13 Dec 2005

Prudential plc - Further detail on 2004 European Embedded Value Results previously published 2 June 2005

Prudential plc publishes today its 2004 embedded value financial information restated from the Achieved Profits Basis to European Embedded Value (EEV) Principles, and also for the effects of International Financial Reporting Standards (IFRS) and other accounting policy changes implemented earlier in the year. The Group’s underlying capital strength, cashflow and dividend policy are not affected by the adoption of either EEV or IFRS. Today’s disclosure provides further detail to that given on 2 June 2005, and reflects certain minor revisions to the methodology used.

Prudential believes that the EEV methodology represents an improvement over the various embedded value reporting methods previously used across Europe and supports its introduction. Prudential re-iterates its belief that embedded value reporting provides investors with a more informed measure of the underlying profitability of the Group’s long-term businesses and is an important supplement to statutory accounts.

As a member of the CFO Forum Prudential will adopt European Embedded Value Principles for its 2005 year end results. This will replace the Achieved Profit basis, the current supplementary basis of reporting. The adoption by Prudential of the EEV methodology, together with IFRS, results in a 2% reduction in the Group’s total shareholders’ funds to £8.6bn and an uplift of 8% in the value of new business for the year ending 31 December 2004 to £741m.

The main impact on the results arises from the effect of changes to the assumed level of locked-in capital allocated to each business, the adoption of product-specific risk discount rates, and an explicit valuation of the time value of options and guarantees.

Highlights of the results on an EEV basis are shown below.

EEV basis3
2004
£m
AP basis
Restated3
2004
£m
New Business Profits 741 688
New Business Margin1 40% 37%
New Business Margin2 5% -
Long–term Business Operating Profit Before Tax 1,328 1,249
Total Operating Profit Before Tax 1,274 1,239
Total EEV Shareholders’ Funds 8,615 8,762
  1. EEV and AP basis profits expressed as a percentage of annual premium equivalent (APE) of insurance sales.
  2. EEV basis profits expressed as a percentage of the present value of new business premiums.
  3. Both the AP and EEV bases include the effects of IFRS and other accounting policy changes implemented earlier in the year.

ENDS

Enquiries
Media Investors/Analysts
Jon Bunn 020 7548 3559 James Matthews 020 7548 3561
Joanne Davidson 020 7548 3708 Marina Novis 020 7548 3511
William Baldwin-Charles 020 7548 3719

Prudential plc, a company incorporated and with its principal place of business in the United Kingdom, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world. It has been in existence for over 150 years and has £187bn in assets under management, as at 31 December 2004. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America.

Forward-Looking Statements

This statement may contain certain “forward-looking statements” with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words “believes”, “intends”, “expects”, “plans”, “seeks” and “anticipates”, and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Prudential's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Prudential's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Prudential's forward-looking statements. Prudential undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make.

Note:

(1) CFO Forum

The CFO Forum is a high-level discussion group formed and attended by the Chief Financial Officers of major European listed, and some non-listed, insurance companies. Its aim is to discuss issues relating to proposed new accounting regulations for their businesses and how they can create greater transparency for investors. The Forum was created in 2002. For more information go to www.cfoforum.nl.

(2) Revisions to methodology
LT business
operating profit
before tax
Total operating
profit before tax
EEV
shareholders'
funds
EEV basis as published on 2 June 2005 before accounting
policy changes
£1,238m £1,212m £8,481m
Accounting policy changes as published on 2 June 20051 £101m £95m £166m
EEV basis reflecting accounting policy changes £1,339m £1,307m £8,647m
Revisions to methodology:
Reclassification of Asia profits2 £(11)m £(11)m
Intra-group adjustment3 £(22)m
Mark to market value of JNL surplus note borrowings4 £(32)m
EEV basis as published on 13 December 2005 £1,328m £1,274m £8,615m
  1. The accounting policy changes for operating profits primarily reflect the discretionary change of accounting policy for longer term returns as published on 2 June 2005. The £166m reflects the impact of IFRS changes as published on 2 June 2005.
  2. Reflects a reclassification of profits from operating to non-operating profits with no effect on shareholders’ funds.
  3. The intra-group adjustment is made to deduct profits for internal fund management business in respect of covered long-term business.
  4. 4 This reflects the mark to market value on JNL surplus note borrowings.

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).