Prudential PLC — Interim / Quarterly Report 2014

Aug 12, 2014

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RNS Number : 8440O Prudential PLC 12 August 2014  European Embedded Value (EEV) basis results Post-tax operating profit based on longer-term investment returns Results analysis by business area 2014 £m 2013 £m Note Half year Half year Full year note (ii) Asia operations New business 3 494 502 1,139 Business in force 4 339 327 753 Long-term business 833 829 1,892 Eastspring Investments 36 32 64 Development expenses (1) (2) (1) Total 868 859 1,955 US operations New business 3 376 311 706 Business in force 4 401 396 820 Long-term business 777 707 1,526 Broker-dealer and asset management (5) 21 39 Total 772 728 1,565 UK operations New business 3 145 100 237 Business in force 4 243 204 595 Long-term business 388 304 832 General insurance commission 9 11 22 Total UK insurance operations 397 315 854 M&G (including Prudential Capital) 200 175 346 Total 597 490 1,200 Other income and expenditurenote (i) (280) (235) (482) Solvency II and restructuring costs (14) (21) (34) Post-tax operating profit based on longer-term investment returns 1,943 1,821 4,204 Analysed as profits (losses) from: New business 3 1,015 913 2,082 Business in force 4 983 927 2,168 Long-term business 1,998 1,840 4,250 Asset management 231 228 449 Other results (286) (247) (495) Total 1,943 1,821 4,204 The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis. This approach has been adopted throughout this supplementary information. Notes (i) EEV basis other income and expenditure represents the IFRS basis post-tax result, less the unwind of expected margins on the internal management of the assets of the covered business (as explained in note 14(c)(vi)). (ii) The comparative results have been prepared using previously reported average exchange rates for the period. For memorandum disclosure purposes note 2 presents the half year 2013 results on both actual exchange rates (AER) and constant exchange rates (CER) bases. Post-tax summarised consolidated income statement 2014 £m 2013 £m Note Half year Half year Full year note Post-tax operating profit based on longer-term investment returns Asia operations 868 859 1,955 US operations 772 728 1,565 UK operations: UK insurance operations 397 315 854 M&G (including Prudential Capital) 200 175 346 597 490 1,200 Other income and expenditure (280) (235) (482) Solvency II and restructuring costs (14) (21) (34) Post-tax operating profit based on longer-term investment returns 1,943 1,821 4,204 Short-term fluctuations in investment returns 7 432 (587) (564) Effect of changes in economic assumptions 8 (368) 534 629 Mark to market value movements on core borrowings (66) 203 152 Loss attaching to held for sale Japan Life business 5 - (47) (35) Costs of domestication of Hong Kong branch 6 (7) - (28) Total post-tax non-operating profit (9) 103 154 Profit for the period attributable to equity holders of the Company 1,934 1,924 4,358 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Note The comparative results have been prepared using previously reported average exchange rates for the period. For memorandum disclosure purposes note 2 presents the half year 2013 results on both actual exchange rates (AER) and constant exchange rates (CER) bases. Earnings per share 2014 2013 Half year Half year Full year note Based on post-tax operating profit including longer-term investment returns of £1,943 million (half year 2013: £1,821 million; full year 2013: £4,204 million) (in pence) 76.3p 71.5p 165.0p Based on post-tax profit of £1,934 million (half year 2013: £1,924 million; full year 2013: £4,358 million) (in pence) 75.9p 75.5p 171.0p Average number of shares (millions) 2,547 2,548 2,548 Note The comparative results have been prepared using previously reported average exchange rates for the period. For memorandum disclosure purposes note 2 presents the half year 2013 results on both actual exchange rates (AER) and constant exchange rates (CER) bases. Dividends per share (in pence) 2014 2013 Half year Half year Full year Dividends relating to reporting period: Interim dividend (2014 and 2013) 11.19 p 9.73 p 9.73 p Final dividend (2013) - - 23.84 p Total 11.19 p 9.73 p 33.57 p Dividends declared and paid in reporting period: Current year interim dividend - - 9.73 p Final dividend for prior year 23.84 p 20.79 p 20.79 p Total 23.84 p 20.79 p 30.52 p Movement in shareholders' equity 2014 £m 2013 £m Note Half year Half year Full year Profit for the period attributable to equity shareholders 1,934 1,924 4,358 Items taken directly to equity: Exchange movements on foreign operations and net investment hedges (377) 693 (1,077) Dividends (610) (532) (781) New share capital subscribed 8 1 6 Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes 10 (26) (53) Reserve movements in respect of share-based payments 52 31 98 Treasury shares: Movement in own shares in respect of share-based payment plans (34) 25 (10) Movement in own shares purchased by unit trusts consolidated under IFRS (6) 2 (31) Mark to market value movements on Jackson assets backing surplus and required capital 71 (39) (97) Net increase in shareholders' equity 11 1,048 2,079 2,413 Shareholders' equity at beginning of period: As previously reported 11 24,856 22,443 22,443 Effect of the domestication of Hong Kong branch on 1 January 2014 6 (11) - - 24,845 22,443 22,443 Shareholders' equity at end of period 11 25,893 24,522 24,856 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. 2014 £m 2013 £m 30 Jun 30 Jun 31 Dec Comprising: Long- term business operations Asset management and other operations Total Long- term business operations Asset management and other operations Total Long- term business operations Asset management and other operations Total Asia operations: Net assets of operations 10,769 192 10,961 10,921 217 11,138 10,305 194 10,499 Acquired goodwill 228 61 289 244 61 305 231 61 292 10,997 253 11,250 11,165 278 11,443 10,536 255 10,791 US operations: Net assets of operations 7,155 125 7,280 6,638 127 6,765 6,966 118 7,084 Acquired goodwill - 16 16 - 16 16 - 16 16 7,155 141 7,296 6,638 143 6,781 6,966 134 7,100 UK insurance operations: Net assets of operations 7,654 9 7,663 7,096 11 7,107 7,342 22 7,364 M&G: Net assets of operations - 506 506 - 511 511 - 449 449 Acquired goodwill - 1,153 1,153 - 1,153 1,153 - 1,153 1,153 - 1,659 1,659 - 1,664 1,664 - 1,602 1,602 7,654 1,668 9,322 7,096 1,675 8,771 7,342 1,624 8,966 Other operations: Holding company net borrowings at market valuenote 9 - (2,696) (2,696) - (2,580) (2,580) - (2,373) (2,373) Other net assets - 721 721 - 107 107 - 372 372 - (1,975) (1,975) - (2,473) (2,473) - (2,001) (2,001) Shareholders' equity at end of period 25,806 87 25,893 24,899 (377) 24,522 24,844 12 24,856 Representing: Net assets (liabilities) 25,578 (1,143) 24,435 24,655 (1,607) 23,048 24,613 (1,218) 23,395 Acquired goodwill 228 1,230 1,458 244 1,230 1,474 231 1,230 1,461 25,806 87 25,893 24,899 (377) 24,522 24,844 12 24,856 Net asset value per share 2014 2013 30 Jun 30 Jun 31 Dec Based on EEV basis shareholders' equity of £25,893 million (half year 2013: £24,522 million; full year 2013: £24,856 million) (in pence) 1,009p 958p 971p Number of issued shares at period end (millions) 2,566 2,559 2,560 Annualised return on embedded value 16% 16% 19% * Annualised return on embedded value is based on EEV post-tax operating profit, as a percentage of opening EEV basis shareholders' equity. Half year profits are annualised by multiplying by two. Summary statement of financial position 2014 £m 2013 £m Note 30 Jun 30 Jun 31 Dec Total assets less liabilities, before deduction for insurance funds 300,630 286,583 288,826 Less insurance funds: Policyholder liabilities (net of reinsurers' share) and unallocated surplus of with-profits funds (290,005) (276,958) (279,176) Less shareholders' accrued interest in the long-term business 15,268 14,897 15,206 (274,737) (262,061) (263,970) Total net assets 11 25,893 24,522 24,856 Share capital 128 128 128 Share premium 1,903 1,890 1,895 IFRS basis shareholders' reserves 8,594 7,607 7,627 Total IFRS basis shareholders' equity 11 10,625 9,625 9,650 Additional EEV basis retained profit 11 15,268 14,897 15,206 Total EEV basis shareholders' equity (excluding non-controlling interests) 11 25,893 24,522 24,856 * Including liabilities in respect of insurance products classified as investment contracts under IFRS 4. Notes on the EEV basis results 1 Basis of preparation The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in May 2004. Where appropriate, the EEV basis results include the effects of adoption of International Financial Reporting Standards (IFRS). The EEV results are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis. The directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. The EEV basis results of 2014 and 2013 half years are unaudited. Except for the change in presentation of EEV results from pre-tax to post-tax, as described in the additional unaudited financial information for the full year 2013 announcement, the 2013 results have been derived from the EEV basis results supplement to the Company's statutory accounts for 2013. The supplement included an unqualified audit report from the auditors. A detailed description of the EEV methodology and accounting presentation is provided in note 14. 2 Results analysis by business area The half year 2013 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2013 CER comparative results are translated at half year 2014 average exchange rates. Annual premium and contribution equivalents 2014 £m 2013 £m % AER CER AER CER Half year Half year Half year vs Half year vs Half year (note 3) (note 3) Asia operations 996 1,010 882 (1)% 13% US operations 871 797 737 9% 18% UK operations 433 355 355 22% 22% Total 2,300 2,162 1,974 6% 17% Post-tax operating profit 2014 £m 2013 £m % AER CER AER CER Half year Half year Half year vs Half year vs Half year Asia operations New business 494 502 429 (2)% 15% Business in force 339 327 288 4% 18% Long-term business 833 829 717 - 16% Eastspring Investments 36 32 29 13% 24% Development costs (1) (2) (2) 50% 50% Total 868 859 744 1% 17% US operations New business 376 311 288 21% 31% Business in force 401 396 366 1% 10% Long-term business 777 707 654 10% 19% Broker-dealer and asset management (5) 21 19 (124)% (126)% Total 772 728 673 6% 15% UK operations New business 145 100 100 45% 45% Business in force 243 204 204 19% 19% Long-term business 388 304 304 28% 28% General insurance commission 9 11 11 (18)% (18)% Total UK insurance operations 397 315 315 26% 26% M&G (including Prudential Capital) 200 175 175 14% 14% Total 597 490 490 22% 22% Other income and expenditure (280) (235) (235) (19)% (19)% Solvency II and restructuring costs (14) (21) (21) 33% 33% Post-tax operating profit based on longer-term investment returns 1,943 1,821 1,651 7% 18% Analysed as profits (losses) from: New business 1,015 913 817 11% 24% Business in force 983 927 858 6% 15% Total long-term business 1,998 1,840 1,675 9% 19% Asset management 231 228 223 1% 4% Other results (286) (247) (247) (16)% (16)% Post-tax operating profit based on longer-term investment returns 1,943 1,821 1,651 7% 18% Post-tax profit 2014 £m 2013 £m % AER CER AER CER Half year Half year Half year vs Half year vs Half year Post-tax operating profit based on longer-term investment returns 1,943 1,821 1,651 7% 18% Short-term fluctuations in investment returns 432 (587) (551) 174% 178% Effect of changes in economic assumptions (368) 534 527 (169)% (170)% Other non-operating profit (73) 156 161 (147)% (145)% Total post-tax non-operating profit (9) 103 137 (109)% (107)% Profit for the period attributable to shareholders 1,934 1,924 1,788 1% 8% Basic earnings per share (in pence) 2014 2013 % AER CER AER CER Half year Half year Half year vs Half year vs Half year Based on post-tax operating profit including longer-term investment returns 76.3p 71.5p 64.8p 7% 18% Based on post-tax profit 75.9p 75.5p 70.2p 1% 8% 3 Analysis of new business contribution (i) Group Summary 2014 Half year Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) New business contribution New business margin APE PVNBP note 16 note 16 £m £m £m % % Asia operations 996 5,378 494 50 9.2 US operations 871 8,703 376 43 4.3 UK insurance operations 433 3,741 145 33 3.9 Total 2,300 17,822 1,015 44 5.7 2013 AER Half year Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) New business contribution New business margin APE PVNBP note 16 note 16 £m £m £m % % Asia operations 1,010 5,524 502 50 9.1 US operations 797 7,957 311 39 3.9 UK insurance operations 355 2,943 100 28 3.4 Total 2,162 16,424 913 42 5.6 2013 Full year Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) New business contribution New business margin APE PVNBP note 16 note 16 £m £m £m % % Asia operations 2,125 11,375 1,139 54 10.0 US operations 1,573 15,723 706 45 4.5 UK insurance operations 725 5,978 237 33 4.0 Total 4,423 33,076 2,082 47 6.3 (ii) Asia operations: New business contribution 2014 £m 2013 £m Half year AER Half year CER Half year Full year China 13 13 12 28 Hong Kong 152 125 115 283 India 5 8 7 15 Indonesia 136 174 134 359 Korea 8 14 14 25 Taiwan 13 13 12 31 Other 167 155 135 398 Total Asia operations 494 502 429 1,139 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. 4 Operating profit from business in force (i) Group Summary 2014 £m Half year Asia operations US operations UK insurance operations Total note (ii) note (iii) note (iv) Unwind of discount and other expected returns 328 192 229 749 Effect of changes in operating assumptions 9 - - 9 Experience variances and other items 2 209 14 225 Total 339 401 243 983 2013 £m Half year Asia operations US operations UK insurance operations Total note (ii) note (iii) note (iv) Unwind of discount and other expected returns 315 187 204 706 Effect of changes in operating assumptions (6) 45 - 39 Experience variances and other items 18 164 - 182 Total 327 396 204 927 2013 £m Full year Asia operations US operations UK insurance operations Total note (ii) note (iii) note (iv) Unwind of discount and other expected returns 668 395 437 1,500 Effect of changes in operating assumptions 5 76 98 179 Experience variances and other items 80 349 60 489 Total 753 820 595 2,168 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. (ii) Asia operations 2014 £m 2013 £m Half year Half year Full year Unwind of discount and other expected returnsnote (a) 328 315 668 Effect of changes in operating assumptions: Mortality and morbiditynote (b) 1 3 19 Persistency and withdrawalsnote (c) - (5) (23) Expense 1 1 (6) Other 7 (5) 15 9 (6) 5 Experience variances and other items: Mortality and morbiditynote (d) 18 22 33 Persistency and withdrawalsnote (e) (3) (2) 36 Expensenote (f) (19) (9) (17) Other 6 7 28 2 18 80 Total Asia operations 339 327 753 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) The increase in unwind of discount and other expected returns of £13 million from £315 million for half year 2013 to £328 million for half year 2014 is impacted by a £(44) million adverse foreign currency translation effect. The underlying £57 million growth arises from the increase in the opening in-force value of £41 million, the effect of higher risk discount rates of £12 million and an increase in the return on net worth of £4 million. (b) In full year 2013 the credit of £19 million for mortality and morbidity assumption changes mainly reflected the beneficial effect arising from the renegotiation of a reinsurance agreement in Indonesia. (c) For full year 2013 the charge of £(23) million for persistency and withdrawals assumption changes reflected a number of offsetting items including the effect of strengthening lapse and premium holiday assumptions in Korea. (d) The favourable effect of mortality and morbidity experience in half year 2014 of £18 million (half year 2013: £22 million; full year 2013: £33 million) reflects better than expected experience, principally arising in Hong Kong, Indonesia and Singapore. (e) The negative persistency and withdrawals experience variance in half year 2014 of £(3) million (half year 2013: £(2) million) reflects the net effect of small variances across the territories. For full year 2013 the persistency and withdrawals experience variance of £36 million principally reflected favourable experience in Hong Kong and Indonesia. (f) The expense experience variance at half year 2014 was negative £(19) million (half year 2013: £(9) million; full year 2013: £(17) million). The variance arose in operations which are currently sub-scale (China, Malaysia Takaful and Taiwan), in India where the business model continues to be adapted following the regulatory changes introduced in recent years, and from other temporary overruns. (iii) US operations 2014 £m 2013 £m Half year Half year Full year Unwind of discount and other expected returnsnote (a) 192 187 395 Effect of changes in operating assumptions: Persistencynote (b) - 47 47 Othernote (c) - (2) 29 - 45 76 Experience variances and other items: Spread experience variancenote (d) 108 96 217 Amortisation of interest-related realised gains and lossesnote (e) 28 30 58 Othernote (f) 73 38 74 209 164 349 Total US operations 401 396 820 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) The increase in unwind of discount and other expected returns of £5 million from £187 million for half year 2013 to £192 million for half year 2014 is impacted by a £(15) million adverse foreign currency translation effect. The underlying growth of £20 million arises from the increase in the opening in-force value £33 million offset by the effect of lower risk discount rates £(9) million and a decrease in the return on net worth £(4) million. (b) For half year and full year 2013, the effect of changes in persistency assumptions of £47 million primarily related to a reduction in lapse rates following the end of the surrender charge period, for variable annuity business. (c) Other changes in operating assumptions in 2013 include the effect of changes in mortality assumptions, the capitalised effect of changes in projected policyholder variable annuity fees and the effect of other regular updates to reflect experience. (d) The spread assumption for Jackson is determined on a longer-term basis, net of provision for defaults (see note 15(ii)(b)). The spread experience variance in half year 2014 of £108 million (half year 2013: £96 million; full year 2013: £217 million) includes the positive effect of transactions undertaken to more closely match the overall asset and liability duration. (e) The amortisation of interest-related gains and losses reflects the fact that when bonds that are neither impaired nor deteriorating are sold and reinvested there will be a consequent change in the investment yield. The realised gain or loss is amortised into the result over the period when the bonds would have otherwise matured to better reflect the long-term returns included in operating profits. (f) The credit of £73 million in half year 2014 for other experience variances and other items includes positive impacts for persistency experience of £39 million (half year 2013: £15 million; full year 2013: £40 million) and mortality experience. For all periods, other items also includes the impact of tax experience variances. (iv) UK insurance operations 2014 £m 2013 £m Half year Half year Full year Unwind of discount and other expected returnsnote (a) 229 204 437 Effect of change in UK corporate tax ratenote (b) - - 98 Other itemsnote (c) 14 - 60 Total UK insurance operations 243 204 595 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) The increase in unwind of discount and other expected returns of £25 million from £204 million for half year 2013 to £229 million for half year 2014 reflects a £20 million increase in the return on net worth mainly arising from shareholder-backed annuity business, combined with the growth in the opening value of in-force of £7 million, partially offset by the negative effect of a lower risk discount rate of £(2) million. (b) For full year 2013, the effect of the change in UK corporate tax rates of £98 million reflected the combined effect of the reductions in corporate rates from 23 per cent to 21 per cent from April 2014 and 21 per cent to 20 per cent from April 2015 which were both enacted in July 2013. The beneficial effect arose from the increase in the present value of the post-tax projected cash flows of the in-force business at 1 January 2013. (c) Other items of £14 million for half year 2014 (full year 2013: £60 million) principally reflect the positive effects of rebalancing the investment portfolio backing annuity business (see note 14(c)(ii)). 5 Loss attaching to held for sale Japan Life business The losses reflected in the 2013 results reflect the reductions in EEV carrying value to equal the expected net proceeds from the sale of the Group's life insurance business in Japan, PCA Life Insurance Company Ltd. when completed. 6 Domestication of the Hong Kong branch business On 1 January 2014, following consultation with policyholders of PAC and regulators and court approval, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. As a consequence of this restructuring, adjustments in respect of required capital, and the cost of that capital have been recognised in the EEV basis of results. These adjustments arose from the transfer of capital that was previously held within the UK business in respect of the Hong Kong branch operations and additional capital requirements that arise from the newly established subsidiaries. These have been included as an adjustment to opening balances within the movement in net worth and value of in-force business (note 12) and in the statement of movement in shareholders' equity (note 11) in 2014 as follows: £m Adjustment to shareholders' equity at 1 January 2014 Free surplus Required capital Total net worth Value of in-force business Total long-term business operations Asia operations (104) 104 - (40) (40) UK insurance operations 69 (69) - 29 29 Opening adjustment (35) 35 - (11) (11) The net EEV basis effect of £(11) million represents the cost of holding higher required capital levels in the stand-alone Hong Kong shareholder-backed long-term insurance business. The post-tax costs incurred enabling the domestication in the first half of 2014 were £7 million (full year 2013: £28 million). 7 Short-term fluctuations in investment returns Short-term fluctuations in investment returns, net of the related change in the time value of cost of options and guarantees, arise as follows: (i) Group Summary 2014 £m 2013 £m Half year Half year Full year Insurance operations: Asianote (ii) 245 (223) (308) USnote (iii) 95 (271) (280) UKnote (iv) 112 (70) 28 452 (564) (560) Other operations (20) (23) (4) Total 432 (587) (564) * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. (ii) Asia operations The short-term fluctuations in investment returns for Asia operations comprise amounts in respect of the following business operations: 2014 £m 2013 £m Half year Half year Full year Hong Kong 121 (122) (178) Singapore 46 (106) (80) Other 78 5 (50) Total Asia operations 245 (223) (308) * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. These fluctuations mainly arise from decreases (2014) and increases (2013) in long-term interest rates as they affect the value of bonds in the portfolios backing liabilities. The £78 million credit for other operations in half year 2014 principally arises in Taiwan of £21 million for unrealised gains on bonds, and in Indonesia of £21 million for an increase in future expected fee income for unit-linked business. For full year 2013 the £(50) million fluctuation included £(44) million arising in Indonesia for a decrease in future expected fee income, arising from falls in equity markets. (iii) US operations The short-term fluctuations in investment returns for US operations comprise the following items: 2014 £m 2013 £m Half year Half year Full year Investment return related experience on fixed income securitiesnote (a) (2) 8 13 Investment return related impact due to changed expectation of profits on in-force variable annuity business in future periods based on current period separate account return, net of related hedging activity note (b) 75 (307) (377) Other items including actual less long-term return on equity based investmentsnote (c) 22 28 84 Total US operations 95 (271) (280) * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) The (charge) credit relating to fixed income securities comprises the following elements: - the excess of actual realised gains (losses) over the amortisation of interest related realised gains and losses recorded in the profit and loss account; - credit loss experience (versus the longer-term assumption); and - the impact of changes in the asset portfolio. (b) This item reflects the net impact of: - variances in projected future fees and future benefit costs arising from the effect of market fluctuations on the growth in separate account asset values in the current reporting period; and - related hedging activity arising from realised and unrealised gains and losses on equity related hedges and interest rate options. (c) For full year 2013, other items of £84 million primarily reflected a beneficial impact of the excess of actual over assumed return from investments in limited partnerships. (iv) UK insurance operations The short-term fluctuations in investment returns for UK insurance operations arise from the following types of business: 2014 £m 2013 £m Half year Half year Full year Shareholder-backed annuitynote (a) 35 (48) (58) With-profits, Unit-linked and othernote (b) 77 (22) 86 112 (70) 28 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) Short-term fluctuations in investment returns for shareholder-backed annuity business comprise: (1) gains (losses) on surplus assets compared to the expected long-term rate of return reflecting reductions/increases in corporate bond and gilt yields; (2) the difference between actual and expected default experience; and (3) the effect of mismatching for assets and liabilities of different durations and other short-term fluctuations in investment returns. (b) The short-term fluctuations in investment returns for with-profits, unit-linked and other business primarily arise from the excess of actual over expected returns for with-profits business. The total return on the fund (including unallocated surplus) in half year 2014 was 4.2 per cent compared to an assumed rate of return of 2.9 per cent (half year 2013: 2.7 per cent total return compared to assumed rate of 2.9 per cent; full year 2013: 8.0 per cent total return compared to assumed rate of 6.0 per cent). In addition, for full year 2013 the amount included the effect of a partial hedge of future shareholder transfers expected to emerge from the UK's with-profits sub-fund taken out during 2013. This hedge reduces the risks arising from equity market declines. 8 Effect of changes in economic assumptions The effects of changes in economic assumptions for in-force business, net of the related change in the time value of cost of options and guarantees, included within post-tax profit (including actual investment returns) arise as follows: (i) Group Summary 2014 £m 2013 £m Half year Half year Full year Asia operationsnote (ii) (145) 272 255 US operationsnote (iii) (158) 40 242 UK insurance operationsnote (iv) (65) 222 132 Total (368) 534 629 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. (ii) Asia operations The effect of changes in economic assumptions for Asia operations comprise amounts in respect of the following business operations: 2014 £m 2013 £m Half year Half year Full year Hong Kong (73) 288 289 Malaysia (31) (27) (62) Indonesia 12 (101) (176) Singapore (11) 62 90 Taiwan (29) 52 92 Other (13) (2) 22 Total Asia operations (145) 272 255 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. The negative effect of £(145) million in half year 2014 principally arises in Hong Kong, Singapore and Taiwan, mainly reflecting reductions in fund earned rates for participating business, driven by the decrease in long-term interest rates. The positive impacts in half year 2013 of £272 million and full year 2013 of £255 million reflected the overall impact of an increase in fund earned rates for participating business, principally arising in Hong Kong, Singapore and Taiwan, mainly due to the increase in long-term interest rates. There were partial offsets arising in Indonesia and Malaysia, mainly reflecting the negative impact of calculating health and protection future profits at a higher discount rate. (iii) US operations The effect of changes in economic assumptions for US operations reflects the following: 2014 £m 2013 £m Half year Half year Full year Effect of changes in 10-year treasury rates: Fixed annuity and other general account business note (a) 71 (147) (244) Variable annuity businessnote (b) (229) 187 382 Decrease in additional allowance for credit risknote (c) - - 104 Total note (d) (158) 40 242 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) For fixed annuity and other general account business the credit of £71 million in half year 2014 principally arises from the effect of a lower discount rate, driven by the 50 basis points reduction in the risk-free rate. The projected cash flows for this business principally reflect projected spread, with secondary effects on the cash flows also resulting from changes to assumed future yields and resulting policyholder behaviour. The charge of £(147) million in half year 2013 (full year 2013: £(244) million) principally arose from the effect of a higher discount rate on the opening value of the in-force book, driven by the 70 basis points increase in the risk-free rate (full year 2013: 130 basis points). (b) For variable annuity business, the charge of £(229) million principally reflects the decrease in the projected fee income and an increase in projected benefit costs, arising from the decrease in the rate of the assumed future return on the underlying separate account return assets, driven by the 50 basis points decrease in the risk free rate. There is a partial offset arising from the decrease in the risk discount rate applied to those cash flows. The credit of £187 million in half year 2013 and £382 million in full year 2013 reflected an increase in the risk free rate of 70 basis points and 130 basis points respectively. (c) For full year 2013 the £104 million effect of the decrease in the additional allowance for credit risk within the risk discount rate reflected the reduction in credit spreads and represented a 50 basis points decrease for spread business and a 10 basis points decrease for variable annuity business, representing the proportion of business invested in the general account (as described in note 14(b)(iii)). (d) The overall credit in half year 2013 of £40 million and in full year 2013 of £242 million included a charge of £(13) million for the effect of the change in required capital from 235 per cent to 250 per cent of risk-based capital. (iv) UK insurance operations The effect of changes in economic assumptions of a charge of £(65) million for UK insurance operations for half year 2014 comprises the following: 2014 £m 2013 £m Half year Half year Full year Effect of changes in expected long-term rates of return, risk discount rates and other changes: Shareholder-backed annuity businessnote (a) 73 (106) (56) With-profits and other businessnote (b) (138) 328 188 (65) 222 132 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis - see note 1. Notes (a) For shareholder-backed annuity business the overall effect reflects changes in expected long-term rates of return and risk discount rates which incorporate a default allowance for both best estimate defaults and in respect of the additional credit risk provisions (as shown in note 15(iii)(b)). (b) For with-profits and other business the total charge in half year 2014 of £(138) million (half year 2013: credit of £328 million; full year 2013: credit of £188 million) includes the net effect of the changes in fund earned rates and risk discount rate (as shown in note 15(iii)), driven by the 30 basis points decrease (half year 2013: increase of 70 basis points; full year 2013: increase of 120 basis points) in the 15-year government bond rate. 9 Net core structural borrowings of shareholder-financed operations 2014 £m 2013 £m 30 Jun 30 Jun 31 Dec IFRS basis Mark to market value adjustment EEV basis at market value 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 cash and short-term investments (1,902) - (1,902) (1,490) - (1,490) (2,230) - (2,230) Core structural borrowings - central funds 4,146 452 4,598 3,710 360 4,070 4,211 392 4,603 Holding company net borrowings 2,244 452 2,696 2,220 360 2,580 1,981 392 2,373 Core structural borrowings - Prudential Capital 275 - 275 275 - 275 275 - 275 Core structural borrowings - Jackson 146 41 187 164 25 189 150 38 188 Net core structural borrowings of shareholder-financed operations 2,665 493 3,158 2,659 385 3,044 2,406 430 2,836 * Including central finance subsidiaries. 10 Analysis of movement in free surplus Free surplus is the excess of the regulatory basis net assets for 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 cost so as to comply with the EEV Principles. (i) Underlying free surplus generated The half year 2013 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2013 CER comparative results are translated at half year 2014 average exchange rates. 2014 £m 2013 £m % AER CER AER CER Half year Half year Half year vs Half year vs Half year Asia operations Underlying free surplus generated from in-force life business 433 425 371 2% 17% Investment in new business (167) (165) (147) (1)% (14)% Long-term business 266 260 224 2% 19% Eastspring Investments 36 32 29 13% 24% Total 302 292 253 3% 19% US operations Underlying free surplus generated from in-force life business 634 591 547 7% 16% Investment in new business (173) (211) (195) 18% 11% Long-term business 461 380 352 21% 31% Broker-dealer and asset management (5) 21 19 (124)% (126)% Total 456 401 371 14% 23% UK insurance operations Underlying free surplus generated from in-force life business 294 293 293 - - Investment in new business (42) (20) (20) (110)% (110)% Long-term business 252 273 273 (8)% (8)% General insurance commission 9 11 11 (18)% (18)% Total 261 284 284 (8)% (8)% M&G (including Prudential Capital) 200 175 175 14% 14% Underlying free surplus generated 1,219 1,152 1,083 6% 13% Representing: Long-term business: Underlying free surplus generated from in-force life business 1,361 1,309 1,211 4% 12% Investment in new business (382) (396) (362) 4% (6)% Total long-term business 979 913 849 7% 15% Asset management 240 239 234 - 3% Underlying free surplus generated 1,219 1,152 1,083 6% 13% (ii) Movement in Free surplus 2014 £m 2013 £m Half year Half year Long-term business Asset management and UK general insurance commission Free surplus of long-term business, asset management and UK general insurance commission Free surplus of long-term business, asset management and UK general insurance commission Long-term business and asset management operations note 12 note (ii) Underlying movement: Investment in new businessnotes (i), (vii) (382) - (382) (396) Business in force: Expected in-force cash flows (including expected return on net assets) 1,174 240 1,414 1,345 Effects of changes in operating assumptions, operating experience variances and other operating items 187 - 187 203 979 240 1,219 1,152 Increase in EEV assumed level of required capital - - - (59) Loss attaching to held for sale Japan Life businessnote 5 - - - (56) Other non-operating itemsnote (iii) (26) 4 (22) (294) 953 244 1,197 743 Net cash flows to parent companynote (iv) (813) (161) (974) (844) Bancassurance agreement and purchase of Thanachart Life - - - 365 Exchange movements, timing differences and other itemsnote (v) 29 (34) (5) 191 Net movement in free surplus 169 49 218 455 Balance at beginning of period: As previously reported 3,220 783 4,003 3,689 Effect of domestication of Hong Kong branch on 1 January 2014note 6 (35) - (35) - 3,185 783 3,968 3,689 Balance at 30 June 2014/ 30 June 2013note (vii) 3,354 832 4,186 4,144 Representing: Asia operations 1,195 192 1,387 1,576 US operations 1,038 125 1,163 1,018 UK operations 1,121 515 1,636 1,550 3,354 832 4,186 4,144 Balance at beginning of period: Asia operations 1,185 194 1,379 1,181 US operations 956 118 1,074 1,319 UK operations 1,079 471 1,550 1,189 3,220 783 4,003 3,689 Notes (i) Free surplus invested in new business represents amounts set aside for required capital and acquisition costs. (ii) For the purposes of this analysis, free surplus for asset management operations and the UK general insurance commission is taken to be IFRS basis shareholders' equity. (iii) Non-operating items are principally short-term fluctuations in investment returns and the effect of changes in economic assumptions for long-term business operations. (iv) Net cash flows to parent company for long-term business operations reflect the flows as included in the holding company cash flow at transaction rates. (v) Exchange movements, timing differences and other items represent: 2014 £m Half year Long-term business Asset management and UK general insurance commission Total Exchange movementsnote 12 (53) (9) (62) Mark to market value movements on Jackson assets backing surplus and required capitalnote 11 71 - 71 Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes 2 6 8 Othernote (vi) 9 (31) (22) 29 (34) (5) (vi) Other primarily reflects the effect of timing differences, contingent loan funding, as shown in note 12(i), and other non-cash items. (vii) Investment in new business includes the annual amortisation charge for amounts incurred to secure exclusive distribution rights through our bancassurance partners at a rate that reflects the pattern in which the future economic benefits are expected to be consumed by reference to new business levels. Included within the overall free surplus balance of our Asian life entities is £293 million representing unamortised amounts incurred to secure exclusive distribution rights through our bancassurance partners. These amounts exclude £818 million of Asia distribution rights intangibles that are financed by loan arrangements from central companies, the costs of which are allocated to the Asia life segment as the amortisation cost is incurred. 11 Reconciliation of movement in shareholders' equity 2014 £m Half year Long-term business operations Asia operations US operations UK insurance operations Total long-term business operations Other operations Group Total note (i) note (i) Post-tax operating profit (based on longer- term investment returns) Long-term business: New businessnote 3 494 376 145 1,015 - 1,015 Business in forcenote 4 339 401 243 983 - 983 833 777 388 1,998 - 1,998 Asset management - - - - 231 231 Other results (1) - (5) (6) (280) (286) Post-tax operating profit based on longer- term investment returns 832 777 383 1,992 (49) 1,943 Total post-tax non-operating profit 100 (68) 40 72 (81) (9) Profit for the period 932 709 423 2,064 (130) 1,934 Other movements (post-tax) Exchange movements on foreign operations and net investment hedges (209) (227) - (436) 59 (377) Intra-group dividends (including statutory transfers)note (ii) (239) (347) (106) (692) 692 - Investment in operationsnote (iii) 3 - - 3 (3) - External dividends - - - - (610) (610) Shareholders' share of actuarial and other gains and losses on defined benefit pension schemesnote (v) - - 2 2 8 10 Reserve movements in respect of share-based payments - - - - 52 52 Other transfers 17 (17) (36) (36) 36 - Treasury shares movements - - - - (40) (40) New share capital subscribed - - - - 8 8 Mark to market value movements on Jackson assets backing surplus and required capital - 71 - 71 - 71 Net increase in shareholders' equity 504 189 283 976 72 1,048 Shareholders' equity at beginning of period: As previously reported 10,305 6,966 7,342 24,613 243 24,856 Effect of domestication of Hong Kong branch on 1 January 2014note 6 (40) - 29 (11) - (11) 10,265 6,966 7,371 24,602 243 24,845 Shareholders' equity at 30 June 2014note (i) 10,769 7,155 7,654 25,578 315 25,893 Representing: Statutory IFRS basis shareholders' equity 2,792 3,801 3,236 9,829 796 10,625 Additional retained profit (loss) on an EEV basisnote (iv) 7,977 3,354 4,418 15,749 (481) 15,268 EEV basis shareholders' equity 10,769 7,155 7,654 25,578 315 25,893 Balance at 31 December 2013 Representing: Statutory IFRS basis shareholders' equity 2,564 3,446 2,976 8,986 664 9,650 Additional retained profit (loss) on an EEV basisnote (iv) 7,741 3,520 4,366 15,627 (421) 15,206 EEV basis shareholders' equity 10,305 6,966 7,342 24,613 243 24,856 Notes (i) For the purposes of the table above, goodwill related to Asia long-term operations is included in Other operations. (ii) Intra-group dividends (including statutory transfers) represent dividends that have been declared in the period and amounts accrued in respect of statutory transfers. The amounts included in note 10 for these items are as per the holding company cashflow at transaction rates. The difference primarily relates to intra-group loans, timing differences arising on statutory transfers, and other non-cash items. (iii) Investment in operations reflects increases in share capital. (iv) The additional retained loss on an EEV basis for Other operations primarily represents the mark to market value adjustment for holding company net borrowings of a charge of £(452) million (half year 2013: £(360) million; full year 2013: £(392) million), as shown in note 9. (v) The post-tax charge for the shareholders' share of actuarial and other gains and losses on defined benefit schemes comprises: 2014 £m 2013 £m Half year Half year Full year IFRS basis 10 (21) (48) Additional shareholders' interestnote 14(c)(vii) - (5) (5) EEV basis total 10 (26) (53) 12 Reconciliation of movement in net worth and value of in-force for long-term business Half year 2014 £m Total Value of long-term Free Required Total net in-force business Surplus capital worth business operations note 10 note (iv) note 11 Group Shareholders' equity at beginning of period: As previously reported 3,220 3,954 7,174 17,439 24,613 Effect of domestication of Hong Kong branch on 1 January 2014note 6 (35) 35 - (11) (11) 3,185 3,989 7,174 17,428 24,602 New business contributionnotes (ii), (iii) and 3 (382) 276 (106) 1,121 1,015 Existing business - transfer to net worth 1,116 (175) 941 (941) - Expected return on existing businessnote 4 58 44 102 647 749 Changes in operating assumptions and experience variances note 4 193 (20) 173 61 234 Development expenses, solvency II and restructuring costs (6) - (6) - (6) Post-tax operating profit based on longer-term investment returns 979 125 1,104 888 1,992 Other non-operating items (26) 59 33 39 72 Post-tax profit from long-term business 953 184 1,137 927 2,064 Exchange movements on foreign operations and net investment hedges (53) (74) (127) (309) (436) Intra-group dividends (including statutory transfers) and investment in operationsnote (i) (768) - (768) 79 (689) Other movements 37 - 37 - 37 Shareholders' equity at 30 June 2014 3,354 4,099 7,453 18,125 25,578 Representing: Asia operations Shareholders' equity at beginning of period: As previously reported 1,185 977 2,162 8,143 10,305 Effect of domestication of Hong Kong branch on 1 January 2014note 6 (104) 104 - (40) (40) 1,081 1,081 2,162 8,103 10,265 New business contributionnotes (iii) and 3 (167) 67 (100) 594 494 Existing business - transfer to net worth 395 (5) 390 (390) - Expected return on existing businessnote 4 34 - 34 294 328 Changes in operating assumptions and experience variancesnote 4 5 (14) (9) 20 11 Development expenses, solvency II and restructuring costs (1) - (1) - (1) Post-tax operating profit based on longer-term investment returns 266 48 314 518 832 Other non-operating items 112 (9) 103 (3) 100 Post-tax profit from long-term business 378 39 417 515 932 Exchange movements on foreign operations and net investment hedges (21) (22) (43) (166) (209) Intra-group dividends (including statutory transfers) and investment in operations (236) - (236) - (236) Other movements (7) - (7) 24 17 Shareholders' equity at 30 June 2014 1,195 1,098 2,293 8,476 10,769 US operations Shareholders' equity at 1 January 2014 956 1,607 2,563 4,403 6,966 New business contributionnotes (iii) and 3 (173) 146 (27) 403 376 Existing business - transfer to net worth 450 (124) 326 (326) - Expected return on existing businessnote 4 15 25 40 152 192 Changes in operating assumptions and experience variancesnote 4 169 (11) 158 51 209 Post-tax operating profit based on longer-term investment returns 461 36 497 280 777 Other non-operating items (54) 36 (18) (50) (68) Post-tax profit from long-term business 407 72 479 230 709 Exchange movements on foreign operations and net investment hedges (32) (52) (84) (143) (227) Intra-group dividends (including statutory transfers) (347) - (347) - (347) Other movements 54 - 54 - 54 Shareholders' equity at 30 June 2014 1,038 1,627 2,665 4,490 7,155 UK insurance operations Shareholders' equity at beginning of period: As previously reported 1,079 1,370 2,449 4,893 7,342 Effect of domestication of Hong Kong branch on 1 January 2014note 6 69 (69) - 29 29 1,148 1,301 2,449 4,922 7,371 New business contributionnotes (iii) and 3 (42) 63 21 124 145 Existing business - transfer to net worth 271 (46) 225 (225) - Expected return on existing businessnote 4 9 19 28 201 229 Changes in operating assumptions and experience variancesnote 4 19 5 24 (10) 14 Development expenses, solvency II and restructuring costs (5) - (5) - (5) Post-tax operating profit based on longer-term investment returns 252 41 293 90 383 Other non-operating items (84) 32 (52) 92 40 Post-tax profit from long-term business 168 73 241 182 423 Intra-group dividends (including statutory transfers)note (i) (185) - (185) 79 (106) Other movements (10) - (10) (24) (34) Shareholders' equity at 30 June 2014 1,121 1,374 2,495 5,159 7,654 Notes (i) The amounts shown in respect of free surplus and the value of in-force business for UK insurance operations for intra-group dividends (including statutory transfers) include the repayment of contingent loan funding. Contingent loan funding represents amounts whose repayment to the lender is contingent upon future surpluses emerging from certain contracts specified under the arrangement. If insufficient surplus emerges on those contracts, there is no recourse to other assets of the Group and the liability is not payable to the degree of shortfall. (ii) The movements arising from new business contribution are as follows: 2014 £m 2013 £m Half year Half year Full year Free surplus invested in new business (382) (396) (637) Increase in required capital 276 261 461 Reduction in total net worth (106) (135) (176) Increase in the value associated with new business 1,121 1,048 2,258 Total post-tax new business contributionnote 3 1,015 913 2,082 (iii) New business contribution per £1 million of free surplus invested: 2014 £m Half year Asia operations US operations UK insurance operations Total long-term business operations Post-tax new business contributionnote 3 494 376 145 1,015 Free surplus invested in new business (167) (173) (42) (382) Post-tax new business contribution per £1 million of free surplus invested 3.0 2.2 3.5 2.7 2013 £m Half year Asia operations US operations UK insurance operations Total long-term business operations Post-tax new business contributionnote 3 502 311 100 913 Free surplus invested in new business (165) (211) (20) (396) Post-tax new business contribution per £1 million of free surplus invested 3.0 1.5 5.0 2.3 2013 £m Full year Asia operations US operations UK insurance operations Total long-term business operations Post-tax new business contributionnote 3 1,139 706 237 2,082 Free surplus invested in new business (310) (298) (29) (637) Post-tax new business contribution per £1 million of free surplus invested 3.7 2.4 8.2 3.3 (iv) The value of in-force business comprises the value of future margins from current in-force business less the cost of holding required capital as shown below: 2014 £m 30 Jun Asia operations US operations UK insurance operations Total long-term business operations Value of in-force business before deduction of cost of capital and time value of guarantees 8,936 4,960 5,413 19,309 Cost of capital (404) (197) (254) (855) Cost of time value of guaranteesnote (v) (56) (273) - (329) Net value of in-force business 8,476 4,490 5,159 18,125 2013 £m 30 Jun Asia operations US operations UK insurance operations Total long-term business operations Value of in-force business before deduction of cost of capital and time value of guarantees 8,921 4,632 4,932 18,485 Cost of capital (384) (223) (259) (866) Cost of time value of guarantees (24) (481) - (505) Net value of in-force business 8,513 3,928 4,673 17,114 2013 £m 31 Dec Asia operations US operations UK insurance operations Total long-term business operations Value of in-force business before deduction of cost of capital and time value of guarantees 8,540 4,769 5,135 18,444 Cost of capital (347) (220) (242) (809) Cost of time value of guaranteesnote (v) (50) (146) - (196) Net value of in-force business 8,143 4,403 4,893 17,439 (v) The increase in the cost of time value of guarantees for US operations from £(146) million at full year 2013 to £(273) million at half year 2014 primarily relates to variable annuity business. It mainly arises from the decrease in the expected long-term separate account rate of return following the 50 basis points decline in the US 10-year treasury bond rate and the impact from new business written in the period, partly offset by the strong equity performance. 13 Sensitivity of results to alternative assumptions (a) Sensitivity analysis - economic assumptions The tables below show the sensitivity of the embedded value as at 30 June 2014 (31 December 2013) and the new business contribution after the effect of required capital for half year 2014 and full year 2013 to: • 1 per cent increase in the discount rates; • 1 per cent increase and decrease in interest rates, including all consequential changes (assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates); • 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 (by contrast to EEV basis required capital), (for embedded value only); • 5 basis point increase in UK long-term expected defaults; and • 10 basis point increase in the liquidity premium for UK annuities. In each sensitivity calculation, all other assumptions remain unchanged except where they are directly affected by the revised economic conditions. New business contribution 2014 £m 2013 £m Half year Full year Asia operations US operations UK insurance operations Total long-term business operations Asia operations US operations UK insurance operations Total long-term business operations Post-tax new business contributionnote 3 494 376 145 1,015 1,139 706 237 2,082 Discount rates - 1% increase (72) (14) (19) (105) (148) (34) (29) (211) Interest rates - 1% increase 5 35 (3) 37 23 47 (1) 69 Interest rates - 1% decrease (25) (52) 3 (74) (55) (69) - (124) Equity/property yields - 1% rise 20 39 5 64 45 63 10 118 Long-term expected defaults - 5 bps increase - - (6) (6) - - (6) (6) Liquidity premium - 10 bps increase - - 12 12 - - 12 12 * The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the full year 2013 results are shown on a comparable basis - see note 1. Embedded value of long-term business operations 2014 £m 2013 £m 30 Jun 31 Dec Total Total UK long-term UK long-term Asia US insurance business Asia US insurance business operations operations operations operations operations operations operations operations Shareholders' equitynote 11 10,769 7,155 7,654 25,578 10,305 6,966 7,342 24,613 Discount rates - 1% increase (1,026) (243) (555) (1,824) (992) (266) (529) (1,787) Interest rates - 1% increase (344) 38 (328) (634) (297) (65) (380) (742) Interest rates - 1% decrease 220 (70) 418 568 200 (12) 443 631 Equity/property yields - 1% rise 384 283 240 907 370 250 210 830 Equity/property market values - 10% fall (187) (157) (284) (628) (183) (90) (238) (511) Statutory minimum capital 92 140 4 236 109 153 4 266 Long-term expected defaults - 5 bps increase - - (116) (116) - - (114) (114) Liquidity premium - 10 bps increase - - 232 232 - - 228 228 The sensitivities shown 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 dates indicated. If the change in assumption shown in the sensitivities were to occur, then the effect shown above would be recorded within two components of the profit analysis for the following year. These are for the effect of economic assumption changes and, to the extent that asset value changes are included in the sensitivities, within short-term fluctuations in investment returns. In addition to the sensitivity effects shown above, the other components of the profit for the following period would be calculated by reference to the altered assumptions, for example new business contribution and unwind of discount, together with the effect of other changes such as altered corporate bond spreads. In addition for Jackson, the fair value movements on assets backing surplus and required capital which are taken directly to shareholders' equity would also be affected by changes in interest rates. 14 Methodology and accounting presentation (a) Covered business The EEV results for the Group are prepared for 'covered business', as defined by the EEV Principles. Covered business represents the Group's long-term insurance business for which the value of new and in-force contracts is attributable to shareholders. The post-tax EEV basis results for the Group's covered business are then combined with the post-tax IFRS basis results of the Group's other operations. Under the EEV Principles, the results for covered business incorporate the projected margins of attaching internal asset management, as described in note 14(c)(vi). The definition of long-term business operations is consistent with previous practice and comprises those contracts falling under the definition for regulatory purposes together with, for US operations, contracts that are in substance the same as guaranteed investment contracts (GICs) but do not fall within the technical definition. Covered business comprises the Group's long-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 (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 of the fund are wholly attributable to the policyholders of the fund. · the presentational treatment of the Group's principal defined benefit pension scheme, the Prudential Staff Pension Scheme (PSPS). The partial recognition of the surplus for PSPS is recognised in 'Other' operations, as described in note 14(c)(vii). A small amount of UK group pensions business is also not modelled for EEV reporting purposes. (b) Methodology (i) Embedded value Overview The embedded value is the present value of the shareholders' interest in the earnings distributable from assets allocated to covered business after sufficient allowance has been made for the aggregate risks in that business. The shareholders' interest in the Group's long-term business comprises: • the present value of future shareholder cash flows from in-force covered business (value of in-force business), less deductions for: - the cost of locked-in required capital; - 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 business is excluded from the embedded value. Notwithstanding the basis of presentation of results (as explained in note 14(c)(iv)) 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 14(c)(i)). Valuation of in-force and new business The embedded value results are prepared incorporating best estimate assumptions about all relevant factors including levels of future investment returns, expenses, persistency and mortality. These assumptions are used to project future cash flows. The present value of the future cash flows is then calculated using a discount rate which reflects both the time value of money and the non-diversifiable risks associated with the cash flows that are not otherwise allowed for. Best estimate assumptions Best estimate assumptions are used for the cash flow projections, where best estimate is defined as the mean of the distribution of future possible outcomes. The assumptions are reviewed actively and changes are made when evidence exists that material changes in future experience are reasonably certain. Assumptions required in the calculation of the value of options and guarantees, for example relating to volatilities and correlations, or dynamic algorithms linking liabilities to 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. Expense assumptions Expense levels, including those of service companies that support the Group's long-term business operations, are based on internal expense analysis investigations and are appropriately allocated to acquisition of new business and renewal of in-force business. Exceptional expenses are identified and reported separately. For mature business, it is Prudential's policy not to take credit for future cost reduction programmes until the savings have been delivered. For businesses which are currently sub-scale (China, Malaysia Takaful and Taiwan) and India (where the business model is being adapted as the industry continues to adjust to regulatory changes), expense overruns are reported where these are expected to be short-lived. For Asia operations, the expenses comprise costs borne directly and recharged costs from the Asia regional head office, that are attributable to covered business. The assumed future expenses for these operations also include projections of these future recharges. Development expenses are charged as incurred. Corporate expenditure which is included in other income and expenditure and comprises: · Expenditure for Group head office, to the extent not allocated to the PAC with-profits funds, together with Solvency II implementation and restructuring costs, which are charged to the EEV basis results as incurred; and · Expenditure of the Asia regional head office that is not allocated to the covered business or asset management operations which is charged as incurred. These costs are primarily for corporate related activities and are included within corporate expenditure. Principal economic assumptions The EEV basis results for the Group's operations have been determined using economic assumptions where the pre-tax long-term expected rates of return on investments and risk discount rates are set by reference to period end rates of return on government bonds. Expected returns on equity and property asset classes and corporate bonds are derived by adding a risk premium, based on the Group's long-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 basis is the same as that calculated under the IFRS basis. Since the embedded value basis reflects discounted future cash flows, under this methodology the profit emergence is advanced, thus more closely aligning the timing of the recognition of profits with the efforts and risks of current management actions, particularly with regard to business sold during the period. 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 as set out for statutory basis reporting. New business premiums reflect those premiums attaching to covered business, including premiums for contracts classified as investment products for IFRS basis reporting. New business premiums for regular premium products are shown on an annualised basis. Internal vesting business is classified as new business where the contracts include an open market option. The post-tax contribution from new business represents profits determined by applying operating assumptions as at the end of the period. For UK immediate annuity business and single premium Universal Life products in Asia, primarily in Singapore, the new business contribution is determined by applying economic assumptions reflecting point-of-sale market conditions. This is consistent with how the business is priced as crediting rates are linked to yields on specific assets and the yield is locked-in when the assets are purchased at the point-of-sale of the policy. For other business within the Group, end of period economic assumptions are used. New business profitability is a key metric for the Group'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 as the percentage of the value of new business profit to APE and PVNBP. APE is calculated as the aggregate of regular new business amounts and one-tenth of single new business amounts. PVNBP is calculated as equalling single premiums plus the present value of expected premiums of new regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution. Valuation movements on investments With the exception of debt securities held by Jackson, investment gains and losses during the period (to the extent that changes in capital values do not directly match changes in liabilities) are included directly in the profit for the period and shareholders' equity as they arise. The results for any covered business conceptually reflect the aggregate of the IFRS results and the movements on the additional shareholders' interest recognised on the EEV basis. Thus the start point for the calculation of the EEV results for Jackson, as for other businesses, reflects the market value movements recognised on the IFRS basis. However, in determining the movements on the additional shareholders' interest, the basis for calculating the Jackson EEV result acknowledges that, for debt securities backing liabilities, the aggregate EEV results reflect the fact that the value of in-force business instead incorporates the discounted value of future spread earnings. This value is not affected generally by short-term market movements on securities that 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, movements in unrealised appreciation on these securities are accounted for in equity rather than in the income statement, as shown in the movement in shareholders' equity. Cost of capital A charge is deducted from the embedded value for the cost of capital supporting the Group's long-term business. This capital is referred to as required capital. The cost is the difference between the nominal value of the capital and the discounted value of the projected releases of this capital allowing for investment earnings (post-tax) 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 requirements for business in force as this runs off. Where required capital is held within a with-profits long-term fund, the value placed on surplus assets in the fund is already discounted to reflect its release over time and no further adjustment is necessary in respect of required capital. Financial options and guarantees Nature of financial options and guarantees in Prudential's long-term business Asia operations Subject to local market circumstances and regulatory requirements, the guarantee features described below in respect of UK business broadly apply to similar types of participating contracts principally written in the Hong 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 benefits that accrue at rates set at inception and do not vary subsequently with market conditions. US operations (Jackson) The principal financial options and guarantees in Jackson are associated with the fixed annuity 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 varies from 1.0 per cent to 5.5 per cent for all periods throughout these results, depending on the particular product, jurisdiction where issued, and date of issue. For half year 2014, 86 per cent (half year and full year 2013: 86 per cent) of the account values on fixed annuities are for policies with guarantees of 3 per cent or less. The average guarantee rate is 2.8 per cent for all periods throughout these results. Fixed annuities also present a risk that policyholders will exercise their option to surrender their contracts in periods of rapidly rising interest rates, possibly requiring Jackson to liquidate assets at an inopportune time. Jackson issues VA contracts where it contractually guarantees to the contract holder either: a) return of no less than 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 the specified contract anniversary. These guarantees include benefits that are payable at specified dates during the accumulation period (Guaranteed Minimum Withdrawal Benefit (GMWB)), as death benefits (Guaranteed Minimum Death Benefits (GMDB)) or as income benefits (Guaranteed Minimum Income Benefits (GMIB)). These guarantees generally protect the policyholder's value in the event of poor equity market performance. Jackson hedges the GMDB and GMWB guarantees through the use of equity options and futures contracts, and fully reinsures the GMIB guarantees. Jackson also issues fixed index annuities that enable policyholders to obtain a portion of an equity-linked return while providing a guaranteed minimum return. The guaranteed minimum returns would be of a similar nature to those described above for fixed annuities. UK insurance operations For covered business the only significant financial options and guarantees in the UK insurance operations arise in the with-profits fund. With-profits products provide returns to policyholders through bonuses that 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. Unlike annual bonuses, final bonuses are guaranteed only until the next bonus declaration. The with-profits fund also held a provision on the Pillar I Peak 2 basis of £36 million at 30 June 2014 (30 June 2013: £47 million; 31 December 2013: £36 million) to honour guarantees on a small number of guaranteed annuity option products. The only material guaranteed surrender values relate to investments in the PruFund range of with-profits funds. For these products the policyholder can choose to pay an additional management charge. In return, at the selected guarantee date, the fund will be increased if necessary to a guaranteed minimum value (based on the initial investment adjusted for any prior withdrawals). The with-profits fund held a reserve of £30 million at 30 June 2014 (30 June 2013: £52 million; 31 December 2013: £36 million) in respect of this guarantee. The Group's main exposure to guaranteed annuity options in the UK is through the non-covered business of SAIF. A provision on the Pillar I Peak 2 basis of £421 million was held in SAIF at 30 June 2014 (30 June 2013: £325 million; 31 December 2013: £328 million) to honour the guarantees. As described in note 14(a) above, 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. Time value The value of financial options and guarantees comprises two parts. One is given by a deterministic valuation on best estimate assumptions (the intrinsic value). The other part arises from the variability of economic outcomes in the future (the time value). Where appropriate, a full stochastic 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. Assumptions specific to the stochastic calculations reflect 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 across the Group 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 15(iv),(v) and (vi). In deriving the time value of financial options and guarantees, management actions in 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. Bonus rates 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 the PAC with-profits fund, the actions assumed are consistent with those set out in the Principles and Practices of Financial Management which explains how regular and final bonus rates within the discretionary framework are determined, subject to the general legislative requirements applicable. (ii) Level of required capital In adopting the EEV Principles, Prudential has based required capital on its internal targets subject to it being at least the local statutory minimum requirements. For with-profits business written in a segregated life fund, as is the case in Asia and the UK, the capital available in the fund is sufficient to meet the required capital requirements. For shareholder-backed business the following capital requirements apply: • Asia operations: the level of required capital has been set to an amount at least equal to the higher of local statutory requirements and the internal target; • US operations: the level of required capital has been set at 250 per cent of the risk-based capital required by the National Association of Insurance Commissioners (NAIC) at the Company Action Level (CAL); and • UK insurance operations: the capital requirements are set to an amount at least equal to the higher of Pillar I and Pillar II requirements for shareholder-backed business of UK insurance operations as a whole. (iii) 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. The risk margin should reflect any non-diversifiable risk associated with the emergence of distributable earnings that is not allowed for elsewhere in the valuation. Prudential has selected a granular approach to better reflect differences in market risk inherent in each product group. The risk discount rate so derived does not reflect an overall Group market beta but instead reflects the expected volatility associated with the cash flows for each product category in the embedded value model. Since financial options and guarantees are explicitly valued under the EEV methodology, discount rates under EEV are set excluding the effect of these product features. The risk margin represents the aggregate of the allowance for market risk, additional allowance for credit risk where appropriate, and allowance for non-diversifiable non-market risk. No allowance is required for non-market risks where these are assumed to be fully diversifiable. Market risk allowance The allowance for market risk represents the beta multiplied by an equity risk premium. Except for UK shareholder-backed annuity business (as explained below) such an approach has been used for all of the Group's businesses. The beta of a portfolio or product measures its relative market risk. The risk discount rates reflect the market risk inherent in each product group and hence the volatility of product cash flows. These are determined by considering how the profits from each product are affected by changes in expected returns on various asset classes. By converting this into a relative rate of return it is possible to derive a product specific beta. Product level betas reflect the most recent product mix to produce appropriate betas and risk discount rates for each major product grouping. Additional credit risk allowance The Group's methodology is to allow appropriately for credit risk. The allowance for total credit risk is to 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 businesses which are largely backed by holdings of debt securities these allowances in 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 operations For Asia operations, the allowance for credit risk incorporated in the projected rates of return and the market risk allowance are sufficient. Accordingly no additional allowance for credit risk is required. 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 operations (Jackson) For Jackson business, the allowance for long-term defaults is reflected in the risk margin reserve (RMR) charge which 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 as shown in note 15(ii). In determining this allowance a number of factors have been considered. These factors, in particular, include: (a) How much of the credit spread on debt securities represents an increased credit risk not reflected in the RMR long-term default assumptions, and how much is liquidity premium (which is the premium required by investors to compensate for the risk of longer-term investments which cannot be easily converted into cash, and converted at the fair market value). In assessing this effect, consideration has been given to a number of approaches to estimating the liquidity premium by considering recent statistical data; and (b) Policyholder benefits for Jackson fixed annuity business are not fixed. It is possible in adverse economic scenarios to pass on a component of credit losses to policyholders (subject to guarantee features) through lower investment return rates 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 as the business in force alters over time. The additional allowance for variable annuity business has been set at one-fifth of the non-variable annuity business to reflect the proportion of the allocated holdings of general account debt securities. The level of allowance differs from that for UK annuity business for investment portfolio differences and to take account of the management actions available in adverse economic scenarios to reduce crediting rates to policyholders, subject to guarantee features of the products. UK operations (1) Shareholder-backed annuity business For Prudential's UK shareholder-backed annuity business, Prudential has used a market consistent embedded value (MCEV) approach to derive an implied risk discount rate which is then applied to the projected best estimate cash flows. In the annuity MCEV calculations as the assets are generally held to maturity to match long duration liabilities, the future cash flows are discounted using the swap yield curve plus an allowance for liquidity premium based on Prudential's assessment of the expected return on the assets backing the annuity liabilities after allowing for: (a) expected long-term defaults derived as a percentage of historical default experience based on Moody's data for the period 1970 to 2009 and the definition of the credit rating assigned to each asset held is the second highest credit rating published by Moody's, Standard & Poor's and Fitch; (b) a credit risk premium, which is derived as the excess over the expected long-term defaults, of the 95th percentile of historical cumulative defaults based on Moody's data for the period 1970 to 2009, and subject to a minimum margin over expected long-term defaults of 50 per cent; (c) an allowance for a 1 notch downgrade of the asset portfolio subject to credit risk and; (d) an allowance for short-term downgrades and defaults. For the purposes of presentation in the EEV results, the results on this basis are reconfigured. Under this approach the projected earned rate of return on the debt securities held is determined after allowing for expected long-term defaults and, where necessary, an additional allowance for an element of short-term downgrades and defaults to bring the allowance in the earned rate up to best estimate levels. The allowances for credit risk premium, 1 notch downgrade and the remaining element of short-term downgrade and default allowances are incorporated into the risk margin included in the discount rate, as shown in note 15(iii)(b). (2) With-profits fund non-profit annuity business For UK non-profit annuity business including that written by Prudential Annuities Limited (PAL) the basis for determining the aggregate allowance for credit risk is consistent with that applied for UK shareholder-backed annuity business (as described above). The allowance for credit risk in PAL is taken into account in determining the projected cash flows to the with-profits fund, which are in turn discounted at the risk discount rate applicable to all of the projected cash flows of the fund. (3) With-profits fund holdings of debt securities The UK with-profits fund holds debt securities as part of its investment portfolio backing policyholder liabilities and unallocated surplus. The assumed earned rate for with-profit holdings of corporate bonds is defined as the risk-free rate plus an assessment of the long-term spread over gilts, net of expected long-term defaults. This approach is similar to that applied for equities and properties for which the projected earned rate is defined as the risk-free rate plus a long-term risk premium. Allowance for non-diversifiable non-market risks The majority of non-market and non-credit risks are considered to be diversifiable. Finance theory cannot be used to determine the appropriate component of beta for non-diversifiable non-market risks since there is no observable risk premium associated with it that is akin to the equity risk premium. Recognising this, a pragmatic approach has been applied. A base level allowance of 50 basis points is applied to cover the non-diversifiable non-market risks associated with the Group's businesses. For the Group's US business and UK business other than shareholder-backed annuity, no additional allowance is necessary. For UK shareholder-backed annuity business a further allowance of 50 basis points is used to reflect the longevity risk which is of particular relevance. For the Group's Asia operations in China, India, Indonesia, the Philippines, Taiwan, Thailand and Vietnam, additional allowances are applied for emerging market risk ranging from 100 to 250 basis points. (iv) With-profits business and the treatment of the estate The proportion of surplus allocated to shareholders from the PAC with-profits fund 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 bonus rates (and related shareholder transfers) so as to 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 claims in full, the excess cost is fully attributed to shareholders. Similar principles apply, where appropriate, for other with-profits funds of the Group's Asia operations. (v) Debt capital Core structural debt liabilities are carried at market value. As the liabilities are generally held to maturity or for the long-term, no deferred tax asset or liability has been established on the difference, compared to the IFRS carrying value. Accordingly, no deferred tax credit or charge is recorded in the results for the reporting period in respect of the mark to market value adjustment. (vi) Foreign currency translation Foreign currency profits and losses have been translated at average exchange rates for the period. Foreign currency assets and liabilities have been translated at period end rates of exchange. The principal exchange rates are shown in note A1 of the IFRS statements. (c) Accounting presentation (i) Analysis of post-tax profit To the extent applicable, the presentation of the EEV post-tax profit for the period is consistent in the classification between operating and non-operating results with the basis that the Group applies for the analysis of IFRS basis results. Operating results reflect underlying results including longer-term investment returns (which are determined as described in note 14(c)(ii) below) and incorporate the following: · new business contribution, as defined in note 14(b)(i); · unwind of discount on the value of in-force business and other expected returns, as described in note 14(c)(iv) below; · the impact of routine changes of estimates relating to non-economic assumptions, as described in note 14(c)(iii) below; and · non-economic experience variances, as described in note 14(c)(v) below. Non-operating results comprise the recurrent items of short-term fluctuations in investment returns, the mark to market value movements on core borrowings and the effect of changes in economic assumptions. In addition, operating profit for half year 2014 and full year 2013 excludes the costs associated with the domestication of the Hong Kong branch and also for 2013 the loss attaching to the held for sale Japan Life business. Total profit attributable to shareholders and basic earnings per share include these items, together with actual investment returns. The Company believes that operating profit, as adjusted for these items, better reflects underlying performance. (ii) Post-tax 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 PAC with-profits fund of UK operations, 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 of short-term market movements as explained in note 14(c)(iv) below. For the purpose of determining the long-term returns for debt securities of US operations for fixed annuity and other general account business, a risk margin charge is included which reflects the 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 reflects the aggregation of end of period risk-free rates and equity risk premium. For US variable annuity separate account business, operating profit includes the unwind of discount on the opening value of in-force 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 the related hedging activity. For UK annuity business, rebalancing of the asset portfolio backing the liabilities to 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 changes is included in the result for the period. (iii) Effect of changes in operating assumptions Operating profit includes the effect of changes to operating assumptions on the value of in-force at the end of the period. For presentational purposes, the effect of change is delineated to show the effect on the opening value of in-force with the experience variance being determined by reference to the end of period assumptions. (iv) Unwind of discount and other expected returns The unwind of discount and other expected returns is determined by reference to: · the value of in-force business at the beginning of the period (adjusted for the effect of current period 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 the with-profits business of UK insurance operations is determined by reference to the opening value of in-force, as adjusted for the effects of short-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 not smoothed. At 30 June 2014 the shareholders' interest in the smoothed surplus assets used for this purpose only, were £123 million lower (30 June 2013: £25 million lower; 31 December 2013: £136 million lower) than the surplus assets carried in the statement of financial position. (v) Operating experience variances Operating profits include the effect of experience variances on non-economic assumptions, which are calculated with reference to the embedded value assumptions at the end of the reporting period, such as persistency, mortality and morbidity, expenses and other factors. (vi) Internal asset management The new business and in-force results from long-term business include the projected value of profits or losses from asset management and service companies that support the Group's covered insurance businesses. The results of the Group's asset management operations include the current period profits from the management of both internal and external funds. EEV basis shareholders' other income and expenditure is adjusted to deduct the unwind of the expected internal asset management profit margin for the period. The deduction is on a basis consistent with that used for projecting the results for covered insurance business. Group operating profit accordingly includes the variance between actual and expected profit in respect of management of the covered business assets. (vii) Pension costs Movements on the shareholders' share of surpluses (to the extent not restricted by IFRIC 14) and deficits of the Group's defined benefit pension schemes adjusted for contributions paid in the period are recorded within Other Comprehensive Income. Consistent with the basis of distribution of bonuses and the treatment of the estate described in notes 14(b)(i) and (iv), the shareholders' share incorporates 10 per cent of the proportion of the financial position attributable to the PAC with-profits fund. The financial position is determined by applying the requirements of IAS 19 as booked for IFRS reporting. (viii) Effect of changes in economic assumptions Movements in the value of in-force business at the beginning of the period caused by changes in economic assumptions, net of the related change in the time value of cost of option and guarantees, are recorded in non-operating results. (ix) Taxation In determining the post-tax profit for the period for covered business, the overall tax rate includes the impact of tax effects determined on a local regulatory basis. Tax payments and receipts included in the projected cash flows to determine the value of in-force business are calculated using rates that have been announced and substantively enacted by the end of the reporting period. (x) Inter-company arrangements The EEV results for covered business incorporate annuities established in the PAC non-profit sub-fund from vesting pension polices in 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 PRIL. In addition, the free surplus and value of in-force business are calculated after taking account of the impact of contingent loan arrangements between Group companies (movements in the contingent loan liability are reflected via the projected cash flows in the value of in-force and the related funding is reflected in free surplus). 15 Assumptions Deterministic assumptions The tables below summarise the principal financial assumptions: Assumed investment returns reflect the expected future returns on the assets held and allocated to the covered business at the valuation date. (i) Asia operationsnotes (b), (d) Risk discount rate % New business In force 2014 2013 2014 2013 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec China 10.6 10.1 11.2 10.6 10.1 11.2 Hong Kongnotes (b), (c) 4.3 4.3 4.9 4.2 4.2 4.8 India 13.9 13.0 14.0 13.9 13.0 14.0 Indonesia 12.2 11.1 12.5 12.2 11.1 12.5 Korea 6.8 7.3 7.4 7.1 7.4 7.6 Malaysianote (c) 6.6 6.0 6.5 6.6 6.0 6.5 Philippines 10.8 10.6 10.5 10.8 10.6 10.5 Singaporenote (c) 4.3 4.5 4.6 5.0 5.2 5.3 Taiwan 4.0 3.8 4.3 4.0 3.7 4.1 Thailand 10.6 10.5 10.7 10.6 10.5 10.7 Vietnam 15.4 16.1 15.7 15.4 16.1 15.7 Total weighted risk discount ratenote (a) 7.4 7.5 8.1 7.0 6.7 7.2 10-year government bond yield % Expected long-term Inflation % 2014 2013 2014 2013 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec China 4.1 3.6 4.7 2.5 2.5 2.5 Hong Kongnotes (b), (c) 2.6 2.5 3.1 2.3 2.3 2.3 India 8.9 8.0 9.0 4.0 4.0 4.0 Indonesia 8.4 7.3 8.6 5.0 5.0 5.0 Korea 3.2 3.4 3.6 3.0 3.0 3.0 Malaysianote (c) 4.1 3.6 4.2 2.5 2.5 2.5 Philippines 4.1 3.9 3.8 4.0 4.0 4.0 Singaporenote (c) 2.3 2.4 2.6 2.0 2.0 2.0 Taiwan 1.6 1.4 1.7 1.0 1.0 1.0 Thailand 3.8 3.8 3.9 3.0 3.0 3.0 Vietnam 8.7 9.3 9.0 5.5 5.5 5.5 Equity risk premiums in Asia (excluding those for the held for sale Japan Life business) range from 3.5 per cent to 8.7 per cent for all periods throughout these results. Notes (a) The weighted risk discount rates for Asia operations shown above have been determined by weighting each country's risk discount rates by reference to the post-tax EEV basis new business result and the closing value of in-force business. The changes in the risk discount rates for individual Asia territories reflect the movements in government bond yields, together with the effects of movements in the allowance for market risk and changes in product mix. (b) For Hong Kong the assumptions shown are for US dollar denominated business. For other territories, the assumptions are for local currency denominated business. (c) The mean equity return assumptions for the most significant equity holdings in the Asia operations were: 2014 % 2013 % 30 Jun 30 Jun 31 Dec Hong Kong 6.6 6.5 7.1 Malaysia 10.1 9.6 10.1 Singapore 8.4 8.4 8.6 (d) The local tax rates applicable for the most significant operations for all periods shown, are as follows: Assumed corporate tax rate % Hong Kong 16.5 per cent on 5 per cent of premium income Indonesia 25 per cent Malaysia 2013 to 2015: 25 per cent; From 2016: 24 per cent Singapore 17 per cent (ii) US operations 2014 % 2013 % 30 Jun 30 Jun 31 Dec Assumed new business spread margins:note (a) Fixed Annuity business: January to June issues 1.5 1.2 1.2 July to December issues n/a n/a 1.75 Fixed Index Annuity business: January to June issues 2.0 1.45 1.45 July to December issues n/a n/a 2.00 Institutional business 0.7 0.75 0.75 Allowance for long-term defaults included in projected spreadnote (b) 0.26 0.27 0.25 Risk discount rate: Variable annuity Risk discount rate 7.1 7.3 7.6 Additional allowance for credit risk included in risk discount ratenote (b) 0.2 0.3 0.2 Non-variable annuity Risk discount rate 4.3 4.8 4.8 Additional allowance for credit risk included in risk discount ratenote (b) 1.0 1.5 1.0 Weighted average total:note (c) New business 6.9 7.2 7.4 In force 6.4 6.5 6.9 US 10-year treasury bond rate at end of period 2.6 2.5 3.1 Pre-tax expected long-term nominal rate of return for US equities 6.6 6.5 7.1 Expected long-term rate of inflation 2.6 2.5 2.6 Equity risk premium 4.0 4.0 4.0 Assumed corporate tax rate 35.0 35.0 35.0 * including the proportion of variable annuity business invested in the general account Notes (a) The assumed new business spread margins represent the difference between the earned rate on investments, after allowance for long-term defaults, and the policy holder crediting rate. The spread margins shown above are the rates at inception. For fixed annuity business (including the proportion of variable annuity business invested in the general account) and fixed index annuity business, the assumed spread margin grades up linearly by 25 basis points to a long-term assumption over five years. (b) The allowance for long-term defaults included in projected spread is shown as at the valuation date applied in the cash flow projections of the value of the in-force business. The risk discount rates include an additional allowance for credit risk premium and short-term downgrades and defaults. See note 14(b)(iii) for further details. (c) The weighted average risk discount rates reflect the mix of business between variable annuity and non-variable annuity business. The decrease in the weighted average risk discount rates from half year 2013 to half year 2014 primarily reflects the effect of the decrease in additional allowance for credit risk and the effects of movement in the allowance for market risk, partly offset by the increase in the US 10-year Treasury bond rate of 10 basis points. (iii) UK insurance operations 2014 % 2013 % 30 Jun 30 Jun 31 Dec Shareholder-backed annuity business:note (b) Risk discount rate: New business 6.9 7.2 6.8 In forcenote (a) 7.8 8.5 8.3 Pre-tax expected long-term nominal rate of return for shareholder-backed annuity business: New business 4.5 3.9 4.2 In forcenote (a) 4.1 4.4 4.3 Other business: Risk discount rate: New business 5.9 5.8 6.1 In force 6.5 6.2 6.8 Pre-tax expected long-term nominal rates of investment return: UK equities 7.2 7.0 7.5 Overseas equities 6.6 to 9.1 6.5 to 9.8 7.1 to 9.2 Property 5.9 5.8 6.2 15-year gilt rate 3.2 3.0 3.5 Corporate bonds 4.8 4.6 5.1 Expected long-term rate of inflation 3.3 3.3 3.4 Equity risk premium 4.0 4.0 4.0 Assumed corporate tax rate 20.0 23.0 20.0 Notes (a) For shareholder-backed annuity business, the movements in the pre-tax long-term nominal rates of return and the risk discount rates for in-force business mainly reflect the effect of changes in asset yields. (b) Credit spread treatment For Prudential Retirement Income Limited, which has approximately 90 per cent of UK shareholder-backed annuity business, the credit assumptions used in the underlying MCEV calculation (see note 14(b)(iii)) and the residual liquidity premium element of the bond spread over swap rates are as follows: In-force business 2014 (bps) 2013 (bps) 30 Jun 30 Jun 31 Dec Bond spread over swap rates 119 157 133 Total credit risk allowance 61 64 62 Liquidity premium 58 93 71 Individual annuity new business 2014 (bps) 2013 (bps) 30 Jun 30 Jun 31 Dec Bond spread over swap rates 121 116 117 Total credit risk allowance 34 38 37 Liquidity premium 87 78 80 * The new business liquidity premium is based on the weighted average of the point of sale liquidity premia. The overall allowance for credit risk is prudent by comparison with historic rates of default and would be sufficient to withstand a wide range of extreme credit events over the expected lifetime of the annuity business. Stochastic assumptions The economic assumptions used for the stochastic calculations are consistent with those used for the deterministic calculations described above. Assumptions specific to the stochastic calculations, such as the volatilities of asset returns, reflect local market conditions and are based on a combination of actual market data, historic market data and an assessment of longer-term economic conditions. Common principles have been adopted across the Group for the stochastic asset models, for example, separate modelling of individual asset classes but with allowance for correlation between the various asset classes. Details are given below of the key characteristics and calibrations of each model. (iv) Asia operations • The same asset return models as described for UK insurance operations below, appropriately calibrated, have been used for Asia operations. The principal asset classes are government and corporate bonds. Equity holdings are much lower than in the UK whilst property holdings do not represent a significant investment asset; • the stochastic cost of guarantees is primarily only of significance for the Hong Kong, Korea, Malaysia and Singapore operations; and • the mean stochastic returns are consistent with the mean deterministic returns for each country. The expected volatility of equity returns ranges from 18 per cent to 35 per cent for all periods throughout these results, and the volatility of government bond yields ranges from 0.9 per cent to 2.3 per cent for all periods throughout these results. (v) US operations (Jackson) • Interest rates are projected using a log-normal generator calibrated to historical US Treasury yield curves; • corporate bond returns are based on Treasury securities plus a spread that has been calibrated to current market conditions and varies by credit quality; and • variable annuity equity returns and bond interest rates have been stochastically generated using a log-normal model with parameters determined by reference to historical data. The volatility of equity fund returns ranges from 19 per cent to 32 per cent for all periods throughout these results, depending on the risk class and the class of equity, and the standard deviation of interest rates ranges from 2.2 per cent to 2.5 per cent for all periods throughout these results. (vi) UK insurance operations • Interest rates are projected using a two-factor model calibrated to the initial market yield curve; • the risk premium on equity assets is assumed to follow a log-normal distribution; • the corporate bond return is calculated as the return on a zero-coupon bond plus a spread. The spread process is a mean reverting stochastic process; and • property returns are modelled in a similar fashion to corporate bonds, namely as the return on a risk-free bond, plus a risk premium, plus a process representative of the change in residual values and the change in value of the call option on rents. Mean returns have been derived as the annualised arithmetic average return across all simulations and durations. For each projection period, standard deviations have been calculated by taking the square root of the annualised variance of the returns over all the simulations. These have been averaged over all durations in the projection. For equity and property, the standard deviations relate to the total return on these assets. The standard deviations applied for all periods are as follows: % Equities: UK 20 Overseas 18 Property 15 16 Total insurance and investment products new businessnote (i) Annual premium and contribution equivalents Present value of new business premiums Single Regular (APE)note 14(b)(i) (PVNBP)note 14(b)(i) 2014 £m 2013 £m 2014 £m 2013 £m 2014 £m 2013 £m 2014 £m 2013 £m Half year Half year Full year Half year Half year Full year Half year Half year Full year Half year Half year Full year Group insurance operations Asia 955 1,097 2,136 900 899 1,911 996 1,010 2,125 5,378 5,524 11,375 US 8,703 7,957 15,712 - 1 2 871 797 1,573 8,703 7,957 15,723 UK 3,329 2,435 5,128 100 112 212 433 355 725 3,741 2,943 5,978 Group Total 12,987 11,489 22,976 1,000 1,012 2,125 2,300 2,162 4,423 17,822 16,424 33,076 Asia insurance operations Cambodia - - - 1 - 1 1 - 1 4 - 3 Hong Kong 175 85 326 240 205 455 258 214 487 1,530 1,204 2,795 Indonesia 101 212 303 174 219 445 184 240 477 748 1,069 1,943 Malaysia 42 53 114 87 93 197 91 99 208 583 661 1,352 Philippines 53 129 193 17 16 34 22 29 53 106 177 299 Singapore 264 251 571 146 145 304 172 170 361 1,217 1,209 2,588 Thailand 50 20 66 37 23 61 42 25 68 196 106 289 Vietnam 1 1 2 23 23 54 23 23 54 91 84 204 SE Asia operations inc. Hong Kong 686 751 1,575 725 724 1,551 793 800 1,709 4,475 4,510 9,473 Chinanote (ii) 117 76 114 45 39 71 57 47 83 280 243 409 Korea 97 200 311 38 42 82 48 62 113 260 359 641 Taiwan 45 48 102 49 40 107 54 45 117 214 206 491 Indianote (iii) 10 22 34 43 54 100 44 56 103 149 206 361 Total Asia operations 955 1,097 2,136 900 899 1,911 996 1,010 2,125 5,378 5,524 11,375 US insurance operations Variable annuities 6,136 5,384 10,795 - - - 614 538 1,079 6,136 5,384 10,795 Elite Access (variable annuity) 1,493 1,270 2,585 - - - 149 127 259 1,493 1,270 2,585 Fixed annuities 265 296 555 - - - 27 30 55 265 296 555 Fixed index annuities 182 620 907 - - - 18 62 91 182 620 907 Life - - 1 - 1 2 - 1 2 - - 12 Wholesale 627 387 869 - - - 63 39 87 627 387 869 Total US insurance operations 8,703 7,957 15,712 - 1 2 871 797 1,573 8,703 7,957 15,723 UK and Europe insurance operations Direct and partnership annuities 100 153 284 - - - 10 15 28 99 153 284 Intermediated annuities 100 293 488 - - - 10 29 49 100 293 488 Internal vesting annuities 434 669 1,305 - - - 43 67 131 434 669 1,305 Total individual annuities 634 1,115 2,077 - - - 63 111 208 633 1,115 2,077 Corporate pensions 58 73 120 73 86 161 79 93 173 314 454 686 Onshore bonds 1,019 825 1,754 - - - 102 83 176 1,019 826 1,756 Other products 582 422 901 27 26 51 85 68 140 739 548 1,183 Wholesale 1,036 - 276 - - - 104 - 28 1,036 - 276 Total UK and Europe insurance operations 3,329 2,435 5,128 100 112 212 433 355 725 3,741 2,943 5,978 Group Total 12,987 11,489 22,976 1,000 1,012 2,125 2,300 2,162 4,423 17,822 16,424 33,076 Investment products - funds under management notes (iv), (v), (vi) 2014 £m Half year 1 Jan 2014 Market gross inflows Redemptions Market exchange translation and other movements 30 Jun 2014 Eastspring Investments 17,927 6,869 (4,386) 668 21,078 M&G 125,989 19,322 (15,111) 2,571 132,771 Group total 143,916 26,191 (19,497) 3,239 153,849 2013 £m Half year 1 Jan 2013 Market gross inflows Redemptions Market exchange translation and other movements 30 Jun 2013 Eastspring Investments 17,630 7,372 (5,366) (368) 19,268 M&G 111,868 20,598 (16,758) 2,431 118,139 Group total 129,498 27,970 (22,124) 2,063 137,407 Notes (i) The tables shown above are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profits for shareholders. The amounts shown are not, and not intended to be, reflective of premium income recorded in the IFRS income statement. The format of the tables shown above is consistent with the distinction between insurance and investment products as applied for previous financial reporting periods. With the exception of some US institutional business, products categorised as 'insurance' refer to those classified as contracts of long-term insurance business for regulatory reporting purposes, ie falling within one of the classes of insurance specified in Part II of Schedule 1 to the Regulated Activities Order under PRA regulations. The details shown above for insurance products include contributions for contracts that are classified under IFRS 4 'Insurance Contracts' as not containing significant insurance risk. These products are described as investment contracts or other financial instruments under IFRS. Contracts included in this category are primarily certain unit-linked and similar contracts written in UK insurance operations and Guaranteed Investment Contracts and similar funding agreements written in US operations. (ii) New business in China is included at Prudential's 50 per cent interest in the China life operation. (iii) New business in India is included at Prudential's 26 per cent interest in the India life operation. (iv) Investment products referred to in the tables for fund under management above are unit trust, mutual funds and similar types of retail fund management arrangements. These are unrelated to insurance products that are classified as 'investment contracts' under IFRS 4, although similar IFRS recognition and measurement principles apply to the acquisition costs and fees attaching to this type of business. (v) Investment flows for the half year exclude Eastspring Money Market Funds gross inflows of £32,065 million (half year 2013: £30,774 million) and net outflows of £52 million (half year 2013: net inflows of £107 million). (vi) New business and market gross inflows and redemptions have been translated at an average exchange rate for the period applicable. Funds under management at points in time are translated at the exchange rate applicable to those dates. Additional Unaudited Financial Information A New Business BASIS OF PREPARATION The format of the schedules is consistent with the distinction between insurance and investment products as applied for previous financial reporting periods. With the exception of some US institutional business, products categorised as 'insurance' refer to those classified as contracts of long-term insurance business for regulatory reporting purposes, ie falling within one of the classes of insurance specified in part II of Schedule 1 to the Regulated Activities Order under PRA regulations. The details shown for insurance products include contributions for contracts that are classified under IFRS 4 'Insurance Contracts' as not containing significant insurance risk. These products are described as investment contracts or other financial instruments under IFRS. Contracts included in this category are primarily certain unit-linked and similar contracts written in UK Insurance Operations, and Guaranteed Investment Contracts and similar funding agreements written in US Operations. New business premiums for regular premium products are shown on an annualised basis. Internal vesting business is classified as new business where the contracts include an open market option. New business premiums reflect those premiums attaching to covered business, including premiums for contracts designed as investment products for IFRS reporting. Investment products referred to in the tables for funds under management are unit trusts, mutual funds and similar types of retail fund management arrangements. These are unrelated to insurance products that are classified as investment contracts under IFRS 4, as described in the preceding paragraph, although similar IFRS recognition and measurement principles apply to the acquisition costs and fees attaching to this type of business. New Business Profit (post-tax) has been determined using the European Embedded Value (EEV) methodology and assumptions set out in our 2014 Interim Report. In determining the EEV basis value of new business written in the period policies incept, premiums are included in projected cash flows on the same basis of distinguishing annual and single premium business as set out for statutory basis reporting. Annual premium equivalent (APE) sales are subject to rounding. Notes to Schedules A(i) to A(ix) (1) Prudential plc reports its results at both actual exchange rates (AER) and constant year-to-date average exchange rates (CER) so as to eliminate the impact of exchange translation. Local currency: £ Half year 2014 Half year 2013 Half year 2014 vs Half year 2013 (depreciation) of local currency against GBP Hong Kong Average Rate 12.95 11.98 (7)% Closing Rate 13.25 11.76 (11)% Indonesia Average Rate 19,573.46 15,024.12 (23)% Closing Rate 20,270.27 15,053.25 (26)% Malaysia Average Rate 5.45 4.75 (13)% Closing Rate 5.49 4.79 (13)% Singapore Average Rate 2.10 1.92 (9)% Closing Rate 2.13 1.92 (10)% India Average Rate 101.45 84.94 (16)% Closing Rate 102.84 90.13 (12)% Vietnam Average Rate 35,266.15 32,305.17 (8)% Closing Rate 36,471.11 32,161.63 (12)% Thailand Average Rate 54.34 46.07 (15)% Closing Rate 55.49 47.04 (15)% US Average Rate 1.67 1.54 (8)% Closing Rate 1.71 1.52 (11)% * Average rate is for the 6 months to 30 June Local currency: £ Half year 2014 Full year 2013 Half year 2014 vs Full year 2013 (depreciation) of local currency against GBP Hong Kong Average Rate 12.95 12.14 (6)% Closing Rate 13.25 12.84 (3)% Indonesia Average Rate 19,573.46 16,376.89 (16)% Closing Rate 20,270.27 20,156.57 (1)% Malaysia Average Rate 5.45 4.93 (10)% Closing Rate 5.49 5.43 (1)% Singapore Average Rate 2.10 1.96 (7)% Closing Rate 2.13 2.09 (2)% India Average Rate 101.45 91.75 (10)% Closing Rate 102.84 102.45 - Vietnam Average Rate 35,266.15 32,904.71 (7)% Closing Rate 36,471.11 34,938.60 (4)% Thailand Average Rate 54.34 48.11 (11)% Closing Rate 55.49 54.42 (2)% US Average Rate 1.67 1.56 (7)% Closing Rate 1.71 1.66 (3)% Average rate is for the 6 months to 30 June (1a) Insurance and investment new business for overseas operations are converted using the year-to-date average exchange rate applicable at the time (AER). The sterling results for individual quarters represent the difference between the year-to-date reported sterling results at successive quarters and will include foreign exchange movements from earlier periods. (1b) Insurance new business for overseas operations for 2013 has been calculated using constant exchange rates (CER). (1c) Constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2013 and 2014. (2) Annual Equivalents, calculated as regular new business contributions plus 10 per cent of single new business contributions, are subject to roundings. Present value of new business premiums (PVNBPs) are calculated as equalling single premiums plus the present value of expected premiums of new regular premium business. In determining the present value, allowance is made for lapses and other assumptions applied in determining the EEV new business profit. (3) Balance includes segregated and pooled pension funds, private finance assets and other institutional clients. Other movements reflect the net flows arising from the cash component of a tactical asset allocation fund managed by PPM South Africa. (4) New business in India is included at Prudential's 26 per cent interest in the India life operation. (5) Balance Sheet figures have been calculated at the closing exchange rate. (6) New business in China is included at Prudential's 50 per cent interest in the China life operation. (7) Mandatory Provident Fund (MPF) product sales in Hong Kong are included at Prudential's 36 per cent interest in Hong Kong MPF operation. (8) Investment flows for the period exclude Eastspring Money Market Funds (MMF) gross inflows of £32,065 million (Half year 2013: £30,774 million) and net outflows of £52 million (Half year 2013 net inflows: £107 million). (9) Excludes Curian Variable Series Trust funds (internal funds under management). (10) Total M&G and Eastspring excluding MMF. Funds under management for MMF amounted to £4,300 million at 30 June 2014 (30 June 2013: £4,267 million). Schedule A(i) - New Business Insurance Operations (Actual Exchange Rates) Single Regular Annual Equivalents(2) PVNBP 2014 2013 2014 2013 2014 2013 2014 2013 YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) £m £m £m £m £m £m £m £m Group Insurance Operations Asia (1a) 955 1,097 (13)% 900 899 0% 996 1,010 (1)% 5,378 5,524 (3)% US(1a) 8,703 7,957 9% - 1 (100)% 871 797 9% 8,703 7,957 9% UK 3,329 2,435 37% 100 112 (11)% 433 355 22% 3,741 2,943 27% Group Total 12,987 11,489 13% 1,000 1,012 (1)% 2,300 2,162 6% 17,822 16,424 9% Asia Insurance Operations(1a) Cambodia - - N/A 1 - N/A 1 - N/A 4 - N/A Hong Kong 175 85 106% 240 205 17% 258 214 21% 1,530 1,204 27% Indonesia 101 212 (52)% 174 219 (21)% 184 240 (23)% 748 1,069 (30)% Malaysia 42 53 (21)% 87 93 (6)% 91 99 (8)% 583 661 (12)% Philippines 53 129 (59)% 17 16 6% 22 29 (24)% 106 177 (40)% Singapore 264 251 5% 146 145 1% 172 170 1% 1,217 1,209 1% Thailand 50 20 150% 37 23 61% 42 25 68% 196 106 85% Vietnam 1 1 - 23 23 - 23 23 - 91 84 8% SE Asia Operations inc. Hong Kong 686 751 (9)% 725 724 0% 793 800 (1)% 4,475 4,510 (1)% China(6) 117 76 54% 45 39 15% 57 47 21% 280 243 15% Korea 97 200 (52)% 38 42 (10)% 48 62 (23)% 260 359 (28)% Taiwan 45 48 (6)% 49 40 23% 54 45 20% 214 206 4% India(4) 10 22 (55)% 43 54 (20)% 44 56 (21)% 149 206 (28)% Total Asia Operations 955 1,097 (13)% 900 899 0% 996 1,010 (1)% 5,378 5,524 (3)% US Insurance Operations(1a) Variable Annuities 6,136 5,384 14% - - N/A 614 538 14% 6,136 5,384 14% Elite Access (Variable Annuity) 1,493 1,270 18% - - N/A 149 127 17% 1,493 1,270 18% Fixed Annuities 265 296 (10)% - - N/A 27 30 (10)% 265 296 (10)% Fixed Index Annuities 182 620 (71)% - - N/A 18 62 (71)% 182 620 (71)% Life - - N/A - 1 (100)% - 1 (100)% - - N/A Wholesale 627 387 62% - - N/A 63 39 62% 627 387 62% Total US Insurance Operations 8,703 7,957 9% - 1 (100)% 871 797 9% 8,703 7,957 9% UK & Europe Insurance Operations Direct and Partnership Annuities 100 153 (35)% - - N/A 10 15 (33)% 99 153 (35)% Intermediated Annuities 100 293 (66)% - - N/A 10 29 (66)% 100 293 (66)% Internal Vesting Annuities 434 669 (35)% - - N/A 43 67 (36)% 434 669 (35)% Total Individual Annuities 634 1,115 (43)% - - N/A 63 111 (43)% 633 1,115 (43)% Corporate Pensions 58 73 (21)% 73 86 (15)% 79 93 (15)% 314 454 (31)% On-shore Bonds 1,019 825 24% - - N/A 102 83 23% 1,019 826 23% Other Products 582 422 38% 27 26 4% 85 68 25% 739 548 35% Wholesale 1,036 - N/A - - N/A 104 - N/A 1,036 - N/A Total UK & Europe Insurance Operations 3,329 2,435 37% 100 112 (11)% 433 355 22% 3,741 2,943 27% Group Total 12,987 11,489 13% 1,000 1,012 (1)% 2,300 2,162 6% 17,822 16,424 9% Schedule A(ii) - New Business Insurance Operations (Constant Exchange Rates) Note: In schedule A(ii) constant exchange rates have been used to calculate insurance new business for overseas operations for 2013. Single Regular Annual Equivalents(2) PVNBP 2014 2013 2014 2013 2014 2013 2014 2013 YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) £m £m £m £m £m £m £m £m Group Insurance Operations Asia (1a) (1b) 955 971 (2)% 900 785 15% 996 882 13% 5,378 4,866 11% US(1a) (1b) 8,703 7,364 18% - 1 (100)% 871 737 18% 8,703 7,364 18% UK 3,329 2,435 37% 100 112 (11)% 433 355 22% 3,741 2,943 27% Group Total 12,987 10,770 21% 1,000 898 11% 2,300 1,974 17% 17,822 15,173 17% Asia Insurance Operations(1a) (1b) Cambodia - - N/A 1 - N/A 1 - N/A 4 1 N/A Hong Kong 175 79 122% 240 190 26% 258 198 30% 1,530 1,115 37% Indonesia 101 162 (38)% 174 168 4% 184 184 0% 748 821 (9)% Malaysia 42 46 (9)% 87 81 7% 91 86 6% 583 575 1% Philippines 53 110 (52)% 17 14 21% 22 25 (12)% 106 151 (30)% Singapore 264 229 15% 146 132 11% 172 155 11% 1,217 1,103 10% Thailand 50 17 194% 37 19 95% 42 21 100% 196 90 118% Vietnam 1 1 N/A 23 21 10% 23 21 10% 91 77 18% SE Asia Operations inc. Hong Kong 686 644 7% 725 625 16% 793 690 15% 4,475 3,933 14% China(6) 117 71 65% 45 36 25% 57 43 33% 280 225 24% Korea 97 194 (50)% 38 41 (7)% 48 60 (20)% 260 349 (26)% Taiwan 45 44 2% 49 38 29% 54 42 29% 214 187 14% India(4) 10 18 (44)% 43 45 (4)% 44 47 (6)% 149 172 (13)% Total Asia Operations 955 971 (2)% 900 785 15% 996 882 13% 5,378 4,866 11% US Insurance Operations(1a) (1b) Variable Annuities 6,136 4,985 23% - - N/A 614 499 23% 6,136 4,985 23% Elite Access (Variable Annuity) 1,493 1,174 27% - - N/A 149 117 27% 1,493 1,174 27% Fixed Annuities 265 274 (3)% - - N/A 27 27 0% 265 274 (3)% Fixed Index Annuities 182 573 (68)% - - N/A 18 57 (68)% 182 573 (68)% Life - - N/A - 1 (100)% - 1 (100)% - - N/A Wholesale 627 358 75% - - N/A 63 36 75% 627 358 75% Total US Insurance Operations 8,703 7,364 18% - 1 (100)% 871 737 18% 8,703 7,364 18% UK & Europe Insurance Operations Direct and Partnership Annuities 100 153 (35)% - - N/A 10 15 (33)% 99 153 (35)% Intermediated Annuities 100 293 (66)% - - N/A 10 29 (66)% 100 293 (66)% Internal Vesting Annuities 434 669 (35)% - - N/A 43 67 (36)% 434 669 (35)% Total Individual Annuities 634 1,115 (43)% - - N/A 63 111 (43)% 633 1,115 (43)% Corporate Pensions 58 73 (21)% 73 86 (15)% 79 93 (15)% 314 454 (31)% On-shore Bonds 1,019 825 24% - - N/A 102 83 23% 1,019 826 23% Other Products 582 422 38% 27 26 4% 85 68 25% 739 548 35% Wholesale 1,036 - N/A - - N/A 104 - N/A 1,036 - N/A Total UK & Europe Insurance Operations 3,329 2,435 37% 100 112 (11)% 433 355 22% 3,741 2,943 27% Group Total 12,987 10,770 21% 1,000 898 11% 2,300 1,974 17% 17,822 15,173 17% Schedule A(iii) - Total Insurance New Business APE - By Quarter (Actual Exchange Rates) 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Insurance Operations Asia (1a) 495 515 513 602 507 489 US(1a) 358 439 405 371 432 439 UK 185 170 185 185 237 196 Group Total 1,038 1,124 1,103 1,158 1,176 1,124 Asia Insurance Operations(1a) Cambodia - - - 1 - 1 Hong Kong 107 107 121 152 128 130 Indonesia 112 128 108 129 86 98 Malaysia 46 53 52 57 43 48 Philippines 14 15 12 12 11 11 Singapore 80 90 87 104 87 85 Thailand 11 14 22 21 25 17 Vietnam 10 13 14 17 11 12 SE Asia Operations inc. Hong Kong 380 420 416 493 391 402 China(6) 27 20 21 15 38 19 Korea 30 32 23 28 26 22 Taiwan 19 26 28 44 24 30 India(4) 39 17 25 22 28 16 Total Asia Insurance Operations 495 515 513 602 507 489 US Insurance Operations(1a) Variable Annuities 240 298 271 270 317 297 Elite Access (Variable Annuity) 54 73 64 68 69 80 Fixed Annuities 14 16 14 11 12 15 Fixed Index Annuities 34 28 22 7 8 10 Life 1 - - 1 - - Wholesale 15 24 34 14 26 37 Total US Insurance Operations 358 439 405 371 432 439 UK & Europe Insurance Operations Direct and Partnership Annuities 8 7 7 6 5 5 Intermediated Annuities 15 14 12 8 7 3 Internal Vesting annuities 32 35 31 33 24 19 Total Individual Annuities 55 56 50 47 36 27 Corporate Pensions 53 40 45 35 40 39 On-shore Bonds 45 38 43 50 49 53 Other Products 32 36 32 40 39 46 Wholesale - - 15 13 73 31 Total UK & Europe Insurance Operations 185 170 185 185 237 196 Group Total 1,038 1,124 1,103 1,158 1,176 1,124 Schedule A(iv) - Total Insurance New Business APE - By Quarter (2013 at Constant Exchange Rates) Note: In schedule A(iv) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2013. Discrete quarters in 2014 are presented on actual exchange rates. 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Insurance Operations Asia(1b) 433 449 469 577 507 489 US(1b) 333 404 376 361 432 439 UK 185 170 185 185 237 196 Group Total 951 1,023 1,030 1,123 1,176 1,124 Asia Insurance Operations(1b) Cambodia - - - 1 - 1 Hong Kong 99 99 113 146 128 130 Indonesia 87 97 91 123 86 98 Malaysia 40 46 48 54 43 48 Philippines 12 13 11 12 11 11 Singapore 73 82 81 99 87 85 Thailand 9 12 19 20 25 17 Vietnam 9 12 13 17 11 12 SE Asia Operations inc. Hong Kong 329 361 376 472 391 402 China(6) 25 18 20 14 38 19 Korea 29 31 23 28 26 22 Taiwan 17 25 26 41 24 30 India(4) 33 14 24 22 28 16 Total Asia Insurance Operations 433 449 469 577 507 489 US Insurance Operations(1b) Variable Annuities 223 276 251 262 317 297 Elite Access (Variable Annuity) 50 67 60 65 69 80 Fixed Annuities 13 14 13 11 12 15 Fixed Index Annuities 32 25 20 8 8 10 Life 1 - - 1 - - Wholesale 14 22 32 14 26 37 Total US Insurance Operations 333 404 376 361 432 439 UK & Europe Insurance Operations Direct and Partnership Annuities 8 7 7 6 5 5 Intermediated Annuities 15 14 12 8 7 3 Internal Vesting annuities 32 35 31 33 24 19 Total Individual Annuities 55 56 50 47 36 27 Corporate Pensions 53 40 45 35 40 39 On-shore Bonds 45 38 43 50 49 53 Other Products 32 36 32 40 39 46 Wholesale - - 15 13 73 31 Total UK & Europe Insurance Operations 185 170 185 185 237 196 Group Total 951 1,023 1,030 1,123 1,176 1,124 Schedule A(v) - Total Insurance New Business APE - By Quarter (2014 and 2013 at Constant Exchange Rates) Note: In schedule A(v) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2013 and 2014 i.e the average exchange rate for the period ended 30 June 2014 is applied to each discrete quarter for 2013 and 2014. 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Insurance Operations Asia(1c) 433 449 469 577 505 491 US(1c) 333 404 376 361 428 443 UK 185 170 185 185 237 196 Group Total 951 1,023 1,030 1,123 1,170 1,130 Asia Insurance Operations(1c) Cambodia - - - 1 - 1 Hong Kong 99 99 113 146 128 130 Indonesia 87 97 91 123 86 98 Malaysia 40 46 48 54 43 48 Philippines 12 13 11 12 11 11 Singapore 73 82 81 99 86 86 Thailand 9 12 19 20 25 17 Vietnam 9 12 13 17 11 12 SE Asia Operations inc. Hong Kong 329 361 376 472 390 403 China(6) 25 18 20 14 37 20 Korea 29 31 23 28 26 22 Taiwan 17 25 26 41 24 30 India(4) 33 14 24 22 28 16 Total Asia Insurance Operations 433 449 469 577 505 491 US Insurance Operations(1c) Variable Annuities 223 276 251 262 314 300 Elite Access (Variable Annuity) 50 67 60 65 68 81 Fixed Annuities 13 14 13 11 12 15 Fixed Index Annuities 32 25 20 8 8 10 Life 1 - - 1 - - Wholesale 14 22 32 14 26 37 Total US Insurance Operations 333 404 376 361 428 443 UK & Europe Insurance Operations Direct and Partnership Annuities 8 7 7 6 5 5 Intermediated Annuities 15 14 12 8 7 3 Internal Vesting annuities 32 35 31 33 24 19 Total Individual Annuities 55 56 50 47 36 27 Corporate Pensions 53 40 45 35 40 39 On-shore Bonds 45 38 43 50 49 53 Other Products 32 36 32 40 39 46 Wholesale - - 15 13 73 31 Total UK & Europe Insurance Operations 185 170 185 185 237 196 Group Total 951 1,023 1,030 1,123 1,170 1,130 Schedule A(vi) - Investment Operations - By Quarter (Actual Exchange Rates) 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Investment Operations Opening FUM 129,498 138,926 137,407 142,820 143,916 147,914 Net Flows:(8) 3,502 2,344 5,093 126 2,571 4,123 - Gross Inflows 13,409 14,561 13,528 11,006 12,146 14,045 - Redemptions (9,907) (12,217) (8,435) (10,880) (9,575) (9,922) Other Movements 5,926 (3,863) 320 970 1,427 1,812 Total Group Investment Operations(10) 138,926 137,407 142,820 143,916 147,914 153,849 M&G Retail Opening FUM 54,879 61,427 62,655 64,504 67,202 68,981 Net Flows: 2,446 2,308 1,132 1,456 1,291 2,493 - Gross Inflows 7,213 8,138 5,919 6,789 7,305 7,468 - Redemptions (4,767) (5,830) (4,787) (5,333) (6,014) (4,975) Other Movements 4,102 (1,080) 717 1,242 488 467 Closing FUM 61,427 62,655 64,504 67,202 68,981 71,941 Comprising amounts for: UK 41,194 39,953 40,955 42,016 42,199 42,392 Europe (excluding UK) 18,696 21,198 22,064 23,699 25,244 27,927 South Africa 1,537 1,504 1,485 1,487 1,538 1,622 61,427 62,655 64,504 67,202 68,981 71,941 Institutional(3) Opening FUM 56,989 57,745 55,484 59,810 58,787 59,736 Net Flows: (15) (899) 3,928 (866) 152 275 - Gross Inflows 2,656 2,591 5,364 2,163 1,655 2,894 - Redemptions (2,671) (3,490) (1,436) (3,029) (1,503) (2,619) Other Movements 771 (1,362) 398 (157) 797 819 Closing FUM 57,745 55,484 59,810 58,787 59,736 60,830 Total M&G Investment Operations 119,172 118,139 124,314 125,989 128,717 132,771 PPM South Africa FUM included in Total M&G 4,701 4,509 4,633 4,513 4,720 4,815 Eastspring - excluding MMF(8) Equity/Bond/Other(7) Opening FUM 15,457 17,206 16,756 16,133 16,109 16,753 Net Flows: 795 838 65 118 540 1,063 - Gross Inflows 3,122 3,596 2,214 1,982 2,546 3,285 - Redemptions (2,327) (2,758) (2,149) (1,864) (2,006) (2,222) Other Movements 954 (1,288) (688) (142) 104 443 Closing FUM(5) 17,206 16,756 16,133 16,109 16,753 18,259 Third Party Institutional Mandates Opening FUM 2,173 2,548 2,512 2,373 1,818 2,444 Net Flows: 276 97 (32) (582) 588 292 - Gross Inflows 418 236 31 72 640 398 - Redemptions (142) (139) (63) (654) (52) (106) Other Movements 99 (133) (107) 27 38 83 Closing FUM(5) 2,548 2,512 2,373 1,818 2,444 2,819 Total Eastspring Investment Operations 19,754 19,268 18,506 17,927 19,197 21,078 US Curian - FUM(5) (9) 6,315 6,466 6,371 6,601 6,781 6,948 Schedule A(vii) - Total Insurance New Business Profit (Actual Exchange Rates) 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 YTD YTD YTD YTD YTD YTD £m £m £m £m £m £m Post-tax analysis Post-tax new business profit(1a) Total Asia Insurance Operations 237 502 767 1,139 243 494 Total US Insurance Operations 125 311 492 706 195 376 Total UK & Europe Insurance Operations 48 100 163 237 91 145 Group Total 410 913 1,422 2,082 529 1,015 Annual Equivalent(1a) (2) Total Asia Insurance Operations 495 1,010 1,523 2,125 507 996 Total US Insurance Operations 358 797 1,202 1,573 432 871 Total UK & Europe Insurance Operations 185 355 540 725 237 433 Group Total 1,038 2,162 3,265 4,423 1,176 2,300 Post-tax new business margin (NBP as % of APE) Total Asia Insurance Operations 48% 50% 50% 54% 48% 50% Total US Insurance Operations 35% 39% 41% 45% 45% 43% Total UK & Europe Insurance Operations 26% 28% 30% 33% 38% 33% Group Total 39% 42% 44% 47% 45% 44% PVNBP(1a) (2) Total Asia Insurance Operations 2,734 5,524 8,206 11,375 2,690 5,378 Total US Insurance Operations 3,581 7,957 12,006 15,723 4,323 8,703 Total UK & Europe Insurance Operations 1,540 2,943 4,398 5,978 2,072 3,741 Group Total 7,855 16,424 24,610 33,076 9,085 17,822 Post-tax new business margin (NBP as % of PVNBP) Total Asia Insurance Operations 8.7% 9.1% 9.3% 10.0% 9.0% 9.2% Total US Insurance Operations 3.5% 3.9% 4.1% 4.5% 4.5% 4.3% Total UK & Europe Insurance Operations 3.1% 3.4% 3.7% 4.0% 4.4% 3.9% Group Total 5.2% 5.6% 5.8% 6.3% 5.8% 5.7% Schedule A(viii) - Total Insurance New Business Profit (2013 at Constant Exchange Rates) Note: In schedule A(viii) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2013. The year-to-date amounts for 2014 are presented on actual exchange rates. 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 YTD YTD YTD YTD YTD YTD £m £m £m £m £m £m Post-tax analysis Post-tax new business profit(1b) Total Asia Insurance Operations 203 429 672 1,023 243 494 Total US Insurance Operations 116 288 455 661 195 376 Total UK & Europe Insurance Operations 48 100 163 237 91 145 Group Total 367 817 1,290 1,921 529 1,015 Annual Equivalent(1b) (2) Total Asia Insurance Operations 433 882 1,351 1,928 507 996 Total US Insurance Operations 333 737 1,113 1,474 432 871 Total UK & Europe Insurance Operations 185 355 540 725 237 433 Group Total 951 1,974 3,004 4,127 1,176 2,300 Post-tax new business margin (NBP as % of APE) Total Asia Insurance Operations 47% 49% 50% 53% 48% 50% Total US Insurance Operations 35% 39% 41% 45% 45% 43% Total UK & Europe Insurance Operations 26% 28% 30% 33% 38% 33% Group Total 39% 41% 43% 47% 45% 44% PVNBP(1b) (2) Total Asia Insurance Operations 2,410 4,866 7,337 10,381 2,690 5,378 Total US Insurance Operations 3,330 7,363 11,121 14,741 4,323 8,703 Total UK & Europe Insurance Operations 1,540 2,943 4,398 5,978 2,072 3,741 Group Total 7,280 15,172 22,856 31,100 9,085 17,822 Post-tax new business margin (NBP as % of PVNBP) Total Asia Insurance Operations 8.4% 8.8% 9.2% 9.9% 9.0% 9.2% Total US Insurance Operations 3.5% 3.9% 4.1% 4.5% 4.5% 4.3% Total UK & Europe Insurance Operations 3.1% 3.4% 3.7% 4.0% 4.4% 3.9% Group Total 5.0% 5.4% 5.6% 6.2% 5.8% 5.7% Schedule A(ix) - Total Insurance New Business Profit (2014 and 2013 at Constant Exchange Rates) Note: In schedule A(ix) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2013 and 2014, i.e the average exchange rate for the period ended 30 June 2014 is applied to each period for 2013 and 2014. 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 YTD YTD YTD YTD YTD YTD £m £m £m £m £m £m Post-tax analysis New business profit(1c) Total Asia Insurance Operations 203 429 672 1,023 242 494 Total US Insurance Operations 116 288 455 661 193 376 Total UK & Europe Insurance Operations 48 100 163 237 91 145 Group Total 367 817 1,290 1,921 526 1,015 Annual Equivalent(1c) (2) Total Asia Insurance Operations 433 882 1,351 1,928 505 996 Total US Insurance Operations 333 737 1,113 1,474 428 871 Total UK & Europe Insurance Operations 185 355 540 725 237 433 Group Total 951 1,974 3,004 4,127 1,170 2,300 New business margin (NBP as % of APE) Total Asia Insurance Operations 47% 49% 50% 53% 48% 50% Total US Insurance Operations 35% 39% 41% 45% 45% 43% Total UK & Europe Insurance Operations 26% 28% 30% 33% 38% 33% Group Total 39% 41% 43% 47% 45% 44% PVNBP(1c) (2) Total Asia Insurance Operations 2,410 4,866 7,337 10,381 2,680 5,378 Total US Insurance Operations 3,330 7,363 11,121 14,741 4,287 8,703 Total UK & Europe Insurance Operations 1,540 2,943 4,398 5,978 2,072 3,741 Group Total 7,280 15,172 22,856 31,100 9,039 17,822 New business margin (NBP as % of PVNBP) Total Asia Insurance Operations 8.4% 8.8% 9.2% 9.9% 9.0% 9.2% Total US Insurance Operations 3.5% 3.9% 4.1% 4.5% 4.5% 4.3% Total UK & Europe Insurance Operations 3.1% 3.4% 3.7% 4.0% 4.4% 3.9% Group Total 5.0% 5.4% 5.6% 6.2% 5.8% 5.7% B Foreign currency source of key metrics The tables below show the Group's key free surplus, IFRS and EEV metrics analysis by contribution by currency group: Free surplus and IFRS half year 2014 results Underlying free surplus generated2 Pre-tax Operating profit3,4,5 Shareholders' funds3,4,5 , % % % US$ linked1 11 17 13 Other Asia currencies 14 17 18 Total Asia 25 34 31 UK sterling3,4 38 21 50 US$ 4 37 45 19 Total 100 100 100 EEV half year 2014 results Post-tax New Business profits Post-tax Operating Profit3,4,5 Shareholders' funds3,4,5 % % % US$ linked1 30 27 28 Other Asia currencies 19 18 15 Total Asia 49 45 43 UK sterling3,4 14 15 37 US$4 37 40 20 Total 100 100 100 1US$ linked - comprising the Hong Kong and Vietnam operations where the currencies are pegged to the US dollar and the Malaysia and Singapore operations where the currencies are managed against a basket of currencies including the US dollar. 2Underlying free surplus generated comprises long-term business (net of investment in new business), asset management and other businesses. 3Includes long-term, asset management business and other businesses. 4For operating profit and shareholders' funds UK sterling includes amounts in respect of central operations as well as UK insurance operations and M&G. 5For shareholders' funds, the US$ grouping includes US$ denominated core structural borrowings. Sterling operating profits include all interest payable as sterling denominated, reflecting interest rate currency swaps in place. This information is provided by RNS The company news service from the London Stock Exchange END IR EANPFFDELEFF