TIDMPRU
RNS Number : 7114V
Prudential PLC
11 August 2020
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 has 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 has 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 in section 1.2 below. However, the full extent of
the impact of the pandemic on financial markets and economic growth
is highly uncertain and unpredictable and will be influenced by the
actions, including the duration and effectiveness of mitigating
measures of governments, policymakers and the public. Where these
impacts are prolonged, this may impact 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 immediate regulatory and supervisory responses to the
Covid-19 pandemic have been broad and have included increased
scrutiny of the operational resilience, liquidity and capital
strength (including the impact of making dividend payments) of
financial services companies. Various governments have effected, or
are considering effecting, 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.
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.
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. The impact to 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.
Extended travel restrictions in particular may adversely impact
product persistency in the Group's Asia business. 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 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 the coronavirus or are affected by travel restrictions;
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 be an increase in attempts to compromise IT
systems through phishing and social engineering tactics.
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, interest rates in the United States ("US") and some
Asian countries in which Prudential operates have decreased to
historic lows driven by the responses of central banks to mitigate
the impact of the Covid-19 pandemic, and the transition to a lower
carbon economy may impact long-term asset valuations.
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 (geo)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 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
Jackson's variable annuities and non-unit-linked savings products
in Asia, 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), as well as higher
credit defaults 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.
- Failure of counterparties who have transactions with Prudential (such as banks, reinsurers and counterparties to derivative 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, for derivative transactions, adequate collateral not being in place. 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 lack liquidity,
such as privately placed fixed maturity securities, mortgage loans,
mortgage-backed 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.
- 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 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 some non-unit-linked savings products, 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 for
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 (Geo)political risks and political 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 (geo)political risks and political
uncertainty in the markets in which it operates. Recent shifts in
the focus of some national governments toward more protectionist or
restrictive economic and trade policies with specific markets, and
international trade disputes, could impact on the macroeconomic
outlook and the environment for global financial markets. This
could take effect, for example, through increased friction in
cross-border trade, such as implementation of trade tariffs or the
withdrawal from existing trading blocs or agreements and the
exercise of executive powers to restrict overseas trade, financial
transactions, capital movements and/or investment. The degree and
nature of regulatory changes and Prudential's competitive position
in some geographic markets may also be impacted, for example,
through measures favouring local enterprises, such as changes to
the maximum level of non-domestic ownership by foreign companies or
differing treatment under regulations and tax rules.
(Geo)political risks and political uncertainty may also
adversely impact the Group's operations and its operational
resilience. Increased (geo)political tensions may increase
cross-border cyber activity and therefore increase cyber security
risks. (Geo)political tensions may also lead to civil unrest and/or
acts of civil disobedience. This includes the unrest in Hong Kong,
where mass anti-government demonstrations have given rise to
increased disruption throughout the region. 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 the recently
enacted national security law in Hong Kong, the final form and full
extent of which currently remain uncertain, 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 these jurisdictions, government measures and
responses may also add to the complexity of legal and regulatory
compliance. Compliance with Prudential's legal or regulatory
obligations 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.
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.
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 now 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 linked to (such as the Hong Kong
dollar, which is pegged to the US 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
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 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
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 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 a potential minority initial public offering and
evaluation of other strategic options in relation to Jackson and
its related companies, advancing the Group's digital capability,
expanding strategic partnerships and industry and regulatory-driven
change. There may be a material adverse effect on Prudential's
business, 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
Risk" risk factor detailed in section 3.1.
2.2 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. 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
on 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, although Prudential has not, to date, identified any
such incidents that have had a material impact. 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, may have reputational or conduct risk
implications and which could have a material adverse effect on its
business, financial condition, results of operations and
prospects.
2.3 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, reputational damage and 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. 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 to not only hold customer, shareholder
and employee data securely, but use it in a transparent and
appropriate way, including ensuring appropriate decision-making
where automated processes are employed, and to ensure its ongoing
accuracy. The risk of not meeting these requirements and
expectations may be increased by the use of emerging technological
tools which could increase the volume of data that Prudential
collects and processes. Developments in data protection worldwide
(such as the implementation of EU General Data Protection
Regulation that came into force in 2018 and the California Consumer
Protection Act that came into force on 1 January 2020) may also
increase the financial and reputational implications for Prudential
following a significant breach of its (or its third-party
suppliers') IT systems or data. New and currently unforeseeable
regulatory issues may also arise from the increased use of emerging
technology, data and digital services. 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.
Prudential is continually enhancing its IT environment to remain
secure against emerging threats, together with increasing its
ability to detect system compromise and recover should such an
incident occur. However, 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.
2.4 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 Group 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 subject to 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 arrangements with third parties not controlled
by Prudential such as bancassurance and agency arrangements in Asia
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.
2.5 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 in section 1.1.
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.
2.6 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 the US and Asia are highly
competitive, with several factors affecting Prudential's ability to
sell its products and continued 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 may result in increased
competition to the Group (including from outside the insurance
industry) and 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 negatively 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
interest on the Group's business, financial condition, results of
operations and prospects.
2.7. Prudential is exposed to ongoing risks as a result of the
demerger of M&G plc (the "Demerger")
On 21 October 2019, Prudential completed the 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 RISK
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 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.
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 plc changed to the Hong Kong Insurance Authority (the
"Hong Kong IA"). On 24 July 2020 the Insurance (Amendment (No 2)
Ordinance, being the enabling primary legislation providing for the
framework for the group-wide supervision of insurance groups by the
Hong Kong IA (the "GWS Framework"), was enacted. The primary
legislation (once effective) will be supported by subsidiary
legislation and guidance material, which is subject to consultation
with the industry and to the Hong Kong legislative process. As
such, the timing of finalisation and implementation of the GWS
Framework remains uncertain, although it is expected to become
effective in early 2021. Until then the Group is being supervised
on an interim basis in line with principles agreed with the Hong
Kong IA. Until the GWS Framework is finalised, the Group cannot be
certain of the nature and extent of differences between the interim
principles agreed with the Hong Kong IA and the specific regulatory
requirements of the GWS Framework. With the agreement of the Hong
Kong IA, Prudential is applying the Local Capital Summation Method
(the "LCSM") to determine Group regulatory capital requirements.
Whilst Prudential currently expects the capital requirements under
the GWS Framework to be largely consistent with these interim
supervisory requirements, any differences in the final requirements
adopted under the GWS Framework may lead to changes to the way in
which capital requirements are calculated and to the eligibility of
the capital instruments issued by Prudential to satisfy such
capital requirements. The Group's existing processes and resources
may also need to change to comply with the final GWS Framework or
any other requirements of the Hong Kong IA. The need to adapt to
any such changes or to respond to any such requirements may lead to
increased costs or otherwise impact the business, financial
condition, results, profitability and/or prospects of the
Group.
While the Hong Kong IA has agreed that the subordinated debt
instruments Prudential has in issue can be included as part of the
Group's capital resources for the purposes of satisfying the
capital requirements imposed under the LCSM under the interim
principles agreed with the Hong Kong IA, the grandfathering
provisions under the GWS Framework remain subject to the Hong Kong
legislative process. Although Prudential currently expects to be
able to include the subordinated debt instruments it has in issue
as part of the Group's capital resources for the purposes of
satisfying the capital requirements imposed under the GWS
Framework, if Prudential is ultimately not able to do so it may
need to raise additional capital, which may in turn lead to
increased costs for the Group.
(b) Global regulatory requirements and systematic risk regulation
Currently there are also a number of other global regulatory
developments which could impact Prudential's businesses in the many
jurisdictions in which they operate. These include the Dodd-Frank
Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act")
and its subsequent amendments in the US which provided for a
comprehensive overhaul of the financial services industry within
the US including reforms to financial services entities, products
and markets, 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. Across Asia this includes China, Hong Kong, Singapore,
Thailand and India. There remains a high degree of uncertainty over
the potential impact of such changes on the Group.
In November 2019 the International Association of Insurance
Supervisors (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"). The ComFrame proposals, which include
the ICS, could result in enhanced capital and regulatory measures
for 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.
In November 2019 the FSB endorsed a new Holistic Framework
("HF"), intended for the assessment and mitigation of systemic risk
in the insurance sector, for implementation by the IAIS in 2020 and
has suspended G-SII designations until completion of a review to be
undertaken in 2022. Many of the previous G-SII measures have
already been adopted into the Insurance Core Principles ("ICPs")
and ComFrame. As 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. As a result of the
Covid-19 pandemic, this monitoring requirement has been replaced
with a Covid-19-focused exercise for 2020. In June 2020 the IAIS
published an application paper on the liquidity risk elements
introduced into the ICPs and ComFrame. A public consultation on the
development of liquidity metrics to be used as an ancillary
indicator for monitoring is planned for Q4 2020, with a further
consultation focused on macroeconomic elements expected to follow
in 2021.
The IAIS continues to develop 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.
(c) IFRS 17
The Group's accounts are prepared in accordance with current
IFRS applicable to the insurance industry. The International
Accounting Standards Board (the "IASB") introduced a framework that
it described as Phase I which, under its standard IFRS 4, permitted
insurers to continue to use the statutory basis of accounting for
insurance assets and liabilities that existed in their
jurisdictions prior to January 2005. In May 2017, the IASB
published its replacement standard on insurance accounting (IFRS
17, 'Insurance Contracts'). 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 UK Endorsement Board, once established, will
apply a process for assessing whether IFRS 17 meets the necessary
criteria for endorsement into the UK-adopted International
Accounting Standards (IAS). The UK-adopted IAS will apply to the
Group's financial results reporting after the Brexit transition
period, replacing the EU-endorsed IFRS. The Group is reviewing the
complex requirements of this standard and considering its potential
impact. 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. Given the
implementation of this standard is likely to require significant
enhancements to IT, actuarial and finance systems of the Group, it
will also have an impact on the Group's expenses.
Any changes or modification of IFRS accounting policies may
require a change in the way in which future results will be
determined and/or a retrospective adjustment of reported results to
ensure consistency.
(d) 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.
(e) 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 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
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. As a result
of reports relating to perceptions of industry abuses, there have
been numerous regulatory inquiries and proposals for legislative
and regulatory reforms. This includes focus on the suitability of
sales of certain products, alternative investments and the widening
of the circumstances under which a person or entity providing
investment advice with respect to certain employee benefit and
pension plans would be considered a fiduciary subjecting the person
or entity to certain regulatory requirements. 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.
4. ENVIRONMENTAL, SOCIAL AND GOVERNANCE RISKS
4.1 The failure to understand and respond effectively to the
risks associated with environmental, social or governance ("ESG")
factors could adversely affect Prudential's achievement of its
long-term strategy
The business environment in which Prudential operates is
continually changing. A failure to manage those material risks
associated with the ESG themes detailed below may adversely impact
the reputation and brand of the Group, the results of its
operations, its ability to attract and retain customers and staff,
its ability to deliver on its long-term strategy and therefore its
long-term financial success. Ensuring high levels of transparency
and responsiveness to stakeholders is a key aspect of this.
ESG-related issues may also directly or indirectly impact key
stakeholders, ranging from customers to institutional investors,
employees, suppliers and regulators, all of whom have expectations
in this area, which may differ.
The environmental risks associated with climate change is one
ESG area that poses significant risks to Prudential and its
customers. These risks include transition risks and physical risks.
The global transition to a lower carbon economy could have an
adverse impact on investment valuations as the financial assets of
carbon-intensive companies re-price and could result in some asset
sectors facing significantly higher costs and a disorderly
adjustment to their asset values. The speed of this transition will
be influenced by factors such as public policy, technology and
changes in market or investor sentiment. This may adversely impact
the valuation of investments held by the Group. The potential
broader economic impact from this may adversely affect customer
demand for the Group's products. The physical impacts of climate
change, driven by both specific short-term climate-related events
such as natural disasters and longer-term changes to the natural
environment, will increasingly influence the longevity, mortality
and morbidity risk assessments of the Group's underwriting product
offerings. Climate-driven changes in countries in which Prudential,
or its key third parties, operate could impact its operational
resilience and could change its claims profile. There is an
increasing expectation from stakeholders for Prudential to
understand, manage and provide increased transparency of its
exposure to climate-related risks. Given that Prudential's
investment horizons are long term, it is potentially more exposed
to the long-term impact of climate change risks. Additionally,
Prudential's stakeholders increasingly expect an approach to
responsible investment that demonstrates how ESG considerations are
effectively integrated into investment and engagement decisions,
and fiduciary and stewardship duties.
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, operates. These risks are increased as Prudential
operates in multiple jurisdictions with distinct local cultures and
considerations. 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 against the
Group's insurance product offerings. As a provider of insurance and
investment services, Prudential has access to extensive amounts of
customer personal data, including data related to personal health,
and is therefore exposed to the regulatory and reputational risks
associated with customer data misuse or security breaches. These
risks are explained in section 2.3. The potential for reputational
risks extends to the Group's supply chains, which may be adversely
impacted by factors such as poor labour standards and abuses of
human rights by third parties. As an employer, the Group is also
exposed to the risk of being unable to attract, retain and develop
highly-skilled staff, which can be increased where Prudential does
not have responsible working practices.
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 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 increases the potential for reputational risks
arising from poor governance.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GPUUARUPUGBU
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