Prudential PLC — Annual Report 2018

Dec 31, 2018

We do life.

Prudential plc

Annual Report 2018

Prudential plc Annual Report 2018

Prudential helps people de‑risk their lives and deal with their biggest financial concerns.

Our year in numbers
Summary financials	2018	2017	Change on an actual exchange rate basis8	Change on a constant exchange rate basis8
Adjusted IFRS operating profit based on longer-term investment returns1	£4,827m	£4,699m	3%	6%
Underlying free surplus generated2	£4,047m	£3,640m	11%	14%
Life new business profit3	£3,877m	£3,616m	7%	11%
IFRS profit after tax4	£3,013m	£2,390m	26%	30%
Net cash remittances from business units5	£1,732m	£1,788m	(3)%	–
IFRS shareholders' funds	£17.2bn	£16.1bn	7%
European Embedded Value (EEV) shareholders' funds	£49.8bn	£44.7bn	11%
Group Solvency II capital surplus6,7	£17.2bn	£13.3bn	29%

Full-year ordinary dividend

2018		49.35 pence	+5%
2017	47 pence

Notes

• 1 This alternative performance measure is reconciled to IFRS profit for the year in note B1.1 of the IFRS financial statements.
• 2 For insurance operations, underlying free surplus generated represents amounts maturing from the in-force business during the period less investment in new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the period. Restructuring costs are presented separately from the underlying business unit amount. Further information isset out in note 10 of the EEV basis results.

3 New business profit on business sold in the year, calculated in accordance with EEV principles.

• 4 IFRS profit after tax reflects the combined effects of operating results determined on the basis of longer-term investment returns, together with short-term investment variances, results attaching to disposal of businesses and corporate transactions, amortisation of acquisition accounting adjustments and the total tax charge for the year.
• 5 Net cash remitted by business units are included in the Holding company cash flow, which is disclosed in detail in note II(a) of the Additional unaudited financial information. This comprises dividends and other transfers from business units that are reflective of emerging earnings and capital generation.
• 6 The Group shareholder capital position excludes the contribution to Own Funds and the Solvency Capital Requirement from ring fenced with-profit funds and staff pension schemes in surplus. The estimated solvency positions include management's calculation of UK transitional measures reflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflects the approved regulatory position.
• 7 Estimated before allowing for second interim ordinary dividend.
• 8 Further information on actual and constant exchange rate basis is set out in note A1 of the IFRS financial statements.

Contents

		Page
01	Group overview	02
	Chairman'sstatement	02
	Group Chief Executive'sreport	04
02	Strategic report	09
	At a glance	10
	Our business model	12
	Our distribution	14
	Demerger update	15
	Our performance	16
	Our businesses	18
	Chief Financial Officer'sreport on the 2018 financial performance Group Chief Risk Officer'sreport of the risksfacing our business	38
	and how these are managed	52
	Corporate responsibility review	70
03	Governance	87
	Chairman'sintroduction	88
	Board of Directors	89
	How we operate	95
	Risk management and internal control	107
	Committee reports	109
	Statutory and regulatory disclosures	128
	Index to principal Directors' report disclosures	130
04	Directors' remuneration report	131
	Annualstatement from the Chairman of the Remuneration Committee	132
	Our Executive Directors' remuneration at a glance	135
	Summary of the current Directors' remuneration policy	137
	Annual report on remuneration	142
	Supplementary information	166
05	Financial statements	171
06	European Embedded Value (EEV) basis results	341
07	Additional information	377
	Index to the additional unaudited financial information	378
	Risk factors	407
	Glossary	416
	Shareholder information	420
	How to contact us	423

The Directors' Report of Prudential plc for the year ended 31 December 2018 isset out on pages 2 to 7, 88 to 130 and 378 to 423, and includesthe sections of the Annual Report referred to in these pages.

01 Group overview

02 Strategic report

03

Governance

04

Directors'remuneration

report

05

Financialstatements

06 European

EmbeddedValue (EEV) basisresults

07 Additional information

Continuing to deliver long-term value to our customers

I am pleased to introduce Prudential's 2018 Annual Report. The Company has performed well amid uncertain macro-economic conditions, continuing to deliver value for our customers, shareholders and wider stakeholders. We have also made good progress towards our planned demerger of M&GPrudential from Prudential plc.

Our performance depends on the quality of our products, which meet essential needsfor our customers. We are strongly aware of our purpose, which isto help people de-risk their lives and deal with their biggest financial concerns. Our products and services are designed and delivered with that purpose clearly in mind. The quality of our financial performance during 2018 is a reflection of oursuccessin providing value to our customers.

We have been working hard on the proposed demerger of M&GPrudential from theGroup, which we announced in March 2018. We remain confident that it will result in the creation of two businesses with distinct investment prospects, each offering compelling propositionsto customers and shareholders. The practical steps needed to deliver the demerger are progressing as planned. The Board is focused on ensuring a smooth transition and that both businesses have the necessary management and board expertise to give them the best possible start to life after the demerger. This has included the appointment of Mike Evans as Chair of M&GPrudential.

Performance and dividend

TheGroup delivered another year of sustainable operating and financial performance during 2018. In view of this performance, the Board has decided to increase the full-year ordinary dividend by 5 per cent to 49.35 pence pershare. In line with this, the Directors have approved a second interim ordinary dividend of 33.68 pence pershare.

Board changes

A well-run company is built through good decision-making and execution, and robust governance isthe foundation. During a time of both external and internal change, the Board must be decisive and exercise its judgement in a timely manner.

It has been a privilege to serve on the Board of Prudential plc since October 2010, and to have served as Chairman since July 2012. The Board is mindful that the CorporateGovernance Code statesthat a chairshould not remain in post beyond nine yearsfrom the date of first appointment to the Board.However, to help provide Board stability during the period covering the demerger of M&GPrudential, I have agreed to remain as Chairman until May 2021,subject to re-election each year.

We have also looked at our wider Board composition as we head towardsthe demerger of M&GPrudential. As Chief Executive of M&GPrudential, John Foley will naturally stand down from the Board as part of the transition.Having taken into account the changed shape of the PrudentialGroup post-demerger and the reduced number of business units, the Board has decided that the roles of Chief Executive of Prudential Corporation Asia and Chairman and Chief Executive of JacksonHoldings will no longer be executive director roles on the Board, although they will remain on theGroup Executive Committee. John Foley,Nic Nicandrou and Michael Falcon will notseek re-election and willstep down at the 2019 AnnualGeneral Meeting (AGM). My thanks go to all three of them for their service on the Board.

Lord Turner has also announced that he willretire fromthe Board atthe 2019AGM. I would like to take this opportunity to thank himfor hissignificant contribution to the Board overthe lastthree and a half years, as aNon-executive Director and a member of the Risk and Audit Committees. I would

also like to welcome Fields Wicker-Miurin, who joined the Board in 2018, and to thank Anne Richards and Barry Stowe, who both stepped down during 2018, for their valuable contributionsto the Board and theGroup.

Our customers and wider stakeholders

Regardless of the nature of the external environment and the changes we are making to theGroup, we maintain our strong focus on delivering for our customers. In Asia, we are developing innovative digitalsolutions; in theUS we are providing new retirement propositions; and in theUK we are making oursuccessful PruFund productsincreasingly available to people who are looking for waysto ensure their financialsecurity in retirement, including through our digital platform. We are also taking active stepsto ensure that we are prepared for the impact of the UK's exit from the EuropeanUnion. At the same time, we are using our customers' capital to invest in companies and infrastructure around the world, driving economic growth and supporting the communitiesin which we operate.

The Board is committed to ensuring that theGroup continuesto make a positive social and economic impact. In our Corporate responsibility review, beginning on page 70 of this Annual Report, we provide an overview of our approach as a responsible corporate citizen. More details can be found in our 2018 Environmental, social and governance report (ESG), which will be published in May.

Our shareholders

The Board'srole isto represent the interests of allshareholders. A regular and frank dialogue with ourshareholders ensures we are responsive to our owners' priorities and concerns. We have an ongoing programme ofshareholder engagement, which enables usto make better decisions based on the well

informed feedback we receive. I personally find these discussions hugely valuable and take the ideas and suggestionsreceived very seriously.

In addition, policy and regulatory change can have a significant effect on both our operating environment and our customers. We are committed to developing constructive and open relationships with all oursupervisors, as well as governments and civilsociety. We are grateful for the constructive engagement of our regulators during the demerger process, and the Board is committed to continuing to work closely with them.

Our people

Prudential has always been a business built on our people. It isthe commitment, drive and creativity of our teamsin markets around the world that has enabled usto deliver these results while moving towards our demerger. The commitment of our people to our customersisinspiring, and understanding their needs and prioritiesis a focal point for the Board. An environment where we continually develop our talent, reward great performance, protect our people and value our differencesis key to delivering resultssuch asthese.

We are also determined to make sure our people represent the diverse communities we serve. Ensuring that our colleagues have a wide range of experience and viewpointsis vital to oursuccess, and the Board has made diversity and inclusion one of ourstrategic priorities. There is much to do in this area, but I am encouraged by the progress we have made.

I amalsoparticularlypleasedwiththe efforts somanyofourpeoplemake inregardto community involvement.Wehave anactive programmeof community investmentinour businesses aroundtheworld,witha total contributionofover£27million.Ourprojects range fromCha-Ching,the financial educationplatformaimedatprimary-school children,whichbeganinAsia andisnow presentonallfour continentsonwhichwe operate,toPrudentialRideLondon,nowin itsseventhyear,whichhasraisedmore than £66millionfor charity,plusourmanyother activities aroundsocial inclusion, education andlife skills anddisasterpreparedness.

Akeypartofour community contributionis madebyourpeople volunteeringtheirtime andskillsforthebenefitoftheir communities, andthismakesmeparticularlyproud. Isupportthis activitypersonally through theChairman'sChallenge,our flagship international volunteeringprogramme, whichbringstogetherpeople fromacrossthe Grouptogetinvolvedintheir communities. In2018,more than9,000ofour colleagues aroundtheworldtookpartintheChairman's Challenge, volunteeringover49,000hoursto support33differentprojects.

Looking forward

We have delivered solid results while making good progresstowards a significant change that we believe willsecure the long-term future for both Prudential plc and M&GPrudential. The Board is confident thatshareholders, customers and all our stakeholders will benefitfromthe creation of the two focused and innovative companies that will result, and that we will continue delivering value well into the future.

Paul Manduca Chairman

06

01 Group overview

02 Strategic report

03 Governance

04

Directors'remuneration

report

05

Bringing Money Smarts to kids across the US

Since 2017, the Jackson Charitable Foundation has been helping American studentsto form better financial habitsfrom the youngest ages. Cha-Ching Money Smart Kids music videos and activities, originally developed by Prudential Corporation Asia, are now used in elementary schools acrosstheUS with programmesled by classroom teachers and community volunteers.

'Helping children learn money management concepts while engaging them in fun and memorable activities preparesthem for a promising future,'said Jackie Prester, Business and Technology Teacher, Mansfield Public Schools, Massachusetts. 'With Cha-Ching, we are putting students on a path to financial freedom in adulthood, where money smart habits can positively impact their families, communities and lives.' Partnering with Junior AchievementUSA (JA), Cha-Ching has been incorporated into JA's third grade classroom curriculum which is taught in more than 15,000 classrooms annually by community volunteers, including Jackson associates. The Foundation has also teamed up with Discovery Education to make Cha-Ching available at no cost to teachers and familiesthrough streaming services and www.cha-chingusa.org

Between these two efforts, Cha-Ching has reached more than 2.6 million studentssince 2017 and continuesto grow in popularity, teaching young people how to 'Earn, Save, Spend and Donate!'

Capturing the structural opportunities ahead of us

I am pleased to report that we have delivered another year of positive financial performance across the Group. Through the combination of our consistent strategy, our diversified portfolio of businesses and our disciplined execution, we have continued to produce high-quality earnings and deliver consistent returns for our investors and good outcomes for all our stakeholders.

Our purpose isto help people de-risk their lives and deal with their biggest financial concerns. Whether they are starting a family,saving for a child's education or planning for old age, we provide them with the freedom to face the future with confidence through our long-term savings and protection products, retirement income solutions and asset management capabilities. At the same time, we invest our customers'savingsin the real economy, helping to drive the cycle of growth and build stronger communities.

We serve this purpose through our clear, consistentstrategy, which isfocused on long-term structural trends and gives us unrivalled accessto the world'slargest and fastest-growing markets. In Asia, our distinguished brand, extensive footprint and broad product and distribution reach across 14 marketsleaves us well positioned to serve the health, protection and savings needs of the rapidly growing and increasingly affluent population. We are also a leading provider of retirement productsin theUS, where the number of people aged 65 and older is expected to grow from 55 million in 2020 to 72 million by 20301 , and we are continuing to enhance our productset and distribution reach to capture the opportunity in this market. In theUK and Europe, where ageing populations provide growing demand for managed savingssolutions, M&GPrudential istransforming itself to meet those needsin new ways. In Africa we are building a presence in one of the world's most under-penetrated insurance markets, with operationsin five markets.

We are continuing to develop our product offering and improve our capabilitiesin order to meet the needs of customersin all these markets. Across our businesses, we are listening to our customers and creating new and better productsin response to their changing needs. At the same time, we are constantly upgrading our capabilities, including, by investing in digital technology that enables usto meet our customers' needs more quickly and efficiently.

In March 2018, we announced our intention to demerge M&GPrudential from theGroup, in orderto create two separately listed companies with distinct investment characteristics and opportunities. After the demerger, ourshareholders will have sharesin Prudential plc, which will be even better positioned to capture the structural opportunities ahead of us, and M&GPrudential, with greater freedom to deploy its capital where and how it likesto meet the changing needs of customers.

We are making good progresstowardsthe demerger. On the structuralside, we have established the holding company for M&GPrudential, and we have completed the firststages at theHigh Court of England and Walesfor the transfer of part of the M&GPrudential annuity book to Rothesay. On the operationalside, we are moving forward with separating the functions of the two businesses and building newones to prepareM&GPrudentialforits postdemergerfuture.We have also raised £1.6 billion ofsubordinated debt, with substitution clausesto be activated on demerger,supporting the capital rebalancing of the two businesses, and we continue to work with our regulators.

Our financial performance

Our financial performance in 2018 reflects our focus on high quality execution of our strategy, and is again led by our business in Asia.

Asin previous years, we comment on our performance in local currency terms (expressed on a constant exchange rate basis) to show the underlying business trendsin periods of currency movement.

New business profit2 increased by 11 per cent3 to £3,877 million (up 7 per cent on an actual exchange rate basis), driven by the favourable impact of ourstrategic focus of increasing health and protection

*Segmental earnings of key businesses and excludes restructuring costs and otherincome and expenditure.

salesin Asia, the benefit of higherUS interest rates and a resilient performance in theUK and Europe.

Group adjusted IFRS operating profit based on longer-term investment returns4 ('operating profit') was 6 per cent ³ higher at £4,827 million (up 3 per cent on an actual exchange rate basis). Operating profit from our Asia life insurance and asset management businesses grew by 14 per cent3 ,reflecting continued broadbasedbusinessmomentumacrossthe region andhigh-quality sales,withover 85per cent of operating income fromour preferred sources of insurance income, fee income and with-profits. In theUS,Jackson'stotal operating profit was 11 per cent ³ lower, with higherfee income outweighed by an increase inmarket-related deferred acquisition costs(DAC) amortisation expense and the anticipated reduction in spread earnings. In theUKand Europe, M&GPrudential'stotal operating profit was

Innovation through partnership

In 2017, Prudential Singapore announced a commitment to the Monetary Authority of Singapore to be aGrand Sponsor of the Singapore FinTech Festival from 2018 to 2022, demonstrating our dedication to fostering a culture of innovation, collaboration and co-creation among financial institutions, fintech companies and regulators globally. The Singapore FinTech Festival isthe largest festival of its kind in the world, with the 2018 event hosting more than 250 speakers, more than 400 exhibitors and 16 international pavilions, and drawing close to 45,000 participantsfrom almost 130 countries.

Prudential'sstand at the festival featured some new tools powered by partnerships between Prudential and localstart-ups. Initiatives on show included an instant health check through an app that determines body fat using pictures taken on a mobile phone, a new financial

planning service that usessophisticated algorithmsto predict money needs acrossthe customer'slifetime, and Prudential Singapore's new PRUworksservice, which provides a range of legal,HR and employee benefit servicesfor SMEsin one convenient app.

Singapore is a key innovation test-bed for Prudential asit harnessestechnology to make insurance simpler and more accessible. Recognising that customers are demanding greaterspeed,seamlessness, convenience and control over their finances, we have been investing in understanding customers' needs more deeply and in creating a distinctive Prudential customer experience across multiple touchpoints. We are also creating digital toolsto help our more than 4,900 financial consultantsin Singapore work more efficiently and serve our customers even better.

19 per cent higherthan the prior year, which principally reflectsthe benefit fromupdated longevity assumptions and an 11 per cent 5 increase in the shareholdertransferfromthe with-profits business, which includes a 30 per cent5 increase fromPruFund.

TheGroup's capital generation is underpinned by our large and growing in-force business portfolio, and focus on profitable business with fast payback of capital invested. Overall, underlying free surplus generation6 increased by 14 per cent3 to £4,047 million and cash remittancesto theGroup from business units were £1,732 million (2017: £1,788 million). TheGroup's overall performance supported a 5 per cent increase in the 2018 full year ordinary dividend to 49.35 pence pershare.

TheGroup remainsrobustly capitalised, with a 2018 year-end shareholder Solvency II cover ratio7,8 of 232 per cent. Over the period, IFRS shareholders' funds increased by 7 per cent to £17.2 billion, reflecting profit after tax of £3,013 million (2017: £2,390 million on an actual exchange rate basis) and other movements that included dividend paymentsto shareholders of £1,244 million and favourable foreign exchange movements of £348 million. EEV shareholders' funds increased by 11 per cent to £49.8 billion, equivalent to 1,920 pence pershare2,9.

InAsia, we havemaintained ourfocus on value, whilst continuing to develop our capabilities and reach, which build scale and enhance quality. Ourstrategic emphasis on increasing salesfromhealth and protection business has contributed

to a 14 per cent3 increase in new business profit inAsia, and also reflected a 2 per cent3 growth inAPE sales. Our growth in new business profit was broad-based, with 10 markets delivering double-digit percentage increases3 . Our assetmanagement business, Eastspring Investments, has continued to grow, with operating profit up 6 per cent3 to £182million.

In theUS, Jackson remainsfocused on providing financialsecurity to increasing numbers of individuals approaching or in retirement, broadening its product range and extending its distribution network, including new relationships announced with State Farm, Envestnet and DPL Financial Partners. In 2018, higher charges for deferred acquisition costs amortisation, largely as a result of equity market movementsin the year, contributed to Jackson's operating profit being 11 per cent lower.US new business profit increased by 5 per cent, asfavourable movementsin interest rates and spread assumptions balanced a reduction in APE sales. Jackson's hedging programmes performed as expected in the period of equity market weakness experienced towardsthe end of 2018, contributing to an increased risk-based capital ratio at year-end of 458 per cent (2017: 409 per cent).

In theUKand Europe, both ourlife and asset management businesses performed well in 2018, with operating profit 19 per cent higher driven by a number of itemsthat are not expected to recur at the same level including the effect from updated longevity assumptions. Our core PruFund proposition continuesto perform well, with net inflows

of £8.5 billion and the PruFund contribution to shareholder operating profit increasing 30 per cent to £55 million.New business profit increased by 3 per cent, broadly in line with the increase in APE sales. M&GPrudential asset managementsaw net outflows of £9.9 billion fromexternal clients, including the expected redemption of a single £6.5 billion low margin institutional mandate. Overall M&GPrudential assets under management10 were £321 billion (2017: £351 billion),reflecting net outflows at M&GPrudential asset management and the impact of the £12 billion annuity reinsurance agreement announced in March 2018.

Our financial Key Performance Indicators (KPIs) continue to reflect the outcome of theGroup'sstrategy. Our Asia life businesses are driven by growth in our recurring premium base and focus on health and protection business. Elsewhere we are benefiting from our prioritisation of fee-generating products across our Asia asset management,US variable annuity andUK and European savings and investment activities.

A clear and proven strategy

Our clear, proven strategy is key to our long-term positive performance, and is focused on strong and growing opportunitiesin Asia, theUS, theUK and Europe and our nascent marketsin Africa.

In Asia, a large and increasingly wealthy population with low levels of insurance and asset management coverage is creating a huge and fast-growing market for our health, protection and savings products. Asia is driving global

01

06 European

growth, with average annualGDP growth in our Asia life markets of 10.4 per cent in the decade to 201711, compared with just 1.9 per cent for the rest of the world11. Furthermore, despite potential headwinds, between 2017 and 2023 Asia is expected to deliver 39 per cent of the world'sGDP growth11. Thisis creating a rapidly growing middle classin theAsia region, which is expected to double by 2030 to reach 3.5 billion people12.At the same time, insurance penetration in Asia isjust 2.7 per cent ofGDP13, compared with 7.2 per cent in theUK13, leaving the region vastly under-insured with an estimated mortality protection gap ofUS\$40 trillion14 and a health and protection gap of US\$1.8 trillion15. Similarly, mutual fund penetration in Asia is only 12 per cent 16, compared with 96 per cent in theUS16, whilst 65 per cent of wealth in Asia is held in cash17. With private financial wealth in the region growing byUS\$5 trillion per year17, there is considerable latent demand for oursavingssolutions. These structural drivers of growth are expected to persist for many yearsto come and create a historic opportunity for us.

We are also developing our businesses in our newer marketsin Africa, which is one of the world's most underserved life markets, and where the population is forecast to grow by a billion by 20451 . We are now operating in five countriesin Africa –Ghana, Kenya,Nigeria,Uganda and Zambia – which will increase further with the announced acquisition of a majority stake inGroup Beneficial, and we are excited about the growing opportunitiesin this dynamic region.

We have a strong and growing opportunity in theUS. About 40 million Americans are expected to reach retirement age over the next decade alone. At the same time, 72 per cent of American workers do not have accessto a defined benefit retirement plan18. A study conducted by the Insured Retirement Institute and Jackson showed that 80 per cent of Americansthink that socialsecurity will not provide enough income for retirement19, and the same percentage are willing to pay more for guaranteed lifetime income19. This aligns with ourretirementincome products,which are designed to help customers avoid running out ofmoney and provide themwith a reliable cushion against volatile markets.

In theUK and Europe, notwithstanding the uncertainty related to theUK'sintended exit from the EuropeanUnion, a combination of global trends and competitive advantagesis creating a

powerful opportunity for M&GPrudential. Those approaching retirement have been looking for new waysto ensure a comfortable future, and since pensions freedoms were introduced in theUK in 2015 that demand has been increasing. At the same time, the total value of household cash depositsin the EUis estimated at ¤10 trillion20, indicating the scale of the opportunity for asset management in the region. Private assets under management are expected nearly to double between 2017 and 202321. M&GPrudential, which already has established international distribution, a clear focus on customer solutions and a broad-ranging investment capability, istransforming itself to meet this opportunity.

New and better ways to serve customers

We are continuing to improve the way we serve our customersin every part of the world in which we operate. We constantly update our products and our capabilities to ensure that we are fulfilling our purpose and maximising the effect of ourstrategy.

In Asia, we are continuing to develop and expand our products, distribution capabilities and footprint and to meet the evolving needs of our customers. During 2018, we broadened our productsuite to include tailored propositionsfor the high-net-worth and corporate segments and developed new productsfor customers with specific needs,such as pre-existing medical conditions. Our distribution capabilities were enhanced by new digital technology and provide a seamless and differentiated customer experience from point ofsale through to making a claim. At Eastspring, we also continued to roll out BlackRock's Aladdin system across our marketsto improve efficiency. We broadened our reach through new partnerships with leading banksin several markets, including Thailand and the Philippines. Meanwhile, Eastspring consolidated its position asthe leading retail asset manager in Asia (excluding Japan) by establishing an on-the-ground presence in China and Thailand. Early in 2019, we also renewed oursuccessful regionalstrategic alliance withUnited Overseas Bank (UOB), one of our most successful distribution relationshipsin South-east Asia, until 2034 and added Vietnam andUOB's digital bank to an existing partnership presence in Singapore, Malaysia, Thailand and Indonesia.

We are also expanding our footprint in our Africa markets. In August 2018, we extended our long-term partnership with

Prudential, for the second year in a row, won the insurance category of Management Today's'Britain's Most Admired Companies' awardsin December 2018.

Standard Chartered Bank, which has been a huge successin Asia, toGhana, and in November we signed a long-term exclusive partnership with ZambiaNational Commercial Bank Plc (Zanaco), Zambia's largest bank, to enable our market-leading productsto be offered to more than a million new customers acrossthe country.

In theUS, we have a long and durable track record of delivering financialsuccessfor our consumers. We are offering new products for fee-based advisers and have launched new versions of our fee-based variable annuities. We are changing the narrative around retirement and lifetime income, demonstrating the value proposition of our productsto regulators, investors, policyholders and influential industry figures. In September, we announced our collaboration with the Envestnet Insurance Exchange, to offer our products on its platform. In October, we announced a key distribution partnership with State Farm, furtherstrengthening our market-leading distribution footprint. Early in 2019, we partnered with DPL Financial Partnersto provide our protected lifetime solutionsto independentregistered investment advisers (RIA), providing accessto newopportunities in the independent RIA channel.

In theUK and Europe, as M&GPrudential preparesfor the demerger, we have been continuing to transform what we do for our customers and how we do it. Our PruFund

offering continuesto impress customers with its combination of clarity, capital growth and lower volatility. We are investing to transform the experience of our fast-growing digital platform, launched in 2016, to ensure it offers a comprehensive range ofsolutionsfor customers. In our investment management business, we continue to develop our private asset capacity and now have £59 billion of private assets under management, making us one of the largest private credit investors in the world, and we are looking to expand our differentiated capabilities across geographies and asset classes. In 2018, M&GPrudential also signed a new partnership with Tata Consultancy Services(TCS), a global leader in IT, business process and digitalservices, to enhance service for ourUK and Europe savings and retirement customers.

Throughout our businesses, we are continuing to develop our digital capabilities. In Asia,such initiatives are enabling usto provide valuable and innovative servicesto our customers. In August, we announced our exclusive partnership agreement with theUK-based healthcare technology and services company BabylonHealth. Through the deployment of cutting-edge artificial intelligence technology, this partnership will offer customers, in up to 12 of our marketsin Asia, accessto a comprehensive set of digital health tools, complementing Prudential Corporation Asia's existing suite of world-class protection products and strengthening our digital future. Similarly, at Eastspring, our robo-advice platform in Taiwan, in partnership with Alkanza, helps our clients meet theirsavings goals. We recognise that technology continually

evolves and we embrace the possibilities that lie ahead. Oursponsorship of Singapore's FinTech Festival, which in 2018 had more than 400 exhibitorsfrom 35 countries,showcasing the very latest in digital innovation, istestament to this and presents all kinds of partnership possibilities. Indeed, our Singapore business hassince partnered with three of the propositionsshowcased at the event.

Our leadership

In July 2018, we announced that Anne Richards wasresigning asChief Executive of M&Gand from theGroup's Board. I would like to thank Anne for her contribution to theGroup's continued success. In October 2018, we announced that Barry Stowe had decided to retire as Chairman and Chief Executive Officer of Jackson and as an Executive Director of theGroup. Barry made an exceptional contribution over his 12 years at theGroup, first at our Asia business, which under hisleadership grew to become the market-leading operation it istoday, and in theUS since 2015. Barry has been succeeded at Jackson by Michael Falcon. Formerly CEO of Asia Pacific for JP Morgan Asset Management, Michael has deep expertise and an impressive track record in the industry and is well placed to lead the next phase of our development in NorthAmerica.We continue to invest in the right people at all levels acrosstheGroup.

Delivering value into the future

Our clearstrategy,discipline andimproving capabilitieshave enabledustodeliver abroad-basedfinancialperformance in2018, basedona close focusonour corepurposeof helpingpeople tode-risk theirlives anddeal withtheirbiggest financial concerns.InAsia we continue tosee a strongrunway forthe

Notes

• 1 UnitedNations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision. American population reaching retirement age over the next decade is based on 2019 population, aged 55 to 64.
• 2 Embedded value reporting providesinvestors with a measure of the future profitstreams of theGroup. The EEV basisresults have been prepared in accordance with EEV principles discussed in note 1 of EEV basisresults. See note III of the Additional unaudited financial information for definition and reconciliation to IFRS balances.
• 3 Year-on-year percentage increases are stated on a constant exchange rate basis unless otherwise stated.
• 4 Adjusted IFRS operating profit based on longer-term investment returnsis management's primary measure of profitability and provides an underlying operating result based on longer-term investment returns and excludes non-operating items. Further information on its definition and reconciliation to profit for the period isset out in note B1 of the IFRS financialstatements.
• 5 Growth rate on an actual exchange rate basis. 6 For insurance operations, underlying free surplus generated represents amounts maturing from the in-force business during the period lessinvestment in new business and excludes non-operating items. For asset management businessesit equatesto post-tax operating profit for the period. Restructuring costs are presented separately from the underlying business unit amount. Further information isset out in note 10 of the EEV basisresults.

7 TheGroup shareholder capital position excludesthe contribution to Own Funds and the Solvency Capital Requirement from ring fenced with-profit funds and staff pension schemesin surplus. The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.

• 8 Estimated before allowing forsecond interim ordinary dividend. 9 See note III of the Additional unaudited financial information
• for definition and reconciliation to IFRS balances. 10 Represents M&GPrudential asset management external
• funds under management and internal fundsincluded on the M&GPrudential long-term insurance business balance sheet.
• 11 IMF. 2017GDP at January 2019 current prices. Asia represents Prudential Corporation Asia'slife businessfootprint.
• 12 BrookingsInstitution.Global Economy & Development Working Paper 100. February 2017. 'Asia' represents Asia Pacific.
• 13 Insurance penetration Swiss Re SigmaNo 3/2018. Insurance penetration calculated as premiums as a percentage ofGDP. Asia penetration calculated on a weighted population basis.

insurance andassetmanagementindustries, andourpresence,scale anddistribution reachpositionuswelltoparticipate strongly inthisgrowth.IntheUS,we continue to provideAmericanswiththe retirement strategiestheyneed, andwe are confident thatthiswill enableustocapture additional growthintothe future.IntheUKandEurope, wewill continue toimprove service levels and launchnewofferings, andwe aremaking goodprogresstowardsthe intended demergerofM&GPrudentialfromtheGroup, whichwillresultintwodistinctbusinesses that are able tofocusmore clearlyonthe opportunitiesopentous.Wehave an establishedtrack recordofdelivering importantbenefitstoour customers and profitablegrowthtoourshareholders. I amconfidentthat,postdemerger as independent companies,bothPrudentialplc andM&GPrudentialwillbepositionedto continue todowell inthe future.

Mike Wells Group Chief Executive

• 14 Swiss Re Mortality ProtectionGap Asia Pacific 2018. Represents Prudential Corporation Asia'slife business footprint, and use per capita income of working population asthe base unit to calculate the size of the gap.
• 15 Swiss Re Asia's health protection gap: insightsfor building greater resilience. October 2018. Represents China, India, Japan, Korea, Indonesia, Malaysia, Taiwan, Vietnam,
• the Philippines, Singapore,Hong Kong and Thailand. 16 Investment Company Institute, industry associations and Lipper.
• 17 BCGGlobal Wealth 2017.Navigating theNew Client Landscape.
• 18 U.S. Bureau of Labor Statistics,National Compensation. Survey: Employee Benefitsin theUnited States, March 2017. Workers defined asthose employed in private industry and state and local government.
• 19 The Language of Retirement 2017 study conducted on behalf of the Insured Retirement Institute and Jackson.
• 20 Eurostat:Household deposit data. 21 Preqin Future of Alternatives Report, October 2018.

04

03

06 European

EmbeddedValue (EEV)

02

Governance

report

06

02 Strategic report

10
12
14
15
16
18
18
26
32
38
52
70

We meet the long-term savings and protection needs of a growing middle-class and ageing population. We focus on markets where the need for our products is strong and growing and we use our capabilities, footprint and scale to meet that need.

In 2018 the Group announced its intention to demerge its UK and Europe business, M&GPrudential, from Prudential plc, which will result in two separately listed companies, with different investment characteristics and opportunities. We have always been clear about the importance of creating optionality in our corporate structure, and decided to exercise one of those options in the interests of both the business and all of our stakeholders.

Our purpose

Prudential helps people de-risk their lives and deal with their biggest financial concerns.

Our strategy

Ourstrategy isto capture the long-term structural opportunities within our markets, operating with discipline and enhancing capabilitiesthrough innovation to deliver high-quality resilient outcomesfor our customers.

We aim to do this by:

• Serving the protection and investment needs ofthe growingmiddle classinAsia;
• Providing asset accumulation and retirementincomeproductstoUSretirees;
• Offering productsto new customersin Africa, one of the fastest-growing regions in the world; and
• Meeting the savings and retirement needs of an ageingUK and continental European population.

We aimto generate attractive returns enabling usto provide financialsecurity to our customers and deliversustainable growth for ourshareholders. Following rigorousreview, we believe that this long-termstrategy is bestserved through the intendeddemerger ofM&GPrudential.

The demerger will enable both businesses to continue to deliver on our customer and stakeholder commitments, but without the requirementto compete forresources and capital internally.

04

06

£657 billion total funds under management

Asia

Leading pan-regional franchise

£151bn assets under management

94% of APE sales are regular premium

£1.2bn underlying free surplus generation

United States

Premier retirement income player

US\$163bn separate account assets

US\$2.2bn variable annuity net inflows

£2.4bn fee income

Africa

M&GPrudential

Long-term conviction-led investment approach

£43bn total PruFund funds under management

Operating in 29 markets

£321bn total M&GPrudential funds under management1

Structural growth over the last two decades has allowed our non-European business to reach the scale where it has the ability to self-fund its own long-term goals through disciplined capital allocation. Prudential plc has a diversified, but highly complementary, portfolio of businesses with access to the world's largest and fastest-growing markets.

PrudentialCorporationAsia hasleading insurance and asset management operations across 14markets which serve the families ofthe region's high potential economies.We have been operating in Asia for over 90 years and have built high-performing businesses withmultichannel distribution, a product portfolio centred on regularsavings and protection, award-winning customerservice and a widely recognised brand.

Eastspring Investmentsis a leading assetmanagerinAsia and providesinvestmentsolutions across a broad range of asset classes.

Jackson providesretirementsavings and income strategies aimed at the large number of people approaching retirement in the United States. Jackson's pursuit of excellence in product innovation and distinctive distribution capabilities has helped us forge a solid reputation for meeting the needs of customers. Jackson's variable annuities offer a distinct retirementsolution designed to provide a variety of investment choicesto help customers pursue their financial goals.

We enteredAfrica in 2014,to offer productsto new customersin one ofthe fastest-growing regionsin the world.We aimto provide productsthat help our customersto live longer and healthierlives, and save to improve future choicesforthemand theirfamilies.

The formation of M&GPrudential, the joining of two well recognised brands with a strong track record, has created a leading savings and investment business, ideally positioned to target growing customer demand for financial solutions in the UK and Europe.

With over 6million clients across 29markets and £321 billion1 in assets undermanagement,M&GPrudential's vision is a business builtforthe customer which issimple, efficient, digitally enabled, capital-light,fast-growing and, above all,focused on delivery.

The combined business benefitsfromtwo strong complementary brands, a world-classinvestment capability, international distribution and a robust capital position.

1 Represents M&GPrudential asset management external funds under management and internal fundsincluded on the M&GPrudential long-term insurance balance sheet.

Our trusted brands and strong distribution channels enable us to understand the growing needs of our customers for long-term savings and financial security, and to design innovative products that meet those needs. By helping to build better lives and stronger communities and to fuel the growth cycle, we create long-term value for both our customers and our shareholders.

Capturing structural opportunity ... through enhanced capabilities

Serving customer needs

Asia

• Low life insurance and mutual fund penetration
• Significant health and protection gap
• Growing working age population
• Increasing consumer affluence

Our businesses page 18

United States

• Increase in retirement age population
• Large and growing retirement asset pools
• Growing demand for guaranteed income

Our businesses page 26

M&GPrudential

• Ageing population
• Large and growing retirement asset pools
• Growing demand forsaving and income

Our businesses page 32

Customer service

Customers are at the heart of ourstrategy. We proactively listen to both new and existing customersto understand and respond to their changing needs. This allows usto propose financialsolutions customised for different groups, whether that is young and middle-aged people or those in the retirement phase of life. We are expanding our digital infrastructure to enhance our customer experience.

Solutions

We offersolutionsfor customers asthey face the biggest financial challenges of their lives. We consistently develop our product portfolio, designing it around our customers' needs and providing them with peace of mind, whether that be in relation to saving for retirement or insuring against risks of illness, death or critical life events.

Distribution

Distribution plays a key role in our ability to reach, attract and retain customersin different parts of the world. Building out and diversifying our distribution capabilities, including adding digital tools, helps ensure that we fully capitalise on the opportunities available to usin each of our markets.

Investment for growth

We focus on strategic investment in long-term opportunities and capabilitiesto drive future growth and value for ourstakeholders. We invest to improve relationships with our customers and distributors, to create innovative products, to improve our operating platforms and to capture new opportunities and build new relationships. We invest in digital capabilitiesto empower our distributors and improve customerservice.

Risk management

We generate value by selectively taking exposuresto risksthat are adequately rewarded and that can be appropriately quantified and managed. Balance sheetstrength and proactive risk management enable usto make good our promisesto our customers and create long-term value for ourstakeholders.

Group Chief Risk Officer'sreport of the risksfacing our business and how these are managed page 52

06

... creating high-quality outcomes ... for our stakeholders.

Growth

£4,827m Operating profit¹ +6%2 on 2017

£3,877m New business profit +11%2 on 2017

£7,563m EEV operating profit +19%2 on 2017

Cash

£4,047m Free surplus generation +14%2 on 2017

£1,732m Remittances -3%3 on 2017

Capital

£17.2bn Solvency II surplus +29%3 on 2017

232% Solvency II cover ratio +30pp on 2017

TheGroup has a number of key performance indicatorsinternally to measure financial performance. Read more on page 16

Notes

• 1 Adjusted IFRS operating profit based on longer-term investment returns.
• 2 Growth rates on a constant exchange rate basis.

3 Growth rates on an actual exchange rate basis.

We create financial benefitsfor our investors and deliver economic and social benefitsfor our customers, our employees and the societiesin which we operate.

Customers

Providing financialsecurity and wealth creation. Read more on pages 18 to 37

Investors

Growing dividends and share price performance enhance shareholder value.

Read more on pages 16 to 86

Employees

Providing an environment with equal opportunities, career potential and rewards, enabling usto attract and retain high-quality individualsto deliver ourstrategy. Read more on pages 78 to 80

Communities

Supporting communities where we operate,through investmentin business and infrastructure,tax revenues and community support activities.

Read more on pages 80 to 85

Our global distribution strength Our distribution

We respond to the needs of our global customers through diverse and robust distribution channels in all our markets.

Jackson

Strength and flexibility of our distribution network gives us a distinctive advantage

Largest and most productive VA wholesale distribution force in theUS1

+700 broker-dealers'selling agreements covering +230,000 (74%) of totalUS advisers2

#1 selling variable annuity contract3 in the independent channelsince 2003

4 million customers

Prudential Africa

Establishing network with market-leading initiatives

+4,000 agents

6 exclusive bank partners

Accessto over 600 bank branches

2 mobile telecommunications partners

+500,000 customers

Notes

1 Independent research and Market Metrics, a Strategic Insight Business:U.S. Advisor Metrics 2018, as of 30 September 2018.

2 The Cerulli Report Adviser Metrics 2018 and Jackson research.

Prudential Corporation Asia

Pan-regional multi-channel network

+600,000 agents

Multiple established bank partnerships

Accessto +14,000 bank outlets

Eastspring Investments are present in 11 Asia markets and distribution officesinUS and Europe

+15 million life customers

M&GPrudential

Diversified distribution model underpinned by two complementary brands

£321 billion total assets under management4

Operating in 29 markets around the world

+6 million customers

• +300 Prudential Financial Planning partners
• 4 Represents M&GPrudential asset management external funds under management and internal fundsincluded on the M&GPrudential long-term insurance business balance sheet.

³ ©2019Morningstar,Inc.AllRightsReserved.The informationcontainedherein:(1)isproprietary to Morningstar and/orits contentproviders;(2)isnotwarrantedtobe accurate, complete,ortimely. NeitherMorningstarnorits contentproviders are responsible for anydamagesorlosses arising fromanyuseofthisinformation.Pastperformance isnoguaranteeoffuture results.Morningstar www.AnnuityIntel.com.TotalSalesbyCompany&byContract3QYTD2018.Jacksonranks #1 outof725VAcontractswithreportedsalesinthe IndependentChannel in3QYTD2018.

We are aiming to create two separately listed companies with distinct investment prospects, capital allocation priorities and customer needs.

M&GPrudential, one of the leading savings and investments businesses in the UK and Europe, will be an independent, capital-efficient business, headquartered and premium-listed in London.

Prudential plc will continue to combine the exciting growth potential of our Asia, US and Africa businesses, as a leading international insurance and asset management group. We will also remain headquartered and premium listed in London.

Frequently asked questions

Other listings: Hong Kong (Primary), Singapore, New York

What is the rationale for the demerger?

Following separation, M&GPrudential will have more control over its business strategy and capital allocation. This will enable it to play a greater role in developing the savings and retirement marketsin theUK and Europe through two of the financialsector's most trusted brands, M&Gand Prudential, while Prudential plc will be able to focus on the attractive returns and growth potential of its market-leading businessesin Asia and theUS.

Will the businesses stay in the UK?

Both businesseswill be headquartered in theUK, and premium-listed on the London Stock Exchange.We expect both businesses willmeetthe criteria forinclusion in the FTSE 100 index.

How are we progressing?

In preparation for the demerger, we have already completed a number of key steps, including:

• We announced thattheHongKong InsuranceAuthoritywould be the Group-wide supervisor afterthe demerger ofM&GPrudential;
• We raised £1.6 billion of debt in September 2018. This debt issuance contained a substitution clause, allowing usto substitute M&GPrudential for Prudential plc asthe issuer;
• We established a new holding company for M&GPrudential and completed the transfer of the legal ownership of The Prudential Assurance Company Limited andM&GGroupLimitedtothis company;
• We announced the independent Chair of M&GPrudential in October 2018; and

— We completed the transfer of the legal ownership of ourHong Kong insurance subsidiariesfrom The Prudential Assurance Company Limited (M&GPrudential'sUK-regulated insurance entity) to Prudential Corporation Asia Limited.

When will it happen?

We are making good progress on the workstreamsto enable the legal, operational and financialseparation of the businesses and we are committed to delivery with best execution. We will provide more details on timing when it is appropriate to do so.

What will happen to your shares?

Shareholders will retain theirsharesin Prudential plc and, if the demerger completes, receive sharesin a separately listed M&GPrudential.

06

Measuring our performance Our performance

To create sustainable economic value for our shareholders we focus on delivering growth and cash while maintaining appropriate capital.

Profit, cash and capital1

Prudential takes a balanced approach to performance management acrossIFRS, EEV and cash. We aim to demonstrate how we generate profit under different accounting bases, reflecting the returns we generate on capital invested, and the cash generation of our business.

Adjusted IFRS operating profit based on longer-term investment returns2 £m

TheGroup's businessinvolves entering into long-termcontractswith customers, and hence theGroupmanagesits associated assets and liabilities over a longer-termtime horizon. This enablestheGroup tomanage a degree ofshort-termmarket volatility. Therefore operating profit based on longer-terminvestmentreturns gives amore relevantmeasure ofthe performance ofthe business.Otheritems are excluded fromoperating profitto allowmore relevant period-on-periodcomparisons ofthe trading operations oftheGroup, eg the effects of corporate transactions are excluded.

EEV new business profit3 £m

Life insurance products are, by their nature, long termand generate profit over a number of years. Embedded value reporting providesinvestors with ameasure of the future profitstreams of theGroup. EEVnew business profitreflectsthe value of future profitstreams which are not fully captured in the year ofsale under IFRS reporting.

basis), compared with 2017. Operating profit fromAsia life and assetmanagement operations was up 14 per cent on a constant exchange rate basis(10 per cent on an actual exchange rate basis), and M&GPrudential was up 19 per cent. In theUS, operating profit was down 11 per cent on a constant exchange rate basis(14 per cent on an actual exchange rate basis)reflecting higher market-related deferred acquisition costs amortisation.

EEV new business profit in 2018 increased by 11 per cent on a constant exchange

rate basis) compared with 2017, driven by

and pricing actionsin Asia, higher interest rates and spread assumption changesin

Retirement Accountsales.

Group operating profit in 2018 is 6 per cent higher on a constant exchange rate basis (3 per cent on an actual exchange rate

2014 2015 2016 2017 2018 2,021 2,492 3,088 3,616 3,877 CAGR +18% rate basis(7 per cent on an actual exchange increasesin health and protection business theUS and M&GPrudential PruFund based

EEV operating profit3 £m

EEV operating profit is provided as an additional measure of profitability. This measure includes EEV new business profit, the change in the value of theGroup's long-term in-force business, and profit from our asset management and other businesses. As with IFRS, EEV operating profit reflectsthe underlying results based on longer-term investment returns.

Group EEV operating profit in 2018 increased by 19 per cent on a constant exchange rate basis(15 per cent on an actual exchange rate basis), compared with 2017, driven by higher new business profit and higher contributionsfrom the in-force business.

Group free surplus generation4 £m

Free surplus generation is used tomeasure the internal cash generation of our business units. Forinsurance operations, itrepresents amountsmaturing fromthe in-force business during the period, lessinvestmentin new business and excludes other non-operating items. For assetmanagement, it equatesto post-tax operating profitforthe year.

Overall, underlying free surplus generation increased by 14 per cent on a constant exchange rate basis(11 per cent on an

actual exchange rate basis),reflecting good performance in each of our businesses with Asia up 14 per cent on a constant exchange rate basis(9 per cent on an actual exchange rate basis), theUS up 11 per cent on a constant exchange rate basis(7 per cent on an actual exchange rate basis) and M&GPrudential up 21 per cent, including the positive impact of longevity assumption changes and an insurance recovery on annuity review costs.

Remittancesmeasure the cash transferred frombusiness unitsto theGroup.Cash flows acrosstheGroup reflect our aimof achieving a balance between ensuring sufficient net remittancesfrombusiness unitsto coverthe dividend (after corporate costs) and the use of cash forreinvestmentin profitable opportunities available to theGroup.

Total remittancesto theGroup decreased by 3 per cent in 2018, compared with 2017. Remittancesfrom Asia, increased, demonstrating the quality and scale of its growth. Remittancesfrom theUS were £342 million. Remittancesfrom M&GPrudential increased by 2 per cent.

Prudential issubject to the risk-sensitive solvency framework required under European Solvency II Directives (Solvency II) asimplemented by the Prudential Regulation Authority in the UK. The Solvency IIsurplusrepresentsthe aggregated capital (own funds) held by the Group, lesssolvency capital requirements.

The high quality and recurring nature of our operating capital generation, beneficial effects of debt issued and disciplined approach to managing balance sheet risks are reflected in the solvency capital surplus, which increased to £17.2 billion at 31 December 2018.

• 1 The comparative resultsshown above have been prepared using an actual exchange rate (AER) basis except where otherwise stated. Comparative results on a constant exchange rate (CER) basis are also shown in financial tables in the Chief Financial Officer'sreport on our 2018 financial performance. CAGR is compound annual growth rate.
• 2 Adjusted IFRS operating profit based on longer-term investment returnsis management's primary measure of profitability and provides an underlying operating result based on longer-term investment returns and excludes non-operating items. See note III of Additional unaudited financial information for definition and reconciliation to IFRS balances.
• 3 The EEV basisresults have been prepared in accordance with EEV principles discussed in note 1 of the EEV basis results. See note III of Additional unaudited financial information for definition and reconciliation to IFRS balances.
• 4 For insurance operations, underlying free surplus generated represents amounts maturing from the in-force business during the period lessinvestment in new business and excludes non-operating items. For asset management businesses, it equatesto post-tax operating profit for the period. Restructuring costs are presented separately from the underlying business unit amount. Further information isset out in note 10 of the EEV basisresults.
• 5 Cash remitted to theGroup forms part of the net cash flows of the holding company. A full holding company cash flow isset out in note II (a) of the Additional unaudited IFRS financial information. This differsfrom the IFRS Consolidated Statement of Cash Flows which includes all cash flowsrelating to both policyholders' and shareholders' funds. The holding company cash flow istherefore a more meaningful indicator of theGroup's central liquidity.
• 6 TheGroup shareholder capital position excludesthe contribution to Own Funds and the Solvency Capital Requirement from ring fenced with-profit funds and staff pension schemesin surplus. The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.
• 7 Estimated before allowing forsecond interim ordinary dividend.

06

2014 2015 2016 2017 2018

CAGR +12%

3,566 3,640

4,047

2,553

3,025

Asia

2018 performance highlights

• Continued performance in key metrics: new business profit up 14 per cent¹ , operating profit up 14 per cent¹ and underlying free surplus generation up 14 per cent¹
• Developed over 160 products in 2018 and added 1.4 million new life customers²
• Signed an exclusive partnership with Babylon Health to provide AI-powered digital health services in up to 12 markets across Asia
• Established Eastspring's wholly foreign-owned enterprise in Shanghai and extended our asset management presence to Thailand, following the acquisition of TMB Asset Management
• Continued expansion in China, following entry into Hunan province and 10 new cities
• Retained Eastspring's 'Best Asia Fund House' accolade in the AsianInvestor Asset Management Awards
• In early 2019, we renewed and expanded our successful regional strategic bancassurance alliance with UOB

Asia

Continued progress against our strategic priorities, which align with the evolving and expanding sources of demand in Asia, leaves the business well positioned for sustained future growth.

Our business

Itis 95 yearssincewe established our first operationsinAsia.Ourlong heritage and strong brand awarenessformthe foundations of our business and today our footprintspans14markets andencompasses 3.6 billion people.We have a top three position in eight out of our 12 insurance markets3 and Eastspring, our asset management business,remainsthe largest pan-regionalretail assetmanagerinAsia, excluding Japan.In addition, Eastspring retained the prestigious'BestAsia Fund House' accolade in 2018, a featthat has now been achievedin three ofthe pastfour years.

Webelieveour commitmenttocustomerson 'listening,understanding,delivering' is a key differentiator.Tofulfilthis,we adopt amulti-channelstrategywithover600,000 agents,over300distributionpartners andan increasingonlineoffering, enablingusto serveour customers'needsintheirpreferred manner.Wehave aprovenability toattract, developandretaina talentedanddiverse workforce, employingover13,000people withmore than40separatenationalities and wide-rangingindustrybackgrounds.This enablesustoremainatthe forefront ofproductdevelopment, create innovative servicesforour customers andembeddigital technology todrive efficiency.

We are also able to translate these hallmarks of our businessinto financial success, with ourstrong performance in 2018 building upon our existing excellent track record. Our gross premium earned grew4 by 9 per cent1 to £16.5 billion, and renewal premiums5 grew by 16 per cent 1 . This helped deliver a 14 per cent ¹ increase in operating profit ⁶ to £2.2 billion and grow our total assets by 11 per cent 7 to £94.2 billion. We also delivered 14 per cent1 growth in new business profit8 to £2.6 billion and the total embedded value of the business grew 16 per cent7 to £24.3 billion. At Eastspring, we managed fundstotalling £151 billion at the end of 2018, invested in over 1,600 funds.

Market opportunity

In Asia, we provide insurance and asset managementsolutionsthat enable customers of all agesto addresstheir health, protection and savings needs. Demand for our productsis underpinned by low levels of existing coverage and is furthersupported by economic and demographic tailwindsthat look set to persist over the coming decades.

Today, consumersin Asia are both under-insured and under-saved during their working lives, which leavesthem inadequately prepared for retirement.

Thisis evident from the significant gap in life insurance penetration rates compared with developed markets. Furthermore, the limited welfare socialsafety net in many of our markets meansthat out-of-pocket healthcare spend by people in Asia isthree to four timesthe proportion seen in the US andUK. Collectively, these dynamics resulted in an estimated health protection gap ofUS\$1.8 trillion in 2017 acrossthe Asia region9 .

The economic growth potential of the region is widely recognised and is expected to translate into rising levels of affluence, with 88 per cent of the next billion entrantsinto the middle class predicted to be based in Asia10. Entering the middle classistypically the trigger for individualsto protect their health and that of their families, while also seeking to manage and grow their wealth. Indeed, total annual expenditure by Asia's middle classisforecast to reachUS\$37 trillion in 203010, more than double the current amount.

Asia's economies are also benefiting from a demographic dividend with moderating fertility rates and improving life expectancy. In youthful markets,such asIndonesia, thisis creating a surge in the working age population and with that a continued source of demand for our

02

04

06

Prudential life customer and population by age11,12

• Illustrative future profile Population profile (Asia)
• Working age population 2.3bn Over 65s 286m Working age population 2.5bn Over 65s 448m <15 16- 20 21- 25 26- 30 31- 35 36- 40 41- 45 46- 50 51- 55 56- 60 61- 65 66- 70 71- 75 76- 80 >80 <15 16- 20 21- 25 26- 30 31- 35 36- 40 41- 45 46- 50 51- 55 56- 60 61- 65 66- 70 71- 75 76- 80 >80 3.3bn 3.7bn 2018 2030

Our businesses Asia continued

Middle class in Asia as a proportion of world middle class10

products. Across Asia the working age population isforecast to grow by almost one million people per month between now and 2030 to 2.5 billion people11. Meanwhile, the number of those aged over 65 is projected to almost treble by 2050 to 700 million11. Thisis expected to create demand for new solutionsin markets with ageing populations,such asHong Kong and China, asindividualslook to maintain theirstandard of living during retirement.

Whilst these trends provide an attractive backdrop, we need to remain diligent and focused in our execution as a wide range of external developments can affect our business. The escalating trade-related

tensions between theUS and China contributed to increased equity market volatility in the second half of 2018. The landmark election result in Malaysia heralded the first change in governing party since independence in 1957 and we have been actively discussing how we support the new leadership in their desire to provide greater insurance accessto the Malaysian population. In China, there was a step forwardsin easing foreign investment in the insurance sector, with caps on foreign ownership expected to be lifted by 2021. Alongside these developments, regulators acrossthe region are seeking to reward disciplined riskmanagement practices by strengthening consumer protection and migrating to risk-based solvency frameworks.

We are steadfast in our conviction that the structural drivers of consumer demand in thisregion are of greatersignificance to our businessthan short-term market or regulatory driven events. We also recognise that the insurance industry is not immune to the pervasive impact of technology and the way thisisshaping our customers' expectations and behaviours with regardsto accessibility,service and overall experience. These perspectives are instrumental in guiding the decisions we take to position our businessfor future success.

Strategic priorities

Our business achieves high risk-adjusted returns by maintaining a disciplined focus on value. Two key distinguishing features of oursales mix are the contribution from health and protection products, which

collectively accounted for 70 per cent of our new business profit in 2018, and the high proportion of regular premiums, which comprised 94 per cent of APE sales. We favour this mix because it provides our shareholders with a higher and more stable return across market cycles. Oursuccessin health and protection is underpinned by our comprehensive underwriting processes, extensive experience and technical capabilities of our in-house professionals. Meanwhile, the high proportion of regular premiums ensures we collect a steady stream of revenues across market cycles.

Thisfocus on value issupported by four strategic prioritiesthat we believe align with the evolving sources of demand acrossthe region and hence will position our businessfor continued future growth. We seek to enhance the core of our existing business by improving our customers' experience. Significantly, we have extended our exclusive partnership with UOB until the end of 2034 and, due to its successto date, agreed to expand itsscope to include Vietnam andUOB's digital bank. We also continued to expand and diversify our distribution reach with nine new bank partnerships acrosssix of our markets being successfully activated during 2018, including Siam Commercial Bank in Thailand and O-Bank, the first digital bank in Taiwan. The success of these partnershipsis underpinned by the quality and competitiveness of our products, the additional value-added services we offer to customers and the digital tools and training we provide to salesteams.

We simplify the process of purchasing a policy by embracing the latest technology and embedding this within proprietary tools used by our agents and bank partners. For example, over 70 per cent of all new business wassubmitted through e-point-of-sale technology. Oursmart underwriting tool, which is now used in 59 per cent of allsales, provides dynamic underwriting thatstreamlinesthe application process, while also communicating instant underwriting decisionsto customers.

We also use digital technology in servicing policies, both to improve the efficiency of our business and to enhance customer satisfaction. InHong Kong we developed the 'Hospital to Prudential' portal to redefine the way our customers and medical professionals manage hospital claims, reducing the time required to submit a claim to just three minutes. Meanwhile, in China we have extended

Prudential Corporation Asia is well positioned to benefit from long-term structural opportunities

our award-winning WeChatself-service platform to include 90 per cent of all policy administration actions. Similarly, in Thailand we created a new customer servicestouchpoint through PruConnect, which enables customersto quickly access key information such as policy information, premium certificates and nearby network hospitals.

Secondly, we want to create 'best-in-class' health capabilities and attained new business profit growth of 15 per cent from health and protection productsin 2018. Ourstrategy issupported by distinctive value-added services,such asthe exclusive multi-year partnership we signed with Babylon, aUK-based healthcare and technology services company. This partnership will provide personal health assessments and treatment information, powered by artificial intelligence, which will transform health provision for our customers. This will greatly enhance our customers' accessto healthcare, particularly for those in remote locations, whilst empowering them to proactively manage their health in a flexible and cost-efficient manner.

Thirdly, we plan to accelerate Eastspring by expanding its existing investment offering and enhancing its distribution capabilities. We have continued to strengthen our in-house investment teams, which helped uslaunch 51 new productsin 2018. In September, we also entered Thailand, the largest mutual fund market in the Association of Southeast AsianNations (ASEAN)13, with the acquisition of TMB Asset Management. Our on-the-ground

PRUconnect

PRUconnect, one of Prudential Thailand's latest offerings, is aimed at extending online customerservice via LINE, a popular instant-communication mobile application in Thailand with more than 44 million active users. Launched in January 2018, PRUconnect provides policyholders with a dedicated web portal where they can access policy information, make premium payments, download premium certificates and locate nearby network hospitals, as well as a range of otherself-service options.

PRUconnect also includes a chatbot feature, which uses artificial intelligence to simulate natural conversations. Customers can submitsimple enquiriesto the PRUchat bot via the LINE app, and stay connected to the company for assistance anytime and anywhere.

team recently launched an Asia Pacific Property Flexible Fund that obtained inflowstotallingUS\$91 million during the week-long initial public offering period.

Finally, we intend to expand our presence in China across both the insurance and asset managementsectors. We recently established a new branch inHunan and received regulatory approval to undertake preparatory work to establish a new branch in Shaanxi, our nineteenth and twentieth provinces, respectively, offering accessto over 100 million new people. This geographic expansion issupported by the diligent growth in our agency force, which grew by 7 per cent in 2018 to 48,000

agents. We also formed a two-year research partnership with the Development Research Centre of the State Council focused on the development of a sustainable pension system, which is testament to our aspirationsin this market and our differentiated capabilities. Another major milestone in China wasthe opening of Eastspring's wholly foreign-owned enterprise in Shanghai. This enables usto manage onshore investmentsfor high-networth individuals and institutional investorsin China, complementing our existing asset management joint venture with CITIC. Our first private fund has a Chinese equities mandate and is

Eastspring total funds under management7 £bn

02

04

06

05

Our businesses Asia continued

expected to launch in April 2019, with further investmentstrategies planned to follow in due course.

Customers

Ourstrong reputation and successto date have been built on a foundation of excellent customerservice. During 2018, we added a further 1.4 million new life customers2 , bringing the total to over 15 million life customers. Ourstrong retention ratio, which remained in excess of 90 per cent, and the consistently high proportion of repeatsales, which last year contributed over 40 per cent of APE sales, demonstrate the regard and trust our customers have in our business. These dynamics mean that we have 24 million in-force policiesin total, with each of our policyholders holding 1.6 policies on average. In addition, our focus on health and protection businessis reflected in a 7 per cent increase in sum-at-risk per policy, which is a leading measure of insurance coverage. Funds managed by Eastspring grew by 6 per cent to £151 billion at the end of 2018, with 10 per cent growth amongst third-party retail clients.

We maintain this advantage by constantly striving to improve the experience of our customers, with whom we have over two million interactions every month, including over 300,000 calls. Our customerstypically need us most when they want to submit a claim asthis can signify the death or illness of a family member. Consequently, we strive to provide a frictionless claims process at this sensitive time. To facilitate this, our new Jet claimstool, which is currently being used inHong Kong and Indonesia, can automatically review, assess and pay a claim on the same day. We now have e-claims capability in six of our businesses and have already attained submission rates of almost 40 per cent. We also leverage technology in our more regular dealings with customers. For example, our new Virtual Assistant inHong Kong, which builds upon the success of our askPRU chatbot that waslaunched in Singapore in 2017 and reduced call centre volumes by 40 per cent, already has answersto many frequently asked questionsfrom agents and policyholders.

At Eastspring we use digital toolsto help our retail clientsset and achieve their savings goals. Our partnership with Alkanza has enabled usto build a roboadvisory platform in Taiwan that can suggest portfolio rebalancing if performance is off track and hasthe functionality to show the impact of changes

PRUworks

PRUworksis a digital ecosystem designed to help small and medium-sized enterprises (SMEs) grow their businesses, and attract and retain talent. A first-of-its-kind platform by an insurer in Singapore, PRUworks gives business owners and their employees easy and convenient accessto insurance, employee benefits and businesssolutionsin one seamless digital experience.

PRUworksistargeted specifically at SMEs, an under-served market in need ofsolutions catering to theirsize and budget. Wellness solutions, a core component of PRUworks, are offered as part of Prudential's collaboration with healthtech companies and include fitness monitoring,specialist doctor recommendations and health screenings. Participating SMEs can also enjoy complimentary accessto the Singapore government's'SMEHealth+' initiative, which includes programmesin chronic disease management, healthy eating, active living and mental wellbeing.

in parameters,such asretirement age and contribution amount.

Products

We offer our customers a broad range of health, protection and savingssolutions that are tailored to local market requirements and individual needs. Key to our ongoing successis our focus on upgrading our productsuite to add innovative new features. Indeed, last year nearly half of new business profit arose from the 160 productsthat were developed in 2018. For example, inHong Kong we launched a new critical illness product with extended protection for cancer, heart attacks and strokes, three common causes of death, and wasinstrumental in generating the 17 per cent growth inHong Kong's new business profit. Similarly, we enhanced our protection product for mothers and unborn children in Malaysia, PRUmy child, by expanding the range of pregnancy complicationsincluded and extending the coverage period for congenital illnesses. We are also actively developing productsto meet the upcoming needs of Asia's ageing populations and were amongst the first group of insurersto be granted approval to offer a tax-deferred pension product in China.

In addition, we develop products with specialist characteristicsthat broaden our offering and appeal. We have been proponents of productsthat comply with the requirements of Islamic law for many

years. Indeed, we offersuch products by default, and sales of our Syariah products in Indonesia grew by 17 per cent in 2018 to over £50 million, equivalent to over 20 per cent of our APE in this market. This positions us as market leadersin Indonesia's Syariah market, in addition to Malaysia's Takaful market, with market shares of approximately 30 per cent in both cases. We have also launched PRUvital cover in Singapore, a first-in-the-market protection plan for customers with four types of common pre-existing chronic medical condition that previously could act as barriersin obtaining insurance coverage.

Historically our products were targeted at the mass and affluent marketsegments. We are purposefully developing new productsto meet the needs of other segments. In Singapore we recently launched Opus, a proposition specifically tailored for high-net-worth customers. This brings a differentiated experience for our customers and includes a dedicated service team, wealth planners and external experts covering trust and legal matters. We also launched PRUworks, our new insurance proposition for the corporate segment to targetsmall and medium enterprises. Our PRUworks platform is an all-inclusive platform that comes with a digitally enabledHR solution for business owners and their employees, which provides accessto employee benefits and services alongside additionalservices such aslifestyle programmes.

A leading pan-Asia franchise

Cambodia

Accelerate Asia

Compounding revenues and profits Prudential Corporation Asia is a business with compounding revenues underpinned by high quality recurring income that is uncorrelated to investment markets. The currentscale and profitability has been achieved by increasing our customer base and penetration acrossthe continent. Growth is driven by our ability to meet customer needsthrough the breadth of markets we operate in, the scale and innovation of our operations, the capabilities of Eastspring Investments, our pan-Asia asset manager, and our diverse and talented workforce.

Diversification

Operating profit by region Full year 2018 %

Full year 2018 %
------------------	--	--	--	--	--

1 Hong Kong		20% +33%
2 Indonesia	20%	+0%
3 Singapore		15% +22%
4 Malaysia	9%	+9%
5 Vietnam		7% +16%
6 China		7% +20%
7 Thailand	5%	+5%
8 Taiwan		2% +24%
9 Philippines		2% +13%
10 Eastspring	8%	+6%
11 Others	5%	+3%

Growth rate vs 2017 constant exchange rates

Life insurance Market ranking3 1st Population 16m Penetration16 0.1% China¹⁷ Life insurance Market ranking3 5th Population 1.4bn Penetration16 2.7% Average health protection gap per household9 US\$1,724 Eastspring Funds under management18 £6.2bn Hong Kong Life insurance Market ranking3 3rd Population 7m Penetration16 14.6% Average health protection gap per household9 US\$9,156 Eastspring Funds under management18 £3.4bn India¹⁹ Life insurance Market ranking3 2nd Population 1.4bn Penetration16 2.8% Average health protection gap per household9 US\$1,382 Eastspring Funds under management18 £17.8bn Indonesia²⁰ Life insurance Market ranking3 1st Population 267m Penetration16 1.9% Average health protection gap per household9 US\$1,230 Eastspring Funds under management18 £4.0bn Japan Eastspring Funds under management18 £5.4bn Korea Eastspring Funds under management18 £8.1bn Laos Life insurance Market ranking3 Top 3 Population 7m

Penetration16 0.0%

Malaysia21
Life insurance
Market ranking3	1st
Population	32m
Penetration16 Average health protection	3.3%
gap per household9	US\$6,864
Eastspring Funds under management18	£8.1bn
Philippines
Life insurance
Market ranking3	3rd
Population	107m
Penetration16	1.2%
Average health protection
gap per household9	US\$1,406
Singapore22
Life insurance
Market ranking3	2nd
Population Penetration16	6m 6.6%
Average health protection
gap per household9	US\$13,776
Eastspring
Funds under management18	£80.1bn
Taiwan
Life insurance
Market ranking3	13th
Population	24m
Penetration16	17.9%
Average health protection gap per household9	US\$4,823
Eastspring Funds under management18	£4.9bn
Thailand
Life insurance
Market ranking3	9th
Population	69m
Penetration16	3.6%
Average health protection gap per household9	US\$287
Eastspring
Funds under management18	£9.3bn
Vietnam
Life insurance
Market ranking3	4th
Population	97m
Penetration16	1.3%
Average health protection
gap per household9	US\$1,251
Eastspring

02

04

Distribution

Our diversified mix of tied agents and bank partners creates one of the strongest distribution networks acrossthe region with non-traditional partnershipsfurther broadening our reach. Our experience shows customers have an overarching preference for face-to-face advice from a trusted financial adviser while also increasingly demanding the flexibility to conduct basic research and fact-finding themselves digitally. Thus, whilst our tied agents and in-branch bank staff remain our primary distribution channels, customers are now more actively engaging with us through our online platforms.

Prudential has over 600,000 licenced tied agents across our 12 life marketsin Asia. This proprietary distribution channel is a core component of oursuccess, accounting for 84 per cent of new business profit, having grown by 14 per cent in 2018. The value provided by our tied agents makesit paramount for usto continue expanding their reach and enhancing their capabilities. We place great emphasis on the professionalism and productivity of our agency force, and facilitate this by continually providing new and upgraded tools. This creates a culture whereby our agents aspire to attain membership of the 'Million Dollar Round Table', an industryrecognised indicator of quality. We currently have over 7,000 such qualifiers, which would represent annual growth in members of approximately 20 per cent23 and reflects our focus on the recruitment, training and productivity of our agents, the emphasis on which varies by market. In our younger markets we are typically still accelerating recruitment. For example, we added over 1,100 new agents per month in the Philippines on average during 2018, which was more than 40 per cent higher than in 2017, and helped expand our agency force to around 28,000 agents. As markets mature the emphasisstartsto shift Notes

• 1 Growth rate on a constant exchange rate basis.
• 2 Excluding India.
• 3 Based on full year 2018 or the latest information available. Sourcesinclude formal (eg competitorsresultsrelease, local regulators and insurance association) and informal (industry exchange) marketshare data. Ranking based on new business(APE sales, weighted full year premium or full year premium depending on availability of data).
• 4 IFRS gross premiums earned for Asia segment. 5 Includesrenewal premiumsfrom joint ventures. See note III of the additional unaudited financial information for reconciliation to IFRS balances.
• 6 Adjusted IFRS operating profit based on longer-term investment returns. See note B1 of the IFRS financial statementsfor reconciliation to IFRS profit.
• 7 Growth rate on an actual exchange rate basis. 8 New business profit on businesssold in the year,
• calculated in accordance with EEV principles. 9 Swiss Re Institute: The health protection gap in Asia,
• October 2018. Average gap per household is calculated as'total health protection gap divided by the estimated number of households hospitalised under the mentioned gap range'. Report excludes Cambodia and Laos.

towardsthe other factors. We have designed an entrepreneur development programme to fast-track oursuccessful professional agentsinto leaders, which in turn supports our activation of new recruits. This programme has already been launched in China, where the number of active agents grew by 12 per cent in 2018.

We pioneered the strategy of partnering with banksin Asia over 20 years ago and now have one of the largest and most successful bancassurance franchise in the region. Ourstrategic bank partnerships include multi-national banks, regional banks and prominent domestic banksin many key marketsincluding China, India and Taiwan. In total we have accessto over 14,000 bank outlets. Collectively, these partnerships contributed over 30 per cent of our APE salesin 2018 and associated new business profit grew by 19 per cent.

We have also started collaborating with non-traditional partners, including DirectAsia,Hiscox's online property and casualty businessin Singapore, and Eureka, a data management and analytics platform based in Indonesia. These mutually beneficial partnerships will enable usto reach new customers and create unique opportunitiesfor our existing ones.

Business outlook

We continue to see a strong runway for the insurance and assetmanagement industries in Asia. We recently conducted a strategic assessment, which re-affirmed the strengths of our business, established the potential future size of our markets and has informed our future investment pathway.

The review demonstrated that we are well positioned in the traditional life insurance segment, with a marketshare of approximately 25 per cent24. We forecast that this market hasthe potential to continue growing at a double-digitrate over the coming five years, due to the underlying

• 10 BrookingsInstitution.Global Economy & Development Working Paper 100. February 2017. 'Asia' represents Asia Pacific.
• 11 UnitedNations, Department of Economics and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision.
• 12 Working age population: 15 to 64 years. 13 ©Copyright 2018 Strategic Insight, an Asset International Company and when referenced orsourced MorningstarInc., Standard & Poor'sInc., and Lipper Inc. All rightsreserved. The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) may not be copied or redistributed for any purpose, (c) are provided solely for information purposes, and (d) are not warranted or represented to be correct, complete, accurate, or timely.
• 14 Weighted premium income comprises gross earned premiums at 100 per cent of renewal premiums, 100 per cent of first year premiums and 10 per cent ofsingle premiums.

structural drivers of demand in the region. Our presence,scale and broad product and distribution reach position us well to participate strongly in this expected growth.

We also anticipate strong growth in the medical reimbursementsegment in our current markets, which we believe will more than double in the next five years due to increasing consumer demand. We have estimated that ourshare of the value pool in thissegment is currently 9 per cent, which gives ussignificantscope to expand. This ambition isreflected in ourstrategic priorities with recent investments,such as Babylon, transforming our offering.

Our market-leading position in retail fund management reflects our region-wide presence and strong operating credentials. This positions us well for the future growth in the market that is expected from new wealth creation and the shift we envisage from depositsto riskier investments. We believe these factors make double-digit growth viable in India, where we are market leaders, alongside other key marketssuch as China and Thailand, where we have taken action to strengthen our position.

Nic Nicandrou Chief Executive Prudential Corporation Asia

• 15 Comparatives have been stated on a constant exchange rate basis.Historic results have been restated to exclude sales from the Korea and Japan life businesses, which have been disposed of. 2014 excludesintra-group reinsurance
• contracts between theUK and Asia with-profits businesses. 16 Market penetration: Swiss Re (Sigma) – based on insurance
• premiums as a percentage ofGDP in 2017 (estimated). 17 Total joint venture / foreign players only. 18 FUM reported based on the country where the funds
• are managed.
• 19 IFRS gross premiums earned for Asia segment. 20 ExcludesJiwasraya.
• 21 Includes Takafulsales and excludesGroup business.
• 22 Includes onshore only, excluding Eldershield and DPS.
• 23 Based on 100 per cent conversion of qualifiersintomembers. 24 Proprietary research/Bain Analysis(2018) covering the following markets:Hong Kong; Singapore; Indonesia; Malaysia; China; and India, using sales data provided by insurance regulators, insurance associations and industry expertsurveysin these markets.

02

04

Customers

InAsia, we focus our efforts on helping new and existing customers build betterfuturesforthemselves and their families, by helping to fill the savings and protection gap that existsinmanymarketsin the region.

Products

We listen to our customersto help us understand their changing needs and tailor our design of product solutions and services.

Distribution

We are well-positioned in terms of the scale and diversity of our distribution to reach and serve our customers' needs. At the core of our distribution model isface-to-face customer interaction that delivers high-quality, needs-based advice.

Investment for growth

Building on ourstrong track record, we are building for future growth by investing in new opportunities and capabilities.

Driving our business Creating value and benefiting our stakeholders

15 million life customers

94% of APE sales in regular premium

70% of all new business submitted through e-point-of-sale technology

+600,000 agents

Access to over 14,000 bank outlets

Now in 87 cities in China

9 new bank partners across 6 markets

Eastspring Investments' total funds under management £151 billion

United States

2018 performance highlights

• New distribution relationship with State Farm
• New collaboration to offer advisory annuities on the Envestnet® Insurance Exchange
• Awarded 'Contact Center World Class CX Certification' and 'Highest Customer Service for the Financial Industry' awards by The Service Quality Measurement Group, Inc.

Our businesses United States

Providing an ageing American population with financial strategies for stable retirements.

TheUS isthe world'slargest retirement savings market with approximately 40 million Americansreaching retirement age over the next decade. Thistransition will trigger the need for an unprecedented shift of trillions of dollarsfrom savings accumulation to retirement income generation.

However, these Americansface challenges in planning for life after work. For those nearing the end of their working careers, a financially secure retirement is at risk, due to insufficient accumulation ofsavings and the current combination of low yields and market volatility. Employer-based pensions are disappearing, and government plans are underfunded. Socialsecurity was never intended to be a primary retirement solution and today itslong-term funding statusisin question. Additionally, the life expectancy of an average retiree has significantly increased, lengthening the number of yearsfor which retirement funding is needed.

To overcome these challenges, Americans need and demand retirementstrategies that offer them the opportunity to grow and protect the value of their existing assets, as well asthe ability to provide guaranteed income that will last throughout their extended lifetimes.

In response to this demand and the ongoing shift to fee-based solutions, Jackson has positioned itself with product innovation and distribution strategiesto further enhance our market-leading VA position in the brokerage market and grow in the advisory retirementsolutions market.

Customers and products

Through its distribution partners, Jackson provides productsthat offer Americansthe retirementstrategiesthey need, including variable, fixed and fixed index annuities. Each of these products offer a unique range of featurestailored to meet the individual needs of the retiree:

Variable annuity A Jackson variable annuity, with investment freedom, represents an attractive option for retirees, providing both accessto equity market appreciation and guaranteed lifetime income as an add on benefit.

Fixed index annuity A Jackson fixed index annuity is a guaranteed product with limited market exposure but no direct equity ownership. It is designed to build wealth through a combination of a base crediting rate that is generally lower than a traditional fixed annuity crediting rate, but with the potential for additional upside, based upon the performance of the linked index.

Fixed annuity A Jackson fixed annuity is a guaranteed product designed to build wealth without market exposure, through a crediting rate that islikely to be superior to interest rates offered from banks or money market funds.

These products also offer tax deferral, allowing interest and earningsto grow tax-free until withdrawals are made.

Jackson has a proven track record in this market with its market-leading flagship product1 , Perspective II. Jackson'ssuccess has been built on its quick-to-market product innovation, as demonstrated by the development and launch of Elite Access, our investment-only variable annuity. Further demonstrating Jackson's flexibility and manufacturing capabilities, and in response to the trend in financial servicestoward fee-based solutions, Jackson haslaunched Perspective Advisory II and Elite Access Advisory II to serve advisers and distributors with a preference for advisory products.

In March 2018, Jackson launched MarketProtector and MarketProtector Advisory, two new fixed annuities with index-linked interest. These products provide consumers with the sought-after combination of tax-deferred investment growth, protection from market risk and the flexibility to adapt to changing needsin retirement. Both products offer an add-on living benefit that allows customersto safeguard their financial futures with income for life.

Also, in 2018, Jackson took a lead role in bringing together 24 of America's financial services organisationsto launch the Alliance for Lifetime Income (Alliance). The Alliance waslaunched to educate Americans on the risk of outliving their income,so they can enjoy their yearsin retirement. The Alliance's nationwide, multi-year, integrated educational campaign is designed to raise awareness and motivate consumers and financial advisersto discussthe need for protected lifetime income in retirement, which can be achieved with the use of annuity products such asthose provided by Jackson.

Distribution

Jackson distributes productsin all 50 states of theUS and in the District of Columbia. Operationsin the state ofNew York are conducted through aNew York subsidiary. Jacksonmarketsitsretail products primarily through advice-based distribution channels, including independent agents, independent broker-dealer firms, regional broker-dealers, wirehouses and banks. For variable annuity sales, Jackson isthe leader in the independent broker-dealer, bank and wirehouse channels2 and fourth in regional firms2 .

02

06

Our businesses United States continued

Jackson's distribution strength also sets us apart from our competitors. Our wholesaling force isthe largest3 in the variable annuity industry and is instrumental in supporting the independent advisers who help the growing pool of American retirees develop effective retirementstrategies. Our wholesalers provide extensive training to thousands of advisers about the range of products and the investmentstrategies that are available to support their clients. Based on the latest available data, Jackson isthe most productive variable annuity wholesale distribution force in theUS3 .

In October 2018, Jackson announced a new distribution relationship with State Farm®. In the second half of 2019, authorised State Farm agents will begin offering a select group of Jackson's variable annuity and fixed index annuity products. While Jackson currently maintains one of the largestsalesteamsin the industry, this distribution relationship will add significant distribution accessthrough State Farm's growing network of qualified producers.

In February 2019, Jackson partnered with DPL Financial Partners(DPL) to provide our protected lifetime income solutionsto independent registered investment advisors(RIAs). The collaboration expands Jackson's distribution footprint and providesJackson with accessto new opportunitiesin the independent RIA channel.

Regulatory landscape

The industry has continued to manage through an ever-changing regulatory landscape. In 2016, theUS Department of Labor (DoL) released a final version of its Fiduciary Duty Rule (Rules), which sought to eliminate conflicts of interest in investment advice, in order to protect and encourage savings and investment for working Americans. These Rules were rescinded in 2018.However, other alternative proposals,such astheUS Securities and Exchange Commission's (SEC) best intereststandard, remain pending.

As a result of an improved regulatory outlook, rising interest rates and more aggressive product feature changes (ie withdrawal percentages) implemented by competitors, the annuity industry saw increased salesin 2018 (albeitstill well below levels prior to the DoL Rules proposal). Salesin the variable annuity industry as of the third quarter of 2018 at US\$75.4 billion4 were up 4 per cent compared with the same period last year.

Regardless of the outcome of the SEC best intereststandard, the regulatory disruption caused by the now rescinded DoL Rules has challenged the industry to review the waysin which investment advice is provided to American investors. Manufacturers will need to have the ability to provide product and system adaptations in order to support the success of various distribution partnersin their delivery of invaluable retirementstrategiesthat

investors need. Because of itsstrong distribution, leadership in the annuities market, best-in-classservice and a low-cost efficient operation, we believe that Jackson is well positioned to take advantage of this opportunity.

Furthermore, in late 2018, theUSNational Association of Insurance Commissioners (NAIC) concluded an industry consultation with the aim of reducing the non-economic volatility in the variable annuity statutory balance sheet and enhancing risk management. TheNAIC istargeting a January 2020 effective date for the new framework in order to allow adequate time for the drafting and implementation of the revised regulations and instructions with a potential three-year phase-in. TheNAIC also has an ongoing review of the C-1 bond factorsin the required capital calculation, on which further information is expected to be provided in due course. Despite these regulatory challenges, we believe that Jackson is well positioned to manage the impact of these regulatory changes.

Governance

02

report

06

Talking to Americans about bridging the retirement income gap

Last year, Jackson reintroduced the idea of 'protected lifetime income' into American retirement planning conversations by publishing 'The Return of Lifetime Income' in The Wall Street Journal, reaching millions of consumers. Recognising the need for a unified industry voice around this critical issue, Jackson also co-founded The Alliance for Lifetime Income, an innovative industry coalition to raise awareness among Americans about the financial risks and income gapsthey may face in retirement and the importance of protected lifetime income solutionsin helping bridge those potential gaps.

As Alliance co-chair, Jackson leadsthe charge to bring together 23 peer companies, non-profit groups and leading financial expertsto create awareness about the role annuities can play in truly comprehensive financial plans.

The Alliance sharesits mission through a breakthrough national educational campaign, including online and offline media engagement and advertising, digital and social media communication, content marketing, live events, virtual reality experiences, new financial planning tools, and much more.

Investment for growth

With trillions of dollars of adviserdistributed assets across distribution platformsthat have not historically been a focus,such asthe dually-registered investment adviser channel, we believe that a significant opportunity existsto reach even more American retirees and serve their needs with annuity products going forward. The industry will need to remain flexible and cost-effective in making changesto productsystems and processes. We continue to seek to understand and make the necessary adjustmentsto support the needs and demands of American retireesinto the future.

In September 2018, Jackson announced a technology integration collaboration with Envestnet® allowing Jackson to offer its complete productsuite of advisory annuities on the Envestnet Insurance Exchange. The new collaboration brings together a leading provider of annuities in theUS, with the leading provider of intelligentsystemsfor wealth management and financial wellness. Jackson is working with Envestnet to make annuities easier to work with inside of a client's portfolio. Advisers will be able to create more value for their clients by holistically considering longevity risk,sequence of returnsrisk, market risk and mortality risk within the Envestnet wealth management platform.

The acquisition of JohnHancock's group payout annuity businessin late 2018 represents a reaffirmation of Jackson's growth bolt-on strategy and continuing commitment to deploy capital at attractive return levels. Thistransaction further diversifiesJackson'srisk portfolio and revenue sourcesin relation to both general and separate account businesses.

With the ever-changing regulatory environment described earlier, Jackson has made and continuesto consider changesto its product offerings, entered into new selling agreements with advisory providers, and is working with its distributorsto support implementation of the anticipated SECbest intereststandard.

Our businesses United States continued

Jackson's competitive strengths are even more critical during periods of disruption. Our best-in-class distribution team, our agility and successin launching well designed products, the continued success of our risk management and hedge programmesthrough many economic cycles, and our effective technology platforms and award-winning customer service will provide Americans with the retirementstrategiesthey so desperately need. Jackson's discipline will enable usto be positioned to capture additional growth during times of transition into the future.

Michael Falcon Chairman and Chief Executive Jackson Holdings LLC

Notes

• 1 ©2019 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, complete, or timely.Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Morningstar www.AnnuityIntel.com Total Sales by Contract 3Q YTD 2018. Jackson's Perspective II for base statesranks #1 out of 973 VA contracts with reported salesto Morningstar's quarterly salessurvey as of 3Q YTD 2018.
• 2 ©2019 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) is not warranted to be accurate, complete, or timely.Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Morningstar www.AnnuityIntel.com Totalsales by company and channel 3Q YTD 2018. Jackson ranks #1 out of 25 companiesin the IndependentNASD channel, #1 out of 20 companiesin the Bank channel, #1 out of 16 companiesin the Wirehouse channel, and #4 out of 19 companiesin the Regional Firms channel.
• 3 Independent research and Market Metrics, a Strategic Insight Business.US Advisor Metrics 2018, as of 30 September 2018.
• 4 LIMRA/Secure Retirement Institute,US Individual Annuity Participants Report 3Q YTD 2018.
• 5 US Census Bureau Population division 2014 estimate of population.
• 6 2016 Federal Reserve Board's Triennial Survey of Consumer Finances.
• 7 US Department ofHealth andHuman Services, 'Health,United States, 2017.
• 8 New advisers defined as producers who have notsold Jackson productsince 2013.

02

04

06

Customers

Many retirees orsoon-to-be retireesface a reality of under-saving, having no guaranteed income source and the prospect of living longerthan any prior generation. Jackson'sfocusisto provide solutionsto help address these concernsforthemillions ofAmericans currently transitioning to and through retirement.

Products

Jackson's products provide needed accessto equity market growth, protection of principal, and a way of converting retirees'savingsinto retirement income with a degree of certainty.With a long history of disciplined product design and prudentriskmanagement, Jackson has earned and continuesto earn trust from its key stakeholders.

Distribution

Jackson's distribution teamsset us apart from our competitors. Jackson's variable annuity wholesaling force isthe largest and most productive in the industry, supporting thousands of advisers across multiple channels and distribution outlets.

Investment for growth

Jackson continuesto invest in technology and innovative productsto efficiently and effectively adapt to what our customers and regulatory environment require. Jackson hasrecently launched an advisory version of our flagship product Perspective II, our innovative Elite Access product and our fixed index MarketProtector product to allow for penetration into untapped distribution. Jackson also announced a technology integration collaboration with Envestnet® allowing Jackson to offer its complete productsuite of advisory annuities on the EnvestnetInsurance Exchange.

Driving our business Creating value and benefiting our stakeholders

Average of 10,000 Americans retire per day⁵

Assisting 4 million customers with their financial needs

Leading individual annuity seller in the US⁴

Perspective II is the #1 selling variable annuity contract¹

Largest and most productive VA wholesale distribution force in the US³

New marketing alliance with State Farm adding significant distribution access through its growing network of qualified producers

Technology integration collaboration with Envestnet®

Approximately 32% of Jackson's 2018 advisory variable annuity sales from new advisers⁸

M&GPrudential

2018 performance highlights

• Total M&GPrudential operating profit up 19 per cent to £1.6 billion, including the effect of updated longevity assumptions
• Total assets under management of £321 billion¹ including a rise in PruFund assets to £43 billion from £36 billion last year
• Major transformation programme already showing improvements in digital service for customers
• Luxembourg SICAV fund range launched with £21 billion assets under management as an investment in international growth and to minimise disruption of Brexit for customers
• Demerger preparation progressing at pace with several major milestones reached

Our businesses M&GPrudential

Building a simple and efficient savings and investments business.

M&GPrudential istheUK and Europe savings and investments business of Prudential plc. It wasformed in 2017 through the merger of Prudential'sUK and Europe insurance operations with M&GInvestments, Prudential's international asset manager.

Our business managestotal assets of £321 billion1 and serves more than six million customers worldwide. M&GPrudential offerssavings and investment productsfor individuals who want to build and protect their life savings. We provide innovative asset management and customersolutions,supported by strategic asset allocation, an international distribution network and two strong brands.

In March 2018, the Board of Prudential plc announced itsintention to demerge M&GPrudential. The Prudential Board believesthe demerger will further strengthen two already strong businesses. For M&GPrudential, the demerger will enable our leadership team to focussolely on what isimportant to our customers, give us direct control over our own capital and enable usto pursue growth opportunities without competing forresources with other Prudential plc businesses. M&GPrudential is expected to have a premium listing on the London Stock Exchange.

We see a huge opportunity in the growing savings gap across Europe. Assupport from the state diminishes and employers gradually retreat from guaranteed retirement provisions, more and more people need to make their own preparationsfor retirement and other life goals. At the same time, many people with sizeable asset pools, who want to grow or protect their value,seem to be keeping their money in cash despite the negative real return. Acrossthe EUthere is an estimated ¤10 trillion2 of cash sitting, largely idle, in bank deposits at very low interest rates.

We believe M&GPrudential is well placed to help our customers build and protect theirsavings because of the mix of our businesses, capabilities and people. We combine the best of fund management with compelling customer propositions in a highly collaborative culture. Our competitive advantages arise from the strength and depth of this business mix built over many years.

We have a fullset of diversified investment capabilities with expertise spanning a range of fixed income, equity, multi-asset, real estate and private asset classes. We are one of the largest multi-asset managers in Europe through the £131 billion Prudential With-Profits Fund and our range of branded M&Gfunds, and manage £59 billion of private assets, including an international real estate portfolio. We are a UK market leader in savingssolutions with our PruFund proposition, a modern way of with-profitsinvesting. We also have one of the fastest growing advised platforms3 in theUK, reaching £13.3 billion in assets under administration in the 24-month period since launch. We have a growing international distribution network with multi-channel breadth and depth, and two of the strongest brandsin the market.

Building on these competitive advantages, M&GPrudential's prioritiesin 2019 will be:

• to continue to serve our customers well, by improving outcomes and service levels, and widening product choice;
• to advance our merger and transformation programme, to modernise the businessso that we become a simpler, lower-cost, digital organisation; and
• to prepare M&GPrudential for demerger and itsfuture as an independent company with its own listing on the stock market.

Understanding our markets

M&GPrudentialservesthe world'slargest savings and investments markets, with a focus onUK and Europe. Acrossthe region, people increasingly need help to meet their long-term financial goals as responsibility for retirementsavings passes from state and employer to the individual.

Customersin our markets demand easy accessto savings and investmentsolutions, as well as guidance and advice from trusted providers. In addition, persistently low rates of return on bank cash deposits are fuelling demand for effective solutions, whether clients are saving for retirement, building a lump sum or protecting their wealth from inflation.

In the institutional market, clients are increasingly seeking bespoke solutions from asset managers with diversified investment capabilities and global reach. The combination of M&GPrudential's expertise in private assets, which are much in demand in thissector, and our growing international network of offices means we are well placed to serve these clients.

Customers

We serve a wide range of customers: individualssaving for retirement and other life goals; retirees who want to draw down on their accumulated savings; professional intermediaries who manage the savings of their own customers; pension funds; and other institutional clients with future, long-term financial commitments.

What all our customers have in common isthe desire for professional help to build and protect theirsavings with confidence. Our approach isto offer a broad range of products and services, in a variety of formats, through multiple distribution channels – all backed by the same in-house investment expertise and capability.

04

06

05

M&GPrudential

Our businesses M&GPrudential continued

Our customersfall into five broad categories:

• UK retail advised customers who are saving for retirement or who want to draw down on their accumulated savings. They typically invest in our market-leading PruFund, which offers smoothed, long-term returns adjusted for different risk tolerances;
• UK retail advised and direct customers who invest for the long term through our range of M&G-branded mutual funds. This group includes about 160,000 customers who invest directly with our fund management business;
• Customers of our traditional insurance businessin theUK.Numbering six million, these customerstypically hold a Prudential annuity, which pays an income for life, or an insurancewrapped savings bond;
• Wholesale clientsin Europe and Asia. These include retail banks, private banks, wealth managers, independent advisers and fund platforms. We manage £38 billion on behalf of these clients' own customers; and
• Pension funds and other institutional clients, who invest on behalf of their scheme members. We have nearly 900 such relationships, including 70 per cent of theUK'slargest pension schemes4 .

In 2019, we will continue to improve service levels and launch new offerings. In theUK retail market, we will broaden the choice of tax wrappers and products on our own adviser platform. InNovember, we made M&G'srange of mutual funds available for the first time on the Prudential adviser platform and in January, we launched PruFolio, a new range of passive, active and smoothed return funds.

For customers of our traditional insurance business, our modernisation programme is already improving service levels. Deployment of new digital technology hasreduced markedly the time it takesto process a redemption from a Prudential savings bond. Customers can now register for our MyPru online service in minutes.

During 2018, we transferred £21 billion of our key European fund offeringsinto new Luxembourg-based SICAVs, with the process expected to be completed as planned in the first quarter of 2019. This positions us well to minimise any potential disruption for our European clients stemming from theUK's withdrawal from the EuropeanUnion, while also creating a more flexible and robust platform for international growth.

%

Our investment solutions

The core engine of our businessis a long-standing collaboration between our fund managers and the strategic asset allocators who oversee the investment of the Prudential life funds. Thissymbiotic relationship enables usto diversify our investment capabilities and to innovate by developing high-quality productsfor all customers.

Ourinvestment capabilitiesspan the traditional publicmarkets,fromcash through fixed income and on to international equities.We also have a large range of private asset capabilities with £59 billion of assets undermanagement, covering real estate, private debt, corporate loans and infrastructure investmentssuch as broadband and solar energy.

This breadth of ourinvestment capability underpinsmany of our customer offerings. Itreinforcesthe reliability ofthe returnsfrom our £131 billionWith-Profits Fund, which is one of Europe'slargestmulti-asset portfolios forretailsavers5 . TheWith-Profits Fund has produced a cumulative grossreturn of 129.5 per cent over 10 years6 before tax and charges compared with a 121.4 per cent return fromthe FTSE 100 Index overthe same period, not allowing for any managementfees.Akey component ofthis performance is PruFund. Launched over 10 years ago, PruFund is a transparent and modern way of with-profitsinvesting in the UK, which hassince become the fastestgrowing savings and investment proposition acrosstheGroup.

Mutual fund investment performance, net of fees, weighted by: assets under management⁸

Improving the service for our M&GPrudential customers

When PrudentialUK customers want to withdraw their fundsfrom a bond they expect the speed and simplicity they'd receive from online shopping. So the challenge wasto simplify a complex, manual process and enable customersto get accessto their money more quickly.

Oursavings and investments businesstook the approach of transforming the whole customer journey – the customer experience from start to finish – rather than looking at each stage of the processindividually, asthey had done previously.

As a result, they've made significant improvements. The time customers have had to wait for usto send them their funds has been cut from more than two weeksto just

over three days. And the online journey is now much easier to use than the old one. In fact, 33 per cent of customers making a withdrawal have already adopted it after just four months. But even vastly improved journeys are only as good as customers' experience of them and, so far, they like it and tell usit's easy to use.

Following further cross-team collaboration, the business hasjust launched a version for independent financial advisers(IFAs) too and the initial response has been great. One IFA told usthat being able to gain accessto this data 'at the touch of a button is market-leading and savestwo weeks when compared to some competitors' manual processes.'

PruFund offersindividuals different rates ofsmoothed return aligned with their tolerance for risk. In 2019, we aim to enhance advisers' accessto PruFund by significantly upgrading our digitalservices across a range of tax wrappers. We are also exploring with European distributors, how we might make the benefits of PruFund available to saversin their markets. Today, assets under management in PruFund top £43 billion after attracting £8.5 billion of net inflows during 2018.

The With-Profits Fund has acted as an incubator for other productstoo. Among these are a range of investmentstrategies based on private asset investments – such asreal estate, infrastructure assets and private debt – and marketed to clients seeking thistype of exposure.

We are seeing strong demand from pension fundsfor our private asset products because they are seeking higher yieldsto manage long-term liabilities. These types of investmentstrategy remain comparatively resilient to fee pressure because they are not easy for passive investment managersto replicate asthey involve securing real and private assets.

During 2018, we continued to expand our range of mutual fundsfor retail investors. These included the innovative M&G Positive Impact Fund, which widens access to impact investing for retail customers who want to invest in companiesthat aim

to have a positive impact on society, and the M&GSustainable Allocation Fund, a multi-asset fund incorporating environmental,social and governance factors. We also launched an investment trust, M&GCredit Income Investment Trust, which for the first time allowsUK retail investorsto put their money into a combined portfolio of public and private debt.

Responding to the growing institutional client demand forsocial and environmental investmentstrategies, we also launched the M&GImpact Financing Fund, which was awarded BestNew Entrant (Fund) at the Sustainable and ESGInvestment Awards 2018. Total assets under management at 31 December 2018 were £321 billion1 (31 December 2017: £351 billion), reflecting inflowsto PruFund products, multi-asset wholesale offerings and other institutional business, more than offset by the expected redemption of a single low-margin institutional mandate and outflowsfrom bond and equity funds in volatile financial markets.

Distribution

At M&GPrudential, we have two outstanding complementary brands, both of which share a common philosophy of aiming to deliver excellent long-term customer outcomes.

Currently, we choose to serve our customers' needsthrough our many business-to-businessrelationships. These relationshipsinclude thousands of independent financial advisers, most of the high-street banks, wealth managers, institutional investment managers and pension funds. Two years ago, we established an adviser platform in the UK to give the market better accessto PruFund. Since then, we have diversified the range of products on the platform to include M&G mutual funds. In 2018, it was among the fastest growing platformsin the UK, reaching £13.3 billion of assets under administration.

Outside theUK, we distribute our investment products with the support of our financial advisers, independent asset managers, insurers and some of the world's largest banks. From a standing start just under two decades ago, we have built an international distribution network to distribute M&Gproducts and support clientsin 29 markets, with offices most recently opened in Australia and the United States. Our new Luxembourg investment platform, as well asreadying our businessfor Brexit, enables usto distribute our mutual funds more efficiently in Europe and beyond by offering our investmentstrategiesin the SICAV format favoured by many of our clients.

02

04

06 European

Additional information

Our businesses M&GPrudential continued

Update on business transformation and demerger

Our business modernisation programme is well advanced and already showing service benefitsfor customers. In January 2018, we announced a new partnership with Tata Consultancy Servicesto transfer, consolidate and upgrade the customer administration systemsfor our traditional insurance business. Thisinvolved the transfer of 2,500 people, including 650 Prudential colleagues.

Each day, we move closer to our model of a simpler, lower-cost, digital organisation. The impact on customer outcomesis already evident. Examplesinclude: a new digitalservice for investment bond customersthat hasreduced cash withdrawal waiting times by almost 80 per cent; changesto our bereavements processes, which are saving our customers 200,000 days of their time each year; and delivery ofsimplified annual benefit statementsfor more than one million Prudential customers. M&GPrudential remains on track to deliver the announced annualshareholder costsavings of circa £145 million by 2022 for a shareholder investment of circa £250 million.

The build of our corporate infrastructure is well advanced. The M&GPrudential leadership team isin place, a new governance model has been implemented and we have built a set of unified corporate supportservices.

In September, we announced the appointment of an M&GPrudential Chair, Mike Evans. During the first half of 2019, Mike and I will lead the recruitment of the board for the new listed company, including the appointment of independent non-executive directorsincluding the heads of the key committees.

John Foley Chief Executive M&GPrudential

Notes

• 1 Represents M&GPrudential asset management external funds under management and internal fundsincluded on the M&GPrudential long-term insurance business balance sheet.
• 2 Household deposit data, Eurostat 2017.
• 3 UK Advised Platform Market data, Platforum, Q3 2018. 4 Based on theUK's Top 50 Pension Schemes by size,
• S&P Money Market Directory, June 2018.
• 5 M&GPrudential analysis comparing our largest with-profits fund with other European mixed asset funds with data from Financial Express.
• 6 Performance data for Prudential with-profitsfund excludes hypothecated asset pools of Optimum Bonusfund and Risk-Managed PruFunds. Returns are shown before charges.
• 7 ABI Mixed Investment 20 per cent 60 per cent Shares (performance is net of charge). PruFund returns are also net of charge (0.65 per cent).Growth rate calculated acrossthe period August 2006 to December 2018.
• 8 Quartile ranking based on ranking of the funds representative share class, net of fees, within their respective Investment Association (IA) or Morningstar sectors. Closed funds excluded. M&Gtotal wholesale AUM was £69.5 billion as at 31 December 2018, representing 22 per cent of the total M&GPrudential AUM. One year figuresrepresent £67.8 billion AUM, three year figures represent £67.5 billion AUM, five year figuresrepresent £49.6 billion AUM, fund manager tenure figuresrepresent £67.8 billion AUM. Performance figuresinGBP, bid to bid, net income reinvested. Average fund manager tenure December 2017 = 5.7 years. Source: M&GPrudential, December 2018. IA and Morningstar Inc. combinedUK and Pan-European peer groups as at end December 2018.

04

06

Customers

Meeting the growing and fast-evolving saving and investment needs of customers acrossretail, institutional and direct channels.

Products

Market-leading propositions, including PruFund and the M&G Optimal Income Fund, available in a number ofsaving and investment wrappers; and a range of strategiesto help institutional customersmeet their long-termcommitments.

Distribution

Multi-channel distribution, based on strong relationships with institutional investors, advisers and intermediaries, and direct-to-customer franchises, including Prudential Financial Planning.

Investment for growth

Investing in our infrastructure to improve customerservice and business efficiency and drive long-term growth.

Driving our business Creating value and benefiting our stakeholders

+6 million customers

£321 billion total assets under management¹ across a broad range of strategies and asset classes

£43 billion PruFund assets under management

Launch of new M&G Impact Financing Fund

Extensive distribution relationships across financial advisers, high-street banks, wealth managers, institutional investment managers and pension funds

New offices opened in Australia and US

Luxembourg SICAV fund platform for international growth

Transformation programme improving customer service levels

On track to deliver the announced annual shareholder cost savings of circa £145 million by 2022

Positive financial performance demonstrating our focus on implementing our strategy

I am pleased to report that Prudential's financial performance in 2018 reflects our strategic focus on driving growth in high-quality, recurring health and protection and fee business across our geographies, products and distribution channels.

I am encouraged that our financial performance has been accomplished at the same time astheGroup has made good progressin the complex preparationsfor the intended demerger of M&GPrudential from Prudential plc, which we announced in March 2018. We have achieved a number of importantmilestones, including the reinsurance of £12 billion ofUK annuity policiesto Rothesay Life, the transfer of the Hong Kong insurance subsidiariesto Prudential Corporation Asia, the issuance of £1.6 billion ofsubstitutable debt as part of the necessary rebalancing of capital acrossthe two businesses, the establishment of a new holding company for M&GPrudential and the transfer ofUK operating subsidiariesto that company.

Our financial performance wasled by our Asia business which delivered double digit growth in new business profit (up 14 per cent1 ), adjusted IFRS operating profit based on longer-term investmentreturns ('operating profit') (up 14 per cent 1 ) and underlying free surplus generation2 (up 14 per cent1 ). This performance is both broad-based, with 10 markets achieving double-digit growth1 in new business profit, and high-quality, with health and protection new business profit growing by 15 per cent1 . OurAsia asset manager, Eastspring, has grown operating profit by 6 per cent amidst a challenging external environment. Our broad-based portfolio of life insurance and asset management businesses, high-quality products with distinctive value-added services and multi-channelstrategy ensure that we continue to benefit from the growing customer demand inAsia for health, protection and savingssolutionsthat we provide.

In theUS, we saw growth in fee income driven by higher average account balances offset by an increase in market-related deferred acquisition costs(DAC) amortisation and an expected reduction in spread-based revenues, leading to a fall in operating profit of 11 per cent. Jackson's hedge programme performed as expected as equity markets weakened towardsthe end of 2018 and contributed to an increased risk-based capital ratio of 458 per cent, up from 409 per cent at year-end 2017.

M&GPrudential delivered operating profit of £1,634 million, up 19 per cent (2017: £1,378 million). Thisincluded £519 million (2017: £597 million) from our core3 with-profits and annuity business, with the with-profits contribution up 11 per cent to £320 million, offset by lower annuities earningsfollowing the reinsurance of £12 billion4 of liabilitiesin March 2018. Other operating profitsincluded the benefit of updated longevity assumptions and an insurance recovery on the costs of reviewing internally vesting annuity sales. M&GPrudential remains on track to deliver the announced annualshareholder cost savings of circa £145 million by 2022 for a shareholder investment of circa £250 million.

Sterling weakened over the course of 2018, compared with most of the currenciesin our major international markets.However, average exchange ratesremained above those in 2017, leading to a negative effect on the translation of the resultsfrom non-sterling operations. To aid comparison of underlying progress, we continue to express and comment on the performance trendsin our Asia andUS operations on a constant exchange rate basis.

The performance of many equity markets wassubduedin 2018, andwas characterised by higher levels of volatility. The S&P 500 closed the year 6 per cent lower than 2017, the FTSE 100 index was down 12 per cent and the MSCI Asia excluding Japan index down 16 per cent.However, average balances, which have the most material impact on our fee-based earnings during the year, were mostly higher, reflecting the concentration of equity market weakness in the fourth quarter. Long-term yields increased favourably in theUS and our larger Asia markets, but were only slightly higher in theUK.

The key financial highlightsin 2018 were asfollows:

— New business profit was 11 per cent higher at £3,877 million (7 per cent on an actual exchange rate basis), while APE sales were up 1 per cent (down 2 per cent on an actual exchange rate basis). In Asia, new business profit increased 14 per cent with improved new business margins primarily

reflecting product mix. Jackson's new business profit increased by 5 per cent, primarily reflecting the favourable effect of higherUS interest rates.UK and Europe life new business profit grew by 3 per cent, driven by a 2 per cent increase in APE sales, supported by continued demand for products offering accessto our PruFund investment proposition.

• Asset management net outflows of £11.5 billion reflected external net outflows of £9.9 billion (2017: net inflows of £17.3 billion) within M&GPrudential assetmanagement, themajority of which related to the expected redemption of a single, lowmargin £6.5 billion institutionalmandate, with the remainderreflecting the challenging market environment for equity and fixed income business. Eastspring saw external net outflows, excludingmoney market funds, of £1.6 billion (2017: net inflows of £3.1 billion on an actual exchange rate basis), also as a result of market conditions.
• Operating profit was 6 per cent higher at £4,827 million (3 per cent higher on an actual exchange rate basis). Continued business momentum helped grow Asia's operating profit by 14 per cent to £2,164 million and M&GPrudential operating profit was 19 per cent higher, reflecting a number of beneficial impacts, which are not expected to recur at the same level. In theUS, operating profit decreased by 11 per cent, as a result of higher market-related DAC amortisation charges.
• Total IFRS post-tax profit was up 30 per cent at £3,013 million (26 per cent on an actual exchange rate basis) after a £508 million pre-tax loss following the reinsurance of £12 billion4 ofUK annuitiesto Rothesay Life. This increase was driven by Jackson, whose IFRS profit after tax in 2018 was £1,484 million, up from £245 million (£254 million on an actual exchange rate basis) reflecting higher interest rates and gainsfrom Jackson's hedging instruments as equity marketsfell towardsthe end of 2018.Group IFRS shareholders' equity was 7 per cent higher at £17.2 billion.
• EEV basis operating profit, including embedded value in-force profit, increased 19 per cent (15 per cent on an actual exchange rate basis)to £7,563 million. EEV basisshareholders' equity was up 11 per cent at £49.8 billion.
• Underlying free surplus generation² , our preferred measure of cash generation, from our life and asset management businesses, increased by 14 per cent to £4,047 million

(11 per cent on an actual exchange rate basis), after financing new business growth. This was driven by in-force growth of 10 per cent combined with a lower level of investment in new UK and Europe business as a result of management actionsto optimise capital absorption.

— Group shareholders' Solvency II capital surplus⁵ was estimated at £17.2 billion at 31 December 2018, equivalent to a cover ratio of

232 per cent6 (31 December 2017: £13.3 billion, 202 per cent). The improvement in the period reflectsthe continuing strength of theGroup's operating capital generation, and a net £1.2 billion increase in qualifying debt.

— Full year ordinary dividend increased by 5 per cent to 49.35 pence pershare, reflecting our 2018 performance and our confidence in the future prospects of our businesses.

IFRS profit

		Actual exchange rate	Constant exchange rate
	2018 £m	2017 £m	Change %	2017 £m	Change %
Operating profit before tax based on longer-term investment returns
Asia
Long-term business	1,982	1,799	10	1,727	15
Asset management	182	176	3	171	6
Total	2,164	1,975	10	1,898	14
US
Long-term business	1,911	2,214	(14)	2,137	(11)
Asset management	8	10	(20)	9	(11)
Total	1,919	2,224	(14)	2,146	(11)
UK and Europe Long-term business General insurance commission	1,138 19	861 17	32 12	861 17	32 12
Total insurance operations	1,157	878	32	878	32
Asset management	477	500	(5)	500	(5)
Total	1,634	1,378	19	1,378	19
Other income and expenditure	(725)	(775)	6	(769)	6
Total operating profit based on longer-term investment returns before tax and restructuring costs Restructuring costs	4,992 (165)	4,802 (103)	4 (60)	4,653 (103)	7 (60)
Total operating profit based on longer-term investment returns before tax	4,827	4,699	3	4,550	6
Non-operating items: Short-term fluctuationsin investment returns on
shareholder-backed business	(558)	(1,563)	64	(1,514)	63
Amortisation of acquisition accounting adjustments	(46)	(63)	27	(61)	25
(Loss)gainondisposalofbusinesses andcorporate transactions	(588)	223	n/a	218	n/a
Profit before tax	3,635	3,296	10	3,193	14
Tax charge attributable to shareholders' returns	(622)	(906)	31	(876)	29
Profit for the year	3,013	2,390	26	2,317	30

IFRS earnings per share

		Actual exchange rate	Constant exchange rate
	2018 pence	2017 pence	Change %	2017 pence	Change %
Basic earnings pershare based on operating profit after tax	156.6	145.2	8	140.4	12
Basic earnings pershare based on total profit after tax	116.9	93.1	26	90.0	30

report

06

Adjusted IFRS operating profit based on longer-term investment returns (operating profit)

2018 total operating profit increased by 6 per cent (3 per cent on an actual exchange rate basis) to £4,827 million.

Asia total operating profit of

£2,164 million was 14 per cent higher than the previous year (10 per cent on an actual exchange rate basis). Operating profit from life insurance operationsincreased 15 per cent to £1,982 million (10 per cent on an actual exchange rate basis), reflecting the continued growth of our in-force book of recurring premium business, with renewal insurance premiums7 reaching £12,856 million (2017: £11,087 million). Insurance margin was up 15 per cent, driven by our continued focus on health and protection business, now contributing to 70 per cent of Asia life insurance revenues8 (2017: 68 per cent). At a market level, growth wasled byHong Kong up 33 per cent, Singapore 22 per cent and China 20 per cent respectively. Eastspring's operating profit increased by 6 per cent (up 3 per cent on an actual exchange rate basis) to £182 million reflecting 4 per cent revenue growth which, combined with positive operating leverage, resulted in an improvement in the cost-income ratio7 to 55 per cent (2017: 56 per cent on an actual exchange rate basis).

US total operating profit at

£1,919 million decreased by 11 per cent (14 per cent on an actual exchange rate basis).Higher fee income was more than offset by higher market-related DAC amortisation and lowerspread-based income. Although equity markets declined in the fourth quarter, average separate account balances were above the prior year, given positive net inflows which supported higher levels of fee income. The higher market-related DAC amortisation arises mainly from £194 million acceleration of amortisation compared with £83 million favourable deceleration in 2017 (on a constant exchange rate basis), leading to an adverse year-on-year movement of £277 million. Excluding the acceleration and deceleration in 2018 and 2017, operating profit in 2018 would have been 2 per cent higher than 2017 on a constant exchange rate basis. The variability in DAC from year-on-year is dependent on separate account return and itsinteraction with the mean reversion formula applied by Jackson when determining the amortisation charge for the year. In the

current year the dominant factors driving this calculation have been the equity market fallsin 2018 (whereas 2017 saw equity market rises). Spread-based income decreased 20 per cent (22 per cent on an actual exchange rate basis), as anticipated, reflecting the impact of lower yields on our fixed annuity portfolio and a reduced contribution from asset duration swaps. While we expect these effectsto continue to compressspread margins, the continued upwards movementsinUS reinvestment yields may help to reduce the speed of the decline.

UK and Europe total operating profit was 19 per cent higher at £1,634 million.

Life insurance operating profit increased by 32 per cent to £1,138 million (2017: £861 million). Within thistotal, the contribution from our core3 with-profits and in-force annuity business was £519 million (2017: £597 million), including an increased transfer to shareholdersfrom the with-profitsfunds of £320 million (2017: £288 million) and within this, a 30 per cent increase in the contribution from PruFund business of £55 million. Earningsfrom our core3 annuities business were lower, reflecting the reinsurance of £12 billion of annuity liabilitiesto Rothesay Life in March 2018. The balance of the life insurance result reflectsthe contribution from other elements which are not expected to recur at the same level. This includesthe favourable impact of longevity assumption changes, contributing £441 million (2017: £204 million) relating to changesto annuitant mortality assumptionsreflecting recent mortality trends, which have shown a slowdown in life expectancy improvementsin recent periods, and the adoption of the Continuous Mortality Investigation (CMI) 2016 model (2017: adoption of 2015 model). The result also includes a £166 million insurance recovery, related to the costs of reviewing internally vesting annuitiessold without advice after July 2008. Profitsfrom management actions of £58 million were broadly offset by a provision of £55 million for the cost of equalising guaranteed minimum pension benefits on productssold by theUK insurance business, following aHigh Court ruling in October which applied acrossthe UK life insurance industry.

Asset management operating profit decreased 5 per cent to £477 million, largely reflecting a normalisation of performance feesto £15 million, compared with a particularly high contribution of

£53 million in the prior year. Excluding the contribution of performance fees, operating profit was 3 per cent higher. Thisreflects both the higher average level of funds managed by M&G(up from £275.9 billion in 2017 to £276.6 billion in 2018) and a higher revenue margin9 of 40 basis points(2017: 37 basis points). Operating profit is after charges of £27 million incurred in preparing the businessfor theUK's proposed exit from the EuropeanUnion, including the migration of fund assetsto our Luxembourg-domiciled SICAV platform. The cost-income ratio7 of 59 per cent remains broadly in line with the prior year (2017: 58 per cent).

Life insurance profit drivers

We track the progressthat we make in growing our life insurance business by reference to the scale of our obligationsto our customers, which are referred to in the financialstatements as policyholder liabilities. Each period these increase as we write new business and collect regular premiumsfrom existing customers and decrease as we pay claims and policies mature. These policyholder liabilities contribute, for example, to our ability to earn fees on the unit-linked element and indicatesthe scale of the insurance element, another key source of profitability for theGroup.

		2018 £m				2017 £m
		Actual exchange rate
	At 1 January	Net liability flows11	Market and other movements	At 31 December	At 1 January	Net liability flows11	Market and other movements	At 31 December
Asia	37,402	3,251	(56)	40,597	32,851	2,301	2,250	37,402
US	180,724	(213)	5,089	185,600	177,626	3,137	(39)	180,724

Shareholder-backed policyholder liabilities and net liability flows10

Focusing on businesssupported by shareholder capital, which generatesthe majority of the life profit, in 2018 net flows into our businesses were overall positive at £0.3 billion driven by our Asian operations. In theUS, net outflows were £0.2 billion with positive separate account net inflows of £1.1 billion being more than offset by general account net outflows of £1.3 billion, as a result of highersurrenders asthe portfolio develops. In theUK and Europe, the net outflows principally reflect

the run-off of the in-force annuity portfolio following our effective withdrawal from selling new annuity business. Market and other movements have reduced shareholder-back liabilities by £7.8 billion. Thisincludesthe removal of £10.9 billion4 ofUK annuity liabilities, representing the portion of the £12 billion4 reinsured liabilitiesthat will be subject to a Part VII transfer to Rothesay Life, following their reclassification as held forsale, offset by additions of £4.1 billion in Jackson as a

UK and Europe 56,367 (2,774) (12,833) 40,760 56,158 (2,721) 2,930 56,367 TotalGroup 274,493 264 (7,800) 266,957 266,635 2,717 5,141 274,493

result of the agreement inNovember 2018 to reinsure a portfolio of businessfrom JohnHancock. The remaining £1.0 billion primarily reflectsthe effects of negative investment markets offset by currency effects assterling weakened over the period. In total, business flows and market movements have decreased shareholderbacked policyholder liabilitiesfrom £274.5 billion to £267.0 billion.

Policyholder liabilities and net liability flows in with-profits business10,12

		2018 £m	2017 £m
	Actual exchange rate					Actual exchange rate
	At 1 January	Net liability flows11	Market and other movements	At 31 December	At 1 January	Net liability flows11	Market and other movements	At 31 December
Asia UK and Europe	36,437 124,699	5,165 3,209	564 (3,779)	42,166 124,129	29,933 113,146	4,574 3,457	1,930 8,096	36,437 124,699
TotalGroup	161,136	8,374	(3,215)	166,295	143,079	8,031	10,026	161,136

Policyholder liabilitiesin our with-profits business have increased by 3 per cent to £166.3 billion reflecting the popularity of our participating fundsin Asia and PruFund in theUK, as consumersseek protection from some of the short-term ups and downs of directstock market investments by using an established smoothing process. Across our Asia andUK and Europe operations, net liability flowsincreased to £8.4 billion. Asreturnsfrom these funds are smoothed and shared with customers, the emergence ofshareholder profit is more gradual. This business, nevertheless, remains an importantsource of future shareholder value.

01

06

Analysis of long-term insurance business pre-tax adjusted IFRS operating profit based on longer-term investment returns by driver

		Actual exchange rate					Constant exchange rate 2017
	2018			2017
	Operating profit £m	Average liability £m	Margin bps	Operating profit £m	Average liability £m	Margin bps	Operating profit £m	Average liability £m	Margin bps
Spread income	899	85,850	105	1,122	88,908	126	1,090	87,553	124
Fee income		2,711 175,443	155	2,609	166,839	156	2,518	162,267	155
With-profits		391 147,318	27	347	136,474	25	345	136,496	25
Insurance margin	2,480			2,302			2,223
Margin on revenues	2,254			2,287			2,210
Expenses:
Acquisition costs*	(2,319)	6,802	(34)%	(2,443)	6,958	(35)%	(2,364)	6,767	(35)%
Administration expenses		(2,413) 265,597	(91)		(2,305) 261,114	(88)		(2,231) 255,313	(87)
DAC adjustments	216			505			490
Expected return on shareholder assets	242			234			228
	4,461			4,658			4,509
Other items†	570			216			216
Long-term business adjusted IFRS operating profit based on longer
term investment returns	5,031			4,874			4,725

* The ratio of acquisition costsis calculated as a percentage of APE salesincluding with-profitssales. The acquisition costsinclude only those relating to shareholder-backed business. † Other itemsincludesshare of related tax chargesfrom joint ventures and associate and other items considered non-core to theUK and Europe business,see note I(a) of the Additional unaudited financial information.

We continue to maintain our preference for high-quality sources of income such as insurance margin from life and health and protection business, and fee income. We favour insurance margin because it is relatively insensitive to the equity and interest rate cycle and prefer fee income to spread income because it is more capitalefficient. In line with this approach, on a constant exchange rate basis, insurance margin hasincreased by 12 per cent (up 8 per cent on an actual exchange rate basis) and fee income by 8 per cent (up 4 per cent on an actual exchange rate basis), while as anticipated,spread income decreased by 18 per cent (down 20 per cent on an actual exchange rate basis). Administration expensesincreased to £2,413 million (2017: £2,231 million) asthe business continuesto expand in Asia, alongside higher asset-based commissions within theUS business, which are treated as an administrative expense in this analysis.

Asset management profit drivers

Movementsin assetmanagement operating profit are also influenced primarily by changesin the scale ofthese businesses, as measured by fundsmanaged on behalf of external institutional and retail customers and ourinternal life insurance operations.

Analysis of long-term insurance business operating profit by driver

Asset management external net flows and external funds under management13,14

M&GPrudential's external asset management net outflows were £9.9 billion (2017: net inflows of £17.3 billion) driven by the expected redemption of a single £6.5 billion low-margin institutional mandate, and net outflowsfrom wholesale and direct clientsfrom bond and equity classesin volatile financial markets. This was partially offset by inflowsinto multi-asset wholesale offerings and other institutional business products, including public debt and illiquid creditstrategies. Internal life insurance assets under management were £174.3 billion (2017: £186.8 billion) benefiting from PruFund net flows of £8.5 billion, offset by the effect of the £12 billion4 annuitiesreinsurance and lower equity market levels. As a result, total M&GPrudential assets under management16 reduced to £321.2 billion (2017: £350.7 billion).

Eastspring's external assets under management, excluding money market funds, increased by 6 per cent (on an actual exchange rate basis) to £49.5 billion, reflecting the acquisition of TMB Asset Management, which added £9 billion, offset by client outflows and adverse market movements.Higher internal assets under management, driven by inflowsinto the life business and money market funds, lifted Eastspring'stotal assets under management to £151.3 billion.

Other income and expenditure and restructuring costs

Other income and expenditure consists of interest payable on core structural borrowings, corporate expenditure and other income. These items, together with restructuring costs, increased 2 per cent to a net charge of £890 million (2017: £872 million). Thisreflects higher restructuring costs of £165 million (2017: £103 million), partly offset by a lower interest expense. Restructuring costs include investmentspend of £99 million in relation to M&GPrudential merger and transformation bringing the cumulative cost to £143 million, on an IFRS basis,since the project began. Other restructuring costsrelate to efficiency and change programmes acrosstheGroup, for example the rationalisation ofUS locationsin 2018.

IFRS basis non-operating items

Non-operating items consist ofshort-term fluctuationsin investment returns on shareholder-backed business of negative £558 million (2017: negative £1,514 million), the results attaching to disposal of businesses of negative £588 million (2017: positive £218 million), and the amortisation of acquisition accounting adjustments of negative £46 million (2017: negative £61 million) arising mainly from the REALIC business acquired by Jackson in 2012. The loss related to the disposal of businessesrelates primarily to the £508 million pre-tax loss following the reinsurance of £12 billion4UK annuitiesto Rothesay Life in March 2018.

Short-term fluctuationsin investment returns on shareholder-backed business are discussed further below.

IFRS basis short-term fluctuations in investment returns on shareholder-backed business

Operating profit is based on longer-term investment return assumptions. The difference between actual investment returnsrecorded in the income statement and the assumed longer-term returnsis reported within short-term fluctuationsin investment returns.

In 2018, the totalshort-term fluctuationsin investment returns on shareholder-backed business were negative £558 million (2017: negative £1,563 million on an actual exchange rate basis) and comprised negative £512 million (2017: negative £1 million on an actual exchange rate basis) for Asia, negative £100 million (2017: negative £1,568 million on an actual exchange rate basis) in theUS, positive £34 million (2017: negative £14 million on an actual exchange rate basis) in theUK and Europe and positive £20 million (2017: positive £20 million on an actual exchange rate basis) in other operations.

Rising interest ratesin many territoriesin Asia led to unrealised bond lossesin the period. In theUS, lower equity market levels, alongside higher interest rate levels, as expected, resulted in gains on equity hedge instruments which are designed to protect Jackson's capital position, balanced by higher technical reserve requirements.

02

04

03

06

IFRS basis effective tax rates

In 2018, the effective tax rate on operating profit was 16 per cent (2017: 21 per cent), reflecting the reduction in theUS federal tax rate from 35 per cent in 2017 to 21 per cent in 2018.

The 2018 effective tax rate on the total IFRS profit was 17 per cent (2017: 14 per cent after excluding the one-off impact of the re-measurement ofUS deferred tax balances, following the enactment in December 2017 of tax reform in theUS). The increase in the 2018 effective tax rate reflects non-tax deductible investment lossesin Asia operations.

The main driver of theGroup's effective tax rate isthe relativemix of the profits between jurisdictions with higher tax rates(such as Indonesia and Malaysia), jurisdictions with lower tax rates(such asHong Kong and Singapore), and jurisdictions with ratesin between (such astheUK and theUS).

Total tax contribution

TheGroup continuesto make significant tax contributionsin the jurisdictionsin which it operates, with £2,839 million remitted to tax authoritiesin 2018. This wassimilar to the equivalent amount of £2,903 million remitted in 2017.

Tax strategy

In May 2018, theGroup published its updated tax strategy which, in addition to complying with the mandatoryUK (Finance Act 2016) requirements, also included a number of additional disclosures, including a breakdown of revenues, profits and taxesfor all jurisdictions where more than £5 million tax was paid. This disclosure wasincluded as a way of demonstrating that our tax footprint (ie where we pay taxes) is consistent with our businessfootprint. An updated version of the tax strategy, including 2018 data, will be available on theGroup's website before 31 May 2019.

New business performance

Life EEV new business profit and APE new business sales (APE sales)

	Actual exchange rate					Constant exchange rate
	2018 £m		2017 £m		Change %		2017 £m		Change %
	APE sales	New business profit	APE sales	New business profit	APE sales	New business profit	APE sales	New business profit	APE sales	New business profit
Asia	3,744	2,604	3,805	2,368	(2)	10	3,671	2,282	2	14
US	1,542	921	1,662	906	(7)	2	1,605	874	(4)	5
UK and Europe	1,516	352	1,491	342	2	3	1,491	342	2	3
TotalGroup	6,802	3,877	6,958	3,616	(2)	7	6,767	3,498	1	11

Life insurance new business profit was up 11 per cent (7 per cent on an actual exchange rate basis) to £3,877 million, and life insurance new business APE sales increased by 1 per cent (decreased by 2 per cent on an actual exchange rate basis) to £6,802 million, including an increase of 4 per cent during the second half of 2018 compared with the second half of 2017, led by 8 per cent growth in Asia.

In Asia, new business profit was 14 per cent higher at £2,604 million (10 per cent on an actual exchange rate basis), benefiting from pricing actions and ourstrategic focus on health and protection sales. This growth was also supported by increasing sales momentum, with APE growth of 8 per cent during the second half of 2018 compared with the second half of 2017.

Our focus on quality is undiminished, with regular premium contracts accounting for 94 per cent of APE sales as well asthe mix of health and protection products increasing to 28 per cent of APE sales. Overall, new business profit from health and protection products was 15 per cent higher and contributed 70 per cent of the total in Asia. Thisfavourable mix provides a high level of recurring income and an

earnings profile that issignificantly less correlated to investment markets.

The performance remains broad-based, with 10 markets delivering double-digit percentage growth in new business profit. InHong Kong, new business profit increased by 17 per cent, driven largely by our ongoing focus on increasing health and protection sales, particularly those with more comprehensive coverage. Hong Kong APE salesincreased by 3 per cent overall, with highersaleslevels from Mainland China visitorstoHong Kong driving positive momentum over the course of the year, culminating in APE sales growth of 18 per cent in the discrete fourth quarter. In China, new business profit increased by 14 per cent,reflecting positive product mix effects, and APE sales growth of 27 per cent in the fourth quarter. In Singapore, new business profit increased by 15 per cent on higher APE sales(up 5 per cent), driven by our agency and bancassurance channels, pricing actions and favourable product mix shifts.Growth in new business profit in Thailand (up 75 per cent), Vietnam (up 29 per cent) and Malaysia (up 13 per cent) reflects our value focus and favourable shiftsin product mix.

New business performance £m (% vs 2017)

Split of APE new business sales £6,802m, +1% (-2% AER) Asia £3,744m, +2%(-2%AER) US £1,542m, -4%(-7% AER)

M&GPrudential £1,516m, +2%

Split of new business profit £3,877m, +11% (+7% AER)

• Asia £2,604m, +14% (+10% AER)
• US £921m, +5%(+2%AER)

M&GPrudential £352m, +3%

Our Indonesia business continuesto experience challenging conditions which, compounded by the adverse impact of higher yields, drove new business profit lower by 23 per cent. Despite these headwinds, we are investing in the businessto strengthen our distribution capabilities, upgrading oursystems and refreshing our product propositionsto meet customer needs.

In the US, new business profit increased by 5 per cent to £921 million (up 2 per cent on an actual exchange rate basis) as a 4 per cent reduction in new APE sales was more than balanced by the favourable effect of higher interest rates and spread assumption changes compared with the prior period.

In our UK and Europe life business, new business profit increased to £352 million, up 3 per centsupported by 2 per cent growth in APE sales.New sales continue to be driven by the popular PruFund proposition with APE sales up 3 per cent. Reflecting this performance, total PruFund assets under management of £43 billion as at 31 December 2018 were 20 per cent higher than at the start of the year, driven by positive net flows of £8.5 billion.

Free surplus generation2

		Actual exchange rate			Constant exchange rate
	2018 £m	2017 £m	Change %	2017 £m	Change %
Free surplus generation
Asia	1,659	1,562	6	1,493	11
US	1,644	1,582	4	1,527	8
UK and Europe	1,684	1,486	13	1,486	13
Underlying free surplus generated from in-force life business
and asset management before restructuring costs	4,987	4,630	8	4,506	11
Restructuring costs	(125)	(77)	(62)	(77)	(62)
Underlying free surplus generated from in-force life
business and asset management	4,862	4,553	7	4,429	10
Investment in new business	(815)	(913)	11	(886)	8
Underlying free surplus generated	4,047	3,640	11	3,543	14
Market related movements, timing differences
and other non-operating movements	(1,282)	(1,012)
Profit attaching to corporate transactions	283	172
Net cash remitted by business units	(1,732)	(1,788)
Total movement in free surplus	1,316	1,012
Free surplus at end of year	8,894	7,578

Free surplus generation isthe financial metric we use to measure the internal cash generation of our business operations and is based on the capital regimesthat apply locally in the variousjurisdictionsin which our life businesses operate. For life insurance operationsit represents amounts maturing from the in-force business during the year, net of amountsreinvested in writing new business. For asset management businesses, it equatesto post-tax operating profit for the period.

We drive free surplus generation by targeting markets and productsthat have low capitalstrain, high-return and fast payback profiles and by delivering both good service and value to improve customer retention. Our ability to generate both growth and cash is a distinctive feature of Prudential.

In 2018, underlying free surplus generation fromourlife insurance and asset management business, before investment in new business, increased by 10 per cent to £4,862million (increased by 7 per cent on an actual exchange rate basis),reflecting increased contributionsfromall our businesses. InAsia, growth in the in-force life portfolio, combined with post-tax asset management profit fromEastspring, contributed to free surplus generation of £1,659million, up 11 per cent. In theUS, in-force free surplus generation increased by 8 per centreflecting higherin-force values. In theUKand Europe, in-force free surplus generation increased by 13 per cent to £1,684million, including the positive impact of longevity assumption changes, and the £138million post-tax insurance recovery forthe costs of theUKreview of past non-advised annuity sales practices and related potentialredress. In 2017 free surplus wasreduced by an increase in the related provision of £187million to cover such costs.

Although new business profit increased by 11 per cent, the amount of free surplus invested in writing new life businessin the period waslower at £815million (2017: £886 million) primarily reflecting lowersales in theUS andmeasurestaken to optimise capital absorption in theUKand Europe.

After funding cash remittancesfrom the business unitsto theGroup, recognition of the profit attaching to the disposal of businesses, and other movements, which includes market movements, the closing value of free surplusin our life and asset management operations was £8.9 billion at 31 December 2018.

We continue to manage cash flows across theGroup with a view to achieving a balance between ensuring sufficient remittances are made to service central requirements(including paying the external dividend) and maximising value to shareholdersthrough retention and reinvestment of capital in business opportunities.

06

Business unit remittance17

	Actual exchange rate
	2018 £m	2017 £m
Net cash remitted by business units:
Asia	699	645
US	342	475
UK and Europe	654	643
OtherUK (including Prudential Capital)	37	25
Net cash remitted by business units	1,732	1,788
Holding company cash at 31 December	3,236	2,264

Cash remitted to theGroup by business unitsin 2018 amounted to £1,732 million, driven by higher remittancesfrom Asia, demonstrating the quality and scale of its growth. Jackson made remittances of £342 million, although lower than the prior period. The remittance from M&GPrudential of £654 million was 2 per cent higher than the combined remittance in 2017, with an increase in the with-profitstransfer from £215 million in 2017 to £233 million in 2018.

Cash remitted to theGroup in 2018 was used to meet central costs of £430 million (2017: £470 million) and pay the 2017 second interim and 2018 first interim dividends. As well asthese movements were corporate activities and other cash flows of positive £914 million (2017: negative £521 million), primarily driven by net debt issuance of £1.2 billion within the year. Thisled to holding company cash increasing from £2,264 million to £3,236 million over 2018.

Post-tax profit – EEV

	Actual exchange rate			Constant exchange rate
	2018 £m	2017 £m	Change %	2017 £m	Change %
Post-tax operating profit based on longer-term investment returns
Asia
Long-term business	4,387	3,705	18	3,562	23
Asset management	159	155	3	150	6
Total	4,546	3,860	18	3,712	22
US
Long-term business	2,115	2,143	(1)	2,069	2
Asset management	3	7	(57)	7	(57)
Total	2,118	2,150	(1)	2,076	2
UK and Europe
Long-term business	1,374	1,015	35	1,015	35
General insurance commission	15	13	15	13	15
Total insurance operations	1,389	1,028	35	1,028	35
Asset management	392	403	(3)	403	(3)
Total	1,781	1,431	24	1,431	24
Other income and expenditure	(726)	(746)	3	(740)	2
Post-tax operating profit based on longer-term investment returns
before restructuring costs	7,719	6,695	15	6,479	19
Restructuring costs	(156)	(97)	(61)	(97)	(61)
Post-tax operating profit based on longer-term investment returns	7,563	6,598	15	6,382	19
Non-operating items:
Short-term fluctuationsin investment returns	(3,219)	2,111	n/a	2,057	n/a
Effect of changesin economic assumptions	146	(102)	n/a	(91)	n/a
Mark to market value on core structural borrowings	549	(326)	n/a	(326)	n/a
Impact ofUS tax reform	–	390	n/a	376	n/a
(Loss) gain on disposal of businesses and corporate transactions	(451)	80	n/a	77	n/a
Post-tax profit for the year	4,588	8,751	(48)	8,475	(46)

Earnings per share – EEV

	Actual exchange rate				Constant exchange rate
	2018 pence	2017 pence	Change %	2017 pence	Change %
Basic earnings pershare based on post-tax operating profit	293.6	257.0	14	248.6	18
Basic earnings pershare based on post-tax total profit	178.1	340.9	(48)	330.2	(46)

EEV operating profit

On an EEV basis,Group post-tax operating profit based on longer-term investment return increased by 19 per cent (up 15 per cent on an actual exchange rate basis) to £7,563 million in 2018.

EEV operating profit includes new business profit from theGroup'slife business, which increased by 11 per cent (up 7 per cent on an actual exchange rate basis) to £3,877 million. It also includesin-force life business profit of £3,999 million, which was 27 per cent higher than prior year (up 23 per cent on an actual exchange rate basis), primarily reflecting the growth in our in-force business and higher interest rates. Thisis most evident in the profit from the unwind of the in-force business, which was 22 per cent higher at £2,573 million.

Experience and assumption changes were positive at £1,426 million (2017: £1,044 million), reflecting the continuing performance of our in-force policies.

In Asia, EEV life operating profit was up 23 per cent to £4,387 million, driven by 14 per cent growth in new business profit and 39 per cent growth in in-force profit, reflecting the growth of the in-force business and positive assumption changes and experience variances, as a result of the high quality of the existing portfolio.

Jackson's EEV life operating profit was up 2 per cent to £2,115 million. Thisreflects a 5 per cent increase in new business profit to £921 million and higher expected returnsfrom the in-force business due to prior period growth and higher interest

rates, partially offset by a reduced level of favourable assumption changes and experience variances.

In the UK and Europe, EEV life operating profit increased by 35 per cent to £1,374 million (2017: £1,015 million). This was as a result of a 3 per cent increase in new business profit, and higher in-force profit which included a £330 million benefit from revisionsto longevity assumptions and a £138 million insurance recovery related to the costs of reviewing past annuity sales after 1 July 2008, for which a provision of £187 million had been charged in the prior period.

04

06 European

EEV operating profit by business

US life £2,115m, +2%(-1%AER)

• M&GPrudential life £1,374m, +35% Asset management and general insurance
• £569m, -1% (-2%AER)
• Other £(882)m, -5%(-5% AER)

EEV non-operating items

Negative short-term fluctuations of £3,219 million primarily reflect lower than expected returns on equities and other investments held by theGroup'sUS separate accounts and by the with-profits and unit-linked funds businessesin Asia and theUK. These negative effects have been partly offset by gains on equity derivatives held by theUS businessto manage market exposures arising from the guarantees provided on its annuity products.

Offsetting short-term fluctuationsis a £146 million benefit from economic assumption changes, principally reflecting the impact of higher interest rates on the projected future fund growth ratesfor certain businesses written inHong Kong and Singapore and the variable annuity businessin theUS. These projected higher growth ratesincrease fund valuesfor policyholders and hence profitability for shareholders.

The loss attaching to corporate transactions of £451 million primarily relatesto the reinsurance of the shareholder annuity portfolio to Rothesay Life. A more detailed explanation of this and other corporate transactions occurring in the period are set out in note 17 of the EEV financialstatements.

Capital position, financing and liquidity Capital position

Analysis of movement in Group shareholder Solvency II surplus18

	2018 £bn	2017 £bn
Solvency II surplus at 1 January	13.3	12.5
Operating experience	4.2	3.6
Non-operating experience (including market movements)	(1.2)	(0.6)
M&GPrudential transactions(see below)	0.4	–
Other capital movements:
Netsubordinated debt issuance (redemption)	1.2	(0.2)
Foreign currency translation impacts	0.5	(0.7)
Dividends paid	(1.2)	(1.2)
Model changes	–	(0.1)
Estimated Solvency II surplus at 31 December	17.2	13.3

The high quality and recurring nature of our operating capital generation and our disciplined approach to managing balance sheet risk hasresulted in an increase in the Group'sshareholders' Solvency II capital surplus5 which is estimated at £17.2 billion at 31 December 2018 (equivalent to a solvency ratio of 232 per cent 6 ), compared with £13.3 billion (202 per cent) at 31 December 2017. The increase in surplus was driven by operating capital formation of £4.2 billion and a £1.2 billion net increase in subordinated debt, offset by dividends to shareholders of £1.2 billion.

Local statutory capital

All of oursubsidiaries continue to hold appropriate capital levels on a local regulatory basis. In theUK and Europe, at 31 December 2018 The Prudential Assurance Company Limited and its subsidiaries had an estimated Solvency II shareholdersurplus19 of £3.7 billion (equivalent to a cover ratio of 172 per cent), reflecting the impact from the reinsurance

Solvency II cover ratio6

of £12 billion of annuity liabilities and the transfer of theGroup'sHong Kong insurance subsidiaries. TheUK with-profits surplus20 is estimated at £5.5 billion (equivalent to a cover ratio of 231 per cent). In theUS, operational capital formation and the strong performance of our hedging programme as equity markets weakened during the fourth quarter of 2018 more than offset remittancestoGroup and a 35 percentage point ratio impact from the incorporation of tax reform into the statutory capital requirement, resulting in a risk-based capital ratio of 458 per cent (2017: 409 per cent).

Debt portfolio

TheGroup continuestomaintain a high-quality defensively positioned debt portfolio. Shareholders' exposure to creditis concentrated in theUKand Europe annuity portfolio and theUS general account,mainly attributable to Jackson's fixed annuity portfolio. The credit exposure iswell diversified and 98 per cent of ourUKand Europe portfolio and 96 per cent of ourUS portfolio are investment grade21.During 2018, defaultlosseswereminimal and reported impairments acrosstheUKandUS portfolioswere £4million (2017: £2million).

Financing and liquidity

TheGroup had central cash resources of £3.2 billion at 31 December 2018 (31 December 2017: £2.3 billion). Total core structural borrowingsincreased by £1.4 billion, from £6.3 billion to £7.7 billion, mainly as a result of the capital rebalancing processrelated to the intended demerger of M&GPrudential. Thisinvolved the redemption ofUS\$550 million (equivalent to £432 million at 31 December 2018) 7.75 per cent tier 1 perpetualsubordinated debt in December 2018 being more than offset by the issue ofUS\$500 million (£374 million at 31 December 2018) 6.5 per cent tier 2 substitutable subordinated notes, £500 million 6.25 per cent tier 2 substitutable subordinated notes and £750 million 5.625 per cent tier 2 substitutable subordinated notesin October 2018.

In addition to its net core structural borrowings ofshareholder-financed businessesset out above, theGroup also has accessto funding via the money markets and hasin place an unlimited global commercial paper programme. As at 31 December 2018, we had issued commercial paper under this programme totallingUS\$599 million, to finance non-core borrowings.

Net core structural borrowings £m (EEV basis)

IFRS basis of value of net core structural borrowings Mark to market value

Gearing ratio*

* Net core structural borrowings as proportion of IFRS shareholders' funds plus net debt, asset out in note III of the Additional unaudited financial information.

Prudential's holding company currently has accessto £2.6 billion ofsyndicated and bilateral committed revolving credit facilities provided by 19 major international banks, expiring in 2023. Apart from small drawdownsto test the process, these facilities have never been drawn, and there were no amounts outstanding at 31 December 2018. The medium-term note programme, theUS shelf programme (platform for issuance of SEC registered public bondsin theUS market), the commercial paper programme and the committed revolving credit facilities are all available for general corporate purposes and to support the liquidity needs of Prudential's holding company, and are intended to maintain a flexible funding capacity.

Shareholders' funds

	IFRS		EEV
	2018 £m	2017 £m	2018 £m	2017 £m
Profit after tax for the year22	3,010	2,389	4,585	8,750
Exchange movements, net of related tax	348	(409)	1,706	(2,045)
Cumulative exchange gain of Korea life businessrecycled to profit and loss account	–	(61)	–	–
Unrealised gains and losses on Jackson fixed income securities classified
as available forsale23	(1,083)	486	–	–
Dividends	(1,244)	(1,159)	(1,244)	(1,159)
Mark to market value movements on Jackson assets backing surplus and
required capital	–	–	(95)	40
Other	131	175	132	144
Net increase in shareholders' funds	1,162	1,421	5,084	5,730
Shareholders' funds at 1 January	16,087	14,666	44,698	38,968
Shareholders' funds at 31 December	17,249	16,087	49,782	44,698
Shareholders' value per share7	665p	622p	1,920p	1,728p
Return on shareholders' funds7	25%	25%	17%	17%

02

06

EEV value pershare7

Group IFRS shareholders' funds at 31 December 2018 increased by 7 per cent to £17.2 billion (31 December 2017: £16.1 billion on an actual exchange rate basis), driven by the strength of the operating result, offset by dividend payments of £1,244 million. During the period,UK sterling has weakened relative to theUS dollar and various Asian currencies. With approximately 51 per cent of theGroup'sIFRS net assets(74 per cent of theGroup's EEV net assets) denominated in non-sterling currencies, this generated a positive exchange rate movement on the net assetsin the period. In addition, the increase inUS long-term interest rates between the start and the end of the reporting period produced unrealised losses on fixed income securities held by Jackson accounted through other comprehensive income.

TheGroup's EEV basisshareholders' funds also increased by 11 per cent to £49.8 billion (31 December 2017: £44.7 billion on an actual exchange rate basis), On a pershare basistheGroup's embedded value at 31 December 2018 equated to 1,920 pence, up from 1,728 pence at 31 December 2017.

Corporate transactions

Intention to demerge the Group's UK and Europe businesses and reinsurance of £12.0 billion4 UK annuity portfolio

TheGroup is making good progress on its previously announced intention to demerge itsUK and Europe businesses from Prudential plc, resulting in two separately listed companies. TheGroup hastransferred legal ownership of The Prudential Assurance Company Limited (PAC) and M&GGroup Limited to the new holding company for M&GPrudential and completed the transfer of the legal ownership of itsHong Kong insurance subsidiariesfrom PAC to Prudential Corporation Asia Limited in December 2018.

In March 2018, M&GPrudential reinsured £12.0 billion (as at 31 December 2017) of itsshareholder-backed annuity portfolio to Rothesay Life.Under the terms of the agreement, thisis expected to be followed by a Part VII transfer of most of the portfolio by 30 June 2019. The reinsurance agreement became effective on 14 March 2018 and resulted in an IFRS basis pre-tax loss of £508 million.

The above transactionsreduced the Group's EEV by £376 million which primarily reflectsthe loss of profits on the portion of the annuity liabilitiesreinsured and increased theGroup'sshareholder Solvency II capital position by £0.4 billion.

Prior to the demerger, theGroup expects to rebalance its debt capital across Prudential and M&GPrudential. This will include the ultimate holding company of M&GPrudential becoming an issuer of new debt, including debtsubstituted from Prudential, and Prudential redeeming some of its existing debt. Following these actions, the overall absolute quantum of debt across Prudential and M&GPrudential is currently expected to increase, by an amount which is not considered to be material in the context of theGroup's total outstanding debt as at 30 June 2018, before any substitutable debt had been issued, of £7.6 billion (comprising the Group's core structural borrowings of £6.4 billion and shareholder borrowings

from short-term fixed income securities programme of £1.2 billion).

At the time of the demerger, Prudential expects M&GPrudential to be holding around £3.5 billion ofsubordinated debt. This expectation issubject to the M&GPrudential capital risk appetite being approved by the Board of the ultimate holding company of M&GPrudential, once fully constituted to include independent non-executive directors, and reflectsthe current operating environment and economic conditions, material changes in which may lead to a different outcome.

Entrance into Thailand mutual fund market

In July 2018, Eastspring reached an agreement to acquire initially 65 per cent of TMB Asset Management Co., Ltd. (TMBAM), a leading asset management company in Thailand, from the TMB Bank Public Company Limited (TMB). Thailand isthe largest fund management market within the Association of Southeast Asian Nations(ASEAN) with total assets under management of £115 billion at 31 December 201824. Eastspring has an option to increase its ownership to 100 per cent in the future. As part of this acquisition, Eastspring has also entered into a distribution agreement with TMB to provide best-in-classinvestmentsolutions to their customers. The acquisition of TMBAM, with £9 billion of assets under management as at 31 December 2018, reinforces Prudential's commitment to the Thai market.

Acquisition of John Hancock's group payout annuity business

InNovember 2018, Jackson announced an agreement with JohnHancock Life Insurance Company to reinsure 100 per cent of JohnHancock's group payout annuity business, effective from 1 October 2018.

In total, the transaction involvesJackson indemnity reinsuring approximately US\$5.5 billion of reserves, representing an increase in Jackson's general account liabilities of approximately 10 per cent. JohnHancock will continue to be responsible for the administration of the business.

Renewal and expansion of regional strategic bancassurance alliance with UOB

In January 2019, Prudential andUOB renewed their regional bancassurance alliance until 2034, extending the scope to include a fifth market, Vietnam, alongside

our existing footprint across Singapore, Malaysia, Thailand and Indonesia.

Under the terms of the renewal, Prudential'slife insurance products will be distributed throughUOB's extensive network of more than 400 branchesin five markets, providing accessto over four millionUOB customers. In addition, Prudential will use its digital capabilitiesto deliver protection-focused propositionsto aidUOB's digital bank expansion and customer acquisition aspirations. An initial fee of £662 million will be paid under the agreement which will be funded through internal resources. This amount will be paid in three instalments. £230 million was paid in February 2019 with £331 million to be paid in January 2020 and £101 million to be paid in January 2021.

Acquisition of majority stake in Group Beneficial

Prudential plc is acquiring a majority stake inGroup Beneficial (Beneficial), one of the leading life insurersin Cameroon, Côte d'Ivoire and Togo. Beneficial providessavings and protection productsto over 300,000 customers through 41 branches and more than 2,000 agents. The acquisition willsignificantly add to Prudential's growing scale in Africa, and issubject to various conditions and regulatory approvals.

Dividend

The Board has decided to increase the full-year ordinary dividend by 5 per cent to 49.35 pence pershare, reflecting our 2018 financial performance and our confidence in the future prospects of theGroup. In line with this, the Directors have approved a second interim ordinary dividend of 33.68 pence pershare (2017: 32.5 pence pershare).

TheGroup's dividend policy remains unchanged. The Board will maintain focus on delivering a growing ordinary dividend. In line with this policy, Prudential aimsto grow the ordinary dividend by 5 per cent per annum. The potential for additional distributions will continue to be determined after taking into account the Group's financial flexibility across a broad range of financial metrics and an assessment of opportunitiesto generate attractive returns by investing in specific areas of the business25.

Mark FitzPatrick Chief Financial Officer

Notes

• 1 Increase stated on a constant exchange rate basis. 2 For insurance operations, underlying free surplus generated
• represents amounts maturing from the in-force business during the period lessinvestment in new business and excludes non-operating items. For asset management businesses, it equatesto post-tax operating profit for the period. Restructuring costs are presented separately from the underlying business unit amount. Further information isset out in note 10 of the EEV basisresults.
• 3 Core refersto the underlying profit of theUK and Europe insurance business, excluding the effect of, for example, management actionsto improve solvency and material assumption changes. Details of these are set out in note I(d) of the Additional unaudited financial information.
• 4 Relatesto IFRS shareholder annuity liabilities, valued as at 31 December 2017.
• 5 TheGroup shareholder capital position excludesthe contribution to Own Funds and the Solvency Capital Requirement from ring fenced with-profit funds and staff pension schemesin surplus. The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.
• 6 Estimated before allowing forsecond interim ordinary dividend.
• 7 See note III of the Additional unaudited financial information for definition and reconciliation to IFRS balances.
• 8 Asia insurance revenuesinclude spread income, fee income, with-profits, insurance margin and expected return on shareholder assets.
• 9 Margin represents operating income before performancerelated fees as a proportion of the related funds under management, for further information see note I(c) of the additional unaudited financial information.
• 10 IncludesGroup's proportionate share of the liabilities and associated flows of the insurance joint ventures and associatesin Asia.
• 11 Defined as movementsin policyholder liabilities arising from premiums(net of charges),surrenders/withdrawals, maturities and deaths.
• 12 Includes unallocated surplus of with-profits business. 13 IncludesGroup's proportionate share in PPM South Africa and the Asia asset management joint ventures.
• 14 For our asset management business, the level of funds managed on behalf of third parties, which are not therefore recorded on the balance sheet, is a driver of profitability. We therefore analyse the movement in the funds under management each period, focusing between those which are external to theGroup and those held by the insurance business and included on theGroup balance sheet. Thisis analysed in note II(b) of the Additional unaudited financial information.
• 15 Net inflows exclude Asia Money Market Fund (MMF) inflows of £1,500 million (2017: £1,495 million). External funds under management exclude Asia MMF balances of £11,602 million (2017: £9,317 million).
• 16 Represents M&GPrudential asset management external funds under management and internal fundsincluded on the M&GPrudential long-term insurance business balance sheet.
• 17 Net cash remitted by business units are included in the Holding company cash flow, which is disclosed in detail in note II(a) of the Additional unaudited financial information. This comprises dividends and other transfersfrom business unitsthat are reflective of emerging earnings and capital generation.
• 18 The methodology and assumptions used in calculating the Solvency II capital results are set out in note II(c) of the Additional unaudited financial information.
• 19 TheUK shareholder capital position excludesthe contribution to Own Funds and the Solvency Capital Requirement from ring-fenced with-profit funds and staff pension schemesin surplus. The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.
• 20 The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.
• 21 Based on hierarchy of Standard and Poor's, Moody's and Fitch, where available and if unavailable, internal ratings have been used.
• 22 Excluding profit for the year attributable to non-controlling interests.
• 23 Net of related chargesto deferred acquisition costs and tax. 24 ©Copyright 2018 Strategic Insight, an Asset International Company and when referenced orsourced Morningstar Inc., Standard & Poor'sInc., and Lipper Inc. All rights reserved. The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) may not be copied or redistributed for any purpose, (c) are provided solely for information purposes, and (d) are not warranted or represented to be correct, complete, accurate, or timely.
• 25 Refer to note 11 on the parent company financialstatements forfurther detail on the distributable profits of Prudential plc.

02

04

06

Enabling business growth and change through risk management

OurGroupRisk Framework and risk appetite have allowed usto control ourrisk exposure successfully throughout the year. Our governance, processes and controls enable usto deal with uncertainty effectively, which is critical to the achievement of our strategy of helping our customers achieve their long-term financial goals.

Thissection explainsthe main risksinherent in our business and how we manage those risks, with the aim of ensuring an appropriate risk profile is maintained.

1. Introduction Group structure

In August 2017 theGroup announced itsintention to combine M&Gand its UK and Europe life businessto form M&GPrudential, allowing the scale and capabilitiesin these businessesto be leveraged more effectively. In March 2018, the intention to demerge M&GPrudential from the rest of theGroup was announced, with the aim of focusing on meeting customers' rapidly evolving needs and to deliver enhanced long-term value to investors astwo separate businesses.

The merger activity ongoing at M&GPrudential and its planned separation from the rest of theGroup requires significant and complex changes and these have been progressing apace throughout 2018. TheGroup Risk function is embedded within key work streams and a clear view exists of the objectives, risks and dependenciesinvolved in order to execute this change agenda. A mature and well-embedded risk framework isin place and, during this period of transition, the Group Risk function has a defined role in providing oversight,support and risk management, as well as providing objective challenge to ensure theGroup remains within itsrisk appetite. During 2018 these activities have been in the form of risk opinions, guidance and assurance on critical transformation and demerger activity, as well as assessments of the financial risksto the execution of the demerger under variousstressscenarios. A key objective isthat post demerger there are two strong,standalone risk functionsin M&GPrudential and Prudential plc, with operationalseparation planning for the risk functionsremaining on track.

Societal developments

Focusin western economies continuesto shift from the goods and services which businesses deliver to customerstowards the way in which such businessis conducted and how thisimpacts on the

widersociety. Stakeholder and regulatory expectations of theGroup's environmental, social and governance (ESG) activities are also increasing. In undertaking its business, theGroup actively considersthe ESG implications of its activities. Recent regulatory developmentssuch asthe EU General Data Protection Regulation (GDPR) have underlined that personal data must be held securely and its use must be transparent to the data owner. Risks around the security and use of personal data are actively managed by theGroup, and the recent regulatory changesin data protection in theUS and Europe have been incorporated into the principles against which the businessrequirements are defined.

The world economy

The beginning of 2018 saw strong and broad economic growth following the significantUS tax reforms enacted toward the end of 2017. Asthe year progressed the global economic backdrop evolved and a divergence in growth between theUS and the rest of the world was observed. Rising US policy rates, tightening financial conditions and increasing trade tensions raised concerns and impacted emerging marketsin particular. In the fourth quarter, fears of a more pronounced global economic slowdown also impacted the US asreductionsin monetary stimulus continued, contributing to a sharp shift in risk sentiment. At the start of 2019, the outlook for the global economy remains uncertain and while growth remains positive, it has become more fragile and risks are weighted towardsthe downside. Political tensionsin Europe, including uncertainty surrounding the nature of the UK's exit from the EUand itsfuture trading relationship, geopolitical developments and the potential increase of international trade tensions between theUS and China pose risksto global growth and the economic environment.

Financial markets

Financial marketsfaced a number of headwindsin 2018 and asset valuations suffered broadly amid the re-emergence of market volatility.Global markets, and emerging marketsin particular, faced broad pressure throughout the year.US markets, however, proved resilient until the fourth quarter when fears of an economic slowdown triggered a sharp sell-off in equities. In parallel, creditspreads also widened asthe position of the credit cycle became a key concern for market participants. Acrossthe world, interest

rates movements were mixed over the year, although there has been a notable broad flattening of the yield curve in the US, impacted by changesin growth and inflation data, risk sentiment and increased concerns of a possible recession. Financial marketsremain particularly vulnerable to further abrupt changesin sentiment, and in particular if the risksto the global economy noted above were to materialise.

Political landscape

Eventsin the past year continue to indicate that the world isin a period of global geopolitical transition and increasing uncertainty. Popular discontent remains one of the driving factors of political change, and the liberal norms and the role of multilateral rules-based institutionsthat underpin global order,such astheUnited Nations(UN), theNorth Atlantic Treaty Organisation (NATO) and the World Trade Organisation (WTO), appear to be evolving. AcrosstheGroup's key geographies, we have increasingly seen national protectionism in trade and economic policies. TheUK's exit from the EUand the nature of the future relationship remains a key political uncertainty. As a global organisation, we develop plansto mitigate businessrisks arising from this shift and engage with national bodies where we can in order to ensure our policyholders are not adversely impacted. It is clear, however, that the full long-term impacts of these changesremain to be seen.

Regulations

Prudential operatesin highly regulated markets acrossthe globe, and the nature and focus of regulation and lawsremains fluid. A number of national and international regulatory developments are in progress, with a continuing focus on solvency and capitalstandards, conduct of business,systemic risks and macroprudential policy. Such developments will continue to be monitored at a national and global level and form part of Prudential's engagement with government policy teams and regulators. TheGroup announced in August 2018 that theHong Kong Insurance Authority would be the Group-wide supervisor after the demerger of M&GPrudential, and constructive engagement on the futureGroup-wide regulatory framework, led by theGroup Chief Risk Officer, will continue in 2019.

		2. Key internal, regulatory, economic and (geo)political events over the past 12 months
Q1 2018	InMarch 2018 the intention to demergeM&GPrudentialfromthe rest of theGroup is announced. £12 billion of annuity liabilitiesinUKand Europe business are reinsured to Rothesay Life Plc.APartVIItransfer ofmost ofthe portfolio is expected to be completed by 30 June 2019.	Eastspring becomesthe third Prudentialsignatory, afterM&Gand PPM SouthAfrica (PPMSA),to theUN Principlesfor Responsible Investmentin February 2018.	PresidentXiJinpingenters a second termin office inChina after election by theNational People'sCongressinMarch 2018.
Acoalition governmentisformed in Italy between the centre right League and anti-establishment Five StarMovement, after general electionsinMarch 2018.	TheUS administration proposesinitial trade tariffmeasures(with additional proposals announced overH1 2018), raising trade tensions with its keyG7 partners andChina.	US equitymarkets decline rapidly, triggering a globalsell-off, with the Dow JonesIndustrialAverage falling by circa 3,000 pointsin justtwo weeks.US marketsrebound overthe second and third quarters.	Q2
TheGeneral Data Protection Regulation (GDPR) goeslive in the EUon 25May 2018, increasing the rights of individuals overthe use oftheir personal information by companies.	TheUS Department of Labor's(DoL's) fiduciary rule is effectively ended after a decision in theUS courtsinMarch 2018. The deadline forthe DoL to appeal lapses in June.Other proposals,such astheUS Securities and ExchangesCommission's bestintereststandard,remain in progress.	US President Trump andNorthKorean ChairmanKimJongUnmeet in Singapore on 12 June 2018 for a historic summit, where denuclearisation oftheKorean peninsula is discussed.	The opposition PakatanHarapan coalition win powerinMalaysia following general elections held inMay 2018.
The 22nd round oftalks on the RegionalComprehensive Economic Partnership (RCEP) are held in Singapore between 28April and 8May 2018, the goal being to create the world'slargest economic bloc.Negotiations continue into 2019.	The Indonesia President approves regulations on 'grandfathering'foreign ownership ofinsurance companies.	Q3	InAugusttheGroup announcesthat theHongKong InsuranceAuthority will become theGroup-wide supervisorfor Prudential plc afterthe demerger of M&GPrudential, and constructive engagement on the future regulatory relationship begins.
In July the InternationalAssociation of Insurance Supervisors(IAIS)releases consultation documentsfor both the Common Framework forthe Supervision ofInsurers(ComFrame) and Insurance Capital Standard (ICS) v2.0. TheGroup submitsICS field resultsto the PRAin August 2018.	In September,the Prudential RegulationAuthority (PRA) and Financial ConductAuthority (FCA)requestfrom major banks and insurers, details of preparations and actions being undertaken tomanage transition from London Inter-BankOffered Rate (LIBOR) to alternative interestrate benchmarks.	The Bank of England raisesratesfor the second time since the 2008 financial crisisto 0.75 per centinAugust, while highlighting significant Brexit-driven uncertaintiesto the economy.	TheUS imposestariffs onChinese exports worthUS\$50 billion in July, prompting Beijing to respond in kind. Despite a temporary truce agreed atthe G20 summit on 1 December 2017,trade tensions between the two nations remains high.
Emergingmarket equities decline rapidly inAugust astightening financial conditionsimpact economies with externalfunding vulnerabilities.	Q4	InNovember,Jackson announcesthe acquisition ofthe group payout annuity business ofJohnHancock Life Insurance Company, a closed book of circa 200,000 in-force certificatesrepresenting IFRS reserves of approximatelyUS\$5.5bn.	PPMAmerica (PPMA) becomesthe fourth Prudentialsignatory to theUN Principlesfor Responsible Investmentin October 2018.
The IAIS launches a consultation for theHolistic Framework (HF)in November, which aimsto assess and mitigate systemic risk in the insurance sector and isintended to replace the currentGlobal Systemically Important Insurer(G-SII)measures, with the aimof adoption inNovember 2019.	InNovemberthe International Accounting Standards Board (IASB) tentatively delaysthe effective date of IFRS 17 by one yearto periods beginning on or after 1 January 2022. The introduction offurther amendmentsto this new standard will be considered.	Democrats win control oftheHouse of Representativesin theNovemberUS midtermelections, while the Republicans retain control ofthe Senate.As bipartisan disputesincrease,theUS government partially shuts down between late December 2018 and January 2019.	In December,theUKParliament rejectsthe negotiated agreement on the UK's withdrawalfromthe EU. Uncertainty on the nature oftheUK's exit fromthe EUpersists astheUK governmentseeksto renegotiate the agreementin early 2019.
The reduction in global accommodativemonetary policy continues, with the EuropeanCentral Bank (ECB) confirming that net asset purchases would cease atthe end of 2018, and theUS Federalreserve raises ratesforthe fourth time in 2018 in December.	China reports a largemanufacturing decline in December, prompting concerns of a global growth slowdown. Additionalstimulusmeasuresfromthe People's Bank ofChina are enacted.	Fears oftightening financial conditions and a global economic slowdown trigger a sharp sell-offinUS equitymarkets, which had remained resilientthrough the firstthree quarters of 2018, while global equitiesfallfurther. The S&P500 ends 2018 with an annual decline of circa 6 per cent. In early 2019 risk sentiment improves, contributing to a broad rally in equitymarkets.	Key Prudential Regulatory (Geo)political Markets/economies

02

04

06

3. Managing the risks in implementing our strategy

Thissection provides an overview of theGroup'sstrategy, the significant risks arising from the delivery of thisstrategy and the risk management focusfor the following 12 months. The risks outlined below, which are not exhaustive, are discussed in more detail in sections 5 and 6.

Our strategy	Significant risks arising from the delivery of the strategy	Risk management focus for the next 12 months
Asia Serving the protection and	Persistency risk	Implementation of businessinitiativesto manage persistency risk, including review of distribution channels and incentive structures. Ongoing experience monitoring.
investment needs of the growing middle classin Asia	Morbidity risk	Implementation of businessinitiativesto manage morbidity risk, including product repricing where required. Ongoing experience monitoring.
	Regulatory risk, including foreign ownership	Proactive engagement with national governments and regulators.
United States	Financial risks	Maintaining, and enhancing where necessary, appropriate risk limits, hedging strategies andGroup oversight that are in place.
Providingasset accumulation andretirementincome productstoUSbabyboomers	Policyholder behaviour risk	Continued monitoring of policyholder behaviour experience and review of assumptions.
Africa	there growsin materiality.	TheGroup will continue to increase itsrisk management focus on Prudential Africa asthe business
UK and Europe	M&GPrudential merger and transformation risk	Managing the merger and transformation risksto the delivery ofstrategic, financial and operational objectives.
Meeting the savings and retirement needs of an	Longevity risk	Continued oversight and experience analysis.
ageingUK and continental	Customer risk	Ongoingmonitoring of embedded customer outcome indicators.
European population		Managing the customerrisk implicationsfrom:merger and transformation activity; new product propositions and new regulatory requirements.
Group-wide We aimtogenerate attractive returns enabling usto	Transformation risks around key change programmes	Managing the inter-connected execution risksfrom this transformation activity under theGroup'stransformation risk framework, as well as providing other risk management support and review.
provide financialsecurity to our customers anddeliver sustainable growth for our		Ensuring both M&GPrudential and Prudential plc will have in place two strong standalone risk functions after demerger.
shareholders. Following rigorousreview,webelieve thatthislong-termstrategy is bestserved through the	Group-wide regulatory risks	Engagement with regulators and industry groups on macro prudential and systemic risk-related regulatory initiatives, international capitalstandards, and other initiatives with Group-wide impacts.
demerger of M&GPrudential.		Engagement with theHong Kong Insurance Authority on theGroup-wide supervisory framework that will apply to theGroup after the demerger of M&GPrudential.
	Information security and data privacy risks	Continuing the implementation of theGroup'sinformation security risk managementstrategy and defence plan.
		Ensuring full compliance with applicable privacy laws acrosstheGroup.

4. Risk governance

a. System of governance

Appropriately managed risks allow Prudential to take business opportunities and enable the growth of its business. Effective risk management istherefore fundamental in the execution of the Group's businessstrategy. Prudential's approach to risk management must be both well embedded and rigorous, and, asthe economic and political environment in which we operate changes, itshould also be sufficiently broad and dynamic to respond to these changes.

Prudential hasin place a system of governance that promotes and embeds a clear ownership of risk, processesthat link risk management to business objectives, a proactive Board and senior management providing oversight of risks, mechanisms and methodologiesto review, discuss and communicate risks, and risk policies and standardsto ensure risks are identified, measured, managed, monitored and reported.

How 'risk' is defined

Prudential defines'risk' asthe uncertainty that isfaced in implementing theGroup's strategies and achieving its objectives successfully, and includes all internal or external events, acts or omissionsthat have the potential to threaten the success and survival of theGroup. Accordingly, material risks will be retained selectively when it is considered that there is value in doing so, and where it is consistent with theGroup's risk appetite and philosophy towards risk-taking.

How risk is managed

Risk management is embedded acrossthe Group through theGroup Risk Framework, which details Prudential'srisk governance, riskmanagementprocesses andrisk appetite. The Framework has been developed to monitor the risksto our business and is owned by the Board. The aggregateGroup exposure to its key risk driversis monitored and managed by theGroup Risk function which isresponsible for reviewing, assessing, providing oversight and reporting on theGroup'srisk exposure and solvency position from theGroup economic, regulatory and ratings perspectives.

In 2018, theGroup continued to update its policies and processes around new product approvals, management of critical third-party arrangements and oversight of model risks. A transformation risk framework is being applied directly to manage programme delivery risks. Prudential manages key ESGissuesthrough a multi-disciplinary approach with first-line functional ownership for ESGtopics.

The following section provides more detail on our risk governance, risk culture and risk management process.

02

06

b. Group Risk Framework

i. Risk governance and culture Prudential'srisk governance comprisesthe Board, organisationalstructures, reporting relationships, delegation of authority, roles and responsibilities, and risk policiesthat theGroupHead Office and the business units establish to make decisions and control their activities on risk-related matters. It includesindividuals,Groupwide functions and committeesinvolved in overseeing and managing risk.

The risk governance structure isled by theGroup Risk Committee,supported by independent non-executives on risk committees of Material Subsidiaries. These committees monitor the development of theGroup Risk Framework, which includes risk appetite, limits, and policies, as well asrisk culture.

TheGroup Risk Committee reviewsthe Group Risk Framework and recommends changesto the Board to ensure that it remains effective in identifying and managing the risksfaced by theGroup. Anumber of core risk policies and standardssupport the Framework to ensure thatrisksto theGroup are identified, assessed, managed and reported.

Culture is a strategic priority of the Board, who recognise itsimportance in the way that theGroup does business. Risk culture is a subset of Prudential's broader organisational culture, which shapesthe organisation-wide valuesthat we use to prioritise risk management behaviours and practices.

An evaluation of risk culture forms part of theGroup Risk Framework and in particular seeksto identify evidence that:

• Senior management in business units articulate the need for effective risk management as a way to realise long-term value and continuously support thisthrough their actions;
• Employees understand and care about their role in managing risk – they are aware of and discussrisk openly as part of the way they perform their role; and
• Employeesinvite open discussion on the approach to the management of risk.

TheGroup Risk Committee also has a key role in providing advice to the Remuneration Committee on risk management considerationsto be applied in respect of executive remuneration.

Prudential's Code of Conduct andGroup Governance Manual include a series of guiding principlesthat govern the day-to-day conduct of all its people and

any organisations acting on its behalf. This issupported by specific risk policies which require that theGroup act in a responsible manner. Thisincludes, but is not limited to, policies on anti-money laundering, financial crime and anti-bribery and corruption. The Group'sthird-party supply policy ensures that human rights and modern slavery considerations are embedded across all of itssupplier and supply chain arrangements. Embedded proceduresto allow individuals to speak outsafely and anonymously against unethical behaviour and conduct are also in place.

ii. The risk management cycle

The risk management cycle comprises processesto identify, measure and assess, manage and control, and monitor and report on ourrisks.

Risk identification

Group-wide risk identification takes place throughout the year astheGroup's businesses undertake a comprehensive bottom-up processto identify, assess and document itsrisks. This concludes with an annual top-down identification of the Group's key risks, which considersthose risksthat have the greatest potential to impact theGroup's operating results and financial condition and is used to inform risk reporting to the risk committees and the Board for the year.

Our risk identification process also includes theGroup's Own Risk and Solvency Assessment (ORSA), asrequired under Solvency II, and horizon-scanning performed as part of our emerging risk management process.

In accordance with provisionC.2.1 ofthe UKCode, the Directors perform a robust assessment of the principal risksfacing the Company through theGroup-wide risk identification process,Group ORSA report and the risk assessments undertaken as part of the business planning review, including how they are managed and mitigated.

Reverse stresstesting, which requiresthe Group to ascertain the point of business model failure, is another tool that helps us to identify the key risks and scenariosthat may have a material impact on theGroup.

The risk profile is a key output from the risk identification and risk measurement processes, and is used as a basisfor settingGroup-wide limits, management information, assessment ofsolvency needs, and determining appropriate stress and scenario testing. TheGroup's annual set of key risks are given enhanced management and reporting focus.

Risk measurement and assessment

All identified risks are assessed based on an appropriate methodology for that risk. All quantifiable risks, which are material and mitigated by holding capital, are modelled in theGroup'sinternal model, which is used to determine capital requirements under Solvency II and our own economic capital basis.Governance arrangements are in place to support the internal model, including independent validation and processes and controls around model changes and limitations.

Risk management and control

The control procedures and systems established within theGroup are designed to manage the risk of failing to meet business objectives and are detailed in theGroup risk policies. These focus on aligning the levels of risk-taking with the achievement of business objectives and can only provide reasonable, and not absolute assurance, against material misstatement or loss.

The management and control of risks are set out in theGroup risk policies, and form part of the holistic risk management approach under theGroup's ORSA. These risk policies define:

• TheGroup'srisk appetite in respect of material risks, and the framework under which theGroup's exposure to those risksislimited;
• The processesto enableGroup senior management to effect themeasurement and management of theGroup material risk profile in a consistent and coherent way; and
• The flows of management information required to support the measurement and management of theGroup's material risks and to meet the needs of externalstakeholders.

The methods and risk management tools we employ to mitigate each of our major categories of risks are detailed in the further risk information section below.

Risk monitoring and reporting

The identification of theGroup's key risks informsthe management information received by theGroup risk committees and the Board. Risk reporting of key exposures against appetite is also included, as well as ongoing developmentsin other key and emerging risks.

iii. Risk appetite, limits and triggers

The extent to which Prudential is willing to take risk in the pursuit of its business strategy and objective to create

shareholder value is defined by a number of qualitative and quantitative expressions of risk appetite, operationalised through measuressuch aslimits, triggers and indicators. TheGroup Risk function is responsible for reviewing the scope and operation of these risk appetite measures at least annually to determine that they remain relevant. The Board approves all changes made to theGroup's aggregate risk appetite, and has delegated authority to theGroup Risk Committee to approve changesto the system of limits, triggers and indicators.

Group risk appetite isset with reference to economic and regulatory capital, liquidity and earnings volatility which is aimed at ensuring that an appropriate level of

aggregate risk istaken. Appetite is also defined for theGroup's financial and non-financial risks. Further detail is included in sections 5 and 6, as well as covering risksto shareholders, including those from participating and third-party business.Group limits operate within these expressions of risk appetite to constrain material risks, while triggers and indicators provide further constraint and defined pointsfor escalation.

Capital requirements:

Limits on capitalrequirements aimto ensure that theGroup meetsitsinternal economic capital requirements, achievesits desired targetrating tomeetits business objectives, and ensuresthatsupervisory intervention is not required. The two measures used at

theGroup level are Solvency II capital requirements and internal economic capital (ECap) requirements. In addition, capital requirements are monitored on local statutory bases.

TheGroup Risk Committee isresponsible for reviewing the risksinherent in the Group's business plan and for providing the Board with input on the risk/reward trade-offsimplicit therein. Thisreview is supported by theGroup Risk function, which usessubmissionsfrom our local business unitsto calculate theGroup's aggregated position (allowing for diversification effects between local business units) relative to the aggregate risk limits.

02

04

Risk management

Risk identification

Risk identification coversGroup-wide:

• Top down risk identification
• Bottom up risk identification
• Emerging risk identification.

Risk measurement and assessment Risks are assessed in terms ofmateriality.

Material risks which are modelled are included in appropriately validated regulatory and economic capitalmodels.

Manage and control

Risk appetite and limits allow for the controlled growth of our business, in line with businessstrategy and plan.

Processesthatsupport the oversight and control of risksinclude:

• The Own Risk and Solvency Assessment (ORSA)
• Group approved limits and early warning triggers
• Large risk approval process
• Global counterparty limit framework
• Financial incidents procedures.

Monitor and report

Escalation requirementsin the event of a breach are clearly defined.Risk reporting providesregular updatesto theGroup's Board and risk committees on exposures against Board-approved risk appetite statements and limits. Reporting also coverstheGroup's key risks.

Risk governance and culture Risk governance comprisesthe Board, organisationalstructures, reporting relationships, delegation of authority, roles and responsibilities, and risk policies. Risk culture is a subset of broader organisational culture, and shapesthe organisation-wide values used to prioritise risk management behaviours.

Capital management

Capital adequacy is monitored to ensure that internal and regulatory capital requirements are met, and thatsolvency buffers are appropriate, over the business planning horizon and understress.

Business strategy

Businessstrategy and the business plan provide direction on future growth and inform the level of limits on solvency, liquidity and earnings and for our key risks. TheGroup Risk function provide input and opinion on key aspects of businessstrategy.

Stress and scenario testing Stress and scenario testing is performed to assessthe robustness of capital adequacy and liquidity, and the appropriateness ofrisk limits.Recovery planning assessesthe effectiveness of theGroup'srecoverymeasures and the appropriateness of activation points.

Liquidity:

The objective of theGroup'sliquidity risk appetite isto ensure that theGroup is able to generate sufficient cash resourcesto meet financial obligations asthey fall due in business-as-usual and stressed scenarios. Risk appetite with respect to liquidity risk is measured using a Liquidity Coverage Ratio (LCR) which considers the sources of liquidity against liquidity requirements understressscenarios.

Earnings volatility:

The objectives of theGroup's appetite and aggregate risk limits on earnings volatility seek to ensure that variability is consistent with the expectations ofstakeholders; that theGroup has adequate earnings(and cash flows) to service debt and expected dividends and to withstand unexpected shocks; and that earnings(and cash flows) are managed properly across geographies and are consistent with funding strategies. The volatility of earningsis measured and monitored on operating profit and EEV operating profit bases, although IFRS and EEV total profits are also considered.

5. Summary risks

Broadly, the risks assumed acrossthe Group can be categorised asthose which arise as a result of our business operations, our investments and those arising from the nature of our products. Prudential is also

exposed to those broad risks which apply because of the global environment in which it operates. These risks, where they materialise, may have a financial impact on theGroup, and could also impact on the performance of its products or the services it providesto our customers and distributors, which givesrise to potential risksto its brand and reputation and have conduct risk implications. These risks are summarised below. The materiality of these risks, whether material at the level of theGroup or its business units, is also indicated. TheGroup's disclosures covering risk factors can be found at the end of this document.

'Macro' risks

Some of the risksthat theGroup is exposed to are necessarily broad given the external influences which may impact on the business. These risksinclude:

Global economic conditions

Changesin global economic conditions can impact Prudential directly; for example, by leading to poor investment returns and fund performance, and increasing the cost of promises(guarantees) that have been made to our customers. Changesin economic conditions can also have an indirect impact on theGroup; for example, leading to a decrease in the propensity for people to save and buy Prudential's products, as well as changing prevailing political attitudestowardsregulation. Thisis a risk which is considered material at the level of theGroup.

Geopolitical risk

The geopolitical environment may have direct or indirect impacts on theGroup, and hasseen varying levels of volatility in recent years asseen by political developmentsin theUK, theUS and the Eurozone.Uncertainty in these regions, combined with continuing conflict in the Middle East and elevated tensionsin East Asia and the Korean peninsula underline that geopolitical risks have potentially global and wide-ranging impacts; for example, through increased regulatory and operational risks, and changesto the economic environment.

Regulatory risk

Prudential operates under the ever-evolving requirementsset out by diverse regulatory, legal and tax regimes. The increasing shift towards macro-prudential regulation and the number of regulatory changes under way across Asia (in particular focusing on consumer protection) are key areas of focus, while both Jackson and M&GPrudential operate in highly regulated markets. Regulatory reforms can have a material impact on Prudential's businesses. The proposed demerger of M&GPrudential will result in a change in Prudential'sGroup-wide supervisor to theHong Kong Insurance Authority. TheGroup is, led by theGroup Chief Risk Officer, proactively engaging with the supervisor-elect on the supervisory framework that will apply to theGroup after the demerger.

Technological change

The emergence of advanced technologiessuch as artificial intelligence and blockchain is providing an impetusfor companiesto rethink their existing operating models and how they interact with their customers. Technological change is considered from both an external and internal view. The external view considersthe rise of new technologies and how this may impact on the insurance industry and Prudential's competitiveness within it, while the internal view considersthe risks associated with theGroup'sinternal developmentsin meeting digital change challenges and opportunities. Prudential is embracing the opportunitiesfrom new technologies, and any risks which arise from them are closely monitored.

ESG risks

As aGroup, responding effectively to those material risks with ESGimplicationsis crucial in maintaining Prudential's brand and reputation, and in turn its financial performance and itslong-term strategy. Further information on theGroup's approach to governance on ESGissues and the relevantGroup-wide policiesfor managing these are included in the Corporate responsibility review on pages 71 to 74.

Market risk

Isthe potential for reduced value of Prudential'sinvestmentsresulting from the volatility of asset prices, driven by fluctuationsin equity prices, interest rates, foreign exchange rates and property prices.

In the Asia business, the main market risks arise from the value of feesfrom itsfee-earning products. In theUS, Jackson's fixed and variable annuity books are exposed to a variety of market risks due to the assets backing these policies.

TheUK business' market risk exposure arisesfrom the valuation of the shareholder's proportion of the with-profitsfund'sfuture profits, which depends on equity, property and bond values.

M&GPrudential investsin a broad range of asset classes and itsincome issubject to the price volatility of global financial and currency markets.

Credit risk

Isthe potential for reduced value of Prudential'sinvestments driven by the market's perceptionsfor potential for defaults of investment and other counterparties.

TheGroup's asset portfolio also gives rise to invested credit risk. The assets backing theUK and Jackson annuity businesses means credit risk is considered a material risk for these business unitsin particular.

Liquidity risk

Isthe risk of not having sufficient liquid assetsto meet obligations asthey fall due, and we look at this under both normal and stressed conditions. This is a risk which is considered material at the level of theGroup.

Insurance risks

The nature of the products offered by Prudential exposesit to insurance risks, which form a significant part of the overallGroup risk profile.

The insurance risksthat the business is exposed to by virtue of its products include longevity risk (policyholders living longer than expected); mortality risk (higher number of policyholders with life protection dying than expected); morbidity risk (more policyholders with health protection becoming ill than expected) and persistency risk (more customers lapsing their policiesthan expected, and a type of policyholder behaviour risk). The medical insurance business in Asia is also exposed to medical inflation risk (the increasing cost of medical treatments being higher than expected).

The pricing of Prudential's products requiresit to make a number of assumptions, and deviationsfrom these may impact itsreported profitability and capital position. Acrossits business units,some insurance risks are more material than others.

Persistency and morbidity risks are among the most material insurance risks for the Asia business given the focus on health and protection productsin the region.

For M&GPrudential the most material insurance risk islongevity risk, arising from itslegacy annuity business.

The Jackson businessis most exposed to policyholder behaviourrisk, including persistency, which impactsthe profitability of the variable annuity business and isinfluenced by market performance and the value of policy guarantees.

Conduct risk

The design and distribution of Prudential's productsis crucial in ensuring that theGroup's commitment to meeting customers' needs and expectations are met, and are factors which theGroup considers as part of its overall conduct of business.

Risks from our investments Risks from our products Risks from our business operations

Strategic and transformation risks

A number ofsignificant change programmes are currently running to effect both theGroup'sstrategy and to complywithemergingregulatorychanges. The breadth of these activities, and the consequences,includingthe reputational impact, to theGroup should they fail to meet their objectives, mean that these risks arematerial atthe level oftheGroup.

Operational risks

A combination of the complexity of the Group, its activities and the extent of transformation in progress creates a challenging operating environment.

Operational risk isthe risk of loss or unintended gain from inadequate or failed processes, personnel,systems andexternalevents, andcanarisethrough businesstransformation;introducing new products;newtechnologies; andentering into new markets and geographies. Implementing the businessstrategy and processesfor ensuring regulatory compliance (including those relating to the conduct of its business) requires interconnected change initiatives across theGroup, the pace of which introduces further complexity. TheGroup's outsourcing and third party relationships introduce their own distinct risks. Such operationalrisks, iftheymaterialise, could resultin financial loss and/orreputational damage. Operational risk is considered to be material at the level of theGroup.

Business disruption risks may impact on Prudential's ability to meet its key objectives and protect its brand and reputation. TheGroup's business resilience is a core part of a wellembedded business continuity management programme.

Information security and data privacy risks are significant considerationsfor Prudential and the cybersecurity threat continuesto evolve globally in sophistication and potentialsignificance Thisincludesthe continually evolving risk ofmalicious attackonitssystems,network disruption as well asrisksrelating to data security, integrity, privacy and misuse. The scale of theGroup'sIT infrastructure and network,stakeholder expectations and high profile cybersecurity and data misuse incidents acrossindustriesmeans thatthese risks continue to be considered material at the level of theGroup.

02

03

06 European

6. Further risk information

In reading the sections below, it is useful to understand that there are some risks that Prudential's policyholders assume by virtue of the nature of their products, and some risksthat the Company and its shareholders assume. Examples of the latter include those risks arising from assets held directly by and for the Company or the risk that policyholder funds are exhausted. Thisreport isfocused mainly on risksto the shareholder but will include those which arise indirectly through our policyholder exposures.

6.1 'Macro' risks

a. Global regulatory and political risks Regulatory and political risks may impact on Prudential's business or the way in which it is conducted. This covers a broad range of risksincluding changesin government policy and legislation, capital control measures, new regulations at either national or international level, and specific regulator interventions or actions. Following the announcement in August 2018 that theHong Kong Insurance Authority would become Prudential's Group-wide supervisor after the demerger of M&GPrudential, constructive engagement with the supervisor-elect began in 2018 and will continue into 2019. In particular, Prudential continuesto engage with the supervisor on its proposed Group-wide supervision framework which will apply to theGroup after the demerger.

Recentshiftsin the focus ofsome governmentstoward more protectionist or restrictive economic and trade policies could impact on the degree and nature of regulatory changes and Prudential's competitive position in some geographic markets. This could take effect, for example, through increased friction in cross-border trade, capital controls or measuresfavouring local enterprises such as changesto the maximum level of non-domestic ownership by foreign companies. These developments continue to be monitored by theGroup at a national and global level and these considerations form part of theGroup's ongoing engagement with government policy teams and regulators.

Effortsto curb systemic risk and promote financialstability are also underway. At the international level, the Financial Stability Board (FSB) continuesto develop recommendationsfor the asset management and insurance sectors, including on-going assessment ofsystemic risk measures. The International Association of Insurance Supervisors(IAIS) has continued itsfocus on the following two key developments.

Prudential's designation as aG-SII waslast reaffirmed on 21November 2016. The FSB, in conjunction with the IAIS, did not publish a new list ofG-SIIsin 2017 and did not engage inG-SII identification for 2018 following IAIS' launch of the consultation on theHolistic Framework (HF) on 14November 2018, which aimsto assess and mitigate systemic risk in the insurance sector and isintended to replace the currentG-SII measures. The IAIS intends to implement theHF in 2020 and it is proposed thatG-SII identification be suspended from that year. In the interim, the relevant group-wide supervisors have committed to continue applying existing enhancedG-SIIsupervisory policy measures with some supervisory discretion, which includes a requirement to submit enhanced risk management plans. InNovember 2022, the FSB will review the need to either discontinue or re-establish an annual identification ofG-SIIsin consultation with the IAIS and national authorities. TheHigher Loss Absorbency (HLA)standard (a proposed additional capital measure forG-SII designated firms, planned to apply from 2022) is not part of the proposedHF.However, theHF proposes more supervisory powers of intervention for mitigating systemic risk, including temporary financial reinforcement measuressuch as capital add-ons and suspension of dividends.

The IAIS is also developing the ICS as part of ComFrame – the Common Framework for the supervision of Internationally Active InsuranceGroups(IAIGs). The implementation of ICS will be conducted in two phases – a five-year monitoring phase followed by an implementation phase. ComFrame will more generally establish a set of common principles and standards designed to assistsupervisorsin addressing risksthat arise from insurance groups with operationsin multiple jurisdictions. The ComFrame proposals, including ICS, could result in enhanced capital and regulatory measuresfor IAIGs, for which Prudentialsatisfiesthe criteria.

In certain jurisdictionsin which Prudential operatesthere are also a number of ongoing policy initiatives and regulatory developmentsthat are having, and will continue to have, an impact on the way Prudential issupervised, including the US Dodd-Frank Wall Street Reform and Consumer Protection Act, addressing Financial Conduct Authority (FCA) reviews and ongoing engagement with the

Prudential Regulation Authority (PRA). Decisionstaken by regulators, including those related to solvency requirements, corporate or governance structures, capital allocation and risk management may have an impact on our business.

There has, in recent years, been regulatory focusin theUK on insurance products and market practices which may have adversely impacted customers, including the FCA's Legacy Review and Thematic Review of Annuity Sales Practices. The management of customer risk remains a key focus of management in theUK business. Merger and transformation activity at M&GPrudential, new product propositions and new regulatory requirements may also have customer risk implications which are monitored.

In May 2017, the International Accounting Standards Board (IASB) published IFRS 17 which will introduce fundamental changes to the IFRS-based reporting of insurance entitiesthat prepare accounts according to IFRS from 2021. InNovember 2018, the IASB tentatively agreed to delay the effective date of IFRS 17 by one year to periods beginning on or after 1 January 2022 and is considering introducing further amendmentsto this new standard. IFRS 17 is expected to, among other things, include altering the timing of IFRS profit recognition, and the implementation of the standard islikely to require changesto the Group'sIT, actuarial and finance systems. TheGroup isreviewing the complex requirements of thisstandard and considering its potential impact.

In March 2018, theUK and EUagreed the terms of a transition agreement for theUK's exit from the bloc, which will last from the termination of theUK's membership of the EU(at 11.00pm GMT 29 March 2019) until 31 December 2020 (although a legally binding text is yet to be agreed). The outcome of negotiations on the final terms of theUK'srelationship with the EU remains highly uncertain. In particular, depending on the nature of theUK's exit from the EU, the following effects may be seen. TheUK and EU may experience a downturn in economic activity, which is expected to be more pronounced for the UK, particularly in the event of a disorderly exit by theUK from the EU. Market volatility and illiquidity may increase in the period leading up to, and following, the UK's withdrawal, and property values (including the liquidity of property funds, where redemption restrictions may be applied) and interest rates may be impacted. In particular, downgradesin

01 Group overview

04

06

sovereign and corporate debt ratings may occur. In a severe scenario where theUK's sovereign rating is downgraded by more than one notch, this may also impact on the credit ratings ofUK companies, including M&GPrudential'sUK business. The legal and regulatory regime in which theGroup (and, in particular, M&GPrudential) operates, may also be affected (including the future applicability of the Solvency II regime in theUK), the extent of which remains uncertain. There is also a risk of operational disruption to the business, in particular to M&GPrudential.

TheGroup's diversification by geography, currency, product and distribution should reduce some of the potential impact of the UK's exit. M&GPrudential, due to the geographical location of both its businesses and its customers, hasthe most potential to be affected. As a result of the uncertainty on the nature of the arrangementsthat will be put in place between theUK and the EU, M&GPrudential has completed the implementation of a range of plans including transfers of businessto EU jurisdictions, balance sheet and withprofitsfund hedging protection and operational measures(including customer communications) that are designed to mitigate the potential adverse impactsto theGroup'sUK business. In addition, the business hassought to ensure, through variousrisk mitigation actions, that it is appropriately prepared for the potential operational and financial impacts of a no-deal withdrawal.

In theUS, variousinitiatives are underway to introduce fiduciary obligationsfor distributors of investment products, which may reshape the distribution of retirement products. Jackson hasintroduced fee-based variable annuity products in response to the potential introduction ofsuch rules, and we anticipate that the business'sstrong relationships with distributors, history of product innovation and efficient operationsshould further mitigate any impacts.

In late 2018, theUSNAIC concluded an industry consultation with the aim of reducing the non-economic volatility in the variable annuity statutory balance sheet and enhancing risk management. The NAIC istargeting a January 2020 effective date for the new framework, which will have an impact on Jackson's business. Jackson continuesto assess and test the changes. TheNAIC also has an on-going review of the C-1 bond factorsin the required capital calculation, on which

further information is expected to be provided in due course. TheGroup's preparationsto manage the impact of these reforms will continue.

In the EU, the European Commission began a review in late 2016 ofsome aspects of the Solvency II legislative package, which is expected to continue until 2021 and includes a review of the Long Term Guarantee measures.

On 27 July 2017, theUK FCA announced that it will no longer persuade, or use its powersto compel, panel banksto submit ratesfor the calculation of LIBOR after 2021. The discontinuation of LIBOR in its current form and itsreplacement with the Sterling Overnight Index Average benchmark (SONIA) in theUK (and other alternative benchmark ratesin other countries) could, among other things, impact theGroup through an adverse effect on the value of Prudential's assets and liabilities which are linked to, or which reference LIBOR, a reduction in market liquidity during any period of transition and increased legal and conduct risksto the Group arising from changesrequired to documentation and itsrelated obligations to itsstakeholders.

In Asia, regulatory regimes are developing at differentspeeds, driven by a combination of global factors and local considerations.New local capital rules and requirements could be introduced in these and other regulatory regimesthat challenge legal or ownership structures, currentsales practices, or could be applied to sales made prior to their introduction retrospectively, which could have a negative impact on Prudential's business or reported results.

Risk management and mitigation of regulatory and political risk at Prudential includesthe following:

• Risk assessment of the Business Plan which includes consideration of current strategies;
• Close monitoring and assessment of our business environment and strategic risks;
• The consideration of risk themes in strategic decisions; and
• Ongoing engagement with national regulators, government policy teams and internationalstandard setters.

b. ESG risks including climate change

The business environment in which Prudential operatesis continually changing, and responding effectively to those material risks with ESGimplications is crucial in maintaining Prudential's brand and reputation, and in turn its financial performance and itslong-term strategy. TheGroup maintains active engagement with its key stakeholders, including investors, customers, employees, governments, policymakers and regulatorsin its key markets, as well as with international institutions – all of whom have expectations, which the Group must balance, asit respondsto ESG-related matters.

Climate change is a key ESGtheme which continuesto move up the agenda of many regulators, governments, nongovernmental organisations and investors. An overview of the variousregulatory, supervisory and investor-driven initiatives related to climate change currently in progress; how theGroup manages climate change risks and opportunities; and the Group's participation in industry initiatives in this area is outlined in the Corporate responsibility review on page 74. There has been increased regulatory and supervisory focus on sustainable finance and responsible investment. TheGroup recognisesthis and the ESGExecutive Committee seeks, as one of its aims, to ensure a consistent approach in managing ESGconsiderationsin its business activities, including investment activities.

TheGroup's operational risk framework explicitly incorporates ESGas a component of itssocial and environmental responsibility, brand management and external communications. Thisisfurther strengthened by factoring considerations for reputational impacts when the materiality of operational risks are assessed. Policies and proceduresto support how theGroup operatesin relation to certain ESGissues are covered in the GroupGovernance Manual. Prudential manages key ESGissuesthough a multi-disciplinary approach with first line functional ownership for ESGtopics. Further information on theGroup's approach to governance on ESGissues and the relevantGroup-wide policies for managing these are included in the Corporate responsibility review on page 74.

6.2 Risks from our investments a. Market risk

The main drivers of market risk in the Group are:

• Investment risk, which arises on our holdings of equity and property investments, the prices of which can change depending on market conditions;
• Interest rate risk, which is driven by the valuation of Prudential's assets (particularly the bondsthat it investsin) and liabilities, which are dependent on market interest rates and exposesit to the risk of those moving in a way that is detrimental; and
• Foreign exchange risk, through translation of its profits and assets and liabilities denominated in various currencies, given the geographical diversity of the business.

The main investment risk exposure arises from the portion of the profitsfrom theUK andHong Kong with-profitsfunds which the shareholders are entitled to receive; the value of the future feesfrom the fee-earning productsin the Asia business; and from the asset returns backing Jackson's variable annuities business. Further detail is provided below.

TheGroup'sinterest rate risk is driven by the need to match the duration of its assets and liabilitiesin theUK and Europe insurance business and the fixed annuity businessin Jackson. Interest rate risk also arisesfrom the guarantees ofsome non unit-linked investment productsin Asia; and the cost of guaranteesin Jackson's fixed index and variable annuity business. Further detail is provided below.

TheGroup has appetite for market risk where it arisesfrom profit-generating insurance activitiesto the extent that it remains part of a balanced portfolio of sources of income forshareholders and is compatible with a robustsolvency position. TheGroup's market risks are managed and mitigated by the following:

• Our market risk policy;
• Risk appetite statements, limits and triggers;
• Our asset and liability management programmes;
• Hedging derivatives, including equity options and futures, interest rate swaps and swaptions and currency forwards;
• The monitoring and oversight of market risksthrough the regular reporting of management information; and
• Regular deep dive assessments.

Equity and property investment risk (Audited)

In theUK and Europe business, the main investment risk arisesfrom the assets held in the with-profitsfundsthrough the shareholders' proportion of the funds' declared bonuses and policyholder net investment gains(future transfers). This investment risk is driven mainly by equities in the funds and some hedging to protect against a reduction in the value of these future transfersis performed outside the funds. TheUK with-profitsfunds' Solvency II own funds, estimated at £9.7 billion as at 31 December 2018, helps to protect against market fluctuations and is protected partially against fallsin equity marketsthrough an active hedging programme within the fund.

In Asia, the shareholder exposure to equity price movementsresultsfrom unit-linked products, where fee income islinked to the market value of the funds under management. Further exposure arisesfrom with-profits businesses where bonuses declared are based broadly on historical and current rates of return from the Asia business' investment portfolios, which include equities.

In Jackson, investment risk arisesfrom the assets backing customer policies. Equity risk is driven by the variable annuity business, where the assets are invested in both equities and bonds and the main risk to the shareholder comesfrom providing the guaranteed benefits offered. The exposure to thisis primarily controlled by using a derivative hedging programme, as well asthrough the use of reinsurance to pass on the risk to third-party reinsurers.

While accepting the equity exposure that arises on future fees, theGroup haslimited appetite for exposuresto equity price movementsto remain unhedged or for volatility within policyholder guarantees after taking into account any natural offsets and buffers within the business.

Interest rate risk (Audited)

Some productsthat Prudential offer are sensitive to movementsin interest rates. As part of theGroup's ongoing management of thisrisk, a number of mitigating actionsto the in-force business have been taken, as well asrepricing and restructuring new business offeringsin response to recent relatively low interest rates.Nevertheless,some sensitivity to interest rate movementsisstill retained.

TheGroup's appetite for interest rate risk islimited to where assets and liabilities can be tightly matched and where liquid assets or derivatives exist to cover interest rate exposures.

In theUK and Europe insurance business, interest rate risk arisesfrom the need to match the cash flows of its annuity obligations with those from itsinvestments. The risk is managed by matching asset and liability durations as well as continually assessing the need for use of any derivatives.Under Solvency II rules, interest rate risk also resultsfrom the requirement to include a balance sheet risk margin. The with-profits businessis also exposed to interest rate risk through some product guarantees. Such risk islargely borne by the with-profitsfund itself although shareholdersupport may be required in extreme circumstances where the fund hasinsufficient resourcesto support the risk.

InAsia, our exposure to interestrate risk arisesfrom the guarantees ofsome non-unit-linked investment products, including theHongKong with-profits business. This exposure exists because of the potential for asset and liability mismatch which, although it issmall and managed appropriately, cannot be eliminated.

Jackson is affected by interest rate movementsto its fixed annuity book where the assets are primarily invested in bonds and shareholder exposure comesfrom the mismatch between these assets and the guaranteed ratesthat are offered to policyholders. Interest rate risk results from the cost of guaranteesin the variable annuity and fixed index annuity business, which may increase when interest rates fall. The level ofsales of variable annuity products with guaranteed living benefits is actively monitored, and the risk limits we have in place help to ensure comfort with the level of interest rate and market risks incurred as a result. Derivatives are also used to provide some protection.

Foreign exchange risk (Audited)

The geographical diversity of Prudential's businesses meansthat it hassome exposure to the risk of foreign exchange rate fluctuations. The operationsin the US and Asia, which represent a large proportion of operating profit and shareholders' funds, generally write policies and invest in assetsin local currencies. Although thislimitsthe effect of exchange rate movements on local operating results, it can lead to fluctuations in theGroup financialstatements when results are reported inUK sterling. Thisrisk is accepted within our appetite for foreign exchange risk.

In cases where a surplus arisesin an overseas operation which isto be used to supportGroup capital, or where a significant cash payment is due from an overseassubsidiary to theGroup, this currency exposure may be hedged where it is believed to be favourable economically to do so. Further, theGroup generally does not have appetite forsignificant direct shareholder exposure to foreign exchange risksin currencies outside the countriesin which it operates, but it does have some appetite for this on fee income and on non-sterling investments within the with-profitsfund. Where foreign exchange risk arises outside appetite, currency swaps and other derivatives are used to manage the exposure.

b. Credit risk

Prudential investsin bondsthat provide a regular, fixed amount of interest income (fixed income assets) in order to match the payments needed to policyholders. It also entersinto reinsurance and derivative contracts with third partiesto mitigate varioustypes of risk, as well as holding cash deposits at certain banks. As a result, it is exposed to credit risk and counterparty risk acrossits business.

Credit risk isthe potential for reduction in the value of investments which resultsfrom the perceived level of risk of an investment issuer being unable to meet its obligations (defaulting). Counterparty risk is a type of credit risk and relatesto the risk that the counterparty to any contract we enter into being unable to meet their obligations causing usto suffer loss.

TheGroup hassome appetite to take credit risk where it arisesfrom profit-generating insurance activities, to the extent that it remains part of a balanced portfolio of sources of income forshareholders and is compatible with a robustsolvency position.

A number of risk management tools are used to manage and mitigate this credit risk, including the following:

• A credit risk policy and dealing and controls policy;
• Risk appetite statements and limits that have been defined on issuers, and counterparties;
• Collateral arrangementsfor derivative, secured lending reverse repurchase and reinsurance transactions;
• TheGroup Credit Risk Committee's oversight of credit and counterparty credit risk and sector and/or namespecific reviews;
• Regular assessments; and
• Close monitoring or restrictions on investmentsthat may be of concern.

Debt and loan portfolio (Audited)

Prudential'sUK and Europe businessis exposed to credit risk on fixed income assetsin the shareholder-backed portfolio. At 31 December 2018, this portfolio contained fixed income assets worth £21.6 billion. M&GPrudential's debt portfolio reduced by £12.1 billion following the transfer of fixed income assetsto Rothesay Life as part of the reinsurance agreement announced in March 2018. Credit risk arising from a further £64.3 billion of fixed income assetsis borne largely by the with-profitsfund, to which the shareholder is not exposed directly although under extreme circumstances shareholdersupport may be required if the fund is unable to meet payments asthey fall due.

Credit risk also arisesfrom the debt portfolio in the Asia business, the value of which was £45.8 billion at 31 December 2018. The majority (68 per cent) of the portfolio isin unit-linked and with-profits funds and so exposure of the shareholder to this component is minimal. The remaining 32 per cent of the debt portfolio is held to back the shareholder business.

In the general account of the Jackson business £41.6 billion of fixed income assets are held to supportshareholder liabilitiesincluding those from our fixed annuities, fixed index annuities and life insurance products. Jackson's general account portfolio increased by circa £4 billion due to the JohnHancock acquisition.

The shareholder-owned debt and loan portfolio of theGroup's other operations was £2.0 billion as at 31 December 2018.

Further details of the composition and quality of our debt portfolio, and exposure to loans, can be found in the IFRS financial statements.

Group sovereign debt (Audited)

Prudential also investsin bondsissued by national governments. Thissovereign debt represented 18 per cent or £14.4 billion of the shareholder debt portfolio as at 31 December 2018 (31 December 2017: 19 per cent or £16.5 billion). 3 per cent of this wasrated AAA and 87 per cent was considered investment grade (31 December 2017: 90 per cent investment grade).

The particular risks associated with holding sovereign debt are detailed further in our disclosures on risk factors.

The exposures held by the shareholderbacked business and with-profitsfundsin sovereign debtsecurities at 31 December 2018 are given in note C3.2(f) of the Group'sIFRS financialstatements.

Bank debt exposure and counterparty credit risk

(Audited) Prudential's exposure to banksis a key part of its core investment business, as well as being important for the hedging and other activities undertaken to manage its various financial risks.Given the importance of its relationship with its banks, exposure to the sector is considered a material risk for theGroup.

The exposures held by the shareholderbacked business and with-profitsfundsin bank debtsecurities at 31 December 2018 are given in note C3.2(f) of theGroup's IFRS financialstatements.

The exposure to derivative counterparty and reinsurance counterparty credit risk is managed using an array ofriskmanagement tools, including a comprehensive system of limits. Where appropriate, Prudential reducesits exposure, buys credit protection or uses additional collateral arrangementsto manage itslevels of counterparty creditrisk.

At 31 December 2018,shareholder exposures by rating1 and sector2 are shown below:

• 95 per cent of the shareholder portfolio isinvestment grade rated. In particular, 66 per cent of the portfolio israted Aand above (or equivalent); and
• TheGroup'sshareholder portfolio is well diversified: no individualsector makes up more than 15 per cent of the total portfolio (excluding the financial and sovereign sectors).

Shareholder exposure by rating1

Shareholder exposure by sector2

3 Consumer, non-cyclical	11.79%
4 Utilities	11.79%
5 Industrial	6.48%
6 Energy	4.52%
7 Communications	3.57%
8 Consumer, cyclical	3.56%
9 Basic materials	1.98%
10 Real estate	1.90%
11 Technology	1.74%
12 Mortgage securities	0.67%
13 Diversified	0.44%
14 Asset-backed securities	0.39%
15 Other	1.03%

c. Liquidity risk

Prudential'sliquidity risk arisesfrom the need to have sufficient liquid assetsto meet policyholder and third-party payments asthey fall due. This incorporatesthe risk arising from funds composed of illiquid assets and results from a mismatch between the liquidity profile of assets and liabilities. Liquidity risk may impact on market conditions and valuation of assetsin a more uncertain way than for other riskslike interest rate or credit risk. It may arise, for example, where external capital is unavailable atsustainable cost, increased liquid assets are required to be held as collateral under derivative transactions or where redemption requests are made against Prudential external funds.

Prudential has no appetite for liquidity risk, ie for any businessto have insufficient resourcesto cover its outgoing cash flows, or for theGroup as a whole to not meet cash flow requirementsfrom its debt obligations under any plausible scenario.

TheGroup hassignificant internalsources of liquidity, which are sufficient to meet all of our expected cash requirementsfor at least 12 monthsfrom the date the financial statements are approved, without having to resort to externalsources of funding. TheGroup has a total of £2.6 billion of undrawn committed facilitiesthat can be made use of, expiring in 2023. Accessto further liquidity is available through the debt capital markets and an extensive commercial paper programme in place, and Prudential has maintained a consistent presence as an issuer in the market for the past decade.

A number of risk management tools are used to manage and mitigate thisliquidity risk, including the following:

• TheGroup'sliquidity risk policy;
• Risk appetite statements, limits and triggers;
• Regular assessment atGroup and business units of LCRs which are calculated under both base case and stressed scenarios and are reported to committees and the Board;
• TheGroup's Liquidity Risk Management Plan, which includes details of theGroup Liquidity Risk Framework as well as gap analysis of liquidity risks and the adequacy of available liquidity resources under normal and stressed conditions;
• Our contingency plans and identified sources of liquidity;
• TheGroup's ability to accessthe money and debt capital markets;
• Regular deep dive assessments; and
• TheGroup's accessto external committed credit facilities.

6.3 Risks from our products a. Insurance risk

Insurance risk makes up a significant proportion of Prudential's overall risk exposure. The profitability of its businesses depends on a mix of factors, including levels of, and trendsin, mortality (policyholders dying), morbidity (policyholders becoming ill) and policyholder behaviour (variability in how customersinteract with their policies, including utilisation of withdrawals, take-up of options and guarantees and persistency, ie lapsing of policies), and increasesin the costs of claims, including the level of medical expensesincreases over and above price inflation (claim inflation).

TheGroup has appetite for retaining insurance risksin order to create shareholder value in the areas where it believesit has expertise and controlsto manage the risk and can supportsuch risk with its capital and solvency position.

The principal drivers of theGroup's insurance risk vary acrossits business units. At M&GPrudential, thisis predominantly longevity risk. Across Asia, where a significant volume of health protection businessis written, the most significant insurance risks are morbidity risk, persistency risk, and medical inflation risk. In Jackson, policyholder behaviour risk is particularly material, especially in the take up of options and guarantees on variable annuity business.

TheGroup manageslongevity risk in various ways. Longevity reinsurance is a key tool in managing thisrisk. In March 2018, theGroup'slongevity risk exposure wassignificantly reduced by reinsuring £12 billion inUK annuity liabilitiesto Rothesay Life, pursuant to a Part VII transfer of the majority of these liabilities expected to be completed by 30 June 2019. Although Prudential has withdrawn from selling new UK annuity business, given itssignificant annuity portfolio the assumptionsit makes about future rates of improvement in mortality ratesremain key to the measurement of itsinsurance

liabilities and to its assessment of any reinsurance transactions. Prudential continuesto conduct research into longevity risk using both experience from its annuity portfolio and industry data. Although the general consensusin recent yearsisthat people are living longer, the rate of increase hasslowed in recent years, and there is considerable volatility in year-on-year longevity experience, which is why it needs expert judgement in setting itslongevity basis.

Prudential's morbidity risk is mitigated by appropriate underwriting when policies are issued and claims are received. Our morbidity assumptionsreflect our recent experience and expectation of future trendsfor each relevant line of business.

In Asia, Prudential writessignificant volumes of health protection business, and so a key assumption isthe rate of medical inflation, which is often in excess of general price inflation. There is a risk that the expenses of medical treatment increase more than expected,so the medical claim cost passed on to Prudential is higher than anticipated. Medical expense inflation risk is best mitigated by retaining the right to reprice our products each year and by having suitable overall claim limits within its policies, either limits per type of claim or in total across a policy.

TheGroup's persistency assumptions reflectsimilarly a combination of recent past experience for each relevant line of business and expert judgement, especially where a lack of relevant and credible experience data exists. Any expected change in future persistency is also reflected in the assumption. Persistency risk is managed by appropriate training and sales processes and managed locally post-sale through regular experience monitoring and the identification of common characteristics of business with high lapse rates. Where appropriate, allowance is made for the relationship (either assumed or observed historically) between persistency and investment returns and any additional risk is accounted for. Modelling this dynamic policyholder behaviour is particularly important when assessing the likely take-up rate of options embedded within certain products. The effect of persistency on theGroup's financial results can vary but depends mostly on the value of the product features and market conditions.

Prudential'sinsurance risks are managed and mitigated using the following:

• TheGroup'sinsurance and underwriting risk policies;
• The risk appetite statements, limits and triggers;
• Using longevity, morbidity and persistency assumptionsthat reflect recent experience and expectation of future trends, and industry data and expert judgement where appropriate;
• Using reinsurance to mitigate longevity and morbidity risks;
• Ensuring appropriate medical underwriting when policies are issued and appropriate claims management practices when claims are received in order to mitigate morbidity risk;
• Maintaining the quality ofsales processes and using initiativesto increase customer retention in order to mitigate persistency risk;
• Using product repricing and other claims management initiativesin order to mitigate medical expense inflation risk; and
• Regular deep dive assessments.

6.4 Risks from our business operations

a. Strategic and transformation risks A number ofsignificant change

programmes are currently running in order to implement theGroup'sstrategy and the need to comply with emerging regulatory changes. These include, but are not limited to, the discontinuation of LIBOR and implementation of new international accounting standards – see section 6.1a. above for further information. This has resulted in a significant portfolio of change initiatives which increasesthe transformation risksfor theGroup, and is likely to further increase in the future. In particular the demerger of M&GPrudential from the rest of theGroup hasresulted in a substantial transformation programme which needsto be delivered alongside, and in conjunction with other material change programmes. The scale and the complexity of this portfolio of transformation programmes could impact business operations, weaken the control environment, impact customers, and has the potential for reputational damage if these programmesfail to deliver their objectives. Implementing furtherstrategic initiatives may amplify these risks.

03 Governance

European Othersignificant change initiatives are occurring acrosstheGroup that increase the likelihood and potential impact of risks associated with:

• Complex dependencies between multiple programmesspanning different businesses;
• The organisational ability to absorb change being exceeded while maintaining a stable and robust control environment ;
• Unrealised business objectives/ benefits; and
• Failuresin programme and/or project design, execution or transition into business as usual.

b. Non-financial risks

In the course of doing business, theGroup is exposed to non-financial risks arising from its operations, the business environment and itsstrategy. The main risks acrossthese areas are detailed below.

Operational risks

Prudential defines operational risk asthe risk of loss(or unintended gain or profit) arising from inadequate or failed internal processes, personnel orsystems, or from external events. Thisincludes employee error, model error,system failures, fraud or some other event which disrupts business processes or has a detrimental impact to customers. Processes are established for activities acrossthe scope of our business, including operational activity, regulatory compliance, and those supporting environmental,social and governance (ESG) activities more broadly, any of which can expose usto operational risks. A large volume of complex transactions are processed by theGroup across a number of diverse products, and are subject to a high number of varying legal, regulatory and tax regimes. Prudential has no appetite for material losses(direct or indirect)suffered as a result of failing to develop, implement or monitor appropriate controlsto manage operational risks.

TheGroup's outsourcing and third-party relationshipsrequire distinct oversight and risk management processes. A number of important third-party relationships exist which provide the distribution and processing of Prudential's products, both asmarket counterparties and as outsourcing partners. M&GPrudential outsources several operations, including a significant part of its back office, customer facing functions and a number of IT functions. In Asia, theGroup continuesto expand itsstrategic partnerships and renew

bancassurance arrangements. These third-party arrangementssupport Prudential in providing a high level and cost-effective service to our customers, but they also make usreliant on the operational performance of our outsourcing partners.

TheGroup'srequirementsfor the management of material outsourcing arrangements, which are in accordance with relevant applicable regulations, are included through its well-established Group-wide third-party supply policy. Third-party management is also included in embedded in theGroup-wide framework and risk management for operational risk (see further, below). Third-party management forms part of the Group's Operational Risk categorisations and a defined qualitative risk appetite statement, limits and triggers are in place.

The performance of theGroup's core business activities placesreliance on the IT infrastructure thatsupports day-to-day transaction processing and administration. The IT environment must also be secure and an increasing cyber risk threat needs to be addressed astheGroup's digital footprint increases and the sophistication of cyber threats continue to evolve – see separate information security risk sub-section below. The risk that Prudential'sIT infrastructure does not meet these requirementsis a key area of focusfor theGroup, particularly the risk that legacy infrastructure supporting core activities/processes affects business continuity or impacts on business growth.

Operational challenges also exist in keeping pace with regulatory changes Thisrequires implementing processesto ensure we are, and remain, compliant on an ongoing basis, including regular monitoring and reporting. The high rate of global regulatory change, in an already complex regulatory landscape, increasesthe risk of non-compliance due to a failure to identify, interpret correctly, implement and/or monitor regulatory compliance. The change inGroup-wide supervisor, and the supervisory framework, to which Prudential plc will be subject to after the demerger of M&GPrudential, meansthat additional processes, or changesto existing ones, may be required to ensure ongoing compliance. See the 'Global regulatory and political risk' section above. Legislative developments over recent years, together with enhanced regulatory oversight and increased capability to issue sanctions, have resulted in a complex regulatory environment that may lead to breaches of varying magnitude if theGroup's business-as-usual operations

are not compliant. As well as prudential regulation, theGroup focuses on conduct regulation, including those related to sales practice and anti-money laundering, bribery and corruption. There is a particular focus on regulationsrelated to the latter in newer/emerging markets.

Group-wide framework and risk management for operational risk

The risks detailed above form key elements of theGroup's operational risk profile. In order to identify, assess, manage, control and report effectively on all operational risks acrossthe business, aGroup-wide operational risk framework isin place. The key components of the framework are:

• Application of a risk and control assessment (RCA) process, where operational risk exposures are identified and assessed as part of a periodical cycle. The RCA process considers a range of internal and external factors, including an assessment of the control environment, to determine the business's mostsignificant risk exposures on a prospective basis;
• An internal incident management process, which identifies, quantifies and monitorsremediation conducted through root cause analysis and application of action plansforrisk events that have occurred acrossthe business;
• A scenario analysis processfor the quantification of extreme, yet plausible manifestations of key operational risks acrossthe business on a forwardlooking basis. Thisis carried out at least annually and supports external and internal capital requirements as well as informing risk oversight activity across the business; and
• An operational risk appetite framework that articulatesthe level of operational risk exposure the businessis willing to tolerate, covering all operational risk categories, and sets out escalation processesfor breaches of appetite.

Outputsfrom these processes and activities performed by individual business units are monitored by theGroup Risk function, which provides an aggregated view of the risk profile acrossthe business to theGroup Risk Committee and Board.

These core framework components are embedded acrosstheGroup via theGroup Operational Risk Policy and Standards documents, which set out the key principles and minimum standardsfor the management of operational risk acrosstheGroup.

02

04

06

TheGroup Operational Risk Policy, standards and operational risk appetite framework sit alongside other risk policies and standardsthat individually engage with key operationalrisks, including outsourcing and third-party supply, business continuity, technology and data, operations processes and extent of transformation.

These policies and standardsinclude subject matter expert-led processesthat are designed to identify, assess, manage and control operational risks, including the application of:

• A transformation risk framework that assesses, manages and reports on the end-to-end transformation lifecycle, project prioritisation and the risks, interdependencies and possible conflicts arising from a large portfolio of transformation activities;
• Internal and external review of cyber security capability and defences;
• Regular updating and testing of elements of disaster-recovery plans and the Critical Incident Procedure process;
• Group and business unit-level compliance oversight and testing in respect of adherence with in-force regulations;
• Regulatory change teamsin place to assist the businessin proactively adapting and complying with regulatory developments;
• A framework in place for emerging risk identification and analysisin order to capture, monitor and allow usto prepare for operational risksthat may crystallise beyond the short-term horizon;
• Corporate insurance programmesto limit the financial impact of operational risks; and
• Reviews of key operational risks and challenges withinGroup and business unit business plans.

These activities are fundamental in maintaining an effective system of internal control, and assuch outputs from these also inform core RCA, incident management and scenario analysis processes and reporting on operational risk. Furthermore, they also ensure that operational risk considerations are embedded in key business decision-making, including material business approvals and in setting and challenging theGroup'sstrategy.

Business resilience

Businessresilience is at the core of the Group's well embedded Business Continuity Management (BCM) programme, with BCM being one of a number of activities undertaken by the Group Security function that protect our key stakeholders.

Prudential operates a BCM programme and framework that islinked with its business activities, which considers key areasincluding businessimpact analyses, risk assessments, incident management plans, disaster recovery plans, and the exercising and execution of these plans. The programme is designed to achieve a business continuity capability that meets evolving business needs and is appropriate to the size, complexity and nature of the Group's operations, with ongoing proactive maintenance and improvementsto resilience against the disruption of the Group's ability to meet its key objectives and protect its brand and reputation. The BCM programme issupported byGroupwide governance policies and procedures and is based on industry standardsthat meet legal and regulatory obligations.

Business disruption risks are monitored by theGroup Security function, with key operational effectiveness metrics and updates on specific activities being reported to theGroup Risk Committee where required and discussed by crossfunctional working groups.

Information security risk and data privacy

Information security risk remains an area of heightened focus after a number of recent high-profile attacks and data losses across industries. Criminal capability in this area is maturing and industrialising, with an increased level of understanding of complex financial transactions which increasesthe risksto the financialservices industry. The threat landscape is continuously evolving, and the systemic risk ofsophisticated but untargeted attacks isrising, particularly during times of heightened geopolitical tensions.

Recent developmentsin data protection worldwide (such asGDPR that came into force in May 2018) increasesthe financial and reputational implicationsfor Prudential of a breach of its(or third-party suppliers') IT systems. As well as data protection, increasingly stakeholder expectations are that companies and organisations use personal information transparently and appropriately.Given this, both information security and data privacy are key risksfor

theGroup. As well as preventative risk management, it isfundamental that robust critical recovery systems are in place in the event of a successful attack on theGroup's infrastructure, breach of information security or failure of itssystemsto retain its customer relationships and trusted reputation.

In 2018, the organisationalstructure and governance model for cybersecurity management wasrevised with the appointment of aGroup Chief Information Security Officer, and a repositioning of the function to allow increased focus on execution. This organisational change will increase theGroup's efficiency and agility in responding to cybersecurity related incidents, and will facilitate increased collaboration between business units and leveragestheir respective strengthsin delivering theGroup-wide Information Security Programme.

The objectives of the programme include achieving consistency in the execution of security disciplines acrosstheGroup and improving visibility acrosstheGroup's businesses; deployment of automation to detect and addressthreats; and achieving security by design by aligning subject matter expertise to theGroup's digital and businessinitiativesto embed security controls across platforms and ecosystems.

The Board receives periodic updates on information security risk management throughout the year.Group functions work with the business unitsto addressrisks locally within the national and regional context of each businessfollowing the strategic direction of theGroup-wide information security function.

Viability statement prepared in accordance with the provision C.2.2 of the UK code

The Group's longer-term prospects TheGroup'sstrategy is based around meeting the long-term savings and protection needs of its customers and hence creating value for both customers and shareholders over a time frame that can be many years. As described on pages 12 to 13, theGroup's business model supportsthisstrategy by constantly evolving our productsto meet changing customers' needs, building out and diversifying distribution capabilities and relationshipsto reach new customers and investing in technology to better empower and serve the salesforce and customers. Examples of the actions undertaken during 2018 are set out on pages 18 to 37. These activities are underpinned by ongoing risk management, implemented via theGroup Risk Framework and risk appetite limits described on pages 55 to 58. TheGroup's management of wider environmental, social and governance issuesthat could pose a risk in the future to theGroup isset out in the Corporate responsibility review on pages 71 to 72. This collective focus supportsthe sustainability of our business over the longer term.

The Directorsregularly considerstrategic mattersthat may affect the longer-term prospects of theGroup. In the current year thisincluded the impact of the proposed demerger of M&GPrudential, announced in March 2018. Further, theGroup as a whole and each of itslife assurance operations are subject to extensive regulation and supervision, which are designed primarily to reinforce theGroup's management of itslong-term solvency, liquidity and viability to ensure that it can continue to meet obligationsto policyholders. Further details on the current capitalstrength of theGroup are provided on pages 48 to 50.

Period of viability assessment

The Directors have assessed the viability of theGroup for a period longer than the 12 monthsrequired by the going concern statement.

The Directors performed the assessment by reference to the three-year period to December 2021. Three yearsis considered an appropriate period asit representsthe period covered by the detailed business plan that is prepared annually on a rolling three-year basis. In approving the business plan, the Directorsreview theGroup's projected performance with regardsto profitability, cash generation and capital position, together with the parent company'sliquidity over thisthree-year period. This projection involvessetting a number of economic and other assumptionsthat are inherently volatile over a much longer reporting period. Such assumptionsinclude foreign exchange rates, interest rates, economic growth rates and the impact on the business environment arising from eventssuch as the exit of theUnited Kingdom from the EuropeanUnion or changesin regulation.

The intended demerger of M&GPrudential from theGroup, if approved by shareholders, is expected to occur within the period covered by the viability statement. The Directors have therefore considered the ability of theGroup to continue in its current form (ie the scenario in which the demerger does not proceed) for the three-year period ending 31 December 2021 as well asthe viability of theGroup if the demerger proceeds as planned.

Assessment of risks over the period TheGroup's business plan implementsthe Group'sstrategic objectivesthrough the business model and activities discussed on pages 10 to 13. This year's business planning process considered the results of the currentGroup over the planning period as well asthose of theGroup post demerger. As noted above, underpinning the projectionsin the business plan are a number of economic and other assumptions. Assessment of the risksto achieving the projected performance therefore remains an integral part of the planning process. TheGroup's approach to risk management and a summary of the key risksfacing theGroup are set out on pages 52 to 69.

For the purposes of assessing theGroup's viability, the Directors considered those risks where the impact of possible adverse external developments could be ofsuch speed and severity to present a shock to theGroup's financial position. The risks considered, from those detailed on pages 58 to 59, are: market risk, credit risk, liquidity risk and regulatory risk. In addition the Directors considered the operational and financial risks arising from theUK's intended departure from the European Union in a number of possible scenarios, including those which assume no withdrawal agreement is enacted.

To evaluate theGroup'sresilience to significant deteriorationsin market and credit conditions and othershock events, these risks are grouped together into severe but plausible scenarios which are then applied to the assumptions underlying the business plans considered. For example, the impacts ofscenarios assuming a disorderly transition to a higher, more normalised interest rate environment and an international recession (causing a fall in interest rates and in equity and property values, together with an increase in creditspreads and credit losses on debt assets and higher policyholder lapse rates) were considered in the preparation of the most recent business plan, together with the impact on liquidity of a scenario assuming the closure ofshort-term debt marketsfor three months. In addition, the Group conducts an annual reverse stress test which givesthe Directors an understanding of the maximum resilience of theGroup to extremely severe adverse scenarios.

The scenariostested showed that the Group with or without the demerger would be able to maintain viability, over the three-year period under assessment, after taking account of the actions available to management to mitigate the impacts on capital and liquidity in such scenarios.

The impact on the business of known areas of regulatory change whose financial implications can be reasonably quantified is also considered as part of the plan. As well as known areas of regulatory change theGroup is exposed to the risk ofsudden and unexpected changesin regulatory requirements at theGroup and local level. While unexpected changes cannot be fully anticipated and hence modelled, the risk of regulatory change is mitigated by capital held by theGroup and itssubsidiariesin excess ofGroup and local regulatory requirements, theGroup and its subsidiaries' ability to generate significant capital annually through operational delivery and the availability of compensating actions designed to restore key capital and solvency metrics.

Conclusion on viability

Based on this assessment, the Directors have a reasonable expectation that theGroup will be able to continue in operation and meet itsliabilities asthey fall due over the three-year plan period to December 2021.

James Turner Group Chief Risk Officer 01

02

04

Notes

• 1 Based on hierarchy of Standard&Poor's,Moody's and Fitch, where available and if unavailable, otherrating agencies or internalratings have been used.
• 2 Source ofsegmentation: Bloomberg Sector, Bloomberg Group andMerrill Lynch.Anything that cannot be identified fromthe three sources noted is classified as other. Excludes debtsecuritiesfromother operations.

A long-term view

We want to create a positive legacy from all our business activities. We aim to provide value to our customers through the products we deliver and to our shareholders through our positive financial performance. At the same time we recognise the importance of providing benefits to all our stakeholders, whether through our community investment programmes, our environmental impact, our engagement and talent development with our colleagues or our approach to responsible investment.

Non-financial information statement

As a global provider ofsavings and protection products,stewardship is core to what we do. We recognise that to help our customerslook to the future with confidence, we need to take a long-term view on a wide range ofissuesthat affect our business and the communitiesin which we operate. To do this, we maintain a proactive

dialogue with ourstakeholders – customers, investors, employees, communities, regulators and governments – to ensure that we are managing these issues sustainably and delivering long-term value. Further information on our engagement with ourstakeholders will be provided in our upcoming 2018 ESGreport, which will be published in May 2019.

This Strategic report complies with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006.

The diagram below provides a guide to the sections of this Strategic report that fulfil these requirements:

This corporate responsibility review provides an overview of our activities and progressin 2018 across a range of areasin which we have helped to provide benefits to stakeholdersthroughout the marketsin which we operate. It also includes an overview of our Environmental,social and governance (ESG) activities.

For us, ESG means:

• What we do the products we offer, our customerservice, our human capital and our investment management; and
• How we do it understanding our customers and providing suitable solutionsthat meet their needs, building long-term profitable relationships, investing in our people and making responsible investments, to generate sustainable long-term returnsin line with our risk appetite, to meet our customers' needs.

Our ESGapproach underpinsthe delivery of ourstrategy, generating sustainable earnings and resilient capital growth, enabling usto deliver on our promisesto our customers.

More detailed information on our corporate responsibility and ESGactivitiesis available online at www.prudential.co.uk/ corporate-responsibility and in our 2018 ESGreport, which will be published in May 2019.

How we govern ESG

We established an ESGExecutive Committee (ESGExCo) in 2018 to lead on how we identify, manage and report on material ESGrisks. Our ESGsponsor, Jonathan Oliver (Group Executive Committee member), was nominated as Chair and issupported by senior leaders from Group operations, across financial reporting, investor relations, risk, compliance, operations, investment and human resources. There isrepresentation from our business units, provided by the Chief Investment Officers of our asset management businesses(PPM America (PPMA) and Eastspring), M&G'sHead of Corporate Finance and Stewardship and Jackson'sGeneral Counsel. The ESGExCo meets quarterly and reportsto the Board at least twice each year, with additional ad hoc reporting provided as necessary. Our ESGExCo isfocused on the holistic assessment of ESG matters material to the Group, raising mattersfor Board decisionmaking and implementing resulting decisions,supporting the sustainable delivery of theGroup'sstrategy.

Managing our material ESG issues – summary

Responsible investment

As a life insurer, asset owner and manager, we are long-termstewards of our customers' assets and we recognise the importance of ESG matters. We also recognise our responsibility to our customers,society and the environment to effectively integrate associated considerationsinto investment decisions and fiduciary and stewardship duties, helping to finance a more sustainable economy.

Environment

We recognise the risks and opportunities posed by climate change and our impact on the environment, and assuch we strive to play our part in reducing both our direct and indirect impacts where possible. Our approach includes not only understanding our impact on the environment, through measuring and improving the environmental performance of our global operations, but also developing our understanding of the environment's potential impact on our business.

People

We foster a diverse and inclusive organisation that develops and protects our people'sinterests, wellbeing and health. Developing talent and valuing diversity is key to how we operate and deliver outstanding resultsfor our customers,shareholders and communities.

Data protection and cyber security New technologies present new risks, from privacy to cybersecurity, and we are vigilant in working to identify these and to manage old and new risksin waysthat are proportionate to and commensurate with the threats our businessfaces. At the same time, we are making significant investments in technology as we continue to upgrade our digital capabilitiesto provide a more seamless customer experience.

Communities

Our business purpose, the interests of ourstakeholders and our drive to ensure economic and social progressfor the long term are central to our community investmentstrategy. Thisstrategy hasfour principal themes:social inclusion, financial education and life skills, disaster preparedness and employee engagement, and we continued to be active in all these areas during 2018.

We maintain long-term relationships with our charity partners, providing support through both funding and skills-based volunteering led by our employees.

Business integrity

We embed responsible and ethical behaviour across our organisation. Fromhow we conduct ourselves,shape and monitor our culture and meet our responsibility to prevent bribery and corruption, through to transparency in our tax practices, our contribution to the global economy and our leadership role in our industry, we are a responsible, ethical business.

Our governance framework,setting out the principles by which we conduct our business and ourselves, is built on our Group Code of Business Conduct and our GroupGovernance Manual. We contribute to financialstability and sustainability in all of the marketsin which we operate. The responsible and sustainable management of our tax affairs helps usto maintain constructive relations with ourstakeholders and play a positive role in the economy. We take a long-term perspective and balance our responsibility to support our business strategy with our responsibility to the communitiesin which we operate, which need sustainable tax revenues.

We have a global footprint and maintain businessrelationships with a range of parties,such as agents and intermediaries, who act on our behalf. Assuch, financial crime is a key risk and we are committed to fighting it through the maintenance and implementation of policies and procedures on anti-money laundering, counterterrorist financing, anti-bribery and corruption and anti-fraud, and through our commitment to industry-wide efforts. We operate aGroup-wide whistle-blowing programme, which is able to receive reportsfrom a variety of channels and is supported by an independent third party that captures and comprehensively records mattersraised.

Customers

Our relationships with our customers are long-term and are central to our ability to continue creating sustainable value. We provide fair, transparent, inclusive and accessible productsto bestserve our customers' needs and to support them in de-risking their lives. We are constantly looking for new waysto innovate and provide the highest level ofservice.

We take our commitment to our customers seriously when training our personnel, who deliverservice consistent with our values. Where customers have cause to complain to us, we have documented proceduresin place to manage complaintsreceived through multiple touchpoints, in a timely, robust and professional manner.

In Asia, the health protection gap remains large and continuesto expand. In line with our commitment to help close this gap and protect our customers' health, we have continued our effortsto create best-inclass health capabilities by offering more comprehensive and flexible coverage and a wider range of value-added services. Increasing accessto financial protection is a significantsocio-economic issue and we seek to provide the right productsthrough appropriate meansto improve accessfor new and existing customers. We also strive to communicate information about our productsin a fair and transparent way. In theUS, Jackson continuesto be a leader in shifting perspectives and simplifying the language around financial products.

Suppliers

Managing ESGrisks when sourcing goods and services, and throughout the lifecycle of our third-party relationships, is vital to our position as an ethical and responsible business. We take this position seriously and seek to both maximise value and minimise risk throughout our interactions with oursupply chain.

We work with a range of partnersthat support our business units with our IT network and systems,specialist professional and advisory services, facilities management, contractors and the agentsthat form our distribution network. OurGroup Code of Business Conduct outlinesthe values and standardsthat we require of each of oursuppliers. We act with integrity to ensure that modern slavery, human trafficking, child labour or any other issue thatsubjugates human rightsis eradicated from oursupply chain.

Our business units are responsible for managing third-party supply arrangements and able to adopt further policies asthey require, to meet localised operating conditions. Business units conduct due diligence before engaging with and ultimately selecting a new supplier. During this process, our employees are trained to ensure that the contractual arrangements reflect the requirements of those policies. We perform regular due diligence, review meetings and audits, where required, and our policies and procedures are supported by regular employee training exercises. Our 'Speak Out' whistleblowing service enables employeesto raise any concerns they may have in relation to our third-party relationships, and our contractors and third-party suppliers are also able to use thisservice.

ESG policy framework – Group Governance Manual

TheGroupGovernance Manual (GGM) establishesstandardsfor managing key material ESGissues acrosstheGroup,setting out the policies and proceduresto support how we operate. TheGGM is used to ensure that we comply with relevantstatutory and regulatory requirements. OurGroup-wide policiesrelating to our identified material issuesinclude:

Material ESG issues	Our Group-wide policies*
Business integrity	— Code of Business Conduct Policy details ourrequired standardsto be used acrosstheGroup and covers our employees and individuals or organisations acting on our behalf.Itis governed by five standards: protection from financial crime, avoiding conflicts ofinterest,managing information, communicating as a group and providing equality for our people.
	— Anti-Bribery and Corruption Policy covers our valuesfor reputation, ethical behaviour and reliability. As an organisation we are focused on financial practicesthat align to those values and we prohibit corruption or bribery within our working practices.
	— Anti-Money Laundering and Counter Terrorist Financing Policy outlines how we prohibit money laundering or terrorist financing in our working practices,setting out how we establish parametersto prevent thistaking place acrossthe organisation.
	— Sanctions Policy detailsthe commitment we have to comply with sanctionslaws and regulations by screening, prohibiting or restricting business activity, and following up through investigation.
	— Security Policy outlines our commitment to ensuring security alignsto industry recommended practice for managing our regulatory and legal obligations. Thisincludes how we manage incidents under the 'Speak Out' programme, our whistle-blowing process.
	— Tax Risk Policy includes our processesto manage tax-related risk, by identifying, measuring, controlling and reporting on issues considered an operational, reputational or regulatory risk.
	— Political Donations Policy outlines our position, that as an organisation we do not donate to political parties.
Customers	— Customer Commitments Policy covers our five key commitmentsto our customers and how we assess, manage and report on these:
	1 Treat customersfairly, openly and honestly; 2 Provide and promote a range of products and servicesthat meet customer needs, are easy to understand and that deliver real value; 3 Maintain the confidentiality of our customer information (except where the law requires disclosure); 4 Provide and promote high standards of customerservice and monitor these standardsrigorously; and 5 Ensure that our complaints processes provide an effective and fair means of arbitration between the Group's businesses and customers.

02

04

06

Material ESG issues	Our Group-wide policies*
Environment	— Environment Policy outlines our approach to understand and manage the direct environmental impact of the Group. This covers our measurement, monitoring, review and reporting of issues associated with our environmental performance.
Responsible investment	— Owing to the distinct investment risksfaced by our asset management and ownership businesses, with each investing in different markets and asset classes, each business manages ESG-related mattersthrough the pursuit of business-specific responsible investment policies. Thisis overlain by ourGroup-wide Responsible Investment Framework, aligned to ourGroup-wide Code of Conduct and underpinned by ourGroup Responsible Investment Standards.
Suppliers	— Third-Party Supply Policy – an updated Third-Party Supply Policy was approved by theGroup Risk Committee in July 2018. It covers how we manage and oversee our third-party arrangements, through due diligence/ selection criteria, contractual requirements, the ongoing monitoring ofsuch relationships and reporting and escalation. Additionally, our policy considersthe requirements of theUK Modern Slavery Act and the principles of theUN'sUniversal Declaration ofHuman Rights.
Technology	— Privacy Policy governsthe protection of data. The policy became operational in 2018 and complies with the General Data Protection Regulation.
People	— Diversity and Inclusion Policy sets out how we foster an inclusive workforce and ensure all our employees are treated fairly and feel valued, and together have the diversity in skillsets and backgroundsthat enrichesthe organisation. Our policy considers a range of diversity aspects of our employees, including gender, age, ethnicity, disability,sexual orientation and background. Further information on the diversity of our Board, our policy in respect of this, how thisisimplemented and the associated resultsin 2018 can be found in ourGovernance statement on pages 109 to 114. — Employee Relations Policy outlinesthe way we engage our employees and motivate them to achieve successfor theGroup: promoting positive relationships with employees, representative organisations and trade unions, and maintaining a positive reputation for the treatment of employees. — Performance and Learning Policy sets out the importance of our people and frames how we invest in their development to deliver against ourstrategy and the future success of the organisation. Thisincludes our Performance Management Framework. — Remuneration Policy outlines our effective approach to appropriately rewarding our employeesin a way that alignsincentivesto business objectives and enablesthe recruitment, retention and incentivisation of high-calibre employeesin line with our risk appetite andGroup Reward Principles. — Talent Policy demonstrates how we attract and select the best people for rolesthat will ensure high performance in the short term and improve the longer-term succession and talent pipeline. Itsets out our fair and effective approach to pursuing this. — Health and Safety Policy covers our employees, business partners, customers and othersthat may be affected by our operations. This details our health and safety core principles, our commitments and the measuring and reporting on our health and safety performance.
Communities	— Community Investment Policy covers how we are committed to working with the communities we operate in as active and supportive members. This also outlines ourstrategy for investing in the community and how we make investments and report against them.

* In addition to ourGroup-wide policies, our business units have underlying business-specific policy frameworks, reflecting their individual risks and operating environments. For the purposes of thisreport, we focus primarily on theGroup policy framework.

TheGGM is used as a platform for mandating specific ways of working across theGroup. The chief executive of each business unit attests annually to compliance with applicable requirements set out in the policies, including matters that must be reported to theGroup. Specific procedures are followed for the reporting of non-compliance. Business units presentsuch instancesin their annual certification, which in turn isreported to theGroup Audit Committee.

Due diligence on ESG-related policies

OurGGM forms part of theGroup Risk Framework, which details how business unitsshould put in place sufficient processesthat identify, evaluate and manage risks, incorporating key ESG issues. Due diligence is conducted by the business unitsto ensure that the policies are complied with and we require evidence to demonstrate this.

TheGroup Audit Committee reviewed the results of the year-end certificate of compliance withGGM requirements. While several improvementsto ensure the policies are fully embedded were discussed, no significant areas of noncompliance in relation to the policies relevant to ESGissues were noted.

For further information on ourGroup businessstandards and policies pursued in relation to our material ESGissues, refer to the 'Businessstandards' pages of our website at: www.prudential.co.uk/ responsibility/standards

Further information on ESG issues Responsible investment

As a life insurer, asset owner andmanager, we are long termstewards of our customers' assets and we recognise the importance of ESGmatters.We also recognise our responsibility to our customers,society and the environmentto effectively integrate associated considerationsinto investment decisions and fiduciary and stewardship duties, helping to finance amore sustainable economy.We believe that ourinvestment activitiesshould help our customers both today and overthe long term.We take our commitmentto ESGand responsible investmentseriously, which is why our assetmanagement business units,M&G Investments, PPMA, PPMSAand Eastspring Investments, are signatoriesto the Principles for Responsible Investment. Similarly, as a life insurer we remain committed to servicing our customers' evolving needs, providing productsolutionsthatsupport their financialresilience and enable them to face the future with confidence.

Assessing the implications of evolving expectations of the Group in financing a sustainable and low-carbon economy

Over 2018 there have been a number of regulatory,supervisory and investor-driven sustainable finance and climate-related financialrisk initiatives. From a supervisory perspective, the InternationalAssociation of Insurance Supervisors and the Prudential RegulationAuthority (PRA) have made clearthat they expect insurersto assess and considerthe risksfrom climate change, with the PRAreleasing a consultation on a draft supervisory statement. We engaged with the PRAon the topic during 2018 and continue to focus on developing our practicesin this area, with the implications for us as aGroup being considered by our Board.Climate risk is undersimilarscrutiny from the FinancialConductAuthority, which issued a draft discussion paper on the topic, and the Securities and Futures Commission inHong Kong launched its Strategic Framework forGreen Finance. In addition to assessing the implications fortheGroup of evolving regulatory and supervisory expectations, we continued to monitorthe changing legislative landscape, including developmentsset out in the EuropeanCommission's(EC)Action Plan for Financing SustainableGrowth. Our approach to meeting these evolving expectations of financial institutionsis twofold: to considerthe need for enhancing our ESGintegration and disclosure practices and to continue to increase our industry participation and collaboration towards positive change. Further detail on the progress we have made in responsible investing in 2018, through engagement with investees and the assetsin which we invest with regard to financing sustainable growth, will be provided in ourforthcoming 2018 ESGreport.

Strengthening our governance of responsible investment

Following on from the establishment of our Group Responsible Investment Advisory Committee (GRIAC) andGroup Responsible Investment Framework in 2017, our governance of responsible investment activities has continued to be strengthened during 2018 by our businesses. Each asset management business now has a clearly designated responsible investment committee. The GRIAC linksthese independent business unit committees,serving as a forum for sharing best practice innovations across theGroup. It also enables ourGroup-wide Responsible Investment Standardsto be adopted in a consistent manner across our business units, while still affording them

the flexibility to manage investmentsin a way that balancesthe needs of their clients and the local regulatory environmentsin which they operate.

In 2018 ourGroup Responsible Investment Standards, which underpin ourGroup Responsible Investment Framework and Principles, were in the road-testing phase with our businesses, which focused on developing internal monitoring and reporting capabilitiesto support the implementation of the Standards. Prudential Corporation Asia, for example, hasimplemented a new investment portfolio and risk managementsystem as part of the ongoing enhancement of its approach to ESGintegration. This provides itsregional and local investment offices with increased transparency of how ESG factors are being incorporated into its investment decisions, managerselection and manager reporting process, in line with its commitment to responsible investing. Eastspring has also embraced technology solutionsin 2018, withGroup Digital working in partnership with the investment teamsto develop toolsthat utilise artificial intelligence and learning to facilitate faster and scalable ESGscreening of investee companies. During 2018, M&Gsigned up to using the new MSCI Carbon Portfolio Analyticstool, enabling portfolio managers to monitor a portfolio's carbon emissions, carbon intensity and fossil fuel reserves and to support the better management of carbon risks.

Industry participation and

collaboration on climate change We have long believed in the benefitsthat collaboration and collective action can bring on important issues. Active consideration of ESGfactorsisintegral to ourstewardship responsibilities. For this reason, we as aGroup and our businesses remain active participantsin industry initiatives on sustainable finance on climate change. M&Gcontinuesto participate in the Climate Action 100+ initiative and remains a member of the Institutional InvestorsGroup on Climate Change. During 2018, Eastspring participated in roundtables organised by itslocal regulator, the Monetary Authority of Singapore (MAS), to help raise awareness of climate risk in the region and promote the integration of ESGframeworksin investmentstrategies. Similarly, Prudential Singapore has engaged with itslocal regulators(the Life Insurance Association Singapore and MAS) to discussits approach to climate change risk as an Asian asset owner.

03

02

04

06

Prudential remains an active member of the ClimateWise initiative, a global network of leading insurance industry organisations, and an investorsignatory to the Carbon Disclosure Project. In 2018, we again participated in the Asset Owner Disclosure Project, a survey managed by ShareAction to assessthe insurance sector'sresponse to addressing climate risk, where we ranked 30th out of 80 in theGlobal Climate Insurance Index (an assessment of the 80 largest insurance companies globally) (2017: 31st). In 2018, M&Gcollaborated on enhancing industry climate-related disclosure practices and signed up to a pilot initiative sponsored by theUnitedNations Environment Programme to work on climate-change scenario modelling for portfolios across different asset classes. Thisis a central part of the Task Force on Climate-related Financial Disclosures (TCFD) framework, and the key output will be an industry climate scenario modelling tool. Further information in relation to the Group'ssupport for the Financial Stability Board's(FSB) TCFD is provided below in the section on 'Managing climate risks and opportunities and the FSB's TCFD' below.

Evolving our ESG-focused investment product offering

We continued to add to our ESG-focused investment product offering over 2018, in light of increasing interest and demand from customers. M&GPrudential launched two new retail fundsin 2018, the M&G Positive Impact Fund and the M&G Sustainable Multi Asset Fund, both employing a structured approach to ESGintegration and both investing in companiesthat are aligned with theUnited Nations Sustainable DevelopmentGoals.

The Positive Impact Fund seeksto invest in companiesthat have a positive impact on society through addressing the world's majorsocial and/or environmental challenges, while providing attractive financial returns. Sustainability and impact considerations are fundamental in the stock selection process. The M&GImpact team undertakes a 'triple I' approach to identifying impactful investments, analysing the investment case, intentionality and impact of a company to assessitssuitability for the fund. The fund won BestNew Entrant (Fund) at the 2018 Investment Week Sustainable and ESG Investment Awards.

Managing climate risks and opportunities and the FSB's TCFD

As a life insurer, asset owner, asset manager and occupier of over 400 properties worldwide, we recognise both the risks and opportunities posed by climate change on our businesses, and our Group'simpact on the environment. Our approach includes not only understanding our impact on the environment, through measuring and improving the environmental performance of our global operations, but also developing our understanding of the environment's potential impact on our business. With respect to the impact that climate change posesto our businesses, we are cognisant that the risks and opportunities may manifest in a number of different ways. We outline further detail on the specific climate-related risks within theGroup Chief Risk Officer'sreport on page 61.

We as aGroup welcomed, and are a signatory to, the FSB's TCFD Recommendations, which were released in 2017. Our governance structures, which provide oversight in thisimportant area, were enhanced in 2018 through the establishment of our ESGExCo, which will oversee theGroup's processesto assess the climate related risks and opportunities facing our businesses, which are currently under development, and the identification and delivery ofsupporting implementation activities, with the view to enhancing our climate-related financial risk management practices. Over the next year theGroup will take action to enhance theGroup's climate-related financial risk management practices and disclosure.

Ourstrategy needsto be tailored to the localUS, Asian, European and African countriesin which we operate. Climate change is a material challenge for the global economy and, in conjunction with other global trends, may impact each part of the world differently. The physical risks will be as difficult to determine asthe risks resulting from transitioning to a low-carbon economy. Accompanying those risks are inherent investment opportunitiesthat we will continue to explore, including the emergence of infrastructure investments as a new asset class. We are keen to position our organisation in order to best place usto respond to and manage material climate risks and capitalise on the opportunitiesfrom the economy's transition. Demonstrating our approach and performance transparently to our externalstakeholders has always been central to our vision, mission and values.

As an organisation with a long history, we invest for the long term. Integrating non-financial decision-making with our current financialsystemsis a key part of taking that long-term view and is a continuing priority for theGroup.

Further information on our approach to responsible investment, including progress made by our businesses during 2018 in enhancing ESGintegration, investing for positive change and collaborating and participating in industry initiatives, will be found in our forthcoming 2018 ESGreport.

Environment

Managing our direct environmental impact

Cognisant of our direct environmental impacts as an occupier of over 400 properties worldwide, we strive to play our part in reducing our operational impacts where possible. In 2016, we established a global environmental targetsframework and roadmap to drive progress across a range of environmental aspects and impactsfor our operational property portfolio worldwide. Thisframework aligns to our regional footprints covering Asia, the UK and Europe and theUS, reflecting the maturity of environmental management practicesin these markets and the autonomy given to our business unitsin managing their operations.

We recognise the importance of our own internal environmental targets and decarbonisation goalsin reducing our direct footprint. In 2018, global energy use across our occupied estate was 127,098 MWh (2017: 129,324 MWh), a decrease of 2 per cent. Our absolute Scope 1 and Scope 2 (market based)GreenhouseGas (GHG) emissions decreased by 7 per cent to 61,318 tCO2e (2017: 65,979 tCO2e restated) across our occupied estate. When normalised against net lettable floor area, our Scope 1 and 2 emissionsfell by 13 per cent to 99 kg CO2e/m2 influenced by several factorssuch as decarbonisation of theUK/European grid (cleaner electricity generation), outsourcing ourUK data centres and a 7 per cent increase in occupied floor area.

Investment Estate

Occupied Estate

Prudential Group

Scope 1 and 2 GHG emissions

*2017 figuresrestated asrevised data became

available from suppliers

Prudential Group Scope 1 and 2 GHG Emissions

We achieved a ranking of B in the 2018 CDP Climate Change disclosure benchmark, and in ClimateWise, the insurance sector climate initiative managed by the Cambridge Institute for Sustainability Leadership, we improved ourscore, achieving 78 per cent (2017: 72 per cent). Our performance in ClimateWise againstsix core principles isindependently audited by PwC.

As aGroup, we signed up to RE100 in 2018 to achieve 100 per cent renewable electricity by 2025 across our occupied and managed investment estates. 30 per cent of our global electricity consumption is procured from 100 per cent certified renewable sources(solar PV and on-shore wind). OurGroup Scope 2 (market based) emissions are independently assured by Deloitte. Looking ahead, we will develop roadmapsin 2019 for the demerged businessesto set outstrategiesto achieve thistarget, on a country-by-country basis.

As our business becomesincreasingly global, we recognise the importance of understanding the impact of air travel on our overall corporate carbon footprint. We have collated air travel data internally across all three regionsfor the first time. We have elected to disclose Scope 3GHG emissions data from air travel for theUK and Europe business unit. This amounted to 21,622 tCO2 e, representing a 50 per cent increase over preliminary estimates(2017: 14,413 tCO2 e). The scope of this data now includes air travel from oursitesin theUK,

Japan, Kenya, Poland and Zambia, which are controlled by theUK and Europe business unit.

Our combined reported and unreported carbon footprint from air travel is a significant contribution to our overall emissions. Therefore, as part of a holistic approach to the management of our climate impacts, we will focus management effort on reducing the need for travel through the deployment of digitally enabled office working practices and offsetting emissionsfrom unavoidable flights as final mitigation. Plans will be developed in 2019 to establish a CO2 offsetting programme for air travel emissions.

As part of our ongoing environmental managementsystem (ISO 14001:2015) in theUK, we achieved zero nonconformities in 2018, and focused on improving recycling rates and minimising single use vending cups and plastics, as well as completing the roll out of advanced energy analyticssoftware across our largestUK propertiesfollowing a successful trial.

In theUS, Jackson completed a further three Energy Star assessmentsin addition to the two completed in 2017. TheUS Environmental Protection Agency Energy Starscheme is a certification programme and performance benchmark identifying the buildings nationwide that use 35 per cent less energy than typical buildings.

In Asia we have developedGreen Design, Construction and LeasingGuidelines, as well as a smart leasing toolkit to ensure good environmental performance of new sites, focusing on energy and water efficiency.

M&GReal Estate, part of M&GPrudential, has an approach to responsible property investment that enablesit to manage and respond to the growing range of environmental and social issuesthat can impact property values. It continuesto decarbonise its property estate through targeting low and no cost energy reduction measuressuch as LED lighting installations, real time monitoring of high energy users through smart building technology and realising energy efficiency through refurbishment. Further details on M&G Real Estate's progress can be found in its annual Responsible Property Investment report at www.mandg.co.uk/institutions/ realestate/responsible-investing/

For theGroup as a whole, further detail on our environmental performance throughout 2018 is available online and will be published in our 2018 ESGreport early in 2019, including performance against our global environmental objectives.

Prudential plc – greenhouse gas emissions statement

We have compiled our globalGHG emissionsstatement in accordance with the Companies Act 2006 (Strategic and Directors' Reports) Regulations 2013.GHG emissions are broken down into three scopes; we have included full reporting for Scope 1 and 2 and select Scope 3 reporting as best practice.

Scope 1 emissions are our direct emissions from the combustion of fuel, fugitive emissions and company-owned vehicles. Scope 2 emissions cover our indirect emissionsfrom the purchase of electricity, heating and cooling. We have reported our Scope 2 emissions using both the location and market-based methodsin line with the GHGProtocol Scope 2Guidance. Our Scope 3 footprint includesUK/EU/Africa booked businesstravel for the occupied estate, global water consumption from the occupied and investment estate (where Prudential have operational control), waste generated from occupied properties(UK andUS) and global investment properties (where Prudential have operational control). We continue to work with our business unitsto review the extent of our Scope 3 reporting and increase coverage where practicable.

Please refer to our Basis of Reporting and supplementary reporting online for further detail on our methodology, reported consumption and drivers of variation.

Emissions source (tCO2e)		2018	2017	% Change
Scope 1	Occupied estate1	9,191	10,494	-12%
	Investment properties	7,711	7,703	0%
Scope 2 – Location-based	Occupied estate1	56,554	61,154	-8%
	Investment properties	15,281	18,751	-19%
Scope 2 – Market-based (supplier and residual mix)	Occupied estate1	52,127	55,484	-6%
	Investment properties1	5,459	7,237	-25%
Scope 3	Group1	22,545	15,306	+47%
Scope 1 and Scope 2*	Occupied estate	61,318	65,979	-7%
	Investment estate	13,170	14,940	-12%
Total Scope 1 and 2*	Group	74,488	80,919	-8%
Total Scope 1, 2 and 3*	Group	97,032	96,225	+1%
Carbon intensity*		2018	2017	% Change
kg CO2e per m2 – Scope 1 and 2 only	Group1	24	29	-17%
kg CO2e per employee – Scope 1 and 2 only	Group1	3.1	3.2	-3%
kg CO2e per m2 – Scope 1, 2 and 3	Group1	32	34	-8%

*Note that when reportingGroup totals, the market-based emission is used.

Data notes
Reporting period:	1 October 2017 to 30 September 2018
Baseline year:	1 October 2016 to 30 September 2017
Independent Assurance:	Deloitte LLP has provided limited assurance overselected environmental metricsin accordance with the International Auditing and Assurance Standards Board's(ISAE3000 (Revised)) internationalstandard.
Consolidation (boundary) approach:	Operational Control
Consistency with financialstatements:	The reporting period does not correspond with the Directors' Report period (01 January 2018 to 31 December 2018) asit was brought forward by three monthsto improve the availability of invoice data and reduce reliance on estimated data.
	Prudential owns assets, which are held on its balance sheet in the financial statements, over which it does not have operational control. These are excluded from the data below. Assets not included on the balance sheet but held under an operating lease and where we have operational control are included.
Emission factor:	Scope 1 and 3 reporting usestheUK DEFRA 2018GHGConversion Factors.
	Scope 2 calculations use the IEAGHG2018Conversion Factorsforlocation based reporting. Market-based reporting usessupplier emission factorsfor ourUK REGO-backed supply and RE-DISS factors where available.
Accounting methodology:	TheGreenhouseGas Protocol Corporate Accounting and Reporting Standard
Materiality threshold:	Five per cent

Note

1 2017 figure restated asrevised data became available from suppliers.

01

02

06

People

An inclusive working environment, where we continually develop our talent, reward great performance, protect our people and value our differences, is key in delivering outstanding resultsfor our customers, shareholders and communities.

Diversity and inclusion

Organisations benefit from a number of diverse perspectives and experiences and we consider thisisimportant to oursuccess today and in the future. Diversity and inclusion (D&I) is one of ourstrategic objectives. Tim Rolfe,GroupHR Director, isthe executive sponsor acrosstheGroup, withNicNicandrou, Chief Executive of Prudential Corporation Asia, acting asthe Board member accountable for D&I work.

TheGroup D&I Policy ensures we provide equal opportunitiesto our workforce through fostering an environment where our current and prospective employees are treated with dignity and respect, ensuring an appropriate diversity ofskillsets and backgroundsto deliversuccess acrossthe Group. Our policy supports an inclusive culture, where all our employees are protected against discrimination and provided with opportunitiesregardless of their age, caring responsibilities, disability status, ethnicity, gender,religion,sexual orientation, professional,social, educational or cultural background, or employment contract type. Through our policy we govern our business unitsto have effective approachesin place to comply with local regulation, provide equality of opportunity and encourage oursuppliersto promote equality of opportunity. Each of our businesses, includingGroupHead Office (GHO), isrequired to reportregularly to GroupHR on its compliance with the policy.

Over time, we aspire to have a senior management team that better represents the experiences and backgrounds of our customers and stakeholders. Diversity contributesto Board effectiveness and is essential forsuccessfully delivering the strategy of an internationalGroup. Our Board is committed to recruiting the best available talent and appointing the most appropriate candidate to each role. This process ensures appropriate diversity of experience,skillsets and professional backgrounds. For more information on diversity within our Board, please refer to page 109 of theGovernance section within the Annual Report.

We have a strategic, long-term approach to D&I and the Board monitors progress regularly through theGroup D&I Advisory Committee, including reviewing our benchmarked progress against industry advances on key aspectssuch asthe diversity of our Leadership Team. The majority of D&I activity is managed by the individual business units, which focus on the prioritiesthat make a key difference in theirspecific markets, in alignment with the Group-wide strategy. The articulation of our D&Istrategy has been updated in 2018 to reflect the evolution of our D&I journey. Prudential Corporation Asia continued to develop its D&I Works Committee, made up of representativesfrom acrossits regional businesses. Its purpose isto drive the D&Istrategies and initiativesin the respective countries, provide support and share best practices. In theUS, Jackson has introduced a D&I Advisory Council to supportseniorleadership by helping guide, implement and oversee D&Istrategies and initiatives, providing updates on progress and communicating D&I efforts and commitment internally and externally.

Across our businesses, our commitment to all employeesregarding D&I includes making reasonable adjustmentsto those with specialrequirements and issupported by initiativessuch asreviews of pay, performance management consistency, providing training to staff, engaging with recruitment firms and awareness campaignsto diversify the pool of potential candidates. In 2018, building on the unconscious biasleadership workshopsfor senior managers and executives delivered in 2017, we aimed to reach all employees via theGroup-wide roll-out of unconscious bias e-learning.Completion rates exceeded 90 per cent throughout and positive feedback wasreceived from participants. We again sponsored Dive In, the D&I festival forinsurance and the financial servicessector, which took place in 27 countries and 53 citiesin theAmericas, Asia,Africa, the Middle East and Europe. In 2018 we published twoGroup-wide D&I newslettersfor all employees on the themes of mentoring and sponsorship and cultural inclusion. The cultural inclusion newsletter highlighted how ourAfrican businesses reflect the cultural diversity of the countries in which we operate through engaging with clientsin their native languagesto improve understanding of our products, helping us to provide a betterservice.

We are committed to improving the diversity balance of our organisation. For example, Prudential Corporation Asia

completed a review of recruitment processesresulting in a clear commitment to equal opportunities being incorporated in all job advertsinternally and externally across Asia. Additionally, Prudential Corporation Asia has committed to increasing the focus on blind CV assessment and gender balanced short-lists. OurGroup operations have reported a measurable improvement in the balance of gender, ethnicity, international experience and sector background experience in hires. TheGroup offers tailored 1:1 maternity coaching for female staff. This development initiative helps mothersto prepare for maternity leave, offerssupport while they are out of the office, and aids and facilitates a successful return to the workplace. Externally, M&GPrudential achieved recognition from D&I-related awards and rankings. Several individuals were winners orshortlisted for awards, for example the EMpower100 Ethnic Minority Executives List, the Black Business Awards, Women in Investment Awards and Top 50 Leading Lights, Kindness and Leadership Awards. M&G Investments wasranked in the top 50 of theUK's Social Mobility EmployersIndex.

In addition to the established affinity networks – Prudential Women'sNetwork, Pride (LGBT), CAN(cultural awareness) and Mind Matters(mental health) – we launched Enable (theGroup-wide network for employees with physical and mental disabilities, allies, carers and champions) and PruPride – the first LGBT and allies network in Asia. We were part of the first cohort of companiesto sign theHM Treasury Women in Finance Charter in 2016. In 2018, we achieved our commitment to have 27 per cent of women in senior management, a year ahead of the target date of the end of 2019. We continue to work towardsthe target of 30 per cent women in senior management by the end of 2021. See below for the gender breakdown of our workforce for 2018.

Talent development

Development of our people is key to ourstrategic objectives.GroupHuman Resourcesfocuses on senior leadership through an annual talent review process. We continue to develop leaders and critical specialistsforsenior rolesthrough succession planning. We segment our talent to identify short, medium and long-term successors. Development of oursenior executive leadersis a bespoke exercise that we base on their requirements.

02

04

06

Gender diversity: all employees

Headcount	Total	Male		Female Undisclosed2 Unspecified3
Chairman & Independent
Non-executive Directors	10	8	2	–	–
Executive Directors	6	6	0	–	–
GroupExecutiveCommittee (GEC) Includes Executive directors	11	11	0	–	–
Senior managers Excludesthe Chairman, all directors andGEC members	79	56	23	–	–
Whole company1 Full time equivalent Includesthe Chairman, all directors,GEC members and senior managers	23,792	11,354	12,375	33.0	30.5

Notes

1 Excludes Prudential Corporation Asia joint venture.

2 In many of our businesses, we provide our employees with the option to not disclose their gender. For these employees, gender isrecorded as'undisclosed'.

3 No specification or information is captured on gender for an immaterial number of our employees. These employees are recorded as'unspecified'.

We offer a range of programmesthat enable our people to grow and develop. Most programmes are managed by our business units. In 2018, 113 senior high-potential individuals participated in our established and well respected Group-wide leadership development programmes'Impact' and 'Agility' and the 'NextGeneration' emerging talent programme. These programmes were developed in partnership with worldleading academic institutions and co-delivered with businessschool thought leaders. Across our businessesthere are many more examples of our continuing commitment to talent development. For example, in 2018 Prudential Corporation Asia built on itsstrategic workforce planning initiative to develop and upgrade capabilities and reshape some critical roles to ensure continued success. Prudential Corporation Asia hasimplemented a senior leadership behavioursframework, taking a significantstep towards creating a purpose-led culture to help all employees embrace the transformation of their business.

Jackson offers customised onsite programmes, as well as accessto an online university, to meet the personal and professional development needs of employees with all levels of experience. Development programmes have been aligned to known enterprise-wide skills gapsto further develop critical capabilities for the future.

TheGroup continuesto provide innovative programmes designed in partnership with top academic institutions and industry experts, focused on early career development, leadership development and opportunities, to develop a strategic and innovation mindset through varied career experiences and projects. In 2018 the Enhance programme incorporated several new themes, notably collaboration, including virtual and a new course 'Experiments at Work', which encourages expansive thinking in finding fresh perspectivesfor repetitive challenges and applying creative behavioursin everyday situations.

M&GPrudentialsupportstalent development through a range of programmesto increase personal and organisational capability, alongside bespoke developmentsupport for individualsin key roles, including leadership roles and criticalspecialists such asfund managers, technologists and actuaries.

Employee engagement

We want to foster an environment in which employeesfeel empowered and that they are making an active contribution to the organisation and the communities we serve. We drive employee engagement through a number of initiatives, including colleague appreciation programmes, wellbeing programmes, networking opportunities with peers and senior leaders acrossfunctions and employee focus groups. Each of our businesses managesits own activitiesin this area, including employee engagementsurveys, regular employee open forums with senior management and team away daysto discuss business performance. Our businesses, includingGHO, have processes and, where appropriate, a policy in place for engaging with employees. For any significant issuesthat are likely to impact either positively or negatively on our reputation as an employer – at both business andGroup level immediate reporting toGroupHR isrequired.

Employee engagement in the context of the demerger

We understand that during times of change within organisations, colleagues can require extra support and engagement. Since we announced in March 2018 ourintention to demerge M&GPrudential from theGroup, we have embarked on a programme of engagement to ensure that colleagues are fully briefed on progresstowardsthe demerger and the expected shape of the organisation afterwards. This hasinvolved town hall meetings with senior management,smaller question-and-answer sessions with leadership,regular updates from senior management on progress, line managers playing a key role in demergerrelated communications and encouraging colleaguesto submit questions and concerns, with a commitment to respond as soon as practicable. The frequency of these two-way communicationsisincreasing during 2019, as we move closerto the demerger.

We appreciate that managing and supporting our people through such a period of change is vital in ensuring that they remain engaged with the business, and we also recognise the value of the culture that we have built up in the business and are taking stepsto ensure that culture is protected during the process of the demerger. Throughout our communications we have been stressing the importance of partnership,stewardship and ownership, key elements of our culture, and we are doing everything we can to ensure that our colleagues are aware that they have a stake in the future success of the demerged businesses.

Data protection and cyber security

For all businesses, the theft of large quantities of personal data has become increasingly common, atsignificant cost to consumers and businesses. For us, asfor many other businesses, the impact ofsuch events hasthe potential to be more severe in the future as our business changes and becomesincreasingly digital. These types of incidents also have the potential to significantly impact on the continuity of our business, our customer relationships and our brand reputation, as well asto diminish customers' trust in engaging digitally with us and all businesses. The knock-on effect of this could be that many of the social benefits of new technology,such as enabling financial inclusion and greater accessto primary healthcare, may not be realised. In this context, cyber risk remains a prominent concern and focus area for ourselves, regulators and businesses globally.

Our cyberstrategy wasrolled out during 2018, providing increased insight into our Group-wide information security performance. The strategy is designed to deliver against three objectives: to protect the business, comply with applicable laws and regulations, and support the growth of the business. A number of work streams underpin the delivery of the strategy, covering risk prevention, theGroup-wide baseline ofsecurity controls and capability, and promoting resilience. Thissupports the businessto prioritise and make informed, risk-based decisions. These benefits will continue to be delivered throughout 2019, asthe strategy matures under the new Group Chief Information Security Officer.

A key element to managing cyber risk and strategiesisto have good information, which our executives and other stakeholders acrossthe business use to make good decisions. During the course

of 2018, 18 reports on topicssuch asthe current performance of cybersecurity capabilities acrosstheGroup and the lessonslearned from industry events have been provided to various executive committeesincluding theGroup Executive Committee and theGroup RiskCommittee.

Using a newly developed set ofGroupwide cyber key performance indicators (KPIs) that map to internationalstandards such asNational Institute of Standards and Technology (NIST),senior executives are provided with a monthly update from Group-wide Information Security regarding theGroup's cyber performance in key areas of cyber risk management. Our Group-wide cyber KPIstrack a broad range ofsecurity domains on a monthly basis, including infrastructure oversight, asset management, incident response, awareness and compliance. An annual in-depth, evidence-based analysis of our Group-wide cyber capabilities, aligning to internationalstandards was also completed. Thisinformation is brought together and further augmented by regular threat update papers and a benchmarking of ourselves against our peers acrossthe globe to facilitate timely decision-making by senior businessleaders acrossthe Group. The analysis we conduct and the KPIs we gather are kept under constant review to ensure that they remain aligned to the business and that they continue to facilitate business decision-making and thusreduce cyber risk. Throughout the year, Board members, including nonexecutives, have received one-to-one training on cyber threats, including privacy, by a senior manager of theGroup-wide Information Security team.

TheGroup-wide cyber assurance programme, which is based on standards like theNIST Cyber Security Framework, became operational in 2018. It has provided valuable insightsregarding our capabilities and performance in the way we manage cyber risk acrossthe business. The information and analysis provided by the Group-wide Oversight and Assurance team has been used in a number of waysto inform our cybersecurity-related choices. For example, it is used to provide senior executives with assurance that our cyber risk is being appropriately managed, while business unit leaders have used the insight to make better-informed and targeted investment decisions.

The programme continuesto evolve to ensure thatthewaywemanage cyberrisk remains effective and includes allthree elements of cyberriskmanagement –

people, processes and technology. Thisis vital as changesto our business, the technologieswe use andour operating environment continue to gather pace. For example,throughout 2018,we continually reviewed andmade adjustmentswhere necessary to ourKPIs. Thisisto ensure that they provide appropriate oversight and cover areas of cyberrisk thatmay have been introduced as a consequence of new technologies. Similarly,we continue to identify, adjust and reviewthe cyber capabilitieswe need.TheGroup-wide policies and standardsforinformation and cybersecurity,whichwere refreshedin 2018 to reflectthe rapid advance in cyberthreats, have been introduced andwill be reviewed annually and adjustedwhere necessary to reflect a changing operational environment.

TheGroup has an established Cyber Threat Intelligence team that assists our businesses with understanding the cyber threats we face and provides guidance on how to protect and mitigate against these threats. We believe that knowledge sharing across our businessesis key to a mature intelligence function and we use a variety of mechanisms, including aGroup-wide threat intelligence-sharing platform and weekly telephone conferences with representatives of businesssecurity teams, to ensure timely visibility and dissemination of intelligence to proactively defend the business. In the last year, we have further enhanced our collaboration tools and launched a weekly threat bulletin to provide situational awarenessto a wider audience in information security.

Looking ahead to 2019 and recognising that the threat landscape will continue to evolve, we will continue to evolve and strengthen our cyber defences and management of cyber risk. To maximise effectiveness and efficiencies we are looking to establish global cyber centres of excellence. We will be exploring new machine learning and augmented intelligence technologiesto identify if they can be usedGroup-wide to enhance and/ or improve our understanding and management of cyber risk.

Communities

We take an active approach to managing ESG-related risks and tackling environmental and social challenges. Ourstrong contribution, harnessing the commitment of our people, continuesto improve lives and build communities, wherever we work.

Our community investmentstrategy is closely aligned with our business purpose

02

06

Cha-Ching financial literacy programme

Prudential colleagues collaborated with JuniorAchievementKenya to provide financial literacy skillsto children aged seven to 11 years usingCha-Ching educationmaterials.

Volunteers acted asstudentmentors and shared their experiences of dealing with money, using theCha-Ching concepts of Earn, Save, Spend and Donate. The programme culminated in a graduation ceremony, which provided a platform for pupilsfromdifferentschoolsto come together and test their knowledge through a series offun and engaging financial literacy games and challenges.

and with ourstakeholders' concerns and interests, focused on four principal themes:

• Social inclusion;
• Education and life skills;
• Disaster preparedness; and
• Employee engagement.

We establish long-term relationships with our charity partnersto ensure that the projects we support are sustainable, and we work closely with them to ensure that our programmes continuously improve.

Education and life skills Cha-Ching – the first global financial education programme

Developed by Prudential to address financial illiteracy, Cha-Ching is a global financial responsibility and education platform.Now in its eighth year, the programme is aimed at primary school-age children and has expanded from its origins in Asia to each of the four continents where theGroup does business. In all the markets where it has been launched it has been very positively received, with strong feedback from parents, teachers, children and politicalstakeholders.
In Asia, the programme reaches over 34 million households a day through a multidistribution platform including Cartoon Network Asia, and through its own standardised curriculum and school contact programme, hasreached more than 400,000 children so far. The curriculum developed in partnership with Junior Achievement has continued to be well received during 2018 and rolled out to a further 180,000 studentsin Indonesia,

the Philippines, Malaysia and Thailand.

In theUS, the Jackson Charitable Foundation has brought Cha-Ching to more than 2.7 million elementary school studentssince 2017 through partnerships with Junior AchievementUSA and Discovery Education. The Cha-Ching videos and lessons have been integrated into Junior Achievement'sthird grade classroom programme. Each year,schools acrossthe country have the chance to win US\$10,000 to increase financial education at theirschool andUS\$1,000 to donate to a charity of their choice through the Cha-Ching Money Smart Kids Pledge Challenge in theUS.

In theUK, working with Young Enterprise, we have developed an online educational resource for primary schoolstudentsin England and Walesthat has enabled the Cha-Ching programme to be brought into the classroom. The Quality Marked teaching resource islinked to the Personal Finance EducationGroup's Financial Education Framework and has guidance for teachers on how most effectively to integrate activitiesinto their teaching, as well as activitiesfor home-learning. Since launch in late 2016, the resource has been downloaded 28,478 timesin 1,179 schools acrosstheUK.

In other markets, the online educational resource has also been utilised to support the roll-out of the Cha-Ching programme across our African markets as part of a financial literacy campaign, delivered jointly by Junior Achievement Africa and Prudential Africa employees. Cha-Ching

waslaunched in Poland in 2015 and the first 10 films were translated into Polish and aired on several children'stelevision channels. A website with materialsfor children and teachers was created to share in localschools.

First Read – investing in early childhood development

Prudence Foundation hasfunded and supported the First Read programme since 2013, partnering with Save the Children to focus on investing in early childhood care and development in Cambodia and the Philippines. First Read helps parentsto develop their children's numeracy and literacy skills by providing booksin the local language or dialect, and encouraging them to read,sing and count together. It also helps parents understand the importance of healthy and nutritiousfood for children's development. Since 2013, more than 300,000 children aged up to six and their parents have benefited through this home-based early childhood development programme, while over 700,000 people have also benefited indirectly through shared knowledge and resources.

A new three-year partnership formed with the China Development Research Foundation will comprise two programmes, focusing on rural education and child health; and on nutrition improvement. Both programmes are aligned with the strategic development focus of theChinese national government and will be delivered in rural China.

Employee volunteering

Jackson's charitable efforts are focused on strengthening families and increasing economic opportunitiesin the communities we call home. Our employees work together for a common cause, which helpsthem build stronger bonds and valuable skills.

Jackson employees volunteer with Chicago Youth Programmesthroughout the year, mentoring studentsfrom under-resourced neighbourhoods, serving asimportant role models and creating a safe space forstudentsto grow, learn and have fun.

Jackson Charitable Foundation teams up with Ramsey Education

In 2018, in addition to Cha-Ching, Jackson Charitable Foundation sponsored Ramsey Education's Foundations in Personal Finance curriculum in 250 high schools acrossthe country. The Foundation, which has a mission to advance financial knowledge on a nationalscale, hasteamed up with Ramsey Education to ensure that more than 20,000 high schoolstudents have accessto this critical, financial education programme that teaches valuable skillsto prepare them for a life of financial freedom. More than three million students have benefited from Foundations in Personal Finance in middle schools, high schools and universities nationwide. Foundationsin Personal Finance can be used as a primary resource to fulfil requirementsin mathematics, economics, family consumerscience, business mathematics and personal finance. Educators who use this programme see theirstudents build confidence,security and hope. They share stories ofstudents going to college debt-free, paying cash for their first car, or even helping their parents learn about the importance of an emergency fund.

Nashville associates further financial education with Junior Achievement Career Exploration Centre

Jackson and its employees donated more thanUS\$150,000 to sponsor the Jackson Career Exploration Center at the brandnew Junior Achievement Finance Park in Middle Tennessee. The interactive personal finance facility will reach older students with a hands-on experiential budgeting simulation facility where students convene for 13 teacher-led lessons. The hands-on experience helps students build a foundation to make smart financial decisionsrelated to income, expenses,savings and understanding credit.

Supporting young people with employability and financial skills M&GPrudential is a partner member of the KickStart Money primary financial education programme. The programme aimsto reach 20,000 primary school children and focuses on saving, budgeting, careers, borrowing and consumer and public finance.

Through three secondary school partnershipsin Paddington, Reading and Stirling, M&GPrudential has also been directly involved in building the knowledge and skills of young people. These partnerships have supported over 4,100 young people since 2013, with 370 employees giving their time and sharing their knowledge and skills.

Secondary school scholarships across Africa

In our marketsin Africa we have committed to provide support for academically able but financially disadvantaged high school students, and to help build capacity for training in actuarialsciences at local universities. Prudential has worked with several charities operating inGhana, Kenya,Uganda and Zambia to deliver the Prudential Scholarship Programme with the aim of improving quality and accessto education for all, and ensuring that everyone marginalised by society receives education,skills and support towards employability. The Prudential Scholarship Programme hassupported more than 7,000 academically able but financially disadvantaged high schoolstudentsto complete theirsecondary education over either four or five years of high school. This hasincluded financial bursariesto cover the cost ofschool fees and boarding fees where necessary, uniforms and books, as well as a programme to upgrade conditionsto increase attendance at three schoolsinUganda.

Disaster readiness and relief Helping to make Asia more prepared and safer

Safe Stepsis a first-of-its-kind, in terms of reach and breadth of partnerships, pan-Asian public service initiative to enhance awarenessthrough the dissemination of educationalsurvival tips for natural disasters, road safety and first aid. The programme was created and developed by Prudence Foundation in partnership withNationalGeographic and the International Federation of Red Cross and Red Crescent Societies. It is a multi-platform programme including on-air video messages and informative website and educational collateral that can be shared among communities. At its core, Safe Steps utilises one-minute videosto provide simple to understand messages on how to be prepared and stay safe in three areasthat cause unnecessary loss of life: natural disasters(launched 2014), road safety (2016) and first aid (2017).

The programme continuesto reach an estimated 250 million people every day across Asia, through partnerships with government, humanitarian and private sector organisations. In 2018, new partnerships were formed in Cambodia, Hong Kong, the Philippines, Singapore and Vietnam. For example, Prudence Foundation and Prudential Singapore embarked on a new partnership with the Singapore Red Cross Society, focusing on a mass community first aid training programme aimed at the younger demographic.

Safe Schools programme

Asia Pacific isthe world's most disasterprone region, and the Prudence Foundation continuesto focus on disaster preparedness, relief and recovery in our Asia markets. Prudence Foundation works with the humanitarian, government and private sector to help communities better prepare forsuch disasters before they strike, as well as providing support at times of emergency response and recovery.

During 2018, Prudence Foundation continued to support the Safe Schools programme, partnering with Plan International and Save the Children in Cambodia, Indonesia, the Philippines, Thailand and Vietnam. The programme focuses on capacity-building forstudents, teachers and local community members on disaster preparedness. Since 2013, more than 85,000 students and 40,000 adults have participated.

In 2018, the Foundation formed a new partnership with Save the Children and the Philippines' Department of Education to implement a nationwide focused programme. The three-year programme will aim to develop a disaster risk reduction management information system, together with training and capacity building of teachers and local government officials. Thisinnovative new approach to Safe Schools aimsto ensure that every school in the Philippines will be able to benefit from the Safe Schools programme, providing the Department of Education with the information to help allocate itsresources and expertise to support the ongoing implementation of the global and ASEAN Comprehensive Safe Schoolsframework.

Volunteering to support communities in need

During 2018, Prudence Foundation formed a partnership withHabitat forHumanity to implement a regional volunteering programme thatsupports communities in need, complementing the volunteer support we provide when appropriate during disaster recovery. In April 2018, over 70 volunteersfrom acrossthe region spent one week in Yogyakarta, Indonesia, helping to build homesfor those in need and an early childhood development centre. InNovember 2018, the Foundation led another group of more than 80 regional volunteersto Siem Reap in Cambodia to build housesfor families desperate for new homes and support the refurbishment of a primary school. During 2018 the Foundation provided support to help with relief and recovery effortsin Taiwan (following theHualien earthquake) and Laos(following the flooding). In 2019, we will also be supporting longer-term recovery in Lombok and Sulawesi, Indonesia which were both severely affected by natural disastersin 2018.

01 Group overview

Safe Steps

Safe Stepsis a pan-Asian public service initiative to enhance awarenessthrough the dissemination of educational survival tipsfor natural disasters, road safety and first aid. The programme was created and developed by Prudence Foundation in partnership withNational Geographic and the International Federation of Red Cross and Red Crescent Societies. Prudence Foundation and Prudential Singapore embarked on a new partnership with the Singapore Red Cross Society in 2018, with a mass community first aid training programme aimed at younger people.

PruGOals

As part of our nationwide commitment to social inclusion in theUK, Prudential has developed the PruGOals programme in partnership with ourfour charity partners: Teach First, Transformation Trust,Greenhouse Sports and the Dame KellyHolmes Trust.

PruGOals aimsto empower young people to achieve their goals, focusing on building confidence, raising aspirations and increasing self-esteem. The core programme takesthe riders on a journey of commitment, endurance, training and fitness, and culminatesin taking on the Prudential RideLondon-Surrey 46.

Emergency fund relief

Prudential has been aGroup-level supporter of Save the Children since 2010 and is one of the Children's Emergency Fund's majorsupporters. This allows usto actswiftly when disasters occur in any of our markets and provides an instant, effective fundraising mechanism for employees when needed. In 2018 Save the Children's emergency fund was used 93 times across 35 countries, and helped to reach over 2.1 million people affected by emergencies with life-saving support.

Social inclusion

Commitment to social inclusion in the UK through Prudential RideLondon

Prudential RideLondon has established itself as a major mass-participation and charity fundraising event in theUK, and in the pastsix years, hasraised more than £66 million for charity. In 2018 it raised more than £13 million for charity to set a European record for a cycling event, beating the previous year'srecord of £12.75 million. There was a sharp rise in the number of participantsriding for charity – 55 per cent, up from 44 per cent in 2017. More than 900 charities have benefited.

Prudential hassponsored the eventsince inception in 2013 and our own community engagement partnership, PruGOals, supported 420 16 to 18-year oldsfrom 41 schools acrosstheUK to improve their self-esteem, aspiration and educational outcomes. The PruGOals programme helps young people to achieve their goals regardless ofsocial or economic background by providing aspirational challenges, culminating in taking on the Prudential RideLondon-Surrey 46. The 2018 post-event evaluation report from the charity Teach First revealsthatstudents' 'resilience' and 'determination' rose by a third after completing the programme.

Enhancing later life

M&GPrudential's partnership with Royal Voluntary Service (RVS) continues with First Time for Everything. This programme aimsto tackle loneliness and social isolation by encouraging 2,700 older people across theUK to stay active, engaged and connected to their community in 2018. Prudential has also continued to fund the Later Life Links programme with AgeUK, providing long-term companionship, advice and practical help to older people. Running in sixUK communities, the programme supported over 4,900 older people in 2018 through telephone and face-to-face support.

Working with purpose

In partnership with RVS we launched our 'Bring People Together' campaign, which seeksto encourage and empower more people to volunteer, particularly those aged 50 to 65. Specifically its aim isto inspire them to start their own activities or clubsfor older people with the backing of RVS. From social activities and hobby classesto running a lunch club or providing companionship to older people in their homes, together we want to harness the get-up-and-go of pre-retirees by encouraging them to put their talents and life experience to valuable use by becoming volunteer co-ordinators. The programme aimsto support the creation of 150 new groups and recruit 500 volunteer co-ordinatorsto lead them.

Apprenticeships in the UK

Youth unemployment remains a growing problem in theUK and M&GPrudential continuesto help to shape future job prospectsfor young people. M&GPrudential's asset management and insurance businesses have run successful apprenticeship programmesfor the last seven years, gaining recognition and awardsfor the success of the schemes. Over 300 apprentices have been through both programmes and over two-thirds of those who completed the programme secured ongoing employment with the business, while others chose to work elsewhere or moved on to higher education. In 2018, 15 PrudentialUK apprenticesjoined the programmes, with an increased emphasis on recruitment from diverse backgrounds. All PrudentialUK apprentices are on fixed-term contracts, with the exception of two graduate apprentices who are on permanent contracts. All M&Gapprentices are offered permanent positionsfrom the outset and UCAS points have been removed from graduate/internship applicationsto try and reach those from a low socio-economic background who may not have excelled at school but have done so at university. CVs have also been removed from the face-to-face interview stage,so that assessors are able to assess purely on potential, rather than being influenced by a candidate's background or experience.

Support for disadvantaged communities

M&GPrudential also continuesto support disadvantaged communities near our offices and during 2018 over 200 charities received support either by donation or employee volunteering. The range of areas which received support is extensive and includes projectsthat relate to education, arts and heritage, children and youth, the environment, medical research and social and welfare matters. M&GPrudential continuesto support many aspects of education and providesseveral on-site educational daysforstudents at our London headquarters. M&GPrudential continued itssupport of CityGiving Week with an on-site event which each day showcased several charitiesthat have received support and highlighted the servicesthey provide. The Lord Mayor of the City of London attended M&G's event as part of hisinitiative to promote the varied charitable activities undertaken by City businesses.

M&GPrudential continuesto use its sponsorship of the RHS Chelsea Flower Show to supportsocial issuesthrough RHS outreach programmesincludingGreening Grey Britain, It's YourNeighbourhood and the RHS Campaign for SchoolGardening acrosstheUK.

Employee volunteering Successful volunteering programme – Chairman's Challenge

Many of our employees play an active role in their communitiesthrough volunteering, charitable donations and fundraising. In the UK and Europe, theUS and Asia we offer our employeesthe opportunity to support charitiesthrough payroll giving.

Chairman's Challenge is our flagship international volunteering programme, bringing together people from across theGroup to help in their communities. Colleaguesfrom acrosstheGroup give their time and skillsto support our global charity partners, including Plan International,Help Age International and Junior Achievement.

The programme continuesto appeal to colleagues, with the number of volunteers signing up increasing year-on-year. Last year 9,054 colleaguesfrom around the world took part, volunteering over 49,000 hoursto support 33 projects.

Each volunteering project focuses on one or more of our CR priorities and allows us to support both large, well established charities and innovative,smaller-scale activities with volunteers as well as financialsupport. Prudential donates £150 to our charity partnersfor every employee who registersfor the programme. Charity partners use this money to seed-fund charitable projectsfor Prudential volunteers. Each year, employees across theGroup are involved in the voting processto decide on the most innovative projects, which receive extra funding towardstheir charitable objectives.

Volunteering across the Group

As well as volunteering efforts on behalf of the Chairman's Challenge, employees around theGroup volunteered on a huge range of other charitable projects, from providing relief following disastersto mentoring schoolchildren,supporting the elderly and skills-sharing. We recognise that employee volunteering brings benefit not only to the charities but also to the development of our people, and we actively encourage colleaguesto participate in our programmes.

Charitable donations

We calculate our community investment spend using the internationally recognised London BenchmarkingGroup (LBG) standard. Thisincludes cash donations to registered charitable organisations, as well as a cash equivalent for in-kind contributions.

In 2018, theGroup spent £27.3 million supporting community activities. The direct cash donationsto charitable organisations amounted to £19.6 million, of which approximately £4.4 million came from ourUK and Europe operations. The remaining £15.2 million was contributed to charitable organisations by Jackson and Prudential Corporation Asia.

The cash contribution to charitable organisationsfrom ourUK and Europe operationsis broken down asfollows: education £2,337,000;social, welfare and environment £1,995,000 and cultural £64,000.

The balance includesin-kind donations asset out on theGroup website at www.prudential.co.uk/responsibility/ standards prepared in accordance with LBGguidelines. Thisincluded 11,710 employees who dedicated 117,491 hours of volunteerservice in their communities. Furthermore, £479,633 was donated acrosstheGroup by our employees through our payroll giving scheme.

Political donations

It istheGroup's policy neither to make donationsto political parties nor to incur political expenditure, within the meaning of those expressions as defined in the UK Political Parties, Elections and Referendums Act 2000. TheGroup did not make any such donations or incur any such expenditure in 2018.

02

06

Accountability and governance for corporate responsibility The Board

The Board regularly reviewstheGroup's corporate responsibility performance and scrutinises and approvestheGroup corporate responsibility report and strategy on an annual basis.

Local governance

We believe that corporate responsibility is best managed on the ground by our people running the businesses. In M&GPrudential and Jackson there are governance committeesin place – with senior management representation – that agree strategy and spend. In Asia, the Prudence Foundation has been established as a unified charitable platform to align and maximise the impact of community efforts acrossthe region. The Prudence Foundation is governed by a statutory Board of Directors, under which a Board of Trustees operates as a decision-making forum, directing the management of the programmesin collaboration with our local markets, and ensuring that we maximise the value of ourspend to local communities. The Material Subsidiary Boards oversee the business unit corporate responsibility initiatives. All business units submit comprehensive Board reports to the Subsidiary Board and to the Prudential plc Board annually providing detailed information on majorstrategic initiatives.

Code of Business Conduct

Consideration of environmental,social and community mattersisintegrated in our Code of Business Conduct. Our code is reviewed by the Board on an annual basis. Refer to page 72 for more information.

Risk assessment

For more information on the risksfacing our business,see theGroup Chief Risk Officer'sreport on page 52. Further information on how we manage our material ESGissues and associated risks are provided in the 'Managing our material ESGissues'section of the Corporate responsibility review on page 71.

Strategic report approval by the Board of Directors

The Strategic reportset out on pages 9 to 86 is approved by the Board of Directors.

Signed on behalf of the Board of Directors

Mike Wells Group Chief Executive 12 March 2019

04

06

03 Governance

	Page
Chairman's introduction	88
Board of Directors	89
How we operate	95
Risk management and internal control	107
Committee reports	109
Nomination &Governance Committee report	109
Audit Committee report	115
Risk Committee report	124
Statutory and regulatory disclosures	128
Index to principal Directors' report disclosures	130

Robust and transparent governance supporting the delivery of our strategy

Dear Shareholder

Good governance encourages decisions to be made in a way that is most likely to promote the success of theCompany forthe benefit of its members, taking into account the views and interest of theGroup's wider stakeholders.We aim to achieve thisthrough a governance framework thatsupports decision-making, is continuously updated to meet theGroup's business needs, makes room for challenge and encompasses a prudentsystem of internal controls and processesforidentifying, managing and mitigating key risks.

Set out below are some of the key strategic and governance itemsthe Board has considered over 2018.

Demerger

Following the announcement in 2017 of the combination of our asset manager, M&G, and PrudentialUK & Europe to form M&GPrudential, early in 2018 the Board announced the intention to demerge M&GPrudential from the remainder of the PrudentialGroup. During the yearthe Board hastherefore been focused on the execution of that decision.

In preparation forthis majortransaction, the Board looked at its ways of working at the end of 2017 through our annual effectiveness review. The feedback from thatreview was used to ensure that the right environment for critical decision-making continued to be in place, and this has proved very helpful and effective groundwork asthe Board was asked to consider a number of demergerrelated itemsthrough the year.

In relation to the governance of both the Prudential and the M&GPrudentialGroups, work has been undertaken to help ensure a smooth transition and ensure that both Groups have boards properly composed to meet theirfuture strategic needs. Most importantly this hasincluded establishing a separate M&GPrudential board and the appointment of the first independent non-executive director, Mike Evans, as chairman of that board.

Furtherinformation about the demerger isset out in the Strategic report.

Culture and values

The Board spent time in 2018 focusing on Prudential's culture,recognising that it is an important contributorto theGroup's success and sustainable growth and the Board made further progress on considering how ourGroup's culture is articulated, communicated,rewarded and recognised.

In light of the upcoming demerger, the Group's culture hastaken on extra significance as we navigate through a period of change. It is one of our objectivesto ensure thattheGroup continuesto be guided by its values and behaviours and demonstrates ongoing commitment to ourstakeholders and to innovation, performance and excellence in execution.

The Board approved changesto itsterms ofreference in 2018 to make explicit reference to itsrole in establishing the Group's purpose, values and strategy.

Looking after our stakeholders and wider community initiatives

At Prudential,we recognise that our stakeholders are key to ourlong-termsuccess. We seek to engage proactivelywith them,to understand their views and to take these viewsinto accountwhenmaking decisions.

The Board is cognisant of the emphasisthat the new CorporateGovernanceCode puts on stakeholders more broadly than shareholders. The Board considered this in two separate meetings during the year and is developing mechanismsto ensure stakeholder views, and in particularthe employee voice, make their way to Board level in an effective way.

Iremain immensely proud of ourinternational volunteering programme, theChairman's Challenge, which continuesto grow with over 9,000 colleagues having given 49,000 hoursto supporting the community in 2018.

You can read more about our corporate socialresponsibility actionsin the corporate responsibility review on pages 70 to 86 and in our 2018 ESGreport which will be published on our website in May 2019.

Succession planning and Board composition changes

It has been a privilege to serve on the Board of Prudential plc since October 2010 and to have served asChairman since July 2012.

I and my fellow members of theNomination &GovernanceCommittee agree that it is important that leadership of the Board is refreshed appropriately and thatsuccession planning for my role asChairman takes place in an open and transparent way.

Our SeniorIndependent Director, Mr Remnant, hastherefore been consulting with majorshareholders on my tenure extending to May 2021,subject to reelection each year.We are mindful of the provisions of theCorporateGovernance Code which state that a chairshould not remain in post beyond nine yearsfrom the date of first appointment to the board, which in my case would be October 2019. However, given theGroup's planned demerger of the M&GPrudential business, and in light of the shareholdersupport we have received the Board has considered

and confirmed that it believesit to be in shareholders' best interestsfor me to continue to serve in theChairrole in orderto oversee the Board during thistime of change and ensure that the PrudentialGroup is strongly established in its post-demerger state. I am fully committed to this challenge.

Further details of the agreed timeframe for my departure and plansforidentifying and appointing a successor are set out in a report from Mr Remnant, as part of theNomination &GovernanceCommittee report on page 111. TheCommittee'sreport includes a description of theGroup's approach to succession planning more widely.

Lord Turner has announced that he willretire fromthe Board at the 2019AnnualGeneral Meeting. I want to thank himfor his significant contribution to the Board overthe last three and a half years, as aNon-executive Director andmember of the RiskCommittee.

We have also looked at our Board composition as part of our progresstowards demerger.AsChief Executive of M&GPrudential, Mr Foley will naturally stand down from the Board as part of the demerger transition.Having taken into account the changed shape of the PrudentialGroup post-demerger and the reduced number of business units, the Board hastaken a decision that the roles ofChief Executive PrudentialCorporationAsia andChief Executive Officer ofJacksonHoldings LLC will no longer be Executive Directorroles on the Board, although will continue to serve on theGroup ExecutiveCommittee.As announced to the market on 28 February 2019 all of these Board changes will take effect from the conclusion of our 2019 AnnualGeneral Meeting. My thanks go to Mr Foley, MrNicandrou and Mr Falcon for theirservice.

I would also like to thank Ms Richards and Mr Stowe, as Executive Directors having stepped down during 2018, fortheir valuable contributionsto the Board and to theGroup during the year.

I hope that thisreport and the reports of my fellow CommitteeChairs will demonstrate to you the work we have undertaken overthe course of the year as well asthe tangible and positive impact this has had on our business.

Paul Manduca Chairman

Board of Directors

Chairman

Paul Manduca Chairman Appointment: October 2010 Age: 67 N&G

Relevant skills and experience

Paul will continue to draw on his extensive experience in leadership roles and his knowledge of theGroup's core businesses, international markets and industry sectors, and histechnical knowledge, to provide effective leadership during a period of change for theGroup.

Paul has held a number ofsenior leadership roles.Notable appointmentsinclude serving as chairman of the Association of Investment Companies(1991 to 1993), acting asfounding CEO of Threadneedle Asset Management Limited (1994 to 1999), globalCEO of Rothschild Asset Management(1999 to 2002), directorships of Eagle Star and Allied Dunbar, holding the offices of European CEO of Deutsche Asset Management (2002 to 2005), chairman of BridgewellGroup plc and a director ofHenderson Smaller CompaniesInvestment Trust plc.

Other previous appointmentsinclude the chairmanship of AonUK Limited and JPM European Smaller CompaniesInvestment Trust Plc. From September 2005 until March 2011, Paul was a non-executive director of

Key to Committee membership

Chair Chair Audit Audit N&G Nomination &Governance Rem Remuneration Risk Risk

Wm Morrison Supermarkets Plc, including as senior independent director, audit committee chairman and remuneration committee chairman.He was a non-executive director and audit committee chairman of KazMunaiGas

Exploration & Production until the end of September 2012 and chairman ofHenderson Diversified Income Limited until July 2017.

Paul initially joined the Board in October 2010 as the Senior Independent Director and member of the Audit and Remuneration Committees, roles he held until his appointment as Chairman in July 2012. On becoming Chairman, Paul was also appointed Chair of theNomination & Governance Committee, having been a member of the Committee since January 2011.

Other appointments

• RateSetter (Retail Money Market Limited) (chairman)
• Templeton Emerging MarketsInvestment Trust (TEMIT) (chairman)
• SecuritiesInstitute
• TheCityUK Advisory Council (chairman)

Chief Executive

Michael Wells Group Chief Executive Appointment:January 2011 Age: 58

Relevant skills and experience

Mike continuesto develop the operational management of theGroup on behalf of the Board, implementing Board decisions and leading the Executive Directors and senior executivesin the management of all aspects of the day-to-day business of theGroup.

Mike has more than three decades' experience in insurance and retirementservices, having started his career at theUS brokerage house Dean Witter, before going on to become a managing director at Smith Barney Shearson.

Mike joined the PrudentialGroup in 1995 and became Chief Operating Officer and Vice-Chairman of Jackson in 2003. In 2011, he was appointed President and Chief Executive Officer of Jackson, and joined the Board of Prudential.

During hisleadership of Jackson, Mike was responsible for the development of Jackson's market-leading range of retirementsolutions. He was also part of the Jackson teamsthat purchased and successfully integrated a savings institute and two life companies.

Mike joined the Board in 2011 and was appointedGroup Chief Executive in June 2015.

Other appointments

• International Advisory Panel of the Monetary Authority of Singapore
• San DiegoUniversity Advisory Board

Board changes

Non-executive Directors

Mrs Wicker-Miurin was appointed as a Non-executive Director and a member of the Remuneration Committee with effect from 3 September 2018.

Ms Schroeder joined the Risk Committee with effect from 1 March 2018.

Mr Watjen joined the Risk Committee with effect from 1November 2018.

As announced on 28 February, Lord Turner willstep down from the Board with effect from the conclusion of the 2019 Annual General Meeting.

Executive Directors

Mr Turner joined the Board as an Executive Director andGroup Chief Risk Officer with effect from 1 March 2018.

Ms Richardsstepped down as Chief Executive of M&Gand as Executive Director of the Company with effect from 10 August 2018.

Mr Stowe stepped down as Chairman and Chief Executive Officer of Prudential's North American BusinessUnit and as an Executive Director of the Company with effect from 31 December 2018.He was succeeded by Michael Falcon who joined the Board from 7 January 2019 and holds

the title of Chief Executive Officer of JacksonHoldings LLC.

Mr Falcon willstep down as an Executive Director of the Board at the conclusion of the 2019 AnnualGeneral Meeting, as will Mr Foley and MrNicandrou. These changes are being made as part of our progress towards demerger and are more fully described on page 88. Each of Mr Falcon, Mr Foley and MrNicandrou will maintain their roles as chief executives of their respective business units and members of theGroup Executive Committee.

03

05

06 European

EmbeddedValue

information

Executive Directors

Mark FitzPatrick CA Chief Financial Officer Appointment:July 2017 Age: 50

Relevant skills and experience

Mark has a strong background across financial services, insurance and investmentmanagement, encompassing wide geographical experience relevant to theGroup's key markets.

Mark previously worked at Deloitte for 26 years, building hisindustry focus on insurance and investment management globally. During this time, Mark was managing partner for Clients and Markets, a member of the executive committee and a member of the board of DeloitteUK.He was a vice chairman of Deloitte for four years, leading the CFO Programme and developing the CFO Transition labs. Mark previously led the Insurance & Investment Management audit practice and the insurance industry practice.

Mark joined the Board as an Executive Director and Chief Financial Officer in July 2017.

James Turner FCA Group Chief Risk Officer Appointment: March 2018 Age: 49

Relevant skills and experience

Having held senior positions at Prudential for a number of years, James has a wide-ranging understanding of the business and draws on previous experience acrossinternal audit, finance and compliance as well astechnical knowledge.

James hasled internal audit teamsinUBS in both theUK and Switzerland. Prior to joining Prudential, James wasthe deputy head of compliance for Barclays plc.He also held a number ofsenior internal audit roles acrossthe Barclays group, leading teamsthat covered the UK, theUS, Western Europe, Africa and Asia retail and commercial banking activities.

Jamesjoined Prudential inNovember 2010 as the Director ofGroup-wide Internal Audit and was appointed Director ofGroup Finance in September 2015, with responsibility for delivery of theGroup'sinternal and external financial reporting, business planning, performance monitoring and capital and liquidity planning. He also led the development of theGroup's Solvency II internal model.

Jamesjoined the Board as an Executive Director andGroup Chief Risk Officer in March 2018.

Other appointments

— West Bromwich Building Society (non-executive director)

Michael Falcon Chief Executive Officer of Jackson Holdings LLC

Appointment:January 2019 Age: 56

Relevant skills and experience

Michael has extensive experience in senior positions across a range of financialservices institutionsin theUS and Asia.

Michael holds a degree in Finance from Indiana University and began his career in commercial and investment banking at Chase Manhattan Bank in 1985. Between 1989 and 2000, Michael worked at Sara Lee Corporation (now Hanesbrands, Inc) in a variety ofsenior financial,strategic and general management roles, based in Chicago, Paris and Winston-Salem,North Carolina.

Between 2000 and 2008 Michael worked at Merrill Lynch,serving as head of the retirement group and otherroles, including head ofstrategy and finance fortheUS PrivateClient business. Michael laterserved as a consultant and strategic adviserto companiesin the retirement, equity awards, wealth management and asset management industries until joining J.P. Morgan Asset Management in 2010. Michael hasserved as a trustee and executive committee member of EBRI (the Employee Benefit Research Institute) and wasfounding chairman of theAdvisory Board of EBRI'sCenterfor Retirement Income Research between 2011 and 2014.

Before joining Prudential, Michael was based inHong Kong as chief executive officer of Asia Pacific for J.P. Morgan Asset Management, a role he held since 2015, and was head of Asia Pacific fundsfrom 2014.He joined J.P. Morgan Asset Management inNew York as head of retirement in 2010, responsible for investment management and plan service businessesin the defined contribution, individual retirement and taxable savings market.

Michael joined the Board in January 2019 as an Executive Director,succeeding Barry Stowe, and holdsthe title of Chief Executive Officer of JacksonHoldings LLC (Jackson), which includes Jackson'sUS subsidiaries and affiliates(formerly theNorth American BusinessUnit).

John Foley Chief Executive of M&GPrudential Appointment:January 2016 Age: 62

Relevant skills and experience

John has wide-ranging experience of different senior rolesin financialservices, both at Prudential and in his earlier career, making him well placed to lead M&GPrudential and deliver on itslong-term strategic aims.

John spent over 20 years atHill Samuel & Co, where he worked in every division of the bank, culminating in seniorrolesin risk, capital markets and treasury of the combined TSB andHill Samuel Bank. Before joining Prudential, John spent three years as general manager, global capital markets atNational Australia Bank.

John joined Prudential as DeputyGroup Treasurer in 2000 and became Managing Director of Prudential Capital andGroup Treasurer in 2001. During his career at Prudential, John has held the offices of Chief Executive of Prudential Capital,Group Chief Risk Officer,Group Investment Director and Chief Executive of PrudentialUK & Europe.

John first joined the Board in 2011 asGroup Chief Risk Officer and wasreappointed in January 2016, having stepped down during his time asGroup Investment Director.

In 2017, John'srole was expanded from Chief Executive of PrudentialUK & Europe to Chief Executive of M&GPrudential, theGroup's combinedUK asset management and savings and retirementsolutions business. In 2018 he took on the additional responsibility of acting as Chief Executive of the key regulated entities of M&Gand PrudentialUK.

Nicolaos Nicandrou ACA Chief Executive of Prudential Corporation Asia

Appointment: October 2009 Age: 53

Relevant skills and experience

Nic has a finance background and having built up deep knowledge of theGroup, moved to the position of Chief Executive of Prudential Corporation Asia in July 2017.Nic isresponsible for Prudential Corporation Asia'slife insurance and asset management business across 14 marketsin the region.

Nic startedhis career atPricewaterhouseCoopers (PwC). Before joining Prudential, he worked at Aviva, where he held a number ofsenior finance roles, includingNorwichUnion Life finance director and board member, Aviva group financial control director, Aviva group financial management and reporting director and CGNUgroup financial reporting director.

Nic joined the Board in October 2009 as an Executive Director and Chief Financial Officer.

Other appointments

— CITIC-Prudential Life Insurance Company Limited (chairman) (a Prudential plc joint venture)

06

Non-executive Directors

The Hon. Philip Remnant CBE FCA Senior Independent Director Appointment:January 2013 Age: 64

Audit N&G Rem

Relevant skills and experience

Philip contributes experience across a number ofsectors and in particular listed company experience and the financialservicesindustry, including asset management, in theUK and Europe.

Philip was a senior advisor at Credit Suisse and a vice chairman of Credit Suisse First Boston (CSFB) Europe and head of theUK Investment Banking Department.He wastwice seconded to the role of director general of the Takeover Panel. Philip also served on the board of Northern Rock plc and as chairman of the Shareholder Executive.Until July 2018, he also served on the board ofUK Financial Investments Limited.

Philip joined the Board in January 2013 as aNon-executive Director, as SeniorIndependent Director and as a member of each of the Audit Committee, the Remuneration Committee and theNomination &Governance Committee. He also chaired the M&GGroup Limited board from April 2016 until October 2018.

Other appointments

• Severn Trent plc
• City of London Investment Trust (chairman)
• Takeover Panel (deputy chairman)

Sir Howard Davies Appointment: October 2010 Age: 68

Audit N&G Risk

Relevant skills and experience

SirHoward has a wealth of experience in the financialservicesindustry, acrossthe Civil Service, consultancy, asset management, regulatory and academia.He also contributes his detailed knowledge of theGroup's key international marketsincluding theUK, Europe, North America and Asia as well asinternational regulatory experience.

SirHoward was previously chairman of the PhoenixGroup and an independent director of Morgan Stanley Inc.

SirHoward joined the Board in October 2010 as aNon-executive Director and Chair of the Risk Committee.He joined the Audit Committee inNovember 2010 and theNomination & Governance Committee in July 2012.

Other appointments

• Royal Bank of Scotland (chairman) — China Banking Regulatory Commission international advisory board
• China Securities Regulatory Commission international advisory board (chairman)
• Institut d'Études Politiques(Sciences Po)
• Millennium LLC regulatory advisory board

David Law ACA Appointment: September 2015 Age: 58

Audit N&G Risk

Relevant skills and experience

David has experience acrosstheGroup's key international marketsincluding theUK, Europe, North America and Asia, and across a number of industry sectors.He contributes extensive technical knowledge of audit, accounting and financial reporting essential to hisrole as Chair of the Audit Committee.

David wasthe global leader of

PricewaterhouseCoopers(PwC) insurance practice, a partner in PwC'sUK firm, and worked asthe lead audit partner for multinational insurance companies until his retirement in 2015. David has also been responsible for PwC'sinsurance and investment management assurance practice in London and the firm's Scottish assurance division.

David joined the Board in September 2015 as aNon-executive Director and member of the Audit Committee. David was appointed Chair of the Audit Committee and a member of the Risk Committee and of theNomination & Governance Committee in May 2017.

Other appointments (until July 2019)

— L&FHoldings Limited (CEO) and its subsidiaries(the professional indemnity captive insurance group thatservesthe PwC network and its member firms)

Key to Committee membership

N&G Nomination &Governance Rem Remuneration

Kaikhushru Nargolwala FCA Appointment:January 2012 Age: 68

Relevant skills and experience

Kai has experience acrosssome of theGroup's key international markets, particularlyHong Kong and the wider Asian market. In addition to his experience with listed groups, he contributes knowledge of the financialservicessector.

Kaispent 19 years at Bank of America and was based inHong Kong in roles as group executive vice president and head of the Asia Wholesale BankingGroup during 1990 to 1995.He spent 10 years working for Standard Chartered PLC in Singapore as group executive director responsible for AsiaGovernance and Risk during 1998 to 2007. Kai was chief executive officer of the Asia Pacific Region of Credit Suisse AGduring 2008 to 2010 and now serves as director and chairman of their remuneration committee.

Kai hasserved on a number of other boards, including Singapore Telecommunications and Tate and Lyle plc.

Kai joined the Board in January 2012 as a Non-executive Director and member of the Remuneration and Risk Committees.

Other appointments

• Prudential Corporation Asia Limited (Prudential plc subsidiary) (chairman)
• Clifford Capital Pte. Ltd (chair)
• Credit SuisseGroup AG
• Duke-NUS Medical School (chairman)
• PSA International Pte Ltd

Anthony Nightingale CMG SBS JP Appointment:June 2013 Age: 71

N&G Rem

Relevant skills and experience

Anthony haslong executive experience of listed companies and, in particular, extensive knowledge of Asian markets.

Anthony spent his career in Asia, where he joined the Jardine MathesonGroup in 1969, holding a number ofsenior positions before joining the board of Jardine MathesonHoldings in 1994.He was managing director of the Jardine MathesonGroup from 2006 to 2012. His position on theHong Kong-APEC trade policy study group ended in 2018 and he resigned as a member of theUK-ASEAN Business Council in 2019.

Anthony joined the Board in June 2013 as a Non-executive Director and member of the Remuneration Committee.He became Chair of the Remuneration Committee and a member of theNomination &Governance Committee in May 2015.

Other appointments

• Jardine MathesonHoldings(and other Jardine Matheson group companies)
• SchindlerHolding Limited
• Shui On Land Limited
• Vitasoy InternationalHoldings Limited
• The Innovation and Strategic Development Council inHong Kong
• The APEC VisionGroup

Alice Schroeder Appointment:June 2013 Age: 62

Audit Risk

Relevant skills and experience

Alice has experience acrossthe insurance, asset management, technology and financialservices industriesin theUS.

Alice began her career as a qualified accountant at Ernst & Young. She joined the Financial Accounting Standards Board as a manager in 1991, overseeing the issuance ofseveral significant insurance accounting standards.

From 1993,she led teams of analystsspecialising in property-casualty insurance as a managing director at CIBS Oppenheimer, PaineWebber (now UBS) and Morgan Stanley. Alice was also an independent board member of the Cetera FinancialGroup and held the office of CEO and chair of Showfer Media LLC (formerly WebTuner). She was also a director of Bank of America Merrill Lynch International until December 2018.

Alice joined the Board in June 2013 as a Non-executive Director and member of the Audit Committee. She became a member of the Risk Committee in March 2018.

Other appointments

• Quorum Health Corporation
• Natus Medical Incorporated

01 Group overview

02 Strategic report

03 Governance

04

Directors'remuneration

report

05

Financialstatements

06

Key to Committee membership

Non-executive Directors continued

Lord Turner FRS Appointment: September 2015 Age: 63

Audit Risk

Relevant skills and experience

Lord Turner has extensive knowledge and experience of theUK regulatory regime.

LordTurnerbegan his careerwithMcKinsey&Co, advising companies across a range of industries.

He served as director-general of the Confederation of British Industry, vice-chairman of Merrill Lynch Europe, chairman of the Pensions Commission and as a non-executive director of Standard Chartered Bank.

Lord Turner was chairman of theUK's Financial Services Authority, a member of the international Financial Stability Board and a non-executive director of the Bank of England.

Lord Turner joined the Board in September 2015 as aNon-executive Director and member of the Risk Committee.He became a member of the Audit Committee in May 2017.

Other appointments

• Chubb Europe (chairman)
• Energy Transition Commission (chairman)
• Envision Limited (advisory board)
• House of Lords crossbench member (from 2005)
• Senior Fellow of the Institute forNew Economic Thinking
• London School of Economics and Cass Business School (visiting professor)
• OakNorth Bank (advisor)

Thomas Watjen Appointment:July 2017 Age: 64

Rem Risk

Relevant skills and experience

Tom has experience acrossthe insurance, asset management and financialservicesindustries as well as experience with listed companiesin the UK and theUS.

Tom started his career at Aetna Life and Casualty before joining Conning & Company, an investment and asset management provider, where he became a partner in the consulting and private capital areas.He joined Morgan Stanley in 1987, and became a managing director in itsinsurance practice.

In 1994 he was appointed executive vice president and chief financial officer of Provident CompaniesInc.

He was a key member of the team associated with Provident's merger withUnum in 1999 and was appointed president and chief executive officer of the renamedUnum Group in 2003, a role he held until May 2017.

Tom joined the Board in July 2017 as a Non-executive Director and member of the Remuneration Committee.He became a member of the Risk Committee in November 2018.

Other appointments

— SunTrust Banks, Inc

Fields Wicker-Miurin OBE Appointment: September 2018 Age: 60

Rem

Relevant skills and experience

Fields has extensive international boardroom experience, combining knowledge of the Group's key geographic markets with experience acrossthe global financialservices industry.

Fieldsstarted her career at PhiladelphiaNational Bank in 1982 before joining Strategic Planning Associates(now Oliver Wyman) as a senior partner in 1989. She became chief financial officer and director ofstrategy at the London Stock Exchange in 1994, leader of the global markets practice of AT Kearney in 1998 and managing director of Vesta Capital Advisors in 2000. She was appointed toNasdaq's Technology Advisory Council in 2000 and was a member of the panel of experts advising the European Parliament on financial markets harmonisation for four yearsfrom 2002. She became a non-executive director and chair of the audit committee of Savills plc in 2002 and a non-executive director and chair of the investment committee of the Royal London Group in 2003.

Fieldsjoined the Board in September 2018 as aNon-executive Director and member of the Remuneration Committee.

Other appointments

• BNP Paribas
• SCOR SE
• Department for Digital, Culture,
• Media & Sport — Leaders' Quest (Partner)

01 Group overview

04

06

How we operate

This section tells you more about the Group's governance, operation of the Board and Board roles.

Group governance

Corporate governance codes – statement of compliance

The Company has dual primary listingsin London (premium listing) andHong Kong and hastherefore adopted a governance structure based on theUK andHong Kong CorporateGovernance Codes(theUK and HK Codes).

The Board confirmsthat, for the year under review, the Company has complied with all the principles and provisions of the 2016 UK Code, which was applicable for the reporting period. The Company has been applying the 2018UK Code from 1 January 2019.

The Company has also complied with the provision of theHK Code other than as follows: Provision B.1.2(d) of theHK Code requires companies, on a comply or explain basis, to have a remuneration committee which makesrecommendationsto a main board on the remuneration of nonexecutive directors. This provision is not compatible with supporting provision D.2.3 of theUK Code which recommendsthat the board determinesthe remuneration of non-executive directors. Prudential has chosen to adopt a practice in line with the recommendations of theUK Code.

TheUK Code is available from: www.frc.org.uk

TheHK Code is available from: www.hkex.com.hk

Our governance framework

TheGroup has established a governance framework for the business which is designed to promote appropriate behaviours acrosstheGroup.

The governance framework includesthe key mechanismsthrough which theGroup setsstrategy, plansits objectives, monitors performance, considersrisk management, holds business unitsto account for delivering on business plans and arranges governance.

TheGroupGovernance Manual (the Manual)sets out the policies and procedures under which theGroup operates, taking into accountstatutory, regulatory and other relevant matters.

Business units manage and report compliance with theGroup-wide mandatory requirements and standards set out in the Manual through annual attestations. Thisincludes compliance with our risk management framework, details of which are set out on pages 107 and 108 of thisreport.

The content of the Manual isreviewed regularly, reflecting the developing nature of both theGroup and the marketsin which it operates, with significant changes on key policiesreported to the relevant Board Committee.

Material Subsidiary governance

Prudential has appointed independent non-executive directorsto the boards of its four Material Subsidiary entities within the Group: JacksonNational Life Insurance Company, M&GGroup Limited, Prudential Corporation Asia Limited and The Prudential Assurance Company Limited. Each Material Subsidiary has a board of directorsled by an independent chair and an audit committee and risk committee, composed entirely of independent non-executives.

Dialogue between theGroup Chair,Group Risk Committee Chair andGroup Audit Committee Chair and their counterparts in the Material Subsidiaries provides an effective information flow. Over the course of 2018 and early 2019, the Board of M&GPrudential has been developed by itsindependent Chairman, Mr Mike Evans. Mr Evans and theGroup Chair have maintained dialogue throughout.

An evaluation of the board, audit and risk committees of each Material Subsidiary was carried out in respect of 2018 which concluded that each of those boards and committees operated effectively during the year. An assessment of whether each business unit audit and risk committee hasfulfilled their mandatesis conducted annually and the resultsreported to the Group Audit Committee andGroup Risk Committee.

TheNomination &Governance Committee isresponsible for oversight of governance arrangementsfor the Material Subsidiaries. This and other activities of theNomination &Governance Committee during 2018 are described on pages 109 to 114.

As part of theGroup'sfocus on corporate responsibility, the boards of each of our Material Subsidiaries considers updates on corporate responsibility activities and spend in their communities on an annual basis. This has created a layer of independentscrutiny to help ensure those boards are close to the community and charitable activities of their businesses.

Regulatory environment

Until the demergeris completed, the Prudential RegulationAuthority (PRA) will continue to be theGroup-wide supervisor of Prudential. The PRA will be theGroupwide supervisor of M&GPrudential following the demerger.Afterthe demerger, Prudential'sindividual insurance and asset management businesses will continue to be supervised at a local entity level and local statutory capitalrequirements will continue to apply. The SupervisoryCollege,made up of the authorities overseeing the principal regulated activitiesin jurisdictions where the future PrudentialGroup will operate, hasmade a collective decision thatHong Kong'sInsuranceAuthority (IA)should become the new Group-wide supervisor for Prudential plc.

Interactions with our regulatorsshape our governance framework and the Chairman andGroup Chief Executive play a leading role in representing theGroup to regulators and ensuring our dialogue with them is constructive.

Stakeholder engagement

The Board hasidentified theGroup's key stakeholders asincluding customers, investors, employees, regulators, civil society, the media and suppliers.

During the year, the Board considered workforce engagement activitiesin light of the provisions of the revisedUK Code published in July 2018. In 2019 theGroup will be putting in place proceduresto help ensure that workforce practices and policies are consistent with theGroup's values and support itslong-term sustainable success and that the workforce voice is understood at Board level.

As a major institutional investor, the Board recognisesthe importance of maintaining an appropriate level of two-way communication with shareholders.

The AnnualGeneral Meeting is an opportunity for furthershareholder engagement, for the Chairman to explain the Company's progress and, along with other members of the Board, to answer any questions. All Directors then in office attended the 2018 Annual General Meeting.

Details of the 2019 Annual General Meeting are available at www.prudential.co.uk/investors

A full programme of engagement with shareholders, potential investors and analysts, in theUK and overseas, is conducted each year by theGroup Chief Executive and the Chief Financial Officer, led by the Investor Relationsteam. A conference for investors and analystsis held on a regular basis, including in-depth business presentations and opportunities for attendeesto meet with members of the Board and senior executives and an opportunity for the executive team to communicate progress and strategy outside of the financial reporting cycle. The most recent event was held inNovember 2018 and feedback was provided to the Board inNovember and December 2018.

TheGroup Chief Executive, Chief Financial Officer and Investor Relationsteam also attend major financialservices conferences to present to, and meet with, the Company'sshareholders.

In 2018, as part of the investor relations programme, over 370 meetings were held with more than 300 individual institutional investorsin London, continental Europe, theUSA and Asia.

The Company holds an ongoing programme of regular contact with major shareholders, conducted by the Chairman, to discusstheir views on the Company's governance. The Senior Independent Director offers meetingsto major shareholders as needed and this year carried out a consultation specifically on the Chairman'stenure. Engagement with institutional investors on the Directors' Remuneration Policy and implementation isled by the Remuneration Committee Chair on an annual basis. OtherNonexecutive Directors are available to meet with majorshareholders on request.

Shareholder feedback and key issuesfrom these meetingsis communicated to the Board. Details of when feedback was discussed by the Board in 2018 can be found in the table on page 97.

The AnnualGeneral Meeting is an opportunity for furthershareholder engagement, for the Chairman to explain the Company's progress and, along with other members of the Board, to answer any questions. All Directorsthen in office attended the 2018 AnnualGeneral Meeting.

Details of the 2019 AnnualGeneral Meeting are available at www.prudential.co.uk/investors

More details ofstakeholder engagement with our communities and societies can be found in our Corporate responsibility review on pages 70 to 86 and on our website at www.prudential.co.uk/ responsibility/approach.

Operation of the Board

How the Board leads the Group TheGroup is headed by a Board led by the Chairman.

The Board is currently made up of 16 Directors, of which a majority, excluding theChairman, are independentNonexecutive Directors. Biographical details of each of the Directors can be found on pages 89 to 94 and further details of the roles of theChairman,GroupChief Executive, SeniorIndependent Director, CommitteeChairs and theNon-executive Directors can be found on pages 101 and 102.

The Board is collectively responsible to shareholdersfor the long-term sustainable success of the businessthrough:

• Approving theGroup'slong-term strategic objectives, annual budgets and business plans, asrecommended by theGroup Chief Executive and any material changesto them;
• Monitoring the implementation of strategic objectives, annual budgets and business plans;
• Establishing the Company's purpose, values and strategy and satisfying itself that these are aligned with theGroup's culture; and
• Assessing and monitoring culture, including alignment with policy, practices, behaviours and risk appetite.

Specific matters are reserved for decision by the Board, including:

• Approving dividend policy and determination of dividends;
• Approval ofstrategic projects;
• Approval of the three-year business and financial plan;
• Approval of theGroup'sfull and half-yearly results announcements and any other periodic financial reporting;
• Responsibility for an effective system of internal control and risk management;
• Overseeing theGroup's corporate social responsibility programmes; and
• Ensuring effective engagement with, and encouraging participation from, key stakeholder groups.

Key areas of focus – how the Board spent its time

The Board held 10 meetings during 2018. In addition to those meetingsset out in the table below, the Board held a separate two-day strategy event in June and two Board workshopsfocused on the demerger.

In addition to meetings, the Board receives a monthly update report from management.

	Mar1	Apr	May	Jun	Jul	Aug	Sep	Oct	Dec
Strategy and implementation
Approval and review ofstrategic priorities	l
Strategic priorities monitoring			l		l		l		l
Approval of three-year operating plan									l
Strategic projects2	l	l	l	l	l	l	l	l	l
Group Chief Executive'sreport	l	l	l	l	l		l	l	l
Report from Committee Chairs
Audit	l		l		l	l		l	l
Nomination &Governance	l			l				l
Remuneration	l	l		l			l		l
Risk	l		l		l			l	l
Financial reporting and dividends
Chief Financial Officer's performance report	l	l	l	l	l		l	l	l
Full year	l
Half year					l	l
Group Solvency II reporting			l
Business unit Chief Executive updates
Prudential Corporation Asia	l	l	l	l	l		l	l	l
Jackson	l	l	l	l	l		l	l	l
M&GPrudential	l	l	l	l	l		l	l	l
Risk, regulatory and compliance
Regulatory and compliance updates	l		l		l		l	l	l
Chief Risk Officer'sreport	l		l	l	l		l	l	l
Government relations	l		l		l		l	l	l
Relations with regulators	l		l	l	l		l	l	l
Governance and stakeholders
Governance updates	l	l	l	l	l		l	l	l
Board evaluation and actionstracking	l						l
Succession planning	l	l	l	l	l		l		l
Corporate responsibility reporting and ESG		l						l	l
Diversity and inclusion					l				l
Talent review									l
Non-executive Directors' fees				l
Investor updatesincluding feedback on investor meetings	l	l	l	l	l		l	l	l

Notes

1 The Board held two meetingsin March 2018.

2 Strategic projects considered during the year included the demerger of M&GPrudential, announced in March, the acquisition of TMB Asset Management Co., Ltd. in Thailand, announced in July, and the renewal of the bancassurance alliance withUnited Overseas Bank Limited, announced in January 2019, as well as other confidential matters.

02

04

06

05

Board and Committee meeting attendance throughout 2018

Individual Directors' attendance at meetingsthroughout the year isset out in the table below.

		Board 10 meetings	Audit Committee 9 meetings	Nomination & Governance Committee 3 meetings	Remuneration Committee 5 meetings	Risk Committee 5 meetings	Joint Audit and Risk Committee 1 meeting	General Meeting 1meeting
	Chairman Paul Manduca	llllllllll		llll				l
Executive	Mike Wells	llllllllll						l
Directors	Mark FitzPatrick	llllllllll						l
	James Turner	llllllllll						l
	John Foley	llllllllll						l
	NicNicandrou	llllllllll						l
	Anne Richards1	llllllllll						l
	Barry Stowe2	llllllllll						l
Non	Philip Remnant	llllllllll lllllllll		llll	lllll		l	l
	Howard Davies	llllllllll lllllllll		lll		lllll	l	l
executive Directors	David Law	llllllllll lllllllll		lll		lllll	l	l
	KaiNargolwala	llllllllll			lllll	lllll	l	l
	AnthonyNightingale	llllllllll		lll	lllll			l
	Alice Schroeder3	llllllllll lllllllll				llll	l	l
	Lord Turner	llllllllll lllllllll				lllll	l	l
	Tom Watjen4	llllllllll			lllll	l		l
	Fields Wicker-Miurin5	lllll			ll

Notes

1 Ms Richardsstepped down from the Board with effect from 10 August 2018.

2 Mr Stowe stepped down from the Board with effect from 31 December 2018.

3 Ms Schroeder was appointed a member of the Risk Committee with effect from 1 March 2018.

4 Mr Watjen was appointed a member of the Risk Committee with effect from 1November 2018. 5 Mrs Wicker-Miurin was appointed a member of the Board with effect from 3 September 2018.

Board and Committee papers are usually provided one week in advance of a meeting. Where a Director is unable to attend a meeting, his or her views are canvassed in advance by the Chairman of that meeting where possible.

<-- PDF CHUNK SEPARATOR -->

Board effectiveness

Actions during 2018 arising from the 2017 review

At the end of 2017, an externally facilitated review of the Board's effectiveness was carried out by Boardroom Review Limited. During 2018, the action pointsthat had been identified in that review were addressed and the Board received an update on progress against those actionsin September 2018 and February 2019.

Set out below are the themes,summary of actions and progress updates:

Theme	Summary of actions	Progress
Creating the right environment for critical decision making	Spend additional time on site visits Continue to holdNon-executive Director only sessions on an asrequired basis	— The agenda of the April 2018 Board meeting held in Singapore was extended to ensure that a range of internal and external stakeholder views on theGroup's Asia business was given. — During the Board visit to Washington, DC in September 2018, the JacksonHoldingsteam provided the Board with updates on theUS business and with a specific perspective on theUS government, itsregulatory regime and impact on the Jackson Holdings businesses. — The Chairman's current practice of holding regular private Non-executive Director meetings has continued andNon executive Directors may request additional meetingsif needed. — The practice of private, members-only meetingsis also established separately for the Risk and Audit Committees and has continued in 2018, with ad hoc private meetings being held asrequired.
Highlighting culture on the agenda	Provide further reportsto the Board on culture in 2018 and mature theGroup's strategic objective to develop a framework for a measurable, definable culture	— A report on culture was presented to the Board in October 2018 detailing actionstaken and proposed actions up to demerger and beyond. — The Risk Committee continuesto monitor risk culture across the organisation. — The Board has approved amendmentsto itsterms of reference which formalise the Board'srole in establishing theGroup's purpose, values and strategy and ensuring the alignment of these withGroup culture.
Increasing the Board's resilience	Continue to focus on gender and other diversity in all new Board appointments Introduce a skills map to monitor experience and expertise more formally	— The appointment of Mrs Wicker-Miurin as aNon-executive Director and member of the Remuneration Committee with effect from 3 September 2018, helped to strengthen the Board'srange ofskills, technical expertise and knowledge. — The search for additionalNon-executive Directorsis ongoing given the Board's desire to continue enhancing its diversity, including gender and geography. — TheNomination &Governance Committee continuesto utilise a skills map forNon-executive Directorsuccession planning to ensure that gapsin Board experience or knowledge are identified and addressed.

06

Board site visits

Singapore

In Singapore, the Board received deep dive presentations on:

• Eastspring Investments, Prudential Corporation Asia's asset management business;
• The health ecosystem and partnershipsthat Prudential Corporation Asia is developing, including with healthcare technology and services company, BabylonHealth;
• Digitisation and customer acquisition;
• Expanding theGroup's presence in China; and
• Financial and performance updates on the Singapore business and Asia more widely.

Washington, DC, USA

In Washington, the Board focused on Jackson'sinitiatives around:

• Customer understanding of variable annuity products;
• Distribution;
• Regulatory modernisation and government interactions; and
• Technology and people.

2018 review and actions for 2019

The performance evaluation of the Board and its principal Committeesfor 2018 was conducted internally at the end of 2018 through a questionnaire. The findings were presented to the Board in February 2019 and an action plan agreed to address areas of focusidentified by the evaluation.

The review confirmed that the Board continued to operate effectively during the year and no major areasrequiring improvement were highlighted.

Theme	Summarised actions
Board composition	Continuing work on Board succession with a focus on gender and geographic diversity.
and process	Reduction in Board and Committee paper volume.
Risk, capital	Cyber risk focusfor Board agenda for 2019.
and audit	Board training on theHK Insurance Authority regulatory regime.
Stakeholders	Review ofstakeholder groups.
	Review of workforce voice and itsrepresentation at Board level.
People	Develop diversity and inclusion reporting to the Board.
	Ensure overseas and 'home' Boards give scope forNon-executives to meet colleagues below Group Executive Committee level.

Director evaluation

The performance of theNon-executive Directors and theGroup Chief Executive during 2018 was evaluated by the Chairman in individual meetings.

Philip Remnant, the Senior Independent Director, led theNon-executive Directors in a performance evaluation of the Chairman.

Executive Directors are subject to regular review and theGroup Chief Executive individually appraised the performance of each of the Executive Directors as part of the annualGroup-wide performance evaluation of all employees.

The outcome of each of these evaluation processesisreported to theNomination &GovernanceCommittee in February each year in order to inform the Committee's recommendation for Board membersto be putforward forre-election by shareholders.

Executive Director performance is also reviewed by the Remuneration Committee as part of its deliberations on bonus payments.

06

Directors

Board roles and governance

The terms of reference of the Chairman,Group Chief Executive and Senior Independent Director were updated in December 2018 to reflect the 2018UK Code and the Board also considered the Board EffectivenessGuidance issued by the Financial Reporting Council (FRC) asto how these roles ought to be implemented.

Chairman – Paul Manduca

The Chairman is responsible for the leadership and governance of the Board, ensuring its smooth and effective running in discharging its responsibilities to the Group's stakeholders and managing Board business.

Managing Board business

• Responsible forsetting the Board agenda, ensuring the right issues are brought to the Board's attention through collaboration with theGroup Chief Executive and theGroup General Counsel and Company Secretary
• Facilitating open, honest and constructive debate among Directors. When chairing meetings, ensuring there is sufficient time to consider all topics, all views are heard and all Board members, and in particularNon-executive Directors, have an opportunity to constructively challenge management
• Meeting withNon-executive Directorsthroughout the year. In 2018, the Chairman met withNon-executive Directors without Executive Directors being present on four occasions
• Ensuring information brought to the Board is accurate, clear, timely and containssufficient analysis appropriate to the scale and nature of the decisionsto be made
• Promoting effective reporting of Board Committee business at Board meetingsthrough regular Committee Chair updates

Membership and composition of the Board

• Leading theNomination &Governance Committee in succession planning and the identification of potential candidates, having regard to the skills and experience the Board needsto fulfil itsstrategy, and making recommendationsto the Board
• Considering the development needs of the Directorsso that Directors continually update theirskills and knowledge required to fulfil their duties, including the provision of a comprehensive induction for new Directors
• Maintaining an effective dialogue with theNon-executive Directorsto encourage engagement and maximise their contributions

Governance

• Leading the Board's determination of appropriate corporate governance and business values, including ethos, values and culture at Board level and throughout theGroup
• Working with theGroupGeneral Counsel and Company Secretary to ensure continued good governance
• Acting as key contact for independent chairs of Material Subsidiaries
• Meeting with the independent chairs of theGroup's Material Subsidiaries on a regular basis and reporting to the Board on the outcome of those meetings

Relationship with the Group Chief Executive

• Discussing broad strategic plans with theGroup Chief Executive prior to submission to the Board
• Ensuring the Board is aware of the necessary resourcesto achieve the strategic plan
• Providing support and advice to theGroup Chief Executive

Relations with shareholders and other stakeholders

• Representing the Board externally at business, political and community level. Presenting theGroup's views and positions as determined by the Board
• Playing a majorrole in theGroup's engagement with regulators
• Balancing the interests of different categories ofstakeholders, preserving an independent view and ensuring effective communication
• Engaging in a programme of meetings with key shareholders throughout the year and reporting to the Board on the issues raised at those meetings

External positions

— Approving Directors' external appointments prior to them being accepted, taking into account the required time commitment and escalating consideration of conflicts of intereststo theNomination &Governance Committee as needed

Group Chief Executive – Mike Wells

TheGroup Chief Executive leadsthe Executive Directors and senior executives and isresponsible for the operational management of theGroup on behalf of the Board on a day-to-day basis:

• Responsible for the implementation of Board decisions
• Establishes processesto ensure operations are compliant with regulatory requirements
• Sets policies, provides day-to-day leadership and makes decisions on matters affecting the operation, performance and strategy of theGroup,seeking Board approval for mattersreserved to the Board
• Supported by theGroup Executive Committee which he chairs and which receivesreports on performance and implementation ofstrategy for each business unit and discusses major projects and other activitiesrelated to the attainment ofstrategy
• Chairsthe Chief Executive's Committee meetings which are held weekly to review mattersrequiring approval under the Group'sframework of delegated authorities
• Keepsin regular contact with the Chairman and briefs him on key issues
• Meets with key regulators worldwide
• Leads on day-to-day effective stakeholder engagement

Senior Independent Director – Philip Remnant

The Senior Independent Director acts as an alternative conduit to the Board forshareholder concerns and leadsthe evaluation of the Chairman:

• Acts as a sounding board for the Chairman, providing support in the delivery of the Chairman's objectives
• LeadstheNon-executive Directorsin conducting the Chairman's annual evaluation
• Holds meetings withNon-executive Directors without management being present, typically at least once a year to evaluate the performance of the Chairman
• Offers meetingsto majorshareholdersto provide them with an additional communication point on request and is generally available to any shareholder to address concerns not resolved through normal channels

Committee Chairs

Each of the Committee Chairsisresponsible for the effective operation of their respective Committees:

• Responsible for the leadership and governance of their Committee
• Setsthe agenda for Committee meetings
• Reportsto the Board on the activities of each Committee meeting and the business considered, including, where appropriate,seeking Board approval for actionsin accordance with the Committees' terms of reference
• Works with theGroupGeneral Counsel and Company Secretary to ensure the continued good governance of each Committee during the year

In addition toCommittee duties, theChairs of theAudit and Risk Committees act as key contact pointsforthe independent chairs of the audit and risk committees of the Material Subsidiaries

Non-executive Directors

All of theNon-executive Directors are deemed to be independent and together have a wide range of experience which can be applied to attain the strategic aims of the Group through:

• Constructive and effective challenge
• Providing strategic guidance and offering specialist advice
• Scrutinising and holding to account the performance of management in meeting agreed goals and objectives
• Serving on at least one of the Board's principal Committees
• Engaging with Executive Directors and othersenior management at Board and Committee meetings as well as atsite visits, training sessions and on an informal basis
• Taking part in one-to-one meetings with theGroup Strategy team and participation in the annual Strategy Away Day

The Board has established four principal Committees whose functions are summarised below.

Nomination &Governance Committee	Remuneration Committee	Audit Committee	Risk Committee
Chair Paul Manduca — Keepsleadership needs under review in support of theGroup'sstrategic objectives — Developssuccession planning for the Board and senior executives based on merit against objective criteria promoting diversity in all areas — Oversees development of a diverse pipeline in succession planning — MonitorstheGroup's diversity initiatives — Recommends appointmentsto the Board, its principal Committees and appointments of non-executive chairs to the boards of Material Subsidiaries — Overseesthe governance of Material Subsidiaries and theGroup's overall governance framework	Chair Anthony Nightingale — Ensuresthere is a formal and transparent process for establishing the Directors' Remuneration Policy — Approvesindividual remuneration packages of the Chairman, Executive Directors, senior executives and Material Subsidiary non-executive directors — Approvesthe overall Remuneration Policy for theGroup — Reviewsthe design and development ofshare plans and approves and assesses performance targets where applicable and ensures alignment with theGroup's culture — Reviews workforce remuneration practices and policies when setting executive remuneration	Chair David Law — Responsible for the integrity of theGroup's financial reporting, including scrutinising accounting policies — Monitorsthe effectiveness of internal control and risk managementsystems, including compliance arrangements — Monitorsthe effectiveness and objectivity of internal and external auditors — Approvesthe internal audit plan and recommendsthe appointment of the external auditor	Chair Howard Davies — Leads on and oversees theGroup's overall risk appetite, risk tolerance and strategy — ApprovestheGroup's risk management framework and monitors its effectiveness — Supportsthe Board and management in embedding and maintaining a supportive culture in relation to the management of risk — Provides advice to the Remuneration Committee on risk management considerationsto inform remuneration decisions
SeeNomination&Governance Committee report on pages 109 to 114	See Remuneration Committee report on pages 132 to 165	See Audit Committee report on pages 115 to 123	See Risk Committee report on pages 124 to 127
Terms of reference for the principal Committees can be accessed at www.prudential.co.uk/investors/ governance-and-policies/board committees-terms-of-reference The Board has established a Standing Committee which can meet asrequired to assist with any business of the Board. It is typically used for ad hoc or urgent matters which cannot be delayed until the next scheduled Board meeting. All Directors are	Notice of a Standing Committee meeting issent to all Directors and if an individual is unable to attend, he/she can give commentsto the Chairman orGroup Company Secretary ahead of the meeting for consideration by the Standing Committee. Before taking decisions on any matter, the Standing Committee must first determine that the businessit is considering is appropriate for a Committee of the Board and does not properly need to be brought before the		Over 2018, the Company held five meetings of the Standing Committee. This governance structure allowsfor fast decision-making where necessary, while ensuring that the full Board has oversight of all matters under consideration and all Non-executives can contribute.

whole Board. All Standing Committee meetings are reported in full to the next

scheduled Board meeting.

01

02

06

receive papers.

members of the Standing Committee and have the right to attend all meetings and

Building Directors' knowledge Induction – new Directors

The two new Directors appointed during 2018, Mr Turner and Mrs Wicker-Miurin, each received a comprehensive induction, tailored to reflect their experience and position as Executive andNon-executive Directorsrespectively.

Prior to his appointment asGroup Chief Risk Officer, Mr Turner was a long-serving member of the Prudentialsenior executive team, having most recently served as Director ofGroup Finance. As a result of his prior roles, Mr Turner was a regular attendee of meetings of the Risk and Audit Committees and has a strong

understanding of the business and its control environment. Therefore his induction wasspecifically tailored to cover the strategic and operational priorities of theGroup Risk function and hisrole as a member of the Board, including his regulatory obligations.

A summary of the general and specific induction programme for Mrs Wicker-Miurin isset out below:

General induction programme relevant to new Non-executive Directors	Role-specific induction programme
Understanding our governance	Understanding our business	for Fields Wicker-Miurin
— Meetings with the Chairman andGroup Chief Executive separately	— Tailored briefings with each business unit to gain a comprehensive understanding of each	— Orientation to the work and role of the Remuneration
— Explanation of theGroup'sstrategy and	of their business models, productsuites,	Committee
business plan	pricing arrangements and governance	— Updates on currentUK
— Explanation of Prudential's corporate	structures	remuneration topics
structure, Board and Executive Committee	— Tailored meetings with allGroup functions	— Meeting with the Chair
structure	— Comprehensive briefings on the regulatory	of the Remuneration
— Briefings onGroup governance framework	environment in which theGroup operates	Committee to discuss
and key policies	— Briefings on top risks and internal controls	the annual cycle of
		Committee work, its current

• Training as needed on the rules and governance requirements of the London and Hong Kong Stock Exchanges and on fulfilling the statutory duties of a Director
• Induction briefings and training as a whole give Directors an understanding of the interests of theGroup's key stakeholders
• focus and focusfor 2019 and beyond

Mr Falcon has commenced a comprehensive induction programme following his appointment to the Board with effect from 7 January 2019.

Continuing development of knowledge and skills

During 2018, the Board and its Committees received a number of technical and business updates as part of theirscheduled meetings, providing information on external developmentsrelevant to theGroup and on particular products or operations. Below is an overview of how Directors are kept up to date:

• The Board holds an annualstrategy session, which allowsfor detailed updates on each of the business units and deep dives on strategic direction and objectivesfor theGroup;
• The Board receives updates on brand, diversity and inclusion, health and safety matters and corporate responsibility activities, usually once a year;
• The Board receives updates on corporate governance, political and regulatory developments, and the dynamics of equity and currency markets at every scheduled meeting;
• Over 2018, the Board received two specific updates on the impact of the FRC'srevised corporate governance code highlighting key themes and actions for theGroup;
• In October 2018, theGroup ran a focused cybersecurity update for members of the Risk and Audit Committees, which was particularly aimed at developing the knowledge of theNon-executive Directors;
• In October 2018, the Board also received an update about developments surrounding Environmental, Social and Governance (ESG)reporting, including climate related risk;
• The Board reviews each business unit in depth at least once a year and conducts periodic site visits as part of this. In 2018, the Board met in Singapore and Washington, DC,USA. Details of the activities undertaken on these visits are set out in the box on page 100;
• The Board and the Risk Committee receive regular updates on market developments and key risks, including Solvency II and cyber risk. The Risk Committee reviewstop risks on an annual basis and deep divesinto specific topicsin response to the identification of key risks. Thisreview coversthe financial, operational and strategic risks, whilst also identifying and addressing business environment and insurance risks within theGroup. The identification ofsuch risksinform the risk reporting provided to the Committee and the Board;
• The Risk Committee received updates and training on mattersincludingGeneral Data Protection Regulation, reputational risks and LIBOR discontinuation over the year;
• The Audit Committee received updates on developments affecting financial reporting and the work of audit committees generally. In 2018, this included financial reporting developments, anti-money laundering, anti-bribery and corruption, fraud prevention, whistleblowing and cyber risk training; and
• The Remuneration Committee receives updates on regulatory and governance developments affecting theGroup's remuneration arrangements. In 2018, these included trends with the insurance industry and peers, trendsfrom the 2018 AnnualGeneral Meeting season, CorporateGovernance reform including remuneration and gender pay gap reporting.

All Directors have the opportunity to discuss their individual development needs as part of the annual Board effectivenessreview and Directors are asked to provide a record of training received externally on an annual basis. All Directors have the right to obtain professional advice at Prudential's expense.

04

06

Further information on Directors

Information on a number of regulations and processes relevant to Directors, and how these are addressed by Prudential, is given below.

Area	Prudential's approach
Rules governing appointment and removal	— The appointment and removal of Directorsis governed by the provisionsin the Articles of Association (the Articles), theUK Code, theHK Code (as appended to theHong Kong Listing Rules(theHK Listing Rules)) and the Companies Act 2006.
'Senior management' definition	— The Executive Directors are the senior management population for the purposes of theHong Kong Listing Rules.
Terms of appointment	— Non-executive Director tenure isshown on page 160.
	— Non-executive Directors are appointed for an initial term of three years, commencing with their election by shareholders. From 2019, Directors' tenure commencesfrom the date of their initial appointment to the Board.
	— Subject to review by theNomination &Governance Committee and re-election by shareholders, it would be expected thatNon-executive Directorsserve a second term of three years. Aftersix years,Non-executive Directors may be appointed for a further year, up to a maximum of three yearsin total. Reappointment issubject to rigorousreview as well asre-election by shareholders.
	— The Directors' remuneration reportsets out the terms of theNon-executive Directors' letters of appointment on page 141 and the terms of Executive Directors'service contracts on page 160.
Time	— At present, the time commitment expected of aNon-executive Director is approximately 32.5 days per annum.
commitment	— AllNon-executive Directors currently serve on at least one of the Board's principal Committees, which requires an additional commitment of time dependent on the Committee and role.
	— On appointment, allNon-executive Directors confirm they are able to devote sufficient time to theGroup's affairs to meet the demands of the role.
	— AllNon-executive Directors are required to discuss any additional commitments which might impact the time which he orshe is able to devote to their role with the Chairman prior to accepting.
Independence	— The independence of theNon-executive Directorsis determined by reference to theUK Code andHK Listing Rules asfollows:
	– For the purposes of theUK Code, throughout the year, allNon-executive Directors were considered by the Board to be independent in character and judgement and to have met the criteria for independence asset out in theUK Code; and
	– All theNon-executive Directors were considered independent for the purposes of theHK Listing Rules, and eachNon-executive Director provides an annual confirmation of his or her independence asrequired under theHK Listing Rules.
	— In accordance withUS regulatory requirements, Prudential affirms annually that all members of the Audit Committee are independent within the meaning of the Sarbanes-Oxley legislation.
	— Prudential is one of theUK'slargest institutional investors. The Board does not believe that this compromisesthe independence of thoseNon-executive Directors who are on the boards of companiesin which theGroup has a shareholding. The Board also believesthatsuch shareholdingsshould not preclude the Company from having the most appropriate and highest calibreNon-executive Directors.
	— The Board andNomination &Governance Committee in particular considered independence of the Chairman and Mr Davies before proposing them for re-election, given that both will have served on the Board for nine years at October 2019. A full explanation of independence considerationsisset out in theNomination &Governance Committee Report.
Audit Committee experience	— In relation to the provisions of theUK Code andHK Listing Rules, the Board issatisfied that Mr Law hasrecent and relevant financial experience and that the Committee as a whole has competence relevant to the sectorsin which the business operates. Full biographies of the Committee membersincluding experience and professional qualifications, are set out on pages 92 to 94.
	— The Board has determined that Mr Law qualifies asthe Audit Committee financial expert under the requirements of Form 20-F.

Area	Prudential's approach
Indemnities	— Subject to the provisions of the Companies Act 2006, the Company's Articles permit the Directors and officers of the Company to be indemnified in respect of liabilitiesincurred as a result of their office.
	— Suitable insurance cover isin place in respect of legal action against directors and senior managers of companies within theGroup.
	— Qualifying third-party indemnity provisions are also available for the benefit of the Directors of the Company and certain othersuch persons, including certain directors of other companies within theGroup.
	— Qualifying pension scheme indemnity provisions are also in place for the benefit of certain pension trustee directors within theGroup.
	— These indemnities were in force during 2018 and remain so.
Significant contracts	— At no time during the year did any Director hold a material interest in any contract ofsignificance with the Company or any subsidiary undertaking.

Risk management and internal control

The Board isresponsible for ensuring that an appropriate and effective system of internal control and risk management is in place acrosstheGroup. The framework of risk management and internal controls centres on clear delegated authoritiesto ensure Board oversight and control of important decisions. The framework is underpinned by theGroup Code of Business Conduct, which sets out the ethicalstandardsthe Board requires of itself, employees, agents and others working in theGroup. The framework is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

Internal control

TheGroupGovernance Manual (the Manual)sets out delegated authorities and establishesthe requirementsfor subsidiariesto seek approvalsfrom or report toGroupHead Office.Group-wide standards are established through policies and other governance arrangements. These policies are also included within the Manual. Internal controls and processes, based on the provisions established in the Manual, are in place acrosstheGroup. These include controls covering the preparation of financial reporting. The operation of these controls and processes facilitatesthe preparation of reliable financial reporting and the preparation of local and consolidated financialstatements in accordance with the applicable accounting standards, and requirements of the Sarbanes-Oxley Act. These controls include certifications by the chief executive and chief financial officer of each business unit with respect to the accuracy of information provided for use in preparation of theGroup's consolidated financial reporting, and the assurance work carried outin respect ofUS reporting requirements.

The Board has delegated authority to the Audit Committee to review the framework and effectiveness of theGroup'ssystems of internal control. The Audit Committee issupported in thisresponsibility by the assurance work carried out byGroup-wide Internal Audit and the work of the business unit audit committees, which oversee the effectiveness of controlsin each respective business unit. Details of how the Audit Committee overseesthe framework of controls and their effectiveness on an ongoing basis, isset out more fully in the report on pages 115 to 123.

Risk management

A key component of the Manual isthe Group Risk Framework, which requires all business unitsto establish processes for identifying, evaluating and managing the risksfacing the business.

The Board determinesthe nature and extent of the principal risksit is willing to take in achieving itsstrategic objectives. It has delegated authority to the Risk Committee to assist the Board in providing leadership, direction and oversight of the Group's overall risk appetite, risk tolerance and strategy, overseeing and advising on the current and potential future risk exposures of theGroup, reviewing and approving theGroup'srisk management framework, including changesto risk limits within the overall Board approved risk appetite, monitoring the effectiveness of the risk management framework and adherence to the variousrisk policies. Regular activities are detailed in the report on pages 124 to 127.

TheGroup'srisk governance arrangements, which support the Board, the Risk Committee and the Audit Committee, are based on the principles of the 'three lines of defence' model: risk taking and management, risk control and oversight, and independent assurance.

First line of defence (risk taking and management)

• Takes and managesrisk exposures in accordance with the risk appetite, mandate and limitsset by the Board;
• Identifies and reportsthe risksthat theGroup is exposed to, and those that are emerging;
• Promptly escalates any limit breaches or any violations of risk management policies, mandates or instructions;
• Identifies and promptly escalates significant emerging risk issues; and
• Managesthe businessto ensure full compliance with theGroup risk management framework asset out in the Manual, which includestheGroup Risk Framework and risk policies as well as approval requirements, among other requirements.

Second line of defence (risk control and oversight)

• Assiststhe Board to formulate and then implement the approved risk appetite and limit framework, risk management plans, risk policies, risk reporting and risk identification processes; and
• Reviews and assessesthe risk-taking activities of the first line of defence, where appropriate challenging the actions being taken to manage and control risks and approving any significant changesto the controls in place.

Third line of defence (independent assurance)

— Providesindependent assurance on the design, effectiveness and implementation of the overallsystem of internal control, including risk management and compliance.

Formal review of controls

A formal evaluation of the systems of internal control and risk management is carried out at least annually. Prior to the Board reaching a conclusion on the effectiveness of the systemsin place, the full report is considered by the Disclosure Committee and Audit Committee, with risk-specific disclosures within the report also reviewed by the Risk Committee. This evaluation takes place prior to the publication of the Annual Report.

As part of the evaluation, the chief executive and chief financial officer of each business unit, includingGroup Head Office, certify compliance with theGroup's governance policies and the risk management and internal control requirements. TheGroup Risk function facilitates a review of the mattersidentified by this certification process. Thisincludes the assessment of any risk and control issuesreported during the year, risk and control mattersidentified and reported by the otherGroup oversight functions and the findingsfrom the reviews undertaken byGroup-wide Internal Audit, which carries out risk-based audit plans across theGroup. Issues arising from any external regulatory engagement are also taken into account.

04

06 European

For the purposes of the effectiveness review, theGroup hasfollowed the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. In line with this guidance, the certification provided above does not apply to certain material joint ventures where theGroup does not exercise full management control. In these cases, theGroup satisfiesitself thatsuitable governance and risk management arrangements are in place to protect the Group'sinterests.However, the relevant Group company which is party to the joint venture must, in respect of any services it providesin support of the joint venture, comply with the requirements of the Group'sinternal governance framework.

Effectiveness of controls

In accordance with provision C.2.3 of the UK Code and provisions C.2.1 and C.2.2 of theHK Code, the Board reviewed the effectiveness and performance of the system of risk management and internal control during 2018. Thisreview covered all material controls, including financial, operational and compliance controls, risk managementsystems, budgets and the adequacy of the resources, qualifications, experience ofstaff of theGroup's accounting, internal audit and financial reporting functions. The review identified a number of areasfor improvement, particularly in respect of the general IT

Board-level committees Executive personnel Exec/Management committees GHO functions Direct reporting line Regular communication and escalation

control environment, and the necessary actionsthat have been or are being taken. The Audit Committees atGroup and subsidiary level collectively monitor outstanding actionsregularly and ensure sufficient resource and focusisin place to resolve them within a reasonable time frame.

The Board confirmsthat there is an ongoing processfor identifying, evaluating and managing the significant risksfaced by the Group, which has been in place throughout the period and up to the date of thisreport, and confirmsthat the system remains effective.

Committee reports

The principal Board Committees are the Nomination & Governance, Audit, Risk and Remuneration Committees. These Committees form a key element of the Group governance framework, providing effective independent oversight of the Group's activities by the Non-executive Directors. Each Committee Chair provides an update to the Board on the matters covered at each Committee meeting, supported by a short written summary.

Paul Manduca Chair of the Nomination & Governance Committee

Committee members

• Paul Manduca (Chair)
• Howard Davies
• David Law
• AnthonyNightingale
• Philip Remnant

Regular attendees

• Group Chief Executive
• GroupHuman Resources Director — GroupGeneral Counsel and Company Secretary

Number of meetings in 2018: Three.

Nomination & Governance Committee report

Dear Shareholder

Thisreport highlightssome of the key areas of focus considered by the Committee during 2018.

Ongoing succession planning

The Committee's main role is ensuring that the Board retains an appropriate balance ofskillsto support the strategic objectives of theGroup and maintains a rigorous and transparent approach to the appointment of Directors.

In 2018 we welcomed two Directorsto the Board. Mr Turner was appointed as an Executive Director andGroup Chief Risk Officer in March, an internal appointment to succeed Penny James.

A new Non-executive Director, Mrs Wicker-Miurin, was appointed in September following an extensive search. Full biographical detailsfor both Mr Turner and Mrs Wicker-Miurin can be found on pages 90 and 94.

Following the year end, we also welcomed Mr Falcon to the Board in January 2019 following Mr Stowe'sretirement as Chairman and Chief Executive of our North American BusinessUnit.

We view succession as ongoing – our planning for both Executive and Non-executive rolesincludes emergency cover as well aslonger-term options.

Demerger

Asignificant part of oursuccession planning this year wasfocused on determining the best mix ofskillsfor the Board for post demerger.

The new structure of the Board will include Mr Wells, Mr FitzPatrick and Mr Turner as Executive Directors. We took the decision that our business unit chief executives would step down from their Board roles although they will continue to attend relevant parts of Board meetings. We are making that change to our Board from the AnnualGeneral Meeting this year, and accordingly Mr Falcon, MrNicandrou and Mr Foley will notstand for election or re-election in May 2019.

Since the announcement of ourintention to demergeM&GPrudential, theCommittee has had to oversee some elements of establishing the M&GPrudential board. The Committee interviewed and recommended, with the input of the M&GPrudential chief executive, the appointment of Mike Evans to the M&GPrudential board, and details were announced on 1 October. The Committee has assisted Mike Evansin the search forsuitable non-executivesto join the M&GPrudential board.

The Committee also considered succession planning in respect of my role as Chairman of the Board. A separate part of thissection provides an update from Philip Remnant, our Senior Independent Director on this matter.

Diversity

Although improving gender diversity at Board level hasreceived a great deal of the Committee's attention, thisremains a challenge and one which the Committee isfocusing on.Gender diversity is an important factor in identifying candidates for Board levelsuccession and there is more work to be done across building our internal pipeline, ensuring external recruitment is producing a diverse pool and appointing at Board level.

The Committee'sterms of reference were updated to formalise itsrole in developing a diverse pipeline and expanding itsrole in reviewing and monitoring diversity initiatives acrosstheGroup as a whole.

02

04

European

EmbeddedValue (EEV)

Committee governance

Following the publication of the revised UK CorporateGovernance Code in July 2018 the Committee reviewed and recommended a number of amendments to itsterms of reference in order to align them with the new Code and evolving governance best practice.

The Committee also conducted its usual reviews of governance arrangements of the Group's Material Subsidiaries, including the review of performance of each Material Subsidiary board, their terms of reference and the review ofthe ongoing appointments of the independent non-executive directors and chairs of those boards.

As Chair of the Committee, I have responsibility for ensuring the Committee operates effectively. In order to enable the Committee to provide constructive challenge to management, I encourage open debate and contributionsfrom all Committee members.

As part of the Board's effectivenessreview, described in more detail on pages 99 and 100, the Committee wasfound to be operating effectively.

How the Committee spent its time during 2018

	Feb	Jun	Oct
Year end matters, re-election and tenure
Review external positions, conflicts of interests and independence, time commitment, tenure and terms of appointment	l
Review performance of Chairman andNon-executive Directors	l
Review relevant disclosuresin the Annual Report and Accounts	l
Recommend election of Directors by shareholders	l
Succession planning, diversity and appointments
Chairman	l		l
Non-executive Directors	l	l	l
Group Chief Executive		l
Executive Directors			l
Group Executive Committee composition			l
Governance
Membership review of principal Board Committees	l		l
Committee terms of reference			l
Demerger governance arrangements			l
Group governance framework			l
Material Subsidiary governance
Subsidiary board composition, non-executive succession planning and appointments	l		l
Terms of reference for Material Subsidiary boards, chairs and committees			l
Material Subsidiary governance manual			l
Material Subsidiary board, chair and director evaluations	l
Appointment of M&GPrudential chair (not a Material Subsidiary)		l

Report from Philip Remnant, Senior Independent Director

Philip Remnant Senior Independent Director

Succession planning for the role of Chairman of the Board, on which I lead, is considered by the Committee on a regular basis. We review the necessary skills and experience required for the effective leadership of the Board of an international financialservices group.

This year, we also had to consider two major changes: the revisedUK Code which, under the comply or explain principle,sets out that the tenure of the chairman of a listed company should be no more than nine years from first appointment to the board, and our demerger.

Mr Manduca's appointment to the Board wasin October 2010, meaning the Code would prescribe hisretirement in October 2019.

At a time ofsubstantial change for the Group, the Board considersthat it would be disruptive for Mr Manduca to stand down during the demerger process. The Board believesthatshareholders will benefit from a committed and engaged

Chairman to lead theGroup through the transaction and to remain in role forsome period of time thereafter to ensure continuing strong governance in the PrudentialGroup post-demerger. It is currently intended that Mr Manduca would stand down as Chairman in May 2021,subject to annual re-election up to that date.

We are therefore proposing that Mr Manduca stand for election as Chairman at our forthcoming 2019 AnnualGeneral Meeting.

Before taking this decision, we consulted with a number of our investorsto obtain their views and take them into account in our decision-making. Shareholdersresponded positively to the specific engagement on thistopic and were supportive of Mr Manduca's extended tenure.

The processfor identifying candidates to succeed Mr Manduca will commence in 2020, I will lead this process, assisted by the Committee.

Key matters considered during the year

Matter considered	How the Committee addressed the matter
Succession planning
Board composition	Throughout the year, the Committee keptsuccession plansfor all Executive andNon-executive Board roles under review.
	Succession plans are supported by the year end Board evaluation and individual performance evaluations which help inform the Committee'srecommendations.
	The Committee takes account of the size,structure and composition of the Board and its Committees, including existing knowledge, experience and diversity. In doing so, the Committee considerstheGroup'sstrategic needs and anticipatesfuture needs,skills and experience.
	The Committee isinvolved from the start when a vacancy or a gap in the Board'sskillsisidentified. Led by the Chairman, and working with theGroup Chief Executive andHuman Resources Director, a role specification is prepared. This will take into account feedback from the Committee and the Group's Diversity and Inclusion Policy. Once the specification is agreed,specialist talent agencies are typically engaged to create a shortlist of candidates which isreviewed by the Committee and other stakeholders. Interviews with individualsthen take place with selected Committee members and feedback is provided to all members. In this manner, a preferred candidate isselected and the Committee then recommendsthe individual to the Board for appointment (subject to regulatory approval where required).
	Contemporaneously with this process, due diligence checks are undertaken on the candidate and Prudential liaises with the relevant regulatory authoritiesfor any approvals needed. The Committee is kept updated on this process as necessary.
	This year, the Committee has considered Board composition and succession planning in the context of the decision to demerge M&GPrudential from the PrudentialGroup, and took the decision in February 2019 to recommend that the current chief executives of the business units would step down at the forthcoming AnnualGeneral Meeting. The Board wasin unanimous agreement that under the post-demergerstructure, effective oversight of the business units can be maintained without the business unit chief executives being plc Board members.

04

06 European

information

Key matters considered during the year continued

Matter considered	How the Committee addressed the matter
Non-executive Directors	During the year, the Committee finalised the appointment of Mrs Wicker-Miurin as aNon-executive Director. The Committee wassupported in the search for candidates by the Miles Partnership.
	The number ofNon-executive Directorsrequired on the Board is considered on a regular basis, and this year particularly in the context of the smallerGroup post-demerger.
	The Committee uses a regularly refreshed skills map forNon-executive succession planning. The skills map identifiesskills and experience by sector, geography and technicalskills, which are desirable for the Board as a whole, taking account theGroup'sstrategic direction.
	Full biographical details of eachNon-executive Director, including a summary of the skills and experience attributable to them which have been identified asimportant to theGroup'slong-term sustainable success, are set out on pages 92 to 94.
Executive Directors and senior executives	The Committee carried out its annual review of the succession plansin place for theGroup Chief Executive, other Executive Directors andGroup Executive Committee (GEC) roles.
	The Committee directed the development and renewal of these plansthrough theGroupHR Director,supported by Egon Zehnder in the case of theGroup Chief Executive plan and by Talent Intelligence for the other Executive Director roles andGEC members. In 2017, Talent Intelligence prepared long-lists and short-lists with a focus on gender and ethnic diversity requirements.
	The Committee has oversight ofsenior executive levelsuccession planning and the talent pipeline.
	The Committee discussed these plans closely with theGroup Chief Executive to identify business requirements and plan for future succession needs and gave feedback on the planning process.
	The Company announced on 12 October 2018 that Mr Stowe would retire as Chairman and Chief Executive of theNorth American BusinessUnit with effect from 31 December 2018. Mr Stowe wassucceeded in thisrole by Mr Falcon, who joined the Board on 7 January 2019. Mr Falcon's appointment was considered in June 2018 following a comprehensive search, led by Korn Ferry, with support from Spencer Stuart. The Committee considered candidate profiles and skills and conducted interviews before agreeing to recommend Mr Falcon's appointment to the Board. Full biographical detailsfor Mr Falcon can be found on page 90.
Use ofsearch consultancies	The Miles Partnership does not have any additional connection with Prudential. In addition to acting assearch consultant for certain executive hires, Egon Zehnder also providessupport forsenior development assessments. Talent Intelligence also provides additionalsuccession planning support to theGroup below GEC level.
Election of Directors	As part of its ongoing work on Board succession planning, the Committee considered the ongoing appointment of the Chairman, Committee Chairs andNon-executive Directors, taking into account time commitment and the general balance ofskills, diversity, experience and knowledge on the Board and assessing length ofservice in their roles.
	Particular attention has been paid to the recommendation to re-elect MrNargolwala and SirHoward Davies at the AnnualGeneral Meeting to be held in 2019 due to their length ofservice. In Mr Davies' case, election at the 2019 AnnualGeneral Meeting will take him through the Code-prescribed nine yearsfrom date of appointment. The Board does not consider that Mr Davies' independence will be impacted by histenure extending forsix months beyond the nine-year anniversary.
	When making recommendationsfor Directorsto stand for election at the AnnualGeneral Meeting, the Committee considersindividual Directors' contribution to Prudential'slong-term success as well astheir commitment to the role and other external positions or directorships which may impact their independence or availability.
	Having reviewed the performance of theNon-executive Directorsin office at the time, and having received feedback from theGroup Chief Executive on the performance of the Executive Directors, the Committee concluded that each Director continued to perform effectively and was able to devote sufficient time to fulfil their duties. Following review of the outcomes of the Board evaluation process, theGroup considersthat theNon-executive Directors continued to exhibit appropriate behaviours, contributed effectively to decision-making and exercised sound independent judgement in holding management to account.

Key matters considered during the year continued
Matter considered	How the Committee addressed the matter
Election of Directors continued	The diversity of the Board including skills and experience, and the contribution made by each Director isset out in the individual biographies of Directors on pages 89 to 94.
	The Committee recommended to the Board those Directorsstanding for election at the Company's AnnualGeneral Meeting.
Diversity
Diversity and Inclusion Policy	TheGroup has a Diversity and Inclusion Policy that aimsto provide equal opportunitiesfor all who apply and who perform work for our organisation, including the Executive andNon-executive Directors, irrespective ofsex, race, age, ethnic origin, educational,social and cultural background, maritalstatus, pregnancy and maternity, civil partnership status, any gender reassignment, religion or belief,sexual orientation, disability, or part time/fixed term work. The Committee keepsthis under review across all itsrecruitment planning.
Board and senior management	Given the globalreach of theGroup's operations, its businessstrategy and long-term focus, the Board makes every effort to ensure it is able to recruit Directorsfrom different backgrounds, with diverse experience, perspective and skills. This diversity not only contributestowards Board effectiveness but is essential forsuccessfully delivering the strategy of an international group.
	The Board is committed to recruiting the best available talent and appointing the mostsuitable candidate for each role, while at the same time aiming for, appropriate diversity on the Board.
	In December 2018 the Board approved changesto the Committee'sterms of reference to formalise itsresponsibility for overseeing the development of a diverse pipeline for Board and othersenior executives. This will include ensuring that plans are based on merit against objective criteria and promote diversity across gender,social and ethnic background and cognitive and personal strengths.
	In the case of Board appointments, the Committee will consider relevant results of the annual Board effectiveness evaluation and ensure suggested enhancementsto the Board are addressed.
	The Board considersthat its diversity of experience,skillset and professional background has increased as a result of Board levelsuccession in 2018.
Group-wide	In December 2018 the Board approved changesto the Committee'sterms of reference to include responsibility for periodically reviewing any objectivesfor the implementation of diversity for the Group as a whole and monitoring the impact of diversity initiatives.
	In 2016 the Board decided to sign theHM Treasury Women in Finance Charter. In 2018 theGroup achieved its commitment to have 27 per cent women in senior management roles, a year earlier than the target date of the end of 2019. TheGroup continuesto work towards achieving at least 30 per cent of women in senior management by the end of 2021.
	The business units also engaged in a number of targeted activitiesin support of theGroup's Diversity and Inclusion Policy, including awarenesstraining of unconscious bias.
	Updates on activitiesrelating to the diversity acrosstheGroup are provided to the Board periodically.
	TheGroup's activitiesin thisrespect are described in our corporate responsibility review on pages 70 to 86.
Governance Review of principal Committee membership	The Committee regularly reviewsthe membership of all principal Committees and makes recommendationsto the Board as appropriate. Recommendations on Committee membership are taken after consultation with the Chair of the relevant Committee.
	In March, the Committee made a recommendation that Ms Schroeder join the Risk Committee, and in October, that Mr Watjen join the Risk Committee. These appointmentsrefreshed experience, provided succession options and increased diversity on the Committee.
Independence criteria	The Committee considered the independence of theNon-executive Directors against relevant requirements as outlined on page 105, taking into account the amended Code which requires nine-year tenure to run from the time of appointment to the board rather than first election by shareholders.

02

04

06

Key matters considered during the year continued

Matter considered	How the Committee addressed the matter
Conflicts of interest	The Board considered in October and December 2018 the new Code provision formalising the need for boardsto identify and manage conflicts of interest. The Board has delegated authority to the Committee to consider, and authorise where necessary, any actual or potential conflicts of interest.
	Prior to proposing Directorsfor re-election, the Committee considered the external appointments of all Directors and reviewed existing conflict authorisations, reaffirming or updating any terms or conditions attached to authorisations where required.
	In addition, the Committee considered the external positions of those Directors appointed during the year, noted changesin the external positions of existing Directors and considered whether these gave rise to any conflicts.
	The Board considersthat the proceduresset out above for dealing with conflicts of interest operate effectively.
Subsidiary governance
Material Subsidiaries	During the year under review, the Committee carried out various dutiesrelated to the Material Subsidiaries:
	— Succession planning arrangementsfor non-executive directors; — Evaluating the performance of the Material Subsidiary boards, chairs and directors; and — Reviewing Material Subsidiary governance arrangements, including principlesfor attendance at committee meetings, and the terms of reference for the Material Subsidiary boards and chairs.
M&GPrudential	On 1 October 2018, the Company announced the appointment of Mike Evans as chair of M&GPrudential with immediate effect. The Committee considered and recommended the appointment of Mr Evans as chair of the M&GPrudential board.
	The Committee continuesto be involved in supporting Mr Evansin M&GPrudential board appointments which are ongoing.

David Law Chair of the Audit Committee

Committee members

• David Law (Chair)
• Howard Davies
• Philip Remnant
• Alice Schroeder
• Lord Turner

Regular attendees

• Chairman of the Board
• Group Chief Executive
• Chief Financial Officer
• Group Chief Risk Officer
• Director ofGroup Finance — Director ofGroup Financial
• Accounting & Reporting — Group Regulatory andGovernment
• Relations Director — GroupGeneral Counsel and Company Secretary
• Director ofGroup Compliance
• Director ofGroup-wide
• Internal Audit — External Audit Partner

Number of meetings in 2018:

Nine. (In addition, a joint meeting was held with the Risk Committee)

Audit Committee report

Dear Shareholder

As Chair of the Audit Committee, I am pleased to present thisreport on the Committee's activities during 2018. The Committee providesthe Board with assurance asto the integrity of theGroup's financial reporting and, together with the Risk Committee, monitorsthe effectiveness of the second and third lines of defence, which are an integral part of our internal control environment.

With regard to theGroup's financial reporting, the Committee's work is focused on ensuring appropriate financial accounting policies are adopted and implemented and on assessing key judgements and disclosures. The introduction of financial accounting standard IFRS 17, which is now anticipated to come into effect in 2022, will be a significant challenge and change and as a consequence the Committee received updates during 2018 on theGroup's progresstowardsitsimplementation.

External auditor

An important part of the Committee's work consists of overseeing theGroup's relationship with KPMGLLP (KPMG), including safeguarding independence, approving non-audit fees and satisfying itself that it isin the best interests of shareholdersto recommend the reappointment of KPMG. Following the publication of the FRC's Audit Quality Inspection report for KPMGin June 2018, I and theGroup Finance Director met with KPMG'sleadership and the Committee discussed the actionstheir firm istaking to improve quality. We also reviewed the assessment of the audit of Prudential and introduced changesto enhance our auditor effectiveness monitoring process.

It remainsthe Committee's current view that, without exceptional circumstances, change to the current auditorshould not occur during a period ofsignificant change for Prudential. It istherefore the Committee'sintention to appoint a new auditor for the 2023 financial year-end, after the first year of implementation of the new insurance accounting standard. A plan to identify KPMG'ssuccessor to ensure a smooth transition has been developed. Further explanation of the Committee's approach isset out in thisreport.

Demerger activities

In 2018 the Committee considered a number of key areas under itsremit in the context of the demerger process including the progressin integrating the finance functions of M&Gand PrudentialUK & Europe into a single M&GPrudential team with an appropriate control environment and the capabilities, processes and systemsto support both the demerger activity and the future ambitions of the M&GPrudential business.

Internal audit

During 2018 the Committee continued to receive regular briefingsfrom the Group-wide Internal Audit (GwIA) Director.GwIA undertook a programme of risk-based audits covering matters across the business unitsin addition to assurance work on significant change programmes. Delivery of the internal audit plan and the independent assurance provided byGwIA represent important components of the Committee's oversight of theGroup's internal controls procedures. The effectiveness ofGwIA was assessed during the year, together with a review of progress againstsuggested enhancements identified by the external review undertaken by Deloitte in 2017. I meet regularly with theGwIA Director to discuss the work done and matters arising and the Committee also asked that management responsible for rectifying some of the issuesidentified to attend the Committee to ensure that appropriate action was being taken. The Committee also approved the 2019 internal audit plan which takes account of the business and organisational changes arising from the planned demerger. The work highlightedGwIA's role in supporting the demerger and the creation of two appropriately sized, resourced and experienced independent internal audit functions.

02

06

Compliance

The Committee received updates on matters arising from the annualCompliance Plan (the Plan) throughout 2018. The Plan focused on a number of areasto help strengthen the compliance framework, which isintended to aid theGroup in meeting regulatory obligations, including monitoring compliance with key elements of the compliance framework such as conflicts of interest, anti-money laundering and anti-bribery and corruption policies. The Committee also approved the 2019 Compliance Plan in the context of the proposed demerger, and is monitoring relevant aspects of the proposed transition of Prudential'slead regulator from the Prudential Regulatory Authority to the Hong Kong Insurance Authority (IA).

Committee governance

The Committee works closely with the Risk Committee to make sure both Committees are updated and aligned on matters of common interest. Where responsibilities are perceived to overlap between the two Committees, SirHoward and I agree the most appropriate Committee to consider the matter. In October 2018 the two Committees held a jointsession on cyber security, including updates on the Group-wide cybersecurity strategy and information security programme, more details of which are set out in the Risk Committee report on pages 124 and 125.

As Chair of the Committee, I have responsibility for ensuring the Committee operates effectively. In advance of each Committee meeting, Ispeak to the chairs of our Material Subsidiary audit committees and report to the full Board after each Committee meeting on the main matters discussed. We have also held private sessions as a Committee to discuss performance and also with theGroup's Resilience Director to discuss whistleblowing cases and their resolution and had private discussions withGwIA and KPMG. An annual review of our effectiveness was carried out as part of the Board evaluation, described in more detail on page 100. The Committee wasfound to be functioning effectively.

How the Committee spent its time during 2018

	Feb	Mar1	May	Jul	Aug	Oct1	Dec
Financial reporting and external auditor
Periodic financial reporting including:
— Full and half-yearly report and accounts — Key accounting judgements and disclosures, including tax — Solvency II results and governance processes — Associated audit reports	l	l	l	l	l	l	l
Audit planning, fees, independence, effectiveness and reappointment	l		l	l		l	l
Environmental,social and governance reporting			l
Internal control framework
Internal control framework including effectiveness	l		l	l			l
Internal audit
Status updates and effectiveness	l		l	l		l	l
Internal audit plan				l			l
Compliance
Status updates	l		l	l		l	l
Compliance plan				l			l
Financial crime and whistleblowing
Financial crime prevention and whistleblowing – regular updates	l		l	l		l	l
Governance and reporting
Material Subsidiaries updates	l		l	l		l	l
Internal governance framework including effectiveness	l		l	l		l	l
Business unit audit committee effectiveness and terms of reference	l					l
Committee terms of reference and effectiveness	l					l

Note 1 Two meetings were held in each of March and October 2018.

Key matters considered during the year

Matter considered	How the Committee addressed the matter
Financial reporting and tax
Overview	One of the Committee's key responsibilitiesisto monitor the integrity of the financialstatements and any other periodic financial reporting. During the last year, itemsreviewed by the Committee included the 2017 Annual Report and Accounts, the 2017 Solvency and Financial Condition Report and associated Pillar 3 returnssubmitted to theGroup'sregulator, the 2017 Environmental, Social andGovernance Report, the 2017 Tax Strategy Report, the 2018Half Year Report and Accounts, and the key accounting judgementsfor the 2018 Annual Report.
	In reviewing these and other items, the Committee received reportsfrom management and, as appropriate, reportsfrom internal and external assurance providers, which in some cases were provided at the explicit request of the Committee.
	When considering financial reporting the Committee assesses compliance with relevant accounting standards, regulations and governance codes. During 2018, theGroup adopted IFRS 15 'Revenue from contracts with customers' and, as described in note A2, this had no material effect on the Group's financial results. The Committee also reviewed the potential impact of accounting standards that are effective in the future, including IFRS 16 'Leases' and IFRS 17 'Insurance Contracts'. The approach to adopting these standardsisfurther discussed in note A2. The Committee requested regular updatesfrom management on the progress against plansfor implementing IFRS 17 given its particularsignificance.
	The following sectionsset out the key assumptions, judgements and other matters considered as part of their review of the 2018 Annual Report and Accounts.
Key assumptions and judgements	The Committee reviewed the key assumptions and judgementsincluding those made in valuing theGroup'sinvestments, insurance liabilities and deferred acquisition costs under IFRS, together with reports on the operation of internal controlsto derive these amounts. It also reviewed the assumptions underpinning theGroup's European Embedded Value (EEV) metrics.
	Assumption setting The measurement of insurance liabilities and EEV are based on estimates of future cash flows, including those to and from policyholders, over a long period of time. These estimates can, depending on the type of business, be highly judgemental. The Committee considered changes to assumptions and other estimates used to derive IFRS insurance liabilities and theGroup's EEV. Peer benchmarking was considered where available. The key assumptionsreviewed were:
	— Persistency, mortality, morbidity (including in relation to medical inflation) and expense assumptions within the Asia life businesses; — Policyholder behaviour assumptions(including mortality) affecting the measurement of Jackson guaranteed liabilities(see note C4.2(b) of the IFRS financialstatements and note 14 to the EEV basisresults); and — Mortality, expense and credit risk assumptionsfor theUK annuity business. Mortality assumptions continued to be an area of focus given ongoing analysis of historic experience, (see note C4.1(d) to the IFRS financialstatements).
	The Committee wassatisfied that the assumptions adopted by management were appropriate. Further information on the effects of material changesto insurance assets and liabilitiesisincluded in note B3 to the IFRS financialstatements and note 14 of the EEV basisresults.
	Goodwill and other intangible assets including deferred acquisition costs (DAC) The Committee received information to enable it to review the more material intangible asset balances. Thisincluded the recoverability and amortisation of the DAC balance in theUS and whether there had been any indication of impairment of theGroup's distribution rights assets. The Committee wassatisfied that there was no impairment of theGroup'sintangibles at 31 December 2018. Further information is contained in note C5 of the IFRS financialstatements.
	Investments The Committee received information on the carrying value of investmentsin theGroup's balance sheet including on those assets which are harder to value and data on the application of theGroup's Independent Price Verification policy. This data showed that the majority of theGroup's assets were marked tomarket using two independent prices,reducing the level of judgement applied in investment valuation. Further information on the valuation of assetsis contained in note C3 of the IFRS financial statements. The Committee satisfied itself that overall investments were valued appropriately.

04

06

Key matters considered during the year continued
Matter considered	How the Committee addressed the matter
Other financial reporting matters and tax reporting	Provisions The Committee regularly reviewstheGroup's provisions, including the level of provisioning for regulatory and litigation matters and provisionsfor certain open tax itemsincluding tax mattersin litigation. The Committee wassatisfied that the level of provisioning adopted by management was appropriate. See note C11 of the IFRS financialstatements.
	Going concern and viability statements The Committee considered various analysesfrom management regardingGroup and subsidiary capital and liquidity prior to recommending to the Board that it could conclude that the financial statementsshould continue to be prepared on the going-concern basis(see page 128), and that the disclosures on theGroup'slonger-term viability (see page 68) were both reasonable and appropriate. The Committee considered information on the risksto theGroup'sliquidity and capital position as well asthe impact of the proposed demerger and the scenariosthat could arise as part of theUK's intended withdrawal from the EU.
	Alternative performance measures The Committee reviewed the alternative performance measures contained in theGroup's Strategic Report. It considered the consistency with the prior year and the prominence as compared to IFRS measures of performance.
	Fair, balanced and understandable requirement The Committee carried out a formal review of whether the Annual Report and Accounts were 'fair, balanced and understandable' asrequired by theUK CorporateGovernance Code. In particular, they considered whether the report gave a full picture of theGroup's performance in the year with important messages appropriately highlighted, the level of consistency between financial statements and narrative sections and whether performance measures were clearly explained.
	After completion of its detailed review, the Committee wassatisfied that, taken as a whole, theGroup's Annual Report and Accounts were fair, balanced and understandable.
	FRC review of 2017 Annual Report and Accounts As an outcome of the FRC'sregular oversight role on company reporting through itsreview of the Group's 2017 Annual Report and Accounts, a small number of disclosure improvements have been made in the 2018 financialstatements of which the mostsignificant isto demonstrate better the linkage between movement in insurance and investment contract balancesreported in the income statement and the notes(see note C4.1 (a)(iii)). The FRC notesthat itsreview was based on the Group's 2017 Annual Report and Accounts only and does not benefit from detailed knowledge of theGroup's business or an understanding of the underlying transactions.
	Parent company financial statements The Committee reviewed the parent company profit and loss account and balance sheet, which included recognition of a pension surplus asset, (see note 7 of the Parent Company financial statements).
External audit
External audit effectiveness	Review of effectiveness, non-audit services and auditor reappointment TheGroup's external auditor is KPMGLLP (KPMG) and oversight of the relationship with them is one of the Committee's key responsibilities. The Committee reviewsthe effectiveness of the audit throughout the year taking into account:
	— The detailed auditstrategy for the year and coverage of the highlighted risks; — Group materiality and how that is applied to the individual business units; — Insight around the key accounting judgements, including benchmarking, and the way KPMG applied constructive challenge and professionalscepticism in dealing with management. The Committee formally met with theGroup Lead Partner without management present on three occasions over the last year; — The outcome of management'sinternal evaluation of the auditor as discussed below; and — Other external evaluations of KPMG, with a focus on the FRC's Annual Quality Review.

02

04

06

External audit effectiveness continued	Internal evaluation of KPMG This was conducted using a questionnaire that was circulated to the Committee members, Material Subsidiary audit committee members, the Chief Financial Officer and theGroup'ssenior financial leadership for completion. The survey asked 24 questions over four categories(team performance, process, communication and audit execution) in relation to the 2017 audit. The degree of challenge and robustness of approach to the audit were key components of the evaluation.
	KPMG were given the opportunity to respond to the findingsin the report. As a result of the report KPMGproposed enhancementsto the audit and team and progress against these changes were reported to the Committee in December.
	FRC's Annual Audit Quality Review of KPMG During June 2018, the FRC published the principal findings arising from the 2017/18 inspection of KPMGcarried out by its Audit Quality Review team. The FRC noted that there had been a deterioration in quality at KPMGand it was placing the firm under increased scrutiny. The audit of Prudential plc had not been reviewed by the FRC as part of the 2017/18 inspection.
	As a result of the FRC's findingsthe Committee discussed the findings and the firm'sresponse and questioned KPMGon how those enhancements would be applied to the Prudential plc audit. It noted the good practice identified by the FRC in respect of the audit of insurance liabilities and the seriousness with which KPMG were addressing the FRC's findings. Overall, it wassatisfied that the audit of Prudential plc remained effective.However, in light of the findingsit requested that KPMG provide continuing updates on progress on delivering the enhancements discussed and the items raised as part of the internal evaluation of audit effectiveness. It also challenged management to further enhance itsinternal processto review its effectiveness of the 2018 audit.
Auditor independence and objectivity	The Committee hasresponsibility for monitoring auditor independence and objectivity and issupported in doing so by theGroup's Auditor Independence Policy (the Policy). The Policy is updated annually and approved by the Committee. Itsets out the circumstancesin which the external auditor may be permitted to undertake non-auditservices and is based on four key principles which specify that the auditorshould not:
	— Audit its own firm's work; — Act as management or employeesfor theGroup; — Have a mutual or conflicting interest with theGroup; or — Be put in a position of being an advocate for theGroup.
	The Policy hastwo permissible service types: those that require specific approval by the Committee on an engagement basis and those that are pre-approved by the Committee with an annual monetary limit capped at no more than 5 per cent of theGroup audit fee in the proposed year and capped at £50,000 individually. In accordance with the Policy, the Committee approved these permissible services, classified as either audit or non-auditservices, and monitored the usage of the annual limits on a quarterly basis. All non-auditservices undertaken by KPMG were agreed prior to the commencement of work and were confirmed as permissible for the external auditor to undertake in accordance with the Policy which complies with the rules and regulations of theUK Financial Reporting Councils Ethical Standard (2016), theUS Securities and Exchange Commission (SEC) and the standards of the Public Company Accounting Oversight Board (PCAOB).
	In keeping with professional ethicalstandards, KPMGalso confirmed their independence to the Committee and set out the supporting evidence for their conclusion in a report that was considered by the Committee prior to publication of the financial results.
	While as yet to be formalised asrules, the Kingman review, the Competitions and Market Authority review of the audit market and the Brydon review willshape the future of audit and the audit regulator with a view to enhancing audit quality and independence. The Committee will continue to monitor developmentsto ensure theGroup's policies and processes around audit effectiveness and independence evolve in line with market practice.

Key matters considered during the year continued

Matter considered How the Committee addressed the matter

Key matters considered during the year continued

Matter considered How the Committee addressed the matter
Fees paid to the auditor	The fees paid to KPMGfor the year ended 31 December 2018 amounted to £18.3 million (2017: £17.3 million) of which £2.3 million (2017: £2.6 million) was payable in respect of non-audit services.Non-auditservices accounted for 13 per cent of total fees payable (2017: 15 per cent). A breakdown of the fees paid to KPMGcan be found in note B2.4 to the financialstatements.
	Of the £2.3 million of non-auditservices, £1.1 million wasin respect of assurance services. These services covered assurance over theGroup's Solvency II external disclosures, assurance reports on internal controls of certainGroup companiesthat are made available for third parties and comfort letter proceduresto support debt raising in the year. The remaining £1.2 million principally related to work performed as part of planning for the proposed demerger. In all these cases, the audit firm was considered the most appropriate to carry out the work, given its knowledge of theGroup and the synergiesthat arise from running these engagements alongside its main audit.
	All non-auditservices were pre-approved by the Committee and were in line with the Policy discussed above.
Reappointment	Based on the outcome of the effectiveness evaluation and all other considerations, the Committee concluded that there was nothing in the performance of the auditor which would require a change. The Committee therefore recommended that KPMGbe reappointed asthe auditor. A resolution to this effect will be proposed to shareholders at the 2019 AnnualGeneral Meeting.
Audit tender	The Committee acknowledgesthe provisions contained in theUK Code in respect of audit tendering, along with European rules on mandatory audit rotation and audit tendering. In conformance with these requirements, the Company will be required to change audit firm no later than for the 2023 financial year end.
	The external audit waslast put out to competitive retender in 1999 when the present auditor, KPMG, was appointed. Since 2005, the Committee has annually considered the need to retender the external auditservice. The Committee's Chairman and theGroup's Finance Director currently recuse themselvesfrom these discussions.
	TheGroup is undergoing a period of unprecedented change with both the demerger of M&GPrudential from Prudential plc being considered and the new insurance accounting standard (IFRS 17) requiring implementation in 2022. The Committee currently believes any change of auditor should be scheduled to limit operational disruption during such a period of change given the significant volume of work to be delivered by theGroup's finance teamsin relation to the demerger and preparing to implement the new insurance accounting standard in 2022. The Committee considered itsstrategy on audit tendering in February 2019, concluding that with the change in implementation date for IFRS 17 that the previously proposed timeline for appointing a new auditor should also be extended by one year to the 2023 year end. In conducting thisreview, the Committee concluded that it would be appropriate to commence a competitive tender for the 2023 audit in the first half of 2020. This would permit the current auditorsto complete the first year of IFRS 17 adoption and reduce the 'self-review' threat to any of the audit firms conducting advisory services on implementation of finance systemsfor the new accounting standard who are invited to tender for the audit. The suggested timeline should also enable the Committee to take into account any proposals arising from the current reviews of the auditing profession. The timing remainssubject to the Committee's normal annual review of auditor performance and recommendation to shareholders.
	The Company has complied throughout the 2018 financial year with the provisions of the Statutory Audit Servicesfor Large Companies Market Investigation (MandatoryUse of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 issued by the Competition and Markets Authority.
	A plan to identify successor firmsto ensure that there issufficient time for an orderly transition and to safeguard independence was considered and agreed by the Committee.
	In line with the FRC Ethical Standard, the rules and regulations of the SEC and the standards of the PCAOB, a new lead audit partner, Philip Smart, was appointed in respect of the 2017 financial year. Mr Smart is expected to be in place for a five-year term until the completion of the 2021 reporting cycle. A new lead audit partner would be required for the 2022 audit and an appropriate transition plan developed.

Matter considered	How the Committee addressed the matter
Second line oversight Compliance, financial crime prevention, whistleblowing
Regular reporting from the Compliance function	Regular updates were provided to the Committee by theGroup Regulatory andGovernment Affairs Director and theGroup Compliance Director. The reports kept the Committee apprised of key compliance activities, issues and controls, including progress against the 2018 Compliance Plan, the outcome of compliance monitoring activities acrosstheGroup and the effectiveness of business units' compliance activities.
Compliance Plan and focus for 2019	Key activitiesidentified for the first half of 2019 include: regulatory engagement, including managing the transition of our lead regulator from theUK's Prudential Regulatory Authority to theHong Kong IA,supporting delivery of the demerger activitiesin key areas and providing ongoing advice, guidance and oversight to business units covering key riskssuch as conflicts of interest and financial crime. The Committee intendsto review updatesto the 2019Group Compliance Plan around the mid-year point.
	Group Compliance will also continue to drive forward capabilities within the team and wider compliance community, carrying out activitiesto maintain oversight of the top risksidentified.
Financial crime prevention	The Committee received the Money Laundering Reporting Officer'sreport which assessed the operation and effectiveness of theGroup'ssystems and controlsin relation to managing financial crime risks.
	As part of itsresponsibility for the oversight of financial crime prevention, the Committee received updates on cybersecurity (as part of a joint meeting held with the Risk Committee in October 2018), anti-bribery and corruption, anti-money laundering and sanctions activities undertaken during the year.
Whistleblowing	TheGroup continuesto operate aGroup-wide whistleblowing programme ('Speak Out'), hosted by an independent third party (Navex). The Speak Out programme receives ad hoc reportsfrom a wide variety of channels, including a web portal, hotline, email and letters. Reports are captured, confidentially recorded byNavex, and flagged for investigation by the appropriate team.Under the Senior Managers Certification Regime (SMCR), the role of the Whistleblowing Champion continues to be carried out by the Chair of the Prudential Assurance Company (PAC) Audit Committee, an independent non-executive director of PAC.
	The Committee isresponsible for oversight of the effectiveness of theGroup's whistleblowing arrangements. The Committee receivesregular reports on the mostserious cases and other significant mattersraised through the programme and the action taken to addressthem. The Committee is also briefed on emerging Speak Out trends and themes. The Committee may, and has, requested further review of particular areas of interest.
	The Committee reviewed theGroup's Speak Out programme arrangements during the year, satisfying itself that they continue to comply with regulatory and governance requirements. The Committee also noted the consistency of approach adopted acrosssubsidiary committees. This wasfacilitated through greater visibility of regionalsignificant issues(addressed by subsidiary audit committees) and their outcomes. The Speak Out process has been further enhanced this year by focusing on (post-reporting) management action and, where relevant,sharing of lessonslearnt.
	The Chair and Committee spent time privately with theGroup Resilience Director, to ensure that investigations were adequately resourced and appropriately managed, that there had been no retaliation against anyone making a report and that investigations were not improperly influenced. The Committee was also updated on arrangementsfor promotingGroup-wide awareness of the Speak Out policy (including computer-based training tailored for each business unit) and a refresh of Speak Out communications acrosstheGroup.

02

06

Key matters considered during the year continued

Matter considered	How the Committee addressed the matter
Third line oversight Internal audit
Regular reporting	The Committee received regular updatesfrom Group-wide Internal Audit (GwIA) on audits conducted and management's progressin addressing audit findings within agreed timelines. Any delaysin implementing remediation actions were escalated to the Committee and given particularscrutiny.
	The independent assurance provided byGwIA formed a key part of the Committee's deliberations on theGroup's overall control environment. During 2018, the areasreviewed included: change management and transformation, financial controls, outsourcing and third-party supply, customer outcomes, cyber risk, compliance and regulatory and second line of defence.
	The Director ofGwIA reportsfunctionally to the Committee Chair and for management purposes to theGroup Chief Executive, and also has direct accessto the Chairman of the Board. In addition to formal Committee meetings, the Committee meets with the Director ofGwIA in private to discuss mattersrelating to, for example, the effectiveness of the internal audit function,significant audit findings and the risk and control culture of the organisation.
	The Committee Chair also meets withGwIA's Quality Assurance Director to discussthe outcome of the quality reviews ofGwIA's work and actions arising.
Annual plan and focusfor 2019	The Committee approved the half-year update of the 2018 plan. It also considered and approved the Internal Audit Plan, resource and budget for 2019.
	The 2019 Internal Audit Plan wasformulated based on a bottom-up risk assessment of audit needs mapped against various metrics combined with top-down challenge. The plan wasthen mapped against a series of risk and control parameters, including the top risksidentified by the Risk Committee, to verify that it is appropriately balanced between financial, business change, regulatory and operational risk drivers and provides appropriate coverage of key risk areas and audit themes within a risk-based cycle of coverage. Key areas of focusfor 2019 include:strategic change initiatives, customer outcomes, cybersecurity, financial risk and financial controls, outsourcing and digitisation.
Effectiveness	The Committee isresponsible for approval of theGwIA charter, audit plan, resources, and for monitoring the effectiveness of the function. The Committee assessesthe effectiveness ofGwIA through a combination of External Quality Assessment (EQA) reviews, required every five years, and an annual internal effectivenessreview, performed by theGwIA Quality Assurance Director.
	A 2018 Internal Effectivenessreview, performed by theGwIA Quality Assurance Director, was conducted in accordance with the professional practice standards of the Chartered Institute of Internal Auditors(CIIA) and assessed continued conformance with the CIIA guidance for Effective Internal Audit in the Financial Services(the Code). The review concluded thatGwIA continued to comply with the requirements of internal audit policies, procedures and practices, and standards in all material respectsrelating to audit planning and execution, and continued to be aligned with its mandated objectives and maintained general conformance with the CIIA Code.
	During 2018,GwIA also progressed those areasthat were identified by the 2017 EQA as opportunitiesfor enhancement to existing practice. In response to the demerger announcement, the function commenced its preparationsfor creating two appropriately skilled and sized, independent internal audit functions, where previously there was a single function.
	Having considered the findings of the internal effectivenessreview performed by the Quality Assurance Director, the Committee concluded thatGwIA had continued to operate in compliance with the requirements ofGwIA policies, procedures and practice standardsin all material respects and remained aligned to mandated objectives during 2018.

Key matters considered during the year continued

Matter considered	How the Committee addressed the matter
Internal control Internal control and risk	The Committee isresponsible for reporting and making recommendationsto the Board on the
managementsystems	effectiveness ofGroup-wide internal control and risk managementsystems.
	The Committee considered the outcome of the annual review of the systems of internal control and risk management as discussed on pages 107 and 108. The review identified a number of areas for improvement, particularly in respect of the general IT control environment, and the necessary actionsthat have been or are being taken. The Audit Committees at group and subsidiary level collectively monitor outstanding actionsregularly and ensure sufficient resource and focusisin place to resolve them within a reasonable time frame.
	The Board confirmed that there is an ongoing processfor identifying, evaluating and managing the significant risksfaced by theGroup, which has been in place throughout the period and up to the date of thisreport and confirmsthat the system remains effective.
	An update to the organisationalstructure and governance model for cybersecurity management, to furtherstrengthen theGroup'sinformation security capabilities, was presented at a joint meeting of the Risk and Audit Committeesin October 2018.
Governance
Group governance framework	TheGroupGovernance Manualsets out the policies and procedures by which theGroup operates within itsframework of internal governance, taking into account relevantstatutory and regulatory matters. It is a platform for mandating specific ways of working acrosstheGroup and each business unit attests annually to compliance with:
	— Mandatory requirementsset out inGroup-wide policies, including matters which must be reported to theGroup functions; and — Mattersrequiring prior approval from those parties with delegated authority.
	The Committee reviewed the results of theGroupGovernance Manual annual content review and the results of the year end certification of compliance withGroupGovernance Manual requirements for the year ended 31 December 2018.

06

Howard Davies Chair of the Risk Committee

Committee members

• Howard Davies(Chair)
• David Law
• KaiNargolwala
• Alice Schroeder (from March 2018)
• Lord Turner
• Tom Watjen (from November 2018)

Regular attendees

• Chairman of the Board
• Group Chief Executive
• Group Chief Risk Officer
• Chief Financial Officer
• Group Regulatory andGovernment Relations Director
• GroupGeneral Counsel and Company Secretary
• Director ofGroup-wide Internal Audit

Dependent on the businessto be discussed at each meeting, chief risk officers of the business units and members of theGroup Risk Leadership Team are invited to attend each meeting as appropriate

Number of meetings in 2018:

Five. (In addition a joint meeting was held with the Audit Committee)

Risk Committee report

Dear Shareholder

As Chair of the Risk Committee, I am pleased to report on the Committee's activities and focus during 2018.

Committee operation

The Committee assiststhe Board in providing leadership, direction and oversight of theGroup's overall risk appetite and limits, risk strategy, and risk culture. It also oversees and advisesthe Board on current and future risk exposures of theGroup, including those which have the potential to impact on the delivery of theGroup's Business Plan. The Committee reviewstheGroup Risk Framework and recommends changesto it for approval by the Board to ensure that it remains effective in identifying and managing the risksfaced by theGroup. In March 2018, theGroup announced the appointment of Mr Turner asGroup Chief Risk Officer (CRO) and Executive Director. During the year, the Committee welcomed Ms Schroeder and Mr Watjen as membersin March and November respectively.

The Committee received regular reports from the CRO, who is advised by the Group Executive Risk Committee (GERC). I provided feedback on the performance of the CRO to theGroup Chief Executive Officer as part of the annual evaluation of the Board and itsmembers. TheCommittee also received regular reportsfrom the Group-wide InternalAudit andCompliance functions and updatesfrom other areas of the business as needed.

Transformation activity and demerger of M&GPrudential

During 2018, a key area of consideration for the Committee wasthe risk associated with theGroup's portfolio of key strategic change initiatives, including the merger and transformation programmes at M&GPrudential and the planned demerger of M&GPrudential from the rest of the Group. In March 2018, prior to the announcement of the demerger, the Committee considered the associated risks of proceeding andweighed themagainstthe risks ofretaining the currentGroupstructure. Analyses of the key financial risksto the execution of the demerger under various stressscenarioswere considered.During the year, the Committee considered updates, risk opinions, guidance and assurance on critical change and demerger activity.

Risk appetite and principal risks

During 2018 we reviewed theGroup's risk policies and the aggregate limits

accompanying theGroup risk appetite statements, updating limitswhere necessary to reflect changesin theGroup'srisk profile and the evolving regulatory and macroeconomic environments. We also reviewed the principalrisksfacing theGroup and received regular updates on these through the course of the year and received regular reportsfrom the chief risk officers of our Material Subsidiaries. A fuller explanation of principal risksfacing theGroup and the way in which theGroup managesthese isset out in theCRO'sreport on pages 52 to 69. During 2018, the Committee considered risk assessments and opinions on key areas covering the risks associated with theGroup's Business Plan and executive remuneration, further details of which are noted below.

In respect of our principal risks, we continued to focus on those arising from the products we offer our customers, those inherent in our investment portfolios and the risksthat arise from the operation of our businesses. We regularly reviewed the strength of our capital and liquidity positions, which included the results of stress and scenario analyses, and the significant ongoing changesto the regulatory framework and environment. In addition, we closely monitored risks arising from the macroeconomic environment and the pace of regulatory developments acrossthe globe.

In-depth reviewsincluded consideration of the Jackson fixed annuity business and hedging programme. Reviews were also performed on theGroup's credit risk exposures, in the context of our assessment of the global credit cycle, and into our Asia business which included reviews of the product lifecycle in Singapore, persistency risk in Indonesia and fund management and modelling in ourHong Kong and Singapore businesses. During the year we continued to oversee the work required as a result of the continued applicability to theGroup of the requirements under the Global Systemically Important Insurer (G-SII) regime, which included the approval of the 2018 Systemic Risk Management Plan, Liquidity Risk Management Plan and Recovery Plan.

Information security and privacy

Information security and data privacy also received attention from the Committee in 2018. During the year we reviewed progress achieved on the implementation of our plans on cyber defence. TheCommittee received updates on implementation activity to ensure compliance with the EU's General Data Protection Regulation

01 Group overview

06

(GDPR), which came into force in May 2018. In October 2018 a jointsession with the Audit Committee on cybersecurity included an update on theGroup-wide cybersecurity strategy and information security programme and was aimed at enhancing the knowledge ofNonexecutive Directors as well as providing an update on the progress of theGroup's approach to cybersecurity.

Regulatory matters

TheCommittee reviewed the methodology and annual calibration of the Solvency II internal model, and we also oversaw the submission of theGroup's Major Model Change application in December 2018

in respect of the model. The Committee considered theGroup results of field testing of the Insurance Capital Standards (ICS) in October 2018.

Following the announcement in August 2018 that theHong Kong IA would become theGroup'sregulator after the demerger of M&GPrudential, updates on the discussions with theHong Kong IA on the future regulatory relationship were provided as part of the CRO'sregular reporting to the Committee.

Committee governance

We work closely with the Audit Committee to ensure both Committees are updated and aligned on matters of common interest. Where responsibilities are perceived to overlap between the two Committees, Mr Law and I agree the most appropriate Committee to consider the matter.

As Chair of the Committee, I have responsibility for ensuring the Committee operates effectively. In order to enable the Committee to provide constructive challenge to management, I encourage open debate and contributionsfrom all Committee members. I report to the Board in full after each meeting on the main matters discussed. An annual review of our effectiveness was carried out as part of the Board evaluation, described in more detail on page 100. The Committee wasfound to be functioning effectively.

How the Committee spent its time during 2018

	Feb	May	Jul	Oct	Dec
Markets and Group risk updates
Group risk update	l	l	l	l	l
Material Subsidiaries	l	l	l	l	l
Risk management
Group top risk identification	l		l
Top risk discussions	l	l	l	l	l
Business unitspecific risk matters	l	l	l	l	l
Risk assessment of Business Plan					l
Risk function effectiveness	l
Risk culture					l
Risk oversight of remuneration	l		l		l
Transformation	l	l	l	l	l
Information security and privacy	l	l	l	l	l
Regulatory matters
Regulatory matters	l	l	l	l	l
Risk framework
Solvency II internal model development and changes	l	l	l		l
Group risk appetite review				l
Risk limit updates	l		l
Risk policy framework refresh			l		l
Risk-related compliance policies	l		l	l
Group-wide Internal Audit update	l	l	l	l	l
Governance and reporting
Full and half year risk disclosures	l		l
Global Systemically Important Insurer				l
Liquidity Risk Management Plan, Systemic Risk Management Plan and Recovery Plan				l
Solvency II reporting and governance processes		l
Own Risk and Solvency Assessment		l
Year-end E-cap results		l
Group Regulatory and Compliance report	l	l	l	l	l
Committee terms of reference	l			l

Key matters considered during the year
Matter considered	How the Committee addressed the matter
Business Plan	As part of itsrole in overseeing and advising the Board on future risk exposures and strategic risks, the Committee reviewedGroup Risk's assessment of theGroup's Business Plan which covered a range of both financial and non-financial considerationsincluding those associated with the demerger of M&GPrudential from theGroup.
	As part of theGroup Risk'sreview of the annualGroup Business Plan,Group Approved Limits were reviewed, updated and approved by the Committee.
Risk appetite	The Committee isresponsible for recommending theGroup's overall risk appetite and tolerance to the Board.
	The Committee approved theGroup Risk Appetite Statement, which sets aggregate risk limitsin respect of capital requirements, earnings volatility and liquidity as well as maintaining the existing tolerance levels associated with each of these limits.
Risk framework and management	Annually, business units must assess and certify their compliance with theGroup Risk Framework and risk policies as part of the annualGroupGovernance Manual certification. The certification processfor risk policiesisfacilitated byGroup Risk and subject to oversight by the Committee. In 2018, theGroup Risk Framework and risk policies were subject to their annual review, with changes being approved by the Committee.
	The Committee conducted its annual review of Risk effectivenessin February. It also approved the Group Risk Mandate, which formally sets out the purpose and responsibilities of theGroup Risk function, and how it works with other functions and maintains oversight of business unit risk functions and their effectivenessin managing the key risksto theGroup.
	In December 2018, the Committee considered an update on activitiessupporting a positive risk culture across Prudential, including the developments and improvementsimplemented acrossthe business units over the year.
	The Committee considered the results of a number of 'deep dive' reviews undertaken during 2018. These focused on risks embedded within the existing portfolio of productsin ourUS, Asia andUK businesses, as well asthe risks arising from, and to, the demerger.
Transformation activity and demerger of M&GPrudential	In March 2018, theGroup announced the planned demerger of M&GPrudential from the rest of theGroup, further contributing to the portfolio of key strategic change activity acrosstheGroup. The Committee was provided with updates on this activity throughout the year, and considered the results of risk opinions, guidance and assurance on the demerger.
	Analyses of the key financial risksto the execution of the demerger under variousstressscenarios were considered.
	Risk recommendations and observations were provided to the Committee on the key merger and transformation programmes currently ongoing at M&GPrudential.
Hong Kong Insurance Authority (IA)	In August 2018, it was announced that theHong Kong IA would become theGroup-wide supervisor for Prudential plc after the demerger of M&GPrudential. Key updates on the discussions with the Hong Kong IA on the future regulatory relationship were provided to the Committee as part of the CRO'sregular reporting.
Information security and privacy	In July 2018, the Committee was provided with an update on the key deliverablesrelating to the Group's cyber resilience and throughout 2018 the Committee received regular updates onGroup wide information security metrics providing a view ofsecurity posture across our businesses.
	An update to the organisationalstructure and governance model for cybersecurity management, to furtherstrengthen theGroup'sinformation security capability, was presented at a joint meeting of the Risk and Audit Committeesin October.
	InNovember 2018, Prudential participated in the annual FTSE 350 CyberGovernanceHealth Check survey, insightsfrom which inform government policy on cybersecurity and contribute to guidance and support provided to industry and boards.
	In the key area of data privacy, the Committee received updatesthroughout the year on progress onGroup-wide implementation activity to ensure compliance with theGeneral Data Protection Regulation.

Matter considered	How the Committee addressed the matter
Jackson oversight	The Committee received regular updates on the Jackson businessthroughout 2018, including updates on financial risk oversight over the business.
	The Committee approved updatesto key risk limits used in its monitoring of the financial risksto the Jackson business, in particular those over interest rate risk.
	Additionally, the Committee considered the results of in-depth reviews performed on the Jackson fixed annuity business and hedging programme.
Group principal risks	The Committee evaluated theGroup's principal risks, considering recommendationsfor promoting additional risks and changesin the scope of existing risks. The Committee received regular reporting on the principal risks and mitigating actions over the course of the year within theGroup CRO's regular report to the Committee.
	These reports also provided the Committee with regulatory updates; developments under Solvency II and theGroup'sinternal model; the implications of the developing global capital standardsincluding the engagement with theHong Kong IA on the development of an industry group capital and risk management framework; and developments and the deliverablesrequired as a result of theGroup's designation as aGlobal Systemically Important Insurer.
Solvency II reporting	The Committee considered the Own Risk and Solvency Assessment report based on the outcomes of theGroup's Business Plan and the full year 2017 risk and solvency positions prior to its approval by the Board. The report was also considered in light of the results of theGroup'sregularstresstesting.
	The Committee reviewed the methodology and annual calibration of the Solvency II internal model. The 2018 Major Model Change application was closely overseen by the Committee throughout the year and we approved the model changes as part of the submission of the application to the regulator.
Global Systemically Important Insurer (G-SII)	The Financial Stability Board (FSB) confirmed inNovember 2017 that the 2016Global Systematically Important Insurer designation would continue to apply to theGroup. As a result, in 2018 the Committee wasrequired to consider and approve updated deliverables associated with the designation. These included the Systemic Risk Management Plan, Recovery Plan and Liquidity Risk Management Plan.
Stress testing	Stress and scenario testing is a key risk measurement and management tool for theGroup. The Reverse Stress Test exercise was carried out which confirmed theGroup's position asremaining resilient to certain businessfailure scenarios. The report related to theGroup's year end 2017 position and wassubmitted to the PRA.
	The Committee also considered the results of the 2018 European Insurance and Occupational Pensions Authority (EIOPA) Stress Tests, which were submitted to the PRA and EIOPA.
Remuneration	The Committee has a formal role in the provision of advice to the Remuneration Committee on risk management considerationsin respect of executive remuneration.
	The Committee considered reviews on the risk management considerations associated with annual incentive plans during the year and reports on remuneration-related matters.
Compliance and audit reporting	The Committee received regular reporting on key compliance risks and mitigation activity, and reviewed and approved updatesto a number of regulatory compliance risk-related policiesincluding those around anti-bribery and corruption, conflicts of interest and personal account dealing.
	The Committee also received updatesfrom Group-wide Internal Audit throughout the year.

02

04

06

Statutory and regulatory disclosures

Financial reporting

The Directors have a duty to report to shareholders on the performance and financial position of theGroup and are responsible for preparing the financial statements on pages 172 to 329 and the supplementary information on pages 342 to 375. It isthe responsibility of the auditor to form independent opinions, based on its audit of the financialstatements and its audit of the EEV basissupplementary information, and to report its opinionsto the Company'sshareholders and to the Company. Its opinions are given on pages 330 to 340 and page 376.

Company law requiresthe Directorsto prepare financialstatementsfor each financial year that give a true and fair view of the financial affairs of the Company and of theGroup. The criteria applied in the preparation of the financialstatements are set out in the statement of Directors' responsibilities on pages 329 and 375. Company law also requiresthe Board to approve the Strategic report. In addition, theUK Code requiresthe Directors' statement to state that they consider the Annual Report and financialstatements, taken as a whole isfair, balanced and understandable and providesthe information necessary forshareholders to assessthe Company's position and performance, business model and strategy.

The Directors are further required to confirm that the Strategic report includes a fair review of the development and performance of the business, with a description of the principal risks and uncertainties. Such confirmation is included in the statement of Directors' responsibilities on pages 329 and 375.

The Strategic report provides, on pages 48 to 50, a description of theGroup's capital position, financing and liquidity. The risks facing theGroup's business are discussed in theGroup Chief Risk Officer'sreport of the risksfacing our business and how these are managed on pages 52 to 69.

The Directors who held office at the date of approval of this Directors' report confirm that,so far asthey are each aware, there is no relevant audit information of which the Company's auditor is unaware; each Director hastaken all the stepsthat he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Going concern

In accordance with the guidance issued by the Financial Reporting Council in September 2014, 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting', after making sufficient enquiriesthe Directors have a reasonable expectation that the Company and theGroup have adequate resourcesto continue their operationsfor a period of at least 12 monthsfrom the date that the financialstatements are approved. In support of this expectation, the Company's business activities, together with the factorslikely to affect itsfuture development,successful performance and position in the current economic climate, are set out in the Strategic report on pages 10 to 86. The risksfacing theGroup's capital and liquidity positions and their sensitivities are referred to in the Strategic report on pages 52 to 69 and note II(c) 'Solvency Capital Position at 31 December 2018' within Additional unaudited financial information. In addition the Directors considered the operational and financial risks arising from theUK'sintended departure from the EuropeanUnion in a number of possible scenarios, including those which assume no withdrawal agreement is enacted. TheGroup'sIFRS financialstatementsinclude the details of theGroup's borrowingsin note C6 on page 269, the market risk and liquidity analysis associated with theGroup's assets and liabilities can be found in note C3.4(a) on pages 236 to 238, policyholder liability maturity profile by business unitsin notes C4.1(b), (c) and (d) on pages 244, 246 and 248 respectively, cash flow detailsin the consolidated statement of cash flows and provisions and contingenciesin notes C11 and D2. The Directorstherefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing the financialstatementsfor the year ended 31 December 2018.

Powers of the Board

The Board may exercise all powers conferred on it by the Company's Articles and the Companies Act 2006. This includesthe powers of the Company to borrow money and to mortgage or charge any of its assets(subject to the limitations set out in the Companies Act 2006 and the Company's Articles) and to give a guarantee,security or indemnity in respect of a debt or other obligation of the Company.

Securities dealing and inside information

Prudential has adopted securities dealing rulesrelating to transactions by Directors on terms no less exacting than required by Appendix 10 to theHK Listing Rules and by relevantUK regulations. The Directors have complied with these rulesthroughout the period.

TheGroup has adopted an Inside Information Policy which includes guidance and proceduresfor the identification, dissemination and escalation of inside information as well as appropriate controls on the disclosure ofsuch information in line with regulatory requirements. Allstaff are made aware of the policy and receive communications reminding them of their obligations when they work on any confidential mattersin the business or are notified when the Company enters or exits a closed period.

Requirements of Listing Rule 9.8.4

Information to be included in the Annual Report and accounts under Listing Rule 9.8.4 may be found asfollows:

Listing Rule	Description	Page
9.8.4 (4)	Details of long-term incentive schemes required by Listing Rule 9.4.3	161
9.8.4 (10)	Contracts of Significance involving a Director	106

US regulation and legislation

As a result of itslisting on theNew York Stock Exchange, the Company isrequired to comply with the relevant provisions of the Sarbanes-Oxley Act 2002 asthey apply to foreign private issuers and has adopted proceduresto ensure such compliance. In particular, in relation to Section 302 of the Sarbanes-Oxley Act 2002 which covers disclosure controls and procedures, a Disclosure Committee has been established, reporting to theGroup Chief Executive, chaired by the Chief Financial Officer and comprising members ofGroup head office management. The work of the Disclosure Committee supportstheGroup Chief Executive and Chief Financial Officer in making the certificationsregarding the effectiveness of theGroup's disclosure procedures.

Change of control

Under the agreements governing Prudential CorporationHoldings Limited's life insurance and fund management joint ventures with China International Trust & Investment Corporation (CITIC), if there is a change of control of the Company, CITIC may terminate the agreements and either (i) purchase the Company's entire interest in the joint venture or require the Company to sell itsinterest to a third party designated by CITIC, or (ii) require the Company to purchase all of CITIC'sinterest in the joint venture. The price ofsuch purchase orsale isto be the fair value of the sharesto be transferred, as determined by the auditor of the joint venture.

Customers

The five largest customers of theGroup constituted in aggregate lessthan 30 per cent of itstotal revenue from sales for each of 2018 and 2017.

06

Index to principal Directors' report disclosures

Information required to be disclosed in the Directors' report may be found in the following sections:

Information	Section in Annual Report	Page number(s)
Disclosure of information to auditor	Statutory and regulatory disclosures	128
Directors in office during the year	Board of Directors	89 to 94
Corporate responsibility governance	Corporate responsibility review	70 to 86
Employment practices	Corporate responsibility review	78 to 80
Greenhouse gas emissions	Corporate responsibility review	75 to 77
Charitable donations	Corporate responsibility review	85
Political donations and expenditure	Corporate responsibility review	85
Remuneration Committee report	Directors' remuneration report	132 to 169
Directors' interests in shares	Directors' remuneration report	158
Agreements for compensation for loss of office or employment on takeover	Directors' remuneration report	162 and 163
Details of qualifying third-party indemnity provisions	Governance report	106
Internal control and risk management	Governance report	107 and 108
Powers of Directors	Governance report	128
Rules governing appointment of Directors	Governance report	105
Significant agreements impacted by a change of control	Governance report	129
Future developments of the business of the Company	Group Chief Executive'sreport	4 to 7
Post-balance sheet events	Note D3 of the notes on theGroup financialstatements	299
Rules governing changes to the Articles of Association	Shareholder information	420
Structure of share capital, including changes during the year and restrictions on the transfer of securities, voting rights and significant shareholders	Shareholder information and note C10 of the notes on theGroup financialstatements	420, 421 and 291
Business review	Strategic report	10 to 86
Changes in borrowings	Strategic report and note C6 of the notes on the Group financialstatements	48, 49 and 269
Dividend details	Strategic report	2 and 39
Financial instruments	Strategic report and Additional information	52 to 69 and 407

In addition, the risk factorsset out on pages 407 to 415 and the additional unaudited financial information set out on pages 378 to 406, are incorporated by reference into the Directors' report.

Signed on behalf of the Board of Directors

Alan F Porter Group General Counsel and Company Secretary 12 March 2019

Directors' remuneration report

Annual statement from the Chairman of the Remuneration Committee	132
Our Executive Directors' remuneration at a glance	135
Summary of the current Directors' remuneration policy	137
Annual report on remuneration	142
Supplementary information	166

Thisreport has been prepared to comply with Schedule 8 of The Large and Medium-sized Companies andGroups (Accounts and Reports) (Amendment) Regulations 2013, as well asthe Companies Act 2006 and other related regulations.

The following sections were subject to audit: Table of 2018 and 2017 Executive Director total remuneration (the 'single figure') and related notes,salary information table in section entitled Remuneration in respect of performance in 2018, Pension entitlements, Long-term incentives awarded in 2018, Chairman andNon-executive Director remuneration in 2018, Statement of Directors'shareholdings, Outstanding share options, Recruitment arrangements and Paymentsto past Directors and paymentsfor loss of office.

05

Financialstatements

06 European

Page

EmbeddedValue (EEV) basisresults

Annual statement from the Chairman of the Remuneration Committee

Dear shareholder, I am pleased to present the Remuneration Committee's report for the year to 31 December 2018.

The Committee'sreport is presented in the following sections:

• 1 An 'at a glance'summary of theGroup's remuneration arrangements on pages 135 and 136;
• 2 A summary of our Directors' remuneration policy on pages 137 to 141 which describes how we pay Directors. This policy was approved by shareholders at the 2017 AGM;
• 3 Our Annual report on remuneration on pages 142 to 165 which describes how the Committee applied the Directors' remuneration policy in 2018 and the decisionsit has made in respect of 2019; and
• 4 Supplementary information on pages 166 to 169.

By way of preface, I would like to share the context for the key decisionsthe Committee took during 2018, in particular, how we rewarded performance achieved during the year, the remuneration arrangementsfor those joining and stepping down from the Board and the decisionsrelating to remuneration arrangementsin 2019.

I am delighted to welcome Fields Wicker-Miurin who joined the Committee in September 2018.

Implementing the Directors' remuneration policy

During 2018, the Committee operated all elements of remuneration in line with the Directors' remuneration policy, which received the support of 90.7 per cent ofshareholders at the AGM in May 2017. The new policy simplified pay arrangements by reducing the number of annual bonus measures, it also introduced a two-year holding period on long-term incentive awards and increased share ownership guidelines.

I am pleased to note that an annual review of the Committee's effectiveness was carried out in 2018 as part of the Board evaluation, as described in more detail on page 100. The Committee wasfound to be functioning effectively.

Rewarding 2018 performance

Prudential's executive remuneration arrangementsreward the achievement of Group, business, functional and personal targets, provided that this performance

is delivered within the Company'srisk framework and appetites, and that the conduct expectations of Prudential, our regulators and otherstakeholders are met.

Asset out in the Strategic reportsection earlier in this Annual Report, theGroup delivered a strong financial result which has been achieved in parallel to theGroup's good progressin the preparationsfor the intended demerger of M&GPrudential. The table opposite illustrates achievement of KPIs.

2018 operating profit andGroup free surplus generation exceeded the stretching targets established by the Board, with operating profit 6 per cent higher and Group free surplus generation 14 per cent higher than 2017 on a constant exchange rate basis, despite lower earningsfrom annuitiesfollowing the reinsurance transaction in March 2018. EEV new business profit was 11 per cent higher than prior year on a constant exchange rate basisreflecting the performances outlined in the business performance review, which delivered a result approaching the Board approved targets. All of our business units achieved target remittanceslevels and, although lower than the prior period, we achieved our objective to balance net remittancessufficient to coverthe dividend and corporate costs, with reinvestment in profitable opportunities within the business units, and maintained significant cash stock at the centre. The business unit remittances contributed toGroup cashflow, which approached the stretch target level. TheGroup achieved these results while maintaining appropriate levels of capital and while operating within the Group'srisk framework and appetites. The Committee believesthat the bonusesit awarded to Executive Directorsfor 2018 (between 84 per cent and 95 per cent of executives' maximum AIP opportunities) appropriately reflect this performance.

Performance in 2018 has continued to deliver on the momentum achieved in recent years. TheGroup delivered total operating profits of £13,782 million in the 2016, 2017 and 2018 financial years. Based on totalshareholder return (TSR) and thisstrong cumulative operating profit performance over the period, the Committee determined that between 55.5 and 62.5 per cent of the Prudential Long Term Incentive Plan (PLTIP) awards made to Executive Directorsin 2016 would vest (depending on the business unit). These awards will be released to participantsin April 2019.

The Committee continuesto ensure that payments and share or ADR award releasesreflect the performance of the business, and remains mindful of itsscope to use discretion if it is notsatisfied that underlying financial performance justifies the rewards arithmetically suggested by the achievement of the performance conditions.

The total 2018 remuneration or 'single figure' for theGroup Chief Executive, Mike Wells, is 13.2 per cent lower than histotal 2017 'single figure', notwithstanding his exceptional leadership and personal performance. This chiefly reflectsthat a lower proportion of 2016 PLTIP awards vested than of 2015 awards.

Changes to the executive team

As you will be aware, there have been changesto Prudential'steam of Executive Directors during 2018. James Turner was appointed asGroup Chief Risk Officer in March 2018. Anne Richardsstepped down from the Board as Chief Executive, M&Gin August 2018. Barry Stowe retired as Chairman and Chief Executive Officer of ourNorth American BusinessUnit (NABU) and stepped down from the Board on 31 December 2018.He wassucceeded by Michael Falcon who was appointed to the Board on 7 January 2019. The remuneration decisions arising from these changes were disclosed in stock exchange and website announcements when they took place. Further information can be found in the Recruitment arrangements and Payments to past Directorssections of thisreport.

Implementation in 2019

TheCommittee intendsto continue to operate within the current Directors' remuneration policy during 2019. In determining remuneration packagesfor 2019, theCommittee was mindful of the need forrestraint in base salary increases. All Executive Directorsreceived a salary increase of 2 per cent effective 1 January 2019. The 2019 salary increase budgetsfor other employees acrosstheGroup's business units were between 2 per cent and 8 per cent.No changes have been made to executives' maximum opportunities under eitherthe annual incentive orthe long-term incentive plans, as we believe remuneration packages provide an appropriate balance between performance overthe short and the long term.

During late 2018 and early 2019, I corresponded with and met the majority of our majorshareholders, as well as organisationsthat represent and advise shareholders. On behalf of the Committee,

Notes

1 In thisreport 'operating profit' refersto adjusted IFRS operating profit based on longer-term investment returns. As previously reported and excluding the contribution

from the Korea life businessfor all years. 2 As previously reported and excluding the contribution from the Korea life business andUK bulk annuity new business profitsfor all years.

3 Asreported basis.

4 Asreported basis/constant exchange basis(excluding business unit remittances, which are presented asreported).

5 2014-2018 CAGR asreported.

02

01

04

06

I would like to thank them for their engagement. During this consultation, there was a great deal ofsupport for the proposals which the Committee made for 2019 and valuable discussions on other areasfor consideration.

In light of conversations with shareholders and their advisers, and given the unusual circumstances of theGroup asit prepares for the planned demerger of the M&GPrudential business, the Committee has made the following changesfor 2019 which aim to enhance the transparency of executive remuneration arrangements; simplify the connection between performance and reward; and reflect changesin market practice which are developing in the context of the new UK CorporateGovernance Code:

Reduced proportion of 2019 PLTIP awards vesting for threshold performance

The Committee hasreduced the proportion of 2019 PLTIP awards which would vest for threshold performance from 25 per cent to 20 per cent. This would see the value available for threshold performance decrease from 100 per cent ofsalary for theGroup Chief Executive to 80 per cent ofsalary.

Revised 2019 PLTIP award performance measures

It isimperative that the performance measures attached to PLTIP awards create a clear focus within the executive team and a straightforward connection with the value to be delivered to shareholders, particularly astheGroup preparesfor the planned demerger. On this basis, the Committee has decided that a different mixture of performance conditions are used,specifically for the awardsto be made in 2019, which will vest based on performance over the 2019 to 2021 financial years.

The vesting of 75 per cent of the 2019 PLTIP awards will be based on the achievement of relative TSR targets. Performance against our balanced scorecard targets will continue to determine the vesting of the remaining 25 per cent of the awards asset out in the Statement of implementation in 2019. The measures attached to long-term incentive awardsto be made in 2020 and subsequent years will be developed in light of the evolving priorities of the business and we will consult with shareholders on these in due course.

This approach benefitsfrom maximising the community of interest between Executive Directors and othershareholders during the 2019 to 2021 period, improving simplicity by reducing the number of measures used in the PLTIP, and providing a set of metrics common to all Executive Directors by removing the different measures and weightings previously applied toGroup executives, business unit Chief Executives and to theGroup Chief Risk Officer.

Reduced pension benefits for newly recruited Executive Directors

The Committee is mindful of the recent developments with regardsto the alignment of retirement benefits across theGroup, and for externally recruited Executive Directors appointed on or after 1 March 2019 has committed to reducing the pension benefitsfrom the current level of 25 per cent ofsalary to 20 per cent of salary. As part of next year'sreview of the Directors' remuneration policy, the Committee will consider its approach to Executive Director pension benefitsfurther in the light of market developments, to ensure they are appropriately aligned to the retirement arrangements offered acrossthe wider workforce taking into account the composition of theGroup at that time.

Early publication of the CEO pay ratio

The Committee has decided to publish the CEO pay ratio in the 2018 Directors' remuneration report, one year in advance of the disclosure becoming a requirement under theUK Companies(Miscellaneous Reporting) Regulations 2018. This has been welcomed by many shareholders.

Enhanced disclosure of performance against personal and functional Annual Incentive Plan targets

Thisreport includes more detail about the processforsetting personal and strategic targets, and about levels of achievement against the targets used for 2018 bonuses. There is also a new section on the functional objectives used in the determination of theGroup Chief Risk Officer's bonus. These disclosures can be found in the Annual report on remuneration.

Post cessation share ownership policy

Our current policy isthat existing remuneration arrangements, including the deferral underthe bonusinto Prudential plc shares or ADRsfor three years and a post-performance holding period of two yearsfor awards of Prudential plc shares or ADRs under the PLTIP, will normally continue to provide alignment between the interests of oursenior executives and our othershareholdersfor a period after the end of employment. This will be reviewed as part of the development of the new Directors' remuneration policy in 2019.

In conclusion

The Committee intendsto seek shareholder approval for a new Directors' remuneration policy at the 2020 AGM. During 2019, we will review this policy, taking into account the demerger, the views of ourshareholders, evolving market practice in meeting the requirements of the new UK CorporateGovernance Code, changing accounting standards and the broader regulatory and competitive environment. I trust that you will find thisreport a clear account of the way in which the Committee hasimplemented the Directors' remuneration policy during 2018.

Anthony Nightingale, CMG SBS JP Chairman of the Remuneration Committee 12 March 2019

Our Executive Directors' remuneration at a glance

Our current remuneration architecture

Key elements1		2018	19 20	2020	2021	2022	2023	Key features of the policy	How we implemented the policy
Fixed pay	Salary and benefits							Broadly aligned with pay budget for other employees	Salary increase of 2% in 2018
Short-term variable pay Financial/functional and personal objectives set with reference to business plans approved by the Board	Cash bonus Deferred bonus							The maximum opportunity is up to 200% of salary 40% of bonus is deferred into shares for three years Award is subject to malus and clawback provisions	The Group Chief Executive has a maximum bonus opportunity of 200% of salary. For other Executive Directors the maximum is 180% of salary or less 2018 bonuses were paid based on financial performance or functional measures as well as personal objectives
Long-term variable pay Stretching operating profit ranges set with reference to business plans approved by the Board for in-flight awards2 TSR vesting relative to international insurance peers Balanced scorecard of capital, conduct and diversity measures	Prudential Long Term Incentive Plan (PLTIP)							Maximum award under the plan is 550% of salary Aligned with long-term business strategy and delivery of shareholder value Measured over three financial years from year of award with a two-year post-performance holding period Award is subject to malus and clawback provisions	Awards in 2018 were below the plan limits: — Group Chief Executive: 400% of salary — CEO, NABU: 460% of salary — CEO, M&G: 450% of salary3 — Other PLTIP awards were 250% of salary For business unit CEOs, awards vest based on TSR, business unit operating profit and balanced scorecard measures For other Executive Directors, awards vest based on TSR, Group operating profit and balanced scorecard measures
Share ownership guidelines	Share ownership guidelines							— 400% of salary for the Group Chief Executive — 250% of salary for other Executive Directors	Significant share ownership guidelines for all Executive Directors as follows:

Notes

1 TheCEO,NABUis alsoeligible toreceive a10per centshareofthe Jacksonbonuspool.

2 PLTIPawardsgrantedin2019willbe subjecttorelativeTSRandbalancedscorecardmeasuresonly.

3 TheCEO,M&Gresignedduringthe year andthis awardwill lapse.

02

04

06

What performance means for Executive Directors' pay

At Prudential, remuneration packages are designed to ensure a strong alignment between pay and performance. As you can see from the charts within the Annualstatement from the Chairman of the Remuneration Committee,sustained growth across our key performance metrics has delivered substantial value to ourshareholders. This has been reflected in both the annual bonuses paid and the release of long-term incentive awards, asset out in the Annual report on remuneration.

In particular, the long-term incentives awarded to Executive Directorsin 2016 had stretching performance conditions attached to vesting and were denominated in shares or ADRs. The value generated forshareholdersthrough share price growth and dividends paid over the last three yearsisreflected in the value of the LTIP releases.

The value of these performance-related elements of remuneration is added to the fixed packages provided to Executive Directorsto calculate the 2018 'single figure' of total remuneration. The total 2018 'single figure' for theGroup Chief Executive is 13.2 per cent less than the total 2017 'single figure', despite continuing strong business performance and his exceptional leadership and personal performance. Thisis chiefly a result of a lower level of vesting of the 2016 PLTIP awards. The valuesfor the Executive Directors during the year are outlined in the table below:

		Fixed pay		Performance related
Executive Director	Role	2018 salary	Pension and benefits	2018 bonus	LTIP vesting	2018 single figure	2017 single figure1
Mark FitzPatrick John Foley	Chief Financial Officer Chief Executive,	£745,000	£275,000	£1,241,000	–	£2,261,000	£1,634,000
	M&GPrudential	£781,000	£318,000	£1,186,000	£1,511,000	£3,796,000	£4,597,000
NicNicandrou2	Chief Executive, PCA3	£1,023,000	£654,000	£1,692,000	£1,433,000	£4,802,000	£4,705,000
Anne Richards4	Chief Executive, M&G	£249,000	£164,000	–	–	£413,000	£3,053,000
Barry Stowe2,5	Chairman andCEO,NABU6	£867,000	£287,000	£4,935,000	£2,761,000	£8,850,000	£9,541,000
James Turner7	Group Chief Risk Officer	£521,000	£239,000	£793,000	£347,000	£1,900,000	N/A
Mike Wells	Group Chief Executive	£1,126,000	£689,000	£2,133,000	£3,486,000	£7,434,000	£8,560,000

Notes

1 Revised 2017 single figure, in line with the regulations, reflecting the actual value of 2017 LTIP releases and additional dividends paid asset out in the notesto the 2017 single figure table on page 145.

2 NicNicandrou and Barry Stowe are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value.

3 PCA is an abbreviation of Prudential Corporation Asia.

4 Anne Richardsresigned and stepped down from the Board as an Executive Director on 10 August 2018.Her employment with the Company terminated on 30November 2018.

5 Barry Stowe retired from the Board on 31 December 2018.His employment with the Company will terminate on 31 December 2019.

6 NABUis an abbreviation ofNorth American BusinessUnit which includesJacksonNational Life and PPM America.NABUis now described asJacksonHoldings.

7 James Turner was appointed to the Board on 1 March 2018 asGroup Chief Risk Officer. The remuneration above was paid in respect of hisservice as an Executive Director.

Aligning 2019 pay to performance

The Committee awarded salary increasesto the Executive Directorsfor 2019 of 2 per cent, which was at the lower end of the range ofsalary increase budgetsfor the wider workforce.No changes have been made to incentive opportunities as we believe remuneration packagesremain strongly aligned with performance over both the short and the long term.However, as discussed in the Annual statement from the Chairman of the Remuneration Committee in the previoussection, the Committee hasreduced the proportion of the 2019 PLTIP awards which would vest for threshold performance.

Remuneration packagesfor 2019 are set out in detail in the Annual report on remuneration and summarised below:

			AIP
Executive Director	Role	2019 salary	Maximum bonus (% of salary)	Bonus deferred (% of bonus)	PLTIP award (% of salary)1
Michael Falcon2	Chairman and CEO, JacksonHoldings	US\$800,000	100%	40%	400%
Mark FitzPatrick	Chief Financial Officer	£760,000	175%	40%	250%
John Foley	Chief Executive, M&GPrudential	£797,000	180%	40%	250%
NicNicandrou	Chief Executive, PrudentialCorporationAsia	HK\$10,930,000	180%	40%	250%
James Turner	Group Chief Risk Officer	£638,000	160%	40%	250%
Mike Wells	Group Chief Executive	£1,149,000	200%	40%	400%

Notes

1 The PLTIP award issubject to a three-year performance period and a further two-year holding period.

2 Michael Falcon was appointed to the Board on 7 January 2019 as Chairman and Chief Executive Officer, JacksonHoldings LLC. In addition to having a maximum bonus opportunity of 100 per cent ofsalary under the AIP he will also be eligible to receive a 10 per centshare of the Jackson bonus pool.

Summary of the current Directors' remuneration policy

The Company's Directors' remuneration policy was approved by shareholders at the 2017 AGM. This policy came into effect following the AGM on 18 May 2017 and is expected to apply until the 2020 AGM, when shareholders will be asked to approve a revised Directors' remuneration policy.

The pagesthat follow present a summary of the current Directors' remuneration policy. The complete policy can be found on our website at www.prudential.co.uk/investors/governance-and-policies

Remuneration for Executive Directors

Fixed pay
Element	Operation	Opportunity
Salary	The Committee reviewssalaries annually, considering factorssuch as:	Annualsalary increasesfor Executive
	— Salary increasesfor other employees acrosstheGroup; — The performance and experience of the executive; — The size and scope of the role; — Group and/or business unit financial performance; — Internal relativities; and — External factorssuch as economic conditions and market data.	Directors will normally be in line with the increasesfor other employees across our business units.However, there is no prescribed maximum annual increase.
	Market data is also reviewed so thatsalariesremain in a competitive range, relative to each Executive Director'slocal market.
Benefits	Executive Directors are offered benefits which reflect their individual circumstances and are competitive within their local market, including: — Health and wellness benefits; — Protection and security benefits; — Transport benefits; — Family and education benefits; — All employee share plans and savings plans; — Relocation and expatriate benefits; and — Reimbursed business expenses(including any tax liability) incurred when travelling overseasin performance of duties.	The maximum paid will be the cost to the Company of providing benefits. The cost of benefits may vary from year to year but the Committee is mindful of achieving the best value from providers.
Provision for an income in retirement	Current Executive Directors have the option to: — Receive paymentsinto a defined contribution scheme; and/or — Take a cash supplement in lieu of contributions. Jackson's Defined Contribution Retirement Plan has a guaranteed element (6 per cent of pensionable salary) and additional contributions(up to a	Executive Directors are entitled to receive pension contributions or a cash supplement (or combination of the two) up to a total of 25 per cent of base salary.
	further 6 per cent of pensionable salary) based on the profitability of Jackson.	In addition, the Chief Executive, Prudential Corporation Asia receives statutory contributionsinto the Mandatory Provident Fund.

06

Variable pay
Element	Operation	Opportunity
Annual bonus	Currently all Executive Directors participate in theAnnual Incentive Plan (AIP).	The Chief Executive, M&Ghas a
	AIP awardsfor all Executive Directors, otherthan theGroupChief Risk Officer, are subject to the achievement of financial and personal objectives. TheGroupChief Risk Officer's performance measures are entirely based on a combination of functional and personal measures.	bonus opportunity of the lower ofsix timessalary or 0.75 per cent of M&G's operating profit. For other Executive Directorsthe maximum AIP opportunity is up to 200 per cent of
	Business unit chief executives either have measures of their business unit's financial performance in the AIP or they may participate in a business unit specific bonus plan. For example, the Chairman and CEO,NABUcurrently	salary. Annual awards are disclosed in the relevant Annual report on remuneration. In addition to the AIP, the Chairman and CEO,NABUreceives a 10 per centshare of the Jackson Senior Management Bonus Pool.
	participatesin the Jackson Senior Management Bonus Pool as well asin the AIP.
	The financial measures used for the annual bonus will typically include profit and cash flow targets and payments depend on the achievement of minimum capital thresholds. Jackson's profitability and other key financial measures determine the value of the Jackson Senior Management Bonus Pool.
	In specific circumstances, the Committee also hasthe power to recover all (or part of) bonusesfor a period after they are awarded to executives. These clawback powers apply to the cash and deferred elements of bonuses made in respect of performance in 2015 and subsequent years.
Deferred bonus shares	Executive Directors are required to defer a percentage (currently 40 per cent) of their total annual bonusinto Prudentialsharesfor three years. The release of awardsis notsubject to any further performance conditions.	The maximum vesting under this arrangement is 100 per cent of the original deferral plus accrued
	TheCommittee hasthe authority to apply amalus adjustmentto all, or a portion of, an outstanding deferred award in specific circumstances. From2015,the Committee also hasthe powerto recover all, or a portion of, amounts already paid in specific circumstances andwithin a defined timeframe (clawback).	dividend shares.
Prudential Long Term Incentive Plan	Currently all Executive Directors participate in the Prudential Long Term Incentive Plan (PLTIP). The PLTIP has a three-year performance period. The performance measures attached to each award are dependent on the role of the executive and will be disclosed in the relevant Annual report on	The value ofshares awarded under the PLTIP (in any given financial year) may not exceed 550 per cent of the executive's annual basic salary. Awards made in a particular year are usually significantly below thislimit and are disclosed in the relevant Annual report on remuneration. The Committee would consult with major shareholders before increasing award levels during the life of this policy.
	remuneration. The Committee hasthe authority to apply a malus adjustment to all, or a portion of, an outstanding award in specific circumstances. For 2015 and subsequent years, the Committee also hasthe power to recover all, or a portion of, amounts already paid in specific circumstances and within a defined timeframe (clawback). From 2017, PLTIP awards are usually subject to an additional two-year
	holding period following the end of the three-year performance period.
		Themaximumvesting underthe PLTIP is 100 per cent of the originalshare award plus accrued dividend shares.

Share ownership guidelines

The guidelinesforshare ownership are asfollows:

• 400 per cent ofsalary for theGroup Chief Executive; and
• 250 per cent ofsalary for other Executive Directors.

Executives have five yearsfrom the implementation of these increased guidelines(or from the date of their appointment, if later) to build thislevel of ownership. Shares earned and deferred under the AIP are included in calculating the Executive Director'sshareholding for these purposes.Unvested share awards under long-term incentive plans are not included but vested share awards under long-term incentive plans which are subject to the two-year holding period are included.

Progress against the share ownership guidelinesis detailed in the Statement of Directors'shareholdingssection of the Annual report on remuneration.

02

04

06

Malus and clawback policy

The Committee may apply clawback and/or a malus adjustment to variable pay in certain circumstances asset out below. The Committee can delay the release of awards pending the completion of an investigation which could lead to the application of malus or clawback.

	Circumstances when the Committee may exercise its discretion to apply malus or clawback to an award
Malus (appliesin respect of any annual bonus or long-term incentive award)	Where a business decision taken during the performance period by the business unit by which the participant was employed hasresulted in a material breach of any law, regulation, code of practice or other instrument that appliesto companies or individuals within the business unit.
Allows unvested shares awarded under deferred bonus and LTIP plansto be forfeited or reduced in certain circumstances.	There is a materially adverse restatement of the accountsfor any year during the performance period of (i) the business unit in which the participant worked at any time in that year; and/or (ii) any member of theGroup which is attributable to incorrect information about the affairs of that business unit.
	Any matter arises which the Committee believes affects or may affect the reputation of the Company or any member of theGroup.
Clawback Allows cash and share awards to be recovered before or after release in certain circumstances.	Where at any time before the fifth anniversary of the start of the performance period, either (i) there is a materially adverse restatement of the Company's published accountsin respect of any financial year which (in whole or part) comprised part of the performance period; or (ii) it becomes apparent that a material breach of a law or regulation took place during the performance period which resulted in significant harm to the Company or itsreputation, and the Committee considers it appropriate, taking account of the extent of the participants' responsibility for the relevant restatement or breach, that clawback be applied to the relevant participant.

The full Directors' remuneration policy sets out the Committee's powersin respect of Executive Directorsjoining or leaving the Board, where a change in performance conditionsis appropriate or in the case of corporate transactions(such as a takeover, merger or rights issue). The policy also describeslegacy long-term incentive plans under which some Executive Directors continue to hold awards.

Subsequent to the approval of the Directors' remuneration policy by ourshareholders, we have determined that for PLTIP awards granted in 2019 and subsequent yearsthe proportion vesting for threshold performance will be reduced from 25 per cent to 20 per cent of the maximum opportunity, and externally recruited Executive Directors appointed on or after 1 March 2019 will be offered pension benefits of 20 per cent ofsalary, rather than the current level of 25 per cent ofsalary.

Scenarios of total remuneration

The following chart provides an illustration of the future total remuneration for each Executive Director in respect of their remuneration opportunity for 2019. Three scenarios of potential outcome are provided based on underlying assumptionsshown in the notesto the chart. In line with changesto Schedule 8 of The Large and Medium-sized Companies andGroups(Accounts and Reports) (Amendment) Regulations 2013 which would apply from the next Directors' remuneration policy, we have indicated the maximum remuneration that would be delivered to each Executive Director by a 50 per centshare price growth during the relevant performance period.

The Committee issatisfied that the maximum potential remuneration of the Executive Directorsis appropriate. Prudential's policy isto offer Executive Directorsremuneration which reflectsthe performance and experience of the executive, internal relativities andGroup and/or business unit financial performance. In order for the maximum illustrated total remuneration to be payable:

• Financial performance must exceed theGroup and/or business unit'sstretching business plan;
• Relative TSR must be at or above the upper quartile relative to the peer group;
• The balanced scorecard, aligned to theGroup'sstrategic priorities, must be fully satisfied;
• Functional and personal performance objectives must be fully met;
• Performance must be achieved within theGroup's and business units' risk framework and appetites; and
• The Company'sshare price must grow by 50 per cent over three years.

Note

The scenariosin the chart above have been calculated on the following assumptions:

	Minimum	In line with expectations	Maximum
Fixed pay	Base salary at 1 January 2019.
	Pension allowance at 1 January 2019.
	Estimated value of benefits based on amounts paid in 2018. For Michael Falcon this has been based on the value of benefits paid to his predecessor, Barry Stowe.
	NicNicandrou and Michael Falcon are paid inHK\$ andUS\$ respectively and figures have been converted toGBP for the purposes of this chart.
Annual bonus	No bonus paid.	50% of maximum AIP.	100%of maximum AIP.
		Jackson bonus pool at the average of the last three years.	Jackson bonus pool at highest of the last three years.
Long-term incentives (excludes dividends)	No PLTIP vesting.	Vesting of 62.5%of award under PLTIP (midway between threshold	Vesting of 100%of award under PLTIP; plus
		and maximum).	Share price growth of 50% over three years.

Remuneration for Non-executive Directors and the Chairman

Non-executive Directors
Fees	Benefits	Share ownership guidelines
AllNon-executive Directorsreceive a basic fee for their duties as a Board member. Additional fees are paid for added responsibilitiessuch as chairmanship and membership of committees or acting asthe Senior Independent Director. Fees are paid toNon-executive Directorsin cash. Fees are reviewed annually by the Board with any changes effective from 1 July.	Travel and expensesforNon-executive Directors are incurred in the normal course of business, for example, in relation to attendance at Board and Committee meetings. The costs associated with these are all met by the Company.	It is expected thatNon-executive Directors will hold shares with a value equivalent to one timesthe annual basic fee (excluding additional feesfor chairmanship and membership of any committees). Non-executive Directors are expected to attain thislevel ofshare ownership within three years of their appointment.
Non-executive Directors are not eligible to participate in annual bonus plans or long-term incentive plans.
If, in a particular year, the number of meetingsis materially greater than usual, the Company may determine that the provision of additional feesisfair and reasonable.
Chairman
The Chairman receives an annual fee for the performance of the role. On appointment, the fee may be fixed for a specified period of time. Fees will otherwise be reviewed annually with	The Chairman may be offered benefits including: — Health and wellness benefits; — Protection and security benefits;	TheChairman has a share ownership guideline of one times his annual fee and is expected to attain thislevel ofshare ownership within five years of the date of his appointment.
any changes effective from 1 July.	— Transport benefits;
The Chairman is not eligible to participate in annual bonus plans or long-term incentive plans.	— Reimbursement of business expenses (and any associated tax liabilities) incurred when travelling overseas in performance of duties; and
	— Relocation and expatriate benefits (where appropriate).
	The Chairman is not eligible to receive a pension allowance or to participate in the Group's employee pension schemes.

In setting the Directors' remuneration policy, the Committee considers a range of factorsincluding:

Statement of consideration of conditions elsewhere in the Group

AcrosstheGroup, remuneration isreviewed regularly with the intention that all employees are paid appropriately in the context of their local market and given their individualskills, experience and performance. Each business unit'ssalary increase budget isset with reference to local market conditions. The Committee considerssalary increase budgetsin each business unit when determining the salaries of Executive Directors.

Prudential does not consult with employees when setting the Directors' remuneration policy. Prudential is a global organisation with employees and agentsin multiple business units and geographies. Assuch, there are practical challenges associated with consulting with employees directly on this matter. As many employees are also shareholders, they are able to participate in binding votes on the Directors' remuneration policy and annual votes on the Annual report on remuneration.

Statement of consideration of shareholder views

The Committee and the Company undertake regular consultation with key institutional investors on the remuneration policy and itsimplementation. This engagement isled by the Remuneration Committee Chair and is an integral part of the Company'sinvestor relations programme. The Committee is grateful to shareholdersfor their feedback and takesthisinto account when determining executive remuneration. Asset out in the Annualstatement from the Chairman of the Remuneration Committee, feedback from shareholders and their advisersinformed a number of changesto the Company's 2019 remuneration arrangements.

02

04

06 European

Additional information

Annual report on remuneration

The Board has established Audit, Remuneration, Risk andNomination &Governance Committees as principalstanding committees of the Board. These committeesform a key element of theGroup governance framework.

The operation of the Remuneration Committee

Members AnthonyNightingale (Chair of the Committee) KaiNargolwala Philip Remnant Thomas Watjen Fields Wicker-Miurin (membersince 3 September 2018)

Individual Directors' attendance at meetingsthroughout 2018 isset out in theGovernance section.

Role and responsibility

The role and responsibilities of the Committee are set out in itsterms of reference, which are reviewed by the Committee and approved by the Board on an annual basis, and which can be found on the Company's website. The Committee'srole isto assist the Board in meeting itsresponsibilitiesregarding the determination, implementation and operation of the overall remuneration policy for theGroup, including the remuneration of the Chairman and Executive Directors, as well as overseeing the remuneration arrangements of otherstaff within its purview.

The principal responsibilities of the Committee are:

• Determining and recommending to the Board for approval, the framework and policy for the remuneration of the Chairman, Executive Directors and other members of theGroup Executive Committee;
• Approving the design of performance-related pay schemes operated for the Executive Directors and other members of theGroup Executive Committee, and determining the targets and individual payouts undersuch schemes;
• Reviewing the design and development of allshare plansrequiring approval by the Board and/or the Company'sshareholders;
• Approving the share ownership guidelinesfor the Chairman and Executive Directors and other members of theGroup Executive Committee, and monitoring compliance;
• Reviewing and approving individual packagesfor the Executive Directors and other members of theGroup Executive Committee, and the fees of the Chairman and theNon-executive Directors of theGroup's materialsubsidiaries;
• Reviewing and approving packagesto be offered to newly recruited Executive Directors and other members of theGroup Executive Committee;
• Reviewing and approving the structure and quantum of any severance package for Executive Directors and other members of the Group Executive Committee to ensure they are fair and do not reward failure;
• Ensuring the processfor establishing remuneration policy istransparent and consistent with theGroup'srisk framework and appetites, encouraging strong risk management and solvency management practices;
• Reviewing the workforce remuneration practices and related policies acrosstheGroup when setting the remuneration policy for Executive Directors, as well asthe alignment of incentives and awards with culture;
• Monitoring the remuneration and risk management implications of remuneration ofsenior executives acrosstheGroup, other selected roles and those with an opportunity to earn in excess of £1 million in a particular year; and
• Overseeing the implementation of theGroup remuneration policy for those roles within scope of the specific arrangementsreferred to in Article 275 of Solvency II.

In 2018, the Committee met five times. Key activities at each meeting are shown in the table below:

Meeting	Key activities
Early March 2018	Approve the 2017 Directors' remuneration report and theGender pay gap report; consider 2017 bonus awards for Executive Directors; consider vesting of the long-term incentive awards with a performance period ending on 31 December 2017; approve 2018 long-term incentive awards, performance measures and plan documentation; note an update on regulation affecting remuneration; and review the appointment of the Committee'sindependent adviser.
Mid-March 2018	Confirm2017 annual bonuses and the vesting oflong-termincentive awardswith a performance period ending on 31December 2017, in light of audited financialresults.
June 2018	Consider performance for outstanding long-term incentive awards, based on the half-year results; review the remuneration ofsenior executives acrosstheGroup, employees with a remuneration opportunity over £1 million per annum and employees within the scope of the Solvency II remuneration rules; review progress towardsshare ownership guidelines by the Chairman, Executive Directors and otherGroup Executive Committee members; approve the expense approval processfor theGroup Chief Executive and Chairman; and approve the Chairman'sfees.
September 2018	Review proposed 2019 remuneration arrangementsfor Executive Directors ahead of consultation with shareholders; note an update on regulation affecting remuneration; review the potential impact of the demerger on remuneration arrangements; review gender pay gap reporting data; and approve the Committee'sterms of reference for recommendation to the Board.
December 2018	Review level of participation in the Company's all-employee share plans and dilution levelsresulting from the Company'sshare plans; consider the potential impact of the demerger on remuneration arrangements; approve Group Executive Committee members' 2019 salaries and incentive opportunities; consider the annual bonus measures and targetsto be used in 2019; review an initial draft of the 2018 Annual report on remuneration; approve the Committee's 2019 Schedule of Business; approve the feesfor independent non-executive directors of Material Subsidiaries; and note an update on regulation affecting remuneration.

Additionally, a number of resolutionsin writing were approved by the Committee between these meetingsrelating to the approval of the Solvency II Remuneration Policy Statement covering the 2017 financial year; new Executive Directors' remuneration arrangements and separation arrangementsfor those Executive Directors who stepped down from the Board; joining arrangementsfor the new Chairman and Chief Executive Officer,NABU; and the M&GPrudential Chairman'sfee.

The Chairman and theGroup Chief Executive attend meetings by invitation. The Committee also had the benefit of advice from:

• Group Chief Risk Officer;
• Chief Financial Officer;
• GroupHuman Resources Director; and
• Director ofGroup Reward and Employee Relations.

Individuals are never present when their own remuneration is discussed and the Committee is always careful to manage potential conflicts of interest when receiving viewsfrom Executive Directors orsenior management about executive remuneration proposals.

During 2018, Deloitte LLP wasthe independent adviser to the Committee. Deloitte was appointed by the Committee in 2011 following a competitive tender process. As part of this process, the Committee considered the servicesthat Deloitte provided to Prudential and its competitors, as well as other potential conflicts of interest. Deloitte is a member of the Remuneration Consultants'Group and voluntarily operates under their code of conduct when providing advice on executive remuneration in theUK. Deloitte regularly meets with the Chair of the Committee without management present. The Committee is comfortable that the Deloitte engagement partner and team providing remuneration advice to the Committee do not have connections with Prudential that may impair their independence and objectivity. The total fees paid to Deloitte for the provision of independent advice to the Committee in 2018 were £48,400 (2017: £56,000) charged on a time and materials basis. During 2018, Deloitte gave Prudential management advice on remuneration, as well as providing guidance on capital optimisation, digital and technology, taxation, internal audit, real estate, global mobility and other financial, risk and regulatory matters. Remuneration advice is provided by an entirely separate team within Deloitte. Asset out in the table above, the Committee reviewed Deloitte's appointment during 2018 and considered Deloitte to be independent.

In addition, management received external advice and data from a number of other providers. Thisincluded market data and legal counsel. This advice, and these services, are not considered to be material.

During the year, the Company has complied with the appropriate provisions of theUK CorporateGovernance Code regarding Directors' remuneration.

04

06 European

Table of 2018 Executive Director total remuneration (the 'single figure')

£000s	2018 salary	2018 taxable benefits*	2018 total bonus	Of which:
				Amount paid in cash	Amount deferred into Prudential shares†	2018 LTIP releases‡	2018 pension benefits§	Total 2018 remuneration the 'single figure'¶
Mark FitzPatrick	745	89	1,241	745	496	–	186	2,261
John Foley	781	123	1,186	712	474	1,511	195	3,796
NicNicandrou1,6	1,023	396	1,692	1,015	677	1,433	258	4,802
Anne Richards2	249	102	–	–	–	–	62	413
Barry Stowe3,6	867	70	4,935	2,961	1,974	2,761	217	8,850
James Turner4	521	109	793	476	317	347	130	1,900
Mike Wells5	1,126	407	2,133	1,280	853	3,486	282	7,434
Total	5,312	1,296	11,980	7,189	4,791	9,538	1,330	29,456

* Benefitsinclude (where provided) the cost of providing the use of a car and driver, medical insurance,security arrangements and relocation/expatriate benefits.

† The deferred part of the bonusissubject to malus and clawback in accordance with the malus and clawback policies but no further conditions. ‡ In line with the regulations, the estimated value of the 2018 PLTIP releases has been calculated based on the average share/ADR price overthe last three months of 2018 (£15.34/US\$39.41) and includesthe accumulated dividends delivered in the form ofshares/ADRs. The actual value of PLTIPs, based on the share price on the date awards are released, will be shown in the

2019 report. In line with the early adoption of requirements under theUK Companies(Miscellaneous Reporting) Regulations 2018, it is estimated that 15.3 per cent of the value of the 2018 LTIP releasesis attributable to share price growth over the vesting period as awards were granted using a share/ADR price of £12.99/US\$37.29 in 2016. The Committee concluded that no discretion will be applied in determining the remuneration resulting from the 2018 LTIP releases as a result ofshare price appreciation.

§ 2018 pension benefitsinclude cash supplementsfor pension purposes and contributionsinto DC schemes as outlined on page 147.

¶ Each remuneration element isrounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of Statutory Instrument 2013No. 1981 – The Large and Medium-sized Companies andGroups(Accounts and Reports) (Amendment) Regulations 2013.

Notes

1 To facilitateNicNicandrou'srelocation toHong Kong,Nic's benefitsinclude £267,000 to cover accommodation.

2 Anne Richardsstepped down from the Board on 10 August 2018. The remuneration above was paid in respect of herservice as an Executive Director.

3 Barry Stowe retired from the Board on 31 December 2018.

4 James Turner was appointed to the Board on 1 March 2018.

5 To facilitate his appointment asGroup Chief Executive and move to theUK in 2015, Mike Wells's benefitsinclude £311,000 to cover mortgage interest, which ceased effective 30November 2018.

6 Barry Stowe andNicNicandrou are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value.

Table of 2017 Executive Director total remuneration (the 'single figure')

		2017 taxable benefits*	2017 total bonus	Of which:
£000s	2017 salary			Amount paid in cash	Amount deferred into Prudential shares†	2017 LTIP releases‡	2017 pension benefits§	Total 2017 remuneration the 'single figure'¶
Mark FitzPatrick1	335	18	1,197	718	479	–	84	1,634
John Foley	765	115	1,283	770	513	2,243	191	4,597
Penny James2	478	81	–	–	–	–	119	678
NicNicandrou3,8	869	303	1,414	848	566	1,901	218	4,705
Anne Richards4	400	153	2,400	1,440	960	–	100	3,053
Barry Stowe5,8	880	59	5,354	3,212	2,141	3,028	220	9,541
Mike Wells6	1,103	493	2,072	1,243	829	4,616	276	8,560
Tony Wilkey7	490	456	787	472	315	2,819	123	4,675
Total	5,320	1,678	14,507	8,703	5,803	14,607	1,331	37,443

* Benefitsinclude (where provided) the cost of providing the use of a car and driver, medical insurance,security arrangements and relocation/expatriate benefits.

† The deferred part of the bonusissubject to malus and clawback in accordance with the malus and clawback policies but no further conditions.

‡ In line with the regulations, the estimated value of 2017 LTIP releases has been recalculated based on the actualshare/ADR price on the date awards were released, being £17.47/US\$49.24 for the March release and a share/ADR price of £18.41/US\$49.38 in the June release. The restated value of those awardsreleased in June also reflects dividends paid on those awardsin the previous month.

§ 2017 pension benefitsinclude cash supplementsfor pension purposes and contributionsinto Defined Contribution (DC)schemes.

¶ Each remuneration element isrounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of Statutory Instrument 2013No. 1981 – The Large and Medium-sized Companies andGroups(Accounts and Reports) (Amendment) Regulations 2013.

Notes

1 Mark FitzPatrick was appointed to the Board on 17 July 2017.

2 Penny Jamesstepped down from the Board on 30 September 2017. The remuneration above was paid in respect of herservice as an Executive Director.

3 To facilitateNicNicandrou'srelocation toHong Kong to take up his new role as Chief Executive, Prudential Corporation Asia,Nic's benefitsinclude relocation support being temporary accommodation of £126,000 and tax and immigration advice of £33,000.

4 To facilitate her appointment as Chief Executive, M&G, in 2016 Anne Richards's benefitsinclude travel costsfrom Anne's home in Edinburgh to London of £15,000.

5 Barry Stowe's bonus figure excludes a contribution of £16,200 from a profitsharing plan which has been made into a 401(k) retirement plan in respect of hisrole as Chairman & CEO, NABU. Thisisincluded under 2017 pension benefits.

6 Tofacilitatehis appointment asGroupChiefExecutive andmove totheUKin2015,MikeWells'sbenefitsinclude£340,000tocovermortgage interest and£37,000tocoverhome leave flights. 7 Tony Wilkey stepped down from the Board on 17 July 2017. The remuneration above was paid in respect of hisservice as an Executive Director.His benefitsinclude £148,000 for housing, £24,000 for home leave flights and a £235,000 Executive Director Location Allowance. Two of the LTIP releasesrelate to his previousrole, prior to hisservice as an Executive Director.

8 Barry Stowe, Tony Wilkey and, following his appointment as Chief Executive, Prudential Corporation Asia,NicNicandrou are paid in their local currency and exchange rate fluctuations will therefore impact the reported sterling value.

04

06

Remuneration in respect of performance in 2018

Base salary

Executive Directors'salaries were reviewed in 2017 with changes effective from 1 January 2018. When the Committee took these decisionsit considered:

• The salary increase budgetsfor other employees, which vary across our business units, reflecting local market conditions;
• The performance and experience of each Executive Director;
• The relative size of each Executive Director'srole; and
• The performance of theGroup.

Asreported last year, after careful consideration by the Committee, all Executive Directorsreceived a salary increase of 2 per cent. The 2018 salary increase budgetsfor other employees across our business units were between 2.5 per cent and 10 per cent.No changes were made to Executive Directors' maximum opportunities under either the annual incentive or the long-term incentive plans.

To provide context for the market review, information was also drawn from the following market reference points:

Executive	Role	Benchmark(s) used to assess remuneration
Mark FitzPatrick	Chief Financial Officer	— FTSE 40 — International insurance companies
John Foley	Chief Executive, M&GPrudential	— FTSE 40 — International insurance companies
NicNicandrou	Chief Executive, Prudential Corporation Asia	— Willis Towers Watson Asian Insurance Survey
Anne Richards	Chief Executive, M&G	— McLaganUK Investment Management Survey — International insurance companies
Barry Stowe	Chairman & CEO,NABU	— Willis Towers WatsonUS Financial Services Survey — LOMAUS Insurance Survey
James Turner1	Group Chief Risk Officer	— FTSE 40 — FTSE 50 insurers
Mike Wells	Group Chief Executive	— FTSE 40 — International insurance companies

Note

1 James Turner was appointed to the role ofGroup Chief Risk Officer and to the Board on 1 March 2018.Hissalary wasreviewed on appointment.

As a result, Executive Directorsreceived the following salary increases:

Executive Director	2017 salary	2018 salary
Mark FitzPatrick1	£730,000	£745,000
John Foley	£765,000	£781,000
NicNicandrou2	HK\$10,500,000	HK\$10,710,000
Anne Richards3	£400,000	£408,000
Barry Stowe	US\$1,134,000	US\$1,157,000
James Turner4	N/A	£625,000
Mike Wells	£1,103,000	£1,126,000

Notes

1 Mark FitzPatrick was appointed Chief Financial Officer on 17 July 2017. The annualised 2017 salary above was paid in respect of hisservice as Chief Financial Officer.

2 NicNicandrou was appointed Chief Executive, Prudential Corporation Asia on 17 July 2017. The annualised 2017 salary above was paid in respect of hisservice as Chief Executive, Prudential Corporation Asia.

3 Anne Richardsstepped down from the Board on 10 August 2018.Her employment with the Company ended on 30November 2018 and her 2018 annualised salary isillustrated above. 4 James Turner was appointed to the Board on 1 March 2018. The annualised 2018 salary above was paid in respect of hisservice asGroup Chief Risk Officer.

Pension entitlements

Pension provisionsin 2018 were:

Executive Director	2018 pension arrangement	Life assurance provision Two timessalary
Barry Stowe	Pension supplement of 25 per cent ofsalary, part of which is paid as a contribution to an approvedUS retirement plan.
NicNicandrou	Pension supplement in lieu of pension of 25 per cent ofsalary and aHK\$18,000 employer payment to theHong Kong Mandatory Provident Fund.	Eight timessalary
UK-based executives	Pension contribution to defined contribution plan and/or pension supplement in lieu of pension of 25 per cent ofsalary.	Up to four timessalary plus a dependants' pension

John Foley previously participated in a non-contributory defined benefitscheme that was open at the time he joined the Company. The scheme provided an accrual of 1/60th of final pensionable earningsfor each year of pensionable service. John received pension payments of £15,636 per annum which increased to £16,061 per annum from 1 April 2018, in line with the Consumer PricesIndex. The pension will continue to be subject to statutory increasesin line with the Consumer PricesIndex.

Annual bonus outcomes for 2018

Target setting

For the financial AIP metrics which comprise 80 per cent of the bonus opportunity for all Executive Directors apart from theGroup Chief Risk Officer, the performance ranges are set by the Committee prior to, or at the beginning of, the performance period. These ranges are based on the annual business plans approved by the Board and reflect the ambitions of theGroup and business units, in the context of anticipated market conditions.

Personal objectives comprise 20 per cent of the bonus opportunity for all Executive Directors apart from theGroup Chief Risk Officer, for whom this accountsfor 50 per cent of the total bonus opportunity. These objectives are established at the start of the year and reflect the Company's Strategic Prioritiesset by the Board.

In line with the remuneration requirements of Solvency II, functional objectives account for the remaining 50 per cent of theGroup Chief Risk Officer's bonus opportunity. These are based on theGroup Risk Plan and are developed with input from the Chairman of theGroup Risk Committee.

AIP payments are subject to meeting Solvency II minimum capital thresholds which are aligned to theGroup and business unit risk framework and appetites(as adjusted for anyGroup Risk Committee and/or business unit risk committees approved counter-cyclical buffers).

The Committee also seeks advice from theGroup Risk Committee on risk management considerationsto be applied to remuneration architecture and performance measures. Thisisto ensure risk management culture and conduct is appropriately reflected in the design and operation of Executive Directors' remuneration.

Executive Directors' 2018 bonuses were determined by the achievement of fourGroup measures, namely operating profit, free surplus, EEV new business profit and cash flow, which are aligned to theGroup's growth and cash generation focus.

In compliance with Solvency II, the weightings of theGroup Chief Risk Officer's AIP performance targetsrelate to a combination of functional and personal measures only.

04

06

Performance assessment

The Committee determinesthe overall value of the bonus, taking account of the inputs described above and any other factors which it considersrelevant. The table below illustratesthe weighting of performance measuresfor 2018 and the level of achievement under the AIP. The total bonus outcomesreflect the strong performance during the year as discussed in thissection and in the Annual Statement from the Chairman of the Remuneration Committee.

	Weighting of measures (% of total bonus opportunity)			Achievement against performance measures
Executive Director	Group financial measures	Business unit financial measures	Personal/ functional objectives	Financial measures (%)	Personal/ functional objectives (%)	2018 AIP outcome1 (% of total bonus opportunity)
Mark FitzPatrick	80%	–	20%	94%	99%	95%
John Foley	20%	60%	20%	82%	92%	84%
NicNicandrou	20%	60%	20%	94%	84%	92%
Anne Richards2	20%	60%	20%	N/A	N/A	nil
Barry Stowe3	80%	–	20%	94%	83%	92%
James Turner	–	–	100%	N/A	95%	95%
Mike Wells	80%	–	20%	94%	96%	95%

Notes

1 All bonus awards are subject to 40 per cent deferral for three years and the deferred bonus will be paid in Prudential plc shares or ADRs.

2 Anne Richardsstepped down from the Board on 10 August 2018.Her employment with the Company ended on 30November 2018.No 2018 bonus was awarded. 3 Barry Stowe retired from the Board on 31 December 2018 and remained eligible to receive his 2018 AIP award. Barry Stowe is also eligible to receive 10 per cent of the Jackson bonus pool.

Financial performance

The Committee reviewed performance against the performance ranges at its meeting in March 2019. 2018Group operating profit and Group free surplus generation exceeded the stretching targets established by the Board. All of our business units achieved target remittanceslevels and, although lower than the prior period, we achieved our objective to balance net remittancessufficient to cover the dividend and corporate costs, with reinvestment in profitable opportunities within the business units, and maintained significant cash stock at the centre. The business unit remittances contributed toGroup cashflow, which approached the maximum target.Group EEV new business profit was between threshold and plan.

The Committee considered a report from theGroup Chief Risk Officer which had been approved by theGroup Risk Committee. This report confirmed that the 2018 results were achieved within theGroup's and business units' risk framework and appetite. TheGroup Chief Risk Officer also considered the effectiveness of risk management and internal controls, and specific actionstaken to mitigate risks, particularly where these may be at the expense of profits orsales. The report also confirmed that theGroup met Solvency II minimum capital thresholds which were aligned to theGroup and business unit risk framework and appetites. TheGroup Chief Risk Officer's recommendations were taken into account by the Committee when determining AIP outcomesfor Executive Directors.

The level of performance required for threshold, plan and maximum payment against theGroup's 2018 AIP financial measures and the results achieved are set out below.

2018 AIP measure	Weighting	Threshold (£m)	Plan (£m)	Maximum (£m)	Achievement (£m)
Group operating profit	35%	3,691	3,991	4,290	4,827
Group free surplus generated	30%	3,235	3,370	3,572	4,047
Group cash flow	20%	(237)	10	93	58
Group EEV new business profit	15%	3,663	3,897	4,053	3,877

The Committee had regard to the achievement against the performance measures and theGroup Chief Risk Officer'sreport and decided not to apply a discretionary adjustment to the arithmetic outcome under the financial element of the 2018 bonus. The Board believesthat, due to the commercialsensitivity of the business unit targets, disclosing further details of these targets may damage the competitive position of theGroup.

04

06

Personal performance

Asset out in our Directors' remuneration policy, a proportion of the annual bonusfor each Executive Director is based on the achievement of personal objectivesincluding:

• The executive meeting their individual conduct and customer measures;
• The executive's contribution toGroup strategy as a member of the Board; and
• Specific goalsrelated to the business or function for which they are responsible and progress on major projectsincluding the demerger.

At the end of the year the Committee considered the performance of each Executive Director against objectives established at the start of the year. At its meeting in March 2019 it concluded that there had been a high level of performance against these 2018 objectives, as summarised below. All executives met their individual conduct measures and there was a high level of individual contribution made by each Executive Director to the achievement ofGroup strategy during 2018.

Business Overview of objectives 2018 performance against objectives
GroupHead Office	Objectivesincluded progressing the demerger of the M&GPrudential business from Prudential plc, developing	— Announced the demerger of M&GPrudential from Prudential plc resulting in two separately-listed companies, each with its own distinct investment prospectsin order to furtherstrengthen two already strong businessesfor the benefit of customers;
	relationships with stakeholders, enhancing external publications, continued development of executive bench strength and leveraging digital opportunities.	— Announced that theHong Kong Insurance Authority would be the Group-wide supervisor after the demerger of M&GPrudential;
		— Raised £1.6 billion ofsubordinated debt, with substitution clausesto be activated on demerger,supporting the capital rebalancing across Prudential plc and M&GPrudential; and
		— Won the Insurance category of Management Today's'Britain's Most Admired Companies' award for the second consecutive year.
Prudential Corporation Asia and Africa	Objectivesincluded leveraging digital opportunities, diversifying distribution channels, continued development of executive bench strength, developing Eastspring Investments and growing theGroup's Africa footprint.	— Entered a new partnership with Alkanza and built a robo-advice platform to create bespoke portfoliosfor our wealth management clientsin Taiwan;
		— Launched our innovative and exclusive partnership with BabylonHealth to bring a comprehensive set of digital health toolsto our customers which is part of our ambition to make healthcare more accessible and affordable in Asia;
		— Established Eastpring's wholly foreign-owned enterprise in Shanghai and extended our asset management presence to Thailand following the acquisition of TMB Asset Management;
		— Eastspring Investments named both largest retail asset manager and largest institutional asset manager in Asia, excluding Japan, in the Asia Asset Management annual rankings;
		— Won top honoursin this year's AsianInvestor'sInstitutional Excellence Awards; and
		— Extended our long-term partnership with Standard Chartered Bank in Ghana and signed a long-term exclusive partnership with Zambia'slargest retail bank, ZambiaNational Commercial Bank Plc to enable our products to be offered to more than a million new customers acrossthe country.

Business	Overview of objectives	2018 performance against objectives
NorthAmerican BusinessUnit	Objectivesincluded leveraging digital opportunities, developing our productrange and focusing on core business areas.	— Launched Jackson's Financial Freedom For Life campaign to encourage Americansto sign up for an annuity that will protect them in retirement;
		— Collaborated with the Envestnet Insurance Exchange to offer our products on its platform;
		— Jackson launched MarketProtector and MarketProtector Advisory, two new fixed annuities with index-linked interest to provide consumers with a combination of tax-deferred investment growth, protection from market risk and the flexibility to adapt to changing needsin retirement;
		— Entered into a key distribution partnership with State Farm, further strengthening our market-leading distribution footprint; and
		— Won the Contact Centre World Class CX Certification andHighest Customer Service for the Financial Industry awards by The Service Quality MeasurementGroup, Inc.
M&GPrudential	Objectivesincluded completing the sale of the shareholder annuity portfolio to Rothesay Life Plc, progressing the demerger of the M&GPrudential businessfrom Prudential plc, continuing to build positive relationships with regulators, leveraging digital opportunities, developing our range of products and investment offerings, and continued development of executive bench strength.	— Reinsured £12 billion ofUK annuity policies and completed the firststages at theHigh Court of England and Walesfor the transfer of PrudentialUK annuitiesto Rothesay Life Plc;
		— Established a new M&GPrudential leadership team, implemented a new governance model and built a set of unified corporate supportservicesin preparation for demerger from Prudential plc;
		— Introduced a new digitalservice for investment bond customers which has reduced cash withdrawal waiting times by almost 80 per cent; and
		— Launched the Luxembourg SICAV fund range with £21 billion assets under management as an investment in international growth and to minimise disruption of Brexit for customers.

Functional performance

The Chair of theGroup Risk Committee undertakesthe assessment of performance against functional objectivesfor theGroup Chief Risk Officer. 2018 achievement issummarised below:

Overview of functional objectives	2018 performance against objectives
Defining and maintaining aGroup-wide risk policy,	— Successfully enhanced an appropriately defined system of policies, risk
appetite and business unit limits and triggers	appetites and limits. Provided strong oversight ofGroup-wide adherence
framework, and oversight/controlling of adherence to	in accordance with the requirements of theGroup Risk Mandate.
thisframework.	— Provided key insight and analysis on emerging issuesto theGroup Risk
Ensuring theGroup Risk Function maintains	Committee and Board throughout the year, facilitating the performance
appropriate risk oversight acrosstheGroup, and	of their respective duties.
enabling theGroup Risk Committee and Board to	— Strengthened focus on areas ofstrategic risk,significantly enhancing
discharge their responsibilitiesin respect of risk	Group-wide transformation oversight delivering assurance, risk guidance
management.	and opinions on critical transformation activity.
Delivering regulatory requirements, including those required under Solvency II, theGroup's Own Risk and Solvency Assessment, and those relating to the Group's designation as aGlobal Systemically Important Insurer.	— Delivered an extensive set of regulatory deliverables, including theGroup's ORSA Report, Systemic Risk Management Plan, Liquidity Risk Management Plan and Recovery Plan. Ensured appropriate internal model validation per Solvency II requirements.
Providing risk guidance, opinion and assurance on critical transformation activity, including the demerger.	— Positive engagement with regulatory bodiesthroughout the year, including proactive engagement with theHong Kong Insurance Authority asthe regulator-elect for the internationalGroup.

2018 Jackson bonus pool

In 2018, the Jackson bonus pool was determined by JacksonNational Life Insurance Company's profitability, remittancestoGroup and advisory sales. Across all these measuresJacksonNational Life Insurance Company delivered strong performance, and more detail on that performance isset out on pages 26 to 31. The Committee also considered performance in a number of key activities and the delivery against certain non-financialGroup requirements. As a result of this assessment, the Committee determined that Barry Stowe'sshare of the bonus pool wasUS\$4,886,910.

Outcome of bonus assessments

On the basis of the strong performance of theGroup and its business units and the Committee's consideration of the total bonus value in light of its view of all relevant circumstances, including the overall contribution of the executive, behavioural, conduct and risk management considerations, the Committee determined the following 2018 AIP awards. Forty per cent of all awards are deferred into sharesfor three years:

Executive Director	Role	2018 salary1	Maximum 2018 AIP (% of salary)	Actual 2018 AIP award (% of maximum opportunity)	2018 bonus award (including cash and deferred elements)
Mark FitzPatrick	Chief Financial Officer	£745,000	175%	95%	£1,241,000
John Foley	Chief Executive, M&GPrudential	£781,000	180%	84%	£1,186,000
NicNicandrou	Chief Executive, Prudential
	Corporation Asia	HK\$10,710,000	180%	92%	£1,692,000
Anne Richards2	Chief Executive, M&G	£249,000	600%	0%	£nil
Barry Stowe3	Chairman&CEO,NABU	US\$1,157,000	160%	92%	£4,935,000
James Turner4	Group Chief Risk Officer	£521,000	160%	95%	£793,000
Mike Wells	Group Chief Executive	£1,126,000	200%	95%	£2,133,000

Notes

1 Salary paid in respect ofservices as an Executive Director.

2 Anne Richardsstepped down from the Board on 10 August 2018.Her employment with the Company ended on 30November 2018. The maximum bonus opportunity shown represents her annual opportunity as an Executive Director, but no bonus was paid.

3 In addition to the AIP, Barry Stowe also participatesin the Jackson bonus pool.

4 James Turner was appointed to the Board on 1 March 2018. The AIP shown above was awarded in respect of hisservice as an Executive Director.

Remuneration in respect of performance periods ending in 2018 Prudential Long Term Incentive Plan (PLTIP)

Target setting

Our long-term incentive plans have stretching performance conditionsthat are aligned to the strategic priorities of theGroup. In 2016, all Executive Directors were granted awards under the PLTIP. In determining the targetsthe Committee had regard to the stretching nature of the three-year Business Plan for operating profitset by the Board.

The weightings of these measures are detailed in the table below.

	Weighting of measures
Executive Director1	Group TSR2	Operating profit (Group or business unit)3
John Foley	50%	50% (business unit target)
NicNicandrou4	50%	50% (Group target)
Barry Stowe	50%	50% (business unit target)
James Turner5	50%	50% (Group target)
Mike Wells	50%	50% (Group target)

Notes

1 Thistable includes current Executive Directors with 2016 PLTIP awards. Anne Richardsstepped down from the Board on 10 August 2018 and her 2016 PLTIP award lapsed.

2 Group TSR is measured on a ranked basis over three yearsrelative to peers.

3 Operating profit is measured on a cumulative basis over three years.

4 NicNicandrou was granted this award when he wasin the role of Chief Financial Officer. The performance measures attached to his PLTIP award did not change following his appointment to the role of Chief Executive, Prudential Corporation Asia in 2017.

5 James Turner was granted this award when he wasin his previousrole of Director ofGroup Finance. The performance measures attached to his PLTIP award did not change following his appointment to the role ofGroup Chief Risk Officer on 1 March 2018.

Under theGroup TSR measure used for 2016 PLTIP awards, 25 per cent of the award vestsfor TSR at the median of the peer group increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basissince this hasthe benefit ofsimplicity and directness of comparison. The peer group for the 2016 awardsis:

Aegon	Aflac	AIA	AIG
Allianz	Aviva	AXA	Generali
Legal &General	Manulife	MetLife	Munich Re
Old Mutual	Prudential Financial	Standard Life	Sun Life Financial
Swiss Re	Zurich InsuranceGroup

Following the merger of Standard Life and Aberdeen Asset Management during the performance period, the Committee determined that Standard Life would be retained in the peer group for the pre-merger period and the combined entity would be included in the peer group from the date of the merger for all outstanding PLTIP awards. In addition, following the demerger of Quilter from Old Mutual and Old Mutual's delisting from the FTSE on 26 June 2018, the Committee determined that Old Mutual be retained as a TSR peer with no adjustment to its performance during the period prior to its demerger and delisting, and that Old Mutual's TSR performance from the date of its demerger and delisting would track an index of the peers(excluding Prudential plc) for all outstanding PLTIP awards.

04

06 European

07 Additional information

Performance assessment

In deciding the proportion of the awardsto be released, the Committee considered actual financial results against these performance targets. The Committee also reviewed underlying Company performance to ensure vesting levels were appropriate, including an assessment of whether results were achieved within theGroup's and business units' risk framework and appetite. The Directors' remuneration policy containsfurther details of the design of Prudential'slong-term incentive plans.

Prudential's TSR performance during the performance period (1 January 2016 to 31 December 2018) wasranked at median of the peer group. The portion of the awardsrelated to TSR that therefore vested was 25 per cent.

Under the operating profit measure, 25 per cent of the 2016 awards vest for meeting the threshold operating profit targetset at the start of the performance period, increasing to full vesting for performance at or above the stretch level. The table below illustratesthe cumulative performance achieved over 2016 to 2018 compared to theGroup targetsset in 2016:

	2016-18 cumulative targets			2016-18	Vesting under
Group	Threshold	Plan	Maximum	cumulative achievement	the operating profit element
Operating profit	£10,837m	£12,041m	£13,245m	£13,782m	100%

The Committee determined that the cumulative operating profit target established for the PLTIP should be expressed using exchange rates consistent with the reported disclosures. Individual business units achieved between 86 per cent and 100 per cent vesting under this element.

Details of business unit operating profit targets have not been disclosed asthe Committee considersthat these are commercially sensitive and disclosure of targets atsuch a granular level would put the Company at a disadvantage compared to its competitors. The Committee will keep this disclosure policy under review based on whether, in its view, disclosure would compromise the Company's competitive position.

PLTIP vesting

The Committee considered a report from theGroup Chief Risk Officer which had been approved by theGroup Risk Committee. Thisreport confirmed that the financial results were achieved within theGroup's and business units' risk framework and appetite. On the basis of thisreport, and the performance of theGroup and its business units described above, the Committee decided not to apply a discretionary adjustment to the arithmetic vesting outcome under the 2016 PLTIP awards and determined the vesting of each Executive Director's PLTIP awards asset out below.

Executive Director	Maximum value of award at full vesting1	Percentage of the LTIP award vesting	Number of shares/ADRs vesting2	Value of shares/ADRs vesting1
John Foley	£2,418,213	62.5%	98,525	£1,511,374
NicNicandrou	£2,292,486	62.5%	93,402	£1,432,787
Barry Stowe	£4,417,184	62.5%	93,530	£2,760,648
James Turner	£554,771	62.5%	22,602	£346,715
Mike Wells	£5,576,826	62.5%	227,217	£3,485,509

Notes

1 The share price used to calculate the value of the PLTIP awards with performance periods which ended on 31 December 2018 and vest in 2019 wasthe average share/ADR price for the three months up to 31 December 2018, being £15.34/US\$39.41.

2 The number ofshares/ADRs vesting includes accrued dividends.

04

06

Long-term incentives awarded in 2018

2018 share-based long-term incentive awards

As detailed in the Directors' remuneration policy, approved by shareholders at the 2017 AGM, all long-term incentive awards made to Executive Directorsin 2018 were granted under the PLTIP. The vesting of these awards will depend on:

• Relative TSR (25 per cent of award);
• Group or business unit operating profit (50 per cent of award); and
• Balanced scorecard ofstrategic measures(25 per cent of award).

In line with the remuneration requirements of Solvency II, the weightings of theGroup Chief Risk Officer's LTIP performance targets were different to the other Executive Directors and were:

• Relative TSR (50 per cent of award);
• Group operating profit (20 per cent of award); and
• Balanced scorecard ofstrategic measures(30 per cent of award).

Under theGroup TSR measure used for 2018 awards, 25 per cent of the award vestsfor TSR at the median of the peer group, increasing to full vesting for performance within the upper quartile. The peer group for the 2018 awardsisthe same asthat used for the 2017 awards other than following the merger of Standard Life and Aberdeen Asset Management, the combined entity of Standard Life Aberdeen has been included. TSR is measured on a local currency basissince this hasthe benefit ofsimplicity and directness of comparison.

The peer group for the 2018 awardsisset out below:

Aegon	AIA	AIG	Allianz
Aviva	AXA	Generali	Legal &General
Manulife	MetLife	Old Mutual	Prudential Financial
Standard Life Aberdeen	Sun Life Financial	Zurich InsuranceGroup

Under the operating profit measure used for 2018 awards, 25 per cent of the award vestsfor meeting the threshold operating profit, set at the start of the performance period, increasing to full vesting for performance at or above the stretch level.

Under the balanced scorecard, performance is assessed for each of the four measures, at the end of the three-year performance period. Performance will be assessed on a sliding scale rather than the meet/fail approach adopted for the 2017 scorecard. Each of the measures has equal weighting and the 2018 measures are set out below:

Capital measure:	Cumulative three-year ECapGroup operating capital generation relative to plan, less cost of capital (based on the capital position at the start of the performance period).
Vesting basis:	25 per cent vesting for achieving Plan, increasing to full vesting for performance above stretch level. The plan figure for this metric will be published in the Annual Report for the final year of the performance period.
Capital measure:	Cumulative three-year Solvency IIGroup operating capital generation (as captured in published disclosures) relative to plan.
Vesting basis:	25 per cent vesting for achieving Plan, increasing to full vesting for performance above stretch level. The plan figure for this metric will be published in the Annual Report for the final year of the performance period.
Conduct measure:	Through appropriate management action, ensure there are no significant conduct/culture/governance issues that result in significant capital add-ons or material fines.
Vesting basis:	25 per cent vesting for partial achievement of theGroup's expectations, increasing to full vesting for achieving theGroup's expectations.
Diversity measure:	Percentage of the Leadership Team that isfemale at the end of 2020. The target for this metric is based on progresstowardsthe goal that the Company set when itsigned the Women in Finance Charter,specifically that 30 per cent of our Leadership Team will be female by the end of 2021. For this portion of the 2018 PLTIP awards to vest, at least 28 per cent of our Leadership Team must be female by the end of 2020.
Vesting basis:	25 per cent vesting for meeting the threshold of at least 27 per cent of our Leadership Team being female at the end of 2020, increasing to full vesting for reaching the stretch level of at least 29 per cent being female at that date.

The performance conditions attached to outstanding PLTIP awards may be reviewed at the time of the demerger. Should any performance conditions be revised, the new conditions will be no more or lessstretching that those originally attached to the awards and the changes will be disclosed.

				Percentage of awards released		Weighting of performance conditions
		Number						Operating profit
Executive Director Role		of shares or ADRs subject to award*	Face value of award†	for achieving threshold targets‡	End of performance period	Group TSR	Balanced scorecard	Group	Asia	US		UK M&G
Mark FitzPatrick Chief Financial					31 December
	Officer	106,611	£1,862,494	25%	2020	25%	25%	50%
John Foley	Chief Executive,				31 December
	M&GPrudential	111,763	£1,952,500	25%	2020	25%	25%					31% 19%
NicNicandrou	Chief Executive, Prudential Corporation				31 December
	Asia	138,846	£2,425,640	25%	2020	25%	25%		50%
Anne Richards1	Chief Executive, M&G	105,094	£1,835,992	25%	31 December 2020	25%	25%					50%
Barry Stowe	Chairman & CEO,NABU		107,649 US\$5,322,167	25%	31 December 2020	25%	25%			50%
James Turner	Group Chief Risk Officer	89,439	£1,562,499	25%	31 December 2020	50%	30%	20%
Mike Wells	Group Chief Executive	257,813	£4,503,993	25%	31 December 2020	25%	25%	50%

The table below showsthe awards made to Executive Directorsin 2018 undershare-based long-term incentive plans and the performance conditions attached to these awards:

*Awards overshares were awarded to all Executive Directors other than Barry Stowe whose awards were over ADRs.

†Awardsfor Executive Directors are calculated based on the average share price over the three dealing days prior to the grant date, being £17.47 for all Executive Directors other than

Barry Stowe and an ADR price ofUS\$49.44 for Barry Stowe.

‡ The percentage of awardsreleased for achieving maximum targetsis 100 per cent.

Note

1 Anne Richardsstepped down from the Board on 10 August 2018. This award lapsed at the end of her employment on 30November 2018.

Update on performance against targets for awards made in 2017 and 2018 under the Prudential Long Term Incentive Plan

TSR Performance

As at 31 December 2018, Prudential's TSR performance during the period 1 January 2017 to 31 December 2018 wasranked between median and upper quartile and during the period 1 January 2018 to 31 December 2018 wasranked below median.

Group operating profit

Prudential'sGroup operating profit performance between 1 January 2017 and 31 December 2018 wasslightly above the stretch target established for 2017 PLTIP awards. TheGroup's operating profit achievement between 1 January 2018 and 31 December 2018 was slightly above the stretch target adopted for 2018 PLTIP awards.

Balanced scorecard of strategic measures

Between 1 January 2017 and 31 December 2018, theGroup also made good progresstowards meeting the measures under the sustainability scorecard used for the 2017 and 2018 PLTIP awards:

• Capital measure Solvency II operating capital generation TheGroup's Solvency II operating capital generation between 1 January 2017 to 31 December 2018 was above the Plan level established for 2017 PLTIP awards. TheGroup's Solvency II operating capital generation between 1 January 2018 and 31 December 2018 was above the Plan level established for 2018 PLTIP awards.
• Capital measure E-cap operating capital generation TheGroup's E-cap operating capital generation between 1 January 2017 and 31 December 2017 was below the Plan level established for 2017 PLTIP awards.
• Conduct measure During 2017 and 2018, there were no significant conduct/culture/governance issuesthat resulted in significant capital add-ons or material fines.
• Diversity measure As at 31 December 2018, 29 per cent of our Leadership Team wasfemale. Thisrepresented strong progress towardsthe target that at least 27 per cent of the Leadership Team be female by the end of 2019 for the 2017 PLTIP award, and the target that 28 per cent of the Leadership Team be female by the end of 2020 for the 2018 PLTIP award.

Pay comparisons

Performance graph and table

The chart below illustratesthe TSR performance of Prudential, the FTSE 100 (asthe Company has a premium listing on the London Stock Exchange) and the peer group of international insurers used to benchmark the Company's performance for the purposes of the PLTIP.

Prudential TSR vs FTSE 100 and peer group average – total return per cent over 10 years to December 2018

Note

The peer group average representsthe average TSR performance of the peer group used for 2018 PLTIP awards(excluding companies not listed at the start of the period).

The information in the table below showsthe total remuneration for theGroup Chief Executive over the same period:

£000	2009	2009	2010	2011	2012	2013	2014	2015	2015	2016	2017	2018
Group Chief
Executive	M Tucker1 T Thiam T Thiam T Thiam T Thiam T Thiam T Thiam T Thiam2 M Wells M Wells M Wells M Wells
Salary, pension
and benefits	1,013	286	1,189	1,241	1,373	1,411	1,458	613	1,992	2,244	1,872	1,815
Annual bonus
payment	841	354	1,570	1,570	2,000	2,056	2,122	704	1,244	2,151	2,072	2,133
(As%ofmaximum)	(92%)	(90%)	(97%)	(97%)	(100%)	(99.8%)	(100%)	(77.3%)	(99.7%)	(99.5%)	(94%)	(95%)
LTIP vesting	1,575	–	2,534	2,528	6,160	5,235	9,838	3,382	4,290	2,975	4,616	3,486
(As%ofmaximum)	(100%)	–	(100%)	(100%)	(100%)	(100%)	(100%)	(100%)	(100%)	(70.8%)	(95.8%)	(62.5%)
Other payments	308	–	–	–	–	–	–	–	–	–	–	–
Group Chief
Executive 'single figure' of total
remuneration3	3,737	640	5,293	5,339	9,533	8,702	13,418	4,699	7,526	7,370	8,560	7,434

Notes

1 Mark Tucker left the Company on 30 September 2009. Tidjane Thiam becameGroup Chief Executive on 1 October 2009. The figuresshown for Tidjane Thiam'sremuneration in 2009 relate only to hisservice asGroup Chief Executive.

2 Tidjane Thiam left the Company on 31 May 2015. Mike Wells becameGroup Chief Executive on 1 June 2015. The figuresshown for Mike Wells'sremuneration in 2015 relate only to his service asGroup Chief Executive.

3 Further detail on the 'single figure' is provided in the 'single figure' table for the relevant year.

04

06

Percentage change in remuneration

The table below sets out how the change in remuneration for theGroup Chief Executive between 2017 and 2018 compared to a wider employee comparator group:

	Salary	Benefits	Bonus
Group Chief Executive	2%	(17.4)%	2.9%
AllUK employees	3%	(1.4)%	8.6%

The employee comparator group used for the purpose of this analysisis allUK employees. Thisincludes employeesin M&GPrudential andGroupHead Office, and reflectsthe average change in pay for employees employed in both 2017 and 2018. The salary increase includes uplifts made through the annualsalary review, as well as any additional changesin the year; for example to reflect promotions or role changes. TheUK workforce has been chosen asthe most appropriate comparator group asit reflectsthe economic environment where theGroup Chief Executive is employed.

Group Chief Executive pay compared with employee pay

To further increase transparency of executive remuneration and its alignment with the pay of other employees, we are publishing our CEO pay ratio one year in advance of the disclosure becoming a requirement under theUK Companies(Miscellaneous Reporting) Regulations 2018. The employee comparator group used for the purpose of this analysisis allUK employees. Thisincludes employees in M&GPrudential andGroupHead Office in 2018. The table below comparestheGroup Chief Executive's'single figure' of total remuneration to that received by three representativeUK employeesin 2018.

Year	Method	25th percentile pay ratio	Median pay ratio	75th percentile pay ratio
2018	Option B	155 : 1	102 : 1	68 : 1

Under the regulationsthere is a choice of three methodsto determine the 25th, median and 75th full-time equivalent remuneration of our UK employees. The Company has chosen to use the 2018 hourly rate gender pay gap information asthis method uses data that is aligned with other disclosures made under our gender pay gap reporting ('Option B' in the table above). The employees used in the calculations were selected on 11 January 2019, following the end of the financial year. The Committee determined that the identified employees are reasonably representative since the structure of their remuneration arrangementsisin line with that of the majority ofUK workforce. The same methodology used for calculating the 'single figure' for theGroup Chief Executive has been used for calculating the pay and benefits of theUK employees.

The salary and totalremuneration received during 2018 by the indicative employees used in the above analysis are set out below:

Year	25th percentile	Median	75th percentile
2018 salary	£40,000	£55,000	£68,000
Total 2018 remuneration	£48,000	£73,000	£109,000

The Committee believesthe median pay ratio is consistent with the pay, reward and progression policiesfor ourUK employees. The base salary and total remuneration levelsfor theGroup Chief Executive and the median representative employee are competitively positioned within the relevant markets and reflect the operation of our remuneration structures which are effective in appropriately incentivising staff, having regard to our risk framework, risk appetites and to rewarding the 'how' as well asthe 'what' of performance.

Gender pay gap

TheUK business entities have recently reported their 2018UK gender pay gap data and details can be found on theGroup's website at www.prudential.co.uk/responsibility. There has been narrowing of the pay gapsin some areas and modest increasesin others. While we have made progress, the gender pay gap cannot be removed overnight. We remain focused and committed to closing it as quickly as possible. We have a policy and carry out proceduresto ensure that, where men and women perform similar roles, they are paid equally. However, the gender pay gaps demonstrate the demographic profile of the business(and the financialservicessector more widely): there is a greater proportion of malesin more senior and front-office roles and a greater proportion of femalesin more junior,support and back-office non-finance roles. All theGroup's businesses are continuing to work on initiativesto increase the proportion of women in senior management and operating roles as part of theGroup'sstrategic focus on diversity and inclusion as described in the diversity and inclusion statement on our website. Thisimportant priority isreflected in theGroup'sreward structure through the diversity measure attached to PLTIP awards granted from 2017 onwards.

Relative importance of spend on pay

The table below sets out the amounts payable in respect of 2017 and 2018 on all employee pay and dividends:

	2017	2018	Percentage change
All employee pay (£m) 1	1,985	1,838	(7.4)%
Dividends(£m)	1,216	1,279	5.2%

Note

1 All employee pay astaken from note B2.1 to the financialstatements.

Chairman and Non-executive Director remuneration in 2018

Chairman's fees

The Chairman'sfee wasreviewed by the Committee during 2018 and increased by 2.2 per cent to £750,000 with effect from 1 July 2018 in order to reflect inflation.

Non-executive Directors' fees

TheNon-executive Directors' fees were reviewed by the Board during 2018 and the membership fee for the Audit, Remuneration and Risk Committees wasincreased from £27,500 to £30,000 while theNomination &Governance Committee member fee increased from £10,000 to £12,500. Thisisthe first time these fees have been increased since 2015.No other fees were increased.

	From 1 July 2017	From 1 July 2018
Annual fees	£	£
Basic fee	97,000	97,000
Additional fees:
Audit Committee Chair	75,000	75,000
Audit Committee member	27,500	30,000
Remuneration Committee Chair	60,000	60,000
Remuneration Committee member	27,500	30,000
Risk Committee Chair	75,000	75,000
Risk Committee member	27,500	30,000
Nomination Committee member	10,000	12,500
Senior Independent Director	50,000	50,000

Note

If, in a particular year, the number of meetingsis materially greater than usual, the Company may determine that the provision of additional feesisfair and reasonable.

The resulting fees paid to the Chairman andNon-executive Directors are:

£000s	2018 fees	2017 fees	2018 taxable benefits*	2017 taxable benefits*	Total 2018 remuneration: the 'single figure'†	Total 2017 remuneration: the 'single figure'†
Chairman
Paul Manduca	742	727	136	122	878	849
Non-executive Directors
Howard Davies	212	209	–	–	212	209
AnnGodbehere1	–	79	–	–	–	79
David Law	212	176	–	–	212	176
KaiNargolwala2	155	151	–	–	155	151
AnthonyNightingale	168	166	–	–	168	166
Philip Remnant3	216	211	–	–	216	211
Alice Schroeder4	150	124	–	–	150	124
Lord Turner	155	140	–	–	155	140
Thomas Watjen5	131	59	–	–	131	59
Fields Wicker-Miurin6	41	–	–	–	41	–
Total	2,182	2,042	136	122	2,318	2,164

* Benefitsinclude the cost of providing the use of a car and driver, medical insurance and security arrangements.

† Each remuneration element isrounded to the nearest £1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of the Companies Act. The Chairman andNon-executive Directors are not entitled to participate in annual bonus plans or long-term incentive plans.

Notes

1 AnnGodbehere stepped down from the Board on 18 May 2017.

2 KaiNargolwala also received an annual fee of £250,000 in respect of his non-executive chairmanship of Prudential Corporation Asia Limited with effect from 1 February 2016. 3 Philip Remnantstepped down from his non-executive chairmanship of M&GGroup Limited with effect from 1 October 2018.He received a fee of £187,500 in respect of his chairmanship during 2018.

• 4 Alice Schroeder became a member of the Risk Committee on 1 March 2018.
• 5 Thomas Watjen joined the Board on 11 July 2017 and became a member of the Risk Committee on 1November 2018.
• 6 Fields Wicker-Miurin joined the Board and the Remuneration Committee on 3 September 2018.

02

04

06

Statement of Directors' shareholdings

The interests of Directorsin ordinary shares of the Company are set out below. 'Beneficial interest' includesshares owned outright, shares acquired under the Share Incentive Plan (SIP) and deferred annual incentive awards, detailed in the 'Supplementary information' section. It is only these sharesthat count towardsthe share ownership guidelines.

	1 January 2018 (or on date of appointment)	31 December 2018 During 2018 (or on date of retirement)				Share ownership guidelines
	Total beneficial interest (number of shares)	Number of shares acquired	Number of shares disposed	Total beneficial interest* (number of shares)	Number of shares subject to performance conditions†	Total interest in shares	Share ownership guidelines‡ (% of salary/fee)	Beneficial interest as a percentage of basic salary/ basic fees§
Chairman
Paul Manduca	42,500	–	–	42,500	–	42,500	100%	94%
Executive Directors
Mark FitzPatrick	81	28,252	–	28,333	207,971	236,304	250%	62%
John Foley	250,116	161,186	81,468	329,834	370,280	700,114	250%	693%
NicNicandrou	292,309	142,276	139,500	295,085	384,039	679,124	250%	473%
Anne Richards1	86,361	56,447	–	142,808	258,461	401,269	N/A	N/A
Barry Stowe2	282,346	285,042	193,860	373,528	737,088	1,110,616	250%	708%
James Turner3	9,701	23,798	12,623	20,876	150,495	171,371	250%	55%
Mike Wells4	662,623	304,853	155,224	812,252	854,084	1,666,336	400%	1184%
Non-executive Directors
Howard Davies	9,278	236	–	9,514	–	9,514	100%	161%
David Law	9,066	–	–	9,066	–	9,066	100%	153%
KaiNargolwala	70,000	–	–	70,000	–	70,000	100%	1185%
AnthonyNightingale	50,000	–	–	50,000	–	50,000	100%	846%
Philip Remnant	6,916	–	–	6,916	–	6,916	100%	117%
Alice Schroeder5	8,500	6,000	–	14,500	–	14,500	100%	245%
Lord Turner	6,552	167	–	6,719	–	6,719	100%	114%
Thomas Watjen6	5,500	4,840	–	10,340	–	10,340	100%	175%
Fields Wicker-Miurin7	–	1,000	–	1,000	–	1,000	100%	17%

* There were no changes of Directors' interestsin ordinary shares between 31 December 2018 and 12 March 2019, with the exception of theUK-based Executive Directors due to their participation in the monthly Share Incentive Plan (SIP). Mark FitzPatrick acquired a further 37 sharesin the SIP, John Foley acquired a further 38 sharesin the SIP, James Turner acquired a further 38 sharesin the SIP and Mike Wells acquired a further 38 sharesin the SIP during this period.

† Further information on share awardssubject to performance conditions are detailed in the 'share-based long-term incentive awards'section of the Supplementary information. ‡Holding requirement of the Articles of Association (2,500 ordinary shares) must be obtained within one year of appointment to the Board. The increased guidelinesfor Executive Directors were introduced with effect from January 2013 and increased again in 2017. Executive Directors have five yearsfrom this date (or date of joining or role change, if later) to reach the enhanced guideline. The guideline forNon-executive Directors wasintroduced on 1 July 2011.Non-executive Directors have three yearsfrom their date of joining to reach the guideline.

§ Based on the average closing price for the six monthsto 31 December 2018 (£16.42). The Company and its Directors, Chief Executives and shareholders have been granted a partial exemption from the disclosure requirements under Part XV of the Securities and Futures

Ordinance (SFO). As a result of this exemption, Directors, Chief Executives and shareholders do not have an obligation under the SFO to notify the Company ofshareholding interests, and the Company is not required to maintain a register of Directors' and Chief Executives' interests undersection 352 of the SFO, nor a register of interests ofsubstantialshareholders undersection 336 of the SFO. The Company is, however, required to file with the Stock Exchange ofHong Kong Limited any disclosure of interests notified to it in theUnited Kingdom.

Notes

1 Anne Richardsstepped down from the Board on 10 August 2018. Total interest in sharesisshown as at this date.

2 Barry Stowe stepped down from the Board on 31 December 2018. Total interest in sharesisshown at this date. For the 1 January 2018 figure Barry Stowe's beneficial interest in shares is made up of 141,173 ADRs(representing 282,346 ordinary shares), (8,513.73 of these ADRs are held within an investment account which secures premium financing for a life assurance policy). For the 31 December 2018 figure the beneficial interest in sharesis made up of 186,764 ADRs(representing 373,528 ordinary shares).

3 James Turner was appointed to the Board on 1 March 2018. Total interest in sharesisshown as at this date.

4 For the 1 January 2018 figure Mike Wells's beneficial interest in sharesis made up of 249,811 ADRs(representing 499,622 ordinary shares) and 163,001 ordinary shares. For the 31 December 2018 figure his beneficial interest in sharesis made up of 297,320 ADRs(representing 594,640 ordinary shares) and 217,612 ordinary shares.

5 For the 1 January 2018 figure Alice Schroeder's beneficial interest in sharesis made up of 4,250 ADRs(representing 8,500 ordinary shares). For the 31 December 2018 figure the beneficial interest in sharesis made up of 7,250 ADRs(representing 14,500 ordinary shares).

6 For the 1 January 2018 figure Thomas Watjen's beneficial interest in sharesis made up of 2,750 ADRs(representing 5,500 ordinary shares). For the 31 December 2018 figure the beneficial interest in sharesis made up of 5,170 ADRs(representing 10,340 ordinary shares).

7 Fields Wicker-Miurin was appointed to the Board on 3 September 2018. Total interest in sharesisshown from this date.

The bar chart below illustratesthe Executive Directors'shareholding as a percentage of base salary versusthe share ownership guideline.

Outstanding share options

The following table sets out the share options held by the Executive Directorsin theUK Savings-Related Share Option Scheme (SAYE) as at the end of the period.

		Exercise price (pence)	Market Exercise period			Number of options
	Date of grant		price at 31 Dec 2018 (pence)	Beginning	End	Beginning		of period Granted Exercised Cancelled Forfeited			Lapsed	End of period
Mark FitzPatrick	21 Sep 17	1,455	1,402		01 Dec 22 31 May 23	2,061	–	–	–	–	–	2,061
John Foley	21 Sep 16	1,104	1,402		01 Dec 19 31 May 20	815	–	–	–	–	–	815
John Foley	21 Sep 17	1,455	1,402		01 Dec 20 31 May 21	618	–	–	–	–	–	618
NicNicandrou	23 Sep 14	1,155	1,402		01 Dec 19 31 May 20	1,311	–	–	–	–	–	1,311
NicNicandrou	21 Sep 16	1,104	1,402		01 Dec 21 31 May 22	1,358	–	–	–	–	–	1,358
Anne Richards	21 Sep 16	1,104	1,402		01 Dec 19 31 May 20	1,630	–	–	–	–	–	1,630
Mike Wells	22 Sep 15	1,111	1,402		01 Dec 18 31 May 19	1,620	–	1,620	–	–	–	–

Notes

1 No gain was made by Directorsin 2018 on the exercise of SAYE options.

2 No price was paid for the award of any option.

3 The highest and lowest closing share prices during 2018 were £19.81 and £13.44 respectively.

4 All exercise prices are shown to the nearest pence.

5 Anne Richards participated in the plan during her time as an Executive Director. The column above marked 'End of period' reflects Anne Richards' position as at 10 August 2018, the date at which she stepped down from the Board.

6 FollowingNicNicandrou's appointment as Chief Executive of Prudential Corporation Asia on 17 July 2017, he was able to continue saving under his SAYE option contracts existing at that date but is no longer eligible to participate in future SAYE grants.

01 Group overview

02 Strategic report

03 Governance

04

Directors'remuneration

report

05

Financialstatements

Directors' terms of employment and external appointments

Details of the service contracts of each Executive Director are outlined in the table below. The Directors' remuneration policy contains further details of the termsincluded in Executive Directorservice contracts.

Subject to theGroup Chief Executive's or the Chairman's approval, Executive Directors are able to accept external appointments as non-executive directors of other organisations. Fees payable are retained by the Executive Directors.

		Service contracts	External appointment
	Date of contract	Notice period to the Company	Notice period from the Company	External appointment during 2018	Fee received in the period the Executive Director was a Group Director
Executive Directors
Mark FitzPatrick	17 May 2017	12 months	12 months	–	–
John Foley	8 December 2010	12 months	12 months	–	–
NicNicandrou	27 April 2009	12 months	12 months	–	–
Anne Richards	4 July 2016	12 months	12 months	–	–
Barry Stowe	18 October 2006	12 months	12 months	–	–
James Turner	1 March 2018	12 months	12 months	Yes	£45,833
Mike Wells	21 May 2015	12 months	12 months	–	–

Directorsserved on the boards of educational, charitable and cultural organisations without receiving a fee for these services.

Details of changesto the Board of Directors during the year are set out in the Corporate governance report.

Letters of appointment of the Chairman and Non-executive Directors

Details ofNon-executive Directors' individual appointments are outlined below. The Directors' remuneration policy containsfurther details on their letters of appointment.

Chairman/Non-executive Director	Appointment by the Board	Notice period	Time on the Board at 2019 AGM
Chairman
Paul Manduca	15 October 2010	12 months	8 years 7 months
	(Chairman from July 2012)
Non-executive Directors
Philip Remnant	1 January 2013	6 months	6 years 4 months
Howard Davies	15 October 2010	6 months	8 years 7 months
David Law	15 September 2015	6 months	3 years 8 months
KaiNargolwala	1 January 2012	6 months	7 years 4 months
AnthonyNightingale	1 June 2013	6 months	5 years 11 months
Alice Schroeder	10 June 2013	6 months	5 years 11 months
Lord Turner	15 September 2015	6 months	3 years 8 months
Thomas Watjen	11 July 2017	6 months	1 years 10 months
Fields Wicker-Miurin	3 September 2018	6 months	8 months

02

04

06

Recruitment arrangements

In making decisions about the remuneration arrangementsfor those joining the Board, the Committee worked within the Directors' remuneration policy approved by shareholders and was mindful of:

• The skills, knowledge and experience that each new Executive Director brought to the Board;
• The need to support the relocation of executivesto enable them to assume their roles; and
• Its commitment to honour legacy arrangements.

Appointing high-calibre executivesto the Board and to different roles on the Board is necessary to ensure the Company is well positioned to develop and implement itsstrategy and deliver long-term value. Asthe Company operatesin an international market place for talent, the best internal and external candidates are sometimes asked to move location to assume their new roles. Where this happens, the Company will offer relocation support. The support offered will depend on the circumstances of each move but may include paying for travel,shipping services, the provision of temporary accommodation and other housing benefits. Executives may receive support with the preparation of tax returns, but no current Executive Director istax equalised.

James Turner

James Turner was appointed asGroup Chief Risk Officer on 1 March 2018. Mr Turner was appointed on a lowersalary than his predecessor and hasthe same incentive opportunities, namely a maximum bonus opportunity of 160 per cent ofsalary under the AIP and a long-term incentive award of 250 per cent ofsalary. Mr Turner's bonus will be subject to 40 per cent deferral for three years and the deferred bonus will be paid in Prudential plc shares.Hislong-term incentive awards will be subject to a two-year holding period at the end of the three-year performance period. Mr Turner will be subject to the same shareholding guidelines of 250 per cent ofsalary as all other Executive Directors.He will have five yearsfrom the date of his appointment to build thislevel of ownership. There has been no buy-out as Mr Turner wasinternally promoted to thisrole and no relocation was paid on him joining the Board. Mr Turner'sservice contract contains a notice provision under which either party may terminate upon 12 months' notice.

Details of the remuneration he received during 2018 in hisrole asGroup Chief Risk Officer are set out in the 2018 'single figure' table.

Michael Falcon

Michael Falcon succeeded Barry Stowe as Chairman and Chief Executive Officer, JacksonHoldings LLC and joined the Board on 7 January 2019. Asset out in the Statement of implementation in 2019, Mr Falcon was appointed on a lowersalary than his predecessor with lower incentive opportunities. Mr Falcon's basic salary isUS\$800,000 per annum. For 2019 he will have a maximum bonus opportunity of 100 per cent ofsalary under the AIP.He will also be eligible to receive a 10 per centshare of the Jackson bonus pool. Forty per cent of any bonus will be deferred into the Company's ADRsfor three years. Long-term incentive awards, granted under the PLTIP, will have a face value on grant of 400 per cent of base salary.He will be subject to the same shareholding guidelines of 250 per cent ofsalary as all other Executive Directors and will have five yearsfrom the date of his appointment to build thislevel of ownership.

Buy-out awards

In order to facilitate Mr Falcon's appointment, the Company agreed to replace the 2018 bonus and other outstanding awardsthat Mr Falcon forfeited on leaving his previous employer, J.P. Morgan Asset Management.

2018 bonus

The Committee approved an award under the AIP ofUS\$2,637,179 in order to compensate Mr Falcon for the loss of his 2018 bonus. The amount isthe average of the 2016 and 2017 bonuses Mr Falcon received from J.P. Morgan Asset Management. In line with the Directors' remuneration policy, 60 per cent of this will be delivered in cash and 40 per cent deferred into Prudential ADRs with dividend equivalents until the third anniversary of the grant's award date,subject to the rules of the deferred AIP. This bonus payment and AIP award will be made alongside 2018 bonus payments and deferred AIP awardsfor other Executive Directors.

Outstanding deferred awards

The terms of Mr Falcon'sreplacement awards were designed to replicate those of hisforfeited restricted stock and fund units. At the date of thisreport the Company isin a Closed Period and these awards will not be granted until we are in an Open Period following the announcement of 2018 results.

A portion of these awardsthat were due to vest in January 2019 will be compensated by a cash payment ofUS\$1,316,551 to be paid in March 2019 after the date of thisreport. The date of this payment will be reported in the 2019 Directors' remuneration report.

The remaining awards will be made in the form of nominal cost options over Prudential ADRs, to be released in accordance with the original vesting schedule. The terms of the replacement award were designed to replicate those of the forfeited awards and will therefore not be subject to performance conditions and will accrue dividend equivalents. This award entitles Mr Falcon to receive a cash amount equal to the market value of the specific notional number of Prudential ADRs on the date of exercise, less an award price of 10 pence per ADR. The award will vest on the dates detailed below. The number of Prudential ADRs over which options will be granted has been calculated with reference to the closing stock prices of J.P. Morgan Asset Management and Prudential plc on 19 December 2018, Mr Falcon'slast date of employment with hisformer employer. Further details will be disclosed in stock exchange and website announcements when the grant takes place.

Exercise period	Number of notional ADRs
25 October to 24November 2019	11,224
30 days commencing on the date of release of Prudential plc'sresultsfor 2019	30,938
30 days commencing on the date of release of Prudential plc'sresultsfor 2020	14,380

The above replacement awards will be made under rule 9.4.2 of theUKLA Listing Rules, as provided for by the Directors' remuneration policy, asthe award could not be effected under any of the Company's existing incentive plans. Mr Falcon isthe sole participant in this arrangement and no further awards will be made to Mr Falcon under this plan.

Mr Falcon has not been appointed for a fixed term but hisservice contract contains a notice provision under which either party may terminate upon 12 months' notice.

Prior to joining theGroup, Mr Falcon was based inHong Kong. The Company will pay to transport Mr Falcon's belongingsfrom Hong Kong to theUS and will then support his move within theUS in line with ourUS domestic relocation policy. These benefits will be included in the 2019 Directors' remuneration report.

Payments to past Directors and payments for loss of office

The Committee's approach when exercising its discretion under the policy isto be mindful of the particular circumstance of the departure and the contribution the individual made to theGroup.

Anne Richards

Anne Richardsstepped down from the Board as Chief Executive, M&Gon 10 August 2018 and her employment ended with the Company on 30November 2018. The Committee applied the Directors' remuneration policy when determining separation termsfor Ms Richards.

Ms Richardsreceived £161,976 in respect ofsalary, benefits and pension between 11 August and 30November 2018. She will not receive a bonus award for 2018. A portion of Ms Richards' 2016 and 2017 bonuses was deferred for three yearsin the form ofshares. These deferred AIP awards will be released on the original timetable and remain subject to malus and clawback provisions.

All of Ms Richards' outstanding long-term incentive awards and buy-out awards(granted to Ms Richards when she joined Prudential in 2016 in respect of the awardsshe forfeited on leaving Aberdeen Asset Management) lapsed at the end of her employment and she did not receive a loss of office payment.

Barry Stowe

Barry Stowe retired as Chairman and Chief Executive Officer,NABUon 31 December 2018.He will remain as an adviser to theGroup until his employment ends on 31 December 2019. Mr Stowe's base salary, pension benefits and certain other benefits will continue to be paid until the end of his employment.

A portion of Mr Stowe's 2016 and 2017 bonuses was deferred for three yearsin the form of ADRs. Mr Stowe's unvested awards over a total of 186,764 ADRs under the AIP will be released on the original timetable. They remain subject to malus and clawback provisions and will continue to accumulate dividend equivalents until they are released.

Mr Stowe's outstanding PLTIP awards will vest in line with the original vesting dates,subject to satisfaction of the performance conditions under the plan rules. The 2017 and 2018 PLTIP awards will be pro-rated up to the date on which Mr Stowe retired from the Board, while the 2016 award will not be pro-rated since Mr Stowe served on the Board for the entire performance period. These awards(totalling 253,268 ADRs) will continue to accumulate dividend equivalents until they are released and be subject to the original malus and clawback provisions. The 2017 and 2018 PLTIP awards will remain subject to a two-year holding period following the end of their three-year performance periods.

As discussed under the Annual bonus outcomesfor 2018, Mr Stowe hasreceived an annual bonusfor 2018 ofUS\$6,588,583. Sixty per cent of this award will be paid in cash in the usual way, and 40 per cent will be deferred into Prudential ADRs(to be released in the spring of 2022). This award will be subject to malus and clawback provisions.

Mr Stowe will not receive a bonusfor 2019 and he will not be made a long-term incentive award in 2019 or any subsequent year.

The Committee applied the Directors' remuneration policy when determining separation arrangementsfor Ms Richards and Mr Stowe.

02

04

06

Tony Wilkey

Tony Wilkey stepped down from the Board on 17 July 2017 and his employment ended with theGroup on 17 July 2018. Mr Wilkey received £1,057,343 in respect ofsalary, benefits and pension between 1 January and 17 July 2018.

As disclosed in the 2017 Directors' remuneration report, the Committee exercised its discretion in accordance with the approved Directors' remuneration policy and determined that Mr Wilkey should be allowed to retain his unvested PLTIP award granted in 2016. This award will vest in accordance with the original timetable,subject to the original performance conditions, remain subject to malus and clawback provisions, and will be pro-rated forservice.

Asset out in the section 'Remuneration in respect of performance in 2018' the performance conditions attached to Mr Wilkey's 2016 PLTIP awards were partially met and 55.5 per cent of these awards will be released in 2019. The details of Mr Wilkey's award are set out below.

Award	Number of shares vesting1	Value of shares vesting2
Prudential LTIP	69,891	£1,072,128

Notes

1 The number ofshares vesting include accrued dividend shares.

2 The share price used to calculate the value wasthe average share price for the three months up to 31 December 2018, being £15.34.

Other Directors

A number of former Directorsreceive retiree medical benefitsfor themselves and their partner (where applicable). Thisis consistent with othersenior members ofstaff employed at the same time. A de minimisthreshold of £10,000 has been set by the Committee; any payments or benefits provided to a past Director under this amount will not be reported.

Statement of voting at general meeting

At the 2017 AnnualGeneral Meeting,shareholders were asked to vote on the current Directors' remuneration policy and at the 2018 AnnualGeneral Meeting,shareholders were asked to vote on the 2017 Directors' remuneration report. Each of these resolutions received a significant vote in favour by shareholders and the Committee is grateful for thissupport and endorsement by our shareholders. The votesreceived were:

Resolution	Votes for	% of votes cast	Votes against	% of votes cast	Total votes cast	Votes withheld
To approve the Directors' remuneration policy (2017 AGM)	1,773,691,171	90.71	181,582,497		9.29 1,955,273,668	45,820,585
To approve the Directors' remuneration report (2018 AGM)	1,944,563,586	94.91	104,204,573		5.09 2,048,768,159	26,571,316

Statement of implementation in 2019

Aligning 2019 pay to performance

Executive Directors' remuneration packages were reviewed in 2018 with changes effective from 1 January 2019. When the Committee took these decisions, it considered the salary increases awarded to other employeesin 2018 and the expected increasesin 2019. The external market reference points used to provide context to the Committee were identical to those used for 2018 salaries.

All Executive Directorsreceived a salary increase of 2 per cent. The 2019 salary increase budgetsfor other employees acrosstheGroup's business units were between 2 per cent and 8 per cent.

The Executive Directors' bonus opportunities, performance measures and weightings will remain the same asin 2018.

Details of Michael Falcon'srecruitment arrangements have been provided under the Recruitment arrangementssection. The Committee considered hisremuneration package with reference to internal and external reference points and determined that it was appropriate to appoint him on a lowersalary and lower incentive opportunitiesthan his predecessor, Barry Stowe, who had served on the Board over the last 12 years.Having joined the Board on 7 January 2019, Michael Falcon will be eligible to receive a full year bonusfor the 2019 financial year.He will receive a 2019 long-term incentive award, granted under the PLTIP, with a face value on grant of 400 per cent of base salary.

On 28 February 2019, we announced that John Foley, Chief Executive of M&GPrudential,NicNicandrou, Chief Executive of Prudential Corporation Asia, and Michael Falcon, Chairman and Chief Executive Officer, JacksonHoldings LLC, willstep down as members of Prudential's Board at the end of the AnnualGeneral Meeting on 16 May 2019 as part of our progresstowardsthe demerger of M&GPrudential. They will remain in their executive roles and will continue to be members of theGroup Executive Committee. The remuneration of these executives will be managed in line with the approved Directors' remuneration policy and they will not receive any loss of office payment in respect of theirservice as Directors. Further details will be disclosed in website announcements and in the 2019 Directors' remuneration report.

2019 share-based long-term incentive awards

The Executive Directors' long-term incentive awards will continue to be made under the PLTIP and the opportunity levelsremain the same asthe 2018 PLTIP awards.However, as highlighted in the Annualstatement from the Chairman of the Remuneration Committee at the beginning of thisreport, changes will be made to the vesting scale and measures under PLTIP for the 2019 awards only. The vesting of these awards will depend on:

— Relative TSR (75 per cent of award); and

— Balanced scorecard ofstrategic measures(25 per cent of award).

Since these measures are in line with the remuneration requirements of Solvency II, the weightings of theGroup Chief Risk Officer's PLTIP performance targets will be the same asthat of the other Executive Directors.

Under theGroup TSR measure, 20 per cent of the award will vest for TSR at the median of the peer group, increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basissince this hasthe benefit ofsimplicity and directness of comparison. A comprehensive review of the TSR peer group has been undertaken for 2019 PLTIP awards as a number of years has passed since the group waslast considered in detail. The companies were selected based on organisationalsize, product mix and geographical footprint.

The peer group for 2019 PLTIP awardsisset out below:

Aegon	AIA	AXA Equitable	China Taiping Insurance
Great Eastern	LincolnNational	Manulife	MetLife
Ping An Insurance	Principal Financial	Prudential Financial	Sun Life Financial

The TSR peer group for 2017 and 2018 PLTIP awardsremains unchanged.

Under the 2019 balanced scorecard, performance will be assessed for each of the four measures, at the end of the three-year performance period. Performance will be assessed on a sliding scale. Each of the measures has equal weighting and the 2019 measures are set out below:

Capital measure:	Cumulative three-year E-capGroup operating capital generation relative to plan, less cost of capital (based on the capital position at the start of the performance period).
Vesting basis:	20 per cent vesting for achieving Plan, increasing to full vesting for performance above stretch level. The plan figure for this metric will be published in the Annual Report for the final year of the performance period.
Capital measure:	Cumulative three-year Solvency IIGroup operating capital generation (as captured in published disclosures) relative to plan.
Vesting basis:	20 per cent vesting for achieving Plan, increasing to full vesting for performance above stretch level. The plan figure for this metric will be published in the Annual Report for the final year of the performance period.
Conduct measure:	Through appropriate management action, ensure there are no significant conduct/culture/governance issues that result in significant capital add-ons or material fines.
Vesting basis:	20 per cent vesting for partial achievement of theGroup's expectations, increasing to full vesting for achieving theGroup's expectations.
	Diversity measure: Percentage of the Leadership Team that isfemale at the end of 2021. The target for this metric will be based on progresstowardsthe goal that the Company set when itsigned the Women in Finance Charter,specifically that 30 per cent of our Leadership Team will be female by the end of 2021.
Vesting basis:	20 per cent vestsfor meeting the threshold of at least 28 per cent of our Leadership Team being female at the end of 2021, increasing to full vesting for reaching the stretch level of at least 32 per cent being female at that date.

Pension entitlements from 2019

Externally-recruited Executive Directors appointed on or after 1 March 2019 will be offered pension benefits of 20 per cent ofsalary, rather than the current level of 25 per cent ofsalary.Given evolving practice in this area, pension benefits will be considered again as part of our review of the Directors' remuneration policy.

04

06

Demerger and review of the Directors' remuneration policy

During 2018 theGroup announced itsintention to demerge M&GPrudential from Prudential plc, resulting in two separately listed companies, each with its own distinct investment prospects. In preparation for the demerger processthe Committee has established a set of principlesto underpin decisions on remuneration relating to the demerger, including:

• Executivesshould not be advantaged or disadvantaged by the demerger; the value of outstanding awards and their key terms (release dates, holding periods, malus and clawback provisions)should be unaffected;
• Where performance conditions need to be revised, the new conditionsshould be no more or lessstretching that those originally attached to the awards;
• Where the Committee has applied discretion, this will be disclosed clearly; and
• The future arrangements of M&GPrudential will be a matter for the Board, Remuneration Committee and shareholders of the new business.However, until the date of the demerger, the Prudential plc Remuneration Committee will have a responsibility for the remuneration of members of the plc Board andGroup Executive Committee members and oversight of those M&GPrudential employees currently within its purview.

The Prudential plc Directors' remuneration policy will continue to apply to all members of the plc Board until the date of the demerger and the Prudential plcGroup-wide Remuneration Policy will continue to apply to allGroup staff (including those within the M&GPrudential business) until the date of the demerger.

During 2019, we intend to review the Directors' remuneration policy, taking into account the demerger, the views of ourshareholders, the new UK CorporateGovernance Code, forthcoming changesto accounting standards and the broader regulatory and competitive environment.

Chairman and Non-executive Directors

Feesfor the Chairman andNon-executive Directors were reviewed in 2018 with changes effective from 1 July 2018, asset out under the Chairman andNon-executive Director remuneration in 2018 section. The next review will be effective 1 July 2019.

Signed on behalf of the Board of Directors

Anthony Nightingale, CMG SBS JP Paul Manduca Chair of the Remuneration Committee Chairman 12 March 2019 12 March 2019

Supplementary information

Directors' outstanding long-term incentive awards

Share-based long-term incentive awards

	Plan name	Year of award	Conditional share awards outstanding at 1 Jan 2018	Conditional awards in 2018	Market price at date of award	Dividend equivalents on vested shares3	Rights exercised in 2018	Rights lapsed in 2018	Conditional share awards outstanding at 31 Dec 2018	Date of end of performance period
			(number of shares)	(number of shares)	(pence)	(number ofshares released)			(number of shares)
Mark FitzPatrick	PLTIP PLTIP	2017 2018	101,360	106,611	1,828 1,750				101,360 106,611	31 Dec 19 31 Dec 20
			101,360	106,611		–	–	–	207,971
John Foley	PLTIP PLTIP PLTIP	2015 2016 2017	122,808 144,340 114,177		1,672 1,279 1,672	10,683	117,693	5,115	– 144,340 114,177	31 Dec 17 31 Dec 18 31 Dec 19
	PLTIP	2018		111,763	1,750				111,763	31 Dec 20
Nic Nicandrou	PLTIP PLTIP PLTIP PLTIP	2015 2016 2017 2018	381,325 104,117 136,836 108,357	111,763 138,846	1,672 1,279 1,672 1,750	9,057	10,683 117,693 99,781	5,115 4,336	370,280 – 136,836 108,357 138,846	31 Dec 17 31 Dec 18 31 Dec 19 31 Dec 20
			349,310	138,846		9,057	99,781	4,336	384,039
Barry Stowe1	PLTIP PLTIP PLTIP PLTIP PLTIP	2015 2015 2016 2017 2018	113,940 50,668 274,100 247,690	215,298	1,672 1,611.5 1,279 1,672 1,750	9,238 7,770	101,788 12,152 45,264	5,404	– – 274,100 247,690 215,298	31 Dec 17 31 Dec 17 31 Dec 18 31 Dec 19 31 Dec 20
			686,398	215,298			17,008 147,052 17,556		737,088
James Turner	PLTIP PLTIP PLTIP PLTIP PLTIP	2015 2015 2016 2017 2018	18,927 2,993 33,116 27,940	89,439	1,672 1,417.5 1,279 1,672 1,750	1,643 261	18,139 2,868	788 125	– – 33,116 27,940 89,439	31 Dec 17 31 Dec 17 31 Dec 18 31 Dec 19 31 Dec 20
			82,976	89,439		1,904	21,007	913	150,495
Mike Wells2	PLTIP PLTIP PLTIP PLTIP PLTIP	2015 2015 2016 2017 2018	209,222 30,132 332,870 263,401	257,813	1,672 1,611.5 1,279 1,672 1,750	18,198 2,658	200,508 28,878	8,714 1,254	– – 332,870 263,401 257,813	31 Dec 17 31 Dec 17 31 Dec 18 31 Dec 19 31 Dec 20
			835,625	257,813			20,856 229,386	9,968	854,084

Notes

1 The awardsfor Barry Stowe were made in ADRs(1 ADR = 2 ordinary shares). The figuresin the table are represented in terms of ordinary shares.

2 The award in 2015 for Mike Wells was made in ADRs(1 ADR = 2 ordinary shares). All of the awardsfrom 2016 onwards were made in ordinary shares. The figuresin the table are represented in terms of ordinary shares.

3 A dividend equivalent was accumulated on these awards.

Other share awards

The table below sets out Executive Directors' deferred bonusshare awards.

	Year of grant	Conditional share awards outstanding at 1 Jan 2018 (number ofshares)	Conditionally awarded in 2018 (number ofshares)	Dividends accumulated in 20183 (number ofshares)	Shares released in 2018 (number ofshares)	Conditional share awards outstanding at 31 Dec 2018 (number ofshares)	Date of end of restricted period	Date of release	Market price at date of award (pence)	Market price at date of vesting or release (pence)
Mark FitzPatrick
Deferred 2017 annual
incentive award	2018		27,414	705		28,119	31 Dec 20		1,750
		–	27,414	705	–	28,119
John Foley Deferred 2014 annual incentive award	2015	44,783			44,783	–	31 Dec 17	03 Apr 18	1,672	1,747
Deferred 2015 annual incentive award	2016	67,418		1,736		69,154	31 Dec 18		1,279
Deferred 2016 annual incentive award Deferred 2017 annual	2017	31,139		801		31,940	31 Dec 19		1,672
incentive award	2018		29,373	755		30,128	31 Dec 20		1,750
		143,340	29,373	3,292	44,783	131,222
Nic Nicandrou Deferred 2014 annual
incentive award Deferred 2015 annual	2015	30,662			30,662	–	31 Dec 17	03 Apr 18	1,672	1,747
incentive award Deferred 2016 annual	2016	40,121		1,032		41,153	31 Dec 18		1,279
incentive award Deferred 2017 annual	2017	30,269		779		31,048	31 Dec 19		1,672
incentive award	2018		30,788	792		31,580	31 Dec 20		1,750
		101,052	30,788	2,603	30,662	103,781
Barry Stowe1 Deferred 2014 annual incentive award	2015	29,800			29,800	–	31 Dec 17	03 Apr 18	1,672	1,747
Deferred 2015 annual incentive award	2016	114,518		2,934		117,452	31 Dec 18		1,279
Deferred 2016 annual incentive award	2017	138,028		3,536		141,564	31 Dec 19		1,672
Deferred 2017 annual incentive award	2018		111,652	2,860		114,512	31 Dec 20		1,750
		282,346	111,652	9,330	29,800	373,528
James Turner Deferred 2014 group deferred bonus plan award	2015	3,917			3,917	–	31 Dec 17	03 Apr 18	1,672	1,747
Deferred 2015 group deferred bonus plan award	2016	5,305		135		5,440	31 Dec 18		1,279
		9,222	–	135	3,917	5,440
Mike Wells2 Deferred 2014 annual
incentive award Deferred 2015 annual	2015	123,822			123,822	–	31 Dec 17	03 Apr 18	1,672	1,747
incentive award Deferred 2016 annual	2016	109,890		2,830		112,720	31 Dec 18		1,279
incentive award Deferred 2017 annual incentive award	2017 2018	52,703	47,443	1,357 1,221		54,060 48,664	31 Dec 19 31 Dec 20		1,672 1,750
		286,415	47,443		5,408 123,822	215,444

Notes

1 The awardsfor Barry Stowe were made in ADRs(1 ADR = 2 ordinary shares). The figuresin the table are represented in terms of ordinary shares.

2 The award for Mike Wellsin 2015 was made in ADRs(1 ADR = 2 ordinary shares). All of the awards made from 2016 onwards were made in ordinary shares. The figuresin the table are represented in terms of ordinary shares.

3 A dividend equivalent was accumulated on these awards.

02

04

03

06

All-employee share plans

It isimportant that all employees are offered the opportunity to own sharesin Prudential, connecting them both to the success of the Company and to the interests of othershareholders. Executive Directors are invited to participate in these plans on the same basis as otherstaff in their location.

Save As You Earn (SAYE) schemes

UK-based Executive Directors are normally eligible to participate in theHM Revenue and Customs(HMRC) approved Prudential Savings-Related Share Option Scheme. Thisscheme allows all eligible employeesto save towardsthe exercise of options over Prudential plc shares with the option price set at the beginning of the savings period at a discount of up to 20 per cent of the market price. Since 2014 participants have been able to elect to enter into savings contracts of up to £500 per month for a period of three or five years. At the end of thisterm, participants may exercise their options within six months and purchase shares. If an option is not exercised within six months, participants are entitled to a refund of their cash savings plusinterest if applicable under the rules. Shares are issued to satisfy those options which are exercised.No options may be granted under the schemesif the grant would cause the number ofshares which have been issued, or which remain issuable pursuant to options granted in the preceding 10 years under the scheme and any other option schemes operated by the Company, or which have been issued under any othershare incentive scheme of the Company, to exceed 10 per cent of the Company's ordinary share capital at the proposed date of grant. In anticipation of the demerger of the M&GPrudential businessthe Company did not operate the SAYE in 2018.

Details of Executive Directors' rights under the SAYE scheme are set out in the 'Outstanding share options' table.

Share Incentive Plan (SIP)

UK-based Executive Directors are also eligible to participate in the Company's Share Incentive Plan (SIP). Since April 2014, allUK-based employees have been able to purchase Prudential plc shares up to a value of £150 per month from their grosssalary (partnership shares) through the SIP. For every four partnership shares bought, an additional matching share is awarded which is purchased by Prudential plc on the open market. Dividend shares accumulate while the employee participatesin the plan. If the employee withdrawsfrom the plan, or leavestheGroup, matching shares may be forfeited.

The table below providesinformation aboutshares purchased under the SIP together with matching shares(awarded on a 1:4 basis) and dividend shares.

	Year of initial grant	Share Incentive Plan awards held in Trust at 1 Jan 2018 (number of shares)	Partnership shares accumulated in 2018 (number of shares)	Matching shares accumulated in 2018 (number of shares)	Dividend shares accumulated in 2018 (number of shares)	Share Incentive Plan awards held in Trust at 31 Dec 2018 (number of shares)
Mark FitzPatrick	2017	81	104	26	3	214
John Foley	2014	576	103	26	16	721
NicNicandrou1	2010	1,766	–	–	47	1,813
James Turner2	2011	479	172	43	15	709
Mike Wells	2015	408	103	25	12	548

Notes

1 FollowingNicNicandrou's appointment as Chief Executive of Prudential Corporation Asia on 17 July 2017, he is no longer eligible to participate in the SIP.However, while hisshares

remain in the SIP Trust he will receive any dividends payable on these shares.

2 The number ofsharesfor James Turner reflects his SIP holding on his appointment as an Executive Director on 1 March 2018.

Cash-settled long-term incentive awards

Thisinformation has been prepared in line with the reporting requirements of theHong Kong Stock Exchange and sets out Executive Directors' outstanding share awards and share options. For details of the cash-settled long-term incentive awards held by some Executive Directors, please see our Annual report on remuneration.

Dilution

Releasesfrom the Prudential Long Term Incentive Plan and the Prudential Agency Long Term Incentive Plan are satisfied using new issue sharesrather than by purchasing sharesin the open market. Sharesrelating to options granted under all-employee share plans are also satisfied by new issue shares. The combined dilution from all outstanding shares and options at 31 December 2018 was 1.11 per cent of the totalshare capital at the time. Deferred bonus awards will continue to be satisfied by the purchase ofsharesin the open market.

Five highest paid individuals

Of the five individuals with the highest emolumentsin 2018, three were Executive Directors whose emoluments are disclosed in this report. The aggregate of the emoluments of the other two individualsfor 2018 were asfollows:

	2018 £000
Base salaries, allowances and benefitsin kind	2,810
Pension contributions	104
Performance related pay	20,993
Total	23,907

Their emoluments were within the following bands:

	Number of five highest paid employees 2018
£7,200,001-£7,300,000	1
£16,600,001-£16,700,000	1

01

03

04

06

Strategic report

06

Page

05 Financial statements

Index to Group IFRS financial statements	172
Parent company financial statements	320
Notes on the parent company financial statements	322
Statement of Directors' responsibilities	329
Independent auditor's report to Prudential plc	330

Index to Group IFRS financial statements

			Page	Section			Page
		Primary statements		C4		Policyholder liabilities and unallocated surplus
		Consolidated income statement	173		C4.1	Movement and duration of liabilities
		Consolidated statement of comprehensive income	174			C4.1(a) Group overview	241
		Consolidated statement of changesin equity	175			C4.1(b) Asia insurance operations	244
		Consolidated statement of financial position	177			C4.1(c) US insurance operations	246
		Consolidated statement of cash flows	178			C4.1(d) UK and Europe insurance operations	248
					C4.2	Products and determining contract liabilities
					C4.2(a) Asia		250
					C4.2(b) US		253
						C4.2(c) UK and Europe	259
				C5		Intangible assets
					C5.1	Goodwill	265
					C5.2	Deferred acquisition costs and other	266
				C6		intangible assets Borrowings
Section			Page		C6.1	Core structural borrowings of	269
		Notes to the Primary statements				shareholder-financed businesses
A		Background and critical accounting policies			C6.2	Other borrowings	270
A1		Basis of preparation and exchange rates	179		C6.3	Maturity analysis	271
A2		New accounting pronouncementsin 2018	180	C7		Risk and sensitivity analysis
A3		Accounting policies			C7.1	Group overview	272
	A3.1	Critical accounting policies, estimates	180		C7.2	Asia insurance operations	274
		and judgements			C7.3	US insurance operations	275
	A3.2	New accounting pronouncements	189		C7.4	UK and Europe insurance operations	280
		not yet effective			C7.5	Asset management and other operations	282
B		Earnings performance		C8		Tax assets and liabilities
B1		Analysis of performance by segment			C8.1	Deferred tax	283
	B1.1	Segment results – profit before tax	193		C8.2	Current tax	284
	B1.2	Short-term fluctuationsin investment returns	194	C9		Defined benefit pension schemes	284
		on shareholder-backed business		C10		Share capital,share premium and own shares	291
	B1.3	Determining operating segments and	196	C11		Provisions	292
		performance measure of operating segments		C12		Capital
	B1.4	Segmental income statement	200		C12.1	Group objectives, policies and processes	292
	B1.5	Other investment return	202			for managing capital
	B1.6	Additional analysis of performance			C12.2 C12.3	Local capital regulations Transferability of available capital	293 295
		by segment components		C13		Property, plant and equipment	295
	B1.6(a) Asia		202	C14		Investment properties	296
	B1.6(b) US		203
		B1.6(c) UK and Europe	204	D		Other notes
B2		Acquisition costs and other expenditure		D1		Corporate transactions
	B2.1	Staff and employment costs	205		D1.1	Gains/(losses) on disposal of businesses	297
	B2.2	Share-based payment	206			and corporate transactions
	B2.3 B2.4	Key management remuneration Fees payable to the auditor	208 208		D1.2	Acquisition of TMB Asset Management Co., Ltd.	298
B3		Effect of changes and other accounting matters	209			in Thailand
		on insurance assets and liabilities		D2		Contingencies and related obligations	298
B4		Tax charge	210	D3		Post balance sheet events	299
B5		Earnings pershare	213	D4 D5		Related party transactions Commitments	299 300
B6		Dividends	214	D6		Investmentsin subsidiary undertakings,	300
						joint ventures and associates
C		Balance sheet notes
C1		Analysis ofGroup statement of financial position	215	E		Further accounting policies
		by segment		E1		Othersignificant accounting policies	313
C2		Analysis ofsegmentstatement of financial position
		by businesstype
	C2.1 C2.2	Asia US	218 219
	C2.3	UK and Europe	220
C3		Assets and liabilities
	C3.1	Group assets and liabilities – measurement	221
	C3.2	Debtsecurities	229
	C3.3	Loans portfolio	235
	C3.4	Financial instruments – additional information
		C3.4(a) Financial risk	236
		C3.4(b) Derivatives and hedging	238
		C3.4(c) Derecognition, collateral and offsetting	239

Consolidated income statement

	Note	2018 £m	2017 £m
Gross premiums earned Outward reinsurance premiums note (i)		47,224 (14,023)	44,005 (2,062)
Earned premiums, net of reinsurance Investment return Other income note (ii)	B1.4 B1.4 B1.4	33,201 (10,263) 1,993	41,943 42,189 2,258
Total revenue, net of reinsurance	B1.4	24,931	86,390
Benefits and claims note (i) Outward reinsurers'share of benefit and claims note (i) Movement in unallocated surplus of with-profitsfunds	C4.1(a)(iii) C4.1(a)(iii) C4.1(a)(iii)	(27,411) 13,554 1,289	(71,854) 2,193 (2,871)
Benefits and claims and movement in unallocated surplus of with-profitsfunds, net of reinsurance Acquisition costs and other expenditure note (ii) Finance costs: interest on core structural borrowings ofshareholder-financed businesses (Loss) gain on disposal of businesses and corporate transactions Remeasurement of the sold Korea life business	B1.4 B2 D1.1	(12,568) (8,855) (410) (80) –	(72,532) (9,993) (425) 223 5
Total charges, net of reinsurance and (loss) gain on disposal of businesses	B1.4	(21,913)	(82,722)
Share of profitsfrom joint ventures and associates, net of related tax	D6	291	302
Profit before tax (being tax attributable to shareholders' and policyholders' returns) note (iii) Lesstax credit (charge) attributable to policyholders' returns		3,309 326	3,970 (674)
Profit before tax attributable to shareholders Total tax charge attributable to policyholders and shareholders Adjustment to remove tax (credit) charge attributable to policyholders' returns Tax charge attributable to shareholders' returns	B1.1 B4 B4	3,635 (296) (326) (622)	3,296 (1,580) 674 (906)
Profit for the year		3,013	2,390
Attributable to: Equity holders of the Company Non-controlling interests		3,010 3	2,389 1
Profit for the year		3,013	2,390
Earnings per share (in pence)	Note	2018	2017
Based on profit attributable to the equity holders of the Company: Basic Diluted	B5	116.9p 116.8p	93.1p 93.0p

Notes

(i) Outward reinsurance premiumsinclude the £(12,149) million paid during the year in respect of the reinsurance of theUK annuity portfolio. The associated increase in reinsurance assetsisincluded in outward reinsurers'share of benefits and claims and the consequential change to policyholder liabilitiesisincluded in benefits and claims. See note D1.1 for further details.

(ii) The 2017 comparative results have been re-presented from those previously published for the deduction of certain expenses against revenue following the adoption of IFRS 15. See note A2.

(iii) This measure isthe formal profit before tax measure under IFRS but it is not the result attributable to shareholders. Thisis principally because the corporate taxes of theGroup include those on the income of consolidated with-profits and unit-linked fundsthat, through adjustmentsto benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the profit before all taxes measure is not representative of pre-tax profits attributable to shareholders. Profit before all taxesis determined after deducting the cost of policyholder benefits and movementsin the liability for unallocated surplus of with-profitsfunds after adjusting for taxes borne by policyholders.

05

06 European

Consolidated statement of comprehensive income

	Note	2018 £m	2017 £m
Profit for the year		3,013	2,390
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 year	A1	344	(404)
Cumulative exchange gain ofsold Korea life businessrecycled through profit or loss		–	(61)
Related tax		5	(5)
		349	(470)
Net unrealised valuation movements on securities ofUS insurance operations classified as available-for-sale:
Net unrealised holding (losses) gains arising in the year		(1,606)	591
(Deduct net gains) add back net lossesincluded in the income statement on disposal
and impairment		(11)	26
Total	C3.2(c)	(1,617)	617
Related change in amortisation of deferred acquisition costs	C5.2	246	(76)
Related tax	C8.1	288	(55)
		(1,083)	486
Total		(734)	16
Items that will not be reclassified to profit or loss
Shareholders'share of actuarial gains and losses on defined benefit pension schemes: Actuarial gains and losses on defined benefit pension schemes		134	200
Related tax		(23)	(33)
		111	167
Deduct amount attributable toUK with-profit fundstransferred to unallocated surplus of
with-profit funds, net of related tax		(38)	(78)
		73	89
Other comprehensive (loss) income for the year, net of related tax		(661)	105
Total comprehensive income for the year		2,352	2,495
Attributable to:
Equity holders of the Company Non-controlling interests		2,348 4	2,494 1
Total comprehensive income for the year		2,352	2,495

Consolidated statement of changes in equity

		Year ended 31 December 2018 £m
Note	Share capital C10	Share premium C10	Retained earnings	Translation reserve	Available for-sale securities reserves	Share holders' equity	Non- controlling interests	Total equity
Reserves
Profit for the year	–	–	3,010	–	–	3,010	3	3,013
Other comprehensive income:
Exchange movements on foreign
operations and net investment
hedges, net of related tax	–	–	–	348	–	348	1	349
Net unrealised valuation movements,
net of related change in
amortisation of deferred
acquisition costs and related tax	–	–	–	–	(1,083)	(1,083)	–	(1,083)
Shareholders'share of actuarial gains
and losses on defined benefit
pension schemes, net ofrelated tax	–	–	73	–	–	73	–	73
Total other comprehensive income (loss)	–	–	73	348	(1,083)	(662)	1	(661)
Total comprehensive income for the year	–	–	3,083	348	(1,083)	2,348	4	2,352
Dividends B6	–	–	(1,244)	–	–	(1,244)	–	(1,244)
Reserve movementsin respect
ofshare-based payments	–	–	69	–	–	69	–	69
Change in non-controlling interests D1.2	–	–	–	–	–	–	7	7
Movementsin respect of option to
acquire non-controlling interests D1.2	–	–	(109)	–	–	(109)	–	(109)
Share capital and share premium
New share capitalsubscribed C10	1	16	–	–	–	17	–	17
Treasury shares
Movement in own sharesin respect
ofshare-based payment plans	–	–	29	–	–	29	–	29
Movement in Prudential plc shares
purchased by unit trusts consolidated
under IFRS	–	–	52	–	–	52	–	52
Net increase (decrease) in equity	1	16	1,880	348	(1,083)	1,162	11	1,173
At beginning of year	129	1,948	12,326	840	844	16,087	7	16,094
At end of year	130	1,964	14,206	1,188	(239)	17,249	18	17,267

02

03

06

		Year ended 31 December 2017 £m
	Note	Share capital C10	Share premium C10	Retained earnings	Translation reserve	Available for-sale securities reserves	Share holders' equity	Non- controlling interests	Total equity
Reserves Profit for the year		–	–	2,389	–	–	2,389	1	2,390
Other comprehensive income: Exchange movements on foreign
operations and net investment hedges, net of related tax		–	–	–	(470)	–	(470)	–	(470)
Net unrealised valuation movements, net of related change in amortisation of deferred acquisition costs and related tax		–	–	–	–	486	486	–	486
Shareholders'share of actuarial gains and losses on defined benefit pension schemes, net ofrelated tax		–	–	89	–	–	89	–	89
Total other comprehensive income (loss)		–	–	89	(470)	486	105	–	105
Total comprehensive income for the year		–	–	2,478	(470)	486	2,494	1	2,495
Dividends Reserve movementsin respect of	B6	–	–	(1,159)	–	–	(1,159)	–	(1,159)
share-based payments Change in non-controlling interests		– –	– –	89 –	– –	– –	89 –	– 5	89 5
Share capital and share premium New share capitalsubscribed	C10	–	21	–	–	–	21	–	21
Treasury shares Movement in own sharesin respect
ofshare-based payment plans Movement in Prudential plc shares purchased by unit trusts consolidated		–	–	(15)	–	–	(15)	–	(15)
under IFRS		–	–	(9)	–	–	(9)	–	(9)
Net increase (decrease) in equity At beginning of year		– 129	21 1,927	1,384 10,942	(470) 1,310	486 358	1,421 14,666	6 1	1,427 14,667
At end of year		129	1,948	12,326	840	844	16,087	7	16,094

Consolidated statement of financial position

	Note	31 Dec 2018 £m	31 Dec 2017 £m
Assets
Goodwill	C5.1	1,857	1,482
Deferred acquisition costs and other intangible assets	C5.2	11,923	11,011
Property, plant and equipment	C13	1,409	789
Reinsurers'share of insurance contract liabilities	C4.1(a)(iv)	11,144	9,673
Deferred tax assets	C8.1	2,595	2,627
Current tax recoverable	C8.2	618	613
Accrued investment income	C1	2,749	2,676
Other debtors	C1	4,088	2,963
Investment properties	C14	17,925	16,497
Investment in joint ventures and associates accounted for using the equity method		1,733	1,416
Loans	C3.3	18,010	17,042
Equity securities and portfolio holdingsin unit trusts note (i)		214,733	223,391
Debtsecurities note (i)	C3.2	175,356	171,374
Derivative assets	C3.4	3,494	4,801
Other investments note (i)		6,512	5,622
Deposits		11,796	11,236
Assets held forsale note (ii)		10,578	38
Cash and cash equivalents	C1	12,125	10,690
Total assets	C1	508,645	493,941
Equity
Shareholders' equity		17,249	16,087
Non-controlling interests		18	7
Total equity		17,267	16,094
Liabilities
Insurance contract liabilities	C4.1	322,666	328,172
Investment contract liabilities with discretionary participation features	C4.1	67,413	62,677
Investment contract liabilities without discretionary participation features	C4.1	19,222	20,394
Unallocated surplus of with-profitsfunds	C4.1	15,845	16,951
Core structural borrowings ofshareholder-financed businesses	C6.1	7,664	6,280
Operational borrowings attributable to shareholder-financed businesses	C6.2	998	1,791
Borrowings attributable to with-profits businesses	C6.2	3,940	3,716
Obligations under funding,securitieslending and sale and repurchase agreements		6,989	5,662
Net asset value attributable to unit holders of consolidated unit trusts and similar funds		11,651	8,889
Deferred tax liabilities	C8.1	4,022	4,715
Current tax liabilities	C8.2	568	537
Accruals, deferred income and other liabilities	C1	15,248	14,185
Provisions	C11	1,078	1,123
Derivative liabilities	C3.4	3,506	2,755
Liabilities held forsale note (ii)		10,568	–
Total liabilities	C1	491,378	477,847
Total equity and liabilities		508,645	493,941

Notes

(i) Included within equity securities and portfolio holdingsin unit trusts, debtsecurities and other investments are £8,278 million (31 December 2017: £8,232 million) of lentsecurities and assetssubject to repurchase agreements.

(ii) Assets held forsale of £10,578 million include £10,568 million in respect of the reinsuredUK annuity business. A corresponding amount isreflected in liabilities held forsale. See note D1.1 for further details.

The consolidated financialstatements on pages 173 to 319 were approved by the Board of Directors on 12 March 2019. They were signed on its behalf:

Paul Manduca Chairman

Mike Wells Group Chief Executive

Mark FitzPatrick Chief Financial Officer

01

02

06 European

Consolidated statement of cash flows

	Note	2018 £m	2017 £m
Cash flows from operating activities
Profit before tax (being tax attributable to shareholders' and policyholders' returns) note (i)		3,309	3,970
Adjustmentsto profit before tax for non-cash movementsin operating assets and liabilities:
Investments		15,456	(49,771)
Other non-investment and non-cash assets		(3,503)	(968)
Policyholder liabilities(including unallocated surplus) Other liabilities(including operational borrowings)		(17,392) 4,344	44,877 3,360
Interest income and expense and dividend income included in result before tax		(7,861)	(8,994)
Operating cash items:
Interest receipts and payments		5,793	6,900
Dividend receipts		2,361	2,612
Tax paid note (iv)		(625)	(915)
Other non-cash items		582	549
Net cash flowsfrom operating activities		2,464	1,620
Cash flows from investing activities
Purchases of property, plant and equipment	C13	(289)	(134)
Proceedsfrom disposal of property, plant and equipment		4	–
Acquisition of businesses and intangibles note (v)		(504)	(351)
Sale of businesses note (v)		–	1,301
Net cash flowsfrom investing activities		(789)	816
Cash flows from financing activities
Structural borrowings of theGroup:
Shareholder-financed businesses: note (ii)	C6.1
Issue ofsubordinated debt, net of costs		1,630	565
Redemption ofsubordinated debt		(434)	(751)
Fees paid to modify terms and conditions ofsenior debt note (ii)		(33)	–
Interest paid		(376)	(369)
With-profits businesses: note (iii)	C6.2
Redemption ofsubordinated debt		(100)	–
Interest paid		(4)	(9)
Equity capital:
Issues of ordinary share capital		17	21
Dividends paid		(1,244)	(1,159)
Net cash flowsfrom financing activities		(544)	(1,702)
Net increase in cash and cash equivalents		1,131	734
Cash and cash equivalents at beginning of year		10,690	10,065
Effect of exchange rate changes on cash and cash equivalents		304	(109)
Cash and cash equivalents at end of year		12,125	10,690

Notes

(i) This measure isthe formal profit before tax measure under IFRS but it is not the result attributable to shareholders.

(ii) Structural borrowings ofshareholder-financed businesses exclude borrowingsto supportshort-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries ofshareholder-financed businesses and other borrowings ofshareholder-financed businesses. Cash flowsin respect of these borrowings are included within cash flowsfrom operating activities. The changesin the carrying value of the structural borrowings ofshareholder-financed businesses during 2018 are analysed asfollows:

		Cash movements £m			Non-cash movements £m
	Balance at beginning of year	Issue of debt	Redemption of debt	Modification of debt*	Foreign exchange movement	Other movements	Balance at end of year
2018	6,280	1,630	(434)	(33)	210	11	7,664
2017	6,798	565	(751)	–	(341)	9	6,280

* The amount in 2018 relatesto fees paid to bondholders who participated in the voting processin respect of certain modificationsto the terms and conditions of the senior debt. Other than these fees, the modification did not result in an adjustment to the carrying value of the senior debt.

(iii) Interest paid on structural borrowings of with-profits businessesrelatessolely to the £100 million 8.5 per cent undated subordinated guaranteed bonds, which contribute to the solvency base of the Scottish Amicable Insurance Fund (SAIF), a ring-fenced sub-fund of theUK with-profitsfund. These bonds were redeemed in full on 30 June 2018. Cash flowsin respect of other borrowings of with-profitsfunds, which principally relate to consolidated investment funds, are included within cash flowsfrom operating activities. (iv) Tax paid includes £134 million (2017: £298 million) paid on profitstaxable at policyholder rather than shareholder rates.

(v) Cash flows arising from the 'acquisition of businesses and intangibles' and 'sale of businesses' include amounts paid for distribution rights and cash flows arising from the acquisitions and disposals of businesses(including subsidiaries acquired and disposed by with-profitsfundsfor investment purposes).

A Background and critical accounting policies

A1 Basis of preparation and exchange rates

Prudential plc ('the Company') together with itssubsidiaries(collectively, 'theGroup' or 'Prudential') is an international financialservices group. TheGroup has operationsin Asia, theUS, theUK and Europe, and Africa. Prudential offers a wide range of retail financial products and services and asset managementservicesthroughout these operations. The retail financial products and services primarily include life insurance, pensions and annuities as well as collective investmentschemes. On 14 March 2018, the Company announced its intention to demerge M&GPrudential, itsUK and Europe business, from Prudential plc resulting in two separately-listed companies. While it remainsthe intention to demerge the business, M&GPrudential has not been disclosed separately as available for distribution at 31 December 2018, asthe business does notsatisfy the criteria of being immediately available forsale under IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations'.

Basis of preparation

These statements have been prepared in accordance with IFRS Standards asissued by the International Accounting Standards Board (IASB) and as endorsed by the EuropeanUnion (EU) asrequired by EUlaw (IAS Regulation EC1606/2032). EU-endorsed IFRS Standards may differ from IFRS Standardsissued by the IASB if, at any point in time, new or amended IFRS Standards have not been endorsed by the EU. At 31 December 2018, there were no unendorsed standards effective for the two years ended 31 December 2018 which impact the consolidated financial information of theGroup. There were no differences between IFRS Standards endorsed by the EUand IFRS Standardsissued by the IASB in terms of their application to theGroup. These statements have been prepared on a going concern basis. The parent company statement of financial position prepared in accordance with theUKGenerally Accepted Accounting Practice (including Financial Reporting Standard 101 Reduced Disclosure Framework) is presented on page 320.

TheGroup IFRS accounting policies are the same asthose applied for the year ended 31 December 2017 with the exception of the adoption of the new and amended accounting standards as described in note A2.

Exchange rates

The exchange rates applied for balances and transactionsin currency other than the presentational currency of theGroup, pounds sterling (GBP), were:

Local currency: £	Closing rate at 31 Dec 2018	Average rate for 2018	Closing rate at 31 Dec 2017	Average rate for 2017
Hong Kong	9.97	10.46	10.57	10.04
Indonesia	18,314.37	18,987.65	18,353.44	17,249.38
Malaysia	5.26	5.38	5.47	5.54
Singapore	1.74	1.80	1.81	1.78
China	8.74	8.82	8.81	8.71
India	88.92	91.25	86.34	83.90
Vietnam	29,541.15	30,732.53	30,719.60	29,279.71
Thailand	41.47	43.13	44.09	43.71
US	1.27	1.34	1.35	1.29

Certain notesto the financialstatements present 2017 comparative information at constant exchange rates(CER), in addition to the reporting at actual exchange rates(AER) used throughout the consolidated financialstatements. 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 ratesfor the balance sheet at the balance sheet date. CER results are calculated by translating prior period results using the current period foreign exchange rate, ie current period average ratesfor the income statement and current period closing ratesfor the balance sheet.

The exchange movement arising during 2018 recognised in other comprehensive income is:

	2018 £m	2017 £m
Asia operations*	222	(295)
US operations	329	(477)
UK and Europe operations	–	3
Unallocated to a segment (other funds)†	(207)	304
	344	(465)

* 2017 included the recycling of the cumulative exchange gain of the sold Korea life business of £61 million to the income statement.

† The exchange rate movement unallocated to a segment mainly reflectsthe translation of currency borrowings, issued by theGroup parent company, that have been designated as a net investment hedge against the currency risk of theGroup'sinvestment in theUS operations.

06 European

A2 New accounting pronouncements in 2018

IFRS 15, 'Revenue from Contracts with Customers'

TheGroup has adopted IFRS 15, 'Revenue from Contracts with Customers' from 1 January 2018. Thisstandard provides a single framework to recognise revenue for contracts with different characteristics and overridesthe revenue recognition requirements previously provided in otherstandards. The contracts excluded from the scope of thisstandard include:

• Lease contracts within the scope of IAS 17, 'Leases';
• Insurance contracts within the scope of IFRS 4, 'Insurance Contracts'; and
• Financial instruments within the scope of IAS 39, 'Financial Instruments'.

The main impacts of IFRS 15 for Prudential are to revenue recognition for asset management contracts and investment contractsthat do not contain discretionary participating features but do include investment managementservices.

In accordance with the transition provisionsin IFRS 15, theGroup has adopted the standard using the full retrospective method for all periods presented. The only impact on the prior periods presented is a minor reclassification in the consolidated income statement to present certain expenses(such asrebatesto clients of asset management fees) as a deduction against revenue. Revenue has been reduced by £234 million in 2018 (2017: £172 million) with a corresponding deduction in expenses.

IFRS 9, 'Financial Instruments' and amendments to IFRS 4, 'Insurance Contracts'

The IASB published a complete version of IFRS 9 in July 2014 with the exception of macro hedge accounting and the standard is mandatorily effective for annual periods beginning on or after 1 January 2018.

In September 2016, the IASB published amendmentsto IFRS 4, 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' to addressthe temporary consequences of the different effective dates of IFRS 9 and IFRS 17, 'Insurance Contracts'. The amendmentsinclude an optional temporary exemption from applying IFRS 9 and the associated amendments until IFRS 17 comes into effect in 2021. Thistemporary exemption is available to companies whose predominant activity isto issue insurance contracts based on meeting the eligibility criteria as at 31 December 2015 asset out in the amendments.

TheGroup met the eligibility criteria for temporary exemption under the amendmentsto IFRS 4 from applying IFRS 9 and has accordingly deferred the adoption of IFRS 9. See note A3.2 for further details on IFRS 9, including the disclosures associated with the temporary exemption.

InNovember 2018, the IASB tentatively decided that the effective date of IFRS 17 should be delayed by one year from periods ending on or after 1 January 2021 to 1 January 2022. The IASB also tentatively decided that IFRS 9 could be delayed for insurers by an additional year to keep the effective date of IFRS 9 and IFRS 17 aligned. These changes are yet to be finalised and theGroup continuesto monitor developments.

Other new accounting pronouncements

In addition to the above, the following new accounting pronouncements are also effective from 1 January 2018:

• IFRIC 22, 'Foreign Currency Transactions and Advance Consideration';
• Classification and measurement ofshare-based payment transactions(amendmentsto IFRS 2, 'Share-based payment');
• Transfers of Investment Property (amendmentsto IAS 40, 'Investment property'); and
• Annual Improvementsto IFRSs 2014–2016 Cycle.

These pronouncements have had no effect on theGroup's financialstatements.

A3 Accounting policies

A3.1 Critical accounting policies, estimates and judgements

This note presentsthe critical accounting policies, accounting estimates and judgements applied in preparing theGroup's consolidated financialstatements. Othersignificant accounting policies are presented in note E1. All accounting policies are applied consistently for both years presented and normally are notsubject to changes unless new accounting standards, interpretations or amendments are introduced by the IASB.

The preparation of these financialstatementsrequires Prudential to make estimates and judgements about the amounts of assets, liabilities, revenues and expenses, which are both recognised and unrecognised (eg contingent liabilities) in the primary financial statements. Prudential evaluatesits estimates, including those related to long-term business provisioning and the fair value of assets as required. Below are set out those critical accounting policiesthe application of which requirestheGroup to make critical estimates and judgements. Also set out are further critical accounting policies affecting the presentation of theGroup'sresults and other itemsthat require the application of critical estimates and judgements.

(a) Critical accounting policies with linked critical estimates and judgements

Classification of insurance and investment contracts

IFRS 4 requires contracts written by insurersto be classified as either 'insurance' contracts or 'investment' contracts. The classification of the contract determinesits accounting.

Impacts £433 billion of reported liabilities, requiring classification.

Judgement is applied in considering whether the material features of a contract givesrise to the transfer ofsignificant insurance risk.

Contractsthat transfersignificant insurance risk to theGroup are classified asinsurance contracts. Thisjudgement is made at the point of contract inception and is not revisited.

For the majority of theGroup's contracts, classification is based on a readily identifiable scenario that demonstrates a significant difference in cash flowsif the covered event occurs(as opposed to does not occur) reducing the level of judgement involved. Contractsthat transfer financial risk to theGroup but notsignificant insurance risk are classified asinvestment contracts. Furthermore,some contracts, both insurance and investment, contain discretionary participating featuresrepresenting the contractual right to receive additional benefits as a supplement to guaranteed benefitsthat (i) are likely to be a significant portion of the total contract benefits; (ii) have an amount or timing contractually at the discretion of the insurer; and (iii) are contractually based on asset or fund performance, as discussed in IFRS 4. Insurance contracts and investment contracts with discretionary participation features are accounted for under IFRS 4. Investment contracts withoutsuch discretionary participation features are accounted for as financial instruments under IAS 39.

Insurance business units	Insurance contracts and investment contracts with discretionary participation features	Investment contracts without discretionary participation features
Asia	— With-profits contracts — Non-participating term contracts — Whole life contracts — Unit-linked policies — Accident and health policies	— Minor amountsfor a number ofsmall categories of business
US	— Variable annuity contracts — Fixed annuity contracts — Fixed index annuity contracts — Group payout annuity contracts — Life insurance contracts	— Guaranteed investment contracts(GICs) — Minor amounts of 'annuity certain' contracts
UK and Europe	— With-profits contracts — Bulk and individual annuity business — Non-participating term contracts	— Certain unit-linked savings and similar contracts

Governance

02

06

A3 Accounting policies continued

A3.1 Critical accounting policies, estimates and judgements continued

Measurement of policyholder liabilities and unallocated surplus of with-profits
The measurement basis of policyholder liabilitiesis dependent upon the classification of the contracts under IFRS 4	IFRS 4 permitsthe continued usage of previously appliedGenerally Accepted Accounting Practices(GAAP) for insurance contracts and investment contracts with discretionary participating features.
described above. Impacts £433 billion of liabilities.	A modified statutory basis of reporting was adopted by theGroup on first time adoption of IFRS in 2005. This wasset out in the Statement of Recommended Practice issued by
Policyholder liabilities are estimated based on a number of actuarial assumptions(eg mortality, morbidity, policyholder behaviour and expenses).	the Association of British Insurers(ABI SORP). An exception wasforUK regulated with-profitsfunds which weremeasured under FRS 27, 'LifeAssurance' as discussed below.
	FRS 27 and the ABI SORP were withdrawn for the accounting periods beginning in or after 2015. As used in these consolidated financialstatements, the terms'grandfathered' FRS 27 and the 'grandfathered' ABI SORP refer to the requirements of these pronouncements prior to their withdrawal.
	For investment contractsthat do not contain discretionary participating features, IAS 39 is applied and, where the contract includes an investment management element, IFRS 15, 'Revenue', applies.
	The policies applied in each business unit are noted below. When measuring policyholder contract liabilities a number of assumptions are applied to estimate future amounts due to or from the policyholder. The nature of assumption varies by product and among the mostsignificant are assumed rates of policyholders' mortality, particularly in respect of annuitiessold in theUK, and policyholder behaviour, particularly in theUS. Additional details of valuation methodologies and assumptions applied for material product types are discussed in note C4.2.
Measurement of insurance contract liabilities and investment contract liabilities with discretionary participation features.
Asia insurance operations	The policyholder liabilitiesfor businessesin Asia are generally determined in accordance with methods prescribed by localGAAP adjusted to comply, where necessary, with the modified statutory basis. Refinementsto the local reserving methodology are generally treated as changesin estimates, dependent on their nature. In some operations, Taiwan and India,USGAAP principles are applied.
	While the basis of valuation of liabilitiesin this businessisin accordance with the requirements of the 'grandfathered' ABI SORP, it may differ from that determined on the modified statutory basisfortheUKand Europe insurance operations with the same features.
	The sensitivity of Asia insurance operationsto variationsin key estimates and assumptions, including mortality and morbidity, is discussed in note C7.2.
US insurance operations (Jackson)	The policyholder liabilitiesfor Jackson's conventional protection-type policies are determined underUSGAAP principles with locked in assumptionsfor mortality, interest, policy lapses and expenses along with provisionsfor adverse deviations. For other policies, the policyholder liabilitiesinclude the policyholder account balance.
	For those investment contractsin theUS with fixed and guaranteed terms, theGroup uses the amortised cost model to measure the liability. TheUS has no investment contracts with discretionary participation features.
	The sensitivity ofUS insurance operationsto variationsin key estimates and assumptions, including policyholder behaviour, is discussed in note C7.3.

accordance with 'grandfathered' FRS 27. The realistic basisrequiresthe value of liabilities to be calculated as:
— A with-profits benefitsreserve; plus — Future policy-related liabilities; plus — The realistic current liabilities of the fund.
The with-profits benefitsreserve is primarily based on the retrospective calculation of accumulated assetshares but is adjusted to reflect future policyholder benefits and other charges and expenses. Assetshares broadly reflect the policyholders'share of the

04

01 Group overview

02 Strategic report

06

05

	— A with-profits benefitsreserve; plus — Future policy-related liabilities; plus — The realistic current liabilities of the fund.
	The with-profits benefitsreserve is primarily based on the retrospective calculation of accumulated assetshares but is adjusted to reflect future policyholder benefits and other charges and expenses. Assetshares broadly reflect the policyholders'share of the with-profitsfund assets attributable to their policies.
	The future policy-related liabilities must include a market consistent valuation of costs of guarantees, options and smoothing, less any related charges, and this amount is determined using either a stochastic approach, hedging costs or a series of deterministic projections with attributed probabilities.
	The shareholders'share of future costs of bonusesisincluded within the liabilitiesfor unallocated surplus. Shareholders'share of profit isrecognised in line with the distribution of bonusesto policyholders.
	For the purposes of local regulations,segregated accounts are established for linked businessfor which policyholder benefits are wholly or partly determined by reference to specific investments or to an investment-related index.
	The interest rates used in establishing policyholder benefit provisionsfor pension annuitiesin the course of payment are adjusted each reporting period and include an allowance for credit risk (see note B3). Mortality rates used in establishing policyholder benefits are based on published mortality tables adjusted to reflect actual experience.
	The sensitivity of theUK and Europe insurance operationsto variationsin key estimates and assumptions, including annuitant mortality, is discussed in note C7.4.
Measurement of investment contract liabilities without discretionary participation features.	Investment contracts without discretionary participation features are measured in accordance with IAS 39 to reflect the deposit nature of the arrangement, with premiums and claimsreflected as deposits and withdrawals and taken directly to the statement of financial position as movementsin the financial liability balance.
	Incremental, directly attributable acquisition costsrelating to the investment management element of these contracts are capitalised and amortised in line with the related revenue. If the contractsinvolve up-front charges, thisincome is also deferred and amortised through the income statement in line with contractualservice provision in accordance with IFRS 15.
	Investment contracts without fixed and guaranteed terms are classified as financial instruments and designated asfair value through profit or loss because the resulting liabilities are managed and their performance is evaluated on a fair value basis. Where the contract includes a surrender option its carrying value issubject to a minimum carrying value equal to itssurrender value.
	Other investment contracts are measured at amortised cost.
Measurement of unallocated surplus of with-profitsfunds.	Representsthe excess of assets over policyholder liabilitiesthat are determined in accordance with theGroup's accounting policies and are based on localGAAP for the Group's with-profitsfundsin theUK,Hong Kong and Malaysia that have yet to be appropriated between policyholders and shareholders. The unallocated surplusis recorded wholly as a liability with no allocation to equity. The annual excess(shortfall) of income over expenditure of the with-profitsfunds, after declaration and attribution of the cost of bonusesto policyholders and shareholders, istransferred to (from) the unallocated surplus each year through a charge (credit) to the income statement. The balance retained in the unallocated surplusrepresents cumulative income arising on the with-profits businessthat has not been allocated to policyholders orshareholders. The balance of the unallocated surplusis determined after full provision for deferred tax on unrealised appreciation on investments.

Measurement of policyholder liabilities and unallocated surplus of with-profits continued

UK and Europe insurance operations TheUK regulated with-profitsfunds' liabilities are the realistic basisliabilitiesin

A3 Accounting policies continued

A3.1 Critical accounting policies, estimates and judgements continued

Measurement of policyholder liabilities and unallocated surplus of with-profits continued

Liability adequacy test.

TheGroup performs adequacy testing on itsinsurance liabilitiesto ensure that the carrying amounts(net of related deferred acquisition costs) and, where relevant, present value of acquired in-force businessissufficient to cover current estimates of future cash flows. Any deficiency isimmediately charged to the income statement.

Jackson'sliabilitiesfor insurance contracts, which include those forseparate accounts (reflecting separate account assets), policyholder account values and guarantees measured as described in note C4.2 and the associated deferred acquisition cost asset are measured underUSGAAP and liability adequacy testing is performed in this context. UnderUSGAAP, most of Jackson's products are accounted for under Accounting Standards Codification Topic 944, Financial Services – Insurance of the Financial Accounting Standards Board (ASC 944) whereby deferred acquisition costs are amortised in line with expected gross profits. Recoverability of the deferred acquisition costsin the balance sheet istested against the projected value of future profits using current estimates and therefore no additional liability adequacy test isrequired by IFRS 4. The DAC recoverability test is performed in line withUSGAAP requirements which in practice is at a grouped level of those contracts managed together.

(b) Further critical accounting policies

Measurement and presentation of derivatives and debt securities of US insurance operations

Jackson holds a number of derivative instruments and debtsecurities. The selection of the accounting approach for these itemssignificantly affectsthe volatility of IFRS profit before tax.

£(2,014) million of theUS income statement investment return arisesfrom such derivatives and debtsecurities.

Jackson entersinto derivative instrumentsto mitigate economic exposures. TheGroup has considered whether it is appropriate to undertake the necessary operational changes to qualify for hedge accounting so asto achieve matching of value movementsin hedging instruments and hedged itemsin the performance statements. The key factors considered in this assessment were the complexity of asset and liability matching in Jackson's product range and the difficulty and cost of applying the macro hedge provisions under IAS 39 (which are more suited to banking arrangements) to Jackson's derivative book.

TheGroup has decided that, except for occasional circumstances, applying hedge accounting using IAS 39 to derivative instruments held by Jackson would not improve the relevance or reliability of the financialstatementsto such an extent that would justify the difficulty and cost of applying these provisions. As a result of this decision, the total income statement results are more volatile asthe movementsin the fair value of Jackson's derivatives are reflected within it. This volatility isreflected in the level ofshort-term fluctuationsin investment returns, asshown in notes B1.1 and B1.2.

Under IAS 39, unless carried at amortised cost (subject to impairment provisions where appropriate) under the held-to-maturity category, debtsecurities are also carried at fair value. TheGroup has chosen not to classify any financial assets as held-to-maturity. Debtsecurities of Jackson are designated as available-for-sale with value movements, unlessimpaired, being recorded as movements within other comprehensive income. Impairments are recorded in the income statement.

04

06

Presentation of results before tax

Profit before tax is a significant IFRS income statement item. TheGroup has chosen to present a measure of profit before tax attributable to shareholders which distinguishes between tax attributable to policyholders and unallocated surplus and tax borne by shareholders, to support understanding of the performance of theGroup.

Profit before tax attributable to shareholdersis £3,635 million and comparesto profit before tax of £3,309 million.

The total tax charge for theGroup reflectstax that, in addition to relating to shareholders' profits, is also attributable to policyholders and unallocated surplus of with-profitsfunds and unit-linked policies. Further detail is provided in note B4. Reported profit before the total tax charge is not representative of pre-tax profits attributable to shareholders. Accordingly, in order to provide a measure of pre-tax profits attributable to shareholders theGroup has chosen to adopt an income statement presentation of the tax charge and pre-tax resultsthat distinguishes between policyholder and shareholder components.

Segmental analysis of results and earnings attributable to shareholders

TheGroup uses adjusted IFRS operating profit based on longer-term investment returns asthe segmental measure of itsresults. Totalsegmental adjusted IFRS operating profit based on longer-term investment returnsis £5,717 million and isshown in note B1.1. The basis of calculation of adjusted IFRS operating profit based on longer-term investment returnsis disclosed in note B1.3. Forshareholder-backed business, with the exception of debtsecurities held by Jackson and assets classified asloans and receivables at amortised cost, all financial investments and investment property are designated as assets at fair value through profit or loss. Short-term fluctuationsin fair value affect the result for the year and theGroup provides additional analysis of results before and after the effects ofshort-term fluctuationsin investment returns, together with other itemsthat are of a short-term, volatile or one-off nature. The effects ofshort-term fluctuationsinclude asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ as described in note B1.2. Short-term fluctuationsin investment returns on assets held by with-profitsfundsin the UK,Hong Kong, Malaysia and Singapore, do not affect directly reported shareholder results. Thisis because (i) the unallocated surplus of with-profitsfundsis accounted for as a liability and (ii) excess or deficits of income and expenditure of the funds over the required surplusfor distribution are transferred to or from policyholder liabilities (including the unallocated surplus).

(c) Further critical estimates or judgements

Deferred acquisition costs for insurance contracts

TheGroup appliesjudgement in determining qualifying coststhatshould be capitalised (ie those costs of acquiring new insurance businessthat meet the criteria under theGroup's accounting policy for deferred acquisition costs).

TheGroup estimates projected future profits/marginsto assess whether adjustmentsto the carrying value or amortisation profile of deferred acquisition cost assets are necessary.

Except for acquisition costs of with-profits contracts of theUK regulated with-profits funds, which are accounted for under the 'grandfathered' FRS 27, costs of acquiring new insurance business are accounted for in a way that is consistent with the principles of the 'grandfathered' ABI SORP with deferral and amortisation against marginsin future revenues on the related insurance policies. In general, this deferral isshown by an explicit carrying value in the balance sheet.However, in some Asia operationsthe deferral is implicit through the reserving methodology. The recoverability of the deferred acquisition costsis measured and is deemed impaired if the projected margins(which are estimated based on a number of assumptionssimilar to those underlying policyholder liabilities) are lessthan the carrying value. To the extent that the future margins differ from those anticipated, then an adjustment to the carrying value will be necessary either through an impairment (if the projected margins are lower than carrying value) or through a change in the amortisation profile.

£10.1 billion of deferred acquisition costs as per note C5.2(b).

A3 Accounting policies continued

A3.1 Critical accounting policies, estimates and judgements continued

Deferred acquisition costs for insurance contracts continued

Asia insurance operations	For those business units applyingUSGAAP to insurance assets and liabilities, as permitted by the 'grandfathered' ABI SORP, principlessimilar to those set out in theUS insurance operations paragraph below are applied to the deferral and amortisation of acquisition costs. For other territoriesin Asia, the general principles of the 'grandfathered' ABI SORP are applied with, as described above, deferral of acquisition costs being either explicit or implicit through the reserving basis.
US insurance operations	The most material estimates and assumptions applied in the measurement and amortisation of deferred acquisition cost balancesrelate to theUS insurance operations.
	TheGroup'sUS insurance operations apply FASB ASU2010-26 on 'Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts' and capitalise only those incremental costs directly relating to successfully acquiring a contract.
	For term life business, acquisition costs are deferred and amortised in line with expected premiums. For annuity and interest-sensitive life business, acquisition costs are deferred and amortised in line with expected gross profits on the relevant contracts. For fixed and fixed index annuity and interest-sensitive life business, the key assumption isthe long-term spread between the earned rate on investments and the rate credited to policyholders. In addition, expected gross profits depend on mortality assumptions, assumed unit costs and lapses(including the related charges), all of which are based on a combination of Jackson's actual experience, industry benchmarking and future expectations. A detailed analysis of actual mortality, lapse and expenses experience is performed using internally developed experience studies.
	ForUS variable annuity business, a key assumption isthe long-term investment return from the separate accounts. Jackson uses a mean reversion methodology thatsetsthe projected level of return for each of the next five yearssuch that these returnsin combination with the actual rates of return for the preceding three years, including the current year, average the assumed long-term annual return (gross of asset management fees and other chargesto policyholders, but net of external fund management fees) over the eight year period. Projected returns after the mean reversion period revert back to the long-term investment return. For further details on current balances, assumptions and sensitivity, refer to note C5.2 (b) and C7.3 (iv).
	To ensure that the methodology in extreme market movements producesfuture expected returnsthat are realistic, the mean reversion technique has a cap and floorfeature whereby the projected returnsin each of the next five years can be no more than 15 per cent per annum and no lessthan 0 per cent per annum (both gross of asset management fees and other chargesto policyholders, but net of external fund management fees) in each year.
	Jackson makes certain adjustmentsto the deferred acquisition costs which are recognised directly in other comprehensive income ('shadow accounting') to match the recognition of unrealised gains or losses on available-for-sale securities causing the adjustments More precisely,shadow deferred acquisition costs adjustmentsreflect the change in deferred acquisition coststhat would have arisen if the assets held in the statement of financial position had been sold, crystallising unrealised gains or losses, and the proceeds reinvested at the yields currently available in the market.
UK and Europe insurance operations	ForUK regulated with-profitsfunds where 'grandfathered' FRS 27 is applied, these costs are expensed asincurred. The majority of theUK shareholder-backed businessis individual and group annuity business where the deferral of acquisition costsis negligible.

02

04

06

05

Financial investments – Valuation

Financial investments held at fair value represent £401.3 billion of theGroup's total assets.

Financial investments held at amortised cost represent £13.3 billion of theGroup's total assets.

TheGroup estimatesthe fair value of financial investments, that are not actively traded, using quotationsfrom independent third parties or internally developed pricing models.

TheGroup holdsthe majority of its financial investments at fair value (either through profit and loss or available-for-sale). Information on the inclusion within the income statement of gains/losses arising on debtsecurities classified as available-for-sale isincluded in note E1(e)(i). Financial investments held at amortised cost primarily comprise loans and deposits.

Determination of fair value

TheGroup uses current bid pricesto value itsinvestments having quoted prices. Actively traded investments without quoted prices are valued using prices provided by third parties as described further in note C3.1. Financial investments measured at fair value are classified into a three-level hierarchy as described in note C3.1(b).

If the market for a financial investment of theGroup is not active, theGroup establishes fair value by using quotationsfrom independent third parties,such as brokers or pricing services, or by using internally developed pricing models. Priority is given to publicly available pricesfrom independentsources when available, but overall the source of pricing and/or the valuation technique is chosen with the objective of arriving at a fair value measurement which reflectsthe price at which an orderly transaction would take place between market participants on the measurement date. The valuation techniques include the use of recent arm'slength transactions, reference to other instrumentsthat are substantially the same, discounted cash flow analysis, option-adjusted spread models and, if applicable, enterprise valuation and may include a number of assumptionsrelating to variablessuch as credit risk and interest rates. Changesin assumptionsrelating to these variables could positively or negatively impact the reported fair value of these financial investments. Details of the financial investments classified as'level 3' to which valuation techniques are applied, and the sensitivity of profit before tax to a change in these items' valuation, are presented in note C3.1(d).

Determination of impaired value

In estimating the present value of future cash flowsfor determining the impaired value of instruments held at amortised cost, theGroup looks at the expected cash flows of the assets and applies historical loss experience of assets with similar credit risksthat has been adjusted for conditionsin the historical loss experience which no longer exist, or for conditionsthat are expected to arise. The estimated future cash flows are discounted using the financial asset's effective interest rate and exclude credit lossesthat have not yet been incurred.

In estimating any required impairment forUS residential mortgage-backed and other asset-backed securities held as available-for-sale, the expected value of future cash flows is determined using a model, the key assumptions of which include how much of the currently delinquent loans will eventually default and assumed lossseverity. Further details of the assumptions and estimates applied in assessing impairment ofUS availablefor-sale securitiesis given in note C3.2(g).

A3 Accounting policies continued

A3.1 Critical accounting policies, estimates and judgements continued

Financial investments – Determining impairment in relation to financial assets

TheGroup appliesjudgement to assess whether factorssuch asthe severity and duration of the decline in fair value, the financial condition and the prospects of the issuer indicate an impairment in value of financial investments classified as'available-for-sale' or 'at amortised cost'.

If evidence for impairment exists, valuation techniques, including estimates, are then applied in determining the impaired value.

TheGroup estimatesthe impaired value of financial investments based on its expectation of discounted future cash flows.

Affects £54.2 billion of assets.

For financial investments classified as'available-for-sale' or 'at amortised cost,' if a loss event that will have a detrimental effect on cash flowsisidentified, an impairment lossis recognised in the income statement. The lossrecognised is determined asthe difference between the book cost and the fair value of the relevant impairment assets. The loss comprisesthe effect of the expected loss of contractual cash flows and any additional market-price driven temporary reductionsin values.

Available-for-sale securities

TheGroup'sreview of fair value involvesseveral factors, including economic conditions, credit loss experience, other issuer-specific developments and future cash flows. These assessments are based on the best available information at the time. Factorssuch as market liquidity, the widening of bid/ask spreads and a change in cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financialstatements, unrealised losses currently in equity may be recognised in the income statement in future periods. Additional details on the methodology and estimates used to determine impairments of the available-for-sale securities of Jackson are described in note C3.2(g).

The majority of theUS insurance operation's debtsecurities portfolio is accounted for on an available-for-sale basis. The consideration of evidence of impairment requires management'sjudgement. In making this determination a range of market and industry indicators are considered including the severity and duration of the decline in fair value and the financial condition and prospects of the issuer.

ForUS residential mortgage-backed and other asset-backed securities, all of which are classified as available-for-sale, impairment is estimated using a model of expected future cash flows. Key assumptions used in the model include assumptions about how much of the currently delinquent loans will eventually default and assumed lossseverity.

Assets held at amortised cost

When assets held at amortised cost are subject to impairment testing estimated future cash flows are compared to the carrying value of the asset. In estimating future cash flows, theGroup looks at the expected cash flows of the assets and applies historical loss experience of assets with similar credit risksthat has been adjusted for conditionsin the historical loss experience which no longer exist, or for conditionsthat are expected to arise. The estimated future cash flows are discounted using the financial asset's original or variable effective interest rate and exclude credit lossesthat have not yet been incurred.

Reversal of impairment losses

If, in subsequent periods, an impaired debtsecurity held on an available-for-sale basis or an impaired loan or receivable recoversin value (in part or in full), and thisrecovery can be objectively related to an event occurring after the impairment, then any amount determined to have been recovered isreversed through the income statement.

Intangible assets – Carrying value of distribution rights

TheGroup appliesjudgement to assess whether factorssuch asthe financial performance of the distribution arrangement, changesin relevant legislation and regulatory requirements indicate impairment of intangible assets representing distribution rights. To determine the impaired value theGroup estimatesthe discounted future expected cash flows arising from distribution rights. Affects £1.7 billion of assets. Distribution rightsrelate to bancassurance partnership arrangementsfor bank distribution of productsfor the term of the contractual agreement with the bank partner, for which an asset isrecognised based on fees paid. Distribution rightsimpairment testing is conducted when there is an indication of impairment. To assessindicators of impairment, theGroup monitors a number of internal and external factors, including indicationsthat the financial performance of the arrangement islikely to be worse than originally expected and changesin relevant legislation and regulatory requirementsthat could impact theGroup's ability to continue to sell new business through the bancassurance channel, and then appliesjudgement to assess whether these factorsindicate impairment has occurred. If an impairment has occurred, an impairment charge isrecognised for the difference between the carrying value and recoverable amount of the asset which isrecognised in the income statement. The recoverable amount isthe greater of fair value less coststo sell and value in use. Value in use is calculated asthe present value of future expected cash

A3.2 New accounting pronouncements not yet effective

The following standards, interpretations and amendments have been issued but are not yet effective in 2018, including those which have not yet been adopted in the EU. Thisis not intended to be a complete list as only those standards, interpretations and amendmentsthat could have a material impact upon theGroup's financialstatements are discussed.

flowsfrom the asset or the cash generating unit to which it is allocated.

Accounting pronouncements endorsed by the EU but not yet effective

IFRS 9, 'Financial instruments: Classification and measurement'

In July 2014, the IASB published a complete version of IFRS 9 with the exception of macro hedge accounting. The standard became mandatorily effective for the annual periods beginning on or after 1 January 2018, with early application permitted and transitional rules apply.

As discussed in note A2, theGroup met the eligibility criteria for temporary exemption under the Amendmentsto IFRS 4 from applying IFRS 9 in 2018 and has accordingly deferred the adoption of IFRS 9 until IFRS 17, 'Insurance Contracts' is adopted upon its mandatory effective date. TheGroup is eligible asits activities are predominantly to issue insurance contracts based on the criteria asset out in the amendmentsto IFRS 4. The disclosure of the fair value of theGroup's financial assets,showing the amountsfor instruments that meet the 'Solely for Payment of Principal and Interest' (SPPI) criteria separately from all other financial assets, asrequired for entities applying the temporary exemption is provided below.

When adopted IFRS 9 replacesthe existing IAS 39, 'Financial Instruments – Recognition and Measurement', and will affect the following three areas:

— The classification and the measurement of financial assets and liabilities

IFRS 9 redefinesthe classification of financial assets. Based on the way in which the assets are managed in order to generate cash flows and their contractual cash flow characteristics(whether the cash flowsrepresent 'solely payments of principal and interest'), financial assets are classified into one of the following categories: amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss(FVTPL). An option is also available at initial recognition to irrevocably designate a financial asset as at FVTPL if doing so eliminates orsignificantly reduces accounting mismatches.

Under IAS 39, 85 per cent of theGroup'sinvestments are valued at FVTPL and theGroup's current expectation isthat a significant proportion will continue to be designated assuch under IFRS 9.

The existing IAS 39 amortised cost measurement for financial liabilitiesislargely maintained under IFRS 9. For financial liabilities designated at FVTPL IFRS 9 requires changesin fair value due to changesin entity's own credit risk to be recognised in other comprehensive income.

— The calculation of the impairment charge relevant for financial assets held at amortised cost or FVOCI A new impairment model based on an expected credit loss approach replacesthe existing IAS 39 incurred lossimpairment model, resulting in earlier recognition of credit losses compared to IAS 39.

This aspect isthe most complex area of IFRS 9 to implement and will involve significant judgements and estimation processes. The Group is currently assessing the scope of assetsto which these requirements will apply.

— The hedge accounting requirements which are more closely aligned with the risk management activities of the Company. No significant change to theGroup's hedge accounting is currently anticipated, but thisremains under review.

03

06 European Embedded Value

05

information

A3 Accounting policies continued

A3.2 New accounting pronouncements not yet effective continued

TheGroup is assessing the impact of IFRS 9 and implementing thisstandard in conjunction with the IFRS 17. Further details on IFRS 17 are provided below.

The parent company and a number of non-insuranceUK and Asia subsidiaries within theGroup have adopted IFRS 9 in 2018 in their individual orseparate financialstatements where these statements are prepared in accordance with IFRS, including theUK Financial Reporting Standard 101 Reduced Disclosure Framework. In addition, Prudential Pensions Limited, aUK insurance subsidiary has adopted IFRS 9 in itsindividual financialstatements asit did not meet the eligibility criteria for temporary exemption. Prudential Pensions Limited writes mostly unit-linked productsthat are classified asinvestment contracts without discretionary participation feature. The resultsfor these entities continue to be accounted for on an IAS 39 basisin these consolidated financialstatements.

The 2018 individual financialstatements of theUK subsidiariesthat include IFRS 9 information relevant to the current year, can be obtained publicly when filed with theUK Registrar of Companieslater in the year via theUK CompaniesHouse website. These financial statementsinclude those of Prudential Pensions Limited referred to above, the consolidated and individual financialstatements of M&G Group Limited and itsUK operating subsidiaries and the financialstatements of Prudential Capital plc, Prudential CorporationHoldings Limited, PrudentialHoldings Limited and M&GPrudential Limited. For the Asia subsidiariesthat adopted IFRS 9 in their individual financialstatements, the public availability of these statements varies according to the local laws and regulations of each jurisdiction.

The fair value of theGroup's directly held financial assets at 31 December 2018 isshown below. Financial assets with contractual terms that give rise on specified datesto cash flowsthat are solely payments of principal and interest (SPPI) as defined by IFRS 9 are shown separately. This excludes financial assetsthat meet the definition of held for trading or are managed and evaluated on a fair value basis.

	the SPPI test	Financial assets that pass	All other financial assets, net of derivative liabilities
Financial assets on the Group's statement of financial position	Fair value at 31 Dec 2018 £m	Movement in the fair value during the year £m	Fair value at 31 Dec 2018 £m	Movement in the fair value during the year £m
Accrued investment income	2,749	–	–	–
Other debtors	4,088	–	–	–
Loans(1)	11,914	(493)	6,505	(175)
Equity securities and portfolio holdingsin unit trusts	–	–	214,733	(16,359)
Debtsecurities(2)	39,522	(1,574)	135,834	(3,343)
Derivative assets, net of derivative liabilities	–	–	(12)	(941)
Other investments	–	–	6,512	466
Deposits	11,796	–	–	–
Cash and cash equivalents	12,125	–	–	–
Total financial assets, net of derivative liabilities	82,194	(2,067)	363,572	(20,352)

Notes

Further information on the loans and debt securities that pass the SPPI test

(1) The loansthat passthe SPPI test in the table above are primarily carried at amortised cost under IAS 39. Further information on these loansis as provided in note C3.3.

(2) The debtsecuritiesthat passthe SPPI test in the table above are wholly held by Jackson and are classified as available-for-sale under IAS 39. The credit ratings of these securities, analysed on the same basis of those disclosed in note C3.2, are asfollows:

	31 Dec 2018 £m
Jackson	AAA	AA+ to AA-	A+ to A-	BBB+ to BBB-	Below BBB-	Other	Total fair value
Debtsecuritiesthat pass the SPPI test	652	7,252	10,214	14,315	843	6,246	39,522

The underlying financial assets of theGroup'sjoint ventures and associates accounted for using the equity method are analysed below into those which meet the SPPI condition of IFRS 9, excluding any financial assetsthat meet the definition of held for trading or are managed and evaluated on a fair value basis, and all other financial assets. Fair value information for joint ventures and associatesis also set out in the table below:

		Financial assets that pass the SPPI test	All other financial assets, net of derivative liabilities
Financial assets held by the Group's joint ventures and associates accounted for using the equity method	Fair value at 31 Dec 2018 £m	Movement in the fair value during the year £m	Fair value at 31 Dec 2018 £m	Movement in the fair value during the year £m
Accrued investment income	131	–	–	–
Other debtors	212	–	–	–
Loans	117	–	–	–
Equity securities and portfolio holdingsin unit trusts	–	–	3,677	(281)
Debtsecurities	–	–	4,247	86
Deposits	355	–	–	–
Cash and cash equivalents	396	–	–	–
Total financial assets, net of derivative liabilities	1,211	–	7,924	(195)

IFRS 16, 'Leases'

In January 2016, the IASB published IFRS 16, 'Leases' effective for periods beginning on or after 1 January 2019, with earlier adoption permitted if IFRS 15, 'Revenue from Contracts with Customers' has also been applied. The new standard brings most leases on-balancesheet for lessees under a single model, eliminating the distinction between operating and finance leases. For lessee accounting, this has the effect of requiring most of the existing operating leasesto be accounted for in a similar manner as finance leases under the existing IAS 17, 'Leases'. The only optional exemptions are forshort-term leases and leases of low-value assets. Lessor accounting, however, remainslargely unchanged from IAS 17.

IFRS 16 will apply primarily to operating leases of major properties occupied by theGroup's businesses where Prudential is a lessee. Under IFRS 16, these leases will be brought onto theGroup'sstatement of financial position with a 'right of use' asset being established and a corresponding liability representing the obligation to make lease payments. The current rental accrual charge in the income statement will be replaced with a depreciation charge for the 'right of use' asset and an interest expense on the lease liability leading to a more front-loaded operating lease cost profile compared to IAS 17.

IFRS 16 permitstransition to the new standard through a modified retrospective approach or a full retrospective approach.Under the modified retrospective approach, as well as affording a number ofsimplifications, theGroup's comparative information is not restated, but there may be an adjustment to retained earnings at the date of initial application (ie 1 January 2019) depending on the option used to measure 'right-of-use asset'.Under the modified retrospective approach, a lessee hasthe option to choose, on a lease-by-lease basis, to measure the 'right-of-use' asset at either its carrying amount asif the standard had been applied since the commencement of the lease (referred to as'modified retrospective approach option A') or an amount equal to the discounted remaining lease payments adjusted by any prepaid or accrued lease payment balance immediately before the date of initial application of the standard (referred to as'modified retrospective approach option B').

Following the completion of the IFRS 16 implementation project, theGroup has adopted IFRS 16 from 1 January 2019 using the modified retrospective approach option B. It is estimated that application of the standard will result in recognition of an additional lease liability amounting to approximately £0.8 billion and a corresponding 'right-of-use' asset to a similar amount as at 1 January 2019. These amountsremain subject to ongoing refinement and verification.Under the modified retrospective approach option B there is no adjustment to theGroup'sretained earnings at 1 January 2019. For existing finance leases where theGroup is a lessee, the carrying amount of the 'right-of-use' asset and lease liability at 1 January 2019 will be determined based on the carrying amount of the lease asset and lease liability immediately before that date measured applying IAS 17.

TheGroup will apply the practical expedient to grandfather the definition of a lease on transition. This meansthat it will apply IFRS 16 to all contracts, which were identified asleasesin accordance with IAS 17 and IFRIC 4, 'Determining whether an Arrangement contains a Lease', entered into before 1 January 2019. TheGroup also will apply the practical expedient to use a single discount rate to a portfolio of leases with reasonably similar characteristics. Accordingly, forsuch portfolios, the incremental borrowing rates used to discount the future lease payments will be determined based on country specific risk-free rates adjusted with a margin/spread to reflect theGroup's creditstanding, lease term and the outstanding lease payments.

06 European

A3 Accounting policies continued

Accounting pronouncements not yet endorsed by the EU A3.2 New accounting pronouncements not yet effective continued

IFRS 17, 'Insurance Contracts'

In May 2017, the IASB issued IFRS 17, 'Insurance Contracts' to replace the existing IFRS 4, 'Insurance Contracts'. The standard, which issubject to endorsement in the EUand other territories, appliesto annual periods beginning on or after 1 January 2021. InNovember 2018, the IASB tentatively decided to delay the effective date of IFRS 17 by one year to periods beginning on or after 1 January 2022 and is considering further amendmentsto this new standard. Early application is permitted, provided the entity also appliesIFRS 9 on or before the date it first appliesIFRS 17. TheGroup intendsto adopt the new standard on its mandatory effective date, alongside the adoption of IFRS 9.

IFRS 4 permitted insurersto continue to use the statutory basis of accounting for insurance assets and liabilitiesthat existed in their jurisdictions prior to January 2005. IFRS 17 replacesthis with a new measurement model for all insurance contracts.

IFRS 17 requiresliabilitiesfor insurance contractsto be recognised asthe present value of future cash flows, incorporating an explicit risk adjustment, which is updated at each reporting date to reflect current conditions, and a contractualservice margin (CSM) that is equal and opposite to any day-one gain arising on initial recognition. Losses are recognised directly into the income statement. For measurement purposes, contracts are grouped together into contracts ofsimilar risk, profitability profile and issue year, with further divisionsfor contractsthat are managed separately.

Profit for insurance contracts under IFRS 17 isrepresented by the recognition of the services provided to policyholdersin the period (release of the CSM), release from non-economic risk (release of risk adjustment) and investment profit.

The CSM isreleased as profit over the coverage period of the insurance contract, reflecting the delivery ofservicesto the policyholder. For certain contracts with participating features(where a substantialshare of the fair value of the related investments and other underlying itemsis paid to policyholders)such astheGroup's with-profits products, the CSM reflectsthe variable fee to shareholders. For these contracts, the CSM is adjusted to reflect the changesin economic experience and assumptions. For all other contractsthe CSM is only adjusted for non-economic assumptions.

IFRS 17 introduces a new measure of insurance revenue, based on the delivery ofservicesto policyholders and excluding any premiumsrelated to the investment elements of policies, which will be significantly different from existing premium revenue measures, currently reported in the income statement. In order to transition to IFRS 17, the amount of deferred profit, being the CSM at transition date, needsto be determined.

IFRS 17 requiresthis CSM to be calculated asif the standard had applied retrospectively.However if thisis not practical an entity is required to choose either a simplified retrospective approach or to determine the CSM by reference to the fair value of the liabilities at the transition date. The approach for determining the CSM will have a significant impact on both shareholders' equity and on the amount of profits on in-force businessin future reporting periods.

IFRS 17 Implementation Programme

IFRS 17 is expected to have a significant impact asthe requirements of the new standard are complex and requires a fundamental change to accounting for insurance contracts as well asthe application ofsignificant judgement and new estimation techniques. The effect of changesrequired to theGroup's accounting policies as a result of implementing these standards are currently uncertain, but these changes can be expected to, among other things, alter the timing of IFRS profit recognition.Given the implementation of this standard islikely to involve significant enhancementsto IT, actuarial and finance systems of theGroup, it will also have an impact on the Group's expenses.

TheGroup has aGroup-wide implementation programme underway to implement IFRS 17 and IFRS 9. The programme isresponsible forsettingGroup-wide accounting policies and developing application methodologies, establishing appropriate processes and controls, sourcing appropriate data and implementing actuarial and finance system changes.

AGroup-wide Steering Committee, chaired by theGroup Chief Financial Officer with participation from theGroup Risk function and theGroup's and business units'senior finance managers, provides oversight and strategic direction to the implementation programme. A number ofsub-committees are also in place to provide governance over the technical interpretation and accounting policiesselected, programme management, design and delivery of the programme.

TheGroup remains on track to start providing IFRS 17 financialstatementsin line with the requirementsfor interim reporting at its effective date, which is currently expected to be 2022.

Other new accounting pronouncements

In addition to the above, the following new accounting pronouncements have also been issued and are not yet effective but theGroup is not expecting them to have a significant impact on theGroup's financialstatements:

• IFRIC Interpretation 23, 'Uncertainty over income tax treatments', issued in June 2017 and effective from 1 January 2019. Thisinterpretation has been endorsed by the EU;
• Amendmentsto IAS 28, 'Long-term Interestsin Associates and Joint Ventures', issued in October 2017 and effective from 1 January 2019;
• Annual Improvementsto IFRSs 2015-2017 cycle issued in December 2017 and effective from January 2019;
• Amendmentsto IAS 19, 'Plan Amendment, Curtailment or Settlement', issued in February 2018 and effective from 1 January 2019;
• Amendment to IFRS 3, 'Business Combinations', issued in October 2018 and effective from 1 January 2020; and
• Amendmentsto IAS 1 and IAS 8, 'Definition of material', issued in October 2018 and effective from 1 January 2020.

B Earnings performance

B1 Analysis of performance by segment

B1.1 Segment results – profit before tax

	2018 £m		2017 £m		2018 vs 2017 %
	Note		AER note (iv)	CER note (iv)	AER note (iv)	CER note (iv)
Asia:
Insurance operations	B3(i)	1,982	1,799	1,727	10%	15%
Asset management		182	176	171	3%	6%
Total Asia		2,164	1,975	1,898	10%	14%
US:
Jackson (US insurance operations)		1,911	2,214	2,137	(14)%	(11)%
Asset management		8	10	9	(20)%	(11)%
Total US		1,919	2,224	2,146	(14)%	(11)%
UK and Europe:
UK and Europe insurance operations:	B3(iii)
Long-term business		1,138	861	861	32%	32%
General insurance commission note (i)		19	17	17	12%	12%
TotalUK and Europe insurance operations		1,157	878	878	32%	32%
UK and Europe asset management note (v)		477	500	500	(5)%	(5)%
Total UK and Europe		1,634	1,378	1,378	19%	19%
Total segment profit		5,717	5,577	5,422	3%	5%
Other income and expenditure: Investment return and other income Interest payable on core structural		52	11	11	373%	373%
borrowings		(410)	(425)	(425)	4%	4%
Corporate expenditure note (ii)		(367)	(361)	(355)	(2)%	(3)%
Total other income and expenditure		(725)	(775)	(769)	6%	6%
Restructuring costs		(165)	(103)	(103)	(60)%	(60)%
Adjusted IFRS operating profit based
on longer-term investment returns Short-term fluctuationsin investment returns		4,827	4,699	4,550	3%	6%
on shareholder-backed business	B1.2	(558)	(1,563)	(1,514)	64%	63%
Amortisation of acquisition accounting
adjustments note (iii)		(46)	(63)	(61)	27%	25%
(Loss) gain on disposal of businesses and corporate transactions	D1.1	(588)	223	218	n/a	n/a
Profit before tax		3,635	3,296	3,193	10%	14%
Tax charge attributable to shareholders' returns	B4	(622)	(906)	(876)	31%	29%
Profit for the year		3,013	2,390	2,317	26%	30%
Attributable to: Equity holders of the Company Non-controlling interests		3,010 3	2,389 1	2,316 1	26% 200%	30% 200%

report

06

B1 Analysis of performance by segment continued

B1.1 Segment results – profit before tax continued

		2018	2017		2018 vs 2017 %
Basic earnings per share (in pence)	Note		AER note (iv)	CER note (iv)	AER note (iv)	CER note (iv)
Based on adjusted IFRS operating profit based
on longer-term investment returns note (vi)	B5	156.6p	145.2p	140.4p	8%	12%
Based on profit for the year	B5	116.9p	93.1p	90.0p	26%	30%

Notes

(i) The majority of the general insurance commission is not expected to recur in future years.

(ii) Corporate expenditure asshown above is primarily forGroupHead Office and Asia RegionalHead Office.

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

(iv) For definitions of AER and CER refer to note A1. The difference between 'Profit for the year attributable to shareholders' in the prior year on an AER basis and a CER basisis

£73 million, arising from the retranslation of the prior year results of theGroup'sforeign subsidiariesintoGBP using the exchange rates applied to the equivalent current year results. (v) UK and Europe asset management adjusted IFRS operating profit based on longer-term investment returns: ²⁰¹⁸ £m ²⁰¹⁷ £m

Asset management fee income	1,098	1,027
Other income	2	7
Staff costs*	(384)	(400)
Other costs*	(270)	(202)
Underlying profit before performance-related fees	446	432
Share of associate results	16	15
Performance-related fees	15	53
TotalUK and Europe asset management adjusted IFRS operating profit based on longer-term investment returns	477	500

* Staff and other costsinclude £27 million of chargesincurred preparing for Brexit.

(vi) Tax charges have been reflected as operating and non-operating in the same way asfor 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

	2018 £m	2017 £m
Asia operations note (i)	(512)	(1)
US operations note (ii)	(100)	(1,568)
UK and Europe operations note (iii)	34	(14)
Other operations note (iv)	20	20
Total	(558)	(1,563)

Notes

(i) Asia operations

In Asia, the negative short-term fluctuations of £(512) million (2017: negative £(1) million) principally reflect net value movements on assets and related liabilitiesfollowing increases in bond yields and fallsin equity markets during the year, especially in those countries where policyholder liabilities use a valuation interest rate which does not reflect all movementsin interest ratesin the period.

(ii) US operations

The short-term fluctuationsin investment returnsforUS insurance operations are reported net of the related charge for amortisation of deferred acquisition costs of £(114) million asshown in note C5.2(a) (2017: credit of £462 million) and comprise amountsin respect of the following items: ²⁰¹⁸ £m ²⁰¹⁷ £m

Net equity hedge result note (a)	(58)	(1,490)
Other than equity-related derivatives note (b)	(64)	(36)
Debtsecurities note (c)	(31)	(73)
Equity-type investments: actual lesslonger-term return	38	12
Other items	15	19
Total	(100)	(1,568)

Notes

(a) Net equity hedge result

The net equity hedge result relatesto the accounting effect of market movements on both the value of guaranteesin Jackson's variable annuity and fixed index annuity products and on the related derivatives used to manage the exposuresinherent in these guarantees. The level of feesrecognised 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(formerly FAS 157) or ASC Topic 944, Financial Services – Insurance (formerly SOP 03-01) depending on the type of guarantee. Both approachesrequire 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 FAS 157 requiresthisfee assessment to be fixed at the time of issue. Asthe feesincluded within the initial fee assessment are earned, they are included in non-operating profit to match the corresponding movement in the guarantee liability. AstheGroup appliesUSGAAP for the measured value of the product guaranteesthisitem also includes asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ as described in note B1.3(c) below.

The net equity hedge result therefore includessignificant accounting mismatches and other factorsthat do not represent the economic result. These other factorsinclude: – The variable annuity guarantees and fixed index annuity embedded options being only partially fair valued under 'grandfathered'USGAAP as described in note B1.3(c);

– 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 exposuresfor a number of other factorsthat are treated differently in the accounting frameworkssuch asfuture fees and assumed volatility levels.

The net equity hedge result(net ofrelated DACamortisation in accordance with the policy that DACis amortised in line with emergence ofmargins) can be summarised asfollows:

	2018 £m	2017 £m
Fair value movements on equity hedge instruments*	299	(1,871)
Accounting value movements on the variable and fixed index annuity guarantee liabilities†	(894)	(99)
Fee assessments net of claim payments	537	480
Total	(58)	(1,490)

*Held to manage equity exposures of the variable annuity guarantees and fixed index annuity options.

† The accounting value movements on the variable and fixed index annuity guarantee liabilitiesreflect the impact of market movements and changesin economic and actuarial assumptions. Actuarial assumptionsinclude consideration of persistency, mortality and the expected utilisation of certain features attaching to variable annuity contracts. Assumptions are updated annually via a comparison to experience and after applying expert judgement for how experience may change in the future. Routine updatesin 2018 reduced profit before tax (after allowing related changed to DAC amortisation) by £143 million (2017: £382 million).

(b) Other than equity-related derivatives

The fluctuationsfor thisitem comprise the net effect of:

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

– Fair value movements on theGuaranteed Minimum Income Benefit (GMIB) reinsurance asset that are not matched by movementsin the underlyingGMIB liability, which is not fair valued as explained in note B1.3; 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 index 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 movementsrecorded in the income statement, and the exposuresthey are intended to manage.

(c) Short-term fluctuationsrelated to debtsecurities	2018 £m	2017 £m
(Charges) creditsin the year:
Losses on sales of impaired and deteriorating bonds	(4)	(3)
Bond write-downs	(4)	(2)
Recoveries/reversals	19	10
Total creditsin the year	11	5
Risk margin allowance deducted from adjusted IFRS operating profit based on longer-term investment returns*	77	86
	88	91
Interest-related realised (losses) gains:
Losses arising in the year	(8)	(43)
Amortisation of gains and losses arising in current and prior yearsto adjusted IFRS operating profit based
on longer-term investment returns	(116)	(140)
	(124)	(183)
Related amortisation of deferred acquisition costs	5	19
Totalshort-term fluctuationsrelated to debtsecurities	(31)	(73)

* The debtsecurities of Jackson are held in the general account of the business. Realised gains and losses are recorded in the income statement with normalised returnsincluded in adjusted IFRS operating profit based on longer-term investment returns with variationsfrom year to year included in the short-term fluctuations category. The risk margin reserve charge for longer-term credit-related lossesincluded in adjusted IFRS operating profit based on longer-term investment returns of Jackson for 2018 is based on an average annual risk margin reserve of 18 basis points(2017: 21 basis points) on average book values ofUS\$57.1 billion (2017:US\$55.3 billion) asshown below:

	2018			2017
Moody's rating category (or equivalent under NAIC ratings of mortgage-backed securities)	Average book value US\$m	RMR %	Annual expected loss		Average book value	RMR	Annual expected loss
			US\$m	£m	US\$m	%	US\$m	£m
A3 or higher	29,982	0.10	(31)	(23)	27,277	0.12	(33)	(25)
Baa1, 2 or 3	25,814	0.21	(55)	(40)	26,626	0.22	(58)	(45)
Ba1, 2 or 3	1,042	0.98	(10)	(8)	1,046	1.03	(11)	(8)
B1, 2 or 3	289	2.64	(8)	(6)	318	2.70	(9)	(7)
Below B3	11	3.69	–	–	23	3.78	(1)	(1)
Total	57,138	0.18	(104)	(77)	55,290	0.21	(112)	(86)
Related amortisation of deferred acquisition costs(see below)			22	15			21	15
Risk margin reserve charge to adjusted IFRS operating profit for longer-term credit related losses			(82)	(62)			(91)	(71)

Consistent with the basis of measurement of insurance assets and liabilitiesfor Jackson'sIFRS results, the charges and creditsto adjusted IFRS operating profits based on longer-term investment returns are partially offset by related amortisation of deferred acquisition costs.

In addition to the accounting for realised gains and losses described above for Jackson general account debtsecurities, included within the statement of other comprehensive income is a pre-tax charge of £(1,371) million for net unrealised losses on debtsecurities classified as available-for-sale net of related amortisation of deferred acquisition costs(2017: credit of £541 million). 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 C3.2(b).

(iii) UK and Europe operations

The positive short-term fluctuationsin investment returnsfor theUK and Europe operations of £34 million (2017: negative £14 million) mainly arisesfrom unrealised gains on equity options held to hedge the value of future shareholder transfersfrom the with-profitsfund partially offset by losses on corporate bonds backing capital to support the remaining annuity business, given the increase in interest rates and creditspreadsin 2018.

(iv) Other operations

The positive short-term fluctuationsin investment returnsfor other operations of £20 million (2017: positive £20 million) include unrealised value movements on financial instruments held outside of the main life operations.

01

06 European Embedded Value

05

information

B1 Analysis of performance by segment continued

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

Operating segments

TheGroup's operating segmentsfor financial reporting 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 theGroup's management and reporting structure its chief operating decision maker istheGroup Executive Committee (GEC). In the managementstructure, responsibility is delegated to the Chief Executive Officers of Prudential Corporation Asia, theNorth American BusinessUnit and M&GPrudential for the day-to-day management of their business units(within the framework set out in the GroupGovernance Manual). Financial management information used by theGEC aligns with these three businesssegments. These operating segments derive revenue from both long-term insurance and asset management activities.

Operations which do not form part of any business unit are reported as'Unallocated to a segment'. These includeGroupHead Office and Asia RegionalHead Office costs. Prudential Capital and Africa operations 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 theGroup. Prudential Capital and Africa operations are therefore reported as'Unallocated to a segment'.

Performance measure

The performance measure of operating segments utilised by the Company is adjusted IFRS operating profit attributable to shareholders based on longer-term investment returns, as described below. This measurement basis distinguishes adjusted IFRS operating profit based on longer-term investment returnsfrom other constituents of the total profit asfollows:

• Short-term fluctuationsin investment returns on shareholder-backed business. Thisincludesthe impact ofshort-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 disposals undertaken in the year.

Determination of adjusted IFRS operating profit based on longer-term investment returns for investment and liability movements:

(a) General principles

(i) UK-style with-profits business

The adjusted IFRS operating profit based on longer-term investment returnsreflectsthe statutory transfer gross of attributable tax. Value movementsin the underlying assets of the with-profitsfunds do not affect directly the determination of adjusted IFRS operating profit based on longer-term investment returns.

(ii) Unit-linked business

The policyholder unit liabilities are directly reflective of the underlying asset value movements. Accordingly, the adjusted IFRS operating profit based on longer-terminvestmentreturnsreflect the current period valuemovementsin both the unit liabilities and the backing assets.

(iii) US variable annuity and fixed index annuity business

This business has guarantee liabilities which are measured on a combination of fair value and otherUSGAAP derived principles. These liabilities are subject to an extensive derivative programme to manage equity and interest rate exposures whose fair value movements passthrough the income statement each period. The principlesfor determination of the adjusted IFRS operating profit based on longer-term investment returns and short-term fluctuations are as discussed in section (c) below.

(iv) Business where policyholder liabilities are sensitive to market conditions

Under IFRS, the degree to which the carrying values of liabilitiesto policyholders are sensitive to current market conditions varies between business units depending upon the nature of the 'grandfathered' measurement basis. In general, in those instances where the liabilities are particularly sensitive to routine changesin market conditions, the accounting basisissuch that the impact of market movements on the assets and liabilitiesis broadly equivalent in the income statement, and adjusted IFRS operating profit based on longer-term investment returnsis not distorted. In these circumstances, there is no need for the movement in the liability to be bifurcated between the elementsthat relate to longer-term market conditions and short-term effects.

However, movementsin liabilitiesforsome types of business do require bifurcation to ensure that at the net level (ie after allocated investment return and charge for policyholder benefits) the adjusted IFRS operating profit based on longer-term investment returns reflectslonger-term market returns.

Examples of where such bifurcation is necessary are inHong Kong and forUK shareholder-backed annuity business, as explained in sections b(i) and d(i), respectively. For other types of Asia's non-participating business, expected longer-term investment returns are used to determine the movement in policyholder liabilitiesfor determining adjusted IFRS operating profit based on longer-term investment returns.

02

04

06

(v) Other shareholder-financed business

For long-term insurance business, where assets and liabilities are held for the long term, the accounting basisfor insurance liabilities under current IFRS can lead to profitsthat include the effects ofshort-term fluctuationsin market conditions, which may not be representative of trendsin underlying performance. Therefore, the following key elements are applied to the results of theGroup's shareholder-financed businessesto determine adjusted IFRS operating profit based on longer-term investment returns.

Except in the case of assets backing liabilities which are directly matched (such as unit-linked business) or closely correlated with value movements(as discussed below) adjusted IFRS operating profit based on longer-term investment returnsforshareholder-financed businessis determined on the basis of expected longer-term investment returns. Longer-term investment returns comprise actual income receivable for the period (interest/dividend income) and for both debt and equity-type securitieslonger-term capital returns.

Debt securities and loans

In principle, for debtsecurities and loans, the longer-term capital returns comprise two elements:

• Risk margin reserve based charge for the expected level of defaultsfor the period, which is determined by reference to the credit quality of the portfolio. The difference between impairment lossesin the reporting period and the risk margin reserve charge to the adjusted IFRS operating profit based on longer-term investment returnsisreflected in short-term fluctuationsin investment returns; and
• The amortisation of interest-related realised gains and lossesto adjusted IFRS operating profit based on longer-term investment returnsto the date when sold bonds would have otherwise matured.

At 31 December 2018, the level of unamortised interest-related realised gains and lossesrelated to previously sold bondsfor theGroup was a net gain of £629 million (2017: £855 million).

Equity-type securities

For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returnsfor income and capital having regard to past performance, current trends and future expectations. Equity-type securities held forshareholder-financed businesses other than theUK annuity business, unit-linked andUS variable annuity separate accounts are principally relevant for the US and Asia insurance operations. Different rates apply to different categories of equity-type securities.

Derivative value movements

Generally, derivative value movements are excluded from adjusted IFRS operating profit based on longer-term investment returns. The exception is where the derivative value movements broadly offset changesin the accounting value of other assets and liabilitiesincluded in adjusted IFRS operating profit based on longer-term investment returns. The principal example of derivatives whose value movements are excluded from adjusted IFRS operating profit based on longer-term investment returns arisesin Jackson, as discussed below in section (c).

(b) Asia insurance operations

(i) Business where policyholder liabilities are sensitive to market conditions

For certain Asia non-participating business, for example inHong Kong, the economic features are more akin to asset management products with policyholder liabilitiesreflecting assetshares over the contract term. Consequently, for these products, the charge for policyholder benefitsin the adjusted IFRS operating profit based on longer-term investment returnsreflectsthe assetshare feature rather than volatile movementsthat would otherwise be reflected if the local regulatory basis(also applied for IFRS basis) was used.

For certain other types of non-participating business expected longer-term investment returns are used to determine the movement in policyholder liabilitiesfor determining adjusted IFRS operating profit based on longer-term investment returns.

(ii) Other Asia shareholder-financed business

Debt securities

For this business, the realised gains and losses are principally interest related. Accordingly, all realised gains and lossesto date for these operations are amortised over the period to the date those securities would otherwise have matured, with no explicit risk margin reserve charge.

Equity-type securities

For Asia insurance operations, investmentsin equity securities held for non-linked shareholder-backed business amounted to £2,146 million as at 31 December 2018 (31 December 2017: £1,759 million). The rates of return applied in 2018 ranged from 5.3 per cent to 17.6 per cent (2017: 4.3 per cent to 17.2 per cent) with the rates applied varying by business unit. These rates are broadly stable from period to period but may be different between countriesreflecting, for example, differing expectations of inflation in each business unit. The assumptions are for the returns expected to apply in equilibrium conditions. The assumed rates of return do not reflect any cyclical variability in economic performance and are notset by reference to prevailing asset valuations.

The longer-term investment returnsfor the Asia insurance joint ventures accounted for using the equity method are determined on a similar basis asthe other Asia insurance operations described above.

B1 Analysis of performance by segment continued

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

(c) US insurance operations

(i) Separate account business

Forsuch businessthe policyholder unit liabilities are directly reflective of the asset value movements. Accordingly, the adjusted IFRS operating profit based on longer-term investment returnsreflect the current period value movementsin unit liabilities and the backing assets.

(ii) US variable and fixed index annuity business

The following value movementsfor Jackson's variable and fixed index annuity business are excluded from adjusted IFRS operating profit based on longer-term investment returns. See note B1.2 note (ii):

• Fair value movementsfor equity-based derivatives;
• Fair value movementsfor guaranteed benefit optionsfor the 'not for life' portion ofGuaranteed Minimum Withdrawal Benefit (GMWB) and fixed index annuity business, andGuaranteed Minimum Income Benefit (GMIB) reinsurance (see below);
• Movementsin the accounts carrying value ofGuaranteed Minimum Death Benefit (GMDB),GMIB and the 'for life' portion ofGMWB liabilities, (see below) for which, under the 'grandfathered'USGAAP applied under IFRS for Jackson'sinsurance assets and liabilities, the measurement basis givesrise to a muted impact of current period market movements(ie they are relatively insensitive to the effect of current period equity market and interest rate changes);
• A portion of the fee assessments as well as claim payments, in respect of guarantee liabilities; and
• Related amortisation of deferred acquisition costsfor each of the above items.

Guaranteed benefit options for the 'not for life' portion of GMWB and equity index options for the fixed index annuity business

The 'not for life' portion ofGMWB guaranteed benefit option liabilitiesis measured under theUSGAAP basis applied for IFRS in a manner consistent with IAS 39 under which the projected future growth rate of the account balance is based on currentswap rates (rather than expected rates of return) with only a portion of the expected future guarantee feesincluded. Reserve value movements on these liabilities are sensitive to changesto levels of equity markets, implied volatility and interest rates. The equity index option for fixed index annuity businessis measured under theUSGAAP basis applied for IFRS in a manner consistent with IAS 39 under which the projected future growth is based on currentswap rates.

Guaranteed benefit option for variable annuity guarantee minimum income benefit

TheGMIB liability, which issubstantially reinsured,subject to a deductible and annual claim limits, is accounted for using 'grandfathered' USGAAP. This accounting basissubstantially does not recognise the effects of market movements. The corresponding reinsurance asset is measured under the 'grandfathered'USGAAP basis applied for IFRS in a manner consistent with IAS 39, 'Financial Instruments: Recognition and Measurement', and the asset istherefore recognised at fair value. AstheGMIB is economically reinsured, the mark to market element of the reinsurance asset isincluded as a component ofshort-term fluctuationsin investment returns.

(iii) Other derivative value movements

The principal example of non-equity based derivatives(for example, interest rate swaps and swaptions) whose value movements are excluded from adjusted IFRS operating profit based on longer-term investment returns, arisesin Jackson.Non-equity based derivatives are primarily held by Jackson as part of a broadly-based hedging programme for features of Jackson's bond portfolio (for which value movements are booked in the statement of other comprehensive income rather than the income statement), product liabilities(for which USGAAP accounting as'grandfathered' under IFRS 4 does not fully reflect the economic features being hedged), and the interest rate exposure attaching to equity-based product options.

<-- PDF CHUNK SEPARATOR -->

Governance

02

04

06

(iv) Other US shareholder-financed business

Debt securities

The distinction between impairment losses and interest-related realised gains and lossesis of particular relevance to Jackson. Jackson has used the ratings byNationally Recognised Statistical Ratings Organisations(NRSRO) or ratingsresulting from the regulatory ratings detail issued by theNational Association of Insurance Commissioners(NAIC) to determine the average annual risk margin reserve to apply to debtsecurities held to back general account business. Debtsecurities held to back separate account and reinsurance funds withheld are notsubject to risk margin reserve charge. Further details of the risk margin reserve charge, as well asthe amortisation of interest-related realised gains and losses, for Jackson are shown in note B1.2 note (ii)(c).

Equity-type securities

As at 31 December 2018, the equity-type securitiesforUS insurance non-separate account operations amounted to £1,359 million (31 December 2017: £946 million). For these operations, the longer-term rates of return for income and capital applied in the years indicated, which reflect the combination of the average risk-free rates over the year and appropriate risk premiums are asfollows:

	2018	2017
Equity-type securitiessuch as common and preferred stock and portfolio holdingsin mutual funds	6.7% to 7.2%	6.1% to 6.5%
Other equity-type securitiessuch asinvestmentsin limited partnerships and private equity funds	8.7% to 9.2%	8.1% to 8.5%

(d) UK and Europe insurance operations

(i) Shareholder-backed annuity business

For this business, policyholder liabilities are determined by reference to current interest rates. The value movements of the assets covering liabilities are closely correlated with the related change in liabilities. Accordingly, asset value movements are recorded within the 'adjusted IFRS operating profit based on longer-term investment returns'. Policyholder liabilitiesinclude a margin for credit risk. Variations between actual and best estimate expected impairments are recorded as a component ofshort-term fluctuationsin investment returns.

The adjusted IFRS operating profit based on longer-term investment returnsreflectsthe impact of value movements on policyholder liabilitiesforshareholder-backed annuity business within The Prudential Assurance Company Limited (PAC) after adjustmentsto allocate the following elements of the movement to the category of 'short-term fluctuationsin investment returns':

• The impact on credit risk provisioning of actual upgrades and downgrades during the period;
• Credit experience compared with assumptions; and
• Short-term value movements on assets backing the capital of the business.

Credit experience reflectsthe impact of defaults and othersimilar experience,such as asset exchanges arising from debt restructuring by issuersthat include effectively an element of permanent impairment of the security held. Positive or negative experience compared with assumptionsisincluded within short-term fluctuationsin investment returns without further adjustment. The effects of other changesto credit risk provisioning are included in the adjusted IFRS operating profit based on longer-term investment returns, asisthe net effect of changesto the valuation rate of interest due to portfolio rebalancing to align more closely with management benchmark.

(ii) Non-linked shareholder-financed business

For debtsecurities backing non-linked shareholder-financed business of theUK and Europe insurance operations(other than the annuity business) the realised gains and losses are principally interest related. Accordingly, all realised gains and lossesto date for these operations are being amortised over the period to the date those securities would otherwise have matured, with no explicit risk margin reserve charge.

(e) Fund management and other non-insurance businesses

For these businesses, the particular features applicable for life assurance noted above do not apply and therefore the adjusted IFRS operating profit based on longer-term investment returnsis not determined on the basis described above. Instead, realised gains and losses are generally included in adjusted IFRS operating profit based on longer-term investment returns with temporary unrealised gains and losses being included in short-term fluctuations. In some instances, realised gains and losses on derivatives and other financial instruments are amortised to adjusted IFRS operating profit based on longer-term investment returns over a time period that reflectsthe underlying economic substance of the arrangements.

B1 Analysis of performance by segment continued

B1.4 Segmental income statement

	2018 £m
	Asia	US	UK and Europe	Total segment	Unallocated to a segment (other operations) note (ix)	Group total
Gross premiums earned note (iv) Outward reinsurance premiums note (i)	16,469 (575)	17,656 (309)	13,061 (13,137)	47,186 (14,021)	38 (2)	47,224 (14,023)
Earned premiums, net of reinsurance Other income note (ii),(iii)	15,894 309	17,347 50	(76) 1,595	33,165 1,954	36 39	33,201 1,993
Total external revenue note (v),(vi) Intra-group revenue Interest income note (vii) Other investment return note B1.5	16,203 42 1,086 (3,240)	17,397 50 2,016 (6,804)	1,519 3 3,039 (6,476)	35,119 95 6,141 (16,520)	75 (95) 51 65	35,194 – 6,192 (16,455)
Total revenue, net of reinsurance	14,091	12,659	(1,915)	24,835	96	24,931
Benefits and claims and movementsin unallocated surplus of with-profitsfunds, net of reinsurance note (i),(iv) Acquisition costs and other operating expenditure note B2, note (iii),(iv) Interest on core structural borrowings Loss on disposal of businesses and corporate transactionsnote D1.1	(8,736) (3,866) – (11)	(8,790) (2,077) (15) (38)	4,977 (2,360) – –	(12,549) (8,303) (15) (49)	(19) (552) (395) (31)	(12,568) (8,855) (410) (80)
Total charges, net of reinsurance and loss on disposal of businesses	(12,613)	(10,920)	2,617	(20,916)	(997)	(21,913)
Share of profit from joint ventures and associates, net of related tax	239	–	52	291	–	291
Profit (loss) before tax (being tax attributable to shareholders' and policyholders' returns) note (viii) Tax (charge) credit attributable to policyholders' returns	1,717 (80)	1,739 –	754 406	4,210 326	(901) –	3,309 326
Profit (loss) before tax attributable to shareholders	1,637	1,739	1,160	4,536	(901)	3,635
Analysis of profit (loss) before tax Adjusted IFRS operating profit (loss) based on longer-term investment returns Short-term fluctuationsin investment returns	2,164	1,919	1,634	5,717	(890)	4,827
on shareholder-backed business	(512)	(100)	34	(578)	20	(558)
Amortisation of acquisition accounting adjustments Loss on disposal of businesses and corporate	(4)	(42)	–	(46)	–	(46)
transactions note D1.1	(11)	(38)	(508)	(557)	(31)	(588)
	1,637	1,739	1,160	4,536	(901)	3,635

	2017 £m
	Asia	US	UK and Europe	Total segment	Unallocated to a segment (other operations) note (ix)	Group total
Gross premiums earned	15,688	15,164	13,126	43,978	27	44,005
Outward reinsurance premiums	(656)	(352)	(1,050)	(2,058)	(4)	(2,062)
Earned premiums, net of reinsurance Other income note (ii),(iii)	15,032 307	14,812 669	12,076 1,234	41,920 2,210	23 48	41,943 2,258
Total external revenue note (v),(vi)	15,339	15,481	13,310	44,130	71	44,201
Intra-group revenue	40	64	5	109	(109)	–
Interest income note (vii)	932	2,085	3,413	6,430	67	6,497
Other investment return note B1.5	8,063	16,448	11,171	35,682	10	35,692
Total revenue, net of reinsurance	24,374	34,078	27,899	86,351	39	86,390
Benefits and claims and movementsin unallocated surplus of with-profitsfunds, net of reinsurance	(18,291)	(31,205)	(23,025)	(72,521)	(11)	(72,532)
Acquisition costs and other operating
expenditure note B2, note(iii)	(4,053)	(2,257)	(3,206)	(9,516)	(477)	(9,993)
Interest on core structural borrowings Gain on disposal of businesses and corporate	–	(16)	–	(16)	(409)	(425)
transactions note D1.1	61	162	–	223	–	223
Re-measurement of the sold Korea life business	5	–	–	5	–	5
Total charges, net of reinsurance and gain on disposal of business	(22,278)	(33,316)	(26,231)	(81,825)	(897)	(82,722)
Share of profit from joint ventures and associates, net of related tax	181	–	121	302	–	302
Profit (loss) before tax (being tax attributable to shareholders' and policyholders' returns) note (viii) Tax charge attributable to policyholders' returns	2,277 (249)	762 –	1,789 (425)	4,828 (674)	(858) –	3,970 (674)
Profit (loss) before tax attributable to shareholders	2,028	762	1,364	4,154	(858)	3,296
Analysis of profit (loss) before tax Adjusted IFRS operating profit (loss) based
on longer-term investment returns Short-term fluctuationsin investment returns	1,975	2,224	1,378	5,577	(878)	4,699
on shareholder-backed business Amortisation of acquisition accounting	(1)	(1,568)	(14)	(1,583)	20	(1,563)
adjustments Gain on disposal of businesses and corporate	(7)	(56)	–	(63)	–	(63)
transactions note D1.1	61	162	–	223	–	223
	2,028	762	1,364	4,154	(858)	3,296

Notes

(i) Outward reinsurance premiums of £(14,023) million includesthe £(12,149) million paid during the year in respect of the reinsurance of theUK annuity portfolio. The associated increase in reinsurance assetsisincluded in outward reinsurers'share of benefits and claims and the consequential change in policyholder liabilitiesisincluded in benefits and claims. See note D1.1 for further details.

(ii) Included within other income isrevenue from theGroup's asset management business of £1,489 million (2017: £1,371 million). The remaining other income includesrevenue from external customers. Other income also includes £20 million (2017: £7 million) relating to financial instrumentsthat are not held at fair value through profit or loss. The 2017 comparative also included amountsfor broker-dealer fees generated by theUS broker-dealer network which was disposed of in August 2017, amounting to £542 million. (iii) Following the adoption of IFRS 15, the 2017 comparative results have been re-presented as described in note A2.

(iv) In October 2018, Jackson entered into a 100 per cent reinsurance agreement with JohnHancock Life Insurance Company (JohnHancockUSA) to acquire a closed block of group payout annuity business. The transaction resulted in an addition to gross premiums earned of £3.7 billion and a corresponding increase in benefits and claims of £4.1 billion for the increase in policyholder liabilities and a decrease in other operating expenditure for negative ceding commissions of £0.4 billion at the inception of the contract. There was no material impact on adjusted IFRS operating profit based on longer-term investment returns or total profit as a result of the transaction.

(v) In Asia, external revenue from no one individual market exceeds 10 per cent of theGroup total except forHong Kong in both 2018 and 2017. Total external revenue ofHong Kong is £7,719 million (2017: £7,269 million).

(vi) Total external revenue shown in the tables above is all from external customers except for £166 million within the 2018 amount forUK and Europe of £1,519 million. The £166 million representsthe insurance recoveriesrecognised in respect of costs associated with the review of past annuity sales as described further in note C11.

(vii) Interest income includes £4 million (2017: £3 million) accrued in respect of impaired securities.

(viii) This measure isthe formal profit (loss) before tax measure under IFRS but is not the result attributable to shareholders.

(ix) Unallocated to a segment includes central operations(Group and Asia RegionalHead Offices andGroup borrowings), Prudential Capital and Africa operations. In addition, this column includesintra-group eliminations, including the elimination of the intra-group reinsurance contract between theUK with-profits and Asia with-profits businesses.

(x) Due to the nature of the business of theGroup, there is no reliance on any major customers.

01 Group overview

02 Strategic report

03 Governance

04 Directors'

remuneration report

05

Financialstatements

06 European Embedded Value (EEV) basisresults

07 Additional information

B1 Analysis of performance by segment continued

B1.5 Other investment return

	2018 £m	2017 £m
Realised and unrealised (losses) gains on securities at fair value through profit or loss	(19,665)	33,121
Realised and unrealised (losses) on derivatives at fair value through profit or loss	(941)	(1,624)
Realised gains(losses) on available-for-sale securities, previously recognised in other
comprehensive income*	11	(26)
Realised (losses) gains on loans	(4)	9
Dividends	2,362	2,654
Other investment income	1,782	1,558
Other investment return	(16,455)	35,692

* Including impairment.

Realised gains and losses on theGroup'sinvestmentsfor 2018 recognised in the income statement amounted to a net gain of £8.2 billion (2017: a net gain of £5.7 billion).

B1.6 Additional analysis of performance by segment components B1.6(a) Asia

	2018 £m				2017 £m
	Insurance	Asset management	Eliminations	Total	Total
Earned premiums, net of reinsurance Other income	15,894 99	– 210	– –	15,894 309	15,032 307
Total external revenue	15,993	210	–	16,203	15,339
Intra-group revenue Interest income Other investment return	– 1,083 (3,240)	158 3 –	(116) – –	42 1,086 (3,240)	40 932 8,063
Total revenue, net of reinsurance	13,836	371	(116)	14,091	24,374
Benefits and claims and movementsin unallocated surplus of with-profitsfunds, net of reinsurance Acquisition costs and other expenditure note B2 (Loss) gain on disposal of businesses and corporate transactions note D1.1 Remeasurement of the sold Korea life business note D1.1	(8,736) (3,732) (11) –	– (250) – –	– 116 – –	(8,736) (3,866) (11) –	(18,291) (4,053) 61 5
Total charges, net of reinsurance and (loss) gain on disposal of businesses	(12,479)	(250)	116	(12,613)	(22,278)
Share of profit from joint ventures and associates, net of related tax	178	61	–	239	181
Profit before tax (being tax attributable to shareholders' and policyholders' returns) Tax charge attributable to policyholders' returns	1,535 (80)	182 –	– –	1,717 (80)	2,277 (249)
Profit before tax attributable to shareholders	1,455	182	–	1,637	2,028
Analysis of profit (loss) before tax Adjusted IFRS operating profit based on longer-term investment returns	1,982	182	–	2,164	1,975
Short-term fluctuationsin investment returns on shareholder-backed business Amortisation of acquisition accounting adjustments (Loss) gain on disposal of businesses and corporate	(512) (4)	– –	– –	(512) (4)	(1) (7)
transactions note D1.1	(11)	–	–	(11)	61
	1,455	182	–	1,637	2,028

B1.6(b) US

	2018 £m				2017 £m
	Insurance	Asset management note (i)	Eliminations	Total	Total
Earned premiums, net of reinsurance note (ii)	17,347	–	–	17,347	14,812
Other income	5	45	–	50	669
Total external revenue	17,352	45	–	17,397	15,481
Intra-group revenue	–	118	(68)	50	64
Interest income	2,016	–	–	2,016	2,085
Other investment return	(6,784)	(20)	–	(6,804)	16,448
Total revenue, net of reinsurance	12,584	143	(68)	12,659	34,078
Benefits and claims note (ii)	(8,790)	–	–	(8,790)	(31,205)
Interest on core structural borrowings	(15)	–	–	(15)	(16)
Acquisition costs and other operating expenditure note B2	(2,010)	(135)	68	(2,077)	(2,257)
(Loss) gain on disposal of businesses and corporate
transactions note D1.1	–	(38)	–	(38)	162
Total charges, net of reinsurance and gain on disposal
of businesses	(10,815)	(173)	68	(10,920)	(33,316)
Profit before tax	1,769	(30)	–	1,739	762
Analysis of profit (loss) before tax
Adjusted IFRS operating profit based on longer-term
investment returns	1,911	8	–	1,919	2,224
Short-term fluctuationsin investment returns
on shareholder-backed business	(100)	–	–	(100)	(1,568)
Amortisation of acquisition accounting adjustments	(42)	–	–	(42)	(56)
(Loss) gain on disposal of businesses and corporate
transactions note D1.1	–	(38)	–	(38)	162
	1,769	(30)	–	1,739	762

Notes

(i) In 2017, theUS total revenue and total chargesincludedNPHbroker dealer fees of £542 million within other income and other operating expenditure, respectively. TheGroup disposed of itsUS independent broker-dealer network in August 2017.

(ii) In October 2018, Jackson entered into an agreement with JohnHancock Life to reinsure 100 per cent of the group payout annuity business. The transaction resulted in an addition to gross premiums earned of £3.7 billion and a corresponding increase in benefits and claims of £4.1 billion for the increase in policyholder liabilities and a decrease in other operating expenditure for negative ceding commissions of £0.4 billion at the inception of the contract. There was no material impact on adjusted IFRS operating profit based on longer-term investment returns or total profit as a result of the transaction.

02

06

B1 Analysis of performance by segment continued

B1.6 Additional analysis of performance by segment components continued

B1.6(c) UK and Europe

	2018 £m			2017 £m
	Insurance	Asset management note (i)	Eliminations	Total	Total
Earned premiums, net of reinsurance note (iii) Other income note (ii)	(76) 347	– 1,248	– –	(76) 1,595	12,076 1,234
Total external revenue	271	1,248	–	1,519	13,310
Intra-group revenue Interest income Other investment return	– 3,038 (6,459)	167 1 (17)	(164) – –	3 3,039 (6,476)	5 3,413 11,171
Total revenue, net of reinsurance	(3,150)	1,399	(164)	(1,915)	27,899
Benefits and claims and movementsin unallocated surplus of with-profitsfunds, net of reinsurance note (iii) Acquisition costs and other operating expenditure note (ii), note B2	4,977 (1,571)	– (953)	– 164	4,977 (2,360)	(23,025) (3,206)
Total charges, net of reinsurance	3,406	(953)	164	2,617	(26,231)
Share of profit from joint ventures and associates, net of related tax	36	16	–	52	121
Profit before tax (being tax attributable to shareholders' and policyholders' returns) Tax credit (charge) attributable to policyholders' returns	292 406	462 –	– –	754 406	1,789 (425)
Profit before tax	698	462	–	1,160	1,364
Analysis of profit (loss) before tax Adjusted IFRS operating profit based on longer-term investment returns	1,157	477	–	1,634	1,378
Short-term fluctuationsin investment returns on shareholder-backed business	49	(15)	–	34	(14)
Loss on disposal of businesses and corporate transactions note D1.1	(508)	–	–	(508)	–
	698	462	–	1,160	1,364

Notes

(i) The revenue forUK and Europe asset management of £1,102 million (2017: £1,087 million), comprising the amountsfor asset management fee income, investment return and other income and performance-related feesshown in note B1.1(v), is different to the amount of £1,399 million shown in the table above. Thisis because the £1,102 million (2017: £1,087 million) is after deducting commissions which would have been included as chargesin the table above. The difference in the presentation of commission is aligned with how management reviewsthe business. For further information see note B1.1.

(ii) Following the adoption of IFRS 15, the 2017 comparative results have been re-presented as described in note A2.

(iii) Earned premiums net of reinsurance includes outward reinsurance premiums of £(12,149) million paid during the year in respect of the reinsurance of theUK annuity portfolio. The associated increase in reinsurance assetsisincluded in outward reinsurers'share of benefits and claims and the consequential change in policyholder liabilitiesisincluded in benefits and claims. See note D1.1 for further details.

B2 Acquisition costs and other expenditure

	2018 £m	2017 £m
Acquisition costsincurred for insurance policies	(3,438)	(3,712)
Acquisition costs deferred less amortisation of acquisition costs	59	911
Administration costs and other expenditure*	(5,380)	(6,208)
Movementsin amounts attributable to external unit holders of consolidated investment funds	(96)	(984)
Total acquisition costs and other expenditure	(8,855)	(9,993)

* Following the adoption of IFRS 15, the 2017 comparative results have been re-presented as described in note A2. The 2018 administration costs and other expenditure includes a credit of £0.4 billion for the negative ceding commissions arising from the group payout annuity businessreinsurance agreement entered into by Jackson with JohnHancock Life during the year.

Total acquisition costs and other expenditure includes:

• (a)Total depreciation and amortisation expense of £(1,136) million (2017: £(288) million) isincluded in 'Administration costs and other expenditure' and 'Acquisition costs deferred less amortisation of acquisition costs' and relates primarily to amortisation of deferred acquisition costs of insurance contracts and asset management contracts.
• (b)The charge for non-deferred acquisition costs and the amortisation of those coststhat were previously deferred was £(3,379) million (2017: £(2,801) million).These amounts comprise £(3,367) million and £(12) million for insurance and investment contracts respectively (2017: £(2,772) million and £(29) million respectively).

(c)Movementsin amounts attributable to external unit holders are in respect of those OEICs and unit trusts which are required to be consolidated and comprise a credit of £201 million (2017: charge of £(719) million) for theUK and Europe insurance operations and a charge of £(297) million (2017: £(265) million) for Asia insurance operations.

(d)All fee expensesrelating to financial liabilities held at amortised cost in 2018 and 2017 are part of the determination of the effective interest rate and are included in 'Administration costs and other expenditure' above.

(e)The segmental analysis of interest expense (other than interest expense in core structural borrowings) and depreciation and amortisation included within total acquisition costs and other expenditure was asfollows:

	Other interest expense		Depreciation and amortisation
	2018 £m	2017 £m	2018 £m	2017 £m
Asia operations:
Insurance	–	–	(228)	(230)
Asset management	–	–	(4)	(3)
US operations:
Insurance	(159)	(116)	(830)	20
Asset management	–	–	(6)	(7)
UK and Europe operations:
Insurance	(94)	(85)	(61)	(59)
Asset management	–	–	(5)	(7)
Totalsegment	(253)	(201)	(1,134)	(286)
Unallocated to a segment (other operations)	(29)	(39)	(2)	(2)
Group total	(282)	(240)	(1,136)	(288)

B2.1 Staff and employment costs

The average number ofstaff employed by theGroup during the yearsshown was:

	2018	2017
Asia operations	16,798	15,477
US operations	4,285	4,564
UK and Europe operations*	7,123	7,110
Total	28,206	27,151

* TheUK and Europe staff numbersinclude staff from central operations and Africa which are unallocated to a segment.

06

05

B2 Acquisition costs and other expenditure continued

B2.1 Staff and employment costs continued

The costs of employment were:

	2018 £m	2017 £m
Wages and salaries	1,656	1,774
Socialsecurity costs	116	129
Defined benefitschemes*	(29)	(3)
Defined contribution schemes	95	85
Total	1,838	1,985

* The (credit) incorporatesthe effect of actuarial gains and losses.

B2.2 Share-based payment

(a) Description of the plans

TheGroup operates a number ofshare award and share option plansthat provides Prudential plc shares, or ADRs, to participants upon vesting. The plansin operation include the Prudential Long Term Incentive Plan (PLTIP), Annual Incentive Plan (AIP),savings-related share option schemes,share purchase plans and deferred bonus plans. Some of these plans are participated in by Executive Directors, the details of which are described in the Directors' remuneration report. In addition, the following information is provided.

Share scheme	Description
Prudential Corporation Asia Long-Term Incentive Plan (PCA LTIP)	The PCA LTIP provides eligible employees with conditional awards. Awards are discretionary and on a year-by-year basis determined by Prudential'sfull year financial results and the employee's contribution to the business. Awards vest after three yearssubject to the employee being in employment. Vesting of awards may also be subject to performance conditions. All awards are made in Prudentialshares, or ADRs, except for countries where share awards are not feasible due to securities and/or tax reasons, where awards will be replaced by the cash value of the sharesthat would otherwise have vested.
Prudential Agency Long-Term Incentive Plan	Certain agentsin Asia are eligible to be granted awards under the Prudential Agency Long-Term Incentive Plan. These awards are structured in a similar way to the PCA LTIP described above.
Restricted Share Plan (RSP)	The Company operatesthe RSP for certain employees. Awards under this plan are discretionary, and the vesting of awards may be subject to performance conditions. All awards are made in Prudentialshares or ADRs.
Deferred bonus plans	The Company operates a number of deferred bonusschemesincluding theGroup Deferred Bonus Plan (GDBP), the Prudential Corporation Asia Deferred Bonus Plan (PCA DBP), the Prudential Capital Deferred Bonus Plan (PruCap DBP) and other arrangements. There are no performance conditions attached to deferred share awards made under these arrangements.
Savings-related share option schemes	Employees and eligible agentsin a number of geographies are eligible for planssimilar to theHMRC-approved Save As You Earn (SAYE)share option scheme in theUK. Eligible employees participate in the International Savings-Related Share Option Scheme while eligible agents based in certain regions of Asia can participate in the International Savings-Related Share Option Scheme forNon-Employees.
Share purchase plans	Eligible employees outside theUK are invited to participate in arrangementssimilar to the Company's HMRC-approvedUK SIP, which allowsthe purchase of Prudential plc shares. Staff based in Ireland are eligible to participate in the Share Participation Plan. Staff based in Asia are eligible to participate in the Prudential Corporation Asia All Employee Share Purchase Plan.

(b) Outstanding options and awards

The following table shows movement in outstanding options and awards under theGroup'sshare-based compensation plans at 31 December:

	Options outstanding under SAYE schemes				Awards outstanding under incentive plans
	2018		2017		2018	2017
	Number of options millions	Weighted average exercise price £	Number of options millions	Weighted average exercise price £	Number of awards millions
Beginning of year	6.4	11.74	7.1	10.74	33.6	30.2
Granted	0.3	13.94	1.4	14.55	10.7	12.7
Exercised	(1.4)	10.85	(1.7)	10.07	(8.7)	(7.3)
Forfeited	(0.1)	12.25	(0.1)	10.83	(2.6)	(1.3)
Cancelled	(0.2)	12.43	(0.2)	11.19	–	(0.1)
Lapsed/Expired	(0.1)	12.60	(0.1)	10.86	(0.2)	(0.6)
End of year	4.9	12.10	6.4	11.74	32.8	33.6
Optionsimmediately exercisable, end of year	0.8	10.37	0.4	11.06

The weighted average share price of Prudential plc for the year ended 31 December 2018 was £17.36 compared to £17.51 for the year ended 31 December 2017.

The following table provides a summary of the range of exercise pricesfor Prudential plc options outstanding at 31 December:

	Outstanding				Exercisable
	Number outstanding (millions)		Weighted average remaining contractual life (years)*		Weighted average exercise prices £		Number exercisable (millions)		Weighted average exercise prices £
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
Between £6 and £7	–	–	–	0.4	–	6.29	–	–	–	6.29
Between £9 and £10	0.3	0.5	0.4	1.4	9.01	9.01	0.3	–	9.01	–
Between £11 and £12	3.0	4.5	1.6	2.2	11.19	11.21	0.5	0.4	11.11	11.55
Between £13 and £14	0.3	–	4.1	–	13.94	–	–	–	–	–
Between £14 and £15	1.3	1.4	2.6	3.9	14.55	14.55	–	–	–	–
	4.9	6.4	2.1	2.5	12.10	11.74	0.8	0.4	10.37	11.06

* The yearsshown above for weighted average remaining contractual life include the time period from end of vesting period to expiration of contract.

(c) Fair value of options and awards

The fair value amounts estimated on the date of grant relating to all options and awards were determined by using the following assumptions:

	2018			2017
	Prudential LTIP (TSR)	SAYE options	Other awards	Prudential LTIP/RSP (TSR)	SAYE options	Other awards
Dividend yield (%)	–	2.52	–	–	2.85	–
Expected volatility (%)	24.03	21.09	–	23.17	20.15	–
Risk-free interest rate (%)	1.19	0.97	–	0.62	0.56	–
Expected option life (years)	–	3.94	–	–	3.49	–
Weighted average exercise price (£)	–	13.94	–	–	14.55	–
Weighted average share price at grant date (£)	17.46	16.64	–	16.80	17.74	–
Weighted average fair value at grant date (£)	6.64	3.29	17.04	8.30	3.29	16.12

02

06 European Embedded Value (EEV)

B2 Acquisition costs and other expenditure continued

B2.2 Share-based payment continued

The compensation costsfor all awards and options are recognised in net income over the plans' respective vesting periods. TheGroup usesthe Black-Scholes model to value all options and awards other than those which have TSR performance conditions attached (some Prudential LTIP and RSP awards) for which theGroup uses a Monte Carlo model in order to allow for the impact of these conditions. These models are used to calculate fair valuesforshare options and awards at the grant date based on the quoted market price of the stock at the measurement date, the amount, if any, that the employees are required to pay, the dividend yield, expected volatility, risk-free interest rates and exercise prices.

For all options and awards, the expected volatility is based on the market implied volatilities as quoted on Bloomberg. The Prudential specific at-the-money implied volatilities are adjusted to allow for the different terms and discounted exercise price on SAYE options by using information on the volatility surface of the FTSE 100.

Risk-free interestrates are taken fromgovernment bond spotrates with projectionsfortwo-year, three-year and five-yeartermstomatch corresponding vesting periods. Dividend yields are determined asthe average yield over a period of 12 months up to and including the date of grant. For awards with a TSR condition, volatilities and correlations between Prudential and a basket of 15 competitor companiesis required. For grantsin 2018, the average volatility forthe basket of competitors was 21.32 per cent.Correlationsforthe basket are calculated for each pairing fromthe log of daily TSR returnsforthe three years priorto the valuation date. Market implied volatilities are used for both Prudential and the basket of competitors.Changesto the subjective input assumptions couldmaterially affect the fair value estimate.

(d) Share-based payment expense charged to the income statement

Total expense recognised in the year in the consolidated financialstatementsrelating to share-based compensation is asfollows:

	2018 £m	2017 £m
Share-based compensation expense	143	158
Amount accounted for as equity-settled	143	158

TheGroup has no liabilities outstanding at the year end relating to awards which are settled in cash.

B2.3 Key management remuneration

Key management constitutesthe Directors of Prudential plc asthey have authority and responsibility for planning, directing and controlling the activities of theGroup.

Total key management remuneration is analysed in the following table:

	2018 £m	2017 £m
Salaries and short-term benefits	16.2	17.9
Post-employment benefits	1.3	1.3
Share-based payments	14.5	14.1
	32.0	33.3

The share-based payments charge comprises £9.7 million (2017: £8.3 million), which is determined in accordance with IFRS 2, 'Share-based Payment' (see note B2.2) and £4.8 million (2017: £5.8 million) of deferred share awards.

Total key management remuneration includestotal Directors' remuneration of £31.8 million (2017: £40.2 million) less LTIP releases of £9.5 million (2017: £15.2 million) asshown in the Directors' remuneration table and related footnotesin the Directors' remuneration report. Further information on Directors' remuneration is given in the Directors' remuneration report.

B2.4 Fees payable to the auditor

	2018 £m	2017 £m
Fees payable to the Company's auditor for the audit of the Company's annual accounts	2.1	2.1
Fees payable to the Company's auditor and its associatesfor otherservices:
Audit ofsubsidiaries pursuant to legislation	9.2	8.3
Audit-related assurance services*	4.7	4.3
Other assurance services	1.1	1.5
Servicesrelating to corporate finance transactions	0.2	0.4
All otherservices	1.0	0.7
Total fees paid to the auditor	18.3	17.3

* Of the audit-related assurance service fees of £4.7 million in 2018, £1.4 million relatesto servicesthat are required by law.

In addition, there were feesincurred by pension schemes of £0.2 million (2017: £0.1 million) for auditservices.

03

02

04

06

B3 Effect of changes and other accounting matters on insurance assets and liabilities

The following matters are relevant to the determination of the 2018 results:

(i) Asia insurance operations

In 2018, the adjusted IFRS operating profit based on longer-term investment returnsfor Asia insurance operationsincluded a net credit of £94 million (2017: £75 million) representing a small number of itemsthat are not expected to reoccur, including the non-recurring impact of a refinement to the run-off of the allowance for prudence within technical provisions within Singapore.

(ii) US insurance operations

Changesin the policyholder liabilities held for variable and fixed index annuity guarantees are reported as part of non-operating profit and are as described in note B1.2.

(iii) UK and Europe insurance operations

Annuity and other shareholder-backed business

Allowance for credit risk

For IFRS reporting, the resultsforUK shareholder-backed annuity business are particularly sensitive to the allowance made for credit risk. The allowance isreflected in the deduction from the valuation rate of interest for discounting projected future annuity payments to policyholdersthat would have otherwise applied. The credit risk allowance comprises an amount for long-term best estimate defaults and additional provisionsfor credit risk premium, the cost of downgrades and short-term defaults.

The IFRS credit risk allowance made for theUK shareholder-backed fixed and linked annuity business equated to 40 basis points at 31 December 2018 (31 December 2017: 42 basis points). The allowance represented 22 per cent of the bond spread overswap rates (31 December 2017: 28 per cent).

The reservesfor credit risk allowance at 31 December 2018 for theUK shareholder-backed business were £0.9 billion (31 December 2017: £1.6 billion). The 2018 credit risk allowance information is after reflecting the impact of the reinsurance of £12.0 billion of theUK shareholder-backed annuity portfolio to Rothesay Life entered into in March 2018. See note D1.1 for further details.

Other assumption changes

For the shareholder-backed business, in addition to the movement in the credit risk allowance discussed above, the net effect of routine changesto assumptionsin 2018 was a credit of £437 million (2017: credit of £173 million). Thisincluded, among other items, a benefit to adjusted IFRS operating profit based on longer-term investment returns of £441 million (2017: £204 million), relating to changesto annuitant mortality assumptionsto reflect current mortality experience, which hasshown a slowdown in life expectancy improvements in recent periods, and the adoption of the Continuous Mortality Investigation (CMI) 2016 model (2017: adoption of 2015 model). Further information on changesto mortality assumptionsis given in note C4.1(d).

Longevity reinsurance and other management actions

Aside from the aforementioned reinsurance agreement with Rothesay Life, no new longevity reinsurance transactions were undertaken in 2018 (2017: longevity reinsurance transactions covering £0.6 billion of IFRS annuity liabilities contributed £31 million to profit). Other management actions generated profits of £58 million (2017: £245 million).

With-profits sub-fund

For the with-profitssub-fund, the aggregate effect of assumption and other non-recurring changesin 2018 was a net gain to unallocated surplus of £394 million (2017: net charge of £58 million) including the effect of mortality assumption changes.

B4 Tax charge

(a) Total tax charge by nature of expense

The total tax charge in the income statement is asfollows:

		2017 £m
Tax charge	Current tax	Deferred tax	Total	Total
Attributable to shareholders:
Asia operations	(199)	(78)	(277)	(253)
US operations	(87)	(168)	(255)	(508)
UK and Europe	(255)	39	(216)	(267)
Other operations	125	1	126	122
Tax charge attributable to shareholders' returns	(416)	(206)	(622)	(906)
Attributable to policyholders:
Asia operations	(92)	12	(80)	(249)
UK and Europe	(188)	594	406	(425)
Tax (charge) credit attributable to policyholders' returns	(280)	606	326	(674)
Total tax charge	(696)	400	(296)	(1,580)

The principal reason for the decrease in the tax charge attributable to shareholders' returnsisthe inclusion in 2017 of a £445 million deferred tax charge arising on the remeasurement of theUS net deferred tax assetsfrom 35 per cent to 21 per cent following the enactment of theUS tax reform package, the Tax Cuts and Jobs Act. The movement from a charge of £674 million to a credit of £326 million in the tax charge attributable to policyholders' returns mainly reflects a decrease in the deferred tax liabilities on unrealised gains on investmentsin the with-profitsfunds of theUK and Europe and of Asia compared to 2017.

The reconciliation of the expected to actual tax charge attributable to shareholdersis provided in (b) below. The tax credit attributable to policyholders of £326 million above is equal to the loss before tax attributable to policyholders of £326 million. Thisisthe result of accounting for policyholder income after the deduction of expenses and movement on unallocated surpluses and on an after-tax basis. The total tax charge comprises:

	2018 £m	2017 £m
Current tax expense:
Corporation tax	(677)	(746)
Adjustmentsin respect of prior years	(19)	50
Total current tax charge	(696)	(696)
Deferred tax arising from: Origination and reversal of temporary differences Impact of changesin localstatutory tax rates Credit in respect of a previously unrecognised tax loss, tax credit or temporary difference from a prior period	385 8 7	(531) (353) –
Total deferred tax credit (charge)	400	(884)
Total tax charge	(296)	(1,580)

The current tax charge of £696 million (2017: £696 million) includes £65 million (2017: £59 million) in respect of the tax charge for the Hong Kong operation. TheHong Kong current tax charge is calculated as 16.5 per cent for both years on either (i) 5 per cent of the net insurance premium or (ii) the estimated assessable profits, depending on the nature of the business written.

The total deferred tax charge arises asfollows:

	2018 £m	2017 £m
Unrealised gains and losses on investments	667	(185)
Short-term temporary differences	(198)	(526)
Balancesrelating to investment and insurance contracts	(91)	(156)
Unused tax losses	23	(12)
Capital allowances	(1)	(5)
Deferred tax credit (charge)	400	(884)

The movement in unrealised gains and lossesin investmentsfrom a charge of £185 million in 2017 to a credit of £667 million in 2018 reflects adverse stock market movementsin 2018. The principal reason for the reduction in the tax charge attributable to short-term temporary differencesfrom £526 million in 2017 to £198 million in 2018 isthe remeasurement ofUS deferred tax balancesin 2017 from 35 per cent to 21 per cent.

In 2018, a tax charge of £270 million (2017: charge of £93 million) has been taken through other comprehensive income.

(b) Reconciliation of shareholder effective tax rate

In the reconciliation below, the expected tax ratesreflect the corporation tax ratesthat are expected to apply to the taxable profit of the relevant business. Where there are profits of more than one jurisdiction the expected tax ratesreflect the corporation tax rates weighted by reference to the amount of profit contributing to the aggregate businessresult.

	2018 £m
	Asia operations	US operations note (i)	UK and Europe	Other operations*	Total attributable to shareholders	Percentage impact on ETR
Adjusted IFRS operating profit (loss) based on longer-term investment returns Non-operating loss	2,164 (527)	1,919 (180)	1,634 (474)	(890) (11)	4,827 (1,192)
Profit (loss) before tax	1,637	1,739	1,160	(901)	3,635
Expected tax rate Tax at the expected rate Effects of recurring tax reconciliation items:	22% 360	21% 365	19% 220	19% (171)	21% 774	21.3%
Income not taxable or taxable at concessionary rates Deductions not allowable for tax purposes Itemsrelated to taxation of life insurance	(34) 39	(17) 3	(6) 15	(2) 10	(59) 67	(1.6)% 1.8%
businesses note (ii) Deferred tax adjustments Effect of results of joint ventures and associates note (iii) Irrecoverable withholding taxes note (iv) Other	(13) (11) (63) – (3)	(83) – – – –	(2) 2 (3) – 3	– (30) 2 47 3	(98) (39) (64) 47 3	(2.7)% (1.1)% (1.8)% 1.3% 0.1%
Total	(85)	(97)	9	30	(143)	(4.0)%
Effects of non-recurring tax reconciliation items: Adjustmentsto tax charge in relation to prior years Movementsin provisionsfor open tax matters note (v)	– 2	(17) 4	(11) (2)	14 1	(14) 5	(0.4)% 0.2%
Total	2	(13)	(13)	15	(9)	(0.2)%
Total actual tax charge (credit)	277	255	216	(126)	622	17.1%
Analysed into:
Tax on adjusted IFRS operating profit based on longer term investment returns Tax on non-operating profit	308 (31)	301 (46)	313 (97)	(130) 4	792 (170)
Actual tax rate: Adjusted IFRS operating profit based on longer-term investment returns: Including non-recurring tax reconciling items Excluding non-recurring tax reconciling items Total profit	14% 14% 17%	16% 16% 15%	19% 20% 19%	15% 16% 14%	16% 16% 17%

* Other operationsinclude restructuring costs.

06 European

B4 Tax charge continued

Notes

(i) Impact of US tax reform

The 2018 tax charge forUS operationsreflectsthe full impact of theUS tax reform package, the Tax Cuts and Jobs Act, which was enacted in December 2017 and took effect from 1 January 2018. The expected tax rate of 21 per cent reflectsthe reducedUS corporate income tax rate compared to 35 per cent for 2017. The benefit of the dividend received deduction (shown in Itemsrelated to the taxation of life insurance businesses) islower in 2018 than 2017 reflecting the changesto how this deduction is computed. In 2017, the reduction in theUS corporate income tax rate gave rise to a £445 million unfavourable reconciling item inUS operationsrelating to the remeasurement of the net deferred tax asset attributable to shareholders and a £134 million benefit recognised in other comprehensive income.

(ii) Items related to taxation of life insurance businesses

The £83 million (2017: £238 million) reconciling item inUS operationsreflectsthe impact of the dividend received deduction on the taxation of profitsfrom variable annuity business. The principal reason for the reduction in the Asia operationsreconciling itemsfrom £92 million at 2017 to £13 million at 2018 reflects non-operating investment lossesin Hong Kong which do not attract tax relief offsetting the benefit of operating profits due to the taxable profit being computed as 5 per cent of net insurance premiums. (iii) Effects of results of joint ventures and associates

Profit before tax includes Prudential'sshare of profits after tax from the joint ventures and associates. Therefore, the actual tax charge does not include tax arising from profit or loss of joint ventures and associates and isreflected as a reconciling item in the table above.

(iv) Irrecoverable withholding taxes

The £47 million (2017: £54 million) adverse reconciling itemsreflectslocal withholding taxes on dividends paid by certain non-UK subsidiaries, principally Indonesia, to theUK. The dividends are exempt from UK tax and consequently the withholding tax cannot be offset againstUK tax payments.

(v) Movements in provisions for open tax matters

The complexity of the tax laws and regulationsthat relate to our businesses meansthat from time to time we may disagree with tax authorities on the technical interpretation of a particular area of tax law. This uncertainty meansthat in the normal course of businesstheGroup will have matters where, upon ultimate resolution of the uncertainty, the amount of profitsubject to tax may be greater than the amountsreflected in theGroup'ssubmitted tax returns. The statement of financial position containsthe following provisionsin relation to open tax matters: £m

(139)
(5)
(5)
(149)

* Other movementsinclude interest arising on open tax matters and amountsincluded in theGroup'sshare of profitsfrom joint ventures and associates, net of related tax.

	2017 £m
	Asia operations	US operations	UK and Europe	Other operations*	Total attributable to shareholders	Percentage impact on ETR
Adjusted IFRS operating profit (loss) based on longer-term
investment returns	1,975	2,224	1,378	(878)	4,699
Non-operating profit (loss)	53	(1,462)	(14)	20	(1,403)
Profit (loss) before tax	2,028	762	1,364	(858)	3,296
Expected tax rate	21%	35%	19%	19%	24%
Tax at the expected rate	426	267	259	(163)	789	23.9%
Effects of recurring tax reconciliation items:
Income not taxable or taxable at concessionary rates	(64)	(11)	(2)	(14)	(91)	(2.8)%
Deductions not allowable for tax purposes	26	6	13	10	55	1.7%
Itemsrelated to taxation of life insurance businesses	(92)	(238)	(2)	–	(332)	(10.1)%
Deferred tax adjustments	11	17	(1)	(5)	22	0.7%
Effect of results of joint ventures and associates	(52)	–	(3)	–	(55)	(1.7)%
Irrecoverable withholding taxes	–	–	–	54	54	1.6%
Other	(10)	–	6	(1)	(5)	(0.1)%
Total	(181)	(226)	11	44	(352)	(10.7)%
Effectsofnon-recurringtax reconciliation items:
Adjustmentsto tax charge in relation to prior years	(3)	(15)	(3)	(3)	(24)	(0.7)%
Movementsin provisionsfor open tax matters	19	25	–	–	44	1.3%
Impact ofUS tax reform	–	445	–	–	445	13.5%
Adjustmentsin relation to business disposals	(8)	12	–	–	4	0.1%
Total	8	467	(3)	(3)	469	14.2%
Total actual tax charge (credit)	253	508	267	(122)	906	27.4%
Analysed into:
Tax on adjusted IFRS operating profit based on
longer-term investment returns	276	548	268	(121)	971
Tax on non-operating profit	(23)	(40)	(1)	(1)	(65)
Actual tax rate:
Adjusted IFRS operating profit based on longer-term
investment returns:
Including non-recurring tax reconciling items	14%	25%	19%	14%	21%
Excluding non-recurring tax reconciling items	13%	24%	20%	13%	20%
Total profit	12%	67%	20%	14%	27%

* Other operationsinclude restructuring costs.

B5 Earnings per share

	2018
	Note	Before tax £m B1.1	Tax £m B4	Non controlling interests £m	Net of tax and non controlling interests £m	Basic earnings per share Pence	Diluted earnings per share Pence
Based on adjusted IFRS operating profit based on longer-term investment returns		4,827	(792)	(3)	4,032	156.6p	156.5p
Short-term fluctuationsin investment returns on shareholder-backed business	B1.2	(558)	53	–	(505)	(19.7)p	(19.7)p
Amortisation of acquisition accounting adjustments Loss on disposal of businesses and		(46)	9	–	(37)	(1.4)p	(1.4)p
corporate transactions	D1.1	(588)	108	–	(480)	(18.6)p	(18.6)p
Based on profit for the year		3,635	(622)	(3)	3,010	116.9p	116.8p

	2017
	Note	Before tax £m B1.1	Tax £m B4	Non controlling interests £m	Net of tax and non controlling interests £m	Basic earnings per share Pence	Diluted earnings per share Pence
Based on adjusted IFRS operating
profit based on longer-term
investment returns		4,699	(971)	(1)	3,727	145.2p	145.1p
Short-term fluctuationsin
investment returns on
shareholder-backed business	B1.2	(1,563)	572	–	(991)	(38.6)p	(38.6)p
Amortisation of acquisition
accounting adjustments		(63)	20	–	(43)	(1.7)p	(1.7)p
Cumulative exchange gain on the
sold Korea life business
recycled from other
comprehensive income		61	–	–	61	2.4p	2.4p
Profit attaching to the disposal of
businesses	D1.1	162	(82)	–	80	3.1p	3.1p
Impact ofUS tax reform	B4	–	(445)	–	(445)	(17.3)p	(17.3)p
Based on profit for the year		3,296	(906)	(1)	2,389	93.1p	93.0p

Earnings pershare are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests. The weighted average number ofsharesfor calculating earnings pershare, which excludesthose held in employee share trusts and consolidated unit trusts and OEICs, isset out as below:

	2018	2017
Weighted average number (in millions) ofsharesfor calculation of:
Basic earnings pershare	2,575	2,567
Shares under option at end of year	5	6
Number ofsharesthat would have been issued at fair value on assumed option price	(4)	(5)
Diluted earnings pershare	2,576	2,568

06 European

B6 Dividends

	2018		2017
	Pence pershare		Pence pershare	£m
Dividendsrelating to reporting year:
First interim ordinary dividend	15.67p	406	14.50p	375
Second interim ordinary dividend	33.68p	873	32.50p	841
Total	49.35p	1,279	47.00p	1,216
Dividends paid in reporting year:
Current year first interim ordinary dividend	15.67p	404	14.50p	373
Second interim ordinary dividend for prior year	32.50p	840	30.57p	786
Total	48.17p	1,244	45.07p	1,159

Dividend per share

For the year ended 31 December 2017 the second interim ordinary dividend of 32.50 pence per ordinary share was paid to eligible shareholders on 18 May 2018. The 2018 first interim ordinary dividend of 15.67 pence per ordinary share was paid to eligible shareholders on 27 September 2018.

The second interim ordinary dividend for the year ended 31 December 2018 of 33.68 pence per ordinary share will be paid on 17 May 2019 in sterling to shareholders on theUK register and the Irish branch register on 29 March 2019 (Record Date), and inHong Kong dollarsto shareholders on theHong Kong branch register at 4.30pm Hong Kong time on the Record Date (HK Shareholders).Holders of US American Depositary Receipts(US Shareholders) will be paid their dividendsinUS dollars on or about 24 May 2019. The second interim ordinary dividend will be paid on or about 24 May 2019 in Singapore dollarsto shareholders with sharesstanding to the credit of theirsecurities accounts with The Central Depository (Pte) Limited (CDP) at 5.00pm Singapore time on the Record Date (SG Shareholders). The dividend payable to theHK Shareholders will be translated using the exchange rate quoted by the WM Company at the close of business on 12 March 2019. The exchange rate at which the dividend payable to the SGShareholders will be translated into Singapore dollars, will be determined by CDP.

Shareholders on theUK register and Irish branch register are eligible to participate in a Dividend Reinvestment Plan.

C Balance sheet notes

C1 Analysis of Group statement of financial position by segment

		31 Dec 2018 £m
By operating segment	Note	Asia C2.1	US C2.2	UK and Europe C2.3	Unallo cated to a segment (central opera tions) note (iv)	Elimin ation of intra group debtors and creditors	Group total
Assets
Goodwill	C5.1	498	–	1,359	–	–	1,857
Deferred acquisition costs and other intangible assets	C5.2	2,937	8,747	195	44	–	11,923
Property, plant and equipment		129	246	1,031	3	–	1,409
Reinsurers'share of insurance contract liabilities		2,777	6,662	2,812	2	(1,109)	11,144
Deferred tax assets	C8.1	119	2,295	126	55	–	2,595
Current tax recoverable	C8.2	26	311	244	118	(81)	618
Accrued investment income note (i)		664	498	1,511	76	–	2,749
Other debtors note (i)		2,978	238	4,189	1,968	(5,285)	4,088
Investment properties		5	6	17,914	–	–	17,925
Investment in joint ventures and associates accounted for using
the equity method	D6	991	–	742	–	–	1,733
Loans	C3.3	1,377	11,066	5,567	–	–	18,010
Equity securities and portfolio holdingsin unit trusts			32,150 128,657	53,810	116	–	214,733
Debtsecurities	C3.2	45,839	41,594	85,956	1,967	–	175,356
Derivative assets		296	574	2,513	111	–	3,494
Other investments		–	927	5,585	–	–	6,512
Deposits		1,224	92	10,320	160	–	11,796
Assets held forsale*		–	–	10,578	–	–	10,578
Cash and cash equivalents note (ii)		2,189	3,005	4,749	2,182	–	12,125
Total assets			94,199 204,918 209,201		6,802		(6,475) 508,645
Total equity		6,428	5,624	8,700	(3,485)	–	17,267
Liabilities
Insurance contract liabilities	C4.1		72,349 182,432	68,957	37		(1,109) 322,666
Investment contract liabilities with discretionary participation
features	C4.1	375	–	67,038	–	–	67,413
Investment contract liabilities without discretionary participation
features	C4.1	492	3,168	15,560	2	–	19,222
Unallocated surplus of with-profitsfunds	C4.1	2,511	–	13,334	–	–	15,845
Core structural borrowings ofshareholder-financed businesses Operational borrowings attributable to shareholder-financed	C6.1	–	196	–	7,468	–	7,664
businesses	C6.2	61	328	106	503	–	998
Borrowings attributable to with-profits businesses	C6.2	19	–	3,921	–	–	3,940
Obligations under funding,securitieslending and sale and
repurchase agreements		–	5,765	1,224	–	–	6,989
Net asset value attributable to unit holders of consolidated unit
trusts and similar funds		2,617	–	9,013	21	–	11,651
Deferred tax liabilities	C8.1	1,257	1,688	1,061	16	–	4,022
Current tax liabilities	C8.2	133	115	326	75	(81)	568
Accruals, deferred income and other liabilities note (iii)		7,641	5,324	6,442	1,126	(5,285)	15,248
Provisions	C11	251	23	743	61	–	1,078
Derivative liabilities	C3.4	65	255	2,208	978	–	3,506
Liabilities held forsale*		–	–	10,568	–	–	10,568
Total liabilities			87,771 199,294 200,501		10,287		(6,475) 491,378
Total equity and liabilities			94,199 204,918 209,201		6,802		(6,475) 508,645

*Assets held forsale of £10,578 million includes £10,568 million in respect of the reinsuredUK annuity business. The corresponding policyholder and other liabilities of £10,568 million is reflected in liabilities held forsale. (see note D1.1).

02

report

06

C1 Analysis of Group statement of financial position by segment continued

		31 Dec 2017 £m
By operating segment	Note	Asia C2.1	US C2.2	UK and Europe C2.3	Unallo cated to a segment (central opera tions) note (iv)	Elimin ation of intra group debtors and creditors	Group total
Assets
Goodwill	C5.1	305	–	1,177	–	–	1,482
Deferred acquisition costs and other intangible assets	C5.2	2,540	8,219	210	42	–	11,011
Property, plant and equipment		125	214	447	3	–	789
Reinsurers'share of insurance contract liabilities		1,960	6,424	2,521	3	(1,235)	9,673
Deferred tax assets	C8.1	112	2,300	157	58	–	2,627
Current tax recoverable	C8.2	58	298	244	93	(80)	613
Accrued investment income note (i)		595	492	1,558	31	–	2,676
Other debtors note (i)		2,675	248	3,118	2,121	(5,199)	2,963
Investment properties		5	5	16,487	–	–	16,497
Investment in joint ventures and associates accounted for using
the equity method	D6	912	–	504	–	–	1,416
Loans	C3.3	1,317	9,630	5,986	109	–	17,042
Equity securities and portfolio holdingsin unit trusts		29,976	130,630	62,670	115	–	223,391
Debtsecurities	C3.2	40,982	35,378	92,707	2,307	–	171,374
Derivative assets		113	1,611	2,954	123	–	4,801
Other investments		–	848	4,774	–	–	5,622
Deposits		1,291	43	9,540	362	–	11,236
Assets held forsale	D1	–	–	38	–	–	38
Cash and cash equivalents note (ii)		1,934	1,658	5,808	1,290	–	10,690
Total assets		84,900	197,998	210,900	6,657	(6,514)	493,941
Total equity		5,926	5,248	8,245	(3,325)	–	16,094
Liabilities							–
Insurance contract liabilities	C4.1	63,468	177,728	88,180	31	(1,235)	328,172
Investment contract liabilities with discretionary participation
features	C4.1	337	–	62,340	–	–	62,677
Investment contract liabilities without discretionary participation
features	C4.1	328	2,996	17,069	1	–	20,394
Unallocated surplus of with-profitsfunds	C4.1	3,474	–	13,477	–	–	16,951
Core structural borrowings ofshareholder-financed businesses	C6.1	–	184	–	6,096	–	6,280
Operational borrowings attributable to shareholder-financed
businesses	C6.2	50	508	148	1,085	–	1,791
Borrowings attributable to with-profits businesses	C6.2	10	–	3,706	–	–	3,716
Obligations under funding,securitieslending and sale and
repurchase agreements		–	4,304	1,358	–	–	5,662
Net asset value attributable to unit holders of consolidated unit
trusts and similar funds		3,631	–	5,243	15	–	8,889
Deferred tax liabilities	C8.1	1,152	1,845	1,703	15	–	4,715
Current tax liabilities	C8.2	122	47	377	71	(80)	537
Accruals, deferred income and other liabilities note (iii)		6,069	5,109	6,609	1,597	(5,199)	14,185
Provisions	C11	254	24	784	61	–	1,123
Derivative liabilities	C3.4	79	5	1,661	1,010	–	2,755
Total liabilities		78,974	192,750	202,655	9,982	(6,514)	477,847
Total equity and liabilities		84,900	197,998	210,900	6,657	(6,514)	493,941

Notes

(i) Accrued investment income and other debtors

	31 Dec 2018 £m	31 Dec 2017 £m
Interest receivable Other	1,744 1,005	1,789 887
Total accrued investment income	2,749	2,676
Other debtors comprises: Amounts due from
Policyholders Intermediaries Reinsurers	452 3 218	408 4 134
Other	3,415	2,417
Total other debtors	4,088	2,963
Total accrued investment income and other debtors	6,837	5,639
Analysed as: Expected to be settled within one year Expected to be settled after one year	6,151 686	4,957 682
Total accrued investment income and other debtors	6,837	5,639

Cash and cash equivalents	31 Dec 2018 £m	31 Dec 2017 £m
Cash	5,759	6,623
Cash equivalents	6,366	4,067
Total cash and cash equivalents	12,125	10,690
Analysed as:
Held centrally and available for general use by theGroup	349	328
Other funds not available for general use by theGroup, including funds held for the benefit of policyholders	11,776	10,362
Total cash and cash equivalents	12,125	10,690
TheGroup's cash and cash equivalents are held in the following currencies: poundssterling 32 per cent,US dollars 38 per cent, Euro 15 per cent and other currencies 15 per cent (2017: poundssterling 31 per cent,US dollars 28 per cent, Euro 24 per cent and other currencies 17 per cent).

(iii) Accruals, deferred income and other liabilities	31 Dec 2018 £m	31 Dec 2017 £m
Accruals and deferred income	1,700	1,233
Other creditors	7,074	7,289
Creditors arising from direct insurance and reinsurance operations	2,363	2,296
Interest payable	117	100
Funds withheld under reinsurance of the REALIC business	2,941	2,664
Other items	1,053	603
Total accruals, deferred income and other liabilities	15,248	14,185

(iv) Unallocated to a segment includes central operations, Prudential Capital and Africa operations as per note B1.3.

01

02

06

C2 Analysis of segment statement of financial position by business type

C2.1 Asia

		31 Dec 2018 £m							31 Dec 2017 £m
		Insurance
	Note	With profits business*	Unit linked assets and liabilities	Other business	Total	Asset manage ment	Elimin ations	Total	Total
Assets
Goodwill		–	–	251	251	247	–	498	305
Deferred acquisition costs and other
intangible assets		56	–	2,870	2,926	11	–	2,937	2,540
Property, plant and equipment		90	–	34	124	5	–	129	125
Reinsurers'share of insurance contract liabilities		63	–	2,714	2,777	–	–	2,777	1,960
Deferred tax assets		–	1	108	109	10	–	119	112
Current tax recoverable		–	2	23	25	1	–	26	58
Accrued investment income		254	51	327	632	32	–	664	595
Other debtors		1,676	730	535	2,941	77	(40)	2,978	2,675
Investment properties		–	–	5	5	–	–	5	5
Investment in joint ventures and associates accounted for using the
equity method		–	–	827	827	164	–	991	912
Loans	C3.3	792	–	585	1,377	–	–	1,377	1,317
Equity securities and portfolio holdings
in unit trusts		17,165	12,804	2,146	32,115	35	–	32,150	29,976
Debtsecurities	C3.2	27,204	3,981	14,583	45,768	71	–	45,839	40,982
Derivative assets		201	4	91	296	–	–	296	113
Deposits		250	455	458	1,163	61	–	1,224	1,291
Cash and cash equivalents		870	326	874	2,070	119	–	2,189	1,934
Total assets		48,621	18,354	26,431	93,406	833	(40)	94,199	84,900
Total equity		–	–	5,868	5,868	560	–	6,428	5,926
Liabilities
Insurance contract liabilities		40,389	15,876	16,084	72,349	–	–	72,349	63,468
Investment contract liabilities with
discretionary participation features	C4.1(b)	375	–	–	375	–	–	375	337
Investment contract liabilities without discretionary participation features	C4.1(b)	–	492	–	492	–	–	492	328
Unallocated surplus of with-profitsfunds		2,511	–	–	2,511	–	–	2,511	3,474
Operational borrowings attributable to
shareholder-financed businesses		–	50	11	61	–	–	61	50
Borrowings attributable to with-profits
businesses		19	–	–	19	–	–	19	10
Net asset value attributable to unit holders of consolidated unit trusts
and similar funds		1,242	1,024	351	2,617	–	–	2,617	3,631
Deferred tax liabilities		812	21	422	1,255	2	–	1,257	1,152
Current tax liabilities		27	–	93	120	13	–	133	122
Accruals, deferred income and other
liabilities		3,138	889	3,475	7,502	179	(40)	7,641	6,069
Provisions		57	–	115	172	79	–	251	254
Derivative liabilities		51	2	12	65	–	–	65	79
Total liabilities		48,621	18,354	20,563	87,538	273	(40)	87,771	78,974
Total equity and liabilities		48,621	18,354	26,431	93,406	833	(40)	94,199	84,900

* The statement of financial position for with-profits business comprisesthe with-profits assets and liabilities of theHong Kong, Malaysia and Singapore operations. Assets and liabilities of other participating business are included in the column for 'Other business'.

C2.2 US

		31 Dec 2018 £m
		Insurance
	Note	Variable annuity separate account assets and liabilities	Fixed annuity, GICs and other business	Total	Asset manage ment	Elimin ations	Total	Total
Assets
Goodwill		–	–	–	–	–	–	–
Deferred acquisition costs and other intangible
assets		–	8,747	8,747	–	–	8,747	8,219
Property, plant and equipment		–	243	243	3	–	246	214
Reinsurers'share of insurance contract liabilities		–	6,662	6,662	–	–	6,662	6,424
Deferred tax assets		–	2,271	2,271	24	–	2,295	2,300
Current tax recoverable		–	309	309	2	–	311	298
Accrued investment income		–	493	493	5	–	498	492
Other debtors		–	230	230	76	(68)	238	248
Investment properties		–	6	6	–	–	6	5
Loans	C3.3	–	11,066	11,066	–	–	11,066	9,630
Equity securities and portfolio holdingsin unit
trusts		128,220		433 128,653	4		– 128,657	130,630
Debtsecurities	C3.2	–	41,594	41,594	–	–	41,594	35,378
Derivative assets		–	574	574	–	–	574	1,611
Other investments		–	926	926	1	–	927	848
Deposits		–	–	–	92	–	92	43
Cash and cash equivalents		–	2,976	2,976	29	–	3,005	1,658
Total assets		128,220		76,530 204,750	236		(68) 204,918	197,998
Total equity		–	5,584	5,584	40	–	5,624	5,248
Liabilities
Insurance contract liabilities		128,220		54,212 182,432	–		– 182,432	177,728
Investment contract liabilities without discretionary
participation features	C4.1(c)	–	3,168	3,168	–	–	3,168	2,996
Core structural borrowings ofshareholder-financed
businesses		–	196	196	–	–	196	184
Operational borrowings attributable to
shareholder-financed businesses		–	328	328	–	–	328	508
Obligations under funding,securitieslending and
sale and repurchase agreements		–	5,765	5,765	–	–	5,765	4,304
Net asset value attributable to unit holders of
consolidated unit trusts and similar funds		–	–	–	–	–	–	–
Deferred tax liabilities		–	1,688	1,688	–	–	1,688	1,845
Current tax liabilities		–	114	114	1	–	115	47
Accruals, deferred income and other liabilities		–	5,197	5,197	195	(68)	5,324	5,109
Provisions		–	23	23	–	–	23	24
Derivative liabilities		–	255	255	–	–	255	5
Total liabilities		128,220		70,946 199,166	196		(68) 199,294	192,750
Total equity and liabilities		128,220		76,530 204,750	236		(68) 204,918	197,998

Governance

02

report

European

C2 Analysis of segment statement of financial position by business type continued

C2.3 UK and Europe

Insurance Other funds and subsidiaries Annuity Unit and With linked other Asset profits assets and long-term manage Elimin business* Note liabilities business Total ment ations Total Total Assets Goodwill 206 – – 206 1,153 – 1,359 1,177 Deferred acquisition costs and other intangible assets 83 – 94 177 18 – 195 210 Property, plant and equipment 895 – 39 934 97 – 1,031 447 Reinsurers'share of insurance contract liabilities 1,131 115 1,566 2,812 – – 2,812 2,521 Deferred tax assets 61 – 45 106 20 – 126 157 Current tax recoverable 58 6 174 238 6 – 244 244 Accrued investment income 1,010 116 378 1,504 7 – 1,511 1,558 Other debtors 2,102 575 641 3,318 1,011 (140) 4,189 3,118 Investment properties 15,635 618 1,661 17,914 – – 17,914 16,487 Investment in joint ventures and associates accounted for using the equity method 705 – – 705 37 – 742 504 Loans 3,853 – 1,714 5,567 – – 5,567 5,986 C3.3 Equity securities and portfolio holdings in unit trusts 41,090 12,477 20 53,587 223 – 53,810 62,670 Debtsecurities 53,798 10,512 21,646 85,956 – – 85,956 92,707 C3.2 Derivative assets 1,957 1 555 2,513 – – 2,513 2,954 Other investments 5,573 10 1 5,584 1 – 5,585 4,774 Deposits 8,530 1,101 689 10,320 – – 10,320 9,540 Assets held forsale 10 – 10,568 10,578 – – 10,578 38 Cash and cash equivalents 3,520 190 688 4,398 351 – 4,749 5,808 Total assets 140,217 25,721 40,479 206,417 2,924 (140) 209,201 210,900 Total equity – – 6,540 6,540 2,160 – 8,700 8,245 Liabilities Insurance contract liabilities 43,775 5,219 19,963 68,957 – – 68,957 88,180 C4.1(d) Investment contract liabilities with discretionary participation features 67,018 – 20 67,038 – – 67,038 62,340 C4.1(d) Investment contract liabilities without discretionary participation features 2 15,498 60 15,560 – – 15,560 17,069 C4.1(d) Unallocated surplus of with-profitsfunds 13,334 – – 13,334 – – 13,334 13,477 Operational borrowings attributable to shareholder-financed businesses – 4 102 106 – – 106 148 Borrowings attributable to with-profits businesses 3,921 – – 3,921 – – 3,921 3,706 Obligations under funding,securitieslending and sale and repurchase agreements 999 – 225 1,224 – – 1,224 1,358 Net asset value attributable to unit holders of consolidated unit trusts and similar funds 4,349 4,643 21 9,013 – – 9,013 5,243 Deferred tax liabilities 892 – 147 1,039 22 – 1,061 1,703 Current tax liabilities 29 – 269 298 28 – 326 377 Accruals deferred income and other liabilities 4,601 354 1,141 6,096 486 (140) 6,442 6,609 Provisions 32 – 484 516 227 – 743 784 Derivative liabilities 1,265 3 939 2,207 1 – 2,208 1,661 Liabilities held forsale – – 10,568 10,568 – – 10,568 – Total liabilities 140,217 25,721 33,939 199,877 764 (140) 200,501 202,655 Total equity and liabilities 140,217 25,721 40,479 206,417 2,924 (140) 209,201 210,900		31 Dec 2018 £m						31 Dec 2017 £m

* Includesthe Scottish Amicable Insurance Fund which, at 31 December 2018, had total assets and liabilities of £4,844 million (2017: £5,768 million). The PAC with-profitssub-fund (WPSF) mainly contains with-profits business but it also containssome non-profit business(unit-linked, term assurances and annuities). TheUK with-profitsfund includes £9.5 billion (2017: £10.6 billion) of non-profits annuitiesliabilities.

02

05

06

C3 Assets and liabilities

C3.1 Group assets and liabilities – measurement

(a) Determination of fair value

The fair values of the financial instrumentsfor which fair valuation isrequired under IFRS are determined by the use of current market bid pricesfor exchange-quoted investments or by using quotationsfrom independent third partiessuch as brokers and pricing services or by using appropriate valuation techniques.

The estimated fair value of derivative financial instrumentsreflectsthe estimated amount theGroup would receive or pay in an arm's-length transaction. This amount is determined using quoted pricesif exchange listed, quotationsfrom 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 loans and receivables have been shown net of provisionsfor impairment. The fair value of loans have been estimated from discounted cash flows expected to be received. The discount rate is updated for the market rate of interest where applicable.

The fair value of investment propertiesis based on market values as assessed by professionally qualified external valuers or by the Group's qualified surveyors.

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

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

(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 overleafshowsthe 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 inputsto the fair value measurement and reflectsthe lowest level input that is significant to that measurement.

C3 Assets and liabilities continued

C3.1 Group assets and liabilities – measurement continued

Financial instruments at fair value

	31 Dec 2018 £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
Analysis of financial investments, net of derivative liabilities by business type With-profits
Loans Equity securities and portfolio holdingsin unit trusts Debtsecurities Other investments(including derivative assets)	– 52,320 31,210 143	– 5,447 48,981 3,263	1,703 488 811 4,325	1,703 58,255 81,002 7,731
Derivative liabilities	(85)	(1,231)	–	(1,316)
Total financial investments, net of derivative liabilities Percentage of total	83,588 57%	56,460 38%	7,327 5%	147,375 100%
Unit-linked and variable annuity separate account Equity securities and portfolio holdingsin unit trusts Debtsecurities Other investments(including derivative assets) Derivative liabilities	152,987 4,766 6 (2)	505 9,727 3 (3)	9 – 6 –	153,501 14,493 15 (5)
Total financial investments, net of derivative liabilities Percentage of total	157,757 94%	10,232 6%	15 0%	168,004 100%
Non-linked shareholder-backed Loans Equity securities and portfolio holdingsin unit trusts Debtsecurities Other investments(including derivative assets) Derivative liabilities	– 2,957 17,687 61 (2)	– 2 61,803 1,258 (1,760)	3,050 18 371 941 (423)	3,050 2,977 79,861 2,260 (2,185)
Total financial investments, net of derivative liabilities Percentage of total	20,703 24%	61,303 71%	3,957 5%	85,963 100%
Group total analysis, including other financial liabilities held at fair value
Loans Equity securities and portfolio holdingsin unit trusts Debtsecurities Other investments(including derivative assets) Derivative liabilities	– 208,264 53,663 210 (89)	– 5,954 120,511 4,524 (2,994)	4,753 515 1,182 5,272 (423)	4,753 214,733 175,356 10,006 (3,506)
Total financial investments, net of derivative liabilities	262,048	127,995	11,299	401,342
Investment contract liabilities without discretionary participation features held at fair value Borrowings attributable to with-profits businesses Net asset value attributable to unit holders of consolidated unit trusts and similar funds Other financial liabilities held at fair value	– – (6,852) –	(16,054) – (3,811) (2)	– (1,606) (988) (3,404)	(16,054) (1,606) (11,651) (3,406)
Total financial instruments at fair value Percentage of total	255,196 70%	108,128 29%	5,301 1%	368,625 100%

	31 Dec 2017 £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
Analysis of financial investments, net of derivative liabilities by business type
With-profits Loans	–	–	2,023	2,023
Equity securities and portfolio holdingsin unit trusts	57,347	4,470	351	62,168
Debtsecurities	29,143	45,602	348	75,093
Other investments(including derivative assets)	68	3,638	3,540	7,246
Derivative liabilities	(68)	(615)	–	(683)
Total financial investments, net of derivative liabilities	86,490	53,095	6,262	145,847
Percentage of total	60%	36%	4%	100%
Unit-linked and variable annuity separate account
Equity securities and portfolio holdingsin unit trusts	158,631	457	10	159,098
Debtsecurities	4,993	5,226	–	10,219
Other investments(including derivative assets)	12	4	8	24
Derivative liabilities	–	(1)	–	(1)
Total financial investments, net of derivative liabilities	163,636	5,686	18	169,340
Percentage of total	97%	3%	0%	100%
Non-linked shareholder-backed
Loans	–	–	2,814	2,814
Equity securities and portfolio holdingsin unit trusts	2,105	10	10	2,125
Debtsecurities	21,443	64,313	306	86,062
Other investments(including derivative assets)	7	2,270	876	3,153
Derivative liabilities	–	(1,559)	(512)	(2,071)
Total financial investments, net of derivative liabilities	23,555	65,034	3,494	92,083
Percentage of total	25%	71%	4%	100%
Group total analysis, including other financial liabilities held at fair value
Loans	–	–	4,837	4,837
Equity securities and portfolio holdingsin unit trusts	218,083	4,937	371	223,391
Debtsecurities	55,579	115,141	654	171,374
Other investments(including derivative assets)	87	5,912	4,424	10,423
Derivative liabilities	(68)	(2,175)	(512)	(2,755)
Total financial investments, net of derivative liabilities Investment contract liabilities without discretionary participation features	273,681	123,815	9,774	407,270
held at fair value	–	(17,397)	–	(17,397)
Borrowings attributable to with-profits businesses Net asset value attributable to unit holders of consolidated unit trusts	–	–	(1,887)	(1,887)
and similar funds	(4,836)	(3,640)	(413)	(8,889)
Other financial liabilities held at fair value	–	–	(3,031)	(3,031)

All assets and liabilities held at fair value are classified asfair value through profit or loss, except for £40,849 million (31 December 2017: £35,293 million) of debtsecurities classified as available-for-sale.

Total financial instruments at fair value 268,845 102,778 4,443 376,066 Percentage of total 72% 27% 1% 100%

02 Strategic

06

C3 Assets and liabilities continued

C3.1 Group assets and liabilities – measurement continued

Investment properties at fair value

31 Dec £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
–	–	17,925	17,925
–	–	16,497	16,497

Assets and liabilities at amortised cost and their fair value

The table below showsthe assets and liabilities carried at amortised cost on the statement of financial position and their fair value. The assets and liabilitiesthat are carried at amortised cost but where the carrying value approximatesthe fair value, are excluded from the analysis below.

	31 Dec 2018 £m
	Level 1	Level 2	Level 3	Total fair value	Total carrying value
	Quoted prices (unadjusted) in active markets	Valuation based on significant observable market inputs	Valuation based on significant unobservable market inputs
Assets
Loans note (i)	–	2,898	10,768	13,666	13,257
Liabilities
Investment contract liabilities without discretionary participation features	–	–	(3,157)	(3,157)	(3,168)
Core structural borrowings ofshareholder-financed businesses note (ii)	–	(7,847)	–	(7,847)	(7,664)
Operational borrowings attributable to shareholder-financed businesses	–	(994)	(4)	(998)	(998)
Borrowings attributable to the with-profitsfunds Obligations under funding,securitieslending and sale and	–	(2,035)	(68)	(2,103)	(2,334)
repurchase agreements	–	(1,258)	(5,750)	(7,008)	(6,989)

	31 Dec 2017 £m
	Level 1	Level 2	Level 3	Total fair value	Total carrying value
	Quoted prices (unadjusted) in active markets	Valuation based on significant observable market inputs	Valuation based on significant unobservable market inputs
Assets
Loans note (i)	–	2,756	10,183	12,939	12,205
Liabilities
Investment contract liabilities without discretionary participation features	–	–	(3,032)	(3,032)	(2,997)
Core structural borrowings ofshareholder-financed businesses note (ii)	–	(7,023)	–	(7,023)	(6,280)
Operational borrowings attributable to shareholder-financed businesses	–	(1,788)	(3)	(1,791)	(1,791)
Borrowings attributable to the with-profitsfunds Obligations under funding,securitieslending and sale and	–	(1,761)	(71)	(1,832)	(1,829)
repurchase agreements	–	(1,410)	(4,318)	(5,728)	(5,662)

Notes

(i) The carrying value of loans and receivables are reported net of allowance for loan losses of £46 million (31 December 2017: £28 million).

(ii) As at 31 December 2018, £376 million (31 December 2017: £312 million) of convertible bonds were included in debtsecurities and £981 million (31 December 2017: £1,311 million) were included in borrowings.

The fair value of the assets and liabilitiesin the table above, with the exception of the subordinated and senior debt issued by the parent company, has been estimated from the discounted cash flows expected to be received or paid. Where appropriate, the observable market interest rate has been used and the assets and liabilities are classified within level 2. Otherwise, they are included aslevel 3 assets or liabilities.

The fair value included for the subordinated and senior debt issued by the parent company is determined using quoted pricesfrom independent third parties.

(c) Valuation approach for level 2 fair valued assets and liabilities

A significant proportion of theGroup'slevel 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.

When prices are not available from pricing services, quotes are sourced directly from brokers. Prudentialseeksto obtain a number of quotesfrom different brokersso asto obtain the most comprehensive information available on their executability. Where quotes are sourced directly from brokers, the price used in the valuation is normally selected from one of the quotes based on a number of factors, including the timeliness and regularity of the quotes and the accuracy of the quotes considering the spreads provided. The selected quote isthe one which best represents an executable quote for the security at the measurement date.

Generally, no adjustment is made to the prices obtained from independent third parties. Adjustment is made in only limited circumstances, where it is determined that the third-party valuations obtained do not reflect fair value (eg either because the value is stale and/or the values are extremely diverse in range). These are usually securities which are distressed or that could be subject to a debt restructure or where reliable market prices are no longer available due to an inactive market or market dislocation. In these instances, prices are derived using internal valuation techniquesincluding those as described below in this note with the objective of arriving at a fair value measurement that reflectsthe price at which an orderly transaction would take place between market participants on the measurement date. The techniques used require a number of assumptionsrelating to variablessuch as credit risk and interest rates. Examples ofsuch variablesinclude an average creditspread based on the corporate bond universe and the relevant duration of the asset being valued. Prudential determinesthe input assumptions based on the best available information at the measurement dates. Securities valued in such manner are classified aslevel 3 where these significant inputs are not based on observable market data.

Of the total level 2 debtsecurities of £120,511 million at 31 December 2018 (31 December 2017: £115,141 million), £15,425 million are valued internally (31 December 2017: £13,910 million). The majority ofsuch securities are valued using matrix pricing, which is based on assessing the credit quality of the underlying borrower to derive a suitable discount rate relative to governmentsecurities of a comparable duration.Under matrix pricing, the debtsecurities are priced taking the creditspreads on comparable quoted public debtsecurities and applying these to the equivalent debt instrumentsfactoring in a specified liquidity premium. The majority of the parameters used in this valuation technique are readily observable in the market and, therefore, are notsubject to interpretation.

04

06 European Embedded Value

information

C3 Assets and liabilities continued

C3.1 Group assets and liabilities – measurement continued

(d) 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 reconcilesthe value of level 3 fair valued assets and liabilities at 1 January 2018 to that presented at 31 December 2018.

Financial instruments at fair value

					£m
2018	At 1 Jan	Total net gains (losses) in income statement*	Total gains (losses) recorded as other compre hensive income	Purchases	Sales	Settled	Issued	Transfers into level 3	Transfers out of level 3	At 31 Dec
Loans	4,837	(78)	162	62	(178)	(331)	279	–	–	4,753
Equity securities and portfolio holdingsin unit trusts Debtsecurities Other investments(including derivative assets) Derivative liabilities	371 654 4,424 (512)	38 (7) 405 27	8 – 54 (1)	125 666 1,202 –	(35) (131) (813) –	– – – –	– – – –	8 – – –	– – – 63	515 1,182 5,272 (423)
Total financial investments, net of derivative liabilities Borrowings attributable to	9,774	385	223	2,055	(1,157)	(331)	279	8	63	11,299
with-profits businesses Net asset value attributable to unit holders of consolidated unit trusts and similar funds Other financial liabilities	(1,887) (413) (3,031)	(23) 67 5	– 31 (170)	– – –	– – –	304 57 273	– (697) (481)	– – –	– (33) –	(1,606) (988) (3,404)
Total financial instruments at fair value	4,443	434	84	2,055	(1,157)	303	(899)	8	30	5,301
2017
Loans Equity securities and portfolio	2,699	17	(235)	2,129	–	(311)	236	302	–	4,837
holdingsin unit trusts Debtsecurities Other investments(including	722 942	11 51	(5) (11)	186 216	(468) (522)	(6) –	– –	1 –	(70) (22)	371 654
derivative assets) Derivative liabilities	4,480 (516)	73 4	(133) –	727 –	(725) –	– –	– –	2 –	– –	4,424 (512)
Total financial investments, net of derivative liabilities Borrowings attributable to	8,327	156	(384)	3,258	(1,715)	(317)	236	305	(92)	9,774
with-profits businesses Net asset value attributable to unit holders of consolidated	–	(13)	–	–	–	115	(1,989)	–	–	(1,887)
unit trusts and similar funds	(883)	(559)	–	(13)	–	1,276	(234)	–	–	(413)
Other financial liabilities	(2,851)	14	250	–	–	252	(311)	(385)	–	(3,031)
Total financial instruments at fair value	4,593	(402)	(134)	3,245	(1,715)	1,326	(2,298)	(80)	(92)	4,443

* Of the total net gains and (losses) in the income statement of £434 million (2017: £(402) million), £398 million (2017: £(139) million) relatesto net unrealised gains and losses of financial instrumentsstill held at the end of the year, which can be analysed asfollows:

	2018 £m	2017 £m
Loans	(71)	20
Equity securities	38	(12)
Debtsecurities	(16)	(5)
Other investments	370	(22)
Derivative liabilities	27	4
Borrowings attributable to with-profits businesses	(23)	(13)
Net asset value attributable to unit holders of consolidated unit trusts and similar funds	67	(123)
Other financial liabilities	6	12
Total	398	(139)

Other assets at fair value – investment properties

	£m
	At 1 Jan	Total gains in income statement*	Total (losses) in other comprehensive income	Purchases	Sales	Transfers into level 3	Transfers out of level 3	At 31 Dec
2018	16,497	97	–	1,509	(178)	–	–	17,925
2017	14,646	415	(21)	2,048	(591)	–	–	16,497

* Of the total net gainsin the income statement of £97 million (2017: £415 million), £149 million (2017: £394 million) relatesto net unrealised gains of investment propertiesstill held at the end of the year.

Valuation approach for level 3 fair valued assets and liabilities Financial instruments at fair value

Investments valued using valuation techniquesinclude financial investments which by their nature do not have an externally quoted price based on regular trades, and financial investmentsfor 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 instrumentsthat are substantially the same, discounted cash flow analysis, option adjusted spread models and, if applicable, enterprise valuation. These techniques may include a number of assumptionsrelating to variablessuch as credit risk and interest rates. Changesin assumptions relating to these variables could positively or negatively impact the reported fair value of these instruments. When determining the inputsinto the valuation techniques used priority is given to publicly available pricesfrom independentsources when available, but overall the source of pricing is chosen with the objective of arriving at a fair value measurement that reflectsthe price at which an orderly transaction would take place between market participants on the measurement date.

The fair value estimates are made at a specific point in time, based upon available market information and judgements about the financial instruments, including estimates of the timing and amount of expected future cash flows and the creditstanding of counterparties. Such estimates do not reflect any premium or discount that could result from offering forsale at one time a significant volume of a particular financial instrument, nor do they consider the tax impact of the realisation of unrealised gains or lossesfrom selling the financial instrument being fair valued.

In accordance with theGroup'srisk management framework, the estimated fair value of derivative financial instruments valued internally using standard market practices are subject to assessment against external counterparties' valuations.

At 31 December 2018, theGroup held £5,301 million (31 December 2017: £4,443 million) of net financial instruments at fair value within level 3. Thisrepresents 1 per cent (31 December 2017: 1 per cent) of the total fair valued financial assets net of fair valued financial liabilities. The principal financial assets, net of corresponding liabilities, classified asfair value within level 3 as of 31 December 2018 are described below:

• (i) £1,702 million of loans(31 December 2017: £1,983 million) and a corresponding £1,606 million (31 December 2017: £1,887 million) of borrowings are held by a subsidiary of theGroup'sUK with-profitsfund, attaching to a portfolio of buy-to-let mortgages and other loans financed largely by external third-party (non-recourse) borrowings. See note C3.3(c) for further details. TheGroup's exposure islimited to the investment held by theUK with-profitsfund, rather than to the individual loans and borrowingsthemselves. The fair value movements of these loans and borrowings have no effect on shareholders' profit and equity. The mostsignificant non-observable inputsto the mortgage fair value are the level of future defaults and prepayments by the mortgage holders.
• (ii)Loans of £2,783 million at 31 December 2018 (31 December 2017: £2,512 million), measured asthe loan outstanding balance, plus accrued investment income, attached to acquired REALIC business and held to back the liabilitiesfor funds withheld under reinsurance arrangements. The funds withheld liability of £2,941 million at 31 December 2018 (31 December 2017: £2,664 million) is also classified within level 3, accounted for on a fair value basis being equivalent to the carrying value of the underlying assets.
• (iii)Excluding the above, the level 3 fair valued financial assets net of financial liabilities are £5,363 million (31 December 2017: £4,499 million). Of this amount, a net liability of £(298) million (31 December 2017: net liability of £(117) million) isinternally valued, representing lessthan 0.1 per cent of the total fair valued financial assets net of financial liabilities(31 December 2017: lessthan 0.1 per cent). Internal valuations are inherently more subjective than external valuations. Included within these internally valued net asset/liability are:
  • (a)Debtsecurities of £582 million (31 December 2017: £500 million), which are either valued on a discounted cash flow method with an internally developed discount rate or on external prices adjusted to reflect the specific known conditionsrelating to these securities(eg distressed securities orsecurities which were being restructured).
  • (b)Private equity and venture investmentsin both debt and equity securities of £512 million (31 December 2017: £217 million) which are valued internally using discounted cash flows based on management information available for these investments. The significant unobservable inputsinclude the determination of expected future cash flows on the investments being valued, determination of the probability of counterparty default and prepayments and the selection of appropriate discount rates. The valuation is performed in accordance with International Private Equity and Venture Capital Association Valuation guidelines. These investments are principally held by consolidated investment fundsthat are managed on behalf of third parties.

06 European Embedded

information

C3 Assets and liabilities continued

C3.1 Group assets and liabilities – measurement continued

• (d) Fair value measurements for level 3 fair valued assets and liabilities continued
  • (c)Equity release mortgage loan investments of £268 million and a corresponding loan liability backed by these investments of £(354) million (31 December 2017: £302 million loan investments and a corresponding liability of £(385) million) which are valued internally using the discounted cash flow models. The inputsthat are significant to the valuation of these investments are primarily the economic assumptions, being the discount rate (risk-free rate plus a liquidity premium) and property values.
  • (d) Liabilities of £(898) million (31 December 2017: £(403) million) forthe net asset value attributable to external unit holdersin respect of the consolidated investment funds, which are non-recourse to theGroup. These liabilities are valued by reference to the underlying assets.
  • (e)Derivative liabilities of £(423) million (31 December 2017: £(512) million) which are valued internally using the discounted cash flow method in line with standard market practices but are subject to independent assessment against external counterparties' valuations.
  • (f) Othersundry individual financial investments of £15 million (31 December 2017: £164 million).

Of the internally valued net liability referred to above of £(298) million (31 December 2017: net liability of £(117) million):

• A net liability of £(53) million (31 December 2017: net asset £67 million) is held by theGroup's participating funds and therefore shareholders' profit and equity are not impacted by movementsin the valuation of these financial instruments; and
• A net liability of £(245) million (31 December 2017: £(184) million) is held to support non-linked shareholder-backed business. If the value of all the level 3 instruments held to support non-linked shareholder-backed business valued internally decreased by 10 per cent, the change in valuation would be £24 million (31 December 2017: £18 million), which would reduce shareholders' equity by this amount before tax. All this amount passesthrough the income statementsubstantially as part ofshort-term fluctuationsin investment returns outside of adjusted IFRS operating profit based on longer-term investment returns.

Other assets at fair value – investment properties

The investment properties of theGroup are principally held by theUK and Europe insurance operationsthat are externally valued by professionally qualified external valuers using the Royal Institution of Chartered Surveyors(RICS) valuation standards. An 'income capitalisation' technique is predominantly applied for these properties. Thistechnique calculatesthe value through the yield and rental value depending on factorssuch asthe lease length, building quality, covenant and location. The variables used are compared to recent transactions with similar featuresto those of theGroup'sinvestment properties. Asthe comparisons are not with propertiesthat are virtually identical to theGroup'sinvestment properties, adjustments are made by the valuers where appropriate to the variables used. Changesin assumptionsrelating to these variables could positively or negatively impact the reported fair value of the properties.

(e) Transfers into and transfers out of levels

TheGroup's policy isto recognise transfersinto 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 circumstancesthat 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 the year, the transfers between levels within theGroup's portfolio were primarily transfersfrom level 1 to level 2 of £908 million and transfersfrom level 2 to level 1 of £976 million. These transfers which relate to equity securities and debtsecurities 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.

In addition, the transfersinto level 3 during the year were £8 million and the transfers out of level 3 were £30 million. These transfers were primarily between levels 3 and 2 for derivative liabilities.

(f) Valuation processes applied by the Group

TheGroup's valuation policies, procedures and analysesfor instruments categorised aslevel 3 are overseen by business unit committees as part of theGroup's wider financial reporting governance processes. The procedures undertaken include approval of valuation methodologies, verification processes, and resolution ofsignificant or complex valuation issues. In undertaking these activitiestheGroup makes use of the extensive expertise of its asset management functions. In addition, theGroup has minimum standardsfor independent price verification to ensure valuation accuracy isregularly independently verified. Adherence to this policy is monitored acrossthe business units.

02 Strategic report

06

05

C3.2 Debt securities

This note provides analysis of theGroup's debtsecurities, including asset-backed securities and sovereign debtsecurities. With the exception of certain debtsecuritiesforUS insurance operations classified as'available-for-sale' under IAS 39 as disclosed in notes C3.2 (b) to (d) below, theGroup's debtsecurities are carried at fair value through profit or loss.

(a) Credit rating

Debtsecurities are analysed below according to external credit ratingsissued, with equivalent ratingsissued by different ratings agencies grouped together. Standard & Poor'sratings have been used where available, if thisisn't the case Moody's and then Fitch have been used as alternatives. For theUS,NAIC ratings have also been used where relevant. In the table below, AAA isthe 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-. Debtsecurities with no external credit rating are classified as'Other'.

	31 Dec 2018 £m
	AAA	AA+ to AA-	A+ to A	BBB+ to BBB-	Below BBB-	Other	Total
Asia
With-profits	2,873	12,379	4,142	3,760	1,747	2,303	27,204
Unit-linked	817	100	492	1,431	426	715	3,981
Non-linked shareholder
backed	1,034	3,552	3,717	2,934	2,202	1,144	14,583
Asset management	11	–	60	–	–	–	71
US
Non-linked shareholder
backed	678	7,383	10,286	14,657	1,429	7,161	41,594
UK and Europe
With-profits	6,890	9,332	11,779	14,712	2,891	8,194	53,798
Unit-linked	1,041	2,459	2,215	3,501	395	901	10,512
Non-linked shareholder
backed	3,007	6,413	4,651	1,515	158	5,902	21,646
Other operations	619	1,089	151	41	49	18	1,967
Total debtsecurities	16,970	42,707	37,493	42,551	9,297	26,338	175,356

	31 Dec 2017 £m
	AAA	AA+ to AA-	A+ to A	BBB+ to BBB-	Below BBB-	Other	Total
Asia
With-profits	2,504	10,641	3,846	3,234	1,810	2,397	24,432
Unit-linked	528	103	510	1,429	372	565	3,507
Non-linked shareholder
backed	990	2,925	3,226	2,970	1,879	1,053	13,043
US
Non-linked shareholder
backed	368	6,352	9,578	12,311	1,000	5,769	35,378
UK and Europe
With-profits	6,492	9,378	11,666	12,856	2,877	7,392	50,661
Unit-linked	670	2,732	1,308	1,793	91	117	6,711
Non-linked shareholder
backed	5,118	11,005	9,625	3,267	258	6,062	35,335
Other operations	742	1,264	182	67	36	16	2,307
Total debtsecurities	17,412	44,400	39,941	37,927	8,323	23,371	171,374

The credit ratings, information or data contained in thisreport which are attributed and specifically provided by Standard & Poor's, Moody's and Fitch Solutions and their respective affiliates and suppliers('Content Providers') isreferred to here asthe '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 ofsuch 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 orsecurity, 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 orsecurity, nor doesit addressthe suitability of an investment orsecurity and should not be relied on asinvestment advice.

C3 Assets and liabilities continued

C3.2 Debt securities continued

Securities with credit ratings classified as'Other' can be further analysed asfollows:

	31 Dec 2018 £m	31 Dec 2017 £m
Asia – non-linked shareholder-backed
Internally rated:
Government bonds	36	25
Corporate bonds – rated asinvestment grade by local external ratings agencies	978	959
Other	130	69
Total Asia non-linked shareholder-backed	1,144	1,053

	31 Dec 2018 £m			31 Dec 2017 £m
	Mortgage -backed securities	Other securities	Total	Total
US
Implicit ratings of otherUS debtsecurities based onNAIC* valuations (see below)
NAIC 1	2,148	2,858	5,006	3,918
NAIC 2	2	2,116	2,118	1,794
NAIC 3-6	2	35	37	57
TotalUS†	2,152	5,009	7,161	5,769

* The Securities Valuation Office of theNAIC classifies debtsecuritiesinto six quality categoriesranging from Class 1 (the highest) to Class 6 (the lowest). Performing securities are designated as Classes 1 to 5 and securitiesin or near default are designated Class 6.

† Mortgage-backed securitiestotalling £1,947 million at 31 December 2018 have credit ratingsissued by Standard & Poor's of BBB- or above and hence are designated asinvestment grade. Othersecuritiestotalling £4,974 million at 31 December 2018 withNAIC ratings 1 or 2 are also designated asinvestment grade.

	31 Dec 2018 £m	31 Dec 2017 £m
UK and Europe
Government
AAA to A-	8,150	7,994
BBB to B-	3,034	3,141
Below B- or unrated	3,813	2,436
TotalUK and Europe	14,997	13,571

(b) Additional analysis of US insurance operations debt securities

	31 Dec 2018 £m	31 Dec 2017 £m
Corporate and governmentsecurity and commercial loans:
Government	5,465	4,835
Publicly traded and SEC Rule 144A securities*	26,196	22,849
Non-SEC Rule 144A securities	6,329	4,468
Asset-backed securities(see note (e))	3,604	3,226
TotalUS debtsecurities†	41,594	35,378

*A 1990 SEC rule that facilitatesthe 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.

† DebtsecuritiesforUS operationsincluded in the statement of financial position comprise:	31 Dec 2018 £m	31 Dec 2017 £m
Available-for-sale	40,849	35,293
Fair value through profit or loss	745	85
TotalUS debtsecurities	41,594	35,378

Realised gains and losses, including impairments, recorded in the income statement are asshown in note B1.2 of thisreport.

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

The movement in the statement of financial position value for debtsecurities classified as available-for-sale wasfrom a net unrealised gain of £1,205 million to a net unrealised loss of £414 million as analysed in the table below.

		Reflected as part of movement in other comprehensive income
	2018	Foreign exchange translation	Changes in unrealised appreciation†	2017
	£m	£m	£m	£m
Assetsfair valued at below book value
Book value*	25,330			6,325
Unrealised gain (loss)	(925)	(43)	(776)	(106)
Fair value (asincluded in statement of financial position)	24,405			6,219
Assetsfair valued at or above book value
Book value*	15,933			27,763
Unrealised gain (loss)	511	41	(841)	1,311
Fair value (asincluded in statement of financial position)	16,444			29,074
Total
Book value*	41,263			34,088
Net unrealised gain (loss)	(414)	(2)	(1,617)	1,205
Fair value (asincluded in the footnote above in the overview table and the
statement of financial position)	40,849			35,293

* Book value represents cost/amortised cost of the debtsecurities.

† Translated at the average rate ofUS\$1.3352:£1.00.

(d) US debt securities classified as available-for-sale in an unrealised loss position

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

The fair value of the debtsecuritiesin a gross unrealised loss position for various percentages of book value:

		31 Dec 2018 £m		31 Dec 2017 £m
	Fair value	Unrealised loss	Fair value	Unrealised loss
Between 90% and 100%	23,662	(809)	6,170	(95)
Between 80%and 90%	707	(104)	36	(6)
Below 80%:
Other asset-backed securities	–	–	10	(4)
Corporate bonds	36	(12)	3	(1)
	36	(12)	13	(5)
Total	24,405	(925)	6,219	(106)

(ii) Unrealised losses by maturity of security

	31 Dec 2018 £m	31 Dec 2017 £m
1 year to 5 years	(72)	(7)
5 yearsto 10 years	(436)	(41)
More than 10 years	(372)	(39)
Mortgage-backed and other debtsecurities	(45)	(19)
Total	(925)	(106)

06

C3 Assets and liabilities continued

C3.2 Debt securities continued

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

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

	31 Dec 2018 £m			31 Dec 2017 £m
	Non investment grade	Investment grade	Total	Non investment grade	Investment grade	Total
Lessthan 6 months	(20)	(141)	(161)	(4)	(31)	(35)
6 monthsto 1 year	(22)	(440)	(462)	(1)	(4)	(5)
1 year to 2 years	(10)	(142)	(152)	–	(49)	(49)
2 yearsto 3 years	–	(123)	(123)	(1)	(6)	(7)
More than 3 years	(2)	(25)	(27)	–	(10)	(10)
Total	(54)	(871)	(925)	(6)	(100)	(106)

The age analysis as at 31 December, of the securities whose fair values were below 80 per cent of the book value:

	31 Dec 2018 £m	31 Dec 2017 £m
Age analysis	Fair value	Unrealised loss	Fair value	Unrealised loss
Lessthan 3 months	32	(10)	2	–
3 monthsto 6 months	2	(1)	1	(1)
More than 6 months	2	(1)	10	(4)
Total	36	(12)	13	(5)

(e) Asset-backed securities

TheGroup's holdingsin Asset-Backed Securities(ABS), which comprise Residential Mortgage-Backed Securities(RMBS), Commercial Mortgage-Backed Securities(CMBS), Collateralised Debt Obligations(CDO) funds and other asset-backed securities are asfollows:

	31 Dec 2018 £m	31 Dec 2017 £m
Shareholder-backed business
Asia operations note (i)	121	118
US operations note (ii)	3,604	3,226
UK and Europe operations(2018: 42% AAA, 13%AA) note (iii)	1,406	1,070
Other operations note (iv)	445	589
	5,576	5,003
With-profits business
Asia operations note (i)	235	233
UK and Europe operations(2018: 66%AAA, 12% AA) note (iii)	5,270	5,658
	5,505	5,891
Total	11,081	10,894

Notes

(i) Asia operations

The Asia operations' exposure to asset-backed securitiesis primarily held by the with-profits businesses. Of the £235 million (31 December 2017: £233 million), 99.8 per cent (2017: 98.2 per cent) are investment grade.

(ii)	US operations US operations' exposure to asset-backed securities at 31 December comprises:	31 Dec 2018 £m	31 Dec 2017 £m
	RMBS
	Sub-prime (2018: 1%AAA, 6%AA, 2%A)	96	112
	Alt-A (2018: 3%AAA, 42%A)	105	126
	Prime including agency (2018: 14%AAA, 62%AA, 10%A)	441	440
	CMBS (2018: 80%AAA, 15% AA, 2%A)	1,945	1,579
	CDO funds(2018: 13%AA, 24%A), including £nil exposure to sub-prime	13	28
	Other ABS (2018: 20%AAA, 14%AA, 49%A), including £77 million exposure to sub-prime	1,004	941
	Total	3,604	3,226

(iii) UK and Europe operations

The majority of holdings of the shareholder-backed business areUK securities and relate to PAC's annuity business. Of the holdings of the with-profits businesses, £1,823 million (31 December 2017: £1,913 million) relatesto exposure to theUS markets with the remaining exposure being primarily to theUK market. (iv) Other operations

Other operations' exposure to asset-backed securitiesis held by Prudential Capital with no sub-prime exposure. Of the £445 million, 99 per cent (31 December 2017: 96 per cent) are graded AAA.

(f) Group sovereign debt and bank debt exposure

TheGroup exposures held by the shareholder-backed business and with-profitsfundsin sovereign debts and bank debtsecurities are analysed asfollows:

Exposure to sovereign debts

	31 Dec 2018 £m		31 Dec 2017 £m
	Shareholder backed business	With-profits funds	Shareholder backed business	With-profits funds
Italy	–	57	58	63
Spain	36	18	34	18
France	–	50	23	38
Germany*	239	281	693	301
Other Eurozone	103	34	82	31
Total Eurozone	378	440	890	451
United Kingdom	3,226	3,013	5,918	3,287
United States†	5,647	11,858	5,078	10,156
Other, including Asia	5,142	2,745	4,638	2,143
Total	14,393	18,056	16,524	16,037

* Including bonds guaranteed by the federal government.

† The exposure to theUnited Statessovereign debt comprises holdings of theUS, theUK and Europe and Asia insurance operations.

06

C3 Assets and liabilities continued

C3.2 Debt securities continued

Exposure to bank debt securities

	31 Dec 2018 £m							31 Dec 2017 £m
		Senior debt			Subordinated debt
Shareholder-backed business	Covered	Senior	Total	Tier 1	Tier 2	Total	Total	Total
Spain	42	64	106	–	–	–	106	68
France	20	119	139	14	3	17	156	86
Germany	30	–	30	6	89	95	125	117
Netherlands	–	69	69	3	1	4	73	71
Other Eurozone	15	2	17	–	–	–	17	15
Total Eurozone	107	254	361	23	93	116	477	357
United Kingdom	550	623	1,173	9	164	173	1,346	1,382
United States	–	2,614	2,614	1	52	53	2,667	2,619
Other, including Asia	–	759	759	109	369	478	1,237	1,163
Total	657	4,250	4,907	142	678	820	5,727	5,521
With-profits funds
Italy	–	38	38	–	–	–	38	31
Spain	–	17	17	–	–	–	17	16
France	6	250	256	1	95	96	352	286
Germany	140	46	186	14	29	43	229	180
Netherlands	–	253	253	12	1	13	266	199
Other Eurozone	–	74	74	–	–	–	74	27
Total Eurozone	146	678	824	27	125	152	976	739
United Kingdom	909	850	1,759	2	433	435	2,194	1,938
United States	–	2,418	2,418	1	311	312	2,730	2,518
Other, including Asia	575	1,459	2,034	339	452	791	2,825	2,531
Total	1,630	5,405	7,035	369	1,321	1,690	8,725	7,726

The tables above exclude assets held to cover linked liabilities and those of the consolidated unit trusts and similar funds. In addition, the tables above exclude the proportionate share ofsovereign debt holdings of theGroup'sjoint venture operations.

(g) Impairment of US available-for-sale debt securities and other financial assets

In accordance with theGroup's accounting policy set out in note A3.1, impairment reviews were performed for available-for-sale securities and loans and receivables.

During the year ended 31 December 2018, a credit for recoveries net of impairment of £13 million (2017: credit of £1 million) was recognised. Thisincludes £15 million (2017: £8 million) for available-for-sale securities held by Jackson, offset by a charge of £2 million (2017: £7 million) for loans and receivables held acrosstheGroup.

Jackson, with the support of internal credit analysts, regularly monitors and reports on the credit quality of its holdings of debt securities. In addition, there is a periodic review of itsinvestments on a case-by-case basisto determine whether any decline in fair value represents an impairment. Investmentsin structured securities are subject to a review of their future estimated cash flows, including expected and stress case scenarios, to identify potentialshortfallsin contractual payments(both interest and principal). Impairment charges are recorded on structured securities when the Company forecasts a contractual paymentshortfall. Situations where such a shortfall would not lead to a recognition of a loss are rare. The impairment lossreflectsthe difference between the fair value and book value.

In 2018, theGroup realised grosslosses on sales of available-for-sale securities of £43 million (2017: £155 million) with 49 per cent (2017: 97 per cent) of these lossesrelated to the disposal of fixed maturity securities of the top 10 individual issuers, which were disposed of to limit future credit loss exposure. Of the £43 million (2017: £155 million), £4 million (2017: £3 million) relatesto losses on sales of impaired and deteriorating securities.

06

The effect of changesin the key assumptionsthat underpin the assessment of whether impairment hastaken place depends on the factors described in note A3.1. A key indicator of whethersuch impairment may arise in future, and the potential amounts at risk, isthe profile of gross unrealised lossesfor fixed maturity securities accounted for on an available-for-sale basis by reference to the time periods by which the securities have been held continuously in an unrealised loss position and by reference to the maturity date of the securities concerned.

For 2018, the amount of gross unrealised lossesfor fixed maturity securities classified as available-for-sale under IFRS in an unrealised loss position was £925 million (2017: £106 million).Note B1.2 providesfurther details on the impairment charges and unrealised losses of Jackson's available-for-sale securities.

C3.3 Loans portfolio

(a) Overview of loans portfolio

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

• Certain mortgage loans which have been designated at fair value through profit or loss of theUK and Europe insurance operations as thisloan portfolio is managed and evaluated on a fair value basis; and
• Certain policy loans of theUS insurance operationsthat are held to back liabilitiesfor funds withheld under reinsurance arrangements and are also accounted on a fair value basis.

The amountsincluded in the statement of financial position are analysed asfollows:

		31 Dec 2018 £m			31 Dec 2017 £m
	Mortgage loans*	Policy loans†	Other loans‡	Total	Mortgage loans*	Policy loans†	Other loans‡	Total
Asia
With-profits	–	727	65	792	–	613	112	725
Non-linked shareholder-backed	156	226	203	585	177	216	199	592
US
Non-linked shareholder-backed	7,385	3,681	–	11,066	6,236	3,394	–	9,630
UK and Europe
With-profits	2,461	3	1,389	3,853	2,441	4	1,823	4,268
Non-linked shareholder-backed	1,655	–	59	1,714	1,681	–	37	1,718
Other operations	–	–	–	–	–	–	109	109
Total loanssecurities	11,657	4,637	1,716	18,010	10,535	4,227	2,280	17,042

*All mortgage loans are secured by properties.

† In theUS £2,783 million (31 December 2017: £2,512 million) policy loans are backing liabilitiesfor funds withheld under reinsurance arrangements and are accounted for at fair value through profit or loss. All other policy loans are accounted for at amortised cost, less any impairment.

‡ Other loans held inUK with-profitsfunds are commercial loans and comprise mainly syndicated loans.

(b) Additional information on US mortgage loans

In theUS, mortgage loans are all commercial mortgage loansthat are secured by the following property types: industrial, multi-family residential,suburban office, retail or hotel. The average loan size is £14.0 million (2017: £12.6 million). The portfolio has a current estimated average loan to value of 53 per cent (2017: 55 per cent).

Jackson had no mortgage loans where the contractual terms of the agreements had been restructured at the end of both 2018 and 2017.

(c) Additional information on UK mortgage loans

TheUK with-profitsfund investsin an entity that holds a portfolio of buy-to-let mortgage loans. The vehicle financed its acquisitions through the issue of debt instruments, largely to external parties,securitised upon the loans acquired. These third-party borrowings have no recourse to any other assets of theGroup and theGroup's exposure islimited to the amount invested by theUK with-profitsfund.

By carrying value, £1,237 million of the £1,655 million (31 December 2017: £1,267 million of £1,681 million) mortgage loans held by theUK shareholder-backed businessrelatesto lifetime (equity release) mortgage business which has an average loan to property value of 33 per cent (31 December 2017: 31 per cent).

C3 Assets and liabilities continued

C3.4 Financial instruments – additional information

C3.4(a) Financial risk

(i) Liquidity analysis

Contractual maturities of financial liabilities on an undiscounted cash flow basis

The following table sets out the contractual maturitiesfor applicable classes of financial liabilities, excluding derivative liabilities and investment contractsthat are separately presented. The financial liabilities are included in the column relating to the contractual maturities at the undiscounted cash flows(including contractual interest payments) due to be paid assuming conditions are consistent with those of year end.

	31 Dec 2018 £m
	Total carrying value	1 year or less	After 1 year to 5 years	After 5 years to 10 years	After 10 years to 15 years	After 15 years to 20 years	Over 20 years	No stated maturity	Total
Financial liabilities
Core structural borrowings ofshareholder-financed
businesses C6.1	7,664	298	1,759	1,526	1,843	1,070	6,573	2,924	15,993
Operational borrowings attributable to shareholder-financed
businesses C6.2	998	839	91	68	–	–	–	–	998
Borrowings attributable to
with-profitsfunds C6.2	3,940	701	1,246	719	274	142	2,086	–	5,168
Obligations under funding, securitieslending and sale and repurchase
agreements	6,989	6,989	–	–	–	–	–	–	6,989
Accruals, deferred income and other liabilities	15,248	10,844	470	71	90	109	352	3,535	15,471
Net asset value attributable to unit holders of consolidated unit trusts
and similar funds	11,651	11,651	–	–	–	–	–	–	11,651
Total	46,490	31,322	3,566	2,384	2,207	1,321	9,011	6,459	56,270

	31 Dec 2017 £m
	Total carrying value	1 year or less	After 1 year to 5 years	After 5 years to 10 years	After 10 years to 15 years	After 15 years to 20 years	Over 20 years	No stated maturity	Total
Financial liabilities
Core structural borrowings
ofshareholder-financed
businesses C6.1	6,280	473	784	1,350	1,389	576	3,324	3,160	11,056
Operational borrowings
attributable to
shareholder-financed businesses C6.2	1,791	1,130	597	69	–	–	–	–	1,796
Borrowings attributable to
with-profitsfunds C6.2	3,716	905	922	32	29	29	1,810	104	3,831
Obligations under funding,
securitieslending and
sale and repurchase
agreements	5,662	5,662	–	–	–	–	–	–	5,662
Accruals, deferred income
and other liabilities	14,185	10,088	469	68	85	106	320	3,267	14,403
Net asset value attributable
to unit holders of
consolidated unit trusts and similar funds	8,889	8,889	–	–	–	–	–	–	8,889
Total	40,523	27,147	2,772	1,519	1,503	711	5,454	6,531	45,637

Maturity analysis of derivatives

The following table showsthe gross and net derivative positionstogether with a maturity profile of the net derivative position:

		Carrying value of net derivative £m		Maturity profile of net derivative position £m
	Derivative assets	Derivative liabilities	Net derivative position	1 year or less	After 1 year to 3 years	After 3 years to 5 years	After 5 years	Total
2018	3,494	(3,506)	(12)	292	(8)	(4)	30	310
2017	4,801	(2,755)	2,046	2,359	(16)	(9)	(1)	2,333

The majority of derivative assets and liabilities have been included at fair value within the one year or less column, representing the basis on which they are managed (ie to manage principally asset or liability value exposures). TheGroup has no cash flow hedges and, in general, contractual maturities are not considered essential for an understanding of the timing of the cash flowsfor these instruments. The only exception is certain identified interest rate swaps which are expected to be held until maturity for the purposes of matching cash flows on separately held assets and liabilities. For these instrumentsthe undiscounted cash flows(including contractual interest amounts) due to be paid under the swap contract assuming conditions are consistent with those at year end are included in the column relating to the contractual maturity of the derivative.

Maturity analysis of investment contracts

The table below showsthe maturity profile for investment contracts on undiscounted cash flow projections of expected benefit payments.

	£ billion
	1 year or less	After 1 year to 5 years	After 5 years to 10 years	After 10 years to 15 years	After 15 years to 20 years	Over 20 years	Total undis counted value	Total carrying value
31 Dec 2018	8	31	29	20	12	17	117	87
31 Dec 2017	8	29	27	19	13	14	110	83

The undiscounted cash flow in maturity profile above excludes certain corporate unit-linked business with gross policyholder liabilities with a carrying value of £11 billion (31 December 2017: £12 billion) which have no stated maturity but which are repayable on demand.

Most investment contracts have optionsto surrender early, often subject to surrender or other penalties. Therefore, most contracts can be said to have a contractual maturity of lessthan one year, but the additional charges and term of the contracts mean these are unlikely to be exercised in practice and the more useful information isto present information on expected payment.

The vast majority of theGroup's financial assets are held to back theGroup's policyholder liabilities. Although asset/liability matching is an important component of managing policyholder liabilities(both those classified asinsurance and those classified asinvestments), this profile is mainly relevant for managing market risk rather than liquidity risk. Within each business unit this asset/liability matching is performed on a portfolio-by-portfolio basis.

In terms of liquidity risk, a large proportion of the policyholder liabilities contain discretionary surrender values orsurrender charges, meaning that many of theGroup'sliabilities are expected to be held for the long term. Much of theGroup'sinvestment portfolios are in marketable securities, which can therefore be converted quickly to liquid assets.

For the reasons provided above, an analysis of theGroup's assets by contractual maturity is not considered meaningful to evaluate the nature and extent of theGroup'sliquidity risk.

(ii) Credit risk

TheGroup's maximum exposure to credit risk of financial instruments before any allowance for collateral or allocation of lossesto policyholdersisrepresented by the carrying value of financial instruments on the balance sheet that have exposuresto credit risk comprising cash and cash equivalents, deposits, debtsecurities, loans and derivative assets, and other debtors, the carrying value of which are disclosed at the start of this note and note C3.4(b) below for derivative assets. The collateral in place in relation to derivativesis described in note C3.4(c) below.Note C3.3 describesthe security for the loans held by theGroup. TheGroup's exposure to credit risk is further discussed in note C7 below.

Of the total loans and receivables held, £27 million (31 December 2017: £23 million) are past their due date but are not impaired. Of the total past due but not impaired, £22 million are lessthan one year past their due date (31 December 2017: £17 million). TheGroup expectsfull recovery of these loans and receivables.

Financial assetsthat would have been past due or impaired had the terms not been renegotiated amounted to £23 million (31 December 2017: £22 million).

In addition, during 2018 and 2017 theGroup did not take possession of any other collateral held assecurity. Further details of collateral and pledges are provided in note C3.4(c) below.

02

04

06 European Embedded Value (EEV)

05

information

C3 Assets and liabilities continued

C3.4 Financial instruments – additional information continued

C3.4(a) Financial risk continued

(iii) Foreign exchange risk

As at 31 December 2018, theGroup held 26 per cent (31 December 2017: 24 per cent) and 13 per cent (31 December 2017: 16 per cent) of its financial assets and financial liabilitiesrespectively, in currencies, mainlyUS dollar and Euro, other than the functional currency of the relevant business unit.

Of these financial assets, 49 per cent (31 December 2017: 52 per cent) are held by theUK with-profitsfund, allowing the fund to obtain exposure to foreign equity markets.

Of these financial liabilities, 28 per cent (31 December 2017: 28 per cent) are held by theUK with-profitsfund, mainly relating to foreign currency borrowings.

The exchange risksinherent in these exposures are mitigated through the use of derivatives, mainly forward currency contracts(note C3.4(b) below).

The amount of exchange gain recognised in the income statement in 2018, except for those arising on financial instruments measured at fair value through profit or loss, is £281 million (2017: £112 million loss mainly arising on investments of theUK with-profitsfund).

C3.4(b) Derivatives and hedging

Derivatives

TheGroup entersinto a variety of exchange traded and over-the-counter derivative financial instruments, including futures, options, forward currency contracts and swapssuch asinterest rate swaps, cross-currency swaps,swaptions and credit defaultswaps.

All over-the-counter derivative transactions, with the exception ofsome Asia transactions, are conducted understandardised ISDA (International Swaps and Derivatives Association Inc) master agreements and theGroup has collateral agreements between the individualGroup entities and relevant counterpartiesin place under each of these market master agreements.

Under Article 11 of the European Market Infrastructure Regulation on derivatives, central counterparties and trade repositories ('EMIR') and Commission Delegated Regulation (EU) 2016/2251 supplementing EMIR, market participantstransacting in non-cleared OTC derivatives are required to exchange collateral to cover variation and initial margin.However, trades between counterparties belonging to the same group are exempt from these margin requirementssubject to certain criteria.

Prudential Capital plc (Legal Entity Identifier reference ('LEI') CHW8NHK268SFPTV63Z64) has entered into such derivative agreements with the following six entitiesin theGroup. These counterparty pairings meet the criteria to be eligible for intra-group exemptionsto the margin requirements and have been approved by the Financial Conduct Authority:

	31 Dec 2018
Counterparty	Legal Entity Identifier (LEI)	Relationship between parties	Type of exemption	Aggregate notional of OTC derivatives contract £m
Prudential plc	5493001Z3ZE83NG K8Y12	Part of the same group holding company	Full	3,633
PrudentialHoldings Limited	549300JVAI8CZD4 HD451	Part of the same group holding company	Full	56
Prudential (USHoldCo 1) Limited	549300JNYGDP2X OLWR47	Part of the same group holding company	Full	2,717
Prudential CorporationHoldings Limited	549300KDOPLFHA W51H26	Part of the same group holding company	Full	927
Prudential Lifetime Mortgages Limited	5493001GSK4HF84 IOB02	Part of the same group holding company	Full	37
Prudential Distribution Limited	549300I8LYOK91H BX439	Part of the same group holding company	Full	7

02

04

06

Derivatives are used for efficient portfolio management to obtain cost effective management of exposure to various marketsin accordance with theGroup'sinvestmentstrategies and to manage exposure to interest rate, currency, credit and other businessrisks. TheGroup also usesinterest rate derivativesto reduce exposure to interest rate volatility. In particular:

• UK with-profitsfunds use derivativesfor efficient portfolio management or reduction in investment risks. ForUK annuity business derivatives are used to assist with asset and liability cash flow matching;
• US operations and some of theUK and Europe operations hold large amounts of interest-rate sensitive investmentsthat contain credit risks on which a certain level of defaultsis expected. These businesses have purchased some swaptionsto manage the default risk on certain underlying assets and hence reduce the amount of regulatory capital held to support the assets; and
• Some products, especially in theUS, have guarantee featureslinked to equity indices. A mismatch between guaranteed product liabilities and the performance of the underlying assets exposestheGroup to equity index risk. In order to mitigate thisrisk, the relevant business units purchase swaptions, equity options and futuresto better match asset performance with liabilities under equity-indexed products.

Hedging

TheGroup hasformally assessed and documented the effectiveness of the following net investment hedges under IAS 39. At 31 December 2018, theGroup has designated perpetualsubordinated capitalsecuritiestotallingUS\$3.7 billion (31 December 2017: US\$4.3 billion) as a net investment hedge to hedge the currency risksrelated to the net investment in Jackson. The carrying value of the subordinated capitalsecurities was £2,909 million as at 31 December 2018 (31 December 2017: £3,140 million). The foreign exchange loss of £199 million (2017: gain of £325 million) on translation of the borrowingsto poundssterling at the statement of financial position date isrecognised in the translation reserve in shareholders' equity. This net investment hedge was 100 per cent effective.

TheGroup has no cash flow hedges or fair value hedgesin place.

C3.4(c) Derecognition, collateral and offsetting

Securities lending and reverse repurchase agreements

TheGroup has entered into securitieslending (including repurchase agreements) whereby blocks ofsecurities are loaned to third parties, primarily major brokerage firms. Typically, the value of collateral assets granted to theGroup in these transactionsisin excess of the value ofsecuritieslent, with the excess determined by the quality of the collateral assets granted. Collateral requirements are calculated on a daily basis. The loaned securities are not removed from theGroup's consolidated statement of financial position, rather they are retained within the appropriate investment classification. Collateral typically consists of cash, debtsecurities, equity securities and letters of credit.

At 31 December 2018, theGroup has £8,278 million (31 December 2017: £8,232 million) of lentsecurities and assetssubject to repurchase agreements, of which £8,245 million (31 December 2017: £8,182 million) related to theUK with-profitsfund. The cash and securities collateral held or pledged undersuch agreements were £8,750 million (31 December 2017: £8,733 million) of which £8,662 million (31 December 2017: £8,679 million) was held by theUK with-profitsfund.

At 31 December 2018, theGroup had entered into reverse repurchase transactions under which it purchased securities and had taken on the obligation to resell the securities. The fair value of the collateral held in respect of these transactions was £10,633 million (31 December 2017: £10,550 million).

Collateral and pledges under derivative transactions

At 31 December 2018, theGroup had pledged £3,265 million (31 December 2017: £2,302 million) for liabilities and held collateral of £2,012 million (31 December 2017: £3,958 million) in respect of over-the-counter derivative transactions.

These transactions are conducted under termsthat are usual and customary to collateralised transactionsincluding, where relevant, standard securitieslending and repurchase agreements.

TheGroup has entered into collateral arrangementsin relation to over-the-counter derivative transactions, which permitsale or re-pledging of underlying collateral. During the year, theGroup has notsold any collateral held (2017: nil). As of 31 December 2018, the value of collateral re-pledged by theGroup amounted to £698 million (31 December 2017: £852 million). All over-the-counter derivative transactions, with the exception ofsome Asia transactions, are conducted understandardised International Swaps and Derivatives Association (ISDA) master agreements. The collateral management for these transactionsis conducted under the usual and customary terms and conditionsset out in the Credit Support Annex to the ISDA master agreement.

Other collateral

At 31 December 2018, theGroup had pledged collateral of £2,793 million (31 December 2017: £3,412 million) in respect of other transactions. This principally arisesfrom Jackson's membership of the FederalHome Loan Bank of Indianapolis primarily for the purpose of participating in the bank's collateralised loan advance programme with short-term and long-term funding facilities.

C3 Assets and liabilities continued

C3.4 Financial instruments – additional information continued

C3.4(c) Derecognition, collateral and offsetting continued

Offsetting assets and liabilities

TheGroup's derivative instruments, repurchase agreements and securitieslending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from thatsame counterparty that is enforceable in the event of a default or bankruptcy. TheGroup recognises amountssubject to master netting arrangements on a gross basis within the consolidated balance sheets.

The following tables present the gross and net information about theGroup's financial instrumentssubject to master netting arrangements:

	31 Dec 2018 £m
	Gross amount included in the consolidated statement of financial position note (i)	Related amounts not offset in the consolidated statement of financial position
		Financial instruments note (ii)	Cash collateral	Securities collateral note (iii)	Net amount
Financial assets:
Derivative assets	3,229	(1,261)	(1,687)	(166)	115
Reverse repurchase agreements	11,597	–	–	(11,606)	(9)
Total financial assets	14,826	(1,261)	(1,687)	(11,772)	106
Financial liabilities: Derivative liabilities Securitieslending and repurchase agreements	(3,189) (1,258)	1,261 –	710 34	1,058 1,205	(160) (19)
Total financial liabilities	(4,447)	1,261	744	2,263	(179)

		31 Dec 2017 £m
	Gross amount included in the consolidated statement of financial position note (i)	Related amounts not offset in the consolidated statement of financial position
		Financial instruments note (ii)	Cash collateral	Securities collateral note (iii)	Net amount
Financial assets:
Derivative assets	4,718	(946)	(2,641)	(984)	147
Reverse repurchase agreements	10,280	–	–	(10,270)	10
Total financial assets	14,998	(946)	(2,641)	(11,254)	157
Financial liabilities:
Derivative liabilities	(2,301)	946	420	893	(42)
Securitieslending and repurchase agreements	(1,410)	–	52	1,332	(26)
Total financial liabilities	(3,711)	946	472	2,225	(68)

Notes

(i) TheGroup has not offset any of the amountsincluded in the consolidated statement of financial position.

(ii) Representsthe amount that could be offset under master netting orsimilar arrangements where theGroup does notsatisfy the full criteria to offset on the consolidated statement of financial position.

(iii) Excludesinitial margin amountsfor exchange-traded derivatives.

In the tables above, the amounts of assets or liabilitiesincluded in the consolidated statement of financial position would be offset first by financial instrumentsthat have the right of offset under master netting orsimilar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables.

02 Strategic

06

C4 Policyholder liabilities and unallocated surplus

The note providesinformation of policyholder liabilities and unallocated surplus of with-profitsfunds held on theGroup'sstatement of financial position:

C4.1 Movement and duration of liabilities

C4.1(a) Group overview

(i) Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds

	Asia £m note C4.1(b)	US £m note C4.1(c)	UK and Europe £m note C4.1(d)	Total £m
At 1 January 2017	62,784	177,626	169,304	409,714
Comprising:
– Policyholder liabilities on the consolidated statement of financial positionnote (i) – Unallocated surplus of with-profits funds on the consolidated statement	53,716	177,626	157,654	388,996
of financial position	2,667	–	11,650	14,317
– Group's share of policyholder liabilities of joint ventures and associate note (ii)	6,401	–	–	6,401
Premiums	11,863	15,219	14,810	41,892
Surrenders	(3,079)	(10,017)	(6,939)	(20,035)
Maturities/deaths	(1,909)	(2,065)	(7,135)	(11,109)
Net flows	6,875	3,137	736	10,748
Shareholders' transfers post-tax	(54)	–	(233)	(287)
Investment-related items and other movements	8,182	16,251	11,146	35,579
Foreign exchange translation differences	(3,948)	(16,290)	113	(20,125)
At 31 December 2017/1 January 2018	73,839	180,724	181,066	435,629
Comprising:
– Policyholder liabilities on the consolidated statement of financial position note (i) (excludes £32 million classified as unallocated to a segment)	62,898	180,724	167,589	411,211
– Unallocated surplus of with-profits funds on the consolidated statement of financial position	3,474	–	13,477	16,951
– Group's share of policyholder liabilities of joint ventures and associate note (ii)	7,467	–	–	7,467
Reclassification of reinsuredUK annuity contracts as held forsale note (iii)	–	–	(10,858)	(10,858)
Premiums	13,187	13,940	14,011	41,138
Surrenders	(2,793)	(12,141)	(6,780)	(21,714)
Maturities/deaths	(1,978)	(2,012)	(6,796)	(10,786)
Net flows	8,416	(213)	435	8,638
Addition for closed block of group payout annuitiesin theUS note (iv)	–	4,143	–	4,143
Shareholders' transfers post-tax	(65)	–	(259)	(324)
Investment-related items and other movements	(2,784)	(9,999)	(5,481)	(18,264)
Foreign exchange translation differences	3,357	10,945	(14)	14,288
At 31 December 2018 Comprising:	82,763	185,600	164,889	433,252
– Policyholder liabilities on the consolidated statement of financial position note (i) (excludes £39 million classified as unallocated to a segment)	72,107	185,600	151,555	409,262
– Unallocated surplus of with-profits funds on the consolidated statement
of financial position – Group's share of policyholder liabilities of joint ventures and associate note (ii)	2,511 8,145	– –	13,334 –	15,845 8,145
Average policyholder liability balances note (v)
2018	75,309	182,126	162,287	419,722
2017	65,241	179,175	162,622	407,038

C4 Policyholder liabilities and unallocated surplus continued

C4.1(a) Group overview continued C4.1 Movement and duration of liabilities continued

Notes

• (i) The policyholder liabilities of the Asia insurance operations of £72,107 million (31 December 2017: £62,898 million),shown in the table above, is after deducting the intra-group reinsurance liabilities ceded by theUK and Europe insurance operations of £1,109 million (31 December 2017: £1,235 million) to theHong Kong with-profits business. Including this amount total Asia policyholder liabilities are £73,216 million (31 December 2017: £64,133 million).
• (ii) TheGroup'sinvestmentsin joint ventures and associate are accounted for on an equity method basisin theGroup's balance sheet. TheGroup'sshare of the policyholder liabilities asshown above relate to life businessesin China, India and of the Takaful businessin Malaysia.
• (iii) The reclassification as held forsale of the reinsuredUK annuity businessthat will be transferred to Rothesay life once the Part VII processis complete reflectsthe value of policyholder liabilities held at 1 January 2018.
• (iv) In October 2018, Jackson entered into an agreement with JohnHancock Life to reinsure 100 per cent of the group payout annuity business. The transaction resulted in an increase to policyholder liabilities of Jackson £4.1 billion at the inception of the contract.
• (v) Averages have been based on opening and closing balances and adjusted for acquisitions, disposals and corporate transactions arising in the year and exclude unallocated surplus of with-profitsfunds.

The items above represent the amount attributable to changesin policyholder liabilities and unallocated surplus of with-profitsfunds as a result of each of the componentslisted. The policyholder liabilitiesshown include investment contracts without discretionary participation features(as defined in IFRS 4) and their full movement in the year but exclude liabilitiesthat have not been allocated to a reporting segment. The items above are shown gross of external reinsurance.

The analysisincludesthe impact of premiums, claims and investment movements on policyholders' liabilities. The impact does not represent premiums, claims and investment movements asreported in the income statement. For example, the premiumsshown above will exclude any deductionsfor fees/charges. Claims(surrenders, maturities and deaths) represent the policyholder liabilities provision released rather than the claim amount paid to the policyholder.

(ii) Analysis of movements in policyholder liabilities for shareholder-backed business

	Asia £m	US £m	UK and Europe £m	Total £m
At 1 January 2017	32,851	177,626	56,158	266,635
Premiums	6,064	15,219	2,283	23,566
Surrenders	(2,755)	(10,017)	(2,433)	(15,205)
Maturities/deaths	(1,008)	(2,065)	(2,571)	(5,644)
Net flows note (i)	2,301	3,137	(2,721)	2,717
Investment-related items and other movements	3,797	16,251	2,930	22,978
Foreign exchange translation differences	(1,547)	(16,290)	–	(17,837)
At 31 December 2017/1 January 2018	37,402	180,724	56,367	274,493
Comprising:
– Policyholder liabilities on the consolidated statement of financial position
(excludes £32 million classified as unallocated to a segment)	29,935	180,724	56,367	267,026
– Group's share of policyholder liabilities relating to joint ventures
and associate	7,467	–	–	7,467
Reclassification of reinsuredUK annuity contracts as held forsale note (ii)	–	–	(10,858)	(10,858)
Premiums	6,752	13,940	1,486	22,178
Surrenders	(2,455)	(12,141)	(2,016)	(16,612)
Maturities/deaths	(1,046)	(2,012)	(2,244)	(5,302)
Net flows note (i)	3,251	(213)	(2,774)	264
Addition for closed block of group payout annuitiesin theUS note (iii)	–	4,143	–	4,143
Investment-related items and other movements	(1,204)	(9,999)	(1,975)	(13,178)
Foreign exchange translation differences	1,148	10,945	–	12,093
At 31 December 2018	40,597	185,600	40,760	266,957
Comprising:
– Policyholder liabilities on the consolidated statement of financial position
(excludes £39 million classified as unallocated to a segment)	32,452	185,600	40,760	258,812
– Group's share of policyholder liabilities relating to joint ventures
and associate	8,145	–	–	8,145

Notes

(i) Including net flows of theGroup'sinsurance joint ventures and associate.

(ii) The reclassification as held forsale of the reinsuredUK annuity businessthat will be transferred to Rothesay life once the Part VII processis complete reflectsthose policyholder liabilities held at 1 January 2018.

(iii) In October 2018, Jackson entered into an agreement with JohnHancock Life to reinsure 100 per cent of the group payout annuity business. The transaction resulted in an increase to policyholder liabilities of Jackson £4.1 billion at the inception of the contract.

(iii) Movement in insurance contract liabilities and unallocated surplus of with-profits funds

Further analysis of the movement in the year of theGroup'sinsurance contract liabilities, gross and reinsurance share, investment contracts and unallocated surplus of with-profitsfunds(excluding those held by joint ventures and associate) is provided below:

	Insurance contract liabilities			Unallocated
	Gross £m	Reinsurers' share note (ii) £m	Investment contracts note (iii) £m	surplus of with-profits funds £m
At 1 January 2017	(316,436)	10,051	(72,560)	(14,317)
Income and expense included in the income statement	(31,106)	365	(11,179)	(2,871)
Other movementsincluding amountsincluded in other comprehensive
income note (i)	(35)	–	374	(78)
Foreign exchange translation differences	19,405	(743)	294	315
At 31 December 2017/1 January 2018	(328,172)	9,673	(83,071)	(16,951)
Income and expense included in the income statement	8,994	11,440	(4,009)	1,289
Other movementsincluding amountsincluded in other comprehensive
income note (ii)	10,502	(10,502)	643	(38)
Foreign exchange translation differences	(13,990)	533	(198)	(145)
At 31 December 2018	(322,666)	11,144	(86,635)	(15,845)

Notes

(i) Other movementsinclude premiumsreceived and claims paid on investment contracts without discretionary participating features, which are taken directly to the statement of financial position in accordance with IAS 39, changesin the unallocated surplus of with-profitsfundsresulting from actuarial gains and losses on theGroup's defined benefit pension schemes, which are recognised directly in other comprehensive income and balance sheet reallocations which totalled £10,502 million in 2018 (2017: £(35) million). The 2018 amount representsthe reclassification of the reinsuredUK annuity business as held forsale value as at 31 December 2018.

(ii) Includesreinsurers'share of claims outstanding of £1,005 million (2017: £953 million).

(iii) This comprisesinvestment contracts with discretionary participation features of £67,413 million (2017: £62,677 million) and investment contracts without discretionary participation features of £19,222 million (2017: £20,394 million).

The total charge for benefit and claimsshown in the income statement comprisesthe amountsshown as'income and expense included in the income statement' in the table above together with claims paid of £32,396 million in the period (2017: £29,497 million) net of amounts attributable to reinsurers of £2,114 million (2017: £1,828 million). In 2017, the income statement charge also included the change in reservesfor the held forsale Korea business of £72 million.

(iv) Reinsurers' share of insurance contract liabilities

	31 Dec 2018 £m					31 Dec 2017 £m
	Asia	US	UK and Europe	Unallocated to a segment	Total	Total
Insurance contract liabilities	2,675	5,910	1,554	–	10,139	8,720
Claims outstanding	102	752	149	2	1,005	953
Total	2,777	6,662	1,703	2	11,144	9,673

TheGroup cedes certain businessto other insurance companies. Although the ceding of insurance does not relieve theGroup from itsliability to its policyholders, theGroup participatesin such agreementsfor the purpose of managing itsloss exposure. TheGroup evaluatesthe financial condition of itsreinsurers and monitors concentration of credit risk from similar geographic regions, activities or economic characteristics of the reinsurersto minimise its exposure from reinsurer insolvencies. Of the reinsurers'share of insurance contract liabilities balance of £11,144 million at 31 December 2018 (31 December 2017: £9,673 million), 86 per cent (31 December 2017: 97 per cent) of the balance were from reinsurers with Standard & Poor'srating A- and above.

The reinsurers'share of insurance contract liabilitiesfor Asia primarily relatesto protection business written inHong Kong.

The reinsurance asset for Jackson asshown in the table above primarily relatesto certain fully collateralised former REALIC business retained by Swiss Re through 100 per cent reinsurance agreements. Apart from the reinsurance of REALIC business, the principal reinsurance ceded by Jackson outside theGroup is on term-life insurance, direct and assumed accident and health business andGMIB variable annuity guarantees.Net commissionsreceived on ceded business and claimsincurred ceded to external reinsurerstotalled £7 million and £489 million respectively during 2018 (2017: £28 million and £526 million respectively). There were no deferred gains or losses on reinsurance contractsin either 2018 or 2017.

Further information on the reinsurance agreement with Rothesay Life entered into by theGroup'sUK and Europe insurance business in 2018 and longevity reinsurance transactions on certain aspects of theUK's annuity businessin 2017 is provided in notes D1.1 and B3 (iii). The gains and lossesrecognised in profit or lossfor the other reinsurance contracts written in the year were immaterial.

06 European

05

C4 Policyholder liabilities and unallocated surplus continued

C4.1 Movement and duration of liabilities continued

C4.1(b) Asia insurance operations

(i) Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds

A reconciliation of the total policyholder liabilities and unallocated surplus of with-profitsfunds of Asia insurance operationsfrom the beginning of the year to the end of the year is asfollows:

	With-profits business £m note (vi)	Unit-linked liabilities £m	Other business £m	Total £m
At 1 January 2017	29,933	17,507	15,344	62,784
Comprising:
– Policyholder liabilities on the consolidated statement of financial position – Unallocated surplus of with-profits funds on the consolidated statement	27,266	14,289	12,161	53,716
of financial position – Group's share of policyholder liabilities relating to joint ventures	2,667	–	–	2,667
and associate note (i)	–	3,218	3,183	6,401
Premiums
New business	1,143	1,298	999	3,440
In-force	4,656	1,637	2,130	8,423
	5,799	2,935	3,129	11,863
Surrenders note (ii)	(324)	(2,288)	(467)	(3,079)
Maturities/deaths	(901)	(150)	(858)	(1,909)
Net flows note (iii)	4,574	497	1,804	6,875
Shareholders' transfers post-tax	(54)	–	–	(54)
Investment-related items and other movements Foreign exchange translation differences note (v)	4,385 (2,401)	2,830 (807)	967 (740)	8,182 (3,948)
At 31 December 2017/1 January 2018	36,437	20,027	17,375	73,839
Comprising:
– Policyholder liabilities on the consolidated statement of financial position – Unallocated surplus of with-profits funds on the consolidated statement of financial position	32,963 3,474	16,263 –	13,672 –	62,898 3,474
– Group's share of policyholder liabilities relating to joint ventures and associate note (i)	–	3,764	3,703	7,467
Premiums
New business	1,155	1,426	1,085	3,666
In-force	5,280	1,767	2,474	9,521
	6,435	3,193	3,559	13,187
Surrenders note (ii)	(338)	(1,904)	(551)	(2,793)
Maturities/deaths	(932)	(140)	(906)	(1,978)
Net flows note (iii)	5,165	1,149	2,102	8,416
Shareholders' transfers post-tax	(65)	–	–	(65)
Investment-related items and other movements note (iv)	(1,580)	(1,425)	221	(2,784)
Foreign exchange translation differences note (v)	2,209	431	717	3,357
At 31 December 2018	42,166	20,182	20,415	82,763
Comprising:
– Policyholder liabilities on the consolidated statement of financial position – Unallocated surplus of with-profits funds on the consolidated statement	39,655	16,368	16,084	72,107
of financial position	2,511	–	–	2,511
– Group's share of policyholder liabilities relating to joint ventures and associate note (i)	–	3,814	4,331	8,145
Average policyholder liability balances note (vii)
2018	36,309	20,105	18,895	75,309
2017	30,115	18,767	16,359	65,241

• (i) TheGroup'sinvestment in joint ventures are accounted for on an equity method and theGroup'sshare of the policyholder liabilities asshown above relate to the life business in China, India and of the Takaful businessin Malaysia.
• (ii) The rate ofsurrendersforshareholder-backed business(expressed as a percentage of opening liabilities) was 6.6 per cent in 2018 (2017: 8.4 per cent).
• (iii) Net flows have increased by £1,541 million to £8,416 million in 2018 predominantly reflecting continued growth of the in-force book.
• (iv) Investment-related items and other movementsfor 2018 primarily represent unrealised investmentslossesfollowing unfavourable equity marketsin the year and rising interest rates.
• (v) Movementsin the year have been translated at the average exchange ratesfor the year. The closing balance has been translated at the closing spot rates as at the end of the year. Differences upon retranslation are included in foreign exchange translation differences.
• (vi) The policyholder liabilities of the with-profits business of £39,655 million,shown in the table above, is after deducting the intra-group reinsurance liabilities ceded by theUK and Europe insurance operations of £1,109 million to theHong Kong with-profits business(31 December 2017: £1,235 million). Including this amount the Asia with-profits policyholder liabilities are £40,764 million (31 December 2017: £34,198 million).
• (vii) Averages have been based on opening and closing balances and exclude unallocated surplus of with-profitsfunds.

(ii) Duration of liabilities

The table below showsthe carrying value of policyholder liabilities and the maturity profile of the cash flows on a discounted basis, taking account of expected future premiums and investment returns:

	31 Dec 2018 £m	31 Dec 2017 £m
Policyholder liabilities	72,107	62,898
	31 Dec 2018 %	31 Dec 2017 %
Expected maturity:
0 to 5 years	20	21
5 to 10 years	19	19
10 to 15 years	15	16
15 to 20 years	12	12
20 to 25 years	10	10
Over 25 years	24	22

(iii) Summary policyholder liabilities (net of reinsurance) and unallocated surplus

At 31 December 2018, the policyholder liabilities and unallocated surplusfor Asia operations excluding joint ventures and after deducting intra-group reinsurance liabilities ceded byUK and Europe of £74,618 million (2017: £66,372 million), net of external reinsurance of £2,777 million (2017: £1,960 million), comprised the following:

	2018 £m	2017 £m
Hong Kong	34,545	29,411
Indonesia	3,680	3,762
Malaysia	5,447	5,014
Singapore	18,154	17,432
Taiwan	4,203	3,729
Other operations	5,812	5,064
Total Asia operations	71,841	64,412

06

C4 Policyholder liabilities and unallocated surplus continued

C4.1 Movement and duration of liabilities continued

C4.1(c) US insurance operations

(i) Analysis of movements in policyholder liabilities

A reconciliation of the total policyholder liabilities ofUS insurance operationsfrom the beginning of the year to the end of the year is asfollows:

US insurance operations

	Variable annuity separate account liabilities £m	Fixed annuity, GICs and other business £m	Total £m
At 1 January 2017	120,411	57,215	177,626
Premiums	11,529	3,690	15,219
Surrenders	(6,997)	(3,020)	(10,017)
Maturities/deaths	(1,026)	(1,039)	(2,065)
Net flows note (ii)	3,506	(369)	3,137
Transfersfrom general to separate account	2,096	(2,096)	–
Investment-related items and other movements	15,956	295	16,251
Foreign exchange translation differences note (i)	(11,441)	(4,849)	(16,290)
At 31 December 2017/1 January 2018	130,528	50,196	180,724
Premiums	10,969	2,971	13,940
Surrenders	(8,797)	(3,344)	(12,141)
Maturities/deaths	(1,085)	(927)	(2,012)
Net flows note (ii)	1,087	(1,300)	(213)
Addition for closed block of group payout annuitiesin theUS note (iii)	–	4,143	4,143
Transfersfrom general to separate account	530	(530)	–
Investment-related items and other movements note (iv)	(11,561)	1,562	(9,999)
Foreign exchange translation differences note (i)	7,636	3,309	10,945
At 31 December 2018	128,220	57,380	185,600
Average policyholder liability balances note (v)
2018	129,374	52,752	182,126
2017	125,469	53,706	179,175

Notes

(i) Movementsin the year have been translated at an average rate ofUS\$1.34: £1.00 (2017:US\$1.29: £1.00). The closing balances have been translated at closing rate ofUS\$1.27: £1.00 (2017:US\$1.35: £1.00). Differences upon retranslation are included in foreign exchange translation differences.

(ii) Net outflows were £213 million (2017: inflows £3,137 million), with positive inflowsto variable annuities business as new business exceeds withdrawals and surrenders offset by outflowsfrom fixed annuity,GICs and other business asthe portfolio matures.

(iii) In October 2018, Jackson entered into an agreement with JohnHancock Life to reinsure 100 per cent of the group payout annuity business. The transaction resulted in an increase to policyholder liabilities of Jackson £4.1 billion at the inception of the contract.

(iv) Negative investment-related items and other movementsin variable annuity separate account liabilities of £(11,561) million for 2018 primarily reflectsthe decrease in equity and bond values during the year. Fixed annuity,GIC and other businessinvestment and other movements of £1,562 million primarily reflect the interest credited to the policyholder accounts and increase in the guarantee reservesin the year.

(v) Averages have been based on opening and closing balances and adjusted for acquisitions, disposals and corporate transactions arising in the year.

(ii) Duration of liabilities

The table below showsthe carrying value of policyholder liabilities and maturity profile of the cash flows on a discounted basisfor 2018 and 2017:

	31 Dec 2018		31 Dec 2017
	Fixed annuity and other business (including GICs and similar contracts) £m	Variable annuity separate account liabilities £m	Total £m	Fixed annuity and other business (including GICs and similar contracts) £m	Variable annuity separate account liabilities £m	Total £m
Policyholder liabilities	57,380	128,220	185,600	50,196	130,528	180,724
	%	%	%	%	%	%
Expected maturity:
0 to 5 years	51	40	43	50	42	44
5 to 10 years	24	28	27	25	29	28
10 to 15 years	12	16	15	12	15	14
15 to 20 years	7	9	8	7	8	8
20 to 25 years	3	4	4	3	4	4
Over 25 years	3	3	3	3	2	2

(iii) Aggregate account values

The table below showsthe distribution of account valuesfor fixed annuities(fixed interest rate and fixed index), the fixed account portion of variable annuities, and interest-sensitive life business within the range ofminimumguaranteed interestrates as described in noteC4.2(b).

	Fixed annuities and the fixed account portion of variable annuities £m		Interest-sensitive life business £m
Minimum guaranteed interest rate	31 Dec 2018	31 Dec 2017	31 Dec 2018	31 Dec 2017
> 0% – 1.0%	7,584	6,887	–	–
> 1.0% – 2.0%	6,789	7,385	–	–
> 2.0% – 3.0%	10,075	9,799	229	221
> 3.0% – 4.0%	1,274	1,272	2,394	2,341
> 4.0%– 5.0%	1,794	1,744	2,106	2,059
> 5.0%– 6.0%	225	220	1,703	1,651
Total	27,741	27,307	6,432	6,272

06

C4 Policyholder liabilities and unallocated surplus continued

C4.1 Movement and duration of liabilities continued

C4.1(d) UK and Europe insurance operations

(i) Analysis of movements in policyholder liabilities and unallocated surplus of with-profits funds

A reconciliation of the total policyholder liabilities and unallocated surplus of with-profitsfunds ofUK and Europe insurance operations from the beginning of the year to the end of the year is asfollows:

		Shareholder-backed funds and subsidiaries
	With-profits sub-funds £m note (v)	Unit-linked liabilities £m	Annuity and other long-term business £m	Total £m
At 1 January 2017	113,146	22,119	34,039	169,304
Comprising:
– Policyholder liabilities on the consolidated statement of financial position – Unallocated surplus of with-profits funds on the consolidated statement	101,496	22,119	34,039	157,654
of financial position	11,650	–	–	11,650
Premiums	12,527	1,923	360	14,810
Surrenders	(4,506)	(2,342)	(91)	(6,939)
Maturities/deaths	(4,564)	(612)	(1,959)	(7,135)
Net flows note (i)	3,457	(1,031)	(1,690)	736
Shareholders' transfers post-tax	(233)	–	–	(233)
Switches	(192)	192	–	–
Investment-related items and other movements	8,408	1,865	873	11,146
Foreign exchange translation differences	113	–	–	113
At 31 December 2017/1 January 2018	124,699	23,145	33,222	181,066
Comprising:
– Policyholder liabilities on the consolidated statement of financial position – Unallocated surplus of with-profits funds on the consolidated statement	111,222	23,145	33,222	167,589
of financial position	13,477	–	–	13,477
Reclassification of reinsuredUK annuity contracts as held forsale note (ii)	–	–	(10,858)	(10,858)
Premiums	12,525	1,147	339	14,011
Surrenders	(4,764)	(1,950)	(66)	(6,780)
Maturities/deaths	(4,552)	(619)	(1,625)	(6,796)
Net flows note (i)	3,209	(1,422)	(1,352)	435
Shareholders' transfers post-tax	(259)	–	–	(259)
Switches	(165)	165	–	–
Investment-related items and other movements note (iii)	(3,341)	(1,171)	(969)	(5,481)
Foreign exchange translation differences	(14)	–	–	(14)
At 31 December 2018	124,129	20,717	20,043	164,889
Comprising:
– Policyholder liabilities on the consolidated statement of financial position – Unallocated surplus of with-profits funds on the consolidated statement	110,795	20,717	20,043	151,555
of financial position	13,334	–	–	13,334
Average policyholder liability balances note (iv) 2018	111,009	21,931	29,347	162,287
2017	106,359	22,632	33,631	162,622

Notes

(i) Net inflows were £435 million (31 December 2017: net inflows of £736 million). Inflowsinto the with-profits business were offset by outflowsfrom both the annuity business, asthe closed book matures, and the unit-linked business. The levels of inflows/outflowsfor the unit-linked businessis driven by corporate pension schemes with transfersin or out from only a small number ofschemesinfluencing the level of flowsin the year.

(ii) The reclassification as held forsale of the reinsuredUK annuity businessthat will be transferred to Rothesay life once the Part VII processis complete reflectsthe value policyholder liabilities held at 1 January 2018.

(iii) Investment-related items and other movementsfor with-profits business principally comprise investment return attributable to policyholdersreflecting falling equity marketsin the later quarter of the year. Forshareholder-backed annuity and other long-term business, investment-related items and other movementsinclude the effect of movementsin interest rates and creditspreads.

(iv) Averages have been based on opening and closing balances and adjusted for acquisitions, disposals and corporate transactions arising in the year and exclude unallocated surplus of with-profitsfunds.

(v) Includesthe Scottish Amicable Insurance Fund.

(ii) Duration of liabilities

With the exception of most unitised with-profits bonds and other whole of life contracts, the majority of the contracts ofUK and Europe insurance operations have a contract term. In effect, the maturity term of the other contractsreflectsthe earlier of death, maturity, or the policy lapsing. In addition, as described in note A3.1, with-profits contract liabilitiesinclude projected future bonuses based on current investment values. The actual amounts payable will vary with future investment performance of SAIF and the WPSF.

The following tablesshow the carrying value of the policyholder liabilities and the maturity profile of the cash flows, on a discounted basis:

					31 Dec 2018 £m
		With-profits business		Annuity business (insurance contracts)		Other		Total
	Insurance contracts	Invest ment contracts	Total	Non profit annuities within WPSF	Shareholder -backed annuity	Total	Insurance contracts	Invest ment contracts	Total
Policyholder liabilities	34,242		67,020 101,262	9,533	19,119	28,652	6,063	15,578	21,641	151,555
					31 Dec 2018 %
Expected maturity: 0 to 5 years 5 to 10 years 10 to 15 years 15 to 20 years 20 to 25 years over 25 years	34 23 16 11 7 9	37 27 17 9 4 6	36 26 17 10 5 6	33 26 17 11 6 7	27 23 19 14 9 8 31 Dec 2017 £m	29 24 18 13 8 8	44 25 15 8 4 4	32 24 18 12 7 7	36 24 17 11 6 6	35 25 17 10 6 7
Policyholder liabilities	38,285	62,328	100,613	10,609	32,572	43,181	6,714	17,081	23,795	167,589
					31 Dec 2017 %
Expected maturity: 0 to 5 years 5 to 10 years 10 to 15 years 15 to 20 years	33 23 16 11	37 27 17 10	36 25 17 10	31 24 17 11	26 23 18 13	27 23 18 13	41 26 15 9	31 22 18 13	34 23 17 12	34 25 17 11
20 to 25 years over 25 years	7 10	4 5	5 7	7 10	9 11	9 10	5 4	8 8	7 7	6 7

— The cash flow projections of expected benefit payments used in the maturity profile table above are from value of in-force business and exclude the value of future new business, including future vesting of internal pension contracts.

— Benefit payments do not reflect the pattern of bonuses and shareholder transfersin respect of the with-profits business. — Shareholder-backed annuity businessincludesthe ex-PRIL and the legacy PAC shareholder annuity business but excludesthe amount classified as held forsale.

— Investment contracts under 'Other' comprise certain unit-linked and similar contracts accounted for under IAS 39 and IFRS 15.

— For business with no maturity term included within the contracts, for example, with-profitsinvestment bondssuch as Prudence Bonds, an assumption is made asto likely duration based on prior experience.

02

06 European

C4 Policyholder liabilities and unallocated surplus continued

(iii) Annuitant mortality C4.1 Movement and duration of liabilities continued

Mortality assumptionsforUK annuity business are set in light of recent population and internal experience, with an allowance for expected future mortality improvements.Given the long-term nature of annuity business, longevity remains a significant assumption in determining policyholder liabilities. The assumptions used reference recent population mortality data, with specific risk factors applied on a per policy basisto reflect the features of the Company's portfolio.

The recent declining mortality improvements observed in population data were considered as part of the judgement exercised in setting the 2018 mortality basis.New mortality projection models are released regularly by the Continuous Mortality Investigation (CMI). The CMI 2016 model was used to produce the 2018 results and the CMI 2015 model was used to produce the 2017 results. The default calibration of CMI 2016 was adopted to reflect the Company's view of future mortality improvements based on a range of possible outcomes, with an appropriate margin for prudence. The mortality improvement assumptions used are summarised in the table below:

Year ended		CMI Model, with calibration to reflect future mortality improvements
31 December 2018 CMI 2016		For males: with a long-term improvement rate of 2.25% pa For females: with a long-term improvement rate of 2.00% pa
31 December 2017	CMI 2015	For males: with a long-term improvement rate of 2.25%pa For females: with a long-term improvement rate of 2.00%pa

For annuitiesin deferment, the tables used were AM92 – four years(males) and AF92 – four years(females) for 2018 and 2017.

C4.2 Products and determining contract liabilities

C4.2(a) Asia
Contract type	Description	Material features	Determination of liabilities
With-profits and participating contracts	Providessavings and/or protection where the basic sum assured can be enhanced by a profitshare (or bonus) from the underlying fund as determined at the discretion of the Company.	Participating products often offer a guaranteed maturity orsurrender value. Declared regular bonuses are guaranteed once vested. Future bonusrates and cash dividends are not guaranteed. Market value adjustments and surrender penalties are used for certain products where the law permits such adjustments.Guarantees are predominantly supported by segregated life funds and their estates.	With-profits contracts are predominantly sold inHong Kong, Malaysia and Singapore. The total value of the with-profitsfundsis driven by the underlying asset valuation with movementsreflected principally in the accounting value of policyholder liabilities and unallocated surplus. In Taiwan and India,USGAAP is applied for measuring insurance assets and liabilities. The other Asia operations principally adopt a gross premium valuation method.

C4.2(a) Asia continued
Contract type	Description	Material features	Determination of liabilities
Term, whole life and endowment assurance	Non-participating savings and/or protection where the benefits are guaranteed, or determined by a set of defined market-related parameters.	These products often offer a guaranteed maturity and surrender value. It is common in Asia for regulations or market-driven demand and competition to provide some form of capital value protection and minimum crediting interest rate guarantees. Thisis reflected within the guaranteed maturity and surrender values. Guarantees are borne by shareholders.	The approach to determining the contract liabilitiesis generally driven by the localsolvency basis. A gross premium valuation method is used in those countries where a risk-based capital framework is adopted for local solvency.Under the gross premium valuation method, all cash flows are valued explicitly using best estimate assumptions with a suitable margin for prudence.
			Thisis achieved either through adding an explicit allowance for assumptions to deviate from best estimate or by applying an overlay constraintso that on day one no negative reserves(ie where future premium inflows are expected to exceed prudent future claims and outflows) are derived at an individual policyholder level, or a combination of both.
			In Vietnam, the Company uses an estimation basis aligned substantially to that used by the countries applying the gross premium valuation method.
			For India and Taiwan,USGAAP is applied for measuring insurance liabilities. For these businesses, the future policyholder benefit provisions for non-linked business are determined using the net level premium method, with an allowance forsurrenders, maintenance and claims expenses. Rates of interest used in establishing the policyholder benefit provisions vary by operation depending on the circumstances attaching to each block of business.
			The other Asia operations principally adopt a net premium valuation method to determine the future policyholder benefit provisions.
Unit-linked	Combinessavings with protection, the cash value of the policy depends on the value of the underlying unitised funds.		The attaching liabilitiesreflect the unit value obligation driven by the value of the investments of the unit fund. Additional technical provisions are held for guaranteed benefits beyond the unit fund value using a gross premium valuation method. These additional provisions are recognised as a component of other businessliabilities.

02

04

06

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued

		C4.2(a) Asia continued
--	--	------------------------

Contract type	Description	Material features	Determination of liabilities
Health and protection	Health and protection features are offered assupplementsto the productslisted above orsold as standalone products. Protection covers mortality or morbidity benefitsincluding health, disability, critical illness and accident coverage.		The determination of the liabilities of health and protection contracts are driven by the localsolvency basis. A gross premium valuation method is used in those countries where a risk-based capital framework is adopted for localsolvency.Under the gross premium valuation method, all cash flows are valued explicitly using best estimate assumptions with a suitable margin for prudence.
			Thisis achieved either through adding an explicit allowance for assumptions to deviate from best estimate or by applying an overlay constraintso that on day one no negative reserves(ie where future premium inflows are expected to exceed prudent future claims and outflows) are derived at an individual policyholder level, or a combination of both.

C4.2(b) US
Contract type	Description	Material features	Determination of liabilities
Fixed interest rate annuities	Fixed interest rate annuities are primarily deferred annuity products that are used for asset accumulation in retirement planning and for providing income in retirement. At 31 December 2018, fixed interest rate annuities accounted for 7 per cent(2017: 7 per cent) of policy and contract liabilities of Jackson. The policyholder of a fixed interest rate annuity paysJackson a premium, which is credited to the policyholder's account. Periodically,	Guaranteed minimum interest rate. At 31 December 2018, Jackson had fixed interest rate annuitiestotalling £12.6 billion (2017: £12.6 billion) in account value with minimum guaranteed ratesranging from 1.0 per cent to 5.5 per cent and a 2.91 per cent average guaranteed rate (2017: 1.0 per cent to 5.5 per cent and a 2.93 per cent average guaranteed rate).	insurance liabilities are based on Jackson is provided in note C5.2(b). contracts as defined forUSGAAP for policyholder benefits.	As explained in noteA3.1 all of Jackson's USGAAP. An overview of the deferral and amortisation of acquisition costsfor With minor exceptionsthe following is applied to most of Jackson's contracts. Contracts are accountedfor asinvestment purposes by applying a retrospective deposit method to determine the liability
	interest is credited to the policyholder's account and in some cases administrative charges are deducted from the policyholder's account. Jackson makes benefit payments at a future date as specified in the policy based on the value of the policyholder's account at that date. The policy providesthat at Jackson's discretion it may reset the interest		Thisisthen augmented by: — Any amountsthat have been assessed to compensate the insurerforservices to be performed over future periods (ie deferred income); — Any amounts previously assessed against policyholdersthat are refundable on termination of the contract; and — Any probable future loss on the contract (ie premium deficiency).
	rate,subject to a guaranteed minimum. Approximately 64 per cent (2017: 60 per cent) of the fixed interest rate annuitiesJackson wrote in 2018 provide for a (positive or negative) market value adjustment (MVA) on surrender. Thisformula-based		Capitalised acquisition costs and deferred income for these contracts are amortised over the life of the book of contracts. The present value of the estimated gross profitsis computed using the rate of interest that accruesto policyholder balances(sometimesreferred to asthe contract rate).
	adjustment approximatesthe change in value that assets supporting the product would realise asinterest rates move.		Estimated gross profitsinclude estimates of the following, each of which will be determined based on the best estimate of amounts over the life of the book of contracts without provision for adverse deviation:
			— Amounts expected to be assessed for mortality less benefit claimsin excess of related policyholder balances; — Amounts expected to be assessed for contract administration less costs incurred for contract administration; — Amounts expected to be earned from the investment of policyholder balanceslessinterest credited to policyholder balances; — Amounts expected to be assessed against policyholder balances upon

The interest guarantees are not explicitly valued but are reflected asthey are earned in the current account liability value.

07

05

Financialstatements

06 European Embedded Value (EEV) basisresults

03

02 Strategic report

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued

C4.2(b) US continued

Contract type	Description	Material features	Determination of liabilities
Fixed index annuities	Fixed index annuities vary in structure but are generally deferred annuitiesthat enable policyholders to obtain a portion of an equity linked return (based on participation rates and caps), and provide a guaranteed minimum return. Fixed index annuities accounted for 5 per cent (2017: 5 per cent) of Jackson's policy and contract liabilities at 31 December 2018. Jackson hedgesthe equity return risk on fixed index products using offsetting equity exposure in the variable annuity product. The cost of hedging istaken into account in setting the index participation rates or caps.	Guaranteed minimum rates are generally set at 1.0 to 3.0 per cent. At 31 December 2018, Jackson had fixed index annuities allocated to indexed fundstotalling £6.0 billion (31 December 2017: £6.3 billion) in account value with minimum guaranteed rates on index accounts ranging from 1.0 per cent to 3.0 per cent and a 1.77 per cent average guaranteed rate (2017: 1.0 per cent to 3.0 per cent and a 1.77 per cent average guarantee rate). Jackson offers an optional lifetime income rider, which can be elected for an additional fee. Jackson also offers fixed interest accounts on some fixed index annuity products. At 31 December 2018, fixed interest accounts of fixed index annuitiestotalled £2.7 billion (2017: £2.5 billion) in account value. Minimum guaranteed rates on fixed interest accountsrange from 1.0 per cent to 3.0 per cent and a 2.57 per cent average guaranteed rate (2017: 1.0 per cent to 3.0 per cent and a 2.58 per cent average guaranteed rate).	The liability for policyholder benefits that represent the guaranteed minimum return is determined similarly to the liabilities of the fixed interest annuity above. The equity-linked return option within the contract is treated as an embedded liability under USGAAP and therefore this element of the liability isrecognised at fair value. The liability for the lifetime income rider is determined each period end by estimating the expected value of benefitsin excess of the projected account balance and recognising the excess on a prorated basis over the life of the contract based on total expected assessments.
Group pay-out annuities	Group payout annuities consist of a block of defined benefit annuity plans assumed from JohnHancock USA. A single premium payment from an employer (contract holder) fundsthe pension benefitsfor its employees(participants). The contracts are tailored to meet the requirements of the specific pension plan being covered. Thisis a closed block of businessfrom two standpoints: (1) JohnHancockUSA is no longerselling new contracts and (2) contract holders (companies) are no longer adding additional participantsto these defined benefit pension plans. The majority of participants are in the payout phase, but there are some participantsin the deferral phase.	The contracts provide annuity paymentsthat meet the requirements of the specific pension plan being covered. In some cases, the contracts have pre retirement death and/or withdrawal benefits, pre retirementsurviving spouse benefits, and/orsubsidised early retirement benefits.	The liability for future benefitsis determined underUSGAAP methodology for limited-payment contracts, using assumptions as of the acquisition date asto mortality and expense plus provisionsfor adverse deviation.

C4.2(b) US continued
Contract type	Description	Material features	Determination of liabilities
Variable annuities	Variable annuities are deferred annuitiesthat have the same tax advantages and payout options as fixed interest rate and fixed index annuities. They are also used for asset accumulation in retirement planning and to provide income in retirement. At 31 December 2018, variable annuities accounted for 75 per cent (2017: 77 per cent) of Jackson's policy and contract liabilities. The rate of return depends upon the performance of the selected fund portfolio. Policyholders may allocate their investment to either the fixed account or a selection of variable accounts. Subject to benefit guarantees, investment risk on the variable account is borne by the policyholder, while investment risk on the fixed account is borne by Jackson through guaranteed minimum fixed rates of return. At 31 December 2018, 5 per cent (2017: 5 per cent) of variable annuity funds were in fixed accounts.	Jackson had variable annuity funds in fixed accountstotalling £6.4 billion (2017: £5.9 billion) with minimum guaranteed ratesranging from 1.0 per cent to 3.0 per cent and a 1.70 per cent average guaranteed rate (2017: 1.0 per cent to 3.0 per cent and a 1.68 per cent average guaranteed rate). Jackson offers a choice of guaranteed benefit options within its variable annuity product portfolio, which can be elected for additional fees. These guaranteed benefits might be expressed asthe return of either: (a) total deposits made to the contract adjusted for any partial withdrawals, (b) total deposits made to the contract adjusted for any partial withdrawals, plus a minimum return, or (c) the highest contract value on a specified anniversary date adjusted for any withdrawals following that contract anniversary. Jackson hedgesthese risks using derivative instruments as described in note C7.3	The general principlesfor fixed annuity and fixed index annuity also apply to variable annuities. The impact of any fixed account interest guaranteesisreflected asthey are earned in the current account value. Jackson regularly evaluates estimates used and adjuststhe benefit guarantee liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptionsshould be revised.

02

06

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued

C4.2(b) US continued
Contract type	Description	Material features	Determination of liabilities
Variable annuities continued		The benefit guarantee types are set out below:
		Benefitsthat are payable in the event of death (guaranteed minimum death benefit).	The liability forGuaranteed Minimum Death Benefit (GMDB) is determined each period end by estimating the expected value of benefitsin excess of the projected account balance and recognising the excessrateably over the life of the contract based on total expected assessments. At 31 December 2018, these liabilities were valued using a series ofstochastic investment performance scenarios, a mean investment return of 7.4 per cent (2017: 7.4 per cent) net of external fund management fees, and assumptionsfor policyholder behaviour, mortality and expense that are similar to those used in amortising the capitalised acquisition costs.
		Benefitsthat are payable upon the depletion of funds(guaranteed minimum withdrawal benefit).	The liability for theGuaranteed Minimum Withdrawal Benefit (GMWB) 'for life' portion is determined similarly toGMDB above.
			Provisionsfor benefits under Guaranteed Minimum Withdrawal Benefit 'not for life' features are recognised at fair value under USGAAP.
			Non-performance risk isincorporated into the fair value calculation through the use of discount interest rates sourced from an AA corporate credit curve as a proxy for Jackson's own credit risk. Other risk margins, particularly for policyholder behaviour and long-term volatility, are also incorporated into the model through the use of explicitly conservative assumptions. On a periodic basis, Jackson validatesthe resulting fair values based on comparisonsto other models and market movements.

C4.2(b) US continued
Contract type	Description	Material features	Determination of liabilities
Variable annuities continued		Benefitsthat are payable at annuitisation (guaranteedminimum income benefit). Thisfeature is no longer offered and existing coverage issubstantially reinsured,subject to deductibles and annual claim limits.	The directGuaranteed Minimum Income Benefit (GMIB) liability is determined by estimating the expected value of the annuitisation benefitsin excess of the projected account balance at the date of annuitisation and recognising the excessrateably over the life of the contract based on total expected assessments.
			Guaranteed Minimum Income Benefits are reinsured,subject to a deductible and annual claim limits. Due to the netsettlement provisions of the reinsurance agreement, under the 'grandfathered'USGAAP, it is recognised at fair value with the change in fair value included as a component ofshort-term fluctuations.
			Volatility and non-performance risk is considered as perGMWB above.
		Benefitsthat are payable at the end of a specified period (guaranteed minimum accumulation benefit). Thisfeature is no longer offered.	ProvisionsforGuaranteed Minimum Accumulation Benefit (GMAB) are recognised at fair value under USGAAP. Volatility and non performance risk is considered as per GMWB above.
Life insurance	Life productsinclude term life, traditional life and interest-sensitive life (universal life and variable universal life). Life insurance products accounted for 9 per cent (2017: 9 per cent) of Jackson's policy and contract liabilities at 31 December 2018. Jackson discontinued new sales of life insurance productsin 2012.	Excluding the businessthat is subject to the retrocession treaties at 31 December 2018, Jackson had interest-sensitive life businessin force with total account value of £6.4 billion (2017: £6.3 billion), with minimum guaranteed interest ratesranging from 2.5 per cent to 6.0 per cent with a 4.67 per cent average guaranteed rate (2017: 2.5 per cent to 6.0 per cent with a 4.67 per cent average guaranteed rate).	For term and traditional life insurance contracts, provisionsfor future policy benefits are determined under USGAAP using the net level premium method and assumptions as of the issue date asto mortality, interest, policy lapses and expenses plus provisionsfor adverse deviation for directly sold business and assumptions at purchase for acquired business.
	Term life provides protection for a defined period and a benefit that is payable to a designated beneficiary upon death of the insured.		For universal life and variable universal life a retrospective deposit method is used to determine the liability for policyholder benefits. Thisisthen
	Traditional life provides protection for either a defined period or until a stated age and includes a predetermined cash value.		augmented by additional liabilities to account for no-lapse guarantees, profitsfollowed by losses, contract featuressuch as persistency bonuses, and cost of interest rate guarantees.

02

04

06

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued

		C4.2(b) US continued
--	--	----------------------

Contract type	Description	Material features	Determination of liabilities
Life insurance continued	Universal life provides permanent individual life insurance for the life of the insured and includes a savings element.
	Variable universal life is a type of life insurance policy that combines death benefit protection with the ability for the policyholder account to be invested in separate account funds. For certain fixed universal life plans, additional provisions are held to reflect the existence of guarantees offered in the past that are no longersupported by earnings on the existing asset portfolio, or for situations where future mortality charges are not expected to be sufficient to provide for future mortality costs.
Institutional products	Institutional products are: guaranteed investment contracts (GICs), funding agreements (including agreementsissued in conjunction with Jackson's participation in theUS Federal Home Loan Bank programme) and Medium Term Note funding agreements. At 31 December 2018, institutional products accounted for 1 per cent of contract liabilities (31 December 2017: 1 per cent).	GICsfeature a lump sum policyholder deposit on which interest is paid at a rate fixed at inception. Market value adjustments are made to the value of any early withdrawals. Funding agreementsfeature either lump sumor periodic policyholder deposits.Interestis paid at a fixed orindex linked rate. Funding agreements have a duration of between one and 30 years.In 2018 and 2017 therewere no funding agreementsterminable by the policyholderwith lessthan 90 days' notice.	Institutional products are classified asinvestment contracts, and are accounted for as financial liabilities. The currency risk on contractsthat represent currency obligations other thanUS dollars are hedged using cross-currency swaps.

C4.2(c) UK and Europe
Contract type	Description	Material features	Determination of liabilities
PruFund contracts	A range of with-profits contracts offer policyholders a choice of investment profiles. Unlike traditional with-profits contracts, no regular bonuses are declared. Total policyholder return is determined by an Expected Growth Rate (EGR). A different EGR is applied for each of the different PruFund funds within the range, each relating to the individual asset mix of that fund. The applicable EGR, net of the relevant charges, is applied to calculate the smoothed unit value of policyholder funds. In normal investment conditionsthe EGR is expected to reflect PAC's view of how the funds will perform over the longer term. An adjustment is made to the smoothed unit value if it moves outside of a specified range relative to the value of the underlying assets.	The EGRs are reviewed and updated quarterly, with the smoothed unit value calculated daily. Prescribed adjustmentsto the smoothed unit value are applied quarterly, monthly or daily, depending on specific market condition related triggers. If the customer terminatesthe policy the smoothed unit value is paid out. For the purposes of determining shareholder transfers, the difference between the smoothed unit value on withdrawal and the initial investment istreated as a terminal bonus.	The liabilitiesfor PruFund contracts are calculated in accordance with the methodology applied to other with-profitssub-fund contracts, as described below.
With-profits contracts in WPSF	With-profits contracts provide returnsto policyholdersthrough bonusesthat are 'smoothed'. There are two types of bonuses: 'regular' and 'final'. Regular bonusrates are determined for each type of policy primarily by targeting the bonuslevel at a prudent proportion of the long-term expected future investment return on underlying assets, reduced as appropriate for each type of policy to allow for itemssuch as expenses, charges, tax and shareholders' transfers.	Regular bonuses are typically declared once a year, and once credited, are guaranteed in accordance with the terms of the particular product. Final bonus rates are guaranteed only until the next bonus declaration. The shareholder receives one ninth of the cost of bonuses declared to the customer distributed by the typical regular and final bonuses.	The policyholder liabilitiesreported for the WPSF are primarily for two broad types of business. These are accumulating and conventional with-profits contracts. The policyholder liabilities of the WPSF are accounted for in accordance with the requirements of 'grandfathered' FRS 27. For with-profits business a market consistent valuation is performed. Additional assumptionsrequired are for persistency and the management actions under which the fund is managed. Assumptions used for a market-consistent valuation typically do not contain margins, whereasthose

06

of business do.

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued

C4.2(c) UK and Europe continued

Contract type	Description	Material features	Determination of liabilities
With-profits contracts in WPSF continued	In normal investment conditions, PAC expects changesin regular bonusratesto be gradual over time. However, PAC retainsthe discretion whether or not to declare a regular bonus each year, and there is no limit on the amount by which regular bonusrates can change. A final bonus which is normally declared annually, may be added when a claim is paid or when units of a unitised product are realised. The rates of final bonus usually vary by type of policy and by reference to the period, usually a year, in which the policy commences or each premium is paid. These rates are determined by reference to the assetsharesfor the sample policies butsubject to the smoothing approach as explained opposite.		The provisions have been determined on a basis consistent with the detailed methodology included in regulations contained in the PRA's previously issued rulesfor the determination of reserves on the PRA's'realistic' Peak 2 basis. Though no longer in force for regulatory purposes, these rules continue to be applied to determine with-profits contract liabilitiesin accordance with IFRS 4. In aggregate, the regime hasthe effect of placing a value on the liabilities ofUK with profits contracts, which reflectsthe amounts expected to be paid based on the current value of investments held by the with-profitsfunds and current circumstances. These contracts are a combination of insurance and investment contracts with discretionary participation features, as defined by IFRS 4.
			The liabilities calculation under the realistic regime requirement is explained further in note A3.1 under theUK regulated with-profitssection.
			Persistency assumptions are set based on the results of the most recent experience analysislooking at the experience over recent years of the relevant business.
			Maintenance and, forsome classes of business, termination expense assumptions are expressed as per policy amounts. They are set based on the expensesincurred during the year, including an allowance for ongoing investment expenditure and allocated between entities and product groups in accordance with the operation's internal cost allocation model. Expense inflation assumptions are set consistent with the economic basis and based on the inflation swap spot curve.
			The contract liabilitiesfor with-profits business also require assumptionsfor mortality. These are set based on the results of recent experience analysis.

C4.2(c) UK and Europe continued

Contract type	Description	Material features	Determination of liabilities
SAIF with-profits	SAIF is a ring-fenced with-profits sub-fund of PAC.No new business is written in SAIF, although regular premiums are still being paid on in-force policies. The fund issolely for the benefit of policyholders of SAIF. Shareholders have no interest in the profits of thisfund although they are entitled to asset management fees on this business. The processfor determining policyholder bonuses of SAIF with-profits policies, issimilar to that for the with-profits policies of the WPSF.However, in addition, the surplus assetsin SAIF are allocated to policiesin an orderly and equitable distribution over time as enhancementsto policyholder benefits.	Provision is made for the risks attaching to some SAIF unitised with-profits policiesthat have (Market Value Reduction) MVR-free dates and for those SAIF products which have a guaranteed minimum benefit on death or maturity of premiums accumulated at 4 per cent per annum. TheGroup's main exposure to guaranteed annuitiesin theUK isthrough SAIF and a provision of £361 million was held in SAIF at 31 December 2018 (31 December 2017: £503 million) to honour the guarantees. As SAIF is a separate sub-fund solely for the benefit of policyholders of SAIF, this provision has no impact on the financial position of the Group'sshareholders' equity.	The process of determining policyholder liabilities of SAIF issimilar to that for the with-profits policies of the WPSF.
Annuities – level, fixed increase and inflation	Level Provide a fixed annuity payment over the policyholder'slife.		Annuity liabilities are calculated asthe expected future value of future annuity payments and expenses discounted by a valuation interest rate.
linked	Fixed increase Provide for a regular annuity		Key assumptionsinclude:
annuities	payment which incorporates automatic increasesin annuity payments by fixed amounts over the policyholder'slife.		Mortality The mortality assumptions are set in light of recent population and internal experience. The assumptions used
	Inflation-linked Provide for a regular annuity payment to which an additional amount is added periodically based on the increase in theUK RPI.		are adjusted percentages ofstandard actuarial mortality tables with an allowance for future mortality improvements, the effect of anti selection and characteristicsspecific to each individual policyholder.
	With-profits Written in the with-profitsfund, these combine the income features of annuity products with the investmentsmoothing features of with-profits products and enable policyholdersto obtain exposure to investment return on the with profitsfund equity shares, property and other investment categories over time.	As per with-profits products.	Where annuities have been sold on an enhanced basisto impaired lives an additional age adjustment is made.
			New mortality projection models are released annually by the Continuous Mortality Investigation (CMI). The CMI 2016 model was used to produce the 2018 results calibrated to reflect an appropriate view of future mortality improvements.
			For annuitiesin payment, the mortality tables used are set out in C4.1(d)(iii).

06

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued
	C4.2(c) UK and Europe continued
Contract type	Description	Material features	Determination of liabilities
Annuities – level, fixed increase and inflation linked annuities continued			Expense Maintenance expense assumptions are expressed as per policy amounts. They are set based on the expensesincurred during the year, including an allowance for ongoing investment expenditure and allocated between entities and product groupsin accordance with the operation'sinternal cost allocation model. A margin for adverse deviation is added to this amount. Expense inflation assumptions are set consistent with the economic basis and based on the inflation swap spot curve.
			Valuation interest rates Valuation interest rates used to discount the liabilities are based on the yields as at the valuation date on the assets backing the technical provisions. For fixed interestsecuritiesthe internal rate of return of the assets backing the liabilitiesis used. Properties are valued using the redemption yield, and for equitiesit isthe greater of the dividend yield and the average of the dividend yield and the earnings yield. An adjustment is made to the yield on non-risk-free fixed interestsecurities and property to reflect credit risk.
			Credit risk For IFRS reporting, the resultsforUK shareholder-backed annuity business are particularly sensitive to the allowances made for credit risk on fixed interestsecurities. Further details on

credit risk allowance are provided in

note B3(ii).

C4.2(c) UK and Europe continued
Contract type	Description	Material features	Determination of liabilities
Unit-linked	UK and Europe insurance operations also have a book of	There are no guaranteed maturity values or guaranteed

unit-linked policies.

For unit-linked contractsthe attaching liability reflectsthe unit value obligation and, in the case of policies classified asinsurance contracts, provision for expenses and mortality risk. The latter component is determined by applying mortality assumptions on a basisthat is appropriate for the policyholder profile.

For those contracts where the level of insurance risk isinsignificant, the assets and liabilities arising under the contracts are distinguished between those that relate to the financial instrument liability and acquisition costs and deferred income that relate to the component of the contract that relatesto investment management. Acquisition costs and deferred income are recognised consistent with the level ofservice provision in line with the requirements of IFRS 15.

To calculate the non-unit reservesfor linked business, assumptions have been set for the gross unit growth rate and the rate of inflation of maintenance expenses, as well asfor the valuation interest rate.

Operation of the UK with-profits sub-funds

The WPSF mainly contains with-profits business but it also containssome non-profit business(unit-linked, term assurances and annuities). The WPSF's profits, apportioned 90 per cent to its policyholders and 10 per cent to shareholders assurplusfor distribution, are determined via the annual actuarial valuation.

annuity options on unit-linked policies except for minor amountsfor certain policies linked to cash units within SAIF.

Application of significant judgement

Determining bonuses using the table described in the material featurestable above requiresthe PAC Board to apply significant judgement in many respects, including in particular the following:

— Determining what constitutesfair treatment of customers;

• Smoothing of investment returns; and
• Determining at what level to set bonusesto ensure that they are competitive.

06

05

C4 Policyholder liabilities and unallocated surplus continued

C4.2 Products and determining contract liabilities continued

Key assumptions

The overall rate of return on investments and the expectation of future investment returns are the most important influencesin bonus rates,subject to the smoothing described below. Prudential determinesthe assumptionsto apply in respect of these factors, including the effects of reasonably likely changesin key assumptions, in the context of the overarching discretionary and smoothing framework that appliesto its with-profits business. Assuch, it is not possible to specifically quantify the effects of each of these assumptions, or of reasonably likely changesin these assumptions.

Prudential's approach, in applying significant judgement and discretion in relation to determining bonusrates, is consistent conceptually with the approach adopted by other firmsthat manage a with-profits business and is also consistent with the requirements of the Principles and Practices of Financial Management (PPFM) that are applied in the management of their with-profitsfunds.

In accordance with industry-wide regulatory requirements, the PAC Board has appointed:

— A chief actuary who providesthe PAC Board with all actuarial advice;

• A with-profits actuary whose specific duty isto advise the PAC Board on the reasonableness and proportionality of the manner in which its discretion has been exercised in applying the principles and practices of financial management and the manner in which any conflicting interests have been addressed; and
• A with-profits committee of independent individuals, which assessesthe degree of compliance with the PPFM and the manner in which conflicting rights have been addressed.

Determination of bonus rates

In determining bonusratesfor theUK with-profits policies,smoothing is applied to the allocation of the overall earnings of theUK with-profitsfund of which the investment return is a significant element.

The degree ofsmoothing isillustrated numerically by comparing in the following table the relatively 'smoothed' level of policyholder bonuses declared as part of the surplusfor distribution, with the more volatile movement in investment return and other items of income and expenditure of theUK component of theUK with-profitsfund for each year presented.

	2018 £m	2017 £m
Net income of the fund:
Investment return	(2,261)	9,985
Claimsincurred	(8,776)	(8,449)
Movement in policyholder liabilities	(554)	(10,011)
Add back policyholder bonusesfor the year (asshown below)	2,345	2,071
Claimsincurred and movement in policyholder liabilities
(including charge for provision for assetshares and excluding policyholder bonuses)	(6,985)	(16,389)
Earned premiums, net of reinsurance	12,505	12,508
Other income	36	35
Acquisition costs and other expenditure	(1,170)	(1,732)
Share of profitsfrom investment joint ventures	36	106
Tax credit (charge)	273	(440)
Net income of the fund before movement in unallocated surplus	2,434	4,073
Movement in unallocated surplus	170	(1,769)
Surplusfor distribution	2,604	2,304
Surplusfor distribution allocated asfollows:
– 90% policyholders' bonus(asshown above)	2,345	2,071
– 10%shareholders' transfers	259	233
	2,604	2,304

C5 Intangible assets

C5.1 Goodwill

	31 Dec 2018 £m			31 Dec 2017 £m
	Attributable to:
	Shareholders	With-profits	Total	Total
Carrying value at beginning of year	1,458	24	1,482	1,628
Acquisition of TMB Asset Management Co., Ltd. in Thailand (see note D1.2)	181	–	181	–
Other additionsin the year (see below)	–	195	195	9
Disposals/reclassificationsto held forsale	–	(10)	(10)	(155)
Exchange differences	12	(3)	9	–
Carrying value at end of year	1,651	206	1,857	1,482
Comprising:
M&G– attributable to shareholders			1,153	1,153
Other – attributable to shareholders			498	305
Goodwill – attributable to shareholders			1,651	1,458
Venture fund investments – attributable to with-profitsfunds			206	24
			1,857	1,482

During 2018, theUK with-profitsfund, via its venture fund holdings managed by M&GPrudential asset management, made a small number of acquisitionsthat are consolidated by theGroup resulting in an addition to goodwill of £195 million. Asthese transactions are within the with-profitsfund, they have no impact on shareholders' profit or equity for the year ended 31 December 2018. The impact on theGroup's consolidated revenue, including investment returns, is not material.Had the acquisitions been effected at 1 January 2018, the revenue and profit of theGroup for 2018 would not have been materially different.

Impairment testing

Goodwill does not generate cash flowsindependently of other groups of assets and thusis assigned to cash-generating unitsfor the purposes of impairment testing. These cash-generating units are based upon how management monitorsthe business and represent the lowest level to which goodwill can be allocated on a reasonable basis.

Assessment of whether goodwill may be impaired

Goodwill istested for impairment by comparing the cash-generating unit's carrying amount, including any goodwill, with itsrecoverable amount. TheGroup's methodology of assessing whether goodwill may be impaired for acquired life and asset management operationsis discussed below:

M&G

The recoverable amount for the M&Gbusiness(which is part of theUK and Europe operating segment) has been determined by calculating the value in use of M&GGroup Limited and itssubsidiaries(considered to be a cash-generating unit during 2018). This has been calculated by aggregating the present value of future cash flows expected to be derived from the M&Gbusiness.

The discounted cash flow valuation has been based on a three-year plan prepared by M&G, and approved by management, and cash flow projectionsfor later years.

The value in use is particularly sensitive to a number of key assumptions asfollows:

• The set of economic, market and business assumptions used to derive the three-year plan. The direct and secondary effects of recent developments,such as changesin global equity markets and trendsin fund flows, are considered by management in arriving at the expectationsfor the final projectionsfor the plan;
• The assumed growth rate on forecast cash flows beyond the terminal year of the plan after considering expected future and past growth rates. A growth rate of 1.7 per cent (2017: 1.7 per cent) has been used to extrapolate beyond the plan period;
• The risk discount rate. Differing discount rates have been applied in accordance with the nature of the individual component businesses. For the most material component retail and institutional business, a risk discount rate of 12 per cent (2017: 12 per cent) has been applied to post-tax cash flows. The pre-tax risk discount rate was 15 per cent (2017: 15 per cent); and
• That asset management contracts continue on similar terms. Management believesthat any reasonable change in the key assumptions would not cause the recoverable amount of M&Gto fall below its carrying amount.

02

04

06 European

05

C5 Intangible assets continued

C5.1 Goodwill continued

Other goodwill attributable to shareholders

Other goodwill attributable to shareholdersrepresents amounts allocated to entitiesin Asia in respect of both acquired asset management and life businesses. The goodwill in respect of asset management businesses at 31 December 2018 comprised mainly the goodwill arising from the acquisition of TMB Asset Management Co., Ltd. in Thailand during the year (see note D1.2). At 31 December 2018, the recoverable amount of this business has been determined by using a discounted cash flow valuation.

For acquired life businesses, the Company routinely comparesthe aggregate of net asset value and acquired goodwill on an IFRS basis of acquired life business with the value of the current in-force business as determined using the EEV methodology. Any excess of IFRS over EEV carrying value isthen compared with EEV basis value of current and projected future new businessto determine whether there is any indication that the goodwill in the IFRS statement of financial position may be impaired. The methodology and assumptions underpinning theGroup's EEV basis of reporting are included in the EEV basissupplementary information in this Annual Report.

Venture fund investments

Goodwill for venture fund investmentsistested for impairment by comparing the business's carrying value, including goodwill to its recoverable amount (fair value less coststo sell). The accumulated impairment of goodwill as at 31 December 2018 was £4.7 million (31 December 2017: nil), wholly attributable to with-profitsfunds.

C5.2 Deferred acquisition costs and other intangible assets

	31 Dec 2018 £m	31 Dec 2017 £m
Deferred acquisition costs and other intangible assets attributable to shareholders note (i)	11,784	10,866
Other intangible assets, including computersoftware, attributable to with-profitsfunds	139	145
Total of deferred acquisition costs and other intangible assets	11,923	11,011

(i) Deferred acquisition costs and other intangible assets attributable to shareholders

Total deferred acquisition costs and other intangible assets attributable to shareholders comprise:

	31 Dec 2018 £m	31 Dec 2017 £m
Deferred acquisition costsrelated to insurance contracts as classified under IFRS 4 Deferred acquisition costsrelated to investment management contracts, including life assurance contracts	10,017	9,170
classified as financial instruments and investment management contracts under IFRS 4	78	63
Deferred acquisition costsrelated to insurance and investment contracts note (ii)	10,095	9,233
Present value of acquired in-force policiesfor insurance contracts as classified under IFRS 4 (PVIF)	34	36
Distribution rights and other intangibles	1,655	1,597
Present value of acquired in-force (PVIF) and other intangibles attributable to shareholders note (iii)	1,689	1,633
Total of deferred acquisition costs and other intangible assets note (a)	11,784	10,866

Notes

(a) Total deferred acquisition costs and other intangible assets can be further analysed by business operations as follows:

	31 Dec 2018 £m				31 Dec 2017 £m
	Deferred acquisition costs
	Asia insurance	US insurance note (b)	UK and Europe insurance	All asset manage ment	PVIF and other intangibles*	Total	Total
Balance at 1 January	946	8,197	84	6	1,633	10,866	10,755
Additions	419	569	15	15	230	1,248	1,240
Amortisation to the income statement: note (c)† Adjusted IFRS operating profit based on
longer-term investment returns	(148)	(683)	(11)	(3)	(179)	(1,024)	(709)
Non-operating profit	–	(114)	–	–	(4)	(118)	455
	(148)	(797)	(11)	(3)	(183)	(1,142)	(254)
Disposals and transfers	–	–	–	–	(14)	(14)	–
Exchange differences and other movements Amortisation of DAC related to net unrealised valuation movements on theUS insurance operation's available-for-sale securitiesrecognised	47	512	(2)	–	23	580	(799)
within other comprehensive income	–	246	–	–	–	246	(76)
Balance at 31 December	1,264	8,727	86	18	1,689	11,784	10,866

* PVIF and other intangibles comprise PVIF, distribution rights and other intangiblessuch assoftware rights. Distribution rightsrelate to amountsthat have been paid or have become unconditionally due for payment as a result of past eventsin respect of bancassurance partnership arrangementsin Asia. These agreements allow for bank distribution of Prudential'sinsurance productsfor a fixed period of time. Software rightsinclude additions of £34 million, amortisation of £32 million, foreign exchange losses of £7 million and a balance at 31 December 2018 of £62 million.

†Under theGroup's application of IFRS 4,USGAAP is used for measuring the insurance assets and liabilities of itsUS and certain Asia operations.UnderUSGAAP, most of the US insurance operation's products are accounted for under Accounting Standards Codification Topic 944, Financial Services – Insurance, of the Financial Accounting Standards Board whereby deferred acquisition costs are amortised in line with the emergence of actual and expected gross profits which are determined using an assumption for long-term investment returnsfor the separate account of 7.4 per cent (2017: 7.4 per cent) (gross of asset management fees and other chargesto policyholders, but net of external fund management fees). The amountsincluded in the income statement and other comprehensive income affect the pattern of profit emergence and thusthe DAC amortisation attaching. DAC amortisation is allocated to the operating and non-operating components of theGroup'ssupplementary analysis of profit and other comprehensive income by reference to the underlying items(see note C7.3(iv)).

(b) The DAC amount in respect of US insurance operations comprises amounts in respect of: 31 Dec

	2018 £m	31 Dec 2017 £m
Variable annuity business	8,477	8,208
Other business	299	278
Cumulative shadow DAC (for unrealised gains booked in other comprehensive income)*	(49)	(289)
Total DAC forUS operations	8,727	8,197

*A gain of £246 million (2017: a loss of £(76) million) forshadow DAC amortisation is booked within other comprehensive income to reflect the impact from the negative unrealised valuation movement in 2018 of £1,617 million (2017: positive unrealised valuation movement of £617 million). These adjustmentsreflect movement from period to period, in the changesto the pattern of reported gross profitsthat would have occurred if the assetsreflected in the statement of financial position had been sold, crystallising the unrealised gains and losses, and the proceedsreinvested at the yields currently available in the market. At 31 December 2018, the cumulative shadow DAC balance asshown in the table above was negative £49 million (31 December 2017: negative £289 million).

(c) Sensitivity of amortisation charge

The amortisation charge to the income statement isreflected in both adjusted IFRS operating profit based on longer-term investment returns and short-term fluctuationsin investment returns. The amortisation charge to adjusted IFRS operating profit based on longer-term investment returnsin a reporting period comprises:

– A core amount that reflects a relatively stable proportion of underlying premiums or profit; and

– An element of acceleration or deceleration arising from market movements differing from expectations. In periods where the cap and floor feature of the mean reversion technique (which is used for moderating the effect ofshort-term volatility in investment returns) are not relevant, the technique operatesto dampen the second element above.Nevertheless, extreme market movements can cause material acceleration or deceleration of amortisation in spite

of this dampening effect.

Furthermore, in those periods where the cap or floor isrelevant, the mean reversion technique provides no further dampening and additional volatility may result. In 2018, the DAC amortisation charge for adjusted IFRS operating profit based on longer-term investment returns was determined after including a debit for accelerated amortisation of £194 million (2017: credit for decelerated amortisation of £86 million). The acceleration arising in 2018 reflects a mechanical increase in the projected separate account return for the next five years under the mean-reversion technique.Under thistechnique the projected level of return for each of the next five yearsis adjusted so that in combination with the actual rates of return for the preceding three years(including the current period) the assumed long-term annualseparate account return of 7.4 per cent isrealised on average over the entire eight-year period. The acceleration in DAC amortisation in 2018 is driven both by the actualseparate return in the year being lower than that assumed and by the lower than expected return in 2015 falling out of the eight-year period in effect reversing the deceleration experienced in 2015 under the mean reversion formula.

The application of the mean reversion formula (described in note A3.1) hasthe effect of dampening the impact of equity market movements on DAC amortisation while the mean reversion assumption lies within the corridor. At 31 December 2018, it would take approximate movementsin separate account values of more than either negative 22 per cent or positive 57 per cent (31 December 2017: negative 32 per cent or positive 37 per cent) for the mean reversion assumption to move outside the corridor.

06 European Embedded Value (EEV)

C5 Intangible assets continued

C5.2 Deferred acquisition costs and other intangible assets continued

(ii) Deferred acquisition costs related to insurance and investment contracts

The movementsin deferred acquisition costsrelating to insurance and investment contracts are asfollows:

	2018 £m		2017 £m
	Insurance contracts	Investment management note	Insurance contracts	Investment management note
DAC at 1 January	9,170	63	9,114	64
Additions	991	26	1,000	11
Amortisation	(947)	(11)	(77)	(12)
Exchange differences	557	–	(791)	–
Change in shadow DAC related to movement in unrealised appreciation of
Jackson'ssecurities classified as available-for-sale	246	–	(76)	–
DAC at 31 December	10,017	78	9,170	63

Note

All of the additions are through internal development. The carrying amount of the balance comprisesthe following gross and accumulated amortisation amounts:

	2018 £m	2017 £m
Gross amount	181	156
Accumulated amortisation	(103)	(93)
Net book amount	78	63

(iii) Present value of acquired in-force (PVIF) and other intangibles attributable to shareholders

	2018 £m				2017 £m
	PVIF note (a)	Distribution rights note (b)	Other intangibles (including software) note (c)	Total	PVIF note (a)	Distribution rights note (b)	Other intangibles (including software) note (c)	Total
At 1 January
Cost Accumulated amortisation	227 (191)	1,793 (312)	363 (247)	2,383 (750)	226 (183)	1,628 (196)	321 (219)	2,175 (598)
	36	1,481	116	1,633	43	1,432	102	1,577
Additions	–	181	49	230	–	173	56	229
Amortisation charge	(4)	(142)	(37)	(183)	(7)	(121)	(37)	(165)
Disposals and transfers Exchange differences and other	–	–	(14)	(14)	–	–	–	–
movements	2	18	3	23	–	(3)	(5)	(8)
At 31 December	34	1,538	117	1,689	36	1,481	116	1,633
Comprising:
Cost	232	1,999	313	2,544	227	1,793	363	2,383
Accumulated amortisation	(198)	(461)	(196)	(855)	(191)	(312)	(247)	(750)
	34	1,538	117	1,689	36	1,481	116	1,633

Notes

(a) All of the PVIF balancesrelate to insurance contracts. The PVIF attaching to investment contracts have been fully amortised. Amortisation is charged over the period of provision of asset managementservices asthose profits emerge.

(b) Distribution rightsrelate to fees paid in relation to the bancassurance partnership arrangementsfor the bank distribution of Prudential'sinsurance productsfor a fixed period of time. The distribution rights amounts are amortised on a basisto reflect the pattern in which the future economic benefits are expected to be consumed by reference to new business production levels.

(c) Software is amortised over its useful economic life, which generally representsthe licence period of the software acquired.

C6 Borrowings

C6.1 Core structural borrowings of shareholder-financed businesses

	31 Dec 2018 £m	31 Dec 2017 £m
Holding company operations: note (i)
US\$250m 6.75%Notes(Tier 1) note (vi)	196	185
US\$300m 6.5%Notes(Tier 1) note (vi)	235	222
US\$700m 5.25%Notes(Tier 2)	550	517
US\$550m 7.75%Notes(Tier 1) note (v)	–	407
US\$1,000m 5.25%Notes(Tier 2)	780	731
US\$725m 4.375%Notes(Tier 2)	565	530
US\$750m 4.875%Notes(Tier 2)	583	548
Perpetual Subordinated Capital Securities	2,909	3,140
¤20m Medium Term Notes 2023 (Tier 2) note (vii)	18	18
£435m 6.125%Notes 2031 (Tier 2)	431	430
£400m 11.375%Notes 2039 (Tier 2)	399	397
£600m 5%Notes 2055 (Tier 2)	591	591
£700m 5.7%Notes 2063 (Tier 2)	696	696
£750m 5.625%Notes 2051 (Tier 2) note (iv)	743	–
£500m 6.25%Notes 2068 (Tier 2) note (iv)	498	–
US\$500m 6.5%Notes 2048 (Tier 2) note (iv)	391	–
SubordinatedNotes	3,767	2,132
Subordinated debt total	6,676	5,272
Senior debt: note (ii)
£300m 6.875%Bonds 2023	294	300
£250m 5.875% Bonds 2029	223	249
Bank loan note (iii)	275	–
Holding company total	7,468	5,821
Prudential Capital bank loan note (iii)	–	275
JacksonUS\$250m 8.15%SurplusNotes 2027 note (viii)	196	184
Total (per consolidated statement of financial position)	7,664	6,280

Notes

(i) These debt tier classifications are consistent with the treatment of capital for regulatory purposes under the Solvency II regime.

TheGroup has designatedUS\$3,725 million (31 December 2017:US\$4,275 million) of itsUS dollar denominated subordinated debt as a net investment hedge under IAS 39 to hedge the currency risksrelated to the net investment in Jackson.

(ii) The senior debt ranks above subordinated debt in the event of liquidation. In 2018, as part of its preparation to demerge M&GPrudential, theGroup made certain modificationsto the terms and conditions of the senior bonds with bondholders' consent. The amendment to the terms and conditions will avoid an event of a technical default on the bonds,should the demerger proceed. The fees paid to bondholders have been adjusted to the carrying value of the bonds and will be amortised in subsequent periods.No other adjustments were made to the carrying value of the debt as a result of the modification.

(iii) The bank loan of £275 million is drawn at a cost of 12-monthGBP LIBOR plus 0.33 per cent. The loan, held by Prudential Capital as of 31 December 2017, wasrenewed in December 2018, with Prudential plc becoming the new holder. The loan matures on 20 December 2022 with an option to repay annually.

(iv) In October 2018, the Company issued the following three substitutable core structural borrowings as part of the processrequired before demerger to rebalance debt across M&GPrudential and Prudential (see below):

– £750 million 5.625 per cent Tier 2 subordinated notes due 2051. The proceeds, net of costs, were £743 million;

– £500 million 6.25 per cent Tier 2 subordinated notes due 2068. The proceeds, net of costs, were £498 million; and

–US\$500 million 6.5 per cent Tier 2 subordinated notes due 2048. The proceeds, net of costs, were £389 million (US\$498 million).

(v) In December 2018, the Company paid £434 million to redeem itsUS\$550 million 7.75 per cent Tier 1 perpetualsubordinated notes.

(vi) These borrowings can be converted, in whole or in part, at the Company's option and subject to certain conditions, on any interest payment date, into one or more series of Prudential preference shares.

(vii) The ¤20 million borrowings were issued at 20-year Euro Constant Maturity Swap (capped at 6.5 per cent). These have been swapped into borrowings of £14 million with interest payable at three-monthGBP LIBOR plus 1.2 per cent.

(viii) Jackson's borrowings are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Jackson.

04

06 European Embedded Value (EEV)

C6 Borrowings continued

C6.1 Core structural borrowings of shareholder-financed businesses continued

Prior to the demerger, theGroup expectsto rebalance its debt capital across Prudential and M&GPrudential. This will include the ultimate holding company of M&GPrudential becoming an issuer of new debt, including debtsubstituted from Prudential, and Prudential redeeming some of its existing debt. Following these actions, the overall absolute quantum of debt across Prudential and M&GPrudential is currently expected to increase, by an amount which is not considered to be material in the context of theGroup'stotal outstanding debt as at 30 June 2018, before any substitutable debt had been issued, of £7.6 billion (comprising theGroup's core structural borrowings of £6.4 billion and shareholder borrowingsfrom short-term fixed income securities programme of £1.2 billion).

At the time of the demerger, Prudential expects M&GPrudential to be holding around £3.5 billion ofsubordinated debt. This expectation issubject to the M&GPrudential capital risk appetite being approved by the Board of the ultimate holding company of M&GPrudential, once fully constituted to include independent non-executive directors, and reflectsthe current operating environment and economic conditions, material changesin which may lead to a different outcome.

Ratings

Prudential plc has debt ratingsfrom Standard & Poor's, Moody's and Fitch. Prudential plc'slong-term senior debt israted A2 by Moody's, A by Standard & Poor's and A- by Fitch.

Prudential plc'sshort-term debt israted as P-1 by Moody's, A-1 by Standard & Poor's and F1 by Fitch.

The financialstrength of The Prudential Assurance Company Limited israted A+ by Standard & Poor's, Aa3 by Moody's and AA- by Fitch.

JacksonNational Life Insurance Company's financialstrength israted AA- by Standard & Poor's and Fitch, A1 by Moody's and A+ by A.M. Best.

Prudential Assurance Co. Singapore (Pte) Ltd.'s(Prudential Singapore) financialstrength israted AA- by Standard & Poor's. All theGroup'sratings are on a stable outlook.

C6.2 Other borrowings

(i) Operational borrowings attributable to shareholder-financed businesses

	31 Dec 2018 £m	31 Dec 2017 £m
Commercial Paper	472	485
Medium Term Notes 2018	–	600
Borrowingsin respect ofshort-term fixed income securities programmes	472	1,085
Bank loans and overdrafts	90	70
Obligations under finance leases	19	5
Other borrowings	417	631
Other borrowings note	526	706
Total	998	1,791

Note

Other borrowings mainly include senior debt issued through the FederalHome Loan Bank of Indianapolis(FHLB),secured by collateral posted with the FHLB by Jackson. In addition, other borrowingsinclude amounts whose repayment to the lender is contingent upon future surplus emerging from certain contractsspecified under the arrangement. If insufficientsurplus emerges on those contracts, there is no recourse to other assets of theGroup and the liability is not payable to the degree ofshortfall.

(ii) Borrowings attributable to with-profits businesses

	31 Dec 2018 £m	31 Dec 2017 £m
Non-recourse borrowings of consolidated investment funds*	3,845	3,570
£100m 8.5% undated subordinated guaranteed bonds of Scottish Amicable Finance plc†	–	100
Other borrowings(including obligations under finance leases)	95	46
Total	3,940	3,716

* In all instancesthe holders of the debt instrumentsissued by these subsidiaries and funds do not have recourse beyond the assets of these subsidiaries and funds.

† The interests of the holders of the bondsissued by Scottish Amicable Finance plc, a subsidiary of the Scottish Amicable Insurance Fund, are subordinated to the entitlements of the policyholders of that fund. These bonds were redeemed in full on 30 June 2018.

C6.3 Maturity analysis

The following table sets out the remaining contractual maturity analysis of theGroup's borrowings asrecognised in the statement of financial position:

	Shareholder-financed businesses				With-profits businesses
	Core structural borrowings		Operational borrowings		Borrowings
	31 Dec 2018 £m	31 Dec 2017 £m	31 Dec 2018 £m	31 Dec 2017 £m	31 Dec 2018 £m	31 Dec 2017 £m
Lessthan 1 year	–	275	840	1,723	573	351
1 to 2 years	–	–	89	1	71	371
2 to 3 years	–	–	1	1	90	184
3 to 4 years	275	–	–	–	5	59
4 to 5 years	312	–	–	–	102	1
Over 5 years	7,077	6,005	68	66	3,099	2,750
Total	7,664	6,280	998	1,791	3,940	3,716

01 Group overview

02 Strategic report

05

06

C7 Risk and sensitivity analysis

C7.1 Group overview

TheGroup'srisk framework and the management of the risk, including those attached to theGroup's financialstatementsincluding financial assets, financial liabilities and insurance liabilities, together with the inter-relationship with the management of capital have been included in the audited sections of the 'Chief Risk Officer's Report of the risksfacing our business and how these are managed'.

The financial and insurance assets and liabilities on theGroup's balance sheet are, to varying degrees,subject to market and insurance risk and other changes of experience assumptionsthat may have a material effect on IFRS basis profit or loss and shareholders' equity. The market and insurance risks, including how they affectGroup's operations and how these are managed are discussed in the Risk report referred to above.

The mostsignificant itemsthat the IFRS shareholders' profit or loss and shareholders' equity for theGroup'slife assurance business are sensitive to, are shown in the following tables. The distinction between direct and indirect exposure is not intended to indicate the relative size of the sensitivity.

Type of business		Insurance and lapse risk
	Investments/derivatives	Liabilities/unallocated surplus	Other exposure
	Asia insurance operations (see also section C7.2)
All business		Currency risk		Mortality and morbidity risk Persistency risk
With-profits business	Net neutral direct exposure (indirect exposure only)		Investment performance subject to smoothing through declared bonuses
Unit-linked business	Net neutral direct exposure (indirect exposure only)		Investment performance through asset management fees
Non-participating		Asset/liability mismatch risk
business	Credit risk	Interest ratesfor those operations where the basis of insurance liabilitiesis sensitive to current market movements
	Interest rate and price risk
	US insurance operations (see also section C7.3)
All business	Currency risk			Persistency risk
Variable annuity business	Net effect of market risk arising from incidence of guarantee features and variability of asset management fees offset by derivative hedging programme			Risk that utilisation of withdrawal benefits or lapse levels differ from those assumed in pricing
Fixed index annuity business	Derivative hedge programme to the extent not fully hedged against liability	Incidence of equity participation features
Fixed index annuities, Fixed annuities and GIC business	Credit risk Interest rate risk Profit and loss and shareholders' equity are volatile for these risks as they affect the values of derivatives and embedded derivatives and impairment losses. In addition, shareholders' equity is volatile for the incidence of these risks on unrealised appreciation of fixed income securities classified as available-for-sale under IAS 39		Spread difference between earned rate and rate credited to policyholders	Lapse risk, but the effects of extreme events may be mitigated by the application of market value adjustments

Type of business		Insurance and lapse risk
	Investments/derivatives	Liabilities/unallocated surplus	Other exposure
	UK and Europe insurance operations (see also section C7.4)
With-profits business	Net neutral direct exposure (indirect exposure only)		Investment performance subject to smoothing through declared bonuses	Persistency risk to future shareholder transfers
SAIF sub-fund	Net neutral direct exposure (indirect exposure only)		Asset management fees earned
Unit-linked business	Net neutral direct exposure (indirect exposure only)		Investment performance through asset management fees	Persistency risk
		Asset/liability mismatch risk
Shareholder-backed annuity business	Credit risk for assets covering liabilities and shareholder capital			Mortality experience and assumptions
	Interest rate risk for assetsin excess of liabilities, ie assets representing shareholder capital			for longevity

Detailed analysis ofsensitivity of IFRS basis profit or loss and shareholders' equity to key market and other risks by business unit is provided in notes C7.2, C7.3, C7.4 and C7.5. The sensitivity analysis provided showsthe effect on profit or loss and shareholders' equity to changesin the relevant risk variables, all of which are reasonably possible at the relevant balance sheet date. In the equity risk sensitivity analysisshown below, theGroup has considered the impact of an instantaneous 20 per cent fall in equity markets. If equity markets were to fall by more than 20 per cent, theGroup believesthat this would not be an instantaneousfall but rather would be expected to occur over a period of time during which theGroup would be able to put mitigating management actionsin place. In addition, the equity risk sensitivity analysis provided assumed that all equity indicesfall by the same percentage.

Impact of diversification on risk exposure

TheGroup benefitsfrom diversification benefits achieved through the geographicalspread of theGroup's operations and, within those operations, through a broad mix of product types. Relevant correlation factorsinclude:

Correlation across geographic regions:

• Financial risk factors; and
• Non-financial risk factors.

Correlation across risk factors:

• Longevity risk;
• Expenses;
• Persistency; and
• Other risks.

The sensitivities below do notreflect that assets and liabilities are actively managed and may vary at the time any actual market movement occurs. There are strategiesin place to minimise the exposure to market fluctuations. For example, as market indices fluctuate, Prudential would take certain actionsincluding selling investments, changing investment portfolio allocation and adjusting bonuses credited to policyholders. In addition, this analysis does not consider the effect of market changes on new business generated in the future.

Other limitations on the sensitivitiesinclude: the use of hypothetical market movementsto demonstrate potential risk that only represent Prudential's view of reasonably possible near-term market changes and that cannot be predicted with any certainty; the assumption that interest ratesin all countries move identically; the assumption that all global currencies move in tandem with theUS dollar against pound sterling; and the lack of consideration of the inter-relation of interest rates, equity markets and foreign currency exchange rates.

04

06 European Embedded

C7 Risk and sensitivity analysis continued

C7.2 Asia insurance operations

Exposure and sensitivity of IFRS basis profit and shareholders' equity to market and other risks

The Asia operationssell with-profits and unit-linked policies, and the investment portfolio of the with-profitsfunds contains a proportion of equities.Non-participating businessislargely backed by debtsecurities or deposits. TheGroup's exposure to market risk arising from its Asia operationsistherefore at modest levels. Thisreflectsthe fact that the Asia operations have a balanced portfolio of with-profits, unit-linked and other types of business.

In Asia, adverse persistency experience can impact the IFRS profitability of certain types of business written in the region. Thisrisk is managed at a business unit level through regular monitoring of experience and the implementation of management actions as necessary. These actions could include product enhancements, increased management focus on premium collection, as well as other customer retention efforts. The potential financial impact of lapsesis often mitigated through the specific features of the products, eg surrender charges, or through the availability of premium holiday or partial withdrawal policy features.

In summary, for Asia operations, the adjusted IFRS operating profit based on longer-term investment returnsis mainly affected by the impact of market levels on unit-linked persistency, and other insurance risks. At the total IFRS profit level the Asia result is affected by short-term value movements on the asset portfolio for non-linked shareholder-backed business.

(i) Sensitivity to risks other than foreign exchange risk

Interest rate risk

Excluding its with-profits and unit-linked businesses, the results of the Asia business are sensitive to the movementsin interest rates. For the purposes of analysing sensitivity to variationsin interest rates, reference has been made to the movementsin the 10-year

government bond rates of the territories. At 31 December 2018, 10-year government bond rates vary from territory to territory and range from 0.9 per cent to 8.1 per cent (31 December 2017: 1.0 per cent to 7.5 per cent).

For the sensitivity analysis asshown in the table below, the reasonably possible interest rate movement used is 1 per cent for all local business units.

The estimated sensitivity to the decrease and increase in interest ratesis asfollows:

	2018 £m		2017 £m
	Decrease of 1%	Increase of 1%	Decrease of 1%	Increase of 1%
Profit before tax attributable to shareholders	312	(338)	2	(443)
Related deferred tax (where applicable)	(15)	26	(7)	20
Net effect on profit and shareholders' equity	297	(312)	(5)	(423)

The pre-tax impacts, if they arose, would mostly be recorded within the category short-term fluctuationsin investmentsreturnsin the Group'ssegmental analysis of profit before tax.

The degree ofsensitivity of the results of the non-linked shareholder-backed business of the Asia operationsto movementsin interest rates depends upon the degree to which the liabilities under the 'grandfathered' IFRS 4 measurement basisreflects market interest rates from period-to-period. For example for countries applyingUSGAAP, the results can be more sensitive asthe effect of interest rate movements on the backing investments may not be offset by liability movements.

In addition, the degree ofsensitivity of the resultsshown in the table above is dependent on the interest rate level at that point in time. An additional factor to the direction of the sensitivity of the Asia operations as a whole is movement in the country mix.

Equity price risk

The non-linked shareholder-backed business haslimited exposure to equity and property investment (31 December 2018: £2,151 million; 31 December 2017: £1,764 million).Generally, changesin equity and property investment values are not directly offset by movementsin non-linked policyholder liabilities.

The estimated sensitivity to a 10 per cent and 20 per cent change in equity and property pricesforshareholder-backed Asia other business(including those held by theGroup'sjoint venture and associate businesses), which would be reflected in the short-term fluctuation component of theGroup'ssegmental analysis of profit before tax, is asfollows:

	2018 £m Decrease		2017 £m Decrease
	of 20%	of 10%	of 20%	of 10%
Profit before tax attributable to shareholders Related deferred tax (where applicable)	(557) 17	(279) 8	(478) 7	(239) 4
Net effect on profit and shareholders' equity	(540)	(271)	(471)	(235)

A 10 or 20 per cent increase in equity and property values would have an approximately equal and opposite effect on profit and shareholders' equity to the sensitivitiesshown above.

Insurance risk

Many of the business unitsinAsia are exposed tomortality/morbidity risk and provision ismade within policyholderliabilities on a prudent regulatory basisto coverthe potential exposure. If these prudent assumptions were strengthened by 5 per cent then it is estimated that post-tax profit and shareholders' equity would be decreased by approximately £57million (2017: £66million). Mortality andmorbidity have a broadly symmetrical effect on the portfolio and any weakening of these assumptions would have a similar equal and opposite impact.

(ii) Sensitivity to foreign exchange risk

Consistent with theGroup's accounting policies, the profits of the Asia insurance operations are translated at average exchange rates and shareholders' equity at the closing rate for the reporting period. For 2018, the ratesfor the mostsignificant operations are given in note A1.

A 10 per cent increase (strengthening of the pound sterling) or decrease (weakening of the pound sterling) in these rates would have reduced or increased profit before tax attributable to shareholders, profit for the year and shareholders' equity, excluding goodwill attributable to Asia insurance operationsrespectively asfollows:

	A 10% increase in local currency to £ exchange rates		A 10% decrease in local currency to £ exchange rates
	2018 £m	2017 £m	2018 £m	2017 £m
Profit before tax attributable to shareholders	(134)	(155)	164	189
Profit for the year	(113)	(135)	138	165
Shareholders' equity, excluding goodwill, attributable to Asia operations	(543)	(492)	664	601

C7.3 US insurance operations

Exposure and sensitivity of IFRS basis profit and shareholders' equity to market and other risks

Jackson'sreported adjusted IFRS operating profit based on longer-term investment returnsissensitive to market conditions, both with respect to income earned on spread-based products and indirectly with respect to income earned on variable annuity asset management fees. Jackson's main exposuresto market risk are to interest rate risk and equity risk.

Jackson is exposed primarily to the following risks:

Risks	Risk of loss
Equity risk	— Related to the incidence of benefitsrelated to guaranteesissued in connection with its variable annuity contracts; and — Related to meeting contractual accumulation requirementsin fixed index annuity contracts.
Interest rate risk	— Related to meeting guaranteed rates of accumulation on fixed annuity productsfollowing a sustained fall in interest rates; — Related to increasesin the present value of projected benefitsrelated to guaranteesissued in connection with its variable annuity contractsfollowing a sustained fall in interest rates especially if in conjunction with a fall in equity markets; — Related to the surrender value guarantee features attached to the Company's fixed annuity products and to policyholder withdrawalsfollowing a sharp and sustained increase in interest rates; and — The risk of mismatch between the expected duration of certain annuity liabilities and prepayment risk and extension risk inherent in mortgage-backed securities.

06

05

C7 Risk and sensitivity analysis continued

C7.3 US insurance operations continued

Jackson's derivative programme is used to manage interest rate risk associated with a broad range of products and equity market risk attaching to its equity-based products. Movementsin equity markets, equity volatility, interest rates and creditspreads materially affect the carrying value of derivativesthat are used to manage the liabilitiesto policyholders and backing investment assets. Movementsin the carrying value of derivatives combined with the use ofUSGAAP measurement (as'grandfathered' under IFRS 4) for the insurance contracts assets and liabilities, which islargely insensitive to current period market movements, mean that the Jackson total profit (ie including short-term fluctuationsin investment returns) issensitive to market movements. In addition to these effectsthe Jackson shareholders' equity issensitive to the impact of interest rate and creditspread movements on the value of fixed income securities. Movementsin unrealised appreciation on these securities are included as movement in shareholders' equity (ie outside the income statement).

Jackson entersinto financial derivative transactions, including those noted below to reduce and manage businessrisks. These transactions manage the risk of a change in the value, yield, price, cash flows or quantity of, or a degree of exposure, with respect to assets, liabilities or future cash flows, which Jackson has acquired or incurred.

Jackson usesfree-standing derivative instrumentsfor hedging purposes. Additionally, certain liabilities, primarily trust instruments supported by funding agreements, fixed index annuities, certain variable annuity guaranteed benefit features and reinsuredGuaranteed Minimum Income Benefit variable annuity features are similar to derivatives. Jackson does not account forsuch items as either fair value or cash flow hedges as might be permitted if the specific hedge documentation requirements of IAS 39 were followed. Financial derivatives are carried at fair value, including derivatives embedded in certain host liabilities where these are required to be valued separately.

The principal types of derivatives used by Jackson and their purpose are asfollows:

Derivative	Purpose
Interest rate swaps	These generally involve the exchange of fixed and floating payments over the period for which Jackson holds the instrument without an exchange of the underlying principal amount. These agreements are used to hedge Jackson's exposure to movementsin interest rates.
Swaption contracts	These contracts provide the purchaser with the right, but not the obligation, to require the writer to pay the present value of a long-duration interest rate swap at future exercise dates. Jackson both purchases and writes swaptionsin order to hedge againstsignificant movementsin interest rates.
Treasury futures contracts	These derivatives are used to hedge Jackson's exposure to movementsin interest rates.
Equity index futures contracts and equity index options	These derivatives(including various call and put options and options contingent on interest rates and currency exchange rates) are used to hedge Jackson's obligations associated with itsissuance of certain VA guarantees. Some of these annuities and guarantees contain embedded optionsthat are fair valued for financial reporting purposes.
	Cross-currency swaps Cross-currency swaps, which embody spot and forward currency swaps and additionally, in some cases, interest rate swaps and equity index swaps, are entered into for the purpose of hedging Jackson'sforeign currency denominated funding agreementssupporting trust instrument obligations.
Credit defaultswaps	These swapsrepresent agreements under which the buyer has purchased default protection on certain underlying corporate bonds held in its portfolio. These contracts allow Jackson to sell the protected bonds at par value to the counterparty if a default event occursin exchange for periodic payments made by Jackson for the life of the agreement.

The estimated sensitivity of Jackson's profit and shareholders' equity to equity and interest rate risks provided below is net of the related changesin amortisation of DAC. The effect on the related changesin amortisation of DAC provided is based on the current 'grandfathered'USGAAP DAC basis but does not include any effect from an acceleration or deceleration of amortisation of DAC.

(i) Sensitivity to equity risk

Jackson had variable annuity contracts with guarantees, for which the net amount at risk (NAR) is defined asthe amount of guaranteed benefit in excess of current account value, asfollows:

31 December 2018	Minimum return	Account value £m	Net amount at risk £m	Weighted average attained age	Period until expected annuitisation
Return of net deposits plus a minimum return
GMDB	0-6%	98,653	4,437	66.5 years
GMWB – premium only	0%	1,924	62
GMWB*	0-5%†	197	20
GMAB – premium only	0%	26	–
Highestspecified anniversary account value minus withdrawals
post-anniversary
GMDB		8,531	1,113	67.1 years
GMWB – highest anniversary only		2,220	314
GMWB*		535	89
Combination net deposits plus minimum return, highest
specified anniversary account value minus withdrawals
post-anniversary
GMDB	0-6%	5,454	1,217	69.5 years
GMIB‡	0-6%	1,256	648		0.1 years
GMWB*	0-8%†	91,788	16,835

	Minimum return	Account value	Net amount at risk	Weighted average attained age	Period until expected annuitisation
31 December 2017		£m	£m
Return of net deposits plus a minimum return
GMDB	0-6%	100,451	1,665	66.0 years
GMWB – premium only	0%	2,133	20
GMWB*	0-5%†	235	13
GMAB – premium only	0%	38	–
Highestspecified anniversary account value minus withdrawals
post-anniversary
GMDB		9,099	96	66.5 years
GMWB – highest anniversary only		2,447	51
GMWB*		667	47
Combination net deposits plus minimum return, highest
specified anniversary account value minus withdrawals
post-anniversary
GMDB	0-6%	5,694	426	69.0 years
GMIB‡	0-6%	1,484	436		0.4 years
GMWB*	0-8%†	93,227	4,393

*Amountsshown forGMWB comprise sumsfor the 'not for life' portion (where the guaranteed withdrawal base lessthe account value equalsto the net amount at risk (NAR)), and a 'for life' portion (where theNAR has been estimated asthe present value of future expected benefit payment remaining after the amount of the 'not for life' guaranteed benefitsis zero). † Rangesshown based on simple interest. The upper limits of 5 per cent or 8 per centsimple interest are approximately equal to 4.1 per cent and 6 per cent respectively, on a compound interest basis over a typical 10-year bonus period. For example 1 + 10 x 0.05 issimilar to 1.04 growing at a compound rate of 4 per cent for a further nine years.

‡ TheGMIB guarantees are substantially reinsured.

06

C7 Risk and sensitivity analysis continued

C7.3 US insurance operations continued

Account balances of contracts with guarantees were invested in variable separate accounts asfollows:

Mutual fund type:	31 Dec 2018 £m	31 Dec 2017 £m
Equity	78,387	80,843
Bond	13,901	13,976
Balanced	19,903	19,852
Money market	824	681
Total	113,015	115,352

As noted above, Jackson is exposed to equity risk through the options embedded in the fixed index annuity liabilities and guarantees included in certain variable annuity benefits asillustrated above. Thisrisk is managed using an equity hedging programme to minimise the risk of a significant economic impact as a result of increases or decreasesin equity market levels. Jackson purchasesfutures and optionsthat hedge the risksinherent in these products, while also considering the impact of rising and falling guaranteed benefit fees.

Due to the nature of valuation under IFRS of the free-standing derivatives and the variable annuity guarantee features, this hedge, while highly effective on an economic basis, would not automatically offset within the financialstatements asthe impact of equity market movementsresetsthe free-standing derivativesimmediately while the hedged liabilitiesreset more slowly and fees are recognised prospectively in the period in which they are earned.

In addition to the exposure explained above, Jackson is also exposed to equity risk from its holding of equity securities, partnerships in investment pools and other financial derivatives.

The estimated sensitivity of Jackson's profit and shareholders' equity to immediate increases and decreasesin equity markets isshown below. The sensitivities are shown net of related changesin DAC amortisation, as described above.

	31 Dec 2018 £m				31 Dec 2017 £m
	Decrease		Increase		Decrease		Increase
	of 20%	of 10%	of 20%	of 10%	of 20%	of 10%	of 20%	of 10%
Pre-tax profit, net of related changes in amortisation of DAC Related deferred tax effects	1,058 (222)	427 (90)	58 (12)	(125) 26	1,107 (233)	336 (71)	619 (130)	262 (55)
Netsensitivity of profit after tax
and shareholders' equity*	836	337	46	(99)	874	265	489	207

* The table above has been prepared to exclude the impact of the instantaneous equity movements on the separate account fees. In addition, the sensitivity movementsshown include those relating to the fixed index annuity and the reinsurance ofGMIB guarantees.

The above table providessensitivity movements at a point in time while the actual impact on financial results would vary contingent upon the volume of new productsales and lapses, changesto the derivative portfolio, correlation of market returns and various other factors including volatility, interest rates and elapsed time.

The directional movementsin the sensitivitiesreflect the hedging programme in place at 31 December 2018 and 2017.

(ii) Sensitivity to interest rate risk

Except in the circumstances of interest rate scenarios where the guarantee ratesincluded in contract terms are higher than crediting rates that can be supported from assets held to cover liabilities, the accounting measurement of fixed annuity liabilities of Jackson's productsis not generally sensitive to interest rate risk. This position derivesfrom the nature of the products and theUSGAAP basis of measurement. TheGMWB features attached to variable annuity business(other than 'for life' components) are accounted for underUSGAAP at fair value and, therefore, will be sensitive to changesin interest rates.

Debtsecurities and related derivatives are marked to fair value. Value movements on derivatives, again net of related changesto amortisation of DAC and deferred tax, are recorded within the income statement. Fair value movements on debtsecurities, net of related changesto amortisation of DAC and deferred tax, are recorded within other comprehensive income. The estimated sensitivity of these items and policyholder liabilitiesto a 1 per cent and 2 per cent decrease and increase in interest ratesis asfollows:

	31 Dec 2018 £m				31 Dec 2017 £m
	Decrease		Increase		Decrease		Increase
	of 2%	of 1%	of 1%	of 2%	of 2%	of 1%	of 1%	of 2%
Profit and loss: Pre-tax profit effect (net of related changes in amortisation of DAC) Related effect on charge for deferred tax	(3,535) 742	(1,718) 361	1,201 (252)	2,210 (464)	(4,079) 857	(1,911) 401	1,373 (288)	2,533 (532)
Net profit effect	(2,793)	(1,357)	949	1,746	(3,222)	(1,510)	1,085	2,001
Other comprehensive income: Direct effect on carrying value of debt securities(net of related changesin amortisation of DAC) Related effect on movement in deferred tax	4,134 (868)	2,346 (493)	(2,346) 493	(4,134) 868	3,063 (643)	1,700 (357)	(1,700) 357	(3,063) 643
Net effect	3,266	1,853	(1,853)	(3,266)	2,420	1,343	(1,343)	(2,420)
Total net effect on shareholders' equity	473	496	(904)	(1,520)	(802)	(167)	(258)	(419)

These sensitivities are shown for interest ratesin isolation only and do not include other movementsin credit risk that may affect credit spreads and valuations of debtsecurities. Similar to the sensitivity to equity risk, the sensitivity movements provided in the table above are at a point in time and reflect the hedging programme in place on the balance sheet date, while the actual impact on financial results would vary contingent upon a number of factors.

(iii) Sensitivity to foreign exchange risk

Consistent with theGroup's accounting policies, the profits of theGroup'sUS operations are translated at average exchange rates and shareholders' equity at the closing rate for the reporting period. For 2018, the average and closing rates wereUS\$1.34 (31 December 2017:US\$1.29) andUS\$1.27 (31 December 2017:US\$1.35) to £1.00 sterling respectively. A 10 per cent increase (weakening of the dollar) or decrease (strengthening of the dollar) in these rates would reduce or increase profit before tax attributable to shareholders, profit for the year and shareholders' equity attributable toUS insurance operationsrespectively asfollows:

	A 10% increase in US\$:£ exchange rates		A 10% decrease in US\$:£ exchange rates
	2018 £m	2017 £m	2018 £m	2017 £m
Profit before tax attributable to shareholders	(159)	(54)	194	66
Profit for the year	(136)	(20)	166	24
Shareholders' equity attributable toUS insurance operations	(508)	(456)	620	557

06

C7 Risk and sensitivity analysis continued

C7.3 US insurance operations continued

(iv) Other sensitivities

The total profit of Jackson issensitive to market risk on the assets covering liabilities other than variable annuity businesssegregated in the separate accounts.

For term business, acquisition costs are deferred and amortised in line with expected premiums. For annuity and interest-sensitive life business, acquisition costs are deferred and amortised in line with expected gross profits on the relevant contracts. For interest-sensitive business, the key assumption isthe expected long-term spread between the earned rate and the rate credited to policyholders. In addition, expected gross profits depend on mortality assumptions, assumed unit costs and terminations other than deaths(including the related charges) all of which are based on a combination of actual experience of Jackson, industry benchmarking and future expectations. A detailed analysis of actual experience is measured by internally developed expense, mortality and persistency studies.

For variable annuity business, an assumption made isthe expected long-term level ofseparate account returns, which for 2018 was 7.4 per cent (2017: 7.4 per cent). The impact of using thisreturn isreflected in two principal ways, namely:

• Through the projected expected gross profitsthat are used to determine the amortisation of deferred acquisition costs. Thisis applied through the use of a mean reversion technique which is described in more detail in note A3.1 above; and
• The required level of provision for claimsfor guaranteed minimum death, 'for life' withdrawal, and income benefits.

Jackson issensitive to mortality risk, lapse risk and other types of policyholder behaviour,such asthe utilisation of itsGMWB product features. Jackson's persistency assumptionsreflect a combination of recent experience for each relevant line of business and expert judgement, especially where a lack of relevant and credible experience data exists. These assumptions vary by relevant factors,such as product, policy duration, attained age and for variable annuity lapse assumptions, the extent to which guaranteed benefits are 'in the money' relative to policy account values. Changesin these assumptions, which are assessed on an annual basis after considering recent experience, could have a material impact on policyholderliabilities and therefore on profit before tax. See furtherinformation in note B1.2.

In addition, in the absence of hedging, equity and interest rate movements can both cause a loss directly or an increased future sensitivity to policyholder behaviour. Jackson has an extensive derivative programme thatseeksto manage the exposure to such altered equity markets and interest rates.

C7.4 UK and Europe insurance operations

Exposure and sensitivity of IFRS basis profit and shareholders' equity to market and other risks

The IFRS basisresults of the shareholder-backed businessfor theUK and Europe insurance operations are mostsensitive to the following factors:

• Asset/liability matching;
• Default rate experience;
• Annuitant mortality; and
• The difference between the rates of return on corporate bonds and risk-free rates.

Further details are described below.

The adjusted IFRS operating profit based on longer-term investment returnsforUK and Europe insurance operationsissensitive to changesin longevity assumptions affecting the carrying value of liabilitiesto policyholdersforUK shareholder-backed annuity business. At the total IFRS profit level, the result is particularly sensitive to temporary value movements on assets backing the capital of the shareholder-backed annuity business.

With-profits business

With-profits sub-fund business

The shareholder results of theUK with-profits business(including non-participating annuity business of the with-profitssub-fund) are only sensitive to market risk through the indirect effect of investment performance on declared policyholder bonuses.

The investment assets ofUK with-profitsfunds are subject to market risk. Changesin their carrying value, net of related changes to asset-share liabilities of with-profits contracts, affect the level of unallocated surplus of the fund. Therefore, the level of unallocated surplusis particularly sensitive to the level of investment returns on the portion of the assetsthat representssurplus.However, as unallocated surplusis accounted for as a liability under IFRS, movementsin its value do not affectshareholders' profit and equity.

The shareholder results of theUK with-profitsfund are currently one-ninth of the cost of bonuses declared to with-profits policyholders. For certain unitised with-profits products,such asthe PruFund range of funds, the bonusesrepresent the policyholders' netreturn based on the smoothed unit price of the selected investment fund. Investment performance is a key driver of bonuses declared, and hence the shareholderresults. Due to the 'smoothed' basis of bonus declaration, the sensitivity to short-term investment performance isrelatively low.However, longer-term investment performance and persistency trends may affect future shareholder transfers.

02

report

06

Shareholder-backed annuity business

Profitsfrom shareholder-backed annuity business are mostsensitive to:

• The extent to which the duration of the assets held closely matchesthe expected duration of the liabilities under the contracts;
• Actual versus expected default rates on assets held;
• The difference between long-term rates of return on corporate bonds and risk-free rates;
• The variance between actual and expected mortality experience;
• The extent to which changesto the assumed rate of improvementsin mortality give rise to changesin the measurement of liabilities; and
• Changesin renewal expense levels.

In addition, the level of profit is affected by change in the level of reinsurance cover.

A decrease in assumed mortality rates of 1 per cent would decrease pre-tax profit by approximately £37 million (2017: £66 million). A decrease in credit default assumptions of five basis points would increase pre-tax profit by £99 million (2017: £198 million). A decrease in renewal expenses(excluding asset management expenses) of 5 per cent would increase pre-tax profit by £21 million (2017: £40 million). The effect on profit would be approximately symmetrical for changesin assumptionsthat are directionally opposite to those explained above. The net effect on profit after tax and shareholders' equity from all the changesin assumptions as described above would be an increase of approximately £69 million (2017: £143 million). See C4.1(d)(iii) for further details on mortality assumptions.

Unit-linked and other business

Unit-linked and other businessrepresents a comparatively small proportion of the in-force business of theUK and Europe insurance operations.

Due to the matching of policyholder liabilitiesto attaching asset value movements, theUK unit-linked businessis not directly affected by market or credit risk. The liabilities of other business are also broadly insensitive to market risk. Profitsfrom unit-linked and similar contracts primarily arise from the excess of chargesto policyholdersfor management of assets, over expensesincurred. The formeris most sensitive to the net accretion of funds under management as a function of new business, persistency and timing of death. The accounting impact of the latteris dependent upon the amortisation of acquisition costsin line with the emergence of margins(for insurance contracts) and amortisation in line with service provision (for the investment management component of investment contracts). By virtue of the design features of most of the contractsthat provide low levels of mortality cover, the profits are relatively insensitive to changesin mortality experience.

Sensitivity to interest rate risk and other market risk

By virtue of the fund structure, product features and basis of accounting, the policyholder liabilities of theUK and Europe insurance operations are, except annuity business, not generally exposed to interest rate risk. At 31 December 2018, annuity liabilities accounted for 95 per cent (31 December 2017: 98 per cent) ofUK non-linked shareholder-backed businessliabilities. For annuity business, liabilities are exposed to interest rate risk.However, the net exposure issubstantially ameliorated by virtue of the close matching of assets with appropriate duration. The level of matching from period to period can vary depending on management actions and economic factors so it is possible for a degree of mis-matching profits or lossesto arise.

The close matching by theGroup of assets of appropriate duration to annuity liabilitiesis based on maintaining economic and regulatory capital. Liabilities are measured differently under Solvency II reporting requirementsthan under IFRS resulting in an alteration to the assets used to measure the IFRS annuity liabilities. As a result, IFRS has a differentsensitivity to interest rate and credit risk than under Solvency II.

The estimated sensitivity of theUK non-linked shareholder-backed business(principally annuities business) to a movement in interest ratesis asfollows:

	31 Dec 2018 £m				31 Dec 2017 £m
	A	A	An	An	A	A	An	An
	decrease	decrease	increase	increase	decrease	decrease	increase	increase
	of 2%	of 1%	of 1%	of 2%	of 2%	of 1%	of 1%	of 2%
Carrying value of debtsecurities and derivatives	7,369	3,317	(2,792)	(5,193)	13,497	5,805	(4,659)	(8,541)
Policyholder liabilities	(4,784)	(2,162)	1,801	3,317	(9,426)	(4,210)	3,443	6,295
Related deferred tax effects	(446)	(199)	171	323	(658)	(254)	190	348
Netsensitivity of profit after tax and shareholders' equity	2,139	956	(820)	(1,553)	3,413	1,341	(1,026)	(1,898)

C7 Risk and sensitivity analysis continued

C7.4 UK and Europe insurance operations continued

In addition, the shareholder-backed portfolio ofUK non-linked insurance operations(covering policyholder liabilities and shareholders' equity) includes equity securities and investment properties. Excluding any offsetting effects on the measurement of policyholder liabilities, a fall in their value would have given rise to the following effects on pre-tax profit, profit after tax and shareholders' equity.

	2018 £m		2017 £m
	A decrease of 20%	A decrease of 10%	A decrease of 20%	A decrease of 10%
Pre-tax profit	(336)	(168)	(332)	(166)
Related deferred tax effects	57	29	57	28
Netsensitivity of profit after tax and shareholders' equity	(279)	(139)	(275)	(138)

A 10 or 20 per cent increase in their value would have an approximately equal and opposite effect on profit and shareholders' equity to the sensitivitiesshown above. The market risk sensitivitiesshown above reflect the impact of temporary market movements and, therefore, the primary effect ofsuch movements would, in theGroup'ssegmental analysis of profits, be included within the short-term fluctuationsin investment returns.

C7.5 Asset management and other operations

(i) Asset management

(a) Sensitivities to foreign exchange risk

Consistent with theGroup's accounting policies, the profits of Eastspring Investments andUS asset management operations are translated at average exchange rates and shareholders' equity at the closing rate for the reporting period. The ratesfor the functional currencies of mostsignificant operations are shown in note A1.

A 10 per cent increase in the relevant exchange rates(strengthening of the pound sterling) would have reduced reported profit before tax attributable to shareholders, and shareholders' equity excluding goodwill attributable to Eastspring Investments andUS asset management operations, by £10 million and £43 million respectively (2017: £30 million and £53 million, respectively).

(b) Sensitivities to other financial risks for asset management operations

The profits of asset management businesses are sensitive to the level of assets under management, asthissignificantly affectsthe value of management fees earned by the businessin the current and future periods. TheGroup's asset management operations do not hold significant investmentsin property or equities.

(ii) Other operations

TheGroup holds certain derivativesthat are used to manage foreign currency movements and macroeconomic exposures. The fair value of these derivativesissensitive to the combined effect of movementsin exchange rates, interest rates and inflation rates. The possible permutations cover a wide range ofscenarios. For indicative purposes, a reasonably possible range of fair value movements based on historical experience could be plus or minus £150 million.

Other operations are sensitive to credit risk on the loan portfolio of the Prudential Capital operation. Total debtsecurities held at 31 December 2018 by Prudential Capital were £1,884 million (2017: £2,238 million). Debtsecurities held by Prudential Capital are in general variable rate bonds and so market value islimited in sensitivity to interest rate movements and consequently any change in interest rates would not have a material impact on profit orshareholders' equity.

C8 Tax assets and liabilities

C8.1 Deferred tax

The statement of financial position containsthe following deferred tax assets and liabilitiesin relation to:

		2018 £m
	At 1 Jan	Movement in income statement	Movement through other comprehensive income and equity	Other movements including foreign currency movements	At 31 Dec
Deferred tax assets
Unrealised losses or gains on investments	14	1	93	5	113
Balancesrelating to investment and insurance contracts	1	–	–	–	1
Short-term temporary differences	2,532	(266)	(8)	81	2,339
Capital allowances	14	–	–	1	15
Unused tax losses	66	23	–	38	127
Total	2,627	(242)	85	125	2,595
Deferred tax liabilities
Unrealised losses or gains on investments	(1,748)	666	195	20	(867)
Balancesrelating to investment and insurance contracts	(872)	(91)	–	(39)	(1,002)
Short-term temporary differences	(2,041)	68	(15)	(109)	(2,097)
Capital allowances	(54)	(1)	–	(1)	(56)
Total	(4,715)	642	180	(129)	(4,022)

Of the short-term temporary differences of £2,339 million relating to deferred tax assets, £2,194 million relating to theUS insurance operationsis expected to be recovered in line with the run off of the in-force book, and the remaining balances of the £145 million are expected to be recovered within 10 years.

The deferred tax balances at 31 December 2018 and 2017 arise in the following parts of theGroup:

	Deferred tax assets		Deferred tax liabilities
	2018 £m	2017 £m	2018 £m	2017 £m
Asia operations	119	112	(1,257)	(1,152)
US operations	2,295	2,300	(1,688)	(1,845)
UK and Europe	126	157	(1,061)	(1,703)
Other operations	55	58	(16)	(15)
Total	2,595	2,627	(4,022)	(4,715)

Under IAS 12, 'Income Taxes', deferred tax is measured at the tax ratesthat are expected to apply to the period when the asset isrealised or the liability settled, based on the tax rates(and laws) that have been enacted or are substantively enacted at the end of the reporting period.

Deferred tax assets are recognised to the extent that they are regarded asrecoverable, that isto the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profitsfrom which the future reversal of the underlying temporary differences can be deducted.

02

06 European

C8 Tax assets and liabilities continued

C8.1 Deferred tax continued

The taxation regimes applicable acrosstheGroup often apply separate rulesto trading and capital profits and losses. The distinction between temporary differencesthat arise from items of either a trading or capital nature may affect the recognition of deferred tax assets. For the 2018 results and financial position at 31 December 2018 the following tax benefits have not been recognised:

	31 Dec 2018		31 Dec 2017
	Tax benefit £m	Losses £bn	Tax benefit £m	Losses £bn
Capital losses	49	0.2	79	0.4
Trading losses	49	0.2	74	0.3

Of the unrecognised trading losses, losses of £34 million will expire within the next 10 years, the rest have no expiry date.

Some of theGroup's businesses are located in jurisdictionsin which a withholding tax charge isincurred upon the distribution of earnings. Deferred tax liabilities of £117 million (2017: £120 million) have not been recognised in respect ofsuch withholding taxes astheGroup is able to control the timing of the distributions and it is probable that the timing differences will not reverse in the foreseeable future.

C8.2 Current tax

Of the £618 million (31 December 2017: £613 million) current tax recoverable, the majority is expected to be recovered in one year or less. The current tax recoverable includes £112 million in relation to the litigation relating to the historic tax treatment of dividends received from overseas portfolio investments of life insurance companies. The Prudential Assurance Company Limited (PAC) was the test case for the litigation. In July 2018, theUK Supreme Court ruled in PAC'sfavour on most of the substantive issues. PAC and HM Revenue & Customs(HMRC) are working through the mechanics of implementing the Supreme Court decision. PAC expectsto receive full and final repayment from HMRC in 2019.

The current tax liability of £568 million (31 December 2017: £537 million) includes £149 million (31 December 2017: £139 million) of provisionsfor uncertain tax matters. Further detail is provided in note B4.

C9 Defined benefit pension schemes

(i) Background and summary economic and IAS 19 financial positions

TheGroup's businesses operate a number of pension schemes. The specific features of these schemes vary in accordance with the regulations of the country in which the employees are located, although they are, in general, funded by theGroup and based either on a cash balance formula or on years ofservice and salary earned in the last year or years of employment. The largest defined benefitscheme isthe principalUK scheme, namely the Prudential Staff Pension Scheme (PSPS). PSPS accountsfor 82 per cent (2017: 82 per cent) of the underlying scheme liabilities of theGroup's defined benefitschemes.

TheGroup also operatestwo smallerUK defined benefitschemesin respect of Scottish Amicable (SASPS) and M&G(M&GGPS). In addition, there are two small defined benefitschemesin Taiwan which have negligible deficits.

Under IAS 19, 'Employee Benefits' and IFRIC 14, 'IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction', theGroup is only able to recognise a surplusto the extent that it is able to accessthe surplus either through an unconditional right of refund or through reduced future contributionsrelating to ongoing service of active members. TheGroup has no unconditional right of refund to any surplusin PSPS. Accordingly, the PSPS surplusrecognised isrestricted to the present value of the economic benefit to theGroup from the difference between the estimated future ongoing contributions and the full future cost ofservice for the active members. In contrast, theGroup is able to accessthe surplus of SASPS and M&GGPS. Therefore, the amountsrecognised for these schemes are the IAS 19 valuation amount (either a surplus or deficit).

TheGroup asset/liability in respect of defined benefit pension schemesis asfollows:

	31 Dec 2018 £m				31 Dec 2017 £m
	PSPS note (a)	SASPS note (b)	M&GGPS	Other schemes	Total	PSPS note (a)	SASPS note (b)	M&GGPS	Other schemes	Total
Underlying economic surplus (deficit) Less: unrecognised surplus	908 (677)	(79) –	131 –	(1) –	959 (677)	721 (485)	(137) –	109 –	(1) –	692 (485)
Economic surplus(deficit) (including investment in Prudential insurance
policies) note (c) Attributable to:	231	(79)	131	(1)	282	236	(137)	109	(1)	207
UK with-profitsfund Shareholder-backed	162	(32)	–	–	130	165	(55)	–	–	110
business	69	(47)	131	(1)	152	71	(82)	109	(1)	97
Consolidation adjustment against policyholder liabilitiesfor investment in Prudential insurance
policies	–	–	(225)	–	(225)	–	–	(151)	–	(151)
IAS 19 pension asset (liability) on theGroup statement of
financial position note (d)	231	(79)	(94)	(1)	57	236	(137)	(42)	(1)	56

Notes

(a) No deficit or other funding isrequired for PSPS. Deficit funding, where applicable, is apportioned in the ratio of 70/30 between theUK with-profitsfund and shareholder-backed businessfollowing detailed considerationsin 2005 of the sourcing of previous contributions. Employer contributionsfor ongoing service of current employees are apportioned in the ratio relevant to current activity.

(b) The deficit of SASPS has been allocated 40 per cent to theUK with-profitsfund and 60 per cent to the shareholders' fund as at 31 December 2018 and 2017.

(c) The underlying position on an economic basisreflectsthe assets(including investmentsin Prudential insurance policiesthat are offset against liabilitiesto policyholders on the Group consolidation) and the liabilities of the schemes.

(d) At 31 December 2018, the PSPS pension asset of £231 million (31 December 2017: £236 million) and the otherschemes' pension liabilities of £174 million (31 December 2017: £180 million) are included within 'Other debtors' and 'Provisions' respectively on the consolidated statement of financial position.

Triennial actuarial valuations

Defined benefit pension schemesin theUK are generally required to be subject to full actuarial valuations every three yearsin order to assessthe appropriate level of funding forschemesin relation to their commitments. These valuationsinclude assessments of the likely rate of return on the assets held within the separate trustee administered funds. The actuarial valuation differsfrom the IAS 19 accounting basis valuation in a number of respects, including the discount rate assumption where IAS 19 prescribes a rate based on high-quality corporate bonds while a more 'prudent' assumption is used for the actuarial valuation.

The information on the latest completed actuarial valuation for theUK schemesisshown in the table below:

	PSPS	SASPS	M&GGPS
Last completed actuarial valuation date	5 April 2017	31 March 2017	31 December 2014*
Valuation actuary, all Fellows of the Institute and Faculty of Actuaries	CGSinger Towers Watson Limited	Jonathan Seed Xafinity Consulting Limited	Paul Belok AONHewitt Limited
Funding level at the last valuation	105 per cent	75 per cent	99 per cent
Deficit funding arrangement agreed with the Trustees based on the last completed valuation	No deficit or other funding required. Ongoing contributionsfor active members are at the minimum level required under the scheme rules(approximately £5 million per annum excluding expenses)	Deficit funding of £26 million per annum from 1 April 2017 until 31 March 2027, or earlier if the scheme'sfunding level reaches 100 per cent before this date. The deficit funding will be reviewed every three years atsubsequent valuations	No deficit funding required from 1 January 2016

* The triennial valuation for M&GGPS as at 31 December 2017 is currently in progress.

Value (EEV)

information

01 Group overview

03 Governance

04 Directors'

remuneration report

C9 Defined benefit pension schemes continued

(i) Background and summary economic and IAS 19 financial positions continued

For PSPS, the market value of the scheme assets as at the 5 April 2017 funding valuation was £7,766 million. The actuarial assumptions used in determining benefit obligations and the net periodic benefit costsfor the purposes of the 2017 valuation were asfollows:

	%
Rate of increase in salaries	Nil
Rate of inflation:
Retail PricesIndex (RPI)	3.4
Consumer PricesIndex (CPI)	2.6
Rate of increase of pensionsin payment for inflation:
Guaranteed (maximum 5%)	2.6
Guaranteed (maximum 2.5%)	2.5
Discretionary	Nil
Expected returns on plan assets	1.5

Mortality assumptions:

The tables used for PSPS pensionsin payment at 5 April 2017 were:

Base post-retirement mortality

For male (female) members and male dependants 95 per cent (105 per cent) of the SAPS S2 Pensioner Amountstable. For female dependants 89 per cent of the SAPS S2 Dependants Amountstable.

Allowance for future improvements to post-retirement mortality

Assumed improvements up to 2017 are based on the CMI 2015 Core projections model with a 1.5 per cent per annum long-term trend. From 2018 onwards, assumed improvementsfor males(females) are based on the CMI 2015 Core projections model with a 1.75 per cent per annum (1.5 per cent per annum) long-term trend.

Risks to which the defined benefit schemes expose the Group

Responsibility of making good of any deficit that may arise in the schemeslies with the employers of the schemes, which are subsidiaries of theGroup. Accordingly, the pension schemes expose theGroup to a number of risks and the mostsignificant of which are interest rate and investment risk, inflation risk and mortality risk.

Corporate governance

TheGroup'sUK pension schemes are established under trust and are subject toUK legal requirements; thisincludes being subject to regulation by 'The Pension Regulator' in accordance with the Pension Act 1995. Each scheme has a corporate trustee to which some directors are appointed byGroup employers with the remaining directors nominated by membersin accordance withUK legal requirements. The trustees have the ultimate responsibility to ensure that the scheme is managed in accordance with the Trust Deed & Rules. The trustees act in the best interests of the schemes' beneficiaries; thisincludestaking appropriate account of each employer's legal obligation and financial ability to support the schemes, when setting investmentstrategy and when agreeing funding with the employers. The employers' contribution commitments are formally updated at each triennial valuation; between valuationsfunding levels and employerstrength continue to be monitored, with the Trustees being able to bring forward the next triennial valuation if they consider it appropriate to do so.

All of theGroup'sthreeUK defined benefit pension schemes(PSPS, SASPS and M&GGPS) are finalsalary schemes, which are closed to new entrants.

The Trustees of each scheme set the general investment policy and specify any restrictions on types of investment and the degrees of divergence permitted from the benchmark, but delegate the responsibility forselection and realisation ofspecific investmentsto the Investment Managers. The Trustees consult the Principal Employer (eg The Prudential Assurance Company Limited for PSPS) on the investment principles, but the ultimate responsibility for the investment of the assets of the scheme lies with the Trustees.

The Trustees of each of the schemes manage the investmentstrategy of the scheme to achieve an acceptable balance between investing in the assetsthat most closely match the expected benefit payments and assetsthat are expected to achieve a greater return in the hope of reducing the contributionsrequired or providing additional benefitsto members.

For PSPS, a significant portion of the scheme assets are invested in liability matching assetssuch as bonds and gilts, including index-linked gilts, to partially hedge against inflation. In addition, PSPS has maintained a portfolio of interest rate and inflation swapsto match more closely the duration and inflation profile of its assetsto itsliabilities.

The risks arising from SASPS and M&GGPS are managed through a diversified mix of investments. Both schemes have invested in a mix of both return-seeking assets,such as equities and property and matching assetsincluding leveraged liability driven investment portfoliosto reflect the liability profile of the scheme.

(ii) Assumptions

The actuarial assumptions used in determining benefit obligations and the net periodic benefit costsfor the yearsshown were asfollows:

	31 Dec 2018 %	31 Dec 2017 %
Discount rate*	2.8	2.5
Rate of increase in salaries	3.3	3.1
Rate of inflation†
Retail pricesindex (RPI)	3.3	3.1
Consumer pricesindex (CPI)	2.3	2.1
Rate of increase of pensionsin payment for inflation:
PSPS:
Guaranteed (maximum 5%)	2.5	2.5
Guaranteed (maximum 2.5%)	2.5	2.5
Discretionary	2.5	2.5
Otherschemes	3.3	3.1

* The discount rate has been determined by reference to an 'AA' corporate bond index, adjusted where applicable to allow for the difference in duration between the index and the pension liabilities.

† The rate of inflation reflectsthe long-term assumption forUK RPI or CPI depending on the tranche of the schemes.

The calculations are based on current mortality estimates with an allowance made for expected future improvementsin mortality. This allowance reflected the CMI 2015 Core projections model (2017: CMI 2014 projections model, with scheme-specific calibrations). In 2018, for members post retirement long-term mortality improvement rates of 1.75 per cent per annum (2017: 1.75 per cent per annum) and 1.50 per cent per annum (2017: 1.25 per cent per annum) were applied for males and females, respectively.

05

06

C9 Defined benefit pension schemes continued

(iii) Estimated pension scheme surpluses and deficits

Thissection illustratesthe financial position of theGroup's defined benefit pension schemes on an economic basis and the IAS 19 basis. The underlying pension position on an economic basisreflectsthe assets(including investmentsin Prudential policiesthat are offset against liabilitiesto policyholders on theGroup consolidation) and the liabilities of the schemes. The IAS 19 basis excludesthe investmentsin Prudential policies. At 31 December 2018, M&GGPS held investmentsin Prudential insurance policies of £225 million (31 December 2017: £151 million).

Movements on the pension scheme surplus determined on the economic basis are asfollows, with the effect of the application of IFRIC 14 being shown separately:

	2018 £m
	Surplus (deficit) in schemes at 1 Jan 2018	(Charge) credit to income statement	Actuarial gains and losses in other comprehensive income	Contributions paid	Surplus (deficit) in schemes at 31 Dec 2018
All schemes Underlying position (without the effect of IFRIC 14)
Surplus(deficit) Less: amount attributable toUK with-profitsfund	692 (473)	(88) 38	303 (178)	52 (20)	959 (633)
Shareholders'share: Gross of tax surplus(deficit) Related tax	219 (42)	(50) 10	125 (24)	32 (6)	326 (62)
Net ofshareholders' tax	177	(40)	101	26	264
Application of IFRIC 14 for the derecognition of PSPS surplus Derecognition ofsurplus Less: amount attributable toUK with-profitsfund	(485) 363	(13) 8	(179) 132	– –	(677) 503
Shareholders'share: Gross of tax Related tax	(122) 23	(5) 1	(47) 9	– –	(174) 33
Net ofshareholders' tax	(99)	(4)	(38)	–	(141)
With the effect of IFRIC 14 Surplus(deficit) Less: amount attributable toUK with-profitsfund	207 (110)	(101) 46	124 (46)	52 (20)	282 (130)
Shareholders'share: Gross of tax surplus(deficit) Related tax	97 (19)	(55) 11	78 (15)	32 (6)	152 (29)
Net ofshareholders' tax	78	(44)	63	26	123

Underlying investments of the schemes

On the 'economic basis', after including the underlying assetsrepresented by the investmentsin Prudential insurance policies asscheme assets, the plans' assets comprise the following investments:

	31 Dec 2018			31 Dec 2017
	PSPS £m	Other schemes £m	Total £m	%	PSPS £m	Other schemes £m	Total £m	%
Equities
UK	8	6	14	–	9	67	76	1
Overseas	204	53	257	3	226	272	498	6
Bonds*
Government	4,596	538	5,134	61	5,040	655	5,695	63
Corporate	1,586	454	2,040	24	1,491	248	1,739	20
Asset-backed securities	263	12	275	3	164	–	164	2
Derivatives	103	4	107	1	188	(6)	182	2
Properties	143	143	286	3	140	130	270	3
Other assets	172	198	370	5	216	77	293	3
Total value of assets†	7,075	1,408	8,483	100	7,474	1,443	8,917	100

* 87 per cent of the bonds are investment grade (2017: 89 per cent).

† 94 per cent of the total valueofthe scheme assets arederivedfromquotedpricesinanactivemarket(31December2017:96per cent).Noneofthe scheme assetsincludedsharesinPrudentialplc or property occupied by the PrudentialGroup. The IAS 19 basis plan assets at 31 December 2018 of £8,258million (31 December 2017: £8,766million)is different fromthe economic basis plan assets of £8,483million (31 December 2017: £8,917million) asshown above due to the exclusion of investment in Prudential insurance policies by M&GGPS as described above.

The movementsin the IAS 19 pension schemes'surplus and deficit between scheme assets and liabilities as consolidated in the financial statements were:

Attributable to policyholders and shareholders

	Plan assets	Present value of benefit obligations note (a)	Net surplus (deficit) (without the effect of IFRIC 14)	Effect of IFRIC 14 for derecognition of PSPS surplus	Economic basis net surplus (deficit)	Other adjustments including for investments in Prudential insurance policies note (b)	IAS 19 basis net surplus (deficit)
2018 £m
Netsurplus(deficit),beginning of year	8,917	(8,225)	692	(485)	207	(151)	56
GMP equalisation provision note (e)	–	(53)	(53)	–	(53)	–	(53)
Currentservice cost	–	(44)	(44)	–	(44)	–	(44)
Net interest on net defined benefit
liability (asset)	217	(200)	17	(13)	4	(4)	–
Administration expenses	(8)	–	(8)	–	(8)	–	(8)
Benefit payments	(475)	475	–	–	–	–	–
Employers' contributions note (c)	52	–	52	–	52	–	52
Employees' contributions	1	(1)	–	–	–	–	–
Actuarial gains and losses note (d)	(221)	524	303	(179)	124	10	134
Transferinto investment in Prudential insurance policies	–	–	–	–	–	(80)	(80)
Netsurplus(deficit), end of year	8,483	(7,524)	959	(677)	282	(225)	57
2017 £m
Netsurplus(deficit),beginning of year	9,006	(8,443)	563	(558)	5	(134)	(129)
Currentservice cost	–	(46)	(46)	–	(46)	–	(46)
Net interest on net defined benefit
liability (asset)	228	(214)	14	(14)	–	(3)	(3)
Administration expenses	(8)	–	(8)	–	(8)	–	(8)
Benefit payments	(479)	479	–	–	–	–	–
Employers' contributions note (c)	50	–	50	–	50	–	50
Employees' contributions	1	(1)	–	–	–	–	–
Actuarial gains and losses note (d)	119	–	119	87	206	(6)	200
Transferinto investment in Prudential
insurance policies	–	–	–	–	–	(8)	(8)
Netsurplus(deficit), end of year	8,917	(8,225)	692	(485)	207	(151)	56

03

06

C9 Defined benefit pension schemes continued

(iii) Estimated pension scheme surpluses and deficits continued

Notes

(a) Maturity profile of the benefit obligations

The weighted average duration of the benefit obligations of the schemesis 18.4 years(2017: 18.6 years).

		The following table provides an expected maturity analysis of the benefit obligations: All schemes £m
	1 year or less	After 1 year to 5 years	After 5 years to 10 years	After 10 years to 15 years	After 15 years to 20 years	Over 20 years	Total
31 Dec 2018	257	1,142	1,593	1,641	1,631	7,426	13,690
31 Dec 2017	255	1,108	1,589	1,667	1,661	7,889	14,169

(b) The adjustmentsfor investmentsin Prudential insurance policies are consolidation adjustmentsfor intra-group assets and liabilities with no impact to adjusted IFRS operating profit based on longer-term investment returns.

(c) Total employer contributions expected to be paid into theGroup defined benefitschemesfor the year ending 31 December 2019 amount to £52 million (2018: £50 million).

The actuarial gains and losses attributable to policyholders and shareholders asshown in the table above are analysed asfollows:	2018 £m	2017 £m
Actuarial gains and losses
Return on the scheme assetsless amount included in interest income	(221)	119
Gains(losses) on changesin demographic assumptions	168	(10)
Gains(losses) on changesin financial assumptions	330	(101)
Experience gains on scheme liabilities	26	111
	303	119
Effect of derecognition of PSPS surplus	(179)	87
Consolidation adjustment for investmentsin Prudential insurance policies and other adjustments	10	(6)
	134	200

(e) In October 2018, theHigh Court ruled that pension schemes are required to equalise benefitsfor the effect of guaranteed minimum pensions(GMPs).GMPs are a minimum benefit thatschemesthat were contracted-out on a salary-related basis between 1978 and 1997 are required to provide.

In light of this Court ruling, at 31 December 2018, theGroup hasrecognised an estimated allowance forGMP equalisation within the IAS 19 valuation for all the threeUK schemes(£31 million for PSPS, £17 million for SASPS and £5 million for M&GGPS). These costs are allocated between theUK with-profitsfund and the shareholders' fund on the basis of 70:30 for PSPS, 40:60 for SASPS and with M&GGPS being wholly attributable to the shareholders' fund. The impact on shareholders profit before tax is £24 million (before taking into account any charge to PSPS surplusrestriction) and on shareholders' equity post tax is £12 million.

(iv) Sensitivity of the pension scheme liabilities to key variables

The sensitivity information below is based on the core scheme liabilities and assumptions at the balance sheet date. The sensitivities are calculated based on a change in one assumption with all other assumptions being held constant. Assuch, interdependencies between the assumptions are excluded. The impact of the rate of inflation assumption sensitivity includesthe impact of inflation on the rate of increase in salaries and rate of increase of pensionsin payment.

The sensitivities of the underlying pension scheme liabilities asshown below do not directly equate to the impact on the profit or loss attributable to shareholders orshareholders' equity due to the effect of the application of IFRIC 14 on PSPS and the allocation of a share of the interest in the financial position of PSPS and SASPS to theUK with-profitsfund as described above.

	Assumption applied			Impact of sensitivity on scheme liabilities on IAS 19 basis
	2018	2017	Sensitivity change in assumption		2018	2017
Discount rate	2.8%	2.5%	Decrease by 0.2%	Increase in scheme liabilities by: PSPS	3.5%	3.5%
				Otherschemes	5.0%	5.4%
Discount rate	2.8%	2.5%	Increase by 0.2%	Decrease in scheme liabilities by: PSPS	3.3%	3.4%
				Otherschemes	4.7%	4.9%
Rate of inflation	3.3%	3.1%	RPI: Decrease by 0.2%	Decrease in scheme liabilities by:
	2.3%	2.1%	CPI: Decrease by 0.2% with consequent reduction in salary increases	PSPS Otherschemes	0.6% 3.9%	0.6% 3.9%
Mortality rate			Increase life expectancy	Increase in scheme liabilities by:
			by 1 year	PSPS	3.9%	4.0%
				Otherschemes	3.9%	3.8%

C10 Share capital, share premium and own shares

	2018			2017
Issued shares of 5p each fully paid	Number of ordinary shares	Share capital £m	Share premium £m	Number of ordinary shares	Share capital £m	Share premium £m
At 1 January	2,587,175,445	129	1,948	2,581,061,573	129	1,927
Sharesissued undershare-based schemes	5,868,964	1	16	6,113,872	–	21
At 31 December	2,593,044,409	130	1,964	2,587,175,445	129	1,948

Amountsrecorded in share capital represent the nominal value of the sharesissued. The difference between the proceedsreceived on issue ofshares, net of issue costs, and the nominal value ofsharesissued is credited to the share premium account.

At 31 December 2018, there were options outstanding undersave as you earn schemesto subscribe forshares asfollows:

	Number of shares to subscribe for	Share price range
		from	to	Exercisable by year
31 Dec 2018	4,885,804	901p	1,455p	2024
31 Dec 2017	6,448,853	629p	1,455p	2023

Transactions by Prudential plc and its subsidiaries in Prudential plc shares

TheGroup buys and sells Prudential plc shares('own shares') either in relation to its employee share schemes or via transactions undertaken by authorised investment fundsthat theGroup is deemed to control. The cost of own shares of £170 million as at 31 December 2018 (31 December 2017: £250 million) is deducted from retained earnings. The Company has established truststo facilitate the delivery ofshares under employee incentive plans. At 31 December 2018, 9.6 million (31 December 2017: 11.4 million) Prudential plc shares with a market value of £135 million (31 December 2017: £218 million) were held in such trusts all of which are for employee incentive plans. The maximum number ofshares held during 2018 was 14.9 million which wasin March 2018.

The Company purchased the following number ofsharesin respect of employee incentive plans. The shares purchased each month are asfollows:

		2018 share price					2017 share price
	Number of shares	Low	High	Cost	Number of shares	Low	High	Cost
January	51,555	19.18	19.40	996,536	62,388	15.83	16.02	989,583
February	55,765	17.91	18.10	1,004,362	65,706	15.70	16.09	1,052,657
March	55,623	18.25	18.54	1,025,238	70,139	16.40	16.54	1,159,950
April	1,664,334	16.67	17.95	29,113,556	3,090,167	16.58	16.80	51,369,760
May	63,334	18.91	19.38	1,216,136	55,744	17.50	17.62	979,645
June	181,995	18.21	18.65	3,335,725	182,780	17.52	18.00	3,269,447
July	55,888	17.68	17.86	993,779	51,984	17.72	17.93	927,452
August	60,384	18.04	18.10	1,090,283	55,857	18.30	18.73	1,025,802
September	82,612	16.95	16.98	1,400,868	51,226	17.45	17.97	912,151
October	148,209	15.62	16.84	2,477,127	136,563	17.99	18.22	2,483,879
November	67,162	15.95	15.96	1,071,633	53,951	18.38	18.40	992,123
December	73,744	13.99	14.30	1,045,278	53,519	18.26	18.47	986,000
Total	2,560,605			44,770,521	3,930,024			66,148,449

TheGroup has consolidated a number of authorised investment funds where it is deemed to control these funds under IFRS. Some of these funds hold sharesin Prudential plc. The total number ofshares held by these funds at 31 December 2018 was 3.0 million (31 December 2017: 6.4 million) and the cost of acquiring these shares of £20 million (2017: £71 million) isincluded in the cost of own shares. The market value of these shares as at 31 December 2018 was £42 million (31 December 2017: £121 million). During 2018, these funds made net disposals of 3,368,506 Prudentialshares(2017: acquisitions of 372,029) for a net decrease of £50.5 million to book cost (2017: net increase of £9.4 million).

Allshare transactions were made on an exchange other than the Stock Exchange ofHong Kong.

Other than set out above theGroup did not purchase,sell or redeem any Prudential plc listed securities during 2018 or 2017.

02

06 European

C11 Provisions

	31 Dec 2018 £m	31 Dec 2017 £m
Provision in respect of defined benefit pension schemesC9	174	180
Other provisions note	904	943
Total provisions	1,078	1,123

Note
Analysis of other provisions:	2018 £m	2017 £m
At 1 January	943	659
Charged to income statement:
Additional provisions	229	542
Unused amountsreleased	(18)	(9)
Used during the year	(262)	(239)
Exchange differences	12	(10)
Total at 31 December	904	943

Other provisions comprise staff benefits provisions of £409 million (31 December 2017: £453 million) that are generally expected to be paid out within the next three years, other provisions of £171 million (31 December 2017: £121 million) and a provision for review of past annuity sales after utilisation during the year of £324 million (31 December 2017: £369 million). Prudential has agreed with the Financial Conduct Authority (FCA) to review annuitiessold without advice after 1 July 2008 to its contract-based defined contribution pension customers. The review is examining whether customers were given sufficient information about their potential eligibility to purchase an enhanced annuity, either from Prudential or another pension provider. A gross provision of £400 million, before costsincurred, was established at 31 December 2017 to cover the costs of undertaking the review and any related redress and following a reassessment, no change has been made in 2018. The majority of the provision will be utilised in 2019. The ultimate amount that will be expended by the Group on the review will remain uncertain until the project is completed. If the population subject to redressincreased or decreased by 10 per cent, then the provision would be expected to increase or decrease by circa 7 per cent accordingly. Additionally, in 2018, the Group agreed with its professional indemnity insurersthat they will meet £166 million of theGroup's claims costs, which will be paid as theGroup incurs costs/redress. This has been recognised on theGroup's balance sheet within 'Other debtors' at 31 December 2018.

C12 Capital

C12.1 Group objectives, policies and processes for managing capital

(i) Capital measure

TheGroup managesitsGroup Solvency II own funds asits measure of capital. At 31 December 2018 estimatedGroup Solvency II own funds are £30.2 billion (31 December 2017: £26.4 billion).

(ii) External capital requirements

Solvency II istheGroup's consolidated capital regime. Solvency II is a risk-based solvency framework required under the European Solvency II Directive asimplemented by the Prudential Regulatory Authority in theUK. The Solvency IIsurplusrepresentsthe aggregated capital held by theGroup less Solvency Capital Requirements.

(iii) Meeting of capital management objectives

TheGroup Solvency Capital Requirement has been met during 2018.

As well as holding sufficient capital to meet Solvency II requirements atGroup level, theGroup also closely managesthe cash it holds within its central holding companiesso that it can:

• Maintain flexibility, fund new opportunities and absorb shock events;
• Fund dividends; and
• Cover central costs and debt payments.

More details on holding company cash flows and balances are given in section II(a) of the Additional unaudited financial information. While theGroup at a consolidated level issubject to the Solvency II requirements, at a business unit level capital is defined by local capital regulations and local business needs.

Each of theGroup'slong-term business operationsis capitalised to a sufficiently strong level for itsindividual circumstances.

TheGroup managesits assets, liabilities and capital locally, in accordance with local regulatory requirements and reflecting the different types of liabilitiesin each business unit. As a result of the diversity of products offered by Prudential and the different regulatory regimes under which it operates, theGroup employs differing methods of asset/liability and capital management, depending on the business concerned.

Stochastic modelling of assets and liabilitiesis undertaken in theUK,US and Asia to assessthe economic capital requirements. A stochastic approach modelsthe inter-relationship between asset and liability movements, taking into account asset correlation, management actions and policyholder behaviour under a large number of alternative economic scenarios.

In addition, reserve adequacy testing under a range ofscenarios and dynamic solvency testing is carried out, including under certain scenarios mandated by theUK,US and Asia regulators.

The sensitivity of liabilities and other components of total capital vary depending upon the type of business concerned and this conditionsthe approach to asset/liability management.

(iv) Post demerger

In August 2018, theGroup announced that theHong Kong Insurance Authority would become itslead regulator upon successful completion of the demerger. The European Solvency II regime will no longer be applicable to Prudential plc group and it is proactively engaging with theHong Kong Insurance Authority on the supervisory framework that will apply to theGroup after the demerger.

C12.2 Local capital regulations

(i) Asia insurance operations

The estimated available capital position for Asia life insurance operations excluding with-profitsfunds with reconciliation to shareholders equity isshown below:

	31 Dec 2018 £m	31 Dec 2017 £m
IFRS shareholders' equity	5,868	5,525
Adjustments to local regulatory basis
Remove deferred acquisition costs, goodwill and other intangibles	(1,850)	(1,515)
Other adjustments	631	306
Total adjustments	(1,219)	(1,209)
Total available capital resources of life assurance businesses on a local regulatory basis
excluding with-profits funds note	4,649	4,316

Note

The available capital resources on a local regulatory basis as at 31 December 2018 excludesthe with-profits business ofHong Kong, Singapore and Malaysia of £11,524 million (31 December 2017: £10,253 million).

The capital requirements ofsignificant operations are:

China

A risk-based capital, risk management and governance framework, known asthe China Risk Oriented Solvency System (C-ROSS), appliesin China.Under C-ROSS, insurers are required to maintain a core solvency ratio (core capital over minimum capital) and a comprehensive solvency ratio (actual capital over minimum capital) of not lower than 50 per cent and 100 per cent, respectively. The actual capital isthe difference between the admitted assets and admitted liabilities.

Hong Kong

The capital requirement varies by underlying risk and duration of liabilities, but is generally determined as a percentage of mathematical reserves and capital at risk. Mathematical reserves are based on a best estimate basis with prudent marginsfor adverse deviations, discounted at a valuation interest rate based on a blend between the risk-adjusted portfolio yield and the reinvestment rate.

Indonesia

Solvency capital is determined using a risk-based capital approach. Insurance companiesin Indonesia are expected to maintain the level of net assets above 100 per cent ofsolvency capital.

Malaysia

Arisk-based capital framework appliesin Malaysia. The localregulator, BankNegara Malaysia (BNM), hasset a Supervisory TargetCapital Level of 130 per cent below which supervisory actions of increasing intensity will be taken. Each insureris also required to set its own Individual TargetCapital Level to reflect its own risk profile and thisis expected to be higherthan the Supervisory TargetCapital Level.

Market liberalisation measures were introduced by BNM in April 2009, which increasesthe limit from 49 per cent to 70 per cent on foreign equity ownership for insurance companies and Takaful operatorsin Malaysia. A higher foreign equity limit beyond 70 per cent for insurance companies will be considered by BNM on a case by case basisfor companies who support expansion of insurance provision to the most vulnerable in Malaysian society.

Singapore

Arisk-based capital framework appliesin Singapore.Aregistered insurerincorporated in Singapore isrequired at all timesto maintain a minimum level of paid-up ordinary share capital and to ensure that its financialresources are not lessthan the greater of(i)the totalrisk requirement arising from the assets and liabilities of the insurer, calculated in accordance with the Singapore InsuranceAct; or(ii) a minimum amount of S\$5 million (Singapore dollars). The regulator also hasthe authority to direct that the insurersatisfy additional capital adequacy requirementsin addition to those set forth underthe Singapore InsuranceAct if it considerssuch additionalrequirements appropriate.

C12 Capital continued

C12.2 Local capital regulations continued

(ii) US insurance operations

The estimated capital position for Jackson with reconciliation to shareholders' equity isshown below:

	31 Dec 2018 £m	31 Dec 2017 £m
IFRS shareholders' equity	5,584	5,013
Adjustments to regulatory basis
Remove deferred acquisition costs	(8,727)	(8,197)
Jackson surplus notes	196	184
Investment and policyholder liabilities valuation differences between IFRS and regulatory basisfor Jackson	7,217	5,325
Other adjustments*	63	818
Total adjustments	(1,251)	(1,870)
Total available capital resources of life assurance businesses on a local regulatory basis	4,333	3,143

* Other adjustmentsinclude the removal of entitiesrecorded asUS insurance operationsin the IFRS statements which fall outside the scope of JacksonNational Life Insurance Company.

The regulatory framework for Jackson is governed by the requirements of theUSNAIC approved Risk-Based Capitalstandards.Under these requirementslife insurance companiesreport using a formula-based capitalstandard which includes components calculated by applying after-tax factorsto various asset, premium and reserve items and a separate model-based component for market risk associated primarily with variable annuity products. The after-tax factors were adjusted to reflect the impact ofUS Tax Reform during 2018.

Jackson had a permitted practice in effect as granted by the local regulator allowing Jackson to carry certain interest rate swaps at book value, asifstatutory hedge accounting were in place, instead of at fair value as would have been otherwise required. Jackson is required to demonstrate the effectiveness of itsinterest rate swap programme pursuant to the Michigan Insurance Code. The total effect of this permitted practice, net of tax, wasto decrease statutory surplus by £129 million (31 December 2017: £355 million).

Under the equivalence provisions of Solvency II, Jackson isincorporated into theGroup's Solvency II position at a level equal to available capital in excess of 100 per cent of theUS local minimum risk-based capital requirement level at which corrective action commences.

(iii) UK and Europe insurance operations

Insurance operationsin theUK and Europe are subject to Solvency II capital requirements on an individual basis. These have been met during 2018.

(iv) Asset management operations – regulatory and other surplus

Certain asset managementsubsidiaries of theGroup are subject to local regulatory requirements. The movement in the year of the estimated surplusregulatory capital position of those subsidiaries, combined with the movement in the IFRS basisshareholders' funds for unregulated asset management operations, is asfollows:

	Asset management operations
	2018 £m				2017 £m
	M&GPrudential	US	Eastspring Investments	Total	Total
Regulatory and other surplus
Beginning of year	419	235	222	876	814
Gains during the year	364	23	138	525	586
Movement in capital requirement	(10)	–	5	(5)	(73)
Capital injection	88	–	13	101	6
Distributions made to the parent company	(197)	(97)	(104)	(398)	(433)
Exchange and other movements	–	(121)	20	(101)	(24)
End of year	664	40	294	998	876

02

06

C12.3 Transferability of available capital

In theUK, PAC isrequired to meet the Solvency II capital requirements as a company as a whole, ie covering both itsring-fenced with-profitsfunds and non-profit funds. Further, the surplus of the with-profitsfundsisring-fenced from the shareholder balance sheet with restrictions asto its distribution. Distributionsfrom the with-profitsfundsto shareholders continue to reflect the shareholders' one-ninth share of the cost of declared policyholders' bonuses.

For Jackson, capital retention is maintained at a level consistent with an appropriate rating by Standard & Poor's. Currently Jackson is rated AA. Jackson can pay dividends on its capitalstock only out of earned surplus unless prior regulatory approval is obtained. Furthermore, dividendsthat exceed the greater ofstatutory net gain from operationsless net realised investmentslossesfor the prior year or 10 per cent of Jackson's prior year end statutory surplus, excluding any increase arising from the application of permitted practices, require prior regulatory approval.

For Asia subsidiaries, the amountsretained within the companies are at levelsthat provide an appropriate level of capitalstrength in excess of the local regulatory minimum. The businessesin Asia may, in general, remit dividendstoUK parent entities, provided the statutory insurance fund meetsthe local regulatory solvency requirements. For with-profitsfunds, the excess of assets over liabilitiesis retained within the funds, with distribution to shareholderstied to the shareholders'share of declared bonuses.

Available capital of the non-insurance business unitsistransferable after taking account of an appropriate level of operating capital, based on local regulatory solvency requirements, over and above base liabilities.

C13 Property, plant and equipment

Property, plant and equipment compriseGroup occupied properties and tangible assets. A reconciliation of the carrying amount of these itemsfrom the beginning of the year to the end of the year is asfollows:

	2018 £m			2017 £m
	Group occupied property	Tangible assets	Total	Group occupied property	Tangible assets	Total
At 1 January
Cost	367	1,041	1,408	439	1,077	1,516
Accumulated depreciation	(72)	(547)	(619)	(88)	(685)	(773)
Net book amount	295	494	789	351	392	743
Year ended 31 December
Opening net book amount	295	494	789	351	392	743
Exchange differences	13	10	23	(8)	(14)	(22)
Depreciation and impairment charge	(10)	(127)	(137)	(22)	(94)	(116)
Additions	35	254	289	17	117	134
Arising on acquisitions ofsubsidiaries	4	518	522	–	178	178
Disposals and transfers	(8)	(69)	(77)	(43)	(85)	(128)
Closing net book amount	329	1,080	1,409	295	494	789
At 31 December
Cost	412	1,641	2,053	367	1,041	1,408
Accumulated depreciation	(83)	(561)	(644)	(72)	(547)	(619)
Net book amount	329	1,080	1,409	295	494	789

Tangible assets

Of the £1,080 million (31 December 2017: £494 million) of tangible assets, £856 million (31 December 2017: £360 million) were held by theGroup's with-profits businesses, primarily by the consolidated subsidiariesfor venture fund and other investment purposes of theUK with-profitsfund.

Capital expenditure: property, plant and equipment by segment

The capital expenditure of £254 million (2017: £117 million) arose asfollows: £52 million (2017: £55 million) in Asia, £14 million (2017: £19 million) inUS and £187 million (2017: £41 million) inUK and Europe with the remaining balance of £1 million (2017: £2 million) arising from unallocated corporate expenditure.

C14 Investment properties

Investment properties principally relate to theUK with-profitsfund and are carried at fair value. A reconciliation of the carrying amount of investment properties at the beginning and end of the year isset out below:

	2018 £m	2017 £m
At 1 January	16,497	14,646
Additions:
Resulting from property acquisitions	1,326	2,009
Resulting from expenditure capitalised	183	39
Disposals	(178)	(591)
Net gain from fair value adjustments	149	415
Net foreign exchange differences	(52)	(21)
At 31 December	17,925	16,497

The 2018 income statement includesrental income from investment properties of £927 million (2017: £876 million) and direct operating expensesincluding repairs and maintenance arising from these properties of £56 million (2017: £82 million).

Investment properties of £5,825 million (31 December 2017: £5,689 million) are held under finance leases. The present value of minimum lease payments under these leasesis £42 million (31 December 2017: £43 million) and 76 per cent (31 December 2017: 73 per cent) of lease payments are due in over five years.

TheGroup's policy isto let investment propertiesto tenantsthrough operating leases. Minimum future rentalsto be received on non-cancellable operating leases of theGroup'sfreehold investment properties are receivable in the following periods:

	2018 £m	2017 £m
Lessthan 1 year	314	322
1 to 5 years	1,077	1,073
Over 5 years	2,242	2,286
Total	3,633	3,681

The total minimum future rentalsto be received on non-cancellable sub-leasesfor theGroup'sinvestment properties held under finance leases at 31 December 2018 are £1,596 million (31 December 2017: £1,527 million).

D Other notes

D1 Corporate transactions

D1.1 Gains/(losses) on disposal of businesses and corporate transactions

'(Loss) gain on disposal of businesses and corporate transactions' comprisesthe following:

	2018 £m	2017 £m
Loss arising on reinsurance of part ofUK shareholder-backed annuity portfolio note (i)	(508)	–
Other transactions note (ii)	(80)	223
	(588)	223

Notes

(i) Loss arising on reinsurance of part of UK shareholder-backed annuity portfolio

In March 2018, M&GPrudential announced the reinsurance of £12.0 billion (as at 31 December 2017) of itsshareholder-backed annuity portfolio to Rothesay Life.Under the terms of the agreement, M&GPrudential hasreinsured the liabilitiesto Rothesay Life, which is expected to be followed by a courtsanctioned legal transfer, under Part VII of the Financial Services and Markets Act 2000 (Part VII), of most of the portfolio to Rothesay Life by 30 June 2019.

The reinsurance agreement became effective on 14 March 2018. A reinsurance premium of £12,149 million has been recognised within 'Outward reinsurance premiums' in the income statement and settled via the transfer of financial investments and other assetsto Rothesay Life. After allowing for the recognition of a reinsurance asset and associated changesto policyholder liabilities, a loss of £(508) million wasrecognised in 2018 in relation to the transaction.

The reinsured annuity businessthat will be transferred once the Part VII processis complete has been classified as held forsale in these consolidated financialstatementsin accordance with IFRS 5, 'Non-current assets held forsale and discontinued operations'.

The assets and liabilities of the M&GPrudential annuity business classified as held forsale on the statement of financial position are asfollows:

	31 Dec 2018 £m
Assets
Reinsurer'sshare of insurance contract liabilities	10,502
Other assets(including cash and cash equivalents)	66
Assets held for sale	10,568
Liabilities
Policyholder liabilities	10,502
Other liabilities	66
Liabilities held for sale	10,568

(ii) Other transactions

Other transaction costs of £80 million incurred by theGroup in 2018 primarily relate to additional costsincurred in exiting from theNPHbroker-dealer business and costsrelated to preparation for the previously announced intention to demerge M&GPrudential from Prudential plc, resulting in two separately listed entities.

In 2017, theGroup completed its disposal of its Korea life business, realising a gain of £61 million principally as a result of recycling from other comprehensive income cumulative exchange gains of this business. On 15 August 2017, theGroup, through itssubsidiaryNational PlanningHoldings, Inc. (NPH)sold itsUS independent broker-dealer network to LPL Financial LLC which realised a gain of £162 million in 2017. Together these two transactions generated a gain on disposal of businesses and corporate transactions of £223 million.

06

D1 Corporate transactions continued

D1.2 Acquisition of TMB Asset Management Co., Ltd. in Thailand

In September 2018, theGroup completed itsinitial acquisition of 65 per cent of TMB Asset Management Co., Ltd. (TMBAM), an asset management company in Thailand, from TMB Bank Public Limited (TMB) for £197 million.

The terms of the sale agreement include a call option exercisable (by theGroup) after three years and a put option exercisable (by TMB) after four years which, if exercised, triggersthe purchase of the remaining 35 per cent of the business. The put option, in line with IFRS, has been recognised as a financial liability and a reduction in shareholders' equity of £106 million as of the acquisition date, being the discounted expected consideration payable for the remaining 35 per cent (£109 million as of 31 December 2018).

The fair value of the acquired assets, assumed liabilities and resulting goodwill are shown in the table below:

	31 Dec 2018 £m
Assets
Intangible assets	5
Other assets	26
Cash and cash equivalents	2
Total assets	33
Other liabilities	(10)
Non-controlling interests	(7)
Net assets acquired and liabilities assumed	16
Goodwill arising on acquisition*	181
Purchase consideration	197

* The goodwill on acquisition of £181 million (retranslated to £186 million at 31 December 2018) is mainly attributable to the expected benefitsfrom new customers and synergies. Refer to note C5.1 for changesto the carrying amount of goodwill during the year.

The acquisition of TMBAM contributed £18 million to revenue and £5 million to adjusted IFRS operating profit based on longer-term investment returns and profit before tax of theGroup for the post-acquisition period from 27 September to 31 December 2018. There is no material impact on theGroup'srevenue and profit for 2018 if the acquisition had occurred on 1 January 2018.

D2 Contingencies and related obligations

Litigation and regulatory matters

In addition to the mattersset out in note C11 in relation to the Financial Conduct Authority review of past annuity sales, theGroup is involved in variouslitigation and regulatory issues. These may from time to time include class actionsinvolving Jackson. While the outcome ofsuch litigation and regulatory issues cannot be predicted with certainty, the Company believesthat their ultimate outcome will not have a material adverse effect on theGroup's financial condition, results of operations, or cash flows.

Guarantees

Guarantee fundsin both theUK and theUS provide for paymentsto be made to policyholders on behalf of insolvent life insurance companies and are financed by payments assessed on solvent insurance companies based on location, volume and types of business. The estimated reserve for future guarantee fund assessmentsis notsignificant. The directors believe thatsufficient provision has been made on the balance sheet for all anticipated paymentsfor known insolvencies.

TheGroup has provided other guarantees and commitmentsto third-parties entered into in the normal course of business but the Group does not consider that the amountsinvolved are significant.

Support for with-profits sub-funds by shareholders' funds

PAC isliable to meet its obligationsto with-profits policyholders even if the assets of the with-profitssub-funds are insufficient to do so. The assets, represented by the unallocated surplus of with-profitsfunds, in excess of amounts expected to be paid for future terminal bonuses and related shareholder transfers('the excess assets') in the with-profitssub-funds could be materially depleted over time by, for example, a significant orsustained equity market downturn, costs ofsignificant fundamentalstrategic change or a material increase in the pension mis-selling provision. In the unlikely circumstance that the depletion of the excess assets within the long-term fund wassuch that theGroup's ability to satisfy policyholders' reasonable expectations was adversely affected, it might become necessary to restrict the annual distribution to shareholders or to contribute shareholders' fundsto the with-profitssub-fundsto provide financialsupport. Mattersrelating to with-profitssub-funds:

— Pension mis-selling review – theUK insurance regulator required allUK life insurance companiesto review sales of personal pensions policiesfor potential mis-selling. Offers of redressto all cases were made by 30 June 2002. Whilst Prudential believed it met the regulator'srequirementsto issue offers of redressto all customers by 30 June 2002 there is a population of customers who, whilst an attempt was made at the time, to invite them to participate in the review, may not have received their invitation. These customers are

<-- PDF CHUNK SEPARATOR -->

being re-engaged to ensure that they have the opportunity to take part in the review. Costs arising from thisreview are met by the excess assets of theUK with-profitssub-fund and hence have not been charged to the assetshares used in the determination of policyholder bonusrates. Prudential has given an assurance that these deductionsfrom excess assets will not impact its bonus or investment policy for policies within the with-profitssub-fundsthat were in force at 31 December 2003. This assurance does not apply to new businesssince 1 January 2004. In the unlikely event thatsuch deductions would affect the bonus or investment policy for the relevant policies, Prudential hasstated it would make available support to the sub-fund from shareholder resourcesfor aslong as the situation continued,so asto ensure that policyholders were not disadvantaged;

• Scottish Amicable Insurance sub-fund policies within thissub-fund (a with-profitssub-fund closed to new business) contain minimum levels of guaranteed benefit to policyholders. Should the assets of the sub-fund be inadequate to meet the guaranteed benefit obligations of the policyholders of SAIF, theUK with-profitssub-fund would be liable to cover any such deficiency in the first instance. In addition, certain pensions products within thissub-fund have guaranteed annuity rates at retirement, for which a provision of £361 million was held within the sub-fund (31 December 2017: £503 million); and
• Guaranteed annuities a provision for guaranteed annuity products of £49 million was held (31 December 2017: £53 million) in the UK with-profitssub-fund.

Intra-group capital support arrangements

Prudential and PAC have put in place intra-group arrangementsto formalise circumstancesin which capitalsupport would be made available by Prudential. While Prudential considersit unlikely thatsuch support will be required, the arrangements are intended to provide additional comfort to PAC and its policyholders.

In addition, Prudential has put in place intra-group arrangementsto formalise undertakings by Prudential to the regulators of theHong Kong subsidiariesregarding theirsolvency levels.

D3 Post balance sheet events

Dividends

The second interim ordinary dividend for the year ended 31 December 2018, that was approved by the Board of Directors after 31 December 2018, is described in note B6.

Renewal of strategic bancassurance alliance with United Overseas Bank Limited

In January 2019, theGroup announced the renewal of itsregionalstrategic bancassurance alliance withUnited Overseas Bank Limited (UOB). The new agreement extendsthe original alliance, which commenced in 2010 to 2034 and increasesthe geographicalscope to include a fifth market, Vietnam, alongside the existing markets across Singapore, Malaysia, Thailand and Indonesia.

As part of thistransaction, Prudential has agreed to payUOB an initial fee of £662 million (translated using a Singapore dollar: £ foreign exchange rate of 1.7360) for distribution rights which is not dependent on future sales volumes. This amount will be paid in three instalments of £230 million in February 2019, £331 million in January 2020 and £101 million in January 2021. In line with theGroup's policy, these amounts will be capitalised as a distribution rightsintangible asset.

D4 Related party transactions

Transactions between the Company and its subsidiaries that are eliminated on consolidation

The Company hastransactions and outstanding balances with certain unit trusts, Open-Ended Investment Companies(OEICs), collateralised debt obligations and similar entitiesthat are not consolidated and where aGroup company acts as manager which are regarded asrelated partiesfor the purposes of IAS 24. The balances are included in theGroup'sstatement of financial position at fair value or amortised cost in accordance with IAS 39 classifications. The transactions are included in the income statement and include amounts paid on issue ofshares or units, amountsreceived on cancellation ofshares or units and amounts paid in respect of the periodic charge and administration fee.

In addition, there are no material transactions between theGroup'sjoint ventures and associates, which are accounted for on an equity method basis and otherGroup companies.

Executive officers and Directors of the Company may from time to time purchase insurance, asset management or annuity products marketed byGroup companiesin the ordinary course of business on substantially the same terms asthose prevailing at the time for comparable transactions with other persons.

In 2018 and 2017, other transactions with Directors were not deemed to be significant both by virtue of theirsize and in the context of the Directors' financial positions. All of these transactions are on terms broadly equivalent to those that prevail in arm's-length transactions.

Apart from these transactions with Directors, no Director had interestsin shares, transactions or arrangementsthat require disclosure, other than those given in the Directors' remuneration report. Key management remuneration is disclosed in note B2.3.

06 European Embedded Value (EEV) basisresults

D5 Commitments

Operating leases and capital commitments

TheGroup leases various officesto conduct its business. Leasesin which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases(net of any incentivesreceived from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

	2018 £m	2017 £m
Future minimum lease paymentsfor non-cancellable operating leasesfall due during the following periods:
Not later than 1 year	120	113
Later than 1 year and not later than 5 years	404	284
Later than 5 years	408	118
Future minimum sub-lease rentalsreceived for non-cancellable operating leasesfor land and buildings	42	56
Minimum lease rental paymentsincluded in consolidated income statement	139	123

In addition, theGroup has provided, from time to time, certain guarantees and commitmentsto third partiesincluding funding the purchase or development of land and buildings and other related matters. The contractual obligationsto purchase or develop investment properties at 31 December 2018 were £615 million (31 December 2017: £176 million).

At 31 December 2018, Jackson has unfunded commitments of £664 million (31 December 2017: £414 million) related to its investmentsin limited partnerships and £345 million (31 December 2017: £214 million) related to commercial mortgage loans and other fixed maturities. These commitments were entered into in the normal course of business and a material adverse impact on the operations is not expected to arise from them.

At 31 December 2018,UK and Europe'sinsurance operations had unfunded commitments of £3,997 million (31 December 2017: £3,225 million) related to private equity and infrastructure funds. In addition, Prudential Capital had unfunded commitments of £155 million (31 December 2017: £162 million) related to its bridging loans. These commitments were entered into in the normal course of business and no material adverse impact on the operationsis expected to arise.

D6 Investments in subsidiary undertakings, joint ventures and associates

(a) Dividend restrictions and minimum capital requirements

CertainGroup subsidiaries and joint ventures are subject to restrictions on the amount of fundsthey may transfer in the form of cash dividends or otherwise to the parent company.

UnderUK company law,UK companies can only declare dividendsif they have sufficient distributable reserves. Further,UK insurance companies are required to maintain solvency marginsin accordance with the rules of the Prudential Regulation Authority. M&GPrudential's asset management company, M&GInvestment Management Ltd, is also required to maintain capital in accordance with regulatory requirements before making any distribution to the parent company.

Jackson issubject to state lawsthat limit the dividends payable to its parent company based on statutory capital,surplus and prior year earnings. Dividendsin excess of these limitationsrequire prior regulatory approval.

TheGroup'ssubsidiaries, joint ventures and associatesin Asia may remit dividendsto theGroup, in general, provided the statutory insurance fund meetsthe capital adequacy standard required under localstatutory regulations and hassufficient distributable reserves. For further details on local capital regulationsin Asia please refer to note C12.2.

(b) Investments in joint ventures and associates

Joint venturesrepresent arrangements where the controlling partiesthrough contractual or other agreement have the rightsto the net assets of the arrangements. TheGroup hasshareholder-backed joint venture insurance and asset management businessesin China with CITICGroup, and a joint venture asset management businessin India with ICICI Bank . In addition, there is an asset management joint venture inHong Kong with Bank of China InternationalHoldings Limited (BOCI) and Takaful insurance joint venture in Malaysia.

TheGroup has variousjoint venturesrelating to property investments held by theUK with-profitsfund. The results of these joint ventures are reflected in the movement in the unallocated surplus of theUK with-profitsfunds and therefore do not affectshareholders' results.

For theGroup'sjoint venturesthat are accounted for by using the equity method, the net of tax results of these operations are included in theGroup's profit before tax.

TheGroup's associates, which are also accounted for under the equity method, include the Indian insurance entity (with the majority shareholder being ICICI Bank) and PPM South Africa. In addition, theGroup hasinvestmentsin Open-Ended Investment Companies (OEICs), unit trusts, funds holding collateralised debt obligations, property unit trusts and venture capital investments of theUK with-profitsfunds where theGroup hassignificant influence. As allowed under IAS 28, these investments are accounted for on a fair value through profit or loss basis. The aggregate fair value of associates accounted for at fair value through profit or loss, where there are published price quotations, is approximately £1.2 billion at 31 December 2018 (31 December 2017: £2.4 billion).

For joint ventures and associates accounted for using the equity method, the 12 months financial information of these investments up to 31 December (covering the same period asthat of theGroup) has been used in these consolidated financialstatements.

Key to classes of shares held
LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

TheGroup'sshare of the profits(including short-term fluctuationsin investment returns), net of related tax, and carrying amount of interest in joint ventures and associates, which are equity accounted asshown in the consolidated income statement comprisesthe following:

			2018 £m	2017 £m
Shareholder-backed business UK with-profitsfund (prior to offsetting effect in movement in unallocated surplus)				196 106
			291	302
Asia				Total
Insurance	Asset management	Insurance	Asset management	segment and Group total
178	61	36	16	291
		106	15	302
		121 60		255 36 UK and Europe

There is no other comprehensive income in the joint ventures and associates. There has been no unrecognised share of losses of a joint venture or associate that theGroup hasstopped recognising in the total income.

The joint ventures have no significant contingent liabilities or capital commitmentsto which theGroup is exposed nor doestheGroup have any significant contingent liabilities or capital commitmentsin relation to itsinterestsin the joint ventures.

(c) Related undertakings

In accordance with Section 409 of the Companies Act 2006 a list of PrudentialGroup'ssubsidiaries, joint ventures, associates and significant holdings(being holdings of more than 20 per cent) along with the classes ofshares held, the registered office address and the country of incorporation and the effective percentage of equity owned at 31 December 2018 is disclosed below.

The definitions of a subsidiary undertaking, joint venture and associate in accordance with the Companies Act 2006 are different from the definition under IFRS. As a result, the related undertakingsincluded within the list below may not be the same asthe undertakings consolidated in theGroup IFRS financialstatements. TheGroup's consolidation policy is described in note A3.1(b).

Direct subsidiary undertakings of the parent company, Prudential plc (shares held directly or via nominees)

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
M&GPrudential Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential (USHoldco1) Limited	OS	100.00%
Prudential CapitalHolding Company Limited	OS	100.00%
Prudential Corporation Asia Limited	OS	100.00%	13th Floor, One International Finance Centre, 1Harbour View Street, Central, Hong Kong
PrudentialGroupHoldings Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees)

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
95th Avenue Retail Building, LLC	MI	100.00%	901 S., Ste. 201, Second St., Springfield, IL, 62704-7909,United States
Aberdeen Standard Singapore Equity	OS	57.73%	21 Church Street, Capital Square 2, #01-01, Singapore 049480
Aberdeen Standard Cash Creation	OS	22.91%	28th Floor Bangkok City Tower, 179 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120, Thailand
Allied Life Brokerage Agency, Inc	OS	100.00%	400 East Court Avenue, Des Moines, IA 50309,USA
ANRP II (AIV VI FC), L.P.	LPI	36.58%	Cayman Corporate Centre, 27Hospital Road,George Town, KY-9008, Cayman Islands
BOCHK AggressiveGrowth Fund	OS	57.19%	27th Floor, Bank of China Tower, 1Garden Road, Central and Western District, Hong Kong
BOCHK Asia Pacific Equity Fund	OS	27.18%	12th Floor and 25th Floor, Citicorp Centre, 18 Whitfield Road, Causeway Bay,
BOCHK BalancedGrowth Fund	OS	49.07%	Wan Chai,Hong Kong
BOCHK China Equity Fund	OS	66.00%
BOCHK ConservativeGrowth Fund	OS	54.00%
BOCHKGlobal Bond Fund	OS	30.25%	27/F Bank of China Tower, 1Garden Road, Central and Western District, Hong Kong
BOCHK Investment Funds- BOCHKHong Kong Equity Fund	U	20.25%	12th Floor, 25th Floor, Citicorp Centre, 18 Whitfield Road, Causeway Bay, Wan Chai ,Hong Kong
BOCI - Prudential Asset Management Limited	OS	36.00%	27th Floor, Bank of China Tower, 1Garden Road, Central and Western District, Hong Kong

04

06

05

D6 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees) continued

BOCI - Prudential Trustee Limited OS 36.00% 12th Floor and 25th Floor, Citicorp Centre, 18 Whitfield Road, Causeway Bay, Wan Chai,Hong Kong Brier Capital LLC OS 100.00% 1 Corporate Way, Lansing, MI 48951,USA Brooke (Holdco 1) Inc OS 100.00% 1105North Market Street, Suite 1300, Wilmington, DE 19801,USA Brooke Life Insurance Company OS 100.00% 1 Corporate Way, Lansing, MI 48951,USA BWAT RetailNominee (1) Limited OS 50.00% Laurence PountneyHill, London, EC4R 0HH,UK BWAT RetailNominee (2) Limited OS 50.00% Calvin F1GP Limited OS 100.00% 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK Calvin F2GP Limited OS 100.00% Canada Property (Trustee)No 1 Limited OS 100.00% LimeGroveHouse,Green Street, StHelier, JE1 2ST, Jersey Canada PropertyHoldings Limited OS 100.00% Laurence PountneyHill, London, EC4R 0HH,UK Cardinal Distribution Park Management Limited OS 66.00% 5th Floor CavendishHouse, 39 Waterloo Street, Birmingham, B2 5PP,UK CarrawayGuildford (Nominee A) Limited OS 100.00% 13 Castle Street, StHelier, Jersey, JE4 5UT CarrawayGuildford (Nominee B) Limited OS 100.00% CarrawayGuildfordGeneral Partner Limited OS 100.00% Laurence PountneyHill, London, EC4R 0HH,UK CarrawayGuildford InvestmentsUnit Trust OS 100.00% 13 Castle Street, StHelier, Jersey, JE4 5UT CarrawayGuildford LP LPI 100.00% Lloyds Chambers, 1 Portsoken Street, London, E1 8HZ,UK Centaurus Retail LLP LPI 50.00% 40 Broadway, London, SW1H0BU,UK Centre CapitalNon-Qualified InvestorsIV AIV Orion, LP LPI 76.80% 2711 Centreville Road, Suite 400, Wilmington, DE 19808,USA Centre CapitalNon-Qualified InvestorsIV AIV-ELS, LP LPI 76.53% Centre CapitalNon-Qualified InvestorsIV AIV-RA, LP LPI 31.92% Centre CapitalNon-Qualified InvestorsIV, LP LPI 73.06% Centre CapitalNon-Qualified Investors V AIV-ELS LP LPI 73.16% Centre CapitalNon-Qualified Investors V LP LPI 67.16% CEP IV-A Chicago AIV LP LPI 31.92% 615 South DupontHighway, Dover, DE 19901,USA CEP IV-A CWV AIV LP LPI 31.95% 850New Burton Road, Suite 201, Dover, DE 19904,USA CEP IV-A Davenport AIV LP LPI 31.92% 615 South DupontHighway, Dover, DE 19901,USA CEP IV-A Indy AIV LP LPI 31.92% CEP IV-ANMR AIV LP LPI 31.92% CEP IV-A WBCT AIV LP LPI 31.91% CF Prudential European QIS Fund OS 97.89% 17 Rochester Row, London, SW1P 1QT,UK CF Prudential Japanese QIS Fund OS 97.99% CF PrudentialNorth American QIS Fund OS 98.87% 135 Bishopsgate, London, EC2M 3UR,UK CF Prudential Pacific Markets Trust Fund OS 98.31% Laurence PountneyHill, London, EC4R 0HH,UK CF PrudentialUKGrowth QIS Fund OS 98.92% 17 Rochester Row, London, SW1P 1QT,UK CITIC-CP Asset Management Co., Ltd. MI 26.95% No.128North Zhangjiabang Road, Pudong District, Shanghai, China CITIC-Prudential Fund Management Co., Ltd. MI 49.00% Level 9,HSBC Building, Shanghai IFC, 8 Century Avenue, Pudong, Shanghai, China CITIC-Prudential Life Insurance Company Limited MI 50.00% East Tower, World Financial Centre,No. 1 East Third Ring Middle Road, Chaoyang District, Beijing, China Clairvest Equity PartnersIV-A LP LPI 31.87% 22 St Clair Avenue East, Suite 1700, Toronto, ON M4T 2S3, Canada Cribbs Causeway JV Limited OS 50.00% 40 Broadway, London, SW1H0BU,UK Cribbs Causeway Merchants Association Limited LBG 100.00% The Mall at Cribbs Causeway, Bristol, BS34 5DG,UK Cribbs MallNominee (1) Limited OS 100.00% Laurence PountneyHill, London, EC4R 0HH,UK Curian Capital, LLC OS 100.00% 1 Corporate Way, Lansing, MI 48951,USA Curian Clearing LLC (Michigan) OS 100.00% Digital Infrastructure Investment PartnersGP LLP LPI 65.00% Laurence PountneyHill, London, EC4R 0HH,UK Digital Infrastructure Investment PartnersGP1 Limited OS 100.00% Digital Infrastructure Investment Partners LP LPI 100.00% Digital Infrastructure Investment Partners SLPGP LLP LPI 100.00% 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK Digital Infrastructure Investment Partners SLPGP1 Limited OS 100.00% Laurence PountneyHill, London, EC4R 0HH,UK Digital Infrastructure Investment Partners SLPGP2 Limited OS 100.00%	Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation

Key to classes of shares held

LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

Eastspring Al-Wara' Investments Berhad OS 100.00% Level 25, MenaraHong Leong,No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Wilayah Persekutuan, Malaysia Eastspring Asset Management Korea Co. Ltd. OS 100.00% 15th Floor, Shinhan Investment Tower, 70 Yoidae-ro, Youngdungpo-gu, Seoul 07325, Korea Eastspring Infrastructure Debt Fund L.P. PI 100.00% PO Box 309,UglandHouse,Grand Cayman, KY1-1104, Cayman Islands Eastspring Investments- Japan Equity Fund U 89.84% 26, Boulevard Royal, Luxembourg, L-2449, Luxembourg Eastspring Investment Management (Shanghai) Company Limited OS 100.00% 3/F Azia Center, 1233 Lujiazui Ring Road, Shanghai 200120, China Eastspring Investments- Asian Local Bond Fund OS 97.95% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments- Asian Smaller Companies Fund OS 99.71% Eastspring Investments- Developed and Emerging Asia OS 100.00% Equity Fund Eastspring Investments- Emerging Europe, Middle East and Africa OS 100.00% Dynamic Fund Eastspring Investments-Global Emerging Markets Customized OS 99.90% Equity Fund Eastspring Investments-Global Emerging Markets Dynamic Fund OS 94.89% Eastspring Investments-Global Low Volatility Equity Fund OS 98.67% Eastspring Investments-Global Technology Fund OS 78.82% Eastspring Investments- Japan Fundamental Value Fund OS 98.69% Eastspring Investments- Pan European Fund OS 52.83% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983 Eastspring Investments-USHigh Yield Bond Fund OS 31.43% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments(Hong Kong) Limited OS 100.00% 13th Floor, One International Finance Centre, 1Harbour View Street, Central, Hong Kong Eastspring Investments(Luxembourg) SA OS 100.00% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments(Singapore) Limited OS 100.00% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983 Eastspring Investments Asia Pacific Equity Fund OS 99.98% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Asian Bond Fund OS 89.69% Eastspring Investments Asian Dynamic Fund OS 84.57% Eastspring Investments Asian Equity Fund OS 68.69% Eastspring Investments Asian Equity Income Fund OS 77.26% Eastspring Investments AsianHigh Yield Bond Fund OS 49.64% Eastspring Investments AsianHigh Yield Bond MY Fund OS 81.00% Eastspring Investments Asian Infrastructure Equity Fund OS 44.47% Eastspring Investments Asian InvestmentGrade Bond Fund OS 100.00% Eastspring Investments Asian Low Volatility Equity Fund OS 90.00% Eastspring Investments Asian Property Securities Fund OS 95.08% Eastspring Investments- Asian Total Return Bond Fund U 99.13% 26, Boulevard Royal, Luxembourg, L-2449, Luxembourg Eastspring Investments Berhad OS 100.00% Level 25, MenaraHong Leong,No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Wilayah Persekutuan, Malaysia Eastspring Investments China Equity Fund OS 53.72% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Dragon Peacock Fund OS 35.18% Eastspring Investments European InvGrade Bond Fund OS 99.76% Eastspring Investments Fund Management Limited MI 100.00% 23rd Floor, Saigon Trade Center, 37 Ton Duc Thang Street, District 1,Ho Chi Minh Liability Company City, Vietnam Eastspring InvestmentsGlobal Emerging Markets Bond Fund OS 95.43% 26, Boulevard Royal, L-2449, Luxembourg Eastspring InvestmentsGlobal EquityNavigator Fund OS 99.99% Eastspring InvestmentsGlobal MarketNavigator Fund OS 98.88% Eastspring InvestmentsGreater China Equity Fund OS 94.13% Eastspring InvestmentsHong Kong Equity Fund OS 99.89% Eastspring InvestmentsIncorporated OS 100.00% 874 Walker Road, Suite C, Dover, DE 19904,USA Eastspring InvestmentsIndia Consumer Equity Open Limited OS 100.00% 3rd Floor, 355NEX, Rue du Savoir, Cybercity Ebene 72201, Mauritius Eastspring InvestmentsIndia Equity Fund OS 69.74% 26, Boulevard Royal, L-2449, Luxembourg Eastspring InvestmentsIndia Equity Open Limited OS 100.00% 3rd Floor, 355NEX, Rue du Savoir, Cybercity Ebene 72201, Mauritius Eastspring InvestmentsIndia Infrastructure Equity Open Limited OS 100.00% Eastspring Investments Latin American Equity Fund OS 91.89% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Limited OS 100.00% Marunouchi Park Building, 6-1 Marunouchi 2-chome, Chiyoda-Ku, Tokyo, Japan Eastspring InvestmentsGlobal Multi Asset Income PlusGrowth OS 100.00% 26, Boulevard Royal, L-2449, Luxembourg Fund Eastspring InvestmentsNorth America Value Fund OS 99.84% Eastspring Investments Services Pte. Ltd. OS 100.00% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983	Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation

06

D6 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees) continued

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
Eastspring Investments SICAV-FIS - Alternative Investments Fund	OS	100.00%	26, Boulevard Royal, L-2449, Luxembourg
Eastspring Investments SICAV-FIS - Asia Pacific Loan Fund	OS	100.00%
Eastspring Investments SICAV-FIS Africa Equity Fund	U	100.00%
Eastspring Investments SICAV-FISUniversalUSD Bond Fund	OS	99.94%
Eastspring Investments SICAV-FISUniversalUSD Bond II Fund	OS	100.00%
Eastspring InvestmentsUS Bond Fund	OS	32.87%
Eastspring InvestmentsUS Corporate Bond Fund	OS	89.61%
Eastspring InvestmentsUS Equity Income Fund	U	99.50%
Eastspring InvestmentsUSHigh InvGrade Bond Fund	OS	92.77%
Eastspring InvestmentsUS InvestmentGrade Bond Fund	OS	56.87%
Eastspring InvestmentsUS Strategic Income Bond Fund	OS	100.00%
Eastspring InvestmentsUS Total Return Bond Fund	OS	100.00%
Eastspring InvestmentsUnit Trust - Dragon Peacock Fund	U	97.40%	Eastspring Investments(Singapore) Limited, Marina Bay Financial Centre, 10, Marina Boulevard, #32-01, Singapore 018983
Eastspring InvestmentsUT Singapore ASEANEquity Fund	OS	100.00%	10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983
Eastspring InvestmentsUT Singapore Select Bond Fund	OS	85.39%
Eastspring Investments World Value Equity Fund	OS	92.28%	26, Boulevard Royal, L-2449, Luxembourg
Eastspring OverseasInvestment Fund Management (Shanghai) Company Limited	OS	100.00%	Unit 306-308, 3/F Azia Center, 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone, China
Eastspring Real Assets Partners	OS	100.00%	PO Box 309,UglandHouse,Grand Cayman, KY1-1104, Cayman Islands
Eastspring SecuritiesInvestment Trust Co., Ltd.	OS	99.54%	4th Floor,No.1 Songzhi Road, Taipei 110, Taiwan
Edger Investments Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Edinburgh Park (Management) Limited	LBG	100.00%	1 Exchange Crescent, Conference Square, Edinburgh, EH3 8UL,UK
EmbankmentGP Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
EmbankmentNominee 1 Limited	OS	100.00%
EmbankmentNominee 2 Limited	OS	100.00%
EmpireHolding SARL (In liquidation)	OS	100.00%	5, rueGuilllaume Kroll, L-1882, Luxembourg
European Specialist Investment Funds- M&GTotal Return Credit Investment Fund	OS	26.13%	80, route d'Esch, L-1470, Luxembourg
FalanGP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
Fashion Square ECO LP (In liquidation)	LPI	100.00%	1209 Orange Street, Wilmington, DE 19801,USA
Fidelity Funds- Japan Fund	OS	23.56%	2A, Rue Albert Borschette, BP 274, Luxembourg, LU-LUL-1246, Luxembourg
First State China Focus Fund	OS	60.97%	70 Sir John Rogerson's Quay Dublin 2 D02 R296 Ireland
First StateGlobal Property A	OS	42.35%	Ground Floor, Tower 1, Darling Park, 201 Sussex Street, Sydney,NSW 2001, Australia
FiveHotelHolding, LLC	MI	100.00%	CT Corporation System, 208 South LaSalle Street, Suite 814, Chicago, IL 60604, USA
FoliosIII Designated Activity Company	OS	60.00%	Fourth Floor, 76 Lower Baggot Street, Dublin 2
Foudry Properties Limited	OS	50.00%	Clearwater Court, Vastern Road, Reading RG1 8DB,UK
Fubon China Currency Fund	OS	25.10%	8F,No.108, Sec. 1, Dunhua S. Rd., Songshan Dist., Taipei, Taiwan
FubonGlobal InvestmentGrade Bond Fund	OS	47.80%	8F,No.108, Sec. 1, Dunhua S. Rd., Songshan Dist., Taipei, Taiwan
Furnival Insurance Company PCC Limited	OS	100.00%	Third Floor, La Plaiderie Chambers, La Plaiderie, St Peter Port,Guernsey,GY1 1WG
GennyGP 1 LLP	LPI	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
GennyGP 2 Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
GennyGP Limited	OS	100.00%
George DigitalGP 1 LLP	LPI	100.00%
George DigitalGP 2 Limited	OS	100.00%
George DigitalGP Limited	OS	100.00%
GGEGP Limited	OS	100.00%
GreenGP Limited	OS	100.00%

Key to classes of shares held

LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
Greenpark (Reading)General Partner Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Greenpark (Reading)NomineeNo. 1 Limited	OS	100.00%
GreenPark (Reading)NomineeNo. 2 Limited	OS	100.00%
GS Twenty Two Limited	OS	100.00%
Hermitage Management LLC	OS	100.00%	1 Corporate Way, Lansing, MI 48951,USA
Holborn BarsNominees Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Holtwood Limited (in liquidation)	OS	100.00%	InternationalHouse, CastleHill, Victoria Road, Douglas, IM2 4RB, Isle of Man
Hudson Seasons, LLC	MI	100.00%	874 Walker Road, Suite C, Dover, DE 19904,USA
HydeHoldco 1 Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
ICICI Prudential Asset Management Company Limited	OS	49.00%	12th Floor,Narain Manzil, 23, Barakhamba Road,New Delhi 110001, India
ICICI Prudential Life Insurance Company Limited	OS	25.82%	ICICI PruLife Towers, 1089 Appasaheb Marathe Marg, Prabhadevi, Mumbai
ICICI Prudential Pension Funds Management Company	OS	25.82%	400025, India
ICICI Prudential Trust Limited	OS	49.00%	12th Floor,Narain Manzil, 23, Barakhamba Road,New Delhi 110001, India
Infracapital (AIRI)GP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
Infracapital (Belmond)GP Limited	OS	100.00%
Infracapital (Bio)GP Limited	OS	100.00%
Infracapital (Churchill)GP 1 Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH, England
Infracapital (Churchill)GP LLP	LPI	100.00%
Infracapital (GC)GP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
Infracapital (Gigaclear)GP 1 Limited	OS	100.00%
Infracapital (Gigaclear)GP 2 Limited	OS	100.00%
Infracapital (Gigaclear)GP LLP	LPI	100.00%
Infracapital (IT PPP)GP Limited	OS	100.00%
Infracapital (Leo)GP Limited	OS	100.00%
Infracapital (Sense)GP Limited	OS	100.00%
Infracapital (TLSB)GP Limited	OS	100.00%
Infracapital (TLSB) SLP LP	LPI	100.00%
Infracapital ABPGP Limited (In liquidation)	OS	100.00%
Infracapital CI II Limited	OS	100.00%
Infracapital DF IIGP LLP	LPI	100.00%
Infracapital DF II Limited	OS	100.00%
Infracapital Employee FeederGP 1 LLP	LPI	100.00%
Infracapital Employee FeederGP 2 LLP	LPI	100.00%
Infracapital Employee FeederGP Limited	OS	100.00%
Infracapital F1GP2 Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Infracapital F2GP1 Limited	OS	100.00%
Infracapital F2GP2 Limited	OS	100.00%
InfracapitalGP 1 LLP	LPI	100.00%
InfracapitalGP 2 LLP	LPI	100.00%
InfracapitalGP II Limited	OS	100.00%
InfracapitalGP Limited	OS	100.00%
InfracapitalGreenfield DFGP LLP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
InfracapitalGreenfield Partners 1 SLPGP LLP	LPI	100.00%
InfracapitalGreenfield Partners 1 SLPGP1 Limited	OS	100.00%
InfracapitalGreenfield Partners 1 SLPGP2 Limited	OS	100.00%
InfracapitalGreenfield PartnersI Employee FeederGP LLP	LPI	100.00%
InfracapitalGreenfield PartnersIGP 1 Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
InfracapitalGreenfield PartnersIGP 2 Limited	OS	100.00%
InfracapitalGreenfield PartnersIGP LLP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
InfracapitalGreenfield PartnersI LP	LPI	26.52%	Laurence PountneyHill, London, EC4R 0HH,UK
InfracapitalGreenfield PartnersI SLP2GP LLP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
InfracapitalGreenfield PartnersI SubholdingsGP LLP	LPI	100.00%
InfracapitalGreenfield PartnersI SubholdingsGP1 Limited	OS	100.00%
Infracapital PartnersII LP	LPI	31.56%	Laurence PountneyHill, London, EC4R 0HH,UK
Infracapital PartnersII SubholdingsGP LLP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
Infracapital PartnersII SubholdingsGP1 Limited	OS	100.00%
Infracapital PartnersIIIGP SARL	OS	100.00%	6, rue Eugène Ruppert, L-245, Luxembourg

02

D6 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees) continued

Infracapital PartnersIII Subholdings(Euro)GP LLP LPI 100.00% Laurence PountneyHill, London, EC4R 0HH,UK Infracapital PartnersIII Subholdings(Sterling)GP LLP LPI 100.00% Infracapital PartnersIII SubholdingsGP1 Limited OS 100.00% Infracapital PartnersIII SubholdingsGP2 Limited OS 100.00% Infracapital Partners LP LPI 33.04% Laurence PountneyHill, London, EC4R 0HH,UK Infracapital RFGP Limited OS 100.00% 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK Infracapital SisuGP Limited OS 100.00% Infracapital SLP IIGP LLP LPI 100.00% Infracapital SLP II LP LPI 34.00% Infracapital SLP Limited OS 100.00% Laurence PountneyHill, London, EC4R 0HH,UK Innisfree M&GPPP LLP LPI 35.00% BoundaryHouse, 91-93 Charterhouse Street, London, EC1M 6HR,UK Innisfree M&GPPP LP LPI 62.22% Invesco Fixed Maturity Selective Emerging Market Bonds 2024 OS 57.31% 22nd Floor,No. 1 Songzhi Road, Taipei, TW-TPE 11047, Taiwan INVEST Financial Company Insurance Agency LLC of Illinois OS 100.00% 208 South LaSalle Street, Chicago, IL 60604,USA Jackson Charitable Foundation Inc NSB 100.00% 1 Corporate Way, Lansing, MI 48951,USA JacksonHoldings LLC OS 100.00% 1105North Market Street, Suite 1300, Wilmington, DE 19801,USA JacksonNational Asset Management LLC OS 100.00% 1 Corporate Way, Lansing, MI 48951,USA JacksonNational Life (Bermuda) Limited OS 100.00% CedarHouse,Hamilton, Bermuda JacksonNational Life Distributors LLC OS 100.00% 1209 Orange Street, Wilmington, DE 19801,USA JacksonNational Life Insurance Company OS 100.00% 1 Corporate Way, Lansing, MI 48951,USA JacksonNational Life Insurance Company ofNew York OS 100.00% 2900 Westchester Avenue, Suite 305, Purchase,NY 10577,USA Jefferies Capital Partners V, L.P. LPI 21.92% 1209 Orange Street, Wilmington, DE 19801,USA JNLGlobal Credit LLC OS 100.00% 874 Walker Road, Suite C, City of Dover, County of Kent, State of Delaware 19904, United States Lion Credit Opportunity Fund Public Limited Company - Credit OS 98.44% 53 Merrion Square South, Dublin 2, D02 PR63, Ireland Opportunity Fund XV LIPP SARL (In liquidation) OS 100.00% 5, rueGuilllaume Kroll, L-1882, Luxembourg Livicos Limited (In liquidation) OS 100.00% MontagueHouse, Adelaide Road, Dublin 2, D02 K039, Ireland London Stone Investments F3 Employee FeederGP LLP LPI 100.00% 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK London Stone Investments F3 I Limited OS 100.00% London Stone Investments F3 II Limited OS 100.00% London Stone Investments F3 SPGP LLP LPI 100.00% M&G(Guernsey) Limited OS 100.00% Dorey Court, Admiral Park, St. Peter Port,GY1 2HT,Guernsey M&GAlternativesInvestment Management Limited OS 100.00% Laurence PountneyHill, London, EC4R 0HH,UK M&GAsia Property Fund OS 54.01% 34-38, Avenue de la Liberté, L-1930, Luxembourg M&GCorporate bond Fund OS 30.96% Laurence PountneyHill, London, EC4R 0HH,UK M&G Dividend Fund OS 58.33% Laurence PountneyHill, London, EC4R 0HH,UK M&GEpisode Macro Fund OS 23.92% M&GEuropean Credit Investment Fund OS 82.48% 80, route d'Esch, L-1470, Luxembourg M&GEuropeanHigh Yield Credit Investment Fund OS 99.99% M&GEuropean Property Fund SICAV-FIS OS 49.74% 34-38, Avenue de la Liberté, L-1930, Luxembourg M&GEuropean Secured Property Income Fund U 23.98% M&GEuropean Select Fund OS 41.53% Laurence PountneyHill, London, EC4R 0HH,UK M&GEuropean Strategic Value Fund OS 79.22% M&GFinancial Services Limited OS 100.00% M&GFounders 1 Limited OS 100.00% M&GGeneral Partner Inc OS 100.00% WalkerHouse, 87 Mary Street,Grand Cayman, KY1-9002, Cayman Islands M&GGilt & Fixed Interest Income Fund OS 49.65% Laurence PountneyHill, London, EC4R 0HH,UK M&GGroup Limited OS 100.00% M&GIMPPP 1 Limited OS 100.00%	Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
	M&GInternational InvestmentsNominees Limited	OS	100.00%

Key to classes of shares held

LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
M&GInternational Investments SA	OS	100.00%	34-38, Avenue de la Liberté, L-1930, Luxembourg
M&GInternational Investments Switzerland AG	OS	100.00%	Talstrasse 66, 8001 Zurich, Switzerland
M&GInvestment Funds(10) - M&GAbsolute Return Bond Fund	OS	41.56%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GInvestment Funds(10) - M&GGlobal Listed Infrastructure Fund	OS	20.00%
M&GInvestment Funds(10) - M&GPositive Impact Fund	OS	51.96%
M&GInvestment Funds(4) - M&GEpisode Allocation Fund	OS	22.35%
M&GInvestment Funds(7) - M&GGlobal Convertibles Fund	OS	59.02%
M&GInvestment Management Limited	OS	100.00%
M&GInvestments(Americas) Inc.	OS	100.00%	251 Little Falls Drive, Wilmington, DE, 19801
M&GInvestments(Australia) Pty Ltd	OS	100.00%	Level 16,Grosvenor Place, 225George Street, Sydney,NSW 2000, Australia
M&GInvestments(Hong Kong) Limited	OS	100.00%	6th Floor, AlexandraHouse, 18 Chater Road, Central,Hong Kong
M&GInvestments(Singapore) Pte. Ltd.	OS	100.00%	10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983
M&GInvestmentsJapan Co., LTD	OS	100.00%	3-1 Toranomon, 4 Chome, Minato-ku, Tokyo, Japan
M&GLimited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GLuxembourg SA	OS	100.00%	34-38, Avenue de la Liberté, L-1930, Luxembourg
M&G Management Services Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GNominees Limited	OS	100.00%
M&GPFI 2018GP LLP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GPFI 2018GP1 Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GPFI 2018GP2 Limited	OS	100.00%
M&GPFI Carry Partnership 2016 LP	LPI	25.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GPFI Partnership 2018 LP	LPI	100.00%
M&GPlatform Nominees Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GPrudential (Holdings) Limited	OS	100.00%
M&GPrudential Service Company Limited	OS	100.00%
M&GRE Espana 2016 S.L.	OS	100.00%	Plaza de Colon, Torre II, Planta 14, 28046, Madrid, Spain
M&GREUKEV (GP1) LLP	LPI	100.00%	Laurence PountneyHill, London, EC4R 0HH
M&GREUKEV 1-A LP	LPI	100.00%
M&GReal Estate AsiaHolding Company Pte. Ltd	OS	100.00%	10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983
M&GReal Estate Asia PTE. Ltd	OS	100.00%
M&GReal Estate Debt Finance VI Designated Activity Company	OS	46.00%	4th Floor, 76 Lower Baggot Street, Dublin 2, D02 Ek81
M&GReal Estate Funds Management SARL	OS	100.00%	34-38, Avenue de la Liberté, L-1930, Luxembourg
M&GReal Estate Japan Co. Ltd.	OS	100.00%	Shiroyama Trust Tower, Tokyo, Japan
M&GReal Estate Korea Co. Ltd.	OS	100.00%	Kyobo Building, Seoul, Korea
M&GReal Estate Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GReal EstateUK Enhanced Value LP	LPI	50.10%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GReal EstateUKEV (GP) LLP	LPI	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GRED Employee FeederGP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GRED II Employee FeederGP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GRED IIGP Limited	OS	100.00%	Third Floor, La Plaiderie Chambers, La Plaiderie, St Peter Port,Guernsey,GY1 1WG
M&GRED II SLPGP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GRED II SLP LP	LPI	28.00%
M&GRED III Employee FeederGP Limited	OS	100.00%
M&GRED IIIGP Limited	OS	100.00%	Third Floor, La Plaiderie Chambers, La Plaiderie, St Peter Port,Guernsey,GY1 1WG
M&GRED III SLPGP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
M&GRED III SLP LP	LPI	25.00%
M&GRED SLPGP Limited	OS	100.00%
M&GRPFGP Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GRPFNominee 1 Limited	OS	100.00%
M&GRPFNominee 2 Limited	OS	100.00%
M&GSecurities Limited	OS	100.00%
M&GSIF Management Company (Ireland) Limited	OS	100.00%	78 Sir John Rogerson's Quay, Dublin 2, D02 RK57, Ireland

06

D6 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees) continued

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
M&GSpecialty Finance Fund (GP) Sárl	OS	100.00%	51, Avenue J.F. Kennedy, L-1855 Luxembourg
M&GSpecialty Finance Fund Carry Interest Partnership (GP) Sárl	OS	100.00%
M&GUK Companies Financing Fund II LP	LPI	48.32%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GUK Property Fund	OS	100.00%	16, Boulevard Royal, L-2449, Luxembourg
M&GUK PropertyGP Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GUK PropertyNominee 1 Limited	OS	100.00%
M&GUK PropertyNominee 2 Limited	OS	100.00%
M&GUK Residential Property Fund	LPI	58.42%	34-38, avenue de la Liberté, L-1931, Luxembourg
M&GUKCF IIGP Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
M&GUKEV (SLP)General Partner LLP	LPI	100.00%
M&GUKEV (SLP) LP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
Manchester JV Limited	OS	50.00%	40 Broadway, London, SW1H0BU,UK
ManchesterNominee (1) Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Manulife Asia Pacific Bond Fund	OS	20.33%	9th Floor, 89 Sungren Road, Taipei, TW-TPE 11073, Taiwan
Manulife China Dim Sum High Yield Bond Fund	OS	36.45%
Manulife China Offshore Bond Fund	OS	51.39%
Manulife Superior Selection China Fund	OS	21.74%
ManulifeUSD High Yield Bond Fund	U	25.73%
MCF S.r.l	LPI	45.00%	Via Romagnosi 18/a, 00196 Roma, Italy
Minster Court Estate Management Limited	OS	75.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Mission Plans of America, Inc	OS	100.00%	1999 Bryan Street, Suite 900, Dallas, TX 75201,USA
Murphy & Partners Fund, LP	LPI	21.07%	2711 Centreville Road, Suite 400, Wilmington, DE 19808,USA
NAPI REIT, Inc	OS	99.00%	300 E Lombard Street, Baltimore, MD 21202,USA
National PlanningHoldings, LLC	OS	100.00%	1209 Orange Street, Wilmington, DE 19801,USA
Nomura Six Years Fixed Maturity Emerging Market Bond Fund	OS	43.40%	101 Tower, 30F,No. 7 Sec. 5, Taipei, Taiwan
North SathornHoldings Company Limited	OS	100.00%	3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa Subdistrict, Sathorn District, Bangkok, Thailand
Nova Sepadu Sdn. Bhd. (In liquidation)	OS	51.00%	Suite 1005, 10th Floor WismaHamzah-KwongHing,No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia
Oaktree Business Park Limited	OS	12.50%	Laurence PountneyHill, London, EC4R 0HH,UK
Old Kingsway, LP	LPI	100.00%	2711 Centreville Road, Suite 400, Wilmington, DE 19808,USA
Optimus Point Management Company Limited	OS	100.00%	BarratHouse Cartwright Way, BardonHill, Coalville, LE67 1UF,UK
Pacus(UK) Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
PCA IP Services Limited	OS	100.00%	13th Floor, One International Finance Centre, 1Harbour View Street, Central, Hong Kong
PCA Life Assurance Co. Ltd.	OS	99.79%	8th Floor,No.1 Songzhi Road, Taipei 11047, Taiwan
PCA Reinsurance Co. Ltd.	OS	100.00%	Unit Level 13(A), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Federal Territory of Labuan, Malaysia
PGDS (UK One) Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
PGDS (US One) LLC	OS	100.00%	1209 Orange Street, Wilmington, DE 19801,USA
PGF Management Company (Ireland) Limited	OS	50.00%	5George's Dock, Dublin 1, D01 X8N7, Ireland
PPM America Capital PartnersII, LLC	MI	60.50%	774 Walker Road, Suite C, Dover, DE 19904,USA
PPM America Capital PartnersIV, LLC	MI	34.50%	874 Walker Road, Suite C, City of Dover, County of Kent, State of Delaware 19904,
PPM America Capital Partners V, LLC	MI	34.00%	United States
PPM America Capital Partners VI, LLC	MI	32.00%
PPM America Capital Partners VII, LLC	MI	100.00%
PPM America Private Equity Fund III LP	LPI	99.81%
PPM America Private Equity Fund IV LP	LPI	99.84%
PPM America Private Equity Fund V LP	LPI	99.84%
PPM America Private Equity Fund VI LP	LPI	99.85%
PPM America Private Equity Fund VII LP	LPI	100.00%
PPM America, Inc	OS	100.00%

Key to classes of shares held

LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
PPM Capital (Holdings) Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
PPM CLO 2 Ltd.	OS	100.00%	PO Box 1093, QueensgateHouse,Grand Cayman KY1-1102, Cayman Islands
PPM CLO 2018-1 Ltd.	PS	100.00%	QueensgateHouse, South Church Street,George Town,Grand Cayman KY1-1102, Cayman Islands
PPM CLO 3 Ltd.	OS	100.00%	PO Box 1093, QueensgateHouse,Grand Cayman KY1-1102, Cayman Islands
PPM Finance, Inc	OS	100.00%	774 Walker Road, Suite C, Dover, DE 19904,USA
PPM Funds	OS	100.00%	84 State Street, MA, Boston, Suffolk, 02109
PPM Funds- PPM Core Plus Fixed Income Fund	OS	99.00%	C/O PPM America, Inc., West Wacker Drive, Suite 1200, 60606, Chicago,USA
PPM Funds- PPM Credit Fund	OS	99.00%
PPM Funds- PPM Floating Rate Income Fund	OS	96.00%
PPM Funds- PPM High Yield Core Fund	OS	97.00%
PPM Funds- PPM Strategic Income Fund	OS	87.00%
PPM Holdings, Inc	OS	100.00%	774 Walker Road, Suite C, Dover, DE 19904,USA
PPM Loan Management Company LLC	MI	100.00%
PPM Loan ManagementHolding Company LLC	MI	100.00%
PPM ManagersGP Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
PPM Managers Partnership CI VII (A) LP	LPI	25.00%
PPM Ventures(Asia) Limited (In liquidation)	OS	100.00%	Gloucester Tower, 15 Queens Road, Central,Hong Kong
PPMC FirstNominees Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prenetics Limited	PS	14.27%	7th floor, Prosperity Millennia Plaza, 663 King's Road,North Point,Hong Kong
Property Partners(Two Rivers) Limited Pru Life Insurance Corporation ofU.K.	OS OS	50.00% 100.00%	Bow BellsHouse, 1 Bread Street, London, EC4M 9HH,UK 9th Floor,Uptown Place Tower 1, 1 East 11th Drive,Uptown Bonifacio, 1634 Taguig
Pru LifeUK Asset Management and Trust Corporation	OS	100.00%	City, Metro Manila, Philippines 2/F.,Uptown Parade 2, 36th Street,Uptown Bonifacio, 1634 Taguig City,
			Philippines
Pru Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudence Foundation	LBG	100.00%	13th Floor, One International Finance Centre, 1Harbour View Street, Central, Hong Kong
Prudence Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential (Cambodia) Life Assurance Plc	OS	100.00%	20th Floor, #445, Monivong Blvd, Boeung Prolit, 7 Makara, Phnom Penh Tower, Phnom Penh, Cambodia
Prudential / M&GUKCFGP Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential AfricaHoldings Limited	OS	100.00%
Prudential Africa Services Limited	OS	100.00%	5thNgong Avenue,Nairobi, Kenya
Prudential Assurance Company Singapore (Pte) Limited	OS	100.00%	30 Cecil Street, #30-01 Prudential Tower, Singapore 049712
Prudential Assurance Malaysia Berhad*	OS	51.00%	Level 3, Menara Prudential,No. 10 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Prudential AssuranceUganda Limited	OS	100.00%	Kampala Road, Kampala,Uganda
Prudential BSNTakaful Berhad†	OS	49.00%	Level 8A, Menara Prudential,No. 10 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Prudential Capital (Singapore) Pte. Ltd.	OS	100.00%	10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983
Prudential Capital plc	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Corporate Pensions Trustee Limited	OS	100.00%
Prudential Corporation AustralasiaHoldings Pty Limited	OS	100.00%	c/oHighgate Legal Pty Ltd, 33 Lexington Drive, Bella Vista,NSW 2153, Australia
Prudential CorporationHoldings Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Credit Opportunities 1 SARL	OS	100.00%	1, RueHildegard von Bingen, L-1282 Luxembourg
Prudential Credit OpportunitiesGP SARL	OS	100.00%
Prudential Credit Opportunities Scsp	OS	100.00%
Prudential Distribution Limited	OS	100.00%	Craigforth, Stirling, FK9 4UE,UK
Prudential Dynamic 0-30 Portfolio	OS	25.49%	17 Rochester Row, London, SW1P 1QT,UK
Prudential Dynamic 10-40 Portfolio	OS	28.77%
Prudential Dynamic 20 - 55 Portfolio	OS	34.19%
Prudential Dynamic 40-80 Portfolio	OS	34.55%
Prudential Dynamic 60-100 Portfolio	OS	30.20%
Prudential Dynamic Focused 0-30 Portfolio	OS	53.48%
Prudential Dynamic Focused 20 - 55 Portfolio	OS	37.69%
Prudential Equity Release Mortgages Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Financial Planning Limited	OS	100.00%
Prudential Financial Services Limited	OS	100.00%
Prudential Five Limited	OS	100.00%

02

06

D6 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees) continued

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
PrudentialGeneral InsuranceHong Kong Limited	OS	100.00%	59th Floor, One Island East, 18 Westlands Road, Quarry Bay,Hong Kong
PrudentialGlobal Services Private Limited	OS	100.00%	PrudentialHouse, Mumbai, India
PrudentialGP Limited	OS	100.00%	Craigforth, Stirling, FK9 4UE,UK
PrudentialGreenfieldGP LLP	LPI	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
PrudentialGreenfieldGP1 Limited	OS	100.00%
PrudentialGreenfieldGP2 Limited	OS	100.00%
PrudentialGreenfield LP	LPI	100.00%
PrudentialGreenfield SLPGP LLP	LPI	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
PrudentialGroup Pensions Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
PrudentialGroup Secretarial Services Limited	OS	100.00%
PrudentialHolborn Life Limited	OS	100.00%
PrudentialHoldings Limited	OS	100.00%	Craigforth, Stirling, FK9 4UE,UK
PrudentialHong Kong Limited	OS	100.00%	59th Floor, One Island East, 18 Westlands Road, Quarry Bay,Hong Kong
Prudential International Assurance plc	OS	100.00%	MontagueHouse, Adelaide Road, Dublin 2, D02 K039, Ireland
Prudential International Management Services Limited	OS	100.00%
Prudential International Staff Pensions Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Investment (Luxembourg) 2 SARL	OS	100.00%	34-38, Avenue de la Liberté, L-1930, Luxembourg
Prudential Investments Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential IP Services Limited	OS	100.00%
Prudential Leasing Services Limited	OS	100.00%
Prudential Life Assurance (Lao) Company Limited	OS	100.00%	Unit A, 6th Floor, Vientiane PlazaHotel Office Building, Sailom Road,HatsadyNeua Village, Chanthabouly District, Vientiane Capital, Lao, PDR
Prudential Life Assurance (Thailand) Public Company Limited	OS	99.93%	9/9 Sathorn Building, 20th–27th Floor, South Sathorn Road, Yannawa, Sahtorn, Bangkok 10120, Thailand
Prudential Life Assurance Kenya Limited	OS	100.00%	5thNgong Avenue,Nairobi, Kenya
Prudential Life Assurance Zambia Limited	OS	100.00%	PrudentialHouse, Thabo Mbeki Road, Lusaka, Zambia
Prudential Life InsuranceGhana Limited	OS	100.00%	35North Street, Accra,Ghana
Prudential Lifetime Mortgages Limited	OS PS	100.00% 100.00%	Craigforth, Stirling, FK9 4UE,UK
Prudential Loan Investments 1 SARL	OS	100.00%	1, RueHildegard von Bingen, L-1282 Luxembourg
Prudential Loan InvestmentsGP SARL	OS	100.00%
Prudential Loan Investments SCSp	OS	100.00%
Prudential MauritiusHoldings Limited	OS	100.00%	3rd Floor, 355NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius
Prudential Mortgages Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
PrudentialNominees Limited	OS	100.00%
Prudential Pensions Limited	OS	100.00%
Prudential Pensions Management Zambia Limited	OS	100.00%	PrudentialHouse, Thabo Mbeki Road, Lusaka, Zambia
Prudential Polska sp. z.o.o	OS	100.00%	02-670 Warszawa, Pulawska 182, Poland
Prudential Portfolio ManagementGroup Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Portfolio Managers(South Africa) (Pty) Limited	OS A Class OS	49.99% 75.00%	PO Box 44813, Claremont 7735, South Africa
Prudential Portfolio Managers Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Properties Trusty Pty Limited	OS	100.00%	Darling Park Tower 2, 201 Sussex Street, Sydney,NSW 2000, Australia
Prudential PropertyHolding Limited (In liquidation)	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Property Investment Managers Limited	OS	100.00%
Prudential Property Investments Limited	OS PS	100.00% 100.00%
Prudential Property Services Limited	OS	100.00%
Prudential Protect Limited	OS	100.00%
Prudential Real Estate Investments 1 Limited	OS	100.00%
Prudential Real Estate Investments 2 Limited	OS	100.00%
Prudential Real Estate Investments 3 Limited	OS	100.00%

Key to classes of shares held

LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
Prudential Retirement Income Limited (In liquidation)	OS PS	100.00% 100.00%	c/o Mazars LLP, 90 St. Vincent Street,Glasgow,G2 5UB,UK
Prudential Services Asia Sdn. Bhd.	OS PS	100.00% 100.00%	Suite 1005, 10th Floor, WismaHamzah-KwongHing,No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia
Prudential Services Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Services Singapore Pte. Ltd.	OS	100.00%	1 Wallich Street, #19-01Guoco Tower, Singapore 078881
Prudential SingaporeHoldings Pte. Limited	OS	100.00%	30 Cecil Street, #30-01 Prudential Tower, Singapore 049712
Prudential Staff Pensions Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Trustee Company Limited	OS	100.00%
PrudentialUK Real EstateGeneral Partner Limited	OS	100.00%
PrudentialUK Real Estate LP	LPI	100.00%
PrudentialUK Real EstateNominee 1 Limited	OS	100.00%
PrudentialUK Real EstateNominee 2 Limited	OS	100.00%
PrudentialUK Services Limited	OS	100.00%	Craigforth, Stirling, FK9 4UE,UK
PrudentialUnit Trusts Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Prudential Venture Managers Limited	OS	100.00%
Prudential Vietnam Assurance Private Limited	OS	100.00%	25th Floor, Saigon Trade Centre, 37 Ton Duc Thang Street, District 1,Ho Chi Minh
Prudential Vietnam Finance Company Limited	OS	100.00%	City, Vietnam
Prudential/M&GUK Companies Financing Fund LP	LPI	34.42%	Laurence PountneyHill, London, EC4R 0HH,UK
Prutec Limited	OS	100.00%
PT. Eastspring InvestmentsIndonesia	OS	99.95%	Prudential Tower, JI. Jendral Sudirman Kav. 79, 12910, Jakarta Selatan, Indonesia
PT. Prudential Life Assurance	OS	94.62%
PVFC Financial Limited	OS	100.00%	13th Floor, One International Finance Centre, 1Harbour View Street, Central, Hong Kong
PVM Partnerships Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Randolph Street LP	LPI	100.00%	2711 Centreville Road, Suite 400, Wilmington, DE 19808,USA
REALIC of Jacksonville Plans, Inc	OS	100.00%	1999 Bryan Street, Suite 900, Dallas, TX 75201,USA
Reksa Dana Eastspring IDR Fixed Income Fund (NDEIFF)	OS	99.95%	Prudential Tower, JI. Jendral Sudirman Kav. 79, 12910, Jakarta Selatan, Indonesia
Reksa Dana Eastspring Investments Cash Reserve	U	97.31%
Reksa Dana Eastspring InvestmentsIDRHighGrade	OS	64.64%
Reksa Dana Eastspring Investments Value Discovery	OS	86.64%
Reksa Dana Eastspring Investments Yield Discovery	OS	98.33%
Reksa Dana Syariah Eastspring Syariah Equity Islamic Asia Pacific USD	OS	91.97%
Reksa Dana Syariah Eastspring Syariah Fixed Income Amanah	OS	69.58%
Reksa Dana Syariah Eastspring Syariah Money Market Khazanah	U	99.37%	Prudential Tower 23rd floor. Jln. Jenderal Sudirman Kavling 79, South Jakarta - 12910, Indonesia
Rhodium Investment Fund	OS	100.00%	10 Marina Boulevard, #32-01, Marina Bay Financial Centre, Singapore 018983
RiftGP 1 Limited	OS	100.00%	50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ,UK
RiftGP 2 Limited	OS	100.00%
ROP, Inc	OS	100.00%	1209 Orange Street, Wilmington, DE 19801,USA
SCB SET Banking Sector Index (Accumulation)	OS	28.05%	7-8th Floor, SCB Park Plaza 1, 18 Ratchadapisek Road, Chatuchak, Bangkok 10900 Thailand
Schroder Asian InvestmentGrade Credit	OS	49.72%	138 Market Street, #23-01 CapitaGreen, Singapore 048946
Schroder Emerging Markets Fund	OS	46.83%	Schroder Investment Management (Guernsey) Limited, Regency CourtGlategny Esplanade,Glategny Esplanade, St Peter PortGY1 3UF,Guernsey
Schroder Multi-Asset Revolution	OS	61.92%	CapitaGreen, #23-01, CapitaGreen, Singapore 048946, Singapore
SchroderUS Dollar Money Fund	OS	41.40%	HSBC Institutional Trust Service (Asia) Limited, 1 Queen's Road Central, Hong Kong.
ScotAm Pension Trustees Limited	OS	100.00%	Craigforth, Stirling, FK9 4UE,UK
Scottish Amicable Finance plc	OS	100.00%
Scottish AmicableHoldings Limited	OS	100.00%
Scottish Amicable Life Assurance Society	No share capital	100.00%
Scottish Amicable PensionsInvestments Limited	OS	100.00%
Scotts Spazio Pte. Ltd.	OS	45.00%	30 Cecil Street #23-02 Prudential Tower, Singapore, 049712
Sealand (No 1) Limited	OS	100.00%	LimeGroveHouse,Green Street, StHelier, Jersey, JE1 2ST
Sealand (No 2) Limited	OS	100.00%
Sectordate Limited	OS	32.60%	5th Floor CavendishHouse, 39 Waterloo Street, Birmingham, B2 5PP,UK

06

Key to classes of shares held

LBG	Limited byGuarantee
LPI	Limited Partnership Interest
MI	Membership Interest
NSB	Non-stock basis
OS	Ordinary Shares
PI	Partnership Interest
PS	Preference Shares
U	Units

D6 Investments in subsidiary undertakings, joint ventures and associates continued

(c) Related undertakings continued

Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the parent company, Prudential plc or its nominees) continued

Name of entity	Classes of shares held	Proportion held	Registered office address and country of incorporation
Selly Oak Shopping Park (General Partner) Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Selly Oak Shopping Park (Nominee 1) Limited	OS	100.00%
Selly Oak Shopping Park (Nominee 2) Limited	OS	100.00%
Selly Oak Shopping Park Limited Partnership	LPI	100.00%
Silverfleet Capital 2004 LP	LPI	100.00%	1 Royal Plaza, St Peters Port,Guernsey,GY1 2HL
Silverfleet Capital 2005 LP	LPI	100.00%
Silverfleet Capital 2006 LP	LPI	100.00%
Silverfleet Capital 2009 LP	LPI	100.00%
Silverfleet Capital 2011/12 LP	LPI	100.00%
Silverfleet Capital II WPLF	LPI	100.00%
Smithfield Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
SMLLC	LPI	100.00%	1209 Orange Street, Wilmington, DE 19801,USA
Squire Capital I LLC	MI	100.00%	1 Corporate Way, Lansing, MI 48951,USA
Squire Capital II LLC	OS	100.00%
Squire Reassurance Company II, Inc	OS	100.00%	40600 Ann Arbor Road, East Suite 201, Plymouth, MI 48170,USA
Squire Reassurance Company LLC	OS	100.00%	1 Corporate Way, Lansing, MI 48951,USA
SriHan Suria Sdn. Bhd.	OS	51.00%	Suite 1005, 10th Floor WismaHamzah-KwongHing,No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia
St EdwardHomes Limited	OS	50.00%	BerkeleyHouse, 19 Portsmouth Road, Surrey, KT11 1JG,UK
St Edwards Strand Partnership	OS	50.00%
Stableview Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Staple Limited	OS	100.00%	3 Rajanakarn Building, 20th Floor, South Sathorn Road, Yannawa Subdistrict, Sathorn District, Bangkok, Thailand
StapleNominees Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Thanachart Long Term Fixed Income	OS	27.79%	231 MBK Life Building, 5th-7th Floor, Rajdamri Road, Lumpini, Pathumwan, Bangkok 10330, Thailand
Thanachart Life Assurance Public Company Limited (In liquidation)	OS	99.93%	9/9 Sathorn Building, 20th–27th Floor, South Sathorn Road, Yannawa, Sahtorn, Bangkok 10120, Thailand
The Car AuctionUnit Trust	OS	50.00%	Dorey Court, Admiral Park, St. Peter Port,GY1 2HT,Guernsey
The First British Fixed Trust Company Limited	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
TheGreenpark (Reading) LP	LPI	100.00%
TheHeights Management Company Limited	OS	50.00%
The Prudential Assurance Company Limited	OS	100.00%
The St EdwardHomes Partnership	OS	49.95%	BerkeleyHouse, 19 Portsmouth Road, Surrey, KT11 1JG,UK
The Strand PropertyUnit Trust	LPI	50.00%	Liberte house, 19-23 La Motte Street, StHelier, JE2 4SY, Jersey
The Two Rivers Trust	OS	50.00%
Three Snowhill Birmingham SARL	OS	100.00%	5, rueGuilllaume Kroll, L-1882, Luxembourg
TMB Asset Management Co., Ltd.	OS	65.00%	32nd FL, Abdulrahim Place, 990 Rama IV Rd, Silom, Bangrak, Bangkok 10500, Thailand
Two Rivers LP	LPI	50.00%	Bow BellsHouse, 1 Bread Street, London, EC4M 9HH,UK
Two Snowhill Birmingham SARL	OS	100.00%	5, rueGuilllaume Kroll, L-1882, Luxembourg
UOB SmartGlobalHealthcare	OS	24.18%	23A, 25th Floor, Asia Centre Building, 173/27-30, 32-33 South Sathon Road,
UOB Smart Millennium Growth Fund	OS	33.18%	Thungmahamek, Sathon, Bangkok 10120, Thailand
VFL International Life Company SPC, Ltd.	OS	100.00%	171 Elgin Avenue,Grand Cayman, Cayman Islands
WessexGate Limited (In liquidation)	OS	100.00%	Laurence PountneyHill, London, EC4R 0HH,UK
Westwacker Limited	OS	100.00%
Wynnefield Private Equity PartnersI, L.P.	LPI	99.00%	1105North Market Street, Suite 1300, Wilmington, DE 19801,USA
Wynnefield Private Equity PartnersII, L.P.	LPI	99.00%	1209 Orange Street, Wilmington, DE 19801,USA
Zenith-Prudential Life Insurance Company Limited	OS	51.00%	Plot 280, Ajose Adeogun Street, Victoria Island,Nigeria

* Prudential Assurance Malaysia Berhad is consolidated at 100 per cent in theGroup's financialstatementsreflecting the economic interest to theGroup.

† Prudential BSNTakaful Berhad is a joint venture that is accounted for using the equity method, for which theGroup has an economic interest of 70 per cent for all businesssold up to 23 December 2016 and of 49 per cent for new businesssold subsequent to this date.

E Further accounting policies

E1 Other significant accounting policies

In addition to the critical accounting polices presented in note A3.1, the following detailed accounting policies are adopted by theGroup to prepare the consolidated financialstatements. These accounting policies are applied consistently for all years presented and normally are notsubject to change unless new accounting standards, interpretations or amendments are introduced by the IASB.

(a) Basis of consolidation

TheGroup consolidatesthose investeesit is deemed to control. TheGroup has control over an investee if all three of the following are met: (1) it has power over an investee; (2) it is exposed to, or hasrightsto, variable returnsfrom itsinvolvement with the investee; and (3) it has ability to use its power over the investee to affect its own returns.

(i) Subsidiaries

Subsidiaries are those investeesthat theGroup controls. The majority of theGroup'ssubsidiaries are corporate entities, but theGroup's insurance operations also invest in a number of limited partnerships.

TheGroup performs a re-assessment of consolidation whenever there is a change in the substance of the relationship between the Group and an investee. Where theGroup is deemed to control an entity it istreated as a subsidiary and itsresults, assets and liabilities are consolidated. Where theGroup holds a minority share in an entity, with no control over the entity, the investments are carried at fair value through profit or loss within financial investmentsin the consolidated statement of financial position.

Entities consolidated by theGroup include Qualifying Partnerships as defined under theUK Partnerships(Accounts) Regulations 2008 (the 'Partnerships Act'). Some of these limited partnerships have taken advantage of the exemption under regulation 7 of the Partnerships Act from the financialstatementsrequirements. Thisis under regulations 4 to 6, on the basisthat these limited partnerships are dealt with on a consolidated basisin these financialstatements.

(ii) Joint ventures and associates

Joint ventures are joint arrangements arising from a contractual agreement whereby theGroup and other investors have joint control of the net assets of the arrangement. In a number of these arrangements, theGroup'sshare of the underlying net assets may be lessthan 50 per cent but the terms of the relevant agreement make it clear that control isjointly exercised between theGroup and the third party. Associates are entities over which theGroup hassignificant influence, but it does not control.Generally it is presumed that theGroup has significant influence if it holds between 20 per cent and 50 per cent voting rights of the entity.

With the exception of those referred to below, theGroup accountsfor itsinvestmentsin joint ventures and associates by using the equity method of accounting. TheGroup'sshare of profit or loss of itsjoint ventures and associatesisrecognised in the income statement and itsshare of movementsin other comprehensive income isrecognised in other comprehensive income. The equity method of accounting does not apply to investmentsin associates and joint ventures held by theGroup'sinsurance or investment funds. This includes venture capital business, mutual funds and unit trusts and which, as allowed by IAS 28, 'Investmentsin Associates and Joint Ventures', are carried at fair value through profit or loss.

(iii) Structured entities

Structured entities are those that have been designed so that voting orsimilar rights are not the dominant factor in deciding who controls the entity. Voting rightsrelate to administrative tasks. Relevant activities are directed by means of contractual arrangements. TheGroup investsin structured entitiessuch as:

• Open-Ended Investment Companies(OEICs);
• Unit Trusts(UTs);
• Limited partnerships;
• Variable interest entities;
• Investment vehicles within separate accounts offered through variable annuities;
• Collateralised debt obligations;
• Mortgage-backed securities; and
• Similar asset-backed securities.

04

06 European

05

07 Additional information

E1 Other significant accounting policies continued

(a) Basis of consolidation continued

(iii) Structured entities continued

Open-ended investment companies and unit trusts

TheGroup investsin OEICs andUTs, which invest mainly in equities, bonds, cash and cash equivalents, and properties. TheGroup's percentage ownership in these entities can fluctuate on a daily basis according to the participation of theGroup and other investors in them.

• Where the entity is managed by aGroup asset manager, and theGroup's ownership holding in the entity exceeds 50 per cent, the Group isjudged to have control over the entity.
• Where the entity is managed by aGroup asset manager, and theGroup's ownership holding in the entity is between 20 per cent and 50 per cent, the facts and circumstances of theGroup'sinvolvement in the entity are considered, including the rightsto any fees earned by the asset manager from the entity, in forming a judgement asto whether theGroup has control over the entity.
• Where the entity is managed by aGroup asset manager, and theGroup's ownership holding in the entity islessthan 20 per cent, the Group isjudged to not have control over the entity.
• Where the entity is managed by an asset manager outside theGroup, an assessment is made of whether theGroup has existing rights that givesit the ability to direct the current activities of the entity and therefore control the entity. In assessing theGroup's ability to direct an entity, theGroup considersits ability relative to other investors. TheGroup has a limited number of OEICs andUTs where it considersit hassuch ability.

Where theGroup is deemed to control these entities, they are treated as a subsidiary and are consolidated, with the interests of investors other than theGroup being classified asliabilities, and appear as net asset value attributable to unit holders of consolidated unit trusts and similar funds.

Where theGroup does not control these entities(asit is deemed to be acting as an agent) and they do not meet the definition of associates, they are carried at fair value through profit or loss within financial investmentsin the consolidated statement of financial position.

Where theGroup's asset managersets up OEICs andUTs as part of asset management operations, theGroup'sinterest islimited to the administration fees charged to manage the assets ofsuch entities. With no participation in these entities, theGroup does not retain risks associated with OEICs andUTs. For these open-ended investment companies and unit trusts, theGroup is not deemed to control the entities but to be acting as an agent.

TheGroup generatesreturns and retainsthe ownership risksin investment vehicles commensurate to its participation and does not have any further exposure to the residual risks of these investment vehicles.

Jackson's separate account assets

These are investment vehiclesthat invest contract holders' premiumsin equity, fixed income, bonds and money market mutual funds. The contract holder retainsthe underlying returns and the ownership risksrelated to the underlying investments. The shareholder's economic interest in separate accountsislimited to the administrative fees charged. The separate accounts are set up asseparate regulated entities governed by a Board ofGovernors or trusteesfor which the majority of the members are independent of Jackson or any affiliated entity. The independent members are responsible for any decision making that impacts contract holders' interest and govern the operational activities of the entities' advisers, including asset managers. Accordingly, theGroup does not control these vehicles. These investments are carried at fair value through profit or loss within financial investmentsin the consolidated statement of financial position.

Limited partnerships

TheGroup'sinsurance operationsinvest in a number of limited partnerships, either directly or through unit trusts, through a mix of capital and loans. These limited partnerships are managed by general partners, in which theGroup holds equity. Such interest in general partners and limited partnerships provide theGroup with voting and similar rightsto participate in the governance framework of the relevant activitiesin which limited partnerships are engaged in. Accounting for the limited partnerships assubsidiaries, joint ventures, associates or other financial investments depends on the terms of each partnership agreement and the shareholdingsin the general partners.

02

06

Other structured entities

TheGroup holdsinvestmentsin mortgage-backed securities, collateralised debt obligations and similar asset-backed securities, the majority of which are actively traded in a liquid market.

TheGroup consolidatesthe vehiclesthat hold the investments where theGroup is deemed to control the vehicles. When assessing control over the vehicles, the factors considered include the purpose and design of the vehicle, theGroup's exposure to the variability of returns and the scope of theGroup's ability to direct the relevant activities of the vehicle including any kick-out or removal rights that are held by third parties. The outcome of the control assessment is dependent on the terms and conditions of the respective individual arrangements.

The majority ofsuch vehicles are not consolidated. In these casestheGroup is not the sponsor of the vehiclesin which it holds investments and has no administrative rights over the vehicles' activities. TheGroup generatesreturns and retainsthe ownership risks commensurate to its holding and its exposure to the investments. Accordingly theGroup does not have power over the relevant activities ofsuch vehicles and all are carried at fair value through profit or loss within financial investmentsin the consolidated statement of financial position.

The table below provides aggregate carrying amounts of the investmentsin unconsolidated structured entitiesreported in the Group'sstatement of financial position:

		31 December 2018 £m		31 December 2017 £m
	OEICs/UTs	Separate account assets	Other structured entities	OEICs/UTs	Separate account assets	Other structured entities
Statement of financial position line items
Equity securities and portfolio holdingsin unit trusts	21,216	128,220	–	20,718	130,528	–
Debtsecurities	–	–	11,081	–	–	10,894
Total	21,216	128,220	11,081	20,718	130,528	10,894

TheGroup generatesreturns and retainsthe ownership risksin these investments commensurate to its participation and does not have any further exposure to the residual risks or losses of the investments or the vehiclesin which it holdsinvestments.

As at 31 December 2018, theGroup does not have an agreement, contractual or otherwise, or intention to provide financialsupport to structured entitiesthat could expose theGroup to a loss.

(b) Reinsurance

The measurement of reinsurance assetsis consistent with the measurement of the underlying direct insurance contracts. The treatment of any gains or losses arising on the purchase of reinsurance contractsis dependent on the underlying accounting basis of the entity concerned.

(c) Earned premiums, policy fees and claims paid

Premiumsfor conventional with-profits policies and other protection type insurance policies are recognised asrevenue when due. Premiums and annuity considerationsfor linked policies, unitised with-profits and other investment type policies are recognised as revenue when received or, in the case of unitised or unit-linked policies, when units are issued. These amounts exclude premium taxes and similar duties where Prudential collects and settlestaxes borne by the customer.

Policy fees charged on linked and unitised with-profits policiesfor mortality, asset management and policy administration are recognised asrevenue when related services are provided.

Claims paid include maturities, annuities,surrenders and deaths. Maturity claims are recorded as charges on the policy maturity date. Annuity claims are recorded when each annuity instalment becomes due for payment. Surrenders are charged to the income statement when paid and death claims are recorded when notified.

(d) Investment return

Investment return included in the income statement principally comprisesinterest income, dividends, investment appreciation/ depreciation (realised and unrealised gains and losses) on investments designated asfair value through profit or loss, and realised gains and losses(including impairment losses) on items held at amortised cost and Jackson's debtsecurities designated as available-for-sale. Movementsin unrealised appreciation/depreciation of Jackson's debtsecurities designated as available-for-sale are recorded in other comprehensive income. Interest income isrecognised asit accrues, taking into account the effective yield on investments. Dividends on equity securities are recognised on the ex-dividend date and rental income isrecognised on an accrual basis.

E1 Other significant accounting policies continued

(e) Financial investments other than instruments classified as long-term business contracts

(i) Investment classification

TheGroup holds financial investmentsin accordance with IAS 39, whereby subject to specific criteria, financial instruments are required to be accounted for under one of the following categories:

• Financial assets and liabilities at fair value through profit or loss this comprises assets and liabilities designated by management as fair value through profit or loss on inception and derivativesthat are held for trading. These investments are measured at fair value with all changesthereon being recognised in investment return in the income statement;
• Financial investments on an available-for-sale basis this comprises assetsthat are designated by management as available-for-sale and/or do not fall into any of the other categories. These assets are initially recognised at fair value plus attributable transaction costs. Available-for-sale assets are subsequently measured at fair value. Interest income isrecognised on an effective interest basisin the income statement. The effective interest rate isthe rate that exactly discounts estimated future cash receiptsthrough the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. Except for foreign exchange gains and losses on debtsecurities, which are included in the income statement, unrealised gains and losses are recognised in other comprehensive income.Upon disposal or impairment, accumulated unrealised gains and losses are transferred from other comprehensive income to the income statement asrealised gains or losses; and
• Loans and receivables except for those designated as at fair value through profit or loss or available-for-sale, these instruments comprise non-quoted investmentsthat have fixed or determinable payments. These instrumentsinclude loans collateralised by mortgages, deposits, loansto policyholders and other unsecured loans and receivables. These investments are initially recognised at fair value plustransaction costs. Subsequently, these instruments are carried at amortised cost using the effective interest method.

TheGroup usesthe trade date method to account for regular purchases and sales of financial assets. See note A3.1 for further details of valuation of financial investments.

(ii) Derivatives and hedge accounting

Derivative financial instruments are used to reduce or manage investment, interest rate and currency exposures, to facilitate efficient portfolio management and for investment purposes.

TheGroup may designate certain derivatives as hedges.

For hedges of net investmentsin foreign operations, the effective portion of any change in fair value of derivatives or other financial instruments designated as net investment hedgesisrecognised in other comprehensive income. The ineffective portion of changesin the fair value of the hedging instrument isrecorded in the income statement.

TheGroup does not regularly seek to apply fair value or cash flow hedging treatment under IAS 39. TheGroup has no fair value and cash flows hedges under IAS 39 at 31 December 2018 and 2017.

All derivativesthat are not designated as hedging instruments are carried at fair value, with movementsin fair value being recorded in the income statement.

The primary areas of theGroup's continuing operations where derivative instruments are held are theUK with-profitsfunds and annuity business and Jackson.

ForUK with-profitsfundsthe derivative programme is used for the purposes of efficient portfolio management or reduction in investment risk.

Forshareholder-backedUK annuity businessthe derivatives are held to contribute to the matching asfar as practical, of asset returns and duration with those of liabilitiesto policyholders. The carrying value of these liabilitiesissensitive to the return on the matching financial assetsincluding derivatives held.

For Jackson's derivative programme see note A3.1.

(iii) Guaranteed benefit options and embedded derivatives

Jackson's variable annuity products with guaranteed benefit options are within the scope of IFRS 4 and are accounted for using 'grandfathered'USGAAP (See C4.2(b)). Thisresultsin liabilitiesforGuaranteed Minimum Withdrawal Benefit ('not for life') and Guaranteed Minimum Accumulation benefit options being bifurcated and measured at fair value in a manner consistent with IAS 39.

Embedded derivatives are embedded within other non-derivative host financial instruments and insurance contractsto create hybrid instruments. Embedded derivatives meeting the definition of an insurance contract are accounted for under IFRS 4. Where economic characteristics and risks of the embedded derivatives are not closely related to the economic characteristics and risks of the host instrument, and where the hybrid instrument is not measured at fair value with the changesin fair value recognised in the income statement, the embedded derivative is bifurcated and carried at fair value as a derivative measured in accordance with IAS 39.

In addition, theGroup appliesthe option under IFRS 4 to notseparate and fair value surrender options embedded in host contracts and with-profitsinvestment contracts whose strike price is either a fixed amount or a fixed amount plusinterest.

(iv) Securities lending and reverse repurchase agreements

TheGroup is party to varioussecuritieslending agreements(including repurchase agreements) under which securities are loaned to third parties on a short-term basis. The loaned securities are not derecognised; rather, they continue to be recognised within the appropriate investment classification. TheGroup's policy isthat collateral in excess of 100 per cent of the fair value ofsecuritiesloaned is required from allsecurities' borrowers and typically consists of cash, debtsecurities, equity securities or letters of credit.

02 Strategic report

04

06

In cases where theGroup takes possession of the collateral under itssecuritieslending programme, the collateral, and corresponding obligation to return such collateral, are recognised in the consolidated statement of financial position.

TheGroup is also party to variousreverse repurchase agreements under which securities are purchased from third parties with an obligation to resell the securities. The securities are not recognised asinvestmentsin the statement of financial position.

(v) Derecognition of financial assets and liabilities

TheGroup's policy isto derecognise financial assets when it is deemed thatsubstantially all the risks and rewards of ownership have been transferred.

TheGroup derecognises financial liabilities only when the obligation specified in the contract is discharged, cancelled or has expired.

(vi) Financial liabilities designated at fair value through profit or loss

Consistent with theGroup'srisk management and investmentstrategy and the nature of the products concerned, theGroup has designated under IAS 39 classification certain financial liabilities at fair value through profit or loss asthese instruments are managed and their performance evaluated on a fair value basis. These instrumentsinclude liabilitiesrelated to consolidated collateralised debt obligations, net assets attributable to unit holders of consolidated unit trusts and similar funds and policyholder liabilitiesfor investment contracts without discretionary participation featuresforUK and Asia.

(f) Segments

Under IFRS 8, 'Operating Segments', theGroup determines and presents operating segments based on the information that isinternally provided to theGroup Executive Committee which istheGroup's chief operating decision maker.

The operating segmentsidentified by theGroup reflect theGroup's organisationalstructure, which is by business units Asia,US and UK and Europe. All business units contain both insurance and asset management operations.

Further information on theGroup's operating segmentsis provided in note B1.3.

(g) Borrowings

Although initially recognised at fair value, net of transaction costs, borrowings, excluding liabilities of consolidated collateralised debt obligations, are subsequently accounted for on an amortised cost basis using the effective interest method.Under the effective interest method, the difference between the redemption value of the borrowing and the initial proceeds(net of related issue costs) is amortised through the income statement to the date of maturity or for hybrid debt, over the expected life of the instrument.

(h) Investment properties

Investmentsin leasehold and freehold properties not for occupation by theGroup, including properties under development for future use asinvestment properties, are carried at fair value, with changesin fair value included in the income statement. Properties are valued annually either by theGroup's qualified surveyors or by taking into consideration the advice of professional external valuers using the Royal Institution of Chartered Surveyors valuation standards. Each property is externally valued at least once every three years.

Leases of investment property where theGroup hassubstantially all the risks and rewards of ownership are classified as finance leases (leasehold property). Finance leases are capitalised at the lease'sinception at the lower of the fair value of the leased property and the present value of the minimum lease payments.

(i) Pension schemes

For theGroup's defined benefitschemes, if the present value of the defined benefit obligation exceedsthe fair value of the scheme assets, then a liability isrecorded in theGroup'sstatement of financial position. By contrast, if the fair value of the assets exceedsthe present value of the defined benefit obligation then the surplus will only be recognised if the nature of the arrangements under the trust deed, and funding arrangements between the Trustee and the Company,support the availability of refunds or recoverability through agreed reductionsin future contributions. In addition, if there is a constructive obligation for the Company to pay deficit funding, thisis also recognised such that the financial position recorded for the scheme reflectsthe higher of any underlying IAS 19 deficit and the obligation for deficit funding.

TheGroup utilisesthe projected unit credit method to calculate the defined benefit obligation. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unitseparately to build up the final obligation. Estimated future cash flows are then discounted at a high-quality corporate bond rate, adjusted to allow for the difference in duration between the bond index and the pension liabilities where appropriate, to determine its present value. These calculations are performed by independent actuaries.

The plan assets of theGroup's pension schemesinclude several insurance contractsthat have been issued by theGroup. These assets are excluded from plan assetsin determining the pension surplus or deficit recognised in the consolidated statement of financial position.

The aggregate of the actuarially determined service costs of the currently employed personnel, and the net interest on the net defined benefit liability (asset) at the start of the period, is charged to the income statement. Actuarial and other gains and losses as a result of changesin assumptions or experience variances are recognised as other comprehensive income.

Contributionsto theGroup's defined contribution schemes are expensed when due.

E1 Other significant accounting policies continued

(j) Share-based payments and related movements in own shares

TheGroup offersshare award and option plansfor certain key employees and a Save As You Earn plan for allUK and certain overseas employees. Shares held in trust relating to these plans are conditionally gifted to employees.

The compensation expense charged to the income statement is primarily based upon the fair value of the options granted, the vesting period and the vesting conditions.

The Company has established truststo facilitate the delivery of Prudential plc shares under employee incentive plans and savingsrelated share option schemes. The cost to the Company of acquiring these treasury shares held in trustsisshown as a deduction from shareholders' equity.

(k) Tax

Prudential issubject to tax in numerousjurisdictions and the calculation of the total tax charge inherently involves a degree of estimation and judgement. Current tax expense is charged or credited based upon amounts estimated to be payable or recoverable as a result of taxable amountsfor the current year and adjustments made in relation to prior years. The positionstaken in tax returns where applicable tax regulation issubject to interpretation are recognised in full in the determination of the tax charge in the financialstatementsif the Group considersthat it is probable that the taxation authority will accept those positions. Otherwise, provisions are established based on management's estimate and judgement of the likely amount of the liability, or recovery by providing for the single best estimate of the most likely outcome or the weighted average expected value where there are multiple outcomes.

The total tax charge includestax expense attributable to both policyholders and shareholders. The tax expense attributable to policyholders comprisesthe tax on the income of the consolidated with-profits and unit-linked funds. In certain jurisdictions,such asthe UK, life insurance companies are taxed on both theirshareholders' profits and on their policyholders' insurance and investment returns on certain insurance and investment products. Although both types of tax are included in the total tax charge in theGroup's consolidated income statement, they are presented separately in the consolidated income statement to provide the most relevant information about tax that theGroup pays on its profits.

Deferred taxes are provided under the liability method for all relevant temporary differences. IAS 12, 'Income Taxes' does not require all temporary differencesto be provided for, in particular, theGroup does not provide for deferred tax on undistributed earnings of subsidiaries where theGroup is able to control the timing of the distribution and the temporary difference created is not expected to reverse in the foreseeable future. Deferred tax assets are only recognised when it is more likely than not that future taxable profits will be available against which these losses can be utilised.

Deferred tax is measured at the tax ratesthat are expected to apply to the period when the asset isrealised or the liability settled, based on tax rates(and laws) that have been enacted or are substantively enacted at the end of the reporting period.

(l) Business acquisitions and disposals

Business acquisitions are accounted for by applying the purchase method of accounting, which adjuststhe net assets of the acquired company to fair value at the date of purchase. The excess of the acquisition consideration over the fair value of the assets and liabilities of the acquired entity isrecorded as goodwill. Expensesrelated to acquiring new subsidiaries are charged to the income statement in the period in which they are incurred. Income and expenses of acquired entities are included in the income statement from the date of acquisition.

Income and expenses of entitiessold during the period are included in the income statement up to the date of disposal. The gain or loss on disposal is calculated asthe difference between sale proceeds net ofselling costs, lessthe net assets of the entity at the date of disposal, adjusted for foreign exchange movements attaching to the sold entity that are required to be recycled to the income statement under IAS 21.

Where theGroup writes a put option over its non-controlling interests as part of its business acquisition, which if exercised triggers the purchase by theGroup of the non-controlling interests, the put option isrecognised as a financial liability at the acquisition date with a corresponding amount, deducted directly from shareholder's equity. Any subsequent changesto the carrying amount of the put liability are also recognised within equity.

(m) Goodwill

Goodwill arising on acquisitions ofsubsidiaries and businessesis capitalised and carried on theGroup statement of financial position as an intangible asset at initial value less any accumulated impairment losses.Goodwill impairment testing is conducted annually and when there is an indication of impairment. For the purposes of impairment testing, goodwill is allocated to cash generating units. For further detailssee note C5.1.

02

04

06

(n) Intangible assets

Intangible assets acquired on the purchase of a subsidiary or portfolio of contracts are measured at fair value on acquisition. Deferred acquisition costs are accounted for as described in note A3.1(c). Other intangible assets,such as distribution rights and software, are valued initially at the price paid to acquire them and are subsequently carried at cost less amortisation and any accumulated impairment losses. The amortisation methodsfor distribution rights and software are as described in note C5.2(iii). For other intangibles, amortisation followsthe pattern in which the future economic benefits are expected to be consumed. If the pattern cannot be determined reliably, a straight-line method is applied. Amortisation of intangible assetsis charged to the 'acquisition costs and other expenditure' line in the consolidated income statement. Impairment testing is conducted when there is an indication of impairment.

(o) Cash and cash equivalents

Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, treasury bills and othershort-term highly liquid investments with lessthan 90 days maturity from the date of acquisition.

(p) Shareholders' dividends

Interim dividends are recorded in the period in which they are paid. Final dividends are recorded in the period in which they are approved by shareholders.

(q) Share capital

Shares are classified as equity when their terms do not create an obligation to transfer assets. The difference between the proceeds received on issue of the shares, net ofshare issue costs, and the nominal value of the sharesissued, is credited to share premium. Where the Company purchasessharesfor the purposes of employee incentive plans, the consideration paid, net of issue costs, is deducted from retained earnings.Upon issue orsale any consideration received is credited to retained earnings net of related costs.

(r) Foreign exchange

TheGroup's consolidated financialstatements are presented in poundssterling, theGroup's presentation currency. Accordingly, the results and financial position of foreign subsidiaries must be translated into the presentation currency of theGroup from their functional currencies, ie the currency of the primary economic environment in which the entity operates. All assets and liabilities of foreign subsidiaries are converted at year end exchange rates while all income and expenses are converted at average exchange rates where thisis a reasonable approximation of the rates prevailing on transaction dates. The impact of these currency translationsisrecorded as a separate component in the statement of comprehensive income.

Foreign currency borrowingsthat are used to provide a hedge againstGroup equity investmentsin overseassubsidiaries are translated at year end exchange rates and movementsrecognised in other comprehensive income. Other foreign currency monetary items are translated at year end exchange rates with changesrecognised in the income statement.

Foreign currency transactions are translated at the spot rate prevailing at the time.

(s) Earnings per share

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

For diluted earnings pershare, the weighted average number ofsharesin issue is adjusted to assume conversion of all dilutive potential ordinary shares. TheGroup's only class of potentially dilutive ordinary shares are those share options granted to employees where the exercise price islessthan the average market price of the Company's ordinary shares during the year.No adjustment is made if the impact is anti-dilutive overall.

Statement of financial position of the parent company

31 December	Note	2018 £m	2017 £m
Fixed assets
Investmentsin subsidiary undertakings	5	10,825	10,798
Current assets
Debtors:
Amounts owed by subsidiary undertakings		5,904	4,732
Other debtors		5	5
Tax recoverable		42	40
Derivative assets	6	5	5
Pension asset	7	69	71
Cash at bank and in hand		22	143
		6,047	4,996
Liabilities: amounts falling due within one year
Commercial paper	8	(472)	(485)
Other borrowings	8	–	(600)
Derivative liabilities	6	(423)	(443)
Amounts owed to subsidiary undertakings		(936)	(715)
Tax payable		(10)	(10)
Deferred tax liability	9	(12)	(12)
Accruals and deferred income		(101)	(79)
		(1,954)	(2,344)
Net current assets		4,093	2,652
Total assets less current liabilities		14,918	13,450
Liabilities: amounts falling due after more than one year
Subordinated liabilities	8	(6,676)	(5,272)
Debenture loans	8	(517)	(549)
Other borrowings	8	(275)	–
		(7,468)	(5,821)
Total net assets		7,450	7,629
Capital and reserves
Share capital	10	130	129
Share premium	10	1,964	1,948
Profit and loss account	11	5,356	5,552
Shareholders' funds		7,450	7,629
		2018 £m	2017 £m

Profit for the year 1,041 1,235

The financialstatements of the parent company on pages 320 to 328 were approved by the Board of Directors on 12 March 2019 and signed on its behalf.

Chairman

Paul Manduca

Mike Wells Group Chief Executive

Mark FitzPatrick Chief Financial Officer

Statement of changes in equity of the parent company

£m	Share capital	Share premium	Profit and loss account	Total equity
Balance at 1 January 2017	129	1,927	5,449	7,505
Total comprehensive income for the year
Profit for the year	–	–	1,235	1,235
Actuarial gainsrecognised in respect of the defined benefit pension scheme	–	–	28	28
Total comprehensive income for the year	–	–	1,263	1,263
Transactions with owners, recorded directly in equity
New share capitalsubscribed	–	21	–	21
Share based payment transactions	–	–	(1)	(1)
Dividends	–	–	(1,159)	(1,159)
Total contributions by and distributionsto owners	–	21	(1,160)	(1,139)
Balance at 31 December 2017	129	1,948	5,552	7,629
Balance at 1 January 2018	129	1,948	5,552	7,629
Impact of initial application of IFRS 9	–	–	(9)	(9)
Total comprehensive income for the year
Profit for the year	–	–	1,041	1,041
Actuarial gainsrecognised in respect of the defined benefit pension scheme	–	–	16	16
Total comprehensive income for the year	–	–	1,057	1,057
Transactions with owners, recorded directly in equity
New share capitalsubscribed	1	16	–	17
Share based payment transactions	–	–	–	–
Dividends	–	–	(1,244)	(1,244)
Total contributions by and distributionsto owners	1	16	(1,244)	(1,227)
Balance at 31 December 2018	130	1,964	5,356	7,450

02

06

Notes on the parent company financial statements

1 Nature of operations

Prudential plc (the Company) is a parent holding company. The Company together with itssubsidiaries(collectively, theGroup) is an international financialservices group with its operationsin Asia, theUS,UK and Europe and Africa. TheGroup offers a wide range of retail financial products and services and asset managementservicesthroughout these operations. The retail financial products and services primarily include life insurance, pensions and annuities as well as collective investmentschemes. On 14 March 2018, the Company announced itsintention to demerge M&GPrudential, itsUK and Europe business, from Prudential plc resulting in two separately listed companies.

2 Basis of preparation

The financialstatements of the Company, which comprise the statement of financial position,statement of changesin equity and related notes, are prepared in accordance withUKGenerally Accepted Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework ('FRS 101') and Part 15 of the Companies Act 2006.

In preparing these financialstatements, the Company appliesthe recognition, measurement and disclosure requirementsin International Financial Reporting Standards('IFRS') asissued by the International Accounting Standards Board ('IASB') and endorsed by the EU, but makes amendments where necessary in order to comply with the Companies Act 2006 and hasset out below where advantage of the FRS 101 disclosure exemptions has been taken. The Company has also taken advantage of the exemption under Section 408 of the Companies Act 2006 from presenting its own profit and loss account.

In these financialstatements, theCompany has applied the exemptions available under FRS 101 in respect of the following disclosures:

• A cash flow statement and related notes;
• Disclosuresin respect of transactions with wholly-owned subsidiaries within the PrudentialGroup;
• Disclosure in respect of capital management; and
• The effects of new but not yet effective IFRSs.

Asthe consolidated financialstatements of theGroup include the equivalent disclosures, the Company has also applied the exemptions available under FRS 101 in respect of the following disclosures:

• IFRS 2 'Share Based Payments' in respect ofGroup-settled share-based payments;
• Disclosure required by IFRS 7 'Financial Instrument Disclosures' and IFRS 13 'Fair Value Measurement', except for the consequential
• amendmentsto IFRS 7 related to IFRS 9 which have not been adopted by theGroup; and
• IFRS 15, 'Revenue from Contracts with Customers' in respect of revenue recognition.

In 2018, the Company adopted IFRS 9, 'Financial Instruments' which replaced IAS 39, 'Financial Instruments – Recognition and Measurement'.Under IFRS 9, except for derivative instrumentsthat are mandatorily classified asfair value through profit or loss, all of the financial assets and liabilities of the Company are classified as amortised cost. There was no significant change from previousIAS 39 classification. The Company changed its approach to assessing impairment on itsloans and receivablesfrom the IAS 39 incurred loss approach to the IFRS 9 expected credit loss approach. Thisresulted in a small amount of expected credit losses(£9 million) recognised in retained earnings as at 1 January 2018, the date of initial application relating to the amounts owed by subsidiary undertakings(£14 million at 31 December 2018). As permitted by IFRS 9, the Company has not restated its 2017 comparatives. The expected credit loss on the Company'sloans and receivables, the majority of which represent loansto itssubsidiaries, have been assessed by taking into account the probability of default on those loans. In all casesthe subsidiaries are expected to have sufficient resourcesto repay the loan either now or over time (based on projected earnings). The expected credit loss hastherefore been limited to the impact of discounting the value of the loan between the balance sheet date and the anticipated recovery date. The expected credit lossin the period was a charge of £5 million.

The Company has also adopted IFRS 15, 'Revenue from Contracts with Customers' and Amendmentsto IFRS 2, 'Share-based Payments' as applied under FRS 101 in 2018, the adoption of which did not have an impact on the financialstatements of the Company.

The accounting policiesset out in note 3 below have, unless otherwise stated, been applied consistently to all periods presented in these financialstatements.

3 Significant accounting policies

Investments in subsidiary undertakings

Investmentsin subsidiary undertakings are shown at cost lessimpairment.

Amounts owed by subsidiary undertakings

Amounts owed by subsidiary undertakings are shown at cost, less provisions.Upon the adoption of IFRS 9 in 2018, the provisions are determined using the expected credit loss approach.

Derivatives

Derivative financial instruments are held to manage certain macro-economic exposures. Derivative financial instruments are carried at fair value with changesin fair value included in the profit and loss account.

02

06

Borrowings

Borrowings are initially recognised at fair value, net of transaction costs, and subsequently accounted for on an amortised cost basis using the effective interest method.Under the effective interest method, the difference between the redemption value of the borrowing and the initial proceeds, net of transaction costs, is amortised through the profit and loss account to the date of maturity or, forsubordinated debt, over the expected life of the instrument. Where modificationsto borrowings do not result in a substantial difference to the terms of the instrument, any costs or feesincurred adjust the carrying amount of the liability and are amortised over the remaining expected life of the modified instrument.

Dividends

Interim dividends are recorded in the period in which they are paid.

Share premium

The difference between the proceedsreceived on issue ofshares and the nominal value of the sharesissued is credited to the share premium account.

Foreign currency translation

Assets and liabilities denominated in foreign currencies, including borrowingsthat have been used to finance or provide a hedge against Group equity investmentsin overseassubsidiaries, are translated at year end exchange rates. The impact of these currency translations isrecorded within the profit and loss account for the year.

Tax

Current tax expense is charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable amountsfor the current year. To the extent that losses of an individualUK company are not offset in any one year, they can be carried back for one year or carried forward indefinitely to be offset against profits arising from the same company.

Deferred tax assets and liabilities are recognised in accordance with the provisions of IAS 12, 'Income Taxes'. Deferred tax assets are recognised to the extent that it isregarded as more likely than not that future taxable profits will be available against which these losses can be utilised. Deferred tax is measured at the tax ratesthat are expected to be applied to temporary differences when they reverse, using tax rates enacted orsubstantively enacted at the reporting date.

TheGroup'sUK subsidiaries each file separate tax returns. In accordance withUK tax legislation, where one domesticUK company is a 75 per cent owned subsidiary of anotherUK company or both are 75 per cent owned subsidiaries of a common parent, the companies are considered to be within the sameUK tax group. For companies within the same tax group, trading profits and losses arising in the same accounting period may be offset for the purposes of determining current and deferred taxes.

Pensions

The Company assumes a portion of the pension surplus or deficit of theGroup's main pension scheme, the Prudential Staff Pension Scheme ('PSPS'). The Company appliesthe requirements of IAS 19 'Employee Benefits' (asrevised in 2011) for the accounting of its interest in the PSPS surplus or deficit. Further details are disclosed in note 7.

A pension surplus or deficit isrecorded asthe difference between the present value of the scheme liabilities and the fair value of the scheme assets. The Company'sshare of pension surplusisrecognised to the extent that the Company is able to recover a surplus either through reduced contributionsin the future or through refundsfrom the scheme.

The assets and liabilities of the defined benefit pension schemes of the PrudentialGroup are subject to a full triennial actuarial valuation using the projected unit method. Estimated future cash flows are then discounted at a high quality corporate bond yield, adjusted to allow for the difference in duration between the bond index and the pension liabilities, where appropriate, to determine their present value. These calculations are performed by independent actuaries.

The aggregate of the actuarially determined service costs of the currently employed personnel and the net income (interest) on the netscheme assets(liabilities) at the start of the period, isrecognised in the profit or loss account. Actuarial gains and losses as a result of the changesin assumptions, experience variances or the return on scheme assets excluding amountsincluded in the net deferred benefit asset (liability) are recorded in other comprehensive income.

Share-based payments

TheGroup offersshare award and option plansfor certain key employees and a Save As You Earn ('SAYE') plan for allUK and certain overseas employees. The share-based payment plans operated by theGroup are mainly equity-settled.

Under IFRS 2 'Share-based payment', where the Company, asthe parent company, hasthe obligation to settle the options or awards of its equity instrumentsto employees of itssubsidiary undertakings, and such share-based payments are accounted for as equity-settled in theGroup financialstatements, the Company records an increase in the investment in subsidiary undertakingsfor the value of the share options and awards granted with a corresponding credit entry recognised directly in equity. The value of the share options and awards granted is based upon the fair value of the options and awards at the grant date, the vesting period and the vesting conditions.

4 Reconciliation from the FRS 101 parent company results to the IFRS Group results

The parent company financialstatements are prepared in accordance with FRS 101 and theGroup financialstatements are prepared in accordance with IFRS asissued by the IASB and endorsed by the EU. At 31 December 2018, there were no differences between FRS 101 and IFRS asissued by the IASB and endorsed by the EUin terms of their application to the parent company. The tables below provide a reconciliation between the FRS 101 parent company results and the IFRSGroup results.

	2018 £m	2017 £m
Profit after tax
Profit for the financial year of the Company (including dividendsfrom subsidiaries)
in accordance with FRS 101 and IFRS	1,041	1,235
Accounting policy difference*	5	–
Share in the IFRS result of theGroup, net of distributionsto the Company†	1,964	1,154
Profit after tax of the Group attributable to shareholders in accordance with IFRS		2,389
	2018 £m	2017 £m
Net equity
Shareholders' equity of the Company in accordance with FRS 101 and IFRS	7,450	7,629
Accounting policy difference*	14	–
Share in the IFRS net equity of theGroup†	9,785	8,458
Shareholders' equity of the Group in accordance with IFRS	17,249	16,087

*Adjustment represents difference in accounting policy for expected credit losses on loan assets, the Company has adopted IFRS 9 while theGroup appliesIAS 39.

† The 'share in the IFRS result and net equity of theGroup' linesrepresent the parent company's equity in the earnings and net assets of itssubsidiaries and associates.

The profit for the financial year of the Company in accordance with IFRS includes dividendsreceived in the year from subsidiary undertakings of £1,495 million and £1,685 million for the years ended 31 December 2018 and 2017, respectively.

Asstated in note 3, under FRS 101, the Company accountsfor itsinvestmentsin subsidiary undertakings at cost lessimpairment. For the purpose of thisreconciliation, no adjustment is made to the Company in respect of any valuation adjustmentsto sharesin subsidiary undertakingsthat would be eliminated on consolidation.

5 Investments in subsidiary undertakings

	2018 £m	2017 £m
At 1 January	10,798	10,859
Capital injections	88	–
Amountsin respect ofshare based payments	(61)	(61)
At 31 December	10,825	10,798

In January 2018 the Company provided £88 million to M&Gto support the seed funding of the new Luxembourg-based SICAV openended collective investmentschemes.

InNovember 2018, the Company transferred ownership of four of itssubsidiaries associated with theUK and Europe businessto M&GPrudential under a share forshare exchange, in preparation for the demerger of M&GPrudential and itssubsidiariesfrom the Group. Sharesin the four entitiestransferred: The Prudential Assurance Company Limited, M&GInvestments Management Limited, Prudential Financial Services Limited and Prudential Property Services Limited, were transferred to M&GPrudential in return forsharesin M&GPrudential. There is no change to the value recorded in the Company's financialstatements.

Amountsin respect ofshare-based payments of £(61) million (2017: £(61) million) comprise of £5 million (2017: £6 million) in respect ofshare-based paymentsreflecting the value of paymentssettled by the Company for employees of itssubsidiary undertakings, less £(66) million (2017: £(67) million) relating to cash received from subsidiariesin respect ofshare awards.

Subsidiary undertakings of the Company at 31 December 2018 are listed in note D6 of theGroup financialstatements.

6 Derivative financial instruments

	2018 £m		2017 £m
	Fair value assets	Fair value liabilities	Fair value assets	Fair value liabilities
Cross-currency swap	5	–	5	–
Inflation-linked swap	–	423	–	443
Total	5	423	5	443

Derivative financial instruments are held to manage certain macro-economic exposures. The change in fair value of the derivative financial instruments of the Company was a gain before tax of £20 million (2017: gain of £5 million).

7 Pension scheme financial position

The majority ofUK Prudentialstaff are members of theGroup's pension schemes. The largestscheme isthe Prudential Staff Pension Scheme (the Scheme) which is primarily a closed defined benefitscheme.

At 31 December 2005, the allocation ofsurpluses and deficits attaching to the Scheme between the Company and the unallocated surplus ofUK with-profitsfund was apportioned in the ratio 30/70 following detailed consideration of the sourcing of previous contributions. Thisratio was applied to the base deficit position at 1 January 2006 and for the purpose of determining the allocation of the movementsin that position up to 31 December 2018. The IAS 19 service charge and ongoing employer contributions are allocated by reference to the cost allocation for current activity.

The last completed triennial actuarial valuation of the Scheme was as at 5 April 2017, which was finalised in 2018. Further details on the results of this valuation and the total employer contributionsto the Scheme for the year are provided in note C9 of theGroup financial statements, together with the key assumptions adopted, including mortality assumptions.

A description of the regulatory framework in which the Scheme operates, the governance of the Scheme, and the risksto which the Scheme exposesthe Company is provided in note C9 of theGroup financialstatements. The most recent full valuation has been updated to 31 December 2018, applying the principles prescribed by IAS 19. The actuarial assumptions used in determining the IAS 19 benefit obligations and the net periodic costs and sensitivity of IAS 19 benefit obligation to changesin the actuarial assumptions are also provided in note C9 of theGroup financialstatements.

The assets and liabilities of the Scheme were:

	31 Dec 2018 £m				31 December 2017 £m
	Quoted prices in an active market	Other	Total	Quoted prices in an active market	Other	Total
Scheme assets:
Equities
UK	8	–	8	9	–	9
Overseas	194	10	204	216	10	226
Bonds*
Government	4,596	–	4,596	5,040	–	5,040
Corporate	1,457	129	1,586	1,430	61	1,491
Asset-backed securities	243	20	263	156	8	164
Properties	–	143	143	–	140	140
Derivatives	103	–	103	188	–	188
Other assets	117	55	172	192	24	216
Fair value of Scheme assets	6,718	357	7,075	7,231	243	7,474
Present value of benefit obligations			(6,167)			(6,753)
Underlying surplusin the Scheme Effect of the application of IFRIC 14			908			721
for de-recognition ofsurplus			(677)			(485)
Surplusin the Scheme			231			236
Surplusin the Scheme recognised
by the Company†			69			71

* 93 per cent (2017: 93 per cent) of the bonds are investment grade.

† The surplusin the Scheme recognised in the balance sheet of the Company representsthe amount that isrecoverable through reduced future contributions and is net of the apportionment to theUK with-profitsfund.

04

06 European Embedded Value (EEV)

05

information

7 Pension scheme financial position continued

The changesin the fair value of the underlying Scheme assets and the present value of the underlying benefit obligations are asfollows:

	2018 £m
	Fair value of Scheme assets	Present value of benefit obligations note (i)	Net surplus without the effect of IFRIC 14	Effect of IFRIC 14 for de recognition of surplus	IAS 19 basis net surplus
Balance at 1 January	7,474	(6,753)	721	(485)	236
Currentservice cost	–	(26)	(26)	–	(26)
GMP equalisation provision note (iv)	–	(31)	(31)	–	(31)
Net interest income (cost)	181	(163)	18	(13)	5
Administration expenses	(7)	–	(7)	–	(7)
Actuarial gains(losses) note (ii)	(186)	409	223	(179)	44
Contributions paid by the employer note (iii)	10	–	10	–	10
Contributions paid by the employee	–	–	–	–	–
Benefits paid	(397)	397	–	–	–
Balance at 31 December	7,075	(6,167)	908	(677)	231

	2017 £m
	Fair value of Scheme assets	Present value of benefit obligations note (i)	Net surplus without the effect of IFRIC 14	Effect of IFRIC 14 for de recognition of surplus	IAS 19 basis net surplus
Balance at 1 January	7,627	(6,910)	717	(558)	159
Currentservice cost	–	(26)	(26)	–	(26)
Net interest income (cost)	193	(175)	18	(14)	4
Administration expenses	(6)	–	(6)	–	(6)
Actuarial gains(losses) note (ii)	40	(33)	7	87	94
Contributions paid by the employer note (iii)	11	–	11	–	11
Contributions paid by the employee	–	–	–	–	–
Benefits paid	(391)	391	–	–	–
Balance at 31 December	7,474	(6,753)	721	(485)	236

Notes

(i) The weighted average duration of the benefit obligations of the Scheme is 17 years(2017: 17 years). The following table provides an expected maturity analysis of the undiscounted benefit obligations as at 31 December:

£m	1 year or less	After 1 year to 5 years	After 5 years to 10 years	After 10 years to 15 years	After 15 years to 20 years	Over 20 years	Total
2018	240	1,061	1,449	1,426	1,349	5,265	10,790
2017	238	1,030	1,445	1,452	1,375	5,554	11,094

(ii) The actuarial gains attributable to policyholders and shareholders are analysed asfollows:	2018 £m	2017 £m
Return on Scheme assets excluding interest income*	(186)	40
Actuarial gains (losses)
Experience gains on Scheme liabilities	1	70
Actuarial gains(losses) – demographic assumptions	125	(10)
Actuarial gains(losses) – financial assumptions	283	(93)
	409	(33)
Total actuarial gains(losses) without the effect of IFRIC 14	223	7
Actuarial gains attributable to the Company before tax†	19	34

* The total return on Scheme assetsin 2018 was a loss of £(5) million (2017: gain £233 million).

†Actuarial gains attributable to the Company are net of the apportionment to theUK with-profitsfund and are related to the surplusrecognised in the balance sheet of the Company. In 2018, the gainsincluded a debit of £48 million (2017: credit £31 million) for the adjustment to the unrecognised portion ofsurplus.

The gains after tax of £16 million (2017: £28 million) are recorded in other comprehensive income.

(iii) Employer contributionsto be paid into the Scheme for the year ending 31 December 2019 are expected to amount to £10 million, comprising ongoing service contributions and expenses.

(iv) In October 2018, theHigh Court ruled that pension schemes are required to equalise benefitsfor the effect of guaranteed minimum pensions(GMPs).GMPs are a minimum benefit thatschemesthat were contracted-out on a salary-related basis between 1978 and 1997 are required to provide.

In light of this Court ruling, at 31 December 2018, an estimated allowance forGMP equalisation of £31 million has been recognised within the IAS 19 valuation for the Scheme, of which £9 million was allocated to the Company. The impact on profit before tax is £9 million (before taking into account any charge to PSPS surplusrestriction). After taking into account the change to the PSPS surplusrestriction asreflected in the actuarial gains and losses within other comprehensive income, there was no impact on shareholders' funds.

8 Borrowings

	Core structural borrowings		Other borrowings		Total
	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m
Core structural borrowings note (i)
Subordinated liabilities note (ii)	6,676	5,272	–	–	6,676	5,272
Debenture loans	517	549	–	–	517	549
Bank loan	275	–	–	–	275	–
	7,468	5,821	–	–	7,468	5,821
Other borrowings: note (iii) Commercial paper Medium Term Notes 2018	– –	– –	472 –	485 600	472 –	485 600
Total borrowings	7,468	5,821	472	1,085	7,940	6,906
Borrowings are repayable asfollows: Within 1 year Between 1 and 5 years After 5 years	– 587 6,881	– – 5,821	472 – –	1,085 – –	472 587 6,881	1,085 – 5,821
	7,468	5,821	472	1,085	7,940	6,906

Notes

(i) Further details on the core structural borrowings of the Company are provided in note C6.1 of theGroup financialstatements.

(ii) The interests of the holders of the subordinated liabilities are subordinate to the entitlements of other creditors of the Company.

(iii) These borrowingssupport a short-term fixed income securities programme.

9 Deferred tax liability

Deferred tax liability	2018 £m	2017 £m
Short-term temporary differencesrelated to pension scheme	(12)	(12)
Total	(12)	(12)

10 Share capital and share premium

A summary of the ordinary sharesin issue and the options outstanding to subscribe for the Company'sshares at 31 December 2018 isset out in note C10 of theGroup financialstatements.

02

06

11 Retained profit of the Company

Retained profit at 31 December 2018 amounted to £5,356 million (31 December 2017: £5,552 million). The retained profit includes distributable reserves of £2,814 million and non-distributable reserves of £2,542 million. The non-distributable reserves comprise £2,405 million relating to gains made by intermediate holding companiesfollowing the transfer at fair value of certain subsidiariesto other parts of theGroup as part of internal restructuring exercisesin previous years, £80 million ofshare-based payment reserves and £57 million net of taxation in relation the pension benefitsurplus of the Company. The amount of £2,405 million is not able to be regarded as part of the distributable reserves of the parent company because the gainsrelate to intra-group transactions.

UnderUK company law, Prudential may pay dividends only ifsufficient distributable reserves of the Company are available for the purpose and if the amount of its net assetsis greater than the aggregate of its called up share capital and non-distributable reserves(such asthe share premium account) and the payment of the dividend does not reduce the amount of its net assetsto lessthan that aggregate.

The retained profit of the Company issubstantially generated from dividend income received from subsidiaries. TheGroup segmental analysisillustratesthe generation of profit acrosstheGroup (see note B1 of theGroup financialstatements). TheGroup and its subsidiaries are subject to local regulatory minimum capital requirements, asset out in note C12 of theGroup financialstatements. A number of the principal risksset out in the 'Report of the risksfacing our business and how these are managed' could impact the generation of profit in theGroup'ssubsidiariesin the future and hence impact their ability to pay dividendsin the future.

In determining the dividend payment in any year the directorsfollow theGroup dividend policy described in the Chief Financial Officer'sreportsection of this Annual Report. The directors consider the Company's ability to pay current and future dividendstwice a year by reference to the Company's business plan and certain stressed scenarios.

12 Other information

• a Information on directors' remuneration is given in the directors' remuneration reportsection of this Annual Report and note B2.3 of theGroup financialstatements.
• b Information on transactions of the directors with theGroup is given in note D4 of theGroup financialstatements.
• c The Company employs no staff.
• d Fees payable to the Company's auditor for the audit of the Company's annual accounts were £0.1 million (2017: £0.1 million) and for otherservices were £0.1 million (2017: £0.1 million).
• e In certain instances, the Company has guaranteed that itssubsidiaries will meet their obligations when they fall due for payment.

13 Post balance sheet events

The second interim ordinary dividend for the year ended 31 December 2018, which was approved by the Board of Directors after 31 December 2018, is described in note B6 of theGroup financialstatements.

Statement of Directors' responsibilities in respect of the Annual Report and the financial statements

The Directors are responsible for preparing the Annual Report and theGroup and parent company financialstatementsin accordance with applicable law and regulations.

Company law requiresthe Directorsto prepareGroup and parent company financialstatementsfor each financial year. Under that law, the Directors are required to prepare theGroup financialstatements in accordance with International Financial Reporting Standards as adopted by the EuropeanUnion (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company financial statementsin accordance withUK Accounting Standards and applicable law (UKGenerally Accepted Accounting Practice) including FRS 101 Reduced Disclosure Framework.

Under company law, the Directors must not approve the financialstatements unless they are satisfied that they give a true and fair view of the state of affairs of theGroup and parent company and of their profit or lossfor that period. In preparing each of theGroup and parent company financial statements, the Directors are required to:

• Selectsuitable accounting policies and then apply them consistently;
• Make judgements and estimatesthat are reasonable and prudent;
• For theGroup financialstatements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• For the parent company financial statements,state whether applicable UK Accounting Standards have been followed,subject to any material departures disclosed and explained in the parent company financial statements; and
• Prepare the financialstatements on the going concern basis unlessit is inappropriate to presume that the Group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting recordsthat are sufficient to show and explain the parent company'stransactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a strategic report, Directors' report, directors' remuneration report and corporate governance statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financialstatements may differ from legislation in other jurisdictions.

The Directors of Prudential plc, whose names and positions are set out on pages 89 to 94 confirm that to the best of their knowledge:

• The financialstatements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
• The strategic report includes a fair review of the development and performance of the business and the position of theGroup and the undertakingsincluded in the consolidation taken as a whole, together with a description of the principal risks and uncertaintiesthat they face; and
• The Annual Report and financial statements, taken as a whole, isfair, balanced and understandable and providesthe information necessary for shareholdersto assesstheGroup's position and performance, business model and strategy.

06

05

Independent auditor's report to the members of Prudential plc only

1 Our opinion is unmodified

We have audited the financialstatements of Prudential plc ('theGroup and parent company') for the year ended 31 December 2018 which comprise:

• the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changesin equity, consolidated statement of financial position and consolidated statement of cash flows, and the related notes, including accounting policiesin notes A3 and E1; and
• the statement of financial position, statement of changesin equity, and the related notes, including the significant accounting policiesin note 3, of the parent company financialstatements.

In our opinion:

• The financialstatements give a true and fair view of the state of theGroup's and of the parent company's affairs as at 31 December 2018 and of theGroup's profit for the year then ended;
• TheGroup financialstatements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the EuropeanUnion;
• The parent company financial statements have been properly prepared in accordance withUK Accounting Standardsincluding FRS 101 Reduced Disclosure Framework; and
• The financialstatements have been prepared in accordance with the requirements of the Companies Act 2006 and, asregardstheGroup financialstatements, Article 4 of the IAS Regulation.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ('ISAs(UK)') and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basisfor our opinion. Our audit opinion is consistent with our report to the audit committee.

We were appointed as auditor by the shareholdersin October 1999. The period of total uninterrupted engagement isfor the 20 financial years ended 31 December 2018. We have fulfilled our ethical responsibilities under, and we remain independent of theGroup in accordance with,UK ethical requirements including the Financial Reporting Council ('FRC') Ethical Standard as applied to listed public interest entities.No non-audit services prohibited by thatstandard were provided.

2 Key audit matters: including our assessment of risks of material misstatement

Key audit matters are those mattersthat, in our professional judgement, were of mostsignificance in the audit of the financialstatements and include the mostsignificant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall auditstrategy; the allocation of resourcesin the audit; and directing the efforts of the engagement team. We summarise below the key audit mattersin arriving at our audit opinion above, together with our key audit proceduresto addressthose matters and, asrequired for public interest entities, our resultsfrom those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

02

06

Valuation of policyholder liabilities (2018: £409,301 million, 2017: £411,243 million). The risk compared to the prior year is unchanged.

Refer to page 115 (Audit Committee report), page 181 (accounting policy) and pages 241 to 264 (financial disclosures). The risk Our response

TheGroup hassignificant policyholder liabilitiesrepresenting 83 per cent of theGroup'stotal liabilities.

Subjective valuation

Thisis an area that involvessignificant judgement over uncertain future outcomes, mainly the ultimate totalsettlement value of long term policyholder liabilities. Economic assumptions, including investment return, credit risk and associated discount rates, and operating assumptionsincluding mortality, morbidity, expenses, utilisation of guarantees and persistency (including consideration of policyholder behaviour) are the key inputs used to estimate these long term liabilities, in addition to the appropriate design and calibration of complex reserving models.

The specific application of these judgementsto individual segmentsis explained below.

For theUS insurance segment, the valuation of the guarantees in the variable annuity ('VA') businessis complex asit involves exercising significant judgement over the relationship between the investment return attaching to these products and the guarantees contractually provided to policyholders and the likely policyholder behaviour in response to changesin investment performance.

For theUK insurance segment, the valuation of the policyholder liabilitiesin relation to the annuity businessrequiressignificant judgement over the setting of mortality, expenses and credit risk assumptions.

For the Asia insurance segment, the valuation of the policyholder liabilitiesrequiressignificant judgement over the setting of mortality and morbidity assumptions.

The effect of these mattersisthat, as part of our risk assessment, we determined that the valuation of policyholder liabilities has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many timesthat amount.

We used our own actuarialspecialiststo assist usin performing our proceduresin this area.

Our proceduresincluded:

Methodology choice

We have assessed the methodology forselecting assumptions and calculating the policyholder liabilities. Thisincluded:

• Assessing the methodology adopted forselecting assumptions by applying our industry knowledge and experience and comparing the methodology used against industry standard actuarial practice;
• Assessing the methodology adopted for calculating the policyholder liabilities by reference to the requirements of the accounting standard and assessing the impact of current year changesin methodology on the calculation of policyholder liabilities;
• Comparing changesin methodology to our expectations derived from market experience; and
• Evaluating the analysis of the movementsin policyholder liabilities during the year, including consideration of whether the movements were in line with the methodology and assumptions adopted.

Control operation

We used our own IT specialiststo assist usin performing our proceduresin this area which included testing of the design, implementation and operating effectiveness of key controls over the valuation processincluding additional testing in relation to model evaluation as a result of identified weaknessesin the general IT control environment. Controlstesting in respect of the valuation processincluded assessment and approval of the methods and assumptions adopted over the calculation of policyholder liabilities as well as appropriate access and change management controls over the actuarial models.

Our procedures for the US insurance segment also included: Historical comparison

— Assessing the assumptionsrelating to policyholder behaviour by comparing to relevant company and industry historical experience data.

Benchmarking assumptions and sector experience

• Assessing the assumptionsfor investment mix and projected investment returns by comparing to company specific and industry data and for future growth rates by comparing to market trends and market volatility.
• Utilising the results of our industry benchmarking of assumptions and actuarial market practice to inform our challenge of assumptionsin relation to policyholder behaviour.

Model evaluation

— Assessing the cash flow projectionsin the reserving models by reference to the inclusion of relevant product features. We have also assessed the impact of modelling and assumption changes by inspecting pre and post change model runs and comparing the outcomes of the changesto our expectations.

	Refer to page 115 (Audit Committee report), page 181 (accounting policy) and pages 241 to 264 (financial disclosures).
The risk	Our response
	Our procedures for the UK insurance segment also included: Historical comparison — Evaluating the data used to prepare the mortality experience analysis by reference to actual mortality experience of the policyholdersin order to assess whether thissupported the year-end assumptions adopted.
	— Assessing whether the expense assumptions appropriately reflect the expected future costs of administering the underlying policies by analysing current year unit costs and the likely impact of planned actions.
	Benchmarking assumptions and sector experience — Comparing mortality experience to industry data on current
	mortality and expectations of future mortality improvements.
	— Evaluating the credit risk assumptions, which affect discount rates, by reference to industry practice and our expectation derived from market experience taking into consideration economic factors.
	— Using the results of ourindustry benchmarking of assumptions and actuarialmarket practice to informour challenge ofthe assumptions in relation to the mortality, credit risk and expense assumptions.
	Model evaluation — Evaluating the appropriateness of the calibration of the Continuous Mortality Investigation ('CMI') model (the CMI Bureau releasesindustry wide mortality tables), adopted based on the analysis of the characteristics of the policyholder population and actual mortality experience.
	— We used our own valuation modelsto perform an independent recalculation of a sample of policyholderliabilitiesto assesswhether theselectedmodel calibrationhasbeenappropriately implemented.
	Our procedures for the Asia insurance segment also included: Historical comparison Evaluating the experience analysisin respect of the mortality and
	morbidity assumptions by reference to actual experience in order to assess whether thissupported the year-end assumptions adopted.
	Benchmarking assumptions and sector experience Using oursector experience and market knowledge to inform our challenge of the assumptionsin the areas noted above.
	Model evaluation We have assessed the reserving models by considering the accuracy of the cash flow projectionsincluding by reference to the inclusion of relevant product features. We have also assessed the impact of modelling and assumption changes by inspecting pre and post change model runs and comparing the outcomes of the changes to our expectations.
	Assessing transparency We considered whetherthe disclosuresin relation to the assumptions used in the valuation of policyholder liabilities are compliant with the relevant accounting requirements.
	Our result We found the valuation of policyholder liabilitiesto be acceptable (2017: acceptable).

Valuation of investments (2018: £418,105 million, 2017: £422,230 million). The risk compared to the prior year is unchanged.

Refer to page 115 (Audit Committee report), page 187 (accounting policy) and pages 221 to 240 (financial disclosures) The risk Our response

TheGroup'sinvestment portfolio represents 82 per cent of the Group'stotal assets.

The portfolio of quoted investments and investmentsthat are valued primarily using observable inputs makes up 78 per cent of theGroup'stotal assets(by value). We do not consider these investmentsto be at a high risk ofsignificant misstatement, or to be subject to a significant level of judgement because they comprise liquid, quoted investments.However, due to their materiality in the context of the financialstatements as a whole, they are considered to be one of the areas which had the greatest effect on our overall auditstrategy and allocation of resourcesin planning and completing our audit.

Subjective valuation

The area that involved significant audit effort and judgement in 2018 wasthe valuation of certain harder to value level 2 and level 3 positions within the financial investments portfolio representing 5 per cent of theGroup'stotal assets. These included unlisted debt securities, unlisted loans and unlisted fundsthat are valued by reference to theirNet Asset Value ('NAV funds'). For these positions a reliable third party price was not readily available and therefore involved the application of expert judgement in the valuations adopted.

The valuation of the portfolio involvesjudgement depending on the observability of the inputsinto the valuation and further judgement in determining the appropriate valuation methodology for harder to value investments where external pricing sources are either not readily available or are unreliable.

The effect of these mattersisthat, as part of our risk assessment, we determined that the valuation of investments has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financialstatements as a whole and possibly many timesthat amount.

We used our own valuation specialistsin order to assist usin performing our proceduresin this area.

Our proceduresincluded:

Methodology choice

We assessed the appropriateness of the pricing methodologies with reference to relevant accounting standards as well asindustry practice.

For quoted investments:

Tests of details

We performed independent price checks using external quoted prices and by agreeing the observable inputsthat were used in the Group's valuation techniquesto external data.

For harder to value positions:

Control operation

We tested the design, implementation and operating effectiveness of key controls over the valuation process, including theGroup's review and approval of the estimates and assumptions used for the valuation including key authorisation and data input controls.

Benchmarking assumptions

We assessed a sample of the valuation assumptions with reference to theGroup's own valuation guidelines as well asindustry practice.

Tests of details

For a sample of unlisted debt and loan securities we compared the price adopted to our independently derived price, using our valuation specialists.

We agreed the valuationsfor theNAV fundsto the most recentNAV statements. To assessreliability of these statements we compared to audited financialstatements of the funds, where available, or performed a retrospective test over theNAV valuationsfor each fund to assessif the fund valuationsreported in the audited financial statementsin the prior year were materially consistent with the most recentNAV valuation statements available at the time.

Assessing transparency

We assessed whether the disclosuresin relation to the valuation of investments are compliant with the relevant accounting requirements.

Our result

We found the valuation of investmentsto be acceptable (2017: acceptable).

02

03 Governance

report

06 European Embedded Value (EEV) basisresults

Amortisation of US deferred acquisition costs ('DAC') (2018: £8,727 million, 2017: £8,197 million). The risk compared to the prior year is unchanged.

Refer to page 115 (Audit Committee report), page 185 (accounting policy) and pages 266 to 268 (financial disclosures) The risk Our response

DAC represents 2 per cent of theGroup'stotal assets. The DAC associated with theUS component, which represents 86 per cent of the total DAC, involvesthe greatest judgement in terms of measurement.

Accounting treatment

DAC involvesjudgementsin respect of the identification of the acquisition coststhat may be deferred and the appropriateness of the deferral methodology adopted.

The amortisation assessment of the DAC asset in theUS component isrelated to the achieved and projected future profit profile. Thisinvolves making assumptions about future investment returns and the consequential impact on fee income; therefore there is a greater level ofsubjectivity involved in relation to the US DAC.

The effect of these mattersisthat, as part of our risk assessment, we determined that the amortisation of DAC has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financialstatements as a whole.

We used our own actuarialspecialiststo assist usin performing our audit proceduresin this area.

Our proceduresincluded:

Accounting analysis

We evaluated the appropriateness of the deferral methodology by reference to the requirements of relevant accounting standards.

Testing application

We evaluated the judgementsinvolved in determining whether the costsincurred are deferred appropriately by reference to the adopted deferral methodology.

Benchmarking assumptions and market experience

All assumptionsthat are relevant to the calculation of the policyholder liabilities are also relevant to the calculation of DAC amortisation. See further detail in our response to that risk.

Additionally, we challenged the reasonableness of the selected assumptionsrelating to projected investment return based on our understanding of developmentsin the business and our expectations derived from market experience. Our work included comparing the projected investment returns against the investment portfolio mix and market return data, and corroborating the rationale for any key differences.

Historical comparison

We have also assessed the appropriateness of the assumptions used in determining the estimated future profit profile and the extent of the associated adjustment necessary to the amortisation of the DAC asset. Our work included critically assessing the judgementsthat determine the future profit profilesin the context of actual historical experience as well as by reference to market trends.

Tests of detail

We assessed the accuracy of the calculations performed including the extent of the amortisation adjustment determined based on an assessment of the future profit profiles.

Assessing transparency

We assessed whether the disclosuresin relation to the amortisation of DAC are compliant with the relevant accounting requirements.

Our result

We found the capitalisation and amortisation of DAC to be acceptable (2017: acceptable).

02

04

06

05

Determination of pension asset (restricted surplus) in respect of the defined benefit pension scheme
(Pension asset (restricted surplus) – 2018: £69 million, 2017: £71 million).

The risk compared to the prior year is unchanged. The risk relates to the parent company financial statements. Refer to page 115 (Audit Committee report), Refer to page 323 (accounting policy) and pages 284 to 290 (financial disclosures)

The risk	Our response
The parent company assumes a portion of the surplus of the	Our proceduresincluded:
Group's main defined benefit pension scheme.
	Methodology choice
Subjective valuation	We assessed, with the support of our pension specialists,

Where an entity does not have a right to a refund the asset ceiling (limit of the amount recognised) is determined by reference to the present value of the difference between the estimated future service cost and the contributions payable by the entity over the future working lives of the active members. Assumptions are made over the future service costs.

The calculation of the defined benefit obligation requiresthe determination of a number of assumptions, and judgement is required to determine the appropriateness of these. The most significant assumptionsinclude mortality and the discount rate.

estimated future service cost leading to the consequent calculation of the restricted surplus.

Tests of detail

We assessed the reasonableness of the mortality assumptions and discount rate by reference to entity specific data in respect of the demographic characteristics of the population of pension scheme members and factorssuch assalary inflation.

the methodology forselecting assumptions underpinning the calculation of the defined benefit pension obligation and the

We also considered whether the movementsin the defined benefit pension obligation and the estimated future service cost, including the consequential calculation of the restricted surplus, were consistent with the changes made in the assumptionsfrom the prior year.

Benchmarking assumptions

We challenged, with the support of our own pension specialists, the key assumptions applied to the pension obligation, being the discount and mortality rates, against externally derived data.

Our result

We found the pension asset (restricted surplus) recognised in respect of the defined benefit pension scheme to be acceptable (2017: acceptable).

The impact of uncertainties due to the UK exiting the European Union on our audit

Refer to page 52 (Group Chief Risk Officer's Report), page 68 (viability statement), page 115 (Audit Committee Report) and page 194 (financial disclosures).

Levels of uncertainty due to Brexit

All audits assess and challenge the reasonableness of estimates, in particular as described in the valuation of policyholder liabilities, valuation of investments and the determination of the defined benefit pension asset (restricted surplus) above, and related disclosures and the appropriateness of the going concern basis of preparation of the financialstatements(see below). All of these depend on assessments of the future economic environment and the group'sfuture prospects and performance.

In addition, we are required to consider the other information presented in the Annual Report including the principal risks disclosure and the viability statement and to consider the directors' statement that the annual report and financialstatementstaken as a whole isfair, balanced and understandable and provides the information necessary forshareholdersto assesstheGroup's position and performance, business model and strategy.

Brexit is one of the mostsignificant economic eventsfor the UK and at the date of thisreport its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown.

The risk Our response

We developed a standardised firm-wide approach to the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our proceduresincluded:

• Our Brexit knowledge –We considered the directors' assessment of Brexit-related sources ofrisk fortheGroup's business and financialresources compared with our own understanding of the risks.We considered the directors' plansto take action tomitigate the risks.
• Sensitivity analysis –When addressing the valuation of policyholderliabilities, valuation ofinvestments and the determination of the pension asset(restricted surplus)in respect of the defined benefit pension scheme and other areasthat depend on forecasts we compared the directors' analysisto our assessment ofthe fullrange ofreasonably possible scenarios resulting fromBrexit uncertainty and, where forecast cash flows are required to be discounted, considered adjustmentsto discount ratesforthe level ofremaining uncertainty.
• Assessing transparency –As well as assessing individual disclosures as part of our procedures on valuation of policyholder liabilities, valuation ofinvestments and the determination of the pension asset(restricted surplus)in respect ofthe defined benefit pension scheme, we considered all ofthe Brexitrelated disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks.

Our result

Asreported under valuation of policyholder liabilities, valuation of investments and the determination of the pension asset (restricted surplus) in respect of the defined benefit pension scheme, we found the resulting estimates and related disclosures of these matters and disclosuresin relation to going concern to be acceptable.However, no auditshould be expected to predict the unknowable factors or all possible future implicationsfor a company and thisis particularly the case in relation to Brexit.

3 Our application of materiality and We set out below the materiality thresholdsthat are key to the audit.

an overview of the scope of our audit Materiality for theGroup financial statements as a whole wasset at £350 million (2017: £350 million) determined with reference to a benchmark of IFRS shareholders' equity (of which it represents 2 per cent (2017: 2.2 per cent)). We consider IFRS shareholders' equity to be the most appropriate benchmark asit representsthe residual interest that can be ascribed to shareholders after policyholder assets and corresponding liabilities have been accounted for; we consider that this isthe most appropriate measure for the size of the business and that it provides a stable measure year on year. We compared our materiality against other relevant benchmarks,such astotal assets, total revenue and profit before tax to ensure the materiality selected was appropriate for our audit.

01 Group overview

02

06

05

Materiality for the parent company financialstatements as a whole wasset at £115 million (2017: £ 186 million), determined with reference to a benchmark of parent company's net assets, of which it represents 1.5 per cent (2017: 2.4 per cent).

We agreed to report to theGroup audit committee any corrected or uncorrected identified misstatements exceeding £18 million (2017: £18 million) in addition to other identified misstatementsthat warrant reporting on qualitative grounds.

We subjected theGroup's operations to auditsfor group reporting purposes asfollows:

Of the 16 (2017: 16) reporting components scoped in for theGroup audit, we subjected 10 (2017: 10) to fullscope audits for group reporting purposes, 5 (2017: 6) to an audit of account balances and 1 (2017:Nil) to specified risk-focused audit procedures. The componentsfor which we performed work other than fullscope auditsfor group reporting purposes were not individually significant but were included in the scope of our group reporting work asthey did presentspecific individual audit risksthat needed to be addressed or in order to provide further coverage over theGroup'sresults.

The componentssubjected to fullscope auditsincluded the parent company; the Prudential Assurance Company Limited in theUK and the insurance operationsin theUS,Hong Kong, Indonesia, Singapore, Malaysia, Thailand and Vietnam; and the fund management operations of M&G.

The componentssubjected to an audit of account balancesincluded Prudential Capital, Prudential Pensions Limited, Prudential Loan Investment Fund (all based in theUK) and the insurance operationsin China and Taiwan. The account balances audited were policyholder liabilities, investments and deferred acquisition costs. Additionally, we subjected Eastspring Singapore to specified risk-focused audit procedures over revenue.

For the remaining operations, we performed analysis at an aggregatedGroup level to re-examine our assessment that there were no significant risks of material misstatement within these operations.

These components accounted for the following percentages of theGroup'sresults:

Fullscope forGroup audit purposes 2018

• Audit of account balances and specified risk-focused audit procedures 2018
  • Fullscope forGroup audit purposes 2017
  • Audit of account balances 2017 Residual components

TheGroup audit team held a global planning conference with component auditorsto identify audit risks and decide how each component team should address the identified audit risks. TheGroup audit team instructed component auditors asto the significant areasto be covered, including the relevant risks detailed above and the information to be reported. TheGroup audit team approved the component materialities, which ranged from £55 million to £115 million (2017: £80 million to £186 million) acrossthe components, having regard to the size and risk profile of theGroup acrossthe components. The work on 15 components (2017: 15 components) was performed by component auditors and work on the remaining component, which wasthe parent company, was performed by the Group audit team.

TheGroup audit team visited all component auditor locations. Video and telephone conference meetings were also held with these component auditors. At these visits and telephone conference meetings, an assessment was made of audit risk and strategy, the findings reported to theGroup audit team were discussed in more detail, key working papers were inspected and any further work required by theGroup audit team was then performed by the component auditor.

The Senior StatutoryAuditor, in conjunction with otherseniorstaff in theGroup and component audit teams, also regularly attended BusinessUnit audit committee meetings(these were held at a regional level for Asia) and participated in meetings with local componentsto obtain additional understanding, first hand, of the key risks and audit issues at a component level which may affect theGroup financialstatements.

4 We have nothing to report on going concern

The Directors have prepared the financial statements on the going concern basis asthey do not intend to liquidate the Company or theGroup or to cease their operations, and asthey have concluded that the Company's and theGroup's financial position meansthat thisisrealistic. They have also concluded that there are no material uncertaintiesthat could have castsignificant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financialstatements('the going concern period').

Our responsibility isto conclude on the appropriateness of the Directors' conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and assubsequent events may result in outcomesthat are inconsistent with judgementsthat were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor'sreport is not a guarantee that theGroup and the Company will continue in operation.

In our evaluation of the Directors' conclusions, we considered the inherent risksto theGroup's and Company's business model and analysed how those risks might affect theGroup's and Company's financial resources or ability to continue operations over the going concern period. The risksthat we considered most likely to adversely affect theGroup's and Company's available financial resources over this period were:

• Adverse impacts arising from fluctuations or negative trendsin the economic environment which affect the valuations of theGroup's investments, wider creditspreads and defaults and valuation of policyholder liabilities due to the impact of these market movements; and
• Severely adverse policyholder lapse or claims experience.

Asthese were risksthat could potentially castsignificant doubt on theGroup's and theCompany's ability to continue as a going concern, we considered sensitivities over the level of available financial resources indicated by theGroup's financial forecasts taking account of reasonably possible (but not unrealistic) adverse effectsthat could arise from these risksindividually and collectively and evaluated the achievability of the actionsthe Directors consider they would take to improve the position should the risks materialise. We also considered less predictable but realistic second order impacts,such asfailure of counterparties who have transactions with theGroup (such as banks and reinsurers) to meet commitmentsthat could give rise to a negative impact on theGroup's financial position, increased illiquidity which also addsto uncertainty over the accessibility of financial resources and may reduce capital resources as valuations decline and the impact of Brexit on the economic environment and the resulting impact on theGroup's capital resources.

Based on this work, we are required to report to you if:

• We have anything material to add or draw attention to in relation to the directors'statement in note A1 to the financialstatements on the use of the going concern basis of accounting with no material uncertaintiesthat may cast significant doubt over theGroup and Company's use of that basisfor a period of at least a year from the date of approval of the financialstatements; or
• The related statement under the Listing Rulesset out on page 128 is materially inconsistent with our audit knowledge.

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

5 We have nothing to report on the other information in the Annual Report

The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility isto read the other information and, in doing so, consider whether, based on our financialstatements audit work, the information therein is materially misstated or inconsistent with the financialstatements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Strategic report and directors' report

Based solely on our work on the other information:

• we have not identified material misstatementsin the strategic report and the directors' report;
• in our opinion the information given in those reportsfor the financial year is consistent with the financialstatements; and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Directors' remuneration report

In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:

• The directors' confirmation within the viability statement on page 68, that they have carried out a robust assessment of the principal risksfacing theGroup, including those that would threaten its business model, future performance,solvency and liquidity;
• The principal risks disclosures on pages 52 to 69 describing these risks and explaining how they are being managed and mitigated; and
• The directors' explanation in the viability statement of how they have assessed the prospects of theGroup, over what period they have done so and why they considered that period to be appropriate, and theirstatement asto whether they have a reasonable expectation that theGroup will be able to continue in operation and meet its liabilities asthey fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Under the Listing Rules we are required to review the viability statement. We have nothing to report in thisrespect.

Our work islimited to assessing these mattersin the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgementsthat were reasonable at the time they were made, the absence of anything to report on these statementsis not a guarantee asto theGroup'slonger-term viability.

Corporate governance disclosures We are required to report to you if:

— We have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors' statement that they consider that the annual report and financialstatements taken as a whole isfair, balanced and understandable and providesthe information necessary forshareholders to assesstheGroup's position and performance, business model and strategy; or

— The section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by usto the Audit Committee.

We are required to report to you if the CorporateGovernance Statement does not properly disclose a departure from the 11 provisions of theUK Corporate Governance Code specified by the Listing Rulesfor our review.

We have nothing to reportin these respects.

6 We have nothing to report in respect of the matters on which we are required to report by exception

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• The parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• Certain disclosures of directors' remuneration specified by law are not made; or
• We have not received all the information and explanations we require for our audit.

We have nothing to reportin these respects.

7 Respective responsibilities Directors' responsibilities

As explained more fully in theirstatement set out on page 329, the directors are responsible for the preparation of the financialstatementsincluding being satisfied that they give a true and fair view. They are also responsible for:such internal control asthey determine is necessary to enable the preparation of financial statementsthat are free from material misstatement, whether due to fraud or error; assessing theGroup and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate theGroup or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud, other irregularities, or error, and to issue our opinion in an auditor'sreport. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of userstaken on the basis of the financialstatements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities

Irregularities – ability to detect

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financialstatements from our general commercial and sector experience and through discussion with the directors and other management (asrequired by auditing standards), and from inspection of theGroup'sregulatory and legal correspondence and discussed with the directors and other management the policies and proceduresregarding compliance with laws and regulations. We communicated identified laws and regulationsthroughout our team and remained alert to any indications of non-compliance throughout the audit. Thisincluded communication from the Group to component audit teams of relevant laws and regulationsidentified at group level.

The potential effect of these laws and regulations on the financialstatements varies considerably. Firstly, theGroup is subject to laws and regulationsthat directly affect the financialstatementsincluding financial reporting legislation (including related companieslegislation), distributable profitslegislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

02

06 European Embedded

information Secondly, theGroup issubject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosuresin the financialstatements, for instance through the imposition of fines or litigation or the loss of theGroup's licence to operate. We identified the area of regulatory capital asthat most likely to have such an effect recognising the financial and regulated nature of theGroup's activities. Auditing standardslimit the required audit proceduresto identify non-compliance with these laws and regulationsto enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. These limited procedures did not identify actual or suspected non-compliance.

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatementsin the financialstatements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulationsisfrom the events and transactionsreflected in the financial statements, the lesslikely the inherently limited proceduresrequired by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, asthese may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

8 The purpose of our audit work and to whom we owe our responsibilities

Thisreport is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we mightstate to the Company's membersthose matters we are required to state to them in an auditor'sreport and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for thisreport, or for the opinions we have formed.

Philip Smart Senior Statutory Auditor

For and on behalf of KPMGLLP, Statutory Auditor Chartered Accountants London

12 March 2019

European Embedded Value (EEV) basis results

Index to EEV basis results 342

05

Financialstatements

Page

Index to European Embedded Value (EEV) basis results

	Page
Post-tax operating profit based on longer-term investment returns	343
Post-tax summarised consolidated income statement	344
Movement in shareholders' equity	345
Summary statement of financial position	346

Notes on the EEV basis results

1	Basis of preparation	347
2	Results analysis by business area	347
3	Analysis of new business contribution	348
4	Operating profit from businessin force	349
5	Short-term fluctuationsin investment returns	351
6	Effect of changesin economic assumptions	352
7	Net core structural borrowings ofshareholder-financed businesses	353
8	Reconciliation of movement in shareholders' equity	354
9	Analysis of movement in net worth and value of in-force for long-term business	356
10	Analysis of movement in free surplus	358
11	Expected transfer of value of in-force business and required capital to free surplus	361
12	Sensitivity of resultsto alternative assumptions	361
13	Methodology and accounting presentation	363
14	Assumptions	369
15	Insurance new business premiums	373
16	Impact ofUS tax reform	374
17	Corporate transactions	374
18	Post balance sheet events	374
	Statement of Directors' responsibilities	375
	Auditor'sreport	376

Description of EEV basis reporting

In broad terms, IFRS profit for long-term businessreflectsthe aggregate of results on a traditional accounting basis. By contrast, EEV is a way of reporting the value of the life insurance business.

The EEV basisresults have been prepared in accordance with the EEV Principles dated April 2016, issued by the European Insurance CFO Forum. The EEV Principles provide consistent definitions, a framework forsetting actuarial assumptions, and an approach to the underlying methodology and disclosures.

Results prepared under the EEV Principles capture the discounted value of future profits expected to arise from the current book of long-term business. The results are prepared by projecting cash flows, by product, using best estimate assumptionsfor all relevant factors. Furthermore, in determining these expected profits, full allowance is made for the risks attached to their emergence and the associated cost of capital, taking into account recent experience in assessing likely future persistency, mortality, morbidity and expenses. Further details are explained in notes 13 and 14.

European Embedded Value (EEV) basis results

Post-tax operating profit based on longer-term investment returns

	Note	2018 £m	2017 £m note (iii)
Asia operations
New business	3	2,604	2,368
Businessin force	4	1,783	1,337
Long-term business		4,387	3,705
Asset management		159	155
Total		4,546	3,860
US operations
New business	3	921	906
Businessin force	4	1,194	1,237
Long-term business		2,115	2,143
Asset management		3	7
Total		2,118	2,150
UK and Europe operations
New business Businessin force	3 4	352 1,022	342 673
Long-term business General insurance commission		1,374 15	1,015 13
Total insurance operations		1,389	1,028
Asset management		392	403
Total		1,781	1,431
Other income and expenditure note (i)		(726)	(746)
Restructuring costs note (ii)		(156)	(97)
Operating profit based on longer-term investment returns		7,563	6,598
Analysed as profit (loss) from:
New business	3	3,877	3,616
Businessin force	4	3,999	3,247
Long-term business		7,876	6,863
Asset management and general insurance commission		569	578
Other results		(882)	(843)
		7,563	6,598

Notes

(i) EEV basis other income and expenditure representsthe post-tax IFRS basisresultsfor other operations(includingGroup and Asia RegionalHead Office, holding company borrowings, Africa operations and Prudential Capital) lessthe unwind of expected margins on the internal management of the assets of the covered business(as explained in note 13(i)(g)).

(ii) Restructuring costs comprise the post-tax charge recognised on an IFRS basis and the additional amount recognised on an EEV basisfor the shareholders'share incurred by the with-profitsfunds, representing the cost of businesstransformation and integration.

(iii) The comparative results have been prepared using previously reported average exchange ratesfor the year.

04

06

Post-tax summarised consolidated income statement

	Note	2018 £m	2017 £m
Asia operations		4,546	3,860
US operations		2,118	2,150
UK and Europe operations		1,781	1,431
Other income and expenditure		(726)	(746)
Restructuring costs		(156)	(97)
Operating profit based on longer-term investment returns		7,563	6,598
Short-term fluctuationsin investment returns	5	(3,219)	2,111
Effect of changesin economic assumptions	6	146	(102)
Mark to market value movements on core structural borrowings		549	(326)
Impact ofUS tax reform	16	–	390
(Loss) profit attaching to corporate transactions	17	(451)	80
Total non-operating (loss) profit		(2,975)	2,153
Profit for the year		4,588	8,751
Attributable to:
Equity holders of the Company		4,585	8,750
Non-controlling interests		3	1
		4,588	8,751

Basic earnings per share

	2018	2017
Based on post-tax operating profit including longer-term investment returns after non-controlling interests
(in pence)	293.6p	257.0p
Based on post-tax profit attributable to equity holders of the Company (in pence)	178.1p	340.9p
Weighted average number ofshares(millions)	2,575	2,567

Movement in shareholders' equity

	Note	2018 £m	2017 £m
Profit for the year attributable to equity holders of the Company		4,585	8,750
Itemstaken directly to equity:
Exchange movements on foreign operations and net investment hedges		1,706	(2,045)
External dividends		(1,244)	(1,159)
Mark to market value movements on Jackson assets backing surplus and required capital		(95)	40
Other reserve movements		132	144
Net increase in shareholders' equity	8	5,084	5,730
Shareholders' equity at beginning of year	8	44,698	38,968
Shareholders' equity at end of year	8	49,782	44,698

	31 Dec 2018 £m			31 Dec 2017 £m
Comprising:	Long-term business operations	Asset management and other operations	Group total	Long-term business operations	Asset management and other operations	Group total
Asia operations	24,580	552	25,132	21,191	401	21,592
US operations	14,650	40	14,690	13,257	235	13,492
UK and Europe operations	11,409	2,175	13,584	11,713	1,914	13,627
Other operations	–	(3,624)	(3,624)	–	(4,013)	(4,013)
Shareholders' equity at end of year	50,639	(857)	49,782	46,161	(1,463)	44,698
Representing: Net assets attributable to equity holders of the Company excluding acquired goodwill, holding company net borrowings and non-controlling interests Acquired goodwill* Holding company net borrowings at market value note 7	50,388 251 –	2,105 1,400 (4,362)	52,493 1,651 (4,362)	45,917 244 –	1,562 1,214 (4,239)	47,479 1,458 (4,239)
	50,639	(857)	49,782	46,161	(1,463)	44,698

*Acquired goodwill for asset management and other operationsfor 2018 includes goodwill recognised on acquisition of TMB Asset Management Co., Ltd. as discussed in note D1.2 of the IFRS statements.

report

06

Summary statement of financial position

	Note	31 Dec 2018 £m	31 Dec 2017 £m
Total assets less liabilities, before deduction of insurance funds*		431,269	434,615
Lessinsurance funds:
Policyholder liabilities(net of reinsurers'share) and unallocated surplus of with-profitsfunds		(414,002)	(418,521)
Lessshareholders' accrued interest in the long-term business	8	32,533	28,611
		(381,469)	(389,910)
Less non-controlling interests		(18)	(7)
Total net assets attributable to equity holders of the Company	8	49,782	44,698
Share capital		130	129
Share premium		1,964	1,948
IFRS basisshareholders' reserves		15,155	14,010
Total IFRS basisshareholders' equity	8	17,249	16,087
Additional EEV basisretained profit	8	32,533	28,611
Total EEV basis shareholders' equity	8	49,782	44,698

* Including liabilitiesin respect ofinsurance products classified asinvestment contracts underIFRS 4.

Net asset value per share

	31 Dec 2018	31 Dec 2017
Based on EEV basisshareholders' equity of £49,782 million (31 December 2017: £44,698 million) (in pence)	1,920p	1,728p
Number of issued shares at year end (millions)	2,593	2,587
Annualised return on embedded value*	17%	17%

*Annualised return on embedded value is based on EEVpost-tax operating profit after non-controlling interests, as a percentage of opening EEVbasisshareholders' equity.

The supplementary information on pages 343 to 374 was approved by the Board of Directors on 12 March 2019.

Paul Manduca Chairman

Mike Wells Group Chief Executive

Mark FitzPatrick Chief Financial Officer

Notes on the EEV basis results

1 Basis of preparation

The EEV basisresults have been prepared in accordance with the EEV Principles dated April 2016, issued by the European Insurance CFO Forum. Where appropriate, the EEV basisresultsinclude the effects of adoption of EU-endorsed IFRS.

The directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. The 2017 results have been derived from the EEV basisresultssupplement to the Company'sstatutory accountsfor 2017.

A detailed description of the EEV methodology and accounting presentation is provided in note 13.

2 Results analysis by business area

The 2017 comparative results are shown below on both actual exchange rates(AER) and constant exchange rates(CER) bases. The 2017 CER comparative results are translated at 2018 average exchange rates.

Annual premium equivalents (APE) note 15

		2018 £m	2017 £m		% change
	Note		AER	CER	AER	CER
Asia		3,744	3,805	3,671	(2)%	2%
US		1,542	1,662	1,605	(7)%	(4)%
UK and Europe		1,516	1,491	1,491	2%	2%
Group total	3	6,802	6,958	6,767	(2)%	1%

Post-tax operating profit

	2018 £m			2017 £m		% change
	Note		AER	CER	AER	CER
Asia operations New business Businessin force	3 4	2,604 1,783	2,368 1,337	2,282 1,280	10% 33%	14% 39%
Long-term business Asset management		4,387 159	3,705 155	3,562 150	18% 3%	23% 6%
Total		4,546	3,860	3,712	18%	22%
US operations New business Businessin force	3 4	921 1,194	906 1,237	874 1,195	2% (3)%	5% 0%
Long-term business Asset management		2,115 3	2,143 7	2,069 7	(1)% (57)%	2% (57)%
Total		2,118	2,150	2,076	(1)%	2%
UK and Europe operations New business Businessin force	3 4	352 1,022	342 673	342 673	3% 52%	3% 52%
Long-term business General insurance commission*		1,374 15	1,015 13	1,015 13	35% 15%	35% 15%
Total insurance operations Asset management		1,389 392	1,028 403	1,028 403	35% (3)%	35% (3)%
Total		1,781	1,431	1,431	24%	24%
Other income and expenditure Restructuring costs		(726) (156)	(746) (97)	(740) (97)	3% (61)%	2% (61)%
Operating profit based on longer-term investment returns		7,563	6,598	6,382	15%	19%

report

06

2 Results analysis by business area continued

		2018 £m	2017 £m		% change
	Note		AER	CER	AER	CER
Analysed as profit (loss) from:
New business	3	3,877	3,616	3,498	7%	11%
Businessin force	4	3,999	3,247	3,148	23%	27%
Total long-term business		7,876	6,863	6,646	15%	19%
Asset management and general insurance
commission		569	578	573	(2)%	(1)%
Other results		(882)	(843)	(837)	(5)%	(5)%
		7,563	6,598	6,382	15%	19%

* Themajority ofthe general insurance commission is not expected to recurin future years.

Post-tax profit

		2018 £m	2017 £m		% change
	Note		AER	CER	AER	CER
Operating profit based on longer-term
investment returns		7,563	6,598	6,382	15%	19%
Short-term fluctuationsin investment returns	5	(3,219)	2,111	2,057
Effect of changesin economic assumptions	6	146	(102)	(91)
Mark to market value movements on core
structural borrowings		549	(326)	(326)
Impact ofUS tax reform	16	–	390	376
(Loss) profit attaching to corporate transactions	17	(451)	80	77
Total non-operating (loss) profit		(2,975)	2,153	2,093
Profit for the year		4,588	8,751	8,475	(48)%	(46)%

Basic earnings per share

	2018	2017		% change
		AER	CER	AER	CER
Based on post-tax operating profit including longer-term investment returns after non-controlling interests(in pence)	293.6p	257.0p	248.6p	14%	18%
Based on post-tax profit attributable to equity holders of the Company (in pence)	178.1p	340.9p	330.2p	(48)%	(46)%

3 Analysis of new business contribution

(i) Group summary for long-term business operations

		2018
	Annual premium	Present value of new business premiums (PVNBP) note 15	New business contribution	New business margin
	equivalents (APE) note 15			APE	PVNBP
	£m	£m	£m	%	%
Asia note (ii)	3,744	20,754	2,604	70	12.5
US	1,542	15,423	921	60	6.0
UK and Europe	1,516	14,073	352	23	2.5
Total	6,802	50,250	3,877	57	7.7

		2017
	Annual premium	Present value of new business premiums (PVNBP) note 15	New business contribution	New business margin
	equivalents (APE) note 15			APE	PVNBP
	£m	£m	£m	%	%
Asia note (ii)	3,805	20,405	2,368	62	11.6
US	1,662	16,622	906	55	5.5
UK and Europe	1,491	13,784	342	23	2.5
Total	6,958	50,811	3,616	52	7.1

Note

After allowing for foreign exchange effects of £(118) million, the new business contribution hasincreased by £379 million on a CER basis. The increase is driven by a beneficial effect of pricing, product mix and other actions of £278 million reflecting ourstrategic emphasis on increasing salesfrom health and protection businessin Asia, together with changesin long-term interest rates and other economic assumptions(£83 million) and highersales volumes(a contribution of £18 million).

(ii) Asia new business contribution by business unit

	2018 £m	2017 £m
		AER	CER
China	149	133	131
Hong Kong	1,729	1,535	1,474
Indonesia	122	174	158
Taiwan	46	57	56
Other	558	469	463
Total	2,604	2,368	2,282

4 Operating profit from business in force

(i) Group summary for long-term business operations

		2018 £m
	Asia note (ii)	US note (iii)	UK and Europe note (iv)	Group Total
Unwind of discount and other expected returns	1,218	881	474	2,573
Effect of changesin operating assumptions	342	115	330	787
Experience variances and other items	223	198	218	639
Group total	1,783	1,194	1,022	3,999

		2017 £m
	Asia note (ii)	US note (iii)	UK and Europe note (iv)	Group Total
Unwind of discount and other expected returns	1,007	694	465	2,166
Effect of changesin operating assumptions	241	196	195	632
Experience variances and other items	89	347	13	449
Group total	1,337	1,237	673	3,247

Note

The movement in operating profit from businessin force of £752 million from £3,247 million for ²⁰¹⁷ to £3,999 million for ²⁰¹⁸ comprises: £m

Movement in unwind of discount and other expected returns:
Growth in opening value of in-force business	368
Effect of interest rates and other economic assumptions	101
Foreign exchange movements	(62)
	407
Movement in effect of changesin operating assumptions, experience variances and other items	345
Net movement in operating profit from businessin force	752

01 Group overview

06

4 Operating profit from business in force continued

(ii) Asia

	2018 £m	2017 £m
Unwind of discount and other expected returns note (a)	1,218	1,007
Effect of changesin operating assumptions note (b)	342	241
Experience variances and other items note (c)	223	89
Total	1,783	1,337

Notes

• (a) The £211 million increase in unwind of discount and other expected returnsfrom £1,007 million in 2017 to £1,218 million in 2018 is primarily driven by the growth in the in-force book and a positive £51 million impact from movementsin long-term interest rates and other economic assumptions, partially offset by a negative effect of foreign exchange movements of £(38) million.
• (b) The effects of changesin operating assumptions of £342 million reflectsthe outcome from the annual review of persistency, claims and expense experience together with the benefit of medical repricing management actions. It also reflects profits arising after reflection of a number of tax changes across a number of countries.
• (c) The £223 million effect of experience variances and other itemsin 2018 is driven by positive mortality and morbidity experiencesin a number of local business units, together with positive persistency variancesfrom participating and health and protection products.

(iii) US

	2018 £m	2017 £m
Unwind of discount and other expected returns note (a)	881	694
Effect of changesin operating assumptions note (b)	115	196
Experience variances and other items:
Spread experience variance	39	71
Amortisation of interest-related realised gains and losses	92	91
Other note (c)	67	185
	198	347
Total	1,194	1,237

Notes

(a) The £187 million increase in unwind of discount and other expected returnsfrom £694 million in 2017 to £881 million in 2018 reflects prior period growth in the in-force book, a £30 million benefit from a 30 basis point increase in theUS 10-year treasury yield in the year offset by a £(24) million negative effect for foreign exchange movements.

(b) The effect of operating assumption changes of £115 million (2017: £196) million mainly relatesto routine updatesfor persistency and policyholder utilisation.

(c) Other experience variances of £198 million include the effects of positive mortality and persistency experience in the year.

(iv) UK and Europe

	2018 £m	2017 £m
Unwind of discount and other expected returns note (a)	474	465
Change in longevity assumption basis note (b)	330	195
Other items note (c)	218	13
Total	1,022	673

Notes

(a) Unwind of discount and expected returnsfor 2018 is broadly consistent with 2017 and reflectsthe benefit from a 10 basis point increase in the 15-yearswap yields offset by the impact from the reinsurance of part of itsshareholder annuity portfolio to Rothesay Life as discussed in note 17.

(b) The credit of £330 million (2017: £195 million) relatesto changesto annuitant mortality assumptionsto reflect current mortality experience, which hasshown a slowdown in life expectancy improvementsin recent periods, and the adoption of the Continuous Mortality Investigation (CMI) 2016 model (2017: CMI 2015) model asthe basisfor future mortality improvements.

(c) Other items comprise the following:

	2018 £m	2017 £m
Longevity reinsurance	–	(6)
Impact ofspecific management actionsto improve solvency position	141	127
Provision for cost of undertaking past non-advised annuity salesreview and related redress note (d)	–	(187)
Insurance recoveriesin respect of the above costs note (d)	138	–
Provision for guaranteed minimum pension equalisation note (e)	(48)	–
Other	(13)	79
	218	13

(d) TheUK business has agreed with the Financial Conduct Authority (FCA) to review annuitiessold without advice after 1 July 2008 to its contract-based defined contribution pension customers. A gross provision of £(330) million, post-tax and before costsincurred, was established at 31 December 2017, of which £(187) million was charged in full year 2017. During 2018, theGroup agreed with its professional indemnity insurersthat they will meet £166 million of theGroup's claims costs, which will be paid astheGroup incurs costs/redress. This has been recognised on theGroup balance sheet at 31 December 2018 and a post-tax credit of £138 million isrecognised in the EEV operating profit. For more details, refer to note C11 of the IFRS financialstatements.

(e) An allowance has been made for higherliabilitiesthat may arise when applying the recentHighCourt decision to equalise guaranteed minimum pension (GMP) benefits between males and femalesfor certain pension productssold by theUKbusiness.

5 Short-term fluctuations in investment returns

(i) Group summary

	2018 £m	2017 £m
Asia operations note (ii)	(1,029)	887
US operations note (iii)	(1,481)	582
UK and Europe operations note (iv)	(721)	621
Other operations	12	21
Group total	(3,219)	2,111

(ii) Asia operations

	2018 £m	2017 £m
Hong Kong	(552)	531
Singapore	(233)	126
Other	(244)	230
Total	(1,029)	887

Note

For 2018, the charge of £(1,029) million mainly representsthe reduction of bond and equity valuesinHong Kong and lower than expected investment returns on participating and unit-linked businessin Indonesia, Singapore and Malaysia.

(iii) US operations

	2018 £m	2017 £m
Investment return related experience on fixed income securities note (a)	60	(46)
Investment return related impact due to changed expectation of profits on in-force
variable annuity businessin future periods based on current year
separate account return, net of related hedging activity and other items note (b)	(1,541)	628
Total	(1,481)	582

Notes

(a) The net result relating to fixed income securitiesreflects a number of offsetting items asfollows:

– The impact on portfolio yields of changesin the asset portfolio in the year;

– The difference between actual realised gains and losses and the amortisation of interest-related realised gains and lossesthat isrecorded within operating profit; and – Credit experience (versusthe longer-term assumption).

(b) Thisitem reflectsthe net impact of:

– Changesin projected future fees and future benefit costs arising from the difference between the actual growth in separate account asset values of negative (5.4) per cent and that assumed of 6.2 per cent (2017: actual growth of 17.5 per cent compared to assumed growth of 5.9 per cent); and

– Related hedging activity arising from realised and unrealised gains and losses on equity-related hedges and interest rate options, and other items.

(iv) UK and Europe operations

	2018 £m	2017 £m
Insurance operations:
Shareholder-backed annuity business	(151)	387
With-profits and other business	(557)	229
Asset management	(13)	5
Total	(721)	621

Note

The £(721) million fluctuation in 2018 primarily representsthe impact of achieving a (2.5) per cent pre-tax return on the with-profitsfund (including unallocated surplus) compared to the assumed rate of return of 4.2 per cent (2017: achieved return of 9 per cent compared to assumed rate of 5 per cent), partially offset by the effect of a partial hedge of future shareholder transfers expected to emerge from theUK's with-profitssub-fund entered into to protect future shareholder with-profit transfersfrom movementsin theUK equity market. It also reflects losses on corporate bonds backing shareholder annuity business, reflecting changesto interest rates and creditspreads over the period.

06

6 Effect of changes in economic assumptions

(i) Group summary for long-term business operations

	2018 £m	2017 £m
Asia note (ii)	115	(95)
US note (iii)	197	(136)
UK and Europe note (iv)	(166)	129
Group total	146	(102)

(ii) Asia

	2018 £m	2017 £m
Hong Kong	165	(321)
Indonesia	(94)	81
Malaysia	(19)	59
Singapore	70	131
Other	(7)	(45)
Total	115	(95)

Note

The positive effect in 2018 of £115 million largely arisesfrom movementsin long-term interest rates, resulting in higher assumed fund earned ratesinHong Kong and Singapore, partially offset by the impact of valuing future profitsfor health and protection business at higher discount ratesin Indonesia and Malaysia.

(iii) US

	2018 £m	2017 £m
Variable annuity business	365	(101)
Fixed annuity and other general account business	(168)	(35)
Total	197	(136)

Note

For 2018, the credit of £197 million mainly reflectsthe increase in the assumed separate account return following the 30 basis pointsincrease in theUS 10-year treasury yield over the year, resulting in higher projected fee income and a decrease in projected benefit costsfor variable annuity business. For fixed annuity and other general account business, the impact reflects the effect on the present value of future projected spread income from the combined increase in interest rates and creditspreadsin the year. In June 2018, theNational Association of Insurance Commissioners(NAIC) formally approved changesto RBC capital factorsthat reflected the December 2017US tax reform. Consequently, the effect of changesin economic assumptionsfor 2018 of £197 million includes a negative £(23) million impact resulting from these changes.

(iv) UK and Europe

	2018 £m	2017 £m
Shareholder-backed annuity business	1	28
With-profits and other business	(167)	101
Total	(166)	129

Note

The charge of £(166) million includesthe impact of the movement in expected long-term rates of investment return, resulting from market movements and changesin the asset mix in the year, and risk discount rates. In addition, the effect of changesin economic assumptionsfor with-profits and other business of £(167) million includes a £(78) million charge for the effect on lower fund earned rates on equities and property as a result of the change inUK indexation of capital gainsrules effective from 1 January 2018.

7 Net core structural borrowings of shareholder-financed businesses

	31 Dec 2018 £m			31 Dec 2017 £m
	IFRS basis	Mark to market value adjustment	EEV basis at market value	IFRS basis	Mark to market value adjustment	EEV basis at market value
Holding company (including central finance subsidiaries) cash and short-term
investments	(3,236)	–	(3,236)	(2,264)	–	(2,264)
Central funds
Subordinated debt	6,676	(44)	6,632	5,272	515	5,787
Senior debt	517	174	691	549	167	716
	7,193	130	7,323	5,821	682	6,503
Bank loan	275	–	275	–	–	–
Holding company net borrowings	4,232	130	4,362	3,557	682	4,239
Prudential Capital bank loan	–	–	–	275	–	275
Jackson surplus notes	196	53	249	184	61	245
Group total	4,428	183	4,611	4,016	743	4,759

Note

In October 2018, the Company issued three tranches ofsubstitutable core structural borrowings as part of the processrequired before demerger, to rebalance debt across M&GPrudential and Prudential plc. Total proceeds, net of costs, were £1,630 million. In December 2018, the Company paid £434 million to redeem itsUS\$550 million 7.75 per cent Tier 1 perpetualsubordinated notes. The movement in the value of core structural borrowings also includesforeign exchange effectsforUS dollar denominated debts. For more details on the core structural borrowings, refer to note C6.1 of the IFRS financialstatement.

02

06

8 Reconciliation of movement in shareholders' equity

	2018 £m
	Asia operations note (i)	US operations	UK and Europe operations	Other operations note (i)	Group total note (iv)
Long-term business: New business note 3 Businessin force note 4	2,604 1,783	921 1,194	352 1,022	– –	3,877 3,999
Asset management and general insurance commission Restructuring costs Other results	4,387 159 (19) –	2,115 3 (17) –	1,374 407 (109) –	– – (11) (726)	7,876 569 (156) (726)
Operating profit based on longer-term investment returns Non-operating items Non-controlling interests	4,527 (925) (1)	2,101 (1,313) –	1,672 (1,263) –	(737) 526 (2)	7,563 (2,975) (3)
Profit for the year attributable to equity holders of the Company	3,601	788	409	(213)	4,585
Other items taken directly to equity: Exchange movements on foreign operations and net investment hedges Intra-group dividends and investment in operations note (ii) External dividends Mark to market value movements on Jackson assets backing	1,028 (1,177) –	862 (337) –	– (447) –	(184) 1,961 (1,244)	1,706 – (1,244)
surplus and required capital Other movements note (iii)	– 81	(95) (20)	– (5)	– 76	(95) 132
Net increase in shareholders' equity Shareholders' equity at beginning of year	3,533 21,348	1,198 13,492	(43) 13,627	396 (3,769)	5,084 44,698
Shareholders' equity at end of year	24,881	14,690	13,584	(3,373)	49,782
Representing: IFRS basisshareholders' equity: Net assets(liabilities) Goodwill	5,921 247	5,624 –	7,547 1,153	(3,494) 251	15,598 1,651
IFRS basisshareholders' equity Additional retained profit (loss) on an EEV basis	6,168 18,713	5,624 9,066	8,700 4,884	(3,243) (130)	17,249 32,533
EEV basisshareholders' equity	24,881	14,690	13,584	(3,373)	49,782
Balance at beginning of year: IFRS basisshareholders' equity: Net assets(liabilities) Goodwill	5,620 61	5,248 –	7,092 1,153	(3,331) 244	14,629 1,458
IFRS basisshareholders' equity Additional retained profit (loss) on an EEV basis	5,681 15,667	5,248 8,244	8,245 5,382	(3,087) (682)	16,087 28,611
EEV basisshareholders' equity	21,348	13,492	13,627	(3,769)	44,698

Notes

• (i) Other operations of £(3,373) million representsthe shareholders' equity of £(3,624) million asshown in the movement in shareholders' equity and includes goodwill of £251 million (2017: £244 million) related to Asia long-term operations.
• (ii) Intra-group dividendsrepresent dividendsthat have been declared in the year and investment in operationsreflect movementsin share capital. The amountsincluded for these itemsin the analysis of movement in free surplus(note 10) are as per the holding company cash flow at transaction rates. The difference primarily relatesto intra-group loans, foreign exchange and other non-cash items.
• (iii) Other movementsinclude reserve movementsin respect of the shareholders'share of actuarial gains and losses on defined benefit pension schemes,share capitalsubscribed, share-based payments and treasury shares and intra-group transfers between operations which have no overall effect on theGroup's embedded value. Also included isthe put option recognised on acquisition of TMB Asset Management Co., Ltd. as discussed in note D1.2 of the IFRS financialstatements.
• (iv) Group total EEV basisshareholders' equity can be further analysed asfollows:

	31 Dec 2018 £m				31 Dec 2017 £m
	Total long-term business operations note 9	Asset management and general insurance commission	Other operations note (v)	Group total	Total long-term business operations note 9	Asset management and general insurance commission	Other operations note (v)	Group total
IFRS basisshareholders' equity Additional retained profit (loss) on an	17,725	2,767	(3,243)	17,249	16,624	2,550	(3,087)	16,087
EEV basis note (v) EEV basisshareholders' equity	32,663 50,388	– 2,767	(130) (3,373)	32,533 49,782	29,293 45,917	– 2,550	(682) (3,769)	28,611 44,698

(v) The additional retained loss on an EEV basisfor other operationsrepresentsthe mark to market value adjustment for holding company net borrowings of a cumulative charge of £(130) million (31 December 2017: £(682) million) asshown in note 7.

06

9 Analysis of movement in net worth and value of in-force for long-term business

		2018 £m
	Free surplus	Required capital	Total net worth	Value of in-force business note (i)	Total embedded value
Group
Shareholders' equity at beginning of year	6,242	10,265	16,507	29,410	45,917
New business contribution note 3	(815)	619	(196)	4,073	3,877
Existing business – transfer to net worth	3,439	(776)	2,663	(2,663)	–
Expected return on existing business note 4	201	195	396	2,177	2,573
Changesin operating assumptions and
experience variances note 4	778	69	847	579	1,426
Restructuring costs	(68)	–	(68)	(20)	(88)
Operating profit based on longer-term
investment returns	3,535	107	3,642	4,146	7,788
Non-operating items	(720)	(730)	(1,450)	(2,008)	(3,458)
Profit for the year	2,815	(623)	2,192	2,138	4,330
Exchange movements on foreign operations and
net investment hedges	201	206	407	1,465	1,872
Intra-group dividends and investment in operations	(1,654)	–	(1,654)	–	(1,654)
Other movements	(77)	–	(77)	–	(77)
Shareholders' equity at end of year	7,527	9,848	17,375	33,013	50,388
Asia
New business contribution note 3	(488)	158	(330)	2,934	2,604
Existing business – transfer to net worth	1,370	(253)	1,117	(1,117)	–
Expected return on existing business note 4	68	55	123	1,095	1,218
Changesin operating assumptions and
experience variances note 4	62	185	247	318	565
Operating profit based on longer-term
investment returns	1,012	145	1,157	3,230	4,387
Non-operating items	(393)	15	(378)	(547)	(925)
Profit for the year	619	160	779	2,683	3,462
US New business contribution note 3	(225)	288	63	858	921
Existing business – transfer to net worth	1,462	(171)	1,291	(1,291)	–
Expected return on existing business note 4	54	69	123	758	881
Changesin operating assumptions and
experience variances note 4	125	6	131	182	313
Restructuring costs	(17)	–	(17)	–	(17)
Operating profit based on longer-term investment returns	1,399	192	1,591	507	2,098
Non-operating items note (ii)	(812)	164	(648)	(635)	(1,283)
Profit for the year	587	356	943	(128)	815

	2018 £m
	Free surplus	Required capital	Total net worth	Value of in-force business note (i)	Total embedded value
UK and Europe
New business contribution note 3	(102)	173	71	281	352
Existing business – transfer to net worth	607	(352)	255	(255)	–
Expected return on existing business note 4	79	71	150	324	474
Changesin operating assumptions and
experience variances note 4	591	(122)	469	79	548
Restructuring costs	(51)	–	(51)	(20)	(71)
Operating profit based on longer-term
investment returns	1,124	(230)	894	409	1,303
Non-operating items	485	(909)	(424)	(826)	(1,250)
Profit for the year	1,609	(1,139)	470	(417)	53

Notes

(i) The net value of in-force business comprisesthe value of future marginsfrom current in-force businesslessthe cost of holding required capital for long-term business as

shown below:	31 Dec 2018 £m				31 Dec 2017 £m
	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
Value of in-force business before deduction of cost of capital and time value of guarantees Cost of capital Cost of time value of guarantees*	21,867 (566) (981)	11,811 (296) (1,446)	3,083 (459) –	36,761 (1,321) (2,427)	17,539 (588) (186)	10,486 (232) (650)	3,648 (607) –	31,673 (1,427) (836)
Net value of in-force business Total net worth	20,320 4,009	10,069 4,581	2,624 8,785	33,013 17,375	16,765 4,182	9,604 3,653	3,041 8,672	29,410 16,507
Total embedded value note 8(iv)	24,329	14,650	11,409	50,388	20,947	13,257	11,713	45,917

* The cost oftime value of guarantees arisesfromthe variability of economic outcomesin the future and is, where appropriate, calculated asthe difference between a fullstochastic valuation and a single deterministic valuation as described in note 13(i)(d). Both valuationsreflectthe level of policyholder benefits(including guaranteed benefits and discretionary bonuses) and associated charges, together withmanagement actionsin response to emerging investment and fund solvency conditions. The increase in the cost oftime value of guaranteesforAsia operationsfrom£(186)million at 31 December 2017 to £(981)million at 31 December 2018 reflectsthe interaction between these effects on the two valuations at the respective level ofinterestrates and equitymarkets, as well as growth in the business overthe year. The increase in the cost oftime value of guaranteesfortheUS operationsfrom £(650)million at 31 December 2017 to £(1,446)million at 31 December 2018 primarily reflectsthe reduction inUS equitymarkets during the fourth quarter of 2018.

(ii) In June 2018, theNational Association of Insurance Commissioners(NAIC) formally approved changesto RBC capital factorsthat reflected the December 2017US tax reform. The 2018 EEV resultsreflect these changes, with a resulting increase in required capital and a corresponding reduction in free surplus of £(165) million.

Strategic

01

report

06

10 Analysis of movement in free surplus

For EEV covered business, free surplusisthe excess of the regulatory basis net assetsfor EEV reporting purposes(net worth) over the capital required to support the covered business. Where appropriate, adjustments are made to the net worth so that backing assets are included at fair value rather than costso asto comply with the EEV Principles. In Asia and theUS operations, assets deemed to be inadmissible on local regulatory basis are included in net worth where considered fully recognisable on an EEV basis. Free surplusfor asset management operations and theUK general insurance commission istaken to be IFRS basis post-tax earnings and shareholders' equity net of goodwill. Free surplusfor other operations(includingGroup and Asia RegionalHead Office, holding company borrowings, Africa operations and Prudential Capital) istaken to be EEV basis post-tax earnings and shareholders' equity net of goodwill, with subordinated debt recorded asfree surplusto the extent that it is classified as available capital under Solvency II.

(i) Underlying free surplus generated – insurance and asset management operations

The 2017 comparative results are shown below on both actual exchange rates(AER) and constant exchange rates(CER) bases. The 2017 CER comparative results are translated at 2018 average exchange rates.

	2018 £m	2017 £m		% change
		AER	CER	AER	CER
Asia operations Underlying free surplus generated from in-force life business Investment in new business note (iii)(a)	1,500 (488)	1,407 (484)	1,343 (466)	7% (1)%	12% (5)%
Long-term business Asset management	1,012 159	923 155	877 150	10% 3%	15% 6%
Total	1,171	1,078	1,027	9%	14%
US operations Underlying free surplus generated from in-force life business Investment in new business note (iii)(a)	1,641 (225)	1,575 (254)	1,520 (245)	4% 11%	8% 8%
Long-term business Asset management	1,416 3	1,321 7	1,275 7	7% (57)%	11% (57)%
Total	1,419	1,328	1,282	7%	11%
UK and Europe operations Underlying free surplus generated from in-force life business Investment in new business note (iii)(a)	1,277 (102)	1,070 (175)	1,070 (175)	19% 42%	19% 42%
Long-term business General insurance commission	1,175 15	895 13	895 13	31% 15%	31% 15%
Total insurance operations Asset management	1,190 392	908 403	908 403	31% (3)%	31% (3)%
Total	1,582	1,311	1,311	21%	21%
Underlying free surplus generated from insurance and asset management operations before restructuring costs	4,172	3,717	3,620	12%	15%
Restructuring costs	(125)	(77)	(77)	(62)%	(62)%
Underlying free surplus generated from insurance and asset management operations	4,047	3,640	3,543	11%	14%

	2018 £m	2017 £m		% change
		AER	CER	AER	CER
Representing: Expected in-force cash flows(including expected return on net assets)	3,640	3,417	3,315	7%	10%
Effects of changesin operating assumptions, operating experience variances and other items before restructuring costs	778	635	618	23%	26%
Underlying free surplus generated from in-force life business before restructuring costs Investment in new business note (iii)(a)	4,418 (815)	4,052 (913)	3,933 (886)	9% 11%	12% 8%
Total long-term business Asset management and general insurance commission Restructuring costs	3,603 569 (125)	3,139 578 (77)	3,047 573 (77)	15% (2)% (62)%	18% (1)% (62)%
	4,047	3,640	3,543	11%	14%

(ii) Underlying free surplus generated – Group total

	2018 £m		2017 £m		% change
		AER	CER	AER	CER
Underlying free surplus generated from
insurance and asset management operations note (i)	4,047	3,640	3,543	11%	14%
Other income and expenditure	(737)	(756)	(750)	3%	2%
Group total	3,310	2,884	2,793	15%	19%

(iii) Movement in free surplus

	2018 £m
	Asia operations	US operations	UK and Europe operations	Total insurance and asset management operations	Other operations	Group total
Underlying free surplus generated before
restructuring costs	1,171	1,419	1,582	4,172	(726)	3,446
Restructuring costs	(19)	(17)	(89)	(125)	(11)	(136)
Underlying free surplus generated notes (i)(ii)	1,152	1,402	1,493	4,047	(737)	3,310
Non-operating items note (b)	(393)	(842)	472	(763)	(22)	(785)
	759	560	1,965	3,284	(759)	2,525
Net cash flowsto parent company note (c)	(699)	(342)	(691)	(1,732)	1,732	–
External dividends	–	–	–	–	(1,244)	(1,244)
Exchange rate movements, timing differences
and other items note (d)	(496)	21	239	(236)	1,505	1,269
Net movement in free surplus	(436)	239	1,513	1,316	1,234	2,550
Balance at beginning of year	2,470	1,928	3,180	7,578	1,774	9,352
Balance at end of year	2,034	2,167	4,693	8,894	3,008	11,902

02

06

10 Analysis of movement in free surplus continued

(iii) Movement in free surplus continued

	2017 £m
	Asia operations	US operations	UK and Europe operations	Total insurance and asset management operations	Other operations	Group total
Underlying free surplus generated before restructuring costs Restructuring costs	1,078 (14)	1,328 –	1,311 (63)	3,717 (77)	(746) (10)	2,971 (87)
Underlying free surplus generated notes(i)(ii)	1,064	1,328	1,248	3,640	(756)	2,884
Non-operating items note (b)	330	(1,203)	572	(301)	27	(274)
Net cash flowsto parent company note (c)	1,394	125	1,820	3,339	(729)	2,610
External dividends	(645)	(475)	(668)	(1,788)	1,788	–
Exchange rate movements, timing differences	–	–	–	–	(1,159)	(1,159)
and other items note (d)	(421)	(140)	22	(539)	226	(313)
Net movement in free surplus	328	(490)	1,174	1,012	126	1,138
Balance at beginning of year	2,142	2,418	2,006	6,566	1,648	8,214
Balance at end of year	2,470	1,928	3,180	7,578	1,774	9,352

Notes

(a) Free surplusinvested in new business primarily represents acquisition costs and amountsset aside for required capital.

(b) Non-operating itemsinclude short-term fluctuationsin investment returns, the effect of changesin economic assumptionsfor long-term business operations and the effect of corporate transactions as described in note 17. In addition, for 2018 thisincludesthe impact of a capital modelling enhancement in theUK and in theUS changesto RBC factors following theUS tax reform, which were formally approved by theNational Association of Insurance Commissioners(NAIC) in June 2018. For 2017 thisincluded the impact ofUS tax reform (see note 16).

(c) Net cash flowsto parent company for long-term business operationsreflect the flows asincluded in the holding company cash flow at transaction rates.

(d) Exchange rate movements, timing differences and other itemsrepresent:

	2018 £m
	Asia operations	US operations	UK and Europe operations	Total insurance and asset management operations	Other operations	Group total
Exchange rate movements	88	131	–	219	(6)	213
Mark to market value movements on Jackson assets backing surplus and required capital Other items note (e)	– (584)	(95) (15)	– 239	(95) (360)	– 1,511	(95) 1,151
	(496)	21	239	(236)	1,505	1,269

	2017 £m
	Asia operations	US operations	UK and Europe operations	Total insurance and asset management operations	Other operations	Group total
Exchange rate movements	(113)	(190)	6	(297)	(13)	(310)
Mark to market value movements on Jackson assets
backing surplus and required capital	–	40	–	40	–	40
Other items note (e)	(308)	10	16	(282)	239	(43)
	(421)	(140)	22	(539)	226	(313)

(e) Other itemsinclude the effect of the net issuance of £1.2 billion ofsubordinated debt for other operationsin 2018, intra-group loans and other intra-group transfers between operations and other non-cash items.

11 Expected transfer of value of in-force business and required capital to free surplus

The discounted value of in-force business and required capital for long-term business operations can be reconciled to the 2018 and 2017 total emergence of free surplus asfollows:

	2018 £m	2017 £m
Required capital note 9	9,848	10,265
Value of in-force business(VIF) note 9	33,013	29,410
Add back: deduction for cost of time value of guarantees note 9	2,427	836
Other items*	(2,169)	(1,371)
Total long-term business operations	43,119	39,140

* 'Otheritems'represent amountsincorporated intoVIF where there is no definitive time frame for when the payments will bemade orreceiptsreceived. In particular, otheritemsinclude the deduction ofthe shareholders' interestin the with-profits estate,the value of which is derived by increasing final bonusratesso asto exhaust the estate overthe lifetime ofthe in-force with-profits business. Thisis an assumption to give an appropriate valuation. To be conservative thisitemis excluded fromthe expected free surplus generation profile below.

Cash flows are projected on a deterministic basis and are discounted at the appropriate risk discount rate. The modelled cash flows use the same methodology underpinning theGroup's EEV reporting and so are subject to the same assumptions and sensitivities. The table below shows how the VIF generated by the in-force business and the associated required capital for long-term business

operationsis modelled as emerging into free surplus over future years.

		2018 £m Expected period of conversion of future post-tax distributable earnings and required capital flows to free surplus
	2018 total as shown above	1-5 years	6-10 years	11-15 years	16-20 years	21-40 years	40+ years
Asia	23,332	6,276	4,185	2,762	2,053	5,399	2,657
US	13,294	6,928	4,094	1,771	378	123	–
UK and Europe	6,493	2,616	1,713	1,053	633	476	2
Total	43,119	15,820	9,992	5,586	3,064	5,998	2,659
	100%	37%	23%	13%	7%	14%	6%

		2017 £m
		Expected period of conversion of future post-tax distributable earnings and required capital flows to free surplus
	2017 total as shown above	1-5 years	6-10 years	11-15 years	16-20 years	21-40 years	40+ years
Asia	18,692	5,583	3,638	2,418	1,655	3,845	1,553
US	12,455	6,247	3,993	1,697	401	117	–
UK and Europe	7,993	3,012	2,066	1,289	899	704	23
Total	39,140	14,842	9,697	5,404	2,955	4,666	1,576
	100%	38%	25%	14%	7%	12%	4%

12 Sensitivity of results to alternative assumptions

(i) Sensitivity analysis – economic assumptions

The tables below show the sensitivity of the embedded value as at 31 December 2018 and 31 December 2017 and the new business contribution after the effect of required capital for 2018 and 2017 for long-term business operationsto:

• 1 per cent increase in the discount rates;
• 1 per cent increase in interest rates and risk discount rates, including consequential changes(assumed investment returnsfor all asset classes, market values of fixed interest assets);
• 0.5 per cent decrease in interest rates and risk discount rates, including consequential changes(assumed investment returnsfor all asset classes, market values of fixed interest assets);
• 1 per cent rise in equity and property yields;
• 10 per cent fall in market value of equity and property assets(embedded value only);
• The statutory minimum capital level in contrast to EEV basisrequired capital (embedded value only); and
• 5 basis pointsincrease inUK long-term expected defaults.

In each sensitivity calculation, all other assumptionsremain unchanged except where they are directly affected by the revised economic conditions.

04

06

12 Sensitivity of results to alternative assumptions continued

(i) Sensitivity analysis – economic assumptions continued New business contribution from long-term business operations

	2018 £m				2017 £m
	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
New business contribution note 3	2,604	921	352	3,877	2,368	906	342	3,616
Discount rates – 1% increase Interest rates – 1% increase Interest rates – 0.5%decrease Equity/property yields – 1% rise Long-term expected defaults –	(549) (202) 58 130	(42) 94 (66) 115	(33) 43 (23) 45	(624) (65) (31) 290	(477) (103) (59) 130	(34) 124 (85) 130	(48) 44 (23) 52	(559) 65 (167) 312
5 bpsincrease	–	–	–	–	–	–	(1)	(1)

Embedded value of long-term business operations

	31 Dec 2018 £m				31 Dec 2017 £m
	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
Shareholders' equity note 8	24,329	14,650	11,409	50,388	20,947	13,257	11,713	45,917
Discount rates – 1% increase Interest rates – 1% increase Interest rates – 0.5%decrease Equity/property yields – 1% rise Equity/property market values –	(3,292) (1,564) 366 1,041	(513) 119 (273) 1,011	(648) (668) 363 377	(4,453) (2,113) 456 2,429	(2,560) (944) 121 873	(440) 26 (166) 896	(774) (635) 384 425	(3,774) (1,553) 339 2,194
10% fall Statutory minimum capital Long-term expected defaults – 5 bpsincrease	(473) 110 –	(498) 217 –	(461) – (76)	(1,432) 327 (76)	(429) 169 –	(209) 158 –	(479) – (135)	(1,117) 327 (135)

The sensitivitiesshown above are for the impact of instantaneous changes on the embedded value of long-term business operations and include the combined effect on the value of in-force business and net assets at the balance sheet datesindicated. If the change in assumptionsshown in the sensitivities were to occur, then the effectshown above would be recorded within two components of the profit analysisfor the following year, namely the effect of economic assumption changes and short-term fluctuationsin investment returns. In addition to the sensitivity effectsshown above, the other components of the profit for the following year would be calculated by reference to the altered assumptions, for example new business contribution and unwind of discount, together with the effect of other changessuch as altered corporate bond spreads. In addition for changesin interest rates, the effectshown above for Jackson would also be recorded within the fair value movements on assets backing surplus and required capital, which are taken directly to shareholders' equity.

(ii) Sensitivity analysis – non-economic assumptions

The tables below show the sensitivity of the embedded value as at 31 December 2018 and 31 December 2017 and the new business contribution after the effect of required capital for 2018 and 2017 for long-term business operationsto:

• 10 per cent proportionate decrease in maintenance expenses(for example a 10 per centsensitivity on a base assumption of £10 per annum would represent an expense assumption of £9 per annum);
• 10 per cent proportionate decrease in lapse rates(for example a 10 per centsensitivity on a base assumption of 5 per cent would represent a lapse rate of 4.5 per cent per annum); and
• 5 per cent proportionate decrease in base mortality and morbidity rates(ie increased longevity).

New business contribution from long-term business operations

	2018 £m				2017 £m
	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
New business contribution note 3	2,604	921	352	3,877	2,368	906	342	3,616
Maintenance expenses – 10%decrease Lapse rates – 10% decrease Mortality andmorbidity – 5%decrease	40 154 70	11 24 4	2 17 1	53 195 75	38 133 69	14 24 4	3 20 (2)	55 177 71

Embedded value of long-term business operations

	31 Dec 2018 £m				31 Dec 2017 £m
	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
Shareholders' equity note 8	24,329	14,650	11,409	50,388	20,947	13,257	11,713	45,917
Maintenance expenses – 10%decrease	254	178	80	512	213	169	64	446
Lapse rates – 10% decrease	972	619	87	1,678	753	659	64	1,476
Mortality and morbidity – 5%decrease	835	141	(294)	682	668	214	(442)	440
Change representing effect on:
Life business	835	196	13	1,044	668	214	13	895
Annuities	–	(55)	(307)	(362)	–	–	(455)	(455)

13 Methodology and accounting presentation

(i) Methodology

Overview

The embedded value isthe present value of the shareholders' interest in the earnings distributable from assets allocated to covered business aftersufficient allowance has been made for the aggregate risksin that business. The shareholders' interest in theGroup's long-term business comprises:

• The present value of future shareholder cash flowsfrom in-force covered business(value of in-force business), less deductionsfor:
  • The cost of locked-in required capital; and
  • The time value of cost of options and guarantees;
• Locked-in required capital; and
• The shareholders' net worth in excess of required capital (free surplus).

The value of future new businessis excluded from the embedded value.

Notwithstanding the basis of presentation of results as explained in note 13(ii)(c), no smoothing of market or account balance values, unrealised gains or investment return is applied in determining the embedded value or profit. Separately, the analysis of profit is delineated between operating profit based on longer-term investment returns and other constituent items, as explained in note 13(ii)(a).

(a) Covered business

The EEV resultsfor theGroup are prepared for 'covered business', as defined by the EEV Principles. Covered businessrepresentsthe Group'slong-term insurance business, including theGroup'sinvestmentsin joint venture and associate insurance operations, for which the value of new and in-force contractsis attributable to shareholders. The post-tax EEV basisresultsfor theGroup's covered business are then combined with the post-tax IFRS basisresults of theGroup's asset management and other operations(includingGroup and Asia RegionalHead Office, holding company borrowings, Africa operations and Prudential Capital).Under the EEV Principles, the resultsfor covered businessincorporate the projected margins of attaching internal asset management, as described in note 13(i)(g).

The definition of long-term business operations comprisesthose contractsfalling under the definition for regulatory purposes together with, forUS operations, contractsthat are in substance the same as guaranteed investment contracts(GICs) but do not fall within the technical definition.

Covered business comprisestheGroup'slong-term business operations, with two exceptions:

• The closed Scottish Amicable Insurance Fund (SAIF) which is excluded from covered business. SAIF is a ring-fenced sub-fund of The Prudential Assurance Company Limited (PAC) long-term fund, established by a Court Approved Scheme of Arrangement in October 1997. SAIF is closed to new business and the assets and liabilities ofthe fund are wholly attributable to the policyholders ofthe fund; and
• The presentational treatment of theGroup's principal defined benefit pension scheme, the Prudential Staff Pension Scheme (PSPS). The partial recognition of the surplusfor PSPS isrecognised in 'Other' operations.

A small amount ofUK group pensions businessis also not modelled for EEV reporting purposes.

01 Group overview

02 Strategic report

03 Governance

04 Directors'

remuneration report

05

Financialstatements

13 Methodology and accounting presentation continued

(i) Methodology continued

(b) Valuation of in-force and new business

The embedded value results are prepared incorporating best estimate assumptions about all relevant factorsincluding levels of future investment returns, expenses, persistency, mortality and morbidity, as described in note 14(vii). These assumptions are used to project future cash flows. The present value of the future cash flowsisthen calculated using a discount rate which reflects both the time value of money and the non-diversifiable risks associated with the cash flowsthat are not otherwise allowed for.

New business

In determining the EEV basis value of new business, premiums are included in projected cash flows on the same basis of distinguishing annual and single premium business asset out forstatutory basisreporting.

New business premiumsreflect those premiums attaching to covered business, including premiumsfor contracts classified as investment productsfor IFRS basisreporting.New business premiumsfor regular premium products are shown on an annualised basis. Internal vesting businessis classified as new business where the contractsinclude an open market option.

The post-tax contribution from new businessrepresents profits determined by applying operating and economic assumptions as at the end of the year.New business profitability is a key metric for theGroup's management of the development of the business. In addition, post-tax new business margins are shown by reference to annual premium equivalents(APE) and the present value of new business premiums(PVNBP). These margins are calculated asthe percentage of the value of new business profit to APE and PVNBP. APE is calculated asthe aggregate of regular premiums on new business written in the period and one-tenth ofsingle premiums. PVNBP is calculated asthe aggregate ofsingle premiums and the present value of expected future premiumsfrom regular premium new business, allowing for lapses and the other assumptions made in determining the EEV new business contribution.

Valuation movements on investments

With the exception of debtsecurities held by Jackson, investment gains and losses during the year (to the extent that changesin capital values do not directly match changesin liabilities) are included directly in the profit for the year and shareholders' equity asthey arise.

The resultsfor any covered business conceptually reflect the aggregate of the IFRS results and the movements on the additional shareholders' interest recognised on the EEV basis. Thusthe start point for the calculation of the EEV resultsfor Jackson, asfor other businesses, reflectsthe market value movementsrecognised on an IFRS basis.

However, in determining the movements on the additionalshareholders' interest, the basisfor calculating the EEV result for Jackson acknowledgesthat, for debtsecurities backing liabilities, the aggregate EEV resultsreflect the fact that the value of in-force business instead incorporatesthe discounted value of future spread earnings. This value is not affected generally by short-term market movements on securitiesthat, broadly speaking, are held for the longer term.

Fixed income securities backing the free surplus and required capital for Jackson are accounted for at fair value.However, consistent with the treatment applied under IFRS for Jackson securities classified as available-for-sale, movementsin unrealised appreciation/ depreciation on these securities are accounted for in equity rather than in the income statement, asshown in the movement in shareholders' equity.

(c) Cost of capital

A charge is deducted from the embedded value for the cost of locked-in required capitalsupporting theGroup'slong-term business. The cost isthe difference between the nominal value of the capital and the discounted value of the projected releases of this capital, allowing for post-tax investment earnings on the capital.

The annual result is affected by the movement in this cost from year to year which comprises a charge against new business profit and generally a release in respect of the reduction in capital requirementsfor businessin force asthisruns off.

Where required capital is held within a with-profitslong-term fund, the value placed on surplus assetsin the fund is already discounted to reflect its expected release over time and no further adjustment is necessary in respect of required capital.

(d) Financial options and guarantees

Nature of financial options and guarantees in Prudential's long-term business Asia

Subject to local market circumstances and regulatory requirements, the guarantee features described below in respect ofUK and Europe business broadly apply to similar types of participating contractsin Asia which are principally written inHong Kong, Singapore and Malaysia. Participating products have both guaranteed and non-guaranteed elements.

There are also various non-participating long-term products with guarantees. The principal guarantees are those for whole-of-life contracts with floor levels of policyholder benefitsthat accrue at ratesset at inception and do not vary subsequently with market conditions.

02

04

06

US (Jackson)

The principal financial options and guaranteesin Jackson are associated with the fixed annuity (FA) and variable annuity (VA) lines of business.

Fixed annuities provide that, at Jackson's discretion, it may reset the interest rate credited to policyholders' accounts,subject to a guaranteed minimum. The guaranteed minimum return variesfrom 1.0 per cent to 5.5 per cent for both years, depending on the particular product, jurisdiction where issued, and date of issue. At 31 December 2018, 88 per cent of the account values on fixed annuities are for policies with guarantees of 3 per cent or less(31 December 2017: 87 per cent), and the average guarantee rate is 2.6 per cent for both years.

Fixed annuities also present a risk that policyholders will exercise their option to surrender their contractsin periods of rapidly rising interest rates, possibly requiring Jackson to liquidate assets at an inopportune time.

Jackson issues variable annuity (VA) contractsfor which it contractually guaranteesto the contract holder,subject to specific conditions, either: a) return of no lessthan total deposits made to the contract adjusted for any partial withdrawals; b) total deposits made to the contract adjusted for any partial withdrawals plus a minimum return; or c) the highest contract value on a specified anniversary date adjusted for any withdrawalsfollowing the specified contract anniversary. These guaranteesinclude benefitsthat are payable upon depletion of funds(Guaranteed Minimum Withdrawal Benefit (GMWB)), as death benefits(Guaranteed Minimum Death Benefits (GMDB)) or asincome benefits(Guaranteed Minimum Income Benefits(GMIB)). These guarantees generally protect the policyholders' value in the event of poor equity market performance. Jackson hedgestheGMWB andGMDB guaranteesthrough the use of equity options and futures contracts, and essentially fully reinsurestheGMIB guarantees.

Jackson also issues fixed index annuities(FIA) that enable policyholdersto obtain a portion of an equity-linked return while providing a guaranteed minimum return. The guaranteed minimum returns are of a similar nature to those described above for fixed annuities.

UK and Europe (M&GPrudential)

The only significant financial options and guaranteesin M&GPrudential's covered business arise in the with-profitsfund. With-profits products provide returnsto policyholdersthrough bonusesthat are smoothed. There are two types of bonuses: annual and final. Annual bonuses are declared once a year and, once credited, are guaranteed in accordance with the terms of the particular product. Final bonuses are guaranteed only until the next bonus declaration. TheUK with-profitsfund also held a provision of £49 million at 31 December 2018 (31 December 2017: £53 million) to honour guarantees on a small number of guaranteed annuity option products.

TheGroup's main exposure to guaranteed annuity optionsin M&GPrudential isthrough the non-covered business of SAIF. A provision of £361 million was held in SAIF at 31 December 2018 (31 December 2017: £503 million) to honour the guarantees. As described in note 13(i)(a), the assets and liabilities are wholly attributable to the policyholders of the fund. Therefore the movement in the provision has no direct impact on shareholders' funds.

Time value

The value of financial options and guarantees comprisestwo parts:

• The first part arisesfrom a deterministic valuation on best estimate assumptions(the intrinsic value); and
• The second part arisesfrom the variability of economic outcomesin the future (the time value).

Where appropriate, a fullstochastic valuation has been undertaken to determine the time value of the financial options and guarantees.

The economic assumptions used for the stochastic calculations are consistent with those used for the deterministic calculations. Assumptionsspecific to the stochastic calculationsreflect local market conditions and are based on a combination of actual market data, historic market data and an assessment of long-term economic conditions. Common principles have been adopted acrosstheGroup for the stochastic asset models, for example,separate modelling of individual asset classes but with an allowance for correlation between the various asset classes. Details of the key characteristics of each model are given in notes 14(iv), (v) and (vi).

In deriving the time value of financial options and guarantees, management actionsin response to emerging investment and fund solvency conditions have been modelled. Management actions encompass, but are not confined to, investment allocation decisions, levels of reversionary and terminal bonuses and credited rates. Bonusrates are projected from current levels and varied in accordance with assumed management actions applying in the emerging investment and fund solvency conditions.

In all instances, the modelled actions are in accordance with approved local practice and therefore reflect the options actually available to management. For theUK with-profitsfund, the actions assumed are consistent with those set out in the Principles and Practices of Financial Management which explains how regular and final bonusrates within the discretionary framework are determined, subject to the general legislative requirements applicable.

13 Methodology and accounting presentation continued

(i) Methodology continued

(e) Level of required capital

In adopting the EEV Principles, Prudential has based required capital on the applicable localstatutory regulations, including any amounts considered to be required above the localstatutory minimum requirementsto satisfy regulatory constraints.

For with-profits businessin Asia and theUK, the available capital in the fund issufficient to meet the capital requirements. For M&GPrudential, a portion of future shareholder transfers expected from the with-profitsfund isrecognised within net worth, together with the associated capital requirements.

Forshareholder-backed business, the following capital requirementsfor long-term business operations apply:

• Asia: the level of required capital has been set to an amount at least equal to localstatutory notification requirements. For China operations, the level of required capital followsthe approach for embedded value reporting issued by the China Association of Actuaries(CAA) reflecting the C-ROSS regime;
• US: the level of required capital has been set at 250 per cent of the risk-based capital (RBC) required by theNational Association of Insurance Commissioners(NAIC) at the Company Action Level (CAL); and
• UK and Europe: the capital requirements are set at the Solvency II Solvency Capital Requirement (SCR) forshareholder-backed business as a whole. Following the announced demerger, from 1 January 2018 this does not allow for diversification outside the planned perimeter of the businessto be demerged.

(f) With-profits business and the treatment of the estate

The proportion ofsurplus allocated to shareholdersfrom theUK with-profitsfund has been based on the present level of 10 per cent. The value attributed to the shareholders' interest in the estate is derived by increasing final bonusrates(and related shareholder transfers)so asto exhaust the estate over the lifetime of the in-force with-profits business. In any scenarios where the total assets of the life fund are insufficient to meet policyholder claimsin full, the excess cost isfully attributed to shareholders. Similar principles apply, where appropriate, for other with-profitsfunds of theGroup's Asia operations.

(g) Internal asset management

The in-force and new businessresultsfrom long-term businessinclude the projected value of profits or lossesfrom asset management and service companiesthatsupport theGroup's covered insurance businesses. The results of theGroup's asset management operations include the current year profitsfrom the management of both internal and external funds. EEV basisshareholders' other income and expenditure is adjusted to deduct the unwind of the expected internal asset management profit margin for the year asincluded in 'Other operations'. The deduction is on a basis consistent with that used for projecting the resultsfor covered insurance business.Group operating profit accordingly includesthe variance between actual and expected profit in respect of management of the assetsfor covered business.

(h) Allowance for risk and risk discount rates

Overview

Under the EEV Principles, discount rates used to determine the present value of future cash flows are set by reference to risk-free rates plus a risk margin.

For Asia and theUS, the risk-free rates are based on 10-year local government bond yields. ForUK and Europe, the EEV risk-free rate is based on the full term structure of interest rates, ie a yield curve, which is used to determine the embedded value at the end of the reporting period.

The risk margin should reflect any non-diversifiable risk associated with the emergence of distributable earningsthat is not allowed for elsewhere in the valuation. In order to better reflect differencesin relative market risk volatility inherent in each product group, Prudential setsthe risk discount ratesto reflect the expected volatility associated with the cash flowsfor each product category in the embedded value model, rather than at aGroup level.

Since financial options and guarantees are explicitly valued under the EEV methodology, risk discount rates under EEV are set excluding the effect of these product features.

The risk margin representsthe aggregate of the allowance for market risk, additional allowance for credit risk where appropriate, and allowance for non-diversifiable non-market risk.No allowance isrequired for non-market risks where these are assumed to be fully diversifiable.

Market risk allowance

The allowance for market risk representsthe beta multiplied by an equity risk premium. Except forUK shareholder-backed annuity business(as explained below),such an approach has been used for theGroup's businesses.

The beta of a portfolio or product measuresitsrelative market risk. The risk discount ratesreflect the market risk inherent in each product group and hence the volatility of product cash flows. These are determined by considering how the profitsfrom each product are affected by changesin expected returns on various asset classes. By converting thisinto a relative rate of return, it is possible to derive a product-specific beta.

Product level betasreflect the most recent product mix to produce appropriate betas and risk discount ratesfor each major product grouping.

04

06

Additional credit risk allowance

TheGroup's methodology isto allow appropriately for credit risk. The allowance for total credit risk isto cover:

• Expected long-term defaults;
• Credit risk premium (to reflect the volatility in downgrade and default levels); and
• Short-term downgrades and defaults.

These allowances are initially reflected in determining best estimate returns and through the market risk allowance described above. However, for those businesseslargely backed by holdings of debtsecurities, these allowancesin the projected returns and market risk allowances may not be sufficient and an additional allowance may be appropriate.

The practical application of the allowance for credit risk varies depending upon the type of business as described below:

Asia

For Asia, the allowance for credit risk incorporated in the projected rates of return and the market risk allowance are considered to be sufficient. Accordingly, no additional allowance for credit risk isrequired.

The projected rates of return for holdings of corporate bonds comprise the risk-free rate plus an assessment of long-term spread over the risk-free rate.

US (Jackson)

For Jackson business, the allowance for long-term defaults of 0.17 per cent (31 December 2017: 0.19 per cent) isreflected in the risk margin reserve (RMR) charge that is deducted in determining the projected spread margin between the earned rate on the investments and the policyholder crediting rate.

The risk discount rate incorporates an additional allowance for credit risk premium and short-term downgrades and defaults (0.2 per cent for variable annuity business and 1.0 per cent for non-variable annuity businessfor both years), asshown in note 14(ii). In determining this allowance a number of factors have been considered. These factors, in particular, include:

• How much of the creditspread on debtsecuritiesrepresents an increased short-term credit risk not reflected in the RMR long-term default assumptions, and how much isliquidity premium (which isthe premium required by investorsto compensate for the risk of longer-term investments which cannot be easily converted into cash at the fair market value). In assessing this effect, consideration has been given to a number of approachesto estimating the liquidity premium by considering recentstatistical data; and
• Policyholder benefitsfor Jackson fixed annuity business are not fixed. It is possible in adverse economic scenariosto pass on a component of credit lossesto policyholders(subject to guarantee features) through lower investment returns credited to policyholders. Consequently, it is only necessary to allow for the balance of the credit risk in the risk discount rate.

The level of the additional allowance is assessed at each reporting period to take account of prevailing credit conditions and asthe businessin force alters over time. The additional allowance for variable annuity business has been set at one-fifth of the non-variable annuity businessto reflect the proportion of the allocated holdings of general account debtsecurities.

The level of allowance differsfrom that forUK annuity businessfor investment portfolio differences and to take account of the management actions available in adverse economic scenariosto reduce crediting ratesto policyholders,subject to guarantee features of the products.

UK and Europe (M&GPrudential)

(1) Shareholder-backed annuity business

Forshareholder-backed annuity business, Prudential has used a market consistent embedded value (MCEV) approach to derive an implied risk discount rate which isthen applied to the projected best estimate cash flows.

In the annuity MCEV calculations, asthe assets are generally held to maturity to match liabilities, the future cash flows are discounted using the swap yield curve plus an allowance for liquidity premium based on the Solvency II allowance for credit risk. The Solvency II allowance isset by the European Insurance and Occupational Pensions Authority (EIOPA) using a prudent assumption that all future downgrades will be replaced annually, and allowing for the creditspread floor.

For the purposes of presentation in the EEV results, the results produced on this basis are reconfigured.Under this approach the projected earned rate of return on the debtsecurities held is determined after allowing for a best estimate credit risk allowance. The remaining elements of prudence within the Solvency II allowance are incorporated into the risk margin included in the discount rate, shown in note 14(iii).

(2) With-profits fund non-profit annuity business

For non-profit annuity business attributable to theUK with-profitsfund, the basisfor determining the aggregate allowance for credit risk is consistent with that applied forUK shareholder-backed annuity business(as described above). The allowance for credit risk for this businessistaken into account in determining the projected cash flowsfrom the with-profitsfund, which are in turn discounted at the risk discount rate applicable to all of the projected cash flowsfrom the fund.

(3) With-profits fund holdings of debt securities

The with-profitsfund holds debtsecurities as part of itsinvestment portfolio backing policyholder liabilities and unallocated surplus. The assumed earned rate for with-profit holdings of corporate bondsis defined asthe risk-free rate plus an assessment of the long-term spread over riskfree, net of expected long-term defaults. This approach issimilar to that applied for equities and propertiesfor which the projected earned rate is defined asthe risk-free rate plus a long-term risk premium.

13 Methodology and accounting presentation continued

(i) Methodology continued

Allowance for non-diversifiable non-market risks

The majority of non-market and non-credit risks are considered to be diversifiable. An allowance for non-diversifiable non-market risksis estimated asset out below:

A base level allowance of 50 basis pointsis applied to cover the non-diversifiable non-market risks associated with theGroup's businesses. For theGroup's Asia operationsin Indonesia, the Philippines, Taiwan, Thailand and Vietnam, additional allowances are applied for emerging market risk ranging from 100 to 250 basis points. The level of these allowances are reviewed and updated based on an assessment of a range of pre-defined emerging market risk indicators, as well astheGroup's exposure and experience in the business units. At 31 December 2018, the China allowance for non-market risk wasreduced reflecting the growth in the size of the business, increasing management exposure and experience in the country and an improvement in our risk assessment of the market. For the Group'sUS business andUK and Europe business, no additional allowance is necessary.

(i) Foreign currency translation

Foreign currency profits and losses have been translated at average exchange ratesfor the year. Foreign currency assets and liabilities have been translated at year-end exchange rates. The principal exchange rates are shown in note A1 of the IFRS financialstatements.

(j) Taxation

In determining the post-tax profit for the year for covered business, the overall tax rate includesthe impact of tax effects determined on a local regulatory basis. Tax payments and receiptsincluded in the projected cash flowsto determine the value of in-force business are calculated using ratesthat have been announced and substantively enacted by the end of the reporting period.

(k) Inter-company arrangements

The EEV resultsfor covered businessincorporate annuities established in the PAC non-profitsub-fund from vesting pension policiesin SAIF (which is not covered business). The EEV results also incorporate the effect of the reinsurance arrangement of non-profit immediate pension annuity liabilities of SAIF to the PAC non-profitsub-fund.

(ii) Accounting presentation

(a) Analysis of post-tax profit

To the extent applicable, the presentation of the EEV post-tax profit for the year is consistent with the classification between operating and non-operating results with the basisthat theGroup appliesfor the analysis of IFRS basisresults. Operating resultsreflect underlying resultsincluding longer-term investment returns, which are determined as described in note 13(ii)(b) and incorporate the following:

• New business contribution, as defined in note 13(i)(b);
• Unwind of discount on the value of in-force business and other expected returns, as described in note 13(ii)(c);
• The impact of routine changes of estimatesrelating to operating assumptions, as described in note 13(ii)(d); and
• Operating experience variances, as described in note 13(ii)(e).

Non-operating results comprise:

• Short-term fluctuationsin investment returns;
• The mark to market value movements on core structural borrowings;
• The effect of changesin economic assumptions; and
• The impact of corporate transactions undertaken in the year.

In addition, operating resultsinclude the effect of changesin tax legislation, unlessthese changes are one-off and structural in nature, such asthe impact of theUS tax reform in 2017 (see note 16), or primarily affect the level of projected investment returns, in which case they are reflected as a non-operating result.

Total profit attributable to shareholders and basic earnings pershare include these items, together with actual investment returns. TheGroup believesthat operating profit, as adjusted for these items, better reflects underlying performance.

For M&GPrudential, the embedded value incorporates Solvency II transitional measures, which are recalculated using management's estimate of the impact of operating and market conditions at the valuation date. The impact of thisrecalculation isrecorded within the corresponding component of the analysis of post-tax profit.

(b) Investment returns included in operating profit

For the investment element of the assets covering the net worth of long-term insurance business, investment returns are recognised in operating results at the expected long-term rate of return. These expected returns are calculated by reference to the asset mix of the portfolio. For the purpose of calculating the longer-term investment return to be included in the operating result of the with-profits fund of M&GPrudential, where assets backing the liabilities and unallocated surplus are subject to market volatility, asset values at the beginning of the reporting period are adjusted to remove the effects ofshort-term market movements as explained in note 13(ii)(c).

04

06

For the purpose of determining the long-term returnsfor debtsecurities ofUS operationsfor fixed annuity and other general account business, a risk margin reserve charge isincluded which reflectsthe expected long-term rate of default based on the credit quality of the portfolio. For Jackson, interest-related realised gains and losses are amortised to the operating results over the maturity period of the sold bonds and for equity-related investments, a long-term rate of return is assumed, which reflectsthe aggregation of end-of-period risk-free rates and the equity risk premium. ForUS variable annuity separate account business, operating profit includesthe unwind of discount on the opening value of in-force business adjusted to reflect end-of-period projected rates of return with the excess or deficit of the actual return recognised within non-operating profit, together with related hedging activity.

ForUK annuity business, rebalancing of the asset portfolio backing the liabilitiesto policyholders may, from time to time, take place to align it more closely with the internal benchmark of credit quality that management applies. Such rebalancing will result in a change in the projected yield on the asset portfolio and the allowance for default risk. The net effect of these changesisincluded in the operating result for the year.

(c) Unwind of discount and other expected returns

TheGroup's methodology in determining the unwind of discount and other expected returnsis by reference to:

• The value of in-force business at the beginning of the year (adjusted for the effect of current year economic and operating assumption changes); and
• Required capital and surplus assets.

In applying this general approach, the unwind of discount included in operating profit for M&GPrudential is described below.

M&GPrudential

The unwind is determined by reference to an implied single risk discount rate. The EEV risk-free rate is based on a yield curve (asset out in note 13(i)(h)), which is used to derive an implied single discount rate which, if thisrate had been used, would reproduce the same embedded value asthat calculated by reference to the yield curve. The difference between the operating profit determined using the single implied discount rate and that derived using the yield curve isincluded within non-operating profit.

For with-profits business, the opening value of in-force is adjusted for the effect ofshort-term investment volatility due to market movements(ie smoothed). In the summary statement of financial position and for total profit reporting, asset values and investment returns are notsmoothed. At 31 December 2018, the shareholders' interest in the smoothed surplus assets used for this purpose only were £12 million higher (31 December 2017: £57 million lower) than the surplus assets carried in the statement of financial position.

(d) Effect of changes in operating assumptions

Operating profit includesthe effect of changesto non-economic assumptions on the value of in-force at the end of the year. For presentational purposesthe effect of changesis delineated to show the effect on the opening value of in-force as operating assumption changes, with the experience variancessubsequently being determined by reference to the end-of-year assumptions(see note 13(ii)(e)).

(e) Operating experience variances

Operating profit includesthe effect of experience variances on non-economic assumptions,such as persistency, mortality and morbidity, expenses and other factors, which are calculated with reference to the end-of-year assumptions.

(f) Effect of changes in economic assumptions

Movementsin the value of in-force business at the beginning of the year caused by changesin economic assumptions, net of the related change in the time value of cost of options and guarantees, are recorded in non-operating results.

14 Assumptions

Principal economic assumptions

The EEV basisresultsfor theGroup's operations have been determined using economic assumptions where the long-term expected rates of return on investments and risk discount rates are set by reference to year-end risk-free rates of return (defined below for each of theGroup'sinsurance operations). Expected returns on equity and property asset classes and corporate bonds are derived by adding a risk premium, based on theGroup'slong-term view, to the risk-free rate.

The total profit that emerges over the lifetime of an individual contract as calculated using the embedded value basisisthe same over time asthat calculated under the IFRS basis. Since the embedded value basisreflects discounted future cash flows, under the EEV methodology the profit emergence is advanced, thus more closely aligning the timing of the recognition of profit with the efforts and risks of current management actions, particularly with regard to businesssold during the year.

14 Assumptions continued

Principal economic assumptions continued

(i) Asia

The risk-free rates of return for Asia are defined as 10-year government bond yields at the end of the year.

	Risk discount rate %
	New business		In-force business		10-year government bond yield %		Expected long-term Inflation %
	31 Dec 2018	31 Dec 2017	31 Dec 2018	31 Dec 2017	31 Dec 2018	31 Dec 2017	31 Dec 2018	31 Dec 2017
China	8.1	9.7	8.1	9.7	3.3	3.9	3.0	3.0
Hong Kong notes (b)(d)	4.4	4.1	4.4	4.1	2.7	2.4	2.5	2.5
Indonesia	12.4	10.6	12.4	10.6	8.2	6.4	4.5	4.5
Malaysia note (d)	6.6	6.4	6.6	6.5	4.1	3.9	2.5	2.5
Philippines	14.5	12.7	14.5	12.7	7.0	5.2	4.0	4.0
Singapore note (d)	3.4	3.5	4.2	4.4	2.1	2.0	2.0	2.0
Taiwan	4.5	4.3	4.4	3.9	0.9	0.9	1.5	1.5
Thailand	10.0	9.8	10.0	9.8	2.5	2.3	3.0	3.0
Vietnam	12.6	12.6	12.6	12.6	5.1	5.1	5.5	5.5
Total weighted risk discount rate note (a)	5.4	5.3	5.8	5.7

Notes

(a) The weighted risk discount ratesfor Asia operationsshown above have been determined by weighting each market'srisk discount rates by reference to the post-tax EEV basis new business contribution and the closing value of in-force business. The changesin the risk discount ratesfor individual Asia business unitsreflect the movementsin 10-year government bond yields, changesin the economic basis and changesin product mix.

(b) ForHong Kong the assumptionsshown are forUS dollar denominated business. For other business units, the assumptions are for local currency denominated business.

(c) Equity risk premiumsin Asia range from 4.0 per cent to 9.4 per cent (2017: 4.0 per cent to 9.4 per cent). (d) The mean equity return assumptionsfor the mostsignificant equity holdings of the Asia operations are:

	31 Dec 2018 %	31 Dec 2017 %
Hong Kong	6.7	6.4
Malaysia	10.6	10.4
Singapore	8.6	8.5

(ii) US

The risk-free rates of return for theUS are defined asthe 10-year treasury bond yield at the end of the year.

	31 Dec 2018 %	31 Dec 2017 %
Risk discount rate:
Variable annuity:
Risk discount rate	7.1	6.8
Additional allowance for credit risk included in risk discount rate note 13(i)(h)	0.2	0.2
Non-variable annuity:
Risk discount rate	4.4	4.1
Additional allowance for credit risk included in risk discount rate note 13(i)(h)	1.0	1.0
Weighted average total:
New business	6.9	6.7
In-force business	6.8	6.5
US 10-year treasury yield	2.7	2.4
Allowance for long-term defaultsincluded in projected spread note 13(i)(h)	0.17	0.19
Pre-tax expected long-term nominal rate of return forUS equities	6.7	6.4
Expected long-term rate of inflation	2.9	3.0
Equity risk premium	4.0	4.0
S&P equity return volatility	17.5	18.0

Note

Assumed new businessspread margins are asfollows:

	31 Dec 2018 %		31 Dec 2017 %
	January to June issues	July to December issues	January to June issues	July to December issues
Fixed annuity business*†	1.75	1.75	1.50	1.25
Fixed index annuity business*	2.00	2.00	1.75	1.50
Institutional business	0.50	0.50	0.50	0.50

* The assumed spread margin grades up linearly by 25 basis pointsto a long-term assumption over five years.

† Including the proportion of variable annuity businessinvested in the general account.

(iii) UK and Europe

The risk-free rate is based on the full term structure of interest rates, ie a yield curve, which is used to determine the embedded value at the end of the reporting period. These yield curves are used to derive pre-tax expected long-term nominal rates of investment return and risk discount rates. For the purpose of determining the unwind of discount in the analysis of operating profit, these yield curves are used to derive a single implied risk discount rate, as explained in note 13(i)(h).

Thissingle implied risk discount rate isshown, along with the 15-year nominal rate of investment return and 15-year rate of inflation based on the inflation yield curve.

	31 Dec 2018 %	31 Dec 2017 %
Shareholder-backed annuity in-force business: note (a)
Risk discount rate	4.7	4.0
Pre-tax expected 15-year nominal rates of investment return note (c)	3.1	2.6
With-profits and other business:
Risk discount rate: note (b)
New business	4.9	4.7
In-force business	5.0	4.8
Pre-tax expected 15-year nominal rates of investment return: note (c)
Overseas equities	6.5 to 10.1	6.2 to 10.1
Property	4.4	4.4
15-year gilt yield	1.7	1.6
Corporate bonds	3.5	3.4
Expected 15-year rate of inflation	3.6	3.5
Equity risk premium	4.0	4.0

Notes

(a) Forshareholder-backed annuity business, the movementsin the pre-tax long-term nominal rates of return and risk discount ratesreflect the effect of changesin asset yields. (b) The risk discount ratesfor with-profits and other businessshown above represents a weighted average total of the rates applied to determine the present value of future cash flows,

including the portion of future with-profits businessshareholders' transfersrecognised in net worth. (c) The table below showsthe pattern of theUK risk-free Solvency IIspot yield curve at the end of 31 December:

	1 year	5 year	10 year	15 year	20 year
31 Dec 2018	1.0%	1.2%	1.3%	1.4%	1.5%
31 Dec 2017	0.6%	0.9%	1.2%	1.3%	1.4%

Stochastic assumptions

Details are given below of the key characteristics of the models used to determine the time value of the financial options and guarantees asreferred to in note 13(i)(d).

(iv) Asia

• The stochastic cost of guaranteesis primarily ofsignificance for theHong Kong, Malaysia, Singapore and Taiwan operations;
• The principal asset classes are government and corporate bonds;
• The asset return models are similar to the models as described for M&GPrudential below; and
• The volatility of equity returnsrangesfrom 18 per cent to 35 per cent for both years, and the volatility of government bond yields rangesfrom 1.1 per cent to 2.0 per cent (2017: from 1.1 per cent to 2.0 per cent).

(v) US (Jackson)

• Interest rates and equity returns are projected using a log-normal generator reflecting historical market data;
• Corporate bond returns are based on treasury yields plus a spread that reflects current market conditions; and — The volatility of equity returnsrangesfrom 17 per cent to 26 per cent (2017: from 18 per cent to 27 per cent), and the standard
• deviation of interest ratesrangesfrom 3.4 per cent to 3.7 per cent (2017: from 2.5 per cent to 2.8 per cent).

(vi) UK and Europe (M&GPrudential)

• Interest rates are projected using a stochastic interest rate model calibrated to the current market yields;
• Equity returns are assumed to follow a log-normal distribution;
• The corporate bond return is calculated based on a risk-free return plus a mean-reverting spread;
• Property returns are also modelled based on a risk-free return plus a risk premium with a stochastic processreflecting total property returns; and
• The standard deviation of equities and property rangesfrom 14 per cent to 20 per cent for both years.

02

04

06

14 Assumptions continued

Operating assumptions

(vii) Best estimate assumptions

Best estimate assumptions are used for the cash flow projections, where best estimate is defined asthe mean of the distribution of future possible outcomes. The assumptions are reviewed actively and changes are made when evidence existsthat material changesin future experience are reasonably certain.

Assumptionsrequired in the calculation of the value of options and guarantees, for example relating to volatilities and correlations, or dynamic algorithmslinking liabilitiesto assets, have been set equal to the best estimates and, wherever material and practical, reflect any dynamic relationships between the assumptions and the stochastic variables.

Demographic assumptions

Persistency, mortality and morbidity assumptions are based on an analysis of recent experience, but also reflect expected future experience. Where relevant, when calculating the time value of financial options and guarantees, policyholder withdrawal rates vary in line with the emerging investment conditions according to management's expectations. When projecting cash flowsfor medical reimbursement businessthat isrepriced annually, explicit allowance is made for expected future premiumsinflation and separately for future medical claimsinflation. The 2018 EEV resultsreflect this approach. Previously, medical claimsinflation wasimplicitly allowed for by assuming that all increasesin medical claim costs were directly offset by future premium increases with no impact on profits.

Expense assumptions

Expense levels, including those ofservice companiesthatsupport theGroup'slong-term business operations, are based on internal expense analysis and are appropriately allocated to acquisition of new business and renewal of in-force business. For mature business, it is Prudential's policy not to take credit for future cost reduction programmes until the actionsto achieve the savings have been delivered. An allowance is made forshort-term required expenses, that are not representative of the longer-term expense loadings of the relevant businesses. At 31 December 2018, the allowance held for these costs acrosstheGroup was £(436) million mainly arising in Asia. Expense overruns are reported where these are expected to be short-lived, including businessesthat are growing rapidly or are sub-scale.

For Asia operations, the expenses comprise costs borne directly and recharged costsfrom the Asia RegionalHead Office that are attributable to covered business. The assumed future expensesfor these operations also include projections of these future recharges. Development expenses are charged asincurred.

Corporate expenditure, which isincluded in other income and expenditure, comprises:

• Expenditure forGroupHead Office, to the extent not allocated to theUK with-profitsfunds, together with restructuring costs incurred acrossthe group; and
• Expenditure of the Asia RegionalHead Office that is not allocated to the covered business or asset management operations which is charged asincurred. These costs are primarily for corporate related activities and are included within corporate expenditure.

(viii) Tax rates

The assumed long-term effective tax ratesfor operationsreflect the incidence of taxable profits and lossesin the projected cash flows as explained in note 13(i)(j).

The localstatutory corporate tax rates applicable for the mostsignificant operationsfor 2018 and 2017 are asfollows:

Asia operations:
Hong Kong	16.5 per cent on 5 per cent of premium income
Indonesia	25.0
Malaysia	24.0
Singapore	17.0
US operations	2017: 35.0; 2018: 21.0
UK operations	2017 and 2018: 19.0; from 1 April 2020: 17.0

%

15 Insurance new business premiums note (i)

		Single premiums		Regular premiums		Annual premium equivalents (APE) note 13(i)(b)		Present value of new business premiums (PVNBP) note 13(i)(b)
	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m
Asia	2,316	2,299	3,513	3,575	3,744	3,805	20,754	20,405
US	15,423	16,622	–	–	1,542	1,662	15,423	16,622
UK and Europe	13,382	13,044	177	187	1,516	1,491	14,073	13,784
Group total	31,121	31,965	3,690	3,762	6,802	6,958	50,250	50,811
Asia
Cambodia	–	–	20	16	20	16	89	70
Hong Kong	343	582	1,663	1,667	1,697	1,725	10,200	10,027
Indonesia	205	288	215	268	236	297	910	1,183
Malaysia	84	73	243	271	251	278	1,322	1,398
Philippines	43	62	83	71	87	77	296	287
Singapore	930	859	369	361	462	447	3,611	3,463
Thailand Vietnam	217 20	139 8	95 144	70 133	117 146	84 134	609 708	421 659
South-east Asia operations including
Hong Kong	1,842	2,011	2,832	2,857	3,016	3,058	17,745	17,508
China note (ii)	103	179	292	276	302	294	1,313	1,299
Taiwan	292	46	182	208	211	213	788	634
India note (iii)	79	63	207	234	215	240	908	964
Total	2,316	2,299	3,513	3,575	3,744	3,805	20,754	20,405
US
Variable annuities	10,810	11,536	–	–	1,081	1,154	10,810	11,536
Elite Access(variable annuity)	1,681	2,013	–	–	168	201	1,681	2,013
Fixed annuities	340	454	–	–	34	45	340	454
Fixed index annuities	251	295	–	–	25	30	251	295
Wholesale	2,341	2,324	–	–	234	232	2,341	2,324
Total	15,423	16,622	–	–	1,542	1,662	15,423	16,622
UK and Europe
Bonds	3,539	3,509	–	–	354	351	3,540	3,510
Corporate pensions	69	103	117	130	124	140	443	533
Individual pensions	5,681	5,747	35	32	603	607	5,832	5,897
Income drawdown	2,555	2,218	–	–	256	222	2,555	2,218
Other products	1,538	1,467	25	25	179	171	1,703	1,626
Total	13,382	13,044	177	187	1,516	1,491	14,073	13,784
Group total	31,121	31,965	3,690	3,762	6,802	6,958	50,250	50,811

Notes

(i) The tablesshown above are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profitsfor shareholders. The amountsshown are not, and not intended to be, reflective of premium income recorded in the IFRS income statement. A reconciliation of APE and gross earned premiums on an IFRS basisis provided in note III(g) within the unaudited financial information.

(ii) New businessin China isincluded at Prudential's 50 per cent interest in the China life operation.

(iii) New businessin India isincluded at Prudential's 26 per cent interest in the India life operation.

01 Group overview

04

06

16 Impact of US tax reform

On 22 December 2017, The Tax Cuts and Jobs Act in theUS was enacted into law effective from 1 January 2018. The tax reform package as a whole, which included a reduction in the corporate income tax rate from 35 per cent to 21 per cent and a number ofspecific measures affectingUS life insurers, resulted in a £390 million benefit in non-operating profit reflected within the 2017 results. The positive impact on an EEV basisrepresented the benefit of future profits being taxed at a lower rate, partially offset by a reduction in the net deferred tax asset held in the balance sheet to reflect remeasurement at the new lower tax rate, together with a reduction in the benefit from the dividend received deduction on taxable profitsfrom variable annuity business. In June 2018, theNational Association of Insurance Commissioners(NAIC) formally approved changesto RBC capital factorsthat reflected the December 2017US tax reform and the 2018 EEV resultsreflect these changes asshown in notes 6 and 9.

17 Corporate transactions

Disposals and other corporate transactions

	2018 £m	2017 £m
Transactions associated with M&GPrudential note (i)	(376)	–
Other transactions note (ii)	(75)	80
	(451)	80

Notes

(i) Transactions associated with M&GPrudential

The following transactionsreduced theGroup's EEV by £(376) million, which primarily reflectsthe loss of profits on the portion of annuity liabilitiessold. Intention to demerge the Group's UK and Europe business and transfer of Hong Kong insurance subsidiaries

In March 2018, theGroup announced itsintention to demerge itsUK and Europe business(M&GPrudential) from Prudential plc, resulting in two separately listed companies. In preparation for theUK demerger process, during December 2018, the legal ownership of Prudential plc'sHong Kong insurance subsidiaries wastransferred from The Prudential Assurance Company Limited (M&GPrudential'sUK regulated Insurance entity) to Prudential Corporation Asia Limited. Sale of shareholder annuity portfolio

In March 2018, M&GPrudential reinsured £12.0 billion of itsshareholder annuity portfolio (IFRS liabilities valued as at 31 December 2017) to Rothesay Life.Under the terms of the agreement, the reinsurance is expected to be followed by a Part VII transfer of most of the reinsured portfolio by 30 June 2019. The 2018 EEV resultsinclude the impact on EEV resulting from thistransfer.

(ii) Other transactions

In 2018, other corporate transactionsresulted in an EEV loss of £(75) million (2017: £80 million gain). This primarily relatesto additional costsincurred in exiting theUS broker-dealer business(which realised a post-tax gain of £80 million when the independent broker-dealer network wassold to LPL Financial LLC in 2017) and costsrelated to the preparation for the announced demerger discussed above.

18 Post balance sheet events

Renewal of strategic bancassurance alliance with United Overseas Bank Limited

In January 2019, theGroup announced the renewal of itsregionalstrategic bancassurance alliance withUnited Overseas Bank Limited (UOB). The new agreement extendsthe original alliance which commenced in 2010 to 2034 and increasesthe geographicalscope to include a fifth market, Vietnam, alongside the existing markets across Singapore, Malaysia, Thailand and Indonesia.

As part of thistransaction, Prudential has agreed to payUOB an initial fee of £662 million (translated using a Singapore dollar: £ foreign exchange rate of 1.7360) for distribution rights which is not dependent on future sales volumes. This amount will be paid in three instalments of £230 million in February 2019, £331 million in January 2020 and £101 million in January 2021. In line with theGroup's policy, these amounts will be capitalised as distribution rightsintangible asset.

Statement of Directors' responsibilities in respect of the European Embedded Value (EEV) basis supplementary information

The directors have chosen to prepare supplementary information in accordance with the European Embedded Value Principles dated April 2016 by the European Insurance CFO Forum ('the EEV Principles') using the methodology and assumptions set out in the Notes on the EEV basis results.

When compliance with the EEV Principles isstated, those principlesrequire the directorsto prepare supplementary information in accordance with the Embedded Value Methodology (EVM) contained in the EEV Principles and to disclose and explain any non-compliance with the EEV guidance included in the EEV Principles.

In preparing the EEV supplementary information, the directors have:

• Prepared the supplementary information in accordance with the EEV Principles;
• Identified and described the business covered by the EVM;
• Applied the EVM consistently to the covered business;
• Determined assumptions on a realistic basis, having regard to past, current and expected future experience and to any relevant external data, and then applied them consistently;
• Made estimatesthat are reasonable and consistent; and
• Described the basis on which business that is not covered business has been included in the supplementary information, including any material departuresfrom the accounting framework applicable to theGroup's financialstatements.

06

Independent auditor's report to Prudential plc on the European Embedded Value (EEV) basis supplementary information

Opinions and conclusions arising from our audit

Our opinion on the EEV basis supplementary information is unmodified

We have audited the EEV basis supplementary information of Prudential plc ("the Company") for the year ended 31 December 2018 set out in the EEV basisresults andNotes on the EEV basisresults pages. The EEV basis supplementary information should be read in conjunction with theGroup financialstatements.

In our opinion, the EEV basis supplementary information of the Company for the year ended 31 December 2018 has been properly prepared, in all material respects, in accordance with the European Embedded Value Principles dated April 2016 by the European Insurance CFO Forum ("the EEV Principles") using the methodology and assumptionsset out in theNotes on the EEV basisresults.

The impact of uncertainties due to the UK exiting the European Union on our audit

Uncertaintiesrelated to the effects of Brexit are relevant to understanding our audit of the financialstatements. All audits assess and challenge the reasonableness of estimates made by the directors and related disclosures and the appropriateness of the going concern basis of preparation of the financialstatements. All of these depend on assessments of the future economic environment and the group's future prospects and performance. Brexit is one of the mostsignificant economic eventsfor theUK, and at the date of thisreport its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. We applied a standardised firm-wide approach in response to that uncertainty when assessing the group'sfuture prospects and performance.However, no audit should be expected to predict the unknowable factors or all possible future implicationsfor a company and thisis particularly the case in relation to Brexit.

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statementset out on page 375, the directors have accepted responsibility for the preparation of the supplementary information on the EEV basisin accordance with the EEV Principles.

Our responsibility isto audit, and express an opinion on, the supplementary information in accordance with the terms of our engagement and in accordance with International Standards on Auditing (UK). Those standardsrequire usto comply with the Financial Reporting Council's Ethical Standard.

Scope of an audit of financial statements performed in accordance with ISAs (UK)

A description of the scope of an audit of financialstatementsis provided on our website at www.kpmg.com/uk/ auditscopeukco2014a. Thisreport is made subject to important explanations regarding our responsibilities, as published on that website, which are incorporated into thisreport asifset out in full and should be read to provide an understanding of the purpose of thisreport, the work we have undertaken and the basis of our opinions.

The purpose of this report and restrictions on its use by persons other than the Company

Thisreport is made solely to the Company in accordance with the terms of our engagement. Our audit work has been undertaken so that we mightstate to the Company those matters we have been engaged to state in thisreport and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our audit work, for this report, or for the opinions we have formed.

Philip Smart (Senior Statutory Auditor) for and on behalf of KPMGLLP, Statutory Auditor Chartered Accountants London

12 March 2019

Additional information 07

	Page
Index to the additional unaudited financial information	378
Risk factors	407
Glossary	416
Shareholder information	420
How to contact us	423

Value (EEV)

Governance

04 Directors'

remuneration report

Index to the additional unaudited financial information*

II	Other information
(d)	Contribution toUK long-term financial metricsfrom specific management actions undertaken to position the balance sheet more efficiently under the Solvency II regime	387
(c)	Analysis of asset management operating profit based on longer-term investment returns	385
(b)	Asia operations – analysis of operating profit by business unit	385
(a)	Analysis of long-term insurance business adjusted IFRS operating profit based on longer-term investment returns by driver	379
I	IFRS profit and loss before tax
		Page

(a)	Holding company cash flow	388
(b)	Funds under management	389
(c)	Solvency II capital position	390
(d)	Reconciliation of expected transfer of value of in-force business(VIF) and required capital to free surplus	394
(e)	Foreign currency source of key metrics	399
(f)	Option schemes	399
(g)	Selected historical financial information of Prudential	401

III Calculation of alternative performance measures

(a)	Reconciliation of adjusted IFRS operating profit based on longer-term investment returnsto profit before tax	403
(b)	Calculation of return on IFRS shareholders' funds	404
(c)	Calculation of IFRS gearing ratio	404
(d)	Calculation of IFRS shareholders' funds pershare	404
(e)	Calculation of asset management cost/income ratio	404
(f)	Reconciliation of Asia renewal insurance premium to gross earned premiums	405
(g)	Reconciliation of APE new businesssalesto earned premiums	405
(h)	Reconciliation between IFRS and EEV shareholders' funds	406
(i)	Reconciliation of EEV operating profit based on longer-term investment returns	406
(j)	Calculation of return on embedded value	406
(k)	Calculation of EEV shareholders' funds pershare	406

* In this additional unaudited financial information 'operating profit' refersto adjusted IFRS operating profit based on longer-term investment returns.

Additional unaudited financial information

I IFRS profit and loss information

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

Thisschedule classifiestheGroup's adjusted IFRS operating profit based on longer-term investment returnsfrom long-term insurance operationsinto the underlying drivers, using the following categories:

• Spread income representsthe difference between net investment income and amounts credited to certain policyholder accounts. It excludesthe operating investment return on shareholder net assets, which has been separately disclosed as expected return on shareholder assets.
• Fee income represents profits driven by net investment performance, being asset management feesthat vary with the size of the underlying policyholder funds net of investment management expenses.
• With-profits represent the pre-tax shareholders' transfer from the with-profitsfundsfor the year.
• Insurance margin primarily represents profits derived from the insurance risks of mortality and morbidity.
• Margin on revenues primarily represents amounts deducted from premiumsto cover acquisition costs and administration expenses.
• Acquisition costs and administration expenses represent expensesincurred in the year attributable to shareholders. These exclude itemssuch asrestructuring costs which are not included in the segment profit for insurance, as well asitemsthat are more appropriately included in othersources of earningslines(eg investment expenses are netted against investment income as part of spread income or fee income as appropriate).
• DAC adjustments comprise DAC amortisation for the year, excluding amountsrelated to short-term fluctuationsin investment returns, net of costs deferred in respect of new business.

Analysis of adjusted IFRS operating profit based on longer-term investment returns by source and margin analysis of Group long-term insurance business

The following analysis expresses certain of theGroup'ssources of adjusted IFRS operating profit based on long-term investment returns as a margin of policyholder liabilities or other relevant drivers. Details on the calculation of theGroup's average policyholder liability balances are given in note (iv) at the end of thissection.

		2018 £m
	Asia	US	UK and Europe	Total	Average liability note (iv)	Margin bps note (ii)
Spread income	232	583	84	899	85,850	105
Fee income	210	2,445	56	2,711	175,443	155
With-profits	71	–	320	391	147,318	27
Insurance margin	1,481	949	50	2,480
Margin on revenues	2,105	–	149	2,254
Expenses:
Acquisition costs note (i)	(1,503)	(759)	(57)	(2,319)	6,802	(34)%
Administration expenses	(1,029)	(1,204)	(180)	(2,413)	265,597	(91)
DAC adjustments note (v)	326	(114)	4	216
Expected return on shareholder assets	129	11	102	242
	2,022	1,911	528	4,461
Share of related tax chargesfrom joint ventures and associate note (vi)	(40)		–	(40)
Longevity reinsurance and other management
actionsto improve solvency			58	58
Changesin longevity assumption basis			441	441
Provision for guaranteed minimum pension equalisation			(55)	(55)
Insurance recoveries of costs associated with
review of past annuity sales			166	166
Long-term business adjusted IFRS operating profit based on longer-term investment
returns	1,982	1,911	1,138	5,031

02

report

I IFRS profit and loss information continued

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

		2017 AER £m
	Asia	US	UK and Europe	Total	Average liability note (iv)	Margin bps note (ii)
Spread income	234	751	137	1,122	88,908	126
Fee income	205	2,343	61	2,609	166,839	156
With-profits	59	–	288	347	136,474	25
Insurance margin	1,341	906	55	2,302
Margin on revenues	2,098	–	189	2,287
Expenses:
Acquisition costs note (i)	(1,499)	(876)	(68)	(2,443)	6,958	(35)%
Administration expenses	(967)	(1,174)	(164)	(2,305)	261,114	(88)
DAC adjustments note (v)	241	260	4	505
Expected return on shareholder assets	126	4	104	234
	1,838	2,214	606	4,658
Share of related tax chargesfrom joint ventures
and associate note (vi)	(39)	–	–	(39)
Longevity reinsurance and other management
actionsto improve solvency	–	–	276	276
Changesin longevity assumption basis	–	–	204	204
Provision for review of past annuity sales	–	–	(225)	(225)
Long-term business adjusted IFRS operating profit based on longer-term investment
returns	1,799	2,214	861	4,874

	2017 CER £m note (iii)
	Asia	US	UK and Europe	Total	Average liability note (iv)	Margin bps note (ii)
Spread income	228	725	137	1,090	87,553	124
Fee income	195	2,262	61	2,518	162,267	155
With-profits	57	–	288	345	136,496	25
Insurance margin	1,293	875	55	2,223
Margin on revenues	2,021	–	189	2,210
Expenses:
Acquisition costs note (i)	(1,450)	(846)	(68)	(2,364)	6,767	(35)%
Administration expenses	(933)	(1,134)	(164)	(2,231)	255,313	(87)
DAC adjustments note (v)	235	251	4	490
Expected return on shareholder assets	120	4	104	228
	1,766	2,137	606	4,509
Share of related tax chargesfrom joint ventures
and associate note (vi)	(39)	–	–	(39)
Longevity reinsurance and other management
actionsto improve solvency	–	–	276	276
Changesin longevity assumption basis	–	–	204	204
Provision for review of past annuity sales	–	–	(225)	(225)
Long-term business adjusted IFRS operating profit based on longer-term investment
returns	1,727	2,137	861	4,725

03 Governance

02

report

06

Notes to sources of earnings tables throughout I(a)

• (i) The ratio of acquisition costsis calculated as a percentage of APE salesincluding with-profitssales. Acquisition costsinclude only those relating to shareholder-backed business.
• (ii) Margin representsthe operating return earned in the year as a proportion of the relevant class of average policyholder liabilities excluding unallocated surplus. (iii) The 2017 comparative information has been presented at AER and CER to eliminate the impact of foreign exchange translation. CER results are calculated by translating prior year results using the current year foreign exchange rates. All CER profit figures have been translated at current year average rates. For Asia CER average policyholder liability calculations, the amounts have been translated using current year opening and closing exchange rates. For theUS CER average liability calculations, the amounts have been translated at the current year month-end closing exchange rates. See note A1 in the IFRS financialstatementsfor foreign exchange rates used.
• (iv) ForUK and Europe and Asia, opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balancesthroughout the year. The calculation of average liabilitiesfor Jackson is generally derived from month-end balancesthroughout the year, as opposed to opening and closing balances only. The average liabilitiesfor fee income in Jackson have been calculated using daily balancesinstead of month-end balancesin order to provide a more meaningful analysis of the fee income, which is charged on the daily account balance. Average liabilitiesforspread income are based on the general account liabilitiesto which spread income attaches. Average liabilities used to calculate the administration expense margin exclude the REALIC liabilitiesreinsured to third parties prior to the acquisition by Jackson.
• (v) The DAC adjustments contain a credit of £55 million in respect of joint ventures and associate in 2018 (2017: AER credit of £43 million). (vi) Under IFRS, theGroup'sshare of resultsfrom itsinvestmentsin joint ventures and associate accounted for using the equity method isincluded in theGroup's profit before tax on a net of related tax basis. In 2018, theGroup altered the presentation of its analysis of Asia adjusted IFRS operating profit based on longer-term investment returns by driver to show these tax chargesseparately in order for the contribution from the joint ventures and associate to be included in the margin analysis on a consistent basis asthe rest of the Asia operations. 2017 comparatives have been re-presented accordingly.

Margin analysis of long-term insurance business – Asia

		2018		2017 AER			2017 CER note (iii)
	Profit £m	Average liability note (iv) £m	Margin note (ii) bps	Profit £m	Average liability note (iv) £m	Margin note (ii) bps	Profit £m	Average liability note (iv) £m	Margin note (ii) bps
Spread income	232	18,895	123	234	16,359	143	228	16,351	139
Fee income	210	20,105	104	205	18,767	109	195	18,638	105
With-profits	71	36,309	20	59	30,115	20	57	30,137	19
Insurance margin	1,481			1,341			1,293
Margin on revenues	2,105			2,098			2,021
Expenses:
Acquisition costs note (i)	(1,503)	3,744	(40)%	(1,499)	3,805	(39)%	(1,450)	3,671	(39)%
Administration expenses	(1,029)	39,000	(264)	(967)	35,126	(275)	(933)	34,989	(267)
DAC adjustments note (v)	326			241			235
Expected return on shareholder assets	129			126			120
	2,022			1,838			1,766
Share of related tax chargesfrom joint ventures and associate note (vi)	(40)			(39)			(39)
Adjusted IFRS operating profit based on longer-term investment returns	1,982			1,799			1,727

Analysis of Asia adjusted IFRS operating profit based on longer-term investment returns by driver:

• Spread income hasincreased on a CER basis by 2 per cent (AER: decreased by 1 per cent) to £232 million in 2018, with a decrease in the margin on a CER basisfrom 139 basis pointsin 2017 to 123 basis pointsin 2018 (AER: decreased from 143 basis pointsin 2017 to 123 basis pointsin 2018) predominantly reflecting the change in investment mix, country and product mix.
• Fee income hasincreased by 8 per cent on a CER basis(AER: 2 per cent) to £210 million in 2018, broadly in line with the increase in movement in average unit-linked policyholder liabilities.
• Insurance margin hasincreased by 15 per cent on a CER basis(AER: 10 per cent) to £1,481 million in 2018, primarily reflecting the continued growth of the in-force book, which contains a relatively high proportion of risk-based products.
• Margin on revenues hasincreased by 4 per cent on a CER basis(AER: lessthan 1 per cent) to £2,105 million in 2018, primarily reflecting higher premiumstogether with the effect of changesin product mix and higher premium allocation to policyholders.
• Acquisition costs have increased by 4 per cent on a CER basis(AER: lessthan 1 per cent) to £1,503 million in 2018, compared to a 2 per cent increase in APE sales on a CER basis, resulting in an increase in the acquisition costsratio. The analysisin the table above usesshareholder acquisition costs as a proportion of total APE sales. If with-profitssales were excluded from the denominator, the acquisition cost ratio would become 69 per cent (2017: 67 per cent on a CER basis), the increase being the result of product and country mix.
• Administration expensesincluding renewal commissions have increased by 10 per cent on a CER basis(AER: 6 per cent) to £1,029 million in 2018 asthe business continuesto expand. On a CER basis, the administration expense ratio has decreased from 267 basis pointsin 2017 to 264 basis pointsin 2018 as a result of changesin country and product mix.

I IFRS profit and loss information continued

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

Margin analysis of long-term insurance business – US

	2018				2017 AER		2017 CER note (iii)
	Profit £m	Average liability note (iv) £m	Margin note (ii) bps	Profit £m	Average liability note (iv) £m	Margin note (ii) bps	Profit £m	Average liability note (iv) £m	Margin note (ii) bps
Spread income	583	37,608	155	751	38,918	193	725	37,571	193
Fee income		2,445 133,407	183	2,343	125,440	187	2,262	120,997	187
Insurance margin	949			906			875
Expenses:
Acquisition costs note (i)	(759)	1,542	(49)%	(876)	1,662	(53)%	(846)	1,605	(53)%
Administration expenses		(1,204) 175,319	(69)		(1,174) 169,725	(69)		(1,134) 164,061	(69)
DAC adjustments	(114)			260			251
Expected return on shareholder assets	11			4			4
Adjusted IFRS operating profit based
on longer-term investment returns	1,911			2,214			2,137

Analysis of US adjusted IFRS operating profit based on long-term investment returns by driver:

• Spread income has decreased by 20 per cent on a CER basis(AER: 22 per cent) to £583 million in 2018. The reported spread margin decreased to 155 basis pointsfrom 193 basis pointsin 2017, primarily due to the impact of increasing LIBOR on interest rate swaps, lower investment yields and maturing ofswaps previously entered into to more closely match the asset and liability duration. Excluding the effect of these historic swap transactions, the spread margin would have been 130 basis points(2017: 144 basis points at CER and AER).
• Fee income hasincreased by 8 per cent on a CER basis(AER: 4 per cent) to £2,445 million during 2018, primarily due to higher average separate account balancesresulting from positive net flowsfrom variable annuity business and market appreciation during most of 2018 before a decline in the fourth quarter of 2018. Fee income margin has decreased to 183 basis points(2017:187 basis points at CER and AER) primarily reflecting a change in business mix.
• Insurance margin represents profitsfrom insurance risks, including variable annuity guarantees and othersundry items. Insurance margin increased by 8 per cent on a CER basis(AER: 5 per cent) to £949 million in 2018 mainly due to higher income from variable annuity guarantees and favourable mortality experience.
• Acquisition costs, which are commissions and expensesincurred to acquire new business, including those that are not deferrable, have decreased by 10 per cent on a CER basis(AER: 13 per cent). Thisreflects a 4 per cent decrease in APE sales and lower level of front-ended commissions.
• Administration expensesincreased by 6 per cent on a CER basis(AER: 3 per cent) to £(1,204) million during 2018, primarily as a result of higher asset-based commissions. Excluding these asset-based commissions, the resulting administration expense ratio would be lower at 34 basis points(2017: 35 basis points at CER and AER).
• DAC adjustmentsin 2018 was negative £(114) million (compared to £251 million credit in 2017 on a CER basis) due to an increase in the DAC amortisation charge. The higher DAC amortisation charge ariseslargely from an acceleration of amortisation of £(194) million (2017: credit for deceleration of £83 million on a CER basis) primarily relating to the market returnsin 2018 and the reversal of the benefit received in 2015 under the mean reversion formula.

Analysis of adjusted IFRS operating profit based on longer-term investment returns before and after acquisition costs and DAC adjustments

	2018 £m Acquisition costs			2017 AER £m Acquisition costs			2017 CER £m note (iii)
							Acquisition costs
	Before acquisi tion costs and DAC adjust ments		Incurred Deferred	After acquisi tion costs and DAC adjust ments	Before acquisi tion costs and DAC adjust ments		Incurred Deferred	After acquisi tion costs and DAC adjust ments	Before acquisi tion costs and DAC adjust ments		Incurred Deferred	After acquisi tion costs and DAC adjust ments
Total adjusted IFRS operating profit based on longer-term investment returns before acquisition costs and DAC adjustments Less new business strain	2,784	(759)	569	2,784 (190)	2,830	(876)	663	2,830 (213)	2,732	(846)	640	2,732 (206)
Amortisation of previously deferred acquisition costs: Normal (Accelerated) decelerated			(489) (194)	(489) (194)			(489) 86	(489) 86			(472) 83	(472) 83
Total	2,784	(759)	(114)	1,911	2,830	(876)	260	2,214	2,732	(846)	251	2,137

Analysis of adjusted IFRS operating profit based on longer-term investment returns for US operations by product

	2018 £m	2017 £m		2018 vs 2017 %
		AER	CER	AER	CER
Spread business	297	317	306	(6)%	(3)%
Fee business	1,532	1,788	1,726	(14)%	(11)%
Life and other business	82	109	105	(25)%	(22)%
Total insurance operations note	1,911	2,214	2,137	(14)%	(11)%
US asset management and broker-dealer	8	10	9	(20)%	(11)%
Total US operations	1,919	2,224	2,146	(14)%	(11)%

Note

The analysis of adjusted IFRS operating profit based on longer-term investment returnsforUS operations by product representsthe net profit generated by each line of business after allocation of costs. Broadly:

–Spread businessisthe net profit for fixed annuity, fixed indexed annuity and guaranteed investment contracts and largely comprisesspread income less costs.

–Fee businessrepresents profitsfrom variable annuity products. As well asfee income, revenue for this product line includesspread income from investments directed to the general account and other variable annuity feesincluded in insurance margin.

–Life and other businessincludesthe profitsfrom the REALIC business and other closed life books. Revenue allocated to this product line includesspread income and premiums and policy chargesfor life protection, which are included in insurance margin after claim costs. Insurance margin formsthe vast majority of revenue.

01

04

06 European Embedded Value (EEV)

I IFRS profit and loss information continued

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

Margin analysis of long-term insurance business – UK and Europe

	2018			2017
	Profit £m	Average liability note (iv) £m	Margin note (ii) bps	Profit £m	Average liability note (iv) £m	Margin note (ii) bps
Spread income	84	29,347	29	137	33,631	41
Fee income	56	21,931	26	61	22,632	27
With-profits	320	111,009	29	288	106,359	27
Insurance margin	50			55
Margin on revenues	149			189
Expenses:
Acquisition costs note (i)	(57)	1,516	(4)%	(68)	1,491	(5)%
Administration expenses	(180)	51,278	(35)	(164)	56,263	(29)
DAC adjustments	4			4
Expected return on shareholder assets	102			104
	528			606
Longevity reinsurance and other management
actionsto improve solvency	58			276
Changesin longevity assumption basis	441			204
Provision for guaranteed minimum pension
equalisation	(55)			–
Insurance recoveries of costs associated with
review of past annuity sales	166			–
Provision for review of past annuity sales	–			(225)
Adjusted IFRS operating profit based on
longer-term investment returns	1,138			861

Analysis of UK and Europe adjusted IFRS operating profit based on longer-term investment returns by driver:

• Spread income hasreduced from £137 million in 2017 to £84 million in 2018 reflecting the run-off of the in-force annuity portfolio and the effect of the reinsurance of £12.0 billion of annuity portfoliosto Rothesay Life entered into in March 2018.
• Fee income principally represents asset management feesfrom unit-linked business(including direct investment only businessto Group pension schemes where liability flows are driven by a small number of large single mandate transactions and mostly arises within theUK and Europe asset management business). Fee income is after costsrelating to managing the underlying funds which include recent rationalisation activity to remove sub-scale funds. If these costs and the direct investment only schemes are excluded, the fee margin on the remaining balances would be 36 basis points(2017: 40 basis points).

— Margin on revenuesrepresents premium chargesfor expenses ofshareholder-backed business and othersundry net income.

• The £441 million favourable effect of longevity assumption relatesto changesto annuitant mortality assumptionsto reflect current mortality experience and the adoption of the Continuous Mortality Investigation (CMI) 2016 model. Further information on changes to mortality assumptionsis given in note C4.1(d) in the IFRS financialstatements.
• An allowance provision of £(55) million has been made in 2018 to reflect the costs of equalising guaranteed minimum pension benefits on pension productssold by the insurance businessfollowing the ruling by theHigh Court in October 2018. Further information is provided in note C9 in the IFRS financialstatements.
• The 2018 insurance recoveries of costs associated with undertaking a review of past annuity sales of £166 million (2017: £nil) is explained in note C11, 'Provisions', in the IFRS financialstatements.

I(b) Asia operations – analysis of IFRS operating profit by business unit

Operating profit based on longer-term investment returnsfor Asia operationsis analysed asfollows:

	2018 £m	AER 2017 £m	CER 2017 £m	2017 AER vs 2018	2017 CER vs 2018
Hong Kong	443	346	332	28%	33%
Indonesia	416	457	415	(9)%	0%
Malaysia	194	173	178	12%	9%
Philippines	43	41	38	5%	13%
Singapore	329	272	269	21%	22%
Thailand	113	107	108	6%	5%
Vietnam	149	135	129	10%	16%
South-east Asia operations including Hong Kong	1,687	1,531	1,469	10%	15%
China	143	121	119	18%	20%
Taiwan	51	43	41	19%	24%
Other	51	71	67	(28)%	(24)%
Non-recurrent items note	94	75	73	25%	29%
Total insurance operations	2,026	1,841	1,769	10%	15%
Share of related tax chargesfrom joint ventures and associate*	(40)	(39)	(39)	(3)%	(3)%
Development expenses	(4)	(3)	(3)	(33)%	(33)%
Total long-term business operating profit	1,982	1,799	1,727	10%	15%
Asset management (Eastspring Investments)	182	176	171	3%	6%
Total Asia operations	2,164	1,975	1,898	10%	14%

*Under IFRS, theGroup'sshare of resultsfrom itsinvestmentsin joint ventures and associate accounted for using the equity method isincluded in theGroup's profit before tax on a net of related tax basis. In 2018, theGroup altered the presentation of its analysis of Asia operating profit to show these tax chargesseparately in order for the contribution from the joint ventures and associate to be included in the operating profit analysis on a consistent basis asthe rest of the Asia's operations. 2017 comparatives have been re-presented accordingly.

Note

In 2018, the IFRS operating profit based on longer-term investment returnsfor Asia insurance operationsincluded a net credit of £94 million (2017: £75 million) representing a small number of itemsthat are not expected to reoccur, including the impact of a refinement to the run-off of the allowance for prudence within technical provisions, within Singapore.

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

	2018 £m
	M&GPrudential asset management note (ii)	Eastspring Investments note (ii)
Operating income before performance-related fees	1,100	424
Performance-related fees	15	17
Operating income (net of commission) note (i)	1,115	441
Operating expense note (i)	(654)	(232)
Share of associate'sresults	16	–
Group'sshare of tax on joint ventures' operating profit	–	(27)
Operating profit based on longer-term investment returns	477	182
Average funds under management	£276.6bn	£146.3bn
Margin based on operating income*	40bps	29bps
Cost/income ratio†	59%	55%

06

I IFRS profit and loss information continued

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

	2017 £m
	M&GPrudential asset management note (ii)	Eastspring Investments note (ii)
Operating income before performance-related fees	1,034	421
Performance-related fees	53	17
Operating income (net of commission) note (i)	1,087	438
Operating expense note (i)	(602)	(238)
Share of associate'sresults	15	–
Group'sshare of tax on joint ventures' operating profit	–	(24)
Operating profit based on longer-term investment returns	500	176
Average funds under management	£275.9bn	£128.4bn
Margin based on operating income*	37bps	33bps
Cost/income ratio†	58%	56%

* Margin represents operating income before performance-related fees as a proportion of the related funds under management (FUM). Monthly closing internal and external funds managed by the respective entity have been used to derive the average. Any funds held by theGroup'sinsurance operationsthat are managed by third parties outside the Prudential Group are excluded from these amounts. M&GPrudential operating expense includes £27 million of Brexit preparation costs.

†Cost/income ratio represents cost as a percentage of operating income before performance-related fees.

Notes

(i) Operating income and expense include theGroup's pre-tax share of contribution from joint ventures but excludes any contribution from associate. In the consolidated income statement of the IFRS financialstatements, the net post-tax income of the joint ventures and associate isshown as a single line item.

(ii) Operating income before performance related fees and margin on related funds under management for M&GPrudential asset management and Eastspring Investments can be further analysed asfollows:

	M&GPrudential asset management
	Operating income before performance related fees
	Retail £m	Margin bps	Institutional* £m	Margin bps	Total £m	Margin bps
2018	662	85	438	22	1,100	40
2017	604	85	430	21	1,034	37

	Eastspring Investments Operating income before performance related fees
	Retail £m	Margin bps	Institutional* £m	Margin bps	Total £m	Margin bps
2018	252	50	172	18	424	29
2017	249	57	172	20	421	33

* Institutional includesinternal funds.

I(d) Contribution to UK long-term financial metrics from specific management actions undertaken to position the balance sheet more efficiently under the Solvency II regime

In 2018, further management actions were taken to improve the solvency of theUK and Europe insurance operations and to mitigate market risks. These actionsincluded repositioning the fixed income asset portfolio to improve the trade-off between yield and credit risk. No new longevity reinsurance transactions were undertaken in 2018 (2017: longevity reinsurance transactions entered into covering £0.5 billion of IFRS annuity liabilities).

The effect of these actions on theUK'slong-term IFRS operating profit, underlying free surplus generation and EEV operating profit, before restructuring costs, isshown in the tables below.

IFRS operating profit of UK long-term business before tax

	2018 £m	2017 £m
Shareholder-backed annuity new business	9	9
In-force business:
Longevity reinsurance transactions	–	31
Other management actionsto improve solvency	58	245
Changesin longevity assumption basis	441	204
Provision for the review of past annuity sales	–	(225)
Insurance recoveriesin respect of above costs	166	–
Provision for guaranteed minimum pension equalisation	(55)	–
	610	255
With-profits and other in-force	519	597
Total IFRS operating profit before restructuring costs	1,138	861

Underlying free surplus generation of UK long-term business

	2018 £m	2017 £m
Expected in-force and return on net worth	686	706
Longevity reinsurance transactions	–	15
Other management actionsto improve solvency	54	385
Changesin longevity assumption basis	364	179
Provision for the review of past annuity sales	–	(187)
Insurance recoveriesin respect of above costs	138	–
Provision for guaranteed minimum pension equalisation	(95)	–
	461	392
Other in-force	130	(28)
Underlying free surplus generated from in-force business	1,277	1,070
New businessstrain	(102)	(175)
Total free surplus generation before restructuring costs	1,175	895

EEV post-tax operating profit of UK long-term business

	2018 £m	2017 £m
Unwind of discount and other expected return	474	465
Longevity reinsurance transactions	–	(6)
Other management actionsto improve solvency	141	127
Changesin longevity assumption basis	330	195
Provision for the review of past annuity sales	–	(187)
Insurance recoveriesin respect of above costs	138	–
Provision for guaranteed minimum pension equalisation	(48)	–
	561	129
Other in-force	(13)	79
Operating profit from in-force business	1,022	673
New business profit	352	342
Total EEV operating profit before restructuring costs	1,374	1,015

04

06

II Other information

II(a) Holding company cash flow*

	2018 £m	2017 £m
Net cash remitted by business units:
Asia	699	645
US	342	475
UK and Europe:
With-profitsremittance	233	215
Shareholder-backed insurance businessremittance	97	105
Asset management remittance	324	323
	654	643
OtherUK paid to theGroup (including Prudential Capital)	37	25
Total UK net remittances to the Group	691	668
Net remittances to the Group from business units note (i)	1,732	1,788
Net interest paid	(366)	(415)
Tax received	142	152
Corporate activities	(206)	(207)
Total central outflows	(430)	(470)
Operating holding company cash flow before dividend	1,302	1,318
Dividend paid	(1,244)	(1,159)
Operating holding company cash flow after dividend	58	159
Non-operating net cash flow note (ii)	913	(511)
Total holding company cash flow	971	(352)
Cash and short-term investments at beginning of year	2,264	2,626
Foreign exchange movements	1	(10)
Cash and short-term investments at end of year note (iii)	3,236	2,264

* The holding company cash flow differsfrom the IFRS cash flow statement, which includes all cash flowsin the period including those relating to both policyholder and shareholder funds. The holding company cash flow istherefore a more meaningful indication of theGroup's central liquidity.

Notes

(i) Net cash remittances comprise dividends and other transfersfrom business unitsthat are reflective of emerging earnings and capital generation.

(ii) Non-operating net cash flow principally relatesto the issue ofsubordinated debt lessrepayment of debt, and paymentsfor distribution rights and acquisition ofsubsidiaries.

(iii) Including central finance subsidiaries.

II(b) Funds under management

(a) Summary

For our asset management businesses, funds managed on behalf of third parties are not recorded on the balance sheet. They are, however, a driver of profitability. We therefore analyse the movement in the funds under management each period, focusing on those which are external to theGroup and those primarily held by the insurance businesses. The table below analyses, by segment, the funds of theGroup held in the statement of financial position and the external fundsthat are managed by Prudential's asset management operations.

	31 Dec 2018 £bn	31 Dec 2017 £bn
Asia operations:
Internal funds	89.5	81.4
Eastspring Investments' external funds	61.1	55.9
	150.6	137.3
US operations: internal funds	183.1	178.3
UK and Europe operations:
Internal funds, including PruFund-backed products	174.3	186.8
External funds	146.9	163.9
	321.2	350.7
Other operations	2.4	3.0
Group total funds under management note	657.3	669.3

Note

Total funds under management comprise:

	31 Dec 2018 £bn	31 Dec 2017 £bn
Total investments per the consolidated statement of financial position	449.6	451.4
External funds of M&GPrudential and Eastspring Investments(as analysed in note (b) below)	208.0	219.8
Internally managed funds held in joint ventures and other adjustments	(0.3)	(1.9)
Group total funds under management	657.3	669.3

(b) Investment products – external funds under management

	2018 £m				2017 £m
	At 1 Jan 2018	Market gross	inflows Redemptions	Market and other movements	At 31 Dec 2018	At 1 Jan 2017	Market gross	inflows Redemptions	Market and other movements	At 31 Dec 2017
M&GPrudential Wholesale/Direct M&GPrudential	79,697	24,584	(29,452)	(5,364)	69,465	64,209	30,949	(19,906)	4,445	79,697
Institutional	84,158	12,954	(18,001)	(1,630)	77,481	72,554	15,220	(8,926)	5,310	84,158
Total M&GPrudential note (i) 163,855 Eastspring		37,538	(47,453)		(6,994) 146,946	136,763	46,169	(28,832)	9,755	163,855
Investments note (ii)		55,885 212,070	(212,156)	5,258	61,057	45,756	215,907	(211,271)	5,493	55,885
Total note (iii)		219,740 249,608	(259,609)		(1,736) 208,003	182,519	262,076	(240,103)	15,248	219,740

Notes

(i) The results exclude contribution from PruFund products: net inflows of £8.5 billion in 2018 (2017: £9.0 billion); funds under management of £43 billion as at 31 December 2018 (31 December 2017: £35.9 billion).

(ii) Market and other movements during the year for Eastspring investmentsinclude inflow of £9.3 billion funds under management from acquisition of TMB Asset Management Co., Ltd. ('TMBAM') in Thailand. See note D1.2 of the consolidated financialstatementsfor further details.

(iii) The £208 billion (31 December 2017: £219.7 billion) investment products comprise £196.4 billion (31 December 2017: £210.4 billion) plus Asia Money Market Funds of £11.6 billion (31 December 2017: £9.3 billion).

04

06

II Other information continued

II(b) Funds under management continued

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

M&G, the asset management business of M&GPrudential and Eastspring Investments, theGroup's asset management businessin Asia, manage fundsfrom external parties and also fundsfor theGroup'sinsurance operations. The table below analysesthe total funds under management managed by M&Gand Eastspring Investmentsrespectively.

	M&G		Eastspring Investments
	31 Dec 2018	31 Dec 2017	31 Dec 2018	31 Dec 2017
	£bn	£bn	note £bn	note £bn
External funds under management	146.9	163.9	61.1	55.9
Internal funds under management	118.2	134.6	90.2	83.0
Total funds under management	265.1	298.5	151.3	138.9

Note

The external funds under management for Eastspring Investmentsinclude Asia Money Market Funds at 31 December 2018 of £11.6 billion (31 December 2017: £9.3 billion).

II(c) Solvency II capital position

The estimatedGroup shareholder Solvency IIsurplus at 31 December 2018 was £17.2 billion, before allowing for payment of the 2018 second interim ordinary dividend and reflecting approved regulatory transitional measures as at 31 December 2018.

Estimated Group shareholder Solvency II capital position*	31 Dec 2018	31 Dec 2017
Own Funds(£bn)	30.2	26.4
Solvency Capital Requirement (£bn)	13.0	13.1
Surplus (£bn)	17.2	13.3
Solvency ratio (%)	232%	202%

* TheGroup shareholder capital position excludesthe contribution to Own Funds and the Solvency Capital Requirement from ring fenced with-profit funds and staff pension schemes in surplus. The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.

In accordance with Solvency II requirements, these results allow for:

• Capital in Jackson in excess of 250 per cent of theUS local Risk Based Capital requirement. As agreed with the Prudential Regulation Authority, thisisincorporated in the result above asfollows:
  • Own funds: representsJackson'slocalUS Risk Based available capital less 100 per cent of theUS Risk Based Capital requirement (Company Action Level);
  • Solvency Capital Requirement: represents 150 per cent of Jackson'slocalUS Risk Based Capital requirement (Company Action Level); and
  • No diversification benefits are taken into account between Jackson and the rest of theGroup.
• Matching adjustment forUK annuities and volatility adjustment forUS dollar denominatedHong Kong with-profits business, based on approvalsfrom the Prudential Regulation Authority and calibrations published by the European Insurance and Occupational Pensions Authority; and
• UK transitional measures, which have been recalculated using management's estimate of the impact of operating and market conditions at the valuation date. An application to recalculate the transitional measures as at 31 December 2018 has been approved by the Prudential Regulation Authority and thisrecalculation will therefore be reflected in the formal regulatory Quantitative Reporting Templates as at 31 December 2018.

TheGroup shareholder Solvency II capital position excludes:

• A portion of Solvency IIsurplus capital (£1.7 billion at 31 December 2018) relating to theGroup's Asian life operations, primarily due to the Solvency II definition of 'contract boundaries' which preventssome expected future cash flowsfrom being recognised;
• The contribution to Own Funds and the Solvency Capital Requirement from ring-fenced with-profitsfundsin surplus(representing £5.5 billion ofsurplus capital from UK with-profitsfunds at 31 December 2018) and from the shareholders'share of the estate of with-profitsfunds; and
• The contribution to Own Funds and the Solvency Capital Requirement from pension fundsin surplus.

It also excludes unrealised gains on certain derivative instrumentstaken out to protect Jackson against declinesin long-term interest rates. At Jackson'srequest, the Department of Insurance Financial Servicesrenewed its approval to carry these instruments at book value in the localstatutory returnsfor the period 31 December 2018 to 1 October 2019. At 31 December 2018, applying this approval had the effect of decreasing local available statutory capital and surplus(and by extension Solvency II Own Funds and Solvency IIsurplus) by £0.1 billion, net of tax. This arrangement reflects an elective long-standing practice first put in place in 2009, which can be unwound at Jackson's discretion.

The 31 December 2018 Solvency II results above allow for the reinsurance of £12.0 billion of theUK annuity portfolio to Rothesay Life effective from 14 March 2018 and the transfer of Prudential plc'sHong Kong subsidiariesto Prudential Corporation Asia Limited. In total these items have resulted in a decrease toUK Solvency IIsurplusin 2018 of £3.3 billion withGroup Solvency IIsurplusincreasing by £0.4 billion.

Analysis of movement in Group capital position

A summary of the estimated movement inGroup Solvency IIsurplusfrom £13.3 billion at year end 2017 to £17.2 billion at year end 2018 isset out in the table below. The movement from theGroup Solvency IIsurplus at 31 December 2016 to the Solvency IIsurplus at 31 December 2017 isincluded for comparison.

Analysis of movement in Group shareholder surplus	2018 Surplus £bn	2017 Surplus £bn
Estimated Solvency II surplus at beginning of year	13.3	12.5
Underlying operating experience	4.1	3.2
Management actions	0.1	0.4
Operating experience	4.2	3.6
Non-operating experience (including market movements) M&GPrudential transactions	(1.2) 0.4	(0.6) –
Other capital movements Netsubordinated debt issuance/redemption Foreign currency translation impacts Dividends paid	1.2 0.5 (1.2)	(0.2) (0.7) (1.2)
Model changes	0.0	(0.1)
Estimated Solvency II surplus at end of year	17.2	13.3

The estimated movement inGroup Solvency IIsurplus over 2018 is driven by:

• Operating experience of £4.2 billion: generated by in-force business and new business written in 2018, after allowing for amortisation of theUK transitional measures and the impact of one-off management optimisationsimplemented over the year. Thisincludes a £0.4 billion benefit from the impact of updatestoUK longevity best estimate assumptions and a £0.1 billion benefit from an insurance recovery relating to the costs and any related redress of reviewing internally vesting annuitiessold without advice after 1 July 2008;
• Non-operating experience of £(1.2) billion: resulting mainly from the negative impact of market movements, after allowing for the recalculation of theUK transitional measures at the valuation date, the impact ofUS Risk Based Capital updates announced in June 2018 to reflectUS tax reform changes and the £(0.3) billion impact from the acquisition of TMB Asset Management Co., Ltd. (see IFRS Financial Statements note D1.2 for further information);
• M&GPrudential transactions of £0.4 billion: the beneficial impact on theGroup Solvency IIsurplus of theUK annuitiesreinsurance transaction effective from 14 March 2018 and the transfer of Prudential plc'sHong Kong subsidiariesto Prudential Corporation Asia Limited after allowing for the impact of recalculation of theUK transitional measures as a result of these transactions;
• Other capital movements: comprising an increase in surplusfrom the net impact of debt raised offset by debt redeemed during 2018, a benefit from foreign currency translation and a reduction in surplusfrom payment of dividends; and
• Model changes: reflecting internal model changes approved by the Prudential Regulation Authority and other minor internal model calibration changes made in 2018.

06

II Other information continued

II(c) Solvency II capital position continued

Analysis of Group Solvency Capital Requirements

The split of theGroup's estimated Solvency Capital Requirement by risk type including the capital requirementsin respect of Jackson's risk exposures based on 150 per cent ofUS Risk Based Capital requirements(Company Action Level) but with no diversification between Jackson and the rest of theGroup, is asfollows:

	31 Dec 2018		31 Dec 2017
Split of the Group's estimated Solvency Capital Requirements	% of undiversified Solvency Capital Requirements	% of diversified Solvency Capital Requirements	% of undiversified Solvency Capital Requirements	% of diversified Solvency Capital Requirements
Market	57%	70%	57%	71%
Equity	13%	23%	14%	23%
Credit	23%	38%	24%	38%
Yields(interest rates)	16%	6%	13%	7%
Other	5%	3%	6%	3%
Insurance	24%	20%	26%	21%
Mortality/morbidity	5%	2%	5%	2%
Lapse	15%	17%	14%	17%
Longevity	4%	1%	7%	2%
Operational/expense	12%	8%	11%	7%
FX translation	7%	2%	6%	1%

Reconciliation of IFRS equity to Group Solvency II Shareholder Own Funds

Reconciliation of IFRS equity to Group Solvency II Shareholder Own Funds	31 Dec 2018 £bn	31 Dec 2017 £bn
IFRS shareholders' equity	17.2	16.1
RestateUS insurance entitiesfrom IFRS to localUS statutory basis	(2.5)	(3.0)
Remove DAC, goodwill and intangibles	(4.6)	(4.0)
Add subordinated debt	7.2	5.8
Impact of risk margin (net of transitional measures)	(3.8)	(3.9)
Add value ofshareholder transfers	5.3	5.3
Liability valuation differences	13.3	12.1
Increase in net deferred tax liabilitiesresulting from liability valuation differences above	(1.5)	(1.6)
Other	(0.4)	(0.4)
Estimated Solvency II Shareholder Own Funds	30.2	26.4

The key items of the reconciliation as at 31 December 2018 are:

— £(2.5) billion representsthe adjustment required to theGroup'sshareholders' fundsin order to convert Jackson's contribution from an IFRS basisto the localstatutory valuation basis. Thisitem also reflects a de-recognition of Own Funds of £1.0 billion, equivalent to the value of 100 per cent of Risk Based Capital requirements(CompanyAction Level), as agreed with the Prudential Regulation Authority;

— £(4.6) billion due to the removal of DAC, goodwill and intangiblesfrom the IFRS balance sheet;

• £7.2 billion due to the addition ofsubordinated debt which istreated as available capital under Solvency II but as a liability under IFRS; — £(3.8) billion due to the inclusion of a risk margin forUK and Asia non-hedgeable risks, net of £1.6 billion from transitional measures
• (after allowing for recalculation of the transitional measures as at 31 December 2018) which are not applicable under IFRS; — £5.3 billion due to the inclusion of the value of future shareholder transfersfrom with-profits business(excluding the shareholders' share of the with-profits estate, for which no credit is given under Solvency II), which is excluded from the determination of the
• Group'sIFRS shareholders' funds;
  • £13.3 billion mainly due to differencesin insurance valuation requirements between Solvency II and IFRS, with Solvency II Own Funds partially capturing the value of in-force business which is excluded from IFRS;
  • £(1.5) billion due to the impact on the valuation of net deferred tax liabilitiesresulting from the liability valuation differences noted above; and
  • £(0.4) billion due to other items, including the impact of revaluing loans, borrowings and debt from IFRS to Solvency II.

The estimated sensitivity of theGroup shareholder Solvency II capital position to significant changesin market conditionsis asfollows:

	31 Dec 2018		31 Dec 2017
Impact of market sensitivities	Surplus £bn	Ratio	Surplus £bn	Ratio
Base position	17.2	232%	13.3	202%
Impact of:
20% instantaneousfall in equity markets	(1.6)	(10)%	0.7	9%
40% fall in equity markets1	(4.0)	(28)%	(2.1)	(11)%
50 basis pointsreduction in interest rates2,3	(1.8)	(21)%	(1.0)	(14)%
100 basis pointsincrease in interest rates3	1.2	20%	1.2	21%
100 basis pointsincrease in creditspreads4	(1.7)	(9)%	(1.4)	(6)%

Notes

1 Where hedges are dynamic, rebalancing is allowed for by assuming an instantaneous 20 per cent fall followed by a further 20 per cent fall over a four-week period.

2 Subject to a floor of zero for Asia andUS interest rates.

3 Allowing for further transitional measuresrecalculation after the interest rate stress. 4 US Risk Based Capitalsolvency position included using a stress of 10 times expected credit defaults.

TheGroup believesit is positioned to withstand significant deteriorationsin market conditions and we continue to use market hedges to manage some of this exposure acrosstheGroup, where we believe the benefit of the protection outweighsthe cost. The sensitivity analysis above allowsfor predetermined management actions and those taken to date, but does not reflect all possible management actions which could be taken in the future.

UK Solvency II capital position1,2

On the same basis as above, the estimated shareholder Solvency IIsurplusfor The Prudential Assurance Company Limited ('PAC') and itssubsidiaries² at 31 December 2018 was £3.7 billion, after allowing for recalculation of transitional measures as at 31 December 2018. Thisrelatesto shareholder-backed businessincluding future with-profitsshareholder transfers, but excludesthe shareholders'share of the estate in line with Solvency II requirements.

Estimated UK shareholder Solvency II capital position*	31 Dec 2018	31 Dec 2017
Own Funds(£bn)	8.8	14.0
Solvency Capital Requirement (£bn)	5.1	7.9
Surplus (£bn)	3.7	6.1
Solvency ratio (%)	172%	178%

* TheUK shareholder capital position excludesthe contribution to Own Funds and the Solvency Capital Requirement from ring-fenced with-profit funds and staff pension schemes in surplus. The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.

The Prudential Assurance Company Limited shareholder Solvency II position at 31 December 2018 includesthe actual impact of the transfer of Prudential plc'sHong Kong subsidiariesto Prudential Corporation Asia Limited, and the impact of the reinsurance of £12.0 billion of theUK annuity portfolio to Rothesay Life. In total these items have resulted in a decrease toUK Solvency IIsurplusin 2018 of £3.3 billion.

Upon completion of the Part VII transfer a further circa £0.1 billion of Solvency Capital Requirement is expected to be released. Whilst there is a large surplusin theUK with-profitsfunds, thisisring-fenced from the shareholder balance sheet and istherefore excluded from both theGroup and theUK shareholder Solvency IIsurplusresults. The estimatedUK with-profitsfunds Solvency II surplus at 31 December 2018 was £5.5 billion, after allowing for recalculation of transitional measures as at 31 December 2018.

Estimated UK with-profits Solvency II capital position*	31 Dec 2018	31 Dec 2017
Own Funds(£bn)	9.7	9.6
Solvency Capital Requirement (£bn)	4.2	4.8
Surplus (£bn)	5.5	4.8
Solvency ratio (%)	231%	201%

* The estimated solvency positionsinclude management's calculation ofUK transitional measuresreflecting operating and market conditions at each valuation date, which for both 2018 and 2017 reflectsthe approved regulatory position.

01

04

06 European

II Other information continued

II(c) Solvency II capital position continued

Reconciliation of UK with-profits IFRS unallocated surplus to Solvency II Own Funds1

A reconciliation between the IFRS unallocated surplus and Solvency II Own FundsforUK with-profits businessis asfollows:

Reconciliation of UK with-profits funds	31 Dec 2018 £bn	31 Dec 2017 £bn
IFRS unallocated surplus ofUK with-profitsfunds	13.3	13.5
Value ofshareholder transfers	(2.4)	(2.7)
Risk margin (net of transitional measures)	(1.0)	(0.7)
Other valuation differences	(0.2)	(0.5)
Estimated Solvency II Own Funds	9.7	9.6

Annual regulatory reporting

TheGroup will publish its Solvency and Financial Condition Report and related quantitative templates no later than 4 June 2019. The templates will require usto combine theGroup shareholdersolvency position with those of all other ring fenced funds acrosstheGroup. In combining these solvency positions, the contribution to own fundsfrom these ring fenced funds will be set equal to their aggregate solvency capital requirements, estimated at £5.6 billion (ie the solvency surplusin these ring fenced funds will not be captured in the templates). There will be no impact on the reportedGroup Solvency IIsurplus.

Statement of independent review in respect of Solvency II Capital Position at 31 December 2018

The methodology, assumptions and overall result have been subject to examination by KPMGLLP.

Notes

1 TheUK with-profits capital position includesthe PAC with-profitssub-fund, the Scottish Amicable Insurance Fund and the Defined Charge Participating Sub-Fund. 2 The insurance subsidiaries of PAC are Prudential International Assurance plc and Prudential Pensions Limited. PrudentialGeneral InsuranceHong Kong Limited and Prudential

Hong Kong Limited are no longersubsidiaries of PAC following the transfer of theseHong Kong subsidiariesto Prudential Corporation Asia Limited in 2018.

3 Thisreview isseparate from thatset out on page 330.

II(d) Reconciliation of expected transfer of value of in-force business (VIF) and required capital to free surplus

The tables below show how the value of in-force business(VIF) generated by the in-force long-term business and the associated required capital is modelled as emerging into free surplus over the next 40 years. Although a small amount (circa 5 per cent) of theGroup's embedded value emerges after this date, analysis of cash flows emerging in the yearsshown in the tablesis considered most meaningful. The modelled cash flows use the same methodology underpinning theGroup's embedded value reporting and so are subject to the same assumptions and sensitivities used to prepare our 2018 results.

In addition to showing the amounts, both discounted and undiscounted, expected to be generated from all in-force business at 31 December 2018, the tables also present the expected future free surplusto be generated from the investment made in new business during 2018 over the same 40-year period for long-term business operations.

	31 Dec 2018 £m
	Undiscounted expected generation from all in-force business*				Undiscounted expected generation from new business written*
Expected period of emergence	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
2019	1,560	1,584	593	3,737	204	205	31	440
2020	1,504	1,674	609	3,787	200	153	34	387
2021	1,446	1,737	591	3,774	195	147	36	378
2022	1,441	1,674	572	3,687	206	154	38	398
2023	1,438	1,625	555	3,618	187	122	42	351
2024	1,371	1,629	537	3,537	166	73	38	277
2025	1,345	1,407	521	3,273	176	60	36	272
2026	1,332	1,249	497	3,078	167	166	35	368
2027	1,309	1,224	472	3,005	155	163	34	352
2028	1,266	1,143	448	2,857	163	147	34	344
2029	1,177	1,056	425	2,658	131	136	32	299
2030	1,169	962	402	2,533	134	129	31	294
2031	1,145	798	379	2,322	122	108	29	259
2032	1,131	645	465	2,241	120	97	30	247
2033	1,115	422	435	1,972	137	85	29	251
2034	1,061	448	405	1,914	119	74	27	220
2035	1,059	242	375	1,676	120	51	25	196
2036	1,081	135	346	1,562	120	49	24	193
2037	1,113	94	319	1,526	120	44	23	187
2038	1,104	102	292	1,498	129	44	22	195
2039-2043	6,131	320	1,137	7,588	884	84	83	1,051
2044-2048	5,843	–	696	6,539	944	–	49	993
2049-2053	5,452	–	329	5,781	922	–	31	953
2054-2058	4,964	–	157	5,121	897	–	17	914
Total free surplus expected to emerge
in the next 40 years	47,557	20,170	11,557	79,284	6,718	2,291	810	9,819

* The analysis excludes amountsincorporated into VIF at 31 December 2018 where there is no definitive time frame for when the payments will be made or receiptsreceived. In particular, it excludesthe value of the shareholders' interest in the with-profits estate. It also excludes any free surplus emerging after 2058.

The above amounts can be reconciled to the new business amounts asfollows:

	Asia		US UK and Europe	Total
Undiscounted expected free surplus generation for years 2019 to 2058 Less: discount effect	6,718 (3,964)	2,291 (905)	810 (352)	9,819 (5,221)
Discounted expected free surplus generation for years 2019 to 2058 Discounted expected free surplus generation for years after 2058 Less: Free surplusinvestment in new business Other items*	2,754 863 (488) (525)	1,386 – (225) (240)	458 1 (102) (5)	4,598 864 (815) (770)
Post-tax EEV new business profit for long-term business operations	2,604	921	352	3,877

* Other itemsrepresent the impact of the time value of options and guarantees on new business, foreign exchange effects and other non-modelled items. Foreign exchange effects arise as EEV new business profit amounts are translated at average exchange rates and the expected free surplus generation uses year end closing rates.

06

II Other information continued

II(d) Reconciliation of expected transfer of value of in-force business (VIF) and required capital to free surplus continued

The undiscounted expected free surplus generation from all in-force business at 31 December 2018 shown below can be reconciled to the amount that was expected to be generated as at 31 December 2017 asfollows:

Group	2018 £m	2019 £m	2020 £m	2021 £m	2022 £m	2023 £m	Other £m	Total £m
2017 expected free surplus generation for years 2018 to 2057	3,528	3,462	3,456	3,467	3,318	3,253	49,636	70,120
Less: Amounts expected to be realised in the current year	(3,528)	–	–	–	–	–	–	(3,528)
Add: Expected free surplusto be
generated in year 2058*	–	–	–	–	–	–	649	649
Foreign exchange differences New business	– –	129 440	132 387	137 378	132 398	132 351	1,916 7,865	2,578 9,819
Operating movements	–	(52)	(60)	(22)	23	56
Non-operating and other movements	–	(242)	(128)	(186)	(184)	(174)	615	(354)
2018 expected free surplus generation for years 2019 to 2058	–	3,737	3,787	3,774	3,687	3,618	60,681	79,284
Asia operations	2018 £m	2019 £m	2020 £m	2021 £m	2022 £m	2023 £m	Other £m	Total £m
2017 expected free surplus generation
for years 2018 to 2057	1,393	1,352	1,299	1,256	1,239	1,202	30,029	37,770
Less: Amounts expected to be realised
in the current year	(1,393)	–	–	–	–	–	–	(1,393)
Add: Expected free surplusto be
generated in year 2058*	–	–	–	–	–	–	610	610
Foreign exchange differences	–	40	40	41	42	43	1,304	1,510
New business	–	204	200	195	206	187	5,726	6,718
Operating movements	–	(24)	(38)	(42)	(25)	(22)
Non-operating and other movements	–	(12)	3	(4)	(21)	28	2,499	2,342
2018 expected free surplus generation for years 2019 to 2058	–	1,560	1,504	1,446	1,441	1,438	40,168	47,557
* Excluding 2018 new business.
US operations	2018 £m	2019 £m	2020 £m	2021 £m	2022 £m	2023 £m	Other £m	Total £m
2017 expected free surplus generation
for years 2018 to 2057	1,464	1,425	1,483	1,551	1,441	1,433	9,847	18,644
Less: Amounts expected to be realised
in the current year	(1,464)	–	–	–	–	–	–	(1,464)
Foreign exchange differences	–	89	92	96	90	89	612	1,068
New business	–	205	153	147	154	122	1,510	2,291
Operating movements	–	(25)	(18)	27	58	85
Non-operating and other movements	–	(110)	(36)	(84)	(69)	(104)	(93)	(369)
2018 expected free surplus generation
for years 2019 to 2058	–	1,584	1,674	1,737	1,674	1,625	11,876	20,170

M&GPrudential insurance operations	2018 £m	2019 £m	2020 £m	2021 £m	2022 £m	2023 £m	Other £m	Total £m
2017 expected free surplus generation
for years 2018 to 2056	671	685	674	660	638	618	9,760	13,706
Less: Amounts expected to be realised
in the current year	(671)	–	–	–	–	–	–	(671)
Add: Expected free surplusto be
generated in year 2058*	–	–	–	–	–	–	39	39
New business	–	31	34	36	38	42	629	810
Operating movements	–	(3)	(4)	(7)	(10)	(7)
Non-operating and other movements	–	(120)	(95)	(98)	(94)	(98)	(1,791)	(2,327)
2018 expected free surplus generation
for years 2019 to 2058	–	593	609	591	572	555	8,637	11,557

* Excluding 2018 new business.

At 31 December 2018, the total free surplus expected to be generated over the next five years(2019 to 2023 inclusive), using the same assumptions and methodology asthose underpinning our 2018 embedded value reporting was £18.6 billion, an increase of £1.4 billion from the £17.2 billion expected over an equivalent period from the end of 2017.

Thisincrease primarily reflectsthe new business written in 2018, which is expected to generate £1,954 million of free surplus over the next five years.

At 31 December 2018, the total free surplus expected to be generated on an undiscounted basisin the next 40 yearsis £79.3 billion, up from the £70.1 billion expected at the end of 2017, reflecting the effect of new business written across all three business operations of £9.8 billion, a positive foreign exchange translation effect of £2.6 billion and a £(0.4) billion net effect reflecting operating, market assumption changes and other items. The £2.3 billion impact in Asia of operating, non-operating and other movementsincludesthe net benefit from changesin operating assumptionsfollowing the annual review of experience, together with the benefit of management actions and generally higher interest ratesincreasing projected returns. The £(0.4) billion impact in theUS mainly reflectsthe effect of lower than expected separate account return in the year, partially offset by the positive effect from persistency assumption updates and higher interest ratesincreasing future separate account return. The £(2.3) billion impact in theUK and Europe reflectsthe effect of lower than assumed investment returns on with-profitsfunds and the reinsurance of part of itsshareholder annuity portfolio to Rothesay Life as discussed in note 17. The overall growth in theGroup's undiscounted value of free surplusreflects our ability to write both growing and profitable new business.

Actual underlying free surplus generated in 2018 from life businessin force, before restructuring costs, at the end of 2018 was £4.4 billion including £0.8 billion of changesin operating assumptions and experience variances. This compares with the expected 2018 realisation at the end of 2017 of £3.5 billion. In theUK and Europe, the difference between the transfer to free surplusrecognised in 2018 and the free surplus expected to be generated at 31 December 2017 reflectsthe reinsurance of the shareholder annuity portfolio to Rothesay Life (as discussed in note 17) which was not known at 2017. This can be analysed further asfollows:

	Asia £m	US £m	UK and Europe £m	Total £m
Transfer to free surplusin 2018	1,370	1,462	607	3,439
Expected return on free assets	68	54	79	201
Changesin operating assumptions and experience variances	62	125	591	778
Underlying free surplus generated from in-force life business
before restructuring costs in 2018	1,500	1,641	1,277	4,418
2018 free surplus expected to be generated at 31 December 2017	1,393	1,464	671	3,528

04

06 European

07 Additional information

II Other information continued

II(d) Reconciliation of expected transfer of value of in-force business (VIF) and required capital to free surplus continued

The equivalent discounted amounts of the undiscounted expected transfersfrom in-force business and required capital into free surplus shown previously are asfollows:

	31 Dec 2018 £m
Expected period of emergence		Discounted expected generation from all in-force business			Discounted expected generation from new business written
	Asia	US	UK and Europe	Total	Asia	US	UK and Europe	Total
2019	1,495	1,497	579	3,571	194	198	31	423
2020	1,353	1,486	568	3,407	176	139	32	347
2021	1,217	1,447	531	3,195	161	126	33	320
2022	1,140	1,307	488	2,935	159	121	34	314
2023	1,071	1,191	450	2,712	138	92	35	265
2024	965	1,120	411	2,496	116	52	31	199
2025	895	910	379	2,184	118	41	28	187
2026	835	760	341	1,936	106	100	26	232
2027	776	694	308	1,778	92	92	24	208
2028	714	610	274	1,598	92	77	22	191
2029	624	527	245	1,396	68	67	20	155
2030	588	452	215	1,255	65	60	18	143
2031	548	355	187	1,090	56	46	16	118
2032	516	273	218	1,007	52	39	16	107
2033	486	164	188	838	56	32	14	102
2034	436	165	163	764	47	25	12	84
2035	415	93	139	647	45	16	10	71
2036	409	52	123	584	43	14	9	66
2037	407	33	110	550	41	12	8	61
2038	386	35	98	519	43	11	6	60
2039-2043	1,951	123	324	2,398	285	26	21	332
2044-2048	1,509	–	110	1,619	251	–	10	261
2049-2053	1,128	–	38	1,166	197	–	2	199
2054-2058	811	–	4	815	153	–	–	153
Total discounted free surplus expected
to emerge in the next 40 years	20,675	13,294	6,491	40,460	2,754	1,386	458	4,598

The above amounts can be reconciled to theGroup's EEV basis financialstatements asfollows:

	31 Dec 2018 £m
Discounted expected generation from all in-force businessfor years 2019 to 2058	40,460
Discounted expected generation from all in-force businessfor years after 2058	2,659
Discounted expected generation from all in-force business at 31 December 2018	43,119
Add: Free surplus of life operations held at 31 December 2018	7,527
Less: Time value of guarantees	(2,427)
Other non-modelled items	2,169
Total EEV for long-term business operations	50,388

<-- PDF CHUNK SEPARATOR -->

The tables below show theGroup's key free surplus, IFRS and EEV, metrics analysis by contribution by currency group:

Free surplus and Group IFRS results

	Underlying free surplus generated for total insurance and asset management operations note (iii)	IFRS pre-tax operating profit notes(ii),(iv)	IFRS shareholders' funds notes(ii),(iv)
US dollar linked note (i)	15%	28%	22%
Other Asia currencies	13%	17%	15%
Total Asia	28%	45%	37%
UK sterling notes (ii),(iv)	39%	15%	49%
US dollar note (iv)	33%	40%	14%
Total	100%	100%	100%

Group EEV post-tax results

	New business profit	Operating profit notes(ii),(iv)	Shareholders' funds notes(i),(iv)
US dollar linked note (i)	57%	53%	40%
Other Asia currencies	10%	7%	10%
Total Asia	67%	60%	50%
UK sterling notes (ii),(iv)	9%	12%	26%
US dollar note (iv)	24%	28%	24%
Total	100%	100%	100%

Notes

(i) US dollar linked comprise theHong Kong and Vietnam operations where the currencies are pegged to theUS dollar and the Malaysia and Singapore operations where the currencies are managed against a basket of currenciesincluding theUS dollar.

(ii) For operating profit and shareholders' funds,UK sterling includes amountsin respect of M&GPrudential and other operations(including central operations and Prudential Capital). Operating profit for central operationsincludes amountsfor corporate expenditure forGroupHead Office as well as Asia RegionalHead Office which isincurred inHK dollars as well asrestructuring costsincurred by theGroup.

(iii) For operating free surplus generation,UK sterling includes amountsin respect of restructuring costsincurred by insurance and asset management operations.

(iv) Forshareholders' funds, theUS dollar grouping includesUS dollar denominated core structural borrowings. Sterling operating profitsinclude all interest payable assterling denominated, reflecting interest rate currency swapsin place.

II(f) Option schemes

TheGroup presently grantsshare optionsthrough fourschemes, and exercises of the options are satisfied by the issue of new shares. Executive directors and eligible employees based in theUK may participate in the Prudential Savings-Related Share Option Scheme. Executives and eligible employees based in Asia as well as eligible employees based in Europe can participate in the Prudential International Savings-Related Share Option Scheme, while agents based in certain regions of Asia can participate in the Prudential International Savings-Related Share Option Scheme forNon-Employees. Employees based in Dublin are eligible to participate in the Prudential International Assurance Sharesave Plan, which currently has no outstanding optionsin issue. Further details of the schemes and accounting policies are detailed in note B2.2 of the IFRS basis consolidated financialstatements.

All options were granted at £nil consideration.No options have been granted to substantialshareholders,suppliers of goods or services(excluding options granted to agents under the Prudential International Savings-Related Share Option Scheme forNonemployees) or in excess of the individual limit for the relevantscheme.

The optionsschemes will terminate asfollows, unlessthe directorsresolve to terminate the plans at an earlier date:

• Prudential Savings-Related Share Option Scheme: 16 May 2023;
• Prudential International Savings-Related Share Option Scheme: 19 May 2021;
• Prudential International Assurance Sharesave Plan: 3 August 2019; and
• Prudential International Savings-Related Share Option Scheme forNon-Employees 2012: 12 May 2022.

The weighted average share price of Prudential plc for the year ended 31 December 2018 was £17.36 (2017: £17.51).

Particulars of options granted to directors are included in the Directors' remuneration report on page 154.

The closing price of the sharesimmediately before the date on which the options were granted during the year was £16.81.

The following analysesshow the movement in optionsfor each of the option schemesfor the year ended 31 December 2018.

02

05

06 European

Additional information

II Other information continued

Prudential Savings-Related Share Option Scheme II(f) Option schemes continued

			Exercise period	Number of options
Date of grant	Exercise price £	Beginning	End	Beginning of year	Granted	Exercised	Cancelled	Forfeited	Lapsed	End of year
21 Sep 12	6.29		01 Dec 17 31 May 18	25,239	–	(24,762)	–	–	(477)	–
20 Sep 13	9.01		01 Dec 18 31 May 19	66,202	–	(37,927)	–	–	(543)	27,732
23 Sep 14	11.55		01 Dec 17 31 May 18	156,359	–	(156,048)	–	–	(311)	–
23 Sep 14	11.55		01 Dec 19 31 May 20	359,247	–	(36,474)	(3,409)	(2,901)	(12,747)	303,716
22 Sep 15	11.11		01 Dec 18 31 May 19	847,546	–	(553,825)	(9,443)	(19,537)	(7,997)	256,744
22 Sep 15	11.11		01 Dec 20 31 May 21	213,547	–	(13,870)	(4,185)	(4,266)	(10,700)	180,526
21 Sep 16	11.04		01 Dec 19 31 May 20	663,871	–	(34,921)	(44,340)	(21,317)	(24,366)	538,927
21 Sep 16	11.04		01 Dec 21 31 May 22	145,658	–	(5,372)	(7,224)	(2,715)	(9,242)	121,105
21 Sep 17	14.55		01 Dec 20 31 May 21	809,303	–	(13,978)	(58,878)	(23,350)	(44,821)	668,276
21 Sep 17	14.55		01 Dec 22 31 May 23	138,097	–	(1,226)	(11,849)	(3,833)	(5,842)	115,347
				3,425,069	–		(878,403) (139,328)		(77,919) (117,046)	2,212,373

The total number ofsecurities available for issue under the scheme is 2,212,373 which represents 0.085 per cent of the issued share capital at 31 December 2018.

The weighted average closing price of the sharesimmediately before the dates on which the options were exercised during the current period was £16.22.

There were no options granted under the plan during the current period.

Prudential International Savings-Related Share Option Scheme

			Exercise period	Number of options
Date of grant	Exercise price £	Beginning	End	Beginning of year	Granted	Exercised	Cancelled	Forfeited	Lapsed	End of year
21 Sep 12	6.29		01 Dec 17 31 May 18	662	–	(662)	–	–	–	–
20 Sep 13	9.01		01 Dec 18 31 May 19	38,352	–	(14,364)	(4,659)	(942)	–	18,387
23 Sep 14	11.55		01 Dec 17 31 May 18	2,414	–	(2,414)	–	–	–	–
23 Sep 14	11.55		01 Dec 19 31 May 20	4,464	–	–	(51)	–	–	4,413
22 Sep 15	11.11		01 Dec 18 31 May 19	23,556	–	(13,836)	(4,860)	–	–	4,860
22 Sep 15	11.11		01 Dec 20 31 May 21	3,240	–	–	(540)	–	–	2,700
21 Sep 16	11.04		01 Dec 19 31 May 20	15,516	–	–	(4,088)	(652)	–	10,776
21 Sep 17	14.55		01 Dec 20 31 May 21	12,542	–	–	(2,722)	–	–	9,820
21 Sep 17	14.55		01 Dec 22 31 May 23	3,298	–	–	–	–	–	3,298
18 Sep 18	13.94		01 Dec 21 31 May 22	–	22,005	–	–	–	–	22,005
18 Sep 18	13.94		01 Dec 23 31 May 24	–	1,076	–	–	–	–	1,076
				104,044	23,081	(31,276)	(16,920)	(1,594)	–	77,335

The total number ofsecurities available for issue under the scheme is 77,335 which represents 0.003 per cent of the issued share capital at 31 December 2018.

The weighted average closing price of the sharesimmediately before the dates on which the options were exercised during the current period was £15.80.

The weighted average fair value of options granted under the plan in the period was £3.13.

03

02

04

06

Prudential International Assurance Sharesave Plan

There are no securities available for issue under the scheme at 31 December 2018.

Prudential International Savings-Related Share Option Scheme for Non-Employees

			Exercise period	Number of options
Date of grant	Exercise price £	Beginning	End	Beginning of year	Granted	Exercised	Cancelled	Forfeited	Lapsed	End of year
21 Sep 12	6.29		01 Dec 17 31 May 18	15,264	–	(15,264)	–	–	–	–
20 Sep 13	9.01		01 Dec 18 31 May 19	388,250	–	(148,769)	(3,494)	–	–	235,987
23 Sep 14	11.55		01 Dec 17 31 May 18	237,637	–	(236,372)	(1,265)	–	–	–
23 Sep 14	11.55		01 Dec 19 31 May 20	472,145	–	–	(12,980)	–	–	459,165
22 Sep 15	11.11		01 Dec 18 31 May 19	452,343	–	(181,067)	(9,784)	–	(14)	261,478
22 Sep 15	11.11		01 Dec 20 31 May 21	383,962	–	–	(7,290)	–	–	376,672
21 Sep 16	11.04		01 Dec 19 31 May 20	329,712	–	–	(671)	(2,445)	–	326,596
21 Sep 16	11.04		01 Dec 21 31 May 22	198,415	–	–	(1,358)	–	–	197,057
21 Sep 17	14.55		01 Dec 20 31 May 21	267,661	–	–	(2,731)	(1,103)	–	263,827
21 Sep 17	14.55		01 Dec 22 31 May 23	174,351	–	–	(2,060)	–	–	172,291
18 Sep 18	13.94		01 Dec 21 31 May 22	–	184,780	–	–	–	–	184,780
18 Sep 18	13.94		01 Dec 23 31 May 24	–	118,243	–	–	–	–	118,243
				2,919,740	303,023	(581,472)	(41,633)	(3,548)	(14)	2,596,096

The total number ofsecurities available for issue under the scheme is 2,596,096 which represents 0.100 per cent of the issued share capital at 31 December 2018.

The weighted average closing price of the sharesimmediately before the dates on which the options were exercised during the current period was £16.72.

The weighted average fair value of options granted under the plan in the period was £3.30.

II(g) Selected historical financial information of Prudential

The following table setsforth Prudential'sselected consolidated financial data for the periodsindicated. Certain data is derived from Prudential's audited consolidated financialstatements prepared in accordance with International Financial Reporting Standards(IFRS) asissued by the International Accounting Standards Board (IASB) and as adopted by the EuropeanUnion (EU) and European Embedded Value (EEV).

Thistable is only a summary and should be read in conjunction with Prudential's consolidated financialstatements and the related notesincluded elsewhere in this document.

II Other information continued

Income statement data II(g) Selected historical financial information of Prudential continued

IFRS basis results	2018 £m	2017 £m	2016 £m	2015 £m	2014 £m
Gross premiums earned	47,224	44,005	38,981	36,663	32,832
Outward reinsurance premiums note (v)	(14,023)	(2,062)	(2,020)	(1,157)	(799)
Earned premiums, net of reinsurance	33,201	41,943	36,961	35,506	32,033
Investment return	(10,263)	42,189	32,511	3,304	25,787
Other income note (vi)	1,993	2,258	2,246	2,356	2,137
Total revenue, net of reinsurance	24,931	86,390	71,718	41,166	59,957
Benefits and claims and movement in unallocated surplus
of with-profitsfunds, net of reinsurance	(12,568)	(72,532)	(59,366)	(29,656)	(50,169)
Acquisition costs and other expenditure note (vi)	(8,855)	(9,993)	(8,724)	(8,069)	(6,583)
Finance costs: interest on core structural borrowings
ofshareholder-financed businesses	(410)	(425)	(360)	(312)	(341)
(Loss) gain on disposal of businesses and corporate transactions	(80)	223	–	(46)	(13)
Re-measurement of the sold Korea life business	–	5	(238)	–	–
Total charges, net of reinsurance and (loss) gain on disposal
of businesses	(21,913)	(82,722)	(68,688)	(38,083)	(57,106)
Share of profitsfrom joint ventures and associates,
net of related tax	291	302	182	238	303
Profit before tax (being tax attributable to shareholders'
and policyholders' returns) note (i)	3,309	3,970	3,212	3,321	3,154
Tax credit (charges) attributable to policyholders' returns	326	(674)	(937)	(173)	(540)
Profit before tax attributable to shareholders	3,635	3,296	2,275	3,148	2,614
Tax charges attributable to shareholders' returns	(622)	(906)	(354)	(569)	(398)
Profit for the year	3,013	2,390	1,921	2,579	2,216
	2018	2017	2016	2015	2014
Based on profit for the year attributable to the equity holders
of the Company (in pence):
Basic earnings pershare	116.9p	93.1p	75.0p	101.0p	86.9p
Diluted earnings pershare	116.8p	93.0p	75.0p	100.9p	86.8p
Dividend pershare declared and paid in reporting period	48.17p	45.07p	49.40p	38.05p	35.03p
Interim ordinary dividend/final ordinary dividend	48.17p	45.07p	39.40p	38.05p	35.03p
Special dividend	–	–	10.00p	–	–

Supplementary IFRS income statement data

	2018 £m	2017 £m	2016 £m	2015 £m	2014 £m
Operating profit based on longer-term investment returns note (ii)	4,827	4,699	4,256	3,969	3,154
Non-operating items	(1,192)	(1,403)	(1,981)	(821)	(540)
Profit before tax attributable to shareholders	3,635	3,296	2,275	3,148	2,614
Operating earnings pershare (in pence)	156.6p	145.2p	131.3p	124.6p	95.7p

Supplementary EEV income statement data (post-tax)

	2018 £m	2017 £m	2016 £m	2015 £m	2014 £m
Operating profit based on longer-term investment returns note (ii) Non-operating items	7,563 (2,975)	6,598 2,153	5,497 (981)	4,840 (889)	4,108 235
Profit attributable to shareholders	4,588	8,751	4,516	3,951	4,343
Operating earnings pershare (in pence)	293.6p	257.0p	214.7p	189.6p	161.2p

New business data

	2018 £m	2017 £m	2016 £m	2015 £m	2014 £m
Annual premium equivalent (APE)sales EEV new business profit (NBP) (post-tax)	6,802 3,877	6,958 3,616	6,320 3,088	5,466 2,609	4,514 2,104
NBP margin (% of APE)	57%	52%	49%	48%	47%

Statement of financial position data

31 December	2018 £m	2017 £m	2016 £m	2015 £m	2014 £m
Total assets	508,645	493,941	470,498	386,985	369,204
Total policyholder liabilities and unallocated surplus of
with-profitsfunds	425,146	428,194	403,313	335,614	321,989
Core structural borrowings ofshareholder-financed businesses	7,664	6,280	6,798	5,011	4,304
Total liabilities	491,378	477,847	455,831	374,029	357,392
Total equity	17,267	16,094	14,667	12,956	11,812

Other data

31 December	2018 £bn	2017 £bn	2016 £bn	2015 £bn	2014 £bn
Funds under management note (iii)	657	669	602	509	496
EEV shareholders' equity, excluding non-controlling interests	49.8	45	39.0	32.4	29.2
Group shareholder Solvency IIsurplus note (iv)	17.2	13.4	12.5	9.7	n/a
InsuranceGroups Directive capitalsurplus before final dividend	n/a	n/a	n/a	5.5	4.7

Notes

(i) This measure isthe formal profit (loss) before tax measure under IFRS but is not the result attributable to shareholders.

(ii) Operating profits are determined on the basis of including longer-term investment returns. EEV and IFRS operating profits are stated after excluding the effect ofshort-term fluctuationsin investment returns against long-term assumptions, gain on dilution of theGroup's holdings, the costs arising from the domestication of theHong Kong business, profit (loss) attaching to the sale of Japan life and profit (loss) attaching to the held forsale Korea life business. Separately on the IFRS basis, operating profit also excludes amortisation of acquisition accounting adjustments. In addition, for EEV basisresults, operating profit excludesthe effect of changesin economic assumptions, the market value movement on core borrowings and in 2012, the gain arising on the acquisition of REALIC.

(iii) Funds under management comprise funds of theGroup held in the statement of financial position and external fundsthat are managed by Prudential asset management operations. (iv) The 2018 surplusis estimated.

(v) Outward reinsurance premiums of £(14,023) million includes £(12,149) million paid during the year in respect of the reinsurance of theUK annuity portfolio. See note D1.1 of the IFRS financialstatementsfor further details.

(vi) The comparative resultsfrom 2014 to 2017 have been re-presented from those previously published for the deduction of certain expenses against revenue following the adoption of IFRS 15. See note A2 of the IFRS financialstatements.

III Calculation of alternative performance measures

The annual report uses alternative performance measures(APMs) to provide more relevant explanations of theGroup's financial position and performance. Thissection sets out explanationsfor each APM and reconciliationsto relevant IFRS balances.

III(a) Reconciliation of adjusted IFRS operating profit based on longer-term investment returns to profit before tax

The annual report uses alternative performance measures(APMs) to provide more relevant explanations of theGroup's financial position and performance. Thissection sets out explanationsfor each APM and reconciliationsto relevant IFRS balances.

Adjusted IFRS operating profit attributable to shareholders based on longer-term investment returns presentsthe operating performance of the business. This measurement basis adjustsfor the following items within total IFRS profit before tax:

• Short-term fluctuationsin investment returns on shareholder-backed business;
• Amortisation of acquisition accounting adjustments arising on the purchase of business; and
• Gain or loss on corporate transactions,such as disposals undertaken in the year.

More details on how adjusted IFRS operating profit based on longer-term investment returnsis determined are included in note B1.3 of the IFRS financialstatements.

02

06

III Calculation of alternative performance measures continued

III(b) Calculation of return on IFRS shareholders' funds

Return on IFRS shareholders' fundsis calculated as operating profit based on longer-term investmentreturns net of tax and non-controlling interests divided by opening shareholders' funds. Operating profit based on longer-term investment returnsisreconciled to IFRS profit before tax in note B1 to the IFRS financialstatements.

Note	2018 £m	2017 £m
Operating profit based on longer-term investment returns B1.1	4,827	4,699
Tax on operating profit	(792)	(971)
Profit attributable to non-controlling interests	(3)	(1)
Operating profit based on longer-term investment returns,
net of tax and non-controlling interests	4,032	3,727
Opening shareholders' funds	16,087	14,666
Return on shareholders' funds	25%	25%

III(c) Calculation of IFRS gearing ratio

Gearing ratio is calculated as net core structural borrowings ofshareholder-financed operations divided by closing IFRS shareholders' funds plus net core structural borrowings.

Note	31 Dec 2018 £m	31 Dec 2017 £m
Core structural borrowings ofshareholder-financed operations C6.1 Less:Holding company cash and short-term investments II(a)	7,664 (3,236)	6,280 (2,264)
Net core structural borrowings of shareholder-financed operations Closing shareholders' funds	4,428 17,249	4,016 16,087
Shareholders' funds plus net core structural borrowings	21,677	20,103
Gearing ratio	20%	20%

III(d) Calculation of IFRS shareholders' funds per share

IFRS shareholders' funds pershare is calculated as closing IFRS shareholders' funds divided by the number of issued shares at the balance sheet date.

	Note	31 Dec 2018	31 Dec 2017
Closing shareholders' funds(£ million)		17,249	16,087
Number of issued shares at year end (millions)	C10	2,593	2,587
Shareholders' funds per share (pence)		665	622

III(e) Calculation of asset management cost/income ratio

The asset management cost/income ratio is calculated as asset management operating expenses, adjusted for commission and joint venture contribution, divided by asset management total IFRS revenue adjusted for commission, joint venture contribution, performance-related fees and non-operating items.

	M&GPrudential asset management
	2018 £m	2017 £m
Operating income used in cost/income ratio	1,100	1,034
Commission	313	351
Performance-related fees	15	53
Investment return	(14)	–
Short-term fluctuationsin investment returns on shareholder-backed business	(15)	6
Total IFRS revenue	1,399	1,444
Operating expense used in cost/income ratio	654	602
Investment return	(14)	–
Commission	313	351
Charges	953	953
Cost/income ratio – Operating expense/operating income	59%	58%

	Eastspring Investments
	2018 £m	2017 £m
Operating income before performance-related fees used in cost/income ratio	424	421
Share of joint venture revenue	(188)	(176)
Commission	118	103
Performance-related fees	17	17
Total IFRS revenue	371	365
Operating expense used in cost/income ratio	232	238
Share of joint venture expense	(100)	(92)
Commission	118	103
IFRS charges	250	249
Cost/income ratio – Operating expense/operating income before performance-related fees	55%	56%

III(f) Reconciliation of Asia renewal insurance premium to gross earned premiums

Asia renewal insurance premium is calculated asIFRS gross earned premiumsless new business premiums and adjusted for the contribution from joint ventures.

Note	2018 £m	AER 2017 £m	CER 2017 £m
Asia renewal insurance premium	12,856	11,482	11,087
Add:General insurance premium	90	89	87
Add: IFRS gross earned premium from new regular and single
premium business	4,809	4,986	4,819
Less: Renewal premiumsfrom joint ventures	(1,286)	(1,068)	(1,022)
Add: premiumsrelating to sold Korea life business	–	199	197
Asia segment IFRS gross earned premium B1.4	16,469	15,688	15,168

III(g) Reconciliation of APE new business sales to earned premiums

TheGroup reports APE new businesssales as a measure of the new policiessold in the year. This differsfrom the IFRS measure of premiums earned asshown below:

	Note	2018 £m	2017 £m
Annual premium equivalents as published		6,802	6,958
Adjustment to include 100% ofsingle premiums on new businesssold in the year note (i)		28,009	28,769
Premiumsfrom in-force business and other adjustments note (ii)		12,413	8,278
Gross premiums earned	B1.4	47,224	44,005
Outward reinsurance premiums note (iii)	B1.4	(14,023)	(2,062)
Earned premiums, net of reinsurance as shown in the IFRS financial statements	B1.4	33,201	41,943

Notes

(i) APE new businesssales only include one tenth ofsingle premiums, recorded on policiessold in the year.Gross premiums earned include 100 per cent ofsuch premiums. (ii) Other adjustments principally include amountsin respect of the following:

– Gross premiums earned include premiumsfrom existing in-force business as well as new business. The mostsignificant amount isrecorded in Asia, where a significant portion of regular premium businessis written. Asia in-force premiumsform the vast majority of the other adjustment amount;

– In October 2018, Jackson entered into a 100 per cent reinsurance agreement with JohnHancock Life Insurance Company to acquire a closed block of group pay-out annuity business. The transaction resulted in an addition to gross premiums earned of £3.7 billion.No amounts were included in APE new businesssales.

– APE includes new policies written in the year which are classified asinvestment contracts without discretionary participation features under IFRS 4, arising mainly in Jackson for guaranteed investment contracts and in M&GPrudential for certain unit-linked savings and similar contracts. These are excluded from gross premiums earned and recorded as deposits;

– APE new businesssales are annualised while gross premiums earned are recorded only when revenues are due; and

– For the purpose of reporting APE new businesssales, we include theGroup'sshare of amountssold by theGroup'sinsurance joint ventures and associates.Under IFRS,

joint ventures and associates are equity accounted and so no amounts are included within gross premiums earned.

(iii) Outward reinsurance premiumsin 2018 include £(12,149) million in respect of the reinsurance of theUK annuity portfolio.

02

06

III Calculation of alternative performance measures continued

III(h) Reconciliation between IFRS and EEV shareholders' funds

The table below showsthe reconciliation of EEV shareholders' funds and IFRS shareholders' funds at the end of the year:

	31 Dec 2018 £m	31 Dec 2017 £m
EEV shareholders' funds	49,782	44,698
Less: Value of in-force business of long-term business note (i)	(33,013)	(29,410)
Deferred acquisition costs assigned zero value for EEV purposes	10,077	9,227
Other note (ii)	(9,597)	(8,428)
IFRS shareholders' funds	17,249	16,087

Notes

(i) The EEV shareholders' funds comprisesthe present value of the shareholders' interest in the value of in-force business, net worth of long-term business operations and IFRS shareholders' funds of asset management and other operations. The value of in-force businessreflectsthe present value of future shareholder cash flowsfrom long-term in-force business which are not captured asshareholders' interest on an IFRS basis.Net worth representsthe net assetsfor EEV reporting purposesthat reflect the regulatory basis position, sometimes with adjustmentsto achieve consistency with the IFRS treatment of certain items.

(ii) Other adjustmentsrepresent asset and liability valuation differences between IFRS and the local regulatory reporting basis used to value net worth for long-term insurance operations. For theUK, this would be the difference between IFRS and Solvency II. It also includesthe mark to market of theGroup's core structural borrowings which are fair valued under EEV but not IFRS. The mostsignificant valuation differencesrelate to

changesin the valuation of insurance liabilities. For example, in Jackson where IFRS liabilities are higher than the local regulatory basis asthey are principally based on policyholder account balances(with a deferred acquisition costsrecognised as an asset) whereasthe local regulatory basis used for EEV is based on future cash flows due to the policyholder on a prudent basis with consideration of an expense allowance as applicable, but with no separate deferred acquisition cost asset.

III(i) Reconciliation of EEV operating profit based on longer-term investment returns

To the extent applicable, the presentation of the EEV post-tax profit for the year is consistent in the classification between operating and non-operating results with the basisthat theGroup appliesfor the analysis of IFRS basisresults. Operating resultsreflect underlying resultsincluding longer-term investment returns, which are determined following the EEV Principlesissued by the European Insurance CFO Forum.

Non-operating results comprise:

• Short-term fluctuationsin investment returns;
• The mark to market value movements on core structural borrowings;
• The effect of changesin economic assumptions; and
• The impact of corporate transactions undertaken in the year.

More details on how EEV post-tax profit is determined and the components of EEV operating profit are included in note 13 of the EEV supplementary basis of results.

III(j) Calculation of return on embedded value

Return on embedded value is calculated asthe EEV post-tax operating profit based on longer-term investment returns, as a percentage of opening EEV basisshareholders' funds.

	Note	2018	2017
EEV operating profit based on longer-term investment returns(£ million)	2	7,563	6,598
Opening EEV basisshareholders' funds(£ million)	8	44,698	38,968
Return on embedded value (%)		17%	17%

III(k) Calculation of EEV shareholders' funds per share

EEV shareholders' funds pershare is calculated as closing EEV shareholders' funds divided by the number of issued shares at the balance sheet date. EEV shareholders' funds pershare excluding goodwill attributable to shareholdersis calculated in the same manner, except goodwill attributable to shareholdersis deducted from closing EEV shareholders' funds.

	Note	31 Dec 2018	31 Dec 2017
Closing EEV shareholders' funds(£ million)	8	49,782	44,698
Less:Goodwill attributable to shareholders(£ million)	8	(1,651)	(1,458)
Closing EEV shareholders' funds excluding goodwill attributable to shareholders(£ million)		48,131	43,240
Number of issued shares at year end (millions)		2,593	2,587
Shareholders' funds per share (in pence)		1,920p	1,728p
Shareholders' funds per share excluding goodwill attributable to shareholders
(in pence)		1,856p	1,671p

Risk factors

A number of risk factors affect Prudential's operating results and financial condition and, accordingly, the trading price of its shares. The risk factors mentioned below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. The information given is as of the date of this document, and any forward-looking statements are made subject to the reservationsspecified under 'Forward-looking statements'.

Prudential's approachesto managing risks are explained in the section of this document headed 'Group Chief Risk Officer's Report of the risksfacing our business and how these are managed'.

Risks relating to Prudential's business

Prudential's businesses are inherently subject to market fluctuations and general economic conditions

Uncertainty, fluctuations or negative trendsin international economic and investment climates could have a material adverse effect on Prudential's business and profitability. Prudential operatesin a macroeconomic and global financial market environment that presentssignificant uncertainties and potential challenges. For example, government interest rates in theUS, theUK and some Asian countries in which Prudential operatesremain low relative to historical levels.

Global financial markets are subject to uncertainty and volatility created by a variety of factors. These factorsinclude the continuing reduction in accommodative monetary policiesin theUS, theUK and other jurisdictionstogether with itsimpact on the valuation of all asset classes, effects on interest rates and the risk of disorderly repricing of inflation expectations and global bond yields, concerns over sovereign debt, a generalslowing in world growth, the increased level of geopolitical risk and policy-related uncertainty (including the imposition of trade barriers) and potentially negative socio-political events.

The adverse effects ofsuch factors could be felt principally through the following items:

• Reduced investment returns arising on theGroup's portfoliosincluding impairment of debtsecurities and loans, which could reduce Prudential's capital and impair its ability to write significant volumes of new business, increase the potential adverse impact of product guarantees, and/or have a negative impact on its assets under management and profit;
• Higher credit defaults and wider credit and liquidity spreadsresulting in realised and unrealised credit losses;
• Failure of counterparties who have transactions with Prudential (eg banks and reinsurers) to meet commitments that could give rise to a negative impact on Prudential's financial position and on the accessibility or recoverability of amounts due or, for derivative transactions, adequate collateral not being in place;
• Estimates of the value of financial instruments becoming more difficult because in certain illiquid or closed markets, determining the value at which financial instruments can be realised is highly subjective. Processes to ascertain such valuesrequire substantial elements of judgement, assumptions and estimates(which may change over time); and
• Increased illiquidity, which also adds to uncertainty over the accessibility of financial resources and may reduce capital resources as valuations decline. This could occur where external capital is unavailable atsustainable cost, increased liquid assets are required to be held as collateral under derivative transactions or redemption restrictions are placed on Prudential'sinvestments in illiquid funds. In addition,significant redemption requests could also be made on Prudential'sissued funds and while this may not have a direct impact on theGroup'sliquidity, it could result in reputational damage to Prudential. The potential impact of increased illiquidity is more uncertain than for other risks such asinterest rate or credit risk.

In general, upheavalsin the financial markets may affect general levels of economic activity, employment and customer behaviour. As a result, insurers may experience an elevated incidence of claims, lapses, orsurrenders of policies, and some policyholders may choose to defer orstop paying insurance premiums. The demand for insurance products may also be adversely affected. In addition, there may be a higher incidence of counterparty failures. Ifsustained, this environment islikely to have a negative impact on the insurance sector over time and may consequently have a negative impact on Prudential's business and its balance sheet and profitability. For example, this could occur if the recoverable value ofintangible assetsfor bancassurance agreements and deferred acquisition costs are reduced.New challengesrelated to market fluctuations and general economic conditions may continue to emerge.

Forsome non-unit-linked investment products, in particularthose written in some oftheGroup'sAsia operations, itmay not be possible to hold assets which will provide cash flowstomatch those relating to policyholderliabilities. Thisis particularly true in those countries where bondmarkets are not developed and in certainmarkets where regulated premiumand claimvalues are set with reference to the interestrate environment prevailing at the time of policy issue. Thisresultsin amismatch due to the duration and uncertainty ofthe liability cash flows and the lack ofsufficient assets of a suitable duration.While thisresidual asset/ liabilitymismatch risk can bemanaged, it cannot be eliminated.Where interestrates in thesemarketsremain lowerthan those used to calculate premiumand claimvalues over a sustained period,this could have amaterial adverse effect on Prudential's reported profit.

Jackson writes a significant amount of variable annuitiesthat offer capital or income protection guarantees. The value ofthese guaranteesis affected bymarket factors(such asinterestrates, equity values, bond spreads and realised volatility) and policyholder behaviour.Jackson uses a derivative hedging programme to reduce its exposure tomarketrisks arising on these guarantees. There could bemarket circumstances where the derivativesthat Jackson entersinto to hedge itsmarket risksmay not coverits exposures underthe guarantees. The cost ofthe guarantees thatremain unhedged will also affect Prudential'sresults.

04

In addition, Jackson hedgesthe guarantees on its variable annuity book on an economic basis(with consideration of the local regulatory position) and, thus, accepts variability in its accounting results in the short term in order to achieve the appropriate result on these bases. In particular, for Prudential'sGroup IFRS reporting, the measurement of the Jackson variable annuity guaranteesistypically less sensitive to market movementsthan for the corresponding hedging derivatives, which are held at market value.However, depending on the level of hedging conducted regarding a particular risk type, certain market movements can drive volatility in the economic or localregulatory resultsthat may be lesssignificant under IFRS reporting.

Also, Jackson has a significantspread based business with the significant proportion of its assetsinvested in fixed income securities and itsresults are therefore affected by fluctuationsin prevailing interest rates. In particular, fixed annuities and stable value products written by Jackson expose Prudential to the risk that changesin interest rates, which are not fully reflected in the interest rates credited to customers, will reduce spread. The spread isthe difference between the rate of return Jackson is able to earn on the assets backing the policyholders' liabilities and the amountsthat are credited to policyholdersin the form of benefit increases,subject to minimum crediting rates. Declinesin spread from these products or otherspread businesses that Jackson conducts, and increases in surrender levels arising from interest rate rises, could have a material impact on its businesses or results of operations.

A significant part of the profit from M&GPrudential'sinsurance operations isrelated to bonusesfor policyholders declared on with-profits products, which are broadly based on historical and current rates of return on equity, real estate and fixed income securities, as well as Prudential's expectations of future investment returns. This profit could be lower in a sustained low interest rate environment.

Prudential is subject to the risk of potential sovereign debt credit deterioration owing to the amounts of sovereign debt obligations held in its investment portfolio

Investing in sovereign debt creates exposure to the direct or indirect consequences of political,social or economic changes(including changesin governments, heads ofstate or monarchs) in the countriesin which the issuers are located and the creditworthiness of the sovereign. Investment in sovereign debt obligationsinvolvesrisks not present in debt obligations of corporate issuers. In addition, the issuer of the debt or the governmental authoritiesthat control the repayment of the debt may be unable or unwilling to repay principal or pay interest when due in accordance with the terms of such debt, and Prudential may have limited recourse to compel payment in the event of a default. A sovereign debtor's willingness or ability to repay principal and to pay interest in a timely manner may be affected by, among other factors, its cash flow situation, itsrelations with its central bank, the extent of itsforeign currency reserves, the availability ofsufficient foreign exchange on the date a payment is due, the relative size of the debtservice burden to the economy as a whole, the sovereign debtor's policy toward local and international lenders, and the political constraintsto which the sovereign debtor may be subject.

Moreover, governments may use a variety of techniques,such asintervention by their central banks or imposition of regulatory controls or taxes, to devalue their currencies' exchange rates, or may adopt monetary and other policies(including to manage their debt burdens) that have a similar effect, all of which could adversely impact the value of an investment in sovereign debt even in the absence of a technical default. Periods of economic uncertainty may affect the volatility of market prices ofsovereign debt to a greater extent than the volatility inherent in debt obligations of other types of issuers.

In addition, if a sovereign default or other such events described above were to occur, other financial institutions may also suffer losses or experience solvency or other concerns, and Prudential might face additional risksrelating to any debt held in such financial institutions held in its investment portfolio. There is also risk that public perceptions about the stability and creditworthiness of financial institutions and the financialsector generally might be adversely affected, as might counterparty relationships between financial institutions. If a sovereign were to default on its obligations, or adopted policiesthat devalued or otherwise altered the currenciesin which its obligations were denominated this could have a material adverse effect on Prudential's financial condition and results of operations.

Prudential is subject to the risk of exchange rate fluctuations owing to the geographical diversity of its businesses

Due to the geographical diversity of Prudential's businesses, Prudential is subject to the risk of exchange rate fluctuations. Prudential's operationsin the US and Asia, which represent a significant proportion of operating profit based on longer-term investment returns and shareholders' funds, generally write policies and invest in assets denominated in local currencies. Although this practice limitsthe effect of exchange rate fluctuations on local operating results, it can lead to significant fluctuationsin Prudential's consolidated financial statements upon the translation of results into poundssterling. This exposure is not currently separately managed. The currency exposure relating to the translation of reported earnings could impact financial reporting ratiossuch as dividend cover, which is calculated as operating profit after tax on an IFRS basis, divided by the dividendsrelating to the reporting year. The impact of gains or losses on currency translationsisrecorded as a component ofshareholders' funds within other comprehensive income. Consequently, this could impact Prudential's gearing ratios(defined as debt over debt plusshareholders' funds). TheGroup'ssurplus capital position for regulatory reporting purposes may also be affected by fluctuationsin exchange rates with possible consequencesfor the degree of flexibility that Prudential hasin managing its business.

02

04

06

Prudential conducts its businesses subject to regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies and interpretations and any accounting standards in the markets in which it operates

Changesin government policy and legislation (including in relation to tax), capital control measures on companies and individuals, regulation or regulatory interpretation applying to companiesin the financialservices and insurance industries in any of the marketsin which Prudential operates(including those related to the conduct of business by Prudential or its third party distributors), or decisionstaken by regulatorsin connection with their supervision of members of theGroup, which in some circumstances may be applied retrospectively, may adversely affect Prudential. The proposed demerger of M&GPrudential from Prudential plc will result in a change to Prudential's groupwide supervisor to theHong Kong Insurance Authority, and as a consequence will change the group-wide supervisory framework to which Prudential issubject, the final form of which remains uncertain. The impact from any regulatory changes may affect Prudential's product range, distribution channels, competitiveness, profitability, capital requirements, risk management approaches, corporate or governance structure and, consequently, reported results and financing requirements. Also, regulatorsin jurisdictionsin which Prudential operates may impose requirements affecting the allocation of capital and liquidity between different business unitsin theGroup, whether on a geographic, legal entity, product line or other basis. Regulators may change the level of capital required to be held by individual businesses, the regulation ofselling practices,solvency requirements and could introduce changesthat impact the productssold. Furthermore, as a result of interventions by governmentsin light of financial and global economic conditions, there may continue to be changesin government regulation and supervision of the financialservices industry, including the possibility of higher capital requirements, restrictions on certain types of transactions and enhanced supervisory powers.

Recentshiftsin the focus ofsome national governmentstoward more protectionist or restrictive economic and trade policies could impact on the degree and nature of regulatory changes and Prudential's

competitive position in some geographic markets. This could take effect, for example, through increased friction in cross-border trade or measuresfavouring local enterprisessuch as changesto the maximum level of non-domestic ownership by foreign companies.

The EuropeanUnion's Solvency II Directive came into effect on 1 January 2016. The measure of regulatory capital under Solvency II is more volatile than under the previous Solvency I regime and regulatory policy may further evolve under the regime. The European Commission began a review in late 2016 ofsome aspects of the Solvency II legislative package, which is expected to continue until 2021 and includes a review of the Long Term Guarantee measures. Prudential applied for, and has been granted approval by the UK Prudential Regulation Authority to use the following measures when calculating its Solvency II capital requirements: the use of an internal model, the 'matching adjustment' forUK annuities, the 'volatility adjustment' forselectedUS dollardenominated business, andUK transitional measures on technical provisions. Prudential also has permission to use 'deduction and aggregation' asthe method by which the contribution of theGroup's US insurance entitiesto theGroup's solvency is calculated, which in effect recognisessurplusinUS insurance entities in excess of 250 per cent of localUS Risk Based Capital requirements. For aslong as Prudential or its businessesremain subject to Solvency II, there is a risk that changes may be required to Prudential's approved internal model or other Solvency II approvals, which could have a material impact on theGroup Solvency II capital position. Where internal model changes are subject to regulatory approval, there is a risk that the approval is delayed or not given. In such circumstances, changesin our risk profile would not be able to be appropriately reflected in our internal model, which could have a material impact on theGroup's Solvency II capital position.

Currently there are also a number of other global regulatory developments which could impact Prudential's businessesin its many jurisdictions. These include the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in theUS, the work of the Financial Stability Board (FSB) in the area ofsystemic risk including the designation ofGlobal Systemically Important Insurers(G-SIIs), the Insurance Capital Standard (ICS) being developed by the International Association of Insurance Supervisors(IAIS), the EU Marketsin Financial Instruments Directive (the 'MiFID II Directive') and associated implementing measures, which came into force on 3 January 2018 and the EU General Data Protection Regulation, which came into force on 25 May 2018. In addition, regulatorsin a number of jurisdictionsin which theGroup operates are further developing local capital regimes; thisincludes potential future developments under Solvency II in theUK (asreferred to above),National Association of Insurance Commissioners' (NAIC) reformsin theUS and amendmentsto certain localstatutory regimesin some territoriesin Asia. There remains a high degree of uncertainty over the potential impact of these changes on theGroup.

The Dodd-Frank Act providesfor a comprehensive overhaul of the financial servicesindustry within theUS including reformsto financialservices entities, products and markets. The full impact of the Dodd-Frank Act on Prudential's businessesremains unclear, as many of its provisions are primarily focused on the banking industry, have a delayed effectiveness and/or require rule-making or other actions by variousUS regulators over the coming years. There is also potential uncertainty surrounding future changesto the Dodd-Frank Act under the currentUS administration.

Prudential's designation as aG-SII waslast reaffirmed on 21November 2016. The FSB, in conjunction with the IAIS, did not publish a new list ofG-SIIsin 2017 and did not engage inG-SII identification for 2018 following IAIS' launch of the consultation on theHolistic Framework (HF) on 14November 2018, which aimsto assess and mitigate systemic risk in the insurance sector and isintended to replace the currentG-SII measures. The IAIS intends to implement theHF in 2020 and it is proposed thatG-SII identification be suspended from that year. In the interim, the relevant group-wide supervisors have committed to continue applying existing enhancedG-SIIsupervisory policy measures with some supervisory discretion, which includes a requirement to submit enhanced risk management plans. InNovember 2022, the FSB will review the need to either discontinue or re-establish an annual identification of G-SIIsin consultation with the IAIS and national authorities. TheHigher Loss Absorbency (HLA)standard (a proposed additional capital measure forG-SII designated firms, planned to apply from

2022) is not part of the proposedHF. However, theHF proposes more supervisory powers of intervention for mitigating systemic risk including temporary financial reinforcement measuressuch as capital add-ons and suspension of dividends.

The IAIS is also developing the ICS as part of ComFrame – the Common Framework for the supervision of Internationally Active InsuranceGroups(IAIGs). The implementation of ICS will be conducted in two phases – a five-year monitoring phase followed by an implementation phase. ComFrame will more generally establish a set of common principles and standards designed to assistsupervisorsin addressing risksthat arise from insurance groups with operationsin multiple jurisdictions. The ComFrame proposals, including ICS, could result in enhanced capital and regulatory measuresfor IAIGs, for which Prudentialsatisfiesthe criteria.

In late 2018, theUSNAIC concluded an industry consultation with the aim of reducing the non-economic volatility in the variable annuity statutory balance sheet and enhancing risk management. TheNAIC istargeting a January 2020 effective date for the new framework, which will have an impact on Jackson's business. Jackson continuesto assess and test the changes. TheNAIC also has an ongoing review of the C-1 bond factorsin the required capital calculation, on which further information is expected to be provided in due course. TheGroup's preparationsto manage the impact of these reforms will continue.

On 27 July 2017, theUK FCA announced that it will no longer persuade, or use its powersto compel, panel banksto submit ratesfor the calculation of LIBOR after 2021. The discontinuation of LIBOR in its current form and itsreplacement with the Sterling Overnight Index Average benchmark (SONIA) in theUK (and other alternative benchmark ratesin other countries) could, among other things, impact theGroup through an adverse effect on the value of Prudential's assets and liabilities which are linked to or which reference LIBOR, a reduction in market liquidity during any period of transition and increased legal and conduct risksto theGroup arising from changesrequired to documentation and itsrelated obligationsto itsstakeholders.

Variousjurisdictionsin which Prudential operates have created investor compensation schemesthat require mandatory contributionsfrom market participantsin some instancesin the event of a failure of a market participant. As a major participant in the majority of its chosen markets, circumstances could arise in which Prudential, along with other companies, may be required to make such contributions.

TheGroup's accounts are prepared in accordance with current International Financial Reporting Standards(IFRS) applicable to the insurance industry. The International Accounting Standards Board (IASB) introduced a framework that it described as Phase I which, under its standard IFRS 4 permitted insurersto continue to use the statutory basis of accounting for insurance assets and liabilitiesthat existed in their jurisdictions prior to January 2005. In May 2017, the IASB published itsreplacementstandard on insurance accounting (IFRS 17, 'Insurance Contracts'), which will have the effect of introducing fundamental changes to the statutory reporting of insurance entitiesthat prepare accounts according to IFRS from 2021. InNovember 2018, the IASB tentatively decided to delay the effective date of IFRS 17 by one year to periods beginning on or after 1 January 2022 and is considering introducing further amendmentsto this new standard. The EuropeanUnion will apply its usual process for assessing whether the standard meets the necessary criteria for endorsement. TheGroup isreviewing the complex requirements of thisstandard and considering its potential impact. The effect of changesrequired to theGroup's accounting policies as a result of implementing the new standard is currently uncertain, but these changes can be expected to, amongst other things, alter the timing of IFRS profit recognition. Given the implementation of thisstandard islikely to require significant enhancements to IT, actuarial and finance systems of the Group, it will also have an impact on the Group's expenses.

Any changes or modification of IFRS accounting policies may require a change in the way in which future results will be determined and/or a retrospective adjustment of reported resultsto ensure consistency.

The implementation of complex strategic initiatives gives rise to significant execution risks, may affect the operational capacity of the Group, and may adversely impact the Group if these initiatives fail to meet their objectives

As part of the implementation of its businessstrategies, Prudential has commenced a number ofsignificant change initiatives acrosstheGroup, many of which are interconnected and/or of large scale, that may have financial, operational, regulatory, customer and reputational implicationsifsuch initiativesfail (either wholly or in part) to meet their objectives and could place strain on the operational capacity, or weaken the control environment, of theGroup. Implementing furtherstrategic initiatives may amplify these risks. TheGroup's currentsignificant change initiativesinclude the combination of M&Gand PrudentialUK and Europe, the proposed demerger of M&GPrudential and the intended sale of part of theUK annuity portfolio. Significant operational execution risks arise from these initiatives, including in relation to the separation and establishment ofstandalone governance under relevant regulatory regimes, businessfunctions and processes(data, systems, people) and third party arrangements.

The proposed demerger of M&GPrudential carries with it execution risk and will continue to require significant management attention

The proposed demerger of M&GPrudential issubject to a number of factors and dependencies(including prevailing market conditions, the appropriate allocation of debt and capital between the two groups and approvalsfrom regulators and shareholders). In addition, preparing for and implementing the proposed demerger is expected to continue to require significant time from management, which may divert management's attention from other aspects of Prudential's business.

Therefore there can be no certainty asto the timing of the demerger, or that it will be completed as proposed (or at all). Further, if the proposed demerger is completed, there can be no assurance that either Prudential plc or M&GPrudential will realise the anticipated benefits of the transaction, or that the proposed demerger will not adversely affect the trading value or liquidity of the shares of either or both of the two businesses.

02 Strategic

06

The intended UK exit from the EU may adversely impact economic conditions, increase market volatility, increase political and regulatory uncertainty, and cause operational disruption (including reduced access to EU markets) which could have adverse effects on Prudential's business and its profitability

On 29 March 2017, theUK submitted the formal notification of itsintention to withdraw from the EUpursuant to Article 50 of the Treaty on the EuropeanUnion, as amended. Following submission of this notification, theUK has a maximum period of two yearsto negotiate the terms of its withdrawal from the EU. If no formal withdrawal agreement isreached between theUK and the EU, then it is expected theUK's membership of the EU will automatically terminate at 11.00pm GMT on 29 March 2019. TheUK's decision to leave the EU will have political, legal and economic ramificationsfor both theUK and the EU, although these are expected to be more pronounced for theUK. TheGroup hasseveralUK-domiciled operations, principally M&GPrudential, and these will be impacted by aUK withdrawal from the EU, although contingency plans have been developed and enacted since the referendum result to ensure that Prudential's businessis not unduly affected by theUK withdrawal. The outcome of the negotiations on the UK's withdrawal and any subsequent negotiations on trade and accessto the country's major trading markets, including the single EU market, is currently unknown. As a result, there is ongoing uncertainty over the terms under which theUK will leave the EU, in particular after the transitional period ending in December 2020 (which itself is yet to be agreed in a legally binding manner), and the potential for a disorderly exit by theUK without a negotiated agreement. While theGroup has undertaken significant work to plan for and mitigate such risks, there can be no assurance that these plans and efforts will be successful.

In particular, depending on the nature of theUK's exit from the EU,some or all of the following risks may materialise, which may impact the business of theGroup and its profitability:

• TheUK and EU may experience
  • a downturn in economic activity. The effect of any downturn is expected to be more pronounced for theUK particularly in the event of a disorderly exit by theUK from the EU. Market volatility and illiquidity may increase (including for property funds, where redemption restrictions may be applied) in the period leading up to, and following, theUK's withdrawal. This could lead to potential downgradesin sovereign and corporate debt ratings in theUK and the EUand fallsinUK property values. In a severe scenario where theUK'ssovereign rating is downgraded by potentially more than one notch, this may also impact on the ratings ofUK companies, including Prudential'sUK business. Further or prolonged interest rate reductions may occur due to monetary easing. These impacts may result in the adverse effects outlined in the market and general economic conditionsrisk factor.
• TheUK's exit from the EUcould result in significant changesto the legal and regulatory regime under which theGroup (and, in particular, M&GPrudential) operates, the nature and extent of which remain uncertain while the outcome of negotiations regarding theUK's withdrawal from the EUand the extent and terms of any future accessto the single EU market remainsto be agreed. There may be an increase in complexity and costs associated with operating in an additional regulatory jurisdiction.
• There may be increased risk of operational disruption to the business, in particular to M&GPrudential. Access to the EU market, and the ability to service EUclients, may be adversely impacted.Negative marketsentiment towardstheUK from investors may result in negative fund flows and EU service providers may be less willing, or unable to serviceUK fund managers, both of which may negatively impact on the asset management business of M&GPrudential. The insurance business may experience higher product lapsesresulting from fund outflows. The ability to retain and attract appropriately skilled staff from the EU may be adversely impacted. Contractual documentation may need to be renegotiated or redrafted in order to remain effective.

The resolution of several issues affecting the financial services industry could have a negative impact on Prudential's reported results or on its relations with current and potential customers

Prudential is, and in the future may be, subject to legal and regulatory actionsin the ordinary course of its business, both in theUK and internationally on matters relevant to the delivery of customer outcomes. Such actions may relate to the application of current regulationsfor example the Financial Conduct Authority's (FCA) principles and conduct of business rules or the failure to implement new regulations. These actions could involve a review of types of businesssold in the past under acceptable market practices at the time,such asthe requirement in theUK to provide redressto certain past purchasers of pensions and mortgage endowment policies, changesto the tax regime affecting products, and regulatory reviews of productssold and industry practices, including, in the latter case, lines of businessit has closed. Current regulatory actionsinclude theUK insurance business's undertaking to the FCA to review annuities sold without advice after 1 July 2008 to its contract-based defined contribution pension customers. This will result in the UK insurance business being required to provide redressto certain such customers. A provision has been established to cover the costs of undertaking the review and any related redress but the ultimate amount required remains uncertain.

Regulators may also focus on the approach that product providers use to select third-party distributors and to monitor the appropriateness ofsales made by them. In some cases, product providers can be held responsible for the deficiencies of third-party distributors.

In theUS, there has been significant attention on the different regulatory standards applied to investment advice delivered to retail customers by different sectors of the industry. As a result of reportsrelating to perceptions of industry abuses, there have been numerous regulatory inquiries and proposalsfor legislative and regulatory reforms. This includesfocus on the suitability ofsales of certain products, alternative investments and the widening of the circumstances under which a person or entity providing investment advice with respect to certain employee benefit and pension plans would be considered a fiduciary subjecting the person or entity to certain regulatory

requirements. There is a risk that new regulationsintroduced may have a material adverse effect on the sales of the products by Prudential and increase Prudential's exposure to legal risks.

Litigation, disputes and regulatory investigations may adversely affect Prudential's profitability and financial condition

Prudential is, and may in the future be, subject to legal actions, disputes and regulatory investigationsin various contexts, including in the ordinary course of itsinsurance, investment management and other business operations. These legal actions, disputes and investigations may relate to aspects of Prudential's businesses and operationsthat are specific to Prudential, or that are common to companiesthat operate in Prudential's markets. Legal actions and disputes may arise under contracts, regulations (including tax) or from a course of conduct taken by Prudential, and may be class actions. Although Prudential believesthat it has adequately provided in all material respectsfor the costs of litigation and regulatory matters, no assurance can be provided thatsuch provisions are sufficient.Given the large or indeterminate amounts of damagessometimessought, othersanctionsthat might be imposed and the inherent unpredictability of litigation and disputes, it is possible that an adverse outcome could have an adverse effect on Prudential'sreputation, results of operations or cash flows.

Prudential's businesses are conducted in highly competitive environments with developing demographic trends and continued profitability depends upon management's ability to respond to these pressures and trends

The marketsfor financialservicesin the UK,US and Asia are highly competitive, with several factors affecting Prudential's ability to sell its products and continued profitability, including price and yields offered, financialstrength and ratings, range of product lines and product quality, brand strength and name recognition, investment management performance, historical bonuslevels, the ability to respond to developing demographic trends, customer appetite for certain savings products and technological advances. In some of its markets, Prudential faces competitorsthat are larger, have greater financial resources or a greater market share, offer a broader range of products or have higher bonusrates. Further,

heightened competition for talented and skilled employees and agents with local experience, particularly in Asia, may limit Prudential's potential to grow its business as quickly as planned.

In Asia, theGroup's principal competitors include global life insurerssuch as Allianz, AXA, and Manulife together with regional insurerssuch as AIA, FWD andGreat Eastern, and multinational asset managers such as Franklin Templeton,HSBCGlobal Asset Management, J.P. Morgan Asset Management and Schroders. In most markets, there are also local companies that have a material market presence.

M&GPrudential's principal competitors include many of the major retail financial services companies and fund management companiesincluding, for example, Aviva, JanusHenderson, Jupiter, Legal &General, Schroders and Standard Life Aberdeen.

Jackson's competitorsin theUS include majorstock and mutual insurance companies, mutual fund organisations, banks and other financialservices companiessuch as Aegon, AIG, Allianz, AXA EquitableHoldingsInc., Brighthouse, Lincoln FinancialGroup, MetLife and Prudential Financial.

Prudential believes competition will intensify across all regionsin response to consumer demand, digital and other technological advances, the need for economies ofscale and the consequential impact of consolidation, regulatory actions and other factors. Prudential's ability to generate an appropriate return depends significantly upon its capacity to anticipate and respond appropriately to these competitive pressures.

Downgrades in Prudential's financial strength and credit ratings could significantly impact its competitive position and damage its relationships with creditors or trading counterparties

Prudential's financialstrength and credit ratings, which are used by the market to measure its ability to meet policyholder obligations, are an important factor affecting public confidence in Prudential's products, and as a result its competitiveness. Downgradesin Prudential'sratings as a result of, for example, decreased profitability, increased costs, increased indebtedness or other concerns could have an adverse effect on its ability to market products, retain current policyholders, and on theGroup's financial flexibility. In addition, the interest rates Prudential pays on its borrowings are

affected by its credit ratings, which are in place to measure theGroup's ability to meet its contractual obligations.

Prudential plc'slong-term senior debt is rated as A2 by Moody's, A by Standard & Poor's and A- by Fitch.

Prudential plc'sshort-term debt israted as P-1 by Moody's, A-1 by Standard & Poor's and F1 by Fitch.

The Prudential Assurance Company Limited's financialstrength israted Aa3 by Moody's, A+ by Standard & Poor's and AA- by Fitch.

Jackson's financialstrength israted AAby Standard & Poor's and Fitch, A1 by Moody's and A+ by A.M. Best.

Prudential Assurance Co. Singapore (Pte) Ltd's financialstrength israted AA- by Standard & Poor's.

All ratings above are on a stable outlook and are stated as at the date of this document.

In addition, changesin methodologies and criteria used by rating agencies could result in downgradesthat do not reflect changes in the general economic conditions or Prudential's financial condition.

Adverse experience in the operational risks inherent in Prudential's business, and those of its material outsourcing partners, could disrupt its business functions and have a negative impact on its results of operations

Operational risks are present in all of Prudential's businesses, including the risk (from both Prudential and its outsourcing and external data hosting partners) of direct or indirect lossresulting from inadequate or failed internal and external processes,systems or human error, fraud, the effects of natural or man-made catastrophic events(such as natural disasters, pandemics, cyber-attacks, acts of terrorism, civil unrest and other catastrophes) or from other external events. Exposure to such events could disrupt Prudential'ssystems and operationssignificantly, which may result in financial loss and reputational damage.

Prudential's businessis dependent on processing a large number of transactions across numerous and diverse products, and it employs a large number of models, and user developed applications,some of which are complex, in its processes. The long-term nature of much of theGroup's business also meansthat accurate records have to be maintained forsignificant

06

periods. Further, Prudential operatesin an extensive and evolving legal and regulated environment (including in relation to tax) which addsto the operational complexity of its business processes and controls.

These factors, among others,result in significantreliance on, and require significantinvestmentin,the information technology (IT)infrastructure, compliance and other operationalsystems, personnel and processesforthe performance ofthe Group's core business activities. During times ofsignificant change,the operational effectiveness ofthese componentsmay be impacted.

Although Prudential'sIT, compliance and other operationalsystems, models and processesincorporate controls designed to manage and mitigate the operational and model risks associated with its activities, there can be no assurance thatsuch controls will always be effective. Due to human error among other reasons, operational and model risk incidents do happen periodically and no system or process can entirely prevent them although there have not been any material eventsto date. Prudential'slegacy and other IT systems and processes, as with operational systems and processes generally, may be susceptible to failure orsecurity breaches.

Such events could, among other things, harm Prudential's ability to perform necessary businessfunctions, result in the loss of confidential or proprietary data (exposing it to potential legal claims and regulatory sanctions) and damage its reputation and relationships with its customers and business partners. Similarly, any weaknessin administration systems (such asthose relating to policyholder records or meeting regulatory requirements) or actuarial reserving processes could have a material adverse effect on itsresults of operations during the effective period.

In addition, Prudential also relies on a number of outsourcing (including external data hosting) partnersto provide several business operations, including a significant part of theUK back office and customer facing operations as well as a number of IT support functions and investment operations. This createsreliance upon the operational performance of these outsourcing partners, and failure to adequately oversee the outsourcing partner, or the failure of an outsourcing partner (or its key IT and operational systems and processes) could result in significant disruption to business operations and customers.

Attempts to access or disrupt Prudential's IT systems, and loss or misuse of personal data, could result in loss of trust from Prudential's customers and employees, reputational damage and financial loss

Prudential and its business partners are increasingly exposed to the risk that individuals or groupsmay attempt to disrupt the availability, confidentiality and integrity ofitsIT systems, which could resultin disruption to key operations,make it difficult to recover criticalservices, damage assets and compromise the integrity and security of data (both corporate and customer). This could resultin loss oftrustfromPrudential's customers and employees,reputational damage and direct orindirect financial loss. The cybersecurity threat continuesto evolve globally in sophistication and potentialsignificance. Prudential's increasing profile in its currentmarkets and those in which itis entering, growing customerinterest in interacting with their insurance providers and assetmanagers through the internet and socialmedia, improved brand awareness and the classification of Prudential as aG-SII could also increase the likelihood of Prudential being considered a target by cyber criminals. Further,there have been changes to the threat landscape and the risk from untargeted butsophisticated and automated attacks hasincreased.

There is an increasing requirement and expectation on Prudential and its business partners, to not only hold customer, shareholder and employee data securely, but use it in a transparent and appropriate way. Developmentsin data protection worldwide (such asthe implementation of EUGeneral Data Protection Regulation that came into force on 25 May 2018) may also increase the financial and reputational implicationsfor Prudential following a significant breach of its(or itsthird-party suppliers') IT systems. To date, Prudential has not identified a failure or breach, or an incident of data misuse, which has had a material impact in relation to itslegacy and other IT systems and processes.However, it has been, and likely will continue to be, subject to potential damage from computer viruses, attempts at unauthorised access and cybersecurity attackssuch as'denial ofservice' attacks(which, for example, can cause temporary disruption to websites and IT networks), phishing and disruptive software campaigns.

Prudential is continually enhancing its IT environment to remain secure against emerging threats, together with increasing its ability to detectsystem compromise and recovershould such an incident occur. However, there can be no assurance that such events will not take place which may have material adverse consequential effects on Prudential's business and financial position.

The failure to understand and respond effectively to the risks associated with environmental, social or governance (ESG) factors could adversely affect Prudential's achievement of its long term strategy

The business environment in which Prudential operatesis continually changing. ESG-related issues may directly or indirectly impact key stakeholders, ranging from customersto institutional investors, employees,suppliers and regulators, all of whom have expectations in this area. A failure to manage those material risks which have ESGimplications may adversely impact on the reputation and brand of theGroup, the results of its operations, its customers, and its ability to deliver on itslong-term strategy and therefore itslong-term success.

Climate change is one ESGtheme that poses potentially significant risksto Prudential and its customers, not only from the physical impacts of climate change, driven by both specific short-term climate-related eventssuch as natural disasters and longer-term impacts, but also from transition risks associated with the shift to a low carbon economy. Climate-driven changesin countriesin which Prudential operates could change its claims profile. There is an increasing expectation from stakeholdersfor Prudential to understand, manage and provide increased transparency of its exposure to climate-related risks. For example, the FSB's Task Force on Climaterelated Disclosuresrecommendations were published in 2017 to provide a voluntary framework on corporate climate-related financial disclosuresfollowing the FSB's concern that there may be systemic risk in the financialsystem related to climate change.

As governments and policymakerstake action to reduce greenhouse gas emissions and limit global warming, the transition to a low carbon economy could have an adverse impact on global investment asset valuations whilst at the same time present investment opportunities which theGroup will need to monitor. In particular, there is a risk that thistransition could result in some assetsectorsfacing significantly

higher costs and a disorderly adjustment to their asset values. This could lead to an adverse impact on the value and the future performance of the investment assets of theGroup. The potential broader economic impact from this may impact upon customer demand for theGroup's products.Given that Prudential's investment horizons are long term, it is potentially more exposed to the long-term impact of climate change risks. Additionally, Prudential'sstakeholders increasingly expect responsible investment principlesto be adopted to demonstrate that ESGconsiderations(including climate change) are effectively integrated into investment decisions and fiduciary and stewardship duties.

Adverse experience relative to the assumptions used in pricing products and reporting business results could significantly affect Prudential's results of operations

In common with other life insurers, the profitability of theGroup's businesses depends on a mix of factorsincluding mortality and morbidity levels and trends, policy surrenders and take-up rates on guarantee features of products, investment performance and impairments, unit cost of administration and new business acquisition expenses. TheGroup's businesses are subject to inflation risk. In particular, theGroup's medical insurance businessesin Asia are also exposed to medical inflation risk.

Prudential needsto make assumptions about a number of factorsin determining the pricing of its products, forsetting reserves, and for reporting its capital levels and the results of itslong-term business operations. For example, the assumption that Prudential makes about future expected levels of mortality is particularly relevant for itsUK annuity business, where payments are guaranteed for at least as long asthe policyholder is alive. Prudential conductsrigorousresearch into longevity risk, using industry data as well asits own substantial annuitant experience. As part of its pension annuity pricing and reserving policy, Prudential'sUK business assumes that current rates of mortality continuously improve over time at levels based on adjusted data and informed by models from the Continuous Mortality Investigation (CMI) as published by the Institute and Faculty of Actuaries. Assumptions about future expected levels of mortality are also of relevance to the Guaranteed Minimum Withdrawal Benefit (GMWB) of Jackson's variable annuity

business. If mortality improvement rates significantly exceed the improvement assumed, Prudential'sresults of operations could be adversely affected.

A further factor isthe assumption that Prudential makes about future expected levels of the rates of early termination of products by its customers(known as persistency). Thisisrelevant to a number of lines of businessin theGroup, especially for Jackson's portfolio of variable annuities. Prudential's persistency assumptions reflect a combination of recent past experience for each relevant line of business and expert judgement, especially where a lack of relevant and credible experience data exists. Any expected change in future persistency is also reflected in the assumption. If actual levels of future persistency are significantly different than assumed, theGroup'sresults of operations could be adversely affected. Furthermore, Jackson's variable annuity products are sensitive to other types of policyholder behaviour,such asthe take-up of itsGMWB product features.

In addition, Prudential's business may be adversely affected by epidemics and other effectsthat give rise to a large number of deaths or additionalsickness claims, as well asincreasesto the cost of medical claims. Significant influenza and other epidemics have occurred a number of times historically but the likelihood, timing, or the severity of future epidemics cannot be predicted. The effectiveness of external parties, including governmental and non-governmental organisations, in combating the spread and severity of any epidemics could have a material impact on theGroup'sloss experience.

As a holding company, Prudential is dependent upon its subsidiaries to cover operating expenses and dividend payments

TheGroup'sinsurance and investment management operations are generally conducted through direct and indirect subsidiaries, which are subject to the risks discussed elsewhere in this 'Risk factors'section.

As a holding company, Prudential's principalsources of funds are remittances from subsidiaries,shareholder-backed funds, the shareholder transfer from long-term funds and any amountsthat may be raised through the issuance of equity, debt and commercial paper.

Certain of Prudential'ssubsidiaries are subject to applicable insurance, foreign exchange and tax laws, rules and

regulationsthat can limit their ability to make remittances. In some circumstances, this could limit Prudential's ability to pay dividendsto shareholders or to make available funds held in certain subsidiaries to cover operating expenses of other members of theGroup.

Prudential operates in a number of markets through joint ventures and other arrangements with third parties, involving certain risks that Prudential does not face with respect to its consolidated subsidiaries

Prudential operates, and in certain markets isrequired by local regulation to operate, through joint ventures and othersimilar arrangements. ForsuchGroup operations, management control is exercised in conjunction with other participants. The level of control exercisable by theGroup depends on the terms of the contractual agreements, in particular, the allocation of control among, and continued cooperation between, the participants. In addition, the level of control exercisable by theGroup could also be subject to changesin the maximum level of non-domestic ownership imposed on foreign companiesin certain jurisdictions. Prudential may face financial, reputational and other exposure (including regulatory censure) in the event that any of its partnersfailsto meet its obligations under the arrangements, encounters financial difficulty, or failsto comply with local or international regulation and standardssuch asthose pertaining to the prevention of financial crime. In addition, a significant proportion of theGroup's product distribution is carried out through arrangements with third parties not controlled by Prudential and istherefore dependent upon continuation of these relationships. A temporary or permanent disruption to these distribution arrangements,such asthrough significant deterioration in the reputation, financial position or other circumstances of the third party or material failure in controls(such as those pertaining to the third-party system failure or the prevention of financial crime) could adversely affect the results of operations of Prudential.

Prudential's Articles of Association contain an exclusive jurisdiction provision

Under Prudential's Articles of Association, certain legal proceedings may only be brought in the courts of England and Wales. This appliesto legal proceedings by a shareholder (in its capacity assuch) against Prudential and/or its directors and/or its professionalservice providers. It also appliesto legal proceedings between Prudential and its directors and/or Prudential and Prudential's professionalservice providersthat arise in connection with legal proceedings between the shareholder and such professionalservice providers. This provision could make it difficult forUS and other non-UK shareholdersto enforce theirshareholder rights.

Changes in tax legislation may result in adverse tax consequences

Tax rules, including those relating to the insurance industry, and their interpretation may change, possibly with retrospective effect, in any of the jurisdictionsin which Prudential operates. Significant tax disputes with tax authorities, and any change in the tax status of any member of theGroup or in taxation legislation or itsscope or interpretation could affect Prudential's financial condition and results of operations.

03

06

Glossary

A

Actual exchange rates (AER)

Actual historical exchange ratesforthe specific accounting period, being the average rates overthe period forthe income statement and the closing rates at the balance sheet date forthe balance sheet.

Annual premium equivalent (APE)

A measure of new business activity that is calculated asthe sum of annualised regular premiumsfrom new business plus 10 per cent ofsingle premiums on new business written during the period.

Asset-backed security (ABS)

Asecurity whose value and income payments are derived fromand collateralised (or'backed') by a specified pool of underlying assets. The pool of assets istypically a group ofsmall and illiquid assetsthat are unable to be sold individually.

Available for sale (AFS)

Securitiesthat have been acquired neither forshort-term sale nor to be held to maturity. AFS securities are measured at fair value on the statement of financial position with unrealised gains and losses being booked in Other Comprehensive Income instead of the income statement.

B

Back book of business

The insurance policiessold in past periods that are still in force and hence are still recorded on the insurer's balance sheet.

Bancassurance

The relationship with a bank to offer insurance productsto the bank's customers.

Bonuses

Bonusesreferto the non-guaranteed benefit added to participating life insurance policies andarethewayinwhichpolicyholdersreceive theirshare ofthe profits ofthe policies. There are normally two types of bonus:

• Regular bonus: expected to be added every year during the term of the policy. It is not guaranteed that a regular bonus will be added each year, but once it is added, it cannot be reversed, also known as annual or reversionary bonus; and
• Final bonus: an additional bonus expected to be paid when policyholders take money from the policies. If investment return has been low over the lifetime of the policy, a final bonus may not be paid. Final bonuses may vary and are not guaranteed.

C

Cash surrender value

The amount of cash available to a policy holder on the surrender of or withdrawal from a life insurance policy or annuity contract.

Closed-book life insurance business

A 'closed book' is essentially a group of insurance policiesthat are no longersold, but are still featured on the books of a life insurer as a premium-paying policy. The insurance company has"closed the books" on new sales of these products which will remain in run-off until the policies expire and all claims are settled.

Constant exchange rate (CER)

Prudential plc reportsitsresults at both actual exchange rates(AER) to reflect actual results and also constant exchange rates(CER) to eliminate the impact from exchange translation. CER results are calculated by translating prior year results using current period foreign currency exchange ratesie current period average ratesfor the income statements and current period closing rate for the balance sheet.

Core structural borrowings

Borrowings which Prudential considers to form part of its core capitalstructure and exclude operational borrowings.

Credit risk

The risk of lossif another party failsto meet its obligations, or failsto do so in a timely fashion.

Currency risk

The risk that asset or liability values, cash flows, income or expenses will be affected by changesin exchange rates. Also referred to asforeign exchange risk.

D

Deferred acquisition costs (DAC)

Acquisition costs are expenses of an insurer which are incurred in connection with the acquisition of new insurance contracts or the renewal of existing insurance policies. They include commissions and other variable sales inducements and the direct costs of issuing the policy,such as underwriting and other policy issue expenses. Typically, under IFRS, an element of acquisition costs are deferred ie not expensed in the year incurred, and instead amortised in the income statement in line with the emergence ofsurpluses on the related contracts.

Deferred annuities

Annuities or pensions due to be paid from a future date or when the policyholder reaches a specified age.

Discretionary participation features (DPF)

A contractual right to receive, as a supplement to guaranteed benefits, additional benefits:

• That are likely to be a significant portion of the total contractual benefits;
• Whose amount or timing is contractually at the discretion of the issuer; and
• That are contractually based on asset, fund, company or other entity performance.

Dividend cover

Dividend cover is calculated as operating profit after tax on an IFRS basis, divided by the current year interim dividend plusthe proposed final dividend.

E

Endowment product

An ordinary individual life insurance product that providesthe insured party with various guaranteed benefitsif it survivesspecific maturity dates or periods stated in the policy.Upon the death of the insured party within the coverage period, a designated beneficiary receivesthe face value of the policy.

European Embedded Value (EEV)

Financial resultsthat are prepared on a supplementary basisto theGroup's consolidated IFRS results and which are prepared in accordance with a set of Principlesissued by the CFO Forum of European Insurance Companies dated April 2016. The principles are designed to capture the value of the new businesssold in the period and of the businessin force.

F

Fixed annuities (FA)

Fixed annuity contracts written in theUS which allow for tax-deferred accumulation of funds, are used for asset accumulation in retirement planning and for providing income in retirement and offer flexible pay-out options. The contract holder pays the insurer a premium, which is credited to the contract holders' account. Periodically, interest is credited to the contract holders' account and administrative charges are deducted, as appropriate.

Fixed indexed annuities (FIA)

These are similar to fixed annuitiesin that the contract holder paysthe insurer a premium, which is credited to the contract holders' account and, periodically, interest is credited to the contract holders' account and administrative charges are deducted, as appropriate. An annual minimum interest rate may be guaranteed, although actual interest credited may be higher and islinked to an equity index over itsindexed option period.

Funds under management (FUM)

These comprise funds of theGroup held in the statement of financial position and external fundsthat are managed by Prudential asset management operations.

G

Group free surplus

Group free surplus at the end of the period comprisesfree surplusfor the insurance businesses, representing the excess of the net worth over the required capital included in the EEV results, and IFRS net assetsfor the asset management businesses excluding goodwill. The free surplus generated during the period comprisesthe movement in this balance excluding foreign exchange, capital, and other reserve movements. Specifically, it includes amounts maturing from the in-force operations during the period lessthe investment in new business, the effect of market movements and other one-off items.

Guaranteed annuities

Policiesthat pay out a fixed amount of benefit for a defined period.

Guaranteed investment contract (GIC) (US)

An investment contract between an insurance company and an institutional investor, which provides a stated rate of return on deposits over a specified period of time. They typically provide for partial ortotal withdrawals at book value if needed for certain liquidity needs of the plan.

Guaranteed minimum accumulation benefit (GMAB) (US)

A guarantee that ensuresthat the contract value of a variable annuity contract will be at least equal to a certain minimum amount after a specified number of years.

Guaranteed minimum death benefit (GMDB) (US)

The basic death benefit offered under variable annuity contracts, which specifies that if the owner dies before annuity income payments begin, the beneficiary will receive a payment equal to the greater of the contract value or purchase payments less withdrawals.

Guaranteed minimum income benefit (GMIB) (US)

Aguarantee that ensures, under certain conditions, that the ownermay annuitise the variable annuity contract based on the greater of(a)the actual account value or(b) a pay-out base equal to premiums credited with some interestrate, orthemaximum anniversary value of the account prior to annuitisation.

Guaranteed minimum withdrawal benefit (GMWB) (US)

A guarantee in a variable annuity that promisesthat the owner may make annual withdrawals of a defined amount for the life of the owner or until the total guaranteed amount isrecovered, regardless of market performance orthe actual account balance.

H

Health and protection

These comprise health and personal accident insurance products, which provide morbidity orsickness benefits and include health, disability, critical illness and accident coverage.Health and protection products are sold both asstandalone policies and asridersthat can be attached to life insurance products.Health and protection riders are presented together with ordinary individual life insurance productsfor purposes of disclosure of financial information.

I

In-force

An insurance policy or contract reflected on recordsthat has not expired, matured or otherwise been surrendered orterminated.

Internal rate of return (IRR)

The IRR is equivalent to the discount rate at which the present EEV value of the post-tax cash flows expected to be earned over the life time of the business written in shareholder-backed life fundsis equal to the total invested capital to support the writing of the business. The capital included in the calculation of the IRR is equal to the amount required to pay acquisition costs and set up reservesless premiumsreceived, plus encumbered capital. The impact of the time value of options and guaranteesisincluded in the calculation.

Internal vesting

Internal vesting relatesto proceedsfrom a Prudential policy which the policyholder has decided to reinvest in a Prudential annuity product.

International Financial Reporting Standards (IFRS)

Accounting standardsthat all publicly listed groupsin the EuropeanUnion are required to apply in preparing consolidated financialstatements.

Investment grade

Investmentsrated BBB- or above for S&P, Baa3 or above for Moody's.Generally they are bondsthat are judged by the rating agency aslikely enough to meet payment obligationsthat banks are allowed to invest in them.

Investment-linked products or contracts

Insurance products where the surrender value of the policy islinked to the value of underlying investments(such as collective investmentschemes, internal investment pools or other property) or fluctuationsin the value of underlying investment or indices. Investment risk associated with the product is usually borne by the policyholder. Insurance coverage, investment and administration services are provided for which the charges are deducted from the investment fund assets. Benefits payable will depend on the price of the units prevailing at the time of surrender, death or the maturity of the product,subject to surrender charges. These are also referred to as unit-linked products or unit-linked contracts.

02

04

03

05

06 European

information

L

Liquidity coverage ratio (LCR)

Prudential calculatesthis as assets and resources available to usthat are readily convertible to cash to cover corporate obligationsin a prescribed stressscenario. We calculate thisratio over a range of time horizons extending to twelve months.

Liquidity premium

This comprisesthe premium that is required to compensate for the lower liquidity of corporate bondsrelative to swaps and the mark to market risk premium that isrequired to compensate for the potential volatility in corporate bond spreads(and hence market values) at the time ofsale.

M

Market value reduction (MVR)

A reduction applied to the payment on with-profits bonds when policyholders surrender in adverse market conditions.

Money Market Fund (MMF)

An MMF is an open-endedmutual fund that investsin short-termdebtsecuritiessuch as US treasury bills and commercial paper. The purpose of an MMF isto provide investors with a safe place to invest easily accessible cash-equivalent assets characterised as a low-risk, low-return investment.

Mortality rate

Rate of death, varying by such parameters as age, gender, and health, used in pricing and computing liabilitiesfor future policyholders of life and annuity products, which contain mortality risks.

Morbidity rate

Rate ofsickness, varying by such parameters as age, gender and health, used in pricing and computing liabilities for future policyholders of health products, which contain morbidity risks.

N

Net premiums

Life insurance premiums, net of reinsurance ceded to third-party reinsurers.

Net worth

Net assetsfor EEV reporting purposes that reflect the regulatory basis position, sometimes with adjustmentsto achieve consistency with the IFRS treatment of certain items.

New business margin

The value of new business on an EEV basis expressed as a percentage of the present value of new business premiums expected to be received from the new business.

New business profit

The profits, calculated in accordance with European Embedded Value Principles, from businesssold in the financial reporting period under consideration.

Non-participating business

A life insurance policy where the policyholder is not entitled to a share of the company's profits and surplus, but receives certain guaranteed benefits. Also known as non-profit in theUK. Examplesinclude pure risk policies(eg fixed annuities, term insurance, critical illness) and unit-linked insurance contracts.

O

Open-ended investment company (OEIC)

A collective investment fund structured as a limited company in which investors can buy and sellshares.

Operational borrowings

Borrowings which arise in the normal course of the business.

P

Participating funds

Distinct portfolioswhere the policyholders have a contractualrightto receive atthe discretion ofthe insurer additional benefits based on factorssuch asthe performance of a pool of assets heldwithin the fund, as a supplementto any guaranteed benefits. The insurermay either have discretion asto the timing ofthe allocation ofthose benefits to participating policyholders ormay have discretion asto the timing and the amount ofthe additional benefits. For Prudential themostsignificant participating funds are with-profitsfundsfor businesswritten in the UK,HongKong,Malaysia and Singapore.

Participating policies or participating business

Contracts of insurance where the policyholders have a contractualright to receive, at the discretion of the insurer, additional benefits based on factorssuch as investment performance, as a supplement to any guaranteed benefits. Thisis also referred to as with-profits business.

Payback period

Payback period isthe time in which the initial 'cash' outflow of investment is expected to be recovered from the 'cash' inflows generated by the investment. We measure cash outflow by our investment of free surplusin new businesssales. The payback period equalsthe time taken for this business to generate free surplusto cover this investment. Payback periods are measured on an undiscounted basis.

Persistency

The percentage of policiesremaining in force from period to period.

Present value of new business premiums (PVNBP)

The present value of new business premiumsis calculated as equalling single premiums plusthe present value of expected premiums of new regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution.

Prudential Regulation Authority (PRA)

The PRA is aUK regulatory body responsible for Prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.

R

Regular premium product

A life insurance product with regular periodic premium payments.

Rider

A supplemental plan that can be attached to a basic insurance policy, with payment of additional premium.

Risk margin reserve (RMR)

An RMR isincluded within operating profit based on longer-term investment returns and represents a charge for long-term expected defaults of debtsecurities, determined by reference to the credit quality of the portfolio.

Scottish Amicable Insurance Fund (SAIF)

SAIF is a ring-fenced sub-fund of the Prudential Assurance Company's long-term fund following the acquisition of the mutually owned Scottish Amicable Life Assurance Society in 1997. The fund issolely for the benefit of policyholders of SAIF. Shareholders of Prudential plc have no interest in the profits of this fund although they are entitled to asset management fees on this business.

Separate account

A separate account is a pool of investments held by an insurance company not in or 'separate' from its general account. The returnsfrom the separate account generally accrue to the policyholder. A separate account allows an investor to choose an investment category according to hisindividual risk tolerance, and desire for performance.

Single premiums

Single premium policies of insurance are those that require only a single lump sum payment from the policyholder.

Stochastic techniques

Stochastic techniquesincorporate results from repeated simulations using key financial parameters which are subject to random variations and are projected into the future.

Subordinated debt

A fixed interest issue or debt that ranks below other debt in order of priority for repayment if the issuer isliquidated. Holders are compensated for the added risk through higher rates of interest.Under EUinsurance regulation,subordinated debt is not treated as a liability and counts towardsthe coverage of the required minimum margin ofsolvency, with limitations.

Surrender

The termination of a life insurance policy or annuity contract at the request of the policyholder after which the policyholder receivesthe cash surrender value, if any, of the contract.

Surrender charge or surrender fee

The fee charged to a policyholder when a life insurance policy or annuity contract issurrendered for its cash surrender value prior to the end of the surrender charge period.

T

Takaful

Insurance that is compliant with Islamic principles.

Time value of options and guarantees (TVOG)

The value of financial options and guarantees comprisestwo parts, the intrinsic value and the time value. The intrinsic value is given by a deterministic valuation on best estimate assumptions. The time value isthe additional value arising from the variability of economic outcomesin the future.

Total shareholder return (TSR)

TSR representsthe growth in the value of a share plusthe value of dividends paid, assuming that the dividends are reinvested in the Company'sshares on the exdividend date.

U

Unallocated surplus

Unallocated surplusisrecorded wholly as a liability and representsthe excess of assets over policyholder liabilitiesfor Prudential's with-profitsfunds. The balance retained in the unallocated surplus represents cumulative income arising on the with-profits businessthat has not been allocated to policyholders orshareholders.

Unit-linked products or unit-linked contracts

See 'investment-linked products or contracts' above.

Universal life

An insurance product where the customer pays flexible premiums,subject to specified limits, which are accumulated in an account and are credited with interest (at a rate eitherset by the insurer or reflecting returns on a pool of matching assets). The customer may vary the death benefit and the contract may permit the customer to withdraw the account balance, typically subject to a surrender charge.

V

Variable annuity (VA) (US)

An annuity whose value is determined by the performance of underlying investment optionsthat frequently includessecurities. A variable annuity's value is not guaranteed and will fluctuate, depending on the value of its underlying investments. The holder of a variable annuity assumesthe investment risk and the funds backing a variable annuity are held in the insurance companiesseparate account. VAs are similar to unit-linked annuitiesin theUK.

Value of in-force business (VIF)

The present value of future shareholder cash flows projected to emerge from the assets backing liabilities of the in-force covered business.

W

Whole of life

A type of life insurance policy that provides lifetime protection; premiums must usually be paid for life. The sum assured is paid out whenever death occurs. Commonly used for estate planning purposes.

With-profits funds

See 'participating funds' above.

Y

Yield

A measure of the income received from an investment compared to the price paid for the investment.Normally expressed as a percentage.

02

03

Shareholder information

Communication with shareholders

TheGroup maintains a corporate website containing a wide range of information relevant for private and institutional investors, including theGroup's financial calendar: www.prudential.co.uk

Annual General Meeting

The 2019 AnnualGeneral Meeting (AGM) will be held in the Churchill Auditorium at The QEII Centre, Broad Sanctuary, Westminster, London SW1P 3EE on 16 May 2019 at 11.00am.

Prudential will continue its practice of calling a poll on all resolutions and the voting results, including all proxieslodged prior to the meeting, will be displayed at the meeting and subsequently published on the Company's website.

Details of the 2018 AGM, including the major items discussed at the meeting and the results of the voting, can be found on the Company's website.

In accordance with relevant legislation, shareholders holding 5 per cent or more of the fully paid up issued share capital are able to require the Directorsto hold a general meeting. Written shareholder requestsshould be addressed to the Group Company Secretary at the registered office.

Documents on display

The terms and conditions of all Directors' appointments are available for inspection at the Company'sregistered office during normal business hours and at the AGM.

Company constitution

Prudential is governed by the Companies Act 2006, other applicable legislation and regulations, and provisionsin its Articles of Association (Articles). In 2018, the Company reviewed and updated its Articlesin order to reflect changesto English company law and bring them into line with best practice. These updates were put to shareholders at the Company's AGM held on 17 May 2018 and duly approved. The principal changes were summarised forshareholdersin an appendix to the notice of meeting, these included, deleting articlesrelating to the allotment ofshares and disapplication of pre-emption rightsto reflect the Company's practice ofseeking authority from shareholders annually, giving the Company the ability to hold hybrid general meetings, amending the deemed delivery provision for communicationssent to overseas shareholders and streamlining the process forselling shares belonging to untraced shareholders. Other amendments were made which were of a minor, technical or

clarifying nature. The current Memorandum and Articles are available on the Company's website.

Share capital

Issued share capital

The issued share capital as at 31 December 2018 consisted of 2,593,044,409 (2017: 2,587,175,445) ordinary shares of 5 pence each, all fully paid up and listed on the London Stock Exchange and theHong Kong Stock Exchange. As at 31 December 2018, there were 47,260 (2017: 48,086) accounts on the register. Further information can be found in note C10 on page 291.

Prudential also maintainssecondary listings on theNew York Stock Exchange (in the form of American Depositary Receipts which are referenced to ordinary shares on the mainUK register) and the Singapore Stock Exchange.

Prudential has maintained a sufficiency of public float throughout the reporting period asrequired by theHong Kong Listing Rules.

Analysis of shareholder accounts as at 31 December 2018

Size of shareholding	Number of shareholder accounts	% of total number of shareholder accounts	Number of shares	% of total number of shares
1,000,001 upwards	306	0.65	2,280,599,311	87.95
500,001–1,000,000	143	0.30	99,039,149	3.82
100,001–500,000	527	1.12	125,806,041	4.85
10,001–100,000	1,481	3.13	45,716,873	1.76
5,001–10,000	1,590	3.36	11,038,090	0.43
1,001–5,000	10,128	21.43	22,194,679	0.86
1–1,000	33,085	70.01	8,650,266	0.33
Total	47,260	100	2,593,044,409	100

Major shareholders

The table below showsthe holdings of majorshareholdersin the Company's issued ordinary share capital, as at 31 December 2018, as notified and disclosed to the Company in accordance with the DisclosureGuidance and Transparency Rules.

CapitalGroup Companies, Inc. 9.87 BlackRock, Inc 5.08	As at 31 December 2018	% of total voting rights
	Norges Bank	3.99

As at 12 March 2019, no notifications have been received since the year end.

Rights and obligations

The rights and obligations attaching to the Company'sshares are set out in full in the Articles. There are currently no voting restrictions on the ordinary shares, all of which are fully paid, and each share carries one vote on a poll. If votes are cast on a show of hands, each shareholder present in person or by proxy, or in the case of a corporation, each of its duly authorised corporate representatives, has one vote except that if a proxy is appointed by more than one member, the proxy has one vote for and one vote against if instructed by one or more membersto vote for the resolution and by one or more members to vote against the resolution.

Where, under an employee share scheme, participants are the beneficial owners of the shares but not the registered owners, the voting rights are normally exercisable by the trustee on behalf of the registered owner in accordance with the relevant plan rules. The Trustees would not usually vote any unallocated shares held in trust but

they may do so at their discretion provided it would be considered to be in the best interests of the beneficiaries of the trust and permitted under the relevant trust deed.

As at 12 March 2019, Trustees held 0.38 per cent of the issued share capital under the various plansin operation.

Rightsto dividends under the various schemes are set out in the Directors' remuneration report.

Restrictions on transfer

In accordance with English company law, shares may be transferred by an instrument of transfer or through an electronic system (currently CREST) and any transfer is not restricted except that the Directors may, in certain circumstances, refuse to register transfers ofshares but only ifsuch refusal does not prevent dealingsin the shares from taking place on an open and proper basis. If the Directors make use of that power, they mustsend the transferee notice of the refusal within two months.

Certain restrictions may be imposed from time to time by applicable laws and regulations(for example, insider trading laws) and pursuant to the Listing Rules of both the Financial Conduct Authority and theHong Kong Stock Exchange, as well as under the rules ofsome of theGroup's employee share plans.

All Directors are required to hold a minimum number ofshares under guidelines approved by the Board, which they would also be expected to retain as described on page 158 of the Directors' remuneration report.

Authority to issue shares

The Directorsrequire authority from shareholdersin relation to the issue of shares. Whenevershares are issued, these must be offered to existing shareholders

pro rata to their holdings unlessthe Directors have been given authority by shareholdersto issue shares without offering them first to existing shareholders. Prudentialseeks authority from its shareholders on an annual basisto issue shares up to a maximum amount, of which a defined number may be issued without pre-emption. Disapplication ofstatutory pre-emption proceduresis also sought for rightsissues. The existing authoritiesto issue shares and to do so without observing pre-emption rights are due to expire at the end of this year's AGM. Relevant resolutionsto authorise share capital issuances will be put to shareholders at the AGM on 16 May 2019.

Details ofsharesissued during 2018 and 2017 are given in note C10 on page 291.

In accordance with the terms of a waiver granted by theHong Kong Stock Exchange, Prudential confirmsthat it complies with the applicable law and regulation in theUK in relation to the holding ofsharesin treasury and with the conditions of the waiver in connection with the purchase of own shares and any treasury sharesit may hold.

Authority to purchase own shares

The Directors also require authority from shareholdersin relation to the purchase of the Company's own shares. Prudential seeks authority by special resolution on an annual basisfor the buyback of its own sharesin accordance with the relevant provisions of the Companies Act 2006 and other related guidance. This authority has not been used since it waslast granted at the AGM in 2018. This existing authority is due to expire at the end of this year's AGM and a special resolution to renew the authority will be put to shareholders at the AGM on 16 May 2019.

Dividend information

2018 second interim dividend	Shareholders registered on the UK register and Hong Kong and Irish branch registers	Holders of US American Depositary Receipts	Shareholders with ordinary shares standing to the credit of their CDP securities accounts
Ex-dividend date	28 March 2019	–	28 March 2019
Record date	29 March 2019	29 March 2019	29 March 2019
Payment date	17 May 2019	On or about 24 May 2019	On or about 24 May 2019

A number of dividend waivers are in place and these relate to sharesissued but not allocated under theGroup's employee share plans. These shares are held by the Trustees and will, in due course, be used to satisfy requirements under theGroup's employee share plans. 03

06 European Embedded Value

05

information

Shareholder enquiries

For enquiries aboutshareholdings, including dividends and lostshare certificates, please contact the Company'sregistrars:

Register	By post	By telephone
UK register	Equiniti Limited, AspectHouse, Spencer Road, Lancing, West Sussex, BN99 6DA,UK.	Tel 0371 384 2035 Textel 0371 384 2255 (for hard of hearing). Lines are open from 8.30am to 5.30pm (UK), Monday to Friday. Internationalshareholders Tel +44 121 415 7026
Irish branch register	Link Asset Services, Link Registrars Limited, PO Box 7117, Dublin 2, Ireland.	Tel +353 1 553 0050
Hong Kong register	ComputershareHong Kong Investor Services Limited, 17M Floor,Hopewell Centre, 183 Queen's Road East, Wan Chai,Hong Kong.	Tel +852 2862 8555
Singapore register	Shareholders who have sharesstanding to the credit of theirsecurities accounts with The Central Depository (PTE) Limited (CDP) in Singapore may refer queriesto the CDP at 9North Buona Vista Drive, #01-19/20, The Metropolis, Singapore 138588. Enquiriesregarding shares held in Depository Agent Sub-accountsshould be directed to your Depository Agent or broker.	Tel +65 6535 7511
ADRs	JPMorgan Chase BankN.A, PO Box 64504, St. Paul, MN55164-0504,USA.	Tel +1 800 990 1135, or from outside theUS +1 651 453 2128 or log on to www.adr.com

Dividend mandates

Shareholders may have their dividends paid directly to their bank or building society account. If you wish to take advantage of thisfacility, please call Equiniti and request a Cash Dividend Mandate form. Alternatively,shareholders may download the form from www.prudential.co.uk/investors/ shareholder-information/forms

Cash dividend alternative

The Company operates a Dividend Re-investment Plan (DRIP). Shareholders who have elected for the DRIP will automatically receive sharesfor all future dividendsin respect of which a DRIP alternative is offered. The election may be cancelled at any time by the shareholder. Further details of the DRIP and the timetable are available at www.shareview.co.uk/4/Info/Portfolio/ default/en/home/shareholders/Pages/ ReinvestDividends.aspx

Electronic communications

Shareholders are encouraged to elect to receive shareholder documents electronically by registering with Shareview at www.shareview.co.uk This willsave on printing and distribution costs, and create environmental benefits. Shareholders who have registered will be sent an email notification whenever shareholder documents are available on the Company's website and a link will be provided to that information. When registering,shareholders will need their shareholder reference number which can be found on theirshare certificate or proxy form. The option to receive shareholder documents electronically is not available to shareholders holding sharesthrough CDP. Please contact Equiniti if you require any assistance or further information.

Share dealing services

The Company'sregistrars, Equiniti, offer a postal dealing facility for buying and selling Prudential plc ordinary shares; please see the Equiniti address or telephone 0371 384 2248. They also offer a telephone and internet dealing service, Shareview, which provides a simple and convenient way ofselling Prudentialshares. For telephone sales, call 0345 603 7037 between 8.00am and 4.30pm, Monday to Friday, and for internetsaleslog on to www.shareview.co.uk/dealing

ShareGift

Shareholders who have only a small number ofshares, the value of which makesthem uneconomic to sell, may wish to consider donating them to ShareGift (Registered Charity 1052686). The relevantshare transfer form may be downloaded from our website www.prudential.co.uk/investors/ shareholder-information/forms or from Equiniti. Further information about ShareGift may be obtained on +44 (0)20 7930 3737 or from www.ShareGift.org

How to contact us

Prudential plc

Laurence PountneyHill, London EC4R 0HH

www.prudential.co.uk Tel +44 (0)20 7220 7588 It isintended that the Company'sregistered office will change to 1 Angel Court, London EC2R 7AGduring April 2019.

Board

Paul Manduca Chairman

Non-executive Directors

• Philip Remnant Senior Independent Director
• Sir Howard Davies

David Law

Kai Nargolwala

Anthony Nightingale

Alice Schroeder

• Lord Turner
• Tom Watjen
• Fields Wicker-Miurin

Group Executive Committee

Executive Directors

Mike Wells Group Chief Executive

Mark FitzPatrick Chief Financial Officer

James Turner Group Chief Risk Officer

Michael Falcon Chief Executive Officer of JacksonHoldings LLC

John Foley Chief Executive of M&GPrudential

Nic Nicandrou Chief Executive of Prudential Corporation Asia

Media enquiries

Tel +44 (0)20 7548 2776 Email: media.relations@prudential.co.uk

Functional specialists

Julian Adams Group Regulatory and Government Relations Director

Jonathan Oliver Group Communications Director

Alan Porter GroupGeneral Counsel and Company Secretary

Al-Noor Ramji Group Chief Digital Officer

Tim Rolfe GroupHuman Resources Director

Business units

M&GPrudential

10 Fenchurch Avenue London EC3M 5AG

www.pru.co.uk Tel +44 (0)800 000 000 www.mandg.co.uk Tel +44 (0)800 328 3192

John Foley Chief Executive of M&GPrudential

Shareholder contacts

Tel +44 (0)20 7548 3300 Email: investor.relations@prudential.co.uk

UK Register private shareholder enquiries Tel 0371 384 2035 Internationalshareholders

Tel +44 (0)121 415 7026

Prudential Corporation Asia

13th Floor One International Finance Centre 1Harbour View Street Central Hong Kong www.prudentialcorporation-asia.com Tel +852 2918 6300

Nic Nicandrou Chief Executive of Prudential Corporation Asia

Jackson Holdings LLC

1 Corporate Way Lansing Michigan 48951 USA www.jackson.com Tel +1 517 381 5500

Michael Falcon Chief Executive Officer of JacksonHoldings LLC

The Central Depository (Pte) Limited shareholder enquiries Tel +65 6535 7511

03 Governance

04

01 Group overview

02 Strategic report

06

This Prudential Annual Report may contain 'forward-looking statements' with respect to certain of Prudential's plans and its goals and expectationsrelating to itsfuture financial condition, performance, results,strategy and objectives. Statementsthat are not historical facts, including statements about Prudential's beliefs and expectations and including, without limitation,statements containing the words'may', 'will', 'should', 'continue', 'aims', 'estimates', 'projects', 'believes', 'intends', 'expects', 'plans', 'seeks' and 'anticipates', and words ofsimilar meaning, are forward-looking statements. These statements are based on plans, estimates and projections as at the time they are made, and therefore undue reliance should not be placed on them. By their nature, all forward-looking statementsinvolve risk and uncertainty. A number of important factors could cause Prudential's actual future financial condition or performance or other indicated resultsto differ materially from those indicated in any forward-looking statement. Such factorsinclude, but are not limited to, the timing, costs and successful implementation of the demerger of the M&GPrudential business; the future trading value of the shares of Prudential plc and the trading value and liquidity of the shares of the to-be-listed M&GPrudential businessfollowing such demerger; future market conditions, including fluctuationsin interest rates and exchange rates, the potential for a sustained low-interest rate environment, and the performance of financial markets generally; the policies and actions of regulatory authorities, including, for example, new government initiatives; the political, legal and economic effects of theUK's decision to leave the EuropeanUnion; the impact of continuing designation as aGlobal Systemically Important Insurer or 'G-SII'; the impact of competition, economic uncertainty, inflation and deflation; the effect on Prudential's business and resultsfrom, in particular, mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of internal projects and otherstrategic actionsfailing to meet their objectives; disruption to the availability, confidentiality or integrity of Prudential'sIT systems(or those of itssuppliers); the impact of changesin capital,solvency standards, accounting standards or relevant regulatory frameworks, and tax and other legislation and regulationsin the jurisdictionsin which Prudential and its affiliates operate; and the impact of legal and regulatory actions, investigations and disputes. These and other important factors may, for example, result in changesto assumptions used for determining results of operations or re-estimations of reservesfor future policy benefits. Further discussion of these and other important factorsthat could cause Prudential's actual future financial condition or performance or other indicated resultsto differ, possibly materially, from those anticipated in Prudential'sforward-looking statements can be found under the 'Risk factors'section in this document.

Any forward-looking statements contained in this Annual Reportspeak only as of the date on which they are made. Prudential expressly disclaims any obligation to update any of the forward-looking statements contained in thisreport or any other forward-looking statementsit may make, whether as a result of future events, new information or otherwise except asrequired pursuant to theUK Prospectus Rules, theUK Listing Rules, theUK Disclosure and Transparency Rules, theHong Kong Listing Rules, the SGX-ST listing rules or other applicable laws and regulations.

History

Providing financial security since 1848

Successive generations have looked to Prudential to safeguard their financial security – from industrial workers and their families in Victorian Britain to over 26 million customers worldwide today. Our financial strength, heritage, prudence and focus on our customers' long-term needs ensure that people continue to turn to our trusted brands to help them plan for today and tomorrow.

1848 Prudential is established as Prudential Mutual Assurance, Investment and Loan Association in Hatton Garden, London, offering loans and life assurance to professional people.

1854 Prudential opens the Industrial Department to sell a new type of insurance, Industrial Insurance, to the working classes, for premiums of a penny and upwards.

1871 The Company becomes one of the first in the City to employ women. Calculating machines are also introduced, bringing efficiencies to the processing of an increasing volume of business.

1879 Prudential moves into Holborn Bars, a purpose-built office complex designed by Alfred Waterhouse. The building becomes a London landmark, and remains part of Prudential's property portfolio to this day.

1912 Following the National Insurance Act, Prudential works with the government to run Approved Societies, providing sickness and unemployment benefits to five million people.

1923 Prudential's first overseas life branch is established in India, with the first policy being sold to a tea planter in Assam.

1924 Prudential shares are floated on the London Stock Exchange.

1949 The 'Man from the Pru' advertising campaign is launched.

1986 Prudential acquires Jackson National Life Insurance in the United States.

1994 Prudential Corporation Asia is formed in Hong Kong as a regional head office to expand operations beyond an existing presence in Malaysia, Singapore and Hong Kong.

1999 Prudential acquires M&G, pioneer of unit trusts in the UK and a leading provider of investment products.

2000 Prudential plc is listed on the New York Stock Exchange. Prudential becomes the first UK life insurer to enter the Mainland China market through its joint venture with CITIC Group.

2010 Prudential plc is listed on stock exchanges in Hong Kong and Singapore.

2014 Prudential acquires businesses in Ghana and Kenya, marking its entry into the fast-growing African life insurance industry.

2017 M&G and Prudential UK & Europe combine to form M&GPrudential, a leading savings and investments business ideally positioned to target growing customer demand for comprehensive financial solutions.

2018 Prudential plc announces its intention to demerge its UK and Europe business, M&GPrudential, resulting in two separately listed companies, with different investment characteristics and opportunities.

Entering the computer age

Prudential has a long history of innovation. Between 1964 and 1966, Prudential installed two Ferranti 'Orion' computers atits head office in London, forming one of the UK's most powerful commercial computing resources at the time. The success of the first two Orions led Prudential to install a third in 1969.

The Orions were used to streamline the administration of customer policy records. Prior to computerisation, records were maintained using mechanical punch cards and punching, sorting and tabulating machines. Computerisation was a huge step forward: 300 cards could be mechanically punched in an hour, but theOrion could carry out 100,000 calculations every second.

While huge by modern standards, the Orions also saved valuable space. A reel ofmagnetic tape weighing less than eight pounds could hold the equivalent of 500,000 punched cards, which would have required 300 square feet of storage space and weighed over a tonne.

Prudential public limited company

Incorporated and registered in England and Wales

Registered office

Laurence Pountney Hill London EC4R 0HH Registered number 1397169 www.prudential.co.uk

It is intended that the Company's registered office will change to 1 Angel Court, London EC2R 7AG during April 2019. An announcement will be made to the market to confirm this at the relevant time.

Principal place of business

in Hong Kong 13th Floor One International Finance Centre 1 Harbour View Street Central Hong Kong

Prudential plc is a holding company, subsidiaries of which are authorised and regulated, as applicable, by the Prudential Regulation Authority and the Financial Conduct Authority.

Printed on Revive 100 Silk, a paper made from fibre derived from 100 per cent recycled pre- and postconsumer waste; and Revive 100 Offset, which is made from 100 per cent recycled post-consumer waste.

All material used in this report has been independently certified according to the rules of the Forest Stewardship Council (FSC). All pulps used are elemental chlorine free, and the inks used are vegetable oil based. The manufacturing mills and the printer are registered to the Environmental Management System ISO 14001 and are FSC chain-of-custody certified.

Designed by FleishmanHillard Fishburn Printed in the UK by CPI Colour

Prudential plc

Annual Report 2018