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Prudential PensionsLimited

Incorporated in England and Wales Registered No. 992726Abbey Gardens, Kings Road, Reading RG1 3AH

Registered Office 142 Holborn Bars, London EC1 2NH

Annual FSA Insurance Returns for the year ended31st December 1998

Accounts and statements pursuant to the Insurance CompaniesAct 1982 and the Insurance Companies (Accounts and

Statements) Regulations 1996 (as amended)

(Schedules 1 , 3 , 4 , 6 )

Returns under Insurance Companies Legislation

Prudential Pensions Limited

Year ended 31st December 1998

Contents

Schedule 1Form 9

Form 10Form 13Form 14Form 15Form 16

Schedule 3Form 40Form 41Form 42Form 43Form 44Form 45

Schedule 4

Form 46Form 47Form 48

Form 49

Form 51

Form 53Form 55

Form 57Form 58Form 60

Schedule 6

Statement of solvencyCovering sheet to Form 9Statement of net assetsAnalysis of admissible assetsLong term business liabilities and marginsLiabilities (other than long term business)Profit and loss account (non-technical account)

Statement of Information on Appointed Actuary

Long term business: Revenue accountLong term business: Analysis of premiums and claimsLong term business: Analysis of claimsLong term business: Summarised balance sheet for intemallinked fundsLong term business: Aggregate revenue account for intemallinked fundsLong term business: Supplementary information for internal linked funds

Valuation ReportLong term business: Summary of changes in long term businessLong term business: Analysis of new ordinary long term businessLong term business: Expected income from admissible assets not held to match liabilities inrespect of linked benefitsLong term business: Analysis of admissible fixed interest and variable interest and variableyield securities not held to match liabilities in respect of linked benefitsLong term business: Valuation summary of non-linked contracts (other than accumulatingwith-profits policies)Long term business: Valuation summary of property linked contractsLong term business: Analysis of units in internal funds and direct holdings of assetsmatching liabilities in respect of property linked benefitsLong term business: Matching rectangleLong term business: Valuation result and distribution of surplusRequired Minimum Margin

Notes to the returnRegulation 23 StatementRegulation 24 Statement

Directors' CertificateAppointed Actuary's CertificateAuditors' Report

Page

1234

101112

13

151617182122

24373941

42

43

4446

525556

576466

677071

I

R9 992726I

GLI

31 /12I

1998I

£000

As at the end of As at the end of Sourcethis financial the previous

year year cEE Q)~1 2 ~c 0't\: :.::i U

Required minimum margin for general business12 12 49

Excess (deficien?;> of available assets over the required13minimum margin 11-12)

Long tenn business admissible assets21 3238209 2687092 10 11

Other than long tenn business assets allocated towards long22 8842 4727 See instructionsterm business required minimum margin

1 and 3Total mathematical reserves (after distribution of surplus)

23 3214198 2654744 See instruction 4

Other insurance and non-insurance liabimies24 19851 32348 See instruction 5

Available assets for long term business required minimum

251 13002 4727margin (21 +22-23-24)

rFuture profrts

31

f

Zillmerising32 I

I

Hidden reserves33

Required minimum margin for long term business41 3599 3191 60 69

I Explicit required minimum margin (1/6 x 41, or minimum

421 600 546i guarantee fund if greater)

Excess (deficiency) of available assets over explicit required43 12402 4181

minimum margin (25-42)

Excess (deficiency) of available assets and implicit items over44 9403 1536

the required minimum margin (34-41)

Quantifiable contingent liabilities in respect of other than long tenn business

51

I

See instruction 6as shown in a supplementary note to Form 15

Quantifiable contingent liabilities in respect of long term business as shown52

I

See instruction 6in a supplementary note to Form 14

Returns under Insurance Companies LegislationForm 9

Statement of solvency

Name of company Prudential Pensions Limited

Global business

Financial year ended 31st December 1998Companyregistrationnumber GUUKlCM

Period endedday month year Units

GENERAL BUSINESSAvailable assets

Other than long tenn business assets allocated towardsgeneral business required minimum margin 11 See instructions

1 and 2

Required minimum margin

LONG TERM BUSINESSAvailable assets

Implicit Items admitted under regulation 23(5) of theInsurance Companies Regulations 1994

Total of available assets and implicit items (25+31+32+33)34 13002 4727

Required minimum margin

CONTINGENT LIABILITIES


Covering sheet to Form 9


Global business

Financial year ended 31st December 1998

~..~.~...................

g~..................

............................................................

London, 18 June 1999

Frank Schinella

Adam Rutherford

2

Form 9

Director

Secretary

R10I

992726I

GLI

31I

12I

1998I

£000

As at the end of As at the end of Sourcethis financial the previous year

c:yearE E

1 2 d> ::>~c: 0::J U

Long term business -admissible assets 11 3238209 2687092 13 . 89 1Long term business - liabilities and margins 12 3238209 2687092 14 . 59 1

Other than Long term business -admissible assets 21 11002 7682 13 . 89 1Other than Long term business - liabilities 22 2160 2955 15 . 69 1Net admissible assets (21-22) 23 8842 4727

Unpaid amounts (includingOther assets allowed to share premium) on partly paid 24be taken into account in sharescovering the required Supplementary contributionsminimum margin for a mutual carrying on 25general business

Liabilities allowed to be Subordinated loan capital 26left out of account incovering the required

Cumulative preference shareI

minimum margin 27capitalI

Available assets (23 to 27) 29 8842I

4727

I Paid up share capital (other than cumulative51 6000

I

1000preference share capital)

Amounts included in lines 24 to 27 above 52I

IAmounts representing the balance of net assets 56 2842

I3727

Total (51 to 56) and equal to line 29 above 59 8842I

4727

I

Balance brought forward at the beginning of the61 37271 5289 10 . 56 2

II

financial year

IRetained profit/(Ioss) for the financial year 62

I

(712)I

(1562) 16 . 59 1Movement in asset valuation differences 63 (173) I See instruction 2

II Oecrease/(increase) in the provision for adverse

64I See instruction 3

i changesI

Other movements (particulars to be specified by Iway of supplementary note) 65

IBalance carried forward at the end of the financial year69

I

28421 3727(61 to 65)


Statement of net assets


Global business

Financial year ended 31st December 1998Companyregistrationnumber GUUK/CM


Represented by:

Movement of balance of net assets for solvencypurposes -as per line 56

3

IR13

\

992726I

GLI

31 12\

1998I

£000I

1 I

As at the end of As at the end ofthis financial the previous

Investmentsyear year

1 2

'..' -- 11Land and buildings

UK insuranceShares

21

dependants 22Debt securities issued by, and loans to, dependants

Other insuranceShares

23

dependants 24Debt securities issued by, and loans to, dependants

Investments in Shares25

group undertakings Non-insuranceand participating dependants

\

Debt securities issued by, and loans to, dependantsinterests

I

26

i Shares27

iI

Other group Debt securities issued by, and loans to, group undertakings 28I

undertakings andparticipating

Iinterests Participating interests29

Debt securities issued by, and loans to, undertakings in 30 \which the company has a participating interest

I

Total sheet 1 (11 to 30)

39\


(Sheet 1)

Analysis of admissible assets


Global business

Financial year ended 31 st December 1998

Category of assets Total other than long term business assets

Companyregistrationnumber GUUKlCM

Period ended

day month yearUnits

Categoryofassets

4

I

R13I

992726I

GLI

31 I 12I

1998I

£000I

1

Investments (continued) As at the end of As at the end ofDeposits with ceding undertakings this financial the previousAssets held to cover linked liabilities year year

1 2

Equity shares 41

Other shares and other variable yield saourities 42

Holdings in collective investment schemes 43

Rights under derivative contracts 44

Approved securities 45Fixed interest

Debt securities and Other 46other fixed incomesecur~ies Approved saourities 47

Variable interest

Other 48Other financialinvestments Participation in investment pools 49

Loans secured by mortgages 50

Loans to public or local author~ies and nationalised51industries or undertakings

Other loansLoans secured by policies of insurance issued by the

521company

Other 53

Depos~s with Wrthdrawal subject to a time restriction of one month or less 54 10500 7103approved creditinstitutions andapproved financial

Wrthdrawal subject to a time restriction of more than oneinstitutions55month

Other 56

Depos~s with ceding undertakings571

Index linked 581Assets held to match linked liabil~ies I

Property linked591

Provision for unearned premiums 60I

Claims outstanding 61Reinsurers' share of technical provisions

Provision for unexpired risks 62 III

Other 63

Total sheet 2 (41 to 63) 691 10500 7103

Returns under Insurance Companies Legislation Form 13(Sheet 2)



Global business


Category of assets Total other than long term business assets


Period endedddY lIIuuth yt:dl Units

Categoryofassets

5

I

R13I

992726I

GLI

31 12I

1998I

£000I

1

As at the end of As at the end of

Debtorsthis financial the previous

Other assetsyear year

1 2

Debtors arising out Policyholders 71

of direct insuranceoperations Intermediaries 72

Salvage and subrogation recoveries 73

Debtors arising outDue from ceding insurers and intermediaries under reinsurance business 74

of reinsuranceaccepted

operations Due from reinsurers and intermediaries under reinsurance contracts ceded 75

Due fromDue in 12 months or less after the end of the financial year 76

dependantsDue more than 12 months after the end of the financial year 77

Other debtorsDue in 12 months or less after the end of the financial year 78 325

OtherDue more than 12 months after the end of the financial year 79

ITangible assets 80 I!

Deposits not subject to time restriction on withdrawal, with approved credK 81I

174I

504Cash at bank and institutions and approved financial instKutions and local authorities

in hand I

ICash in hand 82 I

I

Other assets (particulars to be specified by way of supplementary note) 83 iI

IAccrued interest and rent 841 3

I

75

Prepayments andDeferred acquisition costs 85 i

accrued income I

!Other prepayments and accrued income 861

Deductions (under regulations 57(2)(b) and 57(3) of the Insurance Companies Regulations 87 i1994) from the aggregate value of assets

I

Total sheet 3 (71 to 86 less 87) 881 502 579

[Grand total of admissible assets (39+69+88) 891 11002I

7682

I!

Total admissible assets (as per line 89 above)91 i 11002

I

7682

Total assets in eXcess of the admissibility limits of Schedule 12 of the Insurance Companies 92! 173Regulations 1994, (as valued in accordance with those Regulations before applying admissibilKy limKs)

Solvency margin deduction for insurance dependants 93 iII

IOther differences in the valuation of assets (other than for assets not valued above)

94 iI

Assets of a type not valued above, (as valued in accordance with the shareholder accounts rules)95 i

!

Total assets determined in accordance with the shareholder accounts rules (91 to 95) 991 11175 7682

Returns undN Insurance Companies Legislation Form 13(Sheet 3)



Global business


Category of assets Total other than long term business assetsCompanyregistrationnumber GUUKlCM


Categoryofassets

Reconciliation to asset values determined in accordance with theshareholder accounts rules

Amounts included in line 89 attributable to debts due from related companies, other than those undercontracts of insurance or reinsurance

1001!

319I

6

IR13

I

992726I

GLI

31 12I

1998I

£000I

11

As at the end of As at the end ofthis financial the previousInvestments

year year1 2

land and buildings11

UK insurance Shares 21dependants

Debt securfties issued by, and loans to, dependants 22

Other insurance Shares 23dependants

Debt securfties issued by, and loans to, dependants 24Investments in

Shares 25group undertakingsNon-insuranceand participating dependants I

I

inlerests

IDebt securfties issued by, and loans to, dependants 26

Shares 27

Other groupDebt securfties issued by, and loans to, group undertakings 28

I

undertakings andparticipatinginterests Participating inlerests 29

IDebt securfties issued by, and loans to, undertakings in

30which the company has a participating interest

Total sheet 1 (11 to 30)39


(Sheet 1)Analysis of admissible assets


Global business


Category of assets Ordinary Long Term

Companyregistrationnumber GLJUKlCM

Period ended

day month year Units

Categoryofassets

7

I

R13\

992726\

GL\

31 \12\ 1998\

£000\

11I

Investments (continued)


Deposits with ceding undertakings

this financial the previous

Assets held to cover linked liabilities

year year1 2

Equ~y shares41

Other shares and other variable yield securities42

Holdings in collective investment schemes43

Rights under derivative contracts44

Approved securities 45 2179 1767

Fixed interest

Debt secur~ies andOther 46

other fIXed incomesecur~ies Approved securities 47

Variable interestOther 48

Other financialinvestments Participation in investment pools

49

Loans secured by mortgages50

I

I \

Loans to public or local authorities and nationalised 51Iindustries or undertakings

Other loansLoans secured by policies of insurance issued by the 52

Icompany

IOther

53

Depos~s with Wrthdrawal subject to a time restriction of one month or less54 18000 10397

approved credit

Iinstitutions andapproved financial 55

\

institutions Wrthdrawal subject to a time restriction of more than onemonth

Other56

I

Deposrts with ceding undertakings57

Index linked58

I

Assets held to match linked liabilrties

I

Property linked59 3217314

I 2669448I

I

Provision for uneamed premiums60 I

Claims outstanding61

I

Reinsurers' share of technical provisionsProvision for unexpired risks

62

Other63

\

Total sheet 2 (41 to 63)69 3237493 I 2681612

!



Form 13(Sheet 2)


Global business


Category of assets Ordinary Long TermCompanyregistrationnumber GUUKlCM

Period endedday ",u"lh y"a, Units

Categoryofassets

8

I

R13I

992726I

GLI

31I

12I

1998I

£000

I

11


Debtors this financial the previous

Other assets year year1 2

Debtors arising out Policyholders 71 290of direct insuranceoperations Intermediaries 72

Salvage and subrogation recoveries 73

Debtors arising outDue from ceding insurers and intermediaries under reinsurance business 74 4324

of reinsuranceaccepted

operations...

75Due from reinsurers and intermediaries under reinsurance contracts ceded

Due in 12 months or less after the end of the financial year 76Due fromdependants

Due more than 12 months after the end of the financial year 77Other debtors ,

Due in 12 months or less after the end of the financial year 78 747Other

Due more than 12 months after the end of the financial year 79

Tangible assets 80

Depos~s not subject to time restriction on withdrawal, with approved cred~ 81 693Cash at bank and institutions and approved financial inst~utions and local authoritiesin hand

821Cash in hand

Other assets (particulars to be specified by way of supplementary note) 83I

Accrued interest and rent 84\ 23I

119I

Prepayments andDeferred acquis~ion costs 85 iaccrued income

I

Other prepayments and accrued income 861I

Deductions (under regulations 57(2)(b) and 57(3) of the Insurance Companies Regulations8711994) from the aggregate value of assets

Total sheet 3 (71 to 86 less 87) 881 716 5480

Grand total of admissible assets (39+69+88) 89 i 3238209I

2687092i

Total admissible assets (as per line 89 above) 911 3238209 2687092

Total assets in excess of the admissibility limits of Schedule 12 of the Insurance Companies921Regulations 1994, (as valued in accordance with those Regulations before applying admissibil~y lim~s)

I Solvency margin deduction for insurance dependants 93i

:Other differences in the valuation of assets (other than for assets not valued above) 941

I

Assets of a type not valued above, (as valued in accordance with the shareholder accounts rules) 95: I

I3238209 2687092Total assets determined in accordance with the shareholder accounts rules (91 to 95) 991

1

Returns under Insurance Companies Legislation Form 13(Sheet 3)


Name of company Prudential Pensions limited

Global business


Category of assets Ordinary Long TermCompanyregistrationnumber GUUKlCM

Period endedday momh year Units

Categoryofassets

Reconciliation to asset values determined in accordance with theshareholder accounts rules

Amounts included in line 89 attributable to debts due from related companies, other than those undercontracts of insurance or reinsurance 1001

!557

9

I

R14I

992726I

GLI

31 112I

19981

£0001

11

As at the end of As at the end of Sourcethis financial the previous

year year1 2

Mathematical reserves, after distributionof surplus 11 3214198 2654744 See Instruction2

Cash bonuses which had not been paid to policyholderspriorto end of 12 See Instruction3the financialyear

Balance of surplus/(valuation deficit) 13 4160 See Instruction4

Long term business fund carried forward (11 to 13) 14 3218358 2654744 See Instruction5

Claims outstanding whichGross amount 15 6289 5723

had fallen due for paymentReinsurers' share 16before the end of the

financial yearNet (15-16) 17 6289 5723

Provisions for Taxation 21other risks andcharges

Other 22

23I

I

Deposits received from reinsurers

I ArisingoutofDirect business 31 3197

I

insurance Reinsurance accepted 32 4094operations

I

Reinsurance ceded 33I

Creditors and Secured 34Iother Debenture

liabilities loans

I

UnsecuredI

35 Ii

Amounts owed to credit institutions 36I

8042

Taxation 37I I

IOther creditors

I

Other 38 6271I

18404

I

Accruals and deferred income 39I

179I

I

Provision for adverse changes (calculated in accordance with regulation 41I

61 of the Insurance Companies Regulations 1994)

ITotal other insurance and non-insurance liabilities (17 to 41) 49 19851I

32348

Excess of the value of net admissible assets 51 I See Instruction 6I

Total liabilities and margins 59 3238209I

2687092

Amounts included in line 59 attributable to liabilities to related companies, 61 278 I 710other than those under contracts or insurance or reinsurance I

Amounts included in line 59 attributable to liabilities in respect of property 62 3211321I 2652253

linked benefrts !

Returns under Insurance Companies Legislation Form 14

Long term business liabilities and margins


Global business





Categoryofassets

Amount of any additional mathematical reserves included in line 51 whichhave been taken into account in the appointed actuary's certificate

See Instruction 7

10

I

R15I

992726I

GLI

31I

12I

1998I

£000

As at the end of As at the end ofthis financial the previous

year year1 2

Provision for unearned premiums 11

Claims outstanding 12

Provision for unexpired risks 13Technicalprovisions

Credit business 14(grossamount) Eetualisation provisions

Other than credit business 15.u

Other 16

Total (11 to 16) 19

Provisions for Taxation 21other risksand charges Other 22

Deposits received from reinsurers 31I

IDirect business 41 I

I

Arising out of insurance operations Reinsurance accepted 42

Reinsurance ceded 43I

Secured 44 IDebentureloans i I

Creditors Unsecured 45!

Amounts owed to credit institutions 46 !ii

Taxation 47 2160I

2955

Other creditors Recommended dividend 48II

IOther 49 II

I

Accrualsand deferredincome 51 iI

ITotal (19 to 51) 59 2160 i 2955I

I Provisionfor adversechanges(calculatedin accordancewith regulation61 of the 61 II Insurance Companies Regulations 1994) i,

I!

Cumulativepreferencesharecapital 62

I

Subordinatedloan capital 63 iI

Total (59 to 63) 69 2160 I 2955I


Liabilities (other than long term business)

Name of company Prudential Pensions limited

Global business

Financial year ended 31st December 1998Companyregistrationnumber GUUKlCM


Amounts included in line 69 attributable to liabilities to related companies, other thanthose under contracts of insurance or reinsurance

11

R16I

992726I

GLI

31I

12I

1998I

£000

This financial Previous Sourceyear year c

EE

1 2(!) :J~c "'5::J U

Transfer (to)/from the From Form 20 11 20 . 59

general business technicalaccount Equalisation provisions 12

Transfer from the long term business revenue account 13 (163) 40 . 26

Income 14 400 429

Investment incomeValue re-adjustments on 15investments

Gains on the realisation of 16investments

Investment management charges, 17including interest

Investment 'Value re-adjustments on

I

charges investments 18I

I

Loss on the realisation of I

investments19

I

I

I Allocated investment return transferred to the general 20I

20 . 51

I

business technical account

Other income and charges (particulars to be specified by 21way of supplementary note)

Profit or loss on ordinary activities before taxI

I (11+12+13+14+15+16-17 -18-19-20+21) 29 237 429 Ii

Tax on profit or loss on ordinary activities 31 949\ 1991!

Profit or loss on ordinary activities after tax (29-31) 39 (712) (1562) I

i

Extraordinaryprofit or loss (particularsto be specifiedby 41 I !I

I way of supplementarynote) I I

Tax on extraordinary profit or loss 42 I

i

Other taxes not shown under the preceding items 43iI

I

Profit or loss for the financial year (39+41-(42+43)) 49 (712)I

(1562)I

I

Dividends (paid and proposed) 51

Profit or loss retained for the financial year (49-51) 59 (712)I

(1562)I


Profit and loss account (non-technical account)

Form 16


Global business



Period ended

day month year Units

12

Returns under the Insurance Companies .-\ct 1982 (as amended)

PRUDENTIAL PENSIONS LIMITED

Statement of information on the Appoimed Actuary required by Regulation 31 of theInsurance Companies (Accounts and Statements) Regulations 1996.

The following details relate to D Jebson who became the Appointed Actuary witheffect from 1 August 1998.

In paragraphs l(a) - l(d) below, references to "the year" are references to the yearended 31 December 1998.

1(a) The Appointed Actuary participates in the Prudential Savings Related ShareOption Scheme. At the beginning of the year he held options in respect of

. 4,930 shares. During the year he exercisedno options and was not grantedanynew options. Therefore, at the end of the year he held options over 4,930shares.

The Appointed Actuary owned 21,836 shares, in Prudential Corporation plc, atthe beginning of the year, and 21,836 shares at the end of the year.

l(b) During the year the Appointed .-\ctuary and his wife held the followinginsurance policies issued by The Prudential Assurance Company Ltd.

endowment assurances \\ith attaching term assurance, with a combinedsum assured of £41,609 (£13,129 of which was in respect of the withprofit endowment assurances);

one home insurance policy covering buildings and contents.

I (c)(i) The remuneration and value of other benefits (other than pension schemecontributions) under the Actuary.s contract of service with The PrudentialAssurance Company Ltd, amoumed to £74,194 for the year.

(ii) Not applicable.

l(d) The Actuary is a member of the Company's pension scheme.

2. The Company made a request to the Appointed Actuary to furnish particularsspecified in Regulation 31(1) of the Insurance Companies (Accounts andStatements) Regulations 1996. In response to that request the Actuaryprovided the information set out in paragraphs 1(a) to (d) above.

13

Returns under the Insurance Companies Act 1982 (as amended)


Statement of information on the Appointed Actuary required by Regulation 31 of theInsurance Companies (Accounts and Statements) Regulations 1996

The following details relate to P S K Hawes who ceased to be the Appointed Actuaryon 31 July 1998.

In paragraphs 1(a)-l (d) below, references to "the year" are references to the yearended 31 December 1998.

1(a) The Appointed Actuary participates in the Prudential Savings Related Share. Option Scheme. At the beginningof the year he held options in respectof13,236 shares. During the year he exercised options over 2,884 shares. At theend of the year he held options over 10,352 shares.

The Appointed Actuary and his wife owned 9,262 shares, in PrudentialCorporation plc, at the beginning of the year, and 11,541 shares at the end ofthe year.

1(b) During the year, the Appointed Actuary and his wife held the followinginsurance policies issued by The Prudential Assurance Company Ltd.

- endowment assurances with attaching term assurance, with a combined sumassured of £120,000 (£51,679 of which was in respect of the with profitendowment assurances.

- one home insurance policy covering buildings and contents

- one car insurance policy

l(c) (i) The remuneration and value of other benefits (other than pension schemecontributions) under the Actuary's contract of service with The PrudentialAssurance Company Ltd, amounted to £80,135 for the year

(ii) Not applicable

led) The Actuary is a member of the Company's pension scheme.

2. The Company made a request to the Appointed Actuary to furnish particularsspecified in Regulation 31(1) of the Insurance Companies (Accounts and Statements)Regulations 1996. In response to that request, the Actuary provided the informationset out in paragraphs 1(a) to 1(d) above.

14

IR40

I

992726I

GLI

31 /12 /1998 £000I

OBI

1I

0

The financial Previous yearItems to be shown net of reinsurance ceded year

1 2

Earned premiums11 427616 335709

Investment income receivable before deduction of tax12 125215 115255

Increase (decrease) in the value of non-linked assets brought into account 13 352 212

Increase (decrease) in the value of linked assets14 208919 213588

Other income 15

Total income (11 to 15)19 762102 664764

IClaims incurred

21 188101 184258

Expenses payable22 9782 9302

Interest payable before deduction of tax23

I

Taxation24 768/ 4810

Other expenditure25/

I

261i

Transferto (from) non technical account(163)

I

I

Total expenditure(21 to 26)29/ 198488

I

198370

!

I

Increase(decrease)in fund in financialyear (19-29)39 563614 466394

I

Fund broughtforward49 26547441 2188350

Fund carried forward (39+49)59 3218358

I

2654744


Long term business: Revenue account

Form 40


Global business

Ordinary business


Name and number of fund Ordinary Long Term 1


Period endedday month year Units 08/18

No of No offundI pa rt ofSummary Fund

15

r R41 T 992726I

GLI

31 12 \ 1998I

£000\

OB 1\

0I

Gross Payable to or Net ofrecoverable from reinsurance

reinsurers (1-2)1 2 3

Ufe assurance and Single premium 11

general annuitycontracts Regular premium 12

n

Pension businessSingle premium 13 426280 671 425609

contractsRegular premium 14 2007 2007

Pennanent healthSingle premium 15

Earnedcontracts

\

premiums inRegular premium 16

the financial Single premium 17year

Other contracts

I

Regular premium 18

Single premium 19 426280I

671 425609

Total premiumsRegular premium 29 2007

\\

2007

Total premiums at UK contracts 31 428287\

671 I 427616

lines 19 and 29attributable to Overseas contracts 32

Commission payable in connection with 41 60 60

acquisition of business I

Other commission payable42 164 I 164

IManagement expenses in connection with 43 110

\

110

Expensesacquisition of business

payable in Management expenses in connection with 8885\the financial maintenance of business

448885

yearI

Other management expenses 45 563 563

Total expenses (41 to 45) 49 9782I

9782

Total expenses at\

UK contracts 51 9782\

9782

line 49 attributableto Overseas contracts 52

\

Returns under Insurance Companies LegislationFonn 41

Long term business: Analysis of premiums and expenses


Global business

Ordinary business



Companyregistrationnumber GUUK/CM

Period ended

day month yearUnits 06/16

No of No offundi part ofSummary Fund

16

IR42

I

992726I

GLI

31 12I

1998I

£000I

OB1

1 0

~ross KecoveraCle Net offrom reinsurers reinsuranceClaims incurred in the financial year (1-2)

1 2 3

On death 11

By way of lump sums on maturity 12

By way of annuity payments 13Lifeassurance By way of payments arising from other

14and annuity insured eventscontracts

On surrender or partial surrender 15

Total life assurance and annuity19claims (11 to 15)

I

On death 21 2249 2249

By way of lump sums on vesting221 3395 3395

Pensionbusiness By way of vested annuity payments 23 18364 7264 11100contracts

On surrender or partial surrender 24 171357I

171357

Total pension business claims (21 to 24) 29 195365 7264 188101

By way of lump sums 31IPermanent

health By way of periodical payments 32 Icontracts !

Total permanent health claims (31+32) 39I

By way of lump sums I41 I

!Other By way of periodical payments 42 'contracts I

II

Total claims (41+42) 49 ITotal claims (19+29+39+49) 59 195365 7264 188101

Total claims at line UK contracts 61 195365 7264 18810159 attributable to I

Overseas contracts 62 I

I


Long term business: Analysis of claims

Form 42


Global business

Ordinary business




Period endedday month year Units 08/18


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I

R44I

992726I

GLI

31 112I

1998I

£000

I

OBI

1I

0

Value of total creation of units 11 427715

Investment income attributable to the funds before deduction of tax 12 124500

Increase (decrease) in the value of investments in the financial year 13 208919

Other income 14

Total income (11 to 14) 19 761134

Value of total cancellation of units 21 187537

Charges for management 22 9528

Charges in respect of tax on investment income 23 I 768iI

Taxation on realised capital gains24/

Increase(decrease)in amountset aside for tax on capitalgainsnot yet realised 25,I

Other expenditure 26 4233

Total expenditure (21 to 26)291 202066

I

391I

Increase(decrease)in funds in financialyear (19-29)559068

Internal linked funds brought forward491 2652253

Internal linked funds carried forward (39+49) 59 I 3211321i I

Returns under Insurance Companies Legislation Form 44Long term business: Aggregate revenue account for internal linked funds


Global business

Ordinary business



Companyregistrationnumber GUUKlCM day month year Units OBIIB


Period ended

21

I

R45I

992726\

GL1

31112I

1998I

£000I

OB\

1\

0

Amount of Percentage Percentage Liquidity Valuation

taxable provision for provision for percentage price per unit

unrealised tax on tax on

Name of fund capital gain unrealised realisedor loss capital gains capital gains

1 2 3 4 5 6

Cash69.94 46.3528

Corporate bond1.62 12.0103

Discretionary1.51 444.3592

Equity0.63 570.0867

UK Equity (passive)0.77 10.4275

Europe3.16 14.1714

Fixed interest I

80.30 218.0156

GElI

I I 21.28 6.4933I

Global equity I

I 2.26 24.6206I

Index linked \\

99.19 155.0013

Index linked (passive) \

II

99.20 12.2689I

International(0.67) 58.4820

I

IInternational A I2.90 19.9936

I

International bond T0.09 25.0940

Japan I

3.06I

6.2407

Long term Gilt I\

99.31 19.7091

I

North America \I I

1.87 12.4834

Pacific basin I \

I 3.09I

7.0013

I

PropertyI

6.34 208.5544

MPP cash I(0.01) 1.5512

I

MPP discretionary I

(0.01) 2.3556

MPP equity \

0.00 2.7200

MPP fixed interest II

0.00I

2.3664


Long term business: Supplementary information for internal linked funds


Global business

Ordinary business



GUUK/CMPeriod ended

day month year

No offund

No ofpart ofFund

Companyregistrationnumber Units OB/IB

22

I

R45I

992726I

GLI

31 112I

1998I

£000I

OBI

1I

0

Amount of Percentage Percentage Liquidity Valuationtaxable provision for provision for percentage price per unit

unrealised tax on tax onName of fund capital gain unrealised realised

or loss capital gains capital gains

1 2 3 4 5 6

MPP global equity 0.00 2.4351

MPP index linked 0.00 2.1292

MPP intemational 0.00 1.8669

MPP intemational bond 0.00 1.7048

MPP long term Gilt (0.01) 1.6553

MPP property 0.00 1.8982

MPP series 11cash (0.24) 1.0354

MPP series 11discretionary (0.21) 0.9331

MPP series 11equity (0.15) 0.8775

MPP series 11fixed interestI (0.38) 1.1019

MPP series 11index linked I (0.38)I

1.1296I

MPP series I1 international bondI

(0.19) 1.0736

MPP series 11property (0.21) I 1.0013I

Prulink cash 0.00 4.0964

Prulink managed 0.00 9.6948

I

I

II i

I I

I

I I


Long term business: Supplementary information for internal linked funds


Global business

Ordinary business




Period endedday month year

No offund

No ofpart ofFundUnits 08118

23

Prudential Pensions Limited

SCHEDULE 4

Valuation Report as at 31 December 1998

1. The investigation relates to 31 December 1998.

2. The previous investigation related to 31 December 1997.

3. The valuation of the liabilities of long term business shown in this report conforms withRegulation 64 of the Insurance Companies Regulations 1994 (as amended).

4. Non-linked business arises from annuities purchased under the option available in thelinked contracts; see Form 51.

5. (1) Categories of in force linked business are as follows:

A. The Group Investment Linked Plan (GILP)

(a) The Group Investment Linked Plan (GILP).

Cb) The contract type is: United Kingdom, pensions business, direct written business, non-profit, group pension.

(c) Premiums are payable as single premiums.

(d) The benefits are the realisation values of the units held in the internal linked funds.

Units are surrendered to release cash to provide benefits for members of the pensionschemes for which the policyholders are trustees.

Units may also be surrendered on the same terms if premiums are discontinued.

All policies contain an open market option and an option to secure an annuity on thethen current annuity rates.

(e) There are no guaranteed investment returns.

(t) The charges made by the Company are:

a continuing investment charge of a percentage of the value of units, deducted as1/52 of the annual amount per week, of:-

Equity Fund 0.30% p.a.

Property Fund 0.30% p.a.

International Fund 0.30% p.a.International "A" Fund 0.30% p.a.Global Equity Fund 0.30% p.a.

North America Fund 0.30% p.a.

Europe Fund 0.30% p.a.

Japan Fund 0.30% p.a.

Pacific Basin (excluding Japan) Fund 0.30% p.a.International Bond Fund 0.25% p.a.Fixed Interest Fund 0.25% p.a.

Index Linked Fund 0.25% p.a.

Corporate Bond Fund 0.25% p.a.UK Equity (Passive) Fund 0.15% p.a.Cash Fund 0.10% p.a.

Long Term Gilt Fund 0.10% p.a.Index Linked (Passive) Fund 0.10% p.a.

24

Valuation Report as at 31 December 1998 (cont.)

GELFund 0.00% p.a.

Discretionary Fund charges are a weighted average of its constituent sector fundcharges.(investment charges are allowed for in the offer and bid prices)

an annual scheme investment charge of £500

additional services are charged on a cost basis

(g) The Company may increase these charges at any time upon giving six months notice.

(h) See (d) above.

(i) Benefits are determined by reference to the value of internal linked funds. Thefollowing funds are available:

Fund

Equity FundInternational FundInternational "A" FundInternational Bond FundFixed Interest FundIndex Linked FundProperty FundCash FundDiscretionary FundGlobal Equity FundLong Term Gilt FundEurope FundJapan FundNorth America FundPacific Basin (excluding Japan) FundGEL FundCorporate Bond FundUK Equity (Passive) FundIndex Linked (Passive) Fund

The general nature of the investments of each Prudential Pensions Limited internallinked fund is as follows:

Equity Fund: Stocks and shares of companies in the UnitedKingdom.

International Fund: Stocks and shares of overseas companies andholdings of foreign currencies and investments inthe Europe Fund, Japan Fund, North America Fundand Pacific Basin (excluding Japan) Fund.

International "A" Fund: Stocks and shares of smaller overseascompanies and holdings offoreign currencies.The portfolio is smaller and more concentratedthan the International Fund.

International Bond Fund: Fixed interest securities issued by UK andoverseas governments and corporations.

Fixed Interest Fund: Fixed interest securities issued by the UKGovernment and UK companies.

Index-Linked Fund: Index-linked securities.

25


Property Fund: Office, shop, industrial and agriculturalproperties in the UK.

Cash Fund: Short term money market deposits andinstruments.

Discretionary Fund: Holdings in the preceding funds (exceptInternational "A").

Global Equity Fund: Units of the Equity and International Funds.

Long Term Gilt Fund: UK Government fixed interest securities withoutstanding terms of 15 years or more.

Europe Fund Stocks and shares of European companies andholdings of European currencies.

Japan Fund Stocks and shares of Japanese companies andholdings of Japanese currencies.

North America Fund Stocks and shares of North American companiesand holdings of North American currencies.

Pacific Basin (excluding Japan) Fund Stocks and shares of Pacific Basin(excluding Japanese) companies andholdings of Pacific Basin (excludingJapanese) currencies.

GEl Fund UK listed securities of GEl International plc

Corporate Bond Fund High quality sterling corporate debt

UK Equity (Passive) Fund Stocks and shares of companies in the UnitedKingdom.

Index Linked (Passive) Fund Index-linked securities.

The policyholder may invest in any or all of these funds except that:

the GEl Fund is only available to the trustees of the GEl Pension Scheme.

the International "A" Fund is only available to trustees of pension schemesmaintaining a segregated portfolio of assets managed by Prudential PortfolioManagers (PPM).

Expenses incurred by PPM in the maintenance of assets are charged to the respectivefunds. PPM charge PPL a management fee for their services.

U) None.

(k) The contract was open to new business during the year to the valuation date.

(I) There were no changes to the rates of charge applied to these contracts during thereporting period.

26


B. The Pensions Investment Account (PIA)

(a) The Pensions Investment Account (PIA)

(b) The contract type is: United Kingdom, pensions business, direct written business, non-profit, group pension.

(c) Premiums are payable as single premiums.

(d) The benefits are the realisation values of the units held in the internal linked funds.

Units are sun-endered to release cash to provide benefits for members of the pensionscheme for which the policyholders are trustees.

Units may also be sun-endered on the same terms if premiums are discontinued.

All policies contain an open market option and an option to secure an annuity on thethen cun-ent annuity rates.

.


(t) The charges made by the Company are:

an initial investment charge of 5% of each premium paid

a continuing investment charge of 3/4% p.a. of the value of the units, deducted as1/365 of 3/4% each day

(the initial and continuing investment charges are allowed for in the offer and bidprices)

the percentage of premium applied to the purchase of units, assuming 4%commission is payable, is derived as follows:

Amount Invested Unit Allocation

99.0%100.0%100.5%

£5,000 - £49,000£50,000 - £99,000£ 100,000 +

If a new investment increases the total amount invested into a higher unitallocation band, then the whole of the new investment will qualify for theincreased unit allocation.

Higher allocations have been granted in appropriate circumstances with amaximum allocation rate of 102%.

(g) The Company may increase these charges at any time upon giving six months notice.

(h) See (d) above.

27


(i) Benefits are detennined by reference to the value of internal linked funds. Thefollowing funds are available:

Fund

NIPP Equity FundNIPP International FundMPP Fixed InterestNIPP Index LinkedNIPP Property FundNIPP Cash FundNIPP Discretionary FundNIPP Global Equity Fund

These funds are wholly invested in the GILP funds of the same name. See 5(1)(A)(i)above.

None.


(I) There were no changes to the rates of charge applied to these contracts during thereporting period.

C. The Pru-Link Retirement Plan (PLRP)

(a) The Pru-Link Retirement Plan (PLRP).

(b) The contract type is: United Kingdom, pensions business, direct written business, non-profit, deferred annuity.

(c) Regular and single premiums are accepted.

(d) On retirement the bid value of units allocated will be available to purchase a pensionfrom Prudential Pensions Limited (PPL) and to provide cash (subject to InlandRevenue Limits). Alternatively the open market option can be taken where the cashvalue of units allocated would be transferred to purchase a pension from another lifeoffice.

On death the bid value of units allocated is payable.

On discontinuance of premiums under a Regular Premium Plan policy, the Plan willbe made paid-up. The number of units allocated is subject to a small reduction in orderto pay a charge to cover future administration expenses. The amount of the charge(currently £25) is at the discretion of the Company. Any balance of units remainingwill provide benefits on either death or retirement.

(e) There is a guarantee that the unit price of the Pro-Link Cash Fund will not go down.

28

Premiums payable in the Premiums payableftrst year of the plan in the second and

subsequent yearsAge next Monthly, Yearly Monthly, quarterly,birthday quarterly, or half- premiums half-yearly or yearly

at yearly premiums (%) premiumscommencement (%) (%)46 and below 25.0 32.50 100

50 35.0 41.50 10055 47.5 52.75 10060 60.0 64.00 10065 72.5 72.25 10070 85.0 86.50 100


(f) The charges made by the Company are:

an initial investment charge of 4% of each premium paid

a continuing investment charge of 0.75% p.a. of the offer value of the fund,deducted as 1/365 of 0.75% each day

(the initial and continuing investment charges are allowed for in the offer and bidprices)

Further charges are made depending on whether the plan is a single premium plan or aregular premium plan or a top-up to an existing plan:

Single Premium Plan

100% of the premium after deduction of a policy fee was invested. The latest policyfee was £75 in 1988.

.

Regular Premium Plan

After deducting the policy fees the following percentages of premiums will beinvested in units. For ages other than those shown, the percentage is obtained byinterpolation.

The policy fee deducted iTom the regular premiums paid depends on the original yearof issue of the policy and both the iTequency and method of premium payments. InDecember 1998 the policy fee for monthly premium payments (by standing order ordirect debit) ranged iTom 50p to £ 1.20.

Top Ups

When additional single premiums are paid or regular premiums commence no furtherpolicy fees will be charged.

(g) The allocation rates for future top-ups are not guaranteed. The Company may increasethe continuing investment charge upon giving six months notice.

(h) See (d) above.

29



Fund

Pro-Link Managed FundPro-Link Cash Fund

The Pro-Link Managed Fund is wholly invested in the MPP Discretionary Fund.The Pro-Link Cash Fund is wholly invested in the MPP Cash Fund.See 5(1)(B)(i) above.

None.

(k) The Pru-Link Retirement Plan was closed to new business with effect from 1 July1988. Top ups to existing policies are allowed.

(1) There were no changes to the rates of charge applied to these contracts during thereporting period.

D. PACL Group Business Reassurance accepted

(a) Group pension investment-linked unit liabilities reassured from Prudential AssuranceCompany Limited (PACL).

(b) The contract type is: United Kingdom, pensions business, reassurance accepted, non-profit, group pension.

(c) The underlying contracts in PACL accept regular and single premiums.

(d) Cover is granted in respect of:

retirement benefits;

transfer benefits;

death benefits; and,

sums representing transfer values of investment redispositions; to the extent that,in each case, the value therefore is determined by reference to the realisation valueof notionally realised units of the Funds or is met by the cancellation of such units.


(f) The charges made by the Company are:

a continuing investment charge of3/4% p.a. (1% for Series II funds) of thevalue of the units, deducted as 1/365 of 3/4% (1% for Series II funds) each day,which is reflected in the offer and bid prices; this charge is then refunded toPACLthe charge payable to PPL by PACL under the reassurance agreement is acontinuing investment charge of 0.60% p.a. of the value of the units

(g) The Company may increase these charges upon giving three months notice.

(h) See (d) above.

30



Fund

MPP Equity FundMPP International FundMPP International Bond FundMPP Fixed Interest FundMPP Index Linked FundMPP Property FundMPP Cash FundMPP Discretionary FundMPP Global Equity FundMPP Long Term Gilt Fund

These funds are wholly invested in the Gll.P funds of the same name.See 5(1)(AXi) above.The following funds (Series II) are wholly invested in the MPP funds ofthe same name shown above.

MPP Series II Discretionary FundMPP Series II Equity FundMPP Series II Fixed Interest FundMPP Series II Property FundMPP Series II Index-Linked FundMPP Series II International Bond FundMPP Series II Cash Fund

(j) None.


(I) There were no changes to the rates of charge applied to the existing contracts duringthe reporting period. The MPP Series II funds were introduced during the reportingperiod.

(2) No linked contract contains a with-profits option.

(3) Not applicable.

(4) Points applicable to each of the groups of internal linked funds are as follows:

The creation price is the cash cost of purchasing an identical portfolio of assets to that in theunit fund including all the costs that would be incurred in purchasing such assets, dividedby the number of units in existence. The cancellation price is the cash amount for which theassets of the unit fund can be sold net of all costs that would be incurred in disposing of theassets, divided by the number of units in existence.

31


Specific pointsfor each of the groups of internal linked funds are asfollows:

GILP Funds

A continuous equity approach is taken to unit pricing. i.e. units are only created in thelinked funds at the creation price, and only liquidated in the linked funds at the cancellationprice. Units are allocated to policyholders on a 'matched' basis as follows. If there are nomatching transactions, then purchases are carried out at the creation price plus any initialcharge, and sales at the cancellation price. To the extent that there are both sales andpurchases, the current practice is to match these transactions; purchases will be made at thenormal offer price and sales will be made at a concessionary bid price (typically 100% ofthe offer price, where this is higher than the standard bid price).

Unit prices are calculated weekly and transactions in these funds are carried out at the nextavailable price (Le. on a forward pricing basis).

MPP Funds

MPP Funds are 100% invested in units of the GILP Funds at the weekly pricing of theGILP funds. Purchases of GILP fund units are made at the creation price of the GILP fund,and sales at the cancellation price. Creation and cancellation prices are determined once aweek by reference to the appropriate GILP price.

A smoothed equity approach is taken to unit pricing. This is different to the approachadopted for GILP funds. Units are allocated to policyholders at the offer price anddeallocated at the bid price. While the trend in the number of units in a unit fund is believedto be upward, the bid price is the creation price. While the trend in the number of units isbelieved to be downward, the bid price is the cancellation price, where the trend is unclearor changing the bid price may be between the creation price and the cancellation price. Theoffer price is then set equal to the bid price plus the initial charge plus a roundingadjustment not exceeding O.lp (there is no initial charge for Series II funds).

Daily MPP prices are based on an internal price for the GILP fund which is calculated dailypurely for this purpose and these prices are applied to that day's policy transactions.

Pru-Link Funds

The Pru-Link Managed Fund is wholly invested in units of the MPP Discretionary Fund.The Pro-Link Cash Fund is wholly invested in units of the MPP Cash Fund. Creation andcancellation prices are determined once a week by reference to the appropriate MPP price.Transactions are carried out at the next available price (i.e. on a forward pricing basis).

Pro-Link Funds buy and sell MPP units at the current MPP bid price. No furtheradjustments are made for buying or selling expenses.

A smoothed equity approach is taken to unit pricing. This is different to the approachadopted for GILP funds. Units are allocated to policyholders at the offer price anddeallocated at the bid price. While the trend in the number of units in the underlying unitfund (which is taken to be the MPP funds as a whole) is believed to be upward, the bidprice is the creation price. While the trend in the number of units is believed to bedownward, the bid price is the cancellation price. Where the trend is unclear or changingthe bid price may be between the creation price and the cancellation price. The offer priceis then set equal to the bid price plus the initial charge plus a rounding adjustment notexceeding 0.1p.

(5) No provision for tax on realised or unrealised capital gains is required, as only pensionbusiness is written.

(6) Not applicable.

32

(2)

7 (1)

(2)


6

(3)

(4)

(5)

(I) The mathematical reserve for non-linked business (annuities in payment) is the presentvalue of the benefits with provision for the expenses of payment.The mathematical reserve for linked business consists of the unit liability together with anon unit liability. A discounted cashflow method of valuation is used to determine the non-unit liability.

In particular the following principles have been observed:

(a) No derivatives were held outside of the internal linked funds.

(b) Where allowance has been made for increasing fund management charges, it has beenassumed that this will take place after the period of notice required and to a levelconsistent with industry practice.

(c) The net premium method has not been used.

(d) Negative values have been eliminated from the liability. Additionally, all negativevalues which would arise at future valuations using the current basis projected forwardhave also been eliminated.

(e) No reserve for future bonuses is required.

(t) No reserve for tax on unreaIised capital gains is required, as only pension business iswritten

(g) No reserve for investment performance guarantees is held as the only investment

performance guarantee is that the unit price of the Pru-Link Cash Fund will not godown. Units of this fund are ultimately invested in units of the GILP Cash Fund,where the practice is to invest only in short term assets.

(h) An additional reserve of £2,079,000 is held in respect of:-

Resilience (Regulation 75(b»Cashflow Mismatching (Regulation 75(a»Other contingencies

£623,000260,000

1,196,000

Total 2,079,000

Not applicable.

The rates of interest and tables of mortality assumed in the valuation are shown in Forms 51and 53.

PMA92 and PF A92 refer to the Proposed New Tables for Life Office Pensioners, Normal,Male and Female, based on 1991-94 Experiences, published in the Continuous MortalityInvestigation (CMI) Reports No. 16. Projected values for the year 1999 were derived usingthe mortality improvement factors presented at the CMI seminar on 7 December 1998.

All business is written in the UK and UK based mortality tables have been used.

All annuity business is wholly reassured to Prudential Annuities Limited. The basis onwhich gross of reassurance reserves have been calculated allows for future mortalityimprovement at a rate in excess of that implicit in the tables derived from CMl Report No.10.

No reserve is held.

33


(6)

(7)

8.

No further amount is held to cover the potential consequences of AIDS, since heaviermortality has the effect of reducing the overall reserves required.

The scenarios tested were:(a) 20% reduction in fixed interest yields and a 10% fall in equity and property values(b) 3 percentage points increase in fixed interest yields, 25% fall in equity values and a

20% fall in property values(c) 10% decrease in fixed interest yields, 25% fall in equity values and a 20% fall in

property values

Scenario (c) proved to be the most onerous.

An amount of £260,000 is included in the sterling reserves for cashflow mismatching. Thishas been determined by assuming that the redemption proceeds from existing assets can bereinvested, where necessary, at a yield of 80% of the current yield, and then comparing theexpense reserve outgo against the resultant asset income to check that the additional reserveis sufficient to fund any shortfalls.

(8) An additional reserve of £623,000 has been made. This was calculated as follows:

(a) No changes in assumptions other than those stated in 7(6)(c) above, and interest ratechanges as shown in Form 57 were made.

(b) The non unit reserves were recalculated at the revised valuation interest rates andlevels of fund management charge income.

(c) (i) There was a £726,000 increase in the aggregate amount of the long termliabilities.

(ii) The assets allocated to match such liabilities have increased in value by£103,000.

(9) Not applicable.

(a) Not applicable.

(b) Immediate annuity values were increased by 3.5% (for annuities arising under Pru-Link policies) and 1.5% (for other annuities) as a provision for the expenses of payment.

(c) Not applicable.

(d) Not applicable.

34

II

12 (I)

(2)


9.

10

(a) For group and individual linked business the unit liability has been obtained by valuingthose units allocated to policyholders at the valuation unit price. This price is based on themid-market price of the assets and includes investment income received.

The non unit liability in respect ofPACL Group Business reassurance accepted is thatamount required to cover the loss likely to arise in the period of notice required before anyincrease in charges can take effect.

In determining the non-unit liability for GILP and PIA SAS business, and Pru-LinkRetirement Plan (PLRP) policies, the following parameters were used:

Valuation interest 4.00%

Fund growth rate 4.50% (before reduction for fund charge)

Renewal expenses: GILPPIAPLRP

£1,075,000 p.a. plus £600 p.a. per scheme£ 118,000 p.a.

- per policy for premium-paying policies£27.50 p.a.

. per policy for other policies £19.00 p.a.

. per claim £32.50

Reassured business £152,000 p.a.

Expense inflation 3.25%

Fund charge The actual charged rate less 0.1 % for actively managedfunds (0.035% for passively managed funds) in respect ofPPM investment management fees charged to PPL.The charged rate is initially 0.75% p.a. for PIA and Prulink,0.60% for reassured business, and varies by fund for GILP(in the range 0.0% to 0.3%)

Other income: GILP:

PIA:

A charge of £500 p.a. per scheme.

Fund management charge increases from0.75% p.a. to 1.0% p.a. after 12 months.

4% initial charge on each premiumPru-Link:

Mortality 70% of A67/70 Ult

These reserves are also adequate in the context of a lower inflation scenario withunchanged assumptions of real interest and real fund growth.

(b)

(I)

Not applicable.

See 9 (a) above.

(2) The aggregate amount of expense allowance arising in the next twelve months from theloadings described in paragraph 9 is £4,883,000

(3) and (4) New business costs are covered by expected future profits.

Not applicable.

No premiums in respect of re insurance business ceded on a facultative basis were paid tore insurers not permitted to carry on business in the United Kingdom.

(a) The Company has entered into an agreement with Prudential Annuities Limited(PAL).

(b) The reinsurer is permitted to carry on business in the United Kingdom.

35


~~tJ.~

I

(3)

13-16

17.

18.

19.

20.

21. (1)

(2)

22.

23.

(c) The reinsurer is a connected company.

(d) All immediate annuities are wholly reassured on original terms.

(e) Premiums of £671,197 have been paid by the Company under the treaty during theperiod since the last investigation.

(t) Not applicable.

(g) No reinsurance commission is payable.

(h) The agreement remains open to annuities arising under Pru-Link (PLRP), but is closedto Group Pensions business arising since 1 January 1990.

Not applicable.

Not applicable.

See Form 46.

Group contracts not included in Form 46 are:

Group Investment Linked Policies (GILP) - 411 schemes at 31 December 1998.Pensions Investment Account (PIA) -224 schemes at 31 December 1998.

Reassurance accepted from Prudential Assurance Company - an estimated 46,000 lives arecovered by this business.

See Form 47.

See Forms 48 and 49.No derivative contracts were held to cover non-linked long term liabilities at 31 December1998.

See Forms 51 and 53.

See Form 57.

There was no adjustment to the yield on Gilts. The yield on deposits has been reduced by0.35% to take account of risk of default.

(3) No such assets were held.

See Form 58.

See Form 60.

D Jebson. Appointed Actuary

F Schinella. Director

A Rutherford. Secretary

36

IR46

I

992726I

GLI

31 112I

1998I

£000

I

UKI

NL

Life assurance and general Pensions business Permanent health Other businessannuity

No of Annual No of Annual No of Annual No of Annualcontracts premiums contracts premiums contracts premiums contracts premiums

1 2 3 4 6 6 1 8.

In force at beginning of"year 11 5748

New business and increases 12 15

Net transfers and other13alterations 'on'

Total 'on' (12+13) 19 15I

I

Deaths 21 142II I,

II

I

IOther insuredevents 22 i

II II I

I II

I

Maturities 23

I

II I

I

I

I II

IIISurrenders 24

i ! I I ! I

I

Forfeitures

I

I

I25

I I

I Conversions to paid-up26

I!

I

policies for reduced benefits,

i Net transfers, expiries andI

I I

I

I I

i otheralterations'off 27I

Total 'off (21 to 27) 29I

I

142I

I

Iln force at end of year39

I

5621I I

I(11+19-29)

i I


Long term business: Summary of changes in ordinary long term business

Form 46


Global business

United Kingdom business

Non-linked



Period ended

day month yearUnits UKlOS NULN

37

IR46

I

992726I

GLI

31 \12 11998I

£000I

UKI

LN

Life assurance and general Pensions business Permanent health Other businessannuity

No of Annual No of Annual No of Annual No of Annualcontracts premiums contracts premiums contracts premiums contracts premiums

1 2 3 4 6 6 7 8

In force at beginningofcyear 11 7312 1920

New business and increases 12 36

Net transfers and other13alterations 'on'

I

Total 'on' (12+13) 19 36

I

i

II

Deaths 21

I

27 1II I

I

Other insured events

I I I

I

22 IIi

Maturities 23

I

268 104I

Surrenders 24

I I I

I

I I

Forfeitures 25

I, .

Conversions to paid-up26 32

I

policies for reduced benefits

Net transfers, expiries and 27I I

other alterations 'off

I

ITotal 'off (21 to 27) 29 295 137 I

Ii

Iln force at end of year39 7017 1819

I I

(11+19-29)i


Long term business: Summary of changes in ordinary long term business


Global business

United Kingdom business

Linked



Period ended

day month year Units UKlOS NULN

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40

I

R48I

992726 GLI

31 112 11998I

£000I

11

Value of Expected Yield %admissible income from

assets as shown admissibleType of asset on Form 13 assets

1 2 3

Land and buildings 11

..

Approved securities 12 2187 123 4.50Fixed interestsecurities

Other 13

Variable interest and Approved securities 14variable yield securities(excluding items shown

I

at line 16)Other 15

Equity shares and holdings in collective investment 16I

schemes

Loans secured by mortgages 17I

I

Producing income 18 18015I

901 5.00

All other assets

191i .

>"//.

Not producing income 693 ! .'..'.'

II ..}.}>/...'...! .. ....... ..

Total (11 to 19) 29 20895I

1024I

4.78


Long term business: Expected income from admissible assets not held to match liabilities in respect of linkedbenefits


Global business





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Category 0 surp us Ordinary Long Term

IR58 ! '

I I'992726 I GL 31 12 1998 £000 11

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! Fund carried forward11 i

3218358I ;

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Bonus payments made to policyholders in anticipation of a surplus12 I

I Transfers out of fundi ! Transfer to non-technical account 13 II Iparts of fund I ,I

Transferto other funds/partsof funds141

Net transfer out of funds/parts of funds (13+14) 15I

Valuation result Total (11+12+15)16 3218358

Mathematical reserves for accumulating with profit policies171

Mathematical reserves for other non linked contracts 18

Mathematical reserves for property linked contracts 19 3214198

Mathematical reserves for index linked contracts20 :

ITotal (17 to 20) 21 , 3214198

I;:,urplus Inclualng contingency ana omer reserves nela IOwaras me29 i 4160solvency margin (deficiency) (16-21)

i!Balance of surplus brought forward unappropriated from last valuation

31!'

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of fundComposition of Transfer from other funds/parts of fund 33surplus

Net transfer into fund/part of fund (32+33) 34 163

Surplus arising since the last valuation35 3997

Total (31 +34+35) 39 4160

I Bonus payments made to policyholders in anticipalion of a surplus41

Cash bonuses 42

Allocated to ' Reversionary bonuses 43policyholders by way of

-

Other bonuses 44

Distribution of Premium reductions 45surplus . Total allocated to policyholders (41 to 45) 46

Net transfer out of fund/par:Jf fund 47

Total distributed surplus (46+47)48,

Balance of surplus (including contingency and other reserves held49 4160towards the solvency margiil):arried forward unappropriated

,Total (48+49) 59 ' 4160

, ,Dercentage of distributed surplus allocated to policyholders of fund/part of fund61

'"Corresponding Latest (year of valuation 1997 )

62percentage atthree immediately Earlier (year of valuation 1996 )

63previousvaluations

Earliest (year of valuation 1995) 64'


Long term business: Valuation result and distribution of surplus


Global business

Financial year ended 31st December 1998 Companyregistrationnumber GUUKlCM

Period ended

day month year UnitsCategoryof surplus

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56

1998 1997

£'OOOs £'OOOsNet assets per the Annual Return

line 91 Form 13 (Other than Long Term Business) 11,002 7,682line 59 Form 15 (2,160) (2.955)admissible assets 8,842 4,727line 92 Form 13 (inadmissible assets) 173-

9,015 4,727Per shareholder accounts

Capital + reserves 14.708 6.097

Difference (5,693) (1,370)'=

1.370 1,170

4,160 200

163

5.693 1.370


Returns for the year ended 31 December 1998

Notes to the Return

Form 9

0903 Orders under Section 68, Insurance Companies Act 1982 (as amended)

(660) The Secretary of State for Trade and Industry has issued to theCompany Orders under section 68 of the Insurance Companies Act 1982directing that Section 31 of that Act shall not apply to the Company in respectof transactions entered into with The Prudential Assurance Company Limitedand Prudential Annuities Limited pursuant to various life reassuranceagreements.

Form 10

1001 Reconciliation to shareholder accounts

Analvsed as follows:-

Brought forward additional reserves

Balance on long term technical account

per shareholder accounts

Transfer to long term funds per form 16

Carried forward additional reserves held

in long term funds

57

Notes to the Return (continued)

1004 Capital injection

On 19 Febmary the authorised share capital of the Company was increased to sixmillion ordinary shares of £1 each and five million ordinary shares vvere allotted atpar for a total consideration of £5 million.

Form 13

Notes 1304 to 1306 apply to the other than long term business fund.

1304 Statement on Set Off

Amounts due to or from the Company have been set off to the extent permitted bygenerally accepted accounting principles.

1305 Maximum Counterparty Limits

The Company's investment guidelines set ma.ximum counterparty limits in order tomaintain the admissibility of assets in accordance with Schedule 12 of the InsuranceCompanies Regulations 1994.

1306 Counterparty exposures at year end

Counterparty exposures at year end greater than tlve percent of the long term businesscu.'nount were valued at £ 10,500,000 and held \"ith the follovving approvedcounterpartles:

Wachovia BankBank of AmericaBarclays BankBCl LondonCariplo LondonING BankMorgan GuarantyRoyal Bank of CarmdaRepublic National New York

£1 .500,000£1.500.000£1.000.000£1,500,000£1,000,000

£ 1,000.000£ 1.000,000£1.000,000£1,000,000

Notes 1310 to 1314 apply to the long term business fund.

1310 Statement on Set-Off

Amounts due to or from the Company have been set otl to the extent permitted bygenerally accepted accounting principles.

58


1311 Maximwn Counterparty Limits

The company's investment guidelines set ma.'(imum counterparty limits in order tomaintain the admissibility of assets in accordance with Schedule 12 of the InsuranceCompanies Regulations 1994.

The nature of Corporate pensions business often leads to the receipt of particularlylarge premiums which take a short period before they can be diversified into a range ofadmissible deposits, or invested into the internally linked funds through the Company'sweekly unit allocation. This occurred on one occasion during the year. The shortfallagainst the required minimum margin was £I1.6m. The excess balance held withinthese accounts was detected and reinvested within 1 working day. Internal guidelinesare to operate at an overdraft of £ISm, on the occasion of the breach our bank balancewas £23.6m in credit. At all other times during the year and at the year end, theCompany maintained the required minimum margin of solvency.

This breach is further referred to in the Director's Certificate pursuant to Regulation28(a).

1312 Counterparty exposures at year end

Counterparty exposures at year end greater than five percent of the long tenn businessamol.mt were valued at £18,000,000 and held with the follovv1ng approvedcounterparties:

Bank of AustriaBank Gesellschaft BerlinBank Nationale De ParisAllied Irish BankAlliance & LeicesterANZBank of MontrealBank of ScotlandBradford & BingleyCanadian Imperial Bank of CreditCommerzbank LondonABN Amro London

1318 Readily realisable assets

£ I ,500,000

£ 1.500,000

£1,500,000

£ 1,500,000

£ 1,500,000

£1 ,500,000

£1.500,000

£1.500,000

£1,500,000

£1,500,000

£1 ,500,000

£1,500,000

The Financial Services Authority has issued to the Company Orders under section 7Sof the Insurance Companies Act 1982 modifying schedule 10 of the InsuranceCompanies Regulations 1994, regarding descriptions of property by reference to whichbenefits may be detennined, to include securities listed on the Malaysian StockExchange which were listed and readily realisable when first purchased. The alterationceases to have effect on 1 September 1999.

59


Form 14

1401 No derivatives were held outside of the internally linked funds at any time during theyear and therefore no provision for adverse changes are required.

1402 Uncertain and Potential Liabilities

a) There were no charges attributable to the long-term business assets.

b) If the properties on which capital allowances have been claimed were disposed of,tax on balancing charges up to a maximum of £54,013 (1997 £54,013) would bepayable. No provision has been made for these items.

c) There were no contingent liabilities at the year end.

d) There were no guarantees, indemnities or other contractual commitments otherthan in the ordinary course of insurance business and in respect of relatedcomparues.

e) The Company has set up a provision of £6 million to cover the cost of performing areview into certain of its processes and the cost of implementing the reviev,;'sfindings. Any costs that arise in excess of this provision will be indemnified byPrudential Corporation plc, the Company's ultimate parent company, in accordancewith a guarantee provided to the Company on 25 February 1998.

Form 15

1501 No derivatives were held bv the other than long term fund at anv time during the 'lear01. - .. ,,-.I

and therefore no provision for adverse changes is required.

1502 a) There were no charges attributable to the other than long term business assets.

b) There was no potential tCL\:liability arising in the other than long term fund atthe year end.

c) There were no contingent liabilities at the vear end.~ -

d) Under the terms of the Company's arrangements with the Prudential Group'smain UK banker, the bank has a right of set-off between credit balances andall overdravi1l balances of those group undertakings with similararrangements.

e) There were no fundamental uncertainties at the year end.

60


Form 16

160 1 Foreign Currencies

Foreign currency assets and liabilities are translated at year end exchange rates. Foreigncurrency revenue transactions are translated at rates ruling at the transaction dates, exceptfor accrued revenue items which are translated at year end exchange rates.

Form 17

1700 Derivative Contracts

As all figures, including comparatives, are zero for the long term form 17, this form hasbeen omitted. All derivative contracts are held in the internally linked funds and notwithin the other assets of the long term fund or the other than long term funds.

Form 40

4008 Provision of Management Charges

The Company was provided throughout the year with day to day management servicesby The Prudential Assurance Company Limited (the immediate holding company), andPrudential Financial Services Limited, Prudential Portfolio Managers Limited, PrutechLimited and Prudential Services Limited, all group companies.

4009 Expenses Payable

In previous years, investment expenses have been deducted £Tom 'investment incomereceivable before deductions of ta.'\.' (line 12). Investment expenses for the year of£6,679k (1997 £6,365k) are now included within; expenses payable' (line 22).Accordingly, comparatives in fonn 40 have been restated to reflect this change oftreatment.

Form 43

4301 Valuation of Linked Assets

These assets are included at market value or, in the case of properties, on (he basis of a11annual external professional valuation by Chartered Surveyors; CB Hillier ParkerLimited, Bidwells, Healy & Barker, and Weatherall. Securities are valued at a marketotler price except where a linked fund is priced on a full bid basis in \vhich case thesecurities are valued on a bid basis. In accordance with the policy document, anappropriate adjustment is made to the linked asset prices to account for buying orselling expenses.

61

Gross Gross Net NetAssets Liabilities Assets Liabilities

Equity 4

Equity passive 53 1 1

Far East 28 28

International 'A' 27,915 27,819 27,915 27,819

International bond 21,332 . 21,011 21,332 21,011

European 1 1 1 1

'lotes to the Return (continued)

4302 Derivative Contracts

The value of rights under derivative contracts held by each internal linked fund were asfollows. The figures are gross of variation margin and net of variation margin (£'000):

4304 The PPL linked funds hold, across all funds, a net cash asset. In the Companies Actaccounts, the cash asset is included net of overdraft balances that may exist withinindividual funds. In compliance with Regulations, the annual return linked assetbalances in fonns 13 and 43 agree to the Companies Act accounts. In fonn 43 cashcreditors should they exist within an individual fund, are shown within the directly heldassets of that fund (column 2).

Form 44

Estate expensesBrokers feesVA T on property

1998£'OOOs1,447

4182,368

1997£' OOOs2,001

3401,617

4402 Other expenditure

Total 4.233 3,958

In previous years, the above classes of expenditure have been deducted from'Investment income attributable to the funds before deduction of tax' (line 12).

Form 48

4801 Line 12, column 1 includes £8,000 accrued interest.

62


Form 51

5101 Mortality Bases

The mortality bases cOITesponding to the codes are:

code (a) 75% IM80 (C = 2010),75% IF80 (C = 2010), expenses 3.5% of annuity;code (b) 73% Pj\tfA92(C = 1999),73% PFA92 (C = 1999), expenses 1.5% of

annuity.

Form 53

5301 Interest and Mortality BasesSee answer to Schedule 4 question 9(a).

Form 57

5701 The resilience reserve is contained within the 0% rectangle.

63



Statement in accordance with Regulation 23 of The Insurance Companies (Accountsand Statements) Regulations 1996

a. Investment Guidelines

During 1998, investment guidelines allowed the use of derivative contracts in theGILP (and hence MPP) internal linked funds. The derivatives and use thereof wasrestricted to that pennitted by Part I of Schedule 10 to the Insurance CompaniesRegulations 1994. The use of derivatives was not permitted in the non-linked funds.

Derivatives are limited to: exchange traded warrants; exchange traded index or stockfutures; forward currency contracts; partly paid shares; and convertible bonds.Derivatives must be listed or with an approved counterparty and must be capable ofbeing readily closed out at a price the basis of which is pre-determined. Exchangetraded index and stock futures must be based on underlying assets which arethemselves pennitted links.

b. Derivatives where exercise is unlikely

Derivatives used in the internal linked funds were entered into only if they wouldhave been reasonably likely to be exercised.

c. Quantification of derivatives in (b) above

No such contracts were used by the~ompany.

d. Effect on Form 13 at 31 December 1998 of exercising derivatives where it wouldbe prudent to assume options would be exercised

The only derivatives on Form 13 relate to property linked assets and are included online 59 of Form 13, which would not change in value.

The company would not be exposed to any fluctuation in asset values.

e. Effect on Form 13 of exercising all derivatives at year end

The only change would be to line 59 of Form 13 which would not reduce by asignificant amount and would be directly offset by a reduction in the long-termliabilities shown on Form 14.

The assets of the company would not be impacted.

64

f. Effect on Form 13 of exercising all derivatives at any time during year

The assets of the company \-vould not be impacted. Movement in linked assets wouldbe offset by a corresponding change in the linked liability.

The assets of the company would not be impacted.

ao' Maximum loss

The assets of the company would not be impacted. At the year end, linked assetswould be reduced by a maximum of:

existing market conditions £99,000

foreseeable market conditions £104,000

At any other time during the year, linked assets would have been reduced by amaximum of £18,052,000.

65

In the case of each person who was a shareholdercontroller of the Company at 31 December 1998:

The percentage of thevoting power which he

The percentage of shares was entitled at that timehe held at that time in the to exercise, or control the

Persons who, to the knowledge of the Company, Company, or in another exercise of, at any

have been, at any time during the year ended 31 company of which the general meeting of the

December 1998, a shareholder controller of the Company was a Company, or another

Company. subsidiary undertaking, company of which it was

either alone or (shown a subsidiary undertaking,separately) with any either alone or (shown

associate or associates separately) with anyassociate or associates

The Prudential Assurance Company Limited, beingits immediate holding company 100% 100%

Prudential Corporation plc, being its ultimate 100% 100%

holding company



Statement in accordance with Regulation 24 of The Insurance Companies (Accountsand Statements) Regulations 1996

Additional infonnation on shareholder controllers

We confinn that the following is a list of:

(a) Persons who, to the knowledge of Prudential Pensions Limited ("the Company"), havebeen, at any time during the year ended 31 December 1998, a shareholder controller of theCompany; and

(b) In the case of each person who was a shareholder controller of the Company at 31December 1998:

(i) the percentage of shares he held at that time in the Company, or in another companyof which the Company was a subsidiary undertaking; and

(ii) the percentage of the voting power which he was entitled at that time to exercise, orcontrol the exercise ot~at any general meeting of the Company, or another companyof \vhich it was a subsidiary underta.1.cing;

in each case, either alone or with any associate or associates.

66



Directors' Certificate pursuant to Regulation 28(a) of the Insurance Companies(Accounts and Statements) Regulations 1996

We certify that:

1. (a) in relation to the part of this return comprising Forms 9, 10, 13 to 16 and 40 to45 (and the supplementary notes thereto) and statements required byRegulations 23 and 24 of the Insurance Companies (Accounts and Statements)Regulations 1996:

(i) the return has been prepared in accordance with the Regulations asmodified by the orders referred to in supplementary note 0903 on Page57 issued under Section 68 of the Insurance Companies Act 1982;

(ii) proper accounting records have been maintained and adequateinformation has been obtained by the Company; and

(iii) an appropriate system of control has been established and maintainedby the Company over its transactions and records;

(b) in respect of the Company's business which is not excl uded by Regulation :32of the Insurance Companies Regulations 1994, the assets held throughout thefinancial year enabled the company to comply with regulations 27 to 31(matching and localisation) of those Regulations; and

(c) in relation to the statement required by regulation 31 of the InsuranceCompanies (Accounts and Statements) Regulations 1996 that:

(i) for the purpose of preparing the statement, proper accounts and recordshave been maintained; and

(ii) the information given has been ascertained in confonnity with thatRegulation.

67

Certificate required by Regulation 28(41)(continued)

2. except as stated in the note below the margin of solvency required by section 32 of theInsurance Companies Act 1982 has been maintained throughout the financial year.

Note:

The margin of solvency required by section 32 of the Insurance Companies Act 1982was breached on one instance during the year on 10 December 1998. This arosebecause large premiums from corporate clients take a number of working days beforethey can be diversified into a range of admissible deposits, or invested in internallylinked funds through the Company's weekly unit pricing mechanism. The breach wascleared within 1 working day.

This breach is further referred to in the notes to the return, note 1311.

(a)

(b)

(c)

the requirements of sections 28 to 31 of the Insurance Companies Act 1982have been fully complied with and in particular that, subject to the provisionsof section 29(2) to (4) and section 30, assets attributable to long term business,the income arising theretTom, the proceeds of any realisation of such assets andany other income or proceeds allocated to the long term business funds havenot been applied otherwise than for the purpose of the long term business;

any amount payable from or receivable by the long term business funds inrespect of services rendered by or to any other business carried on by theCompany or by 2.person \vho, for the purposes of section 31 of the InsuranceCompanies Act 1982, is connected \\11thit or is a subordinate company of ithas been determined and where appropriate apportioned on terms which arebelieved to be no less than fair to those funds, and any exchange of assetsrepresenting such funds for other assets of the Company has been made at fairmarket value;

no guarantees have been given by the Company of the performance by arelated company of a contract binding on the related company which wouldfall to be met by any long term business fund;

(d) in respect of each internal linked fund, the investment policy and practice ofthe Company was during the financial year consistent with any representmionsmade to policyholders or potential policyholders of the Company;

(e) the Return in respect of long term business is not distorted by agreements \vithany other company carrying on insurance business with which the Companyhas financial, commercial or administrative links or by any arrangementswhich could affect the apportionment of expenses and income; and

(t) the Company has fully complied with the requirement of section 31A or theInsurance Companies Act 1982.

68

Certificate required by Regulation 28(a) (continued)

4. (a)

(b)

the systems of control established and maintained by the Company in respectof its business complied at the end of the financial year with the followingpublished guidance:

(i) Prudential Guidance Note 1994/6 - Systems of control over theinvestments (and counterparty exposure) of insurance companies withparticular reference to the use of derivatives; and

(ii) Money Laundering - Guidance Notes for the Financial Sector (revisedand consolidated June 1997)

and it is reasonable to believe that those systems continued to so complysubsequently and will continue to so comply in future;

the return has been prepared in accordance with the following publishedguidance:

(i)

(ii)

(iii)

N..~.~

F SchinellaDirector

18 June 1999

Prudential Guidance Note 1995/1 - Guidance for insurance companiesand auditors on the Valuation of Assets Regulations;

Prudential Guidance Note 1995/3 - The use of derivatives in insurancefunds; and

Prudential Guidance Note 1998/1 - The preparation of annual returns tothe Insurance Directorate ofHM Treasury.

~A RutherfordSecretary

69

Returns under Insurance Companies LegislationSchedule 6 -CertificatesPart IIPrudential Pensions LimitedFinancial year ended 31 December 1998Appointed Actuary's Certificate

I certify that -

(a)

(iii)

(iv)

(v)

(b)

(i) in my opinion proper records have been kept by the Company adequate for thepurpose of the valuation of the liabilities of its long term business;

(ii) the mathematical reserves shown in Form 14 constitute proper provision at 31December 1998 for the liabilities (other than liabilities which had fallen due at31 December 1998) arising under or in connection with contracts for long termbusiness including any increase in those liabilities arising trom distribution ofsurplus as a result of an investigation as at 31 December 1998 into the fmancialcondition of the long term business;

for the purpose of paragraph (ii) above, the liabilities have been assessed inaccordance with Part IX of the Insurance Companies Regulations 1994 (asamended) in the context of assets valued in accordance with Part VIII of thoseRegulations, as shown in Form 13;

the valuation complies with the guidance notes "(GN1): Actuaries and Long-Term Insurance Business" dated 1 December 1998 and "(GN8): AdditionalGuidance for Appointed Actuaries" dated 1 September 1996, issued by theFaculty and Institute of Actuaries;

in my opinion, premiums for contracts entered into during the financial yearand the income earned thereon are sufficient, on reasonable actuarialassumptions, and taking into account the other financial resources of theCompany that are available for the purpose, to enable the Company to meet itscommitments in respect of those contracts and, in particular, to establishadequate mathematical reserves;

the amount of required minimum margin applicable to the Company's long termbusiness immediately following 31 December 1998 (including the amount resultingtrom any increase in liabilities arising trom a distribution of surplus as a result of theinvestigation into the financial condition of the long term business) is £3,599,000.

~f¥L~/

D Jebson

18 June 1999

Appointed Actuary

70


Financial Year ended 31 December 1998

Report of the auditors to the directors pursuant to Regulation 29 of the InsuranceCompanies (Accounts and Statements) Regulations 1996

We have examined the documents prepared by the Company pursuant to section 17 of theInsurance Companies Act 1982 (the Act) and the Insurance Companies (Accounts andStatements) Regulations 1996 (the Regulations);

. Forms 9, 10, 13 to 16 and 40 to 45 (including the supplementary notes thereto) ("theForms");

. the statement required by regulation 23 on pages 64 to 65 ("the statement"); and

. the certificate signed in accordance with regulation 28(a) on pages 67 to 69 ("thecertificate" ).

In the case of the certificate, our examination did not extend to:

(a) Paragraph 1 in relation to the statements required by regulations 24 and 31;concerning shareholder controllers and the Appointed Actuary;

(b) Paragraph 4(a) in so far as it relates to controls with respect to Money Laundering.

Respective responsibilities of the Company and its auditors

The Company is responsible for the preparation of an annual return (including the forms,statements and the certificate) under the provisions of the Act and the Regulations. Therequirements of the Regulations have been modified by Orders issued under section 68 of theAct referred to in supplementary note 0903 on page 57. Under regulation 5 the Forms andstatements are required to be prepared in the manner specified by the Regulations and to statefairly the information provided on the basis required by the Regulations.

It is our responsibility to form an independent opinion as to whether the Forms andstatements meet these requirements, and in the case of the certificate whether it was or wasnot unreasonable for the persons giving the certificate to have made the statements therein,and to report our opinions to you.

Bases of opinions

We conducted our audit in accordance with Bulletin 1998/3 "Auditors reports on regulatoryreturns made under the Insurance Companies Act 1982" issued by the Auditing PracticesBoard. Our work included examination, on a test basis, of evidence relevant to the amountsand disclosures in the Forms and statements. The evidence included that previously obtainedby us relating to the audit of the financial statements of the Company for the financial year on

71

which we reported on 3 March 1999. It also includes an assessment of the significantestimates and judgements made by the Company in the preparation of the Forms andstatements.

We planned and performed our work so as to obtain all the information and explanationswhich we considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the Forms and statements are free from material misstatement,whether caused by fraud or other irregularity or error and comply with regulation 5.

In the case of the certificate, the work performed involved a review of the proceduresundertaken by the signatories to enable them to make the statements therein, and does notextend to an evaluation of the effectiveness of the Company's internal control systems.

In giving our opinion we have relied on the certificate of the appointed actuary on page 70with respect to the mathematical reserves and the required minimum margin.

Opinions

In our opinion:

(a) the Forms and statements fairly state the information provided on the basis requiredby the Regulations as modified and have been properly prepared in accordance withthe provisions of those Regulations; and

(b) according to the information and explanations received by us:

(i) the certificate has been properly prepared in accordance with the provisions ofthe Regulations; and

(ii) it was not unreasonable for the persons giving the certificate to have made thestatements therein.

PricewaterhouseCoopersChartered Accountantsand Registered AuditorsSouthwark Towers32, London Bridge StreetLondon SE1 9SY

18 June 1999

72

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