Company Announcements

Prudential plc – HY20 Results – IFRS

Source: RNS
RNS Number : 7146V
Prudential PLC
11 August 2020
 

CONDENSED CONSOLIDATED INCOME STATEMENT





2020 $m


2019 $m




Note

Half year


Half year*

Full year

Continuing operations:






Gross premiums earned


19,842


21,081

45,064

Outward reinsurance premiums

B3

(30,149)


(673)

(1,583)

Earned premiums, net of reinsurance

B3

(10,307)


20,408

43,481

Investment return


3,910


31,873

49,555

Other income


333


258

700

Total revenue, net of reinsurance

B3

(6,064)


52,539

93,736

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


9,855


(47,448)

(83,905)

Acquisition costs and other expenditure

B2

(3,032)


(3,508)

(7,283)

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


(163)


(293)

(516)

Gain (loss) attaching to corporate transactions


-


17

(142)

Total charges net of reinsurance


6,660


(51,232)

(91,846)

Share of profit from joint ventures and associates, net of related tax


133


137

397

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


729


1,444

2,287

Remove tax charge attributable to policyholders' returns


(66)


(285)

(365)

Profit before tax attributable to shareholders' returns

B1.1

663


1,159

1,922

Total tax charge attributable to shareholders' and policyholders' returns

B4

(195)


(286)

(334)

Remove tax charge attributable to policyholders' returns


66


285

365

Tax (charge) credit attributable to shareholders' returns

B4

(129)


(1)

31

Profit from continuing operations


534


1,158

1,953

Discontinued UK and Europe operations' profit after tax


-


835

1,319

Re-measurement of discontinued operations on demerger


-


-

188

Cumulative exchange loss recycled from other comprehensive income


-


-

(2,668)

Profit (loss) from discontinued operationsnote (ii)


-


835

(1,161)

Profit for the period


534


1,993

792









Attributable to:






Equity holders of the Company:







From continuing operations


512


1,152

1,944


From discontinued operations


-


835

(1,161)

Non-controlling interests from continuing operations


22


6

9



534


1,993

792

 

Earnings per share (in cents)


2020


2019




Note

Half year


Half year*

Full year

Based on profit attributable to equity holders of the Company:

B5






Basic








Based on profit from continuing operations


19.7¢


44.6¢

75.1¢



Based on profit (loss) from discontinued operations


-


32.3¢

(44.8)¢


Total


19.7¢


76.9¢

30.3¢


Diluted








Based on profit from continuing operations


19.7 ¢


44.6¢

75.1¢



Based on profit (loss) from discontinued operations


-


32.3¢

(44.8)¢


Total


19.7 ¢


76.9¢

30.3¢









 

Dividends per share (in cents)


2020


2019



Note

Half year


Half year*

Full year

Dividends relating to reporting period:

B6






First interim ordinary dividend


5.37¢


20.29¢

20.29¢


Second interim ordinary dividend


-


-

25.97¢

Total


5.37¢


20.29¢

46.26¢

Dividends paid in reporting period:

B6






Current year first interim dividend


-


-

20.29¢


Second interim ordinary dividend for prior year


25.97¢


42.89¢

42.89¢

Total


25.97¢


42.89¢

63.18¢

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

 

Notes

(i)    This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders.

(ii)   Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019.

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 





2020 $m


2019 $m




Note

Half year


Half year*

Full year

Continuing operations






Profit for the period


534


1,158

1,953

Other comprehensive income (loss):






Items that may be reclassified subsequently to profit or loss






Exchange movements on foreign operations and net investment hedges:







Exchange movements arising during the period


(201)


45

152


Related tax


-


1

(15)





(201)


46

137

Valuation movements on available-for-sale debt securities:







Unrealised gains arising in the period (before the impact of Jackson's reinsurance transaction with Athene):







Net unrealised gains on holdings arising in the period


2,737


3,411

4,208


Deduct net gains included in the income statement on disposal and impairment


(197)


(25)

(185)





2,540


3,386

4,023


Related change in amortisation of deferred acquisition costs

C4.2

(287)


(560)

(631)


Related tax


(472)


(593)

(713)





1,781


2,233

2,679

Impact of Jackson's reinsurance transaction with Athene:

D1






Gains recycled to the income statement on transfer of debt securities to Athene


(2,817)


-

-


Related change in amortisation of deferred acquisition costs

C4.2

535


-

-


Related tax


479


-

-





(1,803)


-

-


Total valuation movements on available-for-sale debt securities


(22)


2,233

2,679









Total items that may be reclassified subsequently to profit or loss


(223)


2,279

2,816

Items that will not be reclassified to profit or loss






Shareholders' share of actuarial gains and losses on defined benefit pension schemes:







Net actuarial losses on defined benefit pension schemes


-


(112)

(108)


Related tax


-


18

19

Total items that will not be reclassified to profit or loss


-


(94)

(89)

Other comprehensive (loss) income


(223)


2,185

2,727

Total comprehensive income for the period from continuing operations


311


3,343

4,680







Profit (loss) for the period from discontinued operations


-


835

(1,161)

Cumulative exchange loss recycled through profit or loss


-


-

2,668

Other items, net of related tax


-


4

203

Total comprehensive income for the period from discontinued operations


-


839

1,710

Total comprehensive income for the period


311


4,182

6,390









Attributable to:






Equity holders of the Company







From continuing operations


290


3,337

4,669


From discontinued operations


-


839

1,710

Non-controlling interests from continuing operations


21


6

11



311


4,182

6,390

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

† Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019.

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 




 Period ended 30 June 2020 $m


Note

Share

 capital

Share

premium

Retained

  earnings

Translation

reserve

Available

-for-sale

 securities

reserves

Shareholders'

equity 


Non-

controlling

interests


Total

 equity

Reserves












Profit for the period


-

-

512

-

-

512


22


534

Other comprehensive loss


-

-

-

(200)

(22)

(222)


(1)


(223)

Total other comprehensive income (loss) for the period


-

-

512

(200)

(22)

290


21


311

Dividends

B6

-

-

(674)

-

-

(674)


(16)


(690)

Reserve movements in respect of share-based payments


-

-

29

-

-

29


-


29

Effect of transactions relating to non-controlling interests


-

-

32

-

-

32


-


32














Share capital and share premium












New share capital subscribed

C8

-

10

-

-

-

10


-


10














Treasury shares












Movement in own shares in respect of share-based payment plans


-

-

(54)

-

-

(54)


-


(54)

Net increase (decrease) in equity


-

10

(155)

(200)

(22)

(367)


5


(362)

Balance at beginning of period


172

2,625

13,575

893

2,212

19,477


192


19,669

Balance at end of period


172

2,635

13,420

693

2,190

19,110


197


19,307

 




 Period ended 30 June 2019* $m



Note

Share

 capital

Share

premium

Retained

earnings

Translation

reserve

Available

-for-sale

securities

reserves

Shareholders'

equity


Non-

 controlling

interests


Total

 equity

Reserves












Profit from continuing operations for the period


-

-

1,152

-

-

1,152


6


1,158

Other comprehensive income (loss) from continuing operations


-

-

(94)

46

2,233

2,185


-


2,185

Total comprehensive income from continuing operations for the period


-

-

1,058

46

2,233

3,337


6


3,343

Total comprehensive income from discontinued operations for the period


-

-

838

1

-

839


-


839

Total comprehensive income (loss) for the period


-

-

1,896

47

2,233

4,176


6


4,182













Dividends

B6

-

-

(1,108)

-

-

(1,108)


-


(1,108)

Reserve movements in respect of share-based payments


-

-

3

-

-

3


-


3














Share capital and share premium












New share capital subscribed

C8

-

13

-

-

-

13


-


13

Foreign exchange translation differences due to change in presentation currency

C8

(1)

(3)

-

-

-

(4)


-


(4)














Treasury shares












Movement in own shares in respect of share-based payment plans


-

-

(12)

-

-

(12)


-


(12)

Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS


-

-

1

-

-

1


-


1

Net increase (decrease) in equity


(1)

10

780

47

2,233

3,069


6


3,075

Balance at beginning of period


166

2,502

21,817

(2,050)

(467)

21,968


23


21,991

Balance at end of period


165

2,512

22,597

(2,003)

1,766

25,037


29


25,066

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 





 Year ended 31 December 2019 $m


Note

Share

 capital

Share

premium

Retained

  earnings

Translation

reserve*

Available

-for-sale

 securities

reserves

Shareholders'

equity

Non-

 controlling

  interests

Total

 equity

Reserves










Profit from continuing operations


-

-

1,944

-

-

1,944

9

1,953

Other comprehensive income (loss) from continuing operations


-

-

(89)

135

2,679

2,725

2

2,727

Total comprehensive income from continuing operations


-

-

1,855

135

2,679

4,669

11

4,680

Total comprehensive income (loss) from discontinued operations*


-

-

(1,098)

2,808

-

1,710

-

1,710

Total comprehensive income for the year


-

-

757

2,943

2,679

6,379

11

6,390











Demerger dividend in specie of M&G plc

B6

-

-

(7,379)

-

-

(7,379)

-

(7,379)

Other dividends

B6

-

-

(1,634)

-

-

(1,634)

-

(1,634)

Reserve movements in respect of share-based payments


-

-

64

-

-

64

-

64

Effect of transactions relating to non-controlling interests


-

-

(143)

-

-

(143)

158

15












Share capital and share premium










New share capital subscribed

C8

-

22

-

-

-

22

-

22

Impact of change in presentation currency in relation to share capital and share premium

C8

6

101

-

-

-

107

-

107












Treasury shares










Movement in own shares in respect of share-based payment plans


-

-

38

-

-

38

-

38

Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS


-

-

55

-

-

55

-

55

Net increase (decrease) in equity


6

123

(8,242)

2,943

2,679

(2,491)

169

(2,322)

Balance at beginning of year


166

2,502

21,817

(2,050)

(467)

21,968

23

21,991

Balance at end of year


172

2,625

13,575

893

2,212

19,477

192

19,669

* The $2,808 million movement in translation reserve from discontinued operations is recognised in other comprehensive income and represents an exchange gain of $140 million on translating the results from discontinued operations during the period of ownership in 2019 and the recycling of the cumulative exchange loss of $2,668 million through the profit or loss upon the demerger.

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 





2020 $m


2019 $m




Note

30 Jun


30 Jun*

31 Dec

Assets






Goodwill

C4.1

942


649

969

Deferred acquisition costs and other intangible assets

C4.2

18,604


16,111

17,476

Property, plant and equipment


964


999

1,065

Reinsurers' share of insurance contract liabilitiesnote (i)


44,918


12,919

13,856

Deferred tax assets

C7

4,259


3,515

4,075

Current tax recoverable


387


472

492

Accrued investment income


1,517


1,695

1,641

Other debtors


3,211


2,560

2,054

Investment properties


23


14

25

Investments in joint ventures and associates accounted for using the equity method


1,507


1,311

1,500

Loans


14,910


15,925

16,583

Equity securities and holdings in collective investment schemesnote (ii)


234,698


233,757

247,281

Debt securitiesnote (ii)


121,462


126,856

134,570

Derivative assets


2,459


1,555

1,745

Other investmentsnote (ii)


1,569


1,220

1,302

Deposits


3,351


1,898

2,615

Assets held for distributionnote (iii)


-


277,861

-

Cash and cash equivalents


8,384


6,628

6,965

Total assets

C1

463,165


705,945

454,214









Equity






Shareholders' equity 


19,110


25,037

19,477

Non-controlling interests


197


29

192

Total equity

C1

19,307


25,066

19,669









Liabilities






Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4)

C3.1

391,924


362,933

385,678

Unallocated surplus of with-profits funds

C3.1

5,512


3,747

4,750

Core structural borrowings of shareholder-financed businesses

C5.1

6,499


9,470

5,594

Operational borrowings


2,245


2,421

2,645

Obligations under funding, securities lending and sale and repurchase agreements


9,085


8,598

8,901

Net asset value attributable to unit holders of consolidated investment funds


5,967


4,432

5,998

Deferred tax liabilities

C7

5,278


4,710

5,237

Current tax liabilities


428


406

396

Accruals, deferred income and other liabilities


16,208


13,487

14,488

Provisions


245


323

466

Derivative liabilities


467


1,320

392

Liabilities held for distributionnote (iii)


-


269,032

-

Total liabilities

C1

443,858


680,879

434,545

Total equity and liabilities

C1

463,165


705,945

454,214

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

 

Notes

(i)    At 30 June 2020, reinsurers' share of insurance contract liabilities include $27.7 billion in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.

(ii)   Included within equity securities and holdings in collective investment schemes, debt securities and other investments are $265 million of lent securities as at 30 June 2020 (30 June 2019: $10 million; 31 December 2019: $90 million).

(iii)  Assets and liabilities held for distribution at 30 June 2019 related to the Group's UK and Europe operations (M&G plc) which were demerged in October 2019.

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 





2020 $m


2019 $m




Note

Half year


Half year*

Full year

Continuing operations:






Cash flows from operating activities






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


729


1,444

2,287

Adjustments to profit before tax for non-cash movements in

operating assets and liabilities:







Investments


24,670


(38,673)

(60,812)


Other non-investment and non-cash assets


(32,617)


(2,685)

(2,487)


Policyholder liabilities (including unallocated surplus)


8,188


34,702

56,067


Other liabilities (including operational borrowings)


1,466


4,072

5,097

Other itemsnote (i)


(327)


102

(361)

Net cash flows from operating activities


2,109


(1,038)

(209)

Cash flows from investing activities






Net cash flows from purchases and disposals of property, plant and equipment


(43)


(21)

(64)

Net cash flows from other investing activitiesnote (ii)


(733)


(102)

(260)

Net cash flows from investing activities


(776)


(123)

(324)

Cash flows from financing activities






Structural borrowings of shareholder-financed operations:note (iii)

C5.1






Issuance of debt, net of costs


982


-

367


Redemption of subordinated debt


-


(504)

(504)


Fees paid to modify terms and conditions of debt issued by the Group


-


(182)

(182)


Interest paid


(157)


(289)

(526)

Equity capital:







Issues of ordinary share capital


10


13

22

External dividends:







Dividends paid to the Company's shareholders

B6

(674)


(1,108)

(1,634)


Dividends paid to non-controlling interests


(16)


-

-

Net cash flows from financing activities


145


(2,070)

(2,457)

Net increase (decrease) in cash and cash equivalents from continuing operations


1,478


(3,231)

(2,990)

Net cash flows from discontinued operationsnote (iv)


-


292

(5,690)

Cash and cash equivalents at beginning of period


6,965


15,442

15,442

Effect of exchange rate changes on cash and cash equivalents


(59)


10

203

Cash and cash equivalents at end of period


8,384


12,513

6,965

Comprising:







Cash and cash equivalents from continuing operations


8,384


6,628

6,965


Cash and cash equivalents from discontinued operations


-


5,885

-

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

 

Notes

(i)    The adjusting items to profit before tax included within other items are adjustments in respect of non-cash items together with operational interest receipts and payments, dividend receipts and tax paid.

(ii)   Net cash flows from other investing activities include amounts paid for distribution rights and cash flows arising from the acquisitions and disposals of businesses. 

(iii)  Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group (including both continuing and discontinued operations in 2019) are analysed below:

 



Cash movements $m


Non-cash movements $m



Balance at

beginning

of period

Issue

 of debt

Redemption

 of debt


Foreign

exchange

movement

Demerger of

UK and Europe

operations

Other

 movements

Balance

at end

of period


30 Jun 2020

5,594

982

-


(84)

-

7

6,499


30 Jun 2019

9,761

-

(504)


(6)

219

-

9,470


31 Dec 2019

9,761

367

(504)


116

(4,161)

15

5,594

 

(iv)    Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019. The half year and full year 2019 cash flows shown above are presented excluding any transactions between continuing and discontinued operations.

 

NOTES TO PRIMARY STATEMENTS

 

A    Basis of preparation

A1  Basis of preparation and exchange rates

 

These condensed consolidated interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). The Group's policy for preparing this interim financial information is to use the accounting policies adopted by the Group in its last consolidated financial statements, as updated by any changes in accounting policies it intends to make in its next consolidated financial statements as a result of new or amended IFRS and other policy improvements. EU-endorsed IFRS may differ from IFRSs issued by the IASB if, at any point in time, new or amended IFRS have not been endorsed by the EU. At 30 June 2020, there were no unendorsed standards effective for the period ended 30 June 2020 which impacted the condensed consolidated financial statements of the Group, and there were no differences between IFRS endorsed by the EU and IFRS issued by the IASB in terms of their application to the Group.

 

The IFRS basis results for half year 2020 and half year 2019 are unaudited. The 2019 full year IFRS basis results have been derived from the 2019 statutory accounts. The auditors have reported on the 2019 statutory accounts which have been delivered to the Registrar of Companies. The auditors' report was: (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

Going concern basis of accounting

Prudential aims to meet the savings and investment needs of its customers, which by their very nature can often be over a timeframe of many years. The Group as a whole and each of its life assurance operations are subject to extensive regulation and supervision, which are designed primarily to reinforce the Group's management of its long-term solvency, liquidity and viability to ensure that it can continue to meet obligations to policyholders.

 

Risk management is core to the Group's activities. In assessing going concern, the Directors took account of the Group's principal risks and the mitigations available to it which are described in the Group Chief Risk and Compliance Officer's report.

 

After making sufficient enquiries the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that these interim financial statements are approved. No material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern have been identified.

 

In half year 2020, the Covid-19 pandemic has impacted the global economy and the Group's individual markets to varying degrees and at different periods, and the full extent of the longer-term impacts are currently uncertain. The Directors have made the assessment of going concern taking into account both the Group's current performance and the Group's outlook. In particular, the Directors considered the adequacy of the Group's solvency, liquidity and financial performance using revised projections from the previous business plan that reflected the shift in market conditions as a result of Covid-19 together with the impact of targeted related management actions.

 

In terms of liquidity, at 30 June 2020, the Group had central cash and short-term investment balances of $1.9 billion as set out in the Group's Chief Financial Officer and Chief Operating Officer's report. This amount has been subject to stress testing that assumes the closure of short-term debt markets, as well as additional calls on liquidity by the business units. This stress testing allows for the fact that the Group has undrawn liquidity facilities of $2.6 billion available to it.

 

To factor in the uncertainty of the longer-term impacts of Covid-19, a number of stress scenarios have been assessed, for example scenarios of different durations of lockdown and the associated recovery back to a normalised level of sales, with stress scenarios assuming a significant overall contraction in sales and worsened market conditions compared to 2019.

 

The Directors noted the effect of a number of stresses on the Group's capital position, including those set out in note I(i) Group capital position within Additional Financial Information. The Group was considered to have sufficient regulatory capital to meet stressed changes in market conditions that are severe but plausible. For the Group's US operations, the beneficial impact on the local RBC solvency position of the equity investment by Athene Life Re Ltd in July 2020 (as discussed in note D3) was also factored into the assessment.

 

The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these interim financial statements for the period ended 30 June 2020.

 

Exchange rates

The exchange rates applied for balances and transactions in the presentation currency of the Group, US dollars ($), and other currencies were:

 

$: Local currency

Closing rate as at period end


Average rate for the period to date


30 Jun 2020

30 Jun 2019

31 Dec 2019


Half year 2020

Half year 2019

Full year 2019

China

7.07

6.87

6.97


7.03

6.78

6.91

Hong Kong

7.75

7.81

7.79


7.76

7.84

7.84

Indonesia

14,285.00

14,127.50

13,882.50


14,574.24

14,192.79

14,140.84

Malaysia

4.29

4.13

4.09


4.25

4.12

4.14

Singapore

1.40

1.35

1.34


1.40

1.36

1.36

Thailand

30.87

30.69

29.75


31.62

31.61

31.05

UK

0.81

0.79

0.75


0.79

0.77

0.78

Vietnam

23,206.00

23,305.00

23,172.50


23,303.21

23,253.04

23,227.64

 

Certain notes to the financial statements present half year 2019 comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the condensed consolidated financial statements. AER are actual historical exchange rates for the specific accounting period, being the average rates over the period for the income statement and the closing rates at the balance sheet date for the statement of financial position. CER results are calculated by translating prior period results using the current period foreign exchange rate, ie current period average rates for the income statement and current period closing rates for the statement of financial position.

 

The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements for the year ended 31 December 2019, as disclosed in the 2019 statutory accounts, aside from those discussed in note A2 below.

 

A2  New accounting pronouncements in 2020

 

The IASB has issued the following new accounting pronouncements to be effective from 1 January 2020:

 

-       Amendments to IAS 1 and IAS 8 'Definition of Material';

-       Amendment to IFRS 3 'Business Combinations'; and

-       Amendments to IFRS 9, IAS 39 and IFRS 7 'Interest Rate Benchmark Reform'.

 

The adoption of these pronouncements have had no significant impact on the Group financial statements.

 

B    EARNINGS PERFORMANCE

 

B1  Analysis of performance by segment

 

B1.1  Segment results

 





2020 $m


2019 $m


2020 vs 2019 %


2019 $m




Note

Half year


AER

Half year

CER

Half year


AER

Half year

CER

Half year


AER

Full year







note (i)

note (i)


note (i)

note (i)


note (i)

Continuing operations:











Asia











Insurance operations


1,590


1,417

1,396


12%

14%


2,993

Asset management


143


133

130


8%

10%


283

Total Asia


1,733


1,550

1,526


12%

14%


3,276

US











Insurance operations (Jackson)


1,256


1,556

1,556


(19)%

(19)%


3,038

Asset management


10


16

16


(38)%

(38)%


32

Total US


1,266


1,572

1,572


(19)%

(19)%


3,070

Total segment profit


2,999


3,122

3,098


(4)%

(3)%


6,346

Other income and expenditure:












Investment return and other income


18


32

31


(44)%

(42)%


50


Interest payable on core structural borrowings


(163)


(293)

(286)


44%

43%


(516)


Corporate expenditurenote (ii)


(205)


(212)

(211)


3%

3%


(460)

Total other income and expenditure


(350)


(473)

(466)


26%

25%


(926)

Restructuring and IFRS 17 implementation costs


(108)


(30)

(28)


(260)%

(286)%


(110)

Adjusted operating profit

B1.3

2,541


2,619

2,604


(3)%

(2)%


5,310

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

B1.2

(2,706)


(1,455)

(1,445)


(86)%

(87)%


(3,203)

Amortisation of acquisition accounting adjustmentsnote (iii)


(18)


(22)

(21)


18%

14%


(43)

Gain (loss) attaching to corporate transactions

D1

846


17

20


n/a

n/a


(142)

Profit before tax attributable to shareholders


663


1,159

1,158


(43)%

(43)%


1,922

Tax (charge) credit attributable to shareholders' returns

B4

(129)


(1)

1


n/a

n/a


31

Profit for the period from continuing operations


534


1,158

1,159


(54)%

(54)%


1,953

Discontinued UK and Europe operations' profit after tax


-


835

813


n/a

n/a


1,319

Re-measurement of discontinued operations on demerger


-


-

-


n/a

n/a


188

Cumulative exchange loss recycled from other comprehensive income


-


-

-


n/a

n/a


(2,668)

Profit (loss) for the period from discontinued operations


-


835

813


n/a

n/a


(1,161)

Profit for the period


534


1,993

1,972


(73)%

(73)%


792












Attributable to:











Equity holders of the Company












From continuing operations


512


1,152

1,153


(56)%

(56)%


1,944


From discontinued operations


-


835

813


n/a

n/a


(1,161)

Non-controlling interests from continuing operations


22


6

6


267%

267%


9





534


1,993

1,972


(73)%

(73)%


792














Basic earnings per share (in cents)


2020


2019


2020 vs 2019 %


2019




Note

AER

Half year


AER

Half year

CER

Half year


AER

Half year

CER

Half year


AER

Full year




B5

note (i)


note (i)

note (i)


note (i)

note (i)


note (i)

Based on adjusted operating profit, net of tax, from continuing operationsnote (iv)


79.0¢


84.5¢

84.3¢


(7)%

(6)%


175.0¢

Based on profit for the period from continuing operations


19.7 ¢


44.6¢

44.8¢


(56)%

(56)%


75.1¢

Based on profit (loss) for the period from discontinued operations


-


32.3¢

31.5¢


n/a

n/a


(44.8)¢

 

Notes

(i)    For definitions of AER and CER refer to note A1.

(ii)   Corporate expenditure as shown above is primarily for head office functions in London and Hong Kong.

(iii)  Amortisation of acquisition accounting adjustments principally relate to the REALIC business of Jackson which was acquired in 2012.

(iv)  Tax charges have been reflected as operating and non-operating in the same way as for the pre-tax items. Further details on tax charges are provided in note B4.

 

B1.2  Short-term fluctuations in investment returns on shareholder-backed business

 



2020 $m


2019 $m



Half year


Half year

Full year

Asia operationsnote (i)

(448)


544

657

US operationsnote (ii)

(2,288)


(1,968)

(3,757)

Other operations

30


(31)

(103)

Total

(2,706)


(1,455)

(3,203)

 

(i)    Asia operations

In Asia, the negative short-term fluctuations of $(448) million (half year 2019: positive $544 million; full year 2019: positive $657 million) reflect the net value movements on shareholders' assets and policyholder liabilities arising from market movements in the period. In half year 2020 falling interest rates in certain parts of Asia led to lower discount rates on policyholder liabilities under the local reserving basis applied, which were not fully offset by unrealised bond gains in the period. This together with the effect of falling equity markets led to the overall negative short-term investment fluctuations in Asia.

 

(ii)   US operations

The short-term fluctuations in investment returns in the US are reported net of the related charge for amortisation of deferred acquisition costs (DAC) of $(50) million as shown in note C4.2 (half year 2019: credit of $616 million; full year 2019: credit of $1,248 million) and comprise amounts in respect of the following items:

 



2020 $m 


2019 $m



Half year


Half year

Full year

Net equity hedge resultnote (a)

(4,378)


(2,529)

(4,582)

Other than equity-related derivativesnote (b)

2,114


560

678

Debt securitiesnote (c)

175


14

156

Equity-type investments: actual less longer-term return

(128)


(9)

18

Other items

(71)


(4)

(27)

Total net of related DAC amortisation

(2,288)


(1,968)

(3,757)

 

Notes

(a)   The purpose of the inclusion of net equity hedge result in short-term fluctuations in investment returns is to segregate the amount included in pre-tax profit that relates to the accounting effect of market movements on both the value of guarantees in Jackson's products including variable annuities and on the related derivatives used to manage the exposures inherent in these guarantees. The level of fees recognised in non-operating profit is determined by reference to that allowed for within the reserving basis. The variable annuity guarantees are valued in accordance with either Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures or ASC Topic 944, Financial Services - Insurance depending on the type of guarantee. Both approaches require an entity to determine the total fee ('the fee assessment') that is expected to fund future projected benefit payments arising using the assumptions applicable for that method. The method under ASC Topic 820 requires this fee assessment to be fixed at the time of issue. As the fees included within the initial fee assessment are earned, they are included in non-operating profit to match the corresponding movement in the guarantee liability. Other guarantee fees are included in operating profit, which in half year 2020 was $350 million (half year 2019: $341 million; full year 2019: $699 million), pre-tax and net of related DAC amortisation. As the Group applies US GAAP for the measured value of the product guarantees, the net equity hedge result also includes asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ.

 

The net equity hedge result therefore includes significant accounting mismatches and other factors that do not represent the economic result. These other factors include:

 

-   The variable annuity guarantees and fixed indexed annuity embedded options being only partially fair valued under 'grandfathered' US GAAP;

-   The interest rate exposure being managed through the other than equity-related derivative programme explained in note (b) below; and

-   Jackson's management of its economic exposures for a number of other factors that are treated differently in the accounting frameworks such as future fees and assumed volatility levels.

 

The net equity hedge result can be summarised as follows:

 



2020 $m


2019 $m



Half year


Half year

Full year


Fair value movements on equity hedge instruments

(301)


(3,190)

(5,314)


Accounting value movements on the variable and fixed indexed annuity guarantee liabilities*

(4,503)


294

(22)


Fee assessments net of claim payments

426


367

754


Total net of related DAC amortisation

(4,378)


(2,529)

(4,582)

* The value movement on the variable annuity guarantees and fixed indexed annuity options is discussed in the Group Chief Financial Officer and Chief Operating Officer's report.

 

(b)  The fluctuations for other than equity-related derivatives comprise the net effect of:

 

-   Fair value movements on free-standing, other than equity-related derivatives;

-   Fair value movements on the Guaranteed Minimum Income Benefit (GMIB) reinsurance asset that are not matched by movements in the underlying GMIB liability, which is not fair valued; and

-   Related amortisation of DAC.

 

The free-standing, other than equity-related derivatives, are held to manage interest rate exposures and durations within the general account and the variable annuity guarantees and fixed indexed annuity embedded options described in note (a) above. Accounting mismatches arise because of differences between the measurement basis and presentation of the derivatives, which are fair valued with movements recorded in the income statement, and the exposures they are intended to manage.

 

(c)   Short-term fluctuations related to debt securities is analysed below:

 




2020 $m 


2019 $m




Half year 


Half year

Full year


Credits (charges) in the period:







Losses on sales of impaired and deteriorating bonds

(148)


(24)

(28)



Bond write-downs

(31)


(1)

(15)



Recoveries/reversals

1


1

1



Total credits (charges) in the period

(178)


(24)

(42)


Risk margin allowance deducted from adjusted operating profit*

55


54

109




(123)


30

67


Interest-related realised gains (losses):







Gains (losses) arising in the period

369


42

220



Amortisation of gains and losses arising in current and prior periods to adjusted operating profit

(67)


(59)

(129)




302


(17)

91


Related amortisation of deferred acquisition costs

(4)


1

(2)


Total short-term fluctuations related to debt securities net of related DAC amortisation

175


14

156

* The debt securities of Jackson are held in the general account of the business. Realised gains and losses are recorded in the income statement with normalised returns included in adjusted operating profit with variations from period to period included in the short-term fluctuations category. The risk margin reserve charge for longer-term credit-related losses included in adjusted operating profit of Jackson for half year 2020 is based on an average annual risk margin reserve of 18 basis points (half year 2019: 18 basis points; full year 2019: 17 basis points) on average book values of $62.3 billion (half year 2019: $60.0 billion; full year 2019: $62.6 billion) as shown below:

 

Moody's rating category (or equivalent under NAIC ratings of mortgage-backed securities)

 



Half year 2020


Half year 2019


Full year 2019



 Average

 book

 value

RMR

Annual expected loss


Average

 book

 value

RMR

Annual expected loss


Average

 book

 value

RMR

Annual expected loss



$m

%

$m


$m

%

$m


$m

%

$m


A3 or higher

39,118

0.10

(40)


34,318

0.10

(36)


38,811

0.10

(38)


Baa1, 2 or 3

21,521

0.24

(51)


24,385

0.23

(55)


22,365

0.24

(53)


Ba1, 2 or 3

1,383

0.74

(10)


1,008

0.93

(10)


1,094

0.85

(9)


B1, 2 or 3

200

2.39

(5)


246

2.62

(6)


223

2.56

(6)


Below B3

108

3.36

(4)


37

3.42

(1)


75

3.39

(3)


Total

62,330

0.18

(110)


59,994

0.18

(108)


62,568

0.17

(109)















Related amortisation of deferred acquisition costs

20




18




19


Risk margin reserve charge to adjusted operating profit for longer-term credit-related losses


(90)




(90)




(90)

 

†    Excluding the realised gains that are part of the gain arising in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.

 

In addition to the accounting for realised gains and losses described above for Jackson general account debt securities, included within the statement of other comprehensive income is a pre-tax gain of $2,253 million for net unrealised gains arising during the period on debt securities classified as available-for-sale net of related amortisation of deferred acquisition costs (half year 2019: gain of $2,826 million; full year 2019: gain of $3,392 million for net unrealised losses), together with a pre-tax loss of $(2,282) million for the recycling of the gains on transfer of debt securities to Athene (see note D1) to the income statement, net of related amortisation of deferred acquisition costs. Temporary market value movements do not reflect defaults or impairments. Additional details of the movement in the value of the Jackson portfolio are included in note C1.1.

 

B1.3  Determining operating segments and performance measure of operating segments


Operating segments

The Group's operating segments for financial reporting purposes are defined and presented in accordance with IFRS 8 'Operating Segments' on the basis of the management reporting structure and its financial management information.

 

Under the Group's management and reporting structure, its chief operating decision maker is the Group Executive Committee (GEC). In the management structure, responsibility is delegated to the Chief Executive Officers of the Group's Asia and US business units for the day-to-day management of their business units (within the framework set out in the Group Governance Manual). Financial management information used by the GEC aligns with these business segments. These operating segments derive revenue from both insurance and asset management activities.

 

Operations which do not form part of any business unit are reported as 'Unallocated to a segment'. These include head office costs in London and Hong Kong. The Group's Africa operations and treasury function do not form part of any operating segment under the structure, and their assets and liabilities and profit or loss before tax are not material to the overall financial position of the Group. The Group's treasury function and Africa operations are therefore also reported as 'Unallocated to a segment'.

 

Performance measure    

The performance measure of operating segments utilised by the Company is adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit), as described below. This measurement basis distinguishes adjusted operating profit from other constituents of total profit or loss for the period as follows:

 

-    Short-term fluctuations in investment returns on shareholder-backed business. This includes the impact of short-term market effects on the carrying value of Jackson's guarantee liabilities and related derivatives as explained below;

-    Amortisation of acquisition accounting adjustments arising on the purchase of business. This comprises principally the charge for the adjustments arising on the purchase of REALIC in 2012; and

-    Gain or loss on corporate transactions, such as the effect of the Jackson's reinsurance arrangement with Athene Life Re Ltd in half year 2020, disposals undertaken and costs connected to the demerger of M&G plc from Prudential plc in 2019.

 

The determination of adjusted operating profit for investment and liability movements is as described in note B1.3 of the Group's consolidated financial statements for the year ended 31 December 2019.

 

For Group debt securities at 30 June 2020 held by the insurance operations in Asia and the US, the level of unamortised interest-related realised gains and losses related to previously sold bonds for the Group was a net gain of $1,301 million (30 June 2019: net gain of $738 million; 31 December 2019: net gain of $916 million).

 

For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returns for income and capital having regard to past performance, current trends and future expectations. Different rates apply to different categories of equity-type securities.

 

-   For Asia insurance operations, investments in equity securities held for non-linked shareholder-backed business amounted to $5,712 million as at 30 June 2020 (30 June 2019: $2,904 million; 31 December 2019: $3,473 million). The longer-term rates of return applied in half year 2020 ranged from 4.6 per cent to 17.6 per cent (30 June 2019: 5.2 per cent to 17.6 per cent; 31 December 2019: 5.0 per cent to 17.6 per cent) with the rates applied varying by business unit.

 

-   For US insurance operations, as at 30 June 2020, the equity-type securities for non-separate account operations amounted to $1,854 million (30 June 2019: $1,499 million; 31 December 2019: $1,481 million). For these operations, the longer-term rates of return for income and capital applied in 2020 and 2019, which reflect the combination of the average risk-free rates over the period and appropriate risk premiums are as follows:

 



2020


2019



Half year


Half year

Full year


Equity-type securities such as common and preferred stock and portfolio holdings in mutual funds

4.9% to 5.8%


6.0% to 6.7%

5.5% to 6.7%


Other equity-type securities such as investments in limited partnerships and private equity funds

6.9% to 7.8%


8.0% to 8.7%

7.5% to 8.7%

 

B2  Acquisition costs and other expenditure

 


2020 $m


2019 $m


Half year


Half year

Full year

Acquisition costs incurred for insurance policies

(1,433)


(2,109)

(4,177)

Acquisition costs deferrednote C4.2

614


625

1,422

Amortisation of acquisition costsnote (i)

(470)


376

694

Recoveries for expenses associated with Jackson's business ceded to Athenenote (ii)

1,231


-

-

Administration costs and other expenditurenote (iii)

(2,584)


(2,291)

(5,019)

Movements in amounts attributable to external unit holders

of consolidated investment funds

(390)


(109)

(203)

Total acquisition costs and other expenditure

(3,032)


(3,508)

(7,283)

 

Notes

(i)    The charge of $(470) million in half year 2020 includes $(313) million arising in the US which includes $(764) million for the write-off of the deferred acquisition costs held for the in-force fixed and fixed indexed annuity liabilities reinsured to Athene. Offsetting this amount is a credit of $814 million (half year 2019: $616 million; full year 2019: $1,248 million) recorded in non-operating profit largely as a result of the losses arising from market effects on variable annuity guarantee liabilities and associated hedging.

(ii)   As part of the reinsurance transaction with Athene Life Re Ltd discussed in note D1, Jackson received $1,231 million of ceding commission as a recovery for past acquisition expenses associated with the business ceded.

(iii)  Included in total administration costs and other expenditure is depreciation of property, plant and equipment of $(109) million (half year 2019: $(107) million; full year 2019: $(224) million), of which $(72) million (half year 2019: $(66) million; full year 2019: $(141) million) relates to the right-of-use assets recognised under IFRS 16. 

 

B3   Additional segmental analysis of revenue

 



Half year 2020 $m



Asia

US

Total

 segment

Unallocated

to a

segment

Group

total

Gross premiums earned

10,890

8,892

19,782

60

19,842

Outward reinsurance premiumsnote (i)

50

(30,195)

(30,145)

(4)

(30,149)

Earned premiums, net of reinsurance

10,940

(21,303)

(10,363)

56

(10,307)

Other incomenote (ii)

285

28

313

20

333

Total external revenue

11,225

(21,275)

(10,050)

76

(9,974)

Intra-group revenue

-

17

17

(17)

-

Interest income

883

1,283

2,166

22

2,188

Other investment return

3,235

(1,575)

1,660

62

1,722

Total revenue, net of reinsurance

15,343

(21,550)

(6,207)

143

(6,064)

 



Half year 2019 $m



Asia

US

Total

segment

Unallocated

to a

segment

Group

total

Gross premiums earned

11,458

9,588

21,046

35

21,081

Outward reinsurance premiums

(499)

(170)

(669)

(4)

(673)

Earned premiums, net of reinsurance

10,959

9,418

20,377

31

20,408

Other incomenote (ii)

228

14

242

16

258

Total external revenue

11,187

9,432

20,619

47

20,666

Intra-group revenue

21

31

52

(52)

-

Interest income

805

1,460

2,265

27

2,292

Other investment return

8,826

20,732

29,558

23

29,581

Total revenue, net of reinsurance

20,839

31,655

52,494

45

52,539

 



Full year 2019 $m



Asia

US

Total

 segment

Unallocated

to a

segment

Group

total

Gross premiums earned

23,757

21,209

44,966

98

45,064

Outward reinsurance premiums

(1,108)

(467)

(1,575)

(8)

(1,583)

Earned premiums, net of reinsurance

22,649

20,742

43,391

90

43,481

Other incomenote (ii)

548

61

609

91

700

Total external revenue

23,197

20,803

44,000

181

44,181

Intra-group revenue

-

34

34

(34)

-

Interest income

1,569

2,971

4,540

67

4,607

Other investment return

13,406

31,623

45,029

(81)

44,948

Total revenue, net of reinsurance

38,172

55,431

93,603

133

93,736

 

Notes

(i)    In half year 2020, outward reinsurance premiums include $(30,150) million paid during the period in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd. See note D1 for further details. Also included in outward reinsurance premiums for half year 2020 is a credit of $542 million for the recapture of previously reinsured business in Asia.

(ii)   Other income comprises income from external customers and consists primarily of revenue from the Group's asset management business of $261 million (half year 2019: $198 million; full year 2019: $453 million). The remaining other income consists primarily of policy fee revenue from external customers.

 

B4  Tax charge

 

B4.1  Total tax charge by nature

The total tax charge in the income statement is as follows:

 



2020 $m


2019 $m

Tax charge

Current

 tax

Deferred

 tax

Half year

Total


Half year

Total

Full year

Total

Attributable to shareholders:








Asia operations

(103)

(127)

(230)


(244)

(468)


US operations

(70)

183

113


143

345


Other operations

(16)

4

(12)


100

154

Tax (charge) credit attributable to shareholders' returns

(189)

60

(129)


(1)

31

Attributable to policyholders:








Asia operations

(69)

3

(66)


(285)

(365)

Total tax (charge) credit

(258)

63

(195)


(286)

(334)

 

The principal reason for the increase in the tax charge attributable to shareholders' returns is the losses arising in Other operations where, following the demerger of M&G plc, it is unlikely that relief will be available in future periods.

 

The principal reason for the decrease in the tax charge attributable to policyholders' returns reflects the reduction in deferred tax liabilities in Singapore following the clarification of tax filing requirements.

 

B4.2  Reconciliation of shareholder effective tax rate

In the reconciliation below, the expected tax rates reflect the corporation tax rates that are expected to apply to the taxable profit or loss of the relevant business. Where there are profits or losses of more than one jurisdiction, the expected tax rates reflect the corporation tax rates weighted by reference to the amount of profit or loss contributing to the aggregate business result.

 





2020




2019






Half year



Half year


Full year




Asia

operations

US

operations

Other

operations

Total

attributable to

 shareholders

Percentage

 impact

on ETR


Total

attributable to

 shareholders

Percentage

impact

on ETR


Total

attributable to

 shareholders

Percentage

impact

on ETR




$m

$m

$m

$m

%


$m

%


$m

%






note (iv)









Adjusted operating profit (loss)

1,733

1,266

(458)

2,541



2,619



5,310


Non-operating (loss) profit

(450)

(1,458)

30

(1,878)



(1,460)



(3,388)


Profit (loss) before tax

1,283

(192)

(428)

663



1,159



1,922


Expected tax rate:

20%

21%

18%

21%









Tax at the expected rate

257

(40)

(77)

140

21.1%


232

20.0%


393

20.4%


Effects of recurring tax reconciliation items:














Income not taxable or taxable at concessionary rates

(31)

(14)

 -

(45)

(6.8)%


(70)

(6.0)%


(126)

(6.6)%



Deductions not allowable for tax purposes

12

6

3

21

3.2%


26

2.2%


55

2.9%



Items related to taxation of life insurance businessesnote (i)

7

(62)

 -

(55)

(8.3)%


(179)

(15.4)%


(317)

(16.5)%



Deferred tax adjustments

3

 -

 -

3

0.5%


(12)

(1.0)%


(33)

(1.7)%



Unrecognised tax lossesnote (ii)

 -

 -

72

72

10.9%


 -

-


46

2.4%



Effect of results of joint ventures and associates

(31)

 -

(6)

(37)

(5.6)%


(35)

(3.0)%


(100)

(5.2)%



Irrecoverable withholding taxes

 -

 -

26

26

3.9%


27

2.3%


59

3.1%



Other

3

13

(6)

10

1.5%


5

0.4%


13

0.7%



Total

(37)

(57)

89

(5)

(0.7)%


(238)

(20.5)%


(403)

(20.9)%


Effects of non-recurring tax reconciliation items:














Adjustments to tax charge in relation to prior years

21

 -

 -

21

3.1%


20

1.7%


(67)

(3.5)%



Movements in provisions for open tax mattersnote (iii)

(12)

 -

 -

(12)

(1.8)%


8

0.7%


(1)

0.0%



Demerger related activities

 -

 -

 -

 -

-


4

0.4%


76

4.1%



Impact of carry back of US losses

 -

(16)

 -

(16)

(2.4)%


 -

-


 -

-



Impact of changes in local statutory tax rates

1

 -

 -

1

0.2%


 -

-


 -

-



Adjustments in relation to business disposals

 -

 -

 -

 -

-


(25)

(2.2)%


(29)

(1.4)%



Total

10

(16)

 -

(6)

(0.9)%


7

0.6%


(21)

(1.1)%

Total actual tax charge (credit)

230

(113)

12

129

19.5%


1

0.1%


(31)

(1.6)%

Analysed into:













Tax on adjusted operating profit (loss)

260

195

12

467



430



773



Tax on non-operating (loss) profit

(30)

(308)

 -

(338)



(429)



(804)


Actual tax rate on:













Adjusted operating profit (loss):














Including non-recurring tax reconciling items

15%

15%

(3)%

18%



16%



15%




Excluding non-recurring tax reconciling items

14%

15%

(3)%

18%



16%



15%



Total profit (loss)

18%

59%

(3)%

19%



0%



(2)%


 

Notes

(i)    The $62 million reconciling item in US operations reflects the impact of the dividend received deduction on the taxation of profits from variable annuity business. The $7 million adverse reconciling item in Asia operations reflects non tax deductible investment related marked-to-market losses.

(ii)   The $72 million adverse reconciling item in unrecognised tax losses reflects losses arising where it is unlikely that relief for the losses will be available in future periods.

(iii)  The statement of financial position contains the following provisions in relation to open tax matters.




Half year 2020 $m


At beginning of period

198



Movements in the current period included in tax charge attributable to shareholders

(12)



Provisions utilised in the period

(34)



Other movements*

(3)


At end of period

149

* Other movements include interest arising on open tax matters and amounts included in the Group's share of profits from joint ventures and associates, net of related tax.

 

(iv)  Half year and full year 2019 actual tax rate of the relevant business operations are shown below:

 




Half year 2019 %


Full year 2019 %




Asia

operations

US

operations

Other

operations

Total

attributable to

shareholders


Asia

operations

US

operations

Other

operations

Total

attributable to

shareholders


Tax rate on adjusted operating profit (loss)

14%

17%

10%

16%


13%

14%

10%

15%


Tax rate on profit (loss) before tax

10%

35%

13%

0%


11%

48%

10%

(2)%

 

B5  Earnings per share













Half year 2020




Before

 tax

Tax    

Non-controlling interests

Net of tax

and non-

controlling interests

Basic

earnings

 per share

Diluted

 earnings

 per share




$m

$m

$m

$m

cents

cents

Based on adjusted operating profit


2,541

(467)

(22)

2,052

79.0¢

79.0¢

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


(2,706)

513

-

(2,193)

(84.4)¢

(84.4)¢

Amortisation of acquisition accounting adjustments


(18)

3

-

(15)

(0.6)¢

(0.6)¢

Gain (loss) attaching to corporate transactions


846

(178)

-

668

25.7¢

25.7¢

Based on profit for the period


663

(129)

(22)

512

19.7¢

19.7¢













Half year 2019




Before

 tax

Tax    

Non-controlling interests

Net of tax

and non-

controlling interests

Basic

earnings

 per share

Diluted

 earnings

 per share




$m

$m

$m

$m

cents

cents

Based on adjusted operating profit


2,619

(430)

(6)

2,183

84.5¢

84.5¢

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


(1,455)

407

-

(1,048)

(40.6)¢

(40.6)¢

Amortisation of acquisition accounting adjustments


(22)

4

-

(18)

(0.7)¢

(0.7)¢

Gain (loss) attaching to corporate transactions


17

18

-

35

1.4¢

1.4¢

Based on profit for the period from continuing operations


1,159

(1)

(6)

1,152

44.6¢

44.6¢

Based on profit for the period from discontinued operations





835

32.3¢

32.3¢

Based on profit for the period





1,987

76.9¢

76.9¢

 




Full year 2019




Before

 tax

Tax    

Non-controlling interests

Net of tax

and non-

controlling interests

Basic

earnings

 per share 

Diluted

 earnings

 per share




$m 

$m 

$m 

$m 

cents

cents

Based on adjusted operating profit


5,310

(773)

(9)

4,528

175.0¢

175.0¢

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


(3,203)

772

-

(2,431)

(94.0)¢

(94.0)¢

Amortisation of acquisition accounting adjustments


(43)

8

-

(35)

(1.3)¢

(1.3)¢

Gain (loss) attaching to corporate transactions


(142)

24

-

(118)

(4.6)¢

(4.6)¢

Based on profit for the year from continuing operations


1,922

31

(9)

1,944

75.1¢

75.1¢

Based on loss for the year from discontinued operations





(1,161)

(44.8)¢

(44.8)¢

Based on profit for the year





783

30.3¢

30.3¢

 

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

 

The weighted average number of shares for calculating earnings per share, which excludes those held in employee share trusts and consolidated investment funds, is set out as below:

 



Number of shares (in millions)



2020


2019

Weighted average number of shares for calculation of:

Half year


Half year

Full year

Basic earnings per share

2,596


2,583

2,587

Shares under option at end of period

2


4

4

Shares that would have been issued at fair value on assumed option price

(2)


(3)

(4)

Diluted earnings per share

2,596


2,584

2,587

 

 

B6        Dividends

 



Half year 2020


Half year 2019


Full year 2019


Cents per share

$m


Cents per share

$m


Cents per share

$m

Dividends relating to reporting period:










First interim ordinary dividend

5.37¢

140


20.29¢

526


20.29¢

528


Second interim ordinary dividend

-

-


-

-


25.97¢

675

Total

5.37¢

140


20.29¢

526


46.26¢

1,203

Dividends paid in reporting period:










Current year first interim ordinary dividend

-

-


-

-


20.29¢

526


Second interim ordinary dividend for prior year

25.97¢

674


42.89¢

1,108


42.89¢

1,108

Total

25.97¢

674


42.89¢

1,108


63.18¢

1,634

 

In addition to the dividends shown in the table above, on 21 October 2019, following approval by the Group's shareholders, Prudential plc demerged its UK and Europe operations (M&G plc) via a dividend in specie of $7,379 million.

 

Dividend per share

The 2020 first interim dividend of 5.37 cents per ordinary share will be paid on 28 September 2020 to shareholders in the UK on the register at 6.00pm BST and to shareholders on the Hong Kong branch register at 4.30pm Hong Kong time on 21 August 2020 (Record Date). Shareholders holding shares on the UK or Hong Kong share registers will continue to receive their dividend payments in either pounds sterling or Hong Kong dollars respectively, unless they elect otherwise. Shareholders holding shares on the UK or Hong Kong registers may elect to receive dividend payments in US dollars. Elections must be made through the relevant UK or Hong Kong share registrar on or before 7 September and 11 September 2020 respectively. The corresponding amount per share in pounds sterling and Hong Kong dollars is expected to be announced on or about 17 September 2020.The US dollar to pound sterling and Hong Kong dollar conversion rates will be determined by the actual rates achieved by Prudential buying those currencies during the two working days preceding the subsequent announcement. Holders of US American Depositary Receipts (US Shareholders) will be paid their dividends in US dollars on or about 28 September 2020. The 2020 first interim dividend will be paid on or about 5 October 2020 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 exchange rate at which the dividend payable to the SG Shareholders will be translated from US dollars into Singapore dollars, will be determined by CDP.

 

Shareholders on the UK register are eligible to participate in a Dividend Reinvestment Plan.

 

C    FINANCIAL POSITION

 

C1  Group assets and liabilities by business type

 

The analysis below is structured to show the investments and other assets and liabilities of the Group by reference to the differing degrees of policyholder and shareholder economic interest of the different types of business.

 

The Group has streamlined its disclosures relating to the investments, other assets and liabilities of the Group in these condensed consolidated financial statements, including combining various disclosures into a single section within this note and further analysis of the categories of debt securities. The 2019 comparative information, in particular that relating to investments, has been re-presented from previously published information to conform to the current period's format and the altered approach to credit ratings analysis described below.

 

Debt securities are analysed below according to the issuing government for sovereign debt and to credit ratings for the rest of the securities.

 

In 2020, to align more closely with the internal risk management analysis, the Group altered the compilation of its credit ratings analysis to use the middle of the Standard & Poor's, Moody's and Fitch ratings, where available. Where ratings are not available from these rating agencies, NAIC ratings (for the US), local external rating agencies' ratings and lastly internal ratings have been used. Securities with none of the ratings listed above are classified as unrated and included under the 'below BBB- and unrated' category. The total securities (excluding sovereign debt) that were unrated at 30 June 2020 were $788 million (30 June 2019: $794 million; 31 December 2019: $648 million). Previously, Standard & Poor's ratings were used where available and if not, Moody's and then Fitch were used as alternatives. Additionally, government debt is shown separately from the rating breakdowns in order to provide a more focused view of the credit portfolio.

 

In the table below, AAA is the highest possible rating. Investment grade financial assets are classified within the range of AAA to BBB- ratings. Financial assets which fall outside this range are classified as below BBB-.

 




30 Jun 2020 $m




Asia insurance











With

-profits

business

Unit-linked

assets and

liabilities

Other

business

Asia

Asset

manage-

ment

Elimina-

tions

Total

Asia

US

Unallocated

to a segment

Elimination

of intra-group

debtors

and

creditors

Group

total




note (i)






note (ii)




Debt securitiesnote (ix), note C1.1











Sovereign debt












Indonesia

381

580

455

-

-

1,416

-

-

-

1,416


Singapore

2,788

525

904

88

-

4,305

-

-

-

4,305


Thailand

-

-

1,567

16

-

1,583

-

-

-

1,583


United Kingdom

-

7

-

-

-

7

-

154

-

161


United States

24,656

23

2,356

-

-

27,035

5,371

-

-

32,406


Vietnam

-

14

2,789

-

-

2,803

-

-

-

2,803


Other (predominantly Asia)

1,816

687

3,216

13

-

5,732

19

140

-

5,891

Subtotal

29,641

1,836

11,287

117

-

42,881

5,390

294

-

48,565

Other government bonds












AAA

1,464

103

479

-

-

2,046

447

-

-

2,493


AA+ to AA-

353

34

101

-

-

488

519

-

-

1,007


A+ to A-

524

113

226

-

-

863

191

-

-

1,054


BBB+ to BBB-

466

88

248

8

-

810

2

-

-

812


Below BBB- and unrated

104

17

331

-

-

452

-

1

-

453

Subtotal

2,911

355

1,385

8

-

4,659

1,159

1

-

5,819

Corporate bonds












AAA

1,122

270

504

-

-

1,896

265

-

-

2,161


AA+ to AA-

1,575

273

1,712

2

-

3,562

973

-

-

4,535


A+ to A-

6,670

808

4,723

-

-

12,201

11,792

-

-

23,993


BBB+ to BBB-

7,806

1,043

3,389

-

-

12,238

14,036

-

-

26,274


Below BBB- and unrated

2,835

655

945

3

-

4,438

2,046

7

-

6,491

Subtotal

20,008

3,049

11,273

5

-

34,335

29,112

7

-

63,454

Asset-backed securities












AAA

108

16

23

-

-

147

2,227

-

-

2,374


AA+ to AA-

36

6

8

-

-

50

184

-

-

234


A+ to A-

17

-

25

-

-

42

575

-

-

617


BBB+ to BBB-

15

-

10

-

-

25

193

-

-

218


Below BBB- and unrated

6

-

-

-

-

6

175

-

-

181

Subtotal

182

22

66

-

-

270

3,354

-

-

3,624

Total debt securities

52,742

5,262

24,011

130

-

82,145

39,015

302

-

121,462

Loans












Mortgage loansnote C1.2

-

-

158

-

-

158

8,119

-

-

8,277


Policy loans

1,189

-

324

-

-

1,513

4,705

8

-

6,226


Other loans

389

-

18

-

-

407

-

-

-

407

Total loans

1,578

-

500

-

-

2,078

12,824

8

-

14,910

Equity securities and holdings in collective investment schemes












Direct equities

14,493

10,345

1,537

56

-

26,431

263

4

-

26,698


Collective investment schemes

13,455

6,097

4,175

10

-

23,737

36

7

-

23,780


US separate account assetsnote (iii)

-

-

-

-

-

-

184,220

-

-

184,220

Total equity securities and holdings in collective investment schemes

27,948

16,442

5,712

66

-

50,168

184,519

11

-

234,698

Other financial investmentsnote (iv)

991

572

1,817

97

-

3,477

3,827

75

-

7,379

Total financial Investments

83,259

22,276

32,040

293

-

137,868

240,185

396

-

378,449

Investment properties

-

-

7

-

-

7

7

9

-

23

Investments in joint ventures and associates accounted for using the equity method

-

-

1,268

239

-

1,507

-

-

-

1,507

Cash and cash equivalents

913

599

1,242

132

-

2,886

2,493

3,005

-

8,384

Reinsurers' share of insurance contract liabilitiesnote (v)

211

-

8,709

-

-

8,920

35,993

5

-

44,918

Other assetsnote (vi)

1,954

482

8,051

799

(33)

11,253

17,942

3,828

(3,139)

29,884

Total assets 

86,337

23,357

51,317

1,463

(33)

162,441

296,620

7,243

(3,139)

463,165














Shareholders' equity

-

-

10,535

994

-

11,529

8,955

(1,374)

-

19,110

Non-controlling interests

-

-

2

159

-

161

-

36

-

197

Total equity

-

-

10,537

1,153

-

11,690

8,955

(1,338)

-

19,307














Contract liabilities and unallocated surplus of with-profits fundsnote (iii)

76,647

21,376

33,541

-

-

131,564

265,655

217

-

397,436

Core structural borrowings

-

-

-

-

-

-

250

6,249

-

6,499

Operational borrowings

243

15

111

25

-

394

1,212

639

-

2,245

Other liabilitiesnote (vii)

9,447

1,966

7,128

285

(33)

18,793

20,548

1,476

(3,139)

37,678

Total liabilities

86,337

23,357

40,780

310

(33)

150,751

287,665

8,581

(3,139)

443,858

Total equity and liabilities

86,337

23,357

51,317

1,463

(33)

162,441

296,620

7,243

(3,139)

463,165

 




30 Jun 2019 $m




Asia insurance












With

-profits

business

Unit-linked

assets and

liabilities

Other

business

Asia

Asset

manage-

ment

Elimina-

tions

Total

Asia

US

Unallocated

to a segment

Discontinued

operations

Elimination

of intra-group

debtors

and

creditors

Group

total




note (i)






note (ii)





Debt securitiesnote (ix), note C1.1












Sovereign debt













Indonesia

184

516

445

-

-

1,145

-

-

-

-

1,145


Singapore

2,188

376

649

47

-

3,260

-

-

-

-

3,260


Thailand

-

-

1,407

-

-

1,407

-

-

-

-

1,407


United Kingdom

-

6

-

-

-

6

-

1,248

-

-

1,254


United States

16,617

18

2,162

-

-

18,797

6,022

-

-

-

24,819


Vietnam

1

13

2,479

-

-

2,493

-

-

-

-

2,493


Other (predominantly Asia)

2,314

638

2,488

15

-

5,455

9

74

-

-

5,538

Subtotal

21,304

1,567

9,630

62

-

32,563

6,031

1,322

-

-

39,916

Other government bonds













AAA

1,658

44

440

-

-

2,142

966

-

-

-

3,108


AA+ to AA-

176

8

88

-

-

272

493

-

-

-

765


A+ to A-

826

136

319

-

-

1,281

262

-

-

-

1,543


BBB+ to BBB-

316

72

357

-

-

745

4

-

-

-

749


Below BBB- and unrated

22

4

341

-

-

367

-

-

-

-

367

Subtotal

2,998

264

1,545

-

-

4,807

1,725

-

-

-

6,532

Corporate bonds













AAA

700

179

550

-

-

1,429

362

262

-

-

2,053


AA+ to AA-

1,769

527

1,735

-

-

4,031

1,498

169

-

-

5,698


A+ to A-

5,464

536

4,480

-

-

10,480

17,184

182

-

-

27,846


BBB+ to BBB-

5,577

893

2,898

-

-

9,368

23,042

25

-

-

32,435


Below BBB- and unrated

2,669

595

454

-

-

3,718

2,091

6

-

-

5,815

Subtotal

16,179

2,730

10,117

-

-

29,026

44,177

644

-

-

73,847

Asset-backed securities













AAA

231

22

91

-

-

344

3,357

401

-

-

4,102


AA+ to AA-

53

3

16

-

-

72

694

-

-

-

766


A+ to A-

20

-

21

-

-

41

1,024

-

-

-

1,065


BBB+ to BBB-

-

-

-

-

-

-

335

-

-

-

335


Below BBB- and unrated

22

-

7

-

-

29

264

-

-

-

293

Subtotal

326

25

135

-

-

486

5,674

401

-

-

6,561

Total debt securities

40,807

4,586

21,427

62

-

66,882

57,607

2,367

-

-

126,856

Loans













Mortgage loansnote C1.2

-

-

179

-

-

179

9,655

-

-

-

9,834


Policy loans

996

-

296

-

-

1,292

4,692

-

-

-

5,984


Other loans

80

-

19

-

-

99

-

8

-

-

107

Total loans

1,076

-

494

-

-

1,570

14,347

8

-

-

15,925

Equity securities and holdings in collective investment schemes













Direct equities

15,316

13,100

1,386

-

-

29,802

160

65

-

-

30,027


Collective investment schemes

11,890

5,223

1,518

52

-

18,683

128

2

-

-

18,813


US separate account assetsnote (iii)

-

-

-

-

-

-

184,917

-

-

-

184,917

Total equity securities and holdings in collective investment schemes

27,206

18,323

2,904

52

-

48,485

185,205

67

-

-

233,757

Other financial investmentsnote (iv)

511

626

800

93

-

2,030

2,342

301

-

-

4,673

Total financial Investments

69,600

23,535

25,625

207

-

118,967

259,501

2,743

-

-

381,211

Investment properties

-

-

7

-

-

7

7

-

-

-

14

Investments in joint ventures and associates accounted for using the equity method

-

-

1,092

219

-

1,311

-

-

-

-

1,311

Cash and cash equivalents

680

509

1,500

139

-

2,828

1,506

2,294

-

-

6,628

Reinsurers' share of insurance contract liabilitiesnote (v)

105

-

4,502

-

-

4,607

8,308

4

-

-

12,919

Assets held for distributionnote (viii)

-

-

-

-

-

-

-

-

281,427

(3,566)

277,861

Other assetsnote (vi)

3,288

401

6,572

542

(44)

10,759

16,416

3,269

-

(4,443)

26,001

Total assets 

73,673

24,445

39,298

1,107

(44)

138,479

285,738

8,310

281,427

(8,009)

705,945















Shareholders' equity

-

-

9,005

722

-

9,727

8,594

(3,822)

10,538

-

25,037

Non-controlling interests

-

-

2

15

-

17

-

12

-

-

29

Total equity

-

-

9,007

737

-

9,744

8,594

(3,810)

10,538

-

25,066















Contract liabilities and unallocated surplus of with-profits fundsnote (iii)

65,004

22,392

23,470

-

-

110,866

257,279

61

-

(1,526)

366,680

Core structural borrowings

-

-

-

-

-

-

250

9,220

-

-

9,470

Operational borrowings

303

46

112

17

-

478

1,017

926

-

-

2,421

Liabilities held for distributionnote (viii)

-

-

-

-

-

-

-

-

270,889

(1,857)

269,032

Other liabilitiesnote (vii)

8,367

2,007

6,709

353

(45)

17,391

18,598

1,913

-

(4,626)

33,276

Total liabilities

73,674

24,445

30,291

370

(45)

128,735

277,144

12,120

270,889

(8,009)

680,879

Total equity and liabilities

73,674

24,445

39,298

1,107

(45)

138,479

285,738

8,310

281,427

(8,009)

705,945

 




31 Dec 2019 $m




Asia insurance









With

-profits

business

Unit-linked

assets and

liabilities

Other

business

Asia

Asset

manage-

ment

Elimina-

tions

Total

Asia

US

Unallocated

to a segment

Elimination

of intra-group

debtors

and

creditors

Group

total




note (i)






note (ii)




Debt securitiesnote (ix), note C1.1











Sovereign debt












Indonesia

222

610

488

-

-

1,320

-

-

-

1,320


Singapore

3,514

554

708

94

-

4,870

-

-

-

4,870


Thailand

-

-

1,398

19

-

1,417

-

-

-

1,417


United Kingdom

-

7

-

-

-

7

-

615

-

622


United States

20,479

113

2,827

-

-

23,419

6,160

597

-

30,176


Vietnam

1

15

2,900

-

-

2,916

-

-

-

2,916


Other (predominantly Asia)

1,745

665

2,809

13

-

5,232

9

116

-

5,357

Subtotal

25,961

1,964

11,130

126

-

39,181

6,169

1,328

-

46,678

Other government bonds












AAA

1,752

81

538

-

-

2,371

977

-

-

3,348


AA+ to AA-

135

8

78

-

-

221

495

-

-

716


A+ to A-

890

159

389

-

-

1,438

245

-

-

1,683


BBB+ to BBB-

356

88

201

-

-

645

4

-

-

649


Below BBB- and unrated

31

9

381

-

-

421

-

2

-

423

Subtotal

3,164

345

1,587

-

-

5,096

1,721

2

-

6,819

Corporate bonds












AAA

732

384

516

-

-

1,632

341

-

-

1,973


AA+ to AA-

1,574

441

1,908

-

-

3,923

1,566

-

-

5,489


A+ to A-

5,428

542

5,063

-

-

11,033

17,784

-

-

28,817


BBB+ to BBB-

5,443

883

3,497

-

-

9,823

22,775

-

-

32,598


Below BBB- and unrated

2,111

569

781

3

-

3,464

2,157

2

-

5,623

Subtotal

15,288

2,819

11,765

3

-

29,875

44,623

2

-

74,500

Asset-backed securities












AAA

236

19

104

-

-

359

3,658

-

-

4,017


AA+ to AA-

132

6

46

-

-

184

780

-

-

964


A+ to A-

1

-

14

-

-

15

1,006

-

-

1,021


BBB+ to BBB-

-

-

-

-

-

-

359

-

-

359


Below BBB- and unrated

-

-

-

-

-

-

212

-

-

212

Subtotal

369

25

164

-

-

558

6,015

-

-

6,573

Total debt securities

44,782

5,153

24,646

129

-

74,710

58,528

1,332

-

134,570

Loans












Mortgage loansnote C1.2

-

-

165

-

-

165

9,904

-

-

10,069


Policy loans

1,089

-

316

-

-

1,405

4,707

9

-

6,121


Other loans

374

-

19

-

-

393

-

-

-

393

Total loans

1,463

-

500

-

-

1,963

14,611

9

-

16,583

Equity securities and holdings in collective investment schemes












Direct equities

14,143

12,440

1,793

59

-

28,435

150

4

-

28,589


Collective investment schemes

15,230

6,652

1,680

14

-

23,576

40

6

-

23,622


US separate account assetsnote (iii)

-

-

-

-

-

-

195,070

-

-

195,070

Total equity securities and holdings in collective investment schemes

29,373

19,092

3,473

73

-

52,011

195,260

10

-

247,281

Other financial investmentsnote (iv)

963

383

1,363

106

-

2,815

2,791

56

-

5,662

Total financial Investments

76,581

24,628

29,982

308

-

131,499

271,190

1,407

-

404,096

Investment properties

-

-

7

-

-

7

7

11

-

25

Investments in joint ventures and associates accounted for using the equity method

-

-

1,263

237

-

1,500

-

-

-

1,500

Cash and cash equivalents

963

356

1,015

156

-

2,490

1,960

2,515

-

6,965

Reinsurers' share of insurance contract liabilitiesnote (v)

152

-

5,306

-

-

5,458

8,394

4

-

13,856

Other assetsnote (vi)

1,277

237

6,983

826

(35)

9,288

17,696

3,440

(2,652)

27,772

Total assets 

78,973

25,221

44,556

1,527

(35)

150,242

299,247

7,377

(2,652)

454,214














Shareholders' equity

-

-

9,801

1,065

-

10,866

8,929

(318)

-

19,477

Non-controlling interests

-

-

2

153

-

155

-

37

-

192

Total equity

-

-

9,803

1,218

-

11,021

8,929

(281)

-

19,669














Contract liabilities and unallocated surplus of with-profits fundsnote (iii)

70,308

23,571

26,814

-

-

120,693

269,549

186

-

390,428

Core structural borrowings

-

-

-

-

-

-

250

5,344

-

5,594

Operational borrowings

302

21

123

27

-

473

1,501

671

-

2,645

Other liabilitiesnote (vii)

8,363

1,629

7,816

282

(35)

18,055

19,018

1,457

(2,652)

35,878

Total liabilities

78,973

25,221

34,753

309

(35)

139,221

290,318

7,658

(2,652)

434,545

Total equity and liabilities

78,973

25,221

44,556

1,527

(35)

150,242

299,247

7,377

(2,652)

454,214

 

Notes

(i)    The with-profits business of Asia comprises the with-profits assets and liabilities of the Hong Kong, Malaysia and Singapore operations. 'Other business' includes assets and liabilities of other participating businesses and other non-linked shareholder-backed business.

(ii)   Further analysis of the shareholders' equity by business type of the US operations is provided below:

 



30 Jun 2020 $m


2019 $m



Insurance

Asset

management

Total


30 Jun

Total

31 Dec

Total


Shareholders' equity

8,943

12

8,955


8,594

8,929

 

(iii)  The US separate account assets comprise investments in mutual funds attaching to the variable annuity business that are held in the separate account. The related liabilities are reported in contract liabilities at an amount equal to the separate account assets.

(iv)  Other financial investments comprise derivative assets, other investments and deposits.

(v)   Reinsurers' share of contract liabilities includes the reinsurance ceded in respect of the acquired REALIC business by the Group's US insurance operations and at 30 June 2020 also includes amounts ceded in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1.

(vi)  Of total 'Other assets' at 30 June 2020, there are:

- Property, plant and equipment (PPE) of $964 million (30 June 2019: $999 million; 31 December 2019: $1,065 million). During the period, the Group made additions of $51 million of PPE (half year 2019: $107 million; full year 2019: $160 million), of which $8 million relates to right-of-use assets (half year 2019: $86 million; full year 2019: $96 million).

- Premiums receivable of $778 million (30 June 2019: $718 million; 31 December 2019: $794 million), of which $734 million (30 June 2019: $652 million; 31 December 2019: $738 million) are due within one year.

(vii) Within 'Other liabilities' at 30 June 2020 is accruals, deferred income and other liabilities of $16,209 million (30 June 2019: $13,487 million; 31 December 2019: $14,488 million), of which $11,213 million (30 June 2019: $8,555 million; 31 December 2019: $9,172 million) are due within one year.

(viii)        Assets and liabilities held for distribution at 30 June 2019 related to the Group's UK and Europe operations (M&G plc) which were demerged in October 2019.

(ix)  The credit ratings, information or data contained in this report which are attributed and specifically provided by Standard & Poor's, Moody's and Fitch Solutions and their respective affiliates and suppliers ('Content Providers') is referred to here as the 'Content'. Reproduction of any Content in any form is prohibited except with the prior written permission of the relevant party. The Content Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold any such investment or security, nor does it address the suitability of an investment or security and should not be relied on as investment advice.

 

C1.1 Additional analysis of debt securities

This note provides additional analysis of the Group's debt securities. With the exception of certain debt securities classified as 'available-for-sale' under IAS 39, which primarily relate to US insurance operations as disclosed below, the Group's debt securities are carried at fair value through profit or loss.

 

(a)   Holdings by consolidated investment funds of the Group

Of the $121,462 million of Group's debt securities at 30 June 2020 (30 June 2019: $126,856 million; 31 December 2019: $134,570 million), the following amounts were held by the consolidated investment funds of the Group:

 


30 Jun 2020 $m


2019 $m


Asia

US

Group total


30 Jun

31 Dec

Debt securities held by consolidated investment funds

17,219

1,244

18,463


21,914

22,113

 

(b)   Additional analysis of US debt securities

Debt securities for US operations included in the statement of financial position comprise:

 



2020 $m 


2019 $m 



30 Jun


30 Jun

31 Dec

Available-for-sale

37,597


56,225

57,091

Fair value through profit and loss

1,418


1,382

1,437

Total US debt securities

39,015


57,607

58,528

 

The corporate bonds held by the US insurance operations comprise:

 



2020 $m 


2019 $m 



30 Jun


30 Jun

31 Dec

Publicly traded and SEC Rule 144A securities*

21,215


34,895

34,781

Non-SEC Rule 144A securities

7,897


9,282

9,842

Total US corporate bonds

29,112


44,177

44,623

* 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.

 

(c)   Movements in unrealised gains and losses on Jackson available-for-sale debt securities

The movement in the statement of financial position value for debt securities classified as available-for-sale from a net unrealised gain of $3,496 million at 31 December 2019 to a net unrealised gain of $3,219 million at 30 June 2020 is analysed in the table below.

 




Changes in unrealised

 appreciation reflected in

 other comprehensive income




30 Jun 2020 $m

Gains recycled to income statement on transfer of debt securities to Athene

Unrealised

gains (losses)

arising in

the period

31 Dec 2019 $m




note D1



Assets fair valued at below book value






Book value*

2,188



3,121


Unrealised gain (loss)

(109)


(82)

(27)


Fair value (as included in statement of financial position)

2,079



3,094

Assets fair valued at or above book value






Book value*

32,190



50,474


Unrealised gain (loss)

3,328

(2,817)

2,622

3,523


Fair value (as included in statement of financial position)

35,518



53,997

Total






Book value*

34,378



53,595


Net unrealised gain (loss)

3,219

(2,817)

2,540

3,496


Fair value (as included in the footnote above in the overview table and the statement of financial position)

37,597



57,091

*  Book value represents cost or amortised cost of the debt securities.

 

Jackson debt securities classified as available-for-sale in an unrealised loss position

(i)    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:

 



30 Jun 2020 $m


30 Jun 2019 $m


31 Dec 2019 $m



Fair

value

Unrealised

loss


Fair

value

Unrealised

loss


Fair

value

Unrealised

loss

Between 90% and 100%

1,871

(62)


2,827

(41)


3,083

(25)

Between 80% and 90%

111

(17)


48

(7)


11

(2)

Below 80%

97

(30)


40

(15)


-

-

Total

2,079

(109)


2,915

(63)


3,094

(27)

 

(ii)   Unrealised losses by maturity of security

 



2020 $m 


2019 $m 



30 Jun


30 Jun

31 Dec

1 year to 5 years

(30)


(3)

(1)

5 years to 10 years

(39)


(13)

(12)

More than 10 years

(20)


(24)

(7)

Mortgage-backed and other debt securities

(20)


(23)

(7)

Total

(109)


(63)

(27)

 

(iii)  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:

 














30 Jun 2020 $m



30 Jun 2019 $m


31 Dec 2019 $m

Age analysis

Non-

investment

grade

Investment

grade*

Total


Non-

investment

grade

Investment

grade*

Total


Non-

investment

grade

Investment

grade*

Total

Less than 6 months

(24)

(80)

(104)


(1)

(5)

(6)


(1)

(20)

(21)

6 months to 1 year

(3)

(1)

(4)


(1)

(18)

(19)


(1)

(1)

(2)

1 year to 2 years

-

-

-


(1)

(11)

(12)


-

(1)

(1)

2 years to 3 years

(1)

-

(1)


-

(13)

(13)


-

(1)

(1)

More than 3 years

-

-

-


-

(13)

(13)


-

(2)

(2)

Total

(28)

(81)

(109)


(3)

(60)

(63)


(2)

(25)

(27)

* For Standard and Poor's, Moody's and Fitch rated debt securities, those with ratings range from AAA to BBB- are designated as investment grade. For NAIC rated debt securities, those with ratings 1 or 2 are designated as investment grade.

 

Further, the following table shows the age analysis of the securities whose fair values were below 80 per cent of the book value:

 


30 Jun 2020 $m


30 Jun 2019 $m


31 Dec 2019 $m

Age analysis

Fair

value

Unrealised

loss


Fair

value

Unrealised

loss


Fair

value

Unrealised

loss

Less than 3 months

60

(17)


33

(13)


-

-

3 months to 6 months

37

(13)


7

(2)


-

-

Total below 80%

97

(30)


40

(15)


-

-

 

(d)   Asset-backed securities

The Group's holdings in asset-backed securities (ABS) comprise residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralised debt obligations (CDO) funds and other asset-backed securities.

 

The US operations' exposure to asset-backed securities comprises:

 



2020 $m 


2019 $m



30 Jun


30 Jun

31 Dec

RMBS






Sub-prime (30 Jun 2020: 2% AAA)

35


112

93


Alt-A (30 Jun 2020: 35% AAA, 39% A)

14


129

116


Prime including agency (30 Jun 2020: 85% AAA, 6% AA, 5% A)

263


736

862

CMBS (30 Jun 2020: 86% AAA, 5% AA, 3% A)

1,646


2,884

3,080

CDO funds (30 Jun 2020: 81% AAA, 9% AA, 5% A), $nil exposure to sub-prime

397


449

696

Other ABS (30 Jun 2020: 26% AAA, 5% AA, 48% A), $35 million exposure to sub-prime

999


1,364

1,168

Total US asset-backed securities

3,354


5,674

6,015

 

(e)   Group bank debt exposure

The Group exposures held by the shareholder-backed business and with-profits funds in bank debt securities are analysed below. The table excludes assets held to cover linked liabilities and those of the consolidated investment funds.

 

Exposure to bank debt securities 

 


30 Jun 2020 $m


2019 $m


Senior debt


Subordinated debt


Group

total


30 Jun

31 Dec


Total


Tier 1

Tier 2

Total




Group total

Group total

Shareholder-backed business











Asia

549


572

329

901


1,450


858

993

Eurozone

223


-

26

26


249


410

337

United Kingdom

352


7

91

98


450


892

723

United States

1,565


5

52

57


1,622


3,037

3,134

Other

259


-

137

137


396


693

647

Total

2,948


584

635

1,219


4,167


5,890

5,834












With-profits funds 











Asia

534


87

572

659


1,193


1,198

1,130

Eurozone

77


-

101

101


178


129

131

United Kingdom

182


1

105

106


288


146

155

United States

670


2

15

17


687


25

34

Other

116


-

262

262


378


256

284

Total

1,579


90

1,055

1,145


2,724


1,754

1,734

 

C1.2  Additional analysis of US mortgage loans

 

In the US, mortgage loans of $8,119 million at 30 June 2020 (30 June 2019: $9,655 million; 31 December 2019: $9,904 million) are all commercial mortgage loans that are secured by the following property types: industrial, multi-family residential, suburban office, retail or hotel. The average loan size is $18.6 million (30 June 2019: $18.7 million; 31 December 2019: $19.3 million). The portfolio has a current estimated average loan to value of 55 per cent (30 June 2019: 53 per cent; 31 December 2019: 54 per cent).

 

At 30 June 2020, Jackson had mortgage loans with a carrying value of $947 million where the contractual terms of the agreements had been restructured to grant forbearance for a period of no longer than six months (30 June and 31 December 2019: nil). Under IAS 39, restructured loans are reviewed for impairment with an impairment 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. No impairment is recorded for these loans in half year 2020 as the expected cash flows and interest rate did not materially change under the restructured terms.

 

C2    Fair value measurement

 

(a)   Determination of fair value

The fair values of the financial instruments for which fair valuation is required under IFRS are determined by the use of current market bid prices for exchange-quoted investments, or by using quotations from independent third parties, such as brokers and pricing services or by using appropriate valuation techniques.

 

The estimated fair value of derivative financial instruments reflects the estimated amount the Group would receive or pay in an arm's length transaction. This amount is determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices.

 

Other than the loans which have been designated at fair value through profit or loss, the carrying value of loans and receivables is presented net of provisions for impairment. The fair value of loans is estimated from discounted cash flows expected to be received. The discount rate used is updated for the market rate of interest where applicable.

 

The fair value of the subordinated and senior debt issued by the parent company is determined using quoted prices from independent third parties.

 

The fair value of financial liabilities (other than subordinated debt, senior debt and derivative financial instruments) is determined using discounted cash flows of the amounts expected to be paid.

 

Valuation approach for level 2 fair valued assets and liabilities

A significant proportion of the Group's level 2 assets are corporate bonds, structured securities and other non-national government debt securities. These assets, in line with market practice, are generally valued using a designated independent pricing service or quote from third-party brokers. These valuations are subject to a number of monitoring controls, such as comparison to multiple pricing sources where available, monthly price variances, stale price reviews and variance analysis on prices achieved on subsequent trades. For further detail on the valuation approach for level 2 fair valued assets and liabilities, refer to note C3.1 of the Group IFRS financial statement for the year ended 31 December 2019.

 

Valuation approach for level 3 fair valued assets and liabilities

Investments valued using valuation techniques include financial investments which by their nature do not have an externally quoted price based on regular trades, and financial investments for which markets are no longer active as a result of market conditions, eg market illiquidity. The valuation techniques used include comparison to recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option-adjusted spread models and, if applicable, enterprise valuation.

 

The Group's valuation policies, procedures and analyses for instruments categorised as level 3 are overseen by Business Unit committees as part of the Group's wider financial reporting governance processes. The procedures undertaken include approval of valuation methodologies, verification processes, and resolution of significant or complex valuation issues. In undertaking these activities the Group makes use of the extensive expertise of its asset management functions. In addition, the Group has minimum standards for independent price verification to ensure valuation accuracy is regularly independently verified. Adherence to this policy is monitored across the business units.

 

(b)   Fair value measurement hierarchy of Group assets and liabilities

Assets and liabilities carried at fair value on the statement of financial position

The table below shows the assets and liabilities carried at fair value analysed by level of the IFRS 13 'Fair Value Measurement' defined fair value hierarchy. This hierarchy is based on the inputs to the fair value measurement and reflects the lowest level input that is significant to that measurement.

 

All assets and liabilities held at fair value are classified as fair value through profit or loss, except for $37,752 million (30 June 2019: $56,225 million; 31 December 2019: $58,302 million) of debt securities classified as available-for-sale, principally in the US operations. All assets and liabilities held at fair value are measured on a recurring basis. As of 30 June 2020, the Group did not have any financial instruments that are measured at fair value on a non-recurring basis.

 

Financial instruments at fair value

 



30 Jun 2020 $m


Level 1

Level 2

Level 3



Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

Loans

-

-

3,606

3,606

Equity securities and holdings in collective investment schemes

230,670

3,554

474

234,698

Debt securities

64,300

57,091

71

121,462

Other investments (including derivative assets)

109

2,350

1,569

4,028

Derivative liabilities

(65)

(402)

-

(467)

Total financial investments, net of derivative liabilities

295,014

62,593

5,720

363,327

Investment contract liabilities without discretionary participation features held at fair value

-

(936)

-

(936)

Net asset value attributable to unit holders of consolidated investment funds

(5,521)

(8)

(438)

(5,967)

Other financial liabilities held at fair value

-

-

(3,743)

(3,743)

Total financial instruments at fair value

289,493

61,649

1,539

352,681

Percentage of total (%)

82%

18%

0%

100%







Analysed by business type:





Financial investments, net of derivative liabilities at fair value:






With-profits

67,290

12,963

314

80,567


Unit-linked and variable annuity separate account

204,723

1,208

-

205,931


Non-linked shareholder-backed business

23,001

48,422

5,406

76,829

Total financial investments, net of derivative liabilities at fair value

295,014

62,593

5,720

363,327

Other financial liabilities at fair value

(5,521)

(944)

(4,181)

(10,646)

Group total financial instruments at fair value

289,493

61,649

1,539

352,681

 



30 Jun 2019 $m


Level 1

Level 2

Level 3



Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

Loans

-

-

3,562

3,562

Equity securities and holdings in collective investment schemes

230,817

2,723

217

233,757

Debt securities

61,763

65,085

8

126,856

Other investments (including derivative assets)

190

1,361

1,224

2,775

Derivative liabilities

(66)

(675)

(579)

(1,320)

Total financial investments, net of derivative liabilities

292,704

68,494

4,432

365,630

Investment contract liabilities without discretionary participation features held at fair value

-

(847)

-

(847)

Net asset value attributable to unit holders of consolidated investment funds

(4,432)

-

-

(4,432)

Other financial liabilities held at fair value

-

(6)

(3,922)

(3,928)

Total financial instruments at fair value

288,272

67,641

510

356,423

Percentage of total (%)

81%

19%

0%

100%







Analysed by business type:





Financial investments, net of derivative liabilities at fair value:






With-profits

61,541

6,451

203

68,195


Unit-linked and variable annuity separate account

206,548

1,256

-

207,804


Non-linked shareholder-backed business

24,615

60,787

4,229

89,631

Total financial investments, net of derivative liabilities at fair value

292,704

68,494

4,432

365,630

Other financial liabilities at fair value

(4,432)

(853)

(3,922)

(9,207)

Group total financial instruments at fair value

288,272

67,641

510

356,423

 



31 Dec 2019 $m


Level 1

Level 2

Level 3



Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

Loans

-

-

3,587

3,587

Equity securities and holdings in collective investment schemes

243,285

3,720

276

247,281

Debt securities

67,927

66,637

6

134,570

Other investments (including derivative assets)

70

1,676

1,301

3,047

Derivative liabilities

(185)

(207)

-

(392)

Total financial investments, net of derivative liabilities

311,097

71,826

5,170

388,093

Investment contract liabilities without discretionary participation features held at fair value

-

(1,011)

-

(1,011)

Net asset value attributable to unit holders of consolidated investment funds

(5,973)

(23)

(2)

(5,998)

Other financial liabilities held at fair value

-

-

(3,760)

(3,760)

Total financial instruments at fair value

305,124

70,792

1,408

377,324

Percentage of total (%)

81%

19%

0%

100%







Analysed by business type:





Financial investments, net of derivative liabilities at fair value:






With-profits

66,061

7,762

260

74,083


Unit-linked and variable annuity separate account

217,838

1,486

-

219,324


Non-linked shareholder-backed business

27,198

62,578

4,910

94,686

Total financial investments, net of derivative liabilities at fair value

311,097

71,826

5,170

388,093

Other financial liabilities at fair value

(5,973)

(1,034)

(3,762)

(10,769)

Group total financial instruments at fair value

305,124

70,792

1,408

377,324

 

Assets and liabilities at amortised cost and their fair value

The table below shows the financial assets and liabilities carried at amortised cost on the statement of financial position and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities are excluded from the analysis below. These are carried at amortised cost, which approximates fair value.

 


2020 $m



2019 $m



30 Jun


30 Jun


31 Dec


Carrying

 value

Fair

value


Carrying

 value

Fair

value


Carrying

 value

Fair

value

Assets









Loans

11,304

11,435


12,363

12,740


12,996

13,511

Liabilities









Investment contract liabilities without discretionary participation features

(3,730)

(3,793)


(3,986)

(3,996)


(3,891)

(3,957)

Core structural borrowings of shareholder-financed businesses

(6,499)

(7,087)


(9,470)

(10,248)


(5,594)

(6,227)

Operational borrowings (excluding lease liabilities)

(1,703)

(1,703)


(1,858)

(1,857)


(2,015)

(2,015)

Obligations under funding, securities lending and sale and repurchase agreements

(9,085)

(9,442)


(8,598)

(8,769)


(8,901)

(9,135)

Total

(9,713)

(10,590)


(11,549)

(12,130)


(7,405)

(7,823)










(c)   Fair value measurements for level 3 fair valued assets and liabilities  

Reconciliation of movements in level 3 assets and liabilities measured at fair value

The following table reconciles the value of level 3 fair valued assets and liabilities at the beginning of the period to that presented at the end of the period.

 

Total investment return recorded in the income statement represents interest and dividend income, realised gains and losses, unrealised gains and losses on the assets classified at fair value through profit and loss and foreign exchange movements on an individual entity's overseas investments.

 

Total gains and losses recorded in other comprehensive income includes unrealised gains and losses on debt securities held as

available-for-sale principally within Jackson and foreign exchange movements arising from the retranslation of the Group's overseas subsidiaries and branches.

 



Half year 2020 $m

Reconciliation of movements in level 3 assets and liabilities measured at fair value

Loans

Equity

securities

and

holdings in

collective

investment

schemes

Debt

securities

Other

investments

(including

derivative

assets)

Net asset

value

attributable

to unit

holders of

consolidated

investment funds

Other

financial

liabilities

Total

Balance at beginning of period

3,587

276

6

1,301

(2)

(3,760)

1,408

Total gains (losses) in income statement*

120

(44)

(6)

(170)

134

(91)

(57)

Total gains (losses) recorded in other comprehensive income

-

(4)

-

-

-

-

(4)

Purchases and other additions

-

348

20

484

(583)

-

269

Sales

-

(102)

(2)

(46)

13

-

(137)

Issues

52

-

-

-

-

(53)

(1)

Settlements

(153)

-

-

-

-

161

8

Transfers into level 3

-

-

53

-

-

-

53

Balance at end of period

3,606

474

71

1,569

(438)

(3,743)

1,539

 



Half year 2019 $m

Reconciliation of movements in level 3 assets and liabilities measured at fair value

Loans

Equity

securities

and

holdings in

collective

investment

schemes

Debt

securities

Other

investments

(including

derivative

assets)

Derivative

liabilities

Borrowings

attributable

 to with

-profits

businesses

Net asset

value

attributable

to unit

holders of

consolidated

investment funds

Other

financial

liabilities

Total

Balance at beginning of period

6,054

656

1,505

6,714

(539)

(2,045)

(1,258)

(4,335)

6,752

Reclassification to held for distribution

(2,509)

(440)

(1,498)

(5,513)

-

2,045

1,258

451

(6,206)

Total gains (losses) in income statement*

118

(2)

6

19

(19)

-

-

(140)

(18)

Total gains (losses) recorded in other comprehensive income

1

-

1

(12)

(21)

-

-

(10)

(41)

Purchases

-

3

-

164

-

-

-

-

167

Sales

-

-

(6)

(148)

-

-

-

-

(154)

Issues

34

-

-

-

-

-

-

(46)

(12)

Settlements

(136)

-

-

-

-

-

-

158

22

Balance at end of period

3,562

217

8

1,224

(579)

-

-

(3,922)

510

 






Full year 2019 $m




Reconciliation of movements in level 3 assets and liabilities measured at fair value

Loans

Equity

securities

and

holdings in

collective

investment

schemes

Debt

securities

Other

investments

(including

derivative

assets)

Derivative

liabilities

Borrowings

attributable

 to with

-profits

businesses

Net asset

value

attributable

to unit

holders of

consolidated

investment funds

Other

financial

liabilities

Total

Balance at beginning of year

6,054

656

1,505

6,714

(539)

(2,045)

(1,258)

(4,335)

6,752

Demerger of UK and Europe operations

(2,509)

(440)

(1,498)

(5,513)

-

2,045

1,258

451

(6,206)

Total gains (losses) in income statement*

1

(11)

6

30

539

-

-

(28)

537

Total gains (losses) recorded in other comprehensive income

-

3

-

(6)

-

-

-

(11)

(14)

Purchases

-

69

-

269

-

-

(2)

-

336

Sales

-

(1)

(7)

(193)

-

-

-

-

(201)

Issues

275

-

-

-

-

-

-

(143)

132

Settlements

(234)

-

-

-

-

-

-

306

72

Balance at end of year

3,587

276

6

1,301

-

-

(2)

(3,760)

1,408

* Of the total net gains and (losses) in the income statement of $(57) million at half year 2020 (half year 2019: $(18) million for continuing operations; full year 2019: $537 million), $(103) million (half year 2019: $12 million; full year 2019: $19 million) relates to net unrealised gains and losses of financial instruments still held at the end of the period, which can be analysed as follows:



2020 $m


2019 $m



30 Jun


30 Jun

31 Dec


Equity securities and holdings in collective investment schemes

(72)


(2)

(11)


Debt securities

(5)


-

-


Other investments

(157)


51

34


Derivative liabilities

-


(19)

-


Net asset value attributable to unit holders of consolidated investment funds

132


-

-


Other financial liabilities

(1)


(18)

(4)


Total

(103)


12

19

 

At 30 June 2020, the Group held $1,539 million (30 June 2019: $510 million; 31 December 2019: $1,408 million) of net financial instruments at fair value within level 3. This represents less than 0.5 per cent (30 June 2019: 0.5 per cent of continuing operations; 31 December 2019: 1 per cent) of the total fair valued financial assets net of financial liabilities.

 

Included within these net assets and liabilities are policy loans of $3,606 million at 30 June 2020 (30 June 2019: $3,562 million; 31 December 2019: $3,587 million) measured as the loan outstanding balance, plus accrued investment income, attached to acquired REALIC business and held to back the liabilities for funds withheld under reinsurance arrangements. The funds withheld liability of $3,743 million at 30 June 2020 (30 June 2019: $3,758 million; 31 December 2019: $3,760 million) is also classified within level 3. The fair value of the liabilities is equal to the fair value of the underlying assets held as collateral, which primarily consist of policy loans and debt securities. The assets and liabilities offset and therefore their movements have no impact on shareholders' profit and equity.

 

Excluding the loans and funds withheld liability under Jackson's REALIC reinsurance arrangements as described above, which amounted to a net liability at 30 June 2020 of $(137) million (30 June 2019: $(196) million; 31 December 2019: $(173) million), the level 3 fair valued financial assets net of financial liabilities were a net asset of $1,676 million at 30 June 2020 (30 June 2019: $706 million; 31 December 2019: $1,581 million). Of this amount, equity securities of $2 million are internally valued, representing less than 0.1 per cent of the total fair valued financial assets net of financial liabilities (30 June and 31 December 2019: nil). Internal valuations are inherently more subjective than external valuations.

 

Level 3 financial assets net of financial liabilities comprise the following:

 

-      Private equity investments in both equity securities and limited partnerships within other financial investments of $1,687 million (30 June 2019: $1,224 million; 31 December 2019: $1,301 million) consisting of investments held by Jackson which are primarily externally valued in accordance with International Private Equity and Venture Capital Association guidelines using the proportion of the company's investment in each fund as shown in external valuation reports;

-      Equity securities and holdings in collective investment schemes of $356 million (30 June 2019: $217 million; 31 December 2019: $276 million) consisting primarily of property and infrastructure funds held by the Asia participating funds, which are externally valued using the net asset value of the invested entities;

-      Liabilities of $(438) million (30 June 2019: nil; 31 December 2019: $(2) million) for the net asset value attributable to external unit holders in respect of consolidated investment funds, which are non-recourse to the Group. These liabilities are valued by reference to the underlying assets; and

-      Other sundry individual financial instruments of a net asset of $71 million (30 June 2019: net liability of $(735) million of which $(574) million represent derivative liabilities; 31 December 2019: net asset of $6 million).

 

Of the net asset of $1,676 million at 30 June 2020 (30 June 2019: $706 million; 31 December 2019: $1,581 million) referred to above:

 

-      A net asset of $314 million (30 June 2019: $202 million; 31 December 2019: $258 million) is held by the Group's Asia participating funds and therefore shareholders' profit and equity are not impacted by movements in the valuation of these financial instruments; and

-      A net asset of $1,362 million (30 June 2019: $504 million; 31 December 2019: $1,323 million) is held to support non-linked shareholder-backed business. The majority of these instruments ($1,360 million out of the $1,362 million) are externally valued and are therefore inherently less subjective than internal valuations. These instruments consist primarily of private equity investments held by Jackson as described above. If the value of all these Level 3 financial instruments decreased by 10 per cent, the change in valuation would be $(136) million (30 June 2019: $(51) million; 31 December 2019: $(132) million), which would reduce shareholders' equity by this amount before tax. All of this amount would pass through the income statement substantially as part of short-term fluctuations in investment returns outside of adjusted operating profit.

 

(d)   Transfers into and transfers out of levels 

The Group's policy is to recognise transfers into and transfers out of levels as of the end of each half year reporting period except for material transfers which are recognised as of the date of the event or change in circumstances that caused the transfer. Transfers are deemed to have occurred when there is a material change in the observed valuation inputs or a change in the level of trading activities of the securities.

 

During half year 2020, the transfers between levels within the Group's portfolio, were primarily transfers from level 1 to level 2 of $4,232 million and transfers from level 2 to level 1 of $1,843 million. These transfers which relate to equity securities and debt securities arose to reflect the change in the observed valuation inputs and in certain cases, the change in the level of trading activities of the securities. There were transfers into level 3 of $53 million in the period.

 

C3  Policyholder liabilities and unallocated surplus

C3.1  Group overview

(i)    Analysis of movements in policyholder liabilities and unallocated surplus of with-profits fundsnotes (a),(b)

 



Half year 2020 $m



Asia

US

Total



note C3.2

note C3.3


At 1 January 2020

132,570

269,549

402,119

Comprising:





- Policyholder liabilities on the consolidated statement of financial position





(excludes $186 million classified as unallocated to a segment)

115,943

269,549

385,492


- Unallocated surplus of with-profits funds on the consolidated statement of financial position

4,750

-

4,750


- Group's share of policyholder liabilities of joint ventures and associatenote (d)

11,877

-

11,877

Net flows:





Premiums

9,746

8,865

18,611


Surrenders

(2,083)

(7,455)

(9,538)


Maturities/deaths

(1,153)

(1,793)

(2,946)

Net flowsnote (d)

6,510

(383)

6,127