TIDMPRU
RNS Number : 4772V
Prudential PLC
10 August 2022
EEV Results Highlights
Half year 2022 Half year 2021
-------------- --------------------------------------
AER CER
------------------ ------------------
$m $m % change $m % change
Continuing operations: note (i) note (i)
------------------------------------------------------- -------------- -------- -------- -------- --------
New business profit note (ii) 1,098 1,176 (7)% 1,155 (5)%
Annual premium equivalent (APE)note (ii) 2,213 2,083 6% 2,036 9%
New business margin (APE) (%) 50% 56% (6)% 57% (7)%
Present value of new business premiums (PVNBP) 11,728 11,380 3% 11,147 5%
Operating free surplus generated notes (ii)(iii) 1,224 1,112 10% 1,089 12%
EEV operating profit notes (ii)(iv) 1,806 1,749 3% 1,710 6%
EEV operating profit, net of non-controlling interests 1,796 1,735 4% 1,690 6%
Operating return on average EEV shareholders' equity,
net of non-controlling interests (%) 8% 8%
Closing EEV shareholders' equity, net of non-controlling
interests 42,300 43,162 (2)% 41,904 1%
Closing EEV shareholders' equity, net of non-controlling
interests per share (in cents) 1,539 c 1,650c (7)% 1,602c (4)%
-------------------------------------------------------- -------------- -------- -------- -------- --------
Notes
(i) The half year 2021 results above are for the Group's
continuing operations only, excluding results from the discontinued
US operations which were demerged in September 2021.
(ii) Results are presented before deducting the amounts
attributable to non-controlling interests. This presentation is
applied consistently throughout this document, unless stated
otherwise.
(iii) Operating free surplus generated is for long-term and
asset management businesses only, before restructuring and IFRS 17
implementation costs, centrally incurred costs and
eliminations.
(iv) Group EEV operating profit is stated after restructuring
and IFRS 17 implementation costs, centrally incurred costs and
eliminations.
European Embedded Value (EEV) basis results
Basis of Preparation
IFRS profit for long-term business broadly reflects the
aggregate of results on a traditional accounting basis. By
contrast, EEV is a way of measuring the value of the in-force life
insurance business. The value of future new business is excluded
from the embedded value. The EEV Principles provide consistent
definitions of the components of EEV, a framework for setting
assumptions and an approach to the underlying methodology and
disclosures. The EEV principles were designed to provide guidance
and common principles that could be understood by both users and
preparers alongside prescribing a minimum level of disclosures to
enable users to understand an entity's methodology, assumptions and
key judgments as well as the sensitivity of an entity's EEV to key
assumptions. Results prepared under the EEV Principles represent
the present value of the shareholders' interest in the post-tax
future profits (generally on a local statutory basis) expected to
arise from the current book of long-term business, after sufficient
allowance has been made for the aggregate risks in the business.
The shareholders' interest in the Group's long-term business is the
sum of the shareholders' total net worth and the value of in-force
business. The Group's EEV has been prepared in accordance with the
relevant regulatory regimes in place at 30 June 2022. This includes
adoption of the new Hong Kong Risk-based Capital Regime with effect
from 1 January 2022 as described further below and in note 7.
For the purposes of preparing EEV results, insurance joint
ventures and associates are included at the Group's proportionate
share of their embedded value and not at their market value. Asset
management and other non-insurance subsidiaries, joint ventures and
associates are included in the EEV results at the Group's
proportionate share of IFRS shareholders' equity, with central
Group debt shown on a market value basis. Post the demerger of the
Group's US operations (Jackson) in September 2021, the Group's
retained interest in Jackson has been included at its fair value
within other (central) operations. This is equivalent to its value
within the Group's IFRS financial results. Further information is
contained in note 4.
Key features of the Group's EEV methodology include:
- Economic assumptions: The projected post-tax profits assume a
level of future investment return and are discounted using a risk
discount rate. Both the risk discount rate and the investment
return assumptions are updated at each valuation date to reflect
current market risk-free rates, such that changes in market
risk-free rates impact all projected future cash flows. Risk-free
rates, and hence investment return assumptions, are based on
observable market data, with current market risk-free rates assumed
to remain constant throughout the projection, with no trending or
mean reversion to longer-term assumptions. Different products will
be sensitive to different assumptions, for example, participating
products or products with guarantees are likely to benefit
disproportionately from higher assumed investment returns.
- Time value of financial options and guarantees: Explicit
quantified allowances are made for the time value of financial
options and guarantees (TVOG). The TVOG is determined by weighting
the probability of outcomes across a large number of different
economic scenarios and is typically less applicable to health and
protection business that generally contains more limited financial
options or guarantees. At 30 June 2022, the TVOG is $(368) million
(31 December 2021: $(784) million). The magnitude of the TVOG at 30
June 2022 would be approximately equivalent to a circa seven basis
points (31 December 2021:10 basis points) increase in the weighted
average risk discount rate.
- Allowance for risk in the risk discount rates: Risk discount
rates are set equal to the risk-free rate at the valuation date
plus product-specific allowances for market and non-market risks.
Risks that are explicitly captured elsewhere, such as via the TVOG,
are not included in the risk discount rates.
The allowance for market risk is based on a product-by-product
assessment of the sensitivity of shareholder cash flows to varying
market returns. This approach reflects the inherent market risk in
each product group and results in lower risk discount rates for
products where the majority of shareholder profit is uncorrelated
to market risk and appropriately higher risk discount rates for
products where there is greater market exposure for
shareholders.
For example, for health and protection products, which represent
56 per cent of the value of in-force business and 42 per cent of
new business profit, the major sources of shareholder profits are
underwriting profits or fixed shareholder charges which have very
low market risk sensitivity. There is a lower proportion of health
and protection than in prior periods largely as a result of higher
interest rates, which is adverse on health and protection type
products and positive impact on savings type products. New business
profit is also impacted by the mix of business sold in the
period.
The construct of UK-style with-profits funds in some business
units (representing 22 per cent of the value of in-force and 19 per
cent of new business profit) reduce the market volatility of both
policyholder and shareholder cash flows due to smoothed bonus
declarations and for some markets the presence of an estate.
Accordingly, 78 per cent of the value of in-force is products with
low market risk sensitivity and this is reflected in the overall
risk discount rate.
For unit-linked products where fund management charges fluctuate
with the investment return a portion of the profits will typically
be more sensitive to market risk due to the higher proportion of
equity-type assets in the investment portfolio resulting in a
higher risk discount rate, this business represents 15 per cent of
the value of in-force and 12 per cent of the value of new business
profit which limits the impact on the overall risk discount rate.
The remaining parts of the business (7 per cent of the value
in-force and 27 per cent of the value of new business) relate to
non-participating products not covered by the above.
The allowance for non-market risk comprises a base Group-wide
allowance of 50 basis points plus additional allowances for
emerging market risk where appropriate. At 30 June 2022, the total
allowance for non-market risk is equivalent to a $(2.9) billion (31
December 2021: $(3.7) billion) reduction, or around (8) per cent
(31 December 2021: (8) per cent) of the embedded value. The
reduction in the allowance for non-market risk in the period has
been compensated by the effect of an increase in the discount rate
applied to future expected profits.
Hong Kong Risk-based Capital Regime
In April 2022, Prudential Hong Kong Limited (PHKL), the Group's
100 per cent owned life insurance subsidiary in Hong Kong received
approval from the Hong Kong Insurance Authority to early adopt the
Hong Kong Risk-based Capital (HK RBC) regime with effect from 1
January 2022. This impacts PHKL's (and consequentially Group's)
capital position as described in note I(i) within additional
financial information. Under the Group's EEV methodology, local
regulatory and target capital requirements are the basis of
estimating future shareholder cash flows and therefore the changes
to the HK RBC framework will impact the Group's EEV, with effect
from 1 January 2022, as discussed below. Comparatives have not been
restated.
Adjustment to shareholders'
equity at 1 January 2022
Long-term insurance business Free surplus Required capital Net worth Value of in-force business Embedded value
------------------------------- ------------ ---------------- --------- -------------------------- --------------
As reported at 31 Dec 2021 5,960 3,230 9,190 35,456 44,646
Opening adjustment at 1 Jan
2022
HK RBC impact 1,360 2,853 4,213 (3,984) 229
------------------------------- ------------ ---------------- --------- -------------------------- --------------
Long-term insurance business as
at 1 Jan 2022 7,320 6,083 13,403 31,472 44,875
------------------------------- ------------ ---------------- --------- -------------------------- --------------
The HK RBC framework requires liabilities to be valued on a best
estimate basis and capital requirements to be risk based. As a
result of applying this framework, the EEV net worth increased by
$4,213 million, reflecting the release of prudent regulatory
margins previously included in liabilities, and a reduction in VIF.
EEV free surplus excludes regulatory surplus that arises where HK
RBC technical provisions are lower than policyholder asset shares
or cash surrender values to more realistically reflect how the
business is managed. The introduction of this flooring for PHKL
reduces the increase to its free surplus that would have otherwise
arisen. The impact therefore differs from the effect on Group GWS
surplus as explained in note I(i) of the additional financial
information.
Movement in Group EEV Shareholders' Equity
2022 $m 2021 $m
--------------------------------- --------------------
Half year Half year Full year
--------------------------------- --------- ---------
Insurance
and asset Other
management (central) Group Group Group
operations operations total total total
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Continuing operations:
New business profit 1 1,098 - 1,098 1,176 2,526
Profit from in-force business 2 1,001 - 1,001 857 1,630
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Long-term business 2,099 - 2,099 2,033 4,156
Asset management 117 - 117 147 284
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Operating profit from long-term and asset management
businesses 2,216 - 2,216 2,180 4,440
Other income (expenditure) 4 - (263) (263) (359) (723)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Operating profit (loss) before restructuring and IFRS 17
implementation costs 2,216 (263) 1,953 1,821 3,717
Restructuring and IFRS 17 implementation costs (37) (110) (147) (72) (174)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Operating profit (loss) for the period 2,179 (373) 1,806 1,749 3,543
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Short-term fluctuations in investment returns 2 (5,208) 7 (5,201) (870) (1,040)
Effect of changes in economic assumptions 2 (806) - (806) 914 412
Profit (loss) attaching to corporate transactions - 62 62 (56) (35)
Mark-to-market value movements on core structural
borrowings 5 - 631 631 170 357
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Non-operating results (6,014) 700 (5,314) 158 (306)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
(Loss) profit from continuing operations (3,835) 327 (3,508) 1,907 3,237
Loss from discontinued US operations note (i) - - - (10,319) (10,852)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
(Loss) profit for the period (3,835) 327 (3,508) (8,412) (7,615)
Non-controlling interests share of loss (profit) from
continuing operations (10) - (10) (20) (40)
Non-controlling interests share of loss from discontinued
US operations - - - 1,145 1,205
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
(Loss) profit for the period attributable to equity
holders of the Company (3,845) 327 (3,518) (7,287) (6,450)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Equity items from continuing operations:
Foreign exchange movements on operations (1,215) 17 (1,198) (425) (460)
Intra-group dividends and investment in operationsnote
(ii) (968) 968 - - -
Demerger dividend in specie from Jackson - - - - (1,735)
Other external dividends - (320) (320) (283) (421)
New share capital subscribednote (iii) - - - - 2,382
Other movementsnote (iv) 34 (282) (248) 57 238
Equity items from discontinued US operations net of
non-controlling interest - - - (240) (206)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Net (decrease) increase in shareholders' equity (5,994) 710 (5,284) (8,178) (6,652)
Shareholders' equity at beginning of period (as previously
disclosed) 46,114 1,241 47,355 54,007 54,007
Effect of HK RBC 229 - 229 - -
Shareholders' equity at beginning of period after adoption
of HK RBC 46,343 1,241 47,584 54,007 54,007
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Shareholders' equity at end of period 40,349 1,951 42,300 45,829 47,355
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Contribution to Group EEV:
At end of period:
Continuing operations:
Long-term business 2 38,965 - 38,965 43,682 44,646
Asset management and other 4 635 1,951 2,586 (1,308) 1,931
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Shareholders' equity, excluding goodwill attributable to
equity holders 39,600 1,951 41,551 42,374 46,577
Goodwill attributable to equity holders 749 - 749 788 778
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Total continuing operations 6 40,349 1,951 42,300 43,162 47,355
---------------------------------------------------------- ----------- ----------- -------
Discontinued US operations 2,667 -
--------- ---------
Shareholders' equity at end of period 45,829 47,355
--------- ---------
At beginning of period:
Continuing operations:
Long-term business 2 44,646 - 44,646 42,861 42,861
Asset management and other 4 690 1,241 1,931 (1,756) (1,756)
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Shareholders' equity, excluding goodwill attributable to
equity holders 45,336 1,241 46,577 41,105 41,105
Goodwill attributable to equity holders 778 - 778 821 821
---------------------------------------------------------- ----------- ----------- ------- --------- ---------
Total continuing operations 6 46,114 1,241 47,355 41,926 41,926
---------------------------------------------------------- ----------- ----------- -------
Discontinued US operations 12,081 12,081
--------- ---------
Shareholders' equity at beginning of period (as previously
disclosed) 54,007 54,007
--------- ---------
2022 $m 2021 $m
-------------------------------- --------------------
Half year Half year Full year
-------------------------------- --------- ---------
Insurance
and asset Other
management (central) Group Group Group
EEV shareholders' equity per share (in cents) note (v) operations operations total total total
------------------------------------------------------------ ----------- ----------- ------ --------- ---------
At end of period:
Continuing operations:
Based on shareholders' equity, net of goodwill attributable
to equity holders 1,440c 71c 1,511c 1,620c 1,696c
Based on shareholders' equity at end of period 1,468c 71c 1,539c 1,650c 1,725c
------------------------------------------------------------ ----------- ----------- ------
Discontinued US operations 102c -c
--------- ---------
Group total 1,752c 1,725c
--------- ---------
At beginning of period:
Continuing operations:
Based on shareholders' equity, net of goodwill attributable
to equity holders 1,651c 45c 1,696c 1,576c 1,576c
Based on shareholders' equity at beginning of period 1,680c 45c 1,725c 1,607c 1,607c
------------------------------------------------------------ ----------- ----------- ------
Discontinued US operations 463c 463c
--------- ---------
Group total 2,070c 2,070c
--------- ---------
2022 2021
-------------------------------------- ----------------------
Half year Half year Full year
-------------------------------------- ---------- ----------
After
Before non- non- Basic Basic Basic
controlling controlling earnings earnings earnings
EEV basis basic earnings per share note (vi) interests interests per share per share per share
$m $m cents cents cents
---------------------------------------------------- ------------ ------------ ---------- ---------- ----------
Based on operating profit from continuing operations 1,806 1,796 65.6c 66.7c 133.8c
Based on (loss) profit for the period:
From continuing operations (3,508) (3,518) (128.6)c 72.5c 121.7c
From discontinued US operations - - -c (352.7)c (367.1)c
---------------------------------------------------- ------------ ------------ ---------- ---------- ----------
Group total (280.2)c (245.4)c
---------- ----------
Notes
(i) Discontinued operations represent the Group's US business
(Jackson) which was demerged in September 2021.
(ii) Intra-group dividends represent dividends that have been
declared in the period. Investment in operations reflects movements
in share capital.
(iii) New share capital subscribed in full year 2021 primarily
represented the issuance of new ordinary shares on the Hong Kong
Stock Exchange in October 2021 as described in note C8 of the IFRS
financial results.
(iv) Other movements include reserve movements in respect of
valuation movements on the retained interest in Jackson,
share-based payments, treasury shares and intra-group transfers
between operations that have no overall effect on the Group's
shareholders' equity.
(v) Based on the number of issued shares at 30 June 2022 of
2,749 million shares (30 June 2021: 2,616 million shares; 31
December 2021: 2,746 million shares).
(vi) Based on weighted average number of issued shares of 2,736
million shares in half year 2022 (half year 2021: 2,601 million
shares; full year 2021: 2,628 million shares).
Movement in Group Free Surplus
Operating free surplus generation is the financial metric we use
to measure the internal cash generation of our business operations
and for our life operations is generally based on (with adjustments
as discussed below) the capital regimes that apply locally in the
various jurisdictions in which the Group operates. It represents
amounts emerging from the in-force business during the period, net
of amounts reinvested in writing new business. For asset management
businesses, it equates to post-tax adjusted operating profit for
the period.
For long-term business, free surplus is generally based on (with
adjustments including recognition of certain intangibles and other
assets that may be inadmissible on a regulatory basis) the excess
of the regulatory basis net assets (EEV total net worth) over the
EEV capital required to support the covered business. For
shareholder-backed businesses, the level of EEV required capital
has been based on the Group prescribed capital requirements used in
our GWS reporting as set out in note 7.1(e).
Adjustments are also made to enable free surplus to be a better
measure of shareholders' resources available for distribution as
described in the reconciliation to GWS surplus as disclosed in note
I(i) of the additional financial information. For asset management
and other non-insurance operations (including the Group's central
operations), free surplus is taken to be IFRS basis shareholders'
equity, net of goodwill attributable to shareholders, with central
Group debt recorded as free surplus to the extent that it is
classified as capital resources under the Group's capital regime.
Following the application of the GWS Framework, both subordinated
and senior debt (excluding the amount issued in the first half of
2022) are treated as capital for the purposes of free surplus at 30
June 2022.
A reconciliation of EEV free surplus to the GWS shareholder
capital surplus over group minimum capital requirements is set out
in note I(i) of the additional financial information.
2022 $m 2021 $m
------------------------------------- ------------------------
Half year Half year Full year
------------------------------------- ----------- -----------
Insurance
and asset Other
management (central)
Note operations operations Group total Group total Group total
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Continuing operations:
Expected transfer from in-force business 1,287 - 1,287 1,165 2,340
Expected return on existing free surplus 159 - 159 84 157
Changes in operating assumptions and
experience variances (60) - (60) 35 (173)
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Operating free surplus generated from
in-force long-term business 2 1,386 - 1,386 1,284 2,324
Investment in new businessnote (ii) 2 (279) - (279) (319) (537)
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Long-term business 1,107 - 1,107 965 1,787
Asset management 117 - 117 147 284
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Operating free surplus generated from
long-term and asset management businesses 1,224 - 1,224 1,112 2,071
Other income and expenditure 4 - (263) (263) (359) (723)
Restructuring and IFRS 17 implementation
costs (36) (110) (146) (70) (169)
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Operating free surplus generated 1,188 (373) 815 683 1,179
Non-operating free surplus generatednote
(iii) (1,400) 90 (1,310) 81 82
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Free surplus generated from continuing
operations (212) (283) (495) 764 1,261
Free surplus generated from discontinued US
operations note (i) - - - 1,303 770
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Free surplus generated for the period (212) (283) (495) 2,067 2,031
Equity items from continuing operations:
Net cash flows paid to parent companynote
(iv) (1,009) 1,009 - - -
Demerger dividend in specie from Jackson - - - - (1,735)
Other external dividends - (320) (320) (283) (421)
Foreign exchange movements on operations (264) 17 (247) (29) 10
New share capital subscribednote (v) - - - - 2,382
Other movements and timing differences 75 (323) (248) 57 238
Treatment of grandfathered debt instruments
under the GWS Framework - - - 1,995 1,995
Equity items from discontinued US
operations - - - (270) (206)
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Net movement in free surplus before
non-controlling interest and before net
subordinated debt
issuance/redemption (1,410) 100 (1,310) 3,537 4,294
Net subordinated debt redemption - (1,699) (1,699) - (232)
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Net movement in free surplus before
non-controlling interest (1,410) (1,599) (3,009) 3,537 4,062
Change in amounts attributable to
non-controlling interests (5) - (5) (128) (106)
Balance at beginning of period (as
previously reported) 6,650 7,399 14,049 10,093 10,093
Effect of HK RBC 1,360 - 1,360 - -
Balance at beginning of period after
adoption of HK RBC 8,010 7,399 15,409 10,093 10,093
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Balance at end of period 6,595 5,800 12,395 13,502 14,049
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Representing:
Free surplus excluding distribution rights
and other intangibles 5,667 2,922 8,589 9,587 10,083
Distribution rights and other intangibles 928 2,878 3,806 3,915 3,966
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Balance at end of period 6,595 5,800 12,395 13,502 14,049
------------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
2022 $m 2021 $m
------------------------------------- ------------------------
30 Jun 30 Jun 31 Dec
------------------------------------- ----------- -----------
Insurance
and asset Other
management (central)
Contribution to Group free surplus: Note operations operations Group total Group total Group total
------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
At end of period:
Continuing operations:
Long-term business 2 5,960 - 5,960 5,566 5,960
Asset management and other 4 635 5,800 6,435 5,269 8,089
------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Total continuing operations 6,595 5,800 12,395 10,835 14,049
------------------------------------- ---- ----------- ----------- -----------
Discontinued US operations 2,667 -
----------- -----------
Free surplus at end of period 13,502 14,049
----------- -----------
At beginning of period:
Long-term business 2 5,960 - 5,960 5,348 5,348
Asset management and other 4 690 7,399 8,089 2,996 2,996
------------------------------------- ---- ----------- ----------- ----------- ----------- -----------
Total continuing operations 6,650 7,399 14,049 8,344 8,344
------------------------------------- ---- ----------- ----------- -----------
Discontinued US operations 1,749 1,749
----------- -----------
Free surplus at beginning of period 10,093 10,093
----------- -----------
Notes
(i) Discontinued operations represent the Group's US business
(Jackson) which was demerged in September 2021.
(ii) Free surplus invested in new business primarily represents
acquisition costs and amounts set aside for required capital.
(iii) Non-operating free surplus generated for other operations
represents the post-tax IFRS basis short-term fluctuations in
investment returns and gain or loss on corporate transactions for
other entities.
(iv) Net cash flows to parent company reflect the cash
remittances as included in the holding company cash flow at
transaction rates. The difference to the intra-group dividends and
investment in operations in the movement in EEV shareholders'
equity primarily relates to intra-group loans, foreign exchange and
other non-cash items.
(v) New share capital subscribed in full year 2021 primarily
represented the issuance of new ordinary shares on the Hong Kong
Stock Exchange in October 2021 as described in note C8 of the IFRS
financial results.
Notes on the EEV financial results
1 Analysis of new business profit and EEV for long-term business operations
Half year 2022
-------------------------------------------------------------------------------------------
Present
New value of new Closing EEV
business Annual business New business New business shareholders'
profit premium premiums Margin Margin equity, excluding
(NBP) equivalent (APE) (PVNBP) (APE) (PVNBP) goodwill
$m $m $m % % $m
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
CPL (Prudential's share) 217 507 2,119 43% 10% 3,302
Hong Kong 211 227 1,774 93% 12% 17,246
Indonesia 52 110 442 47% 12% 1,956
Malaysia 70 172 845 41% 8% 3,524
Singapore 244 390 3,184 63% 8% 6,712
Growth markets and other 304 807 3,364 38% 9% 6,225
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Total long-term
operations 1,098 2,213 11,728 50% 9% 38,965
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Half year 2021 (AER)
-------------------------------------------------------------------------------------------
Present
New value of new Closing EEV
business Annual business New business New business shareholders'
profit premium premiums Margin Margin equity, excluding
(NBP) equivalent (APE) (PVNBP) (APE) (PVNBP) goodwill
$m $m $m % % $m
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
CPL (Prudential's share) 228 448 2,038 51% 11% 3,049
Hong Kong 306 253 1,991 121% 15% 20,951
Indonesia 57 117 485 49% 12% 2,350
Malaysia 113 211 992 54% 11% 3,814
Singapore 215 379 2,940 57% 7% 7,917
Growth markets and other 257 675 2,934 38% 9% 5,601
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Total long-term
operations 1,176 2,083 11,380 56% 10% 43,682
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Half year 2021 (CER)
-------------------------------------------------------------------------------------------
Present
New value of new Closing EEV
business Annual business New business New business shareholders'
profit premium premiums Margin Margin equity, excluding
(NBP) equivalent (APE) (PVNBP) (APE) (PVNBP) goodwill
$m $m $m % % $m
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
CPL (Prudential's share) 227 447 2,034 51% 11% 2,943
Hong Kong 304 251 1,975 121% 15% 20,734
Indonesia 56 116 479 48% 12% 2,288
Malaysia 109 202 952 54% 11% 3,593
Singapore 210 370 2,869 57% 7% 7,647
Growth markets and other 249 650 2,838 38% 9% 5,277
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Total long-term
operations 1,155 2,036 11,147 57% 10% 42,482
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Full year 2021 (AER)
-------------------------------------------------------------------------------------------
Present
New value of new Closing EEV
business Annual business New business New business shareholders'
profit premium premiums Margin Margin equity, excluding
(NBP) equivalent (APE) (PVNBP) (APE) (PVNBP) goodwill
$m $m $m % % $m
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
CPL (Prudential's share) 352 776 3,761 45% 9% 3,114
Hong Kong 736 550 4,847 134% 15% 21,460
Indonesia 125 252 1,067 50% 12% 2,237
Malaysia 232 461 2,137 50% 11% 3,841
Singapore 523 743 6,214 70% 8% 7,732
Growth markets and other 558 1,412 6,127 40% 9% 6,262
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Total long-term
operations 2,526 4,194 24,153 60% 10% 44,646
------------------------- --------- ----------------- ------------- ------------ ------------ ------------------
Note
The movement in new business profit from long-term operations is
analysed as follows:
$m
------------------------------------------------------------------- -----
Half year 2021 new business profit 1,176
Foreign exchange movement (21)
Sales volume 101
Effect of changes in interest rates and other economic assumptions (59)
Business mix, product mix and other items (99)
------------------------------------------------------------------- -----
Half year 2022 new business profit 1,098
------------------------------------------------------------------- -----
2 Analysis of movement in net worth and value of in-force
business for long-term business operations
2022 $m 2021 $m
--------------------------------------------------------- --------------------
Half year Half year Full year
--------------------------------------------------------- --------- ---------
Free Required Net Value of Embedded Embedded Embedded
surplus capital worth in-force business value value value
-------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
Balance at beginning of period:
-------- -------- ------- ------------------ -------- --------- ---------
Balance at beginning of period
(as previously reported) 5,960 3,230 9,190 35,456 44,646 42,861 42,861
Effect of HK RBC 1,360 2,853 4,213 (3,984) 229 - -
-------- -------- ------- ------------------ -------- --------- ---------
Balance at beginning of period
after adoption of HK RBC 7,320 6,083 13,403 31,472 44,875 42,861 42,861
New business contribution (279) 166 (113) 1,211 1,098 1,176 2,526
Existing business - transfer to
net worth 1,287 6 1,293 (1,293) - - -
Expected return on existing
businessnote 2(b) 159 123 282 901 1,183 884 1,761
Changes in operating assumptions,
experience variances and other
itemsnote 2(c) (60) (142) (202) 20 (182) (27) (131)
--------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
Operating profit before
restructuring and IFRS 17
implementation costs 1,107 153 1,260 839 2,099 2,033 4,156
Restructuring and IFRS 17
implementation costs (31) - (31) (1) (32) (26) (82)
--------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
Operating profit 1,076 153 1,229 838 2,067 2,007 4,074
Non-operating resultnote 2(d) (1,400) (427) (1,827) (4,187) (6,014) 48 (603)
--------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
(Loss) profit for the period (324) (274) (598) (3,349) (3,947) 2,055 3,471
Non-controlling interests share
of (profit) loss (2) - (2) (5) (7) (14) (30)
--------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
(Loss) profit for the period
attributable to equity holders
of the Company (326) (274) (600) (3,354) (3,954) 2,041 3,441
Foreign exchange movements (234) (104) (338) (818) (1,156) (423) (457)
Intra-group dividends and
investment in operations (832) (81) (913) 81 (832) (807) (1,115)
Other movementsnote 2(e) 32 - 32 - 32 10 (84)
--------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
Balance at end of period note
2(a) 5,960 5,624 11,584 27,381 38,965 43,682 44,646
--------------------------------- -------- -------- ------- ------------------ -------- --------- ---------
( a ) Total embedded value
The total embedded value for long-term business operations at
the end of each period show below, excluding goodwill attributable
to equity holders, can be analysed further as follows:
2022 $m 2021 $m
------- --------------
30 Jun 30 Jun 31 Dec
------------------------------------------------------------------------------------------ ------- ------ ------
Value of in-force business before deduction of cost of capital and time value of options
and
guarantees 28,442 36,362 36,965
Cost of capital (693) (740) (725)
Time value of options and guarantees(note) (368) (719) (784)
------------------------------------------------------------------------------------------- ------- ------ ------
Net value of in-force business 27,381 34,903 35,456
------------------------------------------------------------------------------------------- ------- ------ ------
Free surplus 5,960 5,566 5,960
Required capital 5,624 3,213 3,230
------------------------------------------------------------------------------------------- ------- ------ ------
Net worth 11,584 8,779 9,190
------------------------------------------------------------------------------------------- ------- ------ ------
Embedded value 38,965 43,682 44,646
------------------------------------------------------------------------------------------- ------- ------ ------
Note
The time value of options and guarantees (TVOG) arises from the
variability of economic outcomes in the future and is, where
appropriate, calculated as the difference between an average
outcome across a range of economic scenarios, calibrated around a
central scenario, and the outcome from the central economic
scenario, as described in note 7.1(d). At 30 June 2022, the TVOG is
$(368) million, with the substantial majority arising in Hong Kong.
The TVOG has decreased since 31 December 2021 reflecting the
generally higher government bond yields at 30 June 2022 which mean
guarantees are less likely to be in-the-money. The TVOG reflects
the variability of guaranteed benefit pay-outs across the range of
economic scenarios around interest rates at the valuation date and
represents some of the market risk for the key products in Hong
Kong. As this market risk is explicitly allowed for via the TVOG,
no further adjustment is made for this within the EEV risk discount
rate, as described in note 7.1(h).
(b) Expected return on existing business
The expected return on existing business reflects the effect of
changes in economic and operating assumptions in the current
period, as described in note 7.2(c). The movement in this amount
compared to the prior period from long-term operations is analysed
as follows:
$m
------------------------------------------------------------------- -----
Half year 2021 expected return on existing business 884
Foreign exchange movement (17)
Effect of changes in interest rates and other economic assumptions 255
Growth in opening value of in-force business and other items 61
------------------------------------------------------------------- -----
Half year 2022 expected return on existing business 1,183
------------------------------------------------------------------- -----
(c) Changes in operating assumption, experience variances and other items
Overall the total impact of operating assumption changes,
experience variances and other items in half year 2022 was $(182)
million (half year 2021: $(27) million; full year 2021: $(131)
million), comprising changes in operating assumptions of $61
million in half year 2022 (half year 2021: $37 million; full year
2021: $118 million) and experience variances and other items of
$(243) million (half year 2021: $(64) million; full year 2021:
$(249) million).
(d) Non-operating results
The EEV non-operating result from long-term operations can be
summarised as follows:
2022 $m 2021 $m
--------- --------------------
Half year Half year Full year
------------------------------------------------------ --------- --------- ---------
Short-term fluctuations in investment returnsnote (i) (5,208) (866) (1,015)
Effect of change in economic assumptionsnote (ii) (806) 914 412
------------------------------------------------------ --------- --------- ---------
Non-operating results (6,014) 48 (603)
------------------------------------------------------ --------- --------- ---------
Notes
(i) The charge of $(5,208) million in short-term fluctuations in
investment returns mainly reflects lower than expected bond
returns, following the rise in interest rates in many markets in
the period, widening credit spreads and falling equity markets.
(ii) The charge of $(806) million effect of change in economic
assumptions primarily arises from increases in long-term interest
rates, resulting in higher risk discount rates, partially offset by
the effect of higher assumed fund earned rates that impact
projected future cash flows. The effects and impacts vary between
business and products with overall the negative impact due to
larger weight of health and protection business outweighing
positive impacts for other products.
(e) Other reserve movements
Other movements include reserve movements in respect of
share-based payments, treasury shares, intra-group loans and other
intra-group transfers between operations that have no overall
effect on the Group's shareholders' equity.
3 Sensitivity of results for long-term business operations to alternative economic assumptions
The tables below show the sensitivity of the embedded value and
the new business profit for continuing long-term business
operations to:
- 1 per cent and 2 per cent increases in interest rates and 0.5
per cent decrease in interest rates. This allows for consequential
changes in the assumed investment returns for all asset classes,
market values of fixed interest assets, local statutory reserves,
capital requirements and risk discount rates (but excludes changes
in the allowance for market risk);
- 1 per cent rise in equity and property yields;
- 1 per cent and 2 per cent increases in the risk discount
rates. The main driver for changes in the risk discount rates from
period to period is changes in interest rates, the impact of which
is expected to be partially offset by a corresponding change in
assumed investment returns, the effect of which is not included in
the risk discount rate sensitivities. The impact of higher
investment returns can be approximated as the difference between
the sensitivity to increases in interest rates and the sensitivity
to increases in risk discount rates;
- For embedded value only, 20 per cent fall in the market value
of equity and property assets; and
- For embedded value only, holding the group minimum capital
requirements (GMCR) under the GWS Framework in contrast to EEV
required capital based on the group prescribed capital requirements
(GPCR). This reduces the level of capital and therefore the level
of charge deducted from the embedded value for the cost of
locked-in required capital. This has the effect of increasing
EEV.
The sensitivities shown below are for the impact of
instantaneous and permanent changes (with no trending or mean
reversion) on the embedded value of long-term business operations
and include the combined effect on the value of in-force business
and net assets (including derivatives) held at the valuation dates
indicated. The results only allow for limited management actions,
such as changes to future policyholder bonuses, where applicable.
If such economic conditions persisted, the financial impacts may
differ to the instantaneous impacts shown below. In this case,
management could also take additional actions to help mitigate the
impact of these stresses. No change in the mix of the asset
portfolio held at the valuation date is assumed when calculating
sensitivities, while changes in the market value of those assets
are recognised. The sensitivity impacts are expected to be
non-linear. To aid understanding of this non-linearity, impacts of
both a 1 per cent and 2 per cent increase to interest rates and
risk discount rates are shown.
If the changes in assumptions shown in the sensitivities were to
occur, the effects shown below would be recorded within two
components of the profit analysis for the following period, namely
the effect of changes in economic assumptions and short-term
fluctuations in investment returns. In addition to the sensitivity
effects shown below, the other components of the profit for the
following period would be calculated by reference to the altered
assumptions, for example new business profit and expected return on
existing business.
New business profit from long-term business
Half year 2022 $m Full year 2021 $m
--------------------------------------------------------- ----------------- -----------------
New business profit 1,098 2,526
---------------------------------------------------------- ----------------- -----------------
Sensitivity to alternative economic assumptions:
Interest rates and consequential effects - 2% increase 100 88
Interest rates and consequential effects - 1% increase 61 70
Interest rates and consequential effects - 0.5% decrease (44) (64)
Equity/property yields - 1% rise 84 155
Risk discount rates - 2% increase (283) (653)
Risk discount rates - 1% increase (158) (380)
--------------------------------------------------------- ----------------- -----------------
Embedded value of long-term business
30 Jun 2022 $m 31 Dec 2021 $m
--------------------------------------------------------- -------------- --------------
Embedded value 38,965 44,646
---------------------------------------------------------- -------------- --------------
Sensitivity to alternative economic assumptions:
Interest rates and consequential effects - 2% increase (4,137) (4,782)
Interest rates and consequential effects - 1% increase (2,006) (2,228)
Interest rates and consequential effects - 0.5% decrease 1,033 223
Equity/property yields - 1% rise 1,738 1,909
Equity/property market values - 20% fall (1,605) (1,959)
Risk discount rates - 2% increase (7,724) (9,717)
Risk discount rates - 1% increase (4,369) (5,443)
Group minimum capital requirements 114 136
--------------------------------------------------------- -------------- --------------
Overall, the new business profit sensitivities at 30 June 2022
are broadly in line with those at 31 December 2021 after allowing
for the level of new business profit at a half year compared to a
full year.
For a 1 per cent increase in assumed interest rates, the
$(2,006) million negative effect comprises a $(4,369) million
negative impact of increasing the risk discount rate by 1 per cent,
partially offset by a $2,363 million benefit from assuming 1 per
cent higher investment returns. Similarly, for a 2 per cent
increase in assumed interest rates the $(4,137) million negative
effect comprises a $(7,724) million negative impact of increasing
the risk discount rates by 2 per cent, partially offset by a $3,587
million benefit from higher assumed investment returns. Finally,
for a 0.5 per cent decrease in assumed interest rates, there would
be a $1,033 million positive effect reflecting the benefit of a 0.5
per cent reduction in risk discount rates being partially offset by
lower assumed investment returns. These offsetting impacts are
sensitive to economics and the net impact can therefore change from
period to period depending on the current level of interest
rates.
In order to illustrate the impact of varying specific economic
assumptions, all other assumptions are held constant in the
sensitivities above and therefore, the actual changes in embedded
value were these economic effects to materialise may differ from
the sensitivities shown. For example, market risk allowances would
likely be increased within the risk discount rate if interest rates
increased by 1 per cent, leading to a reduction of $(2,383) million
(compared with the $(2,006) million impact shown above). However,
if interest rates actually decreased by 0.5 per cent, it would lead
to a $1,286 million increase (compared with the $1,033 million
increase shown above).
4 EEV results for other (central) operations
EEV results for other income and expenditure represents the
post-tax IFRS results for other (central) operations (before
restructuring and IFRS 17 implementation costs), together with an
adjustment to deduct the unwind of expected margins on the internal
management of the assets of the covered business, as shown in the
table below. It mainly includes interest costs on core structural
borrowings and corporate expenditure for head office functions in
London and Hong Kong that are not recharged/allocated to the
insurance operations.
In line with the EEV Principles, the allowance for the future
costs of internal asset management services within the EEV results
for long-term insurance operations excludes the projected future
profits or losses generated by any non-insurance entities within
the Group in providing those services (ie the EEV for long-term
insurance operations assumes that the cost of internal asset
management services will be that incurred by the Group as a whole,
not the cost that will be borne by the insurance business). The
results of the Group's asset management operations include the
current period profit from the management of both internal and
external funds, consistent with their presentation within the
Group's IFRS basis reporting. An adjustment is accordingly made to
Group EEV operating profit, within the EEV results for other
operations, to deduct the expected profit anticipated to arise in
the current period in the opening value of in-force business from
internal asset management services, such that Group EEV operating
profit includes the actual profit earned in respect of the
management of these assets.
Any costs incurred within the head office functions in London
and Hong Kong that are deemed attributable to the long-term
insurance (covered) business are recharged to the insurance
operations and recorded within the results for those operations.
The assumed future expenses within the value of in-force business
for long-term insurance operations allow for amounts expected to be
recharged by the head office functions. Other costs that are not
recharged to the insurance operations are shown as part of other
income and expenditure for the current period, and are not included
within the projection of future expenses for in-force insurance
business.
2022 $m 2021 $m
--------- --------------------
Half year Half year Full year
------------------------------------------------------------------------------------- --------- --------- ---------
IFRS other income (expenditure) (as recorded in note B1.1 of the IFRS financial
results) (214) (321) (605)
Tax charge on the above IFRS results (9) - (37)
Less: unwind of expected profit on internal management of the assets of long-term
business (40) (38) (81)
------------------------------------------------------------------------------------- --------- --------- ---------
EEV other income (expenditure) (263) (359) (723)
------------------------------------------------------------------------------------- --------- --------- ---------
The EEV shareholders' equity for other operations is taken to be
IFRS shareholders' equity, with central Group debt shown on a
market value basis. Free surplus for other operations is taken to
be IFRS shareholders' equity, net of goodwill attributable to
equity holders, with central Group debt recorded as free surplus to
the extent that it is classified as capital resources under the
Group's capital regime. Under the GWS Framework, debt instruments
issued at the date of designation which met the transitional
conditions set by the Hong Kong IA are included as GWS eligible
group capital resources. In addition, debt issued since the date of
designation which met the qualifying conditions as set out in the
Insurance (Group Capital) Rules are also included as GWS eligible
group capital resources. The $350 million senior debt issued in the
first half of 2022 did not meet the conditions and hence has not
been treated as available capital within free surplus.
Shareholders' equity for other (central) operations can be
compared across metrics as shown in the table below.
2022 $m 2021 $m
-------- ---------------
30 Jun 30 Jun 31 Dec
--------------------------------------------------------------------------------------- -------- ------- ------
IFRS basis shareholders' equity (as recorded in note C1 of the IFRS financial results) 1,758 (1,320) 1,679
Mark-to-market value adjustment on central borrowings(note 5) 193 (625) (438)
--------------------------------------------------------------------------------------- -------- ------- ------
EEV basis shareholders' equity 1,951 (1,945) 1,241
Debt instruments treated as capital resources 3,849 6,577 6,158
--------------------------------------------------------------------------------------- -------- ------- ------
Free surplus of other (central) operations 5,800 4,632 7,399
--------------------------------------------------------------------------------------- -------- ------- ------
Treatment of US operations following demerger
The Group retained a 19.7 per cent economic interest (19.9 per
cent voting interest) in Jackson, the Group's US operations,
immediately following the demerger in September 2021. Transactions
during 2021 and the first six months of 2022 have reduced the
Group's holding to 14.3 per cent economic interest (14.3 per cent
voting interest). The fair value of the Group's holding, as
included in the Group's EEV at 30 June 2022, was $325 million.
Transactions in the first half of 2022 released a gain of $60
million, which has been included in corporate transactions. Net
unrealised changes in fair value since the date of demerger have
been included in other movements in equity items as part of the EEV
financial results for other (central) operations. This treatment is
consistent with the approach adopted for IFRS.
5 Net core structural borrowings of shareholder-financed businesses
2022 $m 2021 $m
---------------------------- ----------------------------------------------------------
30 Jun 30 Jun 31 Dec
---------------------------- ---------------------------- ----------------------------
EEV EEV EEV
Mark-to- basis Mark-to- basis Mark-to- basis
market at market at market at
IFRS value market IFRS value market IFRS value market
basis adjustment value basis adjustment value basis adjustment value
note note note
(ii) note (iii) (ii) note (iii) (ii) note (iii)
--------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Holding company cash
and short-term
investmentsnote (i) (2,143) - (2,143) (1,393) - (1,393) (3,572) - (3,572)
Central borrowings:
------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Subordinated debt 2,289 (173) 2,116 4,342 340 4,682 4,075 196 4,271
Senior debt 1,977 (20) 1,957 1,712 285 1,997 1,702 242 1,944
Bank loan - - - 350 - 350 350 - 350
------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Total central
borrowings 4,266 (193) 4,073 6,404 625 7,029 6,127 438 6,565
---------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Net core structural
borrowings of
shareholder-financed
businesses 2,123 (193) 1,930 5,011 625 5,636 2,555 438 2,993
---------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Notes
(i) Holding company includes centrally managed group holding companies.
(ii) As recorded in note C5.1 of the IFRS financial results.
(iii) The movement in the value of core structural borrowings
includes issuances and redemptions in the period and foreign
exchange effects for pounds sterling denominated debts. The
movement in the mark-to-market value adjustment can be analysed as
follows:
2022 $m 2021 $m
--------- --------------------
Half year Half year Full year
------------------------------------------------------- --------- --------- ---------
Mark-to-market value adjustment at beginning of period 438 795 795
Credit included in the income statement (631) (170) (357)
-------------------------------------------------------- --------- --------- ---------
Mark-to-market value adjustment at end of period (193) 625 438
-------------------------------------------------------- --------- --------- ---------
6 Comparison of EEV basis shareholders' equity with IFRS basis shareholders' equity
2022 $m 2021 $m
--------- --------------------
30 Jun 30 Jun 31 Dec
-------------------------------------------------------------------------------- --------- --------- ---------
Assets less liabilities before deduction of insurance funds 141,619 157,414 164,810
Less insurance funds (including liabilities in respect of insurance products
classified as
investment contracts under IFRS 4):
--------- --------- ---------
Policyholder liabilities (net of reinsurers' share) and unallocated surplus of
with-profits
funds(note) (125,347) (141,191) (147,546)
Shareholders' accrued interest in the long-term business 26,191 30,116 30,267
--------- ---------
(99,156) (111,075) (117,279)
Less non-controlling interests (163) (510) (176)
--------------------------------------------------------------------------------- --------- --------- ---------
Total net assets attributable to equity holders of the Company 42,300 45,829 47,355
--------------------------------------------------------------------------------- --------- --------- ---------
Share capital 182 173 182
Share premium 5,010 2,645 5,010
IFRS basis shareholders' reserves 10,917 12,895 11,896
--------------------------------------------------------------------------------- --------- --------- ---------
IFRS basis shareholders' equity, net of non-controlling interests 16,109 15,713 17,088
Shareholders' accrued interest in the long-term business 26,191 30,116 30,267
--------------------------------------------------------------------------------- --------- --------- ---------
EEV basis shareholders' equity, net of non-controlling interests 42,300 45,829 47,355
--------------------------------------------------------------------------------- --------- --------- ---------
Analysed as:
Continuing operations 43,162 47,355
Discontinued operations 2,667 -
--------- ---------
EEV basis shareholders' equity, net of non-controlling interests 45,829 47,355
--------- ---------
Note
Excluding the policyholder liabilities of the discontinued US
operations at 30 June 2021 pre its demerger in September 2021.
7 Methodology and accounting presentation
7.1 Methodology
(a) Covered business
The EEV financial results for the Group are prepared for
'covered business' as defined by the EEV Principles. Covered
business represents the Group's long-term insurance business
(including the Group's investments in joint venture and associate
insurance operations), for which the value of new and in-force
contracts is attributable to shareholders. The definition of
long-term insurance business comprises those contracts falling
under the definition for regulatory purposes.
The EEV results for the Group's covered business are then
combined with the post-tax IFRS results of the Group's asset
management and other operations (including interest costs on core
structural borrowings and corporate expenditure for head office
functions in London and Hong Kong that is not recharged/allocated
to the insurance operations), with an adjustment to deduct the
unwind of expected margins on the internal management of the assets
of the covered business. Under the EEV Principles, the results for
covered business incorporate the projected margins of attaching
internal asset management, as described in note (g) below.
(b) Valuation of in-force and new business
The EEV financial results are prepared incorporating best
estimate assumptions about all relevant factors including levels of
future investment returns, persistency, mortality, morbidity and
expenses, as described in note 8(c). These assumptions are used to
project future cash flows. The present value of the projected
future cash flows is then calculated using a discount rate, as
shown in note 8(a), which reflects both the time value of money and
all other non-diversifiable risks associated with the cash flows
that are not otherwise allowed for.
The total profit that emerges over the lifetime of an individual
contract as calculated under the EEV basis is the same as that
calculated under the IFRS basis. Since the EEV basis reflects
discounted future cash flows, under the EEV methodology the profit
emergence is advanced, thus more closely aligning the timing of the
recognition of profit with the efforts and risks of current
management actions, particularly with regard to business sold
during the period.
New business
In determining the EEV basis value of new business, premiums are
included in projected cash flows on the same basis of
distinguishing regular and single premium business as set out in
the Group's new business sales reporting.
New business premiums reflect those premiums attaching to the
covered business, including premiums for contracts classified as
investment contracts under IFRS 4. New business premiums for
regular premium products are shown on an annualised basis.
New business profit represents profit determined by applying
operating and economic assumptions as at the end of the period. New
business profitability is a key metric for the Group's management
of the development of the business. In addition, new business
margins are shown by reference to annual premium equivalent (APE)
and the present value of new business premiums (PVNBP). These
margins are calculated as the percentage of the value of new
business profit to APE and PVNBP. APE is calculated as the
aggregate of regular premiums on new business written in the period
and one-tenth of single premiums. PVNBP is calculated as the
aggregate of single premiums and the present value of expected
future premiums from regular premium new business, allowing for
lapses and the other assumptions made in determining the EEV new
business profit.
(c) Cost of capital
A charge is deducted from the embedded value for the cost of
locked-in required capital supporting the Group's long-term
business. The cost is the difference between the nominal value of
the capital held and the discounted value of the projected releases
of this capital, allowing for post-tax investment earnings on the
capital.
The EEV results are affected by the movement in this cost from
period to period, which comprises a charge against new business
profit and generally a release in respect of the reduction in
capital requirements for business in force as this runs off.
Where required capital is held within a with-profits long-term
fund, the value placed on surplus assets within the fund is already
adjusted to reflect its expected release over time and so no
further adjustment to the shareholder position is necessary.
(d) Financial options and guarantees
Nature of financial options and guarantees
Participating products, principally written in Hong Kong,
Singapore and Malaysia, have both guaranteed and non-guaranteed
elements. These products provide returns to policyholders through
bonuses that are smoothed. There are two types of bonuses: regular
and final. Regular bonuses are declared once a year and, once
credited, are guaranteed in accordance with the terms of the
particular products. Final bonuses are guaranteed only until the
next bonus declaration.
There are also various non-participating long-term products with
guarantees. The principal guarantees are those for whole-of-life
contracts with floor levels of policyholder benefits that typically
accrue at rates set at inception and do not vary subsequently with
market conditions. Similar to participating products, the
policyholder charges incorporate an allowance for the cost of
providing these guarantees, which, for certain whole-of-life
products in Hong Kong, remains constant throughout varying economic
conditions, rather than reducing as the economic environment
improves and vice versa.
Time value
The value of financial options and guarantees comprises the
intrinsic value (arising from a deterministic valuation on best
estimate assumptions) and the time value (arising from the
variability of economic outcomes in the future).
Where appropriate, a full stochastic valuation has been
undertaken to determine the time value of financial options and
guarantees. The economic assumptions used for the stochastic
calculations are consistent with those used for the deterministic
calculations. Assumptions specific to the stochastic calculations
reflect local market conditions and are based on a combination of
actual market data, historic market data and an assessment of
long-term economic conditions. Common principles have been adopted
across the Group for the stochastic asset models, such as separate
modelling of individual asset classes with an allowance for
correlations between various asset classes. Details of the key
characteristics of each model are given in note 8 (b).
In deriving the time value of financial options and guarantees,
management actions in response to emerging investment and fund
solvency conditions have been modelled. Management actions
encompass, but are not confined to, investment allocation
decisions, levels of regular and final bonuses and credited rates.
Bonus rates are projected from current levels and varied in
accordance with assumed management actions applying in the emerging
investment and fund solvency conditions. In all instances, the
modelled actions are in accordance with approved local practice and
therefore reflect the options available to management.
(e) Level of required capital and net worth
In adopting the EEV Principles, Prudential has based required
capital on the applicable local statutory regulations, including
any amounts considered to be required above the local statutory
minimum requirements to satisfy regulatory constraints.
For shareholder-backed businesses, the level of required capital
has been based on the Group prescribed capital requirements
(GPCR).
- For CPL operations, the level of required capital follows the
approach for embedded value reporting issued by the China
Association of Actuaries (CAA) reflecting the C-ROSS regime. The
CAA has very recently started a project to assess whether any
changes are required to the embedded value guidance in China given
changes in regulatory rules, regulations and the external market
environment since the standard was first issued. No revisions to
the guidance or any timelines in connection with the project have
been proposed by the CAA to date.
- For Hong Kong participating business, the HK RBC regime
recognises the value of future shareholder transfers on an economic
basis as available capital with an associated required capital.
Within EEV, the shareholder value of participating business
continues to be recognised as VIF with no recognition within free
surplus and no associated required capital.
- For Singapore life operations, the level of net worth and
required capital is based on the Tier 1 Capital position under the
risk-based capital framework (RBC2), which removes certain negative
reserves permitted to be recognised in the full RBC2 regulatory
position applicable to the Group's GWS capital position, in order
to better reflect free surplus and its generation.
Free surplus is the shareholders' net worth in excess of
required capital. For the Hong Kong business, the HK RBC framework
requires liabilities to be valued on a best estimate basis and
capital requirements to be risk based. EEV free surplus excludes
regulatory surplus that arises where HK RBC technical provisions
are lower than policyholder asset shares or cash surrender values
to more realistically reflect how the business is managed.
(f) With-profits business and the treatment of the estate
For the Group's relevant operations, the proportion of surplus
allocated to shareholders from the with-profits funds has been
based on the applicable profit distribution between shareholders
and policyholders. The EEV methodology includes the value
attributed to the shareholders' interest in the residual estate of
the in-force with-profits business. In any scenarios where the
total assets of the life fund are insufficient to meet policyholder
claims in full, the excess cost is fully attributed to
shareholders. As required, adjustments are also made to reflect any
capital requirements for with-profits business in excess of the
capital resources of the with-profits funds.
(g) Internal asset management
In line with the EEV Principles, the in-force and new business
results from long-term business include the projected future profit
or loss from asset management and service companies that support
the Group's covered insurance businesses. The results of the
Group's asset management operations include the current period
profit from the management of both internal and external funds. EEV
basis shareholders' other income and expenditure is adjusted to
deduct the expected profit anticipated to arise in the current
period in the opening VIF from internal asset management and other
services. This deduction is on a basis consistent with that used
for projecting the results for covered insurance business.
Accordingly, Group operating profit includes the actual profit
earned in respect of the management of these assets.
(h) Allowance for risk and risk discount rates
Overview
Under the EEV Principles, discount rates used to determine the
present value of expected future cash flows are set by reference to
risk-free rates plus a risk margin.
The risk-free rates are largely based on local government bond
yields at the valuation date and are assumed to remain constant
throughout the projection, with no trending or mean reversion to
longer-term assumptions that cannot be observed in the current
market.
The risk margin reflects any non-diversifiable risk associated
with the emergence of distributable earnings that is not allowed
for elsewhere in the valuation. In order to better reflect
differences in relative market risk volatility inherent in each
product group, Prudential sets the risk discount rates to reflect
the expected volatility associated with the expected future
shareholder cash flows for each product group in the embedded value
model, rather than at a Group level.
Since financial options and guarantees are explicitly valued
under the EEV methodology, risk discount rates exclude the effect
of these product features.
The risk margin represents the aggregate of the allowance for
market risk and allowance for non-diversifiable non-market risk. No
allowance is required for non-market risks where these are assumed
to be fully diversifiable.
Market risk allowance
The allowance for market risk represents the beta multiplied by
the equity risk premium.
The beta of a portfolio or product measures its relative market
risk. The risk discount rates reflect the market risk inherent in
each product group and hence the volatility of product-specific
cash flows. These are determined by considering how the profit from
each product is affected by changes in expected returns across
asset classes. By converting this into a relative rate of return,
it is possible to derive a product-specific beta. This approach
contrasts with a top-down approach to market risk where the risks
associated with each product are not directly reflected in the
valuation basis.
The Group's methodology allows for credit risk in determining
the best estimate returns and through the market risk allowance,
which covers expected long-term defaults, a credit risk premium (to
reflect the volatility in downgrade and default levels) and
short-term downgrades and defaults.
Allowance for non-diversifiable non-market risks
The majority of non-market and non-credit risks are considered
to be diversifiable. An allowance for non-diversifiable non-market
risks is estimated as set out below.
A base level allowance of 50 basis points is applied to cover
the non-diversifiable non-market risks associated with the Group's
covered business. For the Group's businesses in less mature markets
(such as the Philippines , Thailand and Africa) additional
allowances of 250 basis points are applied. The level and
application of these allowances are reviewed and updated based on
an assessment of the Group's exposure and experience in the
markets. For the Group's business in more mature markets, no
additional allowance is necessary. At 30 June 2022, the total
allowance for non-diversifiable non-market risk is equivalent to a
$(2.9) billion, or (8) per cent, reduction to the embedded value of
long-term business operations.
(i) Foreign currency translation
Foreign currency profits and losses have been translated at
average exchange rates for the period. Foreign currency
transactions are translated at the spot rate prevailing at the date
of the transactions. Foreign currency assets and liabilities have
been translated at closing exchange rates. The principal exchange
rates are shown in note A1 of the Group IFRS financial results.
(j) Taxation
In determining the post-tax profit for the period for covered
business, the overall tax rate includes the impact of tax effects
determined on a local regulatory basis. Tax payments and receipts
included in the projected future cash flows to determine the value
of in-force business are calculated using tax rates that have been
announced and substantively enacted by the end of the reporting
period.
7.2 Accounting presentation
(a) Analysis of post-tax profit or loss
To the extent applicable, the presentation of the EEV profit or
loss for the period is consistent with the classification between
operating and non-operating results that the Group applies for the
analysis of IFRS results. Operating results are determined as
described in note (b) below and incorporate the following:
- New business profit, as defined in note 7.1(b) above;
- Expected return on existing business, as described in note (c) below;
- The impact of routine changes of estimates relating to
operating assumptions, as described in note (d) below; and
- Operating experience variances, as described in note (e) below.
In addition, operating results include the effect of changes in
tax legislation, unless these changes are one-off and structural in
nature, or primarily affect the level of projected investment
returns, in which case they are reflected as a non-operating
result.
Non-operating results comprise:
- Short-term fluctuations in investment returns;
- Mark-to-market value movements on core structural borrowings;
- Effect of changes in economic assumptions; and
- The impact of corporate transactions, if any, undertaken in the period.
Total profit or loss in the period attributable to shareholders
and basic earnings per share include these items, together with
actual investment returns. The Group believes that operating
profit, as adjusted for these items, better reflects underlying
performance.
(b) Investment returns included in operating profit
For the investment element of the assets covering the total net
worth of long-term insurance business, investment returns are
recognised in operating results at the expected long-term rates of
return. These expected returns are calculated by reference to the
asset mix of the portfolio.
(c) Expected return on existing business
Expected return on existing business comprises the expected
unwind of discounting effects on the opening value of in-force
business and required capital and the expected return on existing
free surplus. The unwind of discount and the expected return on
existing free surplus are determined after adjusting for the effect
of changes in economic and operating assumptions in the current
period on the embedded value at the beginning of the period, for
example the unwind of discount on the value of in-force business
and required capital is determined after adjusting both the opening
value and the risk discount rates for the effect of changes in
economic and operating assumptions in the current period.
(d) Effect of changes in operating assumptions
Operating profit includes the effect of changes to operating
assumptions on the value of in-force business at the end of the
reporting period . For presentational purposes the effect of
changes is delineated to show the effect on the opening value of
in-force business as operating assumption changes, with the
experience variances subsequently being determined by reference to
the assumptions at the end of the reporting period, as discussed
below.
(e) Operating experience variances
Operating profit includes the effect of experience variances on
operating assumptions, such as persistency, mortality, morbidity,
expenses and other factors, which are calculated with reference to
the assumptions at the end of the reporting period.
(f) Effect of changes in economic assumptions
Movements in the value of in-force business at the beginning of
the period caused by changes in economic assumptions, net of the
related changes in the time value of financial options and
guarantees, are recorded in non-operating results.
8 Assumptions
(a) Principal economic assumptions
The EEV results for the Group's covered business are determined
using economic assumptions where both the risk discount rates and
long-term expected rates of return on investments are set with
reference to risk-free rates of return at the end of the reporting
period. Both the risk discount rate and expected rates of return
are updated at each valuation date to reflect current market
risk-free rates, with the effect that changes in market risk-free
rates impact all projected future cash flows. The risk-free rates
of return are largely based on local government bond yields and are
assumed to remain constant throughout the projection, with no
trending or mean reversion to longer-term assumptions that cannot
be observed in the current market . The risk-free rates of return
are shown below for each of the Group's insurance operations.
Expected returns on equity and property assets and corporate bonds
are derived by adding a risk premium to the risk-free rate based on
the Group's long-term view.
As described in note 7.1(h), risk discount rates are set equal
to the risk-free rate at the valuation date plus allowances for
market risk and non-diversifiable non-market risks appropriate to
the features and risks of the underlying products and markets.
Risks that are explicitly allowed for elsewhere in the EEV
basis, such as via the cost of capital and the time value of
options and guarantees, as set out in note 2(a), are not included
in the risk discount rates.
Risk discount rate %
--------------------------------------------------------------------
New business In-force business
----------------------------------- -------------------------------
2022 2021 2022 2021
----------- ---------------------- --------- --------------------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
------------------------------------------ ----------- ---------- ---------- --------- --------- ---------
CPL 7.4 7.6 7.3 7.4 7.6 7.3
Hong Kongnote (i) 3.9 2.4 2.5 4.5 2.7 2.8
Indonesia 10.7 9.2 9.9 11.3 10.6 10.5
Malaysia 6.1 5.4 5.7 6.7 5.8 6.1
Philippines 14.6 11.2 12.0 14.6 11.2 12.0
Singapore 4.9 3.2 3.4 5.1 3.7 3.8
Taiwan 3.4 3.5 3.5 4.1 2.6 3.1
Thailand 10.4 9.1 9.3 10.4 9.1 9.3
Vietnam 5.3 3.9 4.0 5.1 4.1 4.1
Total weighted averagenote (ii) 6.5 5.2 5.0 5.9 4.2 4.3
------------------------------------------ ----------- ---------- ---------- --------- --------- ---------
10-year government bond yield % Equity return (geometric) %
----------------------------------- -------------------------------
2022 2021 2022 2021
----------- ---------------------- --------- --------------------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
------------------------------------------ ----------- ---------- ---------- --------- --------- ---------
CPL 2.9 3.1 2.8 6.9 7.1 6.8
Hong Kongnote (i) 3.0 1.5 1.5 6.5 5.0 5.0
Indonesia 7.9 7.1 7.0 12.1 11.4 11.3
Malaysia 4.3 3.4 3.7 7.8 6.9 7.2
Philippines 7.4 3.9 4.8 11.6 8.2 9.0
Singapore 3.0 1.6 1.7 6.5 5.1 5.2
Taiwan 1.3 0.5 0.7 5.3 4.5 4.7
Thailand 3.1 1.8 2.0 7.4 6.1 6.3
Vietnam 3.4 2.2 2.2 7.6 6.5 6.4
Total weighted average (new business)note
(ii) 3.8 2.7 2.7 7.2 6.2 6.1
Total weighted average (in-force
business)note (ii) 3.6 2.2 2.3 7.2 5.7 5.8
------------------------------------------ ----------- ---------- ---------- --------- --------- ---------
Notes
(i) For Hong Kong, the assumptions shown are for US dollar
denominated business. For other businesses, the assumptions shown
are for local currency denominated business.
(ii) Total weighted average assumptions have been determined by
weighting each business's assumptions by reference to the EEV basis
new business profit and the closing net value of in-force business.
The changes in the risk discount rates for individual businesses
reflect the movements in the local government bond yields, changes
in the allowance for market risk (including as a result of changes
in asset mix) and changes in product mix.
(iii) Expected long-term inflation assumptions range from 1.5
per cent to 5.5 per cent for all periods shown above.
(b) Stochastic assumptions
Details are given below of the key characteristics of the models
used to determine the time value of financial options and
guarantees as referred to in note 7.1(d).
- The stochastic cost of guarantees is primarily of significance
for the Hong Kong, Malaysia, Singapore, Taiwan and Vietnam
businesses;
- The principal asset classes are government bonds, corporate bonds and equity;
- Interest rates are projected using a stochastic interest rate
model calibrated to the current market yields;
- Equity returns are assumed to follow a log-normal distribution;
- The corporate bond return is calculated based on a risk-free
return plus a mean-reverting spread;
- The volatility of equity returns ranges from 18 per cent to 35 per cent for all periods; and
- The volatility of government bond yields ranges from 1.1 per
cent to 2.0 per cent for all periods.
(c) Operating assumptions
Best estimate assumptions are used for projecting future cash
flows, where best estimate is defined as the mean of the
distribution of future possible outcomes. The assumptions are
reviewed actively and changes are made when evidence exists that
material changes in future experience are reasonably certain.
Assumptions required in the calculation of the time value of
financial options and guarantees, for example relating to
volatilities and correlations, or dynamic algorithms linking
liabilities to assets, have been set equal to the best estimates
and, wherever material and practical, reflect any dynamic
relationships between the assumptions and the stochastic
variables.
Demographic assumptions
Persistency, mortality and morbidity assumptions are based on an
analysis of recent experience, and reflect expected future
experience. When projecting future cash flows for medical
reimbursement business that is repriced annually, explicit
allowance is made for expected future premium inflation and
separately for future medical claims inflation.
Expense assumptions
Expense levels, including those of the service companies that
support the Group's long-term business, are based on internal
expense analysis and are appropriately allocated to acquisition of
new business and renewal of in-force business. For mature business,
it is Prudential's policy not to take credit for future cost
reduction programmes until the actions to achieve the savings have
been delivered. Expense overruns are reported where these are
expected to be short-lived, including businesses that are growing
rapidly or are sub-scale.
Expenses comprise costs borne directly and costs recharged from
the Group head office functions in London and Hong Kong that are
attributable to the long-term insurance (covered) business . The
assumed future expenses for the long-term insurance business allow
for amounts expected to be recharged by the head office functions.
Development expenses are allocated to covered business and are
charged as incurred.
Corporate expenditure, which is included in other income and
expenditure, comprises expenditure of the Group head office
functions in London and Hong Kong that is not recharged/allocated
to the long-term insurance or asset management operations,
primarily for corporate related activities that are charged as
incurred, together with restructuring and IFRS 17 implementation
costs incurred across the Group.
Tax rates
The assumed long-term effective tax rates for operations reflect
the expected incidence of taxable profit or loss in the projected
future cash flows as explained in note 7.1 (j). The local standard
corporate tax rates applicable are as follows:
%
------------ ---------------------------------------------
CPL 25.0
Hong Kong 16.5 per cent on 5 per cent of premium income
Indonesia 22.0
Malaysia* 24.0
Philippines 25.0
Singapore 17.0
Taiwan 20.0
Thailand 20.0
Vietnam 20.0
------------ ---------------------------------------------
* The Malaysia 2022 Budget imposed a one-off tax change in 2022
where the first RM100 million chargeable income will continue to be
taxed at the standard corporate tax rate of 24 per cent and any
excess will be taxed at a rate of 33 per cent. The anticipated
effect was allowed for within EEV at 31 December 2021.
9 Insurance new business
Annual premium Present value of new
Single premiums Regular premiums equivalents (APE) business premiums (PVNBP)
--------------------- --------------------- ------------------------- --------------------------
2022 $m 2021 $m 2022 $m 2021 $m 2022 $m 2021 $m 2022 $m 2021 $m
------- ------------ ------- ------------ ------- ---------------- ------- -----------------
Half Half Full Half Half Full Half Half Full Half Half Full
AER year year year year year year year year year year year year
--------------- ------- ----- ----- ------- ----- ----- ------- ----- --------- ------- ------ ---------
CPLnote (i) 858 787 1,760 421 369 600 507 448 776 2,119 2,038 3,761
Hong Kong 656 132 808 162 240 469 227 253 550 1,774 1,991 4,847
Indonesia 120 122 258 98 105 226 110 117 252 442 485 1,067
Malaysia 45 37 74 168 207 453 172 211 461 845 992 2,137
Singapore 1,715 1,155 2,412 219 264 502 390 379 743 3,184 2,940 6,214
Growth markets:
Africa 4 7 15 75 65 133 76 66 134 151 144 288
Cambodia - - - 7 7 14 7 7 14 30 30 59
Indianote
(ii) 135 143 285 106 98 200 120 112 228 609 579 1,172
Laos - - - - - 1 - - 1 - 1 2
Myanmar - - - 1 1 1 1 1 1 4 1 3
Philippines 36 40 89 84 86 168 87 90 177 297 340 655
Taiwan 86 78 172 271 178 379 281 187 397 994 662 1,417
Thailand 72 75 142 92 92 204 99 99 218 394 406 882
Vietnam 66 20 55 130 111 237 136 113 242 885 771 1,649
--------------- ------- ----- ----- ------- ----- ----- ------- ----- --------- ------- ------ ---------
Total 3,793 2,596 6,070 1,834 1,823 3,587 2,213 2,083 4,194 11,728 11,380 24,153
--------------- ------- ----- ----- ------- ----- ----- ------- ----- --------- ------- ------ ---------
Notes
(i) New business in CPL is included at Prudential's 50 per cent interest in the joint venture.
(ii) New business in India is included at Prudential's 22 per
cent interest in the associate.
(iii) The table above is provided as an indicative volume
measure of transactions undertaken in the reporting period that
have the potential to generate profit for shareholders. The amounts
shown are not, and not intended to be, reflective of premium income
recorded in the Group IFRS income statement.
10 Post balance sheet events
First interim ordinary dividend
The 2022 first interim ordinary dividend approved by the Board
of Directors after 30 June 2022 is as described in note B5 of the
IFRS financial results.
Independent review report to Prudential plc
Conclusion
We have been engaged by Prudential ("the Company" or "the
Group") to review the European Embedded Value (EEV) basis
supplementary financial information in the Half Year Financial
Report for the six months ended 30 June 2022, which comprises the
EEV Results Highlights, the Movement in Group EEV Shareholders'
Equity, the Movement in Group Free Surplus and the related
explanatory notes on the EEV financial results including the basis
of preparation (collectively the "EEV basis supplementary
information"). The EEV basis supplementary information should be
read in conjunction with the condensed set of financial statements
in the Half Year Financial Report.
Based on our review, nothing has come to our attention that
causes us to believe that the EEV basis supplementary information
in the Half Year Financial Report for the six months ended 30 June
2022 is not prepared, in all material respects, in accordance with
the European Embedded Value Principles issued by the European
Insurance CFO Forum in 2016 ("the EEV Principles"), using the
methodology and assumptions set out in the notes to the EEV basis
supplementary information.
Emphasis of matter - special purpose basis of preparation for
the EEV basis supplementary information
We draw attention to the basis of preparation of the EEV basis
supplementary information. As explained in the basis of
preparation, the EEV basis supplementary information is prepared to
provide additional information to users of the condensed set of
financial statements in the Half Year Financial Report. As a
result, the EEV basis supplementary information may not be suitable
for another purpose. Our conclusion is not modified in respect of
this matter.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the Half Year Financial
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the EEV basis
supplementary financial information.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention that causes us to believe that the Directors have
inappropriately adopted the going concern basis of accounting, or
that the Directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the Group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
Group will continue in operation.
Directors' responsibilities
The directors are responsible for the preparation of the EEV
basis supplementary information in accordance with the EEV
Principles using the methodology and assumptions set out in the
notes on the EEV financial results, including the basis of
preparation.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the EEV basis supplementary information in the Half Year Financial
Report based on our review. Our conclusion, including our
conclusion relating to going concern, is based on procedures that
are less extensive than audit procedures, as described in the Basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to provide a review conclusion to the
Company on the EEV basis supplementary information. Our review of
the EEV basis supplementary information has been undertaken so that
we might state to the Company those matters we have been engaged to
state in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Stuart Crisp
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
9 August 2022
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IR EAEPNEFSAEAA
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