F: Income statement notes

F1: Segmental information

Download as excel file

  Year ended 31 December 2012 £m
  Insurance operations   Asset management
E1
         
  UK US Asia   M&G US Eastspring Invest- ments Total segment   Unallo- cated corporate   Group total
Gross premiums earned 7,020 14,660 8,230   29,910       29,910
Outward reinsurance premiums (135) (193) (178)  
(506)       (506)
Earned premiums, net of reinsurance 6,885 14,467 8,052   29,404     29,404
Investment returnnote(ii) 14,495 6,193 3,112   251 6 8 24,065   (14)   24,051
Other income 213 (2) 153   972
725 274 2,335   (314)
  2,021
Total revenue, net of reinsurance 21,593 20,658 11,317   1,223
731 282 55,804   (328)
  55,476
Benefits and claims (18,253) (18,703) (7,875)   (44,831)     (44,831)
Outward reinsurers’ share of benefits and claimsnote(iv) 159 (8) 108   259     259
Movement in unallocated surplus of with-profits funds note (iii) (863) (518)  
(1,381)  
  (1,381)
Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurance (18,957) (18,711) (8,285)   (45,953)     (45,953)
Acquisition costs and other operating expenditure F3 (1,478) (1,079) (1,965)   (686) (692) (207) (6,107)   52   (6,055)
Finance costs: interest on core structural borrowings of shareholder-financed operations (13)   (16)
(29)   (251)
  (280)
Total charges, net of reinsurance (20,435) (19,803) (10,250)   (702)
(692) (207) (52,089)   (199)
  (52,288)
Profit (loss) before tax (being tax attributable to shareholders’ and policyholders’ returns)note(i) 1,158 855 1,067   521 39 75 3,715   (527)   3,188
Tax charge attributable to policyholders’ returns (300) (78)  
(378)  
  (378)
Profit (loss) from continuing operations before tax attributable to shareholders 858 855 989   521 39 75 3,337   (527)   2,810

This is represented in the segmental analysis of profit from continuing operations before tax attributable to shareholders in note B1 as follows:

Download as excel file

  Year ended 31 December 2012 £m
  Insurance operations   Asset management          
  UK US Asia   M&G US Eastspring Invest- ments Total segment   Unallo- cated corporate   Group total
Operating profit based on longer-term investment returns 736 964 913   371 39 75 3,098   (565)   2,533
Short-term fluctuations in investment returns on shareholder-backed business 136 (90) 76   93 215   (11)   204
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes (14)   15 1   49   50
Gain on dilution of Group holdings   42 42     42
Amortisation of acquisition accounting adjustments arising on purchase of REALIC (19)  
(19)  
  (19)
Profit (loss) from continuing operations before tax attributable to shareholders 858 855 989   521 39 75 3,337   (527)   2,810

Download as excel file

  Year ended 31 December 2011* £m
  Insurance operations   Asset management
E1
         
  UK US Asia   M&G US Eastspring Invest- ments Total segment   Unallo- cated corporate   Group total
Gross premiums earned 5,678 12,650 7,378   25,706     25,706
Outward reinsurance premiums (131) (72) (226)  
(429)       (429)
Earned premiums, net of reinsurance 5,547 12,578 7,152   25,277     25,277
Investment returnnote(ii) 7,604 1,447 283   128 1 2 9,465   (105)   9,360
Other income 193 (62) 155   923
653 290 2,152   (283)
  1,869
Total revenue, net of reinsurance 13,344 13,963 7,590   1,051
654 292 36,894   (388)
  36,506
Benefits and claims (12,048) (12,931) (6,081)   (31,060)     (31,060)
Outward reinsurers’ share of benefits and claimsnote(iv) 290 280 176   746     746
Movement in unallocated surplus of with-profits fundsnote(iii) 485 540  
1,025  
  1,025
Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurance (11,273) (12,651) (5,365)   (29,289)     (29,289)
Acquisition costs and other operating expenditure F3 (1,239) (815) (1,562)   (704) (630) (212) (5,162)   42   (5,120)
Finance costs: interest on core structural borrowings of shareholder-financed operations (13)   (15)
(28)   (258)
  (286)
Total charges, net of reinsurance (12,512) (13,479) (6,927)   (719)
(630) (212) (34,479)   (216)
  (34,695)
Profit (loss) before tax (being tax attributable to shareholders’ and policyholders’ returns)note(i) 832 484 663   332 24 80 2,415   (604)   1,811
Tax charge attributable to policyholders’ returns 68 (51)  
17  
  17
Profit (loss) from continuing operations before tax attributable to shareholders 900 484 612   332 24 80 2,432   (604)   1,828

This is represented in the segmental analysis of profit from continuing operations before tax attributable to shareholders in note B1 as follows:

Download as excel file

  Year ended 31 December 2011* £m
  Insurance operations   Asset management          
  UK US Asia   M&G US Eastspring Invest- ments Total segment   Unallo- cated corporate   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.

Notes

  1. This measure is the formal profit (loss) before tax measure under IFRS but is not the result attributable to shareholders.
  2. Investment return principally comprises:
    – Interest and dividends;
    – Realised and unrealised gains and losses on securities and derivatives classified as fair value through profit and loss under IAS 39; and
    – Realised gains and losses, including impairment losses, on securities classified as available-for-sale under IAS 39.
  3. The movement in unallocated surplus of with-profits funds for Asia above includes movement relating to the Hong Kong branch of PAC. For the purpose of the presentation of unallocated surplus of with-profits funds within the statement of financial position, the Hong Kong branch balance is shown within the unallocated surplus of the PAC with-profits sub-fund.
  4. The increase in the credit for outwards reinsurers’ share of benefits and claims for Jackson from 2010 to 2011 arises from the fair value movements on the GMIB reinsurance in 2011. As the GMIB reinsurance is net settled it is considered to be a derivative under IAS 39. The movement was particularly high in 2011 due to the reduction in US interest rates in 2011.
Operating profit based on longer-term investment returns 723 651 704   357 24 80 2,539   (512)   2,027
Short-term fluctuations in investment returns on shareholder-backed business 159 (167) (92)   (29) (129)   (91)   (220)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 18   4
22   (1)
  21
Profit (loss) from continuing operations before tax attributable to shareholders 900 484 612   332 24 80 2,432   (604)   1,828

F2: Revenue

Download as excel file

  2012 £m 2011 £m

Notes

  1. The segmental analysis of interest income is as follows:

    Download as excel file

      2012 £m 2011 £m
    Insurance operations:    
    UK 4,310 4,286
    US 1,778 1,717
    Asia 403 339
    Asset management operations:    
    M&G 114 110
    US 1 1
    Eastspring Investments 3 3
    Total segment 6,609 6,456
    Unallocated corporate (9) (16)
    Total 6,600 6,440
     
  2. Interest income includes £13 million (2011: £8 million) accrued in respect of impaired securities.
  3. Fee income includes £35 million (2011: £13 million) relating to financial instruments that are not held at fair value through profit and loss.

    These fees primarily related to prepayment fees, late fees and syndication fees.
  4. The following table provides additional segmental analysis of revenue from external customers:

    Download as excel file

      2012 £m
      Asia US UK Intragroup Total
    Revenue from external customers:          
    Insurance operations 8,205 14,465 7,098 29,768
    Asset management 274 725 972 (333) 1,638
    Unallocated corporate 19 19
    Intragroup revenue eliminated on consolidation (84) (77) (172) 333
    Total revenue from external customers 8,395 15,113 7,917 31,425

    Download as excel file

      2011 £m
      Asia US UK Intragroup Total
    Revenue from external customers:          
    Insurance operations 7,307 12,516 5,740 25,563
    Asset management 290 653 923 (323) 1,543
    Unallocated corporate 40 40
    Intragroup revenue eliminated on consolidation (93) (68) (162) 323
    Total revenue from external customers 7,504 13,101 6,541 27,146
     
    Revenue from external customers is made up of the following:

    Download as excel file

      2012 £m 2011 £m
    Earned premiums, net of reinsurance 29,404 25,277
    Fee income from investment contract business and asset management (presented as ‘Other income’) 2,021 1,869
    Total revenue from external customers 31,425 27,146
     
Long-term business premiums    
Insurance contract premiums 27,447 23,705
Investment contracts with discretionary participation feature premiums 2,243 1,861
Inwards reinsurance premiums 220 140
Less: reinsurance premiums ceded (506) (429)
Earned premiums, net of reinsurancenote(iv) 29,404 25,277
Investment return    
Realised and unrealised gains and losses on securities at fair value through profit and loss 15,338 866
Realised and unrealised losses and gains on derivatives at fair value through profit and loss 75 86
Realised losses on available-for-sale securities, previously recognised in other comprehensive income 68 101
Realised losses on loans (51) (43)
Interestnotes(i),(ii) 6,600 6,440
Dividends 1,462 1,304
Other investment return 559 606
Investment return 24,051 9,360
Fee income from investment contract business and asset managementnotes(iii),(iv) 2,021 1,869
Total revenue 55,476 36,506

In their capacity as fund managers to fellow Prudential Group subsidiaries, M&G, Eastspring Investments and US asset management businesses generate fees for investment management and related services. These services are charged at appropriate arm’s length prices, typically priced as a percentage of funds under management. Intragroup fees included within asset management revenue were earned by the following asset management segment:

Download as excel file

  2012 £m 2011 £m
Intragroup revenue generated by:    
M&G 172 162
Eastspring Investments 84 93
US broker-dealer and asset management (including Curian) 77 68
Total intragroup fees included within asset management segment 333 323

Revenue from external customers of Asia, US and UK insurance operations shown above are net of outwards reinsurance premiums of £178 million, £193 million, and £135 million respectively (2011: £226 million, £72 million and £131 million respectively).

In Asia, revenue from external customers from no individual country exceeds 10 per cent of the Group total. The largest country is Hong Kong with a total revenue from external customers of £1,745 million (2011: Singapore £1,383 million).

Due to the nature of the business of the Group, there is no reliance on any major customers.

F3: Acquisition costs and other expenditure

Download as excel file

  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. Acquisition costs in 2012 comprise amounts related to insurance contracts of £(1,949) million (2011: £(1,679) million), and investment contracts and asset management contracts of £(220) million (2011: £(65) million).
  2. There were no fee expenses relating to financial liabilities held at amortised cost included in acquisition costs in 2012 and 2011.
  3. The total depreciation and amortisation expense of £(731) million (2011: £(584) million) relates to amortisation of deferred acquisition costs of insurance contracts and asset management contracts.

    The segmental analysis of total depreciation and amortisation expense is as follows:

    Download as excel file

      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

    Insurance operations:    
    UK (65) (55)
    US (302) (237)
    Asia (332) (270)
    Asset management operations:    
    M&G (6) (7)
    US (1) (1)
    Eastspring Investments (4) (4)
    Total segment (710) (574)
    Unallocated corporate (21) (10)
    Total (731) (584)
     
  4. Interest expense, excluding interest on core structural borrowings of shareholder-financed operations, amounted to £(140) million (2011: £(123) million) and is included within total acquisition costs and other operating expenditure as part of investment management expenses. The segmental analysis of this interest expense is as follows:

    Download as excel file

      2012 £m 2011 £m
    Insurance operations:    
    UK (62) (49)
    US (28) (31)
    Asia (7) (10)
    Asset management operations:    
    M&G (18) (11)
    Total segment (115) (101)
    Unallocated corporate (25) (22)
    Total (140) (123)
     
  5. Movements in amounts attributable to external unit holders are in respect of those OEIC and unit trusts which are required to be consolidated and comprises a charge of £(195) million (2011: a credit of £28 million) for UK insurance operations and a credit of £37 million (2011: £120 million) for Asia insurance operations.
  6. The total amounts for acquisition costs and other expenditure shown above includes Corporate expenditure shown in note B1 (Segment disclosure – income statement). The charge for Corporate expenditure comprises:

    Download as excel file

      2012 £m 2011 £m
    Group Head Office (168) (168)
    Asia Regional Head Office:    
    Gross costs (99) (86)
    Recharges to Asia operations 36 35
      (63) (51)
    Total (231) (219)
     
Acquisition costs incurred for insurance policies (2,649) (2,264)
Acquisition costs deferred less amortisation of acquisition costs for insurance policies 480 520
Administration costs and other expenditure (3,728) (3,524)
Movements in amounts attributable to external unit holders (158) 148
Total acquisition costs and other expenditure (6,055) (5,120)

F4: Finance costs – Interest on core structural borrowings of shareholder-financed operations

Finance costs of £280 million (2011: £286 million) comprise £251 million (2011: £258 million) interest on core debt of the parent company, £13 million (2011: £13 million) on US insurance operations’ surplus notes and £16 million (2011: £15 million) on PruCap’s bank loan.

F5: Tax

a Total tax charge by nature of expense

An analysis of the total tax benefit (expense) of continuing operations recognised in the income statement by nature of benefit (expense) is as follows:

Download as excel file

  2012 £m 2011* £m
Current tax expense:    
Corporation tax (950) (775)
Adjustments in respect of prior years 143 33
Total current tax (807) (742)
Deferred tax arising from:    
Origination and reversal of temporary differences (178) 293
(Expense) credit in respect of a previously unrecognised tax loss, tax credit or temporary difference from a prior period (6) 57
Total deferred tax (charge) credit (184) 350
Total tax charge (991) (392)

The total tax expense arises as follows:

Download as excel file

  2012 £m 2011* £m

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

Current tax expense:    
UK (393) (475)
Foreign (414) (267)
  (807) (742)
Deferred tax (charge) credit:    
UK (45) 455
Foreign (139) (105)
  (184) 350
Total (991) (392)

The current tax charge of £807 million includes £18 million (2011: charge of £16 million) in respect of the tax charge for Hong Kong. The Hong Kong current tax charge is calculated as 16.5 per cent for all periods on either (i) 5 per cent of the net insurance premium or (ii) the estimated assessable profits, depending on the nature of the business written.

In the UK, life insurance companies are taxed on both their shareholders’ profits and on their policyholders’ investment returns on certain insurance and investment products. Tax on shareholders’ profits is calculated at the standard corporation tax rate, and tax on policyholders’ investment returns is calculated at the basic rate of income tax. Although both types of tax are included in the total tax charge in the Group’s consolidated income statement, they are presented separately in the income statement to provide the most relevant information about tax that the Group pays on its profits.

Until the end of 2012 for the Group’s UK life insurance companies, shareholders’ profits were calculated using regulatory surplus as a starting point, with appropriate deferred tax adjustments for IFRS. Beginning in 2013, under new UK life tax rules, shareholders’ profits will be calculated using accounting profit or loss as a starting point.

The total tax charge comprises tax attributable to policyholders and unallocated surplus of with-profits funds, unit-linked policies and shareholders as shown below.

Download as excel file

  2012 £m   2011* £m
Tax charge Current tax Deferred tax Total   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.

Tax (charge) credit to policyholders’ returns (488) 110 (378)   17
Tax charge attributable to shareholders (319) (294) (613)   (409)
Total tax charge (807) (184) (991)   (392)

The principal reason for the increase in the tax charge attributable to policyholders’ returns is an increase in deferred tax on unrealised gains and losses on investments.

The total deferred tax (charge)/credit arises as follows:

Download as excel file

  2012 £m 2011* £m

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

Unrealised gains and losses on investments (91) 129
Balances relating to investment and insurance contracts 467 148
Short-term timing differences (226) 66
Capital allowances 2
Unused tax losses (334) 5
Deferred tax (charge)/credit (184) 350

In 2012, a deferred tax charge of £198 million (2011: charge of £187 million) has been taken through other comprehensive income. Other movements in deferred tax totalling a £378 million credit mainly arises as a result of bringing a deferred tax asset in respect of the acquired REALIC business on to the balance sheet. When these amounts are taken with the deferred tax charge shown above there is no significant change in the Group’s net deferred tax liability (2011: decrease of £0.1 billion).

b Reconciliation of effective tax rate

The total tax charge is attributable to shareholders and policyholders as summarised in the income statement.

i Summary of pre-tax profit and tax (charge)

The income statement includes the following items:

Download as excel file

  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.

Profit before tax 3,188 1,811
Tax (charge) credit attributable to policyholders’ returns (378) 17
Profit before tax attributable to shareholders 2,810 1,828
Tax attributable to shareholders’ profits:    
Tax charge (991) (392)
Less: tax attributable to policyholders’ returns 378 (17)
Tax charge attributable to shareholders’ returns (613) (409)
Profit for the year 2,197 1,419

ii Overview

For the purposes of explaining the relationship between tax expense and accounting profit, it is appropriate to consider the sources of profit and tax by reference to those that are attributable to shareholders and policyholders, as follows:

Download as excel file

  2012 £m   2011* £m
  Attributable to shareholders Attributable to policyholders Total   Attributable to shareholders Attributable to policyholders 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.
  • For the column entitled ‘Attributable to policyholders’, the profit (loss) before tax represents income, before tax attributable to policyholders and unallocated surplus of with-profits funds and unit-linked policies. This income has been determined after deduction of charges for policyholder benefits and movements on unallocated surplus which are determined net of tax. Hence, the pre-tax results attributable to policyholders is the inverse of the tax charge attributable to policyholders.
Profit (loss) before tax 2,810   378   3,188   1,828   (17)   1,811
Taxation charge:                      
Expected tax rate 27%   100%   36%   28%   100%   28%
Expected tax (charge) credit (763)   (378)   (1,141)   (519)   17   (502)
Variance from expected tax charge note v(ii) 150     150   110     110
Actual tax (charge) credit (613)   (378)   (991)   (409)   17   (392)
Average effective tax rate 22%   100%   31%   22%   100%   22%

iii Reconciliation of effective tax rate

The total tax charge is attributable to shareholders and policyholders as summarised in the income statement.

Reconciliation of tax charge on profit attributable to shareholders for continuing operations:

Download as excel file

  2012 £m (except for tax rates)
2012 Asia insurance operations US insurance operations UK insurance operations Other operations Total

* The expected tax rates shown in the table above (rounded to the nearest whole percentage) reflect the corporation tax rates generally applied to taxable profits of the relevant country jurisdictions. For Asia operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profits of operations contributing to the aggregate business result. The expected tax rate for Other operations reflects the mix of business between UK and overseas non-insurance operations, which are taxed at a variety of rates. The rates will fluctuate from year to year dependent on the mix of profits.

Operating profit (loss) based on longer-term investment returns 913 964 736 (80) 2,533
Non-operating profit (loss) 76 (109) 122 188 277
Profit before tax attributable to shareholders 989 855 858 108 2,810
Expected tax rate:* 23% 35% 25% 25% 27%
Tax at the expected tax rate 227 300 210 26 763
Effects of:          
Adjustment to tax charge in relation to prior years (11) 10 (26) (10) (37)
Movements in provisions for open tax matters (3) 32 29
Income not taxable or taxable at concessionary rates (87) (2) (89)
Deductions not allowable for tax purposes 30 3 33
Different local basis of tax on overseas profits (68) (68)
Impact of changes in local statutory tax rates (39) 9 (30)
Deferred tax adjustments (6) 8 (1) 1
Irrecoverable withholding taxes 14 14
Other 5 (5) 8 (11) (3)
Total actual tax charge 158 234 161 60 613
Analysed into:          
Tax on operating profit based on longer-term
investment returns
142 272 126 42 582
Tax on non-operating profit 16 (38) 35 18 31
Actual tax rate:          
Operating profit based on longer-term investment returns 16% 28% 17% (53)% 23%
Total profit 16% 27% 19% 56% 22%

Download as excel file

  2011 £m (except for tax rates)
  Asia insurance operations US insurance operations UK insurance operations Other operations Total
  • * The expected tax rates shown in the table above (rounded to the nearest whole percentage) reflect the corporation tax rates generally applied to taxable profits of the relevant country jurisdictions. For Asia operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profits of operations contributing to the aggregate business result. The expected tax rate for Other operations reflects the mix of business between UK and overseas non-insurance operations, which are taxed at a variety of rates. The rates will fluctuate from year to year dependent on the mix of profits.
  • 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.
Operating profit (loss) based on longer-term investment returns 704 651 723 (51) 2,027
Non-operating profit (92) (167) 177 (117) (199)
Profit (loss) before tax attributable to shareholders 612 484 900 (168) 1,828
Expected tax rate:* 25% 35% 27% 27% 28%
Tax at the expected tax rate 151 170 243 (45) 519
Effects of:          
Adjustment to tax charge in relation to prior years (7) 33 (19) 7
Movements in provisions for open tax matters (44) (44)
Income not taxable or taxable at concessionary rates (36) (1) (37)
Deductions not allowable for tax purposes 12 4 16
Different local basis of tax on overseas profits (37) (37)
Impact of changes in local statutory tax rates (32) 1 (31)
Deferred tax adjustments 7 7
Irrecoverable withholding taxes 13 13
Other (3) (6) (14) 19 (4)
Total actual tax charge (credit) 124 127 229 (71) 409
Analysed into:          
Tax on operating profit based on longer-term
investment returns
122 185 190 (64) 433
Tax on non-operating profit 2 (58) 39 (7) (24)
Actual tax rate:          
Operating profit based on longer-term investment returns 17% 28% 26% 125% 21%
Total profit 20% 26% 25% 42% 22%

c Taxes paid

In 2012 Prudential remitted £2.2 billion (2011: £1.6 billion) of tax to Revenue authorities, this includes £925 million (2011: £561 million) of corporation tax, £184 million of other taxes and £1,078 million collected on behalf of employees, customers and third parties.

The geographical split of taxes remitted by Prudential is as follows:

Download as excel file

  2012 £m   2011 £m
  Corporation
taxes*
Other taxes Taxes collected Total   Corporation taxes* Other taxes† Taxes collected Total
  • * In certain countries such as the UK, the corporation tax payments for the Group’s life insurance businesses are based on taxable profits which include policyholder investment returns on certain life insurance products.
  • Other taxes paid includes property taxes, withholding taxes, customs duties, stamp duties, employer payroll taxes and irrecoverable indirect taxes.
  • Taxes collected are other taxes that Prudential remits to tax authorities which it is obliged to collect from employees, customers and third parties which includes sales/VAT/GST taxes, employee and annuitant payroll taxes.
Asia 221 37 152 410   170 32 64 266
US 181 25 264 470   131 20 221 372
UK 522 121 662 1,305   260 112 595 967
Other 1 1 2   1 1
Total tax paid 925 184 1,078 2,187   561 165 880 1,606
 
 

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