![]() HK STOCK CODE: 2378 ## We do life #### Prudential plc Annual Report 2021 ![]() #### Our purpose #### We help people get #### the most out of life #### Our operations #### Why we exist #### Our markets in Asia and Africa #### typically have substantial savings and protection gaps, fuelling demand for life and #### savings products. #### The dierence we make #### We help people get the most #### out of life, by making healthcare aordable and accessible and #### by promoting financial inclusion. We protect people’s wealth, help them grow their assets, #### and empower them to save #### for their goals. #### Where we’re headed #### We are confident that our clear #### and focused strategy, coupled #### with our proven execution #### ability, leaves us well placed #### to continue to deliver value #### for our shareholders and all our #### stakeholders over the long term. Find out more Visit www.prudentialplc.com to find out more about Prudential plc. #### READ #### MORE 6-145 #### READ #### MORE 14 ![]() #### Contents 02Group overview 02Chair’s statement 04Our investment case 06Strategic report 08Our business at a glance 10Our strategy 12Our businessmodel 14Strategic and operating review 28Key performance indicators 30Financial review 44Risk review 66ESG report 137Non-financial information statement 138UK Companies Act, Section 172 Statement 146 Governance 148Chair’s introduction 150Our leadership 156CorporateGovernance 158How we operate 167Risk management and internal control 169Committee reports 191Statutory and regulatory disclosures 193Index to principal Directors’report disclosures 194Directors’ remuneration report 196Annual statement from the Chairman of theRemunerationCommittee 201Our Executive Directors’ remuneration at a glance 202Summary of the current Directors’ remuneration policy 204Annual report on remuneration 230Additional remunerationdisclosures 234Financial statements 332 Eu ropean Embedded Value (EEV) basis results 360 Add itionalinformation 362Index to the additional unaudited financial information 382Risk factors 396 Glossary 400Shareholder information 403How to contact us #### Our financial #### performance The Directors’ Report of Prudential plc for the year ended 31 December 2021 is set out on pages 2 to 3, 148 to 193 and 362 to 403, and includes the sections of the Annual Report referred to in these pages. #### Our risk #### profile #### READ #### MORE 30 #### READ #### MORE 44 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 01 ![]() It has been a historic year for Prudential. During 2021, we completed thestrategicre-positioningof our business to focus solely on the growth opportunitiesinAsia and Africa. Despite the dicult conditions created by the Covid-19 pandemic, we h ave continued to deliver for our customers and all our stakeholders, producing aresilient financial performance. Closed borders and lockdowns through the year have presented significant challenges to our management andemployees, which makes the quality of their delivery over the year all the more extraordinary. In February 2022 we announced that our Group Chief Executive, Mike Wells, would be retiring from his role at the end of March. I w ould l ike to thank Mike for his outstanding contribution to Prudential over the last 26 years, and particularly as CEO for the last seven years. He has led the G roup through one of the most significant periods of change in its 174-year history, while steering it through the unprecedented events of t he pandemic. The Board and I wish him every success in the future. Given Prudential’s now-exclusive focus on Asia and Africa, the Board has decided that the roles of the Group CEO and the Group CFO will be based in Asia, where Prudential’s largest businesses, the Group regulator and the rest of the senior management team are located. With the strategic re-positioning of the Group complete, we can now take the next steps in the simplification of our management and operational model. We have a depth of talent and experience in the executive team u nder whose leadership the Group will continue to deliver on its strategy. I am delighted that Mark FitzPatrick is taking on the role of interim Group CEO and continuing as COO when Mike steps down, as we conduct a search for a Group CEO. And I am delighted that James Turner, currently our Group Chief Risk and Compliance Ocer, will become Group Chief Financial Ocer. For further details, please see the a nnouncement madeon 10 February 2022. Prudential’s milestones in 2021 have been achieved due to the remarkable eorts of our people, who have maintained their dedication to serving our customers in the face of the many diculties created by Covid-19. We sadly lost 52 sta and agents during the year to Covid-19 and our thoughts are with their families, friends and colleagues. We have taken steps throughout the year to support the emotional, mental and financial wellbeingof our people acrossthe Group through these challenging times. Over the long term, we see that our markets have the capacity for superior growth and favourable dynamics, and that our strategy is a ligned with public policy objectives. By applying our strengths and deployingthem in ourhigh-growth businesses, we believe we can d eliver a distinctive shareholder proposition. In the immediate term, shareholders alsobenefited from thedividend payable in cash in r espect of 2021 of 17.23 cents p er share (2020: 16.10 cents per share), in line with our stated dividend policy. We strive to support our customers by making healthcare aordable and accessible and by promoting financial inclusion. We w ork to protect our customers’ wealth, help them grow their assets, and e mpower them to save for their goals. We also seek to assist in the process of a just and inclusive carbon transition that understands and meets the needs of emerging and developing economies. As a significant asset manager and asset owner in regions forecast to be severely impacted by climate change, Prudential has a distinctive role to play in the inclusive transition to a low-carbon economy. During 2021 we a nnounced plans to decarbonise our portfolio of assets 1 held o n behalf of our insurance companies, with a goal of becoming net zero by 2050. Strategic re-positioning During 2021 wecompleted the demerger of our US business, Jackson. The markets for the industry in the US have been extremely dicult in t he recent period. We appreciate that the short-term valuation outcomes of this important step may have been disappointing for some longstanding shareholders, but we believe thatthe demerger was the right decision for Prudential in the long term, enabling the business to focus exclusively on and generate value from the opportunities in Asia and Africa. The long history of this company has been one of change, and the Jackson demerger has shown that we remain prepared to make dicult decisionsin the long-term interest ofthe business, including reducing our footprint and becoming more focused to create value for shareholders. I wishour formercolleagues in the US well. Following the demerger of Jackson, in 2021 we took further structural steps in our strategic transformation, conducting a successful equity raise in Hong Kong and a debt redemption. These have been executed during a period of extraordinary market volatility and, given these conditions, we expect it will take time for full value to be generated from what we h ave achieved. The war in Ukraine and associated acute geopolitical tensions, together with the ongoing challenge from Covid-19 and its eects, mean that theenvironment remains highly uncertain. However, the underlying structural driver of our business –the need forhealth and protection provision in Asia and Africa – remains strong, and has in fact been reinforced by the pandemic. We are well positioned in markets where theneed for our products is clear, we are continually innovating with our products and we have amulti-channel distribution network that ensures that we can deliver for our customers across our markets. #### Chair’s statement Prudential plc Annual Report 2021prudentialplc.com 02 ![]() The skill sets of our operational leadership at a market and segment levelhave been complemented in 2021 by the addition of specialist experience in Shariaand technology, as wellas distribution. Our structural transformation, our digital developmentand the quality of ourpeople enable us to continue to meet our customers’ needs and p rovide value for our shareholders. Purpose and ESG The success of our business is inextricably linked to our purpose. As well as informing the products we deliver, how we deliver them and how we support our customers, this purpose can be seen through our progress in embedded Environmental, Social and Governance (ESG) matters in our strategy. During 2021, we increased our focus on ESG and made s ignificant progress in delivering across all aspects of our ESG framework. The Board has devoted more time to this topic and to other people matters, including by establishing a Board Responsibility and Sustainability Working Group (RSWG) chaired by Alice Schroeder, which has overseen our work on theenvironment, communities, diversity, inclusion, people andculture, theembedding of ourESG framework and the enhancement of disclosures for 2021. You can read about the activities of the Working Group on page 69 and some highlights are provided below. You can find our full ESG Report on page 66. Our people Our successful transformation and ourperformance have been made p ossible by the remarkable work of our people, and I would like to thank them for their dedication. During 2021 we continued to t ake steps to ensure the wellbeing of our people in the face of the disruption caused by Covid-19. We created a framework with all our local businesses todefine how we ensure we look after our employees, physically, financially, socially and mentally, developingGroup-wide programmes supplemented bylocal initiatives. We increased our focus on mental health, raising awareness, providing preventive care, oering protection and building sustainability through support and connection in the workplace. We continue to develop our wellbeing approach in the context of the rapid transition to hybrid ways of working. We also took steps during the year to continue to improve diversity and inclusion(D&I) among ourcolleagues. Our diversity figures improved in 2021, but we recognise that we have more to do and have established a number of new initiatives in this area. Our Global D&I Council is responsible for defining our global D&I strategy, supporting programmes and promoting D&I initiatives across our markets, as well as challenging the organisation when progress is limited. We extended our sta engagement across thebusiness through global engagement surveys, global town hall meetingsand our second Group-wide Collaboration Jam, a three-day inclusiveonline conversation where colleagues could connect and co-createsolutions for the issues that matter most to them. We acted on feedback from colleagues in a numberof areas, improving our performance on open and honest two-way communication, enablingemployees toreport concerns without fear, taking steps toprevent our people feeling overstressed by work, and taking action when individuals are not performing in their roles. Our overall levelof colleague engagement continues to improve, with our engagement score being ahead of the median score for all industries globally. Our first Collaboration Jam in 2020 helped us to define our new values of beingambitious, curious, empathetic, courageous and nimble, and these values are now embedded in our approach to feedback and r eward, and the ways in which we work across the Group. Along w ith my fellow Non-executive Directors, I have had the opportunity through joining town halls and small-group sessions with future leaders within the Group to see first-hand how these values are being embedded in ourbusiness. Ithas been frustrating during2021 not to b e able to visit as many of our locations and meet as many of our people as we wouldhave liked, and hopefullytravel restrictions will b e e ased during 2022 to allow us to do so much more frequently. Our communities We have continued to serve the communities in which we work, to try and make a dierence where it is most needed, particularly in the face of the challenges created by Covid-19. We have innovated in our products to meet the changing needs of customers, developed our distribution platform to make our products more easily available to the customers who need them, including through digital access, and provided direct contributions to those communities to help deal with the impact of the pandemic. Following on from the success of our Covid-19 Relief Fund in 2020, last year we launched a new dedicated fund to continue to support communities struggling with the pandemic. Administered bythe Prudence Foundation,our community investment arm, the fund was u sed by local businesses to focus on supporting vulnerable communities with eorts that include Covid-19 messaging, hygiene and sanitation, nutrition and educational programmes. Alongside thissupport, the Prudence Foundation continued its important work focusing on promoting financial literacy, supporting early childhood care anddevelopment, and delivering education and awareness on c limate and disaster risk preparedness, road safety and first aid. The Board We have made a number of changes to the Board to align with and s upport the shape and direction of the Group. In January 2022, George Sartorel joined us, and this appointment, together with our appointments in 2021 of Chua Sock Koong, Ming Lu and Jeanette Wong, represents the addition of deep operational experience in Asia and digital knowledge. As part of that evolution, Anthony Nightingale, who has been Chair of the Remuneration Committee since 2015, and A lice Schroeder, Chair of the RSWG, will be leaving the Board at our 2022 Annual General Meeting, while FieldsWicker-Miurinleft the Board at the end of 2021. I w ould like to thank Anthony, Alice and Fields for their invaluable contributions to the business. The composition of the Board will continue to change, and we continue to seek suitable candidates with skills and depth of experience in our markets and with an increased focus on digital capabilities. I look forward to working with my fellow Board members and our colleagues across the Group as the re-shaped and re-focused Prudential continues to develop, grow and deliver. Shriti Vadera Chair of the Board Note 1Our investment portfolio includes both listed equities and corporate bonds, while excluding assets held by joint venture businesses and assets in unit-linked funds as we do not have full authority to change the investment strategies of these. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 03 ![]() #### Our investment case #### What we oer investors Notes 1Source: Swiss Re Institute: The health protection gap in Asia, October 2018. 2Prudential estimate based on number of in-force policies overtotalpopulation. 3Source: Health and Diseases in Africa, October 2017 (nih.gov). 4Source: World Health Organisation: Global Health Observatory data (2019). South-East Asia, Out-of-pocket expenditureas percentageof currenthealth expenditure (CHE). #### Prudential has a #### high quality, diversified portfolio inAsiaandAfrica, #### supported by a leading #### multi-channel distribution platform which leads us to #### be well placed to continue #### to deliver value for our #### shareholders and all #### our stakeholders. #### Our long-term opportunities > Ourmarkets #### have favourable #### demographics > Ourmarkets have superior #### economic growth > Our strategy is #### aligned with public #### policy objectives There are substantial and unmet consumer needs in our markets that are set to continue in the long term, and provide significant opportunity for growth and value creation. Asia’s health and protection gap is estimated at $ 1.8 #### trillion 1 80 % of the Asian population has no insurance cover 2 , and 39 % of health and protection spend is paid out-of-pocket 4 Less than 50 % of people in Africa have access to modern health facilities 3 Prudential plc Annual Report 2021prudentialplc.com 04 ![]() #### Applying our strengths #### Our businesses are #### diversified across Asia #### and Africa, with a health #### and protection focus READ MORE PAGES 14 TO 27 #### Our modern multi-channel #### distribution platform #### includes agents, banks #### and digital READ MORE PAGES 14 TO 27 We oer adaptable, #### consumer-centric products #### including on the Pulse #### digital platform READ MORE PAGE 17 #### Our leading Asia-based asset manager, Eastspring, #### has $258.5bn assets #### under management READ MORE PAGE 26 #### We have disciplined #### capital allocation READ MORE PAGE 18 #### Delivering a distinctive shareholder proposition We believe that our strategy and execution ability w ill help support our ambition to achieve the following: #### Ambition for growth rates of new #### business profit to substantially #### exceed GDP growth in the markets #### in which Prudential operates #### Ambition to fund further profitable #### compounding growth and high #### risk-adjusted returns for shareholders #### Ambition for long-term double-digit #### growth in embedded value per share Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 05 ![]() ## Strategic ## report Prudential plc Annual Report 2021prudentialplc.com 06 ![]() #### Contents 08Our business at a glance 10Our strategy 12Our business model 14Strategic and operating review 28Key performance indicators 30Financial review 44Risk review 66ESG report 137Non-financial informationstatement 138UK Companies Act, Section 172 Statement Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 07 ![]() #### Our business at a glance #### Our markets In Asia, we provide savings and protection in markets challenged by low insurance penetration and a pension fundinggap 1 . In Africa,we are building businesses in #### some of the world’s most under-penetrated markets. Our markets Life insurance Asset management KENYA CÔTE D’IVOIRE TOGO CAMEROON GHANA UGANDA ZAMBIA NIGERIA SINGAPORE INDONESIA MAINLAND CHINA INDIA MALAYSIA HONG KONG THAILAND VIETNAM LAOS MYANMAR PHILIPPINES CAMBODIA JAPAN KOREA TAIWAN Prudential plc Annual Report 2021prudentialplc.com 08 ![]() Our largest life insurance businesses are based in Mainland China, Hong Kong, Indonesia, Malaysia and Singapore and we have life businesses in a number of other growing economies in South-east Asia and Africa. We see our greatest opportunities in Mainland China, India, Indonesia and Thailand. Eastspring, our asset management business, is based in 11 locations throughout Asia. Our markets Population 2 Life insurance penetration 3 Prudential market ranking 4 Eastspring funds under management 5 MainlandChina 1.4bn 2.4% 3rd $12.4bn Hong Kong 7m 19.2% 2nd $5.5bn Indonesia 274m 1.4% 2nd $4.9bn Malaysia 32m 4.0% 1st $13.8bn Singapore 6m 7.6% 3rd $150.3bn India 1.4bn 3.2% 3rd $30.9bn Taiwan 24m 14.0% 9th $5.3bn Vietnam 97m 1.6% 2nd $6.6bn Laos 7m 0.0% 3rd n/a Philippines 110m 1.2% 1st n/a Cambodia 17m 0.6% 2nd n/a Thailand 70m 3.4% 6th $12.7bn Myanmar 54m 0.0% 2nd n/a Japan $3.3bn Korea $12.0bn Population of Prudential markets 6 Number of Prudential markets Africa 416m 8 FIND OUT MORE IN THE STRATEGIC AND OPERATING REVIEW ON PAGE 14 Notes 1Bridging Asia’s pension gap Eastspring Investments July 2019. 2United Nations, Department of Economic andSocial Aairs,Population Division, World Population Prospects 2019Revision (2020estimates). 3Source: Swiss Re Institute; Sigma No 3/2021: World insurance – life insurance penetration (premiums as a percentage of GDP in 2020). 4Sources: Mainland China (Based on new business standard premiums for 2021 of the foreign joint ventures only, data from industry sharing of information), Hong Kong (Based on weighted total premiums for the first nine months in 2021 – provisional statistics, from Hong Kong Insurance Authority), Indonesia (Based on weighted new premiums for 2021, data from Indonesian Life Insurance Association), Malaysia (Based on new business APE, data from Life Insurance Association of Malaysia and Insurance Service Malaysia Berhad), Singapore (Based on weighted new business premiums reported within Singapore Life Insurance Association returns for 2021), India (Based on retail weighted premium for the calendar year 2021 of private insurers operating in India), Taiwan (Based on full year 2021 APE data from Taiwan Insurance Institute), Vietnam (Based on full year 2021 APE data collected from data sharing by Vietnam Actuarial Network), Laos (Axco industry report, Oct 2021, based on 2019 premiums data), the Philippines (Based on weighted first year premiums for the first nine months in 2021, data from Insurance Commission), Cambodia (Based on full year 2021 adjusted APE, from Insurance Association of Cambodia), Thailand (Based on weighted new business premium for 2021, from The Thai Life Assurance Association), Myanmar (Based on new business premium for the year October 2020 to September 2021 for the foreign insurers operating in Myanmar, from Myanmar Insurance Association). 5Full year 2021 total funds under management, including external funds under management, money market funds, funds managed on behalf of M&G plc and internal funds under management, reported based on the country where the funds are managed. Eastspring has additional FUM outside these markets. 6Population as at 2020 source: IMF WEO. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 09 ![]() #### Our strategy #### How we drive value for all stakeholders #### Delivering #### profitable #### growth #### andsocial #### impact Q #### What’s driving #### our business today? A #### Our Purpose is to help peopleget the most out of life: We want tomakehealthcare aordable and accessible, and promote financial inclusion. We seek to protect people’s wealth, and help them to grow their assets and save for their goals. #### Our Principles underpin #### our business approach > We put customers first > We act with integrity > We embrace a growth mindset > We invest in all our communities > We take the long view Q #### What is our strategy? A #### Our strategy consists of three key themes: SEE OUR STRATEGIC AND OPERATING REVIEW PAGE 14 SEE OUR ESG STRATEGY PAGE 71 #### Delivering Growinghealth and protection business by providing access to aordable health — Focusing on the growth opportunities in China, India, Indonesiaand Thailand — Positioning Eastspring to lead in Asia and drive the ESG agenda #### Digitalising Making it easy for customers to buy – repeatedly — Expanding data-driven knowledge of our customers — Improving health and wealth outcomes for our customers #### Humanising Upskilling our people, agents and partner advisors — Providing inclusive oerings for all segments — Loweringthe threshold for wealth services Prudential plc Annual Report 2021prudentialplc.com 10 ![]() #### Digitalising products, servicesand #### experiences #### Humanising #### our company #### and advice #### channels Q #### How do #### weapproach #### Executive reward? A #### We explicitly link #### Executive Directors’ #### Remuneration to strategic delivery: Performance conditions of the Executive Directors’ Prudential Long Term Incentive Plan (PLTIP) for 2022 include: New business profit 45 % of the financial performance c onditions Return on embedded value 30 % of total award ESG metrics constitute 10 % of total 2022 Executive Director’s Prudential LongTerm Incentive Plan (PLTIP)award, including 5 per cent linked to the carbon reductiontarget announced in May 2021. ESGpriorities and commitments are also reflected in the personal andstrategic component ofExecutive Directors AnnualIncentive Plan (AIP). SEE OUR REMUNERATION REPORT PAGE 194 Q #### What outcomes #### do we want to see #### as a result? A #### Our long-term #### performance aspirationsare: Grow the #### value of our business for shareholders Develop capacity to serve 50 m customers by 2025 Assets we hold on behalf of our insurance companies will become #### ‘net zero’ by 2050 SEE OUR KEY PERFORMANCE INDICATORS PAGE 28 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 11 ![]() Our extensive multi-channel distribution enables us to better understand and service customers’ financial needs. Pulse by Prudential is a free digital mobile application which is improving our customer engagementand reach. READ MORE 14 TO 27 Our focus on regular premium health and protection and asset management services helps us grow our revenues over time as we add new customers and increase the savings of our existingones. READ MORE 14 TO 27 We have top three positions in 11 out of 13 life markets in Asia , and Eastspring is a top-10 asset manager in six of 11markets. We operate in eight countries in Africa , where we have built arapidly-growing multi-product business since our entry in 2014. We are the market leaders of Sharia business in Indonesia andMalaysia . READ MORE 14 TO 27 #### Our business model #### How we #### create #### value We oer insurance and asset management products, focusing on the markets where we believe there is rising demand for savings and protection oerings. By tailoring our products to the needs of customers in these markets we believe we have a significant opportunity for growth and value creation. Our purpose and function The stages in our Business model Key resources and relationships we employ… ... and what dierentiates us Underpinned by our core behaviours #### We help people get the most out of life... #### Engage with customers #### and potential customers #### Meet customer needs #### in our selected markets #### Markets We operate in markets with low insurance penetration with a growing need for health, protection and savings products. In these markets we seek, through discussions with governments, regulators, partners and customers, to address the social requirements forinsuranceand asset management solutions. #### Products We focus on providing regular premium health and protection business alongside feeearning asset management services. We develop our products to reach new customers and to make our products more inclusive. #### Distribution #### and digitalisation Our health, savings and protection products are distributed through our extensive agent network, banks and digital partnerships. Our asset management products are distributed tothird-party institutions and retail clients. We are working to digitalise our products, services and experiences to increase customer engagement. Operating with discipline Risk management and disciplined allocation of capital underpin our activities, while our governance, processes and controls enable us to deal eectively with uncertainty. READ MORE 44 TO 63 Building sustainable business We build sustainable businesses and invest responsibly, seeking to integrate environmental, social and governance considerations into our investment processes and stewardship activities. READ MORE 66 TO 136 Prudential plc Annual Report 2021prudentialplc.com 12 ![]() Eastspring is one of the largest pan-Asian asset managers and benefits from the structural advantages of predictable inflows from the Group’s life business . READ MORE 26 We seek to protect the value of our business over the longer term through meeting customer expectations and disciplined risk management and increase value by adding new customers. READ MORE 14 TO 27 AND 30 TO 43 #### by helping our customers protect their wealth and save for their goals. #### Meet customer #### expectations #### Generate benefits #### for our stakeholders #### Customer service #### and loyalty We have high customer loyalty, with a retention ratio consistently in excess of 89 per cent 2 . The satisfaction and trust our customers have in our business translates into a high proportion of repeat sales. #### Integrated asset #### management WeleverageEastspring’s expertise in equity, bonds and multi-asset management tounderpin our insurance products, as well as oering products direct to third-party institutions and retail clients. Engaging ourstakeholders We engage with our stakeholder groups closely and take account of their concerns in our decision-making. READ MORE 138 TO 145 #### The value we create #### for our stakeholders Customers We aim to provide accessible healthcare solutions as well as empowering ourcustomers to save for their goals. During the year we paid out 3 over $ 8.8 bn to our customers in respect of the long-term insurance products they hold with us Our people We provide an inclusive working environment wherewe develop talent,reward performance, protect our people and value our dierences. 14,486 employees 1 Regulators We work with regulators to understand their objectives, priorities andconcerns, and how they aect the shape of ourbusiness. $ 13.2 bn GWS shareholder surplus Investors Our Asia and Africa-focused strategy will support long-term delivery of future shareholder returns through value appreciation anddividends. EEV $ 47.4 bn Government and wider society We regard governments and legislatures in the markets in which we operate as important stakeholders. We support our wider communitiesthrough investment in business and infrastructure, paying tax and community support activity. $ 5.9 m direct cash donations to charitable organisations Suppliers We treat our suppliers fairly so weboth mutuallybenefit from our relationship. Notes 1Whole Group FullTime Equivalent Including Chair, all Directors, GEC members, SeniorManagers, excluding joint ventures. 2Excluding India, Laos, Myanmar and Africa. 3Claims paid gross of reinsurance, see note C3.2(i) to the IFRS financial statements for more details. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 13 ![]() #### Strategic and operating review #### Re-positioned the Group into an #### Asiaand Africa-focused business During 2021 we completed the planned strategic re-positioning of ourbusiness, while at the same time delivering a resilient financial performance, despite the challenges posed by the continuing Covid-19 pandemic. Prudential plc Annual Report 2021prudentialplc.com 14 ![]() Over the course of the year, we completed the reshaping of our business into one focused entirely on thelong-term opportunities we have identified in Asia and Africa. In the fourth quarter, we carried out a successful $2.4 billion 1 equity raise in Hong Kong. In December 2021 and January 2022 cash from this issuance was deployed in deleveraging our balance sheet ina $2.25 billion debt redemption programme. These actions, together with the associated reduction in interest costs, have enhanced our financial flexibility in light of the breadth of opportunities to invest for growth in Asia and Africa. In 2021, despite ongoing disruption, our digitally-enabled, multi- channel and geographicallydiversified platform delivered 8 percent growth 2 in APE sales 3 (10 per cent on an actual exchange rate basis). Sales in Hong Kong continued to be constrained by the ongoing closure of the border with Mainland China. However, excluding Hong K ong, APE sales were 16 per cent 2 higher (19 per cent on an actual exchange rate basis). Eight markets in Asia and our Africa business saw double-digit growth includingMainland China, India, Malaysia, the Philippines, Singapore and Thailand. The increase in APE sales, combined with an improvement in new business margins given a favourable shift in business mix, resulted in a 13 per cent 2 increase in Groupnew business profit 4 . Business mix saw a shift into more profitable shareholder-backed business, particularly in Hong Kong. Our adjusted IFRS operating profit based on longer-term investment returns (adjusted operatingprofit 5 ) for 2021 from our continuing operations increased by 16 per cent on a constant exchange rate basis (17 per cent on an actual exchange rate basis), reflecting the geographic, product and distribution channel diversification of our Asia and Africa-focused business model. The to tal IFRS loss after tax for 2021 was $(2,813) million (2020: $2,231 million profit after tax on a constant exchange rate basis, $2,185 million profit after tax on an actual exchange rate basis), which comprised a $2,214 million profit after tax from continuing operations (2020: $2,514 million profit after tax on a constant exchange rate basis, $2,468 million profit after tax on an actual exchange rate basis) and a $(5,027) million loss after tax from discontinued operations (2020: $(283) million loss after tax on a constant and actual exchange rate basis). This loss from discontinued operations is due to the write-down of Jackson to its fair value upon demerger, as required by accounting standards. The Group’s financial performance for the year is further discussed in the Financial Review later in this strategic report. The Covid-19 pandemic has had an ongoing impact on the markets in which we operate and the lives of our customers, and has caused continuing personal and working challenges forall our colleagues. Our people have not only risen to the challenges posed by Covid-19, but have also continued to deliver to the highest standards for our customers and our business. Our purpose is to help people get the most out of life, and both our strategic steps and our service to our customers are enabling us to fulfil that purpose. Our strategy of focusing on our markets in Asia and A frica enables us to devote our resources to serving customers in markets where there are substantial growth opportunities and to be a ligned with broader public policy and societal needs. Our range of products, our digitally-enabled multi-channel distribution and the dynamic capabilities of our operations mean that not only can we seek to meet those needs but also to help prevent, postpone and protect customers from threats to their health and wellbeing, as well as support them to achieve their savings goals. Alongside our key strategic steps, during 2021 we supported our key stakeholders in many dierent ways, particularly in the face of the challenges created by Covid-19. For our customers, we have developed and tailored our range of products, in particular in health and protection, to allow these products to be suitable for a wider range of i ncome groups such as through our ‘bite-sized’ insurance products. These are already oered in a number of markets including Malaysia, the Philippines, Cambodia and Vietnam, and are designed to cater for the specific needs of under-insured consumers andfirst-time buyers. For our agents, we have delivered significant training and productivity tools, enabling them to continue to retain client contact and accelerate the lead referral process. For our employees, we have paid salaries and wages of $1.0 billion in the year 6 , as well as providing significantsupport in terms of wellness, flexible working and helping them to manage their mental health. We have recognised the eorts that our sta have made during the year and have granted $1,000 of Prudential shares to each full-time employee. For our regulators, we h ave participated in multipleengagements on industry developments including enhanced risk management, monitoring customer outcomes and risk-based capital. The Group continues to make significant tax contributions in the jurisdictions in which it operates, with more than $1 billion remitted to tax authorities in 2021. We have funds under management of$258.5 billion 7 and are significant investors in Asia and Africa economies. In the near term, our corporate activity is expected to include the reduction of our stake in Jackson to less than 10 per cent and the securing of additional central cost savings of $70 million 8 from the start of 2023. We will continue to ensure our central functions remain resilient and compliant. We are ending this historic year of change and development ideally positioned to take advantage of the opportunities in our chosen markets. Through our continually improving range of products, our w ide-ranging, digitally-enabled multi-channel distribution and our execution capabilities, we are well placed to continue to build for o ur customers across our markets well into the future. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 15 #### Group strategy Our strategy is aligned with the supportive structural trends in Asia and Africa. Despite the rapid rise in prosperity in Asia, people still have low levels of insurance cover, with 39 per cent of health and protection spend still paidout-of-pocket 9 , and an estimated 80 per cent of the population of Asia still without insurancecover 10 . Combined with rising prosperity and ageing populations, this creates a large and growing health and protection gap that has been estimated at $1.8 trillion 11 . These long-term trends underpinrisingdemand for savingsand protection across both Asia and Africa, and create significant opportunity for growth andvalue creation. Bydelivering products and s ervices that are specific to consumer segments and markets, we are well positioned to meet the growing health, protection and long-term savings needs of customers in these geographies. We are developing the capacity to serve up to 50 million customers by 2025 through investing in our multi-channel distribution capabilities, applying digital capabilities to increase the eciency of our operations and introducing products and services that allow us to develop more diverse customer bases in our markets. We continue to invest in our people and systems to ensure we have the resources to deliver onour long-term growth strategyand to evolve our operating model to keep pace with our opportunities as an exclusively Asian and A frican business. We seek to achieve this by: > Del iveringprofitable growth in asocially responsibleway; > Digitalising our products, services and experiences; and > Hum anisingour companyand advice channels. We have significant investment appetite that is based on the absolute size and demographic characteristics of each economy and our ability to build competitiveadvantage, leveragingour scale and expertise. We will continue to build on our leading positions in Hong Kong and South-east Asia, and we see the greatest growth opportunities in the largest economies of China, India, Indonesia and Thailand. At the same time, we are continuing to develop our businesses in Africa, where our investment gives us exposure to a growing, under-served continent whose population is expected to double to more than two billion people by 2050 12 . Delivering the strategy Our strategy is pursued through providing a wide range of products which are then refined through continued innovation and iterative enhancements driven by customer needs. These products and services are thenoeredto those customers throughour multi-channel distribution suite of channels – agents, bancassurance, digital and other. Increasingly customers are seeking to interact with us through a c ombination of digital channels and in-person agents. We are adapting our capabilities to match customers’ preferences for engagement during both purchase and servicingof our policies. Ourproduct mix and multi-channel distribution capability have been t he key drivers of new business profitability and growth in embedded value. Our products are tailored to the developing requirements of local markets and the fast-changing needs of individual customers. Our focus is on health and protection and savings products, and in 2021 54 per cent of our new business profit was contributed by health and protection solutions, with the rest provided by savings products including participating, linked and other traditional products. We have responded to the changing needs of our customers by broadening coverage for new risks and adding innovative features to e xisting products. For example, during 2021, we introduced or enhanced more than 200 new products, including more than 90 digital and protection products. Further details are given below in the operational performance by market section. Our product and other initiatives helped attract over 2.5 million customers in 2021 who were not existingpolicyholders ofPrudential. This contributed to an increase in our total life customer base to 18.6 million (2020: 17.4 million excluding Jackson). New business policies sold to both new and existing customers rose to 3.9 million, an increase of 16 per cent over the prior year and included 109,000 polices which were sold direct to the consumer through digital systems, including Pulse.These new policies included 2.2 million health and protection cases, an increase of 41 per cent when compared with the prior year, reflecting our customers’ increased focus on this area in light of the pandemic. To ensure that customers have the best access to our products, we have a multi-channel and integrated distribution strategy that is able to adapt flexibly to changing local market conditions. We have an extensive distribution network encompassing agency,bancassurance and non-traditional partnerships, including digital. Our agency channel is a key component of our success, providing 65 per cent of our new business profit, given the high proportion of high-margin protection products sold through this channel. We have over 540,000 licenced tied agents 13 across our lifeinsurancemarkets. The productivity of our active agents increased by 3 per cent during 2021 13 , based on APE sales per active agent as we, and our customers, focus increasingly on standalone protection products. Newbusiness profit from the agency channel fell by (1) per cent 2 to$1,646 million in 2 021. Excluding Hong Kong the increase was 9 per cent 2 . Our continued support for our agency channel positions us well for sustainable growth. We have recruited circa 123,000 agents during theyear 13 and continue to move our recruitment, training and management of agents on-line. The use of virtual sales tools has enabled us to deliver 45 per cent of agency new cases in 2021 virtually,compared with 28 per cent from April to December in 2020, demonstrating our embeddingof these processes and building resilience for the future. Agent professionalism and career progression are extremely important to us, and we provide tailored training programmes that share our agents’ experience and best practice across dierent markets. Atthe same time, we continually upgrade the tools available to our agents to assist them during thesales process and enhance productivity. Agents that qualified for the Million Dollar Round Table (MDRT) award during 2021 contributed 40 per cent of APE sales in the relevant markets 14 in 2 021 (2020: 34 per cent 14 ). Strategic and operating review / continued Prudential plc Annual Report 2021prudentialplc.com 16 ![]() We have a leading bancassurance franchise, providing access to over26,000 bank branches through our strategic partnerships with over160 multinationalbanks andprominent domestic banks. 2021 saw new business profit through the bancassurancechannel increase by 56 per cent to $795 million. Sales made virtually accounted for around 30 per cent of n ew business cases made through the bancassurance channel in 2021 (2020: 27 per cent from July 2020). Alongside our agency and bancassurance channels, wealso have Pulse by Prudential, our digital platform and ecosystem.Our aspiration is that Pulse facilitates customer acquisition at scale, provides an enhanced customer experience and a cts as a platform for the business, with scope for delivering future operational eciency. Our pan-Asia asset manager, Eastspring, is one of the largest pan-Asia asset managers, managing $258.5 billion in assets across 11 markets in Asia 15 , and is a top-10 asset manager in six of those markets. We continue to diversify Eastspring’s product set and intend to accelerate its development as a leader in Asia by broadening its investment strategies and makingwealth services more accessible at lo wer levels of individual contributions. Eastspring is playing an important role in s upporting our commitment to carbon reduction in our insurance company asset portfolio, allowing us to deliver profitable growth alongside a positive social impact. Further details are set out in t he operational performance by market section. Pulse and our digital oerings Prudential’s Pulse digital platform is designed to connect with customers and potential customers on key elements in their lives, namely t heir health and wealth. As well as oering our own products it provides a number of other features to engage and support customers in this area. We work with partners to deliver these additional services and features and to date we have entered into 56 key digital partnerships. We continue to expand our collaboration with new partners helping us widen access to new customer segments and deepen our engagement withour users. Prudential’s widely recognised brand and Pulse’s geographically diverse platform means that we can attract and work with multiple ‘best-in-class’ partners across numerous fields of expertise and sectors. Pulse is active in 17 markets in Asia and Africa and we utilise AI technology to oer users a selection of services, ranging from health assessments, risk factor identification, telemedicine and wellness to digital payment capabilities. Health features such as AI Symptom checker and Digital Twin have been launched in Pulse to most markets i n which Pulse is available. These features are paired with health experts online (where available) and fitness communities to help Pulse users stay he althier. Pulse has now been downloaded more than 32 million 16 times. Download growth has moderated more recently given that Pulse has now been rolled out to most of the markets we operate in. The focus now is on customer segmentation and engagement campaigns on the installed base so that Pulse now supports all of our distribution channels. APE sales associated with Pulse increased by 73 per cent 2 to $ 364 million in 2021 17 . These sales represented circa 11 per cent of o ur total APE sales in markets where Pulse is available. This percentage contribution has increased steadily over the second half o f t he year, ending the last quarter of 2021 at 13 per cent. We believe Pulse provides a wide range of benefits to Prudential, including: > Ecient model to acquire, engage and serve users at scale, widening access to new customer segments for Prudential. This includes attracting a new, younger generation of customers. > Re duces marginal customer acquisition costs through targeted marketing campaigns. > Ag gregated data on Pulse helps deliver greater customer insights and supports improved productivity for Prudential’sdistribution channels by serving those customers that require a more personal/advice led approach which are often higher margin more c omplex products. > Promotes better customerretention characteristics via stronger engagement and frequent contact, particularly for digital-savvy customers or customers who prefer virtual interactions. Pulse is intended to become in due course a common platform across our markets to provide end-to-end processing, with all policy sales and servicing conducted within theplatform for digitalproducts. In a ddition, it is intended to provide an integrated business solution for our agency sales force, which should assist in creating a future- ready sales force capable of serving technology-savvy customers, as well as customers who prefer to meet virtually or a combination of both. Over the longer term this also has the potential to enhance our current operating model by removing some of the diverse technology systems and manual processes across our markets. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 17 ![]() Strategic and operating review / continued Pulse supports the agency channel and its use is demonstrated by the number of leads recorded on Pulse, which totalled 4.3 million in 2021 18 . As an example, our Philippines business saw over 1.9 million leads distributed to agents in 2021. These leads were provided to agents via PRULeads (within Pulse), where agents are provided with lead and campaign details derived from data generated from Pulse. The agents are also provided with suggested introductory discussion points to engage and develop dialogue with customers. Lastly, product information materials specific to the campaign are tagged in PRULeads, allowing agents access to those materials should that be necessary. Pulse also supports our bank partners in bringing digital solutions to c ustomers. In the Philippines for example, Prudential has teamed up with CIMB Bank Philippines (CIMB PH) to make digital financial products and service more accessible. CIMB PH is one of the fastest growing banks in the Philippines, adopting and oering digital banking products to its more than five million customers. We are the first bancassurance partner for CIMB. Pulse products will be made availableon CIMB’s platform and vice-versa. It is intended that Pulse will broaden Prudential’s customer reach, improve our channel productivity and generate eciencies as we s cale. Prudential continues to evaluate options for the development of Pulse in India and MainlandChina. Our operations there already have sophisticated digital oerings provided by our respective jointventure partners in these technologicallyadvanced multi-channel businesses. Capital allocation We apply a disciplined approach to capital allocation by applying the framework discussed in the Financial Review both to organic investment in new business and to considering inorganic growth options. We aim to deliver ongoing capital generation by investing capital to w rite products with high rates of return and short payback periods. We expect to generate attractive returns on our new business d riven particularly by the focus on health and protection and regular premium products. This creates new capital, which can be r einvested into writing more profitable new business. In 2021, we generated almost five times the new business profit for each $1 invested organically. The operation of our approach to capital management is demonstrated by our delivery ofreturn onshareholders’ equity asset ou t below: Operating return 19 on shareholders’ equity (%) 2021 2020 Operating return 19 on IFRS shareholders’equity 20 18 20 Operating return 19 on EEV shareholders’ equity 20 8 8 Leadership developments During 2021, a number of leadership changes took place. Our Group Chief Digital Ocer retired and was succeeded by his deputy. In I ndonesia, Malaysia and the Philippines, new CEOs were appointed following retirements and in all three cases the new appointees broughtin additional skill sets including Sharia finance and technology. The CEOs in all our major segments have many years ofexperience of working in the markets they oversee and are all local to their markets. Environmental, Social andGovernance During 2021, we havestrengthened our focuson Environmental, Social and Governance (ESG) matters, building on the new ESG strategic framework which we developed in 2020. Across Prudential, inclusivity runs as a common theme in all of our ESG activity. Within our core business activity of making health accessible, we seek to make our products as inclusive as possible and during 2021, we developed a campaign, We DO Family, to support the development of more inclusive products that recognise the evolution of nuclear families; our approach to climate change is underscored by o ur commitment to an inclusive transition in our markets; and, we further progressed ourdiversity and inclusion activity including the l aunch of P RUCommunities, a safe place for our people to share identities, interests, goals, and the changes they would like to see at Prudential. We consider this focus on inclusivity, both internally and externally, to be pivotal to meeting our purpose. We recognisethe importanceof targets in evidencing our commitment to progress on ESG topics. As a significant asset manager and asset owner in regions forecast to be impacted severely by climate change, we have a distinctive role to play in the inclusive transition to a low-carbon economy. Recognising this, in May 2021, we set a target to be net zero by 2050 for our insurance assets supported by a 25 per cent reduction in emissions from the portfolio by 2025. In a ddition, we have established targets for a 25 per cent reduction in Scope 1 and 2 carbon emissions per employee by 2030. Our ESG report on pages 66 to 136 sets out in more detail our ESG activities during the year, including our progress towards these targets on page 83. Outlook We enter 2022 with a strong balance sheet and capital position. Thetiming of the opening of the Hong Kong border remains uncertainand Covid-19 will continue to have an impact. The current conflict in Ukrainecould havewider implications for global economic and market conditions as well as geopolitical relations. However, we believe ourmulti-channel approach and focus on quality business and operating eciency is the right strategy for dealing with volatile operating conditions. We are confident that our investment in new business, distribution and product enhancements will continue to meet the needs of ourcustomers and build valuefor ourshareholders over thelong term. Prudential plc Annual Report 2021prudentialplc.com 18 ![]() #### Operational performance by market The following commentary provides an update on the operational capabilities and performance for each of the Group’s segments. Discussion of t he financial performance of the Group and its segments is contained separately in the Financial Review section of this Strategic Report. Mainland China – CITIC Prudential Life (CPL) Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change APE sales ($m) 776 58233%62325% New business profit ($m) 352 26931%28822% New business margin (%) 45 46(1)ppts46(1)ppts Adjusted operating profit ($m) 343 25137%26928% IFRS profit after tax ($m) 278 394(29)%423(34)% Amounts included in the table above represent the Group’s 50 per cent share. Mainland China continues topresent significantopportunities for Prudential, drivenby the low levels of insurance penetration, conducive regulatory proposals for the long-term development ofinsurance markets as well as favourable demographics such as an ageing population, emerging middle class and rapid urbanisation. These factors support further growth both in health and protection as well as pension products and services. Prudential’s life business in Mainland China, CPL, is a 50/50 joint venture with CITIC, a leadingChinese state-owned conglomerate. CPL benefits from a balanced distribution network with strength in a gency and bancassurance and a well-diversified product range. CPL has a substantial opportunity to expand and deepen its presence across its nationwide footprint of 20 branches covering 99 c ities. Our Mainland China business has a particular focus on areas with the g reatest economic growth potential, a strategy aligned with the Chinese government’s ‘City Cluster Model’, centred on Beijing, Shanghai and the Greater Bay Area, a region which, if it was a separate economy, would be one of the 10 largest economies in t he w orld 46 . We customise our solutions for various customer segments. We target the high net worth individuals and families with inter-generational insuranceand wealth solutions incorporating legacy planning. We also tailor our protection and education solutions to the needs of the younger generation, which we combine with healthcare and childcare services. Our group life and health solutions are popular withbusiness owners and theiremployees. New business performance during 2021 CPL became the largest contributor to the Group’s total APE sales in 2021, supported by APE sales growth of 25 per cent 2 to $776 million. Our solid and resilient growth has been underpinned byour diversified distribution strategy, with both agency and bancassurance channels deliveringdouble-digit APE sales growth at 25 per cent 2 and 28 per cent 2 respectively in 2021. Sales volume growth led to a 22 per cent 2 increase in overall new b usiness profit compared with the same period in 2020 and significantly exceeded the pre-pandemic level of 2019 by 25 per cent 2 . In achallenging environment, our agency continued to delivergrowth in new business profit at an attractive margin above 70 per cent, driven by stronggrowth in non-participating products. The bancassurance new business profit margin was stable at 39 per cent with new business profit growth drivenby higher sales, notably in the linked segment. CPL continues to outgrow the overall sector. In 2021, CPL increased its o verall market share to 0.86 per cent 21 , from 0.74 per cent 21 in 2020. Delivering customer-led solutions Our Mainland China business presents solutions that address the financial security and wellbeingof our customers at dierent life stages, with built-in related services enriching the overall customer propositions. Our solutions and services are combined in an ecosystem that provides an integrated experience, meets the full demands of customers and strengthens our relationships with them. During 2021, we upgraded our award-winning critical illness solution (‘Hui Kang Zhi Cheng’) byenhancing benefit coverage conditions and reducing waiting periods for certain recurrent claims such as cancer. Beyond protection, weoer ahealth concierge service that provides preventive healthcare, a panel of specialists for consultation on treatment options, priority hospital access and mental health rehabilitation services. To meet our customers’ desire for a more digital experience, engagement, fulfilment and servicing with customers and distributors, are carried out through our mobile first Xin Yi Tong app. Our ‘Virtual Lounge’ leverages technology to humanise connection between the agent and the customer. Digital media recognised the technology’s customer useability. In fact, our CPL business continues to r eport one of the highest virtual sales rates amongst our business units of over 80 per cent despite the near-normalisation of the Covid-19 situation. Multi-channel distribution We continue to focus on building a professional, high-quality agency force, with suitable knowledge of health and protection products. Our 17,800 agents serve customers across the country. Our agency productivity has improved markedly, with APE sales per active agent rising 61 per cent and over 1,100 agents qualifying for the MDRT award in 2021. Our total agency force reduced during the year in the context of the industry going through a period of rationalisation and our own focus on quality. We are empowering agents with tools and techniques that help engage customers in order to provide customer- centric solutions. Over time, as our agency force continues to mature and build experience, we expect this toresult in further enhancement in productivity, providing additional support to our growth trajectory in CPL. Meanwhile, we also continueto buildout our bancassurance distribution. We have a network of 48 bancassurance partners with access to over 6,000 branches across Mainland China, supported b y o ver 3,000 insurance specialists catering to the customers of the banks. This has resulted in higher levels of new bu siness from the bank channel and,coupled with further improvement in product mix, new business profit expanded by 3 1 per cent 2 in the bancassurance channel. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 19 ![]() Strategic and operating review / continued Hong Kong Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change APE sales ($m) 550 758(27)%757(27)% New business profit ($m) 736 787(6)%786(6)% New business margin (%) 134 10430ppts10430ppts Adjusted operating profit ($m) 975 8919%88910% IFRS profit after tax ($m) 1,068 9947%9918% Our Hong Kong business, established over 57 years ago, oers domestic Hong Kong residents and mainland visitors sophisticated critical illness, medical benefits and life insurance protection business, as well as investment products in a UK-style with-profits structure. Our continued pivot to domestic customers, diversification of distribution channels and focus on value creation has resulted in 9 per cent 2 growth in new business profit for the domestic segment despite the disruption of Covid-19. We continue to refresh and upgrade ouroeringswith comprehensive protection and wealth accumulation propositions for the auent customers, while leveraging our strengths in aordable healthcare products such as VHIS and wellness services via Pulse which appeal to the mass market. For small and medium enterprises (SMEs), we are leveragingour digital Business@Pulse platform to provide group solutions as well as wellness programs aimed at improving employees’ well-being beyond work. Meanwhile, Mainland China customers remain an important customer segment for the Group’s Hong Kong business, although APE sales have been severely curtailed following the closureof the border between Mainland China and Hong Kong implementedin late January 2020. Based on its own and third-party surveys, the Group believes there is latent demand from Mainland China customers for its Hong Kong product suite, driven by t he sophistication of the products oered and the high level of medical care available in Hong Kong. As a result, the Group expects to s ee the return of this important source of new business whenthe border between Mainland Chinaand Hong Kong reopens and visitor arrivals normalise. Additionally, supportiveregulatory developments such as Wealth and Insurance Connect between the Greater Bay Area and Hong Kong will further enhance the Hong Kongbusiness’s abilityto serve Mainland China customers. We are well placed to capture the longer-term opportunities in the Greater Bay Area given our solid foothold in Hong Kong and presence in all domestic cities in the Greater Bay Area a nd our pending application for a licence to operate in Macau. New business performance during 2021 Overall APE sales declined by (27) per cent 2 in the year as border closure continued to prevent Mainland China visitors from buying insurance products in Hong Kong. In the domestic segment, we further strengthened our focus on regular-premium health and protection products and also shifted towards higher margin savings solutions. This s trategy helped improve the protection mix by 7 p ercentage points 2 and grow protection APE sales by 12 per cent 2 , although the resultant lower case size led to a 15 per cent 2 fall in overall APE sales for t he domestic segment. Benefiting from margin improvement, new business profit grew 9 per cent 2 for the domestic segment and with significant Mainland China sales in the first quarter of 2020 only and sales being insignificant for the whole of 2021, the overall Hong Kong new business profit dropped by a modest (6) per cent 2 . Despite the decline in the year, overall new business profit saw strong sequential momentum throughout the year, with quarter on quarter expansion in e ach quarter since the second quarter of 2021, thanks to our focus on health and protection and higher-margin savings products. Delivering customer-led solutions The business fulfils customer needs via itswide range of protection, savings and investment product oerings. In addition to comprehensive criticalillness solutions cateringto auent andhigh net worth customers, we also extend access to aordable healthcare by oering a full range of Voluntary Health Insurance Scheme (VHIS) products. TheAPE sales of VHIS almost tripled in 2021 following the l aunch of our mid-tier VHIS product. Meanwhile, we have fully embraced the government’s ‘Qualified Deferred Annuity Plan’ (QDAP) forretirement, making us oneof the leading players 22 in the market. Our investment propositionprovides access to international equities and bonds. Our with-profits product oering pools the investments of policyholders and allocates returns based on long-term investment performance (similar to that used historically in the UK). This is a distinct, capital-ecient structure benefiting from significantscale, enablingPrudential to provide dierentiated products while generatingattractive margins. Multi-channel distribution We operate a digitallyenabled multi-distribution platformand provide customers choice on how they prefer to be served. We have the largest agency force of 21,579 agents in the Hong Kong market, and this channel accounted for more than 60 per cent of our APE sales in the year. Despite a challenging operating backdrop,overallagent activity has been broadly stable thanks to intensified agent training and development, enhanced customer engagementtools such as Pulse and PRULeads, as well as broadened product oerings. On the bancassurance side, we have a long-standing strategic alliance w ith Standard Chartered Bank which has grown from strength to strength for more than 20 years. This channel achieved new business profit growth of 140 per cent 2 forthe domestic segment driven by p roduct enhancements and higher health and p rotection sales. Prudential plc Annual Report 2021prudentialplc.com 20 ![]() Indonesia Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change APE sales ($m) 252 267(6)%271(7)% New business profit ($m) 125 155(19)%158(21)% New business margin (%) 50 58(8)ppts58(8)ppts Adjusted operating profit ($m) 446 519(14)%529(16)% IFRS profit after tax ($m) 362 409(11)%417(13)% In Indonesia, we are one of the market leaders in the overall life insurance market with 10 per cent market share by weighted new premium in 2021 23 . We are also the market leader with a 29 per cent market share in the fast-growing Sharia segment in I ndonesia 23 , which has the largest Muslim population in the world. Our main strategic objectives are to secure new bancassurance partners for the mass market, improving capabilities to serve our c ustomers better through digitalisation and operational advancements, as wellas preparing new propositions to cater to our t arget segments in anticipation of the post-Covid-19 economic rebound and upcomingnew regulation on investment-linked products. We have upgraded ouroeringsforthe auent segment where customers seek broad insurance and savings products supported by value-added services. We havealso launched simpler, lower-ticket-size standalone protection solutions serving the insurance needs of mass s egments. Our Pulse digital platform appeals to digitally-savvy younger customers. For SMEs, we have created a comprehensive suite o f group health and life solutions which are provided alongside related services through our digital Business@Pulse platform. We also strengthened our market leadershipin the fast-growingSharia segment through ourinclusiveSharia oerings. New business performance during 2021 Overall APE sales fell by (7) per cent 2 with Covid-19-related social movement restrictions disrupting sales activity throughout much of the year. The pandemic, which caused over four million 24 infections nationally by the end of 2021 in a population of circa 270 million 25 has resulted in higher than expected claims. It is estimated that Indonesia accounted for over 60 per cent of total Covid-19-related claims across Asiaof our policyholders. Movement restrictions were particularly severe in the third quarter of 2021, before easing towards the end of the year as Indonesia emerged from its latest Covid-19 wave. During the year, there was an increasingly eective rollout of the vaccination programmewith the percentage of populationvaccinated increasing from circa 11 per cent at the end of June to about 60 per cent at the end of D ecember. APE sales in the fourth quarter were 29 per cent 26 higher than those in the third quarter, with sales in the second half of the year 15 per cent 26 higher than the first half of 2021. Despite the fall in absolute APE sales amounts year-on-year, we h ave s een a growth of over 37 per cent in the number of standalone protection policies sold over the period, which contributed to over 70 per cent of total policies sold and 43 per cent of total APE sales (2020: 29 per cent of APE sales). Our strength in the Sharia segment also added resilience to the business with a 19 per cent increase in new Sharia policies. We did howeverexperience a worseningof persistency exacerbated by the financial hardships of ourpolicyholders. Overall new business profit was (21) per cent 2 lower, reflecting lower APE sales volumes as a result of lower average case sizes as we continue to diversify our product suite and move further into the Shariah mass m arket. Changes in economic conditions also led to a drag on new business profit over the period. Despite the fall in the year, new b usiness profit improved as the year progressed, with a quarter on quarter increase in each quarter since the second quarter of the year. Delivering customer-led solutions We have executed well in dicult market conditions through innovating our product oerings, as well as increasing digital capability to mitigate the restrictions of Covid-19 on face-to-face agency sales. Total new policies grew 7 per cent driven by our strategy of e xpanding l ow ticket-size standalone protection policies to low and mid-income customers. We continue to lead in the Sharia segment, with a commitment to e xpand inclusive product oerings to the mass market segment. For example, we have launched PRUCerah, the first Sharia-compliant education participating product in the market, and continue our PRUCinta(traditional Sharia product) oering. Together PRUCerah and PRUCinta contributed 13 per cent of total APE sales. To realise the potential of the Indonesian Sharia life market, we are setting up a dedicated Sharia business with the establishment of Prudential Sharia Life Assurance. This will enable full product vetting by the Sharia religious authorities and the use of specialist distribution techniques. In the Enterprise Business space, we achieved APE sales growth of 33 per cent 2 in 2021, and, supported by our digital capabilities, positioned ourselves as the choice for start-up, fintech and financial institutions as their Employee Benefit provider. Multi-channel distribution The quality and productivity of our agency channel continued to improve. Thanks to ongoing agency reform initiatives and the broadeningof our product oerings, the number ofactive agents increased by 4 per cent. We remain as one of the market leaders in the agency segment with 25 per cent 27 of total market share. Inthe Sharia segment, we maintain one of the largest agency forces withalmost 143,000 agents, which was 11 per cent higher than the prior year. Development ofour bancassurance channel also gathered pace. New b usiness profit increased 25 per cent 2 despite flat APE sales as a r esult of higher-margin new products in the traditional, funds and retirement space. We have also started to oer Sharia products through our bank partners, which contributed 4 per cent of total bancassurance APE sales in 2021. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 21 ![]() Strategic and operating review / continued Malaysia Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change APE sales ($m) 461 34633%35131% New business profit ($m) 232 20911%2129% New business margin (%) 50 60(10)ppts60(10)ppts Adjusted operating profit ($m) 350 30913%31312% IFRS profit after tax ($m) 265 2564%2592% In Malaysia, the Group has leading market positions in both the conventional and Takaful markets 28 and has been serving customers for more than 97 years. The Takaful segment has substantial opportunities for growth, and we are the largest player with a 30 per cent market share 29 . We continuously upgrade our saving and p rotection solutions to serve the auent segment, and have supplemented these recently by launching more simple,flexible solutions to serve the mass market. We also continue to broaden our Islamic wealth and protection solutions to strengthen our leadership in the fast-growing mass auent Takaful segment. New business performance during 2021 APE sales increased by 31 per cent 2 , driven by growth of 45 per cent in a gency production despite the tightening of Covid-19-related movementrestrictions atseveral points throughout the year. The Takaful business achieved APE sales growth of 61 per cent 2 fuelled by a n increase in active agents. New business profit was 9 per cent 2 higher, driven by highervolumes but giventhe relative weightof health and protection products, this was partly oset by the eect of h igher interest rates in the period, tax changes and shift in product mix towards shorter-pay products, which also restricted new business profit and margin. Overall new business profit from health and protection business increased by 28 per cent 2 , includingthe benefit fromrepricingactions during the year. Delivering customer-led solutions With a total of 2.7 million customers, our Malaysia business is focused on providing holistic health and wealth solutions. Customer retention is high in both conventional and Takaful segments with 95 per cent and 87 per cent of customers respectively staying with the business. Most products are regular premium, which accounted for 98 per cent of APE sales in 2021. PruAllCare was launched in the last quarter of 2021 that provides comprehensive critical illness coverage and covers up to 190 conditions. Leveraging our Pulse platform, the business is also reachingout to the underserved communities and providing aordable and accessible healthcareservices and wellness awareness to all Malaysians including the Muslim Community. More information is set out in our ESG section later in this Annual Report. Multi-channel distribution Our Malaysian business benefits from a growing agency force, with o ver 1,200 MDRT qualifiers, contributing to 36 per cent of total Agency APE sales 30 . The number of total active agents is up 20 per cent on the prior year. In the Takaful segment, we h ave one of the largest agency forces with over 18,000 agents, which was 18 per cent higher than the prior year. We also continue to benefit from our established bancassurance partnerships with Standard Charted Bank and UOB. Following the pivot to higher protection and savings sales through our bank partners, new business profit through this channel saw 33 per cent growth. Prudential plc Annual Report 2021prudentialplc.com 22 ![]() Singapore Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change APE sales ($m) 743 61022%62619% New business profit ($m) 523 34153%35049% New business margin (%) 70 5614ppts5614ppts Adjusted operating profit ($m) 663 57416%58913% IFRS profit after tax ($m) 394 521(24)%535(26)% In Singapore, we are one of the market leaders in protection, savings and investment-linked plans 31 . We have been serving the financial needs of Singapore for more than 90 years, delivering a suite of product oeringsand professional advisory throughour network of m ore than 5,000 financial consultants and our bank partners. We see significant prospects to increase our presence in the high net -wo rth segment by further upgradingour suiteof health and legacy planning products, as well as strengthening ourposition inthe auent segment with flexible health and retirement solutions. We are buildingcapabilities on Pulse to oersimpler insurance products, including ourShield oerings. We also grewour presence inthe SME space by leveraging our Business@Pulse platform. New business performance during 2021 Our new business momentum in Singapore continued despite the tightening of Covid-19-related movement restrictions at several points throughout the year. APE sales were 19 per cent 2 higher, supported by 1 0 per cent 2 growth across our agency channel and 30per cent 2 growth across our bancassurancechannel. New business profit increased by 49 per cent 2 , reflecting higher sales volumes and a favourable shift in product mix towards newly launched, higher margin investment-linked products, re-pricing of with-profits products, and an increase of high margin protection business (such as PruShield) within the health and protection product group. Overall new business margin, given the weight to savings products in new sales in 2021, was also lifted by improved economics as interest rates increased over t he period. Delivering customer-led solutions We saw diversified growth across our wide product oerings in 2021. On the protection side, PRUShield, our MediSave-approved integrated Shield plan, saw APE sales growth of 50 per cent 2 . On the savings side, i nvestment-linked APE sales increased by 100 per cent 2 while participating products achieved 16 per cent 2 growth in APE sales. We c ontinued to penetrate the high net-worth segment, which saw 109 per cent growth in APE sales, via our comprehensive product oerings. Our E nterprise Business also delivered good growth with APEsales increasing by 16 per cent 2 . Multi-channel distribution The diversity of our distribution has been instrumental to new business growth in the year. In particular, bancassurance achieved new business profit growth of 159 per cent 2 , which was supported by our deeper penetrationof the highnet -wo rth segment, successful focus on retirement solutions and a shift towards higher-margin products with an expected longer policy term. In the agency channel, the quality of productivity of our agency force continues to improve significantly. Top-tier agents grew at pace as demonstrated by the more than 9 per cent increase in the number of MDRT qualifiers to over 1,000 in 2021. We continue to rank first 32 by r egular premiumAPE sales in our agency channel, with overall active agents increasing by 4 per cent. Productivity as measured by APE sales per active agent rose 6 per cent, supported by higher case counts and also larger case size. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 23 ![]() Strategic and operating review / continued Growth Markets and Other Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change APE sales ($m) 1,412 1,24513%1,26212% New business profit ($m) 558 44027%44625% New business margin (%) 40 355ppts355ppts Adjusted operating profit ($m) 932 83512%84111% IFRS profit after tax ($m) 434 548(21)%562(23)% The Group’s growth markets and other segment incorporates its businesses in India and Thailand, as well as Vietnam, the Philippines, Cambodia, Laos, Taiwan and Myanmar, and its businesses in Africa. The Group sees the opportunity for rapid growth through the roll-out of its ecient andscalable business model, multi-channel distribution networks and the provision of digital products and services through Pulse. In India, our business primarily consists of a 22.1 per cent holding in t he Indian Stock Exchange listed life insurance business, ICICI Prudential Life, and 49 per cent of the asset manager, ICICI Prudential Asset Management (included as part of ourEastspring segment). Both businesses boast a top-three position in their respective market 33 . ICICI Prudential Life intends to grow the business by deepening penetration of under-served customer segments, enhancing distribution footprint and tailoring solutions tothe dierent customer needs across saving, protection and retirement, includingdeveloping new propositions for the mass market in the Tier 2 cities. ICICI Prudential Life has also announced its aspiration to double its 2019 new business profit by 2023 through its ‘4P’ framework of Premium growth, Protection focus, Persistency improvement and Productivity enhancement. In Thailand, we are focused on delivering the strategic benefits of recentinvestments and upscaling the business significantlythrough our bank partnership with TTB and UOB. This has resulted in our higher-than-industry average APE sales growth 34 in the bancassurance channel as well as for the overall business in 2021. As a result, our market share in thebancassurancechannel increased from 10.1 per cent to 14.1 per cent 35 . We oer a diversified portfolio of segment-led solutions, including integrated wealth and retirement solutions for the auent segment, alongside simpler digital propositions via the apps of our bank partners. We also work with our bank partners tounlock SME opportunities through our Business@Pulse platform. In Vietnam, we will continue to strengthen our presence in the rural areas while we expand our geographical coverage in the urban cities via our agency, bancassuranceand new digital channels. We s erve the auent segment with flexible health, investment and education- orientated savings solutions. We also cater to the needs of mass market with simple and aordable health and savings solutions. The Philippines currently has very lowlevels oflife insurance penetration. However, with rising GDP per capita, and supported by Prudential’s proven expertise and market-leading positions 36 , Prudential isconfident of delivering significant new life insurance APE sales growth in this market. We continue to build on our core strengths in theauent and mass-marketsegments, alongside leveraging our digital assets tocover more Millennials and Gen Z’s. For C ambodia and Laos, our intention is to build multi-channel capabilities with highly digital infrastructure for these high potential m arkets. In Africa, we have built a rapidly growing multi-product business since 2 014, with operations in eight countries across the continent. Our business is well-positioned to accelerate its growth as we seek to m eet the growing health and savings needs of a rapidly growing working-age population and growingnumber of middle-class consumers. We are introducing comprehensivehealth and wellness propositions to serve the growing auent segment. Regional leadership including senior members of Asian bu sinesses has relocated from London to Nairobi to accelerate knowledge transfer, innovations and best practice sharing with the G roup’s other operations. New business performance during 2021 The businesses comprising our Growth markets and other segment saw APE sales up 12 per cent 2 compared with 2020. Cambodia, India, Myanmar, the Philippines, Thailand and Africa all had double-digit growth despite the diculties associated with Covid-19. New business profit was up 25 per cent 2 exceeding the growth in sales, with Cambodia, India, the Philippines, Myanmar and Thailand all having double-digitgrowth in new business profit and also reflecting the inclusion of our Africa businesses for the first time in 2021. In India, APE sales grew 29 per cent 2 supported by diverse growth across all distribution channels, with both agency and bancassurance channels achieving APE sales growth in 2021, as well as an increased focus on annuity products. Despite the challenges arising from Covid-19 restrictions, new business profit grew by 41 per cent 2 in 2021 as a result of favourable product mix. In Thailand, APE sales rose 22 per cent 2 helped by the expansion of bancassurance sales in 2021. New business profit margins improved compared with the prior year following favourable product mix and improving interest rates over the period, resulting in a 129 per cent 2 increase in new business profit. In Vietnam, sales volume slightly increased despite nationwide Covid-19 lockdowns impacting the agency market. The bancassurance channel performed well despite Covid-19, with APE sales up 17 per cent 2 , as banks were allowed to remain open as essential services during the lockdown. Prudential alsobenefited from the expansion of bancassuranceagreements, and remained the leader in t he bancassurance channel with 19.4 per cent market share 37 . In the Philippines, 2021 APE sales were up 26 per cent 2 , primarily from t he agency channel, and Prudential remains the largest player in the market 36 . New business profit growth was broadly in line with the i ncrease in APE sales. In Africa, APE sales have grown by 24 per cent 2 year-on-year, with growth in all eight countries. The East and Central Africa business (comprisingKenya, Ugandaand Zambia) performed particularly well w ith an APE sales growth of 43 per cent 2 . Prudential plc Annual Report 2021prudentialplc.com 24 ![]() Delivering customer-led solutions In Thailand, we have developed a portfolio of segment-led insurance solutions that emulate the needs of our bank partners’ customers. For e xample, we provided aordable credit life solutions to the banks’ mortgage and personal loan customers; we delivered packaged solutions that combine bank products with insurance oerings including savings and protection products; and we expanded our i nvestment-linked oerings the sales of which, through the bancassurance channel, increased by 88per cent 2 in 2021 as compared with thepreviousyear.Leveraging our Business@Pulse ecosystem, our Employee Benefit business has also gained traction achieving 76 per cent 2 growth in APE sales and covering more than 140,000 members. In Vietnam, we launched an innovative digital Personal Accident product (‘PRUGuard 24/7’) as well as a low-cost digital Critical Illness solution (‘PRUCare’) via various digital platforms therebyincreasing our penetrationinto theyounger segment of theVietnamese population. Sincelaunch in lateDecember 2020 and April 2021, we have sold over 42,000 38 PRUGuard policies and 3,000 38 PRUCare policies respectively. In Cambodia, we introduced our first-in-the-market digital solutions in Dengue and Malaria protection as well as Road Safety protection. In Africa, we continue to pursue customer-led insurance initiatives, particularly with ourpartners where wehave launched a digital ‘Diaspora Funeral Cover’ product with Centenary Bank in Uganda and a d egree insurance digital product with MTN in Cameroon. Multi-channel distribution In India, ICICI Prudential Life’s growth ambitions will be driven by enhancing its multi-channel distribution capability. In the agency channel, we have recruited over 27,000 new agents during the year. Outside agency, we have added about 100 new partnerships bringing total partnerships to around 700 including 23 banks. In Thailand, the strategic partnership with TTB, which commenced on 1 J anuary 2021, significantly strengthens our distribution capability in Thailand’s fast-growing life insurance sector, giving us access to an expanded network of 636 branches. We have launched a refreshed set of propositions encompassing the high net-worth, retail,commercial and SME segments and rolled out a new e-POS system. These developments have enabled us to advance our overall market share to 6.5 per cent from 5.1 per cent 35 in 2020) and become the third largest player 35 in the bancassurancechannel in 2021. In the Philippines, we are partnering with CIMB Bank Philippines to h elp bring more financial products and services to the country’s consumers. Under this partnership, we will provide CIMB’s customers with easy access to our life insurance products through CIMB’s app, and CIMB’s deposit savings and credit products will be made available on our Pulse app. In Africa, we have sought to deepen our health and protection oering, complementing an increasing portfolioof corporate protection across many of our countries. In our agency and bancassurance business we have increasingly equipped our agents and sales people with the skills required to advise their customers on t heir protection requirements. Compared with the first quarter of 2021, agency protection productivity had increased by 40 per cent by the fourth quarter with an over 20 per cent increase in the number of agents who sold a protection case in the same period. Sales people have been supported in their careers as in many markets through earlier training on protection products, creating opportunities to help them serve this significant gap in the market. In other high-potential markets, agent quality and productivity continued to improve. In Vietnam the contribution to APE sales by our MDRT qualifiers increased by 7 percentage points to 45 per cent. Cambodia agency development was encouraging withboth number of active agents and APE sales per active agent rising significantly in2021. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 25 ![]() Eastspring, leading asset manager in Asia Actual exchange rate Constantexchangerate 2021 2020 Change 2020 Change Total funds under management ($bn) 258.5 247.84%241.47% Adjusted operating profit ($m) 314 28311%28610% Fee margin based on operating income (bps) 30 282ppts n/an/a Cost/income ratio (%) 54 522ppts n/an/a IFRS profit after tax ($m) 284 25312%25511% Eastspring Investments (‘Eastspring’), the asset management arm of t he Group, is a global asset manager with Asia at its core, oering innovative investment solutions to meet the financial needs of clients. Operating inAsia since 1994, Eastspring has builtan unparalleled on-the-ground presence in 11 Asian markets 15 as well as distribution oces in North America and Europe. Eastspring’s shared purpose – Experts in Asia. Invested in your future – clearly guides the business. Beyond investing, Eastspring aims to helpits stakeholders secure a better and more sustainable future. As of 31 December 2021, Eastspring managed a total of $258.5 billion of assets across equity, fixed income, multi asset, quantitative and alternative strategies on behalf of institutional and retail investors globally. It is one of the largest pan-Asian asset managers and is a top-10 asset manager in six of the markets where the firm operates 39 . As the main investment partner to Prudential’s insurance business, Eastspring focuses on enhancing its investment solutions for Prudential. At the same time, it continues to grow its third-party business globally. This isunderpinned by Eastspring’s four-pillar strategy: first, to strengthen its existing business; second, to diversify its investment capabilities and range of products; third, to accelerate its ESG agenda; and fourth, to broaden its distribution channels. Through the year, Eastspring has achieved progress in each of these areas. Increasing funds under management and enhancing returns In what was largely a volatile market, existing and new clients turned to Eastspring for advice. Eastspring grew its assets under management by 4 per cent 26 in 2021, reflecting favourable investment returnsand net inflows from the Group’s insurance businesses and from third-party clients. Third-party business 40 saw net in-flows from retail clients, driven by a strong demand for equity products, partially oset byinstitutional net outflows. The outflows across thebusinesses were predominantly due to profit taking and asset rebalancing amid generally strong equity market conditions. The redemptions of funds managed on behalf of M&G p lc in 2021, net of inflows, totalled $(4.0) billion, with a further $(0.9) billion of outflows anticipated in 2022. The overall asset mix has r emained stable and is well diversified across both clients and asset classes. Eastspring continued to perform well for clients, with 61 per cent of assets under management outperforming benchmarks over the past year 41 . Significant ‘alphas’ have been generated by the value-style equity teams, in addition to positive relative and absolute performanceby teamsfocusingon quantitative strategiesand multi-asset solutions. Eastspring is proud to be named the ‘Asset Management Company of the Year, ASEAN’ in The Asset Triple A Sustainable Investing Awards. Across 2021, Eastspring won twenty-six industry awards across a wide range of investment categories, a testament to the firm’s s uccess and investment excellence. Diversifying capabilities, driving future growth Eastspring saw significant progress in seeking to diversify its investment capabilities, increase the number of products marketed to clients, and develop new and innovative solutions. Over the yearit a ttracted $5.3 billion of assets through the launch of 75new products 42 . Notably, in the consumer and private wealth segment, the firm worked with its intermediary clients to achieve several successful fund IPO launches in Thailand and Taiwan and similarly in other markets across the region.Other recently launched strategies including the Asia Multi Factor and Global Emerging Markets excluding China Equity attracted new c ustomers. Leveraging on third-party partnerships, Eastspring enhancedits mix of products and solutions acrosspartners’ platforms, an example being the launch of several foreign investment funds (FIF) in Thailand. Eastspring also oered new solutions for both the Group’s insurance businesses and external partners to meet the demand for regular saving and retirement solutions such as RiCh in Malaysia, TTB Smart Port in Thailand and discretionary investment advisory mandates in Taiwan. Meanwhile, Eastspring continued to expand its footprint in India and Ma inlandChina. In India, ICICI Prudential Asset Management Company broadened its product suite across active and passive strategies for retail and high n et -wo rth clients, introducing new strategies such as the ICICI Prudential NASDAQ 100 Index Fund and ICICI Prudential Strategic Metal and Energy Equity Fundof Fund. These in turn drove a 15 per cent increase inthe Group’s share of funds under management to $30.9 billion 43 . In Mainland China, we operate through CITIC-Prudential Fund Management Company Limited, a 49 per cent-owned joint venture with CITIC with the Group’s share of assets under management of $ 12.4 billion, as well as through our wholly-owned private fund manager operationalised in 2019 within Eastspring, which now has sourced and sub-advised assets under management of$931 million. 2021 saw it build a portfolio of credible China A Equity growth style f unds and China bond funds, which attracted demand from international clients, validating their confidence in the firm’s products. Our Chinese life insurance joint venture has established its own asset management company in 2020, Prudential-CITIC Asset Management Co, which further strengthens our capabilitiesin savings and retirement products. Duringthe year CITICPrudential Fund Management Company achieved a successful IPO with the launch of the FengyuHybrid fund, achieving assets under managementof over RMB 10 billion (approximately $2 billion) through a partnership with CITIC Bank. It achieved strong fund performance with 7 of its 15 equity fundsachieving top-decile fund performance, leading to a 27 per cent 44 growth in their total assets. Strategic and operating review / continued Prudential plc Annual Report 2021prudentialplc.com 26 ![]() Across the Asia region and beyond, Eastspring’s commitment to deliveringsuperior investment outcomes for our investors and clients over the long term has made us a trusted partner, as evidenced in 2021, and the firm will continue to focus on investment excellence going into 2022. Accelerating responsible investing, invested in your future In line with its purpose, Invested in Your Future, Eastspring continued to reinforce its ambition as a leading Asia-based asset manager rooted in ESG and sustainability. To meet client demand for responsibleinvestment portfolios, Eastspring launched its second ESG-focused product, the US ESG Beta Fund in October 2021, followed by the Eastspring IDX ESG Leaders Plus Fund in January 2022. It is in the process of developing several otherESG-focused funds for both Prudential and third-party clients. These include China All Shares Sustainable Fund, China Oshore Sustainable Bond Fundand Japan Sustainable Value Fund. Formore details on our achievements, please r efer to the ESG section of the report. Broadening distribution, increasing digitalisation Eastspring has strengthened its institutionalbusiness, winning new m andates with top asset owners, alongside expanded recommendation ratings from investment consultants, both in local markets and globally. Apart from reinforcing its position as Experts in Asia, Eastspring also gained traction outside of Asia, as it continued to build its footprint and relationships in North America and Europe, leveraging on partnerships with third-party distributors. In the retail segment, Eastspring expanded its digitalised distribution capabilities through partnerships with multiple new age digital wealth managers, such as Stashaway, Endowus and Moduit. Promising progress has also been made in its own digitalisation capabilities; as an example, the upgrade of Eastspring Malaysia’s own d igital platform with a new ‘Do-It-Yourself’ feature, enabling new and existing retail investors to Buy, Regularly Invest, Sell and Switch transactions directly on the platform. As part of Eastspring’s commitment in advancing financial knowledge forits stakeholders, it produced over 50 thoughtleadership and insight a rticles over the year enabling clients to stay on top of financial trends, outlook and knowledge. It also adopted new channels of communication – social media channels (Instagram, Whatsapp and TikTok) and a new podcast, on top of its regular expert webinar series. Eastspring’s brand presence is also amplified through Prudential’s Pulse app via thought leadership content and knowledge sharing. The focus on financial literacy starts from the grassroots level. To this end, Eastspring launched the #MoneyParenting campaign across Asia to empower parents to coach their children towards a financially successful future. This initiative was recognised by the Malaysia FinancialEducation Network 45 . Notes 1After deduction of underwriting fees and other estimated expenses connected with the equity raise. 2On a constant exchange rate basis. 3APE sales is a measure of new business activity that comprises the aggregate of annualised regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. It is not representative of premium income recorded in the IFRS financial statements. See note II of the Additional unaudited financial informationforfurther explanation. 4New business profit, on a post-tax basis, on business sold in the period, calculated in accordance with EEV Principles. 5‘Adjusted operating profit’ refers to adjusted IFRS operating profit based on longer-term investmentreturnsfromcontinuing operations. This alternative performancemeasure is reconciled to IFRS profit for the period in note B1.1 of the IFRS financial statements. 6To employees of the continuing business. 7Full year 2021 total funds under management, including external funds under management, money market funds, funds managed on behalf of M&G plc and internal funds under management, reported based on the country where the funds are managed. 8Based on full year 2021 exchange rates. 9Source: World Health Organisation: GlobalHealth Observatory data repository (2019). South-East Asia, out of pocket expenditure as percentage of current health expenditure. 10Prudential estimate based on number of in-force policies over total population. 11 Source: Swiss Re Institute: The health protection gap in Asia, October 2018. 12Source: The Economist, Special report, 28 March 2020 edition. 13Including India and CPL. 14Percentage of APE sales in Asia markets, excluding India and including CPL and Malaysia Takaful on a 100 per cent basis. 15Mainland China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand, Vietnam. 16As at 31 December 2021, in the markets where Pulse is oered. 17 APE sales involving Pulse are sales completed by agents on leads from digital campaigns captured within the Pulse customer management system or on leads from Pulse registrations, together with a small number of policies purchased via Pulse online. 18Leads that originate from a digital platform, digital campaign or partner; and other leads, includingleads from agents, recorded onPRUleads, part of thePulse platform. 19Operatingreturnon average shareholders’ equityfromcontinuingoperations. 20See note II of the Additional unaudited financial information for definition and reconciliation. 21Source: based on life insurance sector gross written premiums data from the China Banking and Insurance Regulatory Commission. 22Source: based on analysis of newsclips and information collected from the informal market networkgroup. 23Source: based on weighted new premiums for 2021 from Indonesian Life Insurance Association. 24Source: Our World in Data: Cumulative confirmed Covid-19 cases. 25United Nations, Department of Economic and Social Aairs, Population Division, WorldPopulation Prospects 2019Revision (2020estimates). 26On an actual exchange rate basis. 27Source: based on weighted new premiums from Indonesian Life Insurance Association. 28Source: based on new business APE from the Life insurance association of Malaysia. 29Source: based on new business APE from the Insurance Service Malaysia Berhad. 30Including Malaysia Takaful on a 100 per cent basis. 31Source: based on weighted new business premiums reported within the Singapore Life Insurance Association for full year 2021. 32Source: based on regular premium APE data from the Singapore Life Insurance Association. 33Source: India Life insurance business: based on calendar year 2021 retail weighted premium of private insurers operating in India; India asset manager: based on Association of mutual funds in India. 34Source: based on APE sales in the first 11 months of 2021. 35Source: based on weighted new business premiums from the Thai Life Assurance Association. 36Source: based on weighted first year premiums from the Insurance Commission. 37Source: based on full year 2021 APE from the Actuarial Network Data Sharing. 38As at October 2021. 39Sources: Singapore and Hong Kong (Morningstar), Malaysia (Lipper), Thailand (Associationof Investment Management Companies),Korea (Korea Financial Investment Association), India (Association of Mutual Funds in India), Japan (Investment Trusts Association, Japan), Taiwan (securities Investment Trust & Consulting Association of R.O.C), China (Wind), Indonesia (Otoritas Jasa Keuangan), Vietnam (State Securities Commission of Vietnam). All markets as of June 2021. Eastspring joint ventures include Hong Kong, India, China. Japan reflects Publicly Oered Investment Trusts market presence. China reflects public mutual funds presence. Vietnam reflects open-ended mutual funds market presence only. Market presence based on whether the AMCs oer onshore domiciled mutual funds. Market ranking based on 100 per cent shareholdings. 40Excluding money market funds and funds managed on behalf of M&G plc. 41The value of assets under management at 31 December 2021 in funds which outperform their performance benchmark as a percentage of total assets under management at 31 December 2021, excluding assets in funds with no performance benchmark. 42As of December 2021, excluding joint ventures. 43Group’s share of total assets under management. 44Growth from end of 2020 to end of Q3 2021. 45The Financial Education Network (FEN), an initiative by the Malaysian government, is an inter-agency platform comprising of institutions and agencies committed to improving the financial literacy of Malaysians. 46Source: based on GDP data sourced from the World Bank and www.bayarea.gov.hk websites. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 27 ![]() All amounts are from continuing operations only EEV new business profit 2 $m Life insurance products are, by their nature, long term and generate profit over a number of years. Embedded value reporting provides investors with a measure of the future profit 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. EEV new business profit increased by 13 per cent on a constant exchange rate basis to $2,526 million (15 per cent on an actual exchange rate basis) driven principally by the increase in APE sales and the eect of favourable changes to the mix of products sold. Growth was led by Singapore and CPL, moderated by declines in Hong Kong (from cross border business) and in Indonesia. 2021 $m 2020 $m 2,526 2,201 15% Customers served The Group’s purpose includes addressing the significant and growing protection and savings gaps in our markets. To support this purpose the Group continues to invest in its people and systems to ensure it has the resources to deliver on its long-term growth strategy. Our ambition is to develop the capacity to serve 50 million customers by 2025. As at 31 December 2021 the Group had over 18.6 million customers across Asia and Africa. Weare developing the capacity to serve up to 50 million customers through investing in our multi-channel distribution capabilities, applying digital capabilities to increase the eciency of our operationsand developingproducts and services that allow us to develop more diverse customer bases in our markets. 2021 number of customers 2020 number of customers 18.6 17.4 7% Carbon emissions As a significant asset manager and asset owner, Prudential has a distinctive role to play in the transition to a low-carbon economy. Reflecting the stage of their development, the economies in which we operate tend to start their transition from a higher carbon intensity level. Prudential therefore seeks a transition to a lower carbon economy that is inclusive for all of society and one that supports sustainable growth within our markets. Our immediate actions to help deliver on this objective include a target to reduce the carbon emissions of our portfolio 3 of shareholder andpolicyholder assets by 25 per cent by 2025. By the end of 2021, we had reduced the weighted average carbon intensity (WACI) of our investment portfolio by 23 4 per cent against our 2019 baseline, placing us on track to achieve the 25 per cent targetby 2025. We operate in both developed and emerging markets in Asia and Africa and the carbon footprintof investments inthese markets, which underlies our WACI, are higher than in areas such as Europe. Investment decisions such as strategicasset allocation, portfolioconstruction and investment selection can influence the direction of the WACI, as can changes in the carbon intensity of the underlying businesses in which we invest. Implementing our coal policy was a key driver of the reduction in WACI. Please see our ESG report for details of our carbon reduction target, our progress to date and the future actions that we plan in order to achieve our ambitions in thisarea. 2021 WACI 2025 Target WACI 2019 WACI 290 296 386 #### Key performance indicators #### Measuring our performance To create sustainable economic value for our shareholders we focus ondeliveringsustainable compoundinggrowth while generating capital to reinvest in our businesses and meet our financing needs. We focus on the following metrics when looking at our performance 1 . Prudential plc Annual Report 2021prudentialplc.com 28 ![]() All amounts are from continuing operations only EEV basis shareholders’ equity 5 $bn EEV represents the present value of the shareholders’ interest in the post-tax future profits (on a local statutory basis) expected toarise from the current book of long-term business, after sucient allowance has been made for the aggregate risks in the business. Asset management andother non-insurance subsidiaries, joint ventures and associates are included inEEV at the Group’s proportionate shareof IFRS basis shareholders’ equity, with central Group debt shown on a market value basis. EEV shareholders’ equity for continuing operations increased 13 per cent to $47.4 billion, largely reflecting new business sales as well as the proceeds of our equity issue in Hong Kong. EEV shareholders equity at 31 December 2021 also includes our 18.4 per cent economic interest in Jackson, which is valued at $683 million. The prior year comparative excludes all Jackson balances. 2021 $bn 2020 $bn 47.4 41.9 13% 7% growth per share 1,607 equity per share 1,725 equity per share Free surplus generation from insurance and asset management businesses 6 $m Free surplus generation from insurance and asset management businesses is used to measure the internal cash generation of our businesses. For insurance operations, it represents amounts emerging from the in-force business during the year, net of amounts reinvested in writing new business and excludes other non-operatingitems. Forasset management, itequates to post-tax adjusted operating profit forthe year. Group operating free surplus generation from continuinginsuranceand asset management operations before restructuring costs was up 7 per cent (10 per cent on an actual exchange rate basis) to $2,071 million in the year. Net Group operating free surplus generation for continuing operations, after restructuring and central costs was $1,179 million (2020: $935 million on a constant exchange rate basis). 2021 $m 2020 $m 2,071 1,888 10% Adjusted IFRS operating profit based on longer-term investment returns (adjusted operating profit 7 ) $m The Group’s business involves entering into long-term contracts with customers, and hencethe Group manages its associated assets and liabilities over a longer-term time horizon. Thisenables the Group to manage a degree of short-term market volatility. Therefore, adjusted operating profit based on longer-term investment returnsis management’spreferred measure when evaluating theperformanceof thebusiness. Otherdistorting items are excluded from adjusted operating profit to allow more relevant period-on- period comparisons of the trading operations of the Group, eg the eects of corporate transactions areexcluded. Total adjusted operating profit before tax for 2021 increased 16 per cent on a constant exchange rate basis (17 per cent on an actual exchange rate basis) to $3,233 million, reflecting an 8 per cent increase in adjusted operating profit on a constantexchange rate basis (10 per cent on an actual exchange rate basis) from life and asset management, led by CPL, Hong Kong and Singapore, and a 19 per cent improvement in centralother income andexpenditure, driven by the delivery of head oce costreductions. 2021 $m 2020 $m 3,233 2,757 17% Notes 1The comparative results shown above have been prepared using an actual exchange rate (AER) basis except where otherwise stated. Comparative results on a constant exchange rate (CER) basis are also shown in financial tables in the Financial Review report on our 2021 financial performance. Growth rates for 2020 to 2021 are on an AER basis. 2New business profit, on a post-tax basis, on business sold in the year, calculated in accordance with EEV principles. 3Our investment portfolio includes both listed equities and corporate bonds, while excluding assets held by joint venture businesses and assets in unit-linked funds as we do not have full authority to change the investment strategies of these. 4Within the scope of EY assurance, see page 89. 5The EEV basis results have been prepared in accordance with EEV principles discussed in ‘basis of preparation’ of the EEV basis results. See note II of Additional unaudited financial information fordefinition andreconciliationto IFRSbalances. 6Operating free surplus generated from insuranceand asset managementoperationsbeforerestructuringcosts. For insurance operations, operating free surplus generated represents amounts emerging from the in-force business during the year net of amounts reinvested in writing new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the year. Restructuring costs are presented separately from the business unit amount. Further information is set out in ‘movement in Group free surplus’ of the EEV basis results. 7Adjusted operating profit is management’s primary measure of profitability and provides an underlying operating result based on longer-term investment returns and excludes non-operating items. This alternative performance measure is reconciled to IFRS profit for the year in note B1.1 of the IFRS financial statements. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 29 ![]() #### Financial review #### Delivered a resilient financial performance 2021 saw Prudential grow its continuing business organically across the Group’s key measures of financial performance. This performance, as in prior years, reflects the benefitof our digitally-enabled, multi-channel and geographically diverse platform as well as our focus on writing qualitybusinessatattractive margins. Prudential plc Annual Report 2021prudentialplc.com 30 ![]() Despite the ongoing Covid-19-related disruption, the Group has delivered a robust financial performance as management andsta continued to focus on delivering for our customers. We successfully completed the demergerof Jackson and restructured the Group’s financing, through an equity raise and debt redemption programme. As a result, we start 2022 with materially enhanced financial flexibility, with our leverage ratio at the lower end ofour medium-term target range and stronglevels ofregulatory capital. Going forward, we will benefit from lower interest costs following the redemption and refinancing of debt to date, and by the start of 2023, from a further $70 million 1 reductionin annual central expenses. We c ontinue to seek increases in the eciency of our central operations bydelayering, de-duplicating andspeeding upprocesses throughautomationand consolidation ofsuppliers, while redirecting discretionary spend on IT to support high growth initiatives. Prudential is well placed to profit from the growth opportunities in its Asia and Africa markets on it which it is now entirely focused. 2021 saw continued and varying Covid-19-related disruption in many o f our markets. This, and the related continued closure of the Hong Kong-Mainland China border, impacted our overall APE sales p erformance. The growth of ourother markets has, however, mitigated the impact on APE sales and our continued focus on high c ustomer retention and health and protection products has allowed us to continue to grow adjusted IFRS operating profit based on longer t erm investment returns (adjusted operatingprofit 2 ). Over t he course of 2021, global equity market performance varied; the MSCI Asia excluding Japan equity index fell (4) per cent, the HKSI fell (14) per cent while the S &P 500 index increased by 27 per cent. Government yields in many of ourmarkets ended the year higher with t he US 10-year yield increasing by 59 basis points to 1.53 per cent. During the year, interest rates were volatile as various geopoliticaland Covid-19-related economic impacts developed, most importantlythe emergence of material inflationary trends. The 2021 IFRS results include Jackson up to the date of demerger (13 September 2021) and for financial reporting purposes Jackson is classified as a discontinued operation, with its results excluded from all of our Group KPIs that are focused entirely on the continuing part of our business. At31 December 2021 our residual 18.4 per cent interest in Jackson is carried at fair value and was valued at $683 million at thisdate. The total IFRS loss after tax for 2021 was $(2,813) million (2020: $2,231 million 3 profit after tax), which comprised a $2,214 million profit after tax from continuing operations and a $(5,027) million loss after tax from discontinued operations. This loss from discontinued operations is due to the write-down of Jackson to its fair value upon demerger, as required by accounting standards. Further discussion on t he loss from discontinued operations is included in the section headed ‘Loss from discontinued operations– Jackson’ whichappears later in this report. As a consequence of the demerger of Jackson, IFRS shareholders’ equity fell from $20.9 billion 4 at the end of 2020 to $ 17.1 billion at 31 December 2021. The remainder of this summary will focus on the Group’s continuing operations. As in previous years, we comment on our performance in local currency terms (expressed on a constant exchange rate basis) to s how t he underlying business trendsin periods ofcurrency movement, unless otherwise noted. In 2021, despite on-going disruption, our digitally-enabled, multi -ch annel and geographically diversified platform delivered 8 per cent growth 3 in APE sales 5 . Excluding Hong Kong, where border restrictions with Mainland China remained in place, APE sales were 16 per centhigher 3 , with particularly encouraging growth in key markets such as M ainland China, India, Malaysia, the Philippines, Singapore and Thailand. This increase in APE sales was combined with an improvement in new business margins driven by a favourable shift in business mix, which resulted in a 13 per cent increase 3 in Group new business profit 6 . The adjusted operating profit of our life insurance businesses increased by 8 per cent 3 despite higherCovid-19-related claims, and reflects the high quality of our in-force portfolio. Asset management adjusted operating profit increased 10 per cent 3 driven byhigher average funds undermanagement following sustained net inflows from our life businesses and improved asset mix. Eastspring’s overall funds undermanagement reached $258.5 billion 7 at 31 December 2021. The Group’s overall adjusted operating profit increased 16 per cent 3 reflecting higher life and asset management results and reduced central expenses. Our life and asset management business generated operating free surplus 8 of $2,071 million up 7 per cent 3 on the prior year. The Group’s embedded value was $47.4 billion at 31 December 2021, with an operating return on embedded value of 8 per cent 9 . The increase from the prior year end was driven mainly by the addition of $ 2.5 billion of new business profit and the $2.4 billion net proceeds 10 of our equity raise. Our regulatory capital position and central liquidity positions remain robust. After allowing for the eect of planned high-coupon debt redemption in January 2022, the Group’s GWS shareholder surplus 11 was $11.5 billion and cover ratio was 408 per cent. The increase in surplus and cover ratio over 2021 largely reflects the impact of organic capital generation, the proceeds from our equity raise and other positivenon-operating movements. The Group’s liquidity position remains very sound with $3.6 billion of holding company cash a t the end of the year, of which $1,725 million was utilised in January 2022 to r edeem debt, and $2.6 billion of undrawn committed facilities. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 31 ![]() Financial review / continued IFRS profit Actual exchange rate Constantexchangerate 2021 $m 2020 $m Change % 2020 $m Change % Adjusted operating profit based on longer-term investment returnsbefore tax from continuingoperations CPL 343 2513726928 Hong Kong 975 891 9 88910 Indonesia 446 519(14)529(16) Malaysia 350 3091331312 Singapore 663 5741658913 Growth markets and other 12 932 8351284111 Long-termbusiness adjusted operatingprofit 3,709 3,379103,430 8 Asset management 314 2831128610 Total segment profit from continuing operations 4,023 3,662103,716 8 Investment return and other income 21 (15) n/a (15) n/a Interest payable on core structural borrowings (328) (316)(4)(316)(4) Corporateexpenditure (298) (412)28(428)30 Other income and expenditure (605) (743)19(759)20 Total adjusted operating profit before tax and restructuring and IFRS 17 implementation costs 3,418 2,919172,95716 Restructuring and IFRS 17 implementation costs (185) (162)(14)(167)(11) Total adjusted operating profit before tax 3,233 2,757172,79016 Non-operatingitems: Short-term fluctuations ininvestmentreturnson shareholder-backed business (458) (579)21(554)17 Amortisation ofacquisitionaccountingadjustments (5) (5) – (5) – (Loss) Profit attaching tocorporatetransactions (94) 735 n/a 733 n/a Profit from continuing operations before tax attributable to shareholders 2,676 2,908(8)2,964(10) Tax charge attributableto shareholders’ returns (462) (440)(5)(450)(3) Profit from continuing operations for the period 2,214 2,468(10)2,514(12) Loss from discontinued operations for the period, net of related tax (5,027) (283) n/a (283) n/a (Loss) profit for the period (2,813) 2,185 n/a 2,231 n/a IFRS earnings per share Actual exchange rate Constantexchangerate 2021 cents 2020 cents Change % 2020 cents Change % Basic earnings per share based on adjusted operating profit after tax fromcontinuing operations 101.5 86.61787.616 Basic earnings per share based on: Total profit after tax from continuing operations 83.4 94.6(12)96.4(13) Total profit after tax from discontinued operations (161.1) (13.0) n/a (13.1) n/a Segment profit from continuing long-term andasset management business increased by 8 per cent 3 to $4,023 million. All our major segments, other than Indonesia, delivered growth, with the biggest percentage increase seen in CITIC Prudential Life (CPL). Earnings in the second half of the year were dampened by higher claims costs inIndonesia following a surge of Covid-19 cases in the third quarter, and as medical reimbursement costs continued to trend back to pre-pandemic levels. After allowing for a 20 per cent 3 reduction incentral expenditure (beforerestructuring and IFRS 17 implementation costs), total adjusted operating profit before tax increased to $3,233 million, a 16 per cent 3 increase compared withtheprior period. CPL, our joint venture business in Mainland China, delivered a 28 per cent increase 3 in adjusted operating profit to $343 million, primarily driven by growth in our in-force portfolio, evident by a 19 per cent growth in recurring premiums in 2021. In Hong Kong, our adjusted operating profit was up 10 per cent 3 to $975 million and is driven by our long-term focus on regular premium business and strongretention of both our domestic and Mainland China customers. It also reflects the on-going growth of our health and protection business and, for our flagship critical illness products, the compounding benefit to adjusted operating profit given the accumulating nature of asset shares. Earnings outperformed growth in renewal premiums, as some policies within the with-profits funds reached the end of their premium paying term, albeit they continue to contribute to annual adjusted operating profit through the with-profits bonus mechanism. Prudential plc Annual Report 2021prudentialplc.com 32 ![]() In Indonesia, adjusted operating profit reduced by (16) per cent 3 reflecting lower APE sales over recent years and adverse Covid-19- relatedclaims experience. In Malaysia adjusted operating profit growth of 12 per cent 3 was s upported by the growth of our in-force health and protection business, with shareholder-backed renewal premiums increasing by 8 p er cent 3 , and higher fee income as a result of increased funds held withinunit-linked funds. In Singapore, adjusted operating profit increased 13 per cent 3 reflecting the continued growth of our in-force business, including in protection and savings products where we believe demand will continue as the population ages and seeks to meet its health and retirement needs. The businesses comprising our Growth markets and other segment generated adjusted operating profit growth of 11 per cent 3 , reflective of in-force growth which is supported by APE sales in recent years. Vietnam, the Philippines and Thailand all reported double-digit growth. In Thailand double-digit growth in adjusted operating profit was achieved through APE sales growth from the expansion of the strategic partnerships and resilient in-force growth. In India, the result forthe period reflected higher Covid-19-related claims following the large spike in cases seen in the first half of the year. Long-term insurance business adjusted operating profit drivers Profit margin analysis of long-term insurance continuing operations 13 Actual exchange rate Constantexchangerate 2021 20202020 $m Margin bps $m Margin bps $m Margin bps Spread income 31266 2967430476 Fee income 345103 282101287101 With-profits 13516 1171611816 Insurance margin 2,897 2,6482,689 Other income 3,239 3,2193,262 Total life insurance income 6,928 6,5626,660 Expenses: Acquisition costs (2,085)(50)% (1,928)(51)%(1,964)(50)% Administration expenses (1,656)(205) (1,591)(234)(1,609)(234) DAC adjustments 566 382392 Share of related tax charges from joint ventures and associates (44) (46)(49) Long-term insurance business pre-tax adjusted operating profit 3,709 3,3793,430 Ou r adjusted operating profit continues to be based on high-quality drivers. The overall 8 per cent 3 growth in life insurance adjusted operating profit to $3,709 million (2020: $3,430 million 3 ) was driven principally by 8 per cent 3 growth in insurance margin-related revenues reflecting our ongoing focus on recurring premium health and protection products and the associated continued growth of our i n-force business, partially oset by a more normalised claims experience following the lower level of claims seen in2020 and higher C ovid-19 claims in Indonesia and India in 2021. Fee income increased by 20 per cent 3 , reflecting the beneficial impact o f stronger equity markets and premiumcontributions while spread income increased by 3 per cent 3 , with a fall in margin due to country mix. With-profits earnings relateprincipally tothe shareholders’ share in b onuses declared to policyholders. As these bonuses are typically weighted to the end of a contract, under IFRS, with-profit earnings consequently emerge only gradually over time. The 14 per cent 3 growth in with-profits earnings reflects the ongoing growth in these portfolios. Other income primarilyrepresents amounts deducted from premiums to cover acquisition costs and administration expenses. As such, the 1 per cent 3 decline (1 per cent increase on an actual exchange rate basis) from 2020 reflects changes in product mix partially oset by higher premiums onshareholder-backed business. Acquisition costs increased in the year, largely due to higher APE sales as c ompared with the prior year. This increase in acquisition costs has led to an increase in the costs deferred and therefore higher DAC a djustments in the year. Administration expenses, including renewal commissions, increased by 3 per cent 3 (4 per cent increase on an actual exchange rate basis) reflecting in-force business growth. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 33 ![]() Financial review / continued Asset management 2021 $m 2020 $m Change % Total external net flows \* ,14 613 (9,972) n/a External fundsunder management \* ($bn) 94.0 93.9 – Funds managed on behalf of M&G plc ($bn) 11.5 15.7(27) Internal funds under management($bn) 153.0 138.211 Total funds under management ($bn) 258.5 247.8 4 Analysis of adjusted operating profit Retail operating income 449 39015 Institutional operating income 298 25616 Operatingincome before performance-relatedfees 747 64616 Performance-related fees 15 7 114 Operatingincome (net of commission) 762 65317 Operating expense (403) (336)(20) Group’s share of tax on joint ventures’ adjusted operating profit (45) (34)(32) Adjusted operating profit 314 28311 Adjusted operating profit after tax 284 25312 Average funds managed by Eastspring 251.7bn 227.1bn11% Fee margin based on operating income 30bps 28bps+2bps Cost/income ratio 15 54% 52%+2ppts \* Excluding funds managed on behalf of M&G plc. Eastspring’s total fundsunder management were $258.5 billion at 31 December 2021 (31 December 2020: $247.8 billion 4 ), reflecting favourable internal net flows and higherequity markets. Compared with 2020, Eastspring’s average fundsunder management increased by 11 per cent 4 (9 per cent on a constant exchange rate basis). Eastspring saw total net inflows of $5.8 billion over 2021 (2020: $(11.5) billion 4 ) which included internal net inflows from our life businesses of $10.7 billion (2020: $8.5 billion 4 ) and from third-parties (excluding money market funds) of $0.6 billion (2020: $(10.0) billion 4 of outflows). Osetting these amounts were $(4.0) billion of net outflows for funds managed on behalf of M&G plc, with further net outflows of about $(0.9) billion expected in 2022. Third-party net flows were driven by $1.1 billion of retail net inflows, partly oset by net institutional outflows. Overall therewere external net inflows into equity funds and external net outflows from fixed income funds, which contributed to an increase in the retail fee margin. Eastspring’s adjusted operating profit of $314 million was up 10 per cent compared with the prior period on a constant exchange rate basis (up 11 per cent on an actual exchange rate basis). Operating income before performance related fees was 16 per cent higher 4 , driven by higher averagefunds under managementand a 2 basis points increase in fee margin reflecting an improved asset mix. The c ost/income ratio increased to 54 per cent (2020: 52 per cent) reflecting both higher sta costs and investments made in strengthening the capabilities of thebusiness across dimensions including footprint, distribution, investment strategies and customer e xperience. Other income and expenditure Central corporate expenditure was 30 per cent 3 lower than the prior period reflecting the delivery of the $180 million of right-sizing of our head oce costs alongside theevolving footprint of the business. Annual head oce costs are targeted to reduce further by around $70 million 1 from the start of 2023. Interest costs on core structural borrowings of $(328) million (2020: $ (316) million 3 ) include interest costs of $(126) million related to the four tranches of debt that were redeemed in December 2021 and January 2022 using the proceeds from the share oer during the y ear, which are n ot expected to recur going forward. Restructuring costs of $(185) million (2020: $(162) million 4 ) reflect the G roup’s substantial and ongoing IFRS 17 project, and one-o costs associated with cost saving, regulatory and other initiatives in o ur business. IFRS 17 costs are e xpected to remain elevated until the standard is fullyimplemented. IFRS basis non-operating items from continuing operations Non-operating items from continuing operations inthe year consist mainly of short-term fluctuations in investment returns on shareholder-backed business of negative$(458) million,(2020: negative $(554) million 3 ), and $(94) million of costs associated with c orporate transactions (2020: gain of $733 million 3 ). Short-term fluctuations reflect the net impact from an increase in i nterest rates in most Asia markets on bond asset values and on the valuation interest rates (VIRs) used to determine policyholder l iabilities. Prudential plc Annual Report 2021prudentialplc.com 34 ![]() Costs associated with corporate transactions of $(94) million (2020: ga in of $733 million 3 ) include the cost incurred by Prudential plc in connection with the separation of Jackson including key management changes. See note D1.1 in the IFRS financial statements forfurther information. IFRS eective tax rates for continuing operations In 2021, the eective tax rate on adjusted operating profit was 17 per cent (2020: 18 per cent). The decrease in the 2021 eective tax rate reflects the resolution of some historic issues at lower amounts than had been provided for. The eective tax rate on total IFRS profit in 2021 was 17 per cent (2020: 15 per cent). The increase in the 2021 eective tax rate reflects t he adverse impact of investment losses on which no tax credit is recognised. The eective tax rate on adjusted operating profit in 2022 is expected to be similar to 2021. From 2023 onwards, the eective tax rate on adjusted operating profit is likely to be impacted by a combination of t he OECD proposals to implement a global minimum tax rate of 15 per cent and some jurisdictions where Prudential operates implementing a domestic minimum tax based on the OECD proposals. The OECD rules are complex and require detailed analysis and consideration which is ongoing. A further update will be provided in the half-year 2022 results. Total tax contributions from continuing operations The Group continues to make significant tax contributions in the jurisdictions in which it operates, with $1,071 million remitted to tax authorities in 2021. This was lower than the equivalent amount of $1,208 million 4 remitted in 2020 principally due to the timing of when various tax payments became due. Tax strategy The Group publishes its tax strategy annually which, in addition to complying with the mandatory UK (Finance Act 2016) requirements, also includes a number of additional disclosures, including a country- by-country disclosureof revenues, profits, average employee numbers and taxes for all jurisdictions where more than $5 million tax was paid. This disclosure is included as a way of demonstrating that our tax footprint (ie where we pay taxes) is consistent with our business footprint. An updated version of the tax strategy, including 2021 data, will be available on the Group’s website before 31 May 2022. Loss fromdiscontinued operations– Jackson On 13 September 2021 Prudential completed the demerger of its US operations (Jackson) from the Group. Accordingly Jackson has been presented as discontinued within these financial statements. The total loss from discontinued operations after tax was $(5,027) million (2020: $(283) million), as included in the IFRS profit table above. Thiscomprises the following amounts: 2021 $m 2020 $m Profit (loss) before tax 2,317 (760) Tax (charge) credit (363) 477 Profit (loss) after tax 1,954 (283) Re-measurementto fair valueon demerger (8,259) – Cumulative valuation movements on available-for-sale debt securities, net of related tax and change in DAC, and net investment hedges recycled from other comprehensive income 1,278 – Loss for the period (5,027) (283) Loss for the period attributable to shareholders (4,234) (340) Jackson’s profit before tax included in the Group’s full-year 2021 results o f $2,317 million reflects the eight and a half month period to 13 September 2021, at which point it was demerged and ceased to be p art of the Prudential Group. Jackson’s loss before tax for the prior year of $(760) million reflects the 12 months to 31 December 2020 and was calculated after including a $804 million one-o pre-tax gain that arose as a result of reinsuring substantially all of Jackson’s in-force portfolio of US fixed and fixed index annuities to Athene Life Re Ltd. The key driver of the increase in IFRS profit in the current period was the impact of market interest rates on the value of Jackson’s product guarantees. In 2020, falling interest rates, with yields on US treasuries falling by almost one percentage point over the year, and steeply rising equity markets, led to $(4,262) million of losses which were classified as short-term investment fluctuations. Short-term investment fluctuations in the current year up to the demerger reflect gains from the impact of increases in interest rates on the value of Jackson’s product guarantees, oset by derivative losses from higher equity volatility and rising equity markets, resulting in a more muted overall short-term investment fluctuation gain of $15 million for 2021. Excluding the impact of these market movements, Jackson’s underlying performance inthe period benefited from higher fee income from variable annuity products, reflecting increases in separate account balances. The eective tax rate on Jackson’s profit before tax was 16 per cent (2020: 63 per cent). The 2021 eective tax rate is a more typical rate i n c ontrast to 2020 where the rate reflected the mathematical combination of a tax charge on adjusted operating profit and a much higher tax credit on non-operating losses. In accordance with IFRS requirements, immediately prior to demerger, Jackson was written down to its fair value as at the demerger date of $ 2,506 million. Applying this fair value has resulted in a loss on re-measurement after tax of $(8,259) million. As a result of the demerger of Jackson, accumulated balances of $1,278 million previouslyrecognised throughother comprehensive income, largely relating to financial instruments held by Jackson classified as available for sale, have been recycled from other comprehensive income to the income statement. This gain is matched b y an equal and opposite recycling movement in other comprehensive income, with no netimpact on shareholders’ equity. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 35 ![]() Financial review / continued On 13 September 2021, the Group distributed shares in Jackson Financial Inc. representing a 69.2 per cent economic interest, to the Group’s shareholders as a dividend in-specie with a value of $(1,735) million. Immediately following the demerger, the Group retained a 19.7 per cent economic interest in Jackson Financial Inc. which was recognised as a financial investment, measured at fair value. On 13 December 2021, Jackson a nnounced, as part of its previously disclosed $300 million share repurchase programme, the repurchase of 2,242,516 shares of its Class A common stock from Prudential. With this repurchase activity, Prudential’s remaining economic interest in Jackson was 18.4 per cent as o f 3 1 December 2021 (18.5 per cent voting interest). Shareholders’ equity Group IFRS shareholders’ equity 2021 $m 2020 $m Adjusted operating profitafter tax attributable to shareholders fromcontinuingoperations 2,668 2,250 Profit from continuing operations for the period 2,214 2,468 Less non-controlling interest from continuingoperations (22) (10) Profit after tax for the period attributable to shareholders from continuing operations 2,192 2,458 Net decrease in shareholders’ equity from discontinued operations (see note D1.2 in the IFRS financial statements) (6,283) (418) Demerger dividend in-specie of Jackson (1,735) – Exchange movements, net of related tax (165) 239 Other external dividends (421) (814) Issue of equity shares 2,382 13 Other (includingrevaluation of Jackson residual interest since demerger) 240 (77) Net (decrease) increase in shareholders’ equity (3,790) 1,401 Shareholders’ equityat beginning ofthe period 20,878 19,477 Shareholders’ equity at end of the period 17,088 20,878 Shareholders’ value per share 15 622¢ 800¢ Group IFRS shareholders’ equity decreased from $20.9 billion at the start of 2021 to $17.1 billion 4 at 31 December 2021. This fall was driven by an $ (8.0) billion decrease in equity as a result of the demerger of Jackson. Excluding this amount, shareholders’ equity increased by $4.2 billion reflecting a successful issuance of new share capital on the Hong Kong stock exchange in October 2021 and profits generated in 2021 by the continuing business, oset by dividend payments of $(0.4) billion and adverse exchange movements of $(0.2) billion. New business performance EEV new business profit and APE new business sales (APE sales) Actual exchange rate Constantexchange rate 2021 $m 2020 $m Change % 2020 $m Change % APE sales New business profit APE sales New business profit APE sales New business profit APE sales New business profit APE sales New business profit CPL 776352 58226933316232882522 Hong Kong 550736 758787(27)(6)757786(27)(6) Indonesia 252125 267155(6)(19)271158(7)(21) Malaysia 461232 346209331135121231 9 Singapore 743523 61034122536263501949 Growth markets and other \* 1,412558 1,24544013271,2624461225 Total \* 4,1942,526 3,8082,20110153,8902,240 8 13 Total new business margin 60% 58%58% \* The 2020 new business profit results exclude contributions from Africa. APE sales increased by 8 per cent 3 to $4,194 million and related new business profit increased by 13 per cent 3 . Outside Hong Kong, overall APE sales were 16 per cent 3 higher andnew business profitincreased by 23per cent 3 . The increase in newbusiness profit was driven principally by the increase in APE sales and the eect of favourable product mix changes. Detailed discussion of new business performance by s egment is presented in the Strategic and operating review. Prudential plc Annual Report 2021prudentialplc.com 36 ![]() Greater China presence Prudential has a significant footprint in the Greater China region, with businesses in Mainland China (through its holding CPL), Hong Kong and Taiwan. The Group is joint-headquartered in London and Hong Kong and its regulator is the Hong Kong Insurance Authority. The Group, and the location of its employees, including key executives, has shifted further towards Hong Kong over the years, with 65 per cent of head oce sta now located in Hong Kong. The table below demonstrates the significant proportion of the Group’s financial measures that were contributed by our Hong Kong, CPL and Taiwan businesses. Gross premiums earned † New business profit ‡ 2021 $m 2020 $m 2021 $m 2020 $m Total Greater China \* 14,335 14,179 1,181 1,144 Total Group \* (continuing operations) 28,796 26,728 2,526 2,201 Percentage of total 50% 53% 47% 52% \* Total Greater China represents the amount contributed by the life business in Hong Kong, Taiwan and the Group’s share of the amounts earned by CPL. The Group total includes the Group’s share of the amounts earned by all life associates and JVs. † The gross earned premium amount shown above diers from that shown in the income statement as it includes the Group’s share of amounts earned by associates and JVs. A reconciliation to the amount included in the income statements is included in note II of the Additional unaudited financial information. ‡ New business profit results for full year 2020 exclude contributions from Africa. EEV basis results EEV basis results from continuing operations Actual exchange rate Constantexchangerate 2021 $m 2020 $m Change % 2020 $m Change % New businessprofit 2,526 2,201152,24013 Profit from in-force business 1,630 1,926(15)1,948(16) Operating profit from long-term business 4,156 4,127 1 4,188(1) Asset management 284 2531225511 Other income andexpenditure 16 (897) (979) 8 (999)10 Operating profit for the period from continuing operations 3,543 3,401 4 3,444 3 Non-operating profit (306) 573(153)585(152) Profit for the period from continuing operations 3,237 3,974(19)4,029(20) Dividends paid (421) (814) Share capital issued 2,382 13 Other movements 231 384 Net increase in EEV shareholders’ equity from continuing operations 5,429 3,557 EEV shareholders’ equity from continuing operations at 1 Jan 41,926 38,369 EEV shareholders’ equity from continuing operations at 31 Dec 47,355 41,926 % New business profit/average EEV shareholders’ equity for continuing long-term business operations \* 6% 5% % Operating profit/averageEEV shareholders’equity for continuing operations 8% 8% EEV shareholders’ equity 31 Dec 2021 $m 31 Dec 2020 $m Represented by: CPL 3,114 2,798 Hong Kong 21,460 20,156 Indonesia 2,237 2,630 Malaysia 3,841 4,142 Singapore 7,732 8,160 Growth markets and other 6,262 4,975 Embedded value from long-term business excluding goodwill 44,646 42,861 Asset management and other excluding goodwill 1,931 (1,756) Goodwillattributableto equity holders 778 821 EEV shareholders’ equity from continuingoperations 47,355 41,926 EEV shareholders’ equity from discontinued operations – 12,081 Group EEV shareholders’ equity 47,355 54,007 EEV shareholders’ equity persharefromcontinuing operations 1,725¢ 1,607¢ Group EEV shareholders’ equity per share 1,725¢ 2,070¢ \* Excluding goodwill attributable to equity holders. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 37 Financial review / continued The results of the continuing operations of the Group on an EEV basis consist of the results of profits on an EEV basis from long-term and asset management business together withcorporate costs and dividends paid. EEV operating profit from continuing operations increased by 3 per cent 3 to $3,543 million (2020: $3,444 million). This was driven by increased new business and asset management profit (as previously discussed) and reduced central expenses, oset by lower profit fromin-force long-term business. The profit from in-force long-term business is driven by the expected return and eects of operating assumption changes, if any, and o perating experience variances. The expected return increased by 24 per cent 3 above the prior year reflecting the combined eects of und erlying business growth and the impact of higherinterest rates increasing the risk discount rate under our active basis EEV methodology. Operating assumption andexperience variances werenegative $(131) million on a net basis reflecting a number of factors includingshort-term persistency impacts and higher claims linked to Covid-19. Indonesia and India claims costs were elevated given the significant level of Covid-19 cases seen in the mid-to-late partof 2021. While we have continued to see better than expected claims experience onour medical reimbursement business, thisis lower than inprior periods and sooperating variances have fallen when compared withthe prior year. The non-operating loss of $(306) million (2020: $585 million 3 profit) is l argely driven by rising interest rates over the year leading to reduced bond valuations, which more than oset the beneficial impact of these changes on future profits. Overall,EEV shareholders’ equity from continuing operations increased at 31 December 2021 to $47.4 billion (31 December 2020: $41.9 billion 4 ). Of this, $44.6 billion (31 December 2020: $42.9 billion 4 ) relates to the value of the long-term business. This amount includes our share of our India associate valued using embedded value principles. The market capitalisation of this associate at 31 December 2021 was circa $10.8 billion, which compares with a publicly reported embedded value of circa $4.1 billion at 30 September 2021, Prudential’s share of which is the basis of the Group’s EEV reporting. As wellas the long-term business amounts, EEV includes the value of t he asset management businesses on an IFRS basis, the net assets of the central holding companies and the goodwill attributable to shareholders, all valued on an IFRS basis. Included within these amounts at 31 December 2021 is the benefit of our $2.4 billion equity r aise and $683 million for our 18.4 per cent economic interest in Jackson, which is measured at fair value. EEV shareholders’ equity o n a per share basis at 31 December 2021 was 1,725 cents (31 December 2020: 1,607 cents based on continuing operations and e xcluding Jackson residual interest). Group free surplus generation from continuing operations Operating free surplus generation is the financial metric we use to measure the internal cash generation of our business operations and for our life operations is generally based on (with adjustments) the capital regimes that apply locally in the various jurisdictions in which the Group operates. Itrepresents amounts emergingfromthe in-force business duringthe year, net ofamounts reinvested in writingnew business. For asset management businesses, it equates to post-tax adjusted operating profit for the year. For long-term business, free surplus is generally based on (with adjustments) the excess of the regulatory basis net assets for EEV reporting purposes (total net worth) over the capital required to support the covered business. In general, assets deemed to be inadmissible on a local regulatory basis are included in total net worthwhere considered recognisable on an EEV basis. For asset management and other non-insuranceoperations (including the Group’s centraloperations), free surplus is taken to be IFRS basis shareholders’ equity, net of goodwill attributable to shareholders, with central Group debt recorded as free surplus to the extent that it i s c lassified as capital resources under the Group’s capital regime. Followingthe application of the GWS Framework, both subordinated and senior debt are treated as capital for the purposes of free surplus at 31 December 2021. Prudential plc Annual Report 2021prudentialplc.com 38 ![]() Analysis of movement in Group free surplus 8 Actual exchange rate Constantexchangerate 2021 $m 2020 $m Change % 2020 $m Change % Expected transfer from in-force business and return on existing free surplus 2,497 1,979262,01624 Changes in operatingassumptions and experience variances (173) 215(180)220(179) Operating free surplus generated from in-force life business beforerestructuring costs 2,324 2,194 6 2,236 4 Investment in new business (537) (559) 4 (563) 5 Asset management 284 2531225511 Operating free surplus generated from life business and asset management before restructuring costs 2,071 1,888101,928 7 Central costs and eliminations (net of tax): Net interest paid on core structural borrowings (328) (307)(7)(307)(7) Corporateexpenditure (292) (412)29(428)32 Other items and eliminations (103) (107) 4 (107) 4 Restructuring and IFRS 17 implementation costs (net of tax) (169) (147)(15)(151)(12) Net Group operating free surplus generated for continuing operations 1,179 9152993526 Non-operatingand other movements, includingforeign exchange 330 281 Recognition of residual interest in Jackson at demerger 493 – External cash dividends (421) (814) Share capital issued 2,382 13 Treatmentof grandfathered debtinstruments under theGWS Framework 1,995 – Net subordinated debt issuance/redemption (232) – Increase (decrease) in Group free surplus from continuing operations before amounts attributable to non-controlling interests 5,726 395 Change inamounts attributable tonon-controllinginterests (21) (10) Free surplus at 1 Jan from continuing operations 8,344 7,959 Free surplus at 31 Dec from continuing operations 14,049 8,344 Comprising: Free surplus of life insurance and asset management operations 6,650 5,983 Central operations 7,399 2,361 The in-force business generated $2,324 million of free surplus in 2021, an increase of 4 per cent 3 from 2020 with growth curtailed by higher Covid claims costs in Indonesia and India. Despite the overall increase in APE sales, up 8 per cent as discussed above, the cost of investment in this new business improved by 5 per cent 3 reflecting favourable business mix and economics, supporting the 13 per cent 3 increase in new business profit discussed above. In 2021 the value created from writing new business, as measured by new business profit, was nearly five times the capital invested. After allowing for an 11 per cent 3 increase in asset management earnings on an after tax basis (discussed in the commentary on IFRS above), operating free surplus generation by our life and asset management business increased by 7 per cent 3 to $2,071 million. Combiningfree surplusgenerated by the life and asset management business with a reduction in central costs of 14 per cent 3 oset by (12) per cent 3 increase in restructuring and IFRS 17 implementation costs, total Group operating free surplus generation from continuing operations was 26 per cent 3 higher at $1,179 million. Free surplus at 31 December 2021 was $14.0 billion, after allowing for f ree surplus generation in the period and a $2.4 billion uplift from the equity raise, $0.5 billion from the recognition of the Group’s residual interest in Jackson, $(0.2) billion from net redemption of debt and $2.0 billion from the recognition of senior debt under the GWS Framework 17 . This uplift for the debt diers from the $1.6 billion recognised in the Group’s capital resources as, prior to the adoption ofGWS, senior debt was deducted from free surplus at market value rather than at cost. $1,725 million of the free surplus held at the year end was used in January 2022 to complete the planned debt r edemption. Dividend Reflecting the Group’s capital allocation priorities, a portion of capital generation will be retained for reinvestment in the business, and dividends will be determinedprimarily based on the Group’s operating capital generation after allowing for the capital strain of writing new business and recurring central costs. Dividends are expected to grow broadly in line with the growth in the Group’s operating free surplus generation netof right-sizedcentral costs, and will be settaking into a ccount financial prospects, investment opportunities and market conditions. Accordingly, the Board has approved a 2021 second interim ordinary cash dividend of 11.86 cents per share (2020:10.73 cents per share). Combined with the first interim ordinary cash dividend of 5.37 cents per share (2020: 5.37 cents per share), theGroup’s total 2021 cash dividend is 17.23 cents per share (2020:16.10 cents per share), an increase of 7 per cent. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 39 ![]() Financial review / continued Group capital position Prudential applies the Insurance (Group Capital) Rules set out in the GWS Framework issued by the Hong Kong IA to determine group regulatory capital requirements (both minimum and prescribed levels). The GWS Framework became eective for Prudential upon designation by the Hong Kong IA on 14 May 2021 and replaced the local capital summation method (LCSM) which was used for determination of the 31 December 2020 Group capital position as agreed with the Hong Kong IA. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at 31 December 2021 are included as GWS eligible group capital resources. This includes debt issued at the date of designation which met the transitional conditions set by the Hong Kong IA and have not since been redeemed and debt issued since the date of designation which met the qualifying conditions as set out in the Insurance (Group C apital) Rules. More information is set out in note I(i) of the Additionalunauditedfinancial information. In the analysis below we have restated the 31 December 2020 LCSM position to reflect the treatment of debt instruments under the GWS Framework. This has increased eligible capital resources by $1.6 billion compared with the LCSM basis. The 31 December 2020 Group GWS capital results are presented on a Group excluding Jackson basis and a re before including the value of the Group’s retained interest in Jackson Financial Inc. At 31 December 2021 the Prudential Group total company GWS capital surplus of eligible group capital resources over the Group Minimum Capital Requirement (GMCR) was $33.7 billion 18 , equating to a coverage ratio of 4 14 per cent (31 December 2020: $24.8 billion 4 / 344 per cent). The p osition at 31 December 2021 includes $0.4 billion in respect of the 18.4 per cent economic interest in Jackson, being 60 per cent of i ts fair value at that date, as agreed with the HKIA. The Group holdsmaterial participating business inHong Kong, Singapore and Malaysia. Alongside the totalcompany GWS capital basis, a shareholder GWS capital basis is also presented, being eligible group capital resources over the GMCR excluding the capital resources and minimum capital requirements ofthese participating funds. At 31 December 2021 the shareholder GWS capital surplus of total eligible group capital resources over the GMCR was $13.2 billion 18 , equating to a coverage ratio of 4 54 per cent (31 December 2020: $9.4 billion 4 / 370 per cent). The 31 December 2021 Group GWS capital results do not reflect the redemption of $1,725 million of sub-ordinated debt in January 2022. If this redemption had been completed as at 31 December 2021 the G roup shareholder GWS capital surplus over theGMCR would be $11.5 billion, equating to a coverage ratio of 408 per cent. The Group shareholder GWS capital surplusover the GMCR 11 increased by $3.8 billion since 31 December 2020 to $13.2 billion at 31 December 2021 (before allowing for the January 2022 debt redemptions). GWS shareholder in-force operating capital generation in the period was $1.0 billion after allowing for central costs and investment in new business. The impact of non-operating experiences, including market movements, werepositive overall andcontributed $0.3 billion to surplus. Corporate transactions, including the equity raise and net debt redemptions and recognition of the Jackson residual interest amongst otheritems, increased shareholder GWS capital surplus over the GMCR by $2.9 billion overall and were oset by payment of $(0.4) billion external dividends in the year. No allowance is made at 31 December 2021 for the 2021 second interim dividend due for payment in May 2022. The Group’s GWS position is resilient to external macro movements as demonstrated by the sensitivity disclosure contained in note I(i) of t he Additional unaudited financialinformation, alongside further information on the basis of calculation of the GWS measure. Estimated Group GWS capital position based on Group Minimum Capital Requirement (GMCR) 11 Amounts attributable to Prudential plc 31 Dec 202131 Dec 2020 Total Less policyholder Shareholder Total Less policyholder Shareholder Eligiblegroup capital resources ($bn) 44.4(27.5)16.9 34.9(22.1)12.8 Group Minimum Capital Requirement ($bn) 10.7(7.0)3.7 10.1(6.7)3.4 GWS capital surplus (over GMCR) ($bn) 33.7(20.5)13.2 24.8(15.4)9.4 GWS coverage ratio (over GMCR) (%) 414%454% 344%370% The recent trend to more risk-based capital regimes being adopted in m any of the Group’s markets is continuing and this impacts on the Group’s GWS capital measure, which is underpinned by the local regulatory regimes of the Group’s subsidiaries, joint ventures and associates. In Mainland China C-ROSS II has become eective in the fi rst quarter of 2022, the impact of which is not included in the GWS results above. Further, in February 2022 Prudential Hong Kong Limited, the Group’s insurance business in Hong Kong, made an application to the HKIA to e arly-adopt the new risk-based capital regime. The impact is not reflected in the 31 December 2021 GWS capital position shown above and the Group currently expects to include this change in the GWS capital position as at 30 June 2022, which remains subject to HKIA approval. We intend to disclose the impacts of both these regulatory changes within our 2022 half year financial report as they b ecome eective. Prudential plc Annual Report 2021prudentialplc.com 40 ![]() CapitalManagement The Group monitors regulatory capital, economic capital and ratingagency capital metrics and manages the business within its r isk a ppetite by remaining within its economic and regulatory capital limits. The Group’s capital management framework focuses on achieving sustainable, profitable growth and retaining a resilient balance sheet, with a disciplined approach to active capital allocation. The f ramework comprises the following key elements: > Su cient capital is held in each business to meet local regulatory capital requirements, the applicable capital requirements under the G WS Framework and the Group’s risk appetite to ensure that commitments made to customers can be fulfilled in stress scenarios; > Su cient resources are held centrally to provide a capital buer to support businesses in stress scenarios and to provide liquidity to s ervicedebt and othercentral expenses (including central payments for bancassurancedistribution agreements and restructuring costs); > Both organic and inorganic opportunities are assessed by reference to expected shareholder returns and payback periods, relative to risk-adjusted hurdle rates which are set centrally. The assessment for i norganic investments also considers a range of other factors including the strategic rationale for the investment, the extent of d iversification with existing risks in the Group, experience in managing similar businesses in the Group, the level of control or reliance on third parties (eg via joint ventures and co-investments) to achieve the intended shareholder returns, and the level of uncertainty in financial projections. Assessment of these opportunities is also reviewed and approved centrally within the Group’s governance framework in order to maintain a rigorous approachto capitalallocation; > Re flecting the Group’s capital allocation priorities, a portion of capital generation will be retained for reinvestment in the business, and dividendswill be determined primarily based on the Group’s operating capital generationafter allowing for the capital strain of w riting newbusiness and recurring central costs; and > To the extent that surplus capital arises which is not required to s upport organic and inorganic growth opportunities, consideration will be given to returning capital to shareholders. Financing and liquidity On 4 October 2021, Prudential plc completed the issuance of new share capital on the Hong Kong Stock Exchange, resulting in net proceeds and an increase in shareholders’ equity of $2,374 million. The proceeds of this equity issue have been used to enhance Prudential’s financial flexibility in light of the breadth of opportunities to invest for growth. Specifically, the proceeds have been utilised to redeem high coupon debt instruments of $1,250 million in December 2021 and $1,000 million in January 2022, with the remaining proceeds contributing to Prudential’s central stock of capital and liquidity. This u se of proceeds is consistent with the intended use of proceeds previously disclosed in Prudential’s prospectus for this equity raise. In November, 2021 the Group issued a $1,000 million 2.95 per cent debt instrument, the proceeds of which have been utilised in part to redeem a $725 million 4.375 per cent debt instrument in January 2 022. At 31 December 2021, the Group’s net gearing ratio as defined in the table below was 13 per cent, reflecting the issue of share capital in O ctober 2021, the issue of debt in November 2021 and redemption of debtin December 2021 but excluding the redemptions completed in January 2022. The Group manages its leverage on a Moody’s total leverage basis, which diers from the above by taking into accountgross debt, includingcommercial paper, and also allows for a proportion of the surplus within the Group’s with-profits funds. We estimate the Moody’s total leverage at 31 December to be 26 per cent and if the further debt redemptions of $1,725 million in J anuary 2022 had been completed as at 31 December 2021, we estimate that this figure would have been 21 per cent. Prudential is targeting a Moody’s total leverage ratio of around 20 to 2 5 per cent over the medium term. Prudential may operate outside this range temporarily to take advantage of growth opportunities with a ttractive risk-adjusted returns as they arise, while still preserving its strong credit ratings. Prudential seeks to maintain its financial strength rating with applicable credit rating agencies which derives, in part, from its high level of financial flexibility to issue debt and equity instruments, which is intended to be maintained and enhanced in the future. Net core structural borrowings of shareholder-financed businesses 31 Dec 2021 $m 31 Dec 2020 $m IFRS basis Mark-to- market value EEV basis IFRS basis Mark-to- market value EEV basis Borrowingsof shareholder-financed businesses fromcontinuing operations 6,1274386,565 6,3837957,178 Discontinued operations – Jackson SurplusNotes ––– 25090340 Total borrowings ofshareholder-financed businesses 6,1274386,565 6,6338857,518 Less: holding company cash and short-term investments (3,572) – (3,572) (1,463) – (1,463) Net core structural borrowings ofshareholder-financed businesses 2,5554382,993 5,1708856,055 Net gearing ratio \* 13% 28% \* Netcore structuralborrowingsfromcontinuing operations as proportion of IFRSshareholders’equity from continuing operations plus net core structural borrowingsfrom continuingoperations, as set out in note II of the Additional unaudited financial information. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 41 ![]() Financial review / continued The totalborrowings of the shareholder-financed businesses from c ontinuing operations were $6.1 billion at 31 December 2021 (31 December 2020: $6.4 billion 4 ). The Group had central cash resources of $3.6 billion at 31 December 2021 (31 December 2020: $1.5 billion 4 ), resulting in net core structural borrowings of the shareholder-financed businesses of$2.6 billionat end of December 2021 (31 December 2020: $4.9 billion for continuing operations 4 ). We h ave not breached any of the requirements of our core structural borrowings nor modified any of their terms during 2021. Net core structural borrowings include a $350 million bank loan which the Group is currentlyconsidering refinancing. In addition to its net core structural borrowings of shareholder-financed businesses set out above, the Group is able to access funding via the medium-term note programme, the US shelfprogramme (the platform for issuance of SEC registered bonds in the US market), a c ommercial paper programme and committed revolving credit facilities. All of these are available for general corporate purposes. Proceeds from the Group’s commercial paper programme arenot included in theholding company cash and short-term investment balance. Prudential plc has maintained a consistent presence as an issuer in the commercial paper market for the past decade and had $500 million in is sue at 31 December 2021 (31 December 2020: $501 million 4 ). As at 31 December 2021, the Group had a total of $2.6 billion of undrawn committed facilities, expiring in 2026. Apart from small drawdowns to test the process, these facilities have never been drawn, and therewere noamounts outstanding at 31 December 2021. Cash remittances Holding company cash flow 19 Actual exchange rate 2021 $m 2020 $m Change % From continuing operations Insurance and asset management business 1,451 87765 Other operations – 55(100) Net cash remitted by businesses 1,451 93256 Net interest paid (314) (294)(7) Tax received – 94(100) Corporate activities 20 (322) (432)25 Centrallyfunded recurring bancassurance fees 21 (176) (220)20 Total central outflows (812) (852) 5 Holding company cash flow before dividends and other movements 639 80 Dividends paid (421) (814) Operating holding company cash flow after dividends but before other movements 218 (734) Issuance and redemption of debt for continuing operations (255) 983 Hong Kong public oerand international placing 2,374 – Other corporate activities relating to continuing operations 21 (199) (954) UK and Europe demerger costs – (17) US demergercosts (30) (20) Total other movements 1,890 (8) Total holding company cash flow 2,108 (742) Cash and short-term investments at the beginning of the year 1,463 2,207 Foreign exchange and other movements 1 (2) Cash and short-term investments at the end of the year 3,572 1,463 Prudential plc Annual Report 2021prudentialplc.com 42 ![]() Remittances from our continuing Asia and Africa businesses were $1,451 million (2020: $877 million). From 2021, to align more closely to our ‘one head oce, two locations’ operating model, the Group has revised its presentation of business unit remittances so that the costs of the head oce functions in Hong Kong are no longer deducted from the 'net cash remitted by business units'. All head oce costs are now presented together within the central outflows section of the holding company cash flow. Accordingly, the 2020 comparatives have been re-presented from those previously published to reflect the change. Cash remittances for 2021 were used to meet central outflows of $ (812) million (2020: $(852) million 4 ) and to pay dividends of $(421) million. Central outflows include corporate activities of $(322) million (2020: $(432) million 4 ), centrally funded recurring bancassurance fees of $(176) million (2020: $(220) million 4 ), and n et i nterest paid of $(314) million (2020: $(294) million 4 ). On 4 October 2021, Prudential plc completed the issuance of new share capital with proceeds of $2,374 million, as described in the financing and liquidity section above. Other corporate activities relating to continuingoperationsof $(199) million (2020: $(954) million 4 ) include central contributions to t he funding of Asia and Africa strategic growth initiatives, principally non-recurring payments for bancassurance distribution agreements including UOB and MSB banks. In 2020, this also included one-o payments relating to the establishment of our strategic bancassurance partnershipwith TMBThanachart Bank in Thailand. Other corporate activities also include sale proceeds of $83 million received in December 2021, following Jackson’s announcement, as part of its previously disclosed $300 million share repurchase programme, of the repurchase of 2,242,516 shares of its Class A common stock from Prudential as discussed in the Jackson section above. Further information is contained in note I(vi) of the Additional unaudited financial information. Cash and short-term investments totalled $3.6 billion at 31 December 2021 (31 December 2020: $1.5 billion 4 ). The debt andrefinancing redemption programme, that completed on 20 January 2022, utilised cash of $1,725 million. The Group will continue to seek to manage its financial condition such that it has sucient resources available to provide a buer to support the retained businesses in stress scenarios and to provide liquidity to service central outflows. Notes 1Based on full-year 2021 exchange rates. 2‘Adjusted operating profit’ refers to adjusted IFRS operating profit based on longer-term investmentreturnsfromcontinuing operations. This alternative performancemeasure is reconciled to IFRS profit for the period in note B1.1 of the IFRS financial statements. 3On a constant exchange rate basis. 4On an actual exchange rate basis. 5APE sales is a measure of new business activity that comprises the aggregate of annualised regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. It is not representative of premium income recorded in the IFRS financial statements. See note II of the Additional unaudited financial informationforfurther explanation. 6New business profit, on a post-tax basis, on business sold in the period, calculated in accordance with EEV Principles. 7Full year 2021 total funds under management, including external funds under management, money market funds, funds managed on behalf of M&G plc and internal funds under management, reported based on the country where the funds are managed. 8For insuranceoperations, operatingfree surplusgenerated represents amounts emerging from the in-force business during the year net of amounts reinvested in writing new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the year. Restructuring costs are presented separately from the business unit amount. Further information is set out in ‘movement in Group free surplus’ of the EEV basis results. 9Operating return calculated as operating profit divided by the average EEV shareholders' equity for continuing operations. See note II(x) of the Additional unaudited financial information for definitionand calculation. 10After deduction of the underwriting fees and other estimated expenses payable in connection with the Share Oer. 11 GWS coverage ratio of capital resources over Group minimum capital requirement attributable toshareholder business. Shareholder business excludes thecapital resources and minimum capital requirement of participating business in Hong Kong, Singapore and Malaysia. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at 31 December 2021 are included as GWS eligible group capital resources. 12For Growth markets and other, adjusted operating profit includes other items of $217 million (2020: $119 million) which primarily comprises of taxes for life joint ventures and associates and other non-recurring items. 13For discussion on the basis of preparation of the sources of earnings in the table see noteI(ii)of the Additional unauditedfinancial information. 14Excludes Money Market Funds. 15See note II of the Additional unaudited financial information for definition and reconciliation toIFRS balances. 16Other income and expenditure includes restructuring and IFRS 17 implementation costs. 17 Debt not denominated in USD is translated using exchange rates as at 31 December 2020 forthe purposes ofgrandfathering. 18Before allowing for the 2021 second cash interim ordinary dividend. 19Net cash amounts remitted by businesses are included in the holding company cash flow, which is disclosed in detail in note I(v) of the Additional unaudited financial information. This comprises dividends and other transfers from businesses that are reflective of earnings and capital generation. 20Including IFRS 17 implementation and restructuring costs paid in the period. 21Other movements include non-recurring payments for bancassurance arrangements including those with UOB, TMB and MSB banks. Central payments for existing bancassurance distribution agreements are within the central outflows section of the holding company cash flow, reflecting the recurring nature of these amounts. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 43 ![]() #### Risk review #### Enabling decisions to be taken withconfidence Prudential’s Group Risk Framework and risk appetite have allowed the business to control its risk exposure throughout 2021. Its governance, processes and controls enable the Group to deal with uncertainty eectively, which is critical to the achievement of its strategy of capturing long-term structuralopportunities andhelping customers achieve their long-term financial goals. Prudential plc Annual Report 2021prudentialplc.com 44 ![]() This section explains the main risks inherent in the business and how P rudential manages those risks, with the aim of ensuring an appropriate risk profile is maintained. 1. Introduction The Group 2021 was a year in which the pace of transformative change continued, both for the Prudential Group and the operating environments in which it operates. In May, the Group-wide Supervision (GWS) Framework became eective for the Group following designation by the Hong Kong Insurance Authority (IA), subject to agreed transitional arrangements. The demerger ofthe Jackson business completed in September, reshaping theGroup into an Asia and Africa-focused business. The subsequent equity raise in October enhanced Prudential’s financial flexibility in light of the breadth of opportunities to invest for growth. The Group Risk, Compliance and S ecurity (RCS) function provided risk opinions, guidance and assurance on these critical activities to enable strategic decisions to be t aken with confidence, while retaining its focus on overseeing the risks of ongoingbusiness, providing riskmanagement and compliance advice, together with objective challenge on the execution of the strategic objectives. The core objective of the RCS function continued to be that the Group remained within its risk appetite. During the year, the RCS function continued to take steps to consolidate its position as a group-wide function, eectively leveraging theGroup’s risk management and complianceexperience in more mature markets and applying it in a nimble way to its emerging markets, appropriate to their unique risks, opportunities, customer needs and customs. With supply chain issues likely to continue to impact the world economy, the risks of persistent higher inflation remain firmly on the agenda. Strategic competition between the US and China is driving further decoupling of areas of theireconomies as both look to protect national interests. These objectives are increasingly being implemented through new laws and regulations protecting domestic data, technology and financial services. This dynamic increases the strategic, operational,regulatory andreputational risks for businesses operating within and across their spheres of influence. In China, the government’s applicationof its domestic policy aims has continued against the backdrop of a weakening real estate sector. The cycle of p eaks and troughs of Covid-19 infection levels and associated restrictions experienced by theGroup’s markets will undoubtedly take a toll on its customers and its people. Prudential continues to focus on delivering accessible andsocially inclusive propositions, the fair treatment of its policyholders and all its customers, and the wellbeing of its employees in a sustainable way. The RCS function will continue to apply the holistic and coordinated approach to support the Group in managingthese increasingly dynamic, multi-faceted and often inter-connected risks facing its business. The worldeconomy The world economyremainsin recovery following the significantloss of output in 2020. Global growth in 2022 is anticipated to remain above average historical trends although this is expected to slow and r emains subject todevelopments in the pandemic. The pattern of recovery has not been the same across economies. Developed economies have received significantsupport from unprecedented fiscal stimulus and accommodative monetary policy aimed at maintaining consumption levels, while in emerging economies this support has been more muted and the focus has been on maintaining production levels. As fiscal stimulus is withdrawn and many economies transition to a strategy of treating Covid-19 as endemic, domestic demand is expected to shift from goods towards services in developed economies, reducing pressureon supplychains andinflation on i mports. Monetary policy is also expected to become less accommodative, in particular in the US where the Federal Reserve has s tarted to reduce asset purchases and is expected to raise its federal funds rate to address inflation concerns, which are no longer considered transitory. Developments inthe labour market are expected to influence the pace and magnitude of monetary policy t ightening. InAsia, economic reopening has lagged theWest, withprolonged restrictions on movementand relatively slow vaccine rollouts, although growth has also rebounded as a consequence of steady manufacturing activity in the region. A resumption of tourism activities and the consumption of otherservices would support growth, but the emergence of new Covid-19 variants are a continuing challenge. Another key risk for the region is a property-led slowdown in China, which has the potential to be a drag on economic activity more broadly in the country and the region. The outlook remains highly dependent on the nature of the government response to stabilise demand in the sector. Inflationary pressures in most Asian economies have largely been contained and an abrupt tightening in m onetary policy is considered unlikely. However, tightening US monetary policy,combined with any resultingfurther strengthening of the US dollar, may lead to adverse external financing conditions for emergingeconomies withinthe region. In Africa, whilecountries with more diversified economies and stronger pre-pandemic fundamentals suchas Kenya, Ghana and Côte d’Ivoire are expected to perform better, the region as a whole faces significant headwinds. With low vaccination rates, Africa remains highly vulnerable to the health and economic impacts of new Covid-19 infection waves and emerging and new variants. Inflation levels in the region are expected to ease slightly in 2022 but are likely to remain elevated, leaving central banks facing dicult monetary policy choices and governments with limited fiscal space in which to manoeuvre. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 45 Risk review / continued Financial markets Against a backdrop of the current, emerging and future Covid-19 variants, financial markets in 2021 reflected economic trends. Equity assets continued their rally although with short episodes of volatility, and developed markets closed the year at near all-time highs. Market movements were influenced by a number of factors during thecourse of the year,including the broad reflation following vaccinerollouts, fiscal stimulus, supply chain issues, increases in global inflation rates, fears of stagflation and the US Federal Reserve’s tapering timeline. Comparatively, emerging markets underperformed, particularly in Q3 due to growth and regulatory concerns in China, which significantly impacted the property sector and resulted in tightened credit conditions. Interest ratesweredominated by market expectations for c entral bank policy responses, while credit spreads in investment grade markets remained relatively muted and continued to tighten, supported by the reopening of economies over the course of the year. The Russia-Ukraine conflict, which was preceded by a period of rising tensions over Q4 2021, has contributed to large market movements and increases in energy prices in Q1 2022, the full extent of which remains uncertain. Increasing inflationary pressure in the US, the expected tightening in financial conditions drivenby reduced asset purchases and the anticipated increase in federal fund rates may drive fundingcosts higher, with implications for global markets. This will increase risks for h ighly leveraged companies and countries, including those in Asia. Interest rate hikes are expected to support the US dollar while introducing currency depreciation risk for emergingmarkets. Emerging markets also remain susceptible to a reversal in capital flows, although they may be more resilient to this than in the past, given healthy current account balances, the fact that currenciesremain relatively cheap by historical standards and that central banks in the region have pursuedrelatively conservative monetary policy compared to developed markets in 2021. Geopolitical landscape Governmental strategies in managing Covid-19 have reflected how they have balanced the impacts to people’s health and lives with their individual rights and liberties and the need for economic growth. The way this balance tilts remains a potential source of division both within and between nations, with governments mindful of the risk of falling behind global levels of economicrecovery. The experience of the pandemic and the civil unrest seen in recent times has shown that the stability of governments and the resilience of businesses will continue to be tested. The Group has well-established local and global plans to mitigate the business risks from disruption. These have operated well during the pandemicand local outbreaks of unrest incertain markets, and the Group’s operational resilience will continue to be critically evaluated and enhanced. The relationship between the US and China continues to be a key driver of the level of global geopolitical tension, exerting pressure on national policymakers in other countries, including theSouth-east Asia markets in which the Group operates. As 2021 progressed, with the US and China turning their attention to more domestic matters, diplomatic escalations between the two countries eased albeit against a backdrop of increasing strategic competition. Over Q4 2021 and into 2022, tensions between western powers and Russia have escalated into conflict in Ukraine, following years of hostilities along the Ukraine-Russia border. The conflict is likely to have broad implications for geopolitical relations whichremainto be seen, and may drive the bifurcation of global trade, financial systems and s tandards. Domestically, the China government has continued to pursue its policy aims with regulatory tightening and actions that have been multi-faceted and ranging across industries including technology, real estate, education and entertainment, and have extended to data u sage and the provision of online medical and insurance services and products. Where these actions have implications for interactions with the global environment there may be geopolitical eects which require assessment. The broader long-term impact on business sentiment, and linked economies such as Hong Kong, remains to be seen. Legislative or regulatory changes that adversely impact Hong K ong’s economy or its internationaltradingand economic relationships, as a key market which also hosts Group head oce functions, could have an adverse impact on sales and distribution and the operations of the PrudentialGroup. Meanwhile, the emergence of the Omicron coronavirus variant and the China and Hong Konggovernments’ continued application ofa ‘zero-Covid-19’ policy has increased uncertainty on the timing of border relaxation between the two territories. Regulations Prudential operates in highly regulated markets, and as the nature and focus of regulation and laws evolve, the complexity of regulatory (including sanctions) compliance continues to increase and represents a challenge for international businesses. Key regulatory compliance risks for the financial services industry include those related to customer-facing conduct, financial crime and sanctions compliance, information security and data privacy and residency, and those associated withthird-party management. Prudential’s portfolio of transformation programmes, which include the expansion of the Group’s digital capabilities and improvement of business eciencies through operating model changes, have the potential to introduce new, or increase existing, regulatory risks and supervisory interest, while increasing the complexity ofensuring concurrent regulatory compliance across markets driven by increasing intra-Group connectivity and dependencies. National and international regulatory developments continue to progress, with a continuing focus on solvency and capital standards, sustainability, technology and data, conduct of business, systemic risk regulation, corporate governance and senior management accountability,and macro prudentialpolicy. Some of these changes will have a significant impact on the way that the Group operates, conducts business and manages its risks. Regulatory developments aremonitored at anational and globallevel and form part of Prudential’s engagement with government policy teams and regulators. Prudential plc Annual Report 2021prudentialplc.com 46 ![]() The increase in global strategic competition may provide an impetus to the fragmentation or increased regionalisation of trade, investment and standards, increasing the strategic and regulatory risks for businesses, in particular withlaws and regulations withextra-territorialapplication. For internationally active groups such as Prudential,operatingacross multiple jurisdictions increases the complexity of legal and regulatory compliance. Compliance with the Group’s legal or regulatory obligations (including in respect of internationalsanctions),in one jurisdiction may conflict with the law or policy objectives of another jurisdiction, or may be seen as supporting the law or policy objectives of thatjurisdiction over another, creating additional legal, regulatory compliance and reputational risks. These risks may be increased where the scope of regulatory requirements and obligations are uncertain, and where specific cases applicable to the Prudential Group are complex. The Group has in place risk tolerance frameworks to deal with complex and conflicting risk trade-os to guide executive decisions. In China, the swiftness with which some of the recent regulatory changes and interventions have been applied has the potential to increase uncertainty and the strategic and regulatory risks for businesses operating in China or those which deal with Chinese companies. The Hong Kong IA’s GWS Framework became eective for Prudential following designation by the Hong Kong IA on 14 May 2021. The Group remains compliant with the Framework, subject to agreed transitional arrangements, and will continue to engage constructively with the Hong Kong IA as its Group-wide supervisor as it ensures ongoingsustainable compliance. Societal developments Societal changes, including those drivenby the Covid-19 pandemic and anticipated as part of the transition to a lower carbon economy, can have broad, complex and long-term eects, with the potential to exacerbate structural inequalities within and across countries. Such t ransitions can compel organisations to re-evaluate how best to serve their customers and the societies in which they operate. A k ey d evelopment of the pandemic has been the acceleration of digitalisation across businesses and their supply chains, with an accompanying increase in the importance of maintaining resilience against cyber incidents and security threats, such as ransomware attacks. The Covid-19 pandemic also provided a prompt for businesses and employees to re-evaluate traditional working practices and has accelerated certain thematic trends around increased flexibility, inclusivity and psychological safety in the workplace to enable employees to openly contribute and challenge. Prudential’s increasing use of digital services, technologies and distribution methods, increased adoption of its Pulse platform and the implementation of virtual face-to-face sales of select ranges of products in many of its markets during the pandemic have broad implications for Prudential and its conduct of business. These developments support the delivery of the Group’s aim to increase the accessibility and inclusiveness of its products and services, but also increase technology, data security or misuse and regulatory risks. Prudential,as a responsible employer, is increasing opportunities for employees to voice their views and responding to feedback with initiatives centred on flexible and new ways of working and on how it incentivises and upskills its workforce. The Group continues to monitor emergingsocial trends, includingthose linkedto environmental change, and their potential impact on its wide range of stakeholders and how its products and services meet the needs of aected societies. Its risk management framework continues to evolve in order to manage the changing nature of these wide-ranging risks including activities to promote a transparent culture, activelyencouragingopen discussion and learning from mistakes. 2.Risk governance aSystem of governance Prudential has in place a system of governance that embeds a clear ownership of risk, together with risk policies and standards to e nable risks to be identified, measured and assessed, managed and controlled, monitored and reported. The Group Risk Framework, owned by the Board, details Prudential’s risk governance, risk management processes and risk appetite. The Group’s risk governance arrangements are based on the ‘three lines’ model. The ‘first line’ is responsible for taking and managing risk, while the ‘second line’ provides additional challenge, expertise, oversight, and scrutiny. The role of the ‘thirdline’, assumed by the independent Group-wide Internal Audit function, is to provide objective assurance on the design, eectiveness and implementation of theoverallsystem of internal control. The Group-wide Risk, Compliance and Security (RCS) function reviews, assesses, oversees and reports on the Group’s aggregate risk exposure and solvency position from an economic, regulatory and ratings perspectives. During 2021, the Group continued to review and update its policies and processes for alignment with the requirements of the Hong Kong IA’s GWS Framework, which became eective for the Group on 14 May 2021. The Group has also focused on embedding climate- change as a cross-cutting risk within the Group Risk Framework and development and embeddingof its Group-wide customer conduct risk framework and policy; its third-party and outsourcing policy; its data policy and enhancements to its operational resilience. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 47 ![]() Risk review / continued bGroup Risk Framework i. Ri sk governance and culture Prudential’s riskgovernancecomprises theBoard organisational structures, reporting relationships, delegation ofauthority, roles and responsibilities, and risk policies that have been established to make decisions and control activities on risk-related matters. The risk governance structure is led by the Group Risk Committee, supported by independent Non-executive Directors on risk committees of the Group’s main subsidiaries. The Group Risk Committee approves changes to the Group Risk Framework and the core risk policies that support it. The Group Risk Committee has direct lines of communication, reporting and oversight of the risk committees of the Group’s major businesses. As its adoption across Asia and Africa increases, the application of the Group’s governance framework and policies to the Pulse business has been increased. The Pulse Audit & Risk Committee for Pulse Ecosystems Limited, the holding company for Pulse, was formed and met for the first time in H1 2021. Risk culture is a strategic priority of the Board, which recognises its importance in the way that the Group does business. A Group-wide culture framework is currently being implemented to unify the Group towards its shared purpose of helping people get the most out of life. At the start of the year, the Board established the Responsibility & Sustainability Working Group to support its responsibilities in relation to implementation of the culture framework, as well as embedding the G roup’s ESG strategic framework, and progress on diversity and inclusioninitiatives. The culture framework includes principles and values that define how the Group expects business to be conducted inorder to achieve its strategic objectives, inform expectations of l eadership and support the resilience and sustainability of the Group.The components of the culture frameworksupport sound riskmanagement practices by requiring a focus on longer-term goalsand sustainability, the avoidance of excessive risk taking andhighlighting acceptable and unacceptable behaviours. This is supported through inclusion of risk and sustainability considerations in p erformance management for key individuals;the bu ilding of appropriate skills and capabilities in risk management; and by ensuring that employees understand and care about their role in managing risk through open discussions. The Group Risk Committee has a key role in providing advice to the Remuneration Committee on risk management considerations to be applied in respect of executive remuneration. Prudential’s Group Code of Business Conduct and Group Governance Manual, supported by risk-related policies, include guiding principles on the day-to-day conduct of all its people and any organisations acting on its behalf. Supporting policies include those related to financial crime, covering anti-moneylaundering, sanctions, anti- bribery and corruption and conduct. The Group’s third-party and outsourcing policy requires that human rights and modern slavery considerationsare embedded across allof its supplier and supply chain arrangements. Procedures to allow individuals to speak out safelyand anonymouslyagainst unethical behaviourand conduct are a lso in place. Further details onthe Group’s ESG governance arrangements and strategic framework are included in the Group’s ESG Report, see pages 66 to 136. Risk governance and culture Business strategy Capital management Stress and scenario testing Conduct risk Model risk Operational, disruption and cyber risks Transformation risk Regulatory capital developments Regulatory compliance Regulatory change Climate disclosures and transition risk Governance risk Social risk, people and culture Global economic and geopolitical conditions Market and liquidity risk Credit risk Insurance risk Group risk profile Prudential plc Annual Report 2021prudentialplc.com 48 ![]() ii.The risk management cycle Riskidentification In accordance with provision 28 of the UK Corporate Governance Code and the GWS guidelines issued by the Hong Kong IA, a top-down and bottom-up process is in place to support Group-wide identification of principal risks. An emerging risk identification framework exists to support the Group’s preparations in managing financial and non- financial risks expected to crystallise beyond the short-term horizon. The Board performs a robust assessment and analysis of these principal and emerging riskthemes through the risk identification process, the Group Own Risk and Solvency Assessment (ORSA) report and the riskassessments undertakenas part of the business planning review, including how they are managed and mitigated, which supports decision-making. The ORSA is the ongoing process of identifying, measuring and assessing, managingand controlling, monitoringand reporting the risks to which the business is exposed. It includes an assessment of capital adequacy to ensure that the Group’s solvency needs are met at a ll times. Stress and scenario testing, which includes reverse stress testing requiring the Group to ascertain the point of business model failure, is another tool that helps to identify the key risks and scenarios that may have a material impact on the Group. The risk profile assessment is a key output from the risk identification and risk measurement processes and is used as a basis for setting Group-wide limits, management information, assessment of solvency needs, and determining appropriatestress and scenario testing. The Group’s annual set of principal risks are given enhanced management and reportingfocus. Riskmeasurement and assessment All identified risks are assessed based on an appropriate methodology for that risk. Quantifiable risks, which are material and mitigated by holding capital, are modelled in the Group’s internal model, which is used to determine the Group Internal Economic Capital Assessment (GIECA) and is subject to independent validation and processes and controls around model changes andlimitations. Riskmanagement and control The Group’s control procedures and systems focus on aligning the levels of risk-taking with the Group’s strategy and can only provide r easonable, and notabsolute,assurance against material misstatement or loss. The Group’s risk policies define the Group’s appetite to material risks and set out the risk management and control requirements to limit exposure to these risks, see below. These p olicies also set out the processes to enable the measurement and management of these risks in a consistent and coherent way, including the flows of management information required. The methods and risk management tools employed to mitigate each of i ts m ajor categories of risks are detailed in section 4 below. Risk monitoring and reporting The Group’s principal risks inform the managementinformation received by the Group Risk Committee and the Board, which also includes key exposures against appetite and developments in the Group’s principal and emerging risks. iii. Risk appetite, limits and triggers The Group recognises the interests of its broad spectrum of stakeholders (including customers, investors, employees, communities and key business partners) and that a managed acceptance of risk lies at the heart of the business. The Groupseeks togenerate stakeholder value by selectively taking exposure to risks, reduced to the extent it is cost-eective to do so, where these are an outcome of its chosen business activities and strategy. Those risks for which the Group has no tolerance are actively avoided. The Group’s systems, procedures and controls are designed to manage risk appropriately, and its approach to resilience and recovery aims to maintain the Group’s ability and flexibility to respond in times of stress. Qualitative and quantitative expressions of risk appetite are defined and operationalised through risk limits, triggers and indicators. The RCS function reviews these measures at least annually. The Board approves changes to the Group’s aggregate risk appetite and the Group Risk Committee has delegated authority to approve changes to the system of limits, triggers and indicators. Group risk appetite is defined and monitored in aggregate by the setting of objectives for its liquidity, capital requirements and non-financial risk exposure,coveringrisks to stakeholders, including those from participating and third-party business. Group limits operate within these expressions of risk appetite to constrain material risks, while triggers and indicators provide additional defined points for escalation. The Group Risk Committee, supported by the RCS function, is responsible for reviewing the risks inherent in the Group’s business plan and for providing the Board with a view on the risk/reward trade-os and the resulting impact to the Group’s aggregated position relative to Group risk appetite and limits, including non-financial risk c onsiderations. a. C apitalrequirements. Limits on capital requirements aim to ensure that in business-as-usual and stressed conditions the Group maintains sucient capital in excess of internal economic capital requirements, achieves its desired target rating to meet its business objectives, and supervisory intervention is avoided. The two measures in use at the Group level are the GWS group capital requirements and internal economic capital requirements, determined by the GroupInternal Economic Capital Assessment (GIECA). b. L iquidity. The objective of the Group’s liquidity risk appetite is to ensure that sucient cash resources are available to meet financial obligations as they fall due in business-as-usual and stressed scenarios. This is measured using a liquidity coverage ratio which considers the sources of liquidity against liquidity requirements under stress scenarios. Non-financial risks. At the end of 2021 the Group approved a more streamlined and simplified Non-Financial Risk Appetite approach, framed around the perspectives of its varied stakeholders, to be embedded in 2022. The Group accepts a degree of non-financial risk exposure as an outcome of its chosen business activities and strategy. It aims to manage these risks eectively to maintain its operational resilience and its commitments tocustomers and all stakeholders and a void material adverse financial loss or impact to its reputation. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 49 ![]() Risk review / continued #### Risk management Risk identification Risk identification covers Group-wide: 1 Top -down riskidentification. 2 Bo ttom-up risk identification. 3 Em ergingrisk identification. Risk measurement and assessment Risks are assessed in terms of materiality. Material risks which are modelled are included inappropriately validated capital m odels. Manage and control Risk appetite and limits allow for the controlled growth of the Group’s business, in line with business strategy and plan. Processes that support the oversight and control of risks include: 1The Risk and Control Assessment process. 2The Own Risk and Solvency Assessment (ORSA). 3 Gr oup-approved limits and early warning triggers. 4Large risk approval process. 5Global counterparty limit framework. 6Financialand critical incidents procedures. 7Stress and scenario testing, including reverse stress testing. Monitor and report Escalation requirements in the event of a breach are clearly defined. Risk reporting provides regular updates to the Group’s Board and risk committees on exposures against Board-approved appetite statements and limits. Reporting also covers the Group’s key risks. #### Risk governance #### and culture #### BusinessstrategyCapitalmanagement Stressand #### scenario testing Risk governance and culture Risk governance comprises the Board, organisational structures, reporting relationships, delegation of authority, roles and responsibilities, and risk policies. The Group-wide cultureframework includes principles and values thatdefine how business is conducted in order to achieve its strategic objectives, informexpectations of leadership and guide ESG activities. Business strategy Business strategy and the business plan provide direction on future growth and inform the level of limits on solvency, liquidity and earnings and for our key risks. The Risk, Complianceand Security function provides input and opinion on key aspects of b usiness strategy. Capitalmanagement Capital adequacy is monitored to ensure that internal and regulatory capital requirements are met, and that solvency buers are appropriate,over thebusiness planning horizon and under stress. Stress and scenario testing Stress and scenario testing is performed to assess the robustness of capital adequacy and liquidity, and the appropriateness of risk limits. Recovery planning assesses the e ectiveness of the Group’s recovery measures and the appropriateness of activation points. Prudential plc Annual Report 2021prudentialplc.com 50 ![]() 3.The Group’s principal risks The delivery of theGroup’s strategy in building long-term valuefor its s hareholders and otherstakeholders, focusingon high-growth business in Asia and Africa, exposes Prudential to risks. The materialisation of these risks within the Group or at its joint ventures or key third party partners may have a financial impact and may aect the performance of products or services or the fulfilment of commitments to customers andother stakeholders with anadverse impact on Prudential’s brand and reputation. This report is focused mainly on risks to the shareholder but includes those which arise indirectly throughpolicyholder exposures and third-party business. The Group’s principal risks, which are not exhaustive, are detailed below. The Group’s Risk Factor disclosures can be found at the end of this document. Covid-19 – longer-term risks and forward-looking areas of focus As the pandemic and the associated global response have evolved, it has become clear that Covid-19 and its impacts will persist far longer than many would have predicted at the onset of the global outbreak in 2020. The pandemic continues to present risks for the Group, particularly given the on-going uncertainty arisingfromcurrent, emerging and future variants of the virus, and has also resulted in transformative changes to the business environment and Prudential’s business model, which are likely to persist even after Covid-19 is considered endemic. These longer-term risks and forward-looking areas forthe Group are summarised below and, where relevant, further information is provided within the descriptions of the Group’s principal risks. > People risks: Prudential continues to actively support and enable i ts employees to work remotely and flexibly and in line with government policy and guidance in the markets in which it o perates. It has provided its fullest support to those directly impacted by the coronavirus and their families. The Group is exploring new ways of working, acknowledging that the pandemic may accelerate demand for a permanent shift in thepre-pandemic norms in working arrangements. The duration ofthe pandemic and related restrictions in some of the Group’s markets has heightened the risks to the physical and mental health of its employees. This is a key area of focus across Prudential, with a coordinated suite of i nitiatives being progressed designed to measure and support the wellbeingand potential uncertainty of employees due tothe Covid-19 pandemic or changes in the Group as it reshapes into an Asia and Africa focussed business. > Cu stomer conduct, product and distribution risks: As the initial pandemic-related initiatives and campaigns rolled out across markets to support customers expire (including customer cash benefits, goodwill payments, and extended grace periods for premium payments), the Group is monitoring the impact to customers to ensure they are treated fairly and with due care. The G roup’s customer conduct risk framework enshrines its focus on customer outcomes, under which risk monitoring is performed, irrespective of t he pandemic. Prudentialrolled out, with appropriate regulatory engagement, virtual face-to-face sales processes and digital product oerings in most its markets during the pandemic. Where these are expected to remain, the Group will ensure these processes are in line with evolving regulations and regulatory expectations, and monitor such de veloping processes for customer conduct, operationaland commercialrisks. Regardless of the pandemic, Prudential regularly assesses the suitability and aordability of its products, aiming to reduce their perceived complexity and increase the transparency of t heir costs and benefits. These aims, as well as the Group’s increasing focus on the sustainable digital distribution of its health and wealth products via its Pulse platform, help to expand the financial inclusion of Prudential’s products in its markets. > Fin ancial market and economic risks: Throughout 2021, pandemic developments, both positive and negative (such as the emergenceof new Covid-19 variants), have contributed to financial market volatility. The Group continues close monitoring of equity, interest rate and credit risks and inflation expectations, as well as the broader macroeconomic impacts of thepandemic, including the eects of an uneven recovery across markets. Risk limits and the appropriateness of the Group’s counter-cyclical capital buer are regularly reviewedand adjusted where required. > Informationsecurity risks: Oce-based working may not return to pre-pandemic levels which, along withthe pandemic-accelerated growth in digital operations, products and services, increases organisational exposure to long-term heightened information security risks, increasing the opportunities for cyber-crime and ransomware attacks. The Group continues to strengthen its robust information security managementframework and progress its programmeto enhance and maintain levels of cyber hygiene, combined with ongoing training and phishing campaigns, aligned with threat intelligence feeds, and simulation exercises to support data privacy and operational resilience. > In surance risks: In the short term, the Group has seen an increasein Covid-19-related mortality claims in select markets. Acombination of the economic impact of the pandemic and extended restrictions onmovement has also increased persistency risk atsome of the Group’sbusinesses. The potential longer-term impacts of the pandemicinclude lapses, surrenders and premium aordability from the broader economic eects; increased and/or delayed morbidity claims resulting from the deferral of medical treatment by policyholders during the pandemic; latentmorbidity impacts from the deferral of medical treatment by policyholders; and the implications from other factors such as long-term post-Covid-19 symptoms (although there is currently no consensuson the longer-term impact on morbidity). Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 51 ![]() Risk review / continued #### Risks to the Group’s financial situation (including thosefromthe external macroeconomic and geopolitical environment) The global economic and geopolitical environment may impact on the Group directly by aecting trends in financial markets and asset values, as well as driving short-term volatility. Risks in this category include the market risks to our investments and the credit quality of our investment portfolio as well as liquidity risk. #### Global economic and geopolitical conditions Macroeconomic and geopolitical developments are considered material to the Group and can increase the operational, business disruption, regulatory and financial market risks to the Group and can directly impact its sales and distribution networks. Changes in global economic conditions can impact Prudential directly; for example, by reducinginvestment returns and fundperformance and liquidity, and increasing the cost of product guarantees. Indirect impacts include higher inflation, which can reduce disposable income and decrease propensity for people to save and buy Prudential’s products, as well as changes in political attitudes towards regulation. As some countries begin to adopt strategies to manage Covid-19 as an endemic disease, variations in the speed of economicrecovery from the pandemicbetween markets, and the subsequent impact on their respective interest rates, inflation expectations and therelative strength of theircurrencies (and the associated impact on their foreign currency debt obligations), may drive broader long-term economic andfinancial uncertainty which may disproportionately impact emerging economies. Financial markets, economic sentiment and regulatory compliance risks can be highly susceptible to geopolitical developments. These have been outlined in Section 1. #### Market risks to our investments (Audited) This is the potential for reductions in the value of Prudential’s investments driven by fluctuations in equity prices, interest rates, foreign exchange rates and property prices. While interest rates have been rising steadily and may rise further in response to increasing inflationary pressures, a return to a low interest rate environment poses challenges to the capital position of life insurers and new business profitability. The Group has appetite for market risk where it arises from profit-generating insurance activities to the e xtent that it remains part of a balanced portfolio of sources of income for shareholders and is compatible with a robust solvency p osition. The Group’s market risks are managed and mitigated by the following: > The Group market risk policy; > Ris k appetite statements, limits and triggers; > The Group’s asset liability committees (ALCOs); > As set and liability management activities, which include management actionssuch as changes in asset allocation, bonus revisions, repricing and the use of reinsurance where appropriate; > Hedgingusing derivatives, including currency forwards, interest rate futures and swaps, and equity futures; > The monitoring and oversight of market risks through the regular reporting of management information; and > Regular deep dive assessments. The Group Critical IncidentProcedure(GCIP) defines specific governance to be invoked in the event of a critical incident, such as significant market, liquidity or credit-related event. This includes, where necessary, the convening of a Critical Incident Group (CIG) to oversee, coordinate, and where appropriate, direct activities during a critical incident. Interest rate risk, including asset liability management (ALM). Interest rate risk is driven by the valuation of Prudential’s assets (particularly government andcorporate bonds) and liabilities, which a re dependent on market interest rates. Sustained inflationary pressures which may drive higher interest rates may impact the valuation of fixed income investments and reduce fee income. Some of the Group’s products are sensitive to movements in interest rates. Prudential’s appetite for interest rate risk requires that assets and liabilities should be tightly matched for exposures where assets or derivatives exist that can cover these exposures. Interest rate risk is accepted where this cannot be hedged, provided that this arises from profitable products and to the extent that interest rate risk exposure remains part of a balanced exposure to r isks and is compatible with a robust solvency position. The Group’s exposure to interest rate risk arises from the guarantees of some non-unit-linked products with a savings component, including theHong Kong and Singapore with-profits and non-profit businesses. This exposure arises from the potential for an asset and l iability mismatch, where long-dated liabilities and guarantees are backed by short-dated assets. When this mismatch is not eliminated, it is monitored and managed through local risk and asset liability management committees and Group risk limits consistent with the Group’s appetite for interest rate risk. Unit-linked based businesses, such as Indonesia and Malaysia, are also exposed to interest rate risk resulting from the impact to the present value of future fees from such products. The Group-level ALCOs are risk management advisory committees supporting theidentification, assessment and management of key financial risks to the achievement of the Group’s business objectives. They also oversee ALM and solvency risks of the local businesses as well as the declaration and management of non-guaranteed benefits for participatingand universal life lines of business. Local business units are responsible for the management of their own asset and liability positions. Prudential plc Annual Report 2021prudentialplc.com 52 ![]() Risks to the Group’s financial situation (including thosefromthe external macroeconomic and geopolitical environment) continued #### Market risks to our investments continued The objective of the local business unit ALM process is to meet policyholder liabilities with the returns generated from the investment assets held, while maintaining thefinancial strength of capital and solvency positions. The ALM strategy adopted by the lo cal business units considers the liability profile andrelated assumptions of in-force business and new products to appropriately manage investment risk within ALM risk appetite, under dierent scenarios in accordancewith policyholders’reasonable expectations, and economic and local regulatory requirements. Factors such as the availability of matching assets, diversification, currency and duration areconsidered as appropriate.The assumptionsand methodology used in the measurementof assets and liabilities for A LM purposes conform with local solvency regulations. Assessments are carried out on an economic basis which conforms to the Group’s internal economic capital methodology. Equity and property investment risk. The shareholder exposure to equity price movements arises from various sources, including from unit-linked products where fee income is linked to the market value of the funds under management. Exposure also arises from with-profits businesses through potential fluctuations in the value of future shareholders’ profits and wherebonuses declaredare based broadly on historical and current rates of return from the Asia business’s investment portfolios, which include equities. The Group has limited acceptance for exposures to equity risk but accepts the equity exposure that arises on future fees (including shareholder transfers from thewith-profits business). The material exposures to equity risk in the Group’s businesses include the following: The China joint venture business is exposed to equity risk through its investments in equity assets for most of its products, including participating and non-participating savingsproducts and p rotection and investment-linked products. The Hong Kong business and, to a lesser extent, the Singaporebusiness contribute to the Group’s equity risk exposure due to the equity assets backing participating products. The Indonesia and Malaysiabusinesses are exposed to equity risk through their unit-linked products. Foreign exchange risk. The geographical diversity of Prudential’s businesses means that it has some exposure to the risk of foreign exchange rate fluctuations. Some entities within the Group write policies, invest in assets or enter into other transactions in local currencies or currencies not linked to the US dollar. Although this limits the eect of exchange rate movements on local operating results, it can lead to fluctuations in the Group’s US dollar-reported financial statements. This risk is accepted within the Group’s appetite for foreign exchange risk. In cases where a non-US dollar denominated surplus arises in an operation which is to be used to support Group capital, or where a significant cash payment is due from a subsidiary to the Group, this currency exposure may be hedged where considered economically favourable. Further, the Group generally does not have appetite for significant direct shareholder exposureto foreign exchange risks incurrencies outside the countries in which it operates, but it does have some appetite for this on fee income and on equity investments within the with-profits fund. Whereforeign exchange risk arises outside appetite,currency swaps and other derivatives are used to manage the exposure. #### Liquidity risk (Audited) Prudential’s liquidity risk arises from the need to have sucient liquid assets to meet policyholder and third-party payments as they f all due, considered under both business-as-usual and stressed conditions. It includes the risk arising from funds composed of illiquid assets and results from a mismatch between the liquidity profile of assets and liabilities. Liquidity risk may impact on market conditions and valuation of assets in a more uncertain way than for other risks like interest rate or credit risk. It may arise, for example, where external capital is unavailable at sustainable cost, increased liquid assets are required to be held as collateral under derivative transactions or where redemption requests are made against Prudential’s external funds. Liquidity risk is considered material at the level of the Group. Prudential has no appetite for any business to have insucient resources to cover its outgoing cash flows, or for the Group as a whole to not meet cash flow requirements from its debt obligations under anyplausiblescenario. The Group has significant internal sources of liquidity sucient to meet its expected cash requirements for at least 12 months from the date thefinancial statements are approved, without having to r esort to external sources of funding. The Group has a total of $2.6 billion of undrawn committed facilities that can be made use of, expiring in 2026. Access to further liquidity is available through the debt capital markets and the Group’sextensive commercial paper programme. Prudential has maintained a consistent presence as an issuer in the market for the past decade. A number of risk management tools are used to manage and mitigate liquidity risk, including the following: > Th e Group’s liquidity risk policy; > Risk appetite statements, limits and triggers; > Re gular assessment by the Group and business units of Liquidity Coverage Ratios which are calculated under both base case and stressed scenarios and are reported to committees and the Board; > The Group’s Liquidity Risk Management Plan, which includes details of the Group Liquidity Risk Framework as well as analysis of Group and business units liquidity risks and the adequacy of available liquidity resources under business-as-usual and stressed conditions; > It s contingency plans and identified sources ofliquidity; > The Group’s ability to access the money and debt capital markets; and > The Group’s access to external committed credit facilities. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 53 ![]() Risk review / continued Risks to the Group’s financial situation (including thosefromthe external macroeconomic and geopolitical environment) continued #### Credit risk (Audited) Credit risk is the potential for loss resulting from a borrower’s failure to meet its contractual debt obligation(s). Counterparty risk, a type of credit risk, is the probability that a counterparty to a transaction defaults on its contractual obligation(s) causing the other counterparty to suer a loss. These risks arise from the Group’s investments in bonds, reinsurance arrangements, derivative contracts with third parties, as well as its cash deposits with banks. Credit risk is considered a material risk for the Group’s business units. The Group’s holdings across its life portfolios are mostly in local currency and with a largely domestic investor base, which provides support to these positions. The Group’s portfolios are generally positioned towards high quality names, including those with either government orconsiderable parent company balance sheet support. Areas which the Group are actively monitoring include the developments in the China property sector and the degree of government support for state-owned entities in Asia, given recent defaults observed in the market by such entities in China and Thailand. The Group’s portfolio is generally well diversified in relationto individual counterparties, although counterparty concentration is monitored, in particular in local markets where depth (and therefore the liquidity of such investments) may be low. Prudential actively reviews its investment portfolio to improve the robustness and resilience of the solvency position. The Group has some appetite to take credit risk to the extent that it remains part of a balanced portfolio of sources of income for shareholders and is c ompatible with a robust solvency position. Further detail on the Group’s debt portfolio is provided below. A number of risk management tools are used to manage and mitigate credit risk, including the following: > A cr edit risk policy and dealing and controls policy; > Risk appetite statements and portfolio-level limits that have been d efined on issuers, and counterparties; > Collateral arrangements for derivative, secured lendingreverse repurchase and reinsurance transactions which aim to provide a high level of credit protection; > Th e Group Credit Risk Committee’s oversight of credit and counterparty credit risk and sector and/or name-specific reviews; > Re gular assessments of individual and sector exposures subject to elevated credit risks; and > Cl ose monitoring or restrictions on investments that may be of concern. The total debt securities at 31 December 2021 for the Group’s continuing operations were $99.1 billion (31 December 2020: $89.8 billion). The majority (70 per cent) of the portfolio is in unit-linked and with-profits funds. The remaining 30per cent ofthedebt portfolio is held to back the shareholder business. Group sovereign debt. Prudential invests in bonds issued by n ational governments. This sovereign debt holding of the Group’s operations represented 47 per cent or $14.2 billion 1 of the s hareholderdebt portfolioof theGroup’s operationsas at 31 December 2021 (31 December 2020: 45 per cent or $12.8 billion of the shareholder debt portfolio for the Group’s continuing operations). The particular risks associated with holding sovereign debt are detailed further in the disclosures on Risk Factors. The exposures held by the shareholder-backed business and with-profits funds in sovereigndebt securities at 31 December 2021 are given in note C1 of the Group’s IFRS financial statements. Corporate debt portfolio. In the shareholder-backed business, corporate debt exposures totalled $14.5 billion of which $12.7 billion or 87 per cent were investment grade rated. Bank debt exposure and counterparty credit risk. The banking sector represents a material concentration in the Group’s corporate debt portfolio which largely reflects the composition of the fixed income markets across the regions in which Prudential is invested. As such, exposure to banks is a key part of its core investments, as well as being important for the hedging and other activities undertaken to manage its various financial risks. Exposure to the sector is considered a material risk for the Group. Derivative and reinsurance counterparty credit risk exposure is managed using an array of risk management tools, including a comprehensive system of limits. Prudential manages the level of its counterparty credit risk by reducing its exposure, buying credit protection or using additionalcollateral arrangements where appropriate. At 31 December 2021: > 87 p er cent of the Group’s shareholder portfolio (excluding all government and government-related debt) is investment grade rated 2 . In particular, 52 per cent of the portfolio is rated 2 A- and above(or equivalent); and > The Group’s shareholder portfolio is well diversified: no individual sector 3 makes up more than 15 per cent of the total portfolio (excluding the financial and sovereign sectors). Prudential plc Annual Report 2021prudentialplc.com 54 ![]() #### The Group’s Sustainability and ESG-related risks These include sustainability risks associated with environmental considerations such as climate change (including physical and transition risks), social risks arisingfrom diverse stakeholder commitments and expectations and governance-relatedrisks. Material risks associated with key ESG themes mayundermine the sustainability of a business by adversely impacting its reputation and brand, ability to attract and retain customers and employees, and therefore the results of its operations and delivery of its strategy and long-term financial success. Prudential seeks to manage sustainability risks and their potential negative impact on its business and stakeholders through a focus on the Group’s purpose to ‘help people get the most out of life’, and transparent and consistent implementation of its strategy in its key markets and a cross operational, underwriting and investment activities. The Group’s strategy includes providing greater and more inclusive access to good health and financial security, responsible stewardship in managing the human impact of climate change and b uilding human and social capital with its broad range of stakeholders. Itis enabled by strong internal governance, sound business practices and a responsible investment approach, with ESG considerations integrated into investment decisions and the performance of fiduciary and stewardship duties, including voting and active engagement decisions with respect to investee companies, as both an asset owner and an asset manager. i. En vironmental issues Prudential’s strategic focus on stewarding the human impacts of climate change and decarbonising its operations and investment activities recognises that environmental concerns, such as water pollution, biodiversity degradation and notably those associated with climate change, and their social and economic impacts present long-term risks to the sustainability of Prudential, and may impact its customers and other stakeholders. Prudential’s investment horizons are long term and it is therefore exposed to the potential long-term impact of climate change risks, which include the financial and non-financial impact of transition to a lower carbon economy and physical and litigation risks. The global transition to a lower carbon economy may have an adverse impact on investment valuations as the financial assets of carbon-intensive companies re-price, and this could result in some asset sectors facing significantly higher costs and a reduction in demand for their products and services. The speed of this transition, and the extent to which it is orderly and managed, will be influenced by factors such as public policy, technology and changes in market or investor sentiment. The potential impact of these factors on the valuation of investments may also have a broader economic and social impact that may aect customers and their demand for the Group’s products and services. The transition to a lower carbon economy has the potential to disproportionately impact the Asia and Africa markets in which Prudential operates and invests, and the Group’s stakeholders increasingly expect and/or rely on the Group to support an orderly, inclusive and sustainable transition based on an understanding of relevant country and company-levelplans, taking into consideration the impact on the economies, businesses, communities and customers in these markets. The pace and volume of new climate-related regulation and reporting standards emerging across themarkets in which the Group operates, the need to deliver on existing and new voluntary exclusions on investments in certain sectors, engagement and reporting commitments and externally assured reporting may give rise to compliance, operational and disclosure risks which may be increased by the multi-jurisdictional coordination required in adopting aconsistentrisk management approach. Understanding and appropriately reacting to transition risk and implementing carbon reduction commitments requires sucient and reliable data on carbon exposure and transition plans for the assets in which the Group invests. The direct physical impacts of climate change, driven by both specific short-term climate-related events such as natural disasters and longer-term changes to climate and the natural environment, are likely to become increasingly significant factors in the mortality and morbidity risk assessments for the Group’s insurance product underwriting andoeringsand their associated claims profiles. Climate-driven events in countries in which Prudential or its key third parties operate could adversely impact the Group’soperational resilience and its customers, which may potentially occur through migration or displacement both within and across borders. A failure to understand, manage and provide greater transparency of its exposure to these climate-related risks may have increasing adverse implicationsforPrudential andits stakeholders. ii. So cial issues Social risks that could impact Prudential may arise from a failure to c onsider the rights, diversity, wellbeing, needs and interests of its customers and employees and the communities in which the Group or its third parties operate. These risks are increased as Prudential operates in multiple jurisdictions with distinct local cultures andconsiderations. Perceived inequalities and income disparities, intensified by the pandemic, have the potential to f urther erode social cohesion across the Group’s markets, emphasising the importance of an inclusive and sustainable global e conomic recovery. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 55 ![]() Risk review / continued The Group’s Sustainability and ESG-related risks continued Evolvingsocial norms and emerging population risks associated with public health trends (such as an increase in obesity and mentalhealth deterioration) and demographicchanges (suchas population urbanisation and ageing) may aect customer lifestyles and therefore may impact the level of claims against the Group’s insurance product oerings. As a provider of insurance and investment services the Group is committed to playing a role in preventing and postponing illness in order to protect its customers, as well as making health and financial security moreinclusiveand accessible through enhancements to its products and services and an increased focus on digital innovation, technologies and distribution methods. As a result, Prudential has access to sensitive customer personal data, includingdata related topersonal health, and an increasing ability to analyse and interpret this data through the use ofcomplex tools, machine learning andartificial intelligence technologies. The Group therefore actively manages the regulatory, ethical and reputational risks associated with actual or perceived customer data misuse or security breaches and its operational resilience to support its customers. These risks are outlined below. The increasing digitalisation of products, services and processes may also result in new and unforeseen regulatory requirements and stakeholder expectations for which Prudential monitors, as well as ensuring support for its customers through this transformation. As an employer, the Group aims to attract, retain and develop a diverse group of highly-skilled employees to meet the changing needs of a transformative organisation. This requires the implementation of responsible working practices and recognising the benefits ofdiversity, ensurepsychological safetyfor employees to contribute and challenge, andpromotinga cultureof inclusion and sense of belonging. The Group’s reputation extends to its supply chains and its investee companies, which may be exposed to factors such as poor labour standards and abuses of human rights by third parties. iii. Governance Maintaining high standards of corporate governance is crucial for the Group and its customers and employees, reducing the risk of p oor decision-making and a lack of oversight of its key risks. Poor governance may arise where key governance committees have i nsucient independence, a lack ofdiversity, skills or experience in their members, or unclear (orinsucient) oversight responsibilities and mandates. Inadequate oversight over remuneration also increases the riskof poor senior management behaviours. Prudential operates across multiple jurisdictions and has a Group and subsidiary governance structure which may add further complexity to these considerations. Participation in joint ventures or partnerships where Prudential does not have direct overall control and the use of third-party suppliers increases the potential for reputational risks arising from poor governance. Prudential is an active contributor to industry fora on sustainability and the Group was a key contributor to the CRO Forum’s November 2021 guidance paper (‘Mind the Sustainability Gap – Integrating sustainability into insurance risk management’), that seeks to define a set of industry best practice guidelines to manage the integration of sustainability into insurers’ risk management frameworks. Risk management and mitigation of ESG sustainability risks at P rudentialinclude the following: > Th e Group’s strategic focus on providing greater and more inclusive access to good health and financial security, responsible stewardship in managing the human impact of climate change and building human and social capital with its broad range of s takeholders; > The Group Code of Business Conduct and Group Governance Manual including ESG-linked policies; > Activities to embed ESG and sustainability and risk within the G roup Risk F ramework including: – Environmental and social risk identification including through emergingrisk processes; and – Deep dives into ESG themes, including climate-related risks; > In tegrating ESG considerations into investment processes and responsible supply chainmanagement; and > Pa rticipation in networks to further develop understanding and support collaborative action in relation toESG sustainability risks such as climate change. Further information on the Group’s ESG governance is included in section 3 above, and further detail on the Group’s ESG strategic framework and the management of material ESG themes are included in the Group’s ESG Report 2021 on pages 66 to 137. Prudential plc Annual Report 2021prudentialplc.com 56 ![]() #### Risks from the nature of our business and our industry These include the Group’s non-financial risks (including operational and financial crime risk), transformation risks from significant change activity and the insurance risks assumed by the Group in providing its products. #### Transformation risk Transformation risk remains a material risk for Prudential, with a n umber of significant change programmes under way, which if not delivered to defined timelines, scope and cost may negatively impact its operationalcapability; control environment; reputation; and ability to deliver its strategy and maintain market c ompetitiveness. The Group’s transformation andchange programmes inherently give rise to design and execution risks, and may introduce new, or i ncrease existing, business risks (including increasing uncertainty forthe Group’s employees)and increase intra-Group connectivity and dependencies. While the adoption of technologies related to digitaldistribution and artificial intelligence has opened up new product distribution and value-added service opportunities, it also exposes Prudential to additional regulatory,informationsecurity, data privacy, operational, ethical and conduct risks which, if not managed eectively, could result incustomer detriment and reputational damage. The speed of technological change and adoption in the business also increase the risk that all unintended consequences are not anticipated. The Group therefore aims to ensure that, for both transformation and strategic initiatives, strong programme governance is in place with embedded risk expertise to a chieve ongoing and nimble risk oversight, with regular risk monitoring and reporting to risk committees. Transformation risk oversight operates alongside the Group’s existing risk policies and frameworks to ensure appropriategovernanceand controls are in place to mitigate these risks. Prudential’s currentportfolio oftransformation and significant change programmes include the expansion of the Group’s digital capabilities and use of technology, platforms and analytics, and improvement ofbusiness eciencies throughoperating model changes. Programmes related to regulatory/industry change such as the developmentand embedding of the Group Internal Economic Capital Assessment (GIECA) model under the GWS Framework, changes required to eect the discontinuation of inter-bank oered rates (IBORs) in their current form and the implementation of IFRS 17 are also ongoing. #### Risks associated with the Group’s joint venture and jointly owned businesses Prudential operates, and in certain markets is required by local regulation to operate, through joint ventures and other joint ownership or third-party arrangements. A material proportion of t he Group’s business comes from its joint ventures in China and India. For such operations the level of control exercisable by the G roup dependson the terms of the contractual agreements between participants. As such the level of oversight, control and access to management information the Group is able to exercise over the extent of the exposure to material risks at these operations may be lower compared to the Group’s wholly owned businesses. Further information on the risks to the Group associated with joint ventures and jointly owned businesses are included in the disclosures on Risk Factors. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 57 ![]() Risk review / continued Risks from the nature of our business and our industry continued #### Non-financial risks The complexity of Prudential, its activities and the extent of transformation in progress createsa challengingoperating environment and exposure to non-financial risks. The Group’s appetite framework for non-financial risks considers risks across a broad range of categories which are outlined below. These risks are considered to be material at the level of the Group. Operationalrisk. This is the risk of loss (or unintended gain or profit) arising from inadequate or failed internal processes, personnel or systems and external events, and may arise from employee error, model error, system failures, fraud or other events which disrupt business processes or which have a detrimental impact to customers. Prudential accepts a degree of non-financial risk exposure as an outcome of its chosen business activities and strategy. It aims to manage these risks eectively to maintain its operational resilience and its commitments to customers and all stakeholders and avoid material adverse financial loss or impact on i ts reputation. Outsourcing and third-party risks. The Group’s outsourcing and t hird-party relationships require distinct oversight and risk management processes. The Group has a number of important third-party relationships, both with market counterparties and outsourcing partners, including distribution, technology and ecosystem providers. In Asia, the Group continues to expand its strategic partnerships and renewbancassurancearrangements. These arrangements support the delivery ofhigh leveland cost-eective services to customers, but also create a reliance on the operational resilience and performance of outsourcingand business partners. The Group’s requirements for themanagement of material outsourcingarrangements have been aligned to the requirements of the Hong Kong IA’s GWS Framework and are included in its Group third party supply and outsourcing policy. Third-party management is also included and embedded in the Group-wide operational risk framework (see below). Information security and data privacy risk. This includes risks related to malicious attack on systems, network disruption and the infringement of datasecurity,integrity or privacy. Thefrequency and sophistication of intrusion activities and criminal capability in t his area, including in ransomware (malicious software designed to block access to a computer system until a sum of money is paid), continues to increase globally. The technology landscape of Prudential is transforming at a rapid pace and the underlying technology infrastructure (and support services) has grown in scope and complexity in recent years. This, combined with stakeholder expectations and the potential for reputational and conduct risk from cyber security breaches and data misuse, which can be highly-publicised, mean that these risks are considered material at the level of the Group. As well as having preventative risk management processes in place, it is fundamental that the Group has robust critical recovery systems in place in the event of a successful attack on its infrastructure, a breach of its information security or a failure of its systems in order to retain its customer relationshipsand trusted reputation. Prudential and the insurance industry aremaking increasing useof emergingtechnological tools anddigital services, or partnering with third parties that provide these capabilities. While these provide new opportunities, opening up markets, improving insights and increasing scalability, it also comes with additional risks, including operational and data misuse risks, which are managed within the Group’s existing governance and risk management processes. Automated digital distribution channels increase the criticality of s ystem and process resilience in order to deliver uninterrupted service to customers. Globally, ransomware attacks have increased markedly with the shift to remote working practices driven by the Covid-19 pandemic. Prudential has a number of defences in place to protect its systems from this type of attack, including but not limited to: AI-based endpoint security software,continuous security monitoring, network-based intrusion detection, and employee training and awareness campaigns to raise understanding of attacks utilising email phishing techniques. Cyber insurance coverage is in place to provide some protection against potential financial losses and the Group conducts simulation exercises for ransomware attacks to assess and develop the eectiveness of incidentresponses across i ts businesses. Data protection requirements continue to evolve, and include developments in Chinaoutlined in the overview of the Group’s regulatory risks below. As well as protecting data, stakeholders expectcompanies and organisations to use personal information transparently andappropriately. Controlof datathrough national data security regimes has become an increasing priority for governments amid the increase in global strategic competition. This a dds further complexity to regulatory compliance in this area, in particular in the cross-border transfer or use of data, for global organisations in addition to the existing regulatory, financial and reputational risks of a breach of Prudential’s (or third-party suppliers’) IT systems or loss or misuse of data. In 2021 a new Group D ata Policy was approved, establishing the principles andrequirements for eective and scalable data management in light of the increase in volume and variety of data expected to be held, as well as the speed at which it is collected, as part of the Group’s digital aspirations. Prudential plc Annual Report 2021prudentialplc.com 58 ![]() Risks from the nature of our business and our industry continued #### Non-financial risks continued The Group’s Information Security and Data Privacy strategy has fourkeyobjectives: business enablement; continuous improvement of cyber defences; automation and optimisation; and governance and assurance to ascertain ongoingrobustness of cyber security and privacy measures. In 2021 a focus of Prudential has been ensuring consistent global coverageof security controls, following the operationalisationof arevisedorganisational structure and governance model for cyber security management. This included the establishment of a centralised Technology Risk Management team, leveraging skills, tools and resources across dierent technology domains to provide advisory, assurance and operations support for holistic technology risk management including information security and privacy. A Group Technology Risk Committee has been established, providing group-wide oversight of t echnology risks, including information security and privacy. Risk management is also performed locally within business units, with input from business information security ocers and with oversight from local risk committees. The Prudential plc Board is briefed at least twice annually on cyber security by the Group CISO and executive training is provided to ensure that members have the means to enable appropriate oversight and understand the latest threats and regulatory expectations. The Group-wideinformation security policy was developed in collaboration with industry experts to support a pragmatic approach to the evolving regulatory environment globally and ensure compliance with all applicable privacy laws andregulationsand the appropriateand ethicaluse of c ustomer data. The policy was also developed with reference to international standards, including ISO 27001/2, the NIST Cyber Security Framework and supervisory guidelines.Local standards are aligned to local regulations and laws. Model and user developed application (UDA) risk. Erroneous or misinterpreted tools used in core business activities, decision-making and reporting mayhave adverse consequences for P rudential. The Group utilises various tools to perform a range of operational functionsincludingthe calculationof regulatory or internal capital requirements, the valuation of assets and liabilities, determining hedging requirements, and in acquiring new business using artificial intelligence and digital platforms. Many of these tools are an integral part of the information and decision-making frameworks used at Prudential and errors or limitations in these tools, orinappropriate usage,may lead to regulatory breaches, inappropriate decision-making, financial loss, customer detriment, inaccurate external reporting or reputational damage. The Group has no appetite for model and UDA risk arising as a result o f failing to develop, implement and monitor appropriate risk mitigation measures. Prudential’s model and UDA risk framework and policy applies a risk-based approach in order to ensure appropriate and proportionate riskmanagement is applied to all models and UDAs used across the business, depending on the materiality and nature of the data used in these tools, as well as their complexity. Prudential’s model and UDA risk is managed and mitigated using the following: > Th e Group’s Model and UDA Risk Policy and relevant Guidelines; > Annual risk assessment of all tools used for core business activities, decision-making and reporting; > Maintenance of appropriatedocumentationfortools used; > Im plementation of controls to ensure tools are accurate and appropriately used; > To ols aresubject to rigorous and independentmodel validation; and > Re gular reporting to the RCS function and risk committees to support the measurement and management of the risk. In 2021 the Group updated its Group’s Model and User Developed A pplications Policy which includeda broadening of the considerations when assessing model criticality to include a w ider group of stakeholders including policyholders (in addition to shareholders) and associated reputational risk impacts and increased oversightof models indevelopment, including the model being developed for RBCat the Hong Kong business. Technological developments, in particular in the field ofAI, pose new questions on risk oversight provided under the Group Risk Framework. An oversight forum for the use of AI was established during 2021 andkeyethical principles, which were approved by the Group Risk Committee in 2020, have been adopted to apply to t he use of AI by the Group. Business disruption risk. The Group continually seeks to increase business resilience through adaptation, planning, preparation and testing of contingency plans and its ability to respond eectively to disruptive incidents. Business resilience is at the core of the Group’s embedded Business continuity management (BCM) programme and framework that help to protect the Group’s systems and its key stakeholders. The BCM programme and frameworkcovers business impact analyses, risk assessments, and the maintenance and exercising of business continuity, incident management and disaster recovery plans. The programme is designed to provide business continuity aligned to the Group’s evolving business needs and the size, complexity and nature of its operations. Business disruption risks are monitored by the Group Security function, with key operational eectiveness metrics and updates on specific activities being reported to the Group Risk Committee. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 59 ![]() Risk review / continued Risks from the nature of our business and our industry continued #### Non-financial risks continued Financial crime risk. As with all financial services firms, Prudential is e xposed to risks relating to money laundering (the risk that the products or services of the Group are used by customers or other third parties to transfer or conceal the proceeds of crime); fraud (the risk that fraudulent insurance claims, transactions, or procurement of services, are made against or through the business); sanctions compliance breaches (the risk that the Group undertakes business with individuals and entities on the lists of the main sanctions regimes); and bribery and corruption (the risk that employees orassociated persons seek toinfluence the behaviour of others to obtain an unfair advantage or receive benefits from others for the same purpose). Prudential operates in some high-risk countries where, for example, the acceptance of cash premiums from customers may be common practice, large-scale agency networks may be in operation where sales are incentivised by commission and fees, where is a higher concentration of exposure to politically-exposed persons, or which otherwise have higher geopolitical risk exposure. The Group-wide policies in place on anti-moneylaundering, fraud, sanctions and anti-bribery and corruption reflect the values, behaviours and standards that are expected across the business. Screening and transaction monitoring systems are in place and a series of improvements and upgrades are beingimplemented, and a programme of compliance control monitoring reviews is in place across the Group. Proactive fraud capabilities are in development and being rolled across local businesses. Work is also underway to enhance detective fraud, conflicts and anti-bribery and corruption controls relating to third-party risk management in procurement. Risk assessments are performed annually at higher risk locations. Due diligence reviews and assessments against Prudential’s financial crime policies are performed as part of the Group’s business acquisition process. The Group continues to undertake strategic activity to monitor and evaluate the evolving fraud risk landscape, mitigate the likelihood of fraud occurringand increase the rate of detection. The Group has in place a mature confidential reporting system through which employees and other stakeholders can report concerns relating to potential misconduct. The process and results of this are overseen by the Group Audit Committee. #### Group-wide framework and risk management for operational and other non-financial risks The risks detailed above form key elements of the Group’s non -fi nancial risk profile. A Group-wide operational riskframework is in place to identify, measure and assess, manage and control, monitor and report eectively on all material operational risks across the business. The key components of the framework are listed below. Outputs from these processes and activities performed by individual business units are monitored by the RCS function, which provides an aggregated view of the risk profile across the business to the Group Risk Committee and Board. > Application of a risk and control self-assessment (RCSA) process, where risk exposures are identified and assessed as part of a periodical cycle; > An internal incident management process, which identifies, quantifies and monitors remediation conducted through root cause analysis and application of action plans for risk events; > An annual scenario analysis process for the quantification of extreme, yet plausible manifestations of key operational risks across the business on a forward-looking basis; and > A ris k appetite framework for non-financial risks that articulates the level of risk exposure the business is willing to tolerate and defines escalation processes for breaches of appetite. These core framework components are embedded across the Group via the Group Operational Risk Policy and accompanying standards, which set outthe keyprinciples and minimum standards for the management of operational risk within risk appetite. These sit alongside other risk policies and standards that individually engage with specific operationalrisks, including outsourcing and third-party supply, business continuity, financial crime, technology and data, operations processes andextent of transformation. These policies and standards include subject matter expert-led processes that are designed to identify, assess, manage and control operational risks, detailed below. These activities arefundamental in maintaining an eective system of internal control, and ensure that operational riskconsiderationsare embedded in key business decision-making, including material business approvals and in setting and challenging the Group’s strategy. > Re views of key operational risks and challenges within Group and business unitbusiness plans duringthe annual planning cycle, to s upport business decisions; > Corporate insurance programmes to limit the financial impact of op erational risks; > Oversight of risk management during the transformation life cycle, project prioritisation and the risks, interdependencies and possible conflicts arising from a large portfolio of transformation activities; > Regulatory change teams to assist in proactively adapting and c omplying withregulatory developments; > Group and business unit-level complianceoversight and risk-based testing in respect of adherence with regulations; > Screening and transaction monitoringsystems forfinancial crime a nd a programme of compliance control monitoring reviews andregular risk assessments; > In ternal and external review of cyber security capability and defences; and > Re gular updating and risk-based testing of disaster-recovery plans and the CriticalIncidentProcedure process. Prudential plc Annual Report 2021prudentialplc.com 60 ![]() Risks from the nature of our business and our industry continued #### Insurance risks (Audited) Insurance risk makes up a significant proportion of Prudential’s overall risk exposure. The profitability of its businesses depends on a m ix of factors, including levels of, and trends in, mortality (policyholders dying), morbidity (policyholders becoming ill or sueringan accident)and policyholder behaviour (variability in how customers interact with their policies, including utilisation of withdrawals, take-up of options and guarantees and persistency, ie l apsing/surrendering of policies), and increases in the costs of claims over time (claim inflation). The Group has appetite for retaining insurance risks in the areas where it believes it has expertise and operational controls to manage the risk and where it judges it to be more value-creating to do so rather than transferring the risk, and only to the extent that these risks remain part of a balanced portfolio of sources of income for shareholders and is compatiblewith a robust solvency position. The impact of the Covid-19 pandemic to economic activity and employment levels across theGroup’s markets has the potential to elevatethe incidence of claims, lapses, or surrenders of policies, and some policyholders may defer or stop paying insurance premiums orreduce deposits into retirement plans. In particular extended restrictions on movementcould aect product persistency.The pandemic may also result in elevated claims and policy lapses or surrenders in a less direct way, and with some delay in time before being felt by the Group, due to factors such as policyholders deferring medical treatment during the pandemic, or policyholders lapsing or surrenderingtheir policies onthe expiry of grace periods for premium payments provided by the Group’s businesses. Inflationary pressures driving higher interest rates may lead to increased lapses for some guaranteed savingsproducts where higher levels of guarantees are oered by products of the Group’s competitors, reflecting consumer demand for returns at the level of, or exceeding, inflation. The Group’s assessment to date is that elevated mortality claims in some markets can be attributed to Covid-19. These impacts to the business are being closely monitored with targeted management actions being implemented where necessary, which includes additional Incurred But Not Reported (IBNR) claims reserves in some markets, including where deferrals in non-acute medical treatments due to movement restrictions have been observed. The principal drivers of the Group’sinsurancerisk vary across its business units. InHong Kong, Singapore, Indonesiaand Malaysia a significant volume of health and protection business is written and the most significant insurance risks are persistency risk, morbidity risk and medical claims inflation risk. Medical claims inflation risk: A key assumption in these markets is the rate of medical claims inflation, which is often in excess of general price inflation, while the cost of medical treatment increasing more than expected, resulting in higher than anticipated medical claims cost passed on to Prudential, is a key risk. This risk is best mitigated by retaining the right to reprice products and appropriate overall claims limits within policies, either per type of medical treatment or in total across a policy, annually and/or over the policy lifetime. Morbidity risk: Prudential’s morbidity risk is managed through prudent product design, underwriting andclaims management, and for certain products, the right to reprice where appropriate. Prudential’s morbidity assumptions reflect its recent experience and expectation of future trends for each relevant line of business. Persistency risk: The Group’s persistency assumptionsreflect recentexperience and expert judgement, especially where a lack of experience data exists, as well as any expected change in future persistency. Persistency risk is managed by appropriate controls across the product life cycle. This includes review and revisions to product design and incentive structures where required, ensuring appropriatetrainingand sales processes, including those ensuring active customer engagement and high service quality, appropriate customer disclosures and product collaterals, use of customer retention initiatives as well as post-sale management through regular experience monitoring. Strong risk managementand mitigation of conduct risk and the identification of common characteristics of business with high lapse rates is also crucial. Whereappropriate, allowance ismade for the relationship (either assumed or observed historically) between persistency and investment returns. Modelling this dynamic policyholder behaviour is particularly important when assessing the likely take-up rate of options embedded within certain products. Prudential’s insurance risks are managed and mitigated using the following: > The Group’s insurance policy, which sets out the Group’s insurance risk appetite; required standards for eective insurance risk management by head oce and local businesses, including processes to enable themeasurement of the Group’s insurance riskprofile;management information flows; and escalation mechanisms; > The Group’s product and underwriting risk policy, which sets out the required standards for eective product and underwriting risk management and approvals for new, or changes to existing, products (including the role of Group); and the processes to enable the measurement ofunderwriting risk. The policy also describes how the Group’s Customer Conduct Risk Policy is met in relation to new product approvals and current and legacy products; > In product design and appropriate processes relatedto the management of policyholder reasonable expectations; > The risk appetite statements, limits and triggers; > Using persistency, morbidity and longevity assumptionsthat reflect recent experience andexpectation of future trends, and industry data and expert judgement where appropriate; > Using reinsurance to mitigate mortality and morbidity risks; > Ensuring appropriate medical underwriting when policies are issued andappropriate claimsmanagement practices when claims are received in order to mitigate morbidity risk; > Maintaining the quality of sales processes, training and using initiatives to increase customer retention in order to mitigate persistency risk; > The use of mystery shopping to identify opportunities for improvement in sales processes and training; > Using product repricing and other claims management initiatives in order to mitigate morbidity and medical expense inflation risk; and > Regular deep dive assessments. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 61 ![]() Risk review / continued Risks from the nature of our business and our industry continued #### Customer conduct risk Prudential’s conduct of business, especially in the design and distribution of its products and the servicing of customers, is crucial in ensuring that the Group’s commitment to meeting its customers’ needs and expectations is met. The Group’s customer conduct risk framework, owned by the Group Chief Executive, reflects management’s focus on customer outcomes. Factors that may increase conduct risks can be found throughout the product life cycle, from the complexity of the Group’s products and services to its diverse distribution channels, which include its agency workforce, virtual face-to-face sales and sales via online digital platforms. In alignment with the Group’s purpose of helping people get the most out of life, Prudential strives towards making health and protection coverage aordable and accessible to all. Through Prudential’s Pulse platform, there is increased focus on making insurance moreinclusiveto underserved segments of society through bite-size low-cost digital products and services. Prudential has developed a Group Customer Conduct Risk Policy which sets out five customer conduct standards that the business is e xpected to meet, being: 1 Tr eat customers fairly, honestly and with integrity; 2 Pr ovide and promote products and services that meet customer needs, are clearly explained and that deliver real value; 3Manage customer information appropriately, and maintain the c onfidentiality of customer information; 4 Pr ovide and promote high standards of customer service; and 5 Ac t fairly and timely to address customer complaints and any errors found. Prudential manages conduct risk via a range of controls that are assessed through the Group’s conduct risk assessment framework, reviewed within its monitoring programmes, and overseen within reporting to its Boards and Committees. Management of Prudential’s conduct risk is key to the Group’s strategy. Prudential’s conduct risks are managed and mitigated using thefollowing: > Th e Group’s code of business conduct and conduct standards, product underwriting and other related risk policies, and supporting controls including the Group’s fraud risk control programme; > A cu lture that supports the fair treatment of the customer, incentivises the right behaviourthrough proper remuneration structures, and provides a safe environment to report conduct risk related issues via the Group’s internal processes and Speak Out; > Dis tribution controls, including monitoring programmes relevant to the type of business (insurance or asset management), distribution channel (agency, bancassurance,or digital) and ecosystem, to ensure sales are conducted in a manner that considers the fair treatment of customers within digital environments; > Qu ality of sales processes and training, and using other initiatives such as special requirements for vulnerable customers, to improve customer outcomes; > Appropriate claims managementand complaint handling practices; and > Regular deep dive assessments on, and monitoring of, conduct r isks and periodic conduct risk assessments. #### Risks related to regulatory and legal compliance These include risks associated with prospective regulatory and legal changes and compliance with existing regulations and laws – including t heir retrospective application – with which the Group must comply in the conduct of its business. Prudential operates under the ever-evolvingrequirements and expectations of diverse regulatory, legal and tax regimes which may impact its business or the way it is conducted. This covers a broad range of risks including changes in government policy and legislation, capital control measures, and new regulations at either national orinternational level.The breadth of local andGroup-wide regulatory arrangements presents the riskthat requirements are not fully met, resultingin specific regulatorinterventions oractions including retrospective interpretation ofstandards byregulators. As t he industry’s use of emerging technological tools and digital services increases, this is likely to lead to new and unforeseen regulatory issues and the Group is monitoring emerging regulatory developments and standards onthe governance and ethical use of technology and data. In certain jurisdictions in which Prudential operates there are also a number of ongoing policy initiatives and regulatory developments which will impact the way Prudential is supervised. These developments continue to be monitored by the Group at a national and global level and these considerations form part of the Group’s ongoing engagementwith government policy teams, industry groups and regulators. Further information on specific areas of regulatory and supervisory requirements and changes are included below and in the disclosures on Risk Factors. Prudential plc Annual Report 2021prudentialplc.com 62 ![]() Risks related to regulatory and legal compliance continued Risk management and mitigation of regulatory risk at Prudential i ncludes: > Ris k assessment of the Business Plan which includes consideration of the Group’s current strategies; > Clo se monitoringand assessment of our business environment and strategic risks; > Th e explicit consideration of risk themes in strategic decisions; > Ongoing engagement with national regulators, government policy teams andinternational standardsetters; and > Compliance oversight to ensure adherence with in-force regulations andmanagement of new regulatory developments. Group-wide supervision. The GWS Framework became eective for the Group on 14 May 2021 following designation by the Hong Kong IA, subject to transitional arrangements allowed in legislation which have been agreed with the Hong Kong IA. Under the GWS Framework, all debt instruments, both senior and subordinated, issued by Prudential at the date of designation meet the transitional conditions set by the Hong Kong IA and are included as eligible Group capital resources. Global regulatory developments: In the Group’s key markets, regulatory changes and reforms are in progress, with some uncertainty on the full impact to Prudential. > In China, regulatory tightening across a number of industries in 2 021 will likely continue across other industries. Regulatory developments in Chinawhich mayhave more direct implications to the Group include the following: – Development of a holistic data governance regime in China, which have recently included the Data Security Law, the Personal Information Protection Law, and the revised Measures forCybersecurity Review. – The CBIRC recently released new regulations oninternet life i nsurance sales in China which include restrictions on the selling of certain long-term products online, eective 31 December 2021. – On 26 October 2021, the National Health Commission released for public comment draft rules on the internet healthcare services, usage of which has increased rapidly in China which include restrictions on online AI-driven diagnosis and treatments and requirements on meeting financial and operational criteria. > Regulators in Hong Kong and Malaysia are progressing with plans for their respective risk-based capital (RBC) regimes. The Hong Kong IA is permitting applications for early adoption of its framework. Meanwhile in China, on 30 December 2021, the CBIRC released the ocial regulation for its China Risk Oriented Solvency System (C-ROSS) II, to be eective for Q1 2022 solvency reporting. > In Indonesia, regulatory and supervisory focus on the insurance industry remains high, with a recent focus being on insurers’ governance and IT risk management and the requirements of 2014 Insurance Law relating to the separation of conventional and Sharia business. > Th e protection of customers is an increasing regulatory theme, with changes to the regulation of investment-linked products (ILP) progressing in Indonesia as well as Malaysia. > The pace and volume of climate-related regulatory changes both internationally and locally across Asia markets is also increasing. The IAIS published an application paper on the supervision of climate-related risks in the insurance sector in May 2021, while regulators, includingthe Hong Kong Monetary Authority, the Monetary Authority of Singapore, BNM in Malaysia and the Financial Supervisory Commission in Taiwan, are in the process of d evelopingsupervisory and disclosurerequirements. The Group is actively monitoring and engaging with supervisory authorities on these changes, among others. These changes may give rise to compliance, operational and disclosure risks requiring Prudential to coordinate across multiple jurisdictions in order to apply a consistent risk management approach. Systemicrisk regulation. Eorts to curb systemic risk and promote financial stability are also under way.These include developments by the Financial Stability Board (FSB) and International Association of Insurance Supervisors (IAIS) in the areas of the Common Framework (ComFrame), whichestablishes supervisory standards and guidance focusing on the eective group-wide supervision of InternationallyActive InsuranceGroups (IAIGs) such as Prudential, and the Insurance Capital Standard(ICS). Further detail onthese developments are included in the disclosures on Risk Factors. Inter-bank oered rate reforms. InJuly 2014, the FSBannounced widespread reforms to address the integrity and reliability of IBORs. The discontinuation of IBORs in their current form and their replacement with alternative risk-free reference rates such as the Secured Overnight Financing Rate (SOFR) in the US and the Singapore Swap Oer Rate (SOR) could, among other things, impact the Group through an adverse eect on the value of Prudential’s assets and liabilities which are linked to, or which reference IBORs, a r eduction in market liquidity during any period of transition and increased legal and conduct risks to the Group arising from changes required to documentation and its related obligations to its stakeholders. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 63 The Group’s longer-term prospects Prudential aims to make healthcare aordable and accessible, protect people’s wealth and empower customers to save for their goals, which c an often be over a time frame of many years. As such, Prudentialconsiders thatits purpose alignsclosely withimportant societal needs, including makinghealth and financial security moreaccessible, improvingfinancial inclusion and education and transitioning to a low-carbon economy. Prudential is focused on addressingthese increasing needs, reflecting population demographics in our chosen markets. The drivers for this structural growth, such as the low penetration rates across the Asian region, are discussed on pages 8 to 27 alongside the activities we have taken to deliver our objectives and enhance our capabilities. In undertaking these activities, we aim both to meet the e volving needs of our customers and provide sustainable growth forour shareholders, which willsupport the viability of ourbusiness over thelonger term. In 2021 the eects of the Covid-19 pandemic have continued to disrupt the Group’s individual markets to varying degrees and at dierent periods. Our focus during this time has been on supporting our communities, customers and sta through the challenges created. 2021saw improvement in newbusiness levelsover the low levels seen in 2020 and economic growth has improved in most of the markets in w hich the Group operates. We expect the vaccination programmes, that continue to be rolled out, to facilitate a gradual return to more normal economic patterns, albeit with some uncertainty over the short term. Over the longer term we believethat the demand for our products will continue to grow in line with the structural growth in our chosen markets. All of the Group’s activities are underpinned by ongoing risk management, implemented via the Group Risk Framework and risk appetite limits described in the Group risk report on pages 48 to 50. The G roup as a whole and each of its life assurance operations are subject to extensive regulation and supervision, which are designed primarily to reinforce the Group’s management of its long-term solvency, liquidity and viability to ensure that it can continue to meet obligations to policyholders. Further detailson the currentcapital strength of the Group are provided on pages 40 to 43. The Group’s management of widerenvironmental, social and governance issues that could pose a risk in the future to the Group, including the impact of climate change, is set out in the Environmental, Social and Governance report on pages 66 to 136. This risk and regulatory focus supports the sustainability of our business over the longer term. Period of viability assessment The Directors have assessed the viability of the Group for a period longer than the 12 months required by the going concern statement. The Directors performed the assessment by reference to the three-year plan period to 31 December 2024. Three years is considered an appropriate period as this is the period over which the Group undertakes stress-testing for thekeyeconomic and insurance risk factors which most directly aect the viability of the Group. A p eriod of three years is selected as these forecasts are inherently volatile over a longer estimation period. This period also represents the period covered by the detailed business plan that is prepared annually on a rolling three-year basis. In approving the business plan, the Directors reviewed the Group’s projected performance with regards to profitability, cash generation and capital position, together with the parent company’s liquidity over this three-year period. Assumptions applied in theplan include foreignexchange rates, interest rates, economic growth rates, the impact on the business environment arising from the impact of Covid-19 and includes anticipated regulatory changes. The Directors are satisfied that this period is sucient to enable a reasonable assessment of viability to b e m ade. Assessment of principal risks over the period The Group’s business plan implements the Group’sstrategic objectives through the business model and activities discussed on pages 12 to 13. Assessment of the risks to achieving the projected performance remains an integral part of the planning process. The Group’s approach to risk management and a summary of the key risks facing the Group are set out on pages 44 to 63. For the purposes of assessing the Group’s viability, the Directors considered those risks where the impact of possible adverse external developments could be of such speed and severity to present ashock to the Group’s financial position. While all the risks set out in the risk report have the potential to impact the Group’s performance, the key risks impacting the Group’s viability are: market risk, credit risk, liquidity risk and regulatory risk. The Directors also considered the macroeconomic environment and geopolitical risks in the markets which the Group operates. Mitigation in place for these key risks to viability are set out on pages 44 to 63. #### Viability statement prepared in accordance with #### Provision 31 of the UK Corporate Governance Code Prudential plc Annual Report 2021prudentialplc.com 64 ![]() Stress and scenario testing As noted above, underpinning the projections in the business plan are a number of economic and other assumptions. To evaluate the Group’s resilience to significant deteriorations in market and credit conditionsand other shock events, these risks aregrouped together into scenarios which are then applied to the assumptions underlying the business plans. Sales and other scenarios considered include those r eflecting the possible impacts of Covid-19 restrictions on new business, includingthe uncertainty as to the duration ofrestrictions in i ndividual markets and the length of time for sales to recover to previouslevels and dierent timings of expected regulatory changes. Stresses have been applied to the economic and non-economic assumptions underlying thebase case business plan, reflecting the G roup’s management of its position within its risk appetite. The stresses applied to our plan economic and other assumptions in t wo adverse economic scenarios were as below: Interest rate stress Asia developed market equity stress Asia emerging markets equity stress Equity volatility Credit spread increase Credit default/ downgrade Adverse currency movement Other stress Recession Scenario (50)bps (15)% to (20)% (25)%5%50bps 3 times base assumption n/a Adverse policyholder behaviour ‘Stagflation’ Scenario +30bps to +120bps 4 (15)% to (20)% 4 (25)% to (45)% 4 5% 50bps to 90bps 4 3 to 5 times base assumption 4 5% to 20% Adverse policyholder behaviour The sensitivityof the Group’sregulatory solvency at 31 December 2021 to changes in key assumptions is set out on page 364 of this annual report. In addition, the adequacy of liquid resources of the Group’s parent company across the plan period has been assessed by consideringa stress scenario assumingthe closure ofshort-term debt markets, as well as additional calls on central liquidity by the business units. In this liquidity stress scenario, the Group would have access to sucient resources to meet thefunding requirements ofthe business, after taking into account the Group’sundrawn committed liquidity facilities of $2.6 billion, on top of central cash and short-term investment balances, which as at 31 December 2021 were $1.8 billion (after allowing for $1.7 billion of debt redeemed in January 2022). The scenarios tested showed that the Group would be able to maintain viability over the three-year period under assessment, after taking account of the actions available to management to mitigate the impacts on capital and liquidity in such scenarios. These actions include, but are not limited to, rebalancing investment portfolios, further market riskhedging, increased use of reinsurance, repricing of i n-force benefits, changes to new business pricing and the mix of new business being sold. In addition, the Group conducts an annual reverse stress test which gives the Directors an understanding of the maximum resilience ofthe Group toextremely severeadverse scenarios. The analysis assists in identifying management actions that could be implemented to restore the Group’s capital and liquidity resources from extreme positions. This analysis also informs the Group’s recovery plan and liquidity risk management plan. The impact on the business of known areas of regulatory change whose financial implications can be reasonably quantified is also considered as part of the plan, for example the implementation of more risk-based regimes in Hong Kong and other markets. As well as known areas of regulatory change, the Group is exposed to the risk of sudden and unexpected changes in regulatory requirements at the Group and locallevels. While unexpected changes cannotbe fully anticipated and hence modelled, the risk of regulatory change is mitigated by capital held by the Group and its subsidiaries in excess of G roup and local regulatory requirements, the Group and its subsidiaries’ ability to generate significant capital annually through operational delivery andthe availability of compensating actions designed to restore key capital metrics. Conclusion on viability Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year plan period to December 2024. Notes 1Excluding assets held to cover linked liabilities and those of the consolidated investment funds. 2Based on middle rating from Standard & Poor’s, Moody’s and Fitch. If unavailable, NAIC and other external ratings and then internal ratings have been used. 3Sourceof segmentation: Bloomberg Sector,Bloomberg Groupand MerrillLynch. Anything that cannot be identified from the three sources noted is classified as other. 4Position in range depends on local market. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 65 ![]() #### ESG report #### Prudential’s approach to ESG During 2021, Prudential strengthened its focus on ESG, building on the new ESG strategic framework that we developed in 2020. This framework is aligned to our business strategy and our purpose of helping people to get the mostout of their lives by making healthcare aordable and accessible and by promoting financial inclusion. Prudential plc Annual Report 2021prudentialplc.com 66 ![]() #### Overview When we set out to create our ESG framework, we were largely informed by the trends of a pre-pandemic world, including the rise in conditions such as heart disease and diabetes, and changing demographics expanding health, protection and savings gaps. We know now, two years into the Covid-19 pandemic, that many of these trends have been exacerbated and, in many ways, reinforced. This analysis underlines the importance of placing our ESG strategy at t he core of our business s trategy. We have made significant progress in 2021, which we are proud to present in this report. We established our Board Responsibility and Sustainability Working Group (RSWG) to oversee our work in this area. As a significant asset manager and asset owner in regions forecast to be severely impacted by climate change, Prudential has a distinctive role to play in the transition to a low-carbon economy. Recognising this, in May 2021 we set a target to be net zero by 2050 for our insurance assets, supported by a 25 per cent reduction in emissions from our investment portfolio 1 by 2025. We are reporting the weighted average carbon intensity (WACI) of our investment portfolio for the first time in 2021. The breadth of stakeholders with whom we engage on ESG topics continues to expand and we have been pleased to engage with investors, rating agencies, NGOs, governments, regulators and our colleagues on our framework and to bring their feedback into our ongoing thinking. A number of our ESG ratings have improved in 2021, n otably Sustainalytics, CSA and ISS, though we recognise that expectations rightly continue to increase and therefore we will keep our focus on maintaining and improving our ratings as an indicator of the outcomes we aim to contribute to and achieve. Across Prudential, inclusivity runs as a common theme in all of our ESG a ctivity. Within our core business activity of making health accessible, we seek to make our products as inclusive as possible, and d uring 2021, we developed a campaign, We DO Family, to support the development of more inclusive products that recognise the evolution of nuclear families; our approach to climate change is underscored by our commitment to an inclusive transition in our markets; and, as we build social capital through trusted relationships with our employees, on whom our success depends, we demonstrated our commitmentto diversity and inclusion through the launchof PRUCommunities, our inclusion on theBloomberg GEI for the first time in 2021, and the commitment by our businesses to the UN Women’sEmpowerment Principles. The International Association of Insurance Supervisors (IAIS) recently commented that ‘there is growing acknowledgment that advancing diversity, equality and inclusion (DE&I) within insurers’ organisations and business modelssupports sound prudential and consumer outcomes and sustainability objectives’. We consider this focus on inclusivity, both internally and externally, to b e central to our approach and the outcomes we support. Supporting a just and inclusivetransition We fully support the urgent need to reduce global greenhouse gas emissions to net zero to limit climate change. We are particularlyconsciousof what thepotentially catastrophic impacts of climate change may mean for the communities in which we operate – and millions of our customers – in Asia and Africa. At the same time, the transition to a low-carbon economy also impacts the communities in which we operate as they are currentlymore dependent onburning fossil fuels forelectricity and have fewer means to finance the transition. We recognise that our responsibilities go beyond finance and we w ant to support communities, companies and governments during this transition. Therefore our chosen approach continues to give thoughtful consideration to the need for a just and inclusive transition in the following ways: > We unveiled a pledge to become a net-zero asset owner by 2050, committing to specific short-term targets to engage with companies to help decarbonise our considerable financial assets. In setting these targets and thresholds, we seek to maintain investment in companies providing essential services to communities while they actively transition to alternatives, such as renewable energy companies that may still have a small element of coal revenue. > We actively support this transition by bringing an emerging market perspective to the decarbonisation discussions, such as our involvement at COP26, our involvement in bodies such as the Net Zero Asset Owner Alliance, andour continued support of the Energy Transition Mechanism as an example of the practical private-public solutions needed toprogress the energytransition. > We b elieve that the responsible approach in the communities in which we operate is to engage and support the transition, rather than to divest of all fossil fuel based companies who are providing essential needs. > We c ontinue to serve first-time customers and under-served communities through a range of innovations, recognising that these groups, especially women and girls, are more heavily impacted by the eects of climate change. > We also strengthened our eorts in creating inclusive workplaces, supporting bothexternal and internal communities while celebrating diversity in thoughtand culture. As we move forward, we know this approach may impact our ability to decarbonise at a pace achievable in developed markets, but we believe this to be the right responsible long-term approach in our markets. Note 1Our investment portfolio (’investment portfolio’) includes both listed equities and corporate bonds, while excluding assets held by joint venture businesses and assets in unit-linked funds as we do not have full authority to change the investment strategies of these. Further information is provided in the Basis of Reporting at www.prudentialplc.com/ ~/media/Files/P/Prudential-V13/esg-report/basis-of-reporting-2021 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 67 ![]() Targets The Board and management recognise the importance of targets in evidencing its commitment to progress on ESG topics. To date, Prudential has established targets in relation to the decarbonisation of its investment portfolio, its Scope 1 and 2 targets and the gender diversity of its senior leadership team. From 2022, the decarbonisation target will be included in the long-term incentive plan. Further information is available in the Directors’ remuneration report. During 2021, the business has made good progress on each of these as set out in the table below and in the relevant sections of this report. Target Board’s evaluation of progress Detail in report 25 % reduction in the carbon emissions o f the investment portfolio by 2025 On track PAGE 82 Divestment from all direct investments in businesses that derive more than 30 % of their income from coal, with equities to be fully divested by the end of 2021 and fixed-income assets by the end of 2022 Achieved for equity holdings On track for fixed income assets PAGE 83 Engagement with the companies responsible for 65 % of the absolute emissions in our investment portfolio On track PAGE 83 25 % reduction (per FTE) in Scope 1 and 2 reduction by 2030 On track PAGE 89 Women in Finance Charter targetof 30 % of women in senior leadership by e nd of 2021 Achieved, with 35 per cent of senior leadership roles filled by women at 31 December 2021 PAGE 98 We will continue to review and update our ESG strategy in line with our business strategy, and all carbon metrics and targets – both near-term and longer-term – will be regularly reviewed to take into account evolving scientific data and stakeholderexpectations. The above targets are as at 31 December 2021. The Board will continue to evolve these as the Group progresses on its ESG journey, and such future targets may include, but not be limited to, responsible investment and diversity. Challenges andgoals As recognised at COP26, limiting global warming to 1.5°C requires rapid, deep and sustained reductions in global greenhouse gas emissions in the coming years, particularly in the period to 2030. Action will be required from all players across both the private and public sectors. Prudential is committed to working alongside the governments in the markets in which it operates, multi-lateral development banks and others. This urgent need for action informs the goals and challenges of the coming three to five years. Within an ESG context, our goals for the coming three to five years include: > Achievement of the decarbonisation targets set out in May 2021, and articulation of further targets as appropriate, aligned with our ambition of pursuing a just and inclusive transition; > Id entifying where the impacts of climate change touch on access to health and financial security, and seeking to address these to support our customers; > Oering savings and protection products to underserved populations, particularly recognising that thesegroups, especially women and girls, are more heavily impacted by the eects of climate change and the Covid-19 pandemic; and > Evolving our Scope 1 and 2 target from ‘carbon neutral by 2030’ to ‘ net zero by 2030’. Challenges to the achievement of these goals will include: > Co ntinually balancing the need for decarbonisation with sustainable developmentthrough a just and inclusive transition, and particularly how to achieve decarbonisation targets as the Group grows in its key markets of India, China, Malaysia and Thailand, which remain highly reliant on coal and other fossil fuels; > Setting a net-zero target for our Scope 1 and 2 emissions from our own operationswhile recognisingthat renewable energy options remain limited in some of our markets, and the oset market matures; and > Balancing theinterests of all ourstakeholders across both developing anddeveloped markets, acknowledgingtheir varying capacityand perspectives. ESG report / continued Prudential plc Annual Report 2021prudentialplc.com 68 ![]() #### ESG governance The Board considers ESG to be integrated and aligned with our core b usiness strategy of helping people to get the most out of life. It recognises the major role that Prudential can continue to play across Asia and Africa, as well as in the long-term success, resilience and health of the communities in which we operate. As such, ESG matters, including climate change, are overseen by the Board, which is responsible for determiningoverall strategy and prioritisation of k ey f ocus areas. In early 2021, the Board noted the importance of embedding the ESG Strategic Framework within the Group. It also noted the need to f ocus on progressing related matters such as the development and embedding ofthe Group’s purpose and values, progressing diversity andinclusion (D&I) priorities, and building upon employee engagement activities. Accordingly, the Board established the Responsibility and Sustainability Working Group (RSWG). The RSWG is chaired by Alice Schroeder and comprised four Non-executive Directors during 2021 (AliceSchroeder, Jeremy Anderson, Fields Wicker-Miurin and Jeanette Wong, who replaced Kai Nargolwala). The RSWG formally met five times during 2021. The main items dealt with were: > The development and embeddingof the ESG strategic framework; > ESG reporting matters including: – re commendation of the approval of the 2020 ESG report to the GAC and the Board; – dis cussion and agreement of an approach for our FY21 reporting, acknowledging that the ESG reporting landscape is constantly evolving anddisclosures wouldtherefore need tobe considered and enhanced year on year; – tr ainingon new Hong Kongand global reporting standards; and – oversight of the approach, preparation and review of the 2021 Report as set outbelow. > Consideration and recommendation to the Board of the Group’s new carbon reduction targets, ahead of the announcement made in May 2021; > Pe ople and culture matters including: – oversight of how the Group’s Culture framework has been embedded throughout the organisation, monitoringthe development of metrics for measuring culture and reviewing a q uarterly dashboard onPeople-related data; – ensuring acohesive diversity and inclusion strategy is embedded across the Group, regularly monitoring progress against key metrics, withspecific focus on theGlobal Talent Sponsorship Programme, the embedding ofdiversity within recruitment process, and the launch of the PRUCommunities Programme; and – oversightforthe Group’s workforceengagement activities from May 2021. Members of the Working Group and the Board as a whole attended a variety of both formal and informal events. Full details of these activities can be found within the S.172 statement on pages 138. > Oversight of Group’s corporate and social responsibility programmes and how they align and work with the Prudence Foundation, for which it received regular updates on its long-term work. Deep dives were presented on some of the Foundation’s flagship programmes and discussionswereheld on the Foundation’s aspirations moving into 2022 and aligning the Foundation’s work with the Group’s climate commitments. > Th e Working Group also assisted the Board by reviewing the Group Code of Business Conduct and the Group Modern Slavery Statement, recommending both for approval by the Board. In terms of the specific preparation of this report, the RSWG considered this throughout its development: > July 2021: the proposed approach to the Group’s 2021 ESG Report, including theconsideration of various voluntary reporting frameworks approving alignment with the SASB Insurance Standard, the HKSE requirements and the approach to m ateriality for2021; > Oc tober 2021: the outline of the 2021 report; > February 2022: reviewed the first draft; and > Marc h 2022:final approval. The Working Group was set up to run until the 2022 AGM and asked to consider future governance arrangements for responsibility and sustainability matters as part of its remit. The Working Group has operated very eectively as a forum for oversight and discussion of a n umber of topics that have required additional Board-level focus. In order to build upon the success of its first year, the Board has agreed w ith the Working Group’s recommendation that it continue in operation for a further year until the 2023 AGM. Thereafter we will r eview the evolving agenda and priorities of the Board, the assignment of responsibilities to the Board’s Committees and consider how best to ensure that key topics receive the appropriate time and attention atBoard-level. Management oversight ESG activity, including the impacts from climate change, is overseen at a management level by the Group ESG Committee chaired by the Group Chief Financial Ocer and Chief Operating Ocer, in his role as ESG sponsor. He will continue to chair this Committee in his role as Interim GroupCEO. Membershipof the Committee includes the Group Chief Risk and Compliance Ocer, the Group HR Director and senior representatives from the Group’sasset owner andasset management businesses, including the Chief Executives of Eastspring and PACS (Prudential’s Singapore business). One of theGroup ESG Committee’s responsibilities is to oversee the Group’s progress towards fulfilling our commitment to report against the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). In 2021, the Group ESG Committee reported to the Board through the RSWG. Further information on the governanceand oversight of our responsible investment activity is provided on page 107. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 69 ![]() ESG report / continued Local business units Group ESG Committee > Focused on the holistic assessment of ESG matters, including climate change, that are material to the Group > Ch aired by Group CFO & COO > Members includeasset owner andasset manager CEOs, GroupCRCO, Group CHRO Group Responsible Investment Advisory Committee (GRIAC) > Op erational responsibilityforoversight ofResponsible Investment activity > Co -chaired by CIO and Head of Eastspring Portfolio Advisors > Members includelocal business CIOs Prudential Sustainability Advisory Group (PSAG) > Ad vise oncommunications andreporting ofESG-related matters, and on developing business unit ESG strategies consistent with the Group strategy > Chaired by Chairman of Prudential Insurance Growth Markets. > Member s include ESG and other specialists, and business representatives The local business units support the implementation of the Group’s ESG strategy, including climate change risks and opportunities > Oversees all aspects of ESG, including people, culture and communities, with ultimate responsibility for determining strategy and prioritisation of key focus areas > Provides rigorous challenge to management on progress against goals and targets > En sures the Group maintains an eective risk management framework, including over climate-related risks and opportunities Prudential plc Board Chief Executive and Management Team The Chief Executive has responsibility for implementation of the Group’s ESG strategy, including people, culture and climate change risks and opportunities, with support from the executive management team INFORMING INFORMING INFORMING PSAG is focused on execution and is not part of formal governance Board Responsibility and Sustainability Working Group > Meeting frequency in 2021: five times > Ov ersees the embedding of the Group’s ESG strategy, including people, culture and communities, on behalf of the Board > Reviews information presented within the ESG report > Ov ersees the Group’s ongoing commitment relating to TCFD > Ch airedby AliceSchroeder.Members are four Group Non-executive Directors > At tendees include Group Chair, Group CEO, Group CFO & COO, Group CHRO Remuneration Committee > Meetingfrequency in 2 021: four times > Supports the ESG strategy through alignment of the Group’s incentive plan to external ESG t argets Group Audit Committee > Meetingfrequency in 2 021: five times > Oversees the Group’s financial statements and non-financial disclosures, including climate-related disclosures > Oversees whistle- blowing programme Group Risk Committee > Meet ing frequency in 2021: five times > Su pports the ESG strategy by ensuring the risks, including people, cultureand climate-related risks and opportunities, are eectively managed The Board delegates specific ESG, including climate change, oversight matters to its committees REPORTING INFORMING INFORMING REPORTING REPORTING REPORTING REPORTING Prudential plc Annual Report 2021prudentialplc.com 70 ![]() #### Description of ESG strategic framework The key features of our ESG framework are its three strategic pillars, which have clear alignment with our business strategy. Within each of these, specific focus areas have been identified where there is an opportunity for Prudential to make a meaningful impact, and as such greater focus will be placed on these. THE FOLLOWINGSTRATEGIC ENABLERS SUPPORTTHESE PILLARS: Making healthand #### financial security accessible > D igital innovation > Inclusive oerings > Promoting financial literacy REA D MOR E PAGE 75 > #### Helping people #### get the most #### out of life Stewarding the #### human impacts #### of climate change > Decarbonising our investment portfolio > Supporting a just and inclusive transition REA D MOR E PAGE 82 > #### Buildingsocial capital > Digital responsibility > Diversity, inclusion and belonging REA D MOR E PAGE 96 > #### Good governance #### and responsible #### business practices REA D MOR E PAGE 117 > #### Responsibleinvestment REA D MOR E PAGE 107 > #### Communityengagementand investment REA D MOR E PAGE 113 > Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 71 ![]() Our 2021 ESG Report is structured in line with this framework and provides an update on our progress in the year across each of the pillars and enablers. The United Nations Sustainable Development Goals (SDGs) are universally recognised and provide a transparent and standardised mechanism of illustrating the intended outcomes of our strategy. In aligning with the SDGs, the Group is focused on those where we can make a meaningful impact because of the close relationship with our purpose and business strategy. We have aligned with the SDGs at a target-level for the following goals and intended outcomes: SDG SDG target Intended outcome How Prudential can support this outcome 1No poverty 1.4, 1.5 Increased access to quality healthcare services, and financial services for the poor and t he underserved, includingmicrofinance. Improved resilience of the poor and reduction in their exposure and vulnerability to climate- relatedextreme events and other economic, social and environmental shocks and disasters, where there areno, or limited, social safety nets. Innovate todevelop new financial products and distribution channelsto advancefinancial inclusion (page 75) Provide products at a lower ticket size to enhance aordability Enable financial literacy to promote understanding of the need for health and protection products 3Good health and w ellbeing 3.8, 3.d Strengthened capacity of our local (anddeveloping) markets, for early warning, riskreduction and management of national and global health risks. Increased access to quality healthcare and financial risk protection for all across Asia. Scale health and protection policies for p eople on all incomes (page 76) Collaborate with community organisations to support health promotion, safety and resilience activities ( page 113) 8 De cent work and economic growth 8.3 Promoted development-oriented policies that support productive activities, decent job c reation, entrepreneurship, creativity and innovation, including through access to fi nancial services. Expand support for small and medium -si zed enterprises (page 77) Investments in business and industry underpinning growth and supporting the development of capital markets. Provide financial literacy support and tools to c ommunities. 13 Cl imate action 13.1, 13.3 Strengthened societaladaptive capacity in respect of climate-related hazards. Improved education, awareness and human c apacity on climate change mitigation, adaptation, impact reduction and e arly warning. Measure, manage and publicly disclose the carbon footprint of our investment portfolio. Be an active steward of the investments in our p ortfolio companies, engaging with management and exercisingshareholder voting rights (page 109) Collaborate with community organisations to support resilience and disaster recovery activities (page 115) #### Approach to materiality and stakeholder engagement As set out in the 2020 ESG report, the Group’s ESG framework was developed following a rigorous process, whichidentified key ESG expectations from investors, rating agencies, government and regulators, stock exchanges, NGOs, industry and independent organisations, mediaand employees. This comprehensive stakeholder engagement informed the materiality assessment for thepurposes of our 2020 ESG reporting. Through this analysis, the three strategic pillars and three enablers were identified and defined, and these proposals were discussed with stakeholders across the Group to ensure t hat our ESG strategy was fully integrated into the business. As the ESG strategy is still being embedded, and in line with best practice, the 2021 materiality review was carried out by refreshing the 2020 process. The 2021 review acknowledged that the ESG landscape and stakeholder expectations are evolving quickly, and that Prudential’s business continues to evolve. The 2020 ESG strategy analysis considered bothinternal and external stakeholder expectations and business strategic priorities to identify the key ESG themes to form the basis of the Group’s ESG strategy and, as such this continues to meet the HKSE materiality requirement. During 2021, we discussed our ESG framework through normal-course interaction with external stakeholders, including regular investor meetingswith specialist and generalist investors, and meetings with NGOs including ShareAction. This allowed management to consider the extent to which the framework is appropriate and resonant to stakeholders. Management noted that the focus on a just and inclusive transition in our developing markets and how it has informed our decision-making was of particular interest to many stakeholders. Many of these stakeholders approach the discussions from a more developed-market ESG report / continued Prudential plc Annual Report 2021prudentialplc.com 72 ![]() perspective, and therefore have appreciated thisadditionalcontext. The Group has outlined its commitment to enabling a just and inclusive transition to a low-carbon economy, and its recent net-zero commitments further support this strategic focus. This demonstrates alignment between stakeholder priorities, the Group’smaterial ESG issues and the Group’s strategic activity. Across all stakeholder groups consistent themes arose, namely climate change, human rights and supply chain issues and disclosure of specific ESG metrics. Many of the topics raised by stakeholders are covered within the Group’s ESG strategic framework and as a result of t he 2021 work, certain additional topics have been deemed to be material and to be the key ESG topics and strategic priorities in managing ESG issues for the short and medium term. The table below shows how these topics are linked to our strategic framework and how they have evolved between 2020 and 2021. The Group will continue to focus on enhancing its disclosure of these material areas in the coming years. Biodiversity and broader nature-based considerationsare emergingtopics amongcertain stakeholder groups. This will be kept under close review and is being tracked by the Group Responsible Investment Advisory Committee. Engagement with theGroup’s stakeholders has highlighted more generally the continuing appetite for data and metrics to monitor and m easure the Group’s ESG performance and impact. The appetite for greater transparency on the Group’s workforce composition and turnover and for metrics for customer complaints will be met by disclosing against the new HKSE social KPI requirements and the adoption of the SASB Insurance Standard, as set out below. Material topics – Prudential’s ESG strategic pillarsand enablers Material subtopics Changes Making health and financialsecurity accessible > Digital innovation > Inc lusiveoerings, including the social impact and benefit > Pr omoting financial literacy > Customer relationships, including satisfaction Expanded discussion of digital innovation to include financial management as well as health Enhanced focus on the social impact of products within inclusive oerings Customer relationships moved into health pillar reflecting its i mportance; increased references to customer satisfaction Stewarding the human impacts ofclimate change > Decarbonisation of our investment portfolio > Supporting a just and inclusive t ransition > Management of direct operational environmental impacts Management of direct operational environmental impacts considered as a discrete topic given its importance and setting of public targets Building social capital > Diversity, inclusion and belonging > Digital responsibility Diversity, inclusion andbelonging remains a materialsubtopic and is p resented in the context of our broader employee relationship and valueproposition Responsible investment > Responsible investment Materialtopics unchanged Good governance and responsiblebusiness practices > Standards of behaviour > Re sponsiblesupply chain > Responsible tax practices > Mi tigating financial crime > Whistleblowing > Re sponsible working practices Enhanced focus on responsible supply chain, including human rights Community engagement andinvestment Supporting communities across three m ain a reas: > He alth > Education > Sa fety Material topics unchanged Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 73 ![]() #### Approach to ESG reporting As a Hong Kong-listed company, Prudential’s ESG reporting must follow the requirements of the Hong Kong Stock Exchange (HKSE), as well as the UK Listing Rules. In December 2019, the HKSE Listing Rules for ESG reporting were updated to include a number of new ‘comply or explain’ provisions. The new requirements are eective for financial years commencing on or after 1 July 2020 and Prudential’s 2021 ESG report has been prepared in accordance with these requirements. HKSE sets out variousreporting principles and theyare addressed through the report as follows: Materiality Discussion of 2021 approach outlined in ‘Approach to materiality’ section above. Quantitative As reporting maturitydevelops, the Group continues to work towards disclosing more comparableand quantitative information. For 2021, additional metrics have been provided in compliance with the HKSE requirements and the voluntary adoption of t he SASB Insurance Standard (see below). Consistency The FY21 report has been prepared on a consistent basis to FY20, with the exception of the treatment of Jackson. Unless otherwise stated, Jackson has been excluded from the commentary on FY21 performance and from quantitative disclosures as at 31 December 2021. The Scope 1 and 2 disclosures have been provided both including and excluding Jackson, in order to p rovide a baseline for future reporting. Reporting boundary Consistent with prior years, the scope of thereport, and data therein, excludes joint venture partnerships, notably our joint ventures in India and China, and the Takaful business in Malaysia, unless otherwise stated. New HKSE disclosures are included in the relevant sections of the report, and an index is included at the end of the ESG report to set out how Prudential has met each of the new HKSE reporting requirements. Prudential is a supporter of the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). Prudentialhas included climate-related financialdisclosures in this report consistent with the TCFD recommendations and the TCFD’s recommended disclosures. We have included in our ESG report the material climate-related financial disclosures consistent with the four recommendations andthe eleven recommended disclosures set under TCFD. These disclosures are principally set out in the following sections of this report: ESG Governance, Stewarding the Human Impact of Climate Change and Responsible Investment. An index is included at the end of the ESG Report to demonstrate how Prudential is meeting the TCFD recommendations. In October 2021, the TCFD released additional guidance implementing the‘Recommendations of the Task Forceon Climate- related Financial Disclosures’ (2021 TCFD Annex). Some of the additional guidance in the 2021 TCFD Annex will require more time for us to fully consider. We will start this review over the course of 2022. As well as the work to enhance internal management and reporting of c limate-related information,we participatein external benchmarks to provide additional visibility to stakeholders on our climate-related activity. We aim continually to improve the transparency and utility of our reporting. In 2021, we continued to participate in CDP (formerly t he Carbon Disclosure Project) and maintained our score with a B grading (2020: B). Given our strategic focus on Asia and Africa, we decided not to renew our membership of ClimateWise, which has a predominantly UK focus. The Group welcomes recent developments around sustainability reporting standards under theremit of the IFRS Foundation. In parallel to tracking the convergence in sustainability reporting standards that is anticipated in the coming years, the Group is committed to enhancing its disclosures. The goal is to enhance, over t ime, the sophistication of our sustainability disclosures in line with stakeholder expectations, in a way that does not inhibit the straightforward adoption of new reporting requirements as convergence takes place. To this end, during 2021 we reviewed various voluntary reporting frameworks and decided to prioritise reporting in line with the SASB Insurance Standard for 2021. This approach was d iscussed and agreed with the Group ESG Committee and RSWG in July 2021. An index is included at the end of the ESG report to set out how Prudential has met each of the new requirements. While assurance of ESG data is not required by the HKSE, it is encouraged as part of the HKSE’s 2020 update to the ESG Listing Rules. Historically, the Group has sought limited assurance on selected indicators within the Group’s ESG report. These indicators cover community investment data, employee diversity data and environment data. As the maturity of Prudential’sESG reporting develops and in recognition of the increasing demand for and use of Prudential’s ESG data, it is necessary to keep the scope of ESG data assurance under review. In order to provide stakeholders with an update on progress against the Group’s decarbonisation targets, the Group is disclosing the WACI o f its investment portfolio for the first time in the 2021 ESG Report. Given the degree of stakeholder interest in this metric, the R SWG agreed that this should be included within the scope of the assurance work. Prudential plc appointed Ernst and Young LLP (EY) to provide limited independent assuranceover selected ESG KPIs within the2021ESG Report for the year ended 31 December 2021. These are indicated throughout. The assurance engagement was planned and performed in accordance with the International Standard for Assurance Engagement (ISAE) (UK) 3000 (July 2020), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. A l imited assurance report was issued and is available on the Prudentialplc website at www.prudentialplc.com/~/media/Files/P/ Prudential-V13/esg-report/assurance-statement-2021. This report includes details of the scope, respective responsibilities, work performed, limitationsand conclusion. ESG report / continued Prudential plc Annual Report 2021prudentialplc.com 74 ![]() #### Strategic Pillar: Making health #### and financial security accessible Despite the rapid rise in prosperity in Asia, there are still low levels of i nsurance cover and limited social safety nets. This is evidenced by 39 per cent of health and protection spend still being paid out-of-pocket, and an estimated 80 per cent of the population of Asiastill without insurance cover. Combined with rising prosperity and a geing populations, this creates a large and growing health and protection gap that has been estimated at US$1.8 trillion. Our goal is to c lose the health, protection and savings gaps across Asia and Africa. To achieve this, we are focused on four areas: > Digital innovation, wherewe makehealthcareservices and financial management tools easily available; > Inclusiveoerings, where we develop more inclusive products and services for underserved segments ofsociety,including products suitable for a wider range of income groups such as through our ‘bite-sized’ insurance products; > Meetingthe changing needs of ourcustomers and ensuring they have the best access to our products through our multi-channel and integrated distribution approach; and > Pr omoting financial literacy so that people gain knowledge of financial management andhave a deeper understanding of p rotection benefits. Digital innovation Digitalisation supports greater accessibility as more consumers, particularly those in developing markets across Asia and Africa with relatively high smartphone penetration rates, begin to rely on digital channels for financial products and services. By scaling up our use of digitaltechnology, we canhelp make healthcareand financial security more accessible and aordable, and support our customers to prevent, postpone andprotect againstill-health. Core to this is Pulse by Prudential, our all-in-one health and wealth app,which uses AI-powered tools and personalised services. Pulse e mpowers people to take charge of their health and wealth anytime, anywhere. Pulse is active in 17 markets in Asia and Africa and we utilise AI technology to oer users a wide selection of services, ranging from health assessments and risk factor identificationto telemedicine, wellness and digital payment capabilities. Health features such as AI Symptom Checker and Digital Twin have been launched in Pulse to most markets in which Pulse is available. These features are paired with health experts online (where available) and fitness communities to help Pulse users stay healthier. Pulse has widened its oerings, attracting more users, with cumulative downloads of the Pulse app now exceeding 32 million. The breadth of services on this all-in-one health and wealth app is designed to attract a new generation of customers, one that is younger, more health- conscious, and from middleto lowerincome groups. We are growing the capabilities of Pulse across all our businesses, adding new features that are relevant to each market to increase user e ngagement. As we design these services, we consider emergingpopulation risks and public health trends, such as an ageing p opulation. Health is not only the absence of disease but also the ability to be and stay healthy by taking positive actions towards preventing adverse health outcomes. Pulse supports our customers to postpone and prevent ill health through its food and fitness features, empowering them with the tools they need to embark on their personal health journey. The demographic of Pulse users tendsto be our younger customers, for whom the immediacy of information provided by the app is important. Free features rolled out in 2021 around food and nutrition, such as accessible information on the importance of micronutrients, enable our customers to make healthy choices and allow for regular interaction with the app. Meal plans and recipes are also provided, with further enhancements planned for 2022 to add more regional recipes, reflecting culinary diversity. Fitness features developed in 2021 include the roll-out of My Wearables in all markets in Asia and Africa, which allows users to s ynchronise Pulse to their fitness tracking devices. With the PulseFit subscription, customers can access curated exercise videos and track their personal goals to form healthy habits. All our markets continue to be aected by the Covid-19 pandemic and our businesses have continued to support our customers and communities in a range of ways. Initiatives include providing free Covid-19 protection and post-vaccination benefits, and awareness campaigns to educate communities on Covid-19 prevention and protection. Wealth solutions We intend to lower the threshold for wealth services, high-quality advice and services to the broader market. This will be enabled by a wealth oering on Pulse, which can stand on its own or be combined with advice from an agent. Our goal is to be a trusted adviser, regardless ofchannel, as we financially educatepeople, help them plan and visualise goals, and guide them on where and how to invest. #### ‘As growing cross-industry #### collaborations make #### healthcare and financial #### security more widely accessible and aordable to all, #### digitalisation could go a long #### way to closing the protection #### gap – and help people to live #### well for longer.’ Boon Huat Lee, Chief Digital Ocer Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 75 ESG report / continued During 2021, we rolled out digital wealth solutions, Wealth@Pulse, in t hree markets – Singapore, Thailand and the Philippines – with plans to include more markets next year. In these markets, users have access to a personal AI digital assistant trained to respond to users’ queries on financial planningand a Knowledge Centrecontaining bite-sized information resources. Digital partnerships Partnerships are critical to the development and success of Pulse. We b uild deep relationships with our digital partners to expand multiple oerings that combine health, wealth, retirement and lifestyle knowledge and solutions. To date, we have entered into 56 key digital partnerships, including with Smarter Health and Privé Technologies in 2021. These add to our global and local partnerships with healthtechs from around the world, including UK-based Babylon Health, Indonesia-based Halodoc, Malaysia-based DoctorOnCall and Singapore-based MyDoc. In Africa, we partnered with a telemedicine partner, Rocket Health, to p rovide convenient and cost-eective healthcare services to our customers and agents in Uganda. In Ghana, we formed a partnership with BIMA, a leadingproviderof mobile-delivered insurance and health services, and AirtelTigo,Ghana’sthird-largest mobile operator, to provide customers with simple, aordable insurance products. This partnershipstrengthens our financial inclusion propositionfor the i nformal sector – primarily made up of petty traders with low income and no social protection – helping them to access health and i nsurance services through a simplified claims process. Digital healthdevelopment and thoughtleadership In 2021, Prudential Singaporereturned as the headlinesponsor for t he w orld’s largest fintech event, the Singapore FinTech Festival, where ourkeymessage was around the importance of trust inbuilding a sustainable business. The PRUFintegrate programme continued to engage the design, technology and studentcommunities around the world through the API Exchange (APIX) Hackolosseum platform, encouraging them to reimagine health and wealth outcomes and contribute creative solutions to business challenges. In 2021, a total of 52 entries took part in a new challenge statement on how Pulse features can be leveraged to provide health and wealth benefits for ourcommunities. In May 2021, Prudential Thailand hosted a virtual two-day ‘HealthHack’ competition, an AI-focused hackathon oering Thai innovators the opportunity to showcase their healthtech capabilities. The hackathon sought innovative solutions to two problems: to help modify unhealthy behaviours and for the non-invasive diagnosis of a health condition. The solutions were required to leverage AI capabilities to perform diagnosis through smartphones, wearables or imaging. The contestants were evaluated based on the level of i nnovation, user experience and interface design, as well as technological techniques employed tobuild the target feature, with a to tal of 16 teams presenting solutions. In the Philippines, we continued the conversation about pressing healthcare topics throughour Healthscape PH Dialogue Series, which broughttogether government andcorporate stakeholders. Atthe first webinar, titled ‘Healthscape PH: Focus on Filipinos’ Health and Wellbeing in 2021’, we launched our Health of Asia Barometer report, which explores the challenges Asian societies face in eorts to improve citizens’ health and wellness. The second webinar covered the launch of a study commissioned by the Philippines business on the e ects of climate change on the health and wealth of Filipinos. The study was designed to guide the government and businesses in developing climate-mitigation strategies andsolutions. The paper’s key finding was that no disease group is immune to the eects of climate change, and that the incidence of some conditions is expected to increase as a result of climate change. Such conditions include vector-borne diseases, including dengue fever, as a higher daytime temperature isscientifically linked toincreased dengue incidence. The p aper, which supports Pulse’sproposition ofaordablehealth protection oerings such as dengue cover, is authored by Dr Renzo Guinto, a planetary health expert. For more information on this paper, please refer to page 84. In Singapore, as part of our ongoing research on preparing for longevity, we conducted a new study in 2021 with the Economist Impact (part of the Economist Group) called ‘Re-imagining 100’. The r esearch examines the pandemic’s impact on Singapore residents as they live longer lives. While Covid-19 has not adversely aected Singaporeans’ readiness to live to 100, it has had a negative impact on their mental health and financial wellbeing. Forty-seven per cent of t he respondents reported a deterioration intheir financial wellbeing since the onset of Covid-19. Mental health is also strained, with 70 per cent of respondents who reported a deterioration in their mental health also saying their financial wellbeing has declined. This has aected people’s confidence in their ability to finance longevity, with only 29 per cent saying they feel prepared to live to 100. In these uncertain times, we remain committed to helping people prepare for the future by supporting them in theirhealth and financial planning journey today. Inclusive oerings We recognise the importance of health and financial inclusion, particularly in emerging markets and in markets that areexperiencing demographic shifts and varying levels of social safety nets. In making health and financial security accessible, it is vital that we develop and re-design our products and services, across our multi-distribution channels, in a way that is inclusive. This is so that underserved segments, includingvulnerable communities, have the protection and savings products which meet their needs. This will include, but not be limited to, products that recognise the evolution and needs of families, women, religious minorities, small and medium-sized enterprises and lower-income groups. To encourage greater product innovationaround the concept of families, we ran an internal competition where each business proposed both new products and changes toproduct termsthat would address the needs of a wider range of families. The entries were presented to the Customer Proposition Council and the winning entry was from Prudential Vietnam with its campaign ‘Tell me who you love’. The proposed product oers atailored, standalone criticalillness cover t hat covers the customer and their chosen beloved. As an added touch, the customer can choose to send a personalised card to their selected partner upon purchase. Another notable entry was from our business in the Philippines, which developed PRUHealth FamLove, a f amily solution that gives customers the ability to share coverage with up to three family members. It also recognises the diversity of Filipino families by allowing for these to include spouses, but also other de facto partners, includingsame-sex couples, and adopted children. We will be working to implement these concepts in 2022. Prudential Hong Kong has expanded its beneficiary list for all its life insurance policies, embracing inclusiveness in support of evolving f amily structures. Customers who purchase a life insurance policy can now choose from either their same-sex or opposite-sex fiancé/fiancée and spouses, grandparents, grandchildren,cousins, nephews and nieces, stepchildren and stepparents, or legal guardians, as their beneficiary. Prudential plc Annual Report 2021prudentialplc.com 76 ![]() Women In Thailand, Prudential introduced a ‘Rewrite Her Life’ campaign aimed at empowering women. As part of this, Prudential Thailand introduced products and services designed to support and help Thai women through all stages of life, including those who plan to manage their financial security. These included PRUClickSaving 8/20and PRUSuk Samran, as well as various wellness products covering women’s health, such as PRUBreast Cancer Care, PRUCritical Care, PRUSmart Health and PRUHealthy Plus. In Indonesia, we launched Lady’s AccountCritical Cover, a group- based critical-illness product that is bundled with the UOB Lady’s Account(savings account). The coverage focuses on seventypes of f emale cancer including breast, cervix uteri,uterus and ovary. In the Philippines, PRUHealth Prime – Select Breast Cancer was introduced as an aordable product that supports earlyinterventions for breast cancer. Muslim community Prudential Malaysia is committed to progressively evolving Pulse into a n all-in-one health and wealth app for Malaysians, as well as addressing the needs of the Muslim community. As such, a Sharia- based ecosystem has been developed within Pulse, known as PRUIman & My Iman, available by subscription. The Sharia-based ecosystem serves as a digital Islamic lifestyle companion that helps users achieve total wellness, with the integration of health and wealth management through Islamic lifestyle practices. It includes tools, content and information to support the journey towards achieving quality of life spiritually, physically and financially, the Islamic way. Prudential Indonesia continues to lead in the Sharia segment, where we have a market share of 29 per cent, driven by our commitment to e xpand inclusive product oerings to the mass market segment. In 2021, Prudential Indonesiadiversified its product oeringsby launching PRUCerah, the first Sharia-based traditional lifeinsurance that oers monthlyeducation fund benefits and an additional education fund. Demonstratingour commitmentto fulfillingthe diverse needs of Indonesians, we are establishing a dedicated Sharia business, Prudential Sharia Life Assurance. This will enable full product vetting by the Sharia religiousauthorities and the use ofspecialist distribution techniques. Small and medium-sized enterprises In 2021, Prudential Singapore introduced Business@Pulse, a one-stop platform that helps small and medium-sized enterprises (SMEs) broaden and simplify access to insurance and employee benefits, which will be implemented in 2022. This is part of our regional enterprise business oering that enhances the waywe support and interact with ourSME partners. Unlikemultinationalcorporations, SMEs may not have sucient resources to build or buy their own digital platforms, often resulting in manual processes. As Singapore grapples with an ageing workforce and rising healthcare costs, there is a need to help SMEs support their employees with the necessary protection through our digital tools. Through Business@Pulse, employees will be able to view their group insurance coverage and make claims easily from within the app itself. PrudentialThailand isalso supporting corporate customers, including SMEs, through the delivery of digital solutions, technologies and insurance products via its new group employee benefits health services. The new services oer corporate customers the flexibility to choose and adjust insurance benefits to suit every type of enterprise needs. With 24/7 access to Pulse by Prudential, including online telemedicineservices, employees are able toaccess holistic health management services, designed to help maintain the physical and mental health of all employees. In July 2021, the Philippinesbusiness launched a group insurance package for companies and their employees through a collaborative partnership with AstraZeneca, a leadingbiopharmaceutical company, Avega, the country’s leader in healthcare administration, and I ntellicare, thecountry’s pre-eminent health maintenance organisation (HMO). The product is made available via Pulse and is s upplemented by health awareness content from AstraZeneca that can also be accessed in the app, to create a holistic approach in p roviding the best h ealth and wellness programmes for the Filipino workforce. We DO family With our purpose to help people get the most out of life, Prudential is striving to widen our scope and provide protection solutions that are more inclusive to meet these evolving customer needs. During 2021, we developed a campaign, We DO Family, to support the development of moreinclusive products that recognise the evolution of nuclear families. The initiative seeks to address this through expanding our product coverage to include a wider array of relationships. Families exist in many forms, suchas grandparent-grandchildren families, aunts and uncles parentingnieces and nephews, single-parent families, stepfamilies, cohabitation and adoptive families, as well as other de facto family units. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 77 ![]() ESG report / continued Low-income groups One of our flagship programmes in Malaysia, PRUKasih, has been helping low-income families and the disabled community with temporary financial relief since 2011.As a public-private partnership, we work with government agencies, 11 NGOs and 27 community volunteers to scale up and support members and their families with financial aid in the event that they experience a loss of income due to illness, accident or death. This sponsored financial protection plan supports more than 40,000 households across 35 communities and provides protection to over 33,000 members. Since the project began, PRUKasih has paid out approximately US$3.87 million (RM16.2 million) on over 11,000 claims cases. As part of plans to scale the PRUKasih programme to benefit more low-income families, we plan to convert the programme into a microinsurance oering, providing aordable premiumproducts for the low-income community. With PRUKasih 2.0, we hope to reach morelow-income families nationwide andmake financial protection widelyavailableand aordable. Bite-sized oerings A critical aspect of inclusive oerings is aordability. We ensure this by developing bite-sized insurance products that cater to those who seek ease and convenient processes without complex documents, as well as under-insured consumers or first-time buyers who are seeking financial planning without neglecting their income and lifestyle needs. We are also specifically designing products to address conditions that are becoming more prevalent as a result of climate change. For e xample, cases of dengue fever, a mosquito-borne viral disease, are increasing in several of our markets. Examples of such aordable products, including those addressing such infectious diseases, include: > In the Philippines, the PRUDengue MedCare and PRUDengue MedCare Pro plans provide benefit if the insured is diagnosed with d engue from only $4 for six months or $7 for 12 months. PRUDengue MedCare provides dengue protection with a lump sum benefit of PhP10,000 ($200) upon diagnosis, while PRUDengue MedCare Pro provides an added death benefit due to dengue of PhP100,000 ($2,000). Parents can also purchase this for their children. PRUMedCare – Select Infectious Disease is the first and only product in the Philippines that oers coverage for any of the fourinfectious diseases of dengue,typhoid, measles and malaria. > In C ambodia, we launched a product that provides coverage in case of diagnosis or death due to dengue and/or malaria, from $4 a year. > In V ietnam, PRU-Tropical delivers protection against three tropical diseases of dengue, malaria and measles. We also oer PRU-Guard 24/7 to provide protection against accidents, as well as PRU-Care, which protects against three critical illnesses – cancer, stroke and heart diseases – from $3.80 a year. Customers Our trusted brands, digitally enabled multi-channel distribution, and ecient and agile infrastructure enable us to meet the growing health and wealth needs of people and their communities. We are enhancing our digital tools and capabilities (such as Pulse) to make it easier for customers to interact and stay with us. In parallel to Pulse, we use a multi-channel distribution model with over 540,000 licenced tied agents and access to over 26,000 bank branches. Weare equipping our people and our advice channels with new skills, so that we have a much more inclusive approach to the markets that we serve. Customers are at the centre of our business. We have a Group Code of B usiness Conduct (see Good governance and responsible business practices section on page 117) that sets out how we do business. Within this, the Group has set out five Customer Conduct Standards within the Customer Conduct Risk Policy, each with its own key control processes and activities: 1. Pr ovide and promote high standards of customer service We measure customer service in a number of dierent ways to ensure we are deliveringfor ourcustomers, including complaints, persistency and policy cancellations. On an annual basis we use a third party to conduct a customer satisfaction survey in each of our businesses, measuring both net promoter score and overall customer satisfaction. While cultural dierences may not allow a meaningful Group-wide aggregation onthe current methodologies, we are seeking todevelop a more consistent methodology during 2022, which includes in-depth insights to determine which part of the customer journey has the most impact on their advocacy, and to better understand customers’ sentiments from their verbatim comments. We use the insights from these surveys to drive further improvements in our sales and servicing processes. For example, our claims promise was developed as a result of this feedback. We also carry out a series of transactional touchpoint surveys at the local business level on a systematic, consistent and regular basis to assess customer satisfaction. Monthly trends are analysed by our businesses and specific customer feedback is used to carry out root cause analysis. We recognise that when a customer is making a claim this may be a particularly stressful time in their lives. Therefore we strive to ensure that our claims process is simple, fair and transparent, and our sta and agents are professionally trained to support customers in their time of need. During 2021, we launched our claims promise for our customers in Asia: #### ‘A Prudential policy protects #### you and your family during life’s dicult moments.We #### pay your claim as quickly as #### possible and with compassion and care. We make it simple and easy, and only ask for #### necessary information.’ Our claims promise Prudential plc Annual Report 2021prudentialplc.com 78 ![]() We make the following commitments as part of our claims promise: > Timeliness: We handle each claim as soon as we receive it and will keep you informed of its progress. > Communication with care: We letyou know whenwe receive your claim, when we require additional documents and the outcome of your claim. Our sta and agents are professionally trained to guide you wheneveryou need help. > Fairness: We understand that your claim is important to you. We t reat every customer fairly. We ensure our claims process is clear, transparent and without customer bias. > Cu stomerexperience: Your feedback is important to help us serve you better. If you have a complaint, we will deal with it seriously. > Pri vacy: We take your privacy seriously and will protect it at all times. To support customer service, we are upgrading and digitising our learning and developmentprogrammes. Our approach enables our agents and partners to more capably and confidently advise on an ever-evolving setof customer needs. FUTUReady is a suite of Pulse-enabled tools and programmes that support all aspects of agency management. Our new agent onboarding programme, PRUExpert includes digital content, plus several weeks of instructor-led and work-based learning. The p rogramme is designed to support clear outcomes around performance, customer-centricity and marketconduct. PRUExpert initially went live in Malaysia and the Philippines in 2021 and will continue to be rolled out across our markets in 2022. We also provide agents with more than 1,200 bite-size videos, for anytime anywhere learning and sales enablement. Our ambition is to helpnew agents attain MDRT certification in their first year and for agents to benefit fromenhanced coaching from theirleaders. 2. Treat customers fairly, honestly, and with integrity Our local customer committees monitor our strategic customer initiatives, with the aim of transforming the customer journey and fulfilment and embeddinga customer-focused culture. Our customer committees are responsible for making executive decisions on strategic customer initiatives and incorporating identified actions into their business operations or plans. Local customer committees feed up to a Group-level committee, which meets on a quarterly basis, known as the Transforming CustomerFulfilment Council. One particular topic t hat the council focused on during 2021 was revisiting our underwriting and claims rules to be more inclusive for diverse families. Our businesses are required to comply with their local regulatory requirements and meet our Group-wide policies and standards covering the fair treatment of customers. We provided regular training for intermediaries to ensure that the salesforce has a clear understanding of our products, the target customers for each product, and the customer risks inherent in each product; and through the embedding of controls, including customer financial needs analysis and risk appetite profiling, to ensure the suitability of product sales. 3. Pr ovide and promote products and services that meet customer needs, are understood by them and deliver value In ensuring that our products meet customer needs, we consider product, suitability, marketing and salesqualitypolicies. Customer proposition Our approach to responsible proposition design is intended to ensure that we provide products and services that meet the diverse needs of our customers and deliver real value. We design the entire pre-sale, onboarding andfulfilment journeywith a deep understanding ofthe target customers’ protection and savings needs across their life stages. The Customer Proposition Council is the forum forour business and Group-level executives to innovate and institutionalise customer solutions that can be rolled out and implemented across our markets. During 2021, the Council focused on t he diverse family conceptand standalone critical illness plan, promoting equal access for wider family members, providing future-proof benefits and value-added services inan aordable way. Covering governance and oversight, ourProduct ApprovalCommittee is responsible for approving productsfrom our business units, including new insurance products, alterations of existing products and the launch of new funds on investment-linked products. #### Quantitative and qualitative customer and agentresearch to understandcustomer needs, and #### optimise product ideas #### to meet those needsNew product proposals #### reviewed and approved #### by business product approval #### committees, which include #### risk and compliance teams #### and otherrelevant functions #### New product proposals #### reviewed and approved #### by Product Approval #### Committee Our product approval process Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 79 ![]() Suitability We aim to simplify our insurance products and how they are explained in product documentation and by salespeople, so that customers can easily understand the features, benefits and associated termsand conditions and are able to clearly assess how our products fit with their needs. We have worked to simplify product brochures, information on our corporate website and our marketing campaigns to enable customers to understand the risk and benefits of products by looking at a single fact sheet. To protect vulnerable customers, our product development and customerengagement process identifies customer segments for which the product is not suitable and/or where assistance and further protection might be needed during the sales journey. Identifying and treating vulnerable customers with extra care is a core component of training for our sales force. 4. Ma intain the confidentiality of our customer information and handle the data appropriately We take all reasonable steps to ensure that customer data is processed fairly and in accordance with applicable data protection laws. This is discussed in detail in our Digital Responsibility section on page 104. 5. Ac t fairly and in a timely way to address customer complaints We define a complaint as any explicit expression of dissatisfaction, grievance or criticism of our products or services provided by our employees/agents, regardless ofthe form or source,whether written or verbal, whether justified or alleged and whether from or onbehalf of the complainant. A significant complaint is defined as an allegation or infraction that may adversely impact the business, whether financial or non-financial in nature. Providing prompt and due action, where required, in response to customer complaints is essential to ensure appropriate outcomes for customers, treat them fairly and to maintain or rebuild confidence and trust in the Prudential brand. Our local businesses areresponsiblefor ensuring appropriate initiatives are implemented to mitigate or prevent complaints and associated risks, always striving to improve the handling of complaints and overall customer experience in the delivery and performance of p roducts and services to them. Local businesses follow robust procedures, including governance frameworks for eective management of complaints, aimed at protecting customers’ interests. Our local businesses haveindependent and dedicatedteams tasked with responsibility for managing complaints and maintaining databases of complaints received. Across the Group as a whole, our level of complaints remains steady at two complaints per 1,000 p olicies in force. Our local businesses analyse complaint trends and patterns to make an assessment of potential risks and root causes of complaints. Complaints metrics and accompanying analysis and details of significant complaints are reported to local management and relevant committees, guidingsubsequent actions aimed at preventing and managing underlyingrisks. Significant complaints areescalated where necessary to relevant senior management members, which may include thelocal compliance head andthe CEO for appropriate guidance and managementaction. Our businesses track follow-up actions to ensure relevant remedial and preventive actions are implemented to properly address identified root causes and issues. Promoting financial literacy One of the ways in which we make health and financial security accessible is through increasing financial literacy, a focus area for Prudence Foundation. Our goal is to ensure that people have a good understanding of money management from a young age to help them to make more informed financial choices later in life. More information on Prudence Foundation’s areas of focus can be found in the Community Engagement and Investment section on page 113 of this report. Cha-Ching Cha-Ching is a global financial education and responsibility programme aimed at children aged between seven and 12. Now in its 11th year, the programme is aimed at tackling financial literacy gaps among children and today continues to expand across our markets. Cha-Ching involves a blended learningapproach, leveraging digital tools and platforms as well as the school environment. Our aim is to ensure that the programme is accessible and freely available to millions of children, parents and teachers, equipping them with the necessary financial literacy skills. In 2016, Prudence Foundation partnered with JuniorAchievement (JA) todevelop the Cha-Ching Curriculum, which has been successfully implemented for six years through strong NGO and government collaboration in eight Asian markets: the Philippines, Indonesia, Malaysia, Vietnam,Taiwan,Singapore, Cambodia andThailand. More t han 23,000 teachers have been trained to deliver the Cha-Ching Curriculum in schools to date, with over 870,000 primary school students having learnt the lessons of earn, save, spend and donate. During 2021, an independent review ofCha-Ching was conducted to evaluate the progress of over 200,000 students using the curriculum across five countries in Asia. #### ‘The findings are impressive #### and analysis shows that #### students achieve higher scores on knowledge, attitude and #### behaviour after participating #### in Cha-Ching than they did before. Comparisons with other research suggest that the #### impact on financial knowledge is higher than is typical for #### developed economies.’ Dr Adele Atkinson, global expert in financial literacy, who c onducted thereview ESG report / continued Prudential plc Annual Report 2021prudentialplc.com 80 ![]() In 2021, the teacher-led Cha-Ching Curriculum programme continued in Africa, where we worked with Junior Achievement Africa to bring this to over 7,600 primary school students in four countries: Ghana, Nigeria, Uganda and Côte d’Ivoire. In Asia, Cartoon Network continues to broadcast the Cha-Ching cartoons, reaching over 35 million households daily. Cha-Ching content continues to be available online via the website and through digital channels including social media, receiving over 93 million views to date in Asia and Africa. Given the ongoing Covid-19 environment in 2021, we actively drove digital initiatives as part of our eorts to increase the reach and impact of Cha-Ching: > Th e virtual 2021 Global Money Week campaign – led by the OECD and themed ‘Take care of yourself, take care of your money’ – saw the active participation of our 11 markets includingIndonesia, the Philippines, Malaysia, Kenyaand Nigeria ,which held Cha-Ching webinars, competitions and digital campaigns to raise awareness of the importance of financial literacy for youths. > Th e online Cha-Ching Financial Accreditation (CCFA) continued to be rolled out where possible. This online assessment is endorsed by education authorities and was developed in alignment with the OECD Core Competencies Framework on Financial Literacy for Y outh and the ASEAN Teachers Competency Framework. The Cha-Ching teacher network continued to bestrengthened through the CCFA, and online CCFA webinars were also held in the Philippines and Indonesia. To date, over 8,700 teachers have registered and 4,800 have completed the CCFA online assessment. Cha-Ching videos and parent resources have been made available for free on the Pulse app across markets including Singapore, Vietnam, Cambodia and the Philippines, with expansion into other countries expected in 2022. PRUKasih Entrepreneurship Programme Malaysia continued its PRUKasih Entrepreneurship Programme (PEP) for 34 members who were equipped with skills and knowledge needed to start a new business or scale their existing business. The programme focuses on developing mentaland emotional wellbeing, which has been particularly critical during the pandemic, as well as honing financial skills. A total grant of US$7,200 (RM30,000) was given to participants who successfullycompleted theirbusiness pitchwith a p anel of judges. More information on PRUKasih can be found on page 78 of this report. PRU e-FinLit The Online Professional Certification Training Program on Financial Literacy, or PRU e-FinLit, was rolled out in June 2021 across the province of Negros Occidental in central Philippines, certifying 3,235 teachers in its first phase of implementation. PRU e-FinLit seeks to systematically improve the financial literacy ofthe Filipino public through inclusion of financial literacy in formal education accessible online, nationwide. This programme also supports the Department of Education’snewly implemented Financial Education Policy, which aims to enhance the financial literacy and financial capability of all learners to make wise financial decisions and achieve financial health. In Indonesia, our financial literacy eorts are focused on women, SMEs and Muslimcommunities, in addition tochildren. Throughour financial literacy for women initiative, we reached more than 5,200 women in 2 021. Our Sharia financial literacy programme in partnership with Sharia-based financial services and ShariaEconomicCommunity Association (Masyarakat Ekonomi Syariah) reached and educated nearly 7,500 people about the importance of Sharia insurance and raised awareness to more than 1,000 SME entrepreneurs. In Laos, we developed and builtan online learning course called Basics of Life Insurance, where people can access and learn about life i nsurance online for free. There are 12 lessons led by financial consultants covering the importance of life insurance and basic financial management concepts and skills. Wealso launched an online tool called Insurance Protection Calculator for individuals to calculate and assess their financial wellbeing. #MoneyParenting #MoneyParenting, a multi-award-winninginitiative that was started by our asset manager Eastspring, helps parents to learn, teach and plan more eectively when it comes to financial management. This dedicated microsite was introduced in 2020 as a result of a survey conducted by Eastspring with 10,000 parents across nine Asian m arkets, which revealed that there was a lack of financial management tools to help parents become better role models for their children. #MoneyParenting has seen more than 100 million impressions of advertising views and over 200,000 users to the microsite across Asia. It has also received more than one million views of its videos to date. In 2021, Eastspring established a new partnership with The Asian Parent, a leading parenting community, to extend the reach to over two million parents across Asia. The partnership included a dedicated platform that oered tips and resources to teach parents how to introduce their children to money, as well as outreach and engagement activities. Eastspring has also organised webinar sessions in collaboration withfinancial educationpartners like Playmoolah and Little Tauke and distribution partners to equip parents with skills to teach their children financial literacy. In 2021, these sessions reached over 5,000 parents. We also work with partners outside of Eastspring to make #MoneyParenting content available, including through the Pulse app and Prudential Lifebusiness channels in various markets. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 81 ![]() ESG report / continued Strategic Pillar: Stewarding the #### human impacts of climate change Limiting climate change and its associated increases in planetary temperatures is one of the greatest global challenges of our time. Failing to limit these increases is expected to have significant economic, societal and individual consequences. Prudential remains committed to proactively play our part in enabling the transition to a l ow-carbon economy. We do this by decarbonising our investment portfolio and own operations, and by working towards sustainable development and energy transitionin all our markets through collaborative and collective engagement. Recognising this, as we support the move to low-carbon economies in these emerging markets, we strive to ensure that the transition is a just and inclusive one for a ll of society: a transition that supports sustainable growth and economic health within our local markets and communities. This section includes: > Climate-related metrics and targets > Ide ntifying climate-related opportunities > Identifying and assessing climate-related risks > Ma naging and responding to climate-related risks > Climate-related scenario testing > Ma naging our direct operational environmental impacts > Supporting a just and inclusive transition An index is included in the reference section on page 131 to demonstrate howwe aremeeting the recommendationsof the Taskforce on Climate-related Financial Disclosures (TCFD). Climate-related metrics and targets Our focus on decarbonisation of our investment portfolio, to steward the human impacts of climate change, recognises that climate change presents long-term risks to the sustainability of our business. Catastrophicclimatechange, or theanticipation thereof, could also have a systemic impact on financial markets before the climate change occurs. In May 2021, we announced both long and short-term pledges for decarbonising our investment portfolio, through which Prudential can also play our part in the transition to a global low-carbon economy and the collective eorts to limit the rise in global warming. Our long-term pledge is to become ‘net zero’ by 2050, with the short-term pledges discussed in the table below. These pledges are aligned to the Paris Agreement, which invites parties to commit to holding the increase in the global average temperature to well below 2°C above pre-industrial levels, and to pursue eorts to limitthe temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts from climate change. We continue to review and update our ESG strategy in line with our business strategy, and all of our climate metrics and targets will be regularly reviewed to take into account evolving scientific data and stakeholder expectations. Our targets, as set out below,are for our investment portfolio, which includes both listed equities and corporate bonds, while excluding assets held by jointventure businesses and assets in unit-linked funds, as we do not have full authority to change the investment strategies of these. In 2021 we recorded a reduction in the WACI of our investment portfolio of 23 per cent against our 2019 baseline. However, as we seek to achieve a just and inclusive transition towards a low-carbon economy, some of the actions which we may take in pursuit of our long term carbon reduction ambitions may create short to medium term volatility in our WACI performance. For example, there are companies in our markets who currently have high levels of emissions, but are committed to transition and require financing to support this. In investing in green bonds from such companies, this will have the impact of increasing the WACI of our investment portfolio in the short to medium term, until the underlying companies’ emissions reduce, as the green bond also takes the score of the overall company. We believe supporting such companies is consistent with our inclusive transition policy. Our public target nevertheless remains to achieve a 25 per cent reduction in WACI in our investment portfolio by 2025, whilst continuing to support a just and inclusive transition in the markets in which we operate. 2021 2019 % change Weighted average carbon intensity (WACI) 296 \* 386 \* (23) Coverage 69% 67% \* Within the scope of EY assurance – see page 74. Data availability remains an ongoing challenge, as is reflected in the coverage level of the WACI calculation for our investment portfolio in the table. We continue to work with data providers and our asset managers to improve the availability of data. We have reviewed climate metrics being adopted by the financial sector for their appropriateness, data availability (ie coverage) to support them and their relevance to ourmarkets. We selected a suite of metrics to measure our exposure to climate change to utilise the strengths of specific metrics whilealso addressing their shortcomings. Absolute emissions measure the total carbon footprint associated with the investments held in an investment portfolio, whereas WACI compares that carbon footprint to the revenue also associated with t he investments in the investment portfolio. We use absolute emissions to monitor our engagements (so as to help reduce absolute levels of greenhouse gas emissions) and WACI for our investment portfolio of assets (so as to be able to compare progress in intensity improvements on dierent investment portfolios, which is very important in our roles as asset owner and asset manager). An example of the need for the use of dierent metrics is the current treatment of green bonds: certified green bonds have the same carbon footprint as a conventional bond from the same company, even though the green bond is issued to support transitioning to, for example, low-carbon operations. This equal treatment could disincentivise purchasing such green bonds from companies who are committed to transition and require financing. Using a suite of intensity and absolute emissions metrics helps overcome these unintended consequences. Our metrics and targets for the Scope 1, 2 and 3 footprint of our operations are discussed in the Managing our direct operational environmental impacts section on page 89 of this report. We actively monitor and provide feedback to industry bodies, such as on the TCFD consultation on Proposed Guidance on Climate-related Metrics, Targets andTransition Plans. We continue in collaboration with our asset management and asset owner business units to develop further metrics that are appropriate for our business, to s upport enhanced management and reporting for climate risk, and to integrate into broader investment processes aligned with our r esponsible investment framework. Prudential plc Annual Report 2021prudentialplc.com 82 ![]() Our short-term targets and progress made Short-termclimate target Progress up to end of 2021 Metric rationale A 25 per cent reduction in the carbon emissions of ou r investment portfolio by 2025 against our 2019 baseline By the end of 2021, we had reduced the weighted average carbon intensity (WACI) of our investment portfolio by 23 per cent against our 2019 baseline, placing us on track to achieve the 25 per cent target by 2025. We operate in b oth developed and emerging markets in Asia and Africa and the carbon footprint of investments in these markets, which underlies our WACI, are higher than in areas such as Europe. Investment decisions such as strategic asset allocation, portfolio construction and investment selection can influence the direction of the WACI, as can changes in the carbon intensity of theunderlying businesses inwhich we invest. Implementing our coal policy was a k ey driver of the reduction in WACI. Looking forward, we have a range of investment and active ownership strategies available to further reduce the WACI, including theorderly implementationof our current coal policy during 2022. In addition, Eastspring seeks to actively engage with companies in the investment portfolio in order to influence them to adopt positive strategies to further improve carbon eciency,and to work with sub-fund managers on reducing the emissions of their funds while maintaining a focus on performance. We use the WACI as a proxy for the transition risk in our investment portfolio: a higher WACI normally indicates that an investment portfolio has to transition more extensively to align with the Paris Agreement. By reducing the WACI of our portfolios, we also support the transition to a low-carbon economy. A key benefit of using WACI is t hat it allows comparisons between dierent investment portfolios, which is very important in our roles as asset owner and asset manager. Divestment from all direct investments in businesses which derive more than 30 per cent of their incomefrom coal, with equities to be fully divested by the e nd of 2021 and fixed-incomeassets by t he end of 2 022 During 2021 we divested from all direct equity investments in businesses which derive more than 30 per cent of their income from coal, whether from miningor energyproduction. We remain on track to divest by end of 2022 fromfixed-income assets in businesses meeting the same criteria. We believe our coal policy supports a just and inclusive transition in the markets where we operate, as discussed in the Supporting a just and inclusive transition section on page 67. When considering dierent thresholds, each was tested against whether it supported a just and inclusive transition and fit our requirements on risk and return. Companies that are highly dependent on coal are a stranded asset risk, while a well-diversified portfolio is important, but challenging for our businesses inemerging markets, which invest in underdeveloped capital markets. Ultimately, the threshold for our coal policy was set so as to balance the risk and return, while also allowing companies in t hose markets to phase out of coal in an inclusive manner. A target to engage with t he companies responsible for 65 per cent of the absoluteemissions in ou r investment portfolio Eastspring has developed a process to meet this engagement target and has made progress in 2021 towards meeting the target by reviewing 44 per cent of these investee companies, and engaging with 31 per cent of the same group. We aim to support a just and inclusive transition to a low-carbon economy through our engagement target, based on abelief that engagement is preferable to divestment to secure a just transition. Engagement is a core part of providing eective stewardship and we seek to encourage business andmanagement practices that support sustainable developmentthrough constructive interaction, based on our in-depth knowledge of the companies andtheir business environment. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 83 ![]() ESG report / continued Identifying climate-related opportunities We believe our strategic ESG framework, including the goal to decarbonise the investment portfolio while supporting a just and inclusive transition, is an important way in which we can meet our stakeholders’ expectations and fulfil ourstewardshipobligations. Over time, it reduces the Group’s asset exposure to climate change risk – w hich i ncludes both physical and transition risks – while also contributing to eorts to mitigate climate change by decarbonising the global economy. We also recognise that the implementation of our strategic ESG framework couldgeneratesome climate-related opportunitiesfor the G roup. As a significant investor and asset owner with long-term investment horizons and liabilities, the Group is in a position to invest in and develop products linked to climate mitigation and resilience. In response to this, we are developing responsible investment products that channel our customers’ savings towards investments such as the Asia Sustainable Bond Fund by Eastspring. More information on our ESG-related investment activity is available in the Responsible investment section starting on page 107, including increasing the ESG choices for our investment-linked products (ILP), asdescribed in the Capital allocation section on page 112. Climate change is also likely to drive demand for new health, insurance and savings products. New health products need to reflect the impact of climate change on human health through changes in the incidence and impact of diseases, and the emergence of new diseases. This to pic is discussed in the Making health and financial security accessible section on page 75, which also explains how we are developing more products for underserved sections ofthe market. Identifying and assessing climate-related risks To enable us to continue to be a long-term and resilient business serving our customers, we must actively identify and assess how climate change can impact our business. Our risk identification processes in our Group Risk Framework recognise thematic emerging and principal risks. ESG risks, which include climate risk, have previously been identified as a Group principal risk. The Group Risk Committee and the Board receive updates on the principal risks identified, the Group’s exposure to these risks and subsequent management activities. More information isavailable in section ii. of the risk management cycle of the Risk Review report in our Annual Report and Accounts. We actively participatein industry forumsand networks, including the Chief Risk Ocer (CRO) Forum, to further develop understanding and support collaborative action in relation toESG risks, includingclimate change, and to remain aware of industry best practice as it develops. The emerging industry consensus, as expressed by both the Climate Financial Risk Forum and the CRO Forum, is for insurers to treat climate risk as a cross-cutting amplifier of the existing standalone risk types. As such, climate-related risks are considered within our existing risk m anagement processes. By treating climate-related risk as a cross-cutting risk, we recognise that there could be significant interdependencies with, and impacts on, other established standalone risks, such as credit, market, insurance and operational risk. See the Risk Review report in the Annual Report and Accounts and section ii. of the risk management cycle for further information on the broader risk identification process. During 2021, we continued to focus on developing our understanding of our exposure to actual and potential climate-related risks and their associated impacts on the Group, focusing on key local markets in Asia. We also identified several existing business activities and Pru Life UK study oers key insights on climate change Our busi ness in the Philippines, Pru Life UK,commissioned an independent s tudy ( which c an b e f ound her e: https://www.prulifeuk.com.ph/en/explore-pulse/health- financial-wellness/climate-change/ ) t o b etter und erstand t he i mpact o f climate c hange o n F ilipino f amilies. T he p ioneering s tudy exploresthe healthimpacts of climate change andtheir potential p ressures o n fi nancial s ecurity a nd w ellbeing. The impacts of climate change on physical andmentalhealth willeventuallyaffect thefinancial health ofindividuals, households a nd c ommunities. W hile i t i s h ard t o c alculate the actualcost of climate-sensitive diseases,it is known that healthcare ne eds le ad t o d epletion o f s avings r esulting f rom hospitalisation andloss ofincomes due toabsenteeism. Therefore, fi nancial s ecurity i n a nticipation o f a w arming planetis a n ur gent p riority. The p aper c oncludes t hat: > There is no disease group that is immune to the eects of climate change, and the incidence of some conditions is expected to increase as a result of climate change. > Multiple responses will be needed for the variety of physical and mental health issues that are likely to arise. > Climate change must be viewed as a public health issue. > Rapid decarbonisation to stabilise the climate will be good not just for the planet but for people’s health too. > Financial security at all levels is a climate adaptation measure. > Climate and health knowledge needs to be communicated to raise awareness and equip people with tools to contribute to both mitigation and adaptation. > Building societal resilience to climate change and its health eects is also an urgent priority since climate change is already happening. Prudential plc Annual Report 2021prudentialplc.com 84 ![]() processes where risks may be heightened when a climate lens is applied. Building on the climate-related risk assessments carried out in 2020, a series of workshops were held with the appropriate subject matter experts across the Risk, Compliance and Security teams. These workshops explored in detail the potential impact of cross-cutting climate-related risks to existing risks and risk management processes across short, medium and long-term horizons. This holistic process enabled us to identify the following areas of potential exposure to climate-related risks over the short, medium and long term: > Financial resilience – Our assets under management are at risk of p hysical climate risk in the long term. Some of our assets under management are in high emission, carbon-intensive and carbon- reliant sectors. These assets are exposed to transition risk in the short and medium term, potentially resulting in increased levels of pricevolatility, taxation,regulationand/or reduced demand, which could lead to impairments, downgrades and/or stranding if they fail to adapt, innovate or transition to a lower-carbon business model. We have limited financial exposure to such assets in high emission, carbon-intensive and carbon-reliant sectors, as set out in our Climate-related metrics and targets section. > Op erational resilience – Climate change could have physical impacts on our operations. The impact from such climate events on operational resilience, including the impact on third-party providers and the servicing of our customers, is explored in our operational risk scenarios. > Insurance and product risks – Our strategy focuses on life, health a nd wealth products, which excludes us from underwriting greenhouse gas-intensive activities. Climate change could result in changes in mortality, morbidity and/or persistency for our life and health underwriting portfolio. Theoverallfinancial impact should be mitigated by our ability to reprice contracts if needed and develop new products. > Data and model limitations – Current limitations in financial climate data quality and availability, and asset and liability modelling tools make it challenging to accurately assess the financial impact on the Group,particularly for longer-term time horizons. We continue to assess the methods for quantifying the financial impact of climate risks as they evolve in the industry and a lso within the Group. We also use independent internal and external reviews. > Re gulatory, legislative and disclosure expectations – The pace and volume of new climate-related regulation across the Group’s markets couldpose compliance and operational challenges that may necessitate multi-jurisdictional coordination. The increasing disclosureexpectations of stakeholders heightens the potential for litigation risk associated with external reporting conveying a materialfalseimpression or misleading information. We continue to monitor and engage on regulatory and industry developments. Our governance process is designed to help avoid misstatements and/or overstatements inexternal reporting. > St rategy implementation – As the Group implements its ESG strategy and climate-related commitments, there is a continuing need to balance potentially dierent interests, expectations and objectives, both within and across stakeholder groups. We have regular internal and external engagement to identify potential required trade-os and assess the implications of them through our g overnance structures. While many climate-related risks are common at Group and business level, the nature, focus and impact of these risks can dier across the Group’s markets. Our emerging risk process, at both the Group and the business level, helps ensure that we continue to quickly identify and adapt nimbly to new and evolving climate change and ESG topics. Managing and responding to climate-related risks The management and mitigation of ESG and climate-related risks is e nacted through our Group Governance Manual, which includes a numberof ESG-relatedpolicies thatsupport theimplementation of o ur ESG strategy. Following the series of workshops held with Risk, Compliance and Security subject matter experts, we identified initial areas of the Group Risk Framework to update in order to reflect climate considerations. The main updates are noted below. The concept of climate as a ‘cross-cutting risk’ was included in the annual refresh of the Group Risk Framework and associated policies, and qualitative references to ESG considerations have been added to t he Group Risk Appetite framework, specifically focusing on the Group’s externally communicated ESG commitments. CRO Forum participation As a member of the CRO Forum, we contributed to the paper published in November 2021 which provides guidance on industry best practice for embedding ESG and sustainability risks into insurers’ existing risk management framework (‘Mind the sustainability gap – Integrating sustainability into insurance risk management’ atwww.thecroforum.org/category/publications/). We have used the concepts and approaches outlined in the paper across the Group during 2021 to further embed climate risk considerations into the Group Risk Framework. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 85 ESG report / continued Updates to the Enterprise Risk Management framework in 2 021included changes to the Group’s non-financial risk appetitestatements to consider risks through astakeholder lens. Thisstakeholder-focused approach recognises the importance of considering topics, including climate change, from the perspective ofboth their impact on the Group and t he Group’s impact on its wide range of stakeholders (a concept known as ‘double materiality’). Italsorecognizes that what is considered financially material to theGroup may change rapidly (a concept known as ‘dynamic materiality’), particularly in light of ri sing stakeholder influence,greater international connectivity, and the increased transparency and speed of information exchange.It also supports a more forward-looking approach to identifying emerging ESG considerations. Other enhancements included adding our ESG-related models, including thetools developed for measuring and managing the Group’s investment portfolio decarbonisation, to the scope of the model and user developed application (MUDA) policy.Additionally, the updated Outsourcing and Third-Party Supply Policy includes a direct reference to ESG, and incorporatesResponsibleSupplierGuidelines on ESG topics including labour, health and safety, and ethics. ESG considerations, includingthose associated withclimate, have been incorporated into core decision-making processes, including: > Re muneration: changes to the incentive plan have been aligned with theGroup’s externally communicateddecarbonisation targets. > St rategic Decisions, Mergers and Acquisitions: the policies and processes supporting significant decisions and transactions have been updated to systematically include consideration of how the matter requiring approval supports and/or impacts the Group’s ESG s trategy. > Strategic and Business Planning and Performance Management: climateand ESG considerations havebeen included within the business planning process. The industry’s understanding of climate-related risks is evolving quickly. To address this and recognising the cross-cutting nature of climate risk, we have carried out a number of training initiatives to raisethe level ofknowledge and understanding of our colleagues: > Th e Group Risk Committee received a briefing on the embedding of climate risk within the enterprise risk management framework. > Du ring 2021, we ran a Group-wide monthly climate risk forum, with participation from specialist risk teams, representatives from local business risk teams and otherfunctions, including Actuarial and the Investment teams. > Th is training was supplemented with regular direct engagement with our larger businesses to address specific climate-related themes relevantto theirlocal markets. Follow-up presentations covered topics including the practicalities of climate scenario analysisand guidanceon incorporating climate considerations in the business plan risk assessment process. > We p rovided specific training sessions to business continuity and operational riskcolleagues on ourthird-party physical climate risk pla tform to support the adoption ofthe platform across our businesses. > We d elivered a series of training sessions on ESG, including dedicated sessions on climate-focused topics, to over 500 members of the Risk, Compliance and Security function. These sessions were led bythe appropriate business risk owners and subject matter experts, ensuring that experiences and lessons learned from climate-focused activities were shared broadly across the Group’s business locationsand teams. > Across the broader business, climate risk awareness was increased t hrough functional and business awareness sessions and workshops as well as specific sessions on business planning. Climate change considerations were also a specific focus during a briefing session with the chairs of the Audit and Risk Committee of t he major businesses. Climate-related scenario testing Scenario testing is a key tool to improve understanding and support decision-making. Scenario testing is particularly useful for raising awareness of climate change risks due to the wide scope and unknown t iming of potential mitigation and adaptation actions. Climate scenarios used During 2021, we continued developing ourscenario testing approach f or climate change. Investigating dierent methodologies appropriate toour nature, scale and complexity also supports our ability to engage with our Group and local business regulators on this topic. We monitored and evaluated developments in climate scenario testing, including publications by our Groupand local regulators and global bodies, such as the International Association of Insurance Supervisors (IAIS), the Network for Greening the Financial System (NGFS), the Principles forResponsible Investment (PRI) and the International EnergyAgency (IEA). We use three scenarios to identify risks over the short, medium and long term: > Orderly transition scenario:Temperature increases are kept well below 2°C through the orderly introduction of climate policies, in line with the second-lowest United Nations IPCC emissions pathway, known as Representative Concentration Pathway (RCP) 2.6. This scenario includes transition impacts, in an orderly manner, as well as physical impacts in line with a 1.6°C increase in temperature. > Dis orderly transition scenario: Temperatureincreases are kept well below 2°C but with delayed and sudden introduction of policies, in l ine with RCP 2.6. This scenario includes transition impacts, in a disorderly manner, while still limiting the physical impacts by the end of the century in line with a 1.6°C increase in temperature. > Failure to transition scenario: Temperature increases exceed 4°C with no further policies introduced beyond those already announced. Little transitionimpacts are included inthe scenario while dramatic physical impacts are explored, in line with RCP 8.5. The three scenarios provide plausible future outcomes and are constructed to simulate the complex and non-linear interactions between energy, economy and climate systems. They also account forvarious policy and technology developments, supporting a sophisticated exploration of dierent plausible futuresand an understanding of the impacts from trade-os between the policy and technology options. The insights from the scenario testing work were reported in the Group’s Own Risk and Solvency Assessment report, which continues to be provided to the Board. Prudential plc Annual Report 2021prudentialplc.com 86 ![]() Summary of how we use climate change scenario testing Physical impacts Includes increased temperatures, rainfall, sea levels, droughts Transition impacts Regionaland sectoral economicimpacts from transitioning to low-carbon economies Climate scenarios Scenarios are chosen which represent plausible future climate pathways and policies Consider implications Consider the impact on businesses, strategy and fi nancial planning over short, medium and long terms Management discussions Identify actions to maintain financial and operations impacts within acceptable levels Financial impacts Revaluation of the assets and liabilities in response to additional costs for mitigation and adaptation Operationalimpacts Assess the impact from increased natural disasters on our existing business continuitymanagement programme Impact on assets and insurance liabilities We used three commonly applied scenarios, comparable to those from the NGFS and Bank of England, to quantify the exposure of the Group’s insurance balance sheet assets and liabilities to physical and transition climate-related risk. Each scenario is translated into sensitivities to economic factors, which are then applied to the Group’s assets and liabilities to quantify the potential financial impacts of climate change relative to our base assumption. The scenario with the largest overall impact on the Group balance sheet is the failed transition scenario, where physical climate change impacts in the longer term, which could result infinancial market impacts sooner. The disorderly transition scenario has the biggest impact in the short term as markets assimilate policy changes, resulting in limited impact in the medium and long term. As expected, the orderly transition scenario has the lowest overall impact on the Group balance sheet. Our analysis did not take account of the potential actions available to the Group to mitigate the impact, in line with emerging industry practice, and is an area where we expect to considerfurther the opportunities available. Though the Group remains exposed to financial impact from climate change, the results for each scenario were not outside observed market volatility and therefore do not indicate the need for an explicit allowance for climate change in the assumptions used for the liability valuations or observed marketvalues. An additional scenario exercise applied to a sample of our carbon- intensive holdings highlighted the potential range of impacts on equity prices and corporate bondsbetween those companies that have started to transition and those who have not. A key challenge identified in this exercise is the limited availability of disclosed climate-related financial reporting across our Asia and Africaholdings, which is required for sophisticated climate scenario models. We expect such limitations to be overcome as more climate disclosures occur in these regions, potentially using established frameworks such as the TCFD or the anticipated standards from the International Sustainability Standards Board (ISSB). We focus on life, health and wealth products and therefore do not have greenhouse gas (GHG) intensive activities in our underwriting portfolio. While climate change can impact morbidity, mortality and persistency, the impact of climate change does not directly alter the Group’s assumptions for its insurance business based on the annual reviewof experience. If experience or exposurewere to change, for example due to a step change in long-term morbidity and/or mortality expectations in a particular region due to climate events, the financial impacts from climate-related risks on our insurance liabilities could be more significant and would be allowed for as part of the regular review. However, the longer-term impact to the Group should be managed by our ability to reprice contracts if needed and develop new products. Work continues on plotting significant clusters of customer locations to assess the potential risk from physical climate events to our known customer base. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 87 ![]() The complexity and long-term nature ofthese climate scenario tests result in the need for some simplifications in the exercises, in line with developing industry practices, such as using a static balance sheet. Simplifications are also applied in estimating the sectoral and regional impacts. The regional impacts are particularly important for P rudential given our operational footprint across Asia and Africa. We participate in and contribute to bodies working towards overcoming these simplifications, as described in the Supporting a just and inclusive transition section, starting on page 92. Climate scenariotesting has helped develop our understandingof the nature of the climate risk the Group faces, reinforcing that the main financial risk from climate change is to the asset side of the balance sheet. This is consistent with our business model: as a major asset owner and manager, we rely on investment returns to meet the longer-term obligations of our liabilities and remain exposed to risks that could interrupt or impair those returns, such as a disorderly transition. This also reinforces the case for our strategic objective to decarbonise the investment portfolio. Impact onfinancial planning andstrategy As part of our annual strategy and business plan exercise, we applied scenarios comparable to the disorderly transition scenario, ie the below 2°C scenario, which has the largest financial impact over the relevant period, to theeconomic and non-economic assumptions underlying the exercise.The scenario showed the Group’s financial plan remains viable overthe period under assessment. Impact on our operations We are also exposed to climate-related physical risk, which may threaten our real estate, corporate facilities, infrastructure and other real assets, and customers. Our business continuity management programme assesses the risk to our sta and operating locations from natural disasters, including those caused by climate-related physical impacts, such as increased frequency and severity of tropical storms or increased flooding. We r emain focused on maintaining and enhancing our organisational resilience. We use a third-party provider to assess our exposure to physical climate risks and the results of this can be seen in the diagram below. Exposure estimates are based on the highest United Nations IPCC emissions pathway, known as RCP 8.5, which is a high-emissions scenario predicted to lead to temperature increases in excess of 4°C by t he year 2100 from the average temperatures between 1850 and 1900, resulting in significant climate-related physical impacts. The diagram shows the extent to which our operations could be exposed to the physical impacts of climate change, if there is no transition to lower-carbon economies. The climate data used by the third-party provider is derived from internationally recognised sources, including IPCC data sets and modelling. The validity of this data has been spot-checked byback-testing global events. We continue supplementing existing business continuity management activities with scenario analysis to identify additional areas of vulnerability that may arise due to climate change, including potential impacts on our properties, operations, third-party supply chains and customers. Utilising our third-party provider’s platform, pilotscenarios weredeveloped during the year to assess climate- relatedimpacts within local businesses. Specifically, the operational risk scenarios were used to investigate how a severe typhoon and/or flood would cause property damages and business interruption, providing insight in the potential increases in operational costs and/or reputational impact. ESG report / continued Impact of RCP 8.5 scenario on Prudential’s locations of operation Overall risk rating 0–2526–5051–7576–100 Prudential plc Annual Report 2021prudentialplc.com 88 ![]() Managing our direct operational environmental impacts We seek to actively reduce our direct impact on the environment in line with our purpose of improving the lives of our customers and t heir communities. To understand our impact, we measure our environmental performance and take action to improve our p erformance. Our Group Environment Policy forms part of our Group Governance Manual and applies to our operational properties worldwide, guiding our approach to the management of the direct impacts of our businesses. This includes compliance with environmental laws and regulations with respect to emissions, energy consumption, water use, waste disposal, environmental supply chain management and the adoptionof risk managementprinciples for all property-relatedmatters. The highlights of our 2021 environmental performance are available below. Our 2021 reporting covers the period 1 October 2020 to 30 September 2021, and selected indicators, as noted in the disclosure tables below, are assured by EY. On 13 September we demerged Jackson, our USoperations. These metrics and commentary cover the performance of the continuing Prudential Group for 2021 and form the new baseline data from which we will measure future environmental performance. As the fall in our 2021 emissions is ahead of the reduction trajectory required to meet our 2030 target for Scope 1 and 2 emissions, we have not purchased any carbon osets for Scope 1 and 2 emissions in 2021. Data in respect of business travel emissions is collected and reviewed withinthe consideration of ourbroader operational emissions. Reflecting theprevious structure ofthe Group,and the associated need to regularly travel to and from operations, we chose historically to oset our UK procured air travel emissions. Given the reduction in air travel as a result of the pandemic and the changes in the Group’s structure, we no longer believe that adopting this approach on an ongoing basis is meaningful in the context of our broader climate change activities. Whilst we consider the ongoing role and value of osets as they relate to business air travel, we have decided not to oset any air travel emissions for 2021. We continue to keep our policy around the use of osets under review. Group emissions data Greenhouse gas (GHG) emissions are broken down into three scopes. We have included full reporting for Scope 1 and 2 and selected Scope 3 r eporting. Scope 1 emissions are our direct emissions from the combustion of fuel, fugitive emissions and company-owned vehicles. Scope 2 emissions cover our indirect emissions from the purchase of electricity, heating and cooling. We have stated our Scope 2 emissions using both the location and market-based methods in line with the GHG Protocol Scope 2 Guidance. We recognise that our Scope 3 emissions footprint is greater than the emissions relating to our own operations, as reported under Scope 1 and 2. During 2021, we carried out a review of our Scope 3 emissions and more information on this is available below. We aim to broaden the assured scope over time and as such, we are focused on improving data quality year-on-year, for example the expansion of our Scope 3 reporting in 2021, as detailed below and in the Basis of Reporting. We have also focused in 2021 on improving Scope 1 and 2 data collection from Africa and water and business travel data reporting from Asia. A summary of our Scope 1, 2 and 3 emissions, excluding Jackson, is provided below, including a restatement of 2020 on the same basis. Data for Jackson, and the composite Prudential Group up until the point of the demerger of Jackson, can be found in the Reference section of this report. The emissions table shows Scope 3 emissions on a consistent basis to t hose reported for 2020, and the expanded 2021 boundary, as follows: > The inclusion of 2,001tCO 2 e for Asia business travel meant our business travel emissions increased by 8.9 per cent to 2,139.5 tCO 2 e in 2021, reflecting the continued impact of travel restrictions and other control measures related to the Covid-19 pandemic, even with the enhanced assured reporting scope. > Inclusion of the fuel andenergy related activities generatedScope 3 emissions of 6,451 tCO 2 e in 2021. This category of emission is directly linked to Scope 1 and 2 emissions and therefore, the actions we are taking to reduce our carbon intensity in these areas will enable us to deliver reductions in these Scope 3 emissions. Emissions Source (tCO 2 e) 2021 \* 2020 Change (%) Scope 1 1,4811,3787.5 Scope 2 – market based 19,98623,608(15.3) Scope 2 – location based 21,54723,525(8.4) Scope 3 (2020 boundary comparative) 1601,998(92) Scope 3(expanded 2021 boundary) 8,793 n/a Total: Scopes 1 and 2 21,46724,986(14.1) Total: Scopes 1, 2 and 3 (2020 boundary comparative) 21,62726,984(19.9) Total: Scope 1, 2 and 3 (expanded 2021 boundary) 30,260 n/a kg per m 2 – Scopes 1 and 2 58.2266.72(12.7) Tonnes per employee – Scopes 1 and 2 † 1.471.69(13.0) kg per m 2 – Scopes 1, 2 and 3 (2020 boundary comparative) 58.6572.06(18.6) kg per m 2 – Scopes 1, 2 and 3 (expanded 2021 boundary) 82.07 n/a \* Within the scope of EY assurance – see page 74 and the Basis of Reporting on the Prudential plc website at www.prudentialplc.com/~/media/Files/P/Prudential-V13/ esg-report/basis-of-reporting-2021 which notes which Scope 3 categories were assuredin2021. † Outside scope of EY assurance. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 89 ![]() ESG report / continued The Covid-19 pandemic has continued to aect our operations, with l ockdowns and oce closures for non-essential workers across the regions where we operate. Our global absolute Scope 1 and 2 (market based) GHG emissions across our occupied estate, excluding Jackson, were 21,467 tCO 2 e, down 14.1 per cent in 2021. Electricity use in our buildings is the largest contributor to our operational footprint at 19,986 tCO 2 e (market based), making up 93 per cent of our total Scope 1 and 2 emissions. The energy consumption associated with our employees working from home has not been captured in our r eporting. Monitoring our progress Based on the site assessments undertaken in previous years, we have identifiedemissions reduction opportunities and developedtarget projections and emissions reduction roadmaps with each of our businesses. These roadmaps are being used to track delivery against our target. In support of the implementation of these roadmaps, we have been working tostrengthen the processes inplace for communicating, collating, and reviewing environmental data. We have remained focused on sharing knowledge between our businesses, including via an online conference aimed at property management teams across our markets. During 2021, we migrated the environmental data for our entire property portfolio into asingle digitalreporting platform. This p latform allows us to visualise and interrogate the emissions performance of our property portfolio down to a single building. This l evel of granularity enables us to gain better insights where potential emission reductions can be found and to provide our business units with a tool to measure the impact of their sustainability actions. This will support us in tracking progress towards achieving our 2 030 carbon reduction target. Leasing and fitting out our portfolio The properties we occupy and the decisions we make around the l easing and fitting out of our facilities form a critical part in achieving our environmental objectives. During 2021, we updated our internal property approval process to require our local businesses to demonstrate that they have assessed the environmental impact associated with the proposed project. We also developed internal guidance for incorporating environmental performance considerations into the oce design process, such as using LED lighting with sensors, installing timers, lighting zones and maximising natural light. This guidance has been adopted for projects undertaken in Thailand, Kenya and the Philippines. Two of these new oces became operational during 2021 andwill generate energyand carbon reductions in the future. We are also focusing on the materials used and the waste generated by oce relocations. To reduce the waste from an oce move in Malaysia, we worked with the landlord to reduce the requirements of the reinstatement clause in their contract, saving the disposal of 152 tonnes of waste being generated. Our business in Malaysia has recently used carpet tiles certified carbon neutral. This project used 900m 2 of flooring and resulted in a reduction of t he embodied carbon of eight metric tons of carbon dioxide. Operational carbon reduction target We have set a target to become carbon neutral across our Scope 1 and 2 (market-based) emissions by the end of 2030. We aim to deliver a 25 per cent reduction per full time employee (FTE) in our operational emissions from a 2016 baseline, then abating the remaining emissions via carbon osetting initiatives. We are ahead of the emissions reduction trajectory required to meet our 2030 target. However, we are aware that oce closures and operational restrictions imposed to manage the spread of Covid-19 have played a part in the achievement of this reduction. We anticipate that as social distancing restrictions ease, and a more normalised level of operations resume in our oces, we will see a rebound in our Scope 1 and 2 emissions closer to normalised levels. Anticipatingthis partial rebound, weare developing andimplementing reduction measures acrossour operations portfolio to address this anticipated increase and to ensure we continue to meet our target aspirations. We will continueto keep our performance and our target under review. Prudential plc Annual Report 2021prudentialplc.com 90 ![]() Scope 3 emissions review During 2021, we carried out a review of our Scope 3 emissions to better understand which areas ofour value chain contribute most significantly to our overall emissions footprint. The assessment was carried out in accordance with both the Greenhouse Gas Protocol and Partnership for Carbon Accounting Financials (PCAF) and considered all 15 Scope 3 categories. Our review identified eight of the Greenhouse Gas (GHG) Protocol’s Scope 3 categories that were relevant to Prudential. Of these Scope 3 categories, our most significant emissions are from our investment portfolio, which we are reporting for the first time in 2021. Data gaps across some of our Scope 3 categories remain and as Scope 3 data accuracy and methodologies continue to evolve, we will seek to align with best practice, and broaden the scope of reported Scope 3 categories. The table below summarises our Scope 3 emissions review. Category Relevant Why category is relevant or notReported in FY21 Assured 1 Purchased goods and s ervices Yes There are emissions associated with the products and services we purchase, for example IT and professional services. NoNo 2 Capital goods Yes There are embedded emissions with the capital goods we purchase, for example IT hardware and furniture. NoNo 3 Fuel-and energy-related activities (not included in Scope 1 or Scope 2) Yes There are emissions associated with the extraction, production and distribution of the fuelsand electricity that we purchase, including for business travel. YesYes 4 Upstream transportation and distribution Yes We generateemissionsthrough third-party courier and logistics services. NoNo 5 Wastegenerated in operations Yes We generate emissions through the disposal and treatment of w aste generated in our on-site operations. Yes. Water data reported for UK and Asia. Waste data is UK only. Partly, as set out in Basis of Reporting 6 Business travel Yes We generateemissionsby travelling for business- related activities, including flights and land transport, booked throughour travelpartners. Yes. UK and Asia only. No 7 Employee commuting Yes We generateemissionsthrough sta commuting and f rom remote working, however, we have a limited ability to influence these. NoNo 8 Upstream leased assets Yes We generate emissions fromlandlord-provided services, such as air-conditioning, that are not captured in our Scope 1 a nd 2 disclosures. NoNo 9 Downstream transportation and di stribution No We do not sell products that are transported. NoNo 10 Processing of sold products No We do not process intermediate products. NoNo 11 Use of sold products No We do not sell products that have an associated energyuse outside of our operations. NoNo 12 End-of-life treatment of s old products No We do not sell physical products that can be disposed. NoNo 13 Downstream leased assets No We do not lease assets to other entities. NoNo 14 Franchises No We do not operate any franchises. NoNo 15 Investments Yes We hold significant financial investments which generateemissions. Yes (see Climate- related metrics and targets section on page 82) Yes Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 91 ESG report / continued Enforcement actions and other regulatory events No fines or regulatory actions occurred during the year for environmental incidents (2020: zero) Supporting a just and inclusive transition As a steward of long-term capital, we seek to use our scale and expertise to drive decarbonisation at pace, and to do so in a way which is just and fully inclusive. This means that we are continuously mindful of the need to implement our decarbonisation strategy in a way that acknowledges the nature of the markets in which we operate, and seeks to share the financial and social burden of the transition in a fair manner, promoting sustainable development for all stakeholders. Our Asian and African markets include highly developed economies, such as Hong Kong and Singapore, that have diversified, service-led economies and mature financial markets. Italso includes emerging markets that are more dependent on primary and energy-intensive industries. These emerging markets havea greater reliance on fossil fuels in their energy generation mix than developed economies. These countries’ energy transition is likely to proceed at a slower pace, as acknowledged by the Paris Agreementand reflected inthe countries’ Nationally Determined Contributions. Supporting a just and inclusive transition through our Responsible Investment targets The need for a just and inclusive transition was an explicit considerationforGroup while evaluating possible targets and commitments. This was brought to life specifically in the decision around ourcoal policy where inconsideringdierent thresholds, each was tested against whether it supported a just and inclusive transition. Ultimately, the threshold for our coal policy was set so as to balance our stewardship duties indeveloping markets, whilealso allowing companies in those markets to phase out of coal in a just and inclusive manner and encouraging companies inmore developed countries to phase coal out quicker. In reviewing and approving the targets, the Board and its Responsibility and Sustainability Working Group (RSWG) took a specific interest in a just and inclusive transition aspects. We further support an inclusive transition through ourengagement targets, based on a belief that engagement is preferable to divestment to secure a just transition, though divestment may be the appropriate response in certain circumstances. Engagement is a core part of providing eective stewardship and we seek to encourage businessand managementpractices that support sustainable development through constructive interaction, as described in the examples in our Active ownership section on page 109. Policy engagement and advocacy With operations in Asia and Africa, we are well placed to bring an emergingmarkets perspective to stakeholder discussionsto help ensure the need for a just and inclusive transition in developing markets is considered in policy and regulation. We regularly engage with regulators and monitor evolving climate risk-related initiatives that could develop into newregulation in the markets in which we operate. We consider the transition to a low- carbon economy to be essential and we engage constructively with trade associations, policymakers and NGOs to shape the evolution of r egulation and standards relating to climate risk and transition. Throughout 2021, we actively engaged withinternational standard setters, and with governments and regulators in the markets wherewe operate on key issues shaping the ESG policy environment. As in 2020, a major area of engagement with our host governments was the ongoing management of Covid-19 and the impact on our customers, communities and sta. We have engaged with governments to support their health priorities, including the use of digital solutions in healthcare and insurance, andin supporting financial inclusion. More information on our approach is available in the Making health and financial security accessible section on page 75. At the same time, attention on the eects of climate change and the role of the financial sectorincreased at boththe international and national level (see P rudential and COP26 on page 94). As wellas direct engagement with governments and regulators, we worked with a number of trade associations and working groups to understand and inform approaches to international and national-level policy and regulations and to benefit from the collaboration and cooperation that comesfromworking alongside peers in industry to inform andunderstand policymaking. Prudential plc Annual Report 2021prudentialplc.com 92 ![]() The table below summarises the key stakeholders and topics we engaged with and the topics we contributed to. Stakeholders andtopicsPrudential contribution At the international level, we closely followed the climate-related initiatives set out by both the International Association of Insurance Supervisors (IAIS) and the International Organisation of Securities Commissions (IOSCO) > On going discussions with the IAIS on how to assess and incorporate climate-related risks in its yearly Global Monitoring Exercise. > Ea rly participation in the IAIS’s Climate Task Force, established in October 2021 with the purpose of engaging with industry stakeholders to provide input to IAIS climate work. This w ill continue in 2022. > Engagement with, and feedback to the Taskforce on Climate-Related Financial Disclosures (TCFD) consultation on Proposed Guidance on Climate-relatedMetrics, Targets and Transition Plans. We also monitored and contributed to a r ange of consultations through the IIF > Wi th the IIF, we led the creation of a working group within their Insurance Regulatory Committee to focus on how issues aect Asia-Pacific markets specifically, including on climate c hange and sustainability and digital transformation and the implications for financial inclusion. > We c ontributed to the following consultations via the IIF: – IOSCO ESG ratings consultation. – IF RS Foundation Exposure Draft on Proposed Targeted Amendments to the IFRS Foundation Constitution toAccommodatean International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards. – IIF Sustainable Finance Working Group (SFWG) response to the TCFD public consultation on C limate-related Metrics, Targets and Transition Plans. – IAIS Application Paper on the Supervision of Climate-related Risks in the Insurance Sector. As governments and regulators in the markets we operate in have developed their policies and regulations to support sustainablefinance, we haveengaged actively in the policy development process > The Group CEO’s membership of, and participation in, the Monetary Authority ofSingapore’s International Advisory Panel (IAP), whichincluded a focus on nationaland regional sustainable finance priorities. > Membership of Singapore’s Green Finance Industry Task Force’s Workstream on Disclosure. Our Singapore business provided inputs to the development of a best practices disclosure document, which sets out pathways for financial institutions (specifically banks, asset managers and insurers) to adopt and put in place TCFD recommendations based on the dierent stages they are atin their sustainability reporting journey. Our Singapore business a lso provided responses to the SGX Consultation Paper on Climate and Diversity, and ESG Metrics. > Re sponse to Indonesia’s regulatory requirements to submit a Sustainable Finance Action Plan (SFAP). > Pa rticipation in the Mayor of Shanghai’s annual International Business Leaders’ Advisory Council meeting, witha paper on developingShanghai’srole insustainable finance. Engaged with UK policymakers and regulators during its COP Presidency on UK listing requirements and international policymaking > Membershipof the CBI’s Sustainable Finance Working Group. > In put to the UK Financial Reporting Council consultation on the use of scenario analysis by FTSE350 companies. > Pa rticipation in an ABI roundtable to help provide feedback on the PRA/FCA Climate Financial Risk Forum Scenario Analysis Working Group’s draft Scenario Analysis Guide for Insurers and Asset Managers. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 93 ![]() ESG report / continued Memberships of trade associations, such as Asia House, the UK- ASEAN Business Council and theChina-Britain Business Council,and a number of British and European Chambers of Commerce, enabled the organisation of, and participation in roundtables and meetings with policymakers on green and sustainable finance, healthcareand digital issues, often virtually given the continuing restrictions on international travel. Green and sustainable finance also featured in various government-to-governmentand regulatory dialogues that took place through the year, and into which Prudential advocated relevant priorities and perspectives. Throughmembership and chairmanship of the EU-ASEAN Business Council, contributions were made to a range of policy papers and events covering issues including plastics, energy transition, healthy ageing, fuel economy and fuel standards, and digital tools for aordable protection, health and wellness. We developed and contributed to a range of advocacy and position papers and events covering a broad range of issues from climate and health tofinancial inclusion. Examples includePrudential’sPhilippines business, Pru Life UK, which commissioned a study that aimed to support greater understanding of the eects of climate change on Filipinos’ health and wealth, and to guide the industry and government in developingpractical preparationand mitigation strategies (see case study). With support from Prudential Singapore, EuroCham Singapore produced a‘Future of Healthcare and Wellbeing White Book, 2021–2022’, including a paper on ’Healthcare and Innovation – a Healthcare financier perspective’ by Prudential. We were the headline sponsor of the Singapore FinTech Festival 2021, with a major focus on the role and impact of digital innovation on expanding financial inclusion. We participated inthe Commonwealth Trade and Investment Summit inSeptember 2021, highlighting the roleof technology inexpanding financial and health inclusion. We s ponsored the CamTech 2021 Summit which included a focus on the potential for digitisation to drive inclusion and on green finance. EnergyTransition Mechanism Coal-fired power plants represent a fifth of total global carbon emissions, and nearly three-quarters of emissions from the electricity and heating sector. Given the global reliance on coal, the private and public sectors must work together to support the transition to a lo w-carbon economy. The development of the Energy Transition Mechanism (ETM) is an example of the type of project that will be needed, which is being trialled in Indonesia and the Philippines. The ETM concept was developed by Don Kanak, Chairman of Prudential Insurance Growth Markets. The ETM is a scalable public-private partnership that can be used to acquire and then retire coal-fired power plants well before the end o f their useful life, in an orderly and just way. The ETM proposes that an investment fund is established in collaboration with national authorities in order to purchase and retire coal-fired power plants within 10 to 15 years, cutting short their expected lifetimes of 30 to 40 y ears. A complementary facility would channel proceeds into renewable power, grid upgrades and support for workers and communities. In this way, the ETM would help developing countries to finance an orderly transition towards less reliance on coal in the total energy mix and have access to aordable renewable power. Prudential and COP26 A major focus of policymakers, regulators and business in 2021 was the preparation for and meeting of the UNFCCC’s Conference of Parties (COP26), under the UK and Italian Presidency, with the meeting from 31 October to 13 November 2021. Through 2021, Prudential worked with the UK government’s COP Unit and UK embassies in our markets on key themes ahead of COP26. We participated in local Energy Transition Councils facilitated by the UK government in a number of ASEAN markets. We also participated in green finance workshops organised by the UK government or other partners in collaboration with domestic policymakers. At COP26, across a range of activities, the Chair, Group CFO and COO and senior Prudential representatives highlighted the i mportance of an inclusive transition in Asia and Africa; the challenges of addressing coal retirement andinvestment in renewables indeveloping markets; and theframework for financial market participants to achieve net-zero goals – for example, the creation of an International Sustainability Standards Board (ISSB) to deliver a global baseline for sustainability-related disclosure standards. Prudential partnered with the GHS@COP26conference, which took place during COP26, led by the City of London Corporation and the Green Finance Institute, to amplify these messagesand initiatives. Prudential supported the publication during COP26by the World Economic Forum (WEF) of a set of principles to ensure a ‘Just and Urgent Energy Transition’, while Don Kanak, chairman of Prudential Insurance Growth Markets, took part in the Asian Development Bank’spartnership launch for the development of a n Energy Transition Mechanism, alongside the Indonesian and Philippine governments. Prudential plc Annual Report 2021prudentialplc.com 94 ![]() Joining the Net Zero Asset Owner Alliance In June 2021, we joined the United Nations-convened Net Zero Asset Owner Alliance (NZAOA). The NZAOA is a network of institutional investors committed to the decarbonisation of their investment portfolios with support from scientific advisers and collaborators, includingthe Partnership for Carbon Accounting Financials andthe Science Based Targets initiative. In joining the NZAOA, we aim to bring an emerging markets perspective to the discussions on investment portfolio decarbonisation, which is critical to ensure that the specific needs of those developing markets are addressed. Since joining the NZAOA, we have participated in a range of discussions, including updates to the NZAOA’s target setting protocol, inclusion of additional asset classes such as sovereign bonds in carbon accounting,engagement and protocols. Additionally, we have taken the initiative to set up a new sub track, within the NZAOA, focused on financingthe transition in emerging markets. In 2021, the Asian Development Bank (ADB) commissioned a study to validate and refine the ETM concept in I ndonesia, the Philippines and Vietnam. After the first study was completed, the ADB launched a detailed feasibility study of operationalising the ETM in Asia, with a pilot in late 2022 in Indonesia and the Philippines. The ‘Southeast Asia ETM Partnership’ was formally launched in November 2021 at COP26, with attendance from senior ocialsin developed and developing countries and philanthropists. We continue to support the ETM as an example of the practical private-public solutions needed to progress the energy transition and we look forward to seeing the outcome of the detailed feasibility study in Indonesia and the Philippines. Sustainable DevelopmentInvestment Partnership (SDIP) The SDIP isa multi-stakeholder initiative underthe World Economic Forum and OECD, of which Prudential and over 40 other companies, foundations, multilateral development banks and governments are members. Its goal is to mobilise finance at scale in developing countries insupport of theSustainable Development Goals. Through the SDIP, we work with public and private sector institutions in emerging markets, particularly in South-east Asia, to scale domestic and international investment in sustainable infrastructure and promote energytransition. Working with SDIP, we became an initial signatory of the ‘Principles forFinancing aJust and UrgentEnergy Transition’ (JUET Principles), launched at COP26. These principles create a better context for the developed countries to step up their financial assistance to the emergingmarkets and complement the ETM throughcreating the right enabling environment to facilitate large-scale and urgent energy transition in developing economies. Work is underway to further explore where the SDIP and the EU- ASEAN Business Council canwork together with the NetZero Asset Owner Alliance to increase the voice of emerging markets in transition finance. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 95 ![]() ESG report / continued #### Strategic Pillar: Building social capital We build social capital by building trusted relationships with our em ployees, on whom oursuccess depends, and we seek to safeguard the public’s trust in us through our rigorous approach to d igital responsibility. #### Our people responsibility As an employer, we have made a pledge to make Prudential a place where ourpeople can Connect, Grow and Succeed . Our Employee Value Proposition With ‘Ambitious’ as one of our values, we have a bold vision for what it is l ike to work at Prudential. We are on a multi-year transformational journey to reach this, within which 2021 was a critical year. Our Group Culture Framework outlines who we are, why we exist, and ho w we conduct our business and ourselves, as well as how we behave while at work and in the wider world. The four components that comprise our culture framework are: Purpose, Principles, Values, Future-Ready Skills . In October 2021, to give form to our Group Culture Framework, we launched a unified employee value proposition (EVP). The EVP speaks to our current and prospective employees, prompting reflection on the i mpact they can make at Prudential, and providing tangible proof points on how Prudential powers their careers. The EVP is as follows: ‘Prudential’s purpose is to help people get the most out of life. We do that for customers and employees alike. We know that career decisionsare significant – and that you entrust us with your time, talent and passion. This powers our ambitions inAsia and Africa. In exchange, to honour the trust you place in us, we pledge to make Prudential a place where you can Connect, Grow, and Succeed.’ Prudentialplc’s EmployeeValue Proposition The EVP is a pledge, not a strategy itself. Our people strategy and a t hree-year roadmap were socialised with our Board and guide our work to fulfil the promises it makes. The strategy covers areas including culture, diversity andinclusion, learning anddevelopment, leadership, talent, performance and more; the roadmap lays out a series of intended outcomes. During 2021, the roadmap called for aligning processes and engaging ourpeople, with performance management beinga focal point. A System of Components We intend to builda culture that is purpose -led,customer- focussed, and digitally -savvy. Our Group Culture Framework outlines who weare, why we exist, how we conduct our business and ourselves, as well as how we behave while at work andout in the world. The fourcomponents that comprise our Culture Framework are:Purpose, Principles, Values, Future - Ready Skills. Culture can be difficult to describe and even moredifficult to meaningfully shape. This carefully architected system of components is expressed in simple andsincere terms, organised in amutually reinforcing way. It attempts to make culture more actionable for our leaders, more accessible for our people and agents, and moretangible for all involved. Principles Purpose WHY EVP Exchange EVP Pledge Campaigns Segments Personas Values HOW Future- Ready Skills WHAT Connect. Grow. Succeed. YOU PRU People from the PRU Future of Work People People Managers We help peoplegetthe most out of life PRU YOU 6 | Group HR #### How Culture Shapes Our EVP INTRODUCTION AMBITIOUS CURIOUS EMPATHETIC COURAGEOUS NIMBLE W e embrace a growth mindset W e act with integrity W e invest in communities W e put customers firs t W e take the long view Multiple personas to be developed in 2022 foreach of the segments based on generation, background, skills, experience, etc. Think Conceptually Tell Stories Look Broadly Imagine Possibilities Build Iteratively Work Collaboratively Prudential plc Annual Report 2021prudentialplc.com 96 ![]() AMBITIOUS CURIOUS EMPATHETIC COURA GE OUS NIMBLE Culture Our people surveys are central to measuring our progress on our three-year culture journey. We conducted our first survey in May 2020 and our second in January 2021. These initial surveys told us that, although our people were proud to work for Prudential and were being supported in our initial response to Covid-19, they needed more support in the areas of work-life balance, raising concerns, and career and learning opportunities. We then carried out our third global people survey inDecember 2021, with 95 per centof our colleagues participating and providing feedback. Understanding of the Group’s values was the most improved factor on the survey, compared to January 2021. Overall engagement continues to improve,and our 2021 engagement score was above the benchmark median score for all industries globally. Since we ran the initial survey in May 2020, we have made significant improvement inthe following areas: > Open andhonest two-way communications; > Rep orting aconcern without fear; > Rarely feeling overstressed by work; and > Do ing something whensomeone is not delivering intheir role. At Group level, topics raised by colleagues included learning and development opportunities, positioningour colleagues for growth during business transformation andenhancing colleague wellness. Insights from the survey will help inform plans at both business and G roup level. In 2020, we conducted our first Collaboration Jam, a three-day inclusive online conversation where colleagues could connect and co-create solutions for the issues that matter most to them. Input from our colleagues during 2020’s Collaboration Jam helped us to define our new values: ambitious, curious, empathetic, courageous and nimble,which we believe arefundamentallyhuman values, represented by dierent parts of the body so that they are accessible regardless of language or seniority. Each value is defined by dierent mindsets and acceptable and unacceptablebehaviours, makingit clear what is expected of our colleagues. Our values are embedded in our approach to feedback and reward. We launched our values in early 2021, with a series of videos where colleagues explained what the values meant to them personally. We conducted our second Collaboration Jam in August 2021, with over 9,000 colleagues registering to participate and more than 75,000 comments made over the 72-hour period. As in 2020, the 2021 Jam engaged our people to define another aspect of our Group Culture Framework, our future-ready skills, which we explored through key themes of culture and connection, customer-centricity, hybrid work, and wellbeing and the future of work. We used this colleague input to identify the values associated with the future-ready skills as well as the competencies necessary to put them into action. The competencies will be used to build our self-directed learning paths, which will be oered to colleagues in 2022. Insights gained from the Collaboration Jam form a key part of the ongoing development and iteration of our people roadmap. The values and the future-ready skills work together to signal to our people how we want them to ‘show up’ in everyday interactions with customers and colleagues and also what we want them to do as they undertake their work. Our learning programmes areorganised around the future-ready skills and our people receive continuous feedback on how well they are living the values from peers and managers through TellMe, an internal app that enables this feedback. #### Our values Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 97 ESG report / continued Learning We have made a pledge to make Prudential a place where our people can connect, grow, and succeed. A significant part of our pledge to employees is preparing them for the future of work, so that they can participate in and contribute to our transformation, and also so that they are confident and well equipped for wherever their careers may takethem. In 2021, at the Group level, we made a series of strategic investments in learning and development (L&D). Our vision is to build a workforce that knows how to learn and does so in the flow of work and in service of our business ambitions. Our L&D strategy is intertwined with our Group Culture Framework, linkingour learning programmes to our organisational culture. More information about thetraining provided to our agency force is provided on page 79. We have partnered with LUMA Institute, an education company, to helpdevelop our innovation and designthinking capability. To a chieve scale, we have introduced LUMA Workplace, which is an onlineplatform thatenables a do-it-yourself approachto design thinking that includestools, templates, suggested agendas andmore. To lay a foundation for a broader rollout of design thinking as a future-ready skill, we have trained almost 250 people from across the Group onLUMA’s Practitioner Certification Programme. We hosted two company-wide webinars: one on ‘New ways of working’, and another called ‘What could go wrong?’ The first unpacked our values and introduced theconcepts around our future-ready skills. It also served as the launch for LUMA Workplace and LinkedIn Learning, which hosted curated learning pathsaround our future-ready skills. The second webinar extended the narrative around values into the space of sound risk management. Both webinars were broadcast with live simultaneous translation in several local languages to increase accessibility of the content. Our local businesses also developed local learning programmes tailored to specific needs. Notably, Prudential Singapore held a week-long ‘Learning Fest’ called PRUYou Fest: Supercharging You to P ower up PRU, focused on capability building and celebrating the learning culture at Prudential Singapore. The event saw 1,260 attendees, including employees andagency distributors, who clocked over 1,700 learning hours that week. Employees are expected to complete mandatory training each year o n key topics such as anti-bribery and corruption, anti-money laundering, privacy and competition law,completing an average of 1 2hours training during 2021. Diversity, inclusion and belonging We seek to build a culture where diversity of thinking, skills, identity and experience iscelebratedand inclusion assuredfor ourpeople, customers and partners. To proactively manage the hiring and promotion of senior leaders, we have developed a dashboard that will be used at both a Group and local business level to support the management oftalent pipelines. A summary of our D&I performance isincluded below.While our diversity figures have improved year-on-year, we recognise that we have more to do in this area, and a number of the initiatives set out below are aimed at addressing this, for example our Talent Sponsorship Programme that launched in 2021. > At 31 December 2021, the representation of women on our Board w as 40 per cent. However, following the 2022 AGM, the representation of women will be 33 per cent, just below the average for FTSE100 companies, and we expect further changes during 2022 as the Board continues to evolve. > We h ave exceeded the recommendation of the Parker Review to have at least one director being from what is regarded in the UK as a n ethnic minority background on the Board by 2021, with five of our 15 directors meeting this criteria. > As a s ignatory to the HM Treasury Women in Finance Charter since 2016, we had a target of 30 per cent women in senior management by the end of 2021. At 31 December 2021 this figure was 35 per cent. Prudential plc Annual Report 2021prudentialplc.com 98 ![]() Gender diversity – total workforce \* 0%20%50%90%100% Total workforce 6,1838,291 80%70%60%40%30%10% 12 Gender diversity –seniormanagement \* 0%20%50%90%100% Senior Managers 82 Group Executive Committee (GEC) 4 Executive Directors 3 Chair & Independent Non-executive Directors 6 44 1 6 80%70%60%40%30%10% Female Male Unspecified † Our Global D&I Council, established in May 2020, is responsible for d efining our global D&I strategy and supporting programmes, promoting and championing D&I initiatives in respective businesses a nd challenging the organisation when progress is limited. The Council provides updates to the Board twice a year and the Responsibility and S ustainability Working Group (RSWG) receives quarterly D&I updates. In July 2021 we expanded the Council to include five additional members to ensure alignment to the broader ESG strategy. The Council has established a global D&I Charter guided by the principles ofempowering our employees, fostering transparency, and creating communities. In October 2021, after reviewing our approach to employee networks, the Global D&I Council launched PRUCommunities, which are led and owned by our people and open to everyone at Prudential, providing person-to-person connections and astrengthened sense of belonging. PRUCommunities is designed to be a safe place for our people to share identities, interests and goals, and ignite the changes they would like to see at Prudential. PRUCommunities of our people enable them to C onnect, Grow and S ucceed through building connection and community locally, regionally and globally acrossbusinesses and f unctions. On 19 November 2021 the first global event for PRUCommunities was hosted with #PinkFridayPride, run by PRUPride to support LGBTQI+ colleagues. During 2021, we launched our Talent Sponsorship Programme, which is aimed at accelerating diverse talentand matches our most senior executives as sponsors to selected leaders and sponsees who have been identified throughour talent review process as critical pipeline for o ur future. This programme aims to provide sponsees with greater visibility in the organisation, increasing their impact in their existing roles and accelerating their career progression. The programme has been a learning experience for both sponsors and sponsees, who built t rusted relationships acrossthe organisation, gained a greater understanding of other functions and developed theirpersonal leadership. To date, over 70 per cent of sponsees have achieved their objectives. The programme will expand in 2022 by cascading to the next level of ourtalent pipeline, doublingthe number of sponsees to 60, and focusingon underrepresented talent groups, based on gender, generation andbackground, to drive diversity and inclusion in leadership atPrudential. As part of our ongoing commitment to transparency, during 2021 we again submitted responses to the ShareAction Workforce Disclosure Initiative, where we achieved a score of 88 per cent (2020: 76 per cent) and the Bloomberg Gender Equality Index, being listed onthe index for the second year. \* Within the scope of EY assurance – see page 74 †No specification or information is captured on gender for an immaterial number of our employees. These employees are recorded as ‘unspecified’. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 99 ESG report / continued Leadership We have taken steps to embed inclusive traits into the mindsets and b ehaviours that underpin ourvalues. We focus on Senior Management Team (SMT) hiring, succession anddevelopment, leveraging a tool underpinned by Hogan Assessments. The tool has been developed to provide insight on alignment with our values and leadership capabilities andidentify potential derailers including potential biases an individual may have. Furthermore, certain local businesses have run workshops to invite leaders to reflect on their personal leadership andengage conversation around changes that could help them become more inclusive. This is consistent with our approach on learning, where we set Group-wide strategy and run certain company-wide programmes, which local businesses complement withinterventions to meet local needs. With our focus on raising awareness andembedding our values and inclusiveness, we provided our top 200 leaders with the Leadership CultureJourney programme during 2021. The programme provided a safe space, connecting leaders from across the organisation to reflect and freely discuss our values and what they mean to our leaders personally. They have also learned practices and tips to reinforce our values in daily reality. As part of this, we introduced an Adaptive Leadership framework, which supports systemic change around mindsets, behaviours, capabilities and more. Since 2020, we have enrolled a cohort of our leaders in a Transformative Journey, a deeplycontemplative programme aimed at developingmore human-centric leaders and change agents for the organisation. Over 60 per cent of this year’s cohort reported improved wellbeing and all say they have shifted their mindset and feel more empowered to drive change. Going forward, we are aiming to reach a critical mass of our leaders in order to drive a more courageous and entrepreneurial mindset throughout the organisation. To sustain the momentum of this programme, we are aiming to enrol up to 50 per cent of our leaders and top talent on this programme in 2022. Talent and succession Our talent management approach is evolving by providing both targeted interventions for selected segments of talents and leaders identified as successors for future leadership roles, as well as providing all employees with access to individual development and career opportunities. To align with external hiring, individuals identified in succession pipelines will undertakeour Hogan-based Assessment, which will inform their selection when the role becomes available and a lso guide their development in preparation fortheir next career move. Our focus is to promote from within to provide meaningful careers forour people and strengthen our leadership capabilities deeper into t he organisation. In 2021, almost 70 per cent of our leadership appointments have been internal candidates, of which a number have c ome from the promotion of talents, including those who have participated in our Talent Sponsorship Programme. We also focus on internal mobility, and nearly 50 per cent of all appointments came from cross-business mobility. We have improved succession coverage by accelerating readiness of s uccessors who are ready to take a designated role within the next 18 months and we have increased our talent pipeline by 30 per cent over three years. We have achieved this by moving deeper into the line of succession to mitigate the risk of promotions leaving gaps. To s trengthen our pipelines in commercial, financial and HR roles, we piloted new functional assessment centres, using psychometrics to identify future potential and panel interviews on critical skills assessed byinternal leaders. Our Executive Development Centre supports the talent pipeline for the most strategic roles in our organisation, with 43 per cent of participants being promoted within a year, 14 per cent taking on expanded roles and the remainder continuing to grow into their existing roles. Recognising that every employee is a talent, we are developing a m ore d emocratised approach to talent development, providing all employees with the opportunity to access mentoring and new career experiences. In June, we launched myMentor, a platform to provide mentoring at scale, where employees can register as a mentor and/or search for a m entor across the entire organisation. Mentors can share their extensive knowledge, insights, advice and experienceswith colleagues acrossthe Group, supporting personal and organisational growth in a transparent and democratised manner. Over 130 mentoring relationshipshave been created during2021 on theplatform, significantlyincreasing the numberof mentorshipopportunities for our people. In October, we piloted our Opportunity Marketplace platform, which aims to provide colleagues with new learning and development opportunities, capturing the untapped energy and capabilities of our people. The Marketplace applies machine learning to match our people’s skillsand aspirations with project opportunities, permanent roles and learning opportunities. It allows people to drive their own growth and development by furthering their experience and skills in areas that interest them. We will continue to roll out the Opportunity Marketplace during2022. Prudential plc Annual Report 2021prudentialplc.com 100 ![]() Reward and recognition We aim to build reward plans that attract and engage exceptional people, foster their wellbeing and provide with them fair and personalised opportunitiesto share in organisational success. We recognise and reward high performance and are committed to a fair and transparent system of reward.Among our benefits, we oer employees competitive pensionarrangements. Remuneration is linked to the delivery of business goals, our values and expected behaviours. Weensure that ourrewards forour people do not incentivise inappropriaterisk-taking by assessing employees on ‘what’ they have achieved, and on ‘how’ they have done so. We aim to create the right environment for all of our people to excel and contribute to the company’s success, in line with our purpose to help people get the most out of life. In 2021, we introduced a new performance management frameworkbased on our employee value proposition to connect, grow and succeed. The framework is based on our ‘Coach’ principles: > Co ntinuous:Frequentfeedback anytime, anywhere; > Ownership: Each of us is responsible for our own careers; > Au thentic: Open conversations in a trusted, honest and motivating manner; > Cl ear employee, team and individual goals: Clarity on what is expected of our employees and teams; individual goals all align to o ur business strategy; and > How we behave and exhibit our Group values form an integral component ofindividual performance. We have prioritised linking our values to reward outcomes. We continue to drive 360-feedback for our colleagues, which we adapted in 2021 to ensure the way in which we evaluate performance and development is aligned with ourvalues. The behaviours associated with our values form the basis of peer-to-peer feedback, which in turn is included in annual performance reviews, linking behaviours to reward outcomes. The Group’s executive remuneration arrangements reward the achievementof Group, business, functional and personal targets, provided that performance is aligned to the Group’s risk framework and appetite and that our conduct expectations, as well as those of our regulators and other stakeholders, are met. Informationon executive remuneration and its alignment with the pay of other employees, including the CEO pay ratio and UK gender pay gap, is provided in the Directors’ Remuneration Report within the Annual R eport. Wellbeing Following feedback from our Collaboration Jams, we have sought to raise awareness on wellness, as well as connection with and recognition from colleagues. During 2021, we co-created our wellbeing framework with all of our businesses to define how we ensurethat we look after thehealth and wellness of our employees. Our focus is on four main wellbeing pillars: health and wellness, financial, work-lifeblend and mental wellbeing. Moredetail on howwe support our colleagues across these four areas of wellbeing is provided in the table below.These Group-wide programmes are supplemented by local initiatives, including family Fridays, where employees are encouraged to finish early, virtual fitness challenges and wellbeing webinars and speakerevents. The implementation of the wellbeing framework is monitored through a dashboard, which provides an indication of how well we are performing against the wellbeing standards and enablers. We continue to develop our wellbeing approach in the context of the rapid transition to hybrid ways of working, which will see an ongoing proportion ofpeople continuing to work remotely. We have developed our approach tohybrid working, including principles and toolkits to support our employees based on guidance from our people through the 2021 Collaboration Jam, along with input from our managers and leadership. In October, we engaged over 120 managers across the Group to understand how to support them to implement hybrid working at Prudential on an ongoing basis. This identified three key areas of focus for successful hybrid working, namely technical skills and the need for digital upskilling of employees, human skills to support and manage wellbeing, and organisational support to provide consistent access to hybrid working arrangements for our people. The aim of this is to enable a transition to sustainable performance that prioritises employee wellbeingwhile facilitatingworking ina hybridway. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 101 ![]() ESG report / continued Wellbeing at Prudential is defined across four pillars: Area Benefit principlesCore company-wide benefits Additional benefits available in some of our markets Health and wellness We create a workplace thatfosters a h ealthy lifestyle We providecompetitive protection benefits for em ployees a nd their families All our markets oerminimumlife coverage of 48x monthly base salary to h elp provide financial security for colleagues’ families, subject to local insurer approvals. This is in addition to the supplementary support of six months guaranteed basic cash and other benefits, such as accrued pension and extended medical coverage. Pru Care Fund – In addition to life protection and sick leave benefits in place, w e are ready to p rovide financial assistance of up to US$20,000 so that employees can meet basic needs in the event of hardship resulting from unexpected loss of income due to permanent disability, critical illness or e xceptional circumstances. Home Environment – To foster a s afer and more comfortable home environment we oer to provide colleagues with home oce and gym equipment, as well as hygiene and cleaning devices. Healthy Lifestyle – To emphasise a healthy lifestyle,we oer nutrition, fitness training and a lso collective oce exercise breaks. Vaccination Leave – We oer extra time o for colleagues to receive vaccinations and have proper time to rest and recover. Mental wellbeing We promote mental health through access to services and support, when and whereour people need them within an environment of psychological safety at w ork Our medicalplans includecoverage for clinicalpsychologists and psychiatrists for em ployees and their dependants. Employee Assistance Programme (EAP) – We oer 24/7 counselling for colleagues and dependants, supplemented by a year-long series of webinars on wellbeing. Staycation – Additional time o is oered in conjunction with annualleave to encourage leisure and recharge during lockdown. Financial wellbeing We support our employees to achieve financial security through innovative financialtools, financial literacy and planning We oercompetitive retirement savings plans. PruSharePlus – this is an employee share s cheme oered across most of our markets that gives employees an opportunity to invest i n the Company in return for matching share awards. Parental Care Expenses – This r eplaces maternity coverage expenses and is extended to cover expenses related to adoption and surrogacy. Social wellbeing We provide an inclusive, family-friendly work environment and promote community work opportunities We recognise dierent ways of w orking Hybrid working. Global Wellness Day –All colleagues across our g lobal footprint were encouraged to takea synchronous day o, dedicated to resting, recharging and spending timewith family and friends. PRUCommunities, with a focus on health and s port, have been supported and created across the organisation and are b eing further encouraged with the launch of the Global PRUCommunities Governance Framework in O ctober 2021. Parental Leave – Primary caregivers can have up to 16 consecutive weeks of paid leave, subject to statutory requirements, following the birth, adoption or surrogacy of a child. This r eplaces maternity leave. Partner Leave– Partners supporting primary caregivers in the event of the birth, adoption or s urrogacy of a child can have up to 10 days of paid leave. This replaces our current five-day paid paternity leave. Phase Back – Colleagues may return to work on a part-time basis (minimally 50 per cent) for up to four weeks following aperiod of long-term absence, such as parental leave or long-term sick l eave. Sabbatical – Colleagues may applyforan unpaid career break of up to 12 months, subject to your years of service. Early Release on Eve of Special Holidays – Early release will move to 12pm from 4pm to give colleagues more time to enjoy and celebrate special holidays withfamily and friends. Prudential plc Annual Report 2021prudentialplc.com 102 ![]() Looking ahead, we are focused on building deep capability and driving mobility across the organisation. This is in line with the needs of the business as we acceleratePulse and continue to drive our transformation. Building on this year’s progress, our priorities for 2022 include: > Work: Preparing our people for the future of work. We will raise the digital literacy of our entire population and host a series of design thinking programmes to reinforce our values, build out our future-readyskillsets, and equip our people managers. > Workforce: Positioning our business and digital teams for growth. We willcontinueorganisation designwork that clarifies our operating model, make a significant investment in digital upskilling for select technical roles, and increase rotational assignments. > Workplace: Powering high-performance teams andwellness forall. We willdeploy tools and programmes that support sustainable hybridworking and continue the focus on psychological safety, particularly as it relates to workloads and expectations. Mental Health Framework The pandemic has led to a rising demand for mental health support. Prudential has introduced a Mental Health Framework focused on raising awareness, providing preventive care,oering protection and building sustainability through support and connection in the workplace, collectively known as ‘APPS’. Sincethe launch of our newEmployee Assistance Programme (EAP) in March 2021, about one in four employees have accessed the services. Since inception, over 2,400 employees have attended our monthly wellbeing seminars on topics including boosting mental health, building resilienceand eective stress management since inception. The top searches on the EAP website were in relation to mental health and work-related subjects. We have also enhanced our mental health coverage by incorporatingpsychiatrist and clinical psychologist coverage in local health plans to support the inclusion of mental health for employees and their dependants. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 103 ESG report / continued #### Our digital responsibility Digital innovation is central to our aim of helping our customers to be h ealthier and wealthier, helping them to get the most out of life. We are ambitious and we act with integrity in regard to digital responsibility. We are resolute in our commitment to fairness, safety and transparency inthe design, governance and operation of our digital ecosystem. Group-wide Information Security Framework With the increasingrelianceon technology indelivering ourbusiness objectives, eective management of technology risk is of paramount importance. Information security and privacy is rated one of the top r isks in Prudential, and we continue to demonstrate strong commitment to protect our customer data and preserve the privacy o f o ur customers through a robust information security management framework. Global SecurityOperatingModel The Group-wide information security team operates globally through a ‘Centre ofExecution’ model, leveraging skillsets, experience and resources across our geographical footprint to optimise our security defences and responses across Asia, Africa and the UK. The model fosters strong collaborationand knowledge sharing, which is crucial in the new era of cyber security. The global model has allowed us to c onsolidate and optimise information security technologies and processes across the Group, enabling security services to become more eective and ecient. Group Data Policy More than ever, the ability to manage increasing volumes of data is c ritical to any company’s success in a digital world. Prudential is currently going through a digital transformation and is creating ecosystems that enable the Group to collect and use data from various customertouchpoints. Given the Group’s ongoing digital aspirations, the data that needs to be managed is expected to continue to grow at pace, with an increase in both the variety and vo lume of information and the speed at which it is collected. Managing this data responsibly is key to gaining the trust of customers g lobally. The Group Data Policy defines Prudential’s approach to ensuring that core data is managed eectively throughout its lifecycle in line with the regulatory frameworks of the markets in which we operate, data security and privacy policies and theGroup Data Strategy. Under the Group Data Strategy, we seek to democratise the access of data, turning data into an organisational asset that can be leveraged to improve the health of our customers and enhance their wealth. Core data has been defined as data that is currently relevant to the single sources of truth for customer, product, pricing, contract, asset, valuation andexternal data. The data lifecycle includes acquiring the right data, ingesting it, storing it, transforming it so that it can be consumed by applications to support AI, business intelligence and operational use cases, and r etaining it in accordance with regulatory requirements. The eective management of Prudential’s data is a joint responsibility of the business and technology teams, and managing data responsibly is key in gaining the trust of our customers globally. Specifically, the policy requirements are classified into five key areas: > Da ta governance and structure: The practice of making strategic and operational decisions tomanage organisational data eectively. Data Governance Councilsare established atGroup and local business levels and define dataprocedures and policies to b e implemented across the organisation. > Data access: Ensure data is easily explorable and accessible in a s tructured way. > Data usage: Ensure data is not misused or abused, and is used ethically, according to any applicable law, and with due considerationforindividual privacy. > Da ta quality: Ensure that the organisation’s data is accurate and consistent over its entire lifecycle. > Tr aining and certification: Create a data culture within the organisation. Improve the data literacy of our sta. Group Information Security Policy The Group Information Security Policy (GISP) underpins how Prudentialgoverns andmanages information security. To support our g lobal approach, the GISP is applied to all relevant businesses in Prudential, and the policy is developed with reference tonumerous internationaland localstandards including: > IS O27002; > NIST Cyber Security Framework; > The Hong Kong InsuranceAuthority Guideline onCybersecurity; > The Monetary Authority of Singapore’s Guidelines on Technology Risk Management; and > The Bank Negara Malaysia Risk Management in Technology PolicyDocument. The policy is also supported by a suite of technical standards to enable consistent implementation. Our global security function retainsits overarching commitment to protect the business, comply with all applicable laws and regulations, and support the growth of the Group s ecurely. Oversight and Governance of Information Security As the technology landscape of Prudential continues to evolve at pace, a new technology risk management model has been established through: (i) the establishment of the Group Technology Risk Committee (GTRC) and the Technology Risk Management team; (ii) the operationalisation of technology risk reporting across all businesses; and (iii) the provisionof independent second-line assurance services. The GTRC was established in September 2021, replacing the Group Information Security and Privacy Committee (GISPC), following the demergerof Jackson. The GTRC defines andprovides governance of t he overall technology risk management framework, including information security and privacy risks, across the Group. The GTRC meets at least quarterly and is a sub-committee of the Group Executive Risk Committee (GERC). As the chairman of the GTRC and a standing member of the GERC, the Group Chief Information Security Ocer (CISO) provides regular update to the GERC and the Group Risk Committee (GRC) on the cyber threats facing Prudential and the progress of Prudential’s security programme. Periodically, the Group CISO also holds a dedicated session with the GRC for a more in-depth discussion on the cyber risk facing Prudential. Prudential plc Annual Report 2021prudentialplc.com 104 ![]() Cyber strategy and risk management We have developed ourglobal information security programme to deliver our cyber security strategy and to drive continuous improvement acrosspeople, process and technology. During 2021, the Group-wide information security programme evolved to focus on four key aspects to protect the Group and our customer data against heightened cyber threats, while enabling digital transformation of the business. These are (1) enabling secured digital platform and ecosystems; (2) uplifting the cyber defence capabilities; (3) automation and continuous improvement; and (4) transformation of the security organisation. Data breach metrics Total number of (privacy) data breaches Total number of (privacy) data breaches involving sensitive health information Total number of customersand employees aected by company’s data breaches Total number of customersand employeesaected by company’s data breaches involving sensitive health information 18 6 47,266 113 A total of 18 data breaches were reported and collectively involved personal data of 47,266 individuals. The top three types of data breaches were i) loss of policy documents in transit (33 per cent); ii) d ata disclosed to incorrect recipient by email, post or other means (33 per cent); and iii) SMSs sent to wrong customers or terminated distribution representatives (22 per cent). Out of the 18 data breaches reported, six involved sensitive health information and collectively impacted 113 individuals. The six data breaches were mainly related to policy document loss, data disclosed to incorrect recipient via post or emails, and a contractor sending unencryptedfiles to an external email address. While the incidents do not represent any systemic issue, mitigation actions have been taken to prevent recurrence ofthe incidents. Digital responsibility and Pulse Prudential is committed to providing robust security protection over both our Pulse app and customer data, via a core set of security controls that have been implemented into our Pulse app. These include multi-factor authentication as part of the device registration process, mandating minimum mobile device operatingsystems versions, prevention of jailbroken and rooted devices from using Pulse, and the secure transmission and storage of data. The Pulse app follows a robust secure development lifecycle that includes scanning for vulnerabilities in code and open-sourcesoftware libraries. Independent penetration testing is conducted bya third party as and when changes are delivered as part of the Pulse ecosystem development. This is further secured by continuous testing through engaging a groupof professional security researchers or ethical hackers. Our Pulse ecosystem relies on partnerships with a range of third parties. All business partners we engage with go through a detailed due diligence process to ensure that they meet our high standards on data security and protection requirements. Additionally, our in-house security monitoring tool has been developed to detect vulnerability and alert our key partners in order to keep Prudential safe by keeping our ecosystem partners safe. Data within our digital ecosystem is treated the same as all data in our organisation and is governed by the Group-wide Information Security Policy and Group-wide Privacy Policy. Pulse collects information about users in order to provide relevant services to them. Health-related information is collected by our health partners (such as Babylon) directly and Prudential will only receive a user’s health information from our health partners with the user’s explicit consent. All information collected is transparent to the user through the Privacy Notice provided to them before user registration. To align the range of regulatory expectations and requirements across our businesses relating to customerprivacy,we have developed the OnePulse Privacy Framework (OPF) to standardise the implementation of privacy controls. Referencing the GeneralData Protection Regulation (GDPR) requirements, the OPF outlines the mandatory and c onfigurable controls to be built into our Pulse app, covering data subject rights, customer consent and privacy notices. Additional controls are being considered as regulatory requirements evolve eg China Personal Information Protection Law.Moreinformation about our approach to privacy is available below. Privacy As a business with a large global footprint, Prudential must navigate a n umber of dierent privacy laws. Robust privacy governance allows us to ensure that processing activities concerning the personal data of our customers, sta members, agents and stakeholders are embedded with ‘privacy-by-design’principles and theirprivacy rights are being respected, which includes personal data being used and processed with legitimate causes, no over-collection of their personal data or tracking them, the data subjects being well informed about our processing and their respective privacy rights and processes being in place for handling their requests. This supports Prudential’s trustworthiness with customers, enabling them to let us process their personal data without concern that their data will be misused. A key focus in 2021 was to further embed privacy across the Group and ensure that the protection and compliant use of personal data is considered a key component during new projects and initiatives. In a ddition to the local privacy training that employees receive, global training focusing on the requirements of the Group Privacy Policy has been rolled out to ensure that employees are regularly reminded of their responsibilities when handling personal data. Privacy maturity reviews were conducted across Asia, Africa and the UK and work is underwayto further strengthen our Group-wide privacy controls. The Group Privacy Oce continues to have oversight of privacy compliance through implementation of the Group Privacy Policy and regularly reports on Privacy compliance to the Group Executive Risk Committee. The oce works closely with privacy ocers across Asia and Africa to support and advise on ongoing privacy compliance, as well as to provide a point of escalation for resolving data privacy issues. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 105 ![]() ESG report / continued Development of AI Council and AI Ethics Principles Artificial intelligence (AI) is not only core to Pulse, but in the course of 2021, AI has successfully been deployed in several insurance business processes. This is guided by our eight AI Ethics Principles, which we developed in 2020 and which are governed by the Global AI Council. They are: Value Design AI with a clearly defined purpose, and aligned with customer values Compliance Comply and respect relevant regulations, including human rights laws Transparency and Explainability Be transparent that AI is used as part of our products and services, explain this simply and be prepared to justify decisions made Accountability and Responsibility Accept accountability transparently for the outcome of the use of AI Fairness Treat people fairly, avoid bias and unfair discrimination Privacy and Security Respect user privacy and s ecurity Reliability Design AI that is highly reliableand robust Assurance Continuously review and monitor ourAI deployment and outcomes to continually meet all principles An AI Centre of Execution (CoE) has also been set up to optimise expertise and serves as a platform for best practices sharing across the Group. The Ethics Working Group of the Global AI Council is instrumental in upholding our AI Ethics Principles and isthe only working group that approves or rejects AI prototypes. This working group was constituted and met for the first time in 2021. Chaired by Prudential’s Global Chief Science Ocer, its 15 members include representatives from various businesses and functions, with expertise in the fields of AI, medicine and ethics. Its main responsibilities include providing approval of all AI initiatives and prototypes and maintaining a record of all assessments and certifications. In 2021, the Ethics Working Group reviewed AI systems that were in production for compliance with our eight AI Ethics Principles, based on real-world system performance. In several instances, the Ethics Working Group has made the decision to remove existing AI functionality from production where it has not been possible to ascertain compliance with all eight principles. The features removed include My AI Clinic, AI Skin Health Check, and Gout Buster, demonstrating how we evolve our AI deployment to align with our customers’ needs and provide tangible value to them. Our AI ethics governance has enabled us tobuild and implement AI s ystems thoughtfully, by considering all aspects that promote the responsible and ethical use of AI. Building AI and digitalcapabilities for the next generation AI Bootcamp – PrudentialCambodia organised an AI Bootcamp in October 2021 to raise awareness of AI technology and its applications among local universities, as well as create brand awareness of Pulse and recruit Pulse Ambassadors. Thirty students from seven local universities with dierentbackgrounds and majors participated in theevent. Prudential colleagues led workshops that took students with no knowledge of AI to create a workable AI prototype during the one-day hackathon, which ended with a competition. The event was well received by the students, and Prudential Cambodia plans to organise similar hackathon events inthe future. PRU AI Explorer Programme – Launched in the Philippines, the PRU AI Explorer Programme is a capability-building programme that oers AI and digital learnings, and immersion opportunities forunderserved teens, in partnership with JuniorAchievement Philippines and Microsoft Philippines. Its pilot run entailed a complementary Microsoft-powered online introductory Data Science course and DataAnalyst certification for1,000 senior high students from public schools and alternative learning systems in various marginalised communities including Tondo in Manila, Cabanatuan City in Luzon, Negros Occidental province in Visayas, and the Bicol region. Prudential plc Annual Report 2021prudentialplc.com 106 ![]() #### Strategic Enabler: Responsible investment As a significant allocator of capital in financial markets, our commitment to responsible investment encompasses our role as both asset owner and asset manager. In that capacity, we can play a vital role in the just and inclusive transition to a low-carbon economy. We seek to apply ESG considerations more broadly in our investment decisionsand in our stewardship duties, including ensuring that our investment decisions are aligned with our diversity values and support our focus on making health and financial security accessible. ResponsibleInvestmentGovernance We see responsible investment as the dual responsibility of both the asset owner and the asset manager.Our life insurance businesses (as asset owners)and Eastspring (as asset managers, including its advisory activities through Eastspring PortfolioAdvisers) therefore work closely together on all aspects of responsible investment. This dual responsibility is reflected both in our governance and in our Group Responsible Investment Policy, which outlines our expectations as described further below in this section. The governance for ESG, which includes the governance for responsible investment, is set out in the ESG governance section on page 69 of this report. Responsible investment activity is overseen by the Group ESG Committee.Operationalresponsibility for responsible investment activity is delegated to the Group Responsible Investment Advisory Committee (GRIAC), which provides a forum for the Group and local businesses to consider responsible investment approaches. The GRIAC is co-chaired by the Chief Investment Ocer (CIO) of Prudential and C o-Chief Investment Ocer of Eastspring, who are both senior executives withinour main asset owner and asset management businesses. Other permanent members include the CIOs ofthe major life businesses, as well as representatives from the Group Finance and Group Risk functions. The GRIAC meets at least monthly to monitor the implementation of current responsible investment activities, and considers and prioritises new initiatives. The GRIAC considers potential trade-os between responsible investment initiatives and the risk/return profile of the investment portfolio. The new Group Responsible Investment Policy and the targets announced in May 2021 were both discussed by the GRIAC, prior to approval by the Group ESG Committee and the Responsibility and Sustainability Working Group (RSWG). Our asset manager, Eastspring, has established its own governance structure for responsible investment, which is aligned with the Group governance, to ensure ESG considerations are taken into account in all investment activities, and also for assets managed for third-party clients. Additionally, Eastspringis responsiblefor the implementation of certain elements of the Group Responsible Investment Policy, for which anappropriate governance structure isneeded. The Eastspring Investments Sustainability Steering Committee, chaired by the Eastspring’s Chief Executive Ocer, oversees all sustainability and responsible investment activities. The Eastspring Responsible Investment Working Group assists in implementation of the activities. Further information on Eastspring’s governance can be found at www.eastspring.com/about-us/responsible-investment Group Responsible Investment Policy During 2021, we made significant updates to our Group Responsible Investment Policy. The purpose of the policy is to articulate the Group’s expectations relating to responsible investment and guide our local businesses and asset managers, including Eastspring Portfolio Advisers (EPA), on how to consider ESG factors in investment activities. EPA is our investment centre of excellence for tactical asset allocation, model portfolioconstruction, manager selection,liability-driven investments and solutions and derivative expertise. The policy aims to manage ESG risks and improve long-term returns on assets, producing betterresults for both clients and communities. The policy ensures that, as an asset owner and asset manager, Prudential can monitor and measure ESG considerations over time. A s ummary of the policy can be found here: www.prudentialplc.com/ en/investors/governance-and-policies/policies-and-statements, including details on the scope of the policy. The updated Group Responsible Investment Policy is structured across six dierent implementation strategies as shown in the diagram below to support the investment portfolio targets we announced in May 2021, as set out in the Climate-related metrics and targets section on page 82. This implementation strategies approach was developed in 2021 as p art of the policy update. Our six implementation strategies Market influence Influencing the market with regard to responsible investment by contributing to sustainable initiatives Active ownership Maintaining a dialogue with the companies in which we invest about ESG risks and opportunities Voting policy that supports long-term performance by taking account of relevant ESG issues Capital allocation Shifting capital from harmful activites towards environmental or social needs > P ortfolio decarbonisation > ESG investments ESG integration Incorporation of ESG information into our parts of the investment process: > As set allocation > Portfolio management > Risk management > Manager selection Exclusion Excluding a company from the investment portfolio if its products or conduct is considered to be unacceptable Screening the portfolio Maintaining an awareness of the potential risks to the Group’s reputation arising from investment activities Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 107 ![]() ESG report / continued Screening the portfolio Our local businesses are required to maintain an awareness of ESG risks in the investment portfolio and report on these, enabling us to take appropriate action if an investee company’s products or conduct are not in line with our values. This screening is integrated to internal reporting on responsible investment and is also carried out on an ad hoc basis. Screening is the starting point for any new policy on responsible investment and it i nforms our follow-up actions, such as engagement or shifting invested capital away from the company, with c omplete exclusion as a last resort. Examples of screening the investment portfolio include assessments of our exposure to violators of the UN Global Compact and other severe incidents relating to c onduct. Ex clusion We exclude companies from our investment portfolio if their products or conduct are considered to be unacceptable to Prudential. When considering a Group-wide exclusion, an assessment is made on the expected risk vs return impact of the investment portfolio. A proposal for an exclusion needs to be approved by the local business and follows our responsible investment governance process. We have Group-wide exclusions on coal, tobacco and controversial weapons as defined below. Our local businesses may add additional companies to their exclusions if they see fit. The scope and nature of t he Group-wide exclusions are reviewed regularly, both for appropriateness and impact on the investment portfolio. Our Group-wide exclusions Coal exclusion Description Companies generatingmore than 30per cent of their revenue from coal mining and/or electricity generated fromcoal. Exceptions Green bonds of coal companies with clear alignment to the Paris Agreement are exempted as Prudential will support these companies in contributing to the energy transition. The investment portfolio manager should also seek reasonable assurance that funding provided by the green bond is not freeing up additional financial capacity for that issuer or related companies in the market that will be used to fund non-sustainable alternatives. Status Divestment by the end of 2021 for equities has been completed, and by the end of 2022 for corporate bonds is on track. Tobacco exclusion Description Companies that produce tobacco, which are labelled as ‘Tobacco’ by GICS level 3 (or GICS Sub-Industry). Exceptions None Status Divestment byend 2021 has been completed. Controversial weapons exclusion Description Companies with verified involvementin cluster munitions, anti-personnel mines, biological weapons, chemical weapons and nuclear weapons outside of the UN Treaty on the Non-Proliferation of Nuclear Weapons. Exceptions None Status Divestment byend 2021 has been completed. In 2021, Eastspring developed and implemented an exclusions policy for the large majority of its Collective Investment Schemes (CIS). While this exclusions policy currently addresses tobacco and controversial weapons exclusions, Eastspring is committed to an ongoing review of this policy. For example, Eastspring is assessing the p otential implications related to the exclusion of companies generating revenue from coal, where it has direct control over mandate guidelines, and the potential for engagement with clients in r elation to their own mandate guidelines. The definitions of Eastspring’s exclusions align to the definitions of the Group-wide exclusions. ESG integration We seek to integrate ESG factors into our investment decisions alongside traditional financial analysis, to better manage risk and generatesustainable, long-term returns for ourcustomers. ESG integration is relevant for the entire investment process, and all the r elevant investment teams within the Group are expected to demonstrate how ESG considerations are integrated into investment decisions. Eastspring in Singapore has integrated the Sustainability Accounting Standards Board (SASB) framework into the majority of its i nvestment processes to help systematically identify financially material ESG factors at the company level. Prudential plc Annual Report 2021prudentialplc.com 108 ![]() Eastspring also reports annually to the Principles of Responsible Investment (PRI), demonstrating how ESG is integrated into investment decisions. In 2020, Eastspring achieved A+ scores across two categories and A scores across four categories, well above the median scores for the PRI’s asset management signatories. The PRI’s next reporting cycle has been postponed until 2023, but we remain committed to providing transparency on our progress. We operate in both developed and emerging markets in Asia and Africaand the responsibleinvestment landscape diers significantly across these markets. Challenges relating tothe emerging markets in which we operate include the availability of company-level ESG data. If data is not available in a certain market, local investment teams are required to set up their own framework to assess ESG risks. Eastspring Vietnam has set up such a framework, leveraging industry standards and combining this with company-level assessments, which are often obtained by speaking to companies directly. We are supportive of further regulation around ESG integration in investments (see the Policy engagementand advocacy section on page 92). The European Union’s Sustainable Finance Disclosure Regulation (SFDR) is o ne such development. In 2021, 82 per cent of Eastspring’s international funds (SICAV) received Article 8 status, which means the fund ‘promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments aremade follow good governance practices’. Additionally, we have integrated climate risk into our investment process for ourbalance sheet assets, where relevant. Wetreat climate risk as a cross-cutting risk within our risk management and we continue developing our climate scenario testingapproach. More information on how we take climate risk into account is covered in the Stewarding the human impacts of climate change section on page 82. We are also exploring methods to integrate climate change in our strategic asset allocation. Our asset manager, Eastspring, approaches climate risk at the company level and has engaged with the Singapore regulator, Monetary Authority of Singapore (MAS), on its Environmental Risk Management Guidelines. Active ownership through engagement and voting As custodians of our customers’ assets, it is important that we act in w ays consistent with our stewardship responsibilities. This means seeking to maximise the long-term capital growth of the assets entrusted to us, while remaining accountable to our customers for our actions and being aware of our duty to uphold their best interests when carrying out investment activities. Eastspring is amember ofInternational Corporate Governance Network (ICGN) and its stewardship approach is aligned with the ICGN Global Stewardship Principles and ICGN Global Governance Principles. Eastspring is also a member of the Asian Corporate Governance Association, which seeks to promote high standards of corporate governance across the Asia-Pacific region. We believe active ownership via engagement andvotingis preferable to divestment and will seek to engage with investee companies where we have concerns, and use divestment only in circumstances where that isthe appropriate response. Engagement Engagement is a core part of providing eective stewardship and we seek to encourage business andmanagement practices that support sustainable financial performance throughconstructive interaction, based on our in-depth knowledge of the companies and their business environment. Our level of conviction to hold a particular investment can be impacted by the results of engagement. Eastspring undertakes company engagements focused on both financial and non-financial matters on an annual basis. Engagement is t raditionally carried out for equity holdings, but investing in companies’ debt can also be used as a way to engage with companies on important matters. Engagement is therefore happening across dierent teams within Eastspring, with its Equity, Fixed Income and Sustainabilityteams engaging ondierent topics: > En gagement with the companies responsible for 65 per cent of the absolute carbon emissions of Prudential’s investment portfolio, as described in the box below; > Engagement with companies on ESG risks that are financially material for the specific company to geta better understanding on how the company is handling these risks; and > Col laborative engagementfocusing onspecific ESG topics. With respect to specific engagements related to material ESG issues, Eastspring’s Equity, Fixed Income and Sustainability teams have engaged with around 500 companies in 2021, in addition to engagement on financial issues with companies. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 109 ![]() ESG report / continued Engagement target on climate change We have set a target to engage with the companies responsible for65 per cent of the absolute carbon footprint of our investment portfolio. Eastspring has developed a process to meet this engagement target. Engagementis carried out by the portfolio manager and/or by the sustainability team. The sustainability teamworks closely with the investment teams to make sure theengagement is aligned and therelevantinformation is incorporated. Eastspring relies on multiple sources of input to inform engagement, includinginput from the portfolio manager, CDP, Climate Action 100+ and the company’s sustainability reports. Identify which companies contribute 65 per cent of absolutecarbon footprint Assessment of company’s quality of management, targets and strategy by Eastspring sustainability team Cross-check company disclosures against market standards, initiatives and view of investment team Engage with company, monitorprogress, review at pre-determined dates and determine follow-up actions For engagement relating to decarbonisation, the requests included in the engagement are aligned with the expectations ofthe Net Zero Asset Owner Alliance for companies to: > co mmit to net-zero greenhouse gas (GHG) emissions across their value chains by no later than 2050 and be supportive of the transition to a net-zero greenhouse gas emission world by 2050; > define interim GHG reduction targets that are in line with reaching net-zero emissions by 2050; > develop and implement plansfor their businesses toremain viable in a climate-neutral economy, with meaningful considerationof associated social impacts; > su pport adoption andimplementation ofgovernmental policies facilitating the transition to net-zero emissions; > pr epare for and not disrupt price mechanisms on GHG emissions; > ta ke action and make progress on eorts to lower GHG emission intensity of their operations and products, and to d isclose in line with the four core elements of TCFD recommendations: governance, strategy, risk management, and metrics and targets; and > enter direct time-bound engagement dialogue with Alliance members and/or other investor initiatives to discuss eorts to decarbonise their business by 2050. Eastspring has developed a process to meet this engagement target and has made progress in 2021 towards meeting the target by reviewing 44 per cent of these investee companies and e ngaging with 31 per cent of the same group. Eastspring will continue engagement until it is decided the company has implemented ourrequests satisfactorily. Collaborative engagement Eastspring participates actively in industry workinggroups on sustainability. On climate change, Eastspring is actively involved inthefollowing: > As ia and Japan engagement by Climate Action 100+ > theASEAN utilities engagement undertaken by the Asia InvestorGroup on Climate Change (AIGCC) > engagementon disclosureon climatechange, water and d eforestation by the CDP The production of palm oil is linked to deforestation and biodiversity loss, with over 85 per cent of the global supply of palm oil produced inIndonesia and Malaysia. Prudential operates in both of these countries and, as an example of collaborative engagement, Eastspring has joined the PRI Sustainable Commodities Programme. Within this working group, Eastspring Indonesia andEastspring Malaysia are engaging with companies to produce more RSPO-certified palm o il, which is an important step in making the sector more sustainable. Another example of collaborative engagement is with a Malaysian utility company, where Eastspring combined direct and collaborative engagement. The equity team inMalaysia conducted four engagements with the company in 2021 to address its renewable energyambitions, including technology applications, its overseas acquisitions, and its plans to reduce its reliance on coal via its energy transition. Eastspring was part of a collaborative engagement whereby the company’s net zero ambitions were discussed. Eastspring, through the AIGCC Utilities Engagement Programme, followed this engagement with a written request for the company to specifically state its plan on how it will reach its net zero ambitions with short, medium, and longer-term targets. Currently, the companyis s ignalling that target-setting is expected to take place in early 2023. Prudential plc Annual Report 2021prudentialplc.com 110 ![]() Engagement on financially material ESG impacts In the case of Eastspring’s Fundamental Equity and Fixed Income teams, company engagements assist inunderstanding how companies are using their capital and conducting their business. Engagements may take place on a variety of issues, including ESG matters that present a potential material risk to a company’s financial performance. Example 1 Eastspring’s equity team has been activelyengaging management of a Japan-based steel company since 2017 on three key issues: carbon emissionsand energyusage (including disclosurepolicies), board governance and structure, and workplace safety. Starting from 2021, our topic of engagement expanded to include our monitoring of progress of the company’s eorts to transition to a low-carbon economy, and raising the quality and diversity in the Board and senior m anagement. The team discussed the potential shift in the business model and strategies in the transition to a low-carbon economy and monitored the progress of transition. The team also challenged the management’s decision to issue convertible bonds to fund transitioning projects as well as overseas acquisition. In addition, Eastspring advocated for further training, particularly on diversity, for B oard directors and senior management, and suggested the adoption of disclosure standards by the Sustainable Accounting StandardsBoard (SASB) in theannual sustainability report. Over the course ofthis long-term engagement, the team has observed good progress towards setting specific medium and long-term carbon emission reduction targets, with the ultimate goal of net zero by 2050. Certain progress was noted in transitioning technology, with a carbon-neutral technology project being rolled out at the specialty steel subsidiary in Europe. Management registered Eastspring’s disagreement to the equity-dilutive bond issue and accepted its recommendation for training and adoption of SASB disclosurestandards. While the steel industry’s commitment to transition toward a low-carbon economy is vital, we continue to actively engage on a range of material ESG issues. Example 2 The equity team in Singapore engaged an Australian-based steel company on gender diversity. Progress has been made with a piloted talent acquisition strategy, which has driven an increase in female representationin operator and trade roles at thecompany. The company has adopted a multi-faceted approach by changing work practices and modifying role designs to better accommodate more diverse talent pools: facilities were upgraded to cater for a greater proportion of women; hiring practices were changed to access wider candidate pools and shifting requirements to qualifications to attitudes and behaviours; and the company oered alternative work arrangements, inclusive leadership training for managers, and a rethink of job designs. Eastspring engages companies around sustainable business practices, the structures that govern them and the company’s commitment to improving the level of transparency. Example 3 Eastspring’s equity team in Indonesia has had an ongoing engagement with anagribusiness on governance, transparency and risks related to its capital structure. Over this time, the company has made commitments that translated into positive outcomes in their reporting, as well as progress on the Roundtable on Sustainable PalmOil (RSPO) certification for South Sumatra. The company’s focuson reducing greenhouse gas emissions and chemical fertiliseruse hasled to improved composting practices, which fulfil 50 per cent offertiliser needs, and an improved yield, achieving 99.9 per cent traceability. Eastspring engages on unsustainable practices that are likely to impact the longer-term enterprise value of a company. Example 4 Eastspring’s Fixed Income Team in Singapore engaged with a coal miningcontractor aroundits longer-term business model and transition planning. As the company’s existing customer base are coal miners, it suggested a higher revenue risk as the company is structurally unable to significantly diversify its revenues away from the customer base in the near term. The engagement led the team to conclude thatthe company does nothave sucient preparedness for dealing with the evolving financing landscape and lacks the intention of increasing transparency for bond investors. With an increased understanding and based on the apparent risks, the team reduced holdings inthese bonds. While these examples are not exhaustive of the topics Eastspring has raised in company engagements, they highlight the interlinked nature of environmental, social and governance impacts for companies. Good governancepractices can support socialand environmental impacts to business activities and in turn, the longer-term drivers of returns fora business. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 111 ESG report / continued Voting Alongside engagement, voting is considered part of the investment process and a way to support long-term performance by investee companies. By exercising our votes, we seek both to add value and to protect our interests as shareholders. We consider the relevant issues, meet company management if necessary and vote accordingly. Where possible, we seek to discuss any contentious resolutions with investee companies before casting our votes, in order to ensure that our objectives are understood, and our votes will be cast in the best interests of our investors and clients. Where appropriate, we use third-party investment advisers to aid the process of making proxy votingdecisions. Eastspring engages Institutional Shareholder Services (ISS), a fellow signatory to the United Nations-supported Principles for Responsible Investment (PRI), to provide administrative assistance in connection with voting proxies. In 2021, Eastspring voted on 97.4 per cent of the total number of proxy votes in which it was eligible to vote. Eastspring voted with management recommendations 90.7 per cent of the time and voted against management recommendations 9.3 per cent of the time. Please refer to Eastspring’s website for more information on its proxy votingrecord: www.eastspring.com/about-us/responsible-investment Capital allocation Capital allocation refers to the allocation of our capital towards environmental or social needs appropriate to the markets in which we o perate, while also securing therequired financial returns from such investment opportunities that meet the long-term needs of our c ustomers and investors. We will continue to refine our definitions for ESG investments in 2022 in line with best practice and industry standards, such as the SustainableFinance Disclosure Regulation of the European Union. Through shifting capital to companies that align more closely with our v alues, we believe we can incentivise companies to operate more sustainably, especially if combined with engagement. As described below, we do this for both our investment portfolio and our investment-linked products (ILP), where the investment risk associated with the product is usually borne by the policyholder. Investment portfolio In 2021, Prudential Hong Kong shifted a large part of its US equities core allocation to ESG factor Exchange-Traded Funds (ETFs). These ETFs reduce fossil fuel reserves by 30 per cent and reduce the carbon footprint by 30 per cent compared to the broad benchmark. As such, shifts to ETFs with a lower carbon footprint support us in achieving our i nvestmentportfolio decarbonisation target. In 2021, Prudential Singapore reached its target of investing SGD200 million in sustainable investments mainly by investing in ETFs, despite reporting in 2020 that progress to meet the target was a challenge due to a lack of internal ESG fund strategies and shifting business priorities. At present, there are no plans to set a new investment target for ESG-related products, but PrudentialSingapore anticipates integrating more investment strategies with an ESG focus in2022. ILP funds Prudential Singapore launched two sustainable ILP funds in 2021. These oer clients in Singapore a way to invest more sustainably while aiming to provide long-term total returns. Singapore-based clients can now invest in: > PRULink Global Impact ESG Equity Fund: Managed by Wellington Management Company LLC, the fund invests primarily in global equities and focuses on companies whose core business aims to generatepositive social and/or environmental change alongside financial returns. > PR ULink Global Climate Change Equity Fund: Managed by GMO Investment Management Company (Ireland) Limited. The fund invests primarily in equities of companies that are positioned to directly or indirectly benefit from eorts to curb or mitigate the long-term eects of global climate change, to address the environmental challenges presented by global climate change, or to i mprove the eciency of resource consumption. Eastspring’s collective investment schemes are often oered to clients as ILP funds. Eastspring has integrated ESG considerations in the investment decisions for its international fund range, in line with the Principles of Responsible Investment, of which Eastspring has been a signatory since 2018. This is evidenced by the fact that the majority of Eastspring’sinternational fundrange is managed undera regulatory classification thatpromotes ESG characteristics andEastspring factsheets are progressively integrating ESG data and metrics. Market influence We recognise the role that we can play in our markets, both bilaterally and through industry partners, to support the development of sustainable finance. For over 100 years we have built long-term, trusted relationships with policymakers and regulators on important local issues such as capital market development, product design and innovation, capacity buildingand financial inclusion. We seek to engage with policy bodies and regulators in the markets in which we operate to both shape the debate and align our approach to evolving best practice. Further detail is provided in the Supporting a just and inclusive transition section on page 92. We operate in both developed and emerging markets in Asia and Africaand the responsibleinvestment landscape diers significantly across these markets. Challenges relating tothe emerging markets in which we operate include the availability of ESG data, the size of the investment universe and a lack of funding to finance the energy transition. Weleverage ourexperience withindeveloped markets, including around risk management, financing thetransitionand ESG s tandards, tohelp support sustainable finance developments in emerging markets. In 2021, Prudential became a signatory to the PRI as an asset owner and joined the Net Zero Asset Owner Alliance. Since joining the NZAOA, we have sought to raise awareness of the challenges in transition finance, especially in emergingmarkets, such as the issue that certified green bonds have the same carbon footprint as conventional bonds from the same company, which could disincentivise investment in companies committed to the transition. Going forward, Prudential will remain active on signalling the challenges for emerging markets and, where possible, contributing to a solution. More informationabout Prudential’s memberships, signatories and commitments is available on our website. Eastspring collaborates closely with the Asia Investor Group on Climate Change (AIGCC). Eastspring has taken an active role in the low-carbon investment working group, the utilities engagement, the eng agement and policy workinggroup and theclimate training working group. In 2021, Eastspring contributed to several initiatives, including WWF’s R ESPOND tool, which aims to explore and compare how asset managers are implementing responsibleinvestment, and WWF’s Barriers to Impact report, which uncovers what driving tangible, real-world change entails for Asian financial institutions. Prudential plc Annual Report 2021prudentialplc.com 112 ![]() #### Strategic Enabler: Community #### engagement and investment Our approach to community investment We align our community investment strategy with our business purpose, taking into consideration ourstakeholders’ areas of interests. O ur strategy remains focused on health issues relevant to communities wherewe operate, education (specifically financial education)and buildingcommunity resilience through safety. In living our purpose, we contribute to improving lives and leaving a lasting impact on society through our employee engagement and volunteer programmes. We continue to build on the long-term relationships we h ave withour community partners, oering both financial and skills-based support. Governance of community investment Our Group-wide Community Investment Policy and the Group’s ESG strategy guide our approach to community investment and engagement. Within this framework, our businesses have the autonomy to manage their own community investment programmes. In Asia and Africa, Prudence Foundation,a unified charitable organisation governed by a statutory Board of Directors, regularly reviews ourstrategy and funding for communityinvestment programmes with the aim of maximising positive outcomes in the regions where we operate. The Responsibility and Sustainability WorkingGroup (RSWG)oversees our community engagementand investment activities on behalf of the Board. Our Group-wide Community Investment Policy sets out minimum standards, including not permitting any investment or contributions that are prohibited by law or regulation, those underthe Political Donations Policy, and those to any religious organisation whose principal aim is to propagate a particular faith. It is the Group’s policy neither to make donations to political parties nor to incur political expenditure, within the meaning of those expressions as defined in the UK Political Parties, Elections and Referendums Act 2000. The Group did not make any such donations or incur any such expenditure in2021. Monitoringand measuring communityinvestment Our community investment performance metrics are aligned to the Business for Societal Impact (B4SI) Framework, which is used to monitor progress and guide the valuation of cash contributions. In 2021, direct cash donations to charitable organisations totalled $5.9 million (2020: $9.7 million), reflecting donations made during the reporting year by continuing operations, excluding JVs. 2020 figures have been restated on this basis. For a breakdown, please refer to the c harts. Due to the broad nature of our community work, some of our projects span dierent focus areas, in which case classification is made a ccording to the activity’s primary purpose. For instance, our community resilience projects may sit within social/welfare, education or health. The reduction in our overall spend was largely attributed to having more one-o donations in response to the immediate impact of the Covid-19 pandemic in 2020. Exceptional activities undertaken in 2020 included our donations to The China Research Development Foundation anda number of Covid-19 relief projects. Prudential colleagues and agents also contributed around 26,000 hours of volunteer service in their local communities in 2021. Charitable donationsbyregion\* % 87% Asia 10% UK 3% Africa Charitable donations by area of focus % 35% Social and welfare 30% Education 13% Emergency relief 13% Health 6% Other or uncategorised 3% Economic development \* Within the scope of EY assurance – see page 74. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 113 ![]() ESG report / continued Covid-19 Relief Fund In 2020, the Group created a US$2.5 million Covid-19 Relief Fund, which was administered by Prudence Foundation, Prudential’s community investment arm in Asia and Africa. The fund was distributed to Prudential’s businesses globally, supporting approved charitable and communityprojects that addressed the immediate social and economic impacts of the pandemic. In 2021, a new US$2 million fund was launched to continue to support communities stillstruggling with the pandemic. Local businesses’ programmes have focused on supporting vulnerable communities on eorts that include Covid-19 messaging, hygiene and sanitation, nutritionand educationalprogrammes. These include: > Pr udential Laos’ support for the Laos Red Cross in providing schools with appropriate Personal Protective Equipment as children return toschool. > Two projects in Uganda, with one providing food to teachers in vulnerable communities whose livelihoods have been aected by prolonged school closures due to the pandemic. The second project focuses on providing mental health services to those suering from the impacts of Covid-19. as well as raising awareness on the issue. In addition to the Covid-19 Relief Fund, Prudence Foundation also launched a SAFE STEPS Kids ‘Be Cool Be Clean’ campaign with Cartoon Network. This campaign includes video and activity materials that teach children the importance of good hygiene. The content is distributed across all Cartoon Network platforms as well as our key SAFE STEPS Kids partnerships, such as the International Federation of Red Cross and Red Crescent Societies (IFRC) and various National Red Cross Societies. Health In the area of health inclusion, Prudence Foundation has been supporting early childhood care and development since2013. In 2020, we established a new partnership with UNICEF to implement a regional early childhood development (ECD) programme that advances ECD as part of the Nurturing Care Framework. The goal is to raise awareness and provide essential knowledge and skills to parents and caregivers around holistic nurturing care for children aged from up to t hree years old. In 2021, the programme saw a successful pilot in Indonesia, where it reached 30,000 parents and 60,000 children aged under five. In addition, with funding support from Prudence Foundation, UNICEF has completed country rapidassessment on NurturingCare ECDservices in four countries: Cambodia, Indonesia, Thailand and the Philippines. The findings will help inform a larger initiative for developing country-specific ECD strategy and programming approach in the near future. Virtual Mapathon Each year, disasters around the world kill nearly 100,000 people and aect as many as 200 million people, and millions more die of preventable diseases. Many of the places where these incidents occur are ‘missing’ from open and accessible maps, resulting in a lack of reach for humanitarian organisations. Since 2014, Médecins Sans Frontières (MSF), also known as Doctors Without Borders, has been supporting the Ministry of Health in Nigeria to fight Noma, a low-profile disease that mostly aects children under five living in poverty. In October 2021, Prudence Foundation, in partnership with MSF, organised two Missing Map Mapathon sessions, where PRU Volunteers helped to put the missing places and populations in Sabon Birni and Illela of Nigeria on the digital map. The eort will help MSF get to the patients more quickly, track diseases more eectively and better understand where the needs of thepeople are thegreatest during an emergency. A total of 174 PRU Volunteers from 20 locations across Asia, Africa and the UK participated in the Mapathon events, mapping out over 7,000 buildings in Sabon Birni and Illela. With physical volunteering becoming more challenging, this virtual volunteering event provided a meaningful opportunityfor our employees to connect with one another in a good cause. We are hopeful that our contribution will make a significant impact in enabling timely prevention and treatment of the disease. We will consider holding the activity again in 2022, given the positive responsereceived. In conjunction with the Mapathon, Prudence Foundation has also made a donation of US$45,000 (HKD 350,000) to fund MSF activities in providing healthcare to the people in need. Prudential plc Annual Report 2021prudentialplc.com 114 ![]() Education Cha-Ching Developed by Prudential to address the gap in financial literacy for children, Cha-Ching is a global financial education and responsibility programmecatering to childrenaged between seven and 12. The a ward-winning programme, now in its 11th year, continues to expand across all our markets and is well received by children, parents, educators and government. For more on our approach to promoting financial literacy and how it supports making health and financial security more accessible, please see page 80. Safety SAFESTEPS To promote the resilience of communities, we run SAFE STEPS, a global programme thatprovides educationand awarenesson life-saving tips, including information on climate and disaster risk preparedness, road safety, first aid and Covid-19. Developed in partnership with the IFRC and National Geographic, it continues to reach millions of people in Asia and Africa through our many media partnershipsand government collaborations. In 2020, we developed the SAFE STEPS Covid-19 campaign to provide key educational messages and awareness on Covid-19 across Asia and A frica. In 2021, Prudence Foundation worked with IFRC Africa to implement a Covid-19 Risk Communication and Community Engagement programme, providing informative materials to help address common Covid-19 misinformation and vaccine concerns. In a ddition, country-specific communication strategies are being co-developed between local Prudential business and National Red C ross organisations to cater for local concerns and needs across five countries. Prudence Foundation continued with its SAFE STEPS Kids initiative, which uses popular cartoon characters to equip millions of children with actionable information to protect themselves and others in the event of emergencies ordisaster situations. The programme has been leveraged by National Red Cross societies in Malaysia, Singapore, Indonesia and the Philippines and integrated into school activities, reaching more than 7,000 students via both online and oine programmes. The programme’s reach continues to be significant: > SA FE STEPS programmes reach over 100 million people in Asia and Africavia variousmedia partnerships; > SA FE STEPS Kids has a TV reach of 35 million households every day; and > On s ocial media, SAFE STEPS Kids has reached over 23 million people, and its videos have been viewed 5.6 million times across all d igital platforms since its launch. SAFE STEPS in Asia In Vietnam, Prudential has partnered with AIP Foundation to implement a holistic SAFE STEPS Kids Road Safety programme in two provinces in 2020 and 2021. The programme not only benefited over 2,700 students directly through educational activities, but also saw other positive benefits such as: > The averagehelmet-wearing rateacross the project schools increased from 26 per cent (pre-intervention) to 88 per cent at the end of the project; > Students’ road safety knowledge improved from 9.8 per cent to 59.6 per cent; and > Safe pedestrian behaviour improved from 78 per cent to 97 per cent for students who walked on the sidewalk; and from 18 per cent to 76 per cent for those using zebra crossings. In the Philippines, Prudential continued to partner with the Metro Manila Development Authority (MMDA) to promote the wellbeing of its employees, as well as motorists and pedestrians, through the SAFE STEPS Road Safety programme. MMDA is the frontline government agency in Metro Manila that is responsible for trac management, waste management and disaster prevention, among others. Free personal accident insurance coverage was extended to 8,000 of i ts regular and contingent employees who belong to marginalised sectors and have little or no access to protection. From 2020 to October 2021, we processed benefits for 21 families of MMDA’s employees. SAFE STEPS in Africa SAFE STEPS Road Safety Africa continues to be launched across our A fricamarkets: > Za mbia continues to work with the Road Trac Safety Agency on distributing the campaign, where it is broadcast on eight radio stations, reaching 8 million people. > In Côte d’Ivoire, new partnerships have been established to promote the campaign, reaching over 5 million people. > In Ghana, a partnership has been established with the government’s ‘Arrive Alive’ campaign, which will see the SAFE STEPS Road Safety campaign run on multiple channels. > La stly, in 2021 a partnership with Nation Media Group, the largest independent media house in East and Central Africa, was established for the promotion of the campaign in Kenya throughout 2022. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 115 ESG report / continued SAFE STEPS D-Tech Awards The SAFE STEPS Disaster Tech (D-Tech) Innovation Programme, introduced in 2019, is to identify, fund and support innovative disaster tech solutions that could save lives in natural and climate-related disaster events. It is also aimed at catalysing innovation and increasing investment and non-financial support through partnerships. The programme has been unified with the SAFE STEPS programme and relaunched as the SAFE STEPS D-Tech Awards. The second awards edition kicked o in December 2020 and the finalists and winners were announced inJune 2021. The StimsonCenter from the US won the non-profit category with its Mekong Dam Monitor, which uses satellite data to provide near real-time monitoring of water levels in Mekong dams, enablingdownstream communities to prepare for floods, water supply disruptions and other risks caused by upstream dam operations. EcoWorth Tech from Singapore was awarded the for-profit prize for its Carbon Fibre Aerogel(CFA) sponge,made of low-cost natural materialscapable of cleaning waters and absorbing oil, mitigating the environmental impact of polluting industries. In addition to prize funds, the winners had the opportunity to receive mentorship, technology support and access to investor networks across the region. The SAFE STEPS D-Tech Awards continue to grow and our network of partners supporting the D-Tech Awards now includes humanitarian partner,IFRC, technology partner,Lenovo, and e ight strategic partners. Disaster risk reduction in schools Since2013, Prudence Foundation has been supporting the implementationof SafeSchools in partnership withSave the Children and Plan International, which aims to address the objectives of the Comprehensive Safe Schools Framework (CSSF), a globally recognised framework that focuses on the importance of school infrastructure, school disaster management and disaster risk education. This partnership also supports the objectives of the Sendai Framework for D isaster Risk Reduction. In 2021, in view of the Covid-19 pandemic and the ongoing risks related to climate change that continue to impact learners globally, Prudence Foundation supported aglobal initiativeled byGlobal Alliance for Disaster Risk Reduction & Resilience in the Education Sector (GADRRRES) and Save The Children, to revise and strengthen the CSSF. The revised Global Comprehensive Safe School Framework is e xpected to be completed by March 2022 and will look to include an all-hazards approach to education resilience compared to previous e ditions. To date, Safe Schools has been implemented in Indonesia, Vietnam, Thailand, Cambodia and the Philippines, with over 141,000 students and 51,000 adults trained in disaster risk reduction planning and capacity building. In 2019, PrudenceFoundation renewed its partnership with Plan International to roll out the programme across Thailand, Cambodia and the Philippines between 2019 and 2022, aiming to reach a further 20,000 children and adults by the end of 2022. However, we have since reached over 48,000 children and adults, exceeding the original three-year target. In thePhilippines, Prudence Foundation has partnered withSave the Childrenand the Philippines’ Department of Educationto develop a management information system for schools designedto reduce disaster risk, along withtrainingand capacity-building for teachers and local government ocials. All components of the Disaster Risk Reduction ManagementInformation System (DRRMIS) have been completed in 2021, however due to school closures, only the first component of the ecosystem – Rapid Assessment of Damages Report (RADaR) – was implemented nationwide. This was a timely rollout, as the Philippines was hit by five typhoons and three earthquakes in a s pan of just six months in 2021. During these disasters, RADaR was used by over 21,000 schools, with more than 37,000 submissions, providing timely reports to enable a speedy response from the government to ensure school safety and education continuity. The programme will continue to be rolled out and expanded through 2022 and 2023, with the aim of benefitting over 20 million students and almost 47,000 schools nationwide. External consultants havealso been engaged to conduct an independent evaluation of the programme, with the intent to share evidence-based impacts and build a case study for other governments to reduce disaster risk and potentially replicate this approach in other countries. London community investment activity Prudential plc continued its long-term support of Save the Children’s Emergency Fund, which helps the charity prevent and respond to crises across the world. In 2021, the charity responded to a number of i ncidents in our markets, includingfloods in Indonesiaand Nigeria, the threat of Ebola in Côte d’Ivoire, and Covid-19 relief eorts in Uganda and Thailand. Prudential’s London ocecontinuedits three-year partnerships with four local charities – The Cares Family, The Connection at St Martin’s, Mind in the City, Hackney and Waltham Forest, and The Amos Bursary – supporting projects tackling homelessness, isolation and loneliness, mental health and social i nclusion. Prudential plc Annual Report 2021prudentialplc.com 116 ![]() #### Strategic Enabler: Good governance #### and responsible business practices Stronggovernance processes are the foundation of ourbusiness and critical to maintaining trust with stakeholders, particularly in the highly regulated financial markets inwhich we operate. Our governance framework is clear about our standards of behaviour, and those standards flow into every part of what we do, including our financial performance and tax practices, as well as operating to mitigate financial crime and informing how we deal with our customers and suppliers. We also recognise the importance of reducing the direct impact of our own operations on the environment and see this as a non-negotiable responsible business practice. Our Governance Framework Our Group Code of Business Conduct sits at the heart of the Group Governance Manual, our internal governanceframework that sets out the principles by which weconduct ourbusiness and ourselves. The Code highlights the ethical standards that the Board expects of itself, our employees, ouragents and others working on behalf of the Group, and is supported by a set of Group-wide principles and values that define how the Group expects business to be conducted in order to achieve its strategic objectives. Our Group Governance Manual presents our Group-wide approach to governance, risk management and internal control, and is subject to regular review to ensure that we meet the expectations of our stakeholders. Our Group Governance Manual also contains our full suite of policies, which is designed to ensure that wecomply with all applicable laws and regulations. Each business must certify annual compliance with the requirements set out in theManual, including the Code,Delegated Authorities and Group-wide policies. The Group’s Annual Report and Accounts include a comprehensive Governance section, which provides further information on how the governance framework operates, the Board of Directors, the Reports of the Committees and an overview of the risk management and internal control system. Employee relations Prudential’s policies protect our employees by formalising its responsibilities and those of everyone in the organisation in a number of areas. We believe in supporting human rights and acting responsibly and with integrity in everything we do. Our own Group Governance Human Resources Policies set the tone and areguided by theprinciples of the U niversal Declaration of Human Rights and of the International Labour Organization’s core labour standards. These are alsoreflected within our Group Code of Business Conduct, which sets out the Group’s values and expected standards of behaviour for all employees, and in our Group Third Party Supply and Outsourcing Policy, which describes how we work with suppliers. Our Discrimination & Harassment Policy prohibits any form of discrimination, harassment, bullying and other types of misconduct where the behaviour is contrary to Prudential’s valuesand standards. Prudential’s Employee Relations Policy recognises that the way we engage our employees across the Group is fundamental to ourability to attract the people we want, retain our current employees, and motivate them to achieve success. As such, each local business is required to have an eective approach in place to promote positive relationships with our employees and their representative organisations. To secure our colleagues’ rights to freedom of association and collectivebargaining, weencourage apositive and constructive relationshipwith collectiveemployeerepresentative bodies across Prudential.The trade union representation and collective bargaining practices vary by market. We currently have trade union representation in our business units in Malaysia, Singapore, Vietnam, Zambia, Côte d’Ivoire, Togo, and Cameroon. We give full and fair consideration to applications for employment made by disabled personsand makeappropriate arrangements for continuing the employmentof, and arrangingtrainingfor, employees who have become disabled. We seek to promote the training, career development and progressionof disabled persons, making appropriate adaptations where required. As in any company, from time to time employees may have a grievance relating to theirwork, working environment or working relationships that they wish to raise. Our grievance policies are owned bythe local businesses. Wetake grievances seriously, taking into accountthe rights of the person raising thegrievance, therights of any person a grievance is raised against and any other aected individuals. In addition to grievance policies and procedures, our employees are encouraged to raise any concerns through other channels, including theirmanagers, Human Resources or our third-party confidential hotline and platform, Speak Out. SpeakOut is d esigned to receive all manner of concerns, including those relating to any violation of human rights. We are committed to a fair and transparent system of reward. Our R emunerationPolicy ensures thatwe pay our colleagues a fair and reasonable wage in all markets, and in the UK we pay at least the L ondon Living Wage. Annual benchmarking exercises ensure that wages are competitive for the role performed in each location. To r ecognise the hard work and commitment shown by our employees in preparation for the demerger and to give our people a stake in the ne w chapter of the company’s development, each permanent Prudential plc employee (other than the Group Executive Committee) received a Celebration Award of US$1,000 of restricted shares (settled in cash where locally required), which will be released in October 2022. We continue to develop our wellbeing approach in the context of the r apid transition to more flexible ways of working. In order to fully support employees, we have increased flexibilityaround schedules and locations, increased remote working support, and reviewed and extended dierent types of leave support. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 117 ![]() ESG report / continued Supply chain Our Group Code of Business Conduct outlines the values and standards that are required by each of our suppliers. Our Group Third Party Supply and Outsourcing Policy is core to our supply chain governance and specifies ourpositionon supplychain management, setting out our approach to due diligence, selection criteria, contractual requirements and ongoing monitoringof relationships. During 2021 we extensively updated our Group Third Party Supply and Outsourcing policy, with the updated policy coming into eect on 1 J anuary 2022. The updated policy has a specific detailed section on the responsible selection of suppliers, which now includes considerations for environmental and social practices, in addition to existing requirements on supplier capability, competitiveness and due diligence activities. The policy was reviewed and approved by the Group Risk Committee, before being approved by the Board. Supply chain due diligence Our local businesses conduct due diligence before engagingwith and ultimatelyselecting a new supplier. We perform regular due diligence, reviewmeetings and audits whererequired, and our policies and procedures are supported by regular employee training exercises. We require our suppliers to pass financial stability tests and demonstrate a track record of high performance. We also review the controls the supplier has in place to prevent data leakage and look for any personal data protection issues. Our Speak Out whistleblowing service enables employees to raise any concerns they may have in relation to our third-party relationships, and our contractors and third-party suppliers are also able to use this service. All third-party agreements across all our markets are required to undergo due diligence activities, which include human tracking, anti-money laundering and anti-bribery and corruptionchecks on the third parties that we deal with. During 2021, we continued to deploy an additional procurement management system module, Coupa Risk Assess, across ourlocal businesses, providing a single system to gather supplier due diligence. The deployment of this system, which will be completed in Q1 2022, is s trengthening our visibility of third-party risks across high-risk areas, such as information and technology security concerns, data privacy, anti-bribery and corruption and business continuityand resiliency risks. Through this system, we have also begun to issue due diligence questionnaires focusing on modern slavery risks, targeting high-risk categories. More information on ourapproach to modern slavery is a vailable below. Our responsible supplier guidelines In line with our new Group-wide Third Party Supply and Outsourcing Policy, we have introduced new responsible supplier guidelines, which came into eect on 1 January 2022. These guidelines cover a range of E SG topics as outlined below, and have been incorporated into our new supplier onboarding and ongoing supplier duediligence processes. These activities are applied on a risk-based methodology, targeting our suppliers that are material to the Group or those that provide services that expose the Group to modern slavery-related risks. Theme Summary of responsible supplier guidelines Environmental Recognising that sustainable businesses should acknowledge the planet’s finite resources, Prudential expects its suppliers to support sound environmental management principles and reduce their impact on the environment within which they o perate. This includes areview of whether suppliers havewritten environmental/sustainability policies and governance systems are in place appropriate to the size and nature of their operations and that they abide by relevant laws/legislation. Social Prudential expects suppliers to respect the human rights of their employees and to comply with all relevant legislation, regulations anddirectives in the countries and communities in which they operate. Key aspects include ensuring suppliers prohibit forced and child labour; employees are paid legally mandated minimum wages and/or industry standards and are not discriminated against; suppliers provide safe working environments and abide by local laws/regulations; suppliers support fair trade and ethical sourcing practices and suppliers promote diversity and inclusion within their working environments. In the UK, we require our suppliers to pay their employees the London or UK Living Wage, as set by the Greater London Authority and the Centre for Research in Social Policy respectively. Governance Suppliers with which Prudential has regular and recurring dealings should havegood management and governance processes in place to ensure compliance with the Responsible Supplier guidelines. Furthermore, suppliers must make reasonable eorts to monitor their supply chain, ensuring that their suppliers are aware of, and compliant with, the aims of the guidelines. Prudential plc Annual Report 2021prudentialplc.com 118 ![]() Modern slavery We are committed to ensuring that slavery, human tracking, child labour or any other abuse of human rights has no place in our organisation or supply chain, and we continue to progress on carrying out a range of activities to enhance our approach to modern slavery across our global operations: > Po licy development –Embedding responsible supplier risk assessments and due diligence requirements withinthe new Group T hird Party Supplier and Outsourcing Policy, eective from 1 January 2022. > End orsement and education – Ensuring that executivesacross our local businesses and our procurement and risk teams are aware of the Group’s modern slavery compliance requirements. Ensuring these colleagues have a detailed understanding on how to identify modern slavery risks. > Analysis – Continuing to understand our current exposure to modern s lavery risks within oursupply chain and development of remediation plan to address gaps. > Du e diligence – Development of modern slavery (and broader ESG) due diligence/risk assessment frameworks, processes and guidelines, and operationalising these via Coupa Risk Assess. > Ongoing monitoringand reporting – Defining internal reporting metrics to measure progress and eectiveness of controls. As part of this activity, we are continuing to review our exposure to modern slavery issues across Asia and Africa. This broad review covers key exposure toindustries where low-skilled labour is oftenemployed, including cleaning services, catering, guarding and low-cost manufacturing. Modern slavery risks arefurther heightened in geographies aected by conflicts, countries with weak rule of law and c ountries with a high degree of migrant workers. The review covers all the suppliers engaged in these key areas across Asia and Africa. The r eview is based on live supplier contracts and spend against the categories above,with local procurement teams investigating any issues identified. For high-risk suppliers, we ensure robust contracting and monitoring procedures are in place, with remediation plansin placewhere necessary. For more information around how we are identifying and managing our risks in relation to modern slavery, human tracking, child and forced labour, please read ourModern Slavery Statementon the Prudentialplc website at www.prudentialplc.com/en/esg/esg-reporting Commitment tosmall suppliers In order to demonstrate our ongoing commitment to supporting our supply chainthrough the dicult trading circumstances triggered by t he Covid-19 pandemic, we have continued to provide payment assistance. Our Small Supplier Accelerated PaymentScheme was launched in the UK in March 2020 to support our suppliers with fewer than 100 employees to assist with their cash flow. This has now benefited over 150 small suppliers, with payments of nearly £9 million in2021. Responsible tax practices Our tax strategy considers a rangeof dierent stakeholders, supported by the Group Tax Risk Policy, which sets out the standards for managing and reporting a broad range of tax risks across the Group. In 2021, we made a total tax contribution of $1,071 million (FY2020: $1,208 million excluding Jackson), demonstrating our commitment to paying the right amount of tax, and thus helping to contribute to the health and development ofthe communitiesin which weoperate. We understand the importanceof paying theright amount of tax on t ime in each of our markets. We manage our tax aairs in a transparent, responsible andsustainable manner and seek tobuild constructive relationships with tax authorities in all the countries in which we operate. Our Tax Strategy Report is published annually and provides further support on how we meet this commitment, through disclosures demonstrating the clear link between our business footprint and our tax footprint. Our tax strategy report also complies with the mandatory requirements of the UK Finance Act 2016 and provides more information on: > How we act responsibly and take an objective view in all of our tax m atters; > How we manage tax in line with our Group governance and risk management procedures; > Howwe ensure transparency and engagementwith all our stakeholders by setting out how wecontribute to our communities through the taxes we pay and collect in all of our major markets; > Wh at drives ourtax payments and why there is adierence between the corporate taxes paid and the tax charge in our a ccounts; > Our operations in low tax jurisdictions; and > Ho w we monitor domestic and global tax developments. We actively monitordevelopments in the tax transparency agenda and look tofurther developthe disclosureof meaningful tax information tohelp our various stakeholders’ understanding of our tax footprint. We will be publishing our updated tax strategy, which will include more information on the tax we paid in 2021, how we manage our tax aairs and the governance and management of tax risk, by 31 May 2022. Information on our tax charge and eective tax rate can be found on pages 261 to 264 (note B3) of our 2021 Annual Report. Fighting financial crime As with all financial services firms, Prudential is exposed to risks relating to money laundering, terrorist financing, sanctions, fraud, bribery and corruption. Preventing, detecting and responding to these risks is embedded within the PrudentialGroup’s global financial crime risk management operations. We conduct risk assessments on all our businesses to identify, understand and assess the risks; and take measures to mitigate these. Financial crime risks are reported to the Group Risk Committee, which oversees the eectiveness of controls. The residual financial crime risk is managed through monitoring, assurance and enhancementof the control environment at alocal level. During 2021 we continued to take action to reduce our residual risk e xposure, strengthen our capability and reduce the impact of financial crime. To mitigate financial crime risk and support ongoing compliance with relevant legislation and regulation,corepolicies dealing with all aspects of financial crime, supported by minimum compliance standards, have been refreshed and cascaded to all businesses. Our Anti-Bribery and Corruptionstandards include a commitment to fostering a culture in which bribery is never acceptable.Our Anti-Money Laundering andSanctions Policy outlineshow we prohibit moneylaundering or terrorist financing inourworking practices, setting out how we establish parameters toprevent this taking place across the organisation and the commitment we have to comply with sanctions, laws and regulationsby screening, prohibiting or restricting business activity, and following up through investigation. Collectively these policies form part of the Group Governance Framework, with local businessesattesting their compliance to the requirements each year. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 119 ESG report / continued This is complemented by the implementation of automated transaction monitoring systems and risk-based assurance activity. We have continued to strengthen andenhance our financial crime risk m anagement capability through investment in a utomation and advanced analytics. Our financial crime team remains committed to professional development and regularly participates in industry conferences and seminars across Asia. Wedelivered a comprehensive financial crime training programme across the Group to ensure the sta are made aware of new developments in financial crime, as well as the latest statutory and regulatory requirements. We continue tocomply with international sanctions requirements bymonitoring international sanctions closely. We integrateupdated lists into our operational processes to detect exposure, including our regular customerand vendor screeningprocesses. During 2021, we c ontinued to focus in particular on the US-China sanctions developments and regulations that havebeen issuedin order to a ssess their impact on our business activities. Whistleblowing Our Group Speak Out Policy sets out our framework and controls relatingto whistleblowing. OurGroup-wide whistleblowing programme, Speak Out, is accessible both internally and externally to all our stakeholders in multiple languages. Speak Out provides arange of reporting channels that include web, hotline and mobile app, as well as post, email and in-person. Reporters are able to log concerns – anonymously, if they prefer – on a range of issues such as anti-bribery and corruption, compliance breaches, discrimination, harassment and health and safety. Concerns arereceived by anindependent third p arty then managed by an internal team, independent of the business. These matters are then investigated by appropriately trained and skilled investigators. On an annual basis, all colleagues are required to complete a computer-based training module on Speak Out. The programme is also supported by regular communications containing useful resources. In addition to the Speak Out programme, colleagues are encouraged toraise concerns through HR channels. Whistleblowing reporting isoverseen bythe Group AuditCommittee and local business audit committees throughquarterly reporting and f requent discussions with the Group Chief Security Ocer. These committees have access to analysis of case trends and an annual assessment of the eectiveness of the Speak Out programme, which is benchmarked externally. Any material issues are reported to t he B oard. In 2021, the Speak Out programme was widely promoted across the Group and received reports from every market in which Prudential has an active business. During 2021, the total number of cases reported to the Group increased slightly when compared with the previous year, and the total number reported was in line with external benchmarks. The greatest volume of reported issues related to sta or agency conduct and breaches in Group policies. Training, promotional awareness materialand internal communications haveall contributed to the encouraging growth in the use of Speak Out and the number of concernsraised. The programme was the subject of independent benchmarking, using Protect (UK whistleblowing charity)and on all three aspects (Governance, Operations &Engagement), the Group scored above benchmark. Responsible working practices and health and safety procedures We recognise the importance of health, safety and wellbeing to help sta get the most out of life and meet business objectives. The Group Health andSafetyPolicy and operational standardsensure thatlocal businesses establish, implementand maintain a comprehensive health and safety governance framework. Our policies aim to provide a safe and healthy working environment that prevents injury and ill-health, and reduces risks to the health and safety of employees, contractors, visitors and others who may be aected by our operations, to as low a level as is reasonably practicable. Our policy and operationalstandards arealignedwith the global ISO 45001:2018 standards and include prescriptive minimum requirements for health and safety governance, legal requirements and programme framework. The Group Chief Security Ocer has overall responsibility for the health and safety programme, reporting to the Group Chief Risk & Compliance Ocer. Local business performance relating to health and safety is monitored through local health and safety committees and at Grouplevel by the Group Security function, with key operational compliance metrics and updates on specific activities being reported to the Group Risk Committee and cross-functional working groups andcommittees. The Group continuously reviews and develops the health and safety programme to ensure continual improvement. We sadly lost 52 sta and agents during the year to Covid. We have taken steps throughout the year to support the emotional, mental and fi nancial wellbeingof our people acrossthe Group through these challengingtimes. Moreinformation onour approachto employee wellbeing is available in the Building Social Capital section on page 101. Our health and safety programmes have primarily focused on our ongoing response tothe Covid-19 pandemic, ensuring that appropriate precautions are implemented inthe workplace.We have also focused on providing training and awareness on prevention measures and health and safety best practices for the home. Communicationsare regularly sent to staremindingthem of the behaviours and key protocols needed to protect themselves and the wider community from Covid-19. Our communications have focused on local regulatory changes, maintaining high standards of hygiene, protocols aroundhealth monitoring and attendance atthe oce, and s ensible social distancing. Masks are encouraged to be worn by sta in common areas of the oce and, in some jurisdictions, this is mandated due to local regulations. We have provided intranet resource centres where sta can seek information concerning Covid-19 precautions and best practices, travel restrictions and Covid-related news. Sta support has been provided through wellbeing programmes focusingon mental, physical, family and social wellbeing, and wealso provide support and advice though a 24-hour Employee Assistance Programme oered by an external provider. Prudential plc Annual Report 2021prudentialplc.com 120 ![]() #### Reference tables #### Hong Kong Stock Exchange requirements We demerged Jackson on 13 September 2021. The metrics and commentary covered in this section include the performance of the continuing PrudentialGroup andexclude Jackson. HKEX KPI Requirement Indicator Disclosure Environmental Information on: (a) the policies; and (b) co mpliance with relevant laws andregulationsthat have a significant impact on t he issuer relating to air and greenhouse gas emissions, dischargesintowater and land, and generation of hazardous and non-hazardous waste. A1 Our Group Environment Policy applies to our operational properties worldwide, guiding our approach to the management of the direct impacts of our business u nits. The types of emissions and respective emissions data. Direct (Scope 1) and energy indirect (Scope 2) greenhouse gas emissions (in tonnes) and, whereappropriate, intensity. A1.1&A1.2 Prudential provides full reporting for Scope 1 and 2 emissions and selected Scope 3 reporting. More information is provided in the Group emissions data section on page 89. 2021 2020 Direct Scope 1 emissions (tCO 2 -e) 1,481 1,378 Direct Scope 1 Emissions (tCO 2 -e/FTE) 0.10 0.09 Direct Scope 1 Emissions (kgCO 2 -e/m 2 ) 4.02 3.68 Direct Scope 2 (market based) Emissions (tCO 2 -e) 19,986 23,608 Direct Scope 2 (market based) Emissions (tCO 2 -e/FTE) 1.37 1.62 Direct Scope 2 (market based) Emissions (kgCO 2 -e/m 2 ) 54.21 63.04 Total hazardous waste produced ( in tonnes) and, whereappropriate, intensity. A1.3 As a life insurer, the production of hazardous waste is not applicable to our operations. Total non-hazardous waste produced (in tonnes) and, where a ppropriate, intensity. A1.4 2021 2020 Total non-hazardous waste produced (tonnes) 222 376 Total non-hazardous waste produced (tonnes/FTE) 0.02 0.03 Waste associated with our operations includes oce waste and limited food waste from canteens. As we occupy leased assets and smaller oces, waste is commonly controlled by the landlord or the municipal government via direct roadside collection. It therefore it is not always possible to obtain waste data. We continue to work with our landlords in all the areas we operate to enhance the coverage of our reporting. During 2021, we increased the scope of reporting of waste data to cover 60 per cent of our occupied floor area. While the scope of our waste reporting increased, the volume of non-hazardous waste produced fell during 2021. This reflects the impact of Covid-related oce closures and reduced oce occupancy across our markets. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 121 ![]() ESG report / continued HKEX KPI Requirement Indicator Disclosure Description of emissions target(s) s et and steps taken to achieve them. A1.5 We have set a target to become carbon neutral across our Scope 1 and 2 (market-based) emissions by the end of 2030. We aim to deliver a 25 per cent reduction per full time employee (FTE) in our operational emissions from a 2016 baseline, then abating the remaining emissions via carbon osetting initiatives. To date the steps we have taken are: > Carrying out site assessments for the highest consuming assets in our portfolio to identify measures to reduce our carbon intensity > Tracking the application of energy savings measures in all assets we occupy. These will be reviewed quarterly. > Developing roadmaps for all business units with identified reduction measures to be implemented by 2025. To date, we are ahead of the emissions reduction trajectory required to meet our target. Moreinformation is availableon page 90. We have also set a target to reduce the carbon emissions of our portfolio of shareholder and policyholder assets by 25 per cent by 2025. Our ambition is that the a ssets we hold on behalf of our insurance companies will be ‘net zero’ by 2050. During 2021 we reduced the WACI of our portfolio by 23 per cent against the 2019 b aselines. More information is available on page 82. Description of how hazardous and n on -ha zardous wastes are handled, and a description of reduction target(s) set and steps taken to achieve them. A1.6 Non-hazardous waste is sorted in our oces and where possible recycled. The waste generated by our operations is managed by the landlord of the premises we occupy and therefore we are restricted in materials we can recycle by their operations. The waste we produce is not material to the overall environmental impact of our operations and a s such, we do not currently have any targets in place to reduce the waste associated with our operations. We continue to encourage waste reduction across our operations and we have implemented initiatives such as providing sta with reusable cups and lunchboxes to reduce consumption of single use plastic. As a life insurer the production of hazardous waste is not applicable to our operations. Policies on the ecient use of resources, including energy, water and other raw materials. A2 Our Group Environment Policy applies to our operational properties worldwide, guiding our approach to the management of the direct impacts of our business u nits. Direct and/or indirect energy consumption by type in total (kWh i n ’000s) and intensity. A2.1 2021 2020 Total Consumption (kWh) 42,131,700 43,981,515 kWh/FTE 2,891.48 2,974.34 More information is available in the SECR report on page 136. Water consumption in total and intensity. A2.2 2021 2020 Totalwaterwithdrawal (m 3 ) 123,025.82 133,241.18 Totalwaterwithdrawal (m 3 /m 2 ) 0.33 0.36 We are not currently able to report the water consumption of all our assets as some sites do n ot h ave water submetering or water is charged as part of the service charge. During 2021, we increased the scope of reporting of water data to cover 74 per cent of our occupied floor area. Description of energy use eciency target(s) set and steps t aken to achieve them. A2.3 We do not have explicit energy eciency targets in place. However, 93 per cent of our Scope 1 and 2 carbon emissions are from the use of electricity thus, to achieve our carbon reduction targets the implementation of energy eciency measures are key. We have carried out site assessments across our asset portfolio and identified measures to r educe our impact. We have in turn developed roadmaps for our businesses with measures to implement to generate energy savings. We will continue to carry out these assessments and i dentify savingsopportunities to r educe our energy consumption. Prudential plc Annual Report 2021prudentialplc.com 122 ![]() HKEX KPI Requirement Indicator Disclosure Description of whether there is any is sue in sourcing water that is fit for purpose, water eciency target(s) setand steps taken to achieve them. A2.4 As a life insurer with oce-based operations, water consumption and water eciency are not material toour business. Currently, we do not have any targets in place to reduce the water used in o ur o perations. Total packaging material used for finished products (in tonnes) and, if applicable, with r eference to per unit produced. A2.5 As a life insurer, the use of packaging material is not applicable to our business. Policies on minimising the issuer’s s ignificant impact on the environment and natural r esources. A3 Our Group Environment Policy applies to our operational properties worldwide, guiding our approach to the management of the direct impacts of our business u nits. Description of the significant impacts of activities on the environment and natural resources a nd the actions taken to manage them. A3.1 The most significant impact of our activities on the environment is through our investment portfolio. More information about how we are reducing the weighted average carbon intensity footprint of our investment portfolio is available on page 82. More information is available in the Resp onsible investment section on page 107. Policies on identification and mitigation of significant climate -re lated issues which have impacted, and those which m ay impact, the i ssuer. A4 More information is available in the Identifying and assessing climate-related risks section on p age 84 and the Managing and responding to climate-related risks section on page 85. Description of the significant climate-related issueswhich have impacted, and those which may impact, the issuer, and the actions taken to m anage them. A4.1 Dierent scenarios, including below 2°C scenarios, havedierent potential impacts o n our businesses, strategy, and financial planning, as described in the Climate-related scenario testing section starting on page 86. We have identified short, medium and long term climate-related issues as described in the Identifying and assessing climate-related risks section starting on page 84. We have taken actions, including integrating our processes for identifying, assessing, and managing climate- related risks into our overall risk management, as described in the Identifying and assessing climate-related risks section on page 84 and the Managing and responding to climate-related risks section on page 85. We also identified climate-related opportunities, as described in the following sections: the Description of ESG strategic framework section starting on page 71, the Inclusive oerings section starting on page 76, and the Identifying climate-related opportunities section on page 8 4. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 123 ![]() ESG report / continued HKEX KPI Requirement Indicator Disclosure Social Information on: (a) the policies; and (b) compliance with relevant laws andregulationsthat have a significant impact on the issuer relating to compensation and dismissal, recruitment and promotion, working hours, rest periods, equal opportunity, diversity, anti-discrimination, and other benefits and welfare. B1 Prudential’s policies protect our employees by formalising its responsibilities and those of everyone in the organisation. More information on the following policies is available on page 133: > Discrimination and Harassment Policy > Div ersity and Inclusion Policy > EmployeeRelationsPolicy > Re cruitment Policy > Remuneration Policy > Ta lent Policy Total workforce by gender, employment type,age group and geographical region. B1.1 Total workforce (FTE) by genderTotal workforce (FTE) by employee type Female – 57% (8,291.1) Male – 43% (6,182.6) Unspecified – 0% (12.0) Full time – 100%(14,471.8) Part time –0%(13.9) Total workforce (FTE) by age groupTotal workforce (FTE) by region Below 30 – 20% (2,962.4) 30–50 – 72% (10,406.2) Over 50 – 8% (1,080.1) Unspecified – 0% (37.0) Asia –87% (12,574.5) Africa – 12%(1,692.0) Europe & USA – 1% (219.2) Prudential plc Annual Report 2021prudentialplc.com 124 ![]() HKEX KPI Requirement Indicator Disclosure Employee turnover rate by gender, age group and geographical region. B1.2 Employee turnover rate by age group % Employee turnover rate by region % 0%10%20%30%40% >50 16% 30–50 19% <30 38% 0%10%20%30%40% Overall (ex. Africa) 24% Europe & USA 22% Asia 24% Employee turnover rate by gender % 0%10%20%30%40% Female 23% Male 26% Information on: (a) the policies; and (b) compliance with relevant laws andregulationsthat have a significant impact on the issuer relating to providing a safe working environment and protecting employees from occupational hazards. B2 The Group Health and Safety Policy and operational standards ensure business units establish, implement and maintain acomprehensive health and safetygovernance framework. Our policies aim to provide a safe and healthy working environment that prevents injury and ill-health, and reduces risks to the health and safety of employees, contractors, visitors, and others who may be aected by operations, to as low as is reasonably practicable. Our policy and operationalstandards arealignedwith the global ISO 45001: 2018 standards and include prescriptive minimum requirements forhealth and safety governance, legal requirements and programme framework. Number and rate of work-related fatalities occurred in each of the past three years including the reporting year. B2.1 There were no work-related fatalities in the reporting year (2020: nil, 2019: nil). Lost days due to work injury. B2.2 23 incidents resulting in 88 days lost to work injury. Description of occupationalhealth and safety measures adopted, and how theyare implemented and monitored. B2.3 Health and safety measures adopted are predictive and reactive, centrally coordinated and locally executed andinclude: > Defined policy, roles, responsibilities, and management mechanisms; > Le gal requirements, and monitoring changes on an ongoing basis; > Risk profiling, assessment and control plans; > In cident reporting and investigation protocols; > Protocols for procurement of equipment and services; > Pr ovision of information, instruction, and training; > Arrangements forcommunication and consultation with employees; > Wo rkplace welfare facilities and wellbeingprogrammes; and > Mechanismsformonitoring, reviewing and reporting performance. Policies on improving employees’ knowledge andskills for discharging duties at work. Description of training activities. B3 Our Performance and Learning Policy sets out the importance of our people and frames how we invest in their development to deliver against our strategy and the future success of the organisation. Thisincludes our Performance Management Framework. More information is available in the Learning section on page 98. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 125 ![]() ESG report / continued HKEX KPI Requirement Indicator Disclosure The percentage of employees trained by gender and employee category. B3.1 Percentage of employees trained by g ender % Percentage of employees trained by e mployee category % 0%20%40%60%80%100% Male 97% Female 97% Unspe- cified 45% 0%20%40%60%80%100% Middle Level 99% Rank & File 96% Top Level 99% The averagetraininghours completed per employee by gender and employee category. B3.2 Average training hours completed per em ployee by gender Average training hours completed per em ployee by category 02461081214 Male 11.22 Female 12.44 Unspe- cified 5.65 Middle Level 9.19 Rank & File 12.63 Top Level 6.09 02461081214 Information on: (a) the policies; and (b) compliance with relevant laws andregulationsthat have a significant impact on the issuer relating to preventing child and forced labour. B4 We are committed to ensuring that slavery, human tracking, child labour or any other abuse of human rights has no place in our organisation or supply chain. The nature of our business means that main risk would be in our supply chain. More information is available in the Modern slavery section on page 119. Description of measures to review employment practices to avoid child and forced labour. Description of steps taken to eliminate such practices when discovered. B4.1,B4.2 We believe in supporting human rights and acting responsibly and with integrity in everything we do. Our own Group Governance Human Resources Policies set the tone and are guided by the p rinciples of the Universal Declaration of Human Rights and of the International Labour Organization’s core labour standards. These are also reflected within our Group Code of Business Conduct, which sets out the Group’s values and expected standards of behaviour for all employees, and in our Group Third Party Supply and Outsourcing Policy which describes how we w ork with suppliers. The nature of our business means that main risk would be in our supply chain. More information is available in the Modern slavery section on page 119. Policies on managing environmental and social risks of the supply chain. B5 Our Group Code of Business Conduct outlines the values and standards that are required by each of our suppliers. Our Group Third Party Supply and Outsourcing Policy is core to our supply chain governance and ourresponsible supplierguidelines cover a range of ESGtopics. Moreinformation is available in the Supply chain section on page 118. Number of suppliers by ge ographical region. B5.1 Asia 8,751 Africa 1,255 Europe 517 Total 10,523 Description of practices relating to eng aging suppliers, number of suppliers where the practices are being implemented, and how they are implemented and monitored. B5.2 During 2021 we continued to deployan additional procurement management system module, Coupa Risk Assess, across our business units, providing a single system to gather supplier due diligence. The deploymentof thissystemacross our business units is strengtheningour visibility of third-party risks across high risk areas, such as information and technology security concerns, data privacy, anti-bribery and corruption and business continuity and resiliency risks. Through this system, we have also begun to issue due diligence questionnaires focusing on modern slavery risks, targeting high risk categories. More information on our approach to modern slavery is available below. Description of practices used to i dentify environmental and social risks along the supply chain, and ho w they are implemented and monitored. B5.3 More information is available in the Supply chain due diligence section on page 118 and the Modern slavery section on page 119. Prudential plc Annual Report 2021prudentialplc.com 126 ![]() HKEX KPI Requirement Indicator Disclosure Description of practices used to p romote environmentally preferable products and services when selecting suppliers, and how theyare implemented and m onitored. B5.4 In line with the new Group-wide Third Party Supply and Outsourcing Policy, we have introduced new responsible supplier guidelines. Our responsiblesupplier guidelines cover arange of ESG topics. More information is available in the Supply chain section on page 118. Information on: (a) the policies; and (b) compliance with relevant lawsand regulations that have a significant impact on the issuer relating to health and safety, advertising, labellingand privacy matters relating to products and services provided and methods of redress. B6 Our Customer Conduct Risk Policy includes our Customer Conduct Standards and sets out the core values and standards that the Group expects all employees and persons acting on behalf of i t to observe. More information is available in the Customers section on page 78. Our Group DataPolicy defines how we should manage data throughoutits lifecycle and employ the technology best suited for the business use cases. More information is available on page 104. Our Privacy Policy governs the protection of data and complies with the General Data Protection Regulation.More information isavailable onpage 105. Percentage of total products sold or shipped subject to recalls for safety and health reasons. B6.1 As a life insurer, this is not applicable to our business. Number of products and service related complaints received and how they are dealt with. B6.2 42,038(2020: 34,308) While the overall number has increased, our level of complaints remains steady at two complaints per 1,000 policies in force. More information on how we deal with customer complaints is available on page 80. Description of practices relating to observing and protecting intellectual property rights. B6.3 Prudential’s brand, being the Prudential and Eastspring names and the Face of Prudence, are c onsidered as our intellectual property. These are protected by a comprehensive process to maintain registered trademarks in the brand across all of the markets in which we operate. This is s upported by a brand Co-existence Agreement with Prudential Financial and M&G plc. Where we see infringements of our brand, we take active steps to enforce our rights against third p arties. Certain elements of our artificial intelligence developmentare considered tobe intellectual property, and a dedicated working group within the AI Council is tasked with formalising, registering and protecting Prudential’s intellectual property in thisspace. Further disclosure is not provided due to commercial sensitivity. Description of quality assurance process and recallprocedures. B6.4 A description of our quality assurance procedures is available in the Customers section on page 78. As a life insurer, product recall procedures are not relevant to our business. Description of consumer data protection and privacy policies, and how theyare implemented and monitored. B6.5 Our Group DataPolicy defines how we shouldmanage data throughout its lifecycle and employ the technology best suited for the business use cases. More information is available on page 104. Our Privacy Policy governs the protection of data and complies with the General Data Protection Regulation.More information isavailable onpage 105. Our Information Security Policy supports our resilient informationsecurity programme across the o rganisation and our commitment to protecting the data entrusted to us by customers. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 127 ![]() ESG report / continued HKEX KPI Requirement Indicator Disclosure Information on: (a) the policies; and (b) compliance with relevant laws andregulationsthat have a significant impact on the issuer relating to bribery, extortion, fraud andmoney laundering. B7 Moreinformation onthe following policies isavailableon page 135: > Anti-Bribery and Corruption Policy > An ti-Money Laundering andSanctions Policy > Group Escalation Policy > Gr oup Counter Fraud Policy Number of concluded legal cases regarding corrupt practices brought against the issuer or its employees duringthe reporting period and the outcomes of the c ases. B7.1 None Description of preventive measures and whistle-blowing procedures, and how they are implemented andmonitored. B7.2 More information is available in the Whistleblowing section on page 120. Description of anti-corruption training provided to directors andsta. B7.3 We provide training to our sta to ensure that they are familiar with international standards and best practice, as well as being well equipped to implement our policies in their respective markets. Training completionlevels are monitored throughout the year. Policies on community engagement to understand the ne eds of the communities where the issuer operates and t o ensure its activities take into consideration the communities’ interests. B8 Our Community Investment Policy covers how we are committed to working with the communities in which we operate as active and supportive members. It also outlines our strategy for investing in the community and how we make investments and report against them. Focus areas of contribution B8.1 35% Social and welfare 30% Education 13% Emergency relief 13% Health 6% Other or uncategorised 3% Economic development Resources contributed tothe focus ar ea. B8.2 In 2021, direct cash donations to charitable organisations totalled $5.9 million (2020: $ 9.7 million). Prudential plc Annual Report 2021prudentialplc.com 128 ![]() #### SASB Insurance Standard SASB Topic Accountingmetric Code Disclosure Transparent Information & Fair Advice for Customers Total amount of monetary losses as a result of legal proceedings associated with marketing and communication of insurance product-relatedinformation to new and returning customer FN-IN-270a.1 Nil Complaints-to-claims ratio FN-IN-270a.2 Total number of complaints received / total c laims raised x 1,000 = 25 Prudential believes that this metric is less applicable to the life insurance sector, and that a more appropriate metric is the number of complaints per 1,000 policies in force, which remains steady at two. Customer retention rate FN-IN-270a.3 89 per cent Description of approach to informing customers about products FN-IN-270a.4 Moreinformation on theway we c ommunicate with customers and our approach to responsible marketing is available in the Customers section on page 78. Incorporation of Environmental, Social, andGovernance Factors in Investment Management Total invested assets, by industry and asset class FN-IN-410a.1 Total invested assets by asset class US$ million Debt 81,540 Loan 2,367 Equity securities and portfolio holdings in unit 48,448 Other financial instruments 0 Derivatives 212 Deposits including items classified as cash equivalents 5,351 Cash (as defined under IFRS) 1,112 Property 56 Total 139,086 Total invested assets by industry US$ million Basic materials 1,435 Communications 3,879 Consumer,cyclical 2,452 Consumer, non-cyclical 4,913 Energy 3,302 Financial 20,016 Funds 9,261 Government 46,102 Industrial 2,578 Other 40,205 Technology 1,807 Utilities 3,136 Total 139,086 Description of approach to incorporation ofenvironmental, social, and governance (ESG) factors i n investment management processesand strategies FN-IN-410a.2 We seek to integrate ESG factors into our investment decisions, alongsidetraditional financial analysis, to better manage risk and generate sustainable, long-term returns forour customers. Our Group Responsible Investment Policy guides our business units on how to consider ESG factors in investment activities. More information is available in the Responsible Investment section on page 107. Additionalinformationis provided in Eastspring’s PRI report. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 129 ![]() ESG report / continued SASB Topic Accountingmetric Code Disclosure Policies Designed to Incentivize ResponsibleBehaviour Net premiums written related to energyeciency and low-carbon technology FN-IN-410b.1 As a life insurer, this metric is not applicable to our bu siness. Discussion of products and/or product features thatincentivize health, safety, and/or environmentally responsible actions and/or behaviors FN-IN-410b.2 As a life insurer, this metric is not applicable to our bu siness. Environmental Risk Exposure Probable Maximum Loss (PML) of i nsured products from weather- related natural catastrophes FN-IN-450a.1 As a life insurer, this metric is not applicable to ourbusiness. Total amount of monetary losses attributable to insurance payouts from (1) modeled natural catastrophes and (2) non-modeled natural catastrophes, by type of event andgeographic segment (net a nd grossof reinsurance) FN-IN-450a.2 As a life insurer, this metric is not applicable to our bu siness. Description of approach to incorporation of environmental risks into(1) the underwriting process for individual contracts and (2) the management of firm-level risks and capital adequacy FN-IN-450a.3 As a life insurer, this metric is not applicable to ourbusiness. SystemicRisk Management Exposure to derivative instruments by category: (1) total potential exposure tononcentrallycleared derivatives, (2) total fair value of acceptable collateral postedwith the CentralClearinghouse, and (3) total potential exposure to centrally cleared derivatives FN-IN-550a.1 (1) total potential exposure to noncentrally cleared d erivatives US$31,156m (2) total fair value of acceptable collateral posted with the Central Clearinghouse US$769m (3) total potential exposure to centrally cleared d erivatives US$13,377m Total fair value ofsecurities lending collateral assets FN-IN-550a.2 US$158m Description of approach to managing capital and liquidity- related risks associated with systemic non-insurance activities FN-IN-550a.3 A description of our approach is covered in the Risk R eport of our Annual Report and Accounts, under the discussion of the Group’s principal risks. Activity Metric Number of policies in force, by segment: (1) property and casualty, (2) life, (3) assumed reinsurance FN-IN-000.A Total policies in force: 17,760,921 Prudential plc Annual Report 2021prudentialplc.com 130 ![]() #### TCFD index Pillar Recommended disclosure Disclosure Governance Disclose the organisation’s governance around climate- related risks and opportunities. a) Describe the Board’s oversight of c limate-related risks and opportunities. The Board oversees climate-related risks and opportunities as described in the ESG governance section starting on page 69, which i ncludes our governance around climate-relatedrisks and opportunities. Our governance for responsible investment is disclosed in the Responsible Investment Governance section starting on page107. b) Describe management’s role in assessing andmanaging climate- related risks and opportunities. Management has an active role in assessing and managing climate- related risks and opportunities, as described in the Management oversight section starting on page 69, and the management of responsible investment as described in the Responsible Investment Governance section starting on page 107. Strategy Disclose the actual and potential impacts of climate-related risks and opportunitieson the organisation’s businesses, strategy a nd financial planning where such information is material. a) Describe the climate-related risks and opportunitiesthe organisation has identified overthe short, medium, and long term. We have identified short, medium and long term climate-related risks as described in the Identifying and assessing climate-related risks s ection starting on page 84. We identified climate-related opportunities, as described in the following sections: the Description of ESG strategic framework section starting on page 71, the Inclusive oerings section starting on page 76, and the Identifying climate- related opportunities section on page 84. b) Describe the impact of climate- related risks and opportunities on the organisation’s businesses, strategy, and financial planning. Our businesses, strategy, and financial planning is impacted by climate-related risks and opportunities as described in the following sections: > Bu sinesses: the Identifying and assessing climate-related risks section starting on page 84, the Climate-related scenario testing section starting on page 86, and the Managing our direct operational environmental impacts section starting on page 89. > St rategy: the Description of ESG strategic framework section starting on page 71, the Inclusive oerings section starting on page 7 6, and the Identifying climate-related opportunities section starting on page 84. > Fi nancial planning: The Impact on financial planning and strategy section starting on page 88. c) Describe the potential impact of dierent scenarios, includinga 2°C scenario, on the organisation’s businesses, strategy, and financial p lanning. Dierent scenarios, including below 2°C scenarios, have dierent potential impacts on our businesses, strategy, and financial planning, as described in the Climate-related scenario testing section starting on page 86. Risk management Disclose how the organisation identifies,assesses and manages climate-related risks. a) Describe the organisation’s processes for identifying and assessing climate-related risks. We have processes for identifying and assessing climate-related risks, as described in the Identifying and assessing climate-related risks section starting on page 84. b) Describe the organisation’s processes for managing climate-related risks. We have processes for managing climate-related risks, as described in the Managing and responding to climate-related risks section starting on page 85. c) Describe howprocesses for id entifying, assessing, and managing climate-related risks a re i ntegrated into the organisation’s overall risk management. We have integrated our processes for identifying, assessing, and m anaging climate-related risks into our overall risk management, as described in the Identifying and assessing climate-related risks section on page 84 and the Managing and responding to climate- related risks section on page 85. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 131 ![]() ESG report / continued Pillar Recommended disclosure Disclosure Metrics and targets Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities, where such information is material. a) Disclose the metrics used by the organisation to assess climate- related risks and opportunities in line with its strategy and risk management process. We use a suite of metrics to assess climate-related risks and opportunities, which are disclosed in the Climate-related metrics and t argets section on page 82 and in the Managing our direct operational environmental impacts section on page 89. b) Disclose Scope 1, Scope 2, and, if appropriate,Scope 3 greenhouse gas (GHG) emissions, and the related risks. We disclose Scope 1, Scope 2 and selected Scope 3 greenhouse gas emissions in the Group emissions data section on page 89. Scope 3 category 15 is our most material source of GHG emissions, for which we describe the related risks in the Identifying and assessing climate-related risks section starting on page 84. We do not have material climate-related risks and opportunities related to our Scope 1 and Scope 2 GHG emissions. c) Describe the targets used by the organisation tomanage climate- related risks and opportunities and performanceagainst targets. We use a suite of targets to manage our climate-related risks and the performance against those targets, as described in the following sections: > Inv estment portfolio: Climate-related metrics and targets section starting on page 82 > Op erations: Operational carbon reduction target on page 90 We have, to date, not yet set targets for opportunities. In summary for our investment portfolio, in May 2021, we announced both long and short term pledges. Our long term pledge is to become ‘net zero’ by 2050 with the short term pledges as follows: > A 25 p er cent reduction in the carbon emissions of our investment portfolio by 2025 against our 2019 baseline. By the end of 2021, we h ad reduced the weighted average carbon intensity (WACI) of our investment portfolio by 23 per cent against our 2019 baseline, placing us on track to achieve the 25 per cent target by 2025. > Divestment from all direct investments in businesses which derive more than 30 per cent of their income from coal, whether from mining or energy production, with equities to be fully divested by t he end of 2021 and fixed-income assets by the end of 2022. During 2021 we divested from all such direct equity investments and remain on track to divest by end of 2022 from fixed-income assets in businesses meeting the criteria. > A ta rget to engage with the companies responsible for 65 per cent of the absolute emissions in our investment portfolio. Eastspring has developed a process to meet this engagement target. In 2021, Eastspring reviewed 44 per cent of these investee companies, and e ngaged with 31 per cent of the same group. For operations, we have set a target to become carbon neutral across our Scope 1 and 2 (market-based) emissions by the end of 2030. Weaim to deliver a 25 per cent reduction per full time employee (FTE)in our operational emissions from a 2016 baseline, then abating the remaining emissions via carbon osetting initiatives. To date, we are ahead of the emissions reduction trajectory required to meet our target. Prudential plc Annual Report 2021prudentialplc.com 132 ![]() #### Our Group-wide policies relating to our ESG Strategic Framework ESG strategic pillar/enabler Our Group-wide policiesOwner and date of last review Making health and financialsecurity accessible To ensure we treat our customers fairly, management of conduct risks is key. Prudential mitigates conduct risk with robust controls, which are identified and assessed through the Group’s conduct risk assessment framework, and regularly tested within its monitoring programmes. Our Customer Conduct Risk Policy provides this framework and includes our Customer Conduct Standards, which set out the core v alues and standards that the Group expects all employees and persons acting on behalf of it to observe, and which further support our ESG strategy. These values and standards includespecific requirements regarding customers. Inparticular, the Group has committed to: > Treat customers fairly and honestly; > Pr ovide and promote products and services that meet customer needs, are clearly explained and deliver real value; > Ma intain the confidentiality of our customer information; > Provide and promote high standards of customer service; and > Ac t fairly and in a timely way to address customer complaints and any errors we find. Group Chief Executive July 2021 Stewarding the human impacts of climate change Our Responsible Investment Policy articulates howESG considerationsare integrated into investment activities and processes in a consistent and coherent way. It describes our approach to ensure external commitments and internal targets on responsible investment are met and to ensure the dierent objectives of responsible investment are taken into consideration when making investment decisions. Group Chief Financial Ocer and C hief Operating Ocer July 2021 Our Environment Policy outlines our approach tounderstanding and managing the direct environmental impact of the Group. This covers our measurement, monitoring, review and reporting of issues associated with our environmental performance. Group Chief Financial Ocer and C hief Operating Ocer July 2021 Building social capital Our Discrimination and Harassment Policy reflects our commitment to creating and m aintaining a welcoming, supportive culture in which all can work in a friendly and professional working environment. This policy prohibits discrimination, harassment, bullying and other types of misconduct where thebehaviour is contrary to Prudential’svalues and standards. Whereour people experience or witness inappropriate behaviours, they are encouraged to report this via a range of available channels including their line manager, Human Resources, grievance procedures or S peak Out. Finally, the policy reinforces Prudential’s zero-tolerance stance over retaliation against reporters of any concerns or for cooperating or participating in t he i nvestigation of a complaint. Group HR Director July 2021 Our Diversity and Inclusion Policy sets out how we foster an inclusive workforce and ensure all our employees are treated fairly and feel valued, and together have the d iversity in skill sets and backgrounds that enriches the organisation. Our policy considers arange of diversity aspects of our employees, including gender, age, ethnicity, disability, sexual orientation andbackground. Group HR Director July 2021 Our Employee Relations Policy outlines the waywe engage our employees and motivate them to achieve success for the Group: promoting positive relationships with employees, representative organisations and trade unions, and maintaining a p ositive reputation for the treatment of employees. Group HR Director July 2021 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 133 ![]() ESG report / continued ESG strategic pillar/enabler Our Group-wide policiesOwner and date of last review Building social capital continued Our Performance and LearningPolicy sets out the importance of our people and frames how we invest in their development to deliver against our strategy and the future success of the organisation. This includes our Performance Management Framework. Group HR Director July 2021 Our Recruitment Policy covers the Group’s recruitment processes, reflecting fairness, equality of opportunities for all, and for all recruitment decisions to be made without bias and with due consideration. The Recruitment Policy aims to provide a set of principles to guide hiring for all involved across the organisation, introducing consistency in the process and decision-making across the Group while setting standards toenable oversight andimprovequantitativeand qualitative reporting of the recruitment process. Group HR Director July 2021 Our Remuneration Policy outlines oureective approach toappropriately rewarding our employees in a way that aligns incentives to business objectives and p erformance, and enables the recruitment, retention and incentivisation of high-calibre employees in line with our risk appetite and Group Reward Principles. Group HR Director December 2021 Our Talent Policy demonstrates howwe attract, select and develop the best people for roles that will ensure high performance in the short term and future-proof leadership capability through buildingbusiness-relevantlonger-term succession and t alent pipelines. It sets out our fair and eective approach to pursuing this. Group HR Director July 2021 Our Consensual Relationships Policy reinforces our values, as well as the Group Code of Business Conduct. The policy applies to consensual romantic and sexual relationships and reflects our continuing commitment to a professional and supportive working environment, where everybody is treated fairly, has equal opportunities, and is respected and valued for their contributions to our company. Group HR Director July 2021 Our Group Data Policy is centred on the principle that data must be well governed and eectively managed through its lifestyle. The Policy provides a data, business, people and technology framework, which defines how we should manage data throughout its lifecycle and employ the technology best suited for thebusiness use cases. Group Chief Digital Ocer July 2021 Our Privacy Policy governs the protection of data and complies with the General Data Protection Regulation. Our Information Security Policy supports our resilient information security programme across the organisation and our commitment to protecting the data entrusted to us by customers. Group Chief Digital Ocer July 2021 Responsible investment Our Responsible Investment Policy articulates howESG considerationsare integrated into investment activities and processes in a consistent and coherent way. It describes our approach to ensure external commitments and internal targets on responsible investment are met and to ensure the dierent objectives of responsible investment are taken into consideration when making investment decisions. Group Chief Financial Ocer and C hief Operating Ocer July 2021 Prudential plc Annual Report 2021prudentialplc.com 134 ![]() ESG strategic pillar/enabler Our Group-wide policiesOwner and date of last review Good governance and r esponsible business practices Our Group Code of Business Conduct sits at the heart of our Group Governance Manual, and highlights the ethical standards that the Board expects of itself, our employees, our agents and others working on behalf of the Group.The Code is s upported by a set of Group-wide principles and values that define how the Group expects business to be conducted in order to achieve its strategic objectives. Group Chief Executive December 2021 Our Group Risk Framework describes the Group’s approach to risk management, and the key arrangements and standards for risk management and internal control that support the Group’s compliance withGroup-wide statutory and regulatory requirements. Group Chief Risk and Compliance Ocer July 2021 Our Anti-Bribery and CorruptionPolicy coversour values for reputation,ethical behaviour and reliability. As an organisation we are focused on financial practices that align to those values and we prohibit corruption or bribery within our working p ractices. Group Chief Risk and Compliance Ocer July 2021 Our Anti-Money Laundering andSanctions Policy outlines how we prohibit money laundering or terrorist financing inour working practices, setting out howwe establish parameters to prevent this taking place across the organisation and the commitment we have to comply with sanctions, laws and regulations by screening, prohibiting or r estricting business activity, and following up through investigation. Group Chief Risk and Compliance Ocer July 2021 Our Security Policy has been replaced with a number of new policies. The Group ResiliencePolicy covers physical security, health and safety and business continuity management. The Group Escalation Policy sets the framework by which the Group can conduct investigations relating to a range of security issues. The Group CounterFraudPolicy supports our business units in the developmentof proportionate fraud systems to enhance fraud detection, protection and investigation. The Group Speak Out Policy sets out the framework and controls relating to whistleblowing. Group Chief Risk and Compliance Ocer July 2021 Our Tax Risk Policy includes our processes to manage tax-related risk, by identifying, measuring, controlling and reportingon issues considered an operational, reputational or regulatory risk. Group Chief Financial Ocer and Chief Operating Ocer July 2021 Our Political Donations Policy outlines our position that as an organisation we do not donate to political parties. This is defined as covering any political party or candidate or any other organisation that attempts to aect support for any political party. It is defined as covering any payment or gift or contribution, direct or indirect, as defined by the UK’s Political Parties, Elections and Referendums Act 2000. The policy covers expenditure on engagement activity on public policy discussions and applies across the Group. Group Chief Financial Ocer and Chief Operating Ocer July 2021 Our Third-Party Supply and Outsourcing Policy covers how we manage and oversee our third-party arrangements, throughdue diligence/selection criteria, contractual requirements, the ongoing monitoring of such relationships, and reporting and escalation. Additionally, the policy considers therequirements ofthe UK Modern Slavery Act and the principles of the UN’s Universal Declaration of Human Rights. Group Chief Financial Ocer and Chief Operating Ocer July 2021 Community engagement and investment Our Community Investment Policy covers how we are committed to working with the c ommunities in which we operate as active and supportive members. It also outlines our strategy for investing in the community and how we make investments and report against them. Group Chief Financial Ocer and Chief Operating Ocer and Group HR Director July 2021 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 135 ![]() ESG report / continued #### SECR Report Our 2021 energy consumption and GHG emissions are disclosed below in accordance with the Streamlined Energy and Carbon Reporting (SECR) framework of the Companies Act 2006 (Strategic and Directors’ Reports). No energy reduction projects were undertaken in the UK portfolio during 2021. Information on energy reduction initiatives across our Asian and African portfolio are included in the section on Managing our direct operational environmental impacts. This table shows emissions for the composite Prudential Group (including Jackson up until the point of the demerger) and covers the period 1 October 2020 to 30 September 2021. More information on the methodologies used is available in the Basis of Reporting. 2021 2020 UK and oshore Global (excluding UK and oshore) UK and oshore Global (excluding UK and oshore) Emissions from activities for which the company own and control, including combustion of fuel and operation facilities (Scope 1) tCO 2 e 1223,954 1475,490 Emissions from purchase of electricity, heat, steam and cooling purchased for own use (Scope 2, location based) tCO 2 e 12236,516 12542,995 Emissions from purchase of electricity, heat, steam and cooling purchased for own use (Scope 2, market based) tCO 2 e 17734,900 20842,995 Total gross Scope 1 and Scope 2 emissions (location-based) tCO 2 e 24440,470 27248,485 Intensity ratio: tCO 2 e/m 2 0.01190.0850 0.04840.0972 Intensity ratio: tCO 2 e/fte 1.16752.3354 1.01462.6245 Energy consumption used to calculate above emissions: kWh (Scope 1) 663,62119,252,400 764,34423,903,383 Energy consumption used to calculate above emissions: kWh (Scope 2) 559,79069,984,995 543,49877,714,027 #### GHG emissions tables Group (IncludingJackson) Emissions Source (tCO 2 e) 2021 2020 Change (%) Scope 1 4,076 5,637(27.7) Scope 2 – market based 35,077 43,203(18.8) Scope 2 – location based 36,638 43,120(15.0) Scope 3 (2020 boundary comparative) 296 2,164(86.3) Scope 3(expanded 2021 boundary) 10,397 n/a Total: Scopes 1 and 2 market based 39,154 48,840(19.8) Total: Scopes 1, 2 and 3 (2020 boundary comparative) 39,450 51,004(22.7) Total: Scope 1, 2 and 3 (expanded 2021 boundary) 49,551 n/a kg per m 2 – Scopes 1 and 2 78.85 96.24(18.1) Tonnes per employee – Scopes 1 and 2 2.23 2.61(14.5) kg per m 2 – Scopes 1, 2 and 3 (2020 boundary comparative) 79.44 100.51(21.0) kg per m 2 – Scopes 1, 2 and 3 (expanded 2021 boundary) 99.79 n/a Jackson Emissions Source (tCO 2 e) 2021 2020 Change (%) Scope 1 2,595 4,259(39.1) Scope 2 – market based 15,091 19,595(23.0) Scope 2 – location based 15,091 19,595(23.0) Scope 3 (2020 boundary comparative) 137 166(17.5) Scope 3(expanded 2021 boundary) 1,605 n/a Total: Scopes 1 and 2 17,686 23,854(25.9) Total: Scopes 1, 2 and 3 (2020 boundary comparative) 17,823 24,020(25.8) Total: Scope 1, 2 and 3 (expanded 2021 boundary) 19,291 n/a kg per m 2 – Scopes 1 and 2 138.33 179.34(22.9) Tonnes per employee – Scopes 1 and 2 5.96 6.03(1.2) kg per m 2 – Scopes 1, 2 and 3 (2020 boundary comparative) 139.40 180.58(22.8) kg per m 2 – Scopes 1, 2 and 3 (expanded 2021 boundary) 150.88 n/a Prudential plc Annual Report 2021prudentialplc.com 136 ![]() #### Business #### model PAGES 12 TO 13 #### Principal #### risks PAGES 51 TO 63 KPI: #### Carbon emissions PAGE 28 ESG StrategicPillar: #### Stewarding the human impacts #### of climate change PAGE 82 #### Streamlined Energy and Carbon #### Reporting (SECR) framework PAGE 136 ESG StrategicEnabler: #### Good governance #### and responsible #### business practices PAGE 117 ESG StrategicEnabler: #### Good governance #### and responsible #### business practices PAGE 117 #### Human #### rights #### Environmental #### matters Anti-bribery and #### anti-corruption #### matters #### Social #### matters #### Employees ESG StrategicEnabler: #### Good governance #### and responsible #### business practices PAGE 117 ESG StrategicPillar: #### Making health #### and financial #### security accessible PAGE 75 ESG StrategicPillar: #### Building #### socialcapital PAGE 96 Governance, #### Group-wide policies #### and due diligence PAGE 133 We recognise that to help our customers get the most out of life, we need to take a long-term view on a wide range of issues that aect our business and the communities in which we operate. To do this, we maintain a proactive dialogue with our stakeholders to ensure that we are managing these issues sustainably and delivering long-term value. Further information on our engagement with our stakeholders can be found in ourSection 172 Statement below. The Group’s Strategic Report, including the ESG report and the Section 172 Statement, includes information required by the non-financial reporting provisionscontained in sections 414CA and 414CB of the Companies Act 2006. These reporting requirements are met in a number of sections of our annual report. The diagram below illustrates where the relevant material ispresented. #### Non-financial information statement Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 137 ![]() #### UK Companies Act, Section 172 Statement The Board recognises the importance of considering all stakeholders in its decision making. Section 172 of the UK Companies Act 2 006 (the Act) requires each Director to act in a way that he or she considers, in good faith, would be m ost likely to promote the success of t he Company for the benefit of its members as a whole. In doing this, Section 172 requires a Director to have r egard to the interests of the Company’s employees, its relationship with suppliers and customers and the impact of the Company’s operations on the community and the environment, amongst othermatters. This statement details how the Board b uilds and maintains strong relationshipswith its stakeholders, how itunderstands their interests, needs and concerns and how the strength of these relationships are contributing to the Company’s success. Prudential’s key stakeholders are its customers, investors, our workforce, regulators, governments and wider society and suppliers. The Section 172 duty applies to each individual Director, even when decisions are made collectively by the Board. It is fiduciary in nature and so recognises the position of trust that each Director holds and the need for good faith. The stakeholder factors are also relevant in the creation of the Group’s corporate culture. Upon joining the Board, each Director is provided with an induction which includes a detailed briefing on director duties, including those arisingunder Section 172 andan overview of the Group’s stakeholders. A briefing note reminding Directors of their Section 172 duties is made available to the Board at each of its meetings. Individuals who submit proposals to the Board for approval are required to address the Section 172 criteria in their papers, pointing out what impact the proposal may haveon the Group’s stakeholders, or how stakeholder views have been taken into account. This ensures that the Board is suciently briefed, and that materials support a robust discussion, with due regard to the impact a proposal may have on the Group’s stakeholders. Section 172 duties are taken into account in our Board succession planning and training materials. We ensure that we take account of a nyconflicts between dierent stakeholderconcerns, and resolve such conflicts as smoothly as possible at the highest level necessary. A summary of the Board’s stakeholder engagementactivities in2021 is set out below. #### Customers Why customers matter to Prudential The Group’s purpose is to help customers get the most out of life. We make healthcareaordable and accessible, delivering products and services which meet the diversity of people’s needs. We protect people’s wealth and grow their assets and we empower our customers to save for their goals. Prudential is building the capacity to serve 50 million customers by 2025. Our customers are at the heart of what we do, and we are committed to helping them get the most out of life. How the Board engages and communicates with customers and u nderstands their interests, needs and concerns Our extensive distribution channels enable us to better understand and servicecustomers’ financial needs. Prudential engages directly with its customers through contact centres, dedicated account managers, face-to-faceadvice(where possible),mobile phone apps and telephone technical support teams. The development of Prudential’s digital proposition, specifically the digital health app Pulse, has enabled Prudential to give its customers a greater range of services, including throughpartnerships with others. The Board receives regular reports on issues aecting customers from b usiness heads. In particular, during 2021, it has focussed on the impact of the pandemic on customers, including the steps being taken by the business to support them and the operational resilience of the business and key suppliers to service them. Through deep dives on local businesses, the Board has developed a better understanding of howthe business isresponding to customer needs in individual markets. The impact that engagement with customers has on Board decision-making The outcome of our operational teams’ engagement with customers is transmitted through the business and used to shape the design of our products and how and where we distribute those products, and ultimately to inform strategic decisions made at Board level. Decisions about which markets to access, what kind of products to oer and how to develop our agency force, our bank partnerships and our digital capabilities, are all driven by an understanding of what customers want, based on engagement with those customers. The Board has actively discussed and supported the evolution of the digital strategy throughout 2021, and the customer and distribution strategies of individual businesses. The Group intends to build capacity to serve a greater number of customers. The Board receives updates and tracks the progress towards this goal. Prudential plc Annual Report 2021prudentialplc.com 138 ![]() #### Investors Why investors matter to Prudential The Board is committed to the long-term delivery of future shareholder returns throughvalue appreciationand dividends. Securing our investors’ trust through regular engagement ensures their ongoing investment and support. How the Board engages and communicates with investors and understands their interests, needs and concerns The Group seeks to maintain an open and active dialogue with investors. This ensures that the Group’s strategy is well understood by the market and that investors’ perspectives and concerns are communicated to the Board. During 2021, over 480 meetings were held with around 364 individual institutional investors in the UK, continental Europe, the US and Asia. Of these 480 meetings, 367 were attended by one or more of the Executive Directors. These meetings took the form of one on one, group sessions and participation in panels and walking tours organised in some cases by brokers. In late 2021, an in-depth investor perception survey by an independent third party was commissioned. This survey covered long standing andexisting shareholders as well as those who participated in the Hong Kong equity raise. The topics covered included Group leadership and strategy, execution of strategic projects and detailed questions on the operating businesses in key markets. The results of the perception survey were presented to the Board for discussion in early 2022 and actions were agreed in a number of areas for implementation by the management team. The Board would like to register its thanks to the shareholders who participated in this extensive process. The Chair holds anongoing programme of engagement with major investors in respect of governance and strategic matters, with the Chair attending over 35 investor meetings in 2021. She reports back to the Board on the key themes raised. Engagement with institutional investors on the Directors’ Remuneration Policy and implementation isled by the Remuneration Committee Chair. This year, the Committee Chair designate joined a n umber of these meetings. The Chair of the Remuneration Committee reports to the Committee on such matters. The Committee’s advisors also provide advice on major investor and proxy agency views and the Committee takes these intoaccount throughout the year when makingdecisions. All Non-executive Directors, and in particular the Senior Independent Director and Committee Chairs, are available tomeetwith major shareholders on request. The Group’s AGM is the singlelargest shareholder engagement event of the year. In 2021, shareholders were unable to attend the AGM in person due to UK Government restrictions. Instead, shareholders were invited to participate in the AGM electronically via the Lumi platform. In August 2021, at a General Meeting to approvethe separation ofJackson Financial Inc., shareholders were able to attend in person and also electronically, where they could raise questions directly with the Board and vote on the demergerresolution. Prudentialwill continue to oer shareholders the opportunity to attend shareholder meetings inperson, where possible, and electronically. This hybrid approach allows the greatest flexibility for shareholders who want to engage with the Board, including the growingnumber of Hong Kong based shareholders, who now have the opportunityto participate more meaningfully inshareholder decision making, or would otherwise not have the opportunity to participate directly. A key focus for investor relations activity in 2022 will be growing theinvestor base that specialises in Emerging Market growth companies, in particular investors based in Asia. We expect that the level of investor interaction using digital mechanisms will remain high though we are hopeful that face-to-face engagement can take place more than was possible in 2021. We are taking steps to support an increase in liquidity on the Hong Kong line of stock (ticker 2378 HK) including the facilitation of transfers of shareholdingsfromthe London line.Considerable marketing and communications were initiated in 2021 and will continue, including working with Asian-based research franchises to increase the number of commentators located close to our operatingmarkets and those who actively cover our Asian regional peers. We intend to host a number of tailored and thematic investor relations events during the year for investors and research analysts. The impact that engagement with investors has on Board decision-making During 2021, the Board considered the views of shareholders when deciding how to structure the separation of Jackson (see break out box belowforfurther detail), on matters concerningBoard succession and composition, and with regards to the size, structure and timing of the Hong Kong share capital raise more broadly (see break out box below for further detail). The perspectives gained from investor meetings, and the need for broad investor support, were considered by the Board when making these key strategic decisions. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 139 ![]() UK Companies Act, Section 172 Statement / continued #### Workforce Why the workforce matters to Prudential The Group aims to attract, retain and develop highly-skilled sta. Ongoing engagement with the workforce is critical to ensuring the successful delivery of the Group’s strategic objectives. How the Board engages and communicates with the workforce and understands their interests, needs and concerns The Board uses a range of formal and informal methods to engage, communicate and understand the views ofthe workforce. In May 2021, the Board’s Responsibility & Sustainability Working Group assumed responsibility for workforce engagement activities and has also sought to engage other Non-executive Directors. This role was previously fulfilled by designated Non-executive Directors, Kai Nargolwala for Asia, and Tom Watjen for the US and the UK. In a nticipation of Kai’s retirement from the Board in May 2021, the Board reflected on the experience of having had a designated Non-executive Director as the mechanism for workforce engagement and decided to adopt this alternative mechanism as a m eans to get wider and deeper Non-executive involvement, alongside the insights that the Executive Directors bring into the Boardroom. The Board is satisfied that the Working Group is eective in its engagement with the workforce, and will continue tomonitor the arrangements on a periodic basis. In addition to the Working Group’s direct engagement with the workforce, and additional engagement by the Executive Directors, the B oard also receives regular updates on employee matters. In particular, the Board received reports on the impact of the pandemic and the prolonged period of workfrom homeand hybrid working arrangements. A summary of the Working Group’s engagement withthe workforce in 2 021, and that of other Non-executive Directors, is set out below: Townhall Meetings Members of the Working Group participatedin variousTownhall meetings throughout2021 for members of the workforce located in the UK and Hong Kong head oces. The normalisation of remote meetings, as a consequence of the pandemic, has provided an opportunity for wider attendance at these townhalls and therefore the a bility to connect with a larger population of the workforce. Members of the Working Group gained a senseof employee sentiment across the head oce locationsand could gauge how management were setting the tone,embodying the Group’sValues, and supporting the workforce through a period of transformation in P rudential and wider global upheaval. Collaboration Jam II The Collaboration Jam II was a 72-hour crowd-sourced online conversation, supported by external advisers HSM, exploring future-ready skills, wellbeing in the context of the pandemic, and g athering employee views around theshift to hybrid working. Over three days, members of the Working Group participated in the J am, together with over 9,000 members of the workforce. A summary of insights emerging from Jam II was presented to the WorkingGroup,including HSM’s conclusions and recommendations. A k ey area of focus was the impact of the prolonged period of home/hybrid working on employees and their wellbeing. HSM’s conclusions noted a strong alignment of views globally on key topics and that there was an opportunity for the Group to harness a strong desire from employees for individual accountability and a readiness for change, through providing more support and guidance to achievehigh performance underpinned by wellbeing. Management outlined how these insights were being reflected in initiatives to support employee wellbeing, helping them tonavigate workingin a hybrid environment, equipping them with skills for an increasingly digital business, and continuing to foster an inclusive environment in which employees are comfortable speaking out. Values Connect Sessions These sessions formed part of the Leadership Culture Journey (LCJ), the Group’s signature programme to equip the Top 200 leaders to r ole model the five Group Values launched in September 2020 (Ambitious, Courageous, Curious, Empathetic, Nimble). Members of the Working Group joinedfacilitated small group sessions that were held with senior leaders in order for them to share their personal views and learnings from the LCJ. Each session focused on o ne of the Values. Participating in these sessions gaveWorkingGroup Members an opportunity to connect in a small group setting and to better understand how the Values were being embedded across the organisation and how well they resonated with employees. Prudential plc Annual Report 2021prudentialplc.com 140 ![]() Workforce / continued Diversity & Inclusion (D&I) Council Meetings The D&I Council is co-chaired by the Group Chief Financial Ocer and Group Chief Operating Ocer and the Group HR Director, and c omprises 17 leaders from across the Group. It is responsible for defining a global D&I strategy, promoting and championing D&I initiatives in respective businesses, and challenging the organisation. The WorkingGroup has been regularlyupdated on the Council’s meetings and the Group’s D&I initiatives. Throughattendance, Members of the Working Group have been able to see directly how the C ouncil isfulfilling its role and gained a better understanding of the progress being made on initiatives in support of the Group’s goal to empower employees and create a sense of belonging through respect and appreciationof dierences. The impact that engagement with the workforce has on Board decision-making The Board received detailed updates on the Working Group’s engagement with theworkforce, the developmentof key talent and t he succession pipeline and on D&I priorities, which included the output of theGlobal Talent Review, and the output of employee s urveys. The Board discussed with management throughout the year the various ongoing initiatives to support the workforce. These included initiatives to support sta well-being through the pandemic, to embed the Group’s values and desired behaviours throughout the organisation and to develop talent and a diverse and inclusive workplace. These are set out in more detail in the ESG Report on pages 66 to 136. To address sentiments revealed by the Group-wide engagement surveys, Prudential took several immediate actions, including the creation of regional forums to discuss individual acceleration plans, assigned mentors, oered involvement in strategic projects and provided opportunities for more interaction with executive leaders. #### Regulators Why regulators matter to Prudential Regulators regulate and supervise the insurance and asset management industries, promote its general stability and protect policy holders. Prudential operates in highly regulated markets, and seeks to maintain honest, constructive and openrelationships with regulators toensuremutual trust, respect and understanding. How the Board engages and communicates with regulators and understands their interests, needs and concerns During 2021, Prudential was included as a designated insurance holding company under the Hong Kong Insurance Authority’s (IA) Insurance Ordinance, and is now subject to the Hong Kong IA’s Group-wide Supervision (GWS) Framework. In November 2021, members of our GroupExecutive Committee presented to the Regulatory College of Supervisors on the Group’s strategy and key business initiatives. The Directors meet with the Hong Kong IA on a periodic basis, sharing an agreed range of management information. Discussions cover areas such as capital, risk management and governance issues impacting Prudential and the industry. The Board receives regular updateson our engagement withthe Hong Kong IA regarding the shape of its legislative and regulatory framework and how the requirements of the GWS Framework have been implemented by the Group. The impact that engagement with regulators has on Board decision-making During 2021, the Board discussed and approved various matters in r elation to its designation under the Hong Kong IA Insurance Ordinance and the GWS Framework, including the details of all transitional arrangements agreed with the Hong Kong IA. After designation, the Group Risk Committee regularly oversees the progress made by the Group on transitional arrangements agreed with the Hong Kong IA. The Board also engaged pro-actively with the Hong Kong IA and other relevant regulators throughout the year onstrategic initiatives that we have completed including the demerger of the Jackson business, the equity raise and the debt restructuring. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 141 ![]() UK Companies Act, Section 172 Statement / continued #### Governments and the wider society Why governments and the wider society matter to Prudential We regard governments in the markets in which we operate as important stakeholders. In addition, we support communities where we operate,by makinghealthcare aordable and accessible, oering savings and protection products, paying tax revenues and c ommunity support activity. How the Board engages and communicates with governments and the widersociety and understands their interests, needs and c oncerns As in 2020, a major area of engagement with our host governments was the on-going management of Covid-19 and the impact on our customers, communities andworkforce. Throughout 2021, Prudential actively engaged with international standard setters, and with governments and regulators in the markets in which we operate on key issues shaping their policy environment, including emerging ESG issues. As wellas direct engagement with governments and regulators, we w orked with a number of trade associations and working groups to understand and inform approaches to international and n ational-level policy and regulationsand to benefit from the collaboration and cooperation that comes from working alongside peers in industry to inform and understand policy-making. Memberships of trade associations such as Asia House, the UK-ASEAN Business Council and the China-BritainBusiness Council, and a number of British andEuropean Chambers of Commerce, enabled the organisationof, and participation in roundtables and meetings with policymakers on green and sustainable finance, healthcare and digital issues, often virtually given the continuing restrictions oninternational travel. Green andsustainablefinance also featured in various government-to-governmentand regulatory dialogues that took place through the year, and into which Prudential advocatedrelevant priorities and perspectives. The progress of these initiatives together with key government and political developments are reported tothe Board throughout the year by the Director of Group Government Relations. Our approach to community investment and engagement is guided by our Group-wide Community Investment Policy and the Group’s ESG strategy. Within this framework, our businesses have the autonomy to manage their own community investment programmes. The Prudence Foundation regularly reviews our strategy and funding for community investment programmes with t he aim of maximising positive outcomes in the regions where we operate. The Responsibility and Sustainability Working Group oversees our communityengagement and investment activities on behalf of the Board. In 2021 the Working Group received an update on the activities of thePrudence Foundation, including an overview of its alignment to the Group ESG strategic framework and strategy, its structure, governance and budget together with an update on its flagship programmes and the Foundation’s aspirations for 2022 and beyond. The impact that engagement with the government and the wider society has on Board decision-making In May 2021, the Board approved a number of climate-related commitments including a pledge to become a ‘net zero’ asset owner by 2050 and various immediate actions to support that objective. Throughout 2021, Prudential worked with the UK government and UK embassies in our markets on key themes ahead of the meeting of the U NFCCC’s Conference of Parties (COP26), including developing sustainable capital markets and the role of investors in a just and long t erm energytransition.Weparticipated in localEnergy Transition Councilsfacilitated by the UK government in anumber of A SEAN markets, and green finance workshops organised by the UK government or other partners in collaboration withdomestic policymakers (for example, in Thailand and Kenya). At COP26, across a range of activities, the Chair, Group CFO and COO and senior Prudential representatives highlighted the importance of a just and inclusive transition in Asia and Africa; the challenges of addressing coal retirement andinvestment in renewables indeveloping markets; and theframework for financial market participants to achieve net zero goals. Prudential plc Annual Report 2021prudentialplc.com 142 ![]() #### Suppliers Whysuppliers matter to Prudential Together with ourworkforce, our suppliers support us inserving our customers. Strong supplier relationships are therefore vital. How the Board engages and communicates with suppliers and u nderstands their interests, needs and concerns Modern slavery Prudential is committed to ensuring that slavery, human tracking, child labour or any other abuse of human rights has no place in our organisation or supply chain.Management continue to carry out a r ange of activities to enhance the Group’s approach to modern slavery, not least through the implementation ofthe responsible supplier risk assessments and due diligence requirements within the new Group Third Party Supplier and Outsourcing Policy (GTPSO). Payment terms Inorder to demonstrate Prudential’s ongoingcommitment to supporting its supply chain, through the dicult trading circumstances triggered by the global pandemic, Prudential continued to provide payment assistance in 2021. Prudential’s standard contractual payment terms in the UK provide for payment to suppliers within 30 days after the invoice date. In themost recent reporting periodending 31 December 2021, the a verage time taken to pay invoices was 29 days. For smaller suppliers with under100 employees, our Small SupplierAccelerated Payment Scheme aims to pay suppliers in as little as 10 days after the invoice date. The Scheme has now benefited over 150 small suppliers with payments of nearly £9 million in 2021. The impact that engagement with suppliers has on Board decision-making During 2021, the Board approved a new GTPSO, which governs the relationshipsthat the Group has with over 6,000 service providers. The policy aligns and builds on the Group’s ESG framework through the introduction of ResponsibleSupplier Guidelines thatpromote the development of a sustainable and ethical supply chain, with a particular emphasis on conducting due diligence on a service provider’s position and compliance with human rights, ethical and safe labour practices and local labour laws andwage standards for s pend in categories considered to be of higher risk. The policy was reviewed and approved by the Risk Committee, before being approved by the Board. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 143 ![]() UK Companies Act, Section 172 Statement / continued Case studies of the Board’s consideration of t he impact on s takeholders of major transactions During 2021, the Board approved two significant strategic transactions, namely: the separation and demerger of Jackson Financial Inc. and the equity capital raising through the issue o f new shares on the Hong Kong branch register. The Board spent a considerable amount of time discussing the impact each transaction would have on the aected stakeholders before making a decision. Set out below is a summary of those considerations. The separation and demerger of Jackson Financial Inc. Context In January 2021, the Board of Prudential announced that it had decided to pursue the separation of its US operations (Jackson) from the Group through a demerger, whereby shares in Jackson would be distributed to Prudentialshareholders. Stakeholder considerations In arriving at this strategic decision the Board took into account the impact that the separation would have on the aected stakeholders. The Board received regular briefing materials, advice and presentations from Management and its advisors and sought to u nderstand the views of investors as it determined its strategy. The impact of changes arising from the separation on employees and customers was also discussed, prioritising the fair treatment of all involved. The Board believed that the separation would lead to an improvementin strategic, operational and financialexecution for both the Group and Jackson after the separation, which would enhance their speed and agility to adapt to their customers’ evolving needs, to managestakeholderrelationships andimprove financial outcomes for their respectiveshareholders. The separation of Jackson would also complete Prudential’s strategic transformation from a global group into a business exclusively focussed on the long-term structural opportunities of Asia and A frica. Impact of stakeholder considerations on the Board’s decision t o a pprove the demerger of Jackson Financial In January 2021, the Board, after discussing the merits of the proposed transaction and its impact on the aected stakeholder groups, decided that a demerger was in the best interests of shareholders when assessed against other options, including a minority IPO, other separation paths or retaining Jackson. Throughout the project the Company engaged pro-activelywith the Hong Kong IA and the Michigan Department of Insurance and Financial Services, and the Board took into account their views in the structuring of the transaction in order to secure their support. The Board actively considered mitigants to reduce the impact on institutional and retail investors who may have been unable to hold shares in Jackson, including determining the size of the stake the Group couldretain upon the demerger, and supporting a proactive programme of investor relations activity. A share sale option was also established to enable small retail shareholders to sell their Jackson Shares and receive the cash sale proceeds, net of applicable withholding taxes with Prudential covering the cost of brokerage and any currency conversion. The C ompany’s registrar, EQ, also provided a corporate sponsored nominee service which enabled eligible shareholders who mayface logistical and/or practical diculties in holding shares listed on a U.S. exchange, to hold their entitlement to Jackson Shares in the form of CREST Depository Interests instead. At the General Meeting in August 2021, shareholders overwhelmingly supported the demerger resolution, voting 99.65per cent in favour of the separation. Shortly thereafterthe Board approved a dividend in-specie, distributing Jackson shares to t he Group’sshareholders. Prudential plc Annual Report 2021prudentialplc.com 144 ![]() Strategic report approval by the Board of Directors The strategic report set out on pages 6 to 145 is approved by the Board of Directors. Signed on behalf of the Board of Directors MikeWells Group ChiefExecutive 8 March 2022 Decision to raise equity and issue shares on the Hong Kong branch register Context In January 2021, Prudential announced that the Board was considering a potential $2.5-$3 billion raising of equity in the context of the intended demerger of Jackson, in order to accelerate de-levering of the Group’s balance sheet throughthe redemptionof existing high-coupon debt. At the same time, the Group announced changes in the regulatory capital calculation used by Jackson. This meant that there would be no pre-separation dividend to Group shareholders. Stakeholder considerations The Board believed there were clear benefits to shareholders from increasing both its Asian shareholder base and the liquidity of its shares in Hong Kong. As a non pre-emptive equity raise, the size of the issuance was limited to the 5 per cent shareholder authorisation which had been obtained at the 2021 AGM with an overwhelming 99.69 per cent of votes cast in its favour. The Board recognised the potential shareholder concernsof a nonpre-emptive raiseand engaged with the Group’s top 20 shareholders to ensure any specific concerns were heard. Impact of stakeholder considerations on the Board’s decision to approve the Hong Kong share oer Having considered the interest of allstakeholders, particularly the views expressed by the Group’s existing shareholders, the Board reached the conclusion that a Hong Kong Fully Marketed Oer, comprisinga global institutional placing and a simultaneous public oer to Hong Kong based retail investors (including a preferential oer to eligible employees and agents) was in the best interests of the Company as a whole. The allocation of shares under the oer took into account a number of criteria, including the interests of existing shareholders and the strategic benefits of increasingboth our Asian shareholder base and enhancing liquidity inHong Kong. The share oer was launched in October 2021, raising approximately $2.4 billion of equity from a range of existing shareholders, new Asia-focussed institutional investors and sovereign wealth funds. The equity raise enabled $2.25 billion of debt repayment to de-lever the Group’s balance sheet and enhance the Group’s financial flexibility in light of the breadth of the opportunities to invest in growth. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 145 ![]() # Governance Prudential plc Annual Report 2021prudentialplc.com 146 ![]() #### Contents 148Chair’s introduction 150Our leadership 156Corporate Governance 158How we operate 167Risk management and internal control 169Committee reports 191Statutory and regulatory disclosures 193Indexto principal Directors’ report disclosures Group overview Strategic report Governance Directors’ remuneration report Financialstatements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 147 ![]() Shriti Vadera Chair #### While the challenges of the pandemic #### continued during 2021, it was an eventful first year for me as Chair of Prudential.We took significant steps asa company and I would like to thank my fellow Board members, management, colleagues and shareholders for their commitment, #### support and, at times, their patience. Recognising the huge impact on individuals and communities alike, we have worked assiduously to support our sta and customers throughout 2021. The Board has continued, in large part, to operate virtually, with members meeting together only wherepermissible and possible. There was a small window in November 2021 when more of us were able to meet in London and this provided an invaluable opportunity for the face-to-face connection which has been sadly absent over the last two years. Board composition The Board has continued to evolve to reflect the Group’s changing geographic footprint and strategic focus on our transformation to a purely Asian and African-focused growth company. In addition to c hanges to the Executive team, one of my key priorities has been changes to the non-executive composition of the Board. While a number of long-standing Directors have come to the end of their tenure,Ihave been delighted with the appointments of the three Non-executive Directors who joined us in 2021 Chua Sock Koong, Ming Lu and Jeanette Wong together with George Sartorel who joined the Board in January of this year. Between them, they bring a depth and breadth of operational experience in Asia and add to the diversity of thought and perspectives around theBoardroom table. They enhance the Board’sfamiliarity with digitaltechnology, and better enable itto support and challenge the business at an operational level. We i ntroduced Sock Koong, Ming and Jeanette at last year’s Annual General Meeting (AGM). Georgebrings deep operating expertise in insurance from a long career in the sector across the Asia Pacific region, as well as experience of digital transformation. We will continue to seek Asian, specialist financial services and digital experience in the next phase ofappointments. I am sorry to say goodbye to some long-standing members of the Board who have seen the Group through a period of transformation. Following Kai Nargolwala’s retirement from the Board at the AGM inMay 2021, Fields Wicker-Miurin retired from the Board on 31 December 2021. Fields was a valued member of the Board, theRemuneration Committee and the Board’s Responsibility & Sustainability Working Group (RSWG) since its inception. On reachingthe end of their nine-year tenure,Anthony Nightingale and Alice Schroeder will step down from the Board at the conclusion of the 2022 AGM. Alice has been a valuable long-standing member of both the A udit and Risk Committees and I am particularly grateful for her work setting up and chairing the RSWG since February 2021. Anthony has brought considerable experience and insight to the Board, Nomination & Governance Committee and as Chair of the Remuneration Committee since 2015, in which role he has been highlydiligentin engagement withour shareholders. As previously announced, Chua Sock Koong will succeed Anthony as C hair of the Remuneration Committee following the conclusion ofthe 2022 AGM. I would like to thank all of them for their contributions. To ensure a smooth transition and to mitigate some of the loss of institutional memory of those Directors stepping down, we have brought the new joiners onto the Board early. This overlap means that the Board is larger in the medium term than is expected over the longer term, but this enables new members to benefit from the out-going members’ experience andinsight. As a further important element ofensuring stability and continuity of knowledge duringthis period of transition and as the average tenure of Board members will be a little over three years following the 2022 AGM, the Board considered that it would be in the best interests of the Company to extend the tenure of the Senior Independent Director,PhilipRemnant, by one year to the 2023 AGM. I have sought the view of major shareholders as part ofmy annual programme ofengagement and am grateful for the support indicated so far. #### Chair’s introduction Prudential plc Annual Report 2021prudentialplc.com 148 ![]() Board agenda in 2021 I have set out in my Chair’s letter the transformation of the Group in 2021 and the key transactions which took place. Overseeing those transactions and the necessary documentation took up a significant amount ofthe Board and management’sattention duringthe year. I a m grateful to all for the additional time put in, which ensured that the Board agenda progressed on a number of other fronts at the same ti me. Alongside the corporate transactions, the focus of the Board’s agenda has been to deepen its knowledge of Prudential’s individual businesses through a series of deep dives with local management teams. These have focused on the specifics of each business alongside cross-cutting themes, their customer propositions, distribution strategies including the use of digital, their competitive landscape, the particular challenges they face and howthey aremeeting them. Ithas been beneficial and rewarding tomeet dierent teams across the Group (albeit largely virtually), to hear their experiences and witness the energythey bring to supporting customers, employees, agents and communities, including through the pandemic. Iam looking forward to being able to hold these sessions in person in the near future. As I noted last year, good governance includes a commitment to continuous improvement and to that end I am grateful to Jeremy Anderson for leading an exercise to consider lessons for the Board to l earn from the revision to Jackson’s hedge modelling, announced last January, which had an impact on Jackson’s statutory capital. Building on the work done by management and internal audit to look at policies and controls in relation to model risk management, Mr A nderson made a n umber of recommendations toenhance governance oversight arrangements at Group and at ourbusiness units. Further detail is included in h is report on pages 184 to 190. Impact on, andengagementwith,key stakeholders The Board considers ESG matters as needing to be fully integrated and aligned with its core business strategy. ESG, including climate change, is overseen by the Board, which is responsible for determining overall strategy and prioritisation of key focus areas, and to ensure ourESG strategic framework (published in 2020) is being embedded across our business. We established the RSWG to devote more time tooverseeing our work on the environment, communities, diversity, inclusion, people andculture, theembedding of ourESG framework, the enhancement of disclosures for 2021 and to employee engagement activities. During 2021, we reviewed various voluntary reporting frameworks and decided to prioritise reporting in line withthe Sustainability Accounting Standards Board Insurance Standard for2021. As a significant asset manager and asset owner in regions forecast to be severely impacted by climate change, Prudential has a distinctive role to play in the transition to a low-carbon economy. Recognising this, in May 2021, we set a target to be net zero by 2050 for our insurance assets supported by a 25 per cent reduction in the weighted average carbon intensity of our investment portfolio by 2025. Full details of the strategy and the work of the RSWG are included in the ESG Report on page pages 66 to 137. Alongsideconsideration of the impact Prudential can haveacross its customers, communities and wider stakeholders, the Board has focused on the wellbeing of our employees through 2021, not least as we continue to adjust to the impact of the pandemic on working practices and as the organisation goes through a period of significant change. 2021 was the second year of a three-year plan to promote and embed a diverse and inclusiveculture and ourchosen behaviours across the Group, and the Board and I have participated in a number of employee engagement activities and seen how theGroup’s values are being embedded in our business. Further details areincluded in the Section 172 Statement on pages 140 to 141. Focus for 2022 I hope this report and those of my fellow Committee Chairs demonstrates the careful work, challenge and oversight undertaken in 2021. After a year of significant change and external uncertainties, in 2022 the Board will focus on delivery of the opportunities we believe our strategic decisions have positioned Prudential to realise across our m arkets. The Covid-19 pandemic and its eects will continue to impact the markets and societies in which we operate, so we will focus on the wellbeing of oursta and the development anddelivery of products and services which best support our customers and policyholders. We will invest in our skills and capabilities as Pulse positions us for digitally-enabled delivery ofhealth protection, insurance and wealth management products and services. We will continue to build on our leading positions in Hong Kong and South- east Asia, and where we see the greatest growth opportunities in the largest economies ofChina, India, Indonesia and Thailand. Technology innovation, adaptation and adoption will continue to bea keydriver and enabler ofour strategy. The ongoing pandemicmeant I was unable to meet shareholders inperson at ourAGM in 2021, though I welcomed the eng agement wewere able to have through our virtual meetings. We were able to hold a hybrid General Meeting (GM) in August 2021 for the vo te on the demerger of Jackson, while throughout the year I have been pleased to meet with our major investors, though largely virtually rather than in-person. I hope that the AGM in 2022 provides the first opportunity for me to meet with shareholders at the AGM in person, public healthcircumstances permitting. The detailed arrangements will becommunicated in our AGM Notice published in April 2022. I look forward to updating you further there. Shriti Vadera Chair Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 149 ![]() #### Our leadership #### Board of Directors Changes to the Board in 2021: > On 1 January 2021, Shriti Vadera became theChair of the Board > On 12 May 2021, Chua Sock Koong, Ming Lu and Jeanette Wong joined the Board > Following the conclusion of the 2021 AGM held on 13 May 2021, Kaikhushru Nargolwala retired from the Board > On31 December 2021, Fields Wicker-Miurin retired from the Board Changes to the Board in 2022: > On 14 January 2022, George Sartorel joined the Board > As announced on 10 February 2022, at the end of March 2022 Mike Wells will retire from his role as Group Chief Executive and step down from the Board. Mark FitzPatrick, currently Group Chief Financial Ocer and Chief Operating Ocer, will become Interim Group Chief Executive and James Turner, currently Group Chief Risk and Compliance Ocer, will become Group Chief Financial Ocer. Avnish Kalra will succeed Mr Turner as Group Chief Risk and Compliance Ocer and will join the Group Executive Committee. > Following the conclusion of the 2022 AGM tobe held on 26 May 2022, Anthony Nightingale and Alice Schroeder will retire from the Board The composition ofthe PrudentialCorporation Asia Limited board of directors mirrors the Prudentialplc Board. Changes to Board Committee Membership: > On 1 January 2021, Shriti Vadera became theChair of the Nomination & Governance Committee > On 4 February 2021, Jeremy Anderson stepped down from the Nomination & Governance Committee and became a member of theResponsibility & Sustainability Working Group . David Law stepped down from the Nomination & Governance Committee and joined the Remuneration Committee and Tom Watjen joined the Nomination& Governance Committee > On 4 February 2021, Fields Wicker-Miurin andKai Nargolwala joined the Responsibility & Sustainability Working Group > On 3 March 2021, Amy Yip stepped down from the Remuneration Committee and joined the Audit Committee > On 12 May 2021, Chua Sock Koong joined theAudit Committee and Remuneration Committee, Ming Lu joined the Nomination & Governance Committee and Risk Committee and Jeanette Wong joined theAudit Committee and Risk Committee > On 1 November 2021, Jeanette Wong joinedthe Responsibility & Sustainability WorkingGroup Shriti Vadera Chair N Michael Wells Group Chief Executive Mark FitzPatrick CA Group Chief Financial Ocer andChiefOperating Ocer James Turner FSA FCSI FRM Group Chief Risk and Compliance Ocer The Hon. Philip Remnant CBE FCA Senior IndependentDirector A N Re Appointments > Appointed to the Board: May 2020 > Appointed Chair: January 2021 > Age: 59 Appointments > Appointed to the Board: January 2011 > Appointed Group Chief Executive: June2015 > Age:61 Appointments > Appointed to the Board: July 2017 > Age: 53 Appointments > Appointed to the Board: March 2018 > Age: 52 Appointments > Appointed to the Board: January 2013 > Age:67 Relevant skills and experience Shriti bringssenior boardroomexperience andleadership skills at complexorganisations, including extensive experience in the financial services sector, with internationaloperations and at the highest level of international negotiations between Governments and in multilateral organisations. Shecontributes herwide-rangingand global experience in economics, public policy and strategy, as well asher deep understanding and insight into global and emerging markets and the macro-political and economic environment. Shriti was chair of Santander UK Group Holdings, the Senior Independent Director atBHP and a Non-executive Director of AstraZeneca. Between 2009 and 2014, she undertook a wide range of assignments, such asadvising the South Korean Chair of the G20, two European countries on the Eurozone and banking crisis, the African Development Bank on infrastructure financing and a number of global investors and sovereign wealth funds onstrategy and economic and market developments. From 2007 to 2009, Shriti was a Minister in the UK government, serving in the Cabinet Oce, Business Department and International Development Department. She led on the UK Government’s response to the global financial crisis and its Presidency of the G20. From 1999 to 2007 she was a member of HM Treasury’s Council ofEconomicAdvisers. Shriti’s career began with 15 years in investment banking with SG Warburg/UBS, where she had astrong focus on emerging markets. Key current external appointments > Institute of International Finance, BoardMember > Chair, The RoyalShakespeareCompany Relevant skills and experience Mike has more than three decades’ experience in insurance and retirement services, having started his career at the US brokerage house Dean Witter, before going on to become a managing director at Smith Barney Shearson. Mike joined the Prudential Group in 1995 andbecame Chief Operating Ocer and Vice-Chairman of Jackson in 2003. In 2011, hewas appointed President and Chief ExecutiveOcer of Jackson, and joined the Board of Prudential. During his leadership of Jackson, Mike was responsible for the development of Jackson’s market-leading range of retirementsolutions. He was also part of the Jackson teams that purchased and successfully integrated a savingsinstitute and two life companies. Key current external appointments > International Advisory Panel of the MonetaryAuthorityof Singapore > San Diego University Advisory Board > China Children DevelopmentFoundation Relevant skills and experience Mark has a strong background across financialservices, insurance and investment management, encompassing wide geographical experiencerelevant to the Group’skey markets. Mark previously worked at Deloitte for 26 years, building his industry focus on insurance and investment management globally. During this time, Mark was Managing Partner for Clients and Markets, a member of the executive committee and a member of the board of Deloitte UK. He was a Vice Chairman of Deloitte for four years, leading the CFO Programme anddeveloping the CFO Transition labs. Mark previously led the Insurance & Investment Management audit practice and the insurance industry practice. Mark is also a Director of Prudential Services Limited and Pulse Ecosystems Pte. Ltd, which are wholly owned Prudential subsidiaries. Markis co-Chair of the Prudential Diversity &Inclusion Council and the Chair of the GroupESG Committee. Key current external appointments > British Heart Foundation > Scottish Mortgage Investment Trust plc Relevant skills and experience Having heldsenior positions atPrudential for over a decade, James has a wide-ranging understanding of the business and draws on previousexperience across internal audit, finance and compliance, as well as technical knowledge and skills, relevant to his role. James joined Prudential as the Director of Group-wide Internal Audit and was appointed Director of Group Finance in September 2015. James joined the Board as the Group Chief Risk Ocer in March 2018 and in July 2019 assumed responsibility for Group Compliance relocating to Hong Kong in August 2019. Relevant skills and experience Philip is a chartered accountant and brings substantial advisory, regulatory and listed company experience to the Board, having worked in senior roles across the financial services sector, including asset management, inthe UK and Europe. Philip was formerly a senior adviser at Credit Suisse and a Vice Chairman of Credit Suisse First Boston Europe and Head of its UK Investment Banking Department. He was twice seconded tothe role of Director General of the Takeover Panel. Philip served on the board of Northern Rock plc and was Chairman of the Shareholder Executive. Philip also served on the board of UKFinancial Investments Limited and was Chairman of The City of London Investment Trust plc and of M&G Group Limited. Key current external appointments > Severn Trent plc > Takeover Panel (deputy chairman) Prudential plc Annual Report 2021prudentialplc.com 150 ![]() #### Executive Directors Non-executive Directors Changes to the Board in 2021: > On 1 January 2021, Shriti Vadera became theChair of the Board > On 12 May 2021, Chua Sock Koong, Ming Lu and Jeanette Wong joined the Board > Following the conclusion of the 2021 AGM held on 13 May 2021, Kaikhushru Nargolwala retired from the Board > On31 December 2021, Fields Wicker-Miurin retired from the Board Changes to the Board in 2022: > On 14 January 2022, George Sartorel joined the Board > As announced on 10 February 2022, at the end of March 2022 Mike Wells will retire from his role as Group Chief Executive and step down from the Board. Mark FitzPatrick, currently Group Chief Financial Ocer and Chief Operating Ocer, will become Interim Group Chief Executive and James Turner, currently Group Chief Risk and Compliance Ocer, will become Group Chief Financial Ocer. Avnish Kalra will succeed Mr Turner as Group Chief Risk and Compliance Ocer and will join the Group Executive Committee. > Following the conclusion of the 2022 AGM tobe held on 26 May 2022, Anthony Nightingale and Alice Schroeder will retire from the Board The composition ofthe PrudentialCorporation Asia Limited board of directors mirrors the Prudentialplc Board. Changes to Board Committee Membership: > On 1 January 2021, Shriti Vadera became theChair of the Nomination & Governance Committee > On 4 February 2021, Jeremy Anderson stepped down from the Nomination & Governance Committee and became a member of theResponsibility & Sustainability Working Group . David Law stepped down from the Nomination & Governance Committee and joined the Remuneration Committee and Tom Watjen joined the Nomination& Governance Committee > On 4 February 2021, Fields Wicker-Miurin andKai Nargolwala joined the Responsibility & Sustainability Working Group > On 3 March 2021, Amy Yip stepped down from the Remuneration Committee and joined the Audit Committee > On 12 May 2021, Chua Sock Koong joined theAudit Committee and Remuneration Committee, Ming Lu joined the Nomination & Governance Committee and Risk Committee and Jeanette Wong joined theAudit Committee and Risk Committee > On 1 November 2021, Jeanette Wong joinedthe Responsibility & Sustainability WorkingGroup Shriti Vadera Chair N Michael Wells Group Chief Executive Mark FitzPatrick CA Group Chief Financial Ocer andChiefOperating Ocer James Turner FSA FCSI FRM Group Chief Risk and Compliance Ocer The Hon. Philip Remnant CBE FCA Senior IndependentDirector A N Re Appointments > Appointed to the Board: May 2020 > Appointed Chair: January 2021 > Age: 59 Appointments > Appointed to the Board: January 2011 > Appointed Group Chief Executive: June2015 > Age:61 Appointments > Appointed to the Board: July 2017 > Age: 53 Appointments > Appointed to the Board: March 2018 > Age: 52 Appointments > Appointed to the Board: January 2013 > Age:67 Relevant skills and experience Shriti bringssenior boardroomexperience andleadership skills at complexorganisations, including extensive experience in the financial services sector, with internationaloperations and at the highest level of international negotiations between Governments and in multilateral organisations. Shecontributes herwide-rangingand global experience in economics, public policy and strategy, as well asher deep understanding and insight into global and emerging markets and the macro-political and economic environment. Shriti was chair of Santander UK Group Holdings, the Senior Independent Director atBHP and a Non-executive Director of AstraZeneca. Between 2009 and 2014, she undertook a wide range of assignments, such asadvising the South Korean Chair of the G20, two European countries on the Eurozone and banking crisis, the African Development Bank on infrastructure financing and a number of global investors and sovereign wealth funds onstrategy and economic and market developments. From 2007 to 2009, Shriti was a Minister in the UK government, serving in the Cabinet Oce, Business Department and International Development Department. She led on the UK Government’s response to the global financial crisis and its Presidency of the G20. From 1999 to 2007 she was a member of HM Treasury’s Council ofEconomicAdvisers. Shriti’s career began with 15 years in investment banking with SG Warburg/UBS, where she had astrong focus on emerging markets. Key current external appointments > Institute of International Finance, BoardMember > Chair, The RoyalShakespeareCompany Relevant skills and experience Mike has more than three decades’ experience in insurance and retirement services, having started his career at the US brokerage house Dean Witter, before going on to become a managing director at Smith Barney Shearson. Mike joined the Prudential Group in 1995 andbecame Chief Operating Ocer and Vice-Chairman of Jackson in 2003. In 2011, hewas appointed President and Chief ExecutiveOcer of Jackson, and joined the Board of Prudential. During his leadership of Jackson, Mike was responsible for the development of Jackson’s market-leading range of retirementsolutions. He was also part of the Jackson teams that purchased and successfully integrated a savingsinstitute and two life companies. Key current external appointments > International Advisory Panel of the MonetaryAuthorityof Singapore > San Diego University Advisory Board > ChinaChildren DevelopmentFoundation Relevant skills and experience Mark has a strong background across financialservices, insurance and investment management, encompassing wide geographical experiencerelevant to the Group’skey markets. Mark previously worked at Deloitte for 26 years, building his industry focus on insurance and investment management globally. During this time, Mark was Managing Partner for Clients and Markets, a member of the executive committee and a member of the board of Deloitte UK. He was a Vice Chairman of Deloitte for four years, leading the CFO Programme anddeveloping the CFO Transition labs. Mark previously led the Insurance & Investment Management audit practice and the insurance industry practice. Mark is also a Director of Prudential Services Limited and Pulse Ecosystems Pte. Ltd, which are wholly owned Prudential subsidiaries. Markis co-Chair of the Prudential Diversity &Inclusion Council and the Chair of the GroupESG Committee. Key current external appointments > British Heart Foundation > Scottish Mortgage Investment Trust plc Relevant skills and experience Having heldsenior positions atPrudential for over a decade, James has a wide-ranging understanding of the business and draws on previousexperience across internal audit, finance and compliance, as well as technical knowledge and skills, relevant to his role. James joined Prudential as the Director of Group-wide Internal Audit and was appointed Director of Group Finance in September 2015. James joined the Board as the Group Chief Risk Ocer in March 2018 and in July 2019 assumed responsibility for Group Compliance relocating to Hong Kong in August 2019. Relevant skills and experience Philip is a chartered accountant and brings substantial advisory, regulatory and listed company experience to the Board, having worked in senior roles across the financial services sector, including asset management, inthe UK and Europe. Philip was formerly a senior adviser at Credit Suisse and a Vice Chairman of Credit Suisse First Boston Europe and Head of its UK Investment Banking Department. He was twice seconded tothe role of Director General of the Takeover Panel. Philip served on the board of Northern Rock plc and was Chairman of the Shareholder Executive. Philip also served on the board of UKFinancial Investments Limited and was Chairman of The City of London Investment Trust plc and of M&G Group Limited. Key current external appointments > Severn Trent plc > Takeover Panel (deputy chairman) Key A Audit Committee N Nomination & Governance Committee Re Remuneration Committee Ri Risk Committee Rs Responsibility & Sustainability Working Group Committee Chair Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 151 ![]() Our leadership / continued Non-executive Directors / continued Jeremy Anderson CBE Independent Non-executive Director Ri A Rs Chua Sock Koong Independent Non-executive Director A Re David Law ACA Independent Non-executive Director A Ri Re Ming Lu Independent Non-executive Director Ri N Anthony Nightingale CMG SBS JP Independent Non-executive Director Re N George Sartorel Independent Non-executive Director Appointments > Appointed to the Board: January 2020 > Age:63 Appointments > Appointed to the Board: May 2021 > Age: 64 Appointments > Appointed to the Board: September 2015 > Age:61 Appointments > Appointed to the Board: May 2021 > Age:63 Appointments > Appointed to the Board: June 2013 > Age:74 Appointments > Appointed to the Board: January 2022 > Age: 64 Relevant skills and experience Jeremy brings to the Board substantial leadership experience in the financial services sector across Asia. He has extensive technical audit and risk management skills and experience, particularlywith regards to multinationalcompanies. Jeremy was formerly the Chairman of Global FinancialServicesat KPMG Internationalhaving previously been in charge of its UK Financial Services Practice and held roles including Head of Financial Services KPMG Europe, Head of Clients and Markets KPMG Europe and CEO of KPMG’s UK consulting business. Jeremy served as a member of the Group Management Board of Atos Origin and as Head of its UK operations. Jeremy also served on the board of the UK Commission forEmploymentand Skills. Key current external appointments > UBS Group AG/UBS AG (Audit Committee Chair, Senior Independent Director, Vice-Chair) > The Productivity Group > The Kingham Hill Trust Relevant skills and experience Sock Koong has more than 30 years’ experience in business leadership, operations, information technology anddigitalisation throughoutAsia. From 2007 to 2020, Sock Koong was ChiefExecutive Ocer of Singapore Telecommunications Limited (Singtel), Asia’s leading communications technology group, having previously held a number of senior rolesat the firm, including Treasurer, Chief Executive Ocer International and Group ChiefFinancial Ocer. Key current external appointments > Bharti Airtel Limited & Bharti Telecom Limited > Cap Vista Pte Ltd > Defence Science and Technology Agency > The Singapore Public Service Commission > The Singapore Council of Presidential Advisers > Royal Philips NV Relevant skills and experience David has extensive technical knowledge and skills in audit, accounting and financial reporting matters and experience across the Group’s key markets, and across a number of industry sectors, particularly insurance. David is a chartered accountant and spentalmost 33 years working with Price Waterhouseand PricewaterhouseCoopers (PwC). During that time he was, amongst other things, the global leader of PwC’s insurance practice, a partner in the UK firm, and worked asthe lead audit partner for multinational insurance companies. He also led PwC’s insurance and investment management assurance practice in London and the firm’s Scottish assurance division. After his retirement from PwC, David became a director and Chief Executive Ocer of L&F Holdings Limited and its subsidiaries, which is the professional indemnity captive insurance group which serves the PwC network and its member firms. David retired from this role in June 2019. Key current external appointments > University of Edinburgh (Chair of Audit and Risk Committee; Membership of Exception Committee,NominationsCommittee and Remuneration Committee) Relevant skills and experience Ming has over 30 years’ experience of investing and developing businesses throughout the AsiaPacific region. Ming is the Head of Asia Pacific at KKR Asia Limited and is a Partner of Kohlberg Kravis Roberts & Co. L.P. He also serves as a member ofthe KKR Asian Private Equity Investment Committee, KKR Asian Portfolio Management Committee and KKR Investment, Management and Distribution Committee. Since 2018 he has played an important role in KKR’s Asia growth and expansion and has served as a member of the Asia Infrastructure Investment Committee and Asia Real Estate Investment Committee. Ming previously worked for CITIC, the largest direct investment firm in China, before moving to Kraft Foods International Inc.. He was president of Asia Pacific at Lucas Varity, and apartner at CCMP Capital Asia (formerly J.P.Morgan Partners Asia), where he was responsible for investment in the automotive, consumer and industrial sectors across a number of countries throughout Asia. Ming hasalso held directorships at Ma San Consumer Corporation,Mandala Energy ManagementPte Ltd, Weststar Aviation Service Sdn Bhd and MMI Technologies Pte Ltd. Key current external appointments > KKR Asia Ltd > Goodpack Pte Ltd Relevant skills and experience Anthony has extensive listed company experience and knowledge of the Asian markets. From 2006 to 2012, Anthony was managing director of the Jardine MathesonGroup, havingpreviously held a number of senior executive positions with the firm. Anthony was formerly a director of Schindler Holding Limited, chairman of the Hong Kong General Chamber of Commerce, an Asia-Pacific Economic Cooperation(APEC) Business Advisory Council Representative of Hong Kong, China and theHong Kong representative to the APEC Vision Group. Key current external appointments > Jardine Matheson Holdings (and other JardineMatheson group companies) > Shui On Land Limited > Vitasoy International Holdings Limited > The Innovation and Strategic DevelopmentCouncil in Hong Kong Relevant skills and experience George has considerable operationalexpertise in financial services, following a career spanning 40 years in the insurance industry including across the Asia Pacific region. From 2014 to 2019 he was the regional Chief Executive Ocer of Allianz’s Asia Pacific business, having previously held a range of senior roles for Allianz including Chief Executive of Allianz Italy, Chief Executive of Allianz Turkey, Global Head of Change Programmes for the AllianzGroup, General Managerof Allianz Malaysia,Allianz Australiaand NewZealand. Healso previously sat on the Financial Advisory Panelof theMonetary Authority ofSingapore from 2015 to 2019. Mr Sartorelbegan his career at Manufacturers MutualInsurancein Australia. Key current external appointments > Insurance AustraliaGroupLimited Prudential plc Annual Report 2021prudentialplc.com 152 ![]() Jeremy Anderson CBE Independent Non-executive Director Ri A Rs Chua Sock Koong Independent Non-executive Director A Re David Law ACA Independent Non-executive Director A Ri Re Ming Lu Independent Non-executive Director Ri N Anthony Nightingale CMG SBS JP Independent Non-executive Director Re N George Sartorel Independent Non-executive Director Appointments > Appointed to the Board: January 2020 > Age:63 Appointments > Appointed to the Board: May 2021 > Age: 64 Appointments > Appointed to the Board: September 2015 > Age:61 Appointments > Appointed to the Board: May 2021 > Age:63 Appointments > Appointed to the Board: June 2013 > Age:74 Appointments > Appointed to the Board: January 2022 > Age: 64 Relevant skills and experience Jeremy brings to the Board substantial leadership experience in the financial services sector across Asia. He has extensive technical audit and risk management skills and experience, particularlywith regards to multinationalcompanies. Jeremy was formerly the Chairman of Global FinancialServicesat KPMG Internationalhaving previously been in charge of its UK Financial Services Practice and held roles including Head of Financial Services KPMG Europe, Head of Clients and Markets KPMG Europe and CEO of KPMG’s UK consulting business. Jeremy served as a member of the Group Management Board of Atos Origin and as Head of its UK operations. Jeremy also served on the board of the UK Commission forEmploymentand Skills. Key current external appointments > UBS Group AG/UBS AG (Audit Committee Chair, Senior Independent Director, Vice-Chair) > The Productivity Group > The Kingham Hill Trust Relevant skills and experience Sock Koong has more than 30 years’ experience in business leadership, operations, information technology anddigitalisation throughoutAsia. From 2007 to 2020, Sock Koong was ChiefExecutive Ocer of Singapore Telecommunications Limited (Singtel), Asia’s leading communications technology group, having previously held a number of senior rolesat the firm, including Treasurer, Chief Executive Ocer International and Group ChiefFinancial Ocer. Key current external appointments > Bharti Airtel Limited & Bharti Telecom Limited > Cap Vista Pte Ltd > Defence Science and Technology Agency > The Singapore Public Service Commission > The Singapore Council of Presidential Advisers > Royal Philips NV Relevant skills and experience David has extensive technical knowledge and skills in audit, accounting and financial reporting matters and experience across the Group’s key markets, and across a number of industry sectors, particularly insurance. David is a chartered accountant and spentalmost 33 years working with Price Waterhouseand PricewaterhouseCoopers (PwC). During that time he was, amongst other things, the global leader of PwC’s insurance practice, a partner in the UK firm, and worked asthe lead audit partner for multinational insurance companies. He also led PwC’s insurance and investment management assurance practice in London and the firm’s Scottish assurance division. After his retirement from PwC, David became a director and Chief Executive Ocer of L&F Holdings Limited and its subsidiaries, which is the professional indemnity captive insurance group which serves the PwC network and its member firms. David retired from this role in June 2019. Key current external appointments > University of Edinburgh (Chair of Audit and Risk Committee; Membership of Exception Committee,NominationsCommittee and Remuneration Committee) Relevant skills and experience Ming has over 30 years’ experience of investing and developing businesses throughout the AsiaPacific region. Ming is the Head of Asia Pacific at KKR Asia Limited and is a Partner of Kohlberg Kravis Roberts & Co. L.P. He also serves as a member ofthe KKR Asian Private Equity Investment Committee, KKR Asian Portfolio Management Committee and KKR Investment, Management and Distribution Committee. Since 2018 he has played an important role in KKR’s Asia growth and expansion and has served as a member of the Asia Infrastructure Investment Committee and Asia Real Estate Investment Committee. Ming previously worked for CITIC, the largest direct investment firm in China, before moving to Kraft Foods International Inc.. He was president of Asia Pacific at Lucas Varity, and apartner at CCMP Capital Asia (formerly J.P.Morgan Partners Asia), where he was responsible for investment in the automotive, consumer and industrial sectors across a number of countries throughout Asia. Ming hasalso held directorships at Ma San Consumer Corporation,Mandala Energy ManagementPte Ltd, Weststar Aviation Service Sdn Bhd and MMI Technologies Pte Ltd. Key current external appointments > KKR Asia Ltd > Goodpack Pte Ltd Relevant skills and experience Anthony has extensive listed company experience and knowledge of the Asian markets. From 2006 to 2012, Anthony was managing director of the Jardine MathesonGroup, havingpreviously held a number of senior executive positions with the firm. Anthony was formerly a director of Schindler Holding Limited, chairman of the Hong Kong General Chamber of Commerce, an Asia-Pacific Economic Cooperation(APEC) Business Advisory Council Representative of Hong Kong, China and theHong Kong representative to the APEC Vision Group. Key current external appointments > Jardine Matheson Holdings (and other JardineMatheson group companies) > Shui On Land Limited > Vitasoy International Holdings Limited > The Innovation and Strategic DevelopmentCouncil in Hong Kong Relevant skills and experience George has considerable operationalexpertise in financial services, following a career spanning 40 years in the insurance industry including across the Asia Pacific region. From 2014 to 2019 he was the regional Chief Executive Ocer of Allianz’s Asia Pacific business, having previously held a range of senior roles for Allianz including Chief Executive of Allianz Italy, Chief Executive of Allianz Turkey, Global Head of Change Programmes for the AllianzGroup, General Managerof Allianz Malaysia,Allianz Australiaand NewZealand. Healso previously sat on the Financial Advisory Panelof theMonetary Authority ofSingapore from 2015 to 2019. Mr Sartorelbegan his career at Manufacturers MutualInsurancein Australia. Key current external appointments > Insurance AustraliaGroupLimited Key A Audit Committee N Nomination & Governance Committee Re Remuneration Committee Ri Risk Committee Rs Responsibility & Sustainability Working Group Committee Chair Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 153 ![]() Our leadership / continued Non-executive Directors / continued The Group Executive Committee (GEC) comprises the Executive Directors, the Chief Executive of Asia and Africa, and the Group Human Resources Director. The GEC is a management committee constituted to support the Group Chief Executive, who also chairs the GEC. For the purposes of the Hong Kong Listing Rules, SeniorManagement is defined as the membersof the GEC. Alice Schroeder Independent Non-executive Director Rs A Ri Thomas Watjen Independent Non-executive Director Re Ri N Jeanette Wong Independent Non-executive Director A Ri Rs AmyYip Independent Non-executive Director A Tom Clarkson Company Secretary Appointments > Appointed to the Role: August 2019 > Age: 46 Relevant skills and experience Tom is the Company Secretary and plays apivotal role in the governance and administration of Prudential and is a trusted adviser to the Board. Prior to his appointment as Company Secretary,Tom held a number of senior roles atPrudential, including Head ofCompliance, Business Partners and prior to that, Group Litigation& Regulatory Counsel. Tom is an admitted solicitor, having practised law at Herbert Smith LLP, London from 2002 to2012, which included secondments to Lloyds BankingGroupand Royal Bank ofScotland. Jolene Chen Group Human Resources Director Appointments > Appointment to the GEC: June 2019 > Age: 62 Relevant skills and experience Jolene isthe Group HumanResources Director, appointed to that role in June 2019, and has been part of the Prudential Group since July 2011. Jolene is responsible for driving the Culture andPeople strategies across the Group. She is also a Councillor of PrudenceFoundation, the community investment arm of Prudential andisCo-Chair of our Global Diversity and Inclusion Council. Jolene has more than 30years’ international experience. Prior to joining Prudential, she spent over 21 years with multinational companies in avariety of resourcing, organisational design, talent management, learning and development and human resources roles. Appointments > Appointed to the Board: June 2013 > Age: 65 Appointments > Appointed to the Board: July 2017 > Age:67 Appointments > Appointed to the Board: May 2021 > Age:61 Appointments > Appointed to the Board: September 2019 > Age: 70 Relevant skills and experience Alice has extensive business transformation andmanagement experience at the executive and board level, across the insurance, asset management, technology andfinancial servicesindustries in the United States. Alice was formerly a director of Bank of America Merrill Lynch International, an independent board member of the Cetera Financial Group and held the oce of chief executive ocer andchair of WebTuner (now Showfer Media LLC). Alice was also a managing director at CIBCOppenheimer, PaineWebber (now UBS) and Morgan Stanley. Alice began hercareer at Ernst & Young as a qualified accountant, before joining the Financial Accounting StandardsBoard, where she oversaw the issuance of several significant insurance accountingstandards. Key current external appointments > HSBC North America Holdings Inc. > RefleXion Medical Inc. > Quincy Health, LLC > NatusMedical Incorporated > Westland Insurance Group Ltd > Carbon StreamingCorporation Relevant skills and experience Tom has experience across the insurance, asset management and financial services industries as well as experience with listed companies in the United Kingdom and the United States. Tom was formerly a director of Sun Trust Bank, an executive vice president and the chief financial ocer of Provident Companies Inc. and, following Provident’s merger withUnum, president and chief executive ocer of the renamed Unum Group. Tom started his career at AetnaLife and Casualty before joining Conning & Company, an investment and asset management provider, where he became a partner in the consulting and private capital areas. He joined Morgan Stanley in 1987, and became a managing director in its insurance practice. Key current external appointments > Arch Capital Group Limited > LocatorX, Inc Relevant skills and experience Jeanette brings to the Board operational skills and experience in the financial services sector, following a career spanning more than 35 years across South-east Asia and the broader Asia Pacific region. From 2008 to 2019, she led DBS Group’s institutional banking business, where she wasresponsibleforcorporatebanking, global transaction services, strategic advisory, and mergers and acquisitions. Prior to this, Jeanette was DBS Group’s Chief Administrative Ocer then, from 2003 to 2008, the firm’s Chief Financial Ocer. As part of her role at DBS Group, Jeanette held non-executive director positions with ASEAN Finance Corporation, TMB Bank and the Bank of the Philippine Islands. Jeanette beganher career in Singaporeat Banque Paribas before moving to Citibank andthen JPMorgan in Singapore, where she held senior pan-Asian roles. She has previously served as a non-executive director of Fullerton FundManagement Ltd and Neptune Orient Lines Limited. Key current external appointments > UBS Group AG > PSA International Pte Ltd > Council of CareShield Life(Chair) > Singapore Airlines Limited > Singapore Securities Industry Council > GIC Pte Ltd (Board Risk Committee Member) Relevant skills and experience Amy has extensive skills and experience in banking, insurance, asset management and government following a career spanning more than 40 years in China and South-east Asia. Amy was formerly a non-executive director ofDeutsche Börse AG, Temenos Group AG, Fidelity Funds, Vita Green, Hong Kong and an Executive Director of Reserves Management atthe Hong KongMonetary Authority. From 2006 to 2010, Amy was Chief ExecutiveOcer of DBS Bank (Hong Kong) Limited, whereshe was concurrently Head of itswealth management group and previously chair of DBS asset management. Amy began her career at the Morgan Guaranty Trust Company of New York, going on to hold progressively senior appointments at RothschildAsset Management and Citibank Private Bank. Key current external appointments > AIG Insurance Hong Kong Limited > EFG Bank and EFG Bank International (Chairman, Asia Pacific Advisory Board) Nicolaos Nicandrou Chief Executive, Asia and Africa Appointments > Appointment to the GEC: October 2009 > Age: 56 Relevant skills and experience Nic became Chief Executive, Asia and Africa inJuly 2017 and is responsible for Prudential Corporation Asia’s life insurance and asset management business across 14 markets in Asia. Nic is also the chairman of CITIC- Prudential Life Insurance Limited. Nic started his career at PwC. Before joining Prudential as an Executive Director and Chief Financial Ocer in 2009, he worked at Aviva, where he held a number of senior finance roles, including as Norwich Union Life’s finance director and board member, Aviva group financial control director, Avivagroup financialmanagement and reporting director andCGNU group financial reportingdirector. Key A Audit Committee N Nomination & Governance Committee Re Remuneration Committee Ri Risk Committee Rs Responsibility & Sustainability Working Group Committee Chair Prudential plc Annual Report 2021prudentialplc.com 154 ![]() The Group Executive Committee (GEC) comprises the Executive Directors, the Chief Executive of Asia and Africa, and the Group Human Resources Director. The GEC is a management committee constituted to support the Group Chief Executive, who also chairs the GEC. For the purposes of the Hong Kong Listing Rules, SeniorManagement is defined as the membersof the GEC. Alice Schroeder Independent Non-executive Director Rs A Ri Thomas Watjen Independent Non-executive Director Re Ri N Jeanette Wong Independent Non-executive Director A Ri Rs AmyYip Independent Non-executive Director A Tom Clarkson Company Secretary Appointments > Appointed to the Role: August 2019 > Age: 46 Relevant skills and experience Tom is the Company Secretary and plays apivotal role in the governance and administration of Prudential and is a trusted adviser to the Board. Prior to his appointment as Company Secretary,Tom held a number of senior roles atPrudential, including Head ofCompliance, Business Partners and prior to that, Group Litigation& Regulatory Counsel. Tom is an admitted solicitor, having practised law at Herbert Smith LLP, London from 2002 to2012, which included secondments to Lloyds BankingGroupand Royal Bank ofScotland. Jolene Chen Group Human Resources Director Appointments > Appointment to the GEC: June 2019 > Age: 62 Relevant skills and experience Jolene isthe Group HumanResources Director, appointed to that role in June 2019, and has been part of the Prudential Group since July 2011. Jolene is responsible for driving the Culture andPeople strategies across the Group. She is also a Councillor of PrudenceFoundation, the community investment arm of Prudential andisCo-Chair of our Global Diversity and Inclusion Council. Jolene has more than 30years’ international experience. Prior to joining Prudential, she spent over 21 years with multinational companies in avariety of resourcing, organisational design, talent management, learning and development and human resources roles. Appointments > Appointed to the Board: June 2013 > Age: 65 Appointments > Appointed to the Board: July 2017 > Age:67 Appointments > Appointed to the Board: May 2021 > Age:61 Appointments > Appointed to the Board: September 2019 > Age: 70 Relevant skills and experience Alice has extensive business transformation andmanagement experience at the executive and board level, across the insurance, asset management, technology andfinancial servicesindustries in the United States. Alice was formerly a director of Bank of America Merrill Lynch International, an independent board member of the Cetera Financial Group and held the oce of chief executive ocer andchair of WebTuner (now Showfer Media LLC). Alice was also a managing director at CIBCOppenheimer, PaineWebber (now UBS) and Morgan Stanley. Alice began hercareer at Ernst & Young as a qualified accountant, before joining the Financial Accounting StandardsBoard, where she oversaw the issuance of several significant insurance accountingstandards. Key current external appointments > HSBC North America Holdings Inc. > RefleXion Medical Inc. > Quincy Health, LLC > NatusMedical Incorporated > Westland Insurance Group Ltd > Carbon StreamingCorporation Relevant skills and experience Tom has experience across the insurance, asset management and financial services industries as well as experience with listed companies in the United Kingdom and the United States. Tom was formerly a director of Sun Trust Bank, an executive vice president and the chief financial ocer of Provident Companies Inc. and, following Provident’s merger withUnum, president and chief executive ocer of the renamed Unum Group. Tom started his career at AetnaLife and Casualty before joining Conning & Company, an investment and asset management provider, where he became a partner in the consulting and private capital areas. He joined Morgan Stanley in 1987, and became a managing director in its insurance practice. Key current external appointments > Arch Capital Group Limited > LocatorX, Inc Relevant skills and experience Jeanette brings to the Board operational skills and experience in the financial services sector, following a career spanning more than 35 years across South-east Asia and the broader Asia Pacific region. From 2008 to 2019, she led DBS Group’s institutional banking business, where she wasresponsibleforcorporatebanking, global transaction services, strategic advisory, and mergers and acquisitions. Prior to this, Jeanette was DBS Group’s Chief Administrative Ocer then, from 2003 to 2008, the firm’s Chief Financial Ocer. As part of her role at DBS Group, Jeanette held non-executive director positions with ASEAN Finance Corporation, TMB Bank and the Bank of the Philippine Islands. Jeanette beganher career in Singaporeat Banque Paribas before moving to Citibank andthen JPMorgan in Singapore, where she held senior pan-Asian roles. She has previously served as a non-executive director of Fullerton FundManagement Ltd and Neptune Orient Lines Limited. Key current external appointments > UBS Group AG > PSA International Pte Ltd > Council of CareShield Life(Chair) > Singapore Airlines Limited > Singapore Securities Industry Council > GIC Pte Ltd (Board Risk Committee Member) Relevant skills and experience Amy has extensive skills and experience in banking, insurance, asset management and government following a career spanning more than 40 years in China and South-east Asia. Amy was formerly a non-executive director ofDeutsche Börse AG, Temenos Group AG, Fidelity Funds, Vita Green, Hong Kong and an Executive Director of Reserves Management atthe Hong KongMonetary Authority. From 2006 to 2010, Amy was Chief ExecutiveOcer of DBS Bank (Hong Kong) Limited, whereshe was concurrently Head of itswealth management group and previously chair of DBS asset management. Amy began her career at the Morgan Guaranty Trust Company of New York, going on to hold progressively senior appointments at RothschildAsset Management and Citibank Private Bank. Key current external appointments > AIG Insurance Hong Kong Limited > EFG Bank and EFG Bank International (Chairman, Asia Pacific Advisory Board) Nicolaos Nicandrou Chief Executive, Asia and Africa Appointments > Appointment to the GEC: October 2009 > Age: 56 Relevant skills and experience Nic became Chief Executive, Asia and Africa inJuly 2017 and is responsible for Prudential Corporation Asia’s life insurance and asset management business across 14 markets in Asia. Nic is also the chairman of CITIC- Prudential Life Insurance Limited. Nic started his career at PwC. Before joining Prudential as an Executive Director and Chief Financial Ocer in 2009, he worked at Aviva, where he held a number of senior finance roles, including as Norwich Union Life’s finance director and board member, Aviva group financial control director, Avivagroup financialmanagement and reporting director andCGNU group financial reportingdirector. #### Company Secretary Group Executive Committee Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 155 ![]() Corporate governance codes – statement of compliance The Company has dual primary listings in London (premium listing) and Hong Kong (main board listing) and has therefore adopted a governance structure based on the UK and Hong Kong Corporate Governance Codes (the UK and HK Codes). This report explains how the principles set out in the UK and HK Codes have been applied. The Board confirms that, for the year under review, the Company has applied the principles and complied with the provisions of the UK C ode. The Company has also complied with the provisions of the HK Code, other than as follows: > Provision B.1.2(d) (now provision E.1.2(d)) of the HK Code requires companies, on a comply or explain basis, to have a remuneration committee which makes recommendations to a main board on the r emuneration of non-executive directors. This provision is not compatible with provision 34 of the UK Code which recommends that the remuneration of non-executive directors be determined in accordance with the Articles of Association or, alternatively, by the Board. Prudential has chosen to adopt a practice in line with the recommendations of the UK Code. > Gi ven the circumstances of thepandemic and UK government guidance, which did not allow large public gatherings as at the date of the 2021 AGM, the Board decided, with regret, that shareholders, external advisers (including the auditor) and the majority of Directors would not be able to attend the AGM in person (and thus provisions A.6.7 (now provision C.1.6) of the HK Code could not be fully complied with). The AGM was attended in person by the Chair, the Senior Independent Director, the Group ChiefFinancial Ocer and Chief Operating Ocer, and the Company Secretary. The Group Chief Executive and the Chairs of the Board’s principal committees attended the meeting via weblink andwere available to shareholders for questions. The auditor also attended via weblink. A recording of the AGM is available on the Company’s website. Prudential continued to keepshareholders informed through its website and released results and otherpresentations during the year. > Th e GM held on 27 August 2021 was convened for the sole purpose of approving the demerger of Jackson Financial Inc. For this reason, only the Chair, the Group Chief Financial Ocer and Chief Operating Ocer, and the Company Secretary attended the GM and thus, provisions A.6.7 (now provision C.1.6) of the HK Code was not fully complied with. The UK Code is available from www.frc.org.uk The HK Code is available from www.hkex.com.hk The table below contains references to disclosures in this Annual Report and Accounts which willenable shareholders toevaluate how Prudential has applied the principles of the UK Code and complied with the more detailed provisions. CorporateGovernance Principles 1. Board leadership and company purpose A. Board promotes long-term value and sustainability The application ofprinciple Aand a description ofhow opportunities and risks to the future success of the business have been considered and addressed (provision 1) are set out in the Strategic report on pages 6 to 145. B. Purpose, Values and Strategy aligned with Culture The Board is satisfied Prudential’s purpose, values and strategy are aligned with its culture. An explanation of the Group’s approach to investing in and rewarding its workforce is set out in the ESG Report on page 101 and in the Directors’ Remuneration Report on pages 194 to 233. Our reporting against provision 5 is set out in the Section 172 Statement on pages 138 to 145. C. Performance measures and controls The responsibility for ensuring that the necessary resources are in place for Prudential to meet its objectives is delegated to Management. See pages 167 to 168 for the Board’s approach to risk management and internal controls. D. Engagement with stakeholders Engagement with shareholders and stakeholders isdescribed inthe Section 172 Statement on pages 138 to 145 and in the ESG Report on p ages 66 to 137. E. Workforce policies and practices Application of principle E is described in the Section 172 Statement on pages 138 to 145 (provision 5), in the ESG Report on pages 66 to 137 and in the whistleblowing disclosure (provision 6) on page 120. #### Corporate Governance Prudential plc Annual Report 2021prudentialplc.com 156 ![]() 2. Division of responsibilities F. Role of the Chair A description of the Chair’s role is set out on page 59. Shriti Vadera was i ndependent on appointment when assessed against the criteria in UK Code provision 10 (she was also independent under HK Code criteria). There is no requirement for independence to bedetermined post appointment. Her biography is on page 150. G. Division of responsibilities The Board comprises a majority of independent Non-executive Directors. There is a clear division of responsibility between the Board and the executive management team. See pages 172 to 173 for our reporting against provision 10 and 11; and the governance structure of the Board and its principal Committees on page 158. H. Non-executive Directors As part of reviewing the performance of Non-executive Directors and r ecommending them for election byshareholders at the AGM, the Board was satisfied that each Non-executive Director has sucient time to meet their board responsibilities (see page 174). I. Eective and ecient processes The 2021 board evaluation tested and confirmed that the Board has the necessary support and information to function eectively and e ciently. See page 166 for more information. 3. Composition, succession and evaluation J. Appointments and succession planning An explanation of the Board’s appointment and succession planning activities can be found on pages 169 to 174 and forms our disclosure against provision 20 and 23. K. Skills, experience and knowledge The Board and its Committees have a diverse combination of skills, experience and knowledge. An overview ofDirectors’ skills, experience, knowledge and length of service is set out in the Director biographies on pages 150 to 155. L. Evaluation of composition and diversity The outcome of the 2021 Board Evaluation and disclosure against provision 23 can be found in the Nomination & Governance Report on pages 169 to 174. 4. Audit, risk and internal control M. Integrity of financial statements Prudential has formal and transparent policies and procedures to ensurethe independence and eectiveness ofboth internal and external audit functions. An explanation of the independenceand eectiveness of the external audit process can be found in the Audit Committee report on pages 179 to 180. In accordance with DTR 7.1.3(5) the Board is satisfied with the integrity of Prudential’s financial and narrativestatements. N. Fair, balanced and understandable The Board has presenteda fair, balanced and understandable assessment of Prudential’s position and prospects in this Annual Report and Accounts. The disclosure against provision 27 can be found on page 321 and is supported by our disclosure against provision 26 in the Audit Committee Report on pages 175 to 183. Disclosures concerning going concern (provision 30) and viability (provision 31) can be found on pages 191 and 64 respectively. O. Internal controls and risk management A description of Prudential’s internal controls framework and risk management framework is set out on page 167 and its emerging and principal risks are set out on page 51. 5. Remuneration P. Remuneration policiesand practices Prudential’s remuneration policies and practices support the achievementof the Group’sstrategy, promotelong-term sustainable success and are aligned to its purpose and values. A description of thework of the Remuneration Committee can be found on pages 194 to 233. Q. Procedure for developing policy The procedure forthe development ofthe remuneration policy and a s ummary of the current Directors’ remuneration policy is set out in the Directors’ Remuneration report on pages 194 to 233. R. Independent judgementand discretion Directors exercise independent judgementand discretion when authorisingremuneration outcomes. The shareholder-approved remuneration policy sets out the limited circumstances in which the Remuneration Committee may exercise discretion. The policy can be accessed on the Company’s websiteat www.prudentialplc.com/ investors/governance-and-policies/policies-and-statements Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 157 ![]() #### How we operate #### Board and Committee Structure Shareholders Board of Directors Collectivelyresponsiblefor thelong-term success of Prudential Audit Committee Assists the Board in meeting its responsibilities for the integrityof the Group’s financial reporting, including the eectiveness ofthe internal control and risk management system andfor monitoringthe eectiveness and objectivity of internal and external auditors. SEE PAGES 175 TO 183 FORMORE Risk Committee Assists with the oversight ofthe Group’s risk appetite, toleranceand strategy. Monitors current and potentialriskexposures, theeectiveness of the riskmanagement frameworkand the Group’s adherenceto the various riskpolicies. SEE PAGES 184 TO 190 FORMORE Remuneration Committee Assists with the implementation and operation of the Remuneration Policy, including the remuneration ofthe Chair and the Executive Directors, as well as overseeing the remuneration arrangements of other sta within its purview. SEE PAGES 194 TO 233 FORMORE Nomination & Governance Committee Assists with therecruitment ofcandidates for the Boardand the maintenanceofan eectiveframework forsuccession planning. Provides support andadviceon corporategovernance arrangements. SEE PAGES 169 TO 174 FORMORE Responsibility & Sustainability Working Group Enables the Board to bringadditional focustotheembedding of the Group’s ESG strategic framework and oversight ofpeople initiatives during a criticalphase. SEE PAGES 69 TO 70 IN THE ESG REPORT FORMORE. GroupChief Executive Responsible for the day-to-day management of the business GroupExecutive Committee Led by the Chair, the Board is collectively responsible for the long-term sustainable success of the Company. It does this by setting the strategyand strategic objectives, approvingcapitalallocations, annual budgets and business plans for the Group, overseeing the operations andmonitoring financial performance andreporting. The B oard establishes the Group’s purpose and values and approves the environmental, social and governance policies, satisfying itself that these and the Group’s culture are aligned with the strategy. Further, the Board is responsible for ensuring that an eective system of internal control and risk management is in place, approving the Group’s overallrisk appetiteand toleranceand endorsing the Directors’ Remuneration Policy for approvalby shareholders. To assist the Board in carrying out its functions, a substantial part of the Board’s responsibilities is delegated to the Board’s principal Committees, which comprise Non-executive Directors. The Board’s principal Committees are the Audit Committee, Risk Committee, Remuneration Committee and the Nomination & Governance Committee. In addition, the RSWG was formed in February 2021 to a ssist the Board with matters concerning the Group’s overall ESG Strategic Framework, including its engagement with the workforce. The Board receives regular updates on Committee and RSWG activities. The Terms of Reference for each of the Board’s Committees a re available to view on the Company’s website www.prudentialplc.com/en/investors/governance-and-policies/ board-and-committees -go vernance Prudential plc Annual Report 2021prudentialplc.com 158 ![]() Chair The Chair has overall responsibility for the l eadership of the Board and succession planning. She sets the Board’s agenda, with a primary focus on strategy, performanceand value creation and ensures eective communication with shareholders and, together with the Group C hief Executive, represents the Group externally. Group Chief Executive The Group Chief Executive is accountable to a nd reports to the Board. He is responsible for the day-to-day management of theGroup, recommendingan overall strategic plan to t he Board for approval and executing the approved strategy. Senior Independent Director The Senior Independent Director (SID) acts as a sounding board for the Chair, and support in the delivery of her objectives. The SID also acts as an intermediary for other Directors and shareholders when necessary and leads the annual performance evaluation of the C hair. Committee Chairs Committee Chairs areresponsible for t he le adership and governance of their respective Committee. They set the a genda for Committee meetings and report to the Board on the Committee ac tivities. Non- executive Directors Non-executive Directors oer constructive challenge to management, holdingthem to account for the performance of the business. They also provide strategic guidance,oer specialist advice and serve o n at least one of the Board’s principal Committees. In addition to the principal Committees and the RSWG, the B oard has established a Standing Committee which can meet as required to a ssist with any business of the Board. It is typically used for ad hoc urgentmatters which cannot be delayed until thenext scheduled Board meeting. All Directors are members of the Standing Committee and have the right to attend all meetings and receive papers. Before taking decisions on any matter, the Standing Committee must first determine that the business it is intending to consider is appropriate for a Committee of the Board and does not need to be properly broughtbeforethe whole Board. All Standing Committee meetings are reported in full to the next scheduled Board m eeting. The StandingCommittee allows for fast decision-making where necessary, while ensuring that the full Board has oversight of all matters under consideration and all Directors can contribute. During 2021, the Standing Committee met twice. Delegation to management Responsibility for the day-to-day management of the business and implementation of strategy has been delegated to the Group Chief Executive, within certain limits, for execution or further delegation by him in respect of matters which are necessary for the eective day-to-day running and management of the business. The Group Chief Executive delegates responsibility to certain senior executives through management reporting lines (principally to other GEC members, including the Chief Executive, Asia and Africa). The Chief Executive of e ach local business has authority (subject to the Delegated Authorities) for the management of the respective business. Board size and roles The Board’s size allows for decision-making to reflect a broad range of views and perspectives while allowing all Directors to participate eectively in meetings. At the date of publication, the Board comprised 12 Non-executive Directors and three Executive Directors. At each scheduled meeting of the Board, the Non-executive Directors meet without the Executive Directors present. The roles of Chair and Group Chief Executive are clearly segregated. The Chair has overall responsibility for the leadership of the Board while the Group Chief Executive manages and leads the business. The S enior Independent Director acts as a soundingboard for the Chair, and provides support in the delivery of her objectives. The Chair, GroupChief Executive and Senior Independent Director all have written terms of reference which are approved by the Board and keptunder regular review. A summary is available to view on the Company’s website. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 159 How we operate / continued Our governance framework The Group GovernanceManual (GGM) defines Prudential’s Group- wide approach to Governance, Risk Management and Internal Control. The principles by which Prudential conducts its business activities are set out in the Group Code of Business Conduct (Code) which sits at the heart of the GGM, incorporating standards of business conduct which set expectations over employee behaviour bypresenting all individual obligationsreferenced throughout the GGM policies in a single code. The GGM itself sets out the Group’s Governance Framework, Group-wide policies andstandards, including the Group Risk Framework, delegated authorities and lines of responsibility and is supported by a programme of regular learning for a ll Prudential colleagues. The Code is regularly reviewed by the Board to ensure that it remains appropriate for the global business. In 2021, the review was delegated to the RSWG and a new section was added concerning employee wellbeing andhow our culture of diversity and inclusion is designed to s upport individuals across the Group. Each individual employee confirms their compliance with the Code on an annual basis. The Nomination & Governance Committee conducts an annual review of the Group’s Governance Framework, monitoring the Group’s significantgovernance policies, including governance arrangements of the Group’s main subsidiaries, and makes recommendations to the Board as appropriate. The Risk Committee approves the Group Risk Framework, an integral part of the GGM, and the Audit Committee monitors Group-wide compliance with the GGM throughout the year. Businesses manage and report compliance with the Group-wide mandatory requirements set out in the GGM through annual attestations. This includes compliance with our Risk Management Framework, a summary of which is set out on pages 167 to 168 of this r eport. The content of the GGM is reviewed regularly,reflecting thedeveloping nature of both the Group and the markets in which it operates, with significant changes on key policies reported to the relevant Board Committee. The GGMhelps the Board embed the Group’s system of risk management and internal control into the day-to-day operations of the business. Subsidiary governance Prudential’s majorbusinesses inHong Kong,Indonesia, Malaysia and Singaporeand the Eastspring holding company(the Material Subsidiaries) haveappointed independentnon-executive directors to their boards. Each Material Subsidiary has established an audit and a r isk committee, with standard terms of reference. To ensure an eective information flow, the Chairs of the Audit and Risk Committees maintain regular dialogue with their counterparts in eachof the Material Subsidiaries. In addition, the Audit and Risk Committees receive regular reports from the audit and risk committees of theMaterial Subsidiaries. Other businesses also operate local audit and risk committees, with s tandard terms of reference. Those committees report to the Group-level Committees throughwritten updates provided by attendees from Group functions and the chairs of the committees can escalate matters to the Group Committee Chairs as required. The Nomination & Governance Committee is responsible for oversight o f governancearrangements for the Material Subsidiaries. Directors’ inductions, training and development Following feedback from the 2020 Board evaluation, the Nomination & GovernanceCommittee oversaw the developmentof a revised induction programme and process for new Board members in 2021. The revised programme features a series of core topics, including an overview of the Group, its key businesses and the control environment, and tailored content, to reflect the new Board member’s role and any particular needs identified duringthe recruitment process. The induction includes written materials, presentations and meetingswith the Chair, the Group Chief Executive, the Group Chief Financial Ocer and Chief Operating Ocer, the Group Chief Risk and Compliance Ocer, the Chairs of the Board’s principal Committees (as appropriate) and the Chief Executive, Asia and Africa. Further meetings with members ofsenior management at Group and local level are also scheduled as required to develop the Directors’ knowledge of the business. Each new Board member is also assigned alonger-standing Non-executive Director to support them in their newrole and provide advice and feedback. Training Throughout the year the Board and its Committees received regular business updates and participated indeep dive sessions, developing the Board’s more granular knowledge ofindividual businesses, current and emerging issues relevant to the Group and its operations and on p articular products and business opportunities. In 2021, these sessions included deep dives into the Group’s operations in a number of its markets, the Group’s digital platform Pulse, together with a Board workshop on geopolitical risks, training on the Hong Kong Insurance Authority’s (IA) new group-wide supervision (GWS) framework and regulatory regime, and an update on aspects of director duties. An i nsurance training session was also held for Chua Sock Koong, Ming Lu and Jeanette Wong as part of their induction to t he Board. All Directors have the opportunity to discuss their individual development needs as part of their Director evaluations and are encouraged to request specific updates during the year. At the start of the year, suggested topics are shared with the Board for feedback. Directors are asked to provide information on any external training or development on an annual basis. All Directors have the right to obtain professional advice at Prudential’s expense. Stakeholder engagement Information on the Board’s engagement with, and discussion of, stakeholder views as part of the Board decision-making process can be found on pages 138 to 145. Additional information can be found on our websiteat www.prudentialplc.com/about-us/esg/our-approach Regulatory environment During 2021, Prudential was included as a designated insurance holding company under the Hong Kong IA Insurance Ordinance, and is now subject to the Hong Kong IA’s GWS Framework. The GWS Framework includes requirements forHong Kong insurance groups to have in place appropriate corporate governance arrangements and to m aintain appropriate internal controls for the oversight of their business. Prudential plc Annual Report 2021prudentialplc.com 160 ![]() Individual regulated entities within the Group continue to be subject to entity-level regulatory requirements in the relevant jurisdictions in which they carry on business. Interactions with regulators form a key part of the Group’s governance framework and the Chair, Group Chief Executive, Group Chief Risk and Compliance Ocer, and the Chief Executive, Asia and Africa play a leading role in representing the Group to regulators and ensuring our dialogue with them is constructive. Employee voice Following the retirement of Kai Nargolwala from the Board at the conclusion of the 2021 AGM and the separation of Jackson Financial Inc. in September 2021, responsibility forworkforceengagement activities was transferred to the RSWG. An overview of the workforceengagement activities undertakenduring 2021 is set out in the Section 172 Statement on pages 138 to 1 45. Shareholders The Board recognises the importance of maintaining an appropriate level of two-way communication with shareholders. In addition to the extensive managementengagement with shareholders, the Chair holds an ongoing programme of regular contact with major shareholders to discuss their views on the Group’s governance. The Senior IndependentDirector and the Committee Chairs are available at the request ofshareholders. Engagement with institutional investors on the Directors’ Remuneration Policy and implementation is l ed by the Remuneration Committee Chair. An investor perception study was also commissioned in 2021, the results of which are set out i n moredetail together with an overview of other shareholder engagement activities undertaken during 2021 in the Section 172 Statement on pages 138 to 145. #### Induction of Chua Sock Koong In May 2021, Chua Sock Koong joined the Board as an Independent Non-executive Director and Member of theRemunerationand Audit Committees. Sock Koong, together with Ming Lu and Jeanette Wong, met with senior management to get an overview of the Group’s business, strategy, operations, risk profile, and culture framework. They also received briefings on theirduties as Directors under relevant corporate governance frameworks and the Group’s regulatory environment, and met with the Head of Investor Relations and the Group’s corporate brokers inorder tounderstand shareholder perspectives. Through participation in the Board deep dive sessions,Sock Koong has builtup her understanding ofindividual businesses, and she visited the insurance business in Singapore to meet with the local leadership team. Specifically for her role, Sock Koong met with the Chair of the Remuneration and Audit Committees together with key members of the senior management team, includingfor remuneration relatedmatters, the Group Human Resources Director andthe Director, Group Reward and Employee Relations and the Group’s remuneration adviser, Deloitte. For audit related matters, Sock K oong met with, amongst others, the Head of Internal Audit, the external auditor KPMG, the Director of Group Financial Accounting & Reporting and the ChiefActuary. These meetings were tailored to Sock Koong’s role at Prudential and provided her with a detailed view of each Committee’s work, current issues and emergingthemes, as wellas an understanding of the interests of the Group’s key stakeholders. PhilipRemnant was chosen as the long-standing Non-executive Director to support Sock Koong, in particular to s hare his experience of UK governance and shareholder expectations. In October 2021, it was announced that Sock Koong would take over from Anthony Nightingale as Chairof the Remuneration Committee following the 2 022 AGM. In anticipation of this, Sock Koong was able to join Anthony’sprogramme of shareholder engagementin late 2021 in order to meet some of the G roup’s major shareholders and develop a deeper sense of their views. Followingthe conclusionof her formal induction programme, the Company Secretary and Sock Koong discussed specific follow-up areas for 2022 and feedback on the induction programme. ‘Although hampered by being largely virtual, the induction provided by the Company gave me an excellent introduction to the business, my role, and the key issues for dierent stakeholder groups, providing mewith a good basis to enable me to contribute to Boardroom discussion. I look forward to meeting more of my fellow Directors and senior leaders in person soon.’ Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 161 ![]() #### Key areas of focus – how the Board spent its time in 2021 The Board met 18 times during 2021, which is twice the number of meetings held in 2020. These additional meetings were required primarily to support the demerger of Jackson Financial Inc. and the Hong Kong Share Oer. The table below gives an indication of the key to pics considered throughout the year. Board allocation of meeting time in 2021 37 % Strategy, Business Plan andCapital 15 % Performance, Business and Operations 25 % Transactions 12 % Stakeholders 11 % Governance and Approvals Strategy, Business Plan and Capital Business and strategy deep dives > Participated in deep dive sessions, includingdiscussion and a holistic review ofPrudential’s insurance and asset management operations and strategic outlook inIndonesia,Thailand, China, HongKong, India, Africa and Singapore > Discussed geo-political risks and the domestic and internationaloutlook forChina > Reviewed and evaluated Pulse, Prudential’sfully digital ecosystem andplatform-based business Business plan andbudget > Ap proved the 2022-2024 business plan and budget > Co nsidered and approved any spend over $30 million and oversaw other management approvals > Approved the 2022 Strategic Priorities Capital > Ov ersaw an increase in the allocation of capital invested in organic new business and in vestments in capabilities/distribution, following the restructuring of the Group into a pure-play Asia and Africa growth business Performance, Business and Operations Financial results > Re viewed and approved the half year and full year results and the Form 20F > Co nsidered fair, balanced and understandable requirements inthe half and full year financial reports, following a review by the Audit Committee > Reviewed and approved the Going Concernand the Viability Statements thatappeared in the 2020 Annual Report > Ap proved the 2020 second interim dividend and first interim dividend for 2021 Reports from CEO, CFO and COO, CRCO > Received regular reports from the Group Chief Executive, Group Chief Financial Ocer and Chief OperatingOcer and the G roup Chief Risk Ocer and Compliance Ocer > Re ceivedregular reports and presentations from the Chief Executive, Asia and Africa and (prior to September 2021), the Jackson Chief Executive How we operate / continued Prudential plc Annual Report 2021prudentialplc.com 162 ![]() Transactions Demerger of Jackson Financial Inc. > Co nsidered the merits of an IPO vs demerger ofJackson, includingthe impactonthe Group’s stakeholders > Received numerous transaction updates throughout 2021 from internal and external advisers > As sured itself of the operational readinessof Jackson and Prudential prior tothe d emerger > Approved the re-organisation of the Group’sholding in Jackson, prior to the distribution of Jackson shares to Prudentialshareholders > Appr ovedthe PrudentialCircular, the Supplementary Circular andthe Notice of G eneral Meeting, amongst other transaction documents Hong Kong share oer > Co nsidered the investment case for theshare oer, includingthe long-term strategic b enefits > Approved a reduction in the board lot sizein H ong Kong to increase the turnover of Prudentialshares, especiallyamongst retail shareholders > Deb ated the share oerallocations, including the portion ofshares available to H ong Kong retail investors, employees and agents > Ap proved proposals on the use of the shareoer proceeds > Appr ovedthe Prospectus, Supplementary Prospectus andvarious transaction documents > Considered other opportunities for inorganic growth presented by management from time to time Stakeholders Investors > Re ceived regular reports from the Directorof Investor Relations on shareholder-related matters, feedback fromthe Chair’s shareholder engagement exercise in January 2021 and regular feedback from management on their ongoing shareholder engagement activities > Commissioned an investor perception survey > Considered the impact on UK-based investors who were unable to participate in the Hong Kong Share Oer Customers > Dis cussed the evolution of Prudential’s digital strategy Pulse, including customer feedback on the design of Prudential’s products, how and where they are distributed, and which markets to access > As part of business reviews, considered customer proposition,products, and customer service > Co nsidered the impact of the pandemic oncustomers and initiatives to mitigate theimpact/the support being provided tothem Employees > Re ceived updates from the RSWG on various people initiatives and regularly discussed people issues, including the impact of the pandemic > At tended theemployee Collaboration Jamand discussed employee engagementfeedback En vironment > Oversaw changes to the Group ResponsibleInvestment framework, enabling the implementation ofa new Responsible Investment Policy and Initiatives, including the Group’s commitment to carbon reduction targets > Re ceived a report on Prudential’s participation at the United Nations Climate C hange Conferencein Glasgow Regulators > Received training on the key aspects ofthe H ong Kong IA GWS Framework andthe responsibilities of the Board > Re ceived reports from the Head of Group Government Relations on key government and political developments and regulatory policy updates Communities > Co nsidered the impact of the pandemic on the communities in which we operate and eorts by the business to support aected communities (eg supporting vaccination programmes) Governanceand Approvals Approvals > Co nsidered various routine and administrative proposals put to the Boardfor approval not covered above > Reviewed the Delegation ofAuthority and n oted key matters approved bymanagement Board Committees > Re ceived reports from the Chairs of theAudit, Risk, Remuneration and Nomination& Governance Committees > Considered updates to the Group Risk Appetite following the demerger of Jackson > Approved the Own Risk and Solvency Assessment for submission to the Hong Kong IA Shareholder meetings > At tended the AGM andGeneral Meeting (as required) to approve the demerger of Jackson FinancialInc (either in person, or online) Board evaluation & succession planning > Re ceived the findings of the External BoardEvaluation. Discussed and agreed theaction plan and monitored progress. > ApprovedBoard appointments and committeechanges on recommendation from the Nomination & Governance Committee > Considered succession planningforthe Group ChiefExecutive Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 163 ![]() How we operate / continued Board meeting attendance throughout 2021 Individual Directors’ attendance at Board meetings throughout the year is set out in the table below. Board Meetings Attended/Requiring Attendance GeneralMeetings 1 Attended/Requiring Attendance Chair Shriti Vadera 18/18 2/2 Executive Directors MikeWells 2 17/17 1/1 Mark FitzPatrick 2 17/17 2/2 James Turner 2 17/17 – Non-executive Directors Philip Remnant 18/18 1/1 Jeremy Anderson 18/18 1/1 Chua Sock Koong 3 8/8 – David Law 18/18 1/1 Ming Lu 3 7/8 – Kai Nargolwala 4 8/9 – Anthony Nightingale 16/18 1/1 Alice Schroeder 18/18 – Tom Watjen 18/18 – Fields Wicker-Miurin 18/18 – Jeanette Wong 3 8/8 – Amy Yip 18/18 – Notes 1Attendance at the 2021 AGM was limited due to Covid-19 restrictions in the UK 2Executive Directors did not attend a board meeting convened specifically to discuss executive succession planning 3Chua Sock Koong , Ming Lu and Jeanette Wong joined the Board on 12 May 2021 4Kai Nargolwala stepped down from the Board following the conclusion of the AGM held on 13 May 2021 Board and Committee papers are usually provided one week in advance of a meeting. Where a Director is unable to attend a meeting, his or her views are canvassed in advance by the Chair of that meeting where possible. Prudential plc Annual Report 2021prudentialplc.com 164 ![]() Board eectiveness Actions during 2021 arising from the 2020 review The performance evaluation of the Board and its principal Committees for 2020 was conducted externally by Independent Board Evaluation, an i ndependent consultancy. The external nature of the review met the provisions of the UK Code which requires external evaluations on no l ess than three-yearly intervals. The findings were presented to the Nomination & Governance Committee and Board for discussion in December 2020. A final report was presented in February 2021, and the Board approved a number of action p oints for 2021. Set out below is an update on progress to address the 2021 actions: Theme Summary of Actions Progress in 2021 Maximising Board inclusivity > En hance induction processes to leveragenew Board members’ skills as quickly as possible > Recognisingthe challenge with c urrenttravel restrictions, createmore opportunities for less formal discussion among Board members > The Company Secretary reviewed best practice and, together with the Chair and with input from management, revised the previous schedule of induction material in order to produce a core induction programme for all new Board members, with additional sessions for those joining each of the Committees. The revised programme is tailored to reflect the needs of the incoming Non-executive Director and aligned withthe Board calendar, including making use of the programme of business deep dives presented to the Board and other Board training. > Ti me was provided for informal introductions to the new Board members in Q2, but otherwise the continued travel restrictions, the c hallenges of time-zones and the volume of Board business have limited the opportunity for the Board to have much informal time together. Focusing on the People and ESG agenda > Consider how best to give ad ditional Board time and focus to the ESG and people agenda > In F ebruary 2021, the Board established the RSWG, which is responsible for assisting the Board embed the Group’s overall ESG S trategic Framework, leading on workforceengagement and developing a Group-wide approach to all forms of diversity and i nclusion, including the setting of measurable objectives and monitoring progress against key metrics. > A su mmary of how the RSWG spent its time in 2021 is set out in the ESG Report on pages 69 to 70. Improvements to Board information flows > As t he shape of the Group changes, build up Board members’ depth of knowledge of the Asia and Africa business a nd refocus the Board agenda to maximise time considering business performance and strategy on a m ore granular basis > Review and strengthen links with subsidiary boards to leverageinsightand support fromthoseboards > The Chair and Company Secretary made changes to the Board’s agenda for 2021 to devote more meeting time to substantive business matters, including aprogramme of business deep dives, consideration of strategic matters, discussion of key risks and consideration of stakeholders. Other approvals and governance matters were given less meeting time and the forward agenda was further developed to assist with planning. How the Board allocated its t ime in 2021 is set out on pages 162 to 163. > In February 2021, the Nomination & Governance Committee considered Board governancearrangements across the Asia businesses. Regular conversations are held between the Audit andRisk Committee Chairs and their counterparts in the Material Subsidiaries, reporting on their discussions to the Audit and Risk Committees as appropriate. In addition, a further audit and risk governance event was held in October 2021, which was attended by all Non-executive Directors of the Material Subsidiaries, and by six members of the Board and the Chief Executive, Asia and Africa. The event received very positive feedback. Improvements to Board processes > Consider processes for briefings outside of meetings to support inclusivity and maximise ways in which Directors benefit fromeach other’s experience and expertise > Non-executive and Executive Directors alike were keen to retain the level ofaccess between Non-executive Directors and management and felt that the time spent in discussions in advance of meetings was an eective and ecient use of everyone’s time and served to enhance the discussion in the room, rather than substitute it in any way. Directors are mindful of the need to raise substantive issues during the formal meetings rather than onlyduring pre-meeting discussionswith management. The RemunerationCommittee has trialled ‘opt-in briefings’, held shortly before the Committee meetings and hosted bymanagement. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 165 ![]() How we operate / continued 2021 review and actions for 2022 The performance evaluation of the Board and its principal Committees for 2021 was conducted internally at the end of 2021, led by the Company Secretary, through a questionnaire. The findings were presented to the Nomination & Governance Committee and the Board in February 2022 and collective Committee and Board discussions to exchange ideas and agree priorities arising from the evaluation took place. Whilst the review confirmed that the Board and its principal Committees continued to operate eectively during the year and that no major improvements were required, an action plan was approved by the Board to respond to the following recommendations: Theme Summary of Actions Board composition, succession planning and meeting process > Co ntinue to develop the skills map to fully support the work on Board succession planning and review processes for oversight of the development of the pipeline for executive positions with the critical skills and d iversity required for the Group’s future strategy. > Given the diculties during the last two years regarding travel and face-to-face interaction, create more opportunitiesfor Boardinteraction amongst themselves, with managementand with employees, where possible in person. Boardoversight, stakeholders and decision making > Fo cus more Board meeting agenda time on customers and employees and review and update KPIs for consistent reporting and analysis. > Co nsider new ways to ensure learnings from past decisions are highlighted to the Board where appropriate, to fully support decision-making. Risk oversight > En hance risk reporting to the Board to further support the prioritisation of key risks. Director evaluation Individual performance of Non-executive Directors was considered by the Chair, who gathered and provided feedback as appropriate throughout the year. The Nomination & Governance Committee discussed the performance of each Director at its meeting in February 2022, as part of the overall Board evaluation, including the Executive Directors in their capacity as Board members. The Chair relayed feedback as required. Feedback on the performance of the Chair was separately provided to, and discussed with her, by the Senior Independent Director. The performance of Executive Directors, in their capacity as Executives, is subject to regular review. The Chair assessed the performance of the Group Chief Executive, in consultation with the Non-executive Board, while the Group Chief Executive appraised the performance of each of the Executive Directors as part of the annual Group-wide performance evaluation of all employees. The Chair of the Risk Committee provided feedback to the Group Chief Executive on the performance of the Group Chief Risk and Compliance Ocer. Executive Director performance is also reviewed by the Remuneration Committee as part of its deliberations on bonus payments. The outcome of these evaluation processes informs the Nomination & Governance Committee’s recommendation for Directors to be put forward forre-election by shareholders. Prudential plc Annual Report 2021prudentialplc.com 166 ![]() The Board is responsible for ensuring that an appropriate and eective system of risk management and internal control is in place across theGroup. The framework of risk management and internal control centres on clear delegated authorities to ensure Board oversight and control of important decisions. The framework is underpinned by the Group Code of Business Conduct, which sets out the ethical standards the Board requires of itself, employees, agents and others working on behalf of the Group, and is supported by a set of Group-wide principles and values that define how the Group expects business to be conducted in order to achieve its strategic objectives. The framework is designed to monitor and manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. Internal control The GGM sets out the general principles bywhich we conduct our business and ourselves and defines our Group-wide approach to Governance,Risk Management andInternal Control. Further information on the GGM can be found on page 160. Group-wide policies, internal controls and p rocesses, based on the provisions established in the Manual, are in place across the Group. These include controlscoveringthe preparation of financial reporting. The operation of these controls and processes facilitates the preparation of reliable financial reporting and the preparation of localand consolidated financial statements in accordance with theapplicable accounting standards, and requirements of theSarbanes-OxleyAct. These controls include certifications by the Chief Executive and Chief Financial Ocer of each business with respect to the accuracy of information provided for use in preparation of the Group’s consolidated financial reporting, and the assurance work carried out in respect of US reporting requirements. The Board has delegated authority to the Audit Committee to review the framework and eectiveness of the Group’s system of internal control. The Audit Committee is supported in this responsibility by the assurance work carried out by Group-wide Internal Audit (GwIA) and the work of the audit committees of the Group’s Material Subsidiaries, which oversee the eectiveness of controls in each respective business. Details of how the Audit Committee oversees the framework of controls and their eectiveness on an ongoing basis, is set out more fully in the report on p ages 175 to 183. Risk management A key component of the GGM is the Group Risk Framework, which requires all businesses to establish processes for 1. identifying, 2. measuring and assessing, 3. managing and controlling, and 4. monitoringand reporting the risks facing the business. The Board determines the natureand extent of the principal risks it is willing to take in achieving its strategic objectives. The Board has delegated authority to the Risk Committee to assist it in providing leadership, direction and oversight of the Group’s overall risk appetite, risk tolerance and strategy; overseeing and advising on the current and potential future risk exposures of the Group; reviewing and approvingthe Group’s risk management framework, including changes to risk limits within the overall Board approved risk appetite; and monitoring the eectiveness of the risk management framework and adherence to the various riskpolicies. Regular activities are detailed in the report on pages 184 to 190. The Group’s risk governance arrangements, which support the Board, the Risk Committee and the Audit Committee, are based on the principles ofthe ‘three lines model’:risk takingand management, risk control and oversight, and independentassurance. Three lines model First line (risk taking and management) > Takes and manages risk exposures in accordance with the risk appetite, mandate and limits set by the Board; > Identifies and reports the risks that the Group is exposed to, and t hose that are emerging; > Promptly escalates any limit breaches or any violations of risk management policies, mandates orinstructions; > Identifies and promptly escalates significant emerging risk issues; and > Manages the business to ensure full compliance with the Group risk management framework as set out in the GGM, which among other requirements, includes the Group Risk Framework and associated policies as well as approval requirements. Second line (risk control and oversight) > As sists the Board to formulate the risk appetite and limit framework, risk management plans, risk policies, risk reporting and risk identification processes; and > Reviews and assesses the risk-taking activities of the first line, and w here appropriate challenging theactions being takento manage and control risks. Third line (independent assurance) > Pr ovides independentassurance on the design,eectiveness and implementation of the overall system of internal control, including governance structures andprocesses, risk management and compliance. Each business is required to implement a governance structure based on the three lines model, proportionate to its size, nature and complexity, and to the risks that it manages. #### Risk management and internal control Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 167 Risk management and internal control / continued Formal reviewof controls A formal evaluation of the risk management and internal control system is carried out at least annually. Prior to the Board reaching a conclusion on the eectiveness of the system in place, the report is c onsidered by the Disclosure Committee and Audit Committee, with risk specific disclosures within the report also reviewed by the Risk C ommittee. This evaluation takes place prior to the publication of the Annual Report. As part of the evaluation, the Chief Executive and Chief Financial Ocer of each business, including Head Oce, certify compliance with the Group’sgovernance policies and associated risk management and internal control requirements. The Governance function, under the responsibility of the Group Chief Financial Ocer and Chief Operating Ocer, facilitates a review of the matters raised in this certification process. This includes the assessment of any risk and control issues reported during the year, risk and control matters identified and reported by the other Group oversight functions and the fi ndings from the reviews undertaken byGwIA, which carries out risk-based audit plans across the Group. Issues arising from any external regulatory engagement are also taken into account. For the purposes of the eectiveness review, the Group has followed the FRC Guidance on Risk Management, Internal Control and Related F inancial and Business Reporting. In line with this guidance, the certification provided does not apply to material joint ventures and a ssociates wherethe Group does notexercise full management control. In these cases, the Group satisfies itself that suitable governance and risk management arrangements arein place to protect the Group’s interests. Additionally, the relevant Group company which is party to the joint venture or associate must, in respect of any services it provides in support of the joint venture or a ssociate, comply with the r equirements of the Group’s internal governance framework. Eectiveness of controls In accordance with provision 29 of the UK Code and provisions C.2.1, C.2.2 and C.2.3 (now provisions D.2.1, D.2.2 and D.2.3) of the HK Code, the Board reviewed the eectiveness and performance ofthe system of risk management and internal control during 2021. This review covered allmaterial controls, including financial, operational and compliance controls, riskmanagement systems, budgets and the adequacy of the resources, qualifications, experience of sta of the Group’s accounting, internal audit andfinancial reporting functions. The reviewidentified a number of areas forimprovement, and the necessary actions have been or are being taken. The Audit Committees at Groupand Material Subsidiary levels collectively monitor outstanding actions regularly andensure sucient resource and focus is in place to resolve them within a reasonable timeframe. This includes oversight of Jackson Financial Inc. whilst it was a subsidiary of the Group. The Board confirms that there is an ongoing process for identifying, measuring and assessing, managingand controlling, and monitoring and reporting the significant risks faced by the Group, including the Jackson FinancialInc. business prior to its demerger on13 September 2021, which has been in place throughout the period and up to the date of this report, and confirms that the system remains eective. Prudential plc Annual Report 2021prudentialplc.com 168 ![]() #### ‘In 2021, the Committee held six #### meetings, with an ongoing focus #### on succession planning, Board #### appointments and induction.’ Dear shareholders I am pleased to provide you with my report as Chair of the Nomination& Governance Committee. 2021 was a busy year for the Committee as it supported the Board in planning for Group Chief Executive succession and worked with the Chief Executive on succession planning for other Executive Director and seniorexecutiveroles, conducted searches foradditional non-executive members of the Board, and considered changes to the composition of the Board’s Committees in order to ensure that the Board continues to have the right combination of skills, experience and knowledge to lead the G roup. Succession planning A key focus of the Committee has been succession planning for theGroup Chief Executive and members of the Group Executive Committee in light of the structural changes the Group is undergoing. Given the importance of Chief Executive and Executive Director succession, the other Non-executive Directors were invited to join theCommittee in considering development plansfor internal candidates and external benchmarking. These activities supported the appointments of Mark FitzPatrick as interim Group Chief Executive, James Turner as Group Chief Financial Ocer and Avnish Kalra as Group Chief Risk and Compliance Ocer, as announced on 10 February 2022. They also provided the foundation for the formal process that is now underway to appoint a new Chief Executive after Mike Wells steps down. #### Committee reports #### Nomination #### & Governance #### Committee #### report Shriti Vadera Chair Membership and 2021 meeting attendance Committee Members 2021Meetings Shriti Vadera 6/6 Jeremy Anderson 1 1/1 David Law 1 1/1 Ming Lu 2 3/3 Anthony Nightingale 5/6 Philip Remnant 6/6 Tom Watjen 3 5/5 Regular attendees > Gro up Chief Executive > Group Human Resources Director > Co mpanySecretary Notes 1Jeremy Anderson and David Law stepped down from the Nomination & Governance Committee on 4 February 2021 2Ming Lu joined the Nomination & Governance Committee on 12 May 2021 3Tom Watjen joined the Nomination & Governance Committee on 4 February 2021 Committee’s purpose The purpose of the Committee is to assist the Board in retaining an appropriate balance of skills to support the strategic objectives of the Group, to develop a formal, rigorous and transparent approach to the appointment of Directors and maintain an eective framework for succession planning. Further, the Committee provides support and advice to the Board on governance arrangements. More information on the role and responsibilities of the Nomination & Governance Committee can be found in its Terms of Reference, which are available at www.prudentialplc.com/investors/governance-and-policies/ board-and-committees-governance Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 169 ![]() Committee reports / Nomination& Governance Committee report / continued Alongside this work, the Committee has been active in searches for non-executivecandidates with the experience, skillsand diversity of thought and perspectives necessary to support the strategic objectives of the Group in Asia and Africa. In May 2021, Chua Sock Koong, Ming Lu and Jeanette Wong were appointed to the Board, followed by George Sartorel in January 2022. Between them, the Board has gained further deep pan-Asian operating experience, relevant financial services expertise and significantly enhanced its digital insights. Our new Directors succeed Kai Nargolwala, who retired from the Board in May 2021, Fields Wicker-Miurin, who retired from the Boardon 31 December 2021 and Anthony Nightingale and Alice Schroeder, who will step down from the B oard at the conclusion of the 2022 AGM. Non-executive Director induction With the amount of change on the Board, ensuring that new Directors are properly inducted and able to contribute as quickly as possible has been another key focus for me and the Committee. The Committee oversaw the development and implementation of a revised induction programme for new Board members, tailored to reflect each member’srole and any particular needs identified during the recruitment process. Each new Board member is also assigned a long-standing Non-executive Director to help support them in their new role. Diversity and inclusion The Committee seeks candidates who bring dierent experiences, skills and perspectives to the Boardroom, ensuring that the Board hasinsights into the key markets in which we operate and a balanceofsector-specific knowledge, operational experience, andcommercial acumen. At 31 December 2021, the representation of women on our Board was 40 per cent. As anticipated, this has since dropped to 33 per cent, but we expect further changes over the next year as t he B oard continues to evolve, and we will work towards the target of 40 per cent women on the Board by the end of 2025, as r ecommended by the FTSE Women Leaders Review. The backgrounds of our Boardmembers increasingly reflect the footprint of the Group’s operations and we have well exceeded the recommendation of the Parker Review at the time of this report,with five of our 15 Directors being from what is regarded intheUK as an ethnic minority background as a result of the recruitmentof Non-executive Directors aligned to our Asia andAfricafocussed business. Committee composition The Committee regularly reviews the size, structure and composition of the Board and its principal Committees. A number of changes to Committee membership were made at the start of the year, including to this Committee. New members have generally been assigned to either the A udit or Risk Committee to help them build their knowledge of the business. Governance The Committee oversaw an internal evaluation of the eectiveness of the Board and its principal Committees. The review confirmed that the Board and its Committees continued to operate eectively in 2021and no major areas requiringimprovement were identified. The C ommittee discussed some areas for further enhancement, which are set out on page 166. The Committee considered the Group’sgovernance framework and itsgovernance policies, including governance arrangements of the Group’s main subsidiaries to ensure that they remain appropriate andfit for purpose. The rest of this report sets out in more detail the activities of the Committee in 2021. I would like to thank the Committee members for t heir diligence and contribution throughoutthe year and management for their responsiveness tochallenge and the quality of p apers. Shriti Vadera Chair of the Nomination & Governance Committee Prudential plc Annual Report 2021prudentialplc.com 170 ![]() Board composition The Committee regularly reviews the size, structure and composition of the Board and its principal committees, including the balance of Non-executive to Executive Directors on the Board, the overall number of Directors, theirrespective skills and experience. At 15 members (at the time of this report), the Board is currently larger than is expected over the medium term. However, during 2021, bringing new joiners on early ensured a smooth transition, to enable them to benefit from out-going members’experience and insight, and to mitigate some of the loss of institutional memory of those Directors stepping down. The Committee has concluded that each of the Directors in oce for the year under review continued to perform eectively and was able to devote appropriate time to fulfil their duties, and that the Board and its Committees had an appropriate combinationof skills, experience and knowledge. In reaching this conclusion, the Committee determined that the Non-executive Directors continued to demonstrate the desired attributes, contributing eectivelyto decision-making and exercising sound independent judgement in holdingmanagement to account. Accordingly, the Committee recommended to the Board those Directors standing for election at the 2022 AGM. During 2021, the Committee also reviewed the membershipof the Board’s principalCommittees, recommending changes to theBoard. When making recommendations, the Committee takesaccount of the c urrent composition of each of the principal Committees, the skills and experience ofthe members and the strategicobjectives of the Group. Assigning new Directors to the Audit or Risk Committees has also helped them to build up their knowledge of the business. Moreinformation onCommittee membership changes can befound on page 150. Most notably, in October 2021, the Committee recommended to the Board the choice of Chua Sock Koong to succeed Anthony Nightingale as Chair of the Remuneration Committee when he steps down at the c onclusion of the 2022 AGM. By taking this decision at this time, it enabled Ms Chua to start her transition to the role by accompanying Mr Nightingale on the programme of annual shareholderengagement. Succession planning The Committee keeps under reviewthe leadership needs of the Group, both for Executive and Non-executive Directors. Board succession plans are supported and informed by the results of the annual Board evaluation andindividual Director evaluations. Executive roles The Committee’s work during the year supported the Board in its responsibility for executive succession planning to ensure continuous and eective leadership of the Group. The Committee reviewed the succession plans in place for the Group Chief Executive, other Executive Directors and Group Executive Committee roles. Succession plans for the Group Executive Committee were discussed with the Group Chief Executive to identify business requirements and to plan for future succession needs. Given the Board’s responsibility for appointing the Group Chief Executive and other Executive Directors, all Non-executive Directors attended these sessions. The Committee received and discussed development assessments of internal candidates conducted by external consultants. It also received the output of extensive external talent mapping. Succession planning for Executive Directors and the Group Executive Committee includes both longer-term planning andemergency cover. Assessment and developmentforinternal candidates is undertaken, in addition to mapping for potential external candidates. Planning for emergency cover is assisted by a broad annual review of talent across the Group and recognises the possible diculties in identifying and attracting suitable talent on potentially short notice. The Committee received feedback on the performance of each Executive Director from the Group Chief Executive and confirmed the Executive Director succession plans. The Committee has oversight of a diverse pipeline ofleadershiptalent extending belowthe level ofthe Group Executive Committee and seeks to attract, retain and develop the next generation of emerging leadership. In 2021, it was assisted in t his by the RSWG. In 2021, the focus was on building new capabilities to support the changing business model and future direction of thebusiness and on developing and embedding future ready skills. The Committee’s discussions are being supported by the Group Human Resources Director,Egon Zehnderand Spencer Stuart. In addition to acting as search consultant in respect of certain Non-executive and Executive hires, Egon Zehnderprovides support forsenior management developmentassessments and plans. Non-executive roles Recognising the number of Non-executive Directors reaching the end of their tenure in 2021 and 2022, the Committee oversaw an extensive external recruitment exercise starting in late 2020, which resulted in the appointments of Chua Sock Koong, Ming Lu and Jeanette Wong in May 2021. A further search for candidates with operational insurance experience,led to the appointment of George Sartorel in January 2022. In considering his appointment, the Committee took into account Mr Sartorel’s deep pan-Asian insurance operating experience, including his successfultransformation of Allianz’s business in Asia, together with his experience of digital transformation. The s earch also identified further candidates who may be considered for future appointments. These appointments are part of an ongoing process to refresh the Board to ensure that it has the right skills and experience to support the Group’s strategic objectives in Asia and Africa, both now and in the future, inparticular, pan-Asian operatingexperience, relevant financial services expertise and a high degree of digital familiarity. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 171 ![]() Process for appointing new Directors The Committee assists the Board in ensuring that there is a formal, rigorous and transparent approach to the appointment of new D irectors. The Committee is involved from the start when a vacancy or a gap in the Board’s skills is identified. A role description is prepared, listing the d esired skills and experienceand reflecting feedback from the Committee and the objectives of the Group’s Diversity and Inclusion Policy. Once agreed, specialist talent agencies are typically engaged to create a long-list of candidates which is reviewed by the Committee and other Board members to create a short-list. Interviews with short-listed individuals then take place with selected Committee and Board members and feedback is provided to the Committee. In this manner, apreferred candidate is selected and theCommittee then recommends the individual to the Board for appointment. For the appointment of Executive Directors, other than the Group Chief Executive, the process is led by the Group Chief Executive working closely with the Chair and the Committee, and is subject to discussion at, and approval by, the Board. The Senior Independent Director leads the Committee in the process of appointinga new Chair. Contemporaneous with this process, due diligence checks are undertaken on the candidate and Prudential liaises with the relevant regulatory authorities. The Committee is kept updated on this process as appropriate. Non-executive Director tenure\* Amy Yip 0246810 Number of years Jeremy Anderson Chua Sock Koong Ming Lu George Sartorel Jeanette Wong Shriti Vadera David Law Tom Watjen Philip Remnant \* Tenure following the conclusion of the 2022 AGM, to be held on 26 May 2022. The re-election of Philip Remnant PhilipRemnant, the Senior Independent Director joined the Board in January 2013. Notwithstanding that he has exceeded nine years on the Board, the Committee recommended to the Board that he remainas an independent member ofthe Board for a f urther year. Mr Remnant would remaina member of the Audit and Remuneration Committees and the Senior IndependentDirector. Given the significant transition that the Board is undergoing, andthe averagetenureof the Non- executive Directors of just over three years, the Committee concluded that it would be in the best interests of the Company to retain Mr R emnant for an additional year. The Board will benefit from the stability and continuity of knowledge and experience, Mr Remnant’s deep knowledge and experience of UK c orporategovernance, and thevaluable support that he is providing to the Chair in his role as Senior Independent Director. While the UK Codeprovides that theindependence of a Director who has served for more than nine years is likely to have been impaired, or could appear to have been impaired, the Committee and Board assessed his p erformance and were satisfied that Mr Remnant remainsindependent incharacter andjudgement. As part of her annual engagement of major investors on governance matters, the Chair set out the above rationale to a number of investors, who were supportive of the proposed extension. Subject to shareholder approval at the2022 AGM, Mr Remnant will step down from the Board at the 2023 AGM. During that time, the Board will identify who is best suited to succeed Mr Remnant in the role of Senior Independent Director. Committee reports / Nomination& Governance Committee report / continued Prudential plc Annual Report 2021prudentialplc.com 172 ![]() Board diversity Boardgender diversity % FemaleMale 31 Dec 2021 40%60% 31 Dec 2020 29%71% 31 Dec 2019 23%77% Given the global reach of the Group’s operations, its business strategy and long-term focus, the Board makes every eort to ensure it is able to recruit Directors with diversity of thought and perspective who will s upport and challenge the ongoing transformationof the organisation. The Committee seeks candidates with backgrounds, experience and skills that broaden the Board’s capability, ensuring it has representation from individuals with insights into the markets in which the Group operates. Talent search agencies are briefed on the Group’s requirements and candidate selection is based on merit, against objective criteria and with due regard for the benefits of diversity on the Board. The Group’s Diversity and Inclusion Policy applies at all levels of the business and the Committee is responsible for overseeing a diverse pipelinefor theBoard and other senior executives and drivinga Group -wi de culture where ourpeople feel valued, treated fairly and respected: enabling them to fullycontribute their thoughts and perspectives and to be their authentic selves. The Committee considers that the pipeline for diverse talent of the Group Executive Committee level remains reasonable with continued eort needed. Female representation of those who are regarded as senior management and part of the leadership teams is 35 per cent. The RSWG has overseen the development of a people dashboard, including measures for tracking local representation andexperience, which will be used by the Committee in future. Inclusive leadership practices are implemented starting with the Board and Committee and throughout theorganisation. A full description of the Group’s activities on diversity and inclusion can be found in the ESG report, on pages 66 to 137. Terms of appointment Non-executive Directors are appointed for an initial term of three years, and subject to review by the Committee and re-election by shareholders, it is expected that Non-executive Directors serve a second term of three years. After six years, Non-executive Directors may be appointed for a further year, up to a maximum of three years, or more in certain limited circumstances. Reappointment is subject to rigorous review as w ell as re-election by shareholders. The Directors’ remuneration report sets out the termsof their letters of appointment, in addition to the terms of Executive Directors’ service c ontracts. Independence The independence of Non-executive Directors is assessed as part of t he appointment process, and annually thereafter, in line with requirements. To support that assessment, each Non-executive Director (except the Chair) provides an annual independence confirmation as required under the HongKong Listing Rules. Members of the Audit Committee areassessed against independence criteria in the Sarbanes-Oxley Act. During 2021 all Non-executive Directors were considered to be independent by the Committee. TheChair, who was independent on appointment, isno longer considered independent. Anthony Nightingale and Alice Schroeder, who joined the Board in June 2013, will not be seeking re-election at the AGM in May 2022. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 173 ![]() Committee reports / Nomination& Governance Committee report / continued Time commitment Non-executive Directors are expected to devote such time as is necessary for the proper performance of their duties. The expected time commitment is agreed and set out in writing in the Letter of Appointment, at which point the existing external demands on an individual’s time are assessed to confirm their capacity to take on the role. The assessment takes into account the time required to prepare forand attend Board and Committee meetings, the AGM, general projects, Board training, dinners and other activities. The current time expectations for Board and Committee membership are set out in the following table. The time expectations of Directors performing Chair roles is considerablymore. Further external appointments which could impairthe ability of Directors to meet these time commitments must first be discussed with the Chair and, where appropriate, approved by the Committee or t he Board. The taking on of any external appointments by an Executive Director is also subject to Board consent. During 2021, the Committee considered the time commitment required of the Non-executive Directors. It was concluded that the expected time commitment set out in the table below remains appropriate, notwithstanding that for 2021, given the volume of work in connection with the corporate transactions, the actual time commitment may have exceeded these numbers. Number of regular scheduled meetings Board 6 meetings 32.5 days Approximate time commitment Audit Committee 5 meetings 15 days Risk Committee 5 meetings 7.5 days Remuneration Committee 4 meetings 5 days Nomination & Governance Committee 3 meetings 4 days Conflicts of interest Directors have a statutory duty to avoid conflicts of interest. In addition, the Company has in place procedures to identify and, where necessary, mitigate potential conflicts of interest. These processes help to ensure decisions are made in the best interests of t he C ompany. The Board has delegated authority to the Committee to identify and, where necessary, authorise any actual or potential conflicts of interest. When recommendinga candidatefor appointment or re-election to the Board, the Committee considers the external appointments of the proposed candidate andrecommendsauthorisationof any conflicts to the Board as appropriate, attaching conditions to the authorisation where necessary. If a Director makes a request to take on a new external position during the year, the Chair considers the proposed external appointment and escalates to the Committee for authorisation where a conflict or potential conflict could arise. The Board considers that the procedures for dealing with conflicts of interests operate eectively. Board eectiveness The Committee oversees the process by which the Board, its Committees and individual Directors’ eectiveness is assessed. Following the external evaluation conducted in 2020 and the completion of resultant actions, the 2021 Board evaluation was conducted internally using a questionnaire. The findings were presented to the Committee and the Board in February 2022 and an a ction plan was agreed to address areas of focus identified by the evaluation. The themes, summary of actions and progress are set o ut on page 166. Governance The Committee reviews the Group’s governance framework on an annual basis, monitoring the Group’s significant governance policies, including governance arrangements of the Group’s main subsidiaries, recommending changes to the Boardas appropriate. Prudential plc Annual Report 2021prudentialplc.com 174 ![]() #### ‘The Group enters 2022 focused on Asia and Africa. Getting to this position has required significant, #### dicult work frommany colleagues #### – thank you for allyour eorts – #### and the continued support from #### our shareholders, forwhich also #### many thanks.’ Dear shareholders 2021 has been another busy year for the Audit Committee as the Group completed its transformation into a pure Asia and Africa growth company, whilst also managing through the ongoing challenges of the pandemic. At the start of the year the Committee considered that the following should be the key areas of focus in addition to its regular ongoing responsibilities. 1.Consideration of the impact of Covid 19 on financial matters including controls, accounting judgements and disclosures; 2. Ov ersight of any required listing particulars; 3. Mo nitoring the ongoing preparation for IFRS 17; and 4. Con sideration of the implicationsof the Jackson demerger on the disclosures, levelof materiality, assurance levelsand governance of the ongoing business. I am pleased that at the end of the year the review of the Committee’s eectiveness concluded that we had delivered against these objectives. We will refresh our priorities for 2022 in the light of the feedback received and new focus of the Group. In addition to its regular schedule of meetings, the Committee met on six further occasions during the year tospecifically reviewdocuments and consider proposals in relation to the Jackson demerger and the Hong Kong share oer. Some scheduled meetings wereextended to allow time for the Committee to increase its understanding of the Asia b usiness. #### Audit Committee #### report David Law Chair Membership and 2021 meeting attendance Committee Members 2021Meetings David Law, Chair 14/14 Jeremy Anderson 14/14 Chua Sock Koong 1 6/6 Philip Remnant 14/14 Alice Schroeder 14/14 Jeanette Wong 1 6/6 Amy Yip 2 9/10 Regular attendees > Ch air of the Board > Group Chief Executive > Gr oup Chief Financial Ocer and Chief Operating Ocer > Group Chief Risk and Compliance Ocer > Di rector of Group Finance > Director of Group Financial Accounting and Reporting > Co mpanySecretary > Group Chief Internal Auditor > Ex ternal Audit Partner > Chief Security Ocer Notes 1Chua Sock Koong and Jeanette Wong joined the Audit Committee on 12 May 2021 2Amy Yip joined the Audit Committee on 3 March 2021 Committee’s purpose The Committee’s purpose is to assist the Board in meeting its responsibilities for the integrity of the Group’s financial reporting, including the eectiveness of the internal control and risk management system and for monitoring the eectiveness and o bjectivity of internal and external auditors. More information about the Audit Committee can be found in its Terms of Reference, which are available at www.prudentialplc.com/investors/governance-and-policies/ board-and-committees-governance Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 175 Committee reports / Audit Committee report / continued Throughout the year, the Committee continued to focus on the impact of Covid-19 on the business, particularly in respect of controls, key judgements and disclosures. No specific matters arose that materially impacted the Group’s balance sheet, viability or internal controls but we remain vigilant as the pandemic and government responses in our markets evolve. In order to increase its focus on the Group’s Asia and Africa entities, the Committee has strengthened its relationships in 2021 with the audit committees in each of the Material Subsidiaries and this will continue in 2022. Sessions were scheduled in 2021 and for 2022 for the Committee to receive presentations from local audit committee chairs and finance teams, to allow discussion of key accounting assumptionsand judgements, control matters, key products and the drivers ofprofitability. To further developthe close working relationship between the Committee and the local audit committees, Jeremy Anderson, the Chair of the Risk Committee and I co-chaired an annual session attended by all of the Non-executive Directors of the Material Subsidiaries. Key matters discussed included the impact of Covid-19 on financial matters and controls, cyber and information security, conduct, culture, oversight of third parties and the implementation of I FRS 17. The Group’s IFRS 17 project has gained momentum as we prepare for its adoption within our half year 2023 financial statements. This year the focus has been on some of the key judgements as well as building and testing the complex system changes needed to apply the new reporting requirements. The Committee has been kept informed of progress on a regular basis. More information on the project is contained in note A3.2 of the financial statements. We have paid particular attention to our whistleblowing procedures and monitored these for any indicators of issues. I regularly meet privately with the Chief Security Ocer to discuss whistleblowing cases and how they are resolved. These are also discussed in private sessions with the Committee or the relevant local audit committee. Committee membership and compliance with regulatory requirements During 2021 Chua Sock Koong, Jeanette Wong and Amy Yip joined the Committee. Theyeach bring extensivefinancial and commercial knowledge and insight to the Committee, particularly in the Asia region. The Committee bids farewell to Alice Schroeder in May who, after joining the Committee in 2013, will step down from the Committee and the Board at the conclusion of the 2022 AGM. On behalf of the Committee, I would like to thank Alice for her significant contribution anddeep knowledge of the USenvironment. The Board has confirmed that each member of the Committee is independent according to SEC criteria and that I may be regarded as the Committee’s financial expert for the purposes of section 407 of the Sarbanes-Oxley Act. Further, for the purposes ofthe UK and Hong Kong Corporate Governance Codes, each member of the Committee has recent andrelevantfinancial experience. Detailed informationon the experience, qualifications and skillsets of all Committee members can be found on pages 150 to 155. External auditor An important part of the Committee’s work consists of overseeing the relationship with the Group’s external auditor, currently KPMG LLP (KPMG), including safeguarding independence, approvingnon-audit fees and satisfying ourselves that it is in the best interests of shareholders for the Committee to recommend their reappointment. The Committee discussed with KPMG the continued impact of Covid-19 to ensure that it was able to deploy sucient resources and complete its audit work satisfactorily. The Committee continued its practice of meeting privately with KPMG and I have held a number of meetingswith the lead partner throughout the year. Following the d emerger of Jackson and therefore the change in the size of the Group, one area of discussion with KPMG has been the scope and materiality of audit work. As reported last year, the Board has resolved that it intends to recommend EY for appointment as the Group’s auditor for the financial year ending 31 December 2023 onwards, subject to shareholder approval at the AGM in 2023. KPMG will remain the Group’s auditor until 2023. During 2021, EY and KPMG commenced the transition process, with EY meeting the Committee to confirm its independence of the Group in the fourth quarter of 2021. We will also be transitioning our lead KPMG partner for the 2022 audit following completion of Philip Smart’s five-year term. I would like to thank Philip for his leadership of the external audit over these particularly challenging y ears. Internal audit During the year we engaged Deloitte to conduct an external review of Internal Audit’s eectiveness. We were delighted to learn that the Function had received strong feedback which was in line with our own view oftheir performance during aperiod of considerable change for the Group. The Committee receives regular updates from the Group Chief Internal Auditor and key members of his team and I meet regularly with him and the Group-wide Quality Assurance Director to d iscuss internal audit work and matters arising. Having a strong function with appropriate resource focused on our key risks has been a p riority ofthe Committee throughout theyear. Prudential plc Annual Report 2021prudentialplc.com 176 ![]() Transactions The Committee spent a considerable amount of additional time in 2021 reviewing oer documents and considering matters in connection with the Jackson demergerand the Hong Kongshare oer. For theJackson demerger, the Committee reviewed the Circular several times before recommendingthe accounting aspects for approval by the Board. These reviews focused on: the approach to verification;the working capital analysis; the Financial Position and Prospectus Procedures; historical financial information contained in the Circular and the no-significant change statement. The treatment of Jackson in the Group’s accounts following the demerger was also an area of focus. The Committee reviewed management representation letters, the status of work carried out by KPMG and the treatment of Jackson in the Group’saccounts following the demerger. The Committee reviewed the Jackson Information Statement for the Form 10, including the duediligenceprocesses and accountingmatters raised by the SEC, particularly the restatement of the accounting for a reinsurance contract within the Jackson standalone US GAAP accounts which, given the dierences between USGAAP and IFRS accountingliterature,had no implications for the Group’saccounts. Followingthe publicationof the Circular,the Committee reviewed the S upplementary Circular, including the half-year 2021 results, and made recommendations to the Board in connection with the internal reorganisation of the Group’s holding in Jackson, which required the Committee to review an interim set of accounts and consider the demerger accounting steps. For the Hong Kong share oer, the Committee reviewed and made recommendations to the Board, in respect of the draft Prospectus and oering documents, includingthe no material adverse change statement, the indebtedness statement and proforma financial information. Regulatory developments A key focus for the Committee during 2021 has been the Group’s programme to demonstrate compliance with the GWS Framework following the designation of Prudential in May 2021, as well as compliance with its reporting regulations. We also participated in the l essons learned project led by the Risk Committee that followed the prior year change to the modelling of Jackson’s statutory capital and have amended our terms of reference as a result of the review. Finally, I would like to thank our management colleagues for their huge eorts this past year in dicult circumstances, their responsiveness to challenge and the quality of papers; and my fellow Committee members for their diligence and contribution throughout theyear. David Law Chair of the Audit Committee Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 177 ![]() Committee reports / Audit Committee report / continued Principal activities and significant issues considered by the Audit Committee during 2021 Matters considered How the Committee addressed the matter Accounting judgements and estimates supporting the Group’s Results One of the Committee’s key responsibilities is to monitor the integrity of the financial statements and any other periodic financial reporting. This year reviewing demerger and listing documents has added to the more regular focus on the half-year financial statements, the Annual Report and Accounts (including compliancewith the GWS public reporting requirements), associated results announcements and Form 20-F disclosures, as well as the annual update of the Group’s published Tax Strategy. In reviewing these and other items, the Committee received reports from management and, as appropriate, reports frominternal and external assurance providers. When considering financial reporting matters, the Committee assesses compliance with relevant accounting standards, regulations and governance codes focusing on key areas of judgement and complexity. No material changes to accounting policies were made during 2021. The Committee continued to receive updates on the Group’s plans to implement IFRS 9 ‘FinancialInstruments’ and IFRS 17 ‘InsuranceContracts’ , which are expected to be eective on 1 January 2023. The approach to adopting these standards is further discussed in note A3.2 of the IFRS financial statements. Throughout its review of financial reporting matters and disclosure, the Committee considered the impact of the Covid-19 pandemic and the short-term uncertainties that it has created. Further explanation on the financial impact Covid-19 has had on the business is set out in the Strategic and Operating Review and Financial Review sections of this annual report. The Committee reviewed the key assumptions and judgements supporting the Group’sIFRS results, including those made in valuing the Group’s investments, insurance liabilities and intangible assets under IFRS, together with reports on the operation of internal controls to derive these amounts. The Committee also reviewed the assumptions underpinning theGroup’s European Embedded Value (EEV) metrics. Assumptions setting The measurement of insurance liabilities is based on estimates of future cash flows, including those to and from policyholders, over a long period of time. These estimates can, depending on the type of business, be highly judgemental. The Committee considered changes to assumptions and other estimates used to derive IFRS insurance liabilities and for EEV reporting. The key assumptions reviewed were: > Persistency, mortality, morbidity (including expectations of future medical costs inflation and related premium rises) and expense assumptions within the continuing life businesses. > Economic assumptions, including investment return and associated risk discount rates. This included review of the decision to include a liquidity premium within the valuation interest rate used by Thailand to calculate its IFRS policyholder liabilities as discussed in note C3.2. The Committeewas satisfied that the assumptions adopted bymanagement were appropriate. Further information on the eects of material changes to insurance assets and liabilities is included in note C3 of the IFRS financial statements. Valuation of investments The Committee received information on the carrying value of investments in the Group’s balance sheet including information on how those values were calculated for those investments which require more judgement. Further information on the valuation of assets is contained in note C2 of the IFRS financial statements. The Committee satisfied itself that overall investments were valued appropriately. Intangible assets The Committee received information to enable it to review the more material intangible asset balances, for example, whether there had been any indication of impairment of the Group’s distribution rights asset or goodwill in light of the continued impact of the Covid-19 pandemic on activities in Asia countries. The Committee was satisfied that there was no impairment of the Group’s intangible assets at 31 December 2021. Further information is contained in note C4 of the IFRS financial statements. Treatment of Jackson within the financial statements The Committee reviewed the accounting for the demerger of Jackson as explained in note D1.2 of the IFRS financial statements. This included confirmation that Jackson met the held for sale and discontinued criteria of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ in half year 2021 and consideration of the fair value of J ackson at the same date. The Committee assessed management’s analysis of the related presentation and disclosurein the financial statements and concluded they wereappropriate. Prudential plc Annual Report 2021prudentialplc.com 178 ![]() Principal activities and significant issues considered by the Audit Committee during 2021 Matters considered How the Committee addressed the matter Other financial reporting ma tters Demergerof Jackson The Committee reviewed the ShareholderCircular and Supplementary Circular prepared by management in accordance with the UK Listing Rules for the demerger of Jackson and was regularly briefed by Jackson management on its own preparation for listing as a stand-alone US entity. Assurance was sought from external parties including the Group’s reporting accountants and financial advisers. The Committee reviewed the procedures undertaken tosupport the verification of material statements made in the Prudential Shareholder Circular. The Committee reviewed drafts of documents throughout 2021and commented onthe approach and content throughout theprocess. International placing and Hong Kong public oer of new share capital In October 2021, the Group issued new shares on the Hong Kong Stock Exchange through a concurrent Hong Kong public oer and international placing. The Committee reviewed theProspectusfor theshare oer, prepared by management in accordance with the Hong Kong Listing Rules, and the procedures undertaken to support the verification of material statements made in the Prospectus. Going concern and viability statements The Committee considered various analyses from management regarding the capital and liquidity positions at Group and parent company level, taking into account the Group’s principal risks. This included an assessment of the impact that dierent stress scenarios may have on the Group’s plan and its resilience to those threats. Following this review, it r ecommended to the Board that it could conclude that the financial statements should continue to be prepared on a going concern basis and that the disclosures in the 2021 Annual Report and Accounts on the Group’s longer-term viability were both reasonable and appropriate. Fair, balanced and understandable requirement The Committee carried out a formal review of whether the 2021 Annual Report and Accounts were ‘fair, balanced and und erstandable’ as requiredby the UK Corporate GovernanceCode. In particular, it considered whether the report gave a full picture of the Group’s business model, strategy, financial position and performance in the year, with i mportant messages appropriately highlighted. It also considered the level of consistency between financial statements and narrativesections, whether performance measures wereclearly explained and the prominence of alternative performance measures. After completion of its detailed review, the Committee was satisfied that, taken as a whole, the Group’s Annual Report and Accounts were fair, balanced and understandable. Taxation The Committee regularly received updates on the Group’s tax matters and provisions for certain open tax items, including tax matters in litigation. The Committee was satisfied that the level of provisioning adopted by management was appropriate. See notes B3 and C7 of the IFRS financial statements. In 2021, the Committee was also updated on the OECD proposals to reform international tax including the introduction of a global minimum tax rate of 15 per cent intended to be eective from 2023. Parentcompany financialstatements The Committee reviewed the parentcompany profit and loss accountand balance sheet, which included the recoverability of the parent company’s investment in subsidiaries by assessing and confirming that the net assets of the relevant subsidiaries (being an approximation of their minimum recoverable amount) were in excess of their carrying value at the balance sheet date. External Audit External audit eectiveness The Group’s external auditor is KPMG LLP (KPMG) and oversight of the relationship with KPMG is one of the Committee’s key responsibilities. The Committee reviewed the eectiveness of the auditor throughout the year taking into account: > Th e detailed audit strategy for the year, approach to risk assessment and coverage of the audit response to highlighted significant risks; > Th eir approach to Group materiality setting in the context of the demerger of Jackson and their proposal on how that is applied to the individual business units; > In sightaround the key accounting judgements and the way KPMG applied constructive challenge and professional scepticism in dealing with management; > Th e outcome of management’s internal evaluation of the auditor as discussed below; and > Other external evaluations of KPMG, with a focus on the FRC’s annual quality review. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 179 ![]() Committee reports / Audit Committee report / continued Principal activities and significant issues considered by the Audit Committee during 2021 Matters considered How the Committee addressed the matter External Audit continued There is an open dialogue on emerging risks and issues between the Group Lead Partner and Committee members via a regular schedule of meetings aligned to key reporting milestones. In 2021 the Committee formally met with the Group Lead Partner without management present on two separate occasions. Internal evaluation of KPMG was conducted using a questionnaire survey that was circulated to the Committee members, independent members of the audit committees of Material Subsidiaries, the Group Chief Financial Ocer and Chief Operating Ocer and the Group’s senior financial leadership for completion. A key componentof the evaluation was the degree of challenge and robustness of approach to the audit. The survey asked 29 questions over f our categories (audit quality and execution, team performance, process and communication) in relation to the 2020audit. KPMG was given the opportunity to respond to the findings in the reports and where necessary, proposed enhancements to the audit process and team. The Committee noted the publication by the FRC in July 2021 of the results of its Annual Quality Review. While the report contained a number of areas for improvement for KPMG as a whole, the Committee noted that the FRC had reviewed KPMG’s audit of Prudential’s financial statements for the year ended 31 December 2019, for which no significant recommendations were made by the FRC for further improvement and a number of areas of good practice were highlighted. Auditorindependence and objectivity The Committee has responsibility for monitoring auditor independence and objectivity and is supported in doing so by the Group’s Auditor Independence Policy (the Policy). The Policy is approved annually by the Committee. It sets out the circumstances in which the external auditor may be permitted to undertake non-audit services and is based on fourkeyprinciples which specify that theauditor shouldnot: > Ha ve a mutual or conflicting interest with the Group; > Audit its own firm’s work; > Ac t as management or employees for the Group; or > Be put in a position of being an advocate for the Group. The Policy has two permissible service types: those that require specific approval by the Committee on an engagement basis and those that are pre-approved by the Committee with an annual monetary limit capped at no more than five per cent of the Group audit fee in the proposed year and capped at $65,000 individually. The Policy also provides that the total fees payable to KPMG for non-audit services, other than those required by law or regulation, shall be limited to no more than 70 per cent of the average audit fees paid in the past three consecutive financial years. In accordance with the Policy, the Committee approved these permissible services, classified as either audit or non-audit services, and monitored the usage of the annual limits on a quarterly basis. Non-audit services undertaken by KPMG were agreed prior to the commencement of work and were confirmed as permissible for the external auditor to undertake in accordance with the Policy which complies with the rules and regulations of the FRC’s Revised Ethical Standard (2019), the US Securities and Exchange Commission (SEC) and the standards of the Public Company Accounting Oversight Board (PCAOB). The Committee monitored the nature and extent of non-audit services on a regular basis to ensure the provision of non-audit services complied with the Group’s Policy and did not impair the auditor’s objectivity or independence. The Committee noted that KPMG typically only performed non-audit services where they complemented its role as external auditor, for example the review of half year and EEV financial statements or additional assurance to support capital market requirements. This work has by necessity been significant as a result of the demerger of Jackson and the public oering in Hong Kong in 2021. It is not however considered to detract from the objectivity and independence of KPMG due to the nature of the work and the involvement of separate teams. In keeping with professional ethical standards, KPMG also confirmed its independence to the Committee and set out the supporting evidence for its conclusion in a report that was considered by the Committee prior to publication of the financial results. The Committee will continue to monitor developments to ensure the Group’s policies and processes around audit eectiveness and independence evolve in line with marketpractice. Prudential plc Annual Report 2021prudentialplc.com 180 ![]() Principal activities and significant issues considered by the Audit Committee during 2021 Matters considered How the Committee addressed the matter External Audit continued Fees paid to the external auditor The fees paid to KPMG for the year ended 31 December 2021 amounted to $15.5 million (2020: $16.0 million) of which $6.5 million (2020: $3.8 million) was total amounts payable in respect of non-audit services, except those required by law and regulation, as defined by the FRC’s Revised Ethical Standard (2019). A breakdown of the fees payable to KPMG can be found in note B2.4 of the IFRS financial statements. The ratio of non -au dit fees for the Group in 2021 over the average of audit fees for the past three years is 51 per cent for the Group, 19 per cent below the 70 per cent cap set by the FRC. In 2021, $2.1 million including amounts incurred by the discontinued US operations (2020: $0.4 million) of the $6.5 million (2020: $3.8 million) spent on non-audit services, excluding those required by law and regulation, was for one-o services associated with the demerger of Jackson and the public oering of equity shares in Hong Kong. Excluding these one-o fees, total non-audit service fees that are subject to non-audit fee cap in 2021 were $4.4 million compared with $3.4 million in 2020. The services associated with this amount included the review of the Group’s half year financial statements and EEV disclosures and in 2021 additionally included assurance work performed by KPMG in connection with Prudential Hong Kong’s application to early adopt the new risk-based framework in Hong Kong, the result of which is pending. In all these cases, the audit firm was considered the most appropriate to carry out the work, given its knowledge of the Group and thesynergies that arisefrom running these engagements alongside its main audit. All non-audit services were pre-approved by the Committee and were in line with the Policy discussed above. Reappointment of the external auditor Based on the outcome of the eectiveness evaluation and all other considerations, the Committee concluded that there was nothing in the performance of the auditor which would require a change at the next AGM. The Committee therefore recommended that KPMG be reappointed as the auditor. A resolution to this eect will be proposed to shareholders at the 2022 AGM. Audit tender The Committee acknowledges the provisions contained in the UK Code in respect of audit tendering, along with legal requirements on mandatory lead auditor rotation and audit tendering. In conformance with these requirements, the Company conducted a competitive tender in 2020 to change audit firm for the 2023 financial year end. KPMG was appointed in 1999 and since 2005, the Committee has annually considered the need to retender the external audit service. Following the tender in 2020, the Board resolved that it intends to recommend EY for appointment for the year ending 31 December 2023 onwards, subject to shareholders’ approval at the AGM in 2023. Transition to the new audit firm has commenced and in the fourth quarter of 2021 EY confirmed to the Committee their independence from the Prudential Group. A description of the detailed tender process is set out in the 2020 Annual Report and Accounts. Throughout the 2021 financial year, the Company has complied with the provisions of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 issued by the UK Competition and Markets Authority. Lead Audit Partner Rotation Philip Smart, KPMG Group Lead Partner, was appointed in respect of the 2017 financial year and is expected to be replaced after a five-year term following the completion of this 2021 reporting cycle. In line with the Financial Reporting Council’s Ethical Standard, the rules and regulations of the SEC and the standardsof the PCAOB, a new Group Lead Partner will be required for the 2022 audit. The replacement Lead Partner has been identified and an appropriate transition plan is in place. During the 2021 year end audit, the new Lead Partner shadowed Mr Smart and m et with members ofthe Committee and management team and attended Committee meetings. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 181 ![]() Committee reports / Audit Committee report / continued Principal activities and significant issues considered by the Audit Committee during 2021 Matters considered How the Committee addressed the matter Whistle blowing Speak out The Group continues to operate a Group-wide whistleblowing programme (‘Speak Out’), hosted by an independent third party (Navex). The Speak Out programme received ad hoc reports from a wide variety of channels, including a web portal, hotline, email and letters. Reports are captured, confidentially recorded by Navex, and triaged by Group Security Investigations prior to investigation by the appropriate teams. The Committee isresponsible for oversightof the eectiveness of theGroup’s whistleblowing arrangements. The Committee received regular reports on the most serious cases and other significant matters raised through the programme and the actions taken to address them. The Committee was also briefed on emerging Speak Out trends and themes. The Committee may, and has, requested further reviews of particular areas of interest. The Committee reviews the Group’s Speak Out programme annually, satisfying itself that it continues to comply with legal, regulatory and governance requirements. The Committee also considered the consistency of approach adopted across subsidiary audit committees. The Speak Out programmehas been further strengthened duringthe year by the m anagement levelcommittees. Where relevant, the Committee requested information onthe sharing of lessons learned. The Chair and Committee spent time privately with the Group Chief Security Ocer to understand outcomes of investigations, ensure that investigations were adequately resourced andappropriately managed, thatthere had been no retaliation against anyone making a report and that investigations were not improperly influenced. A review of the Speak Out programme and its oversight was undertaken in 2021. Internal audit Regular reporting The Committee received regular updates from GwIA on audits conducted and management’s progress in addressing audit findings within agreed timelines. Any d elays in implementing remediation actions were escalated to the Committee and given particular scrutiny. The independent assurance provided by GwIA formed a key part of the Committee’s deliberations on the Group’s overall control environment. During 2021, the areas reviewed included: transformation and change management (in particular relating to the demerger of Jackson); financial controls; outsourcing and third-party supply; customer outcomes; cyber security and IT risk; compliance and regulatory; and the second line. The Group Chief Internal Auditor reports functionally to the Committee Chair and, for management purposes, to the Group Chief Executive, and also has direct access to the Chair of the Board. In addition to formal Committee meetings, the Committee meets with the Group Chief Internal Auditor in private to discuss matters relating to, for example, the eectiveness of the internal audit function, significant audit findings and the risk and control culture of the organisation. The Committee Chair also meets with GwIA’s Quality Assurance Director to discuss the outcome of t he quality reviews of GwIA’s work and actions arising. Annual internal audit plan and focus for 2022 GwIA operates a rolling six-month approach to audit planning. The Committee approved the plan for the second half of 2021. It also considered and approved the Internal Audit Plan, resource and budget for the first half of 2022. The H1 2022 Internal Audit Plan was formulated based on a bottom-up risk assessment of audit needs mapped against various metrics combined with top-down challenge. The plan was then mapped against a series of risk and control parameters, including the top risks identified by the Risk Committee, to verify that it is appropriately balanced between financial, business change,regulatory andoperationalrisk drivers and provides appropriate coverageof key risk areas and audit themes within a risk-based cycle of coverage. Key areas of focus for H1 2022 include: strategic change initiatives; customer outcomes; cyber security; financial risk and financial controls; culture; outsourcing and digitalisation. Prudential plc Annual Report 2021prudentialplc.com 182 ![]() Principal activities and significant issues considered by the Audit Committee during 2021 Matters considered How the Committee addressed the matter Internal audit continued Eectiveness of Internal Audit The Committee is responsible for approval of the GwIA charter, audit plan, resources, and for monitoring the eectiveness of the function. The Committee also assesses the eectiveness of GwIA through a combination of External Quality Assessment (EQA) reviews, required every five years, and an annual internal eectiveness review. In 2021, Deloitte performed an EQA of GwIA, which assessed GwIA as a mature function that Generally Conforms (the highest rating under the IIA’s framework) with the Institute of Internal Audit (IIA) International Professional Practices Framework and Internal Audit Financial Services Code of Practice (the Standards), and with the approach to m eeting the requirements and expectationsof the Hong Kong Insurance Authority includingthe Groupwide Supervision framework. The assessment also considered GwIA’s purpose, position, processes and reporting in the context of the Group’s wider systems of governance. Having considered the findings of the EQA and the 2021 Internal Eectiveness review, performed by the GwIA Quality Assurance Director, the Committee concluded that GwIA had continued to operate independently ofmanagement and in compliance with the requirements of GwIA delegated authorities, procedures and practice standards in all material respects and had remained aligned to mandated objectives during 2021. Internal control and risk m anagement Internal control and risk management systems The Committee is responsible for reporting and making recommendations to the Board on the eectiveness of the Group’s system of risk management and internal control. The Committee considered the outcome of the annual review of the system of risk management and internal control. The review identified specific areas for improvement and the necessary actions that have been, or are being, taken. Group Governance Manual The Group Governance Manual (the Manual) sets out the general principles by which weconduct our business and ourselves and defines our Group-wide approach to Governance, Risk Management and Internal Control. Incorporating our GroupCode of Business Conduct, the Group Governance Manual sets out thegeneral principles by w hich we conduct our business and ourselves. Each business attests annually to compliance with: > Ma ndatory requirements set out in Group-wide policies, including the Group Code of Business Conduct; and > Mattersrequiring priorapprovalfromthose parties with delegatedauthority. The Committee reviewed the results of the Group Governance Manual annual content review and the results of the year-end compliance attestation for the year ended 31 December 2021. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 183 ![]() ‘The Committee hascontinued to provide the Board with leadership, direction and oversight of the risk appetite and exposures of the Group.’ Dear shareholders As Chair of the Risk Committee I am pleased to report on the Committee’s activities and focus during 2021. The Committee continued to consider the challenges presented by the pandemic, it also provided key input into the historic changes to the Group that w ere completed during the year. The Hong Kong IA’s GWS Framework became eective for the Group on 14 May 2021, following designation by the Hong Kong IA, subject to agreed transitional arrangements. The Committee considered updates, including the results of an independent readiness assessment, on the implementation of the Framework prior to Prudential’s designation. Following implementation, we received regular updates on theGroup’s o ngoing compliance. The risks associated with the Jackson demerger and equity raise, which completedin September andOctober 2021 respectively, were a k ey focus of the Committee, which considered risk opinions and approved the associated risk disclosures included in transaction documentation. Some of the other key risks and matters considered by the Committee are summarised in this letter, with further information included in the table below. #### Risk Committee #### report Jeremy Anderson Chair Membership and 2021 meeting attendance Committee Members 2021Meetings Jeremy Anderson 9/9 David Law 9/9 Ming Lu 1 5/5 Kai Nargolwala 2 4/4 Alice Schroeder 9/9 Tom Watjen 9/9 Jeanette Wong 1 5/5 Regular attendees > Ch air of the Board > Group Chief Executive > Gr oup Chief Risk and Compliance Ocer > Group Chief Financial Ocer and Chief Operating Ocer > Co mpanySecretary > Group Chief Internal Auditor > Ch ief risk ocers of Jackson 3 and PCA > Me mbers of the Group Risk Leadership Team are invited to attend each meeting as appropriate. Notes 1Ming Lu and Jeanette Wong joined the Risk Committee on 12 May 2021. 2Kai Nargolwala stepped down from the Board following the conclusion of the AGM held on 13 May 2021. 3The Chief Risk ocer of Jackson ceased attendance following the demerger. Committee’s purpose The Committee’s purpose is to assist the Board in providing leadership, direction and oversight of the Group’s overall risk appetite, tolerance and strategy. It oversees and advises the Board on the current and potential risks to the Group, reviewing and approving the Group’s risk management framework, and mo nitoring its eectiveness and adherenceto the various risk policies. More information on the Risk Committee can be found in i ts T erms of Reference, which are available at www.prudentialplc.com/investors/governance-and-policies/ board-and-committees-governance Committee reports / Risk Committee report Prudential plc Annual Report 2021prudentialplc.com 184 ![]() Committee operationand governance As part of its duties detailed above, the Committee reviews the Group Risk Framework (GRF) to ensure that it remains eective in identifying and managing the risks faced by the Group and recommends changes for approval by the Board. We considered and approved the Risk, Compliance and Security (RCS) function’s planned activities for 2021 and received regular reports from the Group Chief Risk and Compliance Ocer (CRCO), who is advised by the Group Executive Risk Committee (GERC). We also received regular reports from the GwIA function and updates from other areas of t he business as needed. In 2021, to ensure sucient time was provided for key matters requiring detailed discussions, additional Committee time was planned following the scheduled meetings in February and November 2021. The Committee works closely with the Audit Committee to ensure both committees are updated and aligned on matters of common interest and I report to the Board on the main matters discussed. Direct lines of communication, reporting and oversight of the risk committees of the Group’s Material Subsidiaries are in place. Their terms of reference are aligned to the Committee’s own, and include the requirement for relevant risk escalations directly to the Committee. Regular direct communication and close cooperation with each of the local chairs remains a key component of our governance framework, and at each meeting I update the Committee on important points raised at local level. In order to foster a close working relationship with the local auditand risk committees and deepen understandingof Group-wide risk topics, David Law and I chaired a session attended by the non-executive directors of the Group’s Material Subsidiaries. The eectiveness of the Committee was reviewed as part of the annual Board evaluation, which confirmed that the Committee continued to operate eectively during the year, with actions agreed where necessary to improve its eectiveness. I p rovided feedback on the performance of the Group CRCO to the Group Chief Executive as part of the annual evaluation of the Board and its members. Risk appetite and principal risks a. Risk governance, capital and liquidity The Committee performed its regular review of the Group’s risk policies and proposed changes to the Group risk appetite statements and associated limits, including howthese would apply following the demerger ofJackson. We regularly reviewed the strength of our capital and liquidity positions, including the results of stress and scenario analyses. We also considered regular updates on the approach for adoption of the proposed Risk-Based Capital (RBC) regime at our Hong Kong business. b. The Group’s principal risks The Committee considered the principal risks to the Group’s financial viability and non-financial resilience and sustainability, inparticular those driven by a constantly-changing operating environmentand the risks to, and resulting from, the Group’s digital and sustainability agenda. The Committee reviewed the Group’s annual Own Risk and Solvency Assessment (ORSA) report in May 2021 and in-depth reviews were performed on existing and emerging high-risk areas. The Committee also received reports from the risk committee chairs of t he Material Subsidiaries in 2021, with the chief risk ocers of Asia, Africa and (priorto demerger) Jackson regularly attending Committee meetings. c.Covid-19 risks The Committee continued to monitor developments in risks from the pandemic and the Group’s ongoing responses to it. It has become clear that Covid-19 and its impact will continue for longer than many would havepredicted, and some societal changes accelerated bythe pandemic may besignificantly long-term or permanent. This includes the expectations onthe natureof working arrangements and customer expectations on insurance and health products and their accessibility. A key focus of the Committee in 2022 will be on how Prudential continues to conduct itself in a way to sustainably deliver easily accessible and socially inclusive products. Similarly, time will be p rioritised to discuss the fair treatment of its policyholders, the well-being ofits sta, and the broader long-term macro-economic impacts of Covid-19, such as increased inflation. A fuller explanation of the principal risks facing the Group and the way in which these are managed is set out in the Risk Review on pages 44 to 65. Sustainability, including climate change risk The Group’s annual update of its principal risks and ORSA report included assessments of the key sustainability risk areas associated with ESG considerations, including climate change related risks. In 2 021, the Committee considered key changes to the GRF to reflect that sustainability risks, such as environmental risk, can impact and increase the Group’s existing risks. Updates to the non-financial risk appetite framework to frame risk appetite statements around stakeholder considerationsand lenses, more aligned to ESG considerations,wereapproved bythe Committee,and policies were u pdated to explicitly reference climate change and other ESG considerations.A GroupResponsibleInvestment Policy was approved to support the Group’s external commitments, including those around asset book de-carbonisation. We also approved the Group’s revised Third-Party and Outsourcing Policy,which specifically references ESG within its key principles. Digital and technology risks The Committee received regular updates on information security, data privacy and technology risks and incidents, as well as developments in the external threat landscape such as the rise in prominence of ransomware. It approved a new Group Data Policy establishing theprinciples and requirements for eective and scalable data management, in light of the increase in volume and variety of data expected as part of the Group’s digital aspirations. A specific session of the Committee’s October 2021 meeting included updates on the Group’stechnology risk governance model, regulatory developments, the results of external penetration testing and a deep dive review into planned features of Prudential’s Pulse platform. The Committee was kept apprised on the key risks associated with Pulse. It also received updates on the progress of roll-out plans in new markets and the implementation of key platform features, as well as developments in risk governance over the Pulse business, such as the setting up of an A udit and Risk Committee at the Pulse subsidiary during the year. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 185 ![]() Committee reports / Risk Committee report / continued Model risk In 2021, given their importance to the Group’s business, the Committee focused on the risks associated with its critical models. Followingthe revision toJackson’s hedge modelling, announced on 28 January 2021, which impacted Jackson’s statutory capital, with the Committee’s support I led a review of the oversight and governance arrangements which operate for the Group’s critical models. The work focused on reviews of relevant Group policies, existing controls in relation to models and model changes, risk validation activity, and the visibility of model risk management information. It took into account the output from an internal audit performed during the year. The Committeehas been satisfied that appropriate controlsare in place and operating for critical models across the Group’s portfolio of businesses. A number ofenhancements are being madeat a Group and business level to ensure consistency of approach and additional oversight by both specialist technical teams and the board-level governance risk and audit committees across the Group, with implementation in 2022. The Committee approved updates to the Group’s Model and User Developed Applications Policy, whichexplicitlyincludes the AI ethical principles the Group’s models must comply with. Updates included an increase in oversight ofmodels in development and the broadening of the considerations when assessing model criticality to include a wider group of stakeholders and reputational riskimpacts. The Committee received regular updates on the development of the Group internal economic capital assessment (GIECA) model in 2021. This included approving the overall GIECA methodology, prior to submission to the Hong Kong IA, and the risk calibrations for new long-term economic assumptions. It also considered the governance framework and validation activity for the GIECA model. The Committee was also regularly updated on developments on the model planned to be used by the Hong Kong business under the Hong Kong IA’s RBC regime. I would like to take this opportunity to thank my fellow Committee members and Prudential’s RCS function, both atGroup leveland at the level of local businesses, in supporting the crucial work of the Committee during such a transformative year. Jeremy Anderson Chair of the Risk Committee Prudential plc Annual Report 2021prudentialplc.com 186 ![]() Principal activities and significant issues considered by the Risk Committee during 2021 Matters considered How the Committee addressed the matter RiskManagement Group principal risks, includingChief Risk and Compliance Ocer (CRCO) reporting The Committee evaluatedthe Group’s principal risks, considering recommendations for promoting additional risks and changes in the scope of existing risks. The Committee also received regular reporting on the Group’s exposure to, and management of, its principal risks, emerging risk themes and external developments within the Group CRCO’s regular report to theCommittee. Further information on how the Groupidentifies emergingand principal risks can be found in the Risk Review. The Group CRCO’s reports also provided the Committee with regulatory updates, including the implications of the d evelopingglobal capital standards, systemicrisk regulation,engagement with the Hong Kong IA on the implementation of the GWS Framework and the Group’s ongoing compliance with the Framework following its designationbythe supervisor. Covid-19 related risks The impact of the Covid-19 pandemic has been broad with continuing implications for the Group’s solvency and liquidity position. The Committee received regular updates on the nature and extent of the impacts across its principal risks, including the ongoingresilience, marketand economic, product, informationsecurity, distribution and customer conduct risks and the Group’s ongoing responses to them. A key focus of the Committee in 2021 has been monitoring the potential impact of the pandemic to the level of mortality claims and policy lapses or surrenders (both to the business and to customers) in certain markets. Deep dives As part of its risk oversight responsibilities, the Committee considers the results of ‘deep dive’ risk reviews performed over the year. In 2021, these focused on the risks related to the Group’s medical reimbursement product lifecycle and product risks across its major insurance businesses; the product implications arising from IFRS17; network security through penetration testing; and proposed functionality for the Pulse platform. The Committee also considered the results of a reviewof the risk assessment processes for anti-moneylaundering and anti-bribery and corruption across its markets. The Committee received updates on actions and developments relating to deep dives completed in 2020, including those related to interest rate risk management. Transformation oversight The Committee monitored the progress of the Group’s key strategic projects during the year which, in addition to those outlined in the letter above, included activities focused on IFRS 17 implementation and IBOR cessation. Information security and data privacy During 2021, updates were provided to the Committee on key external developments relevant to information security and data privacy, including changes in regulations and the external threat landscape. This included a focus on the global increase in frequency of ransomware attacks and the risk management and mitigation arrangements in place at the Group. The Committee also received regular progress updates on the operationalisation of the Group-wide governance model and strategy for the management of information security and data privacy risks, as well as Group-wide information security and privacy metrics providing a view of security posture across the businesses. In M ay 2021, we approved a new Group Data Policy, detailed in the letter above. A session of the October 2021 Committee meeting was dedicated to information security and data privacy, where the Committee considered the matters detailed in the letter above. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 187 ![]() Committee reports / Risk Committee report / continued Principal activities and significant issues considered by the Risk Committee during 2021 Matters considered How the Committee addressed the matter RiskManagement continued Sustainability, including climate change, risk A key component of the RCS Plan for 2021, approved by the Committee in February 2021, was the embedding of climate risk considerations into the GRF. This, and the other ESG-related matters considered by the Committee, have been detailed inthe letter above. We received regular updates onkey climate-related regulatory and legislative developments, includingthose in respect of disclosure requirements, progress against the Group’s responsible investment commitments and its ESG ratingsby external assessors and agencies. Remuneration The Committee has a formal role in the provision of advice to the Remuneration Committee on risk management considerations in respect of executive remuneration. It considered risk management assessments of proposed executive remunerationstructures and outcomes during the year, making relatedrecommendations tothe Remuneration Committee for its consideration. Stress and scenario testing The Committee is responsible for reviewing the outcome and results of stress and scenario testing, which is a key risk identification, measurementand management tool for the Group. Stress and scenario testing is a key component of the Group’s ORSA process and the Risk Assessment of the Business Plan, as described below, as well as its Recovery Planning and Reverse Stress Testing (RST). The Group’s Recovery Plan, considered by the Committee in October 2021, included an assessment of the viability and operational resilienceof the Group under severe financial and non-financial shock scenarios. The Plan concluded that, as at end of 2021, the Group is expected to remain in a resilient financial and operational condition when under severe stress, with only a very extreme scenario breaching the Group’s recovery activation measures, and that established governance frameworks and procedures are in place for senior management to respond to actual and potential threats. Risk Assessment of the Business Plan As part of its role in overseeing and advising the Board on future risk exposures and strategic risks, the Committee reviewed the Risk Assessment of the Business Plan, which highlighted key financial and non-financial risks, in particular those driven by the uncertainrecovery inmarkets, the impacts of regional Covid-19 resurgences and reinstatements of restrictions and geopolitical risks. The analysis reviewed included sensitivity assessments of the impact of various plausible scenarios. Model riskmanagement At a number of meetings during the year, the Committee reviewed the oversight and governancearrangements which operate for the Group’s critical models. The review focused on a number of activities undertaken by management and internal audit to look at relevant Group policies, existing controls in relation to models and model changes, risk validation activity, and the visibility of model risk management information, taking into account the output from an internal audit performed during the year. The review made a number of recommendations which, in s ummary: > co nfirm the central role of management and the various executive technical committees in overseeing model assumptions, development and assurance, and indeterminingmatters for escalation, but adjust some of their terms of reference to expand their coverage; > clarify the oversight expectations and responsibilities of the Audit and Risk Committees at Group and BU level; and > de velop guidance, examples and training to help committees approach their roles in an appropriately consistent manner. The Committee will monitor progress against the agreed actions over the course of 2022. Prudential plc Annual Report 2021prudentialplc.com 188 ![]() Principal activities and significant issues considered by the Risk Committee during 2021 Matters considered How the Committee addressed the matter Regulatory and Compliance Matters GWS Framework The matters considered by the Committee in advance of the Group’s designation under, and ongoing compliance with, the GWS Framework post-designation have been detailed in the letter above. Complianceand regulatory change The Committee received regular reporting on key regulatory compliance risks and mitigation activity across the Group’s businesses throughout the year,coveringregulatory changes, reviews and interventions, including those relating to US-China sanctions. We also received regular updates on conduct risk and progress under the Group’s Conduct Risk Programme, including t hose relatedto the further implementation, assurance and the engagementmodel of the Group Conduct Risk Framework. Group-wide Internal Audit The Committee received updates from GwIA throughout the year relating to matters which fall within the scope of its responsibilities. In October 2021, we considered the GwIA function’s report on its audit into model governance. Risk and Compliance Framework Annual review of risk policies, risk framework compliance and Committee eectiveness The GRF and risk policies were subject to their annual review, with amendments made to ensure the policies remained appropriate post the GWS Framework becoming eective for the Group and the Jackson demerger, as well as changes to reflect the Group’s purpose, ESG strategy and culture framework. The Board approved the changes recommended by the Committee. The Committee reviewed the results of the annual Group Governance Manual year-end compliance attestation performed by the business units under the GRF and associated policies. In February 2022, the Committee considered the findings of the annual evaluation of Committee eectiveness, agreeing actions where necessary to improve Committee eectiveness. It also considered the eectiveness of, and approved updates to, the RCS Function Mandate which formally sets out the purpose and responsibilities of the R CS function and its eectiveness in overseeing the key risks to the Group. Group Risk Appetite and Limits The Committee is responsible for recommending changes in the Group’s overall risk appetite and tolerance to the B oard for approval. In May 2021, the Committee recommended for approval by the Board proposed enhancements to the Group Risk Appetite framework to ensure its continued appropriateness post the Jackson demerger and to meet relevant requirements under the new GWS Framework. We approved new Limits and Triggers on asset duration and duration mismatches in July 2021 for road-testing. In November 2021, we approved an increase in the Group’s capital counter-cyclical buer reflective of the assessed mid-to-late economic cycle. Updates to the non-financial risk appetite framework and statements were approved in November 2021 to frame risk appetite statements around stakeholder considerations and lenses, morealigned to ESG considerations. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 189 ![]() Committee reports / Risk Committee report / continued Principal activities and significant issues considered by the Risk Committee during 2021 Matters considered How the Committee addressed the matter External and regulatory r eporting ORSA The ORSA is a key ongoing process for identifying, assessing, controlling, monitoring and reporting the risks to which the Group is exposed and assessing capital adequacy over the business planning horizon. In May 2021, the Committee considered the Group’s ORSA report, based on the Business Plan, prior to its approval by the Board. Systemic Risk Management The Financial Stability Board (FSB) has endorsed a new Holistic Framework for systemic risk management and suspended Global Systemically Important Insurer (G-SII) designations until the completion of a review in 2022. Many of the policy requirements that resulted from the Group’s prior designation in 2016 as a G-SII have been adopted into the Insurance Core Principles (ICPs) and ComFrame – the common framework for the supervision of Internationally Active Insurance Groups (IAIGs) – and included under the Hong Kong IA’s GWS Framework. Prudential was included in the first register of IAIGs released by the IAIS on 1 July 2020 and was designated an IAIG by the Hong Kong IA following an assessment against the established criteria in ComFrame. The Committee therefore considered, and recommended for approval by the Board, the Systemic Risk Management Plan, Recovery Plan and Liquidity Risk Management Plan. GIECA development The Committee received regular updates on the development of the Group’s GIECA model and remained actively involved in its progress. Following updates at the February and May 2021 meetings, which included a summary of the key methodology decisions, the Committee approved risk calibrations for new long-term economic assumption risks at its July 2021 meeting. In October 2021, the Committee approved the overall updated GIECA methodology prior to submission to the Hong K ong IA, and considered the governance framework for the GIECA model and a validation report and opinion on model developments. In November 2021, we approved key assumptions for the proposed model to be used for FY 2021 results. Hong KongRBC InFebruary 2021, the Committee consideredan update onHong KongRBC adoption which included considerations on technical specifications. In November 2021, it considered the plans for independent assurance opinions on RBC results and considered updates on the internal and external validation of the proposed RBC model. Insurance Capital Standards (ICS) The Committee considered the Group’s FY2020 ICS results in November 2021. This included an update on key areas of f ocus for the Group’s engagementon the developmentof the ICS during the five-year monitoring period. Prudential plc Annual Report 2021prudentialplc.com 190 ![]() Financial reporting The Directors have a duty to report to shareholders on the performanceand financial positionof theGroupand are responsible for preparing the financial statements on pages 234 to 321 and the supplementary information on pages 334 to 335. It is the responsibility of the auditor to form independent opinions, based on its audit of the financial statements and its audit of the EEV basis supplementary information, and to report its opinions to the Company’s shareholders and to the Company. Its opinions are given on pages 322 to 331 and pages 357 to 359. Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the financial aairs of the Company and of the Group. The criteria applied in the preparation of the financial statements are set out in the Statement of Directors’ responsibilities on page 321. Company law also requires the Board to approve the Strategic report. In addition, the UK Code requires the Directors’ statement to state that they consider the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position andperformance,business model and strategy. The Directors are further required to confirm that the Strategic report includes a fair review of thedevelopment and performance ofthe business, with adescription of the principal risks and uncertainties. Such confirmation is included in the Statement of Directors’ responsibilities on page 321. The Strategic report provides, on pages 6 to 145, a description of the Group’s capital position, financing and liquidity. The risks facing the Group’s business are discussed in the Risk review of the risks facing our business and how these are managed on pages 44 to 65. The Directors who held oce at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Going concern In accordance with the guidance issued by the Financial Reporting Council inSeptember 2014, ‘Guidance onRisk Management, Internal Control andRelated Financial and Business Reporting’, after making sucient enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that the financial statements are approved. Further information is provided in note A1 on page 242. Powers of the Board The Board may exercise all powers conferred on it by the Company’s Articles and the Companies Act 2006. This includes the powers of the C ompany to borrow money and to mortgage or charge any of its assets (subject to the limitations set out in the Companies Act 2006 and the Company’s Articles of Association) and to give a guarantee, security or indemnity in respect of a debt or other obligation of the Company. Rules governing the appointment of Directors The appointment and removal of Directors is governed by the provisions in the Articles of Association (the Articles), the UK Code, the HK Code (as appended to the Hong Kong Listing Rules) and the Companies Act 2006. Director indemnities Subject to the provisions of the Companies Act 2006, the Company’s Articles permit the Directors and ocers of the Company to be indemnified in respect of liabilities incurred as a result of their oce. Suitable insurance cover is in place in respect of legal action against directors and senior managers of companies within the Group. Qualifying third-party indemnity provisions are also available for the benefit of the Directors of the Company and such other persons, including certain directors of other companies within the Group. These indemnities were in force for 2021 and remain so. Contract of significance At no time during the year did any Director hold a material interest in any contract of significance with the Company or any subsidiary undertaking. Securities dealing and inside information Prudential has adopted securities dealing rules relating to transactions by Directors on terms no less exacting than required by Appendix 10 to the HK Listing Rules and by relevant UK regulations. Having made specific enquiry of all Directors, the Directors have complied with these rules throughout the period. The Group has adopted an Information Sharing and Securities Dealing Policy which includes guidance and procedures for the identification, dissemination andescalation ofinsideinformation as w ell as appropriate controlson the d isclosure of such information in line with regulatory requirements. All sta are made aware of the p olicy and receive communications reminding them of their obligations when they work on any confidential matters in the business or are notified when the Company enters or exits a closed period. #### Statutory and regulatory disclosures Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 191 ![]() Statutory and regulatory disclosures / continued Requirements of Listing Rule 9.8.4 Information to be included in the Annual Report and Accounts under UK Listing Rule 9.8.4 may be found as follows: Listing Rule Description Page 9.8.4(4) Details of long-term incentiveschemes required by Listing Rule 9.4.3 214 9.8.4 (7) Details of allotments of equity securities for cash 296 9.8.4 (10) Contracts of Significance involving a D irector 191 9.8.4(12) Details of shareholder waiverof dividends 401 9.8.4(13) Details ofshareholder waiver of future dividends 401 US regulation and legislation As a result of its listing on the New York Stock Exchange, the Company is required to comply with the relevant provisions of the Sarbanes-Oxley Act 2002 as they apply to foreign private issuers and have adopted procedures to ensure such compliance. In particular, in relation to Section 302 of the Sarbanes-Oxley Act 2002 which covers disclosure controls and procedures, a Disclosure Committee has been established, reporting to the Group Chief Executive, chaired by the Group Chief Financial Ocer and ChiefOperating Ocer and comprising members of head oce management. The work of the Disclosure Committee supports the Group Chief Executive and Group Chief Financial Ocer and Chief Operating Ocer in making the certifications regarding the eectiveness of the Group’s disclosureprocedures. Hong Kong IA GWS public disclosures Under the GWS Framework, the Group is required to provide publicly certain risk, capital and other disclosures. These GWS public disclosure requirements, as set out in the Guideline on Group Supervision (GL32) and Insurance (Group Capital) Rules issued by the Hong Kong IA, are met by certain disclosures within this Annual Report and Accounts. Change ofcontrol Under the agreements governing Prudential Corporation Holdings Limited’slife insurance and fund managementjoint ventures with China International Trust & Investment Corporation (CITIC), if there is a change of control of the Company, CITIC may terminate the agreements and either, (i) purchase the Company’s entire interest in the joint venture or require the Company to sell its interest to a third party designated by CITIC, or (ii) require the Company to purchase all of CITIC’s interest in the joint venture. The price of such purchase or s ale is to be the fair value of the shares to be transferred, as determined by the auditor of the joint venture. Customers The five largest customers of the Group constituted in aggregate less than 30 per cent of its total revenue from sales for each of 2021 and 2020. Prudential plc Annual Report 2021prudentialplc.com 192 ![]() Information required to be disclosed in the Directors’ report may be found in the following sections: Information Section in Annual Report Page number(s) Disclosure of information to auditor Statutory and regulatory disclosures 191and192 Directors in oce during the year Board of Directors 150to155 Board Diversity Governance report 169 to 174 ESG report ESG report 66 to 137 Employment practices ESG report 66 to 137 Greenhouse gas emissions ESG report 66 to 137 Charitable donations ESG report 66 to 137 Political donations and expenditure ESG report 66 to 137 Remuneration Committee report Directors’ remuneration report 194 to 233 Directors’ interests in shares Directors’ remuneration report 223 Agreements for compensation for loss of oce or em ploymenton takeover Directors’ remuneration report 226 Details of qualifying third-party indemnity provisions Governance report 191 Internal control and riskmanagement Governance report and Strategic report 167and168 Powers of Directors Governance report 191 Rules governing appointment of Directors Governance report 191 Significant agreements impacted by a change of control Governance report 191 Future developments of the business of the Company Strategic and operating review 14 to 18 Post-balancesheet events Note D3 of the notes on the Group financial statements 303 Rules governing changes to the Articles of Association Shareholderinformation 400 Structure of share capital, including changes during the y ear and restrictions on the transfer of securities, voting rights, power to purchase own shares and significant shareholders Shareholder information, Governance report and note C8 of the notes on t he Group financial statements 296 Business review Group overview and Strategic report 6 to 145 Changes in borrowings Financial review and note C5 of the notes on the Group financial statements 290 Dividend details Group overview and Strategic report 6 to 145 Financial instruments Strategic report and Additional information 44 to 65 and 276 to 280 Corporategovernance statementincluding compliance with the Code Governance report 146 to 193 Fostering the Company’s business relationships ESG report 138 to 145 Monitoring culture ESG report 97 In addition, the risk factors set out on pages 382 to 395 and the additional unaudited financial information set out on pages 361 to 381, are i ncorporated by reference into the Directors’ report. The Directors’ report is signed on behalf of the Board of Directors by Tom Clarkson Company Secretary 8 March 2022 #### Index to principal Directors’ report disclosures Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 193 ![]() ### Directors’ ### remuneration ### report Prudential plc Annual Report 2021prudentialplc.com 194 ![]() #### Contents 196Annual statement from the Chair of theRemunerationCommittee 201Our ExecutiveDirectors’ remuneration at a glance 202Summary of the current Directors’ remuneration policy 204Annual report on remuneration 230Additional remunerationdisclosures Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additionalinformation Prudential plc Annual Report 2021 195 ![]() Dear shareholder, I am pleased to present our Directors’ remuneration report for the year to 31 December 2021 on behalf of the members of the Remuneration Committee. This will be the last report that I present as Chair of the Remuneration Committee before I step down from the Board at the AGM. I am pleased that Chua Sock Koong, who has served on the Remuneration Committee since the 2021 AGM, has been appointed to undertake this role with eect from the 2022 AGM. I also want to thank Kai Nargolwala, Fields Wicker-Miurin and Amy Yip, who stepped down from the Committee in 2021, for their service and valuable contribution. By way of preface, I would like to share the context for the key decisions the Committee took during 2021 and to outline those taken i n respect of remuneration arrangements for 2022. Remuneration decisions made in respect of 2021 Determiningdemerger-related decisions The Jackson business demerged from the Group with eect from 13 September 2021. As I described last year, the Committee established a set ofprinciples to underpin decisionson remuneration relatingto the demerger, including: > Executives should not be advantaged or disadvantaged by the s eparation; > The value of outstanding awards and their key terms (vesting dates, ho lding periods, malusand clawback provisions)should be unaected; > If performance conditions are revised, the new conditions should be no more or less stretching than those originally attached to the awards; and > Where the Committee has applied discretion, this will be clearly d isclosed. These principles are consistent with those adopted in respect of the 2019 demerger of the M&G business. These principles were the basis for the decisions taken by the Committee, including the treatment of outstandingshare awards which were set out inthe Shareholder Circular publishedon 6 August 2021which can be found at www.prudentialplc.com/~/media/Files/ P/Prudential-V3/demerger-transaction-documents/demerger- transaction-circular.pdf and voted uponand approvedby shareholders at the 27 August 2021 GeneralMeeting. This treatment, together with adjustments made to the performance targets of in-flight Prudential Long Term Incentive Plan (PLTIP) awards as a result of the demerger, is detailed in the ‘Remuneration decisions taken in relation to the demerger’ section of this report. #### Directors’ remuneration report #### Annual statement fromtheChairof #### the Remuneration #### Committee Anthony Nightingale CMG SBS JP Chair of theRemunerationCommittee This report has been prepared to comply with Schedule 8 of The Companies (Directors’ Remuneration Policy andDirectors’ Remuneration Report) Regulations 2019, as well as the Companies Act 2006 and other related regulations. The following sections were subject to audit: Table of 2021 and 2020 Executive Director total remuneration (the ‘single figure’) and related notes (including details of all fixed and variable remuneration elements shown inthe singlefigure table),Pension entitlements, Long-term incentives awarded in 2021, Chair of the Board and Non-executive Director remuneration in 2021 and 2020, Statement of Directors’ shareholdings and Payments to past Directors and payments for loss of oce. Prudential plc Annual Report 2021prudentialplc.com 196 ![]() Reflecting 2021 financial performance Prudential’s executive remuneration arrangements reward the achievement of Group, business, functional and personal targets, provided that this performance is delivered within the Company’s risk framework and appetites, and that the conduct expectations of Prudential, our regulators and other stakeholders are met. As set out in the Strategic report section earlier in this Annual Report, despite the continuing challenges of the market environment throughout 2021, the Group delivered positive operating results as we continue to develop our capabilities and presence in our chosen Asia and Africa markets. The table below illustrates achievement of our key financial objectives, as set out in the Strategic Report: Performance measures Group performance ($m) 1 2020-2021 growth 2021 bonusachievement 2 Life new business profit from continuing operations A measure of the future profitability of the new business sold during the year and an indicator of the profitable growth of the Group. New business profit accounted for 35 per cent of Group financialbonus targets. 2,201 2,526 20202021 15 % +15% Above targetlevel, approaching stretch target level Operating free surplusgenerated from continuing operations 3 A measure ofthe internal cash generation of ourbusinesses. Operating free surplus generated accounted for30 per cent of Group financial bonus targets. 915 1,179 20202021 29 % +29% Above stretch target level Adjusted operating profit from continuing operations 4 Prudential’s primary measure of profitability and a key driver of shareholder value. Adjusted operating profit accounted for 25 per cent of Group financial bonus targets. 2,757 3,233 20202021 17 % +17% Above targetlevel, approaching stretch target level Net cash remitted by businesses 5 Cash flows across the Group 6 reflect our aim of achieving a b alance between ensuring sucientnet remittances from business units to cover the dividend (after corporate costs) and the use of cash for reinvestment in profitable opportunities. A cash flow measure accounted for 10 per cent of the Groupfinancialbonus targets. 932 1,451 20202021 56 % +56% Above stretch target level Notes 1As reported. 2Targets and the level of achievement are set out in the ‘Annual bonus outcomes for 2021’ section of the Annual report on remuneration. 3For insurance operations, operating free surplus generated represents amounts maturing from the in-force business during the period less investment in new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the year. 4In this report ‘adjusted operating profit’ refers to adjusted IFRS operating profit based on longer-term investment returns from continuing operations. 52020 business unit remittances exclude remittances from discontinued remittances. 6Group cash flow includes business unit remittances net of dividends and corporate costs. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 197 ![]() Life new business profit was 15 per cent higher than prior year on an actual exchange rate basis (13 per cent on a constant exchange rate basis) driven principally by the increase in APE sales and the eect of favourable changes to the mix of products sold. This result was above the approved target. Operating free surplus generation was 29 per cent higher than 2020 on an actual exchange rate basis (and 26 on a constant exchange rate basis) and this result was above the approved stretch target. 2021 adjusted operating profit was 17 per cent higher than prior year on an actual exchange rate basis (16 per cent on a constant exchange rate basis) reflecting the performance outlined in the Strategic report, and delivered a result that is above the approved target. Business units remittance levels were 56 per cent higher than 2020 and were above the approved stretch target. Holding company cash was $3.6bn at the year end, after dividends, corporate costs and strategic investment. The Group cash flow measure was above the approved stretch target. The Group achieved these results while maintaining appropriate levels of capital and while operating within the Group’s risk framework and appetites in thechallenging market environment. Reflecting stakeholders’ 2021experiences In reaching its decisions for 2021, the Committee considered the experience of the Group’s stakeholders, as set out below. More details can be found in the ESG section of the Strategic report. Investors > Jac kson demerger: The separation of Jackson completed Prudential’s transformation into a business exclusively targeting the l ong-term structural opportunities of Asia and Africa, supported by a 99.65 per cent shareholder vote in favour of the separation. Shortly thereafter the Board declared a dividend in specie, distributing theJackson shares tothe Group’s shareholders, other than a retained financial investment of 18.4 per cent that will be sold down to less than 10 per cent within 12 months. > Eq uity raise: Having considered theinterests of all stakeholders, particularly those expressed bythe Group’s existing shareholders, the Board reached the conclusion that a Hong Kong Fully Marketed Oer was in the best interests of the Company as a whole. The share oer was launched in October 2021, raising approximately $2.4 billion in equity, a portion of which was subsequently used to r epay debt. > Investor survey: In late2021, the Groupengaged an independent third party to undertake an in-depth investor perception study. This studyincluded both long-standing shareholders and those who p articipated in the Hong Kong equity raise referred to above. The topics covered included the Group’s strategy and the execution of the transformation of the Group. Our people > Celebration Award: To recognise the hard work and commitment shown by our people in preparation for the demerger and to give them a stake in the new chapter of the Company’s development, each Prudential plc employee (other than the Group Executive Committee) received a Celebration Award of US$1,000 of restricted shares which will be released in October 2022. > Covid-19 and wellness: Covid-19 has continued to be the dominanthealth and safety concern forour people. Prudential continued to support and protect colleagues through regular communicationand the extension of health and safety programmes acrossthe Group, ensuring that appropriate precautions are implemented in the workplace. In the 2021 People Survey, 91 per cent of respondents agreed that the Group was supporting employees during the Covid-19 pandemic. In addition, our oces closed for a Wellness Day in July, encouraging our people to rest, recharge and to spend time with family and friends. > Gender diversity: Prudential achieved c35 per cent representation of women in senior leadership at the end of 2021, above the 30 per cent commitmentunder the HM Treasury ‘Women in Finance Charter’. Prudential was also included in the 2021 Bloomberg Gender-Equality Index. > Em ployee engagement: The 2021 People Survey, in which more than 95 per cent of employees participated, demonstrated that employee engagement continued to increase, up 3 per cent this year and a total of 4 per cent since our first Group-wide survey in May 2020. Annual statement from the Chair of the Remuneration Committee / continued Prudential plc Annual Report 2021prudentialplc.com 198 ![]() Governmentsand Regulators > Fin alisation of the revised basis of Group regulatory capital known as ‘GWS’: GWS legislation became eective on 29 March 2021, with t he formal designation of the Group as a Designated Insurance Holding Company (‘DIHC’) under the Hong Kong IA’s GWS Framework with eect from 14 May 2021. > Engagement with the lead regulator: Management worked closely with HKIA to support finalisation of preparations for compliance with the GWS legislation. The Group also proactively engaged with r egulators in advance of the demerger of the US business and worked closely with the HKIA and the HKSE ahead of t he Group’s 2021 equity raise. > Covid-19 support: The Group has not received any Covid-19 government support in 2021. Suppliers > Pa rtnership: In 2021, the Group focused on moving away from a culture of regarding external firms as ‘vendors’ to improved collaboration, with thedevelopment of key digital partnerships (eg, Babylon Health). To date, we have entered into 56 key digital p artnerships. > Rapid payments to small UK suppliers: Following the introduction in early 2020 of more favourable payment terms for suppliers with less than 100 employees (‘Jump Pay’), the Group achieved a payment rate of 86.5 per cent within 30 days in 2021, compared to 76.5 per cent in 2020. Customers > Di gital responsibility and Pulse: Pulse continued to evolve during 2021 with the roll-out of Wealth@Pulse in Singapore, Thailand and the Philippines. This wealth oering gives access to wealth services and high quality advice to a wider market. > Pr oduct development: During2021, the Groupcreated the concept of ‘Modern Families’ to support the development of more inclusive products that recognise that the concept of families has evolved. Prudential has also worked to simplify product brochures, information on ourcorporate website and ourmarketing campaigns to enable customers to understand the risk and benefits of products by looking at a single fact sheet. > Claims promise: During 2021, the Group launched its claims promise for customers in Asia to support its customers during life’s dicult moments. The promise includes commitments to timeliness, communication with care, fairness, customer experience and privacy. Society > Working towards a lower carbon economy: In May 2021, the Group set a target to be net zero by 2050 for our insurance assets, supported by 25 per cent reduction in emissions from the portfolio by 2025, a target which is incorporated in the 2022 PLTIP award. The Group is on track for achievement of this target and achieved the exit of coal equity holdings (above 30 per cent revenue threshold) by the end of 2021. > Pr udence Foundation’s award-winning programme Cha-Ching is building financial literacy for millions of children. It is available in 13 languages, and reaches 35 millionhouseholds every day on TV. In 2021, the Cha-Ching Curriculum programme expanded in Africa, where theGroup worked with Junior Achievement Africa tobring this to 5,000 primary school students in Kenya, Ghana, Zambia, Nigeria, Uganda and Côte d’Ivoire. In March 2021, the Prudence Foundation supported the OECD’s Global Money Week which aimed to equip young people to manage their money wisely. > Covid-19 Relief Fund: In 2021, a new US$2 million fund was launched to continue to support communities still struggling with the pandemic. Local businesses’ programmes have focused on s upporting vulnerablecommunities on eorts that include Covid-19 messaging, hygiene and sanitation, nutrition and educational programmes. Rewarding 2021 performance The Committee determined remuneration outcomes having considered thefinancial performanceof the Group, its delivery to s takeholders and the personal contribution ofexecutives. As set out above, 2021 saw the Group perform strongly against its key operating profit and operating free surplus generation targets in the face of dicult external conditions, includingongoing challenges caused bythe pandemic and travel restrictions. At the same time,the G roup achieved several significant strategic milestones as it became exclusively focused on Asia and Africa. This performance, combined with eective personal leadership, resulted in overall bonus outcomes of 96.7 per cent - 98.7 per cent for the Executive Directors. The Committee believes that the bonuses it awarded for 2021 appropriatelyreflect underlying Group performance, individual and/or functional performance and wider factors, includingthe experience of s takeholders duringthe year. Over the longer term, the Group has shown strong performance against the sustainability scorecard targets, however the portion (75 per cent) of the awards related to Prudential’s total shareholder return (TSR) lapsed as TSR performance was ranked below the median of the peer group. On this basis, the Committee determined that 17.75 per cent of the PLTIP awards made to Executive Directors in 2019 would vest. These awards will be released to participants from April 2022 but remain subject to a two-year holding period. The total 2021 remuneration or ‘single figure’ for the Group Chief Executive, Mike Wells, is 15 per cent lower than his total 2020 ‘single figure’ which has been restated on the required basis to reflect the actual value of the PLTIP award at vesting, notwithstanding his exceptional leadership and personal performance. This chiefly reflects the level of vesting of his 2019 PLTIP award which was partially oset by a higher 2021 AIP outcome compared to 2020. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 199 ![]() Remuneration decisions and priorities for 2022 The Committee intends to continue to operate within the existing Directors’ remuneration policy during 2022. Reflecting senior leadership changes As announced on 10 February 2022, Mike Wells has informed the Board that having led the Group through its transformation into an Asia and Africa-focused business, he intends to retire, and will step down from his role at the end of March 2022. Remuneration arrangements in respect of his departure have been determined inline with theshareholder-approved Directors’ remuneration policy. When Mike steps down, Mark FitzPatrick will become interim Group Chief Executive whilst the Board is conducting a search for a new permanent Group Chief Executive. James Turner will become the Group Chief Financial Ocer, succeeding Mark. Information about the remuneration decisions made in connection with all of these changes was included in the 10 February 2022 announcement and can be found in the ‘Statement of implementation of remuneration policy in 2022’ section of this report. Incentivising the achievement of our ESG commitments During 2021, the Committee discussed how the Group’s evolving ESG strategy and external commitments could be reflected in incentive arrangements. Having considered the key dimensions of the ESG strategy and the advice of the Responsibility & Sustainability Working Group, the Committee concluded that a measure aligned with our published commitment to reduce the carbon emissions of all shareholder and policyholder assets by 25 per cent by 2025 1 should be attached to 2022 PLTIP awards. This metric was selected due to its importance and the multi-year timeframe which could be translated into a meaningful three-year target (2022-2024). The new carbon reduction measure will have a weight of 5 per cent and will replace ECap in the sustainability scorecard. Combined with the existing diversity measure, the total weight of the ESG measures in the 2022 PLTIP will be 10 per cent. Objectives related to other aspects of our ESG commitments will be included in the 2022 bonus arrangements of the responsible executives. Further information about the measures and targets set for the 2022 incentives is provided in the ‘Statement of implementation of remuneration policy in 2022’ section of this report. Alignment of Annual Incentive Plan (AIP) with the Group’s forward-looking strategy For 2022, the weightings of the financial AIP measures have been aligned with those adopted for the Asia business to better reflect the Group’s focus, following the demerger, on the high-growth Asia and Africa businesses. Further, in 2021, the Group Chief Financial Ocer was designated as a Key Person in a Control Function under the Hong K ong Group-wide supervision regime and as such, in line with regulatory requirements, his 2022 AIP will include a functional element. Engaging shareholders on 2022 remunerationarrangements I had the opportunity during late 2021 to engage with many of our major shareholders, as well as the organisations that represent and advise them. I am pleased to say that we have had the benefit of substantive feedback from around 50 per cent of our shareholder register and that the majority of shareholders and advisory bodies who provided input were supportive of the remuneration decisions taken in respect of 2021 and of the arrangements that we proposed for 2022. In particular, investors endorsed the implementation of the carbon reduction measure in the PLTIP as many of them saw this as aligned with their own focus on sustainability. On behalf of the Committee, I would like to thank the shareholders and advisory bodies for their engagement. Chua Sock Koong had the opportunity to meet many shareholders during this process and I know that she looks forward to continuing this useful dialogue in the future. Reviewing the Directors’ remuneration policy The Group’s Directors’ remuneration policy is due to expire at the 2023 AGM. Given the Group’s exclusive focus on Asia and Africa, it is essential that the new policy equips the Group to recruit and retain c ritical executive talent in our key markets. The Committee is conscious of the challenges of balancing the strategic shift to Asia and Africa with the constraints which result from a primary UK listing and this will be a key consideration for the review of the policy which Chua Sock Koong will lead during 2022. Any proposed changes will be discussed with shareholders and their advisory bodies in 2022 before the new policy is presented to shareholders at the 2023 AGM. I trust that you will find this report a clear account of the way in which the Committee has implemented the Directors’ remuneration policy during 2021 and of the proposed Directors’ remuneration arrangements for 2022. Anthony Nightingale, CMG SBS JP Chair of theRemunerationCommittee 8 March 2022 Annual statement from the Chair of the Remuneration Committee / continued Note 1The portfolio, with a value of $128 billion as at 31 December 2020, excludes unit-linked funds and assets held by joint venture businesses. In addition, this policy cannot be applied to certain externally managed collective investment scheme balances. Prudential plc Annual Report 2021prudentialplc.com 200 ![]() What performance means for Executive Directors’ pay in 2021 At Prudential, remuneration packages are designed to ensure strong alignment between pay and performance. 2021 saw the Group perform strongly against its financial and strategic objectives which has been appropriately reflected in the incentive outcomes, as set out in the Annual report on remuneration. The value of the performance-related elements of remuneration is added to the fixed packages provided to Executive Directors to calculate the 2021 ‘single figure’ of total remuneration. The total 2021 ‘single figure’ for the Group Chief Executive is 15 per cent less than the total restated 2020 ‘single figure’. This chiefly reflects the level of vesting of the 2019 PLTIP award which was partially oset by a higher 2021 AIP outcome compared to 2020. The values for the current Executive Directors are outlined in the table below: Executive Director Role Fixed pay Variable pay 2021 single figure ($000) 2020 single figure 1 ($000) 2021 salary ($000) 2021 pension and benefits ($000) 2021 bonus ($000) 2021 PLTIP vesting ($000) Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer 1,0854161,8605363,8974,349 James Turner Group Chief Risk and Compliance Ocer 9437711,6294503,7934,003 MikeWells Group Chief Executive 1,5816683,0571,2966,6027,768 Note 12020 single figure has been restated on the required basis to reflect the actual value of the 2018 PLTIP award at vesting. Aligning pay with the Group’s forward-looking strategy Remuneration approach in light of the demerger Following the demerger of Jackson, the Group is exclusively focused on its higher growth businesses in Asia and Africa. In this context and to reflect p ost-demergerpriorities, the Committee has reviewed executive remunerationarrangements and made several changes. This included: > Ad justing the weightings of the financial AIP measures, by increasing the focus on New Business Profit; > Updating pay benchmarking peer groups to increase focus on the Asia-led financial services organisations; and > Re vising our TSR peer group ahead of 2021 awards being made under the PLTIP in order to reflect the post-demerger footprint of the Group. To recognise the hard work and commitment shown by our employees in preparation for the demerger and to give our people a stake in the new chapter of the Company’s development, each Prudential plc employee (other than the Group Executive Committee) received, in October 2021, a C elebration Award of US$1,000 of restricted shares which will be released in October 2022. Remuneration arrangements for 2022 Decisions summarised below weretaken by the Committee in 2021. Changes to the remuneration arrangements whichfollowthe senior leadership changes announced in February 2022 are set out in the ‘Statement of implementation of remuneration policy in 2022’ section of this report. Remuneration packages for 2022, eective 1 January 2022, are set out in detail in the Annual report on remuneration and are summarised below. Executive Director Role 2022salary (local currency) 1 2022salary (USD) 2 Annual Incentive Plan (AIP) PLTIP award (% of salary) 3 Maximum bonus (% of salary) Bonus deferred (% of bonus) Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer £822,000$1,131,000175%40%250% James Turner Group Chief Risk and Compliance Ocer HK$7,550,000$971,000175%40%250% MikeWells Group Chief Executive £1,184,000$1,629,000200%40%400% Notes 1Salary increases of 3 per cent were awarded with eect from 1 January 2022. 2The exchange rate used to convert pay to USD is the reporting rate during 2021 of 0.7269 for GBP and 7.7728 for HKD. All salaries are rounded to the nearest $1,000/£1,000 or HKD 10,000. 3The PLTIP award is subject to a three-year performance period and a holding period which ends on the fifth anniversary of the award. #### Our Executive Directors’ remuneration at a glance Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 201 ![]() The current Directors’ remuneration policy was approved at the AGM on 14 May 2020 and is expected to fully apply until the 2023 AGM, when shareholders will be asked to approve a revised Directors’ remuneration policy, in line with the requirement to submit the policy for shareholder approval at least every three years. The Committee is comfortable that the current Policy operated as intended and that the overall 2021 remuneration paid to Executive Directors as set out below and within the Annual report on remuneration, was appropriate. The pages that follow present a summary of the current Directors’ remuneration policy. The complete policy is available on the Company’s website at www.prudentialplc.com/investors/governance-and-policies/policies-and-statements. Summary of the Directors’ remuneration policy Current key elements of remuneration 2021 2022 2023 2024 2025 2026 Key features of operation of the current policy How we implemented the policy in 2021 Fixed pay Salary and benefits Salaries reviewedannually withincreases generallyaligned with those of the workforce. Benefits reflect individual circumstances and arecompetitivein the local market Pension contributions and/or a cash supplement upto 22.5% of salary (20% from 14 May 2021). Executive Directors based in Hong Kong receive this in addition to contributions into the Hong KongMandatory ProvidentFund A salary freeze was implemented in 2021 for Executive Directors, other than for the Group Chief Financial Ocer and Chief Operating Ocer whose salary was increased in April 2021 by 5% to reflect the increase in the scope of therole Pensioncontributions for the incumbent Executive Directors remained at 13% of salary, in line with theemployer pension contribution available to the UK workforce Pension Short-term variable pay One-year performance assessed on financial, functional and personal objectives, set with referenceto business plans approved by the Board. Awards are subject to the achievement of a Pillar I capital underpin aligned with the Hong Kong Insurance Authority capital framework. Cash bonus The maximum opportunity is up to 200% of salary 40% of bonus is deferred into shares for three years Award is subject to malus and clawback provisions, including in circumstances where there arenon-financial issues and personal conduct which falls short of the Company’s expectations The Group Chief Executive was awarded a maximum opportunity of 200% of salary Other Executive Directors were awarded a maximum opportunity of 175% of salary 2021 bonuses were paid based on financial and personal objectives and, in the case of the Group Chief Risk & Compliance Ocer, functional objectives Deferred bonus Long-term variable pay Three-yearperformance assessed on a combination of: > Financial measures; > Total Shareholder Return (TSR) relative to international insurance peers; and > Sustainability scorecard of capital, conduct and diversity measures Prudential Long Term Incentive Plan (PLTIP) Maximum award under the Plan is 550% of salaryalthough regular awardsare below thislevel Awards are subject to a three-year vesting period from date of grant and a further two-year holding periodfromthe end of the vesting period Awards are subject to malus and clawback provisions, including in circumstances where there arenon-financial issues and personal conduct which falls short of the Company’s expectations The proportion of awards which will vest for threshold performance is 20% Awards in 2021 were below the plan limits: > Group Chief Executive: 400% of salary > Other Executive Directors: 250% of salary Weight of 2021 PLTIP measures was as follows: 50% TSR, 30% Return on Embedded Value (RoEV) and 20% sustainability scorecard. On vesting, the Committee will review awards to ensure that participants do not benefit from windfall gains. The Committee will consider Prudential’s stretchingperformance targets; share price performance of Prudential and its peers; the prices of the indices on which Prudential is listed; and any other factors deemed relevant. Share ownership guidelines Share ownership guidelines Significantin-employment share ownership guidelines for all Executive Directors as follows: > 400% of salary for the Group Chief Executive > 250% of salary for other Executive Directors Executives have five years from the later of the date of their appointment, or the date of an increase in these guidelines, to build thislevel ofownership Executive Directors leaving the Board are required to hold the lower of their actual shareholdingat their retirementdate and their in-employmentshare ownership guideline for a period of two years, subject to Remuneration Committeediscretion The post-employment shareholding requirement isimplemented by requiring Executive Directors retiring from the Board to obtain clearance to deal in the Company’s shares duringthe two years following their retirement #### Summary of the current Directors’ remuneration policy Prudential plc Annual Report 2021prudentialplc.com 202 ![]() Principles underlying the policy When determining the 2020 Directors’ remuneration policy, the Committee had regard to a number of key principles as illustrated below: Current key elements ofremuneration How we implemented the policy in 2021 Simplicity The Committee is comfortable that the current remuneration structure is simple as it consists of fixed remuneration, annual and long-term incentives only. This structure is largely unchanged from our previous policy. Stakeholders are familiar with the operation of r eward arrangements and there is a demonstrable link between performance and reward outcome. Risk The Group Risk Committee formally provides advice to the Committee on risk management considerations to i nform decisions over bonus payments and long-termincentivevesting levels. The policy provides the Committee with substantial flexibility to adjust incentive outcomes, to reduce or cancel unvested awards and to reclaim both bonus and long-term incentive payments. The Committee’s discretionary powers have been formalised and additional malus and clawback triggers for personal conduct introduced in relation to the AIP and PLTIP to take into account non-financial and individual factors. The time horizon forour long-term incentives extends for five years, including theholding period on awards. There are currentlysignificant in-employment share ownership guidelines for all Executive Directors providing a material connection to the sustained success of the Company. Executives have five years from the later of the date of their appointment, or the date of an increase in these guidelines, to build this level of ownership. A post-employment shareholding requirement for Executive Directors provides continued alignment with the s uccess of the Company and stakeholder interests even after leaving the Board. This obligation will be implemented by requiring Executive Directors retiring from the Board to obtain clearance to deal in the Company’sshares during thetwo years followingtheir retirement. Alignment to culture New and existing Executive Directors are oered pension benefits of 13 per cent of salary, aligned with the employer pension contribution available to the UK workforce. The conduct measure in the PLTIP rewards for appropriate management action and ensures that there are no significant conduct/culture/governance issues that result in significant capital add-ons or material fines. The new carbon reduction measure in the PLTIP is aligned to the ESG strategy and recognises the Group’s commitment in this area. The pay arrangements for Executive Directors are aligned with those of the senior leadership team. The vesting period attached tothe long-term incentives reflects the time horizon of thebusiness plan. The a dditional post-vesting holding period and post-employment shareholding requirementstrengthens the communityof interests between Executives and otherstakeholders. Clarity The Committee has consulted with the Company’s largest shareholders and their advisers on the current policy and executive pay decisions before they are implemented. Details on Executive Director pay are clearly set out in the Annual report on remuneration. Proportionality There are no incentive awards for below threshold performance. Financial targets areset against the Board-approvedPlan. Under the PLTIP, 20 per cent of each portion of the award will vest for achieving threshold performance. The Committee approves the termination arrangements of Executive Directors to ensure that there is no reward for failure. The PLTIP leaver rules are another safeguard that there is no reward for failure under this plan. The Committee’s discretionary powers have been formalised and additional malus and clawback triggers for personal conduct introduced in relation to the AIP and PLTIP to take into account non-financial and individual factors. Predictability The levels of awardsunder incentive arrangements to Executive Directors at threshold, on-target and maximum performance points are clearly defined and presented in relevant sections of this report. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 203 ![]() Role and responsibilities The role and responsibilities of the Committee are set out in its terms of reference, which are reviewed by the Committee and approved by the Board on a periodic basis, and which can be found on the Company’s website at https://www.prudentialplc.com/~/media/Files/P/Prudential-V3/ content-pdf/gremco-tor-at-01-01-2022.pdf. The Committee’s role is to assist the Board in meeting its responsibilities regarding the determination, implementationand operation ofthe overall remuneration policy for the Group, includingthe remuneration of the Chairof the Board,Executive Directors, Group Executive Committee members andthe Company Secretary, as well as overseeing the remuneration arrangements of other sta within its purview. In 2021, the Committee met seven times and also dealt with a number of matters by email circulation. The principal responsibilities of the Committee set out in their terms of reference and discharged during 2021 were: > Approving the operation of performance-related pay schemes operated for the Executive Directors, other members of the Group Executive Committee and the Company Secretary,and determining the targets and individual payouts under such schemes; > Reviewing the operation and awards made under all share plans requiring approval by the Board and/or the Company’s shareholders. Specifically, d uring 2021, this included approving theremuneration section ofthe Demerger Agreement and all related adjustments topay and performance schemes; > Mo nitoring compliance of the Chair and Executive Directors and other members of the Group Executive Committee with share ownership guidelines; > Re viewing and approving individual packages for the Executive Directors and other members of the Group Executive Committee, and the fees ofthe Chair. Similarly, reviewing and approving fees for the Non-executive Directors of the Group’s material subsidiaries; > Rev iewing workforce remunerationpractices and related policies across the Group when setting the remuneration policy for Executive Directors, as well as the alignment of incentives and awards with culture; > Re viewing and approving the content and format of the UK gender pay gap report; > Monitoring the remunerationand risk management implications ofremuneration of senior executives across theGroup and otherselected roles; and > Overseeing theimplementation of the Group remuneration policy for roles within the scope of thespecific arrangements referred to in the Hong K ong IA GWS Framework. The Chair and the Group Chief Executive attend meetings by invitation. The Committee also had the benefit of advice from: > Gr oup Chief Risk and Compliance Ocer; > Group Chief Financial Ocer and Chief Operating Ocer; > Gr oup Human Resources Director; and > Director of Group Reward and Employee Relations. Individuals are not present when their own remuneration is discussed and the Committee is always careful to manage potential conflicts of interest when receiving views from Executive Directors or senior management about executive remuneration proposals. As part of our broader programme of shareholder engagement, the Chairof the Committee held meetings with shareholders and the principal advisory bodies to discuss decisions taken in respect of the Executive Directors’ remuneration arrangements for 2022. We have had the benefit of s ubstantive feedback from 50 per cent of our shareholder register and are pleased that the majority of shareholders and advisory bodies who provided input were supportive of our proposals and commended the manner in which we conducted the consultation process. #### Annual report on remuneration Membership and 2021 meeting attendance Committee Members 2021Meetings Anthony Nightingale CMG SBS JP (Chair) 8/10 Thomas Watjen 10/10 Kai Nargolwala 1 5/6 Fields Wicker-Miurin 2 9/10 Amy Yip 3 4/4 The Hon. Philip Remnant CBE FCA 9/10 David Law ACA 4 9/9 Chua Sock Koong 5 4/4 Regular attendees > Chair > Gro up Chief Executive > CompanySecretary > Gr oup Human Resources Director > Director of Group Reward and Employee Relations > Re muneration Committee Adviser Notes 1Kai Nargolwala stepped down from the Remuneration Committee on 13 May 2021. 2Fields Wicker-Miurin stepped down from the Remuneration Committee on 31 December 2021. 3Amy Yip stepped down from the Remuneration Committee on 3 March 2021. 4David Law joined the Remuneration Committee on 4 February 2021. 5Chua Sock Koong joined the Remuneration Committee on 12 May 2021. Prudential plc Annual Report 2021prudentialplc.com 204 ![]() During 2021, Deloitte LLP was the independent remuneration adviser to the Committee. Deloittewas re-appointed by theCommittee in 2021 following a competitive tender process. As part of this process, the Committee considered the services that Deloitte provided to Prudential and its competitors, as well as other potential conflicts of interest. Deloitte is a member of the Remuneration Consultants’ Group and voluntarily operates under their code of conduct when providing advice on executive remuneration in the UK. Deloitte regularly meets with the Chair of the Committee without management present. The Committeeis comfortable that the Deloitte engagementpartner and team providing remunerationadvice to the Committee do not have connections with Prudential that may impair their independence and objectivity. The total fees paid to Deloitte for the provision of independent advice to the Committee in 2021 were £81,250 charged on a fixed fee as well as time and materials basis. During 2021, Deloitte provided Prudential management advice on remuneration, digital and technology, taxation, internal audit, global mobility, risk and regulatory matters. Remuneration advice is provided by an entirely separate team within Deloitte. In addition, in 2021 the Committee and management commissioned a large scale research project by Aon, which included analysis of remuneration trends and structures across a number of sectors and geographies. The total cost of this project, including analysis and data provided in respect of executives below Board, was US$117,700 charged on a fixed fee basis. Aon were selected and appointed by management. The Committee is comfortable that the advice received was objective and independent. During 2021, Aon provided other parts of the Group management advice on sta salary data, insurance services and asset management consulting services. In 2021 the Board conducted an evaluation of its eectiveness which included an assessment of the Remuneration Committee. The evaluation confirmed that the Committee continued to operate eectively during the year. Remuneration decisions taken in relation to the demerger The Jackson business demerged from the Group with eect from 13 September 2021. The Committee established a set of principles, consistent with that applied on the 2019 demerger of M&G, to underpin decisions on remuneration relating to the demerger with Jackson, including: > Ex ecutives should not be advantaged or disadvantaged by the demerger; > The value of outstanding awards and their key terms (release dates, holding periods, malus and clawback provisions) should be unaected; > Wh ere performance conditions need to be revised, the new conditions should be no more or less stretching than those originally attached to the awards; and > Wh ere the Committee has applied discretion, this will be disclosed clearly. These principles formed the basis for the treatment of outstanding share awards which was set out in the Shareholder Circular published on 6 August 2021 andapproved by shareholders at theAugust 2021General Meeting. Insummary, employees ofPrudential plc (including the Executive Directors of the Company) received the demerger dividend on their outstanding deferred bonus and long-term incentive awards in the form of additional Prudential plc shares which will be released on the same timetable and on the same basis as their original share awards. The C ommittee decided that it was appropriate that, wherever possible, executives should be rewarded in the shares of the business which they continue to lead. For awards under UK all-employee share plans, the treatment was in line with the relevant rules and regulations. Adjusting the AIP and in-flight PLTIP performance conditions At the time of the demerger, the 2021 AIP financial targets were adjusted to exclude the Jackson business for the remainder of the year. The Committee decided that the financial targets for the 2019 and 2020 PLTIP awards should be adjusted to exclude the Jackson components of the Plan on which the targets were based, with eect from the date of the demerger, in order to appropriately account for the period that Jackson w ere not part of the Group. The revised targets will be disclosed in the remuneration report for the year in which the awards vest. The 2021 PLTIP award targets exclude Jackson performance, with the exception of the ‘conduct’ measure in the sustainability scorecard which includes Jackson until the point of demerger. No changes have been made to the TSR peer groups for any outstanding PLTIP awards held by Prudential plc sta. The TSR peer group was revised a head of 2021 awards being made in order to reflect the post-demerger footprint of the Group. Demerger share calculation At the time of the demerger of Jackson from Prudential plc shareholders received one share in Jackson for every forty shares they hold in Prudential plc. The Committee approved the approach to converting the demerger dividend into additional Prudential plc shares and ADRs for those with outstanding awards at the date of the demerger. Prudential plc employees who held awards over Prudential shares or ADRs therefore received the value of the demerger dividend in the form of additional Prudential plc shares or ADRs respectively. These additional shares/ADRs will vest on the same timetable and on the same basis as the original award. The Committee considered a number of approaches for converting the demerger dividend into additional Prudential plc shares/ ADRs. It decided to d etermine the number of additional Prudential plc shares/ADRs to be awarded as a dividend by dividing the value of Jackson shares (based on the volume weighted average price realised through the bulk sale of Jackson shares immediately following demerger date) by the Prudential plc share price averaged over the first ten days of Jackson’s regular trading on the NYSE. This approach ensured alignment between the value that our employees and our shareholders realised fromthe demerger. TSR calculation The Committee determined that the calculation of TSR for in-flight PLTIP awards should be adjusted to reflect the demerger of Jackson. This involved the application of an adjustment factor calculated in line with standard methodologies. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 205 ![]() Annual report on remuneration / continued Table of 2021 Executive Director total remuneration (the ‘single figure’) $000s (unless stated) 2021 salary 2021 taxable benefits \* 2021 total bonus † 2021 PLTIP releases ‡ 2021 pension benefits § Total 2021 fixed remuneration ~ Total 2021 variable remuneration ~ Total 2021 remuneration the ‘single figure’ ^ Total 2021 remuneration the ‘single figure’ in GBP (£000) # Mark FitzPatrick 1,085 275 1,8605361411,5012,3963,8972,832 James Turner 1 943 646 1,6294501251,7142,0793,7932,757 MikeWells 1,581 463 3,0571,2962052,2494,3536,6024,799 Total 3,6091,3846,5462,2824715,4648,82814,29210,388 \* Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements, relocation/expatriate benefits and shares awarded due to participation in the Share Incentive Plan (SIP). † The total value of the bonus, comprising both the 60 per cent delivered in cash and 40 per cent bonus deferred into Prudential plc shares for three years. The deferred part of the bonus is subject to malus and clawback in accordance with the malus and clawback policies, but no further performance conditions. ‡ In line with the regulations, the estimated value of the 2021 PLTIP releases for all Executive Directors has been calculated based on the average share price over the last three months of 2021 (£14.00/US$19.26) and includes the accumulated dividends delivered in the form of shares. The Committee’s approach to determining the level of vesting for this award is set out in the ‘Remuneration in respect of performance periods ending in 2021’ section. The number of Prudential plc shares under award has been adjusted to take account of the Jackson demerger in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. As set out in the 2019 Annual Report, these awards have previously been adjusted on the demerger of M&G. The actual value of vesting PLTIP awards, based on the share price on the date awards are released, will be shown in the 2022 report. Due to the share price depreciation over the vesting period, the estimated value per share of the 2019 PLTIP awards is 9.1% lower than the value per share at grant. As a result, no value is attributable to share price appreciation. No adjustment to vesting levels has been proposed as a result of the share price depreciation. § 2021 pension benefits include cash supplements for pension purposes and contributions into defined contribution schemes as outlined in the ‘pension benefit entitlement’ section. ~Total fixed remuneration includes salary, taxable benefits and pension benefits. Total variable remuneration includes total bonus and PLTIP releases. ^Each remuneration element is rounded to the nearest $1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of Statutory Instrument 2013 No. 1981 – The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. Total 2021 remuneration has been converted to US dollars using the exchange rate of 0.7269 for GBP and 7.7728 for HKD. Exchange rate fluctuations will therefore impact the reported value. #Total 2021 remuneration has been converted to GBP using the exchange rate of 0.7269 USD to 1 GBP. Note 1Mr Turner is paid in HK dollars, while Messrs Wells and FitzPatrick are paid in sterling. Table of 2020 Executive Director total remuneration (the ‘single figure’) $000s (unless stated) 2020 salary 2020 taxable benefits \* 2020 total bonus † 2020 PLTIP releases ‡ 2020 pension benefits § Total 2020 fixed remuneration ~ Total 2020 variable remuneration ~ Total 2020 remuneration the ‘single figure’ ^ Total 2020 remuneration the ‘single figure’ in GBP (£000) # Mark FitzPatrick 9802391,1861,7731711,3902,9594,3493,391 James Turner 1 9506431,3229191691,7622,2414,0033,122 MikeWells 1,4813881,3554,2862582,1275,6417,7686,057 Total 3,4111,2703,8636,9785985,27910,84116,12012,570 \* Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements, relocation/expatriate benefits and shares awarded due to participation in the Share Incentive Plan (SIP). † The total value of the bonus, comprising both the 60 per cent delivered in cash and 40 per cent bonus deferred into Prudential plc shares for three years. The deferred part of the bonus is subject to malus and clawback in accordance with the malus and clawback policies, but no further performance conditions. ‡ In line with the regulations, the value of the 2020 PLTIP releases for all Executive Directors has been calculated using the share price at vesting of £14.9984 and includes the accumulated dividends delivered in the form of shares. The number of Prudential plc shares under award have been adjusted in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’ in the 2019 Annual Report. Due to the share price depreciation over the vesting period, the estimated value per share of the 2018 PLTIP awards is 16.5 per cent lower than the value per share at grant. As a result, no value is attributable to share price appreciation. No adjustment to vesting levels has been proposed as a result of the share price depreciation. § 2020 pension benefits include cash supplements for pension purposes and contributions into defined contribution schemes as outlined in the ‘pension benefit entitlement’ section. ~Total fixed remuneration includes salary, taxable benefits and pension benefits. Total variable remuneration includes total bonus and PLTIP releases. ^Each remuneration element is rounded to the nearest $1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of Statutory Instrument 2013 No. 1981 – The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. Total 2020 remuneration has been converted to US dollars using the exchange rate of 0.7798 for GBP and 7.7560 for HKD. Exchange rate fluctuations will therefore impact the reported value. #Total 2020 remuneration has been converted to GBP using the exchange rate of 0.7798 for GBP. Note 1Mr Turner is paid in HK dollars, while Messrs Wells and FitzPatrick are paid in sterling. Prudential plc Annual Report 2021prudentialplc.com 206 ![]() Remuneration in respect of performance in 2021 Base salary No salary increases were awarded to Executive Directors with eect from January 2021. However, the scope of the role of the Group Chief Financial Ocer and Chief Operating Ocer was expanded in April 2021 to include oversight of the Group’s investment processes and governance in addition to his previous responsibilities. The Hong Kong IA has also asked that he is designated as a Key Person in a Control Function with responsibility for t he Financial Control function. The scope of Mr FitzPatrick’s role was previously increased in 2019 to include the Chief Operating Ocer responsibilities without an increase in remuneration. Having considered these developments, the Committee decided to award a 5 per cent salary increase for Mr FitzPatrick with eect from 1 April 2021. As a result, Executive Directors received the following salaries in 2021: Executive Director 2021salary (local currency) from 1 January 2021 2021salary (USD) 1 from 1 January 2021 2021salary (local currency) from 1 April 2021 2021salary (USD) 1 from 1 April 2021 Mark FitzPatrick, Group Chief Financial Ocer and Chief Operating Ocer £760,000$1,046,000£798,000$1,098,000 James Turner, Group Chief Risk and Compliance Ocer HK$7,330,000$943,000 No change Mike Wells, Group Chief Executive £1,149,000$1,581,000 No change Note 12021 salaries were converted to US dollars using an exchange rate of 0.7269 for GBP and 7.7728 for HKD. All salaries are rounded to the nearest $1,000/£1,000 or HKD 10,000. Pension benefit entitlements Pension benefit arrangements for 2021 are set out in the table below. The employer pension contribution available to the UK workforce is 13 per cent of salary. Executive Director 2021 pensionbenefit Lifeassurance provision James Turner Pension supplement in lieu of pension of 13 per cent of salary and a HKD18,000 employer payment to the Hong Kong Mandatory ProvidentFund. Eight times salary. Mark FitzPatrick and Mike WellsPension supplement in lieu of pension of 13 per cent of salary.Four times salary plus an additional four t imes salary dependants’pension. Annual bonus outcomes for 2021 Target setting For 2021, financial AIP metrics comprise 80 per cent of the bonus opportunity for all Executive Directors apart from the Group Chief Risk and Compliance Ocer, for whom this accounts for 40 per cent of the bonus opportunity. The performance ranges are based on the annual business plans approved by the Board and reflect the ambitions of the Group, in the context of anticipated market conditions. The financial element of Executive Directors’ 2021 bonuses was determined by the achievement of four Group measures, namely adjusted operating profit, operating free surplus generation, EEV new business profit and cash flow, which are aligned to the Group’s growth and cash generation focus. Personal objectives comprise 20 per cent of the bonus opportunity for all Executive Directors. These objectives were established at the start of the y ear and reflect the Company’s Strategic Priorities set by the Board. For 2021, Executive Directors had two shared strategic objectives linked to developing and embedding the Group’s ESG strategic framework and completing the separation of Jackson from the Group. Functional objectives account for the remaining 40 per cent of the Group Chief Risk and Compliance Ocer’s bonus opportunity. These are based on the Group Risk Plan and are developed with input from the Chair of the Group Risk Committee. AIP payments are subject to meeting minimum capital thresholds which are aligned to the Group risk framework and appetites (as adjusted for any Group Risk Committee approved counter-cyclical buers), as described in the Group Chief Risk and Compliance Ocer’s report section of this report. The Committee seeks advice from the Group Risk Committee on risk management considerations to inform decisions about remuneration architecture and performance measures to ensure that risk management, culture and conduct are appropriately reflected in the design and operation of Executive Directors’ remuneration. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 207 ![]() Annual report on remuneration / continued Performanceassessment The Committee determines the overall value of the bonus, taking account of the inputs described above and any other factors which it considers relevant. The Committee considered a report from the Group Chief Risk and Compliance Ocer which had been approved by the Group Risk Committee. This r eport confirmed that the 2021 results were achieved within the Group’s and businesses’ risk framework and appetite. The Group Chief Risk and Compliance Ocer also considered the eectiveness of risk management and internal controls, and specific actions taken to mitigate risks, particularly where these may be at the expense of profits or sales. The report also confirmed that the Group met minimum capital thresholds which were aligned to the Group risk framework and appetites. The Committee took into account this advice when determining AIP outcomes for E xecutive Directors. The table below illustrates the weighting ofperformance measuresfor 2021 and the level of achievementunder the AIP: Executive Director Weighting of measures (% of total bonus opportunity) Achievementagainst performance measures (% of maximum for each component) 2021 AIP outcome 1 (% of total bonus opportunity) Group financial measures Functional objectives Personal objectives Group financial measures Functional objectives Personal objectives Mark FitzPatrick 80% – 20%98.4% – 96.4%98.0% James Turner 40%40%20%98.4%98.8%99.2%98.7% MikeWells 80% – 20%98.4% – 90.0%96.7% Note 1All bonus awards are subject to 40 per cent deferral for three years and the deferred bonus will be paid in Prudential plc shares. Financialperformance The Committee reviewed performance against the performance ranges at its meeting in February 2022. Group adjusted operating profit and Group free surplus generation were approaching the stretch target established by the Board. Life new business profit and Group cash flow achievement exceeded the stretching targets established by the Board. The level of performance required for threshold, plan and maximum payment against the Group’s 2021 AIP financial measures and the results achieved are set out below: 2021AIP measure Weighting Threshold ($m) Target ($m) Stretchtarget ($m) Achievement ($m) Group adjusted operating profit 25%4,8825,2785,6745,616 Group operating freesurplus generated 30%1,7261,8662,0062,087 Group cash flow 10%(348)91154394 Group EEV newbusiness profit 35%2,1632,4722,5342,526 Personal performance A proportion of the annual bonus for each Executive Director is based on the achievement of personal objectives including: > Th e executive meeting their individual conduct and customer measures; > The executive’s contribution to Group strategy as a member of the Board; and > Sp ecific goals related to the function for which they are responsible and progress on major projects. At the end of the year, the Committee considered the performance of all executives against objectives established at the start of the year. At its meeting in February 2022, it concluded that 2021 had seen the execution of significant strategic objectives, as described in the Strategic report. These achievements reflect Executive Directors’ high level of performance against their 2021 personal objectives. All executives met their individual conduct measures and each Executive Director made a significant contribution to the achievement of Group strategy during 2021. Prudential plc Annual Report 2021prudentialplc.com 208 ![]() The below summarises performance against thepersonal objectives and strategic priorities for the current Executive Directors: Shared strategic objectives 2021 key strategic objective Achievement Performance relative to target ESG – climate and diversity Develop and embed the Group’s ESG strategic framework, with a particular focus on: > in itiatives to improve accessibility to health and financial security; > managingthe Group’s exposure to climate-related risks and opportunities; and > it s actions as a consequence, and improving diversity, inclusionand belonging in the organisation. SOCIETY, PEOPLE The ESG framework was embedded at both functional and local business levels and the Prudential Sustainability Advisory Group was e stablished. In May 2021, the Group set a target to become a net zero 2050 asset owner supported by a 25 per cent reduction in emissions from the portfolio by 2025. The Group is on track for achievement of this target and has achieved the exit of coal equity holdings (above the 30 per cent revenue threshold) by the end of 2021. A responsible investment policy was agreed and has been implemented. The Group launched the We DO Family campaign to support the development of inclusive products that recognise the evolution of nuclear families by expanding the Group’s product coverage to include a w ider array ofrelationships. The Group demonstrated its commitment to Diversity & Inclusion by achieving a c35 per cent representation of women in senior leadership at the end of 2021, above the 30 per cent commitment under the HM Treasury ‘Women in Finance Charter’. The Group was included on t he Bloomberg Gender Equality Index for the first time and is committed tothe United NationsWomen’sEmpowerment Principles. Above target level, approaching stretch target level Complete the separation of J ackson from the Group INVESTORS The Group completed the separation of Jackson resulting in Prudential’s transformation from a diversified, global group into a focused business exclusively targeting the long-term structural opportunitiesof Asia and Africa. The Group secured shareholder support of the demerger (at the General Meeting in August 2021, 99.65 per centshareholders supported the demerger resolution). Shortly thereafterthe Board declared a dividend in specie, distributing the Jackson shares to the Group’s shareholders. The Group retained a stake in Jackson following the demerger. Above stretch target level Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 209 ![]() Annual report on remuneration / continued Mark FitzPatrick, Group Chief Financial Ocer and Chief Operating Ocer 2021 key strategic deliverables Achievement Performance relative to target Strategic communications with d ebt and equity markets and Equity raise Lead strategic communications between Prudential and the debt a nd equity markets, and specifically deliverthe required debt repayment and refinancing. Seek to raise US$2.5-3 billion of new equity capital. INVESTORS Ensured debt and equity plan remained supported by investors as the Jackson demerger and Equity raise evolved, through regular engagement with investors and ratings agencies so that both share prices and credit ratings were not impacted by equity raise and temporarily high leverage post Jackson demerger. Ensured that market disclosures on debt issuance and repayment were updated at the appropriate times and the lead regulator HKIA was s upportive of the debt transactions and their capital implications. Raised c$1 billion and repaid c$3 billion of debt (including $1.7 billion redeemed in January 2022), maximising opportunity for deleveraging, debt refinancing and reduction in interest c osts. Developed and refined structure, transaction size and timing throughout 2021, to ensure a successful Hong Kong Equity raise, ultimately leading to significant increase in Hong Kong share liquidity. Developed and communicated the equity story to investors through Capital Markets Day, leading Finance, Investor Relations, Corporate Strategy, Communications, Legal and external parties to deliver and execute. Above stretch target level Increase Asia shareholder base Increase the Asia shareholder base and Hong Kong liquidity. INVESTORS Raised $2.4 billion of equity in Hong Kong to optimise balance sheet to reflect focus on Asia and Africa. Delivered the Hong Kong Equity raise marketing, securing milestone orders and ran the Hong Kongpublic oering. Supported further roll out of Asia research coverage. Directly managed Asia based IR eort, tailoring Investor Relation eorts to increase access to Asia-based investors via conferences and Investor Relation activities, including site visits. Drove continued domestic Hong Kong stock commentary and public relations eorts. Above stretch target level Deliver IFRS 17 reporting changes to ensure systems in place to deliver comparative reporting from 2022. REGULATORS Sponsored the IFRS17 programme and chaired the Group-wide steering committee for IFRS 17. During 2021, the Group made significant progress with the build and testing of new actuarial and finance systems. Programme activities were completed to enable the production of the opening balance sheet and comparatives in 2022. Above target level, approaching stretch target level Recognising Mr FitzPatrick’s very strong performance against both his individual and shared personal objectives during 2021, the Committee judged that 19.3 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate. Prudential plc Annual Report 2021prudentialplc.com 210 ![]() James Turner, Group Chief Risk and Compliance Ocer 2021 key objectives Achievement Performance relative to target Lead strategic communications between Prudential and keyregulators, ensuring constructive and open relationships. Maintain constructive engagement and relationships with industry peers. REGULATORS Worked closely with HKIA to support finalisation of preparations for compliance with the GWS legislation, which became eective on 29 March 2021, with formal designation of the Group with eect from 14 May 2021. Proactively engaged with regulators in advance of the demerger of US business and provided support for the necessary interaction between the HKIA and DIFS. Provided insight to regulators on key Group risks and associated developments as part of the annual College of Supervisors. Engaged with both regulators and the stock exchange as part of a key role in the Group’s 2021 equity raise. Continued leadership role in discussions with regulator and peers on d evelopment of the HK RBC capital regime given its economic capital focus. Above stretch target level Develop the Risk and Compliance leadership team and key talent to enable s trong s uccession planning/talent pipeline. PEOPLE Supported the development of the senior team within the US business to take key functional leadershiproles post operational separationof the US business. Supported Group-wide talent development initiatives including mentorship and sponsorship of future and recently promoted leaders across Asia. Developed the Risk and Compliance leadershipkeytalent across the region including identifying potential successors for the Group Chief Risk and Compliance Ocer role. Above stretch target level Recognising Mr Turner’s very strong performance against both his individual and shared personal objectives during 2021, the Committee judged that 19.8 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 211 ![]() Annual report on remuneration / continued Mike Wells, Group Chief Executive 2021 key objectives Achievement Performance relative to target Pulse Progress the rapid roll out across Asia and Africa and monetisation potential of Pulse as a platform with increasingfunctionality and o perational andfinancial synergies with the rest of the bu siness. CUSTOMERS Supervised the roll-out of Pulse which is now available in 17 markets and exceeding 32 million downloads and c13 million registrations by the end of 2021. Pulse has attracted alarge proportionof younggeneration users (aged 18 to 35) and mass segment users. Insights gathered on Pulse provided a better understanding of customer needs, allowing the Group to digitally deliver products and services customized to users’ interests and requirements. These insights also help the agency network assist those customers that require a more personal, advice-led approach. By the end of 2021, the Group has entered into over 56 key digital partnerships which allowed it to harness the strengths and abilities of its p artners, to broaden the product and services oering and to expand its market reach. Above stretch target level Accelerated Asian and A frican g rowth Ensure a healthy balance sheet and sucient capital and funding foraccelerated Asian and African g rowth, including for opportunities thatmay be developed orbecome available outsidethe Group2021–2023 Plan, in a manner that begins the re-rating of the share price. INVESTORS In October 2021 Prudential completed a share oer raising approximately HK$18.5 billion or US$2.4 billion on the Hong Kong Stock Exchange (HKSE). The proceeds were used to redeem existing debt, in order to maintain and enhance Prudential’s financial flexibility in light of t he breadth of opportunities to invest for growth in Asia and Africa. We estimate the Moody’s total leverage at 31 December to be 26 per cent and if the further debt redemptions of $1,725 million in January 2022 had been completed as at 31 December 2021, we estimate that this figure would have been 21 per cent. Above stretch target level Recognising Mr Wells’s very strong performance against both his individual and shared personal objectives during 2021, the Committee judged that 18 per cent of a maximum of 20 per cent attributable to personal objectives was appropriate. Prudential plc Annual Report 2021prudentialplc.com 212 ![]() Functional performance The Group Chief Executive and the Chair of the Group Risk Committee undertake the assessment of performance against functional objectives for the Group Chief Risk and Compliance Ocer. 2021 achievement is summarised below: Summary of 2021 functional objectives Achievement Performance relative to target Group-wide risk and compliance developments Oversee implementation of HKIA GWS requirements with key focus on development of GIECA. Specific non-financial risk framework development to change to reflect the 2021 plan: > Enhancing customer-related conduct risk m anagement information. > Adapting the framework to ensure it remains eective in light of the strategic objectives related to the Pulse business. > Fu rther updates to reflect the impact of climate related transition risk. INVESTORS, REGULATORS Worked closely with Group Finance to lead the development of the GIECA methodology, including providing regular updates to the Group Risk Committee to enable appropriate levelof challenge and transparency of key assumptions andmodelling simplifications during the critical development stage. Led the adaptation of the Enterprise Risk Management Framework and Governance to meet changing requirements, including those associated with the Group’s strategic focus digitalisationand external developments in the understanding of the risks associated with climate c hange. Engaged first-linestakeholders in training, awareness and conduct risk assessments, as well as providing conduct advice for Pulse, and enhancing conduct elements in the product approval process. Above stretch target level Risk and compliance oversight Ensure the business is suciently informed on e xternal risk perspectives and challenged, where appropriate to take eective actions and decisions. Provide Non-executive and Executive management information and insight to fully s upport members in meetingtheir responsibilities and duties set out in their Terms of Reference in respect of risk management. Support the identification and management of emerging and top risks by the business, including deep dives into areas identified in t he T op Risk process (eg interest rate management, oversightof the separation of J ackson, modelling and assumption risks and technology risk management). INVESTORS, REGULATORS Delivered insightful Chief Risk and Compliance Ocer updates to the Group Risk Committee focusing on the impact on the Group ofrapidlydeveloping risk themes such as geo-political developments, pandemic impacts, the m anagement of sanctions and credit risk in the balance sheet. Completed the program of targeted, deep dive risk reviews, as proposed and agreed with the Group Risk Committee at the start of the year, including assessments following penetration testing, the use and development of digital wallets and the long-term impacts oflower for longer interest rates on core products in each of the larger markets. Provided clear and concise risk analysis and opinions in support of Board decisions including in relation the demerger of the US business, the equity raise and other strategic initiatives. Led an initiative, including training, to demonstrate an open discussion of mistakes and ‘what could go wrong’ by senior leaders, in order to encourage similar conversations within teams and promote psychological safety. Above stretch target level Operating model Implementation Operationalise a Group-wide function for the International business, improving eciency and eectiveness through collaboration and coordination. INVESTORS Completed functional alignmentto Asia/Africa business operations following the demergerof the USbusiness including build of technology and digital risk capabilities and leadership for the Asia/Africa business. Reinforced functional mission and operation as a Group- wide function and developed communication andtraining programmes to support the global Risk, Compliance and Security function in understanding and responding to key elements of the Group’s strategy including digitalisation and ESG related initiatives. Above target level, approaching stretch target level In recognition of James Turner’s very strong performance against his functional objectives during 2021, the Committee judged that 39.5 per cent of a maximum of 40 per cent attributable to functional objectives was appropriate. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 213 ![]() Annual report on remuneration / continued 2021 bonus awards The Committee determined the 2021 AIP awards below on the basis of the performance of the Group and of the individual executives. In making these decisions, it reflected on factors including: > The overall contribution of the executive; > Beh avioural, conduct and riskmanagement considerations; and > Wider experience of stakeholders and overall corporateperformance. 40 per cent of the 2021 bonus awards will be deferred into shares for three years. Executive Director Role 2021salary 1 Maximum 2021 AIP (% of salary) Actual 2021 AIP award (% of maximum opportunity) 2021 bonus award (including cash and deferred elements) Mark FitzPatrick 2 Group Chief Financial Ocer and Chief Operating Ocer $1,085,000175%98.0%$1,859,795 James Turner Group Chief Risk and Compliance Ocer $943,000175%98.7%$1,628,507 MikeWells Group Chief Executive $1,581,000200%96.7%$3,056,778 Notes 1Salaries are converted to US dollars using an exchange rate of 0.7269 for GBP and 7.7728 for HKD. 2The salary for Mr FitzPatrick reflects the salary increase awarded with eect from 1 April 2021. Long-term incentives vesting in respect of performance to 31 December 2021 Prudential Long Term Incentive Plan (PLTIP) Target setting Our long-term incentive plans have stretching performance conditions that are aligned to the strategic priorities of the Group. In 2019, all Executive Directors were granted awards under the PLTIP. In determining the financial targets under the sustainability scorecard, the Committee had regard to the stretching nature of the three-year Business Plan for adjusted operating profit and capital positions as set by the Board. Further, in setting the conduct and diversity targets under the sustainability scorecard, the Committee considered input from the Group Chief Risk and Compliance Ocer on conduct risk for the conduct measure and had regard to the Company’s commitment under the Women in Finance Charter for the diversity measure. The weightings of the measures are detailed in the table below: Executive Director Weighting of measures Vesting (% of maximum) Group TSR 1 Sustainability Scorecard Solvency II capital generation/ Groupfree surplus generation 2 ECap operating capital generation 3 Conduct 4 Diversity 5 Threshold performance Stretch performance Mark FitzPatrick 75%6.25%6.25%6.25%6.25%20%100% James Turner 75%6.25%6.25%6.25%6.25%20%100% MikeWells 75%6.25%6.25%6.25%6.25%20%100% Notes 1Group TSR is measured on a ranked basis over three years relative to peers. 2At the time of award a Solvency II operating capital generation measure was used in the sustainability scorecard. As set out in the ‘Remuneration decisions taken in relation to the demerger’ section of the 2019 Directors’ remuneration report, Solvency II operating capital generation was replaced with Group free surplus generation from 1 July 2019 since Prudential ceased to be subject to Solvency II capital requirements and no longer calculated or disclosed a Solvency II position following the demerger of the M&G business and the change in the Company’s Group-wide supervisor. 3This is cumulative three-year ECap Group operating capital generation, less cost of capital (based on the capital position at the start of the performance period). 4Conduct is assessed through appropriate management action, ensuring there are no significant conduct/culture/governance issues that could result in significant capital add-ons or material fines. 5Diversity is measured as the percentage of the Leadership Team that is female at the end of 2021. The target for this metric has been based on progress towards the goal that the Company set when it signed the Women in Finance Charter, where 30 per cent of our Leadership Team should be female by the end of 2021. As described in the section on ‘Remuneration decisions taken in relation to the demerger’, the Committee adjusted the performance conditions attached to the 2019 PLTIP awards in order to take account of the demerger with Jackson, ensuring that the revised performance conditions were no more or less stretching than those originally attached to the awards. As set out in the 2019 Annual Report, these awards have previously been adjusted on the demerger of M&G. The performance assessment provided opposite is based on these adjusted targets. Prudential plc Annual Report 2021prudentialplc.com 214 ![]() Performanceassessment In deciding the proportion of the awards to be released, the Committee considered actual results against performance targets. The Committee also reviewed underlying Companyperformance to ensure vesting levels wereappropriate,including an assessment of whether results were achieved within the Group’s risk framework and appetite. Finally, overall vesting levels were reviewed to ensure that levels of reward provided remain reflective of the Company’s performance. The Directors’ remuneration policy summary section contains further details of the design of Prudential’s long-term incentive plans. Threshold (20 per cent of award vests) Stretch (100 per cent of award vests) Performance achieved Vestingoutcome TSR 1 Median Upper quartile below median 0 per cent Group Solvency II operating capital generation/Group operating free surplus generation 3 Group Solvency II operating capitalgeneration from 1 January 2019 to 30 June 2019 – target $2.0 billion. Group operating free surplus generationfrom 1 July 2019 to 31 December 2021 – target $9.6 billion above target but below the cumulative stretch target 83 per cent Capital measure – Group ECap operating capital generation 3 Target $6.1 billion below threshold 0 per cent Conduct Partial achievement Stretch achievementno conduct, culture or governance issues that resulted in significant capital add-ons or material fines 100 per cent Diversity 2 28 per cent of Leadership Team being female 32 per cent of Leadership Team being f emale 35 per cent of our Leadership Team was female 100 per cent Notes 1Peer group for the 2019 awards is AIA, Aegon, AXA Equitable, China Taiping Insurance, Great Eastern, Lincoln National, Manulife, MetLife, Ping An Insurance, Principal Financial, Prudential Financial, Sun Life Financial. No adjustments were made to the peer group in respect of the demerger. 2In 2019 the Leadership Team was subdivided into the Leadership Team and the Executive Council. Both of these leadership groups are considered for the purposes of this assessment. 3Jackson performance was excluded from the point of demerger. Details of cumulative achievement under thecapital measures have not been disclosed as the Committee considers that these are commercially sensitive and would put the Company at a disadvantage compared to its competitors. The Committee will keep this disclosure policy under review based on whether, in its view, disclosure would compromise the Company’s competitive position. PLTIP vesting The Committee considered a report from the Group Chief Risk and Compliance Ocer which had been approved by the Group Risk Committee. This report confirmed that the financial results were achieved within the Group’s risk framework and appetite. On the basis of this report and the performance of the Group described above, the Committee decided not to apply any adjustment to the arithmetic vesting outcome under the 2019 PLTIP awards and determined the vesting of each Executive Director’s PLTIP awards as set out below: Executive Director Maximum value of award at full vesting 1 Percentage of the PLTIP award vesting Number of shares vesting 2 Valueof shares vesting 1 Mark FitzPatrick, Group Chief Financial Ocer and Chief Operating Ocer $3,018,08017.75%27,814$535,694 James Turner, Group Chief Risk and Compliance Ocer $2,533,59717.75%23,349$449,699 Mike Wells, Group Chief Executive $7,300,74317.75%67,284$1,295,881 Notes 1The share price used to calculate the value of the PLTIP awards with performance periods which ended on 31 December 2021 and vest in April 2022 for all Executive Directors, was the average share price for the three months up to 31 December 2021, being £14.00 converted at the exchange rate of 0.7269 USD. The number of Prudential plc shares under award has been adjusted to account for the demerger of Jackson in line with the approach set out in the section on ‘Remuneration decisions taken in relation to the demerger’. 2The number of shares vesting includes accrued dividends. Shares vesting will be subject to a two-year holding period. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 215 ![]() Annual report on remuneration / continued Long-term incentives awarded in 2021 2021 share-based long-term incentive awards The table below shows the awards of conditional shares made to Executive Directors under the PLTIP in 2021 and the performance conditions attached to these awards. Executive Director Role Number of shares subject to award Face value of award Percentage of awards releasedfor achieving threshold targets End of performance period Weighting of performance conditions % of salary (USD) † Group TSR RoEV Sustainability scorecard § Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer 126,245250%$2,613,82220% 31 December 2023 50%30%20% James Turner Group Chief Risk and Compliance Ocer 111,215250%$2,302,63620% 31 December 2023 50%30%20% MikeWells Group Chief Executive 305,382400%$6,322,73920% 31 December 2023 50%30%20% † Awards for Executive Directors are calculated based on the average share price over the three dealing days prior to the grant date, being £15.05/$20.70. § Each of the four measures within the sustainability scorecard has equal weighting. They are GWS operating capital generation, Group ECap operating capital generation, diversity and conduct. The Committee will review awards on vesting to ensure that participants do not benefit from windfall gains. The Committee will consider Prudential’s stretching performance targets, the share performance of Prudential and its peers, the prices of the indices on which Prudential is listed and anyother factors deemed relevant. As set out in the section on ‘Remuneration decisions taken in relation to the demerger’, 2021 PLTIP targets were set excluding the Jackson business from the targets, with the exception of the conduct measure in the sustainability scorecard which included Jackson until the demerger date. RelativeTSR Under the Group TSR measure, 20 per cent of the award will vest for TSR at the median of the peer group, increasing to full vesting for performance within the upper quartile. The peer group for 2021 PLTIP awards, which reflects the footprint of the post-separation Group, is set out below: AIA Group China Pacific Insurance(CPIC) New China Life (NCl) Allianz China Taiping Insurance Ping An Insurance AXA Great Eastern Sun Life Financial China Life ManulifeFinancial Zurich Insurance Group Return on Embedded Value (RoEV) Performance will be assessed on the average three-year Group RoEV relative to the 2021-2023 Board approved Plan. 20 per cent of the award will vest for achieving the threshold level of 9.0 per cent, increasing to full vesting for reaching the stretch level of at least 11.0 per cent. Prudential plc Annual Report 2021prudentialplc.com 216 ![]() Sustainability scorecard Under the 2021 sustainability scorecard, performance will be assessed for each of the four measures, at the end of the three-year performance period. Performance will be assessed on a sliding scale. Each of the measures has equal weighting and the 2021 measures are set out below: Capital measure: Cumulative three-year ECap Group operating capital generation, less cost of capital (based on the capital position at the start of the performance period) relative to threshold. Vesting basis: Performance below threshold results in nilvesting, 20 per cent vesting for achieving threshold, increasing to full vesting for performance above stretch level. The threshold figure for this metric will be published in the Annual Report for the final year of theperformance period. Capital measure: Cumulative three-year GWS 1 operating capital generationrelativeto threshold. Vesting basis: Performance below threshold results in nilvesting, 20 per cent vesting for achieving threshold, increasing to full vesting for p erformance above stretch level. The threshold figure for this metric will be published in the Annual Report for the final year of theperformance period. Conduct measure: Through strong risk management action, ensurethere are no significant conduct/culture/governance issues that result in significant capital add-ons or material fines. Vesting basis: Performance below threshold results in nil vesting, 20 per cent vesting for partial achievement of the Group’s expectations, increasing to full vesting for achieving the Group’s expectations. Diversity measure: Percentage of the Executive Council and Leadership Team that are female at the end of 2023. Vesting basis: Performance below threshold results in nil vesting, 20 per cent vests for meeting the threshold of at least 33 per cent of our Executive Council and Leadership Team being female at the end of 2023. Full vesting will be achieved for reaching the stretch level of at least 37 per cent being female by the end of 2023. Note: 1Following the Group’s designation by the Hong Kong Insurance Authority in May 2021, the Group’s regulatory capital requirements are now determined by the GWS Framework. This means that the Local Capital Summation Method (LCSM) measure has been replaced with GWS operating capital generation. Since the GWS methodology for calculating operating capital generation is the same as that previously applied under the LCSM framework, this will not require any adjustment to be made to the targets attached to outstanding PLTIP awards and the assessment of their achievement will be unaected. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 217 ![]() Annual report on remuneration / continued Pay comparisons Performance graph and table The chart below illustrates the TSR performance of Prudential, the FTSE 100 (as the Company has a premium listing on the London Stock Exchange) and the peer group of international insurers used to benchmark the Company’s performance for the purposes of the 2021 PLTIP awards. The chart illustrates the performance of a hypothetical investment of $100 in ordinary shares of Prudential plc over the 10-year period 1 January 2012 to 31 December 2021 compared to a similar investment in the FTSE 100 or an index of the Company’s peers. Total shareholder return is based on Returns Index data calculated on a daily share price growth plus re-invested dividends (as measured at the ex-dividend dates). Prudential TSR vs. FTSE 100 and peer group average – total return over 10-year period to December 2021 Ten-year TSR chart – Prudential TSR vs. FTSE 100 and peer group average $358 $231 $195 400 350 300 250 200 150 100 50 0 20212011202020192018201720162015201420132012 Prudential FTSE 100 Peer group The information in the table below shows the total remuneration for the Group Chief Executive over the same period: $000 1 20122013 2014 20152015 2016 2017 2018 2019 2020 2021 Group Chief Executive T ThiamT ThiamT ThiamT Thiam 2 M Wells 2 M WellsM WellsM WellsM WellsM WellsM Wells Salary,pension and benefits 2,1692,2012,4069383,0483,0292,4152,4232,1222,1262,249 Annual bonus payment 3,1603,2073,5011,0771,9032,9042,6732,8482,8041,3553,057 (As % of maximum) (100%)(99.8%)(100%)(77.3%)(99.7%)(99.5%)(94%)(95%)(96%)(46.0%)(96.7%) LTIPvesting 9,7338,16716,2335,1746,5644,0165,9554,8372,7464,2861,296 (As % of maximum) (100%)(100%)(100%)(100%)(100%)(70.8%)(95.8%)(62.5%)(62.5%)(68.8%)(17.8%) Other payments ––––––––––– Group Chief Executive ‘single figure’ of totalremuneration 3 15,06213,57522,1407,18911,5159,95011,04210,1097,671 7,768 6,602 Notes 1All remuneration has been converted to USD using the average exchange rate for each respective financial year. 2Tidjane Thiam left the Company on 31 May 2015. Mike Wells became Group Chief Executive on 1 June 2015. The figures shown for Mike Wells’s remuneration in 2015 relate only to his service as Group Chief Executive. 3Further detail on the ‘single figure’ is provided in the ‘single figure’ table for the relevant year. The figures provided reflect the value of vesting LTIP awards on the date of their release other than for 2021 (for which an estimate is used). Prudential plc Annual Report 2021prudentialplc.com 218 ![]() Relative importance of spend on pay The table below sets out the amounts payable in respect of 2020 and 2021 on all employee pay and dividends: 2020 2021 Percentage change All employee pay ($m) 1,2 1,0001,0576% Dividends including demerger dividend ($m) 3 4202,201424% Dividends excluding demerger dividend ($m) 3 42046611% Notes 1All employee pay as taken from note B2.1 to the financial statements. 2FY21 and FY20 excludes Jackson costs. 3Dividends taken from note B5 to the financial statements. Percentage change in remuneration The table below sets out how the change in remuneration for each Director between 2020 and 2021 and between 2019 and 2020 compared to a wider employee comparator group: Salary (% change) Benefits (% change) Bonus 8 (% change) 2020-212019-202020-212019-202020-212019-20 Executive Directors Mark FitzPatrick 1,2 3%1%15%26%46%(27)% James Turner 1 (0.5)%10%1%49%23%(2)% MikeWells 1 (0.5)%1%20%35%110%(52)% Chair and Non-executive Directors Shriti Vadera 3 907% ––– n/a – Jeremy Anderson 4 13% – n/an/an/an/a David Law 4 6%1% n/an/an/an/a Ming Lu 6 –– n/a – n/a – KaiNargolwala 5 (61)%10% n/an/an/an/a Anthony Nightingale 0%4% n/an/an/an/a Philip Remnant 0%1% n/an/an/an/a Alice Schroeder 4 24%1% n/an/an/an/a Chua Sock Koong 6 –– n/a – n/a – Thomas Watjen 4 (4)%10% n/an/an/an/a Fields Wicker-Miurin 4,7 14%1% n/an/an/an/a Jeanette Wong 6 –– n/a – n/a – Amy Yip 0%0% n/an/an/an/a Average pay for all UK-based employees 3.05%3.76%0.67%(3.95)%5.76%(7.27)% Notes 1The change in the total salaries paid to Messrs FitzPatrick, Turner and Wells in 2020 includes a salary increase reversed from 1 April 2020. The change in salaries and bonuses for Executive Directors is calculated on a local currency basis. The change in benefits for Executive Directors is calculated in USD, as benefits values are denominated in a number of currencies. 2Mark FitzPatrick received a salary increase of 5 per cent eective 1 April 2021 due to an increased scope to his role. 3Shriti Vadera joined the Board and the Nominations Committee on 1 May 2020 and became Chair on 1 January 2021. The change in pay reflects her pro-rated pay for 2020 as well as her change inrole. 4Fluctuations in pay are due to change in Committee memberships in 2021. 5Kai Nargolwala stepped down from the Board at the 2021 AGM. 6Chua Sock Koong, Ming Lu and Jeanette Wong joined the Board in 2021. 7Fields Wicker-Miurin retired from the Board on 31 December 2021. 8The change in bonus shows change in the value of the annual bonus and does not include the value of long-term incentive awards, in line with the reporting regulations. The regulations prescribe that this comparison should include all employees of the parent company. The number of individuals employed by the parent company is insucient to be the basis of a representative comparison. Therefore, the Committee decided to use all UK-based employees as the basis for this calculation. The average pay for all employees has been calculated on a full-time equivalent basis by reference to the total pay a warded to UK employees in 2021, 2020 and 2019. The salary increase includes uplifts made through the annual salary review, as well as any additional changes in the year, for example, to reflect promotions or role changes. The increase in bonus is driven by the strong financial performance of the business in 2021 compared to 2020. There has been no change to the level of taxable benefit coverage received by employees. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 219 ![]() Annual report on remuneration / continued Group Chief Executive pay compared with employee pay The table below compares the Group Chief Executive’s ‘single figure’ of total remuneration to that received by three representative UK employees in2021. The reduction in ‘single figure’ remuneration for the Group Chief Executive was driven by the lower vesting of the 2019 PLTIP. This was coupled with the increase in bonus received by all employees, due to the better financial performance of the Group, which has led to a reduction in pay ratio at all quartiles when compared to previous years. Year Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio 2021 Option B 62 : 144 : 129 : 1 2020 1 Option B 72 : 148 : 132 : 1 2019 Option B 78 : 160 : 139 : 1 Note 12020 CEO pay ratio has been recalculated to account for the 2020 CEO ‘single figure’ restated on the required basis to reflect the actual value of the 2018 PLTIP award at vesting. Under the regulations, there isa choice of three methodologies to determine the25th,median and 75th full-time equivalentremuneration of our UK employees. The Company has chosen to use the 2021 hourly rate gender pay gap information (collected in accordance with the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017), as this method uses data that is aligned with other disclosures made under our gender pay gap reporting and includes all UK employees (‘Option B’ in the table above). The employees used in the calculations were identified using the most recently collected gender pay gap data, on 1 February 2022, following the end of the financial year. Base salary and total remuneration for these identified employees has then been calculated based on theiractual remuneration for 2021. The Committee determined that the identified employees are reasonably representative since the structure of their remuneration arrangements is in line with that of the majority of employees within the UK-based Group Head Oce workforce. The same methodology used for calculating the ‘single figure’ of the Group Chief Executive has been used forcalculating the pay and benefits of these threeUK employees. No elements of remuneration were omitted or adjusted. The identified individuals were employed on a full-time basis so no further adjustment has been made to their remuneration. The salary and total remuneration received during 2021 by the indicative employees used in the above analysis are set out below: 25th percentile Median 75th percentile 2021 salary ($000) 87113153 Total 2021 remuneration ($000) 106150227 The Committee believes that the median pay ratio is consistent with the pay, reward and progression policies for our UK-based Group Head Oce employees. The base salary and total remuneration levelsforthe Group ChiefExecutive and the median representative employee are competitively positioned within the relevant markets and reflect the operation of our remuneration structures which areeective in appropriately incentivising sta, having regard to our risk framework, risk appetites and to rewarding the ‘how’ as well as the ‘what’ of performance. Gender pay gap Our UK business, Prudential Services Limited, is the employing entity for all of our London Head Oce sta including the UK-based Group Chief Executive and his direct reports. Prudential Services Limited has recently reported its 2021 UK gender pay gap data and details can be found on the Group’s website(www.prudentialplc.com/en/esg/esg-reporting). Due to the change in the Group’s business focus, senior management roles are split between locations in the UK and Asia. The 2021 gender pay gap calculations are based on the employees based in the UK only, and therefore exclude data for part of our senior management team, including a number of senior female leaders, who are based inHong Kong. While women and men continue to be paid equally for performing similar roles, our gender pay gap reflects the fact that men and women have traditionally held dierent roles, particularly in the financial services sector. It highlights the fact that we have more men than women in leadership and senior operational roles. We continue to focus our eorts on closing the gender pay gap as quickly as possible. Female representation in our leadership roles has increased from 33 per cent in 2020 to 35 per cent in 2021 in our London Head Oce. The UK headcount of Prudential Services Ltd is now below the 250-person threshold which triggers mandatory publication of the gender pay gap and the CEO pay ratio. Both the 2021 gender pay gap and the CEO pay ratio data have been disclosed on a voluntary basis. Prudential plc Annual Report 2021prudentialplc.com 220 ![]() Consideration of workforce pay and approach to engagement During the year, the Committee considered workforce remuneration and related policies in thebusinesses across the Group. Information presented to the Committee, by way of a dashboard, included how the Company’s incentive arrangements are aligned with the culture and informed the Committee’s decision-making on executive pay and policy. By way of example, employee salary increase budgets are considered as part of the year-end review of Executive Director compensation and salary increases. As part of the Board’s wider approach to employee engagement, which also included a Group-wide engagement survey, the Committee took additional measures in 2021 to explain how the remuneration of Executive Directors aligns with the wider Company pay policy. The Company operates a microsite on its intranet that outlines executive pay arrangements during the previous financial year and key areas of change for the year ahead. It explains to employees that total remuneration for Executive Directors is made up of a number of elements and is governed by both the Directors’ remuneration policy and the Group’s remuneration policy (which is also published on the Company’s website) with the relevant links to t hese documents. Employee engagement was led by two Non-executive Directors until May 2021 when this responsibility was transferred to the Responsibility & Sustainability Working Group established by the Board in February 2021. The Governance Report section of this report describes how they discharged this responsibility during 2021. To recognise the hard work and commitment shown by our employees in preparation for the demerger and to give our people a stake in the new chapter of the Company’s development, each Prudential plc employee (other than the Group Executive Committee) received, in October 2021, a C elebration Award of US$1,000 of restricted shares which will be released in October 2022. As part of our continuing eorts to safeguard our employees’ wellbeing, we implemented a Group Wellness Day on 2 July 2021. All employees Group-wide were encouraged to take that extra day o to rest and recharge, spend time with family and friends. Feedback from the 2021 Collaboration Jam suggests that the Wellness Day was very well received. Chair and Non-executive Director remuneration in 2021 Chair fees Shriti Vadera became the Chair of the Board from 1 January 2021. Her 2021 fee was set at £765,000 ($1,052,414) with eect from that date. Non-executive Directors’ fees The Non-executive Directors’ fees are denominated in Sterling. Fee levels were reviewed by the Board during 2021, and no increases to the Sterling amounts were awarded. Increases in US Dollar amounts reflect changes in exchange rate. The Board approved fees for the Responsibility & Sustainability Working Group at the time it was established in February 2021, taking account of the anticipated duties and time commitment involved in discharging the assigned responsibilities. Annual fees From 1 July 2020 ($) 2 From 1 July 2020 (£) 2 From 1 July 2021 ($) 2 From 1 July 2021 (£) 2 Basic fee 127,00099,000136,00099,000 Additionalfees: Audit Committee Chair 96,00075,000103,00075,000 Audit Committee member 38,00030,00041,00030,000 Remuneration Committee Chair 83,00065,00089,00065,000 RemunerationCommittee member 38,00030,00041,00030,000 Risk Committee Chair 96,00075,000103,00075,000 Risk Committee member 38,00030,00041,00030,000 Nomination& Governance Committee Chair 1 –––– Nomination& Governance Committee member 19,00015,00021,00015,000 Responsibility & Sustainability Working Group Chair –– 62,00045,000 Responsibility & Sustainability Working Group member –– 30,00022,000 Senior IndependentDirector 64,00050,00069,00050,000 Workforce engagement role 3 38,00030,00041,00030,000 Notes 1There is no fee paid for the role of Nomination & Governance Committee Chair. 2Fees were denominated in sterling and were converted to USD using an exchange rate of 0.7798 for 2020 and 0.7269 for 2021. 3The workforce engagement role was discontinued in 2021, as the scope of this role is now covered by the newly formed Responsibility & Sustainability Working Group. No specific fees are currently paid for the workforce engagement role. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 221 ![]() Annual report on remuneration / continued If, in a particular year, the number of meetings is materially greater than usual, the Company may determine that the provision of additional fees is f air and reasonable. The resulting fees paid to the Chair and Non-executive Directors are: 2021 fees ($000s) 2020fees ($000s) 2021 taxable benefits \* ($000s) 2020 taxable benefits \* ($000s) Total 2021 remuneration: the ‘single figure’ ($000s) † Total 2021 remuneration: the ‘single figure’ in GBP (£000s) ‡ Total 2020 remuneration: the ‘single figure’ ($000s) † Total 2020 remuneration: the ‘single figure’ in GBP (£000s) ‡ Chair Shriti Vadera 1 1,052 97 102 – 1,154839 9776 Non-executive Directors Jeremy Anderson 2 306 252 – – 306222 252197 David Law 318 281 – – 318231 281219 Ming Lu 3 126 – – – 12692 –– KaiNargolwala 4 102 242 – – 10274 242189 Anthony Nightingale 246 230 – – 246179 230179 Philip Remnant 308 287 – – 308224 287224 Alice Schroeder 270 204 – – 270197 204159 Chua Sock Koong 3 139 – – – 139101 –– Jeanette Wong 3 144 – – – 144105 –– Thomas Watjen 250 242 – – 250182 242189 Fields Wicker-Miurin 5 203 165 – – 203147 165129 Amy Yip 177 165 – – 177129 165129 Total 3,641 2,165 102 – 3,7432,722 2,1651,690 \* Benefits include the cost of providing the use of a car and driver, medical insurance and security arrangements. † Each remuneration element is rounded to the nearest $1,000/£1,000 and totals are the sum of these rounded figures. Total remuneration is calculated using the methodology prescribed by Schedule 8 of the Companies Act. The Chair and Non-executive Directors are not entitled to participate in annual bonus plans or long-term incentive plans. ‡ Total remuneration has been converted to US dollars using the exchange rate of 0.7798 for the 2020 single figure calculations and 0.7269 for the 2021 single figure calculations. As Non-executive Directors and the Chair don’t receive variable remuneration components, the table above doesn’t include a sum of total fixed and total variable remuneration. Notes 1Shriti Vadera joined the Board on 1 May 2020. 2Jeremy Anderson joined the Board on 1 January 2020 and was appointed as the Chair of the Risk Committee in May 2020. 3Jeanette Wong, Chua Sock Koong and Ming Lu joined the Board on 12 May 2021. 4Kai Nargolwala retired from the Board on 13 May 2021. 5Fields Wicker-Miurin retired from the Board on 31 December 2021. Prudential plc Annual Report 2021prudentialplc.com 222 ![]() Statement of Directors’ shareholdings The interests of Directors in ordinary shares of the Company are set out below. ‘Beneficial interest’ includes shares owned outright, shares acquired under the Share Incentive Plan (SIP) and deferred annual incentive awards, detailed in the ‘Additional remuneration disclosures’ section. It is only these shares that count towards the share ownership guidelines. 1 January 2021 (or on date of appointment) During 2021 31December 2021 Share ownership guidelines Total beneficial interest (number of shares) Number of shares acquired Number of shares disposed Total beneficial interest \* (number of shares) Number of shares subject to performance conditions † Total interest in shares Share ownership guidelines ‡ (% of salary/fee) Beneficial interest as a percentage of basic salary/ basic fees § Chair Shriti Vadera 67,500 –– 67,500 – 67,500100%125% Executive Directors Mark FitzPatrick 166,360121,50959,269228,600459,132687,732250%405% James Turner 138,16877,84311,276204,735422,448627,183250%307% MikeWells 1 1,144,085257,333136,8461,264,5721,110,6222,375,194400%1556% Non-executive Directors Jeremy Anderson 9,157 –– 9,157 – 9,157100%131% Chua Sock Koong 2 – 7,500 – 7,500 – 7,500100%107% David Law 11,054 –– 11,054 – 11,054100%158% Ming Lu 3 – 7,000 – 7,000 – 7,000100%100% KaiNargolwala 4 70,000 –– 70,000 – 70,000100%1000% Anthony Nightingale 50,000 –– 50,000 – 50,000100%714% Philip Remnant 7,916 –– 7,916 – 7,916100%113% Alice Schroeder 5 20,000 –– 20,000 – 20,000100%286% Thomas Watjen 6 10,340 –– 10,340 – 10,340100%148% Fields Wicker-Miurin 7 6,500 –– 6,500 – 6,500100%93% Jeanette Wong 8 –––––– 100% – Amy Yip 2,500 –– 2,500 – 2,500100%36% \* There were no changes of Directors’ interests in ordinary shares between 31 December 2021 and 7 March 2022 with the exception of the UK-based Executive Directors due to their participation in the monthly Share Incentive Plan (SIP). Mark FitzPatrick acquired a further 29 shares in the SIP and Mike Wells acquired a further 30 shares in the SIP during this period. † Further information on share awards subject to performance conditions are detailed in the ‘share-based long-term incentive awards’ part of the ‘Additional remuneration disclosures’ section. ‡ Holding requirement of the Articles of Association (2,500 ordinary shares) must be obtained within one year of appointment to the Board. The increased guidelines for Executive Directors were introduced with eect from January 2013 and increased again in 2017. Executive Directors have five years from this date (or date of joining or role change, if later) to reach the enhanced guideline. The guideline for Non-executive Directors was introduced on 1 July 2011. Non-executive Directors have three years from their date of joining to reach the guideline. § Based on the average closing price for the six months to 31 December 2021 (£14.14). The Company and its Directors, Chief Executives and shareholders have been granted a partial exemption from the disclosure requirements under Part XV of the Securities and Futures Ordinance (SFO). As a result of this exemption, Directors, Chief Executives and shareholders do not have an obligation under the SFO to notify the Company of shareholding interests, and the Company is not required to maintain a register of Directors’ and Chief Executives’ interests under section 352 of the SFO, nor a register of interests of substantial shareholders under section 336 of the SFO. The Company is, however, required to file with the Stock Exchange of Hong Kong Limited any disclosure of interests notified to it in the United Kingdom. Notes 1For the 1 January 2021 figure, Mike Wells’s beneficial interest in shares is made up of 297,320 ADRs (representing 594,640 ordinary shares) and 549,445 ordinary shares. For the 31 December 2021 figure, his beneficial interest in shares is made up of 297,320 ADRs (representing 594,640 ordinary shares) and 669,932 ordinary shares. 2Chua Sock Koong was appointed to the Board on 12 May 2021. 3Ming Lu was appointed to the Board on 12 May 2021. 4Kai Nargolwala stepped down from the Board on 13 May 2021. Total interests in shares is shown at this date. 5For the 1 January 2021 figure, Alice Schroeder’s beneficial interest in shares is made up of 10,000 ADRs (representing 20,000 ordinary shares). For the 31 December 2021 figure, the beneficial interest in shares is made up of 10,000 ADRs (representing 20,000 ordinary shares). 6For the 1 January 2021 figure, Thomas Watjen’s beneficial interest in shares is made up of 5,170 ADRs (representing 10,340 ordinary shares). For the 31 December 2021 figure, the beneficial interest in shares is made up of 5,170 ADRs (representing 10,340 ordinary shares). 7Fields Wicker-Miurin stepped down from the Board on 31 December 2021. Total interests in shares is shown at this date. 8Jeanette Wong was appointed to the Board on 12 May 2021. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 223 ![]() Annual report on remuneration / continued The bar chart below illustrates the Executive Directors’ shareholding as a percentage of base salary relative to the applicable share ownership guideline. Mark FitzPatrickJames TurnerMike Wells 1,600% 1,400% 1,200% 1,000% 800% 600% 400% 200% 0% 250% 405% 250% 400% 1556% 307% Share ownership guidelines as % of salaryBeneficial interest as at 31 December 2021, as % of salary Outstandingshare options The following table sets out the share options held by the Executive Directors in the UK Savings-Related Share Option Scheme (SAYE) as at the end of the period. No other directors participated in any other option scheme. Date of grant Exercise price (pence) Market price at 31 Dec 2021 (pence) Exercise period Number of options Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period Mark FitzPatrick 21 Sep 17 14551274.5 01 Dec 2231 May 23 2,061 ––––– 2,061 James Turner 21 Sep 17 14551274.5 01 Jan 2130 Jun 21 1,237 – 1,237 –––– MikeWells 22 Sep 20 9641274.5 01 Dec 2331 May 24 1,867 ––––– 1,867 Notes 1No gain was made by Directors in 2021 on the exercise of SAYE options. 2No price was paid for the award of any option. 3The highest and lowest closing share prices during 2021 were £15.86 and £11.73 respectively. 4All exercise prices are shown to the nearest pence. Prudential plc Annual Report 2021prudentialplc.com 224 ![]() Directors’ terms of employment Details of the service contracts of each Executive Director are outlined in the table below. The Directors’ remuneration policy contains further details of the terms included in Executive Director service contracts. Date of contract Notice period to the Company Notice period from the Company Executive Directors Mark FitzPatrick 17 May 201712 months12 months James Turner 1 March 201812 months12 months MikeWells 21 May 201512 months12 months Letters of appointment of the Chair and Non-executive Directors Details of Non-executive Directors’ individual appointments are outlined below. The Directors’ remuneration policy contains further details on their letters of appointment. The Chair and Non-executive Directors are not entitled to receive any payments for loss of oce. Chair/Non-executiveDirector Appointment by the Board Notice period Time on the Board at 2022 AGM Chair Shriti Vadera 1 May 2020 (Chair from 1 January 2021) 12 months 2 years Non-executive Directors KaiNargolwala 1 1 January 2012 6 months n/a Philip Remnant 1 January 2013 6 months 9 years 4 months Anthony Nightingale 1 June 2013 6 months 8 years 11 months Alice Schroeder 10 June 2013 6 months 8 years 11 months David Law 15September2015 6 months 6 years 8 months Thomas Watjen 11 July 2017 6 months 4 years 10 months Fields Wicker-Miurin 2 3 September 2018 6 months n/a Amy Yip 2 September 2019 6 months 2 years 8 months Jeremy Anderson 1 January 2020 6 months 2 years 4 months Ming Lu12 May 2021 6 months 1 year Chua Sock Koong12 May 2021 6 months 1 year Jeanette Wong 12 May 2021 6 months 1 year Note 1Kai Nargolwala retired from the Board on 13 May 2021. 2Fields Wicker-Miurin retired from the Board on 31 December 2021. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 225 ![]() Annual report on remuneration / continued Payments to past Directors and payments for loss of oce There were no payments to Directors for loss of oce in 2021. As disclosed in the 2019 Directors’ remuneration report, a number of Directors stepped down from the Board in 2019. Treatment of their outstanding awards and other remuneration elements was disclosed in 2019. We set out below payments in respect of the awards that vested during 2021. Nic Nicandrou Nic (Chief Executive, Asia and Africa) holds a PLTIP award granted in 2019 and as set out in the section ‘Remuneration in respect of performance in 2021’ the performance condition attached to Nic’s 2019 PLTIP awards was partially met and 17.75 per cent of these awards will be released in 2022. The detailsof the release areset out below. Award Number of shares vesting 1 Valueof shares vesting 2 PLTIP 38,945$750,076 Notes 1The number of shares vesting includes accrued dividends. 2The share price used to calculate the value was the average share price for the three months up to 31 December 2021 being £14.00. Paul Manduca The former Chair, Paul Manduca, received benefits of $104,401 in 2021, as the Company paid taxes on certain benefits provided to Mr Manduca during the period of his Board service which ended on 31 December 2021. Other Directors A number of former Directors receive retiree medical benefits for themselves and their partner (where applicable). This is consistent with other senior members of sta employed at the same time. A de minimis threshold of £10,000 has been set by the Committee; any payments or benefits provided to a past Director above this amount will be reported. Statement of voting at general meeting The Directors’ remuneration policy was approved byshareholders at the 2020 Annual General Meeting. Atthe 2021 Annual General Meeting, shareholders were asked to vote on the 2020 Directors’ remuneration report. Each of these resolutions received a significant vote in favour by shareholders and the Committee is grateful for this support and endorsement by our shareholders. The votes received were: Resolution Votes for % of votes cast Votes against % of votes cast Total votes cast Votes withheld To approve the Directors’ remuneration policy (2020 AGM) 1,930,172,97995.8483,796,6564.162,013,969,6351,043,445 To approve the Directors’ remuneration report (2021 AGM) 1,881,362,12194.71104,979,3075.291,986,341,42824,844,708 Prudential plc Annual Report 2021prudentialplc.com 226 ![]() Statement of implementation of remuneration policy in 2022 Base salary Executive Directors’ remuneration packages were reviewed in 2021 with changes eective from 1 January 2022. When the Committee made these decisions, in line with the Director’s remuneration policy, several factors were taken into consideration, including the salary increases awarded to other employees in 2021 and the expected increases in 2022, the performance of the Executive Directors, and external market reference points (which were updated following the demerger to increase focus on Asia-led financial services organisations). After due deliberation, the Committee considered there should be 3 per cent salary increases to the Executive Directors with eect from 1 January 2022. The 2022 salary increase budgets for other employees across the Group’s businesses were between 4.5 per cent and 5 per cent. On this basis, 2022 will be the tenth consecutive year in which the increases generally oered to executives have been below or close to the bottom of the range of salary increases budgeted for the broader workforce. The salaries which were eective from 1 January 2022 are set out below: > Mark FitzPatrick: £822,000 > Ja mes Turner: HK$7,550,000 > Mike Wells: £1,184,000 On 1 April 2022, Mike Wells will step down from his role and Mark FitzPatrick will be appointed as interim Group Chief Executive. During his interim appointment, Mr FitzPatrick’s salary will remain unchanged at £822,000, and he will be eligible for a monthly, pensionable cash supplement of £30,167, giving him the same fixed pay for this period as his predecessor. On the same date, James Turner will be appointed as Group Chief Financial Ocer. Mr Turner’s annual salary will increase to HK$8,460,000. This figure is lower than the salary paid to his predecessor given that Mr Turner is not being appointed as Chief Operating Ocer. Annualbonus Award levels Mike Wells will continue to be eligible for a maximum bonus opportunity of 200 per cent of salary, unchanged from prior year. This will be prorated for the period worked (until 31 March 2022). Mark FitzPatrick will be eligible for a maximum bonus opportunity of 175 per cent of salary, unchanged from prior year. Following his appointment as interim Group Chief Executive, his maximum bonus opportunity will increase to 200 per cent of salary, aligned to the current opportunity for the Group Chief Executive role. This increased bonus opportunity will include the monthly cash supplement for the period served as interim Group Chief Executive. James Turner’s maximum bonus opportunity will remain unchanged at 175 per cent of salary. Performance conditions In 2021 the Group Chief Financial Ocer role was designated under the Hong Kong Group-wide supervision regime as a Key Person in a Control Function, and in line with the Hong Kong IA’s regulatory requirements for control sta, his 2022 Annual Incentive Plan (AIP) will include a functional component. Therefore, the 2022 AIP for the Group Chief Financial Ocer role will be based on the achievement of financial (50 per cent), functional (30 per cent) and personal (20 per cent) performance targets. This structure will apply to Mark FitzPatrick between 1 January 2022 and 31 March 2022 and to James Turner for the remainder of the year. The balance of financial, functional and personal performance targets will remain unchanged for theother Executive Director roles. As disclosed in the 2020 Annual Report, for 2022 financial AIP measures and weightings will be aligned with those adopted for the Asia business, increasing the focus on NBP. The resulting 2022 financial AIP measures and weightings are as follows: > Group EEV new business profit – 45 per cent; > Gr oup adjusted operating profit – 25 per cent; > Group operatingfree surplusgenerated – 20 per cent; and > Gr oup Holding Company cash flow – 10 per cent. There was general endorsement of the weighting of the 2022 AIP measures by shareholders during our latest consultation. 2022 share-based long-term incentive awards Award levels Mike Wells will not receive a 2022 PLTIP award. No changes have been made to the PLTIP award levels for other Executive Directors for 2022. Performance conditions The performance conditions and weightings for the 2022 PLTIP awards for all Executive Directors will be as follows, unchanged from prior year: > Relative TSR (50 per cent of award); > A re turn on embedded value measure (30 per cent of award); and > Sustainability scorecard of strategic measures (20 per cent of award). Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 227 ![]() Annual report on remuneration / continued Relative TSR Under the Group TSR measure, 20 per cent of the award will vest for TSR at the median of the peer group, increasing to full vesting for performance within the upper quartile. TSR is measured on a local currency basis since this has the benefit of simplicity and directness of comparison. The TSR peer group remains unchanged from 2021 and is set out below: AIA Group China Pacific Insurance(CPIC) New China Life (NCl) Allianz China Taiping Insurance Ping An Insurance AXA Great Eastern Sun Life Financial China Life ManulifeFinancial Zurich Insurance Group Returnon Embedded Value 20 per cent of the award will vest for achieving the threshold level of performance of 8.0 per cent, increasing to full vesting for reaching the stretch level of at least 10.8 per cent. RoEV will be calculated as the total post-tax EEV operating profit as a percentage of the average EEV basis shareholders’ equity. RoEV will be assessed at the Group level. Sustainability scorecard The sustainability scorecard has been revised to ensure that reward remains aligned with the strategic priorities and capital allocation framework of t he post-separation Group. In particular: > A ne w carbon reduction measure replaced ECap in the sustainability scorecard for 2022 PLTIP awards to reflect the Group’s evolving ESG strategy and external commitments to reduce the carbon emissions of all shareholder and policyholder assets by 25 per cent by 2025; and > GW S operating capital generation replaced the LCSM following the Hong Kong Group-wide Supervision framework becoming eective in May 20 21. Under the 2022 sustainability scorecard, performance will be assessed for each of the four measures, at the end of the three-year performance period. Performance will be assessed on a sliding scale. Each of the measures has equal weighting and the 2022 measures are set out below: Carbon reduction measure: A reduction in weighted average carbon intensity (WACI) at the end of the performance period (31 December 2024) compared with the baseline as at 31 December 2019. Please see our ESG report for details of our carbon reduction target, our progress to date and the future actions that we plan in order to achieve our ambitions in this area. Vesting basis: Performance below threshold results in nil vesting, 20 per cent vesting for achieving threshold of at least 22.5 per cent reduction in WACI (ie 299), increasing to full vesting for performance above stretch level of at least 27.5 per cent reduction in WACI (ie 280). The 2019 baseline has been the subject of limited scope assurance by EY. Please see our ESG report fordetails. Capital measure: Cumulative three-year GWS operating capital generationrelative to threshold. Vesting basis: Performance below threshold results in nilvesting, 20 per cent vesting for achieving threshold, increasing to full vesting for p erformance above stretch level. The threshold figure for this metric will be published in the Annual Report for the final year of theperformance period. Conduct measure: Through strong risk management action, ensurethere are no significant conduct/culture/governance issues that result in significant capital add-ons or material fines. Vesting basis: Performance below threshold results in nil vesting, 20 per cent vesting for partial achievement of the Group’s expectations, increasing to full vesting for achieving the Group’s expectations. Diversity measure: Percentage of the Executive Council and Leadership Team that are female at the end of 2024. Vesting basis: Performance below threshold results in nil vesting, 20 per cent vests for meeting the threshold of at least 34 per cent of our Executive Council and Leadership Team being female at the end of 2024, increasing to full vesting for reaching the stretch level of at least 38 per cent being female at that date. Prudential plc Annual Report 2021prudentialplc.com 228 ![]() Mike Wells’s leaving arrangements As announced on 10 February 2022, Mr Wells will remain employed by the Group until 8 February 2023. His salary, pension and certain benefits will continue to be paid or provided, on the same basis as at present, until the end of his employment. Mr Wells’s 2021 bonus will be calculated and paid in the usual way, at the usual time. A 2022 bonus, if any, would be pro-rated for the period worked in2022. Mr Wells’s outstanding deferred bonus awards will be released on the original timetable, subject to malus and clawback provisions. Outstanding long-term incentive awards will be pro-rated to the end of his employment and will vest in line with the original vesting dates, subject to satisfaction of the performance conditions as well as malus and clawback provisions. No long-term incentive award will be made in 2022. Mr Wells’s shareholding will be subject to the share ownership guideline (400% of his current salary) for a period of two years after stepping down from the Board. During this period he will be required to obtain clearance to deal in the Company’s shares. A capped contribution will be made to legal fees, and to the costs of filing UK tax returns for periods for which Mr Wells has Prudential employment income taxable in the UK. Mr Wells will not be eligible for any payments for loss of oce. Further information on these remuneration arrangements, prepared in accordance with section 430(2B) of the Companies Act 2006, is available on the Prudential website atwww.prudentialplc.com/en/investors/governance-and-policies/section-430-2B-of-the-companies-act-2006 Chair and Non-executive Directors Fees for the Chair and Non-executive Directors will remain unchanged from 1 January 2022. The next regular fee level review will be conducted in 2 022. Anthony Nightingale, CMG SBS JPShriti Vadera Chair of theRemunerationCommittee Ch air 8 March 2022 8 Ma rch 2022 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 229 ![]() Directors’ outstanding long-term incentive awards Share-based long-term incentive awards Plan name Yearof award Conditional share awards outstanding at 1 Jan 2021 (Numberof shares) Conditional awards in 2021 (Numberof shares) Demerger adjustment in 2021 2 Market price at date of award (pence) Dividend equivalents on vested shares 1 (Numberof shares released) Rights exercised in 2021 Rights lapsed in 2021 Conditional share awards outstanding at 31 December 2021 (Numberof shares) Date of end of performance period Mark FitzPatrick PLTIP2018123,11017507,04784,63838,472 – 31 Dec 20 PLTIP2019142,4704,7651605.5147,235 31 Dec 21 PLTIP2020175,1155,8571049.5180,972 31 Dec 22 PLTIP2021126,2454,2221495.5130,467 31 Dec 23 440,695126,24514,8447,04784,63838,472458,674 James Turner PLTIP2018103,28117503,65143,89459,387 – 31 Dec 20 PLTIP2019119,6004,0001605.5123,600 31 Dec 21 PLTIP2020177,5625,9381049.5183,500 31 Dec 22 PLTIP2021111,2153,7191495.5114,934 31 Dec 23 400,443111,21513,6573,65143,89459,387422,034 Mike Wells PLTIP2018297,713175017,043204,67893,035 – 31 Dec 20 PLTIP2019344,62911,5261605.5356,155 31 Dec 21 PLTIP2020423,59414,1681049.5437,762 31 Dec 22 PLTIP2021305,38210,2141495.5315,596 31 Dec 23 1,065,936305,38235,90817,043204,67893,0351,109,513 Notes 1A dividend equivalent was accumulated on these awards. 2The table above reflects the adjustments made to outstanding awards at the time of the demerger. #### Additional remuneration disclosures Prudential plc Annual Report 2021prudentialplc.com 230 ![]() Other shareawards The table below sets out Executive Directors’ deferred bonus share awards. Yearof grant Conditional share awards outstanding at 1 Jan 2021 (Numberof shares) Conditionally awarded in 2021 (Numberof shares) Dividends accumulated in 2021 1 (Numberof shares) Shares released in 2021 (Numberof shares) Demerger adjustment 2 Conditional share awards outstanding at 31 December 2021 (Numberof shares) Date of end of restricted period Date of release Market price at date of award (pence) Market price at date of vesting or release (pence) Mark FitzPatrick Deferred 2017 annual incentive award 201834,28934,289 – 31 Dec 20 17501495.5 Deferred 2018 annual incentive award 201939,2953101,32140,926 31 Dec 21 1605.5 Deferred 2019 annual incentive award 202049,9033931,67751,973 31 Dec 22 1047 Deferred 2020 annual incentive award 202124,5706882125,459 31 Dec 23 1495.5 123,48724,57077134,289118,358 James Turner Deferred 2018 annual incentive award 201925,12519784426,166 31 Dec 21 1605.5 Deferred 2019 annual incentive award 202043,0953401,44844,883 31 Dec 22 1047 Deferred 2020 annual incentive award 202124,8896883225,789 31 Dec 23 1495.5 68,22024,889605 – 96,838 MikeWells Deferred 2017 annual incentive award 201859,34459,344 – 31 Dec 20 17501495.5 Deferred 2018 annual incentive award 201967,5515332,27070,354 31 Dec 21 1605.5 Deferred 2019 annual incentive award 202085,7126762,88189,269 31 Dec 22 1047 Deferred 2020 annual incentive award 202128,0747793829,089 31 Dec 23 1495.50 212,60728,0741,28659,344188,712 Notes 1A dividend equivalent was accumulated on these awards. 2The table above reflects the adjustments made to outstanding awards at the time of the demerger. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 231 ![]() All-employee share plans It is important that all employees are oered the opportunity to own shares in Prudential, connecting them both to the success of the Company and to the interests of other shareholders. Executive Directors are invited to participate in these plans on the same basis as other sta in their location. Save As You Earn (SAYE) schemes UK-based Executive Directors are normally eligible to participate in the HM Revenue and Customs (HMRC) approved Prudential Savings-Related Share Option Scheme. This scheme allows all eligible employees to save towards the exercise of options over Prudential plc shares with the option price set at the beginning of the savings period at a discount of up to 20 per cent of the market price. Participants are able to elect to enter into savings contracts of up to £500 per month for a period of three or five years. At the end of this term, participants may exercise their options within six months and purchase shares. If an option is not exercised within six months, participants are entitled to a refund of their cash savings plus interest if applicable under the rules. Shares are issued to satisfy those options which are exercised. No options may be granted under the schemes if the grant would cause the number of shares which have been issued, or which remain issuable pursuant to options granted in the preceding 10 years under the scheme and any other option schemes operated by the Company, or which have been issued under any other share incentive scheme of the Company, to exceed 10 per cent of the Company’s ordinary share capital at the proposed date of grant. Details of Executive Directors’ rights under the SAYE scheme are set out in the ‘Outstanding share options’ table. Share Incentive Plan (SIP) UK-based Executive Directors are also eligible to participate in the Company’s Share Incentive Plan (SIP). All UK-based employees are able to p urchase Prudential plc shares up to a value of £150 per month from their gross salary (partnership shares) through the SIP. For every four partnership shares bought, an additional matching share is awarded which is purchased by Prudential plc on the open market. Dividend shares accumulate while the employee participates in the plan. If the employee withdraws from the plan, or leaves the Group, matching shares may be forfeited. The table below provides information about shares purchased under the SIP together with matching shares (awarded on a 1:4 basis) and dividend sh ares. Yearof initial grant Share Incentive Plan awards held in Trust at 1 Jan 2021 (Numberof shares) Partnership shares accumulated in 2021 (Numberof shares) Matching shares accumulated in 2021 (Numberof shares) Dividend shares accumulated in 2021 (Numberof shares) Share Incentive Plan awards held in Trust at 31December 2021 (Numberof shares) Mark FitzPatrick 201757012531 5 731 James Turner 2011849 ––7 856 MikeWells 201592512431 8 1,088 Cash-settled long-term incentive awards There are no outstanding cash settled awards held by Executive Directors. Dilution Releases from the Prudential Long Term Incentive Plan and the Prudential Agency Long Term Incentive Plan are satisfied using new issue shares rather than by purchasing shares in the open market. Shares relating to options granted under all-employee share plans are also satisfied by new issue shares. The combined dilution from all outstanding shares and options at 31 December 2021 was 1 per cent of the total share capital at the time. Deferred bonus awards will continue to be satisfied by the purchase of shares in the open market. Additional remuneration disclosures / continued Prudential plc Annual Report 2021prudentialplc.com 232 ![]() Remuneration of the five highest-paid individuals and the remuneration of senior management In line with the requirements of the Stock Exchange of Hong Kong Limited, the following table sets out, on an aggregate basis, the annual remuneration of i) the five highest-paid employees, and ii)senior management for the year ended 31 December 2021. Of the five individuals with the highest emoluments in 2021, one was an Executive Director for the full year whose emoluments are disclosed in this report. The aggregate of the emoluments of the other four individuals for 2021 are set out in the table below. Senior management comprised the Executive Directors and members of the Group Executive Committee. The table sets out the aggregate of the emoluments paid to the senior management team: Components of remuneration Five highest paid Senior management HKD000 $000 HKD000 $000 Base salaries, allowances andbenefits in kind 25,4633,27672,7259,356 Pension contributions 2,5003227,028904 Performance-related pay 60,4417,776 118,23515,211 Payments madeon appointment –––– Payments madeon separation 1 244,89331,506182,65023,499 Total 333,29742,880 380,63848,970 Note 1Further detail on the payments made to Senior Managers can be found in note B2.3 to the IFRS financial statements. Their emoluments for 2021 were withinthe following bands: Remuneration band HKDRemuneration band USD equivalent Number of employees Five highest paid Senior management 1 4,000,001 –4,500,000 514,600 – 578,900 01 14,000,001 –14,500,000 1,801,200 –1,865,500 01 25,500,001 –26,000,000 3,280,700 – 3,345,000 01 29,000,001 –29,500,000 3,731,000 – 3,795,300 01 30,000,001 –30,500,000 3,859,600 – 3,923,900 01 41,000,001 –41,500,000 5,274,800 – 5,339,100 11 44,500,001 –45,000,000 5,725,100 – 5,789,400 10 51,000,001 –51,500,000 6,561,300 – 6,625,700 01 63,000,001 – 63,500,000 8,105,200 – 8,169,500 10 184,000,001 –184,500,000 23,672,300 – 23,736,600 11 Note 1Further detail on the payments made to Senior Managers can be found in note B2.3 to the IFRS financial statements. Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information Prudential plc Annual Report 2021 233 ![]() ### Financial ### statements 234 Prudential plc Annual Report 2021prudentialplc.com ![]() #### Contents 236Index to Group IFRS financial statements 314Parent companyfinancial statements 316Notes on the parent company financial statements 321Statement of Directors’ responsibilities 322Independentauditor’s report to Prudentialplc Prudential plc Annual Report 2021 235 Group overview Strategic report Governance Directors’ remuneration report Financialstatements European Embedded Value (EEV) basis results Additional information ![]() #### Index to Group IFRS financial statements Page Consolidatedincome statement 236 Consolidatedstatement of comprehensiveincome 238 Consolidated statement of changes in equity 239 Consolidatedstatement of financial position 240 Consolidatedstatement of cash flows 241 Section Page Notes to the financial statements A Basis of preparation and accounting policies A1 Basis of preparation and exchange rates 215 A2 New accounting pronouncements in2021 216 A3 Accounting policies 244 A3.1 Critical accounting policies, estimates and judgements 244 A3.2 New accountingpronouncements not yet eective 248 B Earningsperformance B1 Analysis of performance by segment 252 B1.1 Segment results 252 B1.2 Determining operating segments and performance measure of operating segments 253 B1.3 Revenue from continuing operations 255 B1.4 Profit after tax from continuing operations by segment 257 B2 Acquisition costs and other expenditure 257 B2.1 Sta and employment costs 258 B2.2 Share-based payment 258 B2.3 Keymanagement remuneration 261 B2.4 Fees payable to the auditor 261 B3 Tax charge from continuingoperations 261 B3.1 Total tax charge by nature 262 B3.2 Reconciliation ofshareholder eective tax rate 263 B4 Earnings pershare 265 B5 Dividends 266 C Financial position C1 Group assets and liabilities by business type 267 C2 Fair value measurement 272 C2.1 Determination offair value 272 C2.2 Fair value measurement hierarchy of Group assets and liabilities 273 C2.3 Additional informationon financial instruments 276 C3 Policyholder liabilities andunallocated surplus 281 C3.1 Policyholder liabilities and unallocated surplus by business type from continuing operations 281 C3.2 Reconciliation of gross and reinsurers’ share of policyholder liabilities andunallocated surplus 283 C3.3 Reinsurers’ share of insurance contract liabilities 284 C3.4 Products and determining contract liabilities 284 Section Page C4 Intangible assets 287 C4.1 Goodwill 287 C4.2 Deferred acquisition costs and other intangible assets 288 C5 Borrowings 290 C5.1 Corestructural borrowings ofshareholder- financed businesses 290 C5.2 Operationalborrowings 290 C6 Riskand sensitivityanalysis 291 C6.1 Continuing insurance operations 292 C6.2 Eastspring and centraloperations 293 C7 Tax assets and liabilities 294 C7.1 Current tax 294 C7.2 Deferred tax 294 C8 Share capital, share premium and own shares 295 C9 Provisions 296 C10 Capital 296 C10.1 Group objectives, policies and processes for managing capital 296 C10.2 Local capital regulations 297 C10.3 Transferability ofcapitalresources 298 C11 Property, plant and equipment 299 D Other information D1 Corporate transactions 301 D1.1 (Loss) gain attachingto corporate transactions 301 D1.2 Discontinued USoperations 301 D2 Contingencies and related obligations 303 D3 Post balance sheet events 303 D4 Related party transactions 304 D5 Commitments 304 D6 Investments in subsidiary undertakings, joint ventures and associates 304 D6.1 Basis ofconsolidation 304 D6.2 Dividend restrictions and minimum capital requirements 306 D6.3 Investments in joint ventures and associates 306 D6.4 Related undertakings 308 Prudential plc Annual Report 2021prudentialplc.com 236 ![]() #### Consolidated income statement Note 2021 $m 2020 \* $m Continuing operations: Gross premiums earned 24,217 23,495 Outward reinsurance premiums (1,844) (1,625) Earned premiums, net of reinsurance B1.3 22,373 21,870 Investment return B1.3 3,486 13,762 Other income B1.3 641 615 Total revenue, net of reinsurance B1.3 26,500 36,247 Benefits and claims C3.2 (17,738) (34,463) Reinsurers’ share of benefits and claims C3.2 (971) 6,313 Movement in unallocated surplus of with-profits funds C3.2 (202) (438) Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance C3.2 (18,911) (28,588) Acquisition costs and other expenditure B2 (4,560) (4,651) Financecosts: interest on core structural borrowings ofshareholder-financed businesses (328) (316) Loss attaching to corporate transactions D1.1 (35) (30) Total charges net of reinsurance (23,834) (33,585) Share of profit from joint ventures and associates, net of related tax D6.3 352 517 Profit before tax (being tax attributable to shareholders’ and policyholders’returns) note (i) 3,018 3,179 Tax charge attributableto policyholders’returns (342) (271) Profit before tax attributableto shareholders’ returns B1.1 2,676 2,908 Total tax charge attributableto shareholders’ andpolicyholders’ returns B3.1 (804) (711) Remove tax chargeattributable topolicyholders’ returns 342 271 Tax charge attributableto shareholders’ returns B3.1 (462) (440) Profit after tax from continuing operations 2,214 2,468 Loss after tax from discontinued US operations note (ii) D1.2 (5,027) (283) (Loss) profit for the year (2,813) 2,185 Attributable to: Equity holders of the Company: From continuing operations 2,192 2,458 From discontinued USoperations (4,234) (340) (2,042) 2,118 Non-controlling interests: From continuing operations 22 10 From discontinued USoperations (793) 57 (771) 67 (Loss) profit for the year (2,813) 2,185 Earnings per share (in cents) Note 2021 2020 Based on profit attributable to equity holders of the Company: B4 Basic Based on profit from continuing operations 83.4¢ 94.6¢ Based on loss from discontinued US operations note (ii) (161.1)¢ (13.0)¢ Total (77.7)¢ 81.6¢ Diluted Based on profit from continuing operations 83.4¢ 94.6¢ Based on loss from discontinued US operations note (ii) (161.1)¢ (13.0)¢ Total (77.7)¢ 81.6¢ \* The comparative results have been re-presented from those previously published to reflect the Group’s US operations as discontinued in 2021 (see note A1). Notes (i)This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those taxes on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders. (ii)Loss from discontinued operations represents the aggregate of the post-tax results during the year up to demerger and the remeasurement adjustment to the carrying value of the business and recycling of cumulative reserves from other comprehensive income upon demerger (see note D1.2). Prudential plc Annual Report 2021 237 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Note 2021 $m 2020 \* $m Continuing operations: Profit for the year 2,214 2,468 Other comprehensive income (loss): Exchange movements on foreignoperations arising during theyear (180) 233 Valuation movements on retained interest in Jackson classified as available-for-sale securities 250 – Total items that may be reclassified subsequently to profit or loss 70 233 Total comprehensiveincome from continuing operations 2,284 2,701 Discontinued US operations: Loss for the year (5,027) (283) Valuation movements on available-for-sale debt securities, netof related change in amortisation ofdeferred acquisition costs and related tax (763) 292 Cumulative valuation movements on available-for-sale debt securities, net of related tax and change in DAC, and net investment hedges recycled through profit or loss at the point of demerger (1,278) – Total comprehensive (loss) income from discontinued US operations D1.2 (7,068) 9 Total comprehensive (loss) income for the year (4,784) 2,710 Attributable to: Equity holders of the Company: From continuing operations 2,277 2,697 From discontinued USoperations (6,283) (40) (4,006) 2,657 Non-controlling interests: From continuing operations 7 4 From discontinued USoperations (785) 49 (778) 53 Total comprehensive (loss) income for the year (4,784) 2,710 \* The comparative results have been re-presented from those previously published to reflect the Group’s US operations as discontinued in 2021 (see note A1). #### Consolidated statement of comprehensive income Prudential plc Annual Report 2021prudentialplc.com 238 ![]() Year ended 31 Dec 2021 $m Note Share capital Share premium Retained earnings Translation reserve Available- for-sale securities reserves Share- holders’ equity Non- controlling interests Total equity Reserves Profit for the year –– 2,192 –– 2,192222,214 Other comprehensive(loss)income from continuing operations: Exchange movements on foreignoperations ––– (165) – (165)(15)(180) Valuation movements on retained interest in Jackson classifiedas available-for-sale securities –––– 250250 – 250 Total comprehensive income (loss) from continuingoperations –– 2,192(165)2502,277 7 2,284 Total comprehensive (loss) income from discontinued USoperations D1.2 –– (4,234)463(2,512)(6,283)(785)(7,068) Total comprehensive (loss) income for the year –– (2,042)298(2,262)(4,006)(778)(4,784) Demerger dividend in specie of Jackson B5 –– (1,735) –– (1,735) – (1,735) Other dividends B5 –– (421) –– (421)(9)(430) Reserve movements in respect of share-based payments –– 46 –– 46 – 46 Eect of transactions relating to non-controlling interests † –– (32) –– (32)(278)(310) Share capital and share premium New share capital subscribed C8 9 2,373 ––– 2,382 – 2,382 Treasury shares Movement in own shares in respect of share-based payment plans –– (24) –– (24) – (24) Net increase (decrease) in equity 9 2,373(4,208)298(2,262)(3,790)(1,065)(4,855) Balance at 1 Jan 1732,63714,4241,1322,51220,8781,24122,119 Balance at 31 Dec 1825,01010,2161,43025017,08817617,264 Year ended 31 Dec 2020 \* $m Note Share capital Share premium Retained earnings Translation reserve Available- for-sale securities reserves Share- holders’ equity Non- controlling interests Total equity Reserves Profit for the year –– 2,458 –– 2,458102,468 Other comprehensiveincome (loss) fromcontinuing operations: Exchange movements on foreignoperations ––– 239 – 239(6)233 Total comprehensiveincome from continuingoperations –– 2,458239 – 2,697 4 2,701 Total comprehensive (loss) income from discontinued US operations D1.2 –– (340) – 300(40)49 9 Total comprehensive income for the year –– 2,1182393002,657532,710 Dividends B5 –– (814) –– (814)(18)(832) Reserve movements in respect of share-based payments –– 89 –– 89 – 89 Eect of transactions relating to non-controlling interests † –– (484) –– (484)1,014530 Share capital and share premium New share capital subscribed C8 1 12 ––– 13 – 13 Treasury shares Movement in own shares in respect of share-based payment plans –– (60) –– (60) – (60) Net increase in equity 1 128492393001,4011,0492,450 Balance at 1 Jan 1722,62513,5758932,21219,47719219,669 Balance at 31 Dec 1732,63714,4241,1322,51220,8781,24122,119 \* The comparative results have been re-presented from those previously published to reflect the Group’s US operations as discontinued in 2021 (see note A1). † The $(278) million in 2021 relates to the derecognition of Athene’s non-controlling interest upon the demerger of Jackson. The 2020 amount of $1,014million related to the equity investment by Athene Life Re Ltd. into the discontinued US operations in July 2020. #### Consolidated statement of changes in equity Prudential plc Annual Report 2021 239 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Note 31 Dec 2021 $m 31 Dec 2020 $m note (i) Assets Goodwill C4.1 907 961 Deferred acquisition costs and other intangible assets C4.2 6,858 20,345 Property, plant andequipment C11 478 893 Reinsurers’ share of insurance contract liabilities C3.3 9,753 46,595 Deferredtax assets C7.2 266 4,858 Current tax recoverable C7.1 20 444 Accrued investment income C1(vii) 1,171 1,427 Other debtors C1(vii) 1,779 3,171 Investment properties 38 23 Investments in joint ventures and associates accounted for using the equity method 2,183 1,962 Loans C1 2,562 14,588 Equity securities and holdings in collective investment schemes note (ii) C1 61,601 278,635 Debt securities note (ii) C1 99,094 125,829 Derivative assets C2.2 481 2,599 Other investments C2.2 – 1,867 Deposits 4,741 3,882 Cash and cash equivalents C1(vi) 7,170 8,018 Totalassets C1 199,102 516,097 Equity Shareholders’ equity 17,088 20,878 Non-controllinginterests 176 1,241 Total equity C1 17,264 22,119 Liabilities Insurance contract liabilities C3.2 150,755 436,787 Investment contract liabilities with discretionary participation features C3.2 346 479 Investment contract liabilities without discretionary participation features C3.2 814 3,980 Unallocated surplus of with-profits funds C3.2 5,384 5,217 Corestructuralborrowingsof shareholder-financed businesses C5.1 6,127 6,633 Operationalborrowings C5.2 861 2,444 Obligations under funding, securities lending andsale and repurchase agreements 223 9,768 Net asset value attributable to unit holders of consolidated investment funds 5,664 5,975 Deferred tax liabilities C7.2 2,862 6,075 Current tax liabilities C7.1 185 280 Accruals, deferred income and other creditors C1(viii) 7,983 15,508 Provisions C9 372 350 Derivative liabilities C2.2 262 482 Total liabilities C1 181,838 493,978 Total equity and liabilities C1 199,102 516,097 Notes (i)The 31 December 2020 comparative statement of financial position included discontinued US operations. (ii)Included within equity securities and holdings in collective investment schemes and debt securities as at 31 December 2021 are $854 million of lent securities and assets subject to repurchase agreements (31 December 2020: $895 million from continuing operations; $1,112million from discontinued US operations). The Parent Company statement of financial position is presented on page 314. The consolidated financial statements on pages 237 to 313 were approved by the Board of Directors on 8 March 2022. They were signed on its behalf: Shriti Vadera Chair MikeWells Group Chief Executive Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer #### Consolidated statement of financial position Prudential plc Annual Report 2021prudentialplc.com 240 ![]() Note 2021 $m 2020 \* $m Continuing operations: Cash flows from operating activities Profit before tax (being tax attributable to shareholders’ and policyholders’returns) 3,018 3,179 Adjustments to profit before tax for non-cash movements in operating assets and liabilities: Investments (14,553) (20,978) Other non-investment and non-cash assets 2,658 (7,185) Policyholder liabilities(including unallocatedsurplus ofwith-profits funds) 9,095 27,670 Other liabilities (including operational borrowings) 16 155 Investment income and interest payments included in profit before tax (3,738) (2,931) Operating cash items: Interest receipts 2,328 1,833 Interest payments (11) (25) Dividend receipts 1,480 1,305 Taxpaid (453) (551) Other non-cash items 438 301 Net cash flows from operating activities note (i) 278 2,773 Cash flows from investing activities Purchases ofproperty,plant and equipment (36) (57) Proceeds from disposal of property, plant and equipment – 6 Acquisition of business and intangibles note (ii) (773) (1,142) Disposal of businesses note (iii) 83 – Net cash flows from investing activities (726) (1,193) Cash flows from financing activities Structural borrowings of shareholder-financed operations: note (iv) C5.1 Issuance of debt, net of costs 995 983 Redemption of debt (1,250) – Interest paid (314) (294) Payment of principal portion of lease liabilities (118) (128) Equity capital: Issues of ordinary share capital C8 2,382 13 External dividends: Dividends paid to the Company’s shareholders B5 (421) (814) Dividends paid to non-controlling interests (9) (18) Net cash flows from financing activities 1,265 (258) Net increase in cash and cash equivalents from continuing operations 817 1,322 Net decrease in cash and cash equivalents from discontinued US operations D1.2 (1,621) (339) Cash and cash equivalents at 1 Jan 8,018 6,965 Eect of exchange rate changes on cash and cash equivalents (44) 70 Cash and cash equivalents at 31 Dec 7,170 8,018 Comprising: Cash and cash equivalents from continuing operations 7,170 6,397 Cash and cash equivalents from discontinued US operations – 1,621 \* The comparative results have been re-presented from those previously published to reflect the Group’s US operations as discontinued in 2021 (see note A1). Notes (i)Included in net cash flows from operating activities are dividends from joint ventures and associates of $175 million (2020: $118 million). (ii)Cash flows from the acquisition of business and intangibles include amounts paid for distribution rights. (iii)Disposal of businesses includes sale of subsidiaries, joint ventures and associates and investments that do not form part of the Group’s operating activities. (iv)Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group are analysed below: Cash movements $m Non-cash movements $m Balance at 1 Jan Issuance Redemption Foreign exchange movement Demergerof Jackson Other movements Balance at 31 Dec 2021 6,633995(1,250)(13)(250)126,127 2020 5,594983 – 42 – 146,633 #### Consolidated statement of cash flows Prudential plc Annual Report 2021 241 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() #### A1 Basis of preparation and exchange rates Prudential plc (‘the Company’) together with its subsidiaries (collectively, ‘the Group’ or ‘Prudential’) provides life and health insurance and asset management products in Asia and Africa. The Group is joint-headquartered in London and Hong Kong. Basis of preparation These consolidated financial statements have been prepared in accordance with IFRS Standards as issued by the IASB and in accordance with UK-adopted international accounting standards. At 31 December 2021, there were no unadopted standards eective for the year ended 31 December 2021which impact the consolidated financial statements ofthe Group,and there were nodierences between UK-adopted international accounting standards and IFRS Standards as issued by the IASB in terms of their application to the Group. The Group accounting policies are the same as those applied for the year ended 31 December 2020 with the exception of the adoption of the new and amended IFRS Standards as described in note A2. In 2021, the Group changed its operating segments for financial reporting under IFRS 8 ‘Operating Segments’, as discussed further in note B1.2 and reclassified the US operations as discontinued as discussed further below. The parent company statementof financial positionprepared inaccordancewith the UK Generally Accepted AccountingPractice (including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’) is presented on page 314. Going concern basis of accounting The Directors have made an assessment of going concern covering a period of at least 12 months from the date that these financial statements are approved. In making this assessment, the Directors have considered both the Group’s current performance, solvency and liquidity and the Group’s business plan taking into account the Group’s principal risks and the mitigations available to it which are described in the Risk review report. The assessment includes consideration of the results of key market risk stress and scenario testing over the assessment period covering the potential impact of up or down interest rate movements, falling equity values, corporate credit spread widening and an elevated level of credit losses. Sales and otherscenarios considered include those reflecting the possible impacts of Covid-19 restrictions on new business, including the uncertainty as to the duration of restrictions in individual markets and the length of time for sales to recover to previous levels and dierent timings of expected regulatory changes. Further details are included in the viability statement within the Risk review report. Based on the above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that these financial statements are approved. No material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern have been identified. The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements for the year ended 31 December 2021. Discontinued US operations On 28 January 2021, the Board announced that it had decided to pursue the separation of its US operations (Jackson) from the Group through a demerger, which was completed on 13 September 2021. In accordance with IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’, the results of the Group’s US operations have been classified as discontinued operations in these consolidated financial statements. In order to present the results of the continuing operations on a comparable basis, and consistent with IFRS 5 requirements, loss after tax attributable to the discontinued US operations in 2021 up to demerger has been shown in a single line in the income statement together with the loss on remeasurement to fair value and the recycling of cumulativereserves from othercomprehensive income upon demerger. The loss on remeasurement to fair value has been recognised in accordance with IFRIC 17, ‘Distribution of non-cash assets to owners’, which requires Jackson to be remeasured to fair value at the point of demerger. Comparatives have been restated accordingly, with further analysis provided in note D1.2. Notes B1 to B4 have also been prepared on this basis. IFRS 5 does not permit the comparative 31 December 2020 statements of financial position to be re-presented, as the US operations were not classified as discontinued at that point in time. In the related balance sheet notes, prior period balances have been presented to show the amounts from discontinued US operations separately from continuing operations in order to present the results of the continuing operations on a comparable basis. Additionally, in the analysis of movements in Group’s assets and liabilities between the beginning and end of the years, the balances of the discontinued US operations are removed from the opening balances to show the underlying movements from continuing operations. #### A Basis of preparation and accounting policies Prudential plc Annual Report 2021prudentialplc.com 242 ![]() Exchange rates The exchange rates applied for balances and transactions in currencies other than the presentation currency of the Group, US dollars (USD) were: Closing rate at year endAverage rate for the year to date USD : local currency31 Dec 202131 Dec 202031 Dec 202131 Dec 2020 Chineseyuan (CNY) 6.37 6.54 6.45 6.90 Hong Kong dollar (HKD) 7.80 7.75 7.77 7.76 Indian rupee (INR) 74.34 73.07 73.94 74.12 Indonesianrupiah (IDR) 14,252.50 14,050.00 14,294.88 14,541.70 Malaysianringgit (MYR) 4.17 4.02 4.15 4.20 Singaporedollar (SGD) 1.35 1.32 1.34 1.38 Taiwan dollar (TWD) 27.67 28.10 27.93 29.44 Thai baht (THB) 33.19 30.02 32.01 31.29 UK pound sterling (GBP) 0.74 0.73 0.73 0.78 Vietnamese dong(VND) 22,790.00 23,082.50 22,934.86 23,235.84 Foreign exchange translation In order to present the consolidated financial statements in USD, the results and financial position of entities not using USD as functional currency (ie the currency of the primary economic environment in which the entity operates) must be translated into USD. All assets and liabilities of entities not operating in USD are converted at closing exchange rates while all income and expenses are converted at average exchange rates where this is a reasonable approximation of the rates prevailing on transaction dates. The impact of these foreign exchange translations into the Group’s USD presentation currency is recorded as a separate component in the statement of comprehensive income. Upon the disposal of the entity, the related cumulative foreign exchange translation dierences are recycled from other comprehensive income to the income statement as part of the gain or loss on disposal. The general principle for converting foreign currency transactions to the functional currency of an entity is to translate at the functional currency spot rate prevailing at the date of the transactions. Foreign currency monetary assets and liabilities are translated at the spot exchange rate for the functional currency at the reporting date. Changes resulting from the foreign exchange translations into the functional currency of the entity are recognised in theincome statement. Certain notes to the financial statements present comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the consolidated financial statements. AER are actual historical exchange rates for the specific accounting year, being the average rates over the year for the income statement and the closing rates at the balance sheet date for the statement of financial position. CER results are calculated by translating prior year results using the current year foreign exchange rate, ie current year average rates for the income statement and current year closing rates for the statement of financial position. #### A2 New accounting pronouncements in 2021 The IASB has issued the following new accounting pronouncements to be eective from 1 January 2021, unless otherwise stated: > Am endments to IFRS 4 ‘Extension of temporary IFRS 9 exemption until 1 January 2023’ issued in June 2020; > Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 ‘Interest Rate Benchmark Reform – phase 2’ issued in August 2020; and > Am endments to IFRS 16 ‘Covid-19 Related Rent Concession beyond 30 June 2021’ issued in March 2021 and eective from 1 April 2021. The adoption of these pronouncements has had no significant impact on the Group financial statements. The Group has taken advantage of the ability to defer IFRS 9 until 2023 when it adopts IFRS 17 ‘Insurance Contracts’. Prudential plc Annual Report 2021 243 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() ABasis of preparation and accounting policies / continued #### A3 Accounting policies Note A3.1 presents the criticalaccountingpolicies, estimates and judgements applied in preparing the Group’sconsolidated financial statements. Other accountingpolicies, where significant, are presented in the relevant individual notes. All accountingpolicies areapplied consistently for the years presented and normally are not subject to changes unless new accounting standards, interpretations or amendments are introduced by theIASB. A3.1 Cr itical accounting policies, estimates and judgements The preparation of these financial statements requires Prudential to make accounting estimates and judgements about the amounts of assets, liabilities, revenues and expenses, which are both recognised and unrecognised (eg contingent liabilities) in the financial statements. Prudential evaluates its critical accounting estimates, including those related to long-term business provisioning and the fair value of assets as required. The notes below set out those critical accounting policies, the application of which requires the Group to make critical estimates and judgements. Also set out are further critical accounting policies aecting the presentation of the Group’s results and other items that require the application of critical estimates and judgements. The accounting policies below relate to the Group’s continuing operations. A summary of key accounting policies of the Group’s discontinued US operations is set out in note D1.2. (a) Cr itical accounting policies with associated critical estimates and judgements Measurement of policyholder liabilities and unallocated surplus of with-profits The measurement basis of policyholder liabilities is dependent upon the classification of the contracts under IFRS 4. Impacts $177.3 billion of policyholder liabilities and unallocated surplus of with-profits funds including those heldby jointventure and associates. Policyholder liabilities are estimated based on a number of actuarial assumptions (eg mortality, morbidity, policyholder behaviour and expenses). The Group applies judgement in determining the actuarial assumptions to be applied to estimate the future amounts due to or from the policyholder in the measurement ofthe policyholder liabilities. IFRS 4 permits the continued usage of previously applied Generally Accepted Accounting Practices (GAAP) for insurance contracts and investment contracts with discretionary participating features. A modified statutory basis of reporting was adopted by the Group on first time adoption of IFRS Standards in 2005. This was set out in the Statement of Recommended Practice issued by the Association of British Insurers (ABI SORP). The ABI SORP was withdrawn for the accounting periods beginning in or after 2015. As used in these consolidated financial statements, the term ‘grandfathered’ ABI SORP refers tothe requirements of the pronouncements prior to its withdrawal. For investment contracts that do not contain discretionary participating features, IAS 39 is applied and, wherethe contract includes an investment management element, IFRS 15 ‘Revenue from Contracts with Customers’ applies. The policies applied for the continuing businesses are noted below. Measurement ofinvestment contract liabilities with discretionary participation features and insurance contract liabilities The policyholder liabilities for businesses of the continuing insurance operations aregenerally determined in accordance with methods prescribed by local GAAP, adjusted to comply with the ‘grandfathered’ ABI SORP where necessary.Refinements to the local reserving methodology are generally treated as changes in estimates, dependent on their nature. The UK-style with-profits funds’ liabilities in Hong Kong are valued under the realistic basis in accordance with the requirements of ‘grandfathered’ FRS 27 ‘Life Assurance’ (issued by the UK Accounting Standards Board in 2004 and withdrawn in 2015). The realistic basis requires the value of liabilities to be calculated as the sum of a with-profits benefits reserve, future policy-related liabilities and the realistic current liabilities of the fund. In Taiwan and India, US GAAP principles are applied. Further details on how liabilities are determined for material product types are set out in note C3.4. This includes the approach to assumption setting including a margin for prudence. The sensitivity of the insurance operations to variations in key economic assumptions, as well as the insurance risks of mortality and morbidity, is discussed in note C6.1. Prudential plc Annual Report 2021prudentialplc.com 244 ![]() Measurement of policyholder liabilities and unallocated surplus of with-profits continued Measurement ofunallocated surplus ofwith-profits funds Unallocated surplus ofwith-profits funds represents the excess of assets over policyholder liabilities, determined in accordance with the Group’s accounting policies, that have yet to be appropriated between policyholders and shareholders for the Group’swith-profits fundsin Hong Kong and Malaysia. The unallocated surplus is recorded wholly as a liability with no allocation to equity. The annual excess or shortfall of income over expenditure of the with-profits funds, after declaration and attribution of the cost of bonuses to policyholders and shareholders, is transferred to or from the unallocated surplus each period through a charge or credit to the income statement. In Hong Kong, theunallocated surplus includes the shareholders’ shareof expected future bonuses, with the expected policyholder share being included in policyholder liabilities. Any excess of assets over liabilities and amounts expected to be paid out by the fund on future bonuses is also included in the unallocated surplus. The balance of the unallocated surplus is determined after full provision for deferred tax on unrealised appreciation or depreciation oninvestments. Liability adequacy test The Group performs adequacy testing on its insurance liabilities to ensure that the carrying amounts (net of related deferred acquisition costs and, where relevant, present value of acquired in-force business) is sucient to cover current estimates of future cash outflows of the in-force policies over the expected lives. Any deficiency is immediately charged to the income statement. The liability adequacy test is performed at the level of a portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio which may be at an entity or local business unit level, dependingon how the business is managed. (b) Fur ther critical accounting policies aecting the presentation of the Group’s results Presentation of results before tax attributable to shareholders Profit before tax is a significant IFRS income statement item. The Group has chosen to present a measure of profit before tax attributable to shareholders which distinguishes between tax borne by shareholders and tax attributable to policyholders to support understanding of the performance of theGroup. Profit before tax attributable to shareholders is $2,676 million and compares to profit before tax of $3,018 million. The total tax charge for the Group reflects tax that, in addition to that relating to shareholders’ profit, is also attributable to policyholders through the interest in with-profits or unit-linked funds. Further detail is provided in note B3. Reported IFRS profit before the tax measure is therefore not representative of pre-tax profit attributable to shareholders. Accordingly, in order to provide a measure of pre-tax profit attributable to shareholders, the Group has chosen to adopt an income statement presentation of the tax charge and pre-tax results that distinguishes between policyholders’and shareholders’ returns. Segmental analysis of results and earnings attributable to shareholders The Group uses adjusted operating profit as the segmental measure of its results. Total segmental adjusted operating profit is $4,023 million and is shown in note B1.1. The basis of calculation of adjusted operating profit is provided in note B1.2. For shareholder-backed business, with the exception of securities which are treated as available- for-sale, and assets classified as loans and receivables at amortised cost, all financial investments and investment properties are designated as assets at fair value through profit or loss. Short-term fluctuations in fair value aect the result for the year and the Group provides additional analysis of results before and after the eects of short-term fluctuations in investment returns, together with other items that are of a short-term, volatile or one-o nature. Short-term fluctuations in investment returns on assets held by with-profits funds in Hong Kong, Malaysia and Singapore do not aect directly reported shareholder results. This is because (i) the unallocated surplus of with-profits funds is accounted for as a liability and (ii) excess or deficit of income and expenditure of the funds over the required surplus for distribution are transferred to or from policyholder liabilities(includingthe unallocated surplus). Prudential plc Annual Report 2021 245 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() ABasis of preparation and accounting policies / continued #### A3 Accounting policies continued A3.1Critical accounting policies, estimates and judgements continued (c) Ot her items requiring application of critical estimates or judgements Carrying value of distribution rights intangible assets The Group applies judgement to assess whether factors such as the financial performance of the distribution arrangements, changes inrelevant legislation andregulatory requirements indicate an impairment of intangible assets representing distribution rights. To determine the impaired value, the Group estimates the discounted future expected cash flows arising from cash generating unit containing the distribution rights. Aects $3.8 billion of assets as shown in note C4.2. Distribution rights relate tobancassurancepartnership arrangements for the distribution of products for the term of the contractual agreement with the bank partner, for which an asset is recognised based on fees paid and fees payable not subject to performance conditions. Distribution rights impairment testing is conducted when there is an indication of impairment. To assess indicators of an impairment, the Group monitors a number of internal and external factors, including indications that the financial performance of the arrangement is likely to be worse than expected and changes in relevant legislation and regulatory requirements that could impact the Group’s ability to continue to sell new business through the bancassurance channel, and then applies judgement to assess whether these factors indicate that an impairment has occurred. If an impairment has occurred, a charge is recognised in the income statement for the dierence between the carrying value and recoverable amountof the asset. The recoverable amount isthe greater of fair value less costs to sell and value in use. Value in use is calculated as the present value of future expected cash flows from the asset or the cash generating unit to which it is allocated. Deferred acquisition costs (DAC) for insurance contracts The Group estimates projected future profits/margins to assess whether adjustments to the carrying value or amortisation profile of DAC asset are necessary. Impacts $2.8 billion of DAC as shown in note C4.2. Costs of acquiring new insurance business are accounted for in a way that is consistent with the principles ofthe ‘grandfathered’ ABISORP. The Group determines qualifying costs that should be capitalised (ie those costs of acquiring new insurance contracts that meet the criteria underthe Group’s accounting policy for DAC) shown by an explicit carrying value in the balance sheet. However, in some insurance operations, the deferral is implicit through the reserving basis. DAC is amortised against the profit margins within future revenues on the related insurance policies. For some business units this is approximated by amortising DAC on a straight-line basis over the expected duration of the policies. During the year, following review of the expected duration of policies, Hong Kong extended the life over which acquisition costs in the balance sheet are amortised. This reduced amortisation by circa $40 million in the year. The recoverability of the DAC is measured and the DAC asset is deemed impaired if the projected margins (which are estimated based on a number of assumptions similar to those underlying policyholder liabilities) are less than the carrying value. To the extent that the future margins dier from those anticipated, an adjustment to the carrying value will be necessary either through a charge to the income statement (if the projected margins are lower than carrying value) or through a change in the amortisation profile. For those business units applying US GAAP to insurance assets and liabilities, as permitted by the ‘grandfathered’ ABI SORP, acquisition costs are deferred and amortised as per the US GAAP requirements under ASC 944 Financial Services – Insurance. Prudential plc Annual Report 2021prudentialplc.com 246 ![]() Financial investments – Valuation Financial investments held at fair value represent $161.8 billion of the Group’s total assets. Financial investments held at amortised cost represent $6.7 billion of the Group’s total assets. The Group estimates the fair value of financial investments that are not actively traded using quotationsfromindependent thirdparties or internally developed pricing models. The Group holds the majority of its financial investments at fair value (primarily through profit or loss). Financial investments held at amortised cost primarily comprise loans and deposits. Determination of fair value The fair values of the financial instruments for which fair valuation is required under IFRS Standards are determined by the use of current market bid prices for exchange-quoted investments or by using quotations from independent third parties such as brokers and pricing services or by usingappropriate valuation techniques. The estimated fair value of derivative financial instruments reflects the estimated amount the Group would receive or pay in an arm’s-length transaction. This amount is determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices. Current market bid prices are used to value investments having quoted prices. Actively traded investments without quoted prices are valued using prices provided by third parties such as brokers or pricing services. Financial investments measured at fair value are classified into a three- level hierarchy as described in note C2.1. If the market for a financial investment of the Group is not active, the Group establishes fair value by using quotations from independent third parties, such as brokers or pricing services, or by using internallydeveloped pricing models. Priorityis given to publicly available prices from independent sources when available, but overall the source ofpricing and/or the valuation techniqueis chosen with the objective of arriving at a fair value measurement which reflects the price at which an orderly transaction wouldtake placebetween market participants on the measurementdate. Changes in assumptions relating to these variables could positively or negativelyimpact the reported fair value of these financial investments. Details of the financial investments classified as ‘level 3’ to which valuation techniques are applied and the sensitivity of profit before tax to a change in the valuation of these items, are presented in note C2.2(ii). Financial investments – Determining impairment of the ‘available-for-sale’ retained interest in Jackson The Group applies judgement to assess whether factors such as the severityand duration of any decline in fair value of the ‘available-for-sale’ retained interest in Jackson, indicate an impairment in value of the financial investments. Aects $0.7 billion of assets. The Group retained a 19.7 per cent economic interest in the equity securities of Jackson immediatelyfollowing its demerger inSeptember 2021. In December 2021, Jackson repurchased 2,242,516 shares of its Class A common stock from Prudential which reduced Prudential’s remaining economic interest in Jackson to 18.4 per cent as of 31 December 2021. The Group intends to monetise, subject to market conditions, a further portion of this investment to support investment in Asia within 12 months of the demerger, such that the Group will own less than 10 per cent at the end of such period (see note D1.2 for further details). The retained interest in Jackson’s equitysecurities has been classified as ‘available-for-sale’ under IAS 39 with unrealised gains and losses recognised in other comprehensive income. Upon disposal or impairment, the accumulated unrealised gains and losses are transferred from other comprehensive income to the income statement as realised gains or losses. An available-for-sale equity security is considered to be impaired if there is objective evidence that the cost may not be recovered. The consideration of evidence of impairment for the equity securities of Jackson requires management’s judgement to consider if a decline in the fair value is significant or prolonged. There has been no impairment of these securities during2021. Prudential plc Annual Report 2021 247 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() ABasis of preparation and accounting policies / continued #### A3 Accounting policies continued A3.2New accounting pronouncements not yet eective The following standards, interpretations and amendments have been issued by the IASB but are not yet eective in 2021, including those which have not yet been adopted by the UK Endorsement Board. The Group prepares financial statements in accordance with IFRS Standards as issued by the IASB and UK-adopted international accounting standards. This is not intended to be a complete list as only those standards, interpretations and amendments that could have amaterial impact on the Group’s financial statements are discussed. IFRS 9 ‘Financial instruments: Classification and measurement’ IFRS 9 became mandatorily eective for the annual periods beginning on or after 1 January 2018, with early application permitted and transitional rules apply. The Group met the eligibility criteria for temporary exemption under the Amendments to IFRS 4 from applying IFRS 9 and has accordingly deferred the adoption of IFRS 9 until the date when IFRS 17 ‘Insurance Contracts’ is expected to be adopted upon its current mandatory eective date. The Group made a reassessment during the year following the demerger of the US operations in September 2021 and confirmed that it continued to qualify for the temporary exemption. The Group is eligible as its activities are predominantly to issue insurance contracts based on the criteria as set out in the amendments to IFRS 4. The required disclosure of the fair value of the Group’s financial assets, showing the amounts for instruments that meet the ‘Solely for Payment of Principal and Interest’ (SPPI) criteria but do not meet the definition of held for trading and are not managed and evaluated on a fair value basis separately from all other financial assets, is provided below. When adopted IFRS 9 replaces the existing IAS 39 ‘Financial Instruments – Recognition and Measurement’ and will aect the following threeareas: The classification and the measurement of financial assets and liabilities IFRS 9 redefines the classification of financial assets. Based on the way in which the assets are managed in order to generate cash flows and their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’), financial assets are classified into one of the following categories: amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). An option is also available at initial recognition to irrevocably designate a financial asset as at FVTPL if doing so eliminates or significantly reduces accounting mismatches. Under IAS 39, 95 per cent of the Group’s financial investments are valued at FVTPL and the Group’s current expectation is that the vast majority of its investments will continue to be classified as such under IFRS 9. The existing IAS 39 amortised cost measurement for financial liabilities is largely maintained under IFRS 9. For financial liabilities designated at FVTPL IFRS 9 requires changes in fair value due to changes in the entity’s own credit risk to be recognised in other comprehensive income. The calculation of the impairment charge relevant for financial assets held at amortised cost or FVOCI A new impairment model based on an expected credit loss approach replaces the existing IAS 39 incurred loss impairment model, resulting in earlier recognition of credit losses compared to IAS 39. This aspect is the most complex area of IFRS 9 to implement and will involve significant judgements and estimation processes. The Group is currently assessing the scope of assets to which these requirements will apply but as noted above it is currently expected that the majority of assets will be held at FVTPL to which these requirements will not apply. The hedge accounting requirements which are more closely aligned with the risk management activities of the Company No significant change to the Group’s hedge accounting is currently anticipated, but this remains under review. The Group is assessing the impact of IFRS 9 and implementing this standard in conjunction with IFRS 17 as permitted. Further details on IFRS 17 are provided below. The parent company and a number of intermediate holding companies in the UK and non-insurance subsidiaries in Asia adopted IFRS 9 in 2018 in their individual or separate financial statements where these statements are prepared in accordance with IFRS, including the UK Financial Reporting Standard 101 ‘Reduced Disclosure Framework’. The public availability of the financial statements for these entities varies according to the local laws and regulations of each jurisdiction. The results for these entities continue to be accounted for on an IAS 39 basis in these consolidated financial statements. The fair value of the Group’s directly held financial assets at 31 December 2021 and 2020 are shown below. Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) as defined by IFRS 9 are shown separately. This excludes financial assets that meet the definition of held for trading or are managed and evaluated on a fair value basis. Prudential plc Annual Report 2021prudentialplc.com 248 ![]() Financialassets that pass the SPPI test All other financial assets, net of derivative liabilities Financial assets, net of derivative liabilities Fair value at 31 Dec 2021 $m Movement in the fair value during 2021 $m Fair value at 31 Dec 2021 $m Movement in the fair value during 2021 $m Accrued investment income 1,171 ––– Other debtors 1,779 ––– Loans note (i) 2,12641647(1) Equity securities and holdings in collective investment schemes –– 61,6014,061 Debt securities 226 – 98,868(3,164) Derivative assets, net of derivative liabilities –– 219(943) Deposits 4,741 ––– Cash and cash equivalents 7,170 ––– Total financial assets, net of derivative liabilities 17,21341161,335(47) Financialassets that pass the SPPI test All other financial assets, net of derivative liabilities Financial assets, net of derivative liabilities Fair value at 31 Dec 2020 $m Movement in the fair value during 2020 $m Fair value at 31 Dec 2020 $m Movement in the fair value during 2020 $m Accrued investment income 1,049 ––– Other debtors 2,901 ––– Loans note (i) 1,99821450 3 Equity securities and holdings in collective investment schemes –– 59,2953,186 Debt securities –– 89,7966,709 Derivative assets, net of derivative liabilities –– (60)925 Deposits 3,875 ––– Cash and cash equivalents 6,397 ––– Total continuing operations 16,22021149,48110,823 Discontinued US operations note (ii) 44,6493,327229,87925,793 Total financial assets, net of derivative liabilities 60,8693,348379,36036,616 Notes (i)The loans that pass the SPPI test in the table above are primarily carried at amortised cost under IAS 39. Further information on these loans is as provided in note C2.2. (ii)The financial assets that pass the SPPI test held by the discontinued US operations at 31 December 2020 primarily represented debt securities classified as available-for-sale under IAS 39. The underlying financial assets of the Group’s joint ventures andassociates accounted for usingthe equity method areanalysed belowinto those which meet the SPPI condition of IFRS 9, excluding any financial assets that meet the definition of held for trading or are managed and evaluated on a fair value basis, and all other financial assets. Fair value information of the financial assets held by CITIC-Prudential Life Insurance Company (CPL), the Group’s individually material joint venture, is shown in the table below. The amounts disclosed represent 100 per cent of the entity’s financial assets and not the Group’s share of those amounts and have been prepared on the same basis as the Group’s IFRS financial statements. Financialassets that pass the SPPI test \* All other financial assets CPL (100% of the financial assets of the entity)Fair value at 31 DecFair value at 31 DecMovement in the fair value during Financialassets 2021 $m 2020 $m 2021 $m 2020 $m 2021 $m 2020 $m Accrued investment income 170 170 – – – – Other debtors 620 392 – – – – Loans 656 502 – – – – Equity securities and holdings in collective investmentschemes – – 12,882 9,396 254 1,142 Debt securities – – 11,976 8,502 184 (12) Deposits 1,210 1,176 – – – – Cash and cash equivalents 422 316 – – – – Totalfinancial assets 3,078 2,556 24,858 17,898 438 1,130 \* The carrying value approximates fair value for the financial assets in this category with no movement in the fair value during the year. Prudential plc Annual Report 2021 249 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() ABasis of preparation and accounting policies / continued #### A3 Accounting policies continued A3.2New accounting pronouncements not yet eective continued Fair value information for the Group’s share of financial assets of other joint ventures and associates in aggregate is set out in the table below: Other JVs and associates (Prudential’s share of the financial assets of the entities) Financialassets that pass the SPPI test \* All other financial assets Fair value at 31 DecFair value at 31 DecMovement in the fair value during Financialassets 2021 $m 2020 $m 2021 $m 2020 $m 2021 $m 2020 $m Accrued investment income 85 71 – – – – Other debtors 187 114 – – – – Loans 26 18 – – – – Equity securities and holdings in collective investmentschemes – – 3,859 3,251 680 461 Debt securities – – 3,674 3,490 (121) 108 Deposits 203 189 – – – – Cash and cash equivalents 510 424 – – – – Totalfinancial assets 1,011 816 7,533 6,741 559 569 \* The carrying value approximates fair value for the financial assets in this category with no movement in the fair value during the year. IFRS 17 ‘Insurance Contracts’ In May 2017, the IASB issued IFRS 17 ‘Insurance Contracts’ to replace the existing IFRS 4 ‘Insurance Contracts’. In June 2020, the IASB issued amendments to IFRS 17, including delaying the eective date to reporting periods on or after 1 January 2023. In addition, in December 2021, the IASB issued an amendment to IFRS 17 to permit a classification overlay for financial assets presented in comparative periods on initial application of IFRS 17. The standard is subject to endorsement in the UK via the UK Endorsement Board which is expected in April 2022. The Group intends to adopt IFRS 17 on its mandatory eective date, alongside the adoption of IFRS 9. IFRS 4 permitted insurers to continue to use the statutory basis of accounting for insurance assets and liabilities that existed in their jurisdictions prior to January 2005. IFRS 17 replaces this with a new measurement model for all insurance contracts. IFRS 17 requires liabilities for insurance contracts to be recognised as the present value of future cash flows, incorporating an explicit risk adjustment, which is updated at each reporting date to reflect current conditions, and a contractual service margin (CSM) that is initially set equal and opposite to any day-one gain arising on initial recognition. Losses are recognised directly into the income statement. For measurement purposes, contracts are grouped together into contracts of similar risk, profitability profile and issue year, with further divisions for contracts that are managed separately. Profit for insurance contracts under IFRS 17 is represented by the recognition of the services provided to policyholders in the period (release of the CSM), release from non-economic risk (release of risk adjustment) and investment profit. CSM is released in line with Coverage Units that are a measure of the quantity of benefits provided under a contract and the period over which coverage is provided. The CSM is released as profit over the coverage period of the insurance contract, reflecting the delivery of services to the policyholder. For certain contracts with participating features (where a substantial share of the fair value of the related investments and other underlying items is paid to policyholders), the CSM reflects the variable fee to shareholders (the ‘Variable Fee Approach’). For these contracts, the CSM is adjusted to reflect the changes in economic experience and assumptions. For all other contracts the CSM is only adjusted for non-economic assumptions (the ‘General Measurement Model’). The Group expects to use both theVariableFee Approach and the General Measurement model, depending onthe specific characteristics of the insurance products. IFRS 17 introduces a new measure of insurance revenue, based on the delivery of services to policyholders and excluding any premiums related to the investment elements of policies, which will be significantly dierent from existing premium revenue measures, currently reported inthe income statement. In order to transition to IFRS 17, the amount of deferred profit, being the CSM at transition date, needs to be determined. IFRS 17 requires this CSM to be calculated as if the standard had applied retrospectively. However, if this is not practical an entity is required to choose either a modified retrospective approach or to determine the CSM by reference to the fair value of the liabilities at the transition date (1 January 2022). The approach for determining the CSM will have a significant impact on both shareholders’ equity and on the amount of profits on in-force business in future reporting periods. The Group expects all three approaches to be applied on transition, depending on the information that is available to be used for the dierent groups of contracts of the Group. Prudential plc Annual Report 2021prudentialplc.com 250 ![]() IFRS 17 implementation programme IFRS 17 is expected to have a significant impact as the requirements of the new standard are complex and requires a fundamental change to accounting for insurance contracts as well as the application of significant judgement and new estimation techniques. A reliable estimate of the eect of changes required to the Group’s accounting policies as a result of implementing these standards, which is expected to alter the timing of IFRS profit recognition, is not yet available as implementation is under way. The implementation of this standard involves significant enhancements to IT, actuarial and finance systems of the Group. The Group has a Group-wide implementation programme to implement IFRS 17 and IFRS 9. The programme is responsible for setting Group- wide accounting policiesand developing application methodologies, establishingappropriate processes and controls, sourcing appropriate data and implementingactuarial and financesystemchanges. A Group-wide Steering Committee, chaired by the Group Chief Financial Ocer and Chief Operating Ocer with participation from the Group Risk function and the Group’s and business units’ senior finance managers, provides oversight and strategic direction to the implementation programme. A number of sub-committees are also in place to provide governance over the technical interpretation and accounting policies selected, design and delivery of the programme. During 2021, the Group has made significant progress with the build and testing of new actuarial and finance systems. It is not practicable to provide reliable estimates of the quantitative impact on the Group’s results and financial position for the 2021 Annual Report. Other new accounting pronouncements In addition to the above, the following new accounting pronouncements have also been issued and are not yet eective but the Group is not expecting them to have a significant impact on the Group’s financial statements: > Am endments to IAS 37 ‘Onerous contracts – Cost of fulfilling a contract’ issued in May 2020 and eective from 1 January 2022; > Annual Improvements to IFRS 2018–2020 issued in May 2020 and eective from 1 January 2022; > Am endments to IAS 16 ‘Property, Plant and Equipment: Proceeds before intended use’ issued in May 2020 and eective from 1 January 2022; > Reference to the Conceptual Framework – Amendments to IFRS 3 ‘Business combination’ issued in May 2020 and eective from 1 January 2022; > Am endments to IAS 1 ‘Classification of liabilities as current or non-current’ issued in January 2020 and eective from 1 January 2023. An exposure draft was issued in November 2021 proposing for this eective date to be delayed to no earlier than 1 January 2024; > Am endments to IAS 1 and IFRS Practice Statement 2 ‘Disclosure of accounting policies’ issued in February 2021 and eective from 1 January2023; > Am endments to IAS 8 ‘Definition of Accounting Estimates’ issued in February 2021 and eective from 1 January 2023; and > Amendments to IAS 12 ‘Deferred tax related to assets and liabilities arising from a single transaction’ issued in May 2021 and eective from 1 January 2023. Prudential plc Annual Report 2021 251 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() #### B1 Analysis of performance by segment B1.1Segment results 2021 $m 2020 \* $m 2021 vs2020 % Note note (i) AER note (i) CER note (i) AER note (i) CER note (i) Continuing operations: CPL 343 25126937%28% Hong Kong 975 8918899%10% Indonesia 446 519529(14)%(16)% Malaysia 350 30931313%12% Singapore 663 57458916%13% Growth markets and other note (ii) 932 83584112%11% Eastspring 314 28328611%10% Total segment profit 4,023 3,6623,71610%8% Other income and expenditure: Investment return and other income 21 (15)(15) n/an/a Interest payable on core structural borrowings note (iii) (328) (316)(316)(4)%(4)% Corporateexpenditure note (iv) (298) (412)(428)28%30% Total other income and expenditure B1.4 (605) (743)(759)19%20% Restructuring and IFRS 17 implementation costs note (v) B1.4 (185) (162)(167)(14)%(11)% Adjusted operating profit B1.2 3,233 2,7572,79017%16% Short-term fluctuations ininvestmentreturnson shareholder-backed business note (vi) (458) (579)(554)21%17% Amortisation ofacquisitionaccountingadjustments (5) (5)(5)0%0% (Loss) gain attaching tocorporatetransactions D1.1 (94) 735733 n/an/a Profit before tax attributable to shareholders 2,676 2,9082,964(8)%(10)% Tax charge attributableto shareholders’ returns B3 (462) (440)(450)(5)%(3)% Profit for the year from continuing operations 2,214 2,4682,514(10)%(12)% Loss from discontinued US operations D1.2 (5,027) (283)(283) n/an/a (Loss) profit for the year (2,813) 2,1852,231 n/an/a Attributable to: Equity holders of the Company From continuing operations 2,192 2,4582,504(11)%(12)% From discontinued USoperations (4,234) (340)(340) n/an/a (2,042) 2,1182,164 n/an/a Non-controllinginterests From continuing operations 22 1010 n/an/a From discontinued USoperations (793) 5757 n/an/a (771) 6767 n/an/a (Loss) profit for the year (2,813) 2,1852,231 n/an/a #### B Earnings performance Prudential plc Annual Report 2021prudentialplc.com 252 ![]() Basic earnings per share (in cents) Note 2021 2020 2021 vs2020 % AER note (i) CER note (i) AER note (i) CER note (i) Based on adjusted operating profit, net of tax and non-controlling interest fromcontinuingoperations B4 101.5¢ 86.6¢87.6¢17%16% Based on profit from continuing operations, net of non-controlling interest B4 83.4¢ 94.6¢96.4¢(12)%(13)% Based on loss for the year from discontinued US operations, net of non-controllinginterest B4 (161.1)¢ (13.0)¢(13.1)¢ n/an/a \* The comparative results have been re-presented from those previously published to reflect the Group’s US operations as discontinued in 2021 (see note A1). Notes (i)Segment results are attributed to the shareholders of the Group before deducting the amount attributable to the non-controlling interests. This presentation is applied consistently throughout the document. For definitions of AER and CER refer to note A1. (ii)For growth markets and other, adjusted operating profit includes other items of $217 million (2020: $119 million) which primarily comprise of taxes for life joint ventures and associates and other non-recurring items, which in 2021 largely included the impact of refinements to the run-o of the allowance of prudence within technical provisions. (iii)Included in the interest on core structural borrowings charged to the income statement of $(328) million was $(126) million related to the four tranches of debt that were redeemed in December 2021 and January 2022 using the proceeds from the share oer during the year. (iv)Corporate expenditure as shown above is for head oce functions in London and Hong Kong. (v)Restructuring and IFRS 17 implementation costs include those incurred in continuing insurance and asset management operations of $(101) million (2020: $(97) million). (vi)In general, the short-term fluctuations reflect the value movements on shareholders’ assets and policyholder liabilities (net of reinsurance) arising from market movements in the year. In 2021, rising interest rates across most operations led to unrealised bond losses which more than oset the impact of higher discount rates on policyholder liabilities under the local reserving basis applied and equity gains on shareholder-backed business in the year. This has led to the overall negative short-term investment fluctuations for total insurance and asset management operations. B1.2Determining operating segments and performance measure of operating segments Operating segments The Group’s operating segments for financial reporting purposes are defined and presented in accordance with IFRS 8 ‘Operating Segments’ on the basis of the management reporting structure and its financial management information. Under the Group’s management and reporting structure, its chief operating decision maker is the Group Executive Committee (GEC), chaired by the Group Chief Executive. In the management structure, responsibility is delegated to the Chief Executive, Asia and Africa, for the day-to-day management of the insurance and asset management operations (within the framework set out in the Group Governance Manual). This in turn is delegated to the Chief Executives of Hong Kong, Indonesia, Malaysia, Singapore, Growth markets (comprising Africa and the remaining Asia subsidiary operations) and Eastspring, the Group’s Asia asset manager. CPL is managed jointly with CITIC, a Chinese state-owned conglomerate. In the first quarter of 2021, the Group reviewed its operating segments for financial reporting under IFRS 8 following changes to the business and financial management information provided to the GEC. As a result, performance measures for insurance operations are now analysed by geographical areas for the larger business units of CPL, Hong Kong, Indonesia, Malaysia and Singapore, with Eastspring, the asset management business, also analysed separately. All other Asia and Africa insurance operations are included in the ‘Growth markets and other’ segment alongside other amounts that are not included in the segment profit of an individual business unit, including tax on life joint ventures and associates and other items that are not representative of the underlying segment trading for the period. The 2020 comparatives have been re-presented to show the new segments for comparison. On 13 September 2021, the Group completed the demerger of the US operations (Jackson Financial Inc.) from the Prudential plc Group. Accordingly, the US operations do not represent an operating segment at the year end. The results of US operations have been reclassified as discontinued in these consolidated financial statements in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, and have therefore been excluded in the analysis of performance measure of operating segments. Operations which do not form part of any business unit are reported as ‘Unallocated to a segment’ and comprise head oce functions in London and Hong Kong. Performance measure The performance measure of operating segments utilised by the Group is IFRS operating profit based on longer-term investment returns (adjusted operating profit), as described below. This measurement basis distinguishes adjusted operating profit from other constituents of total profit or loss forthe period as follows: > Short-term fluctuations in investment returns on shareholder-backedbusiness; > Am ortisation of acquisition accounting adjustments arising on the purchase of business; and > Gain or loss on corporate transactions, as discussed in note D1.1. Determination of adjusted operating profit for investment and liability movements (i) Wi th-profits business For with-profits business in Hong Kong, Singapore and Malaysia, the adjusted operating profit reflects the shareholders’ share in the bonuses declared to policyholders. Valuemovements in the underlying assets of thewith-profits fundsonly aect the shareholder results through indirect eects of investment performance on declared policyholder bonuses and therefore, do not aect directly the determination of adjusted operatingprofit. (ii) Asse ts and liabilities heldwithinunit-linked funds The policyholder unit liabilities are directly reflective of the underlying asset value movements. Accordingly, the adjusted operating profit reflects the currentyear value movements in both the unit liabilities and the backing assets, which oset oneanother. Prudential plc Annual Report 2021 253 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued (iii)Other shareholder-backed long-term insurancebusiness In thecase of other shareholder-financed business, the measurement ofadjusted operating profit reflects that, for the long-term insurance business, assets and liabilities areheld for the longer term. For this business the Groupbelieves trendsin underlyingperformance are better understood if the eects of short-term fluctuations in market conditions, such as changes in interest rates or equity markets, are excluded. In determining the profit onthis basis, the followingkeyelements are applied to the results of theGroup’s shareholder-financed businesses. (a)Policyholder liabilities that are sensitive to market conditions Under IFRS, the degree to which the carrying values of liabilities to policyholders are sensitive to current market conditions varies between business units depending upon the nature of the ‘grandfathered’ measurement basis. Taiwan and India apply US GAAP, whose policyholder liabilities are not sensitive to market movements as they are locked in at policy inception. Movements in liabilities for some types of business do require bifurcation between the elements that relate to longer-term market condition and short-termeects to ensure that at thenet level (ie after allocated investment return and charge forpolicyholder benefits) theadjusted operating profit reflects longer-term market returns. For certain non-participating business, for example in Hong Kong, the economic features are more akin to asset management products with policyholder liabilities reflecting asset shares over the contract term. Consequently, for these products, the charge for policyholder benefits in the adjusted operating profit reflects the asset share feature rather than volatile movements that would otherwise be reflected if the local regulatory basis (as applied for the IFRS balance sheet) was used. For other types of non-participating business, expected longer-term investment returns and interest ratesare used todetermine the movement in policyholder liabilities for determining adjusted operating profit. This ensures assets and liabilities are reflected on a consistent basis. (b)Assets backing other shareholder-backed long-term insurance business Except in the case of assets backing liabilities which are directly matched (such as unit-linked business) adjusted operating profit for assets backing shareholder-financed business is determinedon the basis ofexpected longer-term investment returns. Longer-term investment returns comprise actual income receivable for the year (interest/dividend income) and longer-term capital returns, determined fordebt and equity-type securities on the basis described below.The dierence between the actual investment returns in the reporting period and thelonger-term investment returns is recognised within short-term fluctuations in investment returns. Debt securities andloans As ageneral principle,fordebt securities and loans, the longer-term investment returns comprise theinterest receivable for the year and the amortisation of interest-related realised gains and losses to the date when sold securities would have otherwise matured (or a suitable proxy for this period). All unrealised gains and losses are treated as a component of short-term investment fluctuations. Consideration is given to the need to recognise an expected longer-term level of defaults for thesecurities within the longer-term investment returns, based on past performance and having regard to the credit quality of the portfolio, with any dierence with actual credit-related realised losses arising in the year being included in short-term fluctuations. If, under this analysis, realised gains and losses are principally considered to be interest related with no significant credit- related losses based on past performance, then all realised gains and losses to date for these operations are treated as interest related and amortised to adjusted operating profit over the period to the date those securities would otherwise have matured and no separate charge to longer-term investment returns for credit defaults is made. For Group debt securities at 31 December 2021, the level of interest-related realised gains and losses on previously sold bonds that had yet to be amortised to adjusted operating profit from short-term investment fluctuations was a net gain of $515 million (2020: net gain of $525 million). Equity-type securities For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returns for income and capital having regard to past performance, current trends and future expectations. Dierent rates apply to dierent categories of equity-type securities. For continuing insurance operations, investments in equity-type securities held for non-linked shareholder-backed business amounted to $6,073 million as at 31 December 2021 (31 December 2020: $4,963 million). The longer-term rates of return applied in 2021 ranged from 5.5 per cent to 16.9 per cent (2020: 5.1 per cent to 16.9 per cent) with the rates applied varying by business unit. These rates are broadly stable from year to year but may be dierent between regions, reflecting, for example, diering expectations of inflation in each local business unit. The assumptions are for the returns expected to apply in equilibrium conditions. The assumed rates of return do not reflect any cyclical variability in economic performance and are not set by reference to prevailing asset valuations. The longer-term investment returns for the insurancejoint ventures and associates accounted for using the equity method are determined on a similar basis as the other insurance operations described above. Derivative value movements Generally, derivativevalue movements are excluded from adjusted operating profit. The exception iswhere the derivative valuemovements broadly oset changes in the accounting value of other assets and liabilities included in adjusted operating profit. (iv) Othe r non-insurance businesses For these businesses, the determination of adjusted operating profit reflects the underlyingeconomic substance of the arrangements. Generally, realised gains and losses are included in adjusted operating profit with temporary unrealised gains and losses being included in short-term fluctuations. In some instances, realised gains and losses on derivatives and other financial instruments are amortised to adjusted operating profit over atime period that reflects the underlying economicsubstance of thearrangements. #### B1 Analysis of performance by segment continued B1.2Determining operating segments and performance measure of operating segments continued Prudential plc Annual Report 2021prudentialplc.com 254 ![]() B1.3Revenue from continuing operations Premiums and annuity considerations for conventional and other protection type insurance policies are recognised as revenue when due. Premiums and annuity considerations for linked policies and other investment type policies are recognised as revenue when received or, in the case of unitised or unit-linked policies, when units are issued. These amounts exclude premium taxes and similar duties where Prudential collects and settles taxes borne by the policyholder. Policy fees charged on linked policies for mortality, morbidity, asset management and policy administration are recognised when related services are provided. (a)Analysis of total revenue by segment 2021 $m Insurance operations note (i) Hong Kong Indonesia Malaysia Singapore Growth markets and other Eastspring Inter- segment .elimination Total segment Unallocated to a segmentGroup total Gross premiums earned 10,0321,7241,9006,2464,315 –– 24,217 – 24,217 Outward reinsurance premiums (1,557)(43)(47)(137)(60) –– (1,844) – (1,844) Earned premiums, net of reinsurance 8,4751,6811,8536,1094,255 –– 22,373 – 22,373 Other income note (ii) 5212 – 22117437 – 640 1 641 Total external revenue note (iii) 8,5271,6931,8536,1314,372437 – 23,013 1 23,014 Intra-grouprevenue ––––1 217(218) ––– Interest income note B1.3b 93487220707618 3– 2,569 1 2,570 Dividend and other investment income 6797416050686 –– 1,505191,524 Investment appreciation (depreciation) 5734(300)(29)(361) 8– (591)(17)(608) Total revenue, net of reinsurance 10,1971,8881,9337,3154,716665(218)26,496 4 26,500 2020 $m Insurance operations note (i) Hong Kong Indonesia Malaysia Singapore Growth markets and other Eastspring Inter - segment .elimination Total segment Unallocated to a segmentGroup total Gross premiums earned 11,0911,7381,7835,0353,848 –– 23,495 – 23,495 Outward reinsurance premiums note (iv) (1,918)(62)(27)432(50) –– (1,625) – (1,625) Earned premiums, net of reinsurance 9,1731,6761,7565,4673,798 –– 21,870 – 21,870 Other income note (ii) 59 8– 3891417 – 613 2 615 Total external revenue note (iii) 9,2321,6841,7565,5053,889417 – 22,483 2 22,485 Intra-grouprevenue ––––1 164(165) ––– Interest income note B1.3b 646104210447570 5– 1,982151,997 Dividend and other investment income 646869936465 5– 1,265321,297 Investment appreciation (depreciation) 7,493(201)3692,04576521 – 10,492(24)10,468 Total revenue, net of reinsurance 18,0171,6732,4348,3615,290612(165)36,2222536,247 Notes (i)CPL, Prudential’s life business in China, is a 50/50 joint venture with CITIC and is accounted for using the equity method under IFRS. The Group’s share of its results is presented in a single line within the Group’s profit before tax on a net of related tax basis, and therefore not shown in the analysis of revenue line items above. Revenue from external customers of CPL (Prudential’s share) in 2021 is $3,052 million (2020: $1,866 million). Further financial information on CPL is provided in note D6.3. (ii)Other income comprises income from external customers and consists primarily of revenue from the Group’s asset management business of $437 million (2020: $417 million). The remaining other income consists primarily of policy fee revenue from external customers and asset management rebate revenue from external fund managers. Also included in other income is fee income on financial instruments that are not held at fair value through profit or loss of $1 million (2020: $1 million). (iii)Due to the nature of the business of the Group, there is no reliance on any major customers. Of the Group’s markets, only Hong Kong and Singapore have external revenue that exceeds 10 per cent of the Group total for all years presented. (iv)The 2020 outward reinsurance premiums in Singapore included a credit of $542 million for the recapture of previously reinsured business following a change in regulatory requirements. Prudential plc Annual Report 2021 255 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued (b)Additional analysis of investment return Investment return included in the income statement principally comprises interest income, dividends, investment appreciation and depreciation (realised and unrealised gains and losses) on investments designated as fair value through profit or loss, and realised gains and losses (including impairment losses) on items held at amortised cost and/or designated as available-for-sale. Movements in unrealised appreciation or depreciation of securities designated as available-for-sale are recorded in other comprehensive income. Interest income is recognised as it accrues. Dividends on equity securities are recognised on the ex-dividend date and rental income is recognised on an accrual basis. 2021 $m 2020 $m Realised and unrealised gains (losses) on securities at fair value through profit or loss note (i) 624 9,741 Realised and unrealised (losses) gains on derivatives at fair value through profit or loss note (i) (943) 916 Realised (losses) gains on loans note (i) (2) – Interest income note (ii) 2,570 1,997 Dividends 1,496 1,257 Other investment returns (including foreign exchange gains and losses) (259) (149) Investment return from continuing operations 3,486 13,762 Notes (i)Realised gains and losses on the Group’s investments from continuing operations for 2021 recognised in the income statement amounted to a net gain of $6.0 billion (2020: a net gain of $4.9 billion). (ii)Interest income from continuing operations includes $280 million (2020: $257 million) in respect of financial assets not at fair value through profit and loss. The overall financial strength of Prudential and the results, both currentand future, ofthe insurance business are in part dependent upon the quality and performance of the various investment portfolios. Prudential’s insurance investments support a range of businesses operating in many geographic areas. Each of the operations formulates a strategy based on the nature of its underlying liabilities, its level of capital and its local regulatory requirements. Prudential’s insurance business’s investments, excluding assets to cover linked liabilities and those attributable to external unit holders ofconsolidated investment funds, arelargely heldby Prudential’sSingapore andHong Kong operations. All investments of the Group’s continuing operations are carried at fair value in the statement of financial position with fair value movements, which are volatile from period to period, recorded in the income statement, except for loans and receivables, which are generally carried at amortised cost (unless designated at fair value through profit or loss) and the Group’s retained interest in Jackson and certain centrally held debt securities, which are designated as available-for-sale and therefore the changes in unrealised fair value are booked in other comprehensive income. Subject to the eect of the exceptions, the period-on-period changes in investment returns primarily reflect the generality of overall market movements for equities and debt securities. In addition, foreign exchange rates aect the US dollar value of the translated income. Consistent with the treatment applied for other items of income and expenditure, investment return for operations not using US dollars as functional currency is translated at average exchange rates. The year-on-year movements in investment return of the Group mainly reflect the cumulative impact from the changes in interest rates on bond asset values and in the performance of the equity markets. Allocationof investmentreturn between policyholders and shareholders Investment return is attributable to policyholders and shareholders. A key feature of the accounting policies under IFRS isthat the investment return included in the income statement relates to all investment assets of the Group, irrespective of whether the return is attributable to shareholders, policyholders or the unallocated surplus of with-profits funds, the latter two of which have no direct impact on shareholders’ profit. The table below provides a breakdown of the investment return attributable to each type of business. Continuing operations: 2021 $m 2020 $m Policyholder returns Assets backing unit-linked liabilities 516 1,549 With-profits business 2,700 8,384 3,216 9,933 Shareholder returns 270 3,829 Total investment return from continuing operations 3,486 13,762 Policyholder returns Investment returns allocated to policyholders are those from investments in which shareholders have no direct economic interest, namely unit-linked business for which the investment returns are wholly attributable topolicyholders and with-profits business inwhich the shareholders’ economic interest (and the basis of recognising IFRS basis profits) is restricted to a share of the actuarially determined surplus for distribution. Except for this surplus, the investment returns of the with-profits funds are attributable to policyholders (through the asset-share liabilities) or the unallocated surplus, which is accounted for as a liability under IFRS 4 as shown in note C3. #### B1 Analysis of performance by segment continued B1.3Revenue from continuing operations continued Prudential plc Annual Report 2021prudentialplc.com 256 ![]() Shareholder returns For shareholder-backed non-with-profits business, the investment returnsare notdirectly attributable to policyholders and, therefore, impact shareholders’ profit directly. B1.4Profit after tax from continuing operations by segment 2021 $m 2020 $m CPL 278 394 Hong Kong 1,068 994 Indonesia 362 409 Malaysia 265 256 Singapore 394 521 Growth markets and other 434 548 Eastspring 284 253 Total segment 3,085 3,375 Unallocated to a segment (central operations) note (871) (907) Group total profit after tax from continuing operations 2,214 2,468 Note Comprising of other income and expenditure of $(605) million (2020: $(743) million) attributable to the head oce functions in London and Hong Kong and $(185) million (2020: $(162) million) of restructuring and IFRS 17 implementation costs as shown in note B1.1, $(25) million (2020: $28 million) of short-term fluctuations on investment returns, $(35) million (2020: $(30) million) from corporate transactions as shown in note D1.1 and related tax of $(21) million (2020: nil). #### B2 Acquisition costs and other expenditure 2021 $m 2020 $m Acquisition costs incurred for insurance policies note (iii) (2,089) (2,080) Acquisition costs deferred 848 617 Amortisationof acquisition costs note (iii) (343) (308) Administration costs and other expenditure (net of other reinsurance commission) notes (i)(ii)(iii)(iv) (3,128) (2,433) Movements in amounts attributableto external unit holders ofconsolidated investmentfunds 152 (447) Total acquisition costs and other expenditure from continuing operations (4,560) (4,651) Notes (i)Included in total administration costs and other expenditure from continuing operations is depreciation of property, plant and equipment of $(169) million (2020: $(186) million), of which $(123) million (2020: $(134) million) relates to the right-of-use assets recognised under IFRS 16. The 2020 amount also included a credit of $770 million for the commission arising from the reinsurance transaction entered into by the Hong Kong business during the year. (ii)Administration costs and other expenditure from continuing operations includes fee expenses relating to financial liabilities held at amortised cost and are part of the determination of the eective interest rate. (iii)Total depreciation and amortisation expense from continuing operations are included in ‘Acquisition costs incurred for insurance policies’, ‘Administration costs and other expenditure’ and ‘Amortisation of acquisition costs’ and relates primarily to amortisation of DAC of insurance contracts and distribution rights intangibles. The segmental analysis of depreciation and amortisation is shown below. 2021 $m 2020 $m Hong Kong (123) (158) Indonesia (51) (34) Malaysia (56) (37) Singapore (162) (144) Growth markets and other (390) (301) Eastspring (17) (16) Total segment (799) (690) Unallocated to a segment (central operations) (31) (35) Total depreciation andamortisationfromcontinuing operations (830) (725) (iv)Interest expense is included in ‘Administration costs and other expenditure’ other than interest on core structural borrowings that is presented separately on the income statement as finance costs. Interest expense of the central operations amounted to $(331) million (2020: $(334) million) comprising $(328) million (2020: $(316) million) of interest on core structural borrowings and $(3) million of interest on lease liabilities (2020: $(4) million) and nil (2020: $(14) million) of interest on other operational borrowings. The interest expense of the other segments of $(10) million (2020: $(13) million) comprises wholly of interest on lease liabilities and is distributed evenly across these segments. Excluding interest on lease liabilities, the interest expense of the continuing operations of $(328) million (2020: $(330) million) relates to interest on financial liabilities that are not at fair value through profit and loss. Prudential plc Annual Report 2021 257 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued B2.1Sta and employment costs The average number of sta employed by the Group, for both continuing and discontinued operations, during the years shown was: 2021 2020 Asia and Africa operations note (i) 13,237 12,949 Head oce function note (ii) 600 657 Total continuing operations 13,837 13,606 Discontinued US operations note (iii) 3,306 3,650 Total Group 17,143 17,256 Notes (i)The Asia and Africa operations sta numbers above exclude 440 (2020: 502) commission-based sales sta who have an employment contract with the Company. (ii)The ‘Head oce function’ sta numbers include sta based in London and Hong Kong. (iii)Average sta numbers of the discontinued US operations were for the period up to the demerger in September 2021. The costs of employment, for both continuing and discontinued operations, were: 2021 $m 2020 $m Continuing Discontinued \* Group total Continuing Discontinued Group total Wages and salaries 9735111,484 9176191,536 Social security costs 422264 412667 Defined contribution schemes 422971 423476 Total Group \* 1,0575621,619 1,0006791,679 \* Total costs of employment in the table above include sta costs of the discontinued US operations for the period up to the demerger in September 2021. B2.2Share-based payment The Group oers discretionary share awards to certain key employees and all-employee share plans in the UK and a number of Asia locations. The compensation expense charged to the income statement is primarily based upon the fair value of the awards granted, the vesting period and the vesting conditions. The Company has established trusts to facilitate the delivery of Prudential plc shares under some of these plans. The cost to the Company of acquiring these newly issued shares held in trusts is shown as a deduction from shareholders’ equity. (a)Description of the plans Th e Group operates a number of share award plans that provides Prudential plc shares, or ADRs, to participants upon vesting. The plans in operation include thePrudential Long Term Incentive Plan,the PrudentialAnnual Incentive Plan, savings-related share optionschemes, share purchase plans and deferred bonus plans. Where Executive Directors participate in these plans, details about those schemes are provided in the Directors’ remuneration report. The following information is provided about plans in which the Executive Directors do not participate: #### B2 Acquisition costs and other expenditure continued Prudential plc Annual Report 2021prudentialplc.com 258 ![]() Sharescheme Description PrudentialCorporationAsia Long-Term Incentive Plan (PCA LTIP) The PCA LTIP provides eligible employees with conditional awards. Awards are discretionary and vest after three years subject to the employee being in employment. Vesting of awards may also be subject to performance conditions. All awards are generally made in Prudential shares. In countries where share awards are not feasible for reasons including securities and/or tax considerations, awards will be replaced by the cash value of the shares that would otherwise have vested. PrudentialAgency Long-Term Incentive Plan (LTIP) Certain agents are eligible to be granted awards in Prudential shares under the Prudential Agency LTIP. These awards are structured in a similar way to the PCA LTIP described above. Restricted Share Plan(RSP) The Company operates the RSP for certain employees. Awards under this plan are discretionary, and the vesting of awards may be subject to performance conditions. All awards are made in Prudentialshares. Deferredbonus plans The Company operates a number of deferred bonus plans including the Group Deferred Bonus Plan (GDBP) and the Prudential Corporation Asia Deferred Bonus Plan (PCA DBP). There are no performance conditions attached to deferred share awards made under these arrangements. Savings-related share option schemes note Employees and eligible agents in a number of geographies are eligible for plans similar to the HMRC-approved Save As You Earn (SAYE) share option scheme in the UK. During the year ended 31 December 2021, eligible agents based in certain business units can participate in the International Savings-Related Share Option Scheme for Non-Employees. Share purchase plans Eligible employees outside the UK are invited to participate in arrangements similar to the Company’s HMRC-approved UK SIP, which allows the purchase of Prudential plc shares. Sta based in Asia are eligible to participate in the Prudential Corporation Asia All Employee Share Purchase Plan. Note The total numbers of securities available for issue under the scheme is disclosed in note I(vii) in additional unaudited financial information. (b)Outstanding options and awards The following table shows themovement in outstandingoptions and awards under the Group’s share-based compensation plans: Options outstanding under SAYE schemes Awards outstandingunder incentive plans 2021 2020 2021 2020 Number of options millions Weighted average exercise price £ Number of options millions Weighted average exercise price £ Number ofawards millions Balance at beginning of year: 2.311.86 3.812.38 40.6 33.0 Granted 0.411.90 0.49.64 5.2 20.2 Modification 0.111.77 –– 0.7 – Exercised (0.7)12.58 (0.9)11.44 (8.6) (10.3) Forfeited – 11.11 – 14.27 (3.1) (1.5) Cancelled (0.1)11.51 (0.1)12.55 (0.1) (0.1) Lapsed/Expired – 12.88 (0.9)13.28 (0.6) (0.7) Jackson awards derecognised ondemerger –– –– (9.5) – Balance at end of year 2.011.61 2.311.86 24.6 40.6 Options immediately exercisable at end of year 0.212.26 0.512.64 On demerger of Jackson from the Prudential Group, outstanding share awards for Prudential plc participants were adjusted to receive the demerger dividend in the form of additional Prudential plc shares, to be released on the same timetable and to the same extent as their original share awards. In the case of the International Savings-Related Share Option Scheme for Non Employees the adjustments to outstanding options were confirmed as being fair and reasonable by an independent financial adviser in accordance with the rules of that plan and the Hong Kong Stock Exchange Listing Rules. Employees of Jackson were granted replacement awards over Jackson shares, in exchange for existing Group awards outstanding under incentive plans. As designated replacement awards were granted, no cancellation was recognised in respect of the original awards. As the replacement awards are an obligation of Jackson these awards were derecognised by the Group on demerger. The weighted average share price of Prudential plc for 2021 was £14.31 (2020: £11.64). Prudential plc Annual Report 2021 259 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued The following table provides a summary of the range of exercise prices for Prudential plc options outstanding at 31 December: Outstanding Exercisable Number outstanding millions Weighted average remaining contractual life years Weighted average exercise prices £ Number exercisable millions Weighted average exerciseprices £ 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Between £9 and £10 0.4 0.4 3.2 4.2 9.64 9.64 – – – – Between £11 and £12 1.2 1.2 2.7 2.2 11.38 11.11 0.1 0.3 11.04 11.11 Between £13 and £14 0.2 0.3 1.6 2.2 13.94 13.94 0.1 – 13.94 – Between £14 and £15 0.2 0.4 1.4 1.3 14.55 14.55 – 0.2 – 14.55 Weighted average 2.0 2.3 2.6 2.4 11.61 11.86 0.2 0.5 12.26 12.64 The years shown above for weighted average remaining contractual life include the time period from end of vesting period to expiration of contract. (c)Fair value of options and awards The fair value amounts estimated on the date of grant relating to all options and awards were determined by using the following assumptions: 2021 2020 Prudential LTIP (TSR) SAYE options Other awards Prudential LTIP (TSR) SAYE options Other awards Dividend yield(%) – 0.81 – – 3.45 – Expected volatility (%) 26.6922.31 – 41.0827.55 – Risk-free interest rate (%) 0.361.18 – 0.390.27 – Expected option life (years) – 4.50 – – 3.92 – Weighted average exercise price (£) – 14.76 – – 10.74 – Weighted average share price at grant date (£) 15.1111.90 – 10.499.64 – Weighted average fair value at grant date (£) 7.704.1314.79 4.931.9510.54 The compensation costs for all awards and options are recognised in net income over the plans’ respective vesting periods. The Group uses the Black-Scholes model to value all options, and financial equivalence to value all awards other than those which have TSR performance conditions attached (some Prudential LTIP and RSP awards) for which the Group uses a Monte Carlo model in order to allow for the impact of these conditions. These models are used to calculate fair values for share options and awards at the grant date based on the quoted market price of the stock at the measurement date, the amount, if any, that the employees are required to pay, the dividend yield, expected volatility, risk-free interest rates and exercise prices. For all options and awards, the expected volatility is based on the market implied volatilities as quoted on Bloomberg. The Prudential specific at-the-money implied volatilities are adjusted to allow for the dierent terms and discounted exercise price on SAYE options by using information on the volatility surface of the FTSE 100. Risk-free interest rates are taken from swap spot rates with projection terms matching the corresponding vesting periods. For awards with a TSR condition, volatilities and correlations between Prudential and a basket of 12 competitor companies is required. For grants in 2021, the average volatility for the basket of competitors was 23.62 per cent (2020: 41.40 per cent). Correlations for the basket are calculated for each pairing from the log of daily TSR returns for the three years prior to the valuation date. Market implied volatilities are used for both Prudential and the basket of competitors. Changes to the subjective input assumptions could materially aect the fair value estimate. Other awards, without market performance conditions or exercise price, are valued based on grant date share price. (d) Share-based payment expense charged to the income statement The total expense for continuing operations recognised in 2021 in the consolidated financial statements relating to share-based compensation is $100 million (2020: $103 million), of which $94 million (2020: $97 million) is accounted for as equity-settled. The Group had $32 million of liabilities at 31 December 2021 (31 December 2020: $32 million) relating to share-based payment awards accounted for as cash-settled. #### B2 Acquisition costs and other expenditure continued B2.2Share-based payment continued Prudential plc Annual Report 2021prudentialplc.com 260 ![]() B2.3Key management remuneration Key management constitutes the Directors of Prudential plc, as they have authority and responsibility for planning, directing and controlling the activities of the Group, and other non-director members of the Group Executive Committee. Total key management remuneration is analysed in the following table: 2021 $m 2020 $m Salaries andshort-term benefits 29.3 20.0 Post-employment benefits 1.4 1.2 Share-based payments 14.0 14.6 Payments onseparation 23.5 – 68.2 35.8 The share-based payments charge comprises $7.5 million (2020: $10.7 million), which is determined in accordance with IFRS 2 ‘Share-based Payment’ (see note B2.2) and $6.5 million (2020: $3.9 million) of deferred share awards. B2.4 Fe es payable to the auditor 2021 $m 2020 $m Audit of the Company’s annual accounts 2.4 2.3 Audit of subsidiaries pursuant to legislation 5.9 9.2 Audit fees payable to the auditor 8.3 11.5 Audit-related assurance services note (i) 4.5 3.5 Other assurance services 1.1 0.7 Servicesrelatingto corporate financetransactions 1.6 0.3 Non-audit fees payable to the auditor 7.2 4.5 Total fees payable to the auditor 15.5 16.0 Analysed into: Fees payable to the auditor attributable to continuing operations One-o non-audit services associated withdemerger and publicoering note (ii) 1.9 0.4 Other audit and non-audit services 11.3 9.5 13.2 9.9 Fees payable to the auditor attributable to discontinued US operations 2.3 6.1 15.5 16.0 Notes (i)Of the audit-related assurance service fees of $4.5 million in 2021 (2020: $3.5 million), $0.6 million (2020: $0.7 million) relates to services that are required by law and regulation. (ii)Of the $1.9 million one-o non-audit services fees associated with the demerger of the US operations and the public oering in Hong Kong in 2021. $0.1 million was for audit-related assurance and $0.1 million for other assurance services required by law and regulation. #### B3 Tax charge from continuing operations Prudential is subject to tax in numerous jurisdictions and the calculation of the total tax charge inherently involves a degree of estimation and judgement. Current tax expense is charged or credited based upon amounts estimated to be payable or recoverable as a result of taxable amounts for the current year and adjustments made in relation to prior years. The positions taken in tax returns where applicable tax regulation is subject to interpretation are recognised in full in the determination of the tax charge in the financial statements if the Group considers that it is probable that the taxation authority will accept those positions. Otherwise, provisions are established based on the likely amount of the liability, or recovery, by providing for the single best estimate of the most likely outcome or the weighted average expected value where there are multiple outcomes. The totaltax charge includes tax expense attributable to both policyholders and shareholders. The tax expense attributable to policyholders comprises the tax on the income of the consolidated with-profits and unit-linked funds. In certain jurisdictions, life insurance companies are taxed on both their shareholders’ profits and ontheir policyholders’ insurance and investment returnson certain insurance and investment products. Although both types of tax are included in the total tax charge in the Group’s consolidated income statement, they are presented separately in the consolidated income statement to provide the most relevant information about tax that the Group pays on its profits. Deferred taxes are provided under the liability method for all relevant temporary dierences. IAS 12 ‘Income Taxes’ does not require all temporary dierences to be provided for, in particular, the Group does not provide for deferred tax on undistributed earnings of subsidiaries where the Group is able to control the timing of the distribution and the temporary dierence created is not expected to reverse in the foreseeable future. Deferred tax assets are only recognised when it is more likely than not that future taxable profits will be available against which these losses can be utilised. Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates (and laws) that have been enacted or are substantively enacted at the end of the reporting period. Prudential plc Annual Report 2021 261 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued B3.1Total tax charge by nature The total tax charge from continuing operations in the income statement is as follows: Taxcharge 2021 $m 2020 $m Attributable to shareholders: Hong Kong (40) (15) Indonesia (74) (125) Malaysia (71) (58) Singapore (67) (87) Growth markets and other (159) (125) Eastspring (30) (30) Total segment (441) (440) Unallocated to a segment (central operations) (21) – Tax charge attributableto shareholders (462) (440) Attributable topolicyholders: Hong Kong (79) (60) Indonesia 4 (3) Malaysia (2) (34) Singapore (261) (170) Growth markets and other (4) (4) Tax charge attributableto policyholders (342) (271) Total tax charge from continuing operations (804) (711) Profit before tax includes Prudential’s share of profit after tax from the joint ventures and associates that are equity-accounted for. Therefore, the actual tax charge in the income statement does not include tax arising from the results of joint ventures and associates including CPL. The reconciliation of the expected to actual tax charge attributable to shareholders is provided in B3.2 below. The tax charge attributable to policyholders of $(342) million (2020: $(271) million) above is equal to the profit before tax attributable to policyholders. This is the result of accounting for policyholder income after the deduction of expenses and movement on unallocated surpluses on an after-tax basis. The total tax (charge) credit from continuing operations comprises: 2021 $m 2020 $m Currenttax expense: Corporationtax (405) (376) Adjustments in respect of prior years 6 (7) Total current tax charge (399) (383) Deferred tax arising from: Origination andreversal of temporary dierences (388) (306) Impact of changes in local statutory tax rates – (1) Credit in respect of a previously unrecognised tax loss, tax credit or temporary dierence from a prior period (17) (21) Total deferred tax charge (405) (328) Total tax charge from continuing operations (804) (711) #### B3 Tax charge from continuing operations continued Prudential plc Annual Report 2021prudentialplc.com 262 ![]() B3.2Reconciliation of shareholder eective tax rate In the reconciliation below, the expected tax rate reflects the corporation tax rates that are expected to apply to the taxable profit or loss of the continuing operations. It reflects the corporation tax rates of each jurisdiction weighted by reference to the amount of profit or loss contributing to the aggregate result from continuingoperations. 2021 2020 Tax attributable to shareholders $m Percentage impact on ETR % Tax attributable to shareholders $m Percentage impact on ETR % Continuing operations: Adjustedoperating profit 3,233 2,757 Non-operating (loss) profit note (i) (557) 151 Profit before tax 2,676 2,908 Tax charge at the expected rate (539)20% (602)21% Eects of recurring tax reconciliation items: Incomenot taxableor taxable atconcessionary rates note (ii) 63(2)% 102(4)% Deductions not allowable for tax purposes (92)3% (32)1% Items related to taxation of life insurance businesses note (iii) 177(7)% 152(5)% Deferred tax adjustments including unrecognised tax losses note (iv) (111)4% (172)6% Eect of results of joint ventures and associates note (v) 80(3)% 129(4)% Irrecoverable withholdingtaxes note (vi) (60)2% (35)1% Other (8)1% 17(1)% Total credit 49(2)% 161(6)% Eects of non-recurring tax reconciliation items: Adjustments to tax charge in relation to prior years (11)0% (25)1% Movements in provisions for open tax matters note (vii) 47(2)% 33(1)% Impact of changes in local statutory tax rates 6 0% (1)0% Adjustments in relation to business disposals and corporate transactions (14)1% (6)0% Total credit 28(1)% 1 0% Totalactual tax charge (462)17% (440)15% Analysed into: Tax charge on adjusted operating profit (548) (497) Tax credit on non-operating result note (i) 86 57 Actual tax rate on: Adjustedoperating profit: Includingnon-recurring tax reconciling items note (viii) 17% 18% Excluding non-recurring tax reconciling items 18% 18% Totalprofit note (viii) 17% 15% Prudential plc Annual Report 2021 263 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued Notes (i)‘Non-operating (loss) profit’ is used to refer to items excluded from adjusted operating profit and includes short-term investment fluctuations in investment returns on shareholder-backed business, corporate transactions and amortisation of acquisition accounting adjustments. (ii)Income not taxable or taxable at concessionary rates primarily relates to non-taxable investment income in Singapore and Malaysia. (iii)Items related to taxation of life insurance businesses primarily relates to Hong Kong where the taxable profit is computed as 5 per cent of net insurance premiums. (iv)The unrecognised tax losses reconciling amount reflects losses arising where it is unlikely that relief for the losses will be available in future periods. (v)Profit before tax includes Prudential’s share of profit after tax from the joint ventures and associates. Therefore, the actual tax charge does not include tax arising from profit or loss of joint ventures and associates and is reflected as a reconciling item. (vi)The Group incurs withholding tax on remittances received from certain jurisdictions and on certain investment income. Where these withholding taxes cannot be oset against corporate income tax or otherwise recovered, they represent a cost to the Group. Irrecoverable withholding tax on remittances is included in Other operations and is not allocated to any segment. Irrecoverable withholding tax on investment income is included in the relevant segment where the investment income is reflected. (vii)The statement of financial position contains the following provisions in relation to open tax matters: 2021 $m Balance at 1 Jan 113 Removalof discontinued US operations (3) Movements inthe currentyear included intax charge attributable toshareholders (47) Provisions utilised in the year (4) Other movements (including interest arising on open tax matters and amounts included in the Group’s share of profits from joint ventures and associates, net of related tax) (17) Balance at 31 Dec 42 (viii)The actual tax rates of the relevant business operations are shown below: 2021 % Hong Kong Indonesia Malaysia Singapore Growth markets and other Eastspring Other operations Total attributable to shareholders Tax rate on adjusted operating profit 5%17%21%15%22%10%(3)%17% Tax rate on profit before tax 4%17%21%15%27%10%(2)%17% 2020 % Hong Kong Indonesia Malaysia Singapore Growth markets and other Eastspring Other operations Total attributable to shareholders Tax rate on adjusted operating profit 3%24%18%14%22%11%0%18% Tax rate on profit before tax 1%23%18%14%19%11%0%15% #### B3 Tax charge from continuing operations continued B3.2Reconciliation of shareholder eective tax rate continued Prudential plc Annual Report 2021prudentialplc.com 264 ![]() #### B4 Earnings per share 2021 Note Before tax $m Tax $m Non- controlling interests $m Net of tax and non- controlling interests $m Basic earnings per share cents Diluted earnings per share cents Based on adjusted operating profit 3,233(548)(17)2,668101.5¢101.5¢ Short-term fluctuations ininvestmentreturnson shareholder- backed business (458)81(5)(382)(14.5)¢(14.5)¢ Amortisation ofacquisitionaccountingadjustments (5) –– (5)(0.2)¢(0.2)¢ Loss attaching to corporate transactions D1.1 (94) 5– (89)(3.4)¢(3.4)¢ Based on profit from continuing operations 2,676(462)(22)2,19283.4¢83.4¢ Based on loss from discontinued US operations D1.2 (4,234)(161.1)¢(161.1)¢ Based on loss for the year (2,042)(77.7)¢(77.7)¢ 2020 Note Before tax $m Tax $m Non- controlling interests $m Net of tax and non- controlling interests $m Basic earnings per share cents Diluted earnings per share cents Based on adjusted operating profit 2,757(497)(10)2,25086.6¢86.6¢ Short-term fluctuations ininvestmentreturnson shareholder- backed business (579)49 – (530)(20.4)¢(20.4)¢ Amortisation ofacquisitionaccountingadjustments (5) –– (5)(0.2)¢(0.2)¢ Gain attaching tocorporatetransactions D1.1 735 8– 74328.6¢28.6¢ Based on profit from continuing operations 2,908(440)(10)2,45894.6¢94.6¢ Based on loss from discontinued US operations D1.2 (340)(13.0)¢(13.0)¢ Based on profit for the year 2,11881.6¢81.6¢ Basic earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests, divided by the weighted average number of ordinary shares outstanding during the year, excluding those held in employee share trusts, which are treated as cancelled. For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group’s only class of potentially dilutive ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year. No adjustment is made if the impact is anti-dilutive overall. The weighted average number of shares for calculating basic and diluted earnings per share, which excludes those held in employee share trusts, is set out as below: Number of shares (in millions) 2021 2020 Weighted average number of shares for calculation of basic earnings per share 2,628 2,597 Shares under option at end of year 2 2 Shares that would have been issued at fair value on assumed option price at end of year (2) (2) Weighted average number of shares for calculation of diluted earnings per share 2,628 2,597 Prudential plc Annual Report 2021 265 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() BEarnings performance / continued #### B5 Dividends Demerger dividends from discontinued operations On 13 September 2021, following approval by the Group’s shareholders, Prudential plc demerged Jackson, its US operations, via a dividend in specie. At the point of the demerger, the Group retained a non-controlling holding of 19.7 per cent economic interest (19.9 per cent voting interest) in the total common stock of Jackson. As required by IFRIC 17 ‘Distributions of Non-Cash Assets to Owners’, the dividend has been recorded at $1,735 million, being the fair value of those shares distributed to shareholders at the date of the demerger of Jackson. Other dividends 2021 2020 Cents per share $m Cents per share $m Dividends relating toreporting year: First interim ordinary dividend 5.37¢140 5.37¢140 Second interim ordinary dividend 11.86¢326 10.73¢280 Total 17.23¢466 16.10¢420 Dividends paid in reporting year: Current year first interim ordinary dividend 5.37¢138 5.37¢140 Second interim ordinary dividend forprior year 10.73¢283 25.97¢674 Total 16.10¢421 31.34¢814 First and second interim dividends are recorded in the period in which they are paid. Dividend per share The 2021 first interim dividend of 5.37 cents per ordinary share was paid to eligible shareholders on 28 September 2021. On 13 May 2022, Prudential will pay a second interim dividend of 11.86 cents per ordinary share for the year ended 31 December 2021. The second interim dividend will be paid to shareholders included on the UK register at 6.00pm BST and to shareholders on the HK register at 4.30pm Hong Kong time on 25 March 2022 (Record Date), and also to the Holders of US American Depositary Receipts (ADRs) as at 25 March 2022. The second interim dividend will be paid on or about 20 May 2022 to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte) Limited (CDP) at 5.00pm Singapore time on the Record Date. Shareholders holding shares on the UK or Hong Kong share registers will continue to receive their dividend payments in either GBP or HKD respectively, unless they elect otherwise. Shareholders holding shares on the UK or HongKong registers may elect to receive dividend payments in USD. Elections must be made through the relevant UK or Hong Kong share registrar on or before 21 April 2022. The corresponding amount per share in GBP and HKD is expected to be announced on or about 28 April 2022. The USD to GBP and HKD conversion rates will be determined by the actual rates achieved by Prudentialbuying those currenciesprior to thesubsequent announcement. Holders of ADRs will continue to receive their dividend payments in USD. Shareholders holding an interest in Prudential shares through CDP in Singapore will continue to receive their dividend payments in SGD at an exchange rate determined by CDP. Shareholders on the UK register are eligible to participate in a Dividend Reinvestment Plan. Prudential plc Annual Report 2021prudentialplc.com 266 ![]() #### C Financial position #### C1 Group assets and liabilities by business type The analysis below is structured to show the investments and other assets and liabilities of the Group by reference to the diering degrees of policyholder and shareholder economicinterest of the dierenttypes ofbusiness. Debt securities are analysed below according to the issuing government for sovereign debt and to credit ratings for the rest of the securities. The G roup uses the middle of the Standard & Poor’s, Moody’s and Fitch ratings, where available. Where ratings are not available from these rating agencies, local external rating agencies’ ratings and lastly internal ratings have been used. Securities with none of the ratings listed above are classified as unrated and included under the ‘below BBB- and unrated’ category. The total securities from continuing operations (excluding sovereign debt) that were unrated at 31 December 2021 were $1,130 million (31 December 2020: $780 million). Additionally, government debt is s hown separately from the rating breakdowns in order to provide a more focused view of the credit portfolio. In the table below, AAA is the highest possible rating. Investment grade financial assets are classified within the range of AAA to BBB- ratings. Financial assets which fall outside this range are classified as below BBB-. Prudential plc Annual Report 2021 267 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued 31 Dec 2021 $m Asia and Africa Unallo- cated to a segment Elimination of intra- group debtors and creditors Group total Insurance With- profits note (i) Unit- linked note (i) Other note (i) Eastspring Elimina- tions Total Debt securities notes (ii)(iv) Sovereign debt Indonesia 41459860911 – 1,632 –– 1,632 Singapore 3,6845501,068126 – 5,428 –– 5,428 Thailand –– 1,577 3– 1,580 –– 1,580 United Kingdom –7–––7 226 – 233 United States 28,552473,525 –– 32,124 –– 32,124 Vietnam – 203,022 –– 3,042 –– 3,042 Other (predominantly Asia) 2,0307204,00121 – 6,772 –– 6,772 Subtotal 34,6801,94213,802161 – 50,585226 – 50,811 Other government bonds AAA 1,47286246 –– 1,804 –– 1,804 AA+ to AA- 45 2 12 –– 59 –– 59 A+ to A- 667119304 –– 1,090 –– 1,090 BBB+ to BBB- 12116116 –– 253 –– 253 Below BBB- and unrated 20415450 –– 669 –– 669 Subtotal 2,5092381,128 –– 3,875 –– 3,875 Corporatebonds AAA 1,222236411 –– 1,869 –– 1,869 AA+ to AA- 2,2033591,858 –– 4,420 –– 4,420 A+ to A- 9,0466755,294 –– 15,015 –– 15,015 BBB+ to BBB- 9,5231,7115,105 –– 16,339 –– 16,339 Below BBB- and unrated 4,0096781,827 –– 6,514 –– 6,514 Subtotal 26,0033,65914,495 –– 44,157 –– 44,157 Asset-backed securities AAA 88 6 74 –– 168 –– 168 AA+ to AA- 614–– 11 –– 11 A+ to A- 26 – 17 –– 43 –– 43 BBB+ to BBB- 15 –9–– 24 –– 24 Below BBB- and unrated 221––5––5 Subtotal 137 9 105 –– 251 –– 251 Total debtsecurities 63,3295,84829,530161 – 98,868226 – 99,094 Loans Mortgage loans –– 150 –– 150 –– 150 Policy loans 1,365 – 368 –– 1,733 –– 1,733 Other loans 668 – 11 –– 679 –– 679 Totalloans 2,033 – 529 –– 2,562 –– 2,562 Equity securities and holdings in collectiveinvestment schemes Direct equities 10,29012,8122,28684 – 25,472683 – 26,155 Collective investment schemes 23,9507,7043,787 3– 35,444 2– 35,446 Total equity securities and holdings in collectiveinvestment schemes 34,24020,5166,07387 – 60,916685 – 61,601 Other financial investments note (iii) 1,5611492,318106 – 4,1341,088 – 5,222 Total financial investments note (v) 101,16326,51338,450354 – 166,4801,999 – 168,479 Investment properties –– 38 –– 38 –– 38 In vestments in joint ventures and associates accounted for using the equity method –– 1,878305 – 2,183 –– 2,183 Cash and cash equivalents note (vi) 9059111,444181 – 3,4413,729 – 7,170 Reinsurers’ share of insurance contract liabilities note C3.3 225 – 9,528 –– 9,753 –– 9,753 Other assets note (vii) 1,1841669,191759(51)11,2493,608(3,378)11,479 Totalassets 103,47727,59060,5291,599(51)193,1449,336(3,378)199,102 Shareholders’ equity –– 14,2891,120 – 15,4091,679 – 17,088 Non-controllinginterests –– 45131 – 176 –– 176 Total equity –– 14,3341,251 – 15,5851,679 – 17,264 Contract liabilities and unallocated surplus of with-profits funds 94,00225,65137,646 –– 157,299 –– 157,299 Corestructuralborrowings –––––– 6,127 – 6,127 Operationalborrowings 142 – 10618 – 266595 – 861 Other liabilities note (viii) 9,3331,9398,443330(51)19,994935(3,378)17,551 Total liabilities 103,47727,59046,195348(51)177,5597,657(3,378)181,838 Total equity and liabilities 103,47727,59060,5291,599(51)193,1449,336(3,378)199,102 Prudential plc Annual Report 2021prudentialplc.com 268 #### C1 Group assets and liabilities by business type continued ![]() 31 Dec 2020 $m Asia and Africa US discont’d Unallo- cated to a segment Elimination of intra- group debtors and creditors Group total Insurance Eastspring Elimina- tions Total With- profits note (i) Unit- linked note (i) Other note (i) Debt securities notes (ii)(iv) Sovereign debt Indonesia 38565856412 – 1,619 ––– 1,619 Singapore 3,939551979117 – 5,586 ––– 5,586 Thailand –– 1,99911 – 2,010 ––– 2,010 United Kingdom –7–––7–––7 United States 24,396212,551 –– 26,9685,126 –– 32,094 Vietnam – 112,881 –– 2,892 ––– 2,892 Other (predominantly Asia) 1,3227003,68119 – 5,72230 –– 5,752 Subtotal 30,0421,94812,655159 – 44,8045,156 –– 49,960 Other government bonds AAA 1,42096405 –– 1,921377 –– 2,298 AA+ to AA- 129 2 28 –– 159522 –– 681 A+ to A- 811131339 –– 1,281188 –– 1,469 BBB+ to BBB- 45216196 –– 664 3–– 667 Below BBB- and unrated 631 9 451 –– 1,091 ––– 1,091 Subtotal 3,4432541,419 –– 5,1161,090 –– 6,206 Corporatebonds AAA 1,228221540 –– 1,989265 –– 2,254 AA+ to AA- 1,9434761,871 –– 4,290869 –– 5,159 A+ to A- 7,2896955,194 1– 13,17910,759 –– 23,938 BBB+ to BBB- 9,0051,2994,785 –– 15,08912,686 –– 27,775 Below BBB- and unrated 2,8148491,483 2– 5,1481,975 –– 7,123 Subtotal 22,2793,54013,873 3– 39,69526,554 –– 66,249 Asset-backed securities AAA 74 9 24 –– 1072,110 –– 2,217 AA+ to AA- 21–––3 171 –– 174 A+ to A- 15 – 16 –– 31741 –– 772 BBB+ to BBB- 12 –9–– 21163 –– 184 Below BBB- and unrated 928–– 1948 –– 67 Subtotal 1121257 –– 1813,233 –– 3,414 Total debtsecurities 55,8765,75428,004162 – 89,79636,033 –– 125,829 Loans Mortgage loans –– 158 –– 1587,833 –– 7,991 Policy loans 1,231 – 351 –– 1,5824,507 –– 6,089 Other loans 492 – 16 –– 508 ––– 508 Totalloans 1,723 – 525 –– 2,24812,340 –– 14,588 Equity securities and holdings in collective investment schemes Direct equities 15,66813,0643,32571 – 32,128253 –– 32,381 Collective investment schemes 18,1257,3921,63810 – 27,16525 2– 27,192 US s eparate account assets –––––– 219,062 –– 219,062 Total equity securities and holdings in collective investment schemes 33,79320,4564,96381 – 59,293219,340 2– 278,635 Other financial investments note (iii) 1,5664052,17397 – 4,2414,09413 – 8,348 Total financial investments note (v) 92,95826,61535,665340 – 155,578271,80715 – 427,400 Investment properties –– 16 –– 16 7–– 23 Investments in joint ventures and associates accounted for using the equitymethod –– 1,689273 – 1,962 ––– 1,962 Cash and cash equivalents note (vi) 1,0495871,354156 – 3,1461,6213,251 – 8,018 Reinsurers’ share of insurance contract liabilities note C3.3 257 – 11,106 –– 11,36335,232 –– 46,595 Other assets note (vii) 1,5382529,418839(62)11,98519,8133,624(3,323)32,099 Totalassets 95,80227,45459,2481,608(62)184,050328,4806,890(3,323)516,097 Shareholders’ equity –– 12,8611,102 – 13,9638,511(1,596) – 20,878 Non-controllinginterests –– 34144 – 1781,063 –– 1,241 Total equity –– 12,8951,246 – 14,1419,574(1,596) – 22,119 Contract liabilities andunallocated surplus of with-profits funds 86,41025,43338,107 –– 149,950296,513 –– 446,463 Corestructuralborrowings –––––– 2506,383 – 6,633 Operationalborrowings 194 – 10523 – 3221,498624 – 2,444 Other liabilities note (viii) 9,1982,0218,141339(62)19,63720,6451,479(3,323)38,438 Total liabilities 95,80227,45446,353362(62)169,909318,9068,486(3,323)493,978 Total equity and liabilities 95,80227,45459,2481,608(62)184,050328,4806,890(3,323)516,097 Prudential plc Annual Report 2021 269 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued Notes (i)‘With-profits’ comprises the with-profits assets and liabilities of the Hong Kong, Malaysia and Singapore operations. ‘Other’ includes assets and liabilities of other participating business and other non-linked shareholder-backed business. ‘Unit-linked’ comprises the assets and liabilities held in the unit-linked funds. (ii)Of the Group’s debt securities, the following amounts were held by the consolidated investment funds from continuing operations. 31 Dec 2021 $m 31 Dec 2020 $m TotalTotal Debt securities heldby consolidated investment funds from continuing operations 15,076 15,928 (iii)Other financial investments comprise derivative assets and deposits. For the discontinued US operations, other financial investments in 2020 also included private equity investments in limited partnerships. (iv)The credit ratings, information or data contained in this report which are attributed and specifically provided by Standard & Poor’s, Moody’s and Fitch Solutions and their respective aliates and suppliers (‘Content Providers’) is referred to here as the ‘Content’. Reproduction of any Content in any form is prohibited except with the prior written permission of the relevant party. The Content Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold any such investment or security, nor does it address the suitability of an investment or security and should not be relied on as investment advice. (v)Of the total financial investments from continuing operations of $168,479 million as at 31 December 2021 (31 December 2020: $155,593 million), $71,524 million (31 December 2020: $66,138 million) are expected to be recovered within one year, including equity securities and holdings in collective investment schemes. (vi)Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, treasury bills and other short-term highly liquid investments with less than 90 days maturity from the date of acquisition and are analysed as follows: 31 Dec 2021 $m 31 Dec 2020 $m Continuing operations: \* Cash 1,902 2,087 Cash equivalents 5,268 4,310 7,170 6,397 Discontinued US operations 1,621 Total cash and cash equivalents 7,170 8,018 Analysed as: Continuing operations: Held bythe Group’s holding and non-regulatedentities and available forgeneral use 3,729 3,250 Other funds not available for general use by the Group,including funds held for thebenefit of policyholders 3,441 3,147 7,170 6,397 Discontinued US operations 1,621 Total cash and cash equivalents 7,170 8,018 \* The Group’s cash and cash equivalents from continuing operations are held in the following currencies as at 31 December 2021: USD 46 per cent, GBP 20 per cent, HKD 3 per cent, SGD 3 per cent, MYR 9 per cent and other currencies 19 per cent (31 December 2020: USD 48 per cent, GBP 19 per cent, HKD 4 per cent, SGD 4 per cent, MYR 10 per cent and other currencies 15 per cent). Prudential plc Annual Report 2021prudentialplc.com 270 #### C1 Group assets and liabilities by business type continued ![]() (vii)Of total ‘Other assets’ from continuing operations, there are: –Property, plant and equipment (PPE) of $478 million at 31 December 2021 (31 December 2020: $584 million). Movements in the PPE including right-of-use assets are provided in note C11; and –Accrued investment income and other debtors, which are analysed as follows: 31 Dec 2021 $m 31 Dec 2020 $m Continuing operations: Interest receivable 872 639 Other accrued income 299 410 Total accrued investment income 1,171 1,049 Amounts receivable due from: Policyholders 686 757 Intermediaries 4 2 Reinsurers 226 920 Other sundry debtors 863 1,237 Total otherdebtors 1,779 2,916 Discontinued US operations 633 Total accrued investment income and other debtors 2,950 4,598 Analysed as: Continuing operations: Expected to be settled within one year 2,761 3,730 Expected to be settled beyond one year 189 235 2,950 3,965 Discontinued US operations 633 2,950 4,598 (viii)Within ‘Other liabilities’ from continuing operations are accruals, deferred income and other liabilities of $7,983 million (31 December 2020: $8,445 million), which are analysed as follows (detailed maturity analysis is provided in note C2.3): 31 Dec 2021 $m 31 Dec 2020 $m Continuing operations: Accruals and deferred income 565 616 Creditors arising from direct insurance and reinsurance operations 1,120 1,284 Interest payable 77 74 Fundswithheld under reinsurance agreements 1,545 1,019 Other creditors 4,676 5,452 7,983 8,445 Discontinued US operations 7,063 Total accruals, deferred income and other creditors 7,983 15,508 Prudential plc Annual Report 2021 271 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued #### C2 Fair value measurement The Group holds financial investments in accordance with IAS 39, whereby subject to specific criteria, financial instruments are required to be accounted for under one of the following categories: > Financial assets and liabilities at fair value through profit or loss – this comprises assets and liabilities designated by management as fair value through profit or loss on inception and derivatives. This includes instruments that are managed and the performance evaluated on a fair value basis, including liabilities related to net assets attributable to unit holders of consolidated investment funds and policyholder liabilities for investment contracts without discretionary participation features. All investments within this category are measured at fair value with all changes thereon being recognised in investment return in the income statement. > Fi nancial investments on an available-for-sale basis – this comprises assets that are designated by management as available-for-sale and/or do not fall into any of the other categories. These assets are initially recognised at fair value plus attributable transaction costs and are subsequently measured at fair value. Interest and/or dividend income is recognised in the income statement. Unrealised gains and losses are recognised in other comprehensive income. Upon disposal or impairment, accumulated unrealised gains and losses are transferred from other comprehensive income to the income statement as realised gains or losses. Up until the demerger of Jackson in 2021, the majority of the debt securities held by Jackson were designated as ‘available-for-sale’ in the Group’s financial statement. Subsequent to the demerger, the Group has designated its retained interest in Jackson (as described in note D1.2) as ‘available-for-sale’ equity securities. > Loans and receivables – except for those designated as fair value through profit or loss or available-for-sale, these instruments comprise non- quoted investments that have fixed or determinable payments. These instruments include loans collateralised by mortgages, deposits, loans to policyholders and other unsecured loans and receivables. These investments are initially recognised at fair value plus transaction costs. Subsequently, these instruments are carried at amortised cost using the eective interest method. The eective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. When assets held at amortised cost are subject to impairment testing, estimated future cash flows are compared to the carrying value of the asset. The estimated future cash flows are discounted using the financial asset’s original or variable eective interest rate and exclude credit losses that have not yet been incurred. If, in subsequent periods, an impaired loan or receivable recovers in value (in part or in full) and this recovery can be objectively related to an event occurring after the impairment, then any amount determined to have been recovered is reversed through the income statement. The Group uses the trade date method to account for regular purchases and sales of financial assets. C2.1Determination of fair value The fair values of the financial instruments for which fair valuation is required under IFRS Standards are determined by the use of current market bid prices for exchange-quoted investments, or by using quotations from independent third parties, such as brokers and pricing services or by using appropriate valuation techniques. The estimated fair value of derivative financial instruments reflects the estimated amount the Group would receive or pay in an arm’s-length transaction. This amount is determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices. Other than the loans which have been designated at fair value through profit or loss, the carrying value of loans and receivables is presented net of provisions for impairment. The fair value of loans is estimated from discounted cash flows expected to be received. The discount rate used is updated for the market rate of interest where applicable. The fair value of the subordinated and senior debt issued by the parent company is determined using quoted prices from independent thirdparties. The fair value offinancial liabilities (other than subordinated debt, senior debt andderivative financial instruments)is determined using discounted cash flows of the amounts expected to be paid. Valuation approach for level 2 fair valued assets and liabilities A significant proportion of the Group’slevel 2 assets are corporate bonds, structured securities and other non-national government debtsecurities. These assets, in line with market practice, are generally valued using a designated independent pricing service or quote from third-party brokers. These valuations are subject to a number of monitoring controls, such as comparison to multiple pricing sources where available, monthly price variances, stale price reviews and variance analysis on prices achieved on subsequent trades. When prices are not available from pricing services, quotes are sourced directly from brokers. Prudential seeks to obtain a number of quotes from dierent brokers so as to obtain the most comprehensive information available on their executability. The selected quote is the one which best represents an executable quote for the security at the measurement date. Generally, no adjustment is made to the prices obtained from independent third parties. Adjustments are made in only limited circumstances, where it is determined that the third-party valuations obtained do not reflect fair value (eg either because the value is stale and/or the values are extremely diverse in range). Securities valued in such manner are classified as level 3 where these significant inputs are not based on observable marketdata. Prudential plc Annual Report 2021prudentialplc.com 272 ![]() Valuation approach for level 3 fair valued assets and liabilities Investments valued using valuation techniques include financial investments which by their nature do not have an externally quoted price based onregular trades, and financial investments for which markets are no longer active as a result of market conditions, eg market illiquidity. The Group’s valuation policies, procedures and analyses for instruments categorised as level 3 are overseen by Business Unit committees as partof the Group’s wider financial reporting governance processes. The procedures undertaken include approval of valuation methodologies, verification processes, and resolution of significant or complex valuation issues. In addition, the Group has minimum standards for independent price verification to ensure valuationaccuracy is regularly independently verified. Adherence tothis policy ismonitored across the business units. C2.2Fair value measurement hierarchy of Group assets and liabilities (a) As sets and liabilities carried at fair value on the statement of financial position The table below shows the assets and liabilities carried at fair value analysed by level of the IFRS 13 ‘Fair Value Measurement’ defined fair valuehierarchy. This hierarchy is based on the inputs to the fair value measurement and reflects the lowest level input that is significant to thatmeasurement. All assets and liabilities held at fair value are classified as fair value through profit or loss, except for $909 million of financial assets classified as available-for-sale at 31 December 2021 (31 December 2020: nil for continuing operations), of which $683 million related to the Group’s retained interest in Jackson’s equity securities. All assets and liabilities held at fair value are measured on a recurring basis. As of 31 December 2021, the Group did not have any financial instruments that are measured at fair value on a non-recurring basis. Financial instruments at fair value 31 Dec 2021 $m Level 1Level 2Level 3 Continuing operations Quoted prices (unadjusted) in active markets Valuation based on significant observable market inputs note (i) Valuation based on significant unobservable market inputs note (ii) Total Loans – 616 5 621 Equity securities and holdings in collective investment schemes 54,1076,91757761,601 Debt securities 76,04922,9875899,094 Other investments (includingderivative assets) 359122 – 481 Derivative liabilities (146)(116) – (262) Total financial investments, net of derivative liabilities 130,36930,526640161,535 Investment contract liabilities without discretionary participation features – (814) – (814) Net asset value attributable to unit holders of consolidated investment funds (5,618)(46) – (5,664) Total financial instruments at fair value for continuing operations 124,75129,666640155,057 Percentage of total (%) 81%19%0%100% Analysed by business type: Financial investments, net of derivative liabilities at fair value With-profits 82,48915,43850698,433 Unit-linked 24,0242,343 5 26,372 Non-linked shareholder-backed business 23,85612,74512936,730 Total financial investments net of derivative liabilities, at fair value 130,36930,526640161,535 Percentage of total continuing operations (%) 81%19%0%100% Total financial investments, net of derivative liabilities at fair value 130,36930,526640161,535 Other financial liabilities at fair value (5,618)(860) – (6,478) Group total financial instruments at fair value 124,75129,666640155,057 Prudential plc Annual Report 2021 273 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued 31 Dec 2020 $m Level 1Level 2Level 3 Quoted prices (unadjusted) in active markets Valuation based on significant observable market inputs note (i) Valuation based on significant unobservable market inputs note (ii) Total Loans – 4163,4613,877 Equity securities and holdings in collective investment schemes 272,8635,224548278,635 Debt securities 75,99849,76962125,829 Other investments (includingderivative assets) 1232,4771,8664,466 Derivative liabilities (298)(184) – (482) Total financial investments, net of derivative liabilities 348,68657,7025,937412,325 Investment contract liabilities without discretionary participation features – (792) – (792) Net asset value attributable to unit holders of consolidated investment funds (5,464)(17)(494)(5,975) Other financial liabilities held at fair value –– (3,589)(3,589) Total financial instruments at fair value 343,22256,8931,854401,969 Percentage of total (%) 86%14%0%100% Analysed by business type: Financial investments, net of derivative liabilities at fair value, from continuing operations: With-profits 78,20311,48139590,079 Unit-linked 25,1441,075 – 26,219 Non-linked shareholder-backed business 20,99912,0688933,156 Total financial investments, net of derivative liabilities at fair value 124,34624,624484149,454 Other financial liabilities at fair value (5,464)(809) – (6,273) Total financial instruments, net of derivative liabilities, at fair value from continuing operations 118,88223,815484143,181 Percentage of total continuing operations (%) 83%17%0%100% Total financial instruments, net of derivative liabilities, at fair value from discontinued USoperations 224,34033,0781,370258,788 Group total financial instruments at fair value 343,22256,8931,854401,969 Notes (i)For continuing operations, of the total level 2 debt securities of $22,987 million at 31 December 2021 (31 December 2020: $18,868 million), $24 million (31 December 2020: $140 million) arevalued internally. (ii)At 31 December 2021, the Group held $640 million (31 December 2020: $484 million) of net financial instruments at fair value within level3from continuing operations. This represents less than 0.5 per cent of the total fair valued financial assets, net of financial liabilities, forbothyears. Of this amount, equity securities from continuing operations of $1 million (31 December 2020: $2 million) are internally valued, representing less than 0.1 per cent of the total fair valued financial assets net of financial liabilities for both years. Internal valuations are inherently more subjective than external valuations. The $640 million from continuing operations (31 December 2020: $484 million) referred to above includes the following items: –Equity securities and holdings in collective investment schemes of $577 million (31 December 2020: $445 million) consisting primarily of property and infrastructure funds held by the participating funds, which are externally valued using the net asset value of the invested entities; and –Other sundry individual financial instruments of a net asset of $63 million (31 December 2020: net asset of $39 million). Of the net assets from continuing operations of $640 million (31 December 2020: $484 million) referred to above: –A net asset of $506 million (31 December 2020: $395 million) is held by the participating funds and therefore shareholders’ profit and equity are not impacted by movements in the valuation of these financial instruments; and –A net asset of $129 million (31 December 2020: $89 million) is held to support non-linked shareholder-backed business, of which $112 million (31 December 2020: $89 million) are externally valued and are therefore inherently less subjective than internal valuations. If the value of all these level 3 financial instruments decreased by 20 per cent, the change in valuation would be $(26) million (31 December 2020: $(18) million), which would reduce shareholders’ equity by this amount before tax. All of this amount would pass through the income statement substantially as part of short-term fluctuations in investment returns outside of adjusted operating profit. #### C2 Fair value measurement continued C2.2Fair value measurement hierarchy of Group assets and liabilities continued Prudential plc Annual Report 2021prudentialplc.com 274 ![]() (b)Transfers into and out of levels The Group’s policy is to recognise transfers into and out of levels as of the end of each reporting period except for material transfers which are recognised as of the date of the event or change in circumstances that caused the transfer. Transfers are deemed to have occurred when there is a material change in the observed valuation inputs or a change in the level of trading activities of the securities. During 2021, the transfers between levels within the Group’s portfolio, were primarily transfers from level 1 to level 2 of $3,789 million (31 December 2020: $3,927 million) and transfers from level 2 to level 1 of $1,742 million (31 December 2020: $1,631 million). These transfers which relate to equity securities and debt securities arose to reflect the change in the observed valuation inputs and in certain cases, the change in the level of trading activities of the securities. There were transfers out of level 3 of $12 million (31 December 2020: nil) and into level 3 of $30 million (31 December 2020: $32 million) in the year. Reconciliation of movements in level 3 assets and liabilities measured at fair value The following table reconciles the value of level 3 fair valued assets and liabilities at 1 January 2021 to that presented at 31 December 2021. Total investment return recorded in the income statement represents interest and dividend income, realised gains and losses, unrealised gains and losses on the assets classified at fair value through profit and loss and foreign exchange movements on an individual entity’s overseas investments. Total gains (losses) recorded in other comprehensive income largely comprises the translation of investments into the Group’s presentational currency of USdollars. 2021 $m Reconciliation of movements in level 3 assets and liabilities measured at fair value Loans Equity securities and holdings in collective investment schemes Debt securities US (discont’d) Group total Balance at 1 Jan 6 445331,3701,854 Removal of discontinuedUS operations ––– (1,370)(1,370) Total (losses) gains in income statement note (1)(6)(3) –2 Total lossesrecordedin othercomprehensiveincome – (5)(2) – (7) Purchases and other additions – 143 –– 143 Transfers (out of) into level 3 – (12)30 – 18 Balance at 31 Dec 5 57758 – 640 2020 $m Reconciliation of movements in level 3 assets andliabilities measured at fair value Loans Equity securities and holdings in collective investment schemes Debt securities Net asset value attributable to unit holders of consolidated investment funds US (discont’d) Group total Balance at 1 Jan – 264 6 (2)1,1401,408 Total gains (losses) in income statement note – 49(5) 2 (72)(26) Total gains (losses) recorded in other comprehensive income –9–– (2) 7 Purchases – 255 –– 363618 Sales – (132) –– (123)(255) Issues 6––– (204)(198) Settlements –––– 247247 Transfers into level 3 –– 32 – 2153 Balance at 31 Dec 6 44533 – 1,3701,854 Note Of the total net gain in the income statement of $2 million from continuing operations in 2021 (2020: $46 million), $2 million (2020: $12 million) relates to net unrealised gains and losses of financial instruments still held at the end of the year, which can be analysed as follows: 2021 $m 2020 $m Loans (1) – Equitysecurities and holdingsin collective investment schemes 6 11 Debt securities (3) 1 Total continuing operations 2 12 Prudential plc Annual Report 2021 275 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued (c)Assets and liabilities at amortised cost and their fair value The table below shows the financial assets and liabilities carried at amortised cost on the statement of financial position and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities are excluded from the analysis below, as these are carried at amortised cost which approximates fair value. 31 Dec 2021 $m 31 Dec 2020 $m Level 2 Valuation based on significant observable market inputs Level 3 Valuation based on significant unobservable market inputs Fair value Carrying value Level 2 Valuation based on significant observable market inputs Level 3 Valuation based on significant unobservable market inputs Fair value Carrying value Assets Loans 2,152 – 2,1521,941 2,026 – 2,0261,826 Liabilities –––– Corestructuralborrowingsof shareholder-financed businesses (6,565) – (6,565)(6,127) (7,178) – (7,178)(6,383) Operational borrowings (excluding lease liabilities) (514) – (514)(514) (501) – (501)(501) Obligations under funding, securities lending and sale and repurchase agreements (223) – (223)(223) (231) – (231)(271) Total continuing operations (5,150) – (5,150)(4,923) (5,884) – (5,884)(5,329) Discontinued US operations (2,899)(2,617)(5,516)(5,497) Total Group (8,783)(2,617)(11,400)(10,826) The fair value of the assets and liabilities in the table above, with the exception of the subordinated and senior debt issued by the parent company, has been estimated from the discounted cash flows expected to be received or paid. Where appropriate, the observable market interest rate has been used and the assets and liabilities are classified within level 2. Otherwise, they are included as level 3 assets or liabilities. The fair value of the subordinated and senior debt issued by the parent company is determined using quoted prices from independent third parties. C2.3Additional information on financial instruments (a) Fi nancial risk Liquidity analysis Contractual maturities of financial liabilities on an undiscounted cash flow basis The following table sets out the contractual maturities for applicable classes of financial liabilities, excluding derivative liabilities and investment contracts that are separately presented. The financial liabilities are included in the column relating to the contractual maturities of the undiscounted cash flows (including contractual interest payments) based on the earliest period in which the Group can be required to pay assuming conditions are consistent with those of year end. 31 Dec 2021 $m Contractual maturity profile for financial liabilities Financial liabilities Total carrying value 1 year or less After 1 year to 5 years After 5 years to 10 years After 10 years to 15 years After 15 years to 20 years Over 20 years No stated maturity Total undis- counted cash flows Corestructuralborrowingsof shareholder-financed businesses \* , note C5.1 6,1271,8721,2531,8171,642 –– 7507,334 Lease liabilities under IFRS 16 3471102164511 ––– 382 Other operationalborrowings 514514 –––––– 514 Obligations under funding, securities lending and saleand repurchase agreements 223223 –––––– 223 Accruals, deferred income and other liabilities 7,9835,972 ––––– 2,0117,983 Net asset value attributable to unit holders of consolidated unit trusts and similar funds 5,6645,664 –––––– 5,664 Total 20,85814,3551,4691,8621,653 –– 2,76122,100 \* On 20 January 2022, US$1,725 million of notes in core structural borrowings of shareholder-financed businesses were redeemed. As of 31 December 2021, these amounts have been included as having a contractual maturity of 1 year or less in the table above. #### C2 Fair value measurement continued C2.2Fair value measurement hierarchy of Group assets and liabilities continued Prudential plc Annual Report 2021prudentialplc.com 276 ![]() 31 Dec 2020 $m Contractual maturity profile for financial liabilities Financial liabilities Total carrying value 1 year or less After 1 year to 5 years After 5 years to 10 years After 10 years to 15 years After 15 years to 20 years Over 20 years No stated maturity Total undis- counted cash flows Corestructuralborrowingsof shareholder-financed businesses noteC5.1 6,3831191,1791,726631 –– 3,7257,380 Lease liabilities under IFRS 16 4451322856820 ––– 505 Operationalborrowings 501501 –––––– 501 Obligations under funding, securities lending andsale and repurchase agreements 271271 –––––– 271 Accruals, deferred income and other liabilities 8,4456,845183 –––– 1,5048,532 Net asset value attributable to unit holders of consolidated unit trusts and similar funds 5,4815,481 –––––– 5,481 Total continuing operations 21,52613,3491,6471,794651 –– 5,22922,670 Discontinued US operations 18,8027,6764,7902,5631,056 –1 3,58319,669 Total Group 40,32821,0256,4374,3571,707 –1 8,81242,339 Maturity analysis of derivatives The following table shows the carrying value of the gross and net derivative positions from continuing operations. Carrying value of net derivatives $m Derivative assets Derivative liabilities Net derivative position 31 Dec 2021 481(262)219 31 Dec 2020 379(439)(60) All net derivatives have been included at fair value due within one year or less, representing the basis on which they are managed (ie to manage principally asset or liability value exposures). The Group has no cash flow hedges and, in general, contractual maturities are not considered essential for an understanding of the timing of the cash flows for these instruments. Maturity analysis of investment contracts The table below shows the maturity profile for investment contracts based on undiscounted cash flow projections of expected benefit payments from continuing operations. Total carrying value Maturity profile for investment contracts $m 1 year or less After 1 year to 5 years After 5 years to 10 years After 10 years to 15 years After 15 years to 20 years Over 20 years Total undis- counted cash flows 31 Dec 2021 459144426316 62 543 31 Dec 2020 47014490 21–– 507 The undiscounted cash flows in the maturity profile shown above excludes contracts which have no stated maturity but which are repayable ondemand. Most investment contracts have options to surrender early, often subject to surrender or other penalties. Therefore, most contracts can be said to h ave a contractual maturity of less than one year, but the additional charges and term of the contracts mean these are unlikely to be exercised in practice and the more useful information is to present information on expected payment. The vast majority of the Group’s financial assets are held to back the Group’s policyholder liabilities. Although asset/liability matching is an important component of managing policyholder liabilities (both those classified as insurance and those classified as investments), this profile is mainly relevant for managing market risk rather than liquidity risk. Within each business unit, this asset/liability matching is performed on a portfolio-by-portfolio basis. In terms of liquidity risk, a large proportion of the policyholder liabilities contain discretionary surrender values or surrender charges, meaning that many of the Group’s liabilities are expected to be held for the long term. Much of the Group’s investment portfolios are in marketable securities, which can therefore be converted quickly to liquid assets. For the reasons provided above, an analysis of the Group’s assets by contractual maturity is not considered meaningful to evaluate the nature and extent of the Group’s liquidity risk. Prudential plc Annual Report 2021 277 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued Credit risk The Group’s maximum exposure to credit risk of financial instruments before any allowance for collateral or allocation of losses to policyholders is represented by the carrying value of financial instruments on the balance sheet that have exposures to credit risk comprising cash and cash equivalents, deposits, debt securities, loans and derivative assets, accrued investment income and other debtors. The collateral in place in relation to derivatives is described in note (c) below. The Group’s exposure to credit risk is further discussed in the Risk review report. Of the total loans and receivables from continuing operations held at 31 December 2021, $7 million (31 December 2020: $8 million) are past their due date but are not impaired, of which $2 million are less than one year past their due date (31 December 2020: $1 million). The Group expects full recovery of these loans and receivables. There are no financial assets that would have been past due or impaired had the terms not been renegotiated in both years. In addition, the Group did not take possession of any other collateral held as security in both years. Further details of collateral in place in relationto derivatives, securities lending, repurchase agreements and other transactions are provided in note(c)below. Foreign exchange risk As at 31 December 2021, the Group held 26 per cent (31 December 2020: 24 per cent) of its financial assets and 63 per cent (31 December 2020: 57 per cent) ofits financial liabilities from continuing operations in currencies mainly USD, other than the functional currency of the relevant business units or the currency to which the functional currency is pegged (eg financial assets and liabilities of USD denominated business in Hong Kong). The exchange risks inherent in these exposures are mitigated through the use of derivatives, mainly forward currency contracts and currency swaps as described in note (b) below. The amount of exchange loss recognised in the income statement from continuing operations in 2021, except for those arising on financial instruments measured at fair value through profit or loss, is $132 million (2020: $33 million). (b)Derivatives and hedging Derivative financial instruments are used to reduce or manage investment, interest rate and currency exposures, to facilitate ecient portfolio management and for investment purposes. The Group does not regularly seek to apply fair value or cash flow hedging treatment under IAS 39. The Group has no net investment, fair value or cash flow hedges under IAS 39 at 31 December 2021 and 2020. All derivatives that are not designated as hedging instruments are carried at fair value, with movements in fair value being recorded in the income statement. Embedded derivatives are embedded within other non-derivative host financial instruments and insurance contracts to create hybrid instruments. Embedded derivatives meeting the definition of an insurance contract are accounted for under IFRS 4. Where economic characteristics and risks of the embedded derivatives are not closely related to the economic characteristics and risks of the host instrument, and where the hybrid instrument is not measured at fair value with the changes in fair value recognised in the income statement, the embedded derivative is required to be bifurcated and carried at fair value as a derivative measured in accordance with IAS 39. In addition, the Group applies the option under IFRS 4 to not separate and fair value surrender options embedded in host contracts and with- profits investment contracts whose strike price is either a fixed amount or a fixed amount plus interest. Derivatives held and their purpose The Group enters intoa variety of exchange traded and over-the-counter derivative financial instruments, including futures, options, forward contracts, swaps and swaptions. All over-the-counter derivative transactions areconducted understandardised ISDA(International Swaps and Derivatives Association Inc) master agreements and collateral agreements arein place between the individual entities andrelevantcounterparties under each of these market master agreements. Derivatives are used for ecient portfolio management to obtain cost eective and management of exposure to various markets in accordance with the Group’s investment strategies and to manage exposure to interest rate, currency, credit and other business risks. The Group also uses interest rate derivatives to reduce exposure to interest rate volatility. #### C2 Fair value measurement continued C2.3Additional information on financial instruments continued Prudential plc Annual Report 2021prudentialplc.com 278 ![]() (c)Derecognition, collateral and osetting Derecognition of financial assets and liabilities The Group’s policy is to derecognise financial assets when it is deemed that substantially all the risks and rewards of ownership have been transferred. The Group derecognises financial liabilities only when the obligation specified in the contract is discharged, cancelled or has expired. Reverse repurchase agreements The Group is party to various reverse repurchase agreements under which securities are purchased from third parties with an obligation to resell thesecurities. The securities are not recognised as investments in the statement of financial position but the right to receive the cash paid is recognised as deposits. The Group has entered into reverse repurchase transactions under which it purchased securities and had taken on the obligation to resell the securities. At 31 December 2021, the fair value of the collateral held in respect of these transactions, which is represented by the purchased securities, was $2,149 million (31 December 2020: $602 million from continuing operations; $1 million from discontinued operations). Securities lending and repurchase agreements The Group is also party tovarious securities lendingagreements (including repurchase agreements) under whichsecurities are loaned to third parties on a short-term basis. The loaned securities are not derecognised; rather, they continue to be recognised within the appropriate investment classification. To the extent cash collateral is received it is recognised on the statement of financial position with the obligation to repay the cash paid recognised as a liability. Other collateral is not recognised. At 31 December 2021, the Group had $854 million (31 December 2020: $895 million from continuing operations; $1,112 million from discontinued operations) of lent securities and assets subject to repurchase agreements. The cash and securities collateral held or pledged under such agreements were $913 million (31 December 2020: $934 million from continuing operations; $1,113 million from discontinued operations). Collateraland pledges under derivative transactions At 31 December 2021, the Group had pledged $99 million (31 December 2020: $85 million from continuing operations; $2,337 million from discontinued operations) for liabilities and held collateral of $50 million (31 December 2020: $181 million from continuing operations; $2,125 million from discontinued operations) in respect of over-the-counter derivative transactions. These transactions are conducted under terms that are usual and customary to collateralised transactions including, whererelevant, standardsecurities lending and repurchase agreements. The Group has entered into collateral arrangements in relation to over-the-counter derivative transactions, which permit sale or re-pledging of underlying collateral. The Group has not sold anycollateral heldor re-pledged any collateral. All over-the-counter derivative transactions areconducted understandardised International Swaps and Derivatives Association (ISDA) master agreements. The collateral management for these transactions is conducted under the usual and customary terms and conditions set out in the Credit Support Annex to the ISDA master agreement. Other collateral At 31 December 2021, the Group had no pledged collateral (31 December 2020: $2,614 million from discontinued operations) in respect of other transactions. The 2020 amount principally arose from Jackson’s membership of the Federal Home Loan Bank of Indianapolis (FHLBI) that required Jackson to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances in the form of either short-term or long-term notes or funding agreements issued to FHLBI. Osetting assets and liabilities The Group’s derivative instruments, repurchase agreements and securities lending agreements aresubject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of oset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Group recognises amounts subject to master netting arrangements on a gross basis within the consolidated balance sheets. Prudential plc Annual Report 2021 279 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued The following tables presentthe gross and netinformation about the Group’s financial instruments subject tomaster netting arrangements: 31 Dec 2021 $m Related amounts not oset in the balance sheet Gross amount included in the balance sheet note (i) Financial instruments note (ii) Cash collateral Securities collateral note (iii) Net amount note (iv) Financial assets: Derivative assets 170(94)(31)(1)44 Reverse repurchase agreements 2,135 –– (2,134) 1 Totalfinancial assets 2,305(94)(31)(2,135)45 Financial liabilities: Derivative liabilities (165)9463 – (8) Securities lending and repurchase agreements (222) – 15369 – Totalfinancial liabilities (387)9421669(8) 31 Dec 2020 $m Related amounts not oset in the balance sheet Gross amount included in the balance sheet note (i) Financial instruments note (ii) Cash collateral Securities collateral note (iii) Net amount note (iv) Financial assets: Derivative assets 304(87)(151) – 66 Reverse repurchase agreements 587 –– (587) – Continuing operations 891(87)(151)(587)66 Discontinued US operations 2,220(35)(1,098)(891)196 Totalfinancial assets 3,111(122)(1,249)(1,478)262 Financial liabilities: Derivative liabilities (160)8769 – (4) Securities lending and repurchase agreements (271) – 23140 – Continuing operations (431)8730040(4) Discontinued US operations (1,156)35131,100(8) Totalfinancial liabilities (1,587)1223131,140(12) Notes (i)The Group has not oset any of the amounts included in the balance sheet. (ii)Represents the amount that could be oset under master netting or similar arrangements where the Group does not satisfy the full criteria to oset in the balance sheet. (iii)Excludes initial margin amounts for exchange-traded derivatives. (iv)In the tables above, the amounts of assets or liabilities included in the balance sheet would be oset first by financial instruments that have the right of oset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. #### C2 Fair value measurement continued C2.3Additional information on financial instruments continued Prudential plc Annual Report 2021prudentialplc.com 280 ![]() #### C3 Policyholder liabilities and unallocated surplus C3.1Policyholder liabilities and unallocated surplus by business type from continuing operations (a) Mo vement in policyholder liabilities and unallocated surplus of with-profits funds The itemsbelow represent the amount attributable tochanges inpolicyholder liabilities and unallocated surplus of with-profits funds as aresult of each of the components listed for the continuing operations of the Group. The policyholder liabilities shown include investment contracts without discretionary participation features (as defined in IFRS 4) and their full movement in the year. The items are shown gross of external reinsurance. With- profits business $m Shareholder-backed business Total continuing operations $m Unit-linked liabilities $m Other business $m At 1 Jan 2020 70,30828,85033,598132,756 Comprising: – Policyholder liabilities on the balance sheet (excludes $269,549 million fromdiscontinuedUS operations) 65,55823,57127,000116,129 – Unallocated surplus of with-profits funds on the balance sheet notes (viii) 4,750 –– 4,750 – Group’s share of policyholder liabilities relating to joint ventures and associates note (i) – 5,2796,59811,877 Premiums: note (ii) New business 1,3381,8512,0635,252 In-force 8,3932,3584,75715,508 9,7314,2096,82020,760 Surrenders notes (ii)(iii) (797)(2,982)(951)(4,730) Maturities/deaths/otherclaim events (1,595)(196)(774)(2,565) Net flows 7,3391,0315,09513,465 Shareholders’ transfers post-tax (116) –– (116) Investment-related itemsand other movements notes (iv)(vii) 8,1272,1077,10817,342 Foreign exchange translationdierences note (v) 7525188382,108 At 31 Dec 2020/1 Jan 2021 86,41032,50646,639165,555 Comprising: – Policyholder liabilities on the balance sheet (excludes $296,513 million from discontinued US operations) 81,19325,43338,107144,733 – Unallocated surplus of with-profits funds on the balance sheet notes (viii) 5,217 –– 5,217 – Group’s share of policyholder liabilities relating to joint ventures and associates note (i) – 7,0738,53215,605 Premiums: note (ii) New business 1,9903,0382,1727,200 In-force 7,0962,4065,28614,788 9,0865,4447,45821,988 Surrenders notes (ii)(iii) (844)(3,326)(734)(4,904) Maturities/deaths/otherclaim events (2,116)(215)(1,123)(3,454) Net flows 6,1261,9035,60113,630 Shareholders’ transfers post tax (134) –– (134) Investment-related itemsand other movements note (iv) 2,499897(3,505)(109) Foreign exchange translationdierences note (v) (899)(550)(239)(1,688) At 31 Dec 2021 94,00234,75648,496177,254 Comprising: – Policyholder liabilities on the balance sheet 88,61825,65137,646151,915 – Unallocated surplus of with-profits funds on the balance sheet notes (viii) 5,384 –– 5,384 – Group’s share of policyholder liabilities relating to joint ventures and associates note (i) – 9,10510,85019,955 Averagepolicyholder liability balances note (vi) 2021 84,90533,63147,568166,104 2020 73,37530,67840,119144,172 Notes (i)The Group’s investments in joint ventures and associates are accounted for on an equity method and the Group’s share of the policyholder liabilities as shown above relate to the life business of CPL, India and the Takaful business in Malaysia. (ii)The analysis includes the impact of premiums, claims and investment movements on policyholders’ liabilities. The impact does not represent premiums, claims and investment movements as reported in the income statement. For example, premiums shown above exclude any deductions for fees/charges; claims (surrenders, maturities, deaths and other claim events) shown above represent the policyholder liabilities provision released rather than the claims amount paid to the policyholder. The analysis also includes net flows of the Group’s insurance joint ventures and associate. (iii)The rate of surrenders for shareholder-backed business (expressed as a percentage of opening policyholder liabilities) is 5.1 per cent in 2021 (2020: 6.3 per cent). (iv)Investment-related items and other movements in 2021 primarily represents the eect of higher interest rates on the discount rates applied in the measurement of the policyholder liabilities for other shareholder-backed business and unrealised losses on fixed income assets, partially oset by a higher level of investment return from equities mainly within with-profits and unit-linked funds. (v)Movements in the year have been translated at the average exchange rates for the year. The closing balance has been translated at the closing spot rates as at 31 December. Dierences upon retranslationare includedin foreignexchangetranslationdierences. (vi)Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other relevant corporate transactions arising in the year, and exclude unallocated surplusof with-profits funds. (vii)The total movement on Africa policyholder liabilities in 2020 included within other business, apart from foreign exchange movements, was included within investment-related items and other movements. (viii)Unallocated surplus of with-profits funds represents the excess of assets over policyholder liabilities, determined in accordance with the Group’s accounting policies, that have yet to be appropriatedbetween policyholders andshareholders for the Group’swith-profits funds in Hong Kong and Malaysia. InHong Kong,the unallocatedsurplus includesthe shareholders’ share of expected future bonuses, with the expected policyholder share being included in policyholder liabilities. Any excess of assets over liabilities and amounts expected to be paid out by the fund on future bonuses is also included in the unallocated surplus. Prudential plc Annual Report 2021 281 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued (b)Duration of policyholder liabilities The table below shows the carrying value of policyholder liabilities from continuing operations and the maturity profile of the cash flows on a discounted basis, taking account of expected futurepremiumsand investment returns: 31 Dec 2021 $m 31 Dec 2020 $m Policyholder liabilities 151,915 144,733 Expected maturity: 31 Dec 2021 % 31 Dec 2020 % 0 to 5 years 20 20 5 to 10 years 18 19 10 to 15 years 15 15 15 to 20 years 12 12 20 to 25 years 10 10 Over 25 years 25 24 (c)Policyholder liabilities and unallocated surplus by operating segment The table below shows the policyholder liabilities and unallocated surplus from continuing operations, excluding joint ventures and associates and net of external reinsurance, bysegment: 31 Dec 2021 $m 31 Dec 2020 $m Hong Kong 79,363 73,338 Indonesia 4,257 4,617 Malaysia 8,660 8,756 Singapore 34,361 32,264 Growth markets and other 20,905 19,612 Total segment 147,546 138,587 #### C3 Policyholder liabilities and unallocated surplus continued C3.1Policyholder liabilities and unallocated surplus by business type from continuing operations continued Prudential plc Annual Report 2021prudentialplc.com 282 ![]() C3.2Reconciliation of gross and reinsurers’ share of policyholder liabilities and unallocated surplus Claims paid include maturities, annuities, surrenders, deaths and other claim events. Maturity claims are recorded as charges on the policy maturity date. Annuity claims are recorded when each annuity instalment becomes due for payment. Surrenders are charged to the income statement when paid. Death and other claims are generally recorded when notified with additional contract liabilities held, where appropriate, for ‘incurred but not reported’ (IBNR) claims. Further analysis of the movement in the year of the Group’s gross contract liabilities, reinsurers’ share of insurance contract liabilities and unallocated surplus ofwith-profits funds (excluding those held by joint ventures andassociates) is provided below: Gross insurance contract liabilities $m Reinsurers’ share of insurance contract liabilities $m Investment contract liabilities $m Unallocated surplus of with-profits funds $m At 1 Jan 2020 (380,143)13,856(5,535)(4,750) Incomeand expense included in theincome statement note (i) From continuing operations (27,367)5,885135(438) From discontinued USoperations (27,667)26,838214 – (55,034)32,723349(438) Other movements note (ii) From continuing operations –– 276 – From discontinued USoperations –– 489 – –– 765 – Foreign exchange translationdierences (1,610)16(38)(29) Balance at 31 Dec 2020/1 Jan 2021 (436,787)46,595(4,459)(5,217) Removal of discontinuedUS operations 293,325(35,232)3,188 – Incomeand expense included in theincome statement notes (i)(iii) (9,082)(1,552)189(202) Other movements note (ii) –– (75) – Foreign exchange translationdierences 1,789(58)(3)35 At 31 Dec 2021 (150,755)9,753(1,160)(5,384) Notes (i)The total charge for benefits and claims from continuing operations shown in the income statement comprises the amounts shown as ‘income and expense included in the income statement’ in the table above together with claims paid of $(8,845) million in the year (2020: $(7,231) million) and claim amounts attributable to reinsurers of $581 million (2020: $428 million). (ii)Other movements include premiums received and claims paid on investment contracts without discretionary participating features, which are taken directly to the statement of financial position in accordance with IAS 39. (iii)The movement in the gross contract liabilities included the impact of a change in 2021 to allow for illiquidity premium in the calculation of the valuation interest rate (VIR) used to value long-term insurance liabilities in Thailand. The VIR, after allowing for the illiquidity premium, is more reflective of the product characteristics and the eect of the change was such that the accounting mismatch between the valuation of the assets and insurance liabilities is reduced. The change reduced policyholder liabilities of Thailand’s shareholder-backed business by $160 million at 31 December 2021 and is included within short-term fluctuations in investment returns in the Group’s supplementary analysis of profit. It also includes the impact of refinement to the run-o of the allowance for prudence within technical provisions to better reflect the current expectations of the run-o of insurance risk. (iv)The segmental analysis of the total charge for benefit and claims and movement in unallocated surplus, net of reinsurance in the income statement is shown below. The CPL segment is a joint venture accounted for using the equity method under IFRS, with the Group’s share of its results net of related tax presented in a single line within the Group’s profit before tax, and therefore not shown in the analysis of benefit and claims items below. 2021 $m Hong Kong Indonesia Malaysia Singapore Growth markets and other Total segment Claims incurred, net ofreinsurance (1,687)(1,184)(1,015)(3,037)(1,590)(8,513) (Increase) decrease in policyholder liabilities, netofreinsurance (6,088)167(260)(2,856)(1,159)(10,196) Movementin unallocated surplus of with-profits funds (250) – 48 –– (202) Benefits andclaims and movement inunallocated surplus, net ofreinsurance (8,025)(1,017)(1,227)(5,893)(2,749)(18,911) 2020 $m Hong Kong Indonesia Malaysia Singapore Growth markets and other Total segment Claims incurred, net ofreinsurance (1,735)(942)(867)(2,334)(1,199)(7,077) (Increase) decrease in policyholder liabilities, netofreinsurance (14,168)260(773)(4,284)(2,108)(21,073) Movementin unallocated surplus of with-profits funds (338) – (100) –– (438) Benefits andclaims and movement inunallocated surplus, net ofreinsurance (16,241)(682)(1,740)(6,618)(3,307)(28,588) Prudential plc Annual Report 2021 283 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued C3.3Reinsurers’ share of insurance contract liabilities The measurement of reinsurance assets is consistent with the measurement of the underlying direct insurance contracts. The treatment of any gains or losses arising on the purchase of reinsurance contracts is dependenton the underlying accounting basisof the entityconcerned. 31 Dec 2021 $m 31 Dec 2020 $m Group total Asia and Africa Discontinued US operations Group total Insurance contract liabilities 9,550 11,18733,88145,068 Claims outstanding 203 1761,3511,527 Total operations 9,753 11,36335,23246,595 The Group cedes certain business to other insurance companies. Although the ceding of insurance does not relieve the Group from its liability to its policyholders, the Groupparticipates insuch agreements largelyfor thepurpose of managing its loss exposure.The Group evaluates the financial condition of its reinsurers and monitors concentration of credit risk from similar geographic regions, activities or economic characteristics of the reinsurers to minimise its exposure from reinsurer insolvencies. Of the reinsurers’ share of insurance contract liabilities balance of $9,753 million at 31 December 2021 (31 December 2020: $46,595 million), 99 per cent (31 December 2020: 99 per cent) was from reinsurers with rating A- and above by Standard & Poor’s or other external rating agencies. The reinsurers’ share of insurance contract liabilities for Asia primarily relates to protection business written in Hong Kong. The Group’s Hong Kong business cedes insurance risk to limit exposure to underwriting losses under various agreements that cover individual risks, group risks or defined blocks of business, on a co-insurance, surplus, quota share, or catastrophe excess of loss basis. The amount of each risk retained depends on the evaluation of the specific risk, subject to certain circumstances, to maximum limits based on characteristics of coverage. For the continuing operations, net commissions received during 2021 on ceded business totalled $285 million (2020: $1,005 million) and claims incurred ceded to external reinsurers totalled $604 million (2020: $432 million). There was $3 million (2020: $1 million) of deferred gains in the year. C3.4 Pr oducts and determining contract liabilities IFRS 4 requires contracts written by insurers to be classified as either ‘insurance’ contracts or ‘investment’ contracts. The classification of the contract determines its accounting. Contracts that transfer significant insurance risk to the Group are classified as insurance contracts. This judgement is applied in considering whether the material features of a contract gives rise to the transfer of significant insurance risk, which is made at the point of contract inception and not revisited. For the majority of the Group’s contracts, classification is based on a readily identifiable scenario that demonstrates a significant dierence in cash flows if the covered event occurs (as opposed to does not occur) reducing the level of judgement involved. Contracts that transfer financial risk to the Group but not significant insurance risk are classified as investment contracts. Insurance contracts and investment contracts with discretionary participation features are accounted for under IFRS 4. Investment contracts without such discretionary participation features are accounted for as financial instruments under IAS 39. Investment contracts without discretionary participation features are measured in accordance with IAS 39 to reflect the deposit nature of the arrangement, with premiums and claims reflected as deposits and withdrawals, and taken directly to the statement of financial position as movements inthe financial liability balance. Investment contracts without fixed and guaranteed terms are classified as financial instruments and designated as fair value through profit or loss because the resulting liabilities are managed and their performance is evaluated on a fair value basis. Where the contract includes a surrender option, its carrying value is subject to a minimum carrying value equal to its surrender value. Other investment contracts are measured at amortised cost. Prudential plc Annual Report 2021prudentialplc.com 284 #### C3 Policyholder liabilities and unallocated surplus continued ![]() In the Group’s continuing insurance business operations, the table below gives a list of products that fall into each category: Insurance contracts and investment contracts with discretionary participation features Investment contracts without discretionary participation features – Wi th-profits contracts –Unit-linked policies – He alth and protection policies –Non-participating term contracts – Wh ole life contracts – Mi nor amounts for a number of small categories of business The table below provides description of material feature of each of the products listed above for continuing operations, together with how their contract liabilities are determined. Contract type Description and material features Determination of liabilities With-profits and participating contracts Provides savings and/or protection where the basic sum assured can be enhanced by a profit share (or bonus) fromthe underlying fund as determined at the discretion of the local business unit. Participating products often oer a guaranteed maturity or surrender value.Declared regular bonuses are guaranteed once vested. Future bonus rates and cash dividendsarenot guaranteed. Market value adjustments and surrender penalties are used for certain products where the law permits such adjustments. Guarantees are predominantly supported by the segregated funds and their estates. As explained in note A3.1, with-profits contracts are predominantly sold in Hong Kong, Malaysiaand Singapore. The total value of the with-profits funds is driven by the underlying asset valuation withmovements reflected principally inthe accounting value ofpolicyholder liabilities and unallocated surplus. In Hong Kong, the unallocated surplus includes the shareholders’ share of expected future bonuses, with the expected policyholder share being includedin policyholder liabilities. Any excess of assets over liabilities and amounts expected to be paid out by the fund on future bonuses is alsoincluded in the unallocated surplus. Unit-linked Combines savings with protection, the cash value of the policy primarily dependson the value ofthe underlying unitised funds. The attaching liabilities largely reflect the unit value obligation driven by the value of the investments of the unit fund. Additional contract liabilities are held for guaranteed benefits beyond the unit fund value, generally using a gross premium valuation method, as discussed below for health and protection business. These additional provisions are recognised as a component of other business liabilities. Prudential plc Annual Report 2021 285 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued Contract type Description and material features Determination of liabilities Health and protection Health and protection features are oered as supplements to the products listed above or sold as standalone products. Protection covers mortality and/or morbidity benefits including health, disability, critical illness and accident coverage. The approach to determine the contract liabilities is generally driven by the local solvency basis. The discount rates used to determine the contract liabilities are derived in line with the measurement basis applied in each local business unit and are generally based on the risk-free rates applicable tothe underlying contacts, including appropriate margins. A gross premium valuation (GPV) method is typically used in those local businesses where a risk-based capital framework is adopted for local solvency. Under the GPV method, all cash flows are valued explicitly using best estimate assumptions with a suitable margin for prudence. This is achieved either through adding an explicit allowance above best estimate to the assumptions, or by applying an overlay constraint such that on day one no negative reserves (ie where future premium inflows are expected to exceed future claims and outflows) are derived at an individual policyholder level,or at a product/fund level, or a combination of both. The margin for prudence is released to profit over the life of the contract. Best estimate assumptions are reviewed annually with reference to experience and expectationsaround the short-term nature of any change (for example increases or decreases in claims levels as a result of Covid-19). Any changes made to best estimate impact the prudence mechanisms described above and, as a consequence, IFRS profit tends to be relatively insensitive to assumption changes made in any givenyear. The Hong Kong business unit appliesa net premium valuation method (NPV) to determine the future policyholder benefit provisions, subject to minimum floors at the policyholder’s asset share or guaranteed cash surrender value as appropriate. For India and Taiwan, US GAAP is applied for measuring insurance liabilities. For these businesses, the future policyholder benefit provisions for non-linked business are determined using the net level premium method, with an allowance for surrenders, maintenance andclaims expenses. In Vietnam, an estimation basis to determine the contract liabilities is aligned substantially to that used by the local business units applyingthe GPV method. Non- participating term contracts, whole life and endowment assurance Non-participating savings and/or protection where the benefits are guaranteed, determined by a set of defined market-related parameters, or determined at the discretion of the local business unit. These products often oer a guaranteed maturity and/or surrender value. It is common in Asia for regulations or market- driven demand and competition to provide some form of capital value protection and minimum crediting interest rate guarantees. This is reflected within the guaranteed maturityand surrender values. Guarantees aresupported by shareholders. The approach to determining the contract liabilities is generally driven by the local solvency basis, as discussed for health and protection business above. #### C3 Policyholder liabilities and unallocated surplus continued C3.4Products and determining contract liabilities continued Prudential plc Annual Report 2021prudentialplc.com 286 ![]() #### C4 Intangible assets C4.1 Goodwill Business combination Business acquisitions are accounted for by applying the purchase method of accounting, which adjusts the net assets of the acquired company to fair value at the date of purchase. The excess of the acquisition consideration over the fair value of the assets and liabilities of the acquired business is recorded as goodwill. The Group chooses the full goodwill method or the partial goodwill method to calculate goodwill on an acquisition by acquisition basis. Expenses related to acquiring new subsidiaries are charged to the income statement in the period in which they are incurred and not included in goodwill. Income and expenses of acquired businesses are included in the income statement from the date of acquisition. Where the Group writes a put option, which if exercised triggers the purchase of non-controlling interests as part of its business acquisition, the put option is recognised as a financial liability at the acquisition date. Where risks and rewards remain with the non-controlling interests, a corresponding amount is deducted from equity. Any subsequent changes to the carrying amount of the put option liability are also recognised within equity. Goodwill Goodwill is capitalised and carried on the Group consolidated statement of financial position as an intangible asset at initial value less any accumulated impairment losses. Goodwill impairment testing is conducted annually and when there is an indication of impairment. Goodwill shown on the consolidated statement of financial position at 31 December 2021 represents amounts allocated to businesses in Asia andAfrica in respect of both acquired asset management and life businesses. There has been no impairment as at 31 December 2021 and 2020. 2021 $m 2020 $m Carrying value at 1 Jan 961 969 Exchange dierences (54) (8) Carrying value at 31 Dec 907 961 Impairment testing Goodwill does not generate cash flows independently of other groups of assets and thus is assigned to cash-generating units for the purposes of impairment testing. These cash-generating units (CGUs) are based upon howmanagement monitors the business and represent the lowest level to which goodwill can be allocated on a reasonable basis. Of the carrying value at 31 December 2021, $465 million (31 December 2020: $513 million) relates to asset management business in Thailand and $233 million (31 December 2020: $238 million) relates to the acquisition of UOB Life in Singapore. Other goodwill amounts are allocated across CGUs in Asia and Africa operations, which are not individually material. Goodwill is tested for impairment by comparing the CGU’s carrying amount, including any goodwill, with its recoverable amount. The Group’s methodology of assessing whether goodwill may be impaired for acquired life and asset management operations is discussed below. For acquired life businesses, the Group routinely compares the aggregate of net asset value and acquired goodwill on an IFRS basis of the acquired life business with the value of the current in-force business as determined using the EEV methodology. Any excess of IFRS value over EEV carrying value is then compared with EEV basis value of current and projected future new business to determine whether there is any indication that the goodwill in the IFRS statement of financial position may be impaired. The methodology and assumptions underpinning the Group’s EEV basis of reporting are included in the EEV basis supplementary information in this Annual Report. The goodwill in respect of asset management businesses comprises mainly the goodwill arising from the acquisition of Thanachart Fund Management Co., Ltd in 2019 and TMB Asset Management Co., Ltd in Thailand in 2018. The goodwill impairment testing for these businesses is prepared as a single CGU reflecting that these businesses are managed together. The recoverable amount of these businesses has been determined by calculating the value in use of combined business calculated using a discounted cash flow valuation. For the combined Thailand asset management business, the valuation is based on a number of key assumptions as follows: > Cash flow projections based on the latest five-year business plan/forecast; > A co nstant growth rate of 2.3 per cent on forecast cash flows beyond the terminal year of the cash flow projection period (31 December 2020: 2.3 per cent); > Th e risk discount rate applied in accordance with the nature of the businesses. The pre-tax discount rate applied is 9.0 per cent (31 December 2020: 9.0 per cent); and > Th e continuation of asset management contracts on similar terms. Management believes thatany reasonable change in the key assumptions would not cause the recoverableamount of the asset management businesses acquired to fall below its carrying amount. Prudential plc Annual Report 2021 287 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued C4.2Deferred acquisition costs and other intangible assets Intangible assets acquired on the purchase of a subsidiary or portfolio of contracts are measured at fair value on acquisition. DAC are accounted for as described in note A3.1(c). Other intangible assets, such as distribution rights and software, are valued initially at the price paid to acquire them and are subsequently carried at cost less amortisation and any accumulated impairment losses. For intangibles other than DAC, amortisation follows the pattern in which the future economic benefits are expected to be consumed. If the pattern cannot be determined reliably, a straight-line method is applied. For software, the amortisation generally represents the licence period of the software acquired. Amortisation of intangible assets is charged to the ‘acquisition costs and other expenditure’ line in the consolidated income statement. Impairment testing is conducted when there is an indication of impairment. 31 Dec 2021 $m 31 Dec 2020 $m Deferred acquisition costs and other intangible assets attributable to shareholders note (a) 6,809 20,275 Other intangible assets, including computer software, attributable to with-profits funds 49 70 Total of deferred acquisition costs and other intangible assets 6,858 20,345 Analysed as: Deferred acquisition costs and other intangible assets from continuing operations Attributable toshareholder-backed business note 6,809 6,394 Attributable towith-profits business 49 70 Deferred acquisition costs and other intangible assets from discontinued US operations – 13,881 Total of deferred acquisition costs and other intangible assets 6,858 20,345 Note The deferred acquisitioncosts (DAC) andother intangible assets attributable toshareholders fromcontinuing operations comprise: 31 Dec 2021 $m 31 Dec 2020 $m DAC related to insurance contracts as classified under IFRS 4 2,776 2,319 DAC related to investment management contracts, including life assurance contracts classified as financial instruments and investment management contracts under IFRS 4 39 34 DAC related to insurance and investment contracts 2,815 2,353 Distribution rights 3,782 3,851 Present value of acquired in-force policies for insurance contracts as classified under IFRS 4 28 34 Other intangibles 184 156 Present value of acquired in-force policies (PVIF) and other intangibles attributable to shareholders 3,994 4,041 Total of DAC and other intangible assets 6,809 6,394 (a)Movement in DAC and other intangible assets attributable to shareholders 2021 $m 2020 $m DAC note(b) PVIF and other intangibles note (c) TotalTotal Balance at 1 Jan 16,2164,05920,275 17,409 Removal of discontinuedUS operations (13,863)(18)(13,881) – Additions 8483371,185 2,471 Amortisationto theincome statement: From continuing operations (343)(308)(651) (518) From discontinued USoperations ––– 374 (343)(308)(651) (144) Amortisation of DAC related to the discontinued US operations recognised within other comprehensiveincome ––– 494 Disposalsand transfers – (7)(7) (12) Exchange dierences and other movements (43)(69)(112) 57 Balance at 31 Dec 2,8153,9946,809 20,275 Prudential plc Annual Report 2021prudentialplc.com 288 #### C4 Intangible assets continued ![]() (b)Movement in DAC related to insurance and investment contracts 2021 $m 2020 $m Insurance contracts Investment contracts note Insurance contracts Investment contracts note Balance at 1 Jan 16,18234 14,20633 Removal of discontinuedUS operations (13,863) – –– Additions 841 7 1,354 3 Amortisation (339)(4) 85(4) Exchange dierences and other movements (45) 2 43 2 Change in shadow DAC related to the discontinued US operations –– 494 – Balance at 31 Dec 2,77639 16,18234 Note The carrying amount of the DAC balance relating to investment contracts comprises the following gross and accumulated amortisation amounts: 31 Dec 2021 $m 31 Dec 2020 $m Gross amount 55 39 Accumulatedamortisation (16) (5) Carrying amount 39 34 (c)Movement in PVIF and other intangibles attributable to shareholders 2021 $m 2020 $m PVIF note (i) Distribution rights note (ii) Other intangibles (including software) note (iii) Total PVIF note (i) Distribution rights note (ii) Other intangibles (including software) note (iii) Total Balance at 1 Jan Cost 1774,8454245,446 1753,7833794,337 Accumulatedamortisation (143)(994)(250)(1,387) (137)(812)(218)(1,167) 343,8511744,059 382,9711613,170 Removal of discontinuedUS operations –– (18)(18) –––– Additions – 26077337 – 1,047671,114 Amortisationcharge (5)(268)(35)(308) (5)(180)(45)(230) Disposalsand transfers –– (7)(7) –– (12)(12) Exchange dierences and other movements (1)(61)(7)(69) 1 13 3 17 Balance at 31 Dec 283,7821843,994 343,8511744,059 Comprising: Cost 1405,0373135,490 1774,8454245,446 Accumulatedamortisation (112)(1,255)(129)(1,496) (143)(994)(250)(1,387) 283,7821843,994 343,8511744,059 Notes (i)All of the net PVIF balances relate to insurance contracts. The PVIF attaching to investment contracts have been fully amortised. (ii)Distribution rights relate to amounts that have been paid or have become unconditionally due for payment as a result of past events in respect of the bancassurance partnership arrangements for the bank distribution of Prudential’s insurance products for a fixed period of time. Thedistribution rights amounts are amortised on a basis to reflect the pattern in which the future economic benefits are expected to be consumed by reference to new business productionlevels. (iii)Software rights from continuing operations include additions of $61 million, amortisation of $(24) million, disposals of $(2) million, foreign exchange of $(5) million and closing balance at 31 December 2021 of $114 million (31 December 2020: $84 million). Prudential plc Annual Report 2021 289 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued #### C5 Borrowings Although initially recognised at fair value (net of transaction costs), borrowings are subsequently accounted for on an amortised cost basis using the eective interest method. Under the eective interest method, the dierence between the redemption value of the borrowing and the initial proceeds (net of related issue costs) is amortised through the income statement to the date of maturity or for hybrid debt, over the expected life of the instrument. C5.1 Co re structural borrowings of shareholder-financedbusinesses 31 Dec 2021 $m 31 Dec 2020 $m Continuing operations: Subordinated debt: US$250m 6.75% Notes note (i) – 250 US$300m 6.5% Notes note (i) – 300 US$700m 5.25% Notes note (i) – 700 US$1,000m 5.25% Notes note (i) 1,000 999 US$725m 4.375% Notes note (iii) 725 723 US$750m4.875% Notes 748 746 €20m Medium Term Notes 2023 23 24 £435m 6.125% Notes 2031 584 590 US$1,000m 2.95% Notes 2033 note (ii) 995 – Senior debt: note (iv) £300m 6.875% Notes 2023 404 406 £250m 5.875% Notes 2029 313 312 $1,000m 3.125% Notes 2030 985 983 Bank loans: $350m Loan 2024 350 350 Total continuing operations 6,127 6,383 Discontinued US operations: Jackson US$250m 8.15% Surplus Notes 2027 250 Total core structural borrowings of shareholder-financed businesses 6,633 Notes (i)The US$250 million, US$300 million, US$700 million notes were redeemed on 23 December 2021 and the US$1,000 million notes were redeemed on 20 January 2022 using the proceeds from the issuance of ordinary shares during the year as discussed in note C8. (ii)In November 2021, the Company issued US$1,000 million 2.95 per cent subordinated debt maturing on 3 November 2033 with proceeds, net of costs, of $995 million. (iii)The US$725 million note was redeemed on 20 January 2022 using the proceeds from the US$1,000 million subordinated debt issued in November 2021. (iv)The senior debt ranks above subordinated debt in the event of liquidation. C5.2Operational borrowings 31 Dec 2021 $m 31 Dec 2020 $m Shareholder-financed business: Borrowings in respect of short-term fixed income securities programmes – commercial paper 500 501 Lease liabilities under IFRS 16 209 251 Other borrowings 10 – Operationalborrowingsfromcontinuing operations 719 752 Discontinued US operations note 1,498 Grouptotaloperational borrowingsattributable toshareholder-financed businesses 2,250 With-profits business: Lease liabilities under IFRS 16 138 194 Other borrowings 4 – Group total operational borrowings 861 2,444 Note OperationalborrowingsfromdiscontinuedUS operations canbe analysed as follows: 31 Dec 2020 $m Non-recourse borrowings of consolidated investment funds 994 Lease liabilities under IFRS 16 51 Senior debt issued through the Federal Home Loan Bank of Indianapolis (FHLB) 453 Operational borrowingsfrom discontinuedUS operations 1,498 Prudential plc Annual Report 2021prudentialplc.com 290 ![]() #### C6 Risk and sensitivity analysis Group overview The Group’s risk framework and the management of risks attaching to the Group’s financial statements including financial assets, financial liabilities and insurance liabilities, together with the inter-relationship with the management of capital, have been included in the audited sections of the Risk reviewreport. The financial and insurance assets and liabilities on the Group’s statement of financial position are, to varying degrees, subject to market and insurance risk and other changes of experience assumptions that may have a material eect on IFRS basis profit or loss and shareholders’ equity. The market and insurance risks and also ESG-related risks, including how they aect Group’s operations and how these are managed are discussed in the Risk review report referred to above. The ESG-related risks discussed in the Risk review report include in particular the potential long-term impact of environmental risks associated with climate change (including physical and transition risks) on the Group’s investments and liabilities. The ESG Report included in this Annual Report sets out three commonly used scenarios of plausible global responses to climate change. Each scenario is translated into potential sensitivities to economic factors, using third party calibrated inputs, which have then been applied during the year to the Group’s starting assets and liabilities to quantify possible future impacts thereon. Though the Group remains exposed to financial impact from plausible global responses addressing climate change, the results for each scenario are not outside observed market volatility experienced and therefore do not indicate the need for explicit allowance for climate change within the current valuations. In addition, given the nature of the business, the impact of climate change does not directly alter the Group’s assumptions for claims and lapses for its insurance business based on the annual review of experience. If experience or exposure changes, for example due to a step change in long-term morbidity and/or mortality expectations in a particular region due to climate events, the financial impacts from climate-related risks on our insurance liabilities could be more significant and would be allowed for as part of the regular review. The most significantitems that the IFRS shareholders’ profit or loss and shareholders’ equity for the Group’slife assurance business are sensitiveto, are shown in the following tables. The distinction between direct and indirect exposure is not intended to indicate the relative size ofthesensitivity. Type of business Market and credit riskInsurance and lapse risk All insurance business Mortality and/or morbidityrisk Persistency risk With-profits business Unit-linked business Net neutral direct exposure (indirect exposure to investment performance, which is subject to smoothing through declared bonuses) Net neutral direct exposure (indirect exposure to investment performance, through asset management fees) Non-participating business Asset/liability mismatch risk which results in sensitivity to interest rates and credit spreads, particularly for operations where the insurance liability basis is sensitiveto current market movements Profit and shareholders’ equity are also sensitive to the impact of current market movements on assets held in excess of non-participating policyholder liabilities Indirect exposure to investment performance through policyholder charges and guarantees in some cases Sensitivity analyses of IFRS shareholders’ equity to key market and other risks for the continuing insurance operations are provided in section C6.1 below. The sensitivity analyses provided show the eect on shareholders’ equity to changes in the relevant risk variables, all of which are considered to be reasonably possible at the relevant balance sheet date. The sensitivities reflect all consequential impacts from market movements at the valuation date. The sensitivity of the Group’s Eastspring and central operations to market risks is discussed in section C6.2. The Group benefits from diversification benefits achieved through the geographical spread of the Group’s operations and, within those operations, through a broad mix of product types. These benefits are not reflected in the simplified sensitivities below. Relevant correlation factors include: > Correlation acrossgeographic regions for both financial and non-financial risk factors; and > Co rrelation across risk factors for mortality and morbidity, expenses, persistency and other risks. The geographical diversity of the Group’s business means that it has some exposure to the risk of foreign exchange rate fluctuations. The Group has no exposure to currency fluctuation from business units that operate in USD, or currencies pegged to the USD (such as HKD), and reduced exposure to currencies partially managed to the USD within a basket of currencies (such as SGD). Sensitivities to exchange rate movements in the Group’s key markets are therefore expected to be limited. Prudential plc Annual Report 2021 291 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued C6.1Continuing insurance operations (a) Se nsitivity to key market risks The table below shows the sensitivity of shareholders’ equity as at 31 December 2021 and 2020 for continuing insurance operations to the following market risks: > 1 per cent increase and 0.5 per cent decrease in interest rates (based on local government bond yields at the valuation date) in isolation and subject to a floor of zero; and > Instantaneous 10 per cent rise and 20 per cent fall in the market value of equity and property assets. The equity risk sensitivity analysis assumes that all equity indices fall by the same percentage. The sensitivities below only allow for limited management actions such as changes to policyholder bonuses, where applicable. If the economic conditions set out in the sensitivities persisted, the financial impacts may dier to the instantaneous impacts shown below. Given the continuous risk management processes in place, management could take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing investment portfolios, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing andthe mix of new business being sold. The sensitivities reflect all consequential impacts from market movements at the valuation date. Where liabilities are directly valued using short-term historic average rates, the average interest rates in the sensitivities are adjusted accordingly and reflected in the impact on these liabilities. These sensitivities do not include credit risk sensitivities, such as movements in credit spreads, and hence the valuation of debt securities and policyholder liabilities. A one-letter credit downgradein isolation (ie ignoring anyconsequential change in valuation) would not have a material impact on IFRS profit or shareholders’ equity. Net eect on shareholders’equity fromcontinuing insurance operations 31 Dec 2021 $m 31 Dec 2020 $m Shareholders’ equityfrom continuinginsuranceoperations 14,289 12,861 Sensitivity to key market risks \* : Interest rates and consequential eects – 1% increase (796) (318) Interest rates and consequential eects – 0.5% decrease 137 (1,274) Equity/property market values – 10% rise 372 410 Equity/property market values – 20% fall (787) (848) \* The eect from the changes in interest rates or equity and property prices above, if they arose, would impact profit after tax for the continuing insurance operations and would mostly be recorded within short-term fluctuations in investment returns. The impact on profit after tax would be the same as the net eect on shareholders’ equity. In the context of the Group, the results of the Africa insurance operations are not materially impacted by interest rate or equity rate changes. The degree of sensitivity of the results of the non-linked shareholder-backed business of the continuing insurance operations to movements in interest rates depends upon the degree to which the liabilities under the ‘grandfathered’ IFRS 4 measurement basis reflects market interest rates from period to period. This varies by business unit. For example: > Certain businesses (Taiwan and India) apply US GAAP, for which the results can be more sensitive as the eect of interest rate movements on the backing investments may not be oset by liability movements; > The level of options and guarantees in the products written in a particular business unit will aect the degree of sensitivity to interest rate movements; and > The degree of sensitivity of the results is dependent on the interest rate level at that point of time. #### C6 Risk and sensitivity analysis continued Prudential plc Annual Report 2021prudentialplc.com 292 ![]() The sensitivity of the insurance operations presented as a whole at a given point in time will also be aected by a change in the relative size of the individual businesses. The ‘increase of 1%’ sensitivities reflects that, at the current level of interest rates, for many operations the impact of interest rate movements on the value of government and corporate bond investments dominates, namely bonds are expected to decrease in value as interest rates increase to a greater extent than the osetting decrease in liabilities from a corresponding change in discount rates. This arises because the discount rate in some operations does not fluctuate in line with interest rate movements together with the fact that, for operations where the discount rate does fluctuate in line with interest rate movements, at higher levels of interest rates, liabilities of these operations become less sensitive to interest rate movements and the eects on assets becomes more dominant. While interest rates have been rising steadily and may rise further in response to increasing inflationary pressures, the Group believes the ‘increase of 1%’ sensitivities continues to reflect the eect of a reasonably possible change at 31 December 2021 based on the latest market expectation of interest rate changes. The ‘decrease of 0.5%’ sensitivities at 31 December 2020, when rates were historically low reflected that some business units’ liabilities become more sensitive at a further decrease in interest rates and the increase in liabilities as rates decrease begin to exceed asset gains. The prudent nature of some of the regulatory regimes of the Group’s markets can lead to duration of liabilities that are longer than would be expected on a more economic basis and hence results in a mismatch with the assets that are managed on a more realistic basis. As noted above, the results only allow for limited management actions, and if a lower interest scenario persisted for a longer period management could take additional actions to manage the impact of these stresses, including (but not limited to) rebalancing investment portfolios, increased use of reinsurance, changes to new business pricing and the mixof new business being sold. Following increases in interest rates over 2021, under a 0.5% decrease of interest rate scenario for most operations asset gains exceed the increases in liabilities resulting in an overall small positive impact of an instantaneous decrease of rates. Generally, changes in equity and property investment values are not directly oset by movements in non-linked policyholder liabilities. Movements in equities backing with-profits and unit-linked business have been excluded as they are generally matched by an equal movement in insurance liabilities (including unallocated surplus of with-profits funds). The impact on changes to future profitability as a result of changes to the asset values within unit-linked or with-profits funds have not been included in the instantaneous sensitivity above. The estimated sensitivities shown above include equity and property investments held by the Group’s joint venture and associate businesses. (b) Se nsitivity to insurance risk For insurance operations, adverse persistency experience can impact the IFRS profitability of certain types of business written in the region. This risk is managed at alocal business unitlevel throughregular monitoring of experience andthe implementationof management actions as necessary. These actions couldinclude product enhancements, increased management focus onpremium collection, as well as othercustomer retention eorts. The potential financial impact of lapses is often mitigated through the specific features of the products, eg surrender charges, or through the availability of premium holiday or partial withdrawal policy features. The reserving basis, as discussed in note A3.1(a) and C3.4, is generally such that a change in lapse assumptions has an immaterial eect on immediate profitability. Many of the business units are exposed to mortality and morbidity risk and a provision is made within policyholder liabilities to cover the potential exposure. If all these assumptions were strengthened by 5 per cent then it is estimated that post-tax profit and shareholders’ equity would decrease by approximately $108 million (2020: $77 million). Weakening these assumptions by 5 per cent would have a similar opposite impact. C6. 2Eastspring and central operations The profit for the year of Eastspring is sensitive to the level of assets under management, as this significantly aects the value of management fees earned by the business in the current and future periods. Assets under management will rise and fall as market conditions change, with a consequential impact on profitability. Eastspring and central operations do not hold significant financial investments. At 31 December 2020, the financial investments of the central operations were principally short-termtreasury bills and money market funds heldby theGroup’s treasury function for liquidity purposes and so there is limited sensitivity to interest rate movements. At 31 December 2021, in addition to these financial investments, the central operations also held the 18.4 per cent economic interest in the equity securities of Jackson. These equity securities are listed on the New York Stock Exchange and classified as ‘available-for-sale’ with a fair value of $683 million at 31 December 2021. If the value of these securities decreased by 20 per cent, the change in valuation would be $(137) million, which would reduce shareholders’ equity by this amount before tax, all of which would pass through other comprehensiveincome outside of theprofit or loss. Prudential plc Annual Report 2021 293 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued #### C7 Tax assets and liabilities Accounting policies on deferred tax are included in note B3. C7.1Current tax At 31 December 2021, of the $20 million (31 December 2020: $11 million) current tax recoverable from continuing operations, the majority is expected to be recovered more than 12 months after the reporting period. At 31 December 2021, the current tax liability from continuing operations of $185 million (31 December 2020: $270 million) includes $42 million (31 December 2020: $110 million) of provisions for uncertain tax matters. Further detail is provided in note B3.2. C7.2Deferred tax The statement of financial position contains the following deferred tax assets and liabilities in relation to: 2021 $m Balance at 1 Jan Removal of discontinued US operations Movement in income statement Other movements includingforeign exchange movements Balance at 31 Dec Deferred tax assets Unrealised losses or gains on investments ––3–3 Balances relating to investment and insurance contracts 87 – (16)(37)34 Short-term temporary dierences 4,662(4,513)15(2)162 Unused tax losses 109(29)(14) 1 67 Total 4,858(4,542)(12)(38)266 Deferred tax liabilities Unrealised losses or gains on investments (1,063)691127 3 (242) Balances relating to investment and insurance contracts (1,765) – (433)73(2,125) Short-term temporary dierences (3,247)2,832(87) 7 (495) Total (6,075)3,523(393)83(2,862) 2020 $m Balance at 1 Jan Movement in income statement Movement through other comprehensive income Other movements includingforeign exchange movements Balance at 31 Dec Deferred tax assets Unrealised losses or gains on investments ––––– Balances relating to investment and insurance contracts 3255 –– 87 Short-term temporary dierences 13314 –2 149 Unused tax losses 106(31) –5 80 Total continuing operations 27138 –7 316 Discontinued US operations 3,804732 –6 4,542 Group total 4,075770 – 134,858 Deferred tax liabilities Unrealised losses or gains on investments (289)(78) – (5)(372) Balances relating to investment and insurance contracts (1,507)(235) – (23)(1,765) Short-term temporary dierences (350)(53) – (12)(415) Total continuing operations (2,146)(366) – (40)(2,552) Discontinued US operations (3,091)(324)(102)(6)(3,523) Group total (5,237)(690)(102)(46)(6,075) At 31 December 2021, no deferred tax asset has been recognised in respect of unused tax losses and temporary deductible dierences of $1,382 million (31 December 2020: $991 million from continuing operations) which have a potential tax benefit of $264 million (31 December 2020: $191 million). Of the potential tax benefit, $23 million relates to unused tax losses that will expire within the next ten years, and the remainder ($241 million) has no expiry date. Some of the Group’s businesses are located in jurisdictions in which a withholding tax charge is incurred upon the distribution of earnings. At 31 December 2021, deferred tax liabilities from continuing operations of $330 million (31 December 2020: $323 million) have not been recognised in respect of such withholding taxes as the Group is able to control the timing of the distributions and it is probable that the timing dierences will not reverse in the foreseeable future. Prudential plc Annual Report 2021prudentialplc.com 294 ![]() #### C8 Share capital, share premium and own shares Shares are classified as equity when their terms do not create an obligation to transfer assets. Amounts recorded in share capital represent the nominal value of the shares issued. The dierence between the proceeds received on issue of the shares, net of share issue costs, and the nominal value of the shares issued, is credited to share premium. Where the Company purchases shares for the purposes of employee incentive plans, the consideration paid, net of issue costs, is deducted from retained earnings. Upon issue or sale any consideration received is credited to retained earnings net of related costs. 2021 2020 Issued shares of 5p each fully paid Number of ordinary shares Share capital $m Share premium $m Number of ordinary shares Share capital $m Share premium $m Balance at 1 Jan 2,609,489,7021732,637 2,601,159,9491722,625 Shares issued under share-based schemes 6,142,213 –8 8,329,753 1 12 Shares issued under Hong Kong public oer and international placing in 2021 (see below) 130,780,350 9 2,365 ––– Balance at 31 Dec 2,746,412,2651825,010 2,609,489,7021732,637 Options outstanding under save as you earn schemes to subscribe for shares at each year end shown below are as follows: Number of shares to subscribe for Share price range Exercisable by year from to 31 Dec 2021 2,022,535964p1,455p 2027 31 Dec 2020 2,320,320964p1,455p2026 Transactions by Prudential plc and its subsidiaries in Prudential plc shares The Group buys and sells Prudential plc shares (‘own shares’) in relation to its employee share schemes. The cost of own shares of $267 million at 31 December 2021 (31 December 2020: $243 million) is deducted from retained earnings. The Company has established trusts to facilitate the delivery of shares under employee incentive plans. At 31 December 2021, 11.7 million (31 December 2020: 11.2 million) Prudential plc shares with a market value of $201 million (31 December 2020: $205 million) were held in such trusts, all of which are for employee incentive plans. The maximum number of shares held during the year was 15.1 million which was in March 2021. Within the trusts, shares are notionally allocated by business unit reflecting the employees to which the awards were made. The Company purchased the following number of shares in respect of employee incentive plans: Number of shares 2021 Cost $ Number of shares 2020 Cost $ Share priceShare price Low £ High £ Low £ High £ January 74,81714.1214.481,443,158 62,39514.4214.681,195,275 February69,86512.4212.961,251,067 62,68014.5714.601,183,717 March 55,54514.9115.491,189,784 79,05711.1811.401,110,374 April 2,438,88415.4515.5552,512,098 5,363,56310.2110.4868,010,967 May 52,98915.8215.961,183,836 81,37711.1611.301,117,783 June 121,47214.6214.892,508,974 167,72411.8612.672,540,749 July 60,47313.6213.781,145,078 87,23912.3012.511,365,109 August 57,00414.2014.371,128,450 72,28712.2112.331,167,008 September 312,22614.8915.247,961,098 75,36811.6111.681,138,447 October 436,77114.4814.998,410,274 116,80211.4911.711,764,694 November 53,86714.7714.831,072,374 74,17810.6212.761,233,127 December 76,92613.2013.241,355,942 70,81412.7812.831,217,842 Total 3,810,83981,162,133 6,313,48483,045,092 The cost in USD shown has been calculated from the share prices in pounds sterling using the monthly average exchange rate for the month in which those shares were purchased. The share transactions in respect of employee incentive plans as shown in the table above were made on an exchange other than the Stock Exchange of Hong Kong. In the future, the Company intends to make share purchases on the Stock Exchange of Hong Kong for the purpose of the employee incentiveplans. Prudential plc Annual Report 2021 295 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued On 4 October 2021, Prudential completed the issuance of 130.8 million new ordinary shares on the Hong Kong Stock Exchange through a concurrentpublic oer to Hong Kong retail investors (including eligible employees and agents of Prudential) andinternational placingto global investors (together, the ‘Share Oer’). Approximately 6.5 million shares were allocated to the public oer and approximately 124.2 million shares were allocated to the international placing. The final oer price was set at HK$143.80 per share and the net proceeds from the Share Oer, after deduction of the underwriting fees and other estimated expenses payable in connection with the Share Oer of US$41 million, was approximately HK$18.5 billion or US$2.4 billion (equating to US$18.34 per share). On 25 September 2021, the day the final oer price was announced, the latest available market price of the issued shares was HK$147.70 per share. The final oer price of HK$143.80 per share, equivalent to £13.51, represented a 2.9 per cent discount to the last London closing price of £13.92 on 24 September 2021. This discount does not take into account the US$41 million of underwriting fees and estimated expenses payable in connection with the Share Oer. The new shares have also been listed on the Singapore Stock Exchange and the London Stock Exchange. In the three-year period preceding the Share Oer, the percentage increase in issued share capital due to non pre-emptive issuances (excluding employee and agency share schemes) for cash was 5 per cent. The majority of the net proceeds (approximately HK$17.5 billion or US$2.3 billion) from the Share Oer have been utilised to redeem four existing high coupon debt in December 2021 and January 2022 as shown in note C5.1, with the remaining net proceeds expected to contribute to Prudential’s central stock of liquidity, in order to further increase Prudential’s financial flexibility. The above use of proceeds is consistent with the intended use of proceeds previously disclosed in Prudential’s prospectus for this Share Oer. #### C9 Provisions 31 Dec 2021 $m 31 Dec 2020 $m Sta benefits provisions note (i) 355 328 Other provisions 17 22 Total provisions note (ii) 372 350 Notes (i)Provisions for sta benefits are generally expected to be paid out within the next three years. (ii)Analysis of movement in total provisions is shown below: 2021 $m 2020 $m Balance at 1 Jan 350 466 Removalof discontinued US operations (14) – Charged (credited) to income statement: Additionalprovisions 263 128 Unused amounts released (15) (13) Utilisationduring the year (204) (241) Exchange dierences (8) 10 Balance at 31 Dec 372 350 #### C10 Capital C10.1Group objectives, policies and processes for managing capital (a) Ca pital measure The Group manages its Group GWS capital resources as its measure of capital. At 31 December 2021, estimated Group shareholder GWS capital resources from continuing operations is $16.9 billion (31 December 2020: $12.8 billion). The 31 December 2020 capital resources have been restated from those previously disclosed on a LCSM basis to reflect the treatment of grandfathered debt instruments under the GWS Framework, which increased eligible group capital resources by $1.6 billion compared to the LCSM basis. The 31 December 2020 Group GWS capital results are presented on a Group excluding Jackson basis before including the value of the Group’s retained interest in Jackson Financial Inc. (b)External capital requirements Prudential plc is subject to the Group-wide Supervision (GWS) Framework issued by the Hong Kong Insurance Authority (IA). The GWS Framework became eective for Prudential upon designation by the Hong Kong IA on 14 May 2021 and replaced the local capital summation method (LCSM) which was used for determination of the 31 December 2020 Group capital position as agreed with the Hong Kong IA. The GWS methodology is largely consistent with that previously applied under LCSM with the exception of the treatment of debt instruments which are subject to transitional arrangements under the GWS Framework. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at the 31 December 2021 are included as GWS eligible group capital resources. This includes debt issued at the date of designation which met the transitional conditions set by the Hong Kong IA and have not since been redeemed and debt issued since the date of designation which met the qualifying conditions as set out in the Insurance (Group Capital) Rules. Under the LCSM, only specific bonds (being those subordinated debt instruments issued by Prudential plc at the date of demerger of M&G plc) were included as eligible group capital resources. #### C8 Share capital, share premium and own shares continued Prudential plc Annual Report 2021prudentialplc.com 296 ![]() Prudential applies the Insurance (Group Capital) Rules set out in the GWS Framework to determine group regulatory capital requirements (both minimum and prescribed levels). The summation of local statutory capital requirements across the Group is used to determine group regulatory capital requirements, with no allowance for diversification between business operations. The GWS eligible group capital resources are determined by the summation of capital resources across local solvency regimes for regulated entities and IFRS shareholders’ equity, with adjustments where applicable, for non-regulatedentities. More details on Group capital are given in section I(i) in the Additional unaudited financial information section. (c) Me eting of capital management objectives The GWS group capital adequacy requirements have been met since the GWS Framework became eective for Prudential upon designation. This includes maintaining total eligible group capital resources in excess of the group prescribed capital requirement of the supervised group and maintaining Tier 1 group capital resources in excess of the group minimum capital requirement of the supervised group. As well as holding sucient capital to meet GWS requirements at Group level, the Group also closely manages the cash it holds within its central holding companies so that it can: > Fund new opportunities; > Maintain flexibility and absorb shock events; > Co ver central costs; and > Fund dividends. More details on holding company cash flows and balances are given in section I(v) in the Additional unaudited financial information section. Reserve adequacy testing undera range ofscenarios and dynamic solvency testing is carried out, includingunder certain scenarios mandated by the local regulators. The Group monitors regulatory capital, economic capital and rating agency capital metrics and manages the business within its risk appetite by remaining within its economic and regulatory capital limits. The Group’s capital management framework focuses on achieving sustainable, profitable growth and retaining a resilient balance sheet, with a disciplined approach to active capital allocation. The sensitivity of liabilities and other components of total capital vary depending upon the type of business concerned and this conditions the approach to asset/liability management. C10.2 Lo cal capital regulations (a)Insurance operations The local valuation basis for the assets, liabilities and capital requirements of significant insurance operations are: CPL A risk-based capital, risk management and governance framework, known as the China Risk Oriented Solvency System (C-ROSS), applies in China. Under C-ROSS, insurers are required to maintain a core solvency ratio (core capital over minimum capital) and a comprehensive solvency ratio (capital resources over minimum capital) of not lower than 50 per cent and 100 per cent, respectively. The actual capital is the dierence between the admitted assets and admitted liabilities with trading and available-for-sale assets marked-to- market and other assets at book value. Policyholder liabilities are based on a gross premium valuation method using best estimate assumptions with a separate risk margin. The CBIRC has released the final regulations of C-ROSS Phase II which becomes eective in the first quarter of 2022. The main updates to the local regulation are to introduce explicit tiering and admissibility rule of negative reserves in the capital resources and further updates to the risk calibrations used in calculating capital requirements. Hong Kong The capital requirements set out in the regulations vary by underlying risk type and duration of liabilities but are generally determined as a percentage of mathematical reserves and capital at risk. Mathematical reserves are based on a net premium valuation method using assumptions which include a suitable margin for prudence. The valuation interest rate used to value long-term liabilities reflects a blend between the prudent assessment of the portfolio yield and the reinvestment yield subject to a maximum of the prudent portfolio yield. The approach used to determine the reinvestment yield for reserving allows for average yields thus the impact of movements in interest rates are reflected in the valuation interest rate over time. The basis of calculation was updated in 2020 in line with a circular issued by the Hong Kong IA. The capital resources are based on assets that are marked-to-market. The nature of the current regulatory regime means that the duration of statutory liabilities is longer than would be expected on an economic basis and hence there is an inherent mismatch with the assets that are managed on a more realistic basis. The Hong Kong IA has developed a risk-based capital framework which values technical provisions on a best estimate basis together with a margin over current estimates and the capital requirements are risk-based. In February 2022 Prudential Hong Kong Limited submitted an application to the Hong Kong IA to early adopt this new risk-based capital framework for local statutory reporting. Indonesia Solvency capital is determined using a risk-based capital approach. The capital resources are based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for prudence. Liabilities are zeroised at a policy level (ie negative liabilities are not permitted at a policy level). For unit-linked policies an unearned premium reserve is established. Prudential plc Annual Report 2021 297 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued Malaysia A risk-based capital framework applies in Malaysia. The local regulator, Bank Negara Malaysia (BNM), has set a Supervisory Target Capital Level of 130 per cent below which supervisory actions of increasing intensity will be taken. Each insurer is also required to set its own Individual Target Capital Level to reflect its own risk profile and this is expected to be higher than the Supervisory Target Capital Level. The capital resources are based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for prudence. Liabilities are zeroised at a fund level (ie negative liabilities are not permitted at a fund level). The BNM has initiated a review of its RBC framework. A discussion paper on the design of the updated RBC framework was issued on 30 June 2021 with industry feedback provided by 30 September 2021. The BNM have yet to issue their final technical specification and the exact timing of implementation of potential revisions remains uncertain, these would need to be subject to quantitative impact studies and parallel run prior to introduction. Market liberalisation measures were introduced by BNM in April 2009, which increases the limit from 49 per cent to 70 per cent on foreign equity ownership for insurance companies and Takaful operators in Malaysia. A higher foreign equity limit beyond 70 per cent for insurance companies will be considered by BNM on a case by case basis, for example, for companies who support expansion of providing insurance coverage to the most vulnerable inMalaysian society. Singapore A risk-based capital framework applies in Singapore. The regulator also has the authority to direct that the insurer satisfies additional capital adequacy requirements in addition to those set forth under the Singapore Insurance Act if it considers such additional requirements appropriate. The capital resources are based on assets that are marked-to-market, with policyholder liabilities based on a gross premium valuation method using best estimate assumptions with a suitable margin for prudence. The updated risk-based capital framework (RBC2) came into eect on 31 March 2020 and this permits the recognition of a prudent allowance for negative reserves in the capital resources. (b)Asset management operations – regulatory and other surplus Certain asset management subsidiaries of the Group are subject to local regulatory requirements. The movement in the year of the estimated surplus regulatory capital position of those subsidiaries, combined with the movement in the IFRS basis shareholders’ equity for unregulated asset management operations from continuing operations, is as follows: 2021 $m 2020 $m Balance at 1 Jan 459 376 Gains duringthe year 266 223 Movementin capital requirement 3 48 Capital injection 6 65 Distributions made to the parent company (201) (204) Exchange and other movements (5) (49) Balance at 31 Dec 528 459 C10.3Transferability of capital resources The amounts retained within the insurance companies are at levels that provide an appropriate level of capital strength in excess of the local regulatory minimum. The businesses may, in general, remit dividends to parent entities, provided the statutory insurance fund meets the local regulatory solvency requirements and there are sucient statutory accounting profits. For with-profits funds, the excess of assets over liabilities is retained within the funds, with distribution to shareholders tied to the shareholders’ share of declared bonuses. Capital resources of thenon-insurance business units is transferable after taking account of anappropriate level of operating capital, based on local regulatory solvency requirements, where relevant. #### C10 Capital continued C10.2Local capital regulations continued (a) In surance operations continued Prudential plc Annual Report 2021prudentialplc.com 298 ![]() #### C11 Property, plant and equipment Property, plant and equipment comprise Group occupied properties and tangible assets. Property, plant and equipment also includes right-of-use assets for operating leases of properties occupied by the Group and leases of equipment and other tangible assets. All property, plant and equipment, including the right-of-use assets under operating leases, are held at cost less cumulative depreciation, calculated using the straight-line method, and impairment charge. A reconciliation of the carrying amount of the Group’s property, plant and equipment from the beginning to the end of the years shown is asfollows: 2021 $m 2020 $m Group occupied property Tangible assets Right-of-use assets Total Group occupied property Tangible assets Right-of-use assets Total Balance at 1 Jan Cost 3557077101,772 3516877341,772 Accumulateddepreciation (88)(523)(268)(879) (76)(490)(141)(707) Opening net book amount 267184442893 2751975931,065 Removal of discontinuedUS operations (242)(32)(35)(309) –––– Additions – 365995 3 562180 Depreciation and impairment charge (1)(45)(123)(169) (9)(64)(145)(218) Disposals,transfers andlease modifications –– (22)(22) (3)(13)(25)(41) Eect of movements in exchange rates (1)(3)(6)(10) 18 (2) 7 Balance at 31 Dec 23140315478 267184442893 Representing: Cost 334896781,200 3557077101,772 Accumulateddepreciation (10)(349)(363)(722) (88)(523)(268)(879) Closing net book amount 23140315478 267184442893 The Group does not have any right-of-use assets that would meet the definition of investment property. As at 31 December 2021, total right-of-use assets comprised $311 million (31 December 2020: $402 million from continuing operations; $27 million from discontinued operations) of property and $4 million (31 December 2020: $5 million from continuing operations; $8 million from discontinued operations) of non-property assets. Of the $315 million (31 December 2020: $407 million from continuing operations; $35 million from discontinued operations) total right-of-use assets, $128 million (31 December 2020: $182 million from continuing operations) were held by the Group’s with-profits businesses. Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. The Group assesses at lease commencement whether it is reasonably certain to exercise the option. This assertion is revisited if there is a material change in circumstances. As at 31 December 2021, the undiscounted value of lease payments beyond the break period not recognised in the lease liabilities from continuing operations is $201 million (31 December 2020: $179 million). The Group has non-cancellable property subleases which have been classified as operating leases under IFRS 16. The sublease rental income received in 2021 for the leases is $6 million (2020: $6 million from continuing operations). Prudential plc Annual Report 2021 299 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() CFinancial position / continued Tangible assets At 31 December 2021, of the $140 million (31 December 2020: $152 million from continuing operations; $32 million from discontinued operations) tangible assets, $63 million (31 December 2020: $72 million from continuing operations) were held by the Group’s with-profits businesses. Capital expenditure: property, plant and equipment by segment The capital expenditure on property, plant and equipment from continuing operations in 2021 of $36 million (2020: $57 million) arose as follows: 2021 $m 2020 $m Hong Kong 9 10 Indonesia 1 1 Malaysia 2 3 Singapore 1 5 Growth markets and other 19 14 Eastspring 3 2 Total segment 35 35 Unallocated to a segment (central operations) 1 22 Total capital expenditure on property, plant and equipment from continuing operations 36 57 #### C11 Property, plant and equipment continued Prudential plc Annual Report 2021prudentialplc.com 300 ![]() #### D1 Corporate transactions D1.1(Loss) gain attaching to corporate transactions Where there is a disposal, income and expenses of entities sold during the year are included in the income statement up to the date of disposal. The gain or loss on disposal is calculated as the dierence between sale proceeds net of selling costs, less the net assets of the entity at the date of d isposal, adjusted for foreign exchange movements attaching to the sold entity that are required to be recycled to the income statement under IAS21. 2021 $m 2020 $m Loss attaching to corporate transactions as shown separatelyon the consolidated income statement note (35) (30) (Loss) gain arising on reinsurance transaction undertaken by the Hong Kong business (59) 765 Total (loss) gain attaching to corporate transactions from continuing operations note B1.1 (94) 735 Note The loss attaching to corporate transactions includes $(30) million incurred by Prudential plc during the year (2020: $(20) million) of costs associated with the separation of Jackson. Additionally, the 2021 amount includes $(28) million of payment for the termination of loss of oce made to the former chief executive of Jackson as discussed further in note D4. These charges are partially oset by a gain of $23 million on the repurchase by Jackson of a portion of the Group’s retained interest in the company in December 2021, as described further in note D1.2. D1.2Discontinued US operations On 13 September 2021, the Group completed the separation of its US operations (Jackson) through a demerger, whereby shares in Jackson, representing 70.1 per cent voting interest (69.2 per cent economic interest) were distributed to Prudential shareholders. In accordance with IFRS 5 ‘Non-current assets held for sale and discontinued operations’, the US operations have been classified as discontinued within these consolidated financial statements. The 2021 income statement includes the results of Jackson up to 13 September 2021, the date of demerger. At the point of demerger, Prudential plc retained a 19.9 per cent non-controlling voting interest (19.7 per cent economic interest) in Jackson, which is reported within the consolidated financial position as a financial investment at fair value and is included in ‘Unallocated to a segment (central operations)’ for segmental analysis. This investment has been classified as available-for-sale under IAS 39. On 13 December 2021, Jackson announced, as part of its previously disclosed $300 million share repurchase program, the repurchase of 2,242,516 shares of its Class A common stock from Prudential. With this repurchase activity, Prudential’s remaining economic interest in Jackson was 18.4 per cent as of 31 December 2021 (18.5 per cent voting interest). Subject to market conditions, the Group intends to monetise a further portion of this investment to support its investment in Asia within 12 months of the demerger, such that the Group will own less than 10 per cent at the end of such period. In accordance with IFRIC 17, ‘Distribution of non-cash assets to owners’, at the point of demerger, Jackson was remeasured to fair value and a loss on remeasurement to fair value has been recognised of $(8,259) million within the results of discontinued operations. $(7,341) million of this remeasurement relates to the Group’s 88.9 per cent economic interest in Jackson, with the remaining $(918) million attributable to non-controlling interests. The fair value has been determined with reference to the opening quoted price of Jackson shares on the New York Stock Exchange as at the date of demerger on 13 September2021. Accordingly, the value of the dividend in specie representing a 70.1 per cent voting interest (69.2 per cent economic interest) of Jackson distributed to shareholders was $(1,735) million. At the point of demerger, Athene Life Re Ltd. retained its existing 9.9 per cent voting interest (11.1 per cent economic interest) in Jackson. The results for the discontinued US operations presented in the consolidated financial statements for the period up to the demerger in September2021are analysed below. Critical accounting policies applied for the discontinued US operations The policyholder liabilities for Jackson’s conventional protection-type policies were determined under US GAAP principles with locked in assumptions for mortality, interest, policy lapses and expenses along with provisions for adverse deviations. For other policies, the policyholder liabilities included the policyholder account balance. For those investment contracts with fixed and guaranteed terms, Jackson used the amortised cost model to measure the liability. Jackson applied FASB ASU 2010-26 on ‘Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts’ and capitalised only those incremental costs directly relating to successfully acquiring a contract. Under US GAAP, most of Jackson’s products were accounted for under Accounting Standards Codification Topic 944, Financial Services – Insurance of the Financial Accounting Standards Board (ASC 944) whereby deferred acquisition costs are amortised in line with expected gross profits. The majority of Jackson’s DAC relates to its variable annuities business. For variable annuity business, a key assumption is the long-term investment return from the separate accounts. Jackson made certain adjustments to the DAC assets which were recognised directly in other comprehensive income (‘shadow accounting’) to match the recognition of unrealised gains or losses on available-for-sale securities causing the adjustments. Debt securities of Jackson were designated as available-for-sale with value movements, unless impaired, being recorded as movements within other comprehensive income. Impairments were recorded in the income statement. For these securities, the consideration of evidence of impairment requires management’s judgement. In making this determination, a range of market and industry indicators were considered including the severity and duration of the decline in fair value and the financial condition and prospects of the issuer. The factors reviewed include economic conditions, credit loss experience, other issuer-specific developments and future cash flows. #### D Other information Prudential plc Annual Report 2021 301 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() DOther information / continued #### D1 Corporate transactions continued D1.2Discontinued US operations continued (a) In come statement 2021 $m 2020 $m Gross premiums earned 14,047 19,026 Outward reinsurance premiums note (i) (274) (30,584) Earned premiums, net of reinsurance 13,773 (11,558) Investment return and other income 32,199 31,321 Total revenue, net of reinsurance 45,972 19,763 Benefits and claims, net of reinsurance (41,350) (19,617) Acquisition costs and other expenditure (2,305) (906) Total charge, net of reinsurance (43,655) (20,523) Profit (loss) before tax 2,317 (760) Tax (charge) credit (363) 477 Profit (loss) after tax 1,954 (283) Remeasurement to fair value on demerger note (iii) (8,259) – Cumulative valuation movements on available-for-sale debt securities, net of related tax and change in DAC, and net investment hedges recycled from other comprehensiveincome note (ii) 1,278 – Loss for the year (5,027) (283) Attributable to: Equity holders of the Company (4,234) (340) Non-controllinginterests (793) 57 Loss for the year (5,027) (283) Notes (i)In 2020, outward reinsurance premiums included $(30.2) billion paid during the period in respect of the reinsurance of substantially all of Jackson’s in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd. (ii)In accordance with IFRS, as a result of the demerger of Jackson, accumulated balances previously recognised through other comprehensive income relating to financial instruments held by Jackson classified as available-for-sale and historical net investment hedges have been recycled from other comprehensive income to the results of discontinued operations in the consolidated income statement. Total shareholders’ equity is unchanged as a result of this recycling. (iii)The loss on remeasurement to fair value on demerger is recognised in accordance with IFRIC 17, ‘Distribution of non-cash assets to owners’ as described above. (b)Total comprehensive income 2021 $m 2020 $m Loss for the year (5,027) (283) Other comprehensive (loss) income Valuation movements in theyear on available-for-sale debt securities (1,053) (100) Related change in amortisation of DAC 80 494 Related tax 210 (102) (763) 292 Cumulative valuation movements on available-for-sale debt securities, net of related tax and change in DAC, and net investment hedges recycled through profit or loss at the point of demerger (1,278) – Other comprehensive (loss) incomeforthe year (2,041) 292 Total comprehensive (loss) income for the year (7,068) 9 Attributable to: Equity holders of the Company (6,283) (40) Non-controllinginterests (785) 49 Total comprehensive (loss) income for the year (7,068) 9 Prudential plc Annual Report 2021prudentialplc.com 302 ![]() (c)Cash flows 2021 $m 2020 $m Net cash flows from operating activities (423) (807) Net cash flows from investing activities – (2) Net cash flows from financing activities note 2,329 470 Cash divestedupon demerger (3,527) – Net decrease in cash and cash equivalents (1,621) (339) Cash and cash equivalents at 1 Jan 1,621 1,960 Cash and cash equivalents at 31 Dec – 1,621 Note Financing activities largely reflect issuance of debt of $2,350 million in 2021 and the investment by Athene in 2020. No dividends were paid by Jackson during 2020 or in 2021 prior to demerger. Eect on the Group statement of financial position 13 September 2021 $m Deferred acquisition costs and other intangible assets 14,018 Reinsurers' share of insurance contract liabilities 34,014 Financial investments 293,562 Cash and cash equivalents 3,527 Policyholder liabilities (316,495) Net other assets and liabilities (17,861) Net assets and liabilities of discontinued US operations at demerger before remeasurement to fair value 10,765 Adjustment for remeasurement of the carrying value of the business to fair value on demerger (8,259) Net assets and liabilities of discontinued US operations at demerger after remeasurement to fair value 2,506 Attributable to: Equity holders of the Company 2,228 Non-controllinginterests 278 2,506 #### D2 Contingencies and related obligations Litigation and regulatory matters The Group is involved in various litigation and regulatory proceedings. While the outcome of such litigation and regulatory issues cannot be predicted with certainty, the Group believes that their ultimate outcome will not have a material adverse eect on the Group’s financial condition, results of operations, or cash flows. Guarantees The Group has provided guarantees to third-parties entered into in the normal course of business but the Group does not consider that the amounts involved are significant. Intra-group capitalsupport arrangements Prudential has put in place intra-group arrangements to formalise undertakings by Prudential to the regulators of the Hong Kong subsidiaries regarding their solvency levels. Other intra-group transactions are discussed in note D4 below. #### D3 Post balance sheet events Dividends The 2021 second interim ordinary dividend approved by the Board of Directors after 31 December 2021 is as described in note B5. Debt redemption On 20 January 2022 the Company redeemed subordinated debt instruments of $1,725 million, as described in note C5.1. Prudential plc Annual Report 2021 303 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() DOther information / continued #### D4 Related party transactions Transactions between the Company and its subsidiaries or intra-group transactions are eliminated on consolidation. Intra-group transactions of the Group mainly related to a limited number of loans, guarantees or services provided by the Company to or from other business units, or between local business units, includinginvestment management services provided by theGroup’s asset managers to the insurance operations businesses as s hown in note B1.3. All intra-group transactions are subject to the same internal approval framework as external transactions. As the Group’s business units operate independently, overall there is limited interconnectedness acrossthe Group. The Group reviews its recovery plan (that also covers intra-group transactions and the level of the Group’s interconnectivity risk) on an annual basis and details the remedial actions that could be used to restore financial strength and viability if the Group were to come under severe stress. The Company has transactions and outstanding balances with collective investment schemes and similar entities that are not consolidated and where a Group company acts as manager, which are regarded as related parties for the purposes of IAS 24. The balances are included in the Group’s statement of financial position at fair value or amortised cost in accordance with IAS 39 classifications with the corresponding amounts included in the income statement. The transactions include amounts paid on issue of shares or units, amounts received on cancellation of shares or units and amounts paid in respect of the periodic charge and administration fee. In addition, there are no material transactions between the Group’s joint ventures and associates, which are accounted for on an equity method basis, and other Group companies. Key management personnel of the Company, as described in note B2.3, may from time to time purchase insurance, asset management or annuity products marketed by Group companies in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with other persons. On 5 April 2021, pursuant to a separation agreement, Jackson National Life agreed to pay circa $23.5 million to Michael Falcon, the former chief executive ocer of Jackson, as a series of cash lump sum payments for termination of loss of oce, and agreed that Mr Falcon will retain 98,311 Prudential ADRs that had been previously deferred under the Deferred Annual Incentive Plan. Prudential agreed to reimburse Jackson National Life for such payments and settled this obligation prior to the demerger. On completion of the demerger, the Prudential ADRs were translated into Jackson Shares with an equivalent value. They will be released on the original timeline, ie in 2022 and 2023, and will remain subject to the original malus and clawback provisions. In 2021 and 2020, other transactions with key management personnel were not deemed to be significant both by virtue of their size and in the context of the individuals’ financial positions. All of these transactions were on terms broadly equivalent to those that prevailed in arm’s-length transactions. Additional details on the Directors’ interests in shares, transactions or arrangements are given in the Directors’ remuneration report. Key management remuneration is disclosed in note B2.3. #### D5 Commitments The Group has provided, from time to time, certain commitments to third parties. At 31 December 2021, the Group had $2,878 million unfunded commitments (31 December 2020: $1,913 million from continuing operations) primarily related to investments in infrastructure funds and alternative investment funds in Asia. At 31 December 2020, the discontinued US operations had unfunded commitments of $1,016 million related to investments in limited partnerships, commercial mortgage loans and other fixed income securities. These commitments were entered into in the normal course of business and a material adverse impact on the operations is not expected to arise from them. #### D6 Investments in subsidiary undertakings, joint ventures and associates D6.1Basis of consolidation The Group consolidates those investees it is deemed to control. The Group has control over an investee if all three of the following are met: (1) it has power over an investee; (2) it is exposed to, or has rights to, variable returns from its involvement with the investee; and (3) it has ability to use its power over the investee to aect its own returns. (a) S ubsidiaries Subsidiaries are those investees that the Group controls. The majority of the Group’s subsidiaries are corporate entities. The Group performs a re-assessment of consolidation whenever there is a change in the substance of the relationship between the Group and an investee. Where the Group is deemed to control an entity it is treated as a subsidiary and its results, assets and liabilities are consolidated. Where the Group holds a minority share in an entity, with no control over the entity, the investments are carried at fair value within financial investments in the consolidated statement of financial position. Prudential plc Annual Report 2021prudentialplc.com 304 ![]() (b) Joint ventures and associates Joint ventures are joint arrangements arising from a contractual agreement whereby the Group and other investors have joint control of the net assets of the arrangement. In a numberof these arrangements, the Group’s share of theunderlying net assets may be less than 50 per cent but the terms of the relevant agreement make it clear that control is jointly exercised between the Group and the third party. Associates are entities over which the Group has significant influence, but it does not control. Generally it is presumed that the Group has significant influence if it holds between 20 per cent and 50 per cent voting rights of the entity. With the exception of those referred to below, the Group accounts for its investments in joint ventures and associates by using the equity method of accounting. The Group’s share of profit or loss of its joint ventures and associates is recognised in the income statement and its share of movements in other comprehensive income is recognised in other comprehensive income. The equity method of accounting does not apply to investments in associates and joint ventures held by the Group’s insurance or investment funds. This includes collective investment schemes and which, as allowed by IAS 28 ‘Investments in Associates and Joint Ventures’, are carried at fair value through profit or loss. (c)Structured entities Structured entities are those that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Voting rights relate to administrative tasks. Relevant activities are directed by means of contractual arrangements. The Group invests in both consolidated andunconsolidated structured entities includinginvestment vehicles such as: > Collective investment schemes; > Col lateralised debtobligations; > Mortgage-backed securities; and > Simil ar asset-backed securities. Up until the demerger of Jackson in September 2021, structured entities of the Group also include the investment vehicles within separate accounts oered through variable annuities written by Jackson. Collective investment schemes The Group invests in collective investment schemes, which invest mainly in equities, bonds, cash and cash equivalents, and properties. In assessing controlunder IFRS 10 ‘Consolidated Financial Statements’, the Group determines whether it isacting as principal oragent and the variable returns from its involvement with these entities. The Group’s percentage ownership in these entities can fluctuate on a daily basis according to the participation of the Group and other investors in them. > Where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity exceeds 50 per cent, the Group is judged to have control over the entity; > Where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity is between 20 per cent and 50 per cent, the facts and circumstances of the Group’s involvement in the entity are considered, including the rights to any fees earned by the asset manager from the entity, in forming a judgement as to whether the Group has control over the entity; > Wh ere the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity is less than 20 per cent, the Group is judged to not have control over the entity; and > Wh ere the entity is managed by an asset manager outside the Group, an assessment is made of whether the Group has existing rights that gives it the ability to direct the current activities of the entity and therefore control the entity. In assessing the Group’s ability to direct an entity, the Group considers its ability relative to other investors. Where the Group is deemed to control these entities, they are treated as a subsidiary and are consolidated, with the interests of investors other than the Group being classified as liabilities, and presented within ‘Net asset value attributable to unit holders of consolidated investment funds’. Where the Group does not control these entities (as it is deemed to be acting as an agent under IFRS 10) and they do not meet the definition of associates, they are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position. Where the Group’s asset manager sets up investment funds as part of its asset management operations, unless the Group also participates in the ownership holding of the entities, the Group’s interest is limited to the fees charged to manage the assets of such entities. With no participation in ownership holding of these entities, the Group does not retain risks associated with investment funds. For these investment funds, the Group is not deemed to control the entities but to be acting as an agent. The Group generates returns and retains the ownership risks in these investment vehicles commensurate to its participation and does not have any further exposure to the residual risks of these investment vehicles. Prudential plc Annual Report 2021 305 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() DOther information / continued Other structured entities The Group holds investments in mortgage-backed securities, collateralised debt obligations and similar asset-backed securities, the majority of which are actively traded in a liquid market. The Group consolidates the vehicles that hold the investments where the Group is deemed to control the vehicles. When assessing control over the vehicles, the factors considered include the purpose and design of the vehicle, the Group’s exposure to the variability of returns and the scope of the Group’s ability to direct the relevant activities of the vehicle including any kick-out or removal rights that are held by third parties. The outcome of the control assessment is dependent on the terms and conditions of the respective individual arrangements. The majority of such vehicles are not consolidated. In these cases, the Group is not the sponsor of the vehicles in which it holds investments and has no administrative rights over the vehicles’ activities. The Group generates returnsand retains the ownership risks commensurate to its holding and its exposure to the investments and does not have any further exposure to the residual risks or losses of the investments or the vehicles in which it holds investments. Accordingly, the Group does not have power over the relevant activities of such vehicles and all are carried at fair value through profit or loss within financial investments in the consolidated statement of financial position. The table below provides aggregate carrying amounts of the investments in unconsolidated structured entities for continuing operations reported in the Group’s statement of financial position: Statement of financial position line items 31 Dec 2021 $m 31 Dec 2020 $m Investment funds Other structured entities Investment funds Other structured entities Equity securities and holdings in collective investment schemes 35,446 – 27,167 – Debt securities – 251 – 181 Total continuing operations 35,446251 27,167181 The Group’s maximum exposure to loss related to the interest in unconsolidated structured entities is limited to the carrying value in the statement of financial position and the unfunded investment commitments provided by the Group (see note D5). During the reporting period, theGroup receives dividendand interest income from its investments in these unconsolidated structured entities. Where the Group’s asset manager manages these entities such as the collective investment schemes, the Group also receives asset management fees from these entities. As at 31 December 2021 and 2020, the Group does not have an agreement, contractual or otherwise, or intention to provide financial support to structured entities (both consolidated and unconsolidated) that could expose the Group to a loss. D6.2Dividend restrictions and minimum capital requirements Certain Group subsidiaries and joint ventures are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise to the parent company. Under UK company law, UK companies can only declare dividends if they have sucient distributable reserves. The Group’s subsidiaries, joint ventures and associates may remit dividends to the Group, in general, provided the statutory insurance fund meets the capital adequacy standard required under local statutory regulations and has sucient distributable reserves. Further details on local capital regulations in certain Asia operations please refer to note C10.2. D6.3Investments in joint ventures and associates Joint ventures representarrangements where the controlling parties through contractual or other agreementhave the rights tothe net assets ofthe arrangements. The Group has shareholder-backed joint venture insuranceand asset management businesses in China withCITIC Group and a joint venture asset management business in India with ICICI Bank. In addition, there is an asset management joint venture in Hong Kong with Bank of China International Holdings Limited (BOCI) and Takaful insurance joint venture in Malaysia. For the Group’s joint ventures that are accounted for by using the equity method, the net of tax results of these operations are included in the Group’s profit before tax. The Group’s associates, which are also accounted for under the equity method, include the Indianinsuranceentity (with the majorityshareholder being ICICI Bank). In addition, the Group has investments in collective investment schemes, funds holding collateralised debt obligations and property funds where the Group has significant influence. As allowed under IAS 28, these investments are accounted for on a fair value through profit or loss basis. The aggregate fair value of associates accounted for at fair value through profit or loss, where there are published price quotations, is approximately $0.6 billion at 31 December 2021 (31 December 2020: $0.7 billion). For joint ventures and associates accounted for using the equity method, the 12 months financial information of these investments for the years ended 31 December 2021 and 2020 (covering the same period as that of the Group) has been used in these consolidated financial statements. #### D6 Investments in subsidiary undertakings, joint ventures and associates continued D6.1Basis of consolidation continued Prudential plc Annual Report 2021prudentialplc.com 306 ![]() The Group’s share of the profits for shareholder-backed business (including short-term fluctuations in investment returns), net of related tax, in joint ventures and associates, which are equity accounted as shown in the consolidated income statement, is allocated across segments as follows: 2021 $m 2020 $m CPL 278 394 Hong Kong 9 3 Malaysia 28 30 Growth markets and other note (110) (27) Insurance operations 205 400 Eastspring 147 117 Total segment and Group total 352 517 Note For growth markets and other, as well as the segment results for associates and joint ventures within the segment, the amount shown includes other items of $(38) million (2020: $(103) million) which primarily comprise of taxes for all life joint ventures and associates together with other non-recurring items. There is no other comprehensiveincome inthe jointventures and associates other than the foreign exchange dierences that arise from translating the associates and joint ventures into the Group’s presentational currency. There has been no unrecognised share of losses of a joint venture or associate that the Group has stopped recognising in total comprehensive income. The Group’s interest in joint ventures and associates gives rise to no contingent liabilities or capital commitments that are material to the Group. CITIC-Prudential Life Insurance Company is the Group’s joint venture with the CITIC Group in which the Group owns a 50 per cent interest. The jointventure is incorporated inChina and isprincipally engaged in underwriting insurance and investment contracts. The summarised financial information for CITIC-Prudential Life Insurance Company, which is considered to be a material joint venture to the Group, is set out below. The financial information represents the entity’s financial statements prepared in accordance with Group’s IFRS accounting policies, on a 100 per cent basis, for the years shown: Statement of financial position: 31 Dec 2021 $m 31 Dec 2020 $m Totalassets 29,237 21,602 Total liabilities (including non-controlling interest) 26,523 19,336 Shareholders’ equity 2,714 2,266 The above amounts of assets and liabilities include the following: Cash and cash equivalents 422 316 Financial liabilities (excluding trade and other payables and provisions) 938 714 Income statement: 2021 $m 2020 $m Revenue 7,374 5,492 Profit for the year after tax 453 599 The above profit for the year includes the following: Depreciation and amortisation (86) (81) Interest income 465 378 Interest expense (2) (2) Income tax expense (84) (166) The summarised financial information above is reconciled to the carrying amount of the Group’s interest in the joint venture recognised in the consolidated financial statements as follows: 31 Dec 2021 $m 31 Dec 2020 $m Net assets of CITIC-Prudential Life as shown above 2,714 2,266 Proportion owned by the joint venture partner (50%) 1,357 1,133 Carrying amount of the Group’s interest in the joint venture (50%) 1,357 1,133 The Group has received dividends of $57 million (2020: $38 million) from CITIC-Prudential Life Insurance Company. Prudential plc Annual Report 2021 307 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() DOther information / continued D6.4Relatedundertakings In accordance with Section 409 of the Companies Act 2006, a list of Prudential Group’s subsidiaries, joint ventures, associates and significant holdings (being holdings of more than 20 per cent) is disclosed below, along with the classes of shares held, the registered oce address and the eective percentage of equity owned at 31 December 2021. The definitions of a subsidiary undertaking, joint venture and associate in accordance with the Companies Act 2006 are dierent from the definition under IFRS Standards. As a result, the related undertakings included within the list belowmay not bethe same as the undertakings consolidated in the Group IFRS financial statements. The Group’s consolidation policy is described in note D6.1. The Group also operates through branches, none of which are significant. Simplified corporate structure as at 31 December 2021 CITIC- Prudential Life Insurance Company Limited † (CPL )\* PT. Prudential Life Assurance (Indonesia) † Prudential Assurance Company Singapore (Pte) Limited † Growth markets and other entities † (includingAfrica, Cambodia, India, Laos, Myanmaar, Philippines, Taiwan, Thailand, Vietnam) Prudential Hong Kong Limited Prudential General Insurance Hong Kong Limited Prudential Assurance Malaysia Berhad † Eastspring Investments Group Pte. Ltd. † and subsidiaries Prudential International Treasury Limited Prudential plc Prudential Corporation Asia Limited Prudential Group Holdings Limited and subsidiaries \* CPL is a 50/50 joint venture with CITIC, a leading state owned conglomerate. † Indirectly held byPrudential Corporation Asia Limited. Direct subsidiary undertakings of the parent company, Prudential plc (shares held directly or via nominees) Name of entity Classes of shares held Proportion held Registered oce address Prudential Corporation AsiaLimited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Prudential Group Holdings Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Other subsidiaries, joint ventures, associates and significantholdings ofthe Group – noshares held directly by the parent company (Prudential plc) or its nominees Name of entity Classes of shares held Proportion held Registered oce address Aberdeen Standard Cash Creation Fund U 28.74% 28th Floor Bangkok City Tower, 179 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120, Thailand AberdeenStandardGlobal OpportunitiesFund U 33.13% 21 Church Street, #01-01, Capital Square Two, Singapore 049480 AberdeenStandardSingapore Equity- SGDclass U 60.26% AC Financial Partners Limited Partnership OS100.00% 65 Haymarket Terrace, Edinburgh, EH12 5HD Allianz Global Investors Greater China Fund U 21.67% 5th Floor, No.378, Fu Xing N. Rd. Taipei, Taiwan AlternativesNorth AmericaLtd. U 100.00% PO Box 1093, Queensgate House, Grand Cayman, KY1-1102, Cayman Islands BOCHK Aggressive Growth Fund U 43.21% 27th Floor, Bank of China Tower, 1 Garden Road, Hong Kong BOCHK Balanced Growth Fund U 38.14% BOCHK China Equity Fund U 55.78% BOCHK Conservative Growth Fund U 41.65% BOCHK US Dollar Money Market Fund U 23.54% BOCI-Prudential Asset ManagementLimited OS36.00% BOCI-Prudential TrusteeLimited OS36.00% Suites 1501-1507 & 1513-1516, 15th Floor, 1111 King’s Road, Taikoo Shing, Hong Kong Capital Asian Bond Fund U 39.57% 15th Floor, No.69, Sec. 2, Dunhua South. Rd. Da-an District, Taiwan #### D6 Investments in subsidiary undertakings, joint ventures and associates continued Prudential plc Annual Report 2021prudentialplc.com 308 ![]() Name of entity Classes of shares held Proportion held Registered oce address Cathay High Yield ex China Cash pay 1-5 Year 2% Issuer Capped ETF U 47.10% Cathay Securities Inv Trust Co Ltd, 8F, No. 296, Sec. 4, Ren Ai Road, Taipei 10633, Taiwan CITIC-CP Asset Management Co., Ltd. MI26.95% Room 101-2, No.128 North ZhangjiabangRoad, PudongDistrict, Shanghai, China CITIC-Prudential Fund Management Company Limited MI49.00% Level 9, HSBC Building, Shanghai IFC, 8 Century Avenue, Pudong, Shanghai, China CITIC-Prudential Life Insurance Company Limited MI50.00% 0507-0510, 1601-1616, East Tower, World Financial Centre, No.1 East Third Ring Middle Road, Chaoyang District, Beijing, 100020,China Eastspring Al-Wara’Investments Berhad OS100.00% Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Malaysia Eastspring Asset Management Korea Co. Ltd. OS100.00% 22nd Floor (Seoul International Finance Center, Yeouido dong), 10 Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Republicof Korea 07326 Eastspring Infrastructure Debt Fund L.P. PI90.55% PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands Eastspring Investment K-Short Term Bond Alpha Securities InvestmentTrust(Bond Balanced) U 21.57% 22ndFloor One IFC, 10 Gukjegeumyung-ro,Youngdungpo-gu, Seoul 07326, Korea Eastspring Investment Management(Shanghai) Company Limited MI100.00% Unit 306-308, 3rd Floor, Azia Center, 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone,China Eastspring Investments - Asia Opportunities Equity Fund U 100.00% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments - European Investment Grade Bond Fund U 99.29% Eastspring Investments - Global Growth Equity Fund U 66.74% Eastspring Investments - Global Low Volatility Equity Fund U 99.32% Eastspring Investments - Global Technology Fund U 81.53% Eastspring Investments - Greater China Equity Fund U 93.60% Eastspring Investments - Pan European Fund U 60.47% Eastspring Investments - US High Investment Grade Bond Fund U 92.67% Eastspring Investments - US High Yield Bond Fund U 46.24% Eastspring Investments - US Investment Grade Bond Fund U 65.18% Eastspring Investments - World Value Equity Fund U 95.30% Eastspring Investments (Hong Kong)Limited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Eastspring Investments (Luxembourg)S.A. OS100.00% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments (Singapore)Limited OS100.00% 10 MarinaBoulevard, #32-01, Marina BayFinancialCentre, Singapore 018983 Eastspring Investments Asia Oceania U&I Bond Fund U 69.74% EastspringInvestmentsLimited,MarunouchiPark Bldg.,2-6-1 Marunochi,Chiyoda-ku,Tokyo, Japan 100-6905 Eastspring Investments Asia Pacific Equity Fund U 99.99% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Asia Real Estate Multi Asset Income Fund U 63.78% Eastspring Investments Asia Sustainable Bond Fund U 99.06% Eastspring Investments Asian Bond Fund U 46.83% Eastspring Investments Asian Dynamic Fund U 94.59% Eastspring Investments Asian Equity Fund U 99.37% Eastspring Investments Asian Equity Income Fund U 84.85% Eastspring Investments Asian High Yield Bond Fund U 33.17% Eastspring Investments Asian High Yield Bond MY Fund U 42.33% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur,Malaysia Eastspring Investments Asian Infrastructure Equity Fund U 71.86% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Asian Investment Grade Bond Fund U 89.95% Eastspring Investments Asian Low Volatility Equity Fund U 99.50% Eastspring Investments Asian Multi Factor Equity Fund U 67.61% Eastspring Investments Asian Property Securities Fund U 98.74% Eastspring Investments Berhad OS100.00% Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit Damansara, 50490 Kuala Lumpur, Wilayah Persekutuan, Malaysia Eastspring Investments China A Shares Growth Fund U 71.38% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Dragon Peacock Fund U 94.37% Eastspring Investments EmergingMarkets Star Players U 33.14% Eastspring InvestmentsLimited,MarunouchiPark Bldg.,2-6-1 Marunochi,Chiyoda-ku,Tokyo, Japan 100-6905 Eastspring Investments Equity Income Fund U 33.22% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur,Malaysia Eastspring Investments Fund Management Limited Liability Company MI100.00% 23rd Floor, Saigon Trade Center, 37 Ton Duc Thang Street, District 1, Ho Chi Minh City, Vietnam Eastspring Investments Funds - Monthly Income Plan U 31.62% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Global Emerging Markets Bond Fund U 99.35% Eastspring Investments Global Emerging Markets ex-China Dynamic Fund U 100.00% Eastspring Investments Global Equity Fund U 96.64% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur,Malaysia Eastspring Investments Global Equity Navigator Fund U 95.74% 26, Boulevard Royal, L-2449, Luxembourg Key to share classes: LBGLimited by Guarantee MIMembershipInterest OSOrdinary Shares PIPartnership Interest PSPreference Shares U Units Prudential plc Annual Report 2021 309 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() DOther information / continued Name of entity Classes of shares held Proportion held Registered oce address Eastspring Investments Global Growth Fund U 24.78% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur,Malaysia Eastspring Investments Global Market Navigator Fund U 99.81% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Global Multi Asset Income Plus Growth Fund U 99.99% Eastspring Investments Group Pte. Ltd. OS100.00% 10Marina Boulevard, #32-01, MarinaBay Financial Centre,Singapore 018983 Eastspring Investments Incorporated OS100.00% 874 Walker Road, Suite C, City of Dover, County of Kent, State of Delaware, 19904, USA Eastspring Investments IndiaConsumer Equity Open Limited OS100.00% 3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius Eastspring Investments India Equity Fund U 80.90% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments India Equity Open Limited OS100.00% 3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius Eastspring Investments India Infrastructure Equity Open Limited OS100.00% Eastspring Investments Japan Dynamic MY Fund U 33.87% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur,Malaysia Eastspring Investments Limited OS100.00% MarunouchiPark Building, 6-1 Marunouchi 2-chome, Chiyoda-Ku, Tokyo, Japan Eastspring Investments MY Focus Fund U 28.48% Eastspring Investments Berhad, Level 22, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur,Malaysia Eastspring Investments Services Pte. Ltd. OS100.00% 10 MarinaBoulevard, #32-01, Marina BayFinancialCentre, Singapore 018983 Eastspring Investments SICAV-FIS - Alternative Investments Fund U 100.00% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments SICAV-FIS - Asia Pacific Loan Fund U 74.23% Eastspring Investments Unit Trusts - Asian Balanced Fund U 95.36% Eastspring Investments Unit Trusts - Asian Infrastructure Equity Fund U 98.42% Eastspring Investments Unit Trusts - Dragon Peacock Fund U 97.67% 10 MarinaBoulevard, #32-01, MarinaBay Financial Centre,Singapore018983 Eastspring Investments Unit Trusts - Global Technology Fund U 86.75% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Unit Trusts - Pan European Fund U 64.86% Eastspring Investments Unit Trusts - Singapore ASEAN Equity Fund U 99.33% 10 MarinaBoulevard, #32-01, MarinaBay Financial Centre,Singapore018983 Eastspring Investments Unit Trusts - Singapore Select Bond Fund U 66.03% Eastspring Investments US Corporate Bond Fund U 51.25% 26, Boulevard Royal, L-2449, Luxembourg Eastspring Investments Vietnam Navigator Fund U 77.02% 23rd Floor, Saigon Trade Center Building, 37 Ton Duc Thang Street, Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam Eastspring Overseas Investment FundManagement (Shanghai) Company Limited MI100.00% Unit 306-308, 3rd Floor, 1233 Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone, China Eastspring Real Assets Partners OS100.00% PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands Eastspring Securities Investment Trust Co., Ltd. OS99.54% 4th Floor, No.1 Songzhi Road, Taipei 110, Taiwan First Sentier Global Property Securities Fund U 55.74% 38 Beach Road, #06-11 South Beach Tower, Singapore 189767 First State China Focus Fund U 70.17% 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland Fubon 1-5 Years US High Yield Bond Ex China U 51.79% Fubon Securities Investment Trust Co, 8F, Sec 1, Tun Hwa South Road, Taipei, Taiwan Fubon Global Investment Grade Bond Fund U 46.17% 8th Floor, No.108, Sec.1, Dunhua South. Rd. Taipei, Taiwan Fuh Hwa 1-5 Yr High Yield ETF U 41.17% Fuh-Hwa Securities Invt Trust Co Ltd , 8F, Section 2, 308 Ba De Road, Taipei, Taiwan Fuh Hwa Emerging Market RMB Fixed Income Fund U 32.17% 8-9th Floor., No.308, Sec. 2, Bade Rd., Da-an District Furnival Insurance Company PCC Limited OS100.00% PO Box 155, Mill Court, La Charroterie, St Peter Port, GY1 4ET, Guernsey GIS Total Return Bond Fund U 26.15% 78 Sir John Rogerson’s Quay, Dublin, D02 HD32, Ireland GS Twenty Two Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom HSBC Senior Global Infrastructure Debt Fund U 100.00% 8 Canada Square,London, E14 5HQ, UnitedKingdom ICICI Prudential Asset Management Company Limited OS49.00% 12th Floor, Narain Manzil, 23, Barakhamba Road, New Delhi 110001, India ICICI Prudential Life Insurance Company Limited OS22.09% ICICI PruLife Towers, 1089 Appasaheb Marathe Marg, Prabhadevi, Mumbai 400025, India ICICI Prudential Pension Funds Management Company Limited OS22.09% ICICI Prudential Trust Limited OS49.00% 12th Floor, Narain Manzil, 23, Barakhamba Road, New Delhi 110001, India India Innovation High Growth EQ QII U 100.00% Eastspring InvestmentsLimited,MarunouchiPark Bldg.,2-6-1 Marunochi,Chiyoda-ku,Tokyo, Japan 100-6905 Invesco Fixed Maturity Selective Emerging Market Bonds 2024 U 99.49% 8th Floor, No 122, Tung Hua N. Rd. Taipei, Taiwan Invesco Select 6 Year Maturity Global Bond Fund U 99.43% iShares Australian Equity ETFs U 21.52% Yarra Falls, 452 Johnston Street, Abbotsford VIC 3067 iShares Core MSCI Asia U 78.02% 16th Floor Champion Tower, 3 Garden Road, Central, Hong Kong iShares Core MSCI Europe UCITS ETF EUR (Acc) U 27.70% 1 North Wall Quay, Dublin 1 #### D6 Investments in subsidiary undertakings, joint ventures and associates continued D6.4Related undertakings continued Direct subsidiary undertakings of the parent company, Prudential plc (shares held directly or via nominees) continued Prudential plc Annual Report 2021prudentialplc.com 310 ![]() Name of entity Classes of shares held Proportion held Registered oce address iShares Edge MSCI USA Minimum volatility ESG UCITS ETF U 86.82% J.P. Morgan 200 Capital 79 Sir John Rogerson’s Quay Dublin 2 D02 RK57 Ireland iShares Fallen Angels High Yield Corporate Bond UCITS ETF Wing U 54.90% 79 Sir John Rogerson’s Quay, Dublin 2, D02 RK 57, Ireland iShares MSCI USA Momentum Factor ESG UCITS ETF USD (Acc) U 99.33% iShares STOXX Europe 600 Telecommunications UCITS ETF U 26.50% Unter den Linden 42, 10117 Berlin iShares US Value ESG USD A U 98.90% J.P. Morgan 200 Capital 79 Sir John Rogerson’s Quay Dublin 2 D02 RK57 Ireland KKP Active Equity Fund U 30.10% 19th Floor Muang Thai-Phatra Complex, Building Tower, A, 252/25 Ratchadapisek Road, Huaykwang, Bangkok 10310, Thailand Krungsri GreaterChina EquityHedged Dividend Fund U 29.29% 12th, 18th Zone B Floor, Ploenchit Tower 898 Ploenchit Road, Lumpini Pathumwan, Bangkok 10330, Thailand Lasalle Property Securities SICAV-FIS U 99.61% 11-13 Bouldevard de la Foire, L-1528 Luxembourg M&G Asia Property TS Trust U 99.94% 8 Marina Boulevard, #05-02 Marina Bay, Financial Centre Tower 1, Singapore, 018981 M&G Luxembourg European Strategic Value Fund U 29.27% 49 Avenue J.F. Kennedy, L-1855, Luxembourg M&G Real Estate Asia Holding Company Pte. Ltd. OS33.00% 138 Market Street, #35-01 CapitaGreen, Singapore 048946 Manulife Asia Pacific Bond Fund U 56.16% 9th Floor, No 89 Son Ren Road, Taipei, Taiwan Manulife Asia Pacific Mid and Small Capital Fund U 31.40% Manulife China Dim Sum High Yield Bond Fund U 59.75% Manulife China Oshore Bond Fund U 73.13% Manulife Taiwan Dynamic Fund-I U 24.36% Manulife USD High Yield Bond Fund U 35.95% Nomura SixYears Fixed Maturity Asia PacificEmerging Market Bond Fund U 99.75% 101 Tower, 30th Floor, No. 7 Sec. 5, Xinyi Rd., Xinyi Dist., Taipei, Taiwan Nomura Six Years Fixed Maturity Emerging Market Bond Fund U 40.58% Nomura SixYears Ladder MaturityAsia Pacific Emerging Market Bond Fund U 99.90% North Sathorn Holdings Company Limited OS100.00% No. 63, Athenee Tower, 34th Floor, Wireless Road, Lumpini Subdistrict Pathumwan District, Bangkok Metropolis, Thailand PCA IP Services Limited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong PCA Life Assurance Co. Ltd. OS99.79% 8th Floor, No.1 Songzhi Road, Taipei City, 11047, Taiwan PCA Reinsurance Co. Ltd. OS100.00% Unit Level 13(A), Main Oce Tower, Financial Park Labuan, Jalan Merdeka, 87000 Federal Territory ofLabuan, Malaysia Prenetics Group Limited PS11.18% P.O. Box 902, Second Floor, Century Yard, Cricket Square, Grand Cayman, KY1-1001, CaymanIslands Pru Life Insurance Corporation of U.K. OS100.00% 9th Floor, Uptown Place Tower 1, 1 East 11th Drive, Uptown Bonifacio, 1634 Taguig City, Metro Manila, Philippines Pru Life UK Asset Management and Trust Corporation OS100.00% Prudence Foundation LBG100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Prudential(Cambodia)LifeAssurancePlc OS100.00% Phnom Penh Tower, 20F, #445, Monivong Blvd., Boeung, Prolit, 7 Makara, Phnom Penh, Cambodia Prudential (US Holdco1) Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Prudential Africa Holdings Limited OS100.00% Prudential Africa Services Limited OS100.00% 3rd Floor One Africa Place LR. No. 1870/X/45 , P.O. Box 25093-00100, Nairobi, Kenya PrudentialAssuranceCompany Singapore (Pte) Limited OS100.00% 30 Cecil Street, #30-01 Prudential Tower, Singapore 049712 Prudential Assurance MalaysiaBerhad \* OS51.00% Level 20, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia PrudentialAssuranceUganda Limited OS100.00% Zebra Plaza, Plot 23, Kampala Road, P.O. Box 2660, Kampala, Uganda Prudential BeGeneral Insurance S.A. OS51.00% Immeuble Woodin Center 1st Floor, Avenue Nogues, Plateaux, Abidjan, Cote d’Ivoire Prudential Belife Insurance S.A. OS50.93% Prudential Beneficial GeneralInsuranceCameroon S.A. OS50.04% 1944 Blvd de la République, BP 2328, Douala, Cameroon PrudentialBeneficial Life InsuranceCameroonS.A. OS51.00% Prudential Beneficial Life Insurance Togo S.A. OS50.99% 2963 Rue De La Chance Agbalepedogan, P.B. 1115, Lome, Togo Prudential BSNTakaful Berhad † OS49.00% Level 13, Menara Prudential, Persiaran TRX Barat, 55188 Tun Razak Exchange, Kuala Lumpur, Malaysia Prudential Corporation AsiaLimited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Prudential Corporation Holdings Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Prudential Financial Partners (Asia) Limited OS100.00% PrudentialFinancial PartnersHK Limited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Prudential GeneralInsuranceHong Kong Limited OS100.00% 59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Prudential Group Holdings Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Prudential Group Secretarial Services HK Limited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Prudential Group Secretarial Services Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Prudential Holdings Limited OS100.00% 4th Floor, Saltire Court, 20, Castle Terrace, Edinburgh, EH1 2EN, United Kingdom Prudential HongKong Limited OS100.00% 59th Floor, One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Prudential InternationalTreasury Limited OS100.00% 13th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Key to share classes: LBGLimited by Guarantee MIMembershipInterest OSOrdinary Shares PIPartnership Interest PSPreference Shares U Units Prudential plc Annual Report 2021 311 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() DOther information / continued Name of entity Classes of shares held Proportion held Registered oce address Prudential IP Services Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Prudential Life Assurance (Lao) Company Limited OS100.00% 5th Floor, Lao international Business and Tourist Center Project (Vientiane Center), Khouvieng Road, NongchanVillage,Sisattanak District, Vientiane Capital,Lao PDR Prudential Life Assurance (Thailand) PublicCompany Limited OS99.93% 944 Mitrtown Oce Tower, 10th, 29th-31st Floor, Rama 4 Road, Wangmai, Pathumwan, Bangkok, 10330, Thailand Prudential Life Assurance Kenya Limited OS100.00% Vienna Court, Ground Floor, State House Road-Crescent Road, P.O. Box 25093-00100, Nairobi, Kenya PrudentialLife Assurance Zambia Limited OS100.00% Prudential House, Plot No. 32256, Thabo Mbeki Road, P.O. Box 31357, Lusaka, Zambia Prudential Life InsuranceGhana Limited OS100.00% 35 North Street, Tesano, Accra, Accra - North, PO Box AN11549, Ghana Prudential Life Vault Limited OS100.00% 98 Awolowo Road, South-West Ikoyi, Lagos, Nigeria Prudential Mauritius Holdings Limited OS100.00% 3rd Floor, 355 NEX, Rue du Savoir, Cybercity Ebene, 72201, Mauritius PrudentialMyanmar Life Insurance Limited OS100.00% #15-01, 15th Floor, Sule Square, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar Prudential PensionsManagement ZambiaLimited OS49.00% Prudential House, Plot No. 32256, Thabo Mbeki Road, P.O. Box 31357, Lusaka, Zambia Prudential Services Asia Sdn. Bhd. OS100.00% Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing, No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia PS100.00% Prudential Services Limited OS100.00% 1 Angel Court, London, EC2R 7AG, United Kingdom Prudential Services Singapore Pte. Ltd. OS100.00% 1 Wallich Street, #19-01 Guoco Tower, Singapore 078881 Prudential Singapore Holdings Pte.Limited OS100.00% 30 Cecil Street, #30-01 Prudential Tower, Singapore 049712 Prudential Technology and Services India Private Limited OS100.00% CoWrks NXT, EPIP Industrial Area, Whitefield Road, K.R Puram, Near SAP Labs, Hubli, Bangalore,Karnataka, 560066, India Prudential Vietnam AssurancePrivate Limited OS100.00% 25th Floor, Saigon Trade Centre, 37 Ton Duc Thang Street, District 1, Ho Chi Minh City, Vietnam Prudential Zenith Life Insurance Limited OS51.00% 13th Floor, Civic Towers, Ozumba Mbadiwe Avenue, Victoria Island, Lagos, Nigeria PRUInvest PH Equity Index Tracker Fund U 99.23% 9th Floor Uptown Place Tower 1, 1 East 11th Drive, Uptown Bonifacio, 1634 Taguig City, Metro Manila, Philippines PT Prudential Sharia Life Assurance OS94.62% Prudential Tower, 2nd Floor, Jl. Jend. Sudirman Kav. 79, Jakarta 12910, Indonesia PT. Eastspring Investments Indonesia OS100.00% Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, Indonesia PT. Prudential Life Assurance OS94.62% Prudential Tower, JI. Jend. Sudirman Kav. 79, Jakarta 12910, Indonesia Pulse Ecosystems Pte. Ltd. OS100.00% 1 Wallich Street, #19-01 Guoco Tower, Singapore 078881 Pulse Wealth Limited OS100.00% 59th Floor One Island East, Quarry Bay, Hong Kong PVFC Financial Limited (in liquidation) OS100.00% Suite 509, 5th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Reksa Dana Eastspring IDR Fixed Income Fund U 98.86% Prudential Tower, 23rd Floor, Jl. Jend. Sudirman Kav.79, Jakarta 12910, Indonesia Reksa Dana Eastspring Investments Alpha Navigator Fund U 79.24% Reksa Dana Eastspring Investments Cash Reserve U 98.25% Reksa Dana Eastspring Investments IDR High Grade U 35.51% Reksa Dana Eastspring Investments Value Discovery U 81.12% Reksa Dana Syariah Eastspring SyariahEquity IslamicAsia Pacific USD U 81.64% Reksa Dana Syariah Eastspring Syariah Fixed Income Amanah U 48.79% Reksa DanaSyariah EastspringSyariah MoneyMarket Khazanah U 96.38% Reksa DanaSyariah Penyertaan Terbatas Bahana SyariahBUMN Fund U 99.01% Graha CIMB Niaga 21st Floor. Jl Jend Sudirman Kav 58, Jakarta – 12190, Indonesia Rhodium Investment Fund U 99.90% 10 Marina Boulevard, #32-01, Marina Bay Financial Centre Tower 2, Singapore 018983 SCB Global Income Fund U 22.59% 7-8th Floor, SCB ParkPlaza 1, 18Ratchadapisek Road,Chatuchak, Bangkok10900,Thailand SCB Set Banking Sector Fund U 21.65% Schroder Asian Investment Grade Credit U 33.32% 138 Market Street, #23-01 CapitaGreen, Singapore 048946 Schroder Emerging Markets Fund U 63.00% Schroder Multi-Asset Revolution U 52.22% Schroder US Dollar Money Fund U 37.00% Scotts Spazio Pte. Ltd. OS45.00% 316 Tanglin Road, #01-01,Singapore, 247978 Shenzhen Prudential Technology Limited MI100.00% Unit 5, 8th Floor, China Resources Tower, No.2666 Keyuan South Road, Yuehai Street, Nanshan District, Shenzhen 518054, China Sinopac RMB Money Market Fund U 29.62% 14th Floor, No.17,Po Ai Rd., Taipei, Taiwan Sri Han SuriaSdn. Bhd. OS51.00% Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing, No. 1 Leboh Ampang, 50100 Kuala Lumpur, Malaysia #### D6 Investments in subsidiary undertakings, joint ventures and associates continued D6.4Related undertakings continued Direct subsidiary undertakings of the parent company, Prudential plc (shares held directly or via nominees) continued Prudential plc Annual Report 2021prudentialplc.com 312 ![]() Name of entity Classes of shares held Proportion held Registered oce address Staple Limited OS100.00% No. 63, Athenee Tower, 34th Floor, Wireless Road, Lumpini Subdistrict Pathumwan District, Bangkok Metropolis, Thailand Templeton Asian Growth Fund U 30.35% 8A, Rue Albert Borschette, L-1246 Luxembourg Thanachart Fund Management Co., Ltd. OS50.10% Units 902-908, 9th Floor, Mitrtown Oce Tower 944, Rama 4 Road, Wangmai, Patumwan, Bangkok 10330, Thailand TMB Asset Management Co., Ltd. OS65.00% 9th Floor, Mitrtown Oce Tower, 944 Rama 4 Road, Wangmai,Pathumwan, Bangkok 10330, Thailand UOB Smart GlobalHealthcare U 37.96% 23A, 25th Floor, Asia Centre Building, 173/27-30, 32-33 South Sathorn Road, Thungmahamek, Sathorn, Bangkok10120, Thailand UOB Smart Japan Small and Mid Cap Fund U 24.21% UOB Smart Millennium Growth Fund U 34.13% USD Investment Grade Infrastructure Debt Fund SCSp U 21.78% 35a, Avenue J.F. Kennedy, L-1855, Luxembourg, Grand Duchy of Luxembourg \* Prudential Assurance Malaysia Berhad is consolidated at 100 per cent in the Group’s financial statements reflecting the economic interest to the Group. † Prudential BSN Takaful Berhad is a joint venture that is accounted for using the equity method, for which the Group has an economic interest of 70 per cent for all business sold up to 23 December 2016 and of 49 per cent for new business sold subsequent to this date. Key to share classes: LBGLimited by Guarantee MIMembershipInterest OSOrdinary Shares PIPartnership Interest PSPreference Shares U Units Prudential plc Annual Report 2021 313 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Note 31 Dec 2021 $m 31 Dec 2020 $m Non-current assets Investments in subsidiary undertakings 5 13,114 12,682 Current assets Amounts owed by subsidiary undertakings 7,013 6,722 Equitysecurities - fair value throughother comprehensive income 6 683 – Other debtors 9 5 Cash at bank and in hand 1,711 5 9,416 6,732 Liabilities: amounts falling due within one year Subordinated liabilities (1,725) – Commercial paper 7 (500) (501) Amounts owed to subsidiary undertakings (161) (149) Taxpayable (7) (16) Accruals and deferred income (85) (79) (2,478) (745) Net current assets 6,938 5,987 Total assets less current liabilities 20,052 18,669 Liabilities: amounts falling due after more than one year 7 Subordinated liabilities (2,350) (4,332) Debentureloans (1,702) (1,701) Other borrowings (350) (350) (4,402) (6,383) Total net assets 15,650 12,286 Capitaland reserves 8 Sharecapital 182 173 Share premium 5,010 2,637 Profit and loss account 10,458 9,476 Shareholders’ funds 15,650 12,286 2021 $m 2020 $m Profit/(loss) for the year 2,648 (85) The financial statements of the parent company on pages 314 to 320 were approved by the Board of Directors on 8 March 2022 and signed on its behalf. Shriti Vadera Chair MikeWells Group Chief Executive Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer #### Statement of financial position of the parent company Prudential plc Annual Report 2021prudentialplc.com 314 ![]() Share capital $m Share premium $m Profit and loss account $m Total shareholders’ funds $m Balance at 1 Jan 2020 1722,62510,37613,173 Total comprehensive loss for the year –– (85)(85) Transactions with owners, recorded directly in equity New share capital subscribed 1 12 – 13 Share based payment transactions –– (1)(1) Dividends –– (814)(814) Total contributions by and distributions to owners 1 12(815)(802) Balance at 31 Dec 2020 / 1 Jan 2021 1732,6379,47612,286 Profit for the year –– 2,6482,648 Valuation movements on retained interest in Jackson measured at fair value through other comprehensiveincome –– 273273 Total comprehensive income for the year –– 2,9212,921 Transactions with owners, recorded directly in equity New share capital subscribed 9 2,373 – 2,382 Demerger dividend in specie of Jackson –– (1,735)(1,735) Share based payment transactions –– 217217 Other dividends –– (421)(421) Total contributions by and distributions to owners 9 2,373(1,939)443 Balance at 31 Dec 2021 1825,01010,45815,650 #### Statement of changes in equity of the parent company Prudential plc Annual Report 2021 315 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() #### 1 Nature of operations Prudential plc (‘the Company’) together with its subsidiaries (collectively, ‘the Group’ or ‘Prudential’) is an international financial services group. Prudential provides life and health insurance and asset management services in Asia and Africa. The Group helps individuals to get the most out of life by making healthcare accessible and aordable by promoting financial inclusion. The Group is joint-headquartered in London and Hong Kong. On 28 January 2021, the Company announced its intention to demerge its subsidiary Jackson Financial Inc. (Jackson), which following approval of the demerger by shareholder vote on 27 August 2021, took eect on 13 September 2021. #### 2 Basis of preparation The financial statements of the Company, which comprise the statement of financial position, statement of changes in equity and related notes, are prepared in accordance withUK Generally Accepted Accounting Practice,including Financial Reporting Standard 101Reduced Disclosure Framework (‘FRS 101’) and Part 15 of the Companies Act 2006. In preparing these financial statements, the Company applies therecognition,measurement and disclosurerequirements in accordance withIFRS Standards as issued by the IASB and the UK-adopted international accounting standards but makes amendments where necessary inorder to comply with the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. TheCompany has also taken advantage of the exemption under Section 408 of the Companies Act 2006 from presenting its own profit and lossaccount. In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures: > A ca sh flow statement and related notes; > Disclosures in respect of transactions with wholly-owned subsidiaries within the Prudential Group; > Dis closure in respect of capital management; and > The eects of new but not yet eective IFRS. As the consolidated financial statements of the Group include the equivalent disclosures, the Company has also applied the exemptions available under FRS 101 in respect of the following disclosures: > IF RS 2 ‘Share Based Payments’ in respect of Group-settled share-based payments; > Disclosure required by IFRS 7 ‘FinancialInstrument Disclosures’ and IFRS 13 ‘Fair Value Measurement’, except for the consequential amendments to IFRS 7 related to IFRS 9 which have not been adopted by the Group; and > IFRS 15, ‘Revenue from Contracts with Customers’ in respect of revenue recognition. The accounting policies set out in note 3 below have, unless otherwise stated, been applied consistently to both years presented in these financial statements. The Company and Group manages its cash resources, remittances and financing primarilyin US dollars. Accordingly, the functional currency of the Company is US dollars. #### 3 Significant accounting policies Investments in subsidiary undertakings Investments in subsidiary undertakings are shown at cost, less impairment. Investments are assessed for impairment by comparing the net assets of the subsidiary undertakings with the carrying value of the investment. Amounts owed by subsidiary undertakings Amounts owed by subsidiary undertakings are shown at cost, less provisions. Provisions are determined using the expected credit loss approach under IFRS 9. Financial Instruments Under IFRS 9, except for derivative instruments (where applicable) that are mandatorily classified as fair value through profit or loss and the Company’s financial investment in Jackson’s equity securities, which are classified as fair value through other comprehensive income (as discussed below), all of the financial assets and liabilities of the Company are held at amortised cost. The Company assesses impairment on its loans and receivables using the expected credit loss approach. The expected credit loss on the Company’s loans and receivables, the majority of which represent loans to its subsidiaries, have been assessed by taking into account the probability of default on those loans. In all cases, the subsidiaries are expected to have sucient resources to repay the loan either now or over time based on projected earnings. For loans recallable on demand, the expected credit loss has been limited to the impact of discounting the value of the loan between the balance sheet date and the anticipated recovery date. For loans with a fixed maturity date the expected credit loss has been determined with reference to the historic experience of loans with equivalent credit characteristics. #### Notes to the parent company financial statements Prudential plc Annual Report 2021prudentialplc.com 316 ![]() Upon the demerger of Jackson, the Company has made the election under IFRS 9 to measure its retained interest in Jackson’s equity securities at ‘fair value through other comprehensive income’. Under this designation, only dividend income from this retained interest is recognised in the profit or loss of the Company. Unrealised gains and losses are recognised in other comprehensive income and there is no recycling to the profit or loss on derecognition. Borrowings Borrowings are initially recognised at fair value, net of transaction costs, and subsequently accounted for on an amortised cost basis using the eective interest method. Under the eective interest method, the dierence between the redemption value ofthe borrowing andthe initial proceeds, net of transaction costs, is amortised through the profit and loss account to the date of maturity or, for subordinated debt, over the expected life of the instrument. Where modifications to borrowings do not result in a substantial dierence to the terms of the instrument, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining expected life of the modified instrument. Where modifications to borrowings do result in a substantial dierence to the terms of the instrument, the instrument is treated as if it had been extinguished and replaced by a new instrument which is initially recognised at fair value and subsequently accounted for on an amortised cost basis using the eective interest method. Any costs or fees arising from such a modification are recognised as an expense when incurred. Dividends Interim dividends are recorded in the period in which they are paid. Share premium The dierence between the proceeds received on issue of shares and the nominal value of the shares issued is credited to the share premiumaccount. Foreign currency translation Transactions not denominated in the Company’s functional currency, US dollars, are initially recorded at the functional rate of currency prevailing on the date of the transaction. Monetary assets and liabilities not denominated in the Company’s functional currency are translated to the Company’s functional currency at year end spot rates. The impact of these currency translations is recorded within the profit and loss account for theyear. Tax Current tax expense is charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable amounts for the current year. To the extent that losses of an individual UK company are not oset, they can be carried back for one year or carried forward indefinitely to be oset, subject to restrictions based on future taxable profits, against profits arising from the same company or other companies in the same UK tax group. Deferred tax assets and liabilities are recognised in accordance with the provisions of IAS 12 ‘Income Taxes’. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that future taxable profits will be available against which these losses can be utilised. Deferred tax is measured at the tax rates that are expected to be applied to temporary dierences when they reverse, using tax rates enacted or substantivelyenacted at thereporting date. Share-based payments The Group oers share award and option plans for certain key employees and a Save As You Earn (‘SAYE’) plan for all UK and certain overseas employees. The share-based payment plans operated by the Group are mainly equity-settled. Under IFRS 2 ‘Share-based payment’, where the Company, as the parent company, has the obligation to settle the options or awards of its equity instruments to employees of its subsidiary undertakings, and such share-based payments are accounted for as equity-settled in the Group financial statements, the Company records an increase in the investment in subsidiary undertakings for the value of the share options and awards granted with a corresponding credit entry recognised directly in equity. The value of the share options and awards granted is based upon the fair value of the options and awards at the grant date, the vesting period and the vesting conditions. Cash receipts from business units in respect of newly issued share schemes are treated as returns of capital within investments in subsidiaries. Prudential plc Annual Report 2021 317 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes to the parent company financial statements / continued #### 4 Reconciliation from the FRS 101 parent company results to the IFRS Group results The parent company financial statements are prepared in accordance with FRS 101 and the Group financial statements are prepared in accordance with IFRS Standards as issued by the IASB and international financial reporting standards adopted for use in the UK. The tables below provide a reconciliation between the FRS 101 parent company results and the IFRS Group results. 2021 $m 2020 $m Profit after tax Profit (loss) for the financial year of the Company in accordance with FRS 101 note (i) 2,648 (85) Accountingpolicy dierence note (ii) 28 (18) Share in the IFRS result of the Group, net of distributions to the Company note (iii) (4,718) 2,221 (Loss) profit after tax of the Group attributable to equity holders in accordance with IFRS (2,042) 2,118 31 Dec 2021 $m 31 Dec 2020 $m Shareholders’ equity Shareholders’ funds of the Company in accordance with FRS 101 15,650 12,286 Accountingpolicy dierence note (ii) 19 15 Share in the IFRS net equity of the Group note (iii) 1,419 8,577 Shareholders’ equity of the Group in accordance with IFRS 17,088 20,878 Notes (i)The Company’s profit (loss) for the financial year includes distributions to the Company from subsidiaries. (ii)Accounting policy dierence represents the dierence in accounting policy for expected credit losses on loan assets, and the dierence in treatment of realised gains and losses on investments classified as fair value through other comprehensive income, as the Company has adopted IFRS 9 while the Group applies IAS 39. (iii)The ‘share in the IFRS result and net equity of the Group’ lines represent the parent company’s equity in the earnings and net assets of its subsidiaries and associates. The profit for the year of the Company in accordance with IFRS includes dividends received from subsidiary undertakings of $3,597 million for the year ended 31 December 2021 (2020: $406 million). #### 5 Investments in subsidiary undertakings 2021 $m 2020 $m At 1 Jan 12,682 10,444 Capital injections note (i) 430 – Exchange of non-current debt instruments for equity shares note (ii) – 2,000 Equity shares issued in exchange for assuming bank loan liability note (iii) – 350 Other note (iv) 2 (112) At 31 Dec 13,114 12,682 Notes (i)On 15 December 2021, an intercompany loan of $430 million owed to the Company was settled in exchange for the issue of equity instruments from Prudential Group Holdings Limited, an immediate subsidiary of the Company. (ii)On 16 June 2020, the non-current debt instrument of $2,000 million received by the Company was settled in exchange for the issue of equity instruments from Prudential Corporation Asia Limited, an immediate subsidiary of the Company. (iii)On 20 June 2020, Prudential Corporation Asia Limited issued equity shares to the Company, in exchange for the Company assuming a bank loan liability of $350 million (see note 7). (iv)Other includes net amounts in respect of share-based payments settled by the Company for employees of its subsidiary undertakings. See note 6 below for details of the transfer and distribution of shares in Jackson Financial Inc. during the year. Investments in subsidiaries held at 31 December 2021 have been assessed for impairment and no impairment was identified. Subsidiary undertakings of the Company at 31 December 2021 are listed in note D6 of the Group IFRS financial statements. Prudential plc Annual Report 2021prudentialplc.com 318 ![]() #### 6 Equity securities – fair value through other comprehensive income On 8 September 2021, Prudential Corporation Asia Limited, a subsidiary of the Company, transferred the Group’s holding in Jackson to the Company as a dividend in specie. This holding was classified as an asset held for distribution and was measured at fair value less costs to distribute at date of transfer. On 13 September 2021, the Company distributed shares in Jackson with value of $1,735 million to its shareholders (further details are provided in note D1.2 of the Group IFRS financial statements). In accordance with IFRIC 17 the value of dividend in-specie recognised as distribution within the statement of changes in equity was the fair value of Jackson Financial Inc. at the date of distribution. As also required by IFRIC 17, the dierence between the fair value of Jackson Financial Inc. on distribution and the previous carrying value of the Company’s investment in Jackson Financial Inc. of $439 million is recognised as a loss within profit for the year. Immediately after the distribution, the Company retained a 19.7 per cent economic interest (19.9 per cent voting interest) in Jackson’s equity securities, which was recognised as a financial investment at ‘fair value through other comprehensive income’. On 13 December 2021, Jackson announced, as part of previously disclosed $300 million share repurchase program, the repurchase of 2,242,516 shares of its Class A common stock from the Company. With this repurchase activity, the Company’s remaining economic interest in Jackson was 18.4 per cent as of 31 December 2021 (18.5 per cent voting interest). The fair value of the Company’s holding in the equity securities of Jackson is determined by the use of current market bid prices, and is categorised as Level 1: Quoted prices (unadjusted in active markets) of the IFRS 13 ‘Fair Value Measurement’ defined fair value hierarchy. Followinginitial recognition on 13 September 2021, a gain of $273 million has been recognised in other comprehensive income for the year inrespect of these instruments. #### 7 Borrowings Core structural borrowings Other borrowings Total 31 Dec 2021 $m 31 Dec 2020 $m 31 Dec 2021 $m 31 Dec 2020 $m 31 Dec 2021 $m 31 Dec 2020 $m Corestructuralborrowings note (i) Subordinated liabilities note (ii) 4,075 4,332 – – 4,075 4,332 Debentureloans 1,702 1,701 – – 1,702 1,701 Bank loan 350 350 – – 350 350 6,127 6,383 – – 6,127 6,383 Commercial paper note (iii) – – 500 501 500 501 Total borrowings 6,127 6,383 500 501 6,627 6,884 Borrowings are repayable as follows: Within 1 year 1,725 – 500 501 2,225 501 Between 1 and 5 years 778 780 – – 778 780 After 5 years 3,624 5,603 – – 3,624 5,603 6,127 6,383 500 501 6,627 6,884 Notes (i)Further details on the core structural borrowings of the Company are provided in note C5.1 of the Group IFRS financial statements. (ii)The interests of the holders of the subordinated liabilities are subordinate to the entitlements of other creditors of the Company. (iii)These borrowings support a short-term fixed income securities programme. (iv)Borrowings are classified in line with contractual maturity dates unless the Company has established its intention to redeem at an earlier date. Prudential plc Annual Report 2021 319 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes to the parent company financial statements / continued #### 8 Capital and reserves Share capital and share premium On 4 October 2021, the Company completed the issuance of 130,780,350 new ordinary shares on the Stock Exchange of Hong Kong through a concurrent Hong Kong public oer and international placing. Further details on this issuance together with a summary of the ordinary shares in issue and the options outstanding to subscribe for the Company’s shares at 31 December 2021 is set out in note C8 of the Group IFRS financial statements. Retained profit of the Company Retained profit at 31 December 2021 amounted to $10,458 million (31 December 2020: $9,476 million). The retained profit includes distributable reserves of $4,734 million (31 December 2020: $3,838 million) and non-distributable reserves of $5,724 million (31 December 2020: $5,638 million). The non-distributable reserves of the Company relate to gains on intra-group transactions, in which qualifying consideration was not received, and share-based payment reserves. Under UK company law, Prudential may pay dividends only if sucient distributable reserves of the Company are available for the purpose and if the amount of its net assets is greater than the aggregate of its called up share capital and non-distributable reserves (such as the share premium account) and the payment of the dividend does not reduce the amount of its net assets to less than that aggregate. The retained profit of the Company is substantially generated from dividend income received from subsidiaries. The Group segmental analysis illustrates the generation of profit across the Group (see note B1 of the Group IFRS financial statements). The Group and its subsidiaries are subject to local regulatory minimum capital requirements, as set out in note C10 of the Group IFRS financial statements. A number of the principal risks set out in the Risk Report could impact the generation of profit in the Group’s subsidiaries in the future and hence impact their ability to pay dividends in the future. In determining the dividend payment in any year, the directors follow the Group dividend policy described in the Financial Review section of this Annual Report. The directors consider the Company’s ability to pay current and future dividends twice a year by reference to the Company’s business plan and certain stressed scenarios. #### 9 Other information aInformation on key management remuneration is given in note B2.3 of the Group IFRS financial statements. Additional information on directors’ remuneration is given in the directors’ remuneration report section of this Annual Report. bInformation on transactions of the directors with the Group is given in note D4 of the Group IFRS financial statements. c Th e Company employs no sta. dFees payable to the Company’s auditor for the audit of the Company’s annual accounts were $0.1 million (2020: $0.1 million) and for other services were $0.1 million (2020: $0.1 million). eIn certain instances, the Company has guaranteed that its subsidiaries will meet their obligations when they fall due for payment. #### 10 Post balance sheet events Dividends The second interim ordinary dividend for the year ended 31 December 2021, which was approved by the Board of Directors after 31 December 2021, is described in note B5 of the Group IFRS financial statements. Debt redemption On 20 January 2022 the Company redeemed subordinated debt instruments of $1,725 million, as described in note C5.1 of the Group IFRS financial statements. Prudential plc Annual Report 2021prudentialplc.com 320 ![]() The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicablelaw and regulations. Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards and applicable law and have elected to prepare the parent company financial statements in accordance with UKaccountingstandards and applicable law, including FRS 101 Reduced Disclosure Framework. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of aairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the directors are required to: > select suitable accounting policies and then apply them consistently; > ma kejudgements and estimates that arereasonable, relevant, reliableand prudent; > fo r the Groupfinancial statements, state whether theyhave been prepared in accordance withUK-adopted international accounting standards; > for the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; > assess the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and > us e the goingconcern basis ofaccountingunless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sucient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law andregulations,the directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complywith that lawand those regulations. The directors are responsible for the maintenance and integrity of the corporate and financialinformation included on the company’swebsite. Legislation in the UK governing the preparation and dissemination of financial statements may dier from legislation in otherjurisdictions. Responsibility statement of the directors in respect of the annual financial report The directors of Prudential plc, whose names and positions are set out on pages 150 to 155 confirm that to the best of their knowledge: > thefinancial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakingsincluded in the consolidation takenas a whole; > the strategic report includes a fair review of the development and performance of the business and the position of the Group and the undertakingsincluded in the consolidation takenas a whole, together with a description of the principal risks and uncertainties that they face; and > th e annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides theinformation necessary for shareholders to assess the Group’s position and performance, business model andstrategy. #### Statement of Directors’ responsibilities in respect #### of the Annual Report and the financial statements Prudential plc Annual Report 2021 321 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() 1.Our opinion is unmodified We have audited the financial statements of Prudential plc (“the Company”) for the year ended 31 December 2021 which comprise; > theconsolidated incomestatement, consolidated statementof comprehensiveincome,consolidated statement of changesin equity, consolidated statement of financial position and consolidated statement of cash flows, and the related notes, including accounting policies in note 3.1; and > th e parent company statements of financial position and of changes in equity, and the related notes, includingthe significantaccounting policies in note 3. In o ur opinion: > Th e financial statements give a true and fair view of the state of the Group’s and of the parent company’s aairs as at 31 December 2021 and of the Group’s loss for the year then ended; > The Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; > The parent companyfinancial statements have been properly prepared in accordance with UK Accounting Standards including FRS 101 Reduced Disclosure Framework; and > Th e financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sucient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were appointed as auditor by the shareholders in October 1999. The period of total uninterrupted engagement is for the 23 financial years ended 31 December 2021.Wehave fulfilled our ethical responsibilities under, and we remain independent ofthe Group inaccordancewith, UK et hical requirements includingthe Financial Reporting Council (‘FRC’) Ethical Standard as applied to listed public interest entities. No n on-audit services prohibited by that standard were provided. 2. Ke y audit matters: our assessment of risks ofmaterialmisstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest eect on: the overall audit strategy; the allocation of resources in the audit; and directing the eorts of the eng agement team. We summarise below the key auditmatters in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole,and in forming our opinion thereon,and consequently areincidental to thatopinion, and w e do not provide a separate opinion on these matters. #### Independent auditor’s report to the members of Prudential plc Prudential plc Annual Report 2021prudentialplc.com 322 ![]() Valuation of insurance contract liabilities and investment contract liabilities with discretionary participation features (2021: $151,101 million, 2020: $437,266 million). The risk compared to the prior year has remained unchanged. Refer to page 175 (Audit Committee report), page 242 (accounting policy) and pages 281 to 286 (financial disclosures) The risk Ourresponse The Group has significant insurance contract liabilities and investment contract liabilities with discretionary participation features(policyholder liabilities) representing 83 per cent (2020: 88 per cent) of the Group’s total liabilities. Subjective valuation This is an area that involves significant judgement over uncertain future outcomes, mainly the ultimate total settlement value of these longterm policyholder liabilities, and we consider the risk to have remained unchanged in the current year in light of the continued business and economic disruption caused by the Coronavirus pandemic’s (COVID-19) potential impact on policyholder behaviour in respect of decisions such as lapses, making historical experience less reliable in setting operating assumptions. Significant judgement is required to assess whether the d irectors’ overall estimate, taking into account key economic assumptions, including investment return and associated discount rates, and operatingassumptions including mortality, morbidity, expenses and persistency, which are the key inputs used to estimate these long term liabilities, falls within an acceptable range,in addition to the appropriate design and calibration of complex reserving models. The eect of these matters is that, as part of our risk assessment, we determined that the valuation of policyholder liabilities has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality forthe financial statements as a whole and possibly many times that amount. The financial statements noteC6 discloses the sensitivities estimated by the Group. We used our own actuarial specialists to assist us in performing our procedures in this area. Our procedures included: Methodology choice We assessed the methodology for selecting assumptionsand calculating the policyholder liabilities. This included: > Assessing the methodology adopted for selecting assumptions by applying our industry knowledge and experience and comparing the methodology used against industry standard actuarial practice; > As sessing the methodology adopted forcalculating the policyholder liabilitiesby reference tothe requirements of the accounting standard andactuarial market practice, and assessing the impact of current year changes in methodology on the calculation of policyholder liabilities; > Co mparing changes in methodology toour expectations derived frommarket experience; and > Ev aluating the analysisof the movements in policyholder liabilities during the year, includingconsideration of whether the movements werein linewith the methodology and assumptions adopted. Control operation We used our own IT specialists to assist us in performing our procedures in this area which included testing of the design, implementation and operating eectiveness of key controls over the valuation process. Controls testing in respect of the valuation process included assessment and approval of the methods and assumptions adoptedover thecalculation of policyholder liabilities as well as appropriateaccess and change management controls overthe actuarial models. Our procedures also included: Historicalcomparison > Ev aluating the experience analysis in respect of the mortality, morbidity, persistency, and expense assumptions by reference toactual experience,taking into account the potential impact of COVID-19 on reported claims, in order to assess whether this supported the year-end assumptions adopted. Benchmarking assumptions and sector experience > Us ing our sector experience and market knowledge to inform ourchallenge of the assumptions in the areas noted above. Model evaluation > As sessing the reserving models by considering the accuracy of the cash flow projections including by reference to the inclusion of relevant product features. We h ave also assessed the impact of modelling and assumption changes by inspecting pre and post change model runs and comparing the outcomes of the changes to our expectations. Assessing transparency We assessed whether the disclosures in relation to the assumptions used in the valuation ofpolicyholder liabilities are compliantwith the relevant accounting requirements. Our result We found the valuation and disclosures of policyholder liabilities to be acceptable (2020: acceptable). Prudential plc Annual Report 2021 323 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Independent auditor’s report to the members of Prudential plc / continued Valuation of certain level 2 and level 3 investments held at fair value (2021: $31,282 million, 2020: $63,823 million). The risk compared to the prior year has remained unchanged. Refer to page 175 (Audit Committee report), page 242 (accounting policy) and pages 272 to 280 (financial disclosures) The risk Ourresponse The Group’s investments portfolio represents 85 per cent (2020: 83 per cent) of the Group’s total assets. Subjective valuation The area that involved significant audit eort and judgement in 2021 was the valuation of certain level 2and level 3 positions within the portfolio of financial investments held at fair value. This is comprised of u nlisted debt securities and unlisted funds that are valued by reference to their Net Asset Value (‘NAV f unds’). For these positions a reliable third-party pricewas not readily available and therefore involvedthe application of expert judgement inthevaluations adopted. Auditor judgement is required in determining the appropriate valuation methodology where external pricing sources are either not readily available or are unreliable. Further judgement is required to assess whether the directors’ overall estimate, based on their j udgement depending onthe observabilityand significance of the inputs into the valuation and the consequentimpact on the classificationof those investments, falls within an acceptable range. The eect of these matters is that, as part of our risk assessment, we determined that the valuation of certain level 2 and 3 investments held at fair value has a high degree of estimation uncertainty, with a potential rangeof reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements noteC6 disclose the sensitivities estimated by the Group. We used our own valuation specialists in order to assist us in performing our procedures in this area. Our procedures included: Methodology choice We assessed the appropriateness of the pricingmethodologies with reference to relevant accounting standards as well as industry practice. Control operation We tested the design, implementation and operating eectiveness of key controls over the valuation process, including the Group’s review and approval of the estimates and assumptions used for the valuation including key authorisation and data input controls. Tests of details For a sample of securities, we used our valuation specialists to assess the Group’s classification of assets within Level 2 or Level 3 by evaluating the observability of the inputs used in valuingthese securities. For a sample of unlisted debt securities we compared the price adopted to our independently derived price, using our valuation specialists. For a sample of unlisted funds, we agreed the valuations for the NAV funds to the most recent NAV statements. To assess reliability of these statements we compared to audited financial statements of the funds, where available, or performed a retrospectivetest over the NAV valuations for each fund to assess if the fund valuations reported in the audited financial statements in the prior year were materially consistent with the most recent NAV valuation statements available at the time. Assessing transparency We assessed whether the disclosures in relation to the valuation of level 2 and 3 investments held at fair value are compliant with the relevant accounting requirements. Our result We found the valuation and disclosures of level 2 and 3 investments held at fair value to be acceptable (2020: acceptable). Prudential plc Annual Report 2021prudentialplc.com 324 ![]() Recoverability of parent company’s investment in subsidiaries – (2021: $13,114 million, 2020: $12,682 million) The risk compared to the prior year is unchanged. The risk relates to the parent company financial statements. Refer to page 175 (Audit Committee report), Refer to page 242 (accounting policy) and page 318 (financial disclosures) The risk Ourresponse Low risk, high value The carrying amount of the parent company’s investments in subsidiaries represents 58 per cent (2020: 65 per cent) of the company’s total assets. Their recoverability is not at a high risk of significant misstatement or subject to significant judgement. However, due to their materiality in the context of the parent company financial statements, this is considered to be the area that had the greatest eect on our overall parent company audit. Our procedures included: Tests of details Comparing the carrying amount of 100% of the investments in subsidiaries with the relevant subsidiaries’ draft balance sheet to identify whethertheir net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount and assessing whether those subsidiaries have historically been profit-making. We performed the test above rather than seeking to rely on the parent company’s controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedure described. Assessing subsidiary audits Assessing the work performed by the subsidiary audit teams on all of those subsidiaries and consideringthe results of that workon those subsidiaries’ profits and net assets. Our result We found the Group’s assessment of the recoverability of the investment in s ubsidiaries to be acceptable (2020: acceptable). Following the demerger of the US business from the Group on 13 September 2021, we no longer consider the following to be a key audit matter for 2 021: > Am ortisation of US deferred acquisition costs, valuation of policyholder liabilities (US) and valuation of certain level 2 and level 3 investments (US): As a result of the demerger, the US business has been classed as discontinued operations in the group financial statements and the consolidated balance sheet does not include any deferred acquisition costs, policyholder liabilities or level 2 and 3 investments in respect of the US business. Prudential plc Annual Report 2021 325 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Independent auditor’s report to the members of Prudential plc / continued 3.Our application of materiality and an overview of the scope of o ur audit Materiality for the Group financial statements as a whole was set at $ 190 million (2020: $250 million) determined with reference to a benchmark of IFRS shareholders’ equity (of which it represents 1.1 per cent (2020: 1.2 per cent)); the reduction in materiality from 2020 reflects the lower IFRS shareholders’ equity due to the impact of t he demerger of the US operations from the Group. We consider IFRS shareholders’ equity to be the most appropriate benchmark asit represents the residual interest that can be ascribed to shareholders after policyholder assets and correspondingliabilitieshave been accounted for; we consider that this is the most appropriate measure for t he size of the business and that it provides a stable measure year on year. We compared our materialityagainst other relevant benchmarks (total assets, total revenue and profit before tax from continuing operations) to ensure the materialityselected was appropriatefor ouraudit. Weset out below the materiality thresholds that are key to the audit. IFRS Shareholders’ Equity $17,088m (2020: $20,878m) Group Materiality $190m (2020: $250m) $190m Whole financial statements materiality (2020: $250m) $140m Whole financial statements performance materiality (2020: $187m) $110m Range of materiality at 13 components ($20m–$110m) (2020: $13m to $120m) $9m Misstatements reported to the audit committee (2020: $12.5m) Shareholders’ EquityGroupmateriality Materiality for the parent company financial statements as a whole was s et at $53 million (2020: $60 million), determined with reference to a benchmark of parent company’s net assets, of which it represents 0.4 per cent (2020: 0.5 per cent). The component materiality, as determined by the Group audit team, applied to the audit of the parent company financial statements as a whole is lower than the materiality we wouldotherwise have determined by reference toits net assets. In line with our audit methodology, our procedures on individual accountbalances and disclosures were performed to alower threshold, performance materiality, so as to reduce to an acceptable level the risk that detected and undetected immaterial misstatements in individual account balances aggregate up to a material amount across the financial statements as a whole. Performance materiality for both the group and parent company was set at 75 per cent (2020: 75 per cent) of materiality for the financial statements as a whole, which equates to $140 million (2020: $187 million) and $33.75 million (2020: $45 million), respectively. We a pplied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk across the financial statements as awhole. We agreed to report to the Group audit committee any corrected or uncorrected identified misstatements exceeding $9 million (2020: $12.5 million) in addition to other identified misstatements that warrant reporting on qualitative grounds. We subjected the Group’s operations to audits for group reporting purposes as follows: Of the 13 (2020: 14) reporting components scoped in for the Group audit, we subjected 7 (2020: 8) to full scope audits for group reporting purposes, 5 (2020: 4) to an audit of account balances, 1 to specified risk-focused audit procedures over cash and debt securities (2020: 1 to specified risk-focused audit procedures over cash and debt securities and 1 to specified risk-focused audit procedures over operational and other borrowings). The components for which we performed work other than full scope audits for group reporting purposes were not individually significant but were included in the scope of our group reporting work as they did present specific individual audit risks that needed to be addressed or in order to provide further coverage over the Group’s results. The components subjected to full scope audits consisted of the parent company and the insurance operations in the US, Hong Kong, Indonesia, Singapore, Malaysia andChina. The components subjected to an audit of account balances included the insurance operations in Vietnam, Thailand, Taiwan and the Philippines, and the fundmanagement operations of Eastspring Singapore. The accountbalances audited for Vietnam and Taiwan werepolicyholder liabilities, investments, deferred acquisition costs, cash, premiums and claims; the account balances auditedfor Thailand were policyholder liabilities, investments, intangible assets, cash, premiums and claims; the accountbalances audited for Eastspring Singapore were other income and expenses; the account balances audited for the Philippines were policyholder liabilities, investments and cash. The component for which we performed specified audit risk-focused procedures over cash and debt securities was the Group’s treasury operations. For the remaining operations, we performed analysis at an aggregated Group level to re-examineour assessment that there were no significant risks of material misstatement within these operations. Prudential plc Annual Report 2021prudentialplc.com 326 ![]() These components accounted for the followingpercentages of the Group’sresults: Group revenue from continuing operations 91% (2020: 97%) Group profit before tax 1 90% (2020: 87%) 78 92 13 5 86 79 4 8 Group total assets 95% (2020: 99%) Group shareholders’ equity 95% (2020: 93%) 82 95 13 4 79 86 16 7 Full scope for Group audit purposes 2021 Audit of account balances and specified riskfocused audit procedures 2021 Full scope for Group audit purposes 2020 Audit of account balances and specified riskfocused audit procedures 2020 Residual components Note 1These percentages represent the total profits and losses that made up group profit before tax The Group audit team held aglobal planning conference with component auditors to identify audit risks and decide how each component team shouldaddress the identified audit risks. The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported. The Group audit team approved the component materialities, which ranged from $20 million to $110 million (2020: $13 million to $120 million) across the components, having regard to the size and risk profile of the Group across the components. The work on 11 components (2020: 12 components) was performed by component auditors and work on the remaining two components, which included the parent company, was performed by the Group audit team. Whilst it would be conventional practice to visit component teams, the impact of the Coronavirus restrictions on travel has required an alternative approach similar to last year, which required more extensive use of video and telephone conference meetings with all component auditors. During these video and telephone conference meetings, an assessment was made of audit risk and strategy, the findings reported to the Group audit team were discussed in more detail, key working papers were inspected and any further work required by the G roup audit team was then performed by the component auditor. Prudential plc Annual Report 2021 327 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Independent auditor’s report to the members of Prudential plc / continued The Group team also routinely reviews the audit documentation of all c omponent audits. Except as noted below, the Group audit team conducted remotefile reviews, performed, byexperienced members of the audit team, to evaluate whether work performed by all component audit teams over significant risk and other relevant audit areas was sucient. In addition, the Group audit team maintained clear oversight of the work of component auditors and attended local final audit closing meetingsvia conference/video call. Due to regulatory restrictions, a remote file review was not possible for the Chinese component, as such a review needs to be performed from within Mainland China and due to movement restrictions and quarantine requirements relating to the COVID-19 pandemic we were not able to travel to perform this review. To compensate for this situation the Group audit team held increased and more detailed planning and progress calls, obtained extended reporting and heldan expanded closing meeting with theChinese component audit team to und erstand, assess and challenge the auditapproach and findings. The Senior Statutory Auditor, in conjunction with other senior sta in the Group and component audit teams, also regularly attended Business Unit audit committee meetings and participated in meetings with local components to obtain additional understanding, first hand, of t he key risks and audit issues at a component level which may aect the Group financial statements. We were able to rely upon the Group’s internal control over financial reporting in several areas of ouraudit, where our controls testing supported this approach, which enabled us to reduce the scope of our substantive audit work; in the other areas the scope of the audit work performed was fully substantive. 4.The impact of climate change on our audit In planning our audit, we have considered the potential impact of climate change onthe Group’s business and its financial statements. The Group has set out its commitments to decarbonise its portfolio of assets held on behalf of its insurance companies with a new goal of becoming “net zero” by 2050. Further information is provided in the Group’s Environment, Social and Governance report. Climate change risk could have a significant impact on the Group’s business as the operations and strategy of the Group are adapted to address the potential financial and non-financial risks which could arise from both the physical and transition risks associated with climate change. Climate change initiatives and commitments could impact the financial statements of the Group in a variety of ways including in the determination of fair value for assets and potential for increased claims experience which could impact the valuation of liabilities. Greater narrative and disclosure of the impact of climate change risk is also incorporated into the annual report. As a part of our audit we have made enquiries of management to understand the extent of the potential impact of climate change risk on the Group’s financial statements and the Group’s preparedness for this. We have performed a risk assessment of how the impact of the scenario analysis performed by the Group in respect of climate change may aect the financial statements and our audit, this involved a discussion with our own climate risk subject matter professionals to challenge our risk assessment. There was no impact of this on our key audit matters. We have assessed how the Group considers the impact of climate change risk on the valuation of the policyholder liabilities taking into accountthe nature of the insurance contracts that the group enters intoand the associated valuation methodology. This has not had a significant impact on the related key audit matter. We have also incorporated a consideration ofthe climate change impact on the auditof the valuation of certain level 2 and level 3 positions within the portfolio of financial investments held at fair value, taking into account the nature of the investments and the associated valuation approach. This has not had a significant impact on the related key audit matter. We have read the disclosure of climate related information in the front half of the annual report and considered consistency with the financial statements and our auditknowledge. We have not been engaged to provide assurance over the accuracy of the climate risk disclosures set out on pages 82 to 95 in the Annual Report. 5. We h ave nothing to report on going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). We used our knowledge of the Group and Company, its industry, and the general economic environment in which it operates to identify the inherent risks to its business model and analysed how those risks might aect the Group and Company’s financial resources or ability to continue operations over the going concern period. The risks that were considered most likely to adversely aect the Group’s and Company’s available financial resources overthis period were: > Ad verse impacts arising from fluctuations or negative trends in the economic environment which aect the valuations of the Group’s investments, wider credit spreads and defaults and valuation of policyholder liabilities due to the impact of these market movements; > Th e impact on regulatory capital solvency margins from movements in interest rates; and > Sev erelyadverse policyholder lapse or claims experience. We also considered less predictable but realistic second order impacts, such as failure of some of the Group’s counterparties (such as banks and reinsurers) to meet commitments, which could give rise to a negative impact on the Group’s financial position and liquidity, and wider economic factors such as the Coronavirus pandemic’s impact on economic volatility and marketuncertainty in the period, andother such m acroeconomic events. We considered whether these risks could plausibly aect the liquidity or solvency in the going concern period by assessing the Directors’ sensitivities over the level of available financial resourcesindicated by the Group’s and Company’s cash flow forecasts taking account of severe but plausible adverse eects that could arise from these risks individually and collectively. We considered whether the going concern disclosure in note A1 to the fi nancial statements gives a full and accurate description of the directors’ assessment of going concern, including the identified risks and r elated sensitivities. Prudential plc Annual Report 2021prudentialplc.com 328 ![]() Our conclusions based on this work: > we consider that the directors’ use of the going concern basis of a ccountingin the preparation ofthe financial statements is appropriate; > we h ave not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group and Company’s ability to continue as a going concern for the going concern period. > we have nothing material to add or draw attention to in relation to the Directors’ statement in note A1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that maycast significant doubt over the Groupand Company’s use of that basis for the going concern period, and we found the going concern disclosure in note A1 to be acceptable; and > the related statement under the Listing Rules set out on page 191 is m ateriallyconsistentwith the financial statements and our audit knowledge. However, as we cannot predict future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the a bove conclusions are not a guarantee that the Group and the Companywill continue in operation. 6.Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: > Enquiring of directors, the audit committee, internal audit, group security, and inspecting key papers provided to those charged with governance as to the high-level policies and procedures to prevent and detect fraud, including the Group’schannel for “whistleblowing” and process for engaging local management to identify fraud risks specific to theirbusiness units, as well as whether they have knowledge of any actual, suspected, or alleged fraud. > Re ading board and audit committee minutes. > Considering remuneration incentive schemes and performance targets for directors. > Consulting with our own professionals with forensic knowledge to a ssist us in identifying fraud risks based on discussions of the circumstances of the Groupand Company. We communicated identified fraud risks throughout the audit team and r emained alert to any indications of fraud throughout the audit. This included communication from the group team to all component audit teams in scope of relevant fraud risks identified at the Group level and requests to these audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at group. As required by auditing standards, and taking into account possible pressures to meet profit targets, we perform procedures to address the r isks of management override of controls, in particular the risk that group and component management may be in a position to make inappropriateaccountingentries and the riskof bias inaccounting estimates and judgements. Accordingly, we identified fraud risks related to the valuation of insurance contract liabilities given the direct i mpact on the Group’s profit, the opportunity for management to manipulate assumptions due to the subjectivity involved and given the l ong-term nature of these assumptions which are more dicult to corroborate, and potential incentives for the group to manipulate the p rofitability of the Asia businesses given the separation of the US business. On this audit we do not consider there is a fraud risk related to revenue recognition as there is limited management judgement involved in the determination of all material revenue streams as the amounts are contractually derived. In determining the audit procedures to address the identified fraud risks, we took into account the results of our evaluation and testing of the operating eectiveness of the group-wide anti-fraud risk controls. In order to address the risk of fraud specifically as it relates to the valuation of insurance contract liabilities, we involved actuarial specialists to assist in our challenge of management. Wechallenged management in relation to the selection of assumptions and the appropriateness of the rationale for any changes, the consistency of the selected assumptions across dierent aspects of the financial reporting process and comparison to our understanding of the product portfolio, trends in experience, policyholder behaviour and economic conditionsand also by reference to market practice. Further detail in respect of these is set out in the audit response to the risks associated with this key audit matter in section 2 of this report. To address the pervasive risk as it relates to management override, we a lso performed procedures including: > Id entifying journal entries to test for all in-scope components, other than those only in scope for specified risk-based audit procedures, based on risk criteriaand comparing the identified entries to supporting documentation. These include unusual journal entries posted to either cash or borrowings. > Evaluating the business purpose of non-recurring transactions. > As sessing significant accounting estimates and judgements for bias. We discussed with the audit committee matters related to actual or suspected fraud, for which disclosure is not necessary, and considered anyimplications for our audit. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws andregulations that couldreasonably be expected to have a material eect on the financial statements from our general commercial and sector experience, throughdiscussion with the directors, and from inspection of the Group’s regulatory and l egal correspondence. We discussed with the directors and other management the policies andprocedures regardingcompliance with laws and regulation. Prudential plc Annual Report 2021 329 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Independent auditor’s report to the members of Prudential plc / continued As the Group is regulated, our assessment of risks involved gaining an und erstanding of thecontrol environmentincluding the entity’s procedures for complyingwith regulatory requirements. We communicated identified laws and regulationsthroughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the group to all in-scope component audit teams, with the exception of those scoped in only for specified risk-based audit procedures, of relevant laws and regulations identified at the group level, and a request for these teams to report to the group any instances of non-compliance with said laws and regulations, or any identified local laws and regulations, that could give rise to a material misstatement at group. The potential eect of these laws and regulations on the financial statements varies considerably. Firstly, the Group is subject to laws and regulations that directly aect the financial statements includingfinancial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Secondly, the Group is subject to many other laws and regulations where theconsequences of non-compliance could havea material eect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s licence to operate. We identified the regulations governing capital requirements most likely to have such an eect recognising the financial and regulated nature of the Group’sactivities. Auditing standards limit the required audit procedures to identify non- compliance with these laws and regulations to enquiry of the directors and other management andinspection of regulatory and legal correspondence, ifany. Therefore, ifa breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. We discussed with the audit committee matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, eventhough we haveproperly planned and p erformed our audit in accordance with auditing standards. For example, the further removed non-compliancewith laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likelythe inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non- detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. 7.We have nothing to report on the other information in the AnnualReport The directors are responsible for the other information presented in the A nnual Report together with the financial statements. Our opinion on the financial statements does notcover theother information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, considerwhether,based on ourfinancial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and directors’ report Based solely on our work on the other information: > we h ave not identified material misstatements in the strategic report and the directors’ report; > in o ur opinion the information given in those reports for the financial year is consistent with the financial statements; and > in o ur opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ remuneration report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of emerging and principal risks and longer-term viability We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of em ergingand principal risks and the viability statement, and the financial statements and our auditknowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: > The directors’ confirmation within the viability statement on page 64, that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and l iquidity; > The emerging and principal risks disclosures on pages 52 to 63 describing these risks and explaining how they are being managed and mitigated; and > Th e directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Prudential plc Annual Report 2021prudentialplc.com 330 ![]() We are also required to review the viability statement, set out on page 64, under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our auditknowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were r easonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Company’slonger-term viability. Corporategovernance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures andthe financial statements and our auditknowledge. Based on those procedures, we have concluded that each of the following is materially consistent withthe financial statements and our auditknowledge: > the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the informationnecessary for shareholders toassess the Group’sposition and performance, business model and strategy; > th e section of the annual report describing the work of the Audit Committee, including the significant issues that the audit committee considered in relation to the financial statements, and how those issues were addressed; and > th e section of the annual report that describes the review of the eectiveness of the Group’s risk managementand internal controlsystems. We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the U K Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect. 8.We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006 we are required to report to you if, in o ur o pinion: > Ad equate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or > The parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or > Ce rtain disclosures of directors’ remuneration specified by law are not made; or > We h ave not received all the information and explanations we require for our audit. We have nothing to report in these respects. 9.Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 321, the directors are responsible for the preparation of the financial statements including being satisfied that they give a true and fair view. They are also responsible for: such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. 10. Th e purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our a udit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in a n auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Philip Smart (Senior Statutory Auditor) For and on behalf of KPMG LLP, Statutory Auditor Public Interest Entity Auditor recognised in accordance with theHongKong Financial Reporting CouncilOrdinance Chartered Accountants London 8 March 2022 Prudential plc Annual Report 2021 331 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() #### European #### Embedded #### Value(EEV) #### basisresults 332 Prudential plc Annual Report 2021prudentialplc.com ![]() #### Contents 334Index to EEV basis results Prudential plc Annual Report 2021 333 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additionalinformation ![]() Page Basis of preparation 335 EEV results highlights for continuing operations 336 Movementin GroupEEV shareholders’ equity 337 Movement in Group free surplus 339 Notes on the EEV basis results 1 Analysis of new business profit and EEV for long-term business operations 341 2 Analysis of movement in net worth and value of in-force business for long-term business operations 342 3 Sensitivity of results for long-term business operations toalternativeeconomicassumptions 343 4 Expected transfer of value of in-force business and required capital to free surplus for long-term business operations on a discounted basis 345 5 EEV basis results for other operations 346 6 Net core structuralborrowings of shareholder-financed businesses 347 7 Comparison of EEV basis shareholders’ equity with IFRS basis shareholders’ equity 348 8 Methodology and accounting presentation 349 9 Assumptions 353 10 Insurance new business 355 11 Post balance sheet events 355 Statement of Directors’ responsibilities 356 Auditor’s report 357 #### Index to European Embedded Value (EEV) basis results Description of EEV basis reporting The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in 2016. All results are stated net of tax and converted using actual exchange rates (AER) unless otherwise stated. AER are actual historical exchange rates for the relevant accountingperiod. Constant exchange rate (CER) results arecalculated by translating prior period results using current period foreign currency exchange rates, ie current period average rates for the incomestatement and current period closingrates for the balance sheet. Whereappropriate, the EEV basis results include the eects of adoption of IFRS Standards. The Directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. In preparing the EEV basis supplementary information, the Directors have satisfied themselves that the Group remains a going concern. Further information is provided in note A1 of the IFRS financial statements. Prudential plc Annual Report 2021prudentialplc.com 334 ![]() #### European Embedded Value (EEV) basis results #### Basis of preparation IFRS profit for long-term business broadly reflects the aggregate of results on a traditional accounting basis. By contrast, EEV is a way of measuring the value of the in-force life insurance business. The value of future new business is excluded from the embedded value. The EEV Principles provide consistent definitions of the components of EEV, a framework for setting assumptions and an approach to the underlying methodology and disclosures. The EEV principles were designed to provide guidanceand common principles that couldbe understood by both users and preparers alongside prescribing a minimum levelof disclosures to enable users tounderstand anentity’s methodology, assumptions and key judgments as well as the sensitivity of an entity’s EEV to key assumptions. Results prepared under the EEV Principles represent the present value of the shareholders’ interest in the post-tax future profits (on a local statutory basis) expected to arise from the current book of long-term business, after sucient allowance has been made for the aggregate risks in the business. The shareholders’ interest in the Group’s long-term business is the sum of the shareholders’ total net worth and the value of in-force business. The Group’s EEV has been prepared in accordance with the relevant regulatory regimes in place at 31 December 2021. It does not a nticipate proposed future changes to these regimes. For the purposes of preparing EEV basis results, insurance joint ventures and associates are included at the Group’s proportionate share of their embedded value and notat their marketvalue. Asset management and other non-insurance subsidiaries, joint ventures andassociates are included in the EEV basis results at the Group’s proportionate share of IFRS basis shareholders’ equity, with central Group debt shown on a market value basis. Key features of the Group’s EEV methodology include: > Economic assumptions: The projected post-tax profits assume a level of future investment return and are discounted using a risk discount rate. Both the risk discount rate and the investment return assumptions are updated at each valuation date to reflect current market risk-free rates, such that changes in market risk-free rates impact all projected future cash flows. Risk-free rates, and hence investment return assumptions, are based on observable market data, with current market risk-free rates assumed to remain constant throughout the projection, with no trending or mean reversion to longer-term assumptions. Dierent products will be sensitive to dierent assumptions, for example, participating products or products with guarantees are likely to benefit disproportionately from higher assumed investment returns. > Time value of financial options and guarantees : Explicit quantified allowances are made for the time value of financial options and guarantees (TVOG). The TVOG is determined by weighting the probability of outcomes across a large number of dierent economic scenarios and is typically less applicable to health and protection business that generally contains more limited financial options or guarantees. At 31 December 2021, the TVOG for continuing operations is $(784) million (31 December 2020: $(1,912) million). The magnitude of the TVOG at 31 December 2021 would be approximately equivalent to a 10 basis point (2020: 30 basis point) increase in the weighted average risk discount rate which has increased 70basis points since 31 December 2020. > Allowance for risk in the risk discount rates: Risk discount rates are set equal to the risk-free rate at the valuation date plus product-specific allowances for market and non-market risks. Risks that are explicitly captured elsewhere, such as via the TVOG, are not included in the risk discount rates. The allowance for market risk is based on a product-by-product assessment of the sensitivity of shareholder cash flows to varying market returns. This approach reflects the inherent market risk in each product group and results in lower risk discount rates for products where the majority of shareholder profit is uncorrelated to market risk and appropriately higher risk discount rates for products where there is greater market exposure for shareholders. For example, for health and protection products, which represent about 61 per cent of the value of in-force business and 54 per cent of new business profit, the major sources of shareholder profits are underwriting profits or fixed shareholder charges which have very low market risk sensitivity. The construct of UK-style with-profits funds in some business units (representing 19 per cent of the value of in-force and 15 per cent of new business profit) reduce the market volatility of both policyholder and shareholder cash flows due to smoothed bonus declarations and for some markets the presence of an estate. Accordingly, 80 per cent of the value of in-force is products with low market risk sensitivity and this is reflected in the overall risk discount rate. For unit-linked products where fund management charges fluctuate with the investment return a portion of the profits will typically be more sensitive to market risk due to the higher proportion of equity-type assets in the investment portfolio resulting in a higher risk discount rate, this business represents 17 per cent of the value of in-force and 15 per cent of the value of new business profit which limits the impact on the overall risk discount rate. The remaining parts of the business (3 per cent of the value in-force and 16 per cent of the value of new business) relate to non-participating products not covered by the above. The allowance for non-market risk comprises a base Group-wide allowance of 50 basis points plus additional allowances for emerging market risk where appropriate. At 31 December 2021, the total allowance for non-market risk is equivalent to a $(3.7) billion (2020: $(3.2) billion) reduction, or around (8) per cent (2020: (7) per cent) of the embedded value. Post the demerger of the Group’s US operations, Jackson Financial Inc. (Jackson), in September 2021, the Group’s retained interest in Jackson has b een included at its fair value within other (central) operations. This is equivalent to its value within the Group’s IFRS financial statements. Further information is contained in note 5. Prudential plc Annual Report 2021 335 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() European Embedded Value (EEV) basis results / continued #### EEV results highlights for continuing operations 2021 2020 $m note (ii) AER CER $m note (i) % change $m note (i) % change New business profit note (v) 2,526 2,20115%2,24013% Annual premium equivalent (APE) note (v) 4,194 3,808\*10%3,890\*8% New business margin (APE) (%) 60% 58%+2pp58%+2pp Present value of new business premiums (PVNBP) 24,153 21,58712%22,04110% Operating free surplus generated notes (iii)(v) 2,071 1,888\*10%1,928\*7% EEV operating profit notes (iv)(v) 3,543 3,4014%3,4443% EEV operating profit, net of non-controlling interests 3,515 3,3914%3,4342% Operating return on average EEV shareholders’ equity, net of non-controlling interests (%) 8% 8% Closing EEV shareholders’ equity, net of non-controlling interests 47,355 41,92613%41,35015% Closing EEV shareholders’ equity, net of non-controlling interests per share (in cents) 1,725¢ 1,607¢7%1,585¢9% \* Re-presented to include amounts relating to Africa. Notes (i)The results above are for the Group’s continuing operations only, excluding results from the discontinued US operations which were demerged in September 2021. (ii)The Group has changed its operating segments from 2021, as discussed in note B1.3 of the IFRS financial statements, with Africa operations included in long-term business. New business profit for full year 2020 exclude contributions from Africa. (iii)Operating free surplus generated is for long-term and asset management businesses only, before restructuring and IFRS 17 implementation costs, centrally incurred costs and eliminations. (iv)Group EEV operating profit is stated after restructuring and IFRS 17 implementation costs, centrally incurred costs and eliminations. (v)Presented before deducting the amounts attributable to non-controlling interests. This presentation is applied consistently throughout this document, unless stated otherwise. The supplementary information on pages 335 to 355 were approved by the Board of Directors on 8 March 2022. They were signed on its behalfby: Shriti Vadera Chair MikeWells Group Chief Executive Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer Prudential plc Annual Report 2021prudentialplc.com 336 ![]() #### Movement in Group EEV shareholders’ equity Note 2021 $m 2020 $m Insurance and asset management operations Other (central) operations Discontinued USoperations note (i) Group total Group total note (i) Continuing operations: New businessprofit 1 2,526 –– 2,526 2,201 Profit from in-force long-term business 2 1,630 –– 1,630 1,926 Long-term business 4,156 –– 4,156 4,127 Asset management 284 –– 284 253 Operating profit from long-term and asset management businesses 4,440 –– 4,440 4,380 Other income andexpenditure 5 – (723) – (723) (826) Operatingprofit (loss) before restructuring andIFRS 17 implementation costs 4,440(723) – 3,717 3,554 Restructuring and IFRS 17 implementation costs (90)(84) – (174) (153) Operating profit (loss) for the year 4,350(807) – 3,543 3,401 Short-term fluctuations ininvestment returns 2 (1,015)(25) – (1,040) 1,937 Eect of changes in economic assumptions 2 412 –– 412 (996) Loss attaching to corporate transactions – (35) – (35) (121) Mark-to-market valuemovements oncore structuralborrowings 6 – 357 – 357 (247) Non-operating profit (loss) (603)297 – (306) 573 Profit (loss) for the year from continuing operations 3,747(510) – 3,237 3,974 Loss for the year from discontinued US operations note (i) –– (10,852)(10,852) (3,941) (Loss) profit for the year 3,747(510)(10,852)(7,615) 33 Non-controllinginterests share of profitfromcontinuing operations (40) –– (40) (10) Non-controllinginterests share of loss from discontinuedUS operations –– 1,2051,205 130 (Loss) profit for the year attributable to equity holders of the Company 3,707(510)(9,647)(6,450) 153 Equity items from continuing operations: Foreign exchange movements on operations (513)53 – (460) 563 Intra-group dividends and investment in operations note (ii) (1,312)1,312 –– – Demerger dividend in specie from Jackson 5 – 493(2,228)(1,735) – Other external dividends – (421) – (421) (814) New share capital subscribed note (iii) – 2,382 – 2,382 13 Other movements note (iv) (85)323 – 238 (169) Equity items from discontinued US operations net of non-controlling interest note (v) –– (206)(206) (450) Net (decrease) increase in shareholders’ equity 1,7973,632(12,081)(6,652) (704) Shareholders’ equityat beginning ofyear 44,317(2,391)12,08154,007 54,711 Shareholders’ equity at end of year 46,1141,241 – 47,355 54,007 Contribution to Group EEV: At end of year: Continuing operations: Long-term business 2 44,646 –– 44,646 42,861 Asset management andother 5 6901,241 – 1,931 (1,756) Shareholders’ equity, excluding goodwill attributable to equity holders 45,3361,241 – 46,577 41,105 Goodwillattributableto equity holders 778 –– 778 821 Total continuing operations 46,1141,241 – 47,355 41,926 Discontinued US operations –––– 12,081 Shareholders’ equity at end of year 7 46,1141,241 – 47,355 54,007 At beginning of year: Continuing operations: Long-term business 2 42,861 –– 42,861 37,902 Asset management andother 5 635(2,391) – (1,756) (355) Shareholders’ equity, excluding goodwill attributable to equity holders 43,496(2,391) – 41,105 37,547 Goodwillattributableto equity holders 821 –– 821 822 Total continuing operations 44,317(2,391) – 41,926 38,369 Discontinued US operations –– 12,08112,081 16,342 Shareholders’ equity at beginning of year 7 44,317(2,391)12,08154,007 54,711 Prudential plc Annual Report 2021 337 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() European Embedded Value (EEV) basis results / continued EEV shareholders’ equity per share (in cents) note (vi) 2021 2020 Insurance and asset management operations Other (central) operations Discontinued USoperations note (i) Group total Group total note (i) At end of year: Continuing operations: Based on shareholders’ equity, net of goodwill attributable to equity holders 1,651¢45¢ – 1,696¢ 1,576¢ Based on shareholders’ equity at end of year 1,680¢45¢ – 1,725¢ 1,607¢ Discontinued US operations –––– 463¢ Group total 1,680¢45¢ – 1,725¢ 2,070¢ At beginning of year: Continuing operations: Based on shareholders’ equity, net of goodwill attributable to equity holders 1,668¢(92)¢ – 1,576¢ 1,444¢ Based on shareholders’ equity at beginning of year 1,699¢(92)¢ – 1,607¢ 1,475¢ Discontinued US operations –– 463¢463¢ 628¢ Group total 1,699¢(92)¢463¢2,070¢ 2,103¢ EEV basis basic earnings per share in cents note (vii) 2021 2020 Before non- controlling interests $m After non- controlling interests $m Basic earnings per share cents Basic earnings per share cents Based on operatingprofit from continuingoperations afternon-controllinginterests 3,5433,515133.8¢ 130.6¢ Based on profit for the year attributable to equity holders of the Company: From continuing operations 3,2373,197121.7¢ 152.6¢ From discontinued USoperations (10,852)(9,647)(367.1)¢ (146.7)¢ Group total (7,615)(6,450)(245.4)¢ 5.9¢ Notes (i)Discontinued operations represent the Group’s US business, Jackson, which was demerged in September 2021. The 2020 comparative results have been re-presented to show these operations as discontinued accordingly. The retained interest in Jackson is measured for EEV purposes at fair value, consistent with IFRS, and is included in other (central) operations post the demerger. Further information is provided in note 5. (ii)Intra-group dividends represent dividends that have been declared in the year. Investment in operations reflects movements in share capital. (iii)New share capital subscribed primarily represents the issuance of new ordinary shares on the Hong Kong Stock Exchange in October 2021 as described in note C8 of the IFRS financial statements. (iv)Other movements include reserve movements in respect of valuation movements on the retained interest in Jackson, share-based payments, treasury shares and intra-group transfers between operations that have no overall eect on the Group’s shareholders’ equity. (v)Equity items from discontinued US operations include mark-to-market value movements on assets backing net worth of $(206) million for 2021 (2020: $552 million). In addition, 2020 included a charge of $(1,112) million relating to the day one impact of the equity investment by Athene into the US business in July 2020. (vi)Based on the number of issued shares at 31 December 2021 of 2,746 million shares (31 December 2020: 2,609 million shares). (vii)Based on weighted average number of issued shares of 2,628 million shares in 2021 (2020: 2,597 million shares). Prudential plc Annual Report 2021prudentialplc.com 338 #### Movement in Group EEV shareholders’ equity continued ![]() #### Movement in Group free surplus Operating free surplus generation is the financial metric we use to measure the internal cash generation of our business operations and for our life operations is generally based on (with adjustments) the capital regimes that apply locally in the various jurisdictions in which the Group operates. It represents amounts emerging fromthe in-force business during theyear, net of amounts reinvested in writing new business. For asset management businesses, it equates to post-tax adjusted operating profit for the year. For long-term business, free surplus is generally based on (with adjustments) the excess of the regulatory basis net assets for EEV reporting purposes (total net worth) over the capital required to support the covered business. In general, assets deemed to be inadmissible on a local regulatory basis are included in total net worth where considered recognisable on an EEV basis. For asset management and other non-insurance operations (including the Group’s central operations), free surplus is taken to be IFRS basis shareholders’ equity, net of goodwill attributable to shareholders, with central Group debt recorded as free surplus to the extent that it is classified as capital resources under the Group’s capital regime. Following the application of the Group-wide Supervision (GWS) Framework, both subordinated and senior debt are treated as capital for the purposes of free surplus at 31 December 2021. A reconciliation of EEV free surplus to the GWS shareholder capital surplus over group minimum capital requirements is set out in note I(i) of the additional financial information. Further information is provided in note 5 and note 6. Note 2021 $m 2020 $m Insurance and asset management operations Other (central) operations Discontinued USoperations note (i) Group total Group total note (i) Continuing operations: Expected transfer from in-force business 2,340 –– 2,340 1,878 Expected return on existing free surplus 157 –– 157 101 Changes in operatingassumptions and experience variances (173) –– (173) 215 Operating free surplus generated from in-force long-term business 2 2,324 –– 2,324 2,194 Investment in new business note (ii) 2 (537) –– (537) (559) Long-term business 1,787 –– 1,787 1,635 Asset management 284 –– 284 253 Operating free surplusgenerated from long-term and asset managementbusinesses 2,071 –– 2,071 1,888 Other income andexpenditure 5 – (723) – (723) (826) Operating free surplus generated before restructuring and IFRS 17 implementation costs 2,071(723) – 1,348 1,062 Restructuring and IFRS 17 implementation costs (85)(84) – (169) (147) Operating free surplus generated 1,986(807) – 1,179 915 Non-operatingfree surplusgenerated note (iii) 142(60) – 82 316 Free surplus generated fromcontinuing operations 2,128(867) – 1,261 1,231 Free surplus generated from discontinued US operations note (i) –– 770770 (998) Free surplus generated for the year 2,128(867)7702,031 233 Equity items from continuing operations: Net cash flows paid to parent company note (iv) (1,451)1,451 –– – Demerger dividend in specie from Jackson 5 – 493(2,228)(1,735) – Other external dividends – (421) – (421) (814) Foreign exchange movements on operations (43)53 – 10 136 New share capital subscribed note (v) – 2,382 – 2,382 13 Other movements and timing dierences 54184 – 238 (171) Treatmentof grandfathered debtinstruments under theGWS Framework 5 – 1,995 – 1,995 – Net subordinated debt issuance/redemption 5 – (232) – (232) – Equity items from discontinued US operations note (vi) –– (206)(206) 751 Net movement in free surplus before amounts attributable to non-controlling interests 6885,038(1,664)4,062 148 Change inamounts attributable tonon-controllinginterests (21) – (85)(106) 209 Balance at beginning of year 5,9832,3611,74910,093 9,736 Balance at end of year note (vii) 6,6507,399 – 14,049 10,093 Representing: Free surplus excluding distribution rights and other intangibles 5,6514,432 – 10,083 6,068 Distribution rights and other intangibles 9992,967 – 3,966 4,025 Balance at end of year 6,6507,399 – 14,049 10,093 Prudential plc Annual Report 2021 339 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() European Embedded Value (EEV) basis results / continued Contribution to Group free surplus: Note 2021 $m 2020 $m Insurance and asset management operations Other (central) operations Discontinued USoperations note (i) Group total Group total note (i) At end of year: Continuing operations: Long-term business 2 5,960 –– 5,960 5,348 Asset management andother 5 6907,399 – 8,089 2,996 Total continuing operations 6,6507,399 – 14,049 8,344 Discontinued US operations –––– 1,749 Free surplus at end of year 6,6507,399 – 14,049 10,093 At beginning of year: Long-term business 2 5,348 –– 5,348 3,683 Asset management andother 5 6352,361 – 2,996 4,276 Total continuing operations 5,9832,361 – 8,344 7,959 Discontinued US operations –– 1,7491,749 1,777 Free surplus at beginning of year 5,9832,3611,74910,093 9,736 Notes (i)Discontinued operations represent the Group’s US business, Jackson, which was demerged in September 2021. The free surplus generated of $770 million in 2021 represents the net eect of the result for the year up to demerger and the adjustment to reflect the fair value at the demerger date. It is not representative of the capital generation in the period for the US operations. The 2020 comparative results have been re-presented to show these operations as discontinued accordingly. The retained interest in Jackson is measured for EEV purposes at fair value, consistent with IFRS, and is included in other (central) operations post the demerger. Further information is provided in note 5. (ii)Free surplus invested in new business primarily represents acquisition costs and amounts set aside for required capital. (iii)Non-operating free surplus generation in 2020 included a reinsurance commission of $770 million received as part of a reinsurance transaction undertaken by our business in Hong Kong. During 2021, the treaty resulted in $(59) million being due to the reinsurer under the contract, which is included within non-operating free surplus generation. The surplus generated from the underlying in-force reinsured policies continued to be recognised as operating free surplus generated. Non-operating free surplus generated for other operations represents the post-tax IFRS basis short-term fluctuations in investment returns and gain or loss on corporate transactions for other entities. (iv)Net cash flows to parent company reflect the cash remittances as included in the holding company cash flow at transaction rates. The dierence to the intra-group dividends and investment in operations in the movement in EEV shareholders’ equity primarily relates to intra-group loans, foreign exchange and other non-cash items. (v)New share capital subscribed primarily represents the issuance of new ordinary shares on the Hong Kong Stock Exchange in October 2021 as described in note C8 of the IFRS financial statements. (vi)Equity items from discontinued US operations include the mark-to-market value movements on assets backing net worth of $(206) million for 2021 (2020: $552 million). In addition, 2020 included a credit of $63 million relating to the day-one impact of the equity investment by Athene into the US business in July 2020. (vii)Free surplus at 31 December 2021 was utilised to redeem $1,725 million of debt in January 2022 as planned. Prudential plc Annual Report 2021prudentialplc.com 340 #### Movement in Group free surplus continued ![]() #### 1 Analysis of new business profit and EEV for long-term business operations 2021 New business profit (NBP) note $m Annual premium equivalent (APE) $m Present value of new business premiums (PVNBP) $m New business margin (APE) % New business margin (PVNBP) % Closing EEV shareholders’ equity, excluding goodwill $m CPL 3527763,76145%9%3,114 Hong Kong 7365504,847134%15%21,460 Indonesia 1252521,06750%12%2,237 Malaysia 2324612,13750%11%3,841 Singapore 5237436,21470%8%7,732 Growth markets and other 5581,4126,12740%9%6,262 Total continuing long-term operations 2,5264,19424,15360%10%44,646 2020(AER) New business profit (NBP) note $m Annual premium equivalent (APE) $m Present value of new business premiums (PVNBP) $m New business margin (APE) % New business margin (PVNBP) % Closing EEV shareholders’ equity, excluding goodwill $m CPL 2695822,70546%10%2,798 Hong Kong 7877585,095104%15%20,156 Indonesia 1552671,15458%13%2,630 Malaysia 2093462,02360%10%4,142 Singapore 3416105,35456%6%8,160 Growth markets and other 4401,245\*5,25635%8%4,975\* Total continuing long-term operations 2,2013,80821,58758%10%42,861 \* Re-presented to include amounts relating to Africa. 2020(CER) New business profit (NBP) note $m Annual premium equivalent (APE) $m Present value of new business premiums (PVNBP) $m New business margin (APE) % New business margin (PVNBP) % Closing EEV shareholders’ equity, excluding goodwill $m CPL 2886232,89446%10%2,871 Hong Kong 7867575,083104%15%20,046 Indonesia 1582711,17458%13%2,592 Malaysia 2123512,05160%10%3,999 Singapore 3506265,49556%6%8,000 Growth markets and other 4461,262\*5,34435%8%4,852\* Total continuing long-term operations 2,2403,89022,04158%10%42,360 \* Re-presented to include amounts relating to Africa. Note The movement in new business profit from continuing long-term operations is analysed as follows: $m 2020 new business profit 2,201 Foreign exchange movement 39 Sales volume 175 Eect of changes in interest rates and other economic assumptions (59) Business mix, product mix and other items 170 2021 new business profit 2,526 EEV new business profit reflects the value of expected future profits from the new business sold in the year, and demonstrates the business written in the year is expected to be profitable. Information on the Group’s operating experience variances on the in-force business is shown in note 2. #### Notes on the EEV basis results Prudential plc Annual Report 2021 341 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued #### 2 Analysis of movement in net worth and value of in-force business for long-term #### business operations Continuing operations: 2021 $m 2020 $m Free surplus Required capital Net worth Valueof in-force business Embedded value note (i) Embedded value note (i) Balance at beginning of year 5,3483,4458,79334,06842,861 37,902 New business contribution (537)163(374)2,9002,526 2,201 Existing business – transfer to net worth 2,340(224)2,116(2,116) – – Expected return on existing business note (ii) 157792361,5251,761 1,401 Changes in operatingassumptions, experience variances and other items note (iii) (173)(6)(179)48(131) 525 Operatingprofit before restructuring andIFRS 17 implementation costs 1,787121,7992,3574,156 4,127 Restructuring and IFRS 17 implementation costs (77) – (77)(5)(82) (69) Operating profit 1,710121,7222,3524,074 4,058 Non-operating profit (loss) note (iv) 142(179)(37)(566)(603) 822 Profit (loss) for the year 1,852(167)1,6851,7863,471 4,880 Non-controllinginterests share of (profit)loss (11) – (11)(19)(30) 1 Profit (loss) for the year attributable to equity holders of the Company 1,841(167)1,6741,7673,441 4,881 Foreign exchange movements (30)(48)(78)(379)(457) 542 Intra-group dividends and investment in operations (1,115) – (1,115) – (1,115) (567) Other movements note (v) (84) – (84) – (84) 103 Balance at end of year note (i) 5,9603,2309,19035,45644,646 42,861 Notes (i)The total embedded value for continuing long-term business operations at the end of each year show below, excluding goodwill attributable to equity holders, can be analysed further as follows: 31 Dec 2021 $m 31 Dec 2020 $m Value of in-force business before deduction of cost of capital and time value of options and guarantees 36,965 36,729 Cost of capital (725) (749) Time value of options and guarantees \* (784) (1,912) Net value of in-force business 35,456 34,068 Freesurplus 5,960 5,348 Required capital 3,230 3,445 Net worth 9,190 8,793 Embedded value from continuing operations 44,646 42,861 \* The time value of options and guarantees (TVOG) arises from the variability of economic outcomes in the future and is, where appropriate, calculated as the dierence between an average outcome across a range of economic scenarios, calibrated around a central scenario, and the outcome from the central economic scenario, as described in note 8(i)(d). At 31 December 2021, the TVOG for continuing operations is $(784) million, with the substantial majority arising in Hong Kong. The TVOG has decreased since 31 December 2020 reflecting the generally higher government bond yields at 31 December 2021 which mean guarantees are less likely to be in-the-money. The TVOG reflects the variability of guaranteed benefit pay-outs across the range of economic scenarios around interest rates at the valuation date and represents some of the market risk for the key products in Hong Kong. As this market risk is explicitly allowed for via the TVOG, no further adjustment is made for this within the EEV risk discount rate, as described in note 8(i)(h). The magnitude of the TVOG at 31 December 2021 would be approximately equivalent to a 10 basis point (2020: 30 basis point) increase in the weighted average risk discount rate which has increased 70 basis points since 31 December 2020. (ii)The expected return on existing business reflects the eect of changes in economic and operating assumptions in the current year, as described in note 8(ii)(c). The movement in this amount compared to the prior year is analysed as follows: $m 2020 expected return on existing business 1,401 Foreign exchange movement 22 Eect of changes in interest rates and other economic assumptions 253 Growth in opening value of in-force business and other items 85 2021 expected return on existing business 1,761 (iii)The eect of changes in operating assumptions of $118 million in 2021 (2020: $390 million) principally reflects the outcome of the regular review of persistency, claims and expenses. Experience variances and other items of $(249) million (2020: $135 million) has been driven primarily by short-term persistency and claims impacts linked to Covid-19. There have been higher Covid-19-related claims in Indonesia and India, with high Covid-19 cases recorded in mid to late 2021. 2021 also began to see a more normalised level of medical reimbursement claims compared to 2020, when claims were more significantly reduced by customers either not seeking or deferring insured treatments. Prudential plc Annual Report 2021prudentialplc.com 342 ![]() (iv)The EEV non-operating profit (loss) from continuing long-term operations can be summarised as follows: 2021 $m 2020 $m Short-termfluctuationsin investment returns note (a) (1,015) 1,909 Eect of change in economic assumptions note (b) 412 (996) Loss attachingto corporate transactions note (c) – (91) Non-operating profit (loss) from continuing operations (603) 822 (a)The charge of $(1,015) million in short-term fluctuations in investment returns mainly reflects lower than expected bond returns, following the rise in interest rates in many markets in the year, partially oset by better than expected equity returns. (b)The credit of $412 million for the eect of change in economic assumptions primarily arises from increases in long-term interest rates, resulting in higher assumed fund earned rates that impact projected future cash flows, partially oset by the eect of higher risk discount rates. (c)In 2020, the loss attaching to corporate transactions of $(91) million arose on the reinsurance transaction undertaken by the Hong Kong business as described in movement in Group free surplus. (v)Other movements include reserve movements in respect of share-based payments, treasury shares, intra-group loans and other intra-group transfers between operations that have no overall eect on the Group’s shareholders’ equity. #### 3 Sensitivity of results for long-term business operations to alternative economic assumptions (i)Sensitivity analysis – economic assumptions The tables below showthe sensitivity of the embedded value and the newbusiness profit for continuinglong-term business operations to: > 1 per cent and 2 per cent increases in interest rates and 0.5 per cent decrease in interest rates. This allows for consequential changes in the assumed investment returns for all asset classes, market values of fixed interest assets, local statutory reserves, capital requirements and risk discount rates (but excludes changes in the allowance for market risk); > 1 pe r cent rise in equity and property yields; > 1 per cent and 2 per cent increases in the risk discount rates. The main driver for changes in the risk discount rates from period to period is changes in interest rates, the impact of which is expected to be partially oset by a corresponding change in assumed investment returns, the eect of which is not included in the risk discount rate sensitivities. The impact of higher investment returns can be approximated as the dierence between the sensitivity to increases in interest rates and the sensitivity to increases in risk discount rates; > 20 per cent fall in the market value of equity and property assets (embedded value only); and > Ho lding the group minimum capital requirements under the GWS Framework in contrast to EEV basis required capital (embedded value only). This reduces the level of capital and therefore the level of charge deducted from the embedded value for the cost of locked-in required capital. This has the eect of increasing EEV. The sensitivities shown below are forthe impact ofinstantaneous and permanent changes (with no trending or mean reversion) on the embedded value oflong-term business operations and include the combined eect on the value of in-force business and net assets (including derivatives) held at the valuation dates indicated. The results only allow for limited management actions, such as changes to future policyholder bonuses, where applicable. If such economic conditions persisted, the financial impacts may dier to the instantaneous impacts shown below. In this case, management could also take additional actions to help mitigate the impact of these stresses. No change in the mix of the asset portfolio held at t he valuation date is assumed when calculating sensitivities, while changes in the market value of those assets are recognised. The sensitivity impacts are expected to be non-linear. To aid understanding of this non-linearity, impacts of both a 1 per cent and 2 per cent increase to interest rates and risk discount rates are shown. If the changes in assumptions shown in the sensitivities were to occur, the eects shown below would be recorded within two components of the profit analysis for the following period, namely the eect of changes in economic assumptions and short-term fluctuations in investment returns. In addition to the sensitivity eects shown below, the other components of the profit for the following period would be calculated by reference to the altered assumptions, for example new business profit and expected return on existing business. New business profit from continuinglong-term business 2021 \* $m 2020 $m New business profit 2,526 2,201 Interest rates and consequential eects – 2% increase 88 107 Interest rates and consequential eects – 1% increase 70 78 Interest rates and consequential eects – 0.5% decrease (64) (98) Equity/property yields – 1% rise 155 140 Risk discount rates – 2% increase (653) (626) Risk discount rates – 1% increase (380) (372) \* 2021 new business profit includes Africa operations following the change in the Group’s operating segments in 2021. In the context of the Group, Africa’s results are not materially impacted by the above sensitivities. Prudential plc Annual Report 2021 343 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued Embedded value of continuing long-term business 31 Dec 2021 \* $m 31 Dec 2020 $m Embedded value 44,646 42,861 Interest rates and consequential eects – 2% increase (4,782) (3,589) Interest rates and consequential eects – 1% increase (2,228) (1,429) Interest rates and consequential eects – 0.5% decrease 223 177 Equity/property yields – 1% rise 1,909 1,949 Equity/property market values – 20% fall (1,959) (1,912) Risk discount rates – 2% increase (9,717) (9,225) Risk discount rates – 1% increase (5,443) (5,286) Group minimum capital requirements 136 150 \* Embedded value includes Africa operations following the change in the Group’s operating segments in 2021. In the context of the Group, Africa’s results are not materially impacted by the above sensitivities. Overall, the new business profit sensitivities at 31 December 2021 are in line with those at 31 December 2020. For a 1 per cent increase in assumed interest rates, the $(2,228) million negative eect comprises a $(5,443) million negative impact of increasing the risk discount rate by 1 per cent, partially oset by a $3,215 million benefit from assuming 1 per cent higher investment returns. Similarly, for a 2 per cent increase in assumed interest rates the $(4,782) million negative eect comprises a $(9,717) million negative impact of increasing the risk discount rates by 2 per cent, partially oset by a $4,935 million benefit from higher assumed investment returns. Finally, for a 0.5 per cent decrease in assumed interest rates, there would be a $223 million positive eect reflecting the benefit of a 0.5 per cent reduction in risk discount rates being partially oset by lower assumed investment returns. These osetting impacts are sensitive to economics and the net impact can therefore change from period to period depending on the current levelof interest rates. Atthe current andhigher interest rates at 31 December 2021, there is a reduced benefit from further increases in investment returns compared to 31 December 2020, as guarantees written to policyholders are less likely to be in-the-money at current levels. This contrasts with the adverse eect of higher risk discount rates which tends to be more stable from period to period, all other things being equal. In order to illustrate the impact of varying specific economic assumptions, all other assumptions are held constant in the sensitivities above and therefore, the actual changes in embedded value were these economic eects to materialise may dier from the sensitivities shown. For example, market risk allowances would likely be increased within the risk discount rate if interest rates increased by 1 per cent, leading to a reduction of $(2,583) million (compared with the $(2,228) million impact shown above). However, if interest rates actually decreased by 0.5 per cent, it would lead to a $409 million increase (compared with the $223 million increase shown above). (ii) Se nsitivity analysis – non-economic assumptions The tables below showthe sensitivity of the embedded value and the newbusiness profit for continuinglong-term business operations to: > 10 p er cent proportionate decrease in maintenance expenses (for example, a 10 per cent sensitivity on a base assumption of $10 per annum would represent an expense assumption of $9 per annum); > 10 p er cent proportionate decrease in lapse rates (for example, a 10 per cent sensitivity on a base assumption of 5.0 per cent would represent a lapse rate of 4.5 per cent per annum); and > 5 pe r cent proportionate decrease in base mortality (ie increased longevity) and morbidity rates. New business profit from long-term business 2021 \* $m 2020 $m New business profit 2,526 2,201 Maintenance expenses – 10% decrease 60 47 Lapse rates – 10% decrease 190 156 Mortality and morbidity – 5% decrease 143 106 \* 2021 new business profit includes Africa operations following the change in the Group’s operating segments in 2021. In the context of the Group, Africa’s results are not materially impacted by the above sensitivities. Prudential plc Annual Report 2021prudentialplc.com 344 #### 3 Sensitivity of results for long-term business operations to alternative economic assumptions #### continued ![]() Embedded value of long-term business 31 Dec 2021 \* $m 31 Dec 2020 $m Embedded value 44,646 42,861 Maintenance expenses – 10% decrease 455 476 Lapse rates – 10% decrease 1,901 1,774 Mortality and morbidity – 5% decrease 1,596 1,689 \* Embedded value includes Africa operations following the change in the Group’s operating segments in 2021. In the context of the Group, Africa’s results are not materially impacted by the above sensitivities. #### 4 Expected transfer of value of in-force business and required capital to free surplus #### for long-term business operations on a discounted basis The table below shows how the value of in-force business (VIF) and the associated required capital for long-term business operations are projected as emerging into free surplus over future years. Cash flows are projected on a deterministic basis and are discounted at the appropriate risk discount rate. The modelled cash flows use the same methodology underpinning the Group’s EEV reporting and so are subject to the same assumptions and s ensitivities. The projected emergence of VIF and required capital into free surplus in 2021 will be the starting point for expected free surplus generation next year, after updatingforoperatingand economicassumption changes. See note I(vi) of the additional financialinformation for further detail. Total expected emergence Expected period of conversion of future post-tax distributable earnings and required capital flows to free surplus at 31 Dec 1-5 years 6-10years11-15years 16-20 years 21-40 years 40+ years 2021($m) 38,9229,5206,8245,1604,1909,5883,640 (%) 100%24%18%13%11%25%9% 2020($m) 38,5949,1126,9325,5114,2349,1933,612 (%) 100%24%18%14%11%24%9% The required capital and value of in-force business for long-term business operations can be reconciled to the total discounted emergence of future free surplus shown above as follows: 31 Dec 2021 \* $m 31 Dec 2020 $m Required capital note 2 3,230 3,445 Value of in-force business (VIF) note 2 35,456 34,068 Other items \*\* 236 1,081 Continuing long-term business operations 38,922 38,594 \* 2021 amounts include Africa operations following the change in the Group’s operating segments in 2021. \*\*‘Other items’ represent the impact of the TVOG and amounts incorporated into VIF where there is no definitive time frame for when the payments will be made or receipts received. These items are excluded from the expected free surplus generation profile above. Prudential plc Annual Report 2021 345 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued #### 5 EEV basis results for other operations EEV basis other income and expenditure represents the post-tax IFRS basis results for other operations (before restructuring and IFRS 17 implementation costs), together with an adjustment to deduct the unwind of expected margins on the internal management of the assets of the continuing covered business, as shown in the table below. It mainly includes interest costs on core structural borrowings and corporate expenditure for head oce functions in London and Hong Kong that are not recharged/allocated to the insurance operations. In line with the EEV Principles, the allowance for the future costs of internal asset management services within the EEV basis results for long-term insurance operations excludes the projected future profits or losses generated by any non-insurance entities within the Group in providing those services (ie the EEV for long-term insurance operations assumes that the cost of internal asset management services will be that incurred by the Group as a whole, not the cost that will be borne by the insurance business). The results of the Group’s asset management operations include the current period profit from the management of both internal and external funds, consistent with their presentation within the Group’s IFRS basis reporting. An adjustment is accordingly made to Group EEV operating profit, within the EEV basis results for other operations, to deduct the expected profit anticipated to arise in the current period in the opening value of in-force business from internal asset management services, such t hat Group EEV operating profit includes the actual profit earned in respect of the management of these assets. Any costs incurred within the head oce functions in London and Hong Kong that are deemed attributable to the long-term insurance (covered) business are recharged/allocated to the insurance operations and recorded within the results for those operations. The assumed future expenses within the value of in-force business for long-term insurance operations allow for amounts expected to be recharged/allocated by the head oce functions. Other costs that are not recharged/allocated to the insurance operations are shown as part of other income and expenditure for the current period, and are not included within the projection of future expenses for in-force insurance business. 2021 $m 2020 $m IFRS basis other income and expenditure (as recorded in note B1.1 of the IFRS financial statements) (605) (743) Tax eects on IFRS basis results (37) (15) Less: unwind of expected profit on internal management of the assets of continuing long-term business (81) (68) EEV basis other income and expenditure (723) (826) The EEV basis shareholders’ equity for other operations is taken to be IFRS basis shareholders’ equity, with central Group debt shown on a market value basis. Free surplus for other operations is taken to be IFRS basis shareholders’ equity, net of goodwill attributable to equity holders, with central Group debt recorded as free surplus to the extent that it is classified as capital resources under the Group’s capital regime. Under the GWS Framework, all debt instruments issued by Prudential plc at the 31 December 2021 are included as capital resources. Shareholders’ equity for other operations can be compared across metrics as shown in the table below. 2021 $m 2020 $m IFRS basis shareholders’ equity (as recorded in note C1 of the IFRS financial statements) 1,679 (1,596) Mark-to-marketvalue adjustment on centralborrowings note 6 (438) (795) EEV basis shareholders’ equity 1,241 (2,391) Debt instruments treated as capital resources 6,158 4,752 Free surplus of other (central) operations 7,399 2,361 Treatment of discontinued US operations following the demerger On completion of the demerger of the Group’s US operations (Jackson) in September 2021, the Group’s pre-demerger interest in Jackson was remeasured to its observable fair value at that date, with any remeasurement gain or loss recognised in the results of discontinued operations. At t he same time, the fair value of the interest in Jackson distributed to the Group’s shareholders was recognised directly as a reduction in Group equity. The Group retained a 19.7 per cent economic interest (19.9 per cent voting interest) of Jackson immediately following the demerger, which was valued at $493 million at that time. In December 2021, Jackson repurchased 2,242,516 shares of its Class A common stock from Prudential which reduced Prudential’s economic interest to 18.4 per cent as at 31 December 2021 (18.5 per cent voting interest) and realised a gain of $23 million which is included in corporate transactions. The remaining 18.4 per cent economic interest is measured at fair value within the EEV results at 31 December 2021. Unrealised changes in fair value since the date of demerger have been included in other movements in equity items from continuing operations as part of the EEV basis results for other operations. This treatment is consistent with the approach adopted for IFRS as discussed in note D1.2 of the IFRS financial statements. Prudential plc Annual Report 2021prudentialplc.com 346 ![]() #### 6 Net core structural borrowings of shareholder-financed businesses 31 Dec 2021 $m 31 Dec 2020 $m IFRS basis note (ii) Mark-to- market value adjustment note (iii) EEV basis at market value IFRS basis note (ii) Mark-to- market value adjustment note (iii) EEV basis at market value Holding company cash and short-term investments note (i) (3,572) – (3,572) (1,463) – (1,463) Central borrowings: Subordinated debt 4,0751964,271 4,3324204,752 Senior debt 1,7022421,944 1,7013752,076 Bank loan 350 – 350 350 – 350 Totalcentral borrowings 6,1274386,565 6,3837957,178 Total net central funds from continuing operations 2,5554382,993 4,9207955,715 Discontinued US operations (Jackson Surplus Notes) 25090340 Net core structural borrowings of shareholder-financed businesses 5,1708856,055 Notes (i)Holding company includes centrally managed group holding companies. $1,725 million of the cash held at the year-end was used in January 2022 to complete the planned debt redemptions. (ii)As recorded in note C5.1 of the IFRS financial statements. (iii)The movement in the value of core structural borrowings includes foreign exchange eects for pounds sterling denominated debts. The movement in the mark-to-market value adjustment from continuing operations can be analysed as follows: 2021 $m 2020 $m Balance at beginning of year 795 548 (Credit) charge included in the income statement from continuing operations (357) 247 Balance at end of year 438 795 The movement in the value of the Jackson Surplus Notes is included in the results of the discontinued US operations. Prudential plc Annual Report 2021 347 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued #### 7 Comparison of EEV basis shareholders’ equity with IFRS basis shareholders’ equity 31 Dec 2021 $m 31 Dec 2020 $m Assets less liabilities before deduction of insurance funds 164,810 421,987 Less insurance funds (including liabilities in respect of insurance products classified as investment contracts under IFRS 4): Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds note (i) (147,546) (399,868) Shareholders’ accrued interest inthe long-term business 30,267 33,129 (117,279) (366,739) Less non-controlling interests (176) (1,241) Total net assets attributable to equity holders of the Company 47,355 54,007 Sharecapital 182 173 Share premium 5,010 2,637 IFRS basis shareholders’ reserves 11,896 18,068 IFRS basis shareholders’ equity, net of non-controlling interests 17,088 20,878 Shareholders’ accrued interest inthe long-term business 30,267 33,129 EEV basis shareholders’ equity, net of non-controlling interests note (ii) 47,355 54,007 Analysed as: Continuing operations 41,926 Discontinued US operations 12,081 EEV basis shareholders’ equity, net of non-controlling interests 54,007 Notes (i)The 2020 “policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds” included amounts relating to the discontinued US operations. (ii)The 31 December 2021 amount includes the Group’s retained 18.4 per cent economic interest (18.5 per cent voting interest) in Jackson post demerger at fair value. Prudential plc Annual Report 2021prudentialplc.com 348 ![]() #### 8 Methodology and accounting presentation The methodology and accounting presentation below arestated forthe Group’s continuingbusiness operationsonly. Following Jackson’s demerger, t he Group’sUS operationsare no longerincluded in covered business with comparatives being re-presented. Methodology applied for the discontinued US operations in the comparative results is provided in note 8 of the Group’s EEV financial statements for the year ended 31 December 2 020. (i) Me thodology (a)Covered business The EEV basis results for the Group’s continuing operations are prepared for ‘covered business’ as defined by the EEV Principles. Covered business represents the Group’s long-term insurance business (including the Group’s investments in joint venture and associate insurance operations), for which the value of new and in-force contracts is attributable to shareholders. The definition of long-term insurance business comprises those contracts falling under the definition for regulatory purposes. Africa operations are included within the covered business from 2021 following the change in the Group’s operating segments. Further details on the Group’s segments are provided in note B1.2 of the IFRS basis results. The amounts are shown within the continuing insurance segment for all periods. The EEV basis results for the Group’s covered business are then combined with the post-tax IFRS basis results of the Group’s asset management and other operations (including interest costs on core structural borrowings and corporate expenditure for head oce functions in London and Hong Kong that is not recharged/allocated to the insurance operations), with an adjustment to deduct the unwind of expected margins on the internal managementof the assets ofthe covered business. Under theEEV Principles, the results for coveredbusiness incorporate the projected margins of attaching internal asset management, as described in note (g) below. (b) Va luation of in-force and new business The EEV basis results are prepared incorporating best estimate assumptions about all relevant factors including levels of future investment returns, persistency, mortality, morbidity and expenses, as described in note 9(iii). These assumptions are used to project future cash flows. The present value of the projected future cash flows is then calculated using a discount rate, as shown in note 9(i), which reflects both the time value of money and all other non-diversifiable risks associated with the cash flows that are not otherwise allowed for. The total profit that emerges over the lifetime of an individual contract as calculated under the EEV basis is the same as that calculated under the I FRS basis. Since the EEV basis reflects discounted future cash flows, under the EEV methodology the profit emergence is advanced, thus more closely aligning the timing of the recognition of profit with the eorts and risks of current management actions, particularly with regard to business sold during the period. New business In determining the EEV basis value of new business, premiums are included in projected cash flows on the same basis of distinguishing regular and single premium business as set out in theGroup’s new business sales reporting. New business premiums reflect those premiums attaching to the covered business, including premiums for contracts classified as investment contracts under IFRS 4. New business premiums for regular premium products are shown on an annualised basis. New business profit represents profit determined byapplying operatingand economic assumptionsas at the end of theperiod. New business profitability is a key metric for the Group’s management of the development of the business. In addition, new business margins are shown by reference to annual premium equivalent (APE) and the present value of new business premiums (PVNBP). These margins are calculated as the percentage of the value of new business profit to APE and PVNBP. APE is calculated as the aggregate of regular premiums on new business written in the period and one-tenth of single premiums. PVNBP is calculated as the aggregate of single premiums and the present value of expected future premiums fromregular premium new business, allowing for lapses and the other assumptions madein determining the EEV new business profit. Valuation movementson investments Investment gains and losses during the period (to the extent that changes in capital values do not directly match changes in liabilities) are included directly in the profit or loss for the period and shareholders’ equity as they arise. The results for the covered business conceptually reflect the aggregate of the post-tax IFRS basis results and the movements in the additional shareholders’ interest recognised on an EEV basis. Therefore, the starting point for the calculation of the EEV basis results reflects the market value movements recognised on an IFRS basis. Prudential plc Annual Report 2021 349 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued (c) Co st of capital A charge is deducted from the embedded value for the cost of locked-in required capital supporting the Group’s long-term business. The cost is the dierence between the nominal value of the capital held and the discounted value of the projected releases of this capital, allowing for post-tax investment earnings on the capital. The EEV results are aected by the movement in this cost from period to period, which comprises a charge against new business profit and generally a release in respect of the reduction in capital requirements for business in force as this runs o. Where required capital is held within a with-profits long-term fund, the value placed on surplus assets within the fund is already adjusted to reflect its expected release over time and so no further adjustment to the shareholder position is necessary. (d)Financial options andguarantees Nature of financial options and guarantees Participating products, principally writtenin Hong Kong, Singapore and Malaysia, haveboth guaranteed and non-guaranteed elements. These products provide returns to policyholders through bonuses that are smoothed. There are two types of bonuses: regular and final. Regular bonuses are declared once a year and, once credited, are guaranteed in accordance with the terms of the particular products. Final bonuses are guaranteed only until thenext bonus declaration. There are also variousnon-participating long-term products with guarantees. The principal guarantees are those for whole-of-lifecontracts with floor levels of policyholder benefits that typically accrue at rates set at inception and do not vary subsequently with market conditions. Similar to participating products, the policyholder charges incorporate an allowance for the cost of providing these guarantees, which, for certain whole-of- life products in Hong Kong, remains constant throughout varying economic conditions, rather than reducing as the economic environment improves and vice versa. Time value The value of financial options and guarantees comprises the intrinsic value (arising from a deterministic valuation on best estimate assumptions) and the time value (arising from the variability of economic outcomes in the future). Where appropriate, a full stochastic valuation has been undertaken to determine the time value of financial options and guarantees. The economic assumptions used for the stochastic calculations are consistent with those used for the deterministic calculations. Assumptions specific to t he stochastic calculations reflect local market conditions and are based on a combination of actual market data, historic market data and an assessment of long-term economic conditions. Common principles have been adopted across the Group for the stochastic asset models, such as separate modelling of individual asset classes with an allowance for correlations between various asset classes. Details of the key characteristics of each model are given in note 9(ii). In deriving the time value of financial options and guarantees, management actions in response to emerging investment and fund solvency conditions have been modelled. Management actions encompass, but are not confined to, investment allocation decisions, levels of regular and final bonuses and credited rates. Bonus rates are projected from current levels and varied in accordance with assumed management actions applying in the emerging investment and fund solvency conditions. In all instances, the modelled actions are in accordance with approved local practice and therefore reflect the options available to management. (e) Le vel of required capital In adopting the EEV Principles, Prudential has based required capital on the applicable local statutory regulations, including any amounts considered to be required above the local statutory minimum requirements to satisfy regulatory constraints. For shareholder-backed businesses, the level of required capital has generally been set to an amount at least equal to local statutory notification requirements. For CPL life operations, the level of required capital follows the approach for embedded value reporting issued by the China Association of Actuaries (CAA) reflecting the C-ROSS regime. For Singapore life operations, the level of net worth and required capital is based on the Tier 1 Capital position under the risk-based capital framework (RBC2), which removes certain negative reserves permitted to be recognised in the full RBC2 regulatory position applicable to the Group’s GWS capital position, in order to better reflect free surplus and its generation. (f) Wi th-profits business and the treatment of the estate For the Group’s relevant operations, the proportion of surplus allocated to shareholders from the with-profits funds has been based on the applicable profit distribution between shareholders and policyholders. The EEV methodology includes the value attributed to theshareholders’ interest in the residual estate of the in-force with-profits business. In any scenarios where the total assets of the life fund are insucient to meet policyholder claims in full, the excess cost is fully attributed to shareholders. As required, adjustments are also made to reflect any capital requirements for with-profits business in excess of the capital resources of the with-profits funds. Prudential plc Annual Report 2021prudentialplc.com 350 #### 8 Methodology and accounting presentation continued (i) Methodology continued ![]() (g)Internal asset management In line with the EEV Principles, the in-force and new business results from long-term business include the projected future profit or loss from asset management and service companies that support the Group’s covered insurancebusinesses. The results of the Group’sasset management operations include the current period profit from the management ofboth internal and external funds. EEV basisshareholders’ other income and expenditure is adjusted to deduct the expected profit anticipated to arise in the current period in the opening VIF from internal asset management and other services. This deduction is on a basis consistent with that used for projecting the results for covered insurance business. Accordingly, Group operating profit includes the actual profit earned in respect of the management of these assets. (h)Allowance for risk and risk discount rates Overview Under the EEV Principles, discount rates used to determine the present value of expected future cash flows are set by reference to risk-free rates plus a risk margin. The risk-free rates are largely based on local government bond yields at the valuation date and are assumed to remain constant throughout the projection, with no trending or mean reversion to longer-term assumptions that cannot be observed in the current market. The risk margin reflects any non-diversifiable risk associated with the emergence of distributable earnings that is not allowed for elsewhere in the valuation. In order to better reflect dierences in relative market risk volatility inherent in each product group, Prudential sets the risk discount rates to reflect the expected volatility associated with the expected future shareholder cash flows for each product group in the embedded value model, rather than at aGroup level. Since financial options and guarantees are explicitly valued under the EEV methodology, risk discount rates exclude the eect of these product features. The risk margin represents the aggregate of the allowance for market risk and allowance for non-diversifiable non-market risk. No allowance is required for non-market risks where these are assumed to be fully diversifiable. Market risk allowance The allowance for market risk represents the beta multiplied by the equity risk premium. The beta of a portfolio or product measures its relative market risk. The risk discount rates reflect the market risk inherent in each product group and hence the volatility of product-specific cash flows. These are determined by considering how the profit from each product is aected by changes in expected returns across asset classes. By converting this into a relative rate of return, it is possible to derive a product-specific beta. This approach contrasts with a top-down approach to market risk where the risks associated with each product are not directly reflected in the valuation basis. The Group’s methodology allows for credit risk in determining the best estimate returns and through the market risk allowance, which covers expected long-term defaults, a credit risk premium (to reflect the volatility in downgrade and default levels) and short-term downgrades and defaults. Allowance for non-diversifiable non-market risks The majority of non-market and non-credit risks are considered to be diversifiable. An allowance for non-diversifiable non-market risks is estimated as set out below. A base level allowance of 50 basis points is applied to cover the non-diversifiable non-market risks associated with the Group’s covered business. For the Group’s businesses in less mature markets (such as the Philippines, Thailand and Africa) additional allowances of 250 basis points are applied. The level and application of these allowances are reviewed and updated based on an assessment of the Group’s exposure and experience in the markets. For the Group’s business in more mature markets, no additional allowance is necessary. At 31 December 2021, the total allowance for non-diversifiable non-market risk is equivalent to a $(3.7) billion (or (8) per cent) reduction to the embedded value of continuing long-term business operations. (i)Foreign currency translation Foreign currency profits and losses have been translated at average exchange rates for the period. Foreign currency transactions are translated at the spot rate prevailing at the date of the transactions. Foreign currency assets and liabilities have been translated at closing exchange rates. The p rincipal exchange rates are shown in note A1 of the Group IFRS financial statements. (j) Ta xation In determining the post-tax profit for the period for covered business, the overall tax rate includes the impact of tax eects determined on a local regulatory basis. Tax payments and receipts included in the projected future cash flows to determine the value of in-force business are calculated using tax rates that have been announced and substantivelyenacted by the end of the reporting period. Prudential plc Annual Report 2021 351 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued (ii) Ac counting presentation (a)Analysis of post-tax profit To the extent applicable, the presentation of the EEV basis profit or loss for the period from continuing operations is consistent with the classification between operating and non-operating results that the Group applies for the analysis of IFRS basis results. Operating results are determined as described in note(b)below and incorporate the following: > New business profit, as defined in note (i)(b) above; > Ex pected return on existing business, as described in note (c) below; > The impact of routine changes of estimates relating to operating assumptions, as described in note (d) below; and > Op eratingexperience variances, as described in note(e) below. In addition, operating results include the eect of changes in tax legislation, unless these changes are one-o and structural in nature, or primarily aect the level of projected investment returns, in which case they are reflected as a non-operating result. Non-operating resultscomprise: > Short-term fluctuations in investment returns; > Ma rk-to-market value movements on core structural borrowings; > Eect of changes in economic assumptions; and > Th e impact of corporate transactions, if any, undertaken in the year. Total profit or loss in the period attributable to shareholders and basic earnings per share include these items, together with actual investment returns. The Group believes thatoperating profit, as adjusted for these items, better reflects underlyingperformance. (b) In vestment returns included in operating profit For the investment element of the assets covering the total net worth of long-term insurance business, investment returns are recognised in operating results at the expected long-term rates of return. These expected returns are calculated by reference to the asset mix of the portfolio. (c) Ex pected return on existing business Expected return on existing business comprises the expected unwind of discounting eects on the opening value of in-force business and required capital and the expected return on existing free surplus. The unwind of discount and the expected return on existing free surplus are determined after adjusting for the eect of changes in economic and operating assumptions in the current period on the embedded value at the beginning of the period, for example the unwind of discount on the value of in-force business and required capital is determined after adjusting both the opening value and the risk discount rates for the eect of changes in economic and operating assumptions in the current period. (d)Eect of changes in operating assumptions Operating profit includes the eect of changes to operating assumptions on the value of in-force business at the end of the reporting period. For presentational purposes the eect of changes is delineated to show the eect on the opening value of in-force business as operating assumption changes, withthe experience variances subsequentlybeing determined by reference to the assumptions atthe end of thereporting period, as discussed below. (e)Operating experience variances Operating profit includes the eect of experience variances on operatingassumptions, such as persistency,mortality, morbidity, expenses and other factors, which are calculated with reference to the assumptions at the end of the reporting period. (f)Eect of changes in economic assumptions Movements in the value of in-force business at the beginning of the period caused by changes in economic assumptions, net of the related changes in the time value of financial options and guarantees, are recorded in non-operating results. Prudential plc Annual Report 2021prudentialplc.com 352 #### 8 Methodology and accounting presentation continued ![]() #### 9 Assumptions (i)Principal economic assumptions The EEV basis results for the Group’s covered business are determined using economic assumptions where both the risk discount rates and long-term expected rates of return on investments are set with reference to risk-free rates of return at the end of the reporting period. Both the risk discount rate and expected rates of return are updated at each valuation date to reflect current market risk-free rates, with the eect that changes in market risk-free rates impact all projected future cash flows. The risk-free rates of return are largely based on local government bond yields and are assumed to remain constant throughout the projection, with no trending or mean reversion to longer-term assumptions that cannot be observed in the current market. The risk-free rates of return are shown below for each of the Group’s insurance operations. Expected returns on equity and property assets and corporate bonds are derived by adding a risk premium to the risk-free rate based on the Group’s long-term view. As described in note 8(i)(h), risk discount rates are set equal to the risk-free rate at the valuation date plus allowances for market risk and non -di versifiable non-market risks appropriate to the features and risks of the underlying products and markets. Risks that are explicitly allowed for elsewhere in the EEV basis, such as via the cost of capital and the time value of options and guarantees, as set out in note 2(i), are not included in t he r isk discount rates. Risk discount rate % 10-year government bond yield % Equity return (geometric) % New business In-force business 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 CPL 7.3 7.7 7.3 7.7 2.8 3.2 6.8 7.2 Hong Kong note (a) 2.5 2.0 2.8 2.1 1.5 0.9 5.0 4.4 Indonesia 9.9 8.9 10.5 10.0 7.0 6.5 11.3 10.8 Malaysia 5.7 4.4 6.1 4.9 3.7 2.6 7.2 6.1 Philippines 12.0 10.3 12.0 10.3 4.8 3.1 9.0 7.3 Singapore 3.4 2.3 3.8 2.9 1.7 0.9 5.2 4.4 Taiwan 3.5 3.0 3.1 2.5 0.7 0.3 4.7 4.3 Thailand 9.3 8.5 9.3 8.5 2.0 1.3 6.3 5.5 Vietnam 4.0 4.3 4.1 4.5 2.2 2.6 6.4 6.8 Total weighted average (new business) note (b) 5.0 4.1 n/a n/a 2.7 2.1 6.1 5.8 Total weighted average (in-force business) note (b) n/a n/a 4.3 3.6 2.3 1.7 5.8 5.3 Notes (a)For Hong Kong, the assumptions shown are for US dollar denominated business. For other businesses, the assumptions shown are for local currency denominated business. (b)Total weighted average assumptions have been determined by weighting each business’s assumptions by reference to the EEV basis new business profit and the closing net value of in-force business. The 2021 weighted average assumptions include Africa operations following the change in the Group’s operating segments in 2021. The changes in the risk discount rates for individual businesses reflect the movements in the local government bond yields, changes in the allowance for market risk (including as a result of changes in asset mix) and changes in product mix. (c)Expected long-term inflation assumptions range from 1.5 per cent to 5.5 per cent (31 December 2020: 1.5 per cent to 5.5 per cent). (ii)Stochastic assumptions Details are given below of the key characteristics of the models used to determine the time value of financial options and guarantees as referred to in note 8(i)(d). > Th e stochastic cost of guarantees is primarily of significance for the Hong Kong, Malaysia, Singapore, Taiwan and Vietnam businesses; > The principal asset classes are government bonds, corporate bonds and equity; > In terest rates are projected using a stochastic interest rate model calibrated to the current market yields; > Equity returns are assumed to follow a log-normal distribution; > Th e corporate bond return is calculated based on a risk-free return plus a mean-reverting spread; > The volatility of equity returns ranges from 18 per cent to 35 per cent for both years; and > Th e volatility of government bond yields ranges from 1.1 per cent to 2.0 per cent for both years. Prudential plc Annual Report 2021 353 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Notes on the EEV basis results / continued (iii) Op erating assumptions Best estimate assumptions are used for projecting future cash flows, where best estimate is defined as the mean of the distribution of future possible outcomes. The assumptions are reviewed actively and changes are madewhen evidence exists that material changes infuture experience are reasonably certain. Assumptions required in the calculation of the time value of financial options and guarantees, for example relating to volatilities and correlations, or dynamic algorithms linking liabilities to assets, have been set equal to the best estimates and, wherever material and practical, reflect any dynamic relationships between the assumptions and the stochastic variables. Demographic assumptions Persistency, mortality and morbidity assumptions are based on an analysis of recent experience, and reflect expected future experience. When projecting future cash flows for medical reimbursement business that is repriced annually, explicit allowance is made for expected future premium inflation and separately for future medical claims inflation. Expense assumptions Expense levels, including those of the service companies that support the Group’s long-term business, are based on internal expense analysis and are appropriately allocated to acquisition of new business and renewal of in-force business. For mature business, it is Prudential’s policy not to take credit for future cost reduction programmes until the actions to achieve the savings have been delivered. Expense overruns are reported where these are expected to be short-lived, including businesses that are growing rapidly or are sub-scale. Expenses comprise costs borne directly and costs recharged/allocated from the Group head oce functions in London and Hong Kong that are attributable to the long-terminsurance(covered)business. The assumed future expenses for the long-term insurancebusiness allow for amounts expected to be recharged/allocated by the head oce functions. Development expenses are allocated to covered business and are charged as incurred. Corporate expenditure, which is included in other incomeand expenditure, comprises expenditure of the Group head oce functions inLondon and Hong Kong that is notrecharged/allocated tothe long-terminsurance or asset management operations, primarily for corporate related activities that are charged as incurred, together with restructuring and IFRS 17 implementation costs incurred across the Group. Taxrates The assumed long-term eective tax rates for operations reflect the expected incidence of taxable profit or loss in the projected future cash flows as e xplained in note 8(i)(j). The local standard corporate tax rates applicable are as follows: % CPL 25.0 Hong Kong16.5 per cent on 5 per cent of premium income Indonesia 22.0 Malaysia 24.0 Philippines Up to 30 June 2020: 30.0; from 1 July 2020: 25.0 Singapore 17.0 Taiwan 20.0 Thailand 20.0 Vietnam 20.0 Prudential plc Annual Report 2021prudentialplc.com 354 #### 9 Assumptions continued ![]() #### 10 Insurance new business Single premiumsRegular premiums Annual premium equivalents (APE) Present value of new business premiums (PVNBP) 2021 $m 2020$m 2021 $m 2020$m 2021 $m 2020$m 2021 $m 2020$m CPL note (a) 1,760 1,068 600 475 776 582 3,761 2,705 Hong Kong 808 184 469 741 550 758 4,847 5,095 Indonesia 258 226 226 244 252 267 1,067 1,154 Malaysia 74 90 453 337 461 346 2,137 2,023 Singapore 2,412 1,496 502 460 743 610 6,214 5,354 Growth markets: Africa note (b) 15 17 133 110 134 112 288 – Cambodia – – 14 10 14 10 59 45 India note (c) 285 225 200 154 228 177 1,172 902 Laos – – 1 1 1 1 2 3 Myanmar – – 1 – 1 – 3 1 Philippines 89 49 168 134 177 139 655 528 Taiwan 172 201 379 367 397 387 1,417 1,445 Thailand 142 122 204 171 218 183 882 768 Vietnam 55 21 237 234 242 236 1,649 1,564 Total continuing operations note (d) 6,070 3,699 3,587 3,438 4,194 3,808 24,153 21,587 Notes (a)New business in CPL is included at Prudential’s 50 per cent interest in the joint venture. (b)2021 new business includes Africa operations following the change in the Group’s operating segments in 2021. (c)New business in India is included at Prudential’s 22 per cent interest in the associate. (d)The table above is provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profit for shareholders. The amounts shown are not, and not intended to be, reflective of premium income recorded in the Group IFRS income statement. #### 11 Post balance sheet events Dividends The 2021 second interim ordinary dividend approved by the Board of Directors after 31 December 2021 is as described in note B5 of the IFRS financial statements. Debt redemption On 20 January 2022, US$1,725 million of notes in core structural borrowings of shareholder-financed businesses, as shown in note C5.1 of the IFRS financial statements, were redeemed. Prudential plc Annual Report 2021 355 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() The directors have chosen to prepare supplementary information in accordance with the European Embedded Value Principles issued by the European InsuranceCFO Forum in 2016 (‘the EEV Principles’) using the methodology and assumptions set out in the Notes on the EEV basis results. When compliance with the EEV Principles is stated, those principles require the directors to prepare supplementary information in accordancewith the Embedded Value Methodology (EVM) contained in the EEV Principles and to disclose and explain any non-compliance with the EEV guidanceincluded in the EEV Principles. In preparing the EEV supplementary information, the directors have: > Prepared the supplementary information in accordance with the EEV Principles; > Identified and described the business covered bythe EVM; > Ap plied the EVM consistently to the covered business; > Determined assumptions on a realistic basis, having regard to past, current andexpected future experience and to any relevant external data, and then applied them consistently; > Ma de estimates that are reasonable and consistent; and > Described the basis on which business that is not covered business has been included in the supplementary information, includingany material departures from the accounting framework applicable to the Group’s financial statements. Statement of Directors’ responsibilities in respect of the #### European Embedded Value (EEV) basis supplementary information Prudential plc Annual Report 2021prudentialplc.com 356 ![]() Independent auditor’s report to Prudential plc on the #### European Embedded Value (EEV) basis supplementary information Opinion We have audited the EEV basis supplementary information of Prudential plc (‘the Company’) for the year ended 31 December 2021 which comprise the EEV results highlights, movement in Group EEV shareholders’ equity, movement in Groupfree surplus and related notes, including the basis of preparation on page 335. The EEV basis supplementary information should beread in conjunction with the Group financial statements. In our opinion, the EEV basis supplementary information of the Company for the year ended 31 December 2021 has been properly prepared, in all material respects, in accordance with the European Embedded Value Principles issued by the European Insurance CFO Forum in2016 (‘the EEV Principles’) using the methodology and assumptions set out in the Notes on the EEV basis results. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”), including ISA (UK) 800, and the terms of our engagement. Our responsibilities aredescribed below. We have fulfilled our ethicalresponsibilities under, and are independentof the Company in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sucient and appropriate basis for our opinion. Emphasis of matter – special purpose basis of preparation We draw attention to page 335 of the EEV basis supplementary information. As explainedon that page,the EEV basis supplementary information is prepared to provide additional information to users of the Group financial statements. As a result, the EEV basis supplementary information maynot be suitable foranother purpose. Our opinion is not modified in respect of this matter. Going Concern The Directors have prepared the EEV basis supplementary information on the going concern basis as they do not intend to liquidate the Group or to cease their operations, and as they have concluded that the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the EEV basis supplementary information (“the going concern period”). We used our knowledge of theGroup, its industry, and the general economic environment in which it operates to identify the inherent risks to its business model and analysed how those risks might aect the Group’s financial resources or ability to continue operations over the going concern period. The risks that were considered most likely to a dversely aect the Group’s available financial resources over this period were: > Adverse impacts arising from fluctuations or negative trends in the economic environment which aect the valuations of the Group’s investments, wider credit spreads and defaults and valuation of EEV shareholders’ equity due to the impact of these market movements; > The impact on regulatory capital solvency margins from movements in interest rates; and > Severely adverse policyholder lapse or claims experience. We also considered less predictable but realistic second order impacts, such as failure of some of the Group’s counterparties (such as banks and reinsurers) to meet commitments, which could give rise to a negative impact on the Group’s financial position and liquidity, and wider economic factors such as the Coronavirus pandemic’s impact on economic volatility and marketuncertainty in the period, andother such macroeconomicevents. We considered whether these risks could plausibly aect the liquidity or solvency in the going concern period by assessing the Directors’ sensitivities over the level of available financial resourcesindicated by the Group’s cash flow forecasts taking account of severe but plausible adverse eects that could arise from these risks individually and collectively. We assessed the completeness of the going concern disclosure. Our conclusions based on this work: > we c onsider that the directors’ use of the going concern basis of accounting in the preparation of the EEV basis supplementary information is appropriate; > we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for the going concern period; and > we foundthe going concern disclosureto be acceptable. However, as we cannot predict future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group will continue in operation. Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: > En quiring of directors, the audit committee, internal audit, group security, and inspecting key papers provided to those charged with governance as to the high-level policies and procedures to prevent and detect fraud, including the Group’schannel for “whistleblowing” and process for engaging local management to identify fraud risks specific to theirbusiness units, as well as whether they have knowledge of any actual, suspected, or alleged fraud. > Reading board and audit committee minutes. > Co nsideringremuneration incentive schemes and performance targets for directors. > Co nsulted with professionals with forensic knowledge to assist us in identifying fraud risks based on discussions of the circumstances of the Group. We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the group team to all component audit teams in scope of relevant fraud risks identified at the Group level and requests to these audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at group. Prudential plc Annual Report 2021 357 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Independent auditor’s report to Prudential plc on the European Embedded Value (EEV) basis supplementary information / continued As required by auditing standards, and taking into account possible pressures to meet profit targets, we perform procedures to address the risks of management override of controls, in particular the risk that group and component management may be in a position to make inappropriateaccountingentries and the riskof bias inaccounting estimates and judgements. Accordingly, we identified a fraud risk related to the selection of EEV operating assumptions given their direct impact on the Group’s embedded value, the opportunity for management to manipulate assumptions due to the subjectivity involved and given the long-term nature of these assumptions which aremore dicult to corroborate. On this audit we do not consider there is a fraud risk related to revenue recognition as there is limited management judgement involved in the determination of all material revenue streams as the amounts are contractually derived. In determining the audit procedures to address the identified fraud risks, we took into account the results of our evaluation and testing of the operating eectiveness of the group-wide anti-fraud risk controls. In order to address the risk of fraud specifically as it relates to the EEV operating assumptions, we involved actuarial specialists to assist in our challenge of management. We challenged management in relationto the selection of assumptions and theappropriateness of the rationale for any changes, the consistency of the selected assumptions across dierent aspects of the financial reporting process and comparison toour understanding of theproduct portfolio,trends in experience,policyholder behaviour and economic conditions and also by reference to market practice. To address the pervasive risk as it relates to management override, we a lso performed procedures including: > Id entifying journal entries based on risk criteriaand comparing the identified entriesto supporting documentation. These include journal entries related to non-recurring transactions. > Evaluating the business purpose of non-recurring transactions. > As sessing significant accounting estimates for bias. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material eect on the EEV basis supplementary information from ourgeneral commercial and sector experience, through discussion with the directors, and from inspection of the Group’s regulatory and legal correspondence. We discussed with the directors and other managementthe policies and procedures regarding compliance with laws and regulation. As the Group is regulated, our assessment of risks involved gaining an understanding of thecontrol environmentincluding the entity’s procedures for complyingwith regulatory requirements. We communicated identified laws and regulationsthroughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the group to all in-scope component audit teams of relevant laws and regulations identified at the group level, and a request for these teams to report to the group any instances of non-compliance with said laws and regulations, or any identified local laws and regulations, that could give rise to a material misstatement at group. The potential eect of these laws and regulations on the EEV basis supplementary information varies considerably. Firstly, the Group is subject to laws and regulations that directly aect the EEV basis supplementary information including taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related EEV basis supplementary information items. Secondly, the Group is subject to many other laws and regulations where theconsequences of non-compliance could havea material eect on amounts or disclosures in the EEV basis supplementary information, for instance through the imposition of fines or litigation or the loss of the Group’s licence to operate. We identified the area of regulatory capital as that most likely to have such an eect recognising the financial and regulated nature of theGroup’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect thatbreach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in t he EEV basis supplementary information, even though we have properly planned and performed our audit in accordance with auditing standards. For example,the further removednon-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the EEV basis supplementary information, the less likely the inherently limited procedures required by auditing standards wouldidentify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We arenot responsibleforpreventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. Other information The directors are responsible for the other information presented in the Annual Report together with the EEV basis supplementary information. Our opinion on theEEV basis supplementary information does not cover the other information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, considerwhether,based on ourEEV basis supplementary information audit work, the information therein is materially misstated or inconsistent with the EEV basis supplementary information or our audit knowledge. Based solely on that work, we have not identified material misstatements in the otherinformation. Prudential plc Annual Report 2021prudentialplc.com 358 ![]() Directors’ responsibilities As explained more fully in their statement set out on page 356, the directors are responsible for the preparation of the EEV basis supplementary information in accordance with the with the European Embedded Value Principles issued by the European Insurance CFO Forum in2016 (‘the EEV Principles’) using the methodology and assumptions set out in the Notes on the EEV basis results. They are also responsible for: such internal control as they determine is necessary to enable the preparation of EEV basis supplementary information that is free from material misstatement, whether due to fraud or error; determining that the basis of preparation is acceptable in the circumstances; assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern;and using the going concern basisof accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the EEV basis supplementary information as a whole is free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the EEV basis supplementary information. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. The purpose of our audit work and to whom we oweourresponsibilities This report is made solely to the Company in accordance with the terms ofour engagement. Our audit work has been undertaken so that we might state to the Company those matters we have been engaged to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our audit work, for this report, or for the opinions we have formed. Philip Smart for and on behalf of KPMG LLP Chartered Accountants London 8 March 2022 Prudential plc Annual Report 2021 359 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() ### Additional ### information 360 Prudential plc Annual Report 2021prudentialplc.com ![]() #### Contents 362Index to the additional unaudited financial information 382Risk factors 396 Glossary 400Shareholder information 403How to contact us Prudential plc Annual Report 2021 361 Group overview Strategic report Governance Directors’ remuneration report Financialstatements European Embedded Value (EEV) basis results Additional information ![]() #### Index to the additional unaudited financial information Page I Additional financialinformation (i) Group capital position 363 (ii) Analysis of adjusted operating profit by driver 368 (iii) Analysis of adjusted operating profit by business unit 369 (iv) Group funds under management 371 (v) Holding company cash flow 371 (vi) Reconciliation of EEV expected transfer of value of in-force business and required capital to free surplus 372 (vii) Option schemes 374 (viii) Selected historical financialinformation ofPrudential 376 II Calculation of alternative performance measures (i) Reconciliation of adjusted operating profit to profit before tax 378 (ii) Calculation ofIFRS gearingratiofromcontinuing operations 378 (iii) Returnon IFRSshareholders’equity from continuing operations 378 (iv) Calculation of IFRS shareholders’equity per share 378 (v) Calculation ofEastspring cost/incomeratio 379 (vi) Reconciliation of gross premiums earned to renewal insurance premiums 379 (vii) Gross premiums earned including joint ventures and associates 379 (viii) Reconciliation of gross premiums earned to APE new business sales 380 (ix) Reconciliation between IFRS and EEV shareholders’ equity 380 (x) Calculationof return on embeddedvalue 381 Prudential plc Annual Report 2021prudentialplc.com 362 ![]() #### I Additional financial information I(i)Group capital position Overview Prudential applies the Insurance (Group Capital) Rules set out in the Group-wide Supervision (GWS) Framework issued by the Hong Kong Insurance Authority (IA) to determine group regulatory capital requirements (both minimum and prescribed levels). The GWS Framework became eective for Prudential upon designation by the Hong Kong IA on 14 May 2021 and replaced the local capital summation method (LCSM) which was used for determination of the 31 December 2020 Group capital position as agreed with the Hong Kong IA. The GWS methodology is largely consistent with that previously applied under LCSM with the exception of the treatment of debt instruments which are subject to transitional arrangements under the GWS Framework. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at the 31 December 2021 are included as GWS eligible group capital resources. This includes debt issued at the date of designation which met the transitional conditions set by the Hong Kong IA and have not since been redeemed and debt issued since the date of designation which met the qualifying conditions as set out in the Insurance (Group Capital) Rules. Under the LCSM, only specific bonds (being those subordinated debt instruments issued by Prudential plc at the date of demerger of M&G plc) were included as eligible group capital resources. For regulated insurance entities, the capital resources and required capital included in the GWS capital measure for Hong Kong IA Group regulatory purposes are based on the local solvency regime applicable in each jurisdiction. The Group holds material participating business in Hong Kong, Singapore and Malaysia. Alongside the total company GWS capital basis, a shareholder GWS capital basis is also presented, being eligible group capital resources over the GMCR and which excludes the capital resources and minimum capital requirements of these participating funds. The table below sets out the Group capital position on these two bases before allowing for the second interim dividend. The GWS group capital adequacy requirements have been met since the GWS Framework became eective for Prudential upon designation, this includes maintaining Tier 1 g roup capital resources in excess of the group minimum capital requirement of the supervised group. Estimated GWS capital position based on Group Minimum Capital Requirement (GMCR) notes (1)(2)(3) Amounts attributable to Prudential plc 31 Dec 202131 Dec 2020 Total Less policyholderShareholder Total Less policyholderShareholder Eligiblegroup capital resources ($bn) 44.4(27.5)16.9 34.9(22.1)12.8 Group Minimum Capital Requirement ($bn) 10.7(7.0)3.7 10.1(6.7)3.4 GWS capital surplus (over GMCR) ($bn) 33.7(20.5)13.2 24.8(15.4)9.4 GWS coverage ratio (over GMCR) (%) 414%454% 344%370% Allow for January 2022 debt redemption (1.7) – (1.7) n/an/an/a GWS capital surplus (over GMCR) after January 2022 debt redemption ($bn) 32.0(20.5)11.5 n/an/an/a GWS coverage ratio (over GMCR) after January 2022 debtredemption (%) 398%408% n/an/an/a Further detail on the Group shareholder GWS capital position is presented below at 31 December 2021 and 31 December 2020 for comparison: 31 Dec 2021 $bn Total Asia and Africa Less policyholder Shareholder Asia and Africa Unallocated to a segment Group Eligiblegroup capital resources 40.3(27.5)12.84.116.9 Group Minimum Capital Requirement 10.7(7.0)3.7 – 3.7 GWS capital surplus (over GMCR) 29.6(20.5)9.14.113.2 31 Dec 2020 $bn Total Asia and Africa Less policyholder Shareholder Asia and Africa Unallocated to a segment Group Eligiblegroup capital resources 33.7(22.1)11.61.212.8 Group Minimum Capital Requirement 10.1(6.7)3.4 – 3.4 GWS capital surplus (over GMCR) 23.6(15.4)8.21.29.4 Notes (1)The total eligible group capital resources and total GMCR presented in the tables above reflect the Insurance (Group Capital) Rules as set out in the GWS Framework. In particular, the 31 December 2020 capital results have been restated from those previously disclosed on a LCSM basis to reflect the treatment of grandfathered debt instruments under the GWS Framework, which increased eligible group capital resources by $1.6 billion compared to the LCSM basis. This had the eect of increasing capital surplus over the GMCR from $7.8 billion (equivalent to a coverage ratio of 323 per cent) to $9.4 billion (equivalent to a coverage ratio of 370 per cent) on a shareholder GWS basis. The 31 December 2020 GWS capital results are presented on a Group excluding Jackson basis and are before including the value of the Group’s retained interest in Jackson. (2)The 31 December 2021 GWS capital results include the value of the Group’s 18.4 per cent retained economic interest in Jackson. As agreed with the Hong Kong IA this retained interest is included within the GWS eligible group capital resources valued at 60 per cent of the listed market value. At 31 December 2021 this is included within “unallocated to a segment” and contributes $0.4 billion to the GWS capital surplus (over GMCR) and 11 percentage points to the shareholder GWS coverage ratio (over GMCR). (3)The 31 December 2021 GWS capital results do not reflect the impact of the redemption of $1.7 billion of sub-ordinated debt in January 2022 unless otherwise specified. #### Additional unaudited financial information Prudential plc Annual Report 2021 363 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued Regulatory developments in 2022 The recent trend to more risk-based capital regimes being adopted in many of the Group’s markets is continuing and this impacts on the Group’sGWS capital measure, which is underpinned by the local regulatory regimes of the Group’s subsidiaries, joint ventures and associates. In mainland China C-ROSS Phase II becomes eective in the first quarter of 2022, the impact of which is not included in the 31 December 2021 GWS results above. Further, in February 2022 Prudential Hong Kong Limited, the Group’s insurance business in Hong Kong, made an application to the Hong Kong IA to early-adopt the new risk-based capital regime. The impact is not reflected in the 31 December 2021 GWS capital position shown above and the Group currently expects to include this change in the GWS capital position as at 30 June 2022, which remains subject to Hong Kong IA approval. We intend to disclose the impacts of both these regulatory changes within our 2022 half year financial report as they become eective. Sensitivity analysis The estimated sensitivity of the shareholder GWS capital position (based on GMCR) to changes in market conditions at 31 December 2021 is shown below. Impact of market sensitivities 31 Dec 2021 Surplus $bn Ratio % Base position 13.2454% Impact of: 10% increase in equity markets 0.35% 20% fall in equity markets (0.6)(2)% 40% fall in equity markets (1.1)(1)% 50 basis points reduction in interest rates 0.1(10)% 100 basis points increase in interest rates (0.8)(12)% 100 basis points increase in credit spreads (0.5)(6)% The sensitivityresults above reflect the impact on continuinglong-term business operations and therefore the Group’sretained economic interest in Jackson, which contributed $0.4 billion to the GWS capital surplus at 31 December 2021, is assumed to be unchanged under stress. The sensitivity results assume instantaneous market movements and reflect all consequential impacts as at the valuation date. These results also allow for limited management actions such as changes to future policyholder bonuses and rebalancing investment portfolios where relevant. If such economic conditions persisted, the financial impacts may dier to the instantaneous impacts shown above. In this case management could also take additional actions to help mitigate the impact of these stresses. These actions include, but are not limited to, market risk hedging, further rebalancing ofinvestment portfolios, increased use of reinsurance,repricing of in-force benefits, changes tonew business pricing and the mixof new business being sold. #### I Additional financial information continued I(i)Group capital position continued Prudential plc Annual Report 2021prudentialplc.com 364 ![]() Analysis of movement in shareholder GWS capital surplus over GMCR A summary of the estimated movement in the shareholder LCSM capital surplus (over GMCR) excluding Jackson of $7.8 billion at 31 December 2020 to the shareholder GWS capital surplus (over GMCR) of $13.2 billion at 31 December 2021 on a GWS basis is set out in the table below. 2021 $bn Balance at beginning of period on a LCSM basis 7.8 Treatment of grandfathered debt instruments under the GWS Framework 1.6 Restated balance at beginning of period on a GWS basis 9.4 Operating: Operating capital generation from the in force business 1.3 Investment in new business (0.3) Operating capital generation 1.0 Non-operatingexperience (includingmarket movements) 0.3 Other capital movements: Equity raise 2.4 Subordinated debtissuance/ redemption 0.1 Contributionfrom Prudential’s retained economic interest inJackson 0.5 Other Corporate activities (0.1) Other capital movements 2.9 External dividends (0.4) Net movement in shareholder capital surplus 3.8 Balance at end of period 13.2 The estimated movement in the shareholder GWS capital surplus (over GMCR) over 2021 is driven by: > Op erating capital generation of $1.0 billion: generated by the return on in-force business, after deducting $0.3 billion from the strain on new business written in the period and $0.8 billion of centraland restructuring costs; > No n-operating experience of $0.3 billion: this includes the beneficial impact on shareholder GWS capital surplus (over GMCR) from higher equity markets and increasing interest rates over the year; > Eq uity raise of $2.4 billion: generated from the public oer in Hong Kong in October 2021; > Subordinated debt issuance / redemption of $0.1 billion: the net impact of debt redeemed oset by debt raised during 2021, this includes the issuance of subordinated debt in China in June 2021 which contributed $0.3 billion to the shareholder GWS capital surplus (over GMCR) oset by the $(0.2) billion net eect of debt raises and redemptions undertaken by Prudential plc; > Co ntribution from Prudential’s retained economic interest in Jackson of $0.5 billion: comprising of $0.3 billion from the impact of including the retained 19.7 per cent non-controlling economic interest in Jackson at the date of the demerger of Jackson from Prudential plc and $0.2 billion from the movement in the value of the retained interest since the date of demerger along with gains realised from the share repurchase by Jackson in November 2021. As agreed with the Hong Kong IA the retained interest is included within the GWS eligible group capital resources valued at 60 per cent of market value; > Other Corporate activities of $(0.1) billion: this is the eect on shareholder GWS capital surplus (over GMCR) of corporate transactions in the year, which in 2021 comprised of the extension of the strategic bancassurance partnership with MSB in Vietnam; and > External dividends of $(0.4) billion: this is the payment of external cash dividends during 2021. Prudential plc Annual Report 2021 365 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued Reconciliation of GWS capital surplus (over GMCR) to EEV free surplus (excluding intangibles) 31 Dec 2021 $bn Asia and Africa Unallocated to a segmentGroup total Estimated total company GWS capital surplus (over GMCR) \* 29.64.133.7 Less policyholder contribution (20.5) – (20.5) Estimated shareholder GWS capital surplus (over GMCR) \* 9.14.113.2 Increase required capital for EEV free surplus note (a) (0.9) – (0.9) Deductions applied to EEV free surplus arising from China C-ROSS note (b) (0.5) – (0.5) Deductions applied to EEV free surplus arising from Singapore RBC note (c) (2.1) – (2.1) Other, including recognition of inadmissible assets and inclusion of surplus assets at market value note (d) 0.10.30.4 EEV free surplus excluding intangibles † 5.74.410.1 \* Before allowing for the redemption of debt in January 2022. † As per the “Free surplus excluding distribution rights and other intangibles” shown in the statement of Movement in Group free surplus of the Group’s EEV basis results. Notes (a)Required capital under EEV is set at least equal to local statutory notification requirements and so can dier from the minimum capital requirement. (b)EEV free surplus applies the embedded value reporting approach issued by the China Association of Actuaries (CAA) as compared to the C-ROSS surplus reported for local regulatory purposes (predominantly arising from the requirement under the CAA embedded value methodology to establish a deferred profit liability within EEV net worth). This includes dierences in the treatment of China subordinated debt which contributes to C-ROSS surplus for local regulatory reporting but is not included within EEV free surplus. (c)EEV free surplus for Singapore is based on the Tier 1 requirements under the RBC2 framework, which removes certain negative reserves permitted to be recognised in the full RBC 2 regulatory position usedwhen calculatingthe shareholder GWS capital surplus(over GMCR). (d)The shareholder GWS capital surplus (over GMCR) restricts the valuation of certain sundry non-intangible assets. In most cases these assets are considered fully recognisable in free surplus, in addition the EEV Principles require surplus assets to be included at fair value. Within the shareholder GWS capital surplus (over GMCR), some local regulatory regimes value certain assets at cost, this also includes the dierence in the valuation of the Group’s retained interest in Jackson which is valued at the listed market value under EEV free surplus as compared to being valued at 60 per cent of the listed market value under GWS capital. Reconciliation of Group IFRS shareholders’ equity to shareholder GWS eligible group capital resources position 31 Dec 2021 $bn Group IFRS shareholders’ equity 17.1 Remove DAC, goodwill and intangibles recognised on the IFRS statement of financial position (7.6) Add debt treated as capital under GWS note (a) 5.7 Asset valuationdierences note (b) (2.0) Liability valuation dierences note (c) 2.7 Dierences in associated net deferred tax liabilities note (d) 1.1 Other note (e) (0.1) Estimated shareholder GWS eligible group capital resources 16.9 Notes (a)As per the GWS Framework, debt in issuance at the date of designation that satisfy the criteria for transitional arrangements and qualifying debt issued since the date of designation are included as Group capital resources but are treated as liabilities under IFRS. (b)Asset valuation dierences reflect dierences in the basis of valuing assets between IFRS and local statutory valuation rules, including deductions for inadmissible assets. Dierences include for some markets where government and corporate bonds are valued at book value under local regulations but are valued at market value under IFRS. This also includes the dierence in the valuation of the Group’s retained interest in Jackson which is valued at the listed market value (equal to its fair value) under IFRS as compared to being valued at 60 per cent of the listed market value for GWS capital. (c)Liability valuation dierences reflect dierences in the basis of valuing liabilities between IFRS and local statutory valuation rules. Material dierences include in Singapore where the local capital resources under RBC2 permits the recognition of certain negative reserves in the local statutory position that are not fully recognised under IFRS. (d)Dierences in associated net deferred tax liabilities mainly results from the tax impact of changes in the valuation of assets and liabilities. (e)Other dierences include the consequential impact on non-controlling interests arising from the other reconciling items and in China a dierence from the inclusion of subordinated debt as local capital resources on a C-ROSS basis as compared to being held as a liability under IFRS. #### I Additional financial information continued I(i)Group capital position continued Prudential plc Annual Report 2021prudentialplc.com 366 ![]() Basis of preparation for the Group GWS capital position Prudential applies the Insurance (Group Capital) Rules set out in the GWS Framework to determine group regulatory capital requirements (both minimum and prescribed levels). The summation of local statutory capital requirements across the Group is used to determine group regulatory capital requirements, with no allowance for diversification between business operations. The GWS eligible group capital resources is determined by the summation of capital resources across local solvency regimes for regulated entities and IFRS shareholders’ equity (with adjustments described below)for non-regulated entities. In determining theGWS eligible group capital resources andrequired capital the following principles have been applied: > Fo r regulated insurance entities, capital resources and required capital are based on the local solvency regime applicable in each jurisdiction, with minimum required capital set at the solo legal entity statutory minimum capital requirements; > Fo r asset management operations and other regulated entities, the capital position is derived based on the sectoral basis applicable in each jurisdiction, with minimum required capital based on the solo legal entity statutory minimum capital requirement; > Fo r non-regulated entities, the capital resources are based on IFRS shareholder equity after deducting intangible assets. No required capital is held in respect ofunregulated entities; > Fo r entities where the Group’s shareholding is less than 100 per cent, the contribution of the entity to the GWS eligible group capital resources and required capital represents the Group’s share of these amounts and excludes any amounts attributable to non-controlling interests. This does not apply to investment holdings which are not part of the Group; > Following the demerger of Jackson from Prudential plc, the Group retains a 18.4 per cent non-controlling economic interest in Jackson. As agreed with the Hong Kong IA this retained interest is included within the GWS eligible group capital resources valued at 60 per cent of the listed market value; > Inv estments in subsidiaries, joint ventures and associates (including, if any, loans that are recognised as capital on the receiving entity’s balance sheet) areeliminated from the relevant holding company to prevent the doublecounting of capital resources; and > Un der the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at the 31 December 2021 are included as GWS eligible group capital resources. This includes debt issued at the date of designation which met the transitional conditions set by the Hong Kong IA and have not since been redeemed and debt issued since the date of designation which met the qualifying conditions as set out in the Insurance (Group Capital) Rules. The eligible amount permitted to be included as Group capital resources for transitional debt is based on the net proceeds amount translated using 31 December 2020 exchange rates for debt not denominated in US dollars. > The total company GWS capital basis is the capital measure for Hong Kong IA Group regulatory purposes. In addition Prudential also presents a shareholder GWS capital basis which excludes the capital resources and minimum capital requirements of participating business in Hong Kong, Singapore and Malaysia. I(ii)Analysis of adjusted operating profit by driver This schedule classifies the Group’s adjusted operating profit from continuing operations into the underlying drivers using thefollowingcategories: > Spread income represents the dierence between net investment income and amounts credited to certain policyholder accounts. It excludes the operatinginvestment return on shareholdernet assets, which has been separatelydisclosed as expected return onshareholder assets. > Fee income represents profitdriven by net investment performance,being fees that vary with the size of the underlying policyholder funds, net of investment management expenses. > With-profits represents the pre-tax shareholders’transferfrom thewith-profits business for the period. > In surance margin primarily represents profit derived from the insurance risks of mortality and morbidity. > Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses (see below). > Acq uisition costs and administration expenses represent expenses incurred inthe period attributable to shareholders. These exclude items such as restructuring and IFRS 17 implementation costs, which are not included in the segment profit, as well as items that are more appropriately included in other categories (eg investment expenses are netted against investment income as part of spread income or fee incomeas appropriate). > DA C adjustments comprise DAC amortisation for the period, excluding amounts related to short-term fluctuations in investment returns, net of costs deferred in respect of new business written in the period. Prudential plc Annual Report 2021 367 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued The following analysis expresses certain of the Group’s sources of adjusted operating profit from continuing operations as a margin of policyholder liabilities or other relevant drivers. The 2020 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation. 2021 2020 AER2020 CER Profit $m Average liability $m note (a) Margin bps note (b) Profit $m Average liability $m note (a) Margin bps note (b) Profit $m Average liability $m note (a) Margin bps note (b) Spread income 31247,27066 29639,8957430440,11376 Fee income 34533,401103 28228,01410128728,425101 With-profits 13584,90516 11773,3751611873,24816 Insurance margin 2,897 2,6482,689 Margin on revenues \* 3,008 3,0073,048 Expenses: \* Acquisition costs note (c) (2,085)4,194(50)% (1,928)3,808(51)%(1,964)3,890(50)% Administration expenses (1,656)80,968(205) (1,591)68,133(234)(1,609)68,758(234) DAC adjustments 566 382392 Expected return onshareholder assets \* 231 212214 3,753 3,4253,479 Share of related tax charges from joint ventures and associates note (d) (44) (46)(49) Long-term business 3,709 3,3793,430 Eastspring 314 283286 Adjustedoperating profit 4,023 3,6623,716 \*Includingamounts related toAfrica operations. Notes (a)The calculation of average liabilities is generally derived from opening and closing balances, with average liabilities used to derive the margin for fee income calculated using quarter-end balances to provide a more meaningful analysis. Other than the average liabilities used to calculate the administration expense margin, the average liabilities in the analysis above exclude the liabilities for the Africa operations. (b)Margin represents the operating return earned in the year as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus. (c)The ratio of acquisition costs is calculated as a percentage of APE sales in the year, including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. The ratio of shareholder acquisition costs to shareholder APE sales (excluding with-profits) in 2021 is 61 per cent (2020: 66 per cent on both AER and CER basis). (d)Under IFRS, the Group’s share of results from its investments in joint ventures and associates accounted for using the equity method is included as a single line in the Group’s profit before tax on a net of related tax basis. In the table above, the results of the joint ventures and associates are analysed by adjusted operating profit drivers and on a pre-tax basis, with related tax charges shown separately in order for the contribution from the joint ventures and associates to be included in the profit driver and margin analysis on a consistent basis with the rest of the businessoperations. #### I Additional financial information continued I(ii)Analysis of adjusted operating profit by driver continued Prudential plc Annual Report 2021prudentialplc.com 368 ![]() I(iii)Analysis of adjusted operating profit by business unit The table below presents the 2020 results on both AER and CER bases to eliminate the impact of exchange translation. 2021 $m 2020 $m 2021vs 2020 % AER CER AER CER CPL 343 25126937%28% Hong Kong 975 8918899%10% Indonesia 446 519529(14)%(16)% Malaysia 350 30931313%12% Singapore 663 57458916%13% Growth markets and other Philippines 110 959616%15% Taiwan 94 858911%6% Thailand 236 21020512%15% Vietnam 317 27027417%16% Other \* 219 221226(1)%(3)% Share of related tax charges from joint ventures and associate (44) (46)(49)(4)%(10)% Long-term business 3,709 3,3793,43010%8% Eastspring 314 28328611%10% Adjusted operating profit 4,023 3,6623,71610%8% \* Includes other growth markets and a number of small items that are not expected to reoccur. (a) Eastspring adjusted operating profit 2021 $m 2020 $m Operatingincome before performance-relatedfees note (1) 747 646 Performance-related fees 15 7 Operatingincome (net of commission) note (2) 762 653 Operating expense note (2) (403) (336) Group’s share of tax on joint ventures’ operating profit (45) (34) Adjustedoperating profit 314 283 Average funds managed by Eastspring Investments $251.7bn $227.1bn Margin based on operating income note (3) 30bps 28bps Cost/income ratio note II(v) 54% 52% Notes (1)Operating income before performance-related fees for Eastspring can be further analysed as follows: Retail $m Margin bps Institutional \* $m Margin \* bps Total $m Margin \* bps 2021 449562981774730 2020 390522561764628 \* Institutional includes internalfunds. (2)Operating income and expense include the Group’s share of contribution from joint ventures. In the condensed consolidated income statement of the Group IFRS basis results, the net income after tax of the joint ventures and associates is shown as a single line item. (3)Margin represents operating income before performance-related fees as a proportion of the related funds under management (FUM). Monthly closing internal and external funds managed by Eastspring have been used to derive the average. Any funds held by the Group’s insurance operations that are managed by third parties outside the Prudential Group are excluded from these amounts. Prudential plc Annual Report 2021 369 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued (b) Eastspring total funds under management Eastspring manages funds from external parties and also funds for the Group’s insurance operations. The table below analyses the total funds managed by Eastspring. 31 Dec 2021 $bn 31 Dec 2020 $bn External funds under management, excluding funds managed on behalf of M&G plc note (1) Retail 68.5 66.9 Institutional 13.2 13.8 Money market funds (MMF) 12.3 13.2 94.0 93.9 Funds managed on behalf of M&G plc note (2) 11.5 15.7 External fundsunder management 105.5 109.6 Internal funds under management 153.0 138.2 Total funds under management note (3) 258.5 247.8 Notes (1)Movements in external funds under management, excluding those managed on behalf of M&G plc, are analysed below: 2021 $m 2020 $m At 1 Jan 93,863 98,005 Market gross inflows 98,963 116,743 Redemptions (99,862) (126,668) Market andother movements 992 5,783 At 31 Dec\* 93,956 93,863 \* The analysis of movements above includes $12,248 million relating to Asia Money Market Funds at 31 December 2021 (31 December 2020: $13,198 million). Investment flows for 2021 include Eastspring Money Market Funds gross inflows of $61,949 million (2020: $76,317 million) and net outflows of $1,512 million (2020: net inflows of $48 million). (2)Movements in funds managed on behalf of M&G plc are analysed below: 2021 $m 2020 $m At 1 Jan 15,737 26,717 Net flows (4,040) (10,033) Market andother movements (168) (947) At 31 Dec 11,529 15,737 (3)Total funds under management are analysed by asset class below: 31 Dec 202131 Dec 2020 $bn % of total $bn % of total Equity 107.141% 103.942% Fixedincome 133.652% 125.751% Alternatives 2.71% 2.71% Money MarketFunds 15.16% 15.56% Total funds under management 258.5100% 247.8100% #### I Additional financial information continued I(iii)Analysis of adjusted operating profit by business unit continued Prudential plc Annual Report 2021prudentialplc.com 370 ![]() I(iv)Group funds under management For Prudential’s asset management businesses, funds managed on behalf of third parties are not recorded on the balance sheet. They are, however, a driver of profitability. Prudential therefore analyses the movement in the funds under management each year, focusing on those which are external to the Groupand those primarily heldby the Group’s continuing insurance businesses. The table below analyses the funds of the Group held in thebalance sheet and the external funds that are managed by Prudential’s asset management businesses fromcontinuingoperations. 31 Dec 2021 $bn 31 Dec 2020 $bn Continuing operations: Internal funds 193.9 175.0 Eastspring external funds, including M&G plc (as analysed in note I(iii) above) 105.5 109.6 Total Groupfunds undermanagement note 299.4 284.6 Note Total Groupfunds under management from continuing operations comprise: 31 Dec 2021 $bn 31 Dec 2020 $bn Total investments and cash and cash equivalents held by the continuing operations on the balance sheet 177.9 164.0 External funds of Eastspring including M&G plc 105.5 109.6 Internally managed fundsheld in joint ventures andassociates, excluding assets attributable to external unitholders of theconsolidated collective investment schemes and otheradjustments 16.0 11.0 Total Groupfunds undermanagement 299.4 284.6 I(v)Holding company cash flow The holding company cash flow describes the movement in the cash and short-term investments of the centrally managed group holding companies and diers from the IFRS cash flow statement, which includes all cash flows in the year including those relating to both policyholder and shareholder funds. The holding company cash flow is therefore a more meaningful indication of the Group’s central liquidity. 2021 $m 2020 $m Net cash remitted by continuing operations: Insurance and asset management business 1,451 877 Other operations – 55 Net cash remitted by business units note (a) 1,451 932 Net interest paid (314) (294) Tax received – 94 Corporate activities note (b) (322) (432) Centrallyfunded recurring bancassurance fees note (c) (176) (220) Total central outflows (812) (852) Holding company cash flow before dividends and other movements 639 80 Dividends paid (421) (814) Operating holding company cash flow after dividends but before other movements 218 (734) Other movements Issuance and redemption of debt for continuing operations (255) 983 Hong Kong public oerand international placing 2,374 – Other corporate activities relating to continuing operations note (c) (199) (954) UK and Europe demerger costs – (17) US demergercosts (30) (20) Total other movements 1,890 (8) Total holding company cash flow 2,108 (742) Cash and short-term investments at 1 Jan 1,463 2,207 Foreign exchange movements 1 (2) Cash and short-term investments at 31 Dec note (d) 3,572 1,463 Notes (a)Net cash remitted by business units comprise dividends and other transfers, net of capital injections, that are reflective of earnings and capital generation. (b)Including IFRS 17 implementation and restructuring costs paid in the year. In 2021, the Group changed its basis of presenting business unit remittances to reflect net cash remittances before costs attributable to the head oce functions based in Hong Kong, and to present all head oce costs together within ‘corporate activities’. Accordingly, the 2020 amounts have been re-presented from those previously published to reflect the change. (c)Other corporate activities relating to continuing operations of $(199) million (2020: $(954) million) include central contributions to the funding of Asia and Africa strategic growth initiatives, principally non-recurring payments for bancassurance distribution agreements including UOB and MSB banks. In 2020, this also included one-o payments relating to the establishment of the Group’s strategic bancassurance partnership with TMB Bank. Central payments for existing bancassurance distribution agreements are within the central outflows section of the holding company cash flow, reflecting the recurring nature of these amounts. Other corporate activities also include sale proceeds of $83 million received in December 2021, following Jackson’s announcement, as part of its previously disclosed $300 million share repurchase programme, of the repurchase of 2,242,516 shares of its Class A common stock from Prudential as discussed in the Jackson section above. (d)Proceeds from the Group’s commercial paper programme are not included in the holding company cash and short-term investment balance. Prudential plc Annual Report 2021 371 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued I(vi)Reconciliation of EEV expected transfer of value of in-force business and required capital to free surplus The table below shows how the EEV value of in-force business (VIF) and the associated required capital for continuing long-term business operations are projected as emerging into free surplus over the next 40 years. Although circa 8 per cent of the embedded value emerges after this date, analysis of cash flows emerging in the years shown is considered most meaningful. The modelled cash flows use the same methodology underpinning the Group’s embedded value reporting and so are subject to the same assumptions and sensitivities used to prepare our 2021 results. In addition to showing the amounts, on both a discounted and undiscounted basis, expected to be generated from all in-force business at 31 December 2021, the table also presents the future free surplus expected to be generated from the investment made in new business during 2021 over the same 40-year period. Expected period ofemergence 31 Dec 2021 $m Continuing long-term business operations Expected generation from all in-force business \* Expected generation from new business written in 2021 \* UndiscountedDiscountedUndiscountedDiscounted 2022 2,3432,264294283 2023 2,2672,079219197 2024 2,1551,877196168 2025 2,0141,679176143 2026 2,0341,621173132 2027 1,9781,507179130 2028 2,1091,565164116 2029 1,7061,167155104 2030 1,9771,34614493 2031 1,9041,23915394 2032 1,8451,15416292 2033 1,8071,08813977 2034 1,7441,00812668 2035 1,74697612664 2036 1,72293413566 2037 1,70289511656 2038 1,71686911754 2039 1,71583811852 2040 1,72481611750 2041 1,68877212551 2042-2046 8,1503,388591221 2047-2051 7,5922,675591182 2052-2056 6,7592,025554143 2057-2061 5,9981,500536118 Total free surplus expected to emerge in the next 40 years 66,39535,2825,4062,754 \* The analysis excludes amounts incorporated into VIF and required capital at 31 December 2021 where there is no definitive time frame for when the payments will be made or receipts received. It also excludes any free surplus projected to emerge after 2061. The expected free surplus generation from new business written in 2021 can be reconciled to the new business profit as follows: 2021 $m Undiscounted expected free surplus generation for years 2022 to 2061 5,406 Less: discount eect (2,652) Discounted expected free surplus generation for years 2022 to 2061 2,754 Discounted expected free surplus generation for years after 2061 299 Discounted expected free surplus generation from new business written in 2021 3,053 Free surplus investment in new business (537) Other items \* 10 New businessprofit 2,526 \* Other items represent the impact of the time value of options and guarantees on new business, foreign exchange eects and other non-modelled items. Foreign exchange eects arise as EEV new business profit amounts are translated at average exchange rates and the expected free surplus generation is translated at closing rates. #### I Additional financial information continued Prudential plc Annual Report 2021prudentialplc.com 372 ![]() The discounted expected free surplus generation from in-force business can be reconciled to the embedded value for long-term business operations as follows: 31 Dec 2021 $m Discounted expected generation from all in-force business for years 2022 to 2061 35,282 Discounted expected generation from all in-force business for years after 2061 3,640 Discounted expected generation from all in-force business at 31 December 2021 38,922 Free surplus of long-term business operations at 31 December 2021 5,960 Other items \* (236) EEV for long-term business operations 44,646 \* Other items represent the impact of the time value of options and guarantees and other non-modelled items. The undiscounted expected free surplus generation from all in-force business at 31 December 2021 can be reconciled to the amount that was expected to be generated at 31 December 2020 as follows: 2021 $m 2022 $m 2023 $m 2024 $m 2025 $m 2026 $m Other $m Total $m 2020 expected free surplus generation for years 2021 to 2060 2,1562,0842,0851,9781,9281,89546,95059,076 Less: Amounts expected to be realised in the current year (2,156) –––––– (2,156) Add: Expected free surplus to be generated in year 2061 (excluding 2021 new business) –––––– 816816 Foreign exchange dierences – (26)(26)(24)(25)(24)(467)(592) New business – 2942191961761734,3485,406 Operating movements – 16 – 20(20)(18) Non-operatingand other movements – (25)(11)(15)(45) 8 3,9353,845 2021 expected free surplus generation for years 2022 to 2061 \* – 2,3432,2672,1552,0142,03455,58266,395 \* Future expected free surplus generation includes Africa operations following the change in the Group’s operating segments in 2021. At 3 1 December 2021, the total free surplus expected to be generated over the next five years (2022 to 2026 inclusive) for long-term business operations, using the same assumptions and methodology as those underpinning 2021 embedded value reporting, was $10.8 billion (31 December 2020: $10.2 billion). At 31 December 2021, the total free surplus expected to be generated on an undiscounted basis over the next 40 years for long-term business operations is $66.4 billion, $7.3 billion higher than the $59.1 billion expected at the end of 2020. The increase is driven by new business and the eect of generally higher interest rates across the region increasing projected returns, partially oset by unfavourable foreign exchange movements. Actual underlying free surplus generated in 2021 from long-term business in force at the end of 2020, before restructuring and IFRS 17 implementation costs, was $2.3 billion, including $(0.2) billion of changes in operating assumptions and experience variances. This compares with the expected 2021 realisation at the end of 2020 of $2.2 billion and can be analysed further as follows: 2021 $m Expected transfer from in-force business to free surplus in 2021 2,340 Expected return on existing free surplus 157 Changes in operatingassumptions and experience variances (173) Underlying free surplus generated from long-term business in force before restructuring and IFRS 17 implementation costs 2,324 2021 free surplus expected to be generated at 31 December 2020 2,156 Prudential plc Annual Report 2021 373 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued I(vii)Option schemes The Group presently grants share options through two schemes and exercises of the options are satisfied by the issue of new shares. Executive Directors and eligible employees based in the UK may participate in the Prudential Savings-Related Share Option Scheme. Agents based in certain regions of Asia can participate in the Prudential International Savings-Related Share Option Scheme for Non-Employees. Further details of the schemes and accounting policies are detailed in note B2.2 of the IFRS basis consolidated financial statements. All options were granted at nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services (excluding options granted to agents under the Prudential International Savings-Related Share Option Scheme for Non-Employees) or in excess of the individual limit for the relevant scheme. The maximum share entitlement of each participant under the relevant scheme for each option grantedis limited to the total savings and any bonus or interest accumulated under that participant’s savings contract, divided by the exercise price. At 31 December 2021, the maximum number of shares issued or issuable under the schemes, which were approved by shareholders, to all participants would not exceed 1 per cent of the issued share capital of the Company in the preceding 12-month period. The option schemes will terminate as follows, unless the Directors resolve to terminate the plans at an earlier date: > Prudential Savings-Related Share Option Scheme: 16 May 2023; and > Pr udentialInternational Savings-Related Share OptionScheme forNon-Employees 2012: 12 May 2022. The weighted average share price of Prudential plc for the year ended 31 December 2021 was £14.31 (2020: £11.64). Particulars of options granted to Directors are included in the Directors’ remuneration report on page 216. The closing prices of the shares immediately before the date on which the options were granted during the year were £13.29 for the Prudential Savings-Related ShareOption Scheme. The following analysis shows the movement in options for each of the option schemes for the year ended 31 December 2021. PrudentialSavings-RelatedShareOptionScheme Date of grant Exercise price £ Exercise period Number of options Beginning End Beginning of year Granted Exercised Cancelled Forfeited Lapsed End of year 22 Sep 15 11.11 01 Dec 2031 May 21 8,046 – (3,996) –– (4,050) – 21 Sep 16 11.04 01 Dec 2131 May 22 5,378 – (2,046) –– (615)2,717 21 Sep 17 14.55 01 Dec 2031 May 21 23,908 – (9,816) – (1,237)(12,855) – 21 Sep 17 14.55 01 Dec 2231 May 23 6,347 – (1,202)(164) – (859)4,122 29 Nov 19 11.18 01 Jan 2330 Jun 23 67,203 – (4,511)(3,413)(4,719)(6,032)48,528 29 Nov 19 11.18 01 Jan 2530 Jun 25 8,049 – (536) ––– 7,513 22 Sep 20 9.64 01 Dec 2331 May 24 74,308 – (414)(4,318)(4,851)(1,453)63,272 22 Sep 20 9.64 01 Dec 2531 May 26 6,286 ––––– 6,286 08 Dec 21 12.02 01 Jan 2530 Jun 25 – 14,664 –––– 14,664 08 Dec 21 12.02 01 Jan 2730 Jun 27 – 2,544 –––– 2,544 199,52517,208(22,521)(7,895)(10,807)(25,864)149,646 The total number of securities available for issue under the scheme is 149,646 which represents 0.005 per cent of the issued share capital at 31 December 2021. The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £12.78. The weighted average fair value of options granted under the plan in the period was £3.12. #### I Additional financial information continued Prudential plc Annual Report 2021prudentialplc.com 374 ![]() Prudential International Savings-Related Share Option Scheme forNon-Employees Date of grant Exercise price £ Exercise period Number of options Beginning End Beginning of year Granted Modification Exercised Cancelled Forfeited Lapsed End of year 22 Sep 15 9.62 01 Dec 2031 May 21 280,079 –– (280,079) –––– 21 Sep 16 9.56 01 Dec 2131 May 22 214,845 – 7,215(87,358)(1,568) –– 133,134 21 Sep 17 12.59 01 Dec 2031 May 21 205,980 –– (204,861)(966) – (153) – 21 Sep 17 12.59 01 Dec 2231 May 23 190,274 – 6,541 – (4,691)(582) – 191,542 18Sep 18 12.07 01 Dec 2131 May 22 193,405 – 6,887(101,492)(728)(48) – 98,024 18Sep 18 12.07 01 Dec 2331 May 24 129,527 – 4,349 – (1,242)(139) – 132,495 02 Oct 19 9.62 01 Dec 2231 May 23 330,931 – 11,496 – (3,608) –– 338,819 02 Oct 19 9.62 01 Dec 2431 May 25 223,165 – 7,792 – (7,011)(470) – 223,476 22 Sep 20 9.64 01 Dec 2331 May 24 198,799 – 6,503 – (3,203) –– 202,099 22 Sep 20 9.64 01 Dec 2531 May 26 153,790 – 5,085 – (1,556) –– 157,319 02 Nov 21 11.89 01 Dec 2431 May 25 – 207,910 –– (1,360) –– 206,550 02 Nov 21 11.89 01 Dec 2631 May 27 – 189,431 ––––– 189,431 2,120,795397,34155,868(673,790)(25,933)(1,239)(153)1,872,889 The total number of securities available for issue under the scheme is 1,872,889 which represents 0.068 per cent of the issued share capital at 31 December 2021. The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £10.79. The weighted average fair value of options granted under the plan in the period was £4.17. Prudential plc Annual Report 2021 375 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued I(viii)Selected historical financial information of Prudential The following table sets forth Prudential’s selected consolidated financial data for the years indicated, which is derived from Prudential’s audited consolidated financial statements. This table is only a summary and should be read in conjunction with Prudential’s consolidated financial statements and the related notes included elsewhere in this document. In thetable below, continuing operationsreflect the Group’s insurance and asset management businesses in Asia and Africa and central operations. Discontinued operationsrepresent theGroup’s US business (Jackson) demerged in September 2021 and the Group’s UKand Europe business (M&G) demerged in November 2019. IFRS basis results Income statement note (i) 2021 $m 2020 $m 2019 $m 2018 $m 2017 $m Continuing operations: Gross premiums earned 24,217 23,49523,85522,03920,255 Outward reinsurance premiums (1,844) (1,625)(1,116)(771)(850) Earned premiums, net of reinsurance 22,373 21,87022,73921,26819,405 Investment return 3,486 13,76214,961(2,723)11,687 Other income 641 615639465457 Total revenue, net of reinsurance 26,500 36,24738,33919,01031,549 Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (18,911) (28,588)(29,171)(11,690)(23,588) Acquisition costs and other expenditure (4,560) (4,651)(5,908)(5,793)(5,823) Financecosts: interest on core structural borrowings ofshareholder-financed businesses (328) (316)(496)(525)(527) (Loss) gain attaching tocorporatetransactions (35) (30)(142)(57)83 Total charges, net of reinsurance (23,834) (33,585)(35,717)(18,065)(29,855) Share of profits from joint ventures and associates net of related tax 352 517397319233 Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) note (ii) 3,018 3,1793,0191,2641,927 Tax charges attributable to policyholders’returns (342) (271)(365)(107)(321) Profit before tax attributableto shareholders’ returns 2,676 2,9082,6541,1571,606 Tax credit (charges) attributable to shareholders’ returns (462) (440)(316)(235)(186) Profit from continuing operations 2,214 2,4682,3389221,420 (Loss) profit from discontinued US operations (5,027) (283)(385)1,959328 (Loss) profit from discontinued UK and Europe operations – – (1,161)1,1421,333 (Loss) profit for the year (2,813) 2,1857924,0233,081 Basic earnings per share (in cents) note (i) 2021 2020 2019 2018 2017 Based on (loss) profit for the year attributable to the equity holders of the Company: Continuing operations 83.4¢ 94.6¢90.0¢35.6¢55.3¢ Discontinued US operations (161.1)¢ (13.0)¢(14.9)¢76.1¢12.7¢ Discontinued UK and Europe operations – – (44.8)¢44.3¢52.0¢ Total (77.7)¢ 81.6¢30.3¢156.0¢120.0¢ Dividend per share (in cents) excluding demerger dividend 2021 2020 2019 2018 2017 Dividends paid in reporting period 16.10¢ 31.34¢63.18¢64.34¢59.32¢ Statement of financial position at 31 Dec note (iii) 2021 $m 2020 $m 2019 $m 2018 $m 2017 $m Totalassets 199,102 516,097454,214647,810668,203 Total policyholder liabilities and unallocated surplus of with-profits funds 157,299 446,463390,428541,466579,261 Corestructuralborrowingsof shareholder-financed businesses 6,127 6,6335,5949,7618,496 Total liabilities 181,838 493,978434,545625,819646,432 Total equity 17,264 22,11919,66921,99121,771 #### I Additional financial information continued Prudential plc Annual Report 2021prudentialplc.com 376 ![]() Supplementary IFRS basis results Continuing operations note (i) 2021 $m 2020 $m 2019 $m 2018 $m 2017 $m Adjustedoperating profit note (iv) 3,233 2,7572,2471,8751,512 Non-operatingitems (557) 151407(718)94 Profit before tax attributableto shareholders 2,676 2,9082,6541,1571,606 Operating earnings per share after tax and non-controlling interest (in cents) 101.5¢ 86.6¢73.4¢62.1¢50.4¢ Supplementary EEV basis results – continuing operations Income statement note (i) 2021 $m 2020 $m 2019 $m 2018 $m 2017 $m EEV operating profit note (iv) 3,543 3,4015,1515,0883,987 Non-operatingitems (306) 5731,058(533)626 Profit attributable to shareholders 3,237 3,9746,2094,5554,613 Operating earnings per share after non-controlling interest (in cents) 133.8¢ 130.6¢198.8¢197.4¢155.3¢ New business contribution note (i) 2021 $m 2020 $m 2019 $m 2018 $m 2017 $m Annual premiumequivalent (APE) sales 4,194\* 3,808\*5,2435,0504,934 EEV new business profit (NBP) (post-tax) \* 2,526\* 2,2013,5223,4773,052 \* Africa operations are included within the covered business from 2021 following the change in the Group’s operating segments. Africa is excluded from all other years. Embedded value at 31 Dec 2021 $bn 2020 $bn 2019 $bn 2018 $bn 2017 $bn EEV shareholders’ equity, excludingnon-controllinginterests – continuing operations 47.4 41.938.427.423.8 Discontinued operations (US, and UK and Europe) – 12.116.336.036.7 EEV shareholders’ equity 47.454.054.763.460.5 Other financial information Operating free surplus generated note (i) 2021 $m 2020 $m 2019 $m 2018 $m 2017 $m Total operating free surplus generated from continuing operations 1,179 890762554397 At 31 Dec note (i) 2021 $bn 2020 $bn 2019 $bn 2018 $bn 2017 $bn Eastspring funds under management note (v) 258.5 247.8241.1192.7187.9 Group shareholder GWS capital surplus (over GMCR) note (vi) 13.2 9.4 ––– Notes (i)The comparative income statements for 2017 to 2020 have been re-presented from those previously published, to reflect the demerger of the Group’s US operations (Jackson) in September 2021, which have been reclassified as discontinued operations. (ii)This measure is the formal profit (loss) before tax measure under IFRS. It is not the result attributable to shareholders. (iii)The comparative statements of financial position for 2017 to 2020 include the discontinued US operations as originally published. Furthermore, the 2018 and 2017 comparatives also include the Group’s discontinued UK and Europe operations as originally published. The total assets and total equity as of 31 December 2021 include $683 million in respect of the Group’s 18.4 per cent retained economic interest in Jackson. (iv)Adjusted operating profit and EEV operating profit are determined on the basis of including longer-term investment returns, which are stated after excluding the eect of short-term fluctuations in investment returns on shareholder-backed business and gain or loss attaching to corporate transactions. Separately, for IFRS basis results, adjusted operating profit also excludes amortisation of acquisition accounting adjustments arising on the purchase of business. For EEV basis results, operating profit also excludes the eect of changes in economic assumptionsand the mark-to-marketvalue movements on core structural borrowings for shareholder-financed operations. (v)Eastspring total funds under management comprise funds from external parties, including funds managed on behalf of M&G plc as well as funds for the Group’s insurance operations. (vi)The 2021 Group shareholder GWS capital surplus (over GMCR) reflects the Insurance (Group Capital) Rules as set out in the GWS Framework which became eective for Prudential in May 2021, 2020 comparative information has been re-presented on a GWS basis. The 2020 shareholder GWS capital surplus (over GMCR) is presented on a Group excluding Jackson basis and before including the value of the Group’s retained interest in Jackson. Prudential plc Annual Report 2021 377 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued #### II Calculation of alternative performance measures Prudential uses alternative performance measures (APMs) to provide more relevant explanations of the Group’s financial position and performance. This section sets out explanations for each APM and reconciliations to relevant IFRS balances. II(i) Re conciliation of adjusted operating profit to profit before tax Adjusted operating profit presents the operating performance of the business. This measurement basis adjusts for the following items within total IFRS profit before tax: > Short-term fluctuations in investment returns on shareholder-backedbusiness; > Am ortisation of acquisition accounting adjustments arising on the purchase of business; and > Gain or loss on corporate transactions, as discussed in note D1.1 to the IFRS basis results. More details on how adjusted operating profit is determined are included in note B1.2 of the Group IFRS basis results. A full reconciliation to profit after tax is given in note B1.1. II(ii)Calculation of IFRS gearing ratio from continuing operations IFRS gearing ratio is calculated as net core structural borrowings of shareholder-financed businesses divided byclosing IFRS shareholders’ equity plus net core structural borrowings, all in respect of continuing operations. 31 Dec 2021 $m 31 Dec 2020 $m Continuing operations: Corestructuralborrowingsof shareholder-financed businesses 6,127 6,383 Less holding company cash and short-term investments (3,572) (1,463) Net core structural borrowings of shareholder-financed businesses 2,555 4,920 Closing shareholders’equity 17,088 12,367 Closing shareholders’ equity plus net core structural borrowings 19,643 17,287 IFRS gearing ratio 13% 28% II(iii)Return on IFRS shareholders’ equity from continuing operations This measure is calculated as adjusted operating profit from continuing operations, after tax and non-controlling interests, divided by average shareholders’ equityin respect of continuing operations. Detailed reconciliation of adjusted operating profit from continuing operations to IFRS profit before tax for the Group is shown in note B1.1 to the Group IFRS basis results. 2021 $m 2020 $m Adjustedoperating profit 3,233 2,757 Tax on adjusted operating profit (548) (497) Adjusted operating profitattributable tonon-controllinginterests (17) (10) Adjusted operating profit, net of tax and non-controlling interests 2,668 2,250 Shareholders’ equityat beginning ofyear 12,367 10,548 Shareholders’ equity at end of year 17,088 12,367 Average shareholders’ equity 14,728 11,458 Operating return on average shareholders’ equity (%) 18% 20% II(iv)Calculation of IFRS shareholders’ equity per share IFRS shareholders’ equity per share is calculated as closing IFRS shareholders’ equity divided by the number of issued shares at the end of the year. 2021 2020 Number of issued shares at the end of the year 2,746 2,609 ClosingIFRS shareholders’ equityforcontinuing operations ($ million) 17,088 12,367 Shareholders’ equity per share (cents) for continuing operations 622¢ 474¢ ClosingIFRS shareholders’ equityfordiscontinuing operations ($ million) – 8,511 Shareholders’ equity per share (cents) for discontinued US operations – 326¢ Group shareholders’ equity per share (cents) 622¢ 800¢ Prudential plc Annual Report 2021prudentialplc.com 378 ![]() II(v)Calculation of Eastspring cost/income ratio The cost/income ratio is calculated as operating expenses, adjusted for commissions and share of contribution from joint ventures and associates, divided by operating income, adjusted for commission, share of contribution from joint ventures and associates and performance-related fees. 2021 $m 2020 $m IFRS revenue 665 612 Share of revenue from joint ventures and associates 314 235 Commissions (217) (194) Performance-related fees (15) (7) Operatingincome before performance-related fees note 747 646 IFRS charges 498 446 Share of expenses from joint ventures and associates 122 84 Commissions (217) (194) Operating expense 403 336 Cost/income ratio (operating expense/operating incomebeforeperformance-related fees) 54% 52% Note IFRS revenue and charges for Eastspring are included within the IFRS Income statement in ‘other income’ and ‘acquisition costs and other expenditure’ respectively. Operating income and expense include the Group’s share of contribution from joint ventures and associates. In the condensed consolidated income statement of the Group IFRS basis results, the net income after tax from the joint ventures and associates is shown as a single line item. II(vi)Reconciliation of gross premiums earned to renewal insurance premiums 2021 $m 2020 $m AER CER IFRS gross premiums earned 24,217 23,49523,722 Less: General insurance premium (124) (130)(130) Less: IFRS gross earned premium from new regular and single premium business (6,500) (5,112)(5,225) Add: Renewal premiums from joint ventures and associates note 2,295 1,9572,036 Renewal insurance premiums 19,888 20,21020,403 Annual premiumequivalent (APE) 4,194 3,8083,890 Life weighted premium income 24,082 24,01824,293 Note For the purpose of the definition of renewal premiums from joint ventures and associates in the table above, premiums for the deposit component of insurance contracts from our CPL business areexcluded. II(vii)Gross premiums earned including joint ventures and associates 2021 $m 2020 $m IFRS gross premiums earned 24,217 23,495 Gross premiums earned from joint ventures and associates 4,579 3,233 Total Group (continuing operations) 28,796 26,728 Prudential plc Annual Report 2021 379 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Additional unaudited financialinformation / continued II(viii)Reconciliation of gross premiums earned to APE new business sales The Group reports APE new business sales as a measure of the new policies sold in the year. APE is calculated as the aggregate of regular premiums and one-tenth ofsingle premiums on newbusiness written duringthe year for all insurance products, includingpremiumsfor contracts designated as investment contracts under IFRS 4. The use of the one-tenth of single premiums is to normalise policy premiums into the equivalent of regular annual payments. This measure is commonly used in the insurance industry to allow comparisons of the amount of new business written in a period by life insurance companies, particularly when the sales contain both single premium and regular premium business. This diers from the IFRS measure of gross premiums earned as shown below from continuing operations: 2021 $m 2020 $m Gross premiums earned 24,217 23,495 Less: premiums from in-force renewal business note (a) (17,593) (18,253) Less: 90% of single premiums on new business sold in the year note (b) (3,602) (2,147) Add: APE sales from joint ventures and associates on equity accounting method note (c) 1,104 820 Other adjustments note (d) 68 (107) Annual premium equivalent (APE) 4,194 3,808 Notes (a)Gross premiums earned include premiums from existing in-force business as well as new business given the Group’s focus on recurring premium business. (b)APE new business sales only include one-tenth of single premiums, recorded on policies sold in the year. Gross premiums earned include 100 per cent of such premiums. (c)For the purpose of reporting APE new business sales, the Group’s share of amounts sold by the Group’s insurance joint ventures and associates are included. Under IFRS, joint ventures and associates are equity accounted and so no amounts are included within gross premiums earned. (d)APE new business sales are annualised while gross premiums earned are recorded only when revenues are due. Other adjustments also reflect the inclusion of policies written in the year which are classified as investment contracts without discretionary participation features under IFRS 4, which are recorded as deposits and therefore not in gross premiums earned, and the exclusion of general insurance earned on an IFRS basis. II(ix)Reconciliation between IFRS and EEV shareholders’ equity The table below shows the reconciliation of EEV shareholders’equity and IFRS shareholders’ equity from continuing operations at the end of the year: 31 Dec 2021 $m 31 Dec 2020 $m IFRS shareholders’ equity fromcontinuing operations 17,088 12,367 Less: DAC assigned zero value for EEV purposes (2,815) (2,353) Add: Value of in-force business of long-term business note (a) 35,456 34,068 Other note (b) (2,374) (2,156) EEV shareholders’ equity from continuingoperations 47,355 41,926 Notes (a)EEV shareholders’ equity comprises the present value of the shareholders’ interest in the value of in-force business, total net worth of long-term business operations and IFRS shareholders’ equity of asset management and other operations. The value of in-force business reflects the present value of expected future shareholder cash flows from long-term in-force business which are not captured as shareholders’ interest on an IFRS basis. Total net worth represents the regulatory basis net assets for EEV reporting purposes, with adjustments as appropriate. (b)Other adjustments represent asset and liability valuation dierences between IFRS and the local regulatory reporting basis used to value total net worth for long-term insurance operations. These also include the mark-to-market value movements of the Group’s core structural borrowings which are fair valued under EEV but are held at amortised cost under IFRS. One of the most significant valuation dierences relate to changes in the valuation of insurance liabilities. #### II Calculation of alternative performance measures continued Prudential plc Annual Report 2021prudentialplc.com 380 ![]() II(x)Calculation of return on embedded value Operating return on embedded value is calculated as the EEV operating profit for the year as a percentage of average EEV basis shareholders’ equity for continuing operations. Continuing operations 2021 2020 EEV operating profit for the year 3,543 3,401 Operatingprofit attributableto non-controlling interests (28) (10) EEV operating profit, net of non-controlling interest ($ million) 3,515 3,391 Shareholders’ equityat beginning ofyear 41,926 38,369 Shareholders’ equity at end of year 47,355 41,926 Average shareholders’ equity ($ million) 44,641 40,148 Operating return on average shareholders’ equity (%) 8% 8% New business profit over embedded value is calculated as the EEV new business profit for the year as a percentage of average EEV basis shareholders’ equityfor continuinglong-term business operations, excluding goodwill attributable to equity holders. 2021 2020 New business profit ($ million) \* 2,526 2,201 Average EEV basis shareholders’ equity for continuing long-term business operations, excluding goodwill attributable to equity holders ($ million) 43,754 40,382 New business profit on embedded value (%) 6% 5% \* New business profit is attributed to the shareholders of the Group before deducting the amount attributable to non-controlling interests. 2021 new business profit includes amounts related to Africaoperations. Average embedded value has been based on opening and closing EEV basisshareholders’ equityfor continuing long-term business operations, excluding goodwillattributable to equity holders, as follows: 2021 $m 2020 $m Shareholders’ equityat beginning ofyear 42,861 37,902 Shareholders’ equity at end of year 44,646 42,861 Average shareholders’ equity for continuing long-term business operations, excluding goodwill attributable to equity holders 43,754 40,382 Prudential plc Annual Report 2021 381 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() A number of risk factors may aect the financial condition, results of operations and/or prospects of Prudential and its wholly and jointly owned businesses, as a whole, and, accordingly, the trading price of Prudential’s shares. The risk factors mentioned belowshould not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. The information given is as of the date of this document, and any forward-looking statements aremade subject to t he factors specified under ‘Forward-looking statements’. Prudential’s approaches to managing risks are explained in the ‘Risk review’ section of this document. 1. Risks relating to Prudential’s financial situation 1.1 The Covid-19 pandemic has significantly impacted financial market volatility and global economic activity, increased operational disruption risks for businesses and has adversely impacted Prudential’ssales in aected markets andits financial condition, results of operations and prospects. The full extent of the longer-term impacts from the pandemic remains uncertain. The Covid-19 pandemic has added significant uncertainty to the stability and outlook of equity markets, interest rates and credit spreads, and has aected market liquidity and reduced global economic activity. The potential adverse impacts to the Group of these eects are detailed in risk factor 1.2 below. However, while global growth has broadly recovered, the full extent of the long-term impact of the pandemic on financial markets and economic growth remainshighly uncertainand unpredictable and will beinfluenced by the actions of governments, policymakers and the public. These actions, and their eectiveness, vary between markets, and maydrive an uneven economic recovery,and include the extent and timing of continued measures to restrict movement and the eectiveness of vaccination programme deployment and uptake in response to current, emerging and future variants ofthe coronavirus. Where actions and impacts are prolonged, they may aect the solvency position of the Group’s subsidiaries and prevent or limit their ability to m ake remittances, adversely impacting the financial condition and prospects of the Group. The regulatory and supervisory responses to the Covid-19 pandemic have been broad and have included increased scrutiny of the operational resilience, liquidity and capital strength (including the impact of making dividend payments) of financial services companies. As some countries begin to adopt strategies to manage Covid-19 as an endemic disease, variations in the speed of economic recovery between markets, and the subsequent impact on their respective interest rates, inflation expectations and the relative strength of their currencies (and the associated impact on their foreign currency debt obligations, which may disproportionately impact emerging economies)may have broader long-term adverse economicand financial consequences for the markets in which the Group operates and the fullextentof thiscurrently remainsuncertain. Various governments have eected, or may eect, the postponement of elections and other constitutional or legislative processes in response to the pandemic, and this may result in an increase in constitutional and political uncertainty in some of the markets in which the Group operates. Manygovernments are implementing Covid-19 vaccinationand booster programmes, and variable accessibility tosupplies of vaccines that are eective against current, emerging and future variants of the coronavirus has the potential to contributeto an increase in geopolitical and political tensions. Thelonger term political, regulatory and supervisory developments resultingfrom theCovid-19 pandemic remainhighly uncertain. These may include changes to government fiscal policies, laws and regulations aimed at increasing financial stability and/or measures on businesses or specific industries to contribute to, lessen or otherwise support, the financial cost to governments in addressing the pandemic. This may extend to requirements on private insurance companies and healthcare providers to cover the costs associated with the treatment of Covid-19 beyond contractual or policy terms. The Covid-19 pandemic, and measures to contain it, have slowed economic and social activity in the Group’s geographical markets. While these conditions persist, the level of sales activity in aected markets has been, and will continue to be, adversely impacted through a reduction in travel and agency and bancassurance activity. In particular, sales in the Group’s Hong Kong business continue to be adversely impacted by the border restrictions in place with Mainland China. In FY 2020, during which the border closure occurred in Q1, the APE sales of the Group’s Hong Kong business reduced by $1,258 million (or 62 per cent) compared to 2019. In FY 2021, during which the border remained closed for the entire year, the APE sales of t he Hong Kong business reduced by $208 million (or 27 per cent) compared to 2020. These impacts to the APE sales of the Group’s Hong Kong business were largely as a result of the border closure. Recovery insales levels willbe dependent on the timing and extent of the easing of these restrictions, with the emergence of the Covid-19 Omicron variant further increasing uncertainty to the return of Mainland China customers as well as the resumption of their demand for the Group’s products in Hong Kong. These impacts may be prolonged in markets which continue to rely on containment measures based on restrictions of movement. The impact on economic activity and employmentlevels mayresult inan elevated incidence of claims, lapses, or surrenders of policies, and some policyholders may choose to defer or stop paying insurance premiums or reduce deposits into retirement plans. The pandemic may also indirectly result inelevated claims and policy lapses or surrenders, with some delay in time before being felt by the Group, due to factors such as policyholders deferring medical treatment during the pandemic, or policyholders lapsing or surrenderingtheir policies onthe expiry of grace periods for premium payments provided by the Group’s businesses. The Group’s assessment to date is that elevated mortality claims in some markets can be attributed to Covid-19. The full extent of the impact of the Covid-19 pandemic is currently uncertain and theGroup’s claims and persistency experience todate and its currentinsuranceassumptions cannot be taken as an indicator of future potential experience from the Covid-19 pandemic which may deteriorate significantly and have a material adverse eect on Prudential’s business, financial condition, results of operations and prospects. The potential longer-term impacts of the pandemic may include latent morbidity impacts from t he deferral of medical treatment by policyholders. It may be a factor in increasing morbidity claims and there may be implications from other factors such as long-term post-Covid-19 symptoms (although there is currentlyno consensus onthe longer term impact on m orbidity). #### Risk factors Prudential plc Annual Report 2021prudentialplc.com 382 ![]() Disruption to Prudential’s operations may result where its employees, or t hose of its service partners and counterparties, contract Covid-19 or are aected by restrictions on movement; whereoce closures and other measures impacting working practicesare eected, such as the impositionof remote working arrangements; and where quarantine requirements and isolation measures under local laws apply, and as a result of social distancing and/or other psychosocial impacts. While such measures are in place, there may also be an increase in attempts to compromise the resilience of IT systems through phishing, social engineering tacticsand ransomware. Such measures, and the cycles of their relaxation and re-imposition, may also adversely impact the physicaland mental health of the Group’s sta, increasing the riskofoperational disruption resulting from performance impairment,an increase in absenteeism, or increased levels of staturnover, which may aect operational capacity with the potential to be exacerbated by challenges in recruitment. The operations of Prudential’s service partners (which subject the Group to the risks detailed in risk factor 3.7, resulting in certain risks that Prudential does not face with respect to its wholly-owned subsidiaries) may be disrupted in dierent ways and to a more severe extent than the Group’s operations and may impact service delivery to the Group. In response to pandemic-related restrictions, Prudential implemented changes to its sales and distribution processes in specific markets. These include virtual face-to-face sales of its products and the online recruitment, training and, wherepossible, licensing of agents. Such changes may increase or introduce newoperational and regulatory risks, in particular those focused on customer outcomes and conduct. A failureto implementappropriate governance and management of these new or incremental risks may adversely impact Prudential’s reputation and brand and the results of its operations. In markets where the level of sales under these new processes is material or wheresuch processes become permanent distributionchannels, the commercial value of the Group’s existing sale and distribution arrangements, such as bancassurance arrangements, may be adversely impacted. 1.2Prudential’s businesses are inherently subject to market fluctuations and general economic conditions, each of which may adversely aect the Group’s business, financial condition, results of operations and prospects. Uncertainty, fluctuations or negative trends inglobal and national macro-economic conditions and investment climates could have a material adverse eect on Prudential’s business and profitability. Prudential operates in a macroeconomic and global financial market environment that presents significant uncertainties and potential challenges. For example, following a prolonged periodof relatively low interest rates in countries relevant to Prudential, thereopening and recovery of some economies during 2021 has resulted in inflationary pressures, which if sustained or increased may drive interest rates higher, impacting the valuation of fixed income assets. Uncertainties also include the impact of factors such as the actions of central banks and governments to mitigate the impact of the Covid-19 pandemic and in response to inflationary pressures. The transition to a lower carbon economy, the timing and speed of which is uncertain, may also result in greater uncertainty, fluctuations or negative trends in asset valuations, particularly for carbon intensive sectors, and will have a bearing on inflation levels. Global financial markets are subject to uncertainty and volatility created by a variety of factors. These factors include actual or expected slowdowns or reversals in world economic growth (particularly where this is abrupt, as has been the case with the early impact of the Covid-19 pandemic), sector specific slowdowns or deteriorations whichhave the potential to have contagion impacts (such as the negative developments in the China property sector),fluctuations in global energy prices, changes in monetary policy in China, the US and other jurisdictions together with their impact on the valuation of all asset classes and eect on interest rates and inflation expectations, and concerns over sovereign debt. Other factors include theincreased level of geopolitical and political risk and policy-related uncertainty (including those resultingfrom theRussia-Ukraine conflict and the potential impact on business sentiment andthe broader market resulting from regulatory tightening across sectors in China) and socio-political,climate-drivenand pandemic events. The extent of the financial market and economic impact of these factors may be highly uncertain and unpredictable and influencedby the actions, including the durationand eectiveness of mitigating measures of governments, policymakers and the public. The adverse eects of such factors could be felt principally through the f ollowing items: > Lo wer interest rates and reduced investment returns arising on the Group’s portfolios including impairmentof debt securities and loans, which could reduce Prudential’s capital and impair its ability to write significant volumes of new business, increase the potential adverse impact of product guarantees included in non-unit-linked products with a savings component, increase reinvestment risk for some of the Group’s investments from accelerated prepayments and increased redemptions and/or have a negative impact on its assets under management and profit. > A reduction in the financial strength and flexibility of corporate entities, as recently experienced by a number of issuers within the China property sector, which may deteriorate the credit rating profile and valuation of the Group’s invested credit portfolio (and which may result in an increase in regulatory capital requirements for the Group or its businesses), increased credit defaults and debt restructurings and wider credit and liquidity spreads resulting in realised and unrealised credit losses. Regulations imposing or increasing restrictions on the amount of company debt financing, such as those placing limits on debt or liability ratios, may also reduce the financial flexibility of corporate entities. Similarly, securitised assets in the Group’s investment portfolio are subject to default risk and may be adversely impacted by delays or failures of borrowers to make payments of principal and interest when due. Where awidespread deterioration in the financial strength of corporate entities occurs, any assumptions on the ability and willingness of governments to provide financial support may need to be revised. > Fa ilure of counterparties who have transactions with Prudential (such as banks, reinsurers and counterparties to cash management and risk transfer or hedging transactions) to meet commitments that could give rise to a negative impact on Prudential’s financial position and on the accessibility or recoverability of amounts due or the adequacy of collateral.Geographic orsector concentrations of counterparty credit riskcould exacerbatethe impact of these events where they materialise. Prudential plc Annual Report 2021 383 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Risk factors / continued > Estimates of the value of financial instruments becoming more dicult because in certain illiquid or closed markets, determining the value at which financial instruments can be realised is highly subjective. Processes to ascertain such values require substantial elements of judgement, assumptions andestimates (whichmay change over time). Where the Group is required to sell its investments within a defined timeframe, such market conditions may result in the s ale of these investments at below expected or recorded prices. > The Group holds certain investments that may, by their nature, lack l iquidity or have the potential to lose liquidity rapidly, such as investment funds (including money market funds), privately placed fixed maturity securities, mortgage loans, complex structured securities and alternative investments. If these investments were required to be liquidated on short notice, the Group may experience diculty in doing so and may be forced to sell them at a lower price than it otherwise would have been able to realise. > A reduction in revenue from the Group’s products where fee income is l inked to account values or the market value of the funds under management. In particular, decreases in equity prices impact the amount of revenue derived from fees from the unit-linked products. Sustained inflationary pressures which may drive higher interest rates may also impact the valuation of fixed income investments and reduce fee income. > In creased illiquidity, which includes the risk that expected cash inflows from investments and operations will not be adequate to meet the Group’s anticipated short-term and long-term policyholder benefits and expense payment obligations. Increased illiquidity also adds to uncertainty over the accessibility of financial resources which in extreme conditions can impact the functioning of markets and may reduce capital resources as valuations decline. This could occur where external capital is unavailable at sustainable cost, increased liquid assets are required to be held as collateral under derivative transactions orredemption restrictions are placed onPrudential’s investments in illiquid funds. In addition, significant redemption requests could also be made on Prudential’s issued funds and while this may not have a direct impact on the Group’s liquidity, it could result in reputational damage to Prudential. The potential impact of i ncreased illiquidity is more uncertain than for other risks such as interest rate or credit risk. In general, upheavals in thefinancial markets may aect general levels of economic activity, employment and customer behaviour. As a result, insurers may experience an elevated incidenceof claims, lapses, or surrenders of policies, and some policyholders may choose to defer or stop paying insurance premiums or reduce deposits into retirement plans. The demand for insurance products may also be adversely aected. In addition, there maybe a higherincidence ofcounterparty failures. If sustained, this environment is likely to have a negative impact on the insurance sector over time and may consequently have a negative impact on Prudential’s business and its balance sheet and profitability. For example, this could occur if the recoverable value of intangibleassets forbancassuranceagreements and deferred acquisition costs are reduced. New challenges related to market fluctuations and general economic conditions maycontinue to emerge. For example, inflationary pressures driving higher interest rates may lead to increased lapses for some guaranteed savings products where higher levels of guarantees are oered by products of the Group’s competitors, reflecting consumer demand for returns at thelevel of, or exceeding, inflation. Increased inflation may also adversely impact the ability of consumers to purchase insurance products, particularly in lower income customer segments. For some non-unit-linked products with a savings component it may not b e possible to hold assets which will provide cash flows to match those relating to policyholder liabilities. This is particularly true in those countries where bond markets are less developed or where theduration of policyholder liabilities is longer than the duration of bonds issued and available inthe market, and in certain markets where regulated premium and claim values are set with reference to the interest rate environment prevailing at the time of policy issue. This results in a mismatch due to the duration and uncertainty of the liability cash flows and the lack of sucient assets of a suitable duration. While this residual asset/liability mismatch risk can be managed, it cannot be eliminated. If i nterest rates in these markets are lower than those used to calculate premium and claim values over a sustained period, this could have a material adverse eect on Prudential’sreported profit and the solvency of its business units. In addition, part of the profit from the Group’s operations isrelatedto bonuses for policyholders declared onwith- profits products, which are impacted by the dierence between actual investment returns of the with-profits fund (which are broadly based on historical and current rates of return on equity, real estate and fixed i ncome securities) and minimum guarantee rates oered to policyholders. This profit could be lower in particular in a sustained low i nterest rate environment. Any of the foregoing factors and events, individually or together, could havea material adverse eect on Prudential’sbusiness, financial c ondition,results ofoperationsand prospects. 1.3 Ge opolitical and political risks and uncertainty may adversely impact economic conditions, increase market volatility, cause operational disruption to the Group and impact its strategic plans, which could have adverse eects on Prudential’s business, financial condition,results of operations and prospects. The Group is exposed to geopolitical and political risks and uncertainty in the markets in which it operates. Such risks may include: > Th e application ofgovernment regulations, executive powers, protectionist or restrictive economic and trade policies or measures adopted by businesses or industries which increase trade barriers or restrict trade, sales, financial transactions, or the transfer of capital, investment, data or other intellectual property, with respect to specific territories, markets, companies or individuals; > An i ncrease in the volume and pace of domestic regulatory changes, including those applying to specific sectors; > Th e increased adoption or implementation of laws andregulations which may purport to have extra-territorial application; > In ternationaltrade disputes such as the implementationof trade taris; > Wit hdrawals orexpulsions from existing tradingblocs or agreements or financial transaction systems, including those whichfacilitate cross-border payments; > Thedomestic application of measures restricting nationalairspace with respect to aircraft of specific territories, markets, companies or individuals; > Mea sures favouring local enterprises, such as changes to the maximum level of non-domestic ownership by foreign companies or diering treatment offoreign-owned businesses under regulations and tax rules; and > Me asures which require businesses of overseas companies to operate through locally incorporated entities or with requirements on minimum local representationon executive or management committees. Prudential plc Annual Report 2021prudentialplc.com 384 ![]() The above measures may have an adverse impact on Prudential through their eects on the macroeconomic outlook and the environment for global financial markets. They may also increase regulatory compliance and reputational risks, or adversely impact Prudential where they apply to, and impact, the economic, business and legal and regulatory environment in specific markets or territories in which the Group, its joint venture or jointly owned businesses, sales and distribution networks, or third party service providers have operations. For internationally active groups such as Prudential,operatingacross multiple jurisdictions, such measures may also add to the complexity of legal and regulatory compliance and increase the risk of conflicts between the requirements of one jurisdiction andanother. See risk factor 4.1 below. Geopolitical and political risks and uncertainty may also adversely impact the Group’s operations and its operational resilience. Increased geopoliticaltensions mayincrease domestic and cross-border cyber intrusion activity and therefore increase cyber security risks. Geopolitical and political tensions may also lead to conflict, civil unrest and/or acts of ci vil disobedience. Such events could impact operational resilience bydisrupting Prudential’s systems, operations, new business sales and renewals, distribution channels and services to customers, which may result in a reduction in contributions from business units to the central cash balances and profit of the Group, decreased profitability, financial loss, adverse customer impacts and reputational damage and may impact Prudential’sbusiness, financialcondition, results ofoperations and prospects. Legislative or regulatory changes which adversely impact Hong Kong’s economyor its international trading andeconomicrelationships, may also result in adverse sales, operational and product distribution impacts to the Group due to the territory being a key market which also hosts Grouphead oce functions. 1.4As a holding company, Prudential is dependent upon its subsidiaries to cover operating expenses and dividend payments. The Group’s insuranceand investment management operations are generally conducted through direct and indirect subsidiaries, which are subject to the risks discussed elsewhere in this ‘Risk Factors’ section. As aholding company, Prudential’s principal sources offunds are remittances from subsidiaries, shareholder-backed funds, the shareholder transfer from long-term funds and anyamounts that may be raised through the issuance of equity, debt and commercial paper. Certain of Prudential’s subsidiaries are subject to insurance, foreign exchange and tax laws, rules and regulations (including in relation to distributable profits that can limit their ability to make remittances). In some circumstances, including where thereare changes to general market conditions, this could limit Prudential’s ability to pay dividends to shareholders or to make available funds held in certain subsidiaries to c over operating expenses of othermembers of the Group. A material change in the financial condition of any of Prudential’s subsidiaries may have a material eect on its business, financial condition, results ofoperations and prospects. 1.5Prudential is subject to the risk of potential sovereign debt credit deterioration owing to the amounts of sovereign debt obligations held in its investment portfolio. Investing in sovereign debt creates exposure to the direct or indirect consequences of political, social oreconomic changes (including changes in governments, heads of state or monarchs) in the countries in which the issuers of such debt are located and to the creditworthiness of the sovereign. Investment in sovereign debt obligations involves risks not present in debtobligationsof corporate issuers. In addition, the issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or pay interest when due in accordance with the terms of such debt, and Prudential may have limited recourse to compel payment in the event of a default. A sovereign debtor’s willingness or ability to repay principal and to pay interest in a timely manner may be aected by, among other factors, its cash flow situation, its relations with its central bank, the extent of its foreign currency reserves, the availability of sucient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor’s policy toward local and international lenders, and the political constraints to which the sovereign debtor may be subject. Moreover, governments may use a variety of techniques, such as intervention by their central banks or imposition of regulatory controls or taxes, to devalue their currencies’ exchange rates, or may adopt monetary and other policies(includingto manage their debt burdens) that have a similar eect, all of which could adversely impact the value of an investment in sovereign debt even in the absence of a technical default. Periods of economic uncertainty may aect the volatility of market prices of sovereign debt to a greater extent than the volatility inherent in debt obligations of other types of issuers. In addition, if a sovereign default or other such events described above were to occur, as has happened on occasion in the past, other financial institutionsmay also suer losses or experience solvency or other concerns, which may result in Prudential facing additional risks relating to investments in such financial institutions that are held in the Group’s investment portfolio. There is also risk that public perceptions about the stability and creditworthiness of financial institutions and the financial sector generally might be adversely aected as might counterparty relationshipsbetween financial institutions. If a sovereign were to default on its obligations, or adopt policies that devalued or otherwise altered the currencies in which its obligations were denominated, this could have a material adverse eect on Prudential’s business, financial condition, results of operations and prospects. 1.6Downgrades inPrudential’s financialstrength and credit ratings could significantly impact its competitive position and damage its relationships with creditors or trading counterparties. Prudential’s financial strength and credit ratings, which are used by the market to measure its ability to meet policyholder obligations, are an important factor aecting public confidencein Prudential’s products, and as a result its competitiveness. Downgrades in Prudential’s ratings as a result of, for example, decreased profitability, increased costs, increased indebtedness or otherconcerns could have an adverse eect o n its ability to market products and retain current policyholders, and the Group’s ability to compete for acquisition and strategic opportunities. Downgrades may also impact the Group’s financial flexibility, including its ability to issue commercial paper at current levels a nd pricing. The interest rates at which Prudential is able to borrow funds are aected by its credit ratings, which are in place to measure the G roup’s ability to meet its contractual obligations. Prudential plc Annual Report 2021 385 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Risk factors / continued In addition, changes in methodologies and criteria used by rating agencies could result in downgrades that do not reflect changes in the general economicconditions or Prudential’s financialcondition. In addition, any such downgrades could have a material adverse eect on Prudential’s business, financial condition, results of operations and prospects. Prudential cannotpredict what actions rating agencies may take, or what actions Prudential may therefore take in response to the actions of rating agencies, which could adversely aect its business. Any such downgrade of the Group could have an adverse eect on Prudential’s financial flexibility, requirements to post collateral under or in connection with transactions to which they are a party and ability to manage market risk exposures. In addition, the interest rates or other costs that the Group incurs in respect of its financing activities may increase as a result. A credit rating downgrade may also aect public confidence in the Group’s products and may adversely impact on its a bility to market products, retain current policyholders or attract new policyholders. 1.7Prudential is subject to the risk of exchange rate fluctuations owing to the geographical diversity of its businesses. Due to the geographical diversity of Prudential’s businesses, Prudential is subject to the risk of exchange rate fluctuations. Prudential’s operations generally writepolicies and invest in assets denominated in l ocal currencies. Although this practice limits the eect of exchange rate fluctuations on local operating results, it can lead to fluctuations in P rudential’s consolidated financial statements upon the translation of results into the Group’s presentation currency. This exposure is not currently separately managed. The Group presents its consolidated financial statements in US dollars. The results of some entities within the Group are not denominated in or linked to the US dollar and some enter into transactions which are conducted in non-US dollar currencies. Prudential is subject to the risk of exchange rate fluctuations from the translation of the results of these entities and transactions and the risks from the maintenance of the HK dollar peg to the US dollar. 2. Ri sks relating to sustainability and environmental, social and governance (‘ESG’) matters 2.1 Th e failure to understand and respond eectively to the risks associated with ESG factors could adversely aect Prudential’s achievement of its long -ter m strategy. A failure to manage the material risks associated with key ESG themes detailed below may undermine the sustainability ofPrudential by adversely impacting the Group’s reputation and brand, ability to attract and retain customers and employees, and therefore the results of its operations anddelivery of its strategyand long-term financial success. (a)Environmental risks Environmental concerns, notably those associated with climate change and their social and economic impacts, present long-term risks to the sustainability of Prudential and may impact its customers and other shareholders. Prudential’s investment horizons are long term and it is therefore exposed to the potential long-term impact of climate change risks, which include the financial and non-financial impact of transition to a l ower carbon economy and physical and litigation risks. The global transition to a lower carbon economy may have an adverse impact on i nvestment valuations as the financial assets of carbon intensive companies re-price, and this could result in some asset sectors facing significantly higher costs and a reduction in demand for their products and services. The speed of this transition, and the extent to which it is orderly and managed, will be influenced by factors such as public policy, technology and changes in market or investor sentiment. The potential impact of these factors on the valuation of investments may also have a broader economic impact that may adversely aect customers and their demand for the Group’s products. The transition to a lower carbon economy has the potential to disproportionately impact the Asia and Africa markets in which Prudential operates and invests, and the Group’s stakeholders increasingly expect and/or rely on the Group to support an orderly, inclusiveand sustainable transition based on an understanding of relevant country and company-level transition plans takinginto consideration the impact on the economies, businesses, communities and customers in these markets. The pace and volume of new climate-related regulation emerging across the markets in which the Group operates, the need to deliver on existing and new voluntary exclusions on investments in certain sectors, engagement and reporting commitments and thedemand for externally assured reporting may give rise to compliance, operational and disclosure risks which may be increased by the multi-jurisdictional coordination required in adopting a consistent risk management approach. The Group’s ability tosuciently understand and appropriately react to transition risk and its ability to deliver on its external carbon reduction commitments may be limited by insucient or unreliable data on carbon exposure and transition plans for the assets in which it invests. The direct physical impacts of climate change, driven by both specific short-term climate-related events such as natural disasters and longer-term changes to climate and the natural environment, are likely to become increasingly significant factors in the mortality and m orbidity risk assessments for the Group’s insurance product underwriting andoeringsand their associated claims profiles. Climate-driven events in countries in which Prudential or its key third parties operate could adversely impact the Group’soperational resilience and its customers, which may potentially occur through migration or displacement both within and across borders. A failure to understand, manage and provide greater transparency of its exposure to these climate-related risks may have increasingly adverse implications for Prudential andits stakeholders. (b)Social risks Social risks that could impact Prudential may arise from a failure to consider the rights, diversity, well-being, needs, and interests of its customers and employees and the communities in which the Group or its third parties operate. Perceived inequalities and income disparities, intensified by thepandemic, have the potential to further erodesocial cohesion across the Group’s markets which may increase operational and disruption risks for Prudential. These risks are increased as Prudential operates in multiple jurisdictions with distinct local cultures and considerations. Prudential plc Annual Report 2021prudentialplc.com 386 ![]() Evolvingsocial norms and emerging population risks associated with p ublic health trends (such as an increase in obesity and mental health deterioration) and demographic changes (such as population urbanisation and ageing) may aect customer lifestyles and therefore may impact the level of claims under theGroup’s insurance product oerings. As a provider ofinsuranceand investment services, the Group is increasingly focused on making its products more accessible through digital innovation, technologies and distribution methods for a broadening range of products and services. As a result, Prudential has access to extensive amounts of customer personal data, including data related to personal health, and an increasing ability to analyse and interpret this data through the use of complex tools, machine learning and artificial intelligencetechnologies. The Group istherefore exposed to the regulatory, ethical and reputational risks associated with customer data misuse or security breaches. These risks are explained in r isk factor 3.5. The increasing digitalisation of products, services and processes may also result in new and unforeseen regulatory requirements and stakeholder expectations, including those relating to how the Group supports its customers through this transformation. As an employer, the Group is also exposed to the risk of being unable to attract, retain and developa diverse groupof highly-skilled employees to meet the changing need of a transformative organisation. This may increase if Prudential does not implement responsible working practices or fails to recognise the benefits of diversity, ensure psychological safety for employees, or promote a culture of inclusion and sense of belonging. The potential for reputational risk extends to the Group’s supply chains and its investee companies, which may be exposed to factors such as poor labourstandards and abuses ofhuman rights bythird parties. (c) Governance A failure to maintain high standards of corporate governance may adversely impact the Group and its customers and employees and i ncrease the risk of poor decision-making and a lack of oversight and management of its key risks. Poor governance may arise where key g overnance committees have insucientindependence, a lack ofdiversity, skills or experiencein their members, or unclear (or in sucient) oversight responsibilities and mandates. Inadequate oversight over remuneration also increases the risk of poor senior management behaviours. Prudential operates across multiple jurisdictions and has a group and subsidiary governance structure which may add further complexity to these considerations. Participation in joint ventures or partnerships where Prudential does not have direct overall control and the use of third party service providers increase the potential for reputational risks arising from poor governance. Sustainability and ESG-related risks may directly or indirectly impact Prudential’s business and the achievement of its strategic focus on providing greater and more inclusive access to good health and financial security, responsible stewardship in managing the human impact of climate change and building human and social capital with its broad range of stakeholders, which range from customers, institutional investors, employees and suppliers, to policymakers, regulators, industry organisations and local communities. A failure to transparently and consistentlyimplementthe Group’sESG strategyacross operational, underwriting andinvestment activities, may adversely impact the financial conditionand reputationof the Groupand may negatively impact the Group’s stakeholders, who all have expectations, concerns and aims related to ESG and sustainability matters, which may dier, both within and across the markets in which the Group operates. In its investment activities, Prudential’s stakeholders increasingly have expectations of, and place reliance on, an approach to responsible investment that demonstrates how ESG and sustainability considerations are eectively integrated into investment decisions and r esponsible supplychain management and the performance of fiduciary and stewardship duties. These duties include eective implementationof exclusions, votingand activeengagement decisions with respect to investee companies, as both an asset owner and an asset manager, in line with internally defined procedures and external commitments. 3. Risks relating to prudential’s business activities and industry 3.1 Th e implementation of large-scale transformation, including complex strategic initiatives, gives rise to significant design and execution risks andmay aect Prudential’s operational capability and capacity. Any failure of these initiatives to meet their objectives may adversely impact the Group and the delivery of its strategy. Where required in order to implement its business strategies for growth, meet customer needs, improve customer experiences, strengthen operational resilience, meet regulatory and industry requirements and maintain market competitiveness, Prudential from time to time undertakes Group restructuring, transformation programmes and acquisitions and disposals across its business. Many of these change initiatives are complex, interconnected and/or of large scale, and include improvement of business eciencies through operating model changes, advancingthe Group’s digital capability, expanding strategic partnerships and industry and regulatory-driven change. Theremay be a material adverse eect on Prudential’s business, customers, financial condition, results of operations and prospects if these initiatives incur unplanned costs, are subject to implementation delays, or fail to fully meet their objectives. Large scale restructuring of Prudential, such as the recent Jackson Demergerand changes to the Group’smanagement and operational model have increased uncertainty for the Group’s employees, which may aect operational capacity and the ability of the Group to deliver its strategy. Additionally, there maybe adverse non-financial(including operational, regulatory,conduct and reputational) implicationsforthe Groupin undertaking such initiatives, which inherently give rise to design and execution risks, and may increase existing business risks, such as placing additionalstrainon the operational capacity, or weakeningthe control environment, of the Group. Implementingfurther initiatives related to significantregulatory changes, such as IFRS 17, may amplify these risks. Risks relating to these r egulatory changes are explained in risk factor 4.1 below. The speed of technological change in the business could outpace the Group’s ability to anticipate all the unintended consequences that may arise from such change. Innovative technologies, such as artificial intelligence, expose Prudential to potentialadditionalregulatory, information security, operational, ethical and conduct risks which, if inadequatelymanaged, could result in customer detriment and reputational damage. Prudential plc Annual Report 2021 387 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Risk factors / continued 3.2Prudential is exposed to ongoing risks as a result of the Jackson Demerger, which, if they materialise, could adversely aect Prudential’s business. (a) The G roup continues to hold shares in Jackson but no longer has any control On 13 September 2021, Prudential completed the Jackson Demerger (the ‘Demerger’). As at 31 December 2021, the Group retains an 18.4 per cent. economic interest (and an 18.5 per cent. voting interest) in the total common stock of Jackson. The Group intends to reduce this investment to less than 10 per cent. within 12 months of the completion of the Jackson Demerger. As a result of the Demerger, Prudential no longer has the ability to control Jackson’s strategic, financial and operational decisions. Jackson may fail to develop its business, meet the e xpectations of investors, may be subject to adverse publicity and increased legal or regulatory scrutiny, or its reported financial position may be adversely impacted by errors or limitations in its modelling and other assumptions related to its business, including thecalculation of regulatory or internal capital requirements, the valuation of assets and liabilities, and determininghedging requirements. These factors may have an adverse impact on the market price of Jackson shares, which may be volatile and can go down as well as up. It is therefore possible that the value of Prudential’s shareholding may be lower than anticipated, and the gross proceeds due to Prudential from any future sale may be lower than Prudential might otherwise achieve. (b) In demnities have been given under a Demerger Agreement by Prudential in favour of the Jackson Group At the time of the Demerger, Prudential and Jackson entered into the Demerger Agreement. This governs the post-Jackson Demerger obligations of the Group and the Jackson Group and contains, among other provisions, indemnities under whichPrudential indemnifies the Jackson Group against liabilities that may arise in connection with the business carried on by the Group (other than Jackson’s business) prior to t he Jackson Demerger. Prudential has the right to defend any such claim. Although it is not anticipated that Prudential will be required to pay any s ubstantial amount pursuant to such indemnity obligations, if any amounts payable under the indemnities are substantial, this could have a material adverse eect on the financial condition and/or results of Prudential. (c)Prudential may incur liabilities in connection with the Jackson D emerger In addition, in connection with the Jackson Demerger, Prudential may be subject to claims by Jackson’s shareholders and other third parties for any material misstatements or omissions of material facts contained within Jackson’s Form 10 registration document, or for any fraudulent, intentional or reckless misleading disclosure in connection with the Jackson Shares under the US Securities and Exchange Act of 1934. If those claims are not successfully defended, Prudential may have to pay compensation, and where this is substantial may adversely aect Prudential’s business, financial condition, cash flows, results of operations and prospects. 3.3 Pr udential’s businesses are conducted in highly competitive environments with developing demographictrends. The profitability of the Group’s businesses depend on management’s ability to respond to these pressures and trends. The markets for financial services are highly competitive, with a number of factors aecting Prudential’s ability to sell its products and profitability,including price and yields oered, financial strength and ratings, range of product lines and product quality, brand strength and name recognition, investment management performance andfund management trends, historical bonus levels, the ability to respond to developing demographic trends, customer appetite for certain savings products and technological advances. In some of its markets, Prudential faces competitors that are larger, have greater financial resources or a greater market share, oer a broader range of products or have higher bonus rates. Further,heightened competition for talented andskilled employees, agents and independentfinancial advisers may limit Prudential’s potential to grow its business as quickly as planned. Technological advances, including those enabling increased capability forgathering large volumes of customer health data and developments in capabilities and tools in analysing and interpreting such data (such as a rtificial intelligenceand machine learning), may resultin increased competition to the Group, both from within and outside the insurance industry, and may increase the competition risks resulting from a failure to be able to attract sucient numbers of skilled sta. The Group’s principal competitors include global lifeinsurers together with regional insurers andmultinationalasset managers. In most markets, there are also local companies that have a material market presence. Prudentialbelieves thatcompetitionwill intensify across all regions in response to consumer demand, digital and other technological advances (including the emergence and maturingof new distribution channels), the need for economies of scale and the consequential impact of consolidation, regulatory actions and other factors. Prudential’s ability to generate an appropriate return depends significantly upon its capacity to anticipate and respond appropriately to these competitive pressures. This includes managing the potential adverse impacts to the commercial value of the Group’s existing sale and distribution arrangements, such as bancassurance arrangements, in markets wherenew distribution channelsdevelop. Failure to do so may adversely impact Prudential’s ability to attract and retain customers and, importantly, may limit Prudential’s ability to take advantage of new business arising in the markets in which it operates, which may have an adverse impact on the Group’s business, financial condition, results ofoperations and prospects. Prudential plc Annual Report 2021prudentialplc.com 388 ![]() 3.4Adverse experience in the operational risks inherent in Prudential’sbusiness, and those of its material outsourcing partners, could disrupt its business functions and have a negative impact on its business, financial condition, results of operations and prospects. Operational risks are present in all of Prudential’s businesses, including the risk of direct or indirect loss resulting from inadequate or failed internal and external processes, systems or human error, fraud, the eects of natural or man-made catastrophic events (such as natural disasters, pandemics, cyber-attacks, acts of terrorism, civil unrest and other catastrophes) or other external events. These risks may also adversely impact Prudential through its partners. Prudential relies on the performance and operations of anumber of bancassurance, product distribution, outsourcing (including external technology and data hosting) and service partners. These include back oce support functions, such as those relating to IT infrastructure,development and support and customer facing operations and services, such as product distribution and services (including through digital channels) and investment operations. This creates reliance upon the resilient operational performance of these partners and exposes Prudential to the risk that the operations and services provided by these partners are disrupted or fail. Further, Prudential operates in extensive and evolving legal and regulatory environments (including in relation to tax) which adds to the complexity of the governance and operation of its business processes andcontrols. Exposure to such risks could impact Prudential’s operational resilience and ability to perform necessary business functions by disrupting its systems, operations, new business sales and renewals, distribution channels and services to customers, or result in the loss of confidential or proprietary data. Such risks, as well as any weaknesses in administration systems (such as those relating to policyholder records) or actuarial reserving processes, may also result in increased expenses, as well as legal and regulatory sanctions, decreased profitability, financial loss and customer conduct risk impacts, and may damage Prudential’s reputationand relationship with its customers and business partners. A failure to adequately oversee service partners (or their IT and operational systems and processes) could result in significantservice degradationor disruption to Prudential’s business operations and customers, whichmay havereputational or conduct risk implications and could havea material adverse eect on theGroup’s business, financial condition, results of operations andprospects. Prudential’s business requires the processing of a large number of transactions for a diverse range of products. It also employs complex and interconnected IT and finance systems, models, and user developed applications in its processes to perform a range of operational functions. These functions include the calculation of regulatory or internal capital requirements, the valuation of assets and liabilities and the acquisition ofnew business using artificial intelligence and digital applications. Many of these tools form an integral part of the i nformation and decision-making frameworks used by Prudential and the risk of adverse consequences arising from erroneous or misinterpreted tools used in core business activities, decision-making and reporting exists. Errors or limitations in these tools, or their inappropriate usage, may leadto regulatory breaches, inappropriate decision-making, financial loss, customer detriment, inaccurate external reporting orreputational damage. The long-term nature of much of the Group’s business also means that accurate records have to be maintained securely for significant time periods. The performance of the Group’s core business activities and the uninterrupted availability of services to customers rely significantly on, and require significant investment in, resilient IT applications, infrastructure and security architectural design, data governance and management and other operational systems, personnel, controls and processes. During large-scale disruptive events or times of significant change, the resilience andoperational eectiveness of these systems and processes at Prudential and/or its third party service providers may be adversely impacted. In particular, Prudential and its business partners are makingincreasing use ofemergingtechnological tools and digital services, or forming strategic partnerships with third parties to provide these capabilities. Automated distribution channels to customers increase the criticality of providing uninterrupted services. A f ailureto implementappropriate governance and management of the incremental operational risks from emerging technologies may adversely impact Prudential’s reputation and brand, the results of its operations, its ability to attract and retain customers and its ability to deliver onits long-term strategy and therefore its competitiveness and long-term financial success. Although Prudential’s IT, complianceand other operational systems, models andprocesses incorporate governance andcontrols designedto manage and mitigate the operational and model risks associated with its activities, there can be no complete assurance as to the resilience of these systems and processes to disruption or that governance and controls will always be eective. Due to human error, among other reasons, operational and model risk incidents do occur from time to time and nosystem or process can entirelyprevent them. Prudential’s legacy and other IT systems, data and processes, as with operational systems and processes generally, may also be susceptible to failure or security/data breaches. 3.5Attempts to access or disrupt Prudential’s IT systems, and loss or misuse of personal data, could result in loss of trust from Prudential’s customers and employees and reputational damage, which could have material adverse eects on the Group’s business, financial condition,results of operations and prospects. Prudential and its business partners are increasingly exposed to the risk that individuals (which includes connected persons such as employees, contractors or representatives of Prudential or its third party service providers, and unconnected persons) or groups may intentionally or unintentionally disrupt the availability, confidentiality and integrity of its IT systems or compromise the integrity and security of data (both c orporate and customer), including disruption from ransomware, malicious software designed to restrict Prudential’s access to data until the payment of a sum of money. Where these risks materialise, this could result in disruption to key operations, make it dicult to recover critical data or services or damage assets, any of which could result in loss of trust from Prudential’s customers and employees, reputational damage and direct or indirect financial loss. Cyber-security threats continue to evolve globally in sophistication and potential significance. Prudential’s increasing profile in its current markets and those in which it is entering, growing customer interest in interacting with their insurance providers and asset managers throughthe internetand social media, improved brand awareness, increasing adoption of the Group’s Pulse platform andthe 2020 designation of Prudential as an Internationally Active Insurance Group (‘IAIG’) could alsoincrease the likelihood of Prudential being considered a target by cyber criminals. Ransomware campaigns have increased in frequency and represent an increasing threat to the financial services sector, with recent highly publicised attacks on financial services companies. The risk from untargeted but sophisticated and automated attacks remains present. Prudential plc Annual Report 2021 389 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Risk factors / continued There is an increasing requirement and expectation on Prudential and i ts business partners not only to hold the data of customers, shareholders and employees securely, but also to ensure its ongoing accuracy and that it is being used in a transparent, appropriate and ethical way, including in decision-making where automated processes are employed. A failure to do so may result in regulatory scrutiny and sanctions and detriment to customers and third party partners, and may adversely impact the reputation and brand of the Group, its ability to attract and retain customers and deliver on its long-term strategy and therefore the results of its operations. The risk to the Group of not meeting these requirements and expectations may be increased by the development of cloud-based infrastructure and the usage of digital distribution and service channels, which can collect a broader range of personal and health-related data from individuals at increased scale and speed, and the use of complex tools, machine learningand artificial intelligence technologies to process, analyse and interpret this data. New and currently unforeseeable regulatory issues may also arise from the increased use o f emerging technology. Regulatory developments in cybersecurity and data protection (such as the ongoing development of a holistic data governance regime in China, including the Data Security Law, the Personal Information Protection Law, which came into eect in November 2021, the revised Measures forCybersecurity Review and recently released draft rules on the provisionof internet healthcare services) continueto progress worldwide. Such developments may increase the complexity of requirements and obligations in this area, in p articular where they include nationalsecurity restrictions or impose diering and/or conflicting requirements with those of other j urisdictions. These risks may also increase the financial and reputational implicationsforPrudential of regulatory non-compliance or a significant breach of IT systems or data, including at its joint venture or third party service providers. The international transfer of data may, as a global organisation, increase regulatory risks for the Group. Although Prudential has experienced or has been aected by cyber and data breaches, to date, it has not identified a failure or breach, or an incident of data misuse in relation to its legacy and other IT systems and processes which has had a material impact on its operations. However, Prudential has been, and likely will continue to be, subject to potential damage from computer viruses, unauthorised access and cyber-security attacks such as ‘denial of service’ attacks (which, for example, can cause temporary disruption to websites and IT networks), phishing and disruptive software campaigns, and there can be no assurance that such events will not take place which may have material adverse consequential eects on Prudential’s business, financial condition, results ofoperations and prospects. 3.6Prudential’s Pulse platform may increase existing business risks to the Group or introduce new risks as the markets in which it operates and its features, partnerships and product oerings develop. Prudential’s digital platform, Pulse, is subject to a number of the risks discussed within this ‘Risk Factors’ section. In particular, these include risks related to legal and regulatory compliance and the conduct of business;the executionof complex change initiatives;information security and data privacy; the use of models (including those using artificial intelligence) and the handling of personal data; the resilience and integrity of IT infrastructure and operations; and those relating to t he management of third parties. These existing risks for the Group may be increased due to a number of factors: > The number of currentand planned markets in which Pulse operates, each with their own laws and regulations, regulatory and supervisory authorities, the scope of application of which may be uncertain or change at pace, may increase regulatory compliance risks; > The implementation ofplanned platform features and oerings may require the delivery of complex, inter-connected change initiatives across current and planned markets. This may give rise to design and e xecution risks, which could be amplified where these change initiatives are delivered concurrently; > Th e platform includes functionality relating touser generated content, which may expose Prudential to legal liability or reputational risk in the hosting of that content; > The increased volume, breadth and sensitivity of data on which the business model of Pulse is dependent and to which the Group has access, holds, analyses and processes through its models, which increases data security, privacy and usage risks. The use of complex models, including where they useartificial intelligence for critical decision-making, in the application’s features and oerings maygive rise to operational, conduct, litigation and reputational risks where they do not function as intended; > The platform and its services rely on a number of third party partners and providers, which may vary according to the market. This may increase operational disruption risks to the uninterrupted provision of s ervices to customers, regulatory compliance and conduct risks, and the potential for reputational risks; and > Su pport for, and development of, the platformmay be provided outside of the individual markets in which the platform operates, which may increase the complexity of local legal and regulatory compliance. New product oeringsand functionality may be developed and provided through the platform, which may introduce newregulatory, operational, conduct and strategic risks for the Group. Any slowdown in d igitalisation may reduce user adoption rates, the current size of the user base of Pulse and/or the development of product and service oerings, which may impact the ability of the Group to deliver its digital strategy. Regulations may be introduced which limit the permitted scope of online or digitally distributed insurance, asset management or medical services, which may restrict current or planned oerings provided bythe Pulse platform. Markets may also introduceregulations with specific licensing requirements or requiring the provisionof current or planned services via locally incorporated entities, which increases the regulatory and compliance risks associated with operating the Pulse pla tform. Prudential plc Annual Report 2021prudentialplc.com 390 ![]() A failureto implementappropriate governance and management of t he incremental and new risks detailed above mayadversely impact Prudential’s reputation and brand, its ability to attract and retain c ustomers, its competitiveness and its ability to deliver on its long-term strategy. 3.7Prudential operates in certain markets with joint venture partners, minority shareholders and other third parties. These businesses face the same risks as the rest of the Group and also give rise to certain risks to Prudential that the Group does not face with respect to its wholly-owned subsidiaries. Prudential operates, and in certain markets is required by local regulation to operate, through joint ventures and other jointownership or third-party arrangements. The financial condition, operations and reputation of Group may be adversely impacted, or the Group may face regulatory censure, in the event that any of its partners fails or is unable to meet its obligations under the arrangements, encounters financial diculty, or fails to complywith local orinternational regulation and standards such as those pertaining to the prevention of financial crime. Reputational risks to the Group are amplified where any joint venture or jointly owned businesses carry the Prudential name. A material proportion of the Group’s business comes from its joint ventures in China and India. For such operations the level of control exercisable by the Group depends on the terms of the contractual agreements, in particular, those terms providing for the allocation of control among, and continued cooperationbetween, the participants. As a result, the level of oversight, control and access to management information the Group is able to exercise over the extent of the exposure to material risks at these operations may be lower compared to the Group’s wholly owned businesses. This mayincrease the uncertainty for t he Groupover the financial condition ofthese operations, including the credit risk profile and valuation of their investment portfolios and the extent of their invested credit and counterparty credit risk exposure, resulting in heightened risks to the Group as whole. This may particularly be the case where the countries in which these operations are located experience market or sector-specific slowdowns, volatility or deterioration (such as the recent negative developments in the China property sector). In addition, the level of control exercisable by the Group could be aected by changes in the maximum level of non- domestic ownership imposed on foreign companies in certain jurisdictions. The exposure of the Group to the risks detailed in risk factor 3.1 above may also increase should the Group’s strategic initiatives include the expansion of the Group’s operations through joint ventures or jointly owned businesses. In addition, a significant proportion of the Group’s product distribution is carried outthrough agency arrangements and contractual arrangements with third party service providers not controlled by Prudential, such as bancassurance arrangements, and the Groupis therefore dependent upon the continuation of these relationships. A temporary or permanent disruption to these distribution arrangements, such as through significant deterioration inthe reputation,financial position or other circumstances of the third party service providers, material failure in controls (such as those pertaining to the third party serviceprovider systemfailure or the prevention of financial crime) or failure to meet any regulatory requirements could adversely aect Prudential’s reputation and its business, financial condition, results of operations and prospects. 3.8Adverse experience relative to the assumptions used in pricing products and reporting business results could significantly aect Prudential’s business, financialcondition, results of operations and prospects. In common with other life insurers, the profitability of the Group’s businesses depends on a mix of factors including mortality and morbidity levels and trends, policy surrenders and take-up rates on g uarantee features of products, investment performance and impairments, unit cost of administration and new business acquisition expenses. The Group’s businesses are subject to inflation risk. In particular, the Group’s medical insurance businesses are also exposed to medical inflation risk. Prudential needs to make assumptions about a number of factors in determining the pricing of its products, forsetting reserves, and for reporting its capital levels and the results of its long-term business operations. A further factor is the assumption that Prudential makes about future expected levels of the rates of early termination of products by its customers (known as persistency). This is relevant to a number of lines of business in the Group. Prudential’s persistency assumptions reflect a combination of recentpast experience for each relevant line of business and expert judgement, especially where a lack ofrelevantand credible experience data exists. Any expected change in future persistency is also reflected in the assumption. If actual levels of persistency are significantlydierent than assumed, the Group’s results of operations could be adversely aected. In addition, Prudential’s business may be adversely aected by epidemics, pandemics and other eects that give rise to a large number of deaths or additional sickness claims, as well as increases to the cost of m edical claims. Pandemics, significantinfluenza and other epidemics have occurred a number of times historically but the likelihood, timing, or the severityof future events cannot be predicted. The eectiveness of external parties, including governmental and non-governmental organisations, in combating the spread and severity of any epidemics, as well as pharmaceutical treatments and vaccines (and their roll-outs) and non-pharmaceutical interventions, couldhave a material impact on the Group’s claims experience. The risks to the Group resulting from the Covid-19 pandemic are included in risk factor 1.1 above. Prudential uses reinsurance to selectively transfer mortality, morbidity and other risks. This exposes the Group to the counterparty risk of a reinsurer being unable to pay reinsurance claims or otherwise meet their commitments; the riskthat a reinsurerchanges reinsurance terms and conditions of coverage, or increases the price of reinsurance which Prudential is unable to pass on to its customers; the risk of ambiguity in t he reinsuranceterms and conditions leading to uncertainty whether an event is covered under a reinsurance contract; and the risk of being unable to replace an existing reinsurer, or find a new reinsurer, for the risk transfer being sought. Any of the foregoing, individually or together, could have a material adverse eect on Prudential’s business, financial condition, results of operations andprospects. Prudential plc Annual Report 2021 391 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Risk factors / continued 4.Risks relating to legal and regulatory requirements 4.1 Pr udential conducts its businesses subject to regulation and associated regulatory risks, including a change to the basis in the regulatory supervision of the Group, the eects of changes in the laws, regulations, policies and their interpretations and any accounting standards in the markets in which it operates. Changes in governmentpolicy and legislation (includingin relation to t ax and data security), capital control measures on companies and individuals, regulation or regulatory interpretation applyingto companies in the financial services and insurance industries in any of the markets in which Prudential operates (including those related to the c onduct of business by Prudential or its third party distributors), or decisions taken by regulators in connection with their supervision of members of the Group, which in some circumstances may be applied retrospectively, may adversely aect Prudential. The impact from any regulatory changes may be material toPrudential,for example changes may be required to its product range, distribution channels, handling and usage of data, competitiveness, profitability, capital requirements, riskmanagement approaches, corporateor governance structure and, consequently, reported results and financing requirements. Also, regulators in jurisdictions in which Prudential operates may impose requirements aecting the allocation of capital and liquidity between dierent business units in theGroup, whetheron a geographic, legal entity, product line or other basis. Regulators may also change solvency requirements, methodologies for determining components ofthe regulatory or statutory balance sheet including the reserves and the level of capital required to be held by individual businesses (with implications to the Group capital position), the regulation and expectations of customer facing processes including selling practices, and could introduce changes that impact products sold or that may be sold. Furthermore, as a result of interventions by governments in light of fi nancial and global economic conditions, there may continue to be changes in governmentregulation and supervisionof the financial services industry, including the possibility of higher capital requirements, restrictions on certain types of transactions and enhancement of supervisory powers. In the markets in which it operates, Prudential is subject to regulatory requirements and obligations with respect to financial crime, including anti-money laundering, andsanctions compliance, which mayeither impose obligations on the Group to act in a certain manner or restrict the way that it can act in respect of specified individuals, organisations, businesses and/or governments. A failure to do so may adversely impact the reputation of Prudential and/or result in the imposition of legal or regulatory sanctions orrestrictions on theGroup.For internationally active groups such as Prudential, operating acrossmultiple jurisdictions increases the complexity of legal and regulatory compliance. Compliancewith Prudential’s legal orregulatory obligations, including those in respect of international sanctions, in one jurisdiction may conflict with the law or policy objectives of another jurisdiction, or may be seen as supporting the law or policy objectives of that jurisdiction over another, creating additional legal, regulatory compliance and reputational risks for the Group. These risks may be increased where uncertainty exists on the scope of regulatory requirements and obligations, and where the complexity of specificcases applicable to t he G roup is high. Further information on specific areas of regulatory and supervisory requirements and changes are included below. (a)Group-wide Supervision The Hong Kong IA has been the Group-wide supervisor of Prudential since 21 October 2019. To align Hong Kong’s regulatory regime with international standards and practices, the Hong KongIA has developed a GWS Framework for multinational insurance groups under its supervision. The GWS Framework is based on a principle-based and outcome-focused approach, and allows the Hong Kong IA to exercise direct regulatory powers over the designated holding companies of multinational insurance groups. The GWS Framework became eective for Prudential upon designation by the Hong Kong IA on 14 May 2021, subject to transitional arrangements allowed in legislation which have been agreed with the Hong Kong IA. Under the GWS Framework, all debt instruments, both senior and subordinated, issued byPrudential as atthe dateof designation meet the transitional conditions set by the Hong Kong IA and are included as eligible Group capital resources. Whilst theregulatory requirements have been finalised and are in eect, given the early nature of the regime, there is a risk that the interpretations of the principle-based regulatory requirements made by the Group in complying with the regulatory requirements may dier in some aspects from the interpretations made by the Hong Kong IA in their supervision of these principle-based regulatory requirements or as a result of the potential for further regulatory guidance to be issued. (b) Gl obal regulatory requirementsand systemic riskregulation Currentlythere are also a number of ongoing global regulatory developments which couldimpact Prudential’sbusinesses in the many jurisdictions in which they operate. These include the work of the Financial Stability Board (the ‘FSB’) in the area of systemic risk including the reassessment of the designation of G-SIIs, and the Insurance Capital Standard(the‘ICS’) being developed by theInternational Association of Insurance Supervisors (the ‘IAIS’). In addition, regulators in a number of jurisdictions in which the Group operates are further developing their local capital regimes. There remains a high degree of uncertainty over the potential impact of such changes on the Group. Eorts to curb systemic risk and promote financial stability are also under way. At the international level,the FSB continues to develop recommendations for the asset management and insurance sectors, including ongoing assessment of systemic riskmeasures. The IAIS has c ontinued to focus on the following key developments. In November 2019 the IAIS adopted the Common Framework (‘ComFrame’) which establishessupervisory standards andguidance focusing on the eective group-wide supervision of Internationally Active Insurance Groups (‘IAIGs’). Prudential was included in the first r egister of IAIGs released by the IAIS on 1 July 2020 and was designated an IAIG by the Hong Kong IA following an assessment against the established criteria in ComFrame. The IAIS has also been developing the ICS (‘Insurance Capital Standard’) as part of ComFrame. The implementation of ICS will be conducted in two phases: a five-year monitoring phase followed by an implementation phase. The Aggregation Method is one of the alternatives being considered tothe default approachundertaken forthe ICS duringthe monitoringperiod and the related proposals are b eing led by the National Association of Insurance Commissioners (‘NAIC’). Prudential plc Annual Report 2021prudentialplc.com 392 ![]() In November 2019 the FSB endorsed a new Holistic Framework (‘HF’), intended for the assessment and mitigation of systemic risk in the insurance sector, for implementation by the IAIS in 2020 and has suspended G-SII designations until completion of a review to be undertaken in 2022. Many of the previous G-SII measures have already been adopted into the Insurance Core Principles (‘ICPs’) and ComFrame, as well as under the Hong Kong IA’s GWS Framework. As an IAIG, Prudential is expected to be subject to these measures. The HF also includes a monitoring element for the identification ofa build-up of systemic risk and to enable supervisors to take action where appropriate. There continues to be material change in the regulatory guidance in this area, including several areas still in development as part of the IAIS’ HF implementationand any newor changing regulationscould have a further impact on Prudential. Recent developments include: > On 18 January 2022, the IAIS released its 2022-23 roadmap. In a ddition to those related to the HF and ICS, key areas of focus will include activities and initiatives focusing on operational and cyber resilience inthe insurancesector includingIT third-party outsourcing, climate change risk, financial inclusion, culture and conduct, diversity, equity and inclusion, fintech and policyholder protection schemes and their role in insurer resolution; > Th e IAIS is proposing to introduce liquidity metrics to be used as ancillary indicators, with thephase 2 consultation completed in Jan uary 2022; > Aconsultation on anapplicationpaper on macroprudential supervision was also launched by the IAIS in March 2021; > Following the publication of its 2020 Resolution Report in November 2020, the FSB released practice papers for consultation on intra- group connectedness and resolution funding for insurers, with input requested by 12 March 2022. Resolution regimes will continue to be a near term focus in the FSB’s financial stability work, potentially being a key tool in informing decisions around the reformed G-SII designation.These consultations constitute thelast of the FSB’s systemic risk work for insurers, prior to the designation assessment planned at year end 2022; and > Th e IMF released a Financial System Stability Assessment for Hong Kong in June 2021. One of the conclusions of the report was that there is room to further strengthen the macroprudential framework byenhancing systemic riskassessment and communication. (c)Regionalregulatory regime developments, including climate-related regulatory changes In the Group’s key markets, regulatory changes and reforms are in progress, with some uncertainty on the full impact to Prudential: > In C hina, regulatory tightening across a number of industries in 2021, which may continue across other industries, has driven market volatility, heightened credit risk, adversely impacted business sentiment, with thepotential for broader financial contagion. Other recent regulatory developments in China which may potentially increase compliance risk to the Group include the following: – De velopment of a holistic data governance regime in China, which have recently included the Data Security Law, the Personal Information Protection Law, and the revised Measures for Cybersecurity Review; – The CBIRC recently released new regulations oninternet life insurance sales in China which include restrictions on the selling of certain long-term products online, eective 31 December 2021; and – On 2 6 October 2021 the National Health Commission released forpublic commentdraft rules on the internet healthcare services, which include restrictions on online AI-driven diagnosis and treatments as well as requirements including real-time supervision byprovincialinternet supervision platforms and meeting financial and operational criteria, including certain risk management and corporate governance ratings. These rules mayhave implications for the Group’s plans for its Pulse platform in China. > In H ong Kong, the Hong Kong IA is seeking to align the territory’s insurance regime with international standards and has been developing a risk-based capital (‘RBC’) framework. The RBC framework willcomprise three pillars: quantitative requirements, including assessmentof capital adequacy andvaluation; qualitative requirements, including corporategovernance, Enterprise Risk Management as well as Own Risk and Solvency Assessment; and public disclosures and transparency of information. The Hong Kong IA is permitting applications for early adoption of the framework. > In Malaysia, BankNegara Malaysia (‘BNM’), the central bankof Malaysia, has initiated a multi-phase review of its current RBC frameworks for insurers and takaful operators which has been conducted since 2018. The review aims to ensure that the frameworks remain eective under changing market conditions, facilitate consistent and comparable capital adequacy measurement across the insurance andtakaful industry, where appropriate, and achieve greater alignment with key elements of the global capital standards such as ICS, where appropriate. The timing of the eective date ofthe updated rules currentlyremains uncertainbut certain changes, such as the applicable discount rate on liabilities, are expected to come into eect in 2022. > In China, the China Banking and Insurance Regulatory Commission (‘CBIRC’) announced plans for its China Risk Oriented Solvency System (‘C-ROSS’) Phase II in 2017. Quantitative impact studies have been performed in 2020 and 2021. On 30 December 2021, the CBIRC released the ocial regulation for C-ROSS II, which is eective for Q1 2 022 solvency reporting. > In Indonesia, regulatory and supervisory focus on the insurance industry remains high. The Financial Services Authority of Indonesia, the Otoritas Jasa Keuangan (‘OJK’) has been revising investment linked products (‘ILP’) regulations with the aim of increasing insurance penetration and betterprotecting customer interests and i mproving market conduct. The final regulations are expected to be issued during 2022 and will have implications for the product strategies and insurance andcompliance risks for insurers. General supervisory focus on insurer governance has increased, in particular on the autonomy of decision-making of local insurers. The OJK has also focused on consumer protection regulations more broadly and h as recently enhanced regulatory requirements on IT risk management. Since the 2014 Insurance Law, the industry has been subject to regulatory expectations on the separation of conventional and Sharia business. Prudential plc Annual Report 2021 393 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Risk factors / continued > In Malaysia, BNM issued a circular letter in Q1 2021 specifying requirements for the design and disclosure of ILPs which provide extension of coverage beyond the initial coverage term. These changes aimto improvethe appropriateness ofproduct design and the customer disclosures provided on ILP policy documents. The new requirements for ILP products sold since March 2021 came into eect on 22 September 2021, while for all in-force products sold prior to March 2021 the proposed eective date has been extended to 1 April 2022. The changes are expected to materially impact insurer systems, disclosures, customer communications, sales conduct and post-sale processes. The pace and volume of climate-related regulatory changes is also increasing. Regulators including the Hong KongMonetary Authority, the Monetary Authority of Singapore, BNM in Malaysia and the Financial Supervisory Commission in Taiwan are in the process of developing supervisory and disclosurerequirements or guidelines related to the environment and climate change. It is expected that other regulators will develop similar requirements. These changes may g ive rise to compliance, operational and disclosure risks requiring Prudentialto coordinateacross multiple jurisdictions inorder to apply a c onsistent risk management approach. (d) IFR S 17 Prudential’s consolidated accounts are prepared in accordance with current IFRS applicable to the insurance industry. In May 2017, the IASB published its standard oninsuranceaccounting(IFRS 17, ‘Insurance Contracts’) which replaces the current IFRS 4 standard. Some targeted amendments to this standard, including to the eective date, were issued in June 2020 and December 2021. IFRS 17, ‘Insurance Contracts’, as amended, will have the eect of introducing fundamental changes to the statutory reporting of insurance entities that prepare accounts according to IFRS from 2023. The standard is subject to endorsement in t he UK via the UK Endorsement Board. Prudential has a Group-wide implementationprogramme underway toimplement thisnew standard. A reliable estimate of the eect of changes required to the Group’s accountingpolicies as a resultof implementingthis standard, which is expected to alter the timing of IFRS profit recognition, is not yet available as implementation is underway. The implementation ofthis standard involves significant enhancements to the IT, actuarial and finance systems of theGroup. Apart from IFRS 17, any other changes or modification of IFRS accounting policies may also require a change in the way in which future results will be determined and/or a retrospective adjustment of reported results to ensure consistency. (e) In ter-bank oered rate (‘IBOR’) reforms In July 2014, the FSB announced widespread reforms to address the integrity and reliability of IBORs. The discontinuation of IBORs in their current form and their replacement with alternative risk-free reference rates such as the Secured Overnight Financing Rate (‘SOFR’) in the US and the Singapore Swap OerRate (‘SOR’) could, among other things, impact the Group through an adverse eect on the value of Prudential’s assets and liabilities which are linked to or which reference IBORs, a r eduction in market liquidity during any period of transition and increased legal and conduct risks to the Group arising from changes required to documentation and its related obligations to its stakeholders. (f)Investor contributionschemes Various jurisdictions in which Prudential operates have created investor compensationschemes that requiremandatory contributions from market participants in some instances in the event of a failure of a market participant. As a major participant in the majority of its chosen markets, circumstances could arise in which Prudential, along with other companies, may be required to make such contributions. 4.2The conduct of business in a way that adversely impacts the fair treatment of customers could have a negative impact on Prudential’s business, financialcondition, results of operations and prospects or on its relations with current and potential customers. In the course of its operations and at any stage of the product lifecycle, the Group or its intermediaries may conduct business in a way that adversely impacts customer outcomes and the fair treatment of customers (‘conduct risk’). This may arise through a failure to: design, provide and promote suitable products and services to customers that meet their needs, are clearly explained or deliver real value, provide and promote a high standard of customer service, appropriately manage customer information, or appropriatelyhandle and assess complaints. A f ailure to identify orimplementappropriate governance and management of conduct risk may result in harm to customers and regulatory sanctions and restrictions, and may adversely impact Prudential’s reputation and brand, its ability to attract and retain customers, its competitiveness and its ability to deliver on its long-term strategy. Prudential is, and in the future may continue to be, subject to legal and r egulatory actions in the ordinary course of its business on matters relevant to the delivery of customer outcomes. Such actions relate, and c ould in the future relate, to the application of current regulations or the failureto implementnew regulations(includingthose relating to t he conduct of business), regulatory reviews of broader industry practices and products sold (including in relation to lines of business already closed) in the past under acceptable industry or market practices at the time and changes to the tax regime aecting products. Regulatorsmay also focus on the approach that product providers use to select third-party distributors and to monitor the appropriateness of s ales made by them. In some cases, product providers can be held responsible for the deficiencies of third-party distributors. There is a risk that new regulations introduced may have a material adverse eect on the sales of the products by Prudential and increase Prudential’s exposure to legal risks. Any regulatory action arising out of the Group’s position as a product provider could have an adverse impact on the Group’sbusiness, financial condition, results of operations and prospects, or otherwise harm its reputation. Prudential plc Annual Report 2021prudentialplc.com 394 ![]() 4.3Litigation, disputes and regulatory investigations may adversely aect Prudential’s business, financial condition, cash flows, results of operations and prospects. Prudential is, and may in the future be, subject to legal actions, disputes and regulatory investigations in various contexts, including in the ordinary course ofits insurance,investment management and other business operations. These legal actions, disputes and investigations may relate to aspects of Prudential’s businesses and operations that are specific toPrudential, orthat arecommon tocompanies thatoperate in P rudential’s markets. Legal actions and disputes may arise under contracts, regulations (including tax) or from a course of conduct taken by Prudential, and may be class actions. Although Prudential believes that it has adequately provided in all material respects for the costs of litigation and regulatory matters, no assurance can be provided that such provisions are sucient. Given the large or indeterminate amounts of damages sometimes sought, other sanctions that might be imposed and the inherent unpredictability of litigation and disputes, it is possible that an adverse outcome could have an adverse eect on Prudential’s business, financial condition, cash flows, results of operations and pr ospects. 4.4 Ch anges in tax legislation may result in adverse tax consequences for the Group’s business, financial condition, results o f operations and prospects. Tax rules, including those relating to the insurance industry, and their interpretation may change, possibly with retrospective eect in any of the jurisdictions in which Prudential operates. Significant tax disputes with tax authorities, and any change in the tax status of any member of the Group or in taxation legislation or its scope or interpretation could aect Prudential’s business, financial condition, results of operations and prospects. The Organisation for Economic Co-operation and Development (‘OECD’) is currently undertaking a project intended to modernise the global international tax system, commonly referred to as Base Erosion and Profit-Shifting 2.0 (‘BEPS 2.0’). The project has two pillars. The first pillar is focused on the allocation of taxing rights between jurisdictions forin-scope multinational enterprises thatsell cross-border goods and services into countries with little or no local physical presence. The s econd pillar is focused on developing a global minimum tax rate of 15 per cent applicable to in-scope multinational enterprises. On 8 October 2021 the OECD issued a statement setting out the high l evel principles which have been agreed by over 130 jurisdictions involved in the project. Based on the 8 October 2021 OECD statement, Prudential does not expect to be aected by proposals under the first pillar given they include an exemption for regulated financial services companies. On 20 December 2021the OECD published detailed model rules for the second pillar, with implementation of the rules envisaged by 2023. These rules will apply to Prudential where implemented into the national law of jurisdictions where it has entities within the scope of the r ules. On 11 January 2022, the UK government issued a consultation on the UK implementation of these rules, with the intention of including required legislation in Finance Bill 2022-23 and for the rules to be eective from 1 April 2023. Detailed guidance from the OECD is awaited to assist with interpreting the model rules. The early indications are that some jurisdictions may also introduce a domestic minimum tax forin-scope multinationals alongside introducingthe global rules. As Prudential operates in a number of jurisdictions where the eective tax rate can be less than 15 per cent, the implementation of the model rules and/or equivalent domestic minimum tax rules may have an adverse impact on the Group. Until further clarity is provided on how the OECD model rules are to be interpreted, how relevant jurisdictions will implement them and any domestic minimum tax regimes, the full extent of the long-term impact on Prudential’s business, tax liabilities and profits remainuncertain. Prudential plc Annual Report 2021 395 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() A Acquisition costs or expenses Acquisition costs or expenses include the initial expenses and commissions incurred in w riting newbusiness. Typically, under IFRS, an element of acquisition costs is deferred ie not expensed in the year incurred, and instead amortised in the income statement in line with t he emergence of surpluses on the related contracts. Actual exchange rates (AER) Actual historical exchange rates for the specific accountingperiod, being the average rates over theperiod for the income statement and the closing rates at the balance sheet date for the balance sheet. Administration expenses Administration expenses are expenses and renewal commissions incurred in managing existing business. Alternative performance measures (APMs) Alternative performance measures (APMs) are non-GAAP measures used by the Prudential Group within its annual reports to supplement disclosures prepared in accordance with widely accepted guideline andprinciples established byaccounting standard setters, such as International Financial Reporting Standards (IFRS). These measures provide useful information toenhance the understanding of the Group’s financial performance. A r econciliation of these APMs to IFRS metrics is provided in theadditionalunauditedfinancial information section of the annual report. American Depositary Receipts (ADRs) The stocks of most foreign companies that trade in the US markets are traded as American Depositary Receipts (ADRs). US depositary banks issue these stocks. Each ADR represents one or more shares of foreign stock or a fraction of a share. The price of an ADR corresponds to the price of the foreign stock in i ts home market, adjusted to the ratio of the ADRs to foreign company shares. Annual premium equivalent (APE) A measure of new business sales, which is a key metric for the Group’s management of the d evelopment andgrowth of the business. APE is calculated as the aggregate of annualised regular premiums from new business and one-tenthof singlepremiums on ne w business writtenduring the period forall insurance products, including premiums for contracts designated as investment contracts under IFRS 4. Assets under management (AUM) Assets under management represent all assets managed or administered by or on behalf of the Group, including those assets managed by t hird parties. Assets under management include managedassets that are included within theGroup’s statementof financial position andthose assets belonging to external clients outside the Prudential Group, which are thereforenot included inthe Group’s statement of financial position. These are also referred to as ‘funds under management(FUM)’. Available for sale (AFS) Securities that have been acquired neither for short-term sale nor to be held to maturity. AFS securities are measured at fair value on the statement of financial position with unrealised gains and losses being booked in Other Comprehensive Income instead of t he i ncome statement. B Bancassurance An agreement with a bank to oer insurance and investment products to the bank’s customers. Bonuses Bonuses refer to the non-guaranteed benefit added to participating life insurance policies and are the way in which policyholders receive their share of the profits of the policies. These include regular bonus and final bonus and the r ates may vary from period to period. C Cash remittances Amounts paid by our business units to the Group comprising dividends and other transfers net of capital injections, which are reflective of emerging earnings and capital g eneration. Cash surrender value The amount of cash available to a policy holder on the surrender of orwithdrawal from a life insurance policy or annuity contract. Ceding commission In areinsurance arrangement, an allowance (usually a percentage of the reinsurance premium) can be made by the reinsurer for part or all of a ceding company’s acquisition and other costs. China Risk-Oriented Solvency System (C-ROSS) A regulatory framework that governs the insurance industry in China eective from 1 March 2021. The second phase of the C-ROSS was completed on 30 December 2021 to be eective in the first quarter of 2022. Collectiveinvestment schemes (CIS) CIS is an open-ended investment fund of pooled assets in which an investor can buy and sell units that are issued in the form of shares. Constant exchange rates (CER) Prudential plc reports its results at both actual e xchange rates (AER) to reflect actual results and also constant exchange rates (CER) to e liminate the impact from exchange translation. CER results are calculated by translating prior year results usingcurrent period foreigncurrency exchange rates, ie current periodaverage rates for the income statements and currentperiod closing rate for t he balance sheet. Core structural borrowings Borrowings whichPrudential considers forming part of its core capital structure and excludes operational borrowings. Credit risk The risk of loss if another party fails to meet its obligations, or fails to do so in a timely fashion. Currency risk The risk that asset or liability values, cash flows, income or expenses will be aected by changes in exchange rates. Also referred to as foreign exchange risk. D Discretionary participation features (DPF) A contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are likely to be a significant portion of the total contractual benefits; whose amount or timing is contractually at the discretion of the issuer; and that are contractually based on asset, fund, company or other entity performance. Dividend cover Dividend cover iscalculated as operating profit a fter tax on an IFRS basis, divided by the currentyear interim dividend plusthe proposed final dividend. #### Glossary Prudential plc Annual Report 2021prudentialplc.com 396 ![]() E Endowment product An ordinary individual life insurance product that provides the insured party with various guaranteed benefits if it survives specific maturity dates or periods stated in the policy. Upon the death of the insured party within the coverage period, adesignated beneficiary receives the face value of the policy. Environmental, Social andGovernance (ESG) ESG refers to the three central factors in measuring the sustainabilityand societal impact of an investment in a company or business, which is qualitative and non-financial and not readilyquantifiable in monetary terms. The key features of Prudential ESG framework are its three strategic pillars: 1)making health and financial security accessible; 2) stewarding the human impacts of climate change; and 3) building social capital. European Embedded Value (EEV) Financialresults that are prepared on a s upplementary basis to the Group’s consolidated IFRS results and which are prepared in accordance with a set of Principles issued by the CFO Forum of European Insurance Companies in 2016. Embedded value is a way of measuring the current value to shareholders of the future profits from life business written based on a set of assumptions. F Fundsunder management (FUM) See ‘assets under management (AUM)’ above. G Group free surplus Group free surplus at the end of the period comprises free surplus for the insurance businesses, representing the excess of the net worth over the required capital included in the EEV results and IFRS net assets for the asset management and other businesses, excluding goodwill. The free surplus generatedduring the period comprises the movement in this balance excluding foreign exchange, capital and other reserve movements. Specifically, it i ncludes amounts emerging from the in-force operations duringthe year, net ofamounts reinvested in writing new business, the eectof market movements and other one-oitems. Group-wide Supervision (GWS) Framework Regulatory frameworkdeveloped by the Hong Kong InsuranceAuthority (see below) for m ultinationalinsurance groups under its supervision. The GWS Framework is based on a p rinciple-based and outcome-focused approach, and allows the Hong Kong Insurance Authority to exercise direct regulatory powers over the designated holding companies of multinational insurance groups. H Health and protection (H&P) products (also referred to as accident and health (A&H)products) These comprise health and personal accident insurance products, which providemorbidity or sickness benefits and include health, disability, critical illness and accidentcoverage.Health and protection products are sold both as standalone policies and as riders that can be attached to life insurance products. Health and protection riders are presented together with ordinary individual life insurance products for the purposes of disclosure of financial information. Hong Kong Insurance Authority (IA) The Hong Kong IA is an insurance regulatory body responsibleforthe regulation and supervision of the Hong Kong insurance industry. I In-force An insurance policy or contract reflected on records that has not expired, matured or otherwise been surrendered orterminated. InternationalAssociation ofInsurance Supervisors (IAIS) The IAIS is a voluntary membership organisation of insurance supervisors and regulators. It is the international standard- setting body responsible fordeveloping and assisting in theimplementation of principles, standards and other supporting material for t he supervision of the insurance sector. InternationalFinancial Reporting Standards (IFRSStandards) Accounting standards and practices that are developed and issued by the IFRS Foundation and the International Accounting Standards Board(IASB). Investment grade Investments rated BBB- or above for S&P and Baa3 or above for Moody’s. Generally, they are bonds that are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them. Investment-linked products or contracts Insurance products where the surrendervalue of the policy is linked to the value of underlying investments (such as collective investment schemes, internal investment pools or other property) orfluctuations in thevalue of underlying investment or indices. Investment risk associated with the product is usually borne by thepolicyholder. Insurancecoverage, investment and administration services are provided for whichthe charges are deducted fromthe investment fund assets. Benefits payable will depend on the price of the units prevailing at thetime of surrender, death or t he maturity of the product, subject to surrender charges. These are also referred to as u nit-linked products or unit-linked contracts. K Key performance indicators (KPIs) These are measures by which the development, performance or position of the b usiness can be measured eectively. The Group Board reviews the KPIs annually and updates them where appropriate. L Liquidity coverage ratio (LCR) Prudential calculates this as assets and resources available to us that are readily convertible to cash to cover corporate obligations in a prescribed stress scenario. We c alculate this ratio over a range of time horizons extendingto twelve months. Liquidity premium This comprises the premium that is required tocompensate for the lower liquidity of corporate bonds relative to swaps and the mark-to-market risk premium that is required to compensate for the potential volatility in corporate bondspreads (and hencemarket values) at the time of sale. Prudential plc Annual Report 2021 397 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Glossary / continued M Million DollarRound Table (MDRT) MDRT is aglobal, independent association of life insuranceand financial services professionals that recognises professional knowledge, strict ethical conduct and outstandingclient service. MDRT membership is recognised internationally as the standard of e xcellence in the lifeinsuranceand financial services business. Money Market Fund (MMF) An MMF is a type of mutual fund that has relatively low risks compared to other mutual funds andmost other investments and historically has had lower returns. MMF invests in high quality, short-term debt securities and pay dividends that generallyreflect short-term interest rates. The purpose of an MMF is to provide investors with a safe place to store cash or as an alternative to investing in the stock market. Morbidity rate Rate of sickness, varying by such parameters as age, gender and health, used inpricing and computing liabilities for future policyholders of health products, which contain morbidity risks. Mortality rate Rate of death, varying by such parameters as age, gender andhealth, used inpricing and computing liabilities for future policyholders of life and annuity products, which contain mortality risks. N Net premiums Life insurance premiums, net of reinsurance ceded to third-party reinsurers. Net worth Net assets for EEV reporting purposes that reflect the regulatory basis position, sometimes with adjustments to achieve consistency with the IFRS treatment of certain i tems. New business margin New business margin is expressed as the value o f new business profit as a percentage of annual premium equivalent (APE) and the p resent value of new business premiums (PVNBP) expected to be received on an EEV b asis. New business profit The profits, calculated in accordance with European Embedded Value Principles, from business sold inthe financial reporting period under consideration. Non-participating business A life insurance policy where the policyholder is not entitled to a share of the company’s profits and surplus, but receives certain guaranteed benefits. Examples include purerisk policies (eg fi xed annuities, term insurance, critical illness) and unit-linked insurance contracts. O Operationalborrowings Borrowings which arise in the normal course of the business, includingall lease liabilities under IFRS16. P Participating funds Distinct portfolios where the policyholders have a contractual right to receive, at the discretion of the insurer, additional benefits based on factors such as the performance of a p ool of assets held within the fund, as a supplement to any guaranteed benefits. The insurer may either have discretion as to the timing of the allocation of those benefits to participating policyholders or may have discretion as to the timing and the amount of t he additional benefits. For Prudential the most significant participating funds are for business written in Hong Kong, Malaysia and Singapore. Participating policies or participating business Contracts ofinsurancewhere the policyholders have a contractual right to receive, at the discretion of the insurer, additional benefits based on factors such as investment performance, as a supplement to any guaranteed benefits. This is also referred to as with-profits business. Persistency The percentage of policies remaining in force from period to period. Present value of new business premiums (PVNBP) The present value of new business premiums is c alculated as the aggregate of single premiums and the present value of expected future premiums from regular premium new business, allowingfor lapses and other assumptions made in determining the EEV new business contribution. R Regular premium product A life insurance product with regular periodic premium payments. Renewal or recurring premiums Renewal or recurring premiums are the subsequent premiums that are paid on regular premium products. Rider A supplemental plan that can be attached to a basic insurance policy, typically with payment of additional premiums. Risk-based capital (RBC) framework RBC is a method of measuring the minimum amount of capital set by regulators as appropriate for a reporting entityto support its overall business operations inconsideration of its size and the level of risk it is faced. RBC limits the amount of risk a company can take and act as a cushion to protect a company from insolvency. RBC is intended to be a minimum regulatory capital standard and not necessarily the full amount of capital that an insurer would want to hold to meet its safety and competitive objectives. In addition, RBC is n ot designed to be used as a stand-alone tool in determining financial solvency of an insurance company; rather it is one of the tools that give regulators legal authority to take control of an insurance company. S Single premiums Single premium policies of insurance are those that require only a single lump sum payment fromthe policyholder. Stochastic techniques Stochastic techniques incorporateresults from r epeated simulations using key financial parameters which are subject to random variations and are projected into the future. Subordinated debt A fixed interest issue or debt that ranks below other debtin orderof priority for repayment if the issuer is liquidated. Holders are compensated for the added risk through higher rates of interest. Surrender The termination of a life insurance policy or annuity contract at the request of the policyholder after which the policyholder receives the cash surrender value, if any, of t he c ontract. Prudential plc Annual Report 2021prudentialplc.com 398 ![]() Surrender charge or surrender fee The fee charged to a policyholder when a life insurance policy or annuity contract is surrendered forits cash surrender value prior to the endof the surrender charge period. T Takaful Insurance that is compliant with Islamic principles ofmutual assistance and risk s haring. Term life contracts These contracts provide protection for a defined period and a benefit that is payable to a designated beneficiary upon death of the i nsured. Time value of options and guarantees (TVOG) The value offinancial optionsand guarantees comprises two parts, the intrinsic value and the t ime value. The intrinsic value is given by a deterministic valuation on best estimate assumptions. The time value is the additional value arising from the variability of economic outcomes in the future. Total shareholder return (TSR) TSR represents the growth in the value of a s hare plus the value of dividends paid, assuming that the dividends are reinvested in the Company’s shares on the ex-dividend date. U Unallocated surplus Unallocated surplus is recorded wholly as a liability and represents the excess of assets overpolicyholder liabilities for Prudential’s with-profits funds. The balance retained in the un allocated surplus represents cumulative income arising on the with-profits business that has not been allocated to policyholders or shareholders. Unit-linked products or unit-linked contracts See ‘investment-linked products or contracts’ above. Universal life An insurance product where the customer pays flexible premiums, subject to specified limits, which are accumulated in an account and are credited with interest (at a rate either set by the insurer or reflecting returns on a pool of matching assets). The customer may vary the death benefit and the contract may permit the customer to withdraw the account balance, typically subject to a surrender charge. V Value of in-force business (VIF) The present value of future shareholder cash flows projected to emerge from the assets backing liabilities of the in-force covered business. W Whole life contracts A type of life insurance policy that provides lifetime protection; premiums must usually be p aid for life. The sum assured is paid out whenever death occurs. Commonly used for estate planning purposes. With-profits contracts For Prudential, themost significant with-profits contracts are written in Hong Kong, Malaysia and Singapore. See ‘participating policies or participating business’ above. With-profits funds See ‘participating funds’ above. Y Yield A measure of the rate of return received from an investment in percentage terms by comparing annualincome(andany change in capital) to the price paid for the investment. Yield curve A line graph that shows the relative yields on debt over a range of maturities typically from three months to 30 years. Investors, analysts and economists use yield curves to evaluate bond markets and interest rate expectations. Prudential plc Annual Report 2021 399 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Communication with shareholders The Group maintains a corporate website containing a wide range of information relevant for private andinstitutional investors, including the G roup’s financial calendar: www.prudentialplc.com Shareholder Meetings The 2022 Annual GeneralMeeting (AGM)will be held onThursday 26 May 2022 at 10.00am. Arrangements for attendance remain under review given theongoing restrictions arisingfromthe Covid-19 pandemic. To ensure shareholders areable to participate fully in the AGM this year, we will provide an option to link digitally to the Meeting and would encourage shareholders to make use of this option. The 2022 AGM notice will provide more details on arrangements and how to participate.Shareholders are encouraged towatch the Company’s website, regulatory news and other published notifications forany further updates in relation to the 2022 AGM arrangements. Prudential will continue its practice of calling a poll on all resolutions and the voting results, including all proxies lodged prior to the meeting, will be displayed duringthe meeting and subsequently published on the Company’s website. The 2021 AGM was open to shareholders through electronic attendance, where they were able to view a live video feed of the 2021 AGM, submit voting instructions and ask direct questions to the Board. Details of the 2021 AGM, including the major items discussed at the meeting and the results of the voting, can be found on the Company’s website. In accordance withrelevantlegislation, shareholders holding 5 per cent or more of the fully paid up issued share capital are able to require the Directors to hold ageneral meeting. Written shareholder requests should be addressed to the Company Secretary at the registered oce. Company constitution Prudential is governed by the Companies Act 2006, other applicable legislation and regulations, and provisions in its Articles of Association (Articles). Any change to the Articles must be approved by special resolution ofthe shareholders. There were no changes to the constitutional documents during 2021.The current Memorandum and Articles are available on the Company’s website. Issued share capital The issued share capital as at 31 December 2021 consisted of 2,746,412,265 (2020: 2,609,489,702) ordinary shares of 5 pence each, all fully paid up and listed on the London Stock Exchange and the HongKong Stock Exchange. As at 31 December 2021, there were 41,532(2020: 45,176) accounts on the register. Further information canbe found in note C8 on pages 295 and 296. Prudential also maintains secondary listings on the New York Stock Exchange (in the form of American Depositary Receipts which are referenced to ordinary shares on the main UK register) and the Singapore Stock Exchange. Prudential has maintained a suciency ofpublic float throughout thereporting period as required by the HongKong Listing Rules. #### Shareholder information Analysis of shareholder accounts as at 31 December 2021 Balance ranges Total number of holdings Percentage of holders Total number of shares Percentage of issued capital 1–1,000 29,17070.23%7,357,8720.27% 1,001 –5,000 8,80321.20%19,282,3680.70% 5,001–10,000 1,3753.31%9,560,5010.35% 10,001–100,000 1,2913.11%38,182,4931.39% 100,001–500,000 4631.11%108,899,2353.96% 500,001–1,000,000 1280.31%89,991,7393.28% 1,000,001 upwards 3020.73%2,473,138,05790.05% Totals 41,532100.00%2,746,412,265100.00% Prudential plc Annual Report 2021prudentialplc.com 400 ![]() Majorshareholders The table below shows the holdings ofmajor shareholders in the Company’s issued ordinary share capital, as at 31 December 2021, as n otified and disclosed to the Company in accordance with the DisclosureGuidance and Transparency Rules. As at 31 December 2021 % of total voting rights BlackRock,Inc 5.08 Third Point LLC 5.04 No notifications have been received from year end to 8 March 2022. Rights and obligations The rights and obligations attaching to the Company’s shares are set out in full in the Articles. There are currently no voting restrictions on the ordinary shares, all of which are fully paid, and each share carries one vote on a poll. If votes are cast on a show of hands, each shareholder present in person or by proxy, or in the case of a corporation, each of its duly authorised corporate representatives, has one vote except that if a p roxy is appointed by more than one member, the proxy has one vote for and one vote against if instructed by one or more members to vote for the resolution and by one or more members to vote against the resolution. Where, under an employee share plan, participants are the beneficial owners of the shares but not theregistered owners, the voting rights are normally exercisable by the trustee on behalf of the registered owner in accordance withthe relevant plan rules. The trustees would not usually vote on any unallocated shares held in trust but they may do so at their discretion provided it would be considered to be in the best interests of the beneficiaries of the trust andpermitted under the relevant trust deed. As at 8 March 2022, the trustees held 0.39 per cent of the issued share capital underthe various plans in operation. Rights to dividendsunder the various schemes are set out on pages 194 to 233. Restrictions on transfer In accordance with English company law, shares may be transferred by a n instrument of transfer or through an electronic system (currently CREST) and any transfer is not restricted except that the Directors may, in certain circumstances, refuse to register transfers of shares but only if such refusal does not prevent dealings in the shares from taking place on an open and proper basis. If the Directors make use of that power, they must send the transferee notice of the refusal within two months. Certain restrictions may be imposed from time to time by applicable laws and regulations (for example, insider trading laws) and pursuant tothe Listing Rules of both the Financial Conduct Authority and the HongKong Stock Exchange, as well as under the rules of some of the Group’semployee shareplans. All Directors are required to hold a minimum number of shares under guidelines approved by the Board, which they would also be expected to retain as described on page 223 of the Directors’ remuneration report. Authority to issue shares The Directors require authority from shareholders in relation to the issue of shares. Whenever shares are issued, these must be oered to existing shareholders prorata to their holdings unless the Directors have been given authority by shareholders to issueshares without oering them first to existing shareholders. Prudential seeks authority from its shareholders on an annual basis to issue shares up to a maximum amount, of which a defined number may be issued without pre-emption. Disapplication of statutory pre-emption procedures is also sought for rights issues. The existing authorities to issue shares, and to do so w ithout observing pre-emption rights, are due to expire at the end of this year’s AGM. Relevant resolutions to authorise share capital issuances will be put to shareholders at the AGM on 26 May 2022. Details of shares issued during 2021 and 2020 are given in note C8 on pages 295 and 296. In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange, Prudential confirms that it complies with the applicable law and regulation in the UK in relation to the holding of shares in treasury and with the conditions of the waiver in connection with the purchase of own shares and any treasury shares it may hold. Authority to purchase own shares The Directors also require authority from shareholders in relation to the purchase of the Company’s own shares. Prudential seeks authority by special resolution on an annual basis for the buy-back of its own shares in accordance with the relevant provisions of the Companies Act 2006 and other related guidance. This authority has not been used since it was last granted at the AGM in 2021. This existing authority is due to expire at the end of this year’s AGM and a special resolution to renew the authority will be put to shareholders at the AGM on 26 May 2022. Dividendinformation 2021 second interim dividend Shareholders registered on the UK register and Hong Kong branch register Holders of American Depositary Receipts Shareholders withordinary shares standing to the credit of their CDP securities accounts Ex-dividend date 24 March 2022 – 24 March 2022 Record date 25 March 202225 March 202225 March 2022 Paymentdate 13 May 202213 May 2022 On or around 20 May 2022 A number of dividend waivers are in place in respect of shares issued but not allocated under the Group’s employee share plans. These shares are held by the trustees and will, in due course, be used to satisfy requirements under the Group’s employee share plans. The dividends waived represent less than 1 per cent of the value of dividends paid during the year. Prudential plc Annual Report 2021 401 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Shareholder information / continued Shareholder enquiries For enquiries about shareholdings, including dividendsand lost share certificates, please contact the Company’s registrars: Register By post Bytelephone UK register Equiniti Limited, Aspect House, SpencerRoad, Lancing, West Sussex BN99 6DA, UK. Tel 0371 384 2035\* Textel 0371 384 2255 (for hard of hearing). Lines are open from 8.30am to 5pm (UK), Monday to Friday. \* Please use the country code when calling from outside the UK Hong Kong register Computershare Hong Kong Investor Services Limited, 17M Floor, HopewellCentre, 183 Queen’s Road East, Wan Chai, Hong Kong. Tel +852 2862 8555 Singapore register Shareholders who haveshares standing to the creditof their securities accounts with CDP in Singapore may refer queries to the CDP at 11 North Buona Vista Drive, #01-19/20 The Metropolis Tower 2, Singapore 138589. Enquiries regarding shares held in Depository Agent Sub-accounts should be directed to your Depository Agent or broker. Tel +65 6535 7511 ADRs JPMorgan Chase Bank N.A, P.O. Box 64504, St. Paul, MN 55164-0504, USA.Tel +1 800 990 1135, or from outside the USA +1 651 453 2128 or log on to www.adr.com Dividend mandates Dividends are paid directly into UK based shareholder’s bank or buildingsociety accounts. UK based shareholders shouldcontact EQshouldthey have any questions concerningthe payment of dividends,or toprovide their bank or building society account details. Alternatively,UKbased shareholders may download theformfrom www.prudentialplc.com/investors/shareholder-information/forms Shareholders on the UK and Hong Kong registers have the option to elect to receive their dividend in US dollars instead of pounds sterling or Hong Kongdollars respectively. Moreinformationmay be found on our website www.prudentialplc.com/investors/shareholder-information/ dividend/dividend-currency-election Cash dividend alternative The Company operates a Dividend Re-investment Plan (DRIP). UK based shareholders who have elected for the DRIP will automatically receive shares for all future dividends in respect of which a DRIP alternative is oered. The election may be cancelled at any time by the s hareholder. Further details ofthe DRIP and the timetable are availableat www.shareview.co.uk/4/Info/Portfolio/default/en/home/ shareholders/Pages/ReinvestDividends.aspx Electronic communications Shareholders located inthe UK areencouraged toelect to receive shareholder documents electronically by registering with Shareview at www.shareview.co.uk This will save on printing and distribution costs, and createenvironmental benefits. Shareholders who haveregistered will be sentan email notification whenever shareholder documents are available on the Company’s website and a link will be provided to that information. When registering, shareholders willneed their shareholder reference number which can be found on theirshare certificate or proxyform. The option to receive shareholder documents electronically is not available toshareholders holding shares through The Central Depository (Pte) Limited (CDP). Please contact EQ if you require any assistance or further information. Share dealing services The Company’s UK registrars, EQ, oer a postal dealing facility for buying and selling Prudential plc ordinary shares; please see the EQ address or telephone 0371 3842248. They also oer a telephoneand internet dealing service, Shareview, which provides a simple and convenient wayof sellingPrudential shares. Fortelephone sales, call 0345 603 7037 between 8.00am and 5pm, Monday to Friday, and for internetsales log onto www.shareview.co.uk/dealing ShareGift Shareholders who have only a small number of shares, the value ofwhich makes them uneconomic to sell, may wish to consider donating them to ShareGift (Registered Charity 1052686). The relevantshare transfer form may be downloaded from our website www.prudentialplc.com/investors/shareholder-information/forms orfrom EQ. Further information about ShareGift may be obtained on +44 (0)20 7930 3737 or from www.ShareGift.org Prudential plc Annual Report 2021prudentialplc.com 402 ![]() Prudentialplc 1 Angel Court London EC2R7AG UK Tel +44 (0)20 7220 7588 www.prudentialplc.com Media enquiries Tel +44 (0)7581 023260 Email: media.relations@prudentialplc.com Prudential Asia and Africa 13thFloor One International Finance Centre 1 Harbour View Street Central Hong Kong Tel +852 2918 6300 Media enquiries Tel +65 9845 8904 Email: tan.ping.ping@prudential.com.sg #### How to contact us #### Board Shriti Vadera Chair Independent Non-executive Directors Philip Remnant Senior IndependentDirector Jeremy Anderson Chua Sock Koong David Law Ming Lu Anthony Nightingale Alice Schroeder George Sartorel TomWatjen Jeanette Wong AmyYip #### Group Executive Committee Executive Directors MikeWells Group ChiefExecutive Mark FitzPatrick Group Chief Financial Ocer and Chief Operating Ocer James Turner Group Chief Risk and Compliance Ocer Jolene Chen Group Human Resources Director Nic Nicandrou Chief Executive, Asia and Africa Shareholder contacts Institutional analyst andinvestor enquiries Tel +44 (0)20 3977 9720 Email: investor.relations@prudentialplc.com UK Registerprivateshareholder enquiries Tel 0371 384 2035 International shareholders: Tel +44 (0)121 415 7026 Hong Kong Branch Register private shareholder enquiries Tel +852 2862 8555 US American Depositary Receipts holderenquiries Tel +1 800 990 1135 From outside the US: Tel +1 651 453 2128 The Central Depository (Pte) Limited shareholder enquiries Tel +65 6535 7511 Prudential plc Annual Report 2021 403 Group overview Strategic report Governance Directors’ remuneration report Financial statements European Embedded Value (EEV) basis results Additional information ![]() Forward-lookingstatements This document may contain ‘forward-looking statements’ with respect to certain of Prudential’s (and its wholly and jointly owned businesses’) plans and its goals and expectations relating to its future financial condition, performance,results, strategy and objectives. Statements that are not historical facts, including statements about Prudential’s (and its wholly and jointly owned businesses’) beliefs and expectations and including, without limitation, statements containing the words ‘may’,‘will’,‘should’,‘continue’,‘aims’,‘estimates’,‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘plans’, ‘seeks’ and ‘anticipates’, and words of similar meaning, are forward-looking statements. These statements are based on plans, estimates and projections as at the time they are made, and thereforeundue reliance should notbe placed on them. By their nature, all forward-looking statements involve risk and uncertainty. A number of important factors could cause Prudential’s actual future financial conditionor performance or other indicated results of the entity referred to in any forward-looking statement to dier materially from those indicated in such forward-looking statement. Such factors include, but are not limited to, the impact of the ongoing Covid-19 pandemic, including adverse financial market and liquidity impacts, responses and actions taken by governments, regulators and supervisors, the impact on sales, claims and assumptions and increased product lapses, disruption to Prudential’s operations (and those of its suppliers and partners), risks associated with new sales processes and technological and information security risks; future market conditions (including fluctuationsin interest rates andexchange rates, inflation (including interest rate rises as a response) and deflation, the potential for a return to a sustained low-interest rate environment, the performance of financial markets generally and the impact of economic uncertainty (including as a result of geopolitical tensions and conflicts), asset valuation impacts from the transition to a lower carbon economy and derivative instruments not eectively hedgingexposures arising from product guarantees); global political uncertainties, including the potential for increased friction in cross-border trade and the exercise of e xecutive powers to restrict trade, financial transactions, capital movements and/or investment; the policies and actions of regulatory authorities, including, in particular, the policies and actions of the Hong Kong Insurance Authority, as Prudential’s Group-wide supervisor, as well as the degree and pace of regulatory changes and new government initiatives generally; given its designation as an InternationallyActive Insurance Group (“IAIG”), the impact on Prudential of systemic risk and other group supervision policy standards adopted by the International Association of Insurance Supervisors; the physical, social and financial impacts of climate change and global health crises on Prudential’s business and operations; the impact of not adequately responding to environmental, social and governance issues (including notproperly consideringthe interests ofPrudential’s stakeholders orfailing to maintain high standards of corporate governance); the impact of competition and fast-paced technological change; the eect on Prudential’s business and results from, in particular, mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of internal transformation projects and other strategic actions failing to meet their objectives; theavailability and eectiveness of reinsurance for Prudential’s businesses;the riskthat Prudential’s operational resilience(orthat of itssuppliers and partners) may prove to be inadequate, including in relation to operational disruption due to external events; disruption to the availability, confidentiality or integrityof Prudential’s information technology, digital systems and data (or those of its suppliers and partners) including the Pulse platform; any ongoing impact on Prudential of the demerger of M&G plc and the demerger of Jackson Financial Inc.; the increased operational and financial risks and uncertainties associated with operating jointventures with independent partners, particularly where joint ventures are not controlled by Prudential; the impact of changes in capital, solvency standards, accountingstandards or relevant regulatory frameworks, and tax and other legislation and regulations in the jurisdictions in which Prudential and its aliates operate; and the impact of legal and regulatory actions, investigations and disputes. These and other important factorsmay, for example, result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. Further discussion of these and other important factors that could causeactual future financial condition or performance to dier, possibly materially, from those anticipated in Prudential’s forward-looking statements can be found under the ‘Risk factors’ heading of this document. These factors are not exhaustive as Prudential operates in a continually changing business environment with new risks emerging from time to time that it may be unable to predict or that it currently does not expect to have a material adverse eect on its business. Any forward-looking statements contained in this document speak only as of the date on which they are made. Prudential expressly disclaims any obligation to update any of the forward-looking statements containedin thisdocument or anyother forward-looking statements it may make, whether as a result of future events, new information or otherwise except as required pursuant to the UK Prospectus Rules, the UK Listing Rules, the UK Disclosure Guidance and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST Listing Rules or other applicable laws and regulations. Cautionary statements This document does not constitute or form part of any oer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any oer to purchase, acquire, subscribe for, sell or dispose of, any securities in any jurisdiction nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor. Prudential plc Annual Report 2021prudentialplc.com 404 ![]() Prudential plc is a holding company, some of whose subsidiaries are authorised and regulated, as applicable, bythe Hong Kong Insurance Authority and other regulatory authorities. The Group is subject to a g roup-wide supervisory framework which is regulated by the Hong Kong InsuranceAuthority. Prudential plc is not aliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America, nor with The Prudential Assurance Company Limited, a subsidiary of M&G plc, a company incorporated in the United Kingdom. Designed by fhensemblestudio.com CBP00019082504183028 Printed in the UK by Pureprint Group, a CarbonNeutral® company. This document was printed utilising pureprint® environmental printingtechnology with vegetable-based inks and a water-based coating. Up to 99 per cent of the dry waste and 95 per cent of cleaningsolvents associated with the production were recycled. This document is printed on Revive 100 Silk and Revive 100 Oset from Denmaur Paper. The papers are made from FSC® Recycled certified post-consumer waste pulp.Denmaur have oset the carbon emissions produced in the manufacturing process and delivery to Pureprint thus the paper and the printing of this document are carbon n eutral. Both the paper mill and printer are registered to the Environmental Management System ISO 14001 and are Forest Stewardship Council® chain-of-custody certified. ![]() Prudential public limited company Incorporated and registered in England andWales Registeredoce 1 Angel Court London EC2R7AG Registered number 1397169 www.prudentialplc.com Principal place of business in Hong Kong 13thFloor One International Finance Centre 1 Harbour View Street Central Hong Kong