B: Summary of results

B1: Segment disclosure – profit before tax

The determination of the operating segments and performance measure of the operating segments of the Group are as detailed in note A3(2)(d). Further segmentation of the income statement is provided in note F1 of these financial statements.

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  Note 2012 £m 2011* £m

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Notes

  1. Operating profit based on longer-term investment returns
    The Group provides supplementary analysis of IFRS profit before tax attributable to shareholders so as to distinguish operating profit based on longer-term investment returns from other elements of total profit. Operating profit based on longer-term investment returns is the basis on which management regularly reviews the performance of Prudential’s segments as defined by IFRS 8. Further discussion on the determination of operating profit based on longer-term investment returns is provided in note A3(2)(d).
  2. Effect of changes to assumptions, estimates and bases of determining life assurance liabilities
    The results of the Group’s long-term business operations are affected by changes to assumptions, estimates and bases of preparation.
    These are described in notes D2(g), D3(g) and D4(g).
  3. Jackson operating results based on longer-term investment returns
    IFRS basis operating profits for US operations include the following amounts (net of related change in amortisation of deferred acquisition costs, where applicable) so as to derive longer-term investment returns.

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      2012 £m 2011 £m
    Debt securities:    
    Amortisation of interest-related realised gains and losses 72 67
    Risk margin reserve charge for longer-term credit-related losses (see note (iv) below) (66) (56)
    Equity type investments:    
    Longer-term returns 54 51
     
  4. The risk margin reserve (RMR) charge for longer-term credit-related losses included in operating profit based on longer-term investment returns of Jackson for 2012 is based on an average annual RMR of 26 basis points (2011: 25 basis points) on average book values of US$47.6 billion (2011: US$44.4 billion) as shown below:

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      2012   2011
    Moody’s rating category
    (or equivalent under NAIC ratings of MBS)
    Average book value
    US$m
    RMR
    %
      Annual expected loss   Average book value
    US$m
    RMR
    %
      Annual expected loss
      US$m £m   US$m £m
    A3 or higher 23,129 0.11   (26) (16)   21,255 0.08   (17) (11)
    Baa1, 2 or 3 21,892 0.26   (56) (36)   20,688 0.26   (54) (34)
    Ba1, 2 or 3 1,604 1.12   (18) (11)   1,788 1.04   (19) (11)
    B1, 2 or 3 597 2.82   (17) (11)   474 3.01   (14) (9)
    Below B3 342 2.44   (8) (5)   211 3.88   (8) (5)
    Total 47,564 0.26   (125) (79)   44,416 0.25   (112) (70)
    Related change to amortisation of deferred acquisition costs (see below)       21 13         22 14
    Risk margin reserve charge to operating profit for longer-term credit-related losses       (104) (66)         (90) (56)
     
    Consistent with the basis of measurement of insurance assets and liabilities for Jackson’s IFRS results, the charges and credits to operating profits based on longer-term investment returns are partially offset by related changes to amortisation of deferred acquisition costs.
  5. General insurance commission
    UK operations transferred its general insurance business to Churchill in 2002, with general insurance commission representing the commission received net of expenses for Prudential-branded general insurance products as part of this arrangement.
  6. RPI to CPI inflation measure change
    During 2011, the Group altered its inflation measure basis for future statutory increases to pension payments for certain tranches of its UK defined benefit pension schemes. This reflected the UK Government’s decision to replace the basis of indexation from Retail Prices Index with Consumer Prices Index. This resulted in a credit to the operating profit before tax in 2011 of £42 million.
  7. Restructuring costs are incurred in the UK and represent one-off expenses incurred in securing expense savings.
  8. Short-term fluctuations in investment returns on shareholder-backed business.

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      2012 £m 2011* £m
    Insurance operations:    
    Asia 76 (92)
    US (90) (167)
    UK 136 159
    Other operations:    
    Economic hedge value movement (32)
    Other 114 (120)
    Total 204 (220)
     
    General overview of defaults

    The Group did not experience any defaults on its shareholder-backed debt securities portfolio in 2012 or 2011.

    Asia insurance operations

    The positive short-term fluctuations of £76 million in 2012 reflects unrealised gains on bond assets following a fall in yields in the period. These gains more than offset the impact of falling interest rates in Hong Kong and the transfer to operating profit of previously booked unrealised gains on the sale of the Group’s stake in China Life of Taiwan. The realised gain on the sale of the Group’s stake in China Life of Taiwan of £51 million is included in the Group’s operating profit based on longer-term investment returns as disclosed above.

    The fluctuations of £(92) million in 2011 in part reflected equity market falls in Taiwan and negative unrealised value movement on the Group’s stake in China Life of Taiwan.

    US insurance operations

    The short-term fluctuations in investment returns for US insurance operations comprise the following items:

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      2012 £m 2011* £m
    Short-term fluctuations relating to debt securities:    
    Charges in the year:    
    Defaults
    Losses on sales of impaired and deteriorating bonds (23) (32)
    Bond write downs (37) (62)
    Recoveries/reversals 13 42
    Total charges in the yearnote (a) (47) (52)
    Less: Risk margin charge included in operating profit based on longer-term investment returnsnote (iii) 79 70
      32 18
    Interest-related realised gains:    
    Arising in the year 94 158
    Less: amortisation of gains and losses arising in current and prior years to operating profit based on longer-term investment returns (91) (84)
      3 74
    Related change to amortisation of deferred acquisition costs (3) (3)
    Total short-term fluctuations related to debt securities 32 89
    Derivatives (other than equity-related): market value movements (net of related change to amortisation of deferred acquisition costs)note (b) 135 554
    Net equity hedge results (principally guarantees and derivatives, net of related change to amortisation of deferred acquisition costs)note (c) (302) (788)
    Equity-type investments: actual less longer-term return (net of related change to amortisation of deferred acquisition costs) A3(d)(i) 23
    Other items (net of related change to amortisation of deferred acquisition costs) 22 (22)
    Total (90) (167)
     
    * The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

    Notes

    (a) The charges on the debt securities of Jackson comprise the following:

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      2012 £m 2011 £m
    Residential mortgage-backed securities:    
    Prime (including agency) (4) (25)
    Alt-A (1) (1)
    Sub-prime (3)
    Total residential mortgage-backed securities (8) (26)
    Corporate debt securities (14) (14)
    Other (25) (12)
    Total (47) (52)
     
    (b) The gain of £135 million (2011: gain of £554 million) is principally for the value movement of non-equity free-standing derivatives held to manage interest rate exposures, and for the GMIB reinsurance asset that is considered to be a derivative under IAS 39.

    Under IAS 39, unless hedge accounting is applied value movements on derivatives are recognised in the income statement. For the derivatives programme attaching to the general account business, the Group has continued its approach of not seeking to apply hedge accounting under IAS 39. This decision reflects the inherent constraints of IAS 39 for hedge accounting investments and life assurance assets and liabilities under ‘grandfathered’ US GAAP under IFRS 4.

    (c) The amount of £(302) million (2011: £(788) million) relates to the net equity hedge accounting effect of the equity-based derivatives and associated guarantee liabilities of Jackson’s variable and fixed index annuity business. The details of the value movements excluded from operating profit based on longer-term investment returns are as described in note C. The principal movements are for (i) value for free-standing and GMWB ‘not for life’ embedded derivatives, (ii) accounting values for GMDB and GMWB ‘for life’ guarantees, (iii) fee assessments and claim payments in respect of guarantee liabilities and (iv) related changes to DAC amortisation. In 2012, the charge of (£302) million principally reflects fair value movements on free-standing futures contracts and short-dated options. The movements included within the net equity hedge result include the effect of lower interest rates for which the movement was particularly significant in 2011. The value movements on derivatives held to manage this and any other interest rate exposure are included in the £135 million (2011: £554 million) described above in note (b).

    In addition to the items discussed above, for US insurance operations, included within the statement of comprehensive income is an increase in net unrealised gains on debt securities classified as available-for-sale of £862 million (2011: increase in net unrealised gains of £811 million). Temporary market value movements do not reflect defaults or impairments. Additional details on the movement in the value of the Jackson portfolio are included in note D3.

    UK Insurance operations

    The gain on short-term fluctuations in investment returns for UK insurance operations of £136 million (2011: £159 million) principally reflect net investment gains arising in the year on fixed income assets backing the capital of the shareholder-backed annuity business.

    Economic hedge value movement

    This item represents the costs on short-dated hedge contracts taken out in first half of 2012 to provide downside protection against severe equity market falls through a period of particular uncertainty with respect to the Eurozone. The hedge contracts were terminated in the second half of 2012.

    Other operations

    Short-term fluctuations in investment returns for Other operations in 2012 of £114 million primarily represent unrealised fair value movements on Prudential Capital’s bond portfolio. Short-term fluctuations of other operations in 2011 of £(120) million represent unrealised value movements on investments, including centrally held swaps to manage foreign exchange and certain macroeconomic exposures of the Group.
  9. Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes

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      2012 £m 2011 £m
    Actuarial gains and losses    
    Actual less expected return on scheme assets 11 9
    Experience gains on scheme liabilities 15 19
    (Losses) gains on changes of assumptions for scheme liabilities (40) 12
      (14) 40
    Less: amount attributable to the PAC with-profits sub-fund 15 (18)
      1 22
    Other gains and losses    
    One-off uplift to recognise a portion of PSPS surplus 164
    Movement in the provision for deficit funding of PSPS (4)
    Less: amount attributable to the PAC with-profits sub-fund (115) 3
      49 (1)
    Total 50 21
     
    The actuarial gains and losses shown in the table above relate to the Prudential Staff Pension Scheme (PSPS), and the Scottish Amicable and M&G schemes. The amounts did not include actuarial gains and losses for the Prudential Staff Pension Scheme, for which the Group has not recognised a substantial portion of its interest in the scheme’s underlying surplus.

    For the 2011 comparatives, the shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes comprises the aggregate effect of actual less expected returns on scheme assets, experience gains and losses, the effect of changes in assumptions and altered provisions for deficit funding, where relevant. For 2012, these items also apply. However, the shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes also includes £49 million for the effect of partial recognition of surplus of the main Prudential Staff Pension Scheme. This credit arose from altered funding arrangement following the 5 April 2011 triennial valuation. Further details on the Group’s defined benefit pension schemes are shown in note I3.
Asia operations      
Insurance operationsnotes (i),(ii)      
Operating result before gain on sale of stake in China Life of Taiwan   869 709
Gain on sale of stake in China Life of Taiwan   51
Total Asia insurance operations   920 709
Development expenses   (7) (5)
Total Asia insurance operations after development expenses   913 704
Eastspring Investments   75 80
Total Asia operations   988 784
US operations      
Jackson (US insurance operations)notes (i),(ii),(iii)   964 651
Broker-dealer and asset management   39 24
Total US operations   1,003 675
UK operations      
UK insurance operations:notes (i),(ii)      
Long-term business   703 683
General insurance commissionnote (v)   33 40
Total UK insurance operations   736 723
M&G   371 357
Total UK operations   1,107 1,080
Total segment profit   3,098 2,539
Other income and expenditure      
Investment return and other income   13 22
Interest payable on core structural borrowings   (280) (286)
Corporate expenditure   (231) (219)
Total   (498) (483)
RPI to CPI inflation measure change on defined benefit pension schemesnote (vi)   42
Solvency II implementation costs   (48) (55)
Restructuring costsnote (vii)   (19) (16)
Operating profit based on longer-term investment returns   2,533 2,027
Short-term fluctuations in investment returns on shareholder-backed businessnote (viii)   204 (220)
Shareholders' share of actuarial and other gains and losses on defined benefit pension schemesnote (ix)   50 21
Gain on dilution of Group's holdings I2 42
Amortisation of acquisition accounting adjustments arising on the purchase of REALIC I1 (19)
Profit before tax attributable to shareholders   2,810 1,828

B2: Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in employee share trusts and consolidated unit trusts and open ended investment companies (OEICs), which are treated as cancelled.

For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group’s only class of potentially dilutive ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year. No adjustment is made if the impact is anti-dilutive overall.

Earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests.

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  2012
  Note Before tax
note B1
£m
Tax
note F5
£m
Non- controlling interests
£m
Net of tax and non- controlling interests
£m
Basic earnings per share pence Diluted earnings per share pence
Based on operating profit based on longer-term investment returns   2,533 (582) 1,951 76.8p 76.7p
Short-term fluctuations in investment returns on shareholder-backed business B1 204 (26) 178 7.0p 7.0p
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes B1 50 (12) 38 1.5p 1.5p
Gain on dilution of Group's holdings I2 42 42 1.7p 1.7p
Amortisation of acquisition accounting adjustments arising on the purchase of REALIC I1 (19) 7 (12) (0.5)p (0.5)p
Based on profit for the year   2,810 (613) 2,197 86.5p 86.4p

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  2011* £m
  Note Before tax
note B1
£m
Tax
note F5
£m
Non- controlling interests
£m
Net of tax and non- controlling interests
£m
Basic earnings per share
pence
Diluted earnings per share
pence

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Based on operating profit based on longer-term investment returns   2,027 (433) (4) 1,590 62.8p 62.7p
Short-term fluctuations in investment returns on shareholder-backed business B1 (220) 29 (191) (7.6)p (7.6)p
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes B1 21 (5) 16 0.6p 0.6p
Based on profit for the year   1,828 (409) (4) 1,415 55.8p 55.7p

Number of shares

A reconciliation of the weighted average number of ordinary shares used for calculating basic and diluted earnings per share is set out as below:

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  2012
millions
2011
millions
Weighted average shares for calculation of basic earnings per share 2,541 2,533
Shares under option at end of year 9 13
Number of shares that would have been issued at fair value on assumed option exercise (6) (8)
Weighted average shares for calculation of diluted earnings per share 2,544 2,538

B3: Dividends

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  2012 £m 2011 £m
Dividends declared and paid in reporting year    
Parent company:    
Interim dividend (2012: 8.40p; 2011: 7.95p) 215 203
Final dividend for prior period (2012: 17.24p; 2011: 17.24p) 440 439
Total 655 642

Dividends paid in cash, as set in the consolidated statement of cash flows for 2012 were £655 million (2011: £642 million).

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  2012 £m 2011 £m
Parent company dividends relating to reporting year:    
Interim dividend (2012: 8.40p; 2011: 7.95p) 215 203
Final dividend (2012: 20.79p; 2011: 17.24p) 532 439
Total 747 642

Dividend per share

Interim dividends are recorded in the period in which they are paid. Final dividends are recorded in the period in which they are approved by shareholders. The final dividend for the year ended 31 December 2011 of 17.24 pence per ordinary share was paid to eligible shareholders on 24 May 2012 and the 2012 interim dividend of 8.4 pence per ordinary share was paid to eligible shareholders on 27 September 2012.

The Board has decided to rebase the full year dividend upwards by 4 pence, reflecting the strong progress made in both the earnings and free surplus generation of the business and in the delivery of our financial objectives. In line with this, the directors recommend a final dividend of 20.79 pence per share (2011: 17.24 pence), which brings the total dividend for the year to 29.19 pence (2011: 25.19 pence), representing an increase of 15.9 per cent over 2011.

The 2012 final dividend of 20.79 pence per ordinary share will be paid on 23 May 2013 in sterling to shareholders on the principal register and the Irish branch register at 6.00pm BST on Tuesday, 2 April 2013 (Record Date), and in Hong Kong dollars to shareholders on the Hong Kong branch register at 4.30pm Hong Kong time on the Record Date (HK Shareholders). Holders of US American Depositary Receipts (US Shareholders) will be paid their dividends in US dollars on or about 3 June 2013. The final dividend will be paid on or about 30 May 2013 in Singapore dollars to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte.) Limited (CDP) at 5.00pm Singapore time on the Record Date (SG Shareholders). The dividend payable to the HK Shareholders will be translated using the exchange rate quoted by the WM Company at the close of business on 12 March 2013. The exchange rate at which the dividend payable to the SG Shareholders will be translated into SG$, will be determined by CDP. The dividend will distribute an estimated £532 million of shareholders’ funds.

Shareholders on the principal register and Irish branch register will be able to participate in a Dividend Reinvestment Plan.

B4: Exchange translation

Exchange movement recognised in other comprehensive income

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  2012 £m 2011* £m

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Asia operations (87) (28)
US operations (187) 35
Unallocated to a segment (central funds) 60 (44)
  (214) (37)

The movements for Asia and US operations reflect the application of year end exchange rates to the assets and liabilities, and average exchange rates to the income statement on translation of these operations into the presentation currency of the Group. The movement unallocated to a segment mainly reflects the translation of currency borrowings and forward contracts which have been designated as a net investment hedge against the currency risk of the net investment in Jackson.

The exchange rates applied were:

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Local currency: £ Closing rate at 31 Dec 2012 Average for 2012 Closing rate at 31 Dec 2011 Average for 2011
Hong Kong 12.60 12.29 12.07 12.48
Indonesia 15,665.76 14,842.01 14,091.80 14,049.41
Malaysia 4.97 4.89 4.93 4.90
Singapore 1.99 1.98 2.02 2.02
India 89.06 84.70 82.53 74.80
Vietnam 33,875.42 33,083.59 33,688.16 33,139.22
US 1.63 1.58 1.55 1.60

B5: Group statement of financial position

To explain more comprehensively the assets, liabilities and capital of the Group’s businesses, it is appropriate to provide analyses of the Group’s statement of financial position by operating segment and type of business.

The tables below aggregate the three asset management segments for ease of presentation and hence should be read in conjunction with the associated tables on asset management in note E2.

a Group statement of financial position by operating segment

i Position at 31 December 2012

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  2012 £m
By operating segment Insurance operations Total insurance operations   Asset management operations
E2
Unallocated to a segment (central operations) Intragroup eliminations   31 Dec Group total
UK
D2
US
D3
Asia
D4

Note

Further segmental analysis:
The non-current assets of the Group comprise goodwill, intangible assets other than DAC and present value of acquired in-force business and property, plant and equipment included within ‘Other non-investment and non-cash assets’. Items defined as financial instruments or related to insurance contracts are excluded. The Group’s total non-current assets at 31 December comprise:

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  2012 £m 2011 £m
UK including insurance operations, M&G and central operations 1,927 1,906
US 152 144
Asia* 640 681
Total 2,719 2,731


* No individual country in Asia held non-current assets at the end of the year which exceeds 10 per cent of the Group total.

Assets                    
Intangible assets attributable to shareholders:                    
Goodwill 239 239   1,230   1,469
Deferred acquisition costs and other
intangible assets
105 3,222 908 4,235   14 18   4,267
Total 105 3,222 1,147 4,474   1,244 18   5,736
Intangible assets attributable to with-profits funds:                    
In respect of acquired subsidiaries for
venture fund and other investment purposes
178 178     178
Deferred acquisition costs and other
intangible assets
6 72 78     78
Total H1 184 72 256     256
Total intangible assets 289 3,222 1,219 4,730   1,244 18   5,992
Deferred tax assets H4 183 1,889 83 2,155   107 52   2,314
Other non-investment and non-cash assets H3 H6 5,424 6,792 1,117 13,333   1,051 3,766 (6,113)   12,037
Investments of long-term business and other operations:                    
Investment properties 10,852 24 4 10,880     10,880
Investments accounted for using the equity
method
72 72   41   113
Financial investments:                    
Loans 3,373 6,235 1,014 10,622   1,199   11,821
Equity securities and portfolio holdings in unit trusts 36,027 49,551 14,310 99,888   70   99,958
Debt securities B5(c) 83,862 32,993 21,402 138,257   1,846   140,103
Other investments 4,576 2,296 957 7,829   44 27   7,900
Deposits 11,131 211 1,227 12,569   84   12,653
Total investments G1 H7 H8 149,893 91,310 38,914 280,117   3,284 27   283,428
Properties held for sale H9 98 98     98
Cash and cash equivalents H10 2,638 513 1,668 4,819   1,083 482   6,384
Total assets 158,525 103,726 43,001 305,252   6,769 4,345 (6,113)   310,253

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  2012 £m
By operating segment Insurance operations Total insurance operations   Asset management operations E2 Unallocated to a segment (central operations) Intra-group eliminations   31 Dec Group total
UK
D2
US
D3
Asia
D4
Equity and liabilities                    
Equity                    
Shareholders’ equity H11 3,033 4,343 2,529 9,905   1,937 (1,483)   10,359
Non-controlling interests 1 4 5     5
Total equity 3,034 4,343 2,533 9,910   1,937 (1,483)   10,364
Liabilities                    
Policyholder liabilities and unallocated surplus of with-profits funds:                    
Insurance contract liabilities H12 84,266 90,192 34,126 208,584     208,584
Investment contract liabilities with
discretionary participation features G1
33,464 348 33,812     33,812
Investment contract liabilities without
discretionary participation features G1
16,182 2,069 127 18,378     18,378
Unallocated surplus of with-profits funds
(reflecting application of ‘realistic’ basis provisions for UK regulated with-profits funds) D2 H12
10,526 63 10,589     10,589
Total policyholder liabilities and unallocated surplus of with-profits funds 144,438 92,261 34,664 271,363     271,363
Core structural borrowings of shareholder-financed operations: H13                    
Subordinated debt   2,577   2,577
Other 153 153   275 549   977
Total 153 153   275 3,126   3,554
Operational borrowings attributable to shareholder-financed operations 127 26 7 160   1 2,084   2,245
Borrowings attributable to with-profits operations 1,033 1,033     1,033
Other non-insurance liabilities:                    
Obligations under funding, securities lending
and sale and repurchase agreements
1,461 920 55 2,436     2,436
Net asset value attributable to unit holders of
consolidated unit trusts and similar funds
2,307 25 1,851 4,183   162   4,345
Deferred tax liabilities 1,185 2,168 588 3,941   13 16   3,970
Current tax liabilities 237 49 286   8 151   445
Accruals and deferred income 429 110 539   266 28   833
Other creditors 2,766 611 1,601 4,978   3,771 145 (6,113)   2,781
Provisions 291 20 66 377   149 75   601
Derivative liabilities 1,007 645 837 2,489   150 190   2,829
Other liabilities 210 2,554 640 3,404   37 13   3,454
Total 9,893 6,943 5,797 22,633   4,556 618 (6,113)   21,694
Total liabilities 155,491 99,383 40,468 295,342   4,832 5,828 (6,113)   299,889
Total equity and liabilities 158,525 103,726 43,001 305,252   6,769 4,345 (6,113)   310,253

i Position at 31 December 2011

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  2011* £m
By operating segment Insurance operations Total insurance operations   Asset management operations
E2
Unallocated to a segment (central operations) Intra-group eliminations   31 Dec Group total
UK
D2
US
D3
Asia
D4

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Assets                    
Intangible assets attributable to shareholders:                    
Goodwill 235 235   1,230   1,465
Deferred acquisition costs and other intangible assets 113 3,115 977 4,205   16 13   4,234
Total H1 113 3,115 1,212 4,440   1,246 13   5,699
Intangible assets attributable to with-profits funds:                    
In respect of acquired subsidiaries for
venture fund and other investment purposes
178 178     178
Deferred acquisition costs and other
intangible assets
6 83 89     89
Total H2 184 83 267     267
Total intangible assets 297 3,115 1,295 4,707   1,246 13   5,966
Deferred tax assets 231 1,392 115 1,738   129 409   2,276
Other non-investment and non-cash assets H3 H6 4,771 1,542 1,024 7,337   1,000 4,532 (6,231)   6,638
Investments of long-term business and other operations:                    
Investment properties 10,712 35 10 10,757     10,757
Investments accounted for using the equity
method
70 70     70
Financial investments:                    
Loans 3,115 4,110 1,233 8,458   1,256   9,714
Equity securities and portfolio holdings
in unit trusts
36,722 38,036 11,997 86,755   594   87,349
Debt securities B5(c) 77,953 27,022 17,681 122,656   1,842   124,498
Other investments 4,568 2,376 470 7,414   78 17   7,509
Deposits 9,287 167 1,165 10,619   89   10,708
Total investments G1 H7 H8 142,427 71,746 32,556 246,729   3,859 17   250,605
Properties held for sale H9 3 3     3
Cash and cash equivalents H10 2,965 271 1,977 5,213   1,735 309   7,257
Total assets 150,691 78,069 36,967 265,727   7,969 5,280 (6,231)   272,745

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  2011* £m
By operating segment Insurance operations Total insurance operations   Asset management operations
E2
Unallocated to a segment (central operations) Intra-group eliminations   31 Dec Group total
UK
D2
US
D3
Asia
D4

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Equity and liabilities                    
Equity                    
Shareholders’ equity H11 2,581 3,761 2,306 8,648   1,783 (1,867)   8,564
Non-controlling interests 33 5 38   5   43
Total equity 2,614 3,761 2,311 8,686   1,788 (1,867)   8,607
Liabilities                    
Policyholder liabilities and unallocated surplus of with-profits funds:                    
Insurance contract liabilities H12 82,732 67,278 30,353 180,363     180,363
Investment contract liabilities with
discretionary participation features G1
29,348 397 29,745     29,745
Investment contract liabilities without
discretionary participation features G1
14,944 1,911 112 16,967     16,967
Unallocated surplus of with-profits funds
(reflecting application of ‘realistic’ basis provisions for UK regulated with-profits funds) D2 H12
9,165 50 9,215     9,215
Total policyholder liabilities and unallocated surplus of with-profits funds 136,189 69,189 30,912 236,290     236,290
Core structural borrowings of shareholder-financed operations: G1 H13                    
Subordinated debt   2,652   2,652
Other 160 160   250 549   959
Total 160 160   250 3,201   3,611
Operational borrowings attributable to shareholder-financed operations 103 127 141 371   13 2,956   3,340
Borrowings attributable to with-profits operations 972 972     972
Other non-insurance liabilities:                    
Obligations under funding, securities lending
and sale and repurchase agreements H4 H14 H15
1,945 1,169 3,114     3,114
Net asset value attributable to unit holders of
consolidated unit trusts and similar funds
2,043 18 1,101 3,162   678   3,840
Deferred tax liabilities 1,349 1,818 506 3,673   5 251   3,929
Current tax liabilities 553 116 669   106 155   930
Accruals and deferred income 321 103 424   290 22   736
Other creditors 2,829 548 660 4,037   4,493 245 (6,231)   2,544
Provisions 266 13 47 326   133 70   529
Derivative liabilities 1,298 887 480 2,665   182 207   3,054
Other liabilities 209 379 590 1,178   31 40   1,249
Total 10,813 4,832 3,603 19,248   5,918 990 (6,231)   19,925
Total liabilities 148,077 74,308 34,656 257,041   6,181 7,147 (6,231)   264,138
Total equity and liabilities 150,691 78,069 36,967 265,727   7,969 5,280 (6,231)   272,745

ii Group statement of financial position – additional analysis by business type

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  2012 £m

2011* £m
      Shareholder-backed business          
  Partici-pating funds   Unit-linked and variable annuity Non-linked business Asset management operations E2 Unallocated to a segment (central operations)   Intra-group eliminations   31 Dec Group total 31 Dec Group total

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Assets                      
Intangible assets attributable to shareholders:                      
Goodwill   239 1,230     1,469 1,465
Deferred acquisition costs and other
intangible assets
  4,235 14 18     4,267 4,234
Total   4,474 1,244 18     5,736 5,699
Intangible assets attributable to with-profits funds:                      
In respect of acquired subsidiaries for
venture fund and other investment purposes
178       178 178
Deferred acquisition costs and other
intangible assets
78       78 89
Total 256       256 267
Total intangible assets 256   4,474 1,244 18     5,992 5,966
Deferred tax assets 114   2,041 107 52     2,314 2,276
Other non-investment and non-cash assets 3,133   508 9,692 1,051 3,766   (6,113)   12,037 6,638
Investments of long-term business and other operations:                      
Investment properties 8,659   622 1,599     10,880 10,757
Investments accounted for using the equity
method
  72 41     113 70
Financial investments:                      
Loans 2,709   7,913 1,199     11,821 9,714
Equity securities and portfolio holdings
in unit trusts
25,105   73,860 923 70     99,958 87,349
Debt securities 62,002   9,504 66,751 1,846     140,103 124,498
Other investments 4,745   57 3,027 44 27     7,900 7,509
Deposits 9,470   1,396 1,703 84     12,653 10,708
Total investments 112,690   85,439 81,988 3,284 27     283,428 250,605
Properties held for sale 98       98 3
Cash and cash equivalents 1,721   1,310 1,788 1,083 482     6,384 7,257
Total assets 118,012   87,257 99,983 6,769 4,345   (6,113)   310,253 272,745

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  2012 £m

2011* £m
      Shareholder-backed business          
  Part-
icipating funds
  Unit-linked and variable annuity Non-linked business Asset management operations
E2
Unallocated to a segment (central operations)   Intra-group
eliminations
  31 Dec Group total 31 Dec Group total

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the change in accounting policy described in note A5.

Equity and liabilities                      
Equity                      
Shareholders’ equity   9,905 1,937 (1,483)     10,359 8,564
Non-controlling interests 1   4     5 43
Total equity 1   9,909 1,937 (1,483)     10,364 8,607
Liabilities                      
Policyholder liabilities and unallocated surplus of with-profits funds:                      
Contract liabilities (including amounts in
respect of contracts classified as investment contracts under IFRS 4)
97,795   85,523 77,456     260,774 227,075
Unallocated surplus of with-profits funds 10,589       10,589 9,215
Total policyholder liabilities and unallocated surplus of with-profits funds 108,384   85,523 77,456     271,363 236,290
Core structural borrowings of shareholder-financed operations:                      
Subordinated debt   2,577     2,577 2,652
Other   153 275 549     977 959
Total   153 275 3,126     3,554 3,611
Operational borrowings attributable to shareholder-financed operations   1 159 1 2,084     2,245 3,340
Borrowings attributable to with-profits operations 1,033       1,033 972
Deferred tax liabilities 1,086   46 2,809 13 16     3,970 3,929
Other non-insurance liabilities 7,508   1,687 9,497 4,543 602   (6,113)   17,724 15,996
Total liabilities 118,011   87,257 90,074 4,832 5,828   (6,113)   299,889 264,138
Total equity and liabilities 118,012   87,257 99,983 6,769 4,345   (6,113)   310,253 272,745

b Reconciliation of movement in policyholder liabilities and unallocated surplus of with-profits funds

A reconciliation of the total policyholder liabilities and unallocated surplus of with-profits funds of the Group from the beginning of the year to the end of the year is as follows:

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    Insurance operations £m
  Note UK US Asia Total

* Averages have been based on opening and closing balances and adjusted for acquisitions and disposals in the period and exclude unallocated surplus of with-profits funds.

At 1 January 2011   135,717 60,523 28,740 224,980
Comprising:          
Policyholder liabilities   125,530 60,523 28,674 214,727
Unallocated surplus of with-profits funds   10,187 66 10,253
Premiums   6,988 12,914 5,079 24,981
Surrenders   (4,255) (4,270) (2,237) (10,762)
Maturities/deaths   (7,813) (820) (664) (9,297)
Net flows   (5,080) 7,824 2,178 4,922
Shareholders' transfers post-tax   (216) (30) (246)
Investment-related items and other movements   5,862 136 365 6,363
Foreign exchange translation differences   (94) 706 (341) 271
As at 31 December 2011   136,189 69,189 30,912 236,290
Comprising:          
Policyholder liabilities   127,024 69,189 30,862 227,075
Unallocated surplus of with-profits funds   9,165 50 9,215
At 1 January 2012   136,189 69,189 30,912 236,290
Premiums   8,340 14,907 5,620 28,867
Surrenders   (4,785) (4,356) (2,541) (11,682)
Maturities/deaths   (8,009) (954) (658) (9,621)
Net flows   (4,454) 9,597 2,421 7,564
Shareholders' transfers post-tax   (205) (31) (236)
Investment-related items and other movements   13,006 4,241 2,178 19,425
Foreign exchange translation differences   (98) (3,678) (816) (4,592)
Acquisition of REALIC I1 12,912 12,912
At 31 December 2012   144,438 92,261 34,664 271,363
Comprising:          
Policyholder liabilities   133,912 92,261 34,601 260,774
Unallocated surplus of with-profits funds   10,526 63 10,589
Average policyholder liability balances*          
2012   130,468 77,497 32,732 240,697
2011   126,277 64,856 29,768 220,901

The items above represent the amount attributable to changes in policyholder liabilities and unallocated surplus of with-profits funds as a result of each of the components listed. The policyholder liabilities shown include investment contracts without discretionary participation features (as defined in IFRS 4) and their full movement in the year. The items above are shown gross of reinsurance.

The analysis includes the impact of premiums, claims and investment movements on policyholders’ liabilities. The impact does not represent premiums, claims and investment movements as reported in the income statement. For example, the premiums shown above will exclude any deductions for fees/charges and claims represent the policyholder liabilities provision released rather than the claim amount paid to the policyholder.

c Debt securities and loans

i Information on the credit risks of debt securities

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  2012 £m 2011 £m
  Insurance operations Total insurance operations   Asset management   Group total Group total
  UK US Asia
S&P – AAA 9,200 187 785 10,172   1,046   11,218 12,593
S&P – AA+ to AA- 9,623 6,343 5,523 21,489   106   21,595 17,038
S&P – A+ to A- 23,000 7,728 3,282 34,010   206   34,216 31,161
S&P – BBB+ to BBB- 17,720 10,230 1,906 29,856   235   30,091 25,860
S&P – Other 3,043 1,173 3,132 7,348   37   7,385 6,346
  62,586 25,661 14,628 102,875   1,630   104,505 92,998
Moody’s – Aaa 8,446 55 1,389 9,890   135   10,025 9,615
Moody’s – Aa1 to Aa3 1,420 18 271 1,709   36   1,745 806
Moody’s – A1 to A3 927 21 169 1,117     1,117 1,352
Moody’s – Baa1 to Baa3 1,385 56 375 1,816   12   1,828 1,228
Moody’s – Other 307 13 112 432     432 318
  12,485 163 2,316 14,964   183   15,147 13,319
Implicit ratings of MBS based on NAIC valuations (see below)                  
NAIC 1 2,934 2,934     2,934 2,577
NAIC 2 207 207     207 147
NAIC 3-6 321 321     321 368
  3,462 3,462     3,462 3,092
Fitch 527 184 533 1,244   21   1,265 1,039
Other 8,264 3,523 3,925 15,712   12   15,724 14,050
Total debt securities 83,862 32,993 21,402 138,257   1,846   140,103 124,498

In the table above, with the exception of some mortgage-backed securities within Jackson, 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. For some mortgage-backed securities within Jackson, the table above includes these securities using the regulatory ratings detail issued by the National Association of Insurance Commissioners (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). Notes D2(c), D3(c), D4(c) and E2 provide further details on the credit risks of debt securities by segment.

ii Group’s exposure to holdings in asset-backed securities

The Group’s exposure to 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 31 December 2012 is as follows:

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  2012 £m 2011 £m

Notes

  1. UK insurance operations
    All of the exposure of the shareholder-backed business relates to the UK market and primarily relates to investments held by PRIL. Of the £5,850 million (2011: £5,351 million) relating to with-profits business, £1,697 million (2011: £1,314 million) relates to exposure to the US and with the remaining exposure being primarily to the UK market.
  2. Asia insurance operations
    The Asia insurance operations’ exposure to asset-backed securities is primarily held by the with-profits operations. Of the £241 million, 63 per cent (2011: £454 million, 75 per cent) are investment grade.
  3. Asset management operations
    Asset management operations’ exposure to asset-backed securities is held by Prudential Capital with no sub-prime exposure. Of the £566 million, 77 per cent (2011: £595 million, 77 per cent) are graded AAA.
Shareholder-backed operations:    
UK insurance operations (2012: 34% AAA, 17% AA)note (i) 1,408 1,358
US insurance operations D3 5,626 5,380
Asia insurance operationsnote (ii) 144 176
Asset management operationsnote (iii) 566 594
  7,744 7,508
With-profits operations:    
UK insurance operations (2012: 60% AAA, 9% AA)note (i) 5,850 5,351
Asia insurance operationsnote (ii) 241 454
  6,091 5,805
Total 13,835 13,313

iii Group sovereign debt exposure

The exposures held by the shareholder-backed business and with-profits funds in sovereign debts and bank debt securities at 31 December 2012 are given within the Risk and capital management section of the Business review under Credit risk.

iv Loans

Information on the credit quality of the portfolio of loans, which almost wholly is for amounts which are neither past due or impaired is shown in notes D2, D3, D4 and E2. Details of allowances for loans, losses and amounts past due are shown in notes G1 and G2. No additional analysis is provided of the element of loans and receivables that were neither past due nor impaired from those of the total portfolio on the grounds of the immateriality of the difference between the neither past due nor impaired element and the total portfolio.

 
 

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