (115) 1,828 1,164 (50) 1,114 1,461 (190) 1,271
Tax attributable to shareholders – operating profit excluding, for 2010, exceptional tax credit:                  
Asian insurance operations (122) (122) (39) 1 (38) (58) 2 (56)
US insurance operations (200) 15 (185) (110) 10 (100) (249) 37 (212)
Other operations (126) (126) (91) (91) (64) (64)
  (448) 15 (433) (240) 11 (229) (371) 39 (332)
Exceptional 2010 tax credit related primarily to the impact of settlement agreed with the UK tax authorities 158 158
Total (448) 15 (433) (240) 11 (229) (213) 39 (174)
Tax attributable to shareholders – non-operating profit (1) 25 24 (61) 7 (54) 188 26 214
Non-controlling interests – operating profit (4) (4) (2) (2) (5) (5)
Profit after tax and non-controlling interests 1,490 (75) 1,415 861 (32) 829 1,431 (125) 1,306

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  Year ended 31 December 2011 £m 6 months ended 30 June 2011 £m Year ended 31 December 2010 £m
Analysis of profit and earnings per share As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
Operating profit after tax and non-controlling interests                  
Excluding, for 2010, exceptional tax credit 1,618 (28) 1,590 816 (19) 797 1,565 (76) 1,489
Exceptional 2010 tax credit     158 158
Total 1,618 (28) 1,590 816 (19) 797 1,723 (76) 1,647
Earnings per Share (pence)                  
Operating (basic) – excluding, for 2010, exceptional tax credit (pence) 63.9p (1.1)p 62.8p 32.2p (0.8)p 31.4p 62.0p (3.0)p 59.0p
Operating (diluted) – excluding, for 2010, exceptional tax credit (pence) 63.8p (1.1)p 62.7p 32.1p (0.8)p 31.3p 61.9p (3.0)p 58.9p
Total (diluted) (pence) 58.7p (3.0)p 55.7p 33.9p (1.3)p 32.6p 56.6p (4.9)p 51.7p

Notes on effect of change on operating profit based on longer-term investment returns

  1. Asian insurance operations

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      Year ended 31 December 2011 £m 6 months ended 30 June 2011 £m Year ended 31 December 2010 £m
      As
    reported
    under
    current
    policy
    Effect of
    change
    Under
    new
    policy
    from
    1 Jan 2012
    As
    reported
    under
    current
    policy
    Effect of
    change
    Under
    new
    policy
    from
    1 Jan 2012
    As
    reported
    under
    current
    policy
    Effect of
    change
    Under
    new
    policy
    from
    1 Jan 2012
    New business                  
    Acquisition costs on new contracts not able to be deferred   (16)     (10)     (20)  
    Business in force at beginning of period                  
    Reduction in amortisation on reduced DAC balance   16     8     10  
    Total       (2)     (10)  
    Arising in the following insurance operations:                  
    India   4     2     1  
    Japan            
    Taiwan   1     (1)     (3)  
    Vietnam   (5)     (3)     (8)  
    Total       (2)     (10)  
  2. US insurance operations

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      Year ended 31 December 2011 £m 6 months ended 30 June 2011 £m Year ended 31 December 2010 £m
      As
    reported
    under
    current
    policy
    Effect of
    change
    Under
    new
    policy
    from
    1 Jan 2012
    As
    reported
    under
    current
    policy
    Effect of
    change
    Under
    new
    policy
    from
    1 Jan 2012
    As
    reported
    under
    current
    policy
    Effect of
    change
    Under
    new
    policy
    from
    1 Jan 2012
    New business                  
    Acquisition costs on new contracts not able to be deferred   (156)     (80)     (159)  
    Business in force at beginning of period                  
    Reduction in amortisation on reduced DAC balance   113     52     54  
    Total   (43)     (28)     (105)  

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  Year ended 31 December 2011 £m 6 months ended 30 June 2011 £m Year ended 31 December 2010 £m
Changes in equity and balance sheet As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
Changes in equity                  
Profit for the year net of non-controlling interests 1,490 (75) 1,415 861 (32) 829 1,431 (125) 1,306
Exchange movements on foreign operations and net investment hedges, net of related tax (32) (5) (37) (75) 13 (62) 251 (14) 237
Available-for-sale securities                  
US operations classified as available-for-sale 811 811 237 237 1,221 1,221
Related change in amortisation of deferred income and acquisition costs (331) 56 (275) (97) 26 (71) (496) 86 (410)
Related tax (168) (19) (187) (49) (8) (57) (247) (31) (278)
Total comprehensive income for the year net of non-controlling interests 1,770 (43) 1,727 877 (1) 876 2,160 (84) 2,076
Dividends (642) (642) (439) (439) (511) (511)
New share capital and other movements (42) (42) 32 32 111 111
Net increase in equity 1,086 (43) 1,043 470 (1) 469 1,760 (84) 1,676
At beginning of year 8,031 (510) 7,521 8,031 (510) 7,521 6,271 (426) 5,845
At end of year 9,117 (553) 8,564 8,501 (511) 7,990 8,031 (510) 7,521

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  Year ended 31 December 2011 £m 6 months ended 30 June 2011 £m Year ended 31 December 2010 £m
Changes in equity and balance sheet As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
As
reported
under
current
policy
Effect of
change
Under
new
policy
from
1 Jan 2012
Balance sheet                  
Assets                  
Deferred acquisition costs attributable to shareholders:                  
Insurance operations                  
Asia 744 (50) 694 741 (52) 689 758 (52) 706
US 3,880 (785) 3,095 3,639 (717) 2,922 3,543 (714) 2,829
UK 111 111 115 115 116 116
Asset management 12 12 9 9 9 9
  4,747 (835) 3,912 4,504 (769) 3,735 4,426 (766) 3,660
Investments and other assets 268,833 268,833 264,962 264,962 256,380 256,380
Total assets 273,580 (835) 272,745 269,466 (769) 268,697 260,806 (766) 260,040
Liabilities                  
Policyholder liabilities and unallocated surplus of with-profits funds 236,290 236,290 232,304 232,304 224,980 224,980
Core structural borrowings of shareholder-financed operations 3,611 3,611 3,998 3,998 3,676 3,676
Deferred tax liabilities 4,211 (282) 3,929 4,194 (258) 3,936 4,224 (256) 3,968
Other liabilities 20,308 20,308 20,423 20,423 19,851 19,851
Total liabilities 264,420 (282) 264,138 260,919 (258) 260,661 252,731 (256) 252,475
Equity                  
Shareholders’ equity                  
Asian insurance operations 2,349 (43) 2,306 2,269 (45) 2,224 2,149 (45) 2,104
US insurance operations 4,271 (510) 3,761 3,764 (466) 3,298 3,815 (465) 3,350
Rest of Group 2,497 2,497 2,468 2,468 2,067 2,067
  9,117 (553) 8,564 8,501 (511) 7,990 8,031 (510) 7,521
Non-controlling interests 43 43 46 46 44 44
Total equity 9,160 (553) 8,607 8,547 (511) 8,036 8,075 (510) 7,565
Total liabilities and equity 273,580 (835) 272,745 269,466 (769) 268,697 260,806 (766) 260,040

i Shareholders’ fund summary

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  2011 £m 2010 £m
Asian operations    
Insurance operations:    
Net assets of operation 2,114 1,913
Acquired goodwill 235 236
Total 2,349 2,149
Eastspring Investments    
Net assets of operation 211 197
Acquired goodwill 61 61
Total 272 258
Total 2,621 2,407
US operations    
Jackson (net of surplus note borrowings) 4,271 3,815
Broker-dealer and asset management operations:    
Net assets of operation 113 106
Acquired goodwill 16 16
Total 129 122
Total 4,400 3,937
UK operations    
Insurance operations:    
Long-term business operations 2,552 2,115
Other 29 33
Total 2,581 2,148
M&G    
Net assets of operation 229 254
Acquired goodwill 1,153 1,153
Total 1,382 1,407
Total 3,963 3,555
Other operations    
Holding company net borrowings (2,001) (2,035)
Shareholders’ share of provision for future deficit funding of the Prudential Staff Pension Scheme (net of tax) (5) (10)
Other net assets 139 177
Total (1,867) (1,868)
Total of all operations 9,117 8,031

ii Net asset value per share

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  2011 2010

Note

  1. Based on the closing issued share capital as at 31 December 2011 of 2,548 million shares (2010: 2,546 million shares).

Closing equity shareholders’ funds £9,117m £8,031m
Net asset value per share attributable to equity shareholdersnote (i) 358p 315p

Expected transfer of value of in-force (VIF) and required capital business to free surplus

The tables below show how the VIF generated by the in-force long-term business and the associated required capital is modelled as emerging into free surplus over the next 40 years. Although a small amount (1 per cent) of the Group’s embedded value emerges after this date, analysis of cash flows emerging in the early years is considered most meaningful. The modelled cash flows use the same methodology underpinning the Group’s embedded-value reporting, and so are subject to the same assumptions and sensitivities.

In addition to showing the amounts, both discounted and undiscounted, expected to be generated from all in-force business at 31 December 2011, the tables also present the expected future free surplus to be generated from the investment made in new business during 2011 over the same 40-year period.

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  2011 £m
  Undiscounted expected generation from all in-force business at 31 December* Undiscounted expected generation from 2011 long-term new business written*
Expected period of emergence Asia US UK Total Asia US UK Total

* The analysis excludes amounts incorporated into VIF at 31 December 2011 where there is no definitive timeframe for when the payments will be made or receipts received. In particular, it excludes the value of the shareholders’ interest in the estate. It also excludes any free surplus emerging after 2051.

2012 674 680 423 1,777 104 245 20 369
2013 647 485 502 1,634 123 103 21 247
2014 634 450 472 1,556 120 96 23 239
2015 595 480 437 1,512 92 16 18 126
2016 590 484 428 1,502 91 102 20 213
2017 564 438 412 1,414 84 61 20 165
2018 556 425 400 1,381 86 52 17 155
2019 541 425 389 1,355 87 103 17 207
2020 523 369 380 1,272 81 87 17 185
2021 512 318 372 1,202 83 73 17 173
2022 491 274 364 1,129 78 67 16 161
2023 482 226 360 1,068 74 51 16 141
2024 472 169 353 994 73 42 16 131
2025 465 156 345 966 69 38 16 123
2026 464 135 332 931 88 33 17 138
2027 463 112 327 902 66 27 16 109
2028 460 97 316 873 68 22 16 106
2029 449 85 306 840 62 18 16 96
2030 445 67 297 809 65 15 16 96
2031 437 57 283 777 70 10 17 97
2032 to 2036 2,035 177 1,185 3,397 294 27 79 400
2037 to 2041 1,869 (96) 894 2,667 260 (35) 81 306
2042 to 2046 1,737 488 2,225 242 54 296
2047 to 2051 1,597 282 1,879 242 36 278
Total free surplus expected to emerge in the next 40 years 17,702 6,013 10,347 34,062 2,702 1,253 602 4,557

The above amounts can be reconciled to the new business amounts as follows:

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  2011 £m
New business Asia US UK Total

* Other items represent the impact of the time value of options and guarantees on new business, foreign exchange effects and other non-modelled items. Foreign exchange effects arise as EEV new business profit amounts are translated at average exchange rates and expected free surplus generation uses year end closing rates.

Undiscounted expected free surplus generation for years 2012 to 2051 2,702 1,253 602 4,557
Less: discount effect (1,611) (377) (355) (2,343)
Discounted expected free surplus generation for years 2012 to 2051 1,091 876 247 2,214
Discounted expected free surplus generation for years 2051+ 32 2 34
Less: Free surplus investment in new business (297) (202) (54) (553)
Other items* (15) (144) (159)
Post-tax EEV new business profit 811 530 195 1,536
Tax 265 285 65 615
Pre-tax EEV new business profit 1,076 815 260 2,151

The undiscounted expected free surplus generation from all in-force business at 31 December 2011 shown below can be reconciled to the amount that was expected to be generated as at 31 December 2010 as follows.

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Group 2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
Other
£m
Total
£m
2010 expected free surplus generation for years 2011 to 2050 1,923 1,551 1,579 1,449 1,446 1,367 26,538 35,853
Less: Amounts expected to be realised in the current year (1,923) (1,923)
Add: Expected free surplus to be generated in year 2051* 230 230
Foreign exchange differences (11) (13) (11) (9) (8) (64) (116)
New business 369 247 239 126 213 3,363 4,557
Operating movements 16 19 18 3 (3,986) (4,539)
Non-operating and other movements (148) (198) (139) (51) (73)
2011 expected free surplus generation for
years 2012 to 2051
1,777 1,634 1,556 1,512 1,502 26,081 34,062

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Asia 2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
Other
£m
Total
£m

* Excluding 2011 new business.

2010 expected free surplus generation for years 2011 to 2050 635 598 573 558 554 554 14,472 17,944
Less: Amounts expected to be realised in the current year (635) (635)
Add: Expected free surplus to be generated in year 2051* 192 192
Foreign exchange differences (15) (17) (14) (13) (11) (87) (157)
New business 104 123 120 92 91 2,172 2,702
Operating movements 1 3 (4) (18) (21) (2,187) (2,344)
Non-operating and other movements (14) (35) (26) (20) (23)
2011 expected free surplus generation for years 2012 to 2051 674 647 634 595 590 14,562 17,702

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US 2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
Other
£m
Total
£m
2010 expected free surplus generation for years 2011 to 2050 852 546 490 440 449 380 3,219 6,376
Less: Amounts expected to be realised in the current year (852) (852)
Add: Expected free surplus to be generated in year 2051*
Foreign exchange differences 4 4 3 4 3 23 41
New business 245 103 96 16 102 691 1,253
Operating movements (8) (2) 7 4 16 (499) (805)
Non-operating and other movements (107) (110) (96) 7 (17)
2011 expected free surplus generation for years 2012 to 2051 680 485 450 480 484 3,434 6,013

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UK 2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
Other
£m
Total
£m

* Excluding 2011 new business.

2010 expected free surplus generation for years 2011 to 2050 436 407 516 451 443 433 8,847 11,533
Less: Amounts expected to be realised in the current year (436) (436)
Add: Expected free surplus to be generated in year 2051* 38 38
New business 20 21 23 18 20 500 602
Operating movements 23 18 15 14 8 (1,300) (1,390)
Non-operating and other movements (27) (53) (17) (38) (33)
2011 expected free surplus generation for years 2012 to 2051 423 502 472 437 428 8,085 10,347

At 31 December 2011, the total free surplus expected to be generated over the next five years (years 2012-2016 inclusive), using the same assumptions and methodology as underpin our embedded-value reporting was £8.0 billion, an increase of £0.6 billion from the £7.4 billion expected over the same period at the end of 2010.

This increase reflected the new business written in 2011, which is expected to generate £1,194 million of free surplus over the next five years. Operating movements were positive £56 million, less than 1 per cent of our 2012 to 2016 free surplus expectation at the end of 2010. Market effects and foreign exchange movements reduced expected free surplus generation for the next five years by £609 million and £52 million respectively.

Market movements in Asia include the effect of lower fund-earned rates in Indonesia, Singapore and Hong Kong where government yields have fallen by 165 bps, 110 bps and 140 bps respectively. In the US, lower US treasury bond yields have led to a reduction in the assumed variable annuity separate return, which has had a consequential negative impact on the level of projected future fees. Market movements in the UK primarily reflect the adverse effect on with-profits bonus rates of lower assumed investment returns.

At 31 December 2011, the total free surplus expected to be generated on an undiscounted basis in the next 40 years is £34 billion. Notwithstanding the drag on future earnings caused by the market effects on fee and with-profits business referred to above, the expected free surplus generation over the next 40 years has increased. This reflects both our ability to write new business on very attractive economics and the robust management of the in-force book.

Actual underlying free surplus generated in 2011 from life business in-force at the end of 2010 was £2.2 billion, inclusive of £0.2 billion of changes in operating assumption and experience variances. This compares with the expected 2011 realisation at the end of 2010 of £1.9 billion. This can be analysed further as follows:

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  Asia
£m
US
£m
UK
£m
Total
£m
Transfer to free surplus in 2011 597 754 511 1,862
Expected return on free assets 58 42 10 110
Operating variances 52 154 (38) 168
RPI to CPI inflation measure change on defined benefit pension schemes 20 20
Underlying free surplus generated from in-force life business in 2011 707 950 503 2,160
2011 free surplus expected to be generated at 31 December 2010 635 852 436 1,923

The equivalent discounted amounts of the undiscounted totals shown previously are outlined below:

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  2011 £m
  Discounted expected generation from
all in-force business at 31 December
Discounted expected generation from
long-term 2011 new business written
Expected period of emergence Asia US UK Total Asia US UK Total
2012 639 656 397 1,692 99 237 19 355
2013 565 441 438 1,444 107 94 19 220
2014 512 385 381 1,278 96 82 19 197
2015 448 388 338 1,174 68 13 14 95
2016 418 371 310 1,099 61 75 15 151
2017 375 317 279 971 53 43 14 110
2018 348 287 254 889 51 35 11 97
2019 317 269 231 817 48 64 10 122
2020 289 228 210 727 41 51 10 102
2021 267 186 192 645 40 40 9 89
2022 238 153 176 567 35 34 8 77
2023 220 117 162 499 32 24 8 64
2024 200 85 149 434 28 19 7 54
2025 184 74 136 394 25 16 7 48
2026 170 61 120 351 29 13 7 49
2027 169 49 111 329 24 10 6 40
2028 158 41 100 299 22 8 6 36
2029 145 34 90 269 20 6 5 31
2030 135 27 81 243 18 5 5 28
2031 125 22 71 218 19 3 5 27
2032 to 2036 498 69 232 799 68 7 18 93
2037 to 2041 347 7 115 469 47 (3) 14 58
2042 to 2046 246 35 281 34 7 41
2047 to 2051 171 12 183 26 4 30
Total discounted free surplus expected to emerge in the next 40 years 7,184 4,267 4,620 16,071 1,091 876 247 2,214

The above amounts can be reconciled to the Group’s financial statements as follows:

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  Total £m

* These relate to items where there is no definitive timeframe for when the payments will be made or receipts received and are, consequently, excluded from the amounts incorporated into the tables above showing the expected generation of free surplus from in-force business at 31 December 2011. In particular, it excludes the value of the shareholders’ interest in the estate.

Discounted expected generation from all in-force business for years 2012 to 2051 16,071
Discounted expected generation from all in-force business for years after 2051 211
Discounted expected generation from all in-force business at 31 December 2011 16,282
Add: Free surplus of life operations held at 31 December 2011 2,839
Less: Time value of guarantees (685)
Other non-modelled items* 1,214
Total EEV of life operations 19,650

i Summary

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  2011 £bn 2010 £bn

Note

  1. External funds shown above for 2011 of £99.8 billion (2010: £100.4 billion) comprise £111.2 billion (2011: £111.4 billion) in respect of investment products, as published in the New Business schedules less £11.4 billion (2010: £11.0 billion) that are classified within internal funds.

Business area:    
Asian operations 32.6 30.9
US operations 71.9 63.6
UK operations 146.3 145.2
Internal funds under management 250.8 239.7
External fundsnote (i) 99.8 100.4
Total funds under management 350.6 340.1

ii Internal funds under management – analysis by business area

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  Asian operations US operations UK operations Total
  2011
£bn
2010
£bn
2011
£bn
2010
£bn
2011
£bn
2010
£bn
2011
£bn
2010
£bn

Note

  1. As included in the investments section of the consolidated statement of financial position at 31 December 2011, except for £0.2 billion (2010: £0.4 billion) investment properties which are held-for-sale or occupied by the Group and, accordingly under IFRS, are included in other statement of financial position captions.

Investment propertiesnote (i) 0.1 10.7 11.5 10.7 11.6
Equity securities 12.0 14.5 38.1 31.5 37.3 40.7 87.4 86.7
Debt securities 17.7 14.1 27.1 26.4 79.8 75.9 124.6 116.4
Loans and receivables 2.4 1.3 4.3 4.2 13.7 3.8 20.4 9.3
Other investments 0.5 1.0 2.4 1.4 4.8 13.3 7.7 15.7
Total 32.6 30.9 71.9 63.6 146.3 145.2 250.8 239.7

i Rates of exchange

The profit and loss accounts of foreign subsidiaries are translated at average exchange rates for the year. Assets and liabilities of foreign subsidiaries are translated at closing exchange rates. Foreign currency borrowings that have been used to provide a hedge against Group equity investments in overseas subsidiaries are also translated at closing exchange rates. The impact of these translations is recorded as a component of the movement in shareholders’ equity.

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  Closing Average Closing Average
Local currency: £ 2011 2011 2010 2010
Hong Kong 12.07 12.48 12.17 12.01
Indonesia 14,091.80 14,049.41 14,106.51 14,033.41
Malaysia 4.93 4.90 4.83 4.97
Singapore 2.02 2.02 2.01 2.11
India 82.53 74.80 70.01 70.66
Vietnam 32,688.16 33,139.22 30,526.26 29,587.63
USA 1.55 1.60 1.57 1.55

ii Effect of rate movement on results

IFRS basis results

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  As published
2011
note (i)
£m
Memorandum
2010
note (i)
£m

Note

  1. The ‘as published’ operating profit for 2011 and ‘memorandum’ operating profit for 2010 have been calculated by applying average 2011 exchange rates (CER).

    The ‘as published’ shareholders’ funds for 2011 and memorandum’ shareholders’ funds for 2010 have been calculated by applying closing period end 2011 exchange rates.

Asian operations:    
Long-term operations 709 533
Development expenses (5) (4)
Total Asian insurance operations after development costs 704 529
Eastspring Investments 80 73
Total Asia operations 784 602
US operations:    
Jackson 694 803
Broker-dealer, asset management and Curian operations 24 21
Total US operations 718 824
UK operations:    
Long-term business 683 673
General insurance commission 40 46
Total UK insurance operations 723 719
M&G 357 284
Total UK operations 1,080 1,003
Total segment profit 2,582 2,429
Other income and expenditure (483) (449)
RPI to CPI inflation measure change on defined benefit pension schemes 42
Solvency II implementation costs (55) (45)
Restructuring costs (16) (26)
Operating profit based on longer-term investment returns 2,070 1,909
Shareholders’ funds 9,117 8,007

EEV basis results

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  As published
2011
note (i)
£m
Memorandum
2010
note (i)
£m

Note

  1. The ‘as published’ operating profit for 2011 and ‘memorandum’ operating profit for 2010 have been calculated by applying average 2011 exchange rates (CER).

    The ‘as published’ shareholders’ funds for 2011 and memorandum’ shareholders’ funds for 2010 have been calculated by applying closing period end 2011 exchange rates.

Asian operations:    
New business:    
Excluding Japan 1,076 900
Japan (1)
Total 1,076 899
Business in force 688 539
Long-term operations 1,764 1,438
Eastspring Investments 80 73
Development expenses (5) (4)
Total Asia operations 1,839 1,507
US operations:    
New business 815 734
Business in force 616 672
Jackson 1,431 1,406
Broker-dealer, asset management and Curian operations 24 21
Total US operations 1,455 1,427
UK operations:    
New business 260 365
Business in force 593 571
Long-term business 853 936
General insurance commission 40 46
Total insurance 893 982
M&G 357 284
Total UK operations 1,250 1,266
Other income and expenditure (536) (493)
RPI to CPI inflation measure change on defined benefit pension schemes 45
Solvency II implementation costs (56) (46)
Restructuring costs (19) (28)
Operating profit based on longer-term investment returns 3,978 3,633
Shareholders’ funds 19,637 18,135

The Group maintains four share option schemes satisfied by the issue of new shares. UK-based executive directors are eligible to participate in the UK Savings Related Share Option Scheme, and Asia-based executives can participate in the International Savings Related Share Option Scheme. Dublin-based employees are eligible to participate in the Prudential International Assurance Sharesave Plan, and Hong Kong-based agents can participate in the Non-employee Savings Related Share Option Scheme. Further details of the schemes and accounting policies are detailed in Note I4 of the IFRS basis condensed consolidated financial statements.

All options were granted at £nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services (excluding options granted to agents under the Non-employee Savings Related Share Option Scheme) or in excess of the individual limit for the relevant scheme.

The options schemes will terminate as follows, unless the directors resolve to terminate the plans at an earlier date:

  • UK Savings Related Share Option Scheme: 8 May 2013,
  • International Savings Related Share Option Scheme: 31 May 2021,
  • Prudential International Assurance Sharesave Plan: 3 August 2019, and
  • Non-employee Savings Related Share Option Scheme: 9 May 2012.

The weighted average share price of Prudential plc for the year ended 31 December 2011 was £6.86 (2010: £5.68).

Particulars of options granted to directors are included in the Directors’ Remuneration Report.

The closing price of the shares immediately before the date on which the options were granted during the current period was £5.99.

The following analyses show the movement in options for each of the option schemes for the year ended 31 December 2011.

UK Savings Related Share Option Scheme

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    Exercise period Number of options
Date of grant Exercise
price £
Beginning End Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
01 Oct 2003 3.62 01 Dec 2010 31 May 2011 2,775 1,850 925
15 Apr 2004 3.46 01 Jun 2011 30 Nov 2011 17,946 17,946
30 Sep 2004 3.43 01 Dec 2011 31 May 2012 8,430 4,522 56 3,852
12 Apr 2005 3.87 01 Jun 2012 30 Nov 2012 12,222 3,321 373 8,528
29 Sep 2005 4.07 01 Dec 2010 31 May 2011 10,597 10,597
29 Sep 2005 4.07 01 Dec 2012 31 May 2013 9,492 237 183 9,072
20 Apr 2006 5.65 01 Jun 2011 30 Nov 2011 13,884 13,771 113
20 Apr 2006 5.65 01 Jun 2013 30 Nov 2013 7,564 114 128 7,322
28 Sep 2006 4.75 01 Dec 2011 31 May 2012 48,003 35,810 1,164 11,029
28 Sep 2006 4.75 01 Dec 2013 31 May 2014 13,325 13,325
26 Apr 2007 5.72 01 Jun 2010 30 Nov 2010 3,558 495 198 2,865
26 Apr 2007 5.72 01 Jun 2012 30 Nov 2012 8,337 1,146 7,191
26 Apr 2007 5.72 01 Jun 2014 30 Nov 2014 503 503
27 Sep 2007 5.52 01 Dec 2010 31 May 2011 25,033 21,910 3,123
27 Sep 2007 5.52 01 Dec 2012 31 May 2013 17,870 86 121 399 17,264
27 Sep 2007 5.52 01 Dec 2014 31 May 2015 1,668 1,668
25 Apr 2008 5.51 01 Jun 2011 30 Nov 2011 50,952 45,633 682 4,637
25 Apr 2008 5.51 01 Jun 2013 30 Nov 2013 28,220 168 953 27,099
25 Apr 2008 5.51 01 Jun 2015 30 Nov 2015 1,670 73 53 1,544
25 Sep 2008 4.38 01 Dec 2011 31 May 2012 153,998 103,089 2,628 5,525 2,139 40,617
25 Sep 2008 4.38 01 Dec 2013 31 May 2014 49,036 401 765 517 47,353
25 Sep 2008 4.38 01 Dec 2015 31 May 2016 14,857 709 1,660 1,117 11,371
27 Apr 2009 2.88 01 Jun 2012 30 Nov 2012 3,138,322 185,439 24,356 60,965 99,908 2,767,654
27 Apr 2009 2.88 01 Jun 2014 30 Nov 2014 1,993,530 61,175 17,362 26,585 98,560 1,789,848
27 Apr 2009 2.88 01 Jun 2016 30 Nov 2016 202,734 4,560 7,960 1,137 10,109 178,968
25 Sep 2009 4.25 01 Dec 2012 31 May 2013 264,812 13,167 14,601 2,348 10,401 224,295
25 Sep 2009 4.25 01 Dec 2014 31 May 2015 101,327 955 5,928 731 2,848 90,865
28 Sep 2010 4.61 01 Dec 2013 31 May 2014 314,557 2,996 12,636 11,310 15,646 271,969
28 Sep 2010 4.61 01 Dec 2015 31 May 2016 134,638 334 134,304
16 Sep 2011 4.66 01 Dec 2014 31 May 2015 491,329 4,828 1,081 485,420
16 Sep 2011 4.66 01 Dec 2016 31 May 2017 202,210 4,573 197,637
        6,649,860 693,539 529,024 97,669 110,447 254,696 6,351,563

The total number of securities available for issue under the scheme is 6,351,563, which represents 0.249 per cent of the issued share capital at 31 December 2011.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £6.65.

The fair value of options granted under the Plan in the period was £2.63.

International Savings Related Share Option Scheme

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    Exercise period Number of options
Date of grant Exercise
price £
Beginning End Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
12 Apr 2005 3.87 01 Jun 2010 30 Nov 2010 758 758
20 Apr 2006 5.65 01 Jun 2011 30 Nov 2011 820 820
28 Sep 2006 4.75 01 Dec 2011 31 May 2012 709 709
26 Apr 2007 5.72 01 Jun 2010 30 Nov 2010 88,610 854 87,756
26 Apr 2007 5.72 01 Jun 2012 30 Nov 2012 17,847 17,847
27 Sep 2007 5.52 01 Dec 2010 31 May 2011 40,465 9,891 4,185 4,204 22,185
25 Apr 2008 5.51 01 Jun 2011 30 Nov 2011 27,068 16,323 822 256 739 8,928
25 Apr 2008 5.51 01 Jun 2013 30 Nov 2013 4,192 4,192
25 Sep 2008 4.38 01 Dec 2011 31 May 2012 236,700 24,571 15,989 251 195,889
25 Sep 2008 4.38 01 Dec 2013 31 May 2014 6,951 6,951
27 Apr 2009 2.88 01 Jun 2012 30 Nov 2012 1,906,105 8,966 111,432 44,927 1,740,780
27 Apr 2009 2.88 01 Jun 2014 30 Nov 2014 90,029 8,811 81,218
25 Sep 2009 4.25 01 Dec 2012 31 May 2013 132,837 979 16,508 4,928 110,422
25 Sep 2009 4.25 01 Dec 2014 31 May 2015 2,682 2,682
28 Sep 2010 4.61 01 Dec 2013 31 May 2014 175,050 16,735 1,208 157,107
28 Sep 2010 4.61 01 Dec 2015 31 May 2016 6,501 371 6,130
16 Sep 2011 4.66 01 Dec 2014 31 May 2015 422,073 9,386 1,931 410,756
16 Sep 2011 4.66 01 Dec 2016 31 May 2017 25,739 25,739
        2,737,324 447,812 60,730 175,428 63,166 93,457 2,792,355

The total number of securities available for issue under the scheme is 2,792,355, which represents 0.110 per cent of the issued share capital at 31 December 2011.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £6.61.

The fair value of options granted under the Plan in the period was £2.63.

Prudential International Assurance Sharesave Plan

Download as excel file

    Exercise period Number of options
Date of grant Exercise
price £
Beginning End Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
27 Sep 2007 5.52 01 Dec 2010 31 May 2011 618 618
25 Sep 2008 4.38 01 Dec 2011 31 May 2012 1,520 829 691
27 Apr 2009 2.88 01 Jun 2012 30 Nov 2012 30,320 30,320
27 Apr 2009 2.88 01 Jun 2014 30 Nov 2014 6,567 6,567
25 Sep 2009 4.25 01 Dec 2012 31 May 2013 2,426 2,426
        41,451 618 829 40,004

The total number of securities available for issue under the scheme is 40,004, which represents 0.002 per cent of the issued share capital at 31 December 2011.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £7.10.

Non-employee Savings Related Share Option Scheme

Download as excel file

    Exercise period Number of options
Date of grant Exercise
price £
Beginning End Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
28 Sep 2006 4.75 01 Dec 2011 31 May 2012 8,577 3,191 5,386
26 Apr 2007 5.72 01 Jun 2010 30 Nov 2010 13,533 13,533
26 Apr 2007 5.72 01 Jun 2012 30 Nov 2012 15,557 15,557
27 Sep 2007 5.52 01 Dec 2010 31 May 2011 19,595 11,988 7,607
27 Sep 2007 5.52 01 Dec 2012 31 May 2013 5,748 2,778 2,970
25 Apr 2008 5.51 01 Jun 2011 30 Nov 2011 20,951 14,723 1,639 4,589
25 Apr 2008 5.51 01 Jun 2013 30 Nov 2013 4,195 361 3,834
25 Sep 2008 4.38 01 Dec 2011 31 May 2012 42,741 666 1,587 40,488
25 Sep 2008 4.38 01 Dec 2013 31 May 2014 17,135 3,427 13,708
27 Apr 2009 2.88 01 Jun 2012 30 Nov 2012 897,848 23,647 874,201
27 Apr 2009 2.88 01 Jun 2014 30 Nov 2014 749,908 35,582 714,326
25 Sep 2009 4.25 01 Dec 2012 31 May 2013 50,612 4,166 46,446
25 Sep 2009 4.25 01 Dec 2014 31 May 2015 11,717 11,717
28 Sep 2010 4.61 01 Dec 2013 31 May 2014 1,136,477 17,902 1,118,575
28 Sep 2010 4.61 01 Dec 2015 31 May 2016 379,253 3,901 375,352
16 Sep 2011 4.66 01 Dec 2014 31 May 2015 649,598 5,191 644,407
16 Sep 2011 4.66 01 Dec 2016 31 May 2017 266,624 266,624
        3,373,847 916,222 30,568 100,181 13,533 4,145,787

The total number of securities available for issue under the scheme is 4,145,787, which represents 0.163 per cent of the issued share capital at 31 December 2011.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £6.58.

The fair values of options granted under the Plan in the period was £2.63.

 
 

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