SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the
month of August,
2021
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation of registrant's name into English)
1 Angel Court, London,
England, EC2R 7AG
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F X
Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No X
If
"Yes" is marked, indicate below the file number assigned to the
registrant
in connection with Rule 12g3-2(b): 82-
Risk Factors
A number of risk factors may affect Prudential's business,
financial condition, results of operations and/or prospects and,
accordingly, the trading price of its shares. The risk factors
mentioned below should 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 are made subject to the reservations
specified under 'Forward-looking statements'.
Prudential's approaches to managing risks are explained in the
section of this document headed 'Group Chief Risk and Compliance
Officer's report on the risks facing our business and how these are
managed'.
1. RISKS RELATING TO PRUDENTIAL'S FINANCIAL
SITUATION
1.1 The Covid-19 pandemic had a significant impact on
financial market volatility and global economic activity, increased
operational disruption risks to the Group and has adversely
impacted Prudential's sales in affected markets and its financial
condition, results of operations and prospects. The full extent of
the longer-term impacts from the pandemic remains
uncertain
The
Covid-19 pandemic significantly increased the volatility of equity
markets, interest rates and credit spreads, reduced market
liquidity and reduced global economic activity. The potential
adverse impacts to the Group of these effects are detailed in the
Financial Market and Economic Conditions risk factor detailed
below. However, the full extent of the long-term impact of the
pandemic on financial markets and economic growth remains highly
uncertain and unpredictable and will be influenced by the actions
of governments, policymakers and the public. This includes the
duration and effectiveness of vaccines and mitigating measures
against the current and future variants of the coronavirus,
including a continued reliance on restrictions of movement and the
deployment of vaccination programmes (which may occur over a
prolonged period of time), the effectiveness and timing of which
remains uncertain across markets. Where these impacts are
prolonged, this may affect the solvency position of Prudential's
subsidiaries and prevent or limit their ability to make
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 continue to evolve, 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 the global economy begins to
recover from the effects of the pandemic, 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) may have broader long-term
adverse economic and financial consequences for the markets in
which the Group operates which currently remain uncertain. Various
governments have effected, or may effect, 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 the markets in which
the Group operates. Many governments are implementing Covid-19
vaccination programmes, and variable accessibility to supplies of
vaccines that are effective against current and emerging variants
of the coronavirus has the potential to contribute to an increase
in geopolitical tensions. The longer term political, regulatory and
supervisory developments resulting from the Covid-19 pandemic
remain highly uncertain. These may include changes to government
fiscal policies, laws or 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 include
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 affected
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, and any recovery will be dependent on
the timing and extent of the easing of these restrictions and the
return of Mainland China customers, which currently remains
uncertain. These impacts may be prolonged in markets which continue
to rely on containment measures based on restrictions of movement
rather than vaccine deployment. The impact on economic activity and
employment levels may result in an 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 in elevated 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 surrendering their policies
on the expiry of grace periods for premium payments provided by the
Group's businesses. While these impacts to the Group have not been
material to date, the full extent of the impact of the Covid-19
pandemic is currently highly uncertain and the Group's claims and
persistency experience to date and its current insurance
assumptions cannot be taken as an indicator of future potential
experience from the Covid-19 pandemic which may deteriorate
significantly and have a material adverse effect on Prudential's
business, financial condition, results of operations and
prospects.
Disruption
to Prudential's operations may result where its employees, or those
of its service partners and counterparties, contract Covid-19 or
are affected by restrictions on movement; where office closures and
other measures impacting working practices are effected, such as
the imposition of 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 IT systems through phishing and social
engineering tactics. The operations of Prudential's service
partners, (which subject the Group to the risks detailed in risk
factor 2.8, resulting in certain risks that Prudential does not
face with respect to its wholly-owned subsidiaries) may be
disrupted in different ways and to a more severe extent than the
Group's operations and may impact service delivery to the
Group.
In
some markets Prudential has implemented changes to its sales and
distribution processes. These include virtual face-to-face sales of
its products and the online recruitment, training and, where
possible, licensing of agents. Such changes may increase or
introduce new operational and regulatory risks, in particular those
focused on customer outcomes and conduct. A failure to implement
appropriate 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 where such processes
become permanent distribution channels, the commercial value of the
Group's existing sale and distribution arrangements, such as
bancassurance arrangements, may be adversely impacted.
1.2 Prudential's businesses are inherently subject to market
fluctuations and general economic conditions, each of which may
adversely affect the Group's business, financial condition, results
of operations and prospects
Uncertainty,
fluctuations or negative trends in international economic and
investment climates could have a material adverse effect 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,
during 2020 interest rates in countries relevant to Prudential have
decreased to historic lows driven by the responses of central banks
to mitigate the impact of the Covid-19 pandemic, and the subsequent
reopening of the economy has resulted in inflationary pressures,
which if sustained may drive higher interest rates impacting the
valuation of fixed income assets. 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.
Global
financial markets are subject to uncertainty and volatility created
by a variety of factors. These factors include slowdowns or
reversals in world economic growth (particularly where this is
abrupt, as has been the case with the impact of the Covid-19
pandemic), 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 effect
on interest rates and inflation expectations, and concerns over
sovereign debt. Other factors include the increased level of
geopolitical and political risk and policy-related uncertainty
(including the broader market impacts resulting from the trade
negotiations between the US and China) and socio-political,
climate-driven and pandemic events. The extent of the financial
market and economic impact of these factors may be highly uncertain
and unpredictable and influenced by the actions, including the
duration and effectiveness of mitigating measures of governments,
policymakers and the public.
The
adverse effects of such factors could be felt principally through
the following items:
-
Lower
interest rates and reduced investment returns arising on the
Group's portfolios including impairment of 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 in Asia and
Jackson's variable annuities; 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 which may result in a deterioration of the credit rating
profile and valuation of the Group's invested credit portfolio
(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. Similarly,
mortgages and mortgage-backed securities 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 a widespread deterioration in the
financial strength of corporate entities occurs, assumptions on the
ability and willingness of governments to provide financial support
may need to be revised.
-
Failure
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,
adequacy of collateral. Concentrations of counterparty credit risk
could exacerbate the impact of these events where they
materialise.
-
Estimates
of the value of financial instruments becoming more difficult
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 and estimates (which may change
over time). Where the Group is required to sell its investments
within a defined timeframe, such market conditions may result in
the sale of these investments at below expected or recorded
prices.
-
The
Group holds certain investments that may, by their nature, lack
liquidity 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
difficulty 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
linked to account values or the market value of the funds under
management. In particular, equity price falls impact the amount of
revenue derived from fees from the unit-linked products in the
Group's Asia business and from annuity contracts at Jackson where
fees are charged on account and asset values. Sustained
inflationary pressures which drive higher interest rates may also
impact the valuation of fixed income investments and reduce fee
income.
-
Increased
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 or redemption restrictions are placed on
Prudential'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 increased illiquidity is more
uncertain than for other risks such as interest rate risk or credit
risk.
In
general, upheavals in the financial markets may affect general
levels of economic activity, employment and customer behaviour. As
a result, insurers may experience an 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 demand for insurance products
may also be adversely affected. In addition, there may be a higher
incidence of counterparty 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 intangible assets for
bancassurance agreements and deferred acquisition costs are
reduced. New challenges related to market fluctuations and general
economic conditions may continue 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 offered by products of the Group's
competitors, reflecting consumer demand for returns at the level
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, in
particular those written in some of the Group's Asia operations, it
may not be 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 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 sufficient assets of a suitable duration. While this
residual asset/liability mismatch risk can be managed, it cannot be
eliminated. Where interest rates in these markets remain lower than
those used to calculate premium and claim values over a sustained
period, this could have a material adverse effect on Prudential's
reported profit and the solvency of its business units. In
addition, part of the profit from the Group's Asia operations is
related to bonuses for policyholders declared on with-profits
products, which are impacted by the difference 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 income securities) and minimum guarantee rates
offered to policyholders. This profit could be lower in particular
in a sustained low interest rate environment.
Jackson
writes a significant amount of variable annuities that offer
capital or income protection guarantees. The value of these
guarantees is affected by market factors (such as interest rates,
equity values, bond spreads and realised volatility) and
policyholder behaviour. Changes in markets, or deviations in
policyholder behaviour experience from assumptions, may result in
the need to hold additional reserves for these products, which may
impact Jackson's liquidity, require it to raise additional capital
and/or adversely impact its net income. Jackson uses a derivative
hedging programme to reduce its exposure to market risks arising on
these guarantees. There may be circumstances where the derivatives
that Jackson enters into to hedge its market risks may not
sufficiently or effectively offset its exposures under the
guarantees, or where its exposures may be over-hedged. This
includes circumstances where:
-
The
derivative markets for the instruments which most appropriately
reflect the equity funds in which policyholders have invested may
not be of sufficient size or liquidity to effectively hedge these
risks;
-
Operational
errors occur in the execution of Jackson's hedging strategy;
or
-
Actual
experience materially deviates from the assumptions used in the
models which inform Jackson's hedging strategy. These assumptions
include, amongst others, mortality, lapse, surrender and withdrawal
rates and amounts of withdrawals, election rates, fund performance,
equity market returns and volatility, interest rate levels and
correlation among various market movements.
If
the results from Jackson's hedging programs do not correlate with
the economic effect of changes in benefit exposures to customers,
it could experience economic losses and increased volatility in its
earnings which could adversely impact the Group's business,
financial condition and results of operations. The cost of any
guarantees that remain unhedged will also affect Jackson's results.
Periods of significant and sustained downturns in securities
markets, increased equity volatility, reduced interest rates, or
deviations in expected policyholder behaviour could also increase
the cost of hedging beyond that anticipated in the pricing of the
products being hedged and could produce losses not addressed by the
risk management techniques employed. In addition, Jackson hedges
the guarantees on its variable annuity book on an economic basis
(with consideration of the local regulatory position) and, thus,
accepts variability in its accounting results in the short term in
order to achieve the appropriate result on these bases. In
particular, for Prudential's Group International Financial
Reporting Standards ('IFRS') reporting, the measurement of the
Jackson variable annuity guarantees is typically less sensitive to
market movements than the corresponding hedging derivatives, which
are held at market value. However, depending on the level of
hedging conducted regarding a particular risk type, certain market
movements can drive volatility in the economic or local regulatory
results that may be less significant under IFRS
reporting.
Also,
Jackson has a mix of spread-based and mortality business with
assets invested in fixed-income securities and its results are
therefore affected by fluctuations in prevailing interest rates. In
particular, stable value products written by Jackson expose
Prudential to the risk that changes in interest rates, which are
not fully reflected in the interest rates credited to customers,
will reduce spread. The spread is the difference between the rate
of return Jackson is able to earn on the assets backing the
policyholders' liabilities and the amounts that are credited to
policyholders in the form of benefit increases, subject to minimum
crediting rates. Declines in spread from these products or other
spread businesses that Jackson conducts, and increases in surrender
levels arising from interest rate rises, could have a material
impact on its businesses or results of operations.
Any
of the foregoing factors and events, individually or together,
could have a material adverse effect on Prudential's business,
financial condition, results of operations and
prospects.
1.3 As a holding company, Prudential is dependent upon its
subsidiaries to cover operating expenses and dividend
payments
The
Group's insurance and 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
a holding company, Prudential's principal sources of funds are
remittances from subsidiaries, shareholder-backed funds, the
shareholder transfer from long-term funds and any amounts that may
be raised through the issuance of equity, debt and commercial
paper.
Certain
of Prudential's subsidiaries are subject to applicable 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 there are
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 cover operating expenses of other
members of the Group.
A
material change in the financial condition of any of Prudential's
subsidiaries may have a material effect on its business, financial
condition, results of operations and prospects.
1.4 Geopolitical 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 effects 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
result from the application of protectionist or restrictive
economic and trade policies with specific markets, regulations and
executive powers which increase trade barriers with specific
markets or restrict trade, financial transactions, transfer of
capital and/or investment with specific territories, companies or
individuals which could impact on the macroeconomic outlook and the
environment for global financial markets; international trade
disputes such as the implementation of trade tariffs; the
withdrawal from existing trading blocs or agreements; and measures
favouring local enterprises, such as changes to the maximum level
of non-domestic ownership by foreign companies or differing
treatment of foreign-owned businesses under regulations and tax
rules. Many governments are implementing Covid-19 vaccination
programmes, and differences in accessibility
to supplies of vaccines that are effective against
current and emerging variants of the coronavirus have the potential
to contribute to an increase in geopolitical
tensions.
Geopolitical
and political risks and uncertainty may also adversely impact the
Group's operations and its operational resilience. Increased
geopolitical tensions may increase cross-border cyber activity and
therefore increase cyber security risks. Geopolitical and political
tensions may also lead to civil unrest and/or acts of civil
disobedience. Such events could impact operational resilience by
disrupting 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's business, financial
condition, results of operations and prospects.
Responses
by the US, UK and other governments to constitutional or
legislative changes in Hong Kong, which continue to develop, may
adversely impact Hong Kong's economy with potential adverse sales,
operational and product distribution impacts to the Group due to
the territory being a key market which also hosts regional and head
office functions. For internationally active groups such as
Prudential, operating across multiple jurisdictions, government
responses, measures and counter-measures may also add to the
complexity of legal and regulatory compliance and increase the risk
of conflicts between the requirements of one jurisdiction and
another. See risk factor 3.1 below.
1.5 Prudential 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 or economic 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 debt obligations of
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 affected by, among other
factors, its cash flow situation, its relations with its central
bank, the extent of its foreign currency reserves, the availability
of sufficient 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 (including to manage their debt
burdens) that have a similar effect, 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
affect 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 institutions may also suffer 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 affected, as might counterparty
relationships between 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
effect on Prudential's business, financial condition, results of
operations and prospects.
1.6 Downgrades in Prudential's financial strength 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 affecting public confidence in 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 other
concerns could have an adverse effect on its ability to market
products, 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 and pricing.
The interest rates at which Prudential is able to borrow funds are
affected by its credit ratings, which are in place to measure the
Group's ability to meet its contractual obligations.
In
addition, changes in methodologies and criteria used by rating
agencies could result in downgrades that do not reflect changes in
the general economic conditions or Prudential's financial
condition. Any such downgrades could have a material adverse
effect on Prudential's business, financial condition, results of
operations and prospects. Prudential cannot predict what actions
rating agencies may take, or what actions Prudential may therefore
take in response to the actions of rating agencies, which could
adversely affect its business.
Further,
the proposed demerger of Jackson, or events connected to the
proposed demerger of Jackson, may cause credit rating agencies to
revisit their current views on the financial strength of the
post-Jackson demerger retained Group (the 'Post-Demerger Prudential
Group'). This may result in downgrades in the credit ratings of one
or more members of the Post-Demerger Prudential Group where credit
rating agencies consider that the risks described elsewhere in this
document increase the risk profile of the Post-Demerger Prudential
Group, and/or that the capital position of the Post-Demerger
Prudential Group has weakened.
Any
such downgrade of the Post-Demerger Prudential Group could have an
adverse effect 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
Post-Demerger Prudential Group incurs in respect of its financing
activities may increase as a result. A credit rating downgrade may
also affect public confidence in the Post-Demerger Prudential
Group's products and may adversely impact on its ability to market
products, retain current policyholders or attract new
policyholders.
1.7 Prudential 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 write policies and invest in
assets denominated in local currencies. Although this practice
limits the effect of exchange rate fluctuations on local operating
results, it can lead to fluctuations in Prudential'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, which is the currency in which a large
proportion of the Group's earnings and assets and liabilities are
denominated or to which they are linked (such as the Hong Kong
dollar). There remain some entities within the Group the results of
which are not denominated in or linked to the US dollar and
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 Hong Kong
dollar peg to the US dollar.
2. RISKS RELATING TO PRUDENTIAL'S BUSINESS
ACTIVITIES AND INDUSTRY
2.1 The proposed demerger of the Jackson Group ('the Jackson
Demerger') carries with it execution risk and will continue to
require significant management attention
The
proposed Jackson Demerger, which if successful, would result in two
separately listed companies, each with its own distinct investment
prospects, is subject to a number of factors and dependencies, such
as prevailing market conditions, geopolitical events and external
approvals (including those from regulators and shareholders).
Therefore, there can be no certainty that the proposed demerger
will be implemented on the anticipated timetable, or that it will
be completed as proposed (or at all). In addition, preparing for
and implementing the proposed demerger of Jackson is expected to
require significant time from management, and management time will
continue to be required in respect of any future sale of
Prudential's remaining stake in Jackson. Management's attention may
be diverted from other aspects of Prudential's business as a
result.
Failure
to complete the proposed demerger of Jackson would result in the
potential benefits of the separation not being realised and may
have an adverse effect on the reputation of Prudential and on the
external perception of its ability to implement large-scale
projects successfully. See risk factor 2.2 below.
2.2 Following the Jackson Demerger, the Post-Demerger
Prudential Group will be subject to several risks which if they
materialise, could adversely affect Prudential's
business
(a)
The Post-Demerger Prudential Group may fail to realise any or all
of the anticipated benefits of the Jackson Demerger
The
realisation of the anticipated benefits of the Jackson Demerger is
subject to a number of factors, including many which are outside
the control of the Post-Demerger Prudential Group. As such, if the
Jackson Demerger is completed, there can be no assurance that
Prudential will realise the anticipated benefits of the
transaction, or that the Jackson Demerger and/or the future sale of
Prudential's remaining stake in the Jackson Group will not
adversely affect the trading value or liquidity of the shares of
either or both of the two businesses.
If the proposed Jackson Demerger does complete, Prudential will
continue to hold shares in Jackson. The value of Prudential's
retained shareholding may be lower than anticipated or may
subsequently decline, and the gross proceeds due to Prudential from
any future sale may be lower than anticipated.
The
Post-Demerger Prudential Group will face a number of challenges
relating to the implementation of the proposed Jackson Demerger.
There may be adverse financial, operational, regulatory, customer
and reputational implications if Prudential fails (either wholly or
in part) to meet these challenges. Such adverse implications could
impact on the ordinary course business of the Post-Demerger
Prudential Group and, consequently, its financial condition,
results, profitability and/or prospects.
Failure
to complete the Jackson Demerger would result in the potential
benefits of the separation not being realised and may have an
adverse effect on the reputation of Prudential and on the external
perception of its ability to implement large-scale projects
successfully. This may be the case even where the failure to
implement the proposed demerger of Jackson is due to factors
outside the control of Prudential. A failure to complete the
proposed Jackson Demerger may also result in increased regulatory
scrutiny on Prudential, in particular where the reasons for the
proposed demerger of Jackson not proceeding are internal to
Prudential.
(b)
Indemnities have been given under the Jackson Demerger agreement by
Prudential in favour of the Jackson Group
Prudential
and Jackson have entered into a demerger agreement, which governs
the post-Jackson Demerger obligations of the Post-Demerger
Prudential Group and the Jackson Group and contains, among other
provisions, indemnities under which Prudential indemnifies the
Jackson Group against liabilities arising in respect of the
Post-Demerger Prudential Group (other than Jackson's
business).
Although
it is not anticipated that Prudential will be required to pay any
substantial amount pursuant to such indemnity obligations, if any
amounts payable under the indemnities are substantial, this could
have a material adverse effect on the financial condition and/or
results of Prudential.
(c)
Prudential may incur liabilities in connection with the proposed
demerger of Jackson
In
addition, in connection with the proposed demerger of Jackson,
Prudential could be liable 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. Claims may
be brought against Prudential by Jackson's shareholders and other
third parties, and if those claims are not successfully defended,
Prudential may have to pay compensation which may adversely affect
Prudential's business, financial condition, cash flows, results of
operations and prospects.
(d)
The Post-Demerger Prudential Group will form a smaller
group
Following
the Jackson Demerger, the Post-Demerger Prudential Group will no
longer own the companies and assets that comprise the Jackson Group
and therefore will be smaller. As a result, should any part
of the Post-Demerger Prudential Group's business underperform, this
would have a larger relative impact on its financial condition,
results, profitability and/or prospects than it would have had
before the Jackson Demerger. Joint venture businesses (which
subject the Group to the risks detailed in the risk factor entitled
'Prudential operates in certain markets with joint venture
partners, minority shareholders and other third parties, resulting
in certain risks that Prudential does not face with respect to its
wholly-owned subsidiaries') will also contribute a larger relative
proportion of the Group's profitability. The Post-Demerger
Prudential Group may also have reduced scope to redeploy capital
within its group to facilitate strategic initiatives and/or absorb
the impact of unexpected events.
(e)
Following the Jackson Demerger, the Post-Demerger Prudential Group
will be less diversified
The
geographical diversification of the Post-Demerger Prudential Group
after the Jackson Demerger will be narrower than that of the Group
at the date of this document. This means that adverse financial
market movements or economic conditions in the region and/or in one
of the markets in which the Post-Demerger Prudential Group operates
may have a larger relative impact on the capital position,
financial condition, results, profitability and/or prospects of the
Post-Demerger Prudential Group than they would have done prior to
the Jackson Demerger. This may include the long-term adverse
economic consequences driven by the variation in speed of economic
recovery from the Covid-19 pandemic outlined in the 'Covid-19' risk
factor detailed above.
The
Group is exposed to geopolitical and political risks, as well as
associated regulatory risks, in the markets in which it operates.
See risk factor 1.4 above and risk factor 3.1 below.
If
geopolitical and political risks impacting specific regions
materialise, the reduction in the geographic diversification
resulting from the Jackson Demerger means that they may have a
larger relative impact on the Post-Demerger Prudential Group's
business than they would have had prior to the Jackson Demerger.
These risks to the Post-Demerger Prudential Group may also become
more pronounced as a larger proportion of the Post-Demerger
Prudential Group's operations will be comprised of markets with
higher geopolitical and political risk exposure, which may be
subject to increased regulatory uncertainty and financial crime
risks.
The
regulatory risks arising from geopolitical and political risk
exposure may include the application of measures favouring local
enterprises, such as changes to the maximum level of non-domestic
ownership by foreign companies or differing treatment of
foreign-owned businesses under regulations and tax rules which may
result in the reduction in new business sales and renewals,
contributions from business units to the central cash balances and
profit of the Post-Demerger Prudential Group. It may also increase
the risk of Prudential being subject to regulatory requirements and
obligations, for instance with respect to financial crime,
including anti-money laundering, and sanctions compliance. Any
failure to comply with regulatory requirements may adversely impact
the reputation of Prudential and/or result in the imposition of
legal or regulatory sanctions for the Group. See risk factor 3.1
below.
(f)
Immediately upon completion of the Jackson Demerger, the
Post-Demerger Prudential Group will continue to hold shares in
Jackson but cease to have any control
Immediately
upon completion of the Jackson Demerger, the Post-Demerger
Prudential Group will retain a 19.9 per cent. voting interest (and
a 19.7 per cent. economic 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. The Post-Demerger Prudential Group will not have the
ability to control Jackson's strategic, financial and operational
decisions. Jackson may conduct its business in a manner that
differs from the manner in which the Post-Demerger Prudential Group
might have conducted the business had it retained control, may fail
to develop its business or may fail to meet the expectations of
investors. Jackson may also be subject to adverse publicity,
increased regulatory scrutiny, or investigations by regulators or
law enforcement agencies. The Jackson Group's strategy and
operations rely on modelling and other assumptions related to its
business including the calculation of regulatory or internal
capital requirements, the valuation of assets and liabilities, and
determining hedging requirements, and errors or limitations in
these, or their inappropriate usage, may adversely impact its
reported financial position and/or result in regulatory breaches,
inappropriate decision-making, financial loss, or reputational
damage. These factors could have an adverse effect on the
reputation of the Jackson Group which, in turn, could have an
adverse effect on the reputation of the Post-Demerger Prudential
Group. It could also have an adverse impact on the market price of
shares in Jackson, which may have an adverse effect on the value of
the Post-Demerger Prudential Group's retained investment in Jackson
and the proceeds from selling this investment or any portion of it.
The Post-Demerger Prudential Group's retained investment in Jackson
may fall in value as a result of any decrease in the market price
of Jackson shares.
(g)
Following the Jackson Demerger, there will be no ongoing
contributions by the Jackson Group to the central cash balances and
profit of the Post-Demerger Prudential Group
The
Jackson Group currently contributes to the central company cash
balances and profit of the Group. Following the Jackson Demerger,
the Post-Demerger Prudential Group will no longer receive these
contributions, with the exception of dividends from its holding of
Jackson shares (which will be significantly less than such
contributions prior to the Jackson Demerger), and this may have a
material adverse effect on the financial condition of the
Post-Demerger Prudential Group.
2.3 The implementation of large-scale transformation,
including complex strategic initiatives, gives rise to significant
design and execution risks, may affect Prudential's operational
capability and capacity, and may adversely impact the Group and the
delivery of its strategy if these initiatives fail to meet their
objectives
Where
required in order to implement its business strategies for growth,
improve customer experiences, strengthen operational resilience,
meet regulatory and industry requirements and maintain market
competitiveness, Prudential from time to time undertakes Group
restructuring, large-scale transformation and acquisitions and
disposals across its business. Many of these change initiatives are
complex, interconnected and/or of large scale, including a current
focus on preparations for the Jackson Demerger, advancing the
Group's digital capability, expanding strategic partnerships and
industry and regulatory-driven change. In the context of the
proposed demerger of Jackson, additional costs and management
resources may also be required to address any issues, whether or
not arising from any failure to meet the challenges of separation
and operating successfully as independent businesses, to ensure
compliance with regulatory requirements, or from external factors.
This may also affect the ability of the Post-Demerger Prudential
Group to realise the anticipated benefits of the Jackson
Demerger.
There
may be a material adverse effect 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.
Additionally, there may be adverse non-financial (including
operational, regulatory, conduct and reputational) implications for
the Group. These initiatives inherently give rise to design and
execution risks, and may increase existing business risks, such as
placing additional strain on the operational capacity, or weakening
the control environment, of the Group.
Implementing
further initiatives related to significant regulatory changes, such
as IFRS 17 and the transition to a legislative framework in Hong
Kong for the group-wide supervision of insurance groups, may
amplify these risks. Risks relating to these regulatory changes are
explained in the 'Legal and Regulatory Risks' risk factor
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 potential information
security, operational, ethical and conduct risks which, if
improperly managed, could result in customer detriment and
reputational damage.
2.4 Prudential's businesses are conducted in highly
competitive environments with developing demographic trends, and
continued profitability depends upon management's ability to
respond to these pressures and trends
The
markets for financial services in Asia and the US are highly
competitive, with several factors affecting Prudential's ability to
sell its products and profitability, including price and yields
offered, financial strength and ratings, range of product lines and
product quality, brand strength and name recognition, investment
management performance and fund 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, offer a broader range of products or have higher bonus
rates. Further, heightened competition for talented and skilled
employees, agents and independent financial advisers may limit
Prudential's potential to grow its business as quickly as planned.
Technological advances, including the increased capability for
gathering large volumes of customer health data and developments in
capabilities and tools in analysing and interpreting such data
(such as artificial intelligence and machine learning), may result
in 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 sufficient numbers
of skilled staff.
In
Asia, the Group's principal competitors include global life
insurers together with regional insurers and multinational asset
managers. In most Asia markets, there are also local companies that
have a material market presence.
Jackson's
competitors in the US include major stock and mutual insurance
companies, mutual fund organisations, banks and other financial
services companies.
Prudential
believes that competition will intensify across all regions in
response to consumer demand, digital and other technological
advances (including the emergence of 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 where new distribution channels develop.
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 of operations and
prospects.
2.5 Adverse experience in the operational risks inherent in
Prudential's business, 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
effects of natural or man-made catastrophic events (such as natural
disasters, pandemics, cyber-attacks, acts of terrorism, civil
unrest and other catastrophes) or from other external events. These
risks may also adversely impact Prudential through its partners
which provide bancassurance and product distribution, outsourcing,
external technology, data hosting and other services.
Exposure
to such events 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 events, 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, customer
conduct risk impacts and may damage Prudential's reputation and
relationship with its customers and business partners.
Prudential's
business is dependent on processing a large number of transactions
for numerous and diverse products. It also employs a large number
of complex and interconnected IT and finance systems and models,
and user developed applications in its processes to perform a range
of operational functions including the calculation of regulatory or
internal capital requirements, the valuation of assets and
liabilities, determining hedging requirements, and in acquiring new
business using artificial intelligence and digital applications.
Some of these tools form an integral part of the information and
decision-making framework of 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 inappropriate usage, may
lead to regulatory breaches, inappropriate decision-making,
financial loss, or reputational 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. Further,
Prudential operates in an extensive and evolving legal and
regulatory environment (including in relation to tax) which adds to
the complexity of the governance and operation of its business
processes and controls.
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, IT
infrastructure and security, system development, data governance
and management, compliance and other operational systems,
personnel, controls and processes. During times of significant
change, the resilience and operational effectiveness of these
systems and processes at Prudential and/or its third party
providers may be adversely impacted. In particular, Prudential and
its business partners are making increasing use of emerging
technological 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 failure to
implement appropriate 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 on its long-term strategy and therefore its competitiveness
and long-term financial success.
Although
Prudential's IT, compliance and other operational systems, models
and processes incorporate governance and controls designed to
manage and mitigate the operational and model risks associated with
its activities, there can be no assurance as to the resilience of
these systems and processes to disruption or that governance and
controls will always be effective. Due to human error, among other
reasons, operational and model risk incidents do occur from time to
time and no system or process can entirely prevent 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.
In
addition, Prudential relies on the performance and operations of a
number of bancassurance, outsourcing (including external technology
and data hosting) and service partners. These include back office
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 failure to adequately oversee the partner, or the
failure of a partner (or of its IT and operational systems and
processes) could result in significant disruption to business
operations and customers, which may have reputational or conduct
risk implications and could have a material adverse effect on its
business, financial condition, results of operations and
prospects.
2.6 Attempts 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 effects 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 corporate and customer), which
could result in disruption to key operations, make it difficult to
recover critical 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. The
cyber-security threat continues 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 through the internet and social media,
improved brand awareness and the 2016 designation of Prudential as
a G-SII could also increase the likelihood of Prudential being
considered a target by cyber criminals. Ransomware campaigns remain
a persistent threat to the financial services sector, with recent
highly publicised attacks on financial services companies. Further,
there have been changes to the threat landscape in recent years and
the risk from untargeted but sophisticated and automated attacks
has increased.
There
is an increasing requirement and expectation on Prudential and its
business partners not only to hold customer, shareholder and
employee data 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 may adversely impact the reputation and brand of the
Group, its ability to attract and retain customers, its ability to
deliver on its long-term strategy and therefore the results of its
operations. New and currently unforeseeable regulatory issues may
also arise from the increased use of emerging
technology.
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 the
use of complex tools, machine learning and artificial intelligence
technologies to process, analyse and interpret this data.
Regulatory developments in data protection worldwide may also
increase the financial and reputational implications for Prudential
if a significant breach of its (or its third party suppliers') IT
systems or data occurred. The international transfer of data may,
as a global organisation, increase regulatory risks for the Group.
Although Prudential has experienced or has been affected 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.
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 effects on
Prudential's business, financial condition, results of operations
and prospects.
2.7 Prudential's digital health application, Pulse, has seen
increasing adoption in Asia and as the markets in which it
operates, its user base, features, partnerships and product
offerings develop, existing business risks to the Group may be
increased and new risks may be introduced
Prudential's
digital health application, 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 execution of complex change
initiatives; information security, cyber and data privacy; the use
of models (including those using artificial intelligence) and
personal data; the resilience and integrity of IT infrastructure
and operations; and those relating to the management of third
parties. These existing risks for the Group may be increased
due to a number of factors:
-
The
number of current and planned markets in which the application
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 of planned application features and offerings may
require the delivery of complex, inter-connected change initiatives
across current and planned markets. This may give rise to design
and execution risks, which could be amplified where these change
initiatives are delivered concurrently.
-
The
increased volume, breadth and sensitivity of data on which the
business model of the application 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 use artificial intelligence
for critical decision-making, in the application's features and
offerings may give rise to operational, conduct, litigation and
reputational risks where they do not function as
intended.
-
The
application and its services rely on a number of third party
partners and providers, which may vary according to market. This
may increase operational disruption risks to the uninterrupted
provision of services to customers, regulatory compliance and
conduct risks, and the potential for reputational
risks.
New
product offerings may be developed and provided through the
application, which may introduce new regulatory, operational,
conduct and strategic risks for the Group.
A
failure to implement appropriate governance and management of the
incremental and new risks detailed above 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.
2.8 Prudential operates in certain markets with joint venture
partners, minority shareholders and other third parties, resulting
in certain risks that Prudential 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 joint ownership or third
party arrangements. 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 cooperation between, the
participants. In addition, the level of control exercisable by the
Group could be affected by changes in the maximum level of
non-domestic ownership imposed on foreign companies in certain
jurisdictions.
Prudential
may face financial, reputational and other exposure (including
regulatory censure) in the event that any of its partners fails or
is unable to meet its obligations under the arrangements,
encounters financial difficulty, or fails to comply with local or
international regulation and standards such as those pertaining to
the prevention of financial crime. In addition, a significant
proportion of the Group's product distribution is carried out
through agency arrangements in Asia and arrangements with third
parties not controlled by Prudential such as bancassurance and
broker-dealer networks in the US and is therefore dependent upon
continuation of these relationships. A temporary or permanent
disruption to these distribution arrangements, such as through
significant deterioration in the reputation, financial position or
other circumstances of the third party, material failure in
controls (such as those pertaining to the third party system
failure or the prevention of financial crime) or failure to meet
any regulatory requirements could adversely affect Prudential's
reputation and its business, financial condition, results of
operations and prospects.
2.9 Adverse experience relative to the assumptions used in
pricing products and reporting business results could significantly
affect Prudential's business, financial condition, 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
guarantee 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 in Asia are also exposed to medical inflation
risk.
Prudential
needs to make assumptions about a number of factors in determining
the pricing of its products, for setting reserves, and for
reporting its capital levels and the results of its long-term
business operations.
Assumptions
about future expected levels of mortality are of relevance to the
Guaranteed Minimum Withdrawal Benefit ('GMWB') of Jackson's
variable annuity business.
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, especially for Jackson's
portfolio of variable annuities and across product lines in Asian
markets. Prudential's persistency assumptions reflect a combination
of recent past experience for each relevant line of business and
expert judgement, especially where a lack of relevant and credible
experience data exists. Any expected change in future persistency
is also reflected in the assumption. If actual levels of future
persistency are significantly different than assumed, the Group's
results of operations could be adversely affected. Furthermore,
Jackson's variable annuity products are sensitive to other types of
policyholder behaviour, such as the take-up of its GMWB product
features.
In
addition, Prudential's business may be adversely affected by
epidemics, pandemics and other effects that give rise to a large
number of deaths or additional sickness claims, as well as
increases to the cost of medical claims. Pandemics, significant
influenza and other epidemics have occurred a number of times
historically but the likelihood, timing, or the severity of future
events cannot be predicted. The effectiveness of external parties,
including governmental and non-governmental organisations, in
combating the spread and severity of any epidemics could have a
material impact on the Group's claims experience. The risks to the
Group resulting from the Covid-19 pandemic are included in the
'Covid-19' risk factor detailed 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 risk that a reinsurer changes reinsurance
terms and conditions of coverage, or increases the price of
reinsurance which Prudential is unable to pass on to its customers;
and the risk of ambiguity in the reinsurance terms and conditions
leading to uncertainty whether an event is covered under a
reinsurance contract.
Any
of the foregoing, individually or together, could have a material
adverse effect on Prudential's business, financial condition,
results of operations and prospects.
2.10 Prudential is exposed to ongoing risks as a result of the
demerger of M&G plc (the 'M&G Demerger')
On
21 October 2019, Prudential completed the M&G Demerger and, in
connection with this, Prudential entered into a demerger agreement
with M&G plc. Among other provisions, the demerger agreement
contains a customary indemnity under which Prudential has agreed to
indemnify M&G plc against liabilities incurred by the M&G
plc group that relate to the business of the Group. Although it is
not anticipated that Prudential will be required to pay any
substantial amount pursuant to such indemnity obligations, if any
amount payable thereunder is substantial this could have a material
adverse effect on Prudential's business, financial condition,
results of operations and prospects.
3. LEGAL AND REGULATORY RISKS
3.1 Prudential conducts its businesses subject to regulation
and associated regulatory risks, including a change to the basis in
the regulatory supervision of the Group, the effects of changes in
the laws, regulations, policies and their interpretations and any
accounting standards, in the markets in which it
operates
Changes
in government policy and legislation (including in relation to
tax), capital control measures on companies and individuals,
regulation or regulatory interpretation applying to companies in
the financial services and insurance industries in any of the
markets in which Prudential operates (including those related to
the conduct 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 affect
Prudential. The impact from any regulatory changes may be material
to Prudential, for example changes may be required to its product
range, distribution channels, handling and usage of data,
competitiveness, profitability, capital requirements, risk
management approaches, corporate or governance structure and,
consequently, reported results and financing requirements. Also,
regulators in jurisdictions in which Prudential operates may impose
requirements affecting the allocation of capital and liquidity
between different business units in the Group, whether on a
geographic, legal entity, product line or other basis. Regulators
may also change solvency requirements, methodologies for
determining components of the 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 of 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 financial and global economic conditions, there may
continue to be changes in government regulation and supervision of
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 and sanctions compliance,
which may either 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 or restrictions on the Group. For
internationally active groups such as Prudential, operating across
multiple jurisdictions increases the complexity of legal and
regulatory compliance. Compliance with Prudential's legal or
regulatory 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 specific cases applicable to the Group is
high. Following the demerger of Jackson, these regulatory risks may
become more pronounced for the Group as markets with higher
inherent geopolitical and political risk exposure will form a
larger proportion of Prudential's operations.
Further
information on specific areas of regulatory and supervisory
requirements and changes are included in the sub-sections
below.
(a)
Group-wide Supervision
With
effect from 21 October 2019, the Group-wide supervisor of
Prudential changed to the Hong Kong IA. To align Hong Kong's
regulatory regime with international standards and practices, the
Hong Kong IA has developed a new Group-wide Supervision ('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. On 24 July 2020, the Insurance (Amendment) (No.
2) Ordinance, being the enabling primary legislation providing for
the GWS Framework, was enacted and it became effective on 29 March
2021. Further subsidiary legislation, including the Insurance
(Group Capital) Rules also became effective on 29 March 2021. The
legislation is supported by the guideline on group supervision
released by the Hong Kong IA on 14 May 2021. The GWS Framework
became effective 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.
These
transitional arrangements allow all debt instruments, both senior
and subordinated, issued by Prudential to be included as eligible
Group capital resources.
Whilst
the regulatory requirements have been finalised and are in effect,
given the untested nature of the regime, there is a risk that the
interpretations of the principle-based regulatory requirements made
by the Group in preparing for compliance with the regulatory
requirements may differ 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)
Global regulatory requirements and systemic risk
regulation
Currently
there are also a number of ongoing global regulatory developments
which could impact Prudential's businesses 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 Global
Systemically Important Insurers ('G-SIIs'), and the Insurance
Capital Standard (the 'ICS') being developed by the International
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.
Efforts
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 risk measures. The IAIS
has continued to focus on the following key
developments:
In
November 2019 the IAIS adopted the Common Framework ('ComFrame')
which establishes supervisory standards and guidance focusing on
the effective group-wide supervision of Internationally Active
Insurance Groups ('IAIGs'). 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
IAIS has also been developing the ICS 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 to
the default approach undertaken for the ICS during the monitoring
period and the related proposals are being led by the National
Association of Insurance Commissioners ('NAIC').
The
FSB has suspended Global Systemically Important Insurers ('G-SII')
designations until completion of a review to be undertaken in 2022.
Concurrently, the FSB endorsed a new Holistic Framework ('HF'),
intended for the assessment and mitigation of systemic risk in the
insurance sector which was implemented by the IAIS. As part of the
HF, many of the previous G-SII measures have already been adopted
into the Insurance Core Principles ('ICPs') and ComFrame. As an
IAIG, Prudential is expected to be subject to these measures. The
HF also includes a monitoring element for the identification of a
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 implementation and any new or changing regulations could
have a further impact on Prudential. Recent examples in this area
include:
●
The
IAIS is proposing to introduce liquidity metrics to be used as
ancillary indicators, with a second consultation set to follow the
phase 1 consultation which was completed in February
2021.
●
A
consultation on an application paper on macroprudential supervision
was also launched by the IAIS in March 2021.
●
The
FSB published its 2020 Resolution Report in November 2020,
highlighting intra-group connectedness and funding in resolution as
key areas of attention for its work on resolution planning.
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 in 2022.
The 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
by enhancing systemic risk assessment and
communication.
(c)
Regulatory developments in Asia
In
the Group's key Asia markets, reforms to insurance regulatory
regimes are in progress, with some uncertainty on the full impact
to Prudential:
●
In
Hong 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 will comprise three pillars: quantitative requirements,
including assessment of capital adequacy and valuation; qualitative
requirements, including corporate governance, Enterprise Risk
Management as well as Own Risk and Solvency Assessment; and public
disclosures and transparency of information. The rules with respect
to the first pillar are expected to be finalised in 2021. The Hong
Kong IA is also currently developing plans to enable early adoption
of the framework.
●
In
Malaysia, Bank Negara Malaysia ('BNM'), the central bank of
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 effective under changing market conditions, facilitate
consistent and comparable capital adequacy measurement across the
insurance and takaful industry, where appropriate, and achieve
greater alignment with key elements of the global capital standards
such as ICS, where appropriate. A discussion paper on proposals was
issued on 30 June 2021 with responses due by 30 September 2021. The
timing of the effective date of the updated rules currently remains
uncertain.
●
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. Three quantitative impact
studies have been performed in March, August and October 2020. The
CBIRC has also released a draft C-ROSS Phase II technical
specification in January 2021 for industry consultation.
Implementation is expected in 2021 or 2022, although an official
effective date has yet to be communicated.
The
protection of customers is an increasing regulatory theme in the
Asia region, including the following notable examples of proposals
for regulatory change in this area:
●
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 better protecting customer interests and improving market
conduct. The final regulations are expected to be issued in Q3 2021
and this will have implications for the product strategies and
insurance and compliance risks for insurers.
●
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 aim to improve the appropriateness of product design and
the customer disclosures provided on ILP policy documents. The
proposed effective date of the new requirements is currently 22
September 2021 and these are expected to materially impact insurer
systems, disclosures, customer communications, sales conduct and
post-sales calls processes.
The
pace and volume of climate-related regulatory changes across Asia
markets is increasing. Regulators including the Hong Kong Monetary
Authority, the Monetary Authority of Singapore, BNM in Malaysia and
the Financial Supervisory Commission in Taiwan are in the process
of developing supervisory and disclosure requirements or guidelines
related to the environment and climate change. It is expected
that other regulators in the region will develop similar
requirements. 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.
(d)
IFRS 17
The
Group's accounts are prepared in accordance with current IFRS
applicable to the insurance industry. In May 2017, the IASB
published its standard on insurance accounting (IFRS 17, 'Insurance
Contracts') which replaces the current IFRS 4 standard. Some
targeted amendments to this standard, including to the effective
date, were issued in June 2020. IFRS 17, 'Insurance Contracts', as
amended, will have the effect 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 the UK via the UK Endorsement Board. Prudential has a Group-wide
implementation programme underway to implement this new standard.
The effect of changes required to the Group's accounting policies
as a result of implementing the new standard is currently
uncertain, but these changes can be expected to, amongst other
things, alter the timing of IFRS profit recognition. The
implementation of this standard involves significant enhancements
to the IT, actuarial and finance systems of the Group.
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)
Inter-bank offered 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 Sterling Overnight Index Average
benchmark ('SONIA') in the UK and the Secured Overnight Financing
Rate ('SOFR') in the US could, among other things, impact the Group
through an adverse effect on the value of Prudential's assets and
liabilities which are linked to or which reference IBORs, a
reduction 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 contribution schemes
Various
jurisdictions in which Prudential operates have created investor
compensation schemes that require mandatory 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.
3.2 The conduct of business in a way that adversely impacts
the fair treatment of customers, as well as the resolution of
several issues affecting the financial services industry, could
have a negative impact on Prudential's business, financial
condition, 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 the fair treatment of customers
('conduct risk'). This may arise through a failure to: design,
provide and promote products and services to customers that meet
their needs, are clearly explained or deliver real value; provide
and promote a high standard of customers service; maintain
confidentiality of customer information; or appropriately respond
to complaints. A failure to identify or implement appropriate
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
regulatory actions in the ordinary course of its business on
matters relevant to the delivery of customer outcomes. Such actions
relate, and could in the future relate, to the application of
current regulations or the failure to implement new regulations
(including those relating to the 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 affecting products. Regulators may also focus on the
approach that product providers use to select third party
distributors and to monitor the appropriateness of sales made by
them. In some cases, product providers can be held responsible for
the deficiencies of third party distributors.
In
the US, there has been significant attention on the different
regulatory standards applied to investment advice delivered to
retail customers by different sectors of the industry, including
proposals for legislative and regulatory reforms.
There
is a risk that new regulations introduced may have a material
adverse effect 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's business, financial
condition, results of operations and prospects, or otherwise harm
its reputation.
3.3 Litigation, disputes and regulatory investigations may
adversely affect 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 of its 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 to Prudential, or that are common to
companies that operate in Prudential'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 sufficient. 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 effect on
Prudential's business, financial condition, cash flows, results of
operations and prospects.
3.4 Changes in tax legislation may result in adverse tax
consequences for the Group's business, financial condition, results
of operations and prospects
Tax
rules, including those relating to the insurance industry, and
their interpretation may change, possibly with retrospective
effect, 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 affect
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
countries for in-scope multinational enterprises that sell goods
and services into countries with little or no local physical
presence. The second pillar is focused on developing a global
minimum tax rate of at least 15 percent applicable to in-scope
multinational enterprises. G7 finance ministers agreed a set of
high level principles to progress the project in June 2021, and the
OECD issued a statement on 1 July 2021 providing some detail. G20
finance ministers endorsed the OECD statement in July 2021 and
requested that the OECD develop a full set of proposals and a
detailed plan for implementation by the next scheduled G20 finance
ministers meeting in October 2021. Based on the 1 July 2021 OECD
statement, it is unlikely that Prudential will be affected by
proposals under the first pillar given a proposed exemption for
regulated financial services companies. Prudential may be adversely
impacted by proposals under the second pillar, which does not
include an exemption for regulated financial services companies, as
Prudential operates in a number of jurisdictions where the
effective tax rate can be less than 15 per cent. Until the OECD
proposals and implementation plan have been finalised, the full
extent of the long-term impact on Prudential's business, tax
liabilities and profits remain uncertain.
4. RISKS RELATING TO ENVIRONMENTAL,
SOCIAL AND GOVERNANCE ('ESG') MATTERS
4.1 The failure to understand and respond effectively to the
risks associated with ESG factors could adversely affect
Prudential's achievement of its long-term strategy
The
purpose of a business and the way in which it operates in achieving
its objectives, including in relation to ESG-related matters, are
an increasingly material consideration for key stakeholders in
achieving their own objectives and aims.
A
failure to manage the material risks associated with key ESG themes
detailed below may adversely impact the reputation and brand of the
Group, its ability to attract and retain customers and staff, its
ability to deliver on its long-term strategy and therefore the
results of its operations and long-term financial
success.
(a)
Environmental risks
Environmental
concerns, notably those associated with climate change, pose
significant risks to Prudential and its customers. 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,
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. This climate-related
transition risk may adversely impact the valuation of investments
held by the Group, and the potential broader economic impact may
adversely affect customer demand for the Group's products.
Prudential'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-level
transition plans and which takes into consideration the impact on
the economies, businesses and customers in the markets in which it
operates and invests. The pace and volume of new climate-related
regulation emerging across the markets in which the Group operates
and the demand 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 to sufficiently understand and appropriately react
to transition risk and its ability to deliver on its external
carbon reduction commitments may be limited by insufficient 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, will increasingly influence the longevity,
mortality and morbidity risk assessments for the Group's life
insurance product underwriting and offerings and their associated
claims profiles. Climate-driven events in countries in which
Prudential or its key third parties operate could impact the
Group's operational resilience and its customers.
A
failure to understand, manage and provide greater transparency of
its exposure to these climate-related risks may have increasingly
adverse implications for Prudential and its
stakeholders.
(b)
Social risks
Social
risks that could impact Prudential may arise from a failure to
consider the rights, diversity, well-being, and interests of people
and communities in which the Group or its third parties operate.
These risks are increased as Prudential operates in multiple
jurisdictions with distinct local cultures and considerations. As
an employer, the Group is also exposed to the risk of being unable
to attract, retain and develop highly-skilled staff, which may
increase if Prudential does not have in place responsible working
practices or fails to recognise the benefits of diversity or
promote a culture of inclusion. 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 labour standards and
abuses of human rights by third parties. Emerging population risks
associated with public health trends (such as an increase in
obesity) and demographic changes (such as population urbanisation
and ageing) may affect customer lifestyles and therefore may impact
claims under the Group's insurance product offerings. As a provider
of insurance and investment services, the Group is increasingly
focused on 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 intelligence
technologies. The Group is therefore exposed to the regulatory,
ethical and reputational risks associated with customer data misuse
or security breaches. These risks are explained above. 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.
(c)
Governance risks
A
failure to maintain high standards of corporate governance may
adversely impact the Group and its customers, staff and employees,
through poor decision-making and a lack of oversight and management
of its key risks. Poor governance may arise where key governance
committees have insufficient independence, a lack of diversity,
skills or experience in their members, or unclear (or insufficient)
oversight responsibilities and mandates.
Inadequate
oversight over remuneration 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
suppliers increase the potential for reputational risks arising
from poor governance.
ESG-related risks may directly or indirectly impact Prudential's
business and the achievement of its strategy and consequently those
of its key stakeholders, which range from customers, institutional
investors, employees and suppliers, to policymakers, regulators,
industry organisations and local communities. A failure to
transparently and consistently implement the Group's ESG strategy
across operational, underwriting and investment activities, may
adversely impact the financial condition and reputation of the
Group and may negatively impact the Group's stakeholders, who all
have expectations, concerns and aims related to ESG matters, which
may differ, 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
considerations are effectively integrated into investment decisions
and the performance of fiduciary and stewardship duties. These
duties include effective implementation of exclusions, voting and
active engagement decisions with respect to investee companies, as
both an asset owner and an asset manager, in line with internally
defined procedures and external commitments.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: 11 August 2021
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PRUDENTIAL
PUBLIC LIMITED COMPANY
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By: /s/ Mark FitzPatrick
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Mark
FitzPatrick
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Group
Chief Financial Officer and Chief Operating Officer
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