TIDMMNG
RNS Number : 8446V
M&G PLC
12 August 2020
M&G plc NEWS RELEASE
12 August 2020
M&G plc half year 2020 results
M&G plc delivers a resilient performance in a challenging
market
Highlights
- Adjusted operating profit of GBP309 million and IFRS profit after tax of GBP826 million
- Shareholder Solvency II coverage ratio of 164%, comfortably above risk appetite
- Assets under management and administration (AUMA) reduced to
GBP339 billion, reflecting negative market movements in March
- GBP2.8 billion of net inflows into Institutional Asset
Management and GBP0.8 billion of net inflows into Retail Savings,
partially offsetting GBP7.7 billion of outflow from Retail Asset
Management
- Completion of the acquisition of Ascentric scheduled for 1
September following FCA approval of change in control
- Interim dividend of GBP155 million equal to 6.00p per share,
in line with our policy of paying one-third of the previous year's
final dividend
John Foley, Chief Executive of M&G plc, commented: "This has
been a resilient performance in extremely difficult times, with the
value of our diversified business mix coming through strongly.
"Earnings from our Heritage Business have remained steady, our
balance sheet is robust and credit quality remains high. Over 98%
of the debt securities held by the shareholder annuity portfolio
are investment grade and only 15% are BBB.
"Despite the disruption caused by the pandemic, net new money
has flowed into our Institutional Asset Management business, while
our UK retail savings franchise, anchored on our unique PruFund
offering, has remained in positive net inflow.
"Outflows in Retail Asset Management declined in the second
quarter, as performance rallied. Work is underway here to further
improve returns and customer value, while the acquisition of
Ascentric will, once completed, bolster our position in the UK
market and take us into high-value wealth management.
"Obviously, this is not the backdrop we would have wished as a
newly independent company, but I have been hugely impressed by how
my colleagues have responded to the challenge of continuing to
serve our customers and clients during the pandemic.
"Given our continued financial strength and resilient
performance in the first half of 2020, we are declaring an interim
dividend of 6.00 pence per share, in line with our dividend
policy."
For the six For the
months ended year ended
30 June 31 December
==============
Performance highlights 2020 2019 2019
======================================================= ========== ====== ==============
Adjusted operating profit before tax (GBPm) 309 714 1,149
IFRS profit after tax (GBPm) 826 795 1,065
Savings and Asset Management net client flows (GBPbn) (4.1) (1.4) (1.3)
Total capital generation (GBPm) (202) 930 1,509
Assets under management and administration (GBPbn) 339 341 352
Shareholder Solvency II coverage ratio(i) 164% n/a 176%
(i) 30 June 2019 comparatives have not been included within this
interim financial report.
Enquiries:
Media Investors/Analysts
================= ==================== =================== ====================
Richard Miles +44 (0)7833 481923 Spencer Horgan +44 (0)20 3977 7888
Jonathan Miller +44 (0)20 3977 0165
Notes to editors
1. The interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting ('IAS 34'), as
endorsed by the European Union ('EU'), and the Disclosure and
Transparency Rules of the Financial Conduct Authority based on the
consolidated financial statements of M&G plc.
2. All key performance measures relate to continuing operations.
3. The shareholder view of the Solvency II coverage ratio as at
30 June 2020 assumes transitional measures on technical provisions
which have been recalculated using management's estimate of the
impact of operating and market conditions at the valuation
date.
4. Total number of M&G plc shares in issue as at 30 June 2020 was 2,599,906,866.
5. A Q&A webcast will be hosted by John Foley (CEO) and
Clare Bousfield (CFO) on Wednesday 12 August at 10:30 BST. The
session can be viewed at
https://www.investis-live.com/mandg-plc/5f08cbe58ade18100081bd9c/obdf.
The presentation will also be available to replay afterwards
using the following link
https://global.mandg.com/investors/results-reports-and-presentations
6. Ordinary dividend to be paid in September 2020
Ex-dividend date August 20, 2020
Record date August 21, 2020
Payment of dividend September 30, 2020
7. About M&G plc
M&G plc is an international savings and investments
business, managing money for both individual savers and
institutional investors in 28 markets. As at 30 June 2020, we had
GBP339 billion of assets under management and administration,
around 5 million retail customers and more than 800 institutional
clients.
With a heritage dating back more than 170 years, M&G plc has
a long history of innovation in savings and investments, combining
asset management and insurance expertise to offer a wide range of
solutions. We serve our savings and insurance customers under the
Prudential brand in the UK and Europe and for asset management in
South Africa, and under the M&G Investments brand for asset
management clients globally.
8. Additional information
M&G plc, a company incorporated in the United Kingdom, is
the ultimate parent company of The Prudential Assurance Company
Limited. The Prudential Assurance Company Limited is not affiliated
in any manner with Prudential Financial, Inc., a company whose
principal place of business is in the United States of America or
Prudential plc, an international group incorporated in the United
Kingdom.
9. Forward-looking statements
This announcement may contain certain 'forward-looking
statements' with respect to M&G plc and its affiliates (the
"M&G Group"), its plans, its current goals and expectations
relating to its future financial condition, performance, results,
operating environment, strategy and objectives. Statements that are
not historical facts, including statements about M&G plc's
beliefs and expectations and including, without limitation,
statements containing the words 'may', 'will', 'should',
'continue', 'aims', 'estimates', 'projects', 'believes', 'intends',
'expects', 'plans', 'seeks', 'outlook' and 'anticipates', and words
of similar meaning, are forward-looking statements. These
statements are based on plans, estimates and projections as at the
time they are made, and therefore persons reading this announcement
are cautioned against placing undue reliance on forward-looking
statements.
By their nature, all forward-looking statements involve inherent
assumptions, risk and uncertainty, as they generally relate to
future events and circumstances that may be beyond the M&G
Group's control. A number of important factors could cause M&G
plc's actual future financial condition or performance or other
indicated results to differ materially from those indicated in any
forward-looking statement.
Such factors include, but are not limited to, UK domestic and
global economic and business conditions (including the political,
legal and economic effects of the UK's decision to leave the
European Union and the impact of the Covid-19 pandemic);
market-related conditions and risk, including fluctuations in
interest rates and exchange rates, the potential for a sustained
low-interest rate environment, corporate liquidity risk and the
future trading value of the shares of M&G plc; investment
portfolio-related risks, such as the performance of financial
markets generally; the policies and actions of regulatory
authorities, including, for example, new government initiatives;
the impact of competition, economic uncertainty, inflation and
deflation; the effect on M&G plc's business and results from,
in particular, mortality and morbidity trends, longevity
assumptions, lapse rates and policy renewal rates; the timing,
impact and other uncertainties of future acquisitions or
combinations within relevant industries; the impact of internal
projects and other strategic actions, such as transformation
programmes, failing to meet their objectives; the impact of
operational risks, including risk associated with third party
arrangements, reliance on third party distribution channels and
disruption to the availability, confidentiality or integrity of
M&G plc's IT systems (or those of its suppliers); the impact of
changes in capital, solvency standards, accounting standards or
relevant regulatory frameworks, and tax and other legislation and
regulations in the jurisdictions in which the M&G Group
operates; and the impact of legal and regulatory actions,
investigations and disputes. These and other important factors may,
for example, result in changes to assumptions used for determining
results of operations or re-estimations of reserves for future
policy benefits.
Any forward-looking statements contained in this document speak
only as of the date on which they are made. M&G plc expressly
disclaims any obligation to update any of the forward-looking
statements contained in this document or any other forward-looking
statements it may make, whether as a result of future events, new
information or otherwise except as required pursuant to the UK
Prospectus Rules, the UK Listing Rules, the UK Disclosure and
Transparency Rules, or other applicable laws and regulations.
Nothing in this announcement shall be construed as a profit
forecast, or an offer to sell or the solicitation of an offer to
buy any securities.
LEI: 254900TWUJUQ44TQJY84 Classification: 3.1 Additional
regulated information required to be disclosed under the laws of a
Member State
Chief Executive's review
M&G plc is a resilient business and our performance during
the first half of 2020 has demonstrated our financial strength. I
am proud of how our colleagues have risen to the challenge of
continuing to serve, from their homes, the millions of customers we
have around the world, as well as continuing to focus on delivering
our strategy.
Good progress on our growth strategy
We have continued to make good progress on positioning our
Savings and Asset Management business for sustainable growth.
In the UK, the acquisition of Ascentric is scheduled to complete
on 1 September 2020 since we have received FCA approval for change
in control. The acquisition of Ascentric will broaden our coverage
of the IFA market and accelerate our move into high value wealth
management. Ascentric will bring to M&G Plc an IFA digital wrap
and wealth management platform, GBP15.5 billion of assets under
administration, and relationships with 1,500 advisers representing
90,000 individual customers.
In Europe, we signed memoranda of understanding for the
distribution of products similar to PruFund with two banking groups
in different countries. As we have said previously, we expect the
first inflows from these arrangements by the turn of the year,
Covid-19 restrictions allowing.
In Asia, we repatriated GBP6 billion of assets under management
from Eastspring Investments, the Asian asset management arm of
Prudential plc. While this results in no change to AUMA at M&G
plc level, this will have a positive impact on revenues.
In the US, we established an investment hub in Chicago, which we
expect to be operational during the third quarter of this year.
Strong half for Institutional Asset Management
Net inflows into our Institutional Asset Management business
were GBP2.8 billion, as our highly-regarded investment teams won a
series of new mandates in public fixed income and private assets
from clients eager to seize opportunities created by the market
disruption.
Steady net inflows over the past five years have driven AUMA in
our Institutional Asset Management business to GBP81 billion,
making this our largest investment management franchise for
external clients.
Net client flows remained positive in our Retail Savings
business, in contrast to this the Retail Asset Management business
experienced net client outflows resulting from weaker investor
sentiment.
Sharpening the focus on investment performance
Performance of our Institutional Asset Management business
remains strong, with 84% of strategies meeting or outperforming
their benchmark over the past five years.
The GBP136 billion With-Profits Fund also continues to deliver
steady returns for customers in our Heritage business and savers
who invest in our PruFund offering. Its smoothing strategy
successfully cushioned savers from the worst of the market falls in
March.
At the beginning of July, the first annual Value Assessment for
our M&G Investments branded UK mutual funds was published,
showing that 94% of these funds delivered overall value for
customers. Although our funds scored highly on most value criteria,
the investment performance of many of the funds was more
disappointing.
While our SICAV range of funds was not in the scope of Value
Assessment, 43% of SICAV funds delivered first or second quartile
returns for the three years to 30 June 2020.
Work continues on a series of initiatives in Retail Asset
Management to enhance value for customers, through improving
investment performance, reviewing our charges, and better product
innovation.
Driving down costs
We remain on target to achieve annual run-rate shareholder cost
savings of GBP145 million by the end of 2022 through our five year
investment in digital transformation which will improve customer
experience, strengthen the control environment and improve the
efficiency and structure of our cost base, to create a platform for
scalable growth.
Given the uncertainty caused by the pandemic, we deferred our
target to reduce total staff costs by 10% in 2020 through a
voluntary redundancy programme to reassure our colleagues. At the
same time, we initiated a programme to capture permanently the cost
savings and environmental benefits achieved during the
lockdown.
With movement of our colleagues restricted in most of our chosen
markets, we have by necessity accelerated the adoption of digital
practices. By the end of March, all but a handful of our 6,000
colleagues were serving customers and clients from the safety of
their own homes.
When we do return to our offices, our expectation is that the
vast majority of our colleagues will work no more than two or three
days per week from one of our sites. As ever, our priority will be
the well-being and safety of our colleagues.
Our clients and customers have also embraced digital ways of
working. Attendance at our virtual conferences and seminars has
been strong, with many clients saying they prefer this type of
engagement.
Confident about the outlook
I expect further volatility in markets while the Covid-19 virus
remains a threat. It is too early to say we are through the worst,
despite the rally in the second quarter. Against this backdrop, we
remain committed to our dividend policy of stable or increasing
pay-outs. We will continue to monitor developments carefully and we
do not expect to increase the dividend while the threat of Covid-19
remains.
Despite the difficult market conditions, I remain optimistic
about the outlook for M&G plc. In the short term, as a leading
savings and investment business, we are well-placed to be the
partner of choice for households looking for better returns on the
large cash savings they have accumulated during the pandemic.
Longer term, we will continue to position the business for
sustainable growth, building on our first-half actions to
revitalise our UK retail franchise, deepen our presence in Europe,
and expand our international and institutional businesses.
These actions, coupled with our proactive management of the
balance sheet, give us the confidence to remain committed to our
three-year total capital generation target of GBP2.2 billion
assuming we experience more normal market conditions over the
remaining period.
Chief Financial Officer's review
I am pleased to present our results for the first half of 2020
which show a resilient financial performance amidst the global
economic impact of the Covid-19 pandemic. The robustness of our
financial position has been demonstrated with our shareholder
Solvency II coverage ratio ([1]) of 164% at 30 June 2020 which,
although slightly below the level at the time of the Demerger,
reflects the impact of adverse market movements after the dividend
payment to shareholders.
Taking into consideration the one-off benefits earned last half
year, our adjusted operating profit before tax of GBP309 million
(30 June 2019: GBP714 million) demonstrates the ability of the
underlying business to deliver stable returns. Adjusted operating
profit before tax for the first half of 2020 has been impacted by
the decline in financial markets and by the known costs arising
from the Demerger, including the interest on subordinated debt and
head office expenses. The first half of 2019 benefitted from
updating the longevity assumptions from CMI 16 to CMI 17 and
changes to the staff pension scheme. Despite the profound impact on
global financial markets arising from the Covid-19 pandemic, being
an asset owner and asset manager provides diversification of
earnings enabling us to continue to produce good returns even in
extremely tough market conditions.
Total AUMA declined 4% over the six months 30 June 2020 to
GBP339 billion (31 December 2019: GBP352 billion), driven by market
falls and net client outflows. Our Institutional Asset Management
business and our Retail Savings business both delivered net client
inflows. However, market volatility and global uncertainty have led
to net client outflows in our Retail Asset Management business.
The strength and resilience of the Group's balance sheet was
demonstrated during the period, with the stable and recurring
nature of the Group's underlying capital generation, and a series
of management actions, mostly offsetting adverse market movements
of GBP614 million, resulting in total capital generation of
GBP(202) million. The impact of adverse market movements is net of
a significant benefit from equity hedges which mitigate the Group's
risk exposure to shareholder transfers from the With-Profits
Fund.
Liquidity at the parent company has remained at comfortable
levels and it has not been adversely impacted by the crisis, with
cash and liquid assets remaining stable at GBP1.2 billion.
We paid dividends of GBP410 million on 29 May 2020, comprising
an ordinary dividend of 11.92 pence per share and a special
demerger dividend of 3.85 pence per share. We will be paying an
interim ordinary dividend of GBP155 million equal to 6.00 pence per
share, in line with our policy of paying one-third of the previous
year final dividend, on 30 September 2020.
In the M&G plc 2019 Annual Report and Accounts we announced
our intention to conduct an audit tender process in 2020 led by the
Group Audit Committee. Following the IASB's confirmation that IFRS
17 would not be effective until accounting reporting periods
beginning on or after 1 January 2023, we have decided that the new
Independent Auditor should be appointed for the audit of our 2022
Annual Report and Accounts. This will allow them to review the
prior year comparative data in advance of the first effective
reporting period under IFRS 17. The audit tender process commenced
in July 2020 and is expected to conclude with a decision on the
appointment of a new Independent Auditor, by the M&G plc Board,
at the end of October 2020.
Adjusted operating profit before tax
The following table shows a reconciliation of adjusted operating
profit before tax to IFRS profit after tax from continuing
operations:
For the six For the
months ended year ended
30 June 31 December
==============
GBPm 2020 2019 2019
=========================================================== ====== ===== ==========
Asset Management fee based revenues 469 514 1,033
Other fee based revenues 111 123 254
======
Total fee based revenue 580 637 1,287
=========================================================== ====== ===== ==========
Annuity margin 139 311 458
With-profit shareholder transfer net of hedging 134 126 242
Adjusted operating income 853 1,074 1,987
=========================================================== ====== ===== ==========
Asset Management operating expenses (306) (298) (652)
Other operating expenses (181) (126) (311)
======
Adjusted operating expenses (487) (424) (963)
=========================================================== ====== ===== ==========
Other shareholder (loss)/profit (62) 56 110
Share of profit from joint ventures and associates 5 8 15
Adjusted operating profit before tax 309 714 1,149
=========================================================== ====== ===== ==========
Short-term fluctuations in investment returns 746 364 298
Profit on disposal of business and corporate transactions - - 53
Restructuring and other costs (i) (22) (82) (198)
IFRS profit attributable to non-controlling interests 2 2 3
IFRS profit before tax attributable to equity holders
from continuing operations 1,035 998 1,305
=========================================================== ====== ===== ==========
Tax charge attributable to equity holders (209) (203) (240)
IFRS profit after tax attributable to equity holders
from continuing operations 826 795 1,065
=========================================================== ====== ===== ==========
(i) Restructuring costs excluded from adjusted operating profit
relate to merger and transformation costs of GBP19 million for the
six months to 30 June 2020 (30 June 2019 : GBP32 million, year
ended 31 December 2019 : GBP62m), and rebranding and other change
in control costs allocated to the shareholder. Additional
restructuring costs are included in the analysis of administrative
and other expenses in Note 5.
The following table shows adjusted operating profit before tax
split by segment and source of earnings:
For the six For the
months ended year ended
30 June 31 December
==============
GBPm 2020 2019 2019
====================================== ====== ===== ==========
Asset management 163 216 381
With-Profits 24 29 55
Other (25) 17 38
Savings and Asset management 162 262 474
====================================== ====== ===== ==========
With-Profits 110 97 187
Annuities 139 311 458
Other 49 68 107
Heritage 298 476 752
====================================== ====== ===== ==========
Corporate Centre (151) (24) (77)
Adjusted operating profit before tax 309 714 1,149
====================================== ====== ===== ==========
Adjusted operating profit before tax fell to GBP309 million in
the six months to 30 June 2020 (30 June 2019: GBP714 million). Fee
based revenue is lower due to net client outflows and pressure on
retail margins in Retail Asset Management. Additionally the first
half of 2020 has been impacted by the full cost of the listed
infrastructure arising from the demerger in the Corporate Centre,
with GBP79 million of finance costs in relation to the subordinated
debt and GBP48 million of head office costs. The impact on markets
in the first half of 2020 as a result of the Covid-19 pandemic has
resulted in a GBP30 million foreign exchange loss in respect of the
US dollar subordinated debt. Half year 2019 benefitted, in
particular, from two one off items, firstly from updating longevity
assumptions from CMI 16 to CMI 17 of GBP127 million and secondly
from making changes to the staff pension schemes of GBP64 million.
Excluding the additional Corporate Centre costs, one-off items in
half year 2019 and market volatility as a result of Covid-19 our
adjusted operating profit has remained largely stable.
IFRS profit after tax
IFRS profit after tax attributable to equity holders from
continuing operations increased to GBP826 million compared to
GBP795 million for the six months to 30 June 2019 reflecting the
fall in adjusted operating profit before tax being offset by a
GBP382 million increase in short-term fluctuations in investment
returns, a GBP60 million reduction in restructuring costs and a
GBP6 million increase in the equity holders tax charge. Short term
fluctuations primarily comprise gains on equity hedges of GBP308
million, a benefit of GBP134 million from interest rate swaps
purchased to protect the Solvency II capital position and GBP334
million increase from fair value movements on surplus annuity
assets. These gains have been partially offset by the strengthening
of the credit risk allowance for shareholder-backed annuities by
GBP117 million, in anticipation of short-term deterioration in the
number of company default and downgrades due to the current market
conditions arising from the Covid-19 pandemic.
Equity holders' effective tax rate for the six months to 30 June
2020 was 20.2% compared to 20.3% for the six months to 30 June
2019. Excluding non-recurring items, the equity holders' effective
tax rate was 18.2% (30 June 2019: 19.4%). This was marginally lower
than the UK statutory rate of 19 % (2019: 19%), primarily due to
the beneficial impact of non-taxable dividend income together with
relatively low levels of non-deductible expenses for the six months
to 30 June 2020. The Group's approach to tax is to act responsibly
and transparently in all of our tax affairs. We understand the
importance to governments and societies of paying the right amount
of tax at the right time in the right place. The Group complies
with statutory obligations in all the jurisdictions in which we
operate and seeks to have an open and effective relationship with
tax authorities.
Capital generation
The following table shows an analysis of total capital
generation:
For the six For the
months ended year ended
30 June 31 December
==============
GBPm 2020 2019 2019
============================================================ ====== ===== ==========
Savings and Asset Management underlying capital generation 186 243 414
Heritage underlying capital generation 209 222 459
Corporate Centre underlying capital generation (132) (23) (91)
Underlying capital generation 263 442 782
============================================================ ====== ===== ==========
Other operating capital generation 276 322 494
Operating capital generation 539 764 1,276
============================================================ ====== ===== ==========
Market movements (614) 361 538
Restructuring and other (20) (67) (133)
Tax (107) (128) (172)
Total capital generation (202) 930 1,509
============================================================ ====== ===== ==========
Total capital generation is the change in the Group's Solvency
II surplus before dividend payments, capital movements and capital
generation from discontinued operations. It is the keystone of our
financial plans and underpins our dividend policy. We analyse total
capital generation by the following components:
- Underlying capital generation, which includes the expected
surplus capital from the life insurance business, the adjusted
operating profit before tax and associated capital movements from
Asset Management, and other items including head office expenses
and debt interest costs.
- Operating capital generation, which is composed of underlying
capital generation and other operating items, such as the impact of
management actions, assumption changes and model improvements.
- Total capital generation includes operating capital
generation, the impact of market movements relative to those
expected under long-term assumptions, other non-recurring items
such as shareholder restructuring and other costs, and the impact
of tax.
Underlying capital generation of GBP263 million (2019: GBP442
million) was lower as a result of the known costs arising from the
Demerger, including the interest on subordinated debt and head
office expenses, the reduction in adjusted operating profit from
the Asset Management business, and a lower expected return assumed
for the annuity business. There was a significant contribution of
GBP276 million from other operating capital generation (2019:
GBP322 million), primarily due to a series of management actions
taken to strengthen the solvency position in response to recent
market events, which increased surplus by GBP235 million, resulting
in operating capital generation of GBP539 million (2019: GBP764
million).
Total capital generation was GBP(202) million for the six months
ended 30 June 2020 (30 June 2019: GBP930 million), with operating
capital generation more than offset by a GBP614 million reduction
in surplus from negative market variances (30 June 2019: GBP361
million positive) and other non-operating items.
Capital position
The Group's solvency position remains resilient and, although
slightly below the target level set out at the time of the
Demerger, comfortably above our risk appetite. Group Solvency II
surplus decreased to GBP3.9 billion as at 30 June 2020 (31 December
2019: GBP4.5 billion), equivalent to a shareholder Solvency II
coverage ratio of 164% (31 December 2019: 176%), reflecting the
total capital generation of GBP(202) million and GBP410 million of
dividends paid to shareholders.
Our With-Profits Fund continues to have a strong Solvency II
coverage ratio of 241%. Whilst this is lower than 267% reported at
31 December 2019, it reflects the distribution of GBP1 billion of
excess surplus in the fund to our with-profits policyholders
announced in February 2020.
The regulatory Solvency II coverage ratio of the Group as at 30
June 2020 was 136% (31 December 2019: 143%). This view of solvency
combines the shareholder position and the With-Profits Fund, but
excludes all surplus within the With-Profits Fund.
The shareholder, With-Profits Fund, and regulatory views of the
Solvency II position assume transitional measures on technical
provisions which have been recalculated using management's estimate
of the impact of operating and market conditions at the valuation
date.
Financing and liquidity
The following table shows key financing and liquidity
information:
For the
six months For the
ended year ended
30 June 31 December
============ ==============
GBPm 2020 2019
======================================= ============ ============
Parent company cash and liquid assets 1,203 1,274
Nominal value of debt 3,255 3,227
Leverage ratio ([2]) 33% 31%
======================================= ============ ==============
The key metric we use to manage our debt is the leverage ratio,
defined as nominal value of debt as a percentage of the Group's
shareholder Solvency II own funds. Our leverage ratio of 33% (31
December 2019: 31%) is slightly below the level at the point of
Demerger (34%).
The following table shows the movement in cash and liquid assets
held by the parent company during the year:
For the
six months For the
ended year ended
30 June 31 December
=========== ==============
GBPm 2020 2019
========================================================= ========== ===========
Opening cash and liquid assets at 1 January 1,274 18
Cash remittances from subsidiaries 472 477
Special dividends from subsidiaries - 1,177
Substitution of subordinated liabilities - 3,241
Corporate costs (23) (37)
Interest paid on core structural borrowings (95) (22)
Cash dividends paid to equity holders (410) (543)
Final dividend paid to equity holders prior to demerger - (2,968)
Acquisition of subsidiaries - (86)
Acquisition of shares (23) -
Other shareholder income 8 17
Closing cash and liquid assets at end of period(i) 1,203 1,274
========================================================= ========== ===========
(i) Closing cash and liquid assets at 30 June 2020 included a
GBP1,125 million (31 December 2019; GBP1,200 million) inter-company
loan asset with Prudential Capital plc, which acts as the Group's
treasury function.
Movements in cash and liquid assets held by the parent company
for the first six months of 2020 represent the remittances and
payments that will arise in the normal course of business, compared
to the year ended 31 December 2019 which includes significant cash
flows related to the Demerger. Total cash and liquid assets have
remained stable at GBP1.2 billion with cash remittances of GBP472
million from our subsidiaries being offset by GBP95 million
interest payments in respect of the subordinated debt and cash
dividend payment to equity holders.
Savings and Asset Management
Savings and Asset Management financial performance has proved
resilient during the first half of 2020, despite being impacted by
the economic volatility surrounding the Covid-19 pandemic. In this
environment due to weaker investor sentiment retail customers and
clients accessed their savings and investments. By contrast,
Institutional Asset Management had a strong performance with net
client inflows demonstrating the appeal of the proposition.
Assets under management and administration and net client
flows
Net client flows AUMA
for the
for the for the six months
six months six months to 31 As at As at
to 30 to 30 December 30 June 31 December
GBPbn June 2020 June 2019 2019 2020 2019
==================================== ============= ============= ============= ======== ==============
Retail Savings 0.8 3.2 3.0 61.8 63.5
of which: PruFund 0.6 3.5 2.9 52.3 53.8
Retail Asset Management (7.7) (3.8) (3.6) 64.2 74.9
Institutional Asset Management 2.8 (0.8) 0.7 81.2 76.8
Other - - - 0.8 0.7
Total Savings and Asset Management (4.1) (1.4) 0.1 208.0 215.9
==================================== ========= ========= ========= ======== ============
Net client inflows of GBP0.8 billion experienced by Retail
Savings were lower than the first half of 2019 since during the
lockdown there was increased demand from customers to access their
savings combined with the restrictions on advisors ability to
conduct business. Net client flows were also impacted by the
continued contraction in defined benefit pension transfers. PruFund
AUMA has fallen 3% since 31 December 2019 as a result of negative
investment returns.
Retail Asset Management AUMA decreased 14% to GBP64.2 billion
over the six months to 30 June 2020, with the volatile economic
environment leading to both negative market movements and an
increase in net client outflows to GBP7.7 billion (30 June 2019:
GBP3.8 billion). Net client outflows of GBP5.6 billion for the
first quarter of 2020 have slowed to GBP2.1 billion in the second
quarter as the easing of lockdowns has contributed to investor
confidence. We continue to work on a number of initiatives across
Retail Asset Management to improve investment performance and to
develop new products and solutions in order to diversify and
increase client flows. The Asia Pacific equities team has won
several new mandates in the period with the most significant being
the GBP6 billion mandate to manage Asian and Japanese equities for
the WIth-Profits Fund, with a further GBP3 billion expected by the
end of the year.
Institutional Asset Management AUMA increased 6% to GBP81.2
billion in the six months to 30 June 2020, driven by strong net
client inflows of GBP2.8 billion predominantly within our public
debt and Infracapital investment propositions. We continued to
build investment capabilities in high value added areas of the
market and build bespoke investment solutions for our clients.
An important component of our investment capability is our
expertise in private assets, which ranges from real estate and
private debt to infrastructure, and represents a resilient,
high-margin source of revenues. Our private assets under management
increased 8.6% to GBP65.5 billion of AUMA as at 30 June 2020 (31
December 2019: GBP60.3 billion).
Adjusted operating profit before tax
The following table shows an analysis of adjusted operating
profit before tax:
For the
For the six year
months ended ended
30 June 31 December
GBPm 2020 2019 2019
==================================================== ====== ===== ==========
Asset Management fee based revenues 469 514 1,033
Other fee based revenues 72 76 158
Total fee based revenues 541 590 1,191
==================================================== ====== ===== ==========
With-profits shareholder transfer net
of hedging 24 29 55
Adjusted operating income 565 619 1,246
==================================================== ====== ===== ==========
Asset Management operating expenses (306) (298) (652)
Other operating expenses (76) (80) (165)
====================================================
Adjusted operating expenses (382) (378) (817)
==================================================== ====== ===== ==========
Other shareholder (loss)/profit (26) 13 30
Share of profit from joint ventures and associates 5 8 15
Adjusted operating profit before tax 162 262 474
==================================================== ====== ===== ==========
The following table shows adjusted operating profit before tax
split by source of earnings:
For the
For the six year
months ended ended
30 June 31 December
GBPm 2020 2019 2019
====================================== ======= ====== ============
Asset Management 163 216 381
With-Profits 24 29 55
Other (25) 17 38
Adjusted operating profit before tax 162 262 474
====================================== ======= ====== ============
Adjusted operating profit before tax from our Asset Management
activities decreased to GBP163 million in the six months to 30 June
2020 (30 June 2019: GBP216 million) driven by a 9% reduction in
revenue earned to GBP469 million (30 June 2019: GBP514 million).
The reduction in average AUMA in Retail Asset Management, combined
with the downward pressure on retail margins, resulted in lower
revenue of GBP230 million in the six months to 30 June 2020 (30
June 2019: GBP299 million). However, revenue earned by
Institutional Asset Management increased to GBP239 million (30 June
2019: GBP215 million) due to higher average AUMA and improved
revenue margins. Asset Management adjusted operating expenses,
excluding the GBP35 million one-off benefit resulting from changes
to the Group's defined benefit pension schemes in 2019, reduced by
GBP27 million in the six months to 30 June 2020 driven by lower
facilities costs and lower accruals for long term incentive plans
resulting from lower revenue. This reflects the new disciplined
approach to remuneration.
The Asset Management average fee margin of 36 basis points (bps)
was 3 bps lower at 30 June 2020 compared 39 bps at 30 June 2019
reflecting the continued industry wide pressure on fees in Retail
Asset Management because of the popularity of passives and changes
in the distribution landscape. Average revenue margins in the
Institutional Asset Management business were 2 bps higher at 28 bps
at 30 June 2020 compared to 26 bps at 30 June 2019, reflecting our
focus on the provision of high-value, innovative investment
solutions for clients, which has changed our product mix, with net
client flows out of our lower margin products and into these more
specialised, higher margin solutions.
The cost/income ratio for Asset Management business was 66% (30
June 2019: 58%), with the increase largely driven by the
non-recurrence of the GBP35 million past service credit following
changes to the M&G defined benefit pension scheme in 2019. If
the benefit from the changes in the pensions scheme during 2019 are
excluded from operating expenses the cost/income ratio has remained
broadly comparable over the last 18 months.
The with-profits shareholder transfer, driven by Pru Fund,
decreased to GBP28 million (30 June 2019: GBP36 million) as a
result of a downward unit price adjustment following the fall in
financial markets. In addition there were fair value losses of GBP4
million (30 June 2019: GBP8 million loss) on the derivative
instruments used to mitigate the equity risk to shareholders.
Other shareholder loss in the six months to 30 June 2020 is
driven by items impacted by the Covid-19 pandemic, including a loss
on seed capital investments.
Capital generation
The following table shows an analysis of operating capital
generation:
For the
For the six year
months ended ended
30 June 31 December
GBPm 2020 2019 2019
================================================ ====== ===== ==========
Asset Management underlying capital generation 155 216 379
With-profits underlying capital generation 18 4 -
of which: in-force 39 37 61
of which: new business (21) (33) (61)
Other underlying 13 23 35
Underlying capital generation 186 243 414
================================================ ====== ===== ==========
Other operating capital generation 18 (71) 45
Operating capital generation 204 172 459
================================================ ====== ===== ==========
Underlying capital generation in the six months to 30 June 2020
fell to GBP186 million (30 June 2019: GBP243 million) driven by the
reduction in adjusted operating profit from the Asset Management
business. The underlying capital generated from with-profits
in-force business, which comprises the expected growth in the value
of shareholder transfers under real world assumptions and the
release of the Solvency Capital Requirement (SCR), net of hedge
impacts, is comparable to prior year levels at GBP39 million (30
June 2019: GBP37 million). New business strain fell by GBP12
million to GBP21 million for the first half of 2020 reflecting
lower Pru Fund client inflows.
The improvement in other operating capital generation to GBP18
million in the six months to 30 June 2020 (30 June 2019: GBP(71)
million) was primarily due to the first half of 2019 including
adverse impacts from management actions and other modelling updates
.
Heritage
Heritage, which includes products closed to new business, has
delivered a stable financial performance over the first half of
2020 after taking into consideration the one-off benefits incurred
during 2019.
AUMA in the Heritage business fell slightly to GBP129.4 billion
at 30 June 2020 (2019: GBP134.0 billion), driven by negative market
movements in the period whilst net client outflows of GBP3.3
billion were in line with expectations (2019 full year: GBP7.6
billion net outflow).
Adjusted operating profit before tax
The following table shows an analysis of adjusted operating
profit before tax:
For the
For the six year
months ended ended
30 June 31 December
GBPm 2020 2019 2019
================================================== ====== ===== ==========
Fee based revenues 39 47 96
Annuity margin 139 311 458
With-profits shareholder transfer net of hedging 110 97 187
Adjusted operating income 288 455 741
================================================== ====== ===== ==============
Adjusted operating expenses (30) (25) (87)
Other shareholder profit 40 46 98
Adjusted operating profit before tax 298 476 752
================================================== ====== ===== ==============
The following table shows adjusted operating profit before tax
split by source of earnings:
For the six For the
months ended year ended
30 June 31 December
GBPm 2020 2019 2019
====================================== ======= ======= ============
With-profits 110 97 187
Shareholder annuities 139 311 458
Other 49 68 107
Adjusted operating profit before tax 298 476 752
====================================== ======= ======= ============
The shareholder transfer for traditional with-profit business
increased to GBP128 million (30 June 2019: GBP124 million) driven
by positive investment returns over 2019, offset by fair value
losses on the derivative instruments used to mitigate the equity
risk to shareholders of GBP18 million (30 June 2019: GBP27 million
loss).
Adjusted operating expenses increased by GBP5m in the six months
to 30 June 2020, representing a like for like reduction compared to
the first half of 2019 after removing the GBP29m one off benefits
in 2019 resulting from pensions scheme changes. Other shareholder
profit primarily relates to insurance reserve releases of GBP25
million (30 June 2019: GBP23 million), as we complete the review of
a number of legacy remediation programmes.
The following table provides further analysis of the annuity
margin:
For the six For the
months ended year ended
30 June 31 December
GBPm 2020 2019 2019
================================================ ======= ====== ============
Return on excess assets and margin release 94 118 216
Asset trading and portfolio management actions 40 63 110
Longevity assumption changes 23 127 126
Other (18) 3 6
Annuity margin 139 311 458
================================================ ======== ====== ============
We updated longevity assumptions in the first half of 2019 from
CMI 16 to CMI 17 which resulted in a benefit of GBP127 million. In
the first half of 2020, there is a smaller benefit from longevity
assumption changes that represents changes to the proportion of the
annuitant population assumed to be married.
Recurring sources of earnings from the annuity book, primarily
the return on assets held to back capital requirements and the
release of the margins in respect of credit risk, mortality and
expenses, decreased by 20% to GBP94 million (30 June 2019: GBP118
million). The decrease was mainly due to lower excess assets of the
annuity portfolio following the payment of dividends to the parent
company and decreasing bond yields during the period.
In the six months to 30 June 2020 we earned GBP40 million from
asset trading and portfolio management actions (30 June 2019: GBP63
million), which is lower than the first half 2019 due to the impact
of a property sale in 2020 on the valuation of the annuity
liabilities.
Credit quality of fixed income assets in the annuity portfolio
is strong. Over 98% of the debt securities held by the shareholder
annuity portfolio are investment grade and only 15% are BBB. In
addition 79% of the shareholder annuity portfolio is held in debt
securities either categorised as Risk Free or Secured (including
cash).
We experienced limited downgrades to 30 June 2020 with only 4%
of bonds in the shareholder annuity portfolio subject to a
downgrade which changed the letter rating.
Capital generation
The following table shows an analysis of operating capital
generation:
For the six For the
months ended year ended
30 June 31 December
GBPm 2020 2019 2019
============================================================= ======= ======= ============
With-profits underlying capital generation 40 18 71
Shareholder annuity and other underlying capital generation 169 204 388
Underlying capital generation 209 222 459
============================================================= ====== ======= ============
Model improvements (18) 102 142
Assumption changes 46 146 207
Management actions 220 92 167
Other incl experience variances 14 92 1
====== ======= ============
Other operating capital generation 262 432 517
============================================================= ====== ======= ============
Operating capital generation 471 654 976
============================================================= ====== ======= ============
Traditional with-profits business generated underlying capital
of GBP40 million over the six months to 30 June 2020 (30 June 2019:
GBP18 million), driven by the expected growth under real world
return assumptions, which was greater in 2020 due to higher opening
asset shares than 2019.
There continued to be significant capital generated by the
shareholder annuity and other business, with underlying capital
generation of GBP169 million (30 June 2019: GBP204 million).
Underlying capital generation of annuities consists of the expected
returns on assets backing the capital requirements, and the release
of credit reserves and SCR. The decrease in annuities underlying
capital generation was primarily due to a reduced level of return
on annuity assets.
Other operating capital generation was lower at GBP262 million
(30 June 2019: GBP432 million), as the large benefits in 2019 due
to longevity assumption changes and modelling improvements were not
repeated to the same level. The result for the six months to 30
June 2020 includes a GBP18 million reduction in surplus due to
modelling improvements, and a GBP46 million positive impact
primarily from the longevity assumption changes described in the
adjusted operating profit section.
There was, however, significant benefit from a series of
management actions taken to strengthen the solvency position in the
first half of 2020, which increased surplus by GBP220 million. This
included a contribution of GBP141 million from asset trading and
more efficient matching of annuity assets to the liabilities, as
well as a GBP50 million release of SCR to reflect the reduced risk
of legacy remediation programmes now coming to completion.
The positive impact of GBP14 million arising from other items
and experience variances contains a GBP81 million reduction in
surplus due to strengthening capital requirements following credit
downgrade experience, although this has been offset by the release
of other provisions and reserves.
Risk management statement
The Covid-19 pandemic crisis represents a global threat, both
human and economic, and its impacts permeate throughout our entire
risk spectrum. Notwithstanding, the principal risks we are
currently facing and to which we will continue to be exposed to
remain broadly unchanged from those detailed in the 2019 Annual
Report and Accounts, namely: business environment, environmental
and market forces; investment performance and risk; financial risks
(market, credit, corporate liquidity and longevity); operational
risks (including resilience, third party suppliers and technology);
change; people; regulatory compliance; and reputational. The
Covid-19 pandemic has, however, re-focused current risk management
priorities around operational, people, financial and investment
performance risks in particular.
The Covid-19 pandemic and the ensuing government guidelines
caused widespread operational and technological changes in how our
business services, and those of our third party suppliers, are
provided and supported. Specific incident management procedures
were activated, supported by leaders from across the Group and
Covid-19 controls reporting to Executive and Board Committees.
A rapid scaling up in remote working capacity and capability has
placed significantly greater reliance on virtual environments and
introduced changes in working practices. This has heightened risk
in the following key areas: IT connectivity; data security and
privacy; cyber crime; fraud; processing failure due to changes to
controls; and staff morale and well-being. Further, whilst remote
working has presented challenges, there are significant
complexities surrounding a return to offices with health and safety
and legal considerations key. These, and other risks, are being
monitored and managed through our bespoke incident management
procedures. We have put the safety and wellbeing of our customers
and staff at the forefront of our response to the Covid-19
pandemic, and will continue to do so.
In light of the significant change in the external environment
we have reviewed and, where appropriate, re-prioritised our change
activity. We remain committed to our extensive change programme
which underpins our strategy for growth, improved customer
experiences and outcomes, strengthened resilience, and our
published cost reduction targets. Our exposure to change risk will
therefore remain material through 2020 and beyond. Strong
governance is in place for the programme, supported by deep-dive
assessments of initiatives, and escalation and reporting of risks
to management and the Board.
Profitability and solvency are sensitive to market fluctuations
and the crisis has caused significant market volatility. Where
appropriate, we match assets and liabilities and we use derivatives
for risk reduction, for example, to hedge equities, interest rates
and currency risks. This approach has gone some way to mitigate the
impact of market fluctuations, but market related uncertainty is
likely to remain elevated for some time and will be closely
monitored and managed.
Through our With-Profits Fund in particular, we are invested in
some illiquid asset classes, notably investment properties.
Covid-19 has led to uncertainty in the valuation of investment
properties and external valuers have included material uncertainty
clauses in their valuation reports. Although some sectors have been
improving (for example, industrial), valuation uncertainty is
likely to persist in other property sectors, such as retail, and we
are exposed to this continuing uncertainty, which we are
monitoring.
There is also a heightened risk of a material and persistent
deterioration in credit conditions as a result of the market
effects of the Covid-19 pandemic. Through our annuity portfolios in
particular, we are exposed to excess downgrades and defaults, and
to credit spread widening. However, trading over the last decade
has led to a significant increase in the proportion of secured
assets and an improved credit quality with over 98% of the debt
securities held by the shareholder annuity portfolio are investment
grade. Further, the portfolio has limited exposure to those
sectors, such as travel and leisure and oil and gas, that are
likely to be most affected by current events. Regular
asset-by-asset analysis of default and downgrade exposures, and
scenario analysis, support the pro-active management of credit
risk.
Our annuity portfolios are also exposed to longevity risk;
unexpected changes in the life expectancy of our customers could
have a material adverse impact on both profitability and solvency.
An increase in mortality rates may be expected to some extent over
the short term due to the Covid-19 pandemic, particularly in
relation to the annuitant population which has a higher average age
than the non-annuitant population. However, the longer term
implications for mortality rates amongst the annuitant population
are unknown at this stage, increasing uncertainty in relation to
our assumptions.
Delivering strong investment performance for our customers is a
key priority. The impact of the Covid-19 pandemic may continue to
cause sharp movements in market values, interest rates, dividend
levels, rental income and defaults, all of which could adversely
impact investment performance and fund flows. Net fund flows have
stabilised somewhat after an initial deterioration in the earlier
stages of the pandemic, but whilst market volatility persists and
customer confidence remains low, there is a risk of further
deterioration.
Overall, the business environment is set to remain extremely
challenging with the International Monetary Fund forecasting that
this year the global economy will experience its steepest downturn
since the Great Depression of the 1930s. Economic factors impact on
levels of investable wealth in our core markets and our ability to
generate an appropriate return for our customers. Whilst
governments around the world are now trying to ease their lockdowns
and restart their economies, the scale and depth of the fallout
from the pandemic and the speed and nature of the recovery are
unknown. For the UK, the risk of a hard Brexit at the end of the
current transition period exacerbates the business environment
uncertainty. We will continue to respond to the impacts of the
Covid-19 pandemic as they unfold, and are modelling a range of
Covid-19 outcomes to support our business planning and
decision-making.
Statement of Directors' responsibilities
The Directors (as listed below) are responsible for preparing
the Interim financial report in accordance with applicable law and
regulations.
Accordingly the Directors confirm that to the best of their
knowledge:
- the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by
the EU;
- the Interim financial Report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules
, being related party transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or performance of the
Group during that period; and any changes in the related party
transactions described in the Group's Consolidated financial
statements for the year ended 31 December 2019 that could do
so.
By order of the Board
John Foley Clare Bousfield
Chief Executive Chief Financial Officer
11 August 2020 11 August 2020
M&G plc Board of Directors
Chairman
Mike Evans
Executive Directors
John Foley
Clare Bousfield
Non-Executive Directors
Clive Adamson
Robin Lawther
Clare Thompson
Massimo Tosato
Independent review report to M&G plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Statement of
Financial Position, the Condensed Consolidated Statement of Cash
Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board 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-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1.1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
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 assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it 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
E14 5GL
11 August 2020
Condensed consolidated income statement
For the six months ended 30 June 2020
For the six For the
months ended year ended
30 June 31 December
==============
2020 2019 2019
Note GBPm GBPm GBPm
========================================================= ==== ======= ======== ==============
Gross premiums earned 3,459 5,907 11,074
Outward reinsurance premiums (440) (487) 115
Earned premiums, net of reinsurance from continuing
operations 3,019 5,420 11,189
========================================================= ==== ====== ======= ===========
Investment return (2,116) 13,386 19,619
Fee income 4 540 621 1,286
Other income 31 24 35
Total revenue, net of reinsurance from continuing
operations 1,474 19,451 32,129
========================================================= ==== ====== ======= ===========
Benefits and claims 11 (1,373) (14,824) (24,375)
Outward reinsurers' share of benefit and claims 11 790 407 431
Movement in unallocated surplus of the With-Profits
Fund 11 1,200 (2,047) (2,549)
Benefits and claims and movement in unallocated
surplus of the With-Profits Fund, net of reinsurance
from continuing operations 617 (16,464) (26,493)
========================================================= ==== ====== ======= ===========
Administrative and other expenses 5 (1,209) (1,164) (2,876)
Movements in third party interest in consolidated
funds (103) (428) (1,005)
Finance costs 5 (79) - (28)
Total charges, net of reinsurance from continuing
operations (774) (18,056) (30,402)
========================================================= ==== ====== ======= ===========
Share of (loss)/profit from joint ventures and
associates (35) 33 18
Profit before tax from continuing operations(i) 665 1,428 1,745
========================================================= ==== ====== ======= ===========
Tax credit/(charge) attributable to policyholders'
returns 6 370 (430) (440)
Profit before tax attributable to equity holders
from continuing operations 1,035 998 1,305
========================================================= ==== ====== ======= ===========
Total tax credit/(charge) 6 161 (633) (680)
Less tax (credit)/charge attributable to policyholders'
returns (370) 430 440
========================================================= ==== ====== ======= ===========
Tax charge attributable to equity holders 6 (209) (203) (240)
========================================================= ==== ====== ======= ===========
Profit after tax attributable to equity holders
from continuing operations 826 795 1,065
========================================================= ==== ====== ======= ===========
Profit after tax for the year attributable to equity
holders from discontinued operations - 59 58
========================================================= ==== ====== ======= ===========
Profit for the period 826 854 1,123
========================================================= ==== ====== ======= ===========
Attributable to equity holders of M&G plc:
From continuing operations 824 793 1,062
From discontinued operations - 59 58
Attributable to non-controlling interests:
From continuing operations 2 2 3
====
Profit for the period 826 854 1,123
========================================================= ==== ====== ======= ===========
Earnings per share from continuing operations:
Basic (pence per share) 7 31.8 30.5 40.9
Diluted (pence per share) 7 31.8 30.5 40.8
Earnings per share:
Basic (pence per share) 7 31.8 32.8 43.1
Diluted (pence per share) 7 31.8 32.8 43.0
(i) This measure is the profit before tax measure under IFRS but
it is not the result attributable to equity holders. This is
principally because the corporate taxes of the Group include those
on the income of consolidated with-profits and unit-linked funds
that, through adjustments to benefits, are borne by policyholders.
These amounts are required to be included in the tax charge of the
Company under IFRS. Consequently, profit before tax is not
representative of pre-tax profits attributable to equity holders.
Profit before tax is determined after deducting the cost of
policyholder benefits and movements in the liability for
unallocated surplus of the With-Profits Fund after adjusting for
taxes borne by policyholders.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2020
For the six For the
months ended year ended
30 June 31 December
==============
2020 2019 2019
GBPm GBPm GBPm
=========================================================== ========== ====== ==============
Profit for the period 826 854 1,123
Less: profit from discontinued operations - 59 58
Profit from continuing operations 826 795 1,065
=========================================================== ====== ===== ==========
Items that may be reclassified subsequently to profit
or loss:
Exchange movements arising on foreign operations 5 1 (7)
5 1 (7)
=========================================================== ====== ===== ==========
Items that will not be reclassified to profit or loss:
Loss on remeasurement of defined benefit pension asset (41) (192) (206)
Transfer in of net defined benefit pension asset - 15 15
Tax on remeasurement of defined benefit pension asset 9 30 31
(32) (147) (160)
=========================================================== ====== ===== ==========
Add amount transferred to unallocated surplus of the
With-Profits Fund, net of related tax 9 149 155
Other comprehensive income on items that will not be
reclassified to profit or loss (23) 2 (5)
=========================================================== ====== ===== ==========
Other comprehensive income for the period, net of related
tax from continuing operations (18) 3 (12)
=========================================================== ====== ===== ==========
Total comprehensive income for the period from continuing
operations 808 798 1,053
=========================================================== ====== ===== ==========
Profit from discontinued operations - 59 58
Total comprehensive income from discontinued operations - 59 58
=========================================================== ====== ===== ==========
Total comprehensive income for the period 808 857 1,111
=========================================================== ====== ===== ==========
Attributable to equity holders of M&G plc:
From continuing operations 806 796 1,050
From discontinued operations - 59 58
Attributable to non-controlling interests:
From continuing operations 2 2 3
Total comprehensive income for the period 808 857 1,111
=========================================================== ====== ===== ==========
Condensed consolidated statement of financial position
As at 30 June 2020
As at As at
30 June 31 December
==============
2020 2019
Note GBPm GBPm
================================================================== ==== ==============
Assets
Goodwill and intangible assets 1,445 1,439
Deferred acquisition costs 104 104
Investment in joint ventures and associates accounted
for using the equity method 480 524
Property, plant and equipment 1,702 1,505
Investment property 19,192 19,136
Defined benefit pension asset 9 41 77
Deferred tax assets 6 95 78
Reinsurance assets 11 11,927 11,958
Loans 5,777 5,954
Derivative assets 5,666 3,962
Equity securities and pooled investment funds 65,184 72,388
Deposits 21,791 14,221
Debt securities 79,392 85,434
Current tax assets 6 423 375
Accrued investment income and other debtors 3,370 2,923
Assets held for sale(i) 249 119
Cash and cash equivalents 5,750 6,046
=======
Total assets 222,588 226,243
================================================================== ==== ======= ===========
Equity
Share capital 10 130 130
Share premium reserve 370 370
Shares held by employee benefit trust (37) (26)
Treasury shares (1) (1)
Retained earnings 16,744 16,342
Other reserves (11,677) (11,690)
Equity attributable to equity holders of M&G plc 5,529 5,125
================================================================== ==== ======= ===========
Non-controlling interests 7 6
================================================================== ==== ======= ===========
Total equity 5,536 5,131
================================================================== ==== ======= ===========
Liabilities
Insurance contract liabilities 11 77,071 78,480
Investment contract liabilities with discretionary participation
features 11 74,942 78,048
Investment contract liabilities without discretionary
participation features 11 14,074 15,651
Unallocated surplus of the With-Profits Fund 11 14,934 16,072
Third party interest in consolidated funds 11,264 11,643
Subordinated liabilities and other borrowings 12 7,938 7,499
Defined benefit pension liability 9 76 28
Deferred tax liabilities 6 621 1,065
Current tax liabilities 6 189 298
Derivative liabilities 4,685 2,204
Lease liabilities 361 360
Other financial liabilities 3,284 3,517
Provisions 256 326
Accruals, deferred income and other liabilities 7,357 5,921
Liabilities held for sale - -
Total liabilities 217,052 221,112
================================================================== ====
Total equity and liabilities 222,588 226,243
================================================================== ==== ======= ===========
(i) Assets held for sale on the condensed consolidated statement
of financial position as at 30 June 2020 includes GBP65m (31
December 2019 : GBP88m) of seed capital classified as held for sale
as it is expected to be divested within 12 months, GBP175m of
investment property classified as held for sale (31 December 2019:
GBP17m) and GBP9m (31 December 2019: GBP14m) in relation to the
Group's consolidated infrastructure capital private equity
vehicles.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2020
Total
Shares equity
held attributable
by to equity
employee holders
Share Share benefit Treasury Retained Other of M&G Non-controlling Total
capital premium trust shares earnings reserves plc interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ==== ======= ======= ========== ========== ======== ======== ============== ================= ========
At 1 January 2020 130 370 (26) (1) 16,342 (11,690) 5,125 6 5,131
Profit for the period
from continuing
operations - - - - 824 - 824 2 826
Profit for the period - - - - - - - - -
from discontinued
operations
Other comprehensive
income
for the period from
continuing
operations - - - - (23) 5 (18) - (18)
======= ======= ==== ========= ====== =====
Total comprehensive
income
for the period - - - - 801 5 806 2 808
======================= ==== ======= ======= ===== === ===== === ======= ======= ======= ===== ========= ====== =====
Dividends paid to
non-controlling
interests - - - - - - - (1) (1)
Transactions with
equity
holders 8 - - - - (410) - (410) - (410)
Vested employee
share-based
payments - - 12 - 1 (13) - - -
Movements in respect
of share-based
payments - - - - - 23 23 - 23
Shares acquired by
employee
trusts - - (23) - - - (23) - (23)
Tax effect of items
recognised
directly in equity - - - - - (2) (2) - (2)
Other movements - - - - 10 - 10 - 10
Net
(decrease)/increase
in equity - - (11) - 402 13 404 1 405
======================= ==== ======= ======= ===== ===== === ======= ======= ======= ===== ========= ====== =====
As at 30 June 2020 130 370 (37) (1) 16,744 (11,677) 5,529 7 5,536
======================= ==== ======= ======= ===== ===== ======= ======= ======= ===== ========= ====== =====
Total
Shares equity
held attributable
by to equity
employee holders
Share Share benefit Treasury Retained Other of M&G Non-controlling Total
capital premium trust shares earnings reserves plc interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== ======= ======= ======== ======== ======== ======== ============== =============== =========
At 1 January 2019 130 370 - - 20,157 (11,728) 8,929 5 8,934
Profit for the
period
from continuing
operations - - - - 793 - 793 2 795
Profit for the
period
from discontinued
operations - - - - 59 - 59 - 59
Other comprehensive
income for the
period
from continuing
operations - - - - 2 1 3 - 3
Total comprehensive
income for the
period - - - - 854 1 855 2 857
===================== ======= ======= ======== ======== ======= ======= ======== ==== =============== ======
Dividends paid to - - - - - - - - -
non-controlling
interests
Transactions with
equity
holders - - - - (1,113) - (1,113) - (1,113)
Movements in respect
of share-based
payments - - - - - 8 8 - 8
Other movements - - - - 2 - 2 - 2
Net
(decrease)/increase
in equity - - - - (257) 9 (248) 2 (246)
===================== ======= ======= ======== ======== ======= ======= ======== === =============== ======
At 30 June 2019 130 370 - - 19,900 (11,719) 8,681 7 8,688
===================== ======= ======= ======== ======== ======= ======= ======== ==== =============== ======
Total
Shares equity
held attributable
by to equity
employee holders
Share Share benefit Treasury Retained Other of M&G Non-controlling Total
capital premium trust shares earnings reserves plc interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== ======= ======= ========== ========== ======== ======== ============== ================= =========
At 1 January 2019 130 370 - - 20,157 (11,728) 8,929 5 8,934
Profit for the year
from
continuing
operations - - - - 1,062 - 1,062 3 1,065
Profit for the year
from
discontinued
operations - - - - 58 - 58 - 58
Other comprehensive
income
for the year from
continuing
operations - - - - (5) (7) (12) - (12)
Total comprehensive
income
for the year - - - - 1,115 (7) 1,108 3 1,111
===================== ======= ======= ===== === ====== ======= ======= ======== ==== ======= ======== ======
Dividends paid to
non-controlling
interests - - - - - - - (2) (2)
Transactions with
equity
holders(i) - - - - (4,935) - (4,935) - (4,935)
Vested employee
share-based
payments - - 2 - (2) - - - -
Movements in respect
of share-based
payments - - - - - 40 40 - 40
Shares acquired by
employee
trusts - - (28) - - - (28) - (28)
Treasury shares held
by subsidiary
companies - - - (1) - - (1) - (1)
Tax effect of items
recognised
directly in equity - - - - 99 5 104 - 104
Other movements - - - - (92) - (92) - (92)
Net
(decrease)/increase
in equity - - (26) (1) (3,815) 38 (3,804) 1 (3,803)
===================== ======= ======= ===== ====== ======= ======= ======== === ======= ======== ======
At 31 December 2019 130 370 (26) (1) 16,342 (11,690) 5,125 6 5,131
===================== ======= ======= ===== ====== ======= ======= ======== ==== ======= ======== ======
(i) In addition to amounts noted in Note 8 there was a
distribution in kind of GBP570m, which represents the difference
between fair value of the subordinated notes at initial recognition
and the actual cash transferred by Prudential plc in respect of the
notes on substitution of the debt.
Condensed consolidated statement of cash flows
For the six months ended 30 June 2020
For the
For the six year ended
months ended 31 December
30 June 2019
==============
2020 2019 2019
GBPm GBPm GBPm
============================================================== ======= ======== ==============
Cash flows from operating activities:
Profit before tax from continuing operations 665 1,428 1,745
Profit before tax from discontinued operations - 88 88
Non-cash movements in operating assets and liabilities
included in profit before tax:
Investments 6,932 (11,421) (14,918)
Other non-investment and non-cash assets (540) 690 (8,613)
Policyholder liabilities (including unallocated surplus) (7,347) 9,885 23,037
Other liabilities (including operational borrowings) 1,126 (732) (866)
Interest income, interest expense and dividend income (2,316) (2,744) (4,798)
Other non-cash items 63 2 417
Operating cash items:
Interest receipts and payments 1,253 1,338 2,595
Dividend receipts 1,140 1,269 2,107
Tax paid(i) (509) (261) (613)
Net cash flows from operating activities(ii) 467 (458) 181
============================================================== ====== ======= ===========
Cash flows from investing activities:
Purchases of property, plant and equipment (220) (171) (393)
Proceeds from disposal of property, plant and equipment 2 3 8
Acquisition of subsidiaries (26) (1) (95)
Cash inflow from disposal of subsidiaries(iii) - 98 98
Net cash flows from investing activities (244) (71) (382)
============================================================== ====== ======= ===========
Cash flows from financing activities:
Interest paid (95) - (22)
Substitution of subordinated liabilities - - 3,219
Shares purchased by EBT (23) - -
Dividends paid (410) (361) (3,516)
Net cash flows from financing activities (528) (361) (319)
============================================================== ====== ======= ===========
Net decrease in cash and cash equivalents (305) (890) (520)
Cash and cash equivalents at 1 January 6,046 6,570 6,570
Effect of exchange rate changes on cash and cash equivalents 9 (3) (4)
Cash and cash equivalents at end of period 5,750 5,677 6,046
============================================================== ====== ======= ===========
(i) Tax paid for the six months ended 30 June 2020 includes
GBP244m (30 June 2019: GBP25m, 31 December 2019: GBP228m) paid on
profits taxable at policyholder rather than shareholder rates.
(ii) Cash flows in respect of other borrowings of the
With-Profits Fund, which principally relate to consolidated
investment funds, are included within cash flows from operating
activities.
(iii) Cash inflow from disposal of subsidiaries reflects the net
cash flow from the disposal of Prudential Vietnam Finance Company
Limited in 2019.
1 Basis of preparation and significant accounting policies
1.1 Basis of preparation
The condensed consolidated interim financial statements ('the
interim financial statements') for the half year ended 30 June 2020
comprise the interim financial statements of M&G plc ('the
Company') and its subsidiaries (together referred to as 'the
Group'). The interim financial statements are unaudited but have
been reviewed by the auditors, KPMG LLP.
The interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting ('IAS 34'), as
endorsed by the European Union ('EU'), and the Disclosure and
Transparency Rules of the Financial Conduct Authority. The
accounting policies applied in the interim financial statements are
consistent with those set out in the 2019 consolidated financial
statements, except for the new standards, interpretations and
amendments that became effective in the current period, as stated
below.
The interim financial statements do not include all the
information and disclosures required in the Group's 2019
consolidated financial statements. Therefore, these interim
financial statements should be read in conjunction with the Group's
2019 annual report and accounts that were prepared in accordance
with IFRS, as endorsed by the EU, and those parts of the Companies
Act 2006 applicable to entities reporting under IFRS.
The interim financial statements are stated in million pounds
Sterling, the Group's presentation currency.
In preparing the interim financial statements the Group has
adopted the following standards, interpretations and amendments
effective from 1 January 2020:
- Amendments to IFRS 3: Definition of a Business
- Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform
- Amendments to IAS 1 and IAS 8: Definition of Material
- Conceptual Framework for Financial Reporting issued on 29 March 2018
None of the above interpretations and amendments to standards
are considered to have a material effect on these interim financial
statements. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
These interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act
2006. The Group's 2019 annual report and accounts for the year
ended 31 December 2019 were delivered to the Registrar of
Companies. The report of the auditors on those accounts was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies
Act 2006.
Going concern
The Directors have a reasonable expectation that the Company and
the Group as a whole have adequate resources to continue in
operational existence over a period of at least twelve months from
the date of approval of the interim financial statements. For this
reason, they continue to adopt the going concern basis in preparing
the interim financial statements.
To satisfy themselves of the appropriateness of the use of the
going concern assumptions in relation to these interim financial
statements, specifically in the light of the current Covid-19
pandemic and the resulting economic uncertainty, the Directors have
assessed the future prospects of the Group by considering the
business plan, which covers the Group's key metric as detailed in
the business and financial review, updated for the expected impact
of the Covid-19 pandemic, various market scenarios as well as
changes in the Group's principal risks, as set out in the risk
management statement. In addition, the Directors have also
considered the results of downside and reverse stress testing
scenarios to assess the potential implications of Covid-19 on the
Group's liquidity, solvency and profitability to conclude that the
use of the going concern assessment is still appropriate.
Presentation of risk and capital management disclosures
We have provided additional disclosures relating to the nature
and extent of certain financial risks and capital management in the
Supplementary Information section of this report. We believe these
disclosures will assist the users of the interim financial
statements to better understand the implications of Covid-19 on our
business.
Goodwill
Goodwill is required to be tested for impairment at least
annually in accordance with IAS 36, however given the unprecedented
uncertainty created by Covid-19 management have considered it an
impairment indicator. Therefore goodwill has been reviewed for
impairment at 30 June 2020 and management concluded no impairment
is required.
2 Group structure and products
2.1 Group composition
The Group structure is available in the full PDF version of this
interim report via the following link
https://global.mandg.com/investors/results-reports-and-presentations
.
2.2 Transactions relating to demerger from Prudential plc
In preparation for the demerger of the Company, a number of
restructuring transactions were undertaken with other companies
within the Prudential plc group in 2019. For details of these
transactions please refer to the 31 December 2019 Annual Report and
Accounts.
2.3 Corporate transactions
2.3.1 Proposed sale of annuity portfolio to Rothesay Life
plc
On 14 March 2018, Prudential plc announced the reinsurance of
GBP12,149m (as at 31 December 2017) of The Prudential Assurance
Company Limited (PAC) shareholder-backed annuity portfolio to
Rothesay Life plc by way of a collateralised reinsurance
arrangement followed by an insurance business transfer scheme (the
"Scheme") under Part VII of Financial Services and Markets Act
2000. The terms of the reinsurance arrangement transferred
substantially all of the economic risk and capital requirements
associated with the Annuity Portfolio to Rothesay Life plc, subject
to a residual counterparty credit risk attaching to reinsurance
receivables.
On 17 May 2019, the independent expert who was appointed to
report to the High Court concluded that the transfer would have no
material adverse effect on the security of benefits or the
reasonable benefit expectations of PAC's policyholders. However, on
16 August 2019, the High Court declined to sanction the Scheme. PAC
and Rothesay Life plc were granted leave to appeal the judgment. A
notice of appeal was lodged at the Court of Appeal on 27 September
2019. The High Court's judgment has no direct impact on the
reinsurance with Rothesay Life plc.
The appeal hearing will take place at the Court of Appeal in
late October 2020. If the appeal is successful, the case will be
remitted back to the High Court to consider the sanction. The
sanction hearing is likely to take place in 2021.
2.3.2 Ascentric acquisition
On 27 May 2020 the Group announced that they had entered into an
agreement with Royal London to acquire its digital wrap and wealth
management platform for UK independent financial advisers,
Ascentric.
The acquisition of Ascentric is scheduled to complete on 1
September 2020 following approval from the FCA for change in
control.
2.4 Insurance and investment products
A full description of the main contract types written by the
Group's insurance entities can be found in the 31 December 2019
Annual Report and Accounts.
3 Segmental analysis
The Group's operating segments are defined and presented in
accordance with IFRS 8: Operating Segments on the basis of the
Group's management reporting structure and its financial management
information. The Group's primary reporting format is by customer
type, with supplementary information being given by product type.
The Chief Operating Decision Maker for the Group is the Group
Executive Committee.
3.1 Operating segments
The Group's operating segments are:
Savings and Asset Management
The Group's Savings and Asset Management business provides a
range of retirement, savings and investment management solutions to
its retail and institutional customers. The Group's retirement and
savings products are distributed to retail customers through
intermediaries and through its own advisors, and include the
Retirement Account (a combined individual pension and income
drawdown product), individual pensions, ISAs, collective
investments and a range of on-shore and off-shore bonds.
All of the Group's products that give access to the PruFund
investment proposition are included in the Savings and Asset
Management segment. The PruFund investment proposition gives retail
customers access to savings contracts with smoothed investment
returns and a wide choice of investment profiles. Unlike the
conventional and accumulating with-profits contracts in the Group's
Heritage business, no regular or final bonuses are declared.
Instead, policyholders participate in profits by means of an
increase in their investment, which grows in line with an Expected
Growth Rate.
The Group's investment management capability is offered to both
retail and institutional investors. The Group's retail customers
invest through either UK domiciled Open Ended Investment Companies
("OEICs") or Luxembourg domiciled Sociétés d'Investissement à
Capital Variable ("SICAVs") and have access to a broad range of
actively managed investment products, including Equities, Fixed
Income, Multi-Asset and Real Estate. The Group serves these
customers through its many business-to-business relationships both
in the UK and overseas, which include independent financial
advisers, high-street banks and wealth managers. The Group's
institutional investors, include pension funds, insurance companies
and banks from around the world, who invest through segregated
mandates and pooled funds into a diverse range of Fixed Income and
Real Estate investment products and services.
The Savings and Asset Management segment also earns investment
management revenues from the significant proportion of Heritage
assets it manages.
Heritage
The Group's Heritage business includes individual and corporate
pensions, annuities, life, savings and investment products. The
majority of the products in the Heritage business are closed to new
customers but may accept further contributions from existing
policyholders. The annuity contracts include: level annuities,
which provide a fixed annuity payment; fixed increase annuities,
which incorporate a periodic automatic fixed increase in annuity
payments; and inflation-linked annuities, which incorporate a
periodic increase based on a defined inflation index. Some
inflation-linked annuities have minimum and/or maximum increases
relative to the corresponding inflation index.
The life products in Heritage are primarily whole of life
assurance, endowment assurances, term assurance contracts, lifetime
mortgages, income protection, and critical illness products.
Investment products include unit-linked contracts and the
Prudential bond offering, which mainly consists of
single-premium-invested whole of life policies, where the customer
has the option of taking ad-hoc withdrawals, regular income or the
option of fully surrendering their bond.
Some of the Group's Heritage products written through
conventional and accumulating with-profits contracts, in the PAC
With-Profits Sub-Fund, provide returns to policyholders through
'regular' and 'final' bonuses that reflect a smoothed investment
return.
The Heritage business includes the closed Scottish Amicable
Insurance Fund ("SAIF") with-profits sub-fund. This fund is solely
for the benefit of policyholders of SAIF. Shareholders have no
entitlement to the profits of this fund although they are entitled
to asset management fees on it. It also includes the Defined Charge
Participating sub-fund ("DCPSF"), which consists of two types of
business: (i) the Defined Charge Participating business, primarily
business reinsured from Prudential International Assurance plc; and
(ii) the with-profits annuities transferred from Equitable Life
Assurance Society on 31 December 2007.
The Groups other reportable segment is:
Corporate Centre
Corporate Centre includes central corporate costs incurred by
the M&G Group functions and subordinated debt costs.
3.2 Adjusted operating profit before tax methodology
Adjusted operating profit before tax is the Group's non-GAAP
alternative performance measure, which complements IFRS GAAP
measures and is key to decision making and the internal performance
management of operating segments.
Adjusted operating profit before tax includes IFRS profit from
continuing operations only.
For the Group's fee based business, adjusted operating profit
before tax includes fees received from customers and operating
costs for the business including overheads, expenses required to
meet regulatory requirements and regular business
development/restructuring and other costs. Costs associated with
fundamental one-off Group-wide restructuring and transformation are
not included in adjusted operating profit before tax.
For the Group's business written in the With-Profits Fund,
adjusted operating profit before tax includes the statutory
transfer to shareholders gross of attributable shareholder tax.
Derivative instruments are held to mitigate the risk to the
shareholder of lower future shareholder transfers, and can be
separated into two types:
1. Cash flow hedges: those instruments that are held to mitigate
volatility in the Group's IFRS results by being explicitly matched
to the expected future shareholder transfers.
2. Capital hedges: instruments that hedge the economic present
value of shareholder transfers on a Solvency II basis, to optimise
the capital position.
The realised gains or losses on the cash flow hedges are
allocated to adjusted operating profit before tax in line with
emergence of the corresponding shareholder transfer within IFRS
profit. Any short-term temporary movements in the fair value of
these instruments, not relating to the current year's shareholder
transfer are excluded from adjusted operating profit before tax. As
the capital hedges do not explicitly hedge future IFRS profit
before tax, all movements in the fair value of these instruments
are excluded from adjusted operating profit before tax.
For the Group's shareholder annuity products written by the
Heritage segment, adjusted operating profit before tax excludes the
impact of short-term components of credit risk provisioning, the
impact of credit risk experience variances over the period, and
total fair value movements on surplus assets backing the
shareholder annuity capital, that are not reflective of the
longer-term performance of the business.
Certain additional items are excluded from adjusted operating
profit before tax where those items are considered to be
non-recurring or strategic, or due to short-term movements not
reflective of longer-term performance, or considered to be one-off,
due to their size or nature, and therefore not indicative of the
long-term operating performance of the Group, including profits or
losses arising on corporate transactions and profits or losses
arising on discontinued operations.
The key adjusting items between IFRS profit before tax and
adjusted operating profit before tax are:
Short-term fluctuations in investment returns
The adjustment for short-term fluctuations in investment returns
represents:
(i) Short-term temporary movements in the fair value of
instruments held to mitigate equity risk in the with-profits
shareholder transfer, including both cash flow and capital
hedges.
(ii) Total fair value movements on other capital hedges, which
are held solely to optimise the Solvency II capital position.
(iii) Total fair value movements on surplus assets backing the
shareholder annuity capital, and the impact of short term credit
risk provisioning and experience variances over the period which
are not reflective of the longer-term performance of the business,
specifically:
- The impact of credit risk provisioning for short-term adverse credit risk experience .
- The impact of credit risk provisioning for actual upgrade and
downgrade experience during the year. This is calculated by
reference to current interest rates.
- Credit experience variance relative to assumptions, reflecting
the impact of defaults and other similar experience, such as asset
exchanges arising from debt restructuring.
- The impact of market movements on bond portfolio weightings
and the subsequent impact on credit provisions.
Items relating to investment returns which are included in
adjusted operating profit before tax are:
- The net impact of movements in the value of policyholder
liabilities and fair value of the assets backing these liabilities,
excluding the items included in short-term fluctuations above. The
fair value movements of the assets backing the liabilities are
closely correlated with the related change in liabilities.
- The unwind of the credit risk premium, which is the opening
value of the assets multiplied by the credit risk premium
assumption, with an adjustment for claims paid over the year. The
credit risk premium assumption is the difference between the total
long-term credit allowance and a best estimate credit allowance
(both of which allow for the combination of defaults and
downgrades).
- Actual income received in the year, such as coupon payments,
redemption payments and rental income, on surplus assets backing
the shareholder annuity capital, less an allowance for
expenses.
- The net effect of changes to the valuation rate of interest
due to asset trading and portfolio rebalancing.
- The impact of changes in the long-term component of credit provisioning.
Profit on disposal of businesses and corporate transactions
The adjusting item of GBP53m for the year ended 31 December 2019
resulted from the reinsurance of GBP12bn of annuities to Rothesay
Life in anticipation of sale, which is considered to be
non-recurring in nature and is therefore excluded from IFRS
adjusted operating profit before tax.
Restructuring costs
Restructuring costs primarily reflect the shareholder allocation
of costs associated with the merger, transformation, rebranding and
other change in control costs. These costs represent fundamental
one-off Group-wide restructuring and transformation and are
therefore excluded from IFRS adjusted operating profit.
3.3 Analysis of Group adjusted operating profit before tax by
segment from continuing operations
For the six months ended 30 June
2020
Savings
and Asset Corporate Total continuing
Management Heritage Centre operations
GBPm GBPm GBPm GBPm
===================================================
Fee based revenues(i) 541 39 - 580
Annuity margin - 139 - 139
With-profits shareholder transfer net
of hedging(ii) 24 110 - 134
Adjusted operating income 565 288 - 853
=================================================== ============ === ======= ======== ==============
Adjusted operating expenses (382) (30) (75) (487)
Other shareholder (loss)/profit (26) 40 (76) (62)
Share of profit from joint ventures and
associates 5 - - 5
Adjusted operating profit/(loss) before
tax 162 298 (151) 309
=================================================== ============ === ======= ======== ==============
Short-term fluctuations in investment
returns 74 672 - 746
Restructuring and other costs(iii) (17) (4) (1) (22)
------------ ------- -------- --------------
IFRS profit/(loss) before tax and non-controlling
interests attributable to equity holders
from continuing operations 219 966 (152) 1,033
=================================================== ============ === ======= ======== ==============
IFRS profit attributable to non-controlling
interests 2 - - 2
Profit/(loss) before tax attributable
to equity holders from continuing operations 221 966 (152) 1,035
=================================================== ============ === ======= ======== ==============
(i) Fee based revenues includes internal revenue, of this amount
GBP46m (30 June 2019: GBP42m, 31 December 2019: GBP110m) relates to
revenues that Savings and Asset Management has earned from Heritage
segment, and other presentational differences which are excluded in
the condensed consolidated income statement.
(ii) The with-profits shareholder transfer is paid to the
shareholder net of tax. The shareholder transfer amount is grossed
up for tax purposes with regard to adjusted operating profit.
(iii) Restructuring costs excluded from adjusted operating
profit relate to merger and transformation costs of GBP19m (30 June
2019: GBP32m, 31 December 2019: GBP62m) and rebranding and other
change in control costs allocated to the shareholder. Additional
restructuring costs are included in the analysis of administrative
and other expenses in Note 5.
For the six months ended 30 June
2019
Savings
and Asset Corporate Total continuing
Management Heritage Centre operations
GBPm GBPm GBPm GBPm
===================================================
Fee based revenues(i) 590 47 - 637
Annuity margin - 311 - 311
With-profits shareholder transfer net
of hedging(ii) 29 97 - 126
===================================================
Adjusted operating income 619 455 - 1,074
=================================================== ============ === ====== ======== ==============
Adjusted operating expenses (378) (25) (21) (424)
Other shareholder profit/(loss) 13 46 (3) 56
Share of profit from joint ventures and
associates 8 - - 8
Adjusted operating profit/(loss) before
tax 262 476 (24) 714
=================================================== ============ === ====== ======== ==============
Short-term fluctuations in investment
returns (49) 413 - 364
Restructuring and other costs(iii) (26) (54) (2) (82)
=================================================== ========
IFRS profit/(loss) before tax and non-controlling
interests attributable to equity holders
from continuing operations 187 835 (26) 996
=================================================== ============ === ====== ======== ==============
IFRS profit attributable to non-controlling
interests 2 - - 2
===================================================
Profit/(loss) before tax attributable
to equity holders from continuing operations 189 835 (26) 998
=================================================== ============ === ====== ======== ==============
For the year ended 31 December 2019
Savings
and Asset Corporate Total continuing
Management Heritage Centre operations
GBPm GBPm GBPm GBPm
===================================================
Fee based revenues(i) 1,191 96 - 1,287
Annuity margin - 458 - 458
With-profits shareholder transfer net
of hedging(ii) 55 187 - 242
===================================================
Adjusted operating income 1,246 741 - 1,987
=================================================== ============= ======= ======== ==============
Adjusted operating expenses (817) (87) (59) (963)
Other shareholder profit/(loss) 30 98 (18) 110
Share of profit from joint ventures and
associates 15 - - 15
Adjusted operating profit/(loss) before
tax 474 752 (77) 1,149
=================================================== ============= ======= ======== ==============
Short-term fluctuations in investment
returns (59) 357 - 298
Profit on disposal of businesses and corporate
transactions - 53 - 53
Restructuring and other costs(iii) (52) (98) (48) (198)
=================================================== ========
IFRS profit/(loss) before tax and non-controlling
interests attributable to equity holders
from continuing operations 363 1,064 (125) 1,302
=================================================== ============= ======= ======== ==============
IFRS profit attributable to non-controlling
interests 3 - - 3
---------------------------------------------------
Profit/(loss) before tax attributable
to equity holders from continuing operations 366 1,064 (125) 1,305
=================================================== ============= ======= ======== ==============
The Group has a widely diversified customer base. There are no
customers whose revenue represents greater than 10% of fee based
revenue.
Each reportable segment reports adjusted operating income as its
measure of revenue. Fee based revenues and other income primarily
represents asset management charges, transactional charges and
annual management charges on unit-linked business. The annuity
margin reflects the margin earned on annuity business and includes
net earned premiums, claims and benefits paid, net investment
return for assets backing the liabilities, net investment income
for surplus assets backing the annuity capital, actuarial reserving
changes, investment management expenses and administrative
expenses. The with-profits shareholder transfer reflects the
statutory transfer gross of attributable tax net of hedging gains
or losses on cash flow hedges held to match those transfers.
Adjusted operating expenses includes shareholders operating
expenses incurred outside of the annuity and with-profits
portfolios. Other net shareholder expenses includes non-recurring
costs, movements in provisions that are an expense to the
shareholder and shareholder investment return earned outside of the
annuity portfolio.
Share of profit from joint ventures and associates represents
the Group's share of the operating profits of Prudential Portfolio
Managers South Africa (PTY) Limited, which is accounted for under
the equity method.
4 Fee income
The following table disaggregates management fee revenue by
segment:
For the six For the
months ended year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
========================================================== ========== ====== ==============
Savings & Asset Management:
Management fees 501 585 1,198
Rebates (17) (25) (45)
Total management fees, less rebates 484 560 1,153
========================================================== ====== ===== ==========
Performance fees 4 5 18
Investment contracts without discretionary participation
features 16 17 30
Other fees and commissions 28 29 60
Total Savings & Asset Management fee income 532 611 1,261
========================================================== ====== ===== ==========
Heritage:
Investment contracts without discretionary participation
features 8 10 25
Total Heritage fee income 8 10 25
========================================================== ====== ===== ==========
Total fee income from continuing operations 540 621 1,286
========================================================== ====== ===== ==========
5 Administrative and other expenses
For the six For the
months ended year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
========================================================= ======= ======= ==============
Staff and employment costs(i) 358 221 586
Acquisition costs incurred:
Insurance contracts 67 81 168
Investment contracts 13 11 20
Amortisation of deferred acquisition costs:
Insurance contracts 3 4 7
Investment contracts 2 2 10
Impairment of deferred acquisition costs 3 - -
Depreciation of tangible assets 52 47 97
Amortisation of intangible assets 8 6 11
Impairment of goodwill and intangible assets 5 29 23
Impairment of tangible assets 5 - -
Restructuring costs 65 97 201
Expenses under arrangements with reinsurers - - 112
Interest expense 93 92 154
Commission expense 117 133 263
Investment management fees 119 71 221
Property-related costs 98 73 152
Other expenses 201 297 851
Total administrative and other expenses from continuing
operations 1,209 1,164 2,876
========================================================= ======= ======= ============
(i) Benefit of GBP117m resulting from changes to the Group's
defined benefit pension schemes was included for the six months
ended 30 June 2019 and year ended 31 December 2019 .
In addition to the interest expense shown above, the interest
expense incurred in respect of subordinated liabilities for the six
months ended 30 June 2020 was GBP79m (30 June 2019 GBPnil, year
ended 31 December 2019: GBP28m). This is shown as finance costs in
the condensed consolidated income statement. Total finance costs
incurred for the six months ended 30 June 2020 were GBP172m (30
June 2019: GBP92m, year ended 31 December 2019: GBP182m).
6 Tax
6.1 Tax (credited)/charged to the condensed consolidated income
statement from continuing operations
6.1.1 Income statement tax (credit)/charge
For the six For the
months ended year ended
30 June 31 December
==============
2020 2019 2019
GBPm GBPm GBPm
===========================
Total current tax 300 457 518
Total deferred tax (461) 176 162
Total tax (credit)/charge (161) 633 680
=========================== ======= ====== ============
6.1.2 Allocation of profit before tax and tax charge between
equity holders and policyholders
Profit before tax from continuing operations reflected in the
consolidated income statement for the six months ended 30 June 2020
of GBP1,035m (30 June 2019: GBP998m) comprises profit attributable
to equity holders and pre-tax profit attributable to policyholders
of unit-linked and With-Profits Fund and unallocated surplus of the
With-Profits fund. This is the formal measure of profit before tax
under IFRS but it is not the result attributable to equity holders.
This is principally because the corporate taxes of the Group
include those on the income of consolidated with-profits and
unit-linked funds that, through adjustments to benefits, are borne
by policyholders. These amounts are required to be included in the
tax charge of the Company under IAS 12. Consequently, this measure
of profit before all taxes is not representative of pre-tax profits
attributable to equity holders.
The tax charge/(credit) attributable to policyholder returns is
removed from the Group's total profit before tax in arriving at the
Group's profit before tax attributable to equity holders'. As the
net of tax profits attributable to policyholders is zero, the
Group's pre-tax profit attributable to policyholders is an amount
equal and opposite to the tax charge/(credit) attributable to
policyholders included in the total tax charge.
For the year ended
For the six months ended 30 June 31 December
===================================
2020 2019 2019
Equity Equity Equity
holders Policyholders Total holders Policyholders Total holders Policyholders Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== =============== ===== ======== =============== ====== ======== =============== ========
Profit before
tax
from continuing
operations 1,035 (370) 665 998 430 1,428 1,305 440 1,745
Tax
(charge)/credit
from continuing
operations (209) 370 161 (203) (430) (633) (240) (440) (680)
===== ======= ======== ==== =====
Profit for the
period
from continuing
operations 826 - 826 795 - 795 1,065 - 1,065
================= ======= ======== ===== ===== ======= ======== ===== ===== ======= ======== ===== =====
6.1.3 Equity holders effective tax rate
The equity holders tax charge for the six months ended 30 June
was GBP209m (30 June 2019: GBP203m) representing an effective tax
rate for the six months ended 30 June of 20.2% (30 June 2019:
20.3%, year-ended 31 December 2019: 18.4%). The effective tax rate
for six months ended 30 June 2020 was in line with that for 30 June
2019 with no significant differences to note.
6.2 Current tax assets and liabilities
Current tax Current tax
assets liabilities
For the For the For the For the
six months year six months year
ended ended ended ended
30 June 31 December 30 June 31 December
GBPm GBPm GBPm GBPm
================= =========== ============ ============ ===============
Corporation tax 384 364 (131) (255)
Other taxes 39 11 (58) (43)
Total 423 375 (189) (298)
================= =========== ============ =========== ============
6.3 Deferred tax assets and liabilities
For the
six months For the
ended year ended
30 June 31 December
==============
2020 2019
GBPm GBPm
================================================ ============= ==============
Unrealised gains on investments (568) (999)
Life tax transitional adjustments (86) (93)
Other short term timing differences 90 73
Deferred acquisition costs 49 53
Defined benefit pensions (30) (33)
Capital allowances (29) (29)
Tax losses carried forward 23 18
Share based payments and deferred compensation 25 23
Net deferred tax liability (526) (987)
================================================ ========= ===========
Assets 95 78
Liabilities (621) (1,065)
Net deferred tax liability (526) (987)
================================================ ========= ===========
7 Earnings per share
Basic earnings per share for the six months ended 30 June 2020
was 31.8p (30 June 2019; 32.8p, 31 December 2019: 43.1p) and
diluted earnings per share was 31.8p (30 June 2019; 32.8p, 31
December 2019: 43.0p). Basic earnings per share is based on the
weighted average ordinary shares in issue after deducting treasury
shares and shares held by the employee benefit trust. Diluted EPS
is based on the potential future shares in issue resulting from
exercise of options under the various share-based payment schemes
in addition to the weighted average ordinary shares in issue.
The following table shows details of basic and diluted earnings
per share:
For the six months ended 30 June For the year ended
31 December
=================================
2020 2019 2019
Continuing Discontinued Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total operations operations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ========== ============ ===== ========== ============ ===== ========== ============ =======
Profit
attributable
to equity
holders
of the Company 824 - 824 793 59 852 1,062 58 1,120
================= ========== ============ ===== ========== ============ ===== ========== ============ =====
For the six For the
months ended year ended
30 June 31 December
==============
2020 2019 2019
millions millions millions
======================================================== ========= ======== ==============
Weighted average number of ordinary shares outstanding 2,589 2,600 2,597
Dilutive effect of share options and awards 4 - 4
Weighted average number of diluted ordinary shares
outstanding 2,593 2,600 2,601
======================================================== ========= ======== ============
For the six months ended 30 June For the year ended
31 December
====================================
2020 2019 2019
Continuing Discontinued Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total operations operations Total
Pence Pence
Pence Pence per Pence Pence per Pence Pence Pence
per share per share share per share per share share per share per share per share
========== ========== ============ ======== ========== ============ ======== ========== ============ ==========
Basic
earnings
per
share 31.8 - 31.8 30.5 2.3 32.8 40.9 2.2 43.1
========== ============ ======== ========== ============ ========
Diluted
earnings
per
share 31.8 - 31.8 30.5 2.3 32.8 40.8 2.2 43.0
========== ========== ============ ======== ========== ============ ======== ========== ============ ========
8 Dividends
8.1 Interim dividends
For the six For the year
months ended ended 31 December
30 June 2020 2019
Pence Pence
per share GBPm per share GBPm
========================================= =========== ==== =============== ======
Dividends relating to reporting period:
Interim dividends - Ordinary 6.00 155 11.92 310
Interim dividends - Special dividends - - 3.85 100
Total 155 410
========================================= =========== ==== =============== ====
Dividends paid in reporting period:
Interim dividends - Ordinary 11.92 310 - -
Interim dividends - Special dividends 3.85 100 - -
Total 410 -
========================================= =========== ==== =============== ====
Subsequent to 30 June 2020, the Board has declared an interim
dividend for 2020 of 6.00 pence per ordinary share, an estimated
GBP155m in total. The dividend is expected to be paid on 30
September 2020 and will be recorded as an appropriation of retained
earnings in the financial statements at the time that it is
paid.
8.2 Transaction with equity holders
For the year ended 31 December 2019 dividends included amounts
paid to Prudential plc by M&G plc post incorporation on 2 July
2018 up to the date of demerger were GBP1,392m, of which, GBP849m
were non-cash in specie dividends and GBP543m in cash. A final
dividend was paid to Prudential plc prior to demerger on 18 October
2019 of GBP2,968m.
Prudential Capital Holdings Company Limited was transferred on
20 September 2019 from Prudential plc, and paid a GBP5m dividend
prior to this.
9 Defined benefit pension schemes
The Group operates three defined benefit pension schemes, which
historically have been funded by the Group and Prudential plc. The
largest defined benefit scheme as at 30 June 2020 is the Prudential
Staff Pension Scheme ("PSPS"), which accounts for 82% (31 December
2019: 82%) of the present value of the defined benefit pension
obligation.
The Group also operates two smaller defined benefit pension
schemes that were originally established by the M&G
("M&GGPS") and Scottish Amicable ("SASPS") businesses.
Under IAS 19: Employee Benefits and IFRIC 14: IAS 19 - The Limit
on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction, the Group can only recognise a surplus to the extent
that it is able to access the surplus either through an
unconditional right of refund or through reduced future
contributions relating to ongoing service of active members. The
Group has no unconditional right of refund to any surplus in PSPS.
Accordingly, PSPS's net economic pension surplus is restricted up
to the present value of the Group's economic benefit, which is
calculated as the difference between the estimated future cost of
service for active members and the estimated future ongoing
contributions. In contrast, the Group is able to access the surplus
of SASPS and M&GGPS through an unconditional right of refund.
Therefore, the surplus resulting from the schemes (if any) would be
recognised in full. As at 30 June 2020 the SASPS and M&GGPS
schemes are in deficit based on the IAS 19 valuation.
Until 30 June 2019, the PSPS net economic pension surplus was
attributed 70% to the With-Profits Fund and 30% to Prudential plc
which is external to the Group. On 30 June 2019, in preparation for
the demerger, the 30% attributable to Prudential plc was formally
reallocated to the Group's shareholders, and the full value of the
scheme surplus allowable under IFRIC 14 was attributed to the Group
from this date. This resulted in an incremental pension surplus of
GBP15m recognised on the condensed consolidated statement of
financial position of the Group, with the corresponding gain
recognised in the condensed consolidated statement of comprehensive
income during 2019.
The IAS 19 surplus for M&GGPS is lower than the economic
surplus position, as the pension scheme has investments in
insurance policies issued by Prudential Pensions Limited, a
subsidiary of the Group, through which it invests in certain pooled
funds. Under IAS 19, insurance policies issued by a related party
do not qualify as plan assets. SASPS's net economic pension deficit
is funded 40% by the With-Profits Fund and 60% by the Group's
shareholders.
The pension assets and liabilities for the defined benefit
pension schemes are as follows:
As at 30 June 2020
PSPS SASPS M&GGPS Total
GBPm GBPm GBPm GBPm
=============================================
Fair value of plan assets 8,057 971 740 9,768
Present value of defined benefit obligation (7,301) (1,018) (571) (8,890)
Effect of restriction on surplus (715) - - (715)
======
Net economic pension surplus/(deficit)(i) 41 (47) 169 163
============================================= ====== ====== ===== ======
Eliminate group issued insurance policies - - (198) (198)
====== ====== ===== ======
Net total pension surplus/(deficit) 41 (47) (29) (35)
============================================= ====== ====== ===== ======
As at 30 June 2020
PSPS SASPS M&GGPS Total
GBPm GBPm GBPm GBPm
===================================== ===== ======== ====== =======
Attributable to:
Shareholder -- backed business 12 (28) (29) (45)
With-Profits Fund 29 (19) - 10
=====================================
Net total pension surplus/(deficit) 41 (47) (29) (35)
===================================== ===== ==== ===== ====
As at 31 December 2019
PSPS SASPS M&GGPS Total
GBPm GBPm GBPm GBPm
=============================================
Fair value of plan assets 7,447 867 663 8,977
Present value of defined benefit obligation (6,520) (895) (489) (7,904)
Effect of restriction on surplus (887) - - (887)
Net economic pension surplus/(deficit)(i) 40 (28) 174 186
============================================= ====== ==== ===== ======
Eliminate group issued insurance policies - - (137) (137)
Net total pension surplus/(deficit) 40 (28) 37 49
============================================= ====== ==== ===== ======
As at 31 December 2019
PSPS SASPS M&GGPS Total
GBPm GBPm GBPm GBPm
===================================== ======== ========== ====== =======
Attributable to:
Shareholder -- backed business 12 (17) 37 32
With -- Profits Fund 28 (11) - 17
=====================================
Net total pension surplus/(deficit) 40 (28) 37 49
===================================== ======== ====== ====== =====
(i) The economic basis reflects the position of the defined
benefit schemes from the perspective of the pension schemes,
adjusted for the effect of IFRIC 14 for the derecognition of PSPS's
unrecognisable surplus and before adjusting for any non-qualifying
assets.
10 Issued share capital
For the six months ended For the year ended 31
30 June December
===================================== ====================================
2020 2019
Number of Number of
Issued shares fully paid ordinary shares Share capital ordinary shares Share capital
GBPm GBPm
========================== ====================== ============= =================== ===============
At 1 January 2,599,906,866 130 2,597,930,000 130
Issue of shares - - 1,976,866 -
At period end 2,599,906,866 130 2,599,906,866 130
========================== ====================== ============= =================== =============
Amounts recorded in share capital represent the nominal value of
shares issued with any difference between proceeds received on
issue of shares, net of issue costs, and the nominal value of
shares issued being credited to the share premium account. On 18
October 2019 in preparation of demerger 1,976,866 bonus shares were
issued at par value of 5 pence per share by utilising the share
premium reserve.
11 Policyholder liabilities and unallocated surplus
11.1 Determination of insurance and investment contract
liabilities for different components of business
A description relating to the determination of the policyholder
liabilities and the key assumptions for each component of business
is set out below:
11.1.1 With-profits business
The With-Profits Fund mainly contains with-profits contracts but
also contains some non-profit business (annuities, unit-linked, and
term assurances). The liabilities of the With-Profits Fund are
accounted for on a realistic basis in accordance with the
requirements of FRS 27 Life Assurance. The basis is consistent with
the rules for the determination of reserves on the realistic basis
under the Solvency I capital regime. Though no longer in force for
regulatory purposes, these rules continue to be applied to
determine with-profits contract liabilities in accordance with IFRS
4 Insurance Contracts. In aggregate, the regime has the effect of
placing a market-consistent value on the liabilities of
with-profits contracts, which reflects the amounts expected to be
paid based on the current value of investments held by the
With-Profits Fund and current circumstances.
The with-profits contracts are a combination of insurance and
investment contracts with discretionary participation features, as
defined by IFRS 4. The realistic basis requires the value of
with-profits policyholder liabilities to be calculated as the sum
of:
(i) A with-profits benefits reserve ("WPBR")
(ii) Future policy-related liabilities ("FPRL")
The WPBR is primarily based on the retrospective calculation of
accumulated asset shares with adjustments to reflect future
policyholder benefits and other charges and expenses. Asset shares
broadly reflect the policyholders' share of the With-Profits Fund
assets attributable to their policies. For certain classes of
business, the WBPR is instead calculated using a prospective bonus
reserve valuation, valuing future claims and expenses using the
expected future bonus rates.
The FPRL is comprised of other components of the liability
including a market-consistent valuation of costs of guarantees,
options and smoothing, less any related charges, and this amount is
determined using stochastic modelling techniques. The FPRL also
includes other liabilities such as tax on shareholder transfers and
enhancements to policy benefits arising from the distribution of
surplus from non-profit business written within the With-Profits
Fund.
Assumptions used for the realistic, market-consistent valuation
of with-profits business typically do not contain margins, whereas
those used for the valuation of other classes of business (for
example, annuities) contain margins of prudence within the
assumptions. The main assumptions used in the prospective elements
of the with-profits policyholder liabilities are listed below:
- Persistency assumptions are set based on the results of the
most recent experience analysis looking at the experience over
recent years of the relevant business.
- Management actions under which the fund is managed in different scenarios.
- Maintenance and, for some classes of business, termination
expense assumptions are expressed as per policy amounts. They are
set based on the expenses incurred during the year, including an
allowance for ongoing investment expenditure, and are allocated
between entities and product groups in accordance with each
operation's internal cost allocation model.
- Expense inflation assumptions are set consistent with the
economic basis and based on the inflation swap spot curve.
- The contract liabilities for with-profits business also
require assumptions for mortality. These are set based on the
results of recent experience analysis.
At 30 June 2020, there are no significant external reinsurance
arrangements in place in respect of the With-Profits Fund's
liabilities.
Unallocated surplus
The unallocated surplus of the With-Profits Fund represents the
excess of the fund's assets over policyholder liabilities that have
yet to be appropriated between policyholders and shareholders. The
unallocated surplus is recorded wholly as a liability with no
allocation to equity. The annual excess/shortfall of income over
expenditure of the With-Profits Fund, after declaration and
attribution of the cost of bonuses to policyholders and
shareholders, is transferred to/from the unallocated surplus each
year through a charge/credit to the condensed consolidated income
statement. The balance retained in the unallocated surplus
represents cumulative income arising on the with-profits business
that has not been allocated to policyholders or shareholders.
11.1.2 Unit-linked business
For unit-linked contracts, the attaching liability reflects the
unit value obligation and, in the case of contracts with
significant insurance risk which are therefore classified as
insurance contracts, a provision for expense and mortality risk.
The latter component is determined by applying mortality
assumptions on a basis that is appropriate for the policyholder
profile. To calculate the non-unit reserves for unit-linked
insurance contracts, assumptions are set for maintenance expenses,
the unit growth rate and the valuation interest rate. The valuation
interest rate is derived from the yields of assets representative
of the returns that will be earned on the assets backing these
liabilities.
For those contracts where the level of insurance risk is
insignificant, the assets and liabilities arising under the
contracts are distinguished between those that relate to the
financial instrument liability and acquisition costs and deferred
income that relate to the component of the contract that relates to
investment management. Acquisition costs and deferred income are
recognised consistent with the level of service provision.
Certain parts of the unit-linked business are reinsured
externally, either by way of fund reinsurance or by reinsuring
specific risk benefits. The reinsurance asset in respect of these
reinsurance arrangements is valued in a manner consistent with the
valuation of the underlying liabilities.
11.1.3 Annuities and other long-term business
The majority of the policyholder liabilities in the 'annuities
and other long-term business' component relate to annuity
contracts. The annuity liabilities are calculated as the expected
value of future annuity payments and expenses, discounted by a
valuation interest rate, having prudent regard to the assumptions
used.
On 14 March 2018, part of the annuity liability was reinsured
externally to Rothesay Life plc. In addition, some of the longevity
risk in respect of the remaining annuity business is reinsured
externally. The reinsurance asset in respect of these reinsurance
arrangements is valued in a manner consistent with the valuation of
the underlying liabilities.
The key assumptions used to calculate the policyholder liability
in respect of annuity business are as follows:
Mortality
Mortality assumptions for annuity business are set in light of
recent population and internal experience, with an allowance for
expected future mortality improvements. Given the long-term nature
of annuity business, annuitant mortality remains a significant
assumption in determining policyholder liabilities. The assumptions
used reference recent population mortality data, with specific risk
factors applied on a per policy basis to reflect the features of
the Group's portfolio.
The mortality improvements observed in recent population data
have been considered as part of the judgement exercised in setting
the mortality basis. New mortality projection models are released
annually by the Continuous Mortality Investigation ("CMI"). The CMI
tables used are adjusted as appropriate each year to reflect
anticipated mortality improvements, including an appropriate margin
for prudence. The mortality improvement assumptions used are
summarised in the table below:
Long-term improvement Smoothing parameter (S(k)
Period ended Model version rate(i) )(ii)
================= ============== ======================= ==========================
For males: 2.25% pa For males: 7.5
30 June 2020 CMI 2017 For females: 2.00% pa For females: 7.75
For males: 2.25% pa For males: 7.5
31 December 2019 CMI 2017 For females: 2.00% pa For females: 7.75
================= ============== ======================= ==========================
(i) As at 30 June 2020 and 31 December 2019, the long-term
improvement rates shown reflected a 0.5% increase to all future
improvement rates as a margin for prudence.
(ii) The smoothing parameter controls the amount of smoothing by
calendar year when determining the level of initial mortality
improvements.
An increase in mortality rates may be expected to some extent
over the short term due to the Covid-19 pandemic, particularly in
relation to the annuitant population which has a higher average age
than the non-annuitant population. However, the longer term
implications for mortality rates amongst the annuitant population
are unknown at this stage. While no change has been made to the
annuitant mortality assumptions since 31 December 2019, this is an
area the Group continues to monitor.
Valuation interest rates
Valuation interest rates used to discount the liabilities are
based on the yields as at the valuation date on the assets backing
the policyholder liabilities. For fixed interest securities, the
internal rate of return of the assets backing the liabilities is
used. Investment properties are valued using the redemption yield.
An adjustment is made to the yield on non risk-free fixed interest
securities and property to reflect credit risk. The credit risk
allowance comprises an amount for long-term best estimate defaults
and downgrades, a provision for credit risk premium, and where
appropriate an additional short-term provision.
The credit risk allowance for the Group's shareholder-backed
annuity business as at 30 June 2020 was 44 bps per annum (31
December 2019: 37 bps) corresponding to a net of reinsurance
reserve of GBP837m (31 December 2019: GBP701m). For the annuity
business written in the With-Profits Fund, this amount was 40 bps
(31 December 2019: 33 bps) corresponding to a net of reinsurance
reserve of GBP392m (31 December 2019: GBP324m). This increase is
primarily due to strengthening the short-term provision, in
anticipation of short-term deterioration in the number of company
default and downgrades due to the current market conditions arising
from the Covid-19 pandemic.
Expenses
Maintenance expense assumptions are expressed as per policy
amounts. They are set based on forecast expense levels, including
an allowance for ongoing investment expenditure and are allocated
between entities and product groups in accordance with the Group's
internal cost allocation model. A margin for prudence is added to
this amount. Expense inflation assumptions are set consistent with
the economic basis and based on the inflation swap spot curve.
The sensitivity of IFRS profit after tax to changes in the above
assumptions, as at 31 December 2019, is shown in Note 34.2 of the
2019 Annual Report and Accounts. There have been no changes in the
Group's longevity or maintenance expense assumptions since 31
December 2019, and while the credit risk assumption has been
strengthened, there have been no fundamental changes to the Group's
methodology or estimation techniques which would change the nature
of the risk profile and the degree of sensitivity to reasonably
possible changes in these assumptions previously disclosed.
11.2 Analysis of movements in policyholder liabilities and
unallocated surplus of the With-Profits Fund
The following tables show the movement in policyholder
liabilities and unallocated surplus of the With-Profits Fund by
business component. The analysis includes the impact of premiums,
claims and investment movements on policyholder liabilities. The
impact does not represent premiums, claims, and investment
movements as reported in the condensed consolidated income
statement. For example, the premiums shown below exclude any
deductions for fees/charges, as the table only shows the impact on
the insurance and investment contract liabilities and unallocated
surplus of the With-Profits Fund. Claims (surrenders, maturities
and deaths) represent the liability released rather than the claim
amount paid to the policyholder.
Shareholder-backed
funds and subsidiaries
With-profits Unit-linked Annuity Total Reinsurance Net total
sub-funds(i) liabilities and other asset
long-term
business
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== =========== ===========
At 1 January 2019 124,228 20,717 20,384 165,329 (2,812) 162,517
Comprising:
Insurance contract
liabilities 43,775 5,219 20,304 69,298
Investment contract
liabilities
with DPF 67,018 - 20 67,038
Investment contract
liabilities
without DPF 2 15,498 60 15,560
Unallocated surplus of the
With-Profits
Fund 13,433 - - 13,433
=========================== ============ ============== ========= =======
Net Flows:
Premiums 11,745 890 287 12,922
Surrenders (4,987) (2,667) (444) (8,098)
Maturities/deaths (4,522) (606) (1,948) (7,076)
Net flows 2,236 (2,383) (2,105) (2,252)
=========================== ============ ============== ========= =======
Reclassification of
reinsured
UK annuity contracts as
held for
sale - - 10,502 10,502
Disposal of Hong Kong
subsidiaries (44) (9) 53 -
Shareholders' transfers
post-tax (263) - - (263)
Switches (156) 156 - -
Investment related items
and other
movements(ii) 10,925 2,513 1,613 15,051
Foreign exchange
differences (112) - (4) (116)
===========================
At 31 December 2019 / 1
January
2020 136,814 20,994 30,443 188,251 (11,958) 176,293
=========================== ============ ============== ========= ======= ========== =========
Comprising:
Insurance contract
liabilities 42,717 5,396 30,367 78,480
Investment contract
liabilities
with DPF 78,022 - 26 78,048
Investment contract
liabilities
without DPF 3 15,598 50 15,651
Unallocated surplus of the
With-Profits
Fund 16,072 - - 16,072
===========================
Net Flows:
Premiums 3,289 423 105 3,817
Surrenders (2,968) (1,556) (42) (4,566)
Maturities/deaths (2,144) (315) (1,004) (3,463)
Net flows (1,823) (1,448) (941) (4,212)
===========================
Reclassification of
reinsured
UK annuity contracts as
held for
sale - - - -
Shareholders' transfers
post-tax (126) - - (126)
Switches (60) 60 - -
Investment related items
and other
movements(ii) (3,547) (801) 1,372 (2,976)
Foreign exchange
differences 84 - - 84
===========================
At 30 June 2020 131,342 18,805 30,874 181,021 (11,927) 169,094
===========================
Comprising:
Insurance contract
liabilities 41,494 4,796 30,781 77,071
Investment contract
liabilities
with DPF 74,913 - 29 74,942
Investment contract
liabilities
without DPF 1 14,009 64 14,074
Unallocated surplus of the
With-Profits
Fund 14,934 - - 14,934
===========================
(i) Includes the PAC With-Profits Sub-Fund, the Defined Charge
Participating Sub-Fund and the Scottish Amicable Insurance Fund
including the non-profit business written within these funds.
(ii) Investment related items and other movements include the
impact of assumption changes. For the shareholder-backed business,
assumption changes, including credit downgrade/default provisioning
and annuitant mortality, increased policyholder liabilities by
GBP134m for the six months ended 30 June 2020 (31 December 2019:
GBP340m decrease). For the With-Profits Fund, the impact of
assumption changes for the six months ended 30 June 2020 was an
increase in policyholder liabilities of GBP48m (31 December 2019:
GBP239m decrease), which was offset by a corresponding increase in
unallocated surplus of the With-Profits Fund. The assumption change
impacts have been amended from those reported in the 31 December
2019 Annual Report & Accounts with no impact on the movement
table presented above.
Further analysis of the movement in the Group's insurance
contract liabilities, reinsurance asset, investment contract
liabilities and unallocated surplus of the With-Profits Fund is
provided below. The movement in these items is predominantly
allocated to the 'benefits and claims and movement in unallocated
surplus of the With-Profits Fund, net of reinsurance' line in the
condensed consolidated income statement, although certain movements
such as premiums received and claims paid on investment contracts
without discretionary participating features, are not charged to
the income statement.
Unallocated
surplus
Insurance Investment of the
contract contract With-Profits Reinsurance
liabilities liabilities(ii) Fund asset(iii)
GBPm GBPm GBPm GBPm
At 1 January 2019 69,298 82,598 13,433 (2,812)
Movement charged to the condensed consolidated
income statement (1,063) 12,688 2,549 1,356
Other movements including amounts included in
other comprehensive income(i) 10,311 (1,583) 136 (10,502)
Foreign exchange differences (66) (4) (46) -
At 31 December 2019 / 1 January 2020 78,480 93,699 16,072 (11,958)
=========== ============== ============ ==========
Movement charged to the condensed consolidated
income statement (1,481) (3,414) (1,200) 33
Other movements including amounts included in
other comprehensive income(i) 5 (1,246) (9) -
Foreign exchange differences 67 (23) 71 (2)
At 30 June 2020 77,071 89,016 14,934 (11,927)
(i) 'Other movements including amounts included in other
comprehensive income include premiums received and claims paid on
investment contracts without discretionary participating features,
which are taken directly to the condensed consolidated statement of
financial position in accordance with IAS 39; changes in the
unallocated surplus of the With-Profits Fund resulting from
actuarial gains and losses on the Group's defined benefit pension
schemes, which are recognised directly in other comprehensive
income and balance sheet reallocations. The amount for balance
sheet reallocations for the year ended 31 December 2019 includes
the reclassification of the reinsured UK annuity business out of
held for sale, together with reclassifications between insurance
contract liabilities and the unallocated surplus of the
With-Profits Fund.
(ii) This comprises investment contracts with discretionary
participation features of GBP74,942m as at 30 June 2020 (31
December 2019: GBP78,048m) and investment contracts without
discretionary participation features of GBP14,074m as at 30 June
2020 (31 December 2019: GBP15,651m).
(iii) Includes reinsurers' share of claims outstanding of
GBP151m as at 30 June 2020 (31 December 2019: GBP156m).
The below tables show the 'Benefits and claims and movement in
unallocated surplus of the With-Profits Fund, net of reinsurance'
as shown in condensed consolidated income statement. 'Benefits and
claims and movement in unallocated surplus of the With-Profits
Fund, net of reinsurance comprises of the movement charged to the
condensed consolidated income statement presented in the table
above, and the benefits and claims paid over the period, net of
amounts attributable to reinsurers.
For the six months
ended 30 June 2020
Policyholder Unallocated Reinsurance
liabilities(I) surplus asset
of the
With-Profits
Fund
GBPm GBPm GBPm
Movement in policyholder liabilities and unallocated
surplus of the With-Profits Fund included in the condensed
consolidated income statement 4,895 1,200 -
Movement in reinsurance asset included in the condensed
consolidated income statement - - (33)
Benefits and claims paid (6,268) - -
Benefits and claims attributable to external reinsurers - - 823
Benefits and claims and movement in unallocated surplus
of the With-Profits Fund, net of reinsurance, as shown
in condensed consolidated income statement (1,373) 1,200 790
(i) Policyholder liabilities includes insurance contract
liabilities and investment contract liabilities.
For the year ended
31 December 2019
Policyholder Unallocated Reinsurance
liabilities surplus asset
of the
With-Profits
Fund
GBPm GBPm GBPm
Movement in policyholder liabilities and unallocated
surplus of the With-Profits Fund included in the condensed
consolidated income statement (11,625) (2,549) -
Movement in reinsurance asset included in the condensed
consolidated income statement - - (1,356)
Benefits and claims paid (12,750) - -
Benefits and claims attributable to external reinsurers - - 1,787
Benefits and claims and movement in unallocated surplus
of the With-Profits Fund, net of reinsurance as shown
in condensed consolidated income statement (24,375) (2,549) 431
12 Subordinated liabilities and other borrowings
As at As at
30 June 31 December
2020 2019
GBPm GBPm
Subordinated liabilities 3,780 3,767
Operational borrowings 136 130
Borrowings attributable to with-profits fund 4,022 3,602
Total subordinated liabilities and other borrowings 7,938 7,499
======== ============
Subordinated liabilities
The Group's subordinated liabilities consist of subordinated
notes which were transferred from Prudential plc on 18 October 2019
and were recorded at fair value on initial recognition. The
transfer of the subordinated liabilities was achieved by
substituting the Company in place of Prudential plc as issuer of
the debt, as permitted under the terms and conditions of each
applicable instrument. All costs related to the transaction were
borne by Prudential plc.
As at 31 December
As at 30 June 2020 2019
Principal Carrying Principal Carrying
amount amount amount amount
GBPm GBPm
5.625% Sterling fixed rate due on
20 October 2061 GBP750m 858 GBP750m 862
6.25% Sterling fixed rate due 20
October 2068 GBP500m 608 GBP500m 608
6.5% US Dollar fixed rate due on
20 October 2048 $500m 473 $500m 448
6.34% Sterling fixed rate due on
19 December 2063 GBP700m 852 GBP700m 856
5.56% Sterling fixed rate due on
20 July 2055 GBP600m 681 GBP600m 684
3.875% Sterling fixed rate due on
20 July 2049 GBP300m 308 GBP300m 309
Total subordinated liabilities 3,780 3,767
Subordinated notes issued by the Company rank below its senior
obligations and ahead of its preference shares and ordinary share
capital.
A description of the key features of each of the Group's
subordinated notes as at 30 June 2020 and 31 December 2019 is as
follows:
5.625% Sterling 6.25% Sterling 6.50% US 6.34% Sterling 5.56% Sterling 3.875% Sterling
fixed rate fixed rate Dollar fixed fixed rate fixed rate fixed rate
rate
Principal GBP750m GBP500m $500m GBP700m GBP600m GBP300m
amount
Issue date(i) 1 October 1 October 1 October 16 December 9 June 2015 8 July 2019
2018 2018 2018 2013 (amended (amended
10 June 10 June
2019) 2019)
Maturity date 20 October 20 October 20 October 19 December 20 July 20 July
2051 2068 2048 2063 2055 2049
Callable at par 20 October 20 October 20 October 19 December 20 July 20 July
at the option 2031 (and 2048 (and 2028 (and 2043 (and 2035 (and 2024, 20
of each each each each each July 2029
the Company semi-annual semi-annual semi-annual semi-annual semi-annual (and each
from interest interest interest interest interest semi-annual
payment payment payment payment payment interest
date date date date date payment
thereafter) thereafter) thereafter) thereafter) thereafter) date thereafter)
Solvency II own Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2
funds treatment
(i) The subordinated notes were issued by Prudential plc rather
than by the Company.
The following table reconciles the movement in subordinated
liabilities in the period:
As at As at
30 June 31 December
2020 2019
GBPm GBPm
At 1 January 3,767 -
Fair value on initial recognition - 3,789
Amortisation (17) (9)
Foreign exchange movements 30 (13)
At end of period 3,780 3,767
The subordinated liabilities were recognised at fair value on
initial recognition, however the cash received in respect of these
liabilities from Prudential plc was GBP3,219m. The difference was
treated as distribution in kind in accordance with the requirements
of section 845 of the Companies Act 2006.
There were no repayments of principal on these loans during the
year. The amortisation of premium on the loans based on an
effective interest rate and the foreign exchange movement on the
translation of the subordinated liabilities denominated in US
dollar are both non-cash items.
13 Fair value methodology
13.1 Determination of fair value hierarchy
The fair values of assets and liabilities for which fair
valuation is required under IFRS are determined by the use of
current market bid prices for exchange-quoted investments, by using
quotations from independent third parties such as brokers and
pricing services, or by using appropriate valuation techniques.
Fair value is the amount for which an asset could be exchanged or a
liability settled in an arm's length transaction.
To provide further information on the approach used to determine
and measure the fair value of certain assets and liabilities, the
following fair value hierarchy categorisation has been used. This
hierarchy is based on the inputs to the fair value measurement and
reflects the lowest level input that is significant to that
measurement.
Level 1 - quoted prices (unadjusted) in active markets for
identical assets and liabilities
Level 1 principally includes exchange-listed equities, mutual
funds with quoted prices, exchange-traded derivatives such as
futures and options, and national government bonds, unless there is
evidence that trading in a given instrument is so infrequent that
the market could not be considered active. It also includes other
financial instruments where there is clear evidence that the
year-end valuation is based on a traded price in an active
market.
Level 2 - inputs other than quoted prices included within level
1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
Level 2 principally includes corporate bonds and other
non-national government debt securities which are valued using
observable inputs, together with over-the-counter derivatives such
as forward exchange contracts and non-quoted investment funds
valued with observable inputs. It also includes investment contract
liabilities without discretionary participation features that are
valued using observable inputs.
Level 3 - Significant inputs for the asset or liability are not
based on observable market data (unobservable inputs)
Level 3 principally includes investments in private equity
funds, directly held investment properties and investments in
property funds which are exposed to bespoke properties or risks and
investments which are internally valued or subject to a significant
number of unobservable assumptions. It also includes debt
securities which are rarely traded or traded only in privately
negotiated transactions and hence where it is difficult to assert
that their valuations have been based on observable market
data.
13.2 Valuation approach for level 2 assets and liabilities
A significant proportion of the Group's level 2 assets are
corporate bonds, structured securities and other non-national
government debt securities. These assets, in line with market
practice, are generally valued using independent pricing services
or quotes from third-party brokers. These valuations are subject to
a number of monitoring controls, such as monthly price variances,
stale price reviews and variance analysis on prices achieved on
subsequent trades.
Pricing services, where available, are used to obtain
third-party broker quotes. When prices are not available from
pricing services, quotes are sourced directly from brokers. The
Group seeks to obtain a number of quotes from different brokers so
as to obtain the most comprehensive information available on their
executability. Where quotes are sourced directly from brokers, the
price used in the valuation is normally selected from one of the
quotes based on a number of factors, including the timeliness and
regularity of the quotes and the accuracy of the quotes considering
the spreads provided. The selected quote is the one which best
represents an executable quote for the security at the measurement
date.
Generally, no adjustment is made to the prices obtained from
independent third parties. Adjustment is made in only limited
circumstances, where it is determined that the third-party
valuations obtained do not reflect fair value (e.g. either because
the value is stale and/or the values are extremely diverse in
range). These are usually securities which are distressed or that
could be subject to a debt restructure or where reliable market
prices are no longer available due to an inactive market or market
dislocation. In these instances, prices are derived using internal
valuation techniques including those described below with the
objective of arriving at a fair value measurement that reflects the
price at which an orderly transaction would take place between
market participants on the measurement date. The techniques used
require a number of assumptions relating to variables such as
credit risk and interest rates. Examples of such variables include
an average credit spread based on the corporate bond universe and
the relevant duration of the asset being valued. The input
assumptions are determined based on the best available information
at the measurement dates. Securities valued in such manner are
classified as level 3 where these significant inputs are not based
on observable market data.
Of the total level 2 debt securities of GBP43,836m as at 30 June
2020 (31 December 2019: GBP44,683m), GBP391m were valued internally
(31 December 2019: GBP344m). The majority of such securities were
valued using matrix pricing, which is based on assessing the credit
quality of the underlying borrower to derive a suitable discount
rate relative to government securities of a comparable duration.
Under matrix pricing, the debt securities are priced by taking the
credit spreads on comparable quoted public debt securities and
applying these to the equivalent debt instruments, factoring in a
specified liquidity premium. The majority of the parameters used in
this valuation technique are readily observable in the market and,
therefore, are not subject to judgement.
13.3 Level 3 assets and liabilities
13.3.1 Valuation approach for level 3
Investments valued using valuation techniques include financial
investments which by their nature do not have an externally quoted
price based on regular trades, and financial investments for which
markets are no longer active as a result of market conditions e.g.
market illiquidity. The valuation techniques used include
comparison to recent arm's length transactions, reference to other
instruments that are substantially the same, discounted cash flow
analysis, option-adjusted spread models and, if applicable,
enterprise valuation. These techniques may include a number of
assumptions relating to variables such as credit risk and interest
rates. Changes in assumptions relating to these variables could
positively or negatively impact the reported fair value of these
instruments. When determining the inputs into the valuation
techniques used priority is given to publicly available prices from
independent sources when available, but overall the source of
pricing is chosen with the objective of arriving at a fair value
measurement that reflects the price at which an orderly transaction
would take place between market participants on the measurement
date.
The fair value estimates are made at a specific point in time,
based upon any available market information and judgements about
the financial instruments, including estimates of the timing and
amount of expected future cash flows and the credit standing of
counterparties. Such estimates do not reflect any premium or
discount that could result from offering for sale at one time a
significant volume of a particular financial instrument, nor do
they consider the tax impact of the realisation of unrealised gains
or losses from selling the financial instrument being fair valued.
In some cases, the disclosed value cannot be realised in immediate
settlement of the financial instrument. In accordance with the
Group's Group Risk Framework, the estimated fair value of
derivative financial instruments valued internally using standard
market practices are subject to assessment against external
counterparties' valuations.
As at 30 June 2020, the Group held GBP42,034m of assets, net of
liabilities, at fair value which were classified as level 3 within
the fair value hierarchy (31 December 2019: GBP38,904m). This
included GBP1,404m of loans (31 December 2019: GBP1,462m) and
corresponding borrowings of GBP1,350m (31 December 2019: GBP1,422m)
held by a subsidiary of the Group, attaching to a portfolio of
buy-to-let mortgages financed largely by external third-party
(non-recourse) borrowings. The Group's exposure to this portfolio
is limited to the investments held by the WPSF. The fair value
movements of these loans and borrowings have no effect on
shareholders' profit and equity. The most significant
non-observable inputs to the mortgage fair value are the level of
future defaults and prepayments by the mortgage holders.
The investment properties of the Group are externally valued by
professionally qualified external valuers using the RICS valuation
standards. Within these valuations 55% contained a 'material
uncertainty' clause due to the continued disruption to the market
caused by Covid-19. These are driven primarily as a result of
limited recent market transactions for certain sectors. The Group's
investment properties are predominately valued using an 'income
capitalisation' technique. This technique calculates the value
through the yield and rental value depending on factors such as the
lease length, building quality, covenants and location. Typically
these variables used are compared to recent transactions with
similar features to those of the Group's investment properties. As
the comparisons are not with properties that are virtually
identical to the Group's investment properties, adjustments are
made by the valuers where appropriate to the variables used. As a
result of Covid-19, where there were more limited recent market
transactions, more emphasis has been placed on the inherent
valuation, using the factors previously described which could
indicate more uncertainty than normal. Changes in assumptions
relating to these variables could positively or negatively impact
the reported fair value of the properties as at 30 June 2020, and
details of our sensitivity analysis to the key factors inherent in
these valuations is given in note 13.9.1. The shareholder exposure
to investment property is GBP1,529m, representing 8% of the total
investment property of GBP19,192m.
13.3.2 Analysis of internally valued level 3 financial
instruments
Level 3 financial assets, net of financial liabilities, which
were internally valued as at 30 June 2020 were GBP12,174m (31
December 2019: GBP11,207m), representing 8.6% of the total
fair-valued financial assets net of financial liabilities (31
December 2019: 7.3%).
Internal valuations are inherently more subjective than external
valuations. These internally valued net assets and liabilities
primarily consist of the following items:
- Debt securities of GBP11,198m as at 30 June 2020 (31 December
2019: GBP10,187m), of which GBP9,360m (31 December 2019: GBP9,246m)
were valued using discounted cash flow models with an internally
developed discount rate. The remaining debt securities were valued
using other valuation methodologies such as enterprise valuation
and estimated recovery (such as liquidators' reports).
- Private equity investments in both debt and equity securities
of GBP539m as at 30 June 2020 (31 December 2019: GBP548m), of which
investments of GBP539m (31 December 2019: GBP357m) were valued
internally using a discounted cash flow model. The most significant
inputs to the valuation are the forecast cash flows of the
underlying business, discount rate, and terminal value assumption,
all of which involve significant judgement. The valuation is
performed in accordance with International Private Equity and
Venture Capital Association valuation guidelines. These investments
are held by the Group's consolidated private equity infrastructure
funds.
- Equity release mortgage loans of GBP1,780m as at 30 June 2020
(31 December 2019: GBP1,737m) and a corresponding liability of
GBP411m (31 December 2019: GBP390m), which were valued internally
using discounted cash flow models. The inputs that are most
significant to the valuation of these loans are the discount rate,
the current property value, the assumed future property growth and
the assumed future annual property rental yields. During 2019,
there was a change to the deferment rate assumption which resulted
in an increase in assumed property values at redemption. As at 30
June 2020 the assumed future property growth assumption has been
adjusted to make allowance for the expected short-term dynamics in
the residential property market, as a result of the Covid-19
pandemic.
- Liabilities of GBP1,134m as at 30 June 2020 (31 December 2019:
GBP1,135m), for the third-party interest in consolidated funds in
respect of the consolidated investment funds, which are
non-recourse to the Group. These liabilities were valued by
reference to the underlying assets.
13.3.3 Governance of level 3
The Group's valuation policies, procedures and analyses for
instruments categorised as level 3 are overseen by business unit
committees as part of the Group's wider financial reporting
governance processes. The procedures undertaken include approval of
valuation methodologies, verification processes, and resolution of
significant or complex valuation issues. In undertaking these
activities, the Group makes use of the extensive expertise of its
asset management business. In addition, the Group has minimum
standards for independent price verification to ensure valuation
accuracy is regularly independently verified. Adherence to this
policy is monitored across the business units.
13.4 Fair value hierarchy for assets measured at fair value in
the condensed consolidated statement of financial position
The tables below presents the Group's assets measured at fair
value by level of the fair value hierarchy for each component of
business.
As at 30 June 2020
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
With-profits:
Investment property - - 17,236 17,236
Loans - - 1,479 1,479
Derivative assets 98 4,563 - 4,661
Equity securities and pooled
investment funds 42,277 1,873 8,106 52,256
Debt securities 16,179 28,091 6,084 50,354
Total with-profits 58,554 34,527 32,905 125,986
Unit-linked:
Investment property - - 427 427
Loans - - - -
Derivative assets 2 3 - 5
Equity securities and pooled
investment funds 11,460 332 929 12,721
Debt securities 2,141 5,152 - 7,293
Total unit-linked 13,603 5,487 1,356 20,446
Annuity and other long-term
business:
Investment property - - 1,529 1,529
Loans - - 1,780 1,780
Derivative assets 81 817 - 898
Equity securities and pooled
investment funds 14 - 2 16
Debt securities 3,218 10,052 7,339 20,609
Total annuity and other
long-term business 3,313 10,869 10,650 24,832
Other:
Investment property - - - -
Loans - - - -
Derivative assets - 102 - 102
Equity securities and pooled
investment funds 173 - 18 191
Debt securities 595 541 - 1,136
Total other 768 643 18 1,429
Group:
Investment property - - 19,192 19,192
Loans - - 3,259 3,259
Derivative assets 181 5,485 - 5,666
Equity securities and pooled
investment funds 53,924 2,205 9,055 65,184
Debt securities 22,133 43,836 13,423 79,392
Total assets at fair value 76,238 51,526 44,929 172,693
As at 31 December 2019
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
With-profits:
Investment property - - 17,039 17,039
Loans - - 1,602 1,602
Derivative assets 67 3,225 - 3,292
Equity securities and pooled
investment funds 48,532 2,219 7,154 57,905
Debt securities 21,913 28,430 5,008 55,351
Total with-profits 70,512 33,874 30,803 135,189
Unit-linked:
Investment property - - 453 453
Derivative assets 3 3 - 6
Equity securities and pooled
investment funds 12,968 352 987 14,307
Debt securities 2,382 5,908 - 8,290
Total unit-linked 15,353 6,263 1,440 23,056
Annuity and other long-term
business:
Investment property - - 1,644 1,644
Loans - - 1,737 1,737
Derivative assets - 603 - 603
Equity securities and pooled
investment funds 27 - 2 29
Debt securities 4,361 9,810 6,207 20,378
Total annuity and other
long-term business 4,388 10,413 9,590 24,391
Other:
Investment property - - - -
Loans - - - -
Derivative assets - 61 - 61
Equity securities and pooled
investment funds 129 - 18 147
Debt securities 880 535 - 1,415
Total other 1,009 596 18 1,623
Group:
Investment property - - 19,136 19,136
Loans - - 3,339 3,339
Derivative assets 70 3,892 - 3,962
Equity securities and pooled
investment funds 61,656 2,571 8,161 72,388
Debt securities 29,536 44,683 11,215 85,434
Total assets at fair value 91,262 51,146 41,851 184,259
13.5 Fair value hierarchy for liabilities measured at fair value
in the condensed consolidated statement of financial position
The table below presents the Group's liabilities measured at
fair value by level of the fair value hierarchy:
As at 30 June 2020
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Investment contract liabilities without discretionary
participation features - 14,074 - 14,074
Third-party interest in consolidated funds 6,035 4,095 1,134 11,264
Borrowings and subordinated liabilities - - 1,350 1,350
Derivative liabilities 43 4,642 - 4,685
Accruals, deferred income and other liabilities - - 411 411
Total liabilities at fair value 6,078 22,811 2,895 31,784
As at 31 December 2019
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Investment contract liabilities without discretionary
participation features - 15,651 - 15,651
Third-party interest in consolidated funds 6,897 3,611 1,135 11,643
Borrowings and subordinated liabilities - - 1,422 1,422
Derivative liabilities 32 2,172 - 2,204
Accruals, deferred income and other liabilities - - 390 390
Total liabilities at fair value 6,929 21,434 2,947 31,310
===== ====== =====
13.6 Transfers between levels
The Group's policy is to recognise transfers into and transfers
out of levels as at the end of each half-year reporting period,
except for material transfers, which are recognised as of the date
of the event or change in circumstances that caused the
transfer.
Transfers are deemed to have occurred when there is a material
change in the observed valuation inputs or a change in the level of
trading activities of the securities.
For the six months ended 30 June 2020
Financial Assets and Liabilities - Transfers
between levels
Equity securities
and pooled investment
funds Debt securities Total
GBPm GBPm GBPm
From level 1 to level 2 - 7,843 7,843
From level 1 to level 3 9 - 9
From level 2 to level 1 - 4,187 4,187
From level 2 to level 3 617 1,030 1,647
From level 3 to level 2 - 23 23
For the year ended 31 December 2019
Financial Assets and Liabilities - Transfers
between levels
Equity securities Debt securities Total
and pooled investment
funds
GBPm GBPm GBPm
From level 1 to level 2 1,263 672 1,935
From level 1 to level 3 465 - 465
From level 2 to level 1 - 15,357 15,357
From level 2 to level 3 - 35 35
From level 3 to level 2 - 944 944
13.7 Reconciliation of movements in level 3 assets and
liabilities
The movements during the year of level 3 assets and liabilities
held at fair value, excluding assets and liabilities held for sale,
are analysed in the tables below:
For the six months to 30 June 2020
Total Transfer Transfers Transfers
gains/(losses) to held into out
At 1 in income Foreign for level of level At 30
Jan statement exchange Purchases Sales sale Settled Issued 3 3 Jun
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Level 3
assets:
Investment
property 19,136 (671) 252 715 (82) (158) - - - - 19,192
Loans 3,339 41 - 5 (131) - - 5 - - 3,259
Equity
securities
and
portfolio
holdings in
unit
trusts 8,161 (73) 46 729 (434) - - - 626 - 9,055
Debt
securities 11,215 666 18 629 (128) - - 16 1,030 (23) 13,423
Total level 3
assets 41,851 (37) 316 2,078 (775) (158) - 21 1,656 (23) 44,929
Level 3
liabilities:
Third-party
interest
in
consolidated
funds 1,135 (64) - - - - (38) 101 - - 1,134
Borrowings
and
subordinated
liabilities 1,422 - - - - - (72) - - - 1,350
Other
liabilities 390 24 - - - - (3) - - - 411
Total level 3
liabilities 2,947 (40) - - - - (113) 101 - - 2,895
For the year ended 31 December 2019
Total Transfer Transfers Transfers
gains/(losses) to held into out
At 1 in income Foreign for level of level At 31
Jan statement exchange Purchases Sales sale Settled Issued 3 3 Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Level 3
assets:
Investment
property 18,003 (859) 32 2,333 (224) (149) - - - - 19,136
Loans 3,281 147 - 120 (207) - (2) - - - 3,339
Equity
securities
and
portfolio
holdings in
unit
trusts 6,952 262 (47) 1,558 (1,022) - (7) - 465 - 8,161
Debt
securities 12,192 693 (16) 689 (1,467) - - 33 35 (944) 11,215
Total level 3
assets 40,428 243 (31) 4,700 (2,920) (149) (9) 33 500 (944) 41,851
- - - - - - - - - - -
Level 3
liabilities:
Third-party
interest
in
consolidated
funds 1,028 (59) - - - - (142) 308 - - 1,135
Borrowings
and
subordinated
liabilities 1,606 - - - - - (184) - - - 1,422
Other
liabilities 355 41 - - - - (6) - - - 390
Total level 3
liabilities 2,989 (18) - - - - (332) 308 - - 2,947
13.8 Unrealised Gains and losses in respect of level 3 assets
and liabilities
Unrealised gains and losses recognised in the condensed
consolidated income statement in relation to assets and liabilities
classified as level 3 are analysed as follows:
For the
six months For the
ended year ended
30 June 31 December
2020 2019
GBPm GBPm
=============
Investment property (687) (857)
Loans 37 147
Equity securities and pooled investment funds 2 282
Debt securities 600 711
Third party interest in consolidated funds (54) (48)
Other financial liabilities 24 41
Total (78) 276
13.9 Sensitivity of the fair value of level 3 instruments to
changes in significant inputs
Where possible, the Group assesses the sensitivity of the fair
values of level 3 assets to reasonable possible changes in
significant unobservable inputs.
13.9.1 Investment property
As at 30 June 2020, the Group held GBP19,192m (31 December 2019:
GBP19,136m) of investment property, excluding investment property
held for sale, which is all held at fair value and is classified as
level 3 in the fair value hierarchy. For GBP17,683m (31 December
2019: GBP17,389m) of these properties, the most significant
unobservable inputs in determining the fair value are the
equivalent yield and estimated rental value.
The sensitivity of the fair value of these properties to these
inputs is presented below:
As at 30 As at 31
June December
2020 2019
Change in Change in
fair value fair value
Unobservable input Sensitivity GBPm GBPm
Equivalent yield Decrease by 50bps 2,084 2,110
Increase by 50bps(i) (1,681) (1,315)
Estimated rental value Decrease by 10% (1,425) (1,334)
Increase by 10% 1,398 1,427
(i) The sensitivity as reported in the 31 December 2019 Annual
Report & Accounts has been restated due to better information
being available.
As at 30 June 2020, investment property also included property
under development and other properties amounting to GBP1,509m (31
December 2019: GBP1,747m) for which the above approach for
assessing the sensitivity is not considered to be appropriate. For
such properties, the Group has determined that the unobservable
input is the fair value itself, therefore, sensitivity has been
assessed by applying a reasonable discount/premium to the
valuation. An increase/decrease of 10% would result in the fair
value increasing/decreasing by GBP151m (31 December 2019:
GBP175m).
13.9.2 Loans held at fair value
As at 30 June 2020, the Group held GBP3,259m (31 December 2019:
GBP3,339m) of loans held at fair value, which were all classified
as level 3 in the fair value hierarchy. Of these loans, GBP1,780m
(31 December 2019: GBP1,737m) were equity-release mortgage loans
("ERMs"). The ERMs have a no-negative equity guarantee ("NNEG")
that caps the loan repayment in the event of death, or entry into
long-term care, to be no greater than the proceeds from the sale of
the property that the loans are secured against.
The ERMs are valued using a discounted cash flow model. Future
cashflows are estimated based on assumptions, including prepayment,
death and entry into long-term care, and discounted using an
appropriate discount rate. The NNEG is based on a Black-Scholes
option pricing valuation, using assumptions including the current
property value, future property growth and property rental yields,
and is recognised as a deduction to the value of the loan.
The most significant unobservable inputs relate to the discount
rate, the current property value, the assumed future property
growth and the assumed future annual property rental yield, with
the following sensitivities:
(i) An increase of 50bps in the discount rate would decrease the
fair value of the loans by GBP161m (31 December 2019: decrease of
GBP153m) and a decrease of 50bps would increase the fair value by
GBP179m (31 December 2019: increase of GBP171m).
(ii) An increase of 10% in the current property value would
increase the fair value of the loans by GBP52m (31 December 2019:
increase of GBP48m). A decrease of 10% in the current property
value would decrease the fair value of the loans by GBP61m (31
December 2019: decrease of GBP57m).
(iii) An increase of 100bps in the assumed future annual
property growth rate would increase the fair value of the loans by
GBP163m (31 December 2019: increase of GBP151m). A decrease of
100bps in the assumed future annual property growth rate would
decrease the fair value of the loans by GBP227m (31 December 2019:
decrease of GBP213m).
(iv) An increase of 100bps in the assumed future annual property
rental yield would decrease the fair value of the loans by GBP98m
(31 December 2019: decrease of GBP94m). A decrease of 100bps in the
assumed future annual property rental yield would increase the fair
value of the loans by GBP96m (31 December 2019: increase of
GBP91m).
As at 30 June 2020, in addition to the ERMs, the Group also held
other mortgage and retail loans at fair value amounting to
GBP1,479m (31 December 2019: GBP1,602m) which are valued using
broker quotes received from an external pricing service. For such
loans, the Group has determined that the unobservable input is the
fair value itself, therefore, sensitivity has been assessed by
applying a reasonable discount/premium to the valuation. An
increase/decrease of 10% in the fair value of these loans would
result in a fair value increase/decrease of GBP148m (31 December
2019: GBP160m).
13.9.3 Other financial assets
As at 30 June 2020, the Group also held GBP22,478m (31 December
2019: GBP19,376m) of investments in debt and equity instruments
which are classified as level 3 in the fair value hierarchy.
13.9.3.1 Equity securities and pooled investment funds
As at 30 June 2020, the Group held GBP9,055m (31 December 2019:
GBP8,161m) of equity and pooled investment fund investments
classified as level 3 in the fair value hierarchy. These
investments predominantly comprise interests in partnerships,
venture capital funds and private equity funds as well as unlisted
property investment vehicles.
Of these investments, GBP8,856m (31 December 2019: GBP7,993m) is
valued using net asset statements. A 10% increase in the net asset
value of these investments would increase the fair value of the
investments by GBP886m (31 December 2019: increase of GBP799m); a
decrease of 10% would have an equal, but opposite, effect.
The remaining GBP199m (31 December 2019: GBP168m) related to
equity investments held by the Group's consolidated private equity
infrastructure funds which are further described below.
13.9.3.2 Infrastructure fund investments
As at 30 June 2020, GBP539m (31 December 2019: GBP357m) of other
financial assets related to debt and equity investments held by the
Group's consolidated private equity infrastructure funds which are
classified as level 3 in the fair value hierarchy. These
investments are valued in accordance with the International Private
Equity and Venture Association valuation guidelines (latest edition
December 2018). The methodology applied is a discounted cash flow
approach using future expected cash flows. These cash flows include
dividends due in respect of the equity investments and principal
and interest from loan notes in respect of debt investments.
The most significant inputs to the valuations are the forecast
cash flows of the underlying business, discount rate and terminal
value assumption, all of which involve significant judgement.
Valuations are also benchmarked against comparable infrastructure
transactions. An increase in the discount rate applied of 10%
decreases the valuation of these investments by GBP49m (31 December
2019: decrease of GBP43m). A decrease in the discount rate applied
of 10% increases the valuation of these asset by GBP57m (31
December 2019: increase of GBP52m). An increase in the terminal
multiple value of 10% would increase the value of the assets by
GBP6m (31 December 2019: increase of GBP7m) and a decrease in the
terminal multiple value of 10% would decrease the value by GBP6m
(31 December 2019: decrease of GBP7m).
13.9.3.3 Debt securities
As at 30 June 2020 , the Group held GBP13,423m (31 December
2019: GBP11,215m) of debt securities classified as level 3 in the
fair value hierarchy. These investments mainly comprise investments
in private placement loans, income strips and unquoted corporate
bonds. In addition, the Group's consolidated private equity
infrastructure funds held GBP340m (31 December 2019: GBP189m) of
debt securities classified as level 3 as described above.
As at 30 June 2020, the Group held GBP8,959m (31 December 2019:
GBP8,868m) of private placement loans which are secured on various
assets and are valued using a discounted cash flow model. The
discount rate is made up of a risk-free rate and a credit spread.
The risk-free rate is taken from an appropriate gilt of comparable
duration and the spread is taken from a basket of comparable
securities. The valuations are sensitive to movements in the
discount rate applied. An increase of 85bps in the discount rate
would decrease the fair value of the private placement loans by
GBP1,072m (31 December 2019: decrease of GBP690m) and a decrease of
85bps would increase the fair value by GBP1,325m (31 December 2019:
increase of GBP947m).
Also included within debt securities classified as level 3 in
the fair value hierarchy as at 30 June 2020 are income strips with
a fair value of GBP401m (31 December 2019: GBP378m). The income
strips are valued using a discounted cash flow model where the
discount rate is made up of a risk-free rate and a spread. The
risk-free rate is taken from an appropriate gilt of comparable
duration and the spread is taken from a basket of comparable
securities. The valuations are sensitive to movements in the
discount rate applied. An increase of 50bps in the discount rate
used would decrease the fair value of the income strips by GBP42m
(31 December 2019: decrease of GBP38m) and a decrease of 50bps
would increase the fair value of the income strips by GBP53m (31
December 2019: increase of GBP47m).
As at 30 June 2020, the remaining GBP3,723m (31 December 2019:
GBP1,780m) of debt securities classified as level 3 in the fair
value hierarchy are unquoted corporate bonds which are valued using
valuation techniques including broker quotes, enterprise valuation
and estimated recovery (such as liquidators' reports). For such
instruments, the Group has determined that the unobservable input
is the fair value itself, therefore, sensitivity has been assessed
by applying a reasonable discount/premium to the valuation. An
increase/decrease of 10% would result in the fair value of these
bonds increasing/decreasing by GBP372m (31 December 2019:
GBP178m).
13.10 Fair value of assets and liabilities at amortised cost
The tables below show the assets and liabilities carried at
amortised cost on the condensed consolidated statement of financial
position for which fair value is disclosed. The assets and
liabilities that are carried at amortised cost, where the carrying
value approximates the fair value, are excluded from the analysis
below:
As at 30 June 2020
Total
Level Level Level Total carrying
1 2 3 fair value value
GBPm GBPm GBPm GBPm GBPm
===== ===== ===== =========== ===========
Assets:
Loans - 706 1,876 2,582 2,518
===== ===== ===== =========== =========
Liabilities:
Subordinated liabilities and other borrowings - 6,187 101 6,288 6,588
===== ===== ===== =========== =========
As at 31 December 2019
Total
Level Level Level Total carrying
1 2 3 fair value value
GBPm GBPm GBPm GBPm GBPm
===== ===== ===== =========== ===========
Assets:
Loans - 773 1,934 2,707 2,615
===== ===== ===== =========== =========
Liabilities:
Subordinated liabilities and other borrowings - 5,902 85 5,987 6,077
===== ===== ===== =========== =========
The estimated fair value of subordinated liabilities are based
on the quoted market offer price. The fair value of the other
assets and liabilities in the tables above have been estimated from
the discounted cash flows expected to be received or paid. Where
appropriate, an observable market interest rate has been used and
the assets and liabilities are classified within level 2.
Otherwise, they are included as level 3 assets or liabilities.
14 Contingencies and related obligations
14.1 Litigation and regulatory matters
In addition to the regulatory provisions held in relation to
annuity past sales practices and the litigation in respect of
portfolio dividend tax, the Group is involved in various litigation
and regulatory issues. While the outcome of such litigation and
regulatory issues cannot be predicted with certainty, the Directors
believe that their ultimate outcome will not have a material
adverse effect on the Group's financial condition, results of
operations, or cash flows.
14.2 Guarantees
M&G plc has acted as a guarantor for the 10 Fenchurch Avenue
lease between Saxon Land B.V. and M&G Prudential Services
Limited.
The Group has also provided other guarantees and commitments to
third parties entered into in the normal course of business but the
Group does not consider that the amounts involved are
significant.
14.3 Support for the With-Profits Fund by shareholders
PAC is liable to meet its obligations to with-profits
policyholders even if the assets of the with-profits sub-funds are
insufficient to do so. The assets, represented by the unallocated
surplus of the With-Profits Fund, in excess of amounts expected to
be paid for future terminal bonuses and related shareholder
transfers ('the excess assets') in the with-profits sub-funds could
be materially depleted over time by, for example, a significant or
sustained equity market downturn. In the unlikely circumstance that
the depletion of the excess assets within the with-profits
sub-funds was such that the Group's ability to satisfy
policyholders' reasonable expectations was adversely affected, it
might become necessary to restrict the annual distribution to
shareholders or to contribute shareholders' funds to the
with-profits sub-funds to provide financial support.
The following matters are of relevance with respect to the
With-Profits Fund:
14.3.1 Pension mis-selling review
The UK insurance regulator required all UK life insurance
companies to review sales of personal pensions policies for
potential mis-selling. Whilst PAC believed it met the requirements
of the FSA (the UK insurance regulator at that time) to issue
offers of redress to all impacted customers by 30 June 2002, there
is a population of customers who, whilst an attempt was made at the
time to invite them to participate in the review, may not have
received their invitation. These customers are being re-engaged, to
ensure they have the opportunity to take part in the review.
Currently a provision amounting to GBP358m as at 30 June 2020 (31
December 2019: GBP420m) is being held in relation to this within
insurance contract liabilities.
The key assumptions underlying the provisions are:
- Average cost of redressal per customer.
- Proportion of provision (reserve rate) held for soft close
cases (where all reasonable steps have been taken to contact the
customer but the customer has not engaged with the review).
Sensitivities of the value of the provision to change in
assumptions are as follows:
As at As at
30 June 31 December
2020 2019
Assumption Change in assumption GBPm GBPm
increase/decrease
Average cost of redressal by 10% +/- 17 +/- 20
increase/decrease
Reserve rate for soft closed cases by 10% +/- 31 +/- 30
Costs arising from this review are met by the excess assets of
the with-profits sub-fund and hence have not been charged to the
asset shares used in the determination of policyholder bonus rates.
An assurance was given that these deductions from excess assets
would not impact PAC's bonus or investment policy for policies
within the with-profits sub-funds that were in force at 31 December
2003. This assurance does not apply to new business since 1 January
2004. In the unlikely event that such deductions would affect the
bonus or investment policy for the relevant policies, the assurance
provides that support would be made available to the sub-fund from
PAC's shareholder resources for as long as the situation continued,
so as to ensure that PAC's policyholders were not disadvantaged.
PAC's comfort in its ability to make such support available was
supported by related intra-group arrangements between Prudential
plc and PAC, which formalised the circumstances in which capital
support would be made available to PAC by Prudential plc. These
intra-group arrangements terminated on 21 October 2019, following
the demerger of M&G plc from Prudential plc, at which time
intra-group arrangements formalising the circumstances in which
M&G plc would make capital support available to PAC became
effective.
14.3.2 SAIF
Policies within this sub-fund contain guaranteed benefits to
policyholders. Should the assets of the sub-fund be inadequate to
meet the guaranteed benefit obligations of the policyholders of
SAIF, the WPSF would be liable to cover the deficiency in the first
instance. In addition, certain pensions products within this
sub-fund have guaranteed annuity rates at retirement, for which a
provision of GBP372m is held within the sub-fund as at 30 June 2020
(31 December 2019: GBP385m).
15 Related party transactions
The nature of the related party transactions of the Group had
not changed from those described in the Group's consolidated
financial statements as at 31 December 2019.
There have been no related party transactions in the six months
to 30 June 2020 which have had a material effect on the results or
financial position of the Group.
16 Post balance sheet events
There have been no significant events after the reporting
period.
Supplementary information
Alternative performance measures
Overview of the Group's key performance measures
The Group measures its financial performance using a number of
key performance measures ("KPM"). Two of these measures, referred
to as alternative performance measures ("APM"), are derived from
the financial statements prepared in accordance with the IFRS
financial reporting framework or the Solvency II requirements, but
are not defined under IFRS or Solvency II. The APMs are used to
complement and not to substitute the disclosures prepared in
accordance with IFRS and Solvency II, and provide additional
information on the long-term performance of the Group.
All information included in this section does not form part of
the Independent Review performed by the external auditors.
The Group's KPMs are summarised below, along with which of these
measures are considered APMs by the Group. All of the measures in
this section are presented on a continuing operations basis.
Key performance measure Type Definition
Adjusted operating profit APM, Adjusted operating profit before tax is the
before tax KPM Group's non-GAAP alternative performance measure,
which complements IFRS total profit before
tax.
Certain adjustments that are considered to
be non-recurring, strategic or due to short-term
movements not reflective of longer-term performance
are made to IFRS profit before tax to derive
adjusted operating profit before tax, including
adjustments in respect of short-term fluctuations
in investment returns, costs associated with
fundamental one-off Group-wide restructuring
and transformation, profits or losses arising
on corporate transactions and profit/(loss)
before tax from discontinued operations.
The adjusted operating profit methodology is
described in the "Adjusted operating profit"
section, along with a reconciliation of total
IFRS profit before tax to adjusted operating
profit before tax.
Adjusted operating profit before tax methodology
is detailed in Note 3.2 within the notes to
the condensed consolidated financial statements.
Net client flows KPM Net client flows represent gross inflows less
gross outflows during the period. Gross inflows
are new funds from clients and customers. Gross
outflows are funds withdrawn by clients and
customers.
Assets under management KPM Closing AUMA represents the total market value
and/or administration (AUMA) of all financial assets managed and administered
on behalf of customers and clients at the end
of each financial period.
Shareholder Solvency II APM, The regulatory Solvency II capital position
coverage ratio KPM considers the Group's overall own funds and
Solvency Capital Requirements ("SCR").
The shareholder Solvency II coverage ratio
is the ratio of own funds to SCR, excluding
the contribution to own funds and SCR from
the Group's ring-fenced With-Profits Fund.
The shareholder Solvency II coverage ratio
is described in the "Solvency II capital position"
section.
Total capital generation KPM Surplus capital is the amount by which own
funds exceed SCR under Solvency II. Total capital
generation is the total change in Solvency
II surplus capital before dividends and capital
movements and capital generated from discontinued
operations.
Operating capital generation KPM Operating capital generation is the total capital
generation before tax, adjusted to exclude
market movements relative to those expected
under long-term assumptions and to remove other
non-recurring items, including shareholder
restructuring and other costs.
Adjusted operating profit before tax
(i) Adjusted operating profit/ loss before tax by segment
Savings and
Asset Management Heritage Corporate Centre Total
For the For the For the For the
For the year For the year For the year For the year
six months ended six months ended six months ended six months ended
ended 31 ended 30 31 ended 30 31 ended 30 31
30 June December June December June December June December
2020 2019 2019 2020 2019 2019 2020 2019 2019 2020 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Fee based
revenue 541 590 1,191 39 47 96 - - - 580 637 1,287
Annuity margin - - - 139 311 458 - - - 139 311 458
With-profits
shareholder
transfer net
of hedging 24 29 55 110 97 187 - - - 134 126 242
Total adjusted
operating
income 565 619 1,246 288 455 741 - - - 853 1,074 1,987
==== ====
Adjusted
operating
expenses (382) (378) (817) (30) (25) (87) (75) (21) (59) (487) (424) (963)
Other
shareholder
(loss)/profit (26) 13 30 40 46 98 (76) (3) (18) (62) 56 110
Share of
associates'
and joint
ventures'
adjusted
operating
profit before
tax(i) 5 8 15 - - - - - - 5 8 15
Adjusted
operating
profit/(loss)
before
tax 162 262 474 298 476 752 (151) (24) (77) 309 714 1,149
==== ===
(i) Excludes adjusted operating profit before tax from joint
ventures in the With-Profits Fund.
(ii) Adjusted operating profit/loss before tax by segment and
source
Savings and asset Corporate
management Heritage Centre
For the six months ended 30
June Asset
2020 Management With-profits Other Annuities With-profits Other Other
GBPm
Asset Management fee based
revenues 469 - - - - - -
Other fee based revenues - - 72 - - 39 -
Fee based revenues 469 - 72 - - 39 -
Annuity margin - - - 139 - - -
With-profits shareholder
transfer
net of hedging - 24 - - 110 - -
Adjusted operating income 469 24 72 139 110 39 -
Asset Management operating
expenses (306) - - - - - -
Other operating expenses - - (76) - - (30) (75)
Adjusted operating expenses (306) - (76) - - (30) (75)
Other shareholder
(loss)/profit - - (26) - - 40 (76)
Share of associates and
joint
ventures operating profit
before
tax - - 5 - - - -
Adjusted operating
profit/(loss)
before tax 163 24 (25) 139 110 49 (151)
============ ====
Savings and asset Corporate
management Heritage Centre
For the six months ended 30
June Asset
2019 Management With-profits Other Annuities With-profits Other Other
GBPm
Asset Management fee based
revenues 514 - - - - - -
Other fee based revenues - - 76 - - 47 -
=========
Fee based revenues 514 - 76 - - 47 -
Annuity margin - - - 311 - - -
With-profits shareholder
transfer
net of hedging - 29 - - 97 - -
Adjusted operating income 514 29 76 311 97 47 -
Asset Management operating
expenses (298) - - - - - -
Other operating expenses - - (80) - - (25) (21)
=========
Adjusted operating expenses (298) - (80) - - (25) (21)
Other shareholder
profit/(loss) - - 13 - - 46 (3)
Share of associates and
joint
ventures operating profit
before
tax - - 8 - - - -
Adjusted operating
profit/(loss)
before tax 216 29 17 311 97 68 (24)
========= ============ ====
Savings and asset Corporate
management Heritage Centre
For the year ended 31
December Asset
2019 Management With-profits Other Annuities With-profits Other Other
GBPm
Asset Management fee based
revenues 1,033 - - - - - -
Other fee based revenues - - 158 - - 96 -
=========
Fee based revenues 1,033 - 158 - - 96 -
Annuity margin - - - 458 - - -
With-profits shareholder
transfer
net of hedging - 55 - - 187 - -
Adjusted operating income 1,033 55 158 458 187 96 -
Asset Management operating
expenses (652) - - - - - -
Other operating expenses - - (165) - - (87) (59)
=========
Adjusted operating expenses (652) - (165) - - (87) (59)
Other shareholder
profit/(loss) - - 30 - - 98 (18)
Share of associates and
joint
ventures operating profit
before
tax - - 15 - - - -
Adjusted operating
profit/(loss)
before tax 381 55 38 458 187 107 (77)
========= ============ ====
Adjusted operating profit before tax arising from annuity margin
is further analysed in the table below.
For the six For the
months ended year ended
30 June 31 December
2020 2019 2019
Breakdown of contribution from annuity margin GBPm GBPm GBPm
Return on excess assets and margin release 94 118 216
Asset trading and portfolio management actions 40 63 110
Longevity assumption changes 23 127 126
Other (see table below for breakdown) (18) 3 6
Shareholder annuities 139 311 458
For the six For the
months ended year ended
30 June 31 December
2020 2019 2019
Breakdown of other contribution from annuity margin GBPm GBPm GBPm
====== ==============
Mismatching profits 28 30 55
Other assumption and model improvements (15) (13) 32
Experience variances 11 8 4
Other provisions and reserves (42) (22) (85)
Other contribution (18) 3 6
Mismatching profits relate to short-term mismatches between the
value of annuity liabilities and the long-term assets backing these
liabilities due to the impact of market movements.
Other assumptions and model improvements include assumption
changes other than those relating to longevity, the most
significant of which are changes to the impact of expense
assumption changes, and the impact of model improvements.
For the six For the
months ended year ended
30 June 31 December
2020 2019 2019
Breakdown of other Savings and Asset Management adjusted GBPm GBPm GBPm
operating profit
====== ==============
International business 11 13 42
Investment income (10) 16 25
Other (26) (12) (29)
Other Savings and Asset Management (25) 17 38
International business includes our share of profits from our
asset management associate in South Africa and profits from our
European savings businesses.
Investment income includes income arising in Asset Management,
primarily in respect of seed capital investments.
(iii) Reconciliation of adjusted operating profit before tax to
IFRS profit after tax from continuing operations
For the six For the
months ended year ended
30 June 31 December
==============
2020 2019 2019
GBPm GBPm GBPm
Adjusted operating profit before tax 309 714 1,149
Short-term fluctuations in investment returns 746 364 298
Profit on disposal of business and corporate transactions - - 53
Restructuring and other costs (22) (82) (198)
IFRS profit attributable to non-controlling interests 2 2 3
=======
IFRS profit before tax attributable to equity holders
from continuing operations 1,035 998 1,305
=========================================================== =======
Tax from continuing operations (209) (203) (240)
IFRS profit after tax attributable to equity holders
from continuing operations 826 795 1,065
=========================================================== =======
Assets under management and administration (AUMA) and net client
flows
AUMA is a key indicator of the scale of the business and
demonstrates the potential earnings from investments return and fee
income. Closing AUMA is representative of the total market value of
all financial assets managed and/or administered on behalf of
customers and clients at the end of each financial period.
Net client flows is an indicator of the Group's growth and its
ability to attract and retain customer and client investments to
its products and funds.
(i) Detailed AUMA and net client flows
As at 31
December Net client Market/Other As at 30
2019 Gross inflows Gross outflows flows movements June 2020
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Institutional Asset
Management 76.8 6.5 (3.7) 2.8 1.6 81.2
Retail Asset Management 74.9 8.4 (16.1) (7.7) (3.0) 64.2
Retail Savings 63.5 3.8 (3.0) 0.8 (2.5) 61.8
of which: PruFund 53.8 3.2 (2.6) 0.6 (2.1) 52.3
Other 0.7 - - - 0.1 0.8
Total Savings and Asset
Management 215.9 18.7 (22.8) (4.1) (3.8) 208.0
Shareholder annuities 35.5 - (0.9) (0.9) 1.2 35.8
Traditional with-profits 84.8 0.2 (2.5) (2.3) (2.5) 80.0
Other 13.7 - (0.1) (0.1) - 13.6
Total Heritage 134.0 0.2 (3.5) (3.3) (1.3) 129.4
Corporate assets 1.6 - - - (0.3) 1.3
Group total 351.5 18.9 (26.3) (7.4) (5.4) 338.7
As at
31 December Gross Net client Market/Other As at 30
2018 inflows Gross outflows flows movements June 2019
============
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Institutional Asset
Management 70.5 5.0 (5.8) (0.8) 4.7 74.4
Retail Asset Management(i) 76.4 12.8 (16.6) (3.8) 6.0 78.6
Retail Savings 50.6 5.4 (2.2) 3.2 3.5 57.3
of which: PruFund 43.0 5.5 (2.0) 3.5 3.1 49.6
Other 0.2 - - - (0.1) 0.1
Total Savings and Asset
Management 197.7 23.2 (24.6) (1.4) 14.1 210.4
Shareholder annuities 24.9 (0.3) (0.1) (0.4) 1.1 25.6
Traditional with-profits 84.6 0.4 (2.8) (2.4) 8.4 90.6
Other 14.0 (0.1) (0.2) (0.3) 0.8 14.5
Total Heritage 123.5 - (3.1) (3.1) 10.3 130.7
======== ========== ==========
Corporate assets - - - - - -
Group total 321.2 23.2 (27.7) (4.5) 24.4 341.1
(i) Approx. GBP3bn of the gross inflows and gross outflows in
Retail Asset Management were in relation to the establishment of
the Luxembourg SICAV fund range, in which the Spanish Traspasos
regime was used to migrate non-Sterling assets from OEICS to newly
created SICAVs, and due to the reregistration of assets as a result
of M&A in the GFI (Global Financial Institutions) space.
As at 31 As at 31
December Net client Market/Other December
2018 Gross inflows Gross outflows flows movements 2019
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Institutional Asset
Management 70.5 10.7 (10.8) (0.1) 6.4 76.8
Retail Asset Management(i) 76.4 21.2 (28.6) (7.4) 5.9 74.9
Retail Savings 50.6 11.0 (4.8) 6.2 6.7 63.5
of which: PruFund 43.0 10.2 (3.8) 6.4 4.4 53.8
Other 0.2 - - - 0.5 0.7
Total Savings and Asset
Management 197.7 42.9 (44.2) (1.3) 19.5 215.9
Shareholder annuities 24.9 0.2 (2.3) (2.1) 12.7 35.5
Traditional with-profits 84.6 0.6 (5.7) (5.1) 5.3 84.8
Other 14.0 (0.2) (0.2) (0.4) 0.1 13.7
Total Heritage 123.5 0.6 (8.2) (7.6) 18.1 134
========= ============ ============
Corporate assets - - - - 1.6 1.6
Group total 321.2 43.5 (52.4) (8.9) 39.2 351.5
(ii) AUMA by asset class
For the six months ended 30 June 2020
On balance sheet AUMA External AUMA Total
Shareholder-backed Total
annuities on
and other balance Total
long-term Corporate sheet external Total
With-profits Unit-linked business assets AUMA Retail Institutional AUMA AUMA
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Equities 50 11 - - 61 25 3 28 89
Public fixed
income 41 3 20 - 64 35 44 79 143
of which
Government 6 1 5 - 12 16 21 37 49
of which
Corporate 35 2 15 - 52 19 23 42 94
Private fixed
income(i) 5 - 3 - 8 1 17 18 26
Real estate 9 - 2 - 11 2 12 14 25
Alternatives 8 - - - 8 - 4 4 12
Other(ii) 23 1 14 2 40 1 1 2 42
Other assets
under
administration 2
=====
Total 136 15 39 2 192 64 81 145 339
(i) Includes debt securities and loans.
(ii) Includes cash and cash equivalents, deposits with credit
institutions and reinsurance assets from Rothesay Life plc.
For the year ended 31 December 2019
On balance sheet AUMA External AUMA Total
Shareholder-backed Total
annuities on
and other balance Total
long-term Corporate sheet external Total
With-profits Unit-linked business assets AUMA Retail Institutional AUMA AUMA
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Equities 56 11 - - 67 32 2 34 101
Public fixed
income 46 3 20 1 70 38 36 74 144
of which
Government 8 1 6 1 16 18 15 33 49
of which
Corporate 38 2 14 - 54 20 21 41 95
Private fixed
income 5 - 3 - 8 1 19 20 28
Real estate 11 1 1 - 13 2 12 14 27
Alternatives 9 - (1) - 8 - 3 3 11
Other(i) 16 1 14 1 32 2 5 7 39
Other assets
under
administration 2
Total 143 16 37 2 198 75 77 152 352
========
(iii) AUMA by geography
For the
six months For the
ended 30 year ended
June 31 December
==============
2020 2019
GBPbn GBPbn
UK 281 288
Europe 44 49
Asia-Pacific 8 8
Middle East and Africa 5 6
Americas 1 1
Total AUMA 339 352
AUMA by geography is based on the country of the underlying
customer or client.
Solvency II capital position
Solvency II overview
The Group is supervised as an insurance group by the Prudential
Regulation Authority. Individual insurance undertakings within the
Group are also subject to the supervision of the Prudential
Regulation Authority (or other EU competent authorities) on a solo
basis under the Solvency II regime.
The Solvency II surplus represents the aggregated capital (own
funds) held by the Group less the Solvency Capital Requirement
("SCR"). Own funds is the Solvency II measure of capital available
to meet losses, and is based on the assets less liabilities of the
Group, subject to certain restrictions and adjustments. The SCR is
calculated using the Group's internal model, which calculates the
SCR as the 99.5th percentile (or 1-in-200) worst outcome over the
coming year, out of 100,000 equally likely scenarios, allowing for
the dependency between the risks the business is exposed to.
Estimated and unaudited reconciliation of IFRS shareholders'
equity to Group Solvency II own funds
As at As at
30 June 31 December
2020 2019
GBPbn GBPbn
IFRS shareholders' equity 5.5 5.1
Add back unallocated surplus of the With-Profits Fund 14.9 16.1
Deduct goodwill and intangible assets (1.3) (1.3)
Net impact of valuing policyholder liabilities and reinsurance
assets on Solvency II basis 0.4 0.3
Impact of introducing Solvency II risk margin (net of transitional
measures) (1.7) (1.5)
Fair value assets and liabilities not held at fair value under
IFRS (0.4) (0.1)
Other 0.1 0.1
======= ==========
Solvency II excess of assets over liabilities 17.5 18.7
======= ==========
Subordinated debt capital 4.1 3.8
Ring-fenced fund restrictions (6.9) (7.6)
Solvency II eligible own funds 14.7 14.9
======= ==========
The key items in the reconciliation are explained below:
- Unallocated surplus of the With-Profits Fund: this amount is
treated as a liability under IFRS, but considered surplus assets
under Solvency II.
- Goodwill and intangible assets: these assets are not
recognised under Solvency II as they are not readily available to
meet emerging losses.
- Policyholder liability and reinsurance asset valuation
differences: there are significant differences in the valuation of
technical provisions between IFRS and Solvency II. The most
material differences relate to the exclusion of prudent margins in
longevity assumptions under Solvency II, and also the use of
different discount rates, both in relation to the valuation of
annuity liabilities.
- Solvency II risk margin (net of transitional measures): the
risk margin is a significant component of technical provisions
required to be held under Solvency II. These additional
requirements are partially mitigated by transitional measures which
allow the impact to be gradually introduced over a period of 16
years from the introduction of Solvency II on 1 January 2016.
- Subordinated debt capital: subordinated debt is treated as a
liability in the IFRS financial statements and in determining the
excess of assets over liabilities in the Solvency II balance sheet.
However, for Solvency II own funds, the debt can be treated as
capital.
- Ring-fenced fund restrictions : any excess of the own funds
over the solvency capital requirements from the With-Profits Fund
is restricted as these amounts are not available to meet losses
elsewhere in the Group.
Composition of own funds
The Group's total estimated and unaudited own funds are analysed
by Tier as follows:
As at As at
30 June 31 December
2020 2019
GBPbn GBPbn
==============
Tier 1 (unrestricted) 10.5 11.1
Tier 1 (restricted) - -
Tier 2 4.1 3.8
Tier 3 0.1 -
Total own funds 14.7 14.9
============
The Group's Tier 2 capital consists of subordinated debt
instruments. The terms of these instruments allow them to be
treated as capital for the purposes of Solvency II. The instruments
were originally issued by Prudential plc, and subsequently
substituted to the parent company, as permitted under the terms and
conditions of each applicable instrument, prior to demerger. The
details of the Group's subordinated liabilities are shown in Note
12. The Solvency II value of the debt differs to the IFRS carrying
value due to a different basis of measurement on the respective
balance sheets.
The Group's Tier 3 capital of GBP0.1bn (31 December 2019:
GBPnil) relates to deferred tax asset balances.
Estimated and unaudited shareholder view of the Solvency II
capital position
The Group focuses on a shareholder view of the Solvency II
capital position, which is considered to provide a more relevant
reflection of the capital strength of the Group.
The estimated and unaudited shareholder Solvency II capital
position for the Group as at 30 June 2020 and 31 December 2019 is
shown below:
As at As at
30 June 31 December
2020 2019
GBPbn GBPbn
Shareholder Solvency II own funds 9.9 10.3
Shareholder Solvency II SCR (6.0) (5.8)
Solvency II surplus 3.9 4.5
Shareholder Solvency II coverage ratio(i) 164% 176%
(i) Shareholder Solvency II coverage ratio has been calculated
using unrounded figures.
The Group's shareholder Solvency II capital position excludes
the contribution to own funds and SCR from the ring-fenced
With-Profits Fund. Further information on the ring-fenced
With-Profits Fund's capital position is provided in the 'Estimated
and unaudited With-Profits Fund view of the Solvency II capital
position' section.
In accordance with the Solvency II requirements, these results
include:
- A Solvency Capital Requirement which has been calculated using
the Group's internal model. The Group received approval from the
Prudential Regulation Authority prior to demerger to amend the
existing internal model to apply at the level of the Group, rather
than at the level of Prudential plc group.
- Transitional measures, which are presented after an assumed
recalculation using management's estimate of the impact of
operating and market conditions at the valuation date, which as at
30 June 2020 differed from the approved regulatory position.
- A matching adjustment for non-profit annuities, based on
approval from the Prudential Regulation Authority and calibrations
published by the European Insurance and Occupational Pensions
Authority.
- M&G Group Limited and other undertakings carrying out
financial activities consolidated under local sectoral or notional
sectoral capital requirements.
Breakdown of the shareholder Solvency II SCR by risk type
As at As at
30 June 31 December
2020 2019
GBPbn GBPbn
======== ==============
Equity 1.4 1.4
Property 0.9 0.9
Interest rate 0.3 0.4
Credit 4.0 3.8
Currency 1.0 0.8
Longevity 1.9 1.6
Lapse 0.1 0.2
Operational and expense 1.5 1.5
Sectoral(i) 0.5 0.5
Total undiversified 11.6 11.1
======= ==========
Diversification, deferred tax, and other (5.6) (5.3)
==========
Shareholder SCR 6.0 5.8
==========
(i) Includes entities included within the Group's Solvency II
capital position on a sectoral or notional sectoral basis, the most
material of which is M&G Group Limited.
Sensitivity analysis of the shareholder Solvency II coverage
ratio
The estimated sensitivity of the Group's shareholder Solvency II
coverage ratio to significant changes in market conditions are
shown below. All sensitivities are presented after an assumed
recalculation of transitional measures on technical provisions.
As at As at
30 June 31 December
2020 2019
Base shareholder Solvency II coverage ratio 164% 176%
20% instantaneous fall in equity markets 158% 170%
20% instantaneous fall in property markets 158% 171%
50 bp reduction in interest rates 158% 170%
100 bp widening in credit spreads 159% 172%
20% credit asset downgrade(i) 159% 170%
(i) Average impact of one full letter downgrade across 20% of
assets exposed to credit risk.
Estimated and unaudited With-Profits Fund view of the Solvency
II capital position
The With-Profits Fund view of the Solvency II capital position
represents the standalone capital strength of the Group's
ring-fenced With-Profits Fund. This view of Solvency II capital
takes into account the assets, liabilities, and risk exposures
within the ring-fenced With-Profits Fund, which includes the WPSF,
SAIF and DCPSF.
The estimated and unaudited Solvency II capital position for the
Group under the With-Profits Fund view as at 30 June 2020 and 31
December 2019 is shown below:
As at As at
30 June 31 December
2020 2019
GBPbn GBPbn
With-Profits Fund Solvency II own funds 11.8 12.2
With-Profits Fund Solvency II SCR (4.9) (4.6)
With-Profits Fund Solvency II surplus 6.9 7.6
With-Profits Fund Solvency II coverage ratio(i) 241% 267%
(i)
With-Profits Fund Solvency II coverage ratio has been calculated
using unrounded figures.
Estimated and unaudited regulatory view of the Solvency II
capital position
The estimated and unaudited Solvency II capital position for the
Group under the 'regulatory' view as at 30 June 2020 and 31
December 2019 is shown below:
As at As at
30 June 31 December
2020 2019
GBPbn GBPbn
Solvency II own funds 14.7 14.9
Solvency II SCR (10.8) (10.4)
Solvency II surplus 3.9 4.5
Solvency II coverage ratio(i) 136% 143%
(i) Solvency II coverage ratio has been calculated using
unrounded figures.
Capital generation (estimated and unaudited)
The level of surplus capital is an important financial
consideration for the Group. Capital generation measures the change
in surplus capital during the reporting period, and is therefore
considered a key measure for the Group. It is integral to the
running and monitoring of the business, capital allocation and
investment decisions, and ultimately the Group's dividend
policy.
The overall change in Solvency II surplus capital over the
period is analysed as follows:
Total capital generation is the total change in Solvency II
surplus capital before dividends and capital movements and capital
generated from discontinued operations.
Operating capital generation is the total capital generation
before tax, adjusted to exclude market movements relative to those
expected under long-term assumptions and to remove other
non-recurring items, including shareholder restructuring and other
costs as defined under adjusted operating profit before tax. It has
two components:
a. Underlying capital generation, which includes: the underlying
expected surplus capital from the in-force life insurance business;
the change in surplus capital as a result of writing new life
insurance business; the adjusted operating profit before tax and
associated capital movements from Asset Management; and other items
including head office expenses and debt interest costs.
b. Other operating capital generation, which includes non-market
related experience variances, assumption changes, modelling changes
and other movements.
The expected surplus capital from the in-force life insurance
business is calculated on the assumption of real-world investment
returns, which are determined by reference to the risk-free rate
plus a risk premium based on the mix of assets held for the
relevant business. For with-profits business, the assumed average
return was 4.30% for the six months ended 30 June 2020, 4.28% for
the six months ended 30 June 2019 and the year ended 31 December
2019. For annuity business, the assumed average return on assets
backing capital was 2.09% for the six months ended 30 June 2020,
2.44% for the six months ended 30 June 2019 and the year ended 31
December 2019.
The Group's capital generation results in respect of the six
months ended 30 June 2020 and 30 June 2019, and year ended 31
December 2019 are shown below, alongside a reconciliation of the
total movement in the Group's Solvency II surplus. The
reconciliation is presented showing the impact on the shareholder
Solvency II own funds and SCR, which excludes the contribution to
own funds and SCR from the Group's ring-fenced With-Profits Fund.
The shareholder Solvency II capital position, and how this
reconciles to the regulatory capital position, is described in
detail in the previous section of this supplementary
information.
The capital generation results and comparatives have adopted a
basis of preparation consistent with the condensed consolidated
financial statements. In particular:
- The capital generated from the Prudential Vietnam Finance
Company Limited and the capital impact arising on disposal of this
entity during 2019, have been reflected within capital generated
from discontinued operations.
- Merger accounting principles have been applied meaning that
Prudential Capital Holdings Limited ("PruCap") and its
subsidiaries, and 10FA India Private Limited (formerly known as
Prudential Global Services Private Limited) have been included
within the Group's capital generation results from 1 January 2019.
The movements in capital attributable to the discontinued corporate
treasury activity of PruCap has been included within capital
generated from discontinued operations.
For the six
months ended For the six months For the year
30 June ended 30 June ended 31 December
2020 2019 2019
Reconciliation of movement in Own Own Own
Group Solvency II surplus funds(i) SCR(i) Surplus funds(i) SCR(i) Surplus funds(i) SCR(i) Surplus
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Underlying capital generation
Savings
and Asset Asset
Management Management 163 (8) 155 216 - 216 381 (2) 379
With-profits 87 (69) 18 70 (66) 4 130 (130) -
of which: In-force 76 (37) 39 55 (18) 37 96 (35) 61
of which: New business 11 (32) (21) 15 (48) (33) 34 (95) (61)
Other 16 (3) 13 24 (1) 23 37 (2) 35
Savings and Asset Management
underlying capital
generation 266 (80) 186 310 (67) 243 548 (134) 414
Heritage With-profits 49 (9) 40 40 (22) 18 71 - 71
Shareholder annuity and
other 95 74 169 131 73 204 255 133 388
Heritage underlying capital
generation 144 65 209 171 51 222 326 133 459
Interest and
head office
Corporate cost (134) 2 (132) (23) - (23) (95) 4 (91)
=====
Underlying capital generation 276 (13) 263 458 (16) 442 779 3 782
===
Other operating capital
generation
Savings and Asset
Management(ii) (9) 27 18 (43) (28) (71) 29 16 45
Heritage 152 110 262 166 266 432 222 295 517
Corporate Centre(ii) 2 (6) (4) 8 (47) (39) 28 (96) (68)
Operating capital generation 421 118 539 589 175 764 1,058 218 1,276
=== =====
Market movements (326) (288) (614) 688 (327) 361 983 (445) 538
Restructuring and other (20) - (20) (102) 35 (67) (168) 35 (133)
Tax (141) 34 (107) (202) 74 (128) (139) (33) (172)
Total capital generation (66) (136) (202) 973 (43) 930 1,734 (225) 1,509
=====
Capital generation from
discontinued
operations - - - (26) 30 4 70 88 158
Total capital generation
including
discontinued operations (66) (136) (202) 947 (13) 934 1,804 (137) 1,667
Dividends and capital
movements (410) - (410) (1,113) - (1,113) (1,213) 2 (1,211)
Total (decrease)/increase in
Solvency
II surplus (476) (136) (612) (166) (13) (179) 591 (135) 456
=====
(i) Own funds and SCR movements shown as per the shareholder
Solvency II capital position, and do not include the own funds and
SCR in respect of the ring-fenced With-Profits Fund.
(ii) Other operating capital generation for Savings and Asset
Management and the Corporate Centre include the impact of operating
investment variances, which were previously presented within
underlying capital generation. This change reflects that these
items will fluctuate with market conditions. The results for the
six months ended June 2019 and the year ended 31 December 2019 have
been restated in light of this change, which has no impact on
operating capital generation or total capital generation.
Financial ratios (unaudited)
Included in this section are details of how some of the
financial ratios used to help analyse the performance of the Asset
Management business are calculated.
(i) Cost/income ratio
Cost/income ratio is a measure of cost efficiency which analyses
costs as a percentage of revenue.
For the six For the
months ended year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
========= ==============
Total Asset Management operating expenses 306 298 652
Adjustment for revaluations(i) 1 (3) (7)
Total Asset Management adjusted costs 307 295 645
Total Asset Management fee based revenue 469 514 1,033
Less: Performance fees (3) (3) (20)
Total Asset Management underlying fee based revenue 466 511 1013
Cost/income ratio (%) 66% 58% 64%
(i) Reflects the revaluation of provisions relating to
performance based awards that are linked to underlying fund
performance. M&G Group hold units in the underlying funds to
hedge the exposure on these awards.
(ii) Average revenue margin
This represents the average fee revenue yield on fee business
and demonstrates the margin being earned on the assets we manage or
administer.
For the year ended
For the six months ended 30 June 31 December
2020 2019 2019
Average Revenue Average Revenue Average Revenue
AUMA(i) Revenue(ii) margin AUMA(i) Revenue(ii) margin AUMA(i) Revenue(ii) margin
bn GBPm bps bn GBPm bps bn GBPm bps
Retail Asset
Management 92 230 50 104 299 58 102 584 57
Institutional
Asset
Management 169 236 28 160 212 26 165 429 26
Total Asset
Management 261 466 36 264 511 39 267 1,013 38
======= =========== ======= ===========
(i) Average AUMA represents the average total market value of
all financial assets managed and administered on behalf of
customers during the financial period. Average AUMA is calculated
using a 13-point average of monthly closing AUMA for full-year
periods and seven-point average of monthly closing AUMA for
half-year periods.
(ii) Revenue margin is calculated by annualising underlying fee
based revenues earned, which excludes performance fees, in the
period divided by average AUMA for the period.
Credit risk
The Group's exposure to credit risk primarily arises from the
annuity portfolio, which holds large amounts of investments on
which a certain level of defaults and downgrades are expected.
While the with-profits and unit-linked funds have large holdings
of assets subject to credit risk, the shareholder results of the
Group are not directly exposed to credit defaults on assets held in
these components. The direct exposure of the Group's shareholders'
equity to credit default risk in the 'Other' component is small in
the context of the Group. However, the shareholder is indirectly
exposed to credit risk on these components through lower
shareholder transfers in respect of the with-profits business and
lower charges levied in respect of the 'unit-linked' and 'other'
components of the business.
Debt securities
Debt securities held in respect of annuities and other long term
business are analysed below by asset class:
As at As at
30 June 31 December
2020 2019
GBPm GBPm
Government bonds 5,442 5,678
Corporate bonds 14,369 13,909
Asset backed securities 798 791
Total debt securities 20,609 20,378
======== ============
Debt securities held in respect of annuities and other long term
business are analysed below according to external credit ratings
([3]) issued, with equivalent ratings issued by different ratings
agencies grouped together. Standard & Poor's ratings have been
used where available. For securities where Standard & Poor's
ratings are not immediately available those produced by Moody's and
then Fitch have been used as an alternative. Debt securities are
internally rated where no external credit rating is available.
As at As at
30 June 31 December
2020 2019
GBPm GBPm
AAA 2,335 2,548
AA+ to AA- 7,593 7,357
A+ to A- 6,645 7,352
BBB+ to BBB- 3,395 2,647
Below BBB- 641 474
Total 20,609 20,378
======== ============
In the table above, AAA is the highest possible rating.
Investment grade financial assets are classified within the range
of AAA to BBB ratings. Financial assets which fall outside this
range are classified as below BBB.
Asset-backed securities
The annuities and other long term business segment has holdings
in asset-backed securities ("ABS") which are presented within debt
securities on the condensed consolidated statement of financial
position. These holdings in ABS comprise residential
mortgage-backed securities ("RMBS"), commercial mortgage-backed
securities ("CMBS"), collateralised debt obligations ("CDO") funds
and other asset-backed securities. At 30 June 2020 the annuities
and other longer term business segment holding in asset-backed
securities was GBP798m (31 December 2019: GBP791m). The majority of
these asset backed securities are UK securities.
Exposure to sovereign debt
The exposure of annuity and other long term business to
sovereign debt is analysed as follows:
As at As at
30 June 31 December
2020 2019
GBPm GBPm
======== ==============
Spain 53 47
France 22 21
Germany - 188
Total Eurozone 75 256
======== ============
United Kingdom 2,030 3,003
Other 167 157
Total 2,272 3,416
======== ============
(i) This table does not include non-central sovereign debt
(Quasi sovereign, Supranational and other public sector debt),
therefore does not agree to Government debt balance within the debt
securities by industry disclosures that follow.
Exposure to debt securities issued by banks
The exposure of annuities and other long term business to debt
securities issued by banks is shown below by type of debt and also
by economy. Subordinated debt is a fixed interest debt that ranks
below other debt in order of priority for repayment if the issuer
is liquidated.
Holders are compensated for the added risk through higher rates
of interest. The senior debt ranks above subordinated debt in the
event of liquidation, whereas covered senior debt is also backed by
other assets in the event of insolvency. These debt tier
classifications are consistent with the treatment of capital for
regulatory purposes.
Senior debt Subordinated debt
Total
Total senior subordinated
Covered Senior debt Tier 2 debt Total
As at 30 June 2020 GBPm GBPm GBPm GBPm GBPm GBPm
=======
France 12 33 45 - - 45
Germany 3 - 3 93 93 96
Netherlands - 44 44 - - 44
Other Eurozone - 23 23 - - 23
Total Eurozone 15 100 115 93 93 208
=====
United Kingdom 397 123 520 104 104 624
United States - 250 250 29 29 279
Other - 22 22 - - 22
Total 412 495 907 226 226 1,133
=====
Senior debt Subordinated debt
Covered Senior Total senior Tier 2 Total Total
debt subordinated
debt
As at 31 December 2019 GBPm GBPm GBPm GBPm GBPm GBPm
=======
France 16 16 32 - - 32
Germany 3 - 3 83 83 86
Netherlands - 23 23 - - 23
Total Eurozone 19 39 58 83 83 141
United Kingdom 420 229 649 69 69 718
United States - 230 230 30 30 260
Other - 10 10 36 36 46
Total 439 508 947 218 218 1,165
Exposure of debt securities by sector
The exposure of annuities and other long term business to debt
securities is analysed below by sector:
As at As at
30 June 31 December
2020 2019
GBPm GBPm
======== ==============
Financial 6,291 5,905
Government 5,442 5,678
Real Estate 2,928 2,673
Utilities 2,843 2,886
Consumer 1,078 1,045
Industrial 788 820
Communications 423 428
Other 816 943
Total 20,609 20,378
======== ============
Glossary
Term Definition Term Definition
Adjusted operating Adjusted operating profit Company M&G plc, a public limited
profit before before tax is the Group's company incorporated
tax key alternative performance in England and Wales
measure. It is defined with registered number
in the alternative performance 11444019 whose registered
measure section on page office is 10 Fenchurch
47. Avenue, London EC3M 5AG,
United Kingdom;
Alternative An alternative performance Cost/income The cost-income ratio
performance measure (APM) is a financial ratio represents Asset management
measure (APM) measure of historical operating expenses excluding
or future financial revaluations and restructuring
performance, financial costs, divided by Asset
position or cash flows, management fee based
other than a financial revenue excluding performance
measure defined under fees.
IFRS or under Solvency
II regulations. The
Group's APMs are adjusted
operating profit before
tax and the shareholder
Solvency II coverage
ratio.
Annuity policy Annuities are contracts Demerger The demerger of the Group
which offer policyholders from the Prudential Group
a regular income over in October 2019.
the policyholder's life,
in exchange for an upfront
premium.
Asset backed Asset Backed Securities Director A Director of the Company.
securities (ABS) (ABS) are collateralised
securities whose value
and income payments
are derived from a specified
pool of underlying assets.
Assets under Assets under management Defined benefit A pension scheme where
management and and administration is pension scheme an employer/sponsor promises
administration the total market value a specified benefit on
(AUMA) of all financial assets retirement that is predetermined
managed and/or administered by the scheme rules based
on behalf of customers. on the employees earnings
history, length of service
and age, instead of depending
directly on investment
returns.
Average fee The average fee margin Defined contribution A pension scheme where
margin is calculated by annualising pension scheme the benefits at retirement
underlying fee based are determined by contributions
revenues earned in the paid into the fund by
period divided by average the member and the employer.
AuMA for the period, The amount in each fund
and demonstrates the at retirement depends
revenue margin that upon the investment returns
was earned on the assets achieved and member and
we manage. employer contributions.
Board The Board of directors Earnings per Earnings per share (EPS)
of the Company. share (EPS) is a commonly used financial
metric which can be used
to measure the profitability
and strength of a company
over time. EPS is calculated
by dividing profit by
the number of ordinary
shares. Basic EPS uses
the weighted average
number of ordinary shares
outstanding during the
year. Diluted EPS adjusts
the weighted average
number of ordinary shares
outstanding to assume
conversion of all dilutive
potential ordinary shares,
such as share options
awarded to employees.
Brexit The vote by the people Employee benefit An employee benefit trust
of the United Kingdom trust (EBT) (EBT) is a trust set
to leave the European up to enable its Trustee
Union in the referendum to purchase and hold
held on 23 June 2016. shares to satisfy employee
share-based incentive
plan awards.
Chief Operating The Group Executive Fair value through Fair value through profit
Decision Maker Committee. profit or loss or loss (FVTPL) is an
(FVTPL) IFRS measurement basis
permitted for assets
and liabilities which
meet certain criteria.
Gains or losses on assets
or liabilities measured
at FVTPL are recognised
directly in the condensed
consolidated income statement.
Term Definition Term Definition
FCA Financial Conduct Authority M&G plc M&G plc is a company
- the body responsible incorporated and with
for supervising the its principal place of
conduct of all financial business in England.
services firms and for M&G plc and its affiliated
the prudential regulation companies constitute
of those financial services a savings and investments
firms not supervised business. M&G plc is
by the Prudential Regulation the direct parent company
Authority (PRA), such of The Prudential Assurance
as asset managers and Company Limited and M&G
independent financial Group Limited. Throughout
advisers. this document, unless
otherwise stated, the
term "M&G plc" should
be taken as a reference
to the Group of companies
that includes M&G plc,
and its affiliated companies.
Group The Company and its Net client flows Net client flows represent
affiliated companies. gross inflows less gross
outflows. Gross inflows
are new funds from clients
and customers. Gross
outflows are money withdrawn
by clients and customers
during the period.
Group Executive The Group Executive Merger & transformation In August 2017, Prudential
Committee Committee is composed Programme plc announced the merger
of board officers and of its UK and Europe
senior-level executive business with the asset
management. It is the manager M&G to form the
Group's most senior Group (the Merger). In
executive decision-making conjunction with the
forum. Merger, and as part of
the execution of its
business strategy, the
Group's business is implementing
a transformation programme,
with a number of initiatives
and programmes, which
is expected to be completed
in 2022.
International International Financial Operating capital Operating capital generation
Financial Reporting Reporting Standards generation is the total capital
Standards (IFRS) are accounting standards generation before tax,
issued by the International adjusted to exclude market
Accounting Standards movements relative to
Board (IASB). The Group's those expected under
consolidated financial long-term assumptions
statements are prepared and to remove other non-operating
in accordance with IFRS items, including shareholder
as endorsed by the European restructuring costs.
Union.
Key performance The Group measures its Own funds Own funds is the Solvency
measure (KPM) financial performance II measure of capital
using a number of key available to meet losses,
performance measures. and is based on the assets
These include: adjusted less liabilities of the
operating profit before Group, subject to certain
tax, net client flows, restrictions and adjustments.
AUMA, shareholder Solvency
II coverage ratio, total
capital generation and
operating capital generation.
Leverage ratio The leverage ratio is PRA Prudential Regulation
calculated as the nominal Authority - the body
value of debt as a percentage responsible for the prudential
of total shareholder regulation and supervision
solvency II Own Funds. of banks, building societies,
credit unions, insurers
and major investment
firms.
Long term incentive The part of an executive's Prudential Group Prudential plc and its
plan (LTIP) remuneration designed subsidiaries and subsidiary
to incentivise long-term undertakings.
value for shareholders
through an award of
shares with vesting
contingent on employment
and the satisfaction
of stretching performance
conditions linked to
the Group's strategy.
M&G Group Limited (MGG) is a private limited Prudential plc Prudential plc, a public
company incorporated limited company incorporated
in England and Wales in England and Wales
with registered number with registered number
00633480 whose registered 1397169 whose registered
office is 10 Fenchurch office is 1 Angel Court,
Avenue, London EC3M London EC2R 7AG, United
5AG, United Kingdom. Kingdom.
Term Definition Term Definition
PruFund Our PruFund proposition The Prudential The Prudential Assurance
provides our retail Assurance Company Company Limited, a private
customers with access (PAC) limited company incorporated
to smoothed savings in England and Wales
contracts with a wide with registered number
choice of investment 00015454 whose registered
profiles. office is 10 Fenchurch
Avenue, London EC3M 5AG,
United Kingdom;
Restructuring Restructuring costs Thematic review This review, conducted
costs primarily reflect costs of annuity sales by the Financial Conduct
associated with the practices Authority, assessed how
Merger and Transformation firms provided information
Programme and costs to customers, on a non-advised
associated with the basis, about shopping
Demerger. These costs around for enhanced annuities.
represent fundamental
one-off group-wide restructuring
and transformation.
Scottish Amicable SAIF is a ring-fenced Total capital Total capital generation
Insurance Fund sub-fund of the Prudential generation is the total change in
(SAIF) Assurance Company's Solvency II surplus capital
long-term fund following before dividends and
the acquisition of the capital movements.
mutually owned Scottish
Amicable Life Assurance
Society in 1997. The
fund is solely for the
benefit of policyholders
of SAIF. Shareholders
of M&G plc have no entitlement
to the profits of this
fund although they are
entitled to asset management
fees on this business.
Rothesay Life Rothesay Life plc. Total shareholder TSR represents the growth
return (TSR) in the value of a share
plus the value of dividends
paid, assuming that the
dividends are reinvested
in the Company's shares
on the ex-dividend date.
Shareholder Shareholder Solvency Transitional An adjustment to Solvency
Solvency II II coverage ratio is measures on II technical provisions,
coverage ratio the ratio of own funds technical provisions to smooth the impact
to SCR, excluding the (TMTP) of the change in the
contribution to own regulatory regime on
funds and SCR from the 1 January 2016. This
Group's ring-fenced decreases linearly over
with-profits fund. 16 years following the
implementation of Solvency
II, but may be recalculated
in certain cases, subject
to agreement with the
PRA.
Solvency II The regime for the prudential Unallocated Unallocated surplus of
regulation of European surplus of the the with-profits fund
insurance companies with-profits represents the excess
that came into force fund of assets over policyholder
on 1 January 2016. liabilities that have
yet to be appropriated
between policyholders
and shareholders.
Solvency Capital Solvency Capital Requirement Unit-linked A policy where the benefits
Requirement represents the 99.5th policy are determined by the
(SCR) percentile (or 1-in-200) investment performance
worst outcome over the of the underlying assets
coming year, out of in the unit -- linked
100,000 equally likely fund.
scenarios, allowing
for the dependency between
the risks the business
is exposed to. The Solvency
Capital Requirement
is calculated using
the Group's Solvency
II internal model.
Solvency II Solvency II surplus With-profits A fund where policyholders
surplus represents the own funds fund are entitled to a share
held by the Group less of the profits of the
the Solvency Capital fund. Normally, policyholders
Requirement. receive their share of
the profits through bonuses.
Also known as a participating
fund as policyholders
have a participating
interest in the with-profits
fund and any declared
bonuses. Generally, policyholder
and shareholder participation
in the with-profits fund
in the UK is split in
a 90:10 ratio.
(1) The shareholder view of the Solvency II position assumes
transitional measures on technical provisions which have been
recalculated using management's estimate of the impact of operating
and market conditions at the valuation date.
(2) Calculated as GBP3,255m nominal value of debt divided by
GBP9.9 billion Group shareholder Solvency II own funds for the six
months ended 30 June 2020 (GBP3,227 million nominal value of debt
divided by GBP10.3 billion Group shareholder Solvency II own funds
for the year ended 31 December).
(3) The credit ratings, information or data contained in this
report which are attributed and specifically provided by Standard
& Poor's, Moody's and Fitch Solutions and their respective
affiliates and suppliers ("Content Providers") is referred to here
as the "Content". Reproduction of any content in any form is
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and are not responsible for any errors or omissions (negligent or
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from the use of such Content. The Content Providers expressly
disclaim liability for any damages, costs, expenses, legal fees, or
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in connection with any use of the Content. A reference to a
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concerning an investment that is part of the Content is not a
recommendation to buy, sell or hold any such investment or
security, nor does it address the suitability of an investment or
security and should not be relied on as investment advice.
This information is provided by RNS, the news service of the
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END
IR FZGMRLMZGGZM
(END) Dow Jones Newswires
August 12, 2020 02:00 ET (06:00 GMT)
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