21 March 2024
M&G
plc full year 2023 results
STRONG
FINANCIAL RESULTS UNDERPINNED BY DIVERSIFIED BUSINESS
MODEL
CONTINUED
PROGRESS ON STRATEGIC PRIORITIES AND BUSINESS TARGETS
Net Client Flows (excl.
Heritage)i
£1.1bn
2022:
£0.2bn
|
|
Adjusted
Operating Profit Before
Tax
£797m
2022:
£625mii
|
|
Operating Capital
Generation
£996m
2022: £821m
|
|
Shareholder
Solvency II
ratio
203%
YE 2022:
199%
|
|
Total
Dividend
per Share
19.7p
2022: 19.6p
|
Andrea Rossi, Group Chief Executive Officer,
said:
"M&G has performed very well in
2023. Today's results show positive business momentum and
meaningful improvements across key financial metrics. Net client
flows, adjusted operating profit, operating capital generation, and
the shareholder Solvency II ratio are all up materially
year-on-year.
"This financial performance
underscores the importance of our balanced and diversified business
model, with strong growth achieved despite continued macroeconomic
uncertainty. The contribution to earnings from our Life and Wealth
operations increased meaningfully year-on-year, while Asset
Management showed great resilience delivering net client inflows of
£0.8bn at a time when the market for active investment solutions
suffered significant redemptions.
"I am also very pleased with our
operational progress in the first full year since outlining our
three strategic priorities: Financial Strength, Simplification and
Growth. We took steps forward on our business targets, and in
particular, we are well placed to achieve our three-year cumulative
Operating capital generation of £2.5 billion by the end of the
year.
"As we look ahead, I am confident
about the prospects for M&G as we remain focused on executing
our strategic plan. Our diversified business model puts us in an
excellent position to continue delivering attractive outcomes for
both our clients and shareholders over the long-term."
Financial strength
-
|
Adjusted operating profit before tax
of £797 million was up 28% year-on-year (2022: £625
millionii), reflecting a resilient performance in Asset
Management, and improved contribution from Life, Wealth and
Corporate Centre.
|
-
|
IFRS profit after tax of £309
million improved significantly (2022: £2,055 million
lossii), benefitting from higher adjusted operating
profit and a meaningful reduction in losses relating to
short-term fluctuations in investment returns.
|
-
|
Operating change in contractual
service margin (CSM) of £355 million was up 175% year-on-year
(2022: £129 million), primarily due to higher expected real-world
return on with-profits business CSM following the increase in
risk-free rates during 2022.
|
-
|
Operating capital generation of £996
million was also up by 20% year-on-year (2022: £821 million),
supported by a strong underlying capital generation of £752 million
(2022: £628 million) and other operating capital generation of £244
million (2022: £193 million).
|
-
|
Over 2022 and 2023, we generated
£1.8 billion of operating capital, which puts us in a very good
position to achieve our three-year cumulative operating capital
generation target of £2.5 billion by end of year.
|
-
|
Shareholder Solvency II coverage
ratio improved to 203% (2022: 199%).
|
-
|
The 2023 total ordinary dividend of
19.7 pence per share (2022: 19.6 pence per share) is in line with
our policy of stable or increasing dividends. The second
interim dividend of 13.2 pence per share is payable on 9 May
2024.
|
i Net client flows (excluding
Heritage) consist of net client flows in Asset Management, PruFund
and other Wealth and exclude the expected outflows in our Heritage
business in Life.
ii 2022 comparative results, which
were previously prepared under IFRS 4, have been restated following
the adoption of IFRS 17 Insurance
Contracts and IFRS 9 Financial Instruments from 1 January
2023.
Simplification
-
|
Good momentum in the first year of
our Transformation programme, creating a leaner and more efficient
organisation and improving our ability to serve clients, reduce
costs and unlock growth.
|
-
|
Maintained 2023 managed costs in
line with 2022 level, due to cost savings of £73 million in 2023,
offsetting inflationary pressures and freeing up resources to
support growth.
|
-
|
Completed a number of cost-saving
initiatives including the voluntary redundancy programme; reduced
our UK office spend by 15%; restructured our Private Markets team;
and reduced consultancy and contractor spend by 11%.
|
-
|
Migrated another 2 million clients
to our strategic policy administration system, reduced complaints
by improving client service levels and reduced average claim
processing time in the Life business.
|
-
|
Appointed Joseph Pinto (CEO, Asset
Management), Clive Bolton (CEO, Life Insurance) and Caroline
Connellan (CEO, Wealth) now providing dedicated leadership for each
of our three businesses.
|
Growth
-
|
Delivered improved net client
inflows (excluding Heritage) of £1.1 billion (2022: £0.2 billion)
despite challenging macroeconomic conditions.
|
-
|
Achieved net client inflows of £1.5
billion in Wholesale Asset Management (2022: £0.5 billion)
attributable to the breadth of our proposition and continued strong
investment performance. As of 31 December 2023, 64% of our
mutual funds ranked in the upper two performance quartiles over
three years (31 December 2022: 67%) and 69% over five years (31
December 2022: 60%).
|
-
|
Experienced £6.2 billion net client
outflows in UK Institutional Asset Management (2022: £2.3 billion)
triggered by the 2022 mini-budget crisis and the ongoing de-risking
of Defined Benefit pension funds, with market conditions expected
to normalise in 2024.
|
-
|
Continued to expand our
International Institutional Asset Management operations, delivering
net client inflows of £5.5 billion in 2023, and almost £16 billion
over the last four years, with key wins in the Netherlands,
Germany, Australia and Japan.
|
-
|
Delivered net client inflows of £0.2
billion in Wealth (2022: £0.2 billion) underpinned by PruFund sales
in the UK of £6.3 billion, the highest level since 2019.
|
-
|
Successfully re-entered the Bulk
Purchase Annuity market, completing two deals with a combined
premium of £617 million in 2023. Signed a third deal with a
£309 million premium on 15 March 2024, and expect to achieve £1
billion to £1.5 billion sales per.annum. going forward.
|
Outlook
-
|
M&G is well positioned to
navigate the current uncertain economic climate due to its
diversified business model, international footprint, compelling
products and services, investment capabilities and
expertise.
|
-
|
The 2023 Full Year Results underpin
our continued confidence in the delivery of our strategic
priorities and financial targets, as we remain focused on
transforming M&G to deliver great client and shareholder
outcomes.
|
-
|
Our strategic priorities are clear:
Maintain our financial strength, build on the progress already
achieved in simplifying the business, better align to client needs,
and deliver profitable growth in the UK and
internationally.
|
-
|
We are on track to achieving our
operating capital generation target of £2.5 billion by end of 2024,
and are making good progress on our 2025 financial targets,
namely:
|
|
-
|
Generate £200 million of cost
savings, gross of inflation, compared to 2022;
|
|
-
|
Reduce core Asset Management cost to
income ratio to sustainably lower than 70%;
|
|
-
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Deliver increased adjusted operating
profit before tax from Asset Management and Wealth to more than 50%
of the Group total excluding the Corporate centre; and
|
|
-
|
Reduce our leverage ratio to below
30%.
|
-
|
Our dividend policy of delivering
stable or growing dividends to our shareholders remains
unchanged.
|
|
For the year ended 31
December
|
For the
year ended 31 December
|
Performance
highlightsi
|
2023
|
2022
|
Adjusted operating profit before tax
(£m)ii
|
797
|
625
|
IFRS profit/(loss) after tax
(£m)ii
|
309
|
(2,055)
|
Operating change in CSM
(£m)
|
355
|
129
|
Operating capital generation
(£m)
|
996
|
821
|
Total capital generation
(£m)
|
358
|
(397)
|
Shareholder Solvency II coverage
ratio (%)
|
203 %
|
199
%
|
Dividend per share (p)
|
19.7p
|
19.6p
|
Assets under management and
administration (£bn)
|
343.5
|
342.0
|
Net client flows (excluding
Heritage) (£m)
|
1.1
|
0.2
|
i Definitions of key performance measures are provided in the
Supplementary information section of the Annual Report and Accounts
on page 366 to 367.
ii 2022 comparative results, which
were previously prepared under IFRS 4, have been restated following
the adoption of IFRS 17 Insurance
Contracts and IFRS 9 Financial Instruments from 1 January
2023.
Enquiries:
Media
|
Investors/Analysts
|
Irene Chambers
|
+44(0)7825 696815
Irene.Chambers@mandg.com
|
Luca Gagliardi
|
+44(0)20 8162 7307
Luca.Gagliardi@mandg.com
|
Will Sherlock
|
+44(0)7786 836562
Will.Sherlock@mandg.com
|
|
|
Sophie Redburn
|
+44(0)7391 227026
Sophie.Redburn@mandg.com
|
|
|
Note to the editors
1.
The consolidated financial statements have been
prepared in accordance with UK-adopted international accounting
standards, as adopted by the UK, and the Disclosure and
Transparency Rules of the Financial Conduct Authority.
2.
The 2022 comparative results, which were
previously prepared under IFRS 4, have been restated following the
adoption of IFRS 17 Insurance
Contracts and IFRS 9 Financial Instruments from 1 January
2023.
3.
The results include transitional measures, which
are presented assuming a recalculation as at the valuation date,
using management's estimate of the impact of operating and market
conditions. As at 31 December 2022, the recalculated measures did
not align to the latest approved regulatory position and therefore
the estimated Solvency II capital position differed from the
position disclosed in the formal regulatory Quantitative Reporting
Templates and the Group Solvency and Financial Condition Report of
the same date. As at 31 December 2023, the recalculated and
regulatory positions are aligned.
4.
Total number of M&G plc shares in issue as at
31 December 2023 was 2,382,058,117.
5.
A live webcast of the Full Year 2023 Results
presentation and Q&A will be hosted by Andrea Rossi (CEO) and
Kathryn McLeland (CFO) on 21 March 2024. Register to join at:
https://mngresults.connectid.cloud/register.
Or dial in by phone in the
UK:
+44 20 3936 2999 or
+44 800 358 1035 Access code: 718038
For global dial-in numbers
see: Global Dial-In Numbers
The Results presentation will be
available to download from 09:30 GMT on our Results, reports and
presentations web page:
https://www.mandg.com/investors/results-reports-and-presentations
6. Dividend to be
paid in May 2024
Ex-dividend date
|
28 March 2024
|
Record date
|
2 April 2024
|
Payment of dividend
|
9 May 2024
|
7. About M&G
plc
M&G plc is a leading
international savings and investments business, managing money for
around 4.6 million individual clients and more than 900
institutional clients in 38 offices worldwide. As at 31 December
2023, we had £343.5 billion of assets under management and
administration. With a heritage dating back more than 170 years,
M&G plc has a long history of innovation in savings and
investments, combining asset management and insurance expertise to
offer a wide range of solutions. We serve our life and wealth
clients under the M&G Wealth and Prudential brands in the UK
and Europe, and under the M&G Investments brand for asset
management clients globally.
8. Additional
Information
M&G plc, a company incorporated
in the United Kingdom, is the ultimate parent company of The
Prudential Assurance Company Limited. The Prudential Assurance
Company Limited is not affiliated in any manner with Prudential
Financial, Inc., a company whose principal place of business is in
the United States of America or Prudential plc, an international
group incorporated in the United Kingdom.
9. Forward-Looking
Statements
This document may contain certain
'forward-looking statements' with respect to M&G plc (M&G)
and its affiliates (the Group), its plans, its current goals and
expectations relating to future financial condition, performance,
results, operating environment, strategy and objectives. Statements
that are not historical facts, including statements about M&G's
beliefs and expectations and including, without limitation,
statements containing the words 'may', 'will', 'could', 'should',
'continue', 'aims', 'estimates', 'projects', 'believes', 'intends',
'expects', 'plans', 'seeks', 'outlook' and 'anticipates', and words
of similar meaning, are forward-looking statements. These
statements are based on plans, estimates and projections which are
current as at the time they are made, and therefore persons reading
this announcement are cautioned against placing undue reliance on
forward-looking statements. By their nature, forward-looking
statements involve inherent assumptions, risk and uncertainty, as
they generally relate to future events and circumstances that may
not be entirely within M&G's control. A number of factors could
cause M&G's actual future financial condition or performance or
other indicated results to differ materially from those indicated
in any forward-looking statement. Such factors include, but are not
limited to: changes in domestic and global political,
economic and business conditions; market-related conditions and
risk, including fluctuations in interest rates and exchange rates,
the potential for a sustained low-interest rate environment,
corporate liquidity risk and the future trading value of the shares
of M&G; investment portfolio-related risks, such as the
performance of financial markets generally; legal, regulatory and
policy developments, such as, for example, new government
initiatives and regulatory measures, including those addressing
climate change and broader sustainability-related issues, and
broader development of reporting standards; the impact of
competition, economic uncertainty, inflation and deflation; the
effect on M&G's business and results from, in particular,
mortality and morbidity trends, longevity assumptions, lapse rates
and policy renewal rates; the timing, impact and other
uncertainties of future acquisitions or combinations within
relevant industries; the impact of internal projects and other
strategic actions, such as transformation programmes, failing to
meet their objectives; changes in environmental, social and
geopolitical risks and incidents, pandemics and similar events
beyond the Group's control; the Group's ability along with
governments and other stakeholders to measure, manage and mitigate
the impacts of climate change and broader sustainability-related
issues effectively; the impact of operational risks, including risk
associated with third-party arrangements, reliance on third-party
distribution channels and disruption to the availability,
confidentiality or integrity of M&G's IT systems (or those of
its suppliers); the impact of changes in capital, solvency
standards, accounting standards or relevant regulatory frameworks,
and tax and other legislation and regulations in the jurisdictions
in which the Group operates; and the impact of legal and regulatory
actions, investigations and disputes. These and other important
factors may, for example, result in changes to assumptions used for
determining results of operations or re-estimations of reserves for
future policy benefits. Any forward-looking statements contained in
this document speak only as of the date on which they are made.
M&G expressly disclaims any obligation to update any of the
forward-looking statements contained in this document or any other
forward-looking statements it may make, whether as a result of
future events, new information or otherwise except as required
pursuant to the UK Prospectus Rules, the UK Listing Rules, the UK
Disclosure and Transparency Rules, or other applicable laws and
regulations. This report has been prepared for, and only for, the
members of M&G, as a body, and no other persons. M&G, its
Directors, employees, agents or advisers do not accept or assume
responsibility to any other person to whom this document is shown
or into whose hands it may come, and any such responsibility or
liability is expressly disclaimed.
LEI: 254900TWUJUQ44TQJY84
Classification: 1.1 Annual Financial and Audit Reports
Group Chief Executive Officer's statement
A
clear sense of direction
2023: Strong financial performance,
continued business momentum and good strategic
progress
The underlying strength of our
differentiated business model is driving good strategic progress.
Combined with the hard work and commitment of our colleagues, we
are delivering a strong operational and financial performance, as
we transform the business, with better client outcomes.
Building the foundations
for future success
In 2023, we embarked on a journey of
ambitious growth aspirations, strategic realignments, and
transformative initiatives. I am proud of the foundations we are
laying for our future success. We are establishing a corporate
infrastructure that brings us together: simplifying our business
and improving the way we serve our clients, thereby creating more
opportunities to grow M&G.
Underpinning this is our new purpose
'to give everyone real confidence to put their money to work' which
reflects our long term ambition as a business. Central to this is
our unwavering commitment to serving our clients with excellence.
By prioritising their needs and expectations we will elevate the
quality of our service delivery, foster stronger relationships and
deeper trust, in turn delivering better customer outcomes, creating
financial strength and achieving profitable growth.
Our balanced, diversified and
synergistic business model enables this and through our new
structure and refocused strategy we are driving forward Asset
Management, reigniting our Life business, and refocusing Wealth,
supported by a dedicated leadership team. I'm delighted to welcome
to the Group Executive Committee Joseph Pinto as CEO Asset
Management, Clive Bolton as CEO Life, and Caroline Connellan as
CEO Wealth.
Leveraging our business model to deliver on
our priorities
Despite a backdrop of volatile
financial markets and geopolitical uncertainties, we've remained
resilient and adaptive. We have delivered good progress across each
of our three core strategic pillars: financial strength,
simplification and profitable growth, as we become a more
efficient and more international organisation.
Financial strength
Over the past year we have become
more profitable and more capital generative, as well as more
resilient. We delivered an increased adjusted operating profit
before tax of £797 million, helped by higher interest rates,
up 28% year-on-year with our solvency ratio improving to
203%.
Through effective capital
management, our operating capital generation was up 21% to £996
million. Given the strength of our operating capital generation, we
are confident that we will achieve our £2.5 billion target by the
end of 2024.
All of this means we are continuing
to deliver attractive sustainable returns to our shareholders with
a total dividend for 2023 of 19.7 pence per share.
Simplification
We are a year into our
transformation programme and have already taken significant steps
to improve the efficiency of the business in the pursuit of better
client service and outcomes. This has included starting to
implement our new operating model, with accountable leaders
for each of our three businesses, reducing our office space and
enhancing the efficiency of our support functions.
We have a clear focus on
transforming our cost base, creating capacity to investment to
support priority areas, better client outcomes and
growth opportunities.
We remain confident in achieving our
target of a much improved operating model with costs reduced by
£200 million by 2025 compared to 2022, of which £73 million
savings have already been achieved.
Growth
We have made strong progress across
all of our businesses.
Asset Management
Our Asset Manager has overcome
significant market challenges and achieved positive net client
flows of £800 million. It has delivered superior investment
performance, grown internationally, and further diversified its
client base and earnings mix. It is well positioned for the future,
as it offers deep expertise in the asset classes attractive to our
clients.
I am very pleased with the
turnaround we delivered in our Wholesale business, underpinned by a
strongly improved investment performance. Over the past two years,
we achieved net client inflows of £2.0 billion, in contrast to the
European market for active investment solutions which suffered net
outflows of over £350 billion.
Last year, our Institutional
business faced meaningful headwinds in the UK market due to the
ongoing de-risking of defined benefit pension funds. On the other
hand, it thrived internationally, generating £5.5 billion of net
client inflows over the last year alone and £16 billion over the
past four years.
Client outcomes were strong across
both the Institutional and Wholesale franchises, with roughly 50%
of our wholesale funds ranked in the top quartile on both a three
and five-year basis. We also continued to innovate, expanding the
range of funds and investment vehicles that we offer such as new
Asian and Global bond funds.
International Growth
Since 2020, our international AUMA
have increased by 38% to £83 billion. In 2023 alone, we had
meaningful client inflows across key European and Asia Pacific
markets. It is a testament to the quality of our
capabilities.
Deep expertise
We have strong capabilities and
expertise in a number of areas that are attractive to our clients.
We are recognised as industry leaders in Public Fixed Income and
currently have assets under management of £139 billion. We have a
compelling range of funds across developed and
emerging markets, government
and corporate debt.
Within Private Markets we are a
European leader with £73 billion assets under management. We expect
our Private Credit franchise to expand strongly with supportive
market dynamics over the coming years, leveraging our strong track
record both in terms of investment performance and
innovation.
Life
Throughout 2023 our aim has been
to reignite our Life business through a number of key
initiatives. First, we successfully entered the bulk purchase
annuity (BPA) market, completing two deals in 2023 and a third in
March this year, bringing total sales to over £900 million. We
hope to reach £1 billion to £1.5 billion in BPA sales per year,
to fully offset the run-off of our annuity book and
increase long-term capital generation.
Secondly, we are working to leverage
better the powerful combination of our With-Profits Fund and the
shareholder balance sheet, to develop new propositions for the
benefit of our clients, the With-Profits Fund and the wider Group.
With a Solvency ratio of over 400% and surplus capital of more than
£7 billion, the With-Profits Fund has the capacity and appetite to
deploy capital over the long-term. Working together, we are highly
effective in serving clients needs and have the opportunity to
develop new compelling solutions for individual
and corporate clients.
Wealth
Our Wealth business has a strong
brand and corporate heritage, an extensive reach through both
tied-advice and third party distribution, and provides access for
UK clients to a comprehensive range of multi-asset solutions,
including our market leading PruFund.
Throughout 2023 we continued to see
strong demand for our key propositions from our Wealth clients with
PruFund Wealth sales increasing by 17%, reaching the highest level
since 2019. We have seen great client feedback for PruFolio, our
risk-rated range of multi-asset solutions and our Model Portfolio
Service, with the latter achieving a best in class Net Promoter
Score.
We see significant opportunities to
grow our Wealth business over the coming years with over 12
millioni people in the UK currently seeking assistance
to achieve financial security. Clients want accessible advice, help
in planning for life events, and a diversified multi-asset exposure
that can reduce the volatility of their investments. Our Wealth
franchise has what it needs to serve these clients and help them
realise long-term value. By focusing on expanding our advice
capabilities through our in-house Advice Training Academy and
leveraging other multi-asset solutions to capitalise on growth
opportunities, we expect to improve efficiency, client delivery,
and financial outcomes in 2024 and beyond.
i Source: Boring Money 'How to know
if you need financial advice'.
Making a difference
As a responsible corporate citizen,
asset owner and asset manager, we can effect positive real-world
change. Through community investment and sustainable practices,
we're committed to creating value not only for our stakeholders but
also for society at large, helping to break down barriers that
prevent people from living the life they want, offering support at
a strategic and local level and focused on urban regeneration,
economic empowerment and community building.
Growth capital and early-stage
innovation remain the core focus for our purpose-led flexible
private assets strategy, Catalyst, backed by a £5 billion mandate
from the With-Profits Fund. It also invested €75 million in
Biobest, a global leader in biological crop protection, and US$15
million into Harbinger Health, a US-based business that is
innovating to detect the earliest stages of cancer.
Inspiring our colleagues
Our success is intrinsically tied to
the dedication and expertise of our colleagues. By fostering a
culture of innovation, collaboration and continuous learning, we
are empowering our workforce to thrive and drive
forward M&G.
Our aim is to create an exceptional
place to work at M&G: a positive culture where our colleagues
enjoy each day. We are committed to ensuring our colleagues'
working lives are engaging and fulfilling, in a safe, inclusive and
diverse environment. We want them to feel inspired to do their best
for our clients to help grow the business and support the
communities in which we operate. Our refreshed strategy, new
purpose and focus on delivering sustainable and profitable growth
requires our people to continue to evolve and adapt at pace. We
continue to invest in our people across all our markets and have
restructured and strengthened our leadership and management teams
to take us forward into our next exciting stage of
growth.
In addition to our new business
CEOs, I was delighted to welcome Charlotte Heiss, General
Counsel and Company Secretary and Rob Lewis, Chief Auditor to the
Group Executive Committee. I'd like to again express thanks to
Clare Bousfield, Alan Porter and Peter Grewal for their
service to M&G and wish them all well for their
future endeavours.
When I meet with colleagues, the
sense of pride in the role that M&G plays and the determination
to make a difference is clear. Thank you to everyone for their hard
work and the part they have played in our success in
2023.
Outlook
As I look ahead to 2024 and beyond I
am confident that we will continue to drive progress and deliver
against the three pillars of our strategy - leading to sustainably
better outcomes for clients and shareholders over time.
While I remain mindful of the
current external environment that we operate in, and both the
challenges and opportunities this presents M&G, the strength
and diversification of our business model stands us in good
stead.
Business and financial review
A
message from our Chief Financial Officer
Our financial performance in 2023
demonstrates the strength of our business model in a
challenging macroeconomic environment
I'm delighted to present our 2023
results which continue to demonstrate the strengths of our business
model and the progress we are driving as we focus on our three
strategic pillars.
Wholesale Asset Management net
client inflows of £1.5 billion (2022: £0.5 billion), continued the
positive momentum in the business despite adverse market
conditions.
Our Institutional business saw net
client outflows of £0.7 billion (2022: £0.7 billion)
driven by the continuing market volatility and redemptions
following the September 2022 mini-budget in the UK. Despite
these domestic headwinds, we continued to expand internationally,
particularly in Europe.
Strong gross inflows of £7.0 billion
led to net client inflows of £1.0 billion in our PruFund investment
solution. In addition, our re-entry to the bulk purchase annuity
market delivered £0.6 billion net inflows from two transactions
announced in September in our Life business.
Total AUMA increased to £343.5
billion (2022: £342.0 billion), predominantly as a result of
positive market movements on asset valuations which are offset by
the expected outflows from our annuities and traditional
with-profits businesses and a weakening of foreign
currency-denominated assets.
Our 2023 IFRS result after tax shows
a significant improvement on 2022; profit after tax attributable to
equity holders for the year of £309 million (2022:
£2,055 million loss). Yields did not increase as meaningfully
this year as we saw in 2022, resulting in lower fair value losses
on the surplus assets in the annuity portfolio and a small fair
value gain on the interest rate hedging we have in place to protect
our Solvency II capital position.
Adjusted operating profit before tax
was £797 million, up 28% on 2022 (£625 million) driven by
strong results, across both our with-profits business and
annuities, primarily as a result of the increase in risk-free rates
during 2022 offset by Asset Management adjusted operating profit
being modestly down on 2022 and higher losses in our Platform and
Advice business. The Corporate Centre benefitted from higher
treasury income.
Operating Change in CSM, introduced
on the adoption of IFRS 17 gives a wider representation of the
drivers of performance by including the impact of new business and
management actions, increased to £355 million
(2022: £129 million).
Underlying capital generation
improved by 20% to £752 million (2022: £628 million), which
together with other operating results of £244 million
(2022: £193 million) primarily caused by asset trading and
optimisation in the With-Profits Fund, delivered a strong operating
capital generation of £996 million (2022: £821 million).
This means we are now at 73% of the £2.5 billion
cumulative target by 2024, two years into the three year
period.
Total capital generation of £358
million was offset by the payment of our dividends however, our
shareholder Solvency II coverage ratio increased to 203% (2022:
199%) as a result of the Solvency Capital Requirement also reducing
due to benefits from management actions.
We have made a strong start to the
targeted cost savings of £200 million by 2025, and are taking
action to reduce our core asset management cost/income ratio to
below 70% by 2025 and to reduce our leverage ratio to below 30% by
2025. We are also still targeting Asset Management and Wealth
adjusted operating profit before tax to be over 50% of the Group
total excluding Corporate Centre by the end of 2025.
We paid an interim ordinary dividend
of £152 million equal to 6.5 pence per share on 3 November 2023. A
second interim dividend of £311 million equal to 13.2 pence
per share will be paid on 9 May 2024, which means 19.7 pence
per share of total dividends were paid to shareholders in relation
to 2023.
As we look to 2024 we are confident
about the momentum in our business and the resilience of our
diversified model. In 2024 we are expecting some headwinds to the
Group's adjusted operating profit before tax due to market
conditions in 2023 and the impact of strengthening persistency
assumptions in 2023. This is due to the revised adjusted operating
profit methodology following the adoption of IFRS 17 being applied
for Life and Wealth. The revised methodology reflects the opening
value of the CSM, its amortisation rate and the expected real world
return based on risk-free rates and expected market risk premiums
at the start of the year.
I am pleased with these results in
the face of continuing economic and geopolitical challenges and
also the successful publication of both our interim and full-year
results under IFRS 17, concluding what was significant activity and
change for our business and the insurance industry as a
whole.
Adjusted operating profit before tax
The following table shows adjusted
operating profit before tax split by segment. Results for the
comparative period have been marked as restated to reflect the
retrospective application of IFRS 17, 'Insurance Contracts' and
IFRS 9, 'Financial Instruments' from 1 January 2023. Additionally,
our operating segments have been revised in the year to reflect the
change in management structure; our previous segment Retail and
Savings has been replaced with two new operating segments, Life and
Wealth, while our Asset Management segment remains
unchanged.
|
2023
|
Restated
2022
|
For the year ended
31 December
|
£m
|
£m
|
Asset Management
|
242
|
264
|
Life
|
586
|
460
|
Wealth
|
180
|
158
|
Corporate Centre
|
(211)
|
(257)
|
Adjusted operating profit before tax
|
797
|
625
|
Adjusted operating profit before tax
increased to £797 million in the year ended 31 December 2023
(2022: £625 million) driven by an increase in adjusted
operating profit from Life and a reduction in the losses from the
Corporate Centre.
In Asset Management, revenues and
costs were impacted by responsAbility, our Swiss-based team who
specialise in impact investing that we acquired in May 2022.
Revenues earned were £995 million (2022: £995 million) and
operating costs were £791 million (2022: £763 million) of
which £42 million (2022: £23 million) and £38 million (2022: £22
million), respectively, relate to responsAbility. Removing the
impact of responsAbility, revenue earned was down by 2%, in line
with average AUMA, and costs increased by 1.6%, which is below
inflation and demonstrates our continued focus on cost discipline.
These movements in revenue and costs lead to a fall in adjusted
operating profit before tax to £242 million (2022: £264
million).
The improvement in yields during
2022 has driven the increase in Life adjusted operating profit by
£126m to £586m (2022: £460m). The opening CSM value for the
traditional with-profits business at the start of 2023 was higher
than 2022 leading to a larger amount being released to profit in
2023. The expected return on surplus assets in the annuity
portfolio also increased. The higher CSM release and return on
annuity surplus assets have been partially offset by a decrease in
the impact of asset trading in the annuity portfolio.
Wealth adjusted operating profit
before tax has increased by £22 million to £180 million (2022:
£158 million), following an improvement in the adjusted
operating profit from the PruFund UK business which has been
partially offset by an increase in the loss from Platform and
Advice business due to inflationary pressures on costs. Adjusted
operating profit from the PruFund UK business has benefited from
the improvement in yields during 2022, similar to Life traditional
with-profits business.
The Corporate Centre has benefited
from an increased investment return from our treasury function, of
£57 million (2022: £13 million) as a result of higher
interest rates.
Adjusted operating profit before tax to IFRS result after
tax
The following table shows a
reconciliation of adjusted operating profit before tax to IFRS
result after tax:
|
|
Restated
|
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Adjusted operating profit before tax
|
797
|
625
|
Short-term fluctuations in
investment returns
|
(171)
|
(2,858)
|
Mismatches arising on application of
IFRS 17
|
(41)
|
(244)
|
Amortisation of intangible assets
acquired in business combinations
|
(39)
|
(35)
|
Restructuring and other
costs
|
(141)
|
(147)
|
IFRS profit/(loss) before tax and non-controlling interests
attributable to equity holders
|
405
|
(2,659)
|
IFRS profit attributable to
non-controlling interests
|
16
|
19
|
IFRS profit/(loss) before tax attributable to equity
holders
|
421
|
(2,640)
|
Tax (charge)/credit attributable to
equity holders
|
(112)
|
585
|
IFRS profit/(loss) after tax attributable to equity
holders
|
309
|
(2,055)
|
IFRS result after tax
The IFRS result after tax
attributable to equity holders is a profit of £309 million compared
to a £2,055 million loss for the year ended 31 December 2022.
The favourable movement reflects a reduction in losses from
short-term fluctuations in investment returns to £171 million loss
in the period (2022: £2,858 million loss).
Market conditions have led to lower
losses from short-term fluctuations in investment returns in the
current period with the impact of rising rates for the year ended
31 December 2023 not being as significant as the year to
31 December 2022. The overall losses primarily comprise of a
£4 million gain (2022: £989 million loss) on interest rate swaps
purchased to protect PAC's Solvency II capital position against
falls in interest rates and £159 million loss (2022: £1,301 million
loss) from the difference in actual and expected long-term
investment return on surplus assets backing the annuity portfolio,
both of which have significantly improved due to the smaller
increase in yields in 2023 compared to 2022. There were also losses
of £123 million (2022: £104 million gain) on the hedging
instruments held to protect the Solvency II capital position from
falling equity markets, which moved to a loss as a result of
increases in equity markets.
In the year ended 31 December
2023, restructuring costs and other of £141 million mainly
relate to costs to transform our operations of £73 million,
£30 million of investment spend in building out capability in
our Asset Management business and £19 million for the
continuing development of the M&G Wealth platform business.
This compares to £147 million of restructuring costs for the
year ended 31 December 2022.
The equity holders tax charge for
the year ended 31 December 2023 was £112 million (2022:
tax benefit of £585 million) representing an effective tax
rate of 26.6% (2022: 17.8%). Excluding non-recurring items, the
equity holders' effective tax rate was 28.7% (2022: 28.7%). The
equity holders' effective tax rate of 26.6% (2022: 22.2%) was
higher than the UK statutory rate of 23.5% (2022: 19.0%) primarily
due to the adverse impact of deductions not allowable for tax
purposes.
Operating change in Contractual Service Margin
(CSM)
Operating change in CSM is a new
alternative performance measure introduced on the adoption of IFRS
17 and supplements the adjusted operating profit metric for the
Life and Wealth segments. It represents the change in CSM during
the period resulting from new business, interest accretion,
experience changes and release of CSM to adjusted operating profit
but excludes the impact of short-term fluctuations in investment
return and accounting mismatches arising on the adoption of IFRS
17.
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Life
|
125
|
75
|
Wealth
|
230
|
54
|
Operating change in CSM
|
355
|
129
|
Operating change in CSM increased to
£355 million in the year ended 31 December 2023 (2022: £129
million), driven by higher expected real-world return on the CSM
from with-profits business.
In Life, operating change in CSM
increased to £125 million (2022: £75 million) primarily due to an
increased contribution from traditional with-profits business of
£67 million from £23 million in 2022. Shareholder annuities
operating change in CSM of £36m (2022: £35 million) remained stable
year on year with an increased contribution from new business of
£42 million (2022: £6 million) due to the two bulk purchase annuity
transactions in September 2023, offset by a reduction in the impact
of assumption changes and variances to £60 million (2022: £94
million) mainly due to a lower benefit from longevity assumption
changes.
Wealth operating change in CSM
relates to PruFund UK business and increased by £176 million to
£230 million (2022: £54 million). The expected real-world return on
the CSM for PruFund business of £330 million
(2022: £186 million) more than offset the CSM released to
adjusted operating profit of £231 million (2022: £154 million).
In addition, there was a higher contribution from new
business of £94 million (2022: £18 million) to the operating change
in CSM, due to increased gross client inflows to PruFund
during 2023 combined with the increase in yields over
2022.
Capital generation
The following table shows an
analysis of total capital generation:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Asset Management
|
246
|
246
|
Life
|
574
|
486
|
Wealth
|
163
|
155
|
Corporate Centre
|
(231)
|
(259)
|
Underlying capital generation
|
752
|
628
|
Other operating capital
generation
|
244
|
193
|
Operating capital generation
|
996
|
821
|
Market movements
|
(507)
|
(1,225)
|
Restructuring and other
|
49
|
(166)
|
Tax
|
36
|
173
|
Eligible own funds
restriction
|
(216)
|
-
|
Total capital generation
|
358
|
(397)
|
Total capital generation was £358
million for the year ended 31 December 2023 (2022: negative
£397 million), reflecting higher operating capital generation and
an improved result from market movements, partially offset by the
impact of the eligible own funds restriction. There are limits,
prescribed by the regulator, on the amount of different types of
own funds that can be used to demonstrate solvency. As at
31 December 2023, the sum of capital classed as Tier 2 and
Tier 3 exceeds 50% of the regulatory Group Solvency Capital
Requirement by £216 million. While this capital remains available
to the Group, as it is above this regulatory threshold own funds
must be restricted by this amount to determine eligible own
funds.
Underlying capital generation
increased to £752 million (2022: £628 million). The increase
is driven mainly by the higher expected return on the annuity
surplus assets and the present value of shareholder transfers in
respect of with-profits business following the rise in interest
rates over 2022.
The increase in other operating
capital generation in the year ended 31 December 2023 to £244
million (2022: £193 million) mainly reflects benefits from asset
trading and optimisation, in particular a £225 million capital
benefit from an update to the strategic asset allocation for
the With-Profits Fund. There was a further benefit from updates
made to the capital model to capture the economic impacts of
COVID-19 and the invasion of Ukraine and also to reflect increased
interest rate and inflation volatility. These benefits were partly
offset by the impact of reducing the level of equity hedging in
place in the With-Profits Fund.
Market movements over 2023 have
resulted in a negative impact of £507 million (2022: negative
£1,225 million). Although equity markets have improved,
returns on the With-Profits Fund were lower than expected, and
credit has already been taken for the expected return in underlying
capital generation. The negative market movements are driven by a
loss of £321 million (2022: positive £454 million) arising from a
fall in the present value of shareholder transfers less equity
hedges, and a loss on the value of surplus assets in the annuity
portfolio of £93 million (2022: £1,602 million loss). Other market
impacts include a gain on interest rate swaps, designed to protect
the Solvency II capital position in a falling interest rate
environment, of £4 million (2022: £989 million loss). Contributing
to the negative impact, the movement in Solvency Capital
Requirements attributable to market movements is an increase of
£90 million compared to a reduction of £1,034 million in 2022.
The large fall in Solvency Capital Requirement over 2022 was driven
by the increase in interest rates, which materially decreased
longevity risk capital; following the reduction in interest rates
over 2023, this benefit has not been repeated.
Market movements include a negative
impact of £264 million in respect of the UK Government's
consultation on ground rents. This impact reflects a ratings
downgrade to all impacted notes from AA- to A+ and an increase in
the illiquidity premium used in the valuation of these assets to
allow for the additional uncertainty in the cashflows arising from
legislative risk partially offset by a reduction in technical
provisions, together with an increase in the SCR to reflect the
possible outcomes set out in the consultation. We have been
engaging with the UK Government on this consultation and are fully
supportive of the government's objective to strengthen leaseholder
protection. Together with our peers, we have proposed a solution to
achieve such a goal while preserving residential ground rents as an
investable asset class for pension funds and the wider investment
community. We remain hopeful of a solution that works for all
parties.
The impact of restructuring costs
and other movements of £49 million (2022: £(166) million)
includes the impact on the capital position of restructuring costs.
These costs are offset by a c.£177 million benefit from the impact
of the Solvency II reforms, comprising a reduction in the Solvency
II risk margin and the removal of a restriction that applied in
relation to transition from Solvency I to Solvency II.
Capital position
The Group's shareholder Solvency II
coverage ratio increased to 203% (2022: 199%). However, Solvency II
surplus decreased to £4.5 billion as at 31 December 2023
(2022: £4.6 billion), driven by a reduction in eligible own funds.
Although capital generation, net of the eligible own funds
restriction, was positive £358 million, this was offset by the
payment of £462 million in dividends to shareholders. The solvency
ratio increased as the Solvency Capital Requirement (SCR) also
reduced, driven by benefits from management actions including asset
trading and optimisation.
Our With-Profits Fund continues to
have a strong Solvency II coverage ratio of 403%, increased from
the 362% reported at 31 December 2022. Surplus increased as a
result of strong underlying capital generation from in-force
business and positive impacts from market movements and management
actions, as well as the Solvency II reforms to the risk margin and
transitional measures on technical provisions. This was partially
offset by the impact of the distribution of c.£1 billion of excess
surplus to policyholders.
The regulatory Solvency II coverage
ratio of the Group as at 31 December 2023 was 167% (2022:
164%). This view of solvency combines the shareholder position and
the With-Profits Fund, but excludes all surplus within the
With-Profits Fund.
Capital Management Framework
The primary focus of our capital
management framework is to maintain financial strength and reward
shareholders with attractive returns. This is achieved through
actively managing M&G's solvency position and the quality of
capital held.
When deploying additional capital,
we prioritise investments that can generate long-term sustainable
earnings growth. Any investment is always measured against the
financial attractiveness of capital returns, as well as
our Risk Appetite Framework.
Financial strength and
flexibility Considers
shareholder Solvency II coverage ratio, Parent Company liquidity,
and leverage ratio
Attractive dividends
Stable or increasing dividend per share
Investments in the
business Investments in our
high returning growth businesses
Capital returns When
appropriate eg buy-back
Financing and liquidity
The following table shows key
financing and liquidity information:
|
2023
|
2022
|
As at 31 December
|
£m
|
£m
|
Nominal value of subordinated
debt
|
3,242
|
3,264
|
Shareholder Solvency II own
funds
|
9,143
|
9,268
|
Leverage ratio
|
35%
|
35%
|
The leverage ratio is defined as the
nominal value of debt as a percentage of the shareholder view of
M&G plc's Solvency II available own funds, which excludes the
eligible own funds restriction noted in the capital position
section above and remained at 35% (31 December 2022:
35%).
The following table shows the
movement in cash and liquid assets held by the Group's holding
companies during the period:
|
2023
|
Restatedi 2022
|
For the year ended 31
December
|
£m
|
£m
|
Opening cash and liquid assets at 1 January
|
986
|
1,895
|
Cash remittances from
subsidiaries
|
725
|
583
|
Corporate costs
|
(129)
|
(140)
|
Interest paid on core structural
borrowings
|
(189)
|
(190)
|
Cash dividends paid to equity
holders
|
(462)
|
(465)
|
Share buy-back
|
-
|
(503)
|
Shares purchased by employee
benefits trust
|
(5)
|
-
|
Acquisition of and capital
injections into subsidiaries
|
(66)
|
(221)
|
Interest income on intercompany
loans
|
42
|
19
|
Other
|
75
|
8
|
Closing cash and liquid assets at 31
Decemberii
|
977
|
986
|
i In previous periods we disclosed
cash and liquid assets for the Parent Company only. These periods
have been restated to include the Group's other holding companies
(M&G Group Regulated Entity Holding Company Limited and M&G
Corporate Holdings Limited) as we believe it provides a more
meaningful and representative disclosure.
ii Closing cash and liquid assets at
31 December 2023 included a £940 million (2022: £950 million)
inter-company loan asset with Prudential Capital plc, which acts as
the Group's treasury function.
Movements in cash and liquid assets
held by the holding companies for the year ended 31 December
2023 represent the dividends and payments that will arise in the
normal course of business. Total cash and liquid assets have
decreased slightly over 2023 with dividend payments to equity
holders of £462 million (2022: £465 million) and interest paid on
structural borrowings of £189 million (2022: £190 million) mostly
offset by cash remittances from our subsidiaries. During 2023, £66
million was injected into subsidiaries including £60 million
funding to Wealth business subsidiaries. In 2022, £221 million was
used to fund acquisitions and inject capital, including the
acquisition of Sandringham and M&G Wealth Investments LLP and
our partnership with Moneyfarm.
Asset Management
2023 has been a mixed year for Asset
Management, with momentum in our Wholesale business, but
challenging market conditions in Institutional
Assets under management and administration and net client
flows
|
Net
client flows
For the
year ended 31 December
|
|
AUMAi
As at 31
December
|
|
2023
|
2022
|
|
2023
|
2022
|
|
£bn
|
£bn
|
|
£bn
|
£bn
|
Institutional Asset
Management
|
(0.7)
|
(0.7)
|
|
98.2
|
99.2
|
Wholesale Asset
Management
|
1.5
|
0.5
|
|
55.0
|
53.9
|
Other
|
-
|
-
|
|
1.0
|
1.1
|
Total Asset Management
|
0.8
|
(0.2)
|
|
154.2
|
154.2
|
i £14.1 billion (2022: £12.7
billion) of total Asset Management AUMA relates to assets under
advice.
Wholesale Asset Management had net
client inflows for the second year running, of £1.5 billion (2022:
£0.5 billion) continuing the positive momentum in this
business, despite the adverse market conditions.
Over three and five years our
performance remains strong or has strengthened with 64% of our
Wholesale funds ranked in the upper performance quartiles over
three years (2022: 67%), and 69% ranked in the upper performance
quartiles over five years (2022: 60%). However, our Wholesale funds
performance over one year has reduced relative to the previous
year, with 51% of our Wholesale funds ranked in the upper
performance quartiles over one year (2022: 68%).
Much of the growth within Wholesale
Asset Management has come from the UK, where we have attracted net
client inflows of £1.5 billion, reflecting the continuing
execution of our strategy, which is focused on deepening our
relationships with key wealth managers and intermediaries, in
addition to a strong equity performance. Continuing economic
uncertainty, market volatility and International channel assets not
performing as strongly meant the growth in the UK was offset by net
client inflows in other parts of our Wholesale business.
Wholesale assets under management
and administration (AUMA) increased by £1.1 billion to £55.0
billion driven by the net client inflows. This was partly offset by
negative market and other movements of £0.4 billion in 2023, in
particular due to the weakening of foreign currency-denominated
AUMA, notably South African Rand, during 2023.
Net client outflows of £0.7 billion
(2022: £0.7 billion) in our Institutional Asset Management business
reflects the continuing impact of the significant market volatility
in the UK in 2022, with redemptions triggered following September
2022's mini-budget leading to net client outflows of £3.5 billion
during 2023. This was partially offset by £0.8 billion related to a
large mandate win in Switzerland (Swiss Investment Fund for
Emerging Markets), with the remainder primarily due to net client
inflows within our Real Estate business.
Our expertise in private assets,
which offers private fixed income, alternatives, real estate and
infrastructure equity offerings, is a key component of our
Institutional investment capability, and represents a resilient,
high-margin source of revenues. Our private assets under management
reduced by 4% to £73.4 billion of AUMA as at 31 December 2023
(2022: £76.6 billion) owing to negative market and other
movements.
Adjusted operating profit before tax
The following table shows an
analysis of adjusted operating profit before tax:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Fee-based
revenuesi
|
1,025
|
1,051
|
Asset Management operating
expenses
|
(791)
|
(763)
|
Investment return
|
24
|
(5)
|
Adjusted operating profit
attributable to non-controlling interests
|
(16)
|
(19)
|
Adjusted operating profit before tax
|
242
|
264
|
i £309 million of the fee-based
revenue is in respect of assets managed on behalf of Life and
Wealth (2022: £306 million).
Asset Management adjusted operating
profit before tax decreased 8% to £242 million in the year ended
31 December 2023 (2022: £264 million) with improved
investment return partly offsetting increased expenses.
Revenue earned by Institutional
Asset Management was £588 million (2022: £598 million) and includes
£42 million (2022: £23 million) from responsAbility, our
Swiss-based team specialising in impact investing which was
acquired in May 2022. The reduction in revenue is primarily due to
lower fees earned on public fixed income as a result of the impact
of lower AUMA from market volatility, and the continuing impact
from the mini-budget crisis in 2022. In Wholesale Asset Management,
revenue increased marginally to £407 million (2022: £397 million)
as a consequence of increased AUMA. In addition, income earned from
performance fees and carried interest included in fee-based revenue
was £30 million (2022: £56 million), reducing after the
higher revenue related to fund performance in 2022 which was not
expected to repeat.
The Asset Management average fee
margin of 33bps for 2023 was up from 32bps for 2022. Average fee
margins in the larger Institutional Asset Management business
increased to 30bps (2022: 29bps), while Wholesale Asset Management
fee margins reduced to 37bps (2022: 38bps).
Asset Management operating expenses
have increased by £28 million to £791 million (2022: £763 million)
with costs of £38 million (2022: £22 million) from responsAbility.
Removing the impact of responsAbility, costs increased by only
1.6%, significantly below inflation, demonstrating our continued
focus on cost discipline. Market pressures meant that, excluding
performance fees, the cost/income ratio for the Asset Management
business increased to 79% (2022: 77%).
Investment return, which includes
gains on seed investments, interest income on cash balances and
hedges on management incentive schemes, improved by £29 million
compared to 2022, reflecting an improvement in market
conditions.
Capital generation
The following table shows an
analysis of operating capital generation:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Underlying capital
generation
|
246
|
246
|
Other operating capital
generation
|
50
|
(33)
|
Operating capital generation
|
296
|
213
|
Underlying capital generation for
the year ended 31 December 2023 remained stable at £246
million (2022: £246 million). The impact of higher costs and
lower performance fee income has been offset by a reduction in the
capital required to be held in respect of market risks, driven in
part by the increased level of hedging in place.
Other operating capital generation
has increased, driven primarily by the impact of an improvement in
the process used to assess operational risk scenarios in respect of
trade instruction and trade execution errors, which has resulted in
a material reduction in the associated capital requirement. The
improved investment income for 2023 relative to 2022 has also
contributed to the increase. In 2022, other operating capital
generation was negatively impacted by an increased allocation of
operational risk capital requirements, offset elsewhere within the
Group.
Life
Our Life business has delivered
strong results and successfully re-entered the bulk annuity
market
Assets under management and administration and net client
flows
|
Net
client flows
For the
year ended
31
December
|
|
AUMA
As at 31
December
|
|
2023
|
2022
|
|
2023
|
2022
|
|
£bn
|
£bn
|
|
£bn
|
£bn
|
Traditional with-profits
|
(4.2)
|
(4.9)
|
|
65.0
|
67.5
|
Shareholder annuities
|
(0.4)
|
(1.1)
|
|
15.8
|
15.4
|
Europe
|
0.1
|
0.2
|
|
6.4
|
6.0
|
Other
|
(1.2)
|
0.1
|
|
13.7
|
14.1
|
Total Life
|
(5.7)
|
(5.7)
|
|
100.9
|
103.0
|
The Life business experienced total
net client outflows of £5.7 billion (2022: £5.7 billion), as the
majority of the business runs off. However, two bulk purchase
annuity transactions in September 2023 contributed £0.6 billion
(2022: £nil) gross client inflows following our strategic decision
to re-enter the bulk purchase annuity market by taking a selective
approach where our capabilities can make a material difference to
clients and to increase our long-term capital generation. There
were also net client inflows of £0.1 billion (2022: £0.2 billion)
into PruFund by clients in Europe.
Life AUMA decreased to £100.9
billion (2022: £103.0 billion) driven by the net client outflows,
partly offset by positive market and other movements of £3.6
billion (2022: £18.2 billion negative), reflecting movements in
interest rates.
Adjusted operating profit before tax by source of
earnings
The following table shows adjusted
operating profit before tax split by source of earnings:
|
2023
|
Restated
2022
|
|
£m
|
£m
|
Traditional with-profits
|
263
|
200
|
Shareholder annuities
|
331
|
239
|
Europe
|
(3)
|
19
|
Other
|
(5)
|
2
|
Total Life adjusted operating profit before
tax
|
586
|
460
|
Adjusted operating profit before tax
from our Life business increased to £586 million (2022: £460
million) driven by increases in both the with-profits business and
shareholder annuities business that reflect the impact of the
increase in yields in 2022.
Europe includes the results of
business written by Prudential International Assurance plc.
Adjusted operating profit before tax reduced to a £3 million loss
(2022: £19 million profit) caused by an increase in the provision
under an agreement to reimburse the With-Profits Fund for its
contribution to the costs for growing the business written in
Poland, driven by an increase in expected expenses and decrease in
expected future sales. In 2022, there was a benefit from extending
the term of this agreement.
Traditional with-profits
The following table provides further
analysis of the traditional with-profits business result in
Life:
|
2023
|
Restated
2022
|
For the year ended 31
December
|
£m
|
£m
|
CSM release
|
238
|
186
|
Expected return on excess
assets
|
35
|
19
|
Other
|
(10)
|
(5)
|
Traditional with-profits
|
263
|
200
|
The contractual service margin (CSM)
for with-profits business is based on the expected value of future
shareholder transfers. As a result of the rise in risk-free
rates over 2022, the CSM at the start of 2023 is higher than at the
start of 2022, and there has been an increase in the amount of
the CSM released to adjusted operating profit to £238 million
compared to £186 million for the year ended 31 December 2022.
This represents 14.0% pa of the opening CSM attributable to the
shareholder (2022: 13.2% pa).
The expected return on the
shareholders' share of excess assets in traditional with-profits
has increased by £16 million to £35 million. As the expected
rate is set at the start of the reporting period, the rise in
risk-free rates over 2022 resulted in an increased expected rate of
return from 2.4% pa for 2022, to 6.0% pa for 2023.
Shareholder annuities
The following table provides further
analysis of the shareholder annuities result in Life:
|
2023
|
Restated
2022
|
For the year ended 31
December
|
£m
|
£m
|
Expected return on excess
assets
|
205
|
113
|
CSM release
|
96
|
89
|
Risk adjustment unwind
|
19
|
24
|
Asset trading and portfolio
management actions
|
2
|
41
|
Experience variances
|
9
|
-
|
Other provisions and
reserves
|
-
|
(28)
|
Shareholder annuities
|
331
|
239
|
The shareholder annuities result has
increased by £92 million to £331 million. The recurring sources of
earnings from the annuity book are primarily the returns on surplus
assets in excess of IFRS 17 insurance liabilities based on
long-term expected investment returns and the release of the CSM.
The expected return on excess assets, which is set at the start of
the reporting period, has increased by £92 million to £205 million
as a result of the rise in risk-free rates during 2022.
The release of the CSM to adjusted
operating profit for shareholder annuities was £96 million compared
to £89 million in the year ended 31 December 2022, benefiting
from a higher opening CSM balance. The amount of CSM released
represents 7.2% pa of the 31 December 2023 CSM before
amortisation (2022: 6.9% pa).
Asset trading and portfolio
management actions reduced £39 million to £2 million due to a
reduction in asset trading profits on the matching adjustment
portfolio. The 2022 profit was primarily one-off trading profits
not repeated in 2023. Other provisions and reserves in 2022
included a loss from a change in assumptions in relation to
lifetime mortgages, not repeated in 2023.
The credit quality of fixed income
assets in the annuity portfolio remained strong over 2023. 98% of
the debt securities held by the shareholder annuity portfolio are
investment grade and only 19% are BBB. In addition 80% of the
shareholder annuity portfolio is held in debt securities either
categorised as Risk Free or Secured (including cash). Rating
migrations resulted in very low level of downgrade experience
(defined as movements in BBB notching and, otherwise, letter
downgrades), with c.4% of bonds in the portfolio being
impacted.
Operating change in Contractual Service Margin
(CSM)
The following table shows operating
change in CSM by source of earnings:
|
2023
|
2022
|
|
£m
|
£m
|
Traditional with-profits
|
67
|
23
|
Shareholder annuities
|
36
|
35
|
Europe
|
26
|
29
|
Other
|
(4)
|
(12)
|
Total Life operating change in CSM
|
125
|
75
|
Operating change in CSM from the
Life business increased to £125 million (2022: £75 million)
primarily due to a higher contribution from traditional
with-profits business.
The following table shows the
traditional with-profits operating change in CSM in the
period:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Expected real-world return on
CSM
|
309
|
257
|
Release of CSM to adjusted operating
profit before tax
|
(238)
|
(186)
|
Assumption changes and
variances
|
(4)
|
(48)
|
Operating change in CSM
|
67
|
23
|
The expected real-world return on
the CSM more than offset the release of the CSM to adjusted
operating profit, resulting in a net contribution to operating
change in CSM of £71 million (2022: £71 million). The total
expected rate of return on the CSM is determined at the start of
the year and increased to 8.5% for 2023 compared to 4.8% for 2022
due to the increase in risk free rates over 2022.
Assumption changes and variances of
£4 million loss (2022: £48 million loss) are driven by a reduction
in future investment management expenses for traditional
with-profits business offset by the impact of changes to the
strategic asset allocation for the With-Profits Fund and higher
actual claims than expected. The driver of the 2022 loss was higher
claims compared to those expected causing future expected
shareholder transfers to be lower leading to a reduction in the
CSM.
The following table shows the
shareholder annuities operating change in CSM in the
period:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Interest accreted on the
CSM
|
30
|
24
|
Release of CSM to adjusted operating
profit before tax
|
(96)
|
(89)
|
New business
|
42
|
6
|
Assumption changes and
variances
|
60
|
94
|
Operating change in CSM
|
36
|
35
|
Interest accreted on the CSM at 2.3%
pa in 2023 (2022: 1.9% pa) and increased by £6 million to £30
million. The interest rate is based on the forward curve 'locked
in' at IFRS 17 transition date (1 January 2022) and as limited new
business is written the interest applied will increase over time,
moving along the upward-sloping December 2021 yield
curve.
The increase in the contribution
from new business to the operating change in CSM was driven by the
two bulk purchase annuity transactions in September
2023.
Assumption changes and variances
have fallen to £60 million (2022: £94 million). There was a large
benefit in 2022 from longevity assumptions changes, which arose
from lower expected future improvements in mortality rates, offset
by an increase in short-term expense assumptions for project costs.
In 2023, the impact of longevity assumption changes and experience
variances is much smaller.
Capital generation
The following table shows an
analysis of operating capital generation:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Traditional with-profits
|
182
|
192
|
Shareholder annuity and other
life
|
350
|
251
|
Europe
|
42
|
43
|
Underlying capital generation
|
574
|
486
|
Model improvements
|
77
|
(8)
|
Assumption changes
|
8
|
158
|
Management actions and other (incl.
experience variances)
|
62
|
(83)
|
Other operating capital generation
|
147
|
67
|
Operating capital generation
|
721
|
553
|
Traditional with-profits business
generated underlying capital of £182 million in the year ended
31 December 2023 (2022: £192 million); due to an increase
in the value of shareholder transfers driven by higher yields over
2022 offset by losses on equity hedges.
There also continued to be
significant capital generation from the shareholder annuity and
other life business, contributing £350 million (2022: £251
million). The underlying capital generation for annuity business
has increased because the rise in yields over 2022 results in an
increase in the expected return on surplus assets in the annuity
portfolio. The bulk purchase annuity transactions entered into over
2023 generated a capital strain of £26 million, at the date of the
transaction.
Other operating capital generation
increased to £147 million (2022: £67 million), largely reflecting
model updates and management actions including the beneficial
impact of an update to the strategic asset allocation of the
With-Profits Fund offset by the impact of reducing the level of
equity hedging. Asset trading in the annuity portfolio contributed
£52 million in 2023, offset by the impact of an update to the
matching adjustment strategy. The benefit from model
improvements reflects updates made to the capital model to fully
capture the economic impact of the COVID-19 pandemic and the
Russian invasion of Ukraine, as well as the increased volatility in
inflation and interest rates. In 2022, other operating capital
generation included a significant £213 million benefit from
longevity assumption changes, which has not been repeated in
2023.
Management actions and other has
increased by £145 million to £62 million which includes the impact
of non-market experience.
Wealth
Net client inflows into
PruFund have improved following strong underlying investment
performance
Assets under management and administration and net client
flows
|
Net
client flows
For the
year ended
31
December
|
|
AUMA
As at 31
December
|
|
2023
|
2022
|
|
2023
|
2022
|
|
£bn
|
£bn
|
|
£bn
|
£bn
|
PruFund UK
|
0.9
|
0.5
|
|
54.8
|
52.3
|
Platform and Advice
|
0.3
|
0.2
|
|
19.2
|
18.0
|
Other Wealth
|
(1.0)
|
(0.5)
|
|
13.1
|
13.1
|
Total Wealth
|
0.2
|
0.2
|
|
87.1
|
83.4
|
Overall, Wealth achieved net client
inflows of £0.2 billion (2022: £0.2 billion). Wealth AUMA increased
to £87.1 billion (2022: £83.4 billion) driven by positive
market and other movements of £3.5 billion.
PruFund is an insurance-based
smoothing solution offering a blend of public and private
investments to clients of Wealth and Life. PruFund UK attracted net
client inflows of £0.9 billion (£1.0 billion including non-UK in
Life) for the year ended 31 December 2023 (2022: £0.5 billion;
£0.7 billion including non-UK in Life). The improved
inflows into PruFund follow strong underlying investment
performance and digitisation in 2023. These trends underscore the
importance of broadening the accessibility of our propositions
offered to our Wealth clients and in May we launched PruFund
Growth, PruFund Cautious and five Risk Managed PruFunds on our
M&G Wealth platform, expanding the reach of this unique
proposition, while improving and digitising adviser
journeys.
Adjusted operating profit before tax by source of
earnings
The following table shows adjusted
operating profit before tax split by source of earnings:
|
2023
|
Restated
2022
|
For the year ended 31
December
|
£m
|
£m
|
PruFund UK
|
228
|
190
|
Platform and Advice
|
(32)
|
(24)
|
Other Wealth
|
(16)
|
(8)
|
Total Wealth adjusted operating profit before
tax
|
180
|
158
|
Wealth adjusted operating profit
before tax increased to £180 million (2022: £158 million) with an
increase in the adjusted operating profit arising from PruFund UK
business being partly offset by higher losses from our Platform and
Advice business. The losses from the Platform and Advice
business increased to £32 million (2022: £24 million) driven by an
increase in costs owing to inflation and a one-off intangible asset
write-off in the first half of 2023 of £7 million. In Other Wealth,
revised pricing in non-with-profit products has led to lower
revenues.
The following table provides further
analysis of the with-profits business (PruFund UK) result in
Wealth:
|
2023
|
Restated
2022
|
For the year ended 31
December
|
£m
|
£m
|
CSM release
|
231
|
154
|
Expected return on excess
assets
|
34
|
21
|
Other
|
(37)
|
15
|
PruFund UK
|
228
|
190
|
CSM has increased due to the same
reasons outlined in Life, resulting in an additional £77 million
released to profit compared to the year ended 31 December
2022. This represents 11.6% pa of the opening CSM attributable to
the shareholder (2022: 10.6% pa). The amortisation rate for PruFund
business is lower than the rate for the traditional with-profits
business in Life as that business is more mature and is running off
faster.
The expected return on the
shareholders' share of excess assets in Wealth has increased by £13
million to £34 million. The higher expected rate of return of 6.0%
in 2023 compared to 2.4% in 2022 increased the expected return on
excess assets to £42 million (2022: £21 million). This is partly
offset by £9 million loss as a result of an arrangement entered
into between the With-Profits Fund and the shareholder fund in the
year. The nature of this transaction is a monetisation of future
shareholder transfers, whereby a portion of these transfers will be
refunded to the With-Profits Fund in exchange for an immediate cash
sum. The loss recorded reflects the real-world unwinding of the
swap liability created.
In Other, the year to
31 December 2023 included a £28 million loss as a result of
the above arrangement; primarily a one-off due to the valuation
difference between the real world valuation of the swap liability
created relative to the IFRS 17 measurement basis. There is a
further £15 million loss due to an increase in expected expense
overrun on writing new PruFund UK business during the year
partially offset by a reduction in risk adjustment.
Operating change in Contractual Service Margin
(CSM)
The following table shows the
operating change in CSM for PruFund business in Wealth in the
period:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
Expected real-world return on
CSM
|
330
|
186
|
Release of CSM to adjusted operating
profit before tax
|
(231)
|
(154)
|
New business
|
94
|
18
|
Assumption changes and
variances
|
37
|
4
|
Operating change in CSM
|
230
|
54
|
The expected real-world return on
the CSM for Prufund UK business more than offset the release of the
CSM to adjusted operating profit, resulting in a net contribution
to operating change in CSM of £99 million (2022: £32 million). The
expected real-world rate of return on the CSM increased to 8.5% for
2023 compared to 4.8% for 2022 due to higher risk free rates at the
start of the year. The opening CSM for PruFund UK business also
increased due to the higher risk free rates and net client inflows.
The combination of the higher opening CSM and expected real-world
rate of return lead to the expected real-world return on CSM
increasing to £330 million (2022: £186 million).
PruFund UK new business also
contributed £94 million (2022: £18 million) to the increase in CSM
over the period, the rise relative to 2022 is due to the material
increase in yields over 2022 and the higher net client
inflows.
Assumption changes and variances of
£37 million (2022: £3 million) are driven by a reduction in future
investment management expenses on PruFund UK business and an
improvement in persistency.
Capital generation
The following table shows an
analysis of operating capital generation:
|
2023
|
2022
|
For the year ended 31
December
|
£m
|
£m
|
PruFund UK
|
207
|
180
|
- In-force
|
229
|
216
|
- New business
|
(22)
|
(36)
|
Platform and Advice
|
(29)
|
(25)
|
Other Wealth
|
(15)
|
-
|
Underlying capital generation
|
163
|
155
|
Model improvements
|
10
|
(9)
|
Assumption changes
|
(18)
|
-
|
Management actions and other (incl.
experience variances)
|
90
|
136
|
Other operating capital generation
|
82
|
127
|
Operating capital generation
|
245
|
282
|
Underlying capital generation from
Wealth increased in the year ended 31 December 2023 to £163
million (2022: £155 million).
The contribution from in-force
PruFund UK business increased to £229 million (2022: £216 million)
as a result of the increase in expected return given the rise in
yields over 2022, partially offset by a reduction in the value of
equity hedges.
New business strain from the PruFund
UK business has reduced to £22 million (2022: £36 million); the
increase in risk-free rates increased the value of future expected
shareholder transfers reducing the cost of writing new business.
Included in 2022 was the release of a £15 million provision for new
business expense overruns.
Platform and Advice and Other Wealth
business contributed negative capital generation, driven mainly by
operating losses in respect of Platform and Advice business and
some unit-linked business. In 2022, smaller losses in respect of
Other Wealth business were offset by a reduction in SCR, resulting
in nil net impact.
Other operating capital generation
of £82 million reflects a c.£180 million benefit from the update to
the strategic asset allocation of the With-Profits Fund, partly
offset by the reduction of the level of hedging in place in the
With-Profits Fund. Non-market experience variances contributed a
loss of £40 million compared to a gain of £61 million as at
31 December 2022.