20-F 1 a2243032z20-f.htm 20-F

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Table of Contents

As filed with the Securities and Exchange Commission on 15 March 2021


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 20-F

o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended 31 December 2020

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-15040

PRUDENTIAL PUBLIC LIMITED COMPANY
(Exact Name of Registrant as Specified in its Charter)

England and Wales
(Jurisdiction of Incorporation)

1 Angel Court,
London EC2R 7AG, England
(Address of Principal Executive Offices)

Rebecca Wyatt
Director of Group Financial Accounting & Reporting
1 Angel Court,
London EC2R 7AG, England
+44 20 7220 7588
rebecca.wyatt@prudentialplc.com
(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class   Trading
Symbol
  Name of Each Exchange on
Which Registered

American Depositary Shares, each representing 2 Ordinary Shares, 5 pence par value each

  PUK   New York Stock Exchange

Ordinary Shares, 5 pence par value each

  PUK/D   New York Stock Exchange*

6.75% Perpetual Subordinated Capital Securities Exchangeable at the Issuer's Option into Non-Cumulative Dollar Denominated Preference Shares

  PUK/PA   New York Stock Exchange

6.50% Perpetual Subordinated Capital Securities Exchangeable at the Issuer's Option into Non-Cumulative Dollar Denominated Preference Shares

  PUK/PA   New York Stock Exchange

3.125% Senior Notes due 2030

  PUK30   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

The number of outstanding shares of each of the issuer's classes of capital or common stock as of 31 December 2020 was:

2,609,489,702 Ordinary Shares, 5 pence par value each

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ý         No  o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  o         No  ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý         No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ý         No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ý         Accelerated filer  o         Non-accelerated filer  o         Emerging growth company  o

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ý

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board ý Other o

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17  o         Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o         No  ý

*
Not for trading, but only in connection with the registration of American Depositary Shares.

   


Table of Contents


TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

  1

CAUTIONARY STATEMENTS

  2

SUMMARY OF OUR BUSINESS

  3

Group at A Glance

  3

Our Business Model

  4

Company Address and Agent

  5

Significant Subsidiaries

  5

Selected Historical Financial Information

  6

Dividend Data

  7

EEV Basis, New Business Profit and Free Surplus Generation

  8

Sources

  8

Summary Overview of Operating and Financial Review and Prospects

  9

OUR BUSINESS SEGMENTS

  16

Asia and Africa

  16

United States

  25

Competition

  30

FINANCIAL REVIEW

  31

Overview

  31

IFRS Critical Accounting Policies

  32

Summary Consolidated Results and Basis of Preparation of Analysis

  33

Explanation of Movements in Profit before Shareholder Tax by Nature of Revenue and Charges

  34

Basis of Performance Measures

  40

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

  44

Explanation of Performance and Other Financial Measures

  47

Investments

  62

Additional Information on Liquidity and Capital Resources

  63

GROUP RISK FRAMEWORK

  66

SUPERVISION AND REGULATION OF PRUDENTIAL

  90

GOVERNANCE

  99

Introduction

  99

Board of Directors

  101

Board Practices

  109

Governance Committees

  121

Audit Committee Financial Expert

  152

Governance – Differences between Prudential's Governance Practice and the NYSE Corporate Governance Rules

  152

Memorandum and Articles of Association

  154

Code of Ethics

  158

COMPENSATION AND EMPLOYEES

  159

Share Ownership

  192

Employees

  193

ADDITIONAL INFORMATION

  194

Risk Factors

  194

Major Shareholders

  209

Intellectual Property

  209

Legal Proceedings

  209

Material Contracts

  210

Exchange Controls

  210

Taxation

  211

Documents on Display

  215

Controls and Procedures

  216

Listing Information

  216

Description of Securities Other than Equity Securities

  217

Purchases of Equity Securities by Prudential plc and Affiliated Purchasers

  217

Principal Accountant Fees and Services

  218

Change in Registrant's Certifying Accountant

  219

Limitations on Enforcement of US Laws Against Prudential, Its Directors, Management and Others

  219

FINANCIAL STATEMENTS

  220

Consolidated Financial Statements

  220

Condensed Financial Information of Registrant

  339

Additional Unaudited Financial Information

  347

EXHIBITS

  364

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CROSS REFERENCES TO FORM 20-F REQUIREMENTS

 
   
   
   
   
   
   
   
   
    Item       20-F Form Requirements       Section in this Annual Report on Form 20-F       Page    
    Item 1       Identity of Directors, Senior Management and Advisers       n/a            
    Item 2       Offer Statistics and Expected Timetable       n/a            
    Item 3       Key Information                    
 
           

Selected financial data

     

Selected Historical Financial Information

      6    
                   

Dividend Data

      7    
                   

EEV Basis, New Business Results and Free Surplus Generation

      8    
 
           

Capitalisation and indebtedness

      n/a            
 
           

Reasons for the offer and use of proceeds

      n/a            
 
           

Risk Factors

      Risk Factors       194    
    Item 4       Information on the Company                    
 
           

History and development of the company

     

Group at A Glance

Company Address and Agent

      3

5

   
 
           

Business overview

     

Our Business Segments

Competition

Sources

      16

30

8

   
                   

Supervision and Regulation of Prudential

      90    
                   

Investments

      62    
 
           

Organisational structure

     

Our business model

Significant Subsidiaries

      4

5

   
 
           

Property, plants and equipment

      Note C11 to the Consolidated Financial Statements       320    
    Item 4A       Unresolved Staff Comments       n/a            
    Item 5       Operating and Financial Review and Prospects                    
 
            Operating results      

Summary Overview of Operating and Financial Review and Prospects

      9    
                   

IFRS Critical Accounting Policies

      32    
                   

Summary Consolidated Results and Basis of Preparation of Analysis

      33    
                   

Explanation of Movements in Profit before Shareholder Tax by Nature of Revenue and Charges

      34    
                   

Basis of Performance Measures

      40    
                   

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

      44    
 
            Liquidity and capital resources      

Explanation of Performance and Other Financial Measures

      47    
                   

Additional Information on Liquidity and Capital Resources

      63    
                   

Note D5 to the Consolidated Financial Statements

      324    

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Table of Contents

 
   
   
   
   
   
   
   
   
    Item       20-F Form Requirements       Section in this Annual Report on
Form 20-F
      Page    
           

Research and development, patents and licenses, etc

      n/a            
 
           

Trend information

     

Summary of Operating and Financial Review and Prospects

      9    
                   

Explanation of Performance and Other Financial Measures

      47    
 
           

Off-balance-sheet arrangements

      Notes D2 and D5 to the Consolidated

Financial Statements

      322-324

   
 
           

Tabular disclosure of contractual obligations

      Contractual obligations       64    
 
           

Safe harbour

      Forward-looking statements       1    
    Item 6       Directors, Senior Management and Employees                    
 
           

Directors and senior management

      Board of Directors       101    
 
           

Compensation

      Compensation and employees:            
                   

Our Executive Directors' remuneration at a glance

      159    
                   

Annual report on remuneration

      163    
                   

Summary of the current Directors' remuneration policy

      161    
                   

Additional remuneration disclosure

      190    
 
           

Board Practices

     

Board Practices

Governance Committees

      109

121

   
 
           

Employees

      Employees       193    
 
           

Share ownership

      Share ownership       192    
    Item 7       Major Shareholders and Related Party Transactions                    
 
           

Major shareholders

      Major Shareholders       209    
 
           

Related party transactions

      Note D4 to the Consolidated Financial Statements       323    
 
           

Interests of Experts and Counsel

      n/a            
    Item 8       Financial Information                    
 
           

Consolidated statements and other financial Information

     

Financial Statements

Intellectual Property

Legal Proceedings

      220

209

209

   
 
           

Significant changes

      n/a            
    Item 9       The Offer and Listing       Listing Information       216    
    Item 10       Additional Information                    
 
           

Share capital

      Memorandum and Articles of Association       154    
 
           

Memorandum and Articles of Association

      Memorandum and Articles of Association       154    
 
           

Material contracts

      Material contracts       210    
 
           

Exchange controls

      Exchange controls       210    
 
           

Taxation

      Taxation       211    
 
           

Dividends and paying agents

      n/a            
 
           

Statement by experts

      n/a            
 
           

Documents on display

      Documents on Display       215    
 
           

Subsidiary information

      n/a            

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    Item       20-F Form Requirements       Section in this Annual Report on
Form 20-F
      Page    
    Item 11       Quantitative and Qualitative Disclosures about Market Risk      

Group Risk Framework

Note C6 to the Consolidated Financial Statements

      66

308

   
    Item 12       Description of Securities Other than Equity Securities       Description of Securities Other than Equity Securities       217    
    Item 13       Defaults, Dividend Arrearages and Delinquencies       n/a            
    Item 14       Material Modifications to the Rights of Security Holders       n/a            
    Item 15       Controls and Procedures       Controls and Procedures       216    
    Item 16A       Audit Committee Financial Expert       Audit Committee Financial Expert       152    
    Item 16B       Code of Ethics       Code of Ethics       158    
    Item 16C       Principal Accountant Fees and Services       Principal Accountant Fees and Services       218    
    Item 16D       Exemptions from the Listing Standards for Audit Committees       n/a            
    Item 16E       Purchases of Equity Securities by Prudential plc and Affiliated Purchasers       Purchases of Equity Securities by Prudential plc and Affiliated Purchasers       217    
    Item 16F       Change in Registrant's Certifying Accountant       Change in Registrant's Certifying Accountant       219    
    Item 16G       Corporate Governance       Differences between Prudential's Governance Practice and the NYSE Corporate Governance Rules       152    
    Item 17       Financial Statements       n/a            
    Item 18       Financial Statements       Financial Statements       220    
    Item 19       Exhibits       Exhibits       364    

As used in this document, unless the context otherwise requires, the terms 'Prudential', the 'Group', 'we', 'us' and 'our' each refer to Prudential plc, together with its subsidiaries, while the terms 'Prudential plc', the 'Company' or the 'parent company' each refer to 'Prudential plc'.

This 2020 Annual Report may include references to our website. Information on our website or any other website referenced in the Prudential 2020 Annual Report is not incorporated into this Form 20-F and should not be considered to be part of the Form 20-F. We have included any website as an inactive textual reference only.

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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 and Jackson's 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 and Jackson's actual future financial condition or performance or other indicated results of the entity referred to in any forward-looking statement to differ materially from those indicated in such forward-looking statement. Such factors include, but are not limited to, the ability to complete the proposed demerger of Jackson Financial Inc. on the anticipated timeframe or at all; the ability of the management of Jackson Financial Inc. and its group to deliver on its business plan post-separation; the impact of the current Covid-19 pandemic, including adverse financial market and liquidity impacts, responses and actions taken by regulators and supervisors, the impact to sales, claims and assumptions and increased product lapses, disruption to Prudential's operations (and those of its suppliers and partners), risks associated with new sales processes and information security risks; future market conditions, including fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate environment, and the impact of economic uncertainty, asset valuation impacts from the transition to a lower carbon economy, derivative instruments not effectively hedging exposures arising from product guarantees, inflation and deflation and the performance of financial markets generally; global political uncertainties, including the potential for increased friction in cross-border trade and the exercise of executive powers to restrict trade, financial transactions, capital movements and/or investment; the policies and actions of regulatory authorities, including, in particular, the policies and actions of the Hong Kong Insurance Authority, as Prudential's Group-wide supervisor, as well as new government initiatives generally; given its designation as an Internationally Active Insurance Group ("IAIG"), the impact on Prudential of systemic risk and other group supervision policy standards adopted by the International Association of Insurance Supervisors; the impact of competition and fast-paced technological change; the effect on Prudential's business and results from, in particular, mortality and morbidity trends, lapse rates and policy renewal rates; the physical, social and financial impacts of climate change and global health crises on Prudential's business and operations; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of internal transformation projects and other strategic actions failing to meet their objectives; the effectiveness of reinsurance for Prudential's businesses; the risk that Prudential's operational resilience (or that of its suppliers and partners) may prove to be inadequate, including in relation to operational disruption due to external events; disruption to the availability, confidentiality or integrity of Prudential's information technology, digital systems and data (or those of its suppliers and partners); any ongoing impact on Prudential of the demerger of M&G plc and, if and when completed, the demerger of Jackson Financial Inc.; 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; the impact of legal and regulatory actions, investigations and disputes; and the impact of not adequately responding to environmental, social and governance issues. 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 of the entity referred to in any forward-looking statements to differ, possibly materially, from those anticipated in Prudential's forward-looking statements can be found under the 'Risk Factors' heading of this document as well as under the 'Risk Factors' heading of any subsequent Prudential Half Year Financial Report furnished to the US Securities and Exchange Commission on Form 6-K.

Any forward-looking statements contained in this announcement 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 announcement 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. Prudential may also make or disclose written and/or oral forward-looking statements in reports filed with or furnished to the US Securities and Exchange Commission, the UK Financial Conduct Authority and other regulatory authorities, as well as in its annual report and accounts to shareholders, periodic financial reports to shareholders, proxy statements, offering circulars, registration statements, prospectuses and, prospectus supplements, press releases and other written materials and in oral

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statements made by directors, officers or employees of Prudential to third parties, including financial analysts. All such forward-looking statements are qualified in their entirety by reference to the factors discussed under the 'Risk Factors' heading of this document, as well as under the 'Risk Factors' heading of any subsequent filing Prudential makes with the US Securities and Exchange Commission, including any subsequent Half Year Financial Report on Form 6-K. These factors are not exhaustive as Prudential operates in a continually changing business environment with new risks emerging from time to time that it may be unable to predict or that it currently does not expect to have a material adverse effect on its business.


CAUTIONARY STATEMENTS

This document does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to purchase, acquire, subscribe for, sell or dispose of, any securities in any jurisdiction nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor.

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SUMMARY OF OUR BUSINESS

Group at A Glance

GRAPHIC

3


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Our Business Model

GRAPHIC

4


Table of Contents


Company Address and Agent

Prudential plc is a public limited company incorporated on 1 November 1978 and registered in England and Wales. Refer to the 'Memorandum and Articles of Association' sub-section of the 'Governance' section of this report for further information on the constitution of the Company.

Prudential's registered office is 1 Angel Court, London EC2R 7AG, England (telephone: +44 20 7220 7588). Prudential's agent in the US for purposes of this annual report on Form 20-F is Jackson National Life Insurance Company, located at 1 Corporate Way, Lansing, Michigan 48951, United States of America. Following the demerger of Jackson, a new agent will be appointed.


Significant Subsidiaries

The table below sets forth Prudential's significant operating subsidiaries.

 
  Main activity

  Country of incorporation

Prudential Assurance Company Singapore (Pte) Limited   Insurance   Singapore
PT Prudential Life Assurance   Insurance   Indonesia
Prudential Hong Kong Limited   Insurance   Hong Kong, China
Jackson National Life Insurance Company   Insurance   US

Save as set out below, all of the significant subsidiaries above are indirectly wholly owned via another subsidiary undertaking of the Company.

The Company has 100 per cent of the voting rights of the subsidiaries in Singapore and Hong Kong and 94.6 per cent of the voting rights in the Indonesia subsidiary attaching to the aggregate of the shares across the types of capital in issue. The percentage of share ownership for these subsidiaries is the same as the percentage of the voting power held.

Following the completion of the $500 million equity investment transaction by Athene Life Re Ltd in the Group's US business, the Company has 90.1 per cent of the voting rights in the US subsidiary, with a 88.9 per cent of share ownership. Each significant subsidiary operates mainly in its country of incorporation.

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Selected Historical Financial Information

The following table sets forth selected consolidated financial data for Prudential for the periods indicated. Certain data is derived from Prudential's audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS Standards) as issued by the International Accounting Standards Board (IASB). This table is only a summary and should be read in conjunction with Prudential's consolidated financial statements and the related notes included elsewhere in this document, together with the disclosures in the 'Financial Review' section.

In the table below, continuing operations reflect the Group following the demerger of M&G plc in the fourth quarter of 2019, namely Asia, the US and central operations including Africa.

Income statement
  2020 $m

  2019 $m

  2018 $m

  2017 $m

  2016 $m

 

Continuing operations:

                               

Gross premiums earned

    42,521     45,064     45,614     39,800     38,865  

Outward reinsurance premiums

    (32,209 )   (1,583 )   (1,183 )   (1,304 )   (1,375 )

Earned premiums, net of reinsurance

    10,312     43,481     44,431     38,496     37,490  

Investment return

    44,991     49,555     (9,117 )   35,574     13,839  

Other income

    670     700     531     1,319     1,387  

Total revenue, net of reinsurance

    55,973     93,736     35,845     75,389     52,716  

Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance

    (48,205 )   (83,905 )   (23,426 )   (63,808 )   (42,881 )

Acquisition costs and other expenditure

    (5,481 )   (7,283 )   (8,527 )   (8,649 )   (7,846 )

Finance costs: interest on core structural borrowings of shareholder-financed businesses

    (337 )   (516 )   (547 )   (548 )   (488 )

(Loss) gain attaching to corporate transactions

    (48 )   (142 )   (107 )   292     (322 )

Total charges, net of reinsurance

    (54,071 )   (91,846 )   (32,607 )   (72,713 )   (51,537 )

Share of profits from joint ventures and associates net of related tax

    517     397     319     233     200  

Profit before tax (being tax attributable to shareholders' and policyholders' returns)(1)

    2,419     2,287     3,557     2,909     1,379  

Tax charges attributable to policyholders' returns

    (271 )   (365 )   (107 )   (321 )   (210 )

Profit before tax attributable to shareholders' returns

    2,148     1,922     3,450     2,588     1,169  

Tax credit (charges) attributable to shareholders' returns

    37     31     (569 )   (840 )   (119 )

Profit from continuing operations

    2,185     1,953     2,881     1,748     1,050  

(Loss) profit from discontinued UK and Europe operations

    -     (1,161 )   1,142     1,333     1,552  

Profit for the year

    2,185     792     4,023     3,081     2,602  

                               

Earnings per share

                               

Based on profit from continuing operations for the year attributable to equity holders of the Company

                               

Basic earnings per share (in cents)

    81.6¢     75.1¢     111.7¢     68.0¢     41.0¢  

Diluted earnings per share (in cents)

    81.6¢     75.1¢     111.7¢     67.9¢     40.9¢  

 

Statement of financial position data as at 31 Dec
  2020 $m

  2019 $m

  2018* $m

  2017* $m

  2016* $m

 

Total assets

    516,097     454,214     647,810     668,203     581,394  

Total policyholder liabilities and unallocated surplus of with-profits funds

    446,463     390,428     541,466     579,261     498,374  

Core structural borrowings of shareholder-financed businesses

    6,633     5,594     9,761     8,496     8,400  

Total liabilities

    493,978     434,545     625,819     646,432     563,270  

Total equity

    22,119     19,669     21,991     21,771     18,124  
*
The 2016 to 2018 comparative statements of financial position included discontinued UK and Europe operations.

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Other data
  2020 $m

  2019 $m

  2018 $m

  2017 $m

  2016 $m

 

Dividend per share declared and paid in reporting period(4)

    31.34¢     63.18¢     64.34¢     59.32¢     69.72¢  

Interim ordinary dividend/final ordinary dividend

    31.34¢     63.18¢     64.34¢     59.32¢     55.20¢  

Special dividend

                            14.52¢  

Market price per share at end of period (in pence)(5)

    1,347.0p     1,449.0p     1,402.0p     1,905.5p     1,627.5p  

Weighted average number of shares (in millions)

    2,597     2,587     2,575     2,567     2,560  

 

 
  2020 $m

  2019 $m

  2018 $m

  2017 $m

  2016 $m

 

New business:

                               

Single premium sales(2)

    22,911     26,010     23,685     24,387     24,390  

New regular premium sales(2)(3)

    3,328     4,783     4,691     4,608     4,550  

Funds under management(6)

    558,300     543,900     455,300     452,000     374,800  

Notes

(1)
This measure is the formal profit (loss) before tax measure under IFRS. It is not the result attributable to shareholders. See 'Presentation of results before tax' in note A3.1(b) to Prudential's consolidated financial statements for further explanation.
(2)
The new business premiums in the table shown above are provided as an indicative measure of new business sales in the reporting period that have the potential to generate profits for shareholders (see the 'EEV Basis, New Business Profit and Free Surplus Generation' section of this document). The amounts shown are not, and are not intended to be, reflective of premium income recorded in the IFRS income statement. The details shown above for new business 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 Guaranteed Investment Contracts and similar funding agreements written in US operations. Further explanation on the differences is provided in note II(vii) of the calculation of alternative performance measure disclosure within additional financial information section.
(3)
New regular premium sales are reported on an annualised basis, which represent a full year of instalments in respect of regular premiums irrespective of the actual payments made during the year.
(4)
Under IFRS, dividends declared or approved after the balance sheet date in respect of the prior reporting period are treated as a non-adjusting event. The appropriation reflected in the statement of changes in equity, therefore, includes dividend in respect of the prior year that were paid in the current year.
(5)
Market prices presented are the closing prices of the shares on the London Stock Exchange on the last day of trading for each indicated period.
(6)
Funds under management comprise funds of the Group held in the statement of financial position and external funds that are managed by the Group's asset management operations.


Dividend Data

Under UK company law, Prudential plc may pay dividends only if sufficient distributable reserves of the Company are available for that purpose and if the amount of its net assets is greater than the aggregate of its called up share capital and non-distributable reserves (such as the share premium account) and the payment of the dividend does not reduce the amount of its net assets to less than that aggregate. 'Distributable reserves' are accumulated, realised profits not previously distributed or capitalised less accumulated, realised losses not previously written off, on the applicable GAAP basis. For further information about the Company, please refer to the section headed Condensed Financial Information of Registrant (Schedule II).

The retained profit of the Company is substantially generated from dividend and interest income from subsidiaries. Many of its insurance subsidiaries are subject to regulations that restrict the amount of dividends that they can pay to the Company. These restrictions are discussed in more detail in notes C10 and D6.2 to Prudential's consolidated financial statements. Further information on the Group's 2020 dividends is provided in note B5 to Prudential's consolidated financial statements.

Subject to the restrictions referred to above, Prudential plc's directors have the discretion to determine whether to pay an interim dividend and the amount of any such interim dividend but must take into account the Company's financial position. The directors also have the discretion to recommend payment of a final dividend, such recommendation to be approved by ordinary resolution of the shareholders. The approved amount may not exceed the amount recommended by the directors.

The following table shows certain information regarding the dividends per share of Prudential plc relating to the periods indicated. Prior to the second interim ordinary dividend in 2019, the dividends were declared in pence sterling and converted into USD at the noon buying rate in effect on each payment date. First interim dividends for a specific year now generally have a record date in August and a payment date in September of that year, and second interim dividends (or final dividends) now generally have a record date in the following March/April and a payment date in the following May.

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  2020

  2019

  2018

  2017

  2016

 

First Interim Ordinary Dividend (US cents)

    5.37     20.29     20.55     19.50     16.78  

Final Ordinary Dividend/Second interim Ordinary (US cents)

    10.73     25.97     42.89     43.79     39.82  

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

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

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


EEV Basis, New Business Profit and Free Surplus Generation

In addition to IFRS basis results, Prudential's filings with the Financial Conduct Authority, the Stock Exchange of Hong Kong, the Singapore Stock Exchange and Group Annual Reports include reporting by Key Performance Indicators ('KPIs'). These include results prepared in accordance with the European Embedded Value ('EEV') Principles and Guidance issued by the CFO Forum of European Insurance Companies in 2016, as well as new business profit and operating free surplus generation measures, which are alternative performance measures.

The EEV basis is a value-based method of reporting in that it reflects the change in the value of in-force long-term business over the accounting period. This value is called the shareholders' funds on the EEV basis which, at a given point in time, is the value of future cash flows expected to arise from the current book of long-term insurance business plus the net worth (being the net assets on the local regulatory basis with adjustments) of Prudential's life insurance operations. Prudential publishes its EEV results semi-annually in the UK, Hong Kong and Singapore markets.

New business sales are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profits for shareholders. New business profitability is a key metric for the Group's management of the development of the business. New business profit reflects the value of future profit streams which are not fully captured in the year of sale under IFRS reporting. New business margin is shown by reference to annual premium equivalent (APE) which is calculated as the aggregate of regular new business amounts and one-tenth of single new business amounts. The amounts are not, and are not intended to be, reflective of premium income recorded in the IFRS income statement. EEV basis new business profit and margins are also published semi-annually.

Operating free surplus generation is used to measure the internal cash generation by our business units. For the insurance operations, it represents amounts maturing from the in-force business during the period less investment in new business and excludes other non-operating items. For the asset management operations it equates to IFRS post-tax adjusted operating profit for the period.


Sources

Throughout this annual report, Prudential describes the position and ranking of its overall business and individual business units in various industry and geographic markets. The sources for such descriptions come from a variety of conventional sources generally accepted as relevant business indicators by members of the financial services industry and which we believe to be reliable. These sources include information available from the Annuity Specs, Asia Asset Management Magazine, Asosiasi Asuransi Jiwa Indonesia, Association of Vietnamese Insurers, Fitch, Hong Kong Federation of Insurers, Hong Kong Office of the Commissioner of Insurance, HSBC Global Research, Insurance Regulatory and Development Authority of India, Insurance Services Malaysia Berhad, Life Insurance Marketing and Research Association (LIMRA), Life Insurance Association of Malaysia, Life Insurance Association of Singapore, Life Insurance Association of Taiwan, Lipper Inc., Morningstar, Moody's, Neilsen Net Ratings, Service Quality Measurement Group, SNL Financial, Standard & Poor's, Thai Life Assurance Association, The Asset Benchmark Research, The Advantage Group, Townsend and Schupp and UBS.

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Summary Overview of Operating and Financial Review and Prospects

The following summary discussion and analysis should be read in conjunction with Prudential's consolidated financial statements and the related notes for the year ended 31 December 2020 included in this document.

A summary of the critical accounting policies which have been applied to these statements is set forth in the section below titled 'IFRS Critical Accounting Policies'.

The results discussed below are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in these forward-looking statements due to a number of factors, including those set forth in the 'Risk Factors' and elsewhere in this document.

Use of alternative performance measures

The table below explains how the Group's profit before tax and the supplementary analysis (alternative performance measure) of adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit2) each are reconciled to profit after tax on an IFRS basis. Adjusted operating profit is management's primary measure of profitability and provides an underlying operating result based on longer-term investment returns and excludes non-operating items. Further explanation on the determination of adjusted operating profit is provided in the 'Basis of Performance Measures' section. Further explanation on non-operating items is provided in the sub-section 'Non-operating items'.

Currency volatility

Our approach to evaluating the financial performance of the Group is to present growth rates before the impact of the fluctuations in the value of the US dollar against local currencies in Asia and Africa. In a period of currency volatility this approach allows a more meaningful assessment of underlying performance trends. This is because our businesses in Asia and Africa receive premiums and pay claims in local currencies and are, therefore, not exposed to any cross-currency trading effects. To maintain comparability in the discussion below the same basis has been applied. Growth rates based on actual exchange rates (AER) are also shown in the financial tables presented in this report. Consistent with previous reporting periods, the assets and liabilities of our overseas businesses are translated at period-end exchange rates so the effect of currency movements has been fully incorporated within reported shareholders' equity.

The table presents the 2019 results on both an actual exchange rate (AER) and constant exchange rate (CER) basis so as to eliminate the impact of exchange translation.

IFRS Profit

 
  AER
  CER
  AER
        2020 $m   2019 $m   Change %           2019 $m   Change %           2018 $m    
Profit for the year       2,185   792   176%           779   180%           4,023    
Less loss (profit) from discontinued operations       -   1,161   n/a           1,165   n/a           (1,142)    
Profit after tax from continuing operations       2,185   1,953   12%           1,944   12%           2,881    
Tax (credit) charge attributable to shareholders' returns       (37)   (31)   19%           (36)   3%           569    
Profit from continuing operations before tax attributable to shareholders       2,148   1,922   12%           1,908   13%           3,450    
Non-operating items:                                                

Short-term fluctuations in investment returns on shareholder-backed businesses

      4,841   3,203   51%           3,191   52%           791    

Amortisation of acquisition accounting adjustments

      39   43   (9)%           43   (9)%           61    

(Gain) loss attaching to corporate transactions

      (1,521)   142   n/a           143   n/a           107    
        3,359   3,388   (1)%           3,377   (1)%           959    
Adjusted operating profit       5,507   5,310   4%           5,285   4%           4,409    
Analysed into:                                                
Asia       3,667   3,276   12%           3,256   13%           2,888    
US       2,796   3,070   (9)%           3,070   (9)%           2,563    
Other income and expenditure       (748)   (926)   19%           (931)   20%           (967)    
Restructuring costs       (208)   (110)   (89)%           (110)   (89)%           (75)    
Adjusted operating profit       5,507   5,310   4%           5,285   4%           4,409    

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The Group reports annual premium equivalent (APE) as a measure of new business sales, which is a key metric for the Group's management of the development and growth of the business. APE is calculated as the aggregate of regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. The use of the one-tenth of single premiums is to normalise these policy premiums into the equivalent of regular annual payments. This measure is commonly used in the insurance industry to allow comparisons of the amount of new business written in a period by life insurance companies, particularly when the sales contain both single premium and regular premium business. This differs from the IFRS measure of gross premiums earned as shown in the table below.

Reconciliation from Gross premiums earned to Annual premium equivalent (APE)

 
  2020 $m   2019 $m
 
  Asia

  US

  Total
Segment

  Asia

  US

  Total
Segment

Gross premiums earned

    23,341     19,026     42,367     23,757     21,209     44,966

Less: premiums from in-force renewal business

    (18,166)     (845)     (19,011)     (17,236)     (956)     (18,192)

Adjustment to include 10% of single premiums

    (2,131)     (17,306)     (19,437)     (2,606)     (20,008)     (22,614)

Add: deposit accounting for investment contracts

    -     1,284     1,284     255     2,522     2,777

Inclusion of APE sales from joint ventures and associates on equity accounting method

    820     -     820     899     -     899

Other adjustments

    (168)     (236)     (404)     92     (544)     (452)

Annual premium equivalent (APE)

    3,696     1,923     5,619     5,161     2,223     7,384

Gross premiums earned in the Group's Africa operations are unallocated to a segment and therefore excluded from the table above. Given the relative immaturity of the Africa business, it is also excluded from the APE metric. Further explanation of the differences is provided in note II(vii) of the section headed Additional Unaudited Financial Information. A discussion of the year-on-year movement of gross premiums earned is provided in the Explanation of Movements in Profit before Shareholder Tax by Nature of Revenue and Charges section.

In the remainder of this section every time we comment on the performance of our businesses, we focus on their performance measured in local currency (presented here by reference to percentage growth expressed on a CER basis) unless otherwise stated. In each such case, the performance of our businesses in AER terms is explained by the same factors discussed in the comments below and the impact of currency movements implicit in the CER data. The rest of this discussion focuses solely on the continuing operations of the Group following the demerger of M&G plc in the fourth quarter of 2019, namely Asia, the US and central operations including Africa.

Summary overview

Like all businesses, we faced new and unexpected challenges throughout 2020, but thanks to the dedication of our people, we made considerable progress on all fronts. We are well placed to weather the continuing effects of Covid-19 and to deliver for our customers and shareholders over the longer term. Our wide range of innovative products, diverse and flexible approach to distribution, and relentless focus on operating efficiency enabled us to continue to operate profitably, and at the same time continue to invest heavily in organic and inorganic growth initiatives.

In 2020 we focused on three areas of activity. First, we have been meeting the urgent needs of our customers, colleagues and communities in light of the pandemic. Second, we advanced the pace and the extent of our plans in delivering more digitally enabled, scalable operations, and equipping us with the tools necessary for continued success in the future. This had the effect of enabling us to execute effectively during lockdown restrictions. Third, we accelerated the structural repositioning of the Group, in particular enlarging our footprint in the Asian markets with the most attractive structural opportunities, and working at pace towards the proposed separation of our US business, Jackson.

Supporting stakeholders through the pandemic

We have been working hard to support all our stakeholders throughout the year. For our customers, for our colleagues and distributors, and for the communities in which we work, we have introduced a range of innovative measures to both deal with the impact of the virus and provide the means for them to emerge in a stronger position once the effect of the virus has subsided.

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For our customers, we have put in place measures to increase coverage during this difficult time and to mitigate financial stress resulting from the virus. In most of our markets we introduced free limited-time Covid-19 cover, and we made improvements to our offerings throughout the year, including providing cash relief upon diagnosis and hospitalisation, and paying out on death.

We have enabled our colleagues around the world to work remotely and have undertaken a number of new initiatives to find out about and respond to their concerns, in particular managing the risk of mental and physical health challenges of staff and their families. During the course of the year, we have ensured that our people working from home have had the necessary equipment and support to do their work safely and comfortably. With disruption to working patterns continuing into 2021, we are taking further measures to help colleagues manage the longer-term psychological strains of remote working by providing as much flexibility as possible, and offering sessions and support for psychological and physical wellbeing.

We also took a number of key steps throughout the year to support our distributors through the challenges presented by Covid-19. To support our agents, we worked with regulators in 2020 to virtualise the sales process, and 28 per cent of agency new cases since April 2020, where we focused our efforts initially, together with 27 per cent of bancassurance new cases since July 2020, have been made virtually. This compares with very low amounts in prior years. Our Mainland China joint venture, CITIC-Prudential, went a step further by creating a virtual reality 'meeting room' where clients can purchase our products.

In the communities in which we work, we launched a number of initiatives to provide support through the challenges of Covid-19 and beyond. In May we launched the Prudential Covid-19 Relief Fund to provide financial support for communities and for the volunteering efforts of our people in Asia, the US and Africa. The fund is being distributed among our markets around the world to support charitable and community projects tackling the immediate impact of the pandemic and its social and economic consequences.

Delivering on long-term strategic goals

We have had two key strategic objectives in 2020. The first has been to deliver the proposed separation of our US business, Jackson. The second has been to enable our shareholders to benefit to the maximum extent from the health, financial protection and savings opportunities in our chosen markets in Asia and Africa, while ensuring that we deliver more digitally enabled, scalable operations in those regions to position us well for future success.

In the US we are now able to provide clarity on the path and timing of Jackson's proposed separation. In January 2021 the Group announced an update on Jackson's capital position and that it had decided to pursue the separation of Jackson from the Group through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders. Subject to shareholder and regulatory approvals, the planned demerger is expected to complete in the second quarter of 2021, and would lead to a significantly earlier separation of Jackson from the Group than would have been possible through a minority IPO and future sell-downs, which from market precedent may have lasted until 2023. This accelerated process will complete Prudential's structural shift from a diversified global group to a growth business focusing exclusively on the unmet health, financial protection and savings needs of people in Asia and Africa.

In order to accelerate de-levering during 2021 through the redemption of existing high coupon debt, Prudential is considering raising new equity of around $2.5–3 billion. Such a transaction, if executed, would maintain and enhance the Group's financial flexibility in light of the breadth of the opportunities to invest in growth and aim to increase the Group's investor base in Asia. Prudential believes that there are clear benefits to the Group, as an Asian focused company, of increasing its institutional ownership in Asia and enhancing the liquidity of its ordinary shares in Hong Kong. As a result, its preference is to raise new equity through a fully marketed global offering to institutional investors concurrent with a public offering in Hong Kong to retail investors, to be undertaken after the Jackson demerger, subject to market conditions. The Group has held discussions with shareholders and the allocation of any offering will take into account a number of criteria including the interests of existing shareholders and the strategic benefits of enhancing its shareholder base and liquidity in Hong Kong. The Group believes that there is potential for substantial value creation for all shareholders through the transformation of Prudential into a business purely focussed on profitable growth in Asia and Africa.

Prudential is planning to retain a 19.9 per cent non-controlling interest in Jackson1 at the point of demerger, which will be reported within our IFRS balance sheet as a financial investment at fair value. Subject to market conditions, we intend to monetise a portion of this investment to support investment in Asia within 12 months of the planned demerger, such that the Group would own less than 10 per cent at the end of such period.

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At the point of proposed separation and subject to market conditions, Jackson expects to have an RBC ratio2 in excess of 450 per cent and Total Financial Leverage3 in the range of 25 to 30 per cent. Jackson expects to achieve this level of RBC at the point of separation by contributing proceeds of debt and any hybrid capital raising to its regulated insurance subsidiaries. As a result, we do not expect that Prudential will receive a pre-separation dividend from Jackson.

Following the planned demerger, Jackson intends to pursue a focused strategy that prioritises optimisation and stability of capital resources while protecting franchise value. Jackson's financial goals as a standalone company will be designed to maintain a resilient balance sheet in order to provide shareholders with stable capital returns and profitable growth over the long-term.

In Asia, our focus is on strengthening our footprint in our key strategic markets, building our distribution and product range, and accelerating the digitalisation of our platform. Our businesses in Asia are aligned with supportive structural trends in the region, in particular rising prosperity and ageing populations, which are leading to significant and growing protection and savings gaps.

We have built top-three positions in nine Asian life insurance markets, and we have significant upside potential in the region's two largest markets, China and India. In Mainland China, our branch network with our local partner CITIC now covers 77 per cent of the country's 1.4 billion people4, and we see a broad range of opportunities to participate more deeply in that market. In India the businesses continue to develop, with our life business recording a 17 per cent rise in health and protection APE sales and our asset management business increasing funds under management5 by 6 per cent to $26.9 billion18. At 31 December 2020, our investment in ICICI Prudential Life Insurance was valued at $2.2 billion, in excess of the amount at which it is recorded in our IFRS financial statements.

Across our Asian markets, our comprehensive distribution network allows consumers to access our services how, where and when they choose. Our network of around 600,000 agents6 is growing ever more skilled and productive. Agent recruits7 in Asia (excluding India) rose 4 per cent in the year, and the number of agents qualifying for elite MDRT status doubled to more than 13,200. Our agent management has moved online across all markets, enhancing the effectiveness of agent communication and operation, and expanding sales capacity, with the number of cases per active agent7 increasing by 8 per cent in 2020 from the prior year.

We have access to around 20,000 bank branches and are working closely with our partner banks to develop their online offerings. In 2020, we entered into a major strategic partnership with TMB Bank in Thailand and also began new relationships with banks in Vietnam, Laos, Cambodia and Ghana. We are also developing new distribution channels through our digital partnerships, including OVO, Indonesia's leading mobile payments platform, and The1, Thailand's largest loyalty platform.

The services we offer are equally broad. We meet the needs of everyone from affluent families looking for sophisticated financial advice to people considering saving and financial protection for the first time. Across Asia we have seen a heightened need for the health and protection products that we provide, due to the Covid-19 pandemic. In a survey, 58 per cent of consumers in our Asian markets stated that they were interested in products with value-added services, with 46 per cent of customers searching for new insurance products8. This has been converted into an increase in the proportions of APE sales represented by health and protection products in seven of our Asian markets.

We have East Asia's number-one Islamic life insurance business, which saw a 49 per cent growth in new policies in 2020. Malaysia Takaful is the leader in its market, with a 32 per cent share of the market in 2020, as is our sharia business in Indonesia, which has the largest Muslim population of any country9, with a 35 per cent share of the sharia-compliant market. Our Business at Pulse (formerly PruWorks) proposition, which serves small and medium-sized enterprises, continues to develop.

Our Asia asset manager, Eastspring, manages $247.8 billion in assets across 11 markets in Asia, and is a top-10 asset manager in seven of those markets. Eastspring has a broad product set and an unrivalled ability to serve the needs both of Asian savers and global investors seeking access to Asian opportunities, and we continue to diversify the product set.

Our investment in Africa gives us exposure to a growing, under-served continent whose population is expected to double to more than 2 billion people by 2050.

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The pace of our innovation continues to accelerate, and that is translating into improved operational performance. In 2020, we launched or revamped 175 products10 across our markets Of these, more than 115 were traditional and health and protection products, including Anxin, our digital health and protection solution for the China market, with 165,000 policies sold in 2020, around 50 per cent of them to new customers. In Indonesia several new launches of simplified standalone protection products saw their contribution rise to 37 per cent of APE, up from 8 per cent in 2019, which drove an overall increase in total new cases sold in 2020 of 12 per cent.

We have significant investment appetite in Asia and Africa that is based on the absolute size and demographic characteristics of each economy and our ability to build competitive advantage, leveraging our scale and expertise. While we will continue to build on our leading positions in Hong Kong and ASEAN, we see the greatest opportunities in the largest economies of China, India, Indonesia and Thailand. We expect this strategy to deliver profitable and sustainable compounding growth and high risk-adjusted returns for shareholders. Accordingly, our dividend policy announced in August reflects a rebalancing of capital allocation from cash dividends to reinvestment of capital into the Asia business.

Following the proposed separation of Jackson, our focus on Asia and Africa will support long-term delivery of future shareholder returns through value appreciation, with a focus on achieving sustained double-digit growth in embedded value per share. This will in turn be supported by the growth rates of new business profit, which are expected to substantially exceed GDP growth rates in the markets in which the post-demerger Prudential Group operates.

Pulse: building our digital capabilities

Our culture of innovation is exemplified by Pulse, our new digital platform, which is enhancing our digital capability across Asia and Africa.

The first iteration of the Pulse mobile app was launched in Malaysia in August 2019, with features focused on helping our customers – and the wider population – prevent and postpone ill-health. These initial services included an artificial intelligence-driven medical symptom checker, telemedicine and dengue fever alerts. Since then, Pulse has been launched in 11 languages across 11 Asian and four African markets. 58 per cent of Asian consumers desire access to healthcare value-added services8, such as virtual GP, and new features have continued to be added to Pulse on a weekly basis to meet this demand. Covid-19 has stimulated interest in the health features of Pulse, as both consumers and policymakers embrace the flexibility and accessibility offered by digital health solutions in a period when travel and face-to-face contact has been restricted. By February 2021, Pulse had been downloaded around 20 million times11. Sales referrals from Pulse to our agents in 2020, together with a small amount of revenue from bite-sized products sold directly on Pulse, translated into $211 million of APE sales12.

In 2021, as we continue to help customers become healthier, we intend to broaden our services to give greater support to people's wealth needs.

Our financial performance

Profit after tax from continuing operations increased from $1,953 million in 2019 to $2,185 million in 2020. The increase of $232 million primarily reflects the movement in profit before tax attributable to shareholders, which increased from a profit of $1,922 million in 2019 to a profit of $2,148 million in 2020, together with an increase in the tax credit attributable to shareholders from a credit of $31 million in 2019 to a credit of $37 million in 2020. The increase in profit before tax was primarily driven by a reduction in loss before tax in the US of $11 million and a reduction in loss before tax in other operations of $588 million, partially offset by a decrease of $373 million in profit after tax in Asia operations.

On an AER basis, the increase in adjusted operating profit in Asia of $391 million to $3,667 million (2019: $3,276 million), reflecting the continued growth and resilience of our Asia businesses, is more than offset by a $(764) million unfavourable change in non-operating gains to $153 million (2019: $917 million) driven by the effect of falling interest rates.

The $(714) million loss before tax for the US operations in 2020 is broadly in line with the loss of $(725) million in the prior year, with lower adjusted operating profit and more negative short-term fluctuations being largely offset by the gain arising on the reinsurance transaction undertaken with Athene in 2020. Further details are provided in the sections below.

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In Asia, in a challenging environment, our diversified, high-quality, recurring-premium business model enabled us to continue to grow value and scale. Adjusted operating profit was 13 per cent higher than 2019 on a constant exchange rate basis, driven by the resilience of our in-force life business and the rebound of the level of funds managed by our asset manager Eastspring in the second half of 2020.

The quality of our historic book of insurance business contributed to resilient in-force growth, with the business seeing a higher level of renewal premiums14 in the year. The high level of renewal premiums is the result of the high level of regular-premium business we sell, the high mix of health and protection business and a 90 per cent customer retention rate15. This contributed to life insurance adjusted operating profit in Asia growing by 14 per cent (on a constant exchange rate basis). The performance was broad-based, led by Hong Kong, up 20 per cent, with a further eight markets delivering double-digit growth.

Our Asia asset management business, Eastspring, saw total assets under management reach $247.8 billion, up 3 per cent from the end of 2019 and 13 per cent higher than 30 June 2020, on an actual exchange rate basis, with external net outflows moderating in the second half of year alongside improving equity markets. Eastspring's funds under management also benefited from net inflows from internal Asia life funds of $8.5 billion during 2020, representing a continuing source of reliable funds flows to the Eastspring business and a structural strength of our business model. Overall, this helped the adjusted operating profit increase by 2 per cent compared with the prior year. Continued cost discipline helped maintain the cost/income ratio14 at the same level as last year.

Despite the continuing impact of the Covid-19 pandemic across our markets, we delivered a relatively resilient performance in respect of APE sales. Outside Hong Kong, APE sales16 reduced by (6) per cent. In Hong Kong, APE sales were (63) per cent lower, largely as a result of the impact of Covid-19-related restrictions on cross-border sales. Overall, this led to a (28) per cent fall in Asia APE sales as compared with 2019. China, our third-largest market by APE sales, was a particular highlight, with bancassurance APE sales up by 34 per cent compared with 2019. Agency APE sales rebounded by 15 per cent in the second quarter as restrictions were lifted, and overall APE sales in the second half increased by 4 per cent compared with the same period in the prior year.

The nature and timing of Covid-19-related disruption varied considerably across our markets. The ability of our franchise to grow as restrictions were lifted is evident from the sequential increase in APE sales in nine markets including Hong Kong, with the third-quarter total Asia APE sales above the second by 33 per cent, and the fourth quarter above the third by 18 per cent.

We continue to build our operations in Africa, with APE sales reaching $112 million, representing growth of 51 per cent. Our African businesses are progressing well with the adoption of our new digital sales management system, which has driven positive operating trends.

Jackson maintained its leading position in the US variable annuity market17, reflecting customer demand for Jackson's products in this market and the breadth and expertise of its distribution force.

Jackson's adjusted operating profit was $2,796 million (2019: $3,070 million), reflecting DAC adjustment effects and the expected reduction in spread-related earnings following the reinsurance contract with Athene in June 2020 and lower asset yields, partially offset by higher fee income from increased average account balances. Overall Jackson incurred a $(247) million post-tax loss (2019: loss of $(380) million), where the economic nature of our hedging programme, and the related accounting mismatches, alongside the exceptional equity volatility seen over the year, resulted in the recognition of losses on equity derivatives taken out as part of Jackson's hedging programme.

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Outlook

Throughout the Covid-19 crisis that dominated 2020, we demonstrated our ability to act at pace, our adaptability and the resilience of our underlying business. We will continue to apply these strengths as we move forward. With each cycle of lockdown and reopening, we have adopted varied responses depending on the local conditions, we have improved our agility as we have responded, and the strength of our business has remained apparent. We expect that vaccination programmes will be launched in a number of our markets in 2021, triggering a gradual return to more normal economic patterns. However, the pace of these programmes and their effect is likely to vary substantially and gives a degree of uncertainty over performance of the business in the short-term.

Our most significant market is Hong Kong. Sales to Mainland Chinese individuals in Hong Kong have been severely curtailed by the closure of the border with mainland China. There is at present unlikely to be a lifting of the border restrictions until the third quarter of 2021 at the earliest, but this depends on a number of factors. However, we believe there will continue to be demand from Mainland Chinese customers for the Hong Kong product suite once the border reopening occurs and we have been building on our existing product and digitalisation capabilities to continue to serve both these and domestic customers in the future. Since the second quarter of 2020 we have seen sequential quarterly increases in sales in Asia, but our continued success across all our markets will be dependent in part on government reaction to changes in the number and type of Covid-19 cases and the vaccine roll-out.

Nevertheless, we are confident that the demand for our products will continue to grow in line with the structural growth in our chosen markets, and that our expanding and increasingly digitalised distribution platforms will meet that demand.

That confidence in the future is underpinned by the clarity of our strategy for delivering long-term profitable growth. The Group aims to deliver outperformance by building leadership positions in the markets with the greatest scale, investing in people and innovating, and nurturing relationships with our key stakeholders.

If we execute successfully, the outcome of our strategy will be growth in new business profit that is expected to outpace the economic growth of the markets where we operate. We are confident that our clear and focused strategy, coupled with our proven execution ability, leaves us well placed to continue to deliver value for our shareholders and all our stakeholders over the long term, with a focus on achieving sustained double-digit growth in embedded value per share.

Notes

1
Prudential is planning to retain a 19.9 per cent voting interest and a 19.7 per cent economic interest.
2
Representing the RBC ratio of Jackson National Life that reflects the capital and capital requirements of Jackson National Life and its subsidiaries, including Jackson National Life NY.
3
Calculated on a US GAAP basis as the ratio of total debt (including senior debt, hybrid debt and preferred securities) to total debt and shareholders' equity (excluding Accumulated Other Comprehensive Income).
4
2019 data for population. Sources from National Bureau of Statistics and CBIRC.
5
Full year 2020 total funds under management, including external funds under management, money market funds, funds managed on behalf of M&G plc and internal funds under management, reported based on the country where the funds are managed.
6
Including India.
7
Excluding India.
8
Source: Swiss Re COVID-19 Consumer Survey, April 2020.
9
Source: Indonesia Ministry of Religion Data Centre.
10
Including 37 bite-sized digital products.
11
As of 22 February 2021.
12
APE sales substantially from full-premium products sold through referrals to agents and a small amount of revenue from 37 new digital products.
13
Attributed to the shareholders of the Group before deducting the amount attributable to the non-controlling interests. This presentation is applied consistently throughout the document.
14
See note II of the Additional Unaudited Financial Information for definition and reconciliation to IFRS balances.
15
Excluding India, Laos and Myanmar.
16
APE sales is a measure of new business activity that comprises the aggregate of annualised regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. It is not representative of premium income recorded in the IFRS financial statements. See note II of the Additional Unaudited Financial Information for further explanation.
17
LIMRA: through the third quarter of 2020, Jackson accounted for 16.5% of new sales in the U.S. retail variable annuity market and ranked number 1 in variable annuity sales.
18
Representing Prudential's 49 per cent interest.

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OUR BUSINESS SEGMENTS

Our purpose is to help people get the most out of life. We make healthcare affordable and accessible and promote financial inclusion across our markets. We protect people's wealth and help them grow their assets, and we empower our customers to save for their goals.

With this purpose in mind, our intention is to take full advantage of the long-term structural opportunities in Asia and Africa and to pursue a path for a fully independent Jackson. In January 2021, the Board announced that it had decided to pursue the separation of Jackson from the Group in the first half of 2021 through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders. The result of this separation will be two separately listed companies with distinct investment propositions, which the Group's Board believes will lead to improved strategic outcomes for both businesses.

The Prudential Group will focus exclusively on its high-growth Asia and Africa businesses. We will also accelerate our development of digitally enabled products and services to help prevent, postpone and protect our customers from threats to their health and wellbeing, as well as supporting them to achieve their savings goals.

Jackson will continue to help Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life through its differentiated products, well-known brand and industry-leading distribution network.

These business units derive revenue from both long-term insurance and asset management activities. These are supported by central functions which are responsible for Prudential strategy, cash and capital management, leadership development and succession, reputation management and other core group functions.

The Group reports annual premium equivalent (APE) as a measure of new business sales. This is a key metric for the Group's management of the development and growth of the business. APE is calculated as the aggregate of regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. The use of the one-tenth of single premiums is to normalise these policy premiums into the equivalent of regular annual payments. This measure is commonly used in the insurance industry to allow comparisons of the amount of new business written in a period by life insurance companies, particularly when the sales contain both single premium and regular premium business. APE differs from the IFRS measure of gross premiums earned. A reconciliation of APE new business sales to IFRS gross premiums earned is provided in note II(vii) of the section headed Additional Unaudited Financial Information. A discussion of the year-on-year movement of gross premiums earned is provided in the section headed Explanation of Movements in Profit before Shareholder Tax by Nature of Revenue and Charges.

Asia and Africa

Introduction

Asia's core business is health and protection, either attached to a life policy or on a standalone basis, other life insurance (including participating business) and mutual funds. It also provides selected personal lines property and casualty insurance, group insurance and institutional fund management. The product range offered is tailored to suit the individual country markets. Insurance products are distributed mainly through an agency sales force together with selected banks, while the majority of mutual funds are sold through banks and brokers. In some markets, Prudential operates with local partners as reflected in Prudential's life insurance operations in China (through its joint venture with CITIC) and in India (an associate with the majority shareholder being ICICI Bank) as well as Prudential's Takaful business in Malaysia (through its joint venture with Bank Simpanan Nasional). In the fund management business, Prudential has joint venture operations in India (through its joint venture with ICICI Bank), China (through its joint venture with CITIC) and Hong Kong (through its joint venture with Bank of China International).

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Eastspring Investments, Prudential's asset management business in Asia, manages investments for Prudential's Asia life companies and also has a broad base of third-party retail and institutional clients. Eastspring has a number of advantages and is well placed for the anticipated growth in Asia's retail mutual fund market. It has one of the largest footprints in Asia, with operations in 11 major markets and distribution offices in US and Europe. In 2018 and 2019, it made two major acquisitions in TMB Asset Management Co., Ltd and Thanachart Fund Management Co., Ltd respectively, propelling its position to one of the leading asset managers in Thailand. It has a well-diversified customer base, comprising Prudential's internal life funds, and a number of institutional clients, including sovereign wealth funds and retail customers. Assets managed are diversified between fixed income and other equities and also include quantitative, beta, multi-asset and private market investments.

The Group has had operations in Africa since 2014 and has continued to expand its presence on the continent, one of the world's most under penetrated markets where the population is expected to double to more than 2 billion people by 2050. In July 2019, Prudential completed its acquisition of a 51 per cent. stake in a leading life insurer, Group Beneficial, operating in West and Central Africa. The Group now operates in eight markets with a population of almost 400 million.

As at 31 December 2020, the Asia business had:

    16 million life customers with life and fund management operations in 15 markets;
    Access to more than 20,000 bank outlets across Asia with relationships including Standard Chartered Bank (SCB), United Overseas Bank Limited (UOB), ICICI Bank in India, CITIC in China and TMB in Thailand;
    Around 600,000 agents across the region; and
    Top three position in nine life markets15.

We have a pan-Asian footprint, with our largest life and protection operations in Hong Kong, Singapore, Indonesia and Malaysia as well as our joint venture in China. We also operate in Thailand, Vietnam, Taiwan, the Philippines, Cambodia, Laos and Myanmar and have a successful partnership in India. Within this footprint, Prudential has top three positions1 in 9 out of 13 life markets and extensive distribution networks, across digital, agency and bancassurance channels. We focus on delivering profitable regular premium health and protection insurance products and fee-based earnings.

In asset management, Eastspring manages $247.8 billion across 11 markets in Asia and provides focused investment solutions to third-party retail and institutional clients as well as to our internally sourced life funds. Eastspring is a top 10 asset manager in 7 of the 11 markets in which it operates, and is the largest pan-Asian retail asset manager excluding Japan2.

Since 2014 we have also built a rapidly growing multi-product, multi-distribution business in Africa, with operations now in eight countries across the continent, and have over one million customers. Starting in 2021 the regional office for Africa will be based in Nairobi, making East Africa our hub for the continued success of operating on the continent.

Our offering in Asia and Africa is evolving to respond to growing customer awareness and demand for products that address health and wellness, as well as providing life insurance cover. Pulse by Prudential, our health and wellness platform provides a compelling offering to address these needs, building on our existing distribution channels and trusted brand. Further information on Pulse by Prudential, and our markets, customers, products and distribution within the region is set out below.

Asia has grown significantly over the last 10 years. Since 2013, Prudential has committed almost $10 billion of capital to support growth in Asia, including around $5 billion of inorganic investments to grow our distribution reach and to build digital capability. Around one-third of the total investment has been made since January 2019. Investments in 2020 included establishing a 15-year strategic bancassurance partnership with TMB, which significantly strengthens our distribution capability in Thailand's fast-growing life insurance sector and strongly complements our top-five position2 in the country's mutual fund market. In other markets we have also established a new bancassurance partnership with SeABank, a fast-growing bank in Vietnam with approximately 1.2 million customers and almost 170 branches, as well as signing new agreements with Banque Franco-Lao (BFL) BRED Group in Laos, and in early 2021 with Phnom Penh Commercial Bank Plc (PPCBank) in Cambodia.

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We have significant investment appetite in Asia in the future that is based on the absolute size and demographic characteristics of each economy and our ability to build competitive advantage leveraging our scale and expertise. While we will continue to build on our leading positions in Hong Kong and members of the Association of Southeast Asia Nations ('ASEAN'), we see the greatest opportunities in the largest economies of China, India, Indonesia and Thailand. This investment is expected to deliver profitable and sustainable compounding growth and will support long-term delivery of future shareholder returns through value appreciation, with a focus on achieving sustained double-digit growth in embedded value per share.

Markets

The life insurance industry in Asia and Africa remains in the early stages of development, as characterised by the low penetration rates across the region for insurance. In particular, most of our Asia markets are approaching the level of per capita annual income when demand increases sharply. Around 50 per cent of the global population lacks access to essential health services13, and across the Asia region specifically, there are significant health funding and wellness gaps; 80 per cent of Asians do not have insurance cover14 and spend some $400 billion on healthcare as an out-of-pocket expense15. Similarly, in Africa, while mobile phone access has increased tremendously over the last 20 years, less than 50 per cent of Africans have access to modern health facilities16, and 80 per cent have to rely on public health facilities, which are often understocked, understaffed, and difficult to reach due to the physical and financial burdens of transportation17.

Our largest market in respect of APE sales is Hong Kong, which accounted for 21 per cent of our overall Asia APE sales in 2020, followed by Singapore, contributing 17 per cent and China which accounted for 16 per cent. The rest of our new business is diversified across 10 markets. Our adjusted operating profit is well balanced, with the largest contributions from Hong Kong, Singapore and Indonesia.

With regards to strategy, we see the most significant opportunities for growth potential in life insurance and asset management in the four largest economies in our footprint, namely China, India, Indonesia and Thailand. Our joint venture operations in China and India together with our businesses in Indonesia and Thailand, provide us with scaled access, where we can build leadership positions with competitive advantage and economies of scale. We also intend to continue building on our leading positions within Hong Kong and ASEAN.

In China, our China life business is a 50/50 joint venture with CITIC, a leading Chinese state owned conglomerate. Our China JV business performed well in 2020 after the Covid-19 disruption in the first quarter. Building on our existing nationwide coverage of 20 branches and 99 cities (an increase of five since 2019), we expect our China JV business will continue to grow at pace by expanding and deepening our presence from our current geographical footprint, and by leveraging our multi-distribution platform. We operate our asset management business in China through CITIC-Prudential Fund Management Company Limited, a JV with CITIC with assets under management of $9.6 billion19, as well as our wholly owned private fund manager operationalised in 2019 within Eastspring, which now has sourced and sub-advised assets under management of $743 million. Our Chinese life insurance joint venture has also established its own asset management company in 2020, Prudential-CITIC Asset Management Co, which further strengthens our capabilities in savings and retirement products.

In India, our business consists of our 22.1 per cent holding of the Indian Stock Exchange listed life insurance business, ICICI Prudential Life Insurance (with our investment valued at $2.2 billion as at 31 December 2020) and 49 per cent of the asset manager, ICICI Prudential Asset Management, which has total funds under management7 of $26.9 billion19. Our India life business continues to pivot to health and protection, with a 17 per cent increase in health and protection APE sales, which now represent 24 per cent of total APE sales (up 9 percentage points on 2019). We will continue to capture the significant potential in the Indian life market by continuing to grow the business, improving retention and enhancing productivity.

In Indonesia, we continue to strengthen our market leadership, including in the sharia market where we increased APE sales by 6 per cent in 2020, and propel growth by broadening our product offerings, as well as digitalising our business model. We added 60 products during 2020, doubled MDRT qualifiers to over 2,100, and launched digital products through both Pulse and our OVO partnership. We have seen positive momentum in the last quarter of 2020, being the highest sales quarter of 2020, and believe our business transformation will continue to drive growth in the future.

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In Thailand our new distribution partnership with TMB will help us achieve top-three leadership in the bancassurance channel, and we will further accelerate growth by developing a holistic omni-channel business model. Coupled with the completion of the acquisition of TMBAM and TFund which gives us a top-five ranking in the mutual fund market, this will give us a high-quality platform to deliver best-in-class health and wealth solutions to serve the growing retirement and investment needs of both the rising middle class and the growing high net worth segments.

In our other large businesses, we also see ample opportunities to continue to grow at pace. In Hong Kong, we believe based on our own and third party surveys there is latent demand from Mainland Chinese customers for our Hong Kong product suite and that the eventual normalisation of visitor arrivals as the border reopening occurs will allow for the return of this important source of new business. For example, 61 per cent of Mainland Chinese visitor preference20 is to receive critical illness medical treatment in Hong Kong. In the meantime, we continue to build our already strong and substantial Hong Kong domestic business through multi-channel expansion and increased digitalisation of our service offering. We also continue to broaden our product offerings, such as our mid-tier medical reimbursement product, the PRUHealth VHIS VIP Plan, to fulfil the protection needs of our customers. We will also broaden access to Mainland China consumers through Greater Bay Area initiatives and remain a destination of choice through our market-leading products and service propositions.

In Singapore, we see significant opportunities in expanding the servicing of the high net-worth and small and medium enterprise (SME) markets, alongside supporting a fast ageing population to address under-covered retirement and health needs. In Malaysia, we have leading market positions in both the conventional and Takaful markets. In particular, in the underprovided Takaful segment where we see substantial opportunity for growth, we increased our APE sales by 26 per cent in 2020.

In our other high-potential growth markets of Vietnam, the Philippines, Cambodia, Laos and Myanmar, we see the opportunity for rapid growth through the roll-out of our efficient and scalable business model, multi-channel distribution networks and the provision of market leading digital products and services through Pulse. These markets currently have very low levels of life insurance penetration, for example with life insurance penetration5 of just 1.4 per cent in Vietnam and 1.2 per cent in the Philippines. However, with rising GDP per capita at or reaching a threshold of $10,000 to $20,000, and supported by our proven and market leading positions, we are confident of delivering new life insurance sales growth well in excess of GDP growth in these markets.

We see substantial opportunities to accelerate our asset management business, Eastspring, building on its leading market position as Asia's largest retail asset manager (excluding Japan)2 and structural advantages of reliable and predictable inflows from our life businesses. The completion of the TMBAM and TFund acquisitions in Thailand and successful development of its China business, mentioned above, have strengthened its strategic portfolio.

Since 2014 we have also built a rapidly growing multi-product business in Africa, with operations now in eight countries across the continent. Despite the Covid-19 pandemic, APE sales at Prudential Africa have grown by 51 per cent21 to $112 million during 2020, with the number of active agents significantly ahead of the same period last year. In Ghana, we have renewed our exclusive agreement with Fidelity Bank for an additional 10 years, building on a successful partnership over the past five years. We also announced a new partnership with Vodafone Ghana to provide an innovative microinsurance product to their 9 million plus subscribers. Meanwhile, our team in Nigeria has launched a new partnership with the largest mobile operator in the country, MTN, in an effort to reach its subscriber base of over 70 million people and provide protection to the millions of uninsured Nigerians.

New Business Premiums

In 2020, total new business premiums in Asia were down by 18 per cent from $8,562 million in 2019 to $7,010 million. Of this amount, regular premium sales decreased by 30 per cent to $3,328 million (2019: $4,783 million) and single premium sales decreased by 3 per cent in 2020 to $3,682 million (2019: $3,779 million).

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The following table shows Prudential's Asia life insurance new business premiums by local business unit for the years indicated.

      2020     2019     2018
 
Single premiums                    
China JV (Prudential's 50% proportionate share in joint venture)     1,068     710     138  
Hong Kong     184     387     458  
India (Prudential's 22 per cent (2019: 22 per cent; 2018: 26 per cent) proportionate share in associate)     225     155     105  
Indonesia     226     292     274  
Malaysia     90     209     112  
Philippines     49     51     57  
Singapore     1,496     1,217     1,242  
Taiwan     201     544     389  
Thailand     122     192     290  
Vietnam     21     22     27  
Total single premiums     3,682     3,779     3,092  

Regular premiums

 

 

 

 

 

 

 

 

 

 
Cambodia     10     24     26  
China JV (Prudential's 50% proportionate share in joint venture)     475     518     390  
Hong Kong     741     1,977     2,222  
India (Prudential's 22 per cent (2019: 22 per cent; 2018: 26 per cent) proportionate share in associate)     154     245     276  
Indonesia     244     361     287  
Laos     1     -     -  
Malaysia     337     333     324  
Philippines     134     153     111  
Singapore     460     539     493  
Taiwan     367     278     243  
Thailand     171     140     127  
Vietnam     234     215     192  
Total regular premiums     3,328     4,783     4,691  
Total new business premiumsnote     7,010     8,562     7,783  

Note
The new business premiums in the table shown above are provided as an indicative measure of new business sales in the reporting period that have the potential to generate profits for shareholders. The amounts shown are not, and are not intended to be, reflective of gross premium earned recorded for Asia in the IFRS income statement as discussed in the "Explanation of Movements in Profit Before Shareholder Tax by Nature of Revenue and Charges" section. The new business premiums above include contributions for certain unit-linked savings and similar policies that are described as investment contracts without discretionary participation features under IFRS 4 as well as contributions from joint ventures and associate, which are excluded from gross premiums earned. Additionally, the regular premiums in the table shown above are on an annualised basis, which represent a full year of instalments in respect of regular premiums irrespective of the actual payments made during the year.

The following table shows funds under management by Eastspring Investments at the dates indicated.

      31 Dec 2020
$bn
    31 Dec 2019
$bn
 
External funds under management, excluding funds managed on behalf of M&G plc     93.9     98.0  
Funds managed on behalf of M&G plc     15.7     26.7  
Internal funds under management     138.2     116.4  
Total     247.8     241.1  

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Products and brands

We offer a wide range of insurance products that are tailored to local market requirements and fast-changing individual needs. We focus on health and protection and savings products that include participating, linked and other traditional products.

The diversity and resilience of our business is supported by the continued innovations and enhancements we make to our product range, which include broadening coverage for new risks and adding innovative features. In 2020, we introduced or revamped 175 new products22, including simplified lower case-sized protection offerings.

The Covid-19 pandemic has reinforced customer interest in health and protection products, with 58 per cent of consumers across our Asian markets desiring access to healthcare value-added services, such as access to a virtual GP23. This has been converted into an increase in the proportions of APE represented by health and protection products in 7 of our Asian markets, led by India, Singapore, Thailand and Vietnam. Of the 175 new or revamped products noted above, more than 115 were traditional and health and protection products.

Our Hong Kong business offers domestic Hong Kong residents and mainland visitors sophisticated critical illness, medical benefits and life insurance protection business. 91 per cent of all Hong Kong consumers23 indicated they would retain life insurance even if their financial position is disadvantaged by Covid-19 re-enforcing the resilience of this market. The investment proposition provides access to international equities and bonds. In particular, our main with-profits product offering uses a with-profits structure, which pools the investments of policyholders and allocates returns based on long-term investment performance (similar to that historically used in the UK), and leads to attractive margins. The business has a high level of renewals that is substantially higher than the premiums from new business. Singapore offers a similar type of product mix and also uses a UK-style with-profits structure.

In China, Anxin, our digital health and protection solution generated 165,000 policies in 2020, with around 50 per cent to new customers. In Hong Kong, we launched in the second half of 2020 PRUHealth VHIS VIP Plan, a tax-efficient medical insurance targeting the mid-tier segment.

In Indonesia, we retain leadership in the sharia-compliant market, with 35 per cent share, accounting for 37 per cent of agency sales in Indonesia. Our PRUCinta product, the first traditional sharia product with specific cash value, accounts for 14 per cent of Indonesia agency sales. More widely, we have launched 60 products in Indonesia in 2020, including lower ticket standalone protection products which collectively accounted for 52 per cent of new case count mix (2019: 11 per cent).

Alongside offering products that meet customer needs, we invest in our brands to build trust, drive awareness and attract and retain customers.

Distribution and customer engagement

We believe in a multi-channel and integrated distribution strategy for our business which can adapt and respond flexibly depending on local market conditions. Our distribution network is one of the strongest and most diversified in the Asia region, across agency, bancassurance and non-traditional partnerships, including digital. In recent years, we have also established non-traditional partnerships to broaden our customer reach, particularly the digitally-savvy millennial segment. In total, we have more than 300 life insurance and asset management distribution partnerships in Asia. Alongside these distribution channels we also have Pulse by Prudential (discussed further below).

Agency

We have around 600,000 licensed tied agents24 across our life insurance markets, and the productivity of active agents increased 8 per cent25,26 in the year, based on number of cases, which are becoming smaller in size as we, and our customers, focus increasingly on standalone protection products. Our agency channel is a core component of our success, given the high proportion of high margin protection products sold.

Our continued support for the agency channel positions us well for sustainable growth. Our agent management has moved online across all markets, enhancing effectiveness of agent communication and operation, and expanding sales capacity with agent recruits26 of 143,000 in the year. We deployed virtual sales tools across all markets for almost all products, and 28 per cent of agency new cases since April 2020, together with 27 per cent of bancassurance new cases since July 2020 have been made virtually. Despite the gradual relaxation of Covid-19 containment measures in several markets, virtual selling tools have now become mainstream with distributors, and virtual sales in the fourth quarter represented 23 per cent of both agency and bancassurance sales.

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We place great emphasis on agent professionalism and promote career progression by providing tailored training programmes that share experience and best practice across different markets. In addition, to further assist our agents during the sales process and enhance productivity we continually upgrade the tools at their disposal. During 2020, the number of agents qualifying for the Million Dollar Round Table (MDRT) doubled in the year to more than 13,200.

In Africa the number of active agents in 2020 significantly increased from the prior year. The increase in active agents is a direct result of implementing our Rookie Development Programme in each market, which helps with agent professionalism and customer focus, as well as transitioning new agents from the classroom to the field, and making those agents active within the first month of their recruitment. In most markets, as a response to Covid-19-related restrictions, we rapidly innovated to create an end-to-end virtual sales submission process, with a virtual recruitment and onboarding process for distributors as well as delivering training digitally. Moreover, 2020 marked the first time each market has had at least one agent qualify for the MDRT increasing the number of qualifiers to 38 from 15 in the prior year.

Bancassurance

We also have a leading bancassurance franchise that provides access to around 20,000 bank outlets through our strategic partnerships with multi-national banks and prominent domestic banks.

Our bancassurance partnerships made an important contribution to our business last year. Our new partnership with TMB in Thailand, which commenced on 1 January 2021, will give us access to an expanded network of 685 branches. In preparation we have trained more than 5,500 bank sellers and nearly doubled the number of sales support staff to 240. We have launched a refreshed set of propositions encompassing the high net-worth, retail, commercial and SME segments and rolled out a new e-POS system.

Outside of Hong Kong, our bancassurance channel APE sales remained stable despite Covid-19 related disruption. We were particularly pleased to see the positive momentum in our bancassurance channel in Indonesia, which saw APE sales up 15 per cent21. We continue to look for opportunities to expand our presence in this market.

We have also developed strategies to reach the digitally-savvy millennial segment through UOB Mighty, UOB's digital bank, and new partners such as Central in Thailand. Prudential Laos has also recently partnered with Star Fintech to launch payment services via its U-money platform. We anticipate that these partnerships will significantly enhance our reach to millennial consumers in the country through the joint development of digital propositions that encompass health, wellness and wealth products. The experience will also help us in designing and managing distribution strategies in our existing markets as well as in targeting new points of entry.

Pulse by Prudential

In 2020, we have been able to accelerate our digital development and associated customer-centric digital ecosystem.

The Covid-19 pandemic has accelerated growing awareness and demand for health and wellness solutions. For example, 46 per cent of Asian consumers searched for new insurance policies23. Our digital capabilities allow us to make healthcare more accessible and affordable in the countries where we operate.

Prudential meets this growing demand for health and wellness through its super-app Pulse by Prudential. Pulse is a free digital mobile application that offers holistic management, artificial intelligence (AI)-powered self-help tools, and information to serve users 24/7 and promotes health and wellbeing through a range of value-added services. These include telemedicine, health and wellness content and communities, health challenges and rewards, chronic disease management, as well as a self-diagnosis and self-help tools. Pulse has been launched27 in 11 different languages across 11 markets in Asia (Malaysia, Indonesia, Singapore, Hong Kong, the Philippines, Thailand, Vietnam, Cambodia, Laos, Taiwan, and Myanmar) and most recently four markets in Africa (Kenya, Nigeria, Cameroon and Zambia), with varying levels of development.

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Pulse has been downloaded around 20 million times27 since its initial launch in 2019 in Malaysia. Through this single super-app, Pulse is being developed to offer an integrated health, wealth, and SME ecosystem. It has integrated 32 local and regional partners27, including most recently, a signed partnership with Central Group, a leading retailer in Thailand, that will enable Pulse to access Central Group's existing digital engagement with customers to offer insurance and health solutions to them. We have also signed a partnership with HR Easily, an HR services digital platform which we make available to our SME customers through 'Business at Pulse'. We are seeing continued increase in the usage of AI assessment and triage, lifestyle management and wellness, and telemedicine consultation services, with over 1.5 million users27 accessing at least one of the services in Asia, since launch.

Pulse also enables us to reach a younger customer demographic, with the majority of Pulse users in the 18 to 35 age group compared with the average age of an existing Prudential customer profile of around 40, and is broadening our potential customer base, with 70 per cent of Pulse consumers new to Prudential.

37 digital bite-sized products were made available in Pulse in 2020. Some examples of bite-sized products launched by Prudential within Pulse include products related to common critical illnesses in Asia (cancer, stroke, heart attack), tropical disease protection (dengue, malaria, measles), and daily care (food poisoning, minor burns, broken bones, and accident income support).

With greater customer touchpoints, we are also able to generate Pulse-led data-driven leads for agents. We saw over 2.2 million leads generated for agents in 2020 which together with a small amount of revenue from policies sold directly through Pulse, generated APE sales of $211 million28 in 2020.

Recently, we introduced a subscription plan to help Pulse users eat healthier and promote a more active lifestyle, and even save for the future. These paid subscription plans, priced at a low cost of between $1-$3 per month, are currently available to users in Hong Kong, Indonesia, Malaysia, Thailand, Vietnam and the Philippines, with plans to expand on the offerings and launch in additional markets in 2021. The paid subscription plans have received 164,000 active subscribers during 2020.

We have undertaken steps to meet our objective for Pulse to provide a platform for end-to-end service, with the same app used by customers and distributors. Agents have the ability to sell Prudential products virtually within the Pulse platform in the Philippines, Malaysia and Indonesia. Meanwhile, e-claims are available in Indonesia, Malaysia, Cambodia, Myanmar and the Philippines. We believe the integration with the life value chain across sales, claims and payments will allow Pulse to enhance value to new and existing users and drive efficiencies in the business.

Customer service and loyalty

We believe that excellent customer service has been key to our strong reputation and leading pan-Asia franchise. Customer loyalty has remained high during the Covid-19 pandemic, with a retention ratio consistently in excess of 90 per cent. The satisfaction and trust our customers have in our business also translates into a high proportion of repeat sales, which comprised 47 per cent of APE sales in 2020. The result of these dynamics is a portfolio of over 25 million in-force policies, with each policyholder holding 1.6 policies on average.

We are focused on unlocking new customer segments through a broader proposition set. During 2020, we added a further 1.3 million new life customers from traditional channels. Our overall life customer numbers increased to 16 million, of which about 30 per cent are our health insurance customers.

We continue to identify and target new customer groups and segments outside our traditional focus in the Mass and Affluent space in order to accelerate our future growth. Within the Emerging segment, Pulse leads the customer acquisition as described above. Within the High Net Worth segment, we first expanded into this segment in 2018 with Opus in Singapore, providing a differentiated experience for our customers, including a dedicated service team, wealth planners and external experts covering trust and legal matters. Within the Group segment, we also developed tailored offerings for small and medium-sized enterprise (SME), a segment that remains under-served and offers significant growth potential. This strategy is advanced through our all-inclusive platform, Business at Pulse platform, which provides digitally-enabled insurance and HR solutions for business owners and their employees. We have extended our Business at Pulse platform from Singapore and Indonesia to Hong Kong, the Philippines and Thailand, and will launch next in Malaysia.

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Integrated asset management

Eastspring is a leading Asia-based asset manager, with operations across 11 markets in Asia, plus offices in Europe and North America. With $247.8 billion of assets under management and over 300 investment professionals, it is the largest pan-Asian retail asset manager excluding Japan2 and is a top-10 asset manager in 7 of the 11 markets in which it operates.

Eastspring has a broad product set, as well as significant distribution capabilities and industry-leading operational efficiency. Eastspring provides focused investment solutions, across equity, bonds and multi-asset products, to our internally sourced life insurance funds and third-party retail and institutional clients. Distribution channels include wholesale, intermediary and direct online formats, which are tailored as required, depending on the geography involved. This means that Eastspring can continue to grow and develop through both market cycles and changes to individual investment styles. Operational efficiency has led to industry-leading margins, with investment in technology, for example the implementation of BlackRock's Aladdin system, to deliver common platforms, and world-class risk management and governance capabilities.

In terms of strategy, we see substantial growth opportunities to accelerate Eastspring, building on its leading market position as Asia's largest retail asset manager2 (excluding Japan) and structural advantages of reliable and predictable inflows from our life business. In particular, we see China, India and Thailand as our most material market opportunities. Eastspring is well positioned to broaden its investment capabilities to serve the global needs of Asia-based clients, while offering global investors access to its expertise in investing in Asian markets. For example, in October 2020, Eastspring announced a strategic partnership with Atlantic Zagros Financial Partners to expand its offshore distribution capabilities to the Americas. To support this ambition Eastspring's strategic objectives include developing its distribution, product range and investment advisory capability, while continuing to enhance support for the asset management needs of Prudential's life insurance business.

To support these objectives, Eastspring has organised its operations into three pillars that will drive the expansion of its capabilities and growth in the future:

    Alpha engine – representing centralised investment capability with an emphasis on driving asset class return on investment after adjusting for market-related volatility. This pillar will focus on diversifying Eastspring's investment capabilities and styles.
    Advisory solutions – standalone advisory service for institutional clients; focusing on solutions & products for that market, including the growing need to support clients' Environmental, Social and Governance (ESG) requirements. This pillar will also focus on reinforcing the quality of service provided to the Group's life operations and supporting the Group's ESG strategy.
    Complementary partner solutions – this pillar will focus on complementary investment capabilities sourced from partners, in order to enhance strategies available to investors.

In developing its capabilities, Eastspring will further integrate its offerings with those of Prudential's life business, to enable the Group to seamlessly offer services across the full spectrum of Life, Health and Wealth products. Eastspring will leverage Prudential's established distribution channels.

We believe these developments will further enhance Eastspring's position as a leading asset manager in Asia.

Summary

There is a growing awareness and demand for wellness and insurance products across Asia, re-enforced by the global pandemic. We continue to invest in our chosen markets, building on our leading position in Hong Kong and ASEAN, and meeting the growing needs of customers in the largest economies of China, India, Indonesia and Thailand. This customer need is addressed by our wide range of insurance products, tailored to local markets, and extensive and diversified distribution network. We continue to amplify these existing capabilities through extending our China footprint, broadening our product offerings and enhancing our digital presence. Our innovative and customer-centric digital ecosystem increasingly complements our existing distribution channels and provides access to address the needs of new and fast growing customer segments. Our overall customer offering is supported by our integrated asset manager Eastspring, which has a clear strategy to expand its capabilities to deliver growth.

We believe these enhanced capabilities, alongside the resilience of our high quality and well diversified platform, mean our Asia business is well positioned to capture the structural opportunities open to us and therefore deliver profitable and sustainable compounding growth and high risk-adjusted returns for shareholders.

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United States

Introduction

In the United States (US), the Group has historically offered a range of products through Jackson National Life Insurance Company (Jackson) and its subsidiaries, including fixed annuities, fixed index annuities, variable annuities (VA) and institutional product offerings (including guaranteed investment contracts, funding agreements and medium-term funding agreement-backed notes). Jackson distributes these products through independent broker-dealers, wirehouses and regional broker-dealers, banks and other financial institutions and the independent insurance agents (IPA) channel.

During 2020 Jackson reinsured substantially all of its in-force fixed and fixed index annuities with Athene. Given the relatively low level of sales of these products in 2020, there is limited exposure to these products on the current balance sheet. In July 2020, Athene Life Re Ltd invested $500 million in Prudential's US business in return for an 11.1 per cent economic interest for which the voting interest is 9.9 per cent.

In January 2021, the Group announced an update on Jackson's capital position and that it had decided to pursue the separation of Jackson from the Group through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders.

The Group also announced in February 2021 a new senior leadership team for our US business, ahead of Jackson's planned separation from the Group. Laura Prieskorn has been appointed Chief Executive Officer and Marcia Wadsten has been appointed Chief Financial Officer.

As at 31 December 2020:

    Jackson is the largest seller of individual annuities in the US4;
    Perspective II is the number one selling variable annuity contract1; and
    Jackson's annuity wholesaling force is the largest annuity wholesale distribution force in the US3

The US operations also include PPM Holdings, Inc. (PPM), Prudential plc's US internal and institutional investment management operation. As at 31 December 2020, Prudential plc's US operations had more than 3 million policies and contracts in force and PPM managed approximately $106 billion of assets.

Jackson helps Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. Following the planned demerger, Jackson intends to pursue a focused strategy which prioritises optimisation and stability of capital resources while protecting franchise value.

Maintaining a resilient balance sheet is critical to Jackson meeting its objectives of fulfilling its obligations to policyholders, providing stable capital returns to shareholders, supporting the development of the business and enabling profitable growth over the long-term.

In line with Jackson's disciplined approach to pricing and risk management, pricing actions taken in the first half of 2020 in response to changing market conditions and to preserve statutory capital, resulted in an expected and material reduction in new fixed annuity and fixed index annuities sales.

Jackson has identified three main areas for business development.

First, Jackson intends to maintain and enhance its comprehensive suite of retirement products that it believes are sought after by retail investors and Jackson's distribution partners.

Second, it plans to optimise the sales mix across its broad product portfolio by leveraging the strength of its industry-leading distribution network and entering into new distribution agreements.

Third, Jackson seeks to develop the overall market demand for retail annuities by partnering with wealth management solution providers that historically have not considered annuities as a solution to provide retirement savings and income protection.

These strategies are discussed further below.

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Markets

Jackson believes that the US retirement savings and income solutions market presents a compelling growth opportunity and will support its development in the future. The primary drivers of the industry's trends are believed to be the following:

    The target demographic is expected to continue to grow. Over the next decade, the proportion of the US population aged 55 or older is expected to grow at a rate double that of the total US population, resulting in approximately 112 million individuals who will be aged 55 or older by the year 203029.
    The need for new sources of retirement income is expected to grow. Over the last few decades, there has been a pronounced shift from retirement income funded primarily by pension plans to retirement income funded primarily by individual savings. Of all private sector workers in the United States, only 15 per cent had access to a defined benefit pension plan in 2020 (down from 20 per cent in 2010), and 52 per cent only had access to a defined contribution retirement plan in 202030. This trend has increased the burden on individuals to save for their retirement and to use those savings to generate income during retirement.
    Annuities are underutilised in the world's largest retirement savings market. The United States is the world's largest retirement savings market estimated to consist of approximately $51 trillion in professionally managed retail and institutional assets as of 31 December 201931. However, only approximately $2.4 trillion of professionally managed assets were invested in annuities as of 31 December 2019. A key driver of this underutilisation is the historical lack of integration of annuities into wealth management platforms and financial planning tools available to retail investors. Jackson has been working actively with its distribution partners and financial technology firms to integrate annuities into the wealth management planning tools advisers use to select investments and build portfolios for their clients.

Products

Jackson offers a diverse suite of annuities to retail investors in the United States. The success of its variable annuity offerings reflects the differentiated features Jackson offers as compared with its competitors, in particular the wider range of investment options and greater freedom to invest across multiple investment options. Through the third quarter of 2020, Jackson accounted for 16.5 per cent of new sales in the US retail variable annuity market32 and ranked number 1 in variable annuity sales. Jackson also offers fixed index annuities and fixed annuities and expects to offer a registered index-linked annuity in 2021. This diverse offering allows Jackson to meet the different needs of retail investors based on their risk tolerance and desired growth objectives, and to deliver customised, differentiated solutions to its distribution partners. Jackson's annuities offer investors the opportunity to grow their savings consistent with their objectives, ranging from full market participation with Jackson's variable annuities, to a guaranteed fixed return with Jackson's fixed annuities. Some of Jackson's annuities offer optional guarantee benefits for a fee, such as full or partial protection of principal, minimum payments for life and minimum payments to beneficiaries upon death. All annuities also provide investors with tax deferral benefits consistent with their purpose of providing financial security at, and through, retirement.

Distribution network

Jackson sells its products through an industry-leading distribution network that includes independent broker-dealers, wirehouses, regional broker-dealers, banks, and independent registered investment advisers, third-party platforms and insurance agents. Jackson's strong presence in multiple distribution channels has been essential to positioning it as a leading provider of retirement savings and income solutions. Each of these channels is supported by Jackson's sizeable wholesaler field force, which is among the most productive in the annuity industry. According to the Market Metrics Q3 2020 Sales, Staffing, and Productivity Report, Jackson's variable annuity sales per wholesaler are more than 10 per cent higher than its nearest competitor.

Operating platform

Jackson's operating platform is scalable and efficient. Jackson administers approximately 75 per cent of its in-force policies on its in-house policy administration platform. Jackson's in-house policy administration platform gives it flexibility to administer multiple product types through a single platform. To date, Jackson has converted over 3.5 million life and annuity policies to its in-house policy administration platform, eliminating the burdens, costs and inefficiencies that would be involved in maintaining multiple legacy administration systems. The remainder of Jackson's business is administered through scalable third-party arrangements. Jackson believes that its operating platform provides it with a competitive advantage by allowing it to grow efficiently and provide superior customer service. In 2020, Jackson received the 2019 Contact Center of the Year award from Service Quality Management and the number 1 overall operational ranking for 2019 from its broker-dealer partners, according to the Operations Managers' Roundtable.

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Risk management

Product design and pricing are key aspects of Jackson's risk management approach. Jackson operates a sophisticated hedging program which seeks to balance three objectives: managing the economic impact of adverse market conditions, protecting statutory capital and providing stable distributable earnings throughout market cycles.

Jackson also uses third-party reinsurance to mitigate a portion of the risks that it faces, principally in certain of its in-force annuity and life insurance products with regard to longevity and mortality risks and its annuities with regard to the vast majority of its guaranteed minimum income optional benefit (GMIB) features.

Additional information on products

The following table shows total new business premiums in the US by product line and distribution channel for the periods indicated. Total new business premiums include Jackson's deposits for investment contracts with limited or no life contingencies. All of these premiums are single premiums.

By Product
  2020
  2019
  2018