Additional financial information

I(a): Analysis of long-term insurance business pre-tax IFRS operating profit based on longer-term investment returns by driver

This schedule classifies the Group’s pre-tax operating earnings from long-term insurance operations into the underlying drivers of those profits, using the following categories:

  1. Spread income represents the difference between net investment income (or premium income in the case of the UK annuities new business) and amounts credited to certain policyholder accounts. It excludes the operating investment return on shareholder net assets, which has been separately disclosed as expected return on shareholder assets.
  2. Fee income represents profits driven by net investment performance, being asset management fees that vary with the size of the underlying policyholder funds net of investment management expenses.
  3. With-profits business represents the shareholders’ transfer from the with-profits fund in the period.
  4. Insurance margin primarily represents profits derived from the insurance risks of mortality, morbidity and persistency.
  5. Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses.
  6. Acquisition costs and administration expenses represent expenses incurred in the period attributable to shareholders. It excludes items such as restructuring costs and Solvency II costs which are not included in the segment profit for insurance as well as items that are more appropriately included in other source of earnings lines (eg investment expenses are netted against investment income as part of spread income or fee income as appropriate).
  7. DAC adjustments comprises DAC amortisation for the period, excluding amounts related to short-term fluctuations, net of costs deferred in respect of new business.

Analysis of pre-tax IFRS operating profit by source

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  Half year 2013 £m
Asia  
  On prior basis Adjustments
notes (ii), (iii)
Asia US UK Unallocated Total
Spread income 61 (5) 56 377 102 535
Fee income 80 80 554 33 667
With-profits 22 22 133 155
Insurance margin 307 (4) 303 262 48 613
Margin on revenues 785 (7) 778 80 858
Expenses:              
Acquisition costs (502) (502) (465) (54) (1,021)
Administration expenses (306) 6 (300) (323) (59) (682)
DAC adjustments 7 2 9 173 (7) 175
Expected return on shareholder assets 28 28 4 65 97
Long-term business operating profit 482 (8) 474 582 341 1,397
Asset management operating profit 42 (4) 38 34 225 297
GI commission 15 15
Other income and
expenditurenote (i)
(294) (294)
Total operating profit based on longer-term investment returns 524 (12) 512 616 581 (294) 1,415

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  Half year 2012 £m
Asia  
  As previously reported Adjustments
notes (ii), (iii)
Asia US UK Unallocated Total
Spread income 55 (7) 48 349 132 529
Fee income 66 66 408 35 509
With-profits 18 18 146 164
Insurance margin 256 256 153 11 420
Margin on revenues 636 (8) 628 68 696
Expenses:              
Acquisition costs (428) (428) (480) (64) (972)
Administration expenses (250) 7 (243) (242) (63) (548)
DAC adjustments 33 5 38 219 (4) 253
Expected return on shareholder assets 20 20 35 75 130
Long-term business operating profit 406 (3) 403 442 336 1,181
Asset management operating profit 34 (2) 32 17 199 248
GI commission 17 17
Other income and
expenditurenote (i)
(289) (289)
Total operating profit based on longer-term investment returns 440 (5) 435 459 552 (289) 1,157

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  Full year 2012 £m
Asia  
  As previously reported Adjustments
notes (ii), (iii)
Asia US UK Unallocated Total

Notes

  1. Including restructuring and Solvency II implementation costs.
  2. The 2013 analysis excludes the results of the held for sale life insurance business of Japan. The 2012 comparative results have been presented on a consistent basis. The results of Japan Life business excluded were half year 2013: profit of £5 million, half year 2012: £nil and full year 2012: loss of £(2) million.
  3. The Group has adopted new accounting standards on joint arrangements as described in note B. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint ventures’ operating profit by treating it as an administration expense. This contributed to an additional expense, as follows:
    – Long-term business – half year 2013: £3 million; half year 2012: £3 million and full year 2012: £9 million; and
    – Asset management business – half year 2013: £4 million; half year 2012: £2 million and full year 2012: £6 million.
    All other lines continue to include the Group’s share of the relevant part of the joint ventures’ pre-tax operating profit.
Spread income 106 (13) 93 702 266 1,061
Fee income 141 141 875 61 1,077
With-profits 39 39 272 311
Insurance margin 594 (5) 589 399 39 1,027
Margin on revenues 1,453 (14) 1,439 216 1,655
Expenses:              
Acquisition costs (903) (903) (972) (122) (1,997)
Administration expenses (583) 13 (570) (537) (128) (1,235)
DAC adjustments (28) 12 (16) 442 (8) 418
Expected return on shareholder assets 43 43 55 107 205
Gain on China Life (Taiwan) shares 51 51 51
Long-term business operating profit 913 (7) 906 964 703 2,573
Asset management operating profit 75 (6) 69 39 371 479
GI commission 33 33
Other income and
expenditurenote (i)
(565) (565)
Total operating profit based on longer-term investment returns 988 (13) 975 1,003 1,107 (565) 2,520

Margin analysis of long-term insurance business

The following analysis expresses certain of the Group’s sources of operating profit as a margin of policyholder liabilities or other suitable driver. The margin is on an annualised basis in which half year profits are annualised by multiplying by two. Details of the Group’s average policyholder liability balances are given in note (iii).

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Long-term business Total
Half year 2013 note (v) Half year 2012 notes (iv),(v) Full year 2012 notes (iv),(v)
Profit
£m
Average liability
note (iii)
£m
Margin
note (ii)
bps
Profit
£m
Average liability
note (iii)
£m
Margin
note (ii)
bps
Profit £m Average liability
note (iii)
£m
Margin
note (ii)
bps

Notes

  1. The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business.
  2. Margin represents the operating return earned in the period as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus. The margin is on an annualised basis in which half-year profits are annualised by multiplying by two.
  3. For UK and Asia, opening and closing policyholder liabilities have been used to derive an average balance for the period, as a proxy for average balances throughout the period. The calculation of average liabilities for Jackson is derived from month-end balances throughout the period as opposed to opening and closing balances only, and liabilities held in the general account for variable annuity living and death guaranteed benefits are excluded from the calculation of the average as no spread income is earned on these balances. In addition for REALIC (acquired in the second half of 2012), which are included in the average liability to calculate the administration expense margin, the calculation excludes the liabilities reinsured to (and in essence retained by) Swiss Re immediately prior to the acquisition by Jackson. Average liabilities are adjusted for business acquisitions and disposals in the period.
  4. The Group has adopted new accounting standards on joint arrangements as described in note B. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint ventures’ operating profit by treating it as an administration expense. The impact of this change is explained in note (iii), to the ‘Analysis of pre-tax IFRS operating profit by source’ table earlier in this section. All other lines continue to include the Group’s share of the relevant part of the joint ventures’ pre-tax operating profit.
  5. The 2013 analysis excludes the results of the held for sale life insurance business of Japan in both the individual profit and average liability amounts shown in the table above. The 2012 comparative results have been presented on a consistent basis.
Spread income 535 65,424 164 529 60,320 175 1,061 61,432 173
Fee income 667 93,512 143 509 74,422 137 1,077 78,433 137
With-profits 155 97,336 32 164 94,103 35 311 95,681 33
Insurance margin 613     420     1,027    
Margin on revenues 858     696     1,655    
Expenses:                  
Acquisition costsnote (i) (1,021) 2,162 (47)% (972) 2,030 (48)% (1,997) 4,195 (48)%
Administration expenses (682) 166,130 (82) (548) 134,742 (81) (1,235) 142,205 (87)
DAC adjustments 175     253     418    
Expected return on shareholder assets 97     130     205    
Gain on China Life (Taiwan) shares             51    
Operating profit 1,397     1,181     2,573    

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Long-term business Asia note (iii)
Half year 2013 Half year 2012 note (ii) Full year 2012 note (ii)
Profit
£m
Average liability
note (iv)
£m
Margin
bps
Profit
£m
Average liability
note (iv)
£m
Margin
bps
Profit
£m
Average liability note (iv)
£m
Margin
bps

Notes

  1. The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business.
  2. The Group has adopted new accounting standards on joint arrangements as described in note B. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint venture’s operating profit by treating it as an administration expense. The impact of this change is explained in note (iii) to the ‘Analysis of pre-tax IFRS operating profit by source’ table earlier in this section. All other lines continue to include the Group’s share of the relevant part of the joint venture’s pre-tax operating profit.
  3. The 2013 analysis excludes the results of the held for sale life insurance business of Japan in both the individual profit and the average liability amounts shown in the table above. The average shareholder-backed policyholder liabilities excluding Japan business at half year 2013 is £21,473 million (half year 2012: £17,684 million and full year 2012: £18,626 million). The corresponding amount including Japan business at half year 2013 is £22,471 million (half year 2012: £18,846 million and full year 2012: £19,742 million). The 2012 comparative results have been presented on a consistent basis.
  4. Opening and closing policyholder liabilities, adjusted for corporate transactions, have been used to derive an average balance for the period, as a proxy for average balances throughout the period.
Spread income 56 7,220 155 48 5,753 167 93 5,978 155
Fee income 80 14,253 112 66 11,931 111 141 12,648 111
With-profits 22 13,522 33 18 12,969 28 39 12,990 30
Insurance margin 303     256     589    
Margin on revenues 778     628     1,439    
Expenses:                  
Acquisition costsnote (i) (502) 1,010 (50)% (428) 899 (48)% (903) 1,897 (48)%
Administration expenses (300) 21,473 (279) (243) 17,684 (275) (570) 18,626 (306)
DAC adjustments 9     38     (16)    
Expected return on shareholder assets 28     20     43    
Gain on China Life (Taiwan) shares             51    
Operating profit 474     403     906    

Analysis of Asia operating profit drivers

  • Spread income has increased from £48 million in half year 2012 to £56 million in half year 2013, predominantly reflecting the growth of the Asian non-linked policyholder liabilities.
  • Fee income has increased from £66 million in half year 2012 to £80 million in half year 2013, broadly in line with the increase in movement in average unit-linked liabilities.
  • Insurance margin has increased by £47 million from £256 million in half year 2012 to £303 million in half year 2013, predominantly reflecting the continued growth of the in-force book, which contains a relatively high proportion of risk-based products and management action on claims controls and pricing. Insurance margin includes non-recurring items of £23 million (half year 2012: £30 million), reflecting items that are not expected to reoccur in the future.
  • Margin on revenues has increased by £150 million from £628 million in half year 2012 to £778 million in half year 2013, primarily reflecting the ongoing growth in the size of the portfolio and higher premium income recognised in the period.
  • Acquisition costs have increased from £428 million in half year 2012 to £502 million in half year 2013, compared to the 12 per cent increase in sales, resulting in an increase in the acquisition cost ratio. The analysis above uses shareholder acquisition costs as a proportion of total APE. If with-profits sales were excluded from the denominator the acquisition cost ratio would become 67 per cent (half year 2012: 63 per cent and full year 2012: 63 per cent), reflecting changes to product mix.
  • Administration expenses have increased from £243 million in half year 2012 to £300 million in half year 2013 as the business continues to expand. The administration expense ratio remains broadly in line with prior periods at 279 basis points (half year 2012: 275 basis points and full year 2012: 306 basis points).

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Long-term business US
Half year 2013 Half year 2012 Full year 2012
Profit
£m
Average liability
note (ii)
£m
Margin
bps
Profit
£m
Average liability
note (ii)
£m
Margin
bps
Profit
£m
Average liability
note (ii)
£m
Margin
bps

Notes

  1. The ratio for acquisition costs is calculated as a percentage of APE.
  2. The calculation of average liabilities for Jackson is derived from month-end balances throughout the period as opposed to opening and closing balances only. Liabilities held in the general account for variable annuity living and death guaranteed benefits together with other amounts on which no spread income is earned (eg REALIC liabilities) are excluded from the calculation of the average. In addition for REALIC, which is included in the average liability to calculate the administration expense margin, the calculation excludes the liabilities reinsured to (and in essence retained by) Swiss Re immediately prior to the acquisition by Jackson.
Spread income 377 31,137 242 349 29,265 238 702 29,416 239
Fee income 554 56,539 196 408 41,222 198 875 44,046 199
Insurance margin 262     153     399    
Expenses:                  
Acquisition costsnote (i) (465) 797 (58)% (480) 719 (67)% (972) 1,462 (66)%
Administration expenses (323) 94,870 (68) (242) 70,487 (69) (537) 75,802 (71)
DAC adjustments 173     219     442    
Expected return on shareholder assets 4     35     55    
Operating profit 582     442     964    

Analysis of US operating profit drivers:

  • Spread income was £377 million in half year 2013, compared to £349 million in half year 2012. The reported spread margin increased to 242 basis points as a result of lower crediting rates, which have helped to maintain spread income levels on a stable asset base, partially offset by a decrease in yields earned in the period caused by the lower interest rate environment. In addition, spread income benefited from swap transactions previously entered into more closely match the overall asset and liability duration. Excluding this effect, the spread margin would have been 183 basis points (half year 2012: 187 basis points and full year 2012: 186 basis points).
  • Fee income has increased by 36 per cent to £554 million in half year 2013, compared to £408 million in half year 2012, primarily due to higher average separate account balances due to positive net flows from variable annuity business and market appreciation. Fee income margin has remained broadly consistent with half year 2012 at 196 basis points (half year 2012: 198 basis points).
  • Insurance margin represents operating profits from insurance risks, including variable annuity guarantees and other sundry items. Positive net flows into variable annuity business with life contingent and other guarantee fees, coupled with the benefit in the period of repricing actions, have increased the insurance margin from £153 million in half year 2012 to £262 million in half year 2013. This includes a benefit of £83 million from REALIC, following its acquisition by Jackson in September 2012.
  • Acquisition costs, which are commissions and expenses incurred to acquire new business, including those that are not deferrable, have decreased by £15 million compared to half year 2012 due largely to the discontinuation of certain policy enhancement options on annuity business. As a percentage of APE, acquisition costs have decreased to 58 per cent for half year 2013, compared to 67 per cent in half year 2012. This is due to the discontinuation of contract enhancements mentioned above and the continued increase in producers selecting asset-based commission which is treated as an administrative expense in this analysis, rather than front end commissions.
  • Administration expenses increased to £323 million during the first half of 2013 compared to £242 million in 2012, primarily as a result of the acquisition of REALIC and higher asset-based commission paid on the larger 2013 separate account balance. Asset-based commissions are paid upon policy anniversary dates and are treated as an administration expense in this analysis as opposed to a cost of acquisition and are offset by higher fee income. Excluding these trail commission amounts, the resulting administration expense ratio would be lower at 45 basis points (half year 2012: 47 basis points and full year 2012: 48 basis points), reflecting the benefits of operational leverage.
  • DAC adjustments decreased to £173 million in the first half of 2013 compared to £219 million in the first half of 2012 due to lower levels of current period acquisition costs being deferred (as discussed above) and higher DAC amortisation being incurred following higher gross profit in the period. Certain acquisition costs are not fully deferrable, resulting in new business strain of £93 million for half year 2013 (half year 2012: £82 million and full year 2012: £174 million).

Analysis of pre-tax operating profit before and after acquisition costs and DAC adjustments

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  Half year 2013 £m Half year 2012 £m
Other operating profits Acquisition costs Total Other operating profits Acquisition costs Total
Incurred Deferred Incurred Deferred
Total operating profit before acquisition costs
and DAC adjustments
874   874 703 703
Less new business strain   (465) 372 (93) (480) 398 (82)
Other DAC adjustments – amortisation of previously deferred acquisition costs:      
Normal     (219) (219) (204) (204)
Decelerated     20 20   25 25
Total 874 (465) 173 582 703 (480) 219 442

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  Full year 2012 £m
Other operating profits Acquisition costs Total
Incurred Deferred
Total operating profit before acquisition costs and DAC adjustments 1,494     1,494
Less new business strain   (972) 798 (174)
Other DAC adjustments – amortisation of previously deferred acquisition costs:        
Normal     (412) (412)
Decelerated     56 56
Total 1,494 (972) 442 964

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Long-term business UK
Half year 2013 Half year 2012 Full year 2012
Profit £m Average liability note (ii)
£m
Margin bps Profit £m Average liability note (ii)
£m
Margin bps Profit £m Average liability note (ii)
£m
Margin bps

Notes

  1. The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business.
  2. Opening and closing policyholder liabilities have been used to derive an average balance for the period, as a proxy for average balances throughout the period.
Spread income 102 27,067 75 132 25,302 104 266 26,038 102
Fee income 33 22,720 29 35 21,269 33 61 21,739 28
With-profits 133 83,814 32 146 81,134 36 272 82,691 33
Insurance margin 48     11     39    
Margin on revenues 80     68     216    
Expenses:                  
Acquisition costsnote (i) (54) 355 (15)% (64) 412 (16)% (122) 836 (15)%
Administration expenses (59) 49,787 (24) (63) 46,571 (27) (128) 47,777 (27)
DAC adjustments (7)     (4)     (8)    
Expected return on shareholders’ assets 65     75     107    
Operating profit 341     336     703    

Analysis of UK operating profit drivers:

  • Spread income has reduced from £132 million in the first half of 2012 to £102 million in the same period in 2013. This is principally due to the non-recurrence of bulk annuity profits of £18 million experienced in the first half of 2012 and lower contribution to profits from sales of conventional annuities in the first half of 2013.
  • Fee income earned in the first six months of 2013 of £33 million (half year 2012: £35 million) is broadly consistent with that earned in the prior period. The margin at 29 basis points is in line with the margin recognised for full year 2012 of 28 basis points.
  • With-profits income has decreased from £146 million in half year 2012 to £133 million in half year 2013, principally due to a 50 basis points reduction in the annual bonus rate. This has contributed to the reduction in the with-profits margin from 36 basis points in half year 2012 to 32 basis points in half year 2013.
  • Insurance margin has increased from £11 million in the first half of 2012 to £48 million in the first half of 2013, reflecting a £27 million positive impact of undertaking a longevity swap on certain aspects of the UK’s annuity back-book liabilities in the first half of 2013.
  • Margin on revenues represents premium charges for expenses and other sundry net income received by the UK. Half year 2013 income was higher at £80 million (half year 2012: £68 million), with 2012 impacted by a lower level of sundry net income.
  • Acquisition costs as a percentage of new business sales have decreased from 16 per cent in the first half of 2012 to 15 per cent for 2013, partly reflecting lower commission payments from the implementation of the recommendations of the Retail Distribution Review.

    The ratio above expresses the percentage of shareholder acquisition costs as a percentage of total APE sales. It is therefore impacted by the level of with-profit sales in the period. Acquisition costs as a percentage of shareholder-backed new business sales were 34 per cent in half year 2013 (half year 2012: 33 per cent and full year 2012: 33 per cent).
  • Administration expenses at £59 million are lower than at half year 2012 (half year 2012: £63 million) due to lower project spend in the period.
  • Expected return on shareholder assets has decreased from £75 million in half year 2012 to £65 million in half year 2013, principally due to a reduction in investment yields achieved.

I(b): Asia operations – analysis of IFRS operating profit by territory

Operating profit based on longer-term investment returns for Asia operations are analysed as follows:

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  2013 £m 2012* £m
Half year Half year Full year
Underlying operating profit:  

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.

Notes

  1. Analysis of operating profit between new and in-force business
    The result for insurance operations comprises amounts in respect of new business and business in force as follows:

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      2013 £m 2012* £m
    Half year Half year Full year
    New business strain (23) (40) (46)
    Business in force 468 429 860
    Non-recurrent items:note (ii)      
    Gain on sale of stake in China Life of Taiwan 51
    Other non-recurrent items 31 17 48
    Total 476 406 913
    * The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new and amended accounting standards described in note B.
    † The IFRS new business strain corresponds to approximately 2 per cent of new business APE premiums for 2013 (half year 2012: approximately 4 per cent; full year 2012: approximately 2 per cent). The improvement over the half year 2012 is driven by a shift in overall sales mix to lower strain products and countries. The strain reflects the aggregate of the pre-tax regulatory basis strain to net worth after IFRS adjustments for deferral of acquisition costs and deferred income where appropriate.
  2. During the second half of 2012, the Group sold its 7.74 per cent stake in China Life (Taiwan) for £97 million, crystallising a gain of £51 million. Other non-recurrent items of £31 million in half year 2013 (half year 2012: £17 million; full year 2012: £48 million) represent a small number of items that are not anticipated to reoccur in subsequent periods.
  3. To facilitate comparisons of operating profit based on longer-term investment returns that reflect the Group’s retained operations, the results attributable to the held for sale Japan Life business are not included within the long-term business operating profit for Asia. The 2012 comparative results have also been adjusted. The Japan Life business contributed a profit of £5 million in half year 2013 (half year 2012: £nil; full year 2012: loss of £(2) million).
China 6 7 16
Hong Kong 51 47 88
India 26 26 50
Indonesia 137 123 260
Korea 8 8 16
Malaysia 73 60 118
Philippines 9 2 15
Singapore 104 93 206
Taiwan (bancassurance business) 4 1 18
Thailand 11 2 7
Vietnam 16 18 25
Other 2 (5)
Non-recurrent itemsnote (ii) 31 17 48
Operating profit before gain on sale of stake in China Life of Taiwan 476 406 862
Gain on sale of stake in China Life of Taiwannote (ii) 51
Total insurance operationsnote (i) 476 406 913
Development expenses (2) (3) (7)
Total long-term business operating profitnote (iii) 474 403 906
Eastspring Investments 38 32 69
Total Asia operations 512 435 975

I(c): Analysis of asset management operating profit based on longer-term investment returns

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  Half year 2013 £m
M&G
note (ii)
Eastspring Investments
note (ii)
PruCap US Total
Operating income before performance-related fees 421 109 56 181 767
Performance-related fees 4 1 5
Operating income (net of commission)note (i) 425 110 56 181 772
Operating expensenote (i) (226) (68) (35) (147) (476)
Share of associate’s results 5 5
Group’s share of tax on joint ventures’ operating profitnote (iii) (4) (4)
Operating profit based on longer-term investment returns 204 38 21 34 297
Average funds under management £230.9bn £62.7bn  

Margin based on operating income* 36bps 35bps  

Cost/income ratio 54% 62%

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  Half year 2012 £m
M&G
note (ii)
Eastspring Investments
notes (ii),(iii)
PruCap US Total
Operating income before performance-related fees 354 96 59 142 651
Performance-related fees 1 1 2
Operating income (net of commission)note (i) 355 97 59 142 653
Operating expensenote (i) (186) (63) (35) (125) (409)
Share of associate’s results 6 6
Group’s share of tax on joint ventures’ operating profit (2) (2)
Operating profit based on longer-term investment returns 175 32 24 17 248
Average funds under management* £197.3bn £53.5bn
Margin based on operating income* 36bps 36bps
Cost/income ratio 53% 66%

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  Full year 2012 £m
M&G
note (ii)
Eastspring Investments
notes(ii)(iii)
PruCap US Total

Notes

  1. Operating income and expense includes the Group’s share of contribution from joint ventures (but excludes any contribution from associates). In the income statement as shown in note D of the IFRS financial statements, these amounts are netted and tax deducted and shown as single amounts,
  2. M&G and Eastspring Investments can be further analysed as follows:

     

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      M&G
      Operating income before performance-related fees
    Retail
    £m
    Margin of FUM*
    bps
    Institutional
    £m
    Margin
    of FUM*
    bps
    Total
    £m
    Margin of FUM*
    bps
    30 June 2013 265 89 156 18 421 36
    30 June 2012 218 96 136 18 354 36
    31 December 2012 438 91 297 19 735 36

     

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      Eastspring Investments
      Operating income before performance-related fees
    Retail
    £m
    Margin of FUM*
    bps
    Institutional
    £m
    Margin
    of FUM*
    bps
    Total
    £m
    Margin of FUM*
    bps
    30 June 2013 64 60 45 22 109 35
    30 June 2012 56 63 40 23 96 36
    31 December 2012 118 64 83 24 201 37

     

    * Margin represents operating income before performance-related fees as a proportion of the related funds under management (FUM). Half-year figures have been annualised by multiplying by two. Monthly closing internal and external funds managed by the respective entity have been used to derive the average. Any funds held by the Group’s insurance operations which are managed by third parties outside of the Prudential Group are excluded from these amounts.
    † Cost/income ratio represents cost as a percentage of operating income before performance-related fees
    ‡ Institutional includes internal funds.
  3. The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new accounting standards described in note B following adoption of IFRS 11 for joint ventures group on the joint ventures’ operating profit. This amount is excluded from the cost for cost/income ratio purposes.
Operating income before performance-related fees 734 201 120 296 1351
Performance-related fees 9 2 11
Operating income (net of commission)note (i) 743 203 120 296 1,362
Operating expensenote (i) (436) (128) (69) (257) (890)
Share of associate’s results 13 13
Group’s share of tax on joint ventures’ operating profit (6) (6)
Operating profit based on longer-term investment returns 320 69 51 39 479
Average funds under management £205.1bn £55.0bn
Margin based on operating income* 36bps 37bps
Cost/income ratio 59% 64%

II(a): Funds under management

(a) Summarynote(i)

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  2013 £bn 2012 £bn
30 Jun 30 Jun 31 Dec

Notes

  1. Including Group’s share of assets managed by joint ventures.
  2. External funds shown above as at 30 June 2013 of £129.3 billion (30 June 2012: £102.7 billion; 31 December 2012: £121.4 billion) comprise £141.7 billion (30 June 2012: £114.3 billion; 31 December 2012: £133.5 billion) of funds managed by M&G and Eastspring Investments as shown in note (c) below less £12.4 billion (half year 2012: £11.6 billion; full year 2012: £12.1 billion) that are classified within Prudential Group’s funds. The £141.7 billion (30 June 2012: £114.3 billion; 31 December 2012: £133.5 billion) investment products comprise £137.4 billion (30 June 2012: £110.2 billion; 31 December 2012: £129.4 billion) as published in the New Business schedules plus Asia Money Market Funds of £4.3 billion (30 June 2012: £4.1 billion; 31 December 2012: £4.0 billion).
Business area:      
Asia operations 39.9 35.0 38.9
US operations 102.5 78.1 91.4
UK operations 155.7 147.4 153.3
Prudential Group funds under management 298.1 260.5 283.6
External fundsnote (ii) 129.3 102.7 121.4
Total funds under management 427.4 363.2 405.0

(b) Prudential Group funds under management – analysis by business area

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  Asia operations £bn US operations £bn UK operations £bn Total £bn
30 Jun
2013
30 Jun
2012*
31 Dec
2012*
30 Jun
2013
30 Jun
2012
31 Dec
2012
30 Jun
2013
30 Jun
2012*
31 Dec
2012*
30 Jun
2013
30 Jun
2012*
31 Dec
2012*

* The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new accounting standards described in note B.

† As included in the investments section of the consolidated statement of financial position at 30 June 2013, except for £0.2 billion (30 June 2012: £0.3 billion; 31 December 2012: £0.2 billion) investment properties which are held for sale or occupied by the Group and, accordingly under IFRS, are included in other statement of financial position captions.

Investment properties 0.1 0.1 0.1 10.7 10.7 10.7 10.8 10.8 10.8
Equity securities 14.1 11.1 12.7 60.4 43.9 49.6 37.8 34.1 36.4 112.3 89.1 98.7
Debt securities 20.1 18.3 20.1 33.4 27.1 33.0 84.8 81.9 85.8 138.3 127.3 138.9
Loans 1.0 1.2 1.0 6.7 4.1 6.2 5.5 5.5 5.5 13.2 10.8 12.7
Other investments and deposits 1.2 1.3 1.8 1.9 2.9 2.5 16.6 15.6 15.5 19.7 19.8 19.8
Total included in statement of financial position 36.4 31.9 35.6 102.5 78.1 91.4 155.4 147.8 153.9 294.3 257.8 280.9
Internally managed funds held in insurance joint ventures 3.5 3.1 3.3 0.3 (0.4) (0.6) 3.8 2.7 2.7
Total Prudential Group funds under management as published 39.9 35.0 38.9 102.5 78.1 91.4 155.7 147.4 153.3 298.1 260.5 283.6

(c) Investment products – external funds under managementnote

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  Half year 2013 £m
1 Jan 2013 Market gross inflows Redemptions Market exchange translation and other movements 30 Jun 2013
Eastspring Investmentsnote 21,634 38,146 (36,034) (211) 23,535
M&G 111,868 20,598 (16,758) 2,431 118,139
Group total 133,502 58,744 (52,792) 2,220 141,674

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  Half year 2012 £m
1 Jan 2012 Market gross inflows Redemptions Market exchange translation and other movements 30 Jun 2012
Eastspring Investmentsnote 19,221 29,142 (28,819) 72 19,616
M&G 91,948 14,701 (9,760) (2,246) 94,643
Group total 111,169 43,843 (38,579) (2,174) 114,259

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  Full year 2012 £m
1 Jan 2012 Market gross inflows Redemptions Market exchange translation and other movements 31 Dec 2012

Note

Including Asia Money Market Funds at 30 June 2013 of £4.3 billion (half year 2012: £4.1 billion; full year 2012: £4.0 billion).

Eastspring Investmentsnote 19,221 60,498 (59,098) 1,013 21,634
M&G 91,948 36,463 (19,582) 3,039 111,868
Group total 111,169 96,961 (78,680) 4,052 133,502

(d) M&G and Eastspring Investments total funds under management

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  2013 £bn 2012 £bn
30 Jun 30 Jun 31 Dec
M&G      
External funds under management 118.1 94.6 111.9
Internal funds under management 116.2 109.1 116.4
Total funds under management 234.3 203.7 228.3

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  2013 £bn 2012 £bn
30 Jun 30 Jun 31 Dec

Note

Including Asia Money Market Funds at 30 June 2013 of £4.3 billion (half year 2012: £4.1 billion; full year 2012: £4.0 billion).

Eastspring Investments      
External funds under managementnote 23.5 19.6 21.6
Internal funds under management 38.3 34.2 36.5
Total funds under management 61.8 53.8 58.1

II(b): Option schemes

The Group maintains four share option schemes satisfied by the issue of new shares. Executive directors and eligible employees based in the UK may participate in the UK savings-related share option scheme, executives based in Asia and eligible employees can participate in the international savings-related share option scheme. Employees based in Dublin are eligible to participate in the Prudential International Assurance sharesave plan, and Hong Kong based agents can participate in the non-employee savings-related share option scheme. Further details of the schemes and accounting policies are detailed in note I4 of the IFRS basis consolidated financial statements in the 2012 Annual Report.

All options were granted at £nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services (excluding options granted to agents under the non-employee savings-related share option scheme) or in excess of the individual limit for the relevant scheme.

The options schemes will terminate as follows, unless the directors resolve to terminate the plans at an earlier date:

  • UK savings-related share option scheme: 16 May 2023;
  • International savings-related share option scheme: 31 May 2021;
  • Prudential International Assurance sharesave plan: 3 August 2019; and
  • International savings-related share option scheme for non-employees 2012: 17 May 2022.

The weighted average share price of Prudential plc for the period ended 30 June 2013 was £10.48 (2012: £7.19).

The following analyses show the movements in options for each of the option schemes for the six month period ended 30 June 2013. No options were granted in the period.

UK savings-related share option scheme

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    Exercise period Number of options
Date of grant Exercise price £ Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period
29 Sep 05 4.07 01 Dec 12 31 May 13 3,780 (1,260) (2,520)
20 Apr 06 5.65 01 Jun 13 30 Nov 13 7,322 (1,149) 6,173
28 Sep 06 4.75 01 Dec 13 31 May 14 13,325 13,325
26 Apr 07 5.72 01 Jun 14 30 Nov 14 503 503
27 Sep 07 5.52 01 Dec 12 31 May 13 5,108 (5,108)
27 Sep 07 5.52 01 Dec 14 31 May 15 1,668   1,668
25 Apr 08 5.51 01 Jun 13 30 Nov 13 26,509 (18,750) (24) 7,735
25 Apr 08 5.51 01 Jun 15 30 Nov 15 1,544 1,544
25 Sep 08 4.38 01 Dec 13 31 May 14 43,374 (607) (158) 42,609
25 Sep 08 4.38 01 Dec 15 31 May 16 11,205 11,205
27 Apr 09 2.88 01 Jun 12 30 Nov 12 5,709 (5,709)
27 Apr 09 2.88 01 Jun 14 30 Nov 14 1,719,205 (12,996) (1,085) (6,511) (4,583) 1,694,030
27 Apr 09 2.88 01 Jun 16 30 Nov 16 177,492 (343) (5,686) (111) 171,352
25 Sep 09 4.25 01 Dec 12 31 May 13 40,985 (36,459) (854) (256) 3,416
25 Sep 09 4.25 01 Dec 14 31 May 15 86,651 (407) (3,659) (178) 82,407
28 Sep 10 4.61 01 Dec 13 31 May 14 256,720 (606) (390) (1,716) (174) 253,834
28 Sep 10 4.61 01 Dec 15 31 May 16 123,861 (470) (467) 122,924
16 Sep 11 4.66 01 Dec 14 31 May 15 458,199 (531) (7,686) (5,792) (782) 443,408
16 Sep 11 4.66 01 Dec 16 31 May 17 184,570 (1,960) 182,610
21 Sep 12 6.29 01 Dec 15 31 May 16 986,901 (284) (9,840) (6,237) (2,864) 967,676
21 Sep 12 6.29 01 Dec 17 31 May 18 147,509 (477) (4,771) 142,261
        4,302,140 (84,679) (25,097) (31,567) (12,117) 4,148,680

The total number of securities available for issue under the scheme is 4,148,680, which represents 0.162 per cent of the issued share capital at 30 June 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £10.54.

International savings-related share option scheme

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    Exercise period Number of options
Date of grant Exercise price £ Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period
26 Apr 07 5.72 01 Jun 12 30 Nov 12 14,489 (14,489)
25 Apr 08 5.51 01 Jun 13 30 Nov 13 4,192 (2,739) 1,453
25 Sep 08 4.38 01 Dec 13 31 May 14 6,951 6,951
27 Apr 09 2.88 01 Jun 12 30 Nov 12 63,474 (63,474)
27 Apr 09 2.88 01 Jun 14 30 Nov 14 78,133 (1,372) (1,188) 75,573
25 Sep 09 4.25 01 Dec 12 31 May 13 41,541 (24,469) (1,088) 15,984
25 Sep 09 4.25 01 Dec 14 31 May 15 2,682 2,682
28 Sep 10 4.61 01 Dec 13 31 May 14 119,163 (2,117) (5,344) 111,702
28 Sep 10 4.61 01 Dec 15 31 May 16 6,130   6,130
16 Sep 11 4.66 01 Dec 14 31 May 15 352,841 (721) (6,242) (11,975) 333,903
16 Sep 11 4.66 01 Dec 16 31 May 17 25,739   25,739
21 Sep 12 6.29 01 Dec 15 31 May 16 681,368 (5,357) (19,590) 656,421
21 Sep 12 6.29 01 Dec 17 31 May 18 34,701 (4,771) 29,930
        1,431,404 (31,418) (12,687) (42,868) (77,963) 1,266,468

The total number of securities available for issue under the scheme is 1,266,468, which represents 0.049 per cent of the issued share capital at 30 June 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £9.86.

Prudential International Assurance sharesave plan

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  Exercise period Number of options
Date of grant Exercise price £ Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period
27 Apr 09 2.88 01 Jun 12 30 Nov 12 3,646 3,646
27 Apr 09 2.88 01 Jun 14 30 Nov 14 6,567 6,567
25 Sep 09 4.25 01 Dec 12 31 May 13 639 (614) (25)
  10,852 (614) (25) 10,213

The total number of securities available for issue under the scheme is 10,213, which represents 0.0004 per cent of the issued share capital at 30 June 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £9.73.

Non-employee savings-related share option scheme

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    Exercise period Number of options
Date of grant Exercise price £ Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period
26 Apr 07 5.72 01 Jun 12 30 Nov 12 12,779 (12,779)
27 Sep 07 5.52 01 Dec 12 31 May 13 2,970 (2,874) 96
25 Apr 08 5.51 01 Jun 13 30 Nov 13 3,834 3,834
25 Sep 08 4.38 01 Dec 13 31 May 14 13,708 13,708
27 Apr 09 2.88 01 Jun 12 30 Nov 12 27,532 27,532
27 Apr 09 2.88 01 Jun 14 30 Nov 14 686,366 686,366
25 Sep 09 4.25 01 Dec 12 31 May 13 16,676 (16,673) (3)
25 Sep 09 4.25 01 Dec 14 31 May 15 11,717 11,717
28 Sep 10 4.61 01 Dec 13 31 May 14 1,096,742 (3,950) (5,968) 1,086,824
28 Sep 10 4.61 01 Dec 15 31 May 16 368,850 (6,636) 362,214
16 Sep 11 4.66 01 Dec 14 31 May 15 608,943 (2,745) (391) 605,807
16 Sep 11 4.66 01 Dec 16 31 May 17 262,682 (4,336) (572) 257,774
21 Sep 12 6.29 01 Dec 15 31 May 16 443,315 443,315
21 Sep 12 6.29 01 Dec 17 31 May 18 96,300 (6,011) 90,289
  3,652,414 (19,547) (17,042) (13,567) (12,782) 3,589,476

The total number of securities available for issue under the scheme is 3,589,476, which represents 0.140 per cent of the issued share capital at 30 June 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £11.02.

 
 

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