Notes on the EEV basis results
1. Basis of preparation of results
The EEV basis results have been prepared in accordance with the EEV Principles issued by the CFO Forum of European Insurance
Companies in May 2004. Where appropriate the EEV basis results include the effects of adoption of International Financial Reporting
Standards (IFRS).
The EEV results for the Group are prepared for ‘covered business’, as defined by the EEV Principles. Covered business represents the
Group’s long-term insurance business for which the value of new and in-force contracts is attributable to shareholders. The EEV basis
results for the Group’s covered business are then combined with the IFRS basis results for the Group’s other operations.
The definition of long-term business operations is consistent with previous practice and comprises those contracts falling under the
definition of long-term insurance business for regulatory purposes together with, for US operations, contracts that are in substance the
same as guaranteed investment contracts (GICs), but do not fall within the technical definition. Under the EEV Principles, the results for
covered business incorporate the projected margins of attaching internal fund management.
With two principal exceptions, covered business comprises the Group’s long-term business operations. The principal exceptions are for
the closed Scottish Amicable Insurance Fund (SAIF) and for the presentational treatment of the financial position of two of the Group’s
defined benefit pension schemes. A very small amount of UK group pensions business is also not modelled for EEV reporting purposes.
SAIF is a ring-fenced sub-fund of the Prudential Assurance Company (PAC) long-term fund, established by a Court approved Scheme
of Arrangement in October 1997. SAIF is closed to new business and the assets and liabilities of the fund are wholly attributable to
the policyholders of the fund. In 2006, a bulk annuity arrangement between SAIF and Prudential Retirement Income Limited (PRIL), a
shareholder-owned subsidiary, took place as explained in the notes to the schedule of new business within this Interim Report. Reflecting
the altered economic interest for SAIF policyholders and Prudential shareholders, this arrangement represents a transfer from long-term
business of the Group that is not ‘covered’, to business that is ‘covered’ with consequential effect on the EEV basis results.
As regards the Group’s defined benefit pension schemes, the surplus or deficit attaching to the Prudential Staff Pension Scheme (PSPS)
and Scottish Amicable Pension scheme are excluded from the EEV value of UK operations and included in the total for Other operations.
The surplus and deficit amounts are partially attributable to the PAC with-profits fund and shareholder-backed long-term business and
partially to other parts of the Group. In addition to the IFRS surplus or deficit, the shareholders’ 10 per cent share of the PAC with-profits
sub-fund’s interest in the movement on the financial position of the schemes is recognised for EEV reporting purposes.
The directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles.
The EEV basis results for the 2007 and 2006 half years are unaudited. The 2006 full year results have been derived from the EEV basis
results supplement to the Company’s statutory accounts for 2006. The supplement included an unqualified audit report from the auditors.
