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Prudential AnnuitiesLimited

Incorporated and Registered in England and Wales Registered number 2554213Registered Office 142 Holborn Bars London EC1N 2NH

Annual FSA Insurance Returns for the year ended31st December 2001

Returns under the Accounts and Statements Rules

(Appendices 1 13 ,4 ,6)


Prudential Annuities Limited

Year ended 31st December 2001

Contents

Appendix 9.1Form 9 Statement of solvency

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

Form 10Form 13Form 14Form 15Form 16Form 17

Appendix 9.3Form 40 Long term insurance business: Revenue accountForm 41 Long term insurance business: Analysis of premiums and claimsForm 42 Long term insurance business: Analysis of claims

Appendix 9.4Form 46 Long term insurance business: Summary of changes in long term businessForm 47 Long term insurance business: Analysis of new ordinary long term businessForm 48 Long term insurance business: Expected income from admissible assets not held to match

liabilities in respect of linked benefitsLong term insurance business: Analysis of admissible fixed interest and variable interestand variable yield securities not held to match liabilities in respect of linked benefitsAbstract of the Valuation Report - Rule 9.31Long term insurance business: Valuation summary of non-linked contracts (other thanaccumulating with-profits policies)Long term insurance business: Valuation summary of index linked contractsLong term insurance business: Analysis of assets and liabilities matching investmentliabilities in respect of index linked benefitsLong term insurance business: Matching rectangleLong term insurance business: Valuation result and distribution of surplusRequired minimum margin

Form 49

Form 51

Form 54Form 56

Form 57Form 58Form 60

Appendix 9.6Notes to the ReturnDirectors' Certificate - Rule 9.34(a)Appointed Actuary's Certificate - Rule 9.34(b)Auditors' Report - Rule 9.35Additional information on Derivative Contracts -Rule 9.29Additional information on Controllers - Rule 9.30Information on Appointed Actuary - Rule 9.36

Page

3456

12131415

171921

232527

28

2939

4143

454950

51576061636667

Required minimum margin for general insurance business 12 12 49

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

Long term insurance business admissible assets 21 11888099 11169047 10 11

Other than long term insurance business assets allocated towards long 22 572322 564346 See instructionsterm insurance business required minimummargin 1 and 3

Total mathematical reserves (after distribution of surplus) 23 11802004 11066571 See instruction 4

Other insurance and non-insurance liabimies 24 55922 97297 See instruction 5

Available assets for long term insurance bUSInessrequired minimum25 602495 569525margin (21+22-23-24)

Future profits 31

Zillmerising 32

Hidden reserves 33

Required minimum margin for long term insurance business 41 472065 442858 60 69

Explicitrequiredminimummargin(1/6x 41, orminimum42 78678 73810guarantee fund ifgreater)

Excess (deficiency) of available assets over explicit required 43 523817 495715minimummargin(25-42)Excess (deficiency) of avaHable assets and implicititems over 44 130430 126667the required minimum margin (34-41)

Quantifiable contingent liabilities in respect of other than long 51 See instruction 6term insurance business as shown in a supplementary note to Form 15

Quantifiable contingent liabilitiesin respect of long term insurance 52 See instruction 6business as shown in a supplementary note to Form 14

Returns under the Accounts and Statements Rules 24042002:11:41:59 Form 9

Statement of solvency

Name of insurer Prudential Annuities Limited

Global business

Financial year ended 31st December 2001Companyregistrationnumber GUUKlCM

Period endedday month year Units

R9 2554213 £000

As at the end ofthis financial

year

1 2E&

cE::J(5U

GENERAL INSURANCE BUSINESSAvailable assets

Other than long term insurance business assets allocated towardsgeneral insurance business required minimum margin 11

See instructions1 and 2

Required minimum margin

LONG TERM INSURANCE BUSINESSAvailable assets

Implicit Items admitted under Rule 2.10 [Regulation 23(5) ofthe Insurance Companies Regulations 1994]

Total of available assets and implicit items (25+31+32+33) 34 602495 569525

Required minimum margin

CONTINGENT LIABILITIES

3


Covering sheet to Form 9


Global business

Financial year ended 31st December 2001

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

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

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

London 24 April 2002

24042002:11:41:59

G M Wood

D J Belsham

M J Moores

4

Chief Executive

Director

Director

Form 9

R10I

2554213I

GLI

31 112I

20011

£000

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

~E1 2 G) ::Ic: "0::J ()

Long term insurance business - admissible assets 11 11888099 11169047 13 . 89 1

Long term insurance business - liabilities and margins 12 11888099 11169047 14 . 59 1

Other than Longterm insurancebusiness-admissibleassets 21 575923 570513 13 . 89 1

Other than Long term insurance business - liabilities 22 3601 6167 15 . 69 1

Net admissible assets (21-22) 23 572322 564346

Unpaidamounts(includingOther assets allowed to sharepremium)on partly paid 24be taken into account in shares

covering the required Supplementarycontributionsminimum margin for a mutualcarryingon 25general insurancebusiness

Liabilities allowed to be Subordinatedloancapital 26left out of account incovering the required Cumulativepreferenceshareminimum margin capital 27

Available assets (23 to 27) 29 572322 564346

Paid up share capital (other than cumulative51 550000 550000preference share capital)

Amounts included in lines 24 to 27 above 52

Amounts representing the balance of net assets 56 22322 14346

Total (51 to 56) and equal to line 29 above 59 572322 564346

Balance brought forward at the beginning of the61 14346 (14051) 10 . 56 2financial year

Retained profrt/(Ioss) for the financial year 62 9646 28397 16 . 59 1

Movement in asset valuation differences 63 (1670) See instruction 2

Decrease/(increase) in the provision for adverse64 See instruction 3changes

Other movements (particulars to be specified by65way of supplementary note)

Balance carried forward at the end of the financial year69 22322 14346(61 to 65)

Retums under the Accounts and Statements Rules 24042002:11:41:59 Form 10

Statement of net assets


Global business



Represented by:

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

5

IR13

I

2554213I

GLI

31 12I

2001I

£000I

1

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

Investments year year1 2

land and buildings 11

UK insurance Shares 21

businessdependants Debt securnies issued by, and loans to, dependants 22

Other insurance Shares 23dependants

24Debt securnies issued by, and loans to, dependants

Investments inShares 25group undertakings Non-insurance

and participating dependantsinterests Debt securnies issued by. and loans to, dependants 26

Shares 27

Other group Debt secumies issued by, and loans to, group undertakings 28undertakings and

~rticipating29Interests Participating interests

Debt securnies issued by, and loans to, undertakings in 30which the insurer has a participating interest

Total sheet 1 (11 to 30) 39

Retums under the Accounts and Statements Rules 24042002:11:41:59 Form 13(Sheet 1)

Analysis of admissible assets


Global business


Category of assets Total other than long term business assets

Companyregistrationnumber GUUKlCM


Categoryofassets

6

IR13

I

2554213I

GL 31 12I

20011

£000I

1

Investments (continued)As at the end of As at the end of

Deposits with ceding undertakings this financial the previous

Assets held to cover linked liabilitiesyear year

1 2

Equity shares 41

Other shares and other variable yield securities 42

Holdings in collective investment schemes 43

Rights under derivative contracts 44 2947 2251

Approved securities 45 162887 148301Fixed interest

Debt securities and Other 46 105488 171620other fixed incomesecurities Approved securities 47 84245 126447

Variable interestOther 48 160524 102458

Other financialinvestments Participation in investment pools 49

Loans secured by mortgages 50

Loans to publicor local authorities and nationalised 51industries or undertakings

Other loansLoans secured by policies of insurance issued by the

52company

Other 53

Deposits with Withdrawalsubject to a time restriction of one month or less 54 1397approved creditinstitutions andapproved financial

Wrthdrawalsubject to a time restriction of more than oneinstitutions 55month

Other 56

Deposits with ceding undertakings 57

Index linked 58Assets held to match linked liabilities

Property linked 59

Provision for unearned premiums 60

Claims outstanding 61Reinsurers' share of technical provisions

Provision for unexpired risks 62

Other 63

Total sheet 2 (41 to 63) 69 517488 551077

Returns under the Accounts and Statements Rules 24042002:11:41:59 Form 13(Sheet 2)



Global business


Category of assets Total other than long term business assets


Period endedday mUllt" yea. Units

Categoryofassets

7

I

R13I

2554213I

GLI

31 12I

2001I

£000I

1

As at the end of As at the end of

Debtors this financial the previousOther assets year year

1 2

Debtors arising out Policyholders 71of direct insuranceoperations Intermediaries 72

Salvage and subrogation recoveries 73

Debtors arising outDue from ceding insurers and intermediaries under reinsurance business

74of reinsurance

accepted

operations Due from reinsurers and intermediaries under reinsurance contracts ceded 75

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

Due more than 12 months after the end of the fll1ancialyear 77Other debtors

Due in 12 months or less after the end of the financialyear 78 311 486Other

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

Tangibleassets 80

Depos~s not subject to time restriction on withdrawal, withapproved cred~ 81 52241 11134Cash at bank and institutions and approved financial instnutions and local authoritiesin hand

Cash in hand 82

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

Accrued interest and rent 84 5883 7816

Prepayments andDeferred acquis~ion costs 85accrued income

Other prepayments and accrued income 86

Deductions (under rules 4.14(2)(b) and 4.14(3» [regulations 57(2)(b) and 57(3) of the87Insurance Companies Regulations 1994) from the aggregate value of assets

Total sheet 3 (71 to 86 less 87) 88 58435 19436

Grand total of admissible assets (39+69+88) 89 575923 570513

Total admissible assets (as per line 89 above) 91 575923 570513

Total assets in excess of the admissibiUty limits of Appendix 4.2. [Schedule 12 of the Insurance Companies92Regulations 1994] (as valued in accordance withthose Rules before applying admissibility limits)

Solvency margin deduction for insurance dependants 93

Other differences in the valuation of assets (other than for assets not valued above) 94

Assets of a type not valued above, (as valued in accordance with the shareholder accounts rules) 95 1670

Total assets determined in acco~ance with the shareholder accounts rules (91; 95) 99 577593 570513




Global business


Category of assets Total other than long term business assetsCompanyregistrationnumber GUUKlCM

Period endedday mand. 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 insurers. other than those undercontracts of insurance or reinsurance 100 7 26

8

IR13

I

2554213I

GLI

31 12I

2001I

£000I

10


Investments year year1 2

Land and buildings 11 164645 120016

UKinsurance Shares 21

businessdependants Debt secur~ies Issued by, and loans to, dependants 22

Other insurance Shares 23

dependants24Debt secur~ies issued by, and loans to, dependants

Investments in 25group undertakings Non-insurance Sharesand participating dependantsinterests Debt secur~ies issued by, and loans to, dependants 26

Shares 27

Other group Debt secur~ies issued by, and loans to, group undertakings 28undertakings andparticipatinginterests Participating interests 29

Debt secur~ies issued by, and loans to, undertakings in 30which the insurer has a participatinginterest

Total sheet 1 (11 to 30) 39 164645 120016

Returns under the Accounts and Statements Rules 24042002:11:41:59 Fonn 13(Sheet 1)



Global business


Category of assets Total long tenn business assets



Categoryofassets

9

IR13

I

2554213I

GL 31 12) 2001I

£000I

10

Investments (continued)As at the end of As at the end of

Deposits with ceding undertakingsthis financial the previous

Assets held to cover linked liabilitiesyear year

1 2

Equity shares 41

Other shares and other variable yield securities 42

Holdings in collective investment schemes 43.

Rights under derivative contracts 44 39592 6177

Approved securities 45 1334520 864211Fixed interest

Debt securities andOther 46 7928823 7856559

other fixed incomesecurities Approved securities 47

Variable interest

Other 48Other financialinvestments Participation in investment pools 49

Loans secured by mortgages 50 290315 242407

Loans to public or local authorities and nationalised 51 5050 5010industries or undertakings

Other loansLoans secured by policies of insurance issued by the

52company

Other 53 55036 23320

Deposits with Withdrawal subject to a time restriction of one month or less 54 39031 16765approved creditinstitutions andapproved financialinstitutions Withdrawal subject to a time reslriction of more than one 55month

Other 56

Deposits with ceding undertakings 57

Index linked 58 1796671 1654054Assets held to match linked liabUities

.

Property linked 59

Provision for uneamed premiums 60

Claims outstanding 61Reinsurers' share of technical provisions

Provision for unexpired risks 62

Other 63

Total sheet 2 (41 to 63) 69 11489038 10668503




Global business


Total long term business assetsCategory of assets


Period endedday lIIullth y..... Units

Categoryofassets

10

I

R13I

2554213I

GLI

31 12I

2001I

£000I

10

As at the end of As at the end of

Debtors this financial the previous

Other assets year year1 2

Debtors arising out Policyholders 71 418of direct insuranceoperations Intermediaries 72

Salvage and Subrogation recoveries 73

Debtors arising outDue from ceding insurers and intermediaries under reinsurance business 74 6321 2271

of reinsuranceaccepted

operationsDue from reinsurers and intermediaries under reinsurance contracts ceded 75

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 16164 57740Other

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

Tangible assets 80

Deposits not subject to time restriction on withdrawal,with approved credit 81 91916Cash at bank and institutions and approved financial institutionsand local authoritiesin hand

Cash in hand 82

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

Accrued interest and rent 84 189146 217130

Prepayments andDeferred acquisition costs 85accrued income

Other prepayments and accrued income 86 22367 11471

Deductions (under rules 4.14(2)(b) and 4.14(3» [regulations 57(2)(b) and 57(3) of the 87Insurance Companies Regulations 1994] fromthe aggregate value of assets

Total sheet 3 (71 to 86 less 87) 88 234416 380528

Grandtotalofadmissibleassets (39+69+88) 89 11888099 11169047

Total admissible assets (as per line 89 above) 91 11888099 11169047

Total assets in excess of the admissibility limits of Appendix 4.2, [Schedule 12 of the Insurance Companies92Regulations 1994] (as valued in accordance with those Rules before applying admissibilitylimits)

Solvency margin deduction for insurance dependants 93

Other differences in the valuation of assets (other than for assets not valued above) 94 2923 100

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

Total assets determined in accordance with the shareholder accounts rules (91 to 95) 99 11891022 11169147




Global business


Category of assets Total 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 insurers, other than those undercontracts of insurance or reinsurance

100 20 12093

11

I

R14I

2554213I

GLI

31 112I2001

I

£000I

10

As at the end of As at the end of Source

this financial the previousyear year

1 2

Mathematical reserves,alterdistribution of surplus 11 11802004 11066571 See Instruction 2

Cash bonuses which had not been paid to policyholders prior to end of 12 See Instruction 3the financial year

Balance of surplus/(valuation deflC~) 13 30173 5179 See Instruction 4

Long term insurance business fund carried forward (11to 13) 14 11832177 11071750 See Instruction 5

Claims outstanding whichGross amount 15

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

financial yearNet (15-16) 17

Provisions for Taxation 21other risks andcharges

Other 22

Depos~s received from reinsurers 23

Direct insurance business 31 2199 3461(\rising outof

32 799 16484Insurance Reinsurance acceptedoperations

Reinsurance ceded 33

Creditors andSecured 34other Debenture

liabilities loansUnsecured 35

Amounts owed to credit insmutions 36 4081

Taxation 37 3549 568Other creditors

Other 38 36667 76784

Accruals and deferred income 39 8627

Provision for adverse changes (calculated in accordance with rule 5.3)41[Regulation 61 of the Insurance Companies Regulations 1994J

Total other insurance and non-insurance liabilities(17 to 41) 49 55922 97297

Excess of the value of net admissibleassets 51 See Instruction 6

Total liabilities and margins 59 11888099 11169047

Amounts included in line 59 attributable to liabimies to related companies,61 5705 11529other than those under contracts of insurance or reinsurance

Amounts included in line 59 attributable to liabilities in respect of property 62linked benefits


Long term insurance business liabilities and margins


Global business


Category of assets Total long term business assets



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

12

I

R15I

2554213I

GLI

31 112I

2001I

£000


year year1 2

Provision for unearned premiums 11

Claims outstanding 12

Provision for unexpired risks 13Technicalprovisions Credit business 14(grossamount) Equalisation provisions

Other than credit business 15

Other 16

Total (11 to 16) 19

Provisions for Taxation 21other risksand charges Other 22

Deposits received from reinsurers 31

Direct insurance business 41

Arising out of insurance operations Reinsurance accepted 42

Reinsurance ceded 43

Secured 44Debenture loans

Creditors Unsecured 45

Amounts owed to credit institutions 46

Taxation 47 4636

Other creditors Recommended dividend 48

Other 49 3601 1531

Accruals and deferred income 51

Total (19 to 51) 59 3601 6167

Provision for adverse changes (calculated in accordance with rule 5.3) [Regulation 6161of the Insurance Companies Regulations 1994]

Cumulative preference share capital 62

Subordinated loan capital 63

Total (59 to 63) 69 3601 6167

Returns under the Accounts and Statements Rules 24042002:11:41:59 Fonn 15

Liabilities (other than long term insurance business)


Global business

Financial year ended 31st December 2001Companyregistrationnumber GLJUKlCM


Amounts included in line 69 attributable to liabilities to related insurers, other thanthose under contracts of insurance or reinsurance 71 154

13

~. R16I

2554213I

GLI

31 112I

2001 £000

This financial Previous Sourceyear year c

EE

1 2 m :3~c: "0:::,j ()

Transfer {to)/from the From Form 20 11 20 . 59general insurance businesstechnical account

Equalisation provisions 12

Transfer from the long term insurance business revenue 13 40 . 26account

Income 14 25956 27491

Investment incomeValue re-adjustments on

15 4100investments

Gains on the realisation of16 17491 11830investments

Investment management charges,17 462 459including interest

Investment Value re-adjustments oncharges investments 18 22309

Loss on the realisation of19investments

Allocated investment return transferred to the general20 20 . 51insurance business technical account

Other income and charges (particulars to be specified b) 21 (164) (106)way of supplementary note)

Profit or loss on ordinary activities before tax29 20512 42856(11 +12+13+14+15+16-17-18-19-20+21)

Tax on profit or loss on ordinary activities 31 10866 14459

Profit or loss on ordinary activities after tax (29-31) 39 9646 28397

Extraordinary profit or loss (particulars to be specified by 41way of supplementary note)

Tax on extraordinary profit or loss 42

Other taxes not shown under the preceding items 43

Profit or loss for the financial year (39+41-{42+43)) 49 9646 28397

Dividends (paid and proposed) 51

Profit or loss retained for the financial year (49-51) 59 9646 28397


Profit and loss account (non-technical account)


Global business



14

IR17

I

2554213I

GLI

31 12I

2001T

£000I

1

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

Derivative contractsAssets Liabilities Assets Liabilities

1 2 3 4

Fixed-interest securities 11

Equity shares 12

FuturesLand 13contracts

Currencies 14

Other 15


Equity shares 22

Options Land 23

Currencies 24

Other 25


Equity shares 32Contractsfor Land 33differences .

Currencies 34

Other 35 2947 3542 2251 1377

Adjustments for variation margin 41

Total (11 to 41) 49 2947 3542 2251 1377

Retums under the Accounts and Statements Rules 24042002:11:41:59 Fonn 17

Analysis of derivative contracts


Global business

Financial year ended

Other than long tenn

31st December 2001

Insurance Business

Category of assets Total other than long tenn business assets

companyregistrationnumber GUUKlCM


Categoryofassets

15

IRH

I

2554213I

GL1

31 1121 2001 [£000

[10

As at the end of this financial year As at the end of the previous yearDerivative contracts

Assets Liabilities Assets Liabilities1 2 3 4


Equity shares 12Futures

Land 13contracts

Currencies 14 1327 3084

Other 15


Equity shares 22

Options Land 23

Currencies 24

Other 25


Equity shares 32Contractsfor Land 33differences

Currencies 34 1129 9921 2169 4948

Other 35 38463 17348 4008 2552

Adjustments for variation margin 41

Total (11 to 41) 49 39592 28596 6177 10584


Analysis of derivative contracts


Global business


Long term

31st December 2001

Insurance Business

Category of assets Total long term business assets



Categoryofassets

16

I

R40I

2554213I

GLI

31 112I

2001I

£000I

OBI

99I

0

The financial Previous yearyear

Items to be shown net of reinsurance ceded1 2

Earned premiums 11 847725 921230

Investment income receivable before deduction of tax 12 749755 703992

Increase (decrease) in the value of non-linked assets brought into account 13 (10030) 124685

Increase (decrease) in the value of linked assets 14

Other income 15 9

Total income (11 to 15) 19 1587459 1749907

Claims incurred 21 782745 705960

Expenses payable 22 44237 41034

Interest payable before deduction of tax 23 50 900

Taxation 24

Other expenditure 25

Transfer to (from) non technical account 26

Total expenditure (21 to 26) 29 827032 747894

Increase (decrease) in fund in financial year (19-29) 39 760427 1002013

Fund brought forward 49 11071750 10069737

Fund carried forward (39+49) 59 11832177 11071750


Long term insurance business: Revenue account


Global business

Ordinary insurance business


Name and number of fund/Summary Summary


Period endedday month year Units oBnB

No of No offundi part ofSummary Fund

17

I

R40I

2554213I

GLI

31 112 ,2001

I£000

I

OBI

1I

0

The financial Previous yearyear

Items to be shown net of reinsurance ceded1 2

Earned premiums 11 847725 921230

Investment income receivable before deduction of tax 12 749755 703992

Increase (decrease) in the value of non-linked assets brought into account 13 (10030) 124685

Increase (decrease) in the value of linked assets 14

Other income 15 9

Total income (11 to 15) 19 1587459 1749907

Claims incurred 21 782745 705960

Expenses payable 22 44237 41034

Interest payable before deduction of tax 23 50 900

Taxation 24

Other expenditure 25

Transfer to (from) non technical account 26

Total expenditure (21 to 26) 29 827032 747894

Increase (decrease) in fund in financial year (19-29) 39 760427 1002013

Fund brought forward 49 11071750 10069737

Fund carried forward (39+49) 59 11832177 11071750


Long term insurance business: Revenue account


Global business



Name and number of fund/Summary Ordinary Branch Long Term 1


Period endedday month year Units OBlIB


18

IR41

I

2554213I

GL 31 12I

20011

£000I

OB 99I

0

Gross Payable to or Net ofrecoverable from reinsurance

reinsurers (1-2)1 2 3

Lifeassurance and Single premium 11general annuitycontracts Regular premium 12

Pension business Single premium 13 847725 847725contracts

Regular premium 14

Permanenthealth Single premium 15

Earned contracts

premiums in Regular premium 16

the financial17year Single premium

Other contractsRegular premium 18

Single premium 19 847725 847725Total premiums

Regular premium 29

Total premiums at UK contracts 31 847725 847725lines19and 29attributable to Overseas contracts 32

Commission payable in connection with41 1127 1127acquisition of business

Other commission payable 42

Management expenses in connection with43 7812 7812

Expenses acquisition of business

payable inManagement expenses in connection withthe financial maintenance of business 44 22449 22449

year

Other management expenses 45 12849. 12849

Total expenses (41 to 45) 49 44237 44237

Totalexpenses at UK contracts 51 44237 44237line 49 attributableto

Overseas contracts 52


Long term insurance business: Analysis of premiums and expenses


Global business





Period ended

day month year Units oa/laNo of No offundi part ofSummary Fund

19

IR41

I

2554213I

GL 31 12I

2001,

£000I

OB 1I

0

Gross Payable to or Net ofrecoverable from reinsurance

reinsurers (1-2)1 2 3

Lifeassurance and Single premium 11general annuitycontracts Regular premium 12

Pension business Single premium 13 847725 847725contracts

Regular premium 14

Permanent health Single premium 15

Earned contractspremiums in Regular premium 16

the financial17year Single premium

Other contractsRegular premium 18

Single premium 19 847725 847725Total premiums

Regular premium 29

Total premiums at UK contracts 31 847725 847725lines19and 29attributable to Overseas contracts 32

Commission payable in connection with41 1127 1127acquisition of business

Other commission payable 42

Management expenses in connection with43 7812 7812

Expenses acquisition of business

payable inManagement expenses in connection withthe financial maintenance of business 44 22449 22449

year

Other management expenses 45 12849 12849

Total expenses (41 to 45) 49 44237 44237

Total expenses at UK contracts 51 44237 44237line 49 attributableto



Long term insurance business: Analysis of premiums and expenses


Global business



Name and number of fund/Summary Ordinary Branch Long Term 1


Period endedday month year Units OBIIB


20

rR42

I

2554213I

GL 31 12I

2001I

£000I

OBI

99 0

c.:;ross Recoverable Net offrom reinsurers reinsurance

Claims 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)

On death 21 1345 1345

By way of lump sums on vesting 22 1783 1783Pensionbusiness By way of vested annuity payments 23 770433 201 770232contracts

On surrender or partial surrender 24 9385 9385

Total pension business claims (21 to 24) 29 782946 201 782745

By way of lump sums 31Permanenthealth By way of periodical payments 32contracts

Total permanent health claims (31+32) 39

By way of lump sums 41

Other By way of periodical payments 42contracts

Total claims (41+42) 49

Total claims (19+29+39+49) 59 782946 201 782745

Total claims at line UK contracts 61 782946 201 782745

59 attributable toOverseas contracts 62


Long term insurance business: Analysis of claims


Global business





Period endedday month year Units OB/16


21

IR42

I

2554213I

GL 31 12I

20011

£000r

OBI

1 0

Gross ~ecoveraDTe Net offrom reinsurers reinsurance

Claims 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)

On death 21 1345 1345

By way of lump sums on vesting 22 1783 1783Pensionbusiness By way of vested annuity payments 23 770433 201 770232contracts

On surrender or partial surrender 24 9385 9385

Total pension business claims (21 to 24) 29 782946 201 782745

By way of lump sums 31Permanenthealth By way of periodical payments 32contracts

Total permanent health claims (31+32) 39

By way of lump sums 41

Other By way of periodical payments 42contracts

Total claims (41+42) 49

Total claims (19+29+39+49) 59 782946 201 782745

Total claims at line UK contracts 61 782946 201 78274559 attributable to


Retums under the Accounts and Statements Rules 24042002:11:41:59 Fonn 42

Long term insurance business: Analysis of claims


Global business



Name and number of fund/Summary Ordinary Branch Long Tenn 1


Period endedday month year Units OB/IB

No of No offundi part otSummary Fund

22

IR46

I

2554213I

GL '31 112 T2001

[

£000I

UKI

NL

Lite assurance and general Pensions business Pennanent health Other businessannuity

Noot Annual Noot Annual Noot Annual Noot Annualcontracts premiums contracts premiums contracts premiums contracts premiums

1 2 3 4 6 6 7 8

In force at beginning of year 11 443922

New business and increases 12 45285

Net transfers and other13 69732alterations 'on'

Total 'on' (12+13) 19 115017

Deaths 21 14805

Other insured events 22

Maturities 23

Surrenders 24

Forfeitures 25

Conversions to paid-up26policies for reduced benefits

Net transfers, expiries and27other alterations 'off'

Total 'off' (21 to 27) 29 14805

In force at end of year39(11 +19-29) 544134


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


Global business

United Kingdom business

Non-linked



Period endedday month year Units UKlOS NULN

23

IR46

I

2554213I

GLI

31 112 12001

1£000

I

UKI

LN

Lifeassurance and general Pensions business Permanent health Other businessannuity

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

1 2 3 4 6 6 7 8

In force at beginning of year 11 21948

New business and increases 12 8128

Net transfers and other13 2935alterations 'on'

Total 'on' (12+13) 19 11063

Deaths 21 691

Other insured events 22

Maturities 23

Surrenders 24

Forfeitures 25

Conversions to paid-up26policies for reduced benefits

Net transfers, expiries and27other alterations 'off

Total 'off (21 to 27) 29 691

In force at end of year39(11+19-29) 32320


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


Global business


Linked


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Long term insurance business: Expected income from admissible assets not held to match liabilities in respect oflinked benefits

Name of insurer

Global business


Category of assets

Type of asset

Land and buildings

Fixed interestsecurities

Variable interestand variable yieldsecurities(excluding itemsshown at line 16)

Prudential Annuities Limited

31st December 2001

Total long term business assets

Approved securities

Other

Approved securities

Other

Equity shares and holdings in collective investmentschemes

Loans secured by mortgages

All other assets

Total (11 to 19)

Producing income

Not producing income

Companyregistrationnumber

2554213

GUUKlCMPeriod ended

day month year UnitsCategoryof assets

GL 10

Value ofadmissible

assets as shownon Form 13

1

11

12

13

14

15

16

17 293151

18 138709

19 45152

29 10091428

27

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5.43

6.63

23188 6.89

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28

PRUDENTIAL ANNUITIES LIMITED

Returns for the year ended 31 December 2001

Valuation Report on Prudential Annuities Limited as at 31 December 2001

1. Date of investigation

The investigation relates to 31 December 2001.

2. Date of previous investigation

The previous investigation related to 31 December 2000.

3. Conformity with Rule 5.6

The valuation of long term business liabilities shown in this report conforms withRule 5.6 of the Interim Prudential Sourcebook for Insurers.

4. Description of non-linked contracts(1) (c) Categories of in force non-linked business are as follows:

(i) Annuities in payment

These are non-profit annuities, written on either a single life or jointlife and last survivor basis, which provide a level series of paymentsthroughout the life of the annuitant(s), or incorporate a provision forpayments to increase annually at a guaranteed rate. The annuity mayincorporate a minimum guaranteed period of payment. Enhancedannuities are available to policyholders suffering from a range ofmedical conditions that have an adverse impact on life expectancy.

(ii) Deferred annuities

These are non-profit deferred annuities, written on either a singlelife or joint life and last survivor basis, which are either singlepremium or fully paid-up contracts. Benefits are expressed asamounts of deferred annuity per annum payable at retirement. Thebenefit at retirement may be a level series of payments throughoutthe life of the annuitant(s), or incorporate a provision for paymentsto increase annually at a guaranteed rate. The annuity mayincorporate a minimum guaranteed period of payment starting atretirement. On death before the end of the deferred period, a lumpsum or dependant's annuity may be payable.

29

5. Description of linked contracts

(1) (a) RPI linked annuities

(b) These contracts are classified as:United Kingdom pensions business;Business is written directly, and reassurance is accepted and ceded;Non-profit annuities in payment and in deferment.

(c) These are all single premium contracts.

(d) These are non-profit annuities, written on either a single life or jointlife and last survivor basis, which provide a series of paymentsthroughout the life of the annuitant(s) which are revalued, annually,in line with the Retail Price Index. The annuity may incorporate aminimum guaranteed period of payment. In some cases, therevaluation may have a maximum and/or minimum percentageincrease. Enhanced annuities are available to policyholders sufferingfrom a range of medical conditions that have an adverse impact onlife expectancy.

(e) There are no guaranteed investment returns other than those implicitin the guaranteed annuity benefit.

(f) The guaranteed annuity benefit is calculated incorporating anallowance for initial and renewal expenses and commission.

(g) Not applicable.

(h) Not applicable.

(i) See (d) above.

(j) None.

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

(1) Not applicable.

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

(3) Not applicable.

(4) Not applicable.

(5) Not applicable.

(6) Not applicable.

Valuation Report as at 31 December 2001 (continued)

30


6. Valuation principles and methods

(1) The mathematical reserve for annuities in payment is the present value ofthe annuities.

The mathematical reserve for RPI-linked annuities is, in general,determined without an explicit allowance for future increases in annuitypayments, which is consistent with the treatment of the matching assets.The treatment ofRPI-linked annuities which are subject to maximum andminimum percentage annual increases are described in 6.1(h) below.

The mathematical reserve for non-profit deferred annuities is the presentvalue of the annuity secured to date.

In particular the following principles have been observed:

v)

Derivative contracts as at 31 December 2001 comprised:i) A contract to swap US Dollars for UK sterling at a variable

rate (£LIBOR) plus a fixed margin;A contract to swap the rUBOR for fixed UK sterling;A contract to swap euros at a floating rate to fixed UKsterling;A currency futures contract to change euros into UKSterling.Contracts to swap future income increasing at a fixed rateeach year for income varying in line with changes inRPI/LPI;

(a)

ii)iii)

iv)

The effect of the contracts under i) and ii) is to convert cashflowsfrom US Dollar denominated bonds into fixed UK sterlingcashflows.

The effect of the contracts under iii) and v) is to convert cashflowsfrom euro denominated bonds into RPI-linked UK sterlingcashflows.

The cashflows involved in these arrangements were included in theaggregate cashflows from the portfolio, to give the aggregate yieldon the portfolio. This is in accordance with a waiver under section148 of the Financial Services and Markets Act 2000 which wasoriginally issued in December 1995 as a section 68 order under theInsurance Companies Act 1982.

(b) Not applicable.

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

(d) There are no contracts where negative values could arise.

(e) No reserve for future bonuses is required

31


(2)

(t) No provision for any prospective liability for tax on unrealisedcapital gains has been included in the mathematical reserves sincethe Company transacts pension business only and no capital gainstax liability is expected to arise.

(g)

(h)

Not applicable

As described in 5(1)(d), some RPI-linked annuities are subject tomaximum and minimum percentage increases. These fall into twocategories:(1) RPI -linked annuities subject to a minimum annual increase

of 0% and a maximum annual increase of 5%. For valuationpurposes these are treated as being identical to normal RPI-linked annuities.RPI-linked annuities subject to a minimum annual increaseof 2.5% and a maximum of 5%. For valuation purposes theseare treated as annuities with fixed 5% annual increases. Theyare included in these returns as linked business. Thus, inparticular, Form 56 includes sufficient fixed interest assets tomatch the corresponding liabilities.

(2)

(i) The additional reserve includes £14,000,000 in respect ofcounterparty risks in connection with derivative contracts. Thereserve is assessed based on counterparty exposure limits andarrangements for the use of collateral. The additional reserve alsoincludes allowance for general contingencies.

Not applicable

7. Interest, mortality bases, resilience, etc.

(1)

(2)

(3)

(4)

See Forms 51 and 54 and notes to these Forms. The '+3' in mortality basesB and C refers to a 3 year addition to the age.

The mortality tables used are published tables.

All business is written in the UK and UK-based mortality tables have beenused.

Annuities are generally valued using a percentage of the 92 series (year ofbirth) tables for annuitants and pensioners. The percentage is selected sothat the valuation makes allowance for future mortality improvement at afaster rate than that implicit in the underlying tables. For some annuitycontracts in deferment, a calendar year table is used; for these contracts afurther deduction of 0.35% from the valuation rate of interest of 5.83% hasbeen made during the deferred period, to allow for expected mortalityimprovements prior to vesting.

32


(7)

(5) No allowance is made or reserve is held, in addition to the assumptions in 7(4) above, in respect of possible changes in the incidence of disease ordevelopment in medical science.

(6) The scenarios tested were:(a) an immediate decrease of20% in the rates of interest obtainable on

fixed interest securities, an immediate decrease of 25% in the realyields on index-linked stocks and an immediate fall in propertyvalues of 10%.an immediate increase of 3 percentage points in the rates of interestobtainable on fixed interest securities, an immediate increase of 1percentage point in the real yields on index-linked stocks and animmediate fall in property values of 20%.

.

(b)

Scenario (a) was the more onerous.

As the effect of the derivatives described in 6 (1) (a) i) to iv) is to producefixed UK sterling cashflows, irrespective of future exchange rates, thescenarios have been tested against the aggregate yield of the US $ assets andtheir associated derivatives, using the methodology of the section 148waiver (originally issued as a section 68 order in December 1995).

Similarly, the effect of the swap contracts described in 6 (1) (a) v) is toproduce RPI linked sterling cashflows, and the scenarios have been testedagainst the aggregate yield of the non linked assets and their associatedswap contracts.

The reserve required under Rule 5.17(a) of the Interim PrudentialSourcebook for Insurers is calculated by projecting:

(i) the risk adjusted cashflows from the assets held, including the assetsbacking the additional reserve held under Rule 5.17(a), and

(ii) the future liability payments on the valuation assumptions.

The cashflow projection shows that there is an excess of income over outgoin the earlier years. These amounts are assumed to be invested in cash andaccumulated to meet the shortfall of asset income in later years. The cashinvestment rate is assumed to be 4.36%. In later years where outgo exceedsincome the cash borrowing rate is assumed to be 6.36%. The additionalreserve is set so that all liability cashflows can, on these assumptions, bemet as they fall due.

A total reserve of £255,078,000 was held at 31 December 2001.

33

(a) Not applicable

(b) See Form 51

(c) Not applicable

(d) Not applicable


(8) (a) Valuation rates of interest are adjusted as shown in Form 57. Noother assumptions are changed.

(b) Assets are hypothecated to liabilities as shown in Form 57. Yields onassets are adjusted by 0040% and 0.30% to allow for defaults onfixed interest and RPI-linked assets (other than governmentsecurities) respectively.

(c) Under the scenario which produces the most onerous requirement:

(i) the aggregate amount of the long term liabilities increased by£1,289,001,000 after allowing for the release ofthemismatching reserve described in 7(7) above.

(ii) the aggregate amount of the assets backing these liabilitiesincreased by £1,461,810,000.

Hence the reserve shown in 7(7) is adequate to cover the provision requiredin respect of Rules 5.17(a) and 5. 17(b).

(9) Liabilities are all in sterling. There are some US$ and Euro denominatedassets. These assets with their associated derivatives produce income in UKsterling. See 6( 1)(a) for details.

8. Valuation of non linked business

9. Valuation of linked business

(a) See Form 54 and 6 (1) above.

(b) The annuity loadings in 10 (1) are calculated without assuming anycontribution from the loadings in new business written after the valuationdate.

34

11. Currency Matching

(1) Not applicable

(2) Not applicable

12. Reinsurance


10.

(2)

(3)

(4)

Expenses

(1) A real discount rate of 2% p.a. was used to convert prudent per policyrenewal expenses into percentage of annuity loadings.

For immediate annuities, the implicit per policy loadings at the end of2001,before inflation, were approximately £19 p.a.

Deferred annuities costs were assumed to be £ 1 p.a. per life duringdefennent and then as for immediate annuities in possession. An additionalallowance (not included in the immediate loading above) was made forcurrent systems developments.

Investment management expenses are allowed for by deducting 0.1% p.a.from the valuation rates of interest. The valuation rates of interest in Fonns51,54 and 57 (and the asset yields in Fonns 48 and 57) are shown beforethis deduction.

Based on the annualised annuity amounts in payment and defennent at 31December 2001, the amount released to meet renewal expenses over 2002(excluding the allowance for systems developments) will be £10,857,000.In addition, £11,808,000 will be released to meet investment managementexpenses.

New business premium rates incorporate a charge to cover acquisition andset-up costs. The annuity loadings in 10 (1) are calculated without assumingany contribution from the loadings in new business written after thevaluation date.

An allowance for expenses arising from closure to new business, if closureoccurred twelve months after the valuation date, has been compared withthe margins in expense loadings arising from the in force business. As thecosts are covered by the margins, no additional reserve is required.

Long tenn business is reassured on a facultative basis to a reinsurer who isauthorised to carry on business in the UK.

13. to 16. Not applicable

35

Form 48- Column 1 Column 2 Column 3£"OOO's £000' s %

Line 18 (28,596) 4,897 1.04

Form 48 Column 1 Column 2 Column 3£"OOO's £000' s %

Line 18 (28,596) 4,897 1.04

Form 48 Column 1£OOO's

Conditions noted in (2) Conditions noted in (3)£000' s £OOO's

Line 18 (43,875) (43,875)

19.


17. Changes in long term business

See Form 46

Group non-profit deferred annuities are not included in Form 46. These consist of1,411 schemes covering an estimated 77,799 lives, and 25,648 individualarrangements for non-linked contracts and 25,333 individual arrangements forlinked contracts at 31 December 2001.

18. New business

See Form 47.

Assets covering long term liabilities

(1) See Forms 48 and 49. The yield shown for land and buildings in line 11 ofForm 48 is net of expected outgo on maintenance costs and leases. Thistreatment is consistent with that adopted on Form 57. However, it shouldbe noted that in Form 40 all investment expenses, including outgo onproperty maintenance costs and leases, are shown as expenses.

(2) Changes in the amounts reported on Form 48 at 31 December 2001 whichwould result from the exercise of rights or obligations under derivativecontracts or contracts having the effect of derivative contracts (assumingthat options would be exercised only if it would be prudent to do so) are asfollows:

(3) Corresponding changes which would result from the exercise of all rights orobligations under derivative contracts, or contracts having the effect ofderivative contracts are as follows:

(4) The maximum changes to the amounts if the conditions in (2) and (3) abovehad applied at any time during the year as follows:

36

Seniority AAA AA A BBB BBand lower

First Mortgage Debenture/ 4.5 7.0 11.5 30.0 193.0Senior SecuredSenior Unsecured 10.3 16.4 25.9 66.2 420.0

Subordinated 14.8 23.4 37.4 96.2 613.0Preference 18.0 29.0 46.0 121.0 765.0


20. Valuation summaries

See Forms 51 and 54.

On Form 54 the figures shown in column 7 are the amounts of annuity per annumin payment; the figures in columns 11 and 12 are the total net liability includingallowance for future mortality and expenses.

21. Matching rectangle

(1) See Form 57.

(2) Aggregate yields have been adjusted by 0.40% and 0.30% to allow forpotential defaults within the fixed interest and RPI-linked portfoliosrespectively.

The default allowance is determined from data supplied by ourinvestment manager, which itself is based upon research carried out byone of the major rating agencies. This analysis, based on actual defaultexperience over a 30 year period, produces mean default ratesaccording to credit quality and term to redemption. Volatility is alsoanalysed and standard deviations of the rates for each credit quality areprovided.

In the event of default it may be possible to recover some capital,especially if the loan is secured. The allowance for recovery (or partialrecovery) ofthe loan varies according to the level of security and thefollowing recovery rates are assumed:

First Mortgage Debenture/Senior SecuredSenior Unsecured

Subordinated DebtPreference Shares

75%45%20%0%

To calculate the overall default provision, the corporate bond portfoliois broken down according to credit rating and level of security. Thedefault rate for each group is assumed to be the appropriate meandefault rate plus two standard deviations, reduced by the expectedrecovery. The derived default rates for each group are set out below:

Default rates -basis points per annum:

37


Regard is also paid to the yield differential between corporate andgovernment bonds, and prevailing economic circumstances. Additionalallowance for counterparty risks in connection with derivative contracts isincluded in the additional reserve described in 6(I)(i). The yields shown inForm 48 column 3 were calculated using the method of the section 148waiver (the December 1995 section 68 order). The aggregate yields on theportfolio using the method of the section 148 waiver were also used toderive the valuation rates of interest in Form 57 Row 31.

(3) The yield on property is derived in the same way as a fixed interest asset,equating the market value with future rental income and disposal value, inaccordance with the section 148 waiver (previously issued as a section 68order in December 1995). No allowance for increase in rental income ormarket value is made. Defaults are allowed for at an aggregate level asdescribed in 21(2) above, the default allowance therefore being the same asfor the other fixed interest investments.

22. Valuation results

See Form 58.

23. Required minimum margin

See Form 60.

D J Belsham, Appointed Actuary

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£000 UKI

11 IIName of index Value of assets Gross derivative

link or liabilities valueType of assets and liabilities

1 2 3

Land and buildings RPI 7927

Rights under derivative contracts RPI (17148) (17148)

Government and public body non-linked bonds RPI 130530

Corporate non linked bonds RPI 774589

Government and public body index linked bonds RPI 128469

Corporate index linked bonds RPI 722815

Public or local authority and nationalised industry loan RPI 239

Loans secured by mortgages RPI 13915

Other loans RPI 2607

Deposits with approved credit institutions RPI 1969

Accrued Interest and rent RPI 30759

Returns under the Accountsand StatementsRules 24042002:11: 41: 5 9 Fonn 56(Sheet 1)

Long term insurance business: Analysis of assets and liabilities matching investment liabilities in respect of index linkecbeneFIts


Global business



11: Global Business (Issued in the United Kingdom)Category of surplus



CategoryUKlOS of Surplus

43

Form 56(Sheet 2)

Long term insurance business: Analysis of assets and liabilities matching investment liabilities in respect of index linkecbenefits

Retums under the Accounts and Statements Rules 24042002:11:41:59


Global business



11: Global Business (Issued in the United Kingdom)Category of surplus



CategoryUKlOS of Surplus

2554213 11

Total liabilities

Total assets- -- --...-

Net total assets 1796671

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Category 0 surp us 11: Global Business (

I I I

GL '31 1122001

I£000

I

11Issued in the United R58 2554213Kingdom)

Fund carried forward 11 11832177

Bonus payments made to policyholders in anticipation of a surplus 12

Transfers out of fund/Transfer to non-technical account 13

parts of fundTransfer to other funds/parts of funds 14

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

Valuation result Total (11 +12+15) 16 11832177

Mathematical reserves for accumulating with profit policies 17

Mathematical reserves for other non linked contracts 18 9924146

Mathematical reserves for property linked contracts 19

Mathematical reserves for index linked contracts 20 1877858

Total (17 to 20) 21 11802004

surplus mClualngcontmgency ana otner reserves nela towaras tne 29 30173solvency margin (deficiency) (16-21)

Balance of surplus brought forward unappropriated from last valuation 31 5179

Transfers into fund/part Transfer from non-technical account 32of fund

Composition of Transfer from other funds/parts of fund 33

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

Surplus arising since the last valuation 35 24994

Total (31+34+35) 39 30173

Bonus payments made to policyholders in anticipation of a surplus 41

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/part of fund 47

Total distributed surplus (46+47) 48

Balance of surplus (including contingency and other reserves held 49 30173towards the solvency margin) carried forward unappropriated

'fotal (48+49) 59 30173

Percentage of distributed surplus allocated to policyholders of fund/part of fund 61

Corresponding Latest (year of valuation 2001 ) 62percentage atthree immediately Earlier (year of valuation 2000 ) 63previousvaluations

Earliest (year of valuation 1999 ) 64


Long term insurance business: Valuation result and distribution of surplus


Global business

Financial year ended 31st December 2001 Companyregistrationnumber GUUKlCM


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Supplementary notes to the returns

Fonn 9

*0901 * Section 148 waivers and Section 68 orders

Ca) The Secretary of State, on the application of the Company, made anorder on 1 August 1992 pursuant to section 68 of the InsuranceCompanies Act 1982 directing that section 31 of the InsuranceCompanies Act 1982 should not apply to the Company in respect oftransactions entered into by the Company with The PrudentialAssurance Company Limited, Prudential Holbom Pensions Limitedand Prudential Pensions Limited pursuant to the reassuranceagreements dated 1 August 1992.

Cb) The Secretary of State, on the application of the Company, issued tothe Company in December 1995 an Order under section 68 of theInsurance Companies Act 1982 requiring the Company to calculate therates of interest to be used in calculating the present value of futurepayments by or to the Company on the aggregate yield basis defined asthat rate of interest which equates the discounted value of theaggregate cash flows on the relevant asset portfolio with the totalmarket value of that portfolio.

The Section 68 orders granted in December 1995 and August 1992 under theInsurance Companies Act 1982 Casamended) continue to have effect under thetransitional arrangements set out in the Supervision Manual. Section 31 of theInsurance Companies Act 1982, referred to above, now exists as Rule 3.4 of theInterim Prudential Sourcebook for Insurers.

51

2001 2000£' OOOs £'OOOs

577,593 570,513(3,601) (6,167)

573,992 564,346

946,852 886,034

Supplementary notes to the returns (continued)

Form 10

*1001*

Form 13

Reconciliation to shareholder accounts

Net assets per FSA returnLine 99 on Form 13 (OLTB)Line 59 on Form 15

Per shareholder accountsCapital and reserves

DifferenceAdditional reserves held in long term fundDeferred tax held on additional reservesUnappropriated surplus held in long term fundLine 49 on Form 58Valuation difference Line 94 on Form 13

485,362(145,600)

30,1732,925

372,860

316,409

5,179100

321,688

Notes 1301 to 1306 apply to the other than long term business fund.

*1301*

*1302*

*1304*

*1305*

*1306*

The Company held £61m in unlisted securities.

The Company held £22m in hybrid securities.

Amounts due to or from the Company have been set off to the extentpermitted by generally accepted accounting principles.

The maximum permitted exposure to anyone counterparty other than shortterm deposits with an approved credit institution is set at 5% of the longterm business amount. Maximum permitted exposure to anyone approvedcredit institution is set at 20%. There were no breaches of these limitsduring the year.

No counterparty exposure at the year end exceeded 5% of the long termbusiness amount. Counterparty limits set were not exceeded during theyear.

Notes 130&to.IT13. apply to the lO11.gterm busIness. furid.

*1308*

*1309*

The Company held £807m in unlisted securities.

The Company held £ 1,419m in hybrid securities.

52


*1310*

*1311 *

*1312*

*1313*

Form 14

*1401*

*1402*

Form 15

*1501*

Amounts due to or from the Company have been set off to the extentpermitted by generally accepted accounting principles.

The maximum permitted exposure to anyone counterparty other than shortterm deposits with an approved credit institution is set at 5% of the longterm insurance business amount. Maximum permitted exposure to anyoneapproved credit institution is set at 20%. There were no breaches of theselimits during the year.

No counterparty exposure at the year end exceeded 5% of the long termbusiness amount. Counterparty limits set were not exceeded during theyear.

At the year end the company had £6,121,000 of "secured obligations" towhich paragraph 14 of Part 1 of Appendix 4.2 applies.

The long term fund held a number of interest rate and foreign currencyswaps and foreign currency futures, during the year. The swaps involvedthe exchange of cash flows and not of the underlying principal amount. Noprovision for adverse change is required, as all derivatives that impose anobligation on the fund are strictly covered.

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

(b) The long term fund does not attract tax, and therefore no provision,potential or otherwise, has been made for any liability to tax whichmight arise, if the company disposed of its assets at the values statedin this return.

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

(d) There were no guarantees, indemnities or other contractualcommitments other than in the ordinary course of insurance businessand in respect of related companies.

The other than long term fund held a number of interest rate swaps andforeign currency futures, during the year. The swaps involved the exchangeoYcaslitlows arid not of the uriderIying prinCipal amount. No provision fOradverse change is required, as all derivatives that impose an obligation onthe fund are strictly covered.

53


*1502*

Form 16

*1601*

*1603*

Form 40

*4002*

*4008*

*4009*

(a) There were no charges attributable to the other than long termbusiness assets.

(b) The total potential liability to taxation on capital gains which mightarise if the company disposed of its assets was £1,300k. Fullprovision has been made at the year end.

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

(d) There were no guarantees, indemnities or other contractualcommitments other than in the ordinary course of insurance businessand in respect of related companies.

Revenue account items are translated at rates ruling on the transaction date.

Balances in line 21 relate to management expenses.

Other income is composed of fees charged for the provision ofinformation, to unconnected parties, relating to the FSA pensions review.

Management services are provided to the Company for day to dayadministration from The Prudential Assurance Company Ltd (theimmediate holding company), Prudential Financial Services Ltd, M&GInvestment Management Ltd, Prudential Property Investment ManagersLtd, PPM America Inc., PruTech Ltd and Prudential Services Ltd, all beinggroup companies.

The Company has a reassurance agreement with a related company,Prudential Assurance Company Limited, in respect of non-participatingapproved annuity premiums. Included in earned premiums for the year isan amount of £592m received under this reassurance agreement. Thereassurance agreement was drawn up under normal commercial termswhich reflect the level of business transacted with the Company.

Also included within claims incurred is an amount of £508m arising fromclaims under this reassurance agreement..

The Iia.bilities included in the-return, ieIatingto thisbusiriess amount to£6,693m at the year end.

54


Fonn 46

*4601*

Fonn 48

*4801*

*4802*

*4803*

The 'net transfers on' in from 46 have arisen from a change ofadministration systems, resulting in a different measure of the number ofcontracts for the purpose of the returns.

The amounts of accrued interest included in the value of admissible assets is:

Line1213

2001£'000

20,092166,336186,428

DescriptionFixed interest - approved securitiesFixed interest - other securities

These amounts are included in line 84 on form 13.

There are six assets where the payment of interest is in default.expected income from these assets has been reduced by 50%.

The

(a) Changes in the amounts reported on Form 48 at 31 December 200 Iwhich would result from the exercise of rights or obligations underderivative contracts or contracts having the effect of derivativecontracts (assuming that options would be exercised only if it wouldbe prudent to do so) are as follows:

Form 48 Column 2£000' s4,897

Column 3%

1.04

Column 1£000' s

(28,596)Line 18

(b) Corresponding changes which would result from the exercise of allrights or obligations under derivative contracts, or contracts havingthe effect of derivative contracts are as follows:

Form 48 Column 2£000' s4,897

Column 3%

1.04

Column 1£000' s

(28,596)Line 18

(c) The maximum changes to the amounts if the conditions in 4803 (a)and 4803(b) above had applied at any time during the year are asfollows:

Forin 48 Columrl 1£000' s

Conditions noted in 4803(a) Conditions noted in 4803(b)(43,875) (43,875)Line 18

55


Form 51

*5102* The tables of mortality and disability assumed in the valuation are indicatedin column 3 of Forms 51 and 54 by the following code letters:

A 80% PMA92 (U=2002) / 80% PFA92 (U=2002)

B 80% PMA92 (U=2002)+ 3 / 80% PFA92 (U=2002)+ 3

C [AM / AF92] -3 (in deferment), 80% PMA92 (U=2002)+3 /80%PFA92 (U=2002)+ 3 (in possession)

D [AM / AF92] -3 (in deferment), 70% PMA92 (C=2002) / 70% PFA92(C=2002) (in possession)

E Nil (in deferment), 80% PMA92 (U=2002) / 80% PFA92 (U=2002) (inpossession)

Provision for the cost of paying annuities in possession is generally madeby increasing the value of the annuity. The percentage addition to the valueof the annuity, or the explicit expense provision per annum, is shown by acode letter in column 3, the meaning of the code letters being as follows:

a Expense loading of2.50%

b Expense loading of 7.50%

56



Directors' Certificate pursuant to Rule 9.34(a) ofthe Interim Prudential Sourcebook forInsurers

We certify that:

in relation to the part of this return comprising Fonns 9, 10, 13 to 17 and 40 to42 (and the supplementary notes thereto) and statements required by Rules9.29 and 9.30 that:

1. (a)

(i)

(ii)

(iii)

(b)

the return has been prepared in accordance with the Accounts andStatements Rules as modified by the orders referred to insupplementary note 0901 on Page 51 issued under Section 68 of theInsurance Companies Act 1982 which still have effect;

proper accounting records have been maintained and adequateinfonnation has been obtained by the Company; and

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

in respect of the Company's business which is not excluded by Rule 7.6, theassets held throughout the financial year enabled the company to comply withRules 7.1 to 7.5 (matching and localisation); and

(c) in relation to the statement required by Rule 9.36 that:

(i)

(ii)

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

the infonnation given has been ascertained in confonnity with thatRule.

57

Certificate required by Rule 9.34(a) (continued)

2.

3.

(c)

(d)

(e)

(t)

the margin of solvency required by Rule 2.1 has been maintained throughout thefinancial year.

(a) the requirements of Rules 3.1 to 3.4 have been fully complied with and inparticular that, subject to the provisions of Rule 3.2(2) to (4) and Rule 3.3,assets attributable to long term insurance business, the income arisingtherefrom, the proceeds of any realisation of such assets and any other incomeor proceeds allocated to the long term insurance business funds have not beenapplied otherwise than for the purpose of the long term insurance business;

(b) any amount payable from or receivable by the long term insurance businessfund in respect of services rendered by or to any other business carried on bythe Company or by a person who, for the purposes of Rule 3.4, is connectedwith it or is a subordinate company of it has been determined and whereappropriate apportioned on terms which are believed to be no less than fair tothat fund, and any exchange of assets representing such fund for other assets ofthe Company has been made at fair market 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 insurance business fund;

no intemallinked funds are maintained;

the return in respect of long term insurance business is not distorted byagreements with any other company carrying on insurance business withwhich the Company has financial, commercial or administrative links or byany arrangements which could affect the apportionment of expenses andincome; and

the Company has fully complied with the requirement of Rule 3.5.

58

Certificate required by Rule 9.34(a) (continued)

4. (a) 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) Guidance Note PI - Systems of control over the investments (andcounterparty exposure) of insurance companies with particularreference to the use of derivatives; and

(ii) Guidance Notes for the Insurance and Retail Products Financial Sector(issued by the Joint Money Laundering Steering Group)

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

(b) the return has been prepared in accordance with the following publishedguidance:

(i) Guidance Note 4.1 - Guidance for insurers and auditors on theValuation of Assets Rules;

(ii) Guidance Note 4.2- The use of derivative contracts in insurance funds;and

(iii) Guidance Note 9.1 - The preparation of returns.

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

G M WoodDirector

D J BelshamDirector

M J MooresDirector

24 April 2002

59



Appointed Actuary's Certificate pursuant to Rule 9.34(b) of the Interim PrudentialSourcebook for Insurers

I certify that:

(a) (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 insurance business;

(ii) the mathematical reserves as shown in Form 14 constitute proper provision at31 December 2001 for the liabilities (other than the liabilities which had fallendue before 31 December 2001) arising under or in connection with contracts forlong-term insurance business including the increase in those liabilities arisingfrom the distribution of surplus as a result of the investigation as at 31 December2001 into the financial condition of the long-term insurance business;

(iii) for the purposes of sub-paragraph (ii) above, the liabilities have been assessed inaccordance with Determination of Liabilities Rules in the context of assets valuedin accordance with the Valuation of Assets Rules, as shown in Form 13;

(iv) the valuation complies with the guidance notes "GN1: The Prudential Supervisionin the UK of Long-Term Insurance Business" issued by the Faculty and Instituteof Actuaries dated 1 December 2001 and "GN8: Additional Guidance forAppointed Actuaries and Appropriate Actuaries on Valuation of Long-TermInsurance Business" issued by the Faculty and Institute of Actuaries, dated 1December 2001;

(v) in my opinion, premiums for contracts entered into during the financial year andthe income earned thereon are sufficient, on reasonable actuarial assumptions,and taking into account the other financial resources of the Company that areavailable for the purpose, to enable the Company to meet its commitments inrespect of these contracts and, in particular, to establish adequate mathematicalreserves.

(b) the amount of the required minimum solvency margin applicable to the Company'slong-term insurance business immediately following 31 December 2001 (including theamount resulting from any increase in liabilities arising from a distribution of surplus asa result of the investigation into the financial condition of the long-term insurancebusiness) is £472,065,000.

~- - -

D J BelshamAppointed Actuary

24 April 2002

60


Financial Year ended 31 December 2001

Report of the auditors to the directors pursuant to Rule 9.35 of the Interim PrudentialSourcebook for Insurers

We have examined the documents prepared by the Company pursuant to part I of chapter 9 tothe Interim Prudential Sourcebook for Insurers (the Rules);

. Forms 9, 10, 13 to 17 and 40 to 42 (including the supplementary notes thereto) ("theForms");

. the statement required by Rule 9.29 on pages 63 to 65 ("the statement"); and

. the certificate signed in accordance with Rule 9.34(a) on pages 57 to 59 ("thecertificate").

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

(a) paragraph 1 in relation to the statements required by Rules 9.30 and 9.36 concerningshareholders controllers and information on the appointed actuary;

(b) sub-paragraph 3 (d) concerning the investment policy and practice of internal linkedfunds required by Paragraph 4 (d) of Appendix 9.6; and

(c) paragraph 4(a) to Appendix 9.6 in so far as it relates to controls with respect to MoneyLaundering.

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 Rules. The requirements of theRules have been modified, under section 68 of the Insurance Companies Act 1982, by ordersissued in August 1992 and December 1995, which continue to have effect under thetransitional arrangements set out in the supplementary note 0901 on page 51. Under rule 9.11the Forms and statement are required to be prepared in the manner specified by the Rules andto state fairly the information provided on the basis required by the Rules.

It is our responsibility to form an independent opinion as to whether the Forms and statementsmeet these requirements, and in the case of the certificate whether it was or was notunreasonable for the persons giving the certificate to have made the statements therein, and toreport our opinions to you. Our responsibilities, as independent auditors, are established inthe UIlited .Kingdom, by statute, the Auditing Practices Board, and by our profession's ethicalguidance.

61

Basis of opinions

We conducted our work in accordance with Practice note 20: "The Audit ofInsurers in theUnited Kingdom" issued by the Auditing Practices Board. Our work included examination, ona test basis, of evidence relevant to the amounts and disclosures in the Fonns and statements.The evidence included that previously obtained by us relating to the audit of the financialstatements of the company for the financial year on which we reported on 16 March 2002. Italso included an assessment of the significant estimates and judgements made by theCompany in the preparation of the Fonns and statements.

We planned and perfonned our work so as to obtain all the infonnation and explanationswhich we considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the Fonns and statements are free from material misstatement,whether caused by fraud or other irregularity or error, and comply with Rule 9.11.

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 actuary on page 60 with respectto 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 required bythe Rules as modified by section 68 orders granted on 1 August 1992 and December1995 and have been properly prepared in accordance with the provisions of thoseRules; and

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

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

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

KPMG Audit PlcChartered AccountantsRegistered Auditor8 Salisbury SquareLondon EC4Y 8BB

24 April 2002

62



Statement required by Rule 9.29 of the Interim Prudential Sourcebook for Insurers

(a) Investment guidelines

As requested by Rule 9.29 of the Interim Prudential Sourcebook for Insurers, the investmentguidelines for the use of derivative contracts for both long term and other than long termfunds are set out below. These are fully explained in the Company's InvestmentManagement Agreement with its fund managers and are consistent with the investmentstrategy.

(i) Derivatives are used for the purpose of efficient portfolio management or to reduce risk,specific examples being to implement tactical asset allocation changes around thestrategic benchmark, hedge cash flows, or control the risk profile of an identifiedstrategy.

(ii) A number of restrictions on the use of derivatives have been agreed with the Company'sfund managers and can only be overruled by prior agreement between the two parties:

all derivatives that impose obligations on the fund must be strictly covered.

all derivative contracts must satisfy the definition of approved under Rule 4.12 ofthe Interim Prudential Sourcebook for Insurers.

the maximum allowable exposure to counterparties should not be exceeded.

only certain permitted exchanges and contracts can be used.

(iii) During the year the company has only used Currency and Interest Rate Swaps andredeemable convertible corporate bonds. The convertible bonds have not beencategorised as derivative contracts as the derivative element is minimal and havetherefore not been reported on form 17. The total value of these bonds on the form 13 is£56,595,000 for long term business and zero for other than long term business.

(b) Derivatives where exercise is unlikely (Long Term & Other Than Long-Term Funds)

There are no specific guidelines for the use of contracts not reasonably likely to beexercised. However the Investment Management Agreement only allows the use ofderivatives for the purpose of efficient portfolio management or to reduce risk and theCompany's investment managers work within these constraints.

(c) Quantification of derivatives in (b) above

During 2001 no such contracts were used.

63

(d) Effect on form 13 at 31 December 2001 of exercising derivatives where it would beprudent to assume options would be exercised. Decreases are shown in brackets.

Long-term funds

Form 13 line 44;Form 13 line 54/55/81;

Other than long-term funds


(£43,756,000)(£6,152,000)

(£2,947,000)(£595,000)

(e) Effect on form 13 at 31 December 2001 of exercising all derivatives. Decreases areshown in brackets.

Long-term funds




(£43,756,000)(£6,152,000)

(£2,947,000)(£595,000)

(f) Effect on form 13 under the conditions noted in (d) and (e) above at any other timeduring the year. Decreases are shown in brackets.

Conditions noted in (d)

Long-term funds




Conditions noted in (e)

Long-term funds

Form 13 line 44;Form 13 line 54/55181;



(£7,323,000)(£48,162,000)

(£1,296,000)£1,161,000

(£7,323,000)(£48,162,000)

(£1,296,000)£1,161,000

64

The above figures are the maximum impact on the individual line items of exercisingderivatives at any time during the year. The maximum impacts for each line will notnecessarily occur on the same day.

(g) Maximum exposure

Long-term funds

The maximum loss which would have been incurred by the Company on the failure by anyone other person to fulfil its obligations under derivative contracts at the end of the year was£4,748,000

Under foreseeable market conditions the company's exposure would not increase beyond£29,000,000 as timely actions would be taken by the Investment Manager in line with itscollateral management policies to prevent further exposures arising. The maximum loss atany other time during the year was £6,864,000.


The maximum loss which would have been incurred by the Company on the failure by anyone other person to fulfil its obligations under derivative contracts at the end of the year was£2,947,000

Under foreseeable market conpitions the company's exposure would not increase beyond£10,000,000 as timely actions would be taken by the Investment Manager in line with itscollateral management policies to prevent further exposures arising. The maximum loss atany other time during the year was £3,921,000.

(h) Derivatives not covered by Paragraph (2) of Rule 4.12 or the definition of a permittedderivative contract in the Interim Prudential Sourcebook for Insurers.

There were no derivative contracts held during 2001 that did not satisfy the Rule 4.12requirements of the Interim Prudential Sourcebook for Insurers.

(i) Consideration for granting rights under derivative contracts

No rights under derivative contracts have been granted.

65

In the case of each person who was a shareholder controller ofthe Company at 31 December 2001:

The percentage ofthe votingpower which he was entitled

The percentage ofshares he at that time to exercise, orheld at that time in the control the exercise of, at any

Persons who, to the knowledge of the Company, have been, at Company, or in another general meeting oftheany time during the year ended 31 December 2001, a company of which the Company, or anothershareholder controller of the Company. Company was a subsidiary company of which it was a

undertaking, either alone or subsidiary undertaking,(shown separately) with any either alone or (shownassociate or associates separately) with any associate

or associates

The Prudential Assurance Company Limited, being its immediateholding company 100% 100%

Prudential plc, being its ultimate holding company 100% 100%

.... . . . . .



Statement in accordance with Rule 9.30 of the Interim Prudential Sourcebook forInsurers

Additional information on shareholder controllers

We confirm that the following is a list of:

(a) Persons who, to the knowledge of Prudential Annuities Limited ("the Company"), havebeen, at any time during the year ended 31 December 2001, a shareholder controller ofthe Company; and

(b) In the case of each person who was a shareholder controller of the Company at 31December 2001:

(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 of, at any general meeting of the Company, or another companyof which it was a subsidiary undertaking;

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

66


Year ended 31 December 2001

Statement of information on the appointed actuary pursuant to Rule 9.36 of the InterimPrudential Sourcebook for Insurers

In accordance with Rule 9.36 of the above sourcebook, David Belsham, the appointed actuary of theCompany, was requested to furnish and has provided the following information:

(a)

(ii)

(iii)

(iv)

(v)

(i) He had an interest in 24,957 and 53,918 shares in the share capital of the holdingcompany, Prudential plc, at the beginning and at the end of the year respectively.

He had an interest under the Prudential Restricted Share Plan in shares in Prudentialplc held in trust, representing the maximum award that could be made if performancerequirements of the Plan were met, of30,625 and 28,921 shares at the beginning and atthe end of the year respectively. During the year 9,812 shares were released to himunder the 1998 Scheme and 9,840 shares were conditionally awarded to him under the200 I Scheme.

He exercised the following options held under the Prudential Savings-Related ShareOption Scheme to acquire shares in Prudential plc:

Number ofOptionsExercised

ExercisePrice

Date Exercised

2,0051,922

344p359p

2 June 20013 December 200 I

He held the following options granted under the Prudential Savings-Related ShareOption Scheme to subscribe for shares in Prudential plc:

Number ofOptions overShares

ExercisePrice

Exercise Dates

454 759p Between June 2003 and December2003Between June 2006 and December2006

1,110 608p

He exercised 25,000 options held under the Prudential Executive Share OptionScheme at a price of256p on 19 December 2001 to acquire 25,000 shares in Prudentialplc.

He also had an interest in 1,410 and 1,410 shares in Egg plc, a subsidiary of Prudentialplc, at the beginning and the end of the year respectively.

67

(b)

(c)

(d)

(ii)

(iii)

He was interested in the following life and general insurance policies issued by the Company:

(i) Three endowment assurance with-profits policies maturing between 2009 and 2011with participating sums assured totalling £18,720, non-participating minimum deathbenefits of £48,000 and annual premiums of £776.

Two temporary assurance without-profits policies expiring in 2011 with sums assuredtotalling £202,000 and annual premiums of £457.

A home insurance policy covering buildings, household contents and personal effectsand a motor insurance policy.

His total remuneration for the year was £252,850.

He is a member of the Prudential Staff Pension Scheme and contributions in respect of theyear were paid by the Company.

68

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