pru201305076k.htm
 
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 May, 2013
 
 
PRUDENTIAL PUBLIC LIMITED COMPANY
 
 
(Translation of registrant's name into English)
 
 
LAURENCE POUNTNEY HILL,

LONDON, EC4R 0HH, ENGLAND
(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
 
 
 
 
 
 
 
 



NEWS RELEASE                                                                                                                        
                                                                                                                                                      
                            PRUDENTIAL PLC
                            GROUP COMMUNICATIONS
                            12 ARTHUR STREET
                            LONDON EC4R 9AQ
                            TEL 020 7220 7588
                            FAX 020 7548 3725
                            www.prudential.co.uk

9.15 am (BST) 7th May 2013

PRUDENTIAL PLC FIRST QUARTER 2013 INTERIM MANAGEMENT STATEMENT

·  
Positive start to 2013 with continued profitable growth in Asia
·  
Asia new business profit up 18 per cent to £308 million
·  
Asset management net inflows up 66 per cent to £3.5 billion
·  
Strong sales of Elite Access, our new ‘no guarantees’ Variable Annuity product in the US
·  
UK annuity growth offsets impact of regulatory changes
·  
Acquisition of Thanachart Life approved and Thanachart bancassurance partnership launched

Tidjane Thiam, Group Chief Executive, said:

“We have made a good start to 2013. Our life insurance business in Asia has continued to deliver profitable growth with new business profit, our primary measure of growth, up 18 per cent.  In asset management, M&G has performed particularly well, with external funds under management, a key source of profitability, growing to a record £119 billion, an increase of 28 per cent on the first quarter of 2012, driven by net inflows from its Continental European operations. Net inflows from retail and institutional business at Eastspring Investments in Asia are also showing positive signs, with assets under management above £60 billion for the first time. In the US and the UK, we continue to manage volumes in line with our value-driven approach, and we are encouraged by the performance of Elite Access, our new variable annuity without guarantees which was launched in the US last year.

“Across the Group, our businesses are on track to achieve our 2013 “Growth and Cash” objectives. Against a background of low long-term interest rates and uncertain economic growth, we remain focused on executing our strategy and capturing the long-term profitable growth opportunities available to us, particularly in the growing markets of Asia, where we continue to build on our leading market positions and strong multi-channel distribution capabilities. Across our markets, we remain disciplined in our approach, putting value ahead of volume, as we continue to optimise the balance between risk, returns, capital and cash generation.”


BUSINESS UNIT REVIEW

ASIA
Asia new business profit increased by 18 per cent to £308 million in the first quarter, driven by higher sales of savings and protection products to the growing Asian middle class and a more favourable geographic mix that primarily reflects strong growth in our core target markets in South-east Asia and Hong Kong and a deliberate reduction in Taiwan. In all, eight of our businesses have delivered double digit sales growth in the first quarter. We remain on track to achieve our Asia growth objective of doubling 2009 new business profit in 2013, with new business profit in the first quarter of 2013 2.3 times higher than that in the first quarter of 2009.

In working to meet the needs of the fast growing and increasingly urbanised Asian middle classes, building and strengthening our multi-channel distribution remains a key focus of our strategy. During the first quarter, agency APE (ex India) grew by 16 per cent predominantly due to increases in active manpower and to a lesser extent, due to an increase in average case sizes. We also continue to see good growth in our bancassurance partnerships, with APE growth of 17 per cent, excluding Taiwan where we have chosen not to offer low-return, capital-intensive products through our banking partner E-Sun.

We continue to make good progress in our ‘sweet-spot’ markets1, with new business profit up 20 per cent, outpacing APE sales growth of 16 per cent. Our two largest businesses, Indonesia and Hong Kong, had a particularly strong quarter, with profitable volume growth driven primarily by increased levels of agent activation in both markets and additionally, in Hong Kong, the benefit of improved case sizes.  This performance was achieved despite a material depreciation of the Indonesian rupiah relative to sterling over the period. In Malaysia we remain focused on building our Bumi strategy and our agency refocusing efforts are paying off with one of the highest levels of protection content in the region. In Singapore both agency and bank channels continue to perform well, reflecting further growth in active agents and strong contributions from our banking partners.

In the Philippines we have maintained the momentum of recent years with APE sales up 40 per cent, while in Vietnam APE sales growth of 43 per cent reinforces the long-term potential of the market.  In Thailand we completed the acquisition of Thanachart Life as announced on 3 May and have launched our exclusive distribution partnership with Thanachart Bank. We have also successfully launched our new business in Cambodia, where we have a partnership with ACLEDA Bank Plc, the largest retail and commercial bank in the country. We are in the process of opening a representative office in Myanmar.

CITIC-Prudential in China had an excellent start to the year with Prudential’s 50 per cent share of APE up 59 per cent to £27 million. This delivered an all-time record in terms of new business profits. Both the bank and agency channels have performed well, with particularly encouraging results from CITIC Bank. In India, ICICI-Prudential, in which the Group has a 26 per cent joint venture stake, has retained its position as a private sector leader and has continued its efforts to refocus its operations on regular premium savings and protection products.

In Korea, sales were boosted ahead of a tax change that took effect in February, while in Taiwan our value over volume approach saw APE fall.

Our Asia asset management business, Eastspring Investments ended the quarter with record funds under management (FUM) of £62.8 billion, up 18 per cent from £53.4 billion at 31 March 2012, and for the first time over £60 billion. External FUM2 increased by 22 per cent to £19.8 billion, from £16.2 billion at 31 March 2012.  First quarter 2013 net inflows for the third party and institutional business of £1,071 million (first quarter 2012: £349 million) were driven by strong net flows in Korea, India and Taiwan, new institutional bond mandates secured in Singapore and a first-time contribution from Indonesia. On 17 April Eastspring Investments received regulatory approval to distribute its funds in Europe as it implements its strategy of building distribution of its products in new markets outside Asia, in order to benefit from Western investors’ appetite for Asian exposure.

Overall, our business in Asia continues to deliver strong and profitable growth, driven by our focus on meeting the savings and protection needs of the growing middle-class through high-quality, multi-channel distribution.


US
In the first quarter of 2013, Jackson achieved APE retail sales of £343 million, a 6 per cent increase compared to the first quarter of 2012. Jackson has achieved these sales levels while maintaining its pricing discipline, as it continued to write new business at aggregate internal rates of return in excess of 20 per cent.  Including institutional sales, total APE sales were £358 million, an 8 per cent increase over the same period in 2012.  We continue to focus on IFRS earnings and cash generation ahead of volume in the highly competitive US market.

New business profits were £22 million lower at £192 million in the first quarter of 2013, reflecting the impact of lower interest rates and spread compression.  On a like-for-like basis, adjusting for lower yields and narrower credit spreads since the first quarter of 2012, new business profit would have been flat year-on-year. The effect on new business profit of lower guaranteed variable annuity sales was almost entirely offset by the benefit of pricing actions we have taken over the last 12 months and the contribution from increasing sales of Elite Access.

Growth in assets under management is a key driver of IFRS profit and cash. Total annuity net flows of £2.0 billion in the first quarter of 2013 were 13 per cent higher than the fourth quarter of 2012, and separate account assets also benefited from the 10 per cent uplift in the S&P500 index.  As a result, at the end of the period Jackson’s statutory separate account assets totalled £58.1 billion and general account assets totalled £41.0 billion, up 38 per cent and 34 per cent respectively year-on-year.

Total variable annuity APE of £294 million (first quarter 2012: £279 million) benefited from the encouraging performance of Elite Access which contributed £54 million of APE in the period and continues to show strong sales momentum one year after its launch in March 2012. Elite Access is a high IRR product that provides retail customers access to alternative investments in a tax efficient variable annuity wrapper without guaranteed benefits. Excluding the contribution of Elite Access, guaranteed variable annuity APE of £240 million was down 14 per cent mainly due to the impact of pricing actions taken in the fourth quarter of 2012 and our decision to control volumes to match the Group’s risk appetite. This change in product mix is in line with the US strategy we outlined at our Investor Conference in November 2012.

Fixed index annuity APE of £34 million increased 36 per cent from the same period in 2012. We have seen a moderate increase in demand for fixed index annuities as consumers seek to increase their exposure to equity markets following the recent strong performance of the S&P 500.  Fixed annuity APE of £14 million decreased 13 per cent.

In the first three months of the year Jackson’s hedging programme and policyholder behaviour continue to perform in line with our expectations.

Curian Capital, a specialised asset management company that provides innovative fee-based separately managed accounts, had FUM of £6.3 billion at the end of March 2013 compared with £5.5 billion at the end of 2012. Curian attracted deposits of £436 million in the first quarter of 2013, up 23 per cent over the fourth quarter of 2012, although down slightly compared to the same period in 2012. Curian’s asset growth continues to benefit from its investment platform development and the significant expansion in 2012 of its wholesaling team and distribution territories.

In the US, our strategy remains focused on generating shareholder value as measured by cash generation and IFRS earnings, while operating within a prudent risk management framework, and maintaining a strong regulatory capital position.


UK
In the first quarter of 2013, Prudential UK generated new business profit of £63 million, a level comparable to that achieved in 2012 for the same period. Our UK business continues to focus on those areas of the retirement savings and income markets where we are able to bring superior value to our customers and where we enjoy a competitive advantage.

Total APE sales of £185 million were 2 per cent lower than the first quarter of 2012, principally due to lower sales of with-profits bonds and individual pensions which were partly offset by higher sales of individual annuities.

Individual annuities APE of £55 million was 15 per cent higher than for the first quarter of 2012, although below volumes seen in the fourth quarter of 2012, which were boosted by sales ahead of the change to gender neutral pricing on 21 December 2012. We continue to see strong demand for our with-profits Income Choice Annuity, with APE increasing by 69 per cent to £22 million. The dual features of this product, namely income security combined with the potential for income growth, are proving increasingly attractive to customers facing the impact of the current low interest rate environment.

Sales of onshore bonds were down 18 per cent to APE of £45 million, largely reflecting the anticipated reduction in sales of with-profits bonds as a consequence of the implementation of the Retail Distribution Review (RDR) regulations at the end of 2012. First quarter with-profit bond sales were 21 per cent lower than the first quarter of 2012 despite benefiting from a significant pre-RDR pipeline. We anticipate market dislocation will persist in the short-term as consumers and distributors adjust to the new environment and we continue to expect this will dampen our sales of investment bonds in 2013, compared to the level of sales achieved in 2012.

Corporate pensions APE of £53 million was 8 per cent higher than the same period last year, mainly due to higher with-profits sales. Prudential UK remains the largest provider of Additional Voluntary Contribution plans within the public sector where we provide schemes for 68 of the 99 public sector authorities in the UK.

APE sales of other products, principally individual pensions, PruProtect, PruHealth and offshore bonds, of £30 million were 19 per cent down on the first quarter of 2012, mainly due to the cessation of contracting out of the state second tier pension for defined contribution pension schemes, which resulted in a £7 million reduction in APE.

We continue to manage our UK business by focussing on our strengths of individual annuities and with-profits products to meet the needs of our 7 million UK customers.

We are pleased to have announced recently the appointment of Jackie Hunt to lead our UK and European business, and we thank Rob Devey for the considerable contribution he has made over the past four years.


M&G
M&G achieved a 38 per cent increase in net inflows to £2.4 billion during the first three months of 2013, reflecting strong performance from retail sales in Continental Europe and driving both total FUM and external FUM to record levels at £238.4 billion and £119.2 billion respectively.

In M&G’s Retail business, net inflows from European investors reached a record £2.9 billion, almost double the £1.5 billion reported in the first quarter of 2012, reflecting strong long term fund performance and a decade of investment in European distribution. The substantially higher inflows from European investors more than offset weaker sales in the UK, evidencing the benefits of M&G’s diversified business model. A significant portion of these UK outflows result from our decision in summer 2012 to slow contributions into two of our market-leading corporate bond funds. Retail FUM increased by 28 per cent year-on-year to £61.4 billion at 31 March 2013. Of this, FUM from European clients total £18.7 billion, up from £10.4 billion at 31 March 2012 and now account for nearly a third of total retail FUM.

Our Retail business remains underpinned by strong and consistent long-term investment performance. Twenty retail funds accounting for 63 per cent of FUM have delivered top or upper quartile returns over the three years to 31 March 2013.

M&G’s Institutional business saw small net outflows for the quarter, with the expected loss of some short-term segregated mandates offsetting the positive impact of new business, including positive contributions from M&G’s Alternative Credit team in particular.  The Institutional business has a strong pipeline of new business which has been won but not yet been funded. Institutional external FUM were £57.7 billion at 31 March 2013, up 27 per cent from £45.4 billion at 31 March 2012.

Since the quarter end, M&G has announced that PRUPIM is to be renamed M&G Real Estate. This change reflects its greater collaboration with other parts of M&G as we increasingly offer clients investment strategies with a real estate component.

The combination of net inflows and favourable market movements has increased M&G’s total FUM to a record level of £238.4 billion at 31 March 2013, up 17 per cent from the same time last year. External funds now represent for the first time 50 per cent of the total, standing at a new high of £119.2 billion, up 28 per cent on the first quarter of 2012.

BALANCE SHEET
Our balance sheet remains resilient and conservatively positioned. As at 31 March 2013, our IGD surplus was £4.0 billion, after deducting the 2012 final dividend.


OUTLOOK
We have made a good start to the year and continue to deliver strong performance across our businesses.

The global growth outlook remains uncertain, with on-going efforts to reach a more healthy fiscal balance weighing on the growth prospects of a number of large Western economies. In that context, the emerging economies of Asia are expected to continue growing at a faster rate than most developed markets.

Prudential enjoys leading positions in South-east Asia, where the outlook for long-term, profitable growth remains extremely favourable, given low insurance penetration and a rapidly growing, increasingly urbanised and wealthy middle class. We also benefit from strong platforms in the US and in the UK where we are focused on earnings and cash, implementing our value over volume approach.

Our businesses are in good shape, our balance sheet remains well-capitalised and conservatively positioned and we are confident that we will continue our record of relative outperformance.


1. Q1 2013 Business Unit financial highlights

New Business Profit 3
Q1 2013
Q1 2012 
% change on Q1 20124 
Asia
£308m
£260m
18 %
US
£192m
£214m
(10)%
UK
£63m
£62m
2 %
Total Group Insurance
£563m
£536m
5 %
Sales – APE
Q1 2013
Q1 2012
 
% change on Q1 2012
Asia
£495m
£443m
12 %
US
£358m
£332m
8 %
UK
£185m
£189m
(2)%
Total Group Insurance
£1,038m
£964m
8 %

Investment Flows
 Q1 2013
 Q1 2012
% change on
 Q1 20126 
Gross inflows
      
M&G
£9,869m
£7,009m
41 %
Eastspring Investments5
£3,540m
£2,174m
63 %
Total Group
£13,409m
£9,183m
46%
       
Net inflows
      
M&G
£2,431m
£1,767m
38 %
Eastspring Investments5 
£1,071m
£349m
207 %
Total Group
£3,502m
£2,116m
66 %
       
Funds Under Management7 
      
M&G
£238.4bn
£202.9bn
17 %
Eastspring Investments
£62.8bn
£53.4bn
18 %


ENDS

Enquiries:

Media
 
  
Investors/Analysts
 
  
Jonathan Oliver
 
+44 (0)20 7548 3719
 
Raghu Hariharan
 
+44 (0)20 7548 2871
 
Robin Tozer
 
+44 (0)20 7548 2776
 
Richard Gradidge
 
+44 (0)20 7548 3860
 


1
Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam
2
External funds under management for Eastspring excluding Money Market Funds as set out in schedule 3
3
 New business profits have been calculated by applying the assumptions set out in schedule 5
4
New business profit is calculated using end-of-period economic assumptions. These are presented in schedule 5 of the Interim Management Statement. The fall in long-term interest yields between March 2012 and March 2013, have reduced the total year-to-date March 2013 new business profit by £27 million (£22 million of which arose in respect of the US business)
5
Gross and net investment inflows excluding Eastspring Money Market Funds.  Investment flows exclude Eastspring Money Market Funds (MMF) gross inflows of £14,003 million (Q1 2012: £12,556 million) and net outflows of £528 million (Q1 2012: net outflows of £527 million)
6
Percentages based on unrounded numbers
7
 Funds under management include all external and internal funds.


Notes:

1.
Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales and are subject to rounding.

2.
Present Value of New Business Premiums (PVNBP) are calculated as equalling single premiums plus the present value of expected new business premiums of regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution.

3.
NBP assumptions for the period are detailed in the accompanying schedule 5.

4.
There will be a conference call today for the media at 10.00 (UK) / 17.00 (Hong Kong) hosted by Tidjane Thiam, Group Chief Executive. Dial in telephone number: (UK) +44 (0)203 139 4830 (Hong Kong) +852 3068 9834 Pin: 45518914#.

5.
There will be a conference call today for analysts and investors at 11.30 (UK) / 18.30 (Hong Kong) hosted by Tidjane Thiam, Group Chief Executive. Dial in telephone number: +44 (0)203 139 4830 / 0808 237 0030 (Freephone UK) Pin: 36940079#. Playback (PIN: 638967#) +44(0)203 426 2807 / 0808 237 0026 (Freephone UK) (available from 13.00 (UK) on 7 May 2013 until 23.59 (UK) on 6 June 2013).

6.
High resolution photographs are available to the media free of charge at www.prudential.co.uk/prudential-plc/media/media_library or by calling the media office on +44 (0) 207 548 2466.

7.
Sales for overseas operations have been reported using average exchange rates for the period as shown in the attached schedules. Reference to prior year figures in the commentary is on an actual exchange rate basis unless stated. An alternative method of presentation is on a constant exchange rate basis shown in supplementary schedule 1B.

8.
Prudential plc is a company incorporated and with its principal place of business in England, and its affiliated companies constitute a large global financial services group. It provides insurance and financial services through its subsidiaries and affiliates throughout the world. It has been in existence for 165 years and has £405 billion in assets under management (as at 31 December 2012). Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America.

9.
Forward-Looking Statements
This document may contain ‘forward-looking statements’ with respect to certain of Prudential's plans and its goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements that are not historical facts, including statements about Prudential’s beliefs and expectations and including, without limitation, statements containing the words “may”, “will”, “should”, “continue”, “aims”, “estimates”, “projects”, “believes”, “intends”, “expects”, “plans”, “seeks” and “anticipates”, and words of similar meaning, are forward-looking statements. These statements are based on plans, estimates and projections as at the time they are made, and therefore undue reliance should not be placed on them. By their nature, all forward-looking statements involve risk and uncertainty. A number of important factors could cause Prudential's actual future financial condition or performance or other indicated results to differ materially from those indicated in any forward-looking statement. Such factors include, but are not limited to, future market conditions, including fluctuations in interest rates and exchange rates and the potential for a sustained low-interest rate environment, and the performance of financial markets generally; the policies and actions of regulatory authorities, including, for example, new government initiatives related to the financial crisis and the effect of the European Union's ‘Solvency II’ requirements on Prudential's capital maintenance requirements; the impact of competition, economic growth, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of changes in capital, solvency standards, accounting standards or relevant regulatory frameworks, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate; and the impact of legal actions and disputes. These and other important factors may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. Further discussion of these and other important factors that could cause Prudential's actual future financial condition or performance or other indicated results to differ, possibly materially, from those anticipated in Prudential's forward-looking statements can be found under the ‘Risk factors’ heading in its most recent Annual Report and the ‘Risk Factors’ heading of Prudential's most recent annual report on Form 20-F filed with the U.S. Securities and Exchange Commission, as well as under the ‘Risk Factors’ heading of any subsequent Prudential Half Year Financial Report. Prudential's most recent Annual Report, Form 20-F and any subsequent Half Year Financial Report are/will be available on its website at www.prudential.co.uk.

Any forward-looking statements contained in this document speak only as of the date on which they are made. Prudential expressly disclaims any obligation to update any of the forward-looking statements contained in this document or any other forward-looking statements it may make, whether as a result of future events, new information or otherwise except as required pursuant to the UK Prospectus Rules, the UK Listing Rules, the UK Disclosure and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST listing rules or other applicable laws and regulations.

10.       
The financial information presented in this Interim Management Statement and accompanying schedules is unaudited.

Supplementary schedules

Contents
 
  
Schedule 1A
 
New Business Insurance Operations (Reported Exchange Rates)
 
Schedule 1B
 
New Business Insurance Operations (Constant Exchange Rates)
 
Schedule 2A
 
Total Insurance New Business APE – By Quarter (Reported Exchange Rates)
 
Schedule 2B
 
Total Insurance New Business APE – By Quarter (Constant Exchange Rates)
 
Schedule 3
 
Investment Operations – By Quarter (Reported Exchange Rates)
 
Schedule 4
 
New Business Profit and Margin ( % APE and % PVNBP) (Reported Exchange Rates)
 
Schedule 5
 
EEV New Business Methodology and Assumptions
 
Schedule 6
 
Capital Management
 
Schedule 7
 
Basis of preparation
 


Schedule 1A – Reported Exchange Rates
PRUDENTIAL PLC – NEW BUSINESS – Q1 2013
INSURANCE OPERATIONS

                         
 
Single
Regular
Annual Equivalents(3)
PVNBP
 
Q1
 2013
Q1
 2012
  
Q1
2013
Q1
 2012
  
Q1
2013
Q1
 2012
  
Q1
 2013
Q1
 2012
  
 
YTD
YTD
+/- (%)
YTD
YTD
+/- (%)
YTD
YTD
+/- (%)
YTD
YTD
+/- (%)
 
£m
£m
  
£m
£m
  
£m
£m
  
£m
£m
  
Group Insurance Operations
                        
Asia (1a) (5) (7)
535 
336 
59%
441 
410 
8%
495 
443 
12%
2,734 
2,303 
19%
US(1a) (7)
3,581 
3,279 
9%
1 
4 
(75%)
358 
332 
8%
3,581 
3,307 
8%
UK
1,244 
1,360 
(9%)
61 
53 
15%
185 
189 
(2%)
1,540 
1,580 
(3%)
Group Total
5,360 
4,975 
8%
503 
467 
8%
1,038 
964 
8%
7,855 
7,190 
9%
                         
Asia Insurance Operations(1a) (7)
                        
Hong Kong
37 
19 
95%
103 
83 
24%
107 
85 
26%
592 
464 
28%
Indonesia
93 
77 
21%
103 
89 
16%
112 
97 
15%
523 
395 
32%
Malaysia
26 
25 
4%
43 
42 
2%
46 
45 
2%
307 
283 
8%
Philippines
67 
45 
49%
7 
6 
17%
14 
10 
40%
90 
61 
48%
Singapore
113 
73 
55%
69 
65 
6%
80 
72 
11%
571 
514 
11%
Thailand
6 
3 
100%
10 
11 
(9%)
11 
11 
- 
44 
39 
13%
Vietnam
 - 
 - 
N/A
 10 
7 
43%
 10 
7 
43%
35 
24 
46%
SE Asia Operations inc. Hong Kong
342 
242 
41%
345 
303 
14%
380 
327 
16%
2,162 
1,780 
21%
China(8)
42 
11 
282%
23 
16 
44%
27 
17 
59%
136 
81 
68%
Korea
117 
8 
1,363%
18 
20 
(10%)
30 
21 
43%
191 
107 
79%
Taiwan
21 
43 
(51%)
17 
39 
(56%)
19 
43 
(56%)
89 
183 
(51%)
India(5)
13 
32 
(59%)
38 
32 
19%
39 
35 
11%
156 
152 
3%
Total Asia Operations
535 
336 
59%
441 
410 
8%
495 
443 
12%
2,734 
2,303 
19%
                         
US Insurance Operations(1a) (7)
                        
Variable Annuities
2,403 
2,790 
(14%)
- 
- 
N/A
240 
279 
(14%)
2,403 
2,790 
(14%)
Elite Access (variable annuity)
538 
- 
N/A
- 
- 
N/A
54 
- 
N/A
538 
- 
N/A
Fixed Annuities
144 
162 
(11%)
- 
- 
N/A
14 
16 
(13%)
144 
162 
(11%)
Fixed Index Annuities
342 
249 
37%
- 
- 
N/A
34 
25 
36%
342 
249 
37%
Life
- 
2 
(100%)
1 
4 
(75%)
1 
4 
(75%)
- 
30 
(100%)
Wholesale
154 
76 
103%
- 
- 
N/A
15 
8 
88%
154 
76 
103%
Total US Insurance Operations
3,581 
3,279 
9%
1 
4 
(75%)
358 
332 
8%
3,581 
3,307 
8%
                         
UK & Europe Insurance Operations
                        
Direct and Partnership Annuities
76 
66 
15%
- 
- 
N/A
8 
7 
14%
76 
66 
15%
Intermediated Annuities
151 
103 
47%
- 
- 
N/A
15 
10 
50%
151 
103 
47%
Internal Vesting Annuities
318 
310 
3%
- 
- 
N/A
32 
31 
3%
318 
310 
3%
Total Individual Annuities
545 
479 
14%
- 
- 
N/A
55 
48 
15%
545 
479 
14%
Corporate Pensions
45 
91 
(51%)
49 
40 
23%
53 
49 
8%
269 
250 
8%
On-shore Bonds
447 
548 
(18%)
- 
- 
N/A
45 
55 
(18%)
448 
548 
(18%)
Other Products
185 
242 
(24%)
12 
13 
(8%)
30 
37 
(19%)
256 
303 
(16%)
Wholesale
 22 
- 
N/A
 - 
- 
N/A
 2 
- 
N/A
22 
- 
N/A
Total UK & Europe
 Insurance Operations
1,244 
1,360 
(9%)
61 
53 
15%
185 
189 
(2%)
1,540 
1,580 
(3%)
Group Total
5,360 
4,975 
8%
503 
467 
8%
1,038 
964 
8%
7,855 
7,190 
9%


Schedule 1B – Constant Exchange Rates
PRUDENTIAL PLC – NEW BUSINESS – Q1 2013
INSURANCE OPERATIONS

                         
 
Single
Regular
Annual Equivalents(3)
PVNBP
 
Q1
 2013
Q1
 2012
  
Q1
 2013
Q1
 2012
  
Q1
 2013
Q1
 2012
  
Q1
 2013
Q1
 2012
  
 
YTD
YTD
+/- (%)
YTD
YTD
+/- (%)
YTD
YTD
+/- (%)
YTD
YTD
+/- (%)
 
£m
£m
  
£m
£m
  
£m
£m
  
£m
£m
  
Group Insurance Operations
                        
Asia  (1b) (7)
 535 
 337 
59%
 441 
 409 
8%
 495 
 444 
11%
2,734 
 2,316 
18%
US(1b) (7)
3,581
 3,318 
8%
 1 
 4 
(75%)
 358 
 335 
7%
3,581 
 3,347 
7%
UK
1,244 
 1,360 
(9%)
 61 
 53 
15%
 185 
 189 
(2%)
1,540 
 1,580 
(3%)
Group Total
5,360 
 5,015 
7%
 503 
 466 
8%
1,038 
 968 
7%
7,855 
 7,243 
8%
                         
Asia Insurance Operations(1b) (7)
                        
Hong Kong
 37 
 19 
95%
 103 
 84 
23%
 107 
 86 
24%
 592 
 470 
26%
Indonesia
 93 
 73 
27%
 103 
 85 
21%
 112 
 92 
22%
 523 
 374 
40%
Malaysia
 26 
 25 
4%
 43 
 43 
0%
 46 
 45 
2%
 307 
 285 
8%
Philippines
 67 
 48 
40%
 7 
 6 
17%
 14 
 11 
27%
 90 
 65 
38%
Singapore
 113 
 76 
49%
 69 
 67 
3%
 80 
 75 
7%
 571 
 530 
8%
Thailand
 6 
 3 
100%
 10 
 11 
(9%)
 11 
 12 
(8%)
 44 
 41 
7%
Vietnam
 - 
 - 
N/A
 10 
 7 
43%
 10 
 7 
43%
 35 
 25 
40%
SE Asia Operations inc. Hong Kong
 342 
 244 
40%
 345 
 303 
14%
 380 
 328 
16%
 2,162 
 1,790 
21%
China(8)
 42 
 12 
250%
 23 
 16 
44%
 27 
 18 
50%
 136 
 83 
64%
Korea
 117 
 8 
1,363%
 18 
 21 
(14%)
 30 
 22 
36%
 191 
 113 
69%
Taiwan
 21 
 43 
(51%)
 17 
 39 
(56%)
 19 
 43 
(56%)
 89 
 187 
(52%)
India(5)
 13 
 30 
(57%)
 38 
 30 
27%
 39 
 33 
18%
 156 
 143 
9%
Total Asia Operations
 535 
 337 
59%
 441 
 409 
8%
 495 
 444 
11%
 2,734 
 2,316 
18%
                         
US Insurance Operations(1b) (7)
                        
Variable Annuities
2,403 
 2,823 
(15%)
 - 
 - 
N/A
 240 
 282 
(15%)
2,403 
 2,823 
(15%)
Elite Access (variable annuity)
 538 
 - 
N/A
 - 
 - 
N/A
 54 
 - 
N/A
 538 
 - 
N/A
Fixed Annuities
 144 
 164 
(12%)
 - 
 - 
N/A
 14 
 16 
(13%)
 144 
 164 
(12%)
Fixed Index Annuities
 342 
 252 
36%
 - 
 - 
N/A
 34 
 25 
36%
 342 
 252 
36%
Life
 - 
 2 
(100%)
 1 
 4 
(75%)
 1 
 4 
(75%)
 - 
 31 
(100%)
Wholesale
 154 
 77 
100%
 - 
 - 
N/A
 15 
 8 
88%
 154 
 77 
100%
Total US Insurance Operations
 3,581 
 3,318 
8%
 1 
 4 
(75%)
 358 
 335 
7%
 3,581 
 3,347 
7%
                         
UK & Europe Insurance Operations
                        
Direct and Partnership Annuities
 76 
 66 
15%
 - 
 - 
N/A
 8 
 7 
14%
 76 
 66 
15%
Intermediated Annuities
 151 
 103 
47%
 - 
 - 
N/A
 15 
 10 
50%
 151 
 103 
47%
Internal Vesting Annuities
 318 
 310 
3%
 - 
 - 
N/A
 32 
 31 
3%
 318 
 310 
3%
Total Individual Annuities
 545 
 479 
14%
 - 
 - 
N/A
 55 
 48 
15%
 545 
 479 
14%
Corporate Pensions
 45 
 91 
(51%)
 49 
 40 
23%
 53 
 49 
8%
 269 
 250 
8%
On-shore Bonds
 447 
 548 
(18%)
 - 
 - 
N/A
 45 
 55 
(18%)
 448 
 548 
(18%)
Other Products
 185 
 242 
(24%)
 12 
 13 
(8%)
 30 
 37 
(19%)
 256 
 303 
(16%)
Wholesale
 22 
 - 
N/A
 - 
 - 
N/A
 2 
 - 
N/A
 22 
 - 
N/A
Total UK & Europe Insurance Operations
 1,244 
 1,360 
(9%)
 61 
 53 
15%
 185 
 189 
(2%)
 1,540 
 1,580 
(3%)
Group Total
 5,360 
 5,015 
7%
 503 
 466 
8%
 1,038 
 968 
7%
 7,855 
 7,243 
8%


Schedule 2A - Reported Exchange Rates
PRUDENTIAL PLC - NEW BUSINESS – Q1 2013
TOTAL INSURANCE NEW BUSINESS APE - BY QUARTER

           
 
2012 
2013 
 
Q1
Q2
Q3
Q4
Q1
 
£m
£m
£m
£m
£m
Group Insurance Operations
          
Asia (1a)(7)
 443 
 456 
 429 
 569 
495 
US(1a)(7)
 332 
 387 
 414 
 329 
358 
UK
 189 
 223 
 205 
 219 
185 
Group Total
 964 
 1,066 
 1,048 
 1,117 
 1,038 
           
Asia Insurance Operations(1a)(7)
          
Hong Kong
 85 
 92 
 96 
 123 
107 
Indonesia
 97 
 109 
 97 
 143 
112 
Malaysia
 45 
 53 
 47 
 73 
46 
Philippines
 10 
 11 
 12 
 12 
14 
Singapore
 72 
 69 
 76 
 84 
80 
Thailand
 11 
 8 
 9 
 9 
11 
Vietnam
 7 
 11 
 11 
 16 
10 
SE Asia Operations inc. Hong Kong
 327 
 353 
 348 
 460 
380 
China(8)
 17 
 16 
 13 
 10 
27 
Korea
 21 
 24 
 22 
 28 
30 
Taiwan
 43 
 45 
 24 
 44 
19 
India(5)
 35 
 18 
 22 
 27 
39 
Total Asia Insurance Operations
 443 
 456 
 429 
 569 
495 
           
US Insurance Operations(1a)(7)
          
Variable Annuities
 279 
 318 
 333 
 230 
240 
Elite Access (variable annuity)
 - 
 14 
 26 
 45 
54 
Fixed Annuities
 16 
 15 
 14 
 13 
14 
Fixed Index Annuities
 25 
 25 
 29 
 30 
34 
Life
 4 
 4 
 3 
 1 
1 
Wholesale
 8 
 11 
 9 
 10 
15 
Total US Insurance Operations
 332 
 387 
 414 
 329 
358 
           
UK & Europe Insurance Operations
          
Direct and Partnership Annuities
 7 
 7 
 7 
 9 
8 
Intermediated Annuities
 10 
 15 
 16 
 24 
15 
Internal Vesting annuities
 31 
 35 
 38 
 42 
32 
Total Individual Annuities
 48 
 57 
 61 
 75 
55 
Corporate Pensions
 49 
 55 
 44 
 41 
53 
On-shore Bonds
 55 
 51 
 55 
 67 
45 
Other Products
 37 
 33 
 31 
 36 
30 
Wholesale
 - 
 27 
 14 
 - 
2 
Total UK & Europe Insurance Operations
 189 
 223 
 205 
 219 
185 
Group Total
 964 
 1,066 
 1,048 
 1,117 
 1,038 
           



Schedule 2B - Constant Exchange Rates
PRUDENTIAL PLC - NEW BUSINESS – Q1 2013
TOTAL INSURANCE NEW BUSINESS APE - BY QUARTER

           
           
 
2012 
2013 
 
Q1
Q2
Q3
Q4
Q1
 
£m
£m
£m
£m
£m
Group Insurance Operations
          
Asia(1b)(7)
444 
465 
441 
584 
495 
US(1b)(7)
335 
395 
419 
340 
358 
UK
189 
223 
205 
219 
185 
Group Total
968 
1,083 
1,065 
1,143 
1,038 
           
Asia Insurance Operations(1b)(7)
          
Hong Kong
86 
94 
97 
127 
107 
Indonesia
92 
106 
97 
145 
112 
Malaysia
45 
54 
49 
74 
46 
Philippines
11 
11 
13 
13 
14 
Singapore
75 
72 
78 
86 
80 
Thailand
12 
9 
10 
9 
11 
Vietnam
7 
11 
12 
16 
10 
SE Asia Operations inc. Hong Kong
328 
357 
356 
470 
380 
China(8)
18 
17 
13 
11 
27 
Korea
22 
26 
23 
30 
30 
Taiwan
43 
47 
25 
45 
19 
India(5)
33 
18 
24 
28 
39 
Total Asia Insurance Operations
444 
465 
441 
584 
495 
           
US Insurance Operations(1b)(7)
          
Variable Annuities
282 
325 
337 
239 
240 
Elite Access (variable annuity)
- 
14 
27 
46 
54 
Fixed Annuities
16 
15 
14 
13 
14 
Fixed Index Annuities
25 
26 
29 
31 
34 
Life
4 
4 
3 
1 
1 
Wholesale
8 
11 
9 
10 
15 
Total US Insurance Operations
335 
395 
419 
340 
358 
           
UK & Europe Insurance Operations
          
Direct and Partnership Annuities
7 
7 
7 
9 
8 
Intermediated Annuities
10 
15 
16 
24 
15 
Internal Vesting annuities
31 
35 
38 
42 
32 
Total Individual Annuities
48 
57 
61 
75 
55 
Corporate Pensions
49 
55 
44 
41 
53 
On-shore Bonds
55 
51 
55 
67 
45 
Other Products
37 
33 
31 
36 
30 
Wholesale
- 
27 
14 
- 
2 
Total UK & Europe Insurance Operations
189 
223 
205 
219 
185 
Group Total
968 
1,083 
1,065 
1,143 
1,038 

Schedule 3 - Reported Exchange Rates
PRUDENTIAL PLC - NEW BUSINESS – Q1 2013
INVESTMENT OPERATIONS - BY QUARTER

   
2012 
2013 
  
   
Q1
Q2
Q3
Q4 
Q1
  
   
£m
£m
£m
£m 
£m
  
Group Investment Operations
              
Opening FUM
  
106,984 
109,507 
110,204 
120,709 
129,498 
  
Net Flows:(10)
  
2,116 
3,251 
6,975 
6,165 
3,502 
  
 - Gross Inflows
  
9,183 
9,305 
13,228 
13,783 
13,409 
  
 - Redemptions
  
(7,067)
(6,054)
(6,253)
(7,618)
(9,907)
  
Other Movements
  
407 
(2,554)
3,530 
2,624 
5,926 
  
Total Group Investment Operations
  
109,507 
110,204 
120,709 
129,498 
138,926 
  
               
M&G
              
               
Retail
              
Opening FUM
  
44,228 
47,972 
48,352 
51,951 
54,879 
  
Net Flows:
  
2,398 
1,876 
1,863 
1,705 
2,446 
  
 - Gross Inflows
  
6,055 
4,995 
4,903 
5,528 
7,213 
  
 - Redemptions
  
(3,657)
(3,119)
(3,040)
(3,823)
(4,767)
  
Other Movements
  
1,346 
(1,496)
1,736 
1,223 
4,102 
  
Closing FUM
  
47,972 
48,352 
51,951 
54,879 
61,427 
  
               
Institutional(4)
              
Opening FUM
  
47,720 
45,371 
46,291 
52,215 
56,989 
  
Net Flows:
  
(631)
1,298 
4,505 
3,867 
(15)
  
 - Gross Inflows
  
954 
2,697 
5,643 
5,688 
2,656 
  
 - Redemptions
  
(1,585)
(1,399)
(1,138)
(1,821)
(2,671)
  
Other Movements
  
(1,718)
(378)
1,419 
907 
771 
  
Closing FUM
  
45,371 
46,291 
52,215 
56,989 
57,745 
  
Total M&G Investment Operations
  
93,343 
94,643 
104,166 
111,868 
119,172 
  
               
PPM South Africa FUM included in Total M&G
  
3,757 
3,584 
3,848 
4,391 
4,701 
  
               
Eastspring - excluding MMF(10)
              
               
Equity/Bond/Other(9)
              
Opening FUM
  
13,007 
13,970 
13,423 
14,508 
15,457 
  
Net Flows:
  
333 
50 
838 
521 
795 
  
 - Gross Inflows
  
2,120 
1,552 
2,407 
2,446 
3,122 
  
 - Redemptions
  
(1,787)
(1,502)
(1,569)
(1,925)
(2,327)
  
Other Movements
  
630 
(597)
247 
428 
954 
  
Closing FUM(6)
  
13,970 
13,423 
14,508 
15,457 
17,206 
  
               
Third Party Institutional Mandates
              
Opening FUM
  
2,029 
2,194 
2,138 
2,035 
2,173 
  
Net Flows:
  
16 
27 
(231)
72 
276 
  
 - Gross Inflows
  
54 
61 
275 
121 
418 
  
 - Redemptions
  
(38)
(34)
(506)
(49)
(142)
  
Other Movements
  
149 
(83)
128 
66 
99 
  
Closing FUM(6)
  
2,194 
2,138 
2,035 
2,173 
2,548 
  
               
Total Eastspring Investment Operations
  
16,164 
15,561 
16,543 
17,630 
19,754 
  
               
US
              
Curian Capital - FUM(6) (11)
  
5,064 
5,193 
5,332 
5,473 
6,315 
  



Schedule 4 - Reported Exchange Rates
PRUDENTIAL PLC - NEW BUSINESS – Q1 2013
TOTAL INSURANCE NEW BUSINESS PROFIT

           
 
2012 
2013 
 
Q1
Q2
Q3
Q4
Q1
 
YTD
YTD
YTD
YTD
YTD
 
£m
£m
£m
£m
£m
Annual Equivalent(3)
          
Total Asia Insurance Operations
 443 
 899 
 1,328 
 1,897 
 495 
Total US Insurance Operations
 332 
 719 
 1,133 
 1,462 
 358 
Total UK & Europe Insurance Operations
 189 
 412 
 617 
 836 
 185 
Group Total
 964 
 2,030 
 3,078 
 4,195 
 1,038 
           
New business profit(2)
          
Total Asia Insurance Operations
 260 
 547 
 828 
 1,266 
 308 
Total US Insurance Operations
 214 
 442 
 683 
 873 
 192 
Total UK & Europe Insurance Operations
 62 
 152 
 227 
 313 
 63 
Group Total
 536 
 1,141 
 1,738 
 2,452 
 563 
 
New business margin (% of APE)
          
Total Asia Insurance Operations
59% 
61% 
62% 
67% 
62% 
Total US Insurance Operations
64% 
61% 
60% 
60% 
54% 
Total UK & Europe Insurance Operations
33% 
37% 
37% 
37% 
34% 
Group Total
56% 
56% 
56% 
58% 
54% 
           
PVNBP(3)
          
Total Asia Insurance Operations
2,303 
4,725 
7,074 
10,544 
2,734 
Total US Insurance Operations
3,307 
7,180 
11,308 
14,600 
3,581 
Total UK & Europe Insurance Operations
1,580 
3,495 
5,264 
7,311 
1,540 
Group Total
7,190 
15,400 
23,646 
32,455 
7,855 
           
New business profit(2)
          
Total Asia Insurance Operations
 260 
 547 
 828 
 1,266 
308 
Total US Insurance Operations
 214 
 442 
 683 
 873 
192 
Total UK & Europe Insurance Operations
 62 
 152 
 227 
 313 
63 
Group Total
 536 
 1,141 
 1,738 
 2,452 
563 
           
New business margin (% of PVNBP)
          
Total Asia Insurance Operations
11.3% 
11.6% 
11.7% 
12.0% 
11.3% 
Total US Insurance Operations
6.5% 
6.2% 
6.0% 
6.0% 
5.4% 
Total UK & Europe Insurance Operations
3.9% 
4.3% 
4.3% 
4.3% 
4.1% 
Group Total
7.5% 
7.4% 
7.4% 
7.6% 
7.2% 

Schedule 5

EEV New Business Methodology and Assumptions

Valuation of new business
The valuation of new business for the first quarter of 2013 represents profits determined using non-economic assumptions which are consistent with those at 31 December 2012.
For UK immediate annuity business and single premium Universal Life products in Asia, primarily Singapore, the new business contribution is determined by applying economic assumptions reflecting point of sale market conditions. This is consistent with how the business is priced as crediting rates are linked to yields on specific assets and the yield locked-in when the assets are purchased at the point-of-sale of the policy. For other business within the Group, end of period economic assumptions are used.

Principal economic assumptions
Expected returns on equity and property asset classes and corporate bonds in respect of each territory are derived by adding a risk premium, based on the Group’s long-term view, to the risk-free rate. In Asia, equity risk premiums range from 3.5 per cent to 8.8 per cent for 31 March 2013 (31 December 2012: 3.5 per cent to 8.8 per cent; 31 March 2012: 3.5 per cent to 8.7 per cent). In the US and the UK, the equity risk premium is 4.0 per cent for all periods shown below.

Assumed investment returns reflect the expected future returns on the assets held and allocated to the covered business at the valuation date.

The tables below summarise the principal financial assumptions:

Asia operations note (ii)
                      
                       
31 March 2013
                      
 
China
Hong Kong
India 
Indonesia
Korea 
Malaysia
Philippines
Singapore
Taiwan 
Thailand 
Vietnam
   
notes  
 (ii), (iv)
      
notes  
 (iii), (iv)
  
note (iv)
      
 
%
%
%
%
%
%
%
%
%
%
%
New business risk discount rate
10.1 
4.0 
13.1 
9.7 
6.6
5.8 
9.8 
3.8 
3.6 
10.2 
16.3 
Government bond yield
3.6 
1.9 
8.1 
5.65 
2.75 
3.5 
3.05 
1.55 
1.3 
3.5 
9.5 
                       
31 December 2012
                      
 
China
Hong Kong
India 
Indonesia
Korea 
Malaysia
Philippines
Singapore
Taiwan 
Thailand 
Vietnam
   
notes    
 (ii), (iv)
      
notes  
 (iii), (iv)
  
note (iv)
      
 
% 
% 
% 
% 
% 
% 
% 
% 
% 
% 
% 
New business risk discount rate
10.1 
3.8 
13.2 
9.4 
7.4 
5.8 
11.1 
3.6 
3.25 
10.3 
17.2 
Government bond yield
3.6 
1.8 
8.2 
5.3 
3.2 
3.5 
4.35 
1.3 
1.2 
3.5 
10.5 
                       
31 March 2012
                      
 
China
Hong Kong
India 
Indonesia
Korea 
Malaysia
Philippines
Singapore
Taiwan 
Thailand 
Vietnam
   
notes  
 (ii), (iv)
      
notes  
 (iii), (iv)
  
note (iv)
      
 
% 
% 
% 
% 
% 
% 
% 
% 
% 
% 
% 
New business risk discount rate
10.05 
4.2 
13.7 
11.0 
7.2 
6.4 
12.4 
4.0 
5.0 
10.6 
18.5 
Government bond yield
3.55 
2.2 
8.7 
6.0 
4.0 
3.7 
5.7 
1.7 
1.3 
3.85 
11.8 


       
 
Asia Total
 
31 Mar 2013
31 Dec 2012
31 Mar 2012
 
% 
% 
% 
New business weighted risk discount rate note (i)
7.1 
6.8 
7.5 

Notes
(i)
The weighted risk discount rates for Asia operations shown above have been determined by weighting each country’s risk discount rates by reference to the EEV basis new business result.
(ii)
For Hong Kong the assumptions shown are for US dollar denominated business. For other territories, the assumptions are for   local currency denominated business.
(iii)       The risk discount rate for Malaysia reflects both the Malaysia life and Takaful operations.
(iv)       The mean equity return assumptions for the most significant equity holdings in the Asia operations were:

 
31 Mar 2013
31 Dec 2012
31 Mar 2012
 
% 
% 
% 
Hong Kong
5.9 
5.8 
6.2 
Malaysia
9.5 
9.5 
9.7 
Singapore
7.6 
7.35 
7.7 
       
To obtain the mean, an average over all simulations of the accumulated return at the end of the projection period is calculated. The annual average return is then calculated by taking the root of the average accumulated return minus 1.
       

US operations
      
       
31 Mar 2013
31 Dec 2012
31 Mar 2012
       
%
%
%
Assumed new business spread margins:note (ii)
      
Fixed Annuity business:1,2  note (i)
      
   
January to June issues
1.2
1.4
1.5
   
July to December issues
n/a
1.1
n/a
Fixed Index Annuity business:2 note (i)
      
   
January to June issues
1.45
1.75
2.0
   
July to December issues
n/a
1.35
n/a
Institutional business
0.75 
1.25 
1.25 
New business risk discount rate
      
 
Variable annuity
6.6 
6.5 
7.0 
 
Non-variable annuity
4.1 
4.0 
5.0 
 
Weighted average total
6.4 
6.3 
6.8 
US 10-year treasury bond rate at end of period
1.9 
1.8 
2.2 
Pre-tax expected long-term nominal rate of return for US equities
5.9 
5.8 
6.2 
             
1
  
Including the proportion of variable annuity business invested in the general account
2
  
Grading up linearly by 25 basis points to a long-term assumption over five years

Note
(i)
The assumed new business spread margin shown above are the rates at inception. For fixed annuity business (including the proportion of variable annuity business invested in the general account) and fixed index annuity business the assumed spread margin grades up linearly by 25 basis points to the long-term assumption over five years.
(ii)
Credit risk treatment
 
The projected cash flows incorporate the expected long-term spread between the earned rate and the rate credited to policyholders. The projected earned rates reflect book value yields which are adjusted over time to reflect projected reinvestment rates. Positive net cash flows are assumed to be reinvested in a mix of corporate bonds, commercial mortgages and limited partnerships. The yield on those assets is assumed to grade from the current level to a yield that allows for a long-term assumed credit spread on the reinvested assets of 1.25 per cent over 10 years. The yield also reflects an allowance for long-term defaults of 25 basis points for all periods shown above.

In the event that longer-term default levels are higher then, unlike for UK annuity business where policyholder benefits are not changeable, Jackson has some discretion to adjust crediting rates, subject to contract guarantee levels and general market competition considerations.

(iii)
Required capital
             For Q1 2013 the level of required capital assumed in measuring the new business profits has been set at 250 per cent of the risk based capital required by the National Association of Insurance Commissioners (NAIC) at the  
             Company Action Level (CAL). This level is consistent with the level applied in 2013 for measuring the contribution Jackson makes to the Group’s surplus under the Insurance Group Directive (IGD) as explained in Schedule   
             6.  For 2012 reporting the new business profit level was measured after assuming a required capital level of 235 per cent.

The results for Jackson reflect the application of the discount rates shown above, which include an additional allowance for a combination of credit risk premium and short-term downgrade and default allowance for general account business of 150 basis points (31 December 2012: 150 basis points; 31 March 2012: 200 basis points) and for variable annuity business of 30 basis points (31 December 2012: 30 basis points; 31 March 2012: 40 basis points) to reflect the fact that a proportion of the variable annuity business is allocated to the general account.

UK operations
      
       
31 Mar 2013
31 Dec 2012
31 Mar 2012
       
% 
% 
% 
Shareholder-backed annuity business:note (i)
      
New business risk discount rate
6.8 
6.9 
7.5 
       
Pre-tax expected long-term nominal rate of return
                      3.9
4.2
                          4.45
         
Other business:
      
New business risk discount rate note (ii)
5.4 
5.2 
5.7 
             
Pre-tax expected long-term nominal rates of investment return:
      
 
UK equities
6.3 
6.3 
6.7 
 
Gilts
2.3 
2.3 
2.7 
 
Corporate bonds
3.9 
3.9 
4.3 
Post-tax expected long-term nominal rate of return for the PAC with-profits fund:
      
 
Pension business (where no tax applies)
5.1 
5.0 
5.4 
 
Life business
4.45 
4.35 
4.7 

Notes
(i)
For Prudential’s UK shareholder-backed annuity business, Prudential has used a market consistent embedded value (MCEV) approach to derive an implied risk discount rate which is then applied to the projected best estimate cash flows. In the annuity MCEV calculations, the future cash flows are discounted using the swap yield curve plus an allowance for liquidity premium based on Prudential’s assessment of the expected return on the assets backing the annuity liabilities after allowing for expected long-term defaults, a credit risk premium, an allowance for a 1 notch downgrade of the portfolio subject to credit risk and an allowance for short-term defaults. The credit assumptions used in the MCEV calculations and the residual liquidity premium element of the bond spread over swap rates for shareholder-backed annuity new business are as follows:

 
31 Mar 2013
31 Dec 2012
31 Mar 2012
 
(bps)
(bps)
(bps)
Bond spread over swap rates
111 
150 
164 
Total credit risk allowance
28 
35 
30 
Liquidity premium
83 
115 
134 


(ii)
The risk discount rates for new business for UK insurance operations other than shareholder-backed annuities reflect weighted rates based on the type of business.

Schedule 6

Capital Management

The Group remains focused on managing proactively its balance sheet and risk profile.  We continue to impose stringent stress testing on our key capital measures, assessing our ability to withstand significant market shocks both in the short and medium term.

A strong balance sheet is at the heart of our strategy and is a key consideration for our customers when they choose our products. That strength gives confidence to our customers that we will be there to serve them in the long term. Strict and proactive management and allocation of capital remain a core focus for our Group.

Our capital position remains resilient. We have continued to focus on maintaining the Group’s financial strength through optimising the balance between writing profitable new business, conserving capital and generating cash.
 
 
In our 2012 results announcement we disclosed that in March 2013,  we agreed with the FSA (now the PRA)1 to amend the calculation of the contribution Jackson makes to the Group’s Insurance Groups Directive (IGD) surplus. Until then, the contribution of Jackson to the reported IGD was based on an intervention level set at 75 per cent of US Risk Based Capital Company Action Level (CAL). On the revised basis the contribution of Jackson to IGD surplus will equal the surplus in excess of 250 per cent of CAL. This is more in line with the level applied previously for reporting free surplus of 235 per cent of CAL2. In the absence of an agreed Solvency II approach, we believe that this change makes the IGD surplus a more meaningful measure and one that is more closely aligned with economic reality. The revised IGD surplus calculation has no impact on the way that the US business is managed or regulated locally.

On the revised basis we estimate that our IGD capital surplus was £4.0 billion at 31 March 2013 (after taking into account the 2012 final dividend of £0.5 billion and after deducting £1.2 billion in respect of the Jackson change from 75 per cent to 250 per cent of CAL).  This is equivalent to a capital cover of 2.4 times.

This compares to £5.1 billion at 31 December 2012 (before taking into account the 2012 final dividend of £0.5 billion) and £3.8 billion at 31 March 2012 (after taking into account the 2011 final dividend of £0.4 billion). Neither of these comparatives included the subsequent change in the Jackson contribution basis.
 
 
As at 31 March 2013 stress testing of our IGD capital position to various events has the following results:
 

·  
An instantaneous 20 per cent fall in equity markets from 31 March 2013 levels would reduce the IGD surplus by £300 million;
 
·  
A 40 per cent fall in equity markets (comprising an instantaneous 20 per cent fall followed by a further 20 per cent fall over a four week period) would reduce the IGD surplus by £850 million;
 
·  
A 100 bps reduction (subject to a floor of zero) in interest rates would reduce the IGD surplus by £500 million;
 
·  
Credit defaults of ten times the expected level would reduce IGD surplus by £650 million.
 

The acquisition of Thanachart Life was completed on 3 May 2013. We estimate that this acquisition will reduce the Group IGD surplus by £0.3 billion.
 
In addition to our strong capital position, on a statutory basis the total credit reserve for the UK shareholder annuity funds also contributes to protecting our capital position in excess of the IGD surplus. This credit reserve as at 31 March 2013 was £2.1 billion, equivalent to 7.1 per cent of the assets backing annuity liabilities. This represents 42 per cent of the portfolio spread over swaps, compared to 40 per cent at 31 December 2012 and 35 per cent at 31 March 2012.

The surplus of the UK with-profits fund is excluded from the IGD calculation. At 31 March 2013, the UK with-profits fund inherited estate was estimated at £7.5 billion. The value of shareholders’ interest in future transfers from the UK with-profits fund is valued at £2.3 billion.

1 On 1 April 2013 the Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms
2 As noted in schedule 5, the assumption for required capital for valuing new business profits in 2013 has been set at 250 per cent of CAL

Schedule 7

BASIS OF PREPARATION
The new business schedules are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profits for shareholders. The amounts shown are not, and not intended to be, reflective of premium income recorded in the IFRS income statement. Annual premium equivalent (APE) sales are subject to rounding.
 
The format of the schedules is consistent with the distinction between insurance and investment products as applied for previous financial reporting periods. With the exception of some US institutional business, products categorised as ‘insurance’ refer to those classified as contracts of long-term insurance business for regulatory reporting purposes, i.e. falling within one of the classes of insurance specified in Part II of Schedule 1 to the Regulated Activities Order under FSA regulations (now PRA).
 
The details shown for insurance products include contributions for contracts that are classified under IFRS 4 ‘Insurance Contracts’ as not containing significant insurance risk. These products are described as investment contracts or other financial instruments under IFRS. Contracts included in this category are primarily certain unit-linked and similar contracts written in UK Insurance Operations, and Guaranteed Investment Contracts and similar funding agreements written in US Operations.
 
New business premiums for regular premium products are shown on an annualised basis. Internal vesting business is classified as new business where the contracts include an open market option. New business premiums reflect those premiums attaching to covered business, including premiums for contracts classified as investment products for IFRS reporting.
 
Investment products referred to in the tables for funds under management are unit trusts, mutual funds and similar types of retail fund management arrangements. These are unrelated to insurance products that are classified as investment contracts under IFRS 4, as described in the preceding paragraph, although similar IFRS recognition and measurement principles apply to the acquisition costs and fees attaching to this type of business.
 
New Business Profit has been determined using the EEV methodology set out in our 2012 Full Year Annual Report and the economic assumptions shown on schedule 5.
 
In determining the EEV basis value of new business written in the period policies incept, premiums are included in projected cash flows on the same basis of distinguishing annual and single premium business as set out for statutory basis reporting.
 
All data included in this Interim Management Statement (and supplementary schedules) is unaudited.
 

Notes to Schedules 1 – 6
 (1a)
Insurance and investment new business for overseas operations has been calculated using average exchange rates. The applicable rate for Jackson for the period to 31 March 2013 is $1.55.
(1b)
Insurance and investment new business for overseas operations for 2012 have been calculated using constant exchange rates. The applicable rate for Jackson is $1.55.
(2)
New business values are all presented pre-tax.
(3)
Annual Equivalents, calculated as regular new business contributions plus 10 per cent of single new business contributions, are subject to roundings. PVNBPs are calculated as equalling single premiums plus the present value of expected premiums of new regular premium business. In determining the present value, allowance is made for lapses and other assumptions applied in determining the EEV new business profit.
(4)
Balance includes segregated and pooled pension funds, private finance assets and other institutional clients. Other movements reflect the net flows arising from the cash component of a tactical asset allocation fund managed by PPM South Africa.
(5)
New business in India is included at Prudential's 26 per cent interest in the India life operation.
(6)
Balance Sheet figures have been calculated at the closing exchange rate.
(7)
Sales are translated using the year to date average exchange rate applicable at the time. The sterling results for individual quarters represent the difference between the year to date reported sterling results at successive quarters and will include foreign exchange movements from earlier periods.
(8)
New business in China is included at Prudential's 50 per cent interest in the China life operation.
(9)
Mandatory Provident Fund (MPF) product sales in Hong Kong are included at Prudential's 36 per cent interest in Hong Kong MPF operation.
(10)
Investment flows exclude Eastspring Money Market Funds gross inflows of £14,003 million (first quarter 2012: £12,556 million) and net outflows of £528 million (first quarter 2012: net outflows £527 million).
(11)
Excludes Curian Variable Series Trust funds (internal funds under management).


 
 
 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





 
 
Date 07 May 2013
 
 
PRUDENTIAL PUBLIC LIMITED COMPANY
   
 
By: /s/ Nic Nicandrou
   
 
Nic Nicandrou
 
Chief Financial Officer