Prudential PLC — Interim / Quarterly Report 2020

Aug 11, 2020

National Storage Mechanism | Additional information RNS Number : 7146V Prudential PLC 11 August 2020 CONDENSED CONSOLIDATED INCOME STATEMENT 2020 $m 2019 $m Note Half year Half year Full year Continuing operations: Gross premiums earned 19,842 21,081 45,064 Outward reinsurance premiums B3 (30,149) (673) (1,583) Earned premiums, net of reinsurance B3 (10,307) 20,408 43,481 Investment return 3,910 31,873 49,555 Other income 333 258 700 Total revenue, net of reinsurance B3 (6,064) 52,539 93,736 Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance 9,855 (47,448) (83,905) Acquisition costs and other expenditure B2 (3,032) (3,508) (7,283) Finance costs: interest on core structural borrowings of shareholder-financed businesses (163) (293) (516) Gain (loss) attaching to corporate transactions - 17 (142) Total charges net of reinsurance 6,660 (51,232) (91,846) Share of profit from joint ventures and associates, net of related tax 133 137 397 Profit before tax (being tax attributable to shareholders' and policyholders' returns)note (i) 729 1,444 2,287 Remove tax charge attributable to policyholders' returns (66) (285) (365) Profit before tax attributable to shareholders' returns B1.1 663 1,159 1,922 Total tax charge attributable to shareholders' and policyholders' returns B4 (195) (286) (334) Remove tax charge attributable to policyholders' returns 66 285 365 Tax (charge) credit attributable to shareholders' returns B4 (129) (1) 31 Profit from continuing operations 534 1,158 1,953 Discontinued UK and Europe operations' profit after tax - 835 1,319 Re-measurement of discontinued operations on demerger - - 188 Cumulative exchange loss recycled from other comprehensive income - - (2,668) Profit (loss) from discontinued operationsnote (ii) - 835 (1,161) Profit for the period 534 1,993 792 Attributable to: Equity holders of the Company: From continuing operations 512 1,152 1,944 From discontinued operations - 835 (1,161) Non-controlling interests from continuing operations 22 6 9 534 1,993 792 Earnings per share (in cents) 2020 2019 Note Half year Half year Full year Based on profit attributable to equity holders of the Company: B5 Basic Based on profit from continuing operations 19.7�� 44.6�� 75.1�� Based on profit (loss) from discontinued operations - 32.3�� (44.8)�� Total 19.7�� 76.9�� 30.3�� Diluted Based on profit from continuing operations 19.7 �� 44.6�� 75.1�� Based on profit (loss) from discontinued operations - 32.3�� (44.8)�� Total 19.7 �� 76.9�� 30.3�� Dividends per share (in cents) 2020 2019 Note Half year Half year Full year Dividends relating to reporting period: B6 First interim ordinary dividend 5.37�� 20.29�� 20.29�� Second interim ordinary dividend - - 25.97�� Total 5.37�� 20.29�� 46.26�� Dividends paid in reporting period: B6 Current year first interim dividend - - 20.29�� Second interim ordinary dividend for prior year 25.97�� 42.89�� 42.89�� Total 25.97�� 42.89�� 63.18�� * The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019. Notes (i) This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders. (ii) Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019. CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2020 $m 2019 $m Note Half year Half year Full year Continuing operations Profit for the period 534 1,158 1,953 Other comprehensive income (loss): Items that may be reclassified subsequently to profit or loss Exchange movements on foreign operations and net investment hedges: Exchange movements arising during the period (201) 45 152 Related tax - 1 (15) (201) 46 137 Valuation movements on available-for-sale debt securities: Unrealised gains arising in the period (before the impact of Jackson's reinsurance transaction with Athene): Net unrealised gains on holdings arising in the period 2,737 3,411 4,208 Deduct net gains included in the income statement on disposal and impairment (197) (25) (185) 2,540 3,386 4,023 Related change in amortisation of deferred acquisition costs C4.2 (287) (560) (631) Related tax (472) (593) (713) 1,781 2,233 2,679 Impact of Jackson's reinsurance transaction with Athene: D1 Gains recycled to the income statement on transfer of debt securities to Athene (2,817) - - Related change in amortisation of deferred acquisition costs C4.2 535 - - Related tax 479 - - (1,803) - - Total valuation movements on available-for-sale debt securities (22) 2,233 2,679 Total items that may be reclassified subsequently to profit or loss (223) 2,279 2,816 Items that will not be reclassified to profit or loss Shareholders' share of actuarial gains and losses on defined benefit pension schemes: Net actuarial losses on defined benefit pension schemes - (112) (108) Related tax - 18 19 Total items that will not be reclassified to profit or loss - (94) (89) Other comprehensive (loss) income (223) 2,185 2,727 Total comprehensive income for the period from continuing operations 311 3,343 4,680 Profit (loss) for the period from discontinued operations - 835 (1,161) Cumulative exchange loss recycled through profit or loss - - 2,668 Other items, net of related tax - 4 203 Total comprehensive income for the period from discontinued operations��� - 839 1,710 Total comprehensive income for the period 311 4,182 6,390 Attributable to: Equity holders of the Company From continuing operations 290 3,337 4,669 From discontinued operations - 839 1,710 Non-controlling interests from continuing operations 21 6 11 311 4,182 6,390 * The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019. ��� Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Period ended 30 June 2020 $m Note Share capital Share premium Retained earnings Translation reserve Available -for-sale securities reserves Shareholders' equity Non- controlling interests Total equity Reserves Profit for the period - - 512 - - 512 22 534 Other comprehensive loss - - - (200) (22) (222) (1) (223) Total other comprehensive income (loss) for the period - - 512 (200) (22) 290 21 311 Dividends B6 - - (674) - - (674) (16) (690) Reserve movements in respect of share-based payments - - 29 - - 29 - 29 Effect of transactions relating to non-controlling interests - - 32 - - 32 - 32 Share capital and share premium New share capital subscribed C8 - 10 - - - 10 - 10 Treasury shares Movement in own shares in respect of share-based payment plans - - (54) - - (54) - (54) Net increase (decrease) in equity - 10 (155) (200) (22) (367) 5 (362) Balance at beginning of period 172 2,625 13,575 893 2,212 19,477 192 19,669 Balance at end of period 172 2,635 13,420 693 2,190 19,110 197 19,307 Period ended 30 June 2019 $m Note Share capital Share premium Retained earnings Translation reserve Available -for-sale securities reserves Shareholders' equity Non- controlling interests Total equity Reserves Profit from continuing operations for the period - - 1,152 - - 1,152 6 1,158 Other comprehensive income (loss) from continuing operations - - (94) 46 2,233 2,185 - 2,185 Total comprehensive income from continuing operations for the period - - 1,058 46 2,233 3,337 6 3,343 Total comprehensive income from discontinued operations for the period - - 838 1 - 839 - 839 Total comprehensive income (loss) for the period - - 1,896 47 2,233 4,176 6 4,182 Dividends B6 - - (1,108) - - (1,108) - (1,108) Reserve movements in respect of share-based payments - - 3 - - 3 - 3 Share capital and share premium New share capital subscribed C8 - 13 - - - 13 - 13 Foreign exchange translation differences due to change in presentation currency C8 (1) (3) - - - (4) - (4) Treasury shares Movement in own shares in respect of share-based payment plans - - (12) - - (12) - (12) Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS - - 1 - - 1 - 1 Net increase (decrease) in equity (1) 10 780 47 2,233 3,069 6 3,075 Balance at beginning of period 166 2,502 21,817 (2,050) (467) 21,968 23 21,991 Balance at end of period 165 2,512 22,597 (2,003) 1,766 25,037 29 25,066 * The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) Year ended 31 December 2019 $m Note Share capital Share premium Retained earnings Translation reserve Available -for-sale securities reserves Shareholders' equity Non- controlling interests Total equity Reserves Profit from continuing operations - - 1,944 - - 1,944 9 1,953 Other comprehensive income (loss) from continuing operations - - (89) 135 2,679 2,725 2 2,727 Total comprehensive income from continuing operations - - 1,855 135 2,679 4,669 11 4,680 Total comprehensive income (loss) from discontinued operations - - (1,098) 2,808 - 1,710 - 1,710 Total comprehensive income for the year - - 757 2,943 2,679 6,379 11 6,390 Demerger dividend in specie of M&G plc B6 - - (7,379) - - (7,379) - (7,379) Other dividends B6 - - (1,634) - - (1,634) - (1,634) Reserve movements in respect of share-based payments - - 64 - - 64 - 64 Effect of transactions relating to non-controlling interests - - (143) - - (143) 158 15 Share capital and share premium New share capital subscribed C8 - 22 - - - 22 - 22 Impact of change in presentation currency in relation to share capital and share premium C8 6 101 - - - 107 - 107 Treasury shares Movement in own shares in respect of share-based payment plans - - 38 - - 38 - 38 Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS - - 55 - - 55 - 55 Net increase (decrease) in equity 6 123 (8,242) 2,943 2,679 (2,491) 169 (2,322) Balance at beginning of year 166 2,502 21,817 (2,050) (467) 21,968 23 21,991 Balance at end of year 172 2,625 13,575 893 2,212 19,477 192 19,669 * The $2,808 million movement in translation reserve from discontinued operations is recognised in other comprehensive income and represents an exchange gain of $140 million on translating the results from discontinued operations during the period of ownership in 2019 and the recycling of the cumulative exchange loss of $2,668 million through the profit or loss upon the demerger. CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2020 $m 2019 $m Note 30 Jun 30 Jun 31 Dec Assets Goodwill C4.1 942 649 969 Deferred acquisition costs and other intangible assets C4.2 18,604 16,111 17,476 Property, plant and equipment 964 999 1,065 Reinsurers' share of insurance contract liabilitiesnote (i) 44,918 12,919 13,856 Deferred tax assets C7 4,259 3,515 4,075 Current tax recoverable 387 472 492 Accrued investment income 1,517 1,695 1,641 Other debtors 3,211 2,560 2,054 Investment properties 23 14 25 Investments in joint ventures and associates accounted for using the equity method 1,507 1,311 1,500 Loans 14,910 15,925 16,583 Equity securities and holdings in collective investment schemesnote (ii) 234,698 233,757 247,281 Debt securitiesnote (ii) 121,462 126,856 134,570 Derivative assets 2,459 1,555 1,745 Other investmentsnote (ii) 1,569 1,220 1,302 Deposits 3,351 1,898 2,615 Assets held for distributionnote (iii) - 277,861 - Cash and cash equivalents 8,384 6,628 6,965 Total assets C1 463,165 705,945 454,214 Equity Shareholders' equity 19,110 25,037 19,477 Non-controlling interests 197 29 192 Total equity C1 19,307 25,066 19,669 Liabilities Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4) C3.1 391,924 362,933 385,678 Unallocated surplus of with-profits funds C3.1 5,512 3,747 4,750 Core structural borrowings of shareholder-financed businesses C5.1 6,499 9,470 5,594 Operational borrowings 2,245 2,421 2,645 Obligations under funding, securities lending and sale and repurchase agreements 9,085 8,598 8,901 Net asset value attributable to unit holders of consolidated investment funds 5,967 4,432 5,998 Deferred tax liabilities C7 5,278 4,710 5,237 Current tax liabilities 428 406 396 Accruals, deferred income and other liabilities 16,208 13,487 14,488 Provisions 245 323 466 Derivative liabilities 467 1,320 392 Liabilities held for distributionnote (iii) - 269,032 - Total liabilities C1 443,858 680,879 434,545 Total equity and liabilities C1 463,165 705,945 454,214 * The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019. Notes (i) At 30 June 2020, reinsurers' share of insurance contract liabilities include $27.7 billion in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1. (ii) Included within equity securities and holdings in collective investment schemes, debt securities and other investments are $265 million of lent securities as at 30 June 2020 (30 June 2019: $10 million; 31 December 2019: $90 million). (iii) Assets and liabilities held for distribution at 30 June 2019 related to the Group's UK and Europe operations (M&G plc) which were demerged in October 2019. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 2020 $m 2019 $m Note Half year Half year Full year Continuing operations: Cash flows from operating activities Profit before tax (being tax attributable to shareholders' and policyholders' returns) 729 1,444 2,287 Adjustments to profit before tax for non-cash movements in operating assets and liabilities: Investments 24,670 (38,673) (60,812) Other non-investment and non-cash assets (32,617) (2,685) (2,487) Policyholder liabilities (including unallocated surplus) 8,188 34,702 56,067 Other liabilities (including operational borrowings) 1,466 4,072 5,097 Other itemsnote (i) (327) 102 (361) Net cash flows from operating activities 2,109 (1,038) (209) Cash flows from investing activities Net cash flows from purchases and disposals of property, plant and equipment (43) (21) (64) Net cash flows from other investing activitiesnote (ii) (733) (102) (260) Net cash flows from investing activities (776) (123) (324) Cash flows from financing activities Structural borrowings of shareholder-financed operations:note (iii) C5.1 Issuance of debt, net of costs 982 - 367 Redemption of subordinated debt - (504) (504) Fees paid to modify terms and conditions of debt issued by the Group - (182) (182) Interest paid (157) (289) (526) Equity capital: Issues of ordinary share capital 10 13 22 External dividends: Dividends paid to the Company's shareholders B6 (674) (1,108) (1,634) Dividends paid to non-controlling interests (16) - - Net cash flows from financing activities 145 (2,070) (2,457) Net increase (decrease) in cash and cash equivalents from continuing operations 1,478 (3,231) (2,990) Net cash flows from discontinued operationsnote (iv) - 292 (5,690) Cash and cash equivalents at beginning of period 6,965 15,442 15,442 Effect of exchange rate changes on cash and cash equivalents (59) 10 203 Cash and cash equivalents at end of period 8,384 12,513 6,965 Comprising: Cash and cash equivalents from continuing operations 8,384 6,628 6,965 Cash and cash equivalents from discontinued operations - 5,885 - * The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019. Notes (i) The adjusting items to profit before tax included within other items are adjustments in respect of non-cash items together with operational interest receipts and payments, dividend receipts and tax paid. (ii) Net cash flows from other investing activities include amounts paid for distribution rights and cash flows arising from the acquisitions and disposals of businesses. (iii) Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group (including both continuing and discontinued operations in 2019) are analysed below: Cash movements $m Non-cash movements $m Balance at beginning of period Issue of debt Redemption of debt Foreign exchange movement Demerger of UK and Europe operations Other movements Balance at end of period 30 Jun 2020 5,594 982 - (84) - 7 6,499 30 Jun 2019 9,761 - (504) (6) 219 - 9,470 31 Dec 2019 9,761 367 (504) 116 (4,161) 15 5,594 (iv) Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019. The half year and full year 2019 cash flows shown above are presented excluding any transactions between continuing and discontinued operations. NOTES TO PRIMARY STATEMENTS A Basis of preparation A1 Basis of preparation and exchange rates These condensed consolidated interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). The Group's policy for preparing this interim financial information is to use the accounting policies adopted by the Group in its last consolidated financial statements, as updated by any changes in accounting policies it intends to make in its next consolidated financial statements as a result of new or amended IFRS and other policy improvements. EU-endorsed IFRS may differ from IFRSs issued by the IASB if, at any point in time, new or amended IFRS have not been endorsed by the EU. At 30 June 2020, there were no unendorsed standards effective for the period ended 30 June 2020 which impacted the condensed consolidated financial statements of the Group, and there were no differences between IFRS endorsed by the EU and IFRS issued by the IASB in terms of their application to the Group. The IFRS basis results for half year 2020 and half year 2019 are unaudited. The 2019 full year IFRS basis results have been derived from the 2019 statutory accounts. The auditors have reported on the 2019 statutory accounts which have been delivered to the Registrar of Companies. The auditors' report was: (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. Going concern basis of accounting Prudential aims to meet the savings and investment needs of its customers, which by their very nature can often be over a timeframe of many years. The Group as a whole and each of its life assurance operations are subject to extensive regulation and supervision, which are designed primarily to reinforce the Group's management of its long-term solvency, liquidity and viability to ensure that it can continue to meet obligations to policyholders. Risk management is core to the Group's activities. In assessing going concern, the Directors took account of the Group's principal risks and the mitigations available to it which are described in the Group Chief Risk and Compliance Officer's report. After making sufficient enquiries the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that these interim financial statements are approved. No material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern have been identified. In half year 2020, the Covid-19 pandemic has impacted the global economy and the Group's individual markets to varying degrees and at different periods, and the full extent of the longer-term impacts are currently uncertain. The Directors have made the assessment of going concern taking into account both the Group's current performance and the Group's outlook. In particular, the Directors considered the adequacy of the Group's solvency, liquidity and financial performance using revised projections from the previous business plan that reflected the shift in market conditions as a result of Covid-19 together with the impact of targeted related management actions. In terms of liquidity, at 30 June 2020, the Group had central cash and short-term investment balances of $1.9 billion as set out in the Group's Chief Financial Officer and Chief Operating Officer's report. This amount has been subject to stress testing that assumes the closure of short-term debt markets, as well as additional calls on liquidity by the business units. This stress testing allows for the fact that the Group has undrawn liquidity facilities of $2.6 billion available to it. To factor in the uncertainty of the longer-term impacts of Covid-19, a number of stress scenarios have been assessed, for example scenarios of different durations of lockdown and the associated recovery back to a normalised level of sales, with stress scenarios assuming a significant overall contraction in sales and worsened market conditions compared to 2019. The Directors noted the effect of a number of stresses on the Group's capital position, including those set out in note I(i) Group capital position within Additional Financial Information. The Group was considered to have sufficient regulatory capital to meet stressed changes in market conditions that are severe but plausible. For the Group's US operations, the beneficial impact on the local RBC solvency position of the equity investment by Athene Life Re Ltd in July 2020 (as discussed in note D3) was also factored into the assessment. The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these interim financial statements for the period ended 30 June 2020. Exchange rates The exchange rates applied for balances and transactions in the presentation currency of the Group, US dollars ($), and other currencies were: $: Local currency Closing rate as at period end Average rate for the period to date 30 Jun 2020 30 Jun 2019 31 Dec 2019 Half year 2020 Half year 2019 Full year 2019 China 7.07 6.87 6.97 7.03 6.78 6.91 Hong Kong 7.75 7.81 7.79 7.76 7.84 7.84 Indonesia 14,285.00 14,127.50 13,882.50 14,574.24 14,192.79 14,140.84 Malaysia 4.29 4.13 4.09 4.25 4.12 4.14 Singapore 1.40 1.35 1.34 1.40 1.36 1.36 Thailand 30.87 30.69 29.75 31.62 31.61 31.05 UK 0.81 0.79 0.75 0.79 0.77 0.78 Vietnam 23,206.00 23,305.00 23,172.50 23,303.21 23,253.04 23,227.64 Certain notes to the financial statements present half year 2019 comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the condensed consolidated financial statements. AER are actual historical exchange rates for the specific accounting period, being the average rates over the period for the income statement and the closing rates at the balance sheet date for the statement of financial position. CER results are calculated by translating prior period results using the current period foreign exchange rate, ie current period average rates for the income statement and current period closing rates for the statement of financial position. The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements for the year ended 31 December 2019, as disclosed in the 2019 statutory accounts, aside from those discussed in note A2 below. A2 New accounting pronouncements in 2020 The IASB has issued the following new accounting pronouncements to be effective from 1 January 2020: - Amendments to IAS 1 and IAS 8 'Definition of Material'; - Amendment to IFRS 3 'Business Combinations'; and - Amendments to IFRS 9, IAS 39 and IFRS 7 'Interest Rate Benchmark Reform'. The adoption of these pronouncements have had no significant impact on the Group financial statements. B EARNINGS PERFORMANCE B1 Analysis of performance by segment B1.1 Segment results 2020 $m 2019 $m 2020 vs 2019 % 2019 $m Note Half year AER Half year CER Half year AER Half year CER Half year AER Full year note (i) note (i) note (i) note (i) note (i) Continuing operations: Asia Insurance operations 1,590 1,417 1,396 12% 14% 2,993 Asset management 143 133 130 8% 10% 283 Total Asia 1,733 1,550 1,526 12% 14% 3,276 US Insurance operations (Jackson) 1,256 1,556 1,556 (19)% (19)% 3,038 Asset management 10 16 16 (38)% (38)% 32 Total US 1,266 1,572 1,572 (19)% (19)% 3,070 Total segment profit 2,999 3,122 3,098 (4)% (3)% 6,346 Other income and expenditure: Investment return and other income 18 32 31 (44)% (42)% 50 Interest payable on core structural borrowings (163) (293) (286) 44% 43% (516) Corporate expenditurenote (ii) (205) (212) (211) 3% 3% (460) Total other income and expenditure (350) (473) (466) 26% 25% (926) Restructuring and IFRS 17 implementation costs (108) (30) (28) (260)% (286)% (110) Adjusted operating profit B1.3 2,541 2,619 2,604 (3)% (2)% 5,310 Short-term fluctuations in investment returns on shareholder-backed business B1.2 (2,706) (1,455) (1,445) (86)% (87)% (3,203) Amortisation of acquisition accounting adjustmentsnote (iii) (18) (22) (21) 18% 14% (43) Gain (loss) attaching to corporate transactions D1 846 17 20 n/a n/a (142) Profit before tax attributable to shareholders 663 1,159 1,158 (43)% (43)% 1,922 Tax (charge) credit attributable to shareholders' returns B4 (129) (1) 1 n/a n/a 31 Profit for the period from continuing operations 534 1,158 1,159 (54)% (54)% 1,953 Discontinued UK and Europe operations' profit after tax - 835 813 n/a n/a 1,319 Re-measurement of discontinued operations on demerger - - - n/a n/a 188 Cumulative exchange loss recycled from other comprehensive income - - - n/a n/a (2,668) Profit (loss) for the period from discontinued operations - 835 813 n/a n/a (1,161) Profit for the period 534 1,993 1,972 (73)% (73)% 792 Attributable to: Equity holders of the Company From continuing operations 512 1,152 1,153 (56)% (56)% 1,944 From discontinued operations - 835 813 n/a n/a (1,161) Non-controlling interests from continuing operations 22 6 6 267% 267% 9 534 1,993 1,972 (73)% (73)% 792 Basic earnings per share (in cents) 2020 2019 2020 vs 2019 % 2019 Note AER Half year AER Half year CER Half year AER Half year CER Half year AER Full year B5 note (i) note (i) note (i) note (i) note (i) note (i) Based on adjusted operating profit, net of tax, from continuing operationsnote (iv) 79.0�� 84.5�� 84.3�� (7)% (6)% 175.0�� Based on profit for the period from continuing operations 19.7 �� 44.6�� 44.8�� (56)% (56)% 75.1�� Based on profit (loss) for the period from discontinued operations - 32.3�� 31.5�� n/a n/a (44.8)�� Notes (i) For definitions of AER and CER refer to note A1. (ii) Corporate expenditure as shown above is primarily for head office functions in London and Hong Kong. (iii) Amortisation of acquisition accounting adjustments principally relate to the REALIC business of Jackson which was acquired in 2012. (iv) Tax charges have been reflected as operating and non-operating in the same way as for the pre-tax items. Further details on tax charges are provided in note B4. B1.2 Short-term fluctuations in investment returns on shareholder-backed business 2020 $m 2019 $m Half year Half year Full year Asia operationsnote (i) (448) 544 657 US operationsnote (ii) (2,288) (1,968) (3,757) Other operations 30 (31) (103) Total (2,706) (1,455) (3,203) (i) Asia operations In Asia, the negative short-term fluctuations of $(448) million (half year 2019: positive $544 million; full year 2019: positive $657 million) reflect the net value movements on shareholders' assets and policyholder liabilities arising from market movements in the period. In half year 2020 falling interest rates in certain parts of Asia led to lower discount rates on policyholder liabilities under the local reserving basis applied, which were not fully offset by unrealised bond gains in the period. This together with the effect of falling equity markets led to the overall negative short-term investment fluctuations in Asia. (ii) US operations The short-term fluctuations in investment returns in the US are reported net of the related charge for amortisation of deferred acquisition costs (DAC) of $(50) million as shown in note C4.2 (half year 2019: credit of $616 million; full year 2019: credit of $1,248 million) and comprise amounts in respect of the following items: 2020 $m 2019 $m Half year Half year Full year Net equity hedge resultnote (a) (4,378) (2,529) (4,582) Other than equity-related derivativesnote (b) 2,114 560 678 Debt securitiesnote (c) 175 14 156 Equity-type investments: actual less longer-term return (128) (9) 18 Other items (71) (4) (27) Total net of related DAC amortisation (2,288) (1,968) (3,757) Notes (a) The purpose of the inclusion of net equity hedge result in short-term fluctuations in investment returns is to segregate the amount included in pre-tax profit that relates to the accounting effect of market movements on both the value of guarantees in Jackson's products including variable annuities and on the related derivatives used to manage the exposures inherent in these guarantees. The level of fees recognised in non-operating profit is determined by reference to that allowed for within the reserving basis. The variable annuity guarantees are valued in accordance with either Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures or ASC Topic 944, Financial Services - Insurance depending on the type of guarantee. Both approaches require an entity to determine the total fee ('the fee assessment') that is expected to fund future projected benefit payments arising using the assumptions applicable for that method. The method under ASC Topic 820 requires this fee assessment to be fixed at the time of issue. As the fees included within the initial fee assessment are earned, they are included in non-operating profit to match the corresponding movement in the guarantee liability. Other guarantee fees are included in operating profit, which in half year 2020 was $350 million (half year 2019: $341 million; full year 2019: $699 million), pre-tax and net of related DAC amortisation. As the Group applies US GAAP for the measured value of the product guarantees, the net equity hedge result also includes asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ. The net equity hedge result therefore includes significant accounting mismatches and other factors that do not represent the economic result. These other factors include: - The variable annuity guarantees and fixed indexed annuity embedded options being only partially fair valued under 'grandfathered' US GAAP; - The interest rate exposure being managed through the other than equity-related derivative programme explained in note (b) below; and - Jackson's management of its economic exposures for a number of other factors that are treated differently in the accounting frameworks such as future fees and assumed volatility levels. The net equity hedge result can be summarised as follows: 2020 $m 2019 $m Half year Half year Full year Fair value movements on equity hedge instruments (301) (3,190) (5,314) Accounting value movements on the variable and fixed indexed annuity guarantee liabilities (4,503) 294 (22) Fee assessments net of claim payments 426 367 754 Total net of related DAC amortisation (4,378) (2,529) (4,582) * The value movement on the variable annuity guarantees and fixed indexed annuity options is discussed in the Group Chief Financial Officer and Chief Operating Officer's report. (b) The fluctuations for other than equity-related derivatives comprise the net effect of: - Fair value movements on free-standing, other than equity-related derivatives; - Fair value movements on the Guaranteed Minimum Income Benefit (GMIB) reinsurance asset that are not matched by movements in the underlying GMIB liability, which is not fair valued; and - Related amortisation of DAC. The free-standing, other than equity-related derivatives, are held to manage interest rate exposures and durations within the general account and the variable annuity guarantees and fixed indexed annuity embedded options described in note (a) above. Accounting mismatches arise because of differences between the measurement basis and presentation of the derivatives, which are fair valued with movements recorded in the income statement, and the exposures they are intended to manage. (c) Short-term fluctuations related to debt securities is analysed below: 2020 $m 2019 $m Half year Half year Full year Credits (charges) in the period: Losses on sales of impaired and deteriorating bonds (148) (24) (28) Bond write-downs (31) (1) (15) Recoveries/reversals 1 1 1 Total credits (charges) in the period (178) (24) (42) Risk margin allowance deducted from adjusted operating profit 55 54 109 (123) 30 67 Interest-related realised gains (losses): Gains (losses) arising in the period��� 369 42 220 Amortisation of gains and losses arising in current and prior periods to adjusted operating profit (67) (59) (129) 302 (17) 91 Related amortisation of deferred acquisition costs (4) 1 (2) Total short-term fluctuations related to debt securities net of related DAC amortisation 175 14 156 * The debt securities of Jackson are held in the general account of the business. Realised gains and losses are recorded in the income statement with normalised returns included in adjusted operating profit with variations from period to period included in the short-term fluctuations category. The risk margin reserve charge for longer-term credit-related losses included in adjusted operating profit of Jackson for half year 2020 is based on an average annual risk margin reserve of 18 basis points (half year 2019: 18 basis points; full year 2019: 17 basis points) on average book values of $62.3 billion (half year 2019: $60.0 billion; full year 2019: $62.6 billion) as shown below: Moody's rating category (or equivalent under NAIC ratings of mortgage-backed securities) Half year 2020 Half year 2019 Full year 2019 Average book value RMR Annual expected loss Average book value RMR Annual expected loss Average book value RMR Annual expected loss $m % $m $m % $m $m % $m A3 or higher 39,118 0.10 (40) 34,318 0.10 (36) 38,811 0.10 (38) Baa1, 2 or 3 21,521 0.24 (51) 24,385 0.23 (55) 22,365 0.24 (53) Ba1, 2 or 3 1,383 0.74 (10) 1,008 0.93 (10) 1,094 0.85 (9) B1, 2 or 3 200 2.39 (5) 246 2.62 (6) 223 2.56 (6) Below B3 108 3.36 (4) 37 3.42 (1) 75 3.39 (3) Total 62,330 0.18 (110) 59,994 0.18 (108) 62,568 0.17 (109) Related amortisation of deferred acquisition costs 20 18 19 Risk margin reserve charge to adjusted operating profit for longer-term credit-related losses (90) (90) (90) ��� Excluding the realised gains that are part of the gain arising in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1. In addition to the accounting for realised gains and losses described above for Jackson general account debt securities, included within the statement of other comprehensive income is a pre-tax gain of $2,253 million for net unrealised gains arising during the period on debt securities classified as available-for-sale net of related amortisation of deferred acquisition costs (half year 2019: gain of $2,826 million; full year 2019: gain of $3,392 million for net unrealised losses), together with a pre-tax loss of $(2,282) million for the recycling of the gains on transfer of debt securities to Athene (see note D1) to the income statement, net of related amortisation of deferred acquisition costs. Temporary market value movements do not reflect defaults or impairments. Additional details of the movement in the value of the Jackson portfolio are included in note C1.1. B1.3 Determining operating segments and performance measure of operating segments Operating segments The Group's operating segments for financial reporting purposes are defined and presented in accordance with IFRS 8 'Operating Segments' on the basis of the management reporting structure and its financial management information. Under the Group's management and reporting structure, its chief operating decision maker is the Group Executive Committee (GEC). In the management structure, responsibility is delegated to the Chief Executive Officers of the Group's Asia and US business units for the day-to-day management of their business units (within the framework set out in the Group Governance Manual). Financial management information used by the GEC aligns with these business segments. These operating segments derive revenue from both insurance and asset management activities. Operations which do not form part of any business unit are reported as 'Unallocated to a segment'. These include head office costs in London and Hong Kong. The Group's Africa operations and treasury function do not form part of any operating segment under the structure, and their assets and liabilities and profit or loss before tax are not material to the overall financial position of the Group. The Group's treasury function and Africa operations are therefore also reported as 'Unallocated to a segment'. Performance measure The performance measure of operating segments utilised by the Company is adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit), as described below. This measurement basis distinguishes adjusted operating profit from other constituents of total profit or loss for the period as follows: - Short-term fluctuations in investment returns on shareholder-backed business. This includes the impact of short-term market effects on the carrying value of Jackson's guarantee liabilities and related derivatives as explained below; - Amortisation of acquisition accounting adjustments arising on the purchase of business. This comprises principally the charge for the adjustments arising on the purchase of REALIC in 2012; and - Gain or loss on corporate transactions, such as the effect of the Jackson's reinsurance arrangement with Athene Life Re Ltd in half year 2020, disposals undertaken and costs connected to the demerger of M&G plc from Prudential plc in 2019. The determination of adjusted operating profit for investment and liability movements is as described in note B1.3 of the Group's consolidated financial statements for the year ended 31 December 2019. For Group debt securities at 30 June 2020 held by the insurance operations in Asia and the US, the level of unamortised interest-related realised gains and losses related to previously sold bonds for the Group was a net gain of $1,301 million (30 June 2019: net gain of $738 million; 31 December 2019: net gain of $916 million). For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returns for income and capital having regard to past performance, current trends and future expectations. Different rates apply to different categories of equity-type securities. - For Asia insurance operations, investments in equity securities held for non-linked shareholder-backed business amounted to $5,712 million as at 30 June 2020 (30 June 2019: $2,904 million; 31 December 2019: $3,473 million). The longer-term rates of return applied in half year 2020 ranged from 4.6 per cent to 17.6 per cent (30 June 2019: 5.2 per cent to 17.6 per cent; 31 December 2019: 5.0 per cent to 17.6 per cent) with the rates applied varying by business unit. - For US insurance operations, as at 30 June 2020, the equity-type securities for non-separate account operations amounted to $1,854 million (30 June 2019: $1,499 million; 31 December 2019: $1,481 million). For these operations, the longer-term rates of return for income and capital applied in 2020 and 2019, which reflect the combination of the average risk-free rates over the period and appropriate risk premiums are as follows: 2020 2019 Half year Half year Full year Equity-type securities such as common and preferred stock and portfolio holdings in mutual funds 4.9% to 5.8% 6.0% to 6.7% 5.5% to 6.7% Other equity-type securities such as investments in limited partnerships and private equity funds 6.9% to 7.8% 8.0% to 8.7% 7.5% to 8.7% B2 Acquisition costs and other expenditure 2020 $m 2019 $m Half year Half year Full year Acquisition costs incurred for insurance policies (1,433) (2,109) (4,177) Acquisition costs deferrednote C4.2 614 625 1,422 Amortisation of acquisition costsnote (i) (470) 376 694 Recoveries for expenses associated with Jackson's business ceded to Athenenote (ii) 1,231 - - Administration costs and other expenditurenote (iii) (2,584) (2,291) (5,019) Movements in amounts attributable to external unit holders of consolidated investment funds (390) (109) (203) Total acquisition costs and other expenditure (3,032) (3,508) (7,283) Notes (i) The charge of $(470) million in half year 2020 includes $(313) million arising in the US which includes $(764) million for the write-off of the deferred acquisition costs held for the in-force fixed and fixed indexed annuity liabilities reinsured to Athene. Offsetting this amount is a credit of $814 million (half year 2019: $616 million; full year 2019: $1,248 million) recorded in non-operating profit largely as a result of the losses arising from market effects on variable annuity guarantee liabilities and associated hedging. (ii) As part of the reinsurance transaction with Athene Life Re Ltd discussed in note D1, Jackson received $1,231 million of ceding commission as a recovery for past acquisition expenses associated with the business ceded. (iii) Included in total administration costs and other expenditure is depreciation of property, plant and equipment of $(109) million (half year 2019: $(107) million; full year 2019: $(224) million), of which $(72) million (half year 2019: $(66) million; full year 2019: $(141) million) relates to the right-of-use assets recognised under IFRS 16. B3 Additional segmental analysis of revenue Half year 2020 $m Asia US Total segment Unallocated to a segment Group total Gross premiums earned 10,890 8,892 19,782 60 19,842 Outward reinsurance premiumsnote (i) 50 (30,195) (30,145) (4) (30,149) Earned premiums, net of reinsurance 10,940 (21,303) (10,363) 56 (10,307) Other incomenote (ii) 285 28 313 20 333 Total external revenue 11,225 (21,275) (10,050) 76 (9,974) Intra-group revenue - 17 17 (17) - Interest income 883 1,283 2,166 22 2,188 Other investment return 3,235 (1,575) 1,660 62 1,722 Total revenue, net of reinsurance 15,343 (21,550) (6,207) 143 (6,064) Half year 2019 $m Asia US Total segment Unallocated to a segment Group total Gross premiums earned 11,458 9,588 21,046 35 21,081 Outward reinsurance premiums (499) (170) (669) (4) (673) Earned premiums, net of reinsurance 10,959 9,418 20,377 31 20,408 Other incomenote (ii) 228 14 242 16 258 Total external revenue 11,187 9,432 20,619 47 20,666 Intra-group revenue 21 31 52 (52) - Interest income 805 1,460 2,265 27 2,292 Other investment return 8,826 20,732 29,558 23 29,581 Total revenue, net of reinsurance 20,839 31,655 52,494 45 52,539 Full year 2019 $m Asia US Total segment Unallocated to a segment Group total Gross premiums earned 23,757 21,209 44,966 98 45,064 Outward reinsurance premiums (1,108) (467) (1,575) (8) (1,583) Earned premiums, net of reinsurance 22,649 20,742 43,391 90 43,481 Other incomenote (ii) 548 61 609 91 700 Total external revenue 23,197 20,803 44,000 181 44,181 Intra-group revenue - 34 34 (34) - Interest income 1,569 2,971 4,540 67 4,607 Other investment return 13,406 31,623 45,029 (81) 44,948 Total revenue, net of reinsurance 38,172 55,431 93,603 133 93,736 Notes (i) In half year 2020, outward reinsurance premiums include $(30,150) million paid during the period in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd. See note D1 for further details. Also included in outward reinsurance premiums for half year 2020 is a credit of $542 million for the recapture of previously reinsured business in Asia. (ii) Other income comprises income from external customers and consists primarily of revenue from the Group's asset management business of $261 million (half year 2019: $198 million; full year 2019: $453 million). The remaining other income consists primarily of policy fee revenue from external customers. B4 Tax charge B4.1 Total tax charge by nature The total tax charge in the income statement is as follows: 2020 $m 2019 $m Tax charge Current tax Deferred tax Half year Total Half year Total Full year Total Attributable to shareholders: Asia operations (103) (127) (230) (244) (468) US operations (70) 183 113 143 345 Other operations (16) 4 (12) 100 154 Tax (charge) credit attributable to shareholders' returns (189) 60 (129) (1) 31 Attributable to policyholders: Asia operations (69) 3 (66) (285) (365) Total tax (charge) credit (258) 63 (195) (286) (334) The principal reason for the increase in the tax charge attributable to shareholders' returns is the losses arising in Other operations where, following the demerger of M&G plc, it is unlikely that relief will be available in future periods. The principal reason for the decrease in the tax charge attributable to policyholders' returns reflects the reduction in deferred tax liabilities in Singapore following the clarification of tax filing requirements. B4.2 Reconciliation of shareholder effective tax rate In the reconciliation below, the expected tax rates reflect the corporation tax rates that are expected to apply to the taxable profit or loss of the relevant business. Where there are profits or losses of more than one jurisdiction, the expected tax rates reflect the corporation tax rates weighted by reference to the amount of profit or loss contributing to the aggregate business result. 2020 2019 Half year Half year Full year Asia operations US operations Other operations Total attributable to shareholders Percentage impact on ETR Total attributable to shareholders Percentage impact on ETR Total attributable to shareholders Percentage impact on ETR $m $m $m $m % $m % $m % note (iv) Adjusted operating profit (loss) 1,733 1,266 (458) 2,541 2,619 5,310 Non-operating (loss) profit (450) (1,458) 30 (1,878) (1,460) (3,388) Profit (loss) before tax 1,283 (192) (428) 663 1,159 1,922 Expected tax rate: 20% 21% 18% 21% Tax at the expected rate 257 (40) (77) 140 21.1% 232 20.0% 393 20.4% Effects of recurring tax reconciliation items: Income not taxable or taxable at concessionary rates (31) (14) - (45) (6.8)% (70) (6.0)% (126) (6.6)% Deductions not allowable for tax purposes 12 6 3 21 3.2% 26 2.2% 55 2.9% Items related to taxation of life insurance businessesnote (i) 7 (62) - (55) (8.3)% (179) (15.4)% (317) (16.5)% Deferred tax adjustments 3 - - 3 0.5% (12) (1.0)% (33) (1.7)% Unrecognised tax lossesnote (ii) - - 72 72 10.9% - - 46 2.4% Effect of results of joint ventures and associates (31) - (6) (37) (5.6)% (35) (3.0)% (100) (5.2)% Irrecoverable withholding taxes - - 26 26 3.9% 27 2.3% 59 3.1% Other 3 13 (6) 10 1.5% 5 0.4% 13 0.7% Total (37) (57) 89 (5) (0.7)% (238) (20.5)% (403) (20.9)% Effects of non-recurring tax reconciliation items: Adjustments to tax charge in relation to prior years 21 - - 21 3.1% 20 1.7% (67) (3.5)% Movements in provisions for open tax mattersnote (iii) (12) - - (12) (1.8)% 8 0.7% (1) 0.0% Demerger related activities - - - - - 4 0.4% 76 4.1% Impact of carry back of US losses - (16) - (16) (2.4)% - - - - Impact of changes in local statutory tax rates 1 - - 1 0.2% - - - - Adjustments in relation to business disposals - - - - - (25) (2.2)% (29) (1.4)% Total 10 (16) - (6) (0.9)% 7 0.6% (21) (1.1)% Total actual tax charge (credit) 230 (113) 12 129 19.5% 1 0.1% (31) (1.6)% Analysed into: Tax on adjusted operating profit (loss) 260 195 12 467 430 773 Tax on non-operating (loss) profit (30) (308) - (338) (429) (804) Actual tax rate on: Adjusted operating profit (loss): Including non-recurring tax reconciling items 15% 15% (3)% 18% 16% 15% Excluding non-recurring tax reconciling items 14% 15% (3)% 18% 16% 15% Total profit (loss) 18% 59% (3)% 19% 0% (2)% Notes (i) The $62 million reconciling item in US operations reflects the impact of the dividend received deduction on the taxation of profits from variable annuity business. The $7 million adverse reconciling item in Asia operations reflects non tax deductible investment related marked-to-market losses. (ii) The $72 million adverse reconciling item in unrecognised tax losses reflects losses arising where it is unlikely that relief for the losses will be available in future periods. (iii) The statement of financial position contains the following provisions in relation to open tax matters. Half year 2020 $m At beginning of period 198 Movements in the current period included in tax charge attributable to shareholders (12) Provisions utilised in the period (34) Other movements (3) At end of period 149 * Other movements include interest arising on open tax matters and amounts included in the Group's share of profits from joint ventures and associates, net of related tax. (iv) Half year and full year 2019 actual tax rate of the relevant business operations are shown below: Half year 2019 % Full year 2019 % Asia operations US operations Other operations Total attributable to shareholders Asia operations US operations Other operations Total attributable to shareholders Tax rate on adjusted operating profit (loss) 14% 17% 10% 16% 13% 14% 10% 15% Tax rate on profit (loss) before tax 10% 35% 13% 0% 11% 48% 10% (2)% B5 Earnings per share Half year 2020 Before tax Tax Non-controlling interests Net of tax and non- controlling interests Basic earnings per share Diluted earnings per share $m $m $m $m cents cents Based on adjusted operating profit 2,541 (467) (22) 2,052 79.0�� 79.0�� Short-term fluctuations in investment returns on shareholder-backed business (2,706) 513 - (2,193) (84.4)�� (84.4)�� Amortisation of acquisition accounting adjustments (18) 3 - (15) (0.6)�� (0.6)�� Gain (loss) attaching to corporate transactions 846 (178) - 668 25.7�� 25.7�� Based on profit for the period 663 (129) (22) 512 19.7�� 19.7�� Half year 2019 Before tax Tax Non-controlling interests Net of tax and non- controlling interests Basic earnings per share Diluted earnings per share $m $m $m $m cents cents Based on adjusted operating profit 2,619 (430) (6) 2,183 84.5�� 84.5�� Short-term fluctuations in investment returns on shareholder-backed business (1,455) 407 - (1,048) (40.6)�� (40.6)�� Amortisation of acquisition accounting adjustments (22) 4 - (18) (0.7)�� (0.7)�� Gain (loss) attaching to corporate transactions 17 18 - 35 1.4�� 1.4�� Based on profit for the period from continuing operations 1,159 (1) (6) 1,152 44.6�� 44.6�� Based on profit for the period from discontinued operations 835 32.3�� 32.3�� Based on profit for the period 1,987 76.9�� 76.9�� Full year 2019 Before tax Tax Non-controlling interests Net of tax and non- controlling interests Basic earnings per share Diluted earnings per share $m $m $m $m cents cents Based on adjusted operating profit 5,310 (773) (9) 4,528 175.0�� 175.0�� Short-term fluctuations in investment returns on shareholder-backed business (3,203) 772 - (2,431) (94.0)�� (94.0)�� Amortisation of acquisition accounting adjustments (43) 8 - (35) (1.3)�� (1.3)�� Gain (loss) attaching to corporate transactions (142) 24 - (118) (4.6)�� (4.6)�� Based on profit for the year from continuing operations 1,922 31 (9) 1,944 75.1�� 75.1�� Based on loss for the year from discontinued operations (1,161) (44.8)�� (44.8)�� Based on profit for the year 783 30.3�� 30.3�� Earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests. The weighted average number of shares for calculating earnings per share, which excludes those held in employee share trusts and consolidated investment funds, is set out as below: Number of shares (in millions) 2020 2019 Weighted average number of shares for calculation of: Half year Half year Full year Basic earnings per share 2,596 2,583 2,587 Shares under option at end of period 2 4 4 Shares that would have been issued at fair value on assumed option price (2) (3) (4) Diluted earnings per share 2,596 2,584 2,587 B6 Dividends Half year 2020 Half year 2019 Full year 2019 Cents per share $m Cents per share $m Cents per share $m Dividends relating to reporting period: First interim ordinary dividend 5.37�� 140 20.29�� 526 20.29�� 528 Second interim ordinary dividend - - - - 25.97�� 675 Total 5.37�� 140 20.29�� 526 46.26�� 1,203 Dividends paid in reporting period: Current year first interim ordinary dividend - - - - 20.29�� 526 Second interim ordinary dividend for prior year 25.97�� 674 42.89�� 1,108 42.89�� 1,108 Total 25.97�� 674 42.89�� 1,108 63.18�� 1,634 In addition to the dividends shown in the table above, on 21 October 2019, following approval by the Group's shareholders, Prudential plc demerged its UK and Europe operations (M&G plc) via a dividend in specie of $7,379 million. Dividend per share The 2020 first interim dividend of 5.37 cents per ordinary share will be paid on 28 September 2020 to shareholders in the UK on the register at 6.00pm BST and to shareholders on the Hong Kong branch register at 4.30pm Hong Kong time on 21 August 2020 (Record Date). Shareholders holding shares on the UK or Hong Kong share registers will continue to receive their dividend payments in either pounds sterling or Hong Kong dollars respectively, unless they elect otherwise. Shareholders holding shares on the UK or Hong Kong registers may elect to receive dividend payments in US dollars. Elections must be made through the relevant UK or Hong Kong share registrar on or before 7 September and 11 September 2020 respectively. The corresponding amount per share in pounds sterling and Hong Kong dollars is expected to be announced on or about 17 September 2020.The US dollar to pound sterling and Hong Kong dollar conversion rates will be determined by the actual rates achieved by Prudential buying those currencies during the two working days preceding the subsequent announcement. Holders of US American Depositary Receipts (US Shareholders) will be paid their dividends in US dollars on or about 28 September 2020. The 2020 first interim dividend will be paid on or about 5 October 2020 to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte) Limited (CDP) at 5.00pm Singapore time on the Record Date (SG Shareholders). The exchange rate at which the dividend payable to the SG Shareholders will be translated from US dollars into Singapore dollars, will be determined by CDP. Shareholders on the UK register are eligible to participate in a Dividend Reinvestment Plan. C FINANCIAL POSITION C1 Group assets and liabilities by business type The analysis below is structured to show the investments and other assets and liabilities of the Group by reference to the differing degrees of policyholder and shareholder economic interest of the different types of business. The Group has streamlined its disclosures relating to the investments, other assets and liabilities of the Group in these condensed consolidated financial statements, including combining various disclosures into a single section within this note and further analysis of the categories of debt securities. The 2019 comparative information, in particular that relating to investments, has been re-presented from previously published information to conform to the current period's format and the altered approach to credit ratings analysis described below. Debt securities are analysed below according to the issuing government for sovereign debt and to credit ratings for the rest of the securities. In 2020, to align more closely with the internal risk management analysis, the Group altered the compilation of its credit ratings analysis to use the middle of the Standard & Poor's, Moody's and Fitch ratings, where available. Where ratings are not available from these rating agencies, NAIC ratings (for the US), local external rating agencies' ratings and lastly internal ratings have been used. Securities with none of the ratings listed above are classified as unrated and included under the 'below BBB- and unrated' category. The total securities (excluding sovereign debt) that were unrated at 30 June 2020 were $788 million (30 June 2019: $794 million; 31 December 2019: $648 million). Previously, Standard & Poor's ratings were used where available and if not, Moody's and then Fitch were used as alternatives. Additionally, government debt is shown separately from the rating breakdowns in order to provide a more focused view of the credit portfolio. In the table below, AAA is the highest possible rating. Investment grade financial assets are classified within the range of AAA to BBB- ratings. Financial assets which fall outside this range are classified as below BBB-. 30 Jun 2020 $m Asia insurance With -profits business Unit-linked assets and liabilities Other business Asia Asset manage- ment Elimina- tions Total Asia US Unallocated to a segment Elimination of intra-group debtors and creditors Group total note (i) note (ii) Debt securitiesnote (ix), note C1.1 Sovereign debt Indonesia 381 580 455 - - 1,416 - - - 1,416 Singapore 2,788 525 904 88 - 4,305 - - - 4,305 Thailand - - 1,567 16 - 1,583 - - - 1,583 United Kingdom - 7 - - - 7 - 154 - 161 United States 24,656 23 2,356 - - 27,035 5,371 - - 32,406 Vietnam - 14 2,789 - - 2,803 - - - 2,803 Other (predominantly Asia) 1,816 687 3,216 13 - 5,732 19 140 - 5,891 Subtotal 29,641 1,836 11,287 117 - 42,881 5,390 294 - 48,565 Other government bonds AAA 1,464 103 479 - - 2,046 447 - - 2,493 AA+ to AA- 353 34 101 - - 488 519 - - 1,007 A+ to A- 524 113 226 - - 863 191 - - 1,054 BBB+ to BBB- 466 88 248 8 - 810 2 - - 812 Below BBB- and unrated 104 17 331 - - 452 - 1 - 453 Subtotal 2,911 355 1,385 8 - 4,659 1,159 1 - 5,819 Corporate bonds AAA 1,122 270 504 - - 1,896 265 - - 2,161 AA+ to AA- 1,575 273 1,712 2 - 3,562 973 - - 4,535 A+ to A- 6,670 808 4,723 - - 12,201 11,792 - - 23,993 BBB+ to BBB- 7,806 1,043 3,389 - - 12,238 14,036 - - 26,274 Below BBB- and unrated 2,835 655 945 3 - 4,438 2,046 7 - 6,491 Subtotal 20,008 3,049 11,273 5 - 34,335 29,112 7 - 63,454 Asset-backed securities AAA 108 16 23 - - 147 2,227 - - 2,374 AA+ to AA- 36 6 8 - - 50 184 - - 234 A+ to A- 17 - 25 - - 42 575 - - 617 BBB+ to BBB- 15 - 10 - - 25 193 - - 218 Below BBB- and unrated 6 - - - - 6 175 - - 181 Subtotal 182 22 66 - - 270 3,354 - - 3,624 Total debt securities 52,742 5,262 24,011 130 - 82,145 39,015 302 - 121,462 Loans Mortgage loansnote C1.2 - - 158 - - 158 8,119 - - 8,277 Policy loans 1,189 - 324 - - 1,513 4,705 8 - 6,226 Other loans 389 - 18 - - 407 - - - 407 Total loans 1,578 - 500 - - 2,078 12,824 8 - 14,910 Equity securities and holdings in collective investment schemes Direct equities 14,493 10,345 1,537 56 - 26,431 263 4 - 26,698 Collective investment schemes 13,455 6,097 4,175 10 - 23,737 36 7 - 23,780 US separate account assetsnote (iii) - - - - - - 184,220 - - 184,220 Total equity securities and holdings in collective investment schemes 27,948 16,442 5,712 66 - 50,168 184,519 11 - 234,698 Other financial investmentsnote (iv) 991 572 1,817 97 - 3,477 3,827 75 - 7,379 Total financial Investments 83,259 22,276 32,040 293 - 137,868 240,185 396 - 378,449 Investment properties - - 7 - - 7 7 9 - 23 Investments in joint ventures and associates accounted for using the equity method - - 1,268 239 - 1,507 - - - 1,507 Cash and cash equivalents 913 599 1,242 132 - 2,886 2,493 3,005 - 8,384 Reinsurers' share of insurance contract liabilitiesnote (v) 211 - 8,709 - - 8,920 35,993 5 - 44,918 Other assetsnote (vi) 1,954 482 8,051 799 (33) 11,253 17,942 3,828 (3,139) 29,884 Total assets 86,337 23,357 51,317 1,463 (33) 162,441 296,620 7,243 (3,139) 463,165 Shareholders' equity - - 10,535 994 - 11,529 8,955 (1,374) - 19,110 Non-controlling interests - - 2 159 - 161 - 36 - 197 Total equity - - 10,537 1,153 - 11,690 8,955 (1,338) - 19,307 Contract liabilities and unallocated surplus of with-profits fundsnote (iii) 76,647 21,376 33,541 - - 131,564 265,655 217 - 397,436 Core structural borrowings - - - - - - 250 6,249 - 6,499 Operational borrowings 243 15 111 25 - 394 1,212 639 - 2,245 Other liabilitiesnote (vii) 9,447 1,966 7,128 285 (33) 18,793 20,548 1,476 (3,139) 37,678 Total liabilities 86,337 23,357 40,780 310 (33) 150,751 287,665 8,581 (3,139) 443,858 Total equity and liabilities 86,337 23,357 51,317 1,463 (33) 162,441 296,620 7,243 (3,139) 463,165 30 Jun 2019 $m Asia insurance With -profits business Unit-linked assets and liabilities Other business Asia Asset manage- ment Elimina- tions Total Asia US Unallocated to a segment Discontinued operations Elimination of intra-group debtors and creditors Group total note (i) note (ii) Debt securitiesnote (ix), note C1.1 Sovereign debt Indonesia 184 516 445 - - 1,145 - - - - 1,145 Singapore 2,188 376 649 47 - 3,260 - - - - 3,260 Thailand - - 1,407 - - 1,407 - - - - 1,407 United Kingdom - 6 - - - 6 - 1,248 - - 1,254 United States 16,617 18 2,162 - - 18,797 6,022 - - - 24,819 Vietnam 1 13 2,479 - - 2,493 - - - - 2,493 Other (predominantly Asia) 2,314 638 2,488 15 - 5,455 9 74 - - 5,538 Subtotal 21,304 1,567 9,630 62 - 32,563 6,031 1,322 - - 39,916 Other government bonds AAA 1,658 44 440 - - 2,142 966 - - - 3,108 AA+ to AA- 176 8 88 - - 272 493 - - - 765 A+ to A- 826 136 319 - - 1,281 262 - - - 1,543 BBB+ to BBB- 316 72 357 - - 745 4 - - - 749 Below BBB- and unrated 22 4 341 - - 367 - - - - 367 Subtotal 2,998 264 1,545 - - 4,807 1,725 - - - 6,532 Corporate bonds AAA 700 179 550 - - 1,429 362 262 - - 2,053 AA+ to AA- 1,769 527 1,735 - - 4,031 1,498 169 - - 5,698 A+ to A- 5,464 536 4,480 - - 10,480 17,184 182 - - 27,846 BBB+ to BBB- 5,577 893 2,898 - - 9,368 23,042 25 - - 32,435 Below BBB- and unrated 2,669 595 454 - - 3,718 2,091 6 - - 5,815 Subtotal 16,179 2,730 10,117 - - 29,026 44,177 644 - - 73,847 Asset-backed securities AAA 231 22 91 - - 344 3,357 401 - - 4,102 AA+ to AA- 53 3 16 - - 72 694 - - - 766 A+ to A- 20 - 21 - - 41 1,024 - - - 1,065 BBB+ to BBB- - - - - - - 335 - - - 335 Below BBB- and unrated 22 - 7 - - 29 264 - - - 293 Subtotal 326 25 135 - - 486 5,674 401 - - 6,561 Total debt securities 40,807 4,586 21,427 62 - 66,882 57,607 2,367 - - 126,856 Loans Mortgage loansnote C1.2 - - 179 - - 179 9,655 - - - 9,834 Policy loans 996 - 296 - - 1,292 4,692 - - - 5,984 Other loans 80 - 19 - - 99 - 8 - - 107 Total loans 1,076 - 494 - - 1,570 14,347 8 - - 15,925 Equity securities and holdings in collective investment schemes Direct equities 15,316 13,100 1,386 - - 29,802 160 65 - - 30,027 Collective investment schemes 11,890 5,223 1,518 52 - 18,683 128 2 - - 18,813 US separate account assetsnote (iii) - - - - - - 184,917 - - - 184,917 Total equity securities and holdings in collective investment schemes 27,206 18,323 2,904 52 - 48,485 185,205 67 - - 233,757 Other financial investmentsnote (iv) 511 626 800 93 - 2,030 2,342 301 - - 4,673 Total financial Investments 69,600 23,535 25,625 207 - 118,967 259,501 2,743 - - 381,211 Investment properties - - 7 - - 7 7 - - - 14 Investments in joint ventures and associates accounted for using the equity method - - 1,092 219 - 1,311 - - - - 1,311 Cash and cash equivalents 680 509 1,500 139 - 2,828 1,506 2,294 - - 6,628 Reinsurers' share of insurance contract liabilitiesnote (v) 105 - 4,502 - - 4,607 8,308 4 - - 12,919 Assets held for distributionnote (viii) - - - - - - - - 281,427 (3,566) 277,861 Other assetsnote (vi) 3,288 401 6,572 542 (44) 10,759 16,416 3,269 - (4,443) 26,001 Total assets 73,673 24,445 39,298 1,107 (44) 138,479 285,738 8,310 281,427 (8,009) 705,945 Shareholders' equity - - 9,005 722 - 9,727 8,594 (3,822) 10,538 - 25,037 Non-controlling interests - - 2 15 - 17 - 12 - - 29 Total equity - - 9,007 737 - 9,744 8,594 (3,810) 10,538 - 25,066 Contract liabilities and unallocated surplus of with-profits fundsnote (iii) 65,004 22,392 23,470 - - 110,866 257,279 61 - (1,526) 366,680 Core structural borrowings - - - - - - 250 9,220 - - 9,470 Operational borrowings 303 46 112 17 - 478 1,017 926 - - 2,421 Liabilities held for distributionnote (viii) - - - - - - - - 270,889 (1,857) 269,032 Other liabilitiesnote (vii) 8,367 2,007 6,709 353 (45) 17,391 18,598 1,913 - (4,626) 33,276 Total liabilities 73,674 24,445 30,291 370 (45) 128,735 277,144 12,120 270,889 (8,009) 680,879 Total equity and liabilities 73,674 24,445 39,298 1,107 (45) 138,479 285,738 8,310 281,427 (8,009) 705,945 31 Dec 2019 $m Asia insurance With -profits business Unit-linked assets and liabilities Other business Asia Asset manage- ment Elimina- tions Total Asia US Unallocated to a segment Elimination of intra-group debtors and creditors Group total note (i) note (ii) Debt securitiesnote (ix), note C1.1 Sovereign debt Indonesia 222 610 488 - - 1,320 - - - 1,320 Singapore 3,514 554 708 94 - 4,870 - - - 4,870 Thailand - - 1,398 19 - 1,417 - - - 1,417 United Kingdom - 7 - - - 7 - 615 - 622 United States 20,479 113 2,827 - - 23,419 6,160 597 - 30,176 Vietnam 1 15 2,900 - - 2,916 - - - 2,916 Other (predominantly Asia) 1,745 665 2,809 13 - 5,232 9 116 - 5,357 Subtotal 25,961 1,964 11,130 126 - 39,181 6,169 1,328 - 46,678 Other government bonds AAA 1,752 81 538 - - 2,371 977 - - 3,348 AA+ to AA- 135 8 78 - - 221 495 - - 716 A+ to A- 890 159 389 - - 1,438 245 - - 1,683 BBB+ to BBB- 356 88 201 - - 645 4 - - 649 Below BBB- and unrated 31 9 381 - - 421 - 2 - 423 Subtotal 3,164 345 1,587 - - 5,096 1,721 2 - 6,819 Corporate bonds AAA 732 384 516 - - 1,632 341 - - 1,973 AA+ to AA- 1,574 441 1,908 - - 3,923 1,566 - - 5,489 A+ to A- 5,428 542 5,063 - - 11,033 17,784 - - 28,817 BBB+ to BBB- 5,443 883 3,497 - - 9,823 22,775 - - 32,598 Below BBB- and unrated 2,111 569 781 3 - 3,464 2,157 2 - 5,623 Subtotal 15,288 2,819 11,765 3 - 29,875 44,623 2 - 74,500 Asset-backed securities AAA 236 19 104 - - 359 3,658 - - 4,017 AA+ to AA- 132 6 46 - - 184 780 - - 964 A+ to A- 1 - 14 - - 15 1,006 - - 1,021 BBB+ to BBB- - - - - - - 359 - - 359 Below BBB- and unrated - - - - - - 212 - - 212 Subtotal 369 25 164 - - 558 6,015 - - 6,573 Total debt securities 44,782 5,153 24,646 129 - 74,710 58,528 1,332 - 134,570 Loans Mortgage loansnote C1.2 - - 165 - - 165 9,904 - - 10,069 Policy loans 1,089 - 316 - - 1,405 4,707 9 - 6,121 Other loans 374 - 19 - - 393 - - - 393 Total loans 1,463 - 500 - - 1,963 14,611 9 - 16,583 Equity securities and holdings in collective investment schemes Direct equities 14,143 12,440 1,793 59 - 28,435 150 4 - 28,589 Collective investment schemes 15,230 6,652 1,680 14 - 23,576 40 6 - 23,622 US separate account assetsnote (iii) - - - - - - 195,070 - - 195,070 Total equity securities and holdings in collective investment schemes 29,373 19,092 3,473 73 - 52,011 195,260 10 - 247,281 Other financial investmentsnote (iv) 963 383 1,363 106 - 2,815 2,791 56 - 5,662 Total financial Investments 76,581 24,628 29,982 308 - 131,499 271,190 1,407 - 404,096 Investment properties - - 7 - - 7 7 11 - 25 Investments in joint ventures and associates accounted for using the equity method - - 1,263 237 - 1,500 - - - 1,500 Cash and cash equivalents 963 356 1,015 156 - 2,490 1,960 2,515 - 6,965 Reinsurers' share of insurance contract liabilitiesnote (v) 152 - 5,306 - - 5,458 8,394 4 - 13,856 Other assetsnote (vi) 1,277 237 6,983 826 (35) 9,288 17,696 3,440 (2,652) 27,772 Total assets 78,973 25,221 44,556 1,527 (35) 150,242 299,247 7,377 (2,652) 454,214 Shareholders' equity - - 9,801 1,065 - 10,866 8,929 (318) - 19,477 Non-controlling interests - - 2 153 - 155 - 37 - 192 Total equity - - 9,803 1,218 - 11,021 8,929 (281) - 19,669 Contract liabilities and unallocated surplus of with-profits fundsnote (iii) 70,308 23,571 26,814 - - 120,693 269,549 186 - 390,428 Core structural borrowings - - - - - - 250 5,344 - 5,594 Operational borrowings 302 21 123 27 - 473 1,501 671 - 2,645 Other liabilitiesnote (vii) 8,363 1,629 7,816 282 (35) 18,055 19,018 1,457 (2,652) 35,878 Total liabilities 78,973 25,221 34,753 309 (35) 139,221 290,318 7,658 (2,652) 434,545 Total equity and liabilities 78,973 25,221 44,556 1,527 (35) 150,242 299,247 7,377 (2,652) 454,214 Notes (i) The with-profits business of Asia comprises the with-profits assets and liabilities of the Hong Kong, Malaysia and Singapore operations. 'Other business' includes assets and liabilities of other participating businesses and other non-linked shareholder-backed business. (ii) Further analysis of the shareholders' equity by business type of the US operations is provided below: 30 Jun 2020 $m 2019 $m Insurance Asset management Total 30 Jun Total 31 Dec Total Shareholders' equity 8,943 12 8,955 8,594 8,929 (iii) The US separate account assets comprise investments in mutual funds attaching to the variable annuity business that are held in the separate account. The related liabilities are reported in contract liabilities at an amount equal to the separate account assets. (iv) Other financial investments comprise derivative assets, other investments and deposits. (v) Reinsurers' share of contract liabilities includes the reinsurance ceded in respect of the acquired REALIC business by the Group's US insurance operations and at 30 June 2020 also includes amounts ceded in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1. (vi) Of total 'Other assets' at 30 June 2020, there are: - Property, plant and equipment (PPE) of $964 million (30 June 2019: $999 million; 31 December 2019: $1,065 million). During the period, the Group made additions of $51 million of PPE (half year 2019: $107 million; full year 2019: $160 million), of which $8 million relates to right-of-use assets (half year 2019: $86 million; full year 2019: $96 million). - Premiums receivable of $778 million (30 June 2019: $718 million; 31 December 2019: $794 million), of which $734 million (30 June 2019: $652 million; 31 December 2019: $738 million) are due within one year. (vii) Within 'Other liabilities' at 30 June 2020 is accruals, deferred income and other liabilities of $16,209 million (30 June 2019: $13,487 million; 31 December 2019: $14,488 million), of which $11,213 million (30 June 2019: $8,555 million; 31 December 2019: $9,172 million) are due within one year. (viii) Assets and liabilities held for distribution at 30 June 2019 related to the Group's UK and Europe operations (M&G plc) which were demerged in October 2019. (ix) The credit ratings, information or data contained in this report which are attributed and specifically provided by Standard & Poor's, Moody's and Fitch Solutions and their respective affiliates and suppliers ('Content Providers') is referred to here as the 'Content'. Reproduction of any Content in any form is prohibited except with the prior written permission of the relevant party. The Content Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold any such investment or security, nor does it address the suitability of an investment or security and should not be relied on as investment advice. C1.1 Additional analysis of debt securities This note provides additional analysis of the Group's debt securities. With the exception of certain debt securities classified as 'available-for-sale' under IAS 39, which primarily relate to US insurance operations as disclosed below, the Group's debt securities are carried at fair value through profit or loss. (a) Holdings by consolidated investment funds of the Group Of the $121,462 million of Group's debt securities at 30 June 2020 (30 June 2019: $126,856 million; 31 December 2019: $134,570 million), the following amounts were held by the consolidated investment funds of the Group: 30 Jun 2020 $m 2019 $m Asia US Group total 30 Jun 31 Dec Debt securities held by consolidated investment funds 17,219 1,244 18,463 21,914 22,113 (b) Additional analysis of US debt securities Debt securities for US operations included in the statement of financial position comprise: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Available-for-sale 37,597 56,225 57,091 Fair value through profit and loss 1,418 1,382 1,437 Total US debt securities 39,015 57,607 58,528 The corporate bonds held by the US insurance operations comprise: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Publicly traded and SEC Rule 144A securities 21,215 34,895 34,781 Non-SEC Rule 144A securities 7,897 9,282 9,842 Total US corporate bonds 29,112 44,177 44,623 * A 1990 SEC rule that facilitates the resale of privately placed securities under Rule 144A that are without SEC registration to qualified institutional investors. The rule was designed to develop a more liquid and efficient institutional resale market for unregistered securities. (c) Movements in unrealised gains and losses on Jackson available-for-sale debt securities The movement in the statement of financial position value for debt securities classified as available-for-sale from a net unrealised gain of $3,496 million at 31 December 2019 to a net unrealised gain of $3,219 million at 30 June 2020 is analysed in the table below. Changes in unrealised appreciation reflected in other comprehensive income 30 Jun 2020 $m Gains recycled to income statement on transfer of debt securities to Athene Unrealised gains (losses) arising in the period 31 Dec 2019 $m note D1 Assets fair valued at below book value Book value 2,188 3,121 Unrealised gain (loss) (109) (82) (27) Fair value (as included in statement of financial position) 2,079 3,094 Assets fair valued at or above book value Book value 32,190 50,474 Unrealised gain (loss) 3,328 (2,817) 2,622 3,523 Fair value (as included in statement of financial position) 35,518 53,997 Total Book value 34,378 53,595 Net unrealised gain (loss) 3,219 (2,817) 2,540 3,496 Fair value (as included in the footnote above in the overview table and the statement of financial position) 37,597 57,091 * Book value represents cost or amortised cost of the debt securities. Jackson debt securities classified as available-for-sale in an unrealised loss position (i) Fair value of securities as a percentage of book value The following table shows the fair value of the debt securities in a gross unrealised loss position for various percentages of book value: 30 Jun 2020 $m 30 Jun 2019 $m 31 Dec 2019 $m Fair value Unrealised loss Fair value Unrealised loss Fair value Unrealised loss Between 90% and 100% 1,871 (62) 2,827 (41) 3,083 (25) Between 80% and 90% 111 (17) 48 (7) 11 (2) Below 80% 97 (30) 40 (15) - - Total 2,079 (109) 2,915 (63) 3,094 (27) (ii) Unrealised losses by maturity of security 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec 1 year to 5 years (30) (3) (1) 5 years to 10 years (39) (13) (12) More than 10 years (20) (24) (7) Mortgage-backed and other debt securities (20) (23) (7) Total (109) (63) (27) (iii) Age analysis of unrealised losses for the periods indicated The following table shows the age analysis of all the unrealised losses in the portfolio by reference to the length of time the securities have been in an unrealised loss position: 30 Jun 2020 $m 30 Jun 2019 $m 31 Dec 2019 $m Age analysis Non- investment grade Investment grade Total Non- investment grade Investment grade Total Non- investment grade Investment grade Total Less than 6 months (24) (80) (104) (1) (5) (6) (1) (20) (21) 6 months to 1 year (3) (1) (4) (1) (18) (19) (1) (1) (2) 1 year to 2 years - - - (1) (11) (12) - (1) (1) 2 years to 3 years (1) - (1) - (13) (13) - (1) (1) More than 3 years - - - - (13) (13) - (2) (2) Total (28) (81) (109) (3) (60) (63) (2) (25) (27) * For Standard and Poor's, Moody's and Fitch rated debt securities, those with ratings range from AAA to BBB- are designated as investment grade. For NAIC rated debt securities, those with ratings 1 or 2 are designated as investment grade. Further, the following table shows the age analysis of the securities whose fair values were below 80 per cent of the book value: 30 Jun 2020 $m 30 Jun 2019 $m 31 Dec 2019 $m Age analysis Fair value Unrealised loss Fair value Unrealised loss Fair value Unrealised loss Less than 3 months 60 (17) 33 (13) - - 3 months to 6 months 37 (13) 7 (2) - - Total below 80% 97 (30) 40 (15) - - (d) Asset-backed securities The Group's holdings in asset-backed securities (ABS) comprise residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralised debt obligations (CDO) funds and other asset-backed securities. The US operations' exposure to asset-backed securities comprises: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec RMBS Sub-prime (30 Jun 2020: 2% AAA) 35 112 93 Alt-A (30 Jun 2020: 35% AAA, 39% A) 14 129 116 Prime including agency (30 Jun 2020: 85% AAA, 6% AA, 5% A) 263 736 862 CMBS (30 Jun 2020: 86% AAA, 5% AA, 3% A) 1,646 2,884 3,080 CDO funds (30 Jun 2020: 81% AAA, 9% AA, 5% A), $nil exposure to sub-prime 397 449 696 Other ABS (30 Jun 2020: 26% AAA, 5% AA, 48% A), $35 million exposure to sub-prime 999 1,364 1,168 Total US asset-backed securities 3,354 5,674 6,015 (e) Group bank debt exposure The Group exposures held by the shareholder-backed business and with-profits funds in bank debt securities are analysed below. The table excludes assets held to cover linked liabilities and those of the consolidated investment funds. Exposure to bank debt securities 30 Jun 2020 $m 2019 $m Senior debt Subordinated debt Group total 30 Jun 31 Dec Total Tier 1 Tier 2 Total Group total Group total Shareholder-backed business Asia 549 572 329 901 1,450 858 993 Eurozone 223 - 26 26 249 410 337 United Kingdom 352 7 91 98 450 892 723 United States 1,565 5 52 57 1,622 3,037 3,134 Other 259 - 137 137 396 693 647 Total 2,948 584 635 1,219 4,167 5,890 5,834 With-profits funds Asia 534 87 572 659 1,193 1,198 1,130 Eurozone 77 - 101 101 178 129 131 United Kingdom 182 1 105 106 288 146 155 United States 670 2 15 17 687 25 34 Other 116 - 262 262 378 256 284 Total 1,579 90 1,055 1,145 2,724 1,754 1,734 C1.2 Additional analysis of US mortgage loans In the US, mortgage loans of $8,119 million at 30 June 2020 (30 June 2019: $9,655 million; 31 December 2019: $9,904 million) are all commercial mortgage loans that are secured by the following property types: industrial, multi-family residential, suburban office, retail or hotel. The average loan size is $18.6 million (30 June 2019: $18.7 million; 31 December 2019: $19.3 million). The portfolio has a current estimated average loan to value of 55 per cent (30 June 2019: 53 per cent; 31 December 2019: 54 per cent). At 30 June 2020, Jackson had mortgage loans with a carrying value of $947 million where the contractual terms of the agreements had been restructured to grant forbearance for a period of no longer than six months (30 June and 31 December 2019: nil). Under IAS 39, restructured loans are reviewed for impairment with an impairment recorded if the expected cash flows under the newly restructured terms discounted at the original yield (the pre-structured interest rate) are below the carrying value of the loan. No impairment is recorded for these loans in half year 2020 as the expected cash flows and interest rate did not materially change under the restructured terms. C2 Fair value measurement (a) Determination of fair value The fair values of the financial instruments for which fair valuation is required under IFRS are determined by the use of current market bid prices for exchange-quoted investments, or by using quotations from independent third parties, such as brokers and pricing services or by using appropriate valuation techniques. The estimated fair value of derivative financial instruments reflects the estimated amount the Group would receive or pay in an arm's length transaction. This amount is determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices. Other than the loans which have been designated at fair value through profit or loss, the carrying value of loans and receivables is presented net of provisions for impairment. The fair value of loans is estimated from discounted cash flows expected to be received. The discount rate used is updated for the market rate of interest where applicable. The fair value of the subordinated and senior debt issued by the parent company is determined using quoted prices from independent third parties. The fair value of financial liabilities (other than subordinated debt, senior debt and derivative financial instruments) is determined using discounted cash flows of the amounts expected to be paid. Valuation approach for level 2 fair valued assets and liabilities A significant proportion of the Group's level 2 assets are corporate bonds, structured securities and other non-national government debt securities. These assets, in line with market practice, are generally valued using a designated independent pricing service or quote from third-party brokers. These valuations are subject to a number of monitoring controls, such as comparison to multiple pricing sources where available, monthly price variances, stale price reviews and variance analysis on prices achieved on subsequent trades. For further detail on the valuation approach for level 2 fair valued assets and liabilities, refer to note C3.1 of the Group IFRS financial statement for the year ended 31 December 2019. Valuation approach for level 3 fair valued assets and liabilities Investments valued using valuation techniques include financial investments which by their nature do not have an externally quoted price based on regular trades, and financial investments for which markets are no longer active as a result of market conditions, eg market illiquidity. The valuation techniques used include comparison to recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option-adjusted spread models and, if applicable, enterprise valuation. The Group's valuation policies, procedures and analyses for instruments categorised as level 3 are overseen by Business Unit committees as part of the Group's wider financial reporting governance processes. The procedures undertaken include approval of valuation methodologies, verification processes, and resolution of significant or complex valuation issues. In undertaking these activities the Group makes use of the extensive expertise of its asset management functions. In addition, the Group has minimum standards for independent price verification to ensure valuation accuracy is regularly independently verified. Adherence to this policy is monitored across the business units. (b) Fair value measurement hierarchy of Group assets and liabilities Assets and liabilities carried at fair value on the statement of financial position The table below shows the assets and liabilities carried at fair value analysed by level of the IFRS 13 'Fair Value Measurement' defined fair value hierarchy. This hierarchy is based on the inputs to the fair value measurement and reflects the lowest level input that is significant to that measurement. All assets and liabilities held at fair value are classified as fair value through profit or loss, except for $37,752 million (30 June 2019: $56,225 million; 31 December 2019: $58,302 million) of debt securities classified as available-for-sale, principally in the US operations. All assets and liabilities held at fair value are measured on a recurring basis. As of 30 June 2020, the Group did not have any financial instruments that are measured at fair value on a non-recurring basis. Financial instruments at fair value 30 Jun 2020 $m Level 1 Level 2 Level 3 Quoted prices (unadjusted) in active markets Valuation based on significant observable market inputs Valuation based on significant unobservable market inputs Total Loans - - 3,606 3,606 Equity securities and holdings in collective investment schemes 230,670 3,554 474 234,698 Debt securities 64,300 57,091 71 121,462 Other investments (including derivative assets) 109 2,350 1,569 4,028 Derivative liabilities (65) (402) - (467) Total financial investments, net of derivative liabilities 295,014 62,593 5,720 363,327 Investment contract liabilities without discretionary participation features held at fair value - (936) - (936) Net asset value attributable to unit holders of consolidated investment funds (5,521) (8) (438) (5,967) Other financial liabilities held at fair value - - (3,743) (3,743) Total financial instruments at fair value 289,493 61,649 1,539 352,681 Percentage of total (%) 82% 18% 0% 100% Analysed by business type: Financial investments, net of derivative liabilities at fair value: With-profits 67,290 12,963 314 80,567 Unit-linked and variable annuity separate account 204,723 1,208 - 205,931 Non-linked shareholder-backed business 23,001 48,422 5,406 76,829 Total financial investments, net of derivative liabilities at fair value 295,014 62,593 5,720 363,327 Other financial liabilities at fair value (5,521) (944) (4,181) (10,646) Group total financial instruments at fair value 289,493 61,649 1,539 352,681 30 Jun 2019 $m Level 1 Level 2 Level 3 Quoted prices (unadjusted) in active markets Valuation based on significant observable market inputs Valuation based on significant unobservable market inputs Total Loans - - 3,562 3,562 Equity securities and holdings in collective investment schemes 230,817 2,723 217 233,757 Debt securities 61,763 65,085 8 126,856 Other investments (including derivative assets) 190 1,361 1,224 2,775 Derivative liabilities (66) (675) (579) (1,320) Total financial investments, net of derivative liabilities 292,704 68,494 4,432 365,630 Investment contract liabilities without discretionary participation features held at fair value - (847) - (847) Net asset value attributable to unit holders of consolidated investment funds (4,432) - - (4,432) Other financial liabilities held at fair value - (6) (3,922) (3,928) Total financial instruments at fair value 288,272 67,641 510 356,423 Percentage of total (%) 81% 19% 0% 100% Analysed by business type: Financial investments, net of derivative liabilities at fair value: With-profits 61,541 6,451 203 68,195 Unit-linked and variable annuity separate account 206,548 1,256 - 207,804 Non-linked shareholder-backed business 24,615 60,787 4,229 89,631 Total financial investments, net of derivative liabilities at fair value 292,704 68,494 4,432 365,630 Other financial liabilities at fair value (4,432) (853) (3,922) (9,207) Group total financial instruments at fair value 288,272 67,641 510 356,423 31 Dec 2019 $m Level 1 Level 2 Level 3 Quoted prices (unadjusted) in active markets Valuation based on significant observable market inputs Valuation based on significant unobservable market inputs Total Loans - - 3,587 3,587 Equity securities and holdings in collective investment schemes 243,285 3,720 276 247,281 Debt securities 67,927 66,637 6 134,570 Other investments (including derivative assets) 70 1,676 1,301 3,047 Derivative liabilities (185) (207) - (392) Total financial investments, net of derivative liabilities 311,097 71,826 5,170 388,093 Investment contract liabilities without discretionary participation features held at fair value - (1,011) - (1,011) Net asset value attributable to unit holders of consolidated investment funds (5,973) (23) (2) (5,998) Other financial liabilities held at fair value - - (3,760) (3,760) Total financial instruments at fair value 305,124 70,792 1,408 377,324 Percentage of total (%) 81% 19% 0% 100% Analysed by business type: Financial investments, net of derivative liabilities at fair value: With-profits 66,061 7,762 260 74,083 Unit-linked and variable annuity separate account 217,838 1,486 - 219,324 Non-linked shareholder-backed business 27,198 62,578 4,910 94,686 Total financial investments, net of derivative liabilities at fair value 311,097 71,826 5,170 388,093 Other financial liabilities at fair value (5,973) (1,034) (3,762) (10,769) Group total financial instruments at fair value 305,124 70,792 1,408 377,324 Assets and liabilities at amortised cost and their fair value The table below shows the financial assets and liabilities carried at amortised cost on the statement of financial position and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities are excluded from the analysis below. These are carried at amortised cost, which approximates fair value. 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Carrying value Fair value Carrying value Fair value Carrying value Fair value Assets Loans 11,304 11,435 12,363 12,740 12,996 13,511 Liabilities Investment contract liabilities without discretionary participation features (3,730) (3,793) (3,986) (3,996) (3,891) (3,957) Core structural borrowings of shareholder-financed businesses (6,499) (7,087) (9,470) (10,248) (5,594) (6,227) Operational borrowings (excluding lease liabilities) (1,703) (1,703) (1,858) (1,857) (2,015) (2,015) Obligations under funding, securities lending and sale and repurchase agreements (9,085) (9,442) (8,598) (8,769) (8,901) (9,135) Total (9,713) (10,590) (11,549) (12,130) (7,405) (7,823) (c) Fair value measurements for level 3 fair valued assets and liabilities Reconciliation of movements in level 3 assets and liabilities measured at fair value The following table reconciles the value of level 3 fair valued assets and liabilities at the beginning of the period to that presented at the end of the period. Total investment return recorded in the income statement represents interest and dividend income, realised gains and losses, unrealised gains and losses on the assets classified at fair value through profit and loss and foreign exchange movements on an individual entity's overseas investments. Total gains and losses recorded in other comprehensive income includes unrealised gains and losses on debt securities held as available-for-sale principally within Jackson and foreign exchange movements arising from the retranslation of the Group's overseas subsidiaries and branches. Half year 2020 $m Reconciliation of movements in level 3 assets and liabilities measured at fair value Loans Equity securities and holdings in collective investment schemes Debt securities Other investments (including derivative assets) Net asset value attributable to unit holders of consolidated investment funds Other financial liabilities Total Balance at beginning of period 3,587 276 6 1,301 (2) (3,760) 1,408 Total gains (losses) in income statement 120 (44) (6) (170) 134 (91) (57) Total gains (losses) recorded in other comprehensive income - (4) - - - - (4) Purchases and other additions - 348 20 484 (583) - 269 Sales - (102) (2) (46) 13 - (137) Issues 52 - - - - (53) (1) Settlements (153) - - - - 161 8 Transfers into level 3 - - 53 - - - 53 Balance at end of period 3,606 474 71 1,569 (438) (3,743) 1,539 Half year 2019 $m Reconciliation of movements in level 3 assets and liabilities measured at fair value Loans Equity securities and holdings in collective investment schemes Debt securities Other investments (including derivative assets) Derivative liabilities Borrowings attributable to with -profits businesses Net asset value attributable to unit holders of consolidated investment funds Other financial liabilities Total Balance at beginning of period 6,054 656 1,505 6,714 (539) (2,045) (1,258) (4,335) 6,752 Reclassification to held for distribution (2,509) (440) (1,498) (5,513) - 2,045 1,258 451 (6,206) Total gains (losses) in income statement 118 (2) 6 19 (19) - - (140) (18) Total gains (losses) recorded in other comprehensive income 1 - 1 (12) (21) - - (10) (41) Purchases - 3 - 164 - - - - 167 Sales - - (6) (148) - - - - (154) Issues 34 - - - - - - (46) (12) Settlements (136) - - - - - - 158 22 Balance at end of period 3,562 217 8 1,224 (579) - - (3,922) 510 Full year 2019 $m Reconciliation of movements in level 3 assets and liabilities measured at fair value Loans Equity securities and holdings in collective investment schemes Debt securities Other investments (including derivative assets) Derivative liabilities Borrowings attributable to with -profits businesses Net asset value attributable to unit holders of consolidated investment funds Other financial liabilities Total Balance at beginning of year 6,054 656 1,505 6,714 (539) (2,045) (1,258) (4,335) 6,752 Demerger of UK and Europe operations (2,509) (440) (1,498) (5,513) - 2,045 1,258 451 (6,206) Total gains (losses) in income statement 1 (11) 6 30 539 - - (28) 537 Total gains (losses) recorded in other comprehensive income - 3 - (6) - - - (11) (14) Purchases - 69 - 269 - - (2) - 336 Sales - (1) (7) (193) - - - - (201) Issues 275 - - - - - - (143) 132 Settlements (234) - - - - - - 306 72 Balance at end of year 3,587 276 6 1,301 - - (2) (3,760) 1,408 * Of the total net gains and (losses) in the income statement of $(57) million at half year 2020 (half year 2019: $(18) million for continuing operations; full year 2019: $537 million), $(103) million (half year 2019: $12 million; full year 2019: $19 million) relates to net unrealised gains and losses of financial instruments still held at the end of the period, which can be analysed as follows: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Equity securities and holdings in collective investment schemes (72) (2) (11) Debt securities (5) - - Other investments (157) 51 34 Derivative liabilities - (19) - Net asset value attributable to unit holders of consolidated investment funds 132 - - Other financial liabilities (1) (18) (4) Total (103) 12 19 At 30 June 2020, the Group held $1,539 million (30 June 2019: $510 million; 31 December 2019: $1,408 million) of net financial instruments at fair value within level 3. This represents less than 0.5 per cent (30 June 2019: 0.5 per cent of continuing operations; 31 December 2019: 1 per cent) of the total fair valued financial assets net of financial liabilities. Included within these net assets and liabilities are policy loans of $3,606 million at 30 June 2020 (30 June 2019: $3,562 million; 31 December 2019: $3,587 million) measured as the loan outstanding balance, plus accrued investment income, attached to acquired REALIC business and held to back the liabilities for funds withheld under reinsurance arrangements. The funds withheld liability of $3,743 million at 30 June 2020 (30 June 2019: $3,758 million; 31 December 2019: $3,760 million) is also classified within level 3. The fair value of the liabilities is equal to the fair value of the underlying assets held as collateral, which primarily consist of policy loans and debt securities. The assets and liabilities offset and therefore their movements have no impact on shareholders' profit and equity. Excluding the loans and funds withheld liability under Jackson's REALIC reinsurance arrangements as described above, which amounted to a net liability at 30 June 2020 of $(137) million (30 June 2019: $(196) million; 31 December 2019: $(173) million), the level 3 fair valued financial assets net of financial liabilities were a net asset of $1,676 million at 30 June 2020 (30 June 2019: $706 million; 31 December 2019: $1,581 million). Of this amount, equity securities of $2 million are internally valued, representing less than 0.1 per cent of the total fair valued financial assets net of financial liabilities (30 June and 31 December 2019: nil). Internal valuations are inherently more subjective than external valuations. Level 3 financial assets net of financial liabilities comprise the following: - Private equity investments in both equity securities and limited partnerships within other financial investments of $1,687 million (30 June 2019: $1,224 million; 31 December 2019: $1,301 million) consisting of investments held by Jackson which are primarily externally valued in accordance with International Private Equity and Venture Capital Association guidelines using the proportion of the company's investment in each fund as shown in external valuation reports; - Equity securities and holdings in collective investment schemes of $356 million (30 June 2019: $217 million; 31 December 2019: $276 million) consisting primarily of property and infrastructure funds held by the Asia participating funds, which are externally valued using the net asset value of the invested entities; - Liabilities of $(438) million (30 June 2019: nil; 31 December 2019: $(2) million) for the net asset value attributable to external unit holders in respect of consolidated investment funds, which are non-recourse to the Group. These liabilities are valued by reference to the underlying assets; and - Other sundry individual financial instruments of a net asset of $71 million (30 June 2019: net liability of $(735) million of which $(574) million represent derivative liabilities; 31 December 2019: net asset of $6 million). Of the net asset of $1,676 million at 30 June 2020 (30 June 2019: $706 million; 31 December 2019: $1,581 million) referred to above: - A net asset of $314 million (30 June 2019: $202 million; 31 December 2019: $258 million) is held by the Group's Asia participating funds and therefore shareholders' profit and equity are not impacted by movements in the valuation of these financial instruments; and - A net asset of $1,362 million (30 June 2019: $504 million; 31 December 2019: $1,323 million) is held to support non-linked shareholder-backed business. The majority of these instruments ($1,360 million out of the $1,362 million) are externally valued and are therefore inherently less subjective than internal valuations. These instruments consist primarily of private equity investments held by Jackson as described above. If the value of all these Level 3 financial instruments decreased by 10 per cent, the change in valuation would be $(136) million (30 June 2019: $(51) million; 31 December 2019: $(132) million), which would reduce shareholders' equity by this amount before tax. All of this amount would pass through the income statement substantially as part of short-term fluctuations in investment returns outside of adjusted operating profit. (d) Transfers into and transfers out of levels The Group's policy is to recognise transfers into and transfers out of levels as of the end of each half year reporting period except for material transfers which are recognised as of the date of the event or change in circumstances that caused the transfer. Transfers are deemed to have occurred when there is a material change in the observed valuation inputs or a change in the level of trading activities of the securities. During half year 2020, the transfers between levels within the Group's portfolio, were primarily transfers from level 1 to level 2 of $4,232 million and transfers from level 2 to level 1 of $1,843 million. These transfers which relate to equity securities and debt securities arose to reflect the change in the observed valuation inputs and in certain cases, the change in the level of trading activities of the securities. There were transfers into level 3 of $53 million in the period. C3 Policyholder liabilities and unallocated surplus C3.1 Group overview (i) Analysis of movements in policyholder liabilities and unallocated surplus of with-profits fundsnotes (a),(b) Half year 2020 $m Asia US Total note C3.2 note C3.3 At 1 January 2020 132,570 269,549 402,119 Comprising: - Policyholder liabilities on the consolidated statement of financial position (excludes $186 million classified as unallocated to a segment) 115,943 269,549 385,492 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 4,750 - 4,750 - Group's share of policyholder liabilities of joint ventures and associatenote (d) 11,877 - 11,877 Net flows: Premiums 9,746 8,865 18,611 Surrenders (2,083) (7,455) (9,538) Maturities/deaths (1,153) (1,793) (2,946) Net flowsnote (d) 6,510 (383) 6,127 Shareholders' transfers post-tax (54) - (54) Investment-related items and other movements 6,526 (3,511) 3,015 Foreign exchange translation differences (1,580) - (1,580) At 30 June 2020 143,972 265,655 409,627 Comprising: - Policyholder liabilities on the consolidated statement of financial position (excludes $217 million classified as unallocated to a segment) 126,052 265,655 391,707 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 5,512 - 5,512 - Group's share of policyholder liabilities of joint ventures and associatenote (d) 12,408 - 12,408 Half year 2019 $m Asia US Discontinued UK and Europe Total note C3.2 note C3.3 At 1 January 2019 105,408 236,380 210,002 551,790 Comprising: - Policyholder liabilities on the consolidated statement of financial position (excludes $50 million classified as unallocated to a segment)note (c) 91,836 236,380 193,020 521,236 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 3,198 - 16,982 20,180 - Group's share of policyholder liabilities of joint ventures and associatenote (d) 10,374 - - 10,374 Reclassification of UK and Europe liabilities as held for distribution - - (210,002) (210,002) Net flows: Premiums 9,800 9,136 - 18,936 Surrenders (1,982) (8,279) - (10,261) Maturities/deaths (1,278) (1,744) - (3,022) Net flowsnote (d) 6,540 (887) - 5,653 Shareholders' transfers post-tax (49) - - (49) Investment-related items and other movements 7,947 21,786 - 29,733 Foreign exchange translation differences 547 - - 547 At 30 June 2019 120,393 257,279 - 377,672 Comprising: - Policyholder liabilities on the consolidated statement of financial position (excludes $61 million classified as unallocated to a segment)note (c) 105,593 257,279 - 362,872 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 3,747 - - 3,747 - Group's share of policyholder liabilities of joint ventures and associatenote (d) 11,053 - - 11,053 Average policyholder liability balancesnote (e) Half year 2020 133,141 267,602 - 400,743 Half year 2019 109,428 246,830 - 356,258 Notes (a) The items above represent the amount attributable to changes in policyholder liabilities and unallocated surplus of with-profits funds as a result of each of the components listed. The policyholder liabilities shown include investment contracts without discretionary participation features (as defined in IFRS 4) and their full movement in the year but exclude liabilities that have not been allocated to a reporting segment. The items above are shown gross of external reinsurance. (b) The analysis includes the impact of premiums, claims and investment movements on policyholders' liabilities. The impact does not represent premiums, claims and investment movements as reported in the income statement. For example, premiums shown above exclude any deductions for fees/charges; claims (surrenders, maturities and deaths) shown above represent the policyholder liabilities provision released rather than the claims amount paid to the policyholder. (c) The opening and closing policyholder liabilities of the Asia insurance operations for half year 2019 were after deducting the intra-group reinsurance liabilities ceded by the discontinued UK and Europe operations (M&G plc) to the Hong Kong with-profits business, which were recaptured in October 2019 upon demerger. (d) Including net flows of the Group's insurance joint ventures and associate. The Group's investment in joint ventures and associate are accounted for on an equity method basis in the Group's statement of financial position. The Group's share of the policyholder liabilities as shown above relates to life businesses of the China JV, India and the Takaful business in Malaysia. (e) Average policyholder liabilities have been based on opening and closing balances, adjusted for acquisitions, disposals and other corporate transactions arising in the year, and exclude unallocated surplus of with-profits funds. (ii) Analysis of movements in policyholder liabilities for shareholder-backed business Half year 2020 $m Asia US Total At 1 January 2020 62,262 269,549 331,811 Net flows: Premiums 5,155 8,865 14,020 Surrenders (1,702) (7,455) (9,157) Maturities/deaths (477) (1,793) (2,270) Net flowsnote 2,976 (383) 2,593 Investment-related items and other movements 3,139 (3,511) (372) Foreign exchange translation differences (1,052) - (1,052) At 30 June 2020 67,325 265,655 332,980 Comprising: - Policyholder liabilities on the consolidated statement of financial position 54,917 265,655 320,572 (excludes $217 million classified as unallocated to a segment) - Group's share of policyholder liabilities relating to joint ventures and associate 12,408 - 12,408 Half year 2019 $m Asia US Discontinued UK and Europe Total At 1 January 2019 51,705 236,380 51,911 339,996 Reclassification of UK and Europe liabilities as held for distribution - - (51,911) (51,911) Net flows: Premiums 5,076 9,136 - 14,212 Surrenders (1,714) (8,279) - (9,993) Maturities/deaths (567) (1,744) - (2,311) Net flowsnote 2,795 (887) - 1,908 Investment-related items and other movements 2,100 21,786 - 23,886 Foreign exchange translation differences 315 - - 315 At 30 June 2019 56,915 257,279 - 314,194 Comprising: - Policyholder liabilities on the consolidated statement of financial position (excludes $61 million classified as unallocated to a segment) 45,862 257,279 - 303,141 - Group's share of policyholder liabilities relating to joint ventures and associate 11,053 - - 11,053 Note Including net flows of the Group's insurance joint ventures and associate. (iii) Movement in insurance contract liabilities and unallocated surplus of with-profits funds Further analysis of the movement in the period of the Group's gross contract liabilities, reinsurer's share of insurance contract liabilities and unallocated surplus of with-profits funds (excluding those held by joint ventures and associate) is provided below: Contract liabilities Reinsurers' share of insurance contract liabilities Unallocated surplus of with-profits funds $m $m $m At 1 January 2020 385,678 (13,856) 4,750 Income and expense included in the income statementnote (a) 7,555 (31,066) 742 Other movementsnote (b) (110) - - Foreign exchange translation differences (1,199) 4 20 At 30 June 2020 391,924 (44,918) 5,512 At 1 January 2019 521,286 (14,193) 20,180 Removal of opening balances relating to the discontinued UK and Europe operationsnote (c) (193,020) 2,169 (16,982) Income and expense included in the income statement 33,996 (880) 655 Other movementsnote (b) 53 - (116) Foreign exchange translation differences 618 (15) 10 At 30 June 2019 362,933 (12,919) 3,747 Notes (a) The increase in reinsurers' share of insurance contract liabilities in half year 2020 includes $27.7 billion in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1. (b) Other movements include premiums received and claims paid on investment contracts without discretionary participating features, which are taken directly to the statement of financial position in accordance with IAS 39. (c) The $2,169 million of reinsurer's share of insurance contract liabilities excluded the intra-group reinsurance assets for the with-profits business ceded to the Asia insurance operations, which were eliminated on consolidation at 1 January 2019. The total charge for benefit and claims in half year 2020 shown in the income statement comprises the amounts shown as 'income and expense included in the income statement' in the table above together with claims paid of $13,504 million in the period and claim amounts attributable to reinsurers of $(590) million. The movement in the gross contract liabilities and the reinsurer's share of insurance contract liabilities during the first half of 2020 includes the impact of a change to the calculation of the valuation interest rate (VIR) used to value long-term insurance liabilities in Hong Kong. The effect of the change to the VIR was such that the implicit duration of liabilities is reduced and closer to best estimate expectations. The change reduced policyholder liabilities (net of reinsurance) of the Hong Kong's shareholder-backed business at 30 June 2020 by $1,039 million. The resulting benefit of $1,039 million in the income statement is included within short-term fluctuations in investment returns in the Group's supplementary analysis of profit. C3.2 Asia insurance operations Half year 2020 $m With-profits business Shareholder-backed business Total Unit-linked liabilities Other business At 1 January 2020 70,308 28,850 33,412 132,570 Comprising: - Policyholder liabilities on the consolidated statement of financial position 65,558 23,571 26,814 115,943 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 4,750 - - 4,750 - Group's share of policyholder liabilities relating to joint ventures and associatenote (a) - 5,279 6,598 11,877 Premiums: New business 375 909 1,009 2,293 In-force 4,216 1,148 2,089 7,453 4,591 2,057 3,098 9,746 Surrendersnote (b) (381) (1,209) (493) (2,083) Maturities/deaths (676) (87) (390) (1,153) Net flows 3,534 761 2,215 6,510 Shareholders' transfers post tax (54) - - (54) Investment-related items and other movements note (c) 3,387 (2,243) 5,382 6,526 Foreign exchange translation differencesnote (d) (528) (794) (258) (1,580) At 30 June 2020 76,647 26,574 40,751 143,972 Comprising: - Policyholder liabilities on the consolidated statement of financial position 71,135 21,376 33,541 126,052 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 5,512 - - 5,512 - Group's share of policyholder liabilities relating to joint ventures and associatenote (a) - 5,198 7,210 12,408 Half year 2019 $m With-profits business Shareholder-backed business Total Unit-linked liabilities Other business At 1 January 2019 53,703 25,704 26,001 105,408 Comprising: - Policyholder liabilities on the consolidated statement of financial position 50,505 20,846 20,485 91,836 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 3,198 - - 3,198 - Group's share of policyholder liabilities relating to joint ventures and associatenote (a) - 4,858 5,516 10,374 Premiums: New business 769 1,003 1,180 2,952 In-force 3,955 1,206 1,687 6,848 4,724 2,209 2,867 9,800 Surrendersnote (b) (268) (1,385) (329) (1,982) Maturities/deaths (711) (89) (478) (1,278) Net flows 3,745 735 2,060 6,540 Shareholders' transfers post-tax (49) - - (49) Investment-related items and other movementsnote (c) 5,847 753 1,347 7,947 Foreign exchange translation differencesnote (d) 232 176 139 547 At 30 June 2019 63,478 27,368 29,547 120,393 Comprising: - Policyholder liabilities on the consolidated statement of financial position 59,731 22,392 23,470 105,593 - Unallocated surplus of with-profits funds on the consolidated statement of financial position 3,747 - - 3,747 - Group's share of policyholder liabilities relating to joint ventures and associatenote (a) - 4,976 6,077 11,053 Average policyholder liability balancesnote (e) Half year 2020 68,347 27,712 37,082 133,141 Half year 2019 55,118 26,536 27,774 109,428 Notes (a) The Group's investment in joint ventures and associate are accounted for on an equity method and the Group's share of the policyholder liabilities as shown above relate to the life business of the China JV, India and the Takaful business in Malaysia. (b) The rate of surrenders for shareholder-backed business (expressed as a percentage of opening policyholder liabilities) was 2.7 per cent in the first half of 2020 (half year 2019: 3.3 per cent). (c) Investment-related items and other movements in the first half of 2020 primarily represents fixed income asset gains and lower discount rates due to falling interest rates for with-profits and other businesses, partially offset by unfavourable equity market performance for unit-linked business. (d) Movements in the period have been translated at the average exchange rates for the period ended 30 June 2020 and 2019. The closing balance has been translated at the closing spot rates as at 30 June 2020 and 2019. Differences upon retranslation are included in foreign exchange translation differences. (e) Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the year, and exclude unallocated surplus of with-profits funds. C3.3 US insurance operations Half year 2020 $m Variable annuity separate account liabilities General account and other business Total note (d) At 1 January 2020 195,070 74,479 269,549 Premiums 6,544 2,321 8,865 Surrenders (5,353) (2,102) (7,455) Maturities/deaths (848) (945) (1,793) Net flowsnote (a) 343 (726) (383) Transfers from separate to general account (1,042) 1,042 - Investment-related items and other movementsnote (b) (10,151) 6,640 (3,511) At 30 June 2020 184,220 81,435 265,655 Half year 2019 $m Variable annuity separate account liabilities General account and other business Total At 1 January 2019 163,301 73,079 236,380 Premiums 6,032 3,104 9,136 Surrenders (6,008) (2,271) (8,279) Maturities/deaths (782) (962) (1,744) Net flowsnote (a) (758) (129) (887) Transfers from general to separate account 637 (637) - Investment-related items and other movements 21,737 49 21,786 At 30 June 2019 184,917 72,362 257,279 Average policyholder liability balancesnote (c) Half year 2020 189,645 77,957 267,602 Half year 2019 174,109 72,721 246,830 Notes (a) Net outflows in the first half of 2020 were $383 million (first half of 2019 outflows: $887 million) with surrenders and withdrawals from general account exceeding new inflows on this business given lower volumes of institutional sales in the period, partially offset by net inflows into the variable annuity separate accounts. (b) Negative investment-related items and other movements in variable annuity separate account liabilities of $(10,151) million for the first half of 2020 largely represent negative separate account return following the decrease in the US equity market in the period, partially offset by increased obligations for variable annuity guarantees, following falls in interest rates and equity markets. (c) Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the period. (d) Included within the policyholder liabilities for the general account and other business of $81,435 million at 30 June 2020 are $27.7 billion in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd, as discussed in note D1. C4 Intangible assets C4.1 Goodwill Goodwill shown on the consolidated statement of financial position at 30 June 2020 represents amounts allocated to businesses in Asia and Africa in respect of both acquired asset management and life businesses. 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Carrying value at beginning of period 969 2,365 2,365 Reclassification/Demerger of UK and Europe operations - (1,731) (1,731) Additions in the period - - 299 Exchange differences (27) 15 36 Carrying value at end of period 942 649 969 C4.2 Deferred acquisition costs and other intangible assets 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Deferred acquisition costs and other intangible assets attributable to shareholders 18,538 16,037 17,409 Other intangible assets, including computer software, attributable to with-profits funds 66 74 67 Total of deferred acquisition costs and other intangible assets 18,604 16,111 17,476 The deferred acquisition costs and other intangible assets attributable to shareholders comprise: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Deferred acquisition costs related to insurance contracts as classified under IFRS 4 14,567 13,142 14,206 Deferred acquisition costs related to investment management contracts, including life assurance contracts classified as financial instruments and investment management contracts under IFRS 4 34 34 33 Deferred acquisition costs related to insurance and investment contracts 14,601 13,176 14,239 Present value of acquired in-force policies for insurance contracts as classified under IFRS 4 (PVIF) 34 39 38 Distribution rights and other intangibles 3,903 2,822 3,132 Present value of acquired in-force (PVIF) and other intangibles attributable to shareholders 3,937 2,861 3,170 Total of deferred acquisition costs and other intangible assetsnote (a) 18,538 16,037 17,409 Notes (a) Total deferred acquisition costs and other intangible assets attributable to shareholders can be further analysed by business operations as follows: 2020 $m 2019 $m Deferred acquisition costs PVIF and other 30 Jun 30 Jun 31 Dec Asia US intangibles��� Total Total Total Balance at beginning of period: 1,999 12,240 3,170 17,409 15,008 15,008 Removal of UK and Europe operations from opening balance - - - - (143) (143) Additions��� 261 353 904 1,518 1,469 2,601 Amortisation to the income statement:note (c) Adjusted operating profit (157) (363) (111) (631) (371) (792) Non-operating profit (loss) - 50 (2) 48 616 1,243 (157) (313) (113) (583) 245 451 Disposals and transfers - - (13) (13) (6) (11) Exchange differences and other movements (30) - (11) (41) 24 134 Amortisation of DAC related to net unrealised valuation movements on the US insurance operation's available-for-sale securities recognised within other comprehensive income - 248 - 248 (560) (631) Balance at end of period 2,073 12,528 3,937 18,538 16,037 17,409 * Under the Group's application of IFRS 4, US GAAP is used for measuring the insurance assets and liabilities of its US and certain Asia operations. Under US GAAP, most of the US insurance operation's products are accounted for under Accounting Standard no. 97 of the Financial Accounting Standards Board (FAS 97) whereby deferred acquisition costs are amortised in line with the emergence of actual and expected gross profits which are determined using an assumption for long-term investment returns for the separate account of 7.4 per cent (half year and full year 2019: 7.4 per cent) gross of asset management fees and other charges to policyholders, but net of external fund management fees. The other assumptions impacting expected gross profits include mortality assumptions, lapses, assumed unit costs and future hedge costs. The amounts included in the income statement and other comprehensive income affect the pattern of profit emergence and thus the DAC amortisation attaching. DAC amortisation is allocated to the operating and non-operating components of the Group's supplementary analysis of profit and other comprehensive income by reference to the underlying items. The charge of $(313) million in half year 2020 in the US operations includes $(764) million for the write-off of the deferred acquisition costs in respect of the reinsured Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd. ��� PVIF and other intangibles comprise present value of acquired in-force (PVIF), distribution rights and other intangibles such as software rights. Distribution rights relate to amounts that have been paid or have become unconditionally due for payment as a result of past events in respect of bancassurance partnership arrangements in Asia. These agreements allow for bank distribution of Prudential's insurance products for a fixed period of time. Software rights include additions of $21 million, amortisation of $(17) million, disposals of $(8) million, foreign exchange of $2 million and closing balance at 30 June 2020 of $83 million (30 June 2019: $70 million; 31 December 2019: $85 million). ��� On 19 March 2020, the Group signed a new bancassurance agreement with TMB Bank for a period of 15 years. This extended exclusive partnership agreement required the novation of TMB Bank's current bancassurance distribution agreement with another insurance group. The agreement cost Thai Baht 24.5 billion, which will be paid in two instalments with Thai Baht 12.0 billion paid in April 2020 and the remainder on 1 January 2021. The amount included in additions in the table above is $788 million. (b) The DAC amount in respect of US arises in the insurance operations which comprises the following amounts: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Variable annuity and other business 12,975 12,038 12,935 Cumulative shadow DAC (for unrealised gains/losses booked in other comprehensive income) (447) (622) (695) Total DAC for US operations 12,528 11,416 12,240 * A net gain of $248 million (half year 2019: a loss of $(560) million; full year 2019: a loss of $(631) million) for shadow DAC amortisation is booked within other comprehensive income to reflect a reduction in shadow DAC of $535 million as a result of the reinsurance of substantially all of Jackson's fixed and fixed annuity business to Athene Life offset by the impact from the positive unrealised valuation movement for half year 2020 of $2,540 million (half year 2019: positive unrealised valuation movement of $3,386 million; full year 2019: positive unrealised valuation movement of $4,023 million). These adjustments reflect the movement from period to period, in the changes to the pattern of reported gross profits that would have happened if the assets reflected in the statement of financial position had been sold, crystallising the unrealised gains and losses, and the proceeds reinvested at the yields currently available in the market. (c) Sensitivity of US DAC amortisation charge The amortisation charge to the income statement in respect of the US DAC asset is reflected in both adjusted operating profit and short-term fluctuations in investment returns. The amortisation charge to adjusted operating profit in a reporting period comprises: - A core amount that reflects a relatively stable proportion of underlying premiums or profit; and - An element of acceleration or deceleration arising from market movements differing from expectations. In periods where the cap and floor features of the mean reversion technique (which is used for moderating the effect of short-term volatility in investment returns) are not relevant, the technique operates to dampen the second element above. Nevertheless, extreme market movements can cause material acceleration or deceleration of amortisation in spite of this dampening effect. It is currently estimated that DAC amortisation will accelerate (decelerate) by $17 million for every 1 per cent under (over) the mean reversion rate (set using the calculation described below to give an average over an 8 year period of 7.4 per cent) the annualised actual separate account growth rate differs by. Furthermore, in those periods where the cap or floor is relevant, the mean reversion technique provides no further dampening and additional volatility may result. In half year 2020, the DAC amortisation charge for adjusted operating profit was determined after including a charge for accelerated amortisation of $(32) million (half year 2019: credit for deceleration: $191 million; full year 2019: credit for deceleration: $280 million). DAC amortisation for variable annuities is sensitive to separate account performance. The acceleration arising in the first half of 2020 reflects a mechanical increase in the projected separate account return for the next five years under the mean-reversion technique. Under this technique, the projected level of return for each of the next five years is adjusted so that in combination with the actual rates of return for the preceding three years (including the current period) the assumed long-term annual separate account return of 7.4 per cent is realised on average over the entire eight-year period. The application of the mean reversion formula has the effect of dampening the impact of equity market movements on DAC amortisation while the mean reversion assumption lies within the corridor. At 30 June 2020, it would take approximate movements in separate account values of more than either negative 30 per cent or positive 42 per cent for the mean reversion assumption to move outside the corridor. C5 Borrowings C5.1 Core structural borrowings of shareholder-financed businesses 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Central operations: Subordinated and other debt not substituted to M&G plc in 2019: Subordinated debt: US$250m 6.75% Notesnote (i) 250 250 250 US$300m 6.5% Notesnote (i) 300 300 300 US$700m 5.25% Notes 700 700 700 US$1,000m 5.25% Notes 997 994 996 US$725m 4.375% Notes 723 721 721 US$750m 4.875% Notes 746 743 744 ���20m Medium Term Notes 2023 22 23 22 ��435m 6.125% Notes 2031 533 548 571 Senior debt:note (ii) ��300m 6.875% Notes 2023 366 375 392 ��250m 5.875% Notes 2029 280 285 298 $1,000m 3.125% Notes 2030note (iii) 982 - - Bank loansnote (iv) $350m Loan 2024 350 - 350 ��275m Loan 2022 - 350 - Total debt not substituted to M&G plc in 2019 6,249 5,289 5,344 Subordinated debt substituted to M&G plc in 2019 - 3,931 - Total central operations 6,249 9,220 5,344 Jackson US$250m 8.15% Surplus Notes 2027note (v) 250 250 250 Total core structural borrowings of shareholder-financed businesses 6,499 9,470 5,594 Notes (i) These borrowings can be converted, in whole or in part, at the Company's option and subject to certain conditions, on any interest payment date, into one or more series of Prudential preference shares. (ii) The senior debt ranks above subordinated debt in the event of liquidation. (iii) In April 2020, the Company issued $1,000 million 3.125 per cent senior debt maturing on 14 April 2030 with proceeds, net of costs of $982 million. (iv) The bank loan of $350 million was drawn in November 2019 at a cost of LIBOR plus 0.2 per cent. The loan matures on 7 November 2024. The ��275 million bank loan was repaid by the Group in October 2019. (v) Jackson's borrowings are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Jackson. C5.2 Operational borrowings 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Borrowings in respect of short-term fixed income securities programmes - commercial paper 506 841 520 Lease liabilities under IFRS 16 318 291 371 Non-recourse borrowings of consolidated investment fundsnote (a) 1,081 694 1,045 Other borrowingsnote (b) 97 292 406 Operational borrowings attributable to shareholder-financed businesses 2,002 2,118 2,342 Lease liabilities under IFRS 16 224 272 259 Other borrowings 19 31 44 Operational borrowings attributable to with-profits businesses 243 303 303 Total operational borrowings 2,245 2,421 2,645 Notes (a) In all instances, the holders of the debt instruments issued by consolidated investment funds do not have recourse beyond the assets of those funds. (b) Other borrowings mainly include senior debt issued through the Federal Home Loan Bank of Indianapolis (FHLB), secured by collateral posted with the FHLB by Jackson. C6 Sensitivity analysis to key market risks The Group's risk framework and the management of risk, including that attached to the Group's financial statements, have been included in the 'Group Chief Risk and Compliance Officer's Report on the risks facing our business and how these are managed'. The following sections set out the sensitivity of the Group's segmental profit or loss and shareholders' equity to instantaneous changes in interest rates and equity levels, which are then assumed to remain unchanged for the long term. Further information of the Group's sensitivity to key risks was set out in the Group's financial statements for the year ended 31 December 2019. The published sensitivities in notes C6.1 and C6.2 below only allow for limited management actions such as changes to policyholder bonuses, where applicable. If the economic conditions set out in the sensitivities persisted, the financial impacts may differ to the instantaneous impacts shown below. Given the continuous risk management processes in place, management could take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold. The sensitivities reflect all consequential impacts from market movements at the valuation date. In particular, where relevant the 30 June 2020 sensitivities reflect potential tax benefits that would arise under the relief provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the US for 2020. C6.1 Sensitivity to interest rate risk The sensitivities shown below are for movements in risk-free rates (based on local government bond yields at the valuation date) in isolation and are subject to a floor of zero. They do not include movements in credit risk that may affect credit spreads and hence the valuation of debt securities and policyholder liabilities. A one-letter credit downgrade in isolation (i.e. ignoring any consequential change in valuation) would not have a material impact on IFRS profit or shareholders' equity. Following the fall in interest rates during the first half of 2020, the estimated sensitivity to a decrease in interest rates at 30 June 2020 has been updated to a decrease of 0.5 per cent. This compares to a 1 per cent change at 31 December 2019. The estimated sensitivity to a decrease and increase in interest rates at 30 June 2020 is as follows: 30 June 2020 Asia insurance $m US insurance $m Decrease of 0.5% Increase of 1% Decrease of 0.5% Increase of 1% Net effect on shareholders' equity (1,203) 64 (90) (123) * The effect from the instantaneous changes in interest rates above, if they arose, would impact profit after tax for Asia insurance operations and would mostly be recorded within short-term fluctuations in investment returns. The impact on profit after tax would be the same as the net effect on shareholders' equity. For US insurance operations, the instantaneous changes in interest rates above, if they arose, would cause the net effect on equity shown above through two constituent movements. Firstly, profit after tax, net of related changes in the amortisation of DAC, would be impacted (decrease of 0.5 per cent: $(1,036) million; increase of 1 per cent: $1,577 million), and would mostly be recorded within short-term fluctuations in investment returns. Secondly, the effect would also impact other comprehensive income (decrease of 0.5 per cent: $946 million; increase of 1 per cent: $(1,700) million) in respect of the direct effect on the carrying value of the available-for-sale debt securities, net of related changes in the amortisation of DAC and related tax effects. The estimated sensitivity to a decrease and increase in interest rates at 31 December 2019 is as follows: 31 December 2019 Asia insurance $m US insurance $m Decrease of 1% Increase of 1% Decrease of 1% Increase of 1% Net effect on shareholders' equity (702) (718) 20 (553) * The effect from the instantaneous changes in interest rates above, if they arose, would impact profit after tax for Asia insurance operations and would mostly be recorded within short-term fluctuations in investment returns. The impact on profit after tax would be the same as the net effect on shareholders' equity. For US insurance operations, the instantaneous changes in interest rates above, if they arose, would cause the net effect on equity shown above through two constituent movements. Firstly, profit after tax, net of related changes in the amortisation of DAC, would be impacted (decrease of 1 per cent: $(2,224) million; increase of 1 per cent: $1,691 million), and would mostly be recorded within short-term fluctuations in investment returns. Secondly, the effect would also impact other comprehensive income (decrease of 1 per cent: $2,244 million; increase of 1 per cent: $(2,244) million) in respect of the direct effect on the carrying value of the available-for-sale debt securities, net of related changes in the amortisation of DAC and related tax effects. Asia insurance operations The degree of sensitivity of the results of the non-linked shareholder-backed business of the Asia operations to movements in interest rates depends upon the degree to which the liabilities under the 'grandfathered' IFRS 4 measurement basis reflects market interest rates from year to year. This varies by local business unit. For example: - certain Asia businesses apply US GAAP, for which the results can be more sensitive as the effect of interest rate movements on the backing investments may not be offset by liability movements; - the level of options and guarantees in the products written in a particular business unit will affect the degree of sensitivity to interest rate movements; and - the degree of sensitivity of the results is dependent on the interest rate level at that point of time. The sensitivity of the Asia operations presented as a whole at a given point in time will also be affected by a change in the relative size of the individual businesses. Following the substantial fall in interest rates over the first half of 2020, at 30 June 2020 the 'decrease of 0.5 per cent' sensitivity is dominated by the impact of interest rate movements on some local business units' policyholder liabilities, which are expected to increase more than the offsetting increase in the value of government and corporate bond investments. This is similar to the effect described in note B1.2(i), with the impacts exacerbated if interest rates were to fall further from the historically low levels at 30 June 2020. Liabilities become less sensitive to interest rates as interest rates rise. If interest rates were to increase by 1 per cent from 30 June 2020 levels, the change in the value of assets is expected to be of a similar magnitude to the change in the value of policyholder liabilities. At higher levels of interest rates, the change in the value of assets is expected to exceed the change in the value of liabilities, as evident in the 'increase of 1 per cent' sensitivity at 31 December 2019. US insurance operations The GMWB features attached to variable annuity business (other than 'for life' components) are accounted for under US GAAP at fair value and, therefore, will be sensitive to changes in interest rates. Debt securities and related derivatives are marked to fair value. Value movements on derivatives, again net of related changes to amortisation of DAC and deferred tax, are recorded within the income statement. Fair value movements on debt securities, net of related changes to amortisation of DAC and deferred tax, are recorded within other comprehensive income. The sensitivity movements provided in the table above are at a point in time and reflect the hedging programme in place on the balance sheet date, while the actual impact on financial results would vary contingent upon a number of factors. Jackson's hedging programme is primarily focused on managing the economic risks in the business and protecting statutory solvency under larger market movements, and does not explicitly aim to hedge the IFRS accounting results. The magnitude of the impact of the sensitivities on profit after tax at 30 June 2020 is broadly similar to the impact at 31 December 2019, reflecting largely offsetting effects with the impact of more sensitive guarantee liabilities at 30 June 2020 being broadly matched by the impact from a change in the position of Jackson's interest rate hedging at that date. The reduction in the magnitude of the impact of the sensitivities on other comprehensive income, and hence shareholders' equity, reflects the reduction in the volume of available-for-sale debt securities following the Athene reinsurance transaction described in note D1(i). Asset management and other operations The profit for the period of asset management operations is sensitive to the level of assets under management, as this significantly affects the value of management fees earned by the business in the current and future periods. The Group's asset management and other operations do not hold significant financial investments. At 30 June 2020, the financial investments of the other operations are principally short-term treasury bills held by the Group's treasury function for liquidity purposes and so there is limited sensitivity to interest rate movements. C6. 2 Sensitivity to equity and property price risk In the equity risk sensitivity analysis shown, the Group has considered the impact of an instantaneous 20 per cent fall in equity markets. If equity markets were to fall by more than 20 per cent, the Group believes that this would not be an instantaneous fall but rather would be expected to occur over a longer period of time, during which the hedge positions within Jackson, where the underlying equity risk is greatest, would be rebalanced. The equity risk sensitivity analysis provided assumes that all equity indices fall by the same percentage. The estimated sensitivity to a 10 per cent and 20 per cent change in equity and property prices at 30 June 2020 is as follows: 30 June 2020 Asia insurance $m US insurance $m Decrease of 20% Increase of 10% Decrease of 20% Increase of 10% Net effect on shareholders' equity (559) 302 2,174 (484) * The effect from the instantaneous changes in equity and property prices above, if they arose, would impact profit after tax for Asia and the US insurance operations, which would mostly be recorded within short-term fluctuations in investment returns. The estimated sensitivity to a 10 per cent and 20 per cent change in equity and property prices at 31 December 2019 is as follows: 31 December 2019 Asia insurance $m US insurance $m Decrease of 20% Increase of 10% Decrease of 20% Increase of 10% Net effect on shareholders' equity (816) 408 762 608 * The effect from the instantaneous changes in equity and property prices above, if they arose, would impact profit after tax for Asia and the US insurance operations, which would mostly be recorded within short-term fluctuations in investment returns. Asia insurance operations Generally, changes in equity and property investment values are not directly offset by movements in non-linked policyholder liabilities. Movements in equities backing with-profits and unit-linked business have been excluded as they are generally matched by an equal movement in insurance liabilities (including unallocated surplus of with-profits funds). The impact on changes to future profitability as a result of changes to the asset values within unit-linked or with-profits funds have not been included in the instantaneous sensitivity above. The estimated sensitivities shown above include equity and property investments held by the Group's joint venture and associate businesses. US insurance operations The sensitivity movements shown above exclude the impact of the instantaneous equity movements on the separate account fees, and include the movements relating to the reinsurance of GMIB guarantees. They assume instantaneous market movements, while the actual impact on financial results would vary contingent upon the volume of new product sales and lapses, changes to the derivative portfolio, correlation of market returns and various other factors including volatility, interest rates and elapsed time. Jackson is exposed to equity risk through the options embedded in the fixed indexed annuity liabilities and guarantees included in certain variable annuity benefits. This risk is managed using an equity hedging programme to minimise the risk of a significant economic impact as a result of increases or decreases in equity market levels. Jackson purchases futures and options that hedge the risks inherent in these products. Due to the nature of the valuation of the free-standing derivatives and the variable annuity guarantee features under IFRS, this hedge, while effective on an economic basis, would not automatically offset within the financial statements as the impact of equity market movements resets the free-standing derivatives immediately while some of the hedged liabilities reset more slowly and fees are recognised prospectively in the period in which they are earned. Jackson's hedging programme is primarily focused on managing the economic risks in the business and protecting statutory solvency in the circumstances of larger market movements. The hedging programme does not explicitly aim to hedge IFRS accounting results, which can lead to volatility in the IFRS results in a period of significant market movements, as was seen in the first half of 2020. In addition to the exposure explained above, Jackson is also exposed to equity risk from its holding of equity securities, partnerships in investment pools and other financial derivatives. The sensitivities reflect the actual hedging portfolio in place at 30 June 2020 and 31 December 2019. The nature of Jackson's dynamic hedging programme means that the portfolio, and hence the results of these sensitivities, will change on an ongoing basis. The impacts shown under an increase or decrease in equity markets at 30 June 2020 reflect the factors discussed above. The changes from the values shown at 31 December 2019 largely arise from the additional equity protection in place at 30 June 2020 following the market volatility seen over the first half of the year. Asset management and other operations The profit for the period of asset management operations is sensitive to the level of assets under management, as this significantly affects the value of management fees earned by the business in the current and future periods. Assets under management will rise and fall as equities increase or decrease in value with a consequential impact on profitability. With the exception of the above, there is limited sensitivity to equity price risk. C7 Deferred tax The statement of financial position contains the following deferred tax assets and liabilities in relation to: Half year 2020 $m Balance at 1 Jan Movement in income statement Movement through other comprehensive income and equity Other movements including foreign currency movements Balance at 30 Jun Deferred tax assets Unrealised losses or gains on investments - - - 1 1 Balances relating to investment and insurance contracts 32 8 - (1) 39 Short-term temporary differences 3,889 238 - 1 4,128 Unused tax losses 154 (64) - 1 91 Total 4,075 182 - 2 4,259 Deferred tax liabilities Unrealised losses or gains on investments (877) 19 7 3 (848) Balances relating to investment and insurance contracts (1,507) (110) - 68 (1,549) Short-term temporary differences (2,853) (28) - - (2,881) Total (5,237) (119) 7 71 (5,278) C8 Share capital, share premium and own shares 30 Jun 2020 30 Jun 2019 31 Dec 2019 Issued shares of 5p each Number of ordinary shares Share capital Share premium Number of ordinary shares Share capital Share premium Number of ordinary shares Share capital Share premium fully paid: $m $m $m $m $m $m Balance at beginning of period 2,601,159,949 172 2,625 2,593,044,409 166 2,502 2,593,044,409 166 2,502 Shares issued under share-based schemes 7,700,498 - 10 6,751,790 - 13 8,115,540 - 22 Impact of change in presentation currency - - - - (1) (3) - 6 101 Balance at end of period 2,608,860,447 172 2,635 2,599,796,199 165 2,512 2,601,159,949 172 2,625 Options outstanding under save as you earn schemes to subscribe for shares at each period end shown below are as follows: Number of shares Share price range Exercisable to subscribe for from to by year 30 Jun 2020 2,197,782 1,104p 1,455p 2025 30 Jun 2019 3,808,687 901p 1,455p 2024 31 Dec 2019 3,805,447 1,104p 1,455p 2025 Transactions by Prudential plc and its subsidiaries in Prudential plc shares The Group buys and sells Prudential plc shares ('own shares') either in relation to its employee share schemes or, up until the demerger of its UK and Europe operations (M&G plc) in October 2019, via transactions undertaken by authorised investment funds that the Group is deemed to control. The cost of own shares of $237 million at 30 June 2020 (30 June 2019: $228 million; 31 December 2019: $183 million) is deducted from retained earnings. The Company has established trusts to facilitate the delivery of shares under employee incentive plans. At 30 June 2020, 11.5 million (30 June 2019: 9.5 million; 31 December 2019: 8.4 million) Prudential plc shares with a market value of $173 million (30 June 2019: $207 million; 31 December 2019: $161 million) were held in such trusts, all of which are for employee incentive plans. The maximum number of shares held during the period was 11.5 million which was in June 2020. Within the trusts, shares are notionally allocated by business unit reflecting the employees to which the awards were made. The Company purchased the following number of shares in respect of employee incentive plans: Number of shares purchased (in millions) Cost $m Half year 2020 5.8 75.2 Half year 2019 3.1 64.2 Full year 2019 3.7 73.8 * The cost in US dollars shown has been calculated from the share prices in pounds sterling using the monthly average exchange rate for the month in which those shares were purchased. The Group consolidated a number of authorised investment funds where it was deemed to control these funds under IFRS up until the demerger in October 2019. Some of these funds held shares in Prudential plc and the cost of acquiring these shares was included in the cost of own shares in 2019. All share transactions were made on an exchange other than the Stock Exchange of Hong Kong. Other than set out above, the Group did not purchase, sell or redeem any Prudential plc listed securities during half year 2020 or 2019. D OTHER INFORMATION D1 Gain (loss) attaching to corporate transactions 2020 $m 2019 $m Half year Half year Full year Gain arising on reinsurance of Jackson's in-force fixed and fixed indexed annuity businessnote (i) 846 - - Gain on disposalsnote (ii) - 270 265 Other transactionsnote (iii) - (253) (407) Total gain (loss) attaching to corporate transactions 846 17 (142) Notes (i) With effect from 1 June 2020, Jackson reinsured substantially all of its in-force portfolio of US fixed and fixed indexed annuities with Athene Life Re Ltd, which resulted in a pre-tax gain of $846 million, after allowing for the write-off of deferred acquisition costs associated with the business reinsured. The transaction excluded Jackson's legacy life and institutional business as well as the REALIC portfolio and group pay-out annuity business reinsured from John Hancock and was collateralised to reduce the exposure to counterparty risk. Under the reinsurance arrangement, Jackson reinsured $27.6 billion liabilities (valued at 1 June 2020) in return for a premium of $28.9 billion net of ceding commission, comprising principally of bonds. The pre-tax gain also includes the realised gains arising on the bonds net of the deferred acquisition costs written off as a result of the transaction. After allowing for tax and the reduction in unrealised gains recorded directly in other comprehensive income, the impact of the reinsurance transaction on IFRS shareholders' equity is a reduction of $(1.1) billion. (ii) In 2019, the gain on disposals principally related to profits arising from a 4 per cent reduction in the Group's stake in its associate in India, ICICI Prudential Life Insurance Company, and the disposal of Prudential Vietnam Finance Company Limited, a wholly-owned subsidiary that provides consumer finance. (iii) In 2019, other transactions primarily reflected costs related to the demerger of the Group's UK and Europe operations (M&G plc). D2 Contingencies and related obligations The Group is involved in various litigation and regulatory proceedings. These may from time to time include class actions involving Jackson. While the outcome of such litigation and regulatory issues cannot be predicted with certainty, the Company believes that their ultimate outcome will not have a material adverse effect on the Group's financial condition, results of operations or cash flows. There have been no material changes to the Group's contingencies and related obligations in the six month ended 30 June 2020. D3 Post balance sheet events First interim ordinary dividend The 2020 first interim ordinary dividend approved by the Board of Directors after 30 June 2020 is as described in note B6. Completion of the equity investment by Athene into US business On 17 July 2020, the Group completed the equity investment by Athene into the US business, which was announced in June 2020. Under the transaction, Athene Life Re Ltd invested $500 million in Prudential's US business in return for an 11.1 per cent economic interest for which the voting interest is 9.9 per cent. Athene's investment is in the form of a cash subscription for the issuance of new common equity in the holding company containing Prudential's US businesses, including Jackson National Life Insurance Company and PPM America. If the transaction had completed at 30 June 2020, the effect on the IFRS shareholders' equity would have been a reduction of $550 million. There would have been no impact on profit or loss for the period. D4 Related party transactions There were no transactions with related parties during the six months ended 30 June 2020 which have had a material effect on the results or financial position of the Group. The nature of the related party transactions of the Group has not changed from those described in the Group's consolidated financial statements for the year ended 31 December 2019. Statement of Directors' responsibilities The Directors (who are listed below) are responsible for preparing the Half Year Financial Report in accordance with applicable law and regulations. Accordingly, the Directors confirm that to the best of their knowledge: - the condensed consolidated financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union; - the Half Year Financial Report includes a fair review of information required by: (a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2020, and their impact on the condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2020 and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the Group's consolidated financial statements for the year ended 31 December 2019 that could do so. Prudential plc Board of Directors: Chairman Paul Manduca Executive Directors Michael Wells Mark FitzPatrick CA James Turner FCA FCSI FRM Independent Non-executive Directors The Hon. Philip Remnant CBE FCA Jeremy Anderson CBE David Law ACA Kaikhushru Nargolwala FCA Anthony Nightingale CMG SBS JP Alice Schroeder Shriti Vadera Thomas Watjen Fields Wicker-Miurin OBE Amy Yip 11 August 2020 Independent Review Report to Prudential plc Conclusion We have been engaged by the Company to review the International Financial Reporting Standards (IFRS) condensed set of financial statements in the Half Year Financial Report for the six months ended 30 June 2020 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes. Based on our review, nothing has come to our attention that causes us to believe that the IFRS condensed set of financial statements in the Half Year Financial Report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union ('EU') and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA'). We have also been engaged by the Company to review the European Embedded Value (EEV) basis supplementary financial information for the six months ended 30 June 2020 which comprises the Summarised Consolidated Income Statement, the Movement in Shareholders' Equity, the Summary Statement of Financial Position and the related explanatory notes. Based on our review, nothing has come to our attention that causes us to believe that the EEV basis supplementary financial information for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with the European Embedded Value Principles issued by the European Insurance CFO Forum in 2016 ("the EEV Principles"), using the methodology and assumptions set out in the Notes to the EEV basis supplementary financial information. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the Half Year Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the IFRS condensed set of financial statements or the EEV basis supplementary financial information. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Directors' responsibilities The Half Year Financial Report, including the IFRS condensed set of financial statements therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Year Financial Report in accordance with the DTR of the UK FCA. The Directors have accepted responsibility for preparing the EEV basis supplementary financial information in accordance with the EEV Principles and for determining the methodology and assumptions used in the application of those principles. The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for preparing the IFRS condensed set of financial statements included in the Half Year Financial Report in accordance with IAS 34 as adopted by the EU. The EEV basis supplementary financial information has been prepared in accordance with the EEV Principles using the methodology and assumptions set out in the Notes to the EEV basis supplementary financial information. The EEV basis supplementary financial information should be read in conjunction with the IFRS condensed set of financial statements. Our responsibility Our responsibility is to express to the Company a conclusion on the IFRS condensed set of financial statements in the Half Year Financial Report and the EEV basis supplementary financial information based on our reviews. The purpose of our review work and to whom we owe our responsibilities This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA and also to provide a review conclusion to the Company on the EEV basis supplementary financial information. Our review of the IFRS condensed set of financial statements has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. Our review of the EEV basis supplementary financial information has been undertaken so that we might state to the Company those matters we have been engaged to state in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Philip Smart For and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL 11 August 2020 I Additional financial information I(i) Group capital position Overview Prudential plc applies the local capital summation method (LCSM) that has been agreed with the Hong Kong Insurance Authority (IA) to determine group regulatory capital requirements (both minimum and prescribed levels). Ultimately, Prudential will become subject to the Group Wide Supervision (GWS) framework. The timing of finalisation and implementation of the GWS Framework remains uncertain, although it is expected to become effective in early 2021. The Legislative Council of the Hong Kong Special Administrative Region approved the enabling primary legislation in July and further implementation guidance is expected in the second half of the year. Subject to that guidance we currently expect the GWS methodology to be largely consistent to that applied under LCSM. Further detail on the LCSM is included in the basis of preparation section below. For regulated insurance entities, the available and required capital included in the LCSM measure for Hong Kong IA Group regulatory purposes are based on the local solvency regime applicable in each jurisdiction. At 30 June 2020, the Prudential Group's total surplus of available capital over the regulatory Group Minimum Capital Requirement (GMCR), calculated using this LCSM was $25.5 billion, before allowing for the payment of the 2020 first interim ordinary dividend. The Group holds material participating business in Hong Kong, Singapore and Malaysia. If the available capital and minimum capital requirement attributed to this policyholder business are excluded, then the Prudential Group shareholder LCSM surplus of available capital over the regulatory GMCR at 30 June 2020 was $12.4 billion, before allowing for the payment of the 2020 first interim ordinary dividend. Estimated Group LCSM capital position based on Group Minimum Capital Requirement (GMCR) 30 Jun 2020 31 Dec 2019 Total Less policyholder Shareholder Total Less policyholder Shareholder Available capital ($bn) 37.0 (19.3) 17.7 33.1 (19.1) 14.0 Group Minimum Capital Requirement ($bn) 11.5 (6.2) 5.3 9.5 (5.0) 4.5 LCSM surplus (over GMCR) ($bn) 25.5 (13.1) 12.4 23.6 (14.1) 9.5 LCSM ratio (over GMCR) (%) 323% 334% 348% 309% The shareholder LCSM capital position by segment is presented below at 30 June 2020 and 31 December 2019 for comparison: Shareholder 30 Jun 2020 ($bn) Total Asia Less policyholder Asia US Unallocated to a segment Group total Available capital 29.0 (19.3) 9.7 8.2 (0.2) 17.7 Group Minimum Capital Requirement 9.4 (6.2) 3.2 2.1 - 5.3 LCSM surplus (over GMCR) 19.6 (13.1) 6.5 6.1 (0.2) 12.4 Shareholder 31 Dec 2019 ($bn) Total Asia Less policyholder Asia US Unallocated to a segment Group total Available capital 26.8 (19.1) 7.7 5.3 1.0 14.0 Group Minimum Capital Requirement 8.0 (5.0) 3.0 1.5 - 4.5 LCSM surplus (over GMCR) 18.8 (14.1) 4.7 3.8 1.0 9.5 The 30 June 2020 Jackson local statutory results reflect the reinsurance of an in-force portfolio of Jackson's US fixed and fixed indexed annuity liabilities to Athene Life Re Ltd the effect of which is shown in the table below. Athene's $500 million equity investment in Prudential's US business in return for an 11.1 per cent economic interest completed in July 2020 and is not reflected in the 30 June 2020 results above. If this transaction had been completed at 30 June 2020 the Group LCSM shareholder surplus (i.e. after allowing for the minority interest) would be $0.2 billion lower with the cover ratio increasing by 6 percentage points. The 30 June 2020 Group LCSM position includes the impact of a change in the calculation of the valuation interest rate (VIR) used to value long term insurance liabilities in Hong Kong, which has been formally granted by the regulator. Sensitivity analysis The estimated sensitivity of the Group shareholder LCSM capital position (based on GMCR) to significant changes in market conditions is as follows: 30 Jun 2020 31 Dec 2019 Impact of market sensitivities LCSM surplus ($bn) LCSM ratio (%) LCSM surplus ($bn) LCSM ratio (%) Base position 12.4 334% 9.5 309% Impact of: 10% instantaneous increase in equity markets (0.7) (3)% n/a n/a 20% instantaneous fall in equity markets (0.2) (5)% 1.5 (9)% 40% fall in equity marketsnote (1) (1.2) (19)% (0.2) (39)% 50 basis points reduction in interest rates (0.2) (13)% (0.2) (17)% 100 basis points increase in interest rates (0.1) 24% (1.3) (19)% 100 basis points increase in credit spreadsnote (2) 0.2 12% (1.6) (36)% Notes (1) Where hedges are dynamic, rebalancing is allowed for by assuming an instantaneous 20 per cent fall followed by a further 20 per cent fall over a four-week period. (2) At 31 December 2019 the US RBC solvency position was included using a stress of 10 times expected credit defaults rather than the 100 basis points increase in credit spreads applied at 30 June 2020. The sensitivity results above assume instantaneous market movements and reflect all consequential impacts as at the valuation dates. In particular, where relevant, the 30 June 2020 sensitivities reflect potential tax benefits that would arise under the relief provided by the CARES Act in the US for 2020. An exception to the instantaneous market movements assumed is the -40 per cent equity sensitivity where for Jackson an instantaneous 20 per cent market fall is assumed to be followed by a further market fall of 20 per cent over a four-week period with dynamic hedges assumed to be rebalanced over the period. Aside from this assumed dynamic hedge rebalancing for Jackson in the -40 per cent equity sensitivity, the sensitivity results only allow for limited management actions such as changes to future policyholder bonuses. If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown above. In this case management could also take additional actions to help mitigate the impact of these stresses. These actions include, but are not limited to, rebalancing investment portfolios, further market risk hedging, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold. Analysis of movement in Group shareholder LCSM surplus A summary of the estimated movement in the Group shareholder LCSM surplus (based on GMCR) from $9.5 billion at 31 December 2019 to $12.4 billion at 30 June 2020 is set out in the table below. 2020 ($bn) 2019 ($bn) Half year Full year Balance at beginning of period 9.5 9.7 Operating: Operating capital generation from the in-force business 1.2 2.5 Investment in new business (0.2) (0.6) Operating capital generation 1.0 1.9 Non-operating and other capital movements: Non-operating experience (including market movements and modelling changes) 0.4 (0.6) Regulatory changes 2.2 0.1 Reinsurance of US fixed and fixed indexed annuity in-force portfolio to Athene 0.8 - Other corporate activities (excluding demerger items) (0.8) (0.8) Demerger costs - (0.4) Subordinated debt redemption - (0.5) Demerger related impacts - 1.0 Non-operating results 2.6 (1.2) Remittances from discontinued operations (M&G plc) - 0.7 External dividends (0.7) (1.6) Net dividend impact (0.7) (0.9) Net movement in LCSM surplus 2.9 (0.2) Balance at end of period 12.4 9.5 The estimated movement in the Group shareholder LCSM surplus over first half of 2020 is driven by: - Operating capital generation of $1.0 billion: generated by expected return on in-force business net of strain on new business written in 2020; - Non-operating experience of $0.4 billion: this reflects the impact of falling interest rates and equity markets on the level of policyholder reserves and required capital net of the favourable impact of mitigating hedging measures together with other management actions, including a $1.1 billion benefit from the change to the Hong Kong valuation interest rate described earlier, and US modelling refinements; - Regulatory changes of $2.2 billion: reflecting the benefit from the new Singapore risk-based capital framework (RBC2) effective at 31 March 2020; - Reinsurance of US fixed and fixed indexed annuity in-force portfolio to Athene of $0.8 billion: the impact of the transaction, which was effective at 1 June 2020, was an increase to LCSM surplus comprising of the ceding commission received and required capital released less tax and adverse consequential effects on the US's available capital. This corresponds to a 25 percentage point increase in the Group LCSM cover ratio and is before the effect of the $500 million equity investment by Athene discussed above; - Other Corporate activities (excluding demerger items) of $(0.8) billion: this is the effect on LCSM surplus of corporate transactions in the period, which in 2020 comprised the strategic bancassurance partnership with TMB in Thailand, and; - Net dividend impact of $(0.7) billion: this is the payment of the 2019 second interim dividend paid in May 2020. Reconciliation of Group shareholder LCSM surplus to EEV free surplus (excluding intangibles) 30 Jun 2020 $bn 31 Dec 2019 $bn Asia US Unallocated to a segment Group total Group total Estimated Group shareholder LCSM surplus (over GMCR) 6.5 6.1 (0.2) 12.4 9.5 Increase required capital for EEV free surplusnote (1) (0.7) (3.2) - (3.9) (2.8) Adjust surplus assets and core structural borrowings to market valuenote (2) 0.3 0.2 (0.3) 0.2 0.3 Add back inadmissible assetsnote (3) 0.2 0.1 - 0.3 0.2 Deductions applied to EEV free surplusnote (4) (2.8) - - (2.8) (0.9) Other (0.1) 0.2 0.1 0.2 0.3 EEV free surplus excluding intangibles 3.4 3.4 (0.4) 6.4 6.6 * As per the "Free surplus excluding distribution rights and other intangibles" from note 10 of the Group's EEV basis results. Notes (1) Required capital under EEV is set at least equal to local statutory notification requirements for Asia and so can differ from the minimum capital requirement. Jackson required capital is set at 250 per cent of the risk-based capital (RBC) required by the NAIC at the Company Action Level (CAL). This is higher than the solo legal entity statutory minimum capital requirement of 100 per cent CAL that is included in the LCSM surplus (over GMCR). (2) The EEV Principles require surplus assets to be included at fair value and central core senior debt is held at market value. Within LCSM surplus, some local regulatory regimes value certain assets at cost and core senior debt is held at amortised cost. (3) LCSM restricts the valuation of certain sundry non-intangible assets. In most cases these assets are considered fully recognisable in free surplus. As an exception to this, both LCSM surplus and EEV free surplus restrict the deferred tax asset held by Jackson to the level allowed to be admitted by the local regulator in local statutory available capital. (4) Deductions applied to EEV free surplus primarily include: the impact of reporting EEV free surplus for Singapore based on the Tier 1 requirements under the RBC2 framework, which removes certain negative reserves permitted to be recognised in the full RBC 2 regulatory position used for LCSM and applying the embedded value reporting approach issued by the China Association of Actuaries (CAA) within EEV free surplus as compared to the C-ROSS surplus reported for local regulatory purposes (predominantly arising from the requirement under the CAA embedded value methodology to establish a deferred profit liability within EEV net worth). Reconciliation of Group IFRS shareholders' equity to shareholder LCSM available capital position 30 Jun 2020 $bn 31 Dec 2019 $bn Group IFRS shareholders' equity 19.1 19.5 Remove DAC, goodwill and intangibles recognised on the IFRS statement of financial position (19.3) (18.2) Add subordinated debt at IFRS book valuenote (1) 4.5 4.6 Valuation differencesnote (2) 13.5 8.6 Other (0.1) (0.5) Estimated Group shareholder LCSM available capital 17.7 14.0 Notes (1) Subordinated debt is treated as available capital under LCSM but as a liability under IFRS. (2) Valuation differences reflect differences in the basis of valuing assets and liabilities between IFRS and local statutory valuation rules, including deductions for inadmissible assets. Material differences arise in Jackson where IFRS variable annuity guarantee reserves are valued on a fair value basis compared to local statutory reserves which reflect long term historic rates. Further, local US statutory reserves are reduced by an expense allowance linked to surrender charges, whereas IFRS makes no such allowance but instead defers acquisition costs on the balance sheet as a separate asset (which is not recognised on the statutory balance sheet). Other material differences include in Singapore where the local available capital position under RBC2 permits the recognition of certain negative reserves in the local statutory position that are not recognised under IFRS. Basis of preparation In advance of the GWS framework coming into force, Prudential applies the local capital summation method (LCSM) that has been agreed with the Hong Kong IA to determine group regulatory capital requirements (both minimum and prescribed levels). The summation of local statutory capital requirements across the Group is used to determine group regulatory capital requirements, with no allowance for diversification between business operations. The Group available capital is determined by the summation of available capital across local solvency regimes for regulated entities and IFRS net assets (with adjustments described below) for non-regulated entities. In determining the LCSM available capital and required capital the following principles have been applied: - For regulated insurance entities, available and required capital are based on the local solvency regime applicable in each jurisdiction, with minimum required capital set at the solo legal entity statutory minimum capital requirements. The treatment of participating funds is consistent with the local basis; - For the US insurance entities, available and required capital are based on the local US RBC framework set by the NAIC, with minimum required capital set at 100 per cent of the CAL RBC; - For asset management operations and other regulated entities, the shareholder capital position is derived based on the sectoral basis applicable in each jurisdiction, with minimum required capital based on the solo legal entity statutory minimum capital requirement; - For non-regulated entities, the available capital is based on IFRS net assets after deducting intangible assets. No required capital is held in respect of unregulated entities; - Investments in subsidiaries, joint ventures and associates (including, if any, loans that are recognised as capital on the receiving entity's balance sheet) are eliminated from the relevant holding company to prevent the double counting of available capital; and - The Hong Kong IA has agreed that specific bonds (being those subordinated debt instruments held by Prudential plc at the date of demerger) can be included as part of the Group's capital resources for the purposes of satisfying group minimum and prescribed capital requirements. Senior debt instruments held by Prudential plc have not been included as part of the Group capital resources and are treated as a liability in the LCSM results presented above (this is equivalent to a 27 per cent reduction in the Group shareholder LCSM coverage ratio (over GMCR)). Grandfathering provisions under the GWS framework remain subject to further consultation and the Hong Kong legislative process in due course. I(ii) Funds under management For Prudential's asset management businesses, funds managed on behalf of third parties are not recorded on the statement of financial position. They are, however, a driver of profitability. Prudential therefore analyses the movement in the funds under management each period, focusing on those which are external to the Group and those primarily held by the Group's insurance businesses. The table below analyses, by segment, the funds of the Group held in the statement of financial position and the external funds that are managed by Prudential's asset management businesses. 2020 $bn 2019 $bn 30 Jun 30 Jun 31 Dec Asia operations: Internal funds 149.7 127.9 141.9 Eastspring Investments external funds, including M&G plc (as analysed in note I(v)) 98.1 110.1 124.7 247.8 238.0 266.6 US operations - internal funds 242.9 261.3 273.4 Other operations 3.4 5.0 3.9 Total Group funds under management 494.1 504.3 543.9 * The half year 2019 comparatives have been adjusted to include cash and cash equivalents and to exclude assets held that are attributable to external unit holders of consolidated collective investment schemes to align to the current period's presentation since full year 2019. In addition, funds managed on behalf of M&G plc are presented as external rather than internal funds under management to align to the presentation since the demerger in October 2019. Note Total Group funds under management comprise: 2020 $bn 2019 $bn 30 Jun 30 Jun 31 Dec Total investments and cash and cash equivalents held by the continuing operations on the consolidated statement of financial position 388.4 389.2 412.6 External funds of Eastspring Investments, including M&G plc 98.1 110.1 124.7 Internally managed funds held in joint ventures and associate, excluding assets attributable to external unit holders of the consolidated collective investment schemes and other adjustments 7.6 5.0 6.6 Total Group funds under management 494.1 504.3 543.9 I(iii) Holding company cash flow The holding company cash flow describes the movement in the cash and short-term investments of the centrally managed group holding companies and differs from the IFRS cash flow statement, which includes all cash flows in the year including those relating to both policyholder and shareholder funds. The holding company cash flow is therefore a more meaningful indication of the Group's central liquidity. 2020 $m 2019 $m Half year Half year Full year note (f) note (f) Net cash remitted by business units:note (a) From continuing operations Asianote (b) 400 578 950 Jacksonnote (b) - 509 509 Other operations 32 6 6 Total continuing operations 432 1,093 1,465 From discontinued UK and Europe operations - 453 684 Net cash remittances by business units 432 1,546 2,149 Net interest paidnote (c) (147) (283) (527) Tax received 94 120 265 Corporate activities (119) (125) (260) Total central outflows (172) (288) (522) Holding company cash flow before dividends and other movements 260 1,258 1,627 Dividends paid (674) (1,108) (1,634) Operating holding company cash flow after dividends but before other movements (414) 150 (7) Other movements Issuance and redemption of debt for continuing operations 982 (504) (504) Other corporate activities relating to continuing operationsnote (d) (762) (330) (338) Transactions to effect the demerger, including debt substitutionnote (e) - (237) (146) Demerger costs (17) (211) (424) Early settlement of UK-inflation-linked derivative liability - - (587) Total other movements 203 (1,282) (1,999) Total holding company cash flow (211) (1,132) (2,006) Cash and short-term investments at beginning of period 2,207 4,121 4,121 Foreign exchange movements (89) 21 92 Cash and short-term investments at end of period 1,907 3,010 2,207 Notes (a) Net cash remittances comprise dividends and other transfers from business units that are reflective of emerging earnings and capital generation. (b) Significant cash remittances from business units were hedged into sterling using forward contracts during 2019 and these contracts determine the amount of sterling recorded in the holding company cash flow for the relevant remittances. The implicit rates may therefore differ from that applied to present the holding company cash flow in US dollars (see note (f)). The dividend paid by Jackson in the US in US dollars in 2019 was $525 million. (c) The net interest paid in half year 2019 included $115 million (full year 2019: $231 million) on debt substituted to M&G plc shortly prior to its demerger. (d) Other corporate activities relating to continuing operations primarily reflect payments made for bancassurance arrangements including those with UOB and TMB Bank. (e) Transactions to effect the demerger represented the effects on holding company cash flow of steps taken in 2019 as part of the preparation for the demerger of the UK and Europe operations (M&G plc). These included the transfer of subsidiaries, settlement of intercompany loans, receipt of the pre-demerger dividend and the substitution of M&G plc as issuer of certain sub-ordinated debt in place of Prudential plc. Further information is provided in note I(iii) in additional financial information for the year ended 31 December 2019. (f) At 31 December 2019, the Group changed its basis of managing central cash-holdings from sterling to US dollars. Accordingly, the half year 2020 holding company cash flow statement presented above has been prepared directly in US dollars and half year 2019 amounts are re-presented from those previously published to reflect the change. Half year and full year 2019 comparatives were prepared in sterling, reflecting the management of holding company cash at that time. Cash movements in the period have been converted from sterling into US dollars by using the month-end sterling to US dollar exchange rate for the month in which the transaction occurred. Cash balances at the start and end of the period were translated from sterling to US dollars using the spot rates at the beginning and end of the period respectively. As an exception to the above, external dividends paid during 2019 have been translated at the exchange rate relevant to the day they were paid to ensure consistency with the financial statements. I(iv) Analysis of adjusted operating profit by driver This schedule classifies the Group's adjusted operating profit from continuing operations into the underlying drivers using the following categories: - Spread income represents the difference between net investment income and amounts credited to certain policyholder accounts. It excludes the operating investment return on shareholder net assets, which has been separately disclosed as expected return on shareholder assets. - Fee income represents profit driven by net investment performance, being fees that vary with the size of the underlying policyholder funds, net of investment management expenses. - With-profits represents the pre-tax shareholders' transfer from the with-profits business for the period. - Insurance margin primarily represents profit derived from the insurance risks of mortality and morbidity. - Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses (see below). - Acquisition costs and administration expenses represent expenses incurred in the period attributable to shareholders. These exclude items such as restructuring and IFRS 17 implementation costs, which are not included in the segment profit, as well as items that are more appropriately included in other categories (eg investment expenses are netted against investment income as part of spread income or fee income as appropriate). - DAC adjustments comprise DAC amortisation for the period, excluding amounts related to short-term fluctuations in investment returns, net of costs deferred in respect of new business written in the period. (a) Margin analysis The following analysis expresses certain of the Group's sources of adjusted operating profit as a margin of policyholder liabilities or other relevant drivers. Half year 2020 Asia US Group total Average liability Margin $m $m $m $m bps note (b) note (c) Spread income 146 273 419 93,964 89 Fee income 135 1,596 1,731 208,714 166 With-profits 58 - 58 68,347 17 Insurance margin 1,287 708 1,995 Margin on revenues 1,345 1,345 Expenses: Acquisition costs (864) (484) (1,348) 2,644 (51)% Administration expenses (711) (853) (1,564) 310,524 (101) DAC adjustments 117 (10) 107 Expected return on shareholder assets 95 26 121 1,608 1,256 2,864 Share of related tax charges from joint ventures and associate (18) - (18) Adjusted operating profit - long-term business 1,590 1,256 2,846 Adjusted operating profit - asset management 143 10 153 Total segment adjusted operating profit 1,733 1,266 2,999 Half year 2019 AER Asia US Group total Average liability Margin $m $m $m $m bps note (b) note (c) Spread income 154 298 452 83,861 108 Fee income 144 1,601 1,745 203,145 172 With-profits 53 - 53 55,118 19 Insurance margin 1,103 711 1,814 Margin on revenues 1,454 1,454 Expenses: Acquisition costs (1,038) (494) (1,532) 3,635 (42)% Administration expenses (708) (825) (1,533) 290,416 (106) DAC adjustments 170 247 417 Expected return on shareholder assets 90 18 108 1,422 1,556 2,978 Share of related tax charges from joint ventures and associate (5) - (5) Adjusted operating profit - long-term business 1,417 1,556 2,973 Adjusted operating profit - asset management 133 16 149 Total segment adjusted operating profit 1,550 1,572 3,122 Half year 2019 CER Asia US Group total Average liability Margin $m $m $m $m bps note (b) note (c) note (1) note (2) Spread income 150 298 448 84,020 107 Fee income 140 1,601 1,741 202,997 172 With-profits 52 - 52 55,170 19 Insurance margin 1,086 711 1,797 Margin on revenues 1,440 - 1,440 Expenses: Acquisition costs (1,029) (494) (1,523) 3,615 (42)% Administration expenses (695) (825) (1,520) 290,426 (105) DAC adjustments 169 247 416 Expected return on shareholder assets 88 18 106 1,401 1,556 2,957 Share of related tax charges from joint ventures and associate (5) - (5) Adjusted operating profit - long-term business 1,396 1,556 2,952 Adjusted operating profit - asset management 130 16 146 Total segment adjusted operating profit 1,526 1,572 3,098 (b) Margin analysis - Asia Half year 2020 Half year 2019 AER Half year 2019 CERnote (6) Average Average Average Profit liability Margin Profit liability Margin Profit liability Margin $m $m bps $m $m bps $m $m bps note (1) note (2) note (1) note (2) note (1) note (2) Spread income 146 37,082 79 154 27,774 111 150 27,933 107 Fee income 135 27,712 97 144 26,536 109 140 26,388 106 With-profits 58 68,347 17 53 55,118 19 52 55,170 19 Insurance margin 1,287 1,103 1,086 Margin on revenues 1,345 1,454 1,440 Expenses: Acquisition costsnote (3) (864) 1,665 (52)% (1,038) 2,560 (41)% (1,029) 2,540 (41)% Administration expenses (711) 64,794 (219) (708) 54,310 (261) (695) 54,320 (256) DAC adjustmentsnote (4) 117 170 169 Expected return on shareholder assets 95 90 88 1,608 1,422 1,401 Share of related tax charges from joint ventures and associatenote (5) (18) (5) (5) Adjusted operating profit - long-term business 1,590 1,417 1,396 Adjusted operating profit - asset management (Eastspring Investments) 143 133 130 Total Asia adjusted operating profit 1,733 1,550 1,526 Notes (1) For Asia, opening and closing policyholder liabilities have been used to derive an average balance for the period, as a proxy for average balances throughout the period. (2) Margin represents the operating return earned in the period as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus. (3) The ratio of acquisition costs is calculated as a percentage of APE sales including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. (4) The DAC adjustments contain a credit of $13 million in respect of joint ventures and associate in half year 2020 (half year 2019: credit of $32 million on an AER basis). (5) Under IFRS, the Group's share of results from its investments in joint ventures and associate accounted for using the equity method is included in the Group's profit before tax on a net of related tax basis. These tax charges are shown separately in the analysis of Asia operating profit drivers in order for the contribution from the joint ventures and associate to be included in the margin analysis on a consistent basis as the rest of the Asia's operations. (6) The half year 2019 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation. CER results are calculated by translating prior period results using the current year foreign exchange rates. All CER profit figures have been translated at current period average rates. For Asia, CER average liabilities have been translated using current period opening and closing exchange rates. (c) Margin analysis - US Half year 2020 Half year 2019 Average Average Profit liability Margin Profit liability Margin $m $m bps $m $m bps note (1) note (2) note (1) note (2) Spread income 273 56,882 96 298 56,087 106 Fee income 1,596 181,002 176 1,601 176,609 181 Insurance margin 708 - - 711 - - Expenses: Acquisition costsnote (3) (484) 979 (49)% (494) 1,075 (46)% Administration expenses (853) 245,730 (69) (825) 236,106 (70) DAC adjustments (10) 247 Expected return on shareholder assets 26 18 Adjusted operating profit - long-term business 1,256 1,556 Adjusted operating profit - asset management 10 16 Total US adjusted operating profit 1,266 1,572 Notes (1) The calculation of average liabilities for the US is generally derived from month-end balances throughout the period as opposed to opening and closing balances only. The average liabilities for fee income in the US have been calculated using daily balances instead of month-end balances in order to provide a more meaningful analysis of the fee income, which is charged on the daily account balance. Average liabilities for spread income are based on the general account liabilities to which spread income is attached and exclude the liabilities reinsured to Athene in the June 2020 month-end balance. Average liabilities used to calculate the administration expenses margin exclude the REALIC liabilities reinsured to third parties prior to the acquisition by Jackson and the liabilities reinsured to Athene in the June 2020 month-end balance. (2) Margin represents the operating return earned in the period as a proportion of the relevant class of policyholder liabilities. (3) The ratio of acquisition costs is calculated as a percentage of APE sales relating to shareholder-backed business. Analysis of adjusted operating profit for US insurance operations before and after acquisition costs and DAC adjustments Half year 2020 $m Half year 2019 $m Before acquisition costs and DAC adjustments Acquisition costs After acquisition costs and DAC adjustments Before acquisition costs and DAC adjustments Acquisition costs After acquisition costs and DAC adjustments Incurred Deferred Incurred Deferred Total adjusted operating profit before acquisition costs and DAC adjustments 1,750 - - 1,750 1,803 - - 1,803 Less investment in new business - (484) 353 (131) - (494) 369 (125) Other DAC adjustments - amortisation of previously deferred acquisition costs: Normal - - (331) (331) - - (313) (313) Deceleration (acceleration) - - (32) (32) - - 191 191 Total US adjusted operating profit - long-term business 1,750 (484) (10) 1,256 1,803 (494) 247 1,556 I(v) Asia operations - analysis of adjusted operating profit by business unit (a) Analysis of adjusted operating profit by business unit Adjusted operating profit for Asia operations are analysed below. The table below presents the half year 2019 results on both AER and CER bases to eliminate the impact of exchange translation. 2020 $m 2019 $m Half year 2020 vs half year 2019 % 2019 $m Half year Half year AER Half year CER AER CER Full year AER China JV 101 89 86 13% 17% 219 Hong Kong 412 337 340 22% 21% 734 Indonesia 249 258 251 (3)% (1)% 540 Malaysia 158 141 136 12% 16% 276 Philippines 40 34 34 18% 18% 73 Singapore 262 228 219 15% 20% 493 Taiwan 37 31 32 19% 16% 74 Thailand 75 62 63 21% 19% 170 Vietnam 125 108 108 16% 16% 237 Other 45 38 39 18% 15% 70 Non-recurrent items 104 96 93 8% 12% 138 Total insurance operations 1,608 1,422 1,401 13% 15% 3,024 Share of related tax charges from joint ventures and associate (18) (5) (5) 260% 260% (31) Total long-term business 1,590 1,417 1,396 12% 14% 2,993 Asset management (Eastspring Investments) 143 133 130 8% 10% 283 Total Asia 1,733 1,550 1,526 12% 14% 3,276 * In half year 2020, the adjusted operating profit for Asia insurance operations included a net credit of $104 million (half year 2019: $96 million; full year 2019: $138 million) representing a small number of items that are not expected to reoccur. (b) Analysis of Eastspring Investments adjusted operating profits 2020 $m 2019 $m Half year Half year Full year Operating income before performance-related feesnote (1) 313 309 636 Performance-related fees 2 1 12 Operating income (net of commission)note (2) 315 310 648 Operating expensenote (2) (157) (157) (329) Group's share of tax on joint ventures' operating profit (15) (20) (36) Adjusted operating profit 143 133 283 Average funds managed by Eastspring Investments $224.1bn $206.7bn $214.0bn Margin based on operating income 28bps 30bps 30bps Cost/income ratio��� 50% 51% 52% Notes (1) Operating income before performance-related fees for Eastspring Investments can be further analysed as follows: Retail Margin Institutional��� Margin Total Margin $m bps $m bps $m bps 30 Jun 2020 188 50 125 17 313 28 30 Jun 2019 191 51 118 18 309 30 31 Dec 2019 392 52 244 18 636 30 * Margin represents operating income before performance-related fees as a proportion of the related funds under management (FUM). Half year figures have been annualised by multiplying by two. Monthly closing internal and external funds managed by Eastspring have been used to derive the average. Any funds held by the Group's insurance operations that are managed by third parties outside the Prudential Group are excluded from these amounts. ��� Cost/income ratio represents cost as a percentage of operating income before performance-related fees. ��� Institutional includes internal funds. (2) Operating income and expense include the Group's share of contribution from joint ventures. In the condensed consolidated income statement of the Group IFRS basis results, the net post-tax income of the joint ventures and associates is shown as a single line item. (c) Eastspring Investments total funds under management Eastspring Investments, the Group's asset management business in Asia, manages funds from external parties and also funds for the Group's insurance operations. The table below analyses the total funds managed and Eastspring Investments. 2020 $bn 2019 $bn 30 Jun 30 Jun 31 Dec External funds under management, excluding funds managed on behalf of M&G plcnote (1) Retail 59.4 62.4 73.7 Institutional 10.0 9.4 11.0 Money market funds (MMF) 13.0 13.4 13.3 82.4 85.2 98.0 Funds managed on behalf of M&G plcnote (2) 15.7 24.9 26.7 External funds under management including M&G plc 98.1 110.1 124.7 Internal funds under management 121.6 105.6 116.4 Total funds under managementnote (3) 219.7 215.7 241.1 * The half year 2019 comparatives have been re-presented to show the $24.9 billion of funds managed on behalf of M&G plc as external rather than internal funds under management to align to the presentation since the demerger in October 2019. Notes (1) External funds under management, excluding those managed on behalf of M&G plc - analysis of movements 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec At beginning of period 98,005 77,762 77,762 Market gross inflows 69,839 154,998 282,699 Redemptions (78,172) (152,306) (276,215) Market and other movements (7,348) 4,770 13,759 At end of period 82,324 85,224 98,005 * The analysis of movements above includes $13,021 million relating to Asia Money Market Funds at 30 June 2020 (30 June 2019: $13,352 million; 31 December 2019: $13,337 million). Investment flows for half year 2020 include Eastspring Money Market Funds gross inflows of $48,234 million (half year 2019: gross inflows of $133,709 million; full year 2019: $236,603 million) and net inflows of $29 million (half year 2019: net outflows of $(1,264) million; full year 2019: net outflows of $(1,856) million). (2) Funds managed on behalf of M&G plc - analysis of movements 2020 $m 30 Jun At beginning of period 26,717 Net flows (7,258) Other (3,717) At end of period 15,742 (3) Total funds under management - analysis by asset class 30 Jun 2020 30 Jun 2019 31 Dec 2019 $bn % of total $bn % of total $bn % of total Equity 86.3 39% 98.8 46% 107.0 44% Fixed income 115.7 53% 99.3 46% 116.2 48% Alternatives 2.9 1% 3.1 1% 3.4 2% Money Market Funds 14.8 7% 14.5 7% 14.5 6% Total funds under management 219.7 100% 215.7 100% 241.1 100% II Calculation of alternative performance measures The half year 2020 report uses alternative performance measures (APMs) to provide more relevant explanations of the Group's financial position and performance. This section sets out explanations for each APM and reconciliations to relevant IFRS balances. II(i) Reconciliation of adjusted operating profit to profit before tax Adjusted operating profit presents the operating performance of the business. This measurement basis adjusts for the following items within total IFRS profit before tax: - Short-term fluctuations in investment returns on shareholder-backed business; - Amortisation of acquisition accounting adjustments arising on the purchase of business; and - Gain or loss on corporate transactions, such as the effect of the Jackson's reinsurance arrangement with Athene Life Re Ltd in half year 2020, disposals undertaken and costs connected to the demerger of M&G plc from Prudential plc in 2019. More details on how adjusted operating profit is determined are included in note B1.3 of the Group IFRS basis results. A full reconciliation to profit after tax is given in note B1.1. II(ii) Calculation of IFRS gearing ratio IFRS gearing ratio is calculated as net core structural borrowings of shareholder-financed businesses divided by closing IFRS shareholders' equity plus net core structural borrowings. 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec Core structural borrowings of shareholder-financed businesses 6,499 9,470 5,594 Less holding company cash and short-term investments (1,907) (3,010) (2,207) Net core structural borrowings of shareholder-financed businesses 4,592 6,460 3,387 Closing shareholders' equity 19,110 25,037 19,477 Closing shareholders' equity plus net core structural borrowings 23,702 31,497 22,864 IFRS gearing ratio 19% 21% 15% II(iii) Return on IFRS shareholders' equity As stated in the 2019 Annual Report, the Group has introduced a new return on equity performance measure for the Group's 2020 Prudential Long-Term Incentive Plan (PLTIP) awards alongside other metrics. This measure is calculated as adjusted operating profit after tax, and net of non-controlling interests, divided by average shareholders' equity. Accordingly, the calculation of the return on IFRS shareholders' equity has been aligned at half year 2020 and is now based on average shareholders' equity. In terms of comparatives, the significant changes in Group's shareholders' equity as a result of the demerger of M&G plc in October 2019 results in Group half year 2019 comparatives that are not meaningful. Asia and US half year 2019 returns on shareholders' equity have been re-presented on average shareholders' equity basis. The full year 2019 returns disclosed in the table below are consistent with those previously published and use profit from continuing operations and closing shareholders' equity. As supplementary information, full year 2019 Asia and US returns on shareholders' equity have also been presented on an average shareholders' equity basis. Detailed reconciliation of adjusted operating profit to IFRS profit before tax for the Group is shown in note B1.1 to the Group IFRS basis results. Half year 2020 $m Half year 2019 $m Asia US Other Group��� Asia US Adjusted operating profit 1,733 1,266 (458) 2,541 1,550 1,572 Tax on adjusted operating profit (260) (195) (12) (467) (217) (263) Operating profit attributable to non-controlling interests (22) - - (22) (5) - Adjusted operating profit, net of tax and non-controlling interests 1,451 1,071 (470) 2,052 1,328 1,309 Average shareholders' equity 11,198 8,942 (846) 19,294 8,951 7,879 Operating return on average shareholders' equity (%) 26% 24% n/a 21% 30% 33% * Half year profits are annualised by multiplying by two. ��� Given the significant changes of Group shareholders' equity as a result of the demerger of the UK and Europe operations in October 2019, it is not meaningful to compare the half year 2020 and half year 2019 returns on shareholders' equity at a Group level. The half year 2019 comparatives have therefore excluded the presentation of a Group return on shareholders' equity. Additionally, the half year 2019 comparatives for Asia and US operations have been re-presented from those previously published to reflect the use of average rather than opening shareholders' equity to be on a comparable basis with the half year 2020 calculation. Full year 2019 $m Continuing operations Asia US Other Group Add back demerger- related items* Adjusted Group (excluding demerger- related items) Adjusted operating profit 3,276 3,070 (1,036) 5,310 179 5,489 Tax on adjusted operating profit (436) (437) 100 (773) (34) (807) Operating profit attributable to non-controlling interests (6) - (3) (9) - (9) Adjusted operating profit, net of tax and non-controlling interests 2,834 2,633 (939) 4,528 145 4,673 Closing shareholders' equity 10,866 8,929 (318) 19,477 - 19,477 Operating return on closing shareholders' equity (%) 26% 29% n/a 23% - 24% Supplementary information: Average shareholders' equity 9,521 8,046 Operating return on average shareholders' equity (%) 30% 33% * Demerger-related items comprise interest on the subordinated debt that was substituted to M&G plc prior to the demerger ($179 million pre-tax) and one-off costs of the demerger ($407 million pre-tax). Average shareholders' equity has been based on opening and closing balances as follows: Half year 2020 $m Half year 2019 $m Full year 2019 $m Asia US Other Group Asia US Asia US Balance at beginning of period 10,866 8,929 (318) 19,477 8,175 7,163 8,175 7,163 Balance at end of period 11,529 8,955 (1,374) 19,110 9,727 8,594 10,866 8,929 Average shareholders' equity 11,198 8,942 (846) 19,294 8,951 7,879 9,521 8,046 II(iv) Calculation of IFRS shareholders' funds per share IFRS shareholders' funds per share is calculated as closing IFRS shareholders' equity divided by the number of issued shares at the end of the period (30 June 2020: 2,609 million shares; 30 June 2019: 2,600 million shares; 31 December 2019: 2,601 million shares). 30 Jun 2020 Asia US Other Total continuing operations Discontinued UK and Europe operations Group total Closing IFRS shareholders' equity ($ million) 11,529 8,955 (1,374) 19,110 - 19,110 Shareholders' funds per share (cents) 442�� 343�� (53)�� 732�� - 732�� 30 Jun 2019 Asia US Other Total continuing operations Discontinued UK and Europe operations Group total Closing IFRS shareholders' equity ($ million) 9,727 8,594 (3,822) 14,499 10,538 25,037 Shareholders' funds per share (cents) 374�� 331�� (147)�� 558�� 405�� 963�� 31 Dec 2019 Asia US Other Total continuing operations Discontinued UK and Europe operations Group total Closing IFRS shareholders' equity ($ million) 10,866 8,929 (318) 19,477 - 19,477 Shareholders' funds per share (cents) 418�� 343�� (12)�� 749�� - 749�� II(v) Calculation of asset management cost/income ratio The asset management cost/income ratio is calculated as asset management operating expenses, adjusted for commission and joint venture contribution, divided by asset management total IFRS revenue adjusted for commission, joint venture contribution, performance-related fees and non-operating items. Eastspring Investments 2020 $m 2019 $m Half year Half year Full year Operating income before performance-related feesnote 313 309 636 Share of joint venture revenue (111) (120) (244) Commission 85 88 165 Performance-related fees 2 1 12 IFRS revenue 289 278 569 Operating expense 157 157 329 Share of joint venture expense (45) (52) (102) Commission 85 88 165 IFRS charges 197 193 392 Cost/income ratio: operating expense/operating income before performance-related fees 50% 51% 52% Note IFRS revenue and charges for Eastspring Investments are included within the IFRS Income statement in 'other income' and 'acquisition costs and other expenditure' respectively. Operating income and expense include the Group's share of contribution from joint ventures. In the consolidated income statement of the Group IFRS basis results, the net post-tax income of the joint ventures and associates is shown as a single line item. II(vi) Reconciliation of Asia renewal insurance premium to gross premiums earned Reconciliation of Asia renewal insurance premium to gross earned premiums and calculation of Asia Life weighted premium income. 2020 $m 2019 $m Half year AER Half year CER Half year Full year Asia renewal insurance premium 9,702 9,177 9,123 19,007 Add: General insurance premium 66 65 65 135 Add: IFRS gross earned premium from new regular and single premium business 2,054 3,113 3,101 6,386 Less: Renewal premiums from joint ventures (932) (897) (858) (1,771) Asia segment IFRS gross premiums earned 10,890 11,458 11,431 23,757 Asia renewal insurance premium (as above) 9,702 9,177 9,123 19,007 Asia APE 1,665 2,560 2,540 5,161 Asia life weighted premium income 11,367 11,737 11,663 24,168 II(vii) Reconciliation of APE new business sales to gross premiums earned The Group reports APE new business sales as a measure of the new policies sold in the period. This differs from the IFRS measure of gross premiums earned as shown below: 2020 $m 2019 $m Half year Half year Full year Annual premium equivalents (APE) 2,644 3,635 7,384 Adjustment to include 100% of single premiums on new business sold in the periodnote (a) 10,205 11,337 23,409 Premiums from in-force business and other adjustmentsnote (b) 6,993 6,109 14,271 Gross premiums earned 19,842 21,081 45,064 Notes (a) APE new business sales only include one-tenth of single premiums, recorded on policies sold in the period. Gross premiums earned include 100 per cent of such premiums. (b) Other adjustments principally include amounts in respect of the following: - Gross premiums earned include premiums from existing in-force business as well as new business. The most significant amount is recorded in Asia, where a significant portion of regular premium business is written. Asia in-force premiums form the vast majority of the other adjustment amount; - APE includes new policies written in the period which are classified as investment contracts without discretionary participation features under IFRS 4, arising mainly in Jackson for guaranteed investment contracts. These are excluded from gross premiums earned and recorded as deposits; - APE new business sales are annualised while gross premiums earned are recorded only when revenues are due; and - For the purpose of reporting APE new business sales, the Group's share of amounts sold by the Group's insurance joint ventures and associates are included. Under IFRS, joint ventures and associates are equity accounted and so no amounts are included within gross premiums earned. II(viii) Reconciliation between IFRS and EEV shareholders' equity The table below shows the reconciliation of EEV shareholders' equity and IFRS shareholders' equity at the end of the period: 2020 $m 2019 $m 30 Jun 30 Jun 31 Dec EEV shareholders' equity 48,942 67,983 54,711 Less: Value of in-force business of long-term businessnote (a) (33,771) (45,267) (41,893) Deferred acquisition costs assigned zero value for EEV purposes 14,601 13,291 14,239 Othernote (b) (10,662) (10,970) (7,580) IFRS shareholders' equity 19,110 25,037 19,477 Notes (a) The EEV shareholders' equity comprises the present value of the shareholders' interest in the value of in-force business, total net worth of long-term business operations and IFRS shareholders' equity of asset management and other operations. The value of in-force business reflects the present value of expected future shareholder cash flows from long-term in-force business which are not captured as shareholders' interest on an IFRS basis. Total net worth represents the net assets for EEV reporting that reflect the regulatory basis position, with adjustments to achieve consistency with the IFRS treatment of certain items as appropriate. (b) Other adjustments represent asset and liability valuation differences between IFRS and the local regulatory reporting basis used to value total net worth for long-term insurance operations. These also include the mark-to-market value movements of the Group's core structural borrowings which are fair valued under EEV but are held at amortised cost under IFRS. The most significant valuation differences relate to changes in the valuation of insurance liabilities. For example, in Jackson, IFRS liabilities are higher than the local regulatory basis as they are principally based on policyholder account balances (with a deferred acquisition costs recognised as an asset), whereas the local regulatory basis used for EEV reporting is based on expected future cash flows due to the policyholder on a prudent basis, with the consideration of an expense allowance, as applicable, but with no separate deferred acquisition cost asset. This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com. END IR PMMBTMTBBTFM