Notes P-R

P: Loans portfolio

Loans are accounted for at amortised cost net of impairment except for:

  • Certain mortgage loans which have been designated at fair value through profit and loss of the UK insurance operations as this loan portfolio is managed and evaluated on a fair value basis; and
  • Certain policy loans of the US insurance operations which are held to back liabilities for funds withheld under reinsurance arrangement and are also accounted on a fair value through profit and loss basis.

Download as excel file

2013 £m 2012* £m
30 Jun 30 Jun 31 Dec

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

Notes

  1. UK insurance operations
    The loans of the Group's UK insurance operations comprise

    Download as excel file

    2013 £m 2012* £m
    30 Jun 30 Jun 31 Dec
    SAIF and PAC WPSF:  
    Mortgage loans 1,379 1,282 1,311
    Policy loans 13 18 16
    Other loans 1,588 1,670 1,712
    Total PAC WPSF loans 2,980 2,970 3,039
    Shareholder-backed:  
    Mortgage loans 1,328 1,290 1,259
    Other loans 5 5 5
    Total shareholder-backed loans 1,333 1,295 1,264
    Total UK insurance operations loans 4,313 4,265 4,303
    * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note B.
    † The mortgage loans are collateralised by properties. By carrying value, 84 per cent of the £1,328 million held for shareholder-backed business relate to lifetime (equity release) mortgage business which have an average loan to property value of 30 per cent.
    ‡ Other loans held by the PAC with-profits fund are all commercial loans and comprise mainly syndicated loans.
  2. US insurance operations
    The loans of the Group's US insurance operations comprise:

    Download as excel file

    2013 £m 2012 £m
    30 Jun 30 Jun 31 Dec
    Mortgage loans 3,905 3,623 3,543
    Policy loans 2,786 545 2,692
    Total US insurance operations loans 6,691 4,168 6,235
    † All of the mortgage loans are commercial mortgage loans which are collateralised by properties. The property types are mainly industrial, multi-family residential, suburban office, retail and hotel. The breakdown by property type is as follows:

    Download as excel file

    2013 % 2012 %
    30 Jun 30 Jun 31 Dec
    Industrial 28 27 29
    Multi-family residential 28 24 25
    Office 18 19 19
    Retail 17 19 17
    Hotel 9 11 10
    100 100 100
    The US insurance operations' commercial mortgage loan portfolio does not include any single-family residential mortgage loans and is therefore not exposed to the risk of defaults associated with residential sub-prime mortgage loans. The average loan size is £6.6 million (30 June 2012: £6.7 million; 31 December 2012: £6.3 million). The portfolio has a current estimated average loan to value of 62 per cent (30 June 2012: 66 per cent; 31 December 2012: 65 per cent) which provides significant cushion to withstand substantial declines in value.

    At 30 June 2013, Jackson had mortgage loans with a carrying value of £49 million where the contractual terms of the agreements had been restructured. In addition to the regular impairment review afforded all loans in the portfolio, restructured loans are also reviewed for impairment. An impairment will be recorded if the expected cash flows under the newly restructured terms discounted at the original yield (the pre-structured interest rate) are below the carrying value of the loan.

    ‡ The policy loans are fully secured by individual life insurance policies or annuity policies. The purchase of REALIC in the second half of 2012 included policy loans which are accounted for at fair value through profit and loss. These policy loans are valued at £2,026 million and £1,842 million as at 30 June 2013 and 31 December 2012 respectively. All other policy loans are accounted for at amortised cost, less any impairment.
  3. Asia insurance operations
    The loans of the Group's Asia insurance operations comprise:

    Download as excel file

    2013 £m 2012 £m
    30 Jun 30 Jun 31 Dec
    Mortgage loans 54 34 43
    Policy loans 640 586 602
    Other loans§ 310 540 361
    Total Asia insurance operations loans 1,004 1,160 1,006
    ‡ The mortgage and policy loans are secured by properties and life insurance policies respectively.
    § The majority of the other loans are commercial loans held by the Malaysia operation and which are all investment graded by two local rating agencies.
  4. M&G
    The M&G loans relate to loans and receivables managed by Prudential Capital. These assets are generally secured but most have no external credit ratings. Internal ratings prepared by the Group's asset management operations, as part of the risk management process, are:

    Download as excel file

    2013 £m 2012 £m
    30 Jun 30 Jun 31 Dec
    Loans and receivables internal ratings:  
    AAA 112
    A+ to A- 108
    BBB+ to BBB- 667 980 836
    BB+ to BB- 419 89 339
    B+ to B- and below 24 30 24
    Total M&G (including Prudential Capital) loans 1,222 1,207 1,199
Insurance operations:  
UKnote (i) 4,313 4,265 4,303
USnote (ii) 6,691 4,168 6,235
Asianote (iii) 1,004 1,160 1,006
Asset management operations:  
M&Gnote (iv) 1,222 1,207 1,199
Total 13,230 10,800 12,743

Q: Debt securities portfolio

Debt securities are carried at fair value. The amounts included in the statement of financial position are analysed as follows, with further information relating to the credit quality of the Group’s debt securities at 30 June 2013 provided in the notes below.

Download as excel file

2013 £m 2012* £m
30 Jun 30 Jun 31 Dec

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

In the table below, with the exception of some mortgage-backed securities, Standard & Poor’s (S&P) ratings have been used where available. For securities where S&P ratings are not immediately available, those produced by Moody’s and then Fitch have been used as an alternative.

Notes

  1. UK insurance operations

    Download as excel file

    Other funds and subsidiaries   UK insurance operations
    Scottish
    Amicable
    Insurance
    Fund
    PAC
    with-
    profits
    fund
    Unit-
    linked
    assets
    PRIL Other
    annuity
    and
    long-term
    business
      2013 £m 2012* £m
    30 Jun
    Total
    30 Jun
    Total
    31 Dec
    Total
    S&P – AAA 385 4,381 738 2,884 337   8,725 9,222 9,200
    S&P – AA+ to AA- 522 4,773 1,099 2,983 383   9,760 9,174 9,688
    S&P – A+ to A- 919 11,492 1,752 6,552 820   21,535 22,276 23,000
    S&P – BBB+ to BBB- 853 10,000 1,642 4,287 670   17,452 16,424 17,720
    S&P – Other 257 2,847 115 324 57   3,600 2,920 3,043
    2,936 33,493 5,346 17,030 2,267   61,072 60,016 62,651
    Moody’s – Aaa 100 1,602 208 355 73   2,338 8,288 8,446
    Moody’s – Aa1 to Aa3 110 2,576 966 2,163 544   6,359 1,087 1,420
    Moody’s – A1 to A3 59 911 88 889 121   2,068 1,107 927
    Moody’s – Baa1 to Baa3 46 786 104 351 31   1,318 1,216 1,385
    Moody’s – Other 16 256 8   280 268 307
    331 6,131 1,366 3,766 769   12,363 11,966 12,485
    Fitch 21 372 31 162 19   605 520 527
    Other 317 5,741 201 2,388 167   8,814 7,547 8,345
    Total debt securities 3,605 45,737 6,944 23,346 3,222   82,854 80,049 84,008

     


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

    Where no external ratings are available, internal ratings produced by the Group’s asset management operation, which are prepared on the Company’s assessment of a comparable basis to external ratings, are used where possible. The £8,814 million total debt securities held at 30 June 2013 (30 June 2012: £7,547 million; 31 December 2012: £8,345 million) which are not externally rated are either internally rated or unrated. These are analysed as follows:

    Download as excel file

    2013 £m 2012* £m
    30 Jun 30 Jun 31 Dec
    Internal ratings or unrated:  
    AAA to A- 3,438 2,871 3,173
    BBB to B- 3,778 3,649 3,810
    Below B- or unrated 1,598 1,027 1,362
    Total 8,814 7,547 8,345

     


    The majority of unrated debt security investments were held in SAIF and the PAC with-profits fund and relate to convertible debt and other investments which are not covered by ratings analysts nor have an internal rating attributed to them. Of the £2,555 million for PRIL and other annuity and long-term business investments for non-linked shareholder-backed business which are not externally rated, £nil were internally rated AAA, £503 million AA, £831 million A, £901 million BBB, £112 million BB and £208 million were internally rated B+ and below or unrated.
  2. US insurance operations

    Download as excel file

    2013 £m 2012 £m
    Summary 30 Jun 30 Jun 31 Dec
    Corporate and government security and commercial loans:  
    Government 4,017 2,107 4,126
    Publicly traded and SEC Rule 144A securities* 20,376 16,724 19,699
    Non-SEC Rule 144A securities 3,584 3,263 3,542
    Total 27,977 22,094 27,367
    Residential mortgage-backed securities 2,175 2,282 2,400
    Commercial mortgage-backed securities 2,591 2,129 2,639
    Other debt securities 625 556 587
    Total debt securities 33,368 27,061 32,993

     


    * A 1990 SEC rule that facilitates the resale of privately placed securities under Rule 144A that are without SEC registration to qualified institutional investors. The rule was designed to develop a more liquid and efficient institutional resale market for unregistered securities.

    The following table summarises the securities detailed above by rating using S&P, Moody’s, Fitch and implicit ratings of mortgage-backed securities (MBS) based on NAIC valuations:

    Download as excel file

    2013 £m 2012 £m
      30 Jun 30 Jun 31 Dec
    S&P – AAA 148 71 187
    S&P – AA+ to AA- 6,162 4,187 6,343
    S&P – A+ to A- 8,308 6,767 7,728
    S&P – BBB+ to BBB- 10,195 8,516 10,230
    S&P – Other 1,223 954 1,173
    26,036 20,495 25,661
    Moody’s – Aaa 62 69 55
    Moody’s – Aa1 to Aa3 25 17 18
    Moody’s – A1 to A3 65 24 21
    Moody’s – Baa1 to Baa3 36 63 56
    Moody’s – Other 4 21 13
    192 194 163
    Implicit ratings of MBS based on NAIC* valuations (see below):  
    NAIC 1 2,873 2,577 2,934
    NAIC 2 252 114 207
    NAIC 3-6 268 289 321
    3,393 2,980 3,462
    Fitch 72 220 184
    Other 3,675 3,172 3,523
    Total debt securities 33,368 27,061 32,993

     


    * The Securities Valuation Office of the National Association of Insurance Commissioners (NAIC) classifies debt securities into six quality categories ranging from Class 1 (the highest) to Class 6 (the lowest). Performing securities are designated as Classes 1 to 5 and securities in or near default are designated Class 6.
    † The amounts within ‘Other’ which are not rated by S&P, Moody’s nor Fitch, nor are MBS securities using the revised regulatory ratings, have the following NAIC classifications:

    Download as excel file

    2013 £m 2012 £m
      30 Jun 30 Jun 31 Dec
    NAIC 1 1,506 1,279 1,453
    NAIC 2 2,098 1,823 2,022
    NAIC 3-6 71 70 48
    3,675 3,172 3,523

     


    For some mortgage-backed securities within Jackson, the table above includes these securities using the regulatory ratings detail issued by the NAIC. These regulatory ratings levels were established by external third parties (PIMCO for residential mortgage-backed securities and BlackRock Solutions for commercial mortgage-backed securities).
  3. Asia insurance operations

    Download as excel file

    2013 £m 2012* £m
    With-profits
    business
    Unit-linked
    assets
    Other
    business
    30 Jun
    Total
    30 Jun
    Total
    31 Dec
    Total
    S&P – AAA 659 12 49 720 665 785
    S&P – AA+ to AA- 2,875 390 1,736 5,001 4,813 5,523
    S&P – A+ to A- 2,210 196 1,241 3,647 3,490 3,272
    S&P – BBB+ to BBB- 1,504 280 460 2,244 1,642 1,906
    S&P – Other 402 559 995 1,956 2,424 3,132
    7,650 1,437 4,481 13,568 13,034 14,618
    Moody’s – Aaa 843 219 412 1,474 1,399 1,389
    Moody’s – Aa1 to Aa3 128 36 10 174 142 271
    Moody’s – A1 to A3 82 13 81 176 303 147
    Moody’s – Baa1 to Baa3 192 309 132 633 389 375
    Moody’s – Other 73 16 29 118 100 112
    1,318 593 664 2,575 2,333 2,294
    Fitch 277 62 119 458 66 533
    Other 1,785 581 1,114 3,480 2,939 2,622
    Total debt securities 11,030 2,673 6,378 20,081 18,372 20,067

     


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

    The following table analyses debt securities of ‘Other business’ which are not externally rated by S&P, Moody’s or Fitch.

    Download as excel file

    2013 £m 2012* £m
      30 Jun 30 Jun 31 Dec
    Government bonds 387 164 58
    Corporate bonds rated as investment grade by local external ratings agencies 542 393 428
    Other 185 40 123
    1,114 597 609
  4. Asset management operations
    The debt securities are all held by M&G (Prudential Capital).

    Download as excel file

      2013 £m 2012 £m
      30 Jun 30 Jun 31 Dec
    M&G:      
    AAA to A- by S&P or Aaa to A3 rated by Moody’s 1,597 1,620 1,529
    Other 356 247 310
    Total M&G (including Prudential Capital) 1,953 1,867 1,839
  5. Group’s holdings in asset-backed securities
    The Group’s holdings in asset-backed securities (ABS), which comprise residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralised debt obligations (CDO) funds and other asset-backed securities, at 30 June 2013 are as follows:

    Download as excel file

      2013 £m 2012 £m
      30 Jun 30 Jun 31 Dec
    Shareholder-backed operations (excluding assets held in unit-linked funds):      
    UK insurance operationsnote (a) 1,623 1,538 1,408
    US insurance operationsnote (b) 5,391 4,967 5,626
    Asia insurance operationsnote (c) 144 172 144
    Other operationsnote (d) 584 622 566
      7,742 7,299 7,744
    With-profits operations:      
    UK insurance operationsnote (a) 5,815 5,743 5,850
    Asia insurance operationsnote (c) 319 407 241
      6,134 6,150 6,091
    Total 13,876 13,449 13,835

     


    Notes

    1. UK insurance operations
      All of the holdings of the shareholder-backed business relates to the UK market and primarily relates to investments held by PRIL. Of the holdings of the with-profits operations, £1,615 million (30 June 2012: £1,683 million; 31 December 2012: £1,697 million) relates to exposure to the US markets and with the remaining exposure being primarily to the UK market.
    2. US insurance operations
      US insurance operations’ exposure to asset-backed securities at 30 June 2013 comprises:

      Download as excel file

        2013 £m 2012 £m
        30 Jun 30 Jun 31 Dec
      RMBS:  
      Sub-prime (2013: 12% AAA, 6% AA) 283 213 261
      Alt-A (2013: 0% AAA, 1% AA) 325 281 323
      Prime including agency (2013: 0% AAA, 75% AA) 1,567 1,788 1,816
      CMBS (2013: 39% AAA, 24% AA) 2,591 2,129 2,639
      CDO funds (2013: 0% AAA, 25% AA), including £nil exposure to sub-prime 49 37 44
      Other ABS (2013: 23% AAA, 21% AA), including £nil exposure to sub-prime 576 519 543
      Total 5,391 4,967 5,626
    3. Asia insurance operations
      The Asia insurance operations’ exposure to asset-backed securities is primarily held by the with-profits operations. Of the £319 million, 91 per cent (30 June 2012: 61 per cent; 31 December 2012: 63 per cent) are investment graded.
    4. Asset management operations
      Asset management operations’ exposure to asset-backed securities is held by Prudential Capital with no sub-prime exposure. Of the £584 million, 80 per cent (30 June 2012: 80 per cent; 31 December 2012: 77 per cent) is graded AAA.
  6. Group sovereign debt exposure
    The exposures held by the shareholder-backed business and with-profits funds in sovereign debts and bank debt securities at 30 June 2013 are given within the Risk and Capital Management section of the Business review under Credit Risk.
Insurance operations:  
UKnote (i) 82,854 80,049 84,008
USnote (ii) 33,368 27,061 32,993
Asianote (iii) 20,081 18,372 20,067
Asset management operationsnote (iv) 1,953 1,867 1,839
Totalnotes (v), (vi) 138,256 127,349 138,907

R: Debt securities of US insurance operations: valuation basis, accounting presentation of gains and losses and securities in an unrealised loss position

i Valuation basis

Under IAS 39, unless categorised as ‘held to maturity’ or ‘loans and receivables’ debt securities are required to be fair valued. Where available, quoted market prices are used. However, where securities do not have an externally quoted price based on regular trades or where markets for the securities are no longer active as a result of market conditions, IAS 39 requires that valuation techniques be applied. IFRS 7 requires classification of the fair values applied by the Group into a three-level hierarchy. At 30 June 2013, 0.1 per cent of Jackson’s debt securities was classified as level 3 (30 June 2012: 0.1 per cent; 31 December 2012: 0.1 per cent) comprising of fair values where there are significant inputs which are not based on observable market data.

ii Accounting presentation of gains and losses

Except for certain assets covering liabilities that are measured at fair value, the debt securities of the US insurance operations are classified as ‘available-for-sale’.

Unless impaired, fair value movements are recognised in other comprehensive income. Realised gains and losses, including impairments, recorded in the income statement are as shown in note F of this report.

iii Half year 2013 movements in unrealised gains and losses

In half year 2013 there was a movement in the statement of financial position value for debt securities classified as available-for-sale from a net unrealised gain of £2,807 million to a net unrealised gain of £1,270 million as analysed in the table below. This decrease reflects the effects of rising long-term interest rates.

Download as excel file

  30 Jun 2013 £m 31 Dec 2012 £m
    Changes in unrealised appreciation Foreign exchange translation  
Available-for-sale securities   Reflected as part of movement in other comprehensive income  

* Book value represents cost/amortised cost of the debt securities.
† Translated at the average rate of US$1.5439:£1.
‡ Debt securities for US operations included in the statement of financial position at 30 June 2013 and as referred to in note Q, comprise:

Assets fair valued at below book value:        
Book value* 10,595     4,551
Unrealised lossnotes (iv)(a), (b) (747) (546) (23) (178)
Fair value (as included in statement of financial position) 9,848     4,373
Assets fair valued at or above book value:        
Book value* 21,348     25,467
Unrealised gain 2,017 (1,161) 193 2,985
Fair value (as included in statement of financial position) 23,365     28,452
Total:        
Book value* 31,943     30,018
Net unrealised gain (loss) 1,270 (1,707) 170 2,807
Fair value (as included in statement of financial position) 33,213     32,825

Download as excel file

  2013 £m 2012 £m
  30 Jun 30 Jun 31 Dec
Available-for-sale 33,213 27,055 32,825
Fair value through profit and loss:      
Securities of consolidated investment funds 6
Securities held to back liabilities for funds withheld under reinsurance arrangement 155 168
  33,368 27,061 32,993

iv Debt securities classified as available-for-sale in an unrealised loss position

(a) Fair value of securities as a percentage of book value

The following table shows the fair value of the debt securities in a gross unrealised loss position for various percentages of book value:

Download as excel file

  30 Jun 2013 £m 30 Jun 2012 £m 31 Dec 2012 £m
  Fair value Unrealised loss Fair value Unrealised loss Fair value Unrealised loss
Between 90% and 100% 7,510 (317) 1,160 (27) 4,214 (112)
Between 80% and 90% 2,214 (369) 190 (31) 85 (13)
Below 80% 124 (61) 163 (99) 74 (53)
Total 9,848 (747) 1,513 (157) 4,373 (178)

(b) Unrealised losses by maturity of security

Download as excel file

  2013 £m 2012 £m
  30 Jun 30 Jun 31 Dec
Less than 1 year
1 year to 5 years (6) (2) (1)
5 years to 10 years (215) (18) (9)
More than 10 years (440) (11) (91)
Mortgage-backed and other debt securities (86) (126) (77)
Total (747) (157) (178)

(c) Age analysis of unrealised losses for the periods indicated

The following table shows the age analysis of all the unrealised losses in the portfolio by reference to the length of time the securities have been in an unrealised loss position:

Download as excel file

  30 Jun 2013 £m 30 Jun 2012 £m 31 Dec 2012 £m
  Non- investment grade Investment grade Total Non- investment grade Investment grade Total Non- investment grade Investment grade Total
Less than 6 months (16) (326) (342) (7) (15) (22) (5) (101) (106)
6 months to 1 year (1) (345) (346) (4) (6) (10) (1) (1) (2)
1 year to 2 years (3) (3) (5) (3) (8) (2) (2)
2 years to 3 years (2) (2) (3) (3) (1) (1)
More than 3 years (23) (31) (54) (52) (62) (114) (31) (36) (67)
Total (45) (702) (747) (71) (86) (157) (40) (138) (178)

(d) Securities whose fair value were below 80 per cent of the book value

As shown in the table (a) above, £61 million of the £747 million of gross unrealised losses at 30 June 2013 (30 June 2012: £99 million of the £157 million; 31 December 2012: £53 million of the £178 million of gross unrealised losses) related to securities whose fair value was below 80 per cent of the book value. The analysis of the £61 million (30 June 2012: £99 million; 31 December 2012: £53 million), by category of debt securities and by age analysis indicating the length of time for which their fair value was below 80 per cent of the book value, is as follows:

Download as excel file

  30 Jun 2013 £m 30 Jun 2012 £m 31 Dec 2012 £m
Category analysis Fair value Unrealised loss Fair value Unrealised loss Fair value Unrealised loss
Residential mortgage-backed securities:            
Prime (including agency) 5 (2) 27 (10) 5 (2)
Alt-A 11 (3)
Sub-prime 7 (2) 51 (22) 18 (8)
  12 (4) 89 (35) 23 (10)
Commercial mortgage-backed securities 13 (21) 8 (29) 10 (23)
Other asset-backed securities 24 (13) 53 (31) 41 (20)
Total structured securities 49 (38) 150 (95) 74 (53)
Corporates 75 (23) 13 (4)
Total 124 (61) 163 (99) 74 (53)

The following table shows the age analysis as at 30 June 2013, of the securities whose fair value were below 80 per cent of the book value:

Download as excel file

  30 Jun 2013 £m 30 Jun 2012 £m 31 Dec 2012 £m
Age analysis Fair value Unrealised loss Fair value Unrealised loss Fair value Unrealised loss
Less than 3 months 79 (25) 32 (10) 7 (2)
3 months to 6 months 2 (1)
More than 6 months 43 (35) 131 (89) 67 (51)
  124 (61) 163 (99) 74 (53)
 
 

Reporting tools

Save pages of the report
to download, print or email

View your pages

Feedback

Your comments and ideas help us
to shape future reports to suit your needs

Tell us your views