~~categorised~~The following value movements for Jackson's variable and fixed index annuity business are excluded from adjusted operating profit. See note B1.2:

Guaranteed benefit options for the 'not for life' portion of GMWB and equity index options for the fixed index annuity business

The 'not for life' portion of GMWB guaranteed benefit option liabilities is measured under the US GAAP basis applied for IFRS in a manner consistent with IAS 39 under which the projected future growth rate of the account balance is based on the greater of US Treasury rates and current swap rates (rather than expected rates of return) with only a portion of the expected future guarantee fees included. The discount rates applied in determining the value of these liabilities is actively updated each year based on market observed rates and after allowing for Jackson's own credit risk. Reserve value movements on these liabilities are sensitive to changes to levels of equity markets, implied volatility and interest rates. The equity index option for fixed index annuity business is measured under the US GAAP basis applied for IFRS in a manner consistent with IAS 39 under which the projected future growth is based on current swap rates.

Guaranteed benefit option for variable annuity guarantee minimum income benefit

The GMIB liability, which is substantially reinsured, subject to a deductible and annual claim limits, is accounted for using 'grandfathered' US GAAP. This accounting basis substantially does not recognise the effects of market movements. The corresponding reinsurance asset is measured under the 'grandfathered' US GAAP basis applied for IFRS in a manner consistent with IAS 39 'Financial Instruments: Recognition and Measurement', and the asset is therefore recognised at fair value. As the GMIB is economically reinsured, the mark-to-market element of the reinsurance asset is included as a component of short-term fluctuations in investment returns.

Under IFRS, the degree to which the carrying values of liabilities to policyholders are sensitive to current market conditions varies between business units depending upon the nature of the 'grandfathered' measurement basis.

Movements in liabilities for some types of business do require bifurcation between the elements that relate to longer-term market condition and short-term effects to ensure that at the net level (ie after allocated investment return and charge for policyholder benefits) the adjusted operating profit reflects longer-term market returns.

For certain Asia non-participating business, for example in Hong Kong, the economic features are more akin to asset management products with policyholder liabilities reflecting asset shares over the contract term. Consequently, for these products, the charge for policyholder benefits in the adjusted operating profit reflects the asset share feature rather than volatile movements that would otherwise be reflected if the local regulatory basis (as applied for the IFRS balance sheet) was used.

For other types of Asia non-participating business, expected longer-term investment returns and interest rates are used to determine the movement in policyholder liabilities for determining adjusted operating profit. This ensures assets and liabilities are reflected on a consistent basis.

(e) Assets backing other shareholder-financed long-term insurance business

Except in the case of assets backing liabilities which are directly matched (such as unit-linked business) adjusted operating profit for assets backing shareholder-financed business is determined on the basis of expected longer-term investment returns. Longer-term investment returns comprise actual income receivable for the year (interest/dividend income) and for both debt and equity-type securities longer-term capital returns.

As a general principle, for debt securities and loans, the longer-term capital returns comprise two elements:

At 31 December 2020, the level of unamortised interest-related realised gains and losses related to previously sold bonds for the Group's insurance operations in Asia and the US was a net gain of $1,725 million (31 December 2019: net gain of $916 million).

For Asia insurance operations, realised gains and losses are principally interest related. Accordingly, all realised gains and losses to date for these operations are amortised over the period to the date those securities would otherwise have matured, with no explicit risk margin reserve charge.

For US insurance operations, Jackson has used the ratings by Nationally Recognised Statistical Ratings Organisations (NRSRO) or ratings resulting from the regulatory ratings detail issued by the National Association of Insurance Commissioners (NAIC) to determine the average annual risk margin reserve to apply to debt securities held to back general account business. Debt securities held to back separate account and reinsurance funds withheld are not subject to risk margin reserve charge. Further details of the risk margin reserve charge, as well as the amortisation of interest-related realised gains and losses, for Jackson are shown in note B1.2.

For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returns for income and capital having regard to past performance, current trends and future expectations. Different rates apply to different categories of equity-type securities.

For Asia insurance operations, investments in equity securities held for non-linked shareholder-backed business amounted to $4,954 million as at 31 December 2020 (31 December 2019: $3,473 million). The longer-term rates of return applied in 2020 ranged from 5.1 per cent to 16.9 per cent (31 December 2019: 5.0 per cent to 17.6 per cent) with the rates applied varying by business unit. These rates are broadly stable from year to year but may be different between regions, reflecting, for example, differing expectations of inflation in each local business unit. The assumptions are for the returns expected to apply in equilibrium conditions. The assumed rates of return do not reflect any cyclical variability in economic performance and are not set by reference to prevailing asset valuations. The longer-term investment returns for the Asia insurance joint ventures and associates accounted for using the equity method are determined on a similar basis as the other Asia insurance operations described above.

For US insurance operations, as at 31 December 2020, the equity-type securities for non-separate account operations amounted to $2,128 million (31 December 2019: $1,481 million). For these operations, the longer-term rates of return for income and capital applied in 2020 and 2019, which reflect the combination of the average risk-free rates over the year and appropriate risk premiums are as follows:

Generally, derivative value movements are excluded from adjusted operating profit. The exception is where the derivative value movements broadly offset changes in the accounting value of other assets and liabilities included in adjusted operating profit. The principal example of derivatives whose value movements are excluded from adjusted operating profit arises in Jackson.

Equity-based derivatives held by Jackson are as discussed in section (c) above. Non-equity based derivatives held by Jackson are part of a broad-based hedging programme for features of Jackson's bond portfolio (for which value movements are booked in the statement of other comprehensive income rather than the income statement), product liabilities (for which US GAAP accounting as 'grandfathered' under IFRS 4 does not fully reflect the economic features being hedged), and the interest rate exposure attaching to equity-based product options.

For these businesses, the determination of adjusted operating profit reflects the underlying economic substance of the arrangements. Generally, realised gains and losses are included in adjusted operating profit with temporary unrealised gains and losses being included in short-term fluctuations. In some instances, realised gains and losses on derivatives and other financial instruments are amortised to adjusted operating profit over a time period that reflects the underlying economic substance of the arrangements.

The following tables analyse Prudential's adjusted operating profit by business segment and Prudential's total profit for the year.

Explanation of Movements in Profit after Tax and Profit before Shareholder Tax by Segment

Profit after tax for the year was $2,185 million in 2020 compared with a profit of $792 million in 2019. The profit after tax in 2019 included a loss of $(1,161) million from the discontinued UK and Europe operations that were demerged in 2019. Excluding the impact of discontinued operations in 2019, profit after tax for the year from continuing operations increased $232 million from a profit of $1,953 million in 2019 to a profit of $2,185 million in 2020. The increase in profit from continuing operations after tax primarily reflects the movement in profit before shareholder tax which increased from $1,922 million in 2019 to $2,148 million in 2020 and a $6 million increase in the tax credit attributable to shareholders, which increased from $31 million to $37 million.

The profit from continuing operations reflects the combined effects of operating results determined on the basis of longer-term investment returns, together with short-term investment variances which for 2020 were driven by the negative effects in the US and Asia, and gains arising on the reinsurance of fixed and fixed index annuity business in the US and other corporate transactions.

The effective tax rate on total IFRS profit in 2020 was negative (2) per cent. This was unchanged from 2019 and reflects the tax credit on US derivative losses exceeding the tax charge on profits from Asia operations.

The Group's operating segments for financial reporting are defined and presented in accordance with IFRS 8, 'Operating Segments', on the basis of the management reporting structure and its financial management information. Further details on the Group's determination of operating segments is provided in the 'Basis of Performance Measures' section of this report.

The following table shows Prudential's IFRS consolidated total profit after tax presented by business segment. The accounting policies applied to the segments below are the same as those used in the Group's consolidated financial statements.

In order to understand how Prudential's results are derived it is necessary to understand how profit emerges from its business. This varies from region to region, primarily due to differences in the nature of the products and regulatory environments in which Prudential operates.

For the Asia insurance operations, the assets and liabilities of contracts classified as insurance under IFRS 4 are determined in accordance with methods prescribed by local GAAP and adjusted to comply, where necessary, with grandfathered UK GAAP. Under IFRS 4, subject to the conditions of that standard, the continued application of grandfathered UK GAAP in this respect is permitted. In Taiwan and India, US GAAP principles are applied. For with-profits business in Hong Kong, Singapore and Malaysia, the basis of profit recognition is bonus driven as described in note A3.1 to the consolidated financial statements.

The following table shows the movement in profit arising from Asia operations and its components (insurance and asset management) for the years indicated.

The decrease of $343 million in the profit after tax from $3,725 million in 2019 to $3,382 million in 2020 primarily reflects a decrease in profit before shareholder tax of $373 million from insurance operations.

The decrease in the profit before shareholder tax of insurance operations primarily reflects an increase in adjusted operating profit of $391 million from $2,993 million in 2019 to $3,384 million in 2020, which is more than offset by an unfavourable movement in non-operating profit of $764 million from a gain of $917 million in 2019 to a gain of $153 million in 2020. The increase of $391 million in adjusted operating profit includes a negative exchange translation impact of $(15) million. Excluding the currency volatility, adjusted operating profit was up 14 per cent or $406 million on a CER basis reflecting our ongoing focus on recurring premium health and protection products and the associated continued growth of the in-force business.

The unfavourable change in non-operating profit was primarily due to a negative change of $(1,264) million in the short-term fluctuations in investment returns from a gain of $657 million in 2019 to a loss of $607 million in 2020, partially offset by an increase in the gain on corporate transactions from $265 million in 2019 to $765 million in 2020. Falling interest rates in certain parts of Asia led to lower discount rates on certain policyholder liabilities under the local reserving basis applied, which were not fully offset by unrealised bond and equity gains in the year leading to negative fluctuations overall.

The profit before shareholder tax of asset management operations of $283 million in 2020 was level compared with 2019 on an actual exchange rate basis. Excluding an negative exchange translation impact of $(5) million, profit from Asia asset management operations was up 2 per cent on a CER basis supported by a 7 per cent increase in average funds under management on a CER basis (6 per cent on an AER basis).

The effective shareholder tax rate on profits from Asia operations was 11 per cent in 2020. This is unchanged from 2019.

The following table shows the movement in profit arising from US operations and its components (insurance and asset management) for the years indicated.

The decrease of $133 million in loss after tax from $(380) million in 2019 to $(247) million in 2020 primarily reflects an increase in the shareholders tax credit from $345 million in 2019 to $467 million in 2020, together with a decrease in loss before shareholders tax from $(725) in 2019 to $(714) in 2020.

The decrease of loss before shareholder tax is principally driven by insurance operations from a loss of $(757) million in 2019 to a loss of $(723) million in 2020 partially offset by a lower profit from asset management operations.

The underlying profit from US insurance business (Jackson) predominantly arises from fee income on variable annuity business, spread income from interest sensitive products and insurance profits, net of expenses, measured on a US GAAP basis. In June 2020, Jackson reinsured substantially all of its in-force fixed and fixed indexed annuity portfolio to Athene Life Re Ltd. In addition, total profit in any period includes the incidence of realised gains and losses (including impairment) on assets classified as available-for-sale, fair value movements on derivatives and financial instruments classified as fair valued through profit and loss and value movements on the policyholder liabilities of variable annuity product guarantees.

The decrease in the loss before shareholder tax of insurance operations in 2020 is primarily due to a decrease in adjusted operating profit of $274 million from $3,070 million in 2019 to $2,796 million in 2020 and a negative movement in short-term fluctuations in investment returns of $501 million from a loss of $(3,795) million in 2019 to $(4,296) million, which were more than offset by a $804 million gain arising from the Athene reinsurance transaction in June 2020 (as discussed further in note D1.1 to the consolidated financial statements). The decrease of $274 million in adjusted operating profit largely reflects the impact of DAC adjustment effects in the current and prior year, alongside the expected reduction in spread related earnings following the reinsurance contract with Athene in June 2020. The negative movement in short-term fluctuations in investment returns principally arises from the steep rise in equity markets following the low at the end of the first quarter of 2020 that led to equity derivative losses taken out as part of Jackson's hedging programme being in excess of the corresponding reduction in guarantee liabilities and the effect of lower interest rates on the value of its guarantees.

The effective shareholder tax rate on losses from US operations was 65 per cent in 2020 compared with 48 per cent in 2019, driven by tax credits on one-off deferred tax movements in 2020 and the carry back of losses under the CARES Act.

Unallocated to a segment includes head office costs in London and Hong Kong. The Group's Africa operations do not form part of any operating segment under the structure and so are also included as unallocated. The following table shows the movement in the unallocated to a segment result for the years indicated.

Total net charges for activity unallocated to a segment have decreased by $(442) million from $(1,392) million in 2019 to $(950) million in 2020. The loss before shareholder tax decreased by $588 million from $(1,546) million in 2019 to $(958) million in 2020 mainly due to the non-recurrence of one-off costs in 2019 in relation to the M&G plc demerger and lower interest and head office costs, partially offset by increased costs associated with the Group's substantial and ongoing IFRS 17 project and other restructuring activities.

The effective shareholder tax rate on losses unallocated to a segment was 1 per cent in 2020 compared to 10 per cent in 2019, principally due to the absence of a tax credit on UK tax losses where it is unlikely there will be future value obtained from the tax losses.

The Group has delivered positive operating results while supporting our colleagues, distributors, customers and communities during the disruption caused by Covid-19. Alongside, we have accelerated preparations for the proposed separation of Jackson and continue to develop our capabilities and presence in our chosen Asia and Africa markets, which will position the Group well for success in the future.

While Covid-19 restrictions led to new APE sales in Asia being (28) per cent¹ lower than the prior year, we have seen positive momentum in the second half of the year, with H2 2020 sales up 20 per cent¹ compared with the first half. Excluding Hong Kong, where restrictions between Mainland China and Hong Kong have been in place for much of 2020, new APE sales were down (6) per cent¹. Our businesses in Asia delivered a 13 per cent¹ increase in adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit²), reflecting the benefits of our well positioned and broad-based portfolio, which has long focused on high quality, recurring premium business.

Lower asset returns and the effect of lower interest rates on the economic assumptions underpinning DAC amortisation contributed to US long-term business adjusted operating profit² being (8) per cent lower than the prior year. The RBC ratio of Jackson National Life²², Jackson's principal operating subsidiary, was 347 per cent, with operating capital generation in line with expectations following the Athene reinsurance transaction. As announced on 28 January, the RBC ratio is after an 80 percentage point reduction following revisions to Jackson's hedge modelling for US regulatory purposes.

2020 saw high levels of macro volatility. In the US, the S&P 500 index fell (4) per cent over the first half before recovering by 20 per cent in the second, resulting in a 16 per cent increase over the year. In Asia, equity indices were similarly volatile, with the MSCI Asia ex Japan Index (6) per cent down in the first half and up 30 per cent in the second. Government bond yields were lower over the year, notably with the US 10-year government bond yield ending the year at 0.9 per cent (31 December 2019: 1.9 per cent). 2020 also saw significant volatility in credit spreads, for example spreads on US dollar denominated A-rated corporate bonds rose by 39 basis points in the first half and fell by (41) basis points in the second half.

The Summary Overview of Operating and Financial Prospects section of this report has set out how the Group has risen to the operational challenges presented by Covid-19. In terms of financial performance, the containment measures taken by governments across the globe have impacted sales levels in 2020, albeit many business units saw sales improve in the second half of the year as restrictions were removed. These impacts are discussed in more detail later in this report. Future sales level will depend on how governments respond to changing Covid-19 case levels and the success of vaccination and containment programmes in the markets in which we operate. Travel between Hong Kong and Mainland China remains severely restricted, with consequential effects on Mainland China visitor numbers and the level of APE sales in Hong Kong from this segment. The impact that Covid-19 has had on the macro-economic environment, with lower interest rates and volatile equity markets, has negatively impacted profitability in the year as discussed below. The sensitivity of our IFRS and capital metrics to further market movements are set out in the financial statements later in this document.

In Asia, where we focus on health and protection business, we continue to see low levels of Covid-19 claims, which were less than 1 per cent of total Asia claims paid in the year of $7.2 billion. We also provided our customers in 2020 with premium grace periods in line with local regulations. Our annual review of non-economic assumptions underpinning insurance liabilities did not identify the need for any significant strengthening as a result of the effects of Covid-19 and overall Asia operating experience remains positive. There have been no impairments to goodwill or intangible assets at 31 December 2020 and we will continue to review for triggers for impairment in line with our normal accounting procedures. Our investments are largely at fair value in the balance sheet and no significant changes to our valuation procedures have been applied. Losses on sales of impaired bonds by Jackson increased to $(148) million in the year (2019: loss of $(28) million) and bond write-downs increased to $(32) million (2019: $(15) million) reflecting volatility in credit spreads.

Finally, our liquidity position remains healthy with $1.5 billion of holding company cash and $0.5 billion of commercial paper in issue at 31 December 2020 alongside $2.6 billion of undrawn committed facilities. We have not breached any of the requirements of our core structural borrowings nor modified any of their terms.

For full year 2020, Prudential's adjusted operating profit^2,7 from continuing operations was $5,507 million (4 per cent higher than 2019 on a constant and an actual exchange rate basis). Throughout this document the reference to continuing operations refers to results of the full Group in 2020 and the results of the Group in 2019 excluding the contribution from the discontinued UK life and asset management operations.

The increase in adjusted operating profit reflects the combination of a 13 per cent¹ increase in adjusted operating profit² from our Asia life and asset management operations, offset by a (9) per cent decrease in adjusted operating profit² from our US business (including asset management), and lower central expenses.

Central expenses¹³ were 8 per cent³ lower than the prior year reflecting a reduction in interest expense on core borrowings following the transfer of debt to M&G plc in 2019, partly offset by increased restructuring costs of $(208) million (2019: $(110) million³). Restructuring costs reflect the Group's substantial and ongoing IFRS 17 project and costs associated with actions to reduce central costs post the demerger of M&G plc. During 2020 our head office activities incurred costs of $(417) million (2019: $(460) million³). The Group continues to take action to right-size its head office costs alongside the evolving footprint of the business. The Group has delivered $180 million of cost savings effective from 1 January 2021⁵ as previously targeted as a result of the M&G demerger⁶. In addition, as a result of the separation of Jackson from the Group, head office costs are targeted to reduce further by around $70 million from the start of 2023. We will continue to review the timing of the full realisation of these further savings following the completion of the US demerger.

Non-operating items in 2020 consist of short-term fluctuations in investment returns on shareholder-backed business of negative $(4,841) million (2019: $(3,203) million³), the net benefit from various corporate transactions of $1,521 million (2019: loss of $(142) million³), which are discussed further below, and the amortisation of acquisition accounting adjustments of negative $(39) million (2019: $(43) million³) arising mainly from the REALIC business acquired by Jackson in 2012.

Negative short-term fluctuations include negative $(607) million for Asia (2019: positive $657 million³) and negative $(4,262) million in the US (2019: $(3,757) million).

Falling interest rates in certain parts of Asia led to lower discount rates on certain policyholder liabilities under the local reserving basis applied, which were not fully offset by unrealised bond and equity gains in the year leading to negative fluctuations overall.

Within the US, falling interest rates, with yields on US treasuries falling by almost 1 percentage point over the year, and steeply rising equity markets following substantial falls in the first quarter of the year have led to $(4,262) million of negative short-term investment fluctuations in the US business. Further information is set out in the US section below.

After allowing for non-operating items, the total IFRS profit after tax from continuing operations was $2,185 million (2019: $1,944 million¹).

In 2020, the effective tax rate on adjusted operating profit based on longer-term investment returns from continuing operations was 15 per cent. This was unchanged from 2019.

The Group continues to make significant tax contributions in the jurisdictions in which it operates, with $2,114 million remitted to tax authorities in 2020. This was similar to the equivalent amount of $2,168 million³ remitted in 2019.

The Group publishes its tax strategy annually which, in addition to complying with the mandatory UK (Finance Act 2016) requirements, also includes a number of additional disclosures, including a country-by-country disclosure of revenues, profits, average employee numbers and taxes for all jurisdictions where more than $5 million tax was paid. This disclosure is included as a way of demonstrating that our tax footprint (ie where we pay taxes) is consistent with our business footprint. An updated version of the tax strategy, including 2020 data, will be available on the Group's website before 31 May 2021.

Jackson reinsurance of fixed and fixed index annuity business in June 2020

Jackson reinsured substantially all of its in-force portfolio of US fixed and fixed index annuities with Athene (circa $27.6 billion of liabilities). The transaction excluded liabilities relating to Jackson's legacy life and institutional business, the REALIC portfolio and group pay-out annuity business reinsured from John Hancock as well as investments in the general account by the variable annuity policyholders. The transaction improved the year-end capital position of Jackson by increasing the Jackson RBC ratio by 67 percentage points and the Group's LCSM cover ratio by 24 percentage points. The reinsurance agreement was effective on 1 June 2020

and resulted in an IFRS pre-tax gain recorded through the profit and loss account of $804 million, after transaction costs and post-closing adjustments. After allowing for tax and the reduction in unrealised gains recorded directly in other comprehensive income, the impact of the reinsurance transaction on IFRS shareholders' equity is a reduction of $(1.2) billion.

In July 2020, Athene Life Re Ltd invested $500 million in Prudential's US business in return for an 11.1 per cent economic interest for which the voting interest is 9.9 per cent. This has no impact on the income statement but resulted in a decline in IFRS shareholders' equity of $(514) million at the date of the transaction.

Other transactions in 2020 contributed $717 million to profit and principally include the reinsurance commission from a quota share reinsurance transaction undertaken by Hong Kong as part of the Group's on-going asset/liability management. Future surpluses (or losses) arising from the business being reinsured will be shared with the reinsurer in accordance with the terms of the treaty. This treaty helps mitigate the effect of the accounting mismatch under the existing regulatory framework in Hong Kong and is part of our management of the transition to the new RBC regime.

In the first half of the year, the Thailand business entered into a strategic bancassurance partnership with TMB Bank Public Company Limited with an initial period of 15 years which both expanded and extended the existing partnership with Thanachart Bank. The new arrangement commenced on 1 January 2021 and the fee paid for expanding and extending the existing arrangement was $0.8 billion.

In January 2021, the Group announced its intention to complete the demerger of Jackson in the first half of 2021. The total costs associated with this activity are estimated to be around $110 million to $120 million, of which around half is expected to be borne by Prudential plc and the remainder by Jackson. These largely relate to advisory and other professional fees and a small amount relates to the separation of Jackson's systems and processes from those of the remaining Prudential Group.

Of these total costs, $38 million has been incurred in 2020 ($20 million by Prudential plc and $18 million by Jackson) and has been included in non-operating profit as part of corporate transactions. The remainder of the costs are expected to be incurred in the first half of 2021.

Group IFRS shareholders' equity in the 12 months to 31 December 2020 increased by 7 per cent³ to $20.9 billion (31 December 2019: $19.5 billion³), largely reflecting profit after tax for the year and foreign exchange movements, partly offset by dividends paid in the year of $(0.8) billion and the impact of the sale of 11.1 per cent of the Group's economic interest in Jackson to Athene.

Prudential plc is applying the local capital summation method (LCSM) that has been agreed with the Hong Kong Insurance Authority (IA) to determine Group regulatory capital requirements until the Group-wide Supervision (GWS) Framework is effective for Prudential upon designation. The primary legislation was enacted

in July 2020 and will come into operation on 29 March 2021. The relevant subsidiary legislation, including the Insurance (Group Capital) Rules, was tabled before the Legislative Council on 6 January 2021 and will also come into operation on 29 March 2021. This legislation will be further supported by guidance material from the Hong Kong IA. The GWS Framework is expected to be effective for Prudential upon designation by the Hong Kong IA in the second quarter of 2021, subject to transitional arrangements.

The GWS methodology is largely consistent with that applied under LCSM with the exception of the treatment of debt instruments. Prudential's initial analysis indicates that all debt instruments (senior and subordinated) issued by Prudential will meet the transitional conditions set by the Hong Kong IA and will be included as eligible Group capital resources. If this were the case the 31 December 2020 shareholder LCSM ratio⁹ (over GMCR) would increase by 35 percentage points to 363 per cent. This is subject to final approval by the Hong Kong IA.

The estimated shareholder LCSM cover ratio⁹ at 31 December 2020 was 328 per cent (31 December 2019: 309 per cent). Excluding US operations, the cover ratio falls marginally to 323 per cent, before including the proposed retained 19.9 per cent non-controlling interest in Jackson.

Overall, LCSM shareholder surplus over group minimum capital requirements increased by $1.5 billion since 31 December 2019 to $11.0 billion at the end of December 2020. LCSM in-force operating capital generation in the year was $2.2 billion, which supported $(0.2) billion of investment in new business.

Overall non-operating items (excluding corporate transactions) reduced surplus by $(0.2) billion, with the negative effect of market movements in the year being offset by a $2.2 billion benefit from the introduction of the new Singapore risk-based capital framework (RBC2) effective 31 March 2020. Also included within non-operating items is a $(0.4) billion fall in surplus from changes made to Jackson VM-21 hedging model, further details of which are set out in the US section in the discussion of RBC changes.

The corporate transactions previously discussed were positive overall and contributed $0.5 billion to surplus and the payment of the 2019 second interim and 2020 first interim dividends reduced the surplus by $(0.8) billion.

The Group's LCSM position is resilient to external macro movements as demonstrated by the sensitivity disclosure contained in note I(i) of the Additional Unaudited Financial Information, alongside further information on the basis of calculation of the LCSM measure.

The total borrowings of the shareholder-financed businesses increased by $1.0 billion, from $5.6 billion to $6.6 billion in 2020. This reflected the issuance of $1,000 million 3.125 per cent notes in April 2020 raised for general corporate purposes including to support the growth of the business. The Group had central cash resources of $1.5 billion at 31 December 2020 (31 December 2019: $2.2 billion), resulting in net core structural borrowings of the shareholder-financed businesses of $5.2 billion at end of December 2020 (31 December

2019: $3.4 billion). Prudential plc seeks to maintain its financial strength rating which derives, in part, from the high level of financial flexibility to issue debt and equity instruments which is intended to be maintained and enhanced in the future.

At the 31 December 2020, the Group's net gearing ratio as defined in the table above was 20 per cent. We estimate that this will rise to circa 28 per cent post the separation of Jackson (based on the balance sheet at 31 December 2020, assuming no pre-separation dividend and before allowing for the 19.9 per cent retained stake in Jackson). On a Moody's basis, which is the basis management intend to use going forward to manage leverage and which differs to the above by taking into account gross debt, including commercial paper, and also allows for a proportion of the surplus within the Group's with-profits funds, the equivalent ratio is 33 per cent, before allowing for the 19.9 per cent retained stake in Jackson. Following the demerger, as a pure-play Asia and Africa business, Prudential will target a Moody's debt-leverage ratio of around 20 to 25 per cent⁴ over the medium term. Prudential may operate outside this range temporarily to take advantage of growth opportunities with attractive risk-adjusted returns as they arise, while still preserving its strong credit ratings.

As discussed in the Summary Overview of Operating and Financial Prospects section of this report, Prudential is considering raising new equity of around $2.5-3 billion. Such a transaction, if executed, would maintain and enhance the Group's financial flexibility in light of the breadth of the opportunities to invest in growth and aim to increase the Group's investor base in Asia.

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

Prudential plc has maintained a consistent presence as an issuer in the commercial paper market for the past decade and had $501 million in issue at the end of 2020 (31 December 2019: $520 million).

As at 31 December 2020, the Group had a total of $2.6 billion of undrawn committed facilities, expiring in 2025. Apart from small drawdowns to test the process, these facilities have never been drawn, and there were no amounts outstanding at 31 December 2020.

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

Remittances from our Asia business were $716 million (2019: $950 million³). In order to support the planned separation process, there were no remittances from Jackson during the period. $55 million remittances from other operations reflects intragroup interest income which is not expected to recur.

Cash remittances were used to meet central costs of $(435) million and to pay dividends of $(814) million. Central costs include net interest paid of $(294) million and a net tax benefit, which is not expected to recur going forward, of $94 million.

Other movements of $(264) million includes the proceeds of the issuance of $1 billion of senior debt in April 2020 offset by central contributions to the funding of Asia strategic growth initiatives, principally payments for bancassurance distribution agreements, including TMB and UOB. Further information is contained in note I(iii) of the Additional Unaudited Financial Information.

Cash and short-term investments totalled $1.5 billion at the end of December 2020 (31 December 2019: $2.2 billion³).

The Group will seek to manage its financial condition such that it has sufficient resources available to provide a buffer to support the retained businesses in stress scenarios and to provide liquidity to service central outflows.

Reflecting the Group's capital allocation priorities, dividends will be determined primarily based on Asia's operating capital generation after allowing for the capital strain of writing new business and recurring central costs, with a portion of capital generation retained for reinvestment in the business. Dividends are expected to grow broadly in line with the growth in Asia operating free surplus generation net of right-sized central costs, and will be set taking into account financial prospects, investment opportunities and market conditions.

The Board has approved a 2020 second interim ordinary dividend of 10.73 cents per share. Combined with the first interim ordinary dividend of 5.37 cents per share the Group's total 2020 dividend is 16.10 cents per share.

Starting from the 2021 first interim dividend, the Board intends to apply a formulaic approach to first interim dividends, which will be calculated as one-third of the previous year's full-year ordinary dividend.

Prudential's Asia businesses delivered a resilient financial performance in 2020. While Covid-19 related containment measures impacted our new business sales we also delivered a step-change in our digital capabilities. While the nature and severity of Covid-19 restrictions varied significantly across our markets, our enhanced digital and physical capabilities combined with our diversified and high quality platform supported a strong sequential quarterly recovery in sales in the third and fourth quarters of the year from a low in the second quarter, illustrating the strength of our franchise.

The resilience and quality of our business is also evident in customer retention levels of 90 per cent (2019: 90 per cent), which combined with our recurring premium, health and protection focused business model, supported an overall 13 per cent¹ increase in adjusted life insurance operating profit².

These qualities enabled us to continue to grow scale and value, even in more challenging operating conditions.

Overall Asia adjusted operating profit² increased by 13 per cent¹ to $3,667 million, driven by a 14 per cent¹ increase in life insurance adjusted operating profit², alongside a 2 per cent¹ increase at Eastspring.

This growth reflects the benefits of our focus on high quality recurring premium business, which accounts for 90 per cent of our new business, and diversified portfolio of scale businesses, with over 88 per cent of our total life income¹² (excluding other income described below) driven by insurance margin and fee income (2019: 86 per cent¹), again supporting profit progression across market cycles.

Our Asia life insurance adjusted operating profit² growth is broad-based and at scale. Overall, nine insurance markets reported double-digit growth¹, with three insurance markets delivering growth of 20 per cent¹ or more.

At a market level, highlights include Hong Kong up 20 per cent¹ to $891 million, Singapore up 18 per cent¹ to $574 million, Malaysia up 14 per cent¹ to $309 million, China up 15 per cent¹ to $251 million and Thailand up 24 per cent¹ to $210 million. Adjusted operating profit² in Indonesia was $519 million, marginally lower than the prior year.

Profit margin analysis of Asia long-term insurance and asset management operations¹⁵

Our adjusted operating profit² continues to be based on high-quality drivers. The overall 14 per cent¹ growth in Asia life insurance adjusted operating profit² to $3,384 million (2019: $2,978 million¹) was driven principally by 19 per cent¹ growth in insurance margin-related revenues and reflects our ongoing focus on recurring premium health and protection products and the associated continued growth of our in-force business.

Fee income was in line with the prior year, while spread income decreased by (7) per cent¹ driven by lower interest rates in the year.

With-profits earnings relate principally to the shareholders' share in bonuses declared to policyholders. As these bonuses are typically weighted to the end of a contract, under IFRS, with-profits earnings consequently emerge only gradually over time. The 9 per cent¹ growth in with-profits earnings reflects the ongoing growth in these portfolios.

Other income primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses. As such, the (2) per cent¹ decrease from 2019 largely reflects lower new business volumes, whereas new business acquisition expense fell 12 per cent¹ to $(1,904) million. The ratio of shareholder acquisition costs to shareholder-related APE sales (excluding with-profits-related sales) increased to 68 per cent (2019: 66 per cent on an actual exchange rate basis), reflecting changes to product and geographical mix. Administration expenses, including renewal commissions, increased by 8 per cent¹ reflecting in-force business growth.

The Group reports annual premium ~~equivalents~~equivalent (APE) as a measure of new business sales, which ~~are~~is a key metric for the Group's management of the development and growth of the business. APE is calculated as the aggregate of regular ~~new business amounts~~premiums and one-tenth of single premiums on new business ~~amounts.~~ written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. APE differs from the IFRS measure of gross premiums earned. A reconciliation of APE new business sales to

IFRS gross premiums earned is provided in note II(vii) of the section headed Additional Unaudited Financial Information.

Life insurance new business APE sales decreased by (28) per cent¹ to $3,696 million. Outside Hong Kong, overall new business APE sales were (6) per cent¹ lower.

The impact of Covid-19 related disruption varied materially in terms of severity and duration across the region. Restrictions eased in many markets as the year progressed. In Mainland China internal travel and business activity resumed from the end of March and restrictions in Hong Kong eased from the end of August, though the border between Mainland China and Hong Kong remains closed. In Indonesia, after an initial relaxation of lockdown measures in June, a further four-week period of lockdown was imposed between mid-September and mid-October and the country re-entered lockdown again in early 2021. Significant containment restrictions remain in place in Malaysia, Vietnam, the Philippines and Thailand, with reduced restrictions in place in Hong Kong domestic, Taiwan, Singapore and India.

Over 2020, we continued to benefit from the resilience our diverse platform provides. Our diverse geographic portfolio saw four markets increase APE sales compared with the prior year, including Thailand up 16 per cent¹, Taiwan up 11 per cent¹ and Vietnam up 9 per cent¹.

Outside of Hong Kong, sales from our bancassurance channel were stable with last year, underpinned by growth in China JV (APE bancassurance sales up 34 per cent¹), Thailand (up 21 per cent¹), Indonesia (up 15 per cent¹) and Vietnam (up 35 per cent¹). We also saw increased agency momentum in the second half of the year.

There has been a significant acceleration of our digital capabilities over 2020, with virtual sales accounting for 27 per cent of bank sales from July to December and 28 per cent of all agency sales from April to December. This compares with very low amounts in prior years. Our agency channel was supported by over 2.2 million of 'online to offline' leads generated by our Pulse health and wealth super-app, which, together with direct sales in Pulse, generated $211 million of APE sales²¹ in the year.

The quality and diversity of our platform contributed to a strong sequential recovery in APE sales as Covid-19 related restrictions were lifted, with discrete third quarter production of $925 million¹ sequentially 33 per cent¹ higher than the second quarter and fourth quarter sales 18 per cent¹ above the third quarter and 10 per cent¹ higher than the first quarter of 2020, prior to Covid-19 restrictions being applied in many of the markets in which we operate.

The fourth quarter of 2020 was the highest APE sales quarter of the year for overall Asia and for 9 markets. As we pivoted to standalone protection products of lower case size to meet rising consumer demand, total new policies increased by 1 per cent and new protection policies grew by 10 per cent in the fourth quarter compared with the same period in the prior year.

Health and protection products continue to be a significant proportion of sales, contributing 27 per cent of APE sales in 2020 (2019: 27 per cent).

Overall, Hong Kong APE sales were (63) per cent¹ below the prior year. This was principally a result of a very sharp reduction in APE sales to Mainland China customers, reflecting the impact of the border closure early in the year and consequent reduction in Mainland Chinese visitors and associated APE sales to these customers. While domestic Hong Kong APE sales were also impacted by Covid-19 related restrictions, new business

production improved markedly over the course of the year, with APE sales in Q3 rising 20 per cent over Q2 and Q4 rising 60 per cent over Q3. The strong sequential sales growth was supported by product innovation and ongoing development of our broader digital capabilities. In particular, our increased focus on standalone protection products, with lower case sizes, to meet rising consumer demand saw domestic new sales policy count reach 98 per cent of prior year levels in the fourth quarter.

Our China JV delivered an encouraging performance despite Covid-19 related disruption. This was supported by the agency force focus on protection products, which accounted for 53 per cent of sales from this channel. We benefited materially from our diversified distribution model, particularly the strength in bancassurance which saw strong and accelerating growth of 34 per cent in APE sales throughout the year. Overall APE sales were only (1) per cent¹ lower compared with the prior year and second half APE sales 4 per cent¹ higher than the prior year.

The sales environment in Indonesia remained challenging following a deterioration of Covid-19 infections through the summer, culminating in the re-introduction of the highest-level movement restrictions in September, which remain in place today in parts of Indonesia. Despite the challenging environment, we achieved strong performance in the sharia segment with APE sales growing 6 per cent. Meanwhile, the fourth quarter saw the highest overall sales of 2020 (19 per cent higher than APE sales in the first quarter) and was driven by 60 new products launched in 2020, including lower ticket standalone protection products. While this product strategy saw new sales case count rise by 12 per cent at FY20, overall APE sales volumes were (30) per cent¹ below the prior year.

In Malaysia, APE sales were (1) per cent¹ below the prior year, with a decline in the first half sales largely offset by a recovery in the second half of 14 per cent (compared with the second half of the prior year), despite the reintroduction of partial Covid-19 related restrictions in October, driven by strong agency production across our traditional and takaful markets. The Takaful business grew APE sales by 26 per cent compared with 2019.

In Singapore, APE sales fell by (7) per cent¹ reflecting Covid-19 restrictions with declines in the first half of the year partly offset by an increase in the second half of 5 per cent¹ when compared with the second half of the prior year. Strong agency momentum following the relaxation of Covid-19 restrictions saw APE sales in the second half of the year being 63 per cent higher than the level in the first half. Singapore continues to develop products and digital capabilities with the launch in December of 3 bite-sized digital products on Pulse (PRUSafe Dengue, PRUSafe BreastCancer, PRUSafe ProstateCancer) and the onboarding of the PRUCancer360 product on UOB's Mighty banking app.

We have made good initial progress with our recent investment in distribution in Thailand, where our APE sales were up 16 per cent¹, reflecting strong growth of 21 per cent in bancassurance channel, with the product mix shift to health and protection which accounted for 25 per cent of APE sales (2019: 16 per cent). Our distribution capability will be further strengthened by our partnership with TMB which commenced on 1 January 2021 and our digital partnership with The1, Thailand's largest loyalty platform.

We maintained a strong balance sheet with a shareholder LCSM surplus over the regulatory minimum capital requirement of $8.2 billion and coverage ratio of 338 per cent at 31 December 2020 (31 December 2019: $4.7 billion and 253 per cent). If our with-profits funds in Hong Kong, Singapore and Malaysia are ~~not,~~added the surplus increases to $23.6 billion (31 December 2019: $18.8 billion). We seek to safeguard our business from market volatility through our strong focus on protection products and our prudent asset and liability management strategy.

Eastspring's total funds under management were $247.8 billion at 31 December (31 December 2019: $241.1 billion³), reflecting favourable internal net inflows and higher equity markets, partly offset by external net outflows. Compared with 2019, Eastspring's average funds under management increased by 6 per cent³ (7 per cent¹⁴ on a constant exchange rate basis). Funds under management were 13 per cent³ higher than at the end of June ($219.7 billion³) as equity markets recovered and asset flows began to recover from the volatility in the first half.

Eastspring continues to benefit from strong, positive net flows from internal insurance funds, recording $8.5 billion (2019: $9.7 billion). Overall third-party flows related to external funds under management were negative $(10.0) billion, reflecting the adverse impact of higher market volatility, as a result of Covid-19, on retail funds, most notably in a number of retail bond funds in Thailand in the first half of 2020. Highlights included strong flows into our China A Fund, and Global Innovation Fund in respect of our equity products, and Income Plus and Active Bond Fund Plus on the fixed income side. As market volatility subsided over the second half of the year, third-party net flows²⁰ improved materially, with the fourth quarter seeing net inflows of $0.5 billion. In addition, as anticipated, there were net outflows from funds managed on behalf of M&G plc of $(10.0) billion in 2020, with further outflows of around $(6) billion expected in the first half of 2021.

Eastspring's adjusted operating profit² of $283 million was up 2 per cent compared with the prior year on a constant exchange rate basis (level on an actual exchange rate basis). Operating income (net of commission) increased by 1 per cent³ with the benefit of higher average funds under management being partly offset by adverse client and asset mix effects that reduced the fee margin based on operating income to 28 basis points (2019: 30 basis points³). Cost discipline remains robust, with operating costs in line with the prior year, with the resulting cost/income ratio⁸ the same at 52 per cent.

The benefit of our focus on profitable health and protection, with-profit and asset management businesses is evident in the attractive 26 per cent (2019: 30 per cent) operating return delivered on average segment equity⁸ over 2020.

All of the results below reflect Jackson Financial Inc. (which we refer to as Jackson), the entity that is proposed to be demerged, except for the discussion on local statutory capital which covers Jackson Financial Inc.'s subsidiary, Jackson National Life, only. All amounts have been prepared on the basis of the

Prudential Group's accounting policies and methodologies and are ~~not intended~~consistent with the Group's reporting in 2019. This will differ from the financial information that Jackson will report as part of the demerger process, which will be prepared under US GAAP and will include certain non-GAAP financial measures which Jackson management believes will be more relevant to ~~be, reflective~~manage the business as a standalone entity.

At 31 December 2020, Jackson National Life's RBC ratio was 347 per cent (31 December 2019: 366 per cent). At the point of ~~premium income recorded~~proposed separation, Jackson expects to have an RBC ratio²² in excess of 450 per cent and total financial leverage¹⁹ in the range of 25 to 30 per cent, subject to market conditions. Jackson expects to achieve this level of RBC at the point of separation by contributing proceeds of its debt and hybrid capital raising to its regulated insurance subsidiaries.

US segment adjusted operating profit^2,7 was $2,796 million in 2020, down (9) per cent from the prior year. This reduction largely reflects the impact of DAC adjustment effects in the current and prior year, alongside the expected reduction in spread related earnings following the reinsurance contract with Athene in June 2020. Offsetting these falls, fee income ~~statement. EEV~~was $3,386 million, 3 per cent higher than the prior year as result of higher average account balances.

Profit margin analysis of US long-term insurance and asset management operations15

Spread income declined (19) per cent in 2020, primarily as a result of the Athene reinsurance transaction, as well as lower asset yields, partially offset by lower interest credited reflecting lower average crediting rates compared with 2019. The margin of 112 basis ~~new business profit~~points benefited from prior year swap transactions. Excluding that benefit, the spread margin would have been 88 basis points (2019: 101 basis points).

Insurance margin represents profits from insurance risks, including variable annuity guarantees and ~~margins~~profits from the legacy life businesses and was marginally lower than that earned in 2019.

Acquisition costs have fallen by 8 per cent following lower sales in the year. Administration expenses increased by 4 per cent to $(1,744) million in 2020 as a result of higher asset-based commissions, as average separate account balances increased, and the non-recurrence of commission income (treated as a negative expense) earned under the John Hancock reinsurance arrangement in 2019. Excluding the asset-based commission, the administration expense ratio would be 34 basis points (2019: 33 basis points).

DAC adjustments, being the cost deferred on sales in the period net of amortisation of amounts deferred previously, have fallen by $(193) million to $317 million. This follows lower deferrals from lower sales and

higher amortisation of prior period DAC. DAC amortisation increased as the impact of changes to the longer-term economic assumptions underpinning the amortisation calculation, following an expectation of lower interest rates in the future, more than offset the benefits of increases in DAC deceleration in the period as a result of higher equity markets at the end of 2020 as compared with the start of the year.

The non-operating result was negative $(3,510) million pre-tax (2019: $(3,795) million) and contributed to a net loss after tax of $(247) million (2019: $(380) million). The non-operating result over 2020 includes a loss of $(4,296) million from short-term investment fluctuations and amortisation of previous acquisition accounting adjustments offset by a $786 million pre-tax gain as a result of the Athene reinsurance transaction.

In the US, Jackson provides certain guarantees on its annuity products, the value of which would typically rise when equity markets fall and long-term interest rates decline. Jackson charges fees for these guarantees which are ~~also published semi-annually.~~

~~Operating free surplus generation is~~in turn used to ~~measure~~purchase downside protection, in particular options and futures to mitigate the ~~internal cash~~effect of equity market falls.

Jackson designs its hedge programme to protect the economics of the business from large movements in investment markets and does not seek to hedge on an accounting basis. It therefore accepts a degree of variability in the accounting results.

The $(4,296) million discussed above principally arises from the steep rise in equity markets following the low at the end of the first quarter of 2020 that led to equity derivative losses taken out as part of Jackson's hedging programme being in excess of the corresponding reduction in guarantee liabilities and the effect of lower interest rates on the value of its guarantees. Hedge costs were also elevated due to the high levels of volatility observed in the period.

The Group reports annual premium equivalent (APE) as a measure of new business sales, which is a key metric for the Group's management of the development and growth of the business. APE is calculated as the aggregate of regular premiums and one-tenth of single premiums on new business written during the ~~period less~~year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. APE differs from the IFRS measure of gross premiums earned. A reconciliation of APE new business sales to IFRS gross premiums earned is provided in note II(vii) of the section headed Additional Unaudited Financial Information.

Despite challenging market conditions, Jackson delivered a 13 per cent increase in variable annuity sales, reflecting the strength and depth of its leading distribution franchise and value-added customer proposition. Jackson believes that the investment freedom and optional guaranteed benefits Jackson offers its customers support its strong brand recognition with distributors and advisers¹⁶.

Jackson has maintained its leading position in the US retail variable annuity market¹⁷. This market position reflects the attractiveness of its product, breadth of distribution across multiple channels, and the productivity of Jackson's wholesaler field force, which is among the most productive in the industry, with sales per agent over 10 per cent higher than the nearest competitor¹⁸.

In line with Jackson's disciplined approach to pricing and risk management, pricing actions taken in the first half of 2020 in response to changing market conditions and to preserve statutory capital, resulted in an expected and material reduction in new fixed annuity and fixed index annuities sales, evident particularly from the beginning of the second quarter. This, combined with lower institutional sales, resulted in an overall (13) per cent reduction in APE sales.

In presenting its results for 2020, the Group continues to report its business using the following segments:

Other operations are classified as unallocated to a segment, which includes the Group's head office functions in London and Hong Kong and Africa insurance operations.

In preparation for the planned separation of Jackson, from 2021 the Group has revised its internal management information to focus on the following revised segments, which will be used for external reporting from half year 2021.

The Group's head office functions will continue to be unallocated to a segment. The US has been classified as discontinued following the Board's decision to proceed with a demerger in the second quarter of 2021.

The overall financial strength of Prudential and the results, both current and future, of the insurance business are in part dependent upon the quality and performance of the various investment portfolios in Asia and the US.

Prudential's total investments, net of derivative liabilities, at 31 December 2020 were $428,903 million (31 December 2019: $405,229 million), of which $248,756 million (31 December 2019: $223,885 million) were held to cover linked liabilities relate to unit-linked and variable annuity products in collective investment schemes.

Further analysis on financial investments and fair value measurement is included in notes C1 and C2 to Prudential's consolidated financial statements, in accordance with IFRS 7 'Financial Instruments: Disclosures'.

Prudential's insurance investments support a range of businesses operating in many geographic areas. Each of the operations formulates a strategy based on the nature of its underlying liabilities, its level of capital and its local regulatory requirements.

Prudential manages a significant portion of its group funds principally through its fund management businesses, Eastspring Investments in Asia and PPM America in the US. The remaining Group's funds mainly relate to assets held to back unit-linked, unit trust and variable annuity liabilities.

In each of the operations, local management analyses the liabilities and determines asset allocation, benchmarks and permitted deviations from these benchmarks appropriate for its operation. These benchmarks and permitted deviations are agreed with internal fund managers, who are responsible for implementing the specific investment strategy through their local fund management operations.

Prudential's Asia insurance business's investments, excluding assets to cover linked liabilities and those attributable to external unit holders of consolidated unit trusts and similar funds, largely support the business of Prudential's Singapore and Hong Kong operations.

In Asia, our exposure to interest rate risk arises from the guarantees of some non-unit-linked investment savings products, including the Hong Kong with-profits and non-profit business. This exposure exists because of the potential for an asset and liability mismatch where long-dated liabilities and guarantees are backed by short-dated assets, which cannot be eliminated but is monitored and managed through local risk and asset liability management committees against risk appetite aligned with the Group's limit framework. A large proportion of the Hong Kong liabilities are denominated in USD and Prudential holds USD assets to back these liabilities.

The investment strategy of the US insurance business, for business other than the variable annuity separate account business, is to maintain a diversified and largely investment grade fixed income portfolio that is capital efficient, achieve risk-adjusted returns that support competitive pricing for our products, generate profitable growth of our business and maintain adequate liquidity to support our obligations. Interest rate scenario testing is regularly used to monitor the effect of changes in interest yields on cash flows, the present value of future profits and interest rate spreads.

The investment portfolio of the US insurance business consists primarily of debt securities, although the portfolio also contains loans, primarily publicly-traded corporate and government bonds, private securities and loans, asset-backed securities and commercial mortgage loans.

After making sufficient enquiries the directors of Prudential have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that the financial statements are approved. Further information is provided in note A1 to the Consolidated Financial Statements.

The parent company, including ~~the central finance subsidiaries~~centrally managed group holding companies, held cash and short-term investments of ~~$2,207~~$1,463 million as at 31 December ~~2019 (2018: $4,121~~2020 (2019: $2,207 million). The sources of cash in ~~2019~~2020 included dividends, loans and cash remittances received by Prudential from its principal operating subsidiaries ~~including remittances received pre-demerger from M&G plc.~~and debt issuances. Further information on cash remittances to the Group is detailed in 'Explanation of ~~performance~~Performance and ~~other financial measures' section.~~Other Financial Measures' section of this report.

The amount of dividends paid by Prudential's main operations is determined after considering the development, growth and investment requirements of the operating businesses. In order to support the planned separation process, there were no remittances from Jackson during the period.

The liquidity sources for Prudential's Asia life insurance businesses comprise premiums, deposits and charges on policies, investment income, proceeds from the sale and maturity of investments, borrowings and capital contributions from the parent company. The liquidity requirements comprise benefits and claims, operating expenses, interest on debt and purchases of investments. Amounts are distributed to the parent company after considering capital requirements. Further information on Asia's local statutory capital requirements are located in provided in 'Local statutory capital' within the 'Explanation of ~~performance~~Performance and ~~other financial measures'~~Other Financial Measures' section ~~in Financial Review.~~of this report.

The liquidity requirements of Prudential's Asia life insurance businesses are regularly monitored to match anticipated cash inflows with cash requirements. Cash needs are forecast and projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying these projections, are reviewed periodically. Adjustments are made periodically to the investment policies with respect to, among other things, the maturity and risk characteristics of the investment assets to reflect changes in the business cash needs and ~~also to reflect~~ the changing competitive and economic environment.

The liquidity sources for ~~Jackson~~US operations are its cash, short-term investments, publicly traded bonds, premium income deposits received on certain annuity and institutional products, investment income, repurchase agreements, utilisation of a short-term borrowing facility with the Federal Home Loan Bank of Indianapolis and capital contributions from the parent company.

Liquidity requirements are principally for purchases of new investments, management of derivative related margin requirements, repayment of principal and interest on debt, payments of interest on surplus notes, funding of insurance product liabilities including payments for policy benefits, surrenders, maturities and new policy loans, funding of expenses including payment of commissions, operating expenses and taxes. As at 31 December ~~2019, Jackson's~~2020, US operations outstanding surplus notes and bank debt included:

Significant increases in interest rates can create sudden increases in surrender and withdrawal requests by policyholders and contract holders. Other factors that are not directly related to interest rates can also give rise

to disintermediation risk, including, but not limited to, changes in ratings from rating agencies, general policyholder concerns relating to the life insurance industry (eg the unexpected default of a large, unrelated life insurer) and competition from other products, including non-insurance products such as mutual funds, certificates of deposit and newly developed investment products. Most of the life insurance, annuity and institutional products ~~Jackson~~our US operations offers permit the policyholder or contract holder to withdraw or borrow funds or surrender cash values. ~~At 31 December 2019, over half~~

~~Jackson~~Our US operations uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms. ~~Jackson's~~Our US operations principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals are its portfolio of liquid assets and its net operating cash flows. As at 31 December ~~2019,~~2020, the portfolio of cash, short-term investments and publicly traded securities and equities amounted to ~~$50.2~~$39.5 billion.

As at 31 December ~~2019,~~2020, the statutory capital and surplus of ~~Jackson~~US operations was in excess of the requirements set out under Michigan insurance law. Jackson is also subject to risk-based capital guidelines that provide a method to measure the adjusted capital that a life insurance company should have for regulatory purposes, taking into account the risk characteristics of Jackson's investments and products. As at 31 December 2019, Jackson's total risk based capital ratio under the National Association of Insurance Commissioners' definition exceeded the Michigan standards. Further information on Jackson's capital and surplus is provided in 'Local statutory capital – Jackson National Life (Jackson)' within the 'Explanation of performance and other financial measures' section in Financial Review.

Contractual obligations of the Group with specified payment dates as at 31 December ~~2019~~2020 were on an undiscounted basis as follows:

The discussion that follows is based on the consolidated statement of cash flows prepared under IFRS and presented in this Form 20-F.

Net cash inflows from continuing operations in 2020 were $983 million. This amount comprised inflows of $1,966 million from operating activities, outflows of $(1,195) million from investing activities and inflows of $212 million from financing activities. Net cash outflows from continuing operations in 2019 were ~~$(2,990)~~$2,990 million. This amount comprised outflows of ~~$(209)~~$(72) million from operating activities, outflows of $(324) million from investing activities and outflows of $(2,457) million from financing activities. Net cash inflows from continuing operations in 2018 were $2,120 million. This amount comprised inflows of $3,355 million from operating activities less outflows of $(576) million from investing activities and outflows of $(659)$(2,594) million from financing activities.

The Group held cash and cash equivalents of $8,018 million at 31 December 2020 compared with $6,965 million at 31 December ~~2019 compared with $9,394 million at 31 December 2018 from continuing operations.~~

Net cash outflows from discontinued UK and Europe operations in 2019 was $(5,690) million (2018: outflows of $(610) million). The net cash outflows in 2019 included the divestment of cash and cash equivalents of the discontinued operations of $7,611 million on demerger. The cash flows of the continuing and discontinued operations are presented excluding any transactions between the two operations.2019.

Our Group Risk Framework and risk appetite have allowed us to control our risk exposure ~~successfully~~ throughout ~~the year.~~2020. Our governance, processes and controls enable us to deal with uncertainty effectively, which is critical to the achievement of our strategy of capturing long-term structural opportunities and helping our customers achieve their long-term financial goals.

This section explains the main risks inherent in our business and how we manage those risks, with the aim of ensuring an appropriate risk profile is maintained. Although Jackson is preparing to be a fully independent business, until the proposed demerger is effected Jackson's risks (as with those of the Group's other businesses) will continue to be managed within the Group Risk Framework and this report reflects this position.

~~On 21 October 2019, just 18 months after announcing its intention~~2020 was a truly eventful year. The Covid-19 pandemic swept across the world and has resulted in significant humanitarian suffering and material and prolonged disruption to ~~do so,~~social and economic activity. The business had to consider and navigate the ~~Group completed~~risks arising from the ~~demerger of M&G plc, marking~~Covid-19 on multiple fronts. These included capital and liquidity risks arising from abrupt market dislocation as well as risks associated with the ~~successful~~disruption to the Group's operations across Asia, Africa, the US and ~~controlled~~UK. Concurrently, the business has maintained uninterrupted delivery of ~~a complex~~services for its policyholders, and ~~historic change~~has been committed to doing the ~~business, in which~~right thing for both its customers and employees throughout the crisis. The Risk, Compliance and Security function ~~played a central role. An unsettled macroeconomic~~has successfully transitioned into, and ~~geopolitical environment added~~maintained, new ways of working across multiple time zones to provide strong stewardship and enhanced monitoring of these risks during the ~~challenges in completing a strategic initiative~~most acute phases of ~~this magnitude and to~~ the ~~key objective of delivering two distinct and strongly capitalised groups. Strong stewardship was~~pandemic's impact.

Through these extraordinary circumstances, the function has also provided ~~by the Risk function through~~ risk opinions, guidance and assurance on critical activity, ~~as well as assessments~~including Athene's reinsurance of $27.6 billion of Jackson's fixed and ~~ongoing monitoring~~fixed index annuity portfolio and $500 million equity investment into Prudential's US business, the proposed demerger of ~~external risks.~~Jackson from the Group and the revision to its hedge modelling for US statutory standards for calculating reserves and capital. At the same time, the function retained its focus on managing the risks of the ongoing business, performing its defined role in providing risk management support and oversight, as well as objective challenge to ensure the Group remained within its risk appetite.

The Group ~~welcomes~~continues to engage constructively with the Hong Kong Insurance Authority (IA) as its ~~new~~ Group-wide supervisor and is transitioning to a new supervisory framework. AThe Group's mature and well-embedded risk framework will enable decisions to be taken with confidence as the ~~repositioned~~ business seeks to capture the opportunities in the growth markets in which it is now focused while ~~operating~~continuing to operate prudently with discipline.

Economic growth worldwide slowed in 2019 driven by a contraction in global manufacturing, in particular in the Eurozone, UK and some Asian economies. Various factors contributed to this slowdown, including geopolitical tensions (in particular those around trade), steps taken in China to deleverage its financial system, and tightened financial conditions in the US during the first half of the year. Faced with the prospect of slowing economic growth and continued subdued inflation, the major central banks across North America, Europe and Asia implemented significant changes in monetary policy, deploying both conventional and non-conventional accommodation. The US Federal Reserve cut its benchmark federal funds rate by 75 basis points over 2019, while the ECB delivered a 10 basis point interest rate cut and announced a resumption of its quantitative easing programme in September. At the start of 2020 the prospects for global growth ~~initially~~ appeared to ~~have improved with~~be improving. This positive momentum was abruptly reversed by the ~~signing~~Covid-19 pandemic, leading to the shutdown of much of the ~~'Phase One' initial trade agreement~~world's economy and a sharp recession. In response to this unprecedented shock, governments and central banks deployed massive fiscal and monetary stimulus measures to mitigate the impact on the labour force and restore confidence in financial markets. Driven largely by the USstrong macro policy response, global economies have started to recover although this remains far from complete. In Asia, China has been leading the economic rehabilitation, benefitting other Asian economies to an extent, although the regional recovery to date has been highly uneven. The economic environment in Asia is expected to remain challenging given the limited headroom for additional conventional monetary easing, increasing inflation risks from weaker foreign exchange rates, supply chain disruptions, and ~~China~~increasing fiscal pressures. Viewed more broadly, the pandemic has increased the debt burden of many economies and may result in ~~January and signs that macroeconomic data was stabilising throughout~~sovereign debt sustainability issues, increasing the Eurozone and parts of Asia. Since then however, it is becoming increasingly evident that the coronavirus outbreak has impacted economic activity in Hong Kong and China with spill over to the rest of the global economy. This has prompted the world's major central banks to commit to measures to manage the potential economic effects and in early March 2020 the US Federal Reserve cut its benchmark federal funds ratedependence on low interest rates by 50 basis points. This demonstrates the fragility of any improvement in the growth outlook, with geopolitical risks representing another source of potential disruption, including a resurfacing in trade tensions, a resumption of the protests in Hong Kong and, looking forward, political uncertainty that may arise from the US presidential election towards the end of 2020.

After a volatile 2018, which was marked by sharp falls in equity markets in the final quarter, 2019 saw a significant rebound with all major risk assets, particularly global equities, providing strong returns over the course of the year. Government bonds also saw good returns as yields declined significantly, with the US 10-year government bond yield falling by circa 80 basis points over the year. Corporate bonds performed similarly well, with credit spreads tightening and mirroring the strong equity returns observed. The year was largely characterised by relatively defensive investor sentiment and a preference for higher credit quality within asset classes. This positive performance was facilitated by the accommodative environment driven by the shift in monetary policy by major central banks, but came amid a deterioration in macroeconomic indicators, an increase in perceived US recession risk and the trade negotiations between the US and China which ebbed and flowed, all of which negatively impacted global risk sentiment. Political headlines and the monetary policy shift by central banks were the primary drivers of currency market movements during 2019, with the US-China trade negotiations and developments surrounding the UK's departure from the EU impacting the US dollar (ingovernments.

2020 began with risk assets performing well until concerns over the ~~USD-RMB rate)~~economic impact of the Covid-19 outbreak dented investor confidence, eventually leading to a global sell-off that unfolded at extraordinary speed. The S&P 500 index plunged by 35 per cent from an all-time high on 19 February 2020 to its low point on 23 March 2020. Interest rates in major markets declined significantly, falling to historical lows as investors fretted over the risks to the economic outlook. Credit spreads widened significantly, in line with the plunge in equity markets. The stress on financial markets was broadly eased by the central banks maintaining accommodative monetary policies and ~~UK pound respectively. Funding~~implementing various support programmes. Since their trough in March 2020, financial markets ~~came under significant pressure~~have rallied strongly, initially driven by broad reductions in ~~September when a sudden spike~~infection rates in ~~repo rates was observed, prompting~~some countries, optimism with respect to the restart of the global economy, and, in the US, a small group of large-cap stocks that has buoyed the cap-weighted index. Risk assets in particular continued to rally strongly in the second half of 2020.

Risk asset valuations appear elevated and display some disconnect with economic fundamentals, and may therefore be subject to the risk of a correction given the renewed lockdowns implemented across the world towards the end of 2020 and into 2021, the logistical challenges to the roll out of Covid-19 vaccination programmes (which may more prolonged than initially anticipated) and the development of new strains of the coronavirus. On interest rates, the consensus outlook is of an environment in which they will remain low-for-longer. The US Federal ~~Reserve~~Reserve's forward guidance has constrained expectations of higher short term yields in the foreseeable future, while economic fundamentals and globally accommodative conditions are likely to ~~intervene~~keep downward pressure on long term yields. For credit assets, risks of a further round of widespread pressure on corporate liquidity – as experienced during 2020 – remain, given the stretched credit fundamentals of corporate borrowers, although the magnitude of the pre-funding and ~~inject significant funding through a combination of permanent and temporary open market operations. Global financial markets remain highly susceptible~~liquidity-raising that has been accomplished in 2020 is expected to ~~reversals in risk sentiment, as demonstrated in Q1 2020 with the coronavirus outbreak, which has increased market downside risks significantly.~~mitigate this to an extent.

During the first half of 2020, the civil unrest increasingly seen in many places across the world were partially curtailed by the Covid-19 restrictions put in place by governments. The ~~geopolitical landscape over 2019~~second half of the year, saw an increase in popular protests against long-standing social issues and inequalities and were in some cases triggered by national elections in the US, Africa and Asia. An observable trend in recent protest movements, aided by social media, is the speed and frequency at which they can gather momentum and their evolving forms of leadership. The stability of governments is likely to be tested in different ways and potentially on a more frequent basis as a result, as will the resilience of businesses. As a global organisation, the Group has well-established local and global plans to mitigate the business risks from disruption. These have operated well when deployed across the Group during the Covid-19 crisis and also locally during the outbreaks of unrest seen during 2020 and continued into 2021 in markets where the Group operates. Operational resilience will continue to ~~reflect~~be critically evaluated and enhanced as the longer-term lessons, from the pandemic response in particular, become clearer. Governmental responses to the pandemic have involved a ~~world~~necessary balancing of the impacts to people's health and lives, their individual rights and liberties, and economic growth. These considerations, and the dynamics between and within them, have become increasingly politicised and another source of polarisation and popular discontent which, in ~~an unsettled state of transition. Some nations~~some places, have also provided impetus to protest movements.

Many governments continue to face the challenge of reconciling the inter-connectedness of the global economy with ~~heightened nationalistic sentiment. This has played out~~pressure to prioritise national self-interests. The experience of the pandemic may provide a further impetus to the regionalisation or fragmentation of global trade, investment and standards, and risks undermining efforts in international ~~trade disputes, notably between the US~~cooperation and ~~China during 2019. Increasing polarisation has~~coordination. Into 2021, accessibility to Covid-19 vaccine supplies, which may become a ~~driver~~prolonged challenge, has the potential to contribute to an increase in geopolitical tensions. A key source of geopolitical risk ~~both between nations~~during 2020 was the US-China relationship and ~~within them. Populations appear~~its wider impact on international relations, and this looks likely to ~~be increasingly active~~continue during President Biden's term in ~~voicing~~office. Hong Kong's perceived level of autonomy will remain influential in geopolitical tensions, with potential global trade and ~~acting collectively on their discontent. 2019 has been described as 'the year~~economic consequences. Responses by the US, UK and other governments to the enactment and application of the ~~street protestor' with mass demonstrations having taken place across the world, including~~national security law in ~~Spain, France,~~ Hong Kong ~~India~~ and other constitutional or legislative changes in the Middle East over the course of the year and continuing into 2020. A weakening of civil order and domestic disruption are potential consequences, and this is testing the resilience of businesses and governments. Asterritory, which continue to develop, may impact Hong Kong's economy. Being a ~~global organisation,~~key market for the Group ~~has developed plans~~which also hosts regional and head office functions, this could potentially impact Prudential's sales, operations and product distribution. For internationally active groups which operate across impacted jurisdictions such as Prudential, these government responses and measures add to ~~mitigate business~~the complexity of legal and regulatory compliance. Compliance with Prudential's legal or regulatory obligations in one jurisdiction may conflict with the law or policy objectives of another jurisdiction, or may be seen as supporting the law or policy objectives of that jurisdiction over another, creating additional legal, regulatory compliance and reputational risks ~~arising against this backdrop and engages with national bodies where it can in order to ensure its policyholders, employees and other key stakeholders are not adversely impacted.~~for the Group.

Prudential operates in highly regulated markets, and the nature and focus of regulation and laws ~~remains~~remain fluid. A number of national and international regulatory developments are in progress, with a continuing focus on solvency and capital standards, conduct of business, systemic ~~risks~~risk regulation, corporate governance and senior management accountability, and macroprudential policy. Some of these changes will have a significant impact on the way that the Group operates, conducts business and manages its risks. With geopolitical tensions elevated, the complexity of sanctions compliance is increasing and continues to represent a challenge for international businesses. These regulatory developments will continue to be monitored at a national and global level and form part of Prudential's engagement with government policy teams and regulators. ~~In addition~~The immediate regulatory and supervisory responses to Covid-19 have been broad and have included increased scrutiny of the operational resilience, liquidity and capital strength (including the impact of making dividend payments) of financial services companies as well as changes that have helped the Group to continue to support its customers through non-face-to-face contact. The financial burden in addressing the pandemic is likely to influence changes in governmental fiscal policies, laws or regulations aimed at increasing financial stability, and this may include measures on businesses or specific industries to contribute to, lessen or otherwise support, the financial cost to governments of treating patients and meeting the logistical challenges of providing vaccines. It is possible that requirements are imposed on private insurance companies and healthcare providers to cover costs associated with the treatment and prevention of Covid-19 beyond contractual or policy terms.

Against this evolving regulatory ~~landscape, and following the completion of the demerger in October,~~backdrop, constructive engagement continues with Prudential's Group-wide supervisor, ~~changed, with~~ the Hong Kong IA, ~~assuming the role in October 2019. Constructive engagement continues~~ on the Group-wide Supervision ~~Framework~~ (GWS) ~~that will apply to the Group, which~~Framework. The GWS Framework is expected to be ~~finalised~~effective for Prudential upon designation by the Hong Kong IA in ~~2020.~~the second quarter of 2021, subject to transitional arrangements. The primary legislation was enacted in July 2020 and will come into operation on 29 March 2021. The framework adopts a principle-based and outcome-focused approach, and allows the Hong Kong IA to exercise direct regulatory powers over the holding companies of multinational insurance groups, reinforcing Hong Kong's position as a preferred base for large insurance groups in Asia Pacific and a global insurance hub. During 2020, the Hong Kong IA engaged with the Group and other relevant stakeholders in the development of the GWS framework, which will be anchored on the requirements for three pillars: capital, risk and governance, and disclosure.

~~Increasingly, a~~The experience of the pandemic has underlined the ability of evolving demographic, geographical and environmental factors to change the nature, likelihood and impact of extreme events. These factors can also drive public health trends such as increasing obesity, with consequential potential impacts to Prudential's underwriting assumptions and product design. While insights can be gleaned from the current pandemic, the unique set of variables associated with extreme events means that their impact on the functioning of society, and the disruption to business operations, staff, customers and sales, cannot be predicted or fully mitigated. The Group has been actively managing the impact of the crisis as it has developed over 2020 and into 2021, including assisting affected policyholders and staff in meeting their resulting needs.

In support of increased ease of access and social inclusion, and to meet evolving customer needs, the Group is increasing its use of digital services, technologies and distribution methods for the products and services that it offers. The Covid-19 pandemic has accelerated these developments, with the Group's businesses having implemented virtual face-to-face sales of select ranges of products in many of its markets, and adoption of Prudential's Pulse application has continued to increase. The digital health platform is now available in 15 markets in 11 languages, with total downloads having reached 20 million as of February 2021. Changes to the Group's use of technology and distribution models have broad implications, touching on Prudential's conduct of business, increasing the risks of technology and data being compromised or misused and potentially leading to new and unforeseen regulatory issues.

A strong sense of purpose for an enterprise is ~~being seen as~~ a driver of long-term profitability, and this is making companies evaluate their place in, and contribution to, society. The 'why and how' a business acts has become arguably at least as important as what it produces or the services that it provides. ~~Similarly, understanding~~Understanding and managing the environmental, social and governance (ESG) ~~implications~~impact and requirements of ~~the Group's~~its business is fundamental to Prudential's brand, reputation and ultimately its long-term success. Ensuring high levels of transparency and responsiveness to stakeholders is a key aspect of this. ~~Key social issues with implications~~Recent events have highlighted the structural inequalities in our societies and are prompting organisations to question where they stand on these important issues. Prudential's ESG Strategic Framework is designed to deliver on its purpose of 'helping people get the most out of life'. It includes a focus on inclusivity: inclusivity of access to quality healthcare, protection and savings for ~~the Group include risks arising from demographic changes as well as those arising from privacy and data security requirements and expectations.~~

Recent changes in demographic, geographical and environmental factors have driven public health trends, such as obesity, and changed the nature, likelihood and impact of extreme events such as pandemics, with a consequential impact on Prudential's underwriting assumptions and product design. Given the unique set of variables associated with extreme events, past experience is not an indicationour customers; inclusivity of the ~~likely impact or ability to deal with future occurrences. The coronavirus outbreak demonstrates~~working environment for our people; and inclusivity in the unpredictable nature of such events and the impact run on the functioning of society, with consequential disruption to business operations, staff, customers and sales. The Group is actively managing this impact including assisting affected policyholders and staff in meeting their needs.

InGroup's support of ~~increased social inclusion~~the transition to low-carbon in the economies, markets and ~~to meet evolving customer needs, the Group is increasing its use of digital services, technologies and distribution methods for the products and services that~~communities in which it offers. This amplifies the risks to Prudential associated with regulations and expectations in relation to privacy and data security. These changes to the Group's use of technology and distribution models have broad implications, touching on Prudential's conduct of business, increasing the risks of technology and data being compromised or misused and potentially leading to new and unforeseen regulatory issues.operates.

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

This section provides an overview of the Group's strategy, ~~and~~ the significant risks arising from the delivery of this strategy. The risks outlined below, which are not exhaustive, are discussed in more detail in ~~sections 5 and 6.~~section 5.

Appropriately managed risks allow Prudential to take business opportunities and enable the growth of its business. Effective risk management is therefore fundamental in the execution of the Group's business strategy. Prudential's approach to risk management must be both well embedded and rigorous, closely aligned to the Group's key stakeholders and operate across the entire group. As the economic and political environment in which we operate changes, it should also be sufficiently broad and dynamic to respond to these changes.

Prudential has in place a system of governance that promotes and embeds a clear ownership of risk, processes that link risk management to business objectives and a proactive Board and senior management providing oversight of risks. Mechanisms and methodologies to review, discuss and communicate risks are in place together with risk policies and standards to ~~ensure~~enable risks ~~are~~to the Group to be identified, measured and assessed, managed and controlled, monitored and reported.

Prudential defines 'risk' as the uncertainty that is faced in implementing the Group's strategies and achieving its objectives successfully, and includes all internal or external events, acts or omissions that have the potential to threaten the success and survival of the Group. Accordingly, materialMaterial risks ~~will be~~are retained selectively when it is considered that there is value in doing so, and where it is consistent with the Group's risk appetite and philosophy towards risk-taking.

~~Risk management is embedded across the Group through the~~ The Group Risk Framework, which is owned by the Board, ~~and~~ details Prudential's risk governance, risk management processes and risk appetite. The Group's risk governance arrangements are based on the ~~concept of the~~ 'three lines of defence' model, comprising risk taking and management, risk control and oversight, and independent ~~assurance and has been developed to monitor the risks to our business.~~assurance. The aggregate Group exposure to its key risk drivers is monitored and managed by the ~~Group~~ Risk, Compliance and Security function, which is responsible for reviewing, assessing, providing oversight and reporting on the Group's risk exposure and solvency position from the Group economic, regulatory and ratings perspectives.

~~In 2019,~~During 2020, the Group ~~reviewed~~has continued to review and ~~updated~~update its policies and processes for alignment with the requirements of its ~~new~~ Group-wide supervisor. The ~~frameworks relating to oversight of transformation risk and model risk were further embedded and the~~ Group has also focused on development of aits Group-wide customer conduct risk framework ~~building on~~and policy; its ~~existing customer commitments policy.~~AI ethics principles; and enhancements to its operational resilience.

The following section provides more detail on our risk governance, risk culture and risk management process.

Broadly, the risks assumed across the Group can be categorised as those relating to its financial ~~situation,~~situation; its business and ~~industry,~~industry; regulatory and legal ~~compliance~~compliance; and those relating to ESG. Principal risks, whether materialising within the Group or at third parties on which the Group relies, may have a financial impact and could also impact the performance of products or services provided to customers and distributors and ~~its~~the ability to fulfil commitments to customers, giving rise to potential risks to its brand and reputation. These risks, which are not exhaustive, are ~~summarised~~detailed below. The materiality of these risks, whether material at the level of the Group or its business units, is also indicated. ~~Further information on some of these risks and the risk management and mitigation in place are included in section 6.~~ The Group's disclosures covering risk factors are aligned to the same categories and can be found atunder the ~~end~~Risk Factors section of this document.

In reading the sections below, it is useful to understand that there are some risks that Prudential's policyholders assume by virtue of the nature of their products, and some risks that the ~~Company~~Group and its shareholders assume. Examples of the latter include those risks arising from assets held directly by and for the ~~Company~~Group or the risk that policyholder funds are exhausted. This report is focused mainly on risks to the shareholder but will include those which arise indirectly through ~~our~~ policyholder exposures.

The Group has responded in a number of ways to the risks arising from the coronavirus pandemic; some responses were part of existing risk management processes and procedures, while others have been initiated specifically in response to the pandemic, in particular during the acute phases experienced in Q1 and Q2.

The Group Critical Incident Procedure (GCIP) defines specific governance to be invoked in the event of a critical incident, such as a significant market, liquidity or credit-related event. This includes, where necessary, the convening of a Critical Incident Group (CIG) to oversee, coordinate, and where appropriate, direct any activity during a critical incident. In response to the economic and financial market shocks triggered by the Covid-19 pandemic the Group CRCO invoked the GCIP and convened a series of CIG meetings to provide high-cadence monitoring and management of potential threats to the capital or liquidity position of the Group. Local Incident Management teams were also activated to monitor and manage the tailored response required to support the operations, customers and employees of the Group's businesses.

These risks arising from Covid-19, and the Group's responses to them, are summarised below, with further information provided, where relevant, within the descriptions of the Group's principal risks.

Changes in global economic conditions can impact Prudential directly; for example, by leading to reduced investment returns and fund performance and liquidity, and increasing the cost of promises (guarantees) that have been made to the Group's ~~financial situation, including those~~customers. Changes in economic conditions, such as the abrupt and uncertain longer-term impacts resulting from the ~~external macroeconomic~~Covid-19 crisis, can also have an indirect impact on the Group; for example, leading to a decrease in the propensity for people to save and buy Prudential's products, as well as changing prevailing political attitudes towards regulation.

The geopolitical environment can also impact the Group in a wide range of ways, both directly and indirectly. Financial markets and economic sentiment have been highly susceptible to geopolitical developments in recent years, with implications for the Group's financial situation. We have seen in recent times that geopolitical tensions can result in the imposition of protectionist or restrictive regulatory and trading requirements by governments and regimes. The Covid-19 pandemic has further prompted governments to rethink the current globalised nature of supply chains, while accessibility to vaccine supplies has the potential to contribute to an increase in geopolitical tensions. These factors may have geopolitical and trading implications, the full extent of which may not be clear for a while. Various governments have effected, or may effect, the postponement of elections and other constitutional or legislative processes in response to the pandemic, and the longer-term impact from this increase in constitutional and political uncertainty remains to be seen. The pandemic has had a negative impact on all economies, with increased fiscal burdens, higher levels of borrowing and reduced revenues. These pressures will impact on the business operating environments, for example, through changes to taxation, and are likely to contribute to political pressures for governments.

Responses by the US, UK and other governments to the enactment and application of the national security law in Hong Kong and other constitutional or legislative changes in the territory, which continue to develop, may impact Hong Kong's economy. Being a key market for the Group which also hosts regional and head office functions, this could potentially impact Prudential's sales, operations and product distribution. For internationally active groups which operate across impacted jurisdictions such as Prudential, these government measures and responses add to the complexity of legal and regulatory compliance. Compliance with Prudential's legal or regulatory obligations in one jurisdiction may conflict with the law or policy objectives of another jurisdiction, or may be seen as supporting the law or policy objectives of that jurisdiction over another, creating additional legal, regulatory compliance and reputational risks for the Group. All these factors can increase the operational, business disruption, regulatory and financial market risks to the Group and can directly impact its sales and distribution networks. Developments in Hong Kong and the continuing impacts of the pandemic are being closely monitored by the Group and plans have been enacted to manage the disruption to the business, its employees and its customers within existing business resilience processes. Further information on the Group's business disruption risks are included below.

Macroeconomic and geopolitical ~~environment~~risks are considered material at the level of the Group.

~~The main drivers~~This is the potential for reduced value of ~~market risk~~Prudential's investments resulting from the volatility of asset prices, driven by fluctuations in equity prices, interest rates, foreign exchange rates and property prices. Interest rates in the ~~Group are:~~

The Group has appetite for market risk where it arises from profit-generating insurance activities to the extent that it remains part of a balanced portfolio of sources of income for shareholders and is compatible with a robust solvency position.

As noted above, in response to the economic and financial market shocks triggered by the Covid-19 pandemic, the Group CRCO invoked the GCIP and convened a series of CIG meetings to provide high-cadence monitoring and management of any potential threats to the capital or liquidity position of the Group.

Prudential invests in bonds that provide a regular, fixed amount of interest income (fixed income assets) in order to match the payments needed to policyholders. It also enters into reinsurance and derivative contracts with third parties to mitigate various types of risk, as well as holding cash deposits at certain banks. As a result, it is exposed to credit risk and counterparty risk across its business.

Credit risk is the potential for reduction in the value of investments which results from the perceived level of risk of an investment issuer being unable to meet its obligations (defaulting). Counterparty risk is a type of credit risk and relates to the risk of the counterparty to any contract we enter into being unable to meet their obligations causing us to suffer loss.

The Group has some appetite to take credit risk where it arises from profit-generating insurance activities, to the extent that it remains part of a balanced portfolio of sources of income for shareholders and is compatible with a robust solvency position.

~~A number of risk management tools are used to manage and mitigate this credit risk, including the following:~~

Credit risk also arises from the debt portfolio in the Asia business comprising the shareholder, with-profit and unit-linked funds, the value of which was $74.7 billion at 31 December 2019. The majority (67 per cent) of the portfolio is in unit-linked and with-profits funds and so exposure of the shareholder to this component is minimal. The remaining 33 per cent of the debt portfolio is held to back the shareholder business.

In the general account of the Group's US business, $58.5 billion of debt securities are held to support shareholder liabilities including those from our fixed annuities, fixed index annuities and life insurance products.

~~The shareholder-backed debt portfolio of the Group's other operations was $1.3 billion as at 31 December 2019.~~

~~Further details of the composition and quality of our debt portfolio, and exposure to loans, can be found in the IFRS financial statements.~~

~~Prudential also invests in bonds issued by national governments. This sovereign debt holdings represented 21 per cent or $18.0 billion~~¹ of the shareholder debt portfolio of the Group as at 31 December 2019 (31 December 2018: 20 per cent or $14.8 billion of the shareholder debt portfolio attributable to continuing operations). One per cent of this was rated AAA and 83 per cent was considered investment grade (31 December 2018: 84 per cent of the sovereign debt holdings attributable to continuing operations was considered investment grade).

~~The particular risks associated with holding sovereign debt are detailed further in our disclosures on risk factors.~~

~~The exposures held by the shareholder-backed business and with-profits funds in sovereign debt securities at 31 December 2019 are given in note C3.2(d) of the Group's IFRS financial statements.~~

Prudential's exposure to banks is a key part of its core investment business, as well as being important for the hedging and other activities undertaken to manage its various financial risks. Given the importance of its relationship with its banks, exposure to the sector is considered a material risk for the Group.

The exposures held by the shareholder-backed business and with-profits funds in bank debt securities at 31 December 2019 are given in note C3.2(d) of the Group's IFRS financial statements for continuing operations.

The exposure to derivative counterparty and reinsurance counterparty credit risk is managed using an array of risk management tools, including a comprehensive system of limits. Where appropriate, Prudential reduces its exposure, buys credit protection or uses additional collateral arrangements to manage its levels of counterparty credit risk.

Prudential's liquidity risk arises from the need to have sufficient liquid assets to meet policyholder and third-party payments as they fall ~~due. This incorporates~~due, and the Group considers this under both normal and stressed conditions. It includes the risk arising from funds composed of illiquid assets and results from a mismatch between the liquidity profile of assets and liabilities. Liquidity risk may impact on market conditions and valuation of assets in a more uncertain way than for other risks like interest rate or credit risk. It may arise, for example, where external capital is unavailable at sustainable cost, increased liquid assets are required to be held as collateral under derivative transactions or where redemption requests are made against ~~Prudential~~Prudential's external funds.

Prudential has no appetite ~~for liquidity risk, ie~~ for any business to have insufficient resources to cover its outgoing cash flows, or for the Group as a whole to not meet cash flow requirements from its debt obligations under any plausible scenario.

The Group has significant internal sources of liquidity, which are sufficient to meet all of our expected cash requirements for at least 12 months from the date the financial statements are approved, without having to resort to external sources of funding. The Group has a total of ~~£2.0~~$2.6 billion of undrawn committed facilities that can be made use of, expiring in ~~2024.~~2025. Access to further liquidity is available through the debt capital markets and an extensive commercial paper programme is in place, and Prudential has maintained a consistent presence as an issuer in the market for the past decade.

A number of risk management tools are used to manage and mitigate this liquidity risk, including the following:

Credit risk is the potential for a reduction in the value of investments which results from the ~~nature~~perceived level of risk of an investment issuer being unable to meet its obligations (defaulting). Counterparty risk is a type of credit risk and relates to the risk of the counterparty to any contract we enter into being unable to meet their obligations causing the Group to suffer a loss.

The Group has some appetite to take credit risk to the extent that it remains part of a balanced portfolio of sources of income for shareholders and is compatible with a robust solvency position.

A number of risk management tools are used to manage and mitigate this credit risk, including the following:

The total debt securities⁴ at 31 December 2020 were $125.8 billion (31 December 2019: $134.6 billion). Credit risk arises from the debt portfolio in the Asia business comprising the shareholder, with-profit and unit-linked funds, the value of which was $89.6 billion at 31 December 2020. The majority (69 per cent) of the portfolio is in unit-linked and with-profits funds. The remaining 31 per cent of the debt portfolio is held to back the shareholder business.

In the general account of the Group's US business, $36.0 billion of debt securities are held to support shareholder liabilities. The shareholder-backed debt portfolio of the Group's other operations was $0.2 billion as at 31 December 2020. Further details of the composition and quality of our debt portfolio, and exposure to loans, can be found in the IFRS financial statements.

APrudential has a number of significant change programmes ~~are currently running in order~~under way to ~~implement~~deliver the Group's ~~strategic vision, comply with impending~~strategy for growth, improve customer experiences, strengthen its operational resilience and control environment, and meet regulatory ~~changes~~ and industry requirements. If the Group does not deliver these programmes to defined timelines, scope and cost, this may negatively impact on its operational capability; control environment; reputation; and ability to deliver its strategy and maintain market competitiveness. ~~Many of these programmes are interconnected with complex dependencies and/or of large scale,~~

Transformation risk remains a material risk for Prudential. The Group's transformation and ~~may have financial and non-financial implications if they fail to meet their objectives. Additionally, these~~change programmes inherently give rise to design and execution risks, and may introduce new, or increase existing, business ~~risks. These include an increased strain on the operational capacity, newly-implemented controls being ineffective or general weakening of the control environment of the Group.~~risks and dependencies. Implementing further strategic transformation initiatives may amplify these risks. ~~Furthermore,~~In order to manage these ~~programmes require ongoing oversight, coordinated independent assurance and regular monitoring and consolidated reporting, as part of~~risks, the Group's Transformation Risk Framework aims to ~~mitigate the risks~~ensure that, for both transformation and strategic initiatives, strong programme governance is in place with embedded risk expertise to ~~the business.~~achieve ongoing and nimble risk oversight, and regular risk monitoring and reporting to risk committees is delivered.

~~The Group's~~Prudential's current portfolio of transformation and significant change programmes ~~relate to an~~include the proposed demerger of Jackson from the Group; the expansion of ~~its~~the Group's digital capabilities and use of technology, platforms and ~~analytics, improving the efficiency~~analytics; and improvement of ~~certain~~ business ~~functions~~efficiencies through operating model changes (covering data, systems and ~~processes (data, systems,~~ people) ~~and the establishment of new third-party arrangements. The Group's transformation portfolio also includes programmes~~. Programmes related to ~~regulatory~~regulatory/industry change ~~including but not limited to,~~such as the transition to the Hong Kong IA's GWS ~~framework,~~Framework, changes required to effect the discontinuation of ~~IBORs~~inter-bank offered rates (IBORs) in their current form and the implementation of IFRS 17 ~~– see section 6.3~~are also ongoing. See below for further ~~information.~~detail on these regulatory changes. The Group is cognisant that the speed of technological change in the business could outpace its ability to anticipate all the unintended consequences that may arise. While the adoption of innovative technologies such as artificial intelligence has opened up new product opportunities and channels, it also exposes the Prudential to potential information security, operational, ethical and conduct risks which, if not managed effectively, could result in customer detriment and reputational damage. The Transformation Risk Framework therefore operates alongside the Group's existing risk policies and frameworks in these areas to ensure appropriate controls and governance are in place to mitigate these risks.

In the course of doing business, the Group is exposed to non-financial ~~risks arising from~~risks. A combination of the complexity of the Group, its ~~operations,~~activities and the ~~business environment and its strategy.~~extent of transformation in progress creates a challenging operating environment. The Group's main non-financial risks ~~across these areas~~ are detailed below. These risks are considered to be material at the level of the Group.

We note that this table was presented in sterling in the 2019 Annual report. All amounts have been restated to reflect the transition to US dollars as the main reporting currency.

Executive Directors' salaries were reviewed in ~~2018~~2019 with changes effective from 1 January ~~2019.~~2020. When the Committee took these decisions it considered:

~~As reported last year, after~~After careful consideration by the Committee, all Executive Directors received a salary increase of 2 per cent. The ~~2019~~2020 salary increase budgets for other employees across our business units were between 22.5 per cent and ~~5.5~~5.1 per cent.

To provide context for the market review, information was also drawn from the following market reference points:

~~In July 2019,~~ the ~~Group Chief Risk Officer became additionally responsible for~~Covid-19 pandemic and its impact on the Group Compliance function and in August 2019, Mr Turner relocated to Hong Kong to support our dialogue with the Hong Kong IA. The Company supported Mr Turner's relocation and, in order to recognise the expansion of his role and his development since joining the Board, the Committee determined an uplift in base salary of 9 per cent and an increased maximum bonus incentive opportunity from 160 per cent to 175 per cent of base salary were appropriate. No other changes were made during the year to Executive Directors' maximum opportunities under either the annual incentive or the long-term incentive plans.communities Prudential serves globally.

As a result, Executive Directors received the following ~~salary increases:~~salaries in 2020:

Pension benefit arrangements ~~in 2019~~which became effective on 14 May 2020 are set out in the table below. ~~The proposed arrangements for 2020 are described in the 'Statement of implementation in 2020' and in the 'New Directors' remuneration policy' sections.~~

~~For the financial~~Financial AIP metrics ~~which~~ comprise 80 per cent of the bonus opportunity for all Executive Directors apart from the Group Chief Risk and Compliance Officer, ~~the performance ranges are set by the Committee prior to, or at the beginning~~for whom this accounts for 40 per cent of the bonus opportunity. The performance ~~period. These~~ ranges are based on the annual business plans approved by the Board and reflect the ambitions of the Group, ~~and business units,~~ in the context of anticipated market conditions. The financial element of Executive Directors' ~~2019~~2020 bonuses was determined by the achievement of four Group measures, namely adjusted operating profit, operating free surplus generation, EEV new business profit and cash flow, which are aligned to the Group's growth and cash generation focus. The financial element of 2019 bonus award for the Chief Executive, Prudential Corporation Asia is similarly determined by business unit measures in addition to Group measures. The targets set assumed 10 months of M&G plc performance up to the date of demerger.

Personal objectives comprise 20 per cent of the bonus opportunity for all Executive ~~Directors apart from the Group Chief Risk and Compliance Officer, for whom this accounts for 50 per cent of the total bonus opportunity.~~Directors. These objectives ~~are~~were established at the start of the year and reflect the Company's Strategic Priorities set by the Board. For 2020, Executive Directors had one shared strategic objective linked to developing plans to determine the Group's exposure to climate-related risks and opportunities.

Functional objectives account for the remaining 5040 per cent of the Group Chief Risk and Compliance Officer's bonus opportunity. These are based on the Group Risk Plan and are developed with input from the ~~Chairman~~Chair of the Group Risk Committee.

AIP payments are subject to meeting minimum capital thresholds which are aligned to the Group ~~and business unit~~ risk framework and appetites (as adjusted for any Group Risk Committee ~~and/or business unit risk committees~~ approved counter-cyclical buffers)., as described in the Group Risk Framework section of this report.

The Committee seeks advice from the Group Risk Committee on risk management considerations to inform decisions about remuneration architecture and performance measures to ensure that risk management, culture and conduct are appropriately reflected in the design and operation of Executive Directors' remuneration.

The Committee determines the overall value of the bonus, taking account of the inputs described above and any other factors which it considers relevant. The table below illustrates the weighting of performance measures for ~~2019~~2020 and the level of achievement under the ~~AIP:~~AIP. As set out earlier in this report, the Committee exercised discretion to reduce the bonus outcome for Mike Wells by 30 per cent:

The Committee reviewed performance against the performance ranges at its meeting in February ~~2020.~~2021. Group adjusted operating profit was approaching the stretch ~~targets.~~target. Group free surplus generation exceeded the stretching ~~targets~~target established by the Board. ~~All~~Below threshold Group cash flow reflects the lower level of our business units achieved target remittance levels, which were 3 per cent higher than 2018 for our continuing operations, enabling us to maintain significant cash stock at the centre, after dividends, corporate costs, demerger effects and investing in profitable opportunities withinremittances received from the business units. ~~The business unit remittances contributed to Group cashflow, which approached the stretch target level. Group EEV~~Life new business profit achievement was ~~6 per cent lower than prior year on a constant exchange rate basis. This reflected~~below threshold reflecting the ~~significant reduction in interest rates during the year and the challenging trading environment in Hong Kong in the second half~~negative impact of the year as a direct result of political unrest in the region. Excluding Hong Kong, Asia new business profit was 29 per cent above prior year and given the strong performance of NBP absent the Hong Kong protests, the Committee considered it appropriate to adjust the EEV new business profit target to reflect the reduction in Hong Kong sales driven by the protests, which was considered to be outside of management's control. Allowing for this adjustment, Group EEV new business profit was between target and stretch target.Covid-19.

The Committee considered a report from the Group Chief Risk and Compliance Officer which had been approved by the Group Risk Committee. This report confirmed that the ~~2019~~2020 results were achieved within the Group's and business units' risk framework and appetite. The Group Chief Risk and Compliance Officer also considered the effectiveness of risk management and internal controls, and specific actions taken to mitigate risks, particularly where these may be at the expense of profits or sales. The report also confirmed that the Group met minimum capital thresholds which were aligned to the Group ~~and business unit~~ risk framework and appetites. The Committee took into account this advice when determining AIP outcomes for Executive Directors.

The level of performance required for threshold, plan and maximum payment against the Group's ~~2019~~2020 AIP financial measures and the results achieved are set out below:

The Committee had regard to the achievement against the performance measures and the Group Chief Risk and Compliance Officer's report and decided to apply a discretionary adjustment to the arithmetic outcome under the financial element of the 2019 bonus as discussed above. The impact of this adjustment was an increase in bonus awards of approximately 9.8 per cent for the Group Chief Executive and Group Chief Financial Officer and Chief Operating Officer. The Board believes that, due to the commercial sensitivity of the business unit targets, disclosing further details of these targets may damage the competitive position of the Group.

As set out in our Directors' remuneration policy, a proportion of the annual bonus for each Executive Director is based on the achievement of personal objectives including:

For 2019, the Committee decided that, in addition to personal objectives for which they were each accountable, the Executive Directors should be given shared objectives relating to the demerger in light of the importance this had for the Group.

At the end of the year, the Committee considered the performance of all executives ~~eligible for a Prudential plc bonus in respect of their 2019 Board service~~ against objectives established at the start of the year. At its meeting in February ~~2020,~~2021, it concluded that there had been a high level of performance against these ~~2019~~2020 objectives. All executives met their individual conduct measures and each Executive Director made a significant contribution to the achievement of Group strategy during ~~2019.~~

The below summarises performance against the ~~shared~~personal objectives and ~~individual personal objectives~~strategic priorities for the current Executive Directors:

The Group Chief Executive and the Chair of the Group Risk Committee undertakes the assessment of performance against functional objectives for the Group Chief Risk and Compliance Officer. 2020 achievement is summarised below:

~~The below summarises performance against the personal objectives for the Executive Directors who retired from the Board during the year and who remain employed by the Group:~~

In 2019, the Jackson bonus pool was determined by Jackson National Life Insurance Company's profitability, remittances to Group and advisory sales. Financial performance in the period reflects the impact of strong equity markets, lower interest rates, and a more diverse product mix. Further detail on this performance is set out below. The Committee also considered performance in a number of key activities and the delivery against certain non-financial Group requirements. As a result of this assessment, the Committee determined that Michael Falcon's share of the bonus pool for his service on the Board was $1,282,000. Forty per cent of this award is deferred into shares for three years.

The Committee determined the ~~following 2019~~2020 AIP awards below on the basis of the performance of the Group and ~~its business units and its consideration~~ of the ~~total bonus value in light of its view of all relevant circumstances,~~individual executives. In making these decisions, it reflected on factors including:

As set out earlier in this report, the Committee exercised discretion to reduce the 2020 bonus outcome for Mike Wells by 30 per cent.

~~Remuneration~~Long-term incentives vesting in respect of performance ~~periods ending in 2019~~to 31 December 2020

Our long-term incentive plans have stretching performance conditions that are aligned to the strategic priorities of the Group. In ~~2017,~~2018, all Executive Directors were granted awards under the PLTIP. In determining the financial targets the Committee had regard to the stretching nature of the three-year Business Plan for adjusted operating profit and capital positions as set by the Board. Further, in setting the conduct and diversity targets under the sustainability scorecard, the Committee considered input from Group-wide Internal Audit and the Group Chief Risk and Compliance Officer on conduct risk for the conduct measure and had regard to the Company's commitment under the Women in Finance Charter for the diversity measure.

Further details may also be found in note ~~B2.2~~B2.1 to the consolidated financial statements.

As discussed in the section on 'Remuneration decisions taken in relation to the demerger', of the 2019 Directors' remuneration report, the Committee adjusted the performance conditions attached to the ~~2017~~2018 PLTIP awards in order to take account of the demerger, ensuring that the revised performance conditions are no more or less stretching than those originally attached to the awards. The performance assessment provided below is based on these adjusted targets.

In deciding the proportion of the awards to be released, the Committee considered actual financial results against performance targets. The Committee also reviewed underlying Company performance to ensure vesting levels were appropriate, including an assessment of whether results were achieved within the Group's risk framework and appetite. Finally, overall vesting levels were reviewed to ensure that levels of reward provided remain reflective of the Company's performance in the challenging circumstances. The Directors' remuneration policy summary section contains further details of the design of Prudential's long-term incentive plans.

Under the adjusted operating profit measure, 25 per cent of the 2018 awards vest for meeting the threshold adjusted operating profit target set at the start of the performance period, increasing to full vesting for performance at or above the stretch level. The table below illustrates the cumulative performance achieved over 2018 to 2020 compared to the adjusted Group targets which exclude M&G plc from the point of demerger:

The cumulative adjusted operating profit target established for the PLTIP is expressed using exchange rates consistent with the reported disclosures.

Under the Group TSR measure ~~used for 2017~~attached to 2018 PLTIP awards, 25 per cent of the award vests for TSR at the median of the peer group increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basis since this has the benefit of simplicity and directness of comparison. No adjustments were made to the peer group ~~has been made~~used for 2018 awards in respect of the demerger. The peer group for the ~~2017~~2018 awards is set out below:

Following the merger of Standard Life and Aberdeen Asset Management during the three-year performance period, the Committee determined that Standard Life would be retained in the peer group for the pre-merger period and the combined entity would be included in the peer group from the date of the merger for all outstanding PLTIP awards. In addition, following the demerger of Quilter from Old Mutual and Old Mutual's delisting from the FTSE on 26 June 2018, the Committee determined that Old Mutual be retained as a TSR peer with no adjustment to its performance during the period prior to its demerger and delisting, and that Old Mutual's TSR performance from the date of its demerger and delisting would track an index of the peers (excluding Prudential plc) for all outstanding PLTIP awards.

In deciding the proportion of the awards to be released, the Committee considered actual financial results against performance targets. The Committee also reviewed underlying Company performance to ensure vesting levels were appropriate, including an assessment of whether results were achieved within the Group's and business units' risk framework and appetite. The Directors' remuneration policy contains further details of the design of Prudential's long-term incentive plans.

Under the adjusted operating profit measure, 25 per cent of the 2017 awards vest for meeting the threshold adjusted operating profit target set at the start of the performance period, increasing to full vesting for performance at or above the stretch level. The table below illustrates the cumulative performance achieved over 2017 to 2019 compared to the adjusted Group targets which exclude M&G plc from the point of demerger:

The Committee determined that the cumulative adjusted operating profit target established for the PLTIP should be expressed using exchange rates consistent with the reported disclosures. Individual business units achieved between 86 per cent and 100 per cent vesting under this element. Details of business unit adjusted operating profit targets have not been disclosed as the Committee considers that these are commercially sensitive and disclosure of targets at such a granular level would put the Company at a disadvantage compared to its competitors.

Prudential's TSR performance during the performance period (1 January ~~2017~~2018 to 31 December ~~2019)~~2020) was ranked below the median of the peer group. The portion of the awards related to TSR will therefore lapse.

Capital ~~measure~~measures – Group Solvency II operating capital generation/Group operating free surplus generation

~~The vesting profile for~~Under the Group Solvency II operating capital generation and Group operating free surplus generation measure, ~~is binary, awarding~~performance below threshold results in nil vesting, 25 per cent of the award vests for achieving threshold, increasing to full vesting for ~~achieving plan and no vesting for any level of~~ performance ~~below plan.~~above the stretch level. The weighted average of the adjusted Group Solvency II operating capital generation from 1 January ~~2017~~2018 to 30 June 2019 (target ~~$7.4bn)~~

$7.0 billion) and the Group operating free surplus generation from 1 July 2019 to 31 December ~~2019~~2020 (target ~~$2.2 bn)~~$5.6 billion), which excludes M&G plc performance from the point of demerger, ~~was in excess of~~met the cumulative stretch target and therefore generated 100 per cent vesting on this element.

~~The vesting profile for~~Under the Group ECap operating capital generation measure, ~~is binary, awarding~~performance below threshold results in nil vesting, 25 per cent of the award vests for achieving threshold, increasing to full vesting for ~~achieving plan and no vesting for any level of~~ performance ~~below plan.~~above the stretch level. The adjusted cumulative Group ECap operating capital generation was below the target of ~~$8.5bn~~$6.8 billion (which excludes M&G plc from the point of demerger) and therefore generated a ~~zero~~0 per cent vesting outcome on this element of the PLTIP.

Details of cumulative achievement under the capital measures have not been disclosed as the Committee considers that these are commercially sensitive and would put the Company at a disadvantage compared to its competitors. The Committee will keep this disclosure policy under review based on whether, in its view, disclosure would compromise the Company's competitive position.

~~The~~Under the conduct measure, performance below threshold results in nil vesting, ~~profile~~25 per cent of ~~this element is binary with~~the award vests for partial achievement of Group's expectations, increasing to full vesting ~~being awarded where~~for achieving the Group's expectations. During the performance period there ~~are~~were no ~~significant conduct/culture/~~conduct, culture or governance issues that ~~result~~resulted in significant capital add-ons or material ~~fines. On 30 September 2019, the FCA fined M&G plc £23,875,000 for failures related to the non-advised sale~~fines so 100 per cent of ~~annuities between July 2008 and September 2017. Since~~ this ~~occurred before the demerger of M&G plc from the Group, the Committee determined that the portion~~element of the ~~2017~~ PLTIP ~~awards related to conduct held by Group Executive Directors should lapse.~~vested.

Under the diversity measure, performance below threshold results in nil vesting, 25 per cent of the award vests for achievement of threshold diversity target (27 per cent of Leadership Team being female) increasing to full vesting for achieving the stretch diversity target (29 per cent of Leadership Team being female). On 31 December ~~2019, 28~~2020, 32.5 per cent of our Leadership Team was female. Since this was above the 2729 per cent level required for full vesting, the portion of the awards related to diversity that therefore vested was 100 per cent. Please note that in 2019 the Leadership Team was subdivided into the Leadership Team and the Executive Council. Both of these leadership groups are considered for the purposes of this assessment.

The Committee considered a report from the Group Chief Risk and Compliance Officer which had been approved by the Group Risk Committee. This report confirmed that the financial results were achieved within the Group's ~~and business units'~~ risk framework and appetite. On the basis of this report and the performance of the Group ~~and its business units~~ described above, the Committee decided not to apply a discretionary

adjustment to the arithmetic vesting outcome under the ~~2017~~2018 PLTIP awards and determined the vesting of each Executive Director's PLTIP awards as set out below:

The table below shows the awards of conditional shares made to Executive Directors ~~who served on the Board in 2019~~ under the PLTIP and the performance conditions attached to these awards. Awards are made annually with face value determined by reference to each Director's salary, as set out in the Directors' remuneration policy. As set out earlier in this report, the increase planned to the PLTIP award level for Mr. FitzPatrick was not applied and the award was made at 250 per cent of salary.

Under the 2020 sustainability scorecard, performance ~~against targets~~will be assessed for ~~awards made in 2018 and 2019~~

As set out in the section on 'Remuneration decisions taken in relation to the demerger', the Committee has adjusted the performance conditions attached to the 2018 and 2019 awards in order to take accounteach of the demerger, ensuring that the revised performance conditions are no more or less stretching than those originally attached to the awards. The performance update provided below is based on these adjusted targets.

Prudential's Group adjusted operating profit performance between 1 January 2018 and 31 December 2019 was above the stretch target established for the 2018 PLTIP awards. Group adjusted operating profit was not used as a performance measure for the 2019 PLTIP awards.

Asfour measures, at ~~31 December 2019, Prudential's TSR performance ranked below the peer group median for the elapsed portions of the 2018 and 2019 performance periods.~~

~~Between 1 January 2018 and 31 December 2019, the Group also made good progress towards meeting the measures under the sustainability scorecard used for the 2018 and 2019 PLTIP awards:~~

The chart ~~overleaf~~below illustrates the TSR performance of Prudential, the FTSE 100 (as the Company has a premium listing on the London Stock Exchange) and the peer group of international insurers used to benchmark the Company's performance for the purposes of the ~~2019~~2020 PLTIP awards. The chart illustrates the performance of a hypothetical investment of ~~£100~~$100 in ordinary shares of Prudential plc over the 10-year period 1 January ~~2010~~2011 to 31 December ~~2019~~2020 compared to a similar investment in the FTSE 100 or an index of the Company's peers. Total shareholder return is based on Returns Index data calculated on a daily share price growth plus re-invested dividends (as measured at the ex-dividend dates).

~~Prudential TSR vs FTSE 100 and peer group average — total return per cent over 10 years to December 2019~~

Note
The index of Prudential's peers represents the average daily total shareholder return performance of the peer group used for the ~~2019~~2020 PLTIP awards (excluding companies not listed at the start of the period).

The information in the table below shows the total remuneration for the Group Chief Executive over the same period:

The table below sets out the amounts payable in respect of 2019 and 2020 on all employee pay and dividends:

The table below sets out how the change in remuneration for ~~the Group Chief Executive~~each Director between ~~2018~~2019 and ~~2019~~2020 compared to a wider employee comparator group:

The ~~employee comparator group used for~~regulations prescribe that this comparison should include all employees of the ~~purpose~~parent company. The number of ~~this analysis~~individuals employed by the parent company is ~~all UK employees. This is considered~~insufficient to be ~~an appropriate comparator group~~the basis of a representative comparison. Therefore the Committee decided to use all UK-based employees as the ~~Group Chief Executive's~~basis for this calculation. As disclosed in the 2019 Directors' remuneration ~~arrangements are similar in structure to the majority of these~~report, employees and it reflects the economic environment where the Group Chief Executive is employed. For 2018 this group included employees in M&GPrudential and Group Head Office. For 2019, this group included UK-based Group Head Office employees only. Employees in M&G plc have been excluded from the calculation of average pay in 2019 as M&G plc demerged from Prudential plc on 21 October 2019. ~~M&G plc~~The average pay for all employees ~~are no longer within~~has been calculated on a full-time equivalent basis by reference to the ~~Group~~total pay awarded to UK employees in 2020 and ~~Prudential plc does not have any influence over or knowledge of pay decisions, including 2019 bonus awards, for employees within M&G plc.~~2019. The salary increase includes uplifts made through the annual salary review, as well as any additional changes in the year; for example to reflect promotions or role changes. The decrease in benefits paid to ~~the Group Chief Executive is driven by the cessation of the payment of mortgage interest on 30 November 2018. The decrease in benefits paid to~~ all UK employees is due to the reduction in the cost to the Company of providing certain benefits. ~~There has been no change to the level of taxable benefit coverage received by employees.~~

To increase further transparency of executive remuneration and its alignment with the pay of other employees, we published our CEO pay ratio one year in advance of the disclosure becoming a requirement under the UK Companies (Miscellaneous Reporting) Regulations 2018 in the 2018 Directors' remuneration report. The employee comparator group used for the purpose of this 2018 analysis was all UK employees comprising employees in M&GPrudential and Group Head Office in 2018. In light of the demerger of the M&G plc business from Prudential plc on 21 October 2019, we have prepared the 2019 CEO pay ratio based on UK-based Group Head Office employees since Prudential plc no longer has any influence over or knowledge of pay decisions, including 2019 bonus awards, for employees within M&G plc. On this basis, the Committee has decided that the 2018 CEO pay ratio will not be restated in this report and that the 2019 CEO pay ratio will form the base year of reporting given the fundamental changes to the UK workforce which have resulted from the demerger.

The table below compares the Group Chief Executive's 'single figure' of total remuneration to that received by three representative UK employees in ~~2019.~~2020.

The pay ratio decreased in 2020 which chiefly reflects the higher pay outcomes for the identified employees and a lower bonus outcome for the Group Chief Executive.

Under the regulations there is a choice of three methodologies to determine the 25th, median and 75th full-time equivalent remuneration of our UK employees. ~~This is~~The Company has chosen to use the ~~most recently collected data~~2020 hourly rate gender pay gap information (collected in accordance with the Equality Act 2010 (Gender Pay Gap Information) Regulations ~~2017 and includes all UK employees. The Company has chosen to use the 2019 hourly rate gender pay gap information~~2017) as this method uses data that is aligned with other disclosures made under our gender pay gap reporting and includes all UK employees ('Option B' in the table above). The employees used in the calculations were identified using the most ~~recent~~recently collected gender pay gap data, ~~for 2019,~~ on 2329 January ~~2020,~~2021, following the end of the financial year. Base salary and total remuneration for these identified employees has then been calculated based on their actual remuneration for ~~2019.~~2020. The Committee determined that the identified employees are reasonably representative since the structure of their remuneration arrangements is in line with that of the majority of employees within the UK-based Group Head Office workforce. The same methodology used for calculating the 'single figure' of the Group Chief Executive has been used for calculating the pay and benefits of these three UK employees.

~~Table~~ No elements of ~~Contents~~remuneration were omitted or adjusted. The identified individuals were employed on a full-time basis so no further adjustment has been made to their remuneration.

The salary and total remuneration received during ~~2019~~2020 by the indicative employees used in the above analysis are set out below:

The Committee believes the median pay ratio is consistent with the pay, reward and progression policies for our UK-based Group Head Office employees. The base salary and total remuneration levels for the Group Chief Executive and the median representative employee are competitively positioned within the relevant markets and reflect the operation of our remuneration structures which are effective in appropriately incentivising staff, having regard to our risk framework, risk appetites and to rewarding the 'how' as well as the 'what' of performance.

Our UK business, Prudential Services Limited, is the employing entity for ~~almost~~ all of our London Head Office staff including the UK-based Group Chief Executive and his direct reports. Prudential Services Limited has recently reported its ~~2019~~2020 UK gender pay gap data and details can be found on the Group's ~~website. There has been a further narrowing of most of~~website (www.prudentialplc.com/about-us/esg/performance/gender-pay-gap-report). Due to the change in the Group's business focus, senior management roles are now split between locations in the UK and Asia. The 2020 gender pay gap ~~figures. Where~~calculations are based on the employees based in the UK only, and therefore exclude data for part of our senior management team, including a number of senior female leaders, who are based in Hong Kong.

While women and men continue to be paid equally for performing similar roles, our gender pay gap reflects the fact that men and women ~~perform similar~~have traditionally held different roles, ~~they are paid equally but~~particularly in the financial services sector. It highlights the fact that we have more men than women in leadership and senior operational roles. In addition, a number of senior roles were transferred to M&G as part of the demerger process. Some of these senior roles were held by women, and as M&G is now excluded from our calculations, this has affected Prudential's reported gender pay gap for this year. We continue to focus our efforts on closing the gender pay gap ~~reflects that men and women are doing different roles. We remain focused on closing the remaining pay gap~~ as ~~soon~~quickly as ~~possible and on ensuring that we attract applicants~~possible. Female representation in our leadership roles has increased from ~~all backgrounds and create opportunities for all~~25 per cent in 2017 to 33 per cent in 2020 in our employees to develop and progress in order to ensure that we have the diverse talent needed by the Group to better reflecting the communities we serve. However, the gender pay gap demonstrated the demographic profile of the business (and the financial services sector more widely): there is a greater proportion of males in more senior and front-office roles and a greater proportion of females in more junior, support and back-office non-finance roles. All the Group's businesses are continuing to work on initiatives to increase the proportion of women in senior management and operating roles as part of the Group's strategic focus on diversity and inclusion as described in the diversity and inclusion statement on our website. This important priority is reflected in the Group's reward structure through the diversity measure attached to PLTIP awards granted from 2017 onwards.London Head Office.

During the year, the Committee considered workforce remuneration and related policies in the business units across the Group. Information presented to the Committee, by way of a dashboard, included how the Company's incentive arrangements are aligned with the culture and informed the Committee's decision-making on executive pay and policy. By way of example, business unit salary increase budgets are considered as part of the year-end review of Executive Director compensation and salary increases.

As part of the Board's wider ~~initiatives,~~approach to employee engagement, which also included ~~the appointment of designated Non-executive Directors who led on workforce~~a Group-wide engagement ~~during the year as detailed in the 'Governance' section earlier in this Annual report,~~survey, the Committee took additional measures in ~~2019~~2020 to explain how the remuneration of Executive Directors aligns with the wider ~~company~~Company pay policy. The Company ~~established~~operates a microsite on its intranet that outlines executive pay arrangements during the previous financial year and key areas of change for ~~2019.~~2020. It explains to employees that total remuneration for Executive Directors is made up of a number of elements and is governed by both the Directors' remuneration policy and the Group's remuneration policy (which is also published on the Company's website) with the relevant links to these documents.

~~Relative importance~~ Employee engagement is led by two Non-executive Directors and the Governance section of ~~spend on pay~~this report describes how they discharged this responsibility during 2020.

~~The table below sets out the amounts payable in respect of 2018 and 2019 on all employee pay and dividends:~~

The ~~Chairman's~~Chair fee was reviewed by the Committee during ~~2019 and increased by 2 per cent to~~2020 which resulted in no increase being awarded. The fee remains at £765,000 ($981,000 converted at the exchange rate of 1.2824). As disclosed in the Governance section of this Annual report, Shriti Vadera became the Chair of the Board from 1 January 2021. Her 2021 fee has been set at £765,000 ($981,000) with effect from ~~1 July 2019 in order to reflect inflation.~~that date.

The Non-executive Directors' fees were reviewed by the Board during 2019 and the basic fee was increased from £97,000 to £99,000, the Remuneration Committee Chair fee increased from £60,000 to £65,000 while the Nomination & Governance Committee member fee increased from £12,500 to £15,000. No other fees were increased. The Board also introduced a £30,000 fee for each designated Non-executive Director carrying out a workforce engagement role.2020 which resulted in no increase being awarded.

The resulting fees paid to the ~~Chairman~~Chair and Non-executive Directors are:

The interests of Directors in ordinary shares of the Company are set out below. 'Beneficial interest' includes shares owned outright, shares acquired under the Share Incentive Plan (SIP) and deferred annual incentive awards, detailed in the 'Supplementary information' section. It is only these shares that count towards the share ownership guidelines.

The bar chart below illustrates the Executive Directors' shareholding as a percentage of base salary versus the share ownership guideline.

Mark FitzPatrick and James Turner were appointed to the Board in July 2017 and March 2018 respectively so both are within the period over which they were asked to attain the share ownership guideline.

The following table sets out the share options held by the Executive Directors in the UK Savings-Related Share Option Scheme (SAYE) as at the end of the period. No other directors participated in any other option scheme.

Details of the service contracts of each Executive Director are outlined in the table below. The Directors' remuneration policy contains further details of the terms included in Executive Director service contracts. Subject to the Group Chief Executive's or the Chairman's approval, Executive Directors are able to accept external appointments as non-executive directors of other organisations. Fees payable are retained by the Executive Directors.

Directors served on the boards of educational, charitable and cultural organisations without receiving a fee for these services.

~~Details of changes to the Board of Directors during the year are set out in the Governance section.~~

Details of Non-executive Directors' individual appointments are outlined below. The Directors' remuneration policy contains further details on their letters of appointment. The Chair and Non-executive Directors are not entitled to receive any payments for loss of office.

As disclosed in the 2019 Directors' remuneration report, a number of Directors stepped down from the Board in 2019. Treatment of their outstanding awards and other remuneration elements was disclosed in 2019. We set out below payments in respect of the awards that vested during 2020.

Nic holds a PLTIP award granted in 2018 and as set out in the section 'Remuneration in respect of performance in 2020' the performance condition attached to Nic's 2018 PLTIP awards was partially met and 68.75 per cent of these awards will be released in 2021. The details of the release are set out below.

Barry holds a PLTIP award granted in 2018 and as set out in the section 'Remuneration in respect of performance in 2020' the performance condition attached to Barry's 2018 PLTIP awards was partially met and 68 per cent of these awards will be released in 2021. These awards were pro-rated for service (nine of 36 months) and the details of the release are set out below.

A number of former Directors receive retiree medical benefits for themselves and their partner (where applicable). This is consistent with other senior members of staff employed at the same time. A de minimis threshold of £10,000 has been set by the Committee; any payments or benefits provided to a past Director above this amount will be reported.

At the 2020 Annual General Meeting, shareholders were asked to vote on the current Directors' remuneration policy and the 2019 Directors' remuneration report. Each of these resolutions received a significant vote in favour by shareholders and the Committee is grateful for this support and endorsement by our shareholders. The votes received were:

Executive Directors' remuneration packages were reviewed in 2020 with changes effective from 1 January 2021. When the Committee made these decisions, it considered the salary increases awarded to other employees in 2020 and the expected increases in 2021. The external market reference points used to provide context to the Committee were similar to those used for 2020 salaries.

In recognition of the continued focus on pay restraint and after due deliberation the Committee considered there should be no salary increases to the Executive Directors for 2021. The 2021 salary increase budgets for other employees across the Group's business units were between 2 per cent and 4.6 per cent. On this basis, 2021 will be the ninth consecutive year in which the increases generally offered to executives have been below or close to the bottom of the range of salary increases budgeted for the broader workforce.

While the approved Directors' remuneration policy provides for a phased reduction of Executive Directors' pension benefits to the workforce rate of 13 per cent of salary, the Committee accelerated this change to be effective on 14 May 2020. Pension levels will remain at this reduced rate for 2021. In addition, statutory contributions will continue to be made into mandatory pension arrangements in the country in which the Executive Directors are based, in line with the local requirements.

No changes have been made to the bonus opportunities for Executive Directors for 2021.

The separation and divestment of Jackson will transform Prudential into a Group targeting the structural opportunities of Asia and Africa. The post-separation Group will focus on achieving sustained double-digit growth in embedded value per share. This will be supported by growth rates of new business profit, which are expected to substantially exceed GDP growth in the markets in which the Group operates. It is therefore imperative that the measures attached to the 2021 AIP and PLTIP awards create a clear focus within the executive team and a straightforward connection with the value to be delivered to shareholders.

The Committee is mindful of the need for the weightings of the AIP measures to be sufficiently aligned with the post-separation Group's focus on the high-growth Asia and Africa businesses. The proposed revised weightings of the financial performance measures are set out in the table below.

The Remuneration Committee intends to include Jackson within the targets and results used for the AIP until the Group owns less than 50% of Jackson. From the date on which the Group owns less than 50% of Jackson, Jackson will be removed from Group AIP targets and outcomes for the remainder of the relevant year. From this date, Group AIP weightings will be consistent with those adopted for the Asia business. The date from which Jackson is removed from the AIP targets and the resulting changes to the weighting of the bonus metrics will be disclosed in the Annual Report on Remuneration for the year in which this takes place. Principles which will underpin the approach to the separation of Jackson are described in the Annual statement from the Chair of the Remuneration Committee.

No changes have been made to the PLTIP award levels for Executive Directors for 2021.

Performance conditions for 2021 PLTIP awards have been revised to ensure that reward remains aligned with the strategic priorities and capital allocation framework of the post-separation Group. In particular, RoE replaced with RoEV to reflect the focus on achieving sustained double-digit growth in Embedded Value per share. In addition, the TSR peer group was revised to reflect the footprint of the post-separation Prudential Group.

The weighting of measures for the 2021 PLTIP awards for all Executive Directors will be as follows:

The proportion of 2021 long-term incentive awards which will vest for threshold performance will remain at 20 per cent.

The conduct measure in the sustainability scorecard will include Jackson for 2021 awards for the period in which the Group owns at least 50% of Jackson, whilst the other scorecard metrics and RoEV will be calculated based on the Group excluding the US business. Principles which will underpin the approach to the separation of Jackson are described in the Annual statement from the Chair of the Remuneration Committee.

Under the Group TSR measure, 20 per cent of the award will vest for TSR at the median of the peer group, increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basis since this has the benefit of simplicity and directness of comparison.

In 2020 the Committee reviewed the TSR peer group to reflect the footprint post separation of Jackson. The resulting peer group for 2021 PLTIP awards is set out below:

~~In making decisions about~~RoEV will be calculated as the ~~remuneration arrangements~~total post-tax EEV operating profit as a percentage of the average EEV basis shareholders' equity. RoEV will be assessed at the Group level.

20 per cent of the award will vest for ~~those joining~~achieving the ~~Board,~~threshold level of performance of 9 per cent, increasing to full vesting for reaching the ~~Committee worked within the current Directors' remuneration policy approved by shareholders and was mindful of:~~

Under the Board and to different roles on the Board is necessary to ensure the Company is well positioned to develop and implement its strategy and deliver long-term value. As the Company operates in an international market place2021 sustainability scorecard, performance will be assessed for talent, the best internal and external candidates are sometimes asked to move location to assume their new roles. Where this happens, the Company will offer relocation support. The support offered will depend on the circumstances of each move but may include paying for travel, shipping services, the provision of temporary accommodation and other housing benefits. Executives may receive support with the preparation of tax returns, but no current Executive Director is tax equalised.

Michael Falcon was appointed as Chairman and Chief Executive Officer, Jackson National Holdings LLC and joined the Board on 7 January 2019. Details of his remuneration arrangements on appointment, including the terms of his buy-out awards, were disclosed in the 2018 Directors' Remuneration Report.

~~Details~~ of the ~~remuneration he received during 2019 in his role as Executive Director~~four measures, at the end of ~~Prudential plc, including his buy-out award,~~the three-year performance period. Performance will be assessed on a sliding scale. Each of the measures has equal weighting and the 2021 measures are set out below:

Fees for the Chair and Non-executive Directors were unchanged in 2020. The Committee has decided to appoint the new Chair, Ms Vadera, on the same fee (£765,000 per annum) as the outgoing Chair, Mr Manduca.

The Board has established for the period up to the 2022 AGM a Responsibility & Sustainability Working Group which will oversee the embedding of our new ESG framework and progress on diversity and inclusion initiatives and employee engagement activities. As Chair of the Working Group, Ms Schroeder will receive a fee of £45,000 per annum while Working Party members will receive a fee of £22,000.

~~Policy on corporate transactions~~

			(number of shares)	(number of shares)	(number of shares)	(number of shares)			(pence)	(pence)


	Year of grant	Conditional share awards outstanding at 1 Jan 2020	Conditionally awarded in 2020	Dividends Accumulated in 2020note	Shares released in 2020	Conditional share awards outstanding at 31 Dec 2020	Date of end of restricted period	Date of release	Market price at date of award	Market price at date of vesting or release
		(number of shares)

Mark FitzPatrick
Deferred 2017 annual incentive award	2018	33,518	-	771	-	34,289	31 Dec 20		1750	-
Deferred 2018 annual incentive award	2019	38,411	-	884	-	39,295	31 Dec 21		1605.5	-
Deferred 2019 annual incentive award	2020	-	48,780	1,123	-	49,903	31 Dec 22		1047	-

		71,929	48,780	2,778	-	123,487			-	-

James Turner
Deferred 2018 annual incentive award	2019	24,560	-	565	-	25,125	31 Dec 21		1605.5	-
Deferred 2019 annual incentive award	2020	-	42,125	970	-	43,095	31 Dec 22		1047	-

		24,560	42,125	1,535	-	68,220			-	-

Mike Wells
Deferred 2016 annual incentive award	2017	64,440	-	-	64,440	-	31 Dec 19	06 Apr 20	1672	1021
Deferred 2017 annual incentive award	2018	58,008	-	1,336	-	59,344	31 Dec 20		1750	-
Deferred 2018 annual incentive award	2019	66,030	-	1,521	-	67,551	31 Dec 21		1605.5	-
Deferred 2019 annual incentive award	2020	-	83,782	1,930	-	85,712	31 Dec 22		1047	-

		188,478	83,782	4,787	64,440	212,607			-	-

It is important that all employees are offered the opportunity to own shares in Prudential, connecting them both to the success of the Company and to the interests of other shareholders. Executive Directors are invited to participate in these plans on the same basis as other staff in their location.

UK-based Executive Directors are normally eligible to participate in the HM Revenue and Customs (HMRC) approved Prudential Savings-Related Share Option Scheme. This scheme allows all eligible employees to save towards the exercise of options over Prudential plc shares with the option price set at the beginning of the savings period at a discount of up to 20 per cent of the market price.

Since 2014 participants have been able to elect to enter into savings contracts of up to £500 per month for a period of three or five years. At the end of this term, participants may exercise their options within six months and purchase shares. If an option is not exercised within six months, participants are entitled to a refund of their cash savings plus interest if applicable under the rules. Shares are issued to satisfy those options which are exercised. No options may be granted under the schemes if the grant would cause the number of shares which have been issued, or which remain issuable pursuant to options granted in the preceding 10 years under the scheme and any other option schemes operated by the Company, or which have been issued under any other share incentive scheme of the Company, to exceed 10 per cent of the Company's ordinary share capital at the proposed date of grant.

Details of Executive Directors' rights under the SAYE scheme are set out in the 'Outstanding share options' table.

Prudential plc and subsidiaries
Consolidated income ~~statement~~statements
Years ended 31 December

Prudential plc and subsidiaries
Consolidated ~~statement~~statements of comprehensive income
Years ended 31 December

Prudential plc and subsidiaries
Consolidated statement of changes in equity (continued)

~~Prudential plc and subsidiaries~~
~~Consolidated statement of changes in equity (continued)~~

Prudential plc and subsidiaries
Consolidated ~~statement~~statements of cash flows

Prudential plc and subsidiaries
Notes to the consolidated financial statements
31 December ~~2019~~2020

Prudential plc ('the Company') together with its subsidiaries (collectively, 'the Group' or 'Prudential') is an ~~international financial services group.~~Asia-led portfolio of businesses focused on structural growth markets. The Group currently has ~~operations~~businesses in Asia, Africa and the US ~~Africa~~ and ~~prior to the demerger of M&G plc~~head office functions in ~~October 2019, UK~~London and ~~Europe.~~Hong Kong. The Group helps individuals ~~to de-risk their lives and deal with their biggest financial concerns~~get the most out of life through life and health insurance, and retirement and asset management solutions. On 21 October 2019, the Company completed the demerger of M&G plc, its UK and Europe operations, from Prudential plc resulting in two separately-listed companies. It has therefore reclassified these operations as discontinued in these financial statements (see note A2).

These consolidated financial statements have been prepared in accordance with IFRS Standards as issued by the ~~International Accounting Standards Board (IASB)~~IASB, the international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as ~~endorsed by~~it applies in the European ~~Union (EU) as required by EU law (IAS Regulation EC1606/2032). EU-endorsed IFRS may differ from IFRS issued by the IASB if, at any point in time, new or amended IFRS have not been endorsed by the EU.~~Union. At 31 December ~~2019, there were no unendorsed standards effective for the three years ended 31 December 2019 which impact the consolidated financial statements of the Group and~~2020, there were no differences between IFRS ~~endorsed by the EU and IFRS~~Standards as issued by the IASB, ~~in terms of their application to~~ the ~~Group. For financial years beginning after 31 December 2020, the Group will prepare its consolidated financial statements in accordance with UK-adopted~~ international accounting standards ~~instead of~~as required by the ~~EU-endorsed IFRS.~~Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

~~These statements have been prepared on a going concern basis.~~ The Group ~~IFRS~~ accounting policies are the same as those applied for the year ended 31 December ~~2018~~2019 with the exception of the adoption of the new and amended ~~accounting standards~~IFRS Standards as described in note ~~A3.~~A2.

The Directors have made an assessment of going concern covering a period of at least 12 months from the date that these financial statements are approved. In making this assessment, the Directors have considered both the Group's current performance, solvency and liquidity and the Group's business plan taking into account the Group's principal risks and the mitigations available to it which are described in the Group Risk Framework. The assessment also includes the consideration of the results of a number of stress and scenario testing over the business plan covering scenarios that reflect the possible impacts of Covid-19. The stress tests included the assessment of the potential impact of up or down interest rate movements combined with corporate credit spread widening, a rating level downgrade on part of the credit asset portfolio, falling equity values and insurance stresses (such as changes in policyholder behaviour, including lapses, and increased morbidity in Asia).

Based on the above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that these financial statements are approved. No material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern have been identified. The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements for the year ended 31 December 2020.

Following the demerger of its UK and Europe operations, the Directors have elected to change the Group's presentation currency in these financial statements from pounds sterling to US dollars which better reflects the economic footprint of our business going forward. The Group believes that the presentation currency change will give investors and other stakeholders a clearer understanding of Prudential's performance over time. The change in presentation currency is a voluntary change which is accounted for retrospectively in the comparative information and all comparative statements and notes have been restated accordingly applying the foreign exchange translation principles as set out below.

The exchange rates applied for balances and transactions in currencies other than the presentation currency of the Group, US dollars ~~($), and other currencies~~(USD) were:

In order to present the consolidated financial statements in ~~US dollars,~~USD, the results and financial position of entities not using ~~US dollars~~USD as functional currency (ie the currency of the primary economic environment in which the entity operates) must be translated into ~~the US dollars.~~USD. The general principle for converting foreign currency transactions is to translate at the functional currency spot rate prevailing at the date of the transactions. ~~This includes external dividends determined~~From 2020, Prudential determines and ~~paid to shareholders in pounds sterling. Prudential will determine and declare~~declares its dividend in ~~US dollars commencing with dividends paid in 2020, including the 2019 second interim dividend.~~USD. All assets and liabilities of entities not operating in ~~US dollars~~USD are

During 2019 and 2018, borrowings that are used to provide a hedge against Group equity investments in overseas entities were translated at year end exchange rates and movements recognised in other comprehensive income. Other foreign currency monetary items are translated at year end exchange rates with changes recognised in the income statement.

Certain notes to the financial statements present ~~2018~~ comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the consolidated financial statements. AER are actual historical exchange rates for the specific accounting ~~period,~~year, being the average rates over the ~~period~~year for the income statement and the closing rates at the balance sheet date for the statement of financial position. CER results are calculated by translating prior ~~period~~year results using the current ~~period~~year foreign exchange rate, ie current ~~period~~year average rates for the income statement and current ~~period~~year closing rates for the statement of financial position.

The effect of foreign exchange ~~movement~~movements from continuing operations arising during the years shown recognised in other comprehensive income is:

The consolidated financial statements do not represent Prudential's statutory accounts for the purposes of the UK Companies Act. These financial statements are based on the prescribed formats. The Group's external auditors have reported on the 2020, 2019 ~~2018~~ and ~~2017~~2018 statutory accounts. Statutory accounts for ~~2018~~2019 and ~~2017~~2018 have been delivered to the UK Registrar of Companies and those for ~~2019~~2020 will be delivered following the Company's Annual General Meeting. The auditor's reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the UK Companies Act 2006.

~~The Group completed the demerger of its UK and Europe operations, M&G plc, from the Prudential plc group on 21 October 2019. In accordance with IFRS 5 '~~~~Non-Current Assets Held for Sale and Discontinued Operations~~~~', the results of M&G plc have been reclassified as discontinued operations in these consolidated financial statements.~~

Consistent with IFRS 5 requirements, profit after tax attributable to the discontinued UK and Europe operations in 2019 have been shown in a single line in the income statement with 2018 and 2017 comparatives being restated accordingly, with further analysis provided in note D2. Notes B1 to B5 have also been prepared on this basis.

IFRS 5 does not permit the comparative 31 December 2018 and 1 January 2018 statement of financial position to be re-presented, as the UK and Europe operations were not reclassified as held for sale at these dates. In the related balance sheet notes, prior year balances have been presented to show the amounts from discontinued operations separately from continuing operations in order to present the results of the continuing operations on a comparable basis. Additionally, in the analysis of movements in Group's assets and liabilities between the beginning and end of the years, the balances of the discontinued UK and Europe operations are removed from the opening balances to show the underlying movements from continuing operations.

Profit from the discontinued UK and Europe operations up to the demerger is presented in the consolidated income statement after the elimination of intragroup transactions with continuing operations where it is appropriate to provide a more meaningful presentation of the position of the Group immediately after the demerger. The statement of cash flows is presented excluding intragroup cash flows between the continuing and discontinued UK and Europe operations up to demerger.

~~The Group has adopted IFRS 16~~~~'Leases'~~ ~~from 1 January 2019. The new standard brings most leases on-balance-sheet for lessees under a single model, eliminating the distinction between operating and finance leases.~~

~~IFRS 16 applies primarily to operating leases of major properties occupied by the Group's businesses where Prudential is a lessee.~~

Under IFRS 16, these leases are brought onto the Group's statement of financial position with a 'right-of-use' asset being established and a corresponding liability representing the obligation to make lease payments. The rental accrual charge in the income statement under IAS 17 is replaced with a depreciation charge for the 'right-of-use' asset and an interest expense on the lease liability leading to a more front-loaded operating lease cost profile compared to IAS 17.

As permitted by IFRS 16, the Group has chosen to adopt the modified retrospective approach upon transition to the new standard. Under the approach adopted, there is no adjustment to the Group's retained earnings at 1 January 2019 and the Group's 2018 comparative information is not restated. The 'right-of-use' asset and lease liability at 1 January 2019 are set at an amount equal to the discounted remaining lease payments adjusted by any prepaid or accrued lease payment balance immediately before the date of initial application of the standard.

When measuring lease liabilities on adoption, the Group discounted lease payments using its incremental borrowing rate at 1 January 2019. The weighted average rate applied is 3.4 per cent. The aggregate effect of the adoption of the standard on the statement of financial position at 1 January 2019 is shown in the table below:

The Group has applied the practical expedient to grandfather the definition of a lease on transition. This means that IFRS 16 has been applied to all contracts that were identified as leases in accordance with IAS 17 and IFRIC 4 '~~Determining whether an Arrangement contains a Lease~~~~' entered into before 1 January 2019. Therefore, the definition of a lease under IFRS 16 is applied only to contracts entered into or changed on or after 1 January 2019.~~

The ~~Group~~IASB has ~~used the following practical expedients, in addition to the aforementioned, when applying IFRS 16 to leases previously classified as operating leases under IAS 17:~~

~~In addition to the above,~~issued the following new accounting pronouncements ~~were also~~to be effective from 1 January ~~2019:~~2020:

The ~~Group has applied the principles within the Amendments to IAS 19 '~~~~Plan Amendment, Curtailment or Settlement~~~~' when accounting for the changes to the pension benefits~~adoption of ~~its UK defined benefit schemes during the year. The other~~these pronouncements have had no significant impact on the Group financial statements.

Note ~~A4.1~~A3.1 presents the critical accounting policies, ~~accounting~~ estimates and judgements applied in preparing the Group's consolidated financial statements. Other accounting policies, where significant, are presented in the relevant individual notes. All accounting policies are applied consistently for both years presented and normally are not subject to changes unless new accounting standards, interpretations or amendments are introduced by the IASB.

The preparation of these financial statements requires Prudential to make accounting estimates and judgements about the amounts of assets, liabilities, revenues and expenses, which are both recognised and unrecognised (eg contingent liabilities) in the ~~primary~~ financial statements. Prudential evaluates its critical accounting estimates, including those related to long-term business provisioning and the fair value of assets as required. The notes below set out those critical accounting policies, the application of which requires the Group to make critical estimates and judgements. Also set out are further critical accounting policies affecting the presentation of the Group's results and other items that require the application of critical estimates and judgements.

~~Measurement and presentation of derivatives and debt securities of US insurance operations (Jackson)~~

~~Jackson holds a number of derivative instruments and debt securities. The selection of the accounting approach for these items significantly affects the volatility of profit before tax.~~

~~$(4,225) million of the US investment return in the income statement arises from such derivatives and debt securities.~~

Jackson enters into derivative instruments to mitigate economic exposures. The Group has considered whether it is appropriate to undertake the necessary operational changes to qualify for hedge accounting so as to achieve matching of value movements in hedging instruments and hedged items in the performance statements. The key factors considered in this assessment were the complexity of asset and liability matching in Jackson's product range and the difficulty and cost of applying the macro hedge provisions under IAS 39 (which are more suited to banking arrangements) to Jackson's derivative book.

The Group has decided that, except for occasional circumstances, applying hedge accounting using IAS 39 to derivative instruments held by Jackson would not improve the relevance or reliability of the financial statements to such an extent that would justify the difficulty and cost of applying these provisions. As a result of this decision, the total income statement results are more volatile as the movements in the fair value of ~~Jackson's derivatives are reflected within it. This volatility is reflected in the level of short-term fluctuations in investment returns, as shown in notes B1.1 and B1.2.~~

Under IAS 39, unless carried at amortised cost (subject to impairment provisions where appropriate) under the held-to-maturity category, debt securities are carried at fair value. The Group has chosen not to classify any financial assets as ~~held-to-maturity. Debt securities~~required. The notes below set out those critical accounting policies, the application of ~~Jackson~~which requires the Group to make critical estimates and judgements. Also set out are ~~designated as available-for-sale~~further critical accounting policies affecting the presentation of the Group's results and other items that require the application of critical estimates and judgements.

Table of Contents

(a): Critical accounting policies with ~~value movements, unless impaired, being recorded as movements within other comprehensive income. Impairments are recorded in the income statement, as discussed in note (c) below.~~
associated critical estimates and judgements

~~Presentation of results before tax attributable to shareholders~~

Measurement of policyholder liabilities and unallocated surplus of with-profits

Profit before tax is a significant IFRS income statement item. The Group has chosen to present a measure of profit before tax attributable to shareholders which distinguishes between tax borne by shareholders and tax attributable to policyholders to support understanding of the performance of the Group. ~~Profit from continuing operations before tax attributable to shareholders is $1,922 million and compares to profit from continuing operations before tax of $2,287 million.~~		The total tax charge for the Group reflects tax that, in addition to that relating to shareholders' profit, is also attributable to policyholders through the interest in with-profits or unit-linked funds. Further detail is provided in note B4. Reported IFRS profit before the tax measure is therefore not representative of pre-tax profit attributable to shareholders. Accordingly, in order to provide a measure of pre-tax profit attributable to shareholders, the Group has chosen to adopt an income statement presentation of the tax charge and pre-tax results that distinguishes between policyholders and shareholders returns.
~~Segmental analysis of results and earnings attributable to shareholders~~

~~The Group uses adjusted IFRS operating profit based on longer-term investment returns as the segmental measure of its results.~~ ~~Total segmental adjusted IFRS operating profit from continuing operations based on longer-term investment returns is $6,346 million and is shown in note B1.1.~~		~~The basis of calculation of adjusted IFRS operating profit based on longer-term investment returns is provided in note B1.3.~~ For shareholder-backed business, with the exception of debt securities held by Jackson and the Group's new treasury company, which are treated as available-for-sale, and assets classified as loans and receivables at amortised cost, all financial investments and investment properties are designated as assets at fair value through profit or loss. Short-term fluctuations in fair value affect the result for the year and the Group provides additional analysis of results before and after the effects of short-term fluctuations in investment returns, together with other items that are of a short-term, volatile or one-off nature. The effects of short-term fluctuations include asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ as described in note B1.2. Short-term fluctuations in investment returns on assets held by with-profits funds in Hong Kong, Malaysia and Singapore do not affect directly reported shareholder results. This is because (i) the unallocated surplus of with-profits funds is accounted for as a liability and (ii) excess or deficit of income and expenditure of the funds over the required surplus for distribution are transferred to or from policyholder liabilities (including the unallocated surplus).

~~Table of Contents~~

~~(c)~~: ~~Other items requiring application of critical estimates or judgements~~

~~Deferred acquisition costs (DAC) for insurance contracts~~

The Group applies judgement in determining qualifying costs that should be capitalised (ie those costs of acquiring new insurance contracts that meet the criteria under the Group's accounting policy for deferred acquisition costs).

~~The Group estimates projected future profits/margins to assess whether adjustments to the carrying value or amortisation profile of deferred acquisition cost asset are necessary.~~

~~Impacts $14.2 billion of deferred acquisition costs as shown in note C5.2(i).~~

Costs of acquiring new insurance business are accounted for in a way that is consistent with the principles of the 'grandfathered' ABI SORP with deferral and amortisation against margins in future revenues on the related insurance policies. The recoverability of the deferred acquisition costs (DAC) is measured and the DAC asset is deemed impaired if the projected margins (which are estimated based on a number of assumptions similar to those underlying policyholder liabilities) are less than the carrying value. To the extent that the future margins differ from those anticipated, an adjustment to the carrying value will be necessary either through an impairment (if the projected margins are lower than carrying value) or through a change in the amortisation profile.

~~Asia insurance operations~~

For those business units applying US GAAP to insurance assets and liabilities, as permitted by the 'grandfathered' ABI SORP, principles similar to those set out in the US insurance operations paragraph below are applied to the deferral and amortisation of acquisition costs. For other business units in Asia, the general principles of the 'grandfathered' ABI SORP are applied. In general, deferral of acquisition costs is shown by an explicit carrying value in the balance sheet. However, in some Asia operations the deferral is implicit through the reserving basis.

~~US insurance operations~~

~~The most material estimates and assumptions applied in the measurement and amortisation of DAC balances relate to the US insurance operations.~~

The Group's US insurance operations apply FASB ASU 2010-26 on 'Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts' and capitalise only those incremental costs directly relating to successfully acquiring a contract.

For term life business, acquisition costs are deferred and amortised in line with expected premiums. For annuity and interest-sensitive life business, acquisition costs are deferred and amortised in line with expected gross profits on the relevant contracts. For fixed and fixed index annuity and interest-sensitive life business, the key assumption is the long-term spread between the earned rate on investments and the rate credited to policyholders.

For variable annuity business, a key assumption is the long-term investment return from the separate accounts, which for 2019 is 7.4 per cent (2018: 7.4 per cent). The impact of using this return is reflected in two principal ways, namely:

–

Through the projected expected gross profits that are used to determine the amortisation of deferred acquisition costs. This is applied through the use of a mean reversion technique which is described in more detail below; and

–

~~The required level of provision for claims for guaranteed minimum death, 'for life' withdrawal, and income benefits.~~

In addition, expected gross profits depend on mortality assumptions, lapses (including the related charges), assumed unit costs and future hedge costs, which are based on a combination of Jackson's actual experience, industry benchmarking and future expectations.

Jackson uses a mean reversion methodology that sets the projected level of return for each of the next five years such that these returns in combination with the actual rates of return for the preceding three years (including the current year) average the assumed long-term annual return (gross of asset management fees and other charges to policyholders, but net of external fund management fees) over the eight-year period. Projected returns after the mean reversion period revert back to the long-term investment return. For further details on current balances, assumptions and sensitivity, refer to note C5.2(i).

To ensure that the methodology in extreme market movements produces future expected returns that are realistic, the mean reversion technique has a cap and floor feature whereby the projected returns in each of the next five years can be no more than 15 per cent per annum and no less than zero per cent per annum (both gross of asset management fees and other charges to policyholders, but net of external fund management fees) in each year.

~~Table of Contents~~

~~Deferred acquisition costs (DAC) for insurance contracts~~


		Jackson makes certain adjustments to the DAC assets which are recognised directly in other comprehensive income ('shadow accounting') to match the recognition of unrealised gains or losses on available-for-sale securities causing the adjustments. More precisely, shadow DAC adjustments reflect the change in DAC that would have arisen if the assets held in the statement of financial position had been sold, crystallising unrealised gains or losses, and the proceeds reinvested at the yields currently available in the market.

~~Carrying value of distribution rights intangible assets~~

The Group applies judgement to assess whether factors such as the financial performance of the distribution arrangement, changes in relevant legislation and regulatory requirements indicate an impairment of intangible assets representing distribution rights.

~~To determine the impaired value, the Group estimates the discounted future expected cash flows arising from distribution rights.~~

~~Affects $3.0 billion of assets as shown in note C5.2.~~

Distribution rights relate to bancassurance partnership arrangements for the distribution of products for the term of the contractual agreement with the bank partner, for which an asset is recognised based on fees paid. Distribution rights impairment testing is conducted when there is an indication of impairment.

To assess indicators of an impairment, the Group monitors a number of internal and external factors, including indications that the financial performance of the arrangement is likely to be worse than expected and changes in relevant legislation and regulatory requirements that could impact the Group's ability to continue to sell new business through the bancassurance channel, and then applies judgement to assess whether these factors indicate that an impairment has occurred.

If an impairment has occurred, a charge is recognised in the income statement for the difference between the carrying value and recoverable amount of the asset. The recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is calculated as the present value of future expected cash flows from the asset or the cash generating unit to which it is allocated.

~~Financial investments – Valuation~~

~~Financial investments held at fair value represent $388.1 billion of the Group's total assets.~~

~~Financial investments held at amortised cost represent $15.6 billion of the Group's total assets.~~

~~The Group estimates the fair value of financial investments that are not actively traded using quotations from independent third parties or internally developed pricing models.~~

The Group holds the majority of its financial investments at fair value (either through profit or loss or available-for-sale). Financial investments held at amortised cost primarily comprise loans and deposits.

~~Determination of fair value~~

The fair values of the financial instruments for which fair valuation is required under IFRS are determined by the use of current market bid prices for exchange-quoted investments or by using quotations from independent third parties such as brokers and pricing services or by using appropriate valuation techniques.

The estimated fair value of derivative financial instruments reflects the estimated amount the Group would receive or pay in an arm's-length transaction. This amount is determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices.

Current market bid prices are used to value investments having quoted prices. Actively traded investments without quoted prices are valued using prices provided by third parties such as brokers or pricing services. Financial investments measured at fair value are classified into a three-level hierarchy as described in note C3.1(b).

If the market for a financial investment of the Group is not active, the Group establishes fair value by using quotations from independent third parties, such as brokers or pricing services, or by using internally developed pricing models. Priority is given to publicly available prices from independent sources when available, but overall the source of pricing and/or the valuation technique is chosen with the objective of arriving at a fair value measurement which reflects the price at which an orderly transaction would take place between market participants on the measurement date. The valuation techniques include the use of 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 and 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 financial investments. Details of the financial investments classified as 'level 3' to which valuation techniques are applied and the sensitivity of profit before tax to a change in the valuation of these items, are presented in note C3.1(d).

~~Table of Contents~~

~~Financial investments – Determining impairment of "available-for-sale" and "amortised cost" assets~~


The Group applies judgement to assess whether factors such as the severity and duration of the decline in fair value, the financial condition and the prospects of the issuer indicate an impairment in value of financial investments classified as 'available-for-sale' or 'held at amortised cost'. If evidence for impairment exists, valuation techniques, including estimates, are then applied in determining the impaired value, which is based on its expectation of discounted future cash flows. If the impaired value is less than book cost, an impairment loss is recognised in the income statement. ~~Affects $73.9 billion of assets.~~		For financial investments classified as 'available for sale' or 'at amortised cost', if a loss event that will have a detrimental effect on cash flows is identified, an impairment loss is recognised in the income statement. The loss recognised is determined as the difference between the book cost and the fair value or estimated future cash flows of the relevant impairment assets. The loss comprises the effect of the expected loss of contractual cash flows and any additional market-price driven temporary reductions in values. ~~Available-for-sale securities~~ The Group's available-for-sale securities are principally held by the US insurance operations. For these securities, the consideration of evidence of impairment requires management's judgement. In making this determination, a range of market and industry indicators are considered including the severity and duration of the decline in fair value and the financial condition and prospects of the issuer. The factors reviewed include economic conditions, credit loss experience, other issuer-specific developments and future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealised losses currently in equity may be recognised in the income statement in future periods. For US residential mortgage-backed and other asset-backed securities, all of which are classified as available-for-sale, impairment is estimated using a model of expected future cash flows. Key assumptions used in the model include assumptions about how much of the currently delinquent loans will eventually default and assumed loss severity. ~~Additional details on the methodology and estimates used to determine impairments of the available-for-sale securities of Jackson are described in note C3.2(e).~~ ~~Assets held at amortised cost~~ When assets held at amortised cost are subject to impairment testing, estimated future cash flows are compared to the carrying value of the asset. In estimating future cash flows, the Group looks at the expected cash flows of the assets and applies historical loss experience of assets with similar credit risks that has been adjusted for conditions in the historical loss experience which no longer exist, or for conditions that are expected to arise. The estimated future cash flows are discounted using the financial asset's original or variable effective interest rate and exclude credit losses that have not yet been incurred. ~~Reversal of impairment losses~~ If, in subsequent periods, an impaired debt security held on an available-for-sale basis or an impaired loan or receivable recovers in value (in part or in full) and this recovery can be objectively related to an event occurring after the impairment, then any amount determined to have been recovered is reversed through the income statement.

~~A4.2 New accounting pronouncements not yet effective~~

The following standards, interpretations and amendments have been issued but are not yet effective in 2019, including those which have not yet been adopted in the EU. Following UK's withdrawal from the European Union, the Group will continue to prepare these statements in accordance with IASB issued standards as endorsed by the EU until the end of the transition period on 31 December 2020. This includes accounting standards already endorsed by the EU but not yet effective as well as any new or amended standards adopted by the EU before the 31 December 2020. For financial years beginning after 31 December 2020, the Group will be required to prepare financial statements in accordance with UK-adopted international accounting standards. The Government is in the process of establishing the UK Endorsement Board to undertake the work of assessing, endorsing and adopting any new or amended International Accounting Standards published by the IASB.

~~This is not intended to be a complete list as only those standards, interpretations and amendments that could have a material impact on the Group's financial statements are discussed.~~

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~~IFRS 9 'Financial instruments: Classification and measurement'~~

In July 2014, the IASB published a complete version of IFRS 9 with the exception of macro hedge accounting. The standard became mandatorily effective for the annual periods beginning on or after 1 January 2018, with early application permitted and transitional rules apply.

The Group met the eligibility criteria for temporary exemption under the Amendments to IFRS 4 from applying IFRS 9 in 2018 and has accordingly deferred the adoption of IFRS 9 until the date when IFRS 17

The measurement basis of policyholder liabilities is dependent upon the classification of the contracts under IFRS 4.

Impacts $462.1 billion of policyholder liabilities and unallocated surplus of with-profits funds including those held by joint venture and associates.

Policyholder liabilities are estimated based on a number of actuarial assumptions (eg mortality, morbidity, policyholder behaviour and expenses). The Group applies judgement in determining the actuarial assumptions to be applied to estimate the future amounts due to or from the policyholder in the measurement of the policyholder liabilities.

IFRS 4 permits the continued usage of previously applied Generally Accepted Accounting Practices (GAAP) for insurance contracts and investment contracts with discretionary participating features.

A modified statutory basis of reporting was adopted by the Group on first time adoption of IFRS Standards in 2005. This was set out in the Statement of Recommended Practice issued by the Association of British Insurers (ABI SORP). The ABI SORP was withdrawn for the accounting periods beginning in or after 2015. As used in these consolidated financial statements, the term 'grandfathered' ABI SORP refers to the requirements of the pronouncements prior to its withdrawal.

For investment contracts that do not contain discretionary participating features, IAS 39 is applied and, where the contract includes an investment management element, IFRS 15 '~~Insurance Contracts~~' is expected to be adopted upon its current mandatory effective date. The Group made a reassessment during the year following the demerger of the UK and Europe operations in October 2019 and confirmed that it remained qualified for the temporary exemption. The Group is eligible as its activities are predominantly to issue insurance contracts based on the criteria as set out in the amendments to IFRS 4. The disclosure of the fair value of the Group's financial assets, showing the amounts for instruments that meet the 'Solely for Payment of Principal and Interest' (SPPI) criteria that do not meet the definition of held for trading or are managed and evaluated on a fair value basis separately from all other financial assets, as required for entities applying the temporary exemption is provided below.

~~When adopted IFRS 9 replaces the existing IAS 39 '~~~~Financial Instruments – Recognition and Measurement~~~~' and will affect the following three areas:~~

~~The classification and the measurement of financial assets and liabilities~~

IFRS 9 redefines the classification of financial assets. Based on the way in which the assets are managed in order to generate cash flows and their contractual cash flow characteristics (whether the cash flows represent 'solely payments of principal and interest'), financial assets are classified into one of the following categories: amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). An option is also available at initial recognition to irrevocably designate a financial asset as at FVTPL if doing so eliminates or significantly reduces accounting mismatches.

~~Under IAS 39, 82 per cent of the Group's investments are valued at FVTPL and the Group's current expectation is that a significant proportion will continue to be designated as such under IFRS 9.~~

The existing IAS 39 amortised cost measurement for financial liabilities is largely maintained under IFRS 9. For financial liabilities designated at FVTPL IFRS 9 requires changes in fair value due to changes in entity's own credit risk to be recognised in other comprehensive income.

~~The calculation of the impairment charge relevant for financial assets held at amortised cost or FVOCI~~

A new impairment model based on an expected credit loss approach replaces the existing IAS 39 incurred loss impairment model, resulting in earlier recognition of credit losses compared to IAS 39. This aspect is the most complex area of IFRS 9 to implement and will involve significant judgements and estimation processes. The Group is currently assessing the scope of assets to which these requirements will apply.

~~The hedge accounting requirements which are more closely aligned with the risk management activities of the Company~~

~~No significant change to the Group's hedge accounting is currently anticipated, but this remains under review.~~

~~The Group is assessing the impact of IFRS 9 and implementing this standard in conjunction with IFRS 17 as permitted. Further details on IFRS 17 are provided below.~~

The parent company and a number of intermediate holding companies in the UK and non-insurance subsidiaries in Asia adopted IFRS 9 in 2018 in their individual or separate financial statements where these statements are prepared in accordance with IFRS, including the UK Financial Reporting Standard 101 Reduced Disclosure Framework. The public availability of the financial statements for these entities varies according to the local laws and regulations of each jurisdiction. The results for these entities continue to be accounted for on an IAS 39 basis in these consolidated financial statements.

The fair value of the Group's directly held financial assets at 31 December 2019 and 2018 are shown below. The 2018 comparative information includes financial assets related to M&G plc, which was demerged from the Group in October 2019. Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) as defined by IFRS 9 are shown separately. This

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~~excludes financial assets that meet the definition of held for trading or are managed and evaluated on a fair value basis.~~

Financial assets that pass
the SPPI test All other financial assets, net of
derivative liabilities
Financial assets, net of derivative liabilities,
on the Group's statement of financial position
at 31 Dec 2019
Fair value at
31 Dec 2019
Movement in
the fair value
during the year
Fair value at
31 Dec 2019
Movement in
the fair value
during the year

$m
$m
$m
$m

Accrued investment income 1,641 – – –
Other debtors 2,054 – – –
Loansnote (1) 13,484 517 3,614 2
Equity securities and holdings in collective investment schemes – – 247,281 44,250
Debt securitiesnote (2) 56,365 4,114 78,205 5,594
Derivative assets, net of derivative liabilities – – 1,353 (5,825)
Other investments – – 1,302 44
Deposits 2,615 – – –
Cash and cash equivalents 6,965 – – –

Total financial assets, net of derivative liabilities 83,124 4,631 331,755 44,065

Financial assets that pass
the SPPI test All other financial assets, net of
derivative liabilities
Financial assets, net of derivative liabilities,
on the Group's statement of financial position
at 31 Dec 2018
Fair value at
31 Dec 2018
Movement in
the fair value
during the year
Fair value at
31 Dec 2018
Movement in
the fair value
during the year

$m
$m
$m
$m

Accrued investment income 3,501 – – –
Other debtors 5,207 – – –
Loansnote (1) 15,175 (658) 8,284 (233)
Equity securities and holdings in collective investment schemes – – 273,484 (21,843)
Debt securitiesnote (2) 50,335 (2,102) 172,998 (4,464)
Derivative assets, net of derivative liabilities – – (15) (1,256)
Other investments – – 8,294 622
Deposits 15,023 – – –
Cash and cash equivalents 15,442 – – –

Total financial assets, net of derivative liabilities 104,683 (2,760) 463,045 (27,174)

~~Notes~~

~~(1)~~: ~~The loans that pass the SPPI test in the table above are primarily carried at amortised cost under IAS 39. Further information on these loans is as provided in note C3.3.~~
~~(2)~~: The debt securities that pass the SPPI test in the table above are primarily held by Jackson and are classified as available-for-sale under IAS 39. The credit ratings of these securities, analysed on the same basis of those disclosed in note C3.2, are as follows:

Available-for-sale debt securities that pass the SPPI test
31 Dec 2019
$m
31 Dec 2018
$m

AAA 1,117 830
AA+ to AA- 11,328 9,236
A+ to A- 15,140 13,009
BBB+ to BBB- 17,972 18,232
Below BBB- 814 1,074
Other 9,994 7,954

Total fair value 56,365 50,335

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that meet the definition of held for trading or are managed and evaluated on a fair value basis, and all other financial assets. Fair value information for joint ventures and associates is also set out in the table below:

Financial assets that pass
the SPPI test All other financial assets, net of
derivative liabilities
Financial assets, net of derivative liabilities,
held by the Group's joint ventures and associates
accounted for using the equity method
at 31 Dec 2019
Fair value at
31 Dec 2019
Movement in
the fair value
during the year
Fair value at
31 Dec 2019
Movement in
the fair value
during the year

$m
$m
$m
$m

Accrued investment income 161 – – –
Other debtors 329 – – –
Loans 197 – – –
Equity securities and holdings in collective investment schemes – – 5,999 444
Debt securities – – 6,080 86
Deposits 521 – – –
Cash and cash equivalents 513 – – –

Total financial assets, net of derivative liabilities 1,721 – 12,079 530

Financial assets that pass
the SPPI test All other financial assets, net of
derivative liabilities
Financial assets, net of derivative liabilities,
held by the Group's joint ventures and associates
accounted for using the equity method
at 31 Dec 2018
Fair value at
31 Dec 2018
Movement in
the fair value
during the year
Fair value at
31 Dec 2018
Movement in
the fair value
during the year

$m
$m
$m
$m

Accrued investment income 167 – – –
Other debtors 270 – – –
Loans 149 – – –
Equity securities and holdings in collective investment schemes – – 4,683 (375)
Debt securities – – 5,409 115
Deposits 452 – – –
Cash and cash equivalents 504 – – –

Total financial assets, net of derivative liabilities 1,542 – 10,092 (260)

~~IFRS 17 '~~~~Insurance Contracts~~'

In May 2017, the IASB issued IFRS 17 'Insurance Contracts' to replace the existing IFRS 4 'Insurance Contracts'. The standard, which is subject to endorsement in the EU and other regions, applies to annual periods beginning on or after 1 January 2021. In June 2019, the IASB issued an exposure draft proposing amendments to IFRS 17 which includes a delay of the effective date of IFRS 17 by one year to periods beginning on or after 1 January 2022. As a result of comments on this exposure draft, the IASB redeliberated on a number of areas of the IFRS 17 with an amended standard expected to be issued in mid-2020. In March 2020, the IASB has tentatively decided to delay the effective date of IFRS 17 by a further year to 1 January 2023. Early application of IFRS 17 is permitted after the standard has been endorsed, provided the entity also applies IFRS 9 on or before the date it first applies IFRS 17. The Group intends to adopt the new standard on its mandatory effective date, alongside the adoption of IFRS 9.

IFRS 4 permitted insurers to continue to use the statutory basis of accounting for insurance assets and liabilities that existed in their jurisdictions prior to January 2005. IFRS 17 replaces this with a new measurement model for all insurance contracts.

IFRS 17 requires liabilities for insurance contracts to be recognised as the present value of future cash flows, incorporating an explicit risk adjustment, which is updated at each reporting date to reflect current conditions, and a contractual service margin (CSM) that is initially set equal and opposite to any day-one gain arising on initial recognition. Losses are recognised directly into the income statement. For measurement purposes, contracts are grouped together into contracts of similar risk, profitability profile and issue year, with further divisions for contracts that are managed separately.

Profit for insurance contracts under IFRS 17 is represented by the recognition of the services provided to policyholders in the period (release of the CSM), release from non-economic risk (release of risk adjustment) and investment profit.

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For these contracts, the CSM is adjusted to reflect the changes in economic experience and assumptions. For all other contracts the CSM is only adjusted for non-economic assumptions. The scope of contracts subject to the variable fee remains under consideration by the Group.

IFRS 17 introduces a new measure of insurance revenue, based on the delivery of services to policyholders and excluding any premiums related to the investment elements of policies, which will be significantly different from existing premium revenue measures, currently reported in the income statement. In order to transition to IFRS 17, the amount of deferred profit, being the CSM at transition date, needs to be determined.

IFRS 17 requires this CSM to be calculated as if the standard had applied retrospectively. However if this is not practical an entity is required to choose either a simplified retrospective approach or to determine the CSM by reference to the fair value of the liabilities at the transition date. The approach for determining the CSM will have a significant impact on both shareholders' equity and on the amount of profits on in-force business in future reporting periods.

~~IFRS 17 Implementation Programme~~

IFRS 17 is expected to have a significant impact as the requirements of the new standard are complex and requires a fundamental change to accounting for insurance contracts as well as the application of significant judgement and new estimation techniques. The effect of changes required to the Group's accounting policies as a result of implementing these standards are currently uncertain, particularly as the requirements of the standard continue to be deliberated by the IASB. These changes can be expected to, among other things, alter the timing of IFRS profit recognition. Given the implementation of this standard will involve significant enhancements to IT, actuarial and finance systems of the Group, it will also have an impact on the Group's expenses.

The Group has a Group-wide implementation programme underway to implement IFRS 17 and IFRS 9. The programme is responsible for setting Group-wide accounting policies and developing application methodologies, establishing appropriate processes and controls, sourcing appropriate data and implementing actuarial and finance system changes.

~~The Group is making progress towards providing IFRS 17 financial statements in line with the requirements for interim reporting at its effective date.~~

~~Other new accounting pronouncements~~

In addition to the above, the following new accounting pronouncements have also been issued and are not yet effective but the Group is not expecting them to have a significant impact on the Group's financial statements:

–: ~~Revised Conceptual Framework for Financial Reporting, issued in March 2018 and effective from 1 January 2020;~~
–: ~~Amendment to IFRS 3 '~~Business Combinations' ~~issued in October 2018 and effective from 1 January 2020;~~

;
–: Amendments to ~~IAS 1~~IFRS 7, IFRS 9 and IAS 839 '~~Definition of material~~Interest Rate Benchmark Reform' ~~issued in October 2018~~; and
–: Amendments to IFRS 16, 'Covid-19-Related Rent Concessions', effective from 1 June 2020.

The adoption of these pronouncements have had no significant impact on the Group financial statements.

A3 Accounting policies

Note A3.1 presents the critical accounting policies, estimates and judgements applied in preparing the Group's consolidated financial statements. Other accounting policies, where significant, are presented in the relevant individual notes. All accounting policies are applied consistently for both years presented and normally are not subject to changes unless new accounting standards, interpretations or amendments are introduced by the IASB.

A3.1 Critical accounting policies, estimates and judgements

The preparation of these financial statements requires Prudential to make accounting estimates and judgements about the amounts of assets, liabilities, revenues and expenses, which are both recognised and unrecognised (eg contingent liabilities) in the financial statements. Prudential evaluates its critical accounting estimates, including those related to long-term business provisioning and the fair value of assets as required. The notes below set out those critical accounting policies, the application of which requires the Group to make critical estimates and judgements. Also set out are further critical accounting policies affecting the presentation of the Group's results and other items that require the application of critical estimates and judgements.

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(a): Critical accounting policies with associated critical estimates and judgements

Measurement of policyholder liabilities and unallocated surplus of with-profits


The measurement basis of policyholder liabilities is dependent upon the classification of the contracts under IFRS 4. Impacts $462.1 billion of policyholder liabilities and unallocated surplus of with-profits funds including those held by joint venture and associates. Policyholder liabilities are estimated based on a number of actuarial assumptions (eg mortality, morbidity, policyholder behaviour and expenses). The Group applies judgement in determining the actuarial assumptions to be applied to estimate the future amounts due to or from the policyholder in the measurement of the policyholder liabilities.		IFRS 4 permits the continued usage of previously applied Generally Accepted Accounting Practices (GAAP) for insurance contracts and investment contracts with discretionary participating features. A modified statutory basis of reporting was adopted by the Group on first time adoption of IFRS Standards in 2005. This was set out in the Statement of Recommended Practice issued by the Association of British Insurers (ABI SORP). The ABI SORP was withdrawn for the accounting periods beginning in or after 2015. As used in these consolidated financial statements, the term 'grandfathered' ABI SORP refers to the requirements of the pronouncements prior to its withdrawal. For investment contracts that do not contain discretionary participating features, IAS 39 is applied and, where the contract includes an investment management element, IFRS 15 'Revenue from Contracts with Customers' applies. The policies applied in each business unit are noted below. When measuring policyholder liabilities, a number of assumptions are applied to estimate future amounts due to or from the policyholder. The nature of assumptions varies by product and among the most significant is policyholder behaviour, particularly in the US. Additional details of valuation methodologies and assumptions applied for material product types are discussed in note C3.4.
Measurement of insurance contract liabilities and investment contract liabilities with discretionary participation features		Asia insurance operations The policyholder liabilities for businesses in Asia are generally determined in accordance with methods prescribed by local GAAP, adjusted to comply with the modified statutory basis where necessary. Refinements to the local reserving methodology are generally treated as changes in estimates, dependent on their nature. The UK-style with-profits funds' liabilities in Hong Kong are valued under the realistic basis in accordance with the requirements of 'grandfathered' FRS 27 'Life Assurance' (issued by the Accounting Standards Board in 2004 and withdrawn in 2015). The realistic basis requires the value of liabilities to be calculated as the sum of a with-profits benefits reserve, future policy-related liabilities and the realistic current liabilities of the fund. In Taiwan and India, US GAAP principles are applied. The sensitivity of Asia insurance operations to variations in key estimates and assumptions, including mortality and morbidity, is discussed in note C6.4.
		US insurance operations (Jackson) The policyholder liabilities for Jackson's conventional protection-type policies are determined under US GAAP principles with locked in assumptions for mortality, interest, policy lapses and expenses along with provisions for adverse deviations. For other policies, the policyholder liabilities include the policyholder account balance. For those investment contracts in the US with fixed and guaranteed terms, the Group uses the amortised cost model to measure the liability. The US has no investment contracts with discretionary participation features. The sensitivity of US insurance operations to variations in key estimates and assumptions, including policyholder behaviour, is discussed in note C6.4.

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Measurement of policyholder liabilities and unallocated surplus of with-profits


Measurement of investment contract liabilities without discretionary participation features		Investment contracts without discretionary participation features are measured in accordance with IAS 39 to reflect the deposit nature of the arrangement, with premiums and claims reflected as deposits and withdrawals, and taken directly to the statement of financial position as movements in the financial liability balance. Investment contracts without fixed and guaranteed terms are classified as financial instruments and designated as fair value through profit or loss because the resulting liabilities are managed and their performance is evaluated on a fair value basis. Where the contract includes a surrender option, its carrying value is subject to a minimum carrying value equal to its surrender value. Other investment contracts are measured at amortised cost.
Measurement of unallocated surplus of with-profits funds		Unallocated surplus of with-profits funds represents the excess of assets over policyholder liabilities, determined in accordance with the Group's accounting policies, that have yet to be appropriated between policyholders and shareholders for the Group's with-profits funds in Hong Kong and Malaysia. The unallocated surplus is recorded wholly as a liability with no allocation to equity. The annual excess or shortfall of income over expenditure of the with-profits funds, after declaration and attribution of the cost of bonuses to policyholders and shareholders, is transferred to or from the unallocated surplus each period through a charge or credit to the 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. The balance of the unallocated surplus is determined after full provision for deferred tax on unrealised appreciation or depreciation on investments.
Liability adequacy test		The Group performs adequacy testing on its insurance liabilities to ensure that the carrying amounts (net of related deferred acquisition costs) and, where relevant, present value of acquired in-force business is sufficient to cover current estimates of future cash outflows. Any deficiency is immediately charged to the income statement. Jackson's liabilities for insurance contracts, which include those for separate accounts (reflecting the value of the related separate account assets), policyholder account values and guarantees measured as described in note C3.4 and the associated deferred acquisition cost asset, are measured under US GAAP and liability adequacy testing is performed in this context. Under US GAAP, most of Jackson's products are accounted for under Accounting Standards Codification Topic 944, Financial Services – Insurance of the Financial Accounting Standards Board (ASC 944) whereby deferred acquisition costs are amortised in line with expected gross profits. Recoverability of the deferred acquisition costs in the balance sheet is tested against the projected value of future profit using current estimates and therefore no additional liability adequacy test is required under IFRS 4. The deferred acquisition cost asset recoverability test is performed in line with US GAAP requirements, which in practice is at a grouped level of those contracts managed together.

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(b): Further critical accounting policies affecting the presentation of the Group's results

Presentation of results before tax attributable to shareholders


Profit before tax is a significant IFRS income statement item. The Group has chosen to present a measure of profit before tax attributable to shareholders which distinguishes between tax borne by shareholders and tax attributable to policyholders to support understanding of the performance of the Group. Profit before tax attributable to shareholders is $2,148 million and compares to profit before tax of $2,419 million.		The total tax charge for the Group reflects tax that, in addition to that relating to shareholders' profit, is also attributable to policyholders through the interest in with-profits or unit-linked funds. Further detail is provided in note B3. Reported IFRS profit before the tax measure is therefore not representative of pre-tax profit attributable to shareholders. Accordingly, in order to provide a measure of pre-tax profit attributable to shareholders, the Group has chosen to adopt an income statement presentation of the tax charge and pre-tax results that distinguishes between policyholders' and shareholders' returns.
Segmental analysis of results and earnings attributable to shareholders

The Group uses adjusted operating profit as the segmental measure of its results. Total segmental adjusted operating profit is $6,463 million and is shown in note B1.1.		The basis of calculation of adjusted operating profit is provided in note B1.3. For shareholder-backed business, with the exception of debt securities held by Jackson and the Group's treasury company, which are treated as available-for-sale, and assets classified as loans and receivables at amortised cost, all financial investments and investment properties are designated as assets at fair value through profit or loss. Short-term fluctuations in fair value affect the result for the year and the Group provides additional analysis of results before and after the effects of short-term fluctuations in investment returns, together with other items that are of a short-term, volatile or one-off nature. The effects of short-term fluctuations include asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ as described in note B1.2. Short-term fluctuations in investment returns on assets held by with-profits funds in Hong Kong, Malaysia and Singapore do not affect directly reported shareholder results. This is because (i) the unallocated surplus of with-profits funds is accounted for as a liability and (ii) excess or deficit of income and expenditure of the funds over the required surplus for distribution are transferred to or from policyholder liabilities (including the unallocated surplus).

Measurement and presentation of derivatives and debt securities of US insurance operations (Jackson)

Jackson holds a number of derivative instruments and debt securities. The selection of the accounting approach for these items significantly affects the volatility of profit before tax.

$457 million of the US investment return in the income statement arises from such derivatives and debt securities.

The Group has decided that, except for occasional circumstances, applying hedge accounting using IAS 39 to derivative instruments held by Jackson would not improve the relevance or reliability of the financial statements to such an extent that would justify the difficulty and cost of applying these provisions. As a result of this decision, the total income statement results are more volatile as the movements in the fair value of Jackson's derivatives are reflected within it. This volatility is reflected in the level of short-term fluctuations in investment returns, as shown in notes B1.1 and B1.2.

Under IAS 39, unless carried at amortised cost (subject to impairment provisions where appropriate) under the held-to-maturity category, debt securities are carried at fair value. The Group has chosen not to classify any financial assets as held-to-maturity. Debt securities of Jackson are designated as available-for-sale with value movements, unless impaired, being recorded as movements within other comprehensive income. Impairments are recorded in the income statement, as discussed in note (c) below.

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(c): Other items requiring application of critical estimates or judgements

Deferred acquisition costs (DAC) for insurance contracts

The Group estimates projected future profits/margins to assess whether adjustments to the carrying value or amortisation profile of DAC asset are necessary.

Impacts $16.2 billion of DAC as shown in note C4.2.

Costs of acquiring new insurance business are accounted for in a way that is consistent with the principles of the 'grandfathered' ABI SORP with deferral and amortisation against margins in future revenues on the related insurance policies. The Group determines qualifying costs that should be capitalised (ie those costs of acquiring new insurance contracts that meet the criteria under the Group's accounting policy for DAC). The recoverability of the DAC is measured and the DAC asset is deemed impaired if the projected margins (which are estimated based on a number of assumptions similar to those underlying policyholder liabilities) are less than the carrying value. To the extent that the future margins differ from those anticipated, an adjustment to the carrying value will be necessary either through a charge to the income statement (if the projected margins are lower than carrying value) or through a change in the amortisation profile.

Asia insurance operations

US insurance operations

The most material estimates and assumptions applied in the measurement and amortisation of DAC balances relate to the US insurance operations.

The majority of Jackson's DAC relates to its variable annuities business. For variable annuity business, a key assumption is the long-term investment return from the separate accounts, which for 2020 is 7.15 per cent (2019 and 2018: 7.4 per cent). The impact of using this return is reflected in two principal ways, namely:

–

Through the projected expected gross profits that are used to determine the amortisation of DAC. This is applied through the use of a mean reversion technique which is described in more detail below; and

–

The required level of provision for claims for guaranteed minimum death, 'for life' withdrawal, and income benefits.

The present value of the estimated gross profit is computed using the rate of interest that accrues to policyholder balances (sometimes referred to as the contract rate).

Estimated gross profits for the fixed interest rate annuities, fixed index annuities and variable annuities include estimates of the following, each of which will be determined based on the best estimate of amounts over the life of the book of contracts without provision for adverse deviation:

–

Amounts expected to be assessed against policyholder balances for mortality less benefit claims in excess of related policyholder balances;

–

Amounts expected to be assessed for contract administration less costs incurred for contract administration;

–

Amounts expected to be earned from the investment of policyholder balances less interest credited to policyholder balances;

–

Amounts expected to be assessed against policyholder balances upon termination of contracts (sometimes referred to as surrender charges);

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Deferred acquisition costs (DAC) for insurance contracts

–

Assumptions for the long-term investment return for the separate accounts;

–

Assumptions for future hedge costs; and

–

Other expected assessments and credits.

Jackson makes certain adjustments to the DAC assets which are recognised directly in other comprehensive income ('shadow accounting') to match the recognition of unrealised gains or losses on available-for-sale securities causing the adjustments. More precisely, shadow DAC adjustments reflect the change in DAC that would have arisen if the assets held in the statement of financial position had been sold, crystallising unrealised gains or losses, and the proceeds reinvested at the yields currently available in the market.

Carrying value of distribution rights intangible assets

To determine the impaired value, the Group estimates the discounted future expected cash flows arising from distribution rights.

Affects $4.0 billion of assets as shown in note C4.2.

Distribution rights relate to bancassurance partnership arrangements for the distribution of products for the term of the contractual agreement with the bank partner, for which an asset is recognised based on fees paid (including fees payable in future years). Distribution rights impairment testing is conducted when there is an indication of impairment.

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Financial investments – Valuation

Financial investments held at fair value represent $412.8 billion of the Group's total assets.

Financial investments held at amortised cost represent $14.6 billion of the Group's total assets.

The Group estimates the fair value of financial investments that are not actively traded using quotations from independent third parties or internally developed pricing models.

Determination of fair value

The fair values of the financial instruments for which fair valuation is required under IFRS Standards are determined by the use of current market bid prices for exchange-quoted investments or by using quotations from independent third parties such as brokers and pricing services or by using appropriate valuation techniques.

If the market for a financial investment of the Group is not active, the Group establishes fair value by using quotations from independent third parties, such as brokers or pricing services, or by using internally developed pricing models. Priority is given to publicly available prices from independent sources when available, but overall the source of pricing and/or the valuation technique is chosen with the objective of arriving at a fair value measurement which reflects the price at which an orderly transaction would take place between market participants on the measurement date. The valuation techniques include the use of 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 and 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 financial investments. Details of the financial investments classified as 'level 3' to which valuation techniques are applied and the sensitivity of profit before tax to a change in the valuation of these items, are presented in note C2.2(ii).

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Financial investments – Determining impairment of 'available-for-sale' and 'amortised cost' assets


The Group applies judgement to assess whether factors such as the severity and duration of the decline in fair value, the financial condition and the prospects of the issuer indicate an impairment in value of financial investments classified as 'available-for-sale' or 'held at amortised cost'. If evidence for impairment exists, valuation techniques, including estimates, are then applied in determining the impaired value, which is based on its expectation of discounted future cash flows. If the impaired value is less than book cost, an impairment loss is recognised in the income statement. Affects $49.3 billion of assets.		For financial investments classified as 'available for sale' or 'at amortised cost', if a loss event that will have a detrimental effect on cash flows is identified, an impairment loss is recognised in the income statement. The loss recognised is determined as the difference between the book cost and the fair value or estimated future cash flows of the relevant impaired assets. The loss comprises the effect of the expected loss of contractual cash flows and any additional market-price driven temporary reductions in values. Available-for-sale securities The Group's available-for-sale securities are principally held by the US insurance operations. For these securities, the consideration of evidence of impairment requires management's judgement. In making this determination, a range of market and industry indicators are considered including the severity and duration of the decline in fair value and the financial condition and prospects of the issuer. The factors reviewed include economic conditions, credit loss experience, other issuer-specific developments and future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealised losses currently in equity may be recognised in the income statement in future periods. For US residential mortgage-backed and other asset-backed securities, all of which are classified as available-for-sale, impairment is estimated using a model of expected future cash flows. Key assumptions used in the model include assumptions about how much of the currently delinquent loans will eventually default and assumed loss severity. Additional details on the methodology and estimates used to determine impairments of the available-for-sale securities of Jackson are described in note C1.1. Assets held at amortised cost When assets held at amortised cost are subject to impairment testing, estimated future cash flows are compared to the carrying value of the asset. In estimating future cash flows, the Group looks at the expected cash flows of the assets and applies historical loss experience of assets with similar credit risks that has been adjusted for conditions in the historical loss experience which no longer exist, or for conditions that are expected to arise. The estimated future cash flows are discounted using the financial asset's original or variable effective interest rate and exclude credit losses that have not yet been incurred. Reversal of impairment losses If, in subsequent periods, an impaired debt security held on an available-for-sale basis or an impaired loan or receivable recovers in value (in part or in full) and this recovery can be objectively related to an event occurring after the impairment, then any amount determined to have been recovered is reversed through the income statement.

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A3.2 New accounting pronouncements not yet effective

The following standards, interpretations and amendments have been issued by the IASB but are not yet effective in 2020. For 2021 and beyond, the Group will prepare financial statements in accordance with UK-adopted international accounting standards and will be reliant on the UK adoption for the new accounting pronouncements that have not been endorsed by the EU by 31 December 2020.

This is not intended to be a complete list as only those standards, interpretations and amendments that could have a material impact on the Group's financial statements are discussed.

IFRS 9 'Financial instruments: Classification and measurement'

IFRS 9 became mandatorily effective for the annual periods beginning on or after 1 January ~~2020;~~2018, with early application permitted and transitional rules apply.

The Group met the eligibility criteria for temporary exemption under the Amendments to IFRS 4 from applying IFRS 9 and has accordingly deferred the adoption of IFRS 9 until the date when IFRS 17 'Insurance Contracts' is expected to be adopted upon its current mandatory effective date. The Group is eligible as its activities are predominantly to issue insurance contracts based on the criteria as set out in the amendments to IFRS 4. The required disclosure of the fair value of the Group's financial assets, showing the amounts for instruments that meet the 'Solely for Payment of Principal and Interest' (SPPI) criteria but do not meet the definition of held for trading and are not managed and evaluated on a fair value basis separately from all other financial assets, is provided below.

When adopted IFRS 9 replaces the existing IAS 39 'Financial Instruments – Recognition and Measurement' and will affect the following three areas:

The classification and the measurement of financial assets and liabilities

Under IAS 39, 88 per cent of the Group's investments are valued at FVTPL and the Group's current expectation is that a significant proportion of its investments will continue to be designated as such under IFRS 9. The Group is currently evaluating whether some of the assets held at amortised cost today should be designated at FVTPL in conjunction with the required changes in classification to the relevant underlying liabilities upon adoption of IFRS 17.

The calculation of the impairment charge relevant for financial assets held at amortised cost or FVOCI

The hedge accounting requirements which are more closely aligned with the risk management activities of the Company

No significant change to the Group's hedge accounting is currently anticipated, but this remains under review.

The Group is assessing the impact of IFRS 9 and implementing this standard in conjunction with IFRS 17 as permitted. Further details on IFRS 17 are provided below.

The Parent Company and a number of intermediate holding companies in the UK and non-insurance subsidiaries in Asia adopted IFRS 9 in 2018 in their individual or separate financial statements where these statements are prepared in accordance with IFRS, including the UK Financial Reporting Standard 101 'Reduced Disclosure Framework'. The public availability of the financial statements for these entities varies according to the local laws and regulations of each jurisdiction. The results for these entities continue to be accounted for on an IAS 39 basis in these consolidated financial statements.

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The fair value of the Group's directly held financial assets at 31 December 2020 and 2019 are shown below. Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) as defined by IFRS 9 are shown separately. This excludes financial assets that meet the definition of held for trading or are managed and evaluated on a fair value basis.

	Financial assets that pass the SPPI test		All other financial assets, net of derivative liabilities

Financial assets, net of derivative liabilities	Fair value at 31 Dec 2020	Movement in the fair value during 2020	Fair value at 31 Dec 2020	Movement in the fair value during 2020
	$m	$m	$m	$m

Accrued investment income	1,428	–	–	–
Other debtors	3,248	–	–	–
Loansnote(1)	11,302	154	3,905	3
Equity securities and holdings in collective investment schemes	–	–	278,635	33,515
Debt securitiesnote(2)	32,991	3,194	92,837	6,817
Derivative assets, net of derivative liabilities	–	–	2,117	(3,683)
Other investments	–	–	1,866	(36)
Deposits	3,882	–	–	–
Cash and cash equivalents	8,018	–	–	–

Total financial assets, net of derivative liabilities	60,869	3,348	379,360	36,616

	Financial assets that pass the SPPI test		All other financial assets, net of derivative liabilities

Financial assets, net of derivative liabilities	Fair value at 31 Dec 2019	Movement in the fair value during 2019	Fair value at 31 Dec 2019	Movement in the fair value during 2019
	$m	$m	$m	$m

Accrued investment income	1,641		–	–
Other debtors	2,054	–	–	–
Loansnote(1)	13,484	517	3,614	2
Equity securities and holdings in collective investment schemes	–	–	247,281	44,250
Debt securitiesnote(2)	56,365	4,114	78,205	5,594
Derivative assets, net of derivative liabilities	–	–	1,353	(5,825)
Other investments	–	–	1,302	44
Deposits	2,615	–	–	–
Cash and cash equivalents	6,965	–	–	–

Total financial assets, net of derivative liabilities	83,124	4,631	331,755	44,065

Notes

(1): The loans that pass the SPPI test in the table above are primarily carried at amortised cost under IAS 39. Further information on these loans is as provided in note C1.
(2): The debt securities that pass the SPPI test in the table above are primarily held by Jackson and are classified as available-for-sale under IAS 39. The credit ratings of these securities, analysed on the same basis of those disclosed in note C1, are as follows:

Available-for-sale debt securities that pass the SPPI test	31 Dec 2020 $m	31 Dec 2019 $m


AAA	1,058	1,117
AA+ to AA-	6,830	11,328
A+ to A-	6,904	15,140
BBB+ to BBB-	9,812	17,972
Below BBB- and unrated	8,387	10,808

Total fair value	32,991	56,365

The underlying financial assets of the Group's joint ventures and associates accounted for using the equity method are analysed below into those which meet the SPPI condition of IFRS 9, excluding any financial assets that meet the definition of held for trading or are managed and evaluated on a fair value basis, and all other financial assets. Fair value information for joint ventures and associates is also set out in the table below:

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	Financial assets that pass the SPPI test		All other financial assets, net of derivative liabilities

Financial assets, net of derivative liabilities, held by the Group's joint ventures and associates accounted for using the equity method	Fair value at 31 Dec 2020	Movement in the fair value during 2020	Fair value at 31 Dec 2020	Movement in the fair value during 2020
	$m	$m	$m	$m

Accrued investment income	156	–	–	–
Other debtors	310	–	–	–
Loans	269	–	–	–
Equity securities and holdings in collective investment schemes	–	–	7,949	1,032
Debt securities	–	–	7,741	102
Deposits	777	–	–	–
Cash and cash equivalents	582	–	–	–

Total financial assets, net of derivative liabilities	2,094	–	15,690	1,134

	Financial assets that pass the SPPI test		All other financial assets, net of derivative liabilities

Financial assets, net of derivative liabilities, held by the Group's joint ventures and associates accounted for using the equity method	Fair value at 31 Dec 2019	Movement in the fair value during 2019	Fair value at 31 Dec 2019	Movement in the fair value during 2019
	$m	$m	$m	$m

Accrued investment income	161	–	–	–
Other debtors	329	–	–	–
Loans	197	–	–	–
Equity securities and holdings in collective investment schemes	–	–	5,999	444
Debt securities	–	–	6,080	86
Deposits	521	–	–	–
Cash and cash equivalents	513	–	–	–

Total financial assets, net of derivative liabilities	1,721	–	12,079	530

IFRS 17 'Insurance Contracts'

In May 2017, the IASB issued IFRS 17 'Insurance Contracts' to replace the existing IFRS 4 'Insurance Contracts'. In June 2020, the IASB issued amendments to IFRS 17, including delaying the effective date to reporting periods on or after 1 January 2023. The standard is subject to endorsement in the UK via the UK Endorsement Board which is currently being established. The Group intends to adopt the new standard on its mandatory effective date, alongside the adoption of IFRS 9.

The CSM is released as profit over the coverage period of the insurance contract, reflecting the delivery of services to the policyholder. For certain contracts with participating features (where a substantial share of the fair value of the related investments and other underlying items is paid to policyholders), the CSM reflects the variable fee to shareholders. For these contracts, the CSM is adjusted to reflect the changes in economic experience and assumptions. For all other contracts the CSM is only adjusted for non-economic assumptions.

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In order to transition to IFRS 17, the amount of deferred profit, being the CSM at transition date, needs to be determined. IFRS 17 requires this CSM to be calculated as if the standard had applied retrospectively. However, if this is not practical an entity is required to choose either a modified retrospective approach or to determine the CSM by reference to the fair value of the liabilities at the transition date. The approach for determining the CSM will have a significant impact on both shareholders' equity and on the amount of profits on in-force business in future reporting periods.

IFRS 17 implementation programme

IFRS 17 is expected to have a significant impact as the requirements of the new standard are complex and requires a fundamental change to accounting for insurance contracts as well as the application of significant judgement and new estimation techniques. The effect of changes required to the Group's accounting policies as a result of implementing these standards, that are expected to alter the timing of IFRS profit recognition, are currently uncertain, particularly as amendments were issued by the IASB in June 2020 to IFRS 17. The implementation of this standard will involve significant enhancements to IT, actuarial and finance systems of the Group.

The Group has a Group-wide implementation programme to implement IFRS 17 and IFRS 9. The programme is responsible for setting Group-wide accounting policies and developing application methodologies, establishing appropriate processes and controls, sourcing appropriate data and implementing actuarial and finance system changes.

A Group-wide Steering Committee, chaired by the Group Chief Financial Officer and Chief Operating Officer with participation from the Group Risk function and the Group's and business units' senior finance managers, provides oversight and strategic direction to the implementation programme. A number of sub-committees are also in place to provide governance over the technical interpretation and accounting policies selected, design and delivery of the programme. During 2020, the Group has made significant progress with the development of the accounting policies and application methodologies and the build of the actuarial and finance systems. The Group is also assessing the IASB amendments issued in June 2020 and incorporating the changes into the delivery of the programme.

Other new accounting pronouncements

–: Amendments to IFRS 9, IAS 39 and IFRS 7 and IFRS 16 'Interest rate benchmark reform – phase 2' issued in ~~September 2019~~August 2020 and effective from 1 January ~~2020;~~2021;
–: Amendments to IAS 16, 'Property, Plant and Equipment: Proceeds before intended use' issued in May 2020 and effective from 1 January 2022;
–: Reference to the Conceptual Framework – Amendments to IFRS 3, 'Business combination' issued in May 2020 and effective from 1 January 2022;
–: Amendments to IAS 37 'Onerous contracts – Cost of fulfilling a contract' issued in May 2020 and effective from 1 January 2022;
–: Annual Improvements to IFRS Standards 2018-2020 issued in May 2020 and effective from 1 January 2022;
–: Amendments to IAS 1 'Classification of liabilities as current or non-current' issued in January 2020 and effective from 1 January ~~2022.~~2023;
–: Amendments to IAS 1 'Disclosure of accounting policies' issued in February 2021 and effective from 1 January 2023; and
–: Amendments to IFRS 8 'Definition of Accounting Estimates' issued in February 2021 and effective from 1 January 2023.

For those IASB standards and amendments that have an effective date after 31 December 2020, the Group's financial statements will be prepared in accordance with UK-adopted international accounting standards, which is currently being finalised, instead of EU-endorsed IFRS.

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B EARNINGS PERFORMANCE

B1 Analysis of performance by segment

B1.1 Segment results


	Note	2019 $m	2018 $m	2017 $m			2020 $m	2019 $m	2018 $m

						Note	note (i)	note (i)	note (i)

Continuing operations:
Asia
Insurance operations	B3(a)	2,993	2,646	2,319			3,384	2,993	2,646
Asset management		283	242	227			283	283	242

Total Asia		3,276	2,888	2,546			3,667	3,276	2,888

US
Jackson (US insurance operations)	B3(b)	3,038	2,552	2,854
Insurance operations							2,787	3,038	2,552
Asset management		32	11	12			9	32	11

Total US		3,070	2,563	2,866			2,796	3,070	2,563

Other income and expenditure
Other income and expenditure:
Investment return and other income		50	70	14			6	50	70
Interest payable on core structural borrowingsnote(i)		(516)	(547)	(548)
Interest payable on core structural borrowings							(337)	(516)	(547)
Corporate expenditurenote(ii)		(460)	(490)	(465)			(417)	(460)	(490)
					��
Total other income and expenditure		(926)	(967)	(999)			(748)	(926)	(967)

Restructuring costsnote(iii)		(110)	(75)	(35)
Restructuring and IFRS 17 implementation costsnote(iii)							(208)	(110)	(75)

Adjusted IFRS operating profit based on longer-term investment returns		5,310	4,409	4,378
Adjusted operating profit						B1.3	5,507	5,310	4,409
Short-term fluctuations in investment returns on shareholder-backed business	B1.2	(3,203)	(791)	(1,994)		B1.2	(4,841)	(3,203)	(791)
Amortisation of acquisition accounting adjustmentsnote(iv)		(43)	(61)	(82)			(39)	(43)	(61)
(Loss) on disposal of businesses and corporate transactions	D1	(142)	(107)	286
Gain (loss) attaching to corporate transactions						D1.1	1,521	(142)	(107)

Profit from continuing operations before tax attributable to shareholders		1,922	3,450	2,588
Profit before tax attributable to shareholders							2,148	1,922	3,450
Tax credit (charge) attributable to shareholders' returns	B4	31	(569)	(840)		B3	37	31	(569)

Profit from continuing operations		1,953	2,881	1,748

Profit from discontinued operations	D2	1,319	1,142	1,333
Re-measurement of discontinued operations on demerger	D2	188	–	–
Cumulative exchange loss recycled from other comprehensive income	D2	(2,668)	–	–

(Loss) profit from discontinued operations		(1,161)	1,142	1,333
Profit for the year from continuing operations							2,185	1,953	2,881
Loss for the year from discontinued operations							–	(1,161)	1,142

Profit for the year		792	4,023	3,081			2,185	792	4,023

Attributable to:
Equity holders of the Company
From continuing operations		1,944	2,877	1,747			2,118	1,944	2,877
From discontinued operations		(1,161)	1,142	1,333			–	(1,161)	1,142
Non-controlling interests from continuing operations		9	4	1			67	9	4

		792	4,023	3,081			2,185	792	4,023

Basic earnings per share (in cents)	Note	2019	2018	2017

Based on adjusted IFRS operating profit based on longer-term investment returns, net of tax, from continuing operationsnote(v)	B5	175.0¢	145.2¢	134.6¢
Based on profit for the year from continuing operations	B5	75.1¢	111.7¢	68.0¢
Based on (loss) profit for the year from discontinued operations	B5	(44.8)¢	44.3¢	52.0¢


Basic earnings per share (in cents)		2020	2019	2018

	Note	note (i)	note (i)	note (i)

Based on adjusted operating profit, net of tax, from continuing operations	B4	175.5¢	175.0¢	145.2¢
Based on profit for the year from continuing operations	B4	81.6¢	75.1¢	111.7¢
Based on profit (loss) for the year from discontinued operations	B4	–	(44.8)¢	44.3¢

Notes

(i): ~~Interest charged~~Segment results are attributed to the ~~income statement on debt that was substituted~~shareholders of the Group before deducting the amount attributable to ~~M&G plc in October 2019 for 2019 was $(179) million (2018: $(128) million; 2017: $(90) million).~~the non-controlling interests. This presentation is applied consistently throughout the document.
(ii): Corporate expenditure as shown above is primarily for head office functions in London and Hong Kong.
(iii): Restructuring ~~costs include group-wide costs incurred for~~and IFRS 17 implementation costs include those incurred in ~~2019 from continuing operations.~~the US operations of $(46) million (2019: $(7) million; 2018: $(29) million).
(iv): Amortisation of acquisition accounting adjustments arising on the purchase of business. This comprises principally ~~relate to~~ the ~~REALIC business~~charge for the adjustments arising on the purchase of ~~Jackson which was acquired~~REALIC in 2012.
~~(v)~~: ~~Tax charges have been reflected as operating and non-operating in the same way as for the pre-tax items. Further details on tax charges are provided in note B4.~~

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B1.2 Short-term fluctuations in investment returns on shareholder-backed business

	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m


Asia operationsnote(i)	657	(684)	(1)	(607)	657	(684)
US operationsnote(ii)	(3,757)	(134)	(2,019)	(4,262)	(3,757)	(134)
Other operations	(103)	27	26	28	(103)	27

Total	(3,203)	(791)	(1,994)	(4,841)	(3,203)	(791)

(i): Asia operations

In Asia, the ~~positive~~ short-term fluctuations ~~of $657 million (2018: negative $(684) million; 2017: negative $(1) million) principally~~ reflect the net value movements on shareholders' assets and ~~related~~policyholder liabilities ~~following decreases~~(net of reinsurance) arising from market movements in ~~bond yields during~~ the year. In 2020, falling interest rates in certain parts of Asia led to lower discount rates on policyholder liabilities under the local reserving basis applied, which were not fully offset by unrealised bond and equity gains in the year and this led to the overall negative short-term investment fluctuations in Asia.

(ii): US operations

The short-term fluctuations in investment returns ~~for~~in the US ~~insurance operations~~ are reported net of the related ~~credit~~charge for amortisation of deferred acquisition costs (DAC) credit of ~~$1,248~~$812 million as shown in note ~~C5.2(i) (2018:~~C4.2 (2019: credit of $1,248 million; 2018: debit of $(152) ~~million; 2017: credit of $595~~ million) and comprise amounts in respect of the following items:

	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m


Net equity hedge resultnote(a)	(4,582)	(78)	(1,920)	(6,334)	(4,582)	(78)
Other than equity-related derivativesnote(b)	678	(85)	(46)	1,682	678	(85)
Debt securitiesnote(c)	156	(42)	(94)	474	156	(42)
Equity-type investments: actual less longer-term return	18	51	15	(40)	18	51
Other items	(27)	20	26	(44)	(27)	20

Total net of related DAC amortisation	(3,757)	(134)	(2,019)	(4,262)	(3,757)	(134)

Notes

(a): ~~Net equity hedge result~~

The purpose of the inclusion of ~~this item~~the net equity hedge result in short-term fluctuations in investment returns is to segregate the amount included inwithin pre-tax profit that relates to the accounting effect of market movements on both the value of guarantees in Jackson's products including variable ~~annuity and fixed index annuity products~~annuities and on the related derivatives used to manage the exposures inherent in these guarantees. The level of fees recognised in ~~non-operating profit~~short-term fluctuations in investment returns is determined by reference to that allowed for within the reserving basis. The variable annuity guarantees are valued in accordance with either Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures ~~(formerly FAS 157)~~ or ASC Topic 944, Financial Services – Insurance ~~(formerly SOP 03-01)~~ depending on the type of guarantee. Both approaches require an entity to determine the total fee ('the fee assessment') that is expected to fund future projected benefit payments arising using the assumptions applicable for that method. The method under ~~FAS 157~~ASC Topic 820 requires this fee assessment to be fixed at the time of issue. As the fees included within the initial fee assessment are earned, they are included in ~~non-operating profit~~short-term fluctuations in investment returns to match the corresponding movement in the guarantee liability. Other guarantee fees are included in adjusted operating profit, which in ~~2019 was~~2020 were $704 million (2019: $699 ~~million (2018:~~million; 2018: $657 ~~million;2017: $622~~ million), pre-tax and net of related DAC amortisation. As the Group applies US GAAP for the measured value of the product guarantees, the net equity hedge result also includes asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ.

The net equity hedge result therefore includes significant accounting mismatches and other factors that do not represent the economic result. These other factors include:

–: The variable annuity guarantees and fixed index annuity embedded options being only partially fair valued under 'grandfathered' US GAAP;
–: The interest rate exposure being managed through the other than equity-related derivative programme explained in note (b) below; and
–: Jackson's management of its economic exposures for a number of other factors that are treated differently in the accounting frameworks such as future fees and assumed volatility levels.

The net equity hedge result can be summarised as follows:

	2019 $m	2018 $m	2017 $m		2020 $m	2019 $m	2018 $m


Fair value movements on equity hedge instruments*	(5,314)	399	(2,411)	Fair value movements on equity hedge instruments*	(5,219)	(5,314)	399
Accounting value movements on the variable and fixed index annuity guarantee liabilities	(22)	(1,194)	(128)	Accounting value movements on the variable and fixed index annuity guarantee liabilities*	(2,030)	(22)	(1,194)
Fee assessments net of claim payments	754	717	619	Fee assessments net of claim payments	915	754	717

Total net of related DAC amortisation	(4,582)	(78)	(1,920)	Total net of related DAC amortisation	(6,334)	(4,582)	(78)

*: ~~Held to manage equity exposures of~~The value movements on the variable annuity guarantees and fixed ~~index~~indexed annuity options asand the derivative instruments held to manage their equity exposures are discussed in Explanation of Performance and Other Financial Measures.

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(b)

~~Other~~The fluctuations for other than equity-related derivatives

~~The fluctuations for this item~~ comprise the net effect of:

–: Fair value movements on free-standing, other than equity-related derivatives;
–: Fair value movements on the Guaranteed Minimum Income Benefit (GMIB) reinsurance asset that are not matched by movements in the underlying GMIB liability, which is not fair valued; and
–: Related amortisation of DAC.
The free-standing, other than equity-related derivatives, are held to manage interest rate exposures and durations within the general account and the variable annuity guarantees and fixed index annuity embedded options described in note (a) above. Accounting mismatches arise because of differences between the measurement basis and presentation of the derivatives, which are fair valued with movements recorded in the income statement, and the exposures they are intended to manage.

(c)

Short-term fluctuations related to debt securities is analysed below:

	2019 $m	2018 $m	2017 $m		2020 $m	2019 $m	2018 $m


(Charges) credits in the year:				Credits (charges) in the year:
Losses on sales of impaired and deteriorating bonds	(28)	(6)	(4)	Losses on sales of impaired and deteriorating bonds	(148)	(28)	(6)
Bond write-downs	(15)	(5)	(3)	Bond write-downs	(32)	(15)	(5)
Recoveries	1	25	13	Recoveries/reversals	1	1	25

Total (charges) credits in the year	(42)	14	6	Total credits (charges) in the year	(179)	(42)	14
Risk margin allowance deducted from adjusted IFRS operating profit based on longer-term investment returns*	109	104	112	Risk margin allowance deducted from adjusted operating profit*	92	109	104

	67	118	118		(87)	67	118

Interest-related realised gains (losses):				Interest-related realised gains (losses):
Gains (losses) arising in the year	220	(12)	(55)	Gains (losses) arising in the year†	724	220	(12)
Less: Amortisation of gains and losses arising in current and prior years to adjusted IFRS operating profit based on longer-term investment returns	(129)	(155)	(180)	Amortisation of gains and losses arising in current and prior years to adjusted operating profit	(168)	(129)	(155)

	91	(167)	(235)		556	91	(167)

Related amortisation of deferred acquisition costs	(2)	7	24	Related amortisation of DAC	5	(2)	7

Total short-term fluctuations related to debt securities net of related DAC amortisation	156	(42)	(93)	Total short-term fluctuations related to debt securities net of related DAC amortisation	474	156	(42)

*: The debt securities of Jackson are held in the general account of the business. Realised gains and losses are recorded in the income statement with normalised returns included in adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ with variations from year to year included in the short-term fluctuations category. The risk margin reserve charge for longer-term credit-related losses included in adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ of Jackson for ~~2019~~2020 is based on an average annual risk margin reserve of 18 basis points (2019: 17 basis ~~points (2018:~~points; 2018: 18 ~~basis points; 2017: 21~~ basis points) on average book values of $51.7 billion (2019: $62.6 ~~billion (2018:~~billion; 2018: $57.1 ~~billion; 2017: $55.3~~ billion) as shown below:

Moody's rating category (or equivalent under NAIC ratings of mortgage-backed securities)

	2019			2018			2017				2020			2019			2018


	Average book value	RMR	Annual expected loss	Average book value	RMR	Annual expected loss	Average book value	RMR	Annual expected loss		Average book value	RMR	Annual expected loss	Average book value	RMR	Annual expected loss	Average book value	RMR	Annual expected loss

	$m	%	$m	$m	%	$m	$m	%	$m		$m	%	$m	$m	%	$m	$m	%	$m

A3 or higher	38,811	0.10	(38)	29,982	0.10	(31)	27,277	0.12	(33)		32,541	0.10	(31)	38,811	0.10	(38)	29,982	0.10	(31)
Baa1, 2 or 3	22,365	0.24	(53)	25,814	0.21	(55)	26,626	0.22	(58)		17,513	0.24	(42)	22,365	0.24	(53)	25,814	0.21	(55)
Ba1, 2 or 3	1,094	0.85	(9)	1,042	0.98	(10)	1,046	1.03	(11)		1,314	0.75	(10)	1,094	0.85	(9)	1,042	0.98	(10)
B1, 2 or 3	223	2.56	(6)	289	2.64	(8)	318	2.70	(9)		206	2.36	(5)	223	2.56	(6)	289	2.64	(8)
Below B3	75	3.39	(3)	11	3.69	–	23	3.78	(1)		108	3.36	(4)	75	3.39	(3)	11	3.69	–

Total	62,568	0.17	(109)	57,138	0.18	(104)	55,290	0.21	(112)		51,682	0.18	(92)	62,568	0.17	(109)	57,138	0.18	(104)

Related amortisation of deferred acquisition costs			19			22			21
Related amortisation of DAC										Related amortisation of DAC			12			19			22

Risk margin reserve charge to adjusted IFRS operating profit based on longer-term investment returns for longer-term credit-related losses			(90)			(82)			(91)
Risk margin reserve charge to adjusted operating profit for longer-term credit-related losses†										Risk margin reserve charge to adjusted operating profit for longer-term credit-related losses†			(80)			(90)			(82)

†: Excluding the realised gains that are part of the gain arising in respect of the reinsured Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd, as discussed in note D1.1.

In addition to the accounting for realised gains and losses described above for Jackson general account debt securities, included within the statement of other comprehensive income is a pre-tax net unrealised gain of $2,676 million, net of related amortisation of DAC, arising in the year (2019: $3,392 ~~million for net unrealised gains~~million; 2018: $(1,831) million) on debt securities classified as available-for-sale, partially offset by the recycling of $2,282 million gains, net of related amortisation of ~~deferred acquisition costs (2018: charge~~DAC, to the income statement on transfer of ~~$(1,831) million; 2017: credit of $697 million)~~debt securities to Athene (see note D1.1). Temporary market value movements do not reflect defaults or impairments. Additional details of the movement in the value of the Jackson portfolio are included in note ~~C3.2(b).~~C1.1.

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B1.3 Determining operating segments and performance measure of operating segments

Operating segments

The Group's operating segments for financial reporting purposes are defined and presented in accordance with IFRS 8 'Operating Segments' on the basis of the management reporting structure and its financial management information.

Under the Group's management and reporting structure, its chief operating decision maker is the Group Executive Committee (GEC). In the management structure, responsibility is delegated to the Chief Executive Officers of ~~Prudential Corporation~~the Group's Asia ~~the North American Business Unit~~ and ~~up to the date of demerger, M&G plc~~US business units for the day-to-day management of their business units (within the framework set out in the Group Governance Manual). Financial management information used by the GEC aligns with these business segments. These operating segments, Asia operations and US operations, derive revenue from both insurance and asset management activities.

On 21 October 2019, the Group completed the demerger of M&G plc from the Prudential plc group, resulting in two separately listed companies. Accordingly, UK and Europe operations do not represent an operating segment at the year end. The results of M&G plc have been reclassified as discontinued operations in these consolidated financial statements in accordance with IFRS 5 '~~Non-current Assets Held for Sale and Discontinued Operations~~~~' and have therefore been excluded in the analysis of performance measure of operating segments.~~

Operations which do not form part of any business unit are reported as 'Unallocated to a segment'. These include head office costs in London and Hong Kong. The Group's Africa operations ~~and treasury function~~ do not form part of any operating segment under the structure, and their assets and liabilities and profit or loss before tax are not material to the overall financial position of the Group. The Group's ~~treasury function and~~ Africa operations are therefore also reported as 'Unallocated to a segment'.

In preparation for the planned separation of Jackson, the management information received by the GEC has been revised in 2021, leading to a change in the Group's operating segments which will be presented in the 2021 half year report as discussed in Explanation of Performance and Other Financial Measures.

Performance measure

The performance measure of operating segments utilised by the ~~Company~~Group is ~~adjusted IFRS operating profit attributable to shareholders based on longer-term investment returns, as described below. This measurement basis distinguishes~~ adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit), as described below. This measurement basis distinguishes adjusted operating profit from other constituents of total profit or loss for the year as follows:

–: Short-term fluctuations in investment returns on shareholder-backed business. This includes the impact of short-term market effects on the carrying value of Jackson's guarantee liabilities and related derivatives as explained below;
–: Amortisation of acquisition accounting adjustments arising on the purchase of business. This comprises principally the charge for the adjustments arising on the purchase of REALIC in 2012; and
–: Gain or loss on corporate transactions, such as in 2020 the effect of certain of the Group's reinsurance arrangements and costs associated with the work to plan for the separation of Jackson, and in 2019 disposals undertaken ~~in the year~~ and costs connected to the demerger of M&G plc from Prudential plc.

Determination of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ for investment and liability movements

(a): With-profits business

For Asia's with-profits business in Hong Kong, Singapore and Malaysia, the adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ reflects the shareholders' share in the bonuses declared to policyholders. Value movements in the underlying assets of the with-profits funds only affect the shareholder results through indirect effects of investment performance on declared policyholder bonuses and therefore, do not affect directly the determination of adjusted ~~IFRS~~ operating ~~profit based on longer-term investment returns.~~profit.

(b): Unit-linked business including the US variable annuity separate accounts

The policyholder unit liabilities are directly reflective of the underlying asset value movements. Accordingly, the adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ reflect the current ~~period~~year value movements in both the unit liabilities and the backing assets.

(c): US general account business

The adjusted operating profit for Jackson included in the Group's accounts is based on information reviewed by the GEC on an IFRS basis. This will differ from the financial information that Jackson will report as part of the demerger process, which will be prepared under US GAAP and will be based on the information local management reviews in preparation for them becoming a standalone entity.

Jackson's variable ~~annuity~~ and fixed index annuity ~~business~~

~~This~~ business has guarantee liabilities which are measured on a combination of fair value and other US GAAP derived principles. These liabilities are subject to an extensive derivative programme to manage equity and interest rate exposures whose fair value movements pass through the income statement each ~~period.~~year.

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The following value movements for Jackson's variable and fixed index annuity business are excluded from adjusted ~~IFRS~~ operating ~~profit based on longer-term investment returns.~~profit. See note ~~B1.2 note (ii):~~B1.2:

–: Fair value movements for equity-based derivatives;
–: Fair value movements for guaranteed benefit options for the 'not for life' portion of Guaranteed Minimum Withdrawal Benefit (GMWB) and fixed index annuity business, and Guaranteed Minimum Income Benefit (GMIB) reinsurance (see below);
–: Movements in the accounts carrying value of Guaranteed Minimum Death Benefit (GMDB), GMIB and the 'for life' portion of GMWB liabilities, (see below) for which, under the 'grandfathered' US GAAP applied under IFRS for Jackson's insurance assets and liabilities, the measurement basis gives rise to a muted impact of current ~~period~~year market movements (ie they are relatively insensitive to the effect of current ~~period~~year equity market and interest rate changes);
–: A portion of the fee assessments as well as claim payments, in respect of guarantee liabilities; and
–: Related amortisation of ~~deferred acquisition costs~~DAC for each of the above items.

Guaranteed benefit options for the 'not for life' portion of GMWB and equity index options for the fixed index annuity business

Guaranteed benefit option for variable annuity guarantee minimum income benefit

The GMIB liability, which is substantially reinsured, subject to a deductible and annual claim limits, is accounted for using 'grandfathered' US GAAP. This accounting basis substantially does not recognise the effects of market movements. The corresponding reinsurance asset is measured under the 'grandfathered' US GAAP basis applied for IFRS in a manner consistent with IAS 39 'Financial Instruments: Recognition and Measurement', and the asset is therefore recognised at fair value. As the GMIB is economically reinsured, the ~~mark to market~~mark-to-market element of the reinsurance asset is included as a component of short-term fluctuations in investment returns.

(d): Policyholder liabilities that are sensitive to market conditions

Movements in liabilities for some types of business do require bifurcation between the elements that relate to longer-term market condition and short-term effects to ensure that at the net level (ie after allocated investment return and charge for policyholder benefits) the adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ reflects longer-term market returns.

For certain Asia non-participating business, for example in Hong Kong, the economic features are more akin to asset management products with policyholder liabilities reflecting asset shares over the contract term. Consequently, for these products, the charge for policyholder benefits in the adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ reflects the asset share feature rather than volatile movements that would otherwise be reflected if the local regulatory basis (as applied for the IFRS balance sheet) was used.

For other types of Asia non-participating business, expected longer-term investment returns and interest rates are used to determine the movement in policyholder liabilities for determining adjusted ~~IFRS~~ operating ~~profit based on longer-term investment returns.~~profit. This ensures assets and liabilities are reflected on a consistent basis.

(e): Assets backing other shareholder-financed long-term insurance business

Except in the case of assets backing liabilities which are directly matched (such as unit-linked business) adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ for assets backing shareholder-financed business is determined on the basis of expected longer-term investment returns. Longer-term investment returns comprise actual income receivable for the ~~period~~year (interest/dividend income) and for both debt and equity-type securities longer-term capital returns.

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Debt securities and loans

InAs a general principle, for debt securities and loans, the longer-term capital returns comprise two elements:

–: Risk margin reserve based charge for the expected level of defaults for the period, which is determined by reference to the credit quality of the portfolio. The difference between impairment losses in the reporting period and the risk margin reserve charge to the adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ is reflected in short-term fluctuations in investment returns; and
–: The amortisation of interest-related realised gains and losses to adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ to the date when sold bonds would have otherwise matured.

At 31 December ~~2019,~~2020, the level of unamortised interest-related realised gains and losses related to previously sold bonds for the ~~Group~~Group's insurance operations in Asia and the US was a net gain of ~~$916~~$1,725 million ~~(2018: $776 million; 2017: $924~~(31 December 2019: net gain of $916 million).

Equity-type securities

For Asia insurance operations, investments in equity securities held for non-linked shareholder-backed business amounted to ~~$3,473~~$4,954 million as at 31 December ~~2019~~2020 (31 December ~~2018: $2,733 million; 31 December 2017: $2,380~~2019: $3,473 million). The longer-term rates of return applied in ~~2019~~2020 ranged from 5.1 per cent to 16.9 per cent (31 December 2019: 5.0 per cent to 17.6 per ~~cent (2018:~~cent; 31 December 2018: 5.3 per cent to 17.6 ~~per cent ;2017: 4.3 per cent to 17.2~~ per cent) with the rates applied varying by business unit. These rates are broadly stable from year to year but may be different between regions, reflecting, for example, differing expectations of inflation in each local business unit. The assumptions are for the returns expected to apply in equilibrium conditions. The assumed rates of return do not reflect any cyclical variability in economic performance and are not set by reference to prevailing asset valuations.

The longer-term investment returns for the Asia insurance joint ventures and ~~associate~~associates accounted for using the equity method are determined on a similar basis as the other Asia insurance operations described above.

For US insurance operations, as at 31 December ~~2019,~~2020, the equity-type securities for non-separate account operations amounted to ~~$1,481~~$2,128 million (31 December ~~2018: $1,731 million; 31 December 2017: $1,280~~2019: $1,481 million). For these operations, the longer-term rates of return for income and capital applied in ~~the years indicated,~~2020, 2019 and 2018, which reflect the combination of the average risk-free rates over the year and appropriate risk premiums are as follows:

2019

2018

2017

2020

2019

2018

Equity-type securities such as common and preferred stock and portfolio holdings in mutual funds

5.5% to 6.7%

6.7% to 7.2%

6.1% to 6.5%

4.8% to 5.8%

5.5% to 6.7%

6.7% to 7.2%

Other equity-type securities such as investments in limited partnerships and private equity funds

7.5% to 8.7%

8.7% to 9.2%

8.1% to 8.5%

6.8% to 7.8%

7.5% to 8.7%

8.7% to 9.2%

Derivative value movements

Generally, derivative value movements are excluded from adjusted ~~IFRS~~ operating ~~profit based on longer-term investment returns.~~profit. The exception is where the derivative value movements broadly offset changes in the accounting value of other assets and liabilities included in adjusted ~~IFRS~~ operating ~~profit based on longer-term investment returns.~~profit. The principal example of derivatives whose value movements are excluded from adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ arises in Jackson.

~~Table of Contents~~

Equity-based derivatives held by Jackson are as discussed ~~above~~ in section (c) above. Non-equity based derivatives held by Jackson are part of a broad-based hedging programme for features of Jackson's bond portfolio (for

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which value movements are booked in the statement of other comprehensive income rather than the income statement), product liabilities (for which US GAAP accounting as 'grandfathered' under IFRS 4 does not fully reflect the economic features being hedged), and the interest rate exposure attaching to equity-based product options.

(f): Fund management and other non-insurance businesses

For these businesses, the determination of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ reflects the underlying economic substance of the arrangements. Generally, realised gains and losses are included in adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ with temporary unrealised gains and losses being included in short-term fluctuations. In some instances, realised gains and losses on derivatives and other financial instruments are amortised to adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ over a time period that reflects the underlying economic substance of the arrangements.

B1.4 Segmental income statement

Premiums and annuity considerations for conventional ~~with-profits policies~~ and other protection type insurance policies are recognised as revenue when due. Premiums and annuity considerations for linked policies ~~unitised with-profits~~ and other investment type policies are recognised as revenue when received or, in the case of unitised or unit-linked policies, when units are issued. These amounts exclude premium taxes and similar duties where Prudential collects and settles taxes borne by the policyholder.

Policy fees charged on linked ~~and unitised with-profits~~ policies for mortality, morbidity, asset management and policy administration are recognised ~~as revenue~~ when related services are provided.

~~Table of Contents~~

Claims paid include maturities, annuities, surrenders, deaths and ~~deaths.~~other claim events. Maturity claims are recorded as charges on the policy maturity date. Annuity claims are recorded when each annuity instalment becomes due for payment. Surrenders are charged to the income statement when ~~paid~~paid. Death and ~~death~~other claims are generally recorded when ~~notified.~~notified with additional contract liabilities held, where appropriate, for 'incurred but not reported' (IBNR) claims.


	2019 $m					2020 $m

	Asia	US	Total segment	Unallocated to a segment (central operations)	Group total continuing operations	Asia	US	Total segment	Unallocated to a segment	Group total
				note (vi)

Gross premiums earned	23,757	21,209	44,966	98	45,064	23,341	19,026	42,367	154	42,521
Outward reinsurance premiums	(1,108)	(467)	(1,575)	(8)	(1,583)
Outward reinsurance premiumsnote(i)						(1,615)	(30,584)	(32,199)	(10)	(32,209)

Earned premiums, net of reinsurance	22,649	20,742	43,391	90	43,481	21,726	(11,558)	10,168	144	10,312
Other incomenote(i)	548	61	609	91	700
Other incomenote(ii)						609	55	664	6	670

Total external revenuenotes(ii),(iii)	23,197	20,803	44,000	181	44,181
Total external revenuenotes(iii),(iv)						22,335	(11,503)	10,832	150	10,982
Intra-group revenue	–	34	34	(34)	–	–	37	37	(37)	–
Interest incomenote(iv)	1,569	2,971	4,540	67	4,607
Interest incomenote(v)						1,961	2,380	4,341	36	4,377
Other investment returnnote B1.5	13,406	31,623	45,029	(81)	44,948	11,755	28,849	40,604	10	40,614

Total revenue, net of reinsurance	38,172	55,431	93,603	133	93,736	36,051	19,763	55,814	159	55,973

Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurance	(29,119)	(54,734)	(83,853)	(52)	(83,905)
Acquisition costs and other operating expenditurenote B2,	(5,157)	(1,402)	(6,559)	(724)	(7,283)
Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurancenote C3.1						(28,488)	(19,617)	(48,105)	(100)	(48,205)
Acquisition costs and other operating expenditurenote B2						(3,989)	(821)	(4,810)	(671)	(5,481)
Interest on core structural borrowings	–	(20)	(20)	(496)	(516)	–	(21)	(21)	(316)	(337)
Gain (loss) on disposal of businesses and corporate transactionsnote D1.1	265	–	265	(407)	(142)
Loss attaching to corporate transactionsnote D1.1						–	(18)	(18)	(30)	(48)

Total charges, net of reinsurance and loss on disposal of businesses	(34,011)	(56,156)	(90,167)	(1,679)	(91,846)	(32,477)	(20,477)	(52,954)	(1,117)	(54,071)

Share of profit from joint ventures and associates, net of related tax	397	–	397	–	397	517	–	517	–	517

Profit (loss) before tax(being tax attributable to shareholders' and policyholders' returns)note(v)	4,558	(725)	3,833	(1,546)	2,287
Profit (loss) before tax (being tax attributable to shareholders' and policyholders' returns)						4,091	(714)	3,377	(958)	2,419
Tax charge attributable to policyholders' returns	(365)	–	(365)	–	(365)	(271)	–	(271)	–	(271)

Profit (loss) before tax attributable to shareholders' returns from continuing operations	4,193	(725)	3,468	(1,546)	1,922
Profit (loss) before tax attributable to shareholders' returns						3,820	(714)	3,106	(958)	2,148

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit for the year from continuing operations	3,725	(380)	3,345	(1,392)	1,953
Analysis of profit (loss) before tax attributable to shareholders' returns:
Profit for the year						3,382	(247)	3,135	(950)	2,185
Tax attributable to shareholders	468	(345)	123	(154)	(31)	438	(467)	(29)	(8)	(37)

Profit (loss) before tax	4,193	(725)	3,468	(1,546)	1,922	3,820	(714)	3,106	(958)	2,148
Short-term fluctuations in investment returns on shareholder-backed business	(657)	3,757	3,100	103	3,203	607	4,262	4,869	(28)	4,841
Amortisation of acquisition accounting adjustments	5	38	43	–	43	5	34	39	–	39
(Gain) loss on disposal of businesses and corporate transactionsnote D1.1	(265)	–	(265)	407	142
(Gain) loss attaching to corporate transactionsnote D1.1						(765)	(786)	(1,551)	30	(1,521)

Adjusted IFRS operating profit based on longer-term investment returns	3,276	3,070	6,346	(1,036)	5,310
Adjusted operating profit (loss)						3,667	2,796	6,463	(956)	5,507

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	2019 $m

	Asia	US	Total segment	Unallocated to a segment	Group total

Gross premiums earned	23,757	21,209	44,966	98	45,064
Outward reinsurance premiums	(1,108)	(467)	(1,575)	(8)	(1,583)

Earned premiums, net of reinsurance	22,649	20,742	43,391	90	43,481
Other incomenote(ii)	548	61	609	91	700

Total external revenuenotes(iii),(iv)	23,197	20,803	44,000	181	44,181
Intra-group revenue	–	34	34	(34)	–
Interest incomenote(v)	1,569	2,971	4,540	67	4,607
Other investment returnnote B1.5	13,406	31,623	45,029	(81)	44,948

Total revenue, net of reinsurance	38,172	55,431	93,603	133	93,736

Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurancenote C3.1	(29,119)	(54,734)	(83,853)	(52)	(83,905)
Acquisition costs and other operating expenditurenote B2	(5,157)	(1,402)	(6,559)	(724)	(7,283)
Interest on core structural borrowings	–	(20)	(20)	(496)	(516)
Gain (loss) attaching to corporate transactionsnote D1.1	265	–	265	(407)	(142)

Total charges, net of reinsurance and gain on disposal of business	(34,011)	(56,156)	(90,167)	(1,679)	(91,846)

Share of profit from joint ventures and associates, net of related tax	397	–	397	–	397

Profit (loss) before tax (being tax attributable to shareholders' and policyholders' returns)	4,558	(725)	3,833	(1,546)	2,287
Tax charge attributable to policyholders' returns	(365)	–	(365)	–	(365)

Profit (loss) before tax attributable to shareholders' returns from continuing operations	4,193	(725)	3,468	(1,546)	1,922

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit for the year from continuing operations	3,725	(380)	3,345	(1,392)	1,953
Tax attributable to shareholders	468	(345)	123	(154)	(31)

Profit (loss) before tax	4,193	(725)	3,468	(1,546)	1,922
Short-term fluctuations in investment returns on shareholder-backed business	(657)	3,757	3,100	103	3,203
Amortisation of acquisition accounting adjustments	5	38	43	–	43
(Gain) loss attaching to corporate transactionsnote D1.1	(265)	–	(265)	407	142

Adjusted operating profit (loss)	3,276	3,070	6,346	(1,036)	5,310

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2018 $m

Asia US Total
segment Unallocated
to a segment
(other
operations) Group
total
continuing
operations
note (vi)

Gross premiums earnednote(vii)
21,989 23,573 45,562 52 45,614
Outward reinsurance premiums
(768) (412) (1,180) (3) (1,183)

Earned premiums, net of reinsurance
21,221 23,161 44,382 49 44,431
Other incomenote(i)
412 67 479 52 531

Total external revenuenotes(ii),(iii)
21,633 23,228 44,861 101 44,962
Intra-group revenue
56 67 123 (123) –
Interest incomenote(iv)
1,450 2,692 4,142 68 4,210
Other investment returnnote B1.5
(4,326) (9,085) (13,411) 84 (13,327)

Total revenue, net of reinsurance
18,813 16,902 35,715 130 35,845

Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurancenote(vii)
(11,664) (11,736) (23,400) (26) (23,426)
Acquisition costs and other operating expenditurenote B2,note(vii)
(5,162) (2,773) (7,935) (592) (8,527)
Interest on core structural borrowings
– (20) (20) (527) (547)
Loss on disposal of businesses and corporate transactionsnote D1.1
(15) (51) (66) (41) (107)

Total charges, net of reinsurance and gain on disposal of business
(16,841) (14,580) (31,421) (1,186) (32,607)

Share of profit from joint ventures and associates, net of related tax
319 – 319 – 319

Profit (loss) before tax(being tax attributable to shareholders' and policyholders' returns)note(v)
2,291 2,322 4,613 (1,056) 3,557
Tax charge attributable to policyholders' returns
(107) – (107) – (107)

Profit (loss) before tax attributable to shareholders' returns from continuing operations
2,184 2,322 4,506 (1,056) 3,450

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:

Profit for the year from continuing operations
1,815 1,982 3,797 (916) 2,881
Tax attributable to shareholders
369 340 709 (140) 569

Profit (loss) before tax
2,184 2,322 4,506 (1,056) 3,450
Short-term fluctuations in investment returns on shareholder-backed business
684 134 818 (27) 791
Amortisation of acquisition accounting adjustments
5 56 61 – 61
Loss on disposal of businesses and corporate transactions
15 51 66 41 107

Adjusted IFRS operating profit (loss) based on longer-term investment returns
2,888 2,563 5,451 (1,042) 4,409

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	2017 $m					2018 $m

	Asia	US	Total segment	Unallocated to a segment (other operations)	Group total continuing operations	Asia	US	Total segment	Unallocated to a segment	Group total
				note (vi)					note (vii)

Gross premiums earned	20,220	19,545	39,765	35	39,800	21,989	23,573	45,562	52	45,614
Outward reinsurance premiums	(845)	(454)	(1,299)	(5)	(1,304)	(768)	(412)	(1,180)	(3)	(1,183)

Earned premiums, net of reinsurance	19,375	19,091	38,466	30	38,496	21,221	23,161	44,382	49	44,431
Other incomenote(i)	396	862	1,258	61	1,319
Other incomenote(ii)						412	67	479	52	531

Total external revenuenote(ii),(iii)	19,771	19,953	39,724	91	39,815
Total external revenenote(iii),(iv)						21,633	23,228	44,861	101	44,962
Intra-group revenue	52	82	134	(134)	–	56	67	123	(123)	–
Interest incomenote(iv)	1,201	2,688	3,889	86	3,975
Interest incomenote(v)						1,450	2,692	4,142	68	4,210
Other investment returnnote B1.5	10,392	21,200	31,592	7	31,599	(4,326)	(9,085)	(13,411)	84	(13,327)

Total revenue, net of reinsurance	31,416	43,923	75,339	50	75,389	18,813	16,902	35,715	130	35,845

Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurancenote(vii)	(23,574)	(40,220)	(63,794)	(14)	(63,808)
Acquisition costs and other operating expenditurenote B2,note(vii)	(5,224)	(2,908)	(8,132)	(517)	(8,649)
Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurance						(11,664)	(11,736)	(23,400)	(26)	(23,426)
Acquisition costs and other operating expenditurenote B2						(5,162)	(2,773)	(7,935)	(592)	(8,527)
Interest on core structural borrowings	–	(21)	(21)	(527)	(548)	–	(20)	(20)	(527)	(547)
Gain on disposal of businesses and corporate transactionsnote D1.1	84	208	292	–	292
Loss attaching to corporate transactionsnote D1.1						(15)	(51)	(66)	(41)	(107)

Total charges, net of reinsurance and gain (loss) on disposal of businesses	(28,714)	(42,941)	(71,655)	(1,058)	(72,713)	(16,841)	(14,580)	(31,421)	(1,186)	(32,607)

Share of profit from joint ventures and associates, net of related tax	233	–	233	–	233	319	–	319	–	319

Profit (loss) before tax(being tax attributable to shareholders' and policyholders' returns)note (vi	2,935	982	3,917	(1,008)	2,909
Profit (loss) before tax (being tax attributable to shareholders' and policyholders' returns)						2,291	2,322	4,613	(1,056)	3,557
Tax charge attributable to policyholders' returns	(321)	–	(321)	–	(321)	(107)	–	(107)	–	(107)

Profit (loss) before tax attributable to shareholders' returns from continuing operations	2,614	982	3,596	(1,008)	2,588	2,184	2,322	4,506	(1,056)	3,450

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit for the year from continuing operations	2,288	327	2,615	(867)	1,748	1,815	1,982	3,797	(916)	2,881
Tax attributable to shareholders	326	655	981	(141)	840	369	340	709	(140)	569

Profit (loss) before tax	2,614	982	3,596	(1,008)	2,588	2,184	2,322	4,506	(1,056)	3,450
Short-term fluctuations in investment returns on shareholder-backed business	1	2,019	2,020	(26)	1,994	684	134	818	(27)	791
Amortisation of acquisition accounting adjustments	9	73	82	–	82	5	56	61	–	61
Gain on disposal of businesses and corporate transactions	(78)	(208)	(286)	–	(286)
Loss attaching to corporate transactionsnote D1.1						15	51	66	41	107

Adjusted IFRS operating profit (loss) based on longer-term investment returns	2,546	2,866	5,412	(1,034)	4,378
Adjusted operating profit (loss)						2,888	2,563	5,451	(1,042)	4,409

Notes

(i): In 2020, outward reinsurance premiums include $(30,156) million in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd.
(ii): Included within other income is revenue from the Group's continuing asset management business of $505 million (2019: $453 ~~million (2018:~~million; 2018: $287 ~~million; 2017: $275~~ million). The remaining other income consists primarily of policy fee income from external customers. ~~Other income also includes $3 million (2018: $7 million; 2017: $9 million) relating to the fee income on financial instruments that are not held at fair value through profit or loss.~~
~~(ii)~~(iii): In Asia, external revenue from no one individual market exceeds 10 per cent of the Group total, excluding Athene's reinsurance premium of $30,156 million, except for Hong Kong in 2020, 2019 and 2018 and ~~2017 and~~ Singapore in both 2020 and 2019. Total external revenue of Hong Kong is $9,232 million (2019: $9,821 ~~million (2018:~~million; 2018: $10,307 ~~million; 2017: $9,369~~ million) and Singapore is $5,505 million (2019: $4,401 ~~million.~~million).
~~(iii)~~(iv): Due to the nature of the business of the Group, there is no reliance on any major customers.
~~(iv)~~(v): Interest income includes $2,197 million (2019: $2,817 million; 2018: $2,585 million) in respect of financial assets not at fair value through profit and loss, of which $1 million (2019: $4 ~~million (2018:~~million; 2018: $5 ~~million; 2017: $4~~ million) is accrued in respect of impaired securities.
~~(v)~~: ~~This measure is the formal profit (loss) before tax measure under IFRS but is not the result attributable to shareholders.~~
(vi): ~~Unallocated to a segment includes central operations (Head Office functions and Group borrowings), the Group's treasury function and Africa operations.~~
~~(vii)~~: In October 2018, Jackson entered into a 100 per cent reinsurance agreement with John Hancock Life Insurance Company (John Hancock USA) to acquire a closed block of group pay-out annuity business. The transaction resulted in an addition to gross premiums earned of $5.0 billion and a corresponding increase in benefits and claims of $5.5 billion for the increase in policyholder liabilities and a decrease in other operating expenditure for negative ceding commissions of $0.5 billion at the inception of the contract. There was no material impact on adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ or total profit as a result of the transaction.

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B1.5 Other investment return

Investment return included in the income statement principally comprises interest income, dividends, investment appreciation and depreciation (realised and unrealised gains and losses) on investments designated as fair value through profit or loss, and realised gains and losses (including impairment losses) on items held at amortised cost and Jackson's debt securities designated as available-for-sale. Movements in unrealised appreciation or depreciation of debt securities designated as available-for-sale are recorded in other comprehensive income. Interest income is recognised as it accrues, taking into account the effective yield on investments. Dividends on equity securities are recognised on the ex-dividend date and rental income is recognised on an accrual basis.


	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m

Realised and unrealised gains (losses) on securities at fair value through profit or loss	49,809	(14,867)	33,651	40,070	49,809	(14,867)
Realised and unrealised (losses) gains on derivatives at fair value through profit or loss	(5,825)	705	(2,940)	(3,691)	(5,825)	705
Realised gains on available-for-sale securities, including impairment previously recognised in other comprehensive income	185	15	(33)
Realised (losses) on loans	(3)	(1)	(4)
Realised gains on available-for-sale securities, including impairment previously recognised in other comprehensive income*				3,371	185	15
Realised gains (losses) on loans				43	(3)	(1)
Dividends	1,000	740	884	1,249	1,000	740
Other investment (loss) income	(218)	81	41	(428)	(218)	81

Other investment return	44,948	(13,327)	31,599	40,614	44,948	(13,327)

*: Included in realised gains on available-for-sale securities is $2,817 million arising upon derecognition of debt securities held by Jackson related to the reinsurance of fixed and fixed index annuities to Athene. These gains are excluded from adjusted operating profit and are recognised in the results of the corporate transaction as discussed in note D1.1.

Realised gains and losses on the Group's investments for ~~2019~~2020 recognised in the income statement amounted to a net gain of $2.8 billion (2019: a net loss of $2.0 ~~billion (2018:~~billion; 2018: a net gain of $2.5 ~~billion; 2017: a net loss of $1.7~~ billion) ~~from continuing operations.~~.

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B1.6 Additional analysis of performance by segment components

(a) Asia


	2019 $m				2018 $m	2017 $m	2020 $m				2019 $m	2018 $m

	Insurance	Asset management	Eliminations	Total	Total	Total	Insurance	Asset management	Eliminations	Total	Total	Total

Earned premiums, net of reinsurance	22,649	–	–	22,649	21,221	19,375	21,726	–	–	21,726	22,649	21,221
Other income	143	405	–	548	412	396	192	417	–	609	548	412

Total external revenue	22,792	405	–	23,197	21,633	19,771	21,918	417	–	22,335	23,197	21,633

Intra-group revenue	–	160	(160)	–	56	52	1	164	(165)	–	–	56
Interest income	1,564	5	–	1,569	1,450	1,201	1,956	5	–	1,961	1,569	1,450
Other investment return	13,407	(1)	–	13,406	(4,326)	10,392	11,729	26	–	11,755	13,406	(4,326)

Total revenue, net of reinsurance	37,763	569	(160)	38,172	18,813	31,416	35,604	612	(165)	36,051	38,172	18,813

Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurance	(29,119)	–	–	(29,119)	(11,664)	(23,574)	(28,488)	–	–	(28,488)	(29,119)	(11,664)
Acquisition costs and other expenditurenote B2	(4,925)	(392)	160	(5,157)	(5,162)	(5,224)	(3,708)	(446)	165	(3,989)	(5,157)	(5,162)
Gain (loss) on disposal of businesses and corporate transactionsnote D1.1	265	–	–	265	(15)	84
Gain (loss) attaching to corporate transactionsnote D1.1							–	–	–	–	265	(15)

Total charges, net of reinsurance and gain (loss) on disposal of businesses	(33,779)	(392)	160	(34,011)	(16,841)	(28,714)
Total charges, net of reinsurance and gain (loss) attaching to corporate transactions							(32,196)	(446)	165	(32,477)	(34,011)	(16,841)

Share of profit from joint ventures and associates, net of related tax	291	106	–	397	319	233	400	117	–	517	397	319

Profit before tax(being tax attributable to shareholders' and policyholders' returns)	4,275	283	–	4,558	2,291	2,935	3,808	283	–	4,091	4,558	2,291
Tax charge attributable to policyholders' returns	(365)	–	–	(365)	(107)	(321)	(271)	–	–	(271)	(365)	(107)

Profit before tax attributable to shareholders' returns	3,910	283	–	4,193	2,184	2,614	3,537	283	–	3,820	4,193	2,184

Analysis of profit before tax:
Profit (loss) before tax attributable to shareholders	3,910	283	–	4,193	2,184	2,614
Profit before tax attributable to shareholders							3,537	283	–	3,820	4,193	2,184
Short-term fluctuations in investment returns on shareholder-backed business	(657)	–	–	(657)	684	1	607	–	–	607	(657)	684
Amortisation of acquisition accounting adjustments	5	–	–	5	5	9	5	–	–	5	5	5
(Profit) loss on disposal of businesses and corporate transactionsnote D1.1	(265)	–	–	(265)	15	(78)
(Gain) loss attaching to corporate transactionsnote D1.1							(765)	–	–	(765)	(265)	15

Adjusted IFRS operating profit based on longer-term investment returns	2,993	283	–	3,276	2,888	2,546
Adjusted operating profit							3,384	283	–	3,667	3,276	2,888

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(b) US


	2019 $m				2018 $m	2017 $m	2020 $m				2019 $m	2018 $m

	Insurance	Asset management	Eliminations	Total	Total	Total	Insurance	Asset management	Eliminations	Total	Total	Total

Earned premiums, net of reinsurance*	20,742	–	–	20,742	23,161	19,091
Earned premiums, net of reinsurance							(11,558)	–	–	(11,558)	20,742	23,161
Other income	6	55	–	61	67	862	4	51	–	55	61	67

Total external revenue	20,748	55	–	20,803	23,228	19,953	(11,554)	51	–	(11,503)	20,803	23,228

Intra-group revenue	–	127	(93)	34	67	82	–	115	(78)	37	34	67
Interest income	2,971	–	–	2,971	2,692	2,688	2,380	–	–	2,380	2,971	2,692
Other investment return	31,621	2	–	31,623	(9,085)	21,200	28,848	1	–	28,849	31,623	(9,085)

Total revenue, net of reinsurance	55,340	184	(93)	55,431	16,902	43,923	19,674	167	(78)	19,763	55,431	16,902

Benefits and claims*	(54,734)	–	–	(54,734)	(11,736)	(40,220)
Acquisition costs and other operating expenditure*	(1,343)	(152)	93	(1,402)	(2,773)	(2,908)
Benefits and claims net of reinsurance							(19,617)	–	–	(19,617)	(54,734)	(11,736)
Acquisition costs and other operating expenditure							(741)	(158)	78	(821)	(1,402)	(2,773)
Interest on core structural borrowings	(20)	–	–	(20)	(20)	(21)	(21)	–	–	(21)	(20)	(20)
(Loss) profit on disposal of businesses and corporate transactionsnote D1.1	–	–	–	–	(51)	208
Loss attaching to corporate transactionsnote D1.1							(18)	–	–	(18)	–	(51)

Total charges, net of reinsurance and loss on disposal of businesses	(56,097)	(152)	93	(56,156)	(14,580)	(42,941)	(20,397)	(158)	78	(20,477)	(56,156)	(14,580)

(Loss) profit before tax	(757)	32	–	(725)	2,322	982	(723)	9	–	(714)	(725)	2,322

Analysis of (loss) profit before tax:
Analysis of profit (loss) before tax:
Profit (loss) before tax attributable to shareholders	(757)	32	–	(725)	2,322	982	(723)	9	–	(714)	(725)	2,322
Short-term fluctuations in investment returns on shareholder-backed business	3,757	–	–	3,757	134	2,019	4,262	–	–	4,262	3,757	134
Amortisation of acquisition accounting adjustments	38	–	–	38	56	73	34	–	–	34	38	56
Loss (profit) on disposal of businesses and corporate transactionsnote D1.1	–	–	–	–	51	(208)
(Gain) loss attaching to corporate transactionsnote D1.1							(786)	–	–	(786)	–	51

Adjusted IFRS operating profit based on longer-term investment returns	3,038	32	–	3,070	2,563	2,866
Adjusted operating profit							2,787	9	–	2,796	3,070	2,563

*: ~~In October 2018, Jackson entered into an agreement with John Hancock Life to reinsure 100 per cent~~

Table of the group pay-out annuity business. The transaction resulted in an addition to gross premiums earned of $5.0 billion and a corresponding increase in benefits and claims of $5.5 billion for the increase in policyholder liabilities and a decrease in other operating expenditure for negative ceding commissions of $0.5 billion at the inception of the contract. There was no material impact on adjusted IFRS operating profit based on longer-term investment returns or total profit as a result of the transaction.Contents

B2 Acquisition costs and other expenditure




Acquisition costs incurred for insurance policies	(4,177)	(4,313)	(4,471)
Acquisition costs deferred less amortisation of acquisition costsnote(i)	2,116	59	1,173
Administration costs and other expenditure*,notes(ii),(iii)	(5,019)	(3,877)	(5,008)
Acquisition costs incurred for insurance policiesnote(v)				(3,070)	(4,177)	(4,313)
Acquisition costs deferrednote C4.2				1,357	1,422	1,319
Amortisation of acquisition costsnotes(i),(v)				81	694	(1,260)
Recoveries for expenses associated with Jackson's business ceded to Athenenote(ii)				1,203	–	–
Administration costs and other expenditure (net of other reinsurance commission)notes(iii),(iv),(v)				(4,609)	(5,019)	(3,877)
Movements in amounts attributable to external unit holders of consolidated investment funds	(203)	(396)	(343)	(443)	(203)	(396)

Total acquisition costs and other expenditure from continuing operations	(7,283)	(8,527)	(8,649)
Total acquisition costs and other expenditure				(5,481)	(7,283)	(8,527)

*: The 2018 administration costs and other expenditure included a credit of $0.5 billion for the negative ceding commissions arising from the group payout annuity business reinsurance agreement entered into by Jackson with John Hancock in 2018.

Notes

(i): The credit ~~for acquisition costs deferred less amortisation~~ of ~~those costs of $2,116~~$81 million ~~(2018: $59 million; 2017: $1,173 million) arises~~ in ~~Asia operations of $358~~2020 reflects $389 million ~~(2018: $362 million; 2017: $246 million) and~~arising in the US ~~operations of $1,758 million (2018:~~which is offset by a charge of ~~$(303) million; 2017: a credit of $927 million)~~$308 million in Asia as set out in note ~~C5.2.~~C4.2. The credit of ~~$1,758~~$389 million ~~for~~in the US ~~operations (2018:~~includes $1,576 million (2019: $1,248 million; 2018: charge of $(114) million) recorded in short-term fluctuations in investment returns largely as a result of the losses arising from market effects on variable annuity guarantee liabilities and associated hedging. This is offset by a charge of ~~$(303)~~$(764) million for the write-off of the DAC held for the in-force fixed and fixed index annuity liabilities reinsured to Athene and a charge of $(423) million (2019: $(297) million; ~~2017:~~2018: $(914) million) for amortisation of acquisition costs recorded in adjusted operating profit.
(ii): As part of the reinsurance transaction with Athene Life Re Ltd discussed in note D1.1, Jackson received $1,203 million of ceding commission (including post-closing adjustments) as a recovery for past acquisition expenses associated with the business ceded.
(iii): Included in total administration costs and other expenditure is depreciation of property, plant and equipment of $(218) million (2019: $(227) million; 2018: $(93) million), of which $(145) million (2019: $(141) million) relates to the right-of-use assets recognised under IFRS 16 and interest on the IFRS 16 lease liabilities of $16 million (2019: $20 million). The 2020 amount also includes a credit of ~~$927 million) comprises additional costs deferred in~~$770 million for the commission arising from the reinsurance transaction entered into by the Hong Kong business during the year ~~of $807~~as discussed in note D1.1. Administration costs and other expenditure includes $1 million ~~(2018: $759~~(2019: $3 million; ~~2017: $850~~2018: $7 million) ~~driven by higher new business sales and a credit of $951 million (2018: a charge of $(1,062) million; 2017: a credit of $77 million) for DAC amortisation, driven by~~relating to the ~~hedging losses arising in 2019.~~fee income on financial instruments that are not held at fair value through profit or loss.
~~(ii)~~(iv): During ~~the year,~~2019, the Group paid $182 million of upfront fees to modify the terms and ~~condition~~conditions of two subordinated debt instruments, which ~~are~~were expensed to the income statement as, ~~described~~ in ~~note C6.1. All other~~accordance with IAS 39, the transaction was treated as extinguishment of old debt and the issuance of new at fair value. Other fee expenses relating to financial liabilities held at amortised cost in 2020, 2019 and 2018 are part of the determination of the effective interest ~~rate and~~rate. All such amounts are included in 'Administration costs and other expenditure' ~~above.~~.
~~(iii)~~(v): Total depreciation and amortisation expense is included in 'Acquisition costs incurred for insurance policies', 'Administration costs and other expenditure' and ~~'Acquisition costs deferred less amortisation~~'Amortisation of acquisition costs' and relates primarily to amortisation of ~~deferred acquisition costs~~DAC of insurance contracts and asset management contracts. The segmental analysis of interest expense ~~(other~~(included in 'Administration costs and other expenditure'), other than interest

~~Table of Contents~~

expense in core structural ~~borrowings)~~borrowings (included separately in finance costs), and depreciation and amortisation ~~included~~(included within ~~total~~'Total acquisition costs and other ~~expenditure~~expenditure') is shown below. Interest expense on financial liabilities not at fair value through profit and loss for 2020 was ~~as follows:~~

$564 million (2019: $802 million; 2018: $798 million).

Other interest expense Depreciation and amortisation

2019* $m
2018 $m
2017 $m
2019* $m
2018 $m
2017 $m

Asia operations:

Insurance
(13) – – (641) (482) (446)
Asset management
– – – (14) (5) (4)
US operations:

Insurance
(264) (212) (150) 901 (1,110) 26
Asset management
(2) – – (4) (8) (8)

Total segment
(279) (212) (150) 242 (1,605) (432)
Unallocated to a segment (other operations)
(27) (38) (50) (30) (3) (3)

Total continuing operations
(306) (250) (200) 212 (1,608) (435)

*: ~~In 2019, these amounts also include interest on lease liabilities of $20 million and depreciation on right-of-use assets of $141 million recognised under IFRS 16.~~

	Other interest expense						Depreciation and amortisation

	2020 $m		2019 $m		2018 $m		2020 $m		2019 $m		2018 $m

Asia operations:
Insurance		(12)		(13)		–		(669)		(641)		(482)
Asset management		(1)		–		–		(16)		(14)		(5)
US operations:
Insurance		(220)		(264)		(212)		346		901		(1,110)
Asset management		(1)		(2)		–		(4)		(4)		(8)

Total segment		(234)		(279)		(212)		(343)		242		(1,605)
Unallocated to a segment (other operations)		(18)		(27)		(38)		(40)		(30)		(3)

Total continuing operations		(252)		(306)		(250)		(383)		212		(1,608)

B2.1 Staff and employment costs

The average number of staff employed by the Group, for both continuing and discontinued operations, during the years shown was:




Asia operations	14,471	16,798	15,477
Asia and Africa operations*				12,949	14,206	16,520
US operations	4,014	4,285	4,564	3,650	4,014	4,285
Other operations*	519	676	660
Head office function†				657	784	954

Total continuing operations	19,004	21,759	20,701	17,256	19,004	21,759
Discontinued UK and Europe operations†	5,672	6,447	6,450
Discontinued UK and Europe operations‡				–	5,672	6,447

Total Group	24,676	28,206	27,151	17,256	24,676	28,206

*: The ~~Other operations'~~Asia and Africa operations staff numbers above exclude 502 commission based sales staff (2019: 346; 2018: 119) who have an employment contract with the Company.
†: The 'Head office function' staff numbers include staff ~~from central operations~~based in London and ~~Africa which are unallocated to a segment.~~Hong Kong.
†‡: Average staff numbers of the discontinued UK and Europe operations ~~are~~were for the period up to the demerger in October 2019.

Table of Contents

The costs of employment, for both continuing and discontinued operations, were:

	2019 $m						2018 $m						2017 $m						2020 $m		2019 $m						2018 $m

	Continuing		Discontinued		Group total		Continuing		Discontinued		Group total		Continuing		Discontinued		Group total		Group total		Continuing		Discontinued		Group total		Continuing		Discontinued		Group total

Wages and salaries		1,435		573		2,008		1,517		694		2,211		1,557		730		2,287		1,536		1,435		573		2,008		1,517		694		2,211
Social security costs		53		68		121		71		84		155		73		93		166		67		53		68		121		71		84		155
Defined benefit schemes*		(91)		(5)		(96)		7		(46)		(39)		(23)		19		(4)
Defined benefit schemes*																				–		(91)		(5)		(96)		7		(46)		(39)
Defined contribution schemes		69		41		110		77		50		127		67		43		110		76		69		41		110		77		50		127

Total Group†		1,466		677		2,143		1,672		782		2,454		1,674		885		2,559		1,679		1,466		677		2,143		1,672		782		2,454

*: The (credit) charge ~~(credit)~~ incorporated the effect of actuarial gains and losses. Post-demerger of the UK and Europe operations in October 2019, the Group's defined benefit schemes costs are ~~expected to be~~ negligible. ~~See note C9.~~
†: Total costs of employment in the table above include ~~the~~staff costs ~~of employment~~ of the discontinued UK and Europe operations for the period up to the demerger in October 2019.

B2.2 Share-based payment

The Group offers discretionary share awards to certain key employees and all-employee share plans ~~for all~~in the UK and a number of Asian locations.

The compensation expense charged to the income statement is primarily based upon the fair value of the ~~options~~awards granted, the vesting period and the vesting conditions.

The Company has established trusts to facilitate the delivery of Prudential plc shares under some of these plans. The cost to the Company of acquiring these newly issued shares held in trusts is shown as a deduction from shareholders' equity.

~~Table of Contents~~

(a): Description of the plans

The Group operates a number of share award plans that provides Prudential plc shares, or ADRs, to participants upon vesting. The plans in operation include the Prudential Long Term Incentive Plan, ~~(PLTIP),~~ the Prudential Annual Incentive Plan, ~~(AIP),~~ savings-related share option schemes, share purchase plans and deferred bonus plans. Where Executive Directors participate in these plans, details are provided in the Compensation and Employee section. In addition, the following information is provided.

		Share scheme				Description



		Prudential Corporation Asia Long-Term Incentive Plan (PCA LTIP)				The PCA LTIP provides eligible employees with conditional awards. Awards are discretionary and vest after three years subject to the employee being in employment. Vesting of awards may also be subject to performance conditions. All awards are generally made in Prudential shares, or ADRs. In countries where share awards are not feasible due to securities and/or tax considerations, awards will be replaced by the cash value of the shares that would otherwise have vested.

		Prudential Agency Long-Term Incentive Plan (LTIP)				Certain agents in Asia are eligible to be granted awards in Prudential shares under the Prudential Agency ~~Long-Term Incentive Plan.~~LTIP. These awards are structured in a similar way to the PCA LTIP described above.

		Restricted Share Plan 2015 (RSP)				The Company operates the RSP for certain employees. Awards under this plan are discretionary, and the vesting of awards may be subject to performance conditions. All awards are made in Prudential shares or ADRs.

		Deferred bonus plans				The Company operates a number of deferred bonus plans including the Group Deferred Bonus Plan (GDBP) and the Prudential Corporation Asia Deferred Bonus Plan (PCA DBP). There are no performance conditions attached to deferred share awards made under these arrangements.

		Savings-related share option schemes				Employees and eligible agents in a number of geographies are eligible for plans similar to the HMRC-approved Save As You Earn (SAYE) share option scheme in the UK. During the year ended 31 December ~~2019 eligible employees participated in the International Savings-Related Share Option Scheme while~~2020, eligible agents based in certain regions of Asia can participate in the International Savings-Related Share Option Scheme for Non-Employees.

		Share purchase plans				Eligible employees outside the UK are invited to participate in arrangements similar to the Company's HMRC-approved UK SIP, which allows the purchase of Prudential plc shares. Staff based in Asia are eligible to participate in the Prudential Corporation Asia All Employee Share Purchase Plan.

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(b): Outstanding options and awards

The following table shows the movement in outstanding options and awards under the Group's share-based compensation plans:

	Options outstanding under SAYE schemes															Awards outstanding under incentive plans									Options outstanding under SAYE schemes						Awards outstanding under incentive plans

	2019					2018					2017					2019			2018			2017			2020		2019		2018		2020	2019	2018
	Number of options millions			Weighted average exercise price £		Number of options millions			Weighted average exercise price £		Number of options millions			Weighted average exercise price £		Number of awards millions									Number of options millions	Weighted average exercise price £	Number of options millions	Weighted average exercise price £	Number of options millions	Weighted average exercise price £	Number of awards millions

Balance at beginning of year:		4.9			12.10		6.4			11.74		7.1			10.74		32.8			33.6			30.2		3.8	12.38	4.9	12.10	6.4	11.74	33.0	32.8	33.6
Granted		0.6			11.13		0.3			13.94		1.4			14.55		13.4			10.7			12.7		0.4	9.64	0.6	11.13	0.3	13.94	20.2	13.4	10.7
Modification		0.3			11.95		–			–		–			–		4.3			–			–		–	–	0.3	11.95	–	–	–	4.3	–
Exercised		(1.7	)		10.87		(1.4	)		10.85		(1.7	)		10.07		(9.8	)		(8.7	)		(7.3	)	(0.9)	11.44	(1.7)	10.87	(1.4)	10.85	(10.3)	(9.8)	(8.7)
Forfeited		–			12.87		(0.1	)		12.25		(0.1	)		10.83		(2.5	)		(2.6	)		(1.3	)	–	14.27	–	12.87	(0.1)	12.25	(1.5)	(2.5)	(2.6)
Cancelled		(0.1	)		12.82		(0.2	)		12.43		(0.2	)		11.19		(0.7	)		–			(0.1	)	(0.1)	12.55	(0.1)	12.82	(0.2)	12.43	(0.1)	(0.7)	–
Lapsed/Expired		(0.1	)		12.93		(0.1	)		12.60		(0.1	)		10.86		(1.0	)		(0.2	)		(0.6	)	(0.9)	13.28	(0.1)	12.93	(0.1)	12.60	(0.7)	(1.0)	(0.2)
M&G plc awards derecognised on demerger		(0.1	)		13.37		–			–		–			–		(3.5	)		–			–
M&G plc awards derecognised on demerger*																									–	–	(0.1)	13.37	–	–	–	(3.5)	–

Balance at end of year		3.8			12.38		4.9			12.10		6.4			11.74		33.0			32.8			33.6		2.3	11.86	3.8	12.38	4.9	12.10	40.6	33.0	32.8

Options immediately exercisable at end of year		0.9			11.33		0.8			10.37		0.4			11.06										0.5	12.64	0.9	11.33	0.8	10.37

~~On demerger of the M&G plc business from the Prudential Group, outstanding share / ADR awards for Prudential plc participants were adjusted~~

*

Prior to ~~receive~~ the demerger ~~dividend~~ in the form of additional Prudential plc shares / ADRs, to be released on the same timetable and to the same extent as their original share awards. In the case of the International Savings-Related Share Option Scheme for Non-Employees the adjustments to outstanding options were confirmed as being fair and reasonable by an independent financial adviser in accordance with the rules of that plan and the Hong Kong Stock Exchange Listing Rules.

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~~Employees~~October 2019, employees of M&G plc were granted replacement awards over M&G plc shares, in exchange for existing Prudential Group awards outstanding under incentive plans. As designated replacement awards were granted, no cancellation was recognised in respect of the original awards. As the replacement awards are an obligation of M&G plc, these awards were derecognised by the Group on demerger.

M&G plc employees with outstanding SAYE options on demerger were treated as 'good leavers', with both the vesting period and number of options exercisable curtailed on demerger.

The weighted average share price of Prudential plc for ~~2019~~2020 was ~~£15.05 (2018: £17.36; 2017: £17.51)~~£11.64 (2019: £15.05; 2018: £17.36).

The following table provides a summary of the range of exercise prices for Prudential plc options outstanding at 31 December:


	Outstanding										Exercisable					Outstanding										Exercisable

	Number outstanding (millions)			Weighted average remaining contractual life (years)*			Weighted average exercise prices £			Number exercisable (millions)			Weighted average exercise prices £			Number outstanding (millions)			Weighted average remaining contractual life (years)*			Weighted average exercise prices £			Number exercisable (millions)			Weighted average exercise prices £

	2019	2018	2017	2019	2018	2017	2019	2018	2017	2019	2018	2017	2019	2018	2017	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018

Between £6 and £7	–	–	–	–	–	0.4	–	–	6.29	–	–	–	–	–	6.29
Between £9 and £10	–	0.3	0.5	–	0.4	1.4	–	9.01	9.01	–	0.3	–	–	9.01	–	0.4	–	0.3	4.2	–	0.4	9.64	–	9.01	–	–	0.3	–	–	9.01
Between £11 and £12	2.4	3.0	4.5	2.0	1.6	2.2	11.19	11.19	11.21	0.9	0.5	0.4	11.33	11.11	11.55	1.2	2.4	3.0	2.2	2.0	1.6	11.11	11.19	11.19	0.3	0.9	0.5	11.11	11.33	11.11
Between £13 and £14	0.3	0.3	–	3.2	4.1	–	13.94	13.94	–	–	–	–	–	–	–	0.3	0.3	0.3	2.2	3.2	4.1	13.94	13.94	13.94	–	–	–	–	–	–
Between £14 and £15	1.1	1.3	1.4	2.0	2.6	3.9	14.55	14.55	14.55	–	–	–	–	–	–	0.4	1.1	1.3	1.3	2.0	2.6	14.55	14.55	14.55	0.2	–	–	14.55	–	–

Weighted average	3.8	4.9	6.4	2.1	2.1	2.5	12.38	12.10	11.74	0.9	0.8	0.4	11.33	10.37	11.06	2.3	3.8	4.9	2.4	2.1	2.1	11.86	12.38	12.10	0.5	0.9	0.8	12.64	11.33	10.37

*: The years shown above for weighted average remaining contractual life include the time period from end of vesting period to expiration of contract.

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(c): Fair value of options and awards

The fair value amounts estimated on the date of grant relating to all options and awards were determined by using the following assumptions:


	2019				2018			2017			2020			2019				2018

		SAYE options													SAYE options

	Prudential LTIP (TSR)	Granted in October 2019	Granted in November 2019	Other awards	Prudential LTIP (TSR)	SAYE options	Other awards	Prudential LTIP (TSR)	SAYE options	Other awards	Prudential LTIP (TSR)	SAYE options	Other awards	Prudential LTIP (TSR)	Granted in October 2019	Granted in November 2019	Other awards	Prudential LTIP (TSR)	SAYE options	Other awards

Dividend yield (%)	–	3.66	2.10	–	–	2.52	–	–	2.85	–	–	3.45	–	–	3.66	2.10	–	–	2.52	–
Expected volatility (%)	22.14	25.58	23.92	–	24.03	21.09	–	23.17	20.15	–	41.08	27.55	–	22.14	25.58	23.92	–	24.03	21.09	–
Risk-free interest rate (%)	0.97	0.31	1.60	–	1.19	0.97	–	0.62	0.56	–	0.39	0.27	–	0.97	0.31	1.60	–	1.19	0.97	–
Expected option life (years)	–	3.96	3.47	–	–	3.94	–	–	3.49	–	–	3.92	–	–	3.96	3.47	–	–	3.94	–
Weighted average exercise price (£)	–	11.12	11.18	–	–	13.94	–	–	14.55	–	–	10.74	–	–	11.12	11.18	–	–	13.94	–
Weighted average share price at grant date (£)	16.07	13.94	13.77	–	17.46	16.64	–	16.80	17.74	–	10.49	9.64	–	16.07	13.94	13.77	–	17.46	16.64	–
Weighted average fair value at grant date (£)	6.32	2.90	3.35	15.39	6.64	3.29	17.04	8.30	3.29	16.12	4.93	1.95	10.54	6.32	2.90	3.35	15.39	6.64	3.29	17.04

The compensation costs for all awards and options are recognised in net income over the plans' respective vesting periods. The Group uses the Black-Scholes model to value all options, and financial equivalence to value all awards other than those which have TSR performance conditions attached (some Prudential LTIP and RSP awards) for which the Group uses a Monte Carlo model in order to allow for the impact of these conditions. These models are used to calculate fair values for share options and awards at the grant date based on the quoted market price of the stock at the measurement date, the amount, if any, that the employees are required to pay, the dividend yield, expected volatility, risk-free interest rates and exercise prices.

For all options and awards, the expected volatility is based on the market implied volatilities as quoted on Bloomberg. The Prudential specific at-the-money implied volatilities are adjusted to allow for the different terms and discounted exercise price on SAYE options by using information on the volatility surface of the FTSE 100.

Risk-free interest rates are taken from swap spot rates with ~~projections for two-year, three-year and five-year~~projection terms ~~to match~~matching the corresponding vesting periods. For 2019 awards issued prior to demerger, dividend yields are determined as the average yield over a period of 12 months up to and including the date of grant, and data is based on sterling risk free rates. For 2019 awards issued after demerger, dividend yields are estimated based

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~~on £750 million target dividend included in the demerger investor circular and data is based on US dollar risk free rates.~~ For awards with a TSR condition, volatilities and correlations between Prudential and a basket of 12 competitor companies is required. For grants in ~~2019,~~2020, the average volatility for the basket of competitors was 41.40 per cent (2019: 23.10 per ~~cent (2018:~~cent; 2018: 21.32 ~~per cent; 2017: 22.93~~ per cent). Correlations for the basket are calculated for each pairing from the log of daily TSR returns for the three years prior to the valuation date. Market implied volatilities are used for both Prudential and the basket of competitors. Changes to the subjective input assumptions could materially affect the fair value estimate.

(d): Share-based payment expense charged to the income statement

Total expense recognised in ~~2019~~2020 in the consolidated financial statements relating to share-based compensation is $171 million (2019: $181 ~~million (2018:~~million; 2018: $191 million), ~~all~~of which $166 million is accounted for as ~~equity-settled.~~equity-settled (2019: $181 million; 2018: $191 million).

The Group ~~has no~~had $32 million of liabilities ~~outstanding~~ at ~~the year-end~~31 December 2020 (31 December 2019: nil) relating to share-based payment awards ~~that are settled in cash.~~accounted for as cash settled.

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B2.3 Key management remuneration

Key management constitutes the Directors of Prudential plc as they have authority and responsibility for planning, directing and controlling the activities of the Group and following reorganisations during 2019, key management also includes other non-director members of the Group Executive Committee from August 2019.

Total key management remuneration is analysed in the following table:


	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m

Salaries and short-term benefits	25.2	22.0	23.0	20.0	25.2	22.0
Post-employment benefits	1.5	2.0	2.0	1.2	1.5	2.0
Share-based payments	13.1	19.0	18.0	14.6	13.1	19.0

	39.8	43.0	43.0	35.8	39.8	43.0

The share-based payments charge comprises $10.7 million (2019: $8.4 ~~million (2018:~~million; 2018: $13.0 ~~million; 2017: $10.7~~ million), which is determined in accordance with IFRS 2 'Share-based Payment' (see note B2.2) and $3.9 million (2019: $4.8 ~~million (2018:~~million; 2018: $6.4 ~~million; 2017: $7.5~~ million) of deferred share awards.

B2.4 Fees payable to the auditor


	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m

Fees payable to the Company's auditor for the audit of the Company's annual accounts	2.2	2.8	2.7	2.3	2.2	2.8
Fees payable to the Company's auditor and its associates for other services:
Audit of subsidiaries pursuant to legislation	9.5	12.3	10.7	9.2	9.5	12.3
Audit-related assurance services*	5.7	6.3	5.5
Audit-related assurance servicesnote(1)				3.5	5.7	6.3
Other assurance services	5.7	1.5	1.9	0.7	5.7	1.5
Services relating to corporate finance transactions	7.3	0.3	0.5	0.3	7.3	0.3
All other services	–	1.2	0.9	–	–	1.2

Total fees paid to the auditor	30.4	24.4	22.2	16.0	30.4	24.4

Analysed into:
Fees payable to the auditor attributable to the continuing operations:
Non-audit services associated with the demerger of the UK and Europe operations†	11.7	1.0	–
Non-audit services associated with the demerger of the UK and Europe operationsnote(2)				–	11.7	1.0
Other audit and non-audit services	15.3	15.1	14.6	16.0	15.3	15.1

	27.0	16.1	14.6	16.0	27.0	16.1
Fees payable to the auditor attributable to the discontinued UK and Europe operations	3.4	8.3	7.6	–	3.4	8.3

	30.4	24.4	22.2	16.0	30.4	24.4

Notes

*(1): Of the audit-related assurance service fees of ~~$5.7~~$3.5 million in ~~2019 (2018: $6.3~~2020 (2019: $5.7 million), $0.7 million (2019: $1.1 ~~million~~million) relates to services that are required by law.
†(2): Of the $11.7 million one-off non-audit services fees in 2019 associated with the demerger of the UK and Europe operations, $4.4 million was for other assurance services required by regulation and $7.3 million was for services relating to corporate finance transactions. In 2018, the $1.0 million was for all other services associated with the preparation for the demerger.

In addition, in 2019 there were fees incurred by pension schemes of $0.1 million ~~(2018:~~(2018: $0.3 ~~million; 2017: $0.1~~ million) for audit services. These pension schemes were transferred to the discontinued UK and Europe operations (M&G plc) in 2019 as part of the demerger.

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B3 ~~Effect of changes and other accounting matters on insurance assets and liabilities~~

~~The following matters are relevant to the determination of the 2019 results:~~

~~(a)~~: ~~Asia insurance operations~~

In 2019, the adjusted IFRS operating profit based on longer-term investment returns for Asia insurance operations includes a net credit of $142 million (2018: credit of $126 million; 2017: credit of $96 million) representing a small number of items that are not expected to reoccur, including the impact of a refinement to the run-off of the allowance for prudence within technical provisions.

~~(b)~~: ~~US insurance operations~~

~~Changes in the policyholder liabilities held for variable and fixed index annuity guarantees are reported as part of non-operating profit and are as described in note B1.2.~~

B4 Tax charge ~~from continuing operations~~

Prudential is subject to tax in numerous jurisdictions and the calculation of the total tax charge inherently involves a degree of estimation and judgement. Current tax expense is charged or credited based upon amounts estimated to be payable or recoverable as a result of taxable amounts for the current year and adjustments made in relation to prior years. The positions taken in tax returns where applicable tax regulation is subject to interpretation are recognised in full in the determination of the tax charge in the financial statements if the Group considers that it is probable that the taxation authority will accept those positions. Otherwise, provisions are established based on management's estimate and judgement of the likely amount of the liability, or recovery, by providing for the single best estimate of the most likely outcome or the weighted average expected value where there are multiple outcomes.

The total tax charge includes tax expense attributable to both policyholders and shareholders. The tax expense attributable to policyholders comprises the tax on the income of the consolidated with-profits and unit-linked funds. In certain jurisdictions, life insurance companies are taxed on both their shareholders' profits and on their policyholders' insurance and investment returns on certain insurance and investment products. Although both types of tax are included in the total tax charge in the Group's consolidated income statement, they are presented separately in the consolidated income statement to provide the most relevant information about tax that the Group pays on its profits.

Deferred taxes are provided under the liability method for all relevant temporary differences. IAS 12 'Income Taxes' does not require all temporary differences to be provided for, in particular, the Group does not provide for deferred tax on undistributed earnings of subsidiaries where the Group is able to control the timing of the distribution and the temporary difference created is not expected to reverse in the foreseeable future. Deferred tax assets are only recognised when it is more likely than not that future taxable profits will be available against which these losses can be utilised.

Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates (and laws) that have been enacted or are substantively enacted at the end of the reporting period.

~~B4.1~~B3.1 Total tax charge by nature ~~of expense~~

The total tax ~~charge for continuing operations~~(charge) credit in the income statement is as follows:


	2019 $m			2018 $m	2017 $m	2020 $m			2019 $m	2018 $m

Tax charge	Current tax	Deferred tax	Total	Total	Total
						Current tax	Deferred tax	Total	Total	Total

Attributable to shareholders:
Asia operations	(306)	(162)	(468)	(369)	(326)	(229)	(209)	(438)	(468)	(369)
US operations	(307)	652	345	(340)	(655)	59	408	467	345	(340)
Other operations	182	(28)	154	140	141	8	–	8	154	140

Tax (charge) credit attributable to shareholders' returns	(431)	462	31	(569)	(840)	(162)	199	37	31	(569)

Attributable to policyholders:
Asia operations	(130)	(235)	(365)	(107)	(321)	(152)	(119)	(271)	(365)	(107)

Total tax (charge) credit	(561)	227	(334)	(676)	(1,161)	(314)	80	(234)	(334)	(676)

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The ~~principal reason for the decrease in the~~ tax ~~charge~~credit attributable to shareholders' returns ~~from continuing operations~~of $37 million is consistent with the ~~increase~~tax credit arising in 2019 ($31 million), reflecting the tax credit on US derivative losses ~~which~~ largely ~~offset~~offsetting the tax charge on Asia ~~profits in 2019.~~profits.

The reconciliation of the expected to actual tax charge attributable to shareholders is provided in ~~B4.2~~B3.2 below. The tax charge attributable to policyholders of ~~$365~~$271 million above is equal to the profit before tax attributable to policyholders of ~~$365~~$271 million. This is the result of accounting for policyholder income after the deduction of expenses and movement on unallocated surpluses on an after-tax basis.

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The total tax (charge) credit comprises:


	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m

Current tax expense:
Corporation tax	(589)	(380)	(165)	(445)	(589)	(380)
Adjustments in respect of prior years	28	15	48	131	28	15

Total current tax charge	(561)	(365)	(117)	(314)	(561)	(365)

Deferred tax arising from:
Origination and reversal of temporary differences	235	(331)	(470)	33	235	(331)
Impact of changes in local statutory tax rates	7	11	(574)	(1)	7	11
Credit in respect of a previously unrecognised tax loss, tax credit or temporary difference from a prior period	(15)	9	–	48	(15)	9

Total deferred tax credit (charge)	227	(311)	(1,044)	80	227	(311)

Total tax charge	(334)	(676)	(1,161)	(234)	(334)	(676)

The ~~reduction~~$131 million of adjustments in ~~the deferred tax charge from $311 million in 2018 to a credit~~respect of ~~$227 million in 2019 principally~~prior years primarily relates to US operations from the ~~increase in~~true up of the 2019 tax ~~credit on US derivative~~provision following finalisation and submission of the 2019 corporate income tax return during 2020 and the carry back of losses ~~which are tax deductible over a three year period.~~under the CARES Act.

In ~~2019,~~2020, a tax charge of $102 million (2019: charge of $709 ~~million (2018:~~million; 2018: charge of $387 ~~million; 2017:~~million) has been taken through other comprehensive income. The tax charge ~~of $85 million from continuing operations),~~ principally ~~relating~~relates to an increase in the market value on securities of US insurance operations classified as available-for-sale ~~has been taken through other comprehensive income.~~partially offset by a tax credit arising on the recycling of gains to the income statement arising on the transaction with Athene.

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~~B4.2~~B3.2 Reconciliation of shareholder effective tax rate ~~for continuing operations~~

In the reconciliation below, the expected tax rates reflect the corporation tax rates that are expected to apply to the taxable profit or loss of the relevant business. Where there are profits or losses of more than one jurisdiction, the expected tax rates reflect the corporation tax rates weighted by reference to the amount of profit or loss contributing to the aggregate business result.


	2019					2018		2017		2020						2019		2018

	Asia operations $m	US operations $m	Other* operations $m	Total attributable to shareholders $m	Percentage impact on ETR %	Total attributable to shareholders $m	Percentage impact on ETR %	Total attributable to shareholders $m	Percentage impact on ETR %	Asia operations $m	US operations $m	Other operations $m	Total attributable to shareholders $m	Percentage impact on ETR %		Total attributable to shareholders $m note (vii)	Percentage impact on ETR %	Total attributable to shareholders $m	Percentage impact on ETR %

Adjusted IFRS operating profit (loss) based on longer-term investment returns	3,276	3,070	(1,036)	5,310		4,409		4,378
Non-operating profit (loss)	917	(3,795)	(510)	(3,388)		(959)		(1,790)
Adjusted operating profit (loss)										3,667	2,796	(956)	5,507		��	5,310		4,409
Non-operating profit (loss)*										153	(3,510)	(2)	(3,359)			(3,388)		(959)

Profit (loss) before tax	4,193	(725)	(1,546)	1,922		3,450		2,588		3,820	(714)	(958)	2,148			1,922		3,450

Expected tax rate:	20%	21%	19%	20%		22%		27%		20%	21%	18%	21%
Tax at the expected rate	839	(152)	(294)	393	20.4%	759	22.0%	701	27.1%	764	(150)	(172)	442	20.6%		393	20.4%	759	22.0%
Effects of recurring tax reconciliation items:
Income not taxable or taxable at concessionary rates	(94)	(29)	(3)	(126)	(6.6)%	(71)	(2.1)%	(115)	(4.4)%
Income not taxable or taxable at concessionary ratesnote(i)										(102)	(45)	–	(147)	(6.8)%		(126)	(6.6)%	(71)	(2.1)%
Deductions not allowable for tax purposes	40	10	5	55	2.9%	69	2.0%	54	2.1%	32	11	–	43	2.0%		55	2.9%	69	2.0%
Items related to taxation of life insurance businessesnote(i)	(192)	(125)	—	(317)	(16.5)%	(128)	(3.7)%	(425)	(16.4)%
Items related to taxation of life insurance businessesnote(ii)										(152)	(106)	–	(258)	(12.0)%		(317)	(16.5)%	(128)	(3.7)%
Deferred tax adjustments	(28)	(1)	(4)	(33)	(1.7)%	(55)	(1.6)%	29	1.1%	26	–	–	26	1.2%		(33)	(1.7)%	(55)	(1.6)%
Unrecognised tax lossesnote(ii)	—	—	46	46	2.4%	—	—	—	—
Effect of results of joint ventures and associatesnote(iii)	(100)	—	—	(100)	(5.2)%	(83)	(2.4)%	(67)	(2.6)%
Irrecoverable withholding taxesnote(iv)	—	—	59	59	3.1%	63	1.8%	70	2.7%
Unrecognised tax lossesnote(iii)										–	–	146	146	6.8%		46	2.4%	–	–
Effect of results of joint ventures and associatesnote(iv)										(123)	–	(6)	(129)	(6.0)%		(100)	(5.2)%	(83)	(2.4)%
Irrecoverable withholding taxes										1	–	34	35	1.6%		59	3.1%	63	1.8%
Other	5	5	3	13	0.7%	9	0.3%	(15)	(0.6)%	(10)	(3)	(7)	(20)	(1.0)%		13	0.7%	9	0.3%

Total	(369)	(140)	106	(403)	(20.9)%	(196)	(5.7)%	(469)	(18.1)%	(328)	(143)	167	(304)	(14.2)%		(403)	(20.9)%	(196)	(5.7)%
Effects of non-recurring tax reconciliation items:
Adjustments to tax charge in relation to prior years	4	(53)	(18)	(67)	(3.5)%	(4)	(0.1)%	(27)	(1.0)%
Movements in provisions for open tax mattersnote(v)	17	—	(18)	(1)	(0.0%)	10	0.3%	57	2.2%
Demerger related activitiesnote(vi)	—	—	76	76	4.1%	—	—	—	—
Impact of US tax reform	—	—	—	—	—	—	—	573	22.1%
Adjustments in relation to business disposals	(23)	—	(6)	(29)	(1.4)%	—	—	5	0.2%
Adjustments to tax charge in relation to prior yearsnote(v)										21	(158)	4	(133)	(6.2)%		(67)	(3.5)%	(4)	(0.1)%
Movements in provisions for open tax mattersnote(vi)										(20)	–	(13)	(33)	(1.5)%		(1)	(0.1)%	10	0.3%
M&G demerger related activities										–	–	–	–	0.0%		76	4.0%	–	–
Impact of carry back of US losses under the CARES Act										–	(16)	–	(16)	(0.7)%		–	–	–	–
Impact of changes in local statutory tax rates										1	–	–	1	0.0%		–	–	–	–
Adjustments in relation to business disposals and corporate transactions										–	–	6	6	0.3%		(29)	(1.5)%	–	–

Total	(2)	(53)	34	(21)	(1.1)%	6	0.2%	608	23.5%	2	(174)	(3)	(175)	(8.1)%		(21)	(1.1)%	6	0.2%

Total actual tax charge (credit)	468	(345)	(154)	(31)	(1.6)%	569	16.5%	840	32.5%	438	(467)	(8)	(37)	(1.7)%		(31)	(1.6)%	569	16.5%

Analysed into:

Tax on adjusted IFRS operating profit (loss) based on longer-term investment returns	436	437	(100)	773		666		922
Tax on non-operating profit (loss)	32	(782)	(54)	(804)		(97)		(82)
Tax charge (credit) on adjusted operating profit (loss)										495	313	(8)	800			773		666
Tax credit on non-operating profit (loss)*										(57)	(780)	–	(837)			(804)		(97)

Actual tax rate on:
Adjusted IFRS operating profit (loss) based on longer-term investment returns:
Adjusted operating profit (loss):
Including non-recurring tax reconciling items	13%	14%	10%	15%		15%		21%		13%	11%	1%	15%			15%note(vii)		15%note(vii)
Excluding non-recurring tax reconciling items	13%	16%	10%	15%		15%note(vii)		20%note(vii)		13%	16%	0%	17%			15%		15%
Total profit (loss)	11%	48%	10%	(2)%		16%note(vii)		32%note(vii)		11%	65%	1%	(2)%			(2)%note(vii)		16%note(vii)

*: ~~Other operations include restructuring costs.~~'Non-operating profit (loss)' is used to refer to items excluded from adjusted operating profit and includes short-term investment fluctuations in investment returns on shareholder-backed business, corporate transactions and amortisation of acquisition accounting adjustments.

Table of Contents

Notes

(i): The $102 million in Asia operations primarily relates to non-taxable investment income in Taiwan, Singapore and Malaysia.
(ii): The principal reason for the decrease in the Asia operations reconciling items from $192 million in 2019 to $152 million in 2020 is due to a decrease in investment gains in Indonesia and Philippines which are subject to a lower rate of taxation under local legislation. The $106 million (2019: $125 ~~million (2018:~~million; 2018: $111 ~~million; 2017: $307~~ million) reconciling item in US operations reflects the impact of the dividend received deduction on the taxation of profits from variable annuity business. The principal reason for the increase in the Asia operations reconciling items from $17 million in 2018 to $192 million in 2019 reflects an increase in investment gains in Hong Kong which are not taxable due to the taxable profit being computed as 5 per cent of net insurance premiums.

~~Table of Contents~~

~~(ii)~~(iii): The $146 million (2019: $46 ~~million~~million; 2018: nil) adverse reconciling item in unrecognised tax losses reflects losses arising ~~after the demerger of the Group's UK and Europe operations~~ where it is unlikely that relief for the losses will be available in future periods.
~~(iii)~~(iv): Profit before tax includes Prudential's share of profit after tax from the joint ventures and associates. Therefore, the actual tax charge does not include tax arising from profit or loss of joint ventures and associates and is reflected as a reconciling item.
~~(iv)~~(v): The ~~$59~~$158 million ~~(2018: $63 million; 2017: $70 million) adverse reconciling items reflects local withholding taxes on dividends paid by certain non-UK subsidiaries, principally Indonesia,~~prior year adjustment in US operations comprises the truing up from the 2019 tax provision computed in the 2019 accounts to the ~~UK. The dividends are exempt from UK~~submitted 2019 tax return and ~~consequently the withholding~~a number of one-off adjustments to prior year deferred tax ~~cannot be offset against UK tax payments.~~

balances.
~~(v)~~(vi): The complexity of the tax laws and regulations that relate to our businesses means that from time to time we may disagree with tax authorities on the technical interpretation of a particular area of tax law. This uncertainty means that in the normal course of business the Group will have matters where, upon ultimate resolution of the uncertainty, the amount of profit subject to tax may be greater than the amounts reflected in the Group's submitted tax returns. The statement of financial position contains the following provisions in relation to open tax matters.


		$m2020 $m

Balance at ~~beginning of year~~1 Jan		~~190~~198
Movements in the current year included ~~in:~~
~~Tax~~in tax charge attributable to shareholders		~~(1)~~(33)
Provisions utilised in the year		(34)
Other movements*		9(18)

Balance at ~~end of year~~31 Dec		~~198~~113

*: Other movements include interest arising on open tax matters and amounts included in the Group's share of profits from joint ventures and associates, net of related tax.

~~(vi)~~: The $76 million adverse reconciling items in Demerger related activities relates to non-tax deductible costs incurred in preparation for, or as a result of, the demerger of the Group's UK and Europe operations.
(vii): ~~2018~~The 2019 and ~~2017~~2018 actual tax ~~rate~~rates of the relevant business operations are shown below:

2018

Asia
operations

US
operations

Other
operations

Total
attributable to
shareholders

Adjusted IFRS operating profit based on longer-term investment returns
14% 16% 14% 15%
Profit before tax
17% 15% 13% 16%


	2017
	Asia operations	US operations	Other operations	Total attributable to shareholders	2019

Adjusted IFRS operating profit based on longer-term investment returns	14%	25%	13%	21%
Profit before tax	12%	67%	14%	32%
					Asia operations	US operations	Other operations	Total attributable to shareholders

Tax rate on adjusted operating profit (loss)					13%	14%	10%	15%
Tax rate on profit (loss) before tax					11%	48%	10%	(2)%


	2018

	Asia operations	US operations	Other operations	Total attributable to shareholders

Tax rate on adjusted operating profit (loss)	14%	16%	14%	15%
Tax rate on profit before tax	17%	15%	13%	16%

Table of Contents

B5B4 Earnings per share


	2020

		Before tax $m	Tax $m	Non- controlling interests $m	Net of tax and non- controlling interests $m	Basic earnings per share cents	Diluted earnings per share cents
	Note	B1.1	B3

Profit for the year		2,148	37	(67)	2,118	81.6¢	81.6¢
Short-term fluctuations in investment returns on shareholder-backed business		4,841	(987)	(75)	3,779	145.5¢	145.5¢
Amortisation of acquisition accounting adjustments		39	(7)	(2)	30	1.1¢	1.1¢
(Gain) loss attaching to corporate transactions	D1.1	(1,521)	157	(4)	(1,368)	(52.7)¢	(52.7)¢

Adjusted operating profit		5,507	(800)	(148)	4,559	175.5¢	175.5¢

~~Accounting principles~~

2019

Before
tax
$m

Tax
$m

Non-
controlling
interests
$m

Net of tax
and non-
controlling
interests
$m

Basic
earnings
per share
cents

Diluted
earnings
per share
cents

Note

B1.1

Profit for the year

783

30.3¢

Loss for the year from discontinued operations

1,161

44.8¢

Profit for the year from continuing operations

1,922

(9)

1,944

75.1¢

Short-term fluctuations in investment returns on shareholder-backed business

3,203

(772)

–

2,431

94.0¢

Amortisation of acquisition accounting adjustments

(8)

–

1.3¢

Loss attaching to corporate transactions

D1.1

142

(24)

–

118

4.6¢

Adjusted operating profit from continuing operations

5,310

(773)

(9)

4,528

175.0¢

2018

Before
tax
$m

Tax
$m

Non-
controlling
interests
$m

Net of tax
and non-
controlling
interests
$m

Basic
earnings
per share
cents

Diluted
earnings
per share
cents

Note

B1.1

Profit for the year

4,019

156.0¢

Profit for the year from discontinued operations

(1,142)

(44.3)¢

Profit for the year from continuing operations

3,450

(569)

(4)

2,877

111.7¢

Short-term fluctuations in investment returns on shareholder-backed business

B1.2

791

(70)

–

721

28.0¢

Amortisation of acquisition accounting adjustments

(11)

–

1.9¢

Loss attaching to corporate transactions

D1.1

107

(16)

–

3.6¢

3.5¢

Adjusted operating profit from continuing operations

4,409

(666)

(4)

3,739

145.2¢

145.1¢

Basic earnings per share isare calculated ~~by dividing the~~based on earnings attributable to ordinary shareholders, ~~(after~~after related tax and non-controlling ~~interests)~~interests, by the weighted average number of ordinary shares outstanding during the year, excluding those held in employee share trusts and consolidated investment funds, which are treated as cancelled.

~~Table of Contents~~

For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group's only class of potentially dilutive ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. No adjustment is made if the impact is anti-dilutive overall.

2019

Before
tax
$m Tax
$m Non-
controlling
interests
$m Net of tax
and non-
controlling
interests
$m Basic
earnings
per share
cents Diluted
earnings
per share
cents
Note B1.1 B4

Profit for the year 783 30.3¢ 30.3¢
Loss for the year from discontinued operations D2 1,161 44.8¢ 44.8¢

Profit for the year from continuing operations 1,922 31 (9) 1,944 75.1¢ 75.1¢
Short-term fluctuations in investment returns on shareholder-backed business 3,203 (772) – 2,431 94.0¢ 94.0¢
Amortisation of acquisition accounting adjustments 43 (8) – 35 1.3¢ 1.3¢
Loss on disposal of businesses and corporate transactions D1.1 142 (24) – 118 4.6¢ 4.6¢

Adjusted IFRS operating profit based on longer-term investment returns from continuing operations 5,310 (773) (9) 4,528 175.0¢ 175.0¢

2018

Before
tax
$m Tax
$m Non-
controlling
interests
$m Net of tax
and non-
controlling
interests
$m Basic
earnings
per share
cents Diluted
earnings
per share
cents
Note B1.1 B4

Profit for the year 4,019 156.0¢ 156.0¢
Loss for the year from discontinued operations D2 (1,142) (44.3)¢ (44.3)¢

Profit for the year from continuing operations 3,450 (569) (4) 2,877 111.7¢ 111.7¢
Short-term fluctuations in investment returns on shareholder-backed business 791 (70) – 721 28.0¢ 28.0¢
Amortisation of acquisition accounting adjustments 61 (11) – 50 1.9¢ 1.9¢
Loss on disposal of businesses and corporate transactions D1.1 107 (16) – 91 3.6¢ 3.5¢

Adjusted IFRS operating profit based on longer-term investment returns from continuing operations 4,409 (666) (4) 3,739 145.2¢ 145.1¢

2017

Before tax
$m Tax
$m Non-
controlling
interests
$m Net of tax
and non-
controlling
interests
$m Basic
earnings
per share
cents Diluted
earnings
per share
cents
Note B1.1 B4

Profit for the year 3,080 120.0¢ 119.9¢
Loss for the year from discontinued operations D2 (1,333) (52.0)¢ (52.0)¢

Profit for the year from continuing operations 2,588 (840) (1) 1,747 68.0¢ 67.9¢
Short-term fluctuations in investment returns on shareholder-backed business B1.2 1,994 (736) – 1,258 49.0¢ 49.0¢
Amortisation of acquisition accounting adjustments 82 (26) – 56 2.2¢ 2.2¢
Cumulative exchange gain on the sold Korea life business recycled from other comprehensive income (78) – – (78) (3.0)¢ (3.0)¢
Gain (loss) on disposal of businesses and corporate transactions D1.1 (208) 106 – (102) (4.0)¢ (4.0)¢
Impact of US tax reform – 574 – 574 22.4¢ 22.4¢

Adjusted IFRS operating profit based on longer-term investment returns from continuing operations 4,378 (922) (1) 3,455 134.6¢ 134.5¢

Table of Contents

The weighted average number of shares for calculating basic and diluted earnings per share in 2020 is set out as below:

Number of shares
(in millions)

2019

2018

2017

Weighted average number of shares* for calculation of:

Basic earnings per share
2,587 2,575 2,567
Shares under option at end of year
4 5 6
Shares that would have been issued at fair value on assumed option price
(4) (4) (5)

Diluted earnings per share
2,587 2,576 2,568

*: ~~Excluding those held in employee share trusts and consolidated investment funds.~~

Number of shares (in millions)	2020	2019	2018


Weighted average number of shares for calculation of basic earnings per share	2,597	2,587	2,575
Shares under option at end of year	2	4	5
Shares that would have been issued at fair value on assumed option price at end of year	(2)	(4)	(4)

Weighted average number of shares for calculation of diluted earnings per share	2,597	2,587	2,576

B6B5 Dividends

2020

2019

2018

Cents per share

Cents per
share

Dividends relating to reporting year:

First interim ordinary dividend

5.37¢

140

20.29¢

528

20.55¢

530

Second interim ordinary dividend

10.73¢

280

25.97¢

675

42.89¢

1,108

Total

16.10¢

420

46.26¢

1,203

63.44¢

1,638

Dividends paid in reporting year:

Current year first interim ordinary dividend

5.37¢

140

20.29¢

526

20.55¢

530

Second interim ordinary dividend for prior year

25.97¢

674

42.89¢

1,108

43.79¢

1,132

Total

31.34¢

814

63.18¢

1,634

64.34¢

1,662

~~B6.1 Demerger dividend in specie of M&G plc~~

~~On 21 October 2019, following approval by the Group's shareholders, Prudential plc demerged M&G plc its UK and Europe operations via a dividend in specie. As required by IFRIC 17 '~~~~Distributions of Non-cash Assets to Owners~~~~', the dividend has been recorded at the fair value of M&G plc being $7,379 million.~~

~~B6.2 Other dividends~~

First and second interim dividends are recorded in the period in which they are paid. ~~Final~~In addition to the dividends ~~(if applicable) are recorded~~shown in the ~~period~~table above, on 21 October 2019, following approval by the Group's shareholders, Prudential plc demerged its UK and Europe operations (M&G plc) via a dividend in ~~which they are approved by shareholders.~~specie of $7,379 million.

2019 2018 2017

Cents per share $m Cents per
share $m Cents per
share $m

Dividends relating to reporting year:

First interim ordinary dividend
20.29¢ 528 20.55¢ 530 19.50¢ 501
Second interim ordinary dividend
25.97¢ 675 42.89¢ 1,108 43.79¢ 1,132

Total
46.26¢ 1,203 63.44¢ 1,638 63.29¢ 1,633

Dividends paid in reporting year:

Current year first interim ordinary dividend
20.29¢ 526 20.55¢ 530 19.50¢ 501
Second interim ordinary dividend for prior year
42.89¢ 1,108 43.79¢ 1,132 39.82¢ 1,024

Total
63.18¢ 1,634 64.34¢ 1,662 59.32¢ 1,525

Dividend per share

The ~~2019~~2020 first interim ordinary dividend of ~~20.29~~5.37 cents per ordinary share was paid to eligible shareholders on 2628 September ~~2019.~~2020.

The second interim ordinary dividend for the year ended 31 December ~~2019~~2020 of ~~25.97~~10.73 cents per ordinary share will be paid on 1514 May ~~2020~~2021 to shareholders included on the UK ~~register~~and HK registers respectively on 2726 March ~~2020~~2021 (Record Date), and to ~~shareholders on~~ the ~~Hong Kong register at 4.30pm Hong Kong time on the Record Date (HK Shareholders).~~ Holders of US American Depositary Receipts ~~(US Shareholders) will be paid their dividends on 15 May 2020.~~as at 26 March 2021. The second interim ordinary dividend will be paid on or about 2221 May ~~2020~~2021 to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte) Limited (CDP) ~~at 5.00pm Singapore time~~ on the Record ~~Date (SG Shareholders).~~Date.

The Group's 2020 dividend under the new progressive dividend policy will be determined from a 2019 US dollar base of $958 million (36.84 cents per share), equivalent to the circa £750 million previously disclosed in the Circular. This represents the first interim ordinary dividend relating to 2019 of $528 million plus the second interim ordinary dividend of $675 million less the contribution of remittances from the discontinued M&G plc business to the second interim ordinary dividend of $245 million.

~~Prudential plc now determines and declares its dividends in US dollars, commencing with dividends paid in 2020, including the 2019 second interim dividend.~~ Shareholders holding shares on the UK or Hong Kong share registers will continue to receive their dividend payments in either ~~pounds sterling~~GBP or ~~Hong Kong dollars~~HKD respectively, unless they elect otherwise. Shareholders holding shares on the UK or Hong Kong registers may elect to receive dividend payments in ~~US dollars.~~USD. Elections must be made through the relevant UK or Hong Kong share registrar on or before 23 April ~~2020.~~2021. The corresponding amount per share in ~~pounds sterling~~GBP and ~~Hong Kong dollars~~HKD is expected to be announced on or about ~~30 April 2020.The US dollar~~5 May 2021. The USD to ~~pound sterling~~GBP and ~~Hong Kong dollar~~HKD conversion rates will be determined by the actual rates achieved by Prudential buying

~~Table of Contents~~

those currencies ~~during the two working days preceding~~prior to the subsequent announcement. Holders of American Depositary Receipts (ADRs) will continue to receive their dividend payments in ~~US dollars.~~USD. Shareholders holding an interest in Prudential shares through ~~the~~The Central Depository (Pte) Limited (CDP) in Singapore will continue to receive their dividend payments in ~~Singapore dollars~~SGD at an exchange rate determined by CDP.

Shareholders on the UK register are eligible to participate in a Dividend Reinvestment Plan.

Table of Contents

C FINANCIAL POSITION ~~NOTES~~

C1 ~~Analysis of~~ Group ~~statement of financial position~~assets and liabilities by ~~segment~~business type

~~To explain~~The analysis below is structured to show the investments and other assets ~~liabilities~~ and ~~capital~~liabilities of the ~~Group's businesses~~Group by reference to the differing degrees of policyholder and shareholder economic interest of the different types of business.

The Group has revised its disclosures relating to the investments, other assets and liabilities of the Group in these consolidated financial statements, including combining various disclosures into a single section and giving further analysis of the categories of debt securities. The 2019 comparative information, in particular that relating to investments, has been re-presented from previously published information to conform to the current year format and the altered approach to credit ratings analysis described below.

Debt securities are analysed below according to the issuing government for sovereign debt and to credit ratings for the rest of the securities.

From half year 2020, to align more ~~comprehensively, it~~closely with the internal risk management analysis, the Group altered the compilation of its credit ratings analysis to use the middle of the Standard & Poor's, Moody's and Fitch ratings, where available. Where ratings are not available from these rating agencies, NAIC ratings (for the US), local external rating agencies' ratings and lastly internal ratings have been used. Securities with none of the ratings listed above are classified as unrated and included under the 'below BBB- and unrated' category. The total securities (excluding sovereign debt) that were unrated at 31 December 2020 were $780 million (31 December 2019: $648 million). Previously, Standard & Poor's ratings were used where available and if not, Moody's and then Fitch were used as alternatives. Additionally, government debt is ~~appropriate~~shown separately from the rating breakdowns in order to provide ~~analyses~~a more focused view of the ~~Group's statement~~credit portfolio.

In the table below, AAA is the highest possible rating. Investment grade financial assets are classified within the range of ~~financial position by operating segment and type~~AAA to BBB- ratings. Financial assets which fall outside this range are classified as below BBB-.

Table of ~~business.~~Contents


	31 Dec 2019 $m						31 Dec 2020 $m
		Asia	US	Unallocated to a segment (central operations)	Elimination of intra- group debtors and creditors	Group total	Asia insurance
By operating segment	Note	C2.1	C2.2	note (i)
							With- profits business	Unit- linked assets and liabilities	Other business	Asia Asset management	Eliminations	Total Asia	US	Unallocated to a segment	Elimination of intra-group debtors and creditors	Group total
							note (i)						note (ii)

Assets
Goodwill	C5.1	926	–	43	–	969
Deferred acquisition costs and other intangible assets	C5.2	5,154	12,264	58	–	17,476
Reinsurers' share of insurance contract liabilities		5,458	8,394	4	–	13,856
Other assetsnote(ii)		3,208	5,432	3,339	(2,652)	9,327
Debt securitiesnote(iii), note C1.1
Sovereign debt
Indonesia							385	658	564	12	–	1,619	–	–	–	1,619
Singapore							3,939	551	979	117	–	5,586	–	–	–	5,586
Thailand							–	–	1,999	11	–	2,010	–	–	–	2,010
United Kingdom							–	7	–	–	–	7	–	–	–	7
United States							24,396	21	2,551	–	–	26,968	5,126	–	–	32,094
Vietnam							–	11	2,881	–	–	2,892	–	–	–	2,892
Other (predominantly Asia)							1,322	700	3,508	19	–	5,549	30	173	–	5,752

Subtotal							30,042	1,948	12,482	159	–	44,631	5,156	173	–	49,960

Other government bonds
AAA							1,420	96	405	–	–	1,921	377	–	–	2,298
AA+ to AA-							129	2	28	–	–	159	522	–	–	681
A+ to A-							811	131	339	–	–	1,281	188	–	–	1,469
BBB+ to BBB-							452	16	196	–	–	664	3	–	–	667
Below BBB- and unrated							631	9	450	–	–	1,090	–	1	–	1,091

Subtotal							3,443	254	1,418	–	–	5,115	1,090	1	–	6,206

Corporate bonds
AAA							1,228	221	540	–	–	1,989	265	–	–	2,254
AA+ to AA-							1,943	476	1,871	–	–	4,290	869	–	–	5,159
A+ to A-							7,289	695	5,194	1	–	13,179	10,759	–	–	23,938
BBB+ to BBB-							9,005	1,299	4,785	–	–	15,089	12,686	–	–	27,775
Below BBB- and unrated							2,814	849	1,477	2	–	5,142	1,975	6	–	7,123

Subtotal							22,279	3,540	13,867	3	–	39,689	26,554	6	–	66,249

Asset-backed securities
AAA							74	9	24	–	–	107	2,110	–	–	2,217
AA+ to AA-							2	1	–	–	–	3	171	–	–	174
A+ to A-							15	–	16	–	–	31	741	–	–	772
BBB+ to BBB-							12	–	9	–	–	21	163	–	–	184
Below BBB- and unrated							9	2	8	–	–	19	48	–	–	67

Subtotal							112	12	57	–	–	181	3,233	–	–	3,414

Total debt securities							55,876	5,754	27,824	162	–	89,616	36,033	180	–	125,829

Loans
Mortgage loansnote C1.2							–	–	158	–	–	158	7,833	–	–	7,991
Policy loans							1,231	–	341	–	–	1,572	4,507	10	–	6,089
Other loans							492	–	16	–	–	508	–	–	–	508

Total loans							1,723	–	515	–	–	2,238	12,340	10	–	14,588

Equity securities and holdings in collective investment schemes
Direct equities							15,668	13,064	3,321	71	–	32,124	253	4	–	32,381
Collective investment schemes							18,125	7,392	1,633	10	–	27,160	25	7	–	27,192
US separate account assetsnote(ii)							–	–	–	–	–	–	219,062	–	–	219,062

Total equity securities and holdings in collective investment schemes							33,793	20,456	4,954	81	–	59,284	219,340	11	–	278,635

Other financial investmentsnote(iv)							1,566	405	2,139	97	–	4,207	4,094	47	–	8,348

Total financial investmentsnote(vi)							92,958	26,615	35,432	340	–	155,345	271,807	248	–	427,400

Investment properties		7	7	11	–	25	–	–	6	–	–	6	7	10	–	23
Investment in joint ventures and associates accounted for using the equity method	D7	1,500	–	–	–	1,500
Financial investmentsnote(v)		131,499	271,190	1,407	–	404,096
Cash and cash equivalentsnote(iii)		2,490	1,960	2,515	–	6,965
Investments in joint ventures and associates accounted for using the equity method							–	–	1,689	273	–	1,962	–	–	–	1,962
Cash and cash equivalentsnote(vii)							1,049	587	1,317	156	–	3,109	1,621	3,288	–	8,018
Reinsurers' share of insurance contract liabilitiesnote(v)							257	–	11,102	–	–	11,359	35,232	4	–	46,595
Other assetsnote(viii)							1,538	252	9,254	839	(62)	11,821	19,813	3,788	(3,323)	32,099

Total assets		150,242	299,247	7,377	(2,652)	454,214	95,802	27,454	58,800	1,608	(62)	183,602	328,480	7,338	(3,323)	516,097

Equity
Shareholders' equity		10,866	8,929	(318)	–	19,477	–	–	12,785	1,102	–	13,887	8,511	(1,520)	–	20,878
Non-controlling interests		155	–	37	–	192	–	–	2	144	–	146	1,063	32	–	1,241

Total equity		11,021	8,929	(281)	–	19,669	–	–	12,787	1,246	–	14,033	9,574	(1,488)	–	22,119

Liabilities
Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4)	C4.1	115,943	269,549	186	–	385,678
Unallocated surplus of with-profits funds	C4.1	4,750	–	–	–	4,750
Core structural borrowings of shareholder-financed businesses	C6.1	–	250	5,344	–	5,594
Contract liabilities and unallocated surplus of with-profits fundsnote(ii)							86,410	25,433	37,845	–	–	149,688	296,513	262	–	446,463
Core structural borrowings							–	–	–	–	–	–	250	6,383	–	6,633
Operational borrowings	C6.2	473	1,501	671	–	2,645	194	–	99	23	–	316	1,498	630	–	2,444
Other liabilitiesnote(iv)		18,055	19,018	1,457	(2,652)	35,878
Other liabilitiesnote(ix)							9,198	2,021	8,069	339	(62)	19,565	20,645	1,551	(3,323)	38,438

Total liabilities		139,221	290,318	7,658	(2,652)	434,545	95,802	27,454	46,013	362	(62)	169,569	318,906	8,826	(3,323)	493,978

Total equity and liabilities		150,242	299,247	7,377	(2,652)	454,214	95,802	27,454	58,800	1,608	(62)	183,602	328,480	7,338	(3,323)	516,097

Table of Contents

31 Dec 2018 $m
Before elimination of intra-group debtors and creditors
Asia US Unallocated
to a segment
(central
operations) Total
continuing
operations Discontinued
UK and
Europe
operations Elimination
of intra-
group
debtors
and
creditors Group
Total
By operating segment Note C2.1 C2.2 note (i)

Assets
Goodwill C5.1 634 – – 634 1,731 – 2,365
Deferred acquisition costs and other intangible assets C5.2 3,741 11,140 55 14,936 249 – 15,185
Reinsurers' share of insurance contract liabilities 3,537 8,485 2 12,024 3,581 (1,412) 14,193
Other assetsnote(ii) 4,987 4,569 2,829 12,385 9,044 (6,834) 14,595
Investment properties 6 8 – 14 22,815 – 22,829
Investment in joint ventures and associates accounted for using the equity method 1,262 – – 1,262 945 – 2,207
Financial investmentsnote(v) 103,016 232,955 2,998 338,969 208,553 – 547,522
Assets held for sale – – – – 13,472 – 13,472
Cash and cash equivalentsnote(iii) 2,789 3,827 2,778 9,394 6,048 – 15,442

Total assets 119,972 260,984 8,662 389,618 266,438 (8,246) 647,810

Equity
Shareholders' equity 8,175 7,163 (4,450) 10,888 11,080 – 21,968
Non-controlling interests 12 – 11 23 – – 23

Total equity 8,187 7,163 (4,439) 10,911 11,080 – 21,991

Liabilities
Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4) C4.1 93,248 236,380 50 329,678 193,020 (1,412) 521,286
Unallocated surplus of with-profits funds C4.1 3,198 – – 3,198 16,982 – 20,180
Core structural borrowings of shareholder-financed businesses C6.1 – 250 9,511 9,761 – – 9,761
Operational borrowings C6.2 102 418 640 1,160 5,129 – 6,289
Other liabilitiesnote(iv) 15,237 16,773 2,900 34,910 26,768 (6,834) 54,844
Liabilities held for sale – – – – 13,459 – 13,459

Total liabilities 111,785 253,821 13,101 378,707 255,358 (8,246) 625,819

Total equity and liabilities 119,972 260,984 8,662 389,618 266,438 (8,246) 647,810

~~Notes~~

~~(i)~~: ~~Unallocated to a segment includes central operations, the Group's treasury function and Africa operations as per note B1.3.~~
~~(ii)~~: 'Other assets' at 31 December 2019 included property, plant and equipment of $1,065 million relating to continuing operations (31 December 2018: $1,795 million, of which $482 million related to continuing operations). On 1 January 2019, $527 million of right-of-use assets was recognised for continuing operations upon adoption of IFRS 16 (see note A3). Movements in the right-of-use assets in 2019 is provided in note C13.
Also included in 'Other assets' are accrued investment income and other debtors at 31 December 2019 of $3,695 million (31 December 2018: $8,708 million), of which $3,191 million (31 December 2018: $7,834 million) are expected to be settled within one year. These are further analysed as follows:

31 Dec 2019 $m

31 Dec 2018 $m

Interest receivable 1,064 2,221
Other 577 1,280

Total accrued investment income 1,641 3,501

Premiums receivable due from:
Policyholders
574 576
Intermediaries
4 4
Reinsurers
216 277
Other receivables
1,260 4,350

Total other debtors 2,054 5,207

Total accrued investment income and other debtors 3,695 8,708

Analysed as:
From continuing operations
4,356
From discontinued operations
4,352

8,708


	31 Dec 2019 $m
	Asia insurance
	With- profits business	Unit- linked assets and liabilities	Other business	Asia Asset management	Eliminations	Total Asia	US	Unallocated to a segment	Elimination of intra-group debtors and creditors	Group total
	note (i)						note (ii)

Debt securitiesnote(iii), note C1.1
Sovereign debt
Indonesia	222	610	488	–	–	1,320	–	–	–	1,320
Singapore	3,514	554	708	94	–	4,870	–	–	–	4,870
Thailand	–	–	1,398	19	–	1,417	–	–	–	1,417
United Kingdom	–	7	–	–	–	7	–	615	–	622
United States	20,479	113	2,827	–	–	23,419	6,160	597	–	30,176
Vietnam	1	15	2,900	–	–	2,916	–	–	–	2,916
Other (predominantly Asia)	1,745	665	2,809	13	–	5,232	9	116	–	5,357

Subtotal	25,961	1,964	11,130	126	–	39,181	6,169	1,328	–	46,678

Other government bonds
AAA	1,752	81	538	–	–	2,371	977	–	–	3,348
AA+ to AA-	135	8	78	–	–	221	495	–	–	716
A+ to A-	890	159	389	–	–	1,438	245	–	–	1,683
BBB+ to BBB-	356	88	201	–	–	645	4	–	–	649
Below BBB- and unrated	31	9	381	–	–	421	–	2	–	423

Subtotal	3,164	345	1,587	–	–	5,096	1,721	2	–	6,819

Corporate bonds
AAA	732	384	516	–	–	1,632	341	–	–	1,973
AA+ to AA-	1,574	441	1,908	–	–	3,923	1,566	–	–	5,489
A+ to A-	5,428	542	5,063	–	–	11,033	17,784	–	–	28,817
BBB+ to BBB-	5,443	883	3,497	–	–	9,823	22,775	–	–	32,598
Below BBB- and unrated	2,111	569	781	3	–	3,464	2,157	2	–	5,623

Subtotal	15,288	2,819	11,765	3	–	29,875	44,623	2	–	74,500

Asset-backed securities
AAA	236	19	104	–	–	359	3,658	–	–	4,017
AA+ to AA-	132	6	46	–	–	184	780	–	–	964
A+ to A-	1	–	14	–	–	15	1,006	–	–	1,021
BBB+ to BBB-	–	–	–	–	–	–	359	–	–	359
Below BBB- and unrated	–	–	–	–	–	–	212	–	–	212

Subtotal	369	25	164	–	–	558	6,015	–	–	6,573

Total debt securities	44,782	5,153	24,646	129	–	74,710	58,528	1,332	–	134,570

Loans
Mortgage loansnote C1.2	–	–	165	–	–	165	9,904	–	–	10,069
Policy loans	1,089	–	316	–	–	1,405	4,707	9	–	6,121
Other loans	374	–	19	–	–	393	–	–	–	393

Total loans	1,463	–	500	–	–	1,963	14,611	9	–	16,583

Equity securities and holdings in collective investment schemes
Direct equities	14,143	12,440	1,793	59	–	28,435	150	4	–	28,589
Collective investment schemes	15,230	6,652	1,680	14	–	23,576	40	6	–	23,622
US separate account assetsnote(ii)	–	–	–	–	–	–	195,070	–	–	195,070

Total equity securities and holdings in collective investment schemes	29,373	19,092	3,473	73	–	52,011	195,260	10	–	247,281

Other financial investmentsnote(iv)	963	383	1,363	106	–	2,815	2,791	56	–	5,662

Total financial investmentsnote(vi)	76,581	24,628	29,982	308	–	131,499	271,190	1,407	–	404,096

Investment properties	–	–	7	–	–	7	7	11	–	25
Investments in joint ventures and associates accounted for using the equity method	–	–	1,263	237	–	1,500	–	–	–	1,500
Cash and cash equivalentsnote(vii)	963	356	1,015	156	–	2,490	1,960	2,515	–	6,965
Reinsurers' share of insurance contract liabilitiesnote(v)	152	–	5,306	–	–	5,458	8,394	4	–	13,856
Other assetsnote(viii)	1,277	237	6,983	826	(35)	9,288	17,696	3,440	(2,652)	27,772

Total assets	78,973	25,221	44,556	1,527	(35)	150,242	299,247	7,377	(2,652)	454,214

Shareholders' equity	–	–	9,801	1,065	–	10,866	8,929	(318)	–	19,477
Non-controlling interests	–	–	2	153	–	155	–	37	–	192

Total equity	–	–	9,803	1,218	–	11,021	8,929	(281)	–	19,669

Contract liabilities and unallocated surplus of with-profits fundsnote(ii)	70,308	23,571	26,814	–	–	120,693	269,549	186	–	390,428
Core structural borrowings	–	–	–	–	–	–	250	5,344	–	5,594
Operational borrowings	303	21	122	27	–	473	1,501	671	–	2,645
Other liabilitiesnote(ix)	8,362	1,629	7,817	282	(35)	18,055	19,018	1,457	(2,652)	35,878

Total liabilities	78,973	25,221	34,753	309	(35)	139,221	290,318	7,658	(2,652)	434,545

Total equity and liabilities	78,973	25,221	44,556	1,527	(35)	150,242	299,247	7,377	(2,652)	454,214

Table of Contents

Notes: Notes
(i): The with-profits business of Asia comprises the with-profits assets and liabilities of the Hong Kong, Malaysia and Singapore operations. 'Other business' includes assets and liabilities of other participating businesses and other non-linked shareholder-backed business.
(ii): Further analysis of the shareholders' equity by business type of the US operations is provided below:


	31 Dec 2020 $m			31 Dec 2019 $m

	Insurance	Asset management	Total	Total

Shareholders' equity	8,506	5	8,511	8,929

The US separate account assets comprise investments in mutual funds attaching to the variable annuity business that are held in the separate account. The related liabilities are reported in contract liabilities at an amount equal to the separate account assets.

(iii): ~~Cash~~The credit ratings, information or data contained in this report which are attributed and ~~cash equivalents~~
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 prohibited except with the prior written permission of the relevant party. The Content Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation 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.
(iv): Other financial investments comprise derivative assets, other investments and deposits.
(v): Reinsurers' share of contract liabilities includes the reinsurance ceded in respect of the acquired REALIC business by the Group's US insurance operations and at 31 December 2020 also includes amounts ceded in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd, as discussed in note D1.1.
(vi): Of the total financial investments of $427,400 million as at 31 December 2020 (31 December 2019: $404,096 million), $288,310 million (31 December 2019: $260,896 million) are due to be recovered within one year.
(vii): Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, treasury bills and other short-term highly liquid investments with less than 90 days maturity from the date of acquisition and are analysed as follows:

	31 Dec 2019 $m	31 Dec 2018 $m	31 Dec 2020 $m	31 Dec 2019 $m


Cash	2,071	7,335	2,492	2,071
Cash equivalents	4,894	8,107	5,526	4,894

Total cash and cash equivalents	6,965	15,442
Total cash and cash equivalents*			8,018	6,965

Analysed as:
Held centrally and available for general use by the Group	2,491	445
Held by the Group's holding and non-regulated entities and available for general use			3,250	2,491
Other funds not available for general use by the Group, including funds held for the benefit of policyholders	4,474	14,997	4,768	4,474

Total cash and cash equivalents	6,965	15,442	8,018	6,965

Comprising:
Cash and cash equivalents from continuing operations		9,394
Cash and cash equivalents from discontinued operations		6,048

		15,442

*: The Group's cash and cash equivalents are held in the following ~~currencies: US dollars 52~~currencies as at 31 December 2020: USD 59 per cent, ~~pounds sterling 20~~GBP 15 per cent, ~~Euro 1~~HKD 3 per cent, SGD 3 per cent, MYR 8 per cent and other currencies 2712 per cent ~~(2018: US dollars 38~~(31 December 2019: USD 59 per cent, ~~pounds sterling 32~~GBP 13 per cent, ~~Euro 15~~HKD 8 per cent, SGD 3 per cent, MYR 5 per cent and other currencies 1512 per cent).

(viii)

Of total 'Other assets' at 31 December 2020, there are:

–: Property, plant and equipment (PPE) of $893 million (31 December 2019: $1,065 million). Movements in the PPE including right-of-use assets are provided in note C11; and
–: Accrued investment income and other debtors, which are analysed as follows:

	31 Dec 2020 $m	31 Dec 2019 $m


Interest receivable	1,008	1,064
Other accrued income	419	577

Total accrued investment income	1,427	1,641

Amounts receivable due from:
Policyholders	757	574
Intermediaries	2	4
Reinsurers	920	216
Other sundry debtors	1,492	1,260

Total other debtors	3,171	2,054

Total accrued investment income and other debtors	4,598	3,695

Analysed as:
Expected to be settled within one year	4,151	3,191
Expected to be settled beyond one year	447	504

	4,598	3,695

Table of Contents

~~(iv)~~(ix): ~~Accruals,~~Within 'Other liabilities' are accruals, deferred income and other liabilities of $15,508 million (31 December 2019: $14,488 million), which are analysed as follows ~~(maturity~~(detailed maturity analysis is provided in note ~~C3.4(a))~~C2):

	31 Dec 2019 $m	31 Dec 2018 $m	31 Dec 2020 $m	31 Dec 2019 $m


Accruals and deferred income	582	2,165	702	582
Other creditors	6,724	9,010
Creditors arising from direct insurance and reinsurance operations	2,831	3,010	2,296	2,831
Interest payable	68	149	74	68
Funds withheld under reinsurance of the REALIC business	3,760	3,745
Other items	523	1,342
Funds withheld under reinsurance agreements			4,628	3,760
Other creditors			7,808	7,247

Total accruals, deferred income and other liabilities	14,488	19,421
Total accruals, deferred income and other creditors			15,508	14,488

Analysed as:
From continuing operations		13,338
From discontinued operations		6,083

		19,421

C1.1 Additional analysis of debt securities

This note provides additional analysis of the Group's debt securities. With the exception of certain debt securities classified as 'available-for-sale' under IAS 39, which primarily relate to US insurance operations as disclosed below, the Group's debt securities are carried at fair value through profit or loss.

~~(v)~~(a): Holdings by consolidated investment funds of the Group

Of the ~~total financial investments~~$125,829 million of ~~$404,096 million as~~Group's debt securities at 31 December ~~2019~~2020 (31 December ~~2018: $547,522~~2019: $134,570 million), ~~$260,896 million (2018: $304,843 million) are due to be recovered within one year.~~the following amounts were held by consolidated investment funds:

	31 Dec 2020 $m			31 Dec 2019 $m


	Asia	US	Total	Total

Debt securities held by consolidated investment funds	15,928	1,145	17,073	22,113

(b): Additional analysis of US debt securities

~~C2 Analysis of segment statement of financial position by business type~~

~~To show~~Debt securities for US operations included in the statement of financial position by reference to the differing degrees of policyholder and shareholder economic interest of the different types of business, the analysis below is structured to show the assets and liabilities of each segment by business type.

~~Table of Contents~~

~~C2.1 Asia~~comprise:

31 Dec 2019 $m 31 Dec 2018 $m

Total insurance

Note With-profits
business* Unit-linked
assets and
liabilities Other
business Total Asset
management Eliminations Total Total

Assets
Goodwill – – 327 327 599 – 926 634
Deferred acquisition costs and other intangible assets 67 – 5,072 5,139 15 – 5,154 3,741
Reinsurers' share of insurance contract liabilities 152 – 5,306 5,458 – – 5,458 3,537
Other assets 1,210 237 1,584 3,031 212 (35) 3,208 4,987
Investment properties – – 7 7 – – 7 6
Investment in joint ventures and associates accounted for using the equity method – – 1,263 1,263 237 – 1,500 1,262
Financial investments 76,581 24,628 29,982 131,191 308 – 131,499 103,016
Cash and cash equivalents 963 356 1,015 2,334 156 – 2,490 2,789

Total assets 78,973 25,221 44,556 148,750 1,527 (35) 150,242 119,972

Total equity – – 9,803 9,803 1,218 – 11,021 8,187

Liabilities
Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4) C4.2 65,558 23,571 26,814 115,943 – – 115,943 93,248
Unallocated surplus of with-profits funds C4.2 4,750 – – 4,750 – – 4,750 3,198
Operational borrowings 302 21 123 446 27 – 473 102
Other liabilities 8,363 1,629 7,816 17,808 282 (35) 18,055 15,237

Total liabilities 78,973 25,221 34,753 138,947 309 (35) 139,221 111,785

Total equity and liabilities 78,973 25,221 44,556 148,750 1,527 (35) 150,242 119,972

	31 Dec 2020 $m	31 Dec 2019 $m


Available-for-sale	34,650	57,091
Fair value through profit and loss	1,383	1,437

Total US debt securities	36,033	58,528

The corporate bonds held by the US insurance operations comprise:

	31 Dec 2020 $m	31 Dec 2019 $m


Publicly traded and SEC Rule 144A securities*	17,870	34,781
Non-SEC Rule 144A securities	8,684	9,842

Total US corporate bonds	26,554	44,623

*: A 1990 SEC rule that facilitates the resale of privately placed securities under Rule 144A that are without SEC registration to qualified institutional investors. The ~~statement of financial position~~rule was designed to develop a more liquid and efficient institutional resale market for with-profits business comprises the with-profits assets and liabilities of the Hong Kong, Malaysia and Singapore operations. 'Other business' includes assets and liabilities of other participating businesses and other non-linked shareholder-backed business.unregistered securities.

Table of Contents

(c): Movements in unrealised gains and losses on Jackson available-for-sale debt securities

The movement in the statement of financial position value for debt securities classified as available-for-sale from a net unrealised gain of $3,496 million at 31 December 2019 to a net unrealised gain of $3,396 million at 31 December 2020 is analysed in the table below.

		Changes in unrealised appreciation (depreciation) reflected in other comprehensive income


	31 Dec 2020 $m	Gains recycled to income statement on transfer of debt securities to Athene note D1.1	Unrealised gains (losses) arising in the year	31 Dec 2019 $m

Assets fair valued at below book value
Book value	5,111			3,121
Unrealised loss	(144)		(117)	(27)

Fair value (as included in statement of financial position)	4,967			3,094

Assets fair valued at or above book value
Book value	26,143			50,474
Unrealised gain	3,540	(2,817)	2,834	3,523

Fair value (as included in statement of financial position)	29,683			53,997

Total
Book value	31,254			53,595
Net unrealised gain (loss)	3,396	(2,817)	2,717	3,496

Fair value (as included in the statement of financial position)	34,650			57,091

Book value represents cost or amortised cost of the debt securities. Jackson available-for-sale debt securities fair valued at below book value (in an unrealised loss position) is analysed further below.

(i): Fair value as a percentage of book value

The following table shows the fair value of the Jackson available-for-sale debt securities in a gross unrealised loss position for various percentages of book value:


	31 Dec 2020 $m		31 Dec 2019 $m

	Fair value	Unrealised loss	Fair value	Unrealised loss

Between 90% and 100%	4,902	(128)	3,083	(25)
Between 80% and 90%	13	(2)	11	(2)
Below 80%	52	(14)	–	–

Total	4,967	(144)	3,094	(27)

(ii): Unrealised losses by maturity of security


	31 Dec 2020 $m	31 Dec 2019 $m

1 year to 5 years	(12)	(1)
5 years to 10 years	(15)	(12)
More than 10 years	(115)	(7)
Mortgage-backed and other debt securities	(2)	(7)

Total	(144)	(27)

Table of Contents

(iii): Age analysis of unrealised losses for the years indicated

The following table shows the age analysis of all the unrealised losses in the portfolio by reference to the length of time the securities have been in an unrealised loss position:


	31 Dec 2020 $m			31 Dec 2019 $m

Age analysis	Non- investment grade	Investment grade*	Total	Non investment grade	Investment grade*	Total

Less than 6 months	(15)	(118)	(133)	(1)	(20)	(21)
6 months to 1 year	(4)	(7)	(11)	(1)	(1)	(2)
1 year to 2 years	–	–	–	–	(1)	(1)
2 years to 3 years	–	–	–	–	(1)	(1)
More than 3 years	–	–	–	–	(2)	(2)

Total	(19)	(125)	(144)	(2)	(25)	(27)

*: For Standard & Poor's, Moody's and Fitch rated debt securities, those with ratings range from AAA to BBB- are designated as investment grade. For NAIC rated debt securities, those with ratings 1 or 2 are designated as investment grade.

Further, the following table shows the age analysis of the securities at 31 December 2020 whose fair values were below 80 per cent of the book value by reference to the length of time the securities have been in an unrealised loss position (31 December 2019: nil):


	31 Dec 2020 $m

Age analysis	Fair value	Unrealised loss

Less than 3 months	–	–
3 months to 6 months	51	(14)
More than 6 months	1	–

Total below 80%	52	(14)

(d): Asset-backed securities

The Group's holdings in asset-backed securities (ABS) comprise residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralised debt obligations (CDO) funds and other asset-backed securities.

The US operations' exposure to asset-backed securities comprises:


	31 Dec 2020 $m	31 Dec 2019 $m

RMBS
Sub-prime (31 Dec 2020: 1% AAA)	29	93
Alt-A (31 Dec 2020: 30% AAA, 41% A)	12	116
Prime including agency (31 Dec 2020: 90% AAA, 1% AA, 5% A)	224	862
CMBS (31 Dec 2020: 87% AAA, 5% AA, 4% A)	1,588	3,080
CDO funds (31 Dec 2020: 78% AAA, 8% AA, 14% A), $nil exposure to sub-prime	524	696
Other ABS (31 Dec 2020: 14% AAA, 6% AA, 68% A), $27 million exposure to sub-prime	856	1,168

Total US asset-backed securities	3,233	6,015

(e): Group bank debt exposure

The Group exposures held by the shareholder-backed business and with-profits funds in bank debt securities are analysed below. The table excludes assets held to cover linked liabilities and those of the consolidated investment funds.

Table of Contents

~~C2.2 US~~Exposure to bank debt securities

31 Dec 2019 $m 31 Dec
2018 $m

Total insurance

Note Variable annuity
separate account
assets and
liabilities Fixed annuity,
GICs and
other
business Total Asset
management Eliminations Total Total

Assets
Goodwill – – – – – – –
Deferred acquisition costs and other intangible assets – 12,264 12,264 – – 12,264 11,140
Reinsurers' share of insurance contract liabilities – 8,394 8,394 – – 8,394 8,485
Other assets – 5,293 5,293 228 (89) 5,432 4,569
Investment properties – 7 7 – – 7 8
Financial investments 195,070 76,106 271,176 14 – 271,190 232,955
Cash and cash equivalents – 1,912 1,912 48 – 1,960 3,827

Total assets 195,070 103,976 299,046 290 (89) 299,247 260,984

Total equity – 8,923 8,923 6 – 8,929 7,163

Liabilities
Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4) C4.3 195,070 74,479 269,549 – – 269,549 236,380
Core structural borrowings of shareholder-financed businesses C6.1 – 250 250 – – 250 250
Operational borrowings – 1,460 1,460 41 – 1,501 418
Other liabilities – 18,864 18,864 243 (89) 19,018 16,773

Total liabilities 195,070 95,053 290,123 284 (89) 290,318 253,821

Total equity and liabilities 195,070 103,976 299,046 290 (89) 299,247 260,984


	31 Dec 2020 $m					31 Dec 2019 $m

	Senior debt	Subordinated debt

Shareholder-backed business	Total	Tier 1	Tier 2	Total	Group total	Group total

Asia	902	175	242	417	1,319	993
Eurozone	223	4	12	16	239	337
United Kingdom	360	6	79	85	445	723
United States	1,464	7	81	88	1,552	3,134
Other	189	2	41	43	232	647

Total	3,138	194	455	649	3,787	5,834

With-profits funds
Asia	402	557	437	994	1,396	1,130
Eurozone	41	21	10	31	72	131
United Kingdom	198	11	106	117	315	155
United States	1,028	14	82	96	1,124	34
Other	186	8	204	212	398	284

Total	1,855	611	839	1,450	3,305	1,734

(f): Impairment of US available-for-sale debt securities and other financial assets

In accordance with the Group's accounting policy set out in note A3.1, impairment reviews were performed for available-for-sale securities and loans and receivables.

During the year ended 31 December 2020, a charge for impairment net of recoveries of $62 million (2019: charge of $17 million; 2018: a credit of $19 million) was recognised for available-for-sale securities and loans and receivables held by Jackson.

Jackson, with the support of internal credit analysts, regularly monitors and reports on the credit quality of its holdings of debt securities.

In addition, there is a periodic review of its investments on a case-by-case basis to determine whether any decline in fair value represents an impairment. Investments in structured securities are subject to a review of their future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments (both interest and principal). Impairment charges are recorded on structured securities when the Company forecasts a contractual payment shortfall. Situations where such a shortfall would not lead to a recognition of a loss are rare. The impairment loss reflects the difference between the fair value and book value.

In 2020, the Group realised gross losses on sales of available-for-sale securities of $193 million (2019: $70 million; 2018: $55 million) with 69 per cent (2019: 51 per cent; 2018: 49 per cent) of these losses related to the disposal of fixed maturity securities of the top 10 individual issuers, which were disposed of to limit future credit loss exposure. Of the $193 million (2019: $70 million; 2018: $55 million), $148 million (2019: $28 million; 2018: $6 million) relates to losses on sales of impaired and deteriorating securities.

The effect of changes in the key assumptions that underpin the assessment of whether impairment has taken place depends on the factors described in note A3.1. A key indicator of whether such impairment may arise in future, and the potential amounts at risk, is the profile of gross unrealised losses for fixed maturity securities accounted for on an available-for-sale basis by reference to the time periods by which the securities have been held continuously in an unrealised loss position and by reference to the maturity date of the securities concerned.

For 2020, the amount of gross unrealised losses for fixed maturity securities classified as available-for-sale under IFRS in an unrealised loss position was $144 million (2019: $27 million; 2018: $1,178 million). Note B1.2 provides further details on the impairment charges and unrealised losses of Jackson's available-for-sale securities.

~~C3 Assets and liabilities~~Table of Contents

~~C3.1 Group assets~~C1.2 Additional analysis of US mortgage loans

In the US, mortgage loans of $7,833 million at 31 December 2020 (31 December 2019: $9,904 million) are all commercial mortgage loans that are secured by the following property types: industrial, multi-family residential, suburban office, retail or hotel. The average loan size is $18.5 million (31 December 2019: $19.3 million). The portfolio has a current estimated average loan to value of 54 per cent (31 December 2019: 54 per cent).

At 31 December 2020, Jackson had mortgage loans with a carrying value of $493 million (31 December 2019: nil) where the contractual terms of the agreements had been restructured to grant forbearance for a period of six to fourteen months. Under IAS 39, restructured loans are reviewed for impairment with an impairment recorded if the expected cash flows under the newly restructured terms discounted at the original yield (the pre-structured interest rate) are below the carrying value of the loan. No impairment is recorded for these loans in 2020 as the expected cash flows and ~~liabilities –~~interest rate did not materially change under the restructured terms.

C2 Fair value measurement

The Group holds financial investments in accordance with IAS 39, whereby subject to specific criteria, financial instruments are required to be accounted for under one of the following categories:

–: Financial assets and liabilities at fair value through profit or loss – this comprises assets and liabilities designated by management as fair value through profit or loss on inception and ~~derivatives that are held for trading.~~derivatives. This includes instruments that are managed and the performance evaluated on a fair value basis and includes liabilities related to net assets attributable to unit holders of consolidated investment funds and, in Asia, policyholder liabilities for investment contracts without discretionary participation features. All investments within this category are measured at fair value with all changes thereon being recognised in investment return in the income statement;
–: Financial investments on an available-for-sale basis – this comprises assets that are designated by management as available-for-sale and/or do not fall into any of the other categories. These assets are initially recognised at fair value plus attributable transaction costs. Available-for-sale assets are subsequently measured at fair value. Interest income is recognised on an effective interest basis in the income statement. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. Except for foreign exchange gains and losses on the amortised cost of the debt securities, which are included in the income statement, unrealised gains and losses are recognised in other comprehensive income. Upon disposal or impairment, accumulated unrealised gains and losses are transferred from other comprehensive income to the income statement as realised gains or losses; and
–: Loans and receivables – except for those designated as fair value through profit or loss or available-for-sale, these instruments comprise non-quoted investments that have fixed or determinable payments. These instruments include loans collateralised by mortgages, deposits, loans to policyholders

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and other unsecured loans and receivables. These investments are initially recognised at fair value plus transaction costs. Subsequently, these instruments are carried at amortised cost using the effective interest method.

The Group uses the trade date method to account for regular purchases and sales of financial assets.

~~(a)~~: ~~Fair value measurement hierarchy~~C2.1 Determination of ~~Group assets and liabilities~~

~~Assets and liabilities carried at~~ fair value ~~on the statement of financial position~~

The ~~table below shows~~fair values of the ~~assets~~financial instruments for which fair valuation is required under IFRS Standards are determined by the use of current market bid prices for exchange-quoted investments, or by using quotations from independent third parties, such as brokers and ~~liabilities carried at~~pricing services or by using appropriate valuation techniques.

The estimated fair value ~~analysed by level~~ of ~~the IFRS 13 'Fair Value Measurement' defined fair value hierarchy. This hierarchy is based on the inputs to the fair value measurement and~~derivative financial instruments reflects the ~~lowest level input that~~estimated amount the Group would receive or pay in an arm's-length transaction. This amount is ~~significant to that measurement.~~determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices.

~~All assets and liabilities held~~Other than the loans which have been designated at ~~fair value are classified as~~ fair value through profit or loss, ~~except~~the carrying value of loans and receivables is presented net of provisions for ~~$58,302 million (31 December 2018: $52,025 million) of debt securities classified as available-for-sale, principally in the US operations. All assets and liabilities held at~~impairment. The fair value ~~are measured on a recurring basis. As~~ of ~~31 December 2019,~~loans is estimated from discounted cash flows expected to be received. The discount rate used is updated for the ~~Group did not have any financial instruments that are measured at~~market rate of interest where applicable.

The fair value ~~on a non-recurring basis.~~of the subordinated and senior debt issued by the Parent Company is determined using quoted prices from independent third parties.

Table of Contents
~~Financial instruments at fair value~~

31 Dec 2019 $m

Level 1 Level 2 Level 3

Quoted prices
(unadjusted)
in active
markets
Valuation based
on significant
observable
market inputs
Valuation based
on significant
unobservable
market inputs
Total

Analysis of financial investments, net of derivative liabilities by business type from continuing operations
With-profits
Equity securities and holdings in collective investment schemes 25,850 3,268 254 29,372
Debt securities 40,291 4,485 6 44,782
Other investments (including derivative assets) 57 103 – 160
Derivative liabilities (137) (94) – (231)

Total financial investments, net of derivative liabilities 66,061 7,762 260 74,083
Percentage of total (%) 90% 10% 0% 100%

Unit-linked and variable annuity separate account
Equity securities and holdings in collective investment schemes 213,797 365 – 214,162
Debt securities 4,036 1,117 – 5,153
Other investments (including derivative assets) 6 4 – 10
Derivative liabilities (1) – – (1)

Total financial investments, net of derivative liabilities 217,838 1,486 – 219,324
Percentage of total (%) 99% 1% 0% 100%

Non-linked shareholder-backed
Loans – – 3,587 3,587
Equity securities and holdings in collective investment schemes 3,638 87 22 3,747
Debt securities 23,600 61,035 – 84,635
Other investments (including derivative assets) 7 1,569 1,301 2,877
Derivative liabilities (47) (113) – (160)

Total financial investments, net of derivative liabilities 27,198 62,578 4,910 94,686
Percentage of total (%) 29% 66% 5% 100%

Group total analysis, including other financial liabilities held at fair value from continuing operations
Loans – – 3,587 3,587
Equity securities and holdings in collective investment schemes 243,285 3,720 276 247,281
Debt securities 67,927 66,637 6 134,570
Other investments (including derivative assets) 70 1,676 1,301 3,047
Derivative liabilities (185) (207) – (392)

Total financial investments, net of derivative liabilities 311,097 71,826 5,170 388,093
Investment contract liabilities without discretionary participation features held at fair value – (1,011) – (1,011)
Net asset value attributable to unit holders of consolidated investment funds (5,973) (23) (2) (5,998)
Other financial liabilities held at fair value – – (3,760) (3,760)

Total financial instruments at fair value 305,124 70,792 1,408 377,324
Percentage of total (%) 81% 19% 0% 100%

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31 Dec 2018 $m

Level 1 Level 2 Level 3

Quoted prices
(unadjusted)
in active
markets
Valuation based
on significant
observable
market inputs
Valuation based
on significant
unobservable
market inputs
Total

Analysis of financial investments, net of derivative liabilities by business type
With-profits
Loans – – 2,168 2,168
Equity securities and holdings in collective investment schemes 66,636 6,937 621 74,194
Debt securities 39,750 62,382 1,033 103,165
Other investments (including derivative assets) 183 4,156 5,508 9,847
Derivative liabilities (108) (1,568) – (1,676)

Total financial investments, net of derivative liabilities 106,461 71,907 9,330 187,698
Percentage of total (%) 57% 38% 5% 100%

Unit-linked and variable annuity separate account
Equity securities and holdings in collective investment schemes 194,845 643 11 195,499
Debt securities 6,070 12,388 – 18,458
Other investments (including derivative assets) 8 4 8 20
Derivative liabilities (3) (4) – (7)

Total financial investments, net of derivative liabilities 200,920 13,031 19 213,970
Percentage of total (%) 94% 6% 0% 100%

Non-linked shareholder-backed
Loans – – 3,886 3,886
Equity securities and holdings in collective investment schemes 3,764 3 24 3,791
Debt securities 22,525 78,713 472 101,710
Other investments (including derivative assets) 77 1,602 1,198 2,877
Derivative liabilities (2) (2,241) (539) (2,782)

Total financial investments, net of derivative liabilities 26,364 78,077 5,041 109,482
Percentage of total (%) 24% 71% 5% 100%

Group total analysis, including other financial liabilities held at fair value
Loans – – 6,054 6,054
Equity securities and holdings in collective investment schemes 265,245 7,583 656 273,484
Debt securities 68,345 153,483 1,505 223,333
Other investments (including derivative assets) 268 5,762 6,714 12,744
Derivative liabilities (113) (3,813) (539) (4,465)

Total financial investments, net of derivative liabilities 333,745 163,015 14,390 511,150
Investment contract liabilities without discretionary participation features held at fair value – (20,446) – (20,446)
Borrowings attributable to with-profits businesses – – (2,045) (2,045)
Net asset value attributable to unit holders of consolidated investment funds (8,727) (4,854) (1,258) (14,839)
Other financial liabilities held at fair value – (3) (4,335) (4,338)

Total financial instruments at fair value 325,018 137,712 6,752 469,482
Percentage of total (%) 70% 29% 1% 100%

Analysed as:
Total from continuing operations
With-profits
49,914 5,003 203 55,120
Unit-linked and variable annuity separate account
182,833 (82) – 182,751
Non-linked shareholder-backed
21,077 55,972 339 77,388

253,824 60,893 542 315,259
Percentage of total continuing operations (%) 81% 19% 0% 100%
Total from discontinued UK and Europe operations 71,194 76,819 6,210 154,223
Percentage of total discontinued operations (%) 46% 50% 4% 100%

~~Assets and liabilities at amortised cost and their fair value~~
The table below shows the financial assets and liabilities carried at amortised cost on the statement of financial position and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and

~~Table of Contents~~
~~other liabilities are excluded from the analysis below, as these are carried at amortised cost, which approximates fair value.~~

31 Dec 2019 $m 31 Dec 2018 $m

Level 2 Level 3

Level 2 Level 3

Valuation
based on
significant
observable
market
inputs
Valuation
based on
significant
unobservable
market
inputs
Fair
value
Carrying
value
Valuation
based on
significant
observable
market
inputs
Valuation
based on
significant
unobservable
market
inputs
Fair
value
Carrying
value

Assets
Loans 1,865 11,646 13,511 12,996 3,691 13,714 17,405 16,884
Liabilities
Investment contract liabilities without discretionary participation features – (3,957) (3,957) (3,891) – (4,021) (4,021) (4,035)
Core structural borrowings of shareholder-financed businesses (6,227) – (6,227) (5,594) (9,994) – (9,994) (9,761)
Operational borrowings (excluding lease liabilities) (2,015) – (2,015) (2,015) (3,857) (92) (3,949) (4,244)
Obligations under funding, securities lending and sale and repurchase agreements (48) (9,087) (9,135) (8,901) (1,602) (7,323) (8,925) (8,901)

Total financial instruments carried at amortised cost (6,425) (1,398) (7,823) (7,405) (11,762) 2,278 (9,484) (10,057)

Analysed as:
Total from continuing operations (10,240) (9,996)
Total from discontinued UK and Europe operations 756 (61)

(9,484) (10,057)

The fair value of ~~the assets and~~financial liabilities ~~in the table above, with the exception of the~~(other than subordinated ~~and~~debt, senior debt ~~issued by the parent company, has been estimated from the~~and derivative financial instruments) is determined using discounted cash flows of the amounts expected to be ~~received or~~ paid. Where appropriate, the 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. The fair value included for the subordinated and senior debt issued by the parent company is determined using quoted prices from independent third parties. These are presented as level 2 liabilities.
~~(b)~~
Valuation approach for level 2 fair valued 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 a designated independent pricing service or quote from third-party brokers. These valuations are subject to a number of monitoring controls, such as comparison to multiple pricing sources where available, monthly price variances, stale price reviews and variance analysis on prices achieved on subsequent trades.
When prices are not available from pricing services, quotes are sourced directly from brokers. Prudential 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

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value (eg 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 as described below in this note 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. Prudential determines the input assumptions 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 $66,637 million at 31 December 2019 (31 December 2018: $63,247 million from continuing operations), $8,915 million are valued internally (31 December 2018: $7,462 million from continuing operations). The majority of such securities are 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 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 interpretation.
~~(c)~~
~~Fair value measurements for level 3 fair valued assets and liabilities~~
~~Reconciliation of movements in level 3 assets and liabilities measured at fair value~~
~~The following table reconciles the value of level 3 fair valued assets and liabilities at 1 January 2019 to that presented at 31 December 2019.~~
Total investment return recorded in the income statement represents interest and dividend income, realised gains and losses, unrealised gains and losses on the assets classified at fair value through profit and loss and foreign exchange movements on an individual entity's overseas investments.
Total gains and losses recorded in other comprehensive income includes unrealised gains and losses on debt securities held as available-for-sale principally within Jackson and foreign exchange movements arising from the retranslation of the Group's overseas subsidiaries and branches.

2019 $m
Reconciliation of movements
in level 3 assets and liabilities
measured at fair value
Loans
Equity
securities
and
holdings in
collective
investment
schemes
Debt
securities
Other
investments
(including
derivative
assets)
Derivative
liabilities
Borrowings
attributable
to with-
profits
businesses
Net asset
value
attributable
to unit
holders of
consolidated
investment
funds
Other
financial
liabilities
Total

Balance at 1 January 6,054 656 1,505 6,714 (539) (2,045) (1,258) (4,335) 6,752
Demerger of UK and Europe operations (2,509) (440) (1,498) (5,513) – 2,045 1,258 451 (6,206)
Total gains (losses) in income statement* 1 (11) 6 30 539 – – (28) 537
Total gains (losses) recorded in other comprehensive income – 3 – (6) – – – (11) (14)
Purchases – 69 – 269 – – (2) – 336
Sales – (1) (7) (193) – – – – (201)
Issues 275 – – – – – – (143) 132
Settlements (234) – – – – – – 306 72

Balance at 31 December 3,587 276 6 1,301 – – (2) (3,760) 1,408

~~Table of Contents~~

2018 $m
Reconciliation of movements in
level 3 assets and liabilities
measured at fair value
Loans
Equity
securities
and
holdings in
collective
investment
schemes
Debt
securities
Other
investments
(including
derivative
assets)
Derivative
liabilities
Borrowings
attributable
to
with-profits
businesses
Net asset
value
attributable
to unit
holders of
consolidated
investment
funds
Other
financial
liabilities
Total

Balance at 1 January 6,543 502 885 5,985 (693) (2,553) (559) (4,100) 6,010
Total gains (losses) in income statement* (104) 51 (9) 540 36 (31) 89 7 579
Total gains (losses) recorded in other comprehensive income (162) (28) (85) (331) 34 133 111 36 (292)
Purchases 83 167 889 1,605 – – – – 2,744
Sales (238) (47) (175) (1,085) – – – – (1,545)
Issues 373 – – – – – (931) (642) (1,200)
Settlements (441) – – – – 406 76 364 405
Transfers into level 3 – 11 – – – – – – 11
Transfers out of level 3 – – – – 84 – (44) – 40

Balance at 31 December 6,054 656 1,505 6,714 (539) (2,045) (1,258) (4,335) 6,752

*
Of the total net gains and (losses) in the income statement of $537 million for continuing operations in 2019, $19 million relates to net unrealised gains and losses of financial instruments still held at the end of the year (2018: $111 million of the $579 million shown above was for continuing operations, of which $153 million related to financial instruments still held at the end of the year), which can be analysed as follows:

2019 $m
2018 $m

Equity securities and holdings in collective investment schemes (11) (10)
Debt securities – 3
Other investments 34 133
Derivative liabilities – 36
Net asset value attributable to unit holders of consolidated investment funds – (9)
Other financial liabilities (4) –

Total 19 153

Valuation approach for level 3 fair valued assets and liabilities
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, eg market illiquidity. The valuation techniques used include comparison to recent ~~arm's length~~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.
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 functions. 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.
C2.2 Fair value measurement hierarchy of Group assets and liabilities
(i) Assets and liabilities carried at fair value on the statement of financial position
The table below shows the assets and liabilities carried at fair value analysed by level of the IFRS 13 'Fair Value Measurement' defined fair value hierarchy. This hierarchy is based on the inputs to the fair value measurement and reflects the lowest level input that is significant to that measurement.
All assets and liabilities held at fair value are classified as fair value through profit or loss, except for $34,650 million (31 December 2019: $58,302 million) of debt securities classified as available-for-sale, principally in the US operations. All assets and liabilities held at fair value are measured on a recurring basis. As of 31 December 2020, the Group did not have any financial instruments that are measured at fair value on a non-recurring basis.

Table of Contents
Financial instruments at fair value

31 Dec 2020 $m

Level 1 Level 2 Level 3

Quoted prices
(unadjusted)
in active
markets

Valuation based
on significant
observable
market inputs
note (i)
Valuation based
on significant
unobservable
market inputs
note (ii)
Total

Loans – 416 3,461 3,877
Equity securities and holdings in collective investment schemes 272,863 5,224 548 278,635
Debt securities 75,998 49,769 62 125,829
Other investments (including derivative assets) 123 2,477 1,866 4,466
Derivative liabilities (298) (184) – (482)

Total financial investments, net of derivative liabilities 348,686 57,702 5,937 412,325
Investment contract liabilities without discretionary participation features held at fair value – (792) – (792)
Net asset value attributable to unit holders of consolidated investment funds (5,464) (17) (494) (5,975)
Other financial liabilities held at fair value – – (3,589) (3,589)

Total financial instruments at fair value 343,222 56,893 1,854 401,969
Percentage of total (%) 86% 14% 0% 100%

Analysed by business type:

Financial investments, net of derivative liabilities at fair value:
With-profits
78,203 11,481 395 90,079
Unit-linked and variable annuity separate account
244,206 1,075 – 245,281
Non-linked shareholder-backed business
26,277 45,146 5,542 76,965

Total financial investments, net of derivative liabilities at fair value 348,686 57,702 5,937 412,325
Other financial liabilities at fair value (5,464) (809) (4,083) (10,356)

Group total financial instruments at fair value 343,222 56,893 1,854 401,969

31 Dec 2019 $m

Level 1 Level 2 Level 3

Quoted prices
(unadjusted)
in active
markets

Valuation based
on significant
observable
market inputs
note (i)
Valuation based
on significant
unobservable
market inputs
note (ii)
Total

Loans – – 3,587 3,587
Equity securities and holdings in collective investment schemes 243,285 3,720 276 247,281
Debt securities 67,927 66,637 6 134,570
Other investments (including derivative assets) 70 1,676 1,301 3,047
Derivative liabilities (185) (207) – (392)

Total financial investments, net of derivative liabilities 311,097 71,826 5,170 388,093
Investment contract liabilities without discretionary participation features held at fair value – (1,011) – (1,011)
Net asset value attributable to unit holders of consolidated investment funds (5,973) (23) (2) (5,998)
Other financial liabilities held at fair value – – (3,760) (3,760)

Total financial instruments at fair value 305,124 70,792 1,408 377,324
Percentage of total (%) 81% 19% 0% 100%

Analysed by business type:

Financial investments, net of derivative liabilities at fair value:
With-profits
66,061 7,762 260 74,083
Unit-linked and variable annuity separate account
217,838 1,486 – 219,324
Non-linked shareholder-backed business
27,198 62,578 4,910 94,686

Total financial investments, net of derivative liabilities at fair value 311,097 71,826 5,170 388,093
Other financial liabilities at fair value (5,973) (1,034) (3,762) (10,769)

Group total financial instruments at fair value 305,124 70,792 1,408 377,324

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Notes
(i)
Of the total level 2 debt securities of $49,769 million at 31 December 2020 (31 December 2019: $66,637 million), $7,676 million (31 December 2019: $8,915 million) are valued internally. The majority of such securities are 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 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 interpretation.
(ii)
At 31 December ~~2019,~~2020, the Group held $1,854 million (31 December 2019: $1,408 ~~million~~million) of net financial instruments at fair value within level 3. This represents less than ~~one~~1 per cent (2019: less than 1 per cent) of the total fair valued financial assets net of financial liabilities.

~~Included~~Inclued within these net assets and liabilities are policy loans of $3,455 million (31 December 2019: $3,587 ~~million at 31 December 2019~~million) measured as the loan outstanding balance, plus accrued investment income, attached to acquired REALIC business and held to back the liabilities for funds withheld under reinsurance arrangements. The funds withheld liability of $3,609 million (31 December 2019: $3,760 ~~million at 31 December 2019~~million) is also classified within level 3. The fair value of the liabilities is equal to the fair value of the underlying assets held as collateral, which primarily consist of policy loans and debt securities. The assets and liabilities ~~broadly~~ offset and therefore their movements have ~~minimal~~no impact on shareholders' profit and equity.
Excluding the loans and funds withheld liability under ~~REALIC's~~Jackson's REALIC reinsurance arrangements as described above, which amounted to a net liability of ~~$173~~$(154) million (31 December 2019: $(173) million), the level 3 fair valued financial assets net of financial liabilities were a net asset of $2,008 million (31 December 2019: $1,581 million). Of this amount, equity securities of $3 million ~~which~~(31 December 2019: nil) are ~~all externally~~internally valued, ~~and comprise~~representing less than 0.2 per cent of the ~~following:~~total fair valued financial assets net of financial liabilities. Internal valuations are inherently more subjective than external valuations. The $2,008 million referred to above includes the following items:
–
~~Other~~Private equity investments in both equity securities and limited partnerships within other financial investments of $1,970 million (31 December 2019: $1,301 ~~million~~million) consisting ~~primarily~~ of ~~private equity limited partnerships~~investments held by Jackson which are primarily externally valued in accordance with International Private Equity and Venture Capital Association guidelines using ~~management information available for these investments;~~

~~Table~~the proportion of ~~Contents~~
the company's investment in each fund as shown in external valuation reports;

–
Equity securities and holdings in collective investment schemes of $445 million (31 December 2019: $276 ~~million~~million) consisting primarily of property and infrastructure funds held by the Asia participating funds, which are externally valued using the net asset value of the invested entities; ~~and~~

–
Liabilities of $(494) million (31 December 2019: $(2) million) for the net asset value attributable to external unit holders in respect of consolidated investment funds, which are non-recourse to the Group. These liabilities are valued by reference to the underlying assets; and

–
Other sundry individual financial instruments of a net asset of $87 million (31 December 2019: net asset of $4 ~~million.~~

million).

Of the net ~~asset~~assets of $2,008 million (31 December 2019: $1,581 ~~million~~million) referred to above:
–
A net asset of $395 million (31 December 2019: $258 ~~million~~million) is held by the Group's Asia participating funds and therefore shareholders' profit and equity are not impacted by movements in the valuation of these financial instruments; and

–
A net asset of $1,613 million (31 December 2019: $1,323 ~~million~~million) is held to support non-linked shareholder-backed ~~business. All~~business, all of ~~these instruments~~which are externally valued and are therefore inherently less subjective than internal valuations. These instruments consist primarily of private equity ~~limited partnerships~~investments held by Jackson as described above. If the value of all these ~~Level~~level 3 financial instruments decreased by 1020 per cent, the change in valuation would be ~~$132~~$(319) million (31 December 2019: $(264) million), which would reduce shareholders' equity by this amount before tax. All of this amount would pass through the income statement substantially as part of short-term fluctuations in investment returns outside of adjusted ~~IFRS~~ operating ~~profit based on longer-term investment returns.~~

profit.
~~(d)~~
(ii) Transfers into and ~~transfers~~ out of levels
The Group's policy is to recognise transfers into and ~~transfers~~ out of levels as of 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.
During ~~2019,~~2020, the transfers between levels within the Group's portfolio, ~~excluding those held by the discontinued UK and Europe operations,~~ were primarily transfers from level 1 to level 2 of $3,927 million (2019: $678 ~~million~~million) and transfers from level 2 to level 1 of $1,631 million (2019: $1,121 ~~million.~~million). These transfers which relate to equity securities and debt securities arose to reflect the change in the observed valuation inputs and in certain cases, the change in the level of trading activities of the securities. There were no transfers ~~excluding those related to~~into level 3 of $53 million in the ~~discontinued UK~~year (2019: nil).
Reconciliation of movements in level 3 assets and ~~Europe operations, into and out~~liabilities measured at fair value
The following table reconciles the value of level 3 fair valued assets and liabilities at 1 January 2020 to that presented at 31 December 2020.
Total investment return recorded in the ~~year.~~
~~C3.2 Debt securities~~
~~This note provides analysis of~~income statement represents interest and dividend income, realised gains and losses, unrealised gains and losses on the ~~Group's debt securities, including asset-backed securities and sovereign debt securities.~~
~~With the exception of certain debt securities~~assets classified ~~as 'available-for-sale' under IAS 39 as disclosed in notes C3.2(b) below, which primarily relate to US insurance operations, the Group's debt securities are carried~~ at fair value through profit ~~or loss.~~
~~(a)~~
~~Credit rating~~
Debt securities are analysed below according to external credit ratings issued, with equivalent ratings issued by different ratings agencies grouped together. Standard & Poor's ratings have been used where available, if this isn't the case Moody's and then Fitch have been used as alternatives. For the US, NAIC ratings have also been used where relevant (as shown in 'Other' in the tables below). In the table below, 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-.loss and foreign exchange movements on an individual entity's overseas investments.

31 Dec 2019 $m

AAA
AA+ to AA-
A+ to A-
BBB+
to BBB-
Below BBB-
Other
(including
NAIC rated)
Total

Asia:
With-profits
5,205 21,911 5,863 5,874 2,382 3,547 44,782
Unit-linked
770 135 674 2,074 522 978 5,153
Non-linked shareholder-backed
1,611 6,050 6,293 4,639 3,749 2,304 24,646
Asset management
14 – 112 – – 3 129
US:
Non-linked shareholder-backed
1,154 10,300 15,229 18,489 1,995 11,361 58,528
Other operations – 1,211 – – 55 66 1,332

Total debt securities 8,754 39,607 28,171 31,076 8,703 18,259 134,570

Table of Contents

Total gains and losses recorded in other comprehensive income includes unrealised gains and losses on debt securities held as available-for-sale principally within Jackson and foreign exchange movements arising from the retranslation of the Group's overseas subsidiaries and branches.

31 Dec 2018 $m

AAA
AA+ to AA-
A+ to A-
BBB+
to BBB-
Below BBB-
Other
(including
NAIC rated)
Total

Asia:
With-profits
3,659 15,766 5,275 4,788 2,225 2,934 34,647
Unit-linked
1,040 127 627 1,822 542 912 5,070
Non-linked shareholder-backed
1,317 4,524 4,734 3,738 2,805 1,455 18,573
Asset management
14 – 76 – – – 90
US:
Non-linked shareholder-backed
864 9,403 13,100 18,667 1,820 9,120 52,974
Other operations 788 1,387 193 52 62 24 2,506

Total continuing operations 7,682 31,207 24,005 29,067 7,454 14,445 113,860

Total discontinued UK and Europe operations 13,931 23,185 23,746 25,126 4,387 19,098 109,473

Total debt securities 21,613 54,392 47,751 54,193 11,841 33,543 223,333

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 prohibited except with the prior written permission of the relevant party. The Content Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation 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.
~~Credit ratings for securities classified as 'Other'~~
~~Securities for continuing operations with credit ratings classified as 'Other' can be further analysed as follows for Asia and US non-linked shareholder-backed.~~

Asia

31 Dec 2019 $m
31 Dec 2018 $m

Government bonds* 323 46
Corporate bonds rated by local external rating agencies

AAA
184 239
AA+ to AA-
958 702
A+ to A-
345 241
BBB+ to BBB-
91 39
Below BBB- and unrated
32 25

1,610 1,246
Other (asset-backed securities)† 371 163

Total Asia 2,304 1,455

*
~~99.7 per cent are investment grade (2018: 92 per cent).~~
†
~~Primarily unrated.~~

2020 $m
Reconciliation of movements in level 3 assets and
liabilities measured at fair value
Loans
Equity
securities
and
holdings in
collective
investment
schemes
Debt
securities
Other
investments
(including
derivative
assets)
Net asset
value
attributable
to unit
holders of
consolidated
investment
funds
Other
financial
liabilities
Total

Balance at 1 Jan 3,587 276 6 1,301 (2) (3,760) 1,408
Total gains (losses) in income statementnote (2) 4 (5) (37) 15 (1) (26)
Total gains (losses) recorded in other comprehensive income – 9 – – (1) (1) 7
Purchases and other additions – 428 10 700 (520) – 618
Sales – (169) (2) (98) 14 – (255)
Issues 277 – – – – (475) (198)
Settlements (401) – – – – 648 247
Transfers into level 3 – – 53 – – – 53

Balance at 31 Dec 3,461 548 62 1,866 (494) (3,589) 1,854

31 Dec 2019 $m 31 Dec 2018 $m

US Mortgage-
backed
securities Other
securities Total Total

Implicit ratings based on NAIC valuations*
NAIC 1
3,367 4,430 7,797 6,376
NAIC 2
1 3,470 3,471 2,697
NAIC 3-6
2 91 93 47

Total US† 3,370 7,991 11,361 9,120

2019 $m
Reconciliation of movements in level 3 assets and
liabilities measured at fair value
Loans
Equity
securities
and
holdings in
collective
investment
schemes
Debt
securities
Other
investments
(including
derivative
assets)
Derivative
liabilities
Borrowings
attributable
to with-
profits
businesses
Net asset
value
attributable
to unit
holders of
consolidated
investment
funds
Other
financial
liabilities
Total

Balance at 1 Jan 6,054 656 1,505 6,714 (539) (2,045) (1,258) (4,335) 6,752
Removal of discontinued UK and Europe operations (2,509) (440) (1,498) (5,513) – 2,045 1,258 451 (6,206)
Total gains (losses) in income statementnote 1 (11) 6 30 539 – – (28) 537
Total gains (losses) recorded in other comprehensive income – 3 – (6) – – – (11) (14)
Purchases – 69 – 269 – – (2) – 336
Sales – (1) (7) (193) – – – – (201)
Issues 275 – – – – – – (143) 132
Settlements (234) – – – – – – 306 72

Balance at 31 Dec 3,587 276 6 1,301 – – (2) (3,760) 1,408

*
~~The Securities Valuation Office~~
Note
Of the total net gains and (losses) in the income statement of $(26) million in 2020 (2019: $537 million), $(46) million (2019: $19 million) relates to net unrealised gains and losses of financial instruments still held at the end of the ~~NAIC classifies debt securities into six quality categories ranging from Class 1 (the highest) to Class 6 (the lowest). Performing securities are designated~~year, which can be analysed as ~~Classes 1 to 5 and securities in or near default are designated Class 6.~~
†
Mortgage-backed securities totalling $3,180 million at 31 December 2019 have credit ratings issued by Standard & Poor's of BBB- or above and hence are designated as investment grade. Other securities totalling $7,900 million at 31 December 2019 with NAIC ratings 1 or 2 are also designated as investment grade.
follows:

2020 $m

2019 $m

Equity securities and holdings in collective investment schemes (34) (11)
Debt securities 1 –
Other investments (26) 34
Net asset value attributable to unit holders of consolidated investment funds 13 –
Other financial liabilities – (4)

Total (46) 19

Table of Contents
~~(b)~~(iii)
~~Additional analysis of US insurance operations debt securities~~Assets and liabilities at amortised cost and their fair value

31 Dec 2019 $m
31 Dec 2018 $m

Corporate and government security and commercial loans:
Government
7,890 6,960
Publicly traded and SEC Rule 144A securities*
34,781 33,363
Non-SEC Rule 144A securities
9,842 8,061
Asset-backed securities (see note (c)) 6,015 4,590

Total US debt securities† 58,528 52,974

*
~~A 1990 SEC rule that facilitates~~
The table below shows the ~~resale of privately placed securities under Rule 144A that are without SEC registration to qualified institutional investors. The rule was designed to develop a more liquid~~financial assets and ~~efficient institutional resale market for unregistered securities.~~
†
~~Debt securities for US operations included in~~liabilities carried at amortised cost on the statement of financial position ~~comprise:~~

and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities are excluded from the analysis below, as these are carried at amortised cost which approximates fair value.

31 Dec 2020 $m 31 Dec 2019 $m
Level 2 Level 3

Level 2 Level 3

31 Dec 2019 $m
31 Dec 2018 $m
Valuation
based on
significant
observable
market
inputs
Valuation
based on
significant
unobservable
market
inputs
Fair
value
Carrying
value
Valuation
based on
significant
observable
market
inputs
Valuation
based on
significant
unobservable
market
inputs
Fair
value
Carrying
value

Available-for-sale 57,091 52,025
Fair value through profit and loss 1,437 949
Assets
Loans 2,027 9,303 11,330 10,711 1,865 11,646 13,511 12,996
Liabilities – – – –
Investment contract liabilities without discretionary participation features – (3,218) (3,218) (3,188) – (3,957) (3,957) (3,891)
Core structural borrowings of shareholder-financed businesses (7,518) – (7,518) (6,633) (6,227) – (6,227) (5,594)
Operational borrowings (excluding lease liabilities) (1,948) – (1,948) (1,948) (2,015) – (2,015) (2,015)
Obligations under funding, securities lending and sale and repurchase agreements (1,344) (8,702) (10,046) (9,768) (48) (9,087) (9,135) (8,901)
��
58,528 52,974
Total (8,783) (2,617) (11,400) (10,826) (6,425) (1,398) (7,823) (7,405)

~~Movements in unrealised gains and losses on Jackson available-for-sale securities~~
The movement in the statement of financial position value for debt securities classified as available-for-sale from a net unrealised loss of $527 million to a net unrealised gain of $3,496 million as analysed in the table below.

31 Dec 2019 Changes in unrealised
appreciation reflected
in other
comprehensive
income 31 Dec 2018

$m $m $m

Assets fair valued at below book value
Book value*
3,121 32,260
Unrealised gain (loss)
(27) 1,151 (1,178)

Fair value (as included in statement of financial position)
3,094 31,082

Assets fair valued at or above book value
Book value*
50,474 20,292
Unrealised gain (loss)
3,523 2,872 651

Fair value (as included in statement of financial position)
53,997 20,943

Total
Book value*
53,595 52,552
Net unrealised gain (loss)
3,496 4,023 (527)

Fair value (as included in the footnote above in the overview table and the statement of financial position)
57,091 52,025

*
~~Book value represents cost or amortised cost of the debt securities.~~
~~Jackson debt securities classified as available-for-sale in an unrealised loss position~~
~~(i)    Fair value of securities as a percentage of book value~~
~~The following table shows the~~ fair value of the assets and liabilities in the table above, with the exception of the subordinated and senior debt ~~securities in a gross unrealised loss position~~issued by the Parent Company, has been estimated from the discounted cash flows expected to be received or paid. Where appropriate, the 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. The fair value included for ~~various percentages of book value:~~the subordinated and senior debt issued by the Parent Company is determined using quoted prices from independent third parties. These are presented as level 2 liabilities.

31 Dec 2019 $m 31 Dec 2018 $m

Fair
value
Unrealised
loss
Fair
value
Unrealised
loss

Between 90% and 100% 3,083 (25) 30,136 (1,030)
Between 80% and 90% 11 (2) 900 (132)
Below 80% – – 46 (16)

Total 3,094 (27) 31,082 (1,178)

Table of Contents
~~(ii)    Unrealised losses by maturity of security~~

31 Dec 2019 $m
31 Dec 2018 $m

1 year to 5 years (1) (92)
5 years to 10 years (12) (555)
More than 10 years (7) (474)
Mortgage-backed and other debt securities (7) (57)

Total (27) (1,178)

~~(iii)   Age analysis of unrealised losses for the periods indicated~~
~~The following table shows the age analysis of all the unrealised losses in the portfolio by reference to the length of time the securities have been in an unrealised loss position:~~

31 Dec 2019 $m 31 Dec 2018 $m
Age analysis
Non-
investment
grade
Investment
grade*
Total
Non-
investment
grade
Investment
grade*
Total

Less than 6 months (1) (20) (21) (26) (179) (205)
6 months to 1 year (1) (1) (2) (28) (560) (588)
1 year to 2 years – (1) (1) (13) (181) (194)
2 years to 3 years – (1) (1) – (157) (157)
More than 3 years – (2) (2) (2) (32) (34)

Total (2) (25) (27) (69) (1,109) (1,178)

*
For Standard and Poor's, Moody's and Fitch rated debt securities, those with ratings range from AAA to BBB- are designated as investment grade. For NAIC rated debt securities, those with ratings 1 or 2 are designated as investment grade.
~~Further, the following table shows the age analysis of the securities whose fair values were below 80 per cent of the book value:~~

31 Dec 2019 $m 31 Dec 2018 $m
Age analysis
Fair
value
Unrealised
loss
Fair
value
Unrealised
loss

Less than 3 months – – 41 (13)
3 months to 6 months – – 2 (1)
More than 6 months – – 3 (2)

Total below 80% – – 46 (16)

~~(c)~~
~~Asset-backed securities~~
The Group's holdings in asset-backed securities (ABS), which comprise residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralised debt obligations (CDO) funds and other asset-backed securities, as at 31 December 2019 are as follows:

31 Dec 2019 $m
31 Dec 2018 $m

Asia operations:note (i)
Shareholder-backed business
189 154
With-profits business
369 299
US operationsnote (ii) 6,015 4,590
Other operations – 566

Total for continuing operations 6,573 5,609
Total for discontinued UK and Europe operations – 8,503

Group total 6,573 14,112

~~Notes~~
~~(i)~~
Of the Asia operations' exposure to asset-backed securities for the shareholder-backed business and with-profits business at 31 December 2019, 100 per cent (31 December 2018: 99.8 per cent) are investment grade.

~~Table of Contents~~
~~(ii)~~
~~US operations' exposure to asset-backed securities comprises:~~

31 Dec 2019 $m
31 Dec 2018 $m

RMBS

Sub-prime (31 Dec 2019: 2% AAA, 3% AA, 3% A)
93 122

Alt-A (31 Dec 2019: 51% A)
116 134

Prime including agency (2019: 23% AAA, 61% AA, 10% A)
862 562
CMBS (31 Dec 2019: 76% AAA, 16% AA, 4% A) 3,080 2,477
CDO funds (31 Dec 2019: 46% AAA, 38% AA, 16% A), including $nil exposure to sub-prime 696 17
Other ABS (31 Dec 2019: 16% AAA, 11% AA, 54% A), including $84 million exposure to sub-prime 1,168 1,278

Total (31 Dec 2019: 50% AAA, 24% AA, 17% A) 6,015 4,590

~~(d)~~
~~Group sovereign debt and bank debt exposure~~
The Group exposures held by the shareholder-backed business and with-profits funds in sovereign debts and bank debt securities are analysed below. The tables exclude assets held to cover linked liabilities and those of the consolidated unit trusts and similar funds. In addition, the tables below exclude the proportionate share of sovereign debt holdings of the Group's joint venture operations.
~~Exposure to sovereign debts~~

31 Dec 2019 $m 31 Dec 2018 $m

Shareholder-
backed
business*
With-profits
funds
Shareholder-
backed
business
With-profits
funds

Eurozone – – 481 560
United Kingdom 615 – 4,109 3,837
United States 9,526 20,338 7,192 15,102
Indonesia 420 – 359 –
Singapore 230 3,514 209 2,112
Thailand 1,416 – 1,173 –
Vietnam 2,900 – 2,383 –
Other Asia 2,722 562 2,266 1,103
Other 143 32 159 282

Total 17,972 24,446 18,331 22,996

Analysed as:
Total from continuing operations 14,848 16,740
Total from discontinued UK and Europe operations 3,483 6,256

18,331 22,996

*
~~Includes $1.4 billion of sovereign debt held by the Group's treasury function, Africa operations and asset management operations.~~

~~Table of Contents~~
~~Exposure to bank debt securities~~

31 Dec 2019 $m 31 Dec 2018
$m

Senior debt Subordinated debt

Shareholder-backed business
Total Tier 1 Tier 2 Total Total Total
��
Eurozone
310 – 27 27 337 608
United Kingdom
568 17 138 155 723 1,714
United States
3,084 7 43 50 3,134 3,397
Asia
439 165 389 554 993 754
Other
516 – 131 131 647 821

Total
4,917 189 728 917 5,834 7,294

Analysed as:

Total from continuing operations
5,910
Total from discontinued UK and Europe operations
1,384

7,294

With-profits funds

Eurozone
29 – 102 102 131 1,243
United Kingdom
41 3 111 114 155 2,794
United States
30 1 3 4 34 3,477
Asia
307 479 344 823 1,130 1,293
Other
73 – 211 211 284 2,305

Total
480 483 771 1,254 1,734 11,112

Analysed as:

Total from continuing operations
1,639
Total from discontinued UK and Europe operations
9,473

11,112

~~(e)~~
~~Impairment of US available-for-sale debt securities and other financial assets~~
~~In accordance with the Group's accounting policy set out in note A3.1, impairment reviews were performed for available-for-sale securities and loans and receivables.~~
During the year ended 31 December 2019, a charge for recoveries net of impairment of $17 million (2018: credit of $19 million) was recognised for available-for-sale securities loans and receivables held by Jackson.
Jackson, with the support of internal credit analysts, regularly monitors and reports on the credit quality of its holdings of debt securities. In addition, there is a periodic review of its investments on a case-by-case basis to determine whether any decline in fair value represents an impairment. Investments in structured securities are subject to a review of their future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments (both interest and principal). Impairment charges are recorded on structured securities when the Company forecasts a contractual payment shortfall. Situations where such a shortfall would not lead to a recognition of a loss are rare. The impairment loss reflects the difference between the fair value and book value.
In 2019, the Group realised gross losses on sales of available-for-sale securities of $70 million (2018: $55 million) with 51 per cent (2018: 49 per cent) of these losses related to the disposal of fixed maturity securities of the top 10 individual issuers, which were disposed of to limit future credit loss exposure. Of the $70 million (2018: $55 million), $28 million (2018: $6 million) relates to losses on sales of impaired and deteriorating securities.
The effect of changes in the key assumptions that underpin the assessment of whether impairment has taken place depends on the factors described in note A3.1. A key indicator of whether such impairment may arise in future, and the potential amounts at risk, is the profile of gross unrealised losses for fixed maturity securities accounted for on an available-for-sale basis by reference to the time periods by which the securities have been held continuously in an unrealised loss position and by reference to the maturity date of the securities concerned.

~~Table of Contents~~
For 2019, the amount of gross unrealised losses for fixed maturity securities classified as available-for-sale under IFRS in an unrealised loss position was $27 million (2018: $1,178 million). Note B1.2 provides further details on the impairment charges and unrealised losses of Jackson's available-for-sale securities.
~~C3.3 Loans portfolio~~
~~(a)~~
~~Overview of loans portfolio~~
Loans are principally accounted for at amortised cost, net of impairment except for certain policy loans of the US insurance operations that are held to back liabilities for funds withheld under reinsurance arrangements and are also accounted on a fair value basis.
~~The amounts included in the statement of financial position are analysed as follows:~~

31 Dec 2019 $m 31 Dec 2018 $m

Mortgage
loans
Policy
loans
Other
loans
Total
Mortgage
loans
Policy
loans
Other
loans
Total
note (i) note (ii) note (i) note (ii)

Asia
With-profits
– 1,089 374 1,463 – 926 83 1,009
Non-linked shareholder-backed
165 316 19 500 199 288 259 746
US
Non-linked shareholder-backed
9,904 4,707 – 14,611 9,406 4,688 – 14,094
Other operations – 9 – 9 – – – –

Total continuing operations 10,069 6,121 393 16,583 9,605 5,902 342 15,849

Total discontinued UK and Europe operations 5,241 4 1,844 7,089

Total Group 14,846 5,906 2,186 22,938

~~Notes~~
~~(i)~~
~~All mortgage loans are secured by properties.~~
~~(ii)~~
In the US, $3,587 million of policy loans held at 31 December 2019 (31 December 2018: $3,544 million) are backing liabilities for funds withheld under reinsurance arrangements and are accounted for at fair value through profit or loss. All other policy loans are accounted for at amortised cost, less any impairment.
~~(b)~~
C2.3 Additional information on ~~US mortgage loans~~
In the US, mortgage loans are all commercial mortgage loans that are secured by the following property types: industrial, multi-family residential, suburban office, retail or hotel. The average loan size is $19.3 million (31 December 2018: $17.8 million). The portfolio has a current estimated average loan to value of 54 per cent (31 December 2018: 53 per cent).
~~Jackson had no mortgage loans where the contractual terms of the agreements had been restructured for both years shown.~~
~~C3.4 Financial~~financial instruments ~~— additional information~~
~~(a)~~(i) Financial risk
Liquidity analysis
Contractual maturities of financial liabilities on an undiscounted cash flow basis
The following table sets out the contractual maturities for applicable classes of financial liabilities, excluding derivative liabilities and investment contracts that are separately presented. The financial liabilities are included

~~Table of Contents~~
in the column relating to the contractual maturities of the undiscounted cash flows (including contractual interest payments) due to be paid assuming conditions are consistent with those of year end.
31 Dec 2020 $m

31 Dec 2019 $m
Contractual maturity profile for financial liabilities

Total
carrying
value
1 year
or less
After 1
year to
5 years
After 5
years to
10 years
After 10
years to
15 years
After 15
years to
20 years
Over
20 years
No stated
maturity
Total
undiscounted
cash flows
Total
carrying
value

1 year
or less

After 1
year to
5 years

After 5
years to
10 years

After 10
years to
15 years

After 15
years to
20 years

Over
20 years

No stated
maturity

Total
undiscounted
cash flows

Financial liabilities
Core structural borrowings of shareholder-financed businessesC6.1 5,594 105 1,146 888 648 – – 3,725 6,512
Core structural borrowings of shareholder-financed businessesC5.1 6,633 139 1,261 2,000 631 – – 3,725 7,756
Lease liabilities under IFRS 16 630 145 388 113 37 18 1 – 702 496 142 317 84 20 – 1 – 564
Other operational borrowings 2,015 941 188 232 1,132 2 – – 2,495 1,948 909 108 473 691 – – – 2,181
Obligations under funding, securities lending and sale and repurchase agreements 8,901 2,067 5,476 1,902 278 – – – 9,723 9,768 3,983 4,461 1,764 147 – – – 10,355
Accruals, deferred income and other liabilities 14,488 9,172 636 1 – 248 – 4,431 14,488 15,508 9,877 290 36 218 – – 5,087 15,508
Net asset value attributable to unit holders of consolidated unit trusts and similar funds 5,998 5,998 – – – – – – 5,998 5,975 5,975 – – – – – – 5,975

Total 37,626 18,428 7,834 3,136 2,095 268 1 8,156 39,918 40,328 21,025 6,437 4,357 1,707 – 1 8,812 42,339

31 Dec 2019 $m

31 Dec 2018 $m
Contractual maturity profile for financial liabilities

Total
carrying
value

1 year
or less

After 1
year to
5 years

After 5
years to
10 years

After 10
years to
15 years

After 15
years to
20 years

Over
20 years

No stated
maturity

Total
undiscounted
cash flows

Total
carrying
value

1 year
or less

After 1
year to
5 years

After 5
years to
10 years

After 10
years to
15 years

After 15
years to
20 years

Over
20 years

No stated
maturity

Total
undiscounted
cash flows

Financial liabilities
Core structural borrowings of shareholder-financed businessesC6.1 9,761 380 2,240 1,944 2,347 1,363 8,371 3,725 20,370
Core structural borrowings of shareholder-financed businessesC5.1 5,594 105 1,146 888 648 – – 3,725 6,512
Lease liabilities under IFRS 16 630 145 388 113 37 18 1 – 702
Operational borrowings 6,289 1,961 1,703 1,002 349 181 2,657 – 7,853 2,015 941 188 232 1,132 2 – – 2,495
Obligations under funding, securities lending and sale and repurchase agreements 8,901 2,450 4,908 2,131 289 – – – 9,778 8,901 2,067 5,476 1,902 278 – – – 9,723
Accruals, deferred income and other liabilities 19,421 13,811 599 90 115 138 448 4,503 19,704 14,488 9,172 636 1 – 248 – 4,431 14,488
Net asset value attributable to unit holders of consolidated unit trusts and similar funds 14,839 14,839 – – – – – – 14,839 5,998 5,998 – – – – – – 5,998

Total 59,211 33,441 9,450 5,167 3,100 1,682 11,476 8,228 72,544 37,626 18,428 7,834 3,136 2,095 268 1 8,156 39,918
Analysed as:
Continuing operations 32,839 12,284 7,479 4,167 2,636 1,363 8,412 7,983 44,324
Discontinued UK and Europe operations 26,372 21,157 1,971 1,000 464 319 3,064 245 28,220

59,211 33,441 9,450 5,167 3,100 1,682 11,476 8,228 72,544

Maturity analysis of derivatives
The following table shows the carrying value of the gross and net derivative ~~positions together with a maturity profile of the net derivative position:~~positions.

Carrying value of net derivatives $m Maturity profile of net derivative position $m Carrying value of net derivatives $m

Derivative
assets
Derivative
liabilities
Net
derivative
position
1 year
or less
After 1
year to
3 years
After 3
years to
5 years
After
5 years
Total
undiscounted
cash flows
Derivative
assets
Derivative
liabilities
Net derivative
position

2019 1,745 (392) 1,353 1,353 – – – 1,353
2018 4,450 (4,465) (15) 372 (10) (5) 38 395
31 Dec 2020
2,599 (482) 2,117
31 Dec 2019
1,745 (392) 1,353

~~The majority~~All net derivatives of ~~derivative assets and liabilities~~$2,117 million (31 December 2019: $1,353 million) have been included at fair value due within ~~the~~ one year or less, ~~column,~~ representing the basis on which they are managed (ie to manage principally asset or liability value exposures). The Group has no cash flow hedges and, in general, contractual maturities are not considered essential for an understanding of the timing of the cash flows for these instruments. The only exception is that in 2018 certain identified interest rate swaps were expected to be held until maturity for the purposes of matching cash flows on separately held assets and liabilities. These swaps were closed as part of the preparation for the demerger of UK and Europe operations.

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Maturity analysis of investment contracts
The table below shows the maturity profile for investment contracts based on undiscounted cash flow projections of expected benefit payments. Total carrying value of investment contracts at 31 December 2019 was $5,535 million as shown in the statement of financial position (31 December 2018: $110,339 million, of which $5,142 million was from continuing operations).

Maturity profile for investment contracts from continuing operations $m Maturity profile for investment contracts $m

1 year
or less
After 1
year to
5 years
After 5
years to
10 years
After 10
years to
15 years
After 15
years to
20 years
Over
20 years
Total
undiscounted
cash flows
Total
carrying
value
1 year
or less
After 1
year to
5 years
After 5
years to
10 years
After 10
years to
15 years
After 15
years to
20 years
Over
20 years
Total
undiscounted
cash flows

31 Dec 2020 3,658 519 1,713 215 575 710 17 3,749
31 Dec 2019 1,557 5,197 3,866 3,049 3,196 5,890 22,755 4,366 600 2,015 534 350 961 12 4,472
31 Dec 2018 1,409 4,779 3,352 2,487 2,830 4,257 19,114

The undiscounted cash flows in the maturity profile shown above excludes contracts which have no stated maturity but which are repayable on demand. 2019 cash flows have been adjusted to show them on a consistent basis.
Most investment contracts have options to surrender early, often subject to surrender or other penalties. Therefore, most contracts can be said to have a contractual maturity of less than one year, but the additional charges and term of the contracts mean these are unlikely to be exercised in practice and the more useful information is to present information on expected payment.
The vast majority of the Group's financial assets are held to back the Group's policyholder liabilities. Although asset/liability matching is an important component of managing policyholder liabilities (both those classified as insurance and those classified as investments), this profile is mainly relevant for managing market risk rather than liquidity risk. Within each business unit, this asset/liability matching is performed on a portfolio-by-portfolio basis.
In terms of liquidity risk, a large proportion of the policyholder liabilities contain discretionary surrender values or surrender charges, meaning that many of the Group's liabilities are expected to be held for the long term. Much of the Group's investment portfolios are in marketable securities, which can therefore be converted quickly to liquid assets.
For the reasons provided above, an analysis of the Group's assets by contractual maturity is not considered meaningful to evaluate the nature and extent of the Group's liquidity risk.
Credit risk
The Group's maximum exposure to credit risk of financial instruments before any allowance for collateral or allocation of losses to policyholders is represented by the carrying value of financial instruments on the balance sheet that have exposures to credit risk comprising cash and cash equivalents, deposits, debt securities, loans and derivative assets, accrued investment income and other debtors, the carrying value of which are disclosed at the start of this note and note ~~C3.4(b)~~(ii) below for derivative assets. The collateral in place in relation to derivatives is described in note ~~C3.4(c)~~(iii) below. Note ~~C3.3~~C1.2 describes the security for the loans held by the Group. The Group's exposure to credit risk is further discussed in note C7C6 below.
Of the total loans and receivables held, $7$8 million (31 December ~~2018: $18 million from continuing operations)~~2019: $7 million) are past their due date but are not impaired. Of the total past due but not impaired, $1 million are less than one year past their due date (31 December ~~2018: $11 million from continuing operations)~~2019: $1 million). The Group expects full recovery of these loans and receivables.
~~Financial~~There are no financial assets that would have been past due or impaired had the terms not been renegotiated ~~amounted to nil (31 December 2018: $29 million from continuing operations).~~in both years.
In addition, ~~during 2019 and 2018,~~ the Group did not take possession of any other collateral held as ~~security.~~security in both years.
Further details of collateral in place in relation to derivatives, securities lending, repurchase agreements and other transactions are provided in note ~~C3.4(c)~~(iii) below.
Foreign exchange risk
As at 31 December ~~2019,~~2020, the Group held 9 per cent (31 December 2019: 8 per ~~cent~~cent) of its financial assets and 30 per cent (31 December 2019: 25 per ~~cent~~cent) of its financial liabilities in currencies, mainly ~~US Dollar,~~USD, other than the functional currency of the relevant business units or the currency to which the functional currency is pegged (eg financial assets and liabilities of ~~US dollar~~USD denominated business in Hong Kong).

~~Table of Contents~~
The exchange risks inherent in these exposures are mitigated through the use of derivatives, mainly forward currency contracts ~~(note C3.4(b) below).~~and currency swaps as described in note (ii) below.

Table of Contents
The amount of exchange loss recognised in the income statement in ~~2019,~~2020, except for those arising on financial instruments measured at fair value through profit or loss, is $33 million (2019: $72 ~~million (2018:~~million; 2018: $88 ~~million gain; 2017: $17 million gain from continuing operations)~~million).
~~(b)~~    (ii)
Derivatives and hedging
~~Accounting principles for derivatives and embedded derivatives~~
Derivative financial instruments are used to reduce or manage investment, interest rate and currency exposures, to facilitate efficient portfolio management and for investment purposes.
The Group does not regularly seek to apply fair value or cash flow hedging treatment under IAS 39. The Group has no fair value and cash flows hedges under IAS 39 at 31 December ~~2019~~2020 and ~~2018.~~2019. All derivatives that are not designated as hedging instruments are carried at fair value, with movements in fair value being recorded in the income statement.
Embedded derivatives are embedded within other non-derivative host financial instruments and insurance contracts to create hybrid instruments. Embedded derivatives meeting the definition of an insurance contract are accounted for under IFRS 4. Where economic characteristics and risks of the embedded derivatives are not closely related to the economic characteristics and risks of the host instrument, and where the hybrid instrument is not measured at fair value with the changes in fair value recognised in the income statement, the embedded derivative is bifurcated and carried at fair value as a derivative measured in accordance with IAS 39.
In addition, the Group applies the option under IFRS 4 to not separate and fair value surrender options embedded in host contracts and with-profits investment contracts whose strike price is either a fixed amount or a fixed amount plus interest.
Derivatives held and their purpose
The Group enters into a variety of exchange traded and over-the-counter derivative financial instruments, including futures, options, forward ~~currency~~ contracts, swaps and ~~swaps such as interest rate swaps, cross-currency swaps, swaptions and credit default swaps.~~swaptions.
All over-the-counter derivative transactions, with the exception of transactions in some Asia operations, are conducted under standardised ISDA (International Swaps and Derivatives Association Inc) master agreements and the Group has collateral agreements between the individual Group entities and relevant counterparties in place under each of these market master agreements.
The majority of the Group's derivatives are held by Jackson. Derivatives are used for efficient portfolio management to obtain cost effective and management of exposure to various markets in accordance with the Group's investment strategies and to manage exposure to interest rate, currency, credit and other business risks. The Group also uses interest rate derivatives to reduce exposure to interest rate volatility. In particular:
–
US operations hold large amounts of interest-rate sensitive investments that contain credit risks on which a certain level of defaults is expected. These businesses have purchased some swaptions to manage the default risk on certain underlying assets and hence reduce the amount of regulatory capital held to support the assets; and
–
Some products, especially in the US, have guarantee features linked to equity indices. A mismatch between guaranteed product liabilities and the performance of the underlying assets exposes the Group to equity index risk. In order to mitigate this risk, the relevant business units purchase swaptions, equity options and futures to better match asset performance with liabilities under equity-indexed products.
Additional information on Jackson derivative programme
Jackson enters into financial derivative transactions, including those noted below, to reduce and manage business risks. These transactions manage the risk of a change in the value, yield, price, cash flows or quantity of, or a degree of exposure, with respect to assets, liabilities or future cash flows, which Jackson has acquired or incurred.

~~Table of Contents~~
Jackson uses free-standing derivative instruments for hedging purposes. Additionally, certain liabilities, primarily trust instruments supported by funding agreements, fixed index annuities, certain variable annuity guaranteed benefit features and reinsured Guaranteed Minimum Income Benefit variable annuity features are similar to derivatives. Jackson does not account for such items as either fair value or cash flow hedges as might be permitted if the specific hedge documentation requirements of IAS 39 were followed. Financial derivatives are carried at fair value, including derivatives embedded in certain host liabilities where these are required to be valued separately.

Table of Contents
The principal types of derivatives used by Jackson and their purpose are as follows:
Derivative
Purpose

Interest rate swaps These generally involve the exchange of fixed and floating payments over the period for which Jackson holds the instrument without an exchange of the underlying principal amount. These agreements are used to hedge Jackson's exposure to movements in interest rates.

Swaption contracts These contracts provide the purchaser with the right, but not the obligation, to require the writer to pay the present value of a long-duration interest rate swap at future exercise dates. Jackson both purchases and writes swaptions in order to hedge against significant movements in interest rates.

Treasury futures contracts These derivatives are used to hedge Jackson's exposure to movements in interest rates.

Equity index futures contracts and equity index options These derivatives (including various call and put options and options contingent on interest rates and currency exchange rates) are used to hedge Jackson's obligations associated with its issuance of certain VA guarantees. Some of these annuities and guarantees contain embedded options that are fair valued for financial reporting purposes.

Cross-currency swaps Cross-currency swaps, which embody spot and forward currency swaps and additionally, in some cases, interest rate swaps and equity index swaps, are entered into for the purpose of hedging Jackson's foreign currency denominated funding agreements supporting trust instrument obligations.

Credit default swaps These swaps represent agreements under which the buyer has purchased default protection on certain underlying corporate bonds held in its portfolio. These contracts allow Jackson to sell the protected bonds at par value to the counterparty if a default event occurs in exchange for periodic payments made by Jackson for the life of the agreement.

Hedging
~~The Group has formally assessed and documented the effectiveness of the following net investment hedges under IAS 39. During 2019, up~~Up to 31 December 2019, the Group had designated perpetual subordinated capital securities totalling $3.7 billion ~~(31 December 2018: $3.7 billion)~~ as a net investment hedge under IAS 39 to hedge the currency risks related to the net investment in Jackson. Accordingly, the foreign exchange loss of $150 million (2018: loss of $266 million) on translation of Prudential plc's borrowings to pounds sterling (the functional currency of Prudential plc until 31 December 2019) is recognised in the translation reserve in shareholders' equity rather than the income statement. This net investment hedge was 100 per cent ~~effective.~~
effective in 2019. The Group ~~has~~had no net investment, cash flow ~~hedges~~ or fair value hedges in ~~place.~~place during 2020.
~~(c)~~    (iii)
Derecognition, collateral and offsetting
Derecognition of financial assets and liabilities
The Group's policy is to derecognise financial assets when it is deemed that substantially all the risks and rewards of ownership have been transferred.
The Group derecognises financial liabilities only when the obligation specified in the contract is discharged, cancelled or has expired.
Reverse repurchase agreements
The Group is party to various reverse repurchase agreements under which securities are purchased from third parties with an obligation to resell the securities. The securities are not recognised as investments in the statement of financial position but the right to receive the cash paid is recognised as deposits.
~~At 31 December 2019, the~~The Group ~~had~~has entered into reverse repurchase transactions under which it purchased securities and had taken on the obligation to resell the securities. ~~The~~At 31 December 2020, the fair value of the collateral held in respect of these transactions, which is represented by the purchased securities, was ~~$1,011~~$603 million (31 December ~~2018: $3,039 million from continuing operations)~~2019: $1,011 million).

~~Table of Contents~~
Securities lending and repurchase agreements
The Group is also party to various securities lending agreements (including repurchase agreements) under which securities are loaned to third parties on a short-term basis. The loaned securities are not derecognised; rather, they continue to be recognised within the appropriate investment classification. To the extent cash collateral is received it is recognised on the statement of financial ~~position.~~position with the obligation to repay the cash paid recognised as a liability. Other collateral is not recognised.
At 31 December ~~2019,~~2020, the Group ~~has $90~~had $2,007 million (31 December ~~2018: $107 million from continuing operations)~~2019: $90 million) of lent securities and assets subject to repurchase agreements. The cash and securities collateral held or pledged under such agreements were ~~$95~~$2,047 million (31 December ~~2018: $112 million from continuing operations)~~2019: $95 million).

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Collateral and pledges under derivative transactions
At 31 December ~~2019,~~2020, the Group had pledged ~~$1,301~~$2,422 million (31 December ~~2018: $2,896 million from continuing operations)~~2019: $1,301 million) for liabilities and held collateral of ~~$1,883~~$2,306 million (31 December ~~2018: $810 million from continuing operations)~~2019: $1,883 million) in respect of over-the-counter derivative transactions. These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities lending and repurchase agreements.
The Group has entered into collateral arrangements in relation to over-the-counter derivative transactions, which permit sale or re-pledging of underlying collateral. ~~During 2019, the~~The Group has not sold any collateral held ~~(2018: nil). As of 31 December 2019, the value of collateral~~or re-pledged ~~by the Group amounted to $nil (31 December 2018: $5 million from continuing operations).~~any collateral. All over-the-counter derivative transactions, with the exception of transactions in some Asia operations, are conducted under standardised International Swaps and Derivatives Association (ISDA) master agreements. The collateral management for these transactions is conducted under the usual and customary terms and conditions set out in the Credit Support Annex to the ISDA master agreement.
Other collateral
At 31 December ~~2019,~~2020, the Group had pledged collateral of ~~$3,299~~$2,614 million (31 December ~~2018: $3,053 million from continuing operations)~~2019: $3,299 million) in respect of other transactions. This principally arises from Jackson's membership of the Federal Home Loan Bank of Indianapolis (FHLBI) primarily for the purpose of participating in the bank's collateralised loan advance programme with short-term and long-term funding facilities. The membership requires Jackson to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances in the form of either short-term or long-term notes or funding agreements issued to FHLBI.
Offsetting assets and liabilities
The Group's derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Group recognises amounts subject to master netting arrangements on a gross basis within the consolidated balance sheets.
The following tables present the gross and net information about the Group's financial instruments subject to master netting arrangements:
31 Dec 2019 $m
31 Dec 2020 $m

Gross amount
included in the
consolidated Related amounts not offset
in the consolidated statement of financial
position

statement of financial
position Financial
instruments Cash collateral Securities
collateral Net amount
Related amounts not offset in the
balance sheet
note (i) note (ii) note (iii) note (iv)
Gross amount
included in the
balance sheet
note (i)
Financial
instruments
note (ii)
Cash
collateral

Securities
collateral
note (iii)
Net amount
note (iv)

Financial assets:
Derivative assets
1,708 (115) (901) (618) 74 2,523 (122) (1,249) (890) 262
Reverse repurchase agreements
953 – – (953) – 588 – – (588) –

Total financial assets 2,661 (115) (901) (1,571) 74 3,111 (122) (1,249) (1,478) 262

Financial liabilities:

Derivative liabilities
(216) 115 86 – (15) (203) 122 69 – (12)
Securities lending and repurchase agreements
(48) – 48 – – (1,384) – 244 1,140 –

Total financial liabilities (264) 115 134 – (15) (1,587) 122 313 1,140 (12)

Table of Contents

31 Dec 2018 $m
31 Dec 2019 $m

Gross amount
included in the
consolidated Related amounts not offset
in the consolidated statement of financial
position

statement of financial
position Financial
instruments Cash collateral Securities
collateral Net amount
Related amounts not offset in the
balance sheet
note (i) note (ii) note (iii) note (iv)
Gross amount
included in the
balance sheet
note (i)
Financial
instruments
note (ii)
Cash
collateral

Securities
collateral
note (iii)
Net amount
note (iv)

Financial assets:
Derivative assets
4,112 (1,606) (2,149) (211) 146 1,708 (115) (901) (618) 74
Reverse repurchase agreements
14,771 – – (14,782) (11) 953 – – (953) –

Total financial assets 18,883 (1,606) (2,149) (14,993) 135 2,661 (115) (901) (1,571) 74

Financial liabilities:

Derivative liabilities
(4,062) 1,606 905 1,346 (205) (216) 115 86 – (15)
Securities lending and repurchase agreements
(1,602) – 43 1,535 (24) (48) – 48 – –

Total financial liabilities (5,664) 1,606 948 2,881 (229) (264) 115 134 – (15)

Analysed as:

Financial assets from continuing operations 3,709 (308) (435) (2,947) 19
Financial assets from discontinued UK and Europe operations 15,174 (1,298) (1,714) (12,046) 116

Total financial assets 18,883 (1,606) (2,149) (14,993) 135

Financial liabilities from continuing operations

(1,637)

308

86

1,095

(148)
Financial liabilities from discontinued UK and Europe operations (4,027) 1,298 862 1,786 (81)

Total financial liabilities (5,664) 1,606 948 2,881 (229)

Notes
(i)
The Group has not offset any of the amounts included in the ~~consolidated statement of financial position.~~balance sheet.
(ii)
Represents the amount that could be offset under master netting or similar arrangements where the Group does not satisfy the full criteria to offset onin the ~~consolidated statement of financial position.~~balance sheet.
(iii)
Excludes initial margin amounts for exchange-traded derivatives.
(iv)
In the tables above, the amounts of assets or liabilities included in the ~~consolidated statement of financial position~~balance sheet would be offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables.

Table of Contents
C4C3    Policyholder liabilities and unallocated surplus
~~The note provides information of policyholder liabilities and unallocated surplus of with-profits funds held on the Group's statement of financial position:~~
~~C4.1~~C3.1    Group overview
(i)
Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds^notes^(a),^(b)

Asia
$m US
$m Discontinued
UK and
Europe
operations
$m Total
$m

note C4.2 note C4.3

Balance at 1 January 2018
99,890 244,483 244,946 589,319

Comprising:

–Policyholder liabilities on the consolidated statement of financial positionnote(c) (excludes $43 million classified as unallocated to a segment)
85,089 244,483 226,715 556,287

–Unallocated surplus of with-profits funds on the consolidated statement of financial position
4,700 — 18,231 22,931

–Group's share of policyholder liabilities of joint ventures and associatenote(d)
10,101 — — 10,101

Reclassification of reinsured UK annuity contracts as held for sale
— — (14,689) (14,689)

Net flows:

Premiums
17,607 18,613 18,707 54,927

Surrenders
(3,729) (16,211) (9,053) (28,993)

Maturities/deaths
(2,641) (2,687) (9,074) (14,402)

Net flows
11,237 (285) 580 11,532

Addition for closed block of group payout annuities in the US
— 5,532 — 5,532

Shareholders' transfers post-tax
(87) — (346) (433)

Investment-related items and other movements
(3,718) (13,350) (7,318) (24,386) Asia
$m US
$m Discontinued
UK and
Europe
operations
$m Total
$m

Foreign exchange translation differences
(1,914) — (13,171) (15,085) note C3.2 note C3.3

Balance at 31 December 2018/1 January 2019
105,408 236,380 210,002 551,790 Balance at 1 Jan 2019note(a) 105,408 236,380 210,002 551,790

Comprising:
Comprising:note(b)

–Policyholder liabilities on the consolidated statement of financial positionnote(c) (excludes $50 million classified as unallocated to a segment)
91,836 236,380 193,020 521,236
– Policyholder liabilities on the consolidated statement of financial position (excludes $50 million classified as unallocated to a segment)
91,836 236,380 193,020 521,236

–Unallocated surplus of with-profits funds on the consolidated statement of financial position
3,198 — 16,982 20,180
– Unallocated surplus of with-profits funds on the consolidated statement of financial position
3,198 – 16,982 20,180

–Group's share of policyholder liabilities of joint ventures and associatenote(d)
10,374 — — 10,374
– Group's share of policyholder liabilities of joint ventures and associatesnote(c)
10,374 – – 10,374

Demerger of UK and Europe operations
— — (210,002) (210,002) Removal of discontinued UK and Europe operations – – (210,002) (210,002)

Net flows:
Net flows:note(d)

Premiums
20,094 20,976 — 41,070
Premiums
20,094 20,976 – 41,070

Surrenders
(4,156) (17,342) — (21,498)
Surrenders
(4,156) (17,342) – (21,498)

Maturities/deaths
(2,800) (3,387) — (6,187)
Maturities/deaths/other claim events
(2,800) (3,387) – (6,187)

Net flows
13,138 247 — 13,385 Net flows 13,138 247 – 13,385

Shareholders' transfers post-tax
(99) — — (99) Shareholders' transfers post-tax (99) – – (99)

Investment-related items and other movements
12,824 32,922 — 45,746 Investment-related items and other movements 12,824 32,922 – 45,746

Foreign exchange translation differences
1,299 — — 1,299 Foreign exchange translation differences 1,299 – – 1,299

Balance at 31 December 2019
132,570 269,549 — 402,119 Balance at 31 Dec 2019/1 Jan 2020 132,570 269,549 – 402,119

Comprising:
Comprising:

–Policyholder liabilities on the consolidated statement of financial position (excludes $186 million classified as unallocated to a segment)
115,943 269,549 — 385,492
– Policyholder liabilities on the consolidated statement of financial position (excludes $186 million classified as unallocated to a segment)
115,943 269,549 – 385,492

–Unallocated surplus of with-profits funds on the consolidated statement of financial position
4,750 — — 4,750
– Unallocated surplus of with-profits funds on the consolidated statement of financial position
4,750 – – 4,750

–Group's share of policyholder liabilities of joint ventures and associatenote(d)
11,877 — — 11,877
– Group's share of policyholder liabilities of joint ventures and associatesnote(c)
11,877 – – 11,877

Average policyholder liability balancesnote(e)
Net flows:note(d)

2019
115,015 252,965 n/a 367,980
Premiums
20,760 18,671 – 39,431

2018
98,698 239,049 213,492 551,239
Surrenders
(4,730) (15,832) – (20,562)

Maturities/deaths/other claim events
(2,565) (3,708) – (6,273)

Net flows 13,465 (869) – 12,596
Shareholders' transfers post-tax (116) – – (116)
Investment-related items and other movements 17,269 27,833 – 45,102
Foreign exchange translation differences 2,105 – – 2,105

Balance at 31 Dec 2020 165,293 296,513 – 461,806

Comprising:

– Policyholder liabilities on the consolidated statement of financial position (excludes $262 million classified as unallocated to a segment)
144,471 296,513 – 440,984

– Unallocated surplus of with-profits funds on the consolidated statement of financial position
5,217 – – 5,217

– Group's share of policyholder liabilities of joint ventures and associatesnote(c)
15,605 – – 15,605

Average policyholder liability balancesnote(e)

2020
143,948 283,031 – 426,979

2019
115,015 252,965 – 367,980

Table of Contents
Notes
(a)
The 1 January 2019 policyholder liabilities of the Asia insurance operations were after deducting the intra-group reinsurance liabilities ceded by the discontinued UK and Europe operations (M&G plc) to the Hong Kong with-profits business, which were recaptured in October 2019 upon demerger.
(b)
The items above represent the amount attributable to changes in policyholder liabilities and unallocated surplus of with-profits funds as a result of each of the components listed. The policyholder liabilities shown include investment contracts without discretionary participation

~~Table of Contents~~
features (as defined in IFRS 4) and their full movement in the year but exclude liabilities that have not been allocated to a reporting segment. The items above are shown gross of external reinsurance.
~~(b)~~
The analysis includes the impact of premiums, claims and investment movements on policyholders' liabilities. The impact does not represent premiums, claims and investment movements as reported in the income statement. For example, premiums shown above exclude any deductions for fees/charges; claims (surrenders, maturities and deaths) shown above represent the policyholder liabilities provision released rather than the claims amount paid to the policyholder.
(c)
~~The policyholder liabilities~~Including net flows of the ~~Asia~~Group's insurance ~~operations at 31 December 2018 of $91,836 million were after deducting the intra-group reinsurance liabilities ceded by the discontinued UK~~joint ventures and Europe operations of $1,412 million to the Hong Kong with-profits business, which were recaptured in October 2019 upon demerger. Including this amount, total Asia policyholder liabilities at 31 December 2018 were $93,248 million.
~~(d)~~
associates. The Group's investment in joint ventures and ~~associate~~associates are accounted for on an equity method basis in the Group's statement of financial position. The Group's share of the policyholder liabilities as shown above relates to life businesses of the China JV, India and the Takaful business in Malaysia.
(d)
The analysis includes the impact of movements in premiums, claims and investment-related items on policyholders' liabilities. The amount does not represent actual premiums, claims and investment movements in the year recognised in the income statement. For example, premiums shown above exclude any deductions for fees/charges; claims (surrenders, maturities, deaths and other claim events) shown above represent the release of technical provision for policyholder liabilities rather than the actual claims amount paid to the policyholder.
(e)
Average policyholder liabilities have been based on opening and closing balances, adjusted for acquisitions, disposals and other relevant corporate transactions arising in the year, and exclude unallocated surplus of with-profits funds.

(ii)
Analysis of movements in policyholder liabilities for shareholder-backed business

Asia
$m US
$m Discontinued
UK and
Europe operations
$m Total
$m

Asia
$m US
$m Discontinued
UK and
Europe operations
$m Total
$m

Balance at 1 January 2018
50,598 244,483 76,254 371,335
Balance at 1 Jan 2019
51,705 236,380 51,911 339,996

Reclassification of reinsured UK annuity contracts as held for sale
— — (14,689) (14,689)

Net flows:

Premiums
9,015 18,613 1,984 29,612

Surrenders
(3,278) (16,211) (2,692) (22,181)

Maturities/deaths
(1,396) (2,687) (2,996) (7,079)

Net flowsnote
4,341 (285) (3,704) 352

Addition for closed block of group payout annuities in the US
— 5,532 — 5,532

Investment-related items and other movements
(1,608) (13,350) (2,637) (17,595)

Foreign exchange translation differences
(1,626) — (3,313) (4,939)

Balance at 31 December 2018/1 January 2019
51,705 236,380 51,911 339,996

Comprising:

–Policyholder liabilities on the consolidated statement of financial position (excludes $50 million classified as unallocated to a segment)
41,331 236,380 51,911 329,622

–Group's share of policyholder liabilities relating to joint ventures and associate
10,374 — — 10,374

Demerger of UK and Europe operations
— — (51,911) (51,911)
Removal of discontinued UK and Europe operations
– – (51,911) (51,911)

Net flows:

Net flows:

Premiums
10,372 20,976 — 31,348
Premiums
10,372 20,976 – 31,348

Surrenders
(3,610) (17,342) — (20,952)
Surrenders
(3,610) (17,342) – (20,952)

Maturities/deaths
(1,168) (3,387) — (4,555)
Maturities/deaths/other claim events
(1,168) (3,387) – (4,555)

Net flowsnote
5,594 247 — 5,841
Net flowsnote
5,594 247 – 5,841

Investment-related items and other movements
4,186 32,922 — 37,108
Investment-related items and other movements
4,186 32,922 – 37,108

Foreign exchange translation differences
777 — — 777
Foreign exchange translation differences
777 – – 777

Balance at 31 December 2019
62,262 269,549 — 331,811
Balance at 31 Dec 2019/1 Jan 2020
62,262 269,549 – 331,811

Comprising:

Comprising:

–Policyholder liabilities on the consolidated statement of financial position (excludes $186 million classified as unallocated to a segment)
50,385 269,549 — 319,934
– Policyholder liabilities on the consolidated statement of financial position (excludes $186 million classified as unallocated to a segment)
50,385 269,549 – 319,934

–Group's share of policyholder liabilities relating to joint ventures and associate
11,877 — — 11,877
– Group's share of policyholder liabilities relating to joint ventures and associates
11,877 – – 11,877

Net flows:

Premiums
11,028 18,671 – 29,699

Surrenders
(3,933) (15,832) – (19,765)

Maturities/deaths/other claim events
(970) (3,708) – (4,678)

Net flowsnote
6,125 (869) – 5,256

Investment-related items and other movements
9,143 27,833 – 36,976

Foreign exchange translation differences
1,353 – – 1,353

Balance at 31 Dec 2020
78,883 296,513 – 375,396

Comprising:

– Policyholder liabilities on the consolidated statement of financial position (excludes $262 million classified as unallocated to a segment)
63,278 296,513 – 359,791

– Group's share of policyholder liabilities relating to joint ventures and associates
15,605 – – 15,605

Note
Including net flows of the Group's insurance joint ventures and ~~associate.~~associates.

Table of Contents
(iii)    Movement in insurance contract liabilities and unallocated surplus of with-profits funds
Further analysis of the movement in the year of the Group's gross contract liabilities, reinsurer's share of insurance contract liabilities and unallocated surplus of with-profits funds (excluding those held by joint ventures and ~~associate)~~associates) is provided below:

Gross
insurance
contract
liabilities
$m
Reinsurer's
share of
insurance
contract
liabilities
$m
note (a)
Investment
contracts
$m
note (b)
Unallocated
surplus of
with-
profits
funds
$m
Gross
insurance
contract
liabilities
$m
note (e)
Reinsurer's
share of
insurance
contract
liabilities
$m
note (a),(e)
Investment
contract
liabilities
$m
note (b)
Unallocated
surplus of
with-profits
funds
$m

Balance at 1 January 2018
(443,952) 13,086 (112,378) (22,931)
Income and expense included in the income statementnote(c)

– continuing operations
512 548 (104) 1,494
– discontinued operations
11,497 14,727 (5,249) 227
Other movementsnote(d)
13,375 (13,375) 859 (51)
Foreign exchange translation differences
7,621 (793) 6,533 1,081

Balance at 31 December 2018/1 January 2019
(410,947) 14,193 (110,339) (20,180)
Demerger of UK and Europe operationsnote(e)
87,824 (2,169) 105,196 16,982
Balance at 1 Jan 2019 (410,947) 14,193 (110,339) (20,180)
Removal of discontinued UK and Europe operations 87,824 (2,169) 105,196 16,982
Income and expense included in the income statement for continuing operationsnote(c)
(55,579) 1,795 (311) (1,415) (55,579) 1,795 (311) (1,415)
Other movementsnote(d)
— — (63) (112) – – (63) (112)
Foreign exchange translation differences
(1,441) 37 (18) (25) (1,441) 37 (18) (25)

Balance at 31 December 2019
(380,143) 13,856 (5,535) (4,750)
Balance at 31 Dec 2019/1 Jan 2020 (380,143) 13,856 (5,535) (4,750)
Income and expense included in the income statementnote(c) (55,034) 32,723 349 (438)
Other movementsnote(d) – – 765 –
Foreign exchange translation differences (1,610) 16 (38) (29)

Balance at 31 Dec 2020 (436,787) 46,595 (4,459) (5,217)

Notes
(a)
Includes reinsurers' share of claims outstanding of ~~$1,094~~$1,527 million (31 December ~~2018: $1,280~~2019: $1,094 million). The increase in reinsurers' share of insurance contract liabilities in 2020 includes $27.3 billion in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd.
(b)
This comprises investment contracts with discretionary participation features of ~~$633~~$479 million at 31 December ~~2019~~2020 (31 December ~~2018: $85,858~~2019: $633 million) and investment contracts without discretionary participation features of ~~$4,902~~$3,980 million at 31 December ~~2019~~2020 (31 December ~~2018: $24,481~~2019: $4,902 million).
(c)
The total charge for benefits and claims ~~from continuing operations~~ in ~~2019~~2020 shown in the income statement comprises the amounts shown as ~~'income~~'Income and expense included in the income statement' in the table above of ~~$(55,510)~~$(22,400) million ~~(2018: $2,450~~(2019: $(55,510) million) together with claims paid of ~~$(29,585)~~$(27,491) million ~~(2018: $(26,926)~~(2019: $(29,585) million), net of amounts attributable to reinsurers of ~~$1,190~~$1,686 million ~~(2018: $1,050~~(2019: $1,190 million).
(d)
Other movements ~~for 2019 are for continuing operations only and~~ include premiums received and claims paid on investment contracts without discretionary participating features, which are taken directly to the ~~statement of financial position~~balance sheet in accordance with IAS ~~39 and~~39. In 2019, the changes in the unallocated surplus of with-profits funds ~~resulting~~also resulted from the recapture of the intra-group reinsurance agreement between the ~~with-profits~~ discontinued UK and Europe operations and Asia insurance operations prior to the demerger, which iswas eliminated in the income statement for the continuing operations of the Group. For 2018, in addition to premiums received and claims paid on investment contracts without discretionary participating features, other movements also included the reclassification of the reinsured UK annuity business as held for sale at 31 December 2018 and the changes in the unallocated surplus of with-profits funds resulting from actuarial gains and losses on the Group's defined benefit pension schemes allocated to the with-profits funds of the discontinued UK and Europe operations, which were recognised directly in other comprehensive income.statement.
(e)
The ~~balances of~~movement in the ~~discontinued UK~~gross contract liabilities and ~~Europe operations are removed from~~ the ~~opening balances to show the underlying movement from continuing operations. The $2,169 million of~~ reinsurer's share of insurance contract liabilities induring 2020 includes the ~~table above excluded the intra-group reinsurance assets~~impact of ~~$1,412 million for the with-profits business ceded~~a change to the ~~Asia~~calculation of the valuation interest rate (VIR) used to value long-term insurance ~~operations.~~liabilities in Hong Kong. The effect of the change to the VIR was such that the implicit duration of liabilities is reduced and closer to best estimate expectations. The change reduced policyholder liabilities (net of reinsurance) of the Hong Kong's shareholder-backed business at 31 December 2020 by $907 million. The resulting benefit is included within short-term fluctuations in investment returns.

Table of Contents
(iv)    Reinsurers' share of insurance contract liabilities
The measurement of reinsurance assets is consistent with the measurement of the underlying direct insurance contracts. The treatment of any gains or losses arising on the purchase of reinsurance contracts is dependent on the underlying accounting basis of the entity concerned.
31 Dec 2019 $m 31 Dec 2018 $m
31 Dec 2020 $m 31 Dec 2019 $m

Asia
note (a) US
note (b) Unallocated to
a segment Total Total Asia
note (b) US
note (c) Unallocated to
a segment Total Total

Insurance contract liabilities 5,311 7,447 4 12,762 12,913
Insurance contract liabilitiesnote(a) 11,186 33,881 1 45,068 12,762
Claims outstanding 147 947 — 1,094 1,280 173 1,351 3 1,527 1,094

Total 5,458 8,394 4 13,856 14,193 11,359 35,232 4 46,595 13,856

Analysed as:
From continuing operations 12,024
From discontinued UK and Europe operations 2,169

14,193

Notes
(a)
The increase in the reinsurers' share of insurance contract liabilities in 2020 compared to 2019 primarily relates to the reinsurance of substantially all of Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd.
(b)
The reinsurers' share of insurance contract liabilities for Asia primarily relates to protection business written in Hong Kong.
~~(b)~~(c)
The ~~reinsurer's~~reinsurers' share of insurance contract liabilities for Jackson as shown in the table above primarily relates to the reinsurance of substantially all of Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd and certain fully collateralised former REALIC business retained by Swiss Re through 100 per cent reinsurance agreements. Apart from ~~the~~these reinsurance ~~of REALIC business,~~transactions, the principal reinsurance ceded by Jackson outside the Group is on term-life insurance, direct and assumed accident and health business and GMIB variable annuity guarantees.
The Group cedes certain business to other insurance companies. Although the ceding of insurance does not relieve the Group from its liability to its policyholders, the Group participates in such agreements largely for the purpose of managing its loss exposure. The Group evaluates the financial condition of its reinsurers and monitors concentration of credit risk from similar geographic regions, activities or economic characteristics of the reinsurers to minimise its exposure from reinsurer insolvencies. Of the reinsurers' share of insurance contract liabilities balance of ~~$13,856~~$46,595 million at 31 December ~~2019~~2020 (31 December ~~2018: $12,024 million from continuing operations)~~2019: $13,856 million), 9799 per cent (31 December ~~2018: 95~~2019: 97 per ~~cent from continuing operations) of the balance~~cent) was from reinsurers with rating A- and above by Standard & ~~Poor~~Poor's or other external rating agencies.
During 2020, net commissions received on ceded business for Asia totalled $1,005 million (2019: $355 million) and claims incurred ceded to external reinsurers totalled $432 million (2019: $552 million). The 2020 net commissions received includes $770 million in respect of the reinsurance transaction entered into by the Hong Kong business as discussed in note D1.1. There was $1 million (2019: nil) of deferred gains in the year.
Net commissions received on ceded business for Jackson totalled $1,223 million (2019: $20 million) and claims incurred ceded to external reinsurers ~~for Asia~~ totalled ~~$355~~$1,663 million ~~and $552 million respectively during 2019 (2018: $294 million and $362 million, respectively)~~(2019: $630 million). ~~Net~~The 2020 net commissions received ~~on ceded business and claims incurred ceded to external reinsurers for~~includes $1,203 million in respect of the Athene reinsurance transaction entered into by Jackson ~~totalled $20 million and $630 million respectively during 2019 (2018: $9 million and $653 million, respectively).~~as discussed in note D1.1. There ~~were~~was no deferred gains ~~or losses on reinsurance contracts for Asia and Jackson~~ in ~~either 2019 or 2018.~~the year (2019: nil).

Table of Contents
~~C4.2~~C3.2    Asia insurance operations
(i)    Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds
Shareholder-backed business Shareholder-backed business

With-profits
business
$m Unit-linked
liabilities
$m Other
business
$m Total
$m With-profits
business
$m Unit-linked
liabilities
$m Other
business
$m Total
$m

Balance at 1 January 2018 49,292 27,093 23,505 99,890 Balance at 1 Jan 2019 53,703 25,704 26,001 105,408
Comprising: Comprising:

–Policyholder liabilities on the consolidated statement of financial position
44,592 22,001 18,496 85,089
– Policyholder liabilities on the consolidated statement of financial position
50,505 20,846 20,485 91,836

–Unallocated surplus of with-profits funds on the consolidated statement of financial position
4,700 – – 4,700
– Unallocated surplus of with-profits funds on the consolidated statement of financial position
3,198 – – 3,198

–Group's share of policyholder liabilities relating to joint ventures and associatenote(a)
– 5,092 5,009 10,101
– Group's share of policyholder liabilities relating to joint ventures and associatesnote(a)
– 4,858 5,516 10,374

Premiums

Premiums

New business
1,542 1,904 1,449 4,895
New business
1,611 1,837 2,419 5,867

In-force
7,050 2,359 3,303 12,712
In-force
8,111 2,361 3,755 14,227

8,592 4,263 4,752 17,607 9,722 4,198 6,174 20,094
Surrendersnote(b) (451) (2,542) (736) (3,729) Surrendersnote(b) (546) (2,929) (681) (4,156)
Maturities/deaths (1,245) (187) (1,209) (2,641) Maturities/deaths/other claim events (1,632) (149) (1,019) (2,800)

Net flows 6,896 1,534 2,807 11,237 Net flows 7,544 1,120 4,474 13,138
Shareholders' transfers post-tax (87) – – (87) Shareholders' transfers post-tax (99) – – (99)
Investment-related items and other movementsnote(c) (2,110) (1,903) 295 (3,718) Investment-related items and other movements 8,638 1,663 2,523 12,824
Foreign exchange translation differencesnote(d) (288) (1,020) (606) (1,914) Foreign exchange translation differencesnote(d) 522 363 414 1,299

Balance at 31 December 2018/1 January 2019 53,703 25,704 26,001 105,408 Balance at 31 Dec 2019/1 Jan 2020 70,308 28,850 33,412 132,570

Comprising: Comprising:

–Policyholder liabilities on the consolidated statement of financial position
50,505 20,846 20,485 91,836
– Policyholder liabilities on the consolidated statement of financial position
65,558 23,571 26,814 115,943

–Unallocated surplus of with-profits funds on the consolidated statement of financial position
3,198 – – 3,198
– Unallocated surplus of with-profits funds on the consolidated statement of financial position
4,750 – – 4,750

–Group's share of policyholder liabilities relating to joint ventures and associatenote(a)
– 4,858 5,516 10,374
– Group's share of policyholder liabilities relating to joint ventures and associatesnote(a)
– 5,279 6,598 11,877

Premiums

Premiums

New business
1,611 1,837 2,419 5,867
New business
1,338 1,851 2,063 5,252

In-force
8,111 2,361 3,755 14,227
In-force
8,393 2,358 4,757 15,508

9,722 4,198 6,174 20,094 9,731 4,209 6,820 20,760
Surrendersnote(b) (546) (2,929) (681) (4,156) Surrendersnote(b) (797) (2,982) (951) (4,730)
Maturities/deaths (1,632) (149) (1,019) (2,800) Maturities/deaths/other claim events (1,595) (196) (774) (2,565)

Net flows 7,544 1,120 4,474 13,138 Net flows 7,339 1,031 5,095 13,465
Shareholders' transfers post-tax (99) – – (99) Shareholders' transfers post-tax (116) – – (116)
Investment-related items and other movementsnote(c) 8,638 1,663 2,523 12,824 Investment-related items and other movementsnote(c) 8,127 2,107 7,035 17,269
Foreign exchange translation differencesnote(d) 522 363 414 1,299 Foreign exchange translation differencesnote(d) 752 518 835 2,105

Balance at 31 December 2019 70,308 28,850 33,412 132,570 Balance at 31 Dec 2020 86,410 32,506 46,377 165,293

Comprising: Comprising:

–Policyholder liabilities on the consolidated statement of financial position
65,558 23,571 26,814 115,943
– Policyholder liabilities on the consolidated statement of financial position
81,193 25,433 37,845 144,471

–Unallocated surplus of with-profits funds on the consolidated statement of financial position
4,750 – – 4,750
– Unallocated surplus of with-profits funds on the consolidated statement of financial position
5,217 – – 5,217

–Group's share of policyholder liabilities relating to joint ventures and associatenote(a)
– 5,279 6,598 11,877
– Group's share of policyholder liabilities relating to joint ventures and associatesnote(a)
– 7,073 8,532 15,605

Average policyholder liability balancesnote(e) Average policyholder liability balancesnote(e)

2019
58,032 27,277 29,706 115,015
2020
73,375 30,678 39,895 143,948

2018
47,548 26,398 24,752 98,698
2019
58,032 27,277 29,706 115,015

Notes
(a)
The Group's investment in joint ventures and ~~associate~~associates are accounted for on an equity method and the Group's share of the policyholder liabilities as shown above relate to the life business of the China JV, India and the Takaful business in Malaysia.
(b)
The rate of surrenders for shareholder-backed business (expressed as a percentage of opening policyholder liabilities) ~~was 7.0~~is 6.3 per cent in ~~2019 (2018: 6.6~~2020 (2019: 7.0 per cent).
(c)
Investment-related items and other movements in ~~2019~~2020 primarily ~~represent~~represents equity market gains ~~from the with-profits business~~as well as fixed income asset gains and ~~effects from~~ lower discount rates due to falling interest rates.

~~Table of Contents~~
(d)
Movements in the year have been translated at the average exchange rates for the year ended 31 December 2020 and 2019. The closing balance has been translated at the closing spot rates as at 31 December 2020 and 2019. Differences upon retranslation are included in foreign exchange translation differences.
(e)
Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other relevant corporate transactions arising in the year, and exclude unallocated surplus of with-profits funds.

Table of Contents
(ii)    Duration of policyholder liabilities
The table below shows the carrying value of policyholder liabilities and the maturity profile of the cash flows on a discounted basis, taking account of expected future premiums and investment returns:

31 Dec 2019 $m
31 Dec 2018 $m
31 Dec 2020 $m
31 Dec 2019 $m

Policyholder liabilities 115,943 91,836 144,471 115,943

Expected maturity: 31 Dec 2019 % 31 Dec 2018 % 31 Dec 2020 % 31 Dec 2019 %

0 to 5 years
18 20 20 18
5 to 10 years
18 19 19 18
10 to 15 years
15 15 15 15
15 to 20 years
13 12 12 13
20 to 25 years
11 10 10 11
Over 25 years
25 24 24 25

(iii)    ~~Summary policyholder~~Policyholder liabilities ~~(net of reinsurance)~~ and unallocated surplus by business unit
~~At 31 December 2019,~~The table below shows the policyholder liabilities and unallocated surplus, ~~for Asia operations (excluding~~excluding joint ventures and ~~associate),~~associates and net of external reinsurance ~~of $5,458 million (31 December 2018: $3,537 million), comprised the following:~~by business unit:

31 Dec 2019 $m
31 Dec 2018 $m
31 Dec 2020 $m
31 Dec 2019 $m

Hong Kong 58,800 43,997 73,338 58,800
Indonesia 4,933 4,687 4,617 4,933
Malaysia 7,725 6,937 8,756 7,725
Singapore 27,427 23,121 32,264 27,427
Taiwan 6,801 5,353 8,178 6,801
Other operations 9,549 7,402
Other Asia insurance operations 11,176 9,549

Total Asia operations 115,235 91,497
Total Asia 138,329 115,235

~~Table of Contents~~
~~C4.3~~C3.3    US insurance operations
(i)
Analysis of movements in policyholder liabilities
Variable
annuity
separate
account
liabilities
$m Fixed annuity,
GICs and
other
business
$m Total
$m
Variable
annuity
separate
account
liabilities
$m General
account
and other
business
$m Total
$m

Balance at 1 January 2018 176,578 67,905 244,483
Balance at 1 Jan 2019 163,301 73,079 236,380
Premiums 14,646 3,967 18,613 12,776 8,200 20,976
Surrenders (11,746) (4,465) (16,211) (12,767) (4,575) (17,342)
Maturities/deaths (1,449) (1,238) (2,687)

Net flows 1,451 (1,736) (285)
Addition for closed block of group payout annuities in the US – 5,532 5,532
Transfers from general to separate account 708 (708) –
Investment-related items and other movements (15,436) 2,086 (13,350)

Balance at 31 December 2018/1 January 2019 163,301 73,079 236,380
Premiums 12,776 8,200 20,976
Surrenders (12,767) (4,575) (17,342)
Maturities/deaths (1,564) (1,823) (3,387)
Maturities/deaths/other claim events (1,564) (1,823) (3,387)

Net flowsnote(a) (1,555) 1,802 247 (1,555) 1,802 247
Transfers from general to separate account 951 (951) – 951 (951) –
Investment-related items and other movementsnote(b) 32,373 549 32,922 32,373 549 32,922

Balance at 31 December 2019 195,070 74,479 269,549
Balance at 31 Dec 2019/1 Jan 2020 195,070 74,479 269,549
Premiums 14,990 3,681 18,671
Surrenders (11,300) (4,532) (15,832)
Maturities/deaths/other claim events (1,854) (1,854) (3,708)

Net flowsnote(a) 1,836 (2,705) (869)
Transfers from separate to general account (2,190) 2,190 –
Investment-related items and other movementsnote(b) 24,346 3,487 27,833

Balance at 31 Dec 2020 219,062 77,451 296,513

Average policyholder liability balancesnote(c)
2020 207,066 75,965 283,031
2019
179,186 73,779 252,965 179,186 73,779 252,965
2018
169,940 69,109 239,049

Table of Contents
Notes
(a)
Net ~~inflows~~outflows in ~~2019 are~~2020 were $(869) million (2019 inflows: $247 ~~million~~million) with surrenders and withdrawals from general account and other business exceeding new inflows ~~into fixed annuity, fixed index annuity and the general account exceeding withdrawals and surrenders~~ on this business given lower volumes of institutional and fixed and fixed-index annuities sales in the year, partially offset by net ~~outflows from~~inflows into the variable annuity ~~business as the portfolio matures.~~separate accounts. This is discussed further in Explanation of Performance and Other Financial Measures.
(b)
Positive investment-related items and other movements in variable annuity separate account liabilities of $24,346 million for 2020 largely represent positive separate account ~~returns~~return following the increase in the US equity market growth in the year and asset gains arising from declining bond yields.
(c)
Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the year. Included within the policyholder liabilities for the general account and other business of $77,451 million at 31 December 2020 are $27.3 billion in respect of the reinsured Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd, as discussed in note D1.1.

(ii)
Duration of policyholder liabilities
The table below shows the carrying value of policyholder liabilities and maturity profile of the cash flows on a discounted basis at the balance sheet date:
31 Dec 2019 31 Dec 2018
31 Dec 2020 31 Dec 2019

Variable
annuity separate
account liabilities
$m Fixed annuity,
GICs and
other business
$m Total
$m Variable
annuity separate
account liabilities
$m Fixed annuity,
GICs and
other business
$m Total
$m
Variable
annuity separate
account liabilities
$m General
account
and other
business
$m Total
$m Variable
annuity separate
account liabilities
$m General
account
and other
business
$m Total
$m

Policyholder liabilities
195,070 74,479 269,549 163,301 73,079 236,380 219,062 77,451 296,513 195,070 74,479 269,549

Expected maturity:

%
%
%
%
%
%
%
%
%
%
%
%

0 to 5 years
41 45 42 40 51 43 39 36 39 41 45 42
5 to 10 years
27 27 27 28 24 27 27 22 26 27 27 27
10 to 15 years
16 13 15 16 12 15 16 17 16 16 13 15
15 to 20 years
9 8 9 9 7 8 9 11 10 9 8 9
20 to 25 years
4 4 4 4 3 4 5 6 5 4 4 4
Over 25 years
3 3 3 3 3 3 4 8 4 3 3 3

(iii)    Aggregate account values
The table below shows the distribution of account values for fixed annuities (fixed interest rate and fixed index), the fixed account portion of variable annuities, and interest-sensitive life business within the range of minimum guaranteed interest rates as described in note ~~C4.4(b)~~C3.4(b). The table below excludes, in 2020, the liabilities that were fully reinsured to Athene in June 2020. As at 31 December ~~2019,~~2020, approximately 8790 per cent (31 December ~~2018:~~2019: 87 per cent) of Jackson's fixed annuities, variable annuity fixed account options and interest-sensitive life business account values have a current crediting rate that is at the lowest level allowed for under the terms of the policy.
Fixed annuities and the fixed account
portion of variable annuities Interest-sensitive life business

Minimum guaranteed interest rate
31 Dec 2020*
$m 31 Dec 2019
$m 31 Dec 2020
$m 31 Dec 2019
$m

> 0% – 1.0%
6,758 6,952 – –
> 1.0% – 2.0%
302 12,994 – –
> 2.0% – 3.0%
4,709 13,701 270 270
> 3.0% – 4.0%
623 1,561 2,819 3,018
> 4.0% – 5.0%
280 2,236 2,488 2,597
> 5.0% – 6.0%
73 278 2,045 2,031

Total
12,745 37,722 7,622 7,916

*
The decrease in 2020 compared to 2019 primarily relates to the reinsurance of substantially all of Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd as discussed in note D1.1.

Table of Contents
~~interest-sensitive life business account values correspond to crediting rates that are at the minimum guaranteed interest rates.~~C3.4    Products and determining contract liabilities

Fixed annuities and the fixed account
portion of variable annuities Interest-sensitive life business

Minimum guaranteed interest rate
31 Dec 2019 $m 31 Dec 2018 $m 31 Dec 2019
$m 31 Dec 2018
$m

> 0% – 1.0%
6,952 9,660 – –
> 1.0% – 2.0%
12,994 8,646 – –
> 2.0% – 3.0%
13,701 12,832 270 291
> 3.0% – 4.0%
1,561 1,623 3,018 3,049
> 4.0% – 5.0%
2,236 2,285 2,597 2,683
> 5.0% – 6.0%
278 286 2,031 2,168

Total
37,722 35,332 7,916 8,191

Classification of insurance and investment contracts

IFRS 4 requires contracts written by insurers to be classified as either 'insurance' contracts or 'investment' contracts. The classification of the contract determines its accounting.

Contracts that transfer significant insurance risk to the Group are classified as insurance contracts. This judgement is applied in considering whether the material features of a contract gives rise to the transfer of significant insurance risk, which is made at the point of contract inception and not revisited.

For the majority of the Group's contracts, classification is based on a readily identifiable scenario that demonstrates a significant difference in cash flows if the covered event occurs (as opposed to does not occur) reducing the level of judgement involved.

Contracts that transfer financial risk to the Group but not significant insurance risk are classified as investment contracts. Insurance contracts and investment contracts with discretionary participation features are accounted for under IFRS 4. Investment contracts without such discretionary participation features are accounted for as financial instruments under IAS 39.

Insurance business units
Insurance contracts and
investment contracts
with discretionary participation
features
Investment contracts
without discretionary participation features

Asia
–
With-profits contracts
–
Unit-linked policies
–
Health and protection policies
–
Non-participating term contracts
–
Whole life contracts
–
Minor amounts for a number of small categories of business

US
–
Variable annuity contracts
–
Fixed annuity contracts
–
Fixed index annuity contracts
–
Group pay-out annuity contracts
–
Life insurance contracts
–
Guaranteed investment contracts (GICs)
–
Minor amounts of 'annuity certain' contracts

Table of Contents
~~C4.4    Products and determining contract liabilities~~
~~C4.4(a)~~C3.4(a) Asia
Contract type
Description and material features
Determination of liabilities

With-profits and participating contracts Provides savings and/or protection where the basic sum assured can be enhanced by a profit share (or bonus) from the underlying fund as determined at the discretion of the ~~Company.~~local business unit.
Participating products often offer a guaranteed maturity or surrender value. Declared regular bonuses are guaranteed once vested. Future bonus rates and cash dividends are not guaranteed. Market value adjustments and surrender penalties are used for certain products where the law permits such adjustments. Guarantees are predominantly supported by the segregated ~~life~~ funds and their estates.
~~With-profits~~As explained in note A3.1, with-profits contracts are predominantly sold in Hong Kong, Malaysia and Singapore. The total value of the with-profits funds is driven by the underlying asset valuation with movements reflected principally in the accounting value of policyholder liabilities and unallocated surplus.

~~Term, whole life and endowment assurance~~Unit-linked ~~Non-participating~~Combines savings with protection, the cash value of the policy primarily depends on the value of the underlying unitised funds. The attaching liabilities largely reflect the unit value obligation driven by the value of the investments of the unit fund. Additional contract liabilities are held for guaranteed benefits beyond the unit fund value, generally using a gross premium valuation method, as discussed below for health and protection business. These additional provisions are recognised as a component of other business liabilities.

Health and protection Health and protection features are offered as supplements to the products listed above or sold as standalone products. Protection covers mortality and/or ~~protection where the~~morbidity benefits ~~are guaranteed, or determined by a set of defined market-related parameters.~~
~~These products often offer a guaranteed maturity~~including health, disability, critical illness and surrender value. It is common in Asia for regulations or market-driven demand and competition to provide some form of capital value protection and minimum crediting interest rate guarantees. This is reflected within the guaranteed maturity and surrender values. Guarantees are borne by shareholders.
accident coverage. The approach to ~~determining~~determine the contract liabilities is generally driven by the local solvency basis. The discount rates used to determine the contract liabilities are derived in line with the measurement basis applied in each local business unit and are generally based on the risk-free rates applicable to the underlying contacts, including appropriate margins.
A gross premium valuation (GPV) method is typically used in those local businesses where a risk-based capital framework is adopted for local solvency. Under the ~~gross premium valuation~~GPV method, all cash flows are valued explicitly using best estimate assumptions with a suitable margin for prudence.
This is achieved either through adding an explicit allowance ~~for assumptions to deviate from~~above best estimate to the assumptions, or by applying an overlay constraint sosuch that on day one no negative reserves (ie where future premium inflows are expected to exceed ~~prudent~~ future claims and outflows) are derived at an individual policyholder level, or at a product/fund level, or a combination of both.
~~In Vietnam,~~ The margin for prudence is released to profit over the ~~Company uses an estimation basis aligned substantially to that used by~~life of the ~~countries applying the gross premium valuation method.~~contract.
For India and Taiwan, US GAAP is applied for measuring insurance liabilities. For these businesses, the future policyholder benefit provisions for non-linked business are determined using the net level premium method, with an allowance for surrenders, maintenance and claims expenses. Rates of interest used in establishing the policyholder benefit provisions vary by operation depending on the circumstances attaching to each block of business.
~~The Hong Kong business unit applies a net premium valuation method to determine the future policyholder benefit provisions.~~

Table of Contents
Contract type
Description and material features
Determination of liabilities

~~Unit-linked~~ ~~Combines savings with protection, the cash value of the policy depends on the value of the underlying unitised funds.~~ The attaching liabilities reflect the unit value obligation driven by the value of the investments of the unit fund. Additional technical provisions are held for guaranteed benefits beyond the unit fund value using a gross premium valuation method. These additional provisions are recognised as a component of other business liabilities.

~~Health and protection~~ Health and protection features are offered as supplements to the products listed above or sold as standalone products. Protection covers mortality or morbidity benefits including health, disability, critical illness and accident coverage. The determination of the liabilities of health and protection contracts are driven by the local solvency basis. A gross premium valuation method is used in those countries where a risk-based capital framework is adopted for local solvency. Under the gross premium valuation method, all cash flows are valued explicitly using best estimate assumptions with a suitable margin for prudence.
This is achieved either through adding an explicit allowance for assumptions to deviate from best estimate or by applying an overlay constraint so that on day one no negative reserves (ie where future premium inflows are expected to exceed prudent future claims and outflows) are derived at an individual policyholder level, or a combination of both.
The Hong Kong business unit applies a net premium valuation method (NPV) to determine the future policyholder benefit ~~provisions.~~provisions, subject to minimum floors at the policyholder's asset share or guaranteed cash surrender value as appropriate.
For India and Taiwan, US GAAP is applied for measuring insurance liabilities. For these businesses, the future policyholder benefit provisions for non-linked business are determined using the net level premium method, with an allowance for surrenders, maintenance and claims expenses.
In Vietnam, an estimation basis to determine the contract liabilities is aligned substantially to that used by the local business units applying the GPV method.

Non-participating term contracts, whole life and endowment assurance Non-participating savings and/or protection where the benefits are guaranteed, determined by a set of defined market-related parameters, or determined at the discretion of the local business unit. These products often offer a guaranteed maturity and/or surrender value. It is common in Asia for regulations or market-driven demand and competition to provide some form of capital value protection and minimum crediting interest rate guarantees. This is reflected within the guaranteed maturity and surrender values. Guarantees are supported by shareholders. The approach to determining the contract liabilities is generally driven by the local solvency basis, as discussed for health and protection business above.

Table of Contents
~~C4.4(b)~~C3.4(b) US
Contract type
Description and material features
Determination of liabilities

~~Fixed interest rate~~Variable annuities
At 31 December ~~2019, fixed interest rate~~2020, variable annuities accounted for 680 per cent (31 December ~~2018: 7~~2019: 78 per cent) of Jackson's policy and contract liabilities.
~~Fixed interest rate~~Variable annuities are ~~primarily~~ deferred annuity products that are used for asset accumulation in retirement planning and for providing income in ~~retirement.~~
~~The policyholder of a fixed interest rate annuity pays Jackson a premium, which is credited to the policyholder's account. Periodically, interest is credited to the policyholder's account~~retirement, and in some cases administrative charges are deducted from the policyholder's account. Jackson makes benefit payments at a future date as specified in the policy based on the value of the policyholder's account at that date. On more than 90 per cent (2018: 94 per cent) of in-force business, Jackson may reset the interest rate on each contract anniversary, subject to a guaranteed minimum, in line with state regulations. When the annuity matures, Jackson either pays the contract holder the account value or a series of payments in the form of an immediate annuity product.
~~The policy provides that at Jackson's discretion it may reset the interest rate, subject to a guaranteed minimum.~~
Approximately 65 per cent (31 December 2018: 64 per cent) of the fixed interest rate annuities Jackson wrote in 2019 provide for a (positive or negative) market value adjustment (MVA) on surrender. This formula-based adjustment approximates the change in value that assets supporting the product would realise as interest rates move.
Guaranteed minimum interest rate. At 31 December 2019, Jackson had fixed interest rate annuities totalling $15.9 billion (31 December 2018: $16.1 billion) in account value with minimum guaranteed rates ranging from 1.0 per cent to 5.5 per cent and a 2.88 per cent average guaranteed rate (31 December 2018: 1.0 per cent to 5.5 per cent and a 2.91 per cent average guaranteed rate), depending on the particular product, jurisdiction where issued and the date of issue.
~~As explained in note A4.1, all of Jackson's insurance liabilities are based on US GAAP. An overview of the deferral and amortisation of acquisition costs for Jackson is provided in note C5.2(i)(b).~~
With minor exceptions, the following is applied to most of Jackson's contracts. Contracts are accounted for as investment contracts as defined for US GAAP purposes by applying a retrospective deposit method to determine the liability for policyholder benefits.
~~This is then augmented by:~~
–
~~Any amounts that~~ have ~~been assessed to compensate the insurer for services to be performed over future periods (ie deferred income);~~
–
~~Any amounts previously assessed against policyholders that are refundable on termination of the contract; and~~
–
~~Any probable future loss on the contract (ie premium deficiency).~~
~~Capitalised acquisition costs and deferred income for these contracts are amortised over the life of the book of contracts. See the variable annuity section below for further discussion.~~
~~The interest guarantees are not explicitly valued but are reflected as they are earned in the current account liability value.~~

~~Table of Contents~~
~~Contract type~~
~~Description and material features~~
~~Determination of liabilities~~

~~Fixed index annuities~~
~~At 31 December 2019, fixed index annuities accounted for 5 per cent (31 December 2018: 5 per cent) of Jackson's policy and contract liabilities.~~
Fixed index annuities vary in structure but are generally deferred annuities that enable policyholders to obtain a portion of an equity-linked return (based on participation rates, caps and spreads), and provide a guaranteed minimum return.
Most fixed index annuities are subject to early surrender charges for the first five to 12 years of the contract. During the surrender charge period, the contract holder may cancel the contract for the surrender value. Jackson offers a fully liquid fixed index annuity product that has no surrender charges.
Jackson hedges the equity return risk on fixed index products using offsetting equity exposure in the variable annuity product. The cost of hedging is taken into account in setting the index participation rates, caps or spreads.
Guaranteed minimum rates are generally set at 1.0 to 3.0 per cent. At 31 December 2019, Jackson had fixed index annuities allocated to indexed funds totalling $9.8 billion (31 December 2018: $7.6 billion) in account value with minimum guaranteed rates on index accounts ranging from 1.0 per cent to 3.0 per cent and a 1.46 per cent average guaranteed rate (31 December 2018: 1.0 per cent to 3.0 per cent and a 1.77 per cent average guarantee rate).
~~Jackson offers an optional lifetime income rider, which can be elected for an additional fee.~~
Jackson also offers fixed interest accounts on some fixed index annuity products. At 31 December 2019, fixed interest accounts of fixed index annuities totalled $4.3 billion (31 December 2018: $3.4 billion) in account value.
Minimum guaranteed rates on fixed interest accounts range from 1.0 per cent to 3.0 per cent and a 2.75 per cent average guaranteed rate (31 December 2018: 1.0 per cent to 3.0 per cent and a 2.58 per cent average guaranteed rate).
The liability for policyholder benefits that represent the guaranteed minimum return is determined similarly to the liabilities of the fixed interest annuity above. The equity-linked return option within the contract is treated as an embedded derivative liability under US GAAP and therefore this element of the liability is recognised at fair value.
The liability for the lifetime income rider is determined each period end by estimating the expected value of benefits in excess of the projected account balance and recognising the excess on a prorated basis over the life of the contract based on total expected assessments.

~~Group pay-out annuities~~
~~At 31 December 2019, group pay-out annuities accounted for 2 per cent (31 December 2018: 2 per cent) of Jackson's policy and contract liabilities.~~
Group pay-out annuities consist of a block of defined benefit annuity plans assumed from John Hancock USA and John Hancock New York. A single premium payment from an employer (contract holder) funds the pension benefits for its employees (participants). The contracts are tailored to meet the requirements of the specific pension plan being covered. This is a closed block of business from two standpoints: (1) John Hancock USA and John Hancock New York are no longer selling new contracts, and (2) contract holders (companies) are no longer adding additional participants to these defined benefit pension plans. The liability for future benefits is determined under US GAAP methodology for limited-payment contracts, using assumptions as of the acquisition date as to mortality and expense plus provisions for adverse deviation.

~~Table of Contents~~
~~Contract type~~
~~Description and material features~~
~~Determination of liabilities~~

The contracts provide annuity payments that meet the requirements of the specific pension plan being covered. In some cases, the contracts have pre-retirement death and/or withdrawal benefits, pre-retirement surviving spouse benefits, and/or subsidised early retirement benefits.

~~Variable annuities~~
~~At 31 December 2019, variable annuities accounted for 78 per cent (31 December 2018: 75 per cent) of Jackson's policy and contract liabilities.~~
~~Variable annuities are deferred annuities that have the same~~certain tax ~~advantages and pay-out options as fixed interest rate and fixed index annuities. They are also used for asset accumulation in retirement planning and to provide income in retirement.~~advantages.
The rate of return depends upon the performance of the selected fund portfolio. Policyholders may allocate their investment to either the fixed account or a selection of variable accounts. Most variable annuities are subject to early surrender charges for up to the first ~~three to~~ nine years of the contract. ~~During the surrender charge period, the contract holder may cancel the contract for the surrender value.~~ Jackson offers some fully liquid variable annuity products that have no surrender charges. Subject to benefit guarantees, investment risk on the variable account is borne by the policyholder, while investment risk on the fixed account is borne by Jackson through guaranteed minimum fixed rates of interest. At 31 December ~~2019, 4~~2020, 5 per cent (31 December ~~2018: 5~~2019: 4 per cent) of variable annuity funds were in fixed ~~accounts.~~
~~Jackson had variable annuity funds in fixed~~ accounts, ~~totalling $7.8 billion (31 December 2018: $8.1 billion)~~ with ~~minimum guaranteed rates ranging from 1.0 per cent to 3.0 per cent and a 2.19 per cent~~an average guaranteed rate of 1.7 percent (31 December ~~2018: 1.0~~2019: 2.2 per ~~cent to 3.0 per cent and a 1.7 per cent average guaranteed rate)~~cent).
~~The general principles for fixed annuity and fixed index annuity also apply to variable annuities.~~
~~The impact of any fixed account interest guarantees is reflected as they are earned in the current account value.~~
Jackson regularly evaluates estimates used and adjusts the benefit guarantee liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised.
~~The benefit guarantee types are further set out below:~~
~~Benefits that are payable in the event of death (guaranteed minimum death benefit)~~
The liability for Guaranteed Minimum Death Benefit (GMDB) is determined at each period end by estimating the expected value of benefits in excess of the projected account balance and recognising the excess rateably over the life of the contract based on total expected assessments. At 31 December 2019, these liabilities were valued using a series of stochastic investment performance scenarios, a mean investment return of 7.4 per cent (31 December 2018: 7.4 per cent) net of external fund management fees, and assumptions for policyholder behaviour, mortality and expense.

Jackson offers a choice of guaranteed benefit options within its variable annuity product portfolio, which can be elected for additional fees. These guaranteed benefits might be expressed as the return of either: (a) total deposits made to the contract adjusted for any partial withdrawals, (b) total deposits made to the contract adjusted for any partial withdrawals, plus a minimum return, or (c) the highest contract value on a specified anniversary date adjusted for any withdrawals following that contract anniversary.
~~Jackson hedges these risks using derivative instruments as described in note C7.3.~~
As explained in note A3.1, all of Jackson's insurance liabilities are based on US GAAP.
Capitalised acquisition costs and deferred income for these contracts are amortised over the life of the book of contracts, are also explained in note A3.1.
For the variable annuities business, the policyholder liabilities are based on the value of the separate account (which is directly reflective of the underlying asset value movements), the value of the fixed account and provision for benefit guarantees in the general account which are measured on a combination of fair value and other US GAAP derived principles.
For the fixed account allocations, the principles for fixed annuity and fixed index annuity below also apply to variable annuities.
The benefit guarantee types are further set out below:
Benefits that are payable in the event of death (guaranteed minimum death benefit (GMDB))
The liability for GMDBs is determined by estimating the expected value of benefits in excess of the projected account balance and recognising the excess rateably over the life of the contract based on total expected assessments. At 31 December 2020, these liabilities were valued using a series of stochastic investment performance scenarios, a mean investment return of 7.15 per cent (31 December 2019: 7.4 per cent) net of external fund management fees, and assumptions for policyholder behaviour, mortality and expense.
Benefits that are payable upon the depletion of funds (guaranteed minimum withdrawal ~~benefit)~~benefit (GMWB))
The liability for the ~~Guaranteed Minimum Withdrawal Benefit (GMWB)~~GMWB 'for life' portion is determined similarly to GMDB above.
Provisions for benefits under GMWB 'not for life' features are recognised at fair value under US GAAP.
Non-performance risk is incorporated into the fair value calculation through the use of discount ~~interest~~ rates ~~sourced from an AA corporate credit curve as a proxy~~that allow for estimates of Jackson's own credit ~~risk. Other~~ risk margins, particularly for policyholder behaviour and long-term volatility, are also incorporated into the model through the use of explicitly conservative assumptions. On a periodic basis, Jackson validates the resulting fair values based on ~~comparisons~~observable market data.
The value of future fees to ~~other models and market movements.~~offset payments made under the guarantees are established so that no gain arises on day one.

Table of Contents
Contract type
Description and material features
Determination of liabilities

~~The value of future fees to offset payments made under the guarantees are established so that on day one no gain arises.~~

Benefits that are payable at annuitisation (guaranteed minimum income ~~benefit)~~benefit (GMIB))

This feature is no longer offered and existing coverage is substantially reinsured, subject to deductibles and annual claim limits.

The direct Guaranteed Minimum Income Benefit (GMIB) liability is determined by estimating the expected value of the annuitisation benefits in excess of the projected account balance at the date of annuitisation and recognising the excess rateably over the life of the contract based on total expected assessments.

Guaranteed Minimum Income Benefits are reinsured, subject to a deductible and annual claim limits. Due to the net settlement provisions of the reinsurance agreement, under the 'grandfathered' US GAAP, it is recognised at fair value with the change in fair value included as a component of short-term fluctuations. Volatility and non-performance risk is considered as per GMWB above.

Benefits that are payable at the end of a specified period (guaranteed minimum accumulation ~~benefit)~~benefit (GMAB))

This feature is no longer offered.

Provisions for ~~Guaranteed Minimum Accumulation Benefit (GMAB)~~GMAB are recognised at fair value under US GAAP. Volatility and non-performance risk is considered as per GMWB above.

~~Deferred acquisition costs (DAC)~~

~~Capitalised acquisition costs~~Fixed interest rate and ~~deferred income~~fixed index annuities
At 31 December 2020, fixed interest rate and fixed index annuities accounted for 10 per cent (31 December 2019: 11 per cent) of Jackson's policy and contract liabilities.
Following the reinsurance transaction with Athene Life Re Ltd in June 2020, these contracts are ~~amortised~~substantially fully reinsured as at 31 December 2020.
Fixed interest rate and fixed index annuities are primarily deferred annuity products that are used for asset accumulation in retirement planning and for providing income in retirement.
Under a fixed interest rate annuity contract, the policyholder's account is periodically credited with a certain interest rate, generally set at Jackson's discretion subject to a guaranteed minimum in line with state regulations. When the annuity matures, Jackson either pays the contract holder the account value or a series of payments in the form of an immediate annuity product.
Fixed index annuities vary in structure and generally enable policyholders to obtain a portion of an equity-linked return (based on participation rates, caps and spreads), and provide a guaranteed minimum return. Jackson offers an optional lifetime income rider, which can be elected for an additional fee. Jackson also offers fixed interest accounts on some fixed index annuity products.
With minor exceptions, the following is applied to most of Jackson's contracts. Contracts are accounted for as investment contracts as defined for US GAAP purposes by applying a retrospective deposit method to determine the liability for policyholder benefits.
This is then augmented by:
–
Any amounts that have been assessed to compensate the insurer for services to be performed over future periods (ie deferred income);
–
Any amounts previously assessed against policyholders that are refundable on termination of the contract; and
–
Any probable future loss on the contract (ie premium deficiency).
The liability for policyholder benefits that represent the guaranteed minimum return is determined similarly to the general principles for the liabilities of the variable annuities above.
The interest guarantees are not explicitly valued but are reflected as they are earned in the current account liability value.
The equity-linked return option within the fixed index annuity contract is treated as an embedded derivative liability under US GAAP and therefore this element of the liability is recognised at fair value.
The liability for the lifetime income rider on the fixed index annuity contract is determined each period end by estimating the expected value of benefits in excess of the projected account balance and recognising the excess on a prorated basis over the life of the ~~book of contracts. The majority of Jackson's DAC relates to its variable annuities business.~~contract, based on total expected assessments.

~~The present value of the estimated gross profit is computed using the rate of interest that accrues to policyholder balances (sometimes referred to as the contract rate).~~

Estimated gross profits for the fixed interest rate annuities, fixed index annuities and variable annuities include estimates of the following, each of which will be determined based on the best estimate of amounts over the life of the book of contracts without provision for adverse deviation:
–
~~Amounts expected to be assessed against policyholder balances for mortality less benefit claims in excess of related policyholder balances;~~

Table of Contents
Contract type
Description and material features
Determination of liabilities

Group pay-out annuities
At 31 December 2020, group pay-out annuities accounted for 2 per cent (31 December 2019: 2 per cent) of Jackson's policy and contract liabilities.
Group pay-out annuities consist of a block of defined benefit annuity plans assumed from John Hancock USA and John Hancock New York. A single premium payment from an employer (contract holder) funds the pension benefits for its employees (participants). The contracts provide annuity payments that meet the requirements of the specific pension plan being covered, including pre-retirement death and/or withdrawal benefits, pre-retirement surviving spouse benefits, and/or subsidised early retirement benefits in some cases. This is a closed block of business from two standpoints: (1) John Hancock USA and John Hancock New York are no longer selling new contracts, and (2) contract holders (companies) are no longer adding additional participants to these defined benefit pension plans.
–
~~Amounts expected to be assessed~~The liability for ~~contract administration less costs incurred~~future benefits is determined under US GAAP methodology for ~~contract administration;~~
limited-payment contracts, using assumptions at the acquisition date for mortality and expense, plus provisions for adverse deviation.

–
~~Amounts expected to be earned from the investment of policyholder balances less interest credited to policyholder balances;~~
–
~~Amounts expected to be assessed against policyholder balances upon termination of contracts (sometimes referred to as surrender charges);~~
–
~~Assumptions for the long-term investment return for the separate accounts and future hedge costs; and~~
–
~~Other expected assessments and credits.~~

Life insurance
At 31 December ~~2019,~~2020, life insurance products accounted for 76 per cent (31 December ~~2018: 9~~2019: 7 per cent) of Jackson's policy and contract liabilities.
Jackson discontinued new sales of life insurance products in 2012.
Life products include term life, traditional life and interest-sensitive life (universal life and variable universal life).
–
Term life provides protection for a defined period and a benefit that is payable to a designated beneficiary upon death of the insured.
–
Traditional life provides protection for either a defined period or until a stated age and includes a predetermined cash value.
–
Universal life provides permanent individual life insurance for the life of the insured and includes a savings element.
–
Variable universal life is a type of life insurance policy that combines death benefit protection with the ability for the policyholder ~~account~~ to be invested in separate account funds.
Excluding the business that is subject to the retrocession treaties at 31 December ~~2019,~~2020, Jackson had interest-sensitive life business in force with total account value of ~~$7.9~~$7.6 billion (31 December ~~2018: $8.2~~2019: $7.9 billion), with ~~minimum guaranteed interest rates ranging from 2.5 per cent to 6.0 per cent with~~ a ~~4.68~~4.7 per cent average guaranteed rate (31 December ~~2018: 2.5~~2019: 4.7 per ~~cent to 6.0 per cent with a 4.67 per cent average guaranteed rate)~~cent).
For term and traditional life insurance contracts, provisions for future policy benefits are determined under US GAAP using the net level premium method and assumptions ~~as of~~at the issue or acquisition date ~~as to~~for mortality, interest, policy lapses and expenses, plus provisions for adverse ~~deviation for directly sold business and assumptions at purchase for acquired business.~~deviation.
For universal life and variable universal life a retrospective deposit method is used to determine the liability for policyholder benefits. This is then augmented by additional liabilities to account for no-lapse guarantees, profits followed by losses, contract features such as persistency bonuses, and cost of interest rate guarantees.

Table of Contents
Contract type
Description and material features
Determination of liabilities

Institutional products
At 31 December ~~2019,~~2020, institutional products accounted for 1 per cent (31 December ~~2018:~~2019: 1 per cent) of Jackson's policy and contract liabilities.
Institutional products are: guaranteed investment contracts (GICs), funding agreements (including agreements issued in conjunction with Jackson's participation in the US Federal Home Loan Bank programme) and Medium Term Note funding agreements.
GICs feature a lump sum policyholder deposit on which interest is paid at a rate fixed at inception. Market value adjustments are made to the value of any early withdrawals.
Institutional products are classified as investment contracts, and are accounted for as financial liabilities at amortised cost. The currency risk on contracts that represent currency obligations other than US dollars are hedged using cross-currency swaps.

~~Table of Contents~~
~~Contract type~~
~~Description and material features~~
~~Determination of liabilities~~

Funding agreements feature either lump sum or periodic policyholder deposits. Interest is paid at a fixed or index linked rate. Funding agreements have a duration of between one and 30 years. In ~~2019~~2020 and ~~2018~~2019, there were no funding agreements terminable by the policyholder with less than 90 days' notice.
Institutional products are classified as investment contracts, and are accounted for as financial liabilities at amortised cost. The currency risk on contracts that represent currency obligations other than USD are hedged using cross-currency swaps.

C5C4    Intangible assets
~~C5.1~~C4.1
Goodwill
Business combination
Business acquisitions are accounted for by applying the purchase method of accounting, which adjusts the net assets of the acquired company to fair value at the date of purchase. The excess of the acquisition consideration over the fair value of the assets and liabilities of the acquired business is recorded as goodwill. The Group chooses the full goodwill method or the partial goodwill method to calculate goodwill on an acquisition by acquisition basis. Expenses related to acquiring new subsidiaries are charged to the income statement in the period in which they are incurred and not included in goodwill. Income and expenses of acquired businesses are included in the income statement from the date of acquisition.
Where the Group writes a put option, ~~over its~~which if exercised triggers the purchase of, non-controlling interests as part of its business acquisition, ~~which if exercised triggers the purchase by the Group of the non-controlling interests,~~ the put option is recognised as a financial liability at the acquisition ~~date~~date. Where risks and rewards remain with the non-controlling interests, a corresponding amount is deducted ~~directly~~ from ~~shareholder's equity due to the significant risks and rewards of ownership remaining with the non-controlling interests.~~equity. Any subsequent changes to the carrying amount of the put option liability are also recognised within equity.
Goodwill
Goodwill is capitalised and carried on the Group consolidated statement of financial position as an intangible asset at initial value less any accumulated impairment losses. Goodwill impairment testing is conducted annually and when there is an indication of impairment.
Goodwill shown on the consolidated statement of financial position ~~at 31 December 2019 is wholly~~represents amounts attributable to shareholders and ~~represents amounts~~are allocated to businesses in Asia and Africa in respect of both acquired asset management and life businesses. There has been no impairment as at 31 December 2020 and 2019.

31 Dec 2019 $m
31 Dec 2018 $m
2020 $m
2019 $m

Carrying value at beginning of year 2,365 2,005
Demerger of UK and Europe operations (1,731) –
Carrying value at 1 Jan 969 2,365
Removal of discontinued UK and Europe operations – (1,731)
Additions in the year 299 503 – 299
Disposals/reclassifications to held for sale – (13)
Exchange differences 36 (130) (8) 36

Carrying value at end of year 969 2,365
Carrying value at 31 Dec 961 969

Table of Contents
Impairment testing
Goodwill does not generate cash flows independently of other groups of assets and thus is assigned to cash-generating units for the purposes of impairment testing. These cash-generating units (CGUs) are based upon how management monitors the business and represent the lowest level to which goodwill can be allocated on a reasonable basis. Of the carrying value at 31 December 2020, $513 million relates to asset management business in Thailand. Other goodwill amounts are allocated across CGUs in Asia and Africa operations, which are not individually material.
Goodwill is tested for impairment by comparing the ~~cash-generating unit's~~CGU's carrying amount, including any goodwill, with its recoverable amount. The Group's methodology of assessing whether goodwill may be impaired for acquired life and asset management operations is discussed ~~below:~~below.
For acquired life businesses, the ~~Company~~Group routinely compares the aggregate of net asset value and acquired goodwill on an IFRS basis of the acquired life business with the value of the current in-force business as determined using the EEV methodology. Any excess of IFRS value over EEV carrying value is then compared with EEV basis value of current and projected future new business to determine whether there is any indication that the goodwill in the IFRS statement of financial position may be impaired. The methodology and assumptions underpinning the Group's EEV basis of reporting are included in the EEV basis supplementary information in this Annual Report.

~~Table of Contents~~
The goodwill in respect of asset management businesses ~~comprised~~comprises mainly the goodwill arising from the acquisition of Thanachart Fund Management Co., ~~Ltd. (TFUND)~~Ltd (TFund) in 2019 and TMB Asset Management Co., ~~Ltd.~~Ltd (TMBAM) in Thailand in 2018. At 31 December ~~2019,~~2020, the recoverable amount of these businesses has been determined by calculating the value in use of ~~each of these businesses (considered~~combined business given the business units are planned to be merged and future forecasts prepared by management assume the ~~cash-generating units)~~combination has been completed, and hence have been prepared as a single CGU. The value in use for Thailand asset management businesses has been calculated using a discounted cash flow valuation.
For ~~TMBAM,~~ the ~~discounted cash flow valuation is based on the latest three-year plan and cash flow projections for the later years. For TFUND, which was acquired in December 2019,~~combined Thailand asset management business, the valuation is based on ~~the 10-year cash flow projections used in assessing the acquisition. The value in use for these acquired asset management businesses is particularly sensitive to~~ a number of key assumptions as follows:
–
~~The set of economic, market and business assumptions used to derive the cash~~Cash flow projections ~~for~~based on the ~~businesses;~~latest five-year business plan/forecast;

–
~~The assumed~~A constant growth rate of 2.3 per cent on forecast cash flows beyond the terminal year of the cash flow ~~projections after considering expected future and past growth rates. At 31 December 2019, a growth rate of 2.25 per cent has been used to extrapolate beyond the~~ projection period ~~(2018: 2.25~~(31 December 2019: 2.3 per ~~cent in respect of TMBAM)~~cent);

–
The risk discount rate applied in accordance with the nature of the businesses. The pre-tax discount rate applied at 31 December ~~2019 was~~2020 is 9 per cent ~~(2018:~~(31 December 2019: 9 per ~~cent in respect of TMBAM)~~cent); and

–
The continuation of asset management contracts on similar terms.
Management believes that any reasonable change in the key assumptions would not cause the recoverable amount of the asset management businesses acquired to fall below its carrying amount.
~~C5.2~~C4.2
Deferred acquisition costs and other intangible assets
Intangible assets acquired on the purchase of a subsidiary or portfolio of contracts are measured at fair value on acquisition. ~~Deferred acquisition costs~~DAC are accounted for as described in note ~~A4.1(c)~~A3.1(c). Other intangible assets, such as distribution rights and software, are valued initially at the price paid to acquire them and are subsequently carried at cost less amortisation and any accumulated impairment losses. For intangibles other than DAC, amortisation follows the pattern in which the future economic benefits are expected to be consumed. If the pattern cannot be determined reliably, a straight-line method is applied. For software, the amortisation generally represents the licence period of the software acquired. Amortisation of intangible assets is charged to the 'acquisition costs and other expenditure' line in the consolidated income statement. Impairment testing is conducted when there is an indication of impairment.

31 Dec 2019 $m
31 Dec 2018 $m

Deferred acquisition costs and other intangible assets attributable to shareholders
From continuing operations
17,409 14,865
From discontinued operations
– 143

Totalnote(i)
17,409 15,008

Other intangible assets, including computer software, attributable to with-profits funds
From continuing operations
67 71
From discontinued operations
– 106

Total
67 177

Total of deferred acquisition costs and other intangible assets 17,476 15,185

31 Dec 2020 $m
31 Dec 2019 $m

DAC and other intangible assets attributable to shareholders 20,275 17,409
Other intangible assets, including computer software, attributable to with-profits funds 70 67

Total of DAC and other intangible assets 20,345 17,476

Table of Contents
(i)    ~~Deferred acquisition costs~~DAC and other intangible assets attributable to shareholders
The ~~deferred acquisition costs~~DAC and other intangible assets attributable to shareholders comprise:

31 Dec 2019 $m
31 Dec 2018 $m
31 Dec 2020 $m
31 Dec 2019 $m

Deferred acquisition costs related to insurance contracts as classified under IFRS 4 14,206 12,758
Deferred acquisition costs related to investment management contracts, including life assurance contracts classified as financial instruments and investment management contracts under IFRS 4 33 99
DAC related to insurance contracts as classified under IFRS 4 16,182 14,206
DAC related to investment management contracts, including life assurance contracts classified as financial instruments and investment management contracts under IFRS 4 34 33

Deferred acquisition costs related to insurance and investment contractsnote(ii) 14,239 12,857
DAC related to insurance and investment contractsnote(ii) 16,216 14,239

Present value of acquired in-force policies for insurance contracts as classified under IFRS 4 (PVIF) 38 43 34 38
Distribution rights and other intangibles 3,132 2,108 4,025 3,132

Present value of acquired in-force (PVIF) and other intangibles attributable to shareholdersnote(iii) 3,170 2,151 4,059 3,170

Total of deferred acquisition costs and other intangible assetsnote(a) 17,409 15,008
Total of DAC and other intangible assetsnote(a) 20,275 17,409

Notes
(a)
Total ~~deferred acquisition costs~~DAC and other intangible assets attributable to shareholders can be further analysed by business operations as follows:
31 Dec 2019 $m 31 Dec
2018 $m 2020 $m 2019 $m

Deferred acquisition costs DAC

Asia
insurance US
insurance* Discontinued UK
and Europe
operations PVIF and
other
intangibles† Total Total Asia US* PVIF and
other
intangibles† Total Total
note (b) note (b) note (iii)

Balance at 1 January 1,610 11,113 134 2,151 15,008 14,700
Demerger of UK and Europe operations – – (134) (9) (143) –
Balance at 1 Jan 1,999 12,240 3,170 17,409 15,008
Removal of discontinued UK and Europe operations – – – – (143)
Additions‡ 615 807 – 1,179 2,601 1,666 617 740 1,114 2,471 2,601
Amortisation to the income statement:
Amortisation to the income statement:note(c)

Adjusted IFRS operating profit based on longer-term investment returns
(257) (297) – (238) (792) (1,370)
Non-operating profit (loss)
– 1,248 – (5) 1,243 (156)
Adjusted operating profit
(308) (423) (220) (951) (792)
Non-operating profit (loss)**
– 812 (5) 807 1,243

(257) 951 – (243) 451 (1,526) (308) 389 (225) (144) 451
Disposals and transfers – – – (11) (11) (19) – – (12) (12) (11)
Exchange differences and other movements 31 – – 103 134 (141) 45 – 12 57 134
Amortisation of DAC related to net unrealised valuation movements on the US insurance operation's available-for-sale securities recognised within other comprehensive income – (631) – – (631) 328 – 494 – 494 (631)

Balance at 31 December 1,999 12,240 – 3,170 17,409 15,008
Balance at 31 Dec 2,353 13,863 4,059 20,275 17,409

*
Under the Group's application of IFRS 4, US GAAP is used for measuring the insurance assets and liabilities of its US and certain Asia operations. Under US GAAP, most of the US insurance operation's products are accounted for under Accounting Standard no. 97 of the Financial Accounting Standards Board (FAS 97) whereby ~~deferred acquisition costs~~DAC are amortised in line with the emergence of actual and expected gross profits which are determined using an assumption for long-term investment returns for the separate account of ~~7.4~~7.15 per cent ~~(2018:~~(2019: 7.4 per cent), gross of asset management fees and other charges to policyholders, but net of external fund management fees. The other ~~assumption~~assumptions impacting expected gross profits include mortality assumptions, lapses, assumed unit costs and future hedge costs. The amounts included in the income statement and other comprehensive income affect the pattern of profit emergence and thus the DAC amortisation attaching. DAC amortisation is allocated to the operating and ~~non-operating components~~short-term investment fluctuations in investment returns of the Group's supplementary analysis of profit and other comprehensive income by reference to the underlying items. The gain of $389 million in 2020 in the US operations includes $(764) million for the write-off of the DAC in respect of the reinsured Jackson's in-force fixed and fixed index annuity liabilities to Athene Life Re Ltd. The US DAC amortisation charge within adjusted operating profit of $(423) million increased from the 2019 corresponding amount of $(297) million largely as a result of changes to the longer-term economic assumptions underpinning the amortisation calculation following an expectation of lower interest rates in the future, partially offset by the benefits of increases in DAC amortisation deceleration in the year described in note (c) below.

**
'Non-operating profit (loss)' is used to refer to items excluded from adjusted operating profit and includes short-term investment fluctuations in investment returns on shareholder-backed business, corporate transactions and amortisation of acquisition accounting adjustments.

†
PVIF and other intangibles comprise present value of acquired in-force (PVIF), distribution rights and other intangibles such as software rights. Distribution rights relate to amounts that have been paid or have become unconditionally due for payment as a result of past events in respect of bancassurance partnership arrangements in Asia. These agreements allow for bank distribution of Prudential's insurance products for a fixed period of time. Software rights include additions of ~~$51~~$54 million, amortisation of ~~$(33)~~$(34) million, disposals of $5$(6) million, foreign exchange of $2$3 million and closing balance at 31 December ~~2019~~2020 of ~~$85~~$102 million (31 December ~~2018: $70 million for continuing operations)~~2019: $85 million).

‡
~~In January 2019,~~On 19 March 2020, the Group ~~renewed its regional strategic~~signed a new bancassurance ~~alliance~~agreement with ~~United Overseas~~TMB Bank ~~Limited (UOB).~~for a period of 15 years. This extended exclusive partnership agreement required the novation of TMB Bank's current bancassurance distribution agreement with another insurance group. The ~~new~~ agreement ~~extends the original alliance,~~cost Thai Baht 24.5 billion, which commenced in 2010, to 2034 and increases the geographical scope to include a fifth market, Vietnam, alongside the existing markets of Singapore, Malaysia, Thailand and Indonesia. As part of this transaction, Prudential has agreed to pay UOB an initial fee of $853 million (equivalent to SGD1,150 million) for distribution rights which are not dependent on future sales volumes. Of the $853 million, $301 million waswere paid in ~~2019, with another~~ two instalments ~~being payable~~with Thai Baht 12.0 billion paid in April 2020 and the remainder in January 2021. ~~After allowing for discounting, the~~The amount included in additions in the table above is ~~$834~~$788 million.

Table of Contents
(b)
The DAC amount in respect of US arises in the insurance operations which comprises the following amounts:

31 Dec 2019 $m
31 Dec 2018 $m
31 Dec 2020 $m
31 Dec 2019 $m

Variable annuity business 12,406 10,796
Other business 529 381
Variable annuity and other business 14,064 12,935
Cumulative shadow DAC (for unrealised gains/losses booked in other comprehensive income)* (695) (64) (201) (695)

Total DAC for US operations 12,240 11,113 13,863 12,240

*
A net gain of $494 million (2019: a net loss of $(631) ~~million (2018: a gain of $328~~ million) for shadow DAC amortisation is booked within other comprehensive income to reflect a reduction in shadow DAC of $535 million as a result of the reinsurance of substantially all of Jackson's fixed and fixed index annuity business to Athene Life offset by the impact from the positive unrealised valuation movement for 2020 of ~~$4,023~~$2,717 million ~~(2018: negative~~(2019: positive unrealised valuation movement of ~~$(2,159)~~$4,023 million). These adjustments reflect the movement from year to year, in the changes to the pattern of reported gross ~~profit~~profits that would have happened if the assets reflected in the statement of financial position had been sold, crystallising the unrealised gains and losses, and the proceeds reinvested at the yields currently available in the market. ~~At 31 December 2019, the cumulative shadow DAC balance as shown in the table above was negative $(695) million (31 December 2018: negative $(64) million).~~
(c)    Sensitivity of US DAC amortisation charge
The amortisation charge to the income statement in respect of the US DAC asset is reflected in both adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ and short-term fluctuations in investment returns. The amortisation charge to adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ in a reporting period generally comprises:
–
A core amount that reflects a relatively stable proportion of underlying premiums or profit; and
–
An element of acceleration or deceleration arising from market movements differing from expectations.
In periods where the cap and floor features of the mean reversion technique (which is used for moderating the effect of short-term volatility in investment returns) are not relevant, the technique operates to dampen the second element above. Nevertheless, extreme market movements can cause material acceleration or deceleration of amortisation in spite of this dampening effect. It is currently estimated that DAC amortisation will accelerate (decelerate) by $17 million for every 1 per cent under (over) the mean reversion rate (set using the calculation described below to give an average over an 8-year period of 7.15 per cent (2019: 7.4 per cent)) the actual separate account growth rate differs by.
Furthermore, in those periods where the cap or floor is relevant, the mean reversion technique provides no further dampening and additional volatility may result.
In ~~2019,~~2020, the DAC amortisation charge for adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ was determined after including a credit for decelerated amortisation of $330 million (2019: credit for deceleration: $280 ~~million (2018: $259 million charge~~million). DAC amortisation for ~~acceleration).~~variable annuities is sensitive to separate account performance. The deceleration arising in ~~2019 reflects~~2020 reflected a mechanical decrease in the projected separate account return for the next five years under the mean-reversion technique. Under this technique, the projected level of return for each of the next five years is adjusted so that in combination with the actual rates of return for the preceding three years (including the current year), the assumed long-term annual separate account return of ~~7.4~~7.15 per cent is realised on average over the entire eight-year period. ~~The deceleration in DAC amortisation in 2019 is primarily driven by the actual separate account return in the year being higher than that assumed.~~
The application of the mean reversion formula (described in note ~~A4.1)~~A3.1) has the effect of dampening the impact of equity market movements on DAC amortisation while the mean reversion assumption lies within the corridor. At 31 December ~~2019,~~2020, it would take approximate movements in separate account values of more than either negative 2640 per cent or positive 4919 per cent for mean reversion assumption to move outside the corridor.
Changes to the assumed long-term separate account return will also impact the calculation of the DAC balance and could increase or decrease the DAC amortisation charge in a given period. If the assumption for the long-term separate account investment returns (net of external fund management fees) was reduced by 0.5 per cent from 7.15 per cent to 6.65 per cent at 31 December 2020, the 2020 amortisation charge for adjusted operating profit would have increased by around $70 million with a corresponding reduction in the DAC balance at 31 December 2020. In addition, pre-tax short-term fluctuations in investment returns would reduce by circa $64 million following changes to the policyholder liabilities valued using longer-term equity assumptions under SOP03-1, resulting in a total impact on profit before tax of $134 million.
(ii)    ~~Deferred acquisition costs~~DAC related to insurance and investment contracts
The movements in ~~deferred acquisition costs~~DAC relating to insurance and investment contracts are as follows:
2019 $m 2018 $m
2020 $m 2019 $m

Insurance
contracts
Investment
contracts
Insurance
contracts
Investment
contracts
Insurance
contracts
Investment
contracts
Insurance
contracts
Investment
contracts
note note

Balance at 1 January 12,758 99 12,406 85
Demerger of UK and Europe operations (62) (72) – –
Balance at 1 Jan 14,206 33 12,758 99
Removal of discontinued UK and Europe operations – – (62) (72)
Additions 1,411 11 1,324 35 1,354 3 1,411 11
Amortisation 699 (5) (1,266) (16) 85 (4) 699 (5)
Exchange differences 31 – (34) (5) 43 2 31 –
Change in shadow DAC related to movement in unrealised appreciation of debt securities classified as available-for-sale (631) – 328 – 494 – (631) –

Balance at 31 December 14,206 33 12,758 99
Balance at 31 Dec 16,182 34 14,206 33

Table of Contents
Note
All of the additions offor investment contracts are through internal development. The carrying amount of the DAC balance comprises the following gross and accumulated amortisation amounts:

31 Dec 2019 $m
31 Dec 2018 $m
31 Dec 2020 $m
31 Dec 2019 $m

Gross amount
34 231 39 34
Accumulated amortisation
(1) (132) (5) (1)

Carrying amount
33 99 34 33

(iii)    PVIF and other intangibles attributable to shareholders
2019 $m 2018 $m
2020 $m 2019 $m

PVIF Distribution
rights Other
intangibles
(including
software) Total PVIF Distribution
rights Other
intangibles
(including
software) Total PVIF Distribution
rights Other
intangibles
(including
software) Total PVIF Distribution
rights Other
intangibles
(including
software) Total
note (a) note (b) note (a) note (b) note (a) note (b) note (a) note (b)

Balance at 1 January
Balance at 1 Jan
Cost 295 2,546 399 3,240 307 2,426 491 3,224 175 3,783 379 4,337 295 2,546 399 3,240
Accumulated amortisation (252) (587) (250) (1,089) (258) (423) (334) (1,015) (137) (812) (218) (1,167) (252) (587) (250) (1,089)

43 1,959 149 2,151 49 2,003 157 2,209 38 2,971 161 3,170 43 1,959 149 2,151

Demerger of UK and Europe operations (1) – (8) (9) – – – –
Removal of discontinued UK and Europe operations – – – – (1) – (8) (9)
Additions – 1,110 69 1,179 – 242 65 307 – 1,047 67 1,114 – 1,110 69 1,179
Amortisation charge (5) (196) (42) (243) (5) (190) (49) (244) (5) (180) (45) (230) (5) (196) (42) (243)
Disposals and transfers – – (11) (11) – – (19) (19) – – (12) (12) – – (11) (11)
Exchange differences and other movements 1 98 4 103 (1) (96) (5) (102) 1 13 3 17 1 98 4 103

Balance at 31 December 38 2,971 161 3,170 43 1,959 149 2,151
Balance at 31 Dec 34 3,851 174 4,059 38 2,971 161 3,170

Comprising:
Cost
175 3,783 379 4,337 295 2,546 399 3,240 177 4,845 424 5,446 175 3,783 379 4,337
Accumulated amortisation
(137) (812) (218) (1,167) (252) (587) (250) (1,089) (143) (994) (250) (1,387) (137) (812) (218) (1,167)

38 2,971 161 3,170 43 1,959 149 2,151 34 3,851 174 4,059 38 2,971 161 3,170

Notes
(a)
All of the net PVIF balances relate to insurance contracts. The PVIF attaching to investment contracts have been fully amortised. ~~Amortisation is charged over the period of provision of asset management services as those profits emerge.~~
(b)
Distribution rights relate to fees paid in relation to the bancassurance partnership arrangements for the bank distribution of Prudential's insurance products for a fixed period of time. The distribution rights amounts are amortised on a basis to reflect the pattern in which the future economic benefits are expected to be consumed by reference to new business production levels.

Table of Contents
C6C5    Borrowings
~~C6.1~~
~~Core structural borrowings of shareholder-financed businesses~~
Although initially recognised at fair value ~~net~~(net of transaction ~~costs,~~costs), borrowings ~~excluding liabilities of consolidated collateralised debt obligations,~~ are subsequently accounted for on an amortised cost basis using the effective interest ~~method.~~method, with the exception of liabilities of consolidated collateralised debt obligations which continue to be carried at fair value. Under the effective interest method, the difference between the redemption value

~~Table of Contents~~
of the borrowing and the initial proceeds (net of related issue costs) is amortised through the income statement to the date of maturity or for hybrid debt, over the expected life of the instrument.
C5.1  Core structural borrowings of shareholder-financed businesses

31 Dec 2019 $m
31 Dec 2018 $m

Central operations:

Subordinated debt substituted to M&G plc in 2019:

£600m 5.56% (30 Jun and 31 Dec 2018: 5.0%) Notes 2055note(i)
– 753
£700m 6.34% (30 Jun and 31 Dec 2018: 5.7%) Notes 2063note(i)
– 886
£750m 5.625% Notes 2051
– 947
£500m 6.25% Notes 2068
– 634
US$500m 6.5% Notes 2048
– 498

Total subordinated debt substituted to M&G plc in 2019note(ii)
– 3,718

Subordinated and other debt not substituted to M&G plc:

US$250m 6.75% Notesnote(iii)
250 250
US$300m 6.5% Notesnote(iii)
300 299

Perpetual Subordinated Capital Securities
550 549

US$700m 5.25% Notes
700 700
US$1,000m 5.25% Notes
996 993
US$725m 4.375% Notes
721 720
US$750m 4.875% Notes
744 743

Perpetual Subordinated Capital Securities
3,161 3,156

€20m Medium Term Notes 2023
22 23
£435m 6.125% Notes 2031
571 549
£400m 11.375% Notes 2039note(iv)
– 508

Subordinated notes
593 1,080

Subordinated debt total
4,304 4,785
Senior debt:note(v)

£300m 6.875% Bonds 2023
392 375
£250m 5.875% Bonds 2029
298 283
Bank loansnote(vi)

$350m Loan 2024
350 –
£275m Loan 2022
– 350

Total debt not substituted to M&G plc in 2019
5,344 5,793

Total central operations
5,344 9,511
Jackson US$250m 8.15% Surplus Notes 2027note(vii)
250 250

Total core structural borrowings of shareholder-financed businessesnote(viii)
5,594 9,761

31 Dec 2020 $m
31 Dec 2019 $m

Central operations:

Subordinated debt:

US$250m 6.75% Notesnote(i)
250 250
US$300m 6.5% Notesnote(i)
300 300
US$700m 5.25% Notes
700 700
US$1,000m 5.25% Notes
999 996
US$725m 4.375% Notes
723 721
US$750m 4.875% Notes
746 744
€20m Medium Term Notes 2023
24 22
£435m 6.125% Notes 2031
590 571
Senior debt:note(ii)

£300m 6.875% Notes 2023
406 392
£250m 5.875% Notes 2029
312 298
$1,000m 3.125% Notes 2030note(iii)
983 –
$350m Loan 2024note(iv)
350 350

Total central operations
6,383 5,344
Jackson US$250m 8.15% Surplus Notes 2027note(v)
250 250

Total core structural borrowings of shareholder-financed businesses
6,633 5,594

Notes
(i)
In 2019, the Group agreed with the holders of these two subordinated debt instruments that, in return for an increase in the coupon of the two instruments and upfront fees totalling $182 million for both instruments, they would permit the substitution of M&G plc as the issuer of the instruments, together with other modifications of terms to ensure the debt meet the requirements of Solvency II. In accordance with IAS 39, this has been accounted for as an extinguishment of the old debt and the issuance of new debt, recognised at fair value. The debt was substituted to M&G plc in October 2019. The $182 million of upfront fees have been paid by Prudential plc and have been treated as a non-operating expense from continuing operations.
~~(ii)~~
In 2019, Prudential plc transferred subordinated debt to M&G plc as part of the demerger. In addition to the subordinated debt held at 31 December 2018 as shown in the table above, the debt transferred included the further £300 million 3.875 per cent subordinated debt raised in July 2019
~~(iii)~~
These borrowings can be converted, in whole or in part, at the Company's option and subject to certain conditions, on any interest payment date, into one or more series of Prudential preference shares.
~~(iv)~~
~~In May 2019, the Company redeemed its £400 million 11.375 per cent Tier 2 subordinated notes.~~
~~(v)~~(ii)
The senior debt ranks above subordinated debt in the event of liquidation.
~~(vi)~~(iii)
~~The bank loan~~In April 2020, the Company issued $1,000 million 3.125 per cent senior debt maturing on 14 April 2030 with proceeds, net of costs of $983 million.
(iv)
In November 2020, the $350 million term loan was ~~drawn in November 2019~~settled, and the Group entered into a replacement $350 million term loan facility at a cost of ~~LIBOR~~daily compounded Secured Overnight Financing Rate (SOFR) plus ~~0.2 per cent.~~59 basis points. The new term loan matures ~~on 7 November~~in 2024. ~~The £275 million bank loan was repaid by the Group in October 2019.~~
~~(vii)~~(v)
Jackson's borrowings are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Jackson.

~~Table of Contents~~
~~(viii)~~
~~The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group (including both continuing and discontinued operations) are analysed below:~~

Cash movements $m Non-cash movements $m

Balance at
beginning
of year Issue
of debt Redemption
of debt Payment for
change to
terms of
debt Foreign
exchange
movement Demerger of
UK and
Europe
operations Other
movements Balance at
end of
year

2019 9,761 367 (504) (182) 298 (4,161) 15 5,594
2018 8,496 2,079 (553) (44) (232) – 15 9,761

~~C6.2~~C5.2  Operational borrowings
31 Dec 2019 $m 31 Dec 2018 $m 31 Dec 2020 $m 31 Dec 2019 $m

Borrowings in respect of short-term fixed income securities programmes – commercial paper 520 601 501 520
Lease liabilities under IFRS 16note(a) 371 –
Non-recourse borrowings of consolidated investment fundsnote(b) 1,045 448

Lease liabilities under IFRS 16 302 371
Non-recourse borrowings of consolidated investment fundsnote(a) 994 1,045
Bank loans and overdrafts 29 115 – 29
Finance lease liability under IAS 17note(a) – 25
Other 377 82

Other borrowingsnote(c) 406 222
Other borrowingsnote(b) 453 377

Operational borrowings attributable to shareholder-financed businesses 2,342 1,271 2,250 2,342

Non-recourse borrowings of consolidated investment fundsnote(b) – 2,153
Lease liabilities under IFRS 16note(a) 259 –
Lease liabilities under IFRS 16 194 259
Other borrowings 44 2,865 – 44

Operational borrowings attributable to with-profits businessesnote(d) 303 5,018
Operational borrowings attributable to with-profits businesses 194 303

Total operational borrowings 2,645 6,289 2,444 2,645

Analysed as:
Total from continuing operations 1,160
Total from discontinued UK and Europe operations 5,129

6,289

Notes
(a)
The Group adopted IFRS 16 that replaces IAS 17 as at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated (as described in note A3). The finance lease liabilities recognised under IAS 17 in the comparative was principally held by the discontinued UK and Europe operations. Further details on the Group's IFRS 16 adoption and operating leases are provided in notes A3 and C13.
~~(b)~~
In all instances, the holders of the debt instruments issued by consolidated investment funds do not have recourse beyond the assets of those funds.
~~(c)~~(b)
Other borrowings attributable to shareholder-financed business mainly ~~include~~represent senior debt issued through the Federal Home Loan Bank of Indianapolis (FHLB), secured by collateral posted with the FHLB by Jackson.
~~(d)~~
Operational borrowings attributable to with-profits businesses at 31 December 2018 were mainly attributable to the discontinued UK and Europe operations ($4,994 million) held in consolidated investment funds.

Table of Contents
C7C6    Risk and sensitivity analysis
~~C7.1~~C6.1  Group overview
The Group's risk framework and the management of ~~the risk,~~risks, including those attached to the Group's financial statements including financial assets, financial liabilities and insurance liabilities, together with the inter-relationship with the management of capital, have been included in the audited sections of ~~'Group~~the Group Risk ~~Framework'.~~Framework.
The financial and insurance assets and liabilities on the Group's ~~balance sheet~~statement of financial position are, to varying degrees, subject to market and insurance risk and other changes of experience assumptions that may have a material effect on IFRS basis profit or loss and shareholders' equity. The market and insurance risks and also ESG-related risks, including how they affect Group's operations and how these are managed are discussed in the ~~'Group~~Group Risk ~~Framework'.~~

~~Table~~Framework. The ESG-related risks discussed in the Group Risk Framework include in particular the potential long-term impact of ~~Contents~~environmental risks associated with climate change (including physical and transition risks) on the Group's investments.
The most significant items that the IFRS shareholders' profit or loss and shareholders' equity for the Group's life assurance business are sensitive to, are shown in the following tables. The distinction between direct and indirect exposure is not intended to indicate the relative size of the sensitivity.

~~Market and credit risk~~

Type of business ~~Investments/derivatives~~Market and credit risk ~~Liabilities/unallocated~~
~~surplus~~ ~~Other exposure~~ Insurance and
lapse risk

Asia insurance operations ~~(see also section C7.2)~~
All business Mortality ~~and~~and/or morbidity risk
Persistency risk

With-profits business Net neutral direct exposure (indirect exposure ~~only)~~ ~~Investment~~to investment performance, which is subject to smoothing through declared ~~bonuses~~bonuses)

Unit-linked business

Net neutral direct exposure (indirect exposure ~~only)~~

~~Investment~~to investment performance, through asset management ~~fees~~

fees)

Non-participating business Asset/liability mismatch risk which results in sensitivity to interest rates and credit spreads, particularly for operations where the insurance liability basis is sensitive to current market movements
Indirect exposure to investment performance through policyholder charges and guarantees in some cases

US insurance operations

All business Asset/liability mismatch risk
Adjusted operating profit is sensitive to market conditions, both with respect to income earned on spread-based products and indirectly with respect to income earned on variable annuity asset management fees Mortality risk

~~Credit risk~~ ~~Interest rates for those operations where the basis of insurance liabilities is sensitive to current market movements~~

~~Interest rate and price risk~~

~~US insurance operations (see also section C7.3)~~

~~All business~~

~~Currency risk~~

~~Persistency risk~~

Variable annuity business Net effect of market risk (equity and interest rates) arising from incidence of guarantee features and variability of asset management fees, offset by derivative hedging ~~programme~~programme* ~~Risk~~Persistency and utilisation risk (risk that utilisation of withdrawal benefits or lapse levels differ from those ~~assumed in pricing~~assumed)

~~Fixed index annuity~~General account business ~~Derivative hedge programme~~Credit risk and market risk (equity and interest rate) in meeting guaranteed rates of accumulation on general account annuity and interest sensitive life products which may lead to smaller spread profits, being the ~~extent not fully hedged against liability~~difference between the earned rate and the policyholder crediting rate. As at 1 June 2020, the risk has been substantially transferred for the fixed and fixed index annuity products as part of the reinsurance transaction with Athene described in note D1.1 ~~Incidence~~Persistency risk, mitigated in some cases by the application of ~~equity participation features and meeting contractual accumulation requirements~~ ~~Minimal lapse risk~~market value adjustments

Shareholders' equity is impacted by interest rate and credit risk via impairments and unrealised gains/losses on fixed income securities. For those instruments classified as available-for-sale under IAS 39, unrealised gains/losses do not directly impact profit, unless they are considered permanent reductions in value

~~Fixed index annuities, Fixed annuities and GIC business~~ Credit risk and interest rate risk on investments Profit and loss and shareholders' equity are volatile for the incidence of these risks on unrealised appreciation of fixed income securities classified as available-for-sale under IAS 39 ~~Interest rate risk on liabilities (meeting guaranteed rates of accumulation on fixed annuity products)~~ ~~Spread difference between earned rate and rate credited to policyholders~~ ~~Lapse risk, but the effects of extreme events may be mitigated by the application of market value adjustments~~

*
Jackson's derivative programme, which is described in note C2.3(ii), is used to manage the economic interest rate risk associated with a broad range of products and equity market risk attaching to its equity-based products. Movements in equity markets, equity volatility, interest rates and credit spreads materially affect the carrying value of derivatives that are used to manage the liabilities to policyholders and backing investment assets. Movements in the carrying value of derivatives combined with the use of US GAAP measurement (as 'grandfathered' under IFRS 4) for the insurance contracts assets and liabilities, which is largely insensitive to current year market movements, mean that the Jackson total profit (ie including short-term fluctuations in investment returns) is sensitive to market movements.
~~Detailed~~The profit for the year of asset management operations is sensitive to the level of assets under management, as this significantly affects the value of management fees earned by the business in the current and future periods. Assets under management will rise and fall as market conditions change, with a consequential impact on profitability. Other than this, there is limited sensitivity to market risks since the Group's asset management and other operations do not hold significant financial investments. At 31 December 2020, the financial investments of the other operations are principally short-term investments held by the Group's treasury function for liquidity purposes and so there is limited sensitivity to interest rate movements.

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Sensitivity analyses of ~~sensitivity of~~ IFRS ~~basis profit or loss and~~ shareholders' equity to key market and other risks by business unit are provided ~~in notes C7.2, C7.3 and C7.4.~~below. The sensitivity analyses provided show the effect on ~~profit or loss and~~ shareholders' equity to changes in the relevant risk variables, all of which are considered to be reasonably possible at the relevant balance sheet date. In the equity risk sensitivity analysis shown, the Group has considered the impact of an instantaneous 20 per cent fall in equity markets. If equity markets were to fall by more than 20 per cent, the Group believes that this would not be an instantaneous fall but rather would be expected to occur over a period of time during which the hedge positions within Jackson, where equity risk is greatest, would be rebalanced. The equity risk sensitivity analysis provided assumes that all equity indices fall by the same percentage.
The ~~published~~ sensitivities reflect all consequential impacts from market movements at the valuation date. The sensitivities below only allow for limited management actions such as changes to policyholder bonuses, where applicable. If the economic conditions set out in the sensitivities persisted, the financial impacts may differ to the instantaneous impacts. ~~In this case~~Given the continuous risk management processes in place, management could ~~also~~ take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold.
~~Following~~Other limitations of the ~~adoption~~sensitivities include: the use of ~~US dollar as~~hypothetical market movements that cannot be predicted with any certainty to demonstrate potential risk, which only represent Prudential's view of reasonably possible near-term market changes; the ~~Group's presentation~~assumption that interest rates in all countries move identically; and the lack of consideration of the inter-relation of interest rates, equity markets and foreign currency the Group has no exposure to currency fluctuation from business units that operate in US dollars, or currencies pegged to the US dollar (such as Hong Kong dollars), and reduced exposure to currencies partially managed to the US dollar within a basket of currencies (such as Singapore dollars). Sensitivities to exchange ~~rate movements in the Group's key markets are therefore expected to be limited.~~

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~~Impact of diversification on risk exposure~~rates.
The Group benefits from diversification benefits achieved through the geographical spread of the Group's operations and, within those operations, through a broad mix of product types. These benefits are not reflected in the simplified sensitivities below. Relevant correlation factors include:
–
Correlation across geographic regions for both financial and non-financial risk factors; and
–
Correlation across risk factors for longevity risk, expenses, persistency and other risks.
Other limitations on the sensitivities include: the use of hypothetical market movements to demonstrate potential risk that only represent Prudential's view of reasonably possible near-term market changes and that cannot be predicted with any certainty; the assumption that interest rates in all countries move identically; and the lack of considerationThe geographical diversity of the ~~inter-relation~~Group's business means that it has some exposure to the risk of ~~interest rates, equity~~foreign exchange rate fluctuations. The Group has no exposure to currency fluctuation from business units that operate in USD, or currencies pegged to the USD (such as HKD), and reduced exposure to currencies partially managed to the USD within a basket of currencies (such as SGD). Sensitivities to exchange rate movements in the Group's key markets ~~and foreign currency exchange rates.~~are therefore expected to be limited.
~~C7.2    Asia insurance operations~~
~~Exposure and sensitivity of IFRS basis profit and shareholders' equity to market and other risks~~
The Asia operations sell with-profits and unit-linked policies, and the investment portfolio of the with-profits funds contains a proportion of equities. Shareholder exposure to market risk on these products is muted given the shareholders share this risk with the policyholders through its joint participation in with-profits funds results or through fees that vary with the size of the unit-linked funds. Non-participating business is largely backed by debt securities or deposits, which means that value of its assets fluctuate with interest rates. Depending on the reserving basis in the business unit, this may be offset by a consequential change in insurance liabilities as discount rates change accordingly. The Group's exposure to market risk arising from its Asia operations is therefore at modest levels.
Asia also sells regular premium health and protection business (which may attach to a unit-linked or other savings products). This exposes Asia to persistency, mortality and morbidity risk. This is discussed further below.
In summary, for Asia operations, the adjusted IFRS operating profit based on longer-term investment returns is mainly affected by the impact of market levels on unit-linked persistency and other insurance risks. At the total IFRS profit level, the Asia result is affected by short-term value movements on the asset portfolio for non-linked shareholder-backed business offset by the impact of changing interest rates on the discount rate used to determine insurance liabilities.
~~(i)~~C6.2  Sensitivity to interest rate risk
~~Excluding with-profits and unit-linked businesses, the results of the Asia business~~The sensitivities shown below are ~~sensitive to the~~for movements in ~~interest~~risk-free rates ~~as described above.~~
~~For the purposes of analysing sensitivity to variations in interest rates, reference has been made to the movements in the 10-year~~(based on local government bond ~~rates of~~yields at the ~~regions. At 31 December 2019, 10-year government bond rates vary from region to region~~valuation date) in isolation and ~~range from 0.7 per cent to 7.2 per cent (31 December 2018: 0.9 per cent to 8.1 per cent).~~
~~For the sensitivity analysis as shown in the table below, the reasonably possible interest rate movement used is 1 per cent for all local business units (subject~~are subject to a floor of ~~zero).~~zero. They do not include movements in credit risk that may affect credit spreads and hence the valuation of debt securities and policyholder liabilities. A one-letter credit downgrade in isolation (ie ignoring any consequential change in valuation) would not have a material impact on IFRS profit or shareholders' equity.
To reflect the substantial fall and current level of low interest rates in 2020, the estimated sensitivity to a decrease in interest rates at 31 December 2020 has been updated to a decrease of 0.5 per cent. This compares to a 1 per cent change at 31 December 2019. The estimated sensitivity to ~~the~~a decrease and increase in interest rates at 31 December 2020 is as follows:
2019 $m 2018 $m
31 December 2020
Asia insurance $m
US insurance $m

Decrease
of 1% Increase
of 1% Decrease
of 1% Increase
of 1%
Decrease
of 0.5% Increase
of 1% Decrease
of 0.5% Increase
of 1%

Profit before tax attributable to shareholders (705) (744) 397 (430)
Related deferred tax (where applicable) 3 26 (19) 33
Net effect on shareholders' equity* (1,274) (318) (594) (68)

Net effect on profit after tax and shareholders' equity (702) (718) 378 (397)

*
The ~~pre-tax impacts,~~effect from the instantaneous changes in interest rates above, if they arose, would impact profit after tax for Asia insurance operations and would mostly be recorded within short-term fluctuations in ~~investments returns~~investment returns. The impact on profit after tax would be the same as the net effect on shareholders' equity. For US insurance operations, the instantaneous changes in interest rates above, if they arose, would cause the net effect on equity shown above through two constituent movements. Firstly, profit after tax, net of related changes in the ~~Group's segmental analysis~~amortisation of ~~profit before tax.~~
DAC, would be impacted (decrease of 0.5 per cent: $(1,319) million; increase of 1 per cent: $1,976 million), and would mostly be recorded within short-term fluctuations in investment returns. Secondly, the effect would also impact other comprehensive income (decrease of 0.5 per cent: $725 million; increase of 1 per cent: $(2,044) million) in respect of the direct effect on the carrying value of the available-for-sale debt securities, net of related changes in the amortisation of DAC and related tax effects.

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The estimated sensitivity to a decrease and increase in interest rates at 31 December 2019 was as follows:
31 December 2019
Asia insurance $m
US insurance $m

Decrease
of 1% Increase
of 1% Decrease
of 1% Increase
of 1%

Net effect on shareholders' equity* (702) (718) 20 (553)

*
The effect from the instantaneous changes in interest rates above, if they arose, would impact profit after tax for Asia insurance operations and would mostly be recorded within short-term fluctuations in investment returns. The impact on profit after tax would be the same as the net effect on shareholders' equity. For US insurance operations, the instantaneous changes in interest rates above, if they arose, would cause the net effect on equity shown above through two constituent movements. Firstly, profit after tax, net of related changes in the amortisation of DAC, would be impacted (decrease of 1 per cent: $(2,224) million; increase of 1 per cent: $1,691 million), and would mostly be recorded within short-term fluctuations in investment returns. Secondly, the effect would also impact other comprehensive income (decrease of 1 per cent: $2,244 million; increase of 1 per cent: $(2,244) million) in respect of the direct effect on the carrying value of the available-for-sale debt securities, net of related changes in the amortisation of DAC and related tax effects.
Asia insurance operations
The degree of sensitivity of the results of the non-linked shareholder-backed business of the Asia operations to movements in interest rates depends upon the degree to which the liabilities under the 'grandfathered' IFRS 4 measurement basis reflects market interest rates from year to year. This varies by local business unit.
For ~~example, for~~example:
–
Certain Asia businesses ~~applying~~apply US GAAP, for which the results can be more sensitive as the effect of interest rate movements on the backing investments may not be offset by liability ~~movements. Further, the~~movements;
–
The level of options and guarantees in the products written in the particular business unit will also affect the degree of sensitivity to interest rate ~~movements.~~ movements; and
–
The ~~direction of the sensitivity of the Asia operations as a whole in a given year can also be affected by a change in the geographical mix.~~
~~In addition, the~~ degree of sensitivity of the results is dependent on the interest rate level at that point of time.
The sensitivity of the Asia operations presented as a whole at a given point in time will also be affected by a change in the relative size of the individual businesses.
~~At 31 December 2018~~For many operations the sensitivities ~~were~~are dominated by the impact of interest rate movements on the value of government and corporate bond investments, which are expected to increase in value as interest rates fall to a greater extent than the offsetting increase in liabilities (and vice versa if rates rise). This arises because the discount rate in some operations does not fluctuate in line with interest rate movements. At higher levels of interest rates the liabilities become less sensitive to interest rate movements and the effects on assets becomes more dominant. This ~~feature remains for most local business units at 31 December 2019 and~~pattern is evident in the 'increase of ~~1%' sensitivity. The 'decrease of 1%'~~1 per cent' sensitivity at 31 December ~~2019~~2020.
The 'decrease of 0.5%' sensitivities reflects that some local business units' liabilities become more sensitive at lower interest rates and the fluctuations in liabilities begin to exceed asset gains. The liability movements also reflect the prudent nature of some of the regulatory regimes which leads to duration of liabilities that are longer than would be expected on a more economic basis and hence results in a mismatch with the assets that are managed on a more realistic basis. Following the substantial fall in interest rates over 2020, at 31 December 2020, the 'decrease of 0.5 per cent' sensitivity is dominated by the impact of interest rate movements on some local business units' policyholder liabilities, which are expected to increase more than the offsetting increase in the value of government and corporate bond investments, if interest rates were to fall further from the historically low levels seen at 31 December 2020. As noted above, the results only allow for limited management actions, and if such economic conditions persisted management could take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing investment portfolios, increased use of reinsurance, changes to new business pricing and the mix of new business being sold.
~~(ii)  Sensitivity to equity price risk~~US insurance operations
The ~~non-linked shareholder-backed~~GMWB features attached to variable annuity business ~~has~~(other than 'for life' components) are accounted for under US GAAP at fair value and, therefore, will be sensitive to changes in interest rates. Debt securities and related derivatives are marked to fair value. Value movements on derivatives, net of related changes to amortisation of DAC and deferred tax, are recorded within the income statement. Fair value movements on debt securities, net of related changes to amortisation of DAC and deferred tax, are recorded within other comprehensive income.
As at 1 June 2020, the interest rate risks relating to Jackson's fixed and fixed index annuity products have been substantially transferred as part of the reinsurance transaction with Athene described in note D1.1,

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leaving only a limited exposure from residual policies and new policies written post 1 June 2020. Jackson is exposed primarily to the following interest rate risks:
–
Related to meeting guaranteed rates of accumulation on general account annuity and interest sensitive life products following a sustained fall in interest rates;
–
Related to increases in the present value of projected benefits related to guarantees issued in connection with its variable annuity contracts following a sustained fall in interest rates especially if in conjunction with a fall in equity markets;
–
Related to the surrender value guarantee features attached to the Company's general account annuity and interest sensitive life products and to policyholder withdrawals following a sharp and sustained increase in interest rates; and
–
The risk of mismatch between the expected duration of certain annuity liabilities and prepayment risk and extension risk inherent in mortgage-backed securities.
A prolonged low interest rate environment may result in a lengthening of maturities of the general account annuity and interest-sensitive life contract holder liabilities from initial estimates, primarily due to lower policy lapses. As interest rates remain at low levels, Jackson may also have to reinvest the cash it receives as interest or proceeds from investments that have matured or that have been sold at lower yields, reducing its investment margins. Moreover, borrowers may prepay or redeem the securities in their investment portfolios with greater frequency in order to borrow at lower market rates, which exacerbates this risk. The majority of Jackson's general account business was designed with contractual provisions that allow crediting rates to be re-set annually, subject to minimum crediting rate guarantees.
The sensitivity movements provided in the table above are at a point in time and reflect the hedging programme in place on the balance sheet date, while the actual impact on financial results would vary contingent upon a number of factors. Jackson's hedging programme is primarily focused on managing the economic risks in the business and protecting statutory solvency under larger market movements, and does not explicitly aim to hedge the IFRS accounting results. The magnitude of the impact of the sensitivities on profit after tax at 31 December 2020 is larger than the impact at 31 December 2019, reflecting the liabilities being more sensitive to further interest rate movements at the current low interest rate levels (after taking into account the impact of interest rate movements on derivatives). In determining the value of liabilities, assumed future separate account return is based on risk-free rates under 'grandfathered' US GAAP. The reduction in the magnitude of the impact of the sensitivities on other comprehensive income, and hence shareholders' equity, reflects the impact of the Athene reinsurance transaction described in note D1.1 on the profile of Jackson's general account liabilities and the consequential reduction in available-for-sale debt securities.
C6.3  Sensitivity to equity and property ~~investment (31 December 2019: $3,480 million; 31 December 2018: $2,740 million). The increase~~price risk
In the equity risk sensitivity analysis shown, the Group has considered the impact of an instantaneous 20 per cent fall in ~~2019 reflects higher~~equity markets. If equity markets were to fall by more than 20 per cent, the Group believes that this would not be an instantaneous fall but rather would be expected to occur over a longer period of time, during which the hedge positions within Jackson, where the underlying equity risk is greatest, would be rebalanced. The equity risk sensitivity analysis provided assumes that all equity indices fall by the same percentage.
Asia insurance operations
The estimated sensitivity to a 10 per cent increase and ~~business growth.~~ 20 per cent decrease in equity and property prices is as follows:
31 Dec 2020 $m 31 Dec 2019 $m

Decrease
of 20% Increase
of 10% Decrease
of 20% Increase
of 10%

Net effect on shareholders' equity* (848) 410 (816) 408

*
The effect from the instantaneous changes in equity and property prices above, if they arose, would impact profit after tax for Asia insurance operations, which would mostly be recorded within short-term fluctuations in investment returns.
Generally, changes in equity and property investment values are not directly offset by movements in non-linked policyholder liabilities. Movements in equities backing with-profits and unit-linked business have been excluded as they are generally matched by an equal movement in insurance liabilities (including unallocated surplus of with-profits funds). The impact on changes to future profitability as a result of changes to the asset values within unit-linked or with-profits funds have not been included in the instantaneous sensitivity above. The estimated sensitivities shown above include equity and property investments held by the Group's joint venture and associate businesses.

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US insurance operations
At December 31, 2020 and 2019, the Company provided variable annuity contracts with guarantees, for which the net amount at risk ("NAR") is defined as the amount of guaranteed benefit in excess of current account value, as follows (dollars in millions):
31 Dec 2020 $m 31 Dec 2019 $m

Account
value Net
amount
at risk Account
value Net
amount
at risk

Return of net deposits plus a minimum return
GMDB
170,510 2,340 150,576 2,477
GMWB – premium only
2,858 12 2,753 16
GMWB
248 11 257 14
GMAB – premium only
39 – 37 –
Highest specified anniversary account value minus withdrawals post-anniversary – –
GMDB
13,512 86 12,547 69
GMWB – highest anniversary only
3,459 41 3,232 51
GMWB
646 55 698 52
Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary – –
GMDB
8,891 615 8,159 687
GMIB
1,675 556 1,688 616
GMWB
159,857 5,656 140,529 7,160

Jackson is primarily exposed to equity risk through the guarantees included in certain variable annuity benefits. This risk is managed using an equity hedging programme to minimise the risk of a significant economic impact as a result of increases or decreases in equity market levels. Jackson purchases futures and options that hedge the risks inherent in these products, while also considering the impact of rising and falling guaranteed benefit fees.
Due to the nature of valuation under IFRS of the free-standing derivatives and certain of the variable annuity guarantee features, this hedge, while effective on an economic basis, would not automatically offset within the financial statements as the impact of equity market movements resets the free-standing derivatives immediately while the hedged liabilities reset more slowly and fees are recognised prospectively in the year in which they are earned. Jackson's hedging programme is focused on managing the economic risks in the business and protecting statutory solvency in the circumstances of large market movements. The hedging programme does not aim to hedge IFRS accounting results, which can lead to volatility in the IFRS results in a period of significant market movements, as was seen in 2020.
In addition to the exposure explained above, Jackson is also exposed to equity risk from its holding of equity securities, partnerships in investment pools and other financial derivatives.
The estimated sensitivity to a 10 per cent increase and 20 per cent ~~change~~decrease in equity and property prices is shown below.
31 Dec 2020 $m 31 Dec 2019 $m

Decrease
of 20% Increase
of 10% Decrease
of 20% Increase
of 10%

Net effect on shareholders' equity* 744 299 762 608

*
The effect from the instantaneous changes in equity and property prices above, if they arose, would impact profit after tax for ~~shareholder-backed Asia other business (including those held by the Group's joint venture and associate businesses),~~US insurance operations, which would mostly be ~~reflected in~~recorded within short-term fluctuations in investment returns.
The table above excludes the impact of instantaneous equity movements on future separate account fee income.
The above sensitivities assume instantaneous market movements while the actual impact on financial results would vary contingent upon the volume of new product sales and lapses, changes to the derivative portfolio, correlation of market returns and various other factors including volatility, interest rates and elapsed time.

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The directional movements in the ~~Group's segmental analysis~~sensitivities reflect the hedging programme in place at 31 December 2020 and 2019 respectively. The nature of ~~profit before tax, is~~Jackson's dynamic hedging programme means that the portfolio, and hence the results of these sensitivities, will change on an ongoing basis. The impacts shown under an increase or a decrease in equity markets reflect the factors discussed above.
Jackson had variable annuity contracts with guarantees. Account balances of contracts with guarantees were invested in variable separate accounts as follows:
2019 $m 2018 $m
Mutual fund type: 31 Dec 2020 $m 31 Dec 2019 $m

Decrease
of 20% Decrease
of 10% Decrease
of 20% Decrease
of 10%
Equity
132,213 121,520
Bond
20,203 19,341
Balanced
39,626 30,308
Money market
1,862 956

Profit before tax attributable to shareholders (864) (432) (709) (355)
Related deferred tax (where applicable) 48 24 21 10
Total
193,904 172,125

Net effect on profit after tax and shareholders' equity (816) (408) (688) (345)

A 10 or 20 per cent increase in equity and property values would have an approximately equal and opposite net effect on profit and shareholders' equity to the sensitivities shown above. The impacts at 31 December 2019 are similar to those at 31 December 2018, and reflect the growth in the business.
~~(iii)~~C6.4  Sensitivity to insurance risk
Asia insurance operations
In Asia, adverse persistency experience can impact the IFRS profitability of certain types of business written in the region. This risk is managed at a local business unit level through regular monitoring of experience and the implementation of management actions as necessary. These actions could include product enhancements, increased management focus on premium collection, as well as other customer retention efforts. The potential financial impact of lapses is often mitigated through the specific features of the products, eg surrender charges, or through the availability of premium holiday or partial withdrawal policy features. The reserving basis in Asia is generally such that a change in lapse assumptions has an immaterial effect on immediate profitability.
Many of the business units in Asia are exposed to mortality and morbidity risk and a provision is made within policyholder liabilities to cover the potential exposure. If all these assumptions were strengthened by 5 per cent then it is estimated that post-tax profit and shareholders' equity would decrease by approximately

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~~$77~~ $77 million ~~(2018: $73~~(2019: $77 million). Weakening these assumptions by 5 per cent would have a similar ~~equal and~~ opposite impact.
~~C7.3~~    US insurance operations
~~Exposure and sensitivity of IFRS basis profit and shareholders' equity to market and other risks~~
Jackson's reported adjusted IFRS operating profit based on longer-term investment returns is sensitive to market conditions, both with respect to income earned on spread-based products and indirectly with respect to income earned on variable annuity asset management fees. Jackson's main exposures to market risk are to interest rate risk and equity risk.
~~Jackson is exposed primarily to the following risks:~~
~~Risks~~

~~Risk of loss~~

~~Equity risk~~ — ~~Related to the incidence of benefits related to guarantees issued in connection with its variable annuity contracts; and~~

~~Interest rate risk~~ — ~~Related to meeting contractual accumulation requirements in fixed index annuity contracts.~~
— ~~Related to meeting guaranteed rates of accumulation on fixed annuity and interest sensitive life products following a sustained fall in interest rates;~~
— Related to increases in the present value of projected benefits related to guarantees issued in connection with its variable annuity contracts following a sustained fall in interest rates especially if in conjunction with a fall in equity markets;
— Related to the surrender value guarantee features attached to the Company's fixed annuity and interest sensitive life products and to policyholder withdrawals following a sharp and sustained increase in interest rates; and
— ~~The risk of mismatch between the expected duration of certain annuity liabilities and prepayment risk and extension risk inherent in mortgage-backed securities.~~

A prolonged low interest rate environment may result in a lengthening of maturities of the fixed annuity and interest-sensitive life contract holder liabilities from initial estimates, primarily due to lower policy lapses. As interest rates remain at low levels, Jackson may also have to reinvest the cash it receives as interest or proceeds from investments that have matured or that have been sold at lower yields, reducing its investment margins. Moreover, borrowers may prepay or redeem the securities in their investment portfolios with greater frequency in order to borrow at lower market rates, which exacerbates this risk. The majority of Jackson's fixed annuities, variable annuity fixed account options and life products were designed with contractual provisions that allow crediting rates to be re-set annually, subject to minimum crediting rate guarantees.
Jackson's derivative programme, which is described in note C3.4(b), is used to manage the economic interest rate risk associated with a broad range of products and equity market risk attaching to its equity-based products. Movements in equity markets, equity volatility, interest rates and credit spreads materially affect the carrying value of derivatives that are used to manage the liabilities to policyholders and backing investment assets. Movements in the carrying value of derivatives combined with the use of US GAAP measurement (as 'grandfathered' under IFRS 4) for the insurance contracts assets and liabilities, which is largely insensitive to current period market movements, mean that the Jackson total profit (ie including short-term fluctuations in investment returns) is sensitive to market movements. In addition to these effects the Jackson shareholders' equity is sensitive to the impact of interest rate and credit spread movements on the value of fixed income securities. Movements in unrealised appreciation on these securities are included as movement in shareholders' equity (ie outside the income statement).

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~~(i)  Sensitivity to equity risk~~
~~Jackson had variable annuity contracts with guarantees, for which the net amount at risk (NAR) is defined as the amount of guaranteed benefit in excess of current account value, as follows:~~

31 Dec 2019 Minimum
return‡
% Account
value
$m Net
amount
at risk
$m Weighted
average
attained age
Years Period
until
expected
annuitisation
Years

Return of net deposits plus a minimum return
GMDB
0-6% 150,576 2,477 66.9 years
GMWB – premium only
0% 2,753 16
GMWB*
0-5%‡ 257 14
GMAB – premium only
0% 37 –
Highest specified anniversary account value minus withdrawals post-anniversary
GMDB
12,547 69 67.7 years
GMWB – highest anniversary only
3,232 51
GMWB*
698 52
Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary
GMDB
0-6% 8,159 687 70.0 years
GMIB†
0-6% 1,688 616 0.5 years
GMWB*
0-8%‡ 140,529 7,160

31 Dec 2018 Minimum
return
% Account
value
$m Net
amount
at risk
$m Weighted
average
attained age
Years Period
until
expected
annuitisation
Years

Return of net deposits plus a minimum return
GMDB
0-6% 125,644 5,652 66.5 years
GMWB – premium only
0% 2,450 80
GMWB*
0-5%‡ 251 25
GMAB – premium only
0% 34 –
Highest specified anniversary account value minus withdrawals post-anniversary
GMDB
10,865 1,418 67.1 years
GMWB – highest anniversary only
2,827 400
GMWB*
682 113
Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary
GMDB
0-6% 6,947 1,550 69.5 years
GMIB†
0-6% 1,599 825 0.1 years
GMWB*
0-8%‡ 116,902 21,442

*
Amounts shown for GMWB comprise sums for the 'not for life' portion (where the guaranteed withdrawal base less the account value equals to the net amount at risk (NAR)), and a 'for life' portion (where the NAR has been estimated as the present value of future expected benefit payment remaining after the amount of the 'not for life' guaranteed benefits is zero).

†
~~The GMIB guarantees are substantially reinsured.~~

‡
Ranges shown based on simple interest. The upper limits of 5 per cent or 8 per cent simple interest are approximately equal to 4.1 per cent and 6 per cent respectively, on a compound interest basis over a typical 10-year bonus period. For example 1 + 10 × 0.05 is similar to 1.04 growing at a compound rate of 4 per cent for a further nine years. The "Combination GMWB" category also includes benefits with a defined increase in the withdrawal percentage under pre-defined non-market conditions.

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~~Account balances of contracts with guarantees were invested in variable separate accounts as follows:~~

Mutual fund type: 31 Dec 2019 $m 31 Dec 2018 $m

Equity
121,520 99,834
Bond
19,341 17,705
Balanced
30,308 25,349
Money market
956 1,049

Total
172,125 143,937

As noted above, Jackson is exposed to equity risk through the options embedded in the fixed index annuity liabilities and guarantees included in certain variable annuity benefits as illustrated above. This risk is managed using an equity hedging programme to minimise the risk of a significant economic impact as a result of increases or decreases in equity market levels. Jackson purchases futures and options that hedge the risks inherent in these products, while also considering the impact of rising and falling guaranteed benefit fees.
Due to the nature of valuation under IFRS of the free-standing derivatives and the variable annuity guarantee features, this hedge, while highly effective on an economic basis, would not automatically offset within the financial statements as the impact of equity market movements resets the free-standing derivatives immediately while the hedged liabilities reset more slowly and fees are recognised prospectively in the period in which they are earned. Jackson's hedging programme is focused on managing the economic risks in the business and protecting statutory solvency in the circumstances of large market movements. The hedging programme does not aim to hedge IFRS accounting results, which can lead to volatility in the IFRS results in a period of significant market movements, as was seen in 2019.
~~In addition to the exposure explained above, Jackson is also exposed to equity risk from its holding of equity securities, partnerships in investment pools and other financial derivatives.~~
The estimated sensitivity of Jackson's profit and shareholders' equity to immediate increases and decreases in equity markets is shown below. The sensitivities are shown net of related changes in DAC amortisation.

Sensitivity to equity risk – Jackson 2019 $m 2018 $m

Decrease Increase Decrease Increase

of 20% of 10% of 20% of 10% of 20% of 10% of 20% of 10%

Profit before tax (net of related changes in amortisation of DAC) 964 256 1,848 770 1,347 544 74 (159)
Related deferred tax (202) (54) (388) (162) (282) (115) (15) 33

Net effect on profit after tax and shareholders' equity* 762 202 1,460 608 1,065 429 59 (126)

*
The table above has been prepared to exclude the impact of the instantaneous equity movements on the separate account fees. The sensitivity movements shown include those relating to the fixed index annuity and the reinsurance of GMIB guarantees.
The above sensitivities assume instantaneous market movements while the actual impact on financial results would vary contingent upon the volume of new product sales and lapses, changes to the derivative portfolio, correlation of market returns and various other factors including volatility, interest rates and elapsed time.
The directional movements in the sensitivities reflect the hedging programme in place at 31 December 2019 and 2018 respectively. The impacts shown under a decrease in equity markets reflect the mismatch discussed in note B1.2(ii)(a), with the gains on equity derivatives exceeding the increase in IFRS liabilities given the measurement basis applied. Following the equity market gains during 2019, the equity call options held at 31 December 2019 act to limit losses on equity derivatives under equity market increases. If equity markets therefore increase the main effect is a reduction in liabilities as guarantees move further out-of-the-money. The sensitivities above reflect the actual hedging portfolio at 31 December 2019 and the nature of Jackson's dynamic hedging programme means that the portfolio, and hence the results of these sensitivities, will change on an ongoing basis.
~~(ii)  Sensitivity to interest rate risk~~
Except in the circumstances of interest rate scenarios where the guarantee rates included in contract terms are higher than crediting rates that can be supported from assets held to cover liabilities, the IFRS measurement basis of fixed annuity liabilities of Jackson's products is not generally sensitive to interest rate risk. This

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position derives from the nature of the products and the US GAAP basis of measurement. The GMWB features attached to variable annuity business (other than 'for life' components) are accounted for under US GAAP at fair-value and, therefore, will be sensitive to changes in interest rates, as discount rates and fund earned rates will be updated on an ongoing basis.
Debt securities and related derivatives are marked to fair value. Value movements on derivatives, again net of related changes to amortisation of DAC and deferred tax, are recorded within the income statement. Fair value movements on debt securities, net of related changes to amortisation of DAC and deferred tax, are recorded within other comprehensive income. The estimated sensitivity of these items and policyholder liabilities to a 1 per cent and 2 per cent decrease (with no floor of zero applied) and increase in interest rates is as follows:

2019 $m 2018 $m

Decrease Increase Decrease Increase

of 2% of 1% of 2% of 1% of 2% of 1% of 2% of 1%

Profit or loss:
Profit before tax (net of related changes in amortisation of DAC)
(6,238) (2,815) 3,914 2,141 (4,502) (2,188) 2,815 1,530
Related deferred tax
1,310 591 (822) (450) 945 460 (591) (321)

Net effect on profit after tax (4,928) (2,224) 3,092 1,691 (3,557) (1,728) 2,224 1,209

Other comprehensive income:

Direct effect on carrying value of debt securities (net of related changes in amortisation of DAC)
5,342 2,840 (5,342) (2,840) 5,265 2,988 (5,265) (2,988)
Related deferred tax
(1,122) (596) 1,122 596 (1,105) (628) 1,105 628

Net effect on other comprehensive income 4,220 2,244 (4,220) (2,244) 4,160 2,360 (4,160) (2,360)

Total net effect on shareholders' equity (708) 20 (1,128) (553) 603 632 (1,936) (1,151)

These sensitivities above are shown for interest rates in isolation only and do not include other movements in credit risk that may affect credit spreads and valuations of debt securities. Similar to the sensitivity to equity risk, the sensitivity movements provided in the table above are at a point in time and reflect the hedging programme in place on the balance sheet date, while the actual impact on financial results would vary contingent upon a number of factors. The increase in the magnitude of the sensitivities at 31 December 2019 mainly reflects the lower interest rates at 31 December 2019 and the consequential reduction on assumed future separate account return, that is based on risk-free rates under grandfathered US GAAP. This has the effect of the IFRS liability reflecting a greater potential for policyholder payments under the variable annuity guarantees as interest rates fall. Jackson's hedging programme is focused on managing the economic risks in the business and protecting statutory solvency under large market movements, and does not aim to hedge the IFRS accounting results.
~~(iii)  Sensitivity to insurance risk~~
Jackson is sensitive to mortality risk, lapse risk and other types of policyholder behaviour, such as the utilisation of its GMWB product features. Jackson's persistency assumptions reflect a combination of recent experience for each relevant line of business and expert judgement, especially where a lack of relevant and credible experience data exists. These assumptions vary by relevant factors, such as product, policy duration, attained age and for variable annuity lapse assumptions, the extent to which guaranteed benefits are 'in the money' relative to policy account values. Changes in these assumptions, which are assessed on an annual basis after considering recent experience, could have a material impact on policyholder liabilities and therefore on profit before tax. Any changes in these assumptions are recorded within short-term fluctuations in investment returns in the Group's supplementary analysis of profit (see note B1.2).
In addition, in the absence of hedging, equity and interest rate movements can both cause a direct loss ~~directly~~ or ~~an increased~~increase the future sensitivity to policyholder behaviour. Jackson has an extensive derivative programme that seeks to manage the exposure to such altered equity markets and interest rates.
Note ~~A4.1~~A3.1 describes the methodology applied by Jackson to amortise ~~deferred acquisition costs.~~DAC. The amount of amortisation charged in any one period is sensitive to separate account investment returns. The sensitivity of DAC amortisation charge is discussed in note C4.2.

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~~C7.4    Asset management and other operations~~
~~(i)  Asset management~~
The profit for the year of asset management operations are sensitive to the level of assets under management, as this significantly affects the value of management fees earned by the business in the current and future years. The Group's asset management operations do not hold significant financial investments.
~~(ii)  Other operations~~
At 31 December 2019, the financial investments of the other operations are principally short-term treasury bills held by the Group's treasury function for liquidity purposes and so there is limited sensitivity to credit risk and interest rate movements.
C8C7    Tax assets and liabilities
Accounting policies on deferred tax are included in note ~~B4.~~B3.
~~C8.1~~
C7.1  Current tax
At 31 December ~~2019,~~2020, of the ~~$492~~$444 million (31 December ~~2018: $476 million from continuing operations)~~2019: $492 million) current tax recoverable, the majority is expected to be recovered more than ~~twelve~~12 months after the reporting period.
At 31 December ~~2019,~~2020, the current tax liability of ~~$396~~$280 million (31 December ~~2018: $411 million from continuing operations)~~2019: $396 million) includes ~~$198~~$113 million (31 December ~~2018: $190 million from continuing operations)~~2019: $198 million) of provisions for uncertain tax matters. Further detail is provided in note ~~B4.~~B3.2.

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~~C8.2~~

C7.2 Deferred tax

The statement of financial position contains the following deferred tax assets and liabilities in relation to:

	2019 $m												2020 $m

	Balance at 1 Jan		Demerger of UK and Europe operations		Movement in income statement		Movement through other comprehensive income and equity		Other movements including foreign currency movements		Balance at 31 Dec		Balance at 1 Jan		Movement in income statement		Movement through other comprehensive income and equity		Other movements including foreign currency movements		Balance at 31 Dec

Deferred tax assets
Unrealised losses or gains on investments		144		–		(16)		–		(128)		–		–		–		–		–		–
Balances relating to investment and insurance contracts		1		–		60		–		(29)		32		32		55		–		–		87
Short-term temporary differences		2,979		(146)		1,069		(15)		1		3,888		3,889		765		–		8		4,662
Capital allowances		19		(14)		(3)		–		(1)		1
Unused tax losses		162		–		8		–		(16)		154		154		(50)		–		5		109

Total		3,305		(160)		1,118		(15)		(173)		4,075		4,075		770		–		13		4,858

Deferred tax liabilities
Unrealised losses or gains on investments		(1,104)		1,053		(231)		(713)		118		(877)		(877)		(78)		(102)		(6)		(1,063)
Balances relating to investment and insurance contracts		(1,276)		–		(246)		–		15		(1,507)		(1,507)		(235)		–		(23)		(1,765)
Short-term temporary differences		(2,671)		233		(414)		19		(14)		(2,847)		(2,853)		(377)		–		(17)		(3,247)
Capital allowances		(71)		65		–		–		–		(6)

Total		(5,122)		1,351		(891)		(694)		119		(5,237)		(5,237)		(690)		(102)		(46)		(6,075)

	2019 $m

	Balance at 1 Jan		Demerger of UK and Europe operations		Movement in income statement		Movement through other comprehensive income and equity		Other movements including foreign currency movements		Balance at 31 Dec

Deferred tax assets
Unrealised losses or gains on investments		144		–		(16)		–		(128)		–
Balances relating to investment and insurance contracts		1		–		60		–		(29)		32
Short-term temporary differences		2,998		(160)		1,066		(15)		–		3,889
Unused tax losses		162		–		8		–		(16)		154

Total		3,305		(160)		1,118		(15)		(173)		4,075

Deferred tax liabilities
Unrealised losses or gains on investments		(1,104)		1,053		(231)		(713)		118		(877)
Balances relating to investment and insurance contracts		(1,276)		–		(246)		–		15		(1,507)
Short-term temporary differences		(2,742)		298		(414)		19		(14)		(2,853)

Total		(5,122)		1,351		(891)		(694)		119		(5,237)

Of the short-term temporary differences of ~~$3,888~~$4,662 million relating to deferred tax assets, ~~$3,068~~$3,274 million ~~relating to the~~for US insurance operations is expected to be recovered in line with the run off of the in-force book, and the majority of the remaining balances are expected to be recovered within 5five years.

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The deferred tax balances are further analysed as follows:

	Deferred tax assets				Deferred tax liabilities						Deferred tax assets				Deferred tax liabilities

	31 Dec 2019 $m		31 Dec 2018 $m		31 Dec 2019 $m			31 Dec 2018 $m			31 Dec 2020 $m		31 Dec 2019 $m		31 Dec 2020 $m		31 Dec 2019 $m

Asia operations		270		152		(2,146	)		(1,601	)		316		270		(2,552)		(2,146)
US operations		3,804		2,923		(3,091	)		(2,150	)		4,542		3,804		(3,523)		(3,091)
Other operations		1		70		–			(20	)		–		1		–		–

Total continuing operations		4,075		3,145		(5,237	)		(3,771	)
Discontinued UK and Europe operations		–		160		–			(1,351	)

Total Group		4,075		3,305		(5,237	)		(5,122	)		4,858		4,075		(6,075)		(5,237)

The taxation regimes applicable across the Group often apply separate rules to trading and capital profits and losses. The distinction between temporary differences that arise from items of either a trading or capital nature may affect the recognition of deferred tax assets. ~~For the 2019 results and financial position at 31 December 2019, the~~The following tax benefits and losses have not been ~~recognised:~~recognised for the years shown:


	31 Dec 2019 $m		31 Dec 2018 $m						31 Dec 2020 $m		31 Dec 2019 $m

	Tax benefits	Losses	Tax benefits			Losses			Tax benefits	Losses	Tax benefits	Losses

			Continuing	Discontinued	Total group	Continuing	Discontinued	Total group
Trading losses	36	175	61	1	62	301	6	307	191	991	36	175
Capital losses	1	5	55	7	62	270	38	308	2	7	1	5

Of the benefit from unrecognised trading losses, ~~$34~~$26 million will expire within the next ~~ten~~10 years and the rest have no expiry date.

Some of the Group's businesses are located in jurisdictions in which a withholding tax charge is incurred upon the distribution of earnings. At 31 December ~~2019,~~2020, deferred tax liabilities of $323 million (31 December 2019: $247 ~~million (2018: $149 million from continuing operations)~~million) have not been recognised in respect of such withholding taxes as the Group is able to control the timing of the distributions and it is probable that the timing differences will not reverse in the foreseeable future.

~~C9 Defined benefit pension schemes~~

The Group has historically operated a number of defined benefit pension schemes in the UK, with all pension surplus and deficit attributable to subsidiaries of M&G plc except for 30 per cent of the surplus attaching to the Prudential Staff Pension Scheme (PSPS), which was allocated to Prudential plc. In preparation for the demerger of M&G plc, at 30 June 2019, the 30 per cent of surplus attaching to PSPS was formally reallocated to M&GPrudential Services Limited. All UK schemes left the Group upon the demerger of M&G plc and Prudential plc will incur no further costs in respect of these schemes. Outside of the UK, there are two small defined benefit schemes in Taiwan which have negligible deficits.

~~C10~~C8 Share capital, share premium and own shares

Shares are classified as equity when their terms do not create an obligation to transfer assets. Amounts recorded in share capital represent the nominal value of the shares issued. The difference between the proceeds received on issue of the shares, net of share issue costs, and the nominal value of the shares issued, is credited to share premium. Where the Company purchases shares for the purposes of employee incentive

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plans, the consideration paid, net of issue costs, is deducted from retained earnings. Upon issue or sale any consideration received is credited to retained earnings net of related costs.

	2019						2018						2020						2019

Issued shares of 5p each fully paid	Number of ordinary shares		Share capital $m		Share premium $m		Number of ordinary shares		Share capital $m		Share premium $m		Number of ordinary shares		Share capital $m		Share premium $m		Number of ordinary shares		Share capital $m		Share premium $m

Balance at 1 January		2,593,044,409		166		2,502		2,587,175,445		175		2,635
Balance at 1 Jan														2,601,159,949		172		2,625		2,593,044,409		166		2,502
Shares issued under share-based schemes		8,115,540		–		22		5,868,964		1		22		8,329,753		1		12		8,115,540		–		22
Impact of change in presentation currency		–		6		101		–		(10)		(155)		–		–		–		–		6		101

Balance at 31 December		2,601,159,949		172		2,625		2,593,044,409		166		2,502
Balance at 31 Dec														2,609,489,702		173		2,637		2,601,159,949		172		2,625

Options outstanding under save as you earn schemes to subscribe for shares at each year end shown below are as follows:

			Share price range								Share price range

	Number of shares to subscribe for		Share price range				Exercisable by year		Number of shares to subscribe for		Share price range				Exercisable by year
	Number of shares to subscribe for		from		to		Exercisable by year		Number of shares to subscribe for		from		to		Exercisable by year

31 Dec 2020										2,320,320		964p		1,455p		2026
31 Dec 2019		3,805,447		1,104p		1,455p		2025		3,805,447		1,104p		1,455p		2025
31 Dec 2018		4,885,804		901p		1,455p		2024

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Transactions by Prudential plc and its subsidiaries in Prudential plc shares

The Group buys and sells Prudential plc shares ('own shares') either in relation to its employee share schemes or, up until the demerger of its UK and Europe operations (M&G plc) in October 2019, via transactions undertaken by authorised investment funds that the Group is deemed to control. The cost of own shares of ~~$183~~$243 million at 31 December ~~2019~~2020 (31 December ~~2018: $217~~2019: $183 million) is deducted from retained earnings. The Company has established trusts to facilitate the delivery of shares under employee incentive plans. At 31 December ~~2019, 8.4~~2020, 11.2 million (31 December ~~2018: 9.6~~2019: 8.4 million) Prudential plc shares with a market value of ~~$161~~$205 million (31 December ~~2018: $172~~2019: $161 million) were held in such trusts, all of which are for employee incentive plans. The maximum number of shares held during the year was ~~14.1~~11.5 million which was in ~~March 2019.~~June 2020.

Within the trusts, shares are notionally allocated by business unit reflecting the employees to which the awards were made. ~~On demerger, shares allocated to M&G plc were transferred to a separate trust established by M&G plc.~~

The Company purchased the following number of shares in respect of employee incentive ~~plans. The shares purchased each month are as follows:~~plans:

			2019 share price								2018 share price						Number of shares		Share price						Number of shares		Share price

																	2020								2019
																			Share price								Share price
	Number of shares		2019 share price						Number of shares		2018 share price						Number of shares		Low		High		Cost*		Number of shares		Low		High		Cost*
	Number of shares		Low		High		Cost*		Number of shares		Low		High		Cost*				£		£		$				£		£		$

			£		£		$				£		£		$
January		75,165		14.25		14.29		1,384,926		51,555		19.18		19.40		1,378,409		62,395		14.42		14.68		1,195,275		75,165		14.25		14.29		1,384,926
February		71,044		15.00		15.18		1,390,865		55,765		17.91		18.10		1,402,089		62,680		14.57		14.60		1,183,717		71,044		15.00		15.18		1,390,865
March		68,497		15.20		16.32		1,385,182		55,623		18.25		18.54		1,432,155		79,057		11.18		11.40		1,110,374		68,497		15.20		16.32		1,385,182
April		2,638,429		15.65		16.73		54,052,710		1,664,334		16.67		17.95		40,997,710		5,363,563		10.21		10.48		68,010,967		2,638,429		15.65		16.73		54,052,710
May		73,417		16.35		16.45		1,550,109		63,334		18.91		19.38		1,636,433		81,377		11.16		11.30		1,117,783		73,417		16.35		16.45		1,550,109
June		217,800		16.20		16.36		4,484,773		181,995		18.21		18.65		4,432,511		167,724		11.86		12.67		2,540,749		217,800		16.20		16.36		4,484,773
July		60,514		17.47		17.71		1,321,427		55,888		17.68		17.86		1,308,608		87,239		12.30		12.51		1,365,109		60,514		17.47		17.71		1,321,427
August		72,671		14.86		15.21		1,318,593		60,384		18.04		18.10		1,404,285		72,287		12.21		12.33		1,167,008		72,671		14.86		15.21		1,318,593
September		73,284		14.14		14.76		1,318,767		82,612		16.95		16.98		1,829,814		75,368		11.61		11.68		1,138,447		73,284		14.14		14.76		1,318,767
October		178,359		13.78		14.24		3,148,811		148,209		15.62		16.84		3,223,238		116,802		11.49		11.71		1,764,694		178,359		13.78		14.24		3,148,811
November		75,904		13.38		13.85		1,309,146		67,162		15.95		15.96		1,382,514		74,178		10.62		12.76		1,233,127		75,904		13.38		13.85		1,309,146
December		68,573		13.07		13.13		1,178,206		73,744		13.99		14.30		1,323,949		70,814		12.78		12.83		1,217,842		68,573		13.07		13.13		1,178,206

Total		3,673,657						73,843,515		2,560,605						61,751,715		6,313,484						83,045,092		3,673,657						73,843,515

*: The cost in ~~US dollars for the shares purchased each month~~USD shown has been calculated from the share prices in ~~pounds sterling~~GBP using the monthly average exchange ~~rate.~~rate for the month in which those shares were purchased.

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~~Prior to~~Up until the demerger of ~~UK and Europe operations~~M&G plc in October 2019, the Group consolidated a number of authorised investment funds ofmanaged by M&G plc that ~~hold~~held shares in Prudential plc. ~~In the prior year, at 31 December 2018, the total number of shares held by these funds was 3.0 million and the~~The cost of acquiring these shares ~~of $25 million~~ was included in the cost of own ~~shares. The market value of these~~ shares ~~as at 31 December 2018 was $53 million. These funds were deconsolidated upon the demerger.~~in 2019.

All share transactions were made on an exchange other than the Stock Exchange of Hong Kong.

Other than set out above, the Group did not purchase, sell or redeem any Prudential plc listed securities during ~~2019~~2020 or ~~2018.~~2019.

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~~C11~~C9 Provisions

31 Dec 2019 $m
31 Dec 2018 $m

Provision in respect of defined benefit pension schemesC9
1 222
Other provisionsnote
465 1,151

Total provisions
466 1,373

Analysed as:

Continuing operations
427
Discontinued UK and Europe operations
946

1,373




Staff benefits provisionsnote(i)	328	408
Other provisions	22	58

Total provisionsnote(ii)	350	466

~~Note~~Notes

~~Analysis of movement in other provisions:~~

2019 $m
2018 $m

Balance at 1 January
1,151 1,275
Demerger of UK and Europe operations
(725) –
Charged to income statement:

Additional provisions
188 307
Unused amounts released
(7) (24)
Utilisation during the year
(154) (349)
Exchange differences
12 (58)

Balance at 31 December
465 1,151

~~Other provisions~~

(i): Provisions for ~~continuing operations comprise~~ staff benefits ~~provisions of $408 million (31 December 2018: $364 million) that~~ are generally expected to be paid out within the next three ~~years and other~~years.
(ii): Analysis of movement in total provisions ~~of $57 million (31 December 2018: $63 million).~~
is shown below:




Balance at 1 Jan	466	1,373
Removal of discontinued UK and Europe operations	–	(946)
Charged (credited) to income statement:
Additional provisions	128	188
Unused amounts released	(13)	(7)
Utilisation during the year	(241)	(154)
Exchange differences	10	12

Balance at 31 Dec	350	466

~~C12~~C10 Capital

~~C12.1~~C10.1 Group objectives, policies and processes for managing capital

(i): Capital measure

The Group manages its Group LCSM ~~available~~ capital resources as its measure of capital. At 31 December ~~2019~~2020, estimated Group shareholder LCSM ~~available~~ capital resources is ~~$14.0~~$15.8 billion (31 December ~~2018: $13.5~~2019: $14.0 billion).

(ii): External capital requirements

~~Following the demerger of the UK and Europe operations from Prudential plc, the~~The Hong Kong Insurance Authority (IA) ~~has~~ assumed the role of the group-wide supervisor for the Prudential Group ~~with~~following the ~~Group no longer subject to Solvency II capital requirements.~~demerger of M&G plc in October 2019. Ultimately, Prudential plc will become subject to the ~~Group Wide~~Group-wide Supervision (GWS) ~~framework which~~Framework. The primary legislation was enacted in July 2020 and will come into operation on 29 March 2021. The relevant subsidiary legislation, including the Insurance (Group Capital) Rules, were tabled before the Legislative Council on 6 January 2021 and will also come into operation on 29 March 2021. The GWS Framework is ~~currently under development~~expected to be effective for Prudential upon designation by the Hong Kong IA ~~and is expected to be finalised~~ in the second ~~half~~quarter of ~~2020.~~2021, subject to transitional arrangements.

Until Hong Kong's GWS ~~framework~~Framework comes into force, Prudential ~~will apply~~applies the local capital summation method (LCSM) that has been agreed with the Hong Kong IA to determine ~~group~~Group regulatory capital requirements (both minimum and prescribed levels). The GWS Framework is expected to be largely consistent with that applied under LCSM with the exception of the treatment of debt instruments which will be subject to transitional arrangements under the GWS Framework. Prudential's initial analysis indicates that all debt instruments (senior and subordinated) issued by Prudential will meet the transitional conditions set by the Hong Kong IA and will be included as eligible Group capital resources, although this will be subject to approval by the Hong Kong IA. The LCSM surplus represents the summation of ~~available~~ capital resources across local solvency regimes for regulated entities of the Group and IFRS net assets (with some adjustments) for non-regulated entities less the summation of local statutory capital requirements across the Group, with no allowance for diversification between business operations.

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(iii): Meeting of capital management objectives

The Group minimum capital requirement has been met during ~~2019. Prior to the demerger of the UK and Europe operations, the Group capital requirement was met in accordance with the Solvency II regime.~~2020.

As well as holding sufficient capital to meet LCSM requirements at Group level, the Group also closely manages the cash it holds within its central holding companies so that it can:

–: Fund new opportunities;
–: Maintain flexibility ~~fund new opportunities~~ and absorb shock events;
–: ~~Fund dividends;~~Cover central costs; and
–: ~~Cover central costs and debt payments.~~Fund dividends.

~~More details on holding company cash flows and balances are given in section I(iii) of the Additional unaudited financial information.~~

Reserve adequacy testing under a range of scenarios and dynamic solvency testing is carried out, including under certain scenarios mandated by the Asia and US ~~and Asia~~ regulators.

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The Group manages its assets, liabilities and capital locally, in accordance with local regulatory requirements and reflecting the different types of liabilities in each business unit. As a result of the diversity of products offered by Prudential and the different regulatory regimes under which it operates, the Group employs differing methods of asset/liability and capital management, depending on the business concerned.

The sensitivity of liabilities and other components of total capital vary depending upon the type of business concerned and this conditions the approach to asset/liability management.

~~C12.2~~C10.2 Local capital regulations

(i): Asia insurance operations

The local valuation basis for the assets, liabilities and capital requirements of significant operations in Asia are:

China JV

A risk-based capital, risk management and governance framework, known as the China Risk Oriented Solvency System (C-ROSS), applies in China. Under C-ROSS, insurers are required to maintain a core solvency ratio (core capital over minimum capital) and a comprehensive solvency ratio ~~(available capital~~(capital resources over minimum capital) of not lower than 50 per cent and 100 per cent, respectively. The review of C-ROSS by the China Banking Insurance Regulatory Commission is(CBIRC) has resulted in elevating the ~~process~~relevant principles of ~~reviewing the~~ C-ROSS ~~formulae and parameters. The exact timing of updates is uncertain.~~into regulatory requirements.

The actual capital is the difference between the admitted assets and admitted liabilities with trading and available-for-sale assets marked-to-market and other assets at book value. Policyholder liabilities are based on a gross premium valuation method using best estimate assumptions with a separate risk margin.

Hong Kong

The capital requirements set out in the regulations vary by underlying risk type and duration of liabilities, but are generally determined as a percentage of mathematical reserves and capital at risk.

Mathematical reserves are based on a net premium valuation method using assumptions which include a suitable margin for prudence. The valuation interest rate used to ~~calculate these reserves is subject to a maximum that~~value long-term liabilities reflects a blend between the ~~risk-adjusted~~prudent assessment of the portfolio yield and the reinvestment yield subject to a maximum of the prudent portfolio yield. The approach used to determine the reinvestment yield for reserving allows for average yields thus the impact of movements in interest rates are reflected in the valuation interest rate over time. The ~~available~~basis of calculation was updated in 2020 in line with a circular issued by the Hong Kong IA. The capital isresources are based on assets that are marked-to-market. The nature of the current regulatory regime means that the duration of statutory liabilities is longer than would be expected on an economic basis and hence there is an inherent mismatch with the assets that are managed on a more realistic basis. The Hong Kong IA is in the process of developing a risk-based capital framework ~~targeted to be introduced by 2024, and has performed~~with several quantitative impact studies performed over the past few ~~years.~~years, implementation of this framework is targeted by 2024 but the exact timing is uncertain.

Indonesia

Solvency capital is determined using a risk-based capital approach. The ~~available~~ capital isresources are based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for prudence. Liabilities are zeroised at a policy level ~~(i.e.~~(ie negative liabilities are not permitted at a policy level). For unit-linked policies an unearned premium reserve is established.

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Malaysia

A risk-based capital framework applies in Malaysia. The local regulator, Bank Negara Malaysia (BNM), has set a Supervisory Target Capital Level of 130 per cent below which supervisory actions of increasing intensity will be taken. Each insurer is also required to set its own Individual Target Capital Level to reflect its own risk profile and this is expected to be higher than the Supervisory Target Capital Level.

The ~~available~~ capital isresources are based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for prudence. Liabilities are zeroised at a fund level ~~(i.e.~~(ie negative liabilities are not permitted at a fund level). The BNM has initiated a review of its RBC framework. An exposure draft on ~~valuation~~Valuation of ~~liabilities~~Insurance and Takaful Liabilities was issued inon 24 December 2019 to gather industry ~~feedback.~~feedback by 15 April 2020. The exact timing of implementation of potential revisions isremains uncertain.

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Market liberalisation measures were introduced by BNM in April 2009, which increases the limit from 49 per cent to 70 per cent on foreign equity ownership for insurance companies and Takaful operators in Malaysia. A higher foreign equity limit beyond 70 per cent for insurance companies will be considered by BNM on a case by case basis, for example, for companies who support expansion of providing insurance ~~provision~~coverage to the most vulnerable in Malaysian society.

Singapore

A risk-based capital framework applies in Singapore. The regulator also has the authority to direct that the insurer satisfies additional capital adequacy requirements in addition to those set forth under the Singapore Insurance Act if it considers such additional requirements appropriate. The ~~available~~ capital isresources are based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for prudence. ~~Liabilities are zeroised at a policy level (i.e. negative liabilities are not permitted at a policy level).~~ The updated risk-based capital framework (RBC2) ~~will come~~came into effect on 31 March ~~2020.~~2020 and this permits the recognition of a prudent allowance for negative reserves in the capital resources.

(ii): US insurance operations

The regulatory framework for Jackson is governed by the requirements of the US NAIC-approved Risk-Based Capital standards. Under these requirements life insurance companies report using a formula-based capital standard, which includes components calculated by applying after-tax factors to various asset, premium and reserve items and a separate model-based component for market risk and interest rate risk associated primarily with variable annuity products. The 31 December 2019 Jackson local statutory results reflect early adoption of the NAIC regulatory framework reforms at the valuation date as agreed with the Department of Insurance Financial Services (DIFS), and Jackson's decision not to renew its long-standing permitted practice with the DIFS, which allowed certain derivative instruments, taken out to protect Jackson against declines in long-term interest rates, to be included at book value in the local statutory returns. At 31 December 2019, these derivatives were held at fair value.

(iii): Asset management operations – regulatory and other surplus

Certain asset management subsidiaries of the Group are subject to local regulatory requirements. The movement in the year of the estimated surplus regulatory capital position of those subsidiaries, combined with the movement in the IFRS basis shareholders' ~~funds~~equity for unregulated asset management operations, is as follows:

	2019 $m								2018 $m		2020 $m						2019 $m

Regulatory and other surplus	Eastspring Investments		US		M&G		Total asset management		Total asset management		Eastspring		US		Total asset management		Total asset management

Balance at 1 January		374		51		846		1,271		1,185
Demerger of UK and Europe operations						(846)		(846)		–
Gains during the year		214		24		–		238		701
Balance at 1 Jan												376		6		382		1,271
Removal of discontinued UK and Europe operations												–		–		–		(846)
Gains (losses) during the year												223		(1)		222		238
Movement in capital requirement		(32)		–		–		(32)		(7)		48		–		48		(32)
Capital injection		20		(30)		–		(10)		135		65		–		65		(10)
Distributions made to the parent company		(173)		(40)		–		(213)		(531)
Distributions made to the Parent Company												(204)		–		(204)		(213)
Exchange and other movements		(27)		1		–		(26)		(212)		(49)		–		(49)		(26)

Balance at 31 December		376		6		–		382		1,271
Balance at 31 Dec												459		5		464		382

~~C12.3~~C10.3 Transferability of ~~available~~ capital resources

For Asia, the amounts retained within the insurance companies are at levels that provide an appropriate level of capital strength in excess of the local regulatory minimum. The businesses in Asia may, in general, remit dividends to parent entities, provided the statutory insurance fund meets the local regulatory solvency

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requirements and there are sufficient statutory accounting profits. For with-profits funds, the excess of assets over liabilities is retained within the funds, with distribution to shareholders tied to the shareholders' share of declared bonuses.

~~For Jackson, capital retention is maintained at a level consistent with an appropriate rating by Standard & Poor's (currently rated AA-).~~ Jackson can pay dividends on its capital stock only out of earned surplus unless prior regulatory approval is obtained. Furthermore, dividends that exceed the greater of statutory net gain from operations less net realised investments losses for the prior year or 10 per cent of Jackson's prior year end statutory surplus, excluding any increase arising from the application of permitted practices, require prior regulatory approval.

~~Available capital~~Capital resources of the non-insurance business units is transferable after taking account of an appropriate level of operating capital, based on local regulatory solvency requirements, where relevant.

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~~C13~~C11 Property, plant and equipment

Property, plant and equipment comprise Group occupied properties and tangible assets. ~~Following the adoption of IFRS 16 on 1 January 2019 (as described in note A3), property,~~Property, plant and equipment also includes right-of-use assets for operating leases of properties occupied by the Group and leases of equipment and other tangible assets. All property, plant and equipment, including the right-of-use assets under operating leases, are held at cost less cumulative depreciation, calculated using the straight-line ~~method.~~method, and impairment charge.

The Group does not have any right-of-use assets that would meet the definition of investment property. As at 31 December ~~2019,~~2020, total right-of-use assets comprised $429 million (31 December 2019: $569 ~~million~~million) of property and $13 million (31 December 2019: $24 ~~million~~million) of non-property assets. Of the $442 million (31 December 2019: $593 million) total right-of-use assets, ~~of which $18~~$182 million ~~are attributable to shareholders.~~(31 December 2019: $253 million) were held by the Group's with-profits businesses.

Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. The Group assesses at lease commencement whether it is reasonably certain to exercise the option. This assertion is revisited if there is a material change in circumstances. ~~The~~As at 31 December 2020, the undiscounted value of lease payments beyond the break period not recognised in the lease liabilities ~~as at 31~~is $179 million (31 December ~~2019 is~~2019: $185 ~~million.~~

~~Table of Contents~~million).

A reconciliation of the carrying amount of ~~these items~~the Group's property, plant and equipment from the beginning ~~of the year~~ to the end of the ~~year~~years shown is as follows:

	2019 $m						2018 $m					2020 $m						2019 $m

	Group occupied property	Tangible assets		Right-of- use assets	Total		Group occupied property	Tangible assets		Total		Group occupied property	Tangible assets		Right-of- use assets	Total		Group occupied property	Tangible assets		Right-of- use assets	Total

Balance at 1 January
Balance at 1 Jan
Cost	525		2,089	–		2,614	496		1,408		1,904	351		687	734		1,772	525		2,089	–		2,614
Accumulated depreciation	(105)		(714)	–		(819)	(97)		(740)		(837)	(76)		(490)	(141)		(707)	(105)		(714)	–		(819)

Opening net book amount	420		1,375	–		1,795	399		668		1,067	275		197	593		1,065	420		1,375	–		1,795
Demerger of UK and Europe operations	(143)		(1,170)	–		(1,313)
Removal of discontinued UK and Europe operations												–		–	–		–	(143)		(1,170)	–		(1,313)
Recognition of right-of-use asset on initial application of IFRS 16	–		–	527		527						–		–	–		–	–		–	527		527
Arising on acquisitions of subsidiaries	6		13	1		20	6		691		697	–		–	–		–	6		13	1		20
Additions	1		63	196		260	47		339		386	3		56	21		80	1		63	196		260
Depreciation and impairment charge	(9)		(77)	(141)		(227)	(14)		(170)		(184)	(9)		(64)	(145)		(218)	(9)		(77)	(141)		(227)
Disposals and transfers	–		(11)	1		(10)	(11)		(92)		(103)	(3)		(13)	(25)		(41)	–		(11)	1		(10)
Effect of movements in exchange rates	–		4	9		13	(7)		(61)		(68)	1		8	(2)		7	–		4	9		13

Balance at 31 December	275		197	593		1,065	420		1,375		1,795
Balance at 31 Dec												267		184	442		893	275		197	593		1,065

Representing:
Cost	351		687	734		1,772	525		2,089		2,614	355		707	710		1,772	351		687	734		1,772
Accumulated depreciation	(76)		(490)	(141)		(707)	(105)		(714)		(819)	(88)		(523)	(268)		(879)	(76)		(490)	(141)		(707)

Closing net book amount	275		197	593		1,065	420		1,375		1,795	267		184	442		893	275		197	593		1,065

Analysed as:
Continuing operations							277		205		482
Discontinued operations							143		1,170		1,313

							420		1,375		1,795

The Group has non-cancellable property subleases which have been classified as operating leases ~~in 2019~~ under IFRS 16. The sublease rental income received in 2020 for the leases is $10.8 million (2019: $11 million ~~in 2019.~~from continuing operations).

Tangible assets ~~from continuing operations~~

At 31 December ~~2019,~~2020, of the ~~$197~~$184 million (31 December ~~2018: $205~~2019: $197 million) tangible assets, ~~$83~~$72 million (31 December ~~2018: $94~~2019: $83 million) were held by the Group's with-profits businesses.

Capital expenditure: property, plant and equipment by segment

The capital expenditure in ~~2019~~2020 of $59 million (2019: $64 ~~million (2018: $386 million of which $133 million related to continuing operations)~~million) arose as follows: ~~$44~~$30 million ~~(2018: $69~~(2019: $44 million) in Asia and $5$2 million ~~(2018: $62~~(2019: $5 million) in the US, with the remaining balance of ~~$15~~$27 million ~~(2018: $2~~(2019: $15 million) arising from corporate expenditure unallocated ~~corporate expenditure.~~to a segment.

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D OTHER INFORMATION

D1 Corporate transactions

D1.1 Gain (loss) ~~on disposal of business and~~attaching to corporate transactions

~~Income~~Where there is a disposal, income and expenses of entities sold during the ~~period~~year are included in the income statement up to the date of disposal. The gain or loss on disposal is calculated as the difference between sale proceeds net of selling costs, less the net assets of the entity at the date of disposal, adjusted for foreign exchange movements attaching to the sold entity that are required to be recycled to the income statement under IAS 21.

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~~D1.1 Gain (loss) on disposal of business~~

	2019 $m	2018 $m	2017 $m	2020 $m	2019 $m	2018 $m


Gain on disposalsnote(i)	265	–	–	–	265	–
Other transactionsnote(ii)	(407)	(107)	286	(48)	(407)	(107)

Total gain (loss) on disposal of business from continuing operations	(142)	(107)	286
Total gain (loss) attaching to corporate transactions as shown separately on the consolidated income statement				(48)	(142)	(107)
Gain arising on reinsurance of Jackson's in-force fixed and fixed index annuity businessnote(iii)				804	–	–
Gain arising on reinsurance transaction undertaken by the Hong Kong businessnote(iv)				765	–	–

Total gain (loss) attaching to corporate transactions				1,521	(142)	(107)

Notes

(i)

In 2019, the ~~$265 million~~ gain on disposals principally ~~relates~~related to profits arising from a 4 per cent reduction in the Group's stake ~~(from 26 per cent to 22 per cent)~~ in its associate in India, ICICI Prudential Life Insurance Company, and the disposal of Prudential Vietnam Finance Company Limited, a ~~wholly owned~~wholly-owned subsidiary that provides consumer finance.

(ii)

In 2020, other transactions include $(38) million of costs associated with the work to plan for the separation of Jackson. In 2019, ~~the $(407) million~~ other transactions ~~reflects~~primarily reflected costs related to the demerger of Mthe Group's UK and Europe operations (M&G ~~plc from Prudential plc. These include the following amounts:~~

–: ~~$(78) million transaction related costs, principally fees to advisors;~~
–: ~~$(182) million being the fee paid to the holders of two subordinated debt instruments as discussed in note C6.1(i); and~~
–: ~~$(147) million for one-off costs arising from the separation of the M&G plc business from Prudential plc.~~

plc). In 2018, the $(107) million other transactions primarily related to exiting the NPH broker-dealer business in the US and costs related to the preparation for the demerger of M&G plc.

(iii)

With effect from 1 June 2020, Jackson reinsured substantially all of its in-force portfolio of US fixed and fixed index annuities with Athene Life Re Ltd, which resulted in a pre-tax gain of $804 million, after allowing for the write-off of DAC associated with the business reinsured and after reflecting post-closing adjustments made in the second half of 2020. The transaction excluded Jackson's legacy life and institutional business as well as the REALIC portfolio and group pay-out annuity business reinsured from John Hancock and was collateralised to reduce the exposure to counterparty risk. Under the reinsurance arrangement, Jackson reinsured $27.6 billion liabilities (valued at 1 June 2020) in return for a premium of $28.9 billion net of ceding commission, comprising principally of bonds. The pre-tax gain also includes the realised gains arising on the bonds net of the DAC written off as a result of the transaction of $2.1 billion. After allowing for tax of $(0.2) billion and the reduction in unrealised gains recorded directly in other comprehensive income of $(1.8) billion, the impact of the reinsurance transaction on IFRS shareholders' equity is a reduction of $(1.2) billion.

(iv)

The benefit arises from a co-reinsurance quota share transaction undertaken by the Hong Kong business in December 2020 as part of the Group's on-going asset/liability management. Future surpluses (or losses) arising from the business being reinsured will be shared with the reinsurer in accordance with the terms of the treaty. This treaty helps mitigate the effect of the accounting mismatch under the existing regulatory framework in Hong Kong and is part of our management of the transition to the new RBC regime.

D1.2 ~~Other corporate transactions~~Equity investment by Athene into the US business

~~Acquisition~~In 2020, all of ~~Thanachart Fund Management Co., Ltd.~~the $1,014 million effect of transactions relating to non-controlling interests recognised in ~~Thailand~~

~~On 27 December 2019,~~ the ~~Group~~consolidated statement of changes in equity relates to the equity investment by Athene Life Re Ltd ('Athene') into the US business completed ~~its acquisition of 50.1~~on 17 July 2020. Under the transaction, Athene invested $500 million in Prudential's US business in return for an 11.1 per cent economic interest for which the voting interest is 9.9 per cent. Athene's investment is in the form of ~~Thanachart Fund Management Co., Ltd. (TFUND) from Thanachart Bank Public~~a cash subscription for the issuance of new common equity in the holding company containing Prudential's US businesses, including Jackson National Life Insurance Company ~~Ltd. (TBANK)~~ and Government Savings Bank, with TBANK holding the remaining 49.9 per cent stake of TFUND. The acquisition complements the Group's purchase of 65 per cent of TMB Asset Management, now TMBAM Eastspring, in September 2018.PPM America.

The ~~terms~~following is summarised financial information for non-controlling interest in Prudential's US operations currently held by Athene since July 2020:

–: The profit after tax generated by the US operations and attributable to Athene is $57 million;
–: The comprehensive loss generated by the US operations and attributable to Athene is $(8) million; and
–: Of the US operations' total equity, the amount attributable to Athene is $1,063 million.

Analysis of assets and liabilities of the ~~sale agreement include an option~~US operations is included in note C1 segmental balance sheet. Profit or loss of the US operations is included in note B1.4 segmental income statement. Total net decrease in cash and cash equivalents for the ~~Group to increase its ownership to 100 per cent in~~US operations during the future. The Group has recognised, in line with IFRS, a financial liability and a reduction in shareholders' equity of $130 million as of the acquisition date for the option, being the discounted expected consideration payable for the remaining 49.9 per cent.

~~The fair value of the acquired assets, assumed liabilities and resulting goodwill are~~year is shown ~~in the table~~ below:

	$m2020 $m


~~Assets~~Cash flows from operating activities
~~Other assets~~	28(807)
Cash ~~and cash equivalents~~flows from investing activities	2	(2)

~~Total assets~~Cash flows from financing activities	30
~~Other liabilities~~	~~(7)~~
Non-controlling interests*	~~(141)~~

~~Net assets acquired and liabilities assumed~~470	~~(118)~~
Goodwill arising on acquisition*	~~260~~

~~Purchase consideration~~Net cash flows in the year	~~142~~	(339)

*: ~~The goodwill on acquisition of $260 million is mainly attributable~~
No dividends were paid to ~~the expected benefits from new customers and synergies. Refer to note C5.1 for changes to the carrying amount of goodwill~~Athene during the year. ~~The Group has chosen to apply the full goodwill method under IFRS 3,~~

Table of Contents~~'Business Combinations'~~ ~~for this acquisition, with non-controlling interests being measured at fair value on the acquisition date.~~

D2D1.3 Discontinued UK and Europe operations

On 21 October 2019, the Group completed the demerger of its UK and Europe operations (M&G plc) ~~from the Group, resulting in two separately listed companies. The Group's UK and Europe operations have been reclassified~~, which were classified as discontinued operations in the comparatives included within these consolidated financial statements in accordance with IFRS 5 'Non-current assets held for sale and discontinued operations'.

The results and cash flows for the discontinued UK and Europe operations presented in the consolidated financial statements for the period of ownership up to the demerger ~~in October 2019~~ are analysed below.

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~~Income statement~~

2019 $m
2018 $m
2017 $m

Earned premiums, net of reinsurance 10,920 (101) 15,565
Investment return and other incomenote(1) 22,292 (2,386) 20,550

Total revenue, net of reinsurance 33,212 (2,487) 36,115

Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (26,975) 6,645 (29,677)
Acquisition costs and other expenditure (4,143) (3,296) (4,230)

Total charges, net of reinsurance (31,118) 3,349 (33,907)

Discontinued UK and Europe operations' profit before tax 2,094 862 2,208
Re-measurement of the UK and Europe operations on demergernote(2) 188 – –
Cumulative exchange loss recycled from other comprehensive income (2,668) – –

(Loss) profit before tax (386) 862 2,208
Tax (charge) creditnote(3) (775) 280 (875)

(Loss) profit for the year from discontinued operations (1,161) 1,142 1,333

~~Notes~~

~~(1)~~: ~~Includes share of profits from joint ventures and associates, net of related tax.~~
~~(2)~~: The re-measurement of the discontinued UK and Europe operations on demerger reflects the difference between the fair value of the UK and Europe operations and its net assets at the date of the demerger.
~~(3)~~: ~~The tax (charge) credit wholly relates to the tax on the ordinary profits of the discontinued UK and Europe operations.~~

~~Other comprehensive income~~

2019 $m
2018 $m
2017 $m

Cumulative exchange loss recycled through profit or loss 2,668 – –
Other items, net of related tax 203 (605) 1,023

Other comprehensive income for the year from discontinued operations, net of related tax 2,871 (605) 1,023

The profit and other comprehensive income for the period from the discontinued UK and Europe operations were wholly attributable to the equity holders of the Company.

Total comprehensive income




Total revenue, net of reinsurance	33,212	(2,487)
Total charges, net of reinsurance	(31,118)	3,349

Profit before tax	2,094	862
Re-measurement on demerger	188	–
Cumulative exchange loss recycled from other comprehensive income	(2,668)	–

Total (loss) profit before tax	(386)	862
Tax (charge) credit	(775)	280

(Loss) profit for the year	(1,161)	1,142

Other comprehensive income:
Cumulative exchange loss recycled through profit or loss	2,668	–
Other items, net of related tax	203	(605)

Other comprehensive income (loss) for the year, net of related tax	2,871	(605)

Total comprehensive income for the year	1,710	537

Cash flows

	2019 $m	2018 $m	2017 $m


Cash flows from operating activities	2,375	5	318	2,375	5
Cash flows from investing activities	(454)	(478)	1,316	(454)	(478)
Cash flows from financing activities*	–	(137)	(16)
Cash flows from financing activities				–	(137)
Cash and cash equivalents divested on demerger	(7,611)	–	–	(7,611)	–

Net cash flows in the year	(5,690)	(610)	1,618	(5,690)	(610)
Net cash flows between discontinued and continuing operations*	(436)	(842)	(847)	(436)	(842)
Cash and cash equivalents at beginning of year	6,048	7,857	6,258	6,048	7,857
Effect of exchange rate changes on cash and cash equivalents	78	(357)	828	78	(357)

Cash and cash equivalents on the consolidated statement of financial position at end of year	–	6,048	7,857
Cash and cash equivalents at end of year				–	6,048

*: The net cash flows between discontinued and continuing operations ~~represents the net cash paid for dividend and other items from discontinued operations to continuing operations. In~~in 2019 ~~the net cash flows~~ of $(436) million primarily ~~include pre-demerger dividend of $(3,841) million, other~~represented dividends of ~~$(684)~~$(4,525) million, offset by payment for the transfer of debt to M&G plc from Prudential plc prior to the demerger of $4,161 million.

D3D2 Contingencies and related obligations

Litigation and regulatory matters

The Group is involved in various litigation and regulatory proceedings. These may from time to time include class actions involving Jackson. While the outcome of such litigation and regulatory issues cannot be predicted with certainty, the ~~Company~~Group believes that their ultimate outcome will not have a material adverse effect on the Group's financial condition, results of operations or cash flows.

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Guarantees

Guarantee funds in the US and certain markets in Asia provide for payments to be made to policyholders on behalf of insolvent life insurance companies and are financed by payments assessed on solvent insurance companies based on location, volume and type of business. The estimated reserve for future guarantee fund assessments is not significant. For the majority of the markets in Asia, the insurance company's obligation is limited to the amount paid based on a fixed percentage of premiums. The ~~directors~~Directors believe that sufficient provision has been made on the balance sheet for all anticipated ~~payments for known insolvencies.~~payments.

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The Group has provided other guarantees and commitments to ~~third-parties~~third parties entered into in the normal course of business but the Group does not consider that the amounts involved are significant.

Intra-group capital support arrangements

Prudential has put in place intra-group arrangements to formalise undertakings by Prudential to the regulators of the Hong Kong subsidiaries regarding their solvency levels.

D4D3 Post balance sheet events

Dividends

The ~~2019~~2020 second interim ordinary dividend approved by the Board of Directors after 31 December ~~2019~~2020 is as described in note ~~B6.~~B5.

~~Coronavirus outbreak~~

~~The novel coronavirus outbreak, with thousands of cases reported in 2020~~Intention to ~~date and~~demerge the ~~virus spreading to countries across Asia and the world, has disrupted the activity~~Group's US operations in the ~~markets in which~~second quarter of 2021

In January 2021, the Board announced that it had decided to pursue the separation of its US operations (Jackson) from the Group ~~operates~~through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders.

Subject to shareholder and ~~adversely impacted~~regulatory approvals, the ~~economic conditions~~planned demerger is expected to complete in the ~~year~~second quarter of 2021 and would lead to ~~date. Given these conditions, lower levels~~a significantly earlier separation of ~~new business activity in all affected markets are to be expected. Further details on~~Jackson from the Group ~~capital~~than would have been possible through a minority IPO and future sell-downs, which from market precedent may have lasted until 2023. At the point of demerger, Prudential is planning to retain a 19.9 per cent non-controlling interest in Jackson, which will be reported within the consolidated financial position ~~are set out~~as a financial investment at fair value. Subject to market conditions, the Group intends to monetise a portion of this investment to support investment in ~~note I(i)~~Asia within 12 months of the ~~Additional unaudited~~planned demerger, such that the Group will own less than 10 per cent at the end of such period.

Following this decision in January 2021, the US operations (equivalent to the US segment disclosed in these financial ~~information.~~

~~The Group continues~~statements) are considered to ~~monitor closely~~meet the ~~development of the coronavirus outbreak~~held for distribution criteria in accordance with IFRS 5 'Non-current assets held for sale and its impact on market conditions. If current economic conditions persist, management could take additional actions to mitigate the impact. These actions include, but are not limited to, rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold.

discontinued operations'. It is not practicable to quantify the potential financial effect of the ~~outbreak on~~planned demerger and the ~~Group~~retained non-controlling interest at this stage.

~~Bancassurance agreement~~

On 19 March 2020, the Group announced it had signed a new bancassurance agreement with TMB Bank for a period of 15 years. This extended exclusive partnership agreement will commence on 1 January 2021 and until this time the current arrangement with Thanachart Bank will continue. This agreement requires the novation of TMB Bank's current bancassurance distribution agreement with another insurance group. The change in arrangements will cost Thai Baht 24.5 billion (equivalent to USD754 million based on exchange rate at 18 March 2020), which will be paid in two instalments, with Thai Baht 12.0 billion due in April 2020 and the remainder on 1 January 2021. The funding for this transaction will utilise a mixture of Prudential Asia's existing resources and Prudential plc own resources, potentially also including new debt. In line with the Group's policy, the amounts described above will be capitalised as an intangible asset representing distribution rights.

D5D4 Related party transactions

Transactions between the Company and its subsidiaries are eliminated on consolidation.

The Company has transactions and outstanding balances with ~~certain unit trusts, Open-Ended Investment Companies (OEICs),~~collective investment schemes, collateralised debt obligations and similar entities that are not consolidated and where a Group company acts as manager, which are regarded as related parties for the purposes of IAS 24. The balances are included in the Group's statement of financial position at fair value or amortised cost in accordance with IAS 39 ~~classifications. The transactions are~~classifications with the corresponding amounts included in the income ~~statement and~~statement. The transactions include amounts paid on issue of shares or units, amounts received on cancellation of shares or units and amounts paid in respect of the periodic charge and administration fee.

In addition, there are no material transactions between the Group's joint ventures and associates, which are accounted for on an equity method basis, and other Group companies.

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Key management personnel of the Company, as described in note B2.3, may from time to time purchase insurance, asset management or annuity products marketed by Group companies in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with other persons.

In 2020, 2019 ~~2018~~ and ~~2017,~~2018, other transactions with key management personnel were not deemed to be significant both by virtue of their size and in the context of the individuals' financial positions. All of these transactions were on terms broadly equivalent to those that prevailed in ~~arm's length~~arm's-length transactions.

Additional details on the Directors' interests in shares, transactions or arrangements are given in ~~'Compensation~~Compensation and ~~Employees'.~~Employees. Key management remuneration is disclosed in note B2.3.

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D6D5 Commitments

The Group has provided, from time to time, certain guarantees and commitments to third parties.

At 31 December ~~2019,~~2020, Asia operations had $1,913 million unfunded commitments ~~of $2,013 million~~ (31 December ~~2018: $1,554~~2019: $2,013 million) primarily related to investments in infrastructure funds and alternative investment funds. At 31 December ~~2019,~~2020, Jackson had unfunded commitments of ~~$889~~$831 million (31 December ~~2018: $846~~2019: $889 million) related to investments in limited partnerships and ~~$796~~$185 million (31 December ~~2018: $440~~2019: $796 million) related to commercial mortgage loans and other fixed income securities. These commitments were entered into in the normal course of business and a material adverse impact on the operations is not expected to arise from them.

D7D6 Investments in subsidiary undertakings, joint ventures and associates

~~(a)~~: D6.1 Basis of consolidation

The Group consolidates those investees it is deemed to control. The Group has control over an investee if all three of the following are met: (1) it has power over an investee; (2) it is exposed to, or has rights to, variable returns from its involvement with the investee; and (3) it has ability to use its power over the investee to affect its own returns.

(i) Subsidiaries

~~(i)~~: ~~Subsidiaries~~

Subsidiaries are those investees that the Group controls. The majority of the Group's subsidiaries are corporate entities, but the Group's insurance operations also invest in a number of limited partnerships.

The Group performs a re-assessment of consolidation whenever there is a change in the substance of the relationship between the Group and an investee. Where the Group is deemed to control an entity it is treated as a subsidiary and its results, assets and liabilities are consolidated. Where the Group holds a minority share in an entity, with no control over the entity, the investments are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position.

(ii): Joint ventures and associates

Joint ventures are joint arrangements arising from a contractual agreement whereby the Group and other investors have joint control of the net assets of the arrangement. In a number of these arrangements, the Group's share of the underlying net assets may be less than 50 per cent but the terms of the relevant agreement make it clear that control is jointly exercised between the Group and the third party. Associates are entities over which the Group has significant influence, but it does not control. Generally it is presumed that the Group has significant influence if it holds between 20 per cent and 50 per cent voting rights of the entity.

With the exception of those referred to below, the Group accounts for its investments in joint ventures and associates by using the equity method of accounting. The Group's share of profit or loss of its joint ventures and associates is recognised in the income statement and its share of movements in other comprehensive income is recognised in other comprehensive income. The equity method of accounting does not apply to investments in associates and joint ventures held by the Group's insurance or investment funds. This includes venture capital business, mutual funds and unit trusts and which, as allowed by IAS 28, 'Investments in Associates and Joint Ventures', are carried at fair value through profit or loss.

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(iii)
Structured entities
Structured entities are those that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Voting rights relate to administrative tasks. Relevant activities are directed by means of contractual arrangements. The Group invests in structured entities such as:
–
Collective investment schemes;
–
Limited partnerships;
–
Variable interest entities;
–
Investment vehicles within separate accounts offered through variable annuities;
–
Collateralised debt obligations;
–
Mortgage-backed securities; and
–
Similar asset-backed securities.

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Collective investment schemes
The Group invests in collective investment schemes, which invest mainly in equities, bonds, cash and cash equivalents, and properties. The Group's percentage ownership in these entities can fluctuate on a daily basis according to the participation of the Group and other investors in them.
–
Where the entity is managed by a Group asset manager, and the Group's ownership holding in the entity exceeds 50 per cent, the Group is judged to have control over the entity.
–
Where the entity is managed by a Group asset manager, and the Group's ownership holding in the entity is between 20 per cent and 50 per cent, the facts and circumstances of the Group's involvement in the entity are considered, including the rights to any fees earned by the asset manager from the entity, in forming a judgement as to whether the Group has control over the entity.
–
Where the entity is managed by a Group asset manager, and the Group's ownership holding in the entity is less than 20 per cent, the Group is judged to not have control over the entity.
–
Where the entity is managed by an asset manager outside the Group, an assessment is made of whether the Group has existing rights that gives it the ability to direct the current activities of the entity and therefore control the entity. In assessing the Group's ability to direct an entity, the Group considers its ability relative to other investors. ~~The Group has a limited number of investment funds where it considers it has such ability.~~
Where the Group is deemed to control these entities, they are treated as a subsidiary and are consolidated, with the interests of investors other than the Group being classified as liabilities, and appear as net asset value attributable to unit holders of consolidated investment funds.
Where the Group does not control these entities (as it is deemed to be acting as an agent) and they do not meet the definition of associates, they are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position.
Where the Group's asset manager sets up investment funds as part of asset management operations, the Group's interest is limited to the administration fees charged to manage the assets of such entities. With no participation in these entities, the Group does not retain risks associated with investment funds. For these investment funds, the Group is not deemed to control the entities but to be acting as an agent.
The Group generates returns and retains the ownership risks in investment vehicles commensurate to its participation and does not have any further exposure to the residual risks of these investment vehicles.
Jackson's separate account assets
These are investment vehicles that invest contract holders' premiums in equity, fixed income, bonds and money market mutual funds. The contract holder retains the underlying returns and the ownership risks related to the underlying investments. The shareholder's economic interest in separate accounts is limited to the administrative fees charged. The separate accounts are set up as separate regulated entities governed by a Board of Governors or trustees for which the majority of the members are independent of Jackson or any affiliated entity. The independent members are responsible for any decision making that impacts contract holders' interest and govern the operational activities of the entities' advisers, including asset managers. Accordingly, the Group does not control these vehicles. These investments are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position.

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Limited partnerships
The Group's insurance operations invest in a number of limited partnerships, either directly or through unit trusts, through a mix of capital and loans. These limited partnerships are managed by general partners, in which the Group holds equity. Such interest in general partners and limited partnerships provide the Group with voting and similar rights to participate in the governance framework of the relevant activities in which limited partnerships are engaged in. Accounting for the limited partnerships as subsidiaries, joint ventures, associates or other financial investments depends on the terms of each partnership agreement and the shareholdings in the general partners.

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Other structured entities
The Group holds investments in mortgage-backed securities, collateralised debt obligations and similar asset-backed securities, the majority of which are actively traded in a liquid market.
The Group consolidates the vehicles that hold the investments where the Group is deemed to control the vehicles. When assessing control over the vehicles, the factors considered include the purpose and design of the vehicle, the Group's exposure to the variability of returns and the scope of the Group's ability to direct the relevant activities of the vehicle including any kick-out or removal rights that are held by third parties. The outcome of the control assessment is dependent on the terms and conditions of the respective individual arrangements.
The majority of such vehicles are not consolidated. In these cases, the Group is not the sponsor of the vehicles in which it holds investments and has no administrative rights over the vehicles' activities. The Group generates returns and retains the ownership risks commensurate to its holding and its exposure to the investments and does not have any further exposure to the residual risks or losses of the investments or the vehicles in which it holds investments. Accordingly, the Group does not have power over the relevant activities of such vehicles and all are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position.
The table below provides aggregate carrying amounts of the investments in unconsolidated structured entities reported in the Group's statement of financial position:
31 Dec 2019 $m 31 Dec 2018 $m
31 Dec 2020 $m 31 Dec 2019 $m

Statement of financial position line
items
Investment
funds Separate
account
assets Other
structured
entities Investment
funds
Separate
account
assets Other
structured
entities
Investment
funds Separate
account
assets Other
structured
entities Investment
funds
Separate
account
assets Other
structured
entities

Equity securities and holdings in collective investment schemes
23,620 195,070 – 27,021 163,301 – 27,192 219,062 – 23,622 195,070 –
Debt securities
– – 6,574 – – 14,113 – – 3,414 – – 6,573

Total
23,620 195,070 6,574 27,021 163,301 14,113 27,192 219,062 3,414 23,622 195,070 6,573

The Group generates returns and retains the ownership risks in these investments commensurate to its participation and does not have any further exposure to the residual risks or losses of the investments or the vehicles in which it holds investments.
As at 31 December 2020 and 2019, the Group does not have an agreement, contractual or otherwise, or intention to provide financial support to structured entities that could expose the Group to a loss.
~~(a)~~
D6.2 Dividend restrictions and minimum capital requirements
Certain Group subsidiaries and joint ventures are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise to the ~~parent company.~~Parent Company.
Under UK company law, UK companies can only declare dividends if they have sufficient distributable reserves.
Jackson is subject to state laws that limit the dividends payable to its ~~parent company~~Parent Company based on statutory capital, surplus and prior year earnings. Dividends in excess of these limitations require prior regulatory approval.
The Group's subsidiaries, joint ventures and associates in Asia may remit dividends to the Group, in general, provided the statutory insurance fund meets the capital adequacy standard required under local statutory regulations and has sufficient distributable reserves. For further details on local capital regulations in Asia please refer to note ~~C12.2.~~C10.2.

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~~(b)~~
D6.3    Investments in joint ventures and associates
The Group has shareholder-backed joint venture insurance and asset management businesses in China with CITIC Group and a joint venture asset management business in India with ICICI Bank. In addition, there is an asset management joint venture in Hong Kong with Bank of China International Holdings Limited (BOCI) and Takaful insurance joint venture in Malaysia.
For the Group's joint ventures that are accounted for by using the equity method, the net of tax results of these operations are included in the Group's profit before tax.
The Group's associates, which are also accounted for under the equity method, include the Indian insurance entity (with the majority shareholder being ICICI Bank). In addition, the Group has investments in collective investment schemes, funds holding collateralised debt obligations, property funds where the Group has significant influence. As allowed under IAS 28, these investments are accounted for on a fair value through profit or loss basis. The aggregate fair value of associates accounted for at fair value through profit or loss, where there are published price quotations, is approximately $0.7 billion at 31 December ~~2019~~2020 (31 December ~~2018: $0.1 billion from continuing operations)~~2019: $0.7 billion).
For joint ventures and associates accounted for using the equity method, the 12 months financial information of these investments ~~up to~~for the years ended 31 December 2020 and 2019 (covering the same period as that of the Group) has been used in these consolidated financial statements.
The Group's share of the profits for shareholder-backed business (including short-term fluctuations in investment returns), net of related tax, ~~and carrying amount of interest~~ in joint ventures and associates, which are equity accounted as shown in the consolidated income statement at 31 December ~~2019 is $397 million (2018: $319 million; 2017: $233 million) for shareholder-backed business and~~2020, comprises the following:
Share of profits from joint ventures and associates, net of related tax
2019 $m
2018 $m
2017 $m
2020 $m
2019 $m
2018 $m

Asia insurance operations 291 238 156 400 291 238
Asia asset management operations 106 81 77 117 106 81

Total segment and Group total 397 319 233 517 397 319

There is no other comprehensive income in the joint ventures and associates. There has been no unrecognised share of losses of a joint venture or associate that the Group has stopped recognising in ~~the~~ total comprehensive income.
The Group's interest in joint ventures gives rise to no contingent liabilities or capital commitments that are material to the Group.
~~(c)~~
D6.4    Related undertakings
In accordance with Section 409 of the Companies Act 2006, a list of Prudential Group's subsidiaries, joint ventures, associates and significant holdings (being holdings of more than 20 per cent) is disclosed below, along with the classes of shares held, the registered office address and the ~~country of incorporation and the~~ effective percentage of equity owned at 31 December ~~2019 is disclosed below.~~2020.
The definitions of a subsidiary undertaking, joint venture and associate in accordance with the Companies Act 2006 are different from the definition under ~~IFRS.~~IFRS Standards. As a result, the related undertakings included within the list below may not be the same as the undertakings consolidated in the Group IFRS financial statements. The Group's consolidation policy is described in note ~~A3.1(b).~~D6.1. The Group also operates through branches. At 31 December ~~2019,~~2020, there iswas no significant branch outside the UK.

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Direct subsidiary undertakings of the ~~parent company,~~Parent Company, Prudential plc (shares held directly or via nominees)
Key to share classes:

Abbreviation Class of share held
LBG Limited by Guarantee
LPI Limited Partnership Interest
MI Membership Interest
MFS Mutual Fund Shares
NSB Non-stock basis
OS Ordinary Shares
PI Partnership Interest
PS Preference Shares
U Units

Name of entity Classes of shares held Proportion held Registered office address ~~and country of incorporation~~

Prudential Corporation Asia Limited OS 100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Prudential Group Holdings Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

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Other subsidiaries, joint ventures, associates and significant holdings of the Group —– no shares held directly by the ~~parent company,~~Parent Company, Prudential plc or its nominees
The table below represents the list of entities within the Group excluding the entities within the US business, which are shown in a separate table below.

Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

~~95th Avenue Retail Building, LLC~~Aberdeen Standard Cash Creation Fund MIU ~~100.00%~~31.40% ~~901 S., Ste. 201, Second St., Springfield, IL, 62704-7909, USA~~28th Floor Bangkok City Tower, 179 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120, Thailand

Aberdeen Standard ~~Cash Creation~~Global Opportunities Fund U ~~34.16%~~32.24% ~~28th Floor Bangkok City Tower, 179 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120, Thailand~~20 Collyer Quay, #01-01, Singapore 049319

Aberdeen Standard Singapore Equity – SGD class U 57.89%

Aberdeen Standard Singapore Equity Fund – USD class U ~~60.44%~~42.67% ~~20 Collyer Quay,~~21 Church Street, #01-01, Capital Square Two, Singapore ~~049319~~049480

~~Aberforth Standard~~Allianz Global ~~Opportunities~~Investors Greater China Fund U ~~28.46%~~43.06% 5F, No.378, Fu Xing N. Rd. Taipei, Taiwan

~~Allied Life Brokerage Agency, Inc~~Alternatives North America Ltd. ~~LPI~~U 100.00% ~~400 East Court Avenue, Des Moines, IA 50309, USA~~c/o MaplesFS Limited, P.O. Box 1093, Queensgate House, Grand Cayman, Cayman Islands KY1-1102

AMUNDI FTSE China A50 Index ETF U ~~38.67%~~58.20% 90, boulevard Pasteur, 75015 Paris – France

~~BeGeneral Insurance S.A.~~BOCHK Aggressive Growth Fund OSU ~~51.00%~~44.20% ~~Immeuble WOODIN Center 1st~~27th Floor, ~~Avenue Nogues, Plateaux, Abidjan, Cote d'Ivoire~~Bank of China Tower, 1 Garden Road, Hong Kong

~~BeLife Insurance S.A.~~BOCHK Balanced Growth Fund OSU ~~50.93%~~38.00%

~~Beneficial General Insurance S.A.~~ OS ~~50.04%~~ ~~1944 Blvd de la République, BP 2328, Douala, Cameroon~~

~~Beneficial Life Insurance S.A.~~BOCHK China Equity Fund U 61.53%

BOCHK Conservative Growth Fund U 38.26%

BOCHK US Dollar Money Market Fund U 24.23%

BOCI-Prudential Asset Management Limited OS ~~51.00%~~36.00%

~~Beneficial Life Insurance S.A.~~ OS ~~50.99%~~ ~~2963 Rue De La Chance Agbalepedogan, P.B. 1115, Lome, Togo~~

~~BOCHK Aggressive Growth Fund~~ U ~~65.61%~~ ~~27/F, Bank of China Tower, 1 Garden Road, Hong Kong~~

~~BOCHK Asia Pacific Equity Fund~~ U ~~26.29%~~

~~BOCHK Balanced Growth Fund~~ U ~~55.31%~~

~~BOCHK China Equity Fund~~ U ~~71.35%~~

~~BOCHK Conservative Growth Fund~~ U ~~55.24%~~

~~BOCHK Hong Kong Equity Fund~~ U ~~21.94%~~

~~BOCHK US Dollar Money Market Fund~~ U ~~34.85%~~

~~BOCI-Prudential Asset Management Limited~~ OS ~~36.00%~~

BOCI-Prudential Trustee Limited OS 36.00% ~~12/F & 25/F,~~12th Floor and 25th Floor, Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong

~~Brier Capital LLC~~ OS ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Brooke (Holdco 1) Inc~~ OS ~~100.00%~~ ~~1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA~~

~~Brooke Life Insurance Company~~ OS ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Centre Capital Non-Qualified Investors IV AIV Orion, LP~~ ~~LPI~~ ~~27.47%~~ ~~2711 Centreville Road, Suite 400, Wilmington, DE 19808, USA~~

~~Centre Capital Non-Qualified Investors IV AIV-RA, L.P.~~ ~~LPI~~ ~~44.55%~~

~~Centre Capital Non-Qualified Investors IV, L.P.~~ ~~LPI~~ ~~27.16%~~

~~Centre Capital Non-Qualified Investors V AIV-ELS LP~~ ~~LPI~~ ~~36.58%~~

~~Centre Capital Non-Qualified Investors V LP~~ ~~LPI~~ ~~37.66%~~

~~CEP IV-A Chicago AIV LP~~ ~~LPI~~ ~~23.93%~~ ~~615 South Dupont Highway, Dover, DE 19901, USA~~

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Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

~~CEP IV-A CWV AIV LP~~Capital Asian Bond Fund ~~LPI~~U ~~23.97%~~40.72% ~~850 New Burton Road, Suite 201, Dover, DE 19904, USA~~

~~CEP IV-A Davenport AIV LP~~ ~~LPI~~ ~~23.94%~~ ~~615 South Dupont Highway, Dover, DE 19901, USA~~15F., No.69, Sec. 2, Dunhua South. Rd. Da-an District, Taiwan

~~CEP IV-A Indy AIV LP~~CBRE European Industrial Fund ~~LPI~~U ~~23.94%~~23.40% 2100 McKinney Avenue, 12th Floor, Dallas, TX 75201, USA

~~CEP IV-A NMR AIV LP~~ ~~LPI~~ ~~23.94%~~

~~CEP IV-A WBCT AIV LP~~ ~~LPI~~ ~~23.94%~~

CITIC-CP Asset Management Co., Ltd. MI 26.95% Room 101-2, No.128 North Zhangjiabang Road, Pudong District, Shanghai, China

CITIC-Prudential Fund Management Company Limited MI 49.00% Level 9, HSBC Building, Shanghai IFC, 8 Century Avenue, Pudong, Shanghai, China

CITIC-Prudential Life Insurance Company Limited MI 50.00% 0507-0510, 1601-1616, East Tower, World Financial Centre, No.1 East Third Ring Middle Road, Chaoyang District, Beijing, 100020, China

~~Clairvest Equity Partners IV-A LP~~ ~~LPI~~ ~~23.90%~~ ~~22 St Clair Avenue East, Suite 1700, Toronto, ON M4T 2S3, Canada~~

~~Curian Capital, LLC~~ OS ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Curian Clearing LLC (Michigan)~~ OS ~~100.00%~~

Eastspring Al-Wara' Investments Berhad OS 100.00% Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Malaysia

Eastspring Asset Management Korea Co. Ltd. OS 100.00% 15th Floor, Shinhan Investment Tower, 70 Yoidae-ro, ~~Yeungdeungpo-gu,~~Youngdungpo-gu, Seoul 07325, Korea

Eastspring Global Smart Beta Baby Investment Trust H U 60.00% Goodmorning Shinhan Tower 15F Yeoido Dong 23-2, Youngdungpo-gu, Seoul 150-010, Korea

Eastspring Global Smart Beta Baby Investment Trust USD U 100.00%

Eastspring ~~Global Smart Beta EMP Securities Investment Trust (H)~~ U ~~71.97%~~ ~~Goodmorning Shinhan Tower 15F Yeoido Dong 23-2, Yeungdeungpo-gu Seoul 150-010, Korea~~

~~Eastspring Global Smart Beta EMP Securities Investor Trust (USD)~~ U ~~99.46%~~

~~Eastspring~~ Infrastructure Debt Fund L.P. PI ~~90.00%~~90.68% PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands

~~Eastspring Investment Asia Real Estate Multi Asset Income Fund~~ U ~~99.99%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

Eastspring Investment Asia Real Estate Multi Asset Income Fund U 80.65% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investment Asia Sustainable Bond Fund U ~~100.00%~~99.99%

Eastspring Investment K-Short Term Bond Alpha Securities Investment Trust (Bond Balanced) U 20.41% 15th Floor, Shinhan Investment Tower, 70 Yoidae-ro, Youngdungpo-gu, Seoul 07325, Korea

Eastspring Investment Management (Shanghai) Company Limited OSMI 100.00% Unit 306-308, ~~3/F~~3rd Floor, Azia Center, 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone, China

~~Eastspring Investments - Global Growth Equity Fund~~ U ~~73.57%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

~~Eastspring Investments - Global Low Volatility Equity Fund~~ U ~~98.72%~~

Eastspring Investments -– Global ~~Technology~~Growth Equity Fund U ~~82.24%~~73.87% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments – Global Low Volatility Equity Fund U 99.48%

Eastspring Investments ~~- India Discovery~~– Global Technology Fund U ~~36.63%~~81.38%

Eastspring Investments ~~- Japan Fundamental Value~~– Pan European Fund U ~~99.85%~~64.88%

Eastspring Investments ~~- Pan European~~– US High Yield Bond Fund U ~~61.01%~~41.33%

Eastspring Investments ~~- US High Yield Bond Fund~~(Hong Kong) Limited UOS ~~49.96%~~100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Eastspring Investments (Luxembourg) S.A. OS 100.00% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments (Singapore) Limited OS 100.00% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, Singapore 018983

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Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

~~Eastspring Investments (Hong Kong) Limited~~ OS ~~100.00%~~ ~~13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong~~

~~Eastspring Investments (Luxembourg) SA~~ OS ~~100.00%~~ ~~26 Boulevard Royal, L-2449, Luxembourg~~

~~Eastspring Investments (Singapore) Limited~~ OS ~~100.00%~~ ~~10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, Singapore 018983~~

Eastspring Investments Asia Oceania High Dividend Equity Fund U 100.00% Eastspring Investments Limited, Marunouchi Park Bldg., 2-6-1 Marunochi, Chiyoda-ku, Tokyo, Japan 100-6905

Eastspring Investments Asia Oceania U&I Bond Fund U ~~99.93%~~99.92%

Eastspring Investments Asia Pacific Equity Fund U ~~99.99%~~99.97% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments Asian Bond Fund U ~~53.60%~~39.08%

Eastspring Investments Asian Dynamic Fund U ~~92.59%~~90.00%

Eastspring Investments Asian Equity Fund U ~~85.19%~~99.17%

Eastspring Investments Asian Equity Income Fund U ~~78.33%~~80.97%

Eastspring Investments Asian High Yield Bond Fund U ~~39.86%~~29.28%

Eastspring Investments Asian High Yield Bond MY Fund U ~~86.36%~~67.90% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia
Eastspring Investments Asian Infrastructure Equity Fund U 71.48% 26, Boulevard Royal, L-2449, Luxembourg

~~Eastspring Investments Asian Infrastructure Equity Fund~~ U ~~50.78%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

Eastspring Investments Asian Investment Grade Bond Fund U ~~99.93%~~92.65%

Eastspring Investments Asian Low Volatility Equity Fund U 99.11%

Eastspring Investments Asian Multi Factor Equity Fund U 100.00%

Eastspring Investments Asian Property Securities Fund U 97.70%

Eastspring Investments ~~Asian Low Volatility Equity Fund~~Berhad UOS ~~97.27%~~100.00% Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Malaysia

Eastspring Investments ~~Asian Multi Factor Equity~~China A Shares Growth Fund U ~~100.00%~~91.25% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments ~~Asian Property Securities Fund~~ U ~~97.72%~~

~~Eastspring Investments Berhad~~ OS ~~100.00%~~ ~~Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Malaysia~~

~~Eastspring Investments China A Shares Growth Fund~~ U ~~100.00%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

~~Eastspring Investments~~ Dragon Peacock Fund U ~~53.18%~~90.95%

Eastspring Investments Emerging Markets Star Players U ~~36.99%~~41.15% ~~Eastsring~~Eastspring Investments Limited, Marunouchi Park Bldg., 2-6-1 Marunochi, Chiyoda-ku, Tokyo, Japan 100-6905

Eastspring Investments Equity Income Fund U ~~20.89%~~29.20% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

Eastspring Investments European Inv Grade Bond Fund U ~~99.28%~~99.73% 26, Boulevard Royal, L-2449, Luxembourg

~~Table of Contents~~

~~Name of entity~~ ~~Classes of~~
~~shares held~~ ~~Proportion~~
~~held~~ ~~Registered office address and country of~~
~~incorporation~~

Eastspring Investments Fund Management Limited Liability Company MI 100.00% 23rd Floor, Saigon Trade Center, 37 Ton Duc Thang Street, District 1, Ho Chi Minh City, Vietnam

Table of Contents

Name of entity Classes of shares held Proportion held Registered office address

Eastspring Investments Global Emerging Markets Bond Fund U ~~97.03%~~99.96% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments Global Equity Navigator Fund U ~~100.00%~~98.43%

Eastspring Investments Global Market Navigator Fund U 99.63%

~~Eastspring Investments Global Market Navigator Fund~~ U ~~99.68%~~

Eastspring Investments Global Multi Asset Income Plus Growth Fund U 99.99%

Eastspring Investments Greater China Equity Fund U ~~95.19%~~94.66%

Eastspring Investments ~~Hong Kong Equity Fund~~Group Pte. Ltd. UOS ~~93.10%~~100.00% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, Singapore 018983

Eastspring Investments Incorporated OS 100.00% 874 Walker Road, Suite C, Dover, DE 19904, USA

Eastspring Investments India Consumer Equity Open Limited OS 100.00% 3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius

Eastspring Investments India Equity Fund U ~~68.69%~~77.64% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments India Equity Open ~~(Asset Growth Type)~~ U ~~28.90%~~ ~~Eastsring Investments Limited, Marunouchi Park Bldg., 2-6-1 Marunochi, Chiyoda-ku, Tokyo, Japan 100-6905~~

~~Eastspring Investments India Equity Open~~ Limited OS 100.00% 3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius

Eastspring Investments India Infrastructure Equity Open Limited OS 100.00%

Eastspring Investments Japan Dynamic MY Fund U ~~27.65%~~37.02% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

Eastspring Investments Limited OS 100.00% Marunouchi Park Building, 6-1 Marunouchi 2-chome, Chiyoda-Ku, Tokyo, Japan

Eastspring Investments MY Focus Fund U ~~21.40%~~26.11% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

Eastspring Investments ~~North America Value Fund~~Services Pte. Ltd. UOS ~~99.84%~~100.00% ~~26,~~10 Marina Boulevard, ~~Royal, L-2449, Luxembourg~~#32-01, Marina Bay Financial Centre Tower 2, Singapore 018983

Eastspring Investments ~~Services Pte. Ltd.~~SICAV-FIS – Alternative Investments Fund OSU 100.00% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments SICAV-FIS – Asia Pacific Loan Fund U 90.92%

Eastspring Investments Unit Trust – Dragon Peacock Fund U 97.74% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983

Eastspring Investments US Corporate Bond Fund U 60.63% 26, Boulevard Royal, L-2449, Luxembourg

Eastspring Investments US High Inv Grade Bond Fund U 90.09%
��
Eastspring Investments US Investment Grade Bond Fund U 40.83%

Eastspring Investments UT Singapore ASEAN Equity Fund U 98.74% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983

Eastspring Investments ~~SICAV-FIS - Alternative Investments Fund~~ U ~~100.00%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

~~Eastspring Investments SICAV-FIS - Asia Pacific Loan Fund~~ U ~~100.00%~~

~~Eastspring Investments SICAV-FIS Universal USD~~UT Singapore Select Bond Fund U ~~100.00%~~75.14%

Eastspring Investments ~~SICAV-FIS Universal USD Bond II~~Vietnam Navigator Fund U ~~100.00%~~76.45%

~~Eastspring Investments Unit Trust - Dragon Peacock Fund~~ U ~~97.59%~~ ~~10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983~~

~~Eastspring Investments US Bond Fund~~ U ~~27.84%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

~~Eastspring Investments US Corporate Bond Fund~~ U ~~70.82%~~ 23rd Floor, Saigon Trade Center, 37 Ton Duc Thang Street, District 1, Ho Chi Minh City, Vietnam

Table of Contents

Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

Eastspring Investments ~~US High Inv Grade Bond~~World Value Equity Fund U ~~91.67%~~95.42%

~~Eastspring Investments US Investment Grade Bond Fund~~ U ~~45.41%~~

~~Eastspring Investments US Strategic Income Bond Fund~~ U ~~100.00%~~

~~Eastspring Investments US Total Return Bond Fund~~ U ~~100.00%~~ 26, Boulevard Royal, L-2449, Luxembourg

Eastspring ~~Investments UT Singapore ASEAN Equity~~Overseas Investment Fund Management (Shanghai) Company Limited UMI ~~99.76%~~100.00% ~~10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983~~Unit 306-308, 3rd Floor, 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone, China

~~Eastspring Investments UT Singapore Select Bond Fund~~ U ~~77.80%~~

~~Eastspring Investments Vietnam Navigator Fund~~ U ~~71.42%~~ ~~23rd Floor, Saigon Trade Center Building, 37 Ton Duc Thang Street, Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam~~

~~Eastspring Investments World Value Equity Fund~~ U ~~92.88%~~ ~~26, Boulevard Royal, L-2449, Luxembourg~~

~~Eastspring Overseas Investment Fund Management (Shanghai) Company Limited~~ OS ~~100.00%~~ ~~Unit 306-308, 3/F., 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone, China~~

Eastspring Real Assets Partners OS 100.00% PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands

Eastspring Securities Investment Trust Co., Ltd. OS 99.54% 4th Floor, No.1 Songzhi Road, Taipei 110, Taiwan

~~First State China Focus Fund~~ U ~~66.58%~~ ~~70 Sir John Rogerson's Quay, Dublin 2, D02 R296, Ireland~~

First ~~State~~Sentier Global Property ASecurities Fund U ~~52.26%~~56.08% 38 Beach Road, #06-11 South Beach Tower, Singapore 189767

~~Fubon~~First State China ~~Currency~~Focus Fund U ~~20.59%~~71.78% 70 Sir John Rogerson's Quay, Dublin 2, D02 R296, Ireland

FRANK TP ASIA GR-A-ACC-SGD U 28.03% 8A, rue Albert Borschette, L-1246 Luxembourg

Fubon China Bond Umbrella Fund U 37.09% 8F., No.108, Sec.1, Dunhua South. Rd. Taipei, Taiwan

Fubon Global Investment Grade Bond Fund U 41.28%

Fuh Hwa Emerging Market RMB Fixed Income Fund U 24.51% 8F ~~No. 108, Sec 1, Tun Hwa, South Road, Taipei, Taiwan~~& 9F., No.308, Sec. 2, Bade Rd., Da-an District

Furnival Insurance Company PCC Limited OS 100.00% PO Box ~~34, St Martin's House Le Bordage,~~155, Mill Court, La Charroterie, St Peter Port, ~~Guernsey,~~ GY1 ~~4AU~~4ET, Guernsey

GS Twenty Two Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

~~Hermitage Management LLC~~Hyde Holdco 1 Limited (In Liquidation) OS 100.00% ~~1 Corporate Way, Lansing, MI 48951, USA~~c/o Mazars LLP, 45 Church Street, Birmingham, B3 2RT, United Kingdom

~~Hyde Holdco 1 Limited~~ OS ~~100.00%~~ ~~1 Angel Court, London, EC2R 7AG, United Kingdom~~

ICICI Prudential Asset Management Company Limited OS 49.00% 12th Floor, Narain Manzil, 23, Barakhamba Road, New Delhi 110001, India

ICICI Prudential Life Insurance Company Limited OS 22.11% ICICI PruLife Towers, 1089 Appasaheb Marathe Marg, Prabhadevi, Mumbai 400025, India

ICICI Prudential Pension Funds Management Company Limited OS 22.11%

ICICI Prudential Trust Limited OS 49.00% 12th Floor, Narain Manzil, 23, Barakhamba Road, New Delhi 110001, India

Invesco Fixed Maturity Selective Emerging Market Bonds 2024 U ~~61.60%~~100.00% 8F, No 122, Tung Hua N. Rd. Taipei, Taiwan

Invesco Select 6 Year Maturity Global Bond Fund U 100.00%

iShares Core MSCI Asia U 72.07% 16/F Champion Tower, 3 Garden Road, Central, Hong Kong

~~Invesco Select 6 Year Maturity Global Bond~~iShares Edge MSCI USA Minimum Volatility ESG UCITS Fund U ~~68.28%~~78.95% J.P. Morgan, 200 Capital, 79 Sir John Rogerson's Quay, Dublin 2, D02 RK57, Ireland

iShares Edge MSCI USA Momentum Factor UCITS Fund U 37.14%

~~INVEST Financial Company Insurance Agency LLC of Illinois~~ OS ~~100.00%~~ ~~208 South LaSalle Street, Chicago, IL 60604, USA~~

~~iShares Core MSCI Europe~~ U ~~21.26%~~ ~~State Street Fund Services (Ireland) Limited, 78 Sir John Rogerson's Quay, Dublin 2, Ireland~~

~~Table of Contents~~

~~Name of entity~~ ~~Classes of~~
~~shares held~~ ~~Proportion~~
~~held~~ ~~Registered office address and country of~~
~~incorporation~~

iShares Fallen Angels High Yield Corporate Bond UCITS ETF Wing U ~~47.36%~~38.11% 79 Sir John Rogerson's Quay, Dublin 2, D02 RK 57, Ireland

~~iShares S&P 500 Financials Sector UCITS~~ U ~~22.98%~~

~~iShares S&P 500 Utilities Sector UCITS ETF~~ U ~~53.39%~~

~~Jackson Charitable Foundation Inc~~ ~~NSB~~ ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Jackson Holdings LLC~~ OS ~~100.00%~~ ~~1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA~~

~~Jackson National Asset Management LLC~~ OS ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Jackson National Life (Bermuda) Limited~~ OS ~~100.00%~~ ~~Cedar House, Hamilton, Bermuda~~

~~Jackson National Life Distributors LLC~~ OS ~~100.00%~~ ~~1209 Orange Street, Wilmington, DE 19801, USA~~

~~Jackson National Life Insurance Company~~ OS ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Jackson National Life Insurance Company of New York~~ OS ~~100.00%~~ ~~2900 Westchester Avenue, Suite 305, Purchase, NY 10577, USA~~

~~Lasalle Property Securities SICAV-FIS~~ U ~~99.97%~~ ~~11-13 Boulevard de la Foire, L-1528 Luxembourg~~

~~M&G Asia Property Trust~~ U ~~99.97%~~ ~~8 Marina Boulevard, 05-02 Marina Bay, Financial Centre Tower 1, Singapore, 018981~~

~~M&G Luxembourg European Strategic Value Fund~~ U ~~50.24%~~ ~~49 Avenue J.F. Kennedy, L-1855, Luxembourg~~

~~M&G Real Estate Asia Holding Company Pte. Ltd.~~ OS ~~33.00%~~ ~~10 Marina Boulevard, #31-03, Marina Bay, Financial Centre Tower 2, Singapore, 018983~~

~~Manulife Asia Pacific Bond Fund~~ U ~~27.29%~~ ~~9/F, No 89 Son Ren Road, Taipei, Taiwan~~

~~Manulife China Dim Sum High Yield Bond Fund~~ U ~~58.33%~~

~~Manulife China Offshore Bond Fund~~ U ~~39.57%~~

~~Manulife USD High Yield Bond Fund~~ U ~~37.47%~~

~~Mission Plans of America, Inc~~ OS ~~100.00%~~ ~~1999 Bryan Street, Suite 900, Dallas, TX 75201, USA~~

~~National Planning Holdings, LLC~~ OS ~~100.00%~~ ~~1209 Orange Street, Wilmington, DE 19801, USA~~

~~Nomura Six Years Fixed Maturity Asia Pacific Emerging Market Bond Fund~~ U ~~33.30%~~ ~~101 Tower, 30F, No. 7 Sec. 5, Xinyi Rd., Xinyi Dist., Taipei, Taiwan~~

~~Nomura Six Years Fixed Maturity Emerging Market Bond Fund~~ U ~~42.14%~~

~~Nomura Six Years Ladder Maturity Asia Pacific Emerging Market Bond Fund~~ U ~~25.01%~~

~~North Sathorn Holdings Company Limited~~ OS ~~100.00%~~ ~~3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa Subdistrict, Sathorn District, Bangkok, Thailand~~

~~PCA IP Services Limited~~ OS ~~100.00%~~ ~~13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong~~

~~PCA Life Assurance Co. Ltd.~~ OS ~~99.79%~~ ~~8th Floor, No.1 Songzhi Road, Taipei 11047, Taiwan~~

~~PCA Reinsurance Co. Ltd.~~ OS ~~100.00%~~ ~~Unit Level 13(A), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Federal Territory of Labuan, Malaysia~~

Table of Contents

Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

JPMorgan Investment Funds – Global Select Equity Fund U 28.59% JPMorgan Asset Management (Europe) S.à r.l., 6, route de Trèves, L-2633 Senningerberg, Luxembourg

~~PGDS (US One) LLC~~JPMorgan Liquidity Funds – SGD Liquidity LVNAV Fund OSU ~~100.00%~~21.21% ~~1209 Orange Street, Wilmington, DE 19801, USA~~

KKP Active Equity Fund U 22.04% 19/F Muang Thai-Phatra Complex, Building Tower, A, 252/25 Ratchadapisek Road, Huaykwang, Bangkok 10310, Thailand

~~PPM America Capital Partners III, LLC~~Krungsri Greater China Equity Hedged Dividend Fund MIU ~~60.50%~~25.64% ~~874 Walker~~12th, 18th Zone B Floor, Ploenchit Tower 898 Ploenchit Road, ~~Suite C, Dover, DE 19904, USA~~Lumpini Pathumwan, Bangkok 10330, Thailand

~~PPM America Capital Partners IV, LLC~~Lasalle Property Securities SICAV-FIS MIU ~~34.50%~~100.00% 11-13 Bouldevard de la Foire, L-1528 Luxembourg

~~PPM America Capital Partners V, LLC~~M&G Asia Property Trust MIU ~~34.00%~~100.00% 8 Marina Boulevard, 05-02 Marina Bay, Financial Centre Tower 1, Singapore, 018981

M&G Luxembourg European Strategic Value Fund U 78.60% 49 Avenue J.F. Kennedy, L-1855, Luxembourg

M&G Real Estate Asia Holding Company Pte. Ltd. OS 33.00% 10 Marina Boulevard, #31-03, Marina Bay, Financial Centre Tower 2, Singapore, 018983

Manulife Asia Pacific Bond Fund U 50.85% 9/F, No 89 Son Ren Road, Taipei, Taiwan

Manulife China Dim Sum High Yield Bond Fund U 65.43%

~~PPM America Capital Partners VI, LLC~~Manulife China Offshore Bond Fund MIU ~~32.00%~~66.01%

~~PPM America Private Equity~~Manulife USD High Yield Bond Fund ~~III LP~~ ~~LPI~~U ~~50.06%~~

~~PPM America Private Equity Fund IV LP~~ ~~LPI~~ ~~49.97%~~

~~PPM America Private Equity Fund V LP~~ ~~LPI~~ ~~49.97%~~

~~PPM America Private Equity Fund VI LP~~ ~~LPI~~ ~~59.94%~~

~~PPM America Private Equity Fund VII LP~~ ~~LPI~~ ~~54.00%~~

~~PPM America, Inc~~ OS ~~100.00%~~26.54%

~~PPM CLO 2~~Neuralbay Pte. Ltd. OS 100.00% ~~PO Box 1093, Queensgate House,Grand Cayman KY1-1102, Cayman Islands~~10 Central Exchange Green, Pixel, Singapore 138649

~~PPM CLO 2, LLC~~Nomura Six Years Fixed Maturity Asia Pacific Emerging Market Bond Fund PSU 100.00% ~~4001 Kennet Pike, Suite 301, Wilmington, DE, 19807, USA~~101 Tower, 30F, No. 7 Sec. 5, Xinyi Rd., Xinyi Dist., Taipei, Taiwan

~~PPM CLO 2018-1 Ltd.~~ PS ~~100.00%~~ ~~Queensgate House, South Church Street, George Town, Grand Cayman KY1-1102, Cayman Islands~~

~~PPM CLO 3 Ltd.~~ OS ~~100.00%~~ ~~PO Box 1093, Queensgate House,Grand Cayman KY1-1102, Cayman Islands~~

~~PPM CLO 3, LLC~~ PS ~~100.00%~~ ~~4001 Kennet Pike, Suite 301, Wilmington, DE, 19807, USA~~

~~PPM CLO 4 Ltd.~~ PS ~~100.00%~~ ~~PO Box 1093, Queensgate House,Grand Cayman KY1-1102, Cayman Islands~~

~~PPM Funds - PPM Core plus~~Nomura Six Years Fixed ~~Income~~Maturity Emerging Market Bond Fund ~~MFS~~U ~~100.00%~~ ~~84 State Street, 6th Floor, Boston, MA 02109~~

~~PPM Funds - PPM Large Cap Value Fund~~ ~~MFS~~ ~~99.96%~~43.03%

~~PPM Funds - PPM Long Short Credit~~Nomura Six Years Ladder Maturity Asia Pacific Emerging Market Bond Fund ~~MFS~~ ~~100.00%~~

~~PPM Funds - PPM Mid Cap Value Fund~~ ~~MFS~~ ~~99.57%~~

~~PPM Holdings, Inc~~ OS ~~100.00%~~ ~~774 Walker Road, Suite C, Dover, DE 19904, USA~~

~~PPM Loan Management Company LLC~~ MIU 100.00%

~~PPM Loan Management Holding~~North Sathorn Holdings Company ~~LLC~~Limited MIOS 100.00% 3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa Subdistrict, Sathorn District, Bangkok, Thailand

PCA IP Services Limited OS 100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

PCA Life Assurance Co. Ltd. OS 99.79% 8th Floor, No.1 Songzhi Road, Taipei City, 11047, Taiwan

PCA Reinsurance Co. Ltd. OS 100.00% Unit Level 13(A), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Federal Territory of Labuan, Malaysia

Prenetics Limited PS ~~14.27%~~12.65% 7th Floor, Prosperity Millennia Plaza, 663 King's Road, North Point, Hong Kong

Pru Life Insurance Corporation of U.K. OS 100.00% 9th Floor, Uptown Place Tower 1, 1 East 11th Drive, Uptown Bonifacio, 1634 Taguig City, Metro Manila, Philippines

Pru Life UK Asset Management and Trust Corporation OS 100.00% ~~2/F.,~~2nd Floor, Uptown Parade 2, 36th Street, Uptown Bonifacio, 1634 Taguig City, Metro Manila, Philippines

Table of Contents

Name of entity Classes of shares held �� Proportion held Registered office address

Prudence Foundation LBG 100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Prudential (Cambodia) Life Assurance Plc OS 100.00% 20th Floor, #445, Monivong Blvd, Boeung Prolit, 7 Makara, Phnom Penh Tower, Phnom Penh, Cambodia

Prudential (US Holdco 1) Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

~~Table of Contents~~

~~Name of entity~~ ~~Classes of~~
~~shares held~~ ~~Proportion~~
~~held~~ ~~Registered office address and country of~~
~~incorporation~~

Prudential Africa Holdings Limited OS 100.00%

Prudential Africa Services Limited OS 100.00% ~~5th Ngong~~Vienna Court, Ground Floor, State House Crescent, Off State House Avenue, Nairobi, P.O Box 25093, Kenya

Prudential Assurance Company Singapore (Pte) Limited OS 100.00% 30 Cecil Street, #30-01 Prudential Tower, Singapore 049712

Prudential Assurance Malaysia Berhad* OS 51.00% Level 20, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia

Prudential Assurance Uganda Limited OS 100.00% Zebra Plaza, Plot 23, Kampala Road, P.O. Box 2660, Kampala, Uganda

Prudential BeGeneral Insurance S.A. OS 51.00% Immeuble WOODIN Center 1st Floor, Avenue Nogues, Plateaux, Abidjan, Côte d'Ivoire

Prudential BeLife Insurance S.A. OS 50.93%

Prudential Beneficial General Insurance Cameroon S.A. OS 50.04% 1944 Blvd de la République, BP 2328, Douala, Cameroon

Prudential Beneficial Life Insurance Cameroon S.A. OS 51.00%

Prudential Beneficial Life Insurance Togo S.A. OS 50.99% 2963 Rue De La Chance Agbalepedogan, P.B. 1115, Lome, Togo

Prudential BSN Takaful Berhad† OS 49.00% Level 8A, Menara Prudential, ~~No.~~ 10 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia

Prudential Corporation Australasia Holdings Pty Limited (in liquidation) OS 100.00% 31 Highgate Circuit, Kellyville, NSW, 2155, Australia

Prudential Corporation Holdings Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

Prudential ~~Five~~General Insurance Hong Kong Limited ~~(in liquidation)~~ OS 100.00% ~~c/o Mazars LLP, 45 Church~~59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong

Prudential Group Secretarial Services HK Limited OS 100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, ~~Birmingham, B3 2RT,~~Central, Hong Kong

Prudential Group Secretarial Services Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

Prudential Holdings Limited OS 100.00% 4th Floor, Saltire Court, 20, Castle Terrace, Edinburgh, EH1 2EN, United Kingdom

Prudential ~~General Insurance~~ Hong Kong Limited OS 100.00% 59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong

Prudential ~~Group Secretarial Services HK~~International Treasury Limited OS 100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Prudential ~~Group Secretarial~~IP Services Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

~~Prudential Holdings Limited~~ OS ~~100.00%~~ ~~4th Floor, Saltire Court, 20, Castle Terrace, Edinburgh, EH1 2EN, United Kingdom~~

~~Prudential Hong Kong Limited~~ OS ~~100.00%~~ ~~59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong~~

~~Prudential International Staff Pensions Limited~~ OS ~~100.00%~~ ~~1 Angel Court, London, EC2R 7AG, United Kingdom~~

~~Prudential International Treasury Limited~~ OS ~~100.00%~~ ~~13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong~~

~~Prudential IP Services Limited~~ OS ~~100.00%~~ ~~1 Angel Court, London, EC2R 7AG, United Kingdom~~

~~Prudential Life Assurance (Lao) Company Limited~~ OS ~~100.00%~~ ~~5th Floor, Lao international Business and Tourist Center Project (Vientiane Center), Khouvieng Road, Nongchan Village, Sisattanak District, Vientiane Capital, Lao PDR~~

~~Prudential Life Assurance (Thailand) Public Company Limited~~ OS ~~99.93%~~ ~~9/9 Sathorn Building, 20th–27th Floor, South Sathorn Road, Yannawa, Sahtorn, Bangkok 10120, Thailand~~

~~Prudential Life Assurance Kenya Limited~~ OS ~~100.00%~~ ~~5th Ngong Avenue, Nairobi, Kenya~~

~~Prudential Life Assurance Zambia Limited~~ OS ~~100.00%~~ ~~Prudential House, Thabo Mbeki Road, Lusaka, Zambia~~

~~Prudential Life Insurance Ghana Limited~~ OS ~~100.00%~~ ~~35 North Street, Accra, Ghana~~

~~Prudential Life Vault Limited~~ OS ~~100.00%~~ ~~98 Awolowo Road, South-West Ikoyi, Lagos, Nigeria~~

~~Prudential Mauritius Holdings Limited~~ OS ~~100.00%~~ ~~3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius~~

~~Prudential Myanmar Life Insurance Limited~~ OS ~~100.00%~~ ~~#15-01, 15th Floor, Sule Square, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar~~

Table of Contents

Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

Prudential Life Assurance (Lao) Company Limited OS 100.00% 5th Floor, Lao international Business and Tourist Center Project (Vientiane Center), Khouvieng Road, Nongchan Village, Sisattanak District, Vientiane Capital, Lao PDR

Prudential Life Assurance (Thailand) Public Company Limited OS 99.93% 9/9 @Sathorn Building, 20th-27th Floor, South Sathorn Road, Yannawa, Sahtorn, Bangkok 10120, Thailand

Prudential Life Assurance Kenya Limited OS 100.00% Vienna Court, Ground Floor, State House Crescent, Off State House Avenue, Nairobi, P.O Box 25093, Kenya

Prudential Life Assurance Zambia Limited OS 100.00% Prudential House, Plot No.32256, Thabo Mbeki Road, P.O. Box 31357, Lusaka, Zambia

Prudential Life Insurance Ghana Limited OS 100.00% 35 North Street, Tesano, Accra, Accra – North, PO Box AN11549, Ghana

Prudential Life Vault Limited OS 100.00% 98 Awolowo Road, South-West Ikoyi, Lagos, Nigeria

Prudential Mauritius Holdings Limited OS 100.00% 3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius

Prudential Myanmar Life Insurance Limited OS 100.00% #15-01, 15th Floor, Sule Square, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar

Prudential Pensions Management Zambia Limited OS 49.00% Prudential House, Plot No.32256, Thabo Mbeki Road, P.O. Box 31357, Lusaka, Zambia

Prudential Services Asia Sdn. Bhd. OS 100.00% Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing, No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia

PS 100.00%

Prudential Services Limited OS 100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom

Prudential Services Singapore Pte. Ltd. OS 100.00% 1 Wallich Street, #19-01 Guoco Tower, Singapore 078881

Prudential Singapore Holdings Pte. Limited OS 100.00% 30 Cecil Street, #30-01 Prudential Tower, Singapore 049712

Prudential Technology and Services India Private Limited OS 100.00% EPIP Industrial Area, Whitefield Road, K.R Puram, Near SAP Labs, Hubli, Bangalore, Karnataka, 560066, India

Prudential Vietnam Assurance Private Limited OS 100.00% 25th Floor, Saigon Trade Centre, 37 Ton Duc Thang Street, District 1, Ho Chi Minh City, Vietnam

Prudential Zenith Life Insurance Limited OS 51.00% 13th Floor, Civic Towers, Ozumba Mbadiwe Avenue, Victoria Island, Lagos, Nigeria

~~PT. Eastspring Investments Indonesia~~ OS ~~99.95%~~ ~~Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, Indonesia~~

PT. ~~Prudential Life Assurance~~ OS ~~94.62%~~ ~~Prudential Tower, JI. Jend. Sudirman Kav. 79, Jakarta 12910,~~Eastspring Investments Indonesia

~~PVFC Financial Limited~~ OS 100.00% ~~Suite 509, 5/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong~~

~~REALIC of Jacksonville Plans, Inc~~ OS ~~100.00%~~ ~~1999 Bryan Street, Suite 900, Dallas, TX 75201, USA~~

~~Reksa Dana Eastspring IDR Fixed Income Fund (NDEIFF)~~ U ~~99.91%~~ Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, Indonesia

~~Reksa Dana Eastspring Investments Alpha Navigator Fund~~PT. Prudential Life Assurance UOS ~~78.29%~~94.62% Prudential Tower, JI. Jend. Sudirman Kav. 79, Jakarta 12910, Indonesia

~~Reksa Dana Eastspring Investments Cash Reserve~~Pulse EcoSystems Pte. Ltd. UOS 100.00%

~~Reksa Dana Eastspring Investments IDR High Grade~~ U ~~91.04%~~

~~Reksa Dana Eastspring Investments Value Discovery~~ U ~~91.94%~~

~~Reksa Dana Syariah Eastspring Syariah Equity Islamic Asia Pacific USD~~ U ~~94.37%~~

~~Reksa Dana Syariah Eastspring Syariah Fixed Income Amanah~~ U ~~65.65%~~

~~Reksa Dana Syariah Eastspring Syariah Money Market Khazanah~~ U ~~99.93%~~

~~Reksa Dana Syariah Penyertaan Terbatas Bahana Syariah BUMN Fund~~ U ~~99.01%~~ ~~Graha CIMB Niaga 21st Floor. Jl Jend Sudirman Kav 58, Jakarta - 12190, Indonesia.~~

~~Rhodium Investment Fund~~ U ~~99.98%~~ ~~10 Marina Boulevard, #32-01, Marina Bay Financial Centre~~1 Wallich Street, #19-01 Guoco Tower, 2, Singapore ~~018983~~078881

~~ROP, Inc~~PVFC Financial Limited OS 100.00% ~~1209 Orange~~Suite 509, 5th Floor, One International Finance Centre, 1 Harbour View Street, ~~Wilmington, DE 19801, USA~~

~~SCB SET Banking Sector Index (Accumulation)~~ U ~~32.08%~~ ~~7-8th Floor, SCB Park Plaza 1, 18 Ratchadapisek Road, Chatuchak, Bangkok 10900, Thailand~~

~~Schroder Asian Investment Grade Credit~~ U ~~41.08%~~ ~~138 Market Street, #23-01 CapitaGreen, Singapore 048946~~

~~Schroder Emerging Markets Fund~~ U ~~58.49%~~ Central, Hong Kong

Table of Contents

Name of entity Classes of
shares held Proportion
held Registered office address ~~and country of~~
~~incorporation~~

Reksa Dana Eastspring IDR Fixed Income Fund (NDEIFF) U 99.64% Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, Indonesia

Reksa Dana Eastspring Investments Alpha Navigator Fund U 85.85%

Reksa Dana Eastspring Investments Cash Reserve U 99.16%

Reksa Dana Eastspring Investments IDR High Grade U 21.46%

Reksa Dana Eastspring Investments Value Discovery U 88.20%

Reksa Dana Syariah Eastspring Syariah Equity Islamic Asia Pacific USD U 86.66%

Reksa Dana Syariah Eastspring Syariah Fixed Income Amanah U 59.79%

Reksa Dana Syariah Eastspring Syariah Money Market Khazanah U 98.30%

Reksa Dana Syariah Penyertaan Terbatas Bahana Syariah BUMN Fund U 99.01% Graha CIMB Niaga 21st Floor. Jl Jend Sudirman Kav 58, Jakarta – 12190, Indonesia.

Rhodium Investment Fund U 99.82% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, Singapore 018983

SCB Global Income Fund U 26.65% 7-8th Floor, SCB Park Plaza 1, 18 Ratchadapisek Road, Chatuchak, Bangkok 10900, Thailand

Schroder Asian Investment Grade Credit U 35.52% 138 Market Street, #23-01 CapitaGreen, Singapore 048946

Schroder Emerging Markets Fund U 63.91%

Schroder Multi-Asset Revolution U ~~63.81%~~59.60%

Schroder US Dollar Money Fund U ~~37.19%~~37.08% HSBC Institutional Trust Service (Asia) Limited, 1 Queen's Road Central, Hong Kong.

Scotts Spazio Pte. Ltd. OS 45.00% 30 Cecil Street #23-02 Prudential Tower, Singapore, 049712

~~SINOPAC China High Yield Fixed Income Fund~~ U ~~35.38%~~ ~~9F No.39 Section 1, Chung Hua Road, Taipei, Taiwan~~

~~Squire Capital I LLC~~Shenzhen Prudential Technology Limited MI 100.00% ~~1 Corporate Way, Lansing, MI 48951, USA~~

~~Squire Capital II LLC~~ OS ~~100.00%~~

~~Squire Reassurance Company II, Inc~~ OS ~~100.00%~~ ~~40600 Ann Arbor~~Unit 5, 8th Floor, China Resources Tower, No.2666 Keyuan South Road, ~~East Suite 201, Plymouth, MI 48170, USA~~

~~Squire Reassurance Company LLC~~ OS ~~100.00%~~ ~~1 Corporate Way, Lansing, MI 48951, USA~~Yuehai Street, Nanshan District, Shenzhen, 518054, China

Sri Han Suria Sdn. Bhd. OS 51.00% Suite 1005, 10th Floor Wisma Hamzah-Kwong Hing, No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia

Staple Limited OS 100.00% 3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa Subdistrict, Sathorn District, Bangkok, Thailand

~~Taishin Emerging Markets Bond Fund~~ U ~~28.78%~~ ~~1F, No.9, Dehui St., Zhongshan Dist. Taipei, Taiwan~~

~~Templeton Asian Growth Fund~~ U ~~26.08%~~ ~~8A, rue Albert Borschette, L-1246 Luxembourg~~

Thanachart Fund Management Co., Ltd. OS 50.10% ~~No. 231, MBK Life Building, 5th-7th~~Units 902-908, 9th Floor, ~~Ratchadamri~~Mitrtown Office Tower 944, Rama 4 Road, ~~Lumpini Sub-district, Pathumwan District,~~Wangmai, Patumwan, Bangkok, 10330, Thailand

~~Thanachart Long Term Fixed Income Fund~~TMB Asset Management Co., Ltd. UOS ~~27.79%~~65.00% 32nd Floor, Abdulrahim Building, 990 Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand

~~TMB Asset Management Co., Ltd.~~ OS ~~65.00%~~ ~~32nd FL, Abdulrahim Place, 990 Rama IV Rd, Silom, Bangrak, Bangkok 10500, Thailand~~

UOB Smart Global Healthcare U ~~35.44%~~36.67% 23A, 25th Floor, Asia Centre Building, 173/27-30, 32-33 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120, Thailand

UOB Smart Millennium Growth Fund U ~~36.96%~~34.24%

~~VFL International Life Company SPC, Ltd.~~ OS ~~100.00%~~ ~~171 Elgin Avenue, Grand Cayman, Cayman Islands~~

~~Wynnefield Private Equity Partners I, L.P.~~ ~~LPI~~ ~~99.00%~~ ~~1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA~~

*
Prudential Assurance Malaysia Berhad is consolidated at 100 per cent in the Group's financial statements reflecting the economic interest to the Group.
†
Prudential BSN Takaful Berhad is a joint venture that is accounted for using the equity method, for which the Group has an economic interest of 70 per cent for all business sold up to 23 December 2016 and of 49 per cent for new business sold subsequent to this date.

Table of Contents
The table below represents the list of entities within the Group's US business. On 17 July 2020, the Group completed the equity investment transaction by Athene, under which Athene invested $500 million in the Group's US business in return for an 11.1 per cent economic interest for which the voting interest is 9.9 per cent. The proportion held shown in the table below represents the Prudential's effective percentage of voting interest owned.

Name of entity Classes of
shares held Proportion
held Registered office address

95th Avenue Retail Building, LLC MI 90.10% 901 S., Ste. 201, Second St., Springfield, IL, 62704-7909, USA

Allied Life Brokerage Agency, Inc LPI 90.10% 1 Corporate Way, Lansing, MI 48951, USA

Brier Capital LLC OS 90.10%

Brooke Life Insurance Company OS 90.10%

Centre Capital Non-Qualified Investors IV AIV-RA, L.P. LPI 39.74% 2711 Centreville Road, Suite 400, Wilmington, DE 19808, USA

Centre Capital Non-Qualified Investors V AIV-ELS LP LPI 32.96%

Centre Capital Non-Qualified Investors V LP LPI 33.98%

CEP IV-A CWV AIV LP LPI 21.60% 615 South Dupont Highway, Dover, DE 19901, USA

CEP IV-A Davenport AIV LP LPI 21.57% 22 St. Clair Avenue East, Suite 1700, Toronto CA M4T 2S3

CEP IV-A INDY AIV Limited Partnership Canada LPI 21.57%

CEP IV-A Indy AIV LP LPI 21.57%

CEP IV-A NMR AIV LP LPI 21.57%

Hermitage Management LLC OS 90.10% 1 Corporate Way, Lansing, MI 48951, USA

Jackson Charitable Foundation Inc NSB 90.10%

Jackson Finance LLC OS 90.10%

Jackson Financial Inc OS 90.10% 1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA

Jackson Holdings LLC OS 90.10%

Jackson National Asset Management LLC OS 90.10% 1 Corporate Way, Lansing, MI 48951, USA

Jackson National Life (Bermuda) Limited OS 90.10% Cedar House, Hamilton, Bermuda

Jackson National Life Distributors LLC OS 90.10% 1209 Orange Street, Wilmington, DE 19801, USA

Jackson National Life Insurance Agency, LLC OS 90.10%

Jackson National Life Insurance Company OS 90.10% 1 Corporate Way, Lansing, MI 48951, USA

Jackson National Life Insurance Company of New York OS 90.10% 2900 Westchester Avenue, Suite 305, Purchase, NY 10577, USA

Mission Plans of America, Inc OS 90.10% 1999 Bryan Street, Suite 900, Dallas, TX 75201, USA

National Planning Holdings, LLC OS 90.10% 1209 Orange Street, Wilmington, DE 19801, USA

Old Hickory Fund I, LLC MI 90.10% 874 Walker Road, Suite C, Dover, DE 19904, USA

PGDS (US One) LLC OS 90.10% 1209 Orange Street, Wilmington, DE 19801, USA

Table of Contents

Name of entity Classes of
shares held Proportion
held Registered office address

PPM America Capital Partners III, LLC MI 54.51% 874 Walker Road, Suite C, Dover, DE 19904, USA

PPM America Capital Partners IV, LLC MI 31.08%

PPM America Capital Partners V, LLC MI 30.63%

PPM America Capital Partners VI, LLC MI 28.83%

PPM America Private Equity Fund III LP LPI 45.10%

PPM America Private Equity Fund IV LP LPI 45.01%

PPM America Private Equity Fund V LP LPI 45.01%

PPM America Private Equity Fund VI LP LPI 43.22%

PPM America Private Equity Fund VII LP LPI 48.03%
��
PPM America, Inc OS 90.10%

PPM CLO 2018-1 Ltd. PS 74.78% Queensgate House, South Church Street, George Town, Grand Cayman KY1-1102, Cayman Islands

PPM CLO 3 Ltd. OS 90.10% PO Box 1093, Queensgate House, Grand Cayman KY1-1102, Cayman Islands

PPM CLO 4 Ltd. PS 71.18% PO Box 1093, Queensgate House, Grand Cayman KY1-1102, Cayman Islands

PPM Funds – PPM Core plus Fixed Income Fund MFS 89.96% 84 State Street, 6th Floor, Boston, MA 02109, USA

PPM Funds – PPM High Yield Core Fund MFS 90.08%

PPM Funds – PPM Small Cap Value Fund MFS 53.84%

PPM Holdings, Inc OS 90.10% 874 Walker Road, Suite C, Dover, DE 19904, USA

PPM Loan Management Company LLC MI 90.10%

PPM Loan Management Holding Company LLC MI 90.10%

REALIC of Jacksonville Plans, Inc OS 90.10% 1999 Bryan Street, Suite 900, Dallas, TX 75201, USA

ROP, Inc OS 90.10% 1209 Orange Street, Wilmington, DE 19801, USA
��
Squire Capital I LLC MI 90.10% 1 Corporate Way, Lansing, MI 48951, USA

Squire Capital II LLC OS 90.10%

Squire Reassurance Company II, Inc OS 90.10% 40600 Ann Arbor Road, East Suite 201, Plymouth, MI 48170, USA

Squire Reassurance Company LLC OS 90.10% 1 Corporate Way, Lansing, MI 48951, USA

VFL International Life Company SPC, Ltd. OS 90.10% 171 Elgin Avenue, Grand Cayman, Cayman Islands

Wynnefield Private Equity Partners I, L.P. LPI 89.09% 1313 North Market Street Ste 5100, Wilmington, DE 19801, USA

Table of Contents
Index to the Condensed Financial Information of Registrant Prudential plc
Page

Profit and Loss Accounts for the years ended 31 December 2020, 2019 ~~2018~~ and ~~2017~~2018
~~373~~340
Statements of Financial Position at 31 December ~~2019~~2020 and ~~2018~~2019
~~374~~341
Statements of Changes in Equity for the years ended 31 December 2020, 2019 ~~2018~~ and ~~2017~~2018
~~375~~342
Statements of Cash Flows for the years ended 31 December 2020, 2019 ~~2018~~ and ~~2017~~2018
~~376~~343
Notes to the Condensed Financial Statement Schedule
~~377~~344

Table of Contents
Schedule II
Condensed Financial Information of Registrant Prudential plc
Profit and Loss Accounts (FRS 101 Basis)
Years ended 31 December
2019 $m 2018* $m 2017* $m
Years ended 31 Dec
2020 $m 2019 $m 2018 $m

Investment income, including dividends received from subsidiary undertakings
9,707 2,143 2,265 539 9,707 2,143
Investment expenses and charges
(515) (549) (534) (320) (515) (549)
Gain on revaluation of M&G plc
3,649 – – – 3,649 –
Other charges:

Corporate expenditure
(713) (346) (280) (266) (713) (346)
Foreign currency exchange (losses) gains
(18) 7 (12) (19) (18) 7

Profit on ordinary activities before tax
12,110 1,255 1,439
Tax credit on profit on ordinary activities
145 135 153
(Loss) Profit on ordinary activities before tax
(66) 12,110 1,255
Tax (charge) credit on profit on ordinary activities
(19) 145 135

Profit for the financial year
12,255 1,390 1,592
(Loss) profit for the financial year
(85) 12,255 1,390

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss

Exchange movements arising during the year
393 (428) 676 – 393 (428)
Items that will not be reclassified to profit or loss

Actuarial (losses) gains recognised in respect of the defined benefit pension scheme
(91) 25 44 – (91) 25
Related tax
16 (4) (8) – 16 (4)

318 (407) 712 – 318 (407)

Total comprehensive income for the year
12,573 983 2,304
Total comprehensive (loss) income for the year
(85) 12,573 983

*
The 2018 and 2017 comparative results have been re-presented from those previously published to reflect the change in the Company's presentation currency from pounds sterling to US dollars (as described in note 2).
The accompanying notes are an integral part of this condensed financial information

Table of Contents
Schedule II
Condensed Financial Information of Registrant Prudential plc
Statements of Financial Position (FRS 101 Basis)
31 December
2019 $m 2018* $m
31 Dec 2020 $m 31 Dec 2019 $m

Non-current assets

Investments in subsidiary undertakings
10,444 13,787 12,682 10,444
Amounts owed by subsidiary undertakings
2,000 – – 2,000

12,444 13,787 12,682 12,444
Current assets

Debtors:

Amounts owed by subsidiary undertakings
6,352 7,520 6,722 6,352
Tax recoverable
– 66
Other debtors
4 6 5 4
Tax recoverable
66 53
Derivative assets
– 6
Pension asset
– 88
Cash at bank and in hand
54 28 5 54

6,476 7,701 6,732 6,476

Liabilities: amounts falling due within one year

Commercial paper
(520) (601) (501) (520)
Derivative liabilities
– (539)
Amounts owed to subsidiary undertakings
(141) (1,192) (149) (141)
Tax payable
(14) (13) (16) (14)
Deferred tax liability
– (15)
Accruals and deferred income
(78) (129) (79) (78)

(753) (2,489) (745) (753)

Net current assets
5,723 5,212 5,987 5,723

Total assets less current liabilities
18,167 18,999 18,669 18,167

Liabilities: amounts falling due after more than one year

Subordinated liabilities
(4,304) (8,503) (4,332) (4,304)
Debenture loans
(690) (658) (1,701) (690)
Other borrowings
– (350) (350) –

(4,994) (9,511) (6,383) (4,994)

Total net assets
13,173 9,488 12,286 13,173

Capital and reserves

Share capital
172 166 173 172
Share premium
2,625 2,502 2,637 2,625
Profit and loss account
10,376 6,820 9,476 10,376

Shareholders' funds
13,173 9,488 12,286 13,173

*
The 2018 comparative results have been re-presented from those previously published to reflect the change in the Company's presentation currency from pounds sterling to US dollars (as described in note 2).
The accompanying notes are an integral part of this condensed financial information

Table of Contents
Schedule II
Condensed Financial Information of Registrant Prudential plc
Statements of Changes in Equity (FRS 101 basis)

$m Share
capital Share
premium Profit and
loss account Total
equity

Balance at 1 January 2017

159

2,381

6,733

9,273

Total comprehensive income for the year

Profit for the year – – 1,592 1,592
Foreign exchange translation differences due to change in presentation currency* – – 676 676
Actuarial gains recognised in respect of the defined benefit pension scheme – – 36 36

Total comprehensive income for the year – – 2,304 2,304

Transactions with owners, recorded directly in equity

New share capital subscribed – 27 – 27
Share based payment transactions – – (1) (1)
Foreign exchange translation differences due to change in presentation currency* 16 227 – 243
Dividends – – (1,525) (1,525)

Total contributions by and distributions to owners 16 254 (1,526) (1,256)

Balance at 31 December 2017 175 2,635 7,511 10,321

Balance at 1 January 2018

175

2,635

7,511

10,321
Impact of initial application of IFRS 9 – – (12) (12)
Total comprehensive income for the year
Profit for the year – – 1,390 1,390
Actuarial gains recognised in respect of the defined benefit pension scheme – – 21 21
Foreign exchange translation differences due to change in presentation currency* – – (428) (428)

Total comprehensive income for the year – – 983 983

Transactions with owners, recorded directly in equity

New share capital subscribed 1 22 – 23
Dividends – – (1,662) (1,662)
Foreign exchange translation differences due to change in presentation currency* (10) (155) – (165)

Total contributions by and distributions to owners (9) (133) (1,662) (1,804)

Balance at 31 December 2018 166 2,502 6,820 9,488

Balance at 1 January 2019

166

2,502

6,820

9,488
Profit for the year – – 12,255 12,255
Actuarial losses recognised in respect of the defined benefit pension scheme – – (75) (75)
Foreign exchange translation differences due to change in presentation currency* – – 393 393

Total comprehensive income for the year – – 12,573 12,573

Transactions with owners, recorded directly in equity

New share capital subscribed – 22 – 22
Share based payment transactions – – (4) (4)
Dividend in specie of M&G plc – – (7,379) (7,379)
Dividends – – (1,634) (1,634)
Foreign exchange translation differences due to change in presentation currency* 6 101 – 107

Total contributions by and distributions to owners 6 123 (9,017) (8,888)

Balance at 31 December 2019 172 2,625 10,376 13,173

*
The 2018 and 2017 comparative results have been re-presented from those previously published to reflect the change in the Company's presentational currency from pounds sterling to US dollars (as described in note 2).

Share
capital
$m

Share
premium
$m

Profit and
loss account
$m

Total
shareholders'
funds
$m

Balance at 1 Jan 2018 175 2,635 7,511 10,321
Impact of initial application of IFRS 9 – – (12) (12)

Total comprehensive income for the year

Profit for the year – – 1,390 1,390
Actuarial gains recognised in respect of the defined benefit pension scheme – – 21 21
Foreign exchange translation differences due to change in presentation currency at 31 Dec 2018 – – (428) (428)

Total comprehensive income for the year – – 983 983

Transactions with owners, recorded directly in equity

New share capital subscribed 1 22 – 23
Dividends – – (1,662) (1,662)
Foreign exchange translation differences due to change in presentation currency at 31 Dec 2018 (10) (155) – (165)

Total contributions by and distributions to owners (9) (133) (1,662) (1,804)
Balance at 31 Dec 2018 166 2,502 6,820 9,488

Balance at 1 Jan 2019

166

2,502

6,820

9,488

Total comprehensive income for the year

Profit for the year – – 12,255 12,255
Actuarial loss recognised in respect of the defined benefit pension scheme – – (75) (75)
Foreign exchange translation differences due to change in presentation currency at 31 Dec 2019 – – 393 393

Total comprehensive income for the year – – 12,573 12,573

Transactions with owners, recorded directly in equity

New share capital subscribed – 22 – 22
Share based payment transactions – – (4) (4)
Dividend in specie of M&G plc – – (7,379) (7,379)
Other dividends – – (1,634) (1,634)
Foreign exchange translation differences due to change in presentation currency at 31 Dec 2019 6 101 – 107

Total contributions by and distributions to owners 6 123 (9,017) (8,888)

Balance at 31 Dec 2019 172 2,625 10,376 13,173

Balance at 1 Jan 2020

172

2,625

10,376

13,173

Total comprehensive loss for the year

–

–

(85)

(85)

Transactions with owners, recorded directly in equity

New share capital subscribed 1 12 – 13
Share based payment transactions – – (1) (1)
Dividends – – (814) (814)

Total contributions by and distributions to owners 1 12 (815) (802)

Balance at 31 Dec 2020 173 2,637 9,476 12,286

The accompanying notes are an integral part of this condensed financial information

Table of Contents
Schedule II
Condensed Financial Information of Registrant Prudential plc
Statements of Cash Flows (FRS 101 Basis)
Years ended 31 December 2019 $m 2018* $m 2017* $m
2020 $m

2019 $m

2018 $m

Operating
Operating:
Net cash inflow from operating activities before interest and tax 6,015 1,868 1,977 273 6,015 1,868
Interest paid (500) (537) (527) (320) (500) (537)
Taxes received 117 130 156 93 117 130
Equity dividends paid (1,634) (1,662) (1,525)
Dividends paid (814) (1,634) (1,662)

Net cash inflow (outflow) before financing 3,998 (201) 81
Net cash (outflow) inflow before financing (768) 3,998 (201)

Financing
Financing:
Issue of ordinary share capital 22 23 27 13 22 23
Issue of borrowings 367 2,132 728 983 367 2,132
Repayment of borrowings (863) (1,381) (968) – (863) (1,381)
Transfer of debt to M&G plc prior to demerger of UK and Europe operations (4,161) – – – (4,161) –
Movement in commercial paper and other borrowings to support a short-term fixed income securities program (81) (19) (731) (19) (81) (19)
Investment in subsidiary undertakings 118 (117) – 112 118 (117)
Movement in net amount owed by subsidiary undertakings 626 (600) 985 (370) 626 (600)

Net cash (outflow) inflow from financing (3,972) 38 41
Net cash inflow (outflow) from financing 719 (3,972) 38

Net cash inflow (outflow) for the year 26 (163) 122
Net cash (outflow) inflow for the year (49) 26 (163)

Reconciliation of profit on ordinary activities before tax to net cash inflow from operating activities
Profit on ordinary activities before tax 12,110 1,255 1,439
(Loss) profit on ordinary activities before tax (66) 12,110 1,255
Add back: interest charged 515 558 546 320 515 558
Adjustments for non-cash items:
Fair value adjustments on derivatives
77 (28) (5) – 77 (28)
Pension scheme
(21) 28 14 – (21) 28
Non-cash dividends received
(2,960) – – – (2,960) –
Revaluation of M&G plc on distribution
(3,649) – – – (3,649) –
Foreign currency exchange and other movements (8) 26 (35) 8 (8) 26
Decrease (increase) in debtors 2 – 8
(Increase) decrease in debtors (1) 2 –
Increase (decrease) in creditors (51) 29 10 12 (51) 29

Net cash inflow from operating activities 6,015 1,868 1,977 273 6,015 1,868

*
The 2018 and 2017 comparative results have been re-presented from those previously published to reflect the change in the Company's presentation currency from pounds sterling to US dollars (as described in note 2).
The accompanying notes are an integral part of this condensed financial information

Table of Contents
Schedule II
Condensed Financial Information of Registrant Prudential plc
Notes to the Condensed Financial Statement Schedule
31 December ~~2019~~2020
1    Basis of preparation
The financial statements of the parent company are prepared in accordance with UK Generally Accepted Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework ('FRS 101'). In preparing these financial statements, the Company applies the recognition and measurement requirements in International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and endorsed by the EU but makes amendments where necessary in order to comply with the Companies Act 2006.
2    Significant accounting policies
Investments in subsidiary undertakings
Investments in subsidiary undertakings are shown at cost, less impairment. Investments are assessed for impairment by comparing the net assets of the subsidiary undertakings with the carrying value of the investment.
Amounts owed by subsidiary undertakings
Amounts owed by subsidiary undertakings are shown at cost, less provisions. Provisions are determined using the expected credit loss approach under IFRS 9.
~~Derivatives~~
Derivative financial instruments are held to manage certain macro-economic exposures. Derivative financial instruments are carried at fair value with changes in fair value included in the profit and loss account. Refer to Section 6.1 of the Group Risk Framework for detail of the approach to market risk.
Financial Instruments
Under IFRS 9, except for derivative instruments (where applicable) that are mandatorily classified as fair value through profit or loss, all of the financial assets and liabilities of the Company are ~~classified as~~held at amortised cost. The Company assesses impairment on its loans and receivables using the expected credit loss approach. The expected credit loss on the Company's loans and receivables, the majority of which represent loans to its subsidiaries, have been assessed by taking into account the probability of default on those loans. In all cases, the subsidiaries are expected to have sufficient resources to repay the loan either now or over time ~~(based~~based on projected ~~earnings).~~earnings. For loans recallable on demand, the expected credit loss has ~~therefore~~ been limited to the impact of discounting the value of the loan between the balance sheet date and the anticipated recovery date. For loans with a fixed maturity date the expected credit loss has been determined with reference to the historic experience of loans with equivalent credit characteristics.
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs, and subsequently accounted for on an amortised cost basis using the effective interest method. Under the effective interest method, the difference between the redemption value of the borrowing and the initial proceeds, net of transaction costs, is amortised through the profit and loss account to the date of maturity or, for subordinated debt, over the expected life of the instrument. Where modifications to borrowings do not result in a substantial difference to the terms of the instrument, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining expected life of the modified instrument. Where modifications to borrowings do result in a substantial difference to the terms of the instrument, the instrument is treated as if it had been extinguished and replaced by a new instrument which is initially recognised at fair value and subsequently accounted for on an amortised cost basis using the effective interest method. Any costs or fees arising from such a modification are recognised as an expense when incurred.
Dividends
Interim dividends are recorded in the period in which they are paid.

~~Table of Contents~~
Share premium
The difference between the proceeds received on issue of shares and the nominal value of the shares issued is credited to the share premium account.

Table of Contents
Foreign currency translation
Transactions not denominated in the Company's functional currency, US dollars, are initially recorded at the functional rate of currency prevailing on the date of the transaction. Monetary assets and liabilities not denominated in the Company's functional currency ~~including borrowings that have been used to finance or provide a hedge against Group equity investments in overseas subsidiaries,~~ are translated to the Company's functional currency at year end ~~exchange~~spot rates. The impact of these currency translations is recorded within the profit and loss account for the year.
As discussed above, the Company's functional currency changed from pounds sterling to US dollars on 31 December 2019. The Company has also changed its presentation currency from pounds sterling to US dollars.
Tax
Current tax expense is charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable amounts for the current year. To the extent that losses of an individual UK company are not offset, they can be carried back for one year or carried forward indefinitely to be offset, subject to restrictions based on future taxable profits, against profits arising from the same company or other companies in the same UK tax group.
Deferred tax assets and liabilities are recognised in accordance with the provisions of IAS 12'Income Taxes'. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that future taxable profits will be available against which these losses can be utilised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
~~The Group's UK subsidiaries each file separate tax returns. In accordance with~~Following the demerger of M&G plc, it is unlikely that the UK tax ~~legislation, where one domestic UK company is~~group will have future taxable income which would enable a ~~75 per cent owned subsidiary of another UK company~~current tax credit or ~~both are 75 per cent owned subsidiaries of a common parent, the companies are considered~~deferred tax asset to be within the same UK tax group. For companies within the same tax group, trading losses may be offset against taxable profits arising in the same or future accounting periods for the purposes of determining current and deferred taxes.
~~Pensions~~
The Company historically assumed a portion of the pension surplus or deficit of the Group's main pension scheme, the Prudential Staff Pension Scheme ('PSPS'). The Company's portion of the surplus was transferred to M&GPrudential Services Limited at 30 June 2019. Up until that date, the Company applied the requirements of IAS 19 '~~Employee Benefits~~~~' (as revised in 2011) for the accounting of its interest in the PSPS surplus or deficit. The key items are highlighted below.~~
A pension surplus or deficit is recorded as the difference between the present value of the scheme liabilities and the fair value of the scheme assets. The Company's share of pension surplus is recognised to the extent that the Company is able to recover a surplus either through reduced contributions in the future or through refunds from the scheme.
The assets and liabilities of the defined benefit pension schemes of the Prudential Group are subject to a full triennial actuarial valuation using the projected unit method. Estimated future cash flows are then discounted at a high quality corporate bond yield, adjusted to allow for the difference in duration between the bond index and the pension liabilities, where appropriate, to determine their present value. These calculations are performed by independent actuaries.
The aggregate of the actuarially determined service costs of the currently employed personnel and the net income (interest) on the net scheme assets (liabilities) at the start of the period, is recognised in the profit or loss account. Actuarial gains and losses as a result of the changes in assumptions, experience variances or the return on scheme assets excluding amounts included in the net deferred benefit asset (liability) are recorded in other comprehensive income. The loss on transfer of the pension surplus transferred to M&GPrudential Services Limited has been recognised in the profit or loss account.

~~Table of Contents~~recognised.
Share-based payments
The Group offers share award and option plans for certain key employees and a Save As You Earn ('SAYE') plan for all UK and certain overseas employees. The share-based payment plans operated by the Group are mainly equity-settled.
Under IFRS 2 'Share-based payment', where the Company, as the parent company, has the obligation to settle the options or awards of its equity instruments to employees of its subsidiary undertakings, and such share-based payments are accounted for as equity-settled in the Group financial statements, the Company records an increase in the investment in subsidiary undertakings for the value of the share options and awards granted with a corresponding credit entry recognised directly in equity. The value of the share options and awards granted is based upon the fair value of the options and awards at the grant date, the vesting period and the vesting conditions. Cash receipts from business units in respect of newly issued share schemes are treated as returns of capital within investments in subsidiaries.
3    Dividends received from subsidiary undertakings
The parent company received dividends totalling ~~$9,599~~$406 million from its consolidated subsidiary undertakings in ~~2019 (2018:~~2020 (2019: $9,599 million; 2018: $1,996 ~~million; 2017: $2,227~~ million).
4    Reconciliation from the FRS 101 parent company results to the IFRS Group results
The parent company financial statements are prepared in accordance with FRS 101 and the Group financial statements are prepared in accordance with IFRS Standards as issued by the IASB, ~~and endorsed~~the international accounting standards as required by the ~~EU.~~Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
The tables below provide a reconciliation between the FRS 101 parent company results and the IFRS Group results.
2019 $m 2018 $m 2017 $m
2020 $m
2019 $m
2018 $m

Profit after tax
Profit for the financial year of the Company (including dividends from subsidiaries) in accordance with FRS 101 12,255 1,390 1,592
Accounting policy difference* 15 7 –
Share in the IFRS result of the Group, net of distributions to the Company† (11,487) 2,622 1,488
(Loss)/profit for the financial year of the Company in accordance with FRS 101note(i)
(85) 12,255 1,390
Accounting policy differencenote(ii)
(18) 15 7
Share in the IFRS result of the Group, net of distributions to the Companynote(iii)
2,221 (11,487) 2,622

Profit after tax of the Group attributable to shareholders in accordance with IFRS 783 4,019 3,080
Profit after tax of the Group attributable to equity holders in accordance with IFRS
2,118 783 4,019

Table of Contents

31 Dec 2019 $m
31 Dec 2018 $m

31 Dec 2020 $m
31 Dec 2019 $m

Net equity

Shareholders' equity of the Company in accordance with FRS 101
13,173 9,488
Accounting policy difference*
33 18
Share in the IFRS net equity of the Group†
6,271 12,462
Shareholders' equity

Shareholders' funds of the Company in accordance with FRS 101
12,286 13,173
Accounting policy differencenote(ii)
15 33
Share in the IFRS net equity of the Groupnote(iii)
8,577 6,271

Shareholders' equity of the Group in accordance with IFRS
19,477 21,968 20,878 19,477

Notes
*(i)
~~Adjustment~~The Company's (loss) profit for the financial year includes distributions to the Company from subsidiaries.
(ii)
Accounting policy difference represents difference in accounting policy for expected credit losses on loan assets, the Company has adopted IFRS 9 while the Group applies IAS 39.
†(iii)
The 'share in the IFRS result and net equity of the Group' lines represent the parent company's equity in the earnings and net assets of its subsidiaries and associates.
The (loss) profit for the ~~financial~~ year of the parent company in accordance with IFRS includes dividends received ~~in the year~~ from subsidiary undertakings (note 3). This debt instrument was settled in June 2020, in exchange for an issue of equity shares from an immediate subsidiary of the Company.
5    Guarantees provided by the parent company
In certain instances the parent company has guaranteed that its subsidiaries will meet their obligations when they fall due for payment.
6    Post balance sheet events
Dividends
The second interim ordinary dividend for the year ended 31 December ~~2019,~~2020, which was approved by the Board of Directors after 31 December ~~2019,~~2020, is described in note B6B5 of the Group IFRS financial statements.
Intention to demerge the Group's US operations in the second quarter of 2021
In January 2021, the Board announced that it had decided to pursue the separation of its US operations (Jackson) from the Group through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders.
Subject to shareholder and regulatory approvals, the planned demerger is expected to complete in the second quarter of 2021 and would lead to a significantly earlier separation of Jackson from the Group than would have been possible through a minority IPO and future sell-downs, which from market precedent may have lasted until 2023. At the point of demerger, Prudential is planning to retain a 19.9 per cent non-controlling interest in Jackson, which will be reported within the consolidated financial position as a financial investment at fair value. Subject to market conditions, the Group intends to monetise a portion of this investment to support investment in Asia within 12 months of the planned demerger, such that the Group will own less than 10 per cent at the end of such period.

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Additional unaudited financial information
Page

I Additional financial information
(i) Group capital position ~~381~~348
(ii) Funds under management ~~384~~352
(iii) Analysis of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ by driver ~~from long-term insurance businesses~~ ~~385~~352
(iv) Asia operations – analysis of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ by business unit ~~390~~358

II

Calculation of alternative performance measures

(i) Reconciliation of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ to profit before tax ~~from continuing operations~~ ~~392~~360
(ii) Calculation of IFRS net gearing ratio ~~392~~360
(iii) Return on IFRS shareholders' ~~funds~~equity ~~392~~360
(iv) Calculation of IFRS shareholders' ~~funds~~equity per share ~~393~~361
(v) Calculation of asset management cost/income ratio ~~394~~362
(vi) Reconciliation of Asia renewal insurance premium to gross premiums earned ~~394~~362
(vii) Reconciliation of APE new business sales to gross premiums earned 363

Table of Contents
I    Additional financial information
I(i)    Group capital position
~~Following the demerger of M&G plc from~~ Overview
Prudential plc the Hong Kong Insurance Authority (IA) has assumed the role of the group-wide supervisor for the Prudential Group with the Group no longer subject to Solvency II capital requirements. Ultimately, Prudential plc will become subject to the Group Wide Supervision (GWS) framework which is currently under development by the Hong Kong IA for the industry and is expected to be finalised in the second half of 2020. Until Hong Kong's GWS framework comes into force, Prudential will applyapplies the local capital summation method (LCSM) that has been agreed with the Hong Kong IAInsurance Authority (IA) to determine group regulatory capital requirements (both minimum and prescribed levels). Ultimately, Prudential will become subject to the Group-wide Supervision (GWS) Framework. The primary legislation was enacted in July 2020 and will come into operation on 29 March 2021. The relevant subsidiary legislation, including the Insurance (Group Capital) Rules, was tabled before the Legislative Council on 6 January 2021 and will also come into operation on 29 March 2021. The GWS Framework is expected to be effective for Prudential upon designation by the Hong Kong IA in the second quarter of 2021, subject to transitional arrangements.
The GWS methodology is expected to be largely consistent with that applied under LCSM with the exception of the treatment of debt instruments which will be subject to transitional arrangements under the GWS Framework. As agreed with the Hong Kong IA, only specific bonds (being those subordinated debt instruments issued by Prudential plc at the date of demerger of M&G plc) are currently included as eligible Group LCSM capital resources for the purposes of satisfying group minimum and prescribed capital requirements. Senior debt instruments issued by Prudential plc have not been included as part of the Group capital resources and are treated as a liability in the LCSM results. Under the GWS Framework, Prudential's initial analysis indicates that all debt instruments (senior and subordinated) issued by Prudential plc will meet the transitional conditions set by the Hong Kong IA and will be included as eligible Group capital resources. If this were to be the case, the 31 December 2020 Group shareholder LCSM coverage ratio (over GMCR) presented below would increase by 35 percentage points to 363 per cent. This is subject to final approval by the Hong Kong IA.
Further detail on the LCSM is included in the basis of preparation section below.
For regulated insurance entities, the ~~available~~capital resources and required capital included in the LCSM measure for Hong Kong IA Group regulatory purposes are based on the local solvency regime applicable in each jurisdiction. At 31 December ~~2019~~2020, the Prudential Group's total surplus of ~~available~~ capital resources over the regulatory Group Minimum Capital Requirement (GMCR), calculated using this LCSM was ~~$23.6~~$26.4 billion, before allowing for the payment of the ~~2019~~2020 second interim ordinary ~~dividend.~~dividend, equating to a coverage ratio of 329%.
The Group holds material participating business in Hong Kong, Singapore and Malaysia. If the ~~available~~ capital resources and minimum capital requirement attributed to this policyholder business are excluded, then the Prudential Group shareholder LCSM surplus of ~~available~~ capital resources over the regulatory GMCR at 31 December ~~2019~~2020 was ~~$9.5~~$11.0 billion, before allowing for the payment of the ~~2019~~2020 second interim ordinary ~~dividend.~~dividend, equating to a coverage ratio of 328%.
Estimated Group LCSM capital position based on Group Minimum Capital Requirement (GMCR)

31 Dec 2019 31 Dec 2018*

Total Less
policyholder Shareholder Total Less
policyholder Shareholder

Available capital ($bn)
33.1 (19.1) 14.0 27.0 (13.5) 13.5
Group Minimum Capital Requirement ($bn)
9.5 (5.0) 4.5 7.6 (3.8) 3.8
LCSM surplus (over GMCR) ($bn)
23.6 (14.1) 9.5 19.4 (9.7) 9.7
LCSM ratio (over GMCR) (%)
348% 309% 355% 356%

*
~~Excludes M&G plc and includes $3.7 billion of subordinated debt issued by Prudential plc that was transferred to M&G plc on 18 October 2019.~~
31 Dec 2020 31 Dec 2019

Amounts attributable to Prudential plc
Total Less
policyholder Shareholder Total Less
policyholder Shareholder

Capital resources ($bn)
37.9 (22.1) 15.8 33.1 (19.1) 14.0
Group Minimum Capital Requirement ($bn)
11.5 (6.7) 4.8 9.5 (5.0) 4.5
LCSM surplus (over GMCR) ($bn)
26.4 (15.4) 11.0 23.6 (14.1) 9.5
LCSM ratio (over GMCR) (%)
329% 328% 348% 309%

The shareholder LCSM capital position by segment is presented below at 31 December ~~2019~~2020 and 31 December ~~2018~~2019 for comparison:
~~Estimated Group shareholder LCSM capital position (based on GMCR)~~
Shareholder
Amounts attributable to Prudential plc
Shareholder

31 Dec 2019 ($bn)
Total Asia Less
policyholder Asia US Unallocated
to a segment Group total
31 Dec 2020 ($bn)
Total Asia Less
policyholder Asia US Unallocated
to a segment Group total

Available capital
26.8 (19.1) 7.7 5.3 1.0 14.0
Capital resources
33.7 (22.1) 11.6 4.6 (0.4) 15.8
Group Minimum Capital Requirement
8.0 (5.0) 3.0 1.5 — 4.5 10.1 (6.7) 3.4 1.4 – 4.8
LCSM surplus (over GMCR)
18.8 (14.1) 4.7 3.8 1.0 9.5 23.6 (15.4) 8.2 3.2 (0.4) 11.0

Shareholder

31 Dec 2018* ($bn)
Total Asia Less
policyholder Asia US Unallocated
to a segment Group total

Available capital
19.6 (13.5) 6.1 5.7 1.7 13.5
Group Minimum Capital Requirement
6.3 (3.8) 2.5 1.3 — 3.8
LCSM surplus (over GMCR)
13.3 (9.7) 3.6 4.4 1.7 9.7

*
~~Excludes M&G plc and includes $3.7 billion of subordinated debt issued by Prudential plc that was transferred to M&G plc on 18 October 2019.~~
The 31 December 2019 Jackson local statutory results reflect early adoption of the NAIC regulatory framework reforms at the valuation date as agreed with the Department of Insurance Financial Services (DIFS) and Jackson's decision not to renew its long-standing permitted practice with the DIFS which allowed certain derivative instruments, taken out to protect Jackson against declines in long-term interest rates, to be included at book value in the local statutory returns. At 31 December 2019, these derivatives are held at fair value.

Table of Contents

Amounts attributable to Prudential plc
Shareholder

31 Dec 2019 ($bn)
Total Asia Less
policyholder Asia US Unallocated
to a segment Group total

Capital resources
26.8 (19.1) 7.7 5.3 1.0 14.0
Group Minimum Capital Requirement
8.0 (5.0) 3.0 1.5 – 4.5
LCSM surplus (over GMCR)
18.8 (14.1) 4.7 3.8 1.0 9.5

All the amounts above are presented excluding amounts attributable to non-controlling interests. For example, the US amounts relate solely to Prudential's 88.9 per cent economic interest in Jackson Financial Inc.
Sensitivity analysis
The estimated sensitivity of the Group shareholder LCSM capital position (based on GMCR) to significant changes in market conditions is as follows:
31 Dec 2019
31 Dec 2020 31 Dec 2019

Impact of market sensitivities
LCSM surplus
($bn) LCSM ratio
(%)
Impact of market sensitivitiesnote(1)
LCSM surplus
($bn) LCSM ratio
(%) LCSM surplus
($bn) LCSM ratio
(%)

Base position
9.5 309% 11.0 328% 9.5 309%
Impact of:

10% instantaneous increase in equity markets
0.3 15% n/a n/a
20% instantaneous fall in equity markets
1.5 (9)% 0.6 (13)% 1.5 (9)%
40% fall in equity marketsnote(1)
(0.2) (39)%
40% fall in equity marketsnote(2)
(0.2) (23)% (0.2) (39)%
50 basis points reduction in interest rates
(0.2) (17)% (1.2) (39)% (0.2) (17)%
100 basis points increase in interest rates
(1.3) (19)% (1.0) 11% (1.3) (19)%
100 basis points increase in credit spreadsnote(2)
(1.6) (36)%
100 basis points increase in credit spreadsnote(3)
0.1 14% (1.6) (36)%

Notes
(1)
The Group results consist of the combined impact from the movement in Asia and US LCSM surplus under these stresses. The equity fall and the interest rate reduction sensitivities consist of positive surplus impacts from the US, driven by expected derivative gains, and negative surplus impacts from Asia, which for the interest rate reduction sensitivity is driven by Hong Kong reflecting the accounting mismatch that exists under the current regulatory framework.
(2)
Where hedges are dynamic, rebalancing is allowed for by assuming an instantaneous 20 per cent fall followed by a further 20 per cent fall over a four-week period.
~~(2)~~(3)
At 31 December 2019 the US RBC solvency position was included using a stress of 10 times expected credit ~~defaults.~~defaults rather than the 100 basis points increase in credit spreads applied at 31 December 2020.
The sensitivity results above assume instantaneous market movements and reflect all consequential impacts as at ~~31 December 2019, apart from~~ the ~~-40%~~valuation dates. An exception to the instantaneous market movements assumed is the -40 per cent equity sensitivity where for Jackson an instantaneous ~~20%~~20 per cent market fall is assumed to be followed by a further market fall of ~~20%~~20 per cent over a four-week period with dynamic hedges assumed to be rebalanced over the period. Aside from this assumed dynamic hedge rebalancing for Jackson in the ~~-40%~~-40 per cent equity sensitivity, the sensitivity results only allow for limited management actions such as changes to future policyholder bonuses. If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown above. In this case management could also take additional actions to help mitigate the impact of these stresses. These actions include, but are not limited to, rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold.

~~Between 31 December 2019 and the end~~Table of February 2020, government bond yields and equity markets fell significantly in many countries. For example, US 10-year treasury yields fell by around 80 basis points and the US S&P 500 equity index fell by around 9% over the 2-month period. Based on economic conditions at the end of February 2020, the Group shareholder LCSM capital ratio (over GMCR) is estimated to be in the range of 270% - 280%, compared to 309% at 31 December 2019. This estimated capital ratio at the end of February is slightly higher than implied by the sensitivities above, mainly reflecting the benefit of management actions taken in the period which are not allowed for in the sensitivities.Contents
Analysis of movement in Group ~~capital position~~shareholder LCSM surplus
A summary of the estimated movement in the Group shareholder LCSM surplus (based on GMCR) from ~~$9.7 billion at 31 December 2018 to~~ $9.5 billion at 31 December 2019 to $11.0 billion at 31 December 2020 is set out in the table below.

~~2019~~
~~($bn)~~

~~Balance at beginning of year~~
~~9.7~~
~~Operating:~~
~~Operating capital generation from the in-force business~~
~~2.5~~
~~Investment in new business~~
~~(0.6)~~

~~Operating capital generation~~
~~1.9~~

~~Non-operating and other capital movements:~~
~~Non-operating experience (including market movements)~~
~~(0.6)~~
~~Adoption of NAIC regulatory reforms in the US~~
~~0.1~~
~~Corporate activities (excluding demerger items)~~
~~(0.8)~~
~~Demerger costs~~
~~(0.4)~~
~~Subordinated debt redemption~~
~~(0.5)~~
~~Demerger related impacts~~
~~1.0~~
~~M&G plc remittances~~

~~0.7~~
~~External dividends~~
~~(1.6)~~

~~Net dividend impact~~
~~(0.9)~~

~~Net movement in LCSM surplus~~
~~(0.2)~~

~~Balance at end of year~~
~~9.5~~

2020
($bn)

2019
($bn)

Balance at 1 Jan
9.5 9.7
Operating:

Operating capital generation from the in-force business
2.2 2.5
Investment in new business
(0.2) (0.6)

Operating capital generation
2.0 1.9

Non-operating and other capital movements:

Non-operating experience (including market movements)
(2.0) (0.6)
Regulatory changes
2.2 0.1
Reinsurance of US fixed and fixed indexed annuity in-force portfolio to Athene
0.8 –
Athene US equity investment
(0.2) –
US hedge modelling revision
(0.4) –
Other corporate activities
(0.1) (0.8)
M&G Demerger costs
– (0.4)
Subordinated debt redemption
– (0.5)
M&G Demerger related impacts
– 1.0

Non-operating results
0.3 (1.2)

Remittances from discontinued operations (M&G plc)
– 0.7
External dividends
(0.8) (1.6)

Net dividend impact
(0.8) (0.9)

Net movement in LCSM surplus
1.5 (0.2)

Balance at 31 Dec
11.0 9.5

~~Table of Contents~~
The estimated movement in the Group shareholder LCSM surplus over ~~2019~~2020 is driven by:
–
Operating capital generation of ~~$1.9~~$2.0 billion:  generated by the expected return on in-force business ~~net of~~partially offset by the strain on new business written ~~in 2019. It includes~~during the impact from the release of incremental reserves associated with the John Hancock acquisition in the US ($0.4 billion) and interest paid prior to demerger on subordinated debt transferred to M&G plc ($(0.2) billion);year
–
Non-operating experience of ~~$(0.6)~~$(2.0) billion:  this includes the negative impact of higher equity markets on Jackson's derivatives net of ~~reserve~~policyholder reserves and required capital movements, ~~partially offset by~~and the ~~positive impacts~~negative impact of ~~market~~falling interest rates on the US and ~~exchange rate movements on~~ Asia surplus over the ~~year;~~year, partially offset by management actions, including the benefit from the change to the Hong Kong valuation interest rate as granted by the regulator in July 2020;
–
Regulatory changes of $2.2 billion:  reflecting the benefit from the new Singapore risk-based capital framework (RBC2) effective at 31 March 2020;
–
Reinsurance of US fixed and fixed indexed annuity in-force portfolio to Athene of $0.8 billion: the impact of the transaction, which was effective at 1 June 2020, was an increase to LCSM surplus comprising of the ceding commission received and required capital released less tax and adverse consequential effects on the US's capital resources;
–
Athene equity investment $(0.2) billion:  this is the net effect on LCSM surplus of Athene's $500 million equity investment in Prudential's US business in return for an 11.1 per cent economic interest in that same business, which completed in July 2020;
–
US hedge modelling revision of $(0.4) billion:  at 31 December 2019, Jackson early adopted the provisions of the National Association of Insurance Commissioners Valuation Manual Minimum Standards No. VM-21. During 2020, Jackson determined that a simplifying modelling assumption was not consistent with its intent in the adoption of VM-21 and the revised modelling adopted for calculating reserves and capital reduced surplus by $390 million;
–
OtherCorporate activities (excluding demerger items) of ~~$(0.8)~~$(0.1) billion: this is the effect on LCSM surplus of other corporate transactions in the period, ~~principally arising~~which in 2020 comprised mainly of a $0.8 billion benefit from the ~~extension~~reinsurance transaction in Hong Kong described in note D1.1 of the ~~UOB bancassurance distribution deal;~~
–
~~Demerger costs of $(0.4) billion:~~  ~~this includes transaction related costs and other one-off costs arising~~IFRS financial statements, offset by $(0.9) billion principally from the ~~demerger;~~
–
~~Subordinated debt redemption of $(0.5) billion:~~  ~~a reduction~~strategic bancassurance partnership with TMB in ~~surplus from the impact of debt redeemed during 2019;~~
–
~~Demerger related impacts of $1.0 billion:~~  includes $3.8 billion of pre-demerger dividend paid by M&G plc, $1.0 billion of restructuring impacts prior to demerger and $0.4 billion from debt raised by Prudential plc on behalf of M&G plc, partially offset by $(4.2) billion from the transfer of subordinated debt to M&G plc prior to demerger;Thailand; and
–
Net dividend impact of ~~$(0.9)~~$(0.8) billion:  this ~~includes~~is the payment of external dividends ~~of $(1.6) billion paid~~ during ~~2019 largely based on the Group prior to demerger net of regular remittances paid by M&G plc during 2019 prior to the demerger of $0.7 billion.~~2020.

Table of Contents
Reconciliation of Group IFRS shareholders' equity to shareholder LCSM ~~available~~ capital resources position

~~31 Dec 2019~~
~~($bn)~~

~~Group IFRS shareholders' equity~~
~~19.5~~
~~Remove DAC, goodwill and intangibles~~
~~(18.2)~~
~~Add subordinated~~

31 Dec 2020
$bn

31 Dec 2019
$bn

Group IFRS shareholders' equity
20.9 19.5
Remove DAC, goodwill and intangibles recognised on the IFRS statement of financial position
(21.1) (18.2)
Add subordinated debt at IFRS book valuenote(1)
4.6 4.6
Valuation differencesnote(2)
11.3 8.6
Othernote(3)
0.1 (0.5)

Estimated Group shareholder LCSM capital resources
15.8 14.0

Notes
(1)
Subordinated debt ~~at IFRS book value~~
~~4.6~~
~~Valuation differences~~
~~8.6~~
~~Other~~
~~(0.5)~~

~~Estimated Group shareholder LCSM available capital~~
~~14.0~~

~~The key items of the reconciliation as at 31 December 2019 are:~~
–
~~$(18.2) billion due to the removal of DAC, goodwill and other intangibles from the IFRS statement of financial position;~~
–
~~$4.6 billion due to the addition of subordinated debt, which~~ is treated as ~~available~~ capital resources under LCSM but as a liability under ~~IFRS; and~~IFRS.
–(2)
~~$8.6 billion due to~~Valuation differences onreflect differences in the basis of valuing assets and liabilities between IFRS and local statutory valuation rules, including ~~reductions~~deductions for inadmissible assets. ~~The most significant difference arises~~Material differences arise in Jackson where IFRS variable annuity guarantee reserves are valued on a fair value basis compared to local statutory reserves which reflect long-term historic rates. Further, local US statutory reserves are reduced by an expense allowance linked to surrender ~~charges.~~charges, whereas IFRS makes no such allowance but instead defers acquisition costs on the balance sheet as a separate asset (which is not recognised on the statutory balance sheet). Other material differences include in Singapore where the local capital resources under RBC2 permits the recognition of certain negative reserves in the local statutory position that are not recognised under IFRS.
(3)
Other differences include the consequential impact on non-controlling interests arising from the other reconciling items.
Basis of preparation
In advance of the GWS ~~framework~~Framework coming into force, Prudential applies the local capital summation method (LCSM) that has been agreed with the Hong Kong IA to determine group regulatory capital requirements (both minimum and prescribed levels). The summation of local statutory capital requirements across the Group is used to determine group regulatory capital requirements, with no allowance for diversification between business operations. The Group ~~available~~ capital resources is determined by the summation of ~~available~~ capital resources across local solvency regimes for regulated entities and IFRS net assets (with adjustments described below) for non-regulated entities. The Hong Kong IA has yet to make any final decisions regarding the GWS framework for the industry and it continues to consider and consult on the proposed legislation and related guidelines. The results above should not therefore be interpreted as representing the results or requirements under the industry-wide GWS framework and are not intended to provide a forecast of the eventual position.

~~Table of Contents~~
In determining the LCSM ~~available~~ capital resources and required capital the following principles have been applied:
–
For regulated insurance entities, ~~available~~capital resources and required capital are based on the local solvency regime applicable in each jurisdiction, with minimum required capital set at the solo legal entity statutory minimum capital requirements. The treatment of participating funds is consistent with the local basis;
–
For the US insurance entities, ~~available~~capital resources and required capital are based on the local US RBC framework set by the NAIC, with minimum required capital set at 100 per cent of the CAL RBC;
–
For asset management operations and other regulated entities, the shareholder capital position is derived based on the sectoral basis applicable in each jurisdiction, with minimum required capital based on the solo legal entity statutory minimum capital requirement;
–
For non-regulated entities, the ~~available~~ capital resources is based on IFRS net assets after deducting intangible assets. No required capital is held in respect of unregulated entities;
–
For entities where the Group's shareholding is less than 100%, the contribution of the entity to the Group LCSM capital resources and required capital represents the Group's share of these amounts and excludes any amounts attributable to non-controlling interests;
–
Investments in subsidiaries, joint ventures and associates (including, if any, loans that are recognised as capital on the receiving entity's balance sheet) are eliminated from the relevant holding company to prevent the double counting of ~~available capital;~~capital resources; and
–
The Hong Kong IA has agreed that specific bonds (being those subordinated debt instruments ~~held~~issued by Prudential plc at the date of ~~demerger)~~demerger of M&G plc) can be included as part of the Group's capital resources for the purposes of satisfying group minimum and prescribed capital requirements. Senior debt instruments ~~held~~issued by Prudential plc have not been included as part of the Group capital resources and are treated as a liability in the LCSM results presented above (this is equivalent to a 15 per cent reduction in the Group shareholder LCSM coverage ratio (over GMCR)). Grandfathering provisions under the GWS framework remain subject to further consultation and the Hong Kong legislative process in due course.above.

Table of Contents
I(ii)    Funds under management
For Prudential's asset management businesses, funds managed on behalf of third parties are not recorded on the statement of financial position. They are, however, a driver of profitability. Prudential therefore analyses the movement in the funds under management each ~~period,~~year, focusing on those which are external to the Group and those primarily held by the Group's insurance businesses. The table below analyses, by segment, the funds of the Group held in the statement of financial position and the external funds that are managed by Prudential's asset management businesses.

31 Dec 2019
$bn

31 Dec 2018*
$bn

31 Dec 2020
$bn

31 Dec 2019
$bn

Asia operations:

Internal funds
141.9 112.5 171.4 141.9
Eastspring Investments external funds (as analysed in note I(v))
124.7 77.8
Other†
– 22.2
Eastspring Investments external funds, including M&G plc* (as analysed in note I(v))
109.6 124.7

266.6 212.5 281.0 266.6
US operations – internal funds
273.4 237.0 273.7 273.4
Other operations
3.9 5.8 3.6 3.9

Total Group funds under management – continuing operations
543.9 455.3
Total Group funds under management
558.3 543.9

*
The 2018 comparatives have been adjusted from the previously published amounts to exclude the discontinued UK and Europe operations. Additionally, the comparatives have been adjusted to include cash and cash equivalents and to exclude assets held that are attributable to external unit holders of consolidated collective investment schemes to align to the current year's presentation.
†
~~Other represents funds~~Funds managed ~~by Eastspring Investments~~ on behalf of M&G plc ~~that were categorised~~are presented as ~~the~~external rather than internal ~~funds of the UK and Europe operations prior to the demerger of M&G plc. Following the demerger, these funds have been reclassified to external~~ funds under management ~~of Eastspring Investments.~~to align to the presentation since the demerger in October 2019.
Note
Total Group funds under management ~~from continuing operations~~ comprise:

31 Dec 2019
$bn

31 Dec 2018
$bn

Total investments and cash and cash equivalents held by the continuing operations on the consolidated statement of financial position 412.6 349.6
External and M&G plc funds of Eastspring Investments 124.7 100.0
Internally managed funds held in joint ventures and associate, excluding assets attributable to external unit holders of the consolidated collective investment schemes and other adjustments 6.6 5.7

Total Group funds under management from continuing operations 543.9 455.3

31 Dec 2020
$bn

31 Dec 2019
$bn

Total investments and cash and cash equivalents on the consolidated statement of financial position
437.4 412.6

External funds of Eastspring Investments, including M&G plc
109.6 124.7

Internally managed funds held in joint ventures and associate, excluding assets attributable to external unit holders of the consolidated collective investment schemes and other adjustments
11.3 6.6

Total Group funds under management
558.3 543.9

~~Table of Contents~~
~~(iii)~~I(iii)    Analysis of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ by driver ~~from long-term insurance businesses~~
This schedule classifies the Group's adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns (adjusted operating profit)~~ from continuing ~~long-term insurance businesses~~operations into the underlying drivers using the following categories:
–
Spread income represents the difference between net investment income and amounts credited to certain policyholder accounts. It excludes the operating investment return on shareholder net assets, which has been separately disclosed as expected return on shareholder assets.
–
Fee income represents profit driven by net investment performance, being fees that vary with the size of the underlying policyholder funds, net of investment management expenses.
–
With-profits represents the pre-tax shareholders' transfer from the with-profits business for the period.
–
Insurance margin primarily represents profit derived from the insurance risks of mortality and morbidity.
–
Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses (see below).
–
Acquisition costs and administration expenses represent expenses incurred in the period attributable to shareholders. These exclude items such as restructuring and IFRS 17 implementation costs, which are not included in the segment profit, as well as items that are more appropriately included in other categories (eg investment expenses are netted against investment income as part of spread income or fee income as appropriate).
–
DAC adjustments comprise DAC amortisation for the period, excluding amounts related to short-term fluctuations in investment returns, net of costs deferred in respect of new business written in the period.

Table of Contents
(a) Margin analysis ~~of long-term insurance business – continuing operations~~
The following analysis expresses certain of the Group's sources of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ as a margin of policyholder liabilities or other relevant drivers. ~~Details on the calculation of the Group's average policyholder liability balances are given in note (1).~~
The reconciliation for the adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ by segment to profit before tax attributable to shareholders is provided in the 'Basis of performance measures' section. The 2019 and 2018 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation. The 2019 CER results are calculated by translating prior year results using the current year foreign exchange rates. All CER profit figures have been translated at current year average rates. For Asia, CER average liabilities have been translated using the corresponding current year opening and closing or quarter-end closing exchange rates. The 2018 CER results shown were as published in the 2019 20-F and were calculated by translating the 2018 results using the 2019 foreign exchange rates.
2019
2020

Asia

US

Group
total Average
liability Margin

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps $m $m $m $m bps
note (b) note (c) note (1) note (2)
note (b) note (c)

Spread income 321 642 963 86,887 111 296 521 817 86,596 94
Fee income 286 3,292 3,578 208,217 172 282 3,386 3,668 217,863 168
With-profits 107 – 107 58,032 18 117 – 117 73,375 16
Insurance margin 2,244 1,317 3,561 2,648 1,298 3,946
Margin on revenues 3,035 – 3,035 2,936 – 2,936
Expenses:
Acquisition costsnote(3)
(2,156) (1,074) (3,230) 7,384 (44)%
Acquisition costs*
(1,904) (991) (2,895) 5,619 (52)%
Administration expenses
(1,437) (1,675) (3,112) 303,204 (103) (1,539) (1,744) (3,283) 312,215 (105)
DAC adjustmentsnote(4)
430 510 940
DAC adjustments
382 317 699
Expected return on shareholder assets 194 26 220 212 – 212

3,024 3,038 6,062 3,430 2,787 6,217
Share of related tax charges from joint ventures and associatenote(5) (31) – (31)
Share of related tax charges from joint ventures and associates
(46) – (46)

Adjusted IFRS operating profit based on longer-term investment returns long-term business 2,993 3,038 6,031
Adjusted IFRS operating profit based on longer-term investment returns – asset management 283 32 315
Adjusted operating profit from long-term business
3,384 2,787 6,171
Adjusted operating profit from asset management
283 9 292

Total segment profit from continuing operations 3,276 3,070 6,346
Total segment adjusted operating profit
3,667 2,796 6,463

*
The ratio of acquisition costs is calculated as a percentage of APE sales in the year.

2019 AER

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c)

Spread income
321 642 963 86,887 111
Fee income
286 3,292 3,578 208,353 172
With-profits
107 – 107 58,032 18
Insurance margin
2,244 1,317 3,561
Margin on revenues
3,035 – 3,035
Expenses:

Acquisition costs*
(2,156) (1,074) (3,230) 7,384 (44)%
Administration expenses
(1,437) (1,675) (3,112) 303,339 (103)
DAC adjustments
430 510 940
Expected return on shareholder assets
194 26 220

3,024 3,038 6,062
Share of related tax charges from joint ventures and associates
(31) – (31)

Adjusted operating profit from long-term business
2,993 3,038 6,031
Adjusted operating profit from asset management
283 32 315

Total segment adjusted operating profit
3,276 3,070 6,346

*
The ratio of acquisition costs is calculated as a percentage of APE sales in the year.

Table of Contents

2019 CER

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c)

Spread income
319 642 961 87,413 110
Fee income
283 3,292 3,575 208,095 172
With-profits
107 – 107 58,492 18
Insurance margin
2,234 1,317 3,551
Margin on revenues
3,032 – 3,032
Expenses:

Acquisition costs*
(2,156) (1,074) (3,230) 7,391 (44)%
Administration expenses
(1,430) (1,675) (3,105) 303,607 (102)
DAC adjustments
426 510 936
Expected return on shareholder assets
193 26 219

3,008 3,038 6,046
Share of related tax charges from joint ventures and associates
(30) – (30)

Adjusted operating profit from long-term business
2,978 3,038 6,016
Adjusted operating profit from asset management
278 32 310

Total segment adjusted operating profit
3,256 3,070 6,326

*
The ratio of acquisition costs is calculated as a percentage of APE sales in the year.

2018 AER

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c)

Spread income
310 778 1,088 74,803 145
Fee income
280 3,265 3,545 204,445 173
With-profits
95 – 95 47,548 20
Insurance margin
1,978 1,267 3,245
Margin on revenues
2,810 – 2,810
Expenses:

Acquisition costs*
(2,007) (1,013) (3,020) 7,058 (43)%
Administration expenses
(1,374) (1,607) (2,981) 284,974 (105)
DAC adjustments
435 (152) 283
Expected return on shareholder assets
172 14 186

2,699 2,552 5,251
Share of related tax charges from joint ventures and associate
(53) – (53)

Adjusted operating profit from long-term business
2,646 2,552 5,198
Adjusted operating profit from asset management
242 11 253

Total segment profit from continuing operations
2,888 2,563 5,451

*
The ratio of acquisition costs is calculated as a percentage of APE sales in the year.

Table of Contents

2018 CER

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c)

Spread income
305 778 1,083 74,690 145
Fee income
277 3,265 3,542 204,156 173
With-profits
94 94 47,580 20
Insurance margin
1,966 1,267 3,233
Margin on revenues
2,790 2,790
Expenses:

Acquisition costs*
(1,991) (1,013) (3,004) 7,018 (43)%
Administration expenses
(1,359) (1,607) (2,966) 284,572 (104)
DAC adjustments
430 (152) 278
Expected return on shareholder assets
172 14 186

2,684 2,552 5,236
Share of related tax charges from joint ventures and associate
(51) (51)

Adjusted operating profit from long-term business
2,633 2,552 5,185
Adjusted operating profit from asset management
239 11 250

Total segment profit from continuing operations
2,872 2,563 5,435

*
The ratio of acquisition costs is calculated as a percentage of APE sales in the year.
(b) Margin analysis – Asia
2020 2019 AER 2019 CER

Profit Average
liability Margin Profit Average
liability Margin Profit Average
liability Margin
$m $m $m $m $m $m
note (1) note (2) note (1) note (2) note (1) note (2)

Spread income
296 39,895 74 321 29,706 108 319 30,232 106
Fee income
282 28,014 101 286 27,413 104 283 27,155 104
With-profits
117 73,375 16 107 58,032 18 107 58,492 18
Insurance margin
2,648 2,244 2,234
Margin on revenues
2,936 3,035 3,032
Expenses:

Acquisition costsnote(3)
(1,904) 3,696 (52)% (2,156) 5,161 (42)% (2,156) 5,168 (42)%
Administration expenses
(1,539) 67,909 (227) (1,437) 57,119 (252) (1,430) 57,387 (249)
DAC adjustmentsnote(4)
382 430 426
Expected return on shareholder assets
212 194 193

3,430 3,024 3,008
Share of related tax charges from joint ventures and associatesnote(5)
(46) (31) (30)

Adjusted operating profit from long-term business
3,384 2,993 2,978
Adjusted operating profit from asset management (Eastspring Investments)
283 283 278

Total Asia adjusted operating profit
3,667 3,276 3,256

Table of Contents

2018 AERnotes(6),(7)

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c) note (1) note (2)

Spread income 310 778 1,088 74,803 145
Fee income 280 3,265 3,545 204,456 173
With-profits 95 – 95 47,548 20
Insurance margin 1,978 1,267 3,245
Margin on revenues 2,810 – 2,810
Expenses:
Acquisition costsnote(3)
(2,007) (1,013) (3,020) 7,058 (43)%
Administration expenses
(1,374) (1,607) (2,981) 284,985 (105)
DAC adjustmentsnote(4)
435 (152) 283
Expected return on shareholder assets 172 14 186

2,699 2,552 5,251
Share of related tax charges from joint ventures and associatenote(5) (53) – (53)

Adjusted IFRS operating profit based on longer-term investment returns long-term business 2,646 2,552 5,198
Adjusted IFRS operating profit based on longer-term investment returns – asset management 242 11 253

Total segment profit from continuing operations 2,888 2,563 5,451

2018 AER 2018 CER

Profit
$m Average
liability
$m Margin
bps Profit
$m Average
liability
$m Margin
bps
Long-term business
note (1) note (2) note (1) note (2)

Spread income
310 24,752 125 305 24,639 124
Fee income
280 26,387 106 277 26,098 106
With-profits
95 47,548 20 94 47,580 20
Insurance margin
1,978 1,966
Margin on revenues
2,810 2,790
Expenses:

Acquisition costs
(2,007) 4,999 (40)% (1,991) 4,959 (40)%
Administration expenses
(1,374) 51,139 (269) (1,359) 50,737 (268)
DAC adjustments
435 430
Expected return on shareholder assets
172 172

2,699 2,684
Share of related tax charge from joint ventures and associates
(53) (51)

Adjusted operating profit from long-term business
2,646 2,633
Adjusted operating profit from asset management (Eastspring Investments)
242 239

Total Asia adjusted operating profit
2,888 2,872

2018 CERnotes(6),(7)

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c) note (1) note (2)

Spread income 305 778 1,083 74,690 145
Fee income 277 3,265 3,542 204,111 174
With-profits 94 – 94 47,580 20
Insurance margin 1,966 1,267 3,233
Margin on revenues 2,790 – 2,790
Expenses:
Acquisition costsnote(3)
(1,991) (1,013) (3,004) 7,018 (43)%
Administration expenses
(1,359) (1,607) (2,966) 284,527 (104)
DAC adjustmentsnote(4)
430 (152) 278
Expected return on shareholder assets 172 14 186

2,684 2,552 5,236
Share of related tax charges from joint ventures and associatenote(5) (51) – (51)

Adjusted IFRS operating profit based on longer-term investment returns long-term business 2,633 2,552 5,185
Adjusted IFRS operating profit based on longer-term investment returns – asset management 239 11 250

Total segment profit from continuing operations 2,872 2,563 5,435

Notes
*(1)
~~For 2018,~~The calculation of average liabilities for Asia is generally derived from opening and closing balances. In 2020, given the ~~CER results were~~significant market volatility in certain months during the year, average liabilities used to derive the margin for fee income in Asia have been calculated using quarter-end balances throughout the year as opposed to opening and closing balances only to provide a more meaningful analysis. The 2019 ~~average exchange rates.~~and 2018 margins have been amended for consistency albeit impacts are minimal.
(2)
Margin represents the operating return earned in the year as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus.
(3)
The ratio of acquisition costs is calculated as a percentage of APE sales including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. The ratio of shareholder acquisition cost to shareholder-related APE sales in 2020 (excluding with-profits) is 68 per cent (2019: 66 per cent; 2018: 69 per cent). APE is defined under the section 'EEV Basis, New Business Profit and Free Surplus Generation' in this document.
(4)
The DAC adjustments contain a credit of $73 million in respect of joint ventures and associates in 2020 (2019: credit of $72 million on an AER basis; 2018: credit of $73 million on an AER basis).
(5)
Under IFRS, the Group's share of results from its investments in joint ventures and associates accounted for using the equity method is included in the Group's profit before tax on a net of related tax basis. These tax charges are shown separately in the analysis of Asia operating profit drivers in order for the contribution from the joint ventures and associates to be included in the margin analysis on a consistent basis with the rest of Asia operations.

Table of Contents

2017 AERnotes(6),(7)

Asia

US

Group
total Average
liability Margin

$m $m $m $m bps
note (b) note (c) note (1) note (2)

Spread income 301 970 1,271 71,647 177
Fee income 264 3,019 3,283 185,721 177
With-profits 77 – 77 39,142 20
Insurance margin 1,728 1,168 2,896
Margin on revenues 2,704 – 2,704
Expenses:
Acquisition costsnote(3)
(1,932) (1,129) (3,061) 7,046 (43)%
Administration expenses
(1,246) (1,514) (2,760) 264,301 (104)
DAC adjustmentsnote(4)
311 335 646
Expected return on shareholder assets 162 5 167

2,369 2,854 5,223
Share of related tax charges from joint ventures and associatenote(5) (50) – (50)

Adjusted IFRS operating profit based on longer-term investment returns long-term business 2,319 2,854 5,173
Adjusted IFRS operating profit based on longer-term investment returns – asset management 227 12 239

Total segment profit from continuing operations 2,546 2,866 5,412

(c)    Margin analysis – US
2017 CERnotes(6),(7)
2020 2019 2018

Asia

US

Group
total Average
Liability Margin

Profit
$m Average
liability
$m Margin
bps Profit
$m Average
liability
$m Margin
bps Profit
$m Average
liability
$m Margin
bps
$m $m $m $m bps note (1) note (2) note (1) note (2) note (1) note (2)
note (b) note (c) note (1) note (2)

Spread income 305 970 1,275 71,821 178 521 46,701 112 642 57,181 112 778 50,051 155
Fee income 260 3,019 3,279 185,760 177 3,386 189,849 178 3,292 180,940 182 3,265 178,058 183
With-profits 76 – 76 39,392 19
Insurance margin 1,726 1,168 2,894 1,298 1,317 1,267
Margin on revenues 2,698 – 2,698
Expenses:
Expenses
Acquisition costsnote(3)
(1,936) (1,129) (3,065) 7,044 (44)% (991) 1,923 (52)% (1,074) 2,223 (48)% (1,013) 2,059 (49)%
Administration expenses
(1,245) (1,514) (2,759) 264,514 (104) (1,744) 244,306 (71) (1,675) 246,220 (68) (1,607) 233,835 (69)
DAC adjustmentsnote(4)
314 335 649
DAC adjustments
317 510 (152)
Expected return on shareholder assets 160 5 165 – 26 14

2,358 2,854 5,212
Share of related tax charges from joint ventures and associatenote(5) (52) – (52)
Adjusted operating profit from long-term businessnote(4) 2,787 3,038 2,552
Adjusted operating profit from asset management 9 32 11

Adjusted IFRS operating profit based on longer-term investment returns long-term business 2,306 2,854 5,160
Adjusted IFRS operating profit based on longer-term investment returns – asset management 228 12 240
Total US adjusted operating profit 2,796 3,070 2,563

Total segment profit from continuing operations 2,534 2,866 5,400

†
~~For 2017, the CER results were calculated using the 2018 average exchange rates.~~
Notes ~~to the tables throughout I(iv)~~
(1)
~~For Asia, opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balances throughout the year.~~ The calculation of average liabilities for the US is generally derived from month-end balances throughout the ~~year~~period as opposed to opening and closing balances only. The average liabilities for fee income in the US have been calculated using daily balances instead of month-end balances in order to provide a more meaningful analysis of the fee income, which is charged on the daily account balance. Average liabilities for spread income are based on the general account liabilities to which spread income is ~~attached.~~attached and exclude the liabilities reinsured to Athene since the June 2020 month-end balance. Average liabilities used to calculate the administration expenses margin exclude the REALIC liabilities reinsured to third parties prior to the acquisition by ~~Jackson.~~Jackson and the liabilities reinsured to Athene since the June 2020 month-end balance.
(2)
Margin represents the operating return earned in the ~~year~~period as a proportion of the relevant class of policyholder ~~liabilities excluding unallocated surplus.~~liabilities.
(3)
The ratio of acquisition costs is calculated as a percentage of APE sales ~~including with-profits sales. Acquisition costs include only those~~ relating to shareholder-backed business. ~~APE is defined under the section 'EEV basis, new business results and free surplus generation' in this document.~~
(4)
~~The~~Analysis of adjusted operating profit from long-term business before and after acquisition costs and DAC adjustments ~~contain a credit of $72 million in respect of joint ventures and associate in 2019 (2018: AER credit of $73 million; 2017: AER credit of $55 million).~~
~~(5)~~
~~Under IFRS, the Group's share of results from its investments in joint ventures and associate accounted for using the equity method~~ is ~~included in the Group's profit before tax on a net of related tax basis. These tax charges are~~ shown separately in the analysis of Asia operating profit drivers in order for the contribution from the joint ventures and associate to be included in the margin analysis on a consistent basis as the rest of the Asia's operations.
~~(6)~~
The 2018 and 2017 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation. CER results are calculated by translating prior year results using the current year foreign exchange rates. All CER profit figures have been translated at current year average rates for US dollars to reflect the change in the Group's presentation currency in 2019. For Asia, CER average liabilities have been translated using current year opening and closing exchange rates.
~~(7)~~
~~The 2018 and 2017 comparative results exclude the contribution from the discontinued UK and Europe operations.~~below:

~~Table of Contents~~
~~(b)    Margin analysis of long-term insurance business – Asia~~

2019 2018 AER 2018 CER*,notes(6),(7)

Profit Average
liability Margin Profit Average
liability Margin Profit Average
liability Margin
$m $m bps $m $m bps $m $m bps
note (1) note (2) note (1) note (2) note (1) note (2)

Spread income 321 29,706 108 310 24,752 125 305 24,639 124
Fee income 286 27,277 105 280 26,398 106 277 26,053 106
With-profits 107 58,032 18 95 47,548 20 94 47,580 20
Insurance margin 2,244 1,978 1,966
Margin on revenues 3,035 2,810 2,790
Expenses:
Acquisition costsnote(3)
(2,156) 5,161 (42)% (2,007) 4,999 (40)% (1,991) 4,959 (40)%
Administration expenses
(1,437) 56,984 (252) (1,374) 51,150 (269) (1,359) 50,692 (268)
DAC adjustmentsnote(4)
430 435 430
Expected return on shareholder assets 194 172 172

3,024 2,699 2,684
Share of related tax charges from joint ventures and associatenote(5) (31) (53) (51)

Adjusted IFRS operating profit based on longer-term investment returns – long-term business 2,993 2,646 2,633
Adjusted IFRS operating profit based on longer-term investment returns – asset management (Eastspring Investments) 283 242 239

Total Asia 3,276 2,888 2,872

2020 $m

Before
acquisition
costs Acquisition costs and
DAC adjustments After
acquisition
costs

and DAC
adjustments Incurred Deferred and DAC
adjustments

Total adjusted operating profit before acquisition costs and DAC adjustments 3,461 – – 3,461
Acquisition costs – (991) 740 (251)

DAC adjustments – amortisation of previously deferred acquisition costs:

Normal
– – (753) (753)
Deceleration
– – 330 330

Total US adjusted operating profit – long-term business 3,461 (991) 317 2,787

*
~~For 2018, the CER results were calculated using the 2019 average exchange rates.~~

2017 AER 2017 CER†note(6)

Profit
$m Average
liability
$m Margin
bps Profit
$m Average
liability
$m Margin
bps
Long-term business note (1) note (2) note (1) note (2)

Spread income 301 21,233 142 305 21,407 142
Fee income 264 24,363 108 260 24,402 107
With-profits 77 39,142 20 76 39,392 19
Insurance margin 1,728 1,726
Margin on revenues 2,704 2,698
Expenses:
Acquisition costsnote(3)
(1,932) 4,904 (39)% (1,936) 4,902 (39)%
Administration expenses
(1,246) 45,596 (273) (1,245) 45,809 (272)
DAC adjustmentsnote(4)
311 314
Expected return on shareholder assets 162 160

2,369 2,358
Share of related tax charge from joint ventures and associatesnote(5) (50) (52)

Adjusted IFRS operating profit based on longer-term investment returns – long-term business 2,319 2,306
Adjusted IFRS operating profit based on longer-term investment returns – asset management (Eastspring Investments) 227 228

Total Asia 2,546 2,534

2019 $m

Before
acquisition
costs Acquisition costs and
DAC adjustments After
acquisition
costs

and DAC
adjustments Incurred Deferred and DAC
adjustments

Total adjusted operating profit before acquisition costs and DAC adjustments 3,602 – – 3,602
Acquisition costs – (1,074) 807 (267)

DAC adjustments – amortisation of previously deferred acquisition costs:

Normal
– – (577) (577)
Deceleration
– – 280 280

Total US adjusted operating profit – long-term business 3,602 (1,074) 510 3,038

†
~~For 2017, the CER results were calculated using the 2018 exchange rates.~~

2018 $m

Before
acquisition
costs Acquisition costs and
DAC adjustments After
acquisition
costs

and DAC
adjustments Incurred Deferred and DAC
adjustments

Total adjusted operating profit before acquisition costs and DAC adjustments 3,717 – – 3,717
Acquisition costs – (1,013) 760 (253)

DAC adjustments – amortisation of previously deferred acquisition costs:

Normal
– – (653) (653)
Acceleration
– – (259) (259)

Total US adjusted operating profit – long-term business 3,717 (1,013) (152) 2,552

Table of Contents
~~(c)    Margin analysis of long-term insurance business – US~~

2019 2018 2017

Profit
$m Average
liability
$m Margin
bps Profit
$m Average
liability
$m Margin
bps Profit
$m Average
liability
$m Margin
bps
note (1) note (2) note (1) note (2) note (2)

Spread income 642 57,181 112 778 50,051 155 970 50,414 192
Fee income 3,292 180,940 182 3,265 178,058 183 3,019 161,358 187
Insurance margin 1,317 1,267 1,168
Expenses
Acquisition costsnote(3)
(1,074) 2,223 (48)% (1,013) 2,059 (49)% (1,129) 2,142 (53)%
Administration expenses
(1,675) 246,220 (68) (1,607) 233,835 (69) (1,514) 218,705 (69)
DAC adjustments
510 (152) 335
Expected return on shareholder assets 26 14 5

Adjusted IFRS operating profit based on longer-term investment returns – long-term business 3,038 2,552 2,854
Adjusted IFRS operating profit based on longer-term investment returns – asset management 32 11 12

Total US 3,070 2,563 2,866

~~Analysis of adjusted IFRS operating profit based on longer-term investment returns for US insurance operations before and after acquisition costs and DAC adjustments~~

2019 $m 2018 $m

Acquisition costs Acquisition costs
Before
acquisition
costs
and DAC
adjustments Incurred Deferred After
acquisition
costs
and DAC
adjustments Before
acquisition
costs
and DAC
adjustments Incurred Deferred After
acquisition
costs
and DAC
adjustments

Total adjusted IFRS operating profit based on longer-term investment returns before acquisition costs and DAC adjustments 3,602 3,602 3,717 3,717
Less new business strain (1,074) 807 (267) (1,013) 760 (253)

Other DAC adjustments – amortisation of previously deferred acquisition costs:

Normal
(577) (577) (653) (653)
Deceleration (acceleration)
280 280 (259) (259)

Total adjusted IFRS operating profit based on longer-term investment returns 3,602 (1,074) 510 3,038 3,717 (1,013) (152) 2,552

~~Table of Contents~~

2017 $m

Other
operating
profits Acquisition costs Total
Incurred Deferred

Total operating profit before acquisition costs and DAC adjustments 3,648 3,648
Less new business strain
(1,129) 854 (275)

Other DAC adjustments – amortisation of previously deferred acquisition costs:

Normal
(630) (630)
Deceleration (acceleration)
111 111

Total 3,648 (1,129) 335 2,854

I(iv)    Asia operations – analysis of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ by business unit
(a)    Analysis of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ by business unit
Adjusted operating profit ~~based on longer-term investment returns~~ for Asia operations are analysed below. The table below presents the 2019 and 2018 results on both AER and CER bases to eliminate the impact of exchange translation.
2018 $m 2019 vs 2018% 2017 $m

2019 $m

2020 vs 2019%

2018 $m

2019 $m AER CER* AER CER AER CER† 2020 $m

AER
CER†
AER
CER
AER
CER‡

China JV 251 219 219 15% 15% 191 182
Hong Kong 734 591 591 24% 24% 444 443 891 734 742 21% 20% 591 591
Indonesia 540 555 559 (3)% (3)% 589 554 519 540 525 (4)% (1)% 555 559
Malaysia 276 259 252 7% 10% 224 238 309 276 272 12% 14% 259 252
Philippines 73 57 58 28% 26% 53 51 95 73 76 30% 25% 57 58
Singapore 493 439 433 12% 14% 351 359 574 493 487 16% 18% 439 433
Taiwan 85 74 77 15% 10% 68 67
Thailand 170 151 157 13% 8% 138 144 210 170 169 24% 24% 151 157
Vietnam 237 199 197 19% 20% 174 172 270 237 237 14% 14% 199 197

South-east Asia operations including Hong Kong 2,523 2,251 2,247 12% 12% 1,973 1,961
China JV 219 191 182 15% 20% 157 159
Taiwan 74 68 67 9% 10% 55 55
Other 70 68 69 3% 1% 92 89 73 70 68 4% 7% 68 69
Non-recurrent items* 142 126 124 13% 15% 96 98 153 138 136 11% 13% 121 119

Total insurance operations 3,028 2,704 2,689 12% 13% 2,373 2,362 3,430 3,024 �� 3,008 13% 14% 2,699 2,684
Share of related tax charges from joint ventures and associate (31) (53) (51) 42% 39% (50) (52) (46) (31) (30) (48)% (53)% (53) (51)
Development expenses (4) (5) (5) 20% 20% (4) (4)

Total long-term business 2,993 2,646 2,633 13% 14% 2,319 2,306 3,384 2,993 2,978 13% 14% 2,646 2,633
Asset management (Eastspring Investments) 283 242 239 17% 18% 227 228 283 283 278 – 2% 242 239

Total Asia 3,276 2,888 2,872 13% 14% 2,546 2,534
Total Asia adjusted operating profit 3,667 3,276 3,256 12% 13% 2,888 2,872

*
~~In 2019, the adjusted IFRS operating profit based on longer-term investment returns for Asia insurance operations includes~~Representing a ~~net credit~~number of ~~$142 million (2018: $126 million on an AER basis; 2017: $97 million on an AER basis) representing a~~ small ~~number of~~ items that are not expected to ~~reoccur, including the impact of a refinement to the run-off of the allowance for prudence within technical provisions.~~reoccur.
†
For ~~2017,~~2019, the CER results were calculated using the 2020 average exchange rates.
‡
For 2018, the CER results were calculated using the 2019 average exchange rates.

~~Table of Contents~~
(b)    Analysis of Eastspring Investments adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~
2019 $m 2018 $m 2017 $m 2020 $m 2019 $m 2018 $m

Operating income before performance-related feesnote(1)
636 566 543 646 636 566
Performance-related fees
12 23 22 7 12 23

Operating income (net of commission)note(2)
648 589 565 653 648 589
Operating expensenote(2)
(329) (311) (307) (336) (329) (311)
Group's share of tax on joint ventures' operating profit
(36) (36) (31) (34) (36) (36)

Operating profit based on longer-term investment returns
283 242 227
Adjusted operating profit
283 283 242

Average funds managed by Eastspring Investments

$
214.0bn
$
186.3bn
£173.7bn
$227.1bn
$214.0bn
$186.3bn
Margin based on operating income*
30bps 30bps 31bps 28bps 30bps 30bps
Cost/income ratio†
52% 55% 56% 52% 52% 55%

Notes
(1)
Operating income before performance-related fees for Eastspring Investments can be further analysed as follows:
Retail Margin* Institutional‡ Margin* Total Margin* Retail Margin* Institutional‡ Margin* Total Margin*
$m bps $m bps $m bps
$m bps $m bps $m bps

2020 390 52 256 17 646 28
2019 392 52 244 18 636 30 392 52 244 18 636 30
2018 336 50 230 18 566 30 336 50 230 18 566 30
2017 321 57 222 20 543 31

*
Margin represents operating income before performance-related fees as a proportion of the related funds under ~~management.~~management (FUM). Monthly closing internal and external funds managed by Eastspring have been used to derive the average. Any funds held by the Group's insurance operations that are managed by third parties outside the Prudential Group are excluded from these amounts.

†
Cost/income ratio represents cost as a percentage of operating income before performance-related fees.

‡
Institutional includes internal funds.
(2)
Operating income and expense include the Group's share of contribution from joint ventures ~~(but excludes any contribution from associates).~~and associates. In the consolidated income statement of the Group IFRS basis results, the net ~~post-tax~~ income ofafter tax from the joint ventures and associates is shown as a single line item.

Table of Contents
(c)    Eastspring Investments total funds under management
Eastspring Investments, the Group's asset management business in Asia, manages funds from external parties and also funds for the Group's insurance operations. The table below analyses the total funds managed and Eastspring Investments.
31 Dec 2019 $bn 31 Dec 2018 $bn 31 Dec 2020 $bn 31 Dec 2019 $bn

External funds under managementnote(1):

External funds under management, excluding funds managed on behalf of M&G plcnote(1)

Retail
73.7 55.3 66.9 73.7
Institutional*
37.7 7.7
Institutional
13.8 11.0
Money market funds (MMF)
13.3 14.8 13.2 13.3

124.7 77.8 93.9 98.0
Internal funds under management*
116.4 114.9
Funds managed on behalf of M&G plcnote(2)
15.7 26.7

Total funds under managementnote(2)
241.1 192.7
External funds under management including M&G plc
109.6 124.7
Internal funds under management
138.2 116.4

Total funds under managementnote(3)
247.8 241.1

Notes
*(1)
The ~~2018 comparative internal~~movements of external funds under management, excluding those managed on behalf of ~~$114.9 billion included $22.2 billion~~M&G plc, are analysed below:

2020 $m
2019 $m

At 1 Jan
98,005 77,762
Market gross inflows
116,743 282,699
Redemptions
(126,668) (276,215)
Market and other movements
5,783 13,759

At 31 Dec
93,863 98,005

The analysis of movements above includes $13,198 million relating to Asia Money Market Funds at 31 December 2020 (31 December 2019: $13,337 million). Investment flows for 2020 include Eastspring Money Market Funds gross inflows of $76,317 million (2019: $236,603 million) and net inflows of $48 million (2019: net outflows of $(1,856) million).
(2)
The movements of funds managed on behalf of M&G ~~plc. Following the demerger, these funds have been reclassified to external~~plc are analysed below:

2020 $m

At 1 Jan
26,717
Net flows
(10,033)
Other
(947)

At 31 Dec
15,737

(3)
Total funds under management ~~in 2019.~~by asset class are analysed below:
~~Notes~~
~~(i)    External funds under management – analysis of movements~~

2019 $m
2018 $m

At 1 January
77,762 75,601
Market gross inflows
283,268 283,156
Redemptions
(276,215) (283,271)
Market and other movements
39,907 2,276

At 31 December
124,722 77,762

31 Dec 2020 31 Dec 2019

$bn % of total $bn % of total

Equity 103.9 42% 107.0 44%
Fixed income 125.7 51% 116.2 48%
Alternatives 2.7 1% 3.4 2%
Money Market Funds 15.5 6% 14.5 6%

Total funds under management 247.8 100% 241.1 100%

Table of Contents
~~Note~~
~~The analysis of movements above includes $13,337 million as at 31 December 2019 relating to Asia Money Market Funds (31 December 2018: $14,776 million).~~
~~(2)    Total funds under management – analysis by asset class~~

31 Dec 2019 31 Dec 2018

$bn % of total $bn % of total

Equity 107.0 44% 86.6 45%
Fixed income 116.2 48% 86.4 45%
Alternatives 3.4 2% 2.9 1%
MMF 14.5 6% 16.8 9%

Total funds under management 241.1 100% 192.7 100%

II    Calculation of alternative performance measures
The annual report uses alternative performance measures (APMs) to provide more relevant explanations of the Group's financial position and performance. This section sets out explanations for each APM and reconciliations to relevant IFRS balances.
II(i)
Reconciliation of adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ to profit before tax ~~from continuing operations~~
Adjusted ~~IFRS~~ operating profit ~~attributable to shareholders based on longer-term investment returns from continuing operations (operating profit)~~ presents the operating performance of the business. This measurement basis adjusts for the following items within total IFRS profit before tax:
–
Short-term fluctuations in investment returns on shareholder-backed business;
–
Amortisation of acquisition accounting adjustments arising on the purchase of ~~business;~~business. This comprises principally the charge for the adjustments arising on the purchase of REALIC in 2012; and
–
Gain or loss on corporate transactions, ~~such~~ as ~~disposals undertaken~~described in note D1.1 in the ~~year and costs connected to the demerger of M&G plc from Prudential plc.~~IFRS financial statements.
More details on how adjusted ~~IFRS~~ operating profit ~~based on longer-term investment returns~~ is determined are included in note B1.3 of the Group IFRS basis results. A full reconciliation to profit after tax is given in note B1.1.
II(ii)
Calculation of IFRS net gearing ratio
The IFRS net gearing ratio is calculated as net core structural borrowings of shareholder-financed businesses divided by closing IFRS shareholders' equity plus net core structural borrowings.
31 Dec 2019 $m 31 Dec 2018 $m
31 Dec 2020 $m 31 Dec 2019 $m

Core structural borrowings of shareholder-financed businesses 5,594 9,761 6,633 5,594
Less holding company cash and short-term investments (2,207) (4,121) (1,463) (2,207)

Net core structural borrowings of shareholder-financed businesses 3,387 5,640 5,170 3,387
Closing shareholders' equity 19,477 21,968 20,878 19,477

Closing shareholders' equity plus net core structural borrowings 22,864 27,608 26,048 22,864

IFRS gearing ratio 15% 20%
IFRS net gearing ratio 20% 15%

II(iii)
Return on IFRS shareholders' ~~funds~~equity
Operating return on IFRS shareholders' funds is calculated as adjusted operating profit net of tax and non-controlling interests divided by closing shareholders' equity. Total comprehensive return on shareholders' funds is calculated as IFRS total comprehensive income for the period net of tax and non-controlling interests divided by closing shareholders' equity. Following the demerger of the UK and Europe operationsAs stated in ~~October 2019 and their treatment as discontinued, it is more meaningful to derive~~ the 2019 ~~return using profit from continuing operations and closing shareholders' equity. The~~Annual Report, the Group ~~will be introducing~~has introduced a new return on equity performance measure for the Group's 2020 Prudential Long-Term Incentive Plan (PLTIP) awards alongside other metrics. This measure ~~is to be~~has been calculated as adjusted operating profit after tax, and net of non-controlling interests, divided by average shareholders' equity. Accordingly, the calculation of the return on IFRS shareholders' ~~funds going forward will be~~equity has been aligned to be based on average shareholders' equity.

~~Table of Contents~~ The 2019 returns disclosed in the table below are consistent with those previously published and use profit from continuing operations and closing shareholders' equity. As supplementary information, 2019 Asia and US returns on shareholders' equity have also been presented on an average shareholders' equity basis.
~~Detailed~~A detailed reconciliation of adjusted operating profit ~~based on longer-term investment returns~~ to IFRS profit before tax for the ~~Group's continuing operations~~Group is shown in note B1.1 to the Group IFRS basis results.
2020 $m

Asia US Other Group

Adjusted operating profit
3,667 2,796 (956) 5,507
Tax on adjusted operating profit
(495) (313) 8 (800)
Operating profit attributable to non-controlling interests
(11) (138) 1 (148)

Adjusted operating profit, net of tax and non-controlling interests
3,161 2,345 (947) 4,559
Average shareholders' equity
12,377 8,720 (919) 20,178

Operating return on average shareholders' equity (%)
26% 27% n/a 23%

~~Continuing operations~~Table of Contents

2019 $m

Asia US Unallocated
to a
segment
(central
operations) Group Add back
demerger-
related
items* Adjusted
Group
(excluding
demerger-
related
items*)

Adjusted operating profit based on longer-term investment returns 3,276 3,070 (1,036) 5,310 179 5,489
Tax on operating profit (436) (437) 100 (773) (34) (807)
Profit attributable to non-controlling interests (6) — (3) (9) — (9)

Adjusted operating profit based on longer-term investment returns, net of tax and non-controlling interests 2,834 2,633 (939) 4,528 145 4,673
Non-operating profit (loss), net of tax 885 (3,013) (456) (2,584) 383 (2,201)

IFRS profit for the year net of tax and non-controlling interests 3,719 (380) (1,395) 1,944 528 2,472
Other comprehensive income, net of tax and non-controlling interests 192 2,679 (146) 2,725 — 2,725

IFRS total comprehensive income 3,911 2,299 (1,541) 4,669 528 5,197
Closing shareholders' funds 10,866 8,929 (318) 19,477 — 19,477

Operating return on shareholders' funds (%) 26 % 29 % n/a 23 % — 24%
Total comprehensive return on shareholders' funds (%) 36 % 26 % n/a 24 % — 27%

2019 $m

Continuing operations Asia US Other Group Add back
demerger-
related
items* Adjusted
Group
(excluding
demerger-
related
items)

Adjusted operating profit 3,276 3,070 (1,036) 5,310 179 5,489
Tax on adjusted operating profit (436) (437) 100 (773) (34) (807)
Operating profit attributable to non-controlling interests (6) – (3) (9) – (9)

Adjusted operating profit, net of tax and non-controlling interests 2,834 2,633 (939) 4,528 145 4,673
Closing shareholders' equity 10,866 8,929 (318) 19,477 – 19,477

Operating return on closing shareholders' equity (%) 26% 29% n/a 23% – 24%
Supplementary information:
Average shareholders' equity 9,521 8,046
Operating return on average shareholders' equity (%) 30% 33%

*
Demerger-related items comprise interest on the subordinated debt that was substituted to M&G plc prior to the demerger ($179 million pre-tax) and one-off costs of the demerger ($407 million pre-tax).
Average shareholders' equity has been based on opening and closing balances as follows:

2018 $m

Asia US

Adjusted operating profit based on longer-term investment returns
2,888 2,563

Tax on operating profit
(411 ) (402 )
Profit attributable to non-controlling interests
(1 ) —

Adjusted operating profit based on longer-term investment returns, net of tax and non-controlling interests
2,476 2,161
Non-operating profit (loss), net of tax
(662 ) (179 )

IFRS profit for the year, net of tax and non-controlling interests
1,814 1,982
Other comprehensive income, net of tax and non-controlling interests
(206 ) (1,446 )

IFRS total comprehensive income
1,608 536
Closing shareholders' funds
8,175 7,163

Operating return on shareholders' funds (%)
30% 30%
Total comprehensive return on shareholders' funds (%)
20% 7%

*
Given the significant changes of Group shareholders' funds as a result of the demerger of the UK and Europe operations in October 2019, it is not meaningful to compare the 2019 and 2018 returns on shareholders' funds at a Group level. The 2018 comparatives have therefore excluded the presentation of a Group return on shareholders' funds. Additionally, the 2018 comparatives for Asia and US operations have been re-presented from those previously published to reflect the use of closing rather than opening shareholders' funds to be on a comparable basis with the 2019 calculation.
2020 $m 2019 $m

Asia US Other Group Asia US

Balance at 1 Jan 10,866 8,929 (318) 19,477 8,175 7,163
Balance at 31 Dec 13,887 8,511 (1,520) 20,878 10,866 8,929

Average shareholders' equity 12,377 8,720 (919) 20,178 9,521 8,046

II(iv)
Calculation of IFRS shareholders' ~~funds~~equity per share
IFRS shareholders' ~~funds~~equity per share is calculated as closing IFRS shareholders' equity divided by the number of issued shares at 31 December ~~2019~~2020 of 2,609 million shares (31 December 2019: 2,601 million ~~(31 December 2018: 2,593 million)~~shares). ~~The demerger~~
2020

Asia US Other Group
total

Closing IFRS shareholders' equity ($ million)
13,887 8,511 (1,520 ) 20,878
Shareholders' equity per share (cents)
532¢ 326¢ (58 )¢ 800¢

2019

Asia US Other Group
total

Closing IFRS shareholders' equity ($ million)
10,866 8,929 (318 ) 19,477
Shareholders' equity per share (cents)
418¢ 343¢ (12 )¢ 749¢

Table of Contents
~~alters the size of the Group's shareholders' equity and the nature of its operations, rendering a comparison with the prior year return on shareholders' funds value unrepresentative.~~

2019

Asia US Other Group
total

Closing IFRS shareholders' equity ($ million) 10,866 8,929 (318) 19,477
Shareholders' funds per share (cents) 418¢ 343¢ (12)¢ 749¢

II(v)    Calculation of asset management cost/income ratio
The asset management cost/income ratio is calculated as asset management operating expenses, adjusted for commission and joint venture contribution, divided by asset management total IFRS revenue adjusted for commission, joint venture contribution, performance-related fees and non-operating items.
Eastspring Investments
Eastspring Investments

2019 $m 2018 $m
2020 $m 2019 $m

Operating income before performance-related feesnote 636 566 646 636
Share of joint venture revenue (244) (250) (235) (244)
Commission 165 156 194 165
Performance-related fees 12 23 7 12

IFRS revenue 569 495 612 569

Operating expense 329 311 336 329
Share of joint venture expense (102) (133) (84) (102)
Commission 165 156 194 165

IFRS charges 392 334 446 392

Cost/income ratio: operating expense/operating income before performance-related fees 52% 55% 52% 52%

Note
IFRS revenue and charges for Eastspring Investments are included within the IFRS Income statement in 'other income' and 'acquisition costs and other expenditure' respectively. Operating income and expense include the Group's share of contribution from joint ventures ~~(but excludes any contribution from associates).~~and associates. In the consolidated income statement of the Group IFRS basis results, the net ~~post-tax~~ income ofafter tax from the joint ventures and associates is shown as a single line item.
II(vi)    Reconciliation of Asia renewal insurance premium to gross premiums earned
2018 $m
2019 $m

2019 $m AER CER
2020 $m AER CER

Asia renewal insurance premium 19,007 17,165 17,046 20,123 19,007 19,011
Add: General insurance premium 135 120 122 130 135 136
Add: IFRS gross earned premium from new regular and single premium business 6,386 6,421 6,402 5,045 6,386 6,404
Less: Renewal premiums from joint ventures (1,771) (1,717) (1,657) (1,957 ) (1,771 ) (1,733 )

Asia segment IFRS gross premiums earned 23,757 21,989 21,913 23,341 23,757 23,818

Table of Contents
II(vii)    Reconciliation of APE new business sales to gross premiums earned
The Group reports annual premiums equivalent (APE) as a measure of new business sales, which is a key metric for the Group's management of the development and growth of the business. APE is calculated as the aggregate of regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. The use of the one-tenth of single premiums is to normalise policy premiums into the equivalent of regular annual payments. This measure is commonly used in the insurance industry to allow comparisons of the amount of new business written in a period by life insurance companies, particularly when the sales contain both single premium and regular premium business.
This differs from the IFRS measure of gross premiums earned as shown below:
2020 $m 2019 $m

Asia US Total
segment
note (a) Asia US Total
segment
note (a)

Gross premiums earned
23,341 19,026 42,367 23,757 21,209 44,966
Less: premiums from in-force renewal businessnote(b)
(18,166 ) (845 ) (19,011 ) (17,236 ) (956 ) (18,192 )
Adjustment to include 10% of single premiumsnote(c)
(2,131 ) (17,306 ) (19,437 ) (2,606 ) (20,008 ) (22,614 )
Add: deposit accounting for investment contractsnote(d)
– 1,284 1,284 255 2,522 2,777
Inclusion of APE Sales from joint ventures and associates on equity accounting methodnote(e)
820 – 820 899 – 899
Other adjustmentsnote(f)
(168 ) (236 ) (404 ) 92 (544 ) (452 )

Annual premium equivalents (APE)
3,696 1,923 5,619 5,161 2,223 7,384

Notes
(a)
Gross premiums earned of $154 million (2019: $98 million) in the Group's Africa operations are unallocated to a segment, giving total Group gross premiums earned of $42,521 million (2019: $45,064 million) in the income statement. The Africa business sold new business APE of $112 million (2019: $82 million). Given the relative immaturity of the Africa business, it is excluded from the APE metric.
(b)
Gross premiums earned include premiums from existing in-force business as well as new business. The most significant amount is recorded in Asia, where a significant portion of regular premium business is written.
(c)
APE new business sales only include one-tenth of single premiums, recorded on policies sold in the year. Gross premiums earned include 100 per cent of such premiums.
(d)
APE includes new policies written in the year which are classified as investment contracts without discretionary participation features under IFRS 4, arising mainly in Jackson for guaranteed investment contracts. These are excluded from gross premiums earned and recorded as deposits;
(e)
For the purpose of reporting APE new business sales, the Group's share of amounts sold by the Group's insurance joint ventures and associates are included. Under IFRS, joint ventures and associates are equity accounted and so no amounts are included within gross premiums earned.
(f)
APE new business sales are annualised while gross premiums earned are recorded only when revenues are due. Other adjustments also reflect the exclusion of general insurance and reinsurance premiums earned on an IFRS basis.

Table of Contents
Exhibits
Documents filed as exhibits to this Form 20-F:
Exhibit
Number
  Description

1. Memorandum(2) andArticles of Association of Prudential~~(7)~~(5).
2.1 Form of Deposit Agreement among Prudential, Morgan Guaranty Trust Company of New York, as depositary, and holders and beneficial owners from time to time of ADRs issued there under, including the form of ADR(1) .General Data Protection Regulation Amendment Letter to the Deposit Agreement~~(7)~~(5).
2.2 The total amount of long-term debt securities of Prudential plc authorised under any instrument does not exceed 10 per cent of the total assets of the Company on a consolidated basis. Prudential plc hereby agrees to furnish to the Securities and Exchange Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of Prudential plc or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be ~~filed.~~filed
2.3 Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934
4.1 Prudential Long-Term Incentive plan(6), Prudential Deferred Annual Incentive ~~Plan.~~Plan(6)
4.2 Executive Directors' Service Contracts:
Mark FitzPatrick~~(6)~~(4)
James Turner~~(6)~~(4)
Michael Wells~~(4)~~(3)
~~4.4~~ ~~Chairman's Letter of Appointment(3)~~ /~~Extension(5)~~
~~4.6~~4.3 Form of Letter of Appointment for Non-executive ~~Directors.~~Directors(6) and form of Letter of Appointment for the Chair. Each ~~Non-executive Directors'~~ Letter of Appointment is in the form ~~filed herein.~~exhibited
~~4.7~~4.4 Other benefits between the Prudential Group and the ~~Executive~~ Directors. Each of the Directors,~~Non-executive Directors~~ ~~and~~ has the ~~Chairman~~benefit of a deed of indemnity granted by the Company which substantially follows the form exhibited(5)~~(7)~~
~~4.8~~4.5 Demerger Agreement, between Prudential plc and M&G plc, dated 25 September ~~2019.~~2019(6)
6.4.6 ~~Statement re computation of per share earnings (set forth in Note B5 to the consolidated financial statements included in this Form 20-F).~~Athene Stockholder Agreement, dated 17 July 2020
8. Subsidiaries of Prudential (set forth in Note D7D6 to the consolidated financial statements included in this Form 20-F).
12.1 Certification of Prudential plc's Group Chief Executive pursuant to Section 302 of the Sarbanes Oxley Act of ~~2002.~~2002
12.2 Certification of Prudential plc's Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of ~~2002.~~2002
13.1 Annual certification pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
14.1 Consent of KPMG ~~LLP.~~LLP
15.1 Prudential's Code of Business Conduct(6).
15.2 Letter from KPMG LLP to the SEC
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Linkbase Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(1)
As previously filed with the Securities and Exchange Commission on 22 June 2000 as an exhibit to Prudential's Form F-6.
(2)
As previously filed with the Securities and Exchange Commission on 18 May 2009 as an exhibit to Prudential's Form 20-F.
(3)
As previously filed with the Securities and Exchange Commission on ~~16 April 2013 as an exhibit to Prudential's Form 20-F.~~
~~(4)~~
~~As previously filed with the Securities and Exchange Commission on 8 April 2014 as an exhibit to Prudential's Form 20-F.~~
~~(5)~~
~~As previously filed with the Securities and Exchange Commission on~~ 7 April 2016 as an exhibit to Prudential's Form 20-F.
~~(6)~~(4)
As previously filed with the Securities and Exchange Commission on 22 March 2018 as an exhibit to Prudential's Form 20-F.
~~(7)~~(5)
As previously filed with the Securities and Exchange Commission on 22 March 2019 as an exhibit to Prudential's Form 20-F.
(6)
As previously filed with the Securities and Exchange Commission on 20 March 2020 as an exhibit to Prudential's Form 20-F.

Table of Contents

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
Prudential plc

2015 March ~~2020~~2021

By:

/s/ Mike Wells

Name:

Mike Wells
Title: Group Chief Executive


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 December ~~2019~~2020
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered

American Depositary Shares, each representing 2 Ordinary Shares, 5 pence par value each	PUK	New York Stock Exchange
Ordinary Shares, 5 pence par value each	PUK/D	New York Stock Exchange*
6.75% Perpetual Subordinated Capital Securities Exchangeable at the Issuer's Option into Non-Cumulative Dollar Denominated Preference Shares	PUK/PA	New York Stock Exchange
6.50% Perpetual Subordinated Capital Securities Exchangeable at the Issuer's Option into Non-Cumulative Dollar Denominated Preference Shares	PUK/PA	New York Stock Exchange
3.125% Senior Notes due 2030	PUK30	New York Stock Exchange


FORWARD-LOOKING STATEMENTS		61
CAUTIONARY STATEMENTS		2
SUMMARY OF OUR BUSINESS		73
Group at aA Glance		73
Our ~~business model~~Business Model		84
Company Address and Agent		5
Significant Subsidiaries		5
Selected Historical Financial Information		96
Dividend Data		7
EEV Basis, New Business Profit and Free Surplus Generation		8
Sources		8
Summary Overview of Operating and Financial Review and Prospects		119
OUR BUSINESS SEGMENTS		16
Asia and Africa		16
United States		2325
Competition		34
~~Sources~~		3530
FINANCIAL REVIEW		3631
Overview		3631
IFRS Critical Accounting Policies		3732
Summary Consolidated Results and Basis of Preparation of Analysis		38
~~Explanation of Movements in Profit after Tax and Profit before Shareholder Tax by Reference to the Basis Applied for Segmental Disclosure~~		39
~~Basis of Performance Measures~~		42
~~Explanation of Performance and Other Financial Measures~~		4733
Explanation of Movements in Profit before Shareholder Tax by Nature of Revenue and Charges		6034
~~EEV~~ Basis ~~New Business Results and Free Surplus Generation~~of Performance Measures		6640
Explanation of Movements in Profit after Tax and Profit before Shareholder Tax by Segment		44
Explanation of Performance and Other Financial Measures		47
Investments		62
Additional Information on Liquidity and Capital Resources		6763
GROUP RISK FRAMEWORK		7066
SUPERVISION AND REGULATION OF PRUDENTIAL		9190
GOVERNANCE		~~105~~99
Introduction		~~105~~99
Board of Directors		~~106~~101
Board Practices		~~115~~109
Governance Committees		~~126~~121
Audit Committee Financial Expert		152
Governance – Differences between Prudential's Governance Practice and the NYSE Corporate Governance Rules		~~153~~152
Memorandum and Articles of Association		~~155~~154
Code of Ethics		~~160~~158
~~SUPPLEMENTARY INFORMATION ON THE COMPANY~~COMPENSATION AND EMPLOYEES		~~217~~159
~~Company Address and Agent~~Share Ownership		~~217~~192
~~Significant Subsidiaries~~Employees		~~217~~193
~~Investments~~ADDITIONAL INFORMATION		~~217~~194
Risk Factors		194
Major Shareholders		209
Intellectual Property		~~219~~209
Legal Proceedings		~~219~~
~~ADDITIONAL INFORMATION~~		~~220~~
~~Risk Factors~~		~~220~~
~~Dividend Data~~		~~230~~
~~Major Shareholders~~		~~231~~209
Material Contracts		~~232~~210
Exchange Controls		~~232~~210
Taxation		~~232~~211
Documents on Display		~~237~~215
Controls and Procedures		~~237~~216
Listing Information		~~238~~216
Description of Securities Other than Equity Securities		~~238~~217
Purchases of Equity Securities by Prudential plc and Affiliated Purchasers		~~239~~217
Principal Accountant Fees and Services		~~240~~218
Change in Registrant's Certifying Accountant		219
Limitations on Enforcement of US Laws Against Prudential, Its Directors, Management and Others		~~241~~219
FINANCIAL STATEMENTS		~~242~~220
Consolidated Financial Statements		~~242~~220
Condensed Financial Information of Registrant		~~372~~339
Additional Unaudited Financial Information		~~380~~347
EXHIBITS		~~395~~364




Item	20-F Form Requirements	Section in this Annual Report on Form 20-F	Page

Item 1	Identity of Directors, Senior Management and Advisers	n/a

Item 2	Offer Statistics and Expected Timetable	n/a

Item 3	Key Information

	Selected financial data	• Selected Historical Financial Information	96
		• Dividend Data	~~230~~7
		• EEV Basis, New Business Results and Free Surplus Generation	668

	Capitalisation and indebtedness	n/a

	Reasons for the offer and use of proceeds	n/a

	Risk Factors	Risk Factors	~~220~~194

Item 4	Information on the Company

	History and development of the company	• Group at A Glance • ~~Our business model~~ • Company Address and Agent • ~~Significant Subsidiaries~~	73 8 ~~217~~ ~~217~~5

	Business overview	• Our Business Segments • Competition • Sources	16 3430 358
		• Supervision and Regulation of Prudential	9190
		• Investments	~~217~~62

	Organisational structure	• ~~Group at A Glance~~ • Our business model • Significant Subsidiaries	74 8 ~~217~~5

	Property, plants and equipment	~~n/a~~Note C11 to the Consolidated Financial Statements	320

Item 4A	Unresolved Staff Comments	n/a

Item 5	Operating and Financial Review and Prospects

	Operating results	• Summary Overview of Operating and Financial Review and Prospects	119
		• IFRS Critical Accounting ~~policies~~Policies	3732
		• Summary ~~of Consolidation of~~Consolidated Results and Basis of Preparation of Analysis	3833
		• Explanation of Movements in Profit ~~after Tax and Profit~~ before Shareholder Tax by ~~Reference to the Basis Applied for Segmental Disclosure~~Nature of Revenue and Charges	3934
		• Basis of Performance Measures	4240
		• Explanation of Movements in Profit after Tax and Profit before Shareholder Tax by ~~Nature of Revenue and charges~~Segment	6044

	Liquidity and capital resources	• Explanation of Performance and Other Financial Measures	47
		• Additional Information on Liquidity and Capital Resources	6763
		• Note D6D5 to the Consolidated Financial Statements	~~357~~324




Item	20-F Form Requirements	Section in this Annual Report on Form 20-F	Page

	Research and development, patents and licenses, etc	n/a

	Trend information	• Summary of Operating and Financial Review and Prospects	119
		• Explanation of Performance and Other Financial Measures	47

	Off-balance-sheet arrangements	Notes D3D2 and D6D5 to the Consolidated Financial Statements	~~355~~322-324 ~~357~~

	Tabular disclosure of contractual obligations	Contractual obligations	6864

	Safe harbour	Forward-looking statements	61

Item 6	Directors, Senior Management and Employees

	Directors and senior management	Board of Directors	~~106~~101

	Compensation	Compensation and employees:
		• Our Executive Directors' remuneration at a glance	159
		• Annual report on remuneration	163
		• Summary of the current Directors' remuneration policy	161
		• ~~Annual report on remuneration~~	~~162~~
		• ~~New Directors' remuneration policy~~	~~195~~
		• Additional remuneration disclosure	~~213~~190

	Board Practices	• Board Practices • Governance Committees	~~115~~109 ~~126~~121

	Employees	Employees	~~216~~193

	Share ownership	Share ownership	~~215~~192

Item 7	Major Shareholders and Related Party Transactions

	Major shareholders	Major Shareholders	~~231~~209

	Related party transactions	Note D5D4 to the Consolidated Financial Statements	~~356~~323

	Interests of Experts and Counsel	n/a

Item 8	Financial Information

	Consolidated statements and other financial Information	• Financial Statements • Intellectual Property • Legal Proceedings	~~242~~220 ~~219~~209 ~~219~~209

	Significant changes	n/a

Item 9	The Offer and Listing	Listing Information	~~238~~216

Item 10	Additional Information

	Share capital	Memorandum and Articles of Association	~~155~~154

	Memorandum and Articles of Association	Memorandum and Articles of Association	~~155~~154

	Material contracts	Material contracts	~~232~~210

	Exchange controls	Exchange controls	~~232~~210

	Taxation	Taxation	~~232~~211

	Dividends and paying agents	n/a

	Statement by experts	n/a

	Documents on display	Documents on Display	~~237~~215

	Subsidiary information	n/a




		~~Asia growth~~				• ~~Health, protection, savings and asset management in 15 markets.~~ • ~~Top three position in nine life markets~~¹. • ~~Low insurance and mutual funds penetration.~~

		~~Africa opportunity~~				• ~~Building a presence in one of the world's most under-penetrated markets.~~ • ~~Operating in eight markets with a total population of almost 400 million.~~

		~~US retirement~~				• ~~Leading position in the retirement income industry.~~ • ~~10,000 Americans reach retirement age each day for the next 20 years.~~ • ~~Largest wholesaling force in the annuity industry.~~




		~~Evolving to serve the future customer~~

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

		~~Capturing structural opportunity~~				~~...and enhancing capabilities~~

		~~We capture the structural opportunities by offering the products and solutions demanded by customers and wider society~~				~~We enhance our capabilities by developing our digital offerings and expanding our partnerships, further strengthening our distribution networks~~

		~~Asia~~				~~Asia~~
		Asia's long-term structural trends are powerful drivers of sustainable growth. These trends underpin a strong and growing demand for savings and protection across the region, as markets are challenged by low life insurance penetration and a large pension funding gap.				We continue to invest significantly in tech-driven capabilities and partnerships to address developing customer demand. Significant developments include the launch of Pulse by Prudential, our health and fitness app, and 18 new digital partnerships across the region.
		~~We are well placed to capture this opportunity, providing products that meet our customers' needs and gaining political and regulatory support in our markets.~~				Our productive distribution footprint across Asia is diversified across a substantial agency force and bank partner network. Recent developments include the renewal of our UOB partnerships for 15 years, and a new partnership with OVO in Indonesia.

		~~Africa~~				~~Africa~~
		We have also continued to expand our presence in Africa, one of the world's most under penetrated markets where the population is forecast to grow by a billion by 2045. In July, we completed our acquisition of a 51 per cent stake in a leading life insurer, Group Beneficial, operating in West and Central Africa. We now operate in eight markets with a population of almost 400 million.				We continue to grow and develop our footprint through our agency network and bancassurance partners. We are harnessing technology to improve customer service, innovate in distribution and build a business which is scalable.

		US				US
		~~In the US, an extra 22 million individuals will need retirement solutions by 2035~~1~~, and pension provision has been declining~~2~~. We see a growing demand for retirement products and an ongoing shift to fee-based solutions. Jackson is evolving its product range to address these needs.~~				We have invested in a single technology platform to deliver one of the most efficient and scalable operating platforms across the industry. Jackson is a leader in independent broker dealers, banks, wirehouse and regional firms variable annuity distribution channels3~~, and is well positioned to further enhance its market-leading variable annuity position in the brokerage market.~~
						~~Our product innovation and distribution strategies will enable us to capture the industry trends towards advisory-based distribution models.~~




		~~Operating with discipline~~

		~~Risk management and disciplined allocation of capital underpin our activities~~

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

		~~Notes~~
		1 United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Prospects 2019, Online Edition. Rev. 1. Population aged 65 and over as at 2019 versus 2035.
		~~2 Total number of defined benefit pension plans, 1985 versus 2017. Source: US Department of Labor, 'Private Pension Plan Bulletin Historical Tables and Graphs 1975 – 2017', September 2019.~~
		3 ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Morningstar www.AnnuityIntel.com Total sales by company and channel 3Q YTD 2019. Jackson ranks #1 out of 25 companies in the Independent NASD channel, #1 out of 19 companies in the Bank channel, #1 out of 15 companies in the Wirehouse channel, and #3 out of 19 companies in the Regional Firms channel.

	Main activity	Country of incorporation


Prudential Assurance Company Singapore (Pte) Limited	Insurance	Singapore
PT Prudential Life Assurance	Insurance	Indonesia
Prudential Hong Kong Limited	Insurance	Hong Kong, China
Jackson National Life Insurance Company	Insurance	US




Statement of financial position data	2019 $m	2018* $m	2017* $m	2016* $m	2015* $m
Statement of financial position data as at 31 Dec						2020 $m		2019 $m		*2018 $m**		*2017 $m**		*2016 $m**

Total assets	454,214	647,810	668,203	581,394	570,377		516,097		454,214		647,810		668,203		581,394
Total policyholder liabilities and unallocated surplus of with-profits funds	390,428	541,466	579,261	498,374	494,661		446,463		390,428		541,466		579,261		498,374
Core structural borrowings of shareholder-financed businesses	5,594	9,761	8,496	8,400	7,386		6,633		5,594		9,761		8,496		8,400
Total liabilities	434,545	625,819	646,432	563,270	551,281		493,978		434,545		625,819		646,432		563,270
Total equity	19,669	21,991	21,771	18,124	19,096		22,119		19,669		21,991		21,771		18,124




Other data	2019	2018	2017	2016	2015

Dividend per share declared and paid in reporting period(4)	63.18¢	64.34¢	59.32¢	69.72¢	59.01¢
Interim ordinary dividend/final ordinary dividend	63.18¢	64.34¢	59.32¢	55.20¢	59.01¢
Special dividend				14.52¢
Market price per share at end of period (in pence)(5)	1,449.0p	1,402.0p	1,905.5p	1,627.5p	1,531.0p
Weighted average number of shares (in millions)	2,587	2,575	2,567	2,560	2,553




Continuing operations	2019 $m	2018(7) $m	2017(7) $m	2016(7) $m	2015(7) $m

New business:
Single premium sales(2)	26,010	23,685	24,387	24,390	29,380
New regular premium sales(2)(3)	4,783	4,691	4,608	4,550	3,848
Funds under management	543,900	455,300	452,000	374,800	348,700





New business:
Single premium sales(2)	22,911	26,010	23,685	24,387	24,390
New regular premium sales(2)(3)	3,328	4,783	4,691	4,608	4,550
Funds under management(6)	558,300	543,900	455,300	452,000	374,800




First Interim Ordinary Dividend (US cents)	5.37	20.29	20.55	19.50	16.78
Final Ordinary Dividend/Second interim Ordinary (US cents)	10.73	25.97	42.89	43.79	39.82





	2019 $m	2018 $m	Change %	2018 $m	Change %	2017 $m	2020 $m	2019 $m	Change %	2019 $m	Change %	2018 $m

Profit for the year	792	4,023	(80)%	3,988	(80)%	3,081	2,185	792	176%	779	180%	4,023

Discontinued UK and Europe operations' profit after tax	(1,319)	(1,142)	15%	(1,092)	21%	(1,333)
Re-measurement of discontinued operations on demerger	(188)	-	-%	-	-%	-
Cumulative exchange loss recycled from other comprehensive income	2,668	-	-%	-	-%	-

Less loss (profit) from discontinued operations	1,161	(1,142)	(202)%	(1,092)	(206)%	(1,333)	-	1,161	n/a	1,165	n/a	(1,142)

Profit after tax from continuing operations	1,953	2,881	(32)%	2,896	(33)%	1,748	2,185	1,953	12%	1,944	12%	2,881
Tax (credit) charge attributable to shareholders' returns	(31)	569	(105)%	570	(105)%	840	(37)	(31)	19%	(36)	3%	569

Profit from continuing operations before tax attributable to shareholders	1,922	3,450	(44)%	3,466	(45)%	2,588	2,148	1,922	12%	1,908	13%	3,450
Non-operating items*:
Non-operating items:

Short-term fluctuations in investment returns on shareholder-backed businesses	3,203	791	305%	796	302%	1,994	4,841	3,203	51%	3,191	52%	791
Amortisation of acquisition accounting adjustments	43	61	(30)%	61	(30)%	82	39	43	(9)%	43	(9)%	61
Loss (gain) on disposal of businesses and corporate transactions	142	107	33%	106	34%	(286)
(Gain) loss attaching to corporate transactions							(1,521)	142	n/a	143	n/a	107

	3,388	959	253%	963	252%	1,790	3,359	3,388	(1)%	3,377	(1)%	959

Adjusted operating profit	5,310	4,409	20%	4,429	20%	4,378	5,507	5,310	4%	5,285	4%	4,409

Analysed into:
Asia	3,276	2,888	13%	2,872	14%	2,546	3,667	3,276	12%	3,256	13%	2,888
US	3,070	2,563	20%	2,563	20%	2,866	2,796	3,070	(9)%	3,070	(9)%	2,563
Other income and expenditure	(926)	(967)	(4)%	(933)	(1)%	(999)	(748)	(926)	19%	(931)	20%	(967)
Restructuring costs	(110)	(75)	47%	(73)	51%	(35)	(208)	(110)	(89)%	(110)	(89)%	(75)

Adjusted operating profit	5,310	4,409	20%	4,429	20%	4,378	5,507	5,310	4%	5,285	4%	4,409


	31 Dec 2019 $bn	31 Dec 2018 $bn	31 Dec 2020 $bn	31 Dec 2019 $bn

External funds under management	124.7	77.8
External funds under management, excluding funds managed on behalf of M&G plc			93.9	98.0
Funds managed on behalf of M&G plc			15.7	26.7
Internal funds under management	116.4	114.9	138.2	116.4

Total	241.1	192.7	247.8	241.1

By Product

	Year Ended 31 December $m


Annuities
Fixed annuities
Fixed interest rate	1,135	422	559	298	1,135	422
Fixed index	3,821	335	380	997	3,821	335
Immediate	59	32	26	29	59	32
Variable annuities	12,692	14,433	14,869
Elite Access (Variable annuities)	2,002	2,245	2,595
Variable annuities (excluding Elite Access)				14,564	12,692	14,433
Variable annuities (Elite Access)				2,057	2,002	2,245

Total	19,709	17,467	18,429
Total annuities				17,945	19,709	17,467

Institutional products				1,284	2,522	3,126
GICs, funding agreements and Federal Home Loan Bank of Indianapolis (FHLBI) funding agreements	2,522	3,126	2,995

Totalnote	22,231	20,593	21,424
Total new business premiumsNote				19,229	22,231	20,593

By Distribution Channel

Independent broker dealer	11,891	12,000	12,421	12,206	11,891	12,000
Bank	3,604	2,277	2,511
Regional broker dealer	3,441	2,652	2,872
Bank and other financial institutions				2,607	3,604	2,277
Wirehouse and regional broker dealer				2,845	3,441	2,652
Independent insurance agents	773	538	625	287	773	538
Institutional products	2,522	3,126	2,995	1,284	2,522	3,126

Total	22,231	20,593	21,424
Total new business premiums				19,229	22,231	20,593

Minimum guaranteed interest rates - annuities

	Account value at 31 December $m


1.0%	6,952	9,660
> 1.0% - 2.0%	12,994	8,646
> 2.0% - 3.0%	13,701	12,832
> 3.0% - 4.0%	1,561	1,623
> 4.0% - 5.0%	2,236	2,285
> 5.0% - 5.5%	278	286

Total	37,722	35,332


	Account value at 31 December $m

Minimum guaranteed interest rates - life insurance	2019	2018

> 2.0% - 3.0%	270	291
> 3.0% - 4.0%	3,018	3,049
> 4.0% - 5.0%	2,597	2,683
> 5.0% - 6.0%	2,031	2,168

Total	7,916	8,191



		Critical accounting policies				Reference to the disclosure notes in the consolidated financial statements

		~~Classification~~Measurement of ~~insurance~~policyholder liabilities and ~~investment contracts~~unallocated surplus of with-profits funds				~~A4.1(a)~~A3.1(a)

		Presentation of results before tax attributable to shareholders				A3.1(b)

		Segmental analysis of results and earnings attributable to shareholders				A3.1(b)

		Measurement ~~of policyholder liabilities and unallocated surplus of with-profits funds~~				~~A4.1(a)~~

		~~Measurement~~ and presentation of derivatives and debt securities of US insurance operations				~~A4.1(b)~~

		~~Presentation of results before tax attributable to shareholders~~				~~A4.1(b)~~A3.1(b)

		~~Segmental analysis of results and earnings distributable to shareholders~~				~~A4.1(b)~~



		Critical accounting estimates and assumptions				Reference to the disclosure notes in the consolidated financial statements

		~~Classification~~Measurement of ~~insurance~~policyholder liabilities and ~~investment contracts~~unallocated surplus of with-profits funds				~~A4.1(a)~~A3.1(a); and C3.4

		~~Measurement of policyholder liabilities and unallocated surplus of with-profits funds~~Deferred acquisition costs for insurance contracts				~~A4.1(a)~~A3.1(c); and ~~C4.2~~C3.4

		Carrying value of distribution rights intangible assets				A3.1(c)

		~~Deferred acquisition costs for insurance contracts~~Financial investments – Valuation				~~A4.1(c); and C4.2~~A3.1(c)

		Financial investments – ~~Valuation~~Determining impairment of "available-for-sale" and "amortised cost" assets				~~A4.1(c)~~A3.1(c)

		Additional quantitative information on the impairment and realised gains/losses recognised on the available-for-sale debt securities of US insurance operations				B1.2

		~~Financial investments – Determining impairment of "available-for-sale" and "amortised cost" assets~~				~~A4.1(c)~~
		~~Additional quantitative information on the impairment and realised gains/losses recognised on the available-for-sale debt securities of US insurance operations~~				~~B1.2~~
		Additional quantitative information on the movement in the statement of financial position value of the available-for-sale debt securities of US insurance operations and those which are in a gross unrealised loss position.				~~C3.2(b)~~C1.1(b), ~~C3.2(c)~~C1.1(c)

		~~Carrying value of distribution rights intangible assets~~				~~A4.1(c)~~



	2018 $m (AER)


Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit (loss) for the year from continuing operations	1,815	1,982	3,797	(916)	2,881
Tax charges (credit) attributable to shareholders	369	340	709	(140)	569

Profit (loss) before tax from continuing operations	2,184	2,322	4,506	(1,056)	3,450
Losses/(gains) from short-term fluctuations in investment returns on shareholder-backed business	684	134	818	(27)	791
Other non-operating losses	20	107	127	41	168

Adjusted operating profit (loss)	2,888	2,563	5,451	(1,042)	4,409


	2018* $m (CER)

	Asia	US	Total segment	Unallocated to a segment (other operations)	Group total continuing operations

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit (loss) for the year from continuing operations	1,808	1,982	3,790	(894)	2,896
Tax charges (credit) attributable to shareholders	356	340	696	(126)	570

Profit (loss) before tax form continuing operations	2,164	2,322	4,486	(1,020)	3,466
Losses/(gains) from short-term fluctuations in investment returns on shareholder-backed business	688	134	822	(26)	796
Other non-operating losses	20	107	127	40	167

Adjusted operating profit (loss)	2,872	2,563	5,435	(1,006)	4,429


	2017 $m (AER)

	Asia	US	Total segment	Unallocated to a segment (other operations)	Group total continuing operations

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit (loss) for the year from continuing operations	2,288	327	2,615	(867)	1,748
Tax charges (credit) attributable to shareholders	326	655	981	(141)	840

Profit (loss) before tax from continuing operations	2,614	982	3,596	(1,008)	2,588
Losses/(gains) from short-term fluctuations in investment returns on shareholder-backed business	1	2,019	2,020	(26)	1,994
Other non-operating gains	(69)	(135)	(204)	-	(204)

Adjusted operating profit (loss)	2,546	2,866	5,412	(1,034)	4,378


	2017† $m (CER)

	Asia	US	Total segment	Unallocated to a segment (other operations)	Group Total continuing operations

Analysis of profit (loss) before tax attributable to shareholders' returns from continuing operations:
Profit (loss) for the year from continuing operations	2,278	327	2,605	(892)	1,713
Tax charges (credit) attributable to shareholders	319	655	974	(144)	830

Profit (loss) before tax from continuing operations	2,597	982	3,579	(1,036)	2,543
Losses/(gains) from short-term fluctuations in investment returns on shareholder-backed business	7	2,019	2,026	(26)	2,000
Other non-operating gains	(70)	(135)	(205)	-	(205)

Adjusted operating profit (loss)	2,534	2,866	5,400	(1,062)	4,338


	AER			CER*		AER	CER†

	2019 $m	2018 $m	Change %	2018 $m	Change %	2017 $m	2017 $m

Asia
Insurance operationsnote(ii)	2,993	2,646	13%	2,633	14%	2,319	2,306
Asset management	283	242	17%	239	18%	227	228

Total Asia	3,276	2,888	13%	2,872	14%	2,546	2,534

US
Jackson (US insurance operations)note(ii)	3,038	2,552	19%	2,552	19%	13	2,854
Asset management	32	11	191%	11	191%	2,853	12

Total US	3,070	2,563	20%	2,563	20%	2,866	2,866

Other income and expenditure	(926)	(967)	(4)%	(933)	(1)%	(999)	(1,026)

Total adjusted operating profit before tax and restructuring costs	5,420	4,484	21%	4,502	20%	4,413	4,374
Restructuring costs	(110)	(75)	47%	(73)	51%	(35)	(36)
Adjusted operating profit before taxnote(i)	5,310	4,409	20%	4,429	20%	4,378	4,338

Non-operating items:
Short-term fluctuations in investment returns on shareholder-backed businessnote(iii)	(3,203)	(791)	305%	(796)	302%	(1,994)	(2,000)
Amortisation of acquisition accounting adjustments	(43)	(61)	(30)%	(61)	(30)%	(82)	(81)
(Loss) gain attaching to disposal of businesses	(142)	(107)		(106)		286	286

Profit before tax attributable to shareholders	1,922	3,450	(44)%	3,466	(45)%	2,588	2,543

Tax charge attributable to shareholders' returns	31	(569)	(105)%	(570)	(105)%	(840)	(830)

Profit for the year from continuing operations	1,953	2,881	(32)%	2,896	(33)%	1,748	1,713

Profit for the year from discontinued operations	(1,161)	1,142	(202)%	1,092	(206)%	1,333	1,381

Profit for the year attributable to shareholders	792	4,023	(80)%	3,988	(80)%	3,081	3,094

	AER						CER				AER

	2019 Cents		2018 Cents		Change %		2018 Cents		Change %		2017 Cents

Basic earnings per share based on adjusted operating profit after tax		175.0		145.2		21%		146.0		20%		134.6
Basic earnings per share based on total profit after tax		75.1		111.7		(33)%		112.5		-33%		68

	31 December 2019				31 December 2018†

Estimated Group LCSM capital position6	Total		Shareholder*		Total		Shareholder*

Available capital ($ billion)		33.1		14.0		27.0		13.5
Group minimum capital requirement (GMCR) ($ billion)		9.5		4.5		7.6		3.8
LCSM surplus (over GMCR) ($ billion)		23.6		9.5		19.4		9.7
LCSM ratio (over GMCR) (%)		348%		309%		355%		356%




Total borrowings of shareholder-financed businesses	5,594	9,761
Less: holding company cash and short-term investments	(2,207)	(4,121)

Net core structural borrowings of shareholder-financed businesses	3,387	5,640

Gearing ratio*	15%	20%

*Holding company cash flow7*	Actual exchange rate

	2019* $m		2018* $m		Change %

From continuing operations
Asia		950		916		4
US		509		452		13
Other UK (including Prudential Capital)		6		49		(88)

Total net cash remitted from continuing operations		1,465		1,417		3
From discontinued operations
M&G plc		684		842		(19)

Net cash remitted by business units		2,149		2,259		(5)

Central outflows		(522)		(572)
Dividends paid		(1,634)		(1,662)
Other movements		(1,999)		1,153

Total holding company cash flow		(2,006)		1,178

Cash and short-term investments at beginning of year		4,121		3,063
Foreign exchange movements		92		(120)

Cash and short-term investments at end of year		2,207		4,121




Adjusted operating profit after tax and non-controlling interests from continuing operations9	4,528	3,739

Profit after tax for the year9	783	4,019
Exchange movements, net of related tax	2,943	(714)
Unrealised gains and losses on US fixed income securities classified as available-for-sale	2,679	(1,446)
Demerger dividend in specie of M&G plc	(7,379)	-
Other dividends	(1,634)	(1,662)
Other	117	9

Net increase (decrease) in shareholders' funds	(2,491)	206
Shareholders' funds at beginning of the year	21,968	21,762

Shareholders' funds at end of the year	19,477	21,968

Shareholders' value per share10	749¢	847¢

	2019 $m				2018 $m

	Separate account liabilities		General account and other liabilities		Separate account liabilities		General account and other liabilities

At 1 January		163,301		73,079		176,578		67,905
Premiums		12,776		8,200		14,646		3,967
Surrenders		(12,767)		(4,575)		(11,746)		(4,465)
Maturities/deaths		(1,564)		(1,823)		(1,449)		(1,238)

Net flows		(1,555)		1,802		1,451		(1,736)

Addition for closed block of group pay-out annuities in the US		-		-		-		5,532
Transfers from general to separate account		951		(951)		708		(708)
Investment-related items and other movements		32,373		549		(15,436)		2,086

At 31 December		195,070		74,479		163,301		73,079

	2019				2018

	$m		Margin bps		$m		Margin bps

Spread income		642		112		778		155
Fee income		3,292		182		3,265		183
Insurance margin		1,317				1,267
Other income		26				14

Total life income		5,277				5,324
Expenses:
Acquisition costs*		(1,074)		(48)%		(1,013)		(49)%
Administration expenses		(1,675)		(68)		(1,607)		(69)
DAC adjustments		510				(152)

Long-term insurance business pre-tax adjusted operating profit		3,038				2,552

Asset management		32				11

Adjusted operating profit from long-term business and asset management before restructuring costs		3,070				2,563

Tax charge		(437)				(402)

Adjusted operating profit after tax for the year before restructuring costs		2,633				2,161
Non-operating profit after tax		(3,013)				(179)

(Loss) profit for the year after tax before restructuring costs		(380)				1,982




1 January 2019	5,519	1,204	4,315	458

Capital generation from new business written during 2019	119	263	(144)	(75)
Operating capital generation from business in force at 1 January 2019*	1,406	(125)	1,531	141

Operating capital generation	1,525	138	1,387	66

Adoption of NAIC reforms (see above)	279	137	142	(17)
Other non-operating movements, including market effects and removal of the permitted practice	(1,577)	(53)	(1,524)	(104)
Dividends paid	(525)	-	(525)	(37)

31 December 2019	5,221	1,426	3,795	366

Operating return on closing shareholders' funds (%)

Total comprehensive return on closing shareholders' funds (%)