Prudential PLC — Interim / Quarterly Report 2015

Aug 11, 2015

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RNS Number : 6430V Prudential PLC 11 August 2015  European Embedded Value (EEV) basis results Post-tax operating profit based on longer-term investment returns Results analysis by business area 2015 £m 2014 £m Half year Half year Full year Note note (iii) note (iii) Asia operations New business 3 664 494 1,162 Business in force 4 410 339 739 Long-term business 1,074 833 1,901 Eastspring Investments 50 36 78 Development expenses (2) (1) (1) Total 1,122 868 1,978 US operations New business 3 371 376 694 Business in force 4 441 401 834 Long-term business 812 777 1,528 Broker-dealer and asset management 8 (5) 6 Total 820 772 1,534 UK operations New business 3 155 139 259 Business in force 4 256 241 476 Long-term business 411 380 735 General insurance commission 14 9 19 Total UK insurance operations 425 389 754 M&G 203 182 353 Prudential Capital 6 18 33 Total 634 589 1,140 Other income and expenditurenote (i) (275) (280) (531) Solvency II and restructuring costsnote (ii) (23) (14) (36) Results of the sold PruHealth and PruProtect businesses - 8 11 Operating profit based on longer-term investment returns 2,278 1,943 4,096 Analysed as profits (losses) from: New business 3 1,190 1,009 2,115 Business in force 4 1,107 981 2,049 Long-term business 2,297 1,990 4,164 Asset management 267 231 470 Other results (286) (278) (538) Total 2,278 1,943 4,096 * In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Notes (i) EEV basis other income and expenditure represents the post-tax IFRS basis result less the unwind of expected margins on the internal management of the assets of the covered business (as explained in note 12(a)(vii)) and an adjustment for the shareholders' share of the pension costs attributable to the with-profits business. (ii) Solvency II and restructuring costs comprise the net of tax charge recognised on an IFRS basis and the additional amount recognised on the EEV basis for the shareholders' share incurred by the PAC with-profits fund. (iii) The comparative results have been prepared using previously reported average exchange rates for the period. Basic earnings per share (in pence) 2015 £m 2014 £m Half year Half year Full year Based on post-tax operating profit including longer-term investment returns 89.3p 76.3p 160.7p Based on post-tax profit 82.9p 75.9p 170.4p Average number of shares (millions) 2,552 2,547 2,549 Post-tax summarised consolidated income statement 2015 £m 2014 £m Note Half year Half year Full year Asia operations 1,122 868 1,978 US operations 820 772 1,534 UK operations 634 589 1,140 Other income and expenditure (275) (280) (531) Solvency II and restructuring costs (23) (14) (36) Results of the sold PruHealth and PruProtect businesses - 8 11 Operating profit based on longer-term investment returns 2,278 1,943 4,096 Short-term fluctuations in investment returns 5 (367) 432 763 Effect of changes in economic assumptions 6 80 (368) (369) Mark to market value movements on core borrowings 124 (66) (187) Gain on sale of PruHealth and PruProtect 14 - - 44 Costs of domestication of Hong Kong branch - (7) (4) Total non-operating (loss) profit (163) (9) 247 Profit for the period attributable to equity holders of the Company 2,115 1,934 4,343 * The presentation of the operating results for UK operations for half year and full year 2014 has been adjusted to show the results of the sold PruHealth and PruProtect businesses separately (see note 14). Movement in shareholders' equity 2015 £m 2014 £m Note Half year Half year Full year Profit for the period attributable to equity shareholders 2,115 1,934 4,343 Items taken directly to equity: Exchange movements on foreign operations and net investment hedges (554) (377) 737 Dividends (659) (610) (895) New share capital subscribed 2 8 13 Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes (20) 10 (11) Reserve movements in respect of share-based payments 66 52 106 Treasury shares movements (29) (40) (54) Mark to market value movements on Jackson assets backing surplus and required capital (8) 71 77 Net increase in shareholders' equity 9 913 1,048 4,316 Shareholders' equity at beginning of period: As previously reported 9 29,161 24,856 24,856 Effect of the domestication of Hong Kong branch on 1 January 2014 - (11) (11) 29,161 24,845 24,845 Shareholders' equity at end of period 9 30,074 25,893 29,161 * On 1 January 2014, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. The overall 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. 30 Jun 2015 £m 30 Jun 2014 £m 31 Dec 2014 £m Comprising: Long-term business operations Asset manage-ment and other operations Total Long-term business operations Asset manage- ment and other operations Total Long-term business operations Asset manage- ment and other operations Total note 9 Asia operations 12,838 284 13,122 10,997 253 11,250 12,545 274 12,819 US operations 8,457 165 8,622 7,155 141 7,296 8,379 157 8,536 UK insurance operations 8,708 33 8,741 7,654 9 7,663 8,433 19 8,452 M&G and Prudential Capital - 1,723 1,723 - 1,659 1,659 - 1,646 1,646 Other operations - (2,134) (2,134) - (1,975) (1,975) - (2,292) (2,292) Shareholders' equity at end of period 30,003 71 30,074 25,806 87 25,893 29,357 (196) 29,161 Representing: Net assets excluding acquired goodwill and holding company net borrowings 29,772 1,635 31,407 25,578 1,553 27,131 29,124 1,542 30,666 Acquired goodwill 231 1,230 1,461 228 1,230 1,458 233 1,230 1,463 Holding company net borrowings at market value note 7 - (2,794) (2,794) - (2,696) (2,696) (2,968) (2,968) 30,003 71 30,074 25,806 87 25,893 29,357 (196) 29,161 Summary statement of financial position 2015 £m 2014 £m Note 30 Jun 30 Jun 31 Dec Total assets less liabilities, before deduction for insurance funds 331,233 300,630 326,633 Less insurance funds: Policyholder liabilities (net of reinsurers' share) and unallocated surplus of with-profits funds (319,129) (290,005) (314,822) Less shareholders' accrued interest in the long-term business 9 17,970 15,268 17,350 (301,159) (274,737) (297,472) Total net assets 9 30,074 25,893 29,161 Share capital 128 128 128 Share premium 1,910 1,903 1,908 IFRS basis shareholders' reserves 10,066 8,594 9,775 Total IFRS basis shareholders' equity 9 12,104 10,625 11,811 Additional EEV basis retained profit 9 17,970 15,268 17,350 Total EEV basis shareholders' equity (excluding non-controlling interests) 9 30,074 25,893 29,161 * Including liabilities in respect of insurance products classified as investment contracts under IFRS 4. Net asset value per share 30 Jun 2015 30 Jun 2014 31 Dec 2014 Based on EEV basis shareholders' equity of £30,074 million (half year 2014: £25,893 million, full year 2014: £29,161 million) (in pence) 1,170p 1,009p 1,136p Number of issued shares at period end (millions) 2,571 2,566 2,568 Annualised return on embedded value 16% 16% 16% * 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. 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 directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. The EEV basis results of half year 2015 and half year 2014 are unaudited. Except for the change in presentation of the operating results for UK operations to show separately the contribution from the sold PruHealth and PruProtect businesses and the presentation of Prudential Capital as a separate segment, the full year 2014 results have been derived from the EEV basis results supplement to the Company's statutory accounts for 2014. The supplement included an unqualified audit report from the auditors. A detailed description of the EEV methodology and accounting presentation is provided in note 12. 2 Results analysis by business area The 2014 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2014 CER comparative results are translated at half year 2015 average exchange rates. Annual premium and contribution equivalents (APE) note15 Half year 2015 £m Half year 2014 £m % change Note AER CER AER CER Asia operations 1,366 996 1,042 37% 31% US operations 857 871 954 (2)% (10)% UK operations 510 419 419 22% 22% Total 3 2,733 2,286 2,415 20% 13% * In order to show the UK long-term business on a comparable basis, the half year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Post-tax operating profit Half year 2015 £m Half year 2014 £m % change Note AER CER AER CER Asia operations New business 3 664 494 512 34% 30% Business in force 4 410 339 351 21% 17% Long-term business 1,074 833 863 29% 24% Eastspring investments 50 36 37 39% 35% Development costs (2) (1) (1) (100)% (100)% Total 1,122 868 899 29% 25% US operations New business 3 371 376 412 (1)% (10)% Business in force 4 441 401 439 10% 0% Long-term business 812 777 851 5% (5)% Broker-dealer and asset management 8 (5) (5) 260% 260% Total 820 772 846 6% (3)% UK operations New business 3 155 139 139 12% 12% Business in force 4 256 241 241 6% 6% Long-term business 411 380 380 8% 8% General insurance commission 14 9 9 56% 56% Total UK insurance operations 425 389 389 9% 9% M&G 203 182 182 12% 12% Prudential Capital 6 18 18 (67)% (67)% Total 634 589 589 8% 8% Other income and expenditure (275) (280) (280) 2% 2% Solvency II and restructuring costs (23) (14) (14) (64)% (64)% Results of the sold PruHealth and PruProtect businesses - 8 8 (100)% (100)% Operating profit based on longer-term investment returns 2,278 1,943 2,048 17% 11% Analysed as profits (losses) from: New business 3 1,190 1,009 1,063 18% 12% Business in force 4 1,107 981 1,031 13% 7% Total long-term business 2,297 1,990 2,094 15% 10% Asset management 267 231 232 16% 15% Other results (286) (278) (278) (3)% (3)% Operating profit based on longer-term investment returns 2,278 1,943 2,048 17% 11% * In order to show the UK long-term business on a comparable basis, the half year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Post-tax profit Half year 2015 £m Half year 2014 £m % change Note AER CER AER CER Operating profit based on longer-term investment returns 2,278 1,943 2,048 17% 11% Short-term fluctuations in investment returns 5 (367) 432 461 (185)% (180)% Effect of changes in economic assumptions 6 80 (368) (393) 122% 120% Other non-operating profit 124 (73) (74) 270% 268% Total non-operating profit (163) (9) (6) (1711)% (2617)% Profit for the period attributable to shareholders 2,115 1,934 2,042 9% 4% Basic earnings per share (in pence) Half year 2015 £m Half year 2014 £m % change AER CER AER CER Based on post-tax operating profit including longer-term investment returns 89.3 p 76.3 p 80.4 p 17% 11% Based on post-tax profit 82.9 p 75.9 p 80.2 p 9% 3% 3 Analysis of new business contribution (i) Group Summary Half year 2015 Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) New business contribution New business margin APE PVNBP £m £m £m % % note 15 note 15 note Asia operations(note ii) 1,366 7,340 664 49 9.0 US operations 857 8,574 371 43 4.3 UK insurance operations 510 4,524 155 30 3.4 Total 2,733 20,438 1,190 44 5.8 Half year 2014 Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) New business contribution New business margin APE PVNBP £m £m £m % % note 15 note 15 note Asia operations(note ii) 996 5,378 494 50 9.2 US operations 871 8,703 376 43 4.3 UK insurance operations 419 3,644 139 33 3.8 Total 2,286 17,725 1,009 44 5.7 Full year 2014 Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) New business contribution New business margin APE PVNBP £m £m £m % % note 15 note 15 Asia operations(note ii) 2,237 12,331 1,162 52 9.4 US operations 1,556 15,555 694 45 4.5 UK insurance operations 834 7,305 259 31 3.5 Total 4,627 35,191 2,115 46 6.0 * In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Note The increase in new business contribution of £181 million from £1,009 million for half year 2014 to £1,190 million for half year 2015 comprises an increase on a CER basis of £127 million and an increase of £54 million for foreign exchange effects. The increase of £127 million on the CER basis comprises a contribution of £145 million for higher sales volumes and the impact of pricing, product and other actions, offset by an adverse £(18) million effect of lower long-term interest rates (generated by the active basis of setting economic assumptions) (analysed as Asia £(7) million, US £(7) million and UK £(4) million). (ii) Asia operations - new business contribution by territory 2015 £m 2014 £m 2014 £m Half year AER Half year CER Half year AER Full year China 20 13 14 27 Hong Kong 322 152 167 405 India 9 5 5 12 Indonesia 127 136 135 296 Korea 4 8 8 11 Taiwan 13 13 14 29 Other 169 167 169 382 Total Asia operations 664 494 512 1,162 4 Operating profit from business in force (i) Group Summary Half year 2015 £m Asia operations US operations UK insurance operations Total note (ii) note (iii) note (iv) note Unwind of discount and other expected returns 411 236 245 892 Effect of changes in operating assumptions 1 - - 1 Experience variances and other items (2) 205 11 214 Total 410 441 256 1,107 Half year 2014 £m Asia operations US operations UK insurance operations Total note (ii) note (iii) note (iv) note 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 12 223 Total 339 401 241 981 Full year 2014 £m Asia operations US operations UK insurance operations Total note (ii) note (iii) note (iv) Unwind of discount and other expected returns 648 382 410 1,440 Effect of changes in operating assumptions 52 86 - 138 Experience variances and other items 39 366 66 471 Total 739 834 476 2,049 * In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Note The movement in operating profit from business in force of £126 million from £981 million for half year 2014 to £1,107 million for half year 2015 comprises: Half year 2015 £m Increase in unwind of discount and other expected returns: Effect of growth in opening value 147 Effect of changes in interest rates (31) Foreign exchange effects 27 143 Period-on-period change in effects of operating assumptions, experience variances and other items (17) Net increase in operating profit from business in force 126 (ii) Asia operations 2015 £m 2014 £m Half year Half year Full year Unwind of discount and other expected returnsnote (a) 411 328 648 Effect of changes in operating assumptions: Mortality and morbiditynote (b) - 1 27 Persistency and withdrawalsnote (c) 4 - (17) Expense (4) 1 (5) Othernote (d) 1 7 47 1 9 52 Experience variances and other items: Mortality and morbiditynote (e) 30 18 23 Persistency and withdrawalsnote (f) (31) (3) 44 Expensenote (g) (12) (19) (27) Other 11 6 (1) (2) 2 39 Total Asia operations 410 339 739 Notes (a) The increase in unwind of discount and other expected returns of £83 million from £328 million for half year 2014 to £411 million for half year 2015 comprises an £86 million effect for the increase in the opening in-force value, a £9 million increase for foreign exchange effects, partially offset by a £(12) million effect of lower interest rates. (b) The full year 2014 credit of £27 million for mortality and morbidity assumption changes reflected a number of offsetting items, including the effect of reduced projected mortality rates for Hong Kong. (c) The full year 2014 charge of £(17) million for persistency assumptions mainly reflected increased partial withdrawal assumptions on unit-linked business in Korea. (d) The full year 2014 credit of £47 million for other assumption changes reflected a number of offsetting items, including the effects of modelling improvements and those arising from asset allocation changes in Hong Kong. (e) The positive mortality and morbidity experience variance in half year 2015 of £30 million (half year 2014: £18 million; full year 2014: £23 million) mainly reflects better than expected experience in Indonesia and Hong Kong. The experience variance in full year 2014 was partially offset by higher claims in Malaysia on medical reimbursement products. (f) Persistency and withdrawals experience will fluctuate between periods depending on underlying market performance and other demographic trends. As in previous years, in half year 2015 the persistency variance comprised positive and negative contributions from our various operations, with positive persistency experience on health and protection products which was more than offset by negative experience on unit-linked products. The positive £44 million in full year 2014 principally reflected favourable experience across all product groups in Hong Kong. (g) The expense experience variance at half year 2015 is negative £(12) million (half year 2014: £(19) million; full year 2014: £(27) million). The variance arises in operations which are currently sub-scale (China, Malaysia Takaful and Taiwan) and from short-term overruns in India. (iii) US operations 2015 £m 2014 £m Half year Half year Full year Unwind of discount and other expected returnsnote (a) 236 192 382 Effect of changes in operating assumptions: Persistencynote (b) - - 55 Othernote (c) - - 31 - - 86 Experience variances and other items: Spread experience variancenote (d) 70 108 192 Amortisation of interest-related realised gains and lossesnote (e) 39 28 56 Othernote (f) 96 73 118 205 209 366 Total US operations 441 401 834 Notes (a) The increase in unwind of discount and other expected returns of £44 million from £192 million for half year 2014 to £236 million for half year 2015 comprises a £32 million effect for the underlying growth in the in-force book, an £18 million foreign currency translation effect, partially offset by a £(6) million impact of the 20 basis points reduction in US 10-year Treasury rates. (b) For full year 2014 the credit of £55 million for persistency assumption changes principally related to revised assumptions for variable annuity business. (c) The full year 2014 credit of £31 million for the effect of other assumption changes reflected a number of offsetting items including the capitalised effect of changes in projected policyholder variable annuity fees of £46 million which vary depending on the size and mix of variable annuity funds. (d) The spread assumption for Jackson is determined on a longer-term basis, net of provision for defaults (see note 13(ii)). The spread experience variance in half year 2015 is £70 million (half year 2014: £108 million; full year 2014: £192 million), principally reflecting the positive effect of transactions undertaken to more closely match the overall asset and liability duration, and is lower than prior period, driven by the lower interest rate environment. (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) Other experience variances of £96 million in half year 2015 (half year 2014: £73 million; full year 2014: £118 million) are principally driven by the effect of continued improvements in persistency experience of £68 million (half year 2014: £39 million; full year 2014: £59 million), mainly for variable annuity business and other favourable experience variances. (iv) UK insurance operations 2015 £m 2014 £m Half year Half year * Full year * Unwind of discount and other expected returnsnote (a) 245 229 410 Other itemsnote (b) 11 12 66 Total UK insurance operations 256 241 476 * In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Notes (a) The increase in unwind of discount and other expected returns of £16 million from half year 2014 of £229 million to £245 million at half year 2015 comprises an effect of £29 million reflecting the underlying growth in the in-force book, partially offset by a £(13) million negative effect of the 70 basis points reduction in gilt yields. (b) Other items of £11 million for half year 2015 (half year 2014: £12 million; full year 2014: £66 million) includes a charge of £(46) million in half year 2015 arising from a longevity reinsurance transaction, offset by the positive effects of rebalancing the investment portfolio backing annuity business (see note 12(b)(ii)), and other items. 5 Short-term fluctuations in investment returns Short-term fluctuations in investment returns included in profit for the period arise as follows: (i) Group Summary 2015 £m 2014 £m Half year Half year Full year Asianote (ii) (79) 245 439 USnote (iii) (271) 95 (166) UKnote (iv) (32) 112 583 Other operationsnote (v) 15 (20) (93) Total (367) 432 763 (ii) Asia operations The short-term fluctuations in investment returns for Asia operations comprise amounts in respect of: 2015 £m 2014 £m Half year Half year Full year Hong Kong (24) 121 178 Indonesia (27) 21 35 Singapore (46) 46 92 Taiwan (5) 21 23 Other 23 36 111 Total Asia operations (79) 245 439 These fluctuations mainly arise from increases in half year 2015 and decreases in 2014 in long-term interest rates as they affect the value of bonds in the portfolios backing liabilities and related capital. The £23 million credit for other operations in half year 2015 principally arises in China for unrealised gains on equities due to strong market performance in the first half of the year. The £111 million credit in full year 2014 for other operations principally arose in Thailand of £49 million from unrealised gains on bonds. (iii) US operations The short-term fluctuations in investment returns for US operations comprise: 2015 £m 2014 £m Half year Half year Full year Investment return related experience on fixed income securities note (a) (25) (2) 31 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 and other itemsnote (b) (246) 97 (197) Total US operations (271) 95 (166) Notes (a) The (charge) credit relating to fixed income securities comprises the following elements: - the excess of actual realised gains and losses over the amortisation of interest-related realised gains and losses recorded in the profit and loss account; - favourable credit experience (versus the longer-term assumption); and - the impact of changes in the asset portfolio. (b) This item reflects the net impact of: - changes 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, and other items. (iv) UK insurance operations The short-term fluctuations in investment returns for UK insurance operations comprise: 2015 £m 2014 £m Half year Half year Full year Shareholder-backed annuitynote (a) (90) 35 310 With-profits, unit-linked and othernote (b) 58 77 273 (32) 112 583 Notes (a) Short-term fluctuations in investment returns for shareholder-backed annuity business comprise: - (losses) gains on surplus assets compared to the expected long-term rate of return reflecting (increases) reductions in corporate bond and gilt yields; - the difference between actual and expected default experience; and - the effect of mismatching for assets and liabilities of different durations and other short-term fluctuations in investment returns. (b) The £58 million fluctuation in half year 2015 for with-profits, unit-linked and other business includes an overall 3 per cent pre-tax return on the with-profits fund (including unallocated surplus), which was marginally higher than the assumed return (half year 2014: total return of 4 per cent compared to assumed rate of 3 per cent), and a beneficial impact of an increase in future unit-linked fee income arising from market movements. For full year 2014 the total return on the with-profits fund was 9.5 per cent compared to an assumed rate of 5 per cent, together with the effect of a partial hedge of future shareholder transfers expected to emerge from the UK's with-profits sub-fund entered into to mitigate the effect of declines in the UK equity market. (v) Other operations Short-term fluctuations in investment returns of other operations were £15 million (half year 2014: £(20) million; full year 2014: £(93) million) include unrealised value movements on investments and foreign exchange items. 6 Effect of changes in economic assumptions The effects of changes in economic assumptions for in-force business included in profit for the period arise as follows: (i) Group Summary 2015 £m 2014 £m Half year Half year Full year Asia operationsnote (ii) 14 (145) (269) US operationsnote (iii) 36 (158) (77) UK insurance operationsnote (iv) 30 (65) (23) Total 80 (368) (369) (ii) Asia operations The effect of changes in economic assumptions for Asia operations comprises: 2015 £m 2014 £m Half year Half year Full year Hong Kong 103 (73) (121) Malaysia (19) (31) 11 Indonesia (36) 12 25 Singapore (24) (11) (42) Taiwan 2 (29) (21) Other (12) (13) (121) Total Asia operationsnote 14 (145) (269) Note The overall positive effect of £14 million in half year 2015 reflects an increase in fund earned rates for participating business in Hong Kong, partially offset by the negative impact of valuing future health and protection profits at higher discount rates in Indonesia, Malaysia and Singapore, both driven by the increase in long-term interest rates. For full year 2014, other operations include a negative effect on non-participating business in Korea of £(38) million and Thailand of £(34) million for a reduction in fund earned rates. (iii) US operations The effect of changes in economic assumptions for US operations comprises: 2015 £m 2014 £m Half year Half year Full year Variable annuity business 81 (229) (228) Fixed annuity and other general account business (45) 71 151 Totalnote 36 (158) (77) Note These effects principally reflect the movement in 10-year Treasury rates in the reporting period, as shown in note 13(ii). For variable annuity business the net credit (charge) principally reflects the consequent increase (decrease) in the assumed future rate of return on the underlying separate account assets, resulting in higher (lower) projected fee income and a decrease (increase) in projected benefit costs. There is also a partial offset arising from the (increase) decrease in the risk discount rate. For fixed annuity and other general account business the impact reflects the effect on the present value of future projected spread income of applying a (higher) lower discount rate on the opening value of the in-force book. (iv) UK insurance operations The effect of changes in economic assumptions for UK insurance operations comprises the following: 2015 £m 2014 £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) (113) 73 352 With-profits and other businessnote (b) 143 (138) (375) Total 30 (65) (23) Notes (a) For shareholder-backed annuity business the overall negative (2014: positive) effect reflects the effect on the present value of projected spread income arising from the increase (2014: reduction) in the risk discount rates as shown in note 13 (iii). (b) For with-profits and other business the total credit in half year 2015 of £143 million (half year 2014: £(138) million; full year 2014: £(375) million) includes the net effect of the increase (2014: reduction) in fund earned rates and risk discount rates (as shown in note 13(iii)), arising from the 30 basis points increase in the 15-year government bond rate (half year 2014: 30 basis points decrease; full year 2014: 130 basis points decrease) as well as from changes in the composition of the asset portfolio which took place in the second half of 2014. 7 Net core structural borrowings of shareholder-financed operations 2015 £m 2014 £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 (2,094) - (2,094) (1,902) - (1,902) (1,480) - (1,480) Core structural borrowings - central funds 4,446 442 4,888 4,146 452 4,598 3,869 579 4,448 Holding company net borrowings 2,352 442 2,794 2,244 452 2,696 2,389 579 2,968 Core structural borrowings - Prudential Capital 275 - 275 275 - 275 275 - 275 Core structural borrowings - Jackson 159 51 210 146 41 187 160 42 202 Net core structural borrowings of shareholder- financed operations 2,786 493 3,279 2,665 493 3,158 2,824 621 3,445 * Including central finance subsidiaries. In June 2015, the Company issued core structural borrowings of £600 million 5.00 per cent Tier 2 subordinated notes due 2055. The proceeds, net of discount adjustment and costs, were £590 million. 8 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 2014 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2014 CER comparative results are translated at half year 2015 average exchange rates. Half year 2015 £m Half year 2014 £m % change AER CER AER CER Asia operations Underlying free surplus generated from in-force life business 519 433 447 20% 16% Investment in new businessnotes (ii)(a), (ii)(g) (213) (167) (176) (28)% (21)% Long-term business 306 266 271 15% 13% Eastspring Investmentsnote (ii)(b) 50 36 37 39% 35% Total 356 302 308 18% 16% US operations Underlying free surplus generated from in-force life business 700 634 694 10% 1% Investment in new businessnote (ii)(a) (164) (173) (189) 5% 13% Long-term business 536 461 505 16% 6% Broker-dealer and asset managementnote (ii)(b) 8 (5) (5) 260% 260% Total 544 456 500 19% 9% UK insurance operations Underlying free surplus generated from in-force life business 352 289 289 22% 22% Investment in new businessnote (ii)(a) (57) (36) (36) (58)% (58)% Long-term business 295 253 253 17% 17% General insurance commissionnote (ii)(b) 14 9 9 56% 56% Total 309 262 262 18% 18% M&Gnote (ii)(b) 203 182 182 12% 12% Prudential Capital note (ii)(b) 6 18 18 (67)% (67)% Results of the sold PruHealth and PruProtect businesses - (1) (1) 100% 100% Underlying free surplus generated 1,418 1,219 1,269 16% 12% Representing: Long-term business: Expected in-force cashflows (including expected return on net assets) 1,418 1,169 1,226 21% 16% Effects of changes in operating assumptions, operating experience variances and other operating items 153 187 204 (18)% (25)% Underlying free surplus generated from in-force life business 1,571 1,356 1,430 16% 10% Investment in new businessnotes (ii)(a), (ii)(g) (434) (376) (401) (15)% (8)% Total long-term business 1,137 980 1,029 16% 10% Asset management and general insurance commission note (ii)(b) 281 240 241 17% 17% Results of the sold PruHealth and PruProtect businesses - (1) (1) 100% 100% Underlying free surplus generated 1,418 1,219 1,269 16% 12% * In order to show the UK long-term business on a comparable basis, the half year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). (ii) Movement in free surplus Half year 2015 £m Half year 2014 £m Long-term business and asset management operations 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 note 10 note (b) Underlying movement: Investment in new businessnotes (a), (g) (434) - (434) (376) Business in force: Expected in-force cash flows (including expected return on net assets) 1,418 281 1,699 1,409 Effects of changes in operating assumptions, operating experience variances and other operating items 153 - 153 187 Results of the sold PruHealth and PruProtect businesses - - - (1) 1,137 281 1,418 1,219 Disposal of Japan Life businessnote (h) 23 - 23 - Other non-operating itemsnote (c) (141) (4) (145) (22) 1,019 277 1,296 1,197 Net cash flows to parent companynote (d) (910) (158) (1,068) (974) Exchange movements, timing differences and other itemsnote (e) 27 (10) 17 (5) Net movement in free surplus 136 109 245 218 Balance at 1 January: As previously reported 4,193 866 5,059 4,003 Effect of domestication of Hong Kong branch on 1 January 2014note (i) - - - (35) Balance at 30 Junenote (g) 4,329 975 5,304 4,186 Representing: Asia operations 1,382 223 1,605 1,387 US operations 1,333 149 1,482 1,163 UK operations 1,614 603 2,217 1,636 4,329 975 5,304 4,186 Balance at beginning of period Asia operations 1,347 213 1,560 1,379 US operations 1,416 141 1,557 1,074 UK operations 1,430 512 1,942 1,550 4,193 866 5,059 4,003 * In order to show the UK long-term business on a comparable basis, the half year 2014 comparative underlying movement in free surplus excludes the contribution from the sold PruHealth and PruProtect businesses (see note 14). Notes (a) Free surplus invested in new business represents amounts set aside for required capital and acquisition costs. (b) For the purposes of this analysis, free surplus for asset management operations and the UK general insurance commission is taken to be IFRS basis post-tax earnings and shareholders' equity. (c) Non-operating items are principally short-term fluctuations in investment returns and the effect of changes in economic assumptions for long-term business operations. (d) 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. (e) Exchange movements, timing differences and other items represent: Half year 2015 £m Long-term business Asset management and UK general insurance commission Total Exchange movementsnote 10 (64) (7) (71) Mark to market value movements on Jackson assets backing surplus and required capitalnote 9 (8) - (8) Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes 1 (8) (7) Othernote (f) 98 5 103 27 (10) 17 (f) Other primarily reflects the effect of timing differences arising on statutory transfers, intra-group loans and contingent loan repayments as shown in note 10(i), and other non-cash items. (g) Investment in new business includes the annual amortisation charge of 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 Asia life entities is £284 million representing unamortised amounts incurred to secure exclusive distribution rights through bancassurance partners. These amounts exclude £870 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. (h) The credit of £23 million in free surplus in half year 2015 reflects the release of required capital and transfer of value of in-force business on the completion of the sale of the Japan Life business (see note 14). (i) On 1 January 2014, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. The half year 2014 EEV basis results included opening adjustments arising 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 arising from the newly established subsidiaries with an overall effect of £(35) million. 9 Reconciliation of movement in shareholders' equity Half year 2015 £m Long-term business operations Other operations Group Total Asia operations US operations UK insurance operations Total long-term business operations note (i) note (i) Operating profit (based on longer-term investment returns) Long-term business: New businessnote 3 664 371 155 1,190 - 1,190 Business in forcenote 4 410 441 256 1,107 - 1,107 1,074 812 411 2,297 - 2,297 Asset management - - - - 267 267 Other results (2) - (13) (15) (271) (286) Operating profit based on longer-term investment returns 1,072 812 398 2,282 (4) 2,278 Total non-operating (loss) profit (65) (245) (2) (312) 149 (163) Profit for the period 1,007 567 396 1,970 145 2,115 Other items taken directly to equity Exchange movements on foreign operations and net investment hedges (467) (77) - (544) (10) (554) Intra-group dividends (including statutory transfers)note (ii) (245) (400) (107) (752) 752 - Investment in operationsnote (iii) 4 - - 4 (4) - External dividends - - - - (659) (659) Other movements note (iv) (4) (4) (14) (22) 41 19 Mark to market value movements on Jackson assets backing surplus and required capital - (8) - (8) - (8) Net increase in shareholders' equity 295 78 275 648 265 913 Shareholders' equity at beginning of period 12,312 8,379 8,433 29,124 37 29,161 Shareholders' equity at end of periodnote (i) 12,607 8,457 8,708 29,772 302 30,074 Representing: Statutory IFRS basis shareholders' equity: Net assets 3,389 4,004 3,939 11,332 (689) 10,643 Goodwill - - - - 1,461 1,461 Total IFRS basis shareholders' equity 3,389 4,004 3,939 11,332 772 12,104 Additional retained profit (loss) on an EEV basisnote (v) 9,218 4,453 4,769 18,440 (470) 17,970 EEV basis shareholders' equity 12,607 8,457 8,708 29,772 302 30,074 Balance at 31 December 2014 Statutory IFRS basis shareholders' equity: Net assets 3,315 4,067 3,785 11,167 (819) 10,348 Goodwill - - - - 1,463 1,463 Total IFRS basis shareholders' equity 3,315 4,067 3,785 11,167 644 11,811 Additional retained profit (loss) on an EEV basisnote (v) 8,997 4,312 4,648 17,957 (607) 17,350 EEV basis shareholders' equity 12,312 8,379 8,433 29,124 37 29,161 Notes (i) For the purposes of the table above, goodwill of £231 million (half year 2014: £228 million; full year 2014: £233 million) 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 8 for these items are as per the holding company cash flow at transaction rates. The difference primarily relates to timing differences arising on statutory transfers, intra-group loans, and other non-cash items. (iii) Investment in operations reflects increases in share capital. (iv) Other movements includes a charge of £(20) million (half year 2014: credit of £10 million; full year 2014: charge of £(11) million) for the shareholders' share of actuarial and other gains and losses on the defined benefit schemes. (v) 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 £(442) million (half year 2014: £(452) million; full year 2014: £(579) million), as shown in note 7. 10 Reconciliation of movement in net worth and value of in-force for long-term business Half year 2015 £m Total Value of long-term Free Required Total net in-force business surplus capital worth business operations note 8 note (iii) Group Shareholders' equity at beginning of period 4,193 4,556 8,749 20,375 29,124 New business contributionnote (ii) (434) 265 (169) 1,359 1,190 Existing business - transfer to net worth 1,366 (183) 1,183 (1,183) - Expected return on existing businessnote 4 52 68 120 772 892 Changes in operating assumptions and experience variances note 4 168 12 180 35 215 Development expenses, solvency II and restructuring costs (15) - (15) - (15) Post-tax operating profit based on longer-term investment returns 1,137 162 1,299 983 2,282 Disposal of Japan Life business note 14 23 (48) (25) 25 - Other non-operating items (141) (170) (311) (1) (312) Profit from long-term business 1,019 (56) 963 1,007 1,970 Exchange movements on foreign operations and net investment hedges (64) (60) (124) (420) (544) Intra-group dividends (including statutory transfers) and investment in operationsnote (i) (789) - (789) 41 (748) Other movements (30) - (30) - (30) Shareholders' equity at end of period 4,329 4,440 8,769 21,003 29,772 Representing: Asia operations Shareholders' equity at beginning of period 1,347 1,327 2,674 9,638 12,312 New business contributionnote (ii) (213) 71 (142) 806 664 Existing business - transfer to net worth 515 (36) 479 (479) - Expected return on existing businessnote 4 16 24 40 371 411 Changes in operating assumptions and experience variancesnote 4 (10) (12) (22) 21 (1) Development expenses (2) - (2) - (2) Post-tax operating profit based on longer-term investment returns 306 47 353 719 1,072 Disposal of Japan Life business note 14 23 (48) (25) 25 - Other non-operating items 4 (43) (39) (26) (65) Profit from long-term business 333 (44) 289 718 1,007 Exchange movements on foreign operations and net investment hedges (53) (46) (99) (368) (467) Intra-group dividends and investment in operations (241) - (241) - (241) Other movements (4) - (4) - (4) Shareholders' equity at end of period 1,382 1,237 2,619 9,988 12,607 US operations Shareholders' equity at beginning of period 1,416 1,710 3,126 5,253 8,379 New business contributionnote (ii) (164) 138 (26) 397 371 Existing business - transfer to net worth 556 (102) 454 (454) - Expected return on existing businessnote 4 21 25 46 190 236 Changes in operating assumptions and experience variancesnote 4 123 10 133 72 205 Post-tax operating profit based on longer-term investment returns 536 71 607 205 812 Other non-operating items (196) (82) (278) 33 (245) Profit from long-term business 340 (11) 329 238 567 Exchange movements on foreign operations and net investment hedges (11) (14) (25) (52) (77) Intra-group dividends (400) - (400) - (400) Other movements (12) - (12) - (12) Shareholders' equity at end of period 1,333 1,685 3,018 5,439 8,457 UK insurance operations Shareholders' equity at beginning of period 1,430 1,519 2,949 5,484 8,433 New business contributionnote (ii) (57) 56 (1) 156 155 Existing business - transfer to net worth 295 (45) 250 (250) - Expected return on existing businessnote 4 15 19 34 211 245 Changes in operating assumptions and experience variancesnote 4 55 14 69 (58) 11 Solvency II and restructuring costs (13) - (13) - (13) Post-tax operating profit based on longer-term investment returns 295 44 339 59 398 Other non-operating items 51 (45) 6 (8) (2) Profit from long-term business 346 (1) 345 51 396 Intra-group dividends (including statutory transfers)note (i) (148) - (148) 41 (107) Other movements (14) - (14) - (14) Shareholders' equity at end of period 1,614 1,518 3,132 5,576 8,708 Notes (i) For UK insurance operations, the amounts shown for intra-group dividends (including statutory transfers) in free surplus of £(148) million and in the value of in-force of £41 million include the impact of intragroup contingent loan repayments during the period. 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) New business contribution per £1 million of free surplus invested: Half year 2015 £m Asia operations US operations UK insurance operations Total long-term business operations New business contributionnote 3 664 371 155 1,190 Free surplus invested in new business (213) (164) (57) (434) New business contribution per £1 million of free surplus invested 3.1 2.3 2.7 2.7 Half year 2014 £m Asia operations US operations UK insurance operations Total long-term business operations New business contributionnote 3 494 376 139 1,009 Free surplus invested in new business (167) (173) (36) (376) New business contribution per £1 million of free surplus invested 3.0 2.2 3.9 2.7 Full year 2014 £m Asia operations US operations UK insurance operations Total long-term business operations New business contributionnote 3 1,162 694 259 2,115 Free surplus invested in new business (346) (187) (65) (598) New business contribution per £1 million of free surplus invested 3.4 3.7 4.0 3.5 * In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). (iii) 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: 30 Jun 2015 £m 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 10,496 6,110 5,853 22,459 Cost of capital (413) (218) (277) (908) Cost of time value of guarantees (95) (453) - (548) Net value of in-force business 9,988 5,439 5,576 21,003 30 Jun 2014 £m 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 guarantees (56) (273) - (329) Net value of in-force business 8,476 4,490 5,159 18,125 31 Dec 2014 £m 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 10,168 5,914 5,756 21,838 Cost of capital (417) (199) (272) (888) Cost of time value of guarantees (113) (462) - (575) Net value of in-force business 9,638 5,253 5,484 20,375 11 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 2015 (31 December 2014) and the post-tax new business contribution after the effect of required capital for half year 2015 and full year 2014 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 Half year 2015 £m Full year 2014 £m 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 3 664 371 155 1,190 1,162 694 259 2,115 Discount rates - 1% increase (110) (17) (22) (149) (176) (27) (38) (241) Interest rates - 1% increase 16 25 (8) 33 13 61 (15) 59 Interest rates - 1% decrease (33) (49) 11 (71) (52) (101) 19 (134) Equity/property yields - 1% rise 32 39 6 77 46 73 12 131 Long-term expected defaults - 5 bps increase - - (6) (6) - - (10) (10) Liquidity premium - 10 bps increase - - 11 11 - - 20 20 * In order to show the UK long-term business on a comparable basis, the full year 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Embedded value of long-term business operations 30 Jun 2015 £m 31 Dec 2014 £m Asia operations US operations UK insurance operations Total long-term business operations Asia operations US operations UK insurance operations Total long-term business operations Shareholders' equitynote 9 12,607 8,457 8,708 29,772 12,312 8,379 8,433 29,124 Discount rates - 1% increase (1,301) (273) (610) (2,184) (1,214) (268) (602) (2,084) Interest rates - 1% increase (447) (218) (390) (1,055) (462) (232) (362) (1,056) Interest rates - 1% decrease 165 50 470 685 211 16 452 679 Equity/property yields - 1% rise 465 369 273 1,107 435 365 282 1,082 Equity/property market values - 10% fall (257) (90) (415) (762) (221) (129) (380) (730) Statutory minimum capital 124 149 4 277 129 139 4 272 Long-term expected defaults - 5 bps increase - - (141) (141) - - (139) (139) Liquidity premium - 10 bps increase - - 283 283 - - 278 278 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 short-term fluctuations in investment returns. In addition to the sensitivity effects shown above, the other components of the profit for the following year would be calculated by reference to the altered assumptions, for example new business contribution and unwind of discount, together with the effect of other 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. (b) Effect of change in future UK corporation tax rate announced in July 2015 The Finance Bill 2015, which was announced on 8 July 2015, includes reductions in the UK corporate tax rate from 20 per cent to 19 per cent effective 1 April 2017 and from 19 per cent to 18 per cent effective 1 April 2020. The impact of this change has not been factored in the EEV results or shareholders' equity at 30 June 2015. Had the half year 2015 EEV results been prepared on the basis of these new tax rates, the net of tax value of in-force business of UK insurance operations at 30 June 2015 would have been higher by around £55 million. 12 Methodology and accounting presentation (a) Methodology 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; and - the time value of cost of options and guarantees; - locked-in required capital; and - the shareholders' net worth in excess of required capital (free surplus). The value of future new business is excluded from the embedded value. Notwithstanding the basis of presentation of results (as explained in note 12(b)(iii)) 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 12(b)(i)). (i) 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 12(a)(vii). 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. A small amount of UK group pensions business is also not modelled for EEV reporting purposes. (ii)  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, mortality and morbidity (as described in note 13). 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. 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 (depreciation) appreciation on these securities are accounted for in equity rather than in the income statement, as shown in the movement in shareholders' equity. (iii)  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. (iv)  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 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 all periods shown, 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 2.7 per cent (half year 2014: 2.8 per cent; full year 2014: 2.7 per cent). 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 are 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 £50 million at 30 June 2015 (30 June 2014: £36 million; 31 December 2014: £50 million) to honour guarantees on a small number of guaranteed annuity option products. 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 £471 million was held in SAIF at 30 June 2015 (30 June 2014: £421 million; 31 December 2014: £549 million) to honour the guarantees. As described in note 12(a)(i), 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 13(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. (v) 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. (vi) 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. (vii) 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. (viii) 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 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 13(ii). In determining this allowance a number of factors have been considered. These factors, in particular, include: - 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 - 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: - 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; - 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; - an allowance for a 1-notch downgrade of the asset portfolio subject to credit risk; and - 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, shown in note 13(iii). (2) With-profits fund non-profit annuity business For UK non-profit annuity business including that attributable to the PAC with-profits fund, 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 for this business 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. (ix) 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. (x) 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. The sensitivity of the embedded value as at 30 June 2015 to the effect of the future reductions in the UK corporate tax rate announced in July 2015 is shown in note 11(b). (xi) 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). (b) 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 12(b)(ii) below) and incorporate the following: - new business contribution, as defined in note 12(a)(ii); - unwind of discount on the value of in-force business and other expected returns, as described in note 12(b)(iii) below; - the impact of routine changes of estimates relating to non-economic assumptions, as described in note 12(b)(iv) below; and - non-economic experience variances, as described in note 12(b)(v) below. In order to show the UK long-term business result on a comparable basis, the presentation of half year and full year 2014 results has been adjusted to show the results of the sold PruHealth and PruProtect businesses separately. 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, non-operating profit includes: - the effect on free surplus generated of the disposal of the Japan Life business in 2015; - the gain on sale of the PruHealth and PruProtect businesses in 2014; and - the costs associated with the domestication of the Hong Kong branch which became effective on 1 January 2014. 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) Investment returns included in operating profit For the investment element of the assets covering the net worth of long-term insurance business, investment returns are recognised in operating results at the expected long-term rate of return. These expected returns are calculated by reference to the asset mix of the portfolio. For the purpose of calculating the longer-term investment return to be included in the operating result of the 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 12(b)(iii) 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) 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 2015 the shareholders' interest in the smoothed surplus assets used for this purpose only, were £104 million (30 June 2014: £123 million; 31 December 2014: £194 million) lower than the surplus assets carried in the statement of financial position. (iv) 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. (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) 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 options and guarantees, are recorded in non-operating results. 13 Assumptions Principal economic assumptions The EEV basis results for the Group's operations have been determined using economic assumptions where the long-term expected rates of return on investments and risk discount rates are set by reference to 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. (i) Asia operationsnotes (b), (c) Risk discount rate % New business In force 2015 2014 2015 2014 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec China 10.2 10.6 10.2 10.2 10.6 10.2 Hong Kongnotes (b), (c) 3.9 4.3 3.7 3.9 4.2 3.7 India 13.0 13.9 13.0 13.0 13.9 13.0 Indonesia 12.5 12.2 12.0 12.5 12.2 12.0 Korea 6.4 6.8 6.7 5.8 7.1 6.5 Malaysianote (c) 6.5 6.6 6.6 6.6 6.6 6.6 Philippines 11.2 10.8 10.8 11.2 10.8 10.8 Singaporenote (c) 4.5 4.3 4.3 5.3 5.0 5.0 Taiwan 4.2 4.0 4.2 4.2 4.0 4.1 Thailand 9.7 10.6 9.5 9.7 10.6 9.5 Vietnam 13.6 15.4 14.0 13.6 15.4 14.0 Total weighted risk discount ratenote (a) 6.5 7.4 6.9 6.6 7.0 6.6 10-year government bond yield % Expected long-term Inflation % 2015 2014 2015 2014 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec China 3.7 4.1 3.7 2.5 2.5 2.5 Hong Kongnotes (b), (c) 2.4 2.6 2.2 2.3 2.3 2.3 India 8.0 8.9 8.0 4.0 4.0 4.0 Indonesia 8.5 8.4 7.9 5.0 5.0 5.0 Korea 2.5 3.2 2.6 3.0 3.0 3.0 Malaysianote (c) 4.0 4.1 4.1 2.5 2.5 2.5 Philippines 4.5 4.1 4.0 4.0 4.0 4.0 Singaporenote (c) 2.7 2.3 2.3 2.0 2.0 2.0 Taiwan 1.5 1.6 1.6 1.0 1.0 1.0 Thailand 3.0 3.8 2.7 3.0 3.0 3.0 Vietnam 6.8 8.7 7.2 5.5 5.5 5.5 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) Equity risk premiums in Asia range from 3.5 per cent to 8.7 per cent for all periods throughout the results. The mean equity return assumptions for the most significant equity holdings of the Asia operations were: 2015 % 2014 % 30 Jun 30 Jun 31 Dec Hong Kong 6.4 6.6 6.2 Malaysia 10.0 10.1 10.1 Singapore 8.7 8.4 8.3 (ii) US operations 2015 % 2014 % 30 Jun 30 Jun 31 Dec Assumed new business spread margins: Fixed Annuity business: January to June issues 1.25 1.5 1.5 July to December issues n/a n/a 1.5 Fixed Index Annuity business: January to June issues 1.5 2.0 2.0 July to December issues n/a n/a 2.0 Institutional business 0.7 0.7 0.7 Allowance for long-term defaults included in projected spreadnote 12 (a)(viii) 0.24 0.26 0.25 Risk discount rate: Variable annuity: Risk discount rate 7.0 7.1 6.9 Additional allowance for credit risk included in risk discount ratenote 12 (a)(viii) 0.2 0.2 0.2 Non-variable annuity: Risk discount rate 4.1 4.3 3.9 Additional allowance for credit risk included in risk discount ratenote 12 (a)(viii) 1.0 1.0 1.0 Weighted average total: New business 6.9 6.9 6.7 In force 6.4 6.4 6.2 US 10-year treasury bond rate at end of period 2.4 2.6 2.2 Pre-tax expected long-term nominal rate of return for US equities 6.4 6.6 6.2 Expected long-term rate of inflation 2.9 2.6 2.8 Equity risk premium 4.0 4.0 4.0 S&P equity return volatility note 13(v) 18.0 19.0 18.0 * 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. ** including the proportion of variable annuity business invested in the general account. (iii) UK insurance operations 2015 % 2014 % 30 Jun 30 Jun 31 Dec Shareholder-backed annuity business: Risk discount rate:note New business 6.4 6.9 6.5 In force 7.1 7.8 6.9 Pre-tax expected long-term nominal rate of return for shareholder-backed annuity business:note New business 3.4 4.5 4.1 In force 3.7 4.1 3.2 Other business: Risk discount rate: * New business 5.9 6.1 5.5 In force 6.1 6.5 5.9 Pre-tax expected long-term nominal rates of investment return: UK equities 6.5 7.2 6.2 Overseas equities 6.4 to 8.9 6.6 to 9.1 6.2 to 9.0 Property 5.3 5.9 4.9 15-year gilt rate 2.5 3.2 2.2 Corporate bonds 4.1 4.8 3.8 Expected long-term rate of inflation 3.3 3.3 3.0 Equity risk premium 4.0 4.0 4.0 * The half year and full year 2014 risk discount rates exclude the sold PruHealth and PruProtect businesses. Note For shareholder-backed annuity business, the movements in the pre-tax long-term nominal rates of return and risk discount rates for new and in-force businesses reflect the effect of changes in asset yields. The movements in risk discount rates also reflect changes in the margin for credit risk premium, as explained in note 12(a)(viii). Stochastic assumptions Details are given below of the key characteristics of the models used to determine the time value of the financial options and guarantees as referred to in note 12(a)(iv). (iv) Asia operations - The stochastic cost of guarantees is primarily of significance for the Hong Kong, Korea, Malaysia, Singapore and Taiwan operations. - The principal asset classes are government and corporate bonds. - The asset return models are similar to the models as described for UK insurance operations below. - The volatility of equity returns ranges from 18 per cent to 35 per cent, 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 and equity returns are projected using a log-normal generator reflecting historical market data. - Corporate bond returns are based on Treasury yields plus a spread that reflects current market conditions. - The volatility of equity returns ranges from 18 per cent to 27 per cent (half year 2014: 19 per cent to 32 per cent; full year 2014: 18 per cent to 27 per cent) 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 stochastic interest rate model calibrated to the current market yields. - Equity returns are assumed to follow a log-normal distribution. - The corporate bond return is calculated based on a risk-free bond return plus a mean-reverting spread. - Property returns are also modelled on a risk-free bond return plus a risk premium with a stochastic process reflecting total property returns. - The standard deviation of equities and property ranges from 15 per cent to 20 per cent for all periods throughout these results. Operating assumptions 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, 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. Tax rates The assumed long-term effective tax rates for operations reflect the incidence of taxable profits and losses in the projected cash flows as explained in note 12(a)(x). The local standard corporate tax rates applicable for the most significant operations for all periods shown, are as follows: Standard corporate tax rates % Asia operations: Hong Kong 16.5 per cent on 5 per cent of premium income Indonesia 25.0 Malaysia 2014 and 2015: 25.0; From 2016: 24.0 Singapore 17.0 US operations 35.0 UK operations 20.0 * The sensitivity of the embedded value as at 30 June 2015 to the effect of the future reductions in the UK corporate tax rate announced in July 2015 is shown in note 11(b). 14 Disposal of Japan Life and PruHealth and PruProtect businesses 2015 Sale of Japan Life business On 5 February 2015, the Group completed the sale of its closed book life insurance business in Japan, PCA Life Insurance Company Limited to SBI Holdings Inc, following regulatory approvals, resulting in a release of free surplus of £23 million in half year 2015. 2014 Sale of PruHealth and PruProtect businesses The Prudential Assurance Company Limited completed the sale of its 25 per cent equity stake in the PruHealth and PruProtect businesses to Discovery Group Europe Limited on 14 November 2014, which gave rise to a gain on disposal of £44 million for full year 2014. The contribution to the various EEV key performance measures of these businesses at half year and full year 2014 are provided in section C of the additional unaudited information. 15 Total insurance and investment products new businessnote (i) Single Regular Annual premium and contribution equivalents (APE) Present value of new business premiums (PVNBP) note 12(a)(ii) note 12(a)(ii) 2015 £m 2014 £m 2015 £m 2014 £m 2015 £m 2014 £m 2015 £m 2014 £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 1,241 955 2,272 1,242 900 2,010 1,366 996 2,237 7,340 5,378 12,331 US 8,574 8,703 15,555 - - - 857 871 1,556 8,574 8,703 15,555 UKnote (viii) 4,191 3,329 6,681 91 86 166 510 419 834 4,524 3,644 7,305 Group totalnote (viii) 14,006 12,987 24,508 1,333 986 2,176 2,733 2,286 4,627 20,438 17,725 35,191 Asia insurance operations Cambodia - - - 3 1 3 3 1 3 17 4 16 Hong Kong 242 175 419 495 240 603 519 258 645 3,015 1,530 3,861 Indonesia 147 101 280 168 174 357 183 184 385 762 748 1,619 Malaysia 53 42 117 100 87 189 105 91 201 630 583 1,284 Philippines 79 53 121 21 17 39 29 22 51 146 106 248 Singapore 276 264 677 125 146 289 153 172 357 1,097 1,217 2,683 Thailand 34 50 92 45 37 74 48 42 83 207 196 392 Vietnam 3 1 4 34 23 61 34 23 61 140 91 247 SE Asia operations including Hong Kong 834 686 1,710 991 725 1,615 1,074 793 1,786 6,014 4,475 10,350 Chinanote (ii) 259 117 239 63 45 81 89 57 105 487 280 550 Korea 102 97 212 64 38 92 74 48 113 398 260 609 Taiwan 27 45 83 58 49 116 61 54 124 209 214 462 Indianote (iii) 19 10 28 66 43 106 68 44 109 232 149 360 Total Asia insurance operations 1,241 955 2,272 1,242 900 2,010 1,366 996 2,237 7,340 5,378 12,331 US insurance operations Variable annuities 6,065 6,136 10,899 - - - 606 614 1,090 6,065 6,136 10,899 Elite Access (variable annuity) 1,656 1,493 3,108 - - - 166 149 311 1,656 1,493 3,108 Fixed annuities 233 265 527 - - - 23 27 53 233 265 527 Fixed index annuities 210 182 370 - - - 21 18 37 210 182 370 Wholesale 410 627 651 - - - 41 63 65 410 627 651 Total US insurance operations 8,574 8,703 15,555 - - - 857 871 1,556 8,574 8,703 15,555 UK and Europe insurance operationsnotes , (iv), (viii) Individual Annuities 279 634 1,065 - - - 28 63 106 279 633 1,065 Bonds 1,558 1,298 2,934 - - - 156 130 294 1,559 1,299 2,937 Corporate Pensions 51 58 92 71 73 138 76 79 147 300 314 592 Individual Pensions 480 173 508 14 10 22 62 27 72 536 218 595 Income Drawdown 386 118 352 - - - 39 12 35 386 118 352 Other Products 268 12 20 6 3 6 32 4 9 295 26 54 Total Retailnote (iv) 3,022 2,293 4,971 91 86 166 393 315 663 3,355 2,608 5,595 Wholesale 1,169 1,036 1,710 - - - 117 104 171 1,169 1,036 1,710 Total UK and Europe insurance operationsnote (viii) 4,191 3,329 6,681 91 86 166 510 419 834 4,524 3,644 7,305 Group totalnote (viii) 14,006 12,987 24,508 1,333 986 2,176 2,733 2,286 4,627 20,438 17,725 35,191 * In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14). Investment products - funds under management notes (v), (vi), (vii) Half year 2015 £m 1 Jan 2015 Market gross inflows Redemptions Market exchange translation and other movements 30 Jun 2015 Eastspring Investments 25,333 11,653 (7,092) 194 30,088 M&G 137,047 20,425 (22,800) (1,272) 133,400 Group total 162,380 32,078 (29,892) (1,078) 163,488 Half year 2014 £m 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 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) With effect from 1 January 2015, APE and new business data for the UK and Europe Insurance Operations are presented using revised product groupings. This aims to reflect the evolving revenue streams and present greater detail for certain elements previously included within 'Other'. (v) 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. (vi) Investment flows for the half year exclude Eastspring Money Market Funds gross inflows of £45,072 million (half year 2014: £32,065 million) and net inflows of £609 million (half year 2014: net outflows of £52 million). (vii) 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. (viii) The 2014 UK and Europe insurance operations comparatives have been adjusted to exclude PruHealth and PruProtect APE sales of £14 million at half year 2014 (£23 million at full year 2014) and new business profit of £6 million at half year 2014 (£11 million at full year 2014), following the disposal of our 25 per cent interest in the businesses in November 2014. 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, i.e. 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. Post-tax New Business Profit has been determined using the European Embedded Value (EEV) methodology set out in our 2015 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 using both actual exchange rates (AER) and constant exchange rates (CER) so as to eliminate the impact of exchange translation. Local currency: £ Half year 2015 Half year 2014 Half year 2015 vs half year 2014 appreciation (depreciation) of local currency against GBP Hong Kong Average Rate 11.81 12.95 10% Closing Rate 12.19 13.25 9% Indonesia Average Rate 19,760.02 19,573.46 (1)% Closing Rate 20,968.02 20,270.27 (3)% Malaysia Average Rate 5.55 5.45 (2)% Closing Rate 5.93 5.49 (7)% Singapore Average Rate 2.06 2.10 2% Closing Rate 2.12 2.13 1% India Average Rate 95.76 101.45 6% Closing Rate 100.15 102.84 3% Vietnam Average Rate 32,832.81 35,266.15 7% Closing Rate 34,345.42 36,471.11 6% Thailand Average Rate 50.21 54.34 8% Closing Rate 53.12 55.49 4% US Average Rate 1.52 1.67 10% Closing Rate 1.57 1.71 9% Local currency: £ Half year 2015 Full year 2014 Half year 2015 vs full year 2014 appreciation (depreciation) of local currency against GBP Hong Kong Average Rate 11.81 12.78 8% Closing Rate 12.19 12.09 (1)% Indonesia Average Rate 19,760.02 19,538.56 (1)% Closing Rate 20,968.02 19,311.31 (8)% Malaysia Average Rate 5.55 5.39 (3)% Closing Rate 5.93 5.45 (8)% Singapore Average Rate 2.06 2.09 1% Closing Rate 2.12 2.07 (2)% India Average Rate 95.76 100.53 5% Closing Rate 100.15 98.42 (2)% Vietnam Average Rate 32,832.81 34,924.62 6% Closing Rate 34,345.42 33,348.46 (3)% Thailand Average Rate 50.21 53.51 7% Closing Rate 53.12 51.30 (3)% US Average Rate 1.52 1.65 9% Closing Rate 1.57 1.56 (1)% Average rate is for the 6 month period to 30 June. (1a) Insurance 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 2014 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 2014 and 2015. (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 year-to-date Eastspring Money Market Funds (MMF) gross inflows of £45,072 million (half year 2014: £32,065 million) and net inflows of £609 million (half year 2014 net outflows: £52 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 £5,428 million at 30 June 2015 (30 June 2014: £4,300 million; 31 December 2014: £4,801 million). (11) With effect from 1 January 2015, APE and new business data for the UK and Europe Insurance Operations are presented using revised product groupings. This aims to reflect the evolving revenue streams and present greater detail for certain elements previously included within "Other". (12) The 2014 UK and Europe insurance operations comparatives have been adjusted to exclude PruHealth and PruProtect APE sales of £14 million at half year 2014 (£23 million at full year 2014) and new business profit of £6 million at half year 2014 (£11 million at full year 2014), following the disposal of our 25 per cent interest in the businesses in November 2014. Schedule A(i) - New Business Insurance Operations (Actual Exchange Rates) Single Regular Annual Equivalents(2) PVNBP(2) 2015 2014 2015 2014 2015 2014 2015 2014 YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) £m £m £m £m £m £m £m £m Group Insurance Operations Asia (1a) 1,241 955 30% 1,242 900 38% 1,366 996 37% 7,340 5,378 36% US(1a) 8,574 8,703 (1)% - - N/A 857 871 (2)% 8,574 8,703 (1)% UK(12) 4,191 3,329 26% 91 86 6% 510 419 22% 4,524 3,644 24% Group Total '(12) 14,006 12,987 8% 1,333 986 35% 2,733 2,286 20% 20,438 17,725 15% Asia Insurance Operations(1a) Cambodia - - N/A 3 1 200% 3 1 200% 17 4 325% Hong Kong 242 175 38% 495 240 106% 519 258 101% 3,015 1,530 97% Indonesia 147 101 46% 168 174 (3)% 183 184 (1)% 762 748 2% Malaysia 53 42 26% 100 87 15% 105 91 15% 630 583 8% Philippines 79 53 49% 21 17 24% 29 22 32% 146 106 38% Singapore 276 264 5% 125 146 (14)% 153 172 (11)% 1,097 1,217 (10)% Thailand 34 50 (32)% 45 37 22% 48 42 14% 207 196 6% Vietnam 3 1 200% 34 23 48% 34 23 48% 140 91 54% SE Asia Operations 834 686 22% 991 725 37% 1,074 793 35% 6,014 4,475 34% inc. Hong Kong China(6) 259 117 121% 63 45 40% 89 57 56% 487 280 74% Korea 102 97 5% 64 38 68% 74 48 54% 398 260 53% Taiwan 27 45 (40)% 58 49 18% 61 54 13% 209 214 (2)% India(4) 19 10 90% 66 43 53% 68 44 55% 232 149 56% Total Asia Insurance Operations 1,241 955 30% 1,242 900 38% 1,366 996 37% 7,340 5,378 36% US Insurance Operations(1a) Variable Annuities 6,065 6,136 (1)% - - N/A 606 614 (1)% 6,065 6,136 (1)% Elite Access (Variable Annuity) 1,656 1,493 11% - - N/A 166 149 11% 1,656 1,493 11% Fixed Annuities 233 265 (12)% - - N/A 23 27 (15)% 233 265 (12)% Fixed Index Annuities 210 182 15% - - N/A 21 18 17% 210 182 15% Wholesale 410 627 (35)% - - N/A 41 63 (35)% 410 627 (35)% Total US Insurance Operations 8,574 8,703 (1)% - - N/A 857 871 (2)% 8,574 8,703 (1)% UK & Europe Insurance Operations(11), (12) Individual Annuities 279 634 (56)% - - N/A 28 63 (56)% 279 633 (56)% Bonds 1,558 1,298 20% - - N/A 156 130 20% 1,559 1,299 20% Corporate Pensions 51 58 (12)% 71 73 (3%) 76 79 (4)% 300 314 (4)% Individual Pensions 480 173 177% 14 10 40% 62 27 130% 536 218 146% Income Drawdown 386 118 227% - - N/A 39 12 225% 386 118 227% Other Products 268 12 2,133% 6 3 100% 32 4 700% 295 26 1,035% Total Retail 3,022 2,293 32% 91 86 6% 393 315 25% 3,355 2,608 29% Wholesale 1,169 1,036 13% - - N/A 117 104 13% 1,169 1,036 13% Total UK & Europe Insurance Operations 4,191 3,329 26% 91 86 6% 510 419 22% 4,524 3,644 24% Group Total (12) 14,006 12,987 8% 1,333 986 35% 2,733 2,286 20% 20,438 17,725 15% 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 2014. Single Regular Annual Equivalents(2) PVNBP(2) 2015 2014 2015 2014 2015 2014 2015 2014 YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) YTD YTD +/- (%) £m £m £m £m £m £m £m £m Group Insurance Operations Asia (1a) (1b) 1,241 1,005 23% 1,242 941 32% 1,366 1,042 31% 7,340 5,627 30% US(1a) (1b) 8,574 9,535 (10)% - - N/A 857 954 (10)% 8,574 9,535 (10)% UK(12) 4,191 3,329 26% 91 86 6% 510 419 22% 4,524 3,644 24% Group Total (12) 14,006 13,869 1% 1,333 1,027 30% 2,733 2,415 13% 20,438 18,806 9% Asia Insurance Operations(1a) (1b) Cambodia - - N/A 3 1 200% 3 1 200% 17 5 240% Hong Kong 242 191 27% 495 263 88% 519 282 84% 3,015 1,676 80% Indonesia 147 100 47% 168 173 (3)% 183 183 0% 762 741 3% Malaysia 53 42 26% 100 85 18% 105 89 18% 630 573 10% Philippines 79 58 36% 21 18 17% 29 24 21% 146 116 26% Singapore 276 271 2% 125 149 (16)% 153 176 (13)% 1,097 1,245 (12)% Thailand 34 55 (38)% 45 40 13% 48 46 4% 207 212 (2)% Vietnam 3 1 200% 34 25 36% 34 25 36% 140 98 43% SE Asia Operations 834 718 16% 991 754 31% 1,074 826 30% 6,014 4,666 29% inc. Hong Kong China(6) 259 127 104% 63 49 29% 89 62 44% 487 304 60% Korea 102 101 1% 64 40 60% 74 50 48% 398 272 46% Taiwan 27 48 (44)% 58 52 12% 61 57 7% 209 227 (8)% India(4) 19 11 73% 66 46 43% 68 47 45% 232 158 47% Total Asia Insurance Operations 1,241 1,005 23% 1,242 941 32% 1,366 1,042 31% 7,340 5,627 30% US Insurance Operations(1a) (1b) Variable Annuities 6,065 6,723 (10)% - - N/A 606 672 (10)% 6,065 6,723 (10)% Elite Access (Variable Annuity) 1,656 1,636 1% - - N/A 166 164 1% 1,656 1,636 1% Fixed Annuities 233 290 (20)% - - N/A 23 29 (21)% 233 290 (20)% Fixed Index Annuities 210 199 6% - - N/A 21 20 5% 210 199 6% Wholesale 410 687 (40)% - - N/A 41 69 (41)% 410 687 (40)% Total US Insurance Operations 8,574 9,535 (10)% - - N/A 857 954 (10)% 8,574 9,535 (10)% UK & Europe Insurance Operations(11), (12) Individual Annuities 279 634 (56)% - - N/A 28 63 (56)% 279 633 (56)% Bonds 1,558 1,298 20% - - N/A 156 130 20% 1,559 1,299 20% Corporate Pensions 51 58 (12)% 71 73 (3)% 76 79 (4)% 300 314 (4)% Individual Pensions 480 173 177% 14 10 40% 62 27 130% 536 218 146% Income Drawdown 386 118 227% - - N/A 39 12 225% 386 118 227% Other Products 268 12 2,133% 6 3 100% 32 4 700% 295 26 1,035% Total Retail 3,022 2,293 32% 91 86 6% 393 315 25% 3,355 2,608 29% Wholesale 1,169 1,036 13% - - N/A 117 104 13% 1,169 1,036 13% Total UK & Europe Insurance Operations 4,191 3,329 26% 91 86 6% 510 419 22% 4,524 3,644 24% Group Total (12) 14,006 13,869 1% 1,333 1,027 30% 2,733 2,415 13% 20,438 18,806 9% Schedule A(iii) - Total Insurance New Business APE - By Quarter (Actual Exchange Rates) 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Insurance Operations Asia (1a) 507 489 548 693 681 685 US(1a) 432 439 364 321 400 457 UK (12) 230 189 209 206 169 341 Group Total '(12) 1,169 1,117 1,121 1,220 1,250 1,483 Asia Insurance Operations(1a) Cambodia - 1 1 1 2 1 Hong Kong 128 130 166 221 246 273 Indonesia 86 98 80 121 93 90 Malaysia 43 48 48 62 54 51 Philippines 11 11 13 16 14 15 Singapore 87 85 86 99 72 81 Thailand 25 17 18 23 28 20 Vietnam 11 12 16 22 13 21 SE Asia Operations inc. Hong Kong 391 402 428 565 522 552 China(6) 38 19 23 25 56 33 Korea 26 22 32 33 31 43 Taiwan 24 30 34 36 28 33 India(4) 28 16 31 34 44 24 Total Asia Insurance Operations 507 489 548 693 681 685 US Insurance Operations(1a) Variable Annuities 317 297 260 216 272 334 Elite Access (Variable Annuity) 69 80 80 82 74 92 Fixed Annuities 12 15 14 12 11 12 Fixed Index Annuities 8 10 10 9 10 11 Wholesale 26 37 - 2 33 8 Total US Insurance Operations 432 439 364 321 400 457 UK & Europe Insurance Operations(11), (12) Individual Annuities 36 27 23 20 14 14 Bonds 63 67 77 87 76 80 Corporate Pensions 40 39 38 30 33 43 Individual Pensions 12 15 21 24 27 35 Income Drawdown 5 7 11 12 14 25 Other Products 1 3 2 3 5 27 Total Retail 157 158 172 176 169 224 Wholesale 73 31 37 30 - 117 Total UK & Europe Insurance Operations 230 189 209 206 169 341 Group Total'(12) 1,169 1,117 1,121 1,220 1,250 1,483 Schedule A(iv) - Total Insurance New Business APE - By Quarter (2014 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 2014. Discrete quarters in 2015 are presented on actual exchange rates. 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Insurance Operations Asia(1b) 530 512 573 706 681 685 US(1b) 470 484 399 329 400 457 UK (12) 230 189 209 206 169 341 Group Total'(12) 1,230 1,185 1,181 1,241 1,250 1,483 Asia Insurance Operations(1b) Cambodia - 1 1 1 2 1 Hong Kong 140 142 183 233 246 273 Indonesia 85 98 78 119 93 90 Malaysia 42 47 46 60 54 51 Philippines 12 12 14 17 14 15 Singapore 89 87 88 98 72 81 Thailand 27 19 18 24 28 20 Vietnam 11 14 17 23 13 21 SE Asia Operations inc. Hong Kong 406 420 445 575 522 552 China(6) 41 21 25 26 56 33 Korea 28 22 34 33 31 43 Taiwan 26 31 36 37 28 33 India(4) 29 18 33 35 44 24 Total Asia Insurance Operations 530 512 573 706 681 685 US Insurance Operations(1b) Variable Annuities 344 328 286 221 272 334 Elite Access (Variable Annuity) 75 89 87 85 74 92 Fixed Annuities 14 15 15 13 11 12 Fixed Index Annuities 9 11 11 9 10 11 Wholesale 28 41 - 1 33 8 Total US Insurance Operations 470 484 399 329 400 457 UK & Europe Insurance Operations(11), (12) Individual Annuities 36 27 23 20 14 14 Bonds 63 67 77 87 76 80 Corporate Pensions 40 39 38 30 33 43 Individual Pensions 12 15 21 24 27 35 Income Drawdown 5 7 11 12 14 25 Other Products 1 3 2 3 5 27 Total Retail 157 158 172 176 169 224 Wholesale 73 31 37 30 - 117 Total UK & Europe Insurance Operations 230 189 209 206 169 341 Group Total'(12) 1,230 1,185 1,181 1,241 1,250 1,483 Schedule A(v) - Total Insurance New Business APE - By Quarter (2015 and 2014 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 2014 and 2015 i.e the average exchange rate for the period ended 30 June 2015 is applied to each discrete quarter for 2014 and 2015. 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Insurance Operations Asia(1c) 530 512 573 706 675 691 US(1c) 470 484 399 329 397 460 UK (12) 230 189 209 206 169 341 Group Total'(12) 1,230 1,185 1,181 1,241 1,241 1,492 Asia Insurance Operations(1c) Cambodia - 1 1 1 2 1 Hong Kong 140 142 183 233 245 274 Indonesia 85 98 78 119 91 92 Malaysia 42 47 46 60 53 52 Philippines 12 12 14 17 13 16 Singapore 89 87 88 98 72 81 Thailand 27 19 18 24 28 20 Vietnam 11 14 17 23 13 21 SE Asia Operations inc. Hong Kong 406 420 445 575 517 557 China(6) 41 21 25 26 56 33 Korea 28 22 34 33 31 43 Taiwan 26 31 36 37 28 33 India(4) 29 18 33 35 43 25 Total Asia Insurance Operations 530 512 573 706 675 691 US Insurance Operations(1c) Variable Annuities 344 328 286 221 270 336 Elite Access (Variable Annuity) 75 89 87 85 74 92 Fixed Annuities 14 15 15 13 11 12 Fixed Index Annuities 9 11 11 9 9 12 Wholesale 28 41 - 1 33 8 Total US Insurance Operations 470 484 399 329 397 460 UK & Europe Insurance Operations(11), (12) Individual Annuities 36 27 23 20 14 14 Bonds 63 67 77 87 76 80 Corporate Pensions 40 39 38 30 33 43 Individual Pensions 12 15 21 24 27 35 Income Drawdown 5 7 11 12 14 25 Other Products 1 3 2 3 5 27 Total Retail 157 158 172 176 169 224 Wholesale 73 31 37 30 - 117 Total UK & Europe Insurance Operations 230 189 209 206 169 341 Group Total'(12) 1,230 1,185 1,181 1,241 1,241 1,492 Schedule A(vi) - Investment Operations - By Quarter (Actual Exchange Rates) 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 £m £m £m £m £m £m Group Investment Operations Opening FUM 143,916 147,914 153,849 157,533 162,380 169,345 Net Flows:(8) 2,571 4,123 2,893 2,930 2,990 (804) - Gross Inflows 12,146 14,045 12,847 13,670 17,512 14,566 - Redemptions (9,575) (9,922) (9,954) (10,740) (14,522) (15,370) Other Movements 1,427 1,812 791 1,917 3,975 (5,053) Total Group Investment Operations(10) 147,914 153,849 157,533 162,380 169,345 163,488 M&G Retail Opening FUM 67,202 68,981 71,941 73,012 74,289 75,673 Net Flows: 1,291 2,493 1,531 1,371 558 (3,976) - Gross Inflows 7,305 7,468 6,801 7,414 8,592 5,672 - Redemptions (6,014) (4,975) (5,270) (6,043) (8,034) (9,648) Other Movements 488 467 (460) (94) 826 (2,539) Closing FUM 68,981 71,941 73,012 74,289 75,673 69,158 Comprising amounts for: UK 42,199 42,392 41,756 40,705 41,143 38,701 Europe (excluding UK) 25,244 27,927 29,622 31,815 32,675 28,726 South Africa 1,538 1,622 1,634 1,769 1,855 1,731 68,981 71,941 73,012 74,289 75,673 69,158 Institutional(3) Opening FUM 58,787 59,736 60,830 61,572 62,758 63,838 Net Flows: 152 275 138 (164) 122 921 - Gross Inflows 1,655 2,894 2,295 2,185 3,712 2,449 - Redemptions (1,503) (2,619) (2,157) (2,349) (3,590) (1,528) Other Movements 797 819 604 1,350 958 (517) Closing FUM 59,736 60,830 61,572 62,758 63,838 64,242 Total M&G Investment Operations 128,717 132,771 134,584 137,047 139,511 133,400 PPM South Africa FUM included in Total M&G 4,720 4,815 4,905 5,203 5,456 5,108 Eastspring - excluding MMF(8) Equity/Bond/Other(7) Opening FUM 16,109 16,753 18,259 19,893 21,893 25,687 Net Flows: 540 1,063 1,127 1,640 2,133 2,102 - Gross Inflows 2,546 3,285 3,583 3,760 5,007 6,082 - Redemptions (2,006) (2,222) (2,456) (2,120) (2,874) (3,980) Other Movements 104 443 507 360 1,661 (1,772) Closing FUM(5) 16,753 18,259 19,893 21,893 25,687 26,017 Third Party Institutional Mandates Opening FUM 1,818 2,444 2,819 3,056 3,440 4,147 Net Flows: 588 292 97 83 177 149 - Gross Inflows 640 398 168 311 201 363 - Redemptions (52) (106) (71) (228) (24) (214) Other Movements 38 83 140 301 530 (225) Closing FUM(5) 2,444 2,819 3,056 3,440 4,147 4,071 Total Eastspring Investment Operations 19,197 21,078 22,949 25,333 29,834 30,088 US Curian - FUM(5) (9) 6,781 6,948 7,421 7,933 8,557 8,078 Schedule A(vii) - Total Insurance New Business Profit (Actual Exchange Rates) 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 YTD YTD YTD YTD YTD YTD £m £m £m £m £m £m New Business Profit(1a) Total Asia Insurance Operations 243 494 775 1,162 309 664 Total US Insurance Operations 195 376 530 694 153 371 Total UK & Europe Insurance Operations(12) 88 139 200 259 34 155 Group Total (12) 526 1,009 1,505 2,115 496 1,190 Annual Equivalent(1a) (2) Total Asia Insurance Operations 507 996 1,544 2,237 681 1,366 Total US Insurance Operations 432 871 1,235 1,556 400 857 Total UK & Europe Insurance Operations(12) 230 419 628 834 169 510 Group Total(12) 1,169 2,286 3,407 4,627 1,250 2,733 New Business Margin (NBP as % of APE) Total Asia Insurance Operations 48% 50% 50% 52% 45% 49% Total US Insurance Operations 45% 43% 43% 45% 38% 43% Total UK & Europe Insurance Operations 38% 33% 32% 31% 20% 30% Group Total 45% 44% 44% 46% 40% 44% PVNBP(1a) (2) Total Asia Insurance Operations 2,690 5,378 8,408 12,331 3,643 7,340 Total US Insurance Operations 4,323 8,703 12,352 15,555 3,998 8,574 Total UK & Europe Insurance Operations(12) 2,024 3,644 5,459 7,305 1,450 4,524 Group Total(12) 9,037 17,725 26,219 35,191 9,091 20,438 New Business Margin (NBP as % of PVNBP) Total Asia Insurance Operations 9.0% 9.2% 9.2% 9.4% 8.5% 9.0% Total US Insurance Operations 4.5% 4.3% 4.3% 4.5% 3.8% 4.3% Total UK & Europe Insurance Operations 4.3% 3.8% 3.7% 3.5% 2.3% 3.4% Group Total 5.8% 5.7% 5.7% 6.0% 5.5% 5.8% Schedule A(viii) - Total Insurance New Business Profit (2014 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 2014. The year-to-date amounts for 2015 are presented on actual exchange rates. 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 YTD YTD YTD YTD YTD YTD £m £m £m £m £m £m New Business Profit(1b) Total Asia Insurance Operations 251 512 805 1,197 309 664 Total US Insurance Operations 212 412 581 750 153 371 Total UK & Europe Insurance Operations(12) 88 139 200 259 34 155 Group Total(12) 551 1,063 1,586 2,206 496 1,190 Annual Equivalent(1b) (2) Total Asia Insurance Operations 530 1,042 1,615 2,321 681 1,366 Total US Insurance Operations 470 954 1,353 1,682 400 857 Total UK & Europe Insurance Operations(12) 230 419 628 834 169 510 Group Total(12) 1,230 2,415 3,596 4,837 1,250 2,733 New Business Margin (NBP as % of APE) Total Asia Insurance Operations 47% 49% 50% 52% 45% 49% Total US Insurance Operations 45% 43% 43% 45% 38% 43% Total UK & Europe Insurance Operations 38% 33% 32% 31% 20% 30% Group Total 45% 44% 44% 46% 40% 44% PVNBP(1b) (2) Total Asia Insurance Operations 2,813 5,627 8,791 12,795 3,643 7,340 Total US Insurance Operations 4,697 9,535 13,536 16,822 3,998 8,574 Total UK & Europe Insurance Operations(12) 2,024 3,644 5,459 7,305 1,450 4,524 Group Total(12) 9,534 18,806 27,786 36,922 9,091 20,438 New Business Margin (NBP as % of PVNBP) Total Asia Insurance Operations 8.9% 9.1% 9.2% 9.4% 8.5% 9.0% Total US Insurance Operations 4.5% 4.3% 4.3% 4.5% 3.8% 4.3% Total UK & Europe Insurance Operations 4.3% 3.8% 3.7% 3.5% 2.3% 3.4% Group Total 5.8% 5.7% 5.7% 6.0% 5.5% 5.8% Schedule A(ix) - Total Insurance New Business Profit (2015 and 2014 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 2014 and 2015, i.e the average exchange rates for the period ended 30 June 2015 are applied to each period for 2014 and 2015. 2014 2015 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 251 512 805 1,197 306 664 Total US Insurance Operations 212 412 581 750 152 371 Total UK & Europe Insurance Operations(12) 88 139 200 259 34 155 Group Total(12) 551 1,063 1,586 2,206 492 1,190 Annual Equivalent(1c) (2) Total Asia Insurance Operations 530 1,042 1,615 2,321 675 1,366 Total US Insurance Operations 470 954 1,353 1,682 397 857 Total UK & Europe Insurance Operations(12) 230 419 628 834 169 510 Group Total(12) 1,230 2,415 3,596 4,837 1,241 2,733 New Business Margin (NBP as % of APE) Total Asia Insurance Operations 47% 49% 50% 52% 45% 49% Total US Insurance Operations 45% 43% 43% 45% 38% 43% Total UK & Europe Insurance Operations(12) 38% 33% 32% 31% 20% 30% Group Total(12) 45% 44% 44% 46% 40% 44% PVNBP(1c) (2) Total Asia Insurance Operations 2,813 5,627 8,791 12,795 3,615 7,340 Total US Insurance Operations 4,697 9,535 13,536 16,822 3,973 8,574 Total UK & Europe Insurance Operations(12) 2,024 3,644 5,459 7,305 1,450 4,524 Group Total(12) 9,534 18,806 27,786 36,922 9,038 20,438 New Business Margin (NBP as % of PVNBP) Total Asia Insurance Operations 8.9% 9.1% 9.2% 9.4% 8.5% 9.0% Total US Insurance Operations 4.5% 4.3% 4.3% 4.5% 3.8% 4.3% Total UK & Europe Insurance Operations(12) 4.3% 3.8% 3.7% 3.5% 2.3% 3.4% Group Total(12) 5.8% 5.7% 5.7% 6.0% 5.4% 5.8% 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 2015 results Underlying free surplus generated Pre-tax operating profit Shareholders' funds % % % note (2) notes (2),(3),(4) notes (2),(3),(4) US$ linked(1) 14 16 14 Other Asia currencies 11 18 18 Total Asia 25 34 32 UK sterling(3),(4) 37 21 45 US$ (4) 38 45 23 Total 100 100 100 EEV half year 2015 results Post-tax new business profits Post-tax operating profit Shareholders' funds % % % notes (2),(3),(4) notes (2),(3),(4) US$ linked(1) 40 34 30 Other Asia currencies 16 15 14 Total Asia 56 49 44 UK sterling(3),(4) 13 15 34 US$(4) 31 36 22 Total 100 100 100 Notes (1) US$ 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. (2) Includes long-term, asset management business and other businesses. (3) For operating profit and shareholders' funds UK sterling includes amounts in respect of central operations as well as UK insurance operations and M&G. (4) For 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. C 2014 results of the sold PruHealth and PruProtect businesses The tables below show the 2014 results of the sold PruHealth and PruProtect businesses which are excluded from the operating results for UK operations. IFRS 2014 results 2014 £m Half year Full year Pre-tax operating profit 8 23 EEV 2014 results 2014 £m Half year Full year Post-tax operating profit New business contribution 6 11 In-force profit 2 - Total operating profit 8 11 Free Surplus 2014 results Investment in new business (6) (8) Expected in-force cash flows 5 8 Underlying Free Surplus generated (1) - APE, new business contribution and PVNBP 2014 £m APE New business contribution PVNBP Full year 2014 23 11 166 Q3 2014 20 9 139 Half year 2014 14 6 97 Q1 2014 7 3 48 This information is provided by RNS The company news service from the London Stock Exchange END IR EAPPEFLLSEFF