‘In 2009, we will focus on balancing new business with cash generation and capital preservation. We will continue, in a volatile environment, to manage risk in a prudent but proactive manner.’
Tidjane Thiam
Chief Financial Officer
Chief Financial Officer's overview
Prudential achieved a strong performance in 2008, despite extremely challenging global economic and financial markets. The results, as summarised below, show that we have delivered solid growth in sales and operating profits, maintained a robust capital position, and met the target we set ourselves of generating a positive Group holding company cash flow in 2008.
We have also continued to act on our commitment to increased transparency, by giving additional disclosures on International Financial Reporting Standard (IFRS) basis results and free surplus generation.
We expect markets to remain challenging for some while. However, our long-term growth and profitability potential remains intact and we are well positioned to take advantage of the opportunities existing in the pre and post-retirement market in our chosen geographies. In 2009, we will focus on balancing new business with cash generation and capital preservation. We will continue, in a volatile environment, to manage risk in a prudent but proactive manner.
During 2008, our continued and targeted investment in areas that deliver profitable growth enabled us to improve our operating performance on both an European Embedded Value (EEV) and IFRS basis.
Group operating profit before tax from continuing operations on the EEV basis increased by 17 per cent to £3.0 billion. This was largely driven by a 23 per cent increase in in-force profit from £1.3 billion to £1.6 billion and an eight per cent increase in new business profit from £1.2 billion to £1.3 billion. After tax and minority interest the Group saw a loss for the period of £1.3 billion. This was driven primarily by short-term fluctuations of £5.1 billion. Insurance companies hold a large number of assets over the long term, the value of which will vary over time, therefore negative and positive fluctuations are to be expected.
On the statutory IFRS basis our operating profit increased by 12 per cent to £1.3 billion. A particularly significant factor in this increase was a rise of 70 per cent in our Asia IFRS operating profit. After tax and minority interest the Group saw a loss of £396 million largely driven by short-term fluctuations. As with EEV reporting, positive and negative short-term fluctuations are expected in an insurance company.
In the extremely volatile environment we have experienced in 2008, we have maintained a strong focus on risk, capital and cash management. We achieved our target of being cash flow positive in 2008 at the holding company level, with a cash surplus of £54 million.
Performance and key metrics
| AER4/8 | CER4/8 | |||||
|---|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
Change % |
2007 £m |
Change % |
||
| Annual premium equivalent (APE) sales | 3,025 | 2,868 | 5 | 3,003 | 1 | |
| Present value of new business premiums (PVNBP) | 22,529 | 21,308 | 6 | 22,348 | 1 | |
| New business profit (NBP) | 1,307 | 1,205 | 8 | 1,278 | 2 | |
| NBP margin (% APE) | 43% | 42% | 43% | |||
| NBP margin (% PVNBP) | 5.8% | 5.7% | 5.7% | |||
| Net investment flows | 4,266 | 7,975 | (47) | 8,474 | (50) | |
| External funds under management | 62,279 | 68,669 | (9) | 74,523 | (16) | |
| EEV basis operating profit on long-term business from continuing operations notes 1,2 | 2,906 | 2,509 | 16 | 2,651 | 10 | |
| Total EEV basis operating profit from continuing operations notes 2,5 | 2,961 | 2,530 | 17 | 2,676 | 11 | |
| EEV basis shareholders' funds | 14,956 | 14,600 | 2 | 16,447 | (9) | |
| Return on Embedded Value note 6 | 15.0% | 15.4% | ||||
| Total IFRS operating profit from continuing operations notes 3,5 | 1,347 | 1,201 | 12 | 1,262 | 7 | |
| IFRS shareholders' funds | 5,058 | 6,062 | (17) | 6,765 | (25) | |
| Holding company cash flow note 7 | 54 | (82) | 166 | (82) | 166 | |
| IGD capital surplus (as adjusted*) (£bn) | 1.7 | 1.9 | (11) | 1.9 | (11) | |
- *IGD before allowing for final dividend estimated at £1.7 billion (£1.4 billion at 31 December 2008 and in addition £0.3 billion subsequently allowed by the FSA). 2007 IGD surplus was £1.9 billion.
Notes
- 1Long-term business profits after deducting Asia development expenses and before restructuring costs.
- 2Based on longer-term investment returns from continuing operations. Operating profit is stated excluding the effect of short-term fluctuations in investment returns against the long-term assumptions, the effect of changes in economic assumptions and changes in the time value of cost of options and guarantees arising from changes in economic factors, actuarial gains and losses on defined benefit schemes and the mark to market value movements on borrowings.
- 3Based on longer-term investment returns from continuing operations. Operating profit is stated excluding the effect of short-term fluctuations in investment returns against the long-term assumptions, and the shareholder's share of actuarial gains and losses on defined benefit schemes.
- 4Actual exchange rate (AER) and Constant exchange rate (CER).
- 5
- 6Return on Embedded value is based on EEV operating profit from continuing operations after tax and minority interests as a percentage of opening embedded value (shareholder's funds on a EEV basis).
- 7Prior Year excludes sale proceeds from Egg.
- 8The 2007 comparative for new business sales and premiums have been adjusted to reflect the inclusion of sales for the Group's UK health insurance joint venture operation, PruHealth. The presentation of the operating profit for 2007 has been adjusted to allocate £10 million of profit from the result of new to in-force business to prevent distortion to the published new business margin, so as to reflect consistently in the 2008 and 2007 results the 50 per cent economic interest in the Group's China joint venture.
In the Business Review (BR), year-on-year comparisons of financial performance are on a Actual exchange rate (AER) basis, unless otherwise stated.