Asia Long-term performance track record IFRS operating profit 1 , £m 2x 3 2017 objective 2 1,644 1,286 2x 1,108 1,058 959 2x 757 579 476 953 728 266 226 613 199 504 508 427 350 2H 285 237 109 111 1H 89 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2013 2017 2009 NBP objective 3 objective 2 objective 3 1. Comparatives have been stated on an actual exchange rate. Comparatives have also been restated to exclude the contribution from Korea life business sold in May 2017. 2012 includes the one-off gain on sale of stake in China Life of Taiwan of £51m. 2. 2017 objective is defined as at least 15% CAGR from 2012-17 based on an Asia 2012 IFRS operating profit of £909m (excluding one off of £51m) assuming exchange rates at December 2013. 3. 2009 objective based on doubling 2005 Asia NBP, 2013 objective based on doubling 2009 Asia IFRS profit ‘Growth and Cash’. 2x based on implied multiple using 2012 IFRS operating profit of £909m increasing at a 15% CAGR to 2017 9 2017 HALF YEAR RESULTS
US Relative outperformance Separate account assets, $bn Industry VA net flows 1 , $bn: Rapidly adapting to changing environment (15) (20) (18) 19.2 1H16 2H16 1Q17 Net inflows: $8.6bn 162.0 2.6 Fee business driving earnings growth 2.7 3.3 134.2 Launched fee based VA products FY15 1H16 2H16 1H17 Markets & HY17 Other IFRS operating profit New advisors to Jackson Outperforming the sector + 17 % > 25 % VA fee Fee based business sales 1. Source: MARC industry data 10 2017 HALF YEAR RESULTS
UK Market context Market trends Strategic imperatives Scale, brand, product/distribution capability and financial strength Self-reliance for savings, investment and retirement Demonstrated breadth & depth of investment Convergent insurance and asset expertise management business models Service-led customer proposition with direct and Customer demand for one stop shop intermediated access points solutions from trusted, scale players Capital-light and cost efficient model to drive customer & shareholder value 11 2017 HALF YEAR RESULTS
UK Intention to combine best of breed businesses Strategically Leading savings and investment provider attractive Complementary expertise: scale, brands, product, distribution and financial strength Combination leverages strengths to align to market opportunities Financially compelling Revenue upside from combining active investment and solutions expertise M&G Prudential Accelerate transition to capital light model Investing to create a cost efficient business opportunity Combined business able to develop and fund joint product propositions Unlocking New digital service and distribution to meet fast changing customer needs Transformation into an efficient, service-led, digitally enabled business 12 2017 HALF YEAR RESULTS
UK Attractive market dynamics Opportunity 1,2,3 ISA market value 6 Other 4 £ 1.2 tn Private Equity 4 Retail Cash Commercial UK AUM 1 +£ 0.9 tn property 4 Stocks & £ 518 bn by 2023 shares £ 7 tn £ 4.6 tn Institutional 2015-16 +£ 1.6 tn by 2023 Addressable Cash ISA transfers 6,7 46.8 (£bn) 40.6 Europe AUM 2 33.0 ex UK 27.8 28.6 Investment € 14 tn € 8.5 tn funds Discretionary 4,5 +€ 3.5 tn International by 2023 AUM 2015-16 Addressable 2011-12 2012-13 2013-14 2014-15 2015-16 1. Source: The Investment Association – Asset management in the UK 2015-2016. 6 Source: HMRC – Individual Savings Account (ISA) Statistics April 2017. HMRC, BoE, ONS, ABI 2. Source: EFAMA Asset Management report, data as at 2015 7 Cash ISA transfers is derived from total amount subscribed in a year minus the mew subscription and 3. Growth rates source: PWC Asset Management 2020, BCG and Prudential calculations. Retail growth rate sourced from BCG, Europe and remaining UK using PWC Europe forecast CAGR of 4.4% reinvestment of return. Reporting period for the year is April to March 4. UK AUM consists of Commercial Property, Private Equity and Other of £1.3tn growing by £0.5tn by 2023. European AUM consists of Discretionary of Eur5.2tn growing by Eur2.0tn. 5. Discretionary includes mandates and could be included within M&G Institutional addressable market. 13 2017 HALF YEAR RESULTS
M&G Prudential Strong operating platform Operating performance Investment performance FUM 1 , £bn External FUM 2 , £bn 332 + 23 % PruFund PruFund CAGR 3yr return 3 (+16%) ‘08 -17 4x + 17 % (+7ppt vs ABI mixed investment 20%-60%: return of +16%) Retail 180 External 162 + 51 % 30 + 56 % 25 Retail above Institutional Median Performance 4 + 17 % 73 64 (3 year, net of fees – based on fund size) 48 Internal + 100 % 1 1 + 13 % Institutional above 77 19 73 benchmark Performance 4 28 (3 year, gross of fees – based on number of funds 2008 2016 HY17 HY17 - FI segregated & public debt mandates) PruFund Retail Institutional Net inflows, + 4.3 + 5.5 + 1.7 HY17 £bn 1. FUM includes M&G external FUM of £149.1bn plus the UK internal FUM of £193.8bn less £11.3bn that are classified within Prudentia l Group’s funds. 2. External FUM includes £72.5bn Retail, £76.6bn Institutional and £30bn of UK PruFund FUM 3. Outperformance based on 30 June 2014 to 30 June 2017 4. Investment performance stated in this statement is calculated by M&G, using published benchmarks for products. Retail quartile r ankings are compared against funds’ respective peer groups and are sourced from Morningstar Inc. based on returns that are net of fees. Institutional performance is gross of fees and is stated based on the 34 actively managed fixed income segregated and public debt mandates that have a 3-year performance track record. All performance returns are reported in base fund currency. Returns are not aggregated. Terminated funds have not been included. Data as at end June 2017. 14 2017 HALF YEAR RESULTS
M&G Prudential Well positioned to unlock opportunity Capability spectrum 1 Product range Customer needs Segregated ISA PruFund mandates Inflation Vol managed Income / linked & cash- UCITS Growth & SIPP DC pension Yield flow matching Diversified* Annuities Unit linked funds Closed-end vehicles Multi-asset Expertise Alternative Customer (inc property) solutions Fixed Income Advisory (captive & 3rd party) Direct Equity Consultants Advisor / intermediary firms Distribution Funds Under Management: breadth £0 to £1bn £5 to £10bn >£10bn Prudential £1 to £5bn Platform Financial Planning Other *Volatility managed and Diversified assets (vs equities). Schematic, not to scale 1. Internal allocation and categorisation based on M&G internal data for Retail and Institutional FUM 15 2017 HALF YEAR RESULTS
M&G Prudential Leading savings and investment provider P Savings and investment powerhouse with strong brands, scale and investment expertise P Leverage strengths to create comprehensive financial solutions for customers Strong performance track record provides a platform to lead the industry in creating customer P and shareholder value P Size and scale provide headroom to amplify our current strengths across multiple dimensions Well positioned to succeed over the long-term in a rapidly consolidating and changing P market place. 16 2017 HALF YEAR RESULTS
Mark FitzPatrick Chief Financial Officer 17 2017 HALF YEAR RESULTS
Group HY17 results Key financial highlights HY17 vs HY16 £m HY17 HY16 AER 1 CER 1 + 15 % + 5 % 2,044 IFRS operating profit 2,358 + 34 % + 20 % Growth 1,257 New business profit 1,689 + 27 % + 15 % 2,257 EEV operating profit 2,870 + 14 % + 6 % Free surplus generation 1,845 1,615 + 10 % Remittances 1,230 1,118 n/a Cash + 12 % Ordinary dividend per share (pence) 14.50 12.93 n/a HY17 FY16 HY17 vs FY16 Solvency II surplus 2,3 (£bn) + 0.4 12.9 12.5 n/a Capital + 8 % EEV per share (pence) 4 1,567 1,510 n/a 1 AER: Actual exchange rates. CER: Constant exchange rates 3 The Group Shareholder position excludes the contribution to the Group Own Funds and the Solvency Capital Requirement of ring fenced With-Profit Funds and staff pension schemes in surplus. The Group Shareholder position includes management’s estimate of transitional measures reflecting operating and market conditions at 2 Before allowing for the 2017 first interim ordinary dividend (FY16: before allowing for the 2016 second interim ordinary dividend) the valuation date. The estimated Group shareholder surplus would increase from £12.9 billion to £13.6 billion at 30 June 2017 if the approved regulatory transitional amount was applied instead (31 December 2016: The estimated Group shareholder surplus would increase from £12.5 billion to £12.9 billion) 4 Percentage movement on an annualised basis 18 2017 HALF YEAR RESULTS
Group IFRS operating profit Growth driven by Asia and US fee business IFRS operating profit , HY17 vs HY16 (CER), £m Growth led by Asia HY16 (CER) 2,249 + 16 % Asia life IFRS Asia 132 + 20 % Eastspring US fee business 1 122 Continued strong contribution from US M&G / UK 28 High quality sources of income (51) Interest costs + 14 % Insurance income HY16 HMRC receipt (43) + 14 % Life fee income Other 2 (79) + 14 % Asset management fee income 3 HY17 2,358 (5) % Spread income 1 Fee business represents profits from variable annuity products. As well as fee income, revenue for this product line includes spread income from investments directed to the general account and other variable annuity fees included in insurance margin 2 Includes US spread business, US life and other business, Prudential Capital, Africa, central and restructuring costs 3 Represents M&G and Eastspring operating fee income before performance-related fees 19 2017 HALF YEAR RESULTS
Business unit IFRS operating profit Positive momentum in underlying drivers of earnings Asia IFRS operating profit , £m US IFRS operating profit , £m UK IFRS operating profit , £m +8% 1,073 +16% 953 997 745 +4% 717 821 +20% 83 +10% 248 Eastspring M&G 225 69 +7% 1,079 Life 1,010 +16% 870 Life 752 +1% 492 497 Life and GI (13) (6) Other US HY 16 HY 17 HY 16 HY 17 HY 16 HY 17 (CER) (CER) HY16 HY17 Asia Life US Life UK Life Fee business earnings 3 +17% • • In-force earnings up +18% Core in-force 306 288 • ➢ Positive net flows of $2.6bn Insurance income up +24%; growing in 10 countries 1 Annuities new business 27 4 Management actions 4 ➢ Separate account average AUM +16% 2 140 188 473 480 • Spread margin down 15bp to 202bp Eastspring 5 M&G 5 Average AUM up +21% 2 to £124.9bn Average AUM up +10% 2 to £267.2bn • • • • Revenue +16%; revenue margin 33bp (-1bp) Revenue +13%; revenue margin 37bp (+1bp) • • Cost / income ratio 55% (HY16 56%) Cost / income ratio 53% (HY16 52%) 1 Does not include Laos where amounts are immaterial 4 Management actions represents longevity reinsurance transactions of £31m (HY16: £66m) and specific asset and liability management actions of 2 Increase in average assets represents HY17 average compared to HY16 average on a CER basis £157m (HY16: £74m) taken to improve the solvency position of our UK life business and further mitigate market risk 3 Fee business represents profits from variable annuity products. As well as fee income, revenue for this product line includes spread income from investments directed to the 5 Excludes performance-related fees. Growth rates based on comparatives using a constant exchange rate basis general account and other variable annuity fees included in insurance margin 20 2017 HALF YEAR RESULTS
Group new business profit Strong new business growth in both life and asset management New business profit by business unit , £m Group Life NBP up 20% 1 and asset management inflows of £9.5bn • 1,689 +20% • Overall 9% beneficial impact from interest rates on NBP 1,407 161 +29% UK 125 +23% 436 Asia US 354 • Continued focus on H&P: H&P NBP +19% 1 • Broad diversification: 8 countries with at least double digit growth in NBP 1,2 1,092 +18% Asia 928 • Regular premium business 94% of total APE • Eastspring - Net external inflows of £2.3bn 3 , driven by Retail business - Total AUM of £130.5bn, up 11% 4 year-to-date HY 16 HY 17 (CER) US Asset management external net flows , £bn • Variable annuity net inflows of $2.6bn, outperforming market • Variable annuity new business profit +30% 1 9.5 M&G • Positive interest rate impact, contributing 14ppts of growth Eastspring 3 7.2 (7.4) UK 2.3 (0.4) • Growth driven by retirement segment products 5 , with NBP +135% (7.0) • PruFund related APE sales +29%; PruFund AUM £30.0bn (+22% YTD) • HY16 HY17 M&G - Record H1 Retail net inflows of £5.5bn; Institutional net inflows of £1.7bn (AER) - Total AUM of £281.5bn, up 6% year-to-date 1 Growth rates based on comparatives using a constant exchange rate basis. 2 Does not include Laos where amounts are immaterial 3 Excludes Money Market Fund flows of £499m (HY2016: £656m) 4 Growth rates based on comparatives using an actual exchange rate basis 5 Includes income drawdown and individual pensions 21 2017 HALF YEAR RESULTS
Group free surplus generation Growing contribution from life in-force and asset management Life and asset management free surplus generation , £m Expected return from in-force 1 , £m +10% +13% +2% HY17 HY16 Change CER 715 673 Expected return from in-force 1,719 1,568 10% 614 631 331 323 Experience result 2 342 411 (17)% HY 16 HY 17 HY 16 HY 17 HY 16 HY 17 Asia US UK Investment return on free surplus 66 52 27% Life in-force result 2,127 2,031 5% New business strain 3 , £m Asset management and Other 289 258 12% +10% +3% (25)% Gross free surplus generation 2,416 2,289 6% 283 246 257 238 56 42 Less: new business strain 3 571 551 4% HY 16 HY 17 HY 16 HY 17 HY 16 HY 17 Net free surplus generation 1,845 1,738 6% Asia US UK 1 HY16 restated on a constant exchange rate basis, increasing Asia life expected return from in-force by £69m and increasing US life expected return from in-force by £76m 2 Includes amounts relating to specific asset and liability management actions taken in 2017 to improve the solvency position of our UK life businesses and further mitigate market risk. These actions generated an overall positive effect of £193m (HY2016: £190m). 3 HY16 restated on a constant exchange rate basis, increasing Asia new business strain by £29m and increasing US new business strain by £29m 22 2017 HALF YEAR RESULTS
Group cash Growing cash flows to Group Movement in life and asset management free surplus , £m Movement in central cash , £m Opening (1 Jan 2017) 2,626 106 +10% Cash remitted to Group 1,230 (317) (1,230) 1,845 6,979 Asia 350 6,575 US 475 M&G / UK 1 390 Other 15 2016 second interim dividend paid (786) Central costs / corporate activities / other (413) 1 Jan Net free Market Currency Cash 30 Jun Closing (30 Jun 2017) 2,657 2017 surplus effects / effects remitted to 2017 generated other Group 1 Contribution from M&G of £175m and from UK Life of £215m 23 2017 HALF YEAR RESULTS
Equity shareholders’ funds Operating profit remains key driver of growth IFRS Equity EEV Equity Per Per £bn share (p) £bn share (p) Operating profit after tax 1.8 70 2.9 112 Investment variance and other (0.3) (11) 0.4 17 0.3 12 n/a n/a Unrealised gain on AFS Foreign exchange and reserve movements (0.3) (11) (1.0) (41) Dividend (0.8) (31) (0.8) (31) Other movements 0.0 2 0.1 3 Increase in shareholders’ equity 0.7 31 1.6 60 Opening shareholders’ equity 39.0 1,510 14.7 568 Closing shareholders’ equity 15.4 597 40.5 1,567 Note: numbers may not sum due to rounding and differences in shares in issue between 31 December 2016 and 30 June 2017 24 2017 HALF YEAR RESULTS
Solvency II Strong solvency capital position Group Shareholder Solvency II capital position 1 , £bn HY17 movement in Solvency II capital 1 , £bn Impact on SII coverage ratio 31 December 2016 2,3 Surplus £12.9bn 12.5 £12.5bn Solvency II 201% 202% cover 1.5 Operating experience ~12pts 0.2 Management actions Non-operating experience, 0.0 including market effects ~(5)pts 25.6 24.8 (0.5) Currency movements 12.7 12.3 (0.8) ~(6)pts Dividends paid Own SCR Own SCR Funds Funds 30 June 2017 2,3 12.9 31 Dec 2016 2,3 30 Jun 2017 2,3 1 The Group Shareholder position excludes the contribution to the Group SCR and Own Funds of ring fenced With-Profit Funds and staff pension schemes in surplus. 2 Before allowing for the 2017 first interim ordinary dividend (FY16: before allowing for the 2016 second interim ordinary dividend) 3 The Group Shareholder position includes management’s estimate of transitional measures reflecting operating and market conditions at the valuation date. The estimated Group shareholder surplus would increase from £12.9 billion to £13.6 billion at 30 June 2017 if the approved regulatory transitional amount was applied instead (31 December 2016: The estimated Group shareholder surplus would increase from £12.5 billion to £12.9 billion) 25 2017 HALF YEAR RESULTS
Balance sheet Well capitalised and defensively positioned Credit portfolio • Well capitalised at Group and local levels US and UK combined credit portfolio, £73bn Capital strength • Strong operating capital generation in the period <BBB • Continued active management to optimise position AAA BBB AA 98% of US / UK credit portfolio is • Central cash of £2.7bn investment grade Liquidity • Access to revolving credit facilities of £2.6bn, untapped A • US shareholder debt exposure of £38bn • High quality credit portfolio with 97% sovereign debt or • 97% investment grade Conservative investment grade • Corporate debt portfolio across c.1,000 management issuers with average holding of £28m • Zero credit default losses and minimal impairments • UK shareholder debt exposure of £35bn • Continuing pivot towards more capital-light product portfolio • 98% investment grade • Corporate debt portfolio across c.500 issuers with average holding of £48m 26 2017 HALF YEAR RESULTS
HY17 results Summary P Continued delivery of growth and cash; enhancing earnings mix P Financial progress led by Asia, with recovery in asset management P Organic capital generation driving solvency strength and resilience P Sustained momentum in earnings drivers underpins positive outlook 27 2017 HALF YEAR RESULTS
Financial profile Scale, growth and resilience Scale Growth Resilience Assets under £ 635 billion management IFRS Balance sheet strength 2.1 x in 5 years solvency liquidity EEV shareholders’ funds NBP £ 40.5 billion asset mix funding 2.1 x in 5 years Earnings quality Asia recurring FSG > £ 9 billion 1.8 x in 5 years premium base 1 H&P recurring fee income capital-light Solvency II surplus doubled Assets under £ 12.9 billion Diversification since 30 June management 2010 channel currency geography product ✓ Strong customer outcomes ✓ Active in-force management ✓ Products aligned to customer needs ✓ Recurring income streams ✓ High quality, diversified distribution ✓ Disciplined capital allocation ✓ Capital efficient new business ✓ Strong risk management ✓ Conservatively managed balance sheet Note: Assets under management, EEV shareholders’ funds and Solvency II surplus figures are as at 30 June 2017. Full year 201 6 numbers used for IFRS, NBP, FSG and Asia recurring premium base. 1 Represents FY16 renewal premiums. Total weighted premium income, including new business of £3.5bn, was £12.6bn. 28 2017 HALF YEAR RESULTS
M&G Prudential Financial profile M&G Prudential UK&E AUM Growth +15% +49% 149 30 130 (£bn) 20 M&G Prudential HY16 HY17 HY16 HY17 External AUM PruFund AUM Transformation to efficient, services-led, digitally-enabled 492 497 business profit (£m) IFRS op. 186 209 Other 1 • Shareholder investment of circa £250m 248 225 306 288 Core • Shareholder cost savings of circa £145m pa 4 by 2022 HY16 HY17 HY16 HY17 Other 2 IFRS op. Leverage scale and capabilities to enhance growth prospects income With- Annuities 45% 45% profits 97% 10% Fee income Accelerating shift in mix to fee income and with-profits Fee income Remittances 3 (£m) 215 215 175 150 HY16 HY17 HY16 HY17 1 Includes general insurance commission of £17 million (2016: £19 million), shareholder-backed annuity new business profit of £4 million (2016: £27 million) and £188 million 3 HY16 UK remittances exclude non-recurring UK remittances of £131 million from management actions (2016: £140 million). 4 Pre-tax Relates to performance related fees and share of associate’s results 2 29 2017 HALF YEAR RESULTS
Mike Wells Group Chief Executive 30 2017 HALF YEAR RESULTS
Group Long-term track record IFRS operating profit 1,2,5 , £m New business profit 1,2,3,4 , £m Free surplus generation 1,2,3,4 , £m 3.9x 5.4x 4.3x 1,845 2,358 1,689 CAGR 1,615 CAGR CAGR 2,044 +15% +18% +16% 1,862 1,406 1,257 1,186 1,220 1,504 1,150 1,101 1,407 1,001 1,024 899 917 1,149 806 740 1,013 616 811 614 546 619 699 474 473 510 314 375 HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY HY 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1 Comparatives have been stated on an actual exchange rate basis 3 On a post tax basis 2 Excludes Korea life, Japan life and Taiwan agency. HY2014 comparatives have been restated to exclude the contribution from the sold PruHealth and PruProtect businesses. 4 Results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016. HY15 results and prior reflect the Solvency I HY2008 to HY2013 comparatives include the results of PruHealth and PruProtect basis being the regime applicable for those periods 5 Adjusted for new and amended accounting standards. 31 2017 HALF YEAR RESULTS
Group Key take-aways P High quality, broad based performance P Asia continues to underpin growth P M&G Prudential leverages complementary strengths to unlock further value P Strong balance sheet, defensive positioning P Well positioned to deliver long-term, profitable growth 32 2017 HALF YEAR RESULTS
Investor Conference, London 16 th November 2017 2017 HALF YEAR RESULTS
Appendix 2017 Half Year Results 34 2017 HALF YEAR RESULTS
Group Clear strategy 35 2017 HALF YEAR RESULTS
Group Premium franchises Well recognised brands with strong Premier retirement income player Leading pan regional franchise track record Founded in 1961 169 years of providing financial security In Asia since 1923 15m life customers with Top 3 position 4m life customers 6m life customers in 9 out of 12 life markets 1 Over £30bn PruFund funds under Leading 2 Asian asset manager with +20 18% market share Variable Annuities 3 management 4 years operating history $228bn of statutory admitted £332bn funds under management 4 £131bn funds under management 4 assets 4 US UK Asia 1 Source: Based on formal (competitors results release, local regulators and insurance associations) and informal (industry exchange) market share data. Ranking based on new business (APE or weighted FYP depending on availability of data) 2 Based on assets sourced from the region. Excluding Japan, Australia and New Zealand as at September 2016. Source Asia Asset Management September 2016 (Ranked according to participating regional players only) 3 Source: LIMRA 1Q 2017 4 As at 30 June 2017 36 2017 HALF YEAR RESULTS
Group Disciplined capital allocation New business strain 1,3,4,5 , £m New business profit 2,3,4,5 , £m 1,689 161 1,257 +350% 436 1,186 125 155 1,001 571 +77% 899 311 42 493 139 806 100 371 740 421 56 386 116 370 616 355 246 108 57 376 331 323 20 311 302 36 290 22 209 97 474 288 1,092 35 164 UK 45 298 93 33 375 211 173 86 180 821 235 179 UK 135 92 660 168 190 US 157 283 US 89 488 486 402 228 200 334 153 155 161 284 Asia 122 117 198 194 89 Asia 73 HY08 HY09 HY10 HY11 HY12 HY13 HY14 HY15 HY16 HY17 HY08 HY09 HY10 HY11 HY12 HY13 HY14 HY15 HY16 HY17 1 Free surplus invested in new business 2 On a post tax basis 3 Excludes Korea, Japan Life and Taiwan agency. HY2014 comparatives have been restated to exclude the contribution from the sold PruHealth and PruProtect businesses. HY2008 to HY2013 comparatives include the results of PruHealth and PruProtect 4 Results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016. HY15 results and prior reflect the Solvency I basis being the regime applicable for those periods 5 As reported RER 37 2017 HALF YEAR RESULTS
Group Effective response to challenges IFRS operating profit 1,2 , £m 1H17 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Brexit Rising oil and Sub-prime Liquidity crisis Start of global Greece and Concern over US debt ceiling Concern over Asia FX Solvency II Brexit commodity mortgage credit recession Ireland bailouts China hard- China & EM depreciation finalisation developments Sub-prime Europe re-enters US Elections prices crises begins landing growth Trump market concerns European Regulatory recession Expectation of a Asia / China US Department Military coup in China and Europe sovereign debt change in India Focus on QE tapering rise in US interest slowdown fears inauguration Lehman FAIR review in of Labor Thailand growth concerns crisis begins exposure to rates UK election Brothers Singapore RDR goes live in US$ NAIC proposals deepening Powerful Savers begin collapse All time low the UK UK annuity strengthening & French Regulatory Eurozone debt China SAFE earthquake kills withdrawing interest rates changes commodity price election Asset risk crisis change in the Designation of thousands in savings from decline controls concerns Focus on UK accelerates GSIIs announced Indonesia Java, Indonesia Northern Rock Solvency II elections UK elections / BNP Paribas first implications pensions Military coup in major bank to freedoms US industry VA Thailand acknowledge the losses emerge Greece risk of exposure negotiations to sub-prime Europe QE mortgage markets US rate rise 635 4,256 3,969 600 4,500 599 550 4,000 3,154 2,937 500 3,500 2,504 2,358 450 3,000 2,000 +15% 400 2,500 1,811 2,044 1,438 350 2,000 1,232 1,181 1,077 300 1,500 251 250 1,000 200 500 150 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HY17 1 Adjusted for new and amended accounting standards Total AUM 3, £bn 2 Comparatives have been stated on an actual exchange rate basis and exclude the contribution from Korea life and Japan life 3 Based on Total Funds Under Management at FY2006 - HY2017 38 2017 HALF YEAR RESULTS
Group Growth in high quality earnings Sources of IFRS operating income 1,2,3,4 , £m 7,504 6,932 6,278 1,171 5,883 1,153 5,011 1,129 1,071 4,418 1,991 4,169 1,671 3,979 1,061 1,393 3,481 1,329 583 3,108 1,049 2,801 1,629 1,000 556 998 1,682 1,152 722 1,635 898 750 1,587 574 537 1,362 880 79% 431 1,252 294 765 76% 1,140 2,175 1,888 914 932 58% 1,610 1,384 1,279 1,072 989 864 683 455 400 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 HY 2016 HY 2017 Insurance margin Life Fee income Asset Mgt Fee income Spread income Other 1 Comparatives adjusted for new and amended accounting standards 2 As reported RER 3 Excludes Korea, Japan Life and Taiwan agency. FY2014 comparatives have been restated to exclude the contribution from the sold PruHealth and PruProtect businesses. FY2008 to FY2013 comparatives include the results of PruHealth and PruProtect 4 Excludes UK specific management actions taken to position the balance sheet more efficiently under the new Solvency II regime 39 2017 HALF YEAR RESULTS
Group Free surplus generation Free surplus 3 and dividend, £m 3.6x Net free surplus 24% 2,416 571 23% 2,108 493 23% 23% 1,845 1,827 421 25% 26% 21% 1,615 1,590 370 1,536 386 27% 1,406 1,391 290 1,379 355 1,248 331 1,220 253 33% 1,150 320 1,101 39% 1,024 256 221 916 302 917 208 833 323 197 786 201 189 679 659 614 610 532 510 144 440 175 439 104 318 226 169 HY 2017 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 HY 2015 HY 2016 Surplus generation 1 Investment in new business 1 Net free surplus Dividend net of scrip Central outgoings 2 Special dividend X% Reinvestment rate 1 Excludes Korea, Japan Life and Taiwan agency. HY2014 comparatives have been restated to exclude the contribution from the sold PruHealth and PruProtect businesses. HY2008 to HY2013 comparatives include the results of PruHealth and PruProtect 2 Central outgoings includes RHO costs 3 Results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016. HY15 results and prior reflect the Solvency I basis being the regime applicable for those periods 40 2017 HALF YEAR RESULTS
Group Delivering cash Dividend, pence per share £ 7.6 bn Total dividends 1 to shareholders 2006-HY17 48.78 43.50 Special dividend 10.00 38.78 36.93 33.57 29.19 30.57 25.19 23.85 26.47 25.74 19.85 23.84 18.90 18.00 17.14 20.79 Total dividend 17.24 17.24 13.56 12.91 12.30 11.72 Second interim dividend 14.50 12.93 12.31 11.19 9.73 8.40 7.95 6.61 First interim dividend 5.99 6.29 5.70 5.42 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017 +5.0% +5.0% +5.0% +20.2% +5.6% +15.9% +15.0% +10.0% +5.0% +12.2% 1 Amounts paid between 2006 and 2010 are net of scrip dividends 41 2017 HALF YEAR RESULTS
Group Interim dividend Dividend, pence per share First interim dividend increased by 12 per cent to 14.50 pence per share 43.50 Ex-dividend date: 24 August 2017 (UK, Ireland and Hong Kong) 23 August 2017 (Singapore) 30.57 Record date: 25 August 2017 14.50 +12% 14.50 Payment of dividend: 12.93 28 September 2017 (UK, Ireland and Hong Kong) 2016 H1 2017 On or about 5 October 2017 (Singapore) First interim Second interim On or about 5 October 2017 (ADR holders) 42 2017 HALF YEAR RESULTS
Group Well positioned to deliver across cycles IFRS earnings split by currency 1,2,3,6 , IFRS income by revenue source, In-force IFRS operating profit 4,5 , £bn HY17 % % HY16-HY17 Growth 2.3 16% Other 18% Other USD linked 22% Insurance Spread margin 17% income Life 2.0 79% USD 46% Life Fee Asset Mgt income Fee income Asset 15% GBP 14% 0.3 management HY 2017 HY 2017 1 USD linked includes Hong Kong and Vietnam where currencies are pegged to the USD, and Malaysia and Singapore where currencies are managed against a basket of currencies including the USD 2 Includes long-term, asset management business and other businesses 3 For operating profit UK sterling includes amounts in respect of central operations as well as UK insurance operations and M&G 4 Operating profit comprises the following: Asia life as disclosed in note 1(b) of the ‘additional financial information’, af ter deducting development expenses. Jackson IFRS operating profit after adding back acquisition costs expensed (and not deferred) in the period of £110m. HY17 UK operating profit excluded the £188m (HY16: £140m) contribution from longevity reinsurance and other management actions taken to improve solvency. Asset management operating profit for M&G, PruCap, Eastspring and US broker-dealer and asset management 5 As reported (RER) 6 UK sterling includes amounts in respect of UK insurance operations, M&G and central operations. Operating profit for central operations includes amounts for corporate expenditure for Group Head Office as well as Asia Regional Head Office which is incurred in HK dollars. Sterling operating profits also include all interest payable as sterling denominated, reflecting interest rate currency swaps in place 43 2017 HALF YEAR RESULTS
Group Cash remittances to Group Business unit net remittances 2 , £m 1,718 1,625 1,482 335 357 1,341 342 147 1,200 1,230 30 1,105 292 1,118 190 301 300 297 935 175 325 280 215 131 355 202 688 313 420 215 470 297 515 415 175 475 294 420 249 167 339 322 434 80 516 199 467 1 400 400 341 350 258 233 39 144 206 40 5 2011 2013 2008 2009 2010 2012 2014 2015 2016 HY 2016 HY 2017 Asia US UK M&G & PruCap Other 1 Includes £42 million of proceeds from the sale of Japan 2 As reported RER 44 2017 HALF YEAR RESULTS
Group Growing value at consistent returns Shareholders’ equity (EEV), £bn 40.5 39.0 32.4 29.2 24.9 22.4 19.6 18.2 15.3 15.0 14.6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HY 2017 Full Year Return on 15% 14% 15% 18% 16% 16% 19% 16% 17% 17% Embedded Value 1 , % 1 Return on embedded value is based on EEV post- tax operating profit, as a percentage of opening EEV basis shareholders’ equity 45 2017 HALF YEAR RESULTS
Asia Long term opportunity GDP per capita in 2010, against the US GDP per capita,1990 US$ 1 Top 3 in 9 /12 Asian countries 2 35,000 Hong Kong 1 st 1 st Cambodia (2013) Malaysia (1924) Singapore 30,000 3 rd China (2000) 3 4 th Philippines (1996) 25,000 Taiwan 3 rd Hong Kong (1964) 2 nd Singapore (1931) 20,000 12 th 1 st Taiwan (1999) India (2000) 4 15,000 1 st 10 th Indonesia (1995) Thailand (1995) Malaysia 10,000 Thailand 2 nd 3 rd Laos (2015) China Vietnam (1999) Indonesia Vietnam 5,000 India Philippines 0 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 (YYYY) Operations start date US GDP per capita 1 Geary-Khamis dollar, based on purchasing power parities with 1990 as benchmark year - one 1990 dollar has the same purchasing power as the US dollar in 1990. Prudential estimates 2 Source: Based on formal ( competitors’ results release, local regulators and insurance associations) and informal (industry exchange) market share data. Ranking based on new business (APE or weighted FYP depending on availability of data) 3 Total JV / foreign players only 4 Ranking among private players, share among all players on fiscal year basis 46 2017 HALF YEAR RESULTS
Asia Favorable dynamics 2017F Market 2017F GDP 2017F GDP Population 1 (m) penetration 2 (%) ($bn) 1 growth 1 Cambodia (2013) - 21 6.9% 16 China (2000) 2.0% 11,795 6.6% 1,391 Hong Kong (1964) 13.3% 332 2.4% 7 India (2000) 2.7% 2,454 7.2% 1,327 Indonesia (1995) 262 1.3% 1,021 5.1% Laos (2015) - 15 6.8% 7 Malaysia (1924) 3.4% 310 4.5% 32 Philippines (1996) 106 1.4% 330 6.8% Singapore (1931) 6 5.6% 292 2.3% Taiwan (1999) 24 15.7% 567 1.7% Thailand (1995) 69 3.7% 433 3.0% 94 Vietnam (1999) 0.8% 216 6.5% 1 Source: IMF data, April 2017 (YYYY) Operations start date 2 Source: Swiss Re. Market penetration based on life insurance premiums as a percentage of GDP in 2015 (estimated) 47 2017 HALF YEAR RESULTS
Asia Products meet customer needs and create shareholder value Health and Protection – Out of pocket medical expenses 1 Annual premium for a customer aged 50 (indexed) 143 123 19 117 114 100 73 Saving 100 81 27 Spend Without Basic government Prudential Prudential Co. A Co. B Co. C Co. D insurance insurance protection product 1 Expenses for a male aged 50 for heart diseases and heart surgery treatment 48 2017 HALF YEAR RESULTS
Asia Affordable products underpin consumer demand Prudential product premium 1 Developed markets health insurance spend 2 Healthcare spend as % of average annual income 2 100% = average annual income 12% 11% 11% Linked 10% 46 premium Premiums paid = 9% of average annual 5.0% income H&P 54 premium Premiums as a proportion of average annual % of premium used Prudential US France Germany UK Example income to purchase benefit 1 Average Prudential customer spend on insurance products 2 Source: OECD, UN population stats, Prudential estimates. Premium spend includes healthcare expenditure by private and public sources except for the US. Healthcare spend data adjusted for working age population and unemployment rates 49 2017 HALF YEAR RESULTS
Asia Growing demand for healthcare Household consumption by category 1 , % 100% = $1.3tn 6 Personal items 14 Recreation 3 Education 12 Transportation 3 Communications 5 Clothing 7 Healthcare 5 Household products 100% = $0.5tn 15 Housing 5 14 Discretionary 2 10 2 9 6 Semi-Necessities 6 13 31 Food Necessities 34 1990 2010 1 Euromonitor, McKinsey, Prudential estimates 50 2017 HALF YEAR RESULTS
Asia Wealth and financial assets ownership Breakdown of personal financial assets 12% Life 24% 9% Non-Life 39% Asset Mgt 9% 18% 24% 20% 70% Bank Deposits 21% 38% 16% Per capita income level Up to $2,000 to $15,000+ $2,000 $15,000 Source: Oliver Wyman analysis; Prudential analysis 51 2017 HALF YEAR RESULTS
Asia Asia life growing in scale and quality Diverse mix of Insurance income 1,3 Life weighted premium income 1,2 , £bn +17% Indonesia +15% 153 +44% Hong Kong 113 Quality Scale +5% Singapore HY17 98 £ 658 m 7.5 58 +14% Malaysia 6.4 53 +185% 44 China + 24 % 35 +32% Vietnam vs HY16 (CER) Thailand +17% Other 5 69 % HY16 HY17 Of total income 4 (CER) 1 Excludes the results attributable to the sold Korea life business 2 Weighted premium income comprises gross earned premiums at 100% of renewal premiums, 100% of first year premiums and 10% of single premiums 3 Growth based on constant exchange rates 4 Calculated as a % of total Asia life income, which includes insurance income, spread income, fee income, with-profits income and expected returns on shareholder assets and excludes margin on revenues 5 Other represents Philippines, India, Taiwan, Cambodia, other life and non-recurring 52 2017 HALF YEAR RESULTS
Asia Life APE by market Asia APE by market, £m (Constant Exchange Rate) Asia NBP (CER) Asia APE (CER) +12% Ex-broker +18% +7% -7% 1,943 1,092 1,814 928 987 386 827 1,029 316 914 706 612 987 914 +23% 1H 2016 1H 2017 1H 2016 1H 2017 +58% Asia ex-HK HK +1% +10% 195 +45% 187 +54% 159 +24% 144 143 -18% 128 +13% 122 +33% 118 116 105 84 68 62 51 50 42 36 32 6 8 Hong Kong Singapore China 50% Indonesia Malaysia India 26% Taiwan Vietnam Philippines Cambodia Thailand 2 3 1 st 2 nd 3 rd 4 th 1 st 1 st 1 st 12 th 2 nd 10 th 3 rd 1 XX Ranking HY 2016 HY 2017 HY 2017 v HY 2016 X% 1 Source: Based on formal ( competitors’ results release, local regulators and insurance associations) and informal (industry exchange) market share data. Ranking based on new business (APE or weighted FYP depending on availability of data) 2 Total JV / foreign players only 3 Ranking among private players, share among all players on fiscal year basis 53 2017 HALF YEAR RESULTS
Asia High quality, defensive growth Regular and Single Premium APE 1 , £m c 90% Regular premium 3,359 MSCI Asia ex Japan 2 2,518 1,918 1,830 1,829 1,654 1,505 1,420 1,302 1,013 841 648 206 120 106 151 515 103 494 360 91 79 281 340 137 114 103 139 148 183 206 194 240 100 113 23 11 77 27 63 46 45 56 68 81 75 6 9 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HY HY 2016 2017 Single Premium APE Regular Premium 1 Comparatives have been stated on a reported exchange rate. Comparatives from 2006-2016 exclude the contribution from Korea life 2 Source: Datastream 54 2017 HALF YEAR RESULTS
Asia Life APE sales by product - percent Asia APE by product, 1 % 1% 2% 2% 2% 2% 3% 3% 3% 3% 4% 5% 5% 5% 6% 6% 5% 7% 8% 8% 8% 9% 20% 18% 20% 26% 29% 32% 31% 31% 36% 35% 37% 35% 36% 7% 10% 40% 39% 40% 46% 53% 52% 59% 22% 56% 29% 28% 27% 29% 30% 31% 32% 33% 31% 33% 28% 30% 31% 71% 69% 27% 26% 27% 56% 24% 25% 44% 41% 39% 37% 36% 29% 28% 26% 26% 25% 24% 22% 21% 19% 16% 15% 15% 13% 1H'07 2H'07 1H'08 2H'08 1H'09 2H'09 1H'10 2H'10 1H'11 2H'11 1H'12 2H'12 1H'13 2H'13 1H'14 2H'14 1H'15 2H'15 1H'16 2H'16 1H'17 Linked Health Par Other 1 All comparatives restated to exclude Korea Life 55 2017 HALF YEAR RESULTS
Asia Life flows and persistency Asia Life gross flows 1,2 , £bn Asia Life gross flows (ex-India) 1,2 , £bn 4.7 4.2 4.2 4.2 4.1 13.8% 3.9 3.8 3.8 3.7 12.6% 3.4 3.4 2.9 2.9 2.8 9.9% 7.6% 7.7% 9.4% 9.0% 9.2% 2.4 7.2% 7.1% 2.3 8.9% 8.5% 8.6% 8.5% 4.1% 3 3.8% FY10 FY11 FY12 FY13 FY14 FY15 FY16 HY17 FY10 FY11 FY12 FY13 FY14 FY15 FY16 HY17 Surrenders/withdrawals as % of opening liabilities 1 Defined as movements in shareholder-backed policyholder liabilities arising from premiums (after deducting insurance & other margins) 2 Excludes Korea, Japan and Taiwan agency 3 The rate of surrenders for shareholder-backed business (expressed as a percentage of opening liabilities) was 4.1 per cent in the first half of 2017 (half year 2016: 3.3 per cent). The increase compared to half year 2016 primarily relates to unit-linked business following equity market appreciation 56 2017 HALF YEAR RESULTS
Asia Eastspring Funds under management 2 , £bn 2012 – H1 2017 Growth 2.3x 131 118 3.4x 17 14 #1 Retail Fund Manager 89 September 2016 1 77 2.0x 11 61 58 8 60 £ 131bn 58 5 42 5 39 Funds under management 33 31 2.4x 53 46 36 30 22 22 2012 2013 2014 2015 2016 HY2017 Third party Asia life UK life/ Jackson 1 Based on assets sourced from the region. Excluding Japan, Australia and New Zealand as at Sept 2016. Source Asia Asset Management Sept 2016 (Ranked according to participating regional players only) 2 As reported (RER) 57 2017 HALF YEAR RESULTS
US Baby boomer retirement wave Over 40 million people will reach retirement age in the next decade Private defined benefit plans are disappearing and government plans are underfunded Social security was never intended to be the primary retirement plan and its long-term status is in question Life expectancy at age 65 has increased significantly Due to low interest rates, investors are forced to seek out equity markets in order to earn adequate returns Individual investors struggle to capture market returns and are exposed to volatile equity markets Source: U.S. Census Bureau, Population Division. 2014 estimate of population Generations as defined by Pew Research Center, 2014 58 2017 HALF YEAR RESULTS
US Advisor distributed assets More than $16 trillion in assets across existing channels (in $billions) 5.1% Wirehouses 5.0% National and regional B/D 10.5% RIA 6.6% Independent B/D 11.7% Independent / RIA Hybrid 8.5% Retail bank B/D 4.3% Insurance B/D $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Total Assets Variable Annuity Assets Source: Cerulli Associates, The State of US Retail and Institutional Asset Management 2016 Bubbles represent 5-year growth CAGR as of December 31, 2015 59 2017 HALF YEAR RESULTS
US Jackson retail sales and deposits Retail sales and deposits, $m HY 2016 = $9,389m HY 2017 = $9,507 $408 $199 $397 $8 $310 $1,387 $1,418 $1,156 $958 $6,455 $6,200 Variable Annuities – with living benefits Variable Annuities – w/o living benefits, non EA Fixed Annuities Elite Access Fixed Index Annuities Separately managed accounts 60 2017 HALF YEAR RESULTS
US Jackson variable annuity volumes VA volumes by quarter, sales US$bn ‘Features War’ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 6.6 6.4 6.4 6.0 5.7 5.7 5.7 1.4 1.1 5.5 1.4 5.3 5.3 5.2 5.2 0.4 1.3 5.0 0.2 1.1 1.3 4.7 4.4 4.6 1.1 4.6 4.3 4.3 4.3 4.3 4.5 4.5 1.0 4.4 1.0 1.1 4.2 4.2 0.8 0.7 0.7 3.8 0.7 3.7 3.7 1.3 0.7 0.7 0.7 0.7 3.3 3.1 2.9 2.4 2.4 2.3 2.3 2.1 1.8 1.8 1.5 1.4 1.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1 12 th 11 th 12 th 12 th 12 th 12 th 12 th 12 th 8 th 5 th 4 th 4 th 4 th 4 th 3 rd 3 rd 3 rd 3 rd 1 st 1 st 1 st 1 st 1 st 1 st 1 st 1 st 3 rd 3 rd 3 rd 3 rd 2 nd 2 nd 1 st 1 st 1 st 1 st 1 st 1 st 1 st 1 st 1 st 1 st Ranking 2 Elite Access XX 1 Estimated 2 Morningstar Annuity Research Center 61 2017 HALF YEAR RESULTS
US Jackson variable annuity distribution Variable annuity sales by distribution channel, US$bn 9.0 8.6 6.2 5.7 1.5 1.5 1.4 1.3 HY 2016 HY 2017 IBD RBD/Wirehouse Bank IBD: Independent Broker Dealer, RBD: Regional Broker Dealer 62 2017 HALF YEAR RESULTS
US Cash remittances Cash remittances, $m $4,408m 710 680 600 550 530 470 400 280 125 63 2011 1 2016 HY17 2008 2009 2010 2012 2013 2014 2015 Year End RBC Ratio 438% 417% 483% 429% 423% 450% 456% 481% 485% 1 Net remittances from Jackson include $197m in 2011 representing release of excess surplus to the Group 63 2017 HALF YEAR RESULTS
US DAC impact on IFRS profit Impact on results of DAC amortisation, 3 £m HY 2016 HY 2017 Gross profits 1 1,141 1,357 New business strain 2 (92) (108) DAC amortisation - Core (266) (272) - Deceleration 29 36 Operating result 812 1,013 Core as % of Gross profits 23% 20% 1 Gross profits equals IFRS operating profit pre acquisition costs and pre DAC, excluding REALIC 2 Represents acquisition costs no longer deferrable following the adoption of altered US GAAP principles for deferred acquisition costs 3 As reported (RER) 64 2017 HALF YEAR RESULTS
US Jackson Asset growth Growth in statutory admitted assets, US$bn 227.6 215.2 199.1 189.4 170.9 142.8 162.0 148.8 134.2 127.5 107.6 108.8 97.5 80.1 81.0 76.7 70.9 69.3 58.8 62.8 48.9 55.6 33.3 50.9 30.0 20.9 22.3 46.6 14.7 43.0 40.2 10.4 7.1 4.4 5.1 5.6 66.4 64.9 65.6 62.7 62.1 61.9 50.0 48.1 47.7 48.6 48.8 47.1 46.7 45.2 43.8 42.2 37.9 34.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HY17 General account Separate account 65 2017 HALF YEAR RESULTS
US Reserves return assumptions IFRS Mean Return vs S&P Historical 1 All accounting bases assume 20-year equity market returns well below the mean returns posted by the S&P 500 IFRS return assumptions are especially punitive. There has never been a 20-year period for the S&P with as weak a return profile as what is used in the mean IFRS scenario Max S&P S&P (mean) 75 th Percentile EEV EEV (mean) St Statutory (CTE 90) I IFRS 25 th Percentile Min 1 As shown at the Group’s November 2016 Investor Day, except IFRS and EEV, which has been updated to be as at 30 June 2017 66 2017 HALF YEAR RESULTS
US Moving reserves to ‘fair value’ Guarantee Benefit Liability Supplemental Disclosure 1 , net of DAC , £m 2,400 1,900 716 1,400 1,129 900 400 Liabilities -100 (Assets) 50 (397) (2,292) (447) -600 As recorded 2 Change in Adjustment to full Revised liability, Volatility Hypothetical fair rates 3 fees 4 excluding volatility adjustment 5 value with full fees adjustment 1 A positive number indicates a liability while a negative number indicates an asset 2 GMWB and GMDB IFRS basis 3 For GMDB and GMWD liabilities only. Excludes adjustment for volatility, which is shown separately. Includes application of market based (30.06.17) earned rates based on the greater of the SWAP and treasury curves (2.3% representative 10 year rate) and AA corporate bond discount rates (3.4% representative 10 year rate) in place of long-term rate of 7.4% for IFRS (8.4% discount rates used for pre-2013 issues) 4 Value of fees over and above those in reserve calculations 5 Application of market based (30.06.17) volatility curve (19.5% representative 5 year rate) instead of long-term 15% level for IFRS 67 2017 HALF YEAR RESULTS
US GMWB policyholder behavior sensitivities GMWB policyholder behaviour sensitivities 30 June 2017 US$bn Policyholder behaviour experience is continuously monitored and a comprehensive study is 8 conducted on an annual basis. 7 For IFRS and statutory accounting purposes, assumptions are set at the conservative end of the plausible range (i.e. best estimate with an explicit margin for conservatism). For example: 6 Lapse - Lifetime GMWB ultimate lapse assumptions at significantly ITM levels are assumed to be 35% of the base lapse assumption 5 Utilisation - For-Life GMWB utilisation assumptions at attained ages 65+ are 50-85% (with special provisions for benefits with incentives to delay withdrawals) 4 3 To measure the sensitivity to these assumptions, IFRS Equity and Statutory Total Adjusted Capital (TAC) were computed under severe shocks to these already conservative 2 assumptions. The shocks were as follows: Lapse - Lapse rates for ITM policies were reduced to half the assumed levels. For 1 example, ultimate lapse rates on significantly ITM Lifetime GMWB policies were reduced from 35% to 17.5% of the base lapse level, resulting in ultimate lapse rates of 0 less than 1.5% for utilising policyholders Total Adjusted Capital IFRS SH equity Utilisation - Utilisation rates beyond the bonus period, if applicable, were increased by 10% (i.e. 110% of the best estimate assumption). Total Lapse sensitivity impact Utilisation sensitivity impact 68 2017 HALF YEAR RESULTS
US Capital, hedging and policyholder behavior Total adjusted capital US$bn Hedging programme continues to effectively mitigate risks Earned guarantee fees of 127 bps per annum (c$1.0bn in HY 5.3 31 December 2016 2017). Expected guarantee fees of $2.0bn for 2017 0.4 Operating profit Equity allocations remain below our 84% pricing assumption Dividend (0.6) Total adjusted capital excludes: Reserves net of hedging and other effects (0.4) Gains on interest rate swaps: $486m net of tax at 30 June 2017 (31 Dec 2016: gain of $413m) 4.7 30 June 2017 69 2017 HALF YEAR RESULTS
US GMWB unhedged cash flow Unhedged GMWB cash flow exposure, 30 June 2017 ▪ Includes guarantee fees only $millions S&P @ 6/30 = 2,423 Base, 5% Gross Return 2,000 ▪ Guarantee Fees Uses prudent best estimate assumptions (AG43, C3P2) 1,800 PV Future Guarantee Fees 10,290 Benefits 1,600 PV Benefits (1,784) ▪ 5% gross return is well below historical average market return 1,400 PV Fees Less Benefits 8,506 1,200 ▪ Ignores guarantee fees collected to date as well as reserves 1,000 800 ▪ PV of future GMWB fees exceeds PV of benefits over a wide range of market shocks 600 400 ▪ 200 Negative cash flow is far into future even in bad scenarios 0 1 6 11 16 21 26 31 36 41 46 ▪ No material strain on liquidity in any given year Year $millions $millions -100 bps Rate Shock Down 40% S&P Shock (S&P = 1,454) Base, 5% Gross Return Base, 5% Gross Return 2,000 2,000 Guarantee Fees Guarantee Fees 1,800 PV Future Guarantee Fees 10,951 1,800 PV Future Guarantee Fees 11,984 Benefits Benefits 1,600 1,600 PV Benefits (2,340) PV Benefits (12,606) 1,400 1,400 PV Fees Less Benefits 8,611 PV Fees Less Benefits (622) 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 1 6 11 16 21 26 31 36 41 46 1 6 11 16 21 26 31 36 41 46 Year Year 70 2017 HALF YEAR RESULTS
US GMWB unhedged cash flow Unhedged GMWB cash flow exposure, 31 December 2016 ▪ Includes guarantee fees only S&P @ 12/31 = 2,239 $millions Base, 5% Gross Return 2,000 ▪ Guarantee Fees Uses prudent best estimate assumptions (AG43, C3P2) 1,800 PV Future Guarantee Fees 10,286 Benefits 1,600 PV Benefits (2,358) ▪ 5% gross return is well below historical average market return 1,400 PV Fees Less Benefits 7,928 1,200 ▪ Ignores guarantee fees collected to date as well as reserves 1,000 800 ▪ PV of future GMWB fees exceeds PV of benefits over a wide range of market shocks 600 400 ▪ 200 Negative cash flow is far into future even in bad scenarios 0 1 6 11 16 21 26 31 36 41 46 ▪ No material strain on liquidity in any given year Year $millions $millions -100 bps Rate Shock Down 40% S&P Shock (S&P = 1,343) Base, 5% Gross Return Base, 5% Gross Return 2,000 2,000 Guarantee Fees Guarantee Fees 1,800 PV Future Guarantee Fees 10,969 1,800 PV Future Guarantee Fees 11,485 Benefits Benefits 1,600 1,600 PV Benefits (3,094) PV Benefits (13,563) 1,400 1,400 PV Fees Less Benefits 7,875 PV Fees Less Benefits (2,078) 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 1 6 11 16 21 26 31 36 41 46 1 6 11 16 21 26 31 36 41 46 Year Year 71 2017 HALF YEAR RESULTS
UK Life Retail growth Retail Growth, (APE, £m) Bonds, (APE, £m) Individual Pensions , (APE, £m) 34% 272% 933% = 628 279 196 174 481 156 130 134 285 169 62 27 + H1 2014 H1 2015 H1 2016 H1 2017 H1 2014 H1 2015 H1 2016 H1 2017 H1 2014 H1 2015 H1 2016 H1 2017 Drawdown , (APE, £m) PruFund ISA , (APE, £m) Legacy, (APE, £m) 146% (63)% 783% 250 225 104 117 106 112 93 70 69 81 146 112 108 93 39 28 12 H1 2014 H1 2015 H1 2016 H1 2017 H1 2014 H1 2015 H1 2016 1H 2017 H1 2014 H1 2015 H1 2016 H1 2017 Bulks Other legacy 72 2017 HALF YEAR RESULTS
UK Life Life asset flows UK life flows , £bn YoY Change Premiums 9.0 £ 126bn With-profits +11% 6.1 6.0 invested assets 3.7 30 June 2017 2.7 2.3 2.2 2.0 1.5 1.2 1.2 0.1 1.0 0.5 0.4 (0.8) (0.9) (1.2) (1.4) (1.6) (1.9) (3.0) (3.1) £ 64bn (3.2) (3.2) Shareholder (3.3) +2% Claims backed (6.1) (6.5) (6.6) invested assets (7.2) 30 June 2017 2013 2014 2015 2016 HY2017 Retail Growth products 1 Legacy products 2 Annuities 3 1 Includes investment bonds, individual pensions, drawdown and PruFund ISA 2 Includes corporate pensions and other 3 Includes retail and bulk annuities 73 2017 HALF YEAR RESULTS
UK Life PruFund PruFund investment performance 1 Growth in PruFund AuM (£bn) 70% PruFund 60% Growth +62% 50% 40% ABI fund comparator 30% +42% 20% 30.0 10% 24.7 0% 16.5 -10% 11.6 9.1 7.5 -20% 5.4 4.1 0.1 0.3 2.5 0.9 -30% 2007 2009 2011 2013 2015 2016 HY17 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HY 2017 AuM 1 ABI Mixed Investment 20%-60% Shares TR; performance from 29 June 2007 to 30 June 2017 74 2017 HALF YEAR RESULTS
M&G Principal asset classes M&G Group assets under management by client type and asset class (%), 30 June 2017 1 2% 1% 3% 5% 4% 6% 9% 13% 22% 1% 4% 28% 12% 2% 3% Retail AUM Institutional AUM Internal AUM £72.5bn £76.6bn £132.4bn 73% 55% 57% Equities Fixed income Real estate Multi-asset Infrastructure Real estate mortgages / debt Private equity Other debt / private finance lending Structures products Other alternative investments Cash 1 Asset class splits exclude assets from Prudential Investment Managers South Africa business 75 2017 HALF YEAR RESULTS
M&G Retail & FUM Retail funds under management , £bn 16% 16% 21% 19% 26% 35% 43% 39% 42% 49% 43.5 42.5 40.4 37.3 37.3 37.3 36.0 35.2 33.5 31.8 26.9 26.1 23.7 23.5 16.0 14.5 9.0 8.2 5.0 3.1 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017 1 UK / Other Europe Europe FUM as % of Retail FUM X% 1 Other relates to South Africa 76 2017 HALF YEAR RESULTS
M&G Operating profit M&G IFRS operating profit 1 , £m 3.3 x 251 248 227 225 204 175 172 122 75 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 HY 2015 HY 2016 HY 2017 1 Excludes PruCap 77 2017 HALF YEAR RESULTS
IFRS IFRS operating profit % Movement % Movement 2017 H1 2016 H1 (AER) 2016 H1 (CER) (AER) (CER) Asia operations Asia insurance operations 870 667 752 30% 16% Eastspring Investments 83 61 69 36% 20% Total Asia operations 953 728 821 31% 16% US operations Jackson (US insurance operations) 1,079 888 1,010 22% 7% Broker-dealer and asset management (6) (12) (13) 50% 54% Total US operations 1,073 876 997 22% 8% UK operations Long-term business 480 473 473 1% 1% General insurance commission 1 17 19 19 (11)% (11)% Total UK insurance operations 497 492 492 1% 1% M&G 248 225 225 10% 10% Prudential Capital 6 13 13 (54)% (54)% Total UK operations 751 730 730 3% 3% Total segment profit 2,777 2,334 2,548 19% 9% Other income and expenditure Investment return and other income - 6 6 (100)% (100)% Interest payable on core structural borrowings (216) (165) (165) (31)% (31)% Corporate expenditure 2 (172) (156) (165) (10)% (4)% Total (388) (315) (324) (23)% (20)% Solvency II implementation costs - (11) (11) n/a n/a Restructuring costs 3 (31) (7) (7) (343)% (343)% Operating profit based on longer-term investment returns before interest received from tax settlement 2,358 2,001 2,206 18% 7% Interest received from tax settlement - 43 43 n/a n/a Operating profit based on longer-term investment returns 2,358 2,044 2,249 15% 5% 1 General insurance commission represents the commission receivable net of expenses for Prudential-branded general insurance products in connection with the arrangement to transfer the UK general insurance business to Churchill in 2002. 2 Corporate expenditure as shown above is for Group Head Office and Asia Regional Head Office. 3 Restructuring costs are incurred in the UK and Asia and represent one-off business development expenses. 78 2017 HALF YEAR RESULTS
IFRS operating profit – sources of earnings Group long-term business Source HY 2016 1 +/- HY 2017 (CER) Total operating profit £m except reserves £bn 2,429 2,235 9% = Total Life income DAC adjustments Total Life expenses - +/- 4,615 4,224 9% (2,138) (11)% 186 149 25% (2,372) Spread Technical and other With-profits Management actions Fee income income margin 188 140 34% 172 165 4% 583 613 (5)% 1,279 1,118 14% 2,290 2,064 11% Spread Margin on 131 143 (12) AMF (bps) 156 156 - 1,138 1,051 8% Expected returns (bps) revenues Average Average Insurance 103 124 (17)% 89.3 85.7 4% 164.2 143.5 14% 1,152 1,013 14% reserves reserves margin 1 2016 comparatives restated to exclude Korea Life 79 2017 HALF YEAR RESULTS
IFRS operating profit – sources of earnings Life insurance - Asia Source HY 2016 1 +/- HY 2017 (CER) Total operating profit £m except reserves £bn 870 752 16% = Total Life income DAC adjustments Total Life expenses - +/- 2,011 1,752 15% (1,056) (14)% 66 56 18% (1,207) Spread Technical and other With-profits Fee income income margin 108 91 19% 30 27 11% 103 92 12% 1,714 1,497 14% Spread Margin on 136 131 5 AMF (bps) 113 112 1 1,056 965 9% Expected returns (bps) revenues Average Average Insurance 15.8 13.9 14% 18.2 16.2 12% 658 532 24% 56 45 24% reserves reserves margin 1 2016 comparatives restated to exclude Korea Life 80 2017 HALF YEAR RESULTS
IFRS operating profit – sources of earnings Life insurance - US Source HY 2016 +/- HY 2017 (CER) Total operating profit £m except reserves £bn 1,079 1,010 7% = Total Life income Total Life expenses DAC amortisation - +/- 2,018 1,897 6% (1,056) (982) (8)% 117 95 23% Spread Technical and other Fee income Expected returns income margin 401 426 (6)% 1,145 997 15% 472 456 4% 0 18 (100)% Spread 202 217 (15) AMF (bps) 186 188 (2) (bps) Average Average 39.7 39.2 1% 123.5 105.8 17% reserves reserves 81 2017 HALF YEAR RESULTS
IFRS operating profit - sources of earnings Life insurance - UK Source +/- HY 2017 HY 2016 Total operating profit £m except reserves £bn 480 473 1% = Total Life income Total Life expenses DAC adjustments - +/- 586 575 2% (109) (100) (9)% 3 (2) - Spread Technical and other Expected returns Fee income With-profits income margin 74 96 (23)% 104 111 (6)% 47 61 (23)% 31 29 7% 142 138 3% Spread Margin on 59 (15) 44 AMF (bps) 27 27 - Management actions 82 86 (5)% (bps) revenues Average Average Insurance 33.8 32.6 4% 22.5 21.5 5% 188 140 34% 22 25 (12)% reserves reserves margin 82 2017 HALF YEAR RESULTS
IFRS operating profit – sources of earnings Asset management Source HY2016 +/- HY2017 Asset Management Operating (CER) profit 1 £m except average assets £bn 331 294 13% Eastspring M&G Investments 248 225 10% 83 69 20% Total income 2 Underlying income Other income 2 Total expenses Total expenses 495 440 13% 14 14 0% (261) (229) (14)% 208 176 18% (125) (107) (17)% Average fees 4 Average fees 4 37 36 1 Cost / income ratio 3 33 34 (1) Cost / income ratio 3 (bps) (bps) Average assets (£bn) 267.2 243.2 10% 53% 52% 1ppt Average assets (£bn) 124.9 103.6 21% 55% 56% (1)ppt 1 Excludes PruCap and US asset management business 2 Includes performance related fees for M&G, carried interest and its share of operating profit from PPMSA and for Eastspring performance related fees 3 Cost/income ratio excludes performance-related fees, carried interest and profit from associate, and for Eastspring, taxes on JV operating profit 4 Average fees exclude performance-related fees and M&G’s share pf operating profit from PPMSA 83 2017 HALF YEAR RESULTS
IFRS operating profit sources of income Life insurance - Asia Asia IFRS operating income 1,2 , £m Growth % HY 2017 vs. HY 2016 (CER) +24% 955 +11% 6% 3% +19% 787 11% +12% 6% 3% 11% 11% 12% +24% 69% 68% HY 2016 CER HY 2017 Insurance margin Fee income With-profits Expected return on shareholder assets Spread income 1 Excludes margin on revenues, acquisition and administration expenses and DAC adjustments 2 2016 comparatives restated to exclude Korea life 84 2017 HALF YEAR RESULTS
IFRS operating profit sources of income Life insurance - US US IFRS operating income 1 , £m Growth % HY 2017 vs. HY 2016 (CER) 2,018 (100)% 1,897 0% (6)% 1% 20% 22% +15% 57% 53% +4% 24% 23% HY 2016 CER HY 2017 Insurance margin Fee income Expected return on shareholder assets Spread income 1 Excludes acquisition, administration expenses and DAC amortisation 85 2017 HALF YEAR RESULTS
IFRS operating profit sources of income Life insurance - UK UK IFRS operating income 1,2 , £m Growth % HY 2017 vs. HY 2016 349 316 17% (23)% 15% +3% 40% 45% (23)% 28% 23% 7% 8% 10% (12)% 7% 7% HY 2016 HY 2017 Insurance margin Fee income Spread income With-profits Expected return on shareholder assets 1 Excludes margin on revenues, acquisition and administration expenses and DAC amortisation 2 Excludes earnings from longevity reinsurance and other management actions of £188m (HY2016: £140m) 86 2017 HALF YEAR RESULTS
EEV operating profit Life operating variances - Group Group Life operating variances 1,2,5 , £m Experience variances and assumption changes % opening EEV 3 0.7% 4 0.7% 0.0% 1.0% 0.4% (0.2)% 0.7% 1.0% 1.3% 1.2% 1.0% 0.8% 1,043 880 787 736 692 617 567 552 489 481 425 356 262 245 243 243 237 216 167 100 96 51 (2) (23) HY 2006 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 HY 2015 HY 2016 HY 2017 Unwind Experience variances and assumption changes 1 Excludes Korea, Japan Life and Taiwan agency. HY2014 comparatives have been restated to exclude the contribution from the sold PruHealth and PruProtect businesses. HY2006 to HY2013 comparatives include the results of PruHealth and PruProtect 2 Experience variances and assumption changes are shown post development costs from HY14 to HY17 and pre development costs from HY06 to HY13 3 Opening EEV of Life operations, excluding goodwill and restated to exclude Korea life 4 Calculated net of £(128)m opening adjustment to Long-term b usiness shareholders’ funds arising from the impact of Solvency II for the UK operations at 1 January 2016 5 As reported RER Note: Unwind & experience variances / assumption changes are on a post tax basis 87 2017 HALF YEAR RESULTS
EEV operating profit In-force performance Asia in-force 1,2 , £549m US in-force 2 , £452m UK in-force, £304m 114 98 60 42 72 54 36 29 14 (14) Total variances / Spread Other items Persistency & Mortality / morbidity other withdrawals and Other items HY16 HY17 1 Asia In-force shown post development costs 2 As reported RER 88 2017 HALF YEAR RESULTS
EEV operating profit Life operating variances - Asia Asia Life operating variances 1,3 , £m Experience variances and assumption changes % opening EEV 2 (0.4)% 0.8% (0.2)% (1.6)% (0.3)% (0.3)% 0.2% 0.4% 0.2% 0.0% 0.1% 0.3% 499 399 373 315 301 271 237 236 186 139 106 89 50 36 22 18 18 15 (0) (5) (7) (15) (21) (61) HY 2006 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 HY 2015 HY 2016 HY 2017 Unwind Experience variances and assumption changes 1 Experience variances and assumption changes are shown post development costs from HY14 to HY17 and pre development costs from HY06 to HY13 2 Opening EEV of Life operations, excluding goodwill and restated to exclude Korea life 3 As reported RER Note: Unwind & Experience variances / assumption changes are on a post tax basis and excludes Japan and Korea life 89 2017 HALF YEAR RESULTS
Policyholder liabilities Shareholder-backed business - Group Policyholder liabilities 1,2 roll-forward , £bn 269.3 10.6 266.6 (9.7) 2.0 (1.2) 1.0 256.9 Liabilities Foreign CER opening Asia US UK Investment Liabilities 1 Jan 2017 exchange liabilities net inflows net inflows net outflows related 30 June 2017 and other 1 Shareholder-backed business. 2 Including net flows of the Group’s insurance joint ventures. 90 2017 HALF YEAR RESULTS
Policyholder liabilities Shareholder-backed business - Asia Policyholder liabilities roll-forward 1 , £m 2,801 (1,785) 1,912 35,040 32,851 (739) 32,112 Liabilities Foreign CER opening Premiums Maturities, Investment Liabilities 1 Jan 2017 exchange liabilities deaths and related and 30 June 2017 surrenders other 1 Including net flows of the groups insurance joint ventures 91 2017 HALF YEAR RESULTS
Policyholder liabilities Shareholder-backed business - US Policyholder liabilities roll-forward, £m 7,124 177,626 (8,929) 177,779 8,148 (6,190) 168,697 Liabilities Foreign CER opening Premiums Maturities, Investment Liabilities 1 Jan 2017 exchange liabilities deaths and related and 30 June 2017 surrenders other 92 2017 HALF YEAR RESULTS
Policyholder liabilities Shareholder-backed business - UK Policyholder liabilities roll-forward, £m (2,825) 1,658 1,500 56,491 56,158 Liabilities Premiums Maturities, deaths Investment Liabilities 1 Jan 2017 and surrenders related and 30 June 2017 other 93 2017 HALF YEAR RESULTS
Solvency II Group capital position and sensitivities HY17 movement in Solvency II capital 1,2,3 , £bn Solvency II surplus estimated sensitivities 1,2,3 , £bn Impact on Impact on coverage ratio coverage ratio 31 December 2016 2,3 12.5 30 June 2017 2,3 12.9 1.5 Operating experience 40% equity fall 4 11.7 (3)pts ~12pts 0.2 Management actions 50bp interest rate fall 5,6 12.5 (9)pts Non-operating experience, 0.0 including market effects ~(5)pts 100bp interest rate rise 6 13.8 +18pts (0.5) Currency movements 100bp credit spread 11.8 (3)pts widening 7 (0.8) ~(6)pts Dividends paid 15% ratings downgrade 12.4 (5)pts for UK annuities 30 June 2017 2,3 12.9 1 The Group shareholder position excludes the contribution to the Group SCR and Own Funds of ring fenced With-Profit Funds and staff pension schemes in surplus 2 Before allowing for the 2017 first interim ordinary dividend (FY16: before allowing for the 2016 second interim ordinary dividend) 3 The Group shareholder position includes management’s estimate of transitional measures reflecting operating and market conditions at the valuation date. The estimated Group shareholder surplus would increase from £12.9 billion to £13.6 billion at 30 June 2017 if the approved regulatory transitional amount was applied instead (31 December 2016: The estimated Group shareholder surplus would increase from £12.5 billion to £12.9 billion) 4 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 5 Subject to a floor of zero 6 Allowing for further transitional recalculation after the interest rate stress 7 US Risk Based Capital solvency position included using a stress of 10 times expected credit defaults 94 2017 HALF YEAR RESULTS
Solvency II Well-diversified risks Reconciliation of IFRS equity to Solvency II Own Funds 1,2,3 , HY17 £bn SCR by risk type 4 , HY17 IFRS equity 15.4 Less: goodwill, DAC, intangibles (3.9) Operational/Expense Equity Sub-debt 6.1 10% 13% FX translation 7% Value of shareholder transfer 4.6 Longevity 6% US restated to statutory basis (2.6) Credit 25% 16% Risk margin net of transitionals (3.6) Lapse 5% Liability valuation differences 10.7 14% 4% Mortality/Morbidity Other market Interest rate Tax on liability valuation differences (1.4) Other 0.3 Solvency II Own Funds 25.6 1 The Group Shareholder position excludes the contribution to the Group Own Funds and the Solvency Capital Requirement of ring fenced With-Profit Funds and staff pension schemes in surplus 2 The Group Shareholder position includes management’s estimate of transitional measures reflecting operating and market cond itions at the valuation date 3 Before allowing for the 2017 first interim ordinary dividend 4 Solvency II undiversified solvency capital requirement 95 2017 HALF YEAR RESULTS
Solvency II High quality capital Solvency II Own Funds by capital tier 1,2 Share of Solvency II Own Funds by capital tier 1,2 HY17, 100% = £25.6bn 25.6 Tier 3 – deferred tax 0.4 Tier 3 Tier 2 – sub debt 5.5 Tier 2 Tier 1 – hybrid capital 0.9 2% 21% Other Tier 1 Tier 1 = Tier 1 = 77% of Tier 1 – core capital 3% 18.8 155% of Own Funds (unrestricted) SCR 74% Core Tier 1 (unrestricted) Solvency II Own Funds HY17 1 The Group shareholder position excludes the contribution to the Group Own Funds and the Solvency Capital Requirement of ring fenced With-Profit Funds and staff pension schemes in surplus 2 The Group shareholder position includes management’s estimate of transitional measures reflecting operating and market conditions at the valuation date 3 Before allowing for the 2017 first interim ordinary dividend 96 2017 HALF YEAR RESULTS
Solvency II Capital dynamics and dividend philosophy Remittances Central costs Asia US UK M&G Capital-light Reliable capital Capital efficient Minimal capital Dividends to growth in unit- generation from growth through requirement shareholders linked and high-return fast with-profits protection payback business Capital generation Corporate Fast payback of Economic risks Stable Cash-like actions invested capital hedged well into generation from earnings from attractive tail seasoned earnings profile annuity and with- profits portfolios Buffer over local Minimum RBC Capital SII target Minimum CRD required capital ratio and target range hurdle III cover after 1/25 stress AA credit rating Opening Closing central cash central cash >£1bn Remittances to Group 97 2017 HALF YEAR RESULTS
Solvency II SII treatment of hybrid capital classification Hybrid capital outstanding, 30 June 2017 Issue Date Amount Coupon Maturity Date 1st Call Date SII Classification 19-Dec-01 GBP 435m 6.125% 19-Dec-31 None Tier 2* 23-Jun-03 USD 1,000m 6.50% Perp 23-Dec-08 Tier 2* 10-Jul-03 EUR 20m 20 yr CMS rate 10-Jul-23 None Tier 2* 30-Jul-04 USD 250m 6.75% Perp 23-Sep-09 Tier 1* 12-Jul-05 USD 300m 6.50% Perp 23-Sep-10 Tier 1* 29-May-19 29-May-09 GBP 400m 11.375% 29-May-39 Tier 2* 23-Jun-16 21-Jan-11 USD 550m 7.75% Perp Tier 1* 23-Mar-18 15-Jan-13 USD 700m 5.25% Perp Tier 2 19-Dec-43 16-Dec-13 GBP 700m 5.70% 19-Dec-63 Tier 2* 20-Jul-35 09-Jun-15 GBP 600m 5.00% 20-Jul-55 Tier 2 20-Jul-21 07-Jun-16 USD 1,000m 5.25% Perp Tier 2 20-Oct-21 13-Sept-16 USD 725m 4.375% Perp Tier 2 *Grandfathered under Solvency II transitional provisions. 98 2017 HALF YEAR RESULTS
Group Dividend policy The Board will maintain its focus on delivering a growing ordinary dividend. In line with this policy, Prudential aims to grow the ordinary dividend by 5 per cent per annum. The potential for additional distributions will continue to be determined after taking into account the Group’s financ ial flexibility across a broad range of financial metrics and our assessment of opportunities to generate attractive returns by investing in specific areas of the business Assessment of dividend affordability unchanged Range of financial Competing use of Stress tested grow the ordinary metrics capital dividend by 5 per cent per annum • 1/25 year stress on • • IFRS earnings Investment in growth financial KPIs 1 • • Free surplus generation Funding corporate • Country level cash • Holding company cash activity potential for additional • Group liquidity • Free surplus ‘stock’ distributions • Buffer for regulatory • Solvency II surplus change and ‘shocks’ • Local solvency surplus • Financial strength ratings 1 1/25 year stress is equivalent to a Group-wide scenario with movements in all risks including a 29% to 50% fall in equity levels, a 0.4% to 2.8% fall in long-term interest rates and spreads widening by 150bps in A-rated credit and 230bps in BBB-rated credit. 99 2017 HALF YEAR RESULTS
Invested assets Asset portfolio is high quality and well diversified Breakdown of invested assets 1 , HY17, £bn Shareholder debt portfolio , HY17, £bn Shareholders Holding by issuer HY % No. Av. Max debt Portfolio Total PAR Unit Asia US UK issuers £m £m portfolio £bn Group funds linked Life Life Life Other Total Sovereign debt Debt 170.8 72.6 10.2 12.2 38.0 35.4 2.4 88.0 14.9 42 355 3,518 1.6% Corporate debt 210.4 Equity 55.8 152.5 1.5 0.3 0.0 0.3 2.1 Investment grade 70.4 1,788 39 467 n/a 15.2 Property 13.0 0.6 0.0 0.0 1.6 0.0 1.6 High yield 2.7 263 10 128 3.1% 10.5 Mortgage 2.6 0.0 0.2 6.0 1.7 0.0 7.9 73.1 2,051 36 467 n/a 13.3 Deposits 9.8 1.4 0.5 0.0 1.3 0.3 2.1 Oil and gas 3.4 141 24 226 0.5% 6.6 Other loans 2.2 0.0 0.4 3.5 0.0 0.5 4.4 Mining 0.7 36 21 104 0.1% 9.3 Other 6.8 0.0 0.0 1.8 0.5 0.2 2.5 Banks 5.8 195 30 365 0.2% Total 436.1 162.8 164.7 14.8 49.6 40.5 3.7 108.6 • Total Group assets of £436.1bn; shareholder exposure of £108.6bn • Conservative asset mix: ~97% credit portfolio is rated investment grade or sovereign • No default losses in the US and UK, and minimal impairments across all credit portfolios • Additional cash and equivalents of £9.9bn, of which shareholder exposure is £4.9bn 1 Excludes £1.3 billion of investments in joint ventures and associates accounted for using the equity method. 100 2017 HALF YEAR RESULTS
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