I am pleased to report that Prudential delivered
a strong performance in all its businesses in 2008,
and maintained a healthy capital position despite
the banking liquidity crisis in mid-year and the
onset of the most severe worldwide recession
in more than a generation.
This achievement once again demonstrated the soundness
of the strategy the Group has followed in recent years.
Our selective spreading of geographic risk across different
continents and types of economy, our focus on the most
profitable opportunities in the pre- and post-retirement
sector in each of our chosen markets, and our resolute refusal
to pursue sales volume targets at the expense of profit have
once again proved their worth. We have said in the past that
this is a formula for outperformance, and this has held true
amid the particularly testing conditions of recent months.
As well as reaffirming our strategy, these results also reflect
the operational expertise and excellence that our operating
divisions around the world bring to bear, and fully justify our
commitment to nurturing the financial strength of the Group
through prudent management of capital resources.
Before describing our performance for 2008 in detail, I
would like to make a brief comment on my decision to leave
Prudential at the end of September 2009 after four and a half
years as Group Chief Executive and a total of 25 years with
the Group. This was not an easy decision, but I believe the
Group’s continued progress in 2008 confirms the success
of the measures taken over the last four years to strengthen
the Group’s financial and strategic positioning, and having
achieved this the time seems opportune to step aside so
that the Board can entrust the next stage of the Group’s
development to a successor with a full term ahead of him.
I am deeply proud of what the team here has achieved under
my leadership, and am also deeply impressed by the quality
of my successor, our current Chief Financial Officer, Tidjane
Thiam. Going forward, I know Tidjane will do an outstanding
job as Group Chief Executive.
Turning to our performance during 2008, our Group operating
profit before tax from continuing operations, on the European
Embedded Value (EEV) basis, rose to £2,961 million, an
increase of 17 per cent. This means our EEV operating profit
before tax has grown at a compound annual rate of 25 per cent
since the end of 2004. The Group’s return on embedded value
was 15.0 per cent (2007: 15.4 per cent).
On the statutory International Financial Reporting Standards
(IFRS) basis, operating profit before tax from continuing
operations increased by 12 per cent to £1,347 million. As a
result, our IFRS operating profit before tax has now grown at
a compound annual rate of 21 per cent since the end of 2004.
Operating profit in the Group’s asset management operations
increased by £11 million to £345 million in very difficult trading
conditions in all markets. Net inflows at M&G were £3.4 billion
and our asset management business in Asia recorded net
inflows of £0.9 billion.
Equally important, our Group capital position remains robust.
Using the regulatory measure of the Insurance Groups
Directive (IGD), the Group’s capital surplus was estimated at
£1.7 billion with a solvency ratio of 162 per cent. Through an
innovative transaction we have been allowed by the regulator
to include £0.3 billion of the shareholders’ economic interest
in the future transfers from the UK With-Profits Fund, which
in total was worth £1.7 billion at 31 December 2008. Going
forward, there is the opportunity to develop similar transactions
which may allow us to access more of the residual £1.4 billion
Our IGD position will be further strengthened during 2009
by around £0.8 billion on completion of the transfer of the
agency back-book business in Taiwan, a transaction that
we announced on 20 February 2009.
In addition to this strong capital position, the total credit
reserve for the UK annuity shareholder business is £1.4 billion.
We also retain significant flexibility and capacity for other
management actions to improve and protect our position
still further, were the need to arise.
Taking all these factors into account alongside our proactive
approach to risk management, we are confident that our
Group remains resilient to any further deterioration in market
conditions across all asset classes.
Our cash flow position has been improving over a number of
years, and in 2008 we achieved our target of being operating
cash flow positive at the Group level, with a cash surplus of
Given this robust financial position, the Board has
recommended a final dividend of 12.91 pence per share,
bringing the full-year dividend to 18.90 pence per share, an
increase of five per cent. The dividend is covered 2.24 times
by post-tax IFRS operating profit from continuing operations.