SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of June, 2005
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation of registrant's name into English)
LAURENCE POUNTNEY HILL,
LONDON, EC4R 0HH, ENGLAND
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-
Enclosure: Accounting Standard
EMBARGO: 07.00 hours, Thursday 2 June 2005
Prudential plc
Economic Capital, Developments in Regulatory and Financial Reporting, and
Restatement of 2004 Full Year Results under International Financial Reporting
Standards and European Embedded Value
Prudential plc publishes today selected 2004 financial information restated
under European Embedded Value (EEV) and International Financial Reporting
Standards (IFRS). The Group's underlying capital strength, cashflow and dividend
policy are not affected by the adoption of either EEV or IFRS.
In addition, we are also explaining the Group's regulatory capital position
under the Financial Groups Directive (FGD) and the Group's economic capital
position as at 31 December 2004.
Prudential's Group Finance Director, Philip Broadley, said: "We are publishing
today a comprehensive picture of the Group's economic and regulatory capital
positions as at 31 December 2004 and the impact of adopting IFRS and EEV on our
2004 financial results. We believe that the presentation of this information
will enable investors to obtain a better understanding of the Group's capital
position and profitability."
European Embedded Value
Prudential believes that the EEV methodology represents an improvement over
existing embedded value reporting methods used across Europe and supports its
introduction. Prudential re-iterates its belief that embedded value reporting
provides investors with a truer measure of the underlying profitability of the
Group's long-term businesses and is a valuable supplement to statutory accounts.
As a signatory to the European CFO (Chief Financial Officers) Forum on European
Embedded Value (EEV) principles, Prudential will adopt EEV methodology for its
2005 year-end results. This will replace the Achieved Profit basis, the current
supplementary basis of reporting. The adoption of the EEV methodology by
Prudential results in a 1% reduction in the Group's total shareholders' funds to
GBP8.5bn and an uplift of 8% in the value of new business for the year ending 31
December 2004 to GBP741m.
The main impact on the results arises from the effect of changes to the assumed
level of locked-in capital allocated to each business, the adoption of
product-specific risk discount rates, and an explicit valuation of the time
value of options and guarantees. The EEV results also include the value of
future profits from service companies (including fund management operations)
that support the Group's long-term businesses and the UK defined benefit
pensions scheme deficit.
International Financial Reporting Standards
From 1 January 2005, all listed European Groups must prepare their financial
statements in accordance with EU approved International Financial Reporting
Standards (IFRS). The IFRS basis replaces the current Modified Statutory Basis.
The Financial Review section of Prudential's 2004 Annual Report gave extensive
explanation of the likely changes, which are confirmed in this announcement.
Restatement under IFRS Phase 1 gives rise to a GBP15m reduction in operating
profit for 2004 and an increase in shareholders funds of GBP470m.
In conjunction with the adoption of IFRS, Prudential has reviewed all its
accounting policies and is changing the method used to determine longer term
returns included within operating profits. This change, which is not required
under IFRS, increases operating profit by GBP91m, offset by a corresponding
reduction in short-term fluctuations in investment returns, leaving total profit
unchanged.
Groups Directive
Under the Insurance Groups Directive (IGD), introduced in January 2001, Group
solvency is calculated by aggregating the surplus capital held in the regulated
subsidiaries, then deducting group borrowings, other than those subordinated
debt issues that qualify as capital.
The Financial Groups Directive (FGD), which has applied to Prudential since 1
January 2005, involves a similar calculation of Group solvency as for the IGD,
but the solvency test under the FGD is a continuous requirement and a regulatory
obligation. Prudential has put in place a regulatory capital projection model
for all business units to ensure that the Group meets, at all times, the
continuous solvency requirements.
As at 31 December 2004, Prudential had a surplus of GBP845m on the IGD basis.
Economic Capital
Prudential has determined its economic capital requirement as the amount of
capital required to ensure that the Group can meet its existing contractual and
discretionary policyholder obligations and remain solvent at all times over a
25-year time horizon, within a strict target solvency level. Economic capital
methodology is different from the regulatory capital model used under IGD and
FGD in that it allows the Group to take account of its geographic spread and its
ability to diversify its risks across its businesses.
Prudential's economic capital model, which it has been developing over the past
three years, is integral to its capital and financial management at both Group
and business unit level. It provides Prudential with a measure of the impact of
taking on different risks in different parts of the world, both in terms of the
extreme events that have the potential to deplete its capital base, and the more
day-to-day volatility to which it is exposed.
As at 31 December 2004, Prudential had available capital of GBP3.4bn. This
represents a surplus of GBP1.6bn over required economic capital of GBP1.8bn.
Further details on each of these developments can be found on our website
www.prudential.co.uk
Enquiries to:
Rebecca Burrows, Group Communications Director 020 7548 3537
Media Investors/Analysts
Clare Staley 020 7548 3719 Andrew Crossley 020 7548 3166
Joanne Davidson 020 7548 3708 James Matthews 020 7548 2007
Mike Kempster 020 7548 3738
Brunswick Group
Kate Holgate 020 7404 5959
1. A presentation to analysts and investors will take place at 9:30am at
Governor's House, Laurence Pountney Hill, London, EC4R 0HH. A webcast of the
presentation and the presentation slides will be available on the Group's
website, www.prudential.co.uk.
2. An interview with Philip Broadley (in video/audio/text) will be available on
www.cantos.com and www.prudential.co.uk from 7.00am on 2 June 2005.
Prudential plc, a company incorporated and with its principal place of business
in the United Kingdom, and its affiliated companies constitute one of the
world's leading financial services groups. It provides insurance and financial
services directly and through its subsidiaries and affiliates throughout the
world. It has been in existence for over 150 years and has GBP187bn in assets
under management, as at 31 December 2004. Prudential plc is not affiliated in
any manner with Prudential Financial, Inc, a company whose principal place of
business is in the United States of America.
Forward-Looking Statements
This statement may contain certain "forward-looking statements" with respect to
certain of Prudential's plans and its current goals and expectations relating to
its future financial condition, performance, results, strategy and objectives.
Statements containing the words "believes", "intends", "expects", "plans",
"seeks" and "anticipates", and words of similar meaning, are forward-looking. By
their nature, all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances which are beyond
Prudential's control including among other things, UK domestic and global
economic and business conditions, market related risks such as fluctuations in
interest rates and exchange rates, and the performance of financial markets
generally; the policies and actions of regulatory authorities, the impact of
competition, inflation, and deflation; experience in particular with regard to
mortality and morbidity trends, lapse rates and policy renewal rates; the
timing, impact and other uncertainties of future acquisitions or combinations
within relevant industries; and the impact of changes in capital, solvency or
accounting standards, and tax and other legislation and regulations in the
jurisdictions in which Prudential and its affiliates operate. This may for
example result in changes to assumptions used for determining results of
operations or re-estimations of reserves for future policy benefits. As a
result, Prudential's actual future financial condition, performance and results
may differ materially from the plans, goals, and expectations set forth in
Prudential's forward-looking statements. Prudential undertakes no obligation to
update the forward-looking statements contained in this statement or any other
forward-looking statements it may make.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date 2 June, 2005
PRUDENTIAL PUBLIC LIMITED COMPANY
By: /s/ Clare Staley
Clare Staley
Head of Group Media Relations