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Prudential (PUK)

Filed: 11 Aug 20, 10:08am
 
SECURITIES AND EXCHANGE COMMISSION    
 
Washington, D.C. 20549 
 
FORM 6-K 
 
REPORT OF FOREIGN PRIVATE ISSUER 
 
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934 
 
For the month of August, 2020 
 
PRUDENTIAL PUBLIC LIMITED COMPANY 
 
(Translation of registrant's name into English) 
 
1 Angel Court, London,
England, EC2R 7AG
(Address of principal executive offices)


 
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X           Form 40-F


Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes              No X


 
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- 
 
CONDENSED CONSOLIDATED INCOME STATEMENT
 
    
2020 $m
 
 
2019 $m
 
   
Note
 
Half year
 
 
Half year*
 
Full year
 
Continuing operations:
 
 
 
   
Gross premiums earned
 
 
19,842
 
 
21,081
 
45,064
 
Outward reinsurance premiums
 
B3
 
(30,149)
 
 
(673)
 
(1,583)
 
Earned premiums, net of reinsurance
 
B3
 
(10,307)
 
 
20,408
 
43,481
 
Investment return
 
 
3,910
 
 
31,873
 
49,555
 
Other income
 
 
333
 
 
258
 
700
 
Total revenue, net of reinsurance
 
B3
 
(6,064)
 
 
52,539
 
93,736
 
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance
 
 
9,855
 
 
(47,448)
 
(83,905)
 
Acquisition costs and other expenditure
 
B2
 
(3,032)
 
 
(3,508)
 
(7,283)
 
Finance costs: interest on core structural borrowings of shareholder-financed businesses
 
 
(163)
 
 
(293)
 
(516)
 
Gain (loss) attaching to corporate transactions
 
 
-
 
 
17
 
(142)
 
Total charges net of reinsurance
 
 
6,660
 
 
(51,232)
 
(91,846)
 
Share of profit from joint ventures and associates, net of related tax
 
 
133
 
 
137
 
397
 
Profit before tax (being tax attributable to shareholders' and policyholders' returns)note (i)
 
 
729
 
 
1,444
 
2,287
 
Remove tax charge attributable to policyholders' returns
 
 
(66)
 
 
(285)
 
(365)
 
Profit before tax attributable to shareholders' returns
 
B1.1
 
663
 
 
1,159
 
1,922
 
Total tax charge attributable to shareholders' and policyholders' returns
 
B4
 
(195)
 
 
(286)
 
(334)
 
Remove tax charge attributable to policyholders' returns
 
 
66
 
 
285
 
365
 
Tax (charge) credit attributable to shareholders' returns
 
B4
 
(129)
 
 
(1)
 
31
 
Profit from continuing operations
 
 
534
 
 
1,158
 
1,953
 
Discontinued UK and Europe operations' profit after tax
 
 
-
 
 
835
 
1,319
 
Re-measurement of discontinued operations on demerger
 
 
-
 
 
-
 
188
 
Cumulative exchange loss recycled from other comprehensive income
 
 
-
 
 
-
 
(2,668)
 
Profit (loss) from discontinued operations note (ii)
 
 
-
 
 
835
 
(1,161)
 
Profit for the period
 
 
534
 
 
1,993
 
792
 
    
 
   
Attributable to:
 
 
 
   
Equity holders of the Company:
 
 
 
   
 
From continuing operations
 
 
512
 
 
1,152
 
1,944
 
 
From discontinued operations
 
 
-
 
 
835
 
(1,161)
 
Non-controlling interests from continuing operations
 
 
22
 
 
6
 
9
 
  
534
 
 
1,993
 
792
 
 
 
Earnings per share (in cents)
 
 
2020
 
 
2019
 
   
Note
 
Half year
 
 
Half year*
 
Full year
 
Based on profit attributable to equity holders of the Company:
 
B5
 
 
   
 
Basic
 
 
 
   
  
Based on profit from continuing operations
 
 
19.7¢
 
 
44.6¢
 
75.1¢
 
  
Based on profit (loss) from discontinued operations
 
 
-
 
 
32.3¢
 
(44.8)¢
 
 
Total
 
 
19.7¢
 
 
76.9¢
 
30.3¢
 
 
Diluted
 
 
 
   
  
Based on profit from continuing operations
 
 
19.7 ¢
 
 
44.6¢
 
75.1¢
 
  
Based on profit (loss) from discontinued operations
 
 
-
 
 
32.3¢
 
(44.8)¢
 
 
Total
 
 
19.7 ¢
 
 
76.9¢
 
30.3¢
 
        
 
 
Dividends per share (in cents)
 
 
2020
 
 
2019
 
  
Note
 
Half year
 
 
Half year*
 
Full year
 
Dividends relating to reporting period:
 
B6
 
 
   
 
First interim ordinary dividend
 
 
5.37¢
 
 
20.29¢
 
20.29¢
 
 
Second interim ordinary dividend
 
 
-
 
 
-
 
25.97¢
 
Total
 
 
5.37¢
 
 
20.29¢
 
46.26¢
 
Dividends paid in reporting period:
 
B6
 
 
   
 
Current year first interim dividend
 
 
-
 
 
-
 
20.29¢
 
 
Second interim ordinary dividend for prior year
 
 
25.97¢
 
 
42.89¢
 
42.89¢
 
Total
 
 
25.97¢
 
 
42.89¢
 
63.18¢
 
* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.
 
 
 
Notes
 
(i)    This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders.
 
(ii)   Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019.
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
 
 
    
2020 $m
 
 
2019 $m
 
   
Note
 
Half year
 
 
Half year*
 
Full year
 
Continuing operations
 
 
 
   
Profit for the period
 
 
534
 
 
1,158
 
1,953
 
Other comprehensive income (loss):
 
 
 
   
Items that may be reclassified subsequently to profit or loss
 
 
 
   
Exchange movements on foreign operations and net investment hedges:
 
 
 
   
 
Exchange movements arising during the period
 
 
(201)
 
 
45
 
152
 
 
Related tax
 
 
-
 
 
1
 
(15)
 
    
(201)
 
 
46
 
137
 
Valuation movements on available-for-sale debt securities:
 
 
 
   
 
Unrealised gains arising in the period (before the impact of Jackson's reinsurance transaction with Athene):
 
 
 
   
 
Net unrealised gains on holdings arising in the period
 
 
2,737
 
 
3,411
 
4,208
 
 
Deduct net gains included in the income statement on disposal and impairment
 
 
(197)
 
 
(25)
 
(185)
 
    
2,540
 
 
3,386
 
4,023
 
 
Related change in amortisation of deferred acquisition costs
 
C4.2
 
(287)
 
 
(560)
 
(631)
 
 
Related tax
 
 
(472)
 
 
(593)
 
(713)
 
    
1,781
 
 
2,233
 
2,679
 
Impact of Jackson's reinsurance transaction with Athene:
 
D1
 
 
   
 
Gains recycled to the income statement on transfer of debt securities to Athene
 
 
(2,817)
 
 
-
 
-
 
 
Related change in amortisation of deferred acquisition costs
 
C4.2
 
535
 
 
-
 
-
 
 
Related tax
 
 
479
 
 
-
 
-
 
    
(1,803)
 
 
-
 
-
 
 
Total valuation movements on available-for-sale debt securities
 
 
(22)
 
 
2,233
 
2,679
 
    
 
   
Total items that may be reclassified subsequently to profit or loss
 
 
(223)
 
 
2,279
 
2,816
 
Items that will not be reclassified to profit or loss
 
 
 
   
Shareholders' share of actuarial gains and losses on defined benefit pension schemes:
 
 
 
   
 
Net actuarial losses on defined benefit pension schemes
 
 
-
 
 
(112)
 
(108)
 
 
Related tax
 
 
-
 
 
18
 
19
 
Total items that will not be reclassified to profit or loss
 
 
-
 
 
(94)
 
(89)
 
Other comprehensive (loss) income
 
 
(223)
 
 
2,185
 
2,727
 
Total comprehensive income for the period from continuing operations
 
 
311
 
 
3,343
 
4,680
 
  
 
   
Profit (loss) for the period from discontinued operations
 
 
-
 
 
835
 
(1,161)
 
Cumulative exchange loss recycled through profit or loss
 
 
-
 
 
-
 
2,668
 
Other items, net of related tax
 
 
-
 
 
4
 
203
 
Total comprehensive income for the period from discontinued operations†
 
 
-
 
 
839
 
1,710
 
Total comprehensive income for the period
 
 
311
 
 
4,182
 
6,390
 
    
 
   
Attributable to:
 
 
 
   
Equity holders of the Company
 
 
 
   
 
From continuing operations
 
 
290
 
 
3,337
 
4,669
 
 
From discontinued operations
 
 
-
 
 
839
 
1,710
 
Non-controlling interests from continuing operations
 
 
21
 
 
6
 
11
 
  
311
 
 
4,182
 
6,390
 
* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.
 
† Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019.
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 
 
 
   
 Period ended 30 June 2020 $m
 
 
Note
 
Share
 capital
 
Share
premium
 
Retained
  earnings
 
Translation
reserve
 
Available
-for-sale
 securities
reserves
 
Shareholders'
equity 
 
 
Non-
controlling
interests
 
 
Total
 equity
 
Reserves
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
-
 
-
 
512
 
-
 
-
 
512
 
 
22
 
 
534
 
Other comprehensive loss
 
 
-
 
-
 
-
 
(200)
 
(22)
 
(222)
 
 
(1)
 
 
(223)
 
Total other comprehensive income (loss) for the period
 
 
-
 
-
 
512
 
(200)
 
(22)
 
290
 
 
21
 
 
311
 
Dividends
 
B6
 
-
 
-
 
(674)
 
-
 
-
 
(674)
 
 
(16)
 
 
(690)
 
Reserve movements in respect of share-based payments
 
 
-
 
-
 
29
 
-
 
-
 
29
 
 
-
 
 
29
 
Effect of transactions relating to non-controlling interests
 
 
-
 
-
 
32
 
-
 
-
 
32
 
 
-
 
 
32
 
   
 
 
 
 
 
 
 
 
 
 
Share capital and share premium
 
 
 
 
 
 
 
 
 
 
 
 
New share capital subscribed
 
C8
 
-
 
10
 
-
 
-
 
-
 
10
 
 
-
 
 
10
 
   
 
 
 
 
 
 
 
 
 
 
Treasury shares
 
 
 
 
 
 
 
 
 
 
 
 
Movement in own shares in respect of share-based payment plans
 
 
-
 
-
 
(54)
 
-
 
-
 
(54)
 
 
-
 
 
(54)
 
Net increase (decrease) in equity
 
 
-
 
10
 
(155)
 
(200)
 
(22)
 
(367)
 
 
5
 
 
(362)
 
Balance at beginning of period
 
 
172
 
2,625
 
13,575
 
893
 
2,212
 
19,477
 
 
192
 
 
19,669
 
Balance at end of period
 
 
172
 
2,635
 
13,420
 
693
 
2,190
 
19,110
 
 
197
 
 
19,307
 
 
 
   
 Period ended 30 June 2019* $m
 
  
Note
 
Share
 capital
 
Share
premium
 
Retained
earnings
 
Translation
reserve
 
Available
-for-sale
securities
reserves
 
Shareholders'
equity
 
 
Non-
 controlling
interests
 
 
Total
 equity
 
Reserves
 
           
Profit from continuing operations for the period
 
 
-
 
-
 
1,152
 
-
 
-
 
1,152
 
 
6
 
 
1,158
 
Other comprehensive income (loss) from continuing operations
 
 
-
 
-
 
(94)
 
46
 
2,233
 
2,185
 
 
-
 
 
2,185
 
Total comprehensive income from continuing operations for the period
 
 
-
 
-
 
1,058
 
46
 
2,233
 
3,337
 
 
6
 
 
3,343
 
Total comprehensive income from discontinued operations for the period
 
 
-
 
-
 
838
 
1
 
-
 
839
 
 
-
 
 
839
 
Total comprehensive income (loss) for the period
 
 
-
 
-
 
1,896
 
47
 
2,233
 
4,176
 
 
6
 
 
4,182
 
            
Dividends
 
B6
 
-
 
-
 
(1,108)
 
-
 
-
 
(1,108)
 
 
-
 
 
(1,108)
 
Reserve movements in respect of share-based payments
 
 
-
 
-
 
3
 
-
 
-
 
3
 
 
-
 
 
3
 
             
Share capital and share premium
 
           
New share capital subscribed
 
C8
 
-
 
13
 
-
 
-
 
-
 
13
 
 
-
 
 
13
 
Foreign exchange translation differences due to change in presentation currency
 
C8
 
(1)
 
(3)
 
-
 
-
 
-
 
(4)
 
 
-
 
 
(4)
 
             
Treasury shares
 
           
Movement in own shares in respect of share-based payment plans
 
 
-
 
-
 
(12)
 
-
 
-
 
(12)
 
 
-
 
 
(12)
 
Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS
 
 
-
 
-
 
1
 
-
 
-
 
1
 
 
-
 
 
1
 
Net increase (decrease) in equity
 
 
(1)
 
10
 
780
 
47
 
2,233
 
3,069
 
 
6
 
 
3,075
 
Balance at beginning of period
 
 
166
 
2,502
 
21,817
 
(2,050)
 
(467)
 
21,968
 
 
23
 
 
21,991
 
Balance at end of period
 
 
165
 
2,512
 
22,597
 
(2,003)
 
1,766
 
25,037
 
 
29
 
 
25,066
 
* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
 
 
 
    
 Year ended 31 December 2019 $m
 
 
Note
 
Share
 capital
 
Share
premium
 
Retained
  earnings
 
Translation
reserve*
 
Available
-for-sale
 securities
reserves
 
Shareholders'
equity
 
Non-
 controlling
  interests
 
Total
 equity
 
Reserves
 
         
Profit from continuing operations
 
 
-
 
-
 
1,944
 
-
 
-
 
1,944
 
9
 
1,953
 
Other comprehensive income (loss) from continuing operations
 
 
-
 
-
 
(89)
 
135
 
2,679
 
2,725
 
2
 
2,727
 
Total comprehensive income from continuing operations
 
 
-
 
-
 
1,855
 
135
 
2,679
 
4,669
 
11
 
4,680
 
Total comprehensive income (loss) from discontinued operations*
 
 
-
 
-
 
(1,098)
 
2,808
 
-
 
1,710
 
-
 
1,710
 
Total comprehensive income for the year
 
 
-
 
-
 
757
 
2,943
 
2,679
 
6,379
 
11
 
6,390
 
          
Demerger dividend in specie of M&G plc
 
B6
 
-
 
-
 
(7,379)
 
-
 
-
 
(7,379)
 
-
 
(7,379)
 
Other dividends
 
B6
 
-
 
-
 
(1,634)
 
-
 
-
 
(1,634)
 
-
 
(1,634)
 
Reserve movements in respect of share-based payments
 
 
-
 
-
 
64
 
-
 
-
 
64
 
-
 
64
 
Effect of transactions relating to non-controlling interests
 
 
-
 
-
 
(143)
 
-
 
-
 
(143)
 
158
 
15
 
           
Share capital and share premium
 
         
New share capital subscribed
 
C8
 
-
 
22
 
-
 
-
 
-
 
22
 
-
 
22
 
Impact of change in presentation currency in relation to share capital and share premium
 
C8
 
6
 
101
 
-
 
-
 
-
 
107
 
-
 
107
 
           
Treasury shares
 
         
Movement in own shares in respect of share-based payment plans
 
 
-
 
-
 
38
 
-
 
-
 
38
 
-
 
38
 
Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS
 
 
-
 
-
 
55
 
-
 
-
 
55
 
-
 
55
 
Net increase (decrease) in equity
 
 
6
 
123
 
(8,242)
 
2,943
 
2,679
 
(2,491)
 
169
 
(2,322)
 
Balance at beginning of year
 
 
166
 
2,502
 
21,817
 
(2,050)
 
(467)
 
21,968
 
23
 
21,991
 
Balance at end of year
 
 
172
 
2,625
 
13,575
 
893
 
2,212
 
19,477
 
192
 
19,669
 
* The $2,808 million movement in translation reserve from discontinued operations is recognised in other comprehensive income and represents an exchange gain of $140 million on translating the results from discontinued operations during the period of ownership in 2019 and the recycling of the cumulative exchange loss of $2,668 million through the profit or loss upon the demerger.
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 
 
 
    
2020 $m
 
 
2019 $m
 
   
Note
 
30 Jun
 
 
30 Jun*
 
31 Dec
 
Assets
 
     
Goodwill
 
C4.1
 
942
 
 
649
 
969
 
Deferred acquisition costs and other intangible assets
 
C4.2
 
18,604
 
 
16,111
 
17,476
 
Property, plant and equipment
 
 
964
 
 
999
 
1,065
 
Reinsurers' share of insurance contract liabilitiesnote (i)
 
 
44,918
 
 
12,919
 
13,856
 
Deferred tax assets
 
C7
 
4,259
 
 
3,515
 
4,075
 
Current tax recoverable
 
 
387
 
 
472
 
492
 
Accrued investment income
 
 
1,517
 
 
1,695
 
1,641
 
Other debtors
 
 
3,211
 
 
2,560
 
2,054
 
Investment properties
 
 
23
 
 
14
 
25
 
Investments in joint ventures and associates accounted for using the equity method
 
 
1,507
 
 
1,311
 
1,500
 
Loans
 
 
14,910
 
 
15,925
 
16,583
 
Equity securities and holdings in collective investment schemesnote (ii)
 
 
234,698
 
 
233,757
 
247,281
 
Debt securitiesnote (ii)
 
 
121,462
 
 
126,856
 
134,570
 
Derivative assets
 
 
2,459
 
 
1,555
 
1,745
 
Other investmentsnote (ii)
 
 
1,569
 
 
1,220
 
1,302
 
Deposits
 
 
3,351
 
 
1,898
 
2,615
 
Assets held for distributionnote (iii)
 
 
-
 
 
277,861
 
-
 
Cash and cash equivalents
 
 
8,384
 
 
6,628
 
6,965
 
Total assets
 
C1
 
463,165
 
 
705,945
 
454,214
 
    
 
   
Equity
 
 
 
   
Shareholders' equity 
 
 
19,110
 
 
25,037
 
19,477
 
Non-controlling interests
 
 
197
 
 
29
 
192
 
Total equity
 
C1
 
19,307
 
 
25,066
 
19,669
 
    
 
   
Liabilities
 
 
 
   
Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4)
 
C3.1
 
391,924
 
 
362,933
 
385,678
 
Unallocated surplus of with-profits funds
 
C3.1
 
5,512
 
 
3,747
 
4,750
 
Core structural borrowings of shareholder-financed businesses
 
C5.1
 
6,499
 
 
9,470
 
5,594
 
Operational borrowings
 
 
2,245
 
 
2,421
 
2,645
 
Obligations under funding, securities lending and sale and repurchase agreements
 
 
9,085
 
 
8,598
 
8,901
 
Net asset value attributable to unit holders of consolidated investment funds
 
 
5,967
 
 
4,432
 
5,998
 
Deferred tax liabilities
 
C7
 
5,278
 
 
4,710
 
5,237
 
Current tax liabilities
 
 
428
 
 
406
 
396
 
Accruals, deferred income and other liabilities
 
 
16,208
 
 
13,487
 
14,488
 
Provisions
 
 
245
 
 
323
 
466
 
Derivative liabilities
 
 
467
 
 
1,320
 
392
 
Liabilities held for distributionnote (iii)
 
 
-
 
 
269,032
 
-
 
Total liabilities
 
C1
 
443,858
 
 
680,879
 
434,545
 
Total equity and liabilities
 
C1
 
463,165
 
 
705,945
 
454,214
 
* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.
 
 
 
Notes
 
(i)    At 30 June 2020, reinsurers' share of insurance contract liabilities include $27.7 billion in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.
 
(ii)   Included within equity securities and holdings in collective investment schemes, debt securities and other investments are $265 million of lent securities as at 30 June 2020 (30 June 2019: $10 million; 31 December 2019: $90 million).
 
(iii)  Assets and liabilities held for distribution at 30 June 2019 related to the Group's UK and Europe operations (M&G plc) which were demerged in October 2019.
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
 
 
    
2020 $m
 
 
2019 $m
 
   
Note
 
Half year
 
 
Half year*
 
Full year
 
Continuing operations:
 
     
Cash flows from operating activities
 
 
 
   
Profit before tax (being tax attributable to shareholders' and policyholders' returns)
 
 
729
 
 
1,444
 
2,287
 
Adjustments to profit before tax for non-cash movements in
operating assets and liabilities:
 
 
 
   
 
Investments
 
 
24,670
 
 
(38,673)
 
(60,812)
 
 
Other non-investment and non-cash assets
 
 
(32,617)
 
 
(2,685)
 
(2,487)
 
 
Policyholder liabilities (including unallocated surplus)
 
 
8,188
 
 
34,702
 
56,067
 
 
Other liabilities (including operational borrowings)
 
 
1,466
 
 
4,072
 
5,097
 
Other itemsnote (i)
 
 
(327)
 
 
102
 
(361)
 
Net cash flows from operating activities
 
 
2,109
 
 
(1,038)
 
(209)
 
Cash flows from investing activities
 
 
 
   
Net cash flows from purchases and disposals of property, plant and equipment
 
 
(43)
 
 
(21)
 
(64)
 
Net cash flows from other investing activitiesnote (ii)
 
 
(733)
 
 
(102)
 
(260)
 
Net cash flows from investing activities
 
 
(776)
 
 
(123)
 
(324)
 
Cash flows from financing activities
 
 
 
   
Structural borrowings of shareholder-financed operations:note (iii)
 
C5.1
 
 
   
 
Issuance of debt, net of costs
 
 
982
 
 
-
 
367
 
 
Redemption of subordinated debt
 
 
-
 
 
(504)
 
(504)
 
 
Fees paid to modify terms and conditions of debt issued by the Group
 
 
-
 
 
(182)
 
(182)
 
 
Interest paid
 
 
(157)
 
 
(289)
 
(526)
 
Equity capital:
 
 
 
   
 
Issues of ordinary share capital
 
 
10
 
 
13
 
22
 
External dividends:
 
 
 
   
 
Dividends paid to the Company's shareholders
 
B6
 
(674)
 
 
(1,108)
 
(1,634)
 
 
Dividends paid to non-controlling interests
 
 
(16)
 
 
-
 
-
 
Net cash flows from financing activities
 
 
145
 
 
(2,070)
 
(2,457)
 
Net increase (decrease) in cash and cash equivalents from continuing operations
 
 
1,478
 
 
(3,231)
 
(2,990)
 
Net cash flows from discontinued operationsnote (iv)
 
 
-
 
 
292
 
(5,690)
 
Cash and cash equivalents at beginning of period
 
 
6,965
 
 
15,442
 
15,442
 
Effect of exchange rate changes on cash and cash equivalents
 
 
(59)
 
 
10
 
203
 
Cash and cash equivalents at end of period
 
 
8,384
 
 
12,513
 
6,965
 
Comprising:
 
 
 
   
 
Cash and cash equivalents from continuing operations
 
 
8,384
 
 
6,628
 
6,965
 
 
Cash and cash equivalents from discontinued operations
 
 
-
 
 
5,885
 
-
 
* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.
 
 
 
Notes
 
(i)    The adjusting items to profit before tax included within other items are adjustments in respect of non-cash items together with operational interest receipts and payments, dividend receipts and tax paid.
 
(ii)   Net cash flows from other investing activities include amounts paid for distribution rights and cash flows arising from the acquisitions and disposals of businesses. 
 
(iii)  Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group (including both continuing and discontinued operations in 2019) are analysed below:
 
 
 
  
Cash movements $m
 
 
Non-cash movements $m
 
  
Balance at
beginning
of period
 
Issue
 of debt
 
Redemption
 of debt
 
 
Foreign
exchange
movement
 
Demerger of
UK and Europe
operations
 
Other
 movements
 
Balance
at end
of period
 
 
30 Jun 2020
 
5,594
 
982
 
-
 
 
(84)
 
-
 
7
 
6,499
 
 
30 Jun 2019
 
9,761
 
-
 
(504)
 
 
(6)
 
219
 
-
 
9,470
 
 
31 Dec 2019
 
9,761
 
367
 
(504)
 
 
116
 
(4,161)
 
15
 
5,594
 
 
 
(iv)    Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019. The half year and full year 2019 cash flows shown above are presented excluding any transactions between continuing and discontinued operations.
 
 
 
NOTES TO PRIMARY STATEMENTS
 
 
 
A    Basis of preparation
 
A1  Basis of preparation and exchange rates
 
 
These condensed consolidated interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). The Group's policy for preparing this interim financial information is to use the accounting policies adopted by the Group in its last consolidated financial statements, as updated by any changes in accounting policies it intends to make in its next consolidated financial statements as a result of new or amended IFRS and other policy improvements. EU-endorsed IFRS may differ from IFRSs issued by the IASB if, at any point in time, new or amended IFRS have not been endorsed by the EU. At 30 June 2020, there were no unendorsed standards effective for the period ended 30 June 2020 which impacted the condensed consolidated financial statements of the Group, and there were no differences between IFRS endorsed by the EU and IFRS issued by the IASB in terms of their application to the Group.
 
The IFRS basis results for half year 2020 and half year 2019 are unaudited. The 2019 full year IFRS basis results have been derived from the 2019 statutory accounts. The auditors have reported on the 2019 statutory accounts which have been delivered to the Registrar of Companies. The auditors' report was: (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 Companies Act 2006.
 
Going concern basis of accounting
 
Prudential aims to meet the savings and investment needs of its customers, which by their very nature can often be over a timeframe of many years. The Group as a whole and each of its life assurance operations are subject to extensive regulation and supervision, which are designed primarily to reinforce the Group's management of its long-term solvency, liquidity and viability to ensure that it can continue to meet obligations to policyholders.
 
Risk management is core to the Group's activities. In assessing going concern, the Directors took account of the Group's principal risks and the mitigations available to it which are described in the Group Chief Risk and Compliance Officer's report.
 
After making sufficient enquiries 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 interim 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.
 
In half year 2020, the Covid-19 pandemic has impacted the global economy and the Group's individual markets to varying degrees and at different periods, and the full extent of the longer-term impacts are currently uncertain. The Directors have made the assessment of going concern taking into account both the Group's current performance and the Group's outlook. In particular, the Directors considered the adequacy of the Group's solvency, liquidity and financial performance using revised projections from the previous business plan that reflected the shift in market conditions as a result of Covid-19 together with the impact of targeted related management actions.
 
In terms of liquidity, at 30 June 2020, the Group had central cash and short-term investment balances of $1.9 billion as set out in the Group's Chief Financial Officer and Chief Operating Officer's report. This amount has been subject to stress testing that assumes the closure of short-term debt markets, as well as additional calls on liquidity by the business units. This stress testing allows for the fact that the Group has undrawn liquidity facilities of $2.6 billion available to it.
 
To factor in the uncertainty of the longer-term impacts of Covid-19, a number of stress scenarios have been assessed, for example scenarios of different durations of lockdown and the associated recovery back to a normalised level of sales, with stress scenarios assuming a significant overall contraction in sales and worsened market conditions compared to 2019.
 
The Directors noted the effect of a number of stresses on the Group's capital position, including those set out in note I(i) Group capital position within Additional Financial Information. The Group was considered to have sufficient regulatory capital to meet stressed changes in market conditions that are severe but plausible. For the Group's US operations, the beneficial impact on the local RBC solvency position of the equity investment by Athene Life Re Ltd in July 2020 (as discussed in note D3) was also factored into the assessment.
 
The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these interim financial statements for the period ended 30 June 2020.
 
Exchange rates
 
The exchange rates applied for balances and transactions in the presentation currency of the Group, US dollars ($), and other currencies were:
 
 
 
$: Local currency
 
Closing rate as at period end
 
 
Average rate for the period to date
 
 
30 Jun 2020
 
30 Jun 2019
 
31 Dec 2019
 
 
Half year 2020
 
Half year 2019
 
Full year 2019
 
China
 
7.07
 
6.87
 
6.97
 
 
7.03
 
6.78
 
6.91
 
Hong Kong
 
7.75
 
7.81
 
7.79
 
 
7.76
 
7.84
 
7.84
 
Indonesia
 
14,285.00
 
14,127.50
 
13,882.50
 
 
14,574.24
 
14,192.79
 
14,140.84
 
Malaysia
 
4.29
 
4.13
 
4.09
 
 
4.25
 
4.12
 
4.14
 
Singapore
 
1.40
 
1.35
 
1.34
 
 
1.40
 
1.36
 
1.36
 
Thailand
 
30.87
 
30.69
 
29.75
 
 
31.62
 
31.61
 
31.05
 
UK
 
0.81
 
0.79
 
0.75
 
 
0.79
 
0.77
 
0.78
 
Vietnam
 
23,206.00
 
23,305.00
 
23,172.50
 
 
23,303.21
 
23,253.04
 
23,227.64
 
 
 
Certain notes to the financial statements present half year 2019 comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the condensed consolidated financial statements. AER are actual historical exchange rates for the specific accounting period, being the average rates over the period 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 results using the current period foreign exchange rate, ie current period average rates for the income statement and current period closing rates for the statement of financial position.
 
The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements for the year ended 31 December 2019, as disclosed in the 2019 statutory accounts, aside from those discussed in note A2 below.
 
A2  New accounting pronouncements in 2020
 
The IASB has issued the following new accounting pronouncements to be effective from 1 January 2020:
 
-       Amendments to IAS 1 and IAS 8 'Definition of Material';
-       Amendment to IFRS 3 'Business Combinations'; and
-       Amendments to IFRS 9, IAS 39 and IFRS 7 'Interest Rate Benchmark Reform'.
 
The adoption of these pronouncements have had no significant impact on the Group financial statements.
 
 
 
B    EARNINGS PERFORMANCE

B1  Analysis of performance by segment
 
B1.1  Segment results
 
 
 
    
2020 $m
 
 
2019 $m
 
 
2020 vs 2019 %
 
2019 $m
 
   
Note
 
Half year
 
 
AER
Half year
 
CER
Half year
 
 
AER
Half year
 
CER
Half year
 
AER
Full year
 
      
note (i)
 
note (i)
 
 
note (i)
 
note (i)
 
note (i)
 
Continuing operations:
 
         
Asia
 
         
Insurance operations
 
 
1,590
 
 
1,417
 
1,396
 
 
12%
 
14%
 
2,993
 
Asset management
 
 
143
 
 
133
 
130
 
 
8%
 
10%
 
283
 
Total Asia
 
 
1,733
 
 
1,550
 
1,526
 
 
12%
 
14%
 
3,276
 
US
 
 
 
       
Insurance operations (Jackson)
 
 
1,256
 
 
1,556
 
1,556
 
 
(19)%
 
(19)%
 
3,038
 
Asset management
 
 
10
 
 
16
 
16
 
 
(38)%
 
(38)%
 
32
 
Total US
 
 
1,266
 
 
1,572
 
1,572
 
 
(19)%
 
(19)%
 
3,070
 
Total segment profit
 
 
2,999
 
 
3,122
 
3,098
 
 
(4)%
 
(3)%
 
6,346
 
Other income and expenditure:
 
 
 
       
 
Investment return and other income
 
 
18
 
 
32
 
31
 
 
(44)%
 
(42)%
 
50
 
 
Interest payable on core structural borrowings
 
 
(163)
 
 
(293)
 
(286)
 
 
44%
 
43%
 
(516)
 
 
Corporate expenditurenote (ii)
 
 
(205)
 
 
(212)
 
(211)
 
 
3%
 
3%
 
(460)
 
Total other income and expenditure
 
 
(350)
 
 
(473)
 
(466)
 
 
26%
 
25%
 
(926)
 
Restructuring and IFRS 17 implementation costs
 
 
(108)
 
 
(30)
 
(28)
 
 
(260)%
 
(286)%
 
(110)
 
Adjusted operating profit
 
B1.3
 
2,541
 
 
2,619
 
2,604
 
 
(3)%
 
(2)%
 
5,310
 
Short-term fluctuations in investment returns on shareholder-backed business
 
B1.2
 
(2,706)
 
 
(1,455)
 
(1,445)
 
 
(86)%
 
(87)%
 
(3,203)
 
Amortisation of acquisition accounting adjustmentsnote (iii)
 
 
(18)
 
 
(22)
 
(21)
 
 
18%
 
14%
 
(43)
 
Gain (loss) attaching to corporate transactions
 
D1
 
846
 
 
17
 
20
 
 
n/a
 
n/a
 
(142)
 
Profit before tax attributable to shareholders
 
 
663
 
 
1,159
 
1,158
 
 
(43)%
 
(43)%
 
1,922
 
Tax (charge) credit attributable to shareholders' returns
 
B4
 
(129)
 
 
(1)
 
1
 
 
n/a
 
n/a
 
31
 
Profit for the period from continuing operations
 
 
534
 
 
1,158
 
1,159
 
 
(54)%
 
(54)%
 
1,953
 
Discontinued UK and Europe operations' profit after tax
 
 
-
 
 
835
 
813
 
 
n/a
 
n/a
 
1,319
 
Re-measurement of discontinued operations on demerger
 
 
-
 
 
-
 
-
 
 
n/a
 
n/a
 
188
 
Cumulative exchange loss recycled from other comprehensive income
 
 
-
 
 
-
 
-
 
 
n/a
 
n/a
 
(2,668)
 
Profit (loss) for the period from discontinued operations
 
 
-
 
 
835
 
813
 
 
n/a
 
n/a
 
(1,161)
 
Profit for the period
 
 
534
 
 
1,993
 
1,972
 
 
(73)%
 
(73)%
 
792
 
  
 
       
Attributable to:
 
 
 
       
Equity holders of the Company
 
 
 
       
 
From continuing operations
 
 
512
 
 
1,152
 
1,153
 
 
(56)%
 
(56)%
 
1,944
 
 
From discontinued operations
 
 
-
 
 
835
 
813
 
 
n/a
 
n/a
 
(1,161)
 
Non-controlling interests from continuing operations
 
 
22
 
 
6
 
6
 
 
267%
 
267%
 
9
 
    
534
 
 
1,993
 
1,972
 
 
(73)%
 
(73)%
 
792
 
            
Basic earnings per share (in cents)
 
 
2020
 
 
2019
 
 
2020 vs 2019 %
 
2019
 
   
Note
 
AER
Half year
 
 
AER
Half year
 
CER
Half year
 
 
AER
Half year
 
CER
Half year
 
AER
Full year
 
   
B5
 
note (i)
 
 
note (i)
 
note (i)
 
 
note (i)
 
note (i)
 
note (i)
 
Based on adjusted operating profit, net of tax, from continuing operationsnote (iv)
 
 
79.0¢
 
 
84.5¢
 
84.3¢
 
 
(7)%
 
(6)%
 
175.0¢
 
Based on profit for the period from continuing operations
 
 
19.7 ¢
 
 
44.6¢
 
44.8¢
 
 
(56)%
 
(56)%
 
75.1¢
 
Based on profit (loss) for the period from discontinued operations
 
 
-
 
 
32.3¢
 
31.5¢
 
 
n/a
 
n/a
 
(44.8)¢
 
 
 
Notes
 
(i)    For definitions of AER and CER refer to note A1.
 
(ii)   Corporate expenditure as shown above is primarily for head office functions in London and Hong Kong.
 
(iii)  Amortisation of acquisition accounting adjustments principally relate to the REALIC business of Jackson which was acquired in 2012.
 
(iv)  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.
 
 
 
B1.2  Short-term fluctuations in investment returns on shareholder-backed business
 
 
 
  
2020 $m
 
 
2019 $m
 
  
Half year
 
 
Half year
 
Full year
 
Asia operationsnote (i)
 
(448)
 
 
544
 
657
 
US operationsnote (ii)
 
(2,288)
 
 
(1,968)
 
(3,757)
 
Other operations
 
30
 
 
(31)
 
(103)
 
Total
 
(2,706)
 
 
(1,455)
 
(3,203)
 
 
 
(i)    Asia operations
 
In Asia, the negative short-term fluctuations of $(448) million (half year 2019: positive $544 million; full year 2019: positive $657 million) reflect the net value movements on shareholders' assets and policyholder liabilities arising from market movements in the period. In half year 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 gains in the period. This together with the effect of falling equity markets led to the overall negative short-term investment fluctuations in Asia.
 
 
 
(ii)   US operations
 
The short-term fluctuations in investment returns in the US are reported net of the related charge for amortisation of deferred acquisition costs (DAC) of $(50) million as shown in note C4.2 (half year 2019: credit of $616 million; full year 2019: credit of $1,248 million) and comprise amounts in respect of the following items:
 
 
 
  
2020 $m 
 
 
2019 $m
 
  
Half year
 
 
Half year
 
Full year
 
Net equity hedge resultnote (a)
 
(4,378)
 
 
(2,529)
 
(4,582)
 
Other than equity-related derivativesnote (b)
 
2,114
 
 
560
 
678
 
Debt securitiesnote (c)
 
175
 
 
14
 
156
 
Equity-type investments: actual less longer-term return
 
(128)
 
 
(9)
 
18
 
Other items
 
(71)
 
 
(4)
 
(27)
 
Total net of related DAC amortisation
 
(2,288)
 
 
(1,968)
 
(3,757)
 
 
 
Notes
 
(a)   The purpose of the inclusion of net equity hedge result in short-term fluctuations in investment returns is to segregate the amount included in pre-tax profit that relates to the accounting effect of market movements on both the value of guarantees in Jackson's products including variable annuities and on the related derivatives used to manage the exposures inherent in these guarantees. The level of fees recognised in non-operating profit 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 or ASC Topic 944, Financial Services - Insurance 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 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 to match the corresponding movement in the guarantee liability. Other guarantee fees are included in operating profit, which in half year 2020 was $350 million (half year 2019: $341 million; full year 2019: $699 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 indexed 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:
 
 
 
  
2020 $m
 
 
2019 $m
 
  
Half year
 
 
Half year
 
Full year
 
 
Fair value movements on equity hedge instruments
 
(301)
 
 
(3,190)
 
(5,314)
 
 
Accounting value movements on the variable and fixed indexed annuity guarantee liabilities*
 
(4,503)
 
 
294
 
(22)
 
 
Fee assessments net of claim payments
 
426
 
 
367
 
754
 
 
Total net of related DAC amortisation
 
(4,378)
 
 
(2,529)
 
(4,582)
 
* The value movement on the variable annuity guarantees and fixed indexed annuity options is discussed in the Group Chief Financial Officer and Chief Operating Officer's report.
 
 
(b)  The fluctuations for other than equity-related derivatives 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 indexed 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:
 
 
   
2020 $m 
 
 
2019 $m
 
   
Half year 
 
 
Half year
 
Full year
 
 
Credits (charges) in the period:
 
 
   
  
Losses on sales of impaired and deteriorating bonds
 
(148)
 
 
(24)
 
(28)
 
  
Bond write-downs
 
(31)
 
 
(1)
 
(15)
 
  
Recoveries/reversals
 
1
 
 
1
 
1
 
  
Total credits (charges) in the period
 
(178)
 
 
(24)
 
(42)
 
 
Risk margin allowance deducted from adjusted operating profit*
 
55
 
 
54
 
109
 
   
(123)
 
 
30
 
67
 
 
Interest-related realised gains (losses):
 
 
   
  
Gains (losses) arising in the period†
 
369
 
 
42
 
220
 
  
Amortisation of gains and losses arising in current and prior periods to adjusted operating profit
 
(67)
 
 
(59)
 
(129)
 
   
302
 
 
(17)
 
91
 
 
Related amortisation of deferred acquisition costs
 
(4)
 
 
1
 
(2)
 
 
Total short-term fluctuations related to debt securities net of related DAC amortisation
 
175
 
 
14
 
156
 
* 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 operating profit with variations from period to period included in the short-term fluctuations category. The risk margin reserve charge for longer-term credit-related losses included in adjusted operating profit of Jackson for half year 2020 is based on an average annual risk margin reserve of 18 basis points (half year 2019: 18 basis points; full year 2019: 17 basis points) on average book values of $62.3 billion (half year 2019: $60.0 billion; full year 2019: $62.6 billion) as shown below:
 
 
 
Moody's rating category (or equivalent under NAIC ratings of mortgage-backed securities)
 
 
 
  
Half year 2020
 
 
Half year 2019
 
 
Full year 2019
 
  
 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
 
 
A3 or higher
 
39,118
 
0.10
 
(40)
 
 
34,318
 
0.10
 
(36)
 
 
38,811
 
0.10
 
(38)
 
 
Baa1, 2 or 3
 
21,521
 
0.24
 
(51)
 
 
24,385
 
0.23
 
(55)
 
 
22,365
 
0.24
 
(53)
 
 
Ba1, 2 or 3
 
1,383
 
0.74
 
(10)
 
 
1,008
 
0.93
 
(10)
 
 
1,094
 
0.85
 
(9)
 
 
B1, 2 or 3
 
200
 
2.39
 
(5)
 
 
246
 
2.62
 
(6)
 
 
223
 
2.56
 
(6)
 
 
Below B3
 
108
 
3.36
 
(4)
 
 
37
 
3.42
 
(1)
 
 
75
 
3.39
 
(3)
 
 
Total
 
62,330
 
0.18
 
(110)
 
 
59,994
 
0.18
 
(108)
 
 
62,568
 
0.17
 
(109)
 
  
 
 
 
        
 
Related amortisation of deferred acquisition costs
 
20
 
   
18
 
   
19
 
 
Risk margin reserve charge to adjusted operating profit for longer-term credit-related losses
 
 
(90)
 
   
(90)
 
   
(90)
 
 
 
†    Excluding the realised gains that are part of the gain arising in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.
 
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 gain of $2,253 million for net unrealised gains arising during the period on debt securities classified as available-for-sale net of related amortisation of deferred acquisition costs (half year 2019: gain of $2,826 million; full year 2019: gain of $3,392 million for net unrealised losses), together with a pre-tax loss of $(2,282) million for the recycling of the gains on transfer of debt securities to Athene (see note D1) to the income statement, net of related amortisation of deferred acquisition costs. 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 C1.1.
 

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 the Group's Asia and 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 derive revenue from both insurance and asset management activities.
 
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'.
 
 
 
Performance measure   
 
The performance measure of operating segments utilised by the Company is 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 period 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 the effect of the Jackson's reinsurance arrangement with Athene Life Re Ltd in half year 2020, disposals undertaken and costs connected to the demerger of M&G plc from Prudential plc in 2019.
 
 
 
The determination of adjusted operating profit for investment and liability movements is as described in note B1.3 of the Group's consolidated financial statements for the year ended 31 December 2019.
 
For Group debt securities at 30 June 2020 held by the insurance operations in Asia and the US, the level of unamortised interest-related realised gains and losses related to previously sold bonds for the Group was a net gain of $1,301 million (30 June 2019: net gain of $738 million; 31 December 2019: net gain of $916 million).
 
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 $5,712 million as at 30 June 2020 (30 June 2019: $2,904 million; 31 December 2019: $3,473 million). The longer-term rates of return applied in half year 2020 ranged from 4.6 per cent to 17.6 per cent (30 June 2019: 5.2 per cent to 17.6 per cent; 31 December 2019: 5.0 per cent to 17.6 per cent) with the rates applied varying by business unit.
 
-   For US insurance operations, as at 30 June 2020, the equity-type securities for non-separate account operations amounted to $1,854 million (30 June 2019: $1,499 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 period and appropriate risk premiums are as follows:
 
 
 
  
2020
 
 
2019
 
  
Half year
 
 
Half year
 
Full year
 
 
Equity-type securities such as common and preferred stock and portfolio holdings in mutual funds
 
4.9% to 5.8%
 
 
6.0% to 6.7%
 
5.5% to 6.7%
 
 
Other equity-type securities such as investments in limited partnerships and private equity funds
 
6.9% to 7.8%
 
 
8.0% to 8.7%
 
7.5% to 8.7%
 
 
 
B2  Acquisition costs and other expenditure
 
 
 
 
2020 $m
 
 
2019 $m
 
 
Half year
 
 
Half year
 
Full year
 
Acquisition costs incurred for insurance policies
 
(1,433)
 
 
(2,109)
 
(4,177)
 
Acquisition costs deferrednote C4.2
 
614
 
 
625
 
1,422
 
Amortisation of acquisition costsnote (i)
 
(470)
 
 
376
 
694
 
Recoveries for expenses associated with Jackson's business ceded to Athenenote (ii)
 
1,231
 
 
-
 
-
 
Administration costs and other expenditurenote (iii)
 
(2,584)
 
 
(2,291)
 
(5,019)
 
Movements in amounts attributable to external unit holders
of consolidated investment funds
 
(390)
 
 
(109)
 
(203)
 
Total acquisition costs and other expenditure
 
(3,032)
 
 
(3,508)
 
(7,283)
 
 
 
Notes
 
(i)    The charge of $(470) million in half year 2020 includes $(313) million arising in the US which includes $(764) million for the write-off of the deferred acquisition costs held for the in-force fixed and fixed indexed annuity liabilities reinsured to Athene. Offsetting this amount is a credit of $814 million (half year 2019: $616 million; full year 2019: $1,248 million) recorded in non-operating profit largely as a result of the losses arising from market effects on variable annuity guarantee liabilities and associated hedging.
 
(ii)   As part of the reinsurance transaction with Athene Life Re Ltd discussed in note D1, Jackson received $1,231 million of ceding commission 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 $(109) million (half year 2019: $(107) million; full year 2019: $(224) million), of which $(72) million (half year 2019: $(66) million; full year 2019: $(141) million) relates to the right-of-use assets recognised under IFRS 16. 
 
 
 
B3   Additional segmental analysis of revenue
 
 
 
  
Half year 2020 $m
 
  
Asia
 
US
 
Total
 segment
 
Unallocated
to a
segment
 
Group
total
 
Gross premiums earned
 
10,890
 
8,892
 
19,782
 
60
 
19,842
 
Outward reinsurance premiumsnote (i)
 
50
 
(30,195)
 
(30,145)
 
(4)
 
(30,149)
 
Earned premiums, net of reinsurance
 
10,940
 
(21,303)
 
(10,363)
 
56
 
(10,307)
 
Other incomenote (ii)
 
285
 
28
 
313
 
20
 
333
 
Total external revenue
 
11,225
 
(21,275)
 
(10,050)
 
76
 
(9,974)
 
Intra-group revenue
 
-
 
17
 
17
 
(17)
 
-
 
Interest income
 
883
 
1,283
 
2,166
 
22
 
2,188
 
Other investment return
 
3,235
 
(1,575)
 
1,660
 
62
 
1,722
 
Total revenue, net of reinsurance
 
15,343
 
(21,550)
 
(6,207)
 
143
 
(6,064)
 
 
 
  
Half year 2019 $m
 
  
Asia
 
US
 
Total
segment
 
Unallocated
to a
segment
 
Group
total
 
Gross premiums earned
 
11,458
 
9,588
 
21,046
 
35
 
21,081
 
Outward reinsurance premiums
 
(499)
 
(170)
 
(669)
 
(4)
 
(673)
 
Earned premiums, net of reinsurance
 
10,959
 
9,418
 
20,377
 
31
 
20,408
 
Other incomenote (ii)
 
228
 
14
 
242
 
16
 
258
 
Total external revenue
 
11,187
 
9,432
 
20,619
 
47
 
20,666
 
Intra-group revenue
 
21
 
31
 
52
 
(52)
 
-
 
Interest income
 
805
 
1,460
 
2,265
 
27
 
2,292
 
Other investment return
 
8,826
 
20,732
 
29,558
 
23
 
29,581
 
Total revenue, net of reinsurance
 
20,839
 
31,655
 
52,494
 
45
 
52,539
 
 
 
  
Full year 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 revenue
 
23,197
 
20,803
 
44,000
 
181
 
44,181
 
Intra-group revenue
 
-
 
34
 
34
 
(34)
 
-
 
Interest income
 
1,569
 
2,971
 
4,540
 
67
 
4,607
 
Other investment return
 
13,406
 
31,623
 
45,029
 
(81)
 
44,948
 
Total revenue, net of reinsurance
 
38,172
 
55,431
 
93,603
 
133
 
93,736
 
 
 
Notes
 
(i)    In half year 2020, outward reinsurance premiums include $(30,150) million paid during the period in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd. See note D1 for further details. Also included in outward reinsurance premiums for half year 2020 is a credit of $542 million for the recapture of previously reinsured business in Asia.
 
(ii)   Other income comprises income from external customers and consists primarily of revenue from the Group's asset management business of $261 million (half year 2019: $198 million; full year 2019: $453 million). The remaining other income consists primarily of policy fee revenue from external customers.
 
 
 
B4  Tax charge
 
 
 
B4.1  Total tax charge by nature
 
The total tax charge in the income statement is as follows:
 
 
 
  
2020 $m
 
 
2019 $m
 
Tax charge
 
Current
 tax
 
Deferred
 tax
 
Half year
Total
 
 
Half year
Total
 
Full year
Total
 
Attributable to shareholders:
 
 
 
 
   
 
Asia operations
 
(103)
 
(127)
 
(230)
 
 
(244)
 
(468)
 
 
US operations
 
(70)
 
183
 
113
 
 
143
 
345
 
 
Other operations
 
(16)
 
4
 
(12)
 
 
100
 
154
 
Tax (charge) credit attributable to shareholders' returns
 
(189)
 
60
 
(129)
 
 
(1)
 
31
 
Attributable to policyholders:
 
 
 
 
   
 
Asia operations
 
(69)
 
3
 
(66)
 
 
(285)
 
(365)
 
Total tax (charge) credit
 
(258)
 
63
 
(195)
 
 
(286)
 
(334)
 
 
 
The principal reason for the increase in the tax charge attributable to shareholders' returns is the losses arising in Other operations where, following the demerger of M&G plc, it is unlikely that relief will be available in future periods.
 
 
 
The principal reason for the decrease in the tax charge attributable to policyholders' returns reflects the reduction in deferred tax liabilities in Singapore following the clarification of tax filing requirements.
 
 
 
B4.2  Reconciliation of shareholder effective tax rate
 
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.
 
 
 
   
 
2020
 
 
 
 
2019
 
 
   
 
Half year
 
 
 
Half year
 
 
Full year
 
   
Asia
operations
 
US
operations
 
Other
operations
 
Total
attributable to
 shareholders
 
Percentage
 impact
on ETR
 
 
Total
attributable to
 shareholders
 
Percentage
impact
on ETR
 
 
Total
attributable to
 shareholders
 
Percentage
impact
on ETR
 
   
$m
 
$m
 
$m
 
$m
 
%
 
 
$m
 
%
 
 
$m
 
%
 
   
 
 
note (iv)
 
 
 
      
Adjusted operating profit (loss)
 
1,733
 
1,266
 
(458)
 
2,541
 
 
 
2,619
 
  
5,310
 
 
Non-operating (loss) profit
 
(450)
 
(1,458)
 
30
 
(1,878)
 
 
 
(1,460)
 
  
(3,388)
 
 
Profit (loss) before tax
 
1,283
 
(192)
 
(428)
 
663
 
 
 
1,159
 
  
1,922
 
 
Expected tax rate:
 
20%
 
21%
 
18%
 
21%
 
 
      
 
Tax at the expected rate
 
257
 
(40)
 
(77)
 
140
 
21.1%
 
 
232
 
20.0%
 
 
393
 
20.4%
 
 
Effects of recurring tax reconciliation items:
 
 
 
 
 
 
      
  
Income not taxable or taxable at concessionary rates
 
(31)
 
(14)
 
 -
 
(45)
 
(6.8)%
 
 
(70)
 
(6.0)%
 
 
(126)
 
(6.6)%
 
  
Deductions not allowable for tax purposes
 
12
 
6
 
3
 
21
 
3.2%
 
 
26
 
2.2%
 
 
55
 
2.9%
 
  
Items related to taxation of life insurance businessesnote (i)
 
7
 
(62)
 
 -
 
(55)
 
(8.3)%
 
 
(179)
 
(15.4)%
 
 
(317)
 
(16.5)%
 
  
Deferred tax adjustments
 
3
 
 -
 
 -
 
3
 
0.5%
 
 
(12)
 
(1.0)%
 
 
(33)
 
(1.7)%
 
  
Unrecognised tax lossesnote (ii)
 
 -
 
 -
 
72
 
72
 
10.9%
 
 
 -
 
-
 
 
46
 
2.4%
 
  
Effect of results of joint ventures and associates
 
(31)
 
 -
 
(6)
 
(37)
 
(5.6)%
 
 
(35)
 
(3.0)%
 
 
(100)
 
(5.2)%
 
  
Irrecoverable withholding taxes
 
 -
 
 -
 
26
 
26
 
3.9%
 
 
27
 
2.3%
 
 
59
 
3.1%
 
  
Other
 
3
 
13
 
(6)
 
10
 
1.5%
 
 
5
 
0.4%
 
 
13
 
0.7%
 
  
Total
 
(37)
 
(57)
 
89
 
(5)
 
(0.7)%
 
 
(238)
 
(20.5)%
 
 
(403)
 
(20.9)%
 
 
Effects of non-recurring tax reconciliation items:
 
 
 
 
 
 
      
  
Adjustments to tax charge in relation to prior years
 
21
 
 -
 
 -
 
21
 
3.1%
 
 
20
 
1.7%
 
 
(67)
 
(3.5)%
 
  
Movements in provisions for open tax mattersnote (iii)
 
(12)
 
 -
 
 -
 
(12)
 
(1.8)%
 
 
8
 
0.7%
 
 
(1)
 
0.0%
 
  
Demerger related activities
 
 -
 
 -
 
 -
 
 -
 
-
 
 
4
 
0.4%
 
 
76
 
4.1%
 
  
Impact of carry back of US losses
 
 -
 
(16)
 
 -
 
(16)
 
(2.4)%
 
 
 -
 
-
 
 
 -
 
-
 
  
Impact of changes in local statutory tax rates
 
1
 
 -
 
 -
 
1
 
0.2%
 
 
 -
 
-
 
 
 -
 
-
 
  
Adjustments in relation to business disposals
 
 -
 
 -
 
 -
 
 -
 
-
 
 
(25)
 
(2.2)%
 
 
(29)
 
(1.4)%
 
  
Total
 
10
 
(16)
 
 -
 
(6)
 
(0.9)%
 
 
7
 
0.6%
 
 
(21)
 
(1.1)%
 
Total actual tax charge (credit)
 
230
 
(113)
 
12
 
129
 
19.5%
 
 
1
 
0.1%
 
 
(31)
 
(1.6)%
 
Analysed into:
 
 
 
 
 
 
      
 
Tax on adjusted operating profit (loss)
 
260
 
195
 
12
 
467
 
 
 
430
 
  
773
 
 
 
Tax on non-operating (loss) profit
 
(30)
 
(308)
 
 -
 
(338)
 
 
 
(429)
 
  
(804)
 
 
Actual tax rate on:
 
 
 
 
 
 
      
 
Adjusted operating profit (loss):
 
 
 
 
 
 
      
  
Including non-recurring tax reconciling items
 
15%
 
15%
 
(3)%
 
18%
 
 
 
16%
 
  
15%
 
 
  
Excluding non-recurring tax reconciling items
 
14%
 
15%
 
(3)%
 
18%
 
 
 
16%
 
  
15%
 
 
 
Total profit (loss)
 
18%
 
59%
 
(3)%
 
19%
 
 
 
0%
 
  
(2)%
 
 
 
 
Notes
 
(i)    The $62 million reconciling item in US operations reflects the impact of the dividend received deduction on the taxation of profits from variable annuity business. The $7 million adverse reconciling item in Asia operations reflects non tax deductible investment related marked-to-market losses.
 
(ii)   The $72 million adverse reconciling item in unrecognised tax losses reflects losses arising where it is unlikely that relief for the losses will be available in future periods.
 
(iii)  The statement of financial position contains the following provisions in relation to open tax matters.
 
   
Half year 2020 $m
 
 
At beginning of period
 
198
 
  
Movements in the current period included in tax charge attributable to shareholders
 
(12)
 
  
Provisions utilised in the period
 
(34)
 
  
Other movements*
 
(3)
 
 
At end of period
 
149
 
* 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.
 
 
 
(iv)  Half year and full year 2019 actual tax rate of the relevant business operations are shown below:
 
 
 
   
Half year 2019 %
 
 
Full year 2019 %
 
   
Asia
operations
 
US
operations
 
Other
operations
 
Total
attributable to
shareholders
 
 
Asia
operations
 
US
operations
 
Other
operations
 
Total
attributable to
shareholders
 
 
Tax rate on adjusted operating profit (loss)
 
14%
 
17%
 
10%
 
16%
 
 
13%
 
14%
 
10%
 
15%
 
 
Tax rate on profit (loss) before tax
 
10%
 
35%
 
13%
 
0%
 
 
11%
 
48%
 
10%
 
(2)%
 
 
 
B5  Earnings per share
 
         
   
Half year 2020
 
   
Before
 tax
 
Tax    
 
Non-controlling interests
 
Net of tax
and non-
controlling interests
 
Basic
earnings
 per share
 
Diluted
 earnings
 per share
 
   
$m
 
$m
 
$m
 
$m
 
cents
 
cents
 
Based on adjusted operating profit
 
 
2,541
 
(467)
 
(22)
 
2,052
 
79.0¢
 
79.0¢
 
Short-term fluctuations in investment returns on shareholder-backed business
 
 
(2,706)
 
513
 
-
 
(2,193)
 
(84.4)¢
 
(84.4)¢
 
Amortisation of acquisition accounting adjustments
 
 
(18)
 
3
 
-
 
(15)
 
(0.6)¢
 
(0.6)¢
 
Gain (loss) attaching to corporate transactions
 
 
846
 
(178)
 
-
 
668
 
25.7¢
 
25.7¢
 
Based on profit for the period
 
 
663
 
(129)
 
(22)
 
512
 
19.7¢
 
19.7¢
 
         
   
Half year 2019
 
   
Before
 tax
 
Tax    
 
Non-controlling interests
 
Net of tax
and non-
controlling interests
 
Basic
earnings
 per share
 
Diluted
 earnings
 per share
 
   
$m
 
$m
 
$m
 
$m
 
cents
 
cents
 
Based on adjusted operating profit
 
 
2,619
 
(430)
 
(6)
 
2,183
 
84.5¢
 
84.5¢
 
Short-term fluctuations in investment returns on shareholder-backed business
 
 
(1,455)
 
407
 
-
 
(1,048)
 
(40.6)¢
 
(40.6)¢
 
Amortisation of acquisition accounting adjustments
 
 
(22)
 
4
 
-
 
(18)
 
(0.7)¢
 
(0.7)¢
 
Gain (loss) attaching to corporate transactions
 
 
17
 
18
 
-
 
35
 
1.4¢
 
1.4¢
 
Based on profit for the period from continuing operations
 
 
1,159
 
(1)
 
(6)
 
1,152
 
44.6¢
 
44.6¢
 
Based on profit for the period from discontinued operations
 
    
835
 
32.3¢
 
32.3¢
 
Based on profit for the period
 
    
1,987
 
76.9¢
 
76.9¢
 
                
 
 
   
Full year 2019
 
   
Before
 tax
 
Tax    
 
Non-controlling interests
 
Net of tax
and non-
controlling interests
 
Basic
earnings
 per share 
 
Diluted
 earnings
 per share
 
   
$m 
 
$m 
 
$m 
 
$m 
 
cents
 
cents
 
Based on adjusted operating profit
 
 
5,310
 
(773)
 
(9)
 
4,528
 
175.0¢
 
175.0¢
 
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)¢
 
Gain (loss) attaching to corporate transactions
 
 
(142)
 
24
 
-
 
(118)
 
(4.6)¢
 
(4.6)¢
 
Based on profit for the year from continuing operations
 
 
1,922
 
31
 
(9)
 
1,944
 
75.1¢
 
75.1¢
 
Based on loss for the year from discontinued operations
 
    
(1,161)
 
(44.8)¢
 
(44.8)¢
 
Based on profit for the year
 
    
783
 
30.3¢
 
30.3¢
 
 
 
Earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests.
 
 
The weighted average number of shares for calculating earnings per share, which excludes those held in employee share trusts and consolidated investment funds, is set out as below:
 
 
 
  
Number of shares (in millions)
 
  
2020
 
 
2019
 
Weighted average number of shares for calculation of:
 
Half year
 
 
Half year
 
Full year
 
Basic earnings per share
 
2,596
 
 
2,583
 
2,587
 
Shares under option at end of period
 
2
 
 
4
 
4
 
Shares that would have been issued at fair value on assumed option price
 
(2)
 
 
(3)
 
(4)
 
Diluted earnings per share
 
2,596
 
 
2,584
 
2,587
 
 
 
 
 
B6        Dividends
 
 
 
  
Half year 2020
 
 
Half year 2019
 
 
Full year 2019
 
 
Cents per share
 
$m
 
 
Cents per share
 
$m
 
 
Cents per share
 
$m
 
Dividends relating to reporting period:
 
 
 
      
 
First interim ordinary dividend
 
5.37¢
 
140
 
 
20.29¢
 
526
 
 
20.29¢
 
528
 
 
Second interim ordinary dividend
 
-
 
-
 
 
-
 
-
 
 
25.97¢
 
675
 
Total
 
5.37¢
 
140
 
 
20.29¢
 
526
 
 
46.26¢
 
1,203
 
Dividends paid in reporting period:
 
 
 
      
 
Current year first interim ordinary dividend
 
-
 
-
 
 
-
 
-
 
 
20.29¢
 
526
 
 
Second interim ordinary dividend for prior year
 
25.97¢
 
674
 
 
42.89¢
 
1,108
 
 
42.89¢
 
1,108
 
Total
 
25.97¢
 
674
 
 
42.89¢
 
1,108
 
 
63.18¢
 
1,634
 
 
 
In addition to the dividends shown in the 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 specie of $7,379 million.
 
 
 
Dividend per share
 
The 2020 first interim dividend of 5.37 cents per ordinary share will be paid on 28 September 2020 to shareholders in the UK on the register at 6.00pm BST and to shareholders on the Hong Kong branch register at 4.30pm Hong Kong time on 21 August 2020 (Record Date). Shareholders holding shares on the UK or Hong Kong share registers will continue to receive their dividend payments in either pounds sterling or Hong Kong dollars respectively, unless they elect otherwise. Shareholders holding shares on the UK or Hong Kong registers may elect to receive dividend payments in US dollars. Elections must be made through the relevant UK or Hong Kong share registrar on or before 7 September and 11 September 2020 respectively. The corresponding amount per share in pounds sterling and Hong Kong dollars is expected to be announced on or about 17 September 2020.The US dollar to pound sterling and Hong Kong dollar conversion rates will be determined by the actual rates achieved by Prudential buying those currencies during the two working days preceding the subsequent announcement. Holders of US American Depositary Receipts (US Shareholders) will be paid their dividends in US dollars on or about 28 September 2020. The 2020 first interim dividend will be paid on or about 5 October 2020 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). The exchange rate at which the dividend payable to the SG Shareholders will be translated from US dollars into Singapore dollars, will be determined by CDP.
 
 
Shareholders on the UK register are eligible to participate in a Dividend Reinvestment Plan.
 
 
 
C    FINANCIAL POSITION
 
C1  Group assets and liabilities by business type
 
 
The analysis below is structured to show the investments and other assets and liabilities of the Group by reference to the differing degrees of policyholder and shareholder economic interest of the different types of business.
 
The Group has streamlined its disclosures relating to the investments, other assets and liabilities of the Group in these condensed consolidated financial statements, including combining various disclosures into a single section within this note and 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 period's 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.
 
In 2020, to align more 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 30 June 2020 were $788 million (30 June 2019: $794 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 shown separately from the rating breakdowns in order to provide a more focused view of the credit portfolio.
 
 
 
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-.
 
 
 
   
30 Jun 2020 $m
 
   
Asia insurance
 
       
   
With
-profits
business
 
Unit-linked
assets and
liabilities
 
Other
business
 
Asia
Asset
manage-
ment
 
Elimina-
tions
 
Total
Asia
 
US
 
Unallocated
to a segment
 
Elimination
of intra-group
debtors
and
creditors
 
Group
total
 
   
note (i)
 
 
 
 
 
 
note (ii)
 
 
 
 
Debt securitiesnote (ix), note C1.1
 
 
 
 
 
 
 
 
 
 
 
Sovereign debt
 
 
 
 
 
 
 
 
 
 
 
 
Indonesia
 
381
 
580
 
455
 
-
 
-
 
1,416
 
-
 
-
 
-
 
1,416
 
 
Singapore
 
2,788
 
525
 
904
 
88
 
-
 
4,305
 
-
 
-
 
-
 
4,305
 
 
Thailand
 
-
 
-
 
1,567
 
16
 
-
 
1,583
 
-
 
-
 
-
 
1,583
 
 
United Kingdom
 
-
 
7
 
-
 
-
 
-
 
7
 
-
 
154
 
-
 
161
 
 
United States
 
24,656
 
23
 
2,356
 
-
 
-
 
27,035
 
5,371
 
-
 
-
 
32,406
 
 
Vietnam
 
-
 
14
 
2,789
 
-
 
-
 
2,803
 
-
 
-
 
-
 
2,803
 
 
Other (predominantly Asia)
 
1,816
 
687
 
3,216
 
13
 
-
 
5,732
 
19
 
140
 
-
 
5,891
 
Subtotal
 
29,641
 
1,836
 
11,287
 
117
 
-
 
42,881
 
5,390
 
294
 
-
 
48,565
 
Other government bonds
 
 
 
 
 
 
 
 
 
 
 
 
AAA
 
1,464
 
103
 
479
 
-
 
-
 
2,046
 
447
 
-
 
-
 
2,493
 
 
AA+ to AA-
 
353
 
34
 
101
 
-
 
-
 
488
 
519
 
-
 
-
 
1,007
 
 
A+ to A-
 
524
 
113
 
226
 
-
 
-
 
863
 
191
 
-
 
-
 
1,054
 
 
BBB+ to BBB-
 
466
 
88
 
248
 
8
 
-
 
810
 
2
 
-
 
-
 
812
 
 
Below BBB- and unrated
 
104
 
17
 
331
 
-
 
-
 
452
 
-
 
1
 
-
 
453
 
Subtotal
 
2,911
 
355
 
1,385
 
8
 
-
 
4,659
 
1,159
 
1
 
-
 
5,819
 
Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
 
AAA
 
1,122
 
270
 
504
 
-
 
-
 
1,896
 
265
 
-
 
-
 
2,161
 
 
AA+ to AA-
 
1,575
 
273
 
1,712
 
2
 
-
 
3,562
 
973
 
-
 
-
 
4,535
 
 
A+ to A-
 
6,670
 
808
 
4,723
 
-
 
-
 
12,201
 
11,792
 
-
 
-
 
23,993
 
 
BBB+ to BBB-
 
7,806
 
1,043
 
3,389
 
-
 
-
 
12,238
 
14,036
 
-
 
-
 
26,274
 
 
Below BBB- and unrated
 
2,835
 
655
 
945
 
3
 
-
 
4,438
 
2,046
 
7
 
-
 
6,491
 
Subtotal
 
20,008
 
3,049
 
11,273
 
5
 
-
 
34,335
 
29,112
 
7
 
-
 
63,454
 
Asset-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
AAA
 
108
 
16
 
23
 
-
 
-
 
147
 
2,227
 
-
 
-
 
2,374
 
 
AA+ to AA-
 
36
 
6
 
8
 
-
 
-
 
50
 
184
 
-
 
-
 
234
 
 
A+ to A-
 
17
 
-
 
25
 
-
 
-
 
42
 
575
 
-
 
-
 
617
 
 
BBB+ to BBB-
 
15
 
-
 
10
 
-
 
-
 
25
 
193
 
-
 
-
 
218
 
 
Below BBB- and unrated
 
6
 
-
 
-
 
-
 
-
 
6
 
175
 
-
 
-
 
181
 
Subtotal
 
182
 
22
 
66
 
-
 
-
 
270
 
3,354
 
-
 
-
 
3,624
 
Total debt securities
 
52,742
 
5,262
 
24,011
 
130
 
-
 
82,145
 
39,015
 
302
 
-
 
121,462
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loansnote C1.2
 
-
 
-
 
158
 
-
 
-
 
158
 
8,119
 
-
 
-
 
8,277
 
 
Policy loans
 
1,189
 
-
 
324
 
-
 
-
 
1,513
 
4,705
 
8
 
-
 
6,226
 
 
Other loans
 
389
 
-
 
18
 
-
 
-
 
407
 
-
 
-
 
-
 
407
 
Total loans
 
1,578
 
-
 
500
 
-
 
-
 
2,078
 
12,824
 
8
 
-
 
14,910
 
Equity securities and holdings in collective investment schemes
 
 
 
 
 
 
 
 
 
 
 
 
Direct equities
 
14,493
 
10,345
 
1,537
 
56
 
-
 
26,431
 
263
 
4
 
-
 
26,698
 
 
Collective investment schemes
 
13,455
 
6,097
 
4,175
 
10
 
-
 
23,737
 
36
 
7
 
-
 
23,780
 
 
US separate account assetsnote (iii)
 
-
 
-
 
-
 
-
 
-
 
-
 
184,220
 
-
 
-
 
184,220
 
Total equity securities and holdings in collective investment schemes
 
27,948
 
16,442
 
5,712
 
66
 
-
 
50,168
 
184,519
 
11
 
-
 
234,698
 
Other financial investmentsnote (iv)
 
991
 
572
 
1,817
 
97
 
-
 
3,477
 
3,827
 
75
 
-
 
7,379
 
Total financial Investments
 
83,259
 
22,276
 
32,040
 
293
 
-
 
137,868
 
240,185
 
396
 
-
 
378,449
 
Investment properties
 
-
 
-
 
7
 
-
 
-
 
7
 
7
 
9
 
-
 
23
 
Investments in joint ventures and associates accounted for using the equity method
 
-
 
-
 
1,268
 
239
 
-
 
1,507
 
-
 
-
 
-
 
1,507
 
Cash and cash equivalents
 
913
 
599
 
1,242
 
132
 
-
 
2,886
 
2,493
 
3,005
 
-
 
8,384
 
Reinsurers' share of insurance contract liabilitiesnote (v)
 
211
 
-
 
8,709
 
-
 
-
 
8,920
 
35,993
 
5
 
-
 
44,918
 
Other assetsnote (vi)
 
1,954
 
482
 
8,051
 
799
 
(33)
 
11,253
 
17,942
 
3,828
 
(3,139)
 
29,884
 
Total assets 
 
86,337
 
23,357
 
51,317
 
1,463
 
(33)
 
162,441
 
296,620
 
7,243
 
(3,139)
 
463,165
 
   
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
 
-
 
-
 
10,535
 
994
 
-
 
11,529
 
8,955
 
(1,374)
 
-
 
19,110
 
Non-controlling interests
 
-
 
-
 
2
 
159
 
-
 
161
 
-
 
36
 
-
 
197
 
Total equity
 
-
 
-
 
10,537
 
1,153
 
-
 
11,690
 
8,955
 
(1,338)
 
-
 
19,307
 
   
 
 
 
 
 
 
 
 
 
 
Contract liabilities and unallocated surplus of with-profits fundsnote (iii)
 
76,647
 
21,376
 
33,541
 
-
 
-
 
131,564
 
265,655
 
217
 
-
 
397,436
 
Core structural borrowings
 
-
 
-
 
-
 
-
 
-
 
-
 
250
 
6,249
 
-
 
6,499
 
Operational borrowings
 
243
 
15
 
111
 
25
 
-
 
394
 
1,212
 
639
 
-
 
2,245
 
Other liabilitiesnote (vii)
 
9,447
 
1,966
 
7,128
 
285
 
(33)
 
18,793
 
20,548
 
1,476
 
(3,139)
 
37,678
 
Total liabilities
 
86,337
 
23,357
 
40,780
 
310
 
(33)
 
150,751
 
287,665
 
8,581
 
(3,139)
 
443,858
 
Total equity and liabilities
 
86,337
 
23,357
 
51,317
 
1,463
 
(33)
 
162,441
 
296,620
 
7,243
 
(3,139)
 
463,165
 
 
 
   
30 Jun 2019 $m
 
   
Asia insurance
 
        
   
With
-profits
business
 
Unit-linked
assets and
liabilities
 
Other
business
 
Asia
Asset
manage-
ment
 
Elimina-
tions
 
Total
Asia
 
US
 
Unallocated
to a segment
 
Discontinued
operations
 
Elimination
of intra-group
debtors
and
creditors
 
Group
total
 
   
note (i)
 
     
note (ii)
 
    
Debt securitiesnote (ix), note C1.1
 
           
Sovereign debt
 
           
 
Indonesia
 
184
 
516
 
445
 
-
 
-
 
1,145
 
-
 
-
 
-
 
-
 
1,145
 
 
Singapore
 
2,188
 
376
 
649
 
47
 
-
 
3,260
 
-
 
-
 
-
 
-
 
3,260
 
 
Thailand
 
-
 
-
 
1,407
 
-
 
-
 
1,407
 
-
 
-
 
-
 
-
 
1,407
 
 
United Kingdom
 
-
 
6
 
-
 
-
 
-
 
6
 
-
 
1,248
 
-
 
-
 
1,254
 
 
United States
 
16,617
 
18
 
2,162
 
-
 
-
 
18,797
 
6,022
 
-
 
-
 
-
 
24,819
 
 
Vietnam
 
1
 
13
 
2,479
 
-
 
-
 
2,493
 
-
 
-
 
-
 
-
 
2,493
 
 
Other (predominantly Asia)
 
2,314
 
638
 
2,488
 
15
 
-
 
5,455
 
9
 
74
 
-
 
-
 
5,538
 
Subtotal
 
21,304
 
1,567
 
9,630
 
62
 
-
 
32,563
 
6,031
 
1,322
 
-
 
-
 
39,916
 
Other government bonds
 
           
 
AAA
 
1,658
 
44
 
440
 
-
 
-
 
2,142
 
966
 
-
 
-
 
-
 
3,108
 
 
AA+ to AA-
 
176
 
8
 
88
 
-
 
-
 
272
 
493
 
-
 
-
 
-
 
765
 
 
A+ to A-
 
826
 
136
 
319
 
-
 
-
 
1,281
 
262
 
-
 
-
 
-
 
1,543
 
 
BBB+ to BBB-
 
316
 
72
 
357
 
-
 
-
 
745
 
4
 
-
 
-
 
-
 
749
 
 
Below BBB- and unrated
 
22
 
4
 
341
 
-
 
-
 
367
 
-
 
-
 
-
 
-
 
367
 
Subtotal
 
2,998
 
264
 
1,545
 
-
 
-
 
4,807
 
1,725
 
-
 
-
 
-
 
6,532
 
Corporate bonds
 
           
 
AAA
 
700
 
179
 
550
 
-
 
-
 
1,429
 
362
 
262
 
-
 
-
 
2,053
 
 
AA+ to AA-
 
1,769
 
527
 
1,735
 
-
 
-
 
4,031
 
1,498
 
169
 
-
 
-
 
5,698
 
 
A+ to A-
 
5,464
 
536
 
4,480
 
-
 
-
 
10,480
 
17,184
 
182
 
-
 
-
 
27,846
 
 
BBB+ to BBB-
 
5,577
 
893
 
2,898
 
-
 
-
 
9,368
 
23,042
 
25
 
-
 
-
 
32,435
 
 
Below BBB- and unrated
 
2,669
 
595
 
454
 
-
 
-
 
3,718
 
2,091
 
6
 
-
 
-
 
5,815
 
Subtotal
 
16,179
 
2,730
 
10,117
 
-
 
-
 
29,026
 
44,177
 
644
 
-
 
-
 
73,847
 
Asset-backed securities
 
           
 
AAA
 
231
 
22
 
91
 
-
 
-
 
344
 
3,357
 
401
 
-
 
-
 
4,102
 
 
AA+ to AA-
 
53
 
3
 
16
 
-
 
-
 
72
 
694
 
-
 
-
 
-
 
766
 
 
A+ to A-
 
20
 
-
 
21
 
-
 
-
 
41
 
1,024
 
-
 
-
 
-
 
1,065
 
 
BBB+ to BBB-
 
-
 
-
 
-
 
-
 
-
 
-
 
335
 
-
 
-
 
-
 
335
 
 
Below BBB- and unrated
 
22
 
-
 
7
 
-
 
-
 
29
 
264
 
-
 
-
 
-
 
293
 
Subtotal
 
326
 
25
 
135
 
-
 
-
 
486
 
5,674
 
401
 
-
 
-
 
6,561
 
Total debt securities
 
40,807
 
4,586
 
21,427
 
62
 
-
 
66,882
 
57,607
 
2,367
 
-
 
-
 
126,856
 
Loans
 
           
 
Mortgage loansnote C1.2
 
-
 
-
 
179
 
-
 
-
 
179
 
9,655
 
-
 
-
 
-
 
9,834
 
 
Policy loans
 
996
 
-
 
296
 
-
 
-
 
1,292
 
4,692
 
-
 
-
 
-
 
5,984
 
 
Other loans
 
80
 
-
 
19
 
-
 
-
 
99
 
-
 
8
 
-
 
-
 
107
 
Total loans
 
1,076
 
-
 
494
 
-
 
-
 
1,570
 
14,347
 
8
 
-
 
-
 
15,925
 
Equity securities and holdings in collective investment schemes
 
           
 
Direct equities
 
15,316
 
13,100
 
1,386
 
-
 
-
 
29,802
 
160
 
65
 
-
 
-
 
30,027
 
 
Collective investment schemes
 
11,890
 
5,223
 
1,518
 
52
 
-
 
18,683
 
128
 
2
 
-
 
-
 
18,813
 
 
US separate account assetsnote (iii)
 
-
 
-
 
-
 
-
 
-
 
-
 
184,917
 
-
 
-
 
-
 
184,917
 
Total equity securities and holdings in collective investment schemes
 
27,206
 
18,323
 
2,904
 
52
 
-
 
48,485
 
185,205
 
67
 
-
 
-
 
233,757
 
Other financial investmentsnote (iv)
 
511
 
626
 
800
 
93
 
-
 
2,030
 
2,342
 
301
 
-
 
-
 
4,673
 
Total financial Investments
 
69,600
 
23,535
 
25,625
 
207
 
-
 
118,967
 
259,501
 
2,743
 
-
 
-
 
381,211
 
Investment properties
 
-
 
-
 
7
 
-
 
-
 
7
 
7
 
-
 
-
 
-
 
14
 
Investments in joint ventures and associates accounted for using the equity method
 
-
 
-
 
1,092
 
219
 
-
 
1,311
 
-
 
-
 
-
 
-
 
1,311
 
Cash and cash equivalents
 
680
 
509
 
1,500
 
139
 
-
 
2,828
 
1,506
 
2,294
 
-
 
-
 
6,628
 
Reinsurers' share of insurance contract liabilitiesnote (v)
 
105
 
-
 
4,502
 
-
 
-
 
4,607
 
8,308
 
4
 
-
 
-
 
12,919
 
Assets held for distributionnote (viii)
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
281,427
 
(3,566)
 
277,861
 
Other assetsnote (vi)
 
3,288
 
401
 
6,572
 
542
 
(44)
 
10,759
 
16,416
 
3,269
 
-
 
(4,443)
 
26,001
 
Total assets 
 
73,673
 
24,445
 
39,298
 
1,107
 
(44)
 
138,479
 
285,738
 
8,310
 
281,427
 
(8,009)
 
705,945
 
              
Shareholders' equity
 
-
 
-
 
9,005
 
722
 
-
 
9,727
 
8,594
 
(3,822)
 
10,538
 
-
 
25,037
 
Non-controlling interests
 
-
 
-
 
2
 
15
 
-
 
17
 
-
 
12
 
-
 
-
 
29
 
Total equity
 
-
 
-
 
9,007
 
737
 
-
 
9,744
 
8,594
 
(3,810)
 
10,538
 
-
 
25,066
 
              
Contract liabilities and unallocated surplus of with-profits fundsnote (iii)
 
65,004
 
22,392
 
23,470
 
-
 
-
 
110,866
 
257,279
 
61
 
-
 
(1,526)
 
366,680
 
Core structural borrowings
 
-
 
-
 
-
 
-
 
-
 
-
 
250
 
9,220
 
-
 
-
 
9,470
 
Operational borrowings
 
303
 
46
 
112
 
17
 
-
 
478
 
1,017
 
926
 
-
 
-
 
2,421
 
Liabilities held for distributionnote (viii)
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
270,889
 
(1,857)
 
269,032
 
Other liabilitiesnote (vii)
 
8,367
 
2,007
 
6,709
 
353
 
(45)
 
17,391
 
18,598
 
1,913
 
-
 
(4,626)
 
33,276
 
Total liabilities
 
73,674
 
24,445
 
30,291
 
370
 
(45)
 
128,735
 
277,144
 
12,120
 
270,889
 
(8,009)
 
680,879
 
Total equity and liabilities
 
73,674
 
24,445
 
39,298
 
1,107
 
(45)
 
138,479
 
285,738
 
8,310
 
281,427
 
(8,009)
 
705,945
 
 
 
   
31 Dec 2019 $m
 
   
Asia insurance
 
       
 
With
-profits
business
 
Unit-linked
assets and
liabilities
 
Other
business
 
Asia
Asset
manage-
ment
 
Elimina-
tions
 
Total
Asia
 
US
 
Unallocated
to a segment
 
Elimination
of intra-group
debtors
and
creditors
 
Group
total
 
   
note (i)
 
     
note (ii)
 
   
Debt securitiesnote (ix), 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 (iii)
 
-
 
-
 
-
 
-
 
-
 
-
 
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 Investments
 
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 equivalents
 
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 (vi)
 
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 (iii)
 
70,308
 
23,571
 
26,814
 
-
 
-
 
120,693
 
269,549
 
186
 
-
 
390,428
 
Core structural borrowings
 
-
 
-
 
-
 
-
 
-
 
-
 
250
 
5,344
 
-
 
5,594
 
Operational borrowings
 
302
 
21
 
123
 
27
 
-
 
473
 
1,501
 
671
 
-
 
2,645
 
Other liabilitiesnote (vii)
 
8,363
 
1,629
 
7,816
 
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
 
 
 
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:
 
 
 
  
30 Jun 2020 $m
 
 
2019 $m
 
  
Insurance
 
Asset
management
 
Total
 
 
30 Jun
Total
 
31 Dec
Total
 
 
Shareholders' equity
 
8,943
 
12
 
8,955
 
 
8,594
 
8,929
 
 
 
(iii)  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.
 
(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 30 June 2020 also includes amounts ceded in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.
 
(vi)  Of total 'Other assets' at 30 June 2020, there are:
 
- Property, plant and equipment (PPE) of $964 million (30 June 2019: $999 million; 31 December 2019: $1,065 million). During the period, the Group made additions of $51 million of PPE (half year 2019: $107 million; full year 2019: $160 million), of which $8 million relates to right-of-use assets (half year 2019: $86 million; full year 2019: $96 million).
 
- Premiums receivable of $778 million (30 June 2019: $718 million; 31 December 2019: $794 million), of which $734 million (30 June 2019: $652 million; 31 December 2019: $738 million) are due within one year.
 
(vii) Within 'Other liabilities' at 30 June 2020 is accruals, deferred income and other liabilities of $16,209 million (30 June 2019: $13,487 million; 31 December 2019: $14,488 million), of which $11,213 million (30 June 2019: $8,555 million; 31 December 2019: $9,172 million) are due within one year.
 
(viii)        Assets and liabilities held for distribution at 30 June 2019 related to the Group's UK and Europe operations (M&G plc) which were demerged in October 2019.
 
(ix)  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.
 
 
 
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.
 
 
 
(a)   Holdings by consolidated investment funds of the Group
Of the $121,462 million of Group's debt securities at 30 June 2020 (30 June 2019: $126,856 million; 31 December 2019: $134,570 million), the following amounts were held by the consolidated investment funds of the Group:
 
 
 
 
30 Jun 2020 $m
 
 
2019 $m
 
 
Asia
 
US
 
Group total
 
 
30 Jun
 
31 Dec
 
Debt securities held by consolidated investment funds
 
17,219
 
1,244
 
18,463
 
 
21,914
 
22,113
 
 
 
(b)   Additional analysis of US debt securities
Debt securities for US operations included in the statement of financial position comprise:
 
 
 
  
2020 $m 
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
Available-for-sale
 
37,597
 
 
56,225
 
57,091
 
Fair value through profit and loss
 
1,418
 
 
1,382
 
1,437
 
Total US debt securities
 
39,015
 
 
57,607
 
58,528
 
 
 
The corporate bonds held by the US insurance operations comprise:
 
 
 
  
2020 $m 
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
Publicly traded and SEC Rule 144A securities*
 
21,215
 
 
34,895
 
34,781
 
Non-SEC Rule 144A securities
 
7,897
 
 
9,282
 
9,842
 
Total US corporate bonds
 
29,112
 
 
44,177
 
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 rule was designed to develop a more liquid and efficient institutional resale market for unregistered securities.
 
 
 
(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 $3,219 million at 30 June 2020 is analysed in the table below.
 
 
 
  
 
Changes in unrealised
 appreciation reflected in
 other comprehensive income
 
 
  
30 Jun 2020 $m
 
Gains recycled to income statement on transfer of debt securities to Athene
 
Unrealised
gains (losses)
arising in
the period
 
31 Dec 2019 $m
 
  
 
note D1
 
 
 
Assets fair valued at below book value
 
 
 
 
 
 
Book value*
 
2,188
 
 
 
3,121
 
 
Unrealised gain (loss)
 
(109)
 
 
(82)
 
(27)
 
 
Fair value (as included in statement of financial position)
 
2,079
 
 
 
3,094
 
Assets fair valued at or above book value
 
 
 
 
 
 
Book value*
 
32,190
 
 
 
50,474
 
 
Unrealised gain (loss)
 
3,328
 
(2,817)
 
2,622
 
3,523
 
 
Fair value (as included in statement of financial position)
 
35,518
 
 
 
53,997
 
Total
 
 
 
 
 
 
Book value*
 
34,378
 
 
 
53,595
 
 
Net unrealised gain (loss)
 
3,219
 
(2,817)
 
2,540
 
3,496
 
 
Fair value (as included in the footnote above in the overview table and the statement of financial position)
 
37,597
 
 
 
57,091
 
*  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 debt securities in a gross unrealised loss position for various percentages of book value:
 
 
 
  
30 Jun 2020 $m
 
 
30 Jun 2019 $m
 
 
31 Dec 2019 $m
 
  
Fair
value
 
Unrealised
loss
 
 
Fair
value
 
Unrealised
loss
 
 
Fair
value
 
Unrealised
loss
 
Between 90% and 100%
 
1,871
 
(62)
 
 
2,827
 
(41)
 
 
3,083
 
(25)
 
Between 80% and 90%
 
111
 
(17)
 
 
48
 
(7)
 
 
11
 
(2)
 
Below 80%
 
97
 
(30)
 
 
40
 
(15)
 
 
-
 
-
 
Total
 
2,079
 
(109)
 
 
2,915
 
(63)
 
 
3,094
 
(27)
 
 
 
(ii)   Unrealised losses by maturity of security
 
 
 
  
2020 $m 
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
1 year to 5 years
 
(30)
 
 
(3)
 
(1)
 
5 years to 10 years
 
(39)
 
 
(13)
 
(12)
 
More than 10 years
 
(20)
 
 
(24)
 
(7)
 
Mortgage-backed and other debt securities
 
(20)
 
 
(23)
 
(7)
 
Total
 
(109)
 
 
(63)
 
(27)
 
 
 
(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:
 
 
 
            
 
30 Jun 2020 $m
 
 
 
30 Jun 2019 $m
 
 
31 Dec 2019 $m
 
Age analysis
 
Non-
investment
grade
 
Investment
grade*
 
Total
 
 
Non-
investment
grade
 
Investment
grade*
 
Total
 
 
Non-
investment
grade
 
Investment
grade*
 
Total
 
Less than 6 months
 
(24)
 
(80)
 
(104)
 
 
(1)
 
(5)
 
(6)
 
 
(1)
 
(20)
 
(21)
 
6 months to 1 year
 
(3)
 
(1)
 
(4)
 
 
(1)
 
(18)
 
(19)
 
 
(1)
 
(1)
 
(2)
 
1 year to 2 years
 
-
 
-
 
-
 
 
(1)
 
(11)
 
(12)
 
 
-
 
(1)
 
(1)
 
2 years to 3 years
 
(1)
 
-
 
(1)
 
 
-
 
(13)
 
(13)
 
 
-
 
(1)
 
(1)
 
More than 3 years
 
-
 
-
 
-
 
 
-
 
(13)
 
(13)
 
 
-
 
(2)
 
(2)
 
Total
 
(28)
 
(81)
 
(109)
 
 
(3)
 
(60)
 
(63)
 
 
(2)
 
(25)
 
(27)
 
* 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:
 
 
 
 
30 Jun 2020 $m
 
 
30 Jun 2019 $m
 
 
31 Dec 2019 $m
 
Age analysis
 
Fair
value
 
Unrealised
loss
 
 
Fair
value
 
Unrealised
loss
 
 
Fair
value
 
Unrealised
loss
 
Less than 3 months
 
60
 
(17)
 
 
33
 
(13)
 
 
-
 
-
 
3 months to 6 months
 
37
 
(13)
 
 
7
 
(2)
 
 
-
 
-
 
Total below 80%
 
97
 
(30)
 
 
40
 
(15)
 
 
-
 
-
 
 
 
(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:
 
 
 
  
2020 $m 
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
RMBS
 
    
 
Sub-prime (30 Jun 2020: 2% AAA)
 
35
 
 
112
 
93
 
 
Alt-A (30 Jun 2020: 35% AAA, 39% A)
 
14
 
 
129
 
116
 
 
Prime including agency (30 Jun 2020: 85% AAA, 6% AA, 5% A)
 
263
 
 
736
 
862
 
CMBS (30 Jun 2020: 86% AAA, 5% AA, 3% A)
 
1,646
 
 
2,884
 
3,080
 
CDO funds (30 Jun 2020: 81% AAA, 9% AA, 5% A), $nil exposure to sub-prime
 
397
 
 
449
 
696
 
Other ABS (30 Jun 2020: 26% AAA, 5% AA, 48% A), $35 million exposure to sub-prime
 
999
 
 
1,364
 
1,168
 
Total US asset-backed securities
 
3,354
 
 
5,674
 
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.
 
 
Exposure to bank debt securities
 
 
 
 
30 Jun 2020 $m
 
 
2019 $m
 
 
Senior debt
 
 
Subordinated debt
 
 
Group
total
 
 
30 Jun
 
31 Dec
 
 
Total
 
 
Tier 1
 
Tier 2
 
Total
 
 
 
 
Group total
 
Group total
 
Shareholder-backed business
 
 
 
 
 
 
 
 
   
Asia
 
549
 
 
572
 
329
 
901
 
 
1,450
 
 
858
 
993
 
Eurozone
 
223
 
 
-
 
26
 
26
 
 
249
 
 
410
 
337
 
United Kingdom
 
352
 
 
7
 
91
 
98
 
 
450
 
 
892
 
723
 
United States
 
1,565
 
 
5
 
52
 
57
 
 
1,622
 
 
3,037
 
3,134
 
Other
 
259
 
 
-
 
137
 
137
 
 
396
 
 
693
 
647
 
Total
 
2,948
 
 
584
 
635
 
1,219
 
 
4,167
 
 
5,890
 
5,834
 
 
 
 
 
 
 
 
 
   
With-profits funds 
 
 
 
 
 
 
 
 
   
Asia
 
534
 
 
87
 
572
 
659
 
 
1,193
 
 
1,198
 
1,130
 
Eurozone
 
77
 
 
-
 
101
 
101
 
 
178
 
 
129
 
131
 
United Kingdom
 
182
 
 
1
 
105
 
106
 
 
288
 
 
146
 
155
 
United States
 
670
 
 
2
 
15
 
17
 
 
687
 
 
25
 
34
 
Other
 
116
 
 
-
 
262
 
262
 
 
378
 
 
256
 
284
 
Total
 
1,579
 
 
90
 
1,055
 
1,145
 
 
2,724
 
 
1,754
 
1,734
 
 
 
C1.2  Additional analysis of US mortgage loans
 
In the US, mortgage loans of $8,119 million at 30 June 2020 (30 June 2019: $9,655 million; 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 $18.6 million (30 June 2019: $18.7 million; 31 December 2019: $19.3 million). The portfolio has a current estimated average loan to value of 55 per cent (30 June 2019: 53 per cent; 31 December 2019: 54 per cent).
 
At 30 June 2020, Jackson had mortgage loans with a carrying value of $947 million where the contractual terms of the agreements had been restructured to grant forbearance for a period of no longer than six months (30 June and 31 December 2019: nil). 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 half year 2020 as the expected cash flows and interest rate did not materially change under the restructured terms.
 
 
 
C2    Fair value measurement
 
(a)   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.
 
Other than the loans which have been designated at fair value through profit or loss, the carrying value of loans and receivables is presented net of provisions for impairment. The fair value of loans is estimated from discounted cash flows expected to be received. The discount rate used is updated for the market rate of interest where applicable.
 
The fair value of the subordinated and senior debt issued by the parent company is determined using quoted prices from independent third parties.
 
The fair value of financial liabilities (other than subordinated debt, senior debt and derivative financial instruments) is determined using discounted cash flows of the amounts expected to be paid.
 

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. For further detail on the valuation approach for level 2 fair valued assets and liabilities, refer to note C3.1 of the Group IFRS financial statement for the year ended 31 December 2019.
 
 
 
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 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.
 
 
 
(b)   Fair value measurement hierarchy of Group assets and liabilities
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 $37,752 million (30 June 2019: $56,225 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 30 June 2020, the Group did not have any financial instruments that are measured at fair value on a non-recurring basis.
 
 
 
Financial instruments at fair value
 
 
 
  
30 Jun 2020 $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
 
Loans
 
-
 
-
 
3,606
 
3,606
 
Equity securities and holdings in collective investment schemes
 
230,670
 
3,554
 
474
 
234,698
 
Debt securities
 
64,300
 
57,091
 
71
 
121,462
 
Other investments (including derivative assets)
 
109
 
2,350
 
1,569
 
4,028
 
Derivative liabilities
 
(65)
 
(402)
 
-
 
(467)
 
Total financial investments, net of derivative liabilities
 
295,014
 
62,593
 
5,720
 
363,327
 
Investment contract liabilities without discretionary participation features held at fair value
 
-
 
(936)
 
-
 
(936)
 
Net asset value attributable to unit holders of consolidated investment funds
 
(5,521)
 
(8)
 
(438)
 
(5,967)
 
Other financial liabilities held at fair value
 
-
 
-
 
(3,743)
 
(3,743)
 
Total financial instruments at fair value
 
289,493
 
61,649
 
1,539
 
352,681
 
Percentage of total (%)
 
82%
 
18%
 
0%
 
100%
 
      
Analysed by business type:
 
    
Financial investments, net of derivative liabilities at fair value:
 
    
 
With-profits
 
67,290
 
12,963
 
314
 
80,567
 
 
Unit-linked and variable annuity separate account
 
204,723
 
1,208
 
-
 
205,931
 
 
Non-linked shareholder-backed business
 
23,001
 
48,422
 
5,406
 
76,829
 
Total financial investments, net of derivative liabilities at fair value
 
295,014
 
62,593
 
5,720
 
363,327
 
Other financial liabilities at fair value
 
(5,521)
 
(944)
 
(4,181)
 
(10,646)
 
Group total financial instruments at fair value
 
289,493
 
61,649
 
1,539
 
352,681
 
 
 
  
30 Jun 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
 
Loans
 
-
 
-
 
3,562
 
3,562
 
Equity securities and holdings in collective investment schemes
 
230,817
 
2,723
 
217
 
233,757
 
Debt securities
 
61,763
 
65,085
 
8
 
126,856
 
Other investments (including derivative assets)
 
190
 
1,361
 
1,224
 
2,775
 
Derivative liabilities
 
(66)
 
(675)
 
(579)
 
(1,320)
 
Total financial investments, net of derivative liabilities
 
292,704
 
68,494
 
4,432
 
365,630
 
Investment contract liabilities without discretionary participation features held at fair value
 
-
 
(847)
 
-
 
(847)
 
Net asset value attributable to unit holders of consolidated investment funds
 
(4,432)
 
-
 
-
 
(4,432)
 
Other financial liabilities held at fair value
 
-
 
(6)
 
(3,922)
 
(3,928)
 
Total financial instruments at fair value
 
288,272
 
67,641
 
510
 
356,423
 
Percentage of total (%)
 
81%
 
19%
 
0%
 
100%
 
      
Analysed by business type:
 
    
Financial investments, net of derivative liabilities at fair value:
 
    
 
With-profits
 
61,541
 
6,451
 
203
 
68,195
 
 
Unit-linked and variable annuity separate account
 
206,548
 
1,256
 
-
 
207,804
 
 
Non-linked shareholder-backed business
 
24,615
 
60,787
 
4,229
 
89,631
 
Total financial investments, net of derivative liabilities at fair value
 
292,704
 
68,494
 
4,432
 
365,630
 
Other financial liabilities at fair value
 
(4,432)
 
(853)
 
(3,922)
 
(9,207)
 
Group total financial instruments at fair value
 
288,272
 
67,641
 
510
 
356,423
 
 
 
  
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
 
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
 
 
 
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 other liabilities are excluded from the analysis below. These are carried at amortised cost, which approximates fair value.
 
 
 
 
2020 $m
 
 
 
2019 $m
 
 
 
30 Jun
 
 
30 Jun
 
 
31 Dec
 
 
Carrying
 value
 
Fair
value
 
 
Carrying
 value
 
Fair
value
 
 
Carrying
 value
 
Fair
value
 
Assets
 
 
 
      
Loans
 
11,304
 
11,435
 
 
12,363
 
12,740
 
 
12,996
 
13,511
 
Liabilities
 
 
 
      
Investment contract liabilities without discretionary participation features
 
(3,730)
 
(3,793)
 
 
(3,986)
 
(3,996)
 
 
(3,891)
 
(3,957)
 
Core structural borrowings of shareholder-financed businesses
 
(6,499)
 
(7,087)
 
 
(9,470)
 
(10,248)
 
 
(5,594)
 
(6,227)
 
Operational borrowings (excluding lease liabilities)
 
(1,703)
 
(1,703)
 
 
(1,858)
 
(1,857)
 
 
(2,015)
 
(2,015)
 
Obligations under funding, securities lending and sale and repurchase agreements
 
(9,085)
 
(9,442)
 
 
(8,598)
 
(8,769)
 
 
(8,901)
 
(9,135)
 
Total
 
(9,713)
 
(10,590)
 
 
(11,549)
 
(12,130)
 
 
(7,405)
 
(7,823)
 
         
(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 the beginning of the period to that presented at the end of the period.
 
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.
 
 
 
  
Half year 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 beginning of period
 
3,587
 
276
 
6
 
1,301
 
(2)
 
(3,760)
 
1,408
 
Total gains (losses) in income statement*
 
120
 
(44)
 
(6)
 
(170)
 
134
 
(91)
 
(57)
 
Total gains (losses) recorded in other comprehensive income
 
-
 
(4)
 
-
 
-
 
-
 
-
 
(4)
 
Purchases and other additions
 
-
 
348
 
20
 
484
 
(583)
 
-
 
269
 
Sales
 
-
 
(102)
 
(2)
 
(46)
 
13
 
-
 
(137)
 
Issues
 
52
 
-
 
-
 
-
 
-
 
(53)
 
(1)
 
Settlements
 
(153)
 
-
 
-
 
-
 
-
 
161
 
8
 
Transfers into level 3
 
-
 
-
 
53
 
-
 
-
 
-
 
53
 
Balance at end of period
 
3,606
 
474
 
71
 
1,569
 
(438)
 
(3,743)
 
1,539
 
 
 
  
Half year 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 beginning of period
 
6,054
 
656
 
1,505
 
6,714
 
(539)
 
(2,045)
 
(1,258)
 
(4,335)
 
6,752
 
Reclassification to held for distribution
 
(2,509)
 
(440)
 
(1,498)
 
(5,513)
 
-
 
2,045
 
1,258
 
451
 
(6,206)
 
Total gains (losses) in income statement*
 
118
 
(2)
 
6
 
19
 
(19)
 
-
 
-
 
(140)
 
(18)
 
Total gains (losses) recorded in other comprehensive income
 
1
 
-
 
1
 
(12)
 
(21)
 
-
 
-
 
(10)
 
(41)
 
Purchases
 
-
 
3
 
-
 
164
 
-
 
-
 
-
 
-
 
167
 
Sales
 
-
 
-
 
(6)
 
(148)
 
-
 
-
 
-
 
-
 
(154)
 
Issues
 
34
 
-
 
-
 
-
 
-
 
-
 
-
 
(46)
 
(12)
 
Settlements
 
(136)
 
-
 
-
 
-
 
-
 
-
 
-
 
158
 
22
 
Balance at end of period
 
3,562
 
217
 
8
 
1,224
 
(579)
 
-
 
-
 
(3,922)
 
510
 
 
 
     
Full year 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 beginning of year
 
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 end of year
 
3,587
 
276
 
6
 
1,301
 
-
 
-
 
(2)
 
(3,760)
 
1,408
 
* Of the total net gains and (losses) in the income statement of $(57) million at half year 2020 (half year 2019: $(18) million for continuing operations; full year 2019: $537 million), $(103) million (half year 2019: $12 million; full year 2019: $19 million) relates to net unrealised gains and losses of financial instruments still held at the end of the period, which can be analysed as follows:
 
  
2020 $m
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
 
Equity securities and holdings in collective investment schemes
 
(72)
 
 
(2)
 
(11)
 
 
Debt securities
 
(5)
 
 
-
 
-
 
 
Other investments
 
(157)
 
 
51
 
34
 
 
Derivative liabilities
 
-
 
 
(19)
 
-
 
 
Net asset value attributable to unit holders of consolidated investment funds
 
132
 
 
-
 
-
 
 
Other financial liabilities
 
(1)
 
 
(18)
 
(4)
 
 
Total
 
(103)
 
 
12
 
19
 
 
 
At 30 June 2020, the Group held $1,539 million (30 June 2019: $510 million; 31 December 2019: $1,408 million) of net financial instruments at fair value within level 3. This represents less than 0.5 per cent (30 June 2019: 0.5 per cent of continuing operations; 31 December 2019: 1 per cent) of the total fair valued financial assets net of financial liabilities.

 
Included within these net assets and liabilities are policy loans of $3,606 million at 30 June 2020 (30 June 2019: $3,562 million; 31 December 2019: $3,587 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 $3,743 million at 30 June 2020 (30 June 2019: $3,758 million; 31 December 2019: $3,760 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 offset and therefore their movements have no impact on shareholders' profit and equity.
 
Excluding the loans and funds withheld liability under Jackson's REALIC reinsurance arrangements as described above, which amounted to a net liability at 30 June 2020 of $(137) million (30 June 2019: $(196) million; 31 December 2019: $(173) million), the level 3 fair valued financial assets net of financial liabilities were a net asset of $1,676 million at 30 June 2020 (30 June 2019: $706 million; 31 December 2019: $1,581 million). Of this amount, equity securities of $2 million are internally valued, representing less than 0.1 per cent of the total fair valued financial assets net of financial liabilities (30 June and 31 December 2019: nil). Internal valuations are inherently more subjective than external valuations.
 
Level 3 financial assets net of financial liabilities comprise the following:
 

-      Private equity investments in both equity securities and limited partnerships within other financial investments of $1,687 million (30 June 2019: $1,224 million; 31 December 2019: $1,301 million) consisting of investments held by Jackson which are primarily externally valued in accordance with International Private Equity and Venture Capital Association guidelines using the proportion of the company's investment in each fund as shown in external valuation reports;
 
-      Equity securities and holdings in collective investment schemes of $356 million (30 June 2019: $217 million; 31 December 2019: $276 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;
 
-      Liabilities of $(438) million (30 June 2019: nil; 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 $71 million (30 June 2019: net liability of $(735) million of which $(574) million represent derivative liabilities; 31 December 2019: net asset of $6 million).
 
 
Of the net asset of $1,676 million at 30 June 2020 (30 June 2019: $706 million; 31 December 2019: $1,581 million) referred to above:
 
 
-      A net asset of $314 million (30 June 2019: $202 million; 31 December 2019: $258 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 $1,362 million (30 June 2019: $504 million; 31 December 2019: $1,323 million) is held to support non-linked shareholder-backed business. The majority of these instruments ($1,360 million out of the $1,362 million) are externally valued and are therefore inherently less subjective than internal valuations. These instruments consist primarily of private equity investments held by Jackson as described above. If the value of all these Level 3 financial instruments decreased by 10 per cent, the change in valuation would be $(136) million (30 June 2019: $(51) million; 31 December 2019: $(132) 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 operating profit.
 
 
 
(d)   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 half year 2020, the transfers between levels within the Group's portfolio, were primarily transfers from level 1 to level 2 of $4,232 million and transfers from level 2 to level 1 of $1,843 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 transfers into level 3 of $53 million in the period.
 
 
 
C3  Policyholder liabilities and unallocated surplus
 
C3.1  Group overview
 
(i)    Analysis of movements in policyholder liabilities and unallocated surplus of with-profits fundsnotes (a),(b)
 
 
 
  
Half year 2020 $m
 
  
Asia
 
US
 
Total
 
  
note C3.2
 
note C3.3
 
 
At 1 January 2020
 
132,570
 
269,549
 
402,119
 
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
 
 
- 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
 
Net flows:
 
 
 
 
 
Premiums
 
9,746
 
8,865
 
18,611
 
 
Surrenders
 
(2,083)
 
(7,455)
 
(9,538)
 
 
Maturities/deaths
 
(1,153)
 
(1,793)
 
(2,946)
 
Net flowsnote (d)
 
6,510
 
(383)
 
6,127
 
Shareholders' transfers post-tax
 
(54)
 
-
 
(54)
 
Investment-related items and other movements
 
6,526
 
(3,511)
 
3,015
 
Foreign exchange translation differences
 
(1,580)
 
-
 
(1,580)
 
At 30 June 2020
 
143,972
 
265,655
 
409,627
 
Comprising:
 
   
 
- Policyholder liabilities on the consolidated statement of financial position
 
   
 
(excludes $217 million classified as unallocated to a segment)
 
126,052
 
265,655
 
391,707
 
 
- Unallocated surplus of with-profits funds on the consolidated statement of financial position
 
5,512
 
-
 
5,512
 
 
- Group's share of policyholder liabilities of joint ventures and associatenote (d)
 
12,408
 
-
 
12,408
 
 
 
  
Half year 2019 $m
 
  
Asia
 
US
 
Discontinued
UK and
Europe
 
Total
 
 
note C3.2
 
note C3.3
 
  
At 1 January 2019
 
105,408
 
236,380
 
210,002
 
551,790
 
Comprising:
 
    
 
- Policyholder liabilities on the consolidated statement of financial position
 
    
 
(excludes $50 million classified as unallocated to a segment)note (c)
 
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
 
 
- Group's share of policyholder liabilities of joint ventures and associatenote (d)
 
10,374
 
-
 
-
 
10,374
 
     
Reclassification of UK and Europe liabilities as held for distribution
 
-
 
-
 
(210,002)
 
(210,002)
 
Net flows:
 
    
 
Premiums
 
9,800
 
9,136
 
-
 
18,936
 
 
Surrenders
 
(1,982)
 
(8,279)
 
-
 
(10,261)
 
 
Maturities/deaths
 
(1,278)
 
(1,744)
 
-
 
(3,022)
 
Net flowsnote (d)
 
6,540
 
(887)
 
-
 
5,653
 
Shareholders' transfers post-tax
 
(49)
 
-
 
-
 
(49)
 
Investment-related items and other movements
 
7,947
 
21,786
 
-
 
29,733
 
Foreign exchange translation differences
 
547
 
-
 
-
 
547
 
At 30 June 2019
 
120,393
 
257,279
 
-
 
377,672
 
Comprising:
 
    
 
- Policyholder liabilities on the consolidated statement of financial position
 
    
 
(excludes $61 million classified as unallocated to a segment)note (c)
 
105,593
 
257,279
 
-
 
362,872
 
 
- Unallocated surplus of with-profits funds on the consolidated statement of financial position
 
3,747
 
-
 
-
 
3,747
 
 
- Group's share of policyholder liabilities of joint ventures and associatenote (d)
 
11,053
 
-
 
-
 
11,053
 
Average policyholder liability balancesnote (e)
 
    
 
Half year 2020
 
133,141
 
267,602
 
-
 
400,743
 
 
Half year 2019
 
109,428
 
246,830
 
-
 
356,258
 
 
 
Notes 
 
(a)   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 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 opening and closing policyholder liabilities of the Asia insurance operations for half year 2019 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.
 
(d)   Including net flows of the Group's insurance joint ventures and associate. The Group's investment in joint ventures and associate 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.
 
(e)   Average policyholder liabilities have been based on opening and closing balances, adjusted for acquisitions, disposals and other 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
 
 
 
 
Half year 2020 $m
 
 
Asia
 
US
 
Total
 
At 1 January 2020
 
62,262
 
269,549
 
331,811
 
Net flows:
 
 
 
 
   Premiums
 
5,155
 
8,865
 
14,020
 
   Surrenders
 
(1,702)
 
(7,455)
 
(9,157)
 
   Maturities/deaths
 
(477)
 
(1,793)
 
(2,270)
 
Net flowsnote
 
2,976
 
(383)
 
2,593
 
Investment-related items and other movements
 
3,139
 
(3,511)
 
(372)
 
Foreign exchange translation differences
 
(1,052)
 
-
 
(1,052)
 
At 30 June 2020
 
67,325
 
265,655
 
332,980
 
 
 
 
 
Comprising:
 
 
 
 
  - Policyholder liabilities on the consolidated statement of financial position
 
54,917
 
265,655
 
320,572
 
(excludes $217 million classified as unallocated to a segment)
 
 
 
 
  - Group's share of policyholder liabilities relating to joint ventures and associate
 
12,408
 
-
 
12,408
 
    
 
 
 
Half year 2019 $m
 
 
Asia
 
US
 
Discontinued
UK and Europe
 
Total
 
At 1 January 2019
 
51,705
 
236,380
 
51,911
 
339,996
 
Reclassification of UK and Europe liabilities as held for distribution
 
-
 
-
 
(51,911)
 
(51,911)
 
Net flows:
 
    
   Premiums
 
5,076
 
9,136
 
-
 
14,212
 
   Surrenders
 
(1,714)
 
(8,279)
 
-
 
(9,993)
 
   Maturities/deaths
 
(567)
 
(1,744)
 
-
 
(2,311)
 
Net flowsnote
 
2,795
 
(887)
 
-
 
1,908
 
Investment-related items and other movements
 
2,100
 
21,786
 
-
 
23,886
 
Foreign exchange translation differences
 
315
 
-
 
-
 
315
 
At 30 June 2019
 
56,915
 
257,279
 
-
 
314,194
 
     
Comprising:
 
    
  - Policyholder liabilities on the consolidated statement of financial position
 
    
(excludes $61 million classified as unallocated to a segment)
 
45,862
 
257,279
 
-
 
303,141
 
  - Group's share of policyholder liabilities relating to joint ventures and associate
 
11,053
 
-
 
-
 
11,053
 
 
 
Note
 
Including net flows of the Group's insurance joint ventures and associate.
 
 
(iii)  Movement in insurance contract liabilities and unallocated surplus of with-profits funds
Further analysis of the movement in the period 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) is provided below:
 
 
 
 
Contract liabilities
 
Reinsurers' share of insurance contract liabilities
 
Unallocated
surplus of
with-profits funds
 
 
$m
 
$m
 
$m
 
At 1 January 2020
 
385,678
 
(13,856)
 
4,750
 
Income and expense included in the income statementnote (a)
 
7,555
 
(31,066)
 
742
 
Other movementsnote (b)
 
(110)
 
-
 
-
 
Foreign exchange translation differences
 
(1,199)
 
4
 
20
 
At 30 June 2020
 
391,924
 
(44,918)
 
5,512
 
    
At 1 January 2019
 
521,286
 
(14,193)
 
20,180
 
Removal of opening balances relating to the discontinued UK and Europe operationsnote (c)
 
(193,020)
 
2,169
 
(16,982)
 
Income and expense included in the income statement
 
33,996
 
(880)
 
655
 
Other movementsnote (b)
 
53
 
-
 
(116)
 
Foreign exchange translation differences
 
618
 
(15)
 
10
 
At 30 June 2019
 
362,933
 
(12,919)
 
3,747
 
 
 
Notes
 
(a)   The increase in reinsurers' share of insurance contract liabilities in half year 2020 includes $27.7 billion in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.
 
(b)   Other movements include premiums received and claims paid on investment contracts without discretionary participating features, which are taken directly to the statement of financial position in accordance with IAS 39.
 
(c)   The $2,169 million of reinsurer's share of insurance contract liabilities excluded the intra-group reinsurance assets for the with-profits business ceded to the Asia insurance operations, which were eliminated on consolidation at 1 January 2019.
 
 
 
The total charge for benefit and claims in half year 2020 shown in the income statement comprises the amounts shown as 'income and expense included in the income statement' in the table above together with claims paid of $13,504 million in the period and claim amounts attributable to reinsurers of $(590) million.
 
The movement in the gross contract liabilities and the reinsurer's share of insurance contract liabilities during the first half of 2020 includes the impact of a change to the calculation of the valuation interest rate (VIR) used to value long-term insurance 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 30 June 2020 by $1,039 million. The resulting benefit of $1,039 million in the income statement is included within short-term fluctuations in investment returns in the Group's supplementary analysis of profit.
 
 
 
C3.2  Asia insurance operations
 
 
 
  
Half year 2020 $m
 
  
With-profits
 business
 
Shareholder-backed business
 
Total 
 
  
Unit-linked 
 liabilities 
 
Other 
business
 
At 1 January 2020
 
70,308
 
28,850
 
33,412
 
132,570
 
Comprising:
 
 
 
 
 
 
- 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
 
4,750
 
-
 
-
 
4,750
 
 
- Group's share of policyholder liabilities relating to joint ventures and associatenote (a)
 
-
 
5,279
 
6,598
 
11,877
 
Premiums:
 
 
 
 
 
 
New business
 
375
 
909
 
1,009
 
2,293
 
 
In-force
 
4,216
 
1,148
 
2,089
 
7,453
 
  
4,591
 
2,057
 
3,098
 
9,746
 
Surrendersnote (b)
 
(381)
 
(1,209)
 
(493)
 
(2,083)
 
Maturities/deaths
 
(676)
 
(87)
 
(390)
 
(1,153)
 
Net flows
 
3,534
 
761
 
2,215
 
6,510
 
Shareholders' transfers post tax
 
(54)
 
-
 
-
 
(54)
 
Investment-related items and other movements note (c)
 
3,387
 
(2,243)
 
5,382
 
6,526
 
Foreign exchange translation differencesnote (d)
 
(528)
 
(794)
 
(258)
 
(1,580)
 
At 30 June 2020
 
76,647
 
26,574
 
40,751
 
143,972
 
Comprising:
 
 
 
 
 
 
 - Policyholder liabilities on the consolidated statement of financial position
 
71,135
 
21,376
 
33,541
 
126,052
 
 
- Unallocated surplus of with-profits funds on the consolidated statement of financial position
 
5,512
 
-
 
-
 
5,512
 
 
- Group's share of policyholder liabilities relating to joint ventures and associatenote (a)
 
-
 
5,198
 
7,210
 
12,408
 
      
  
Half year 2019 $m
 
  
With-profits 
 business
 
Shareholder-backed business
 
Total 
 
  
Unit-linked 
 liabilities 
 
Other 
business
 
At 1 January 2019
 
53,703
 
25,704
 
26,001
 
105,408
 
Comprising:
 
    
 
- 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
 
3,198
 
-
 
-
 
3,198
 
 
- Group's share of policyholder liabilities relating to joint ventures and associatenote (a)
 
-
 
4,858
 
5,516
 
10,374
 
Premiums:
 
    
 
New business
 
769
 
1,003
 
1,180
 
2,952
 
 
In-force
 
3,955
 
1,206
 
1,687
 
6,848
 
  
4,724
 
2,209
 
2,867
 
9,800
 
Surrendersnote (b) 
 
(268)
 
(1,385)
 
(329)
 
(1,982)
 
Maturities/deaths
 
(711)
 
(89)
 
(478)
 
(1,278)
 
Net flows
 
3,745
 
735
 
2,060
 
6,540
 
Shareholders' transfers post-tax
 
(49)
 
-
 
-
 
(49)
 
Investment-related items and other movementsnote (c)
 
5,847
 
753
 
1,347
 
7,947
 
Foreign exchange translation differencesnote (d)
 
232
 
176
 
139
 
547
 
At 30 June 2019
 
63,478
 
27,368
 
29,547
 
120,393
 
Comprising:
 
    
 
- Policyholder liabilities on the consolidated statement of financial position
 
59,731
 
22,392
 
23,470
 
105,593
 
 
- Unallocated surplus of with-profits funds on the consolidated statement of financial position
 
3,747
 
-
 
-
 
3,747
 
 
- Group's share of policyholder liabilities relating to joint ventures and associatenote (a)
 
-
 
4,976
 
6,077
 
11,053
 
Average policyholder liability balancesnote (e)
 
    
 
Half year 2020
 
68,347
 
27,712
 
37,082
 
133,141
 
 
Half year 2019
 
55,118
 
26,536
 
27,774
 
109,428
 
 
 
Notes
 
(a)   The Group's investment in joint ventures and associate 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 2.7 per cent in the first half of 2020 (half year 2019: 3.3 per cent).
 
(c)   Investment-related items and other movements in the first half of 2020 primarily represents fixed income asset gains and lower discount rates due to falling interest rates for with-profits and other businesses, partially offset by unfavourable equity market performance for unit-linked business.
 
(d)   Movements in the period have been translated at the average exchange rates for the period ended 30 June 2020 and 2019. The closing balance has been translated at the closing spot rates as at 30 June 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 corporate transactions arising in the year, and exclude unallocated surplus of with-profits funds.
 
C3.3  US insurance operations
 
 
 
  
Half year 2020 $m
 
  
Variable annuity
separate account
liabilities
 
General
account
and other
 business
 
Total
 
  
 
note (d)
 
 
At 1 January 2020
 
195,070
 
74,479
 
269,549
 
Premiums
 
6,544
 
2,321
 
8,865
 
Surrenders
 
(5,353)
 
(2,102)
 
(7,455)
 
Maturities/deaths
 
(848)
 
(945)
 
(1,793)
 
Net flowsnote (a)
 
343
 
(726)
 
(383)
 
Transfers from separate to general account
 
(1,042)
 
1,042
 
-
 
Investment-related items and other movementsnote (b)
 
(10,151)
 
6,640
 
(3,511)
 
At 30 June 2020
 
184,220
 
81,435
 
265,655
 
     
  
Half year 2019 $m
 
 
Variable annuity
separate account
liabilities
 
General
account
and other 
 business
 
Total
 
At 1 January 2019
 
163,301
 
73,079
 
236,380
 
Premiums
 
6,032
 
3,104
 
9,136
 
Surrenders
 
(6,008)
 
(2,271)
 
(8,279)
 
Maturities/deaths
 
(782)
 
(962)
 
(1,744)
 
Net flowsnote (a)
 
(758)
 
(129)
 
(887)
 
Transfers from general to separate account
 
637
 
(637)
 
-
 
Investment-related items and other movements
 
21,737
 
49
 
21,786
 
At 30 June 2019
 
184,917
 
72,362
 
257,279
 
Average policyholder liability balancesnote (c)
 
   
 
Half year 2020
 
189,645
 
77,957
 
267,602
 
 
Half year 2019
 
174,109
 
72,721
 
246,830
 
 
 
Notes
 
(a)   Net outflows in the first half of 2020 were $383 million (first half of 2019 outflows: $887 million) with surrenders and withdrawals from general account exceeding new inflows on this business given lower volumes of institutional sales in the period, partially offset by net inflows into the variable annuity separate accounts.
 
(b)   Negative investment-related items and other movements in variable annuity separate account liabilities of $(10,151) million for the first half of 2020 largely represent negative separate account return following the decrease in the US equity market in the period, partially offset by increased obligations for variable annuity guarantees, following falls in interest rates and equity markets.
 
(c)   Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the period.
 
(d)   Included within the policyholder liabilities for the general account and other business of $81,435 million at 30 June 2020 are $27.7 billion in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.
 
 
 
C4  Intangible assets
 
 
C4.1  Goodwill
 
Goodwill shown on the consolidated statement of financial position at 30 June 2020 represents amounts allocated to businesses in Asia and Africa in respect of both acquired asset management and life businesses.
 
 
 
 
2020 $m
 
 
2019 $m
 
 
30 Jun
 
 
30 Jun
 
31 Dec
 
Carrying value at beginning of period
 
969
 
 
2,365
 
2,365
 
Reclassification/Demerger of UK and Europe operations
 
-
 
 
(1,731)
 
(1,731)
 
Additions in the period
 
-
 
 
-
 
299
 
Exchange differences
 
(27)
 
 
15
 
36
 
Carrying value at end of period
 
942
 
 
649
 
969
 
 
 
C4.2  Deferred acquisition costs and other intangible assets
 
 
 
  
2020 $m
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
Deferred acquisition costs and other intangible assets attributable to shareholders
 
18,538
 
 
16,037
 
17,409
 
Other intangible assets, including computer software, attributable to with-profits funds
 
66
 
 
74
 
67
 
Total of deferred acquisition costs and other intangible assets
 
18,604
 
 
16,111
 
17,476
 
 
 
The deferred acquisition costs and other intangible assets attributable to shareholders comprise: 
 
 
 
 
2020 $m
 
 
2019 $m
 
 
30 Jun
 
 
30 Jun
 
31 Dec
 
Deferred acquisition costs related to insurance contracts as classified under IFRS 4
 
14,567
 
 
13,142
 
14,206
 
Deferred acquisition costs related to investment management contracts, including life assurance contracts classified as financial instruments and investment management contracts under IFRS 4
 
34
 
 
34
 
33
 
Deferred acquisition costs related to insurance and investment contracts
 
14,601
 
 
13,176
 
14,239
 
Present value of acquired in-force policies for insurance contracts as classified under
IFRS 4 (PVIF)
 
34
 
 
39
 
38
 
Distribution rights and other intangibles
 
3,903
 
 
2,822
 
3,132
 
Present value of acquired in-force (PVIF) and other intangibles attributable to shareholders
 
3,937
 
 
2,861
 
3,170
 
Total of deferred acquisition costs and other intangible assetsnote (a)
 
18,538
 
 
16,037
 
17,409
 
 
 
Notes
 
(a)   Total deferred acquisition costs and other intangible assets attributable to shareholders can be further analysed by business operations as follows:
 
 
 
  
2020 $m
 
 
 
 
 
2019 $m
 
 
  
Deferred acquisition costs
 
 
PVIF and other
 
 
30 Jun
 
 
30 Jun
 
 
31 Dec
 
 
  
Asia
 
US*
 
 
  intangibles†
 
 
Total
 
 
Total 
 
 
Total 
 
 
Balance at beginning of period:
 
1,999
 
12,240
 
 
3,170
 
 
17,409
 
 
15,008
 
 
15,008
 
 
Removal of UK and Europe operations from opening balance
 
-
 
-
 
 
-
 
 
-
 
 
(143)
 
 
(143)
 
 
Additions‡
 
261
 
353
 
 
904
 
 
1,518
 
 
1,469
 
 
2,601
 
 
Amortisation to the income statement:note (c)
 
 
 
 
 
 
 
     
 
Adjusted operating profit
 
(157)
 
(363)
 
 
(111)
 
 
(631)
 
 
(371)
 
 
(792)
 
 
 
Non-operating profit (loss)
 
-
 
50
 
 
(2)
 
 
48
 
 
616
 
 
1,243
 
 
 
(157)
 
(313)
 
 
(113)
 
 
(583)
 
 
245
 
 
451
 
 
Disposals and transfers
 
-
 
-
 
 
(13)
 
 
(13)
 
 
(6)
 
 
(11)
 
 
Exchange differences and other movements
 
(30)
 
-
 
 
(11)
 
 
(41)
 
 
24
 
 
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
 
-
 
248
 
 
-
 
 
248
 
 
(560)
 
 
(631)
 
 
Balance at end of period
 
2,073
 
12,528
 
 
3,937
 
 
18,538
 
 
16,037
 
 
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 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 per cent (half year and full year 2019: 7.4 per cent) gross of asset management fees and other charges to policyholders, but net of external fund management fees. The other 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 of the Group's supplementary analysis of profit and other comprehensive income by reference to the underlying items. The charge of $(313) million in half year 2020 in the US operations includes $(764) million for the write-off of the deferred acquisition costs in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd.
 
†  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 $21 million, amortisation of $(17) million, disposals of $(8) million, foreign exchange of $2 million and closing balance at 30 June 2020 of $83 million (30 June 2019: $70 million; 31 December 2019: $85 million).
 
‡   On 19 March 2020, the Group signed a new bancassurance agreement with TMB Bank 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 agreement cost Thai Baht 24.5 billion, which will be paid in two instalments with Thai Baht 12.0 billion paid in April 2020 and the remainder on 1 January 2021. The amount included in additions in the table above is $788 million.
 
 
 
(b)   The DAC amount in respect of US arises in the insurance operations which comprises the following amounts:
 
 
 
 
2020 $m 
 
 
2019 $m
 
 
30 Jun
 
 
30 Jun
 
31 Dec
 
Variable annuity and other business
 
12,975
 
 
12,038
 
12,935
 
Cumulative shadow DAC (for unrealised gains/losses booked in other comprehensive income)*
 
(447)
 
 
(622)
 
(695)
 
Total DAC for US operations
 
12,528
 
 
11,416
 
12,240
 
* A net gain of $248 million (half year 2019: a loss of $(560) million; full year 2019: a loss of $(631) 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 annuity business to Athene Life offset by the impact from the positive unrealised valuation movement for half year 2020 of $2,540 million (half year 2019: positive unrealised valuation movement of $3,386 million; full year 2019: positive unrealised valuation movement of $4,023 million). These adjustments reflect the movement from period to period, in the changes to the pattern of reported gross 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.
 
 
 
 
 
(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 operating profit and short-term fluctuations in investment returns. The amortisation charge to adjusted operating profit in a reporting period 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 7.4 per cent) the annualised 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 half year 2020, the DAC amortisation charge for adjusted operating profit was determined after including a charge for accelerated amortisation of $(32) million (half year 2019: credit for deceleration: $191 million; full year 2019: credit for deceleration: $280 million). DAC amortisation for variable annuities is sensitive to separate account performance. The acceleration arising in the first half of 2020 reflects a mechanical increase 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 period) the assumed long-term annual separate account return of 7.4 per cent is realised on average over the entire eight-year period.
 
The application of the mean reversion formula has the effect of dampening the impact of equity market movements on DAC amortisation while the mean reversion assumption lies within the corridor. At 30 June 2020, it would take approximate movements in separate account values of more than either negative 30 per cent or positive 42 per cent for the mean reversion assumption to move outside the corridor.
 
 
 
C5  Borrowings

 
C5.1  Core structural borrowings of shareholder-financed businesses
 
 
 
   
2020 $m
 
 
2019 $m
 
   
30 Jun
 
 
30 Jun
 
31 Dec
 
Central operations:
 
 
   
Subordinated and other debt not substituted to M&G plc in 2019:
 
 
   
 
Subordinated debt:
 
 
   
  
US$250m 6.75% Notesnote (i)
 
250
 
 
250
 
250
 
  
US$300m 6.5% Notesnote (i)
 
300
 
 
300
 
300
 
  
US$700m 5.25% Notes
 
700
 
 
700
 
700
 
  
US$1,000m 5.25% Notes
 
997
 
 
994
 
996
 
  
US$725m 4.375% Notes
 
723
 
 
721
 
721
 
  
US$750m 4.875% Notes
 
746
 
 
743
 
744
 
  
€20m Medium Term Notes 2023
 
22
 
 
23
 
22
 
  
£435m 6.125% Notes 2031
 
533
 
 
548
 
571
 
 
Senior debt:note (ii)
 
 
   
  
£300m 6.875% Notes 2023
 
366
 
 
375
 
392
 
  
£250m 5.875% Notes 2029
 
280
 
 
285
 
298
 
  
$1,000m 3.125% Notes 2030note (iii)
 
982
 
 
-
 
-
 
 
Bank loansnote (iv)
 
 
   
  
$350m Loan 2024
 
350
 
 
-
 
350
 
  
£275m Loan 2022
 
-
 
 
350
 
-
 
Total debt not substituted to M&G plc in 2019
 
6,249
 
 
5,289
 
5,344
 
Subordinated debt substituted to M&G plc in 2019
 
-
 
 
3,931
 
-
 
Total central operations
 
6,249
 
 
9,220
 
5,344
 
Jackson US$250m 8.15% Surplus Notes 2027note (v)
 
250
 
 
250
 
250
 
Total core structural borrowings of shareholder-financed businesses
 
6,499
 
 
9,470
 
5,594
 
 
 
Notes
 
(i)    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.
 
(ii)   The senior debt ranks above subordinated debt in the event of liquidation.
 
(iii)  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 $982 million.
 
(iv)  The bank loan of $350 million was drawn in November 2019 at a cost of LIBOR plus 0.2 per cent. The loan matures on 7 November 2024. The £275 million bank loan was repaid by the Group in October 2019.
 
(v)   Jackson's borrowings are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Jackson.
 
 
 
C5.2  Operational borrowings
 
 
 
       
  
2020 $m 
 
 
2019 $m
 
  
30 Jun
 
 
30 Jun
 
 
31 Dec
 
Borrowings in respect of short-term fixed income securities programmes - commercial paper
 
506
 
 
841
 
 
520
 
Lease liabilities under IFRS 16
 
318
 
 
291
 
 
371
 
Non-recourse borrowings of consolidated investment fundsnote (a)
 
1,081
 
 
694
 
 
1,045
 
Other borrowingsnote (b)
 
97
 
 
292
 
 
406
 
Operational borrowings attributable to shareholder-financed businesses
 
2,002
 
 
2,118
 
 
2,342
 
 
 
    
Lease liabilities under IFRS 16
 
224
 
 
272
 
 
259
 
Other borrowings
 
19
 
 
31
 
 
44
 
Operational borrowings attributable to with-profits businesses
 
243
 
 
303
 
 
303
 
  
 
    
Total operational borrowings
 
2,245
 
 
2,421
 
 
2,645
 
 
 
Notes
 
(a)   In all instances, the holders of the debt instruments issued by consolidated investment funds do not have recourse beyond the assets of those funds.
 
(b)   Other borrowings mainly include senior debt issued through the Federal Home Loan Bank of Indianapolis (FHLB), secured by collateral posted with the FHLB by Jackson.
 
 
 
C6  Sensitivity analysis to key market risks
 
The Group's risk framework and the management of risk, including that attached to the Group's financial statements, have been included in the 'Group Chief Risk and Compliance Officer's Report on the risks facing our business and how these are managed'. The following sections set out the sensitivity of the Group's segmental profit or loss and shareholders' equity to instantaneous changes in interest rates and equity levels, which are then assumed to remain unchanged for the long term. Further information of the Group's sensitivity to key risks was set out in the Group's financial statements for the year ended 31 December 2019.
 
The published sensitivities in notes C6.1 and C6.2 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 shown below. Given the continuous risk management processes in place, management could 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. The sensitivities reflect all consequential impacts from market movements at the valuation date. In particular, where relevant the 30 June 2020 sensitivities reflect potential tax benefits that would arise under the relief provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the US for 2020.
 
 
C6.1  Sensitivity to interest rate risk
 
The sensitivities shown below are for movements in risk-free rates (based on local government bond yields at the valuation date) in isolation and are subject to a floor of 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 (i.e. ignoring any consequential change in valuation) would not have a material impact on IFRS profit or shareholders' equity.
 
Following the fall in interest rates during the first half of 2020, the estimated sensitivity to a decrease in interest rates at 30 June 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 a decrease and increase in interest rates at 30 June 2020 is as follows:
 
 
 
30 June 2020
 
Asia insurance $m
 
 
US insurance $m
 
 
Decrease of 0.5%
 
Increase of 1%
 
 
Decrease of 0.5%
 
Increase of 1%
 
Net effect on shareholders' equity*
 
(1,203)
 
64
 
 
(90)
 
(123)
 
* 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 0.5 per cent: $(1,036) million; increase of 1 per cent: $1,577 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: $946 million; increase of 1 per cent: $(1,700) 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.
 
 
 
The estimated sensitivity to a decrease and increase in interest rates at 31 December 2019 is 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:

-    certain Asia businesses 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;
 
-    the level of options and guarantees in the products written in a particular business unit will affect the degree of sensitivity to interest rate movements; and
 
-    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.
 
Following the substantial fall in interest rates over the first half of 2020, at 30 June 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. This is similar to the effect described in note B1.2(i), with the impacts exacerbated if interest rates were to fall further from the historically low levels at 30 June 2020.
 
Liabilities become less sensitive to interest rates as interest rates rise. If interest rates were to increase by 1 per cent from 30 June 2020 levels, the change in the value of assets is expected to be of a similar magnitude to the change in the value of policyholder liabilities. At higher levels of interest rates, the change in the value of assets is expected to exceed the change in the value of liabilities, as evident in the 'increase of 1 per cent' sensitivity at 31 December 2019.
 
 
US insurance operations
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. 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 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 30 June 2020 is broadly similar to the impact at 31 December 2019, reflecting largely offsetting effects with the impact of more sensitive guarantee liabilities at 30 June 2020 being broadly matched by the impact from a change in the position of Jackson's interest rate hedging at that date. The reduction in the magnitude of the impact of the sensitivities on other comprehensive income, and hence shareholders' equity, reflects the reduction in the volume of available-for-sale debt securities following the Athene reinsurance transaction described in note D1(i).
 
 
Asset management and other operations
The profit for the period 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.
 
The Group's asset management and other operations do not hold significant financial investments. At 30 June 2020, 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 interest rate movements.
 
 
 
C6. 2 Sensitivity to equity and property price risk
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 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.
 
The estimated sensitivity to a 10 per cent and 20 per cent change in equity and property prices at 30 June 2020 is as follows:
 
 
 
30 June 2020
 
Asia insurance $m
 
 
US insurance $m
 
 
Decrease of 20%
 
Increase of 10%
 
 
Decrease of 20%
 
Increase of 10%
 
Net effect on shareholders' equity*
 
(559)
 
302
 
 
2,174
 
(484)
 
* The effect from the instantaneous changes in equity and property prices above, if they arose, would impact profit after tax for Asia and the US insurance operations, which would mostly be recorded within short-term fluctuations in investment returns.
 
 
The estimated sensitivity to a 10 per cent and 20 per cent change in equity and property prices at 31 December 2019 is as follows:
 
 
 
31 December 2019
 
Asia insurance $m
 
 
US insurance $m
 
 
Decrease of 20%
 
Increase of 10%
 
 
Decrease of 20%
 
Increase of 10%
 
Net effect on shareholders' equity*
 
(816)
 
408
 
 
762
 
608
 
* The effect from the instantaneous changes in equity and property prices above, if they arose, would impact profit after tax for Asia and the US insurance operations, which would mostly be recorded within short-term fluctuations in investment returns.
 
 
 
Asia insurance operations
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.
 
 
 
US insurance operations
The sensitivity movements shown above exclude the impact of the instantaneous equity movements on the separate account fees, and include the movements relating to the reinsurance of GMIB guarantees.
 
They 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.
 
Jackson is exposed to equity risk through the options embedded in the fixed indexed annuity liabilities and 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. Due to the nature of the valuation of the free-standing derivatives and the variable annuity guarantee features under IFRS, 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 some of the hedged liabilities reset more slowly and fees are recognised prospectively in the period in which they are earned. Jackson's hedging programme is primarily focused on managing the economic risks in the business and protecting statutory solvency in the circumstances of larger market movements. The hedging programme does not explicitly 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 the first half of 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 sensitivities reflect the actual hedging portfolio in place at 30 June 2020 and 31 December 2019. 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. The impacts shown under an increase or decrease in equity markets at 30 June 2020 reflect the factors discussed above. The changes from the values shown at 31 December 2019 largely arise from the additional equity protection in place at 30 June 2020 following the market volatility seen over the first half of the year.
 
 
Asset management and other operations
The profit for the period 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 equities increase or decrease in value with a consequential impact on profitability.

With the exception of the above, there is limited sensitivity to equity price risk.
 
 
 
C7  Deferred tax
 
 
The statement of financial position contains the following deferred tax assets and liabilities in relation to:
 
 
 
 
Half year 2020 $m
 
 
Balance
at 1 Jan
 
Movement in income statement
 
Movement
through
other comprehensive income and equity
 
Other movements including foreign currency movements
 
Balance
at 30 Jun
 
Deferred tax assets
 
 
 
 
 
 
Unrealised losses or gains on investments
 
-
 
-
 
-
 
1
 
1
 
Balances relating to investment and insurance contracts
 
32
 
8
 
-
 
(1)
 
39
 
Short-term temporary differences
 
3,889
 
238
 
-
 
1
 
4,128
 
Unused tax losses
 
154
 
(64)
 
-
 
1
 
91
 
Total
 
4,075
 
182
 
-
 
2
 
4,259
 
 
 
 
 
 
 
Deferred tax liabilities
 
 
 
 
 
 
Unrealised losses or gains on investments
 
(877)
 
19
 
7
 
3
 
(848)
 
Balances relating to investment and insurance contracts
 
(1,507)
 
(110)
 
-
 
68
 
(1,549)
 
Short-term temporary differences
 
(2,853)
 
(28)
 
-
 
-
 
(2,881)
 
Total
 
(5,237)
 
(119)
 
7
 
71
 
(5,278)
 
 
 
C8  Share capital, share premium and own shares
 
 
 
 
30 Jun 2020
 
 
30 Jun 2019
 
 
31 Dec 2019
 
Issued shares of 5p each
 
Number of ordinary shares
 
Share
 capital
 
Share
premium
 
 
Number of ordinary shares
 
Share
 capital
 
Share premium
 
 
Number of ordinary shares
 
Share
 capital
 
Share
premium
 
fully paid:
 
 
$m
 
$m
 
 
 
$m
 
$m
 
 
 
$m
 
$m
 
Balance at beginning of period
 
2,601,159,949
 
172
 
2,625
 
 
2,593,044,409
 
166
 
2,502
 
 
2,593,044,409
 
166
 
2,502
 
Shares issued under share-based schemes
 
7,700,498
 
-
 
10
 
 
6,751,790
 
-
 
13
 
 
8,115,540
 
-
 
22
 
Impact of change in presentation currency
 
-
 
-
 
-
 
 
-
 
(1)
 
(3)
 
 
-
 
6
 
101
 
Balance at end of period
 
2,608,860,447
 
172
 
2,635
 
 
2,599,796,199
 
165
 
2,512
 
 
2,601,159,949
 
172
 
2,625
 
 
 
Options outstanding under save as you earn schemes to subscribe for shares at each period end shown below are as follows:
 
 
 
 
Number of shares
 
 
Share price range
 
 
Exercisable
 
 
to subscribe for
 
 
from
 
to
 
 
by year
 
30 Jun 2020
 
2,197,782
 
 
1,104p
 
1,455p
 
 
2025
 
30 Jun 2019
 
3,808,687
 
 
901p
 
1,455p
 
 
2024
 
31 Dec 2019
 
3,805,447
 
 
1,104p
 
1,455p
 
 
2025
 
 
 
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 $237 million at 30 June 2020 (30 June 2019: $228 million; 31 December 2019: $183 million) is deducted from retained earnings. The Company has established trusts to facilitate the delivery of shares under employee incentive plans. At 30 June 2020, 11.5 million (30 June 2019: 9.5 million; 31 December 2019: 8.4 million) Prudential plc shares with a market value of $173 million (30 June 2019: $207 million; 31 December 2019: $161 million) were held in such trusts, all of which are for employee incentive plans. The maximum number of shares held during the period was 11.5 million which was in June 2020.

Within the trusts, shares are notionally allocated by business unit reflecting the employees to which the awards were made.
 
 
The Company purchased the following number of shares in respect of employee incentive plans:
 
 
 
 
Number of shares
purchased
(in millions)
 
Cost*
$m
 
Half year 2020
 
5.8
 
75.2
 
Half year 2019
 
3.1
 
64.2
 
Full year 2019
 
3.7
 
73.8
 
* The cost in US dollars shown has been calculated from the share prices in pounds sterling using the monthly average exchange rate for the month in which those shares were purchased.

 
The Group consolidated a number of authorised investment funds where it was deemed to control these funds under IFRS up until the demerger in October 2019. Some of these funds held shares in Prudential plc and the cost of acquiring these shares was included in the cost of own shares 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 half year 2020 or 2019.
 
 
 
D    OTHER INFORMATION
 
D1  Gain (loss) attaching to corporate transactions
 
 
 
 
2020 $m
 
 
2019 $m
 
 
Half year
 
 
Half year
 
Full year
 
Gain arising on reinsurance of Jackson's in-force fixed and fixed indexed annuity businessnote (i)
 
846
 
 
-
 
-
 
Gain on disposalsnote (ii)
 
-
 
 
270
 
265
 
Other transactionsnote (iii)
 
-
 
 
(253)
 
(407)
 
Total gain (loss) attaching to corporate transactions
 
846
 
 
17
 
(142)
 
 
 
Notes
 
(i)    With effect from 1 June 2020, Jackson reinsured substantially all of its in-force portfolio of US fixed and fixed indexed annuities with Athene Life Re Ltd, which resulted in a pre-tax gain of $846 million, after allowing for the write-off of deferred acquisition costs associated with the business reinsured. 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 deferred acquisition costs written off as a result of the transaction. 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 $(1.1) billion.
 
(ii)   In 2019, the gain on disposals principally related to profits arising from a 4 per cent reduction in the Group's stake in its associate in India, ICICI Prudential Life Insurance Company, and the disposal of Prudential Vietnam Finance Company Limited, a wholly-owned subsidiary that provides consumer finance.
 
(iii)  In 2019, other transactions primarily reflected costs related to the demerger of the Group's UK and Europe operations (M&G plc).
 
 
 
D2  Contingencies and related obligation
 
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 believes that their ultimate outcome will not have a material adverse effect on the Group's financial condition, results of operations or cash flows.
 
There have been no material changes to the Group's contingencies and related obligations in the six month ended 30 June 2020.

 
D3  Post balance sheet events
 
 
First interim ordinary dividend
The 2020 first interim ordinary dividend approved by the Board of Directors after 30 June 2020 is as described in note B6.
 
 
Completion of the equity investment by Athene into US business
On 17 July 2020, the Group completed the equity investment by Athene into the US business, which was announced in June 2020. Under the transaction, 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. Athene's investment is in the form of 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 and PPM America. If the transaction had completed at 30 June 2020, the effect on the IFRS shareholders' equity would have been a reduction of $550 million. There would have been no impact on profit or loss for the period.
 
 
 
D4  Related party transactions
 
There were no transactions with related parties during the six months ended 30 June 2020 which have had a material effect on the results or financial position of the Group.
 
The nature of the related party transactions of the Group has not changed from those described in the Group's consolidated financial statements for the year ended 31 December 2019.
 

Statement of Directors' responsibilitie
 
The Directors (who are listed below) are responsible for preparing the Half Year Financial Report in accordance with applicable law and regulations.

Accordingly, the Directors confirm that to the best of their knowledge:
 
-    the condensed consolidated financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union;
 
-    the Half Year Financial Report includes a fair review of information required by:
 
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2020, and their impact on the condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
 
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2020 and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the Group's consolidated financial statements for the year ended 31 December 2019 that could do so.
 
 
 
Prudential plc Board of Directors:
 
 
Chairman
Paul Manduca
 
Executive Directors
Michael Wells
Mark FitzPatrick CA
James Turner FCA FCSI FRM
 
 
Independent Non-executive Directors
The Hon. Philip Remnant CBE FCA
Jeremy Anderson CBE
David Law ACA
Kaikhushru Nargolwala FCA
Anthony Nightingale CMG SBS JP
Alice Schroeder
Shriti Vadera
Thomas Watjen
Fields Wicker-Miurin OBE
Amy Yip
 
 

11 August 2020
 
 
 
Independent Review Report to Prudential plc
 
Conclusion
We have been engaged by the Company to review the International Financial Reporting Standards (IFRS) condensed set of financial statements in the Half Year Financial Report for the six months ended 30 June 2020 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes.
 
Based on our review, nothing has come to our attention that causes us to believe that the IFRS condensed set of financial statements in the Half Year Financial Report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union ('EU') and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

We have also been engaged by the Company to review the European Embedded Value (EEV) basis supplementary financial information for the six months ended 30 June 2020 which comprises the Summarised Consolidated Income Statement, the Movement in Shareholders' Equity, the Summary Statement of Financial Position and the related explanatory notes.
 
Based on our review, nothing has come to our attention that causes us to believe that the EEV basis supplementary financial information for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with the European Embedded Value Principles issued by the European Insurance CFO Forum in 2016 ("the EEV Principles"), using the methodology and assumptions set out in the Notes to the EEV basis supplementary financial information.
 
 
 
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the Half Year Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the IFRS condensed set of financial statements or the EEV basis supplementary financial information.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 
 
 
 
Directors' responsibilities
The Half Year Financial Report, including the IFRS condensed set of financial statements therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Year Financial Report in accordance with the DTR of the UK FCA. The Directors have accepted responsibility for preparing the EEV basis supplementary financial information in accordance with the EEV Principles and for determining the methodology and assumptions used in the application of those principles.
 
The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for preparing the IFRS condensed set of financial statements included in the Half Year Financial Report in accordance with IAS 34 as adopted by the EU.

The EEV basis supplementary financial information has been prepared in accordance with the EEV Principles using the methodology and assumptions set out in the Notes to the EEV basis supplementary financial information. The EEV basis supplementary financial information should be read in conjunction with the IFRS condensed set of financial statements.
 
 
 
Our responsibility
 
Our responsibility is to express to the Company a conclusion on the IFRS condensed set of financial statements in the Half Year Financial Report and the EEV basis supplementary financial information based on our reviews. 
 
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA and also to provide a review conclusion to the Company on the EEV basis supplementary financial information. Our review of the IFRS condensed set of financial statements has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. Our review of the EEV basis supplementary financial information has been undertaken so that we might state to the Company those matters we have been engaged to state in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 
 
 
 
Philip Smart
For and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
11 August 2020
 
 
I     Additional financial information
 
 
I(i)  Group capital position

Overview
 
Prudential plc applies the local capital summation method (LCSM) that has been agreed with the Hong Kong Insurance 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 timing of finalisation and implementation of the GWS Framework remains uncertain, although it is expected to become effective in early 2021. The Legislative Council of the Hong Kong Special Administrative Region approved the enabling primary legislation in July and further implementation guidance is expected in the second half of the year. Subject to that guidance we currently expect the GWS methodology to be largely consistent to that applied under LCSM. Further detail on the LCSM is included in the basis of preparation section below.

For regulated insurance entities, the available 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 30 June 2020, the Prudential Group's total surplus of available capital over the regulatory Group Minimum Capital Requirement (GMCR), calculated using this LCSM was $25.5 billion, before allowing for the payment of the 2020 first interim ordinary dividend.

The Group holds material participating business in Hong Kong, Singapore and Malaysia. If the available capital and minimum capital requirement attributed to this policyholder business are excluded, then the Prudential Group shareholder LCSM surplus of available capital over the regulatory GMCR at 30 June 2020 was $12.4 billion, before allowing for the payment of the 2020 first interim ordinary dividend.

Estimated Group LCSM capital position based on Group Minimum Capital Requirement (GMCR) 
 
 
 
 
30 Jun 2020
 
 
31 Dec 2019
 
 
Total
 
Less
policyholder
 
Shareholder
 
 
Total
 
Less
policyholder
 
Shareholder
 
Available capital ($bn)
 
37.0
 
(19.3)
 
17.7
 
 
33.1
 
(19.1)
 
14.0
 
Group Minimum Capital Requirement ($bn)
 
11.5
 
(6.2)
 
5.3
 
 
9.5
 
(5.0)
 
4.5
 
LCSM surplus (over GMCR) ($bn)
 
25.5
 
(13.1)
 
12.4
 
 
23.6
 
(14.1)
 
9.5
 
LCSM ratio (over GMCR) (%)
 
323%
 
 
334%
 
 
348%
 
 
309%
 
 
 
The shareholder LCSM capital position by segment is presented below at 30 June 2020 and 31 December 2019 for comparison:
 
 
 
    
Shareholder
 
30 Jun 2020 ($bn)
 
Total
Asia
 
Less
policyholder
 
 
Asia
 
US
 
Unallocated
 to a segment
 
Group
total
 
Available capital
 
29.0
 
(19.3)
 
 
9.7
 
8.2
 
(0.2)
 
17.7
 
Group Minimum Capital Requirement
 
9.4
 
(6.2)
 
 
3.2
 
2.1
 
-
 
5.3
 
LCSM surplus (over GMCR)
 
19.6
 
(13.1)
 
 
6.5
 
6.1
 
(0.2)
 
12.4
 
        
    
Shareholder
 
31 Dec 2019 ($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
 
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
 
 
 
The 30 June 2020 Jackson local statutory results reflect the reinsurance of an in-force portfolio of Jackson's US fixed and fixed indexed annuity liabilities to Athene Life Re Ltd the effect of which is shown in the table below. Athene's $500 million equity investment in Prudential's US business in return for an 11.1 per cent economic interest completed in July 2020 and is not reflected in the 30 June 2020 results above. If this transaction had been completed at 30 June 2020 the Group LCSM shareholder surplus (i.e. after allowing for the minority interest) would be $0.2 billion lower with the cover ratio increasing by 6 percentage points.
 
The 30 June 2020 Group LCSM position includes the impact of a change in the calculation of the valuation interest rate (VIR) used to value long term insurance liabilities in Hong Kong, which has been formally granted by the regulator.
 
 
Sensitivity analysis
The estimated sensitivity of the Group shareholder LCSM capital position (based on GMCR) to significant changes in market conditions is as follows:
 
 
 
30 Jun 2020
 
 
31 Dec 2019
 
Impact of market sensitivities
 
LCSM surplus
($bn)
 
LCSM ratio
(%)
 
 
LCSM surplus
($bn)
 
LCSM ratio
(%)
 
Base position
 
12.4
 
334%
 
 
9.5
 
309%
 
Impact of:
 
 
 
   
 
10% instantaneous increase in equity markets
 
(0.7)
 
(3)%
 
 
n/a
 
n/a
 
 
20% instantaneous fall in equity markets
 
(0.2)
 
(5)%
 
 
1.5
 
(9)%
 
 
40% fall in equity marketsnote (1)
 
(1.2)
 
(19)%
 
 
(0.2)
 
(39)%
 
 
50 basis points reduction in interest rates
 
(0.2)
 
(13)%
 
 
(0.2)
 
(17)%
 
 
100 basis points increase in interest rates
 
(0.1)
 
24%
 
 
(1.3)
 
(19)%
 
 
100 basis points increase in credit spreadsnote (2)
 
0.2
 
12%
 
 
(1.6)
 
(36)%
 
 
 
Notes
 
(1)   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)   At 31 December 2019 the US RBC solvency position was included using a stress of 10 times expected credit defaults rather than the 100 basis points increase in credit spreads applied at 30 June 2020.
 
 
 
The sensitivity results above assume instantaneous market movements and reflect all consequential impacts as at the valuation dates. In particular, where relevant, the 30 June 2020 sensitivities reflect potential tax benefits that would arise under the relief provided by the CARES Act in the US for 2020. An exception to the instantaneous market movements assumed is the -40 per cent equity sensitivity where for Jackson an instantaneous 20 per cent market fall is assumed to be followed by a further market fall of 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 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.
 
 
 
Analysis of movement in Group shareholder LCSM surplus
A summary of the estimated movement in the Group shareholder LCSM surplus (based on GMCR) from $9.5 billion at 31 December 2019 to $12.4 billion at 30 June 2020 is set out in the table below.
 
 
 
  
2020 ($bn)
 
2019 ($bn)
 
  
Half year
 
Full year
 
Balance at beginning of period
 
9.5
 
9.7
 
Operating:
 
 
 
 
Operating capital generation from the in-force business
 
1.2
 
2.5
 
 
Investment in new business
 
(0.2)
 
(0.6)
 
Operating capital generation
 
1.0
 
1.9
 
Non-operating and other capital movements:
 
 
 
 
Non-operating experience (including market movements and modelling changes)
 
0.4
 
(0.6)
 
 
Regulatory changes
 
2.2
 
0.1
 
 
Reinsurance of US fixed and fixed indexed annuity in-force portfolio to Athene
 
0.8
 
-
 
 
Other corporate activities (excluding demerger items)
 
(0.8)
 
(0.8)
 
 
Demerger costs
 
-
 
(0.4)
 
 
Subordinated debt redemption
 
-
 
(0.5)
 
 
Demerger related impacts
 
-
 
1.0
 
Non-operating results
 
2.6
 
(1.2)
 
Remittances from discontinued operations (M&G plc)
 
-
 
0.7
 
External dividends
 
(0.7)
 
(1.6)
 
Net dividend impact
 
(0.7)
 
(0.9)
 
  
 
 
Net movement in LCSM surplus
 
2.9
 
(0.2)
 
Balance at end of period
 
12.4
 
9.5
 
 
 
The estimated movement in the Group shareholder LCSM surplus over first half of 2020 is driven by:
 
 
- Operating capital generation of $1.0 billion: generated by expected return on in-force business net of strain on new business written in 2020;
- Non-operating experience of $0.4 billion: this reflects the impact of falling interest rates and equity markets on the level of policyholder reserves and required capital net of the favourable impact of mitigating hedging measures together with other management actions, including a $1.1 billion benefit from the change to the Hong Kong valuation interest rate described earlier, and US modelling refinements;
- 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 available capital. This corresponds to a 25 percentage point increase in the Group LCSM cover ratio and is before the effect of the $500 million equity investment by Athene discussed above;  
- Other Corporate activities (excluding demerger items) of $(0.8) billion: this is the effect on LCSM surplus of corporate transactions in the period, which in 2020 comprised the strategic bancassurance partnership with TMB in Thailand, and;
- Net dividend impact of $(0.7) billion: this is the payment of the 2019 second interim dividend paid in May 2020.
 
 
 
Reconciliation of Group shareholder LCSM surplus to EEV free surplus (excluding intangibles)
 
 
 
 
30 Jun 2020 $bn
 
 
31 Dec 2019 $bn
 
 
Asia
 
US
 
Unallocated to a segment
 
Group total
 
 
Group total
 
Estimated Group shareholder LCSM surplus (over GMCR)
 
6.5
 
6.1
 
(0.2)
 
12.4
 
 
9.5
 
Increase required capital for EEV free surplusnote (1)
 
(0.7)
 
(3.2)
 
-
 
(3.9)
 
 
(2.8)
 
Adjust surplus assets and core structural borrowings to market valuenote (2)
 
0.3
 
0.2
 
(0.3)
 
0.2
 
 
0.3
 
Add back inadmissible assetsnote (3)
 
0.2
 
0.1
 
-
 
0.3
 
 
0.2
 
Deductions applied to EEV free surplusnote (4)
 
(2.8)
 
-
 
-
 
(2.8)
 
 
(0.9)
 
Other
 
(0.1)
 
0.2
 
0.1
 
0.2
 
 
0.3
 
EEV free surplus excluding intangibles*
 
3.4
 
3.4
 
(0.4)
 
6.4
 
 
6.6
 
* As per the "Free surplus excluding distribution rights and other intangibles" from note 10 of the Group's EEV basis results.
 
 
 
Notes
 
(1)   Required capital under EEV is set at least equal to local statutory notification requirements for Asia and so can differ from the minimum capital requirement. Jackson required capital is set at 250 per cent of the risk-based capital (RBC) required by the NAIC at the Company Action Level (CAL). This is higher than the solo legal entity statutory minimum capital requirement of 100 per cent CAL that is included in the LCSM surplus (over GMCR).
 
(2)   The EEV Principles require surplus assets to be included at fair value and central core senior debt is held at market value. Within LCSM surplus, some local regulatory regimes value certain assets at cost and core senior debt is held at amortised cost.
 
(3)   LCSM restricts the valuation of certain sundry non-intangible assets. In most cases these assets are considered fully recognisable in free surplus. As an exception to this, both LCSM surplus and EEV free surplus restrict the deferred tax asset held by Jackson to the level allowed to be admitted by the local regulator in local statutory available capital.
 
(4)   Deductions applied to EEV free surplus primarily include: the impact of reporting EEV free surplus for Singapore based on the Tier 1 requirements under the RBC2 framework, which removes certain negative reserves permitted to be recognised in the full RBC 2 regulatory position used for LCSM and applying the embedded value reporting approach issued by the China Association of Actuaries (CAA) within EEV free surplus as compared to the C-ROSS surplus reported for local regulatory purposes (predominantly arising from the requirement under the CAA embedded value methodology to establish a deferred profit liability within EEV net worth).
 
 
 
Reconciliation of Group IFRS shareholders' equity to shareholder LCSM available capital position
 
 
 
 
30 Jun 2020
 $bn
 
31 Dec 2019
 $bn
 
Group IFRS shareholders' equity
 
19.1
 
19.5
 
Remove DAC, goodwill and intangibles recognised on the IFRS statement of financial position
 
(19.3)
 
(18.2)
 
Add subordinated debt at IFRS book valuenote (1)
 
4.5
 
4.6
 
Valuation differencesnote (2)
 
13.5
 
8.6
 
Other
 
(0.1)
 
(0.5)
 
Estimated Group shareholder LCSM available capital
 
17.7
 
14.0
 
 
 
Notes
 
(1)    Subordinated debt is treated as available capital under LCSM but as a liability under IFRS.
 
(2)    Valuation differences reflect differences in the basis of valuing assets and liabilities between IFRS and local statutory valuation rules, including deductions for inadmissible assets. 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, 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 available capital position under RBC2 permits the recognition of certain negative reserves in the local statutory position that are not recognised under IFRS.
 
 
 
Basis of preparation
In advance of the GWS 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 is determined by the summation of available capital across local solvency regimes for regulated entities and IFRS net assets (with adjustments described below) for non-regulated entities.

In determining the LCSM available capital and required capital the following principles have been applied:
 
-       For regulated insurance entities, available 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 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 is based on IFRS net assets after deducting intangible assets. No required capital is held in respect of unregulated entities;
 
-       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; and
 
-       The Hong Kong IA has agreed that specific bonds (being those subordinated debt instruments held by Prudential plc at the date of demerger) 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 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 27 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.
 
 
 
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, 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.
 
 
 
  
2020 $bn
 
 
2019 $bn
 
  
30 Jun
 
 
30 Jun*
 
31 Dec
 
Asia operations:
 
 
   
 
Internal funds
 
149.7
 
 
127.9
 
141.9
 
 
Eastspring Investments external funds, including M&G plc (as analysed in note I(v))
 
98.1
 
 
110.1
 
124.7
 
  
247.8
 
 
238.0
 
266.6
 
US operations - internal funds
 
242.9
 
 
261.3
 
273.4
 
Other operations
 
3.4
 
 
5.0
 
3.9
 
Total Group funds under management
 
494.1
 
 
504.3
 
543.9
 
* The half year 2019 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 period's presentation since full year 2019.  In addition, funds managed on behalf of M&G plc are presented as external rather than internal funds under management to align to the presentation since the demerger in October 2019. 
 
 
 
Note
Total Group funds under management comprise:
 
 
 
  
2020 $bn
 
 
2019 $bn
 
  
30 Jun
 
 
30 Jun
 
31 Dec
 
Total investments and cash and cash equivalents held by the continuing operations on the consolidated statement of financial position
 
388.4
 
 
389.2
 
412.6
 
External funds of Eastspring Investments, including M&G plc
 
98.1
 
 
110.1
 
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
 
7.6
 
 
5.0
 
6.6
 
Total Group funds under management
 
494.1
 
 
504.3
 
543.9
 
 
 
I(iii)  Holding company cash flow
 
The holding company cash flow describes the movement in the cash and short-term investments of the centrally managed group holding companies and differs from the IFRS cash flow statement, which includes all cash flows in the year including those relating to both policyholder and shareholder funds. The holding company cash flow is therefore a more meaningful indication of the Group's central liquidity.
 
 
 
  
2020 $m
 
 
2019 $m
 
  
Half year
 
 
Half year
 
Full year
 
  
 
 
note (f)
 
note (f)
 
Net cash remitted by business units:note (a)
 
 
   
From continuing operations
 
 
   
 
Asianote (b)
 
400
 
 
578
 
950
 
 
Jacksonnote (b)
 
-
 
 
509
 
509
 
 
Other operations
 
32
 
 
6
 
6
 
 
Total continuing operations
 
432
 
 
1,093
 
1,465
 
From discontinued UK and Europe operations
 
-
 
 
453
 
684
 
Net cash remittances by business units
 
432
 
 
1,546
 
2,149
 
Net interest paidnote (c)
 
(147)
 
 
(283)
 
(527)
 
Tax received
 
94
 
 
120
 
265
 
Corporate activities
 
(119)
 
 
(125)
 
(260)
 
Total central outflows
 
(172)
 
 
(288)
 
(522)
 
Holding company cash flow before dividends and other movements
 
260
 
 
1,258
 
1,627
 
Dividends paid
 
(674)
 
 
(1,108)
 
(1,634)
 
Operating holding company cash flow after dividends but before other movements
 
(414)
 
 
150
 
(7)
 
Other movements
 
 
   
 
Issuance and redemption of debt for continuing operations
 
982
 
 
(504)
 
(504)
 
 
Other corporate activities relating to continuing operationsnote (d)
 
(762)
 
 
(330)
 
(338)
 
 
Transactions to effect the demerger, including debt substitutionnote (e)
 
-
 
 
(237)
 
(146)
 
 
Demerger costs
 
(17)
 
 
(211)
 
(424)
 
 
Early settlement of UK-inflation-linked derivative liability
 
-
 
 
-
 
(587)
 
Total other movements
 
203
 
 
(1,282)
 
(1,999)
 
Total holding company cash flow
 
(211)
 
 
(1,132)
 
(2,006)
 
Cash and short-term investments at beginning of period
 
2,207
 
 
4,121
 
4,121
 
Foreign exchange movements
 
(89)
 
 
21
 
92
 
Cash and short-term investments at end of period
 
1,907
 
 
3,010
 
2,207
 
 
 
Notes
 
(a)   Net cash remittances comprise dividends and other transfers from business units that are reflective of emerging earnings and capital generation. 
 
(b)   Significant cash remittances from business units were hedged into sterling using forward contracts during 2019 and these contracts determine the amount of sterling recorded in the holding company cash flow for the relevant remittances. The implicit rates may therefore differ from that applied to present the holding company cash flow in US dollars (see note (f)). The dividend paid by Jackson in the US in US dollars in 2019 was $525 million.
 
(c)   The net interest paid in half year 2019 included $115 million (full year 2019: $231 million) on debt substituted to M&G plc shortly prior to its demerger.
 
(d)   Other corporate activities relating to continuing operations primarily reflect payments made for bancassurance arrangements including those with UOB and TMB Bank.
 
(e)   Transactions to effect the demerger represented the effects on holding company cash flow of steps taken in 2019 as part of the preparation for the demerger of the UK and Europe operations (M&G plc). These included the transfer of subsidiaries, settlement of intercompany loans, receipt of the pre-demerger dividend and the substitution of M&G plc as issuer of certain sub-ordinated debt in place of Prudential plc. Further information is provided in note I(iii) in additional financial information for the year ended 31 December 2019.
 
(f)    At 31 December 2019, the Group changed its basis of managing central cash-holdings from sterling to US dollars. Accordingly, the half year 2020 holding company cash flow statement presented above has been prepared directly in US dollars and half year 2019 amounts are re-presented from those previously published to reflect the change. Half year and full year 2019 comparatives were prepared in sterling, reflecting the management of holding company cash at that time. Cash movements in the period have been converted from sterling into US dollars by using the month-end sterling to US dollar exchange rate for the month in which the transaction occurred. Cash balances at the start and end of the period were translated from sterling to US dollars using the spot rates at the beginning and end of the period respectively. As an exception to the above, external dividends paid during 2019 have been translated at the exchange rate relevant to the day they were paid to ensure consistency with the financial statements.
 
 
 
I(iv)  Analysis of adjusted operating profit by driver
 
This schedule classifies the Group's adjusted operating profit from continuing 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.
 
 
 
(a)   Margin analysis
 
The following analysis expresses certain of the Group's sources of adjusted operating profit as a margin of policyholder liabilities or other relevant drivers.
 
 
 
  
Half year 2020
 
  
Asia 
 
US 
 
Group
total
 
Average
liability
 
Margin
 
  
$m
 
$m
 
$m
 
$m
 
bps
 
  
note (b)
 
note (c)
 
 
 
 
Spread income
 
146
 
273
 
419
 
93,964
 
89
 
Fee income
 
135
 
1,596
 
1,731
 
208,714
 
166
 
With-profits
 
58
 
-
 
58
 
68,347
 
17
 
Insurance margin
 
1,287
 
708
 
1,995
 
 
 
Margin on revenues
 
1,345
 
 
1,345
 
 
 
Expenses:
 
 
 
 
 
 
 
Acquisition costs
 
(864)
 
(484)
 
(1,348)
 
2,644
 
(51)%
 
 
Administration expenses
 
(711)
 
(853)
 
(1,564)
 
310,524
 
(101)
 
 
DAC adjustments
 
117
 
(10)
 
107
 
 
 
Expected return on shareholder assets
 
95
 
26
 
121
 
 
 
  
1,608
 
1,256
 
2,864
 
 
 
Share of related tax charges from joint ventures and associate
 
(18)
 
-
 
(18)
 
 
 
Adjusted operating profit - long-term business
 
1,590
 
1,256
 
2,846
 
 
 
Adjusted operating profit - asset management
 
143
 
10
 
153
 
 
 
Total segment adjusted operating profit
 
1,733
 
1,266
 
2,999
 
 
 
 
 
  
Half year 2019 AER
 
  
Asia 
 
US 
 
Group
total
 
Average
liability
 
Margin
 
  
$m
 
$m
 
$m
 
$m