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Measuring our performance

To create sustainable economic value for our shareholders we focus on delivering growth and cash while maintaining appropriate capital.

Our strategy and operating principles

Balanced metrics and disclosures

Prudential takes a balanced approach to performance management across IFRS, EEV and cash. We aim to demonstrate how we generate profits under different accounting bases, reflecting the returns we generate on capital invested, and highlight the cash generation of our business.

Read more: Our strategy and operating principles

Profit, cash and capital

What we measure and why Performance1 Commentary

IFRS operating profit2 (£m)

IFRS operating profit is our primary measure of profitability. This measure of profitability provides an underlying operating result based on longer-term investment returns and excludes non-operating items.

arrow going upwardsCAGR
+15%
2010 2011 2012 2013 2014
1823 2017 2520 2954 3186
  • Group IFRS operating profit in 2014 increased by 14 per cent on a constant exchange rate basis (8 per cent on an actual exchange rate basis), compared to 2013, reflecting strong growth in Asia and the US. IFRS operating profit in both business units was up 17 per cent, on a constant exchange rate basis.

EEV new business profit3 (£m)

Life insurance products are, by their nature, long term and generate profit over a significant number of years. Embedded value reporting provides investors with a measure of the future profits streams of the Group. EEV new business profit reflects the value of future profit streams which are not fully captured in the year of sale under IFRS reporting.

arrow going upwardsCAGR
+10%
2010 2011 2012 2013 2014
1433 1536 1791 2082 2126
  • EEV new business profit in 2014 increased by 10 per cent on a constant exchange rate basis (2 per cent on an actual exchange rate basis), compared to 2013, driven by a combination of higher volumes and pricing and product actions to increase profitability.

EEV operating profit3 (£m)

EEV operating profit is provided as an additional measure of profitability. This measure includes EEV new business profit, the change in the value of the Group’s long-term in-force business, and profit from our asset management and other businesses. As with IFRS, EEV operating profit reflects the underlying results based on longer-term investment returns.

arrow going upwardsCAGR
+9%
2010 2011 2012 2013 2014
2868 2937 3174 4204 4096
  • Group EEV operating profit in 2014 increased by 4 per cent on a constant exchange rate basis (decreased 3 per cent on an actual exchange rate basis), compared to 2013, reflecting higher new business profits and higher contributions from the in-force business.

Group free surplus generation4 (£m)

Free surplus generation is used to measure the internal cash generation of our business units. For insurance operations it represents amounts maturing from the in-force business during the period less investment in new business and excludes other non-operating items. For asset management it equates to post-tax IFRS operating profit for the period.

arrow going upwardsCAGR
+11%
2010 2011 2012 2013 2014
1687 1982 2080 2462 2579
  • Underlying free surplus in 2014 increased by 9 per cent, on a constant exchange rate basis (5 per cent on an actual exchange rate basis), compared to 2013, driven by growth of the in-force portfolio, and continued discipline in the investments made to support new business growth.

Business unit remittances (£m)

Remittances measure the cash transferred from business units to the Group. Cash flows across the Group reflect our aim of achieving a balance between ensuring sufficient net remittances from business units to cover the dividend (after corporate costs) and the use of cash for reinvestment in profitable opportunities available to the Group.

arrow going upwardsCAGR
+12%
2010 2011 2012 2013 2014
935 1105 1200 1341 1482
  • Business unit remittances increased by 11 per cent in 2014, compared to 2013, with higher contributions from the US and M&G.

IGD capital surplus before final dividend5 (£bn)

Prudential is subject to the capital adequacy requirements of the European Union IGD as implemented by the Prudential Regulation Authority in the UK. The IGD capital surplus represents the aggregated surplus capital (on a Prudential Regulation Authority consistent basis) of the Group’s regulated subsidiaries less the Group’s borrowings6. No diversification benefit is recognised.

2010 2011 2012 2013 2014
4.3 4.0 5.1 5.1 4.7
  • We operate with a strong solvency position, with our estimated IGD capital surplus after funding the fees paid for renewing our exclusive distribution agreement with Standard Chartered Bank until 2029 and before final dividend covering the capital requirements 2.4 times.

Read more: Chief Financial Officer's report on our 2014 financial performance

2017 objectives7

We are making solid progress towards these objectives.

Download as excel file

  Reported actuals Objectives7
Asia objectives 2012 £m9 2013 £m 2014 £m 2017
Asia life and asset management IFRS operating profit 924 1,075 1,140 >£1,858m
Asia underlying free surplus generation8 484 573 592 £0.9 – £1.1bn

Download as excel file

Notes

  1. The comparative results shown above have been prepared using actual exchange rates (AER) basis except where otherwise stated. Comparative results on a constant exchange rate (CER) basis are also shown in financial tables in the Chief Financial Officers’ report on our 2014 financial performance. CAGRis Compound Annual Growth Rate.
  2. The basis of IFRS operating profit based on longer-term investment returns is discussed in note B1.3 of the IFRS financial statements. The IFRS profit before tax attributable to shareholders have been prepared in accordance with the accounting policies discussed in note A of the IFRS financial statements.
  3. The EEV basis results have been prepared in accordance with the EEV principles discussed in note 1 of EEV basis supplementary information. The 2014 EEV results of the Group are presented on a post-tax basis, and accordingly, prior years’ results are shown on a comparable basis.
  4. Free surplus generation represents ‘underlying free surplus’ based on operating movements, including the general insurance commission earned during the period and excludes market movements, foreign exchange, capital movements, shareholders’ other income and expenditure and centrally arising restructuring and Solvency II implementation costs. In addition, following its reclassification as held for sale, operating results exclude the result of the Japan Life insurance business.
  5. Estimated.
  6. Excludes subordinated debt issues that qualify as capital.
  7. The objectives assume exchange rates at December 2013 and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the half year ended 30 June 2013, and are based on regulatory and solvency regimes applicable across the Group at the time the objectives were set. The objectives assume that the existing EEV, IFRS and Free Surplus methodology at December 2013 will be applicable over the period.
  8. Underlying free surplus generated comprises underlying free surplus generated from long-term business (net of investment in new business) and that generated from asset management operations. The 2012 comparative is based on the retrospective application of new and amended accounting standards and excludes the one-off gain of £51 million from the sale of the Group’s holdings in China Life Insurance Company in Taiwan.
  9. Asia 2012 IFRS operating profit of £924 million is based on the retrospective application of new and amended accounting standards, and excludes the one-off gain of £51 million from the sale of the Group’s holdings in China Life Insurance Company in Taiwan.
      Actual Objective
Group objective for cumulative period 1 January 2014 to 31 December 2017     1 Jan 2014
to 31 Dec 2014
1 Jan 2014 to
31 Dec 2017
Cumulative Group underlying free surplus generation from 2014 onwards     £2.6bn > £10bn

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