TIDMSL.
RNS Number : 7407X
Standard Life plc
24 February 2017
Standard Life plc
Full Year Results 2016
Part 6 of 8
31. Movements in other reserves
In July 2006 Standard Life demutualised and during this process
the merger reserve, the reserve arising on Group reconstruction and
the special reserve were created.
Merger Reserve: At demutualisation in July 2006 the Company
issued shares to former members of the mutual company. The
difference between the nominal value of these shares and their
issue value was recognised in the merger reserve. The reserve
comprises components attaching to each subsidiary that was
transferred to the Company at demutualisation based on their fair
value at that date. On disposal or impairment of such a subsidiary
the related component of the merger reserve is released to retained
earnings.
Reserve arising on Group reconstruction: The value of the shares
issued at demutualisation was equal to the fair value of the
business at that date. The business's assets and liabilities were
recognised at their book value at the time of demutualisation. The
difference between the book value of the business's net assets and
its fair value was recognised in the reserve arising on Group
reconstruction. The reserve comprises components attaching to each
subsidiary that was transferred to the Company at demutualisation.
On disposal of such a subsidiary the related component of the
reserve arising on Group reconstruction is released to retained
earnings.
Special reserve: Immediately following demutualisation and the
related initial public offering, the Company reduced its share
premium reserve by court order giving rise to the special reserve.
Dividends can be paid out of this reserve.
The following tables show the movements in other reserves during
the year. The movements are aggregated for both continuing and
discontinued operations.
Revaluation Reserve
of owner Foreign Available-for-sale Equity arising Capital
occupied currency financial Merger compensation Special on Group redemption
property translation assets reserve reserve reserve reconstruction reserve Total
2016 Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----- ----------- ----------- ------------------ ------- ------------ ------- -------------- ---------- -----
At 1 January - (7) 1 2,080 53 241 (1,879) 488 977
Recognised in
other comprehensive
income
Fair value gains
on
available-for-sale
financial assets - - 17 - - - - - 17
Revaluation
of owner occupied
property 20 5 - - - - - - - 5
Exchange
differences
on translating
foreign operations - 173 - - - - - - 173
With profits
funds: Associated
UDS movement
recognised in
other
comprehensive
income 33 (5) (62) - - - - - - (67)
Aggregate tax
effect of items
recognised in
other
comprehensive
income - - (3) - - - - - (3)
------------------- ----- ----------- ----------- ------------------ ------- ------------ ------- -------------- ---------- -----
Total items
recognised in
other
comprehensive
income - 111 14 - - - - - 125
------------------- ----- ----------- ----------- ------------------ ------- ------------ ------- -------------- ---------- -----
Recognised directly
in equity
Reserves credit
for employee
share-based
payment schemes - - - - 30 - - - 30
Transfer to
retained earnings
for vested
employee
share-based
payments 30 - - - - (23) - - - (23)
Cancellation
of capital
redemption
reserve 28 - - - - - - - (488) (488)
Aggregate tax
effect of items
recognised
directly
in equity - - - - (3) - - - (3)
------------------- ----- ----------- ----------- ------------------ ------- ------------ ------- -------------- ---------- -----
Total items
recognised
directly
within equity - - - - 4 - - (488) (484)
------------------- ----- ----------- ----------- ------------------ ------- ------------ ------- -------------- ---------- -----
At 31 December - 104 15 2,080 57 241 (1,879) - 618
------------------- ----- ----------- ----------- ------------------ ------- ------------ ------- -------------- ---------- -----
Revaluation
of Reserve
owner Cash Foreign Net Available-for-sale Equity arising Capital
occupied flow currency investment financial Merger compensation Special on Group redemption
property hedges translation hedge assets reserve reserve reserve reconstruction reserve Total
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----------- ------ ----------- ---------- ------------------ ------- ------------ ------- -------------- ---------- -----
At 1 January 20 3 110 54 13 3,108 52 241 (2,100) - 1,501
Recognised
in other
comprehensive
income
Fair value
gains on
cash flow
hedges - 57 - - - - - - - - 57
Net investment
hedge - - - 56 - - - - - - 56
Fair value
gains on
available-for-sale
financial
assets - - - - 7 - - - - - 7
Revaluation
of owner
occupied
property 4 - - - - - - - - - 4
Exchange
differences
on translating
foreign operations - - (68) - - - - - - - (68)
With profits
funds: Associated
UDS movement
recognised
in other
comprehensive
income (4) - 1 - - - - - - - (3)
Aggregate
tax effect
of items
recognised
in other
comprehensive
income - - - - (2) - - - - - (2)
Items transferred
to profit
or loss on
disposal
of subsidiaries - (60) (50) (110) (17) - - - - - (237)
------------------- ----------- ------ ----------- ---------- ------------------ ------- ------------ ------- -------------- ---------- -----
Total items
recognised
in other
comprehensive
income - (3) (117) (54) (12) - - - - - (186)
------------------- ----------- ------ ----------- ---------- ------------------ ------- ------------ ------- -------------- ---------- -----
Recognised
directly
in equity
Redemption
of 'B' shares - - - - - - - - - 488 488
Reserves
credit for
employee
share-based
payment schemes - - - - - - 34 - - - 34
Transfer
to retained
earnings
for vested
employee
share-based
payments - - - - - - (32) - - - (32)
Transfer
to UDS on
sale of owner
occupied
property (14) - - - - - - - - - (14)
With profits
funds: Associated
UDS movement
recognised
in equity 14 - - - - - - - - - 14
Transfer
between reserves
on disposal
of subsidiaries (20) - - - - (1,028) - - 221 - (827)
Aggregate
tax effect
of items
recognised
directly
in equity - - - - - - (1) - - - (1)
------------------- ----------- ------ ----------- ---------- ------------------ ------- ------------ ------- -------------- ---------- -----
Total items
recognised
directly
within equity (20) - - - - (1,028) 1 - 221 488 (338)
------------------- ----------- ------ ----------- ---------- ------------------ ------- ------------ ------- -------------- ---------- -----
At 31 December - - (7) - 1 2,080 53 241 (1,879) 488 977
------------------- ----------- ------ ----------- ---------- ------------------ ------- ------------ ------- -------------- ---------- -----
32. Non-controlling interests and third party interest in consolidated funds
(a) Non-controlling interests
The movement in non-controlling interests during the year
was:
2016 2015
GBPm GBPm
--------------------------------------------------- ---- ----
At 1 January 347 278
Profit in the year attributable to non-controlling
interests 51 62
Net contributions (66) 44
Distributions (45) (35)
Foreign exchange differences on translating
foreign operations 10 (2)
---------------------------------------------------- ---- ----
At 31 December 297 347
---------------------------------------------------- ---- ----
Included in non-controlling interests of GBP297m (2015: GBP347m)
are non-controlling interests of Standard Life European Private
Equity Trust plc (SLEPET), which was renamed Standard Life Private
Equity Trust plc on 1 February 2017, of GBP251m (2015: GBP210m)
which is considered material to the Group. Non-controlling
interests own 45% (2015: 46%) of the voting rights of SLEPET. The
profit allocated to non-controlling interests of SLEPET for the
year ended 31 December 2016 is GBP49m (2015: GBP31m). Dividends
paid to non-controlling interests of SLEPET during the year
ended
31 December 2016 were GBP4m (2015: GBP5m).
Summarised financial information for SLEPET prior to
intercompany eliminations is provided in the following table. The
summarised financial information is for the years ended 30
September 2016 and 2015 which is SLEPET's financial reporting date
and is considered indicative of the interest that non-controlling
interests of SLEPET have in the Group's activities and cash flows.
The financial statements of SLEPET for the years ended 30 September
2016 and 2015 have been adjusted for market movements and any other
significant events or transactions for the three months to
31 December for the purposes of consolidation into the Group's
consolidated financial statements for the years ended 31 December
2016 and 2015 respectively.
2016 2015
SLEPET 30 September GBPm GBPm
------------------------------------- ---- ----
Statement of financial position:
Total assets 540 439
Total liabilities 7 -
Income statement:
Revenue 119 53
Profit after tax 107 47
Total comprehensive income 107 47
Cash flows:
Cash flows from operating activities 5 8
Cash flows from investing activities 73 22
Cash flows from financing activities (13) (20)
Net increase in cash equivalents 65 10
------------------------------------- ---- ----
There are no protective rights of non-controlling interests
which significantly restrict the Group's ability to access or use
the assets and settle the liabilities of the Group.
(b) Third party interest in consolidated funds
The movement in third party interest in consolidated funds
during the year was:
2016 2015
GBPm GBPm
-------------------------------------------- ------ ------
At 1 January 17,196 15,805
Change in liability for third party
interest in consolidated funds 296 531
Net contributions and movements between
classifications of investments (559) 1,166
Distributions (298) (267)
Foreign exchange differences on translating
foreign operations 200 (39)
--------------------------------------------- ------ ------
At 31 December 16,835 17,196
--------------------------------------------- ------ ------
33. Insurance contracts, investment contracts and reinsurance contracts
(i) Classification of insurance and investment contracts
The measurement basis of assets and liabilities arising from
life and pensions business contracts is dependent upon the
classification of those contracts as either insurance or investment
contracts.
Insurance contracts
A contract is classified as an insurance contract only if it
transfers significant insurance risk. Insurance risk is significant
if an insured event could cause an insurer to pay significant
additional benefits to those payable if no insured event occurred,
excluding scenarios that lack commercial substance. A contract that
is classified as an insurance contract remains an insurance
contract until all rights and obligations are extinguished or
expire.
Investment contracts
Life and pensions business contracts that are not classified as
insurance contracts are classified as investment contracts.
Participating contracts
The Group has written insurance and investment contracts which
contain discretionary participating features (e.g. with profits
business). These contracts provide a contractual right to receive
additional benefits as a supplement to guaranteed benefits. These
additional benefits are based on the performance of with profits
funds and their amount and timing is at the discretion of the
Group. These contracts are referred to as participating insurance
contracts if they contain a feature that transfers significant
insurance risk and otherwise as participating investment
contracts.
Hybrid contracts
Generally, life and pensions business product classes are
sufficiently homogeneous to permit a single classification at the
level of the product class. However, in some cases, a product class
may contain individual contracts that fall across multiple
classifications (hybrid contracts). For certain significant hybrid
contracts the product class is separated into the insurance
element, a non-participating investment element and a participating
investment element, so that each element is accounted for
separately.
Embedded derivatives
Where a contract contains a feature that meets the definition of
both an insurance contract and a derivative, the contract is
classified in its entirety as an insurance contract.
The following table summarises the classification of the Group's
significant types of life and pensions business contracts as
described in Note 3.
Participating Non-participating Participating Non-participating
Reportable insurance insurance investment investment
segment contracts contracts contracts contracts
------------ ----------------- ------------------- ---------------- ------------------
Pensions and Germany unitised UK & Ireland UK & Ireland UK & Ireland
Savings with profits annuity-in-payment unitised with unit linked
deferred annuity contracts profits pension pension contracts
contracts Certain UK contracts Certain UK
UK & Ireland & Ireland & Ireland
unitised with unit linked unit linked
profits life investment investment
contracts bonds bonds
UK deferred
annuity contracts
Germany unit
linked deferred
annuity contracts
------------ ----------------- ------------------- ---------------- ------------------
India and Hong Kong
China unit linked
life contracts
------------ ----------------- ------------------- ---------------- ------------------
Details of the accounting policies for non-participating
investment contracts are given in Note 34.
(ii) Income statement presentation - insurance and participating investment contracts
For insurance contracts and participating investment contracts,
IFRS 4 Insurance Contracts permits the continued application, for
income statement presentation purposes, of accounting policies that
were being used at the date of transition to IFRS, except where a
change is deemed to make the financial statements more relevant to
the economic decision-making needs of users and no less reliable,
or more reliable, and no less relevant to those needs. Therefore
the Group applies accounting policies determined in accordance with
the Association of British Insurers Statement of Recommended
Practice issued in 2005 (ABI SORP) as described below.
Premiums received on insurance contracts and participating
investment contracts are recognised as revenue in the consolidated
income statement when due for payment, except for unit linked
premiums which are accounted for when the corresponding liabilities
are recognised. For single premium business, this is the date from
which the policy is effective. For regular (and recurring) premium
contracts, receivables are established at the date when payments
are due.
Claims paid on insurance contracts and participating investment
contracts are recognised as expenses in the consolidated income
statement. Maturity claims and annuities are accounted for when due
for payment. Surrenders are accounted for when paid or, if earlier,
on the date when the policy ceases to be included within the
calculation of the insurance liability. Death claims and all other
claims are accounted for when notified.
When a policyholder exercises an option within an investment
contract to utilise withdrawal proceeds from the investment
contract to secure future benefits which contain significant
insurance risk, the related investment contract liability is
derecognised and an insurance contract liability is recognised. The
withdrawal proceeds which are used to secure the insurance contract
are recognised as premium income.
Claims payable include the direct costs of settlement.
Reinsurance recoveries are accounted for in the same period as the
related claim.
The change in insurance and participating investment contract
liabilities, comprising the full movement in the corresponding
liabilities during the period, is recognised in the consolidated
income statement. This also includes the movement in unallocated
divisible surplus (UDS) in the period. However, where movements in
assets and liabilities which are attributable to participating
policyholders are recognised in other comprehensive income, the
change in UDS arising from these movements is not recognised in the
consolidated income statement as it is also recognised in other
comprehensive income.
(iii) Measurement - insurance and participating investment contract liabilities
For insurance contracts and participating investment contracts,
IFRS 4 Insurance Contracts permits the continued application, for
measurement purposes, of accounting policies that were being used
at the date of transition to IFRS, except where a change is deemed
to make the financial statements more relevant to the economic
decision-making needs of users and no less reliable, or more
reliable, and no less relevant to those needs. Therefore the Group
applies accounting policies determined in accordance with the ABI
SORP as described below. As was permitted under the ABI SORP, the
Group adopts local regulatory valuation methods, adjusted for
consistency with asset measurement policies, for the measurement of
liabilities under insurance contracts and participating investment
contracts issued by overseas subsidiaries.
(iv) Measurement - participating contract liabilities
Participating contract liabilities are analysed into the
following components:
-- Participating insurance contract liabilities
-- Participating investment contract liabilities
-- Present value of future profits on non-participating
contracts, which is treated as a deduction from gross participating
contract liabilities
-- Unallocated divisible surplus
The policy for measuring each component is noted below.
Participating insurance and investment contract liabilities
Participating contract liabilities arising under contracts
issued by with profits funds which were within the scope of the
Prudential Regulation Authority (PRA) realistic capital regime
prior to the introduction of Solvency II are measured on the PRA
realistic basis that was used in the PRA realistic capital regime.
Under this approach, the value of participating insurance and
participating investment contract liabilities in each with profits
fund is calculated as:
-- With profits benefits reserves (WPBR) for the fund as
determined under the PRA realistic basis, plus
-- Future policy related liabilities (FPRL) for the fund as
determined under the PRA realistic basis, less
-- Any amounts due to equity holders included in FPRL, less
-- The portion of future profits on non-participating contracts
included in FPRL not due to equity holders, where this portion can
be separately identified
The WPBR is primarily based on the retrospective calculation of
accumulated asset shares. The aggregate value of individual policy
asset shares reflects the actual premium, expense and charge
history of each policy. The net investment return credited to the
asset shares is consistent with the return achieved on the assets
notionally backing participating business. Any mortality deductions
are based on published mortality tables adjusted where necessary
for experience variations. For those asset shares on an expense
basis, the allowance for expenses attributed to the asset share is,
as far as practical, the appropriate share of the actual expenses
incurred or charged to the fund. For those on a charges basis, the
allowance is consistent with the charges for an equivalent unit
linked policy. The FPRL comprises other components such as a market
consistent stochastic valuation of the cost of options and
guarantees.
The Group's principal with profits fund is the Heritage With
Profits Fund (HWPF) operated by Standard Life Assurance Limited
(SLAL). The participating contracts held in the HWPF were issued by
a with profits fund that fell within the scope of the PRA realistic
capital regime. Under the Scheme of Demutualisation (the Scheme),
the residual estate of the HWPF exists to meet amounts which may be
charged to the HWPF under the Scheme. However, to the extent that
SLAL's board is satisfied that there is an excess residual estate,
it shall be distributed over time as an enhancement to final
bonuses payable on the remaining eligible policies invested in the
HWPF. This planned enhancement to the benefits under with profits
contracts held in the HWPF is included in the FPRL under the PRA
realistic basis, resulting in a realistic surplus of nil. Applying
the policy noted above, this planned enhancement is therefore
included within the measurement of participating contract
liabilities.
The Scheme provides that certain defined cash flows (recourse
cash flows) arising in the HWPF on specified blocks of UK and
Ireland business, both participating and non-participating, may be
transferred out of that fund when they emerge, being transferred to
the Shareholder Fund (SHF) or the Proprietary Business Fund (PBF)
of SLAL, and thus accrue to the ultimate benefit of equity holders
of the Company. Under the Scheme, such transfers are subject to
certain constraints in order to protect policyholders. The Scheme
also provides for additional expenses to be charged by the PBF to
the HWPF in respect of Germany branch business in SLAL.
Under the PRA realistic basis, the discounted value of expected
future cash flows on participating contracts not reflected in the
WPBR is included in FPRL (as a reduction in FPRL where future cash
flows are expected to be positive). The discounted value of
expected future cash flows on non-participating contracts not
reflected in the measure on non-participating liabilities is
recognised as a separate asset (where future cash flows are
expected to be positive). The Scheme requirement to transfer future
recourse cash flows out of the HWPF is recognised as an addition to
FPRL. The discounted value of expected future cash flows on
non-participating contracts can be apportioned between those
included in the recourse cash flows and those retained in the HWPF
for the benefit of policyholders.
Applying the policy noted above:
-- The value of participating insurance and participating
investment contract liabilities is reduced by future expected (net
positive) cash flows arising on participating contracts
-- Future expected cash flows on non-participating contracts are
not recognised as an asset of the HWPF. However, future expected
cash flows on non-participating contracts that are not recourse
cash flows under the Scheme are used to adjust the value of
participating insurance and participating investment contract
liabilities.
Some participating contract liabilities arise under contracts
issued by a non-participating fund with a with profits investment
element then transferred to a with profits fund within SLAL that
fell within the scope of the PRA's realistic capital regime. The
with profits investment element of such contracts is measured as
described above. In particular the expected future cash flows
included in the FPRL reflect the transfer of charges to the
non-participating fund only to the extent that solvency of the with
profit fund on the realistic basis is maintained. Any liability for
insurance features retained in the non-participating fund is
measured using the gross premium method applicable to
non-participating contracts (see policy (v)).
Present value of future profits (PVFP) on non-participating
contracts held in a with profits fund
This applies only to the HWPF as no other with profits funds
hold non-participating contracts. An amount is recognised for the
PVFP on non-participating contracts since the determination of the
realistic value of liabilities for with profits contracts in the
HWPF takes account of this value. The amount is recognised as a
deduction from liabilities. As this amount can be apportioned
between an amount recognised in the realistic value of with profits
contract liabilities and an amount recognised in UDS, the
apportioned amounts are reflected in the measurement of
participating contract liabilities and UDS respectively.
Unallocated divisible surplus (UDS)
The UDS comprises the difference between the assets and all
other recognised liabilities in the Group's with profits funds.
This amount is recognised as a liability as it is not considered to
be allocated to shareholders due to uncertainty regarding transfers
from these funds to equity holders.
In relation to the HWPF, amounts are considered to be allocated
to equity holders when they emerge as recourse cash flows within
the HWPF.
As a result of the policies for measuring the HWPF's assets and
all its other recognised liabilities:
-- The UDS of the HWPF comprises the value of future recourse
cash flows in participating contracts (but not the value of future
recourse cash flows on non-participating contracts), the value of
future additional expenses to be charged on Germany branch business
and the effect of any measurement differences between the Realistic
Balance Sheet value and IFRS accounting policy value of all assets
and all liabilities other than participating contract liabilities
recognised in the HWPF
-- The recourse cash flows are recognised as they emerge as an
addition to equity holders' profits if positive or as a deduction
if negative. As the additional expenses are charged in respect of
the Germany branch business, they are recognised as an addition to
equity holders' profits.
(v) Measurement - non-participating insurance contract liabilities
Pensions and Savings
The liability for annuity in payment contracts is measured by
discounting the expected future annuity payments together with an
appropriate estimate of future expenses at an assumed rate of
interest derived from yields on the underlying assets.
Other non-participating insurance contracts are measured using
the gross premium method. In general terms, a gross premium
valuation basis is one in which the premiums brought into account
are the full amounts receivable under the contract. The method
includes explicit estimates of premiums, expected claims and costs
of maintaining contracts. Cash flows are discounted at the
valuation rate of interest determined to reflect conditions at the
reporting date in accordance with Prudential Regulation Authority
(PRA) requirements that existed at 31 December 2015.
India and China
The Group's policy for measuring liabilities for
non-participating insurance contracts issued by overseas
subsidiaries is to apply the valuation technique used in the
issuing entity's local statutory or regulatory reporting.
(vi) Measurement - liability adequacy test
The Group applies a liability adequacy test at each reporting
date to ensure that the insurance and participating contract
liabilities (less related deferred acquisition costs) are adequate
in the light of the estimated future cash flows. This test is
performed by comparing the carrying value of the liability and the
discounted projections of future cash flows.
If a deficiency is found in the liability (i.e. the carrying
value amount of its insurance liabilities is less than the future
expected cash flows), that deficiency is provided for in full. The
deficiency is recognised in the consolidated income statement.
(vii) Reinsurance contracts
Contracts with reinsurers are assessed to determine whether they
contain significant insurance risk. Contracts that do not give rise
to a significant transfer of insurance risk to the reinsurer are
considered financial reinsurance and are accounted for and
disclosed in a manner consistent with financial instruments.
Contracts that give rise to a significant transfer of insurance
risk to the reinsurer are assessed to determine whether they
contain an element that does not transfer significant insurance
risk and which can be measured separately from the insurance
component. Where such elements are present, they are accounted for
separately with any deposit element being accounted for and
disclosed in a manner consistent with financial instruments. The
remaining elements, or where no such separate elements are
identified, the entire contracts, are classified as reinsurance
contracts.
Reinsurance contracts are measured using valuation techniques
and assumptions that are consistent with the valuation techniques
and assumptions used in measuring the underlying policy benefits
and taking into account the terms of the reinsurance contract.
Reinsurance recoveries due from reinsurers and reinsurance
premiums due to reinsurers under reinsurance contracts that are
contractually due at the reporting date are separately recognised
in receivables and other financial assets and other financial
liabilities respectively unless a right of offset exists, in which
case the net amount is reported on the consolidated statement of
financial position.
(a) Insurance contracts and participating investment contracts
2016 2015
GBPm GBPm
---------------------------- ------ ------
Non-participating insurance
contract liabilities 23,422 21,206
----------------------------- ------ ------
Participating contract
liabilities:
Participating insurance
contract liabilities 15,151 14,283
Participating investment
contract liabilities 15,537 14,716
Unallocated divisible
surplus 585 655
----------------------------- ------ ------
Participating contract
liabilities 31,273 29,654
----------------------------- ------ ------
(b) Change in liabilities and reinsurance contracts
The movement in insurance contract liabilities, participating
investment contract liabilities and reinsurance contracts during
the year was as follows:
Participating Non-participating Participating Total
insurance insurance investment insurance
contract contract contract and participating Reinsurance
liabilities liabilities liabilities contracts contracts Net
2016 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
At 1 January 14,283 21,206 14,716 50,205 (5,515) 44,690
Expected change (1,335) (662) (881) (2,878) 374 (2,504)
Methodology/modelling
changes (45) 1 3 (41) 53 12
Effect of changes
in
Economic assumptions (465) 1,901 194 1,630 (384) 1,246
Non-economic
assumptions (23) (104) 47 (80) 50 (30)
Effect of
Economic experience 1,193 413 1,426 3,032 41 3,073
Non-economic
experience 88 (358) (106) (376) 6 (370)
New business - 794 34 828 - 828
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
Total change
in contract liabilities (587) 1,985 717 2,115 140 2,255
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
Foreign exchange
adjustment 1,455 231 104 1,790 (11) 1,779
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
At 31 December 15,151 23,422 15,537 54,110 (5,386) 48,724
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
Due to changes in economic and non-economic factors, certain
assumptions used in estimating insurance and investment contract
liabilities have been revised. Therefore, the change in liabilities
reflects actual performance over the year, changes in assumptions
and, to a limited extent, improvements in modelling techniques.
Non-economic assumptions net of reinsurance decrease of GBP30m
primarily relates to changes in mortality assumptions for
non-participating insurance contract liabilities.
Economic assumptions reflects changes in fixed income yields,
leading to lower valuation interest rates for non-participating
business, and other market movements. Economic assumptions also
include the effect of a change in the discount rate used to measure
the liability for non-participating insurance contract liabilities
resulting from a change in the way assets are hypothecated between
participating and non-participating business in the HWPF. This
change has resulted in an increase in non-participating insurance
contract liabilities, fully offset by a decrease in participating
liabilities.
Participating Non-participating Participating Total
insurance insurance investment insurance
contract contract contract and participating Reinsurance
liabilities liabilities liabilities contracts contracts Net
2015 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
At 1 January 15,397 21,841 15,191 52,429 (6,036) 46,393
Expected change (1,042) (808) (902) (2,752) 388 (2,364)
Methodology/modelling
changes 17 19 (22) 14 (3) 11
Effect of changes
in
Economic assumptions 148 (491) (17) (360) 101 (259)
Non-economic
assumptions (225) (47) 182 (90) 8 (82)
Effect of
Economic experience 315 129 152 596 11 607
Non-economic
experience 107 (378) 142 (129) 15 (114)
New business 37 964 27 1,028 - 1,028
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
Total change
in contract liabilities (643) (612) (438) (1,693) 520 (1,173)
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
Foreign exchange
adjustment (471) (23) (37) (531) 1 (530)
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
At 31 December 14,283 21,206 14,716 50,205 (5,515) 44,690
------------------------- ------------- ----------------- ------------- ------------------ ----------- -------
(c) Movement in components of unallocated divisible surplus (UDS)
The movement in UDS was as follows:
2016 2015
GBPm GBPm
---------------------------------- ----- -----
At 1 January 655 688
Change in UDS recognised in the
consolidated income statement 53 (117)
Change in UDS recognised in other
comprehensive income 67 3
Foreign exchange adjustment (190) 81
----------------------------------- ----- -----
At 31 December 585 655
----------------------------------- ----- -----
(d) Expected settlement and recovery
An indication of the term to contracted maturity/repricing date
for insurance and investment contract liabilities is given in Note
41. Reinsurance contracts are generally structured to match
liabilities on a class of business basis. This has a mixture of
terms. The reinsurance assets are therefore broadly expected to be
realised in line with the settlement of liabilities (as per the
terms of the particular treaty) within a reinsured class of
business.
Estimates and assumptions
The determination of the valuation interest rates, longevity and
mortality assumptions, and expense assumptions are all key
accounting estimates.
The principal assumptions are shown in the following tables:
(i) Non-participating insurance contracts
Pensions and Savings
For non-participating insurance contracts, the assumptions used
to determine the liabilities are updated at each reporting date to
reflect recent experience. Material judgement is required in
calculating these liabilities and, in particular, in the choice of
assumptions about which there is uncertainty over future
experience. These assumptions are determined as appropriate
estimates at the date of valuation. The basis is considered prudent
in each aspect. In particular, options and guarantees have been
provided for on prudent bases.
The principal assumptions for the main UK non-participating
insurance contracts are as follows:
Valuation interest rates
The valuation interest rates used are determined in accordance
with the Prudential Regulation Authority's Integrated Prudential
Sourcebook that existed at 31 December 2015. The process used to
determine the valuation interest rates used in the calculation of
the liabilities comprises three stages: determining the current
yield on the assets held after allowing for risk and tax,
hypothecating the assets to various types of policy and determining
the discount rates from the hypothecated assets.
For corporate bonds, a deduction is made for the risk of default
which varies by the quality of asset and the credit spread at the
valuation date. The yield for each category of asset is taken as
the average adjusted yield weighted by the market value of each
asset in that category except for UK and Ireland annuity business
and Germany non-participating insurance business within the PBF
where the internal rate of return of the assets backing the
liabilities is used.
The valuation interest rates used are:
Non-participating 2016 2015
------------------------------------- ------- -------
1. Business held within the PBF
Annuities: Individual and group
Life 2.06% 3.05%
Pensions 2.06% 3.05%
Linked to RPI (1.55%) (0.47%)
2. Business held within the HWPF
Annuities: Individual and group
Non-linked
Life 0.20% 2.30%
Pensions: reinsured externally 1.55% 2.35%
Pensions: not reinsured externally 1.15% 2.80%
Deferred annuities 1.15% 2.80%
Linked to RPI
Reinsured externally (1.85%) (0.60%)
Not reinsured externally (2.10%) (0.45%)
Deferred annuities (2.10%) (1.00%)
------------------------------------- ------- -------
Mortality rates
The future mortality assumptions are based on historical
experience, with an allowance for future mortality improvement in
annuities. The Group's own mortality experience is regularly
assessed and analysed, and the larger industry-wide investigations
are also taken into account.
Mortality tables used 2016 2015
---------------------------------- --------------- ---------------
Annuities
Males: 64.7% Males: 67.0%
Individual and group in deferment AMC00 AMC00
Females: 65.7% Females: 65.2%
AFC00 AFC00
Individual after vesting (business Males: 91.2% Males: 92.6%
written after 10 July 2006) RMC00 RMC00
Females: 99.9% Females: 100.3%
RFC00 RFC00
Individual after vesting (business Males: 95.7% Males: 97.1%
written prior to 10 July 2006) RMC00 RMC00
Females: 104.7% Females: 104.0%
RFC00 RFC00
Group after vesting (business Males: 109.8% Males: 112.1%
written after 10 July 2006) RMV00 RMV00
Females: 118.3% Females: 119.9%
WA00 WA00
Group after vesting (business Males: 109.3% Males: 111.6%
written prior to 10 July 2006) RMV00 RMV00
Females: 120.1% Females: 120.8%
WA00 WA00
---------------------------------- --------------- ---------------
In the valuation of the liabilities in respect of annuities and
deferred annuities issued in the UK, allowance is made for future
improvements in the rates of mortality. For 2016, this is based on
the Standard Life Assurance Limited (SLAL) parameterisation of the
CMI_2014 model with long-term improvement rates of 1.8% for males
and 1.5% for females. The Continuous Mortality Investigation Bureau
(CMI) is a body funded by the UK insurance and reinsurance industry
that produce industry standard mortality tables and projection
bases for mortality improvements. CMI_2014 is a model that was
published towards the end of 2014.
At 2015, this was based on the Standard Life Assurance Limited
(SLAL) parameterisation of the CMI_2013 model with long-term
improvement rates of 1.8% for males and 1.5% for females. CMI_2013
is a model that was published towards the end of 2013.
The SLAL parameterisation of the CMI_2013 and CMI_2014 models
make the following changes relative to the 'core' model:
-- Blends period improvements between ages 60 to 80 to the
long-term improvement rate over a 15 year period (compared with a
20 year period in the core CMI model)
-- Assumes that cohort improvements dissipate over a 30 year
period, or by age 90 if earlier (compared with a 40 year period, or
by age 100 if earlier, in the core CMI model)
-- For contingent spouses' benefits an assumption is also made
with regard to the proportions married, based on SLAL's historic
experience
Expenses
The assumptions for future policy expense levels are determined
from the Group's recent expense analyses. No allowance has been
made for potential expense improvement and the costs of projects to
improve expense efficiency have been ignored. The assumed future
expense levels incorporate an annual inflation rate allowance of
3.79% (2015: 3.12%) for UK business derived from the expected RPI
implied by current investment yields and an additional allowance
for earnings inflation.
For non-participating immediate and deferred annuity contracts,
an explicit allowance for maintenance expenses is included in the
liabilities. An allowance for investment expenses is reflected in
the valuation rate of interest.
In calculating the liabilities for unitised regular premium
non-participating insurance contracts, the administration expenses
are assumed to be identical to the expense charges made against
each policy. Similar assumptions are made, where applicable, in
respect of mortality, morbidity and the risk benefit charges made
to meet such costs.
Withdrawals
For non-participating insurance business appropriate allowances
are made for withdrawals on certain term assurance contracts.
Ireland
The assumptions for business in Ireland are derived in a similar
manner to those above.
(ii) Sensitivity analysis
Refer to Note 41 for sensitivity analysis for the shareholder
business.
34. Non-participating investment contracts
Unit linked non-participating investment contracts are separated
into two components being an investment management services
component and a financial liability. All fees and related
administrative expenses are deemed to be associated with the
investment management services component (refer to Note 5, Note 17
and Note 38). The financial liability component is designated at
FVTPL as it is implicitly managed on a fair value basis as its
value is directly linked to the market value of the underlying
portfolio of assets.
Contributions received on non-participating investment contracts
are treated as policyholder deposits and not reported as revenue in
the consolidated income statement.
Withdrawals paid out to policyholders on non-participating
investment contracts are treated as a reduction to policyholder
deposits and not recognised as expenses in the consolidated income
statement.
Investment return and related benefits credited in respect of
non-participating investment contracts are recognised in the
consolidated income statement as changes in investment contract
liabilities.
The change in non-participating investment contract liabilities
was as follows:
2016 2015
Notes GBPm GBPm
--------------------------------------- ----- -------- --------
At 1 January 92,894 88,207
Contributions 10,776 12,561
Account balances paid on surrender
and other terminations in the
year (10,737) (10,564)
Change in non-participating investment
contract liabilities recognised
in the consolidated income statement 8,768 3,363
Recurring management charges (473) (450)
Foreign exchange adjustment 835 (223)
--------------------------------------- ----- -------- --------
At 31 December 35 102,063 92,894
--------------------------------------- ----- -------- --------
35. Financial liabilities
Management determines the classification of financial
liabilities at initial recognition. The majority of the Group's
financial liabilities are designated as fair value through profit
or loss (FVTPL). The methods and assumptions used to determine fair
value of financial liabilities designated at FVTPL are discussed in
Note 43. Financial liabilities which are not derivatives and not
FVTPL are financial liabilities measured at amortised cost.
Designated
as at Financial
fair value liabilities
through measured
profit Held for at amortised
or loss trading cost Total
2016 Notes GBPm GBPm GBPm GBPm
----------------------------- ----- ----------- -------- ------------- -------
Non-participating investment
contract liabilities 41 102,059 - 4 102,063
Deposits received from
reinsurers 41 - - 5,093 5,093
Third party interest
in consolidated funds 41 16,835 - - 16,835
Subordinated liabilities 36 - - 1,319 1,319
Derivative financial
liabilities 23 - 965 - 965
Other financial liabilities 39 15 - 3,901 3,916
----------------------------- ----- ----------- -------- ------------- -------
Total 118,909 965 10,317 130,191
----------------------------- ----- ----------- -------- ------------- -------
Designated
as at Financial
fair value liabilities
through measured
profit Held for at amortised
or loss trading cost Total
2015 Notes GBPm GBPm GBPm GBPm
----------------------------- ----- ----------- -------- ------------- -------
Non-participating investment
contract liabilities 41 92,890 - 4 92,894
Deposits received from
reinsurers 41 - - 5,134 5,134
Third party interest
in consolidated funds 41 17,196 - - 17,196
Subordinated liabilities 36 - - 1,318 1,318
Derivative financial
liabilities 23 - 1,254 - 1,254
Other financial liabilities 39 - - 2,900 2,900
----------------------------- ----- ----------- -------- ------------- -------
Total 110,086 1,254 9,356 120,696
----------------------------- ----- ----------- -------- ------------- -------
36. Subordinated liabilities
Subordinated liabilities are debt instruments issued by the
Company which rank below its other obligations in the event of
liquidation but above the share capital. All of the Group's
subordinated liabilities are classified as liabilities on the
consolidated statement of financial position as discussed further
below. Subordinated liabilities are initially recognised at the
value of proceeds received after deduction of issue expenses.
Subsequent measurement is at amortised cost using the effective
interest rate method.
2016 2015
Principal Carrying Principal Carrying
amount value amount value
Notes GBPm GBPm GBPm GBPm
------------------------------- ----- --------- -------- --------- --------
Subordinated notes
5.5% Sterling fixed rate
due 4 December 2042 500 499 500 499
Subordinated guaranteed
bonds
6.75% Sterling fixed rate
perpetual 500 502 500 502
Mutual Assurance Capital
Securities
6.546% Sterling fixed rate
perpetual 300 318 300 317
------------------------------- ----- --------- -------- --------- --------
Total subordinated liabilities 41 1,319 1,318
------------------------------- ----- --------- -------- --------- --------
The difference between the fair value and carrying value of the
subordinated liabilities is presented in Note 43.
The principal amount of all subordinated liabilities is expected
to be settled after more than 12 months and accrued interest of
GBP37m (2015: GBP37m) is expected to be settled within 12
months.
Amounts due under the perpetual subordinated guaranteed bonds
and Mutual Assurance Capital Securities (MACS) are classified as
liabilities. This classification is determined by the interaction
of these arrangements with a GBP100 internal subordinated loan note
issued by Standard Life Assurance Limited (SLAL) to the Company on
10 July 2006. There is no fixed redemption date for the internal
loan note, but interest payments cannot be deferred and must be
paid on the date they become due and payable. Under the terms for
the subordinated guaranteed bonds and MACS any interest deferred on
these instruments becomes immediately due and payable on the date
of an interest payment in respect of the internal loan note. The
existence of the internal loan note therefore removes the
discretionary nature of the interest payments on the subordinated
guaranteed bonds and MACS, and results in their classification as
liabilities. Under IAS 32 Financial Instruments: Presentation, if
the Group were to cancel the internal loan note then this would
result in the reclassification of these perpetual instruments from
liabilities to equity instruments at that point.
A description of the key features of the Group's subordinated
liabilities is as follows:
5.5% Sterling 6.75% Sterling 6.546% Sterling
fixed rate fixed rate fixed rate
----------------- ------------------------ ------------------ -----------------------
Principal amount GBP500,000,000 GBP500,000,000 GBP300,000,000
----------------- ------------------------ ------------------ -----------------------
Issue date 4 December 2012 12 July 2002 4 November 2004
----------------- ------------------------ ------------------ -----------------------
Maturity date 4 December 2042 Perpetual Perpetual
----------------- ------------------------ ------------------ -----------------------
4 December 2022
and on every 12 July 2027
Callable at par interest payment and on every 6 January 2020
at option of date (semi-annually) fifth anniversary and on every
the Company from thereafter thereafter anniversary thereafter
----------------- ------------------------ ------------------ -----------------------
2.85% over the 2.7% over the
gross redemption gross redemption
If not called 4.85% over the yield on the yield on the
by the Company five year gilt appropriate 5 appropriate 1
interest will rate (and at year benchmark year benchmark
reset to each fifth anniversary) gilt rate gilt rate
----------------- ------------------------ ------------------ -----------------------
Solvency II own
funds treatment Tier 2 Tier 1 Tier 1
----------------- ------------------------ ------------------ -----------------------
37. Pension and other post-retirement benefit provisions
The Group operates two types of pension plans:
-- Defined benefit plans which provide pension payments upon
retirement to members as defined by the plan rules
-- Defined contribution plans where the Group makes
contributions to a member's pension plan but has no further payment
obligations once the contributions have been paid
The Group's liabilities in relation to its defined benefit plans
are valued by at least annual actuarial calculations. The Group has
funded these liabilities in relation to its principal defined
benefit plans by ring-fencing assets in trustee-administered funds.
The Group has a further smaller defined benefit plan which is
unfunded.
The statement of financial position reflects a net asset or net
liability for each defined benefit pension plan. The liability
recognised is the present value of the defined benefit obligation
(estimated future cash flows are discounted using the yields on
high quality corporate bonds) less the fair value of plan assets,
if any. If the fair value of the plan assets exceeds the defined
benefit obligation, a pension surplus is only recognised if the
Group considers that it has an unconditional right to a refund. The
amount of surplus recognised will be limited by tax and expenses.
Our judgement is that, in the UK, an authorised surplus tax charge
is not an income tax. Consequently, the surplus is recognised net
of this tax charge rather than the tax charge being included within
deferred taxation.
For the UK defined benefit plan, the Group considers that it has
an unconditional right to a refund of a surplus, assuming the
gradual settlement of the plan liabilities over time until all
members have left the plan. The plan trustees can purchase
annuities to insure member benefits and can, for the majority of
benefits, transfer these annuities to members. The trustees cannot
unconditionally wind up the plan or use the surplus to enhance
member benefits without employer consent. Our judgement is that
these trustee rights do not prevent us from recognising an
unconditional right to a refund and therefore a surplus.
The IASB are expected to publish an amendment to pension
accounting (IFRIC 14) during 2017. This amendment, once effective
in future accounting periods, may impact the recognition of the UK
pension fund surplus. Management will consider the implications of
the amendment once it has been published.
Net interest income (if a plan is in surplus) or interest
expense (if a plan is in deficit) is calculated using yields on
high quality corporate bonds and recognised in the consolidated
income statement. A current service cost is also recognised which
represents the expected present value of the defined benefit
pension entitlement earned by members in the period.
Remeasurements, which include gains and losses as a result of
changes in actuarial assumptions, the effect of the limit on the
plan surplus and returns on plan assets (other than amounts
included in net interest) are recognised in other comprehensive
income in the period in which they occur. Remeasurements are not
reclassified to profit or loss in subsequent periods.
For defined contribution plans, the Group pays contributions to
separately administered pension plans. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised in current service cost in the
consolidated income statement as staff costs and other
employee-related costs when they are due.
Defined benefit Defined contribution
--------------------------------------------------------------- -----------------------
UK The Group's largest defined benefit plan is for employees Since April 2016
based in the UK. It closed to new entrants in November the Group contributes
2004 and changed from a final salary basis to a revalued 12% of pensionable
career average salary basis in 2008. salary to each
The UK staff defined benefit pension plan was closed to employee's plan
future accrual in April 2016. Since April 2016, all UK plus a further
employees accrue pension through a defined contribution employer contribution
plan. (matching employee
The defined benefit plan is governed by a trustee board contributions)
which comprises both employer and employee nominated trustees of up to 4%. Prior
and an independent trustee. The plan is subject to the to this the Group
statutory funding objective requirements of the Pensions contributed 9%
Act 2004. The objective requires that the plan is funded of pensionable
to at least the level of its technical provisions (an salary to each
actuarial estimate of the assets needed to provide for employee's plan.
benefits already built-up under the plan). The trustees Separate arrangements
perform regular valuations to check that the statutory exist for some
funding objective continues to be met. employees e.g.
The trustees, after consulting with the employer, prepare those in the executive
statements of funding and investment principles and, based job family.
on the funding valuation, set out future contributions
in a schedule of contributions including a recovery plan,
if needed, to restore funding to the level of the technical
provisions. No recovery plan is currently required.
In their last formal valuation, as at 31 December 2013,
the trustees measured the ratio of plan assets to technical
provisions to be 112%. The valuation as at 31 December
2016 is currently being completed.
The trustees set the plan investment strategy to protect
the ratio of plan assets to the trustees' measure of technical
provisions. This investment strategy does not aim to protect
the IAS 19 surplus or the ratio of plan assets to the
IAS 19 measure of liabilities. Falling bond yields over
the period, in part due to the result of the EU referendum
on 23 June 2016, have led to a significant increase in
the IAS 19 surplus. However, the ratio of plan assets
to the IAS 19 liabilities has remained relatively stable.
--------------------------------------------------------------- -----------------------
Defined benefit Defined contribution
----- --------------------------------------------------------- ---------------------
Other The defined benefit plan for employees based in Ireland The Group contributes
has been closed to new entrants from 31 December 2009, 9% of members'
with future accrual from that point on a career average pensionable salaries
revalued earnings (CARE) basis. to a group flexible
At the last actuarial valuation effective 1 January 2016 retirement plan.
the plan was 70% funded on an ongoing basis.
The Group also operates a small unfunded defined benefit
plan for employees in Germany.
----- --------------------------------------------------------- ---------------------
Plan regulations
The plans are administered according to local regulations in
each country. Responsibility for the governance of the plans rests
with the relevant trustee boards (or equivalent). Trustee boards
comprise a mixture of company nominated, member nominated and
independent representatives.
Contributions to defined benefit plans
2016 2015
GBPm GBPm
------- ---- ----
UK 2 3
Other 2 1
Canada - 1
--------- ---- ----
Expected contributions to the defined benefit plans in 2017 are
GBP4m.
(a) Analysis of amounts recognised in the consolidated income statement
The amounts recognised in the consolidated income statement for
defined contribution and defined benefit plans are as follows:
2016 2015
Notes GBPm GBPm
------------------------------- ----- ---- ----
Current service cost (49) (80)
Interest income 33 30
Administrative expenses (3) (2)
------------------------------- ----- ---- ----
Expense recognised in the
consolidated income statement 8 (19) (52)
------------------------------- ----- ---- ----
Contributions made to defined contribution plans are included
within current service cost, with the balance attributed to the
Group's defined benefit plans.
During 2015 the terms of a plan amendment to the UK defined
benefit plan were agreed which resulted in closure to future
accrual from April 2016. This plan amendment did not generate a
past service cost. Eligible members of the defined benefit plan
received an additional contribution of 6% of pensionable salary
into the defined contribution plan in April 2015 and April 2016.
These contributions were accrued over the vesting period and are
included in current service cost and in the cost of defined
contribution plans in Note 8.
(b) Analysis of amounts recognised in the consolidated statement of financial position
2016 2015
UK Other Total UK Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------- ----- ------- ------- ----- -------
Present value
of funded obligation (3,207) (117) (3,324) (2,525) (85) (2,610)
Present value
of unfunded obligation - (10) (10) - (8) (8)
Fair value of
plan assets 4,927 72 4,999 3,936 60 3,996
Effect of limit
on plan surplus (627) - (627) (514) - (514)
------------------------ ------- ----- ------- ------- ----- -------
Net asset/(liability) 1,093 (55) 1,038 897 (33) 864
------------------------ ------- ----- ------- ------- ----- -------
The UK plan surplus is considered to be recoverable as a right
to a refund exists. The surplus has been reduced to reflect an
authorised surplus payments charge that would arise on a
refund.
(c) Movement in the net defined benefit asset
Fair value Effect
Present of of limit
value plan on plan
of obligation assets Total surpluses Total
2016 GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------------- ---------- ----- ---------- -----
At 1 January (2,618) 3,996 1,378 (514) 864
Total expense
Current service cost (16) - (16) - (16)
Interest (expense)/income (93) 144 51 (18) 33
Administrative expenses (3) - (3) - (3)
----------------------------------- -------------- ---------- ----- ---------- -----
Total (expense)/income
recognised in consolidated
income statement (112) 144 32 (18) 14
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurements
Return on plan assets,
excluding amounts included
in interest income - 1,036 1,036 - 1,036
Gain from change in demographic
assumptions - - - - -
Loss from change in financial
assumptions (812) - (812) - (812)
Experience gains 33 - 33 - 33
Change in effect of limit
on plan surplus - - - (95) (95)
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurement (losses)/gains
recognised in other comprehensive
income (779) 1,036 257 (95) 162
----------------------------------- -------------- ---------- ----- ---------- -----
Exchange differences (15) 9 (6) - (6)
Employer contributions - 4 4 - 4
Benefit payments 190 (190) - - -
----------------------------------- -------------- ---------- ----- ---------- -----
At 31 December (3,334) 4,999 1,665 (627) 1,038
----------------------------------- -------------- ---------- ----- ---------- -----
Present Fair value Effect
value of of limit
of obligation plan on plan
assets Total surpluses Total
2015 GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------------- ---------- ----- ---------- -----
At 1 January (2,922) 4,052 1,130 (414) 716
Total expense
Current service cost (53) - (53) - (53)
Interest (expense)/income (101) 131 30 - 30
Administrative expenses (2) - (2) - (2)
----------------------------------- -------------- ---------- ----- ---------- -----
Total expense recognised
in consolidated income
statement (156) 131 (25) - (25)
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurements
Return on plan assets,
excluding amounts included
in interest income - (73) (73) - (73)
Gain from change in demographic
assumptions - - - - -
Gain from change in financial
assumptions 225 - 225 - 225
Experience gains 115 - 115 - 115
Change in effect of limit
on plan surplus - - - (100) (100)
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurement gains/(losses)
recognised in other comprehensive
income 340 (73) 267 (100) 167
----------------------------------- -------------- ---------- ----- ---------- -----
Exchange differences 5 (3) 2 - 2
Employer contributions - 4 4 - 4
Benefit payments 115 (115) - - -
----------------------------------- -------------- ---------- ----- ---------- -----
At 31 December (2,618) 3,996 1,378 (514) 864
----------------------------------- -------------- ---------- ----- ---------- -----
(d) Defined benefit plan assets
Investment strategy is directed by the relevant trustee boards
who pursue different strategies according to the characteristics
and maturity profile of each plan's liabilities. Assets and
liabilities are managed holistically to create a portfolio with the
dual objectives of return generation and liability management. This
is achieved through a diversified multi-asset absolute return
strategy seeking consistent positive returns, and hedging
techniques which protect liabilities against movements arising from
changes in interest rates and inflation expectations. Derivative
financial instruments support both of these objectives and may lead
to increased or decreased exposures to the physical asset
categories disclosed below.
To provide more information on the approach used to determine
and measure the fair value of the plan assets, the fair value
hierarchy has been used as defined in Note 43. Those assets which
cannot be classified as level 1 have been presented together as
level 2 or 3.
The distribution of the fair value of the assets of the Group's
funded defined benefit plans at 31 December 2016 is as follows:
UK Other Total
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- ----- ---- ---- ----- -----
Assets measured at fair
value based on level
1 inputs
Derivatives 16 7 - - 16 7
Equity securities and
interests in pooled investment
funds 982 850 54 48 1,036 898
Debt securities 3,357 2,029 - - 3,357 2,029
-------------------------------- ----- ----- ---- ---- ----- -----
Total assets measured
at fair value based on
level 1 inputs 4,355 2,886 54 48 4,409 2,934
-------------------------------- ----- ----- ---- ---- ----- -----
Assets measured at fair
value based on level
2 or 3 inputs
Derivatives 324 (9) - (3) 324 (12)
Equity securities and
interests in pooled investment
funds 163 185 - - 163 185
Debt securities 190 589 - - 190 589
Qualifying insurance
policies 5 4 - - 5 4
-------------------------------- ----- ----- ---- ---- ----- -----
Total assets measured
at fair value based on
level 2 or 3 inputs 682 769 - (3) 682 766
-------------------------------- ----- ----- ---- ---- ----- -----
Cash and cash equivalents 186 281 18 15 204 296
Liability in respect
of collateral held (292) - - - (292) -
Other (4) - - - (4) -
-------------------------------- ----- ----- ---- ---- ----- -----
Total 4,927 3,936 72 60 4,999 3,996
-------------------------------- ----- ----- ---- ---- ----- -----
Investment strategy risks include underperformance of the
absolute return strategy and underperformance of the liability
hedging strategy. As the trustees set investment strategy to
protect their own view of plan strength (not the IAS 19 position),
changes in the IAS 19 liabilities (e.g. due to movements in
corporate bond prices) may not always result in a similar movement
in plan assets. Further information on risks is provided in section
(g) of this note. The GBP3,547m (2015: GBP2,618m) of debt
securities includes GBP3,357m (2015: GBP2,068m) government bonds
(including conventional and index-linked). Of the remaining GBP190m
(2015: GBP550m) debt securities, GBP169m (2015: GBP532m) are
investment grade corporate bonds or certificates of deposit.
Defined benefit plans also use pooled investment vehicles to
access a variety of asset classes in an efficient way. The
underlying assets of the pooled investment vehicles include, but
are not limited to, cash, equity securities, property, debt
securities and absolute return portfolios.
(e) Estimates and assumptions
Determination of the valuation of plan liabilities is a key
estimate as a result of the assumptions made relating to both
economic and non-economic factors.
The principal economic assumptions for the UK plan which are
based in part on current market conditions are shown below:
2016 2015
% %
----------------------------- ---- ----
Discount rate 2.70 3.70
Rates of inflation
Consumer Price Index (CPI) 2.25 2.15
Retail Price Index (RPI) 3.25 3.15
----------------------------- ---- ----
The most significant non-economic assumption is post-retirement
longevity which is inherently uncertain. The assumptions (along
with sample expectations of life) are illustrated below:
Expectation of
life from NRA
-----------
Male age Female
today age today
Normal
Retirement
2016 Table Improvements Age (NRA) NRA 40 NRA 40
----- ------------------- -------------------------- ----------- ------ --- ------ ----
Advanced parameterisation
of CMI 2011 mortality
improvements model
- adjusted to assume
that improvements
Plan specific continue to increase
basis (calibrated in the short-term
by Club Vita) before declining
reflecting toward an ultimate
membership long-term rate of
demographics 1.375% 60 30 32 32 34
------------------- -------------------------------- ----------- ------ --- ------ ----
Expectation of
life from NRA
-----------
Male age Female
today age today
Normal
Retirement
2015 Table Improvements Age (NRA) NRA 40 NRA 40
----- ------------------- -------------------------- ----------- ------ --- ------ ----
Advanced parameterisation
of CMI 2011 mortality
improvements model
- adjusted to assume
that improvements
Plan specific continue to increase
basis (calibrated in the short-term
by Club Vita) before declining
reflecting toward an ultimate
membership long-term rate of
demographics 1.375% 60 30 32 32 34
------------------- -------------------------------- ----------- ------ --- ------ ----
(f) Duration of defined benefit obligation
The graph below provides an illustration of the undiscounted
expected benefit payments included in the valuation of the UK plan
obligations. Graph removed for the purposes of this announcement.
However it can be viewed in full in the pdf document.
2016 2015
Weighted average duration years years
-------------------------- ----- -----
Current pensioner 19 17
Non-current pensioner 29 27
-------------------------- ----- -----
(g) Risk
(g)(i) Risks and mitigating actions
The Group's consolidated statement of financial position is
exposed to movements in the defined benefit plans' net asset. In
particular, the consolidated statement of financial position could
be materially sensitive to reasonably likely movements in the
principal assumptions for the UK plan. By offering post-retirement
defined benefit pension plans the Group is exposed to a number of
risks. An explanation of the key risks and mitigating actions in
place for the UK plan is given below.
Asset volatility
Failure of the asset strategy to keep pace with changes in plan
liabilities would expose the plan to the risk of a deficit
developing, which could increase funding requirements for the
Group.
Yields/discount rate
Falls in yields would in isolation be expected to increase the
defined benefit plan liabilities.
The UK plan uses both bonds and derivatives to hedge out yield
risks on the plan's funding basis, rather than the IAS 19 basis,
which is expected to minimise the plan's need to rely on support
from the Group.
Inflation
Rises in inflation expectations would in isolation be expected
to increase the defined benefit plan liabilities.
The UK plan uses both bonds and derivatives to hedge out
inflation risks on the plan's funding basis, rather than the IAS 19
basis, which is expected to minimise the plan's need to rely on
support from the Group.
In the UK plan pensions in payment are generally linked to CPI,
however inflationary risks are hedged using RPI instruments due to
lack of availability of CPI linked instruments. Therefore, the plan
is exposed to movements in the actual and expected long-term gap
between RPI and CPI.
Life expectancy
Increases in life expectancy beyond those currently assumed will
lead to an increase in plan liabilities. Regular reviews of
longevity assumptions are performed to ensure assumptions remain
appropriate.
(g)(ii) Sensitivity to principal assumptions
The sensitivity of the UK defined benefit plan's net assets to
the principal assumptions is disclosed below.
2016 2015
(Increase)/decrease Increase/(decrease) (Increase)/decrease Increase/(decrease)
in present in fair in present in fair
Change in value of value of value of value of
assumption obligation plan assets obligation plan assets
GBPm GBPm GBPm GBPm
--------------- -------------- ------------------- ------------------- ------------------- -------------------
Yield/discount Decrease by
rate 1% (1,040) 1,768 (729) 1,312
---------------
Increase by
1% 739 (1,226) 526 (896)
Rates of Decrease by
inflation 1% 629 (1,089) 459 (823)
---------------
Increase by
1% (912) 1,553 (635) 1,178
Decrease by
Life expectancy 1 year 101 - 55 -
---------------
Increase by
1 year (101) - (55) -
38. Deferred income
Where the Group receives fees in advance (front-end fees) for
services it is providing, including investment management services,
these fees are initially recognised as a deferred income liability
and released to the consolidated income statement on a straight
line basis over the period services are provided.
2016 2015
Notes GBPm GBPm
------------------------------ ----- ---- ----
At 1 January 236 276
Additions during the year 5 15 25
Amortised to the consolidated
income statement as fee
income 5 (61) (63)
Foreign exchange adjustment 8 (2)
------------------------------ ----- ---- ----
At 31 December 198 236
------------------------------ ----- ---- ----
The amount of deferred income expected to be settled after more
than 12 months is GBP148m (2015: GBP178m).
39. Other financial liabilities
2016 2015
Notes GBPm GBPm
--------------------------------- ----- ----- -----
Amounts payable on direct
insurance business 368 340
Amounts payable on reinsurance
contracts 6 7
Outstanding purchases of
investment securities 300 180
Accruals 379 403
Creation of units awaiting
settlement 251 174
Cash collateral held in
respect of derivative contracts 41 2,016 1,166
Bank overdrafts 27 38 49
Property related liabilities 246 223
Contingent consideration
liabilities 43 15 -
Other 297 358
--------------------------------- ----- ----- -----
Other financial liabilities 3,916 2,900
--------------------------------- ----- ----- -----
The amount of other financial liabilities expected to be settled
after more than 12 months is GBP211m (2015: GBP79m).
40. Provisions and other liabilities
Provisions are obligations of the Group which are of uncertain
timing or amount. They are recognised when the Group has a present
obligation as a result of a past event, it is probable that a loss
will be incurred in settling the obligation and a reliable estimate
of the amount can be made.
(a) Provisions
The movement in provisions during the year is as follows:
Provision
for annuity
sales practices Legal provisions Other provisions Total provisions
2016 GBPm GBPm GBPm GBPm
------------------------------ ---------------- ---------------- ---------------- ----------------
At 1 January - 14 34 48
Charged/(credited) to
the consolidated income
statement
Additional provisions 175 - 18 193
Release of unused provision - (1) (1) (2)
Used during the year - - (16) (16)
Foreign exchange adjustment - 3 1 4
------------------------------ ---------------- ---------------- ---------------- ----------------
At 31 December 175 16 36 227
------------------------------ ---------------- ---------------- ---------------- ----------------
Legal provisions Other provisions Total provisions
2015 GBPm GBPm GBPm
--------------------------------------- ---------------- ---------------- ----------------
At 1 January 1 19 20
Charged/(credited) to the consolidated
income statement
Additional provisions 13 16 29
Release of unused provision - - -
Used during the year - (1) (1)
--------------------------------------- ---------------- ---------------- ----------------
At 31 December 14 34 48
--------------------------------------- ---------------- ---------------- ----------------
Other provisions comprise obligations in respect of
compensation, staff entitlements, vacant property and
reorganisations.
The amount of provisions expected to be settled after more than
12 months is GBP106m (2015: GBP35m).
Provision for annuity sales practices relating to enhanced
annuities
The Group has established a provision of GBP175m (2015: GBPnil)
for annuity sales practices relating to enhanced annuities.
On 14 October 2016, the Financial Conduct Authority (FCA)
published the findings of its thematic review of non-advised
annuity sales practices. Standard Life has been a participant in
that review. The FCA looked at whether firms provided sufficient
information to their customers about their potential eligibility
for enhanced annuities.
At the request of the FCA, Standard Life will conduct a review
of non-advised annuity sales (with a purchase price above a minimum
threshold) to customers eligible to receive an enhanced annuity
from 1 July 2008 until such date as Standard Life can demonstrate
its compliance with the applicable regulatory standards. The
purpose of this review is to identify whether these customers
received sufficient information about enhanced annuities to make
the right decisions about their purchase, and, where appropriate,
provide redress to customers who have suffered loss as a result of
not having received sufficient information. Standard Life has been
working with the FCA regarding the process for conducting this past
business review.
The Group has provided for an estimate of the redress payable to
customers, which may comprise both lump sum payments and
enhancements to future annuity payments, the costs of conducting
the review and other related expenses.
The Group has in place liability insurance and is seeking for up
to GBP100m of the financial impact of the provision to be mitigated
by this insurance. Discussions are ongoing with our insurers and,
as a result, no insurance recovery has been recognised as an asset
in these financial statements.
The Group expects the majority of the outflows associated with
this provision, including outflows relating to establishing any
reserves for future annuity payments, to have occurred by the end
of 2018.
The Group has not provided for any possible FCA-levied financial
penalty relating to the review. Disclosure of related contingent
liabilities is included in Note 45.
Estimates and assumptions
The key assumptions in relation to the provision for annuity
sales practices are:
-- The number of customers entitled to redress
-- The amount of redress payable per customer
-- The costs of conducting the review
The number of customers entitled to redress has been estimated
based on:
-- The number of customers in the review population
-- The estimated percentage of these customers eligible for an enhanced annuity
-- The estimated percentage of these eligible customers that did
not receive sufficient information from Standard Life about
enhanced annuities
The FCA thematic review noted that, for the industry as a whole,
between 39% and 48% of customers who bought a standard annuity may
potentially have been eligible for an enhanced annuity, and the
provision assumes 43.5% of customers were eligible for an enhanced
annuity.
The assumption of the percentage of eligible customers that did
not receive sufficient information from Standard Life about
enhanced annuities and suffered loss as a result is based on a
sample of Standard Life customers reviewed as part of the FCA
thematic review.
The FCA thematic review noted, for the industry as a whole, a
plausible range of lost income for customers who were entitled to
enhanced annuities but purchased standard annuities to be between
GBP120 and GBP240 per annum for an average annuity purchase price
of GBP25,000. The provision assumes lost income of GBP180 per annum
for an average annuity purchase price of GBP25,000. Assumptions
relating to future annuity payments are consistent with other
annuity reserving assumptions.
The costs of conducting the review relate to administrative
expenses per case and wider project costs. The costs are based on
our high level planning.
At this stage there is significant uncertainty relating to the
amount of redress payable and the expenses of the review.
Sensitivities are provided in the table below.
Consequential change
Assumption Change in assumption in provision
----------------------- -------------------- --------------------
Percentage changed
Percentage of customers by +/-4.5 (e.g.
eligible for an 43.5% increased
enhanced annuity to 48%) +/- GBP11m
Percentage of eligible
customers that did
not receive sufficient
information from
Standard Life about Percentage changed
enhanced annuities by +/-5 +/- GBP9m
Lost income per
annum for an average
annuity purchase
of GBP25,000 +/- GBP60 +/- GBP43m
Costs per case of +/- 20% of the cost
conducting the review per case +/- GBP7m
----------------------- -------------------- --------------------
(b) Other liabilities
The amount of other liabilities expected to be settled after
more than 12 months is GBPnil (2015: GBPnil).
41. Risk management
(a) Overview
(a)(i) Application of the risk management framework
The consistent application of effective and pre-emptive risk
management across the business protects the value of Standard Life
in the short term while encouraging the development of long-term
value. The Group ensures that:
-- Well informed risk-reward decisions are taken in pursuit of the business plan objectives
-- Capital is delivered to areas where most value can be created from the risks taken
The Group's approach to risk management, delivered through the
Enterprise Risk Management (ERM) framework, is well embedded in the
business. The ERM framework enables a risk-based approach to
managing the business and integrates concepts of strategic
planning, operational management and internal control, and is set
out in more detail in the Strategic Report.
For the purposes of managing risks to the Group's financial
assets and financial liabilities, the Group considers the following
categories:
Risk Definition
----------- ------------------------------------------------------------
Market The risk that arises from the Group's exposure
to market movements which could result in the
value of income, or the value of financial assets
and liabilities, or the cash flows relating
to these, fluctuating by differing amounts.
----------- ------------------------------------------------------------
Credit The risk of exposure to loss if a counterparty
fails to perform its financial obligations,
including failure to perform those obligations
in a timely manner.
----------- ------------------------------------------------------------
Demographic The risk that arises from the inherent uncertainties
as to the occurrence, amount and timing of future
cash flows due to demographic experience differing
from that expected. This class of risk includes
risks that meet the definition of insurance
risk under IFRS 4 Insurance Contracts and other
financial risks.
----------- ------------------------------------------------------------
Expense The risk that expense levels are higher than
planned or revenue falls below that necessary
to cover actual expenses. This can arise from
an increase in the unit costs of the company
or an increase in expense inflation, either
company specific or relating to economic conditions.
This risk will be present on contracts where
the Group cannot or will not pass the increased
costs onto the customer. Expense risk can reflect
an increase in liabilities or a reduction in
expected future profits.
----------- ------------------------------------------------------------
Liquidity The risk that the Group is unable to realise
investments and other assets in order to settle
its financial obligations when they fall due,
or can do so only at excessive cost.
----------- ------------------------------------------------------------
Operational The risk of adverse consequences for the Group's
business resulting from inadequate or failed
internal processes, people or systems, or from
external events. This includes conduct risk
as defined below.
----------- ------------------------------------------------------------
Conduct The risk that through our behaviours, strategies,
decisions and actions the Group, or individuals
within the Group, do not do the right thing
and/or do not behave in a manner which:
* Pays due regard to treating our customers and clients
fairly
* Is consistent with our disclosures and setting of
customer and client expectations
* Supports the integrity of financial markets
----------- ------------------------------------------------------------
Strategic Risks which threaten the achievement of the
strategy through poor strategic decision-making,
implementation or response to changing circumstances.
----------- ------------------------------------------------------------
There are a range of sources of risk affecting these risk
categories and the principal risks and uncertainties that affect
the business model are set out in detail in the Risk management
section of the Strategic report.
Risk segments
The assets and liabilities on the Group's consolidated statement
of financial position can be split into four categories (risk
segments) which give the shareholder different exposures to the
risks listed previously. These categories are:
Shareholder business
Shareholder business refers to the assets and liabilities to
which the shareholder is directly exposed. For the purposes of this
note, the shareholder refers to the equity holders of the
Company.
Participating business
Participating business refers to the assets and liabilities of
the participating funds of the life operations of the Group. It
includes the liabilities for insurance features and financial
guarantees contained within contracts held in the HWPF that invest
in unit linked funds. It does not include the liabilities for
insurance features contained in contracts invested in the GWPF or
GSMWPF. Such liabilities are included in shareholder business.
Unit linked funds
Unit linked funds refers to the assets and liabilities of the
unit linked funds of the life operations of the Group. It does not
include the cash flows (such as asset management charges or
investment expenses) arising from the unit linked fund contracts or
the liabilities for insurance features or financial guarantees
contained within the unit linked fund contracts. Such cash flows
and liabilities are included in shareholder business or
participating business.
Third party interest in consolidated funds and non-controlling
interests
Third party interest in consolidated funds and non-controlling
interests refers to the assets and liabilities recorded on the
Group's consolidated statement of financial position which belong
to third parties. The Group controls the entities which own the
assets and liabilities but the Group does not own 100% of the
equity or units of the relevant entities.
The following table sets out the link between the reportable
segments set out in Notes 2 and 3 and the risk segments.
Risk segment
---------------------------------------------------------------
Participating Unit linked
Reportable segment Shareholder business business funds(1)
------------------ ----------------------------- --------------- ---------------
Pensions and SLAL - SHF SLAL - HWPF SLAL - PBF unit
Savings SLAL - PBF (excluding SLAL - GWPF linked funds
unit linked funds) SLAL - GSMWPF SL Intl unit
SLS SLAL - UKSMWPF linked funds
SLCM
Vebnet Group
SL Intl (excluding unit
linked funds)
------------------ ----------------------------- --------------- ---------------
Standard Life SLIH and all its subsidiaries n/a n/a
Investments
------------------ ----------------------------- --------------- ---------------
India and China SLA (excluding unit linked n/a SLA unit linked
funds) funds
Interests in Indian and
Chinese associates and
joint ventures
------------------ ----------------------------- --------------- ---------------
Other Company n/a n/a
------------------ ----------------------------- --------------- ---------------
SLAL = Standard Life Assurance
Limited HWPF = Heritage With Profits
SLIH = Standard Life Investments Fund
(Holdings) Limited PBF = Proprietary Business
SL Intl = Standard Life International Fund
Designated Activity Company GWPF = German With Profits
SLA = Standard Life (Asia) Fund
Limited GSMWPF = German Smoothed
SLS = Standard Life Savings Managed With Profits Fund
Limited (including Elevate) SHF = Shareholder Fund
SLCM = Standard Life Client UKSMWPF = UK Smoothed Managed
Management Limited With Profits Fund
(1) As discussed in Note 3 and above, unit linked funds does not
include cash flows arising from unit linked fund contracts or the
liabilities for insurance features or financial guarantees
contained within the unit linked fund contracts. Such cash flows
and liabilities are included in shareholder or participating
business.
The table below sets out how the shareholder is exposed to
market, credit, demographic and expense, and liquidity risk at the
reporting date, arising from the assets and liabilities of the four
risk segments:
Third party
interest in
consolidated
funds and non-controlling
Shareholder Participating Unit linked interests (TPICF
Risk business business funds & NCI)
------------ -------------------------- ---------------------- --------------------- --------------------------
Market The shareholder The shareholder Assets are The shareholder
is directly is exposed managed in is not exposed
exposed to to the market accordance to the market
the impact risk that the with the mandates risk from assets
of movements assets of the of the particular in respect
in equity and with profits funds and the of TPICF &
property prices, funds are not financial risks NCI since the
interest rates sufficient associated financial risks
and foreign to meet their with the assets of the assets
exchange rates obligations. are borne by are borne by
on the value If this situation the policyholder. third parties.
of assets held occurred the The shareholder's
by the shareholder shareholder exposure arises
business and would be exposed from the changes
the associated to the full in the value
movements in shortfall in of future fee
the value of the funds. based revenue
liabilities. earned on unit
linked funds
due to market
movements.
------------ -------------------------- ---------------------- --------------------- --------------------------
Credit The shareholder The shareholder Assets are The shareholder
is directly is exposed managed in is not exposed
exposed to to the credit accordance to the credit
credit risk risk on the with the mandates risk from assets
from holding assets which of the particular in respect
cash, debt could cause funds and the of TPICF &
securities, the with profits financial risks NCI since the
loans, derivative funds to have associated financial risks
financial instruments insufficient with the assets of the assets
and reinsurance resources to are expected are borne by
assets and meet their to be borne third parties.
the associated obligations. by the policyholder.
movement in If this situation The shareholder's
the value of occurred the exposure is
liabilities. shareholder limited to
would be exposed changes in
to the full the value of
shortfall in future fee
the funds. based revenue
earned on unit
linked funds
due to market
movements.
------------ -------------------------- ---------------------- --------------------- --------------------------
Demographic The shareholder The shareholder The shareholder TPICF & NCI
and expense is exposed receives recourse is exposed are not exposed
to longevity cash flows to demographic to demographic
and mortality and certain and expense and expense
risk on annuity other defined risk arising risk.
contracts held payments in on components
by Pensions accordance of a unit linked
and Savings, with the Scheme fund contract,
and mortality of Demutualisation but it is not
risk on contracts and other relevant the assets
held in non-participating agreements. or liabilities
funds by Pensions The recourse of the fund
and Savings, cash flows which gives
and India and are based on rise to this
China including several different exposure.
those containing components
insurance features of which some
that are invested are sensitive
in unit linked to demographic
funds or in and expense
the GWPF or risk.
GSMWPF. The
shareholder
is also exposed
to expenses
and persistency
being different
from expectation
on these contracts.
------------ -------------------------- ---------------------- --------------------- --------------------------
Liquidity The shareholder With profits Unit linked The shareholder
is directly funds are normally funds are normally is not exposed
exposed to expected to expected to to the liquidity
the liquidity meet their meet their risk from these
risk from the obligations obligations liabilities,
shareholder through liquidating through liquidating since the financial
business. assets held the underlying risks of the
in the respective assets in which obligations
with profits they are invested. are borne by
fund. If a If a unit linked third parties.
with profits fund cannot
fund cannot meet its obligations
meet its obligations in this way,
as they fall the shareholder
due, the shareholder may be required
will be required to meet the
to provide obligations
liquidity to to the policyholder.
meet the policyholder
claims and
benefits as
they fall due.
------------ -------------------------- ---------------------- --------------------- --------------------------
The shareholder is exposed to operational, conduct and strategic
risks arising across the four risk segments and any losses incurred
are typically borne by the shareholder.
The shareholder is also exposed to certain risks relating to
defined benefit pension plans operated by the Group. These risks
are explained in Note 37.
(a)(ii) Consolidated financial position by risk segment
The table that follows provides an analysis of the consolidated
statement of financial position showing the Group's assets and
liabilities by risk segment. This categorisation has been used to
present the information in this note.
Shareholder Participating Unit linked TPICF &
business business funds NCI(1) Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Intangible assets 572 566 - - - - - - 572 566
Deferred acquisition
costs 613 602 38 44 - - - - 651 646
Investments in
associates and
joint ventures 602 313 847 531 5,605 4,561 894 314 7,948 5,719
Investment property - 1 1,716 2,167 5,727 5,947 2,486 1,876 9,929 9,991
Property, plant
and equipment 31 36 30 55 28 - - - 89 91
Pension and other
post-retirement
benefit assets 1,093 897 - - - - - - 1,093 897
Deferred tax
assets 42 35 - - - - - - 42 35
Reinsurance assets 50 53 5,336 5,462 - - - - 5,386 5,515
Loans 52 75 134 340 102 307 7 89 295 811
Derivative financial
assets 19 9 2,211 1,478 1,025 716 279 241 3,534 2,444
Equity securities
and interests
in pooled investment
funds at FVTPL 58 52 8,478 8,187 67,452 56,307 7,319 7,133 83,307 71,679
Debt securities
At FVTPL 7,763 6,833 28,193 25,913 25,885 26,789 5,471 6,379 67,312 65,914
At available-for-sale 621 743 - - - - - - 621 743
Receivables and
other financial
assets 515 495 97 99 533 644 110 209 1,255 1,447
Current tax recoverable 15 27 15 19 128 115 8 7 166 168
Other assets 59 51 13 15 18 18 4 5 94 89
Assets held for
sale 27 50 224 82 12 73 - 122 263 327
Cash and cash
equivalents 963 691 1,336 1,960 4,636 5,311 1,003 1,678 7,938 9,640
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Total assets 13,095 11,529 48,668 46,352 111,151 100,788 17,581 18,053 190,495 176,722
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Non-participating
insurance contract
liabilities 6,192 5,197 9,796 9,556 7,434 6,453 - - 23,422 21,206
Non-participating
investment contract
liabilities 4 4 - - 102,059 92,890 - - 102,063 92,894
Participating
insurance contract
liabilities - - 15,151 14,283 - - - - 15,151 14,283
Participating
investment contract
liabilities - - 15,537 14,716 - - - - 15,537 14,716
Unallocated divisible
surplus - - 585 655 - - - - 585 655
Deposits received
from reinsurers - - 5,093 5,134 - - - - 5,093 5,134
Third party interest
in consolidated
funds - - - - - - 16,835 17,196 16,835 17,196
Subordinated
liabilities 1,319 1,318 - - - - - - 1,319 1,318
Pension and other
post-retirement
benefit provisions 55 33 - - - - - - 55 33
Deferred income 154 185 44 51 - - - - 198 236
Deferred tax
liabilities 124 114 65 58 70 33 - - 259 205
Current tax liabilities 35 32 (9) 5 78 66 9 10 113 113
Derivative financial
liabilities 12 16 39 88 714 836 200 314 965 1,254
Other financial
liabilities 913 867 2,036 1,385 745 532 222 116 3,916 2,900
Provisions 225 46 2 2 - - - - 227 48
Other liabilities 51 49 13 15 37 19 12 16 113 99
Liabilities of
operations held
for sale - - - 37 - - - 46 - 83
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Total liabilities 9,084 7,861 48,352 45,985 111,137 100,829 17,278 17,698 185,851 172,373
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Net inter-segment
assets/(liabilities) 336 334 (316) (367) (14) 41 (6) (8) - -
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Net assets 4,347 4,002 - - - - 297 347 4,644 4,349
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
(1) Third party interest in consolidated funds and non-controlling interests.
(b) Market risk
As described in the table on page 178, the shareholder is
exposed to market risk from the shareholder and participating
businesses and as a result the following quantitative market risk
disclosures are provided in respect of the financial assets of the
shareholder and participating businesses.
Quantitative market risk disclosures are not provided in respect
of the assets of the unit linked funds since the shareholder is not
exposed to market risks from these assets. The shareholder's
exposure to market risk on these assets is limited to variations in
the value of future fee based revenue earned on the contracts as
fees are based on a percentage of the fund value. The sensitivity
to market risk analysis includes the impact on those statement of
financial position items which are affected by changes in future
fee based revenue due to the market stresses changing the value of
assets held by the unit linked funds. The shareholder is also not
exposed to the market risk from the assets held by third party
interest in consolidated funds and non-controlling interests and
therefore they have been excluded from the following quantitative
disclosures.
The Group manages market risks through the use of a number of
controls and techniques including:
-- Defined lists of permitted securities and/or application of
investment constraints and portfolio limits
-- Clearly defined investment benchmarks for policyholder and shareholder funds
-- Stochastic and deterministic asset/liability modelling
-- Active use of derivatives to improve the matching
characteristics of assets and liabilities and to reduce the risk
exposure of a portfolio
-- Setting risk limits for main market risks and managing exposures against these appetites
The specific controls and techniques used to manage the market
risks in the shareholder and participating businesses are discussed
below:
Shareholder business
Assets in the shareholder business are managed against
benchmarks that ensure they are diversified across a range of asset
classes, instruments and geographies. A combination of limits by
name of issuer, sector and credit rating are used where relevant to
reduce concentration risk among the assets held.
Participating business
The assets of the participating business are principally managed
to support the liabilities of those funds and are appropriately
diversified by both asset class and geography.
The key considerations in the asset and liability management of
the participating business are:
-- The economic liability and how this varies with market conditions
-- The need to invest the assets in a manner consistent with
participating policyholders' reasonable expectations and, where
appropriate, the Scheme of Demutualisation and the Principles and
Practices of Financial Management (PPFM)
-- The need to ensure that regulatory and capital requirements are met
In practice, an element of market risk arises as a consequence
of the need to balance these considerations, for example, in
certain instances participating policyholders may expect that
equity market risk will be taken on their behalf and derivative
instruments may be used to manage these risks.
(b)(i) Elements of market risk
The main elements of market risk to which the Group is exposed
are equity risk, property risk, interest rate risk and foreign
currency risk, which are discussed on the following pages.
As a result of the diversity of the products offered by the
Group and the different regulatory environments in which it
operates, the Group employs a range of methods of asset and
liability management across its business units.
Information on the methods used to determine fair values for
each major category of financial instrument and investment property
measured at fair value is presented in Note 43 and Note 19.
(b)(i)(i) Group exposure to equity risk
The Group is exposed to the risk of adverse equity market
movements which could result in losses. This applies to daily
changes in the market values and returns on the holdings in its
equity securities portfolio. The Group's shareholders are exposed
to the following sources of equity risk:
-- Direct equity shareholdings in the shareholder business and
the Group's defined benefit pension plans
-- Burnthrough from the with profits funds where adverse
movements in the market values and returns on holdings in the
equity portfolios of these funds mean the assets of the with
profits funds are not sufficient to meet their obligations
-- The indirect impact from changes in the value of equities
held in funds from which management charges are taken
Exposures to equity securities are primarily controlled through
the use of investment mandates including constraints based on
appropriate equity indices.
The table below shows the shareholder and participating
businesses' exposure to equity markets. Equity securities are
analysed by country based on the ultimate parent country of
risk.
Shareholder Participating
business business Total
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------ ----- ------- ------ ----- -----
UK 6 10 3,545 3,540 3,551 3,550
Australia 1 - 21 20 22 20
Belgium - 1 63 27 63 28
Canada - - 49 39 49 39
Denmark 2 1 172 126 174 127
Finland 2 1 44 85 46 86
France 4 3 461 412 465 415
Germany 3 3 495 467 498 470
Greece - - 1 - 1 -
Ireland 1 1 183 187 184 188
Italy 1 2 73 142 74 144
Japan 1 1 124 118 125 119
Mexico - - - 1 - 1
Netherlands 2 2 335 291 337 293
Norway - - 19 24 19 24
Portugal - - 65 59 65 59
Russia - - - 3 - 3
Spain 1 1 127 125 128 126
Sweden 2 1 204 165 206 166
Switzerland 2 2 453 601 455 603
US 22 10 1,680 1,506 1,702 1,516
Other 8 13 241 177 249 190
------------ ------ ----- ------- ------ ----- -----
Total 58 52 8,355 8,115 8,413 8,167
------------ ------ ----- ------- ------ ----- -----
In addition to the equity securities analysed above, the
shareholder business has interests in pooled investment funds of
GBPnil (2015: GBPnil) and investments in associates at FVTPL of
GBP30m (2015: GBP19m). The participating business has interests in
pooled investment funds of GBP123m (2015: GBP72m) and investments
in associates at FVTPL of GBP847m (2015: GBP531m).
(b)(i)(ii) Group exposure to property risk
The Group is exposed to the risk of adverse property market
movements which could result in losses. This applies to changes in
the value and return on holdings in investment property. This risk
arises from:
-- Burnthrough from the with profits funds where adverse
movements in the market values and returns on investment property
in these funds mean the assets of the with profits funds are not
sufficient to meet their obligations
-- The indirect impact from changes in the value of property
held in funds from which management charges are taken
Exposures to property holdings are primarily controlled through
the use of portfolio limits which specify the proportion of the
value of the total property portfolio represented by:
-- Any one property or group of properties
-- Geographic area
-- Property type
-- Development property under construction
The shareholder business is not exposed to significant property
price risk.
The table below analyses investment property held by the
participating business by country and sector:
Participating business
Office Industrial Retail Other Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ---- ---- ----- ----- ---- ---- ---- ---- ----- -----
UK 404 703 206 230 841 938 6 6 1,457 1,877
Belgium 12 12 - - 9 - - - 21 12
France - - - - - - 2 1 2 1
Germany 85 26 6 5 18 15 - - 109 46
Ireland - - - - - - 32 26 32 26
Netherlands 64 48 31 26 - - - - 95 74
Spain - 131 - - - - - - - 131
------------ ---- ---- ----- ----- ---- ---- ---- ---- ----- -----
Total 565 920 243 261 868 953 40 33 1,716 2,167
------------ ---- ---- ----- ----- ---- ---- ---- ---- ----- -----
There is no direct exposure to residential property in the
shareholder and participating businesses.
(b)(i)(iii) Group exposure to interest rate risk
Interest rate risk is the risk that arises from exposures to
changes in the shape and level of yield curves which could result
in losses due to the value of financial assets and liabilities, or
the cash flows relating to these, fluctuating by different
amounts.
The main financial assets held by the Group which give rise to
interest rate risk are debt securities, loans and cash and cash
equivalents. The main financial liabilities giving rise to interest
rate risk principally comprise non-unit linked insurance,
participating and non-participating investment contract liabilities
and subordinated liabilities. Derivative financial instruments held
by the Group also give rise to interest rate risk.
Shareholder business
Under the Group's ERM framework, Group companies are required to
manage their interest rate exposures in line with the Group's
qualitative risk appetite statements and quantitative risk limits.
Group companies typically use a combination of cash flow and
duration matching techniques to manage their interest rate risk at
an entity level. Hedging is used to mitigate the risk that
burnthrough may arise from the with profits funds under certain
circumstances where adverse interest rate movements could mean the
assets of the with profits funds are not sufficient to meet the
obligations of the with profits funds.
Participating business
Duration matching is used to minimise the interest rate risk
that arises from mismatches between participating contract
liabilities and the assets backing those liabilities. Cash flow
matching is used to minimise the interest rate risk that arises in
the participating business from mismatches between
non-participating insurance contract liabilities and the assets
backing those liabilities. A combination of debt securities and
derivative financial instruments are held to assist in the
management of interest rate sensitivity arising in respect of the
cost of guarantees.
The sensitivity of profit after tax to changes in interest rates
for both the shareholder business and the participating business is
included in the profit after tax sensitivity to market risk table,
shown in section (b)(ii).
(b)(i)(iv) Group exposure to foreign currency risk
The Group's financial assets are generally held in the local
currency of its operational geographic locations, principally to
assist with the matching of liabilities. However, foreign currency
risk arises where adverse movements in currency exchange rates
impact the value of revenues received from, and the value of assets
and liabilities held in, currencies other than the local currency.
The Group can be exposed to foreign currency risk through the need
to meet the expectations of particular groups of policyholders or
to improve the Group's risk profile through diversification. The
Group manages this risk through the use of limits on the amount of
foreign currency risk that is permitted.
The tables below summarise the shareholder and participating
businesses' exposure to foreign currency risks in Sterling. The
tables exclude inter-segment assets and liabilities.
Shareholder business
UK Euro Canadian Hong US Indian Other Total
Sterling Dollar Kong Dollar Rupee currencies
Dollar
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------- ------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ------- -------
Total
assets 11,360 10,046 911 956 21 20 53 64 150 117 474 202 126 124 13,095 11,529
Total
liabilities (8,436) (7,357) (558) (416) (18) (18) (26) (29) (25) (26) - - (21) (15) (9,084) (7,861)
Net
investment
hedges 6 5 - - - - (6) (5) - - - - - - - -
Cash flow
hedges (9) (10) 9 10 - - - - - - - - - - - -
Non
designated
derivatives 225 426 (145) (385) - - - 2 (64) 1 13 10 (29) (54) - -
------------ ------- ------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ------- -------
3,146 3,110 217 165 3 2 21 32 61 92 487 212 76 55 4,011 3,668
------------ ------- ------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ------- -------
Other currencies include assets of GBP9m (2015: GBP3m) and
liabilities of GBP7m (2015: GBP7m) in relation to the fair value of
derivatives used to manage currency risk.
The principal source of foreign currency risk for shareholders
arises from the Group's investments in overseas subsidiaries, joint
ventures and associates.
Non designated derivatives relate to foreign exchange forward
contracts that are not designated as cash flow hedges or net
investment hedges.
During 2016 the Group reaffirmed its strategy for hedging
foreign currency risks in the shareholder business. The purpose of
this strategy is to provide a consistent approach to managing
foreign exchange risks in the shareholder business. This includes,
within certain parameters, minimising currency volatility within
the regulatory capital surplus and reducing the currency risk
relating to dividend receipts from overseas operations. The Group
does not separately hedge translation of reported earnings from
overseas operations in the consolidated financial statements.
Participating business
UK Euro Canadian Hong US Indian Other Total
Sterling Dollar Kong Dollar Rupee currencies
Dollar
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- -------- -------- ------- ---- ---- ---- ---- ----- ----- ---- ---- ---- ------ -------- --------
Total
assets 31,119 31,722 14,703 11,846 51 38 28 31 1,796 1,672 7 6 964 1,037 48,668 46,352
Total
liabilities (37,547) (36,808) (10,783) (9,137) - - - - (2) (2) - - (20) (38) (48,352) (45,985)
Non
designated
derivatives 1,040 880 (878) (804) - - - - (124) (35) - - (38) (41) - -
------------ -------- -------- -------- ------- ---- ---- ---- ---- ----- ----- ---- ---- ---- ------ -------- --------
(5,388) (4,206) 3,042 1,905 51 38 28 31 1,670 1,635 7 6 906 958 316 367
------------ -------- -------- -------- ------- ---- ---- ---- ---- ----- ----- ---- ---- ---- ------ -------- --------
There are no net investment hedges or cash flow hedges in the
participating business. Other currencies include assets of GBP49m
(2015: GBP3m) and liabilities of GBP11m (2015: GBP27m) in relation
to the fair value of derivatives used to manage currency risk
exposures.
The foreign currency exposures shown above largely reflect the
impact of financial assets being denominated in currencies other
than the local currency of the operational geographic location.
These exposures arise as a result of asset allocation decisions
that are intended to meet the expectations of particular groups of
policyholders or to improve the risk profile through
diversification. The investment mandates used to manage the
participating business contain limits to restrict the extent of
foreign currency risk that can be taken and currency derivatives
are held to provide economic hedges of some of the above exposures.
These are typically short dated forward foreign exchange contracts,
however the investment mandates do not normally require these
contracts to be replaced on maturity providing the foreign currency
risk is within limits.
(b)(ii) Sensitivity to market risk analysis
The Group's profit after tax from continuing operations and
equity are sensitive to variations in respect of the Group's market
risk exposures and a sensitivity analysis is presented on the
following pages. The analysis has been performed by calculating the
sensitivity of profit after tax from continuing operations and
equity to changes in equity security and property prices and to
changes in interest rates as at the reporting date applied to
assets and liabilities other than those classified as held for
sale.
Unit linked funds
Changes in equity security and property prices and/or
fluctuations in interest rates will affect unit linked liabilities
and the associated assets by the same amount. Therefore, whilst the
profit impact on unit linked funds is included in the sensitivity
analysis where there is an impact on the value of other statement
of financial position items, the change in unit linked liabilities
and the corresponding asset movement has not been presented.
Participating business
For the participating business, in particular the HWPF and the
GWPF, the risk to shareholders is that the assets of the fund are
insufficient to meet the obligations to policyholders. Given the
nature of the Group's participating business, changes in equity
security and property prices and/or fluctuations in interest rates
will generally affect participating liabilities and the associated
assets by the same amount. Therefore the change in participating
contract liabilities and the corresponding asset movement has not
been presented. However under certain economic scenarios guarantees
in participating contracts could require the shareholder to provide
support to the participating business. This is presented as
follows:
HWPF
For the HWPF, whilst shareholders are only entitled to the
recourse cash flows in respect of this business, there can be
potential exposure to the full impact of any shortfall if the
assets of the fund are insufficient to meet policyholder
obligations. The recourse cash flows have been determined in
accordance with the Scheme and consider the extent to which
shareholders participate in the investment return and surplus of
the HWPF. The Scheme, and in particular the Capital Support
Mechanism, requires the financial state of the HWPF to be
considered before recourse cash flows are transferred to the
Shareholder Fund and, under certain circumstances, the payment of
recourse cash flows can be withheld to support the financial
strength of the HWPF. Therefore, the HWPF has been treated as a
whole for the purpose of this sensitivity analysis and only the
impact on the recourse cash flows of the sensitivity tests is
presented. When assessing the impact of the sensitivity tests on
the recourse cash flows, and in particular the risk that the assets
of the HWPF may be insufficient to meet the obligations to
policyholders, dynamic management actions have been assumed in a
manner consistent with the relevant Principles and Practices of
Financial Management (PPFM). The sensitivities presented are not
sufficiently severe to have restricted recourse cash flows in 2016
and 2015.
GWPF
For the GWPF, whilst shareholders are entitled to charges from
this fund, there can be potential exposure to the full impact of
any shortfall if the assets of the fund are insufficient to meet
policyholder obligations. Profit after tax from continuing
operations and equity are sensitive to the extent that the receipt
of future charges is not taken into account in the measurement of
the non-participating contract liabilities in the shareholder risk
segment in economic scenarios where the charges are deemed foregone
to support the participating liabilities. This sensitivity is
included within the non-participating insurance contract
liabilities in the following table.
Limitations
The sensitivity of the Group's profit after tax from continuing
operations and equity is non-linear and larger or smaller impacts
should not be derived from these results.
The sensitivity analysis represents the impact on profit at year
end that the changes in market conditions can have. The sensitivity
will vary with time, both due to changes in market conditions and
changes in the actual asset mix, and this mix is being actively
managed. The results of the sensitivity analysis may also have been
different from those illustrated had the sensitivity factors been
applied at a date other than the reporting date.
For each sensitivity 'test', the impact of a reasonably possible
change in a single sensitivity factor is presented, while the other
sensitivity factors remain unchanged. Correlations between the
different risks and/or other factors may mean that experience would
differ from that expected if more than one risk event occurred
simultaneously.
Earnings over a period may be reduced as a consequence of the
impact of market movements on charges levied on unit linked
business, and other with profits fund business. For example, if the
tests had been applied as at 1 January, the profit during the year
would have varied due to the different level of funds under
management. In illustrating the impact of equity/property risk, the
assumption has been made, where relevant, that expectations of
corporate earnings and rents remain unchanged and thus yields
change accordingly. The sensitivities take into account the likely
impact on individual Group companies of local regulatory standards
under such a scenario.
Profit after tax of continuing operations sensitivity to market
risk
Interest
Equity markets Property markets rates
2016 +10% -10% +20% -20% +10% -10% +20% -20% +1% -1%
Increase/(decrease) in profit after
tax from continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Shareholder business
Pensions and Savings:
Deferred acquisition costs - - - - - - - - - -
Assets backing non-participating liabilities - - - - - - - - (696) 833
Non-participating insurance contract
liabilities - - - - - - - - 673 (790)
Non-participating investment contract
liabilities - - - - - - - - - -
Other assets and liabilities - - - - - - - - - -
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total Pensions and Savings - - - - - - - - (23) 43
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Standard Life Investments 4 (4) 7 (7) - - - - - -
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
India and China:
Deferred acquisition costs - - - - - - - - - (4)
Assets backing non-participating insurance
contract liabilities - - - - - - - - - -
Assets backing non-participating investment
contract liabilities - - - - - - - - - -
Non-participating insurance contract
liabilities - - - - - - - - - -
Non-participating investment contract
liabilities - - - - - - - - - -
Other assets and liabilities - - - - - - - - 1 1
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total India and China - - - - - - - - 1 (3)
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Other 2 (2) 4 (4) - - - - (2) 2
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total shareholder business 6 (6) 11 (11) - - - - (24) 42
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Participating business
Pensions and Savings:
Recourse cash flow - - - - - - - - - -
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total Pensions and Savings - - - - - - - - - -
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total participating business - - - - - - - - - -
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total 6 (6) 11 (11) - - - - (24) 42
--------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
(1) The amounts in the table above are presented net of tax.
(2) A positive number represents a credit to the consolidated income statement.
(3) The interest rate sensitivity is a parallel shift subject to a floor of -30bps.
The Company within other shareholder business classifies certain
debt securities as available-for-sale (AFS). The Group's
sensitivity of profit after tax from continuing operations to
changes in interest rates does not include the impact of changes in
interest rates for these AFS assets.
Interest
Equity markets Property markets rates
2015 +10% -10% +20% -20% +10% -10% +20% -20% +1% -1%
Increase/(decrease)
in profit after
tax from continuing
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Shareholder business
Pensions and Savings:
Deferred acquisition
costs - - - (5) - - - - - -
Assets backing non-participating
liabilities - - - - - - - - (569) 691
Non-participating
insurance contract
liabilities - - - - - - - - 538 (642)
Non-participating
investment contract
liabilities - - - - - - - - - -
Other assets and
liabilities - - - - - - - - (17) 18
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total Pensions and
Savings - - - (5) - - - - (48) 67
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Standard Life Investments 3 (3) 7 (7) - - - - - -
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
India and China:
Deferred acquisition
costs 2 (2) 3 (4) - - - - 1 (2)
Assets backing non-participating
insurance contract
liabilities - - - - - - - - - -
Assets backing non-participating
investment contract
liabilities - - - - - - - - - -
Non-participating
insurance contract
liabilities - - - - - - - - - -
Non-participating
investment contract
liabilities - - - - - - - - - -
Other assets and
liabilities - - - - - - - - - -
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total India and
China 2 (2) 3 (4) - - - - 1 (2)
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Other 3 (3) 6 (6) - - - - - -
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total shareholder
business 8 (8) 16 (22) - - - - (47) 65
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
- - - - - - - - - -
Participating business
Pensions and Savings:
Recourse cash flow - - - - - - - - - -
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total Pensions and
Savings - - - - - - - - - -
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total participating
business - - - - - - - - - -
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
Total 8 (8) 16 (22) - - - - (47) 65
--------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
(1) The amounts in the table above are presented net of tax.
(2) A positive number represents a credit to the consolidated income statement.
(3) The interest rate sensitivity is a parallel shift subject to a floor of nil.
Equity sensitivity to market risk on assets and liabilities
other than those classified as held for sale
The shareholder business in the other reportable segment
classifies certain debt securities as AFS. These debt securities
are measured at fair value. Interest is calculated using the
effective interest method and recognised in the consolidated income
statement. Other changes in fair value and the related tax are
recognised in other comprehensive income. As a result, the
sensitivity of the Group's equity to variations in interest rate
risk exposures differs from the sensitivity of the Group's profit
after tax from continuing operations to variations in interest rate
risk exposures.
The Other segment's equity sensitivity to a 1% increase in
interest rates is (GBP17m) (2015: (GBP14m)) and to a 1% decrease in
interest rates is GBP17m (2015: GBP15m). The sensitivity of the
Group's total equity to a 1% increase in interest rates is (GBP39m)
(2015: (GBP61m)) and a 1% decrease in interest rates is GBP57m
(2015: GBP80m).
The sensitivity of the Group's total equity to variations in
equity and property prices for assets and liabilities other than
those classified as held for sale in respect of each of the
scenarios shown in the preceding tables is the same as the
sensitivity of the Group's profit after tax.
(c) Credit risk
As described in the table on page 178, the shareholder is
exposed to credit risk from the shareholder and participating
businesses and as a result the following quantitative credit risk
disclosures are provided in respect of the financial assets of
these categories.
Quantitative credit risk disclosures are not provided in respect
of the assets of the unit linked funds since the shareholder is not
directly exposed to credit risk from these assets. The unit linked
business includes GBP3,779m (2015: GBP3,228m) of assets that are
held as reinsured external funds links. Under certain circumstances
the shareholder may be exposed to losses relating to the default of
the reinsured external fund links. These exposures are actively
monitored and managed by the Group and the Group considers the
circumstances under which losses may arise to be very remote.
The shareholder is also not exposed to the credit risk from the
assets held by third party interest in consolidated funds and
non-controlling interests and therefore these have been excluded
from the following quantitative disclosures.
The Group's credit risk exposure mainly arises from its
investments in its financial instruments. Concentrations of credit
risk are managed by setting maximum exposure limits to types of
financial instruments and counterparties. The limits are
established using the following controls:
Financial instrument
with credit risk
exposure Control
-------------------- ---------------------------------------------
Cash and cash Maximum counterparty exposure limits
equivalents are set with reference to internal credit
assessments.
-------------------- ---------------------------------------------
Derivative financial Maximum counterparty exposure limits,
instruments net of collateral, are set with reference
to internal credit assessments. The
forms of collateral that may be accepted
are also specified and minimum transfer
amounts in respect of collateral transfers
are documented. Refer to (c)(iii) for
further details on collateral.
-------------------- ---------------------------------------------
Debt securities The Group's policy is to set exposure
limits by name of issuer, sector and
credit rating.
-------------------- ---------------------------------------------
Loans Portfolio limits are set by individual
business units. These limits specify
the proportion of the value of the total
portfolio of mortgage loans and mortgage
bonds that are represented by a single,
or group of related counterparties,
geographic area, employment status or
economic sector, risk rating and loan
to value percentage.
-------------------- ---------------------------------------------
Reinsurance assets The Group's policy is to place reinsurance
only with highly rated counterparties,
with business units having to assign
internal credit ratings to reinsurance
counterparties. The Group is restricted
from assuming concentrations of risk
with few individual reinsurers by specifying
certain limits on ceding and the minimum
conditions for acceptance and retention
of reinsurers.
-------------------- ---------------------------------------------
Other financial Appropriate limits are set for other
instruments financial instruments to which the Group
may have exposure at certain times,
for example commission terms paid to
intermediaries.
-------------------- ---------------------------------------------
Individual business units are responsible for implementing
processes to ensure that credit exposures are managed within any
limits that have been established and for the reporting of
exposures and any limit breaches to the Group Credit Risk
Committee.
The tables that follow provide an analysis of the quality of
financial assets that are neither past due nor impaired at the
reporting date and are exposed to credit risk. For those financial
assets with credit ratings assigned by external rating agencies,
classification is within the range of AAA to BBB. AAA is the
highest possible rating and rated financial assets that fall
outside the range of AAA to BBB have been classified as below BBB
with rules followed for determining the credit rating to be
disclosed when different credit ratings are assigned by different
external rating agencies. For those financial assets that do not
have credit ratings assigned by external rating agencies but where
the Group has assigned internal ratings for use in managing and
monitoring credit risk, the assets have been classified in the
analysis that follows as 'internally rated'. If a financial asset
is neither rated by an external agency nor 'internally rated', it
is classified as 'not rated'. The total amounts presented represent
the Group's maximum exposure to credit risk at the reporting date
without taking into account any collateral held. The analysis also
provides information on the concentration of credit risk.
(c)(i) Credit exposure
Assets are deemed to be past due when a counterparty has failed
to make a payment when contractually due.
The objective evidence that is taken into account in determining
whether any impairment of debt securities has occurred
includes:
-- A default against the terms of the instrument has occurred
-- The issuer is subject to bankruptcy proceedings or is seeking
protection from creditors through bankruptcy, individual voluntary
arrangements or similar process
The following tables show the shareholder and participating
businesses' exposure to credit risk from financial assets analysed
by credit rating and country.
Shareholder business
An analysis of financial assets by credit rating is as
follows:
Loans Receivables
to associates Derivative and other Cash
and joint Reinsurance financial Debt financial and cash
ventures assets Loans assets securities assets equivalents Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ---- ------- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ----- ------ ----- -----
Neither
past due
nor
impaired:
AAA - - - - - - - - 481 673 - - 92 32 573 705
AA - - 30 37 - - - - 1,809 1,586 - - 221 193 2,060 1,816
A - - 17 13 51 40 13 5 3,378 2,830 - - 583 388 4,042 3,276
BBB - - - - - 33 2 2 1,483 1,349 - - 67 78 1,552 1,462
Below
BBB - - - - - - - - 133 118 - - - - 133 118
Not rated 3 2 - - 1 2 4 2 13 1 507 475 - - 528 482
Internally
rated - - 3 3 - - - - 1,087 1,019 - - - - 1,090 1,022
----------- ---- ------- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ----- ------ ----- -----
Past due - - - - - - - - - - 8 20 - - 8 20
Impaired - - - - - - - - - - - - - - - -
----------- ---- ------- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ----- ------ ----- -----
Total 3 2 50 53 52 75 19 9 8,384 7,576 515 495 963 691 9,986 8,901
----------- ---- ------- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ----- ------ ----- -----
At 31 December 2016, receivables and other financial assets of
GBP7m (2015: GBP19m) were past due by less than three months and
GBP1m (2015: GBP1m) were past due by three to six months.
An analysis of debt securities by country is as follows:
Government,
provincial Other financial Other
and municipal(1) Banks institutions corporate Other(2) Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- --------- ----- ----- -------- ------- ----- ----- ---- ---- ----- -----
UK 594 527 426 389 1,205 1,335 2,006 1,576 - - 4,231 3,827
Australia - - 107 100 17 - 17 9 - - 141 109
Austria 29 22 - - - - - - - - 29 22
Belgium - - 1 1 - - 23 12 - - 24 13
Canada - - 105 1 - - 1 1 - - 106 2
Denmark - - 26 51 - - 16 15 - - 42 66
Finland - - - 25 - - - - - - - 25
France 240 201 344 343 3 - 347 306 - - 934 850
Germany 31 296 167 131 1 1 285 243 - - 484 671
Greece - - - - - - - - - - - -
Ireland - - - 1 - - 6 - - - 6 1
Italy - - 28 27 - - 82 75 - - 110 102
Japan - - 36 26 - - 25 22 - - 61 48
Mexico - 12 - - - - 115 105 - - 115 117
Netherlands 22 21 331 257 - - 35 24 - - 388 302
Norway - - 25 1 - - 42 39 - - 67 40
Portugal - - - - - - - - - - - -
Russia - - - - - - - - - - - -
Spain - - 55 105 - - 45 41 - - 100 146
Sweden - - 115 40 1 1 48 58 - - 164 99
Switzerland - - 55 116 - - 7 7 - - 62 123
US 14 - 226 217 89 133 450 310 - - 779 660
Other 46 37 204 51 58 52 14 12 219 201 541 353
------------ -------- --------- ----- ----- -------- ------- ----- ----- ---- ---- ----- -----
Total 976 1,116 2,251 1,882 1,374 1,522 3,564 2,855 219 201 8,384 7,576
------------ -------- --------- ----- ----- -------- ------- ----- ----- ---- ---- ----- -----
(1) Government, provincial and municipal includes debt
securities which are issued by or explicitly guaranteed by the
national government.
(2) This balance primarily consists of securities held in supranationals.
Participating business
An analysis of financial assets by credit rating is as
follows:
Receivables
Derivative and other
Reinsurance financial Debt financial Cash and
assets Loans assets securities assets cash equivalents Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
Neither
past due
nor
impaired:
AAA - - - - - - 4,523 4,342 - - 30 64 4,553 4,406
AA 5,329 5,436 60 139 - - 16,595 14,917 - - 337 498 22,321 20,990
A - 19 - 111 1,056 643 4,682 4,214 - - 964 1,297 6,702 6,284
BBB - - - - 668 428 1,771 1,673 - - 5 101 2,444 2,202
Below
BBB - - - - - - 367 434 - - - - 367 434
Not rated - - 74 90 487 407 - 34 91 84 - - 652 615
Internally
rated 7 7 - - - - 255 299 - - - - 262 306
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
Past due - - - - - - - - 6 15 - - 6 15
Impaired - - - - - - - - - - - - - -
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
Total 5,336 5,462 134 340 2,211 1,478 28,193 25,913 97 99 1,336 1,960 37,307 35,252
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
At 31 December 2016, receivables and other financial assets of
GBP6m (2015: GBP15m) were past due by less than three months.
Not rated loans of GBP74m (2015: GBP90m) relate to
mortgages.
The shareholders' exposure to credit risk arising from
investments held in the HWPF and other with profits funds is
similar in principle to that described for market risk exposures in
section (b). As at 31 December 2016, the financial assets of the
HWPF include GBP5,093m (2015: GBP5,134m) of assets (primarily debt
securities) deposited back under the terms of an external annuity
reinsurance transaction, the transaction having been structured in
this manner specifically to mitigate credit risks associated with
default of the reinsurer. Any credit losses and defaults within the
portfolio of assets are borne by the external reinsurer.
An analysis of debt securities by country is as follows:
Government,
provincial Other financial
and municipal(1) Banks institutions Other corporate Other(2) Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ --------- -------- ----- ----- -------- ------- -------- ------- ---- ---- ------ ------
UK 10,952 10,275 885 925 1,934 1,929 1,875 1,730 - - 15,646 14,859
Australia 6 - 206 206 50 31 38 35 - - 300 272
Austria 392 235 4 4 10 - - - - - 406 239
Belgium 691 452 10 10 - - 57 15 - - 758 477
Canada 3 3 67 195 10 8 4 3 - - 84 209
Denmark 3 4 23 11 - - 14 22 - - 40 37
Finland 194 85 69 54 - - 4 4 - - 267 143
France 2,009 1,708 450 437 29 24 364 331 - - 2,852 2,500
Germany 3,118 2,620 196 587 120 122 199 189 - - 3,633 3,518
Greece - - - - - - - - - - - -
Ireland 25 7 4 9 11 10 18 13 - - 58 39
Italy 49 4 31 27 11 11 46 120 - - 137 162
Japan 21 21 172 35 - - - 1 - - 193 57
Mexico - - - - - - 56 58 - - 56 58
Netherlands 467 403 328 338 36 42 48 34 - - 879 817
Norway - 17 24 6 - - 65 63 - - 89 86
Portugal - - - - - - 4 5 - - 4 5
Russia - - - - - - - - - - - -
Spain 13 5 4 11 5 5 38 52 - - 60 73
Sweden - 1 367 280 10 6 12 16 - - 389 303
Switzerland - - 150 103 63 59 62 57 - - 275 219
US 106 107 432 361 151 206 499 437 - - 1,188 1,111
Other 98 85 247 105 48 62 139 116 347 361 879 729
------------ --------- -------- ----- ----- -------- ------- -------- ------- ---- ---- ------ ------
Total 18,147 16,032 3,669 3,704 2,488 2,515 3,542 3,301 347 361 28,193 25,913
------------ --------- -------- ----- ----- -------- ------- -------- ------- ---- ---- ------ ------
(1) Government, provincial and municipal includes debt
securities which are issued by or explicitly guaranteed by the
national government.
(2) This balance primarily consists of securities held in supranationals.
(c)(ii) Credit spreads
As at 31 December 2016, it is expected that an adverse movement
in credit spreads of 50 basis points, with no change to default
allowance, would result in a reduction to profit for the year from
continuing operations of GBP22m (2015: GBP23m). A further reduction
of GBP58m (2015: GBP46m) would arise as a result of a change in
assumed default rates of 12.5 basis points per annum (25% of the
spread change).
(c)(iii) Collateral accepted and pledged in respect of financial instruments
Collateral in respect of bilateral over-the-counter (OTC)
derivative financial instruments and bilateral repurchase
agreements is accepted from and provided to certain market
counterparties to mitigate counterparty risk in the event of
default. The use of collateral in respect of these instruments is
governed by formal bilateral agreements between the parties. For
OTC derivatives the amount of collateral required by either party
is determined by the daily bilateral OTC exposure calculations in
accordance with these agreements and collateral is moved on a daily
basis to ensure there is full collateralisation. Under the terms of
these agreements, collateral is posted with the ownership captured
under title transfer of the contract. With regard to either
collateral pledged or accepted, the Group may request the return
of, or be required to return, collateral to the extent it differs
from that required under the daily bilateral OTC exposure
calculations.
Where there is an event of default under the terms of the
agreements, any collateral balances will be included in the
close-out calculation of net counterparty exposure. At 31 December
2016, the Group had pledged GBP30m (2015: GBP448m) of cash and
GBP187m (2015: GBP36m) of securities as collateral for derivative
financial liabilities. At 31 December 2016, the Group had accepted
GBP2,016m (2015: GBP1,166m) of cash and GBP808m (2015: GBP10m) of
securities as collateral for derivatives financial assets and
reverse repurchase agreements. None of the securities were sold or
repledged at the year end.
(c)(iv) Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount
reported on the consolidated statement of financial position only
when there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
The Group does not offset financial assets and liabilities on
the consolidated statement of financial position, as there are no
unconditional rights to set off. Consequently, the gross amount of
financial instruments presented on the consolidated statement of
financial position is the net amount. The Group's bilateral OTC
derivatives are all subject to an International Swaps and
Derivative Association (ISDA) master agreement. ISDA master
agreements and reverse repurchase agreements entered into by the
Group are considered master netting agreements as they provide a
right of set off that is enforceable only in the event of default,
insolvency, or bankruptcy.
The Group does not hold any other financial instruments which
are subject to master netting agreements or similar
arrangements.
The following table presents the effect of master netting
agreements and similar arrangements.
Related amounts not
offset on the consolidated
statement of financial
position
---------------------------------
Gross amounts
of financial
instruments
as presented
on the consolidated
statement Financial
of financial Financial collateral
position instruments pledged/(received) Net position
As at 31 December
2016 GBPm GBPm GBPm GBPm
------------------- -------------------- ------------ ------------------- ------------
Financial
assets
Derivatives(1) 2,654 (558) (2,000) 96
Reverse repurchase
agreements 800 - (804) (4)
------------------- -------------------- ------------ ------------------- ------------
Total financial
assets 3,454 (558) (2,804) 92
------------------- -------------------- ------------ ------------------- ------------
Financial
liabilities
Derivatives(1) (751) 558 186 (7)
------------------- -------------------- ------------ ------------------- ------------
Total financial
liabilities (751) 558 186 (7)
------------------- -------------------- ------------ ------------------- ------------
Related amounts not
offset on the consolidated
statement of financial
position
---------------------------------
Gross amounts
of financial
instruments
as presented
on the consolidated
statement Financial
of financial Financial collateral
position instruments pledged/(received) Net position
As at 31 December
2015 GBPm GBPm GBPm GBPm
------------------ -------------------- ------------ ------------------- ------------
Financial
assets
Derivatives(1) 1,752 (549) (1,176) 27
Total financial
assets 1,752 (549) (1,176) 27
------------------ -------------------- ------------ ------------------- ------------
Financial
liabilities
Derivatives(1) (1,070) 549 466 (55)
------------------ -------------------- ------------ ------------------- ------------
Total financial
liabilities (1,070) 549 466 (55)
------------------ -------------------- ------------ ------------------- ------------
(1) Only OTC derivatives subject to master netting agreements have been included above.
(c)(v) Credit risk on loans and receivables and financial
liabilities designated as at fair value through profit or loss
(c)(v)(i) Loans and receivables
The Group holds a portfolio of financial instruments which meet
the definition of loans and receivables under IAS 39 Financial
Instruments: Recognition and Measurement and on initial recognition
were designated as at FVTPL. These instruments are included in debt
securities on the consolidated statement of financial position. The
Group's exposure to such financial instruments at 31 December 2016
was GBP835m (2015: GBP652m) of which GBP116m related to
participating business (2015: GBP140m) and GBP719m related to
shareholder business (2015: GBP512m). The fair value of these loans
and receivables is calculated using a valuation technique which
refers to the current fair value of other similar financial
instruments in addition to other unobservable market data. During
the year, fair value gains of GBP27m (2015: GBP4m losses) in
relation to these loans and receivables were recognised in the
consolidated income statement. The amount of this movement that is
attributable to changes in the credit risk of these instruments was
gains of GBP9m (2015: GBP2m).
As described in section (b), the Group's ERM framework defines
market risk as the risk that arises from the Group's exposure to
market movements, which could result in the income, or value of
financial assets and liabilities, or the cash flows relating to
these, fluctuating by differing amounts. The movement in the fair
value of loans and receivables incorporates both movements arising
from credit risk and resulting from changes in market
conditions.
(c)(v)(ii) Financial liabilities designated at FVTPL
The Group has designated unit linked non-participating
investment contract liabilities as at FVTPL. As the fair value of
the liability is based on the value of the underlying portfolio of
assets, the movement, during the period and cumulatively, in the
fair value of the unit linked non-participating investment contract
liabilities, is only attributable to market risk.
(d) Demographic and expense risk
As described in the table on page 178, the shareholder is
directly exposed to demographic and expense risk from shareholder
business and participating business and, as a result, quantitative
demographic and expense risk disclosures are provided in respect of
these categories.
Demographic and expense risk is managed by analysing experience
and using statistical data to make certain assumptions on the risks
associated with the policy during the period that it is in force.
Assumptions that are deemed to be financially significant are
reviewed at least annually for pricing and reporting purposes. In
analysing demographic and expense risk exposures, the Group
considers:
-- Historic experience of relevant demographic and expense risks
-- The potential for future experience to differ from that expected or observed historically
-- The financial impact of variances in expectations
-- Other factors relevant to their specific markets, for example
obligations to treat customers fairly
Reinsurance and other risk transfer mechanisms are used to
manage risk exposures and are taken into account in the Group's
assessment of demographic and expense risk exposures.
(d)(i) Elements of demographic and expense risk
The main elements of demographic and expense risk that give rise
to the exposure are discussed below.
(d)(i)(i) Components of insurance risk as defined by IFRS 4
Insurance Contracts
Longevity
The Group defines longevity risk as the risk that policyholders
live longer than expected which gives rise to losses for the
shareholder. This may arise from current experience differing from
that expected, or the rate of improvement in mortality being
greater than anticipated. This risk is relevant for contracts where
payments are made until the death of the policyholder, for example,
annuities.
Experience can vary as a result of statistical uncertainty or as
a consequence of systemic (and previously unexpected) changes in
the life expectancy of the insured portfolio. The profitability of
such business will reduce should policyholders live longer than the
Group's expectations and reported profits will be impacted as and
when such variances are recognised in liabilities.
Morbidity
The Group defines morbidity risk as the risk that claims
dependent on the state of health of a policyholder are incurred at
a higher than expected rate or, in the case of income benefits,
continue for a longer duration or start earlier than those assumed.
This risk will be present on disability income, healthcare and
critical illness contracts. This includes the risk of
anti-selection that results in a requirement to pay claims that the
Group had not expected, for example, due to non-disclosure.
Income protection contracts have the risk that claim duration
may be longer than anticipated.
Mortality
The Group defines mortality risk as the risk that death claims
are at a higher rate or are more volatile than assumed. This risk
will exist on any contracts where the payment on death is greater
than the reserve held. This includes the risk of anti-selection
that results in a requirement to pay claims that the Group had not
expected, for example due to non-disclosure.
(d)(i)(ii) Other financial risks
Persistency - withdrawals and lapse rates
The Group defines persistency risk as the risk that clients
redeem their investments and policyholders surrender, lapse or
pay-up their policies at different rates than assumed resulting in
reduced revenue and/or financial losses. This risk may arise if
persistency rates are greater or less than assumed or if
policyholders selectively lapse when it is beneficial for them. If
the benefits payable on lapse or being paid-up are greater than the
reserve held then the risk will be of a worsening of persistency
and if benefits are paid out that are lower than the reserve then
the risk will be that fewer policyholders will lapse or become
paid-up.
Persistency risk also reflects the risk of a reduction in
expected future profits arising from early retirements, surrenders
- either partial or in full - and similar policyholder options.
Variances in persistency will affect equity holder profit to the
extent that charges levied against policies are dependent upon the
number of policies in force and/or the average size of those
policies. The policies primarily relate to unit linked and unitised
with profits business. Profit may also be at risk if it is
considered necessary, or prudent, to increase liabilities on
certain lines of business.
Expenses
The Group defines expense risk as the risk that expense levels
will be higher than assumed. This can arise from an increase in the
unit costs of the Group or its businesses or an increase in expense
inflation, either Group specific or relating to economic
conditions. This risk will be present on contracts where the Group
cannot or will not pass the increased costs onto the customer.
Expense risk can reflect an increase in liabilities or a reduction
in expected future profit.
Profit is directly exposed to the risk of expenses being higher
than otherwise expected. It can be further affected if it is
considered necessary, or prudent, to increase provisions to reflect
increased expectations of future costs of policy
administration.
(d)(ii) Sensitivity to demographic and expenses risk analysis
Recognition of profit after tax and the measurement of equity
are dependent on the methodology and key assumptions used to
determine the Group's insurance and investment contract
liabilities, as described in Note 33.
The tables that follow illustrate the sensitivity of profit
after tax from continuing operations and equity to variations in
the key assumptions made in relation to the Group's most
significant demographic and expense risk exposures, including
exposure to persistency risk. The values have, in all cases, been
determined by varying the relevant assumption as at the reporting
date and considering the consequential impacts assuming other
assumptions remain unchanged.
Longevity Expenses Persistency Morbidity/mortality
(Decrease)/increase
in profit after
tax from continuing
operations and equity +5% -5% +10% -10% +10% -10% +5% -5%
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Shareholder business
Pensions and Savings:
Reinsurance assets - - - - - - 1 (1)
Non-participating
insurance contract
liabilities (136) 128 (8) 8 1 (1) - -
India and China
Deferred acquisition
costs - - (4) - - - - -
Non-participating
insurance contract
liabilities - - - - - - - -
Non-participating
investment contract
liabilities - - - - - - - -
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total shareholder
business (136) 128 (12) 8 1 (1) 1 (1)
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Participating business
Pensions and Savings:
Recourse cash flows (16) 15 (1) 1 - - (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total participating
business (16) 15 (1) 1 - - (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total (152) 143 (13) 9 1 (1) (1) 1
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Longevity Expenses Persistency Morbidity/mortality
(Decrease)/increase
in profit after
tax from continuing
operations and equity +5% -5% +10% -10% +10% -10% +5% -5%
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Shareholder business
Pensions and Savings:
Reinsurance assets - - - - - - 1 (1)
Non-participating
insurance contract
liabilities (111) 104 (7) 7 1 (1) (1) 1
India and China
Deferred acquisition
costs - - (5) 3 (1) 1 - -
Non-participating - - - - - - - -
insurance contract
liabilities
Non-participating - - - - - - - -
investment contract
liabilities
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total shareholder
business (111) 104 (12) 10 - - - -
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Participating business
Pensions and Savings:
Recourse cash flows (17) 16 (3) 3 - - (3) 3
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total participating
business (17) 16 (3) 3 - - (3) 3
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total (128) 120 (15) 13 - - (3) 3
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
When the sensitivities presented in the tables above are applied
to other with profits funds, there are no significant impacts on
net liabilities after reinsurance, equity or profits for either
investment or insurance contracts. Amounts in the tables above are
presented net of tax and reinsurance.
For the participating business, the tables above illustrate the
impact of demographic and expense risk on the recourse cash flows
from the HWPF, which have been determined in accordance with the
Scheme and take into account the need to consider the impact of
risk on the financial position of the HWPF before any recourse cash
flows can be transferred to the SHF. The terms of the Scheme
provide for the retention of recourse cash flows under certain
circumstances to support the financial position of the HWPF. Refer
to Section (b)(ii).
The shareholder business of Pensions and Savings currently bears
longevity risk both on contracts written in the PBF and on
contracts written in the HWPF for which the longevity risk has been
transferred to the PBF.
Limitations
The financial impact of certain risks is non-linear and
consequently the sensitivity of other events may differ from
expectations based on those presented in the table. Correlations
between the different risks and/or other factors may mean that
experience would differ from that expected if more than one risk
event occurred simultaneously. The analysis has been assessed as at
the reporting date. The results of the sensitivity analysis may
vary as a consequence of the passage of time or as a consequence of
changes in underlying market or financial conditions. The
sensitivity analysis in respect of longevity risk has been
performed on the relevant annuity business and presents, for a +5%
longevity test, the impact of a 5% reduction in the underlying
mortality rates (and vice versa). It has also been based on
instantaneous change in the mortality assumption at all ages,
rather than considering gradual changes in mortality rate.
(e) Liquidity risk
As described in the table on page 178, the shareholder is
exposed to liquidity risk from shareholder business, participating
business and unit linked funds and, as a result, the following
quantitative liquidity risk disclosures are provided in respect of
the financial liabilities of these categories.
The shareholder is not exposed to the liquidity risk from the
assets held by third party interests in consolidated funds and
non-controlling interests and therefore these have been excluded
from the following quantitative disclosures.
Business units employ risk management techniques relevant to
their product types with the objective of mitigating exposures to
liquidity risk. For annuity, with profits, and unit linked
business, liquidity risk is primarily managed by holding a range of
diversified instruments which are assessed against estimated cash
flow and funding requirements.
For annuity contracts, assets are held which are specifically
chosen with the intention of matching the expected timing of
annuity payments. Business units actively manage and monitor the
performance of these assets against liability benchmarks and
liquidity risk is minimised through the process of planned asset
and liability matching. The Group's assets are analysed in Section
(b)(i) and Section (c)(i) of this Note. For Pensions and Savings,
the reinsurance treaty between the Group and Canada Life
International Re provides for the cash settlement of amounts owed
by Canada Life International Re.
For with profits contracts, a portfolio of assets is maintained
in the relevant funds appropriate to the nature and term of the
expected pattern of payments of liabilities. Within that portfolio,
liquidity is provided by substantial holdings of cash and highly
liquid assets (principally government bonds).
Where it is necessary to sell less liquid assets within the
relevant portfolios, then any incurred losses are generally passed
onto policyholders in accordance with policyholders' reasonable
expectations. Such losses are managed and mitigated through
actively anticipating net disinvestment based on policyholder
behaviour and seeking to execute sales of underlying assets in such
a way that the cost to policyholders is minimised.
For non-participating unit linked contracts, a core portfolio of
assets is maintained and invested in accordance with the mandates
of the relevant unit linked funds. Policyholder behaviour and the
trading position of asset classes are actively monitored. The unit
price and value of any associated contracts would reflect the
proceeds of any sales of assets. If considered necessary, deferral
terms within the policy conditions applying to the majority of the
Group's contracts are invoked.
Business units undertake periodic investigations into liquidity
requirements, which include consideration of cash flows in normal
conditions, as well as investigation of scenarios where cash flows
differ markedly from those expected (primarily due to extreme
policyholder behaviour).
All business units are required to monitor, assess, manage and
control liquidity risk in accordance with the relevant principles
within the Group's policy framework. Oversight is provided both at
a Group level and within the business unit. In addition, all
business units benefit from membership of a larger Group to the
extent that, centrally, the Group:
-- Coordinates strategic planning and funding requirements
-- Monitors, assesses and oversees the investment of assets within the Group
-- Monitors and manages risk, capital requirements and available capital on a group-wide basis
-- Maintains a portfolio of committed bank facilities
The Group's committed bank facilities are currently undrawn.
Liquidity risk is managed by each business unit in consultation
with the Group Treasury function and each business unit is
responsible for the definition and management of its contingency
funding plan.
As a result of the policies and processes established to manage
risk, the Group considers the extent of liquidity risk arising from
its activities to be de-minimis.
(e)(i) Maturity analysis
The tables that follow present the expected timing of the cash
flows payable on the amounts recognised on the consolidated
statement of financial position for the participating and
non-participating contract liabilities of the Group as at the
reporting date. To align with the risk management approach towards
liquidity risk and existing management projections, the analysis
that follows facilitates consideration of the settlement
obligations of both insurance and investment contracts.
Greater
Within 2-5 6-10 11-15 16-20 than No defined
1 year years years years years 20 years maturity Total
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Shareholder business
Non-participating
insurance contract
liabilities 330 1,194 1,351 1,139 881 1,297 - 6,192
Non-participating
investment contract
liabilities 1 1 1 1 - - - 4
Reinsurance liabilities - - - - - - - -
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total shareholder
business 331 1,195 1,352 1,140 881 1,297 - 6,196
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Participating business
Non-participating
insurance contract
liabilities 618 2,263 2,324 1,685 1,105 1,801 - 9,796
Participating insurance
contract liabilities 1,611 3,603 2,867 2,398 2,376 2,296 - 15,151
Participating investment
contract liabilities 600 2,649 3,484 3,411 2,692 2,701 - 15,537
Unallocated divisible
surplus - - - - - - 585 585
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total participating
business 2,829 8,515 8,675 7,494 6,173 6,798 585 41,069
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Unit linked funds
Non-participating
insurance contract
liabilities 6,126 669 368 123 69 79 - 7,434
Non-participating
investment contract
liabilities 9,951 31,696 26,705 16,024 9,118 8,565 - 102,059
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total unit linked
funds 16,077 32,365 27,073 16,147 9,187 8,644 - 109,493
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total 19,237 42,075 37,100 24,781 16,241 16,739 585 156,758
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Greater
Within 2-5 6-10 11-15 16-20 than No defined
1 year years years years years 20 years maturity Total
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Shareholder business
Non-participating
insurance contract
liabilities 316 1,078 1,165 949 717 972 - 5,197
Non-participating
investment contract
liabilities 1 1 1 1 - - - 4
Reinsurance liabilities - - - - - - - -
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total shareholder
business 317 1,079 1,166 950 717 972 - 5,201
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Participating business
Non-participating
insurance contract
liabilities 691 2,454 2,387 1,640 1,015 1,369 - 9,556
Participating insurance
contract liabilities 2,044 3,668 2,536 1,939 2,019 2,077 - 14,283
Participating investment
contract liabilities 582 2,518 3,229 3,174 2,492 2,721 - 14,716
Unallocated divisible
surplus - - - - - - 655 655
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total participating
business 3,317 8,640 8,152 6,753 5,526 6,167 655 39,210
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Unit linked funds
Non-participating
insurance contract
liabilities 5,267 630 362 96 46 52 - 6,453
Non-participating
investment contract
liabilities 9,155 29,418 24,351 14,357 8,083 7,526 - 92,890
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total unit linked
funds 14,422 30,048 24,713 14,453 8,129 7,578 - 99,343
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total 18,056 39,767 34,031 22,156 14,372 14,717 655 143,754
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
The analysis that follows presents the undiscounted cash flows
payable by remaining contractual maturity at the reporting date for
all financial liabilities, including non-participating investment
contract liabilities. Given that policyholders can usually choose
to surrender, in part or in full, their unit linked contracts at
any time, the non-participating investment contract unit linked
liabilities of Pensions and Savings life and pensions business
presented in the table below have been designated as payable within
one year. Such surrenders would be matched in practice, if
necessary, by sales of underlying assets. The Group can delay
settling liabilities to unit linked policyholders to ensure
fairness between those remaining in the fund and those leaving the
fund. The length of any such delay is dependent on the underlying
financial assets. In this analysis, the maturity within one year
includes liabilities that are repayable on demand.
Greater
Within 2-5 6-10 11-15 16-20 than
1 year years years years years 20 years Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Shareholder
business
Non-participating
investment
contract liabilities 4 4 - - - - - - - - - - 4 4
Subordinated
liabilities 81 81 313 324 359 377 290 345 143 208 671 700 1,857 2,035
Other financial
liabilities 876 793 40 37 - 2 - - - - - - 916 832
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Total shareholder
business 961 878 353 361 359 379 290 345 143 208 671 700 2,777 2,871
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Participating
business
Other financial
liabilities 2,179 1,317 27 7 6 12 6 6 5 6 85 97 2,308 1,445
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Total participating
business 2,179 1,317 27 7 6 12 6 6 5 6 85 97 2,308 1,445
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Unit linked
funds
Non-participating
investment
contract liabilities 102,059 92,890 - - - - - - - - - - 102,059 92,890
Other financial
liabilities 908 481 11 12 9 10 9 8 9 8 141 16 1,087 535
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Total unit
linked funds 102,967 93,371 11 12 9 10 9 8 9 8 141 16 103,146 93,425
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
Total 106,107 95,566 391 380 374 401 305 359 157 222 897 813 108,231 97,741
---------------------- ------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- ------
The principal amounts of financial liabilities where the
counterparty has no right to repayment are excluded from the above
analysis along with interest payments on such instruments after 20
years. Also excluded are deposits received from reinsurers.
Deposits received from reinsurers reflect the liability to repay
the deposit received from an external reinsurer under the
reinsurance transaction referred to in Section (c). The timing and
amount of the payment of the cash flows under this liability are
defined by the terms of the treaty, under which there is no defined
contractual maturity date to repay the deposit as at 31 December
2016 or 31 December 2015.
Refer to Note 23 for the maturity profile of undiscounted cash
flows of derivative financial instruments.
The Group also had unrecognised commitments in respect of
financial instruments as at 31 December 2016 with a contractual
maturity of within one year and between one and five years of
GBP453m and GBPnil respectively (2015: GBP319m and GBPnil).
(f) Operational and conduct risk
The Group defines operational risk as the risk of loss, or
adverse consequences for the Group's business, resulting from
inadequate or failed internal processes, people or systems, or from
external events. This includes conduct risk which is defined as the
risk that through our behaviours, strategies, decisions and actions
the Group, or individuals within the Group, do not do the right
thing and/or do not behave in a manner which:
-- Pays due regard to treating our customers and clients fairly
-- Is consistent with our disclosures and setting of customer and client expectations
-- Supports the integrity of financial markets
The policy framework, which includes the Group operational risk
policy and the Group conduct risk policy, is used to support the
management of operational and conduct risks. Business units adopt
the relevant minimum standards and limits contained within these
policies and are required to manage risk in accordance with the
policies, taking mitigating action as appropriate to operate within
appetites.
The types of operational risk to which the Group is exposed are
identified using the following operational risk categories:
-- Fraud or irregularities
-- Regulatory or legal
-- Products and practices
-- Business interruption
-- Supplier failure
-- Process execution
-- People
-- Security
Activities undertaken to ensure the practical operation of
controls over financial risks, that is, market, credit, liquidity
and demographic and expense risk, are treated as an operational
risk.
Operational risk exposures are controlled using one or a
combination of the following: modifying operations to mitigate the
exposure to the risk; accepting exposure to the risk; or accepting
exposure to the risk and controlling the exposure by risk transfer
or risk treatment. The factors on which the level of control and
nature of the controls implemented are based include:
-- The potential cause and impact of the risk
-- The likelihood of the risk being realised in the absence of any controls
-- The ease with which the risk could be insured against
-- The cost of implementing controls to reduce the likelihood of the risk being realised
-- Operational risk appetite
Control Self Assessment (CSA) is a monitoring activity where
business managers assess the operation of the controls for which
they are responsible and the adequacy of these controls to manage
key operational risks and associated business processes. The
assessment completed by business managers is validated and
challenged by the risk function in its role of 'second line of
defence'. Independent assurance as to the effectiveness of the CSA
process is provided by Group Internal Audit in its role of 'third
line of defence'. The results of CSA are reported through the risk
governance structure.
The assessment of operational risk exposures is performed on a
qualitative basis using a combination of impact and likelihood, and
on a quantitative basis using objective and verifiable measures.
The maximum amount of operational risk the Group is willing to
retain is defined using both quantitative limits, for example
financial impact, and also qualitative statements of principle that
articulate the event, or effect, that needs to be limited.
The operational risks faced by each business unit and its
exposure to these risks forms its operational risk profile. Each
business unit is required to understand and review its profile
based on a combination of the estimated impact and likelihood of
risk events occurring in the future, the results of CSA and a
review of risk exposures relative to approved limits.
The impact of a new product, a significant change, or any
one-off transaction on the operational risk profile of each
business unit is assessed and managed in accordance with
established guidelines or standards.
(g) Strategic risk
The Group defines strategic risk as those risks which threaten
the achievement of the strategy through poor strategic
decision-making, implementation or response to changing
circumstances. Strategic risks are considered across the Group
through the business planning process. The strategic risks to which
the Group is exposed are reviewed on a regular basis.
42. Structured entities
A structured entity is an entity that is structured in such a
way that voting or similar rights are not the dominant factor in
deciding who controls the entity. The Group has interests in
structured entities through investments in a range of investment
vehicles including:
-- Pooled investment funds managed internally and externally,
including OEICs, SICAVs, unit trusts and limited partnerships
-- Debt securitisation vehicles which issue asset-backed securities
The Group consolidates structured entities which it controls.
Where the Group has an investment in, but not control over these
types of entities, the investment is classified as an investment in
associate when the Group has significant influence.
The Group also has interests in structured entities through
asset management fees and other fees received from these
entities.
(a) Consolidated structured entities
As at 31 December 2016 and 31 December 2015, the Group has not
provided any non-contractual financial or other support to any
consolidated structured entity and there are no current intentions
to do so.
(b) Unconsolidated structured entities
As at 31 December 2016 and 31 December 2015, the Group has not
provided any non-contractual financial or other support to any
unconsolidated structured entities and there are no current
intentions to do so.
(b)(i) Investments in unconsolidated structured entities
The following table shows the carrying value of the Group's
investments in unconsolidated structured entities by line items in
the consolidated statement of financial position and by risk
segment as defined in Note 41.
Shareholder business Participating business Unit linked funds TPICF & NCI(1) Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investments
in
associates 28 19 847 531 5,607 4,561 894 314 7,376 5,425
Equity
securities
and
interests in
pooled
investment
funds - - 122 72 21,421 17,406 2,078 1,425 23,621 18,903
Debt
securities 664 576 1,490 1,454 1,317 1,381 167 140 3,638 3,551
Total 692 595 2,459 2,057 28,345 23,348 3,139 1,879 34,635 27,879
(1) Third party interest in consolidated funds and non-controlling interests.
The asset value of unconsolidated structured entities which are
managed by the Group and in which the Group's holding is classified
as an investment in associate is GBP41,379m (2015: GBP28,150m).
There are no interests in pooled investment funds managed by the
Group other than those classified as investments in associates. The
total issuance balance relating to unconsolidated structured debt
securitisation vehicles in which the Group has an investment is
GBP57,877m (2015: GBP54,214m).
The Group's maximum exposure to loss in respect of its
investments in unconsolidated structured entities is the carrying
value of the Group's investment. As noted in Note 41, the
shareholder is not exposed to market or credit risk in respect of
investments held in the unit linked funds, and third party interest
in consolidated funds and non-controlling interests risk
segments.
Additional information on how the Group manages its exposure to
risk can be found in Note 41.
(b)(ii) Other interests in unconsolidated structured
entities
For those structured entities which the Group receives asset
management or other fees from but has no direct investment, the
maximum exposure to loss is loss of future fees.
Total assets under management of structured entities in which
the Group has no direct investments but has other interests in are
GBP12,634m at
31 December 2016 (2015: GBP11,599m). The fees received in
respect of these assets under management during the year to 31
December 2016 were GBP61m (2015: GBP48m).
43. Fair value of assets and liabilities
The Group uses fair value to measure the majority of its assets
and liabilities. Fair value is the amount for which an asset could
be exchanged, or a liability settled, between knowledgeable willing
parties in an arm's length transaction.
Estimates and assumptions
Determination of the fair value of private equity investments,
debt securities categorised as level 3 in the fair value hierarchy,
over-the-counter derivatives and investment property are key
estimates. Further details on the methods and assumptions used to
value these investments are set out in section (d) below.
Disclosures regarding sensitivity of level 3 instruments measured
at fair value on the statement of financial position to changes in
key assumptions are set out in (d)(iv) below.
(a) Determination of fair value hierarchy
To provide further information on the approach used to determine
and measure the fair value of certain assets and liabilities, the
following fair value hierarchy categorisation has been used:
-- Level 1 - Fair values measured using quoted prices
(unadjusted) in active markets for identical assets or liabilities.
An active market exists where transactions take place with
sufficient frequency and volume to provide pricing information on
an ongoing basis.
-- Level 2 - Fair values measured using inputs other than quoted
prices included within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices)
-- Level 3 - Fair values measured using inputs that are not
based on observable market data (unobservable inputs)
(b) Financial investments and financial liabilities
An analysis of the Group's financial investments and financial
liabilities in accordance with the categories of financial
instrument set out in IAS 39 Financial Instruments: Recognition and
Measurement is presented in Notes 21 and 35 and includes those
financial assets and liabilities held at fair value.
(c) Non-financial investments
An analysis of the Group's investment property and owner
occupied property within property, plant and equipment in
accordance with IAS 40 Investment property and IAS 16 Property,
plant and equipment is presented in Notes 19 and 20 respectively
and includes those assets held at fair value.
(d) Methods and assumptions used to determine fair value of assets and liabilities
Information on the methods and assumptions used to determine
fair values for each major category of instrument measured at fair
value is given below. These methods and assumptions include those
used to fair value assets and liabilities held for sale, including
the individual assets and liabilities of operations held for
sale.
Investments in associates at FVTPL, equity securities and
interests in pooled investment funds, and amounts seeded into funds
classified as held for sale
Investments in associates at FVTPL are valued in the same manner
as the Group's equity securities and interests in pooled investment
funds.
Equity instruments listed on a recognised exchange are valued
using prices sourced from the primary exchange on which they are
listed. These instruments are generally considered to be quoted in
an active market and are therefore categorised as level 1
instruments within the fair value hierarchy.
Unlisted equities are valued using an adjusted net asset value.
The Group's exposure to unlisted equity securities primarily
relates to private equity investments. The majority of the Group's
private equity investments are carried out through European fund of
funds structures, where the Group receives valuations from the
investment managers of the underlying funds.
The valuations received from investment managers of the
underlying funds are reviewed and where appropriate adjustments are
made to reflect the impact of changes in market conditions between
the date of the valuation and the end of the reporting period. The
valuation of these securities is largely based on inputs that are
not based on observable market data, and accordingly these
instruments are categorised as level 3 instruments within the fair
value hierarchy. Where appropriate, reference is made to observable
market data.
Where pooled investment funds have been seeded and the
investments in the fund have been classified as held for sale, the
costs to sell are assumed to be negligible. The fair value of
pooled investment funds held for sale is calculated as equal to the
observable unit price.
Investment property and owner occupied property
The fair value of investment property and all owner occupied
property is based on valuations provided by external property
valuation experts. The fair value of investment property is
measured based on each property's highest and best use from a
market participant's perspective and considers the potential uses
of the property that are physically possible, legally permissible
and financially feasible. No adjustment has been made for vacant
possession for the Group's owner occupied property.
In the UK and Europe, valuations are completed in accordance
with the Royal Institution of Chartered Surveyors (RICS) valuation
standards. These are predominantly produced using an income
capitalisation approach. The income capitalisation approach is
based on capitalising an annual net income stream using an
appropriate yield. The annual net income is based on both current
and estimated future net income. The yield and future net income
used is determined by considering recent transactions involving
property with similar characteristics to the property being valued.
Where it is not possible to use an income capitalisation approach,
for example on property with no rental income, a market comparison
approach is used by considering recent transactions involving
property with similar characteristics to the property being valued.
In both approaches where appropriate, adjustments will be made by
the valuer to reflect differences between the characteristics of
the property being valued and the recent market transactions
considered.
As income capitalisation and market comparison valuations
generally include significant unobservable inputs including
unobservable adjustments to recent market transactions, these
assets are categorised as level 3 within the fair value
hierarchy.
Derivative financial assets and derivative financial
liabilities
The majority of the Group's derivatives are over-the-counter
derivatives which are measured at fair value using a range of
valuation models including discounting future cash flows and option
valuation techniques. The inputs are observable market data and
over-the-counter derivatives are therefore categorised as level 2
in the fair value hierarchy.
Exchange traded derivatives are valued using prices sourced from
the relevant exchange. They are considered to be instruments quoted
in an active market and are therefore categorised as level 1
instruments within the fair value hierarchy.
Non-performance risk arising from the credit risk of each
counterparty has been considered on a net exposure basis in line
with the Group's risk management policies. At 31 December 2016 and
31 December 2015 the residual credit risk is considered immaterial
and therefore no credit risk adjustment has been made.
Debt securities
For debt securities, the Group has determined a hierarchy of
pricing sources. The hierarchy consists of reputable external
pricing providers who generally use observable market data. If
prices are not available from these providers or are considered to
be stale, the Group has established procedures to arrive at an
internal assessment of the fair value. These procedures are based
largely on inputs that are not based on observable market data. A
further analysis by category of debt security is as follows:
-- Government, including provincial and municipal, and supranational institution bonds
These instruments are valued using prices received from external
pricing providers who generally base the price on quotes received
from a number of market participants. They are categorised as level
1 or level 2 instruments within the fair value hierarchy depending
upon the nature of the underlying pricing information used for
valuation purposes.
-- Corporate bonds listed or quoted in an established
over-the-counter market including asset-backed securities
These instruments are generally valued using prices received
from external pricing providers who generally consolidate quotes
received from a panel of banks into a composite price. As the
market becomes less active the quotes provided by some banks may be
based on modelled prices rather than on actual transactions. These
sources are based largely on observable market data, and therefore
these instruments are categorised as level 2 instruments within the
fair value hierarchy. When prices received from external pricing
providers are based on a single broker indicative quote, the
instruments are categorised as level 3 instruments.
For instruments for which prices are either not available from
external pricing providers or the prices provided are considered to
be stale, the Group performs its own assessment of the fair value
of these instruments. This assessment is largely based on inputs
that are not based on observable market data, principally single
broker indicative quotes, and accordingly these instruments are
categorised as level 3 instruments within the fair value
hierarchy.
-- Other corporate bonds including unquoted bonds, commercial paper and certificates of deposit
These instruments are valued using models. For unquoted bonds
the model uses inputs from comparable bonds and includes credit
spreads which are obtained from brokers or estimated internally.
Commercial paper and certificates of deposit are valued using
standard valuation formulas. The categorisation of these
instruments within the fair value hierarchy will be either level 2
or 3 depending upon the nature of the underlying pricing
information used for valuation purposes.
-- Commercial mortgages
These instruments are valued using models. The models use a
discount rate adjustment technique which is an income approach. The
key inputs for the valuation models are contractual future cash
flows, which are discounted using a discount rate that is
determined by adding a spread to the current base rate. The spread
is derived from a pricing matrix which incorporates data on current
spreads for similar assets and which may include an internal
underwriting rating. These inputs are generally observable with the
exception of the spread adjustment arising from the internal
underwriting rating. The classification of these instruments within
the fair value hierarchy will be either level 2 or 3 depending on
whether the spread is adjusted by an internal underwriting
rating.
Contingent consideration asset and contingent consideration
liabilities
A contingent consideration asset was recognised during 2014 in
respect of a purchase price adjustment mechanism relating to the
acquisition of Ignis. The fair value of the asset is calculated
using a binomial tree option pricing model. The main inputs are
management fee income and expected probabilities of payouts. These
are considered unobservable and as a result the asset is classified
as level 3 in the fair value hierarchy.
Contingent consideration liabilities have also been recognised
in respect of acquisitions made during the year. The valuations are
based on unobservable assumptions regarding expected movements in
assets under advice and therefore the liabilities are classified as
level 3 in the fair value hierarchy.
Non-participating investment contract liabilities
The fair value of the non-participating investment contract
liabilities is calculated equal to the fair value of the underlying
assets and liabilities in the funds. Thus, the value of these
liabilities is dependent on the methods and assumptions set out
above in relation to the underlying assets and liabilities in which
these funds are invested. The underlying assets and liabilities are
predominately categorised as level 1 or 2 and as such, the inputs
into the valuation of the liabilities are observable. Therefore,
the liabilities are categorised within level 2 of the fair value
hierarchy.
Liabilities in respect of third party interest in consolidated
funds
The fair value of liabilities in respect of third party interest
in consolidated funds is calculated equal to the fair value of the
underlying assets and liabilities in the funds. Thus, the value of
these liabilities is dependent on the methods and assumptions set
out above in relation to the underlying assets in which these funds
are invested. When the underlying assets and liabilities are valued
using readily available market information the liabilities in
respect of third party interest in consolidated funds are treated
as level 2. Where the underlying assets and liabilities are not
valued using readily available market information the liabilities
in respect of third party interest in consolidated funds are
treated as level 3.
(d)(i) Fair value hierarchy for assets measured at fair value in
the statement of financial position
The table below presents the Group's assets measured at fair
value by level of the fair value hierarchy.
Fair value hierarchy
As recognised in the
consolidated Classified
statement of as
financial position held
line item for sale Total Level 1 Level 2 Level 3
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ ------
Investments in
associates at
FVTPL 7,376 5,425 - 33 7,376 5,458 7,211 5,370 2 2 163 86
Investment
property 9,929 9,991 228 87 10,157 10,078 - - - - 10,157 10,078
Owner occupied
property 58 55 8 - 66 55 - - - - 66 55
Derivative
financial
assets 3,534 2,444 - - 3,534 2,444 844 692 2,690 1,752 - -
Equity
securities
and interests
in pooled
investment
vehicles 83,307 71,679 27 17 83,334 71,696 82,539 70,877 - - 795 819
Debt
securities 67,933 66,657 - - 67,933 66,657 28,721 23,210 38,344 42,660 868 787
Contingent
consideration
asset 10 15 - - 10 15 - - - - 10 15
------- ------ ------
Total assets
at fair value 172,147 156,266 263 137 172,410 156,403 119,315 100,149 41,036 44,414 12,059 11,840
------- ------ ------
There were transfers of debt securities of GBP98m from level 1
to level 2 during the year (2015: no transfers). Refer to
43(d)(iii) for details of movements in level 3.
The table that follows presents an analysis of the Group's
assets measured at fair value by level of the fair value hierarchy
for each risk segment as set out in Note 41.
Fair value hierarchy
As recognised in the
consolidated Classified
statement of as
financial position held
line item for sale Total Level 1 Level 2 Level 3
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ ------
Shareholder
business
Investments in
associates at
FVTPL 30 19 - 33 30 52 10 36 2 2 18 14
Investment
property - 1 - - - 1 - - - - - 1
Owner occupied
property - - - - - - - - - - - -
Derivative
financial
assets 19 9 - - 19 9 2 1 17 8 - -
Equity
securities
and interests
in pooled
investment
vehicles 58 52 27 17 85 69 78 61 - - 7 8
Debt
securities 8,384 7,576 - - 8,384 7,576 928 1,089 6,704 5,858 752 629
Contingent
consideration
asset 10 15 - - 10 15 - - - - 10 15
------- ------ ------
Total
shareholder
business 8,501 7,672 27 50 8,528 7,722 1,018 1,187 6,723 5,868 787 667
------- ------ ------
Participating
business
Investments in
associates at
FVTPL 847 531 - - 847 531 702 459 - - 145 72
Investment
property 1,716 2,167 216 - 1,932 2,167 - - - - 1,932 2,167
Owner occupied
property 30 55 8 - 38 55 - - - - 38 55
Derivative
financial
assets 2,211 1,478 - - 2,211 1,478 480 407 1,731 1,071 - -
Equity
securities
and interests
in pooled
investment
vehicles 8,478 8,187 - - 8,478 8,187 8,159 7,840 - - 319 347
Debt
securities 28,193 25,913 - - 28,193 25,913 16,994 15,573 11,083 10,198 116 142
------- ------ ------
Total
participating
business 41,475 38,331 224 - 41,699 38,331 26,335 24,279 12,814 11,269 2,550 2,783
------- ------ ------
Unit linked
funds
Investments in
associates at
FVTPL 5,605 4,561 - - 5,605 4,561 5,605 4,561 - - - -
Investment
property 5,727 5,947 12 68 5,739 6,015 - - - - 5,739 6,015
Owner occupied
property 28 - - - 28 - - - - - 28 -
Derivative
financial
assets 1,025 716 - - 1,025 716 281 220 744 496 - -
Equity
securities
and interests
in pooled
investment
vehicles 67,452 56,307 - - 67,452 56,307 67,252 56,117 - - 200 190
Debt
securities 25,885 26,789 - - 25,885 26,789 9,434 6,053 16,451 20,720 - 16
------- ------ ------
Total unit
linked funds 105,722 94,320 12 68 105,734 94,388 82,572 66,951 17,195 21,216 5,967 6,221
------- ------ ------
TPICF and
NCI(1)
Investments in
associates at
FVTPL 894 314 - - 894 314 894 314 - - - -
Investment
property 2,486 1,876 - 19 2,486 1,895 - - - - 2,486 1,895
Owner occupied
property - - - - - - - - - - - -
Derivative
financial
assets 279 241 - - 279 241 81 64 198 177 - -
Equity
securities
and interests
in pooled
investment
vehicles 7,319 7,133 - - 7,319 7,133 7,050 6,859 - - 269 274
Debt
securities 5,471 6,379 - - 5,471 6,379 1,365 495 4,106 5,884 - -
------- ------ ------
TPICF and
NCI(1) 16,449 15,943 - 19 16,449 15,962 9,390 7,732 4,304 6,061 2,755 2,169
------- ------ ------
Total 172,147 156,266 263 137 172,410 156,403 119,315 100,149 41,036 44,414 12,059 11,840
------- ------ ------
(1) Third party interest in consolidated funds and non-controlling interests.
(d)(ii) Fair value hierarchy for liabilities measured at fair
value in the statement of financial position
The table below presents the Group's liabilities measured at
fair value by level of the fair value hierarchy.
Fair value hierarchy
As recognised in the consolidated statement of
financial position line item Level 1 Level 2 Level 3
2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----
Non-participating
investment contract
liabilities 102,059 92,890 - - 102,059 92,890 - -
Liabilities in respect
of third party
interest in
consolidated funds 16,835 17,196 - - 15,607 15,889 1,228 1,307
Derivative financial
liabilities 965 1,254 185 184 780 1,070 - -
Contingent
consideration
liabilities 15 - - - - - 15 -
-----
Total liabilities at
fair value 119,874 111,340 185 184 118,446 109,849 1,243 1,307
-----
There were no transfers between levels 1 and 2 during the year
(2015: none). Refer to 43(d)(iii) for details of movements in level
3.
The table that follows presents an analysis of the Group's
liabilities measured at fair value by level of the fair value
hierarchy for each risk segment as set out in Note 41.
Fair value hierarchy
As recognised in the consolidated statement of
financial position line item Level 1 Level 2 Level 3
2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----------------------
Shareholder business
Derivative financial
liabilities 12 16 1 1 11 15 - -
Contingent
consideration
liabilities 15 - - - - - 15 -
-----------------------
Total shareholder
business 27 16 1 1 11 15 15 -
-----------------------
Participating business
Derivative financial
liabilities 39 88 20 47 19 41 - -
-----------------------
Total participating
business 39 88 20 47 19 41 - -
-----------------------
Unit linked funds
Non-participating
investment contract
liabilities 102,059 92,890 - - 102,059 92,890 - -
Derivative financial
liabilities 714 836 130 103 584 733 - -
-----------------------
Total unit linked funds 102,773 93,726 130 103 102,643 93,623 - -
-----------------------
TPICF and NCI(1)
Liabilities in respect
of third party
interest in
consolidated funds 16,835 17,196 - - 15,607 15,889 1,228 1,307
Derivative financial
liabilities 200 314 34 33 166 281 - -
-----------------------
TPICF and NCI(1) 17,035 17,510 34 33 15,773 16,170 1,228 1,307
-----------------------
Total 119,874 111,340 185 184 118,446 109,849 1,243 1,307
-----------------------
(1) Third party interest in consolidated funds and non-controlling interests.
(d)(iii) Reconciliation of movements in level 3 instruments
The movements during the year of level 3 assets and liabilities
held at fair value, excluding assets and liabilities held for sale,
are analysed below.
Equity
securities
and interests in Liabilities in
Investments in pooled respect of third
associates at Investment Owner occupied investment Debt party interest in
FVTPL property property funds securities consolidated funds
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 86 83 9,991 9,041 55 138 819 836 787 519 (1,307) (1,338)
Reclassified to
held for sale - - (191) (87) (8) - - - - - - -
Total
gains/(losses)
recognised in
the
consolidated
income
statement 10 1 (302) 452 (1) 5 80 135 34 - 19 (47)
Purchases(1) 103 16 1,755 862 1 - 109 116 183 360 (19) (91)
Settlement - - - - - - - - - - 81 169
Sales (39) (14) (1,337) (290) (22) (92) (242) (296) (97) (111) - -
Transfers in to
level 3(2) - - - - - - 5 26 - 33 - -
Transfers out
of level 3(2) - - - - - - (33) - (39) (14) - -
Transfers
between
investment
property and
owner occupied
property - - (28) - 28 - - - - - - -
Foreign
exchange
adjustment 3 - 44 (8) - - 57 2 - - (2) -
Total gains
recognised on
revaluation of
owner occupied
property
within other
comprehensive
income - - - - 5 4 - - - - - -
Other - - (3) 21 - - - - - - - -
At 31 December 163 86 9,929 9,991 58 55 795 819 868 787 (1,228) (1,307)
(1) Purchases of investment property for the year ended 31
December 2016 includes GBP1,289m (2015: GBPnil) relating to the
merger of property investment vehicles.
(2) Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.
In addition to the above, the Group had a contingent
consideration asset with a fair value of GBP10m at 31 December 2016
(2015: GBP15m) and contingent consideration liabilities with a fair
value of GBP15m (2015: GBPnil). There were no settlements during
the year. Movements in the fair value of contingent consideration
assets and liabilities are recognised in other income in the
consolidated income statement.
As at 31 December 2016, GBP119m of total losses from continuing
operations (2015: GBP418m gains) were recognised in the
consolidated income statement in respect of assets and liabilities
held at fair value classified as level 3 at the year end. Of this
amount GBP137m losses (2015: GBP460m gains) were recognised in
investment return, GBP1m losses (2015: GBP5m gains) were recognised
in other administrative expenses and GBP19m gains (2015: GBP47m
losses) were recognised in change in liability for third party
interest in consolidated funds.
Transfers of equity securities and interests in pooled
investment funds and debt securities into level 3 generally arise
when external pricing providers stop providing a price or where the
price provided is considered stale. Transfers of equity securities
and interests in pooled investment funds and debt securities out of
level 3 arise when acceptable prices become available from external
pricing providers.
(d)(iv) Sensitivity of level 3 instruments measured as at fair
value on the statement of financial position to changes in key
assumptions
Effect of changes of significant unobservable assumptions to
reasonable possible alternative assumptions
For the majority of level 3 investments, other than commercial
mortgages and unquoted corporate bonds, the Group does not use
internal models to value the investments but rather obtains
valuations from external parties. The Group reviews the
appropriateness of these valuations on the following basis:
-- For investment property and owner occupied property
(including property that is classified as held for sale), the
valuations are obtained from external valuers and are assessed on
an individual property basis. The principle assumptions will differ
depending on the valuation technique employed and sensitivities are
determined by flexing the key inputs listed in the following table
using knowledge of the investment property market.
-- Private equity fund valuations are provided by the respective
managers of the underlying funds and are assessed on an individual
investment basis, with an adjustment made for significant movements
between the date of the valuation and the end of the reporting
period. Sensitivities are determined by comparison to the private
equity market.
-- Unquoted corporate bonds are valued using internal models on
an individual instrument basis. Sensitivities are determined by
adjusting internally estimated credit spreads.
-- Commercial mortgage valuations are obtained from internal
models on an individual instrument basis. Sensitivities are
determined by adjusting the spread added to the current base
rate.
The shareholder is directly exposed to movements in the value of
level 3 investments held by the shareholder business (to the extent
they are not offset by opposite movements in investment and
insurance contract liabilities). Movements in level 3 investments
held by the other risk segments are offset by an opposite movement
in investment and insurance contract liabilities and therefore the
shareholder is not directly exposed to such movements unless they
are sufficiently severe to cause the assets of the participating
business to be insufficient to meet the obligations to
policyholders.
Changing unobservable inputs in the measurement of the fair
value of level 3 financial assets to reasonably possible
alternative assumptions would not have a significant impact on
profit for the year or total assets.
The table below presents quantitative information about the
significant unobservable inputs for level 3 instruments:
Fair value
Range (weighted
2016 GBPm Valuation technique Unobservable input average)
--------------------------
Investment property and 9,567 Income capitalisation Equivalent yield 3.6% to 9.1% (5.4%)
owner occupied property
Estimated rental value GBP29 to GBP2,422 (GBP336)
per square metre per
annum
Investment property 596 Income capitalisation Equivalent yield 4.6% to 7.1% (5.7%)
(hotels)
Estimated rental value GBP990 to GBP13,750
per room per annum (GBP5,462)
Investment property and 60 Market comparison Estimated value per GBP2 to GBP12,807
owner occupied property square metre (GBP4,081)
Equity securities and 958 Adjusted net asset value Adjustment to net asset N/A
interests in pooled value(1)
investment funds and
investments in associates
at
FVTPL
(private equity
investments)
Debt securities 451 Discounted cash flow Credit spread 1.9% to 2.6% (2.1%)
(commercial mortgages)
Debt securities 373 Discounted cash flow Credit spread 0.2% to 4.3% (1.9%)
(unquoted corporate
bonds)
Debt securities 11 Discounted cash flow Credit spread 1.3% (1.3%)
(infrastructure loans)
Debt securities 33 Single broker Single broker indicative N/A
(other) price(2)
Fair value
Valuation Unobservable Range (weighted
2015 GBPm technique input average)
---------- --------------------- ------------- -------------------------------
Investment property and owner 9,496 Income capitalisation Equivalent 2.1% to 15.5% (5.2%)
occupied property yield
GBP3 to GBP2,422 (GBP346)(3)
Estimated
rental value
per square
metre per
annum
--------------------- -------------
Investment property 515 Income capitalisation Equivalent 4.6% to 7.2% (5.9%)
(hotels) yield
GBP995 to GBP13,748 (GBP5,632)
Estimated
rental value
per room per
annum
--------------------- -------------
Investment property and owner 122 Market comparison Estimated GBP2 to GBP14,604 (GBP4,246)
occupied property value per
square metre
--------------------- -------------
Equity securities and interests in 905 Adjusted net Adjustment N/A
pooled investment funds and asset value to net asset
investments in associates at value(1)
FVTPL
(private equity investments)
--------------------- -------------
Debt securities 382 Discounted Credit spread 1.9% to 2.6% (2.2%)
(commercial mortgages) cash flow
--------------------- -------------
Debt securities 270 Discounted Credit spread 0.2% to 4.0% (1.9%)
(unquoted corporate bonds) cash flow
--------------------- -------------
Debt securities 135 Single broker Single broker N/A
(other) indicative
price(2)
--------------------- -------------
(1) A Group level adjustment is made for significant movements in private equity values.
(1) Debt securities which are valued using single broker
indicative quotes are disclosed in level 3 in the fair value
hierarchy. No adjustment is made to these prices.
(2) Restated.
(e) Assets and liabilities not carried at fair value
The table below presents estimated fair values by level of the
fair value hierarchy of assets and liabilities whose carrying value
does not approximate fair value. Fair values of assets and
liabilities are based on observable market inputs where available,
or are estimated using other valuation techniques.
As recognised in the consolidated
statement of financial position line
item Fair value Level 1 Level 2 Level 3
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Loans secured by
mortgages 22 73 87 86 84 - - 86 84 - -
Liabilities - - - - - -
Non-participating
investment
contract
liabilities 35 4 4 4 4 - - - - 4 4
Subordinated notes 36 499 499 530 530 - - 530 530 - -
Subordinated
guaranteed bonds 36 502 502 577 579 - - 577 579 - -
Mutual Assurance
Capital Securities 36 318 317 334 345 - - 334 345 - -
The estimated fair values for subordinated liabilities are based
on the quoted market offer price. The estimated fair values of the
other instruments detailed above are calculated by discounting the
expected future cash flows at current market rates.
It is not possible to reliably calculate the fair value of
participating investment contract liabilities. The assumptions and
methods used in the calculation of these liabilities are set out in
Note 33. The carrying value of participating investment contract
liabilities at 31 December 2016 was GBP15,537m (2015: GBP14,716m).
The carrying value of all other financial assets and liabilities
measured at amortised cost approximates their fair value.
44. Statement of cash flows
The tables below provide further analysis of the balances in the
statement of cash flows.
(a) Change in operating assets
2016 2015
GBPm GBPm
-------- -------
Investment property (116) (1,061)
Equity securities and interests in pooled investment funds (11,131) (889)
Debt securities 63 (2,506)
Derivative financial instruments (1,331) 1,063
Reinsurance assets 140 518
Investments in associates and joint ventures (1,305) (1,042)
Receivables and other financial assets and other assets 118 (281)
Deferred acquisition costs 45 114
Loans 497 (593)
Assets held for sale 25 (1,930)
-------- -------
Change in operating assets (12,995) (6,607)
-------- -------
(b) Change in operating liabilities
2016 2015
GBPm GBPm
------
Other financial liabilities, provisions and other liabilities 1,209 (820)
Deposits received from reinsurers (41) (507)
Pension and other post-retirement benefit provisions (19) 21
Deferred income (46) (38)
Insurance contract liabilities 1,393 (630)
Investment contract liabilities 9,051 4,945
Change in liability for third party interest in consolidated funds 1,379 285
Liabilities held for sale - 786
------
Change in operating liabilities 12,926 4,042
------
(c) Other non-cash and non-operating items
2016 2015
GBPm GBPm
----
Gain on sale of subsidiaries excluding transaction costs and provision recognised on disposal - (1,136)
Gain on disposal of property, plant and equipment 1 (6)
Depreciation of property, plant and equipment 14 16
Amortisation of intangible assets 64 51
Impairment losses on intangible assets 20 11
Impairment losses on property, plant and equipment 1 4
Impairment losses reversed on property, plant and equipment - (5)
Other interest cost 3 7
Finance costs 82 84
Share of profit from associates and joint ventures (63) (43)
----
Other non-cash and non-operating items 122 (1,017)
----
(d) Disposal of subsidiaries
There were no operations disposed of in the year ended 31
December 2016. The following table sets out the cash inflows from
the disposal of the Canadian business in 2015.
2015
Notes GBPm
Investment property 1,343
Loans 2,235
Equity securities and interests in pooled investment funds 12,415
Debt securities 11,206
Other assets of operations disposed of excluding cash and cash equivalents 1,354
Non-participating insurance contract liabilities (9,455)
Non-participating investment contract liabilities (15,195)
Other liabilities of operations disposed of (2,702)
Net assets disposed of 1,201
Items transferred to profit or loss on disposal of subsidiaries 12 (237)
Gain on sale 12 1,102
Transaction costs 21
Provision recognised on disposal of subsidiaries 13
Total cash consideration 1 2,100
Cash and cash equivalents disposed of 12 (500)
Cash inflow from disposal of subsidiary 1,600
45. Contingent liabilities and contingent assets
Contingent liabilities are possible obligations of the Group of
which timing and amount are subject to significant uncertainty.
Contingent liabilities are not recognised on the consolidated
statement of financial position but are disclosed, unless they are
considered remote. If such an obligation becomes probable and the
amount can be measured reliably it is no longer considered
contingent and is recognised as a liability.
Conversely, contingent assets are possible benefits to the
Group. Contingent assets are only disclosed if it is probable that
the Group will receive the benefit. If such a benefit becomes
virtually certain it is no longer considered contingent and is
recognised as an asset.
(a) Annuity sales practices relating to enhanced annuities
As discussed in Note 40, at the request of the Financial Conduct
Authority (FCA), Standard Life is conducting a past business review
of non-advised annuity sales. The purpose of the review is to
identify whether relevant customers received sufficient information
about enhanced annuities to make the right decisions about their
purchase, and where appropriate provide redress to customers who
have suffered loss as a result of not having received sufficient
information. In relation to this review, the FCA is carrying out an
investigation and it is possible that the FCA may impose a
financial penalty on Standard Life. At this stage it is not
possible to determine an estimate of the financial effect, if any,
of this contingent liability. The Group is also considering whether
the FCA's enhanced annuities review could have implications for
other past annuity sales practices.
Note 40 also provides disclosure of potential insurance
recoveries relating to redress payable to customers, the costs of
conducting the review and other related expenses. Any FCA levied
financial penalties cannot be covered by such liability
insurance.
(b) Legal proceedings, complaints and regulations
The Group is subject to regulation in all of the territories in
which it operates insurance and investment businesses. In the UK,
where the Group primarily operates, the FCA has broad powers,
including powers to investigate marketing and sales practices.
The Group, like other financial organisations, is subject to
legal proceedings, complaints and regulatory discussions, reviews
and challenges in the normal course of its business. All such
material matters are periodically reassessed, with the assistance
of external professional advisers where appropriate, to determine
the likelihood of the Group incurring a liability. Where it is
concluded that it is more likely than not that a material outflow
will be made a provision is established based on management's best
estimate of the amount that will be payable. In some cases it will
not be possible to form a view, for example because the facts are
unclear or because further time is needed to properly investigate,
and no provisions are held for such matters. It is not possible to
predict with certainty the extent and timing of the financial
impact of legal proceedings, complaints and related regulatory
matters.
46. Commitments
The Group has contractual commitments in respect of expenditure
on investment property, funding arrangements and leases which will
be payable in future periods. These commitments are not recognised
on the Group's statement of financial position at the year end but
are disclosed to give an indication of the Group's future committed
cash flows.
All Group leases are operating leases, being leases where the
lessor retains substantially all the risks and rewards of the
ownership of the leased asset.
(a) Capital commitments
As at 31 December 2016, capital expenditure that was authorised
and contracted for, but not provided and incurred, was GBP286m
(2015: GBP231m) in respect of investment property. Of this amount,
GBP220m (2015: GBP203m) and GBP66m (2015: GBP28m) relates to the
contractual obligations to purchase, construct, or develop
investment property and repair, maintain or enhance investment
property respectively.
(b) Unrecognised financial instruments
The Group has committed GBP453m (2015: GBP343m) in respect of
unrecognised financial instruments to customers and third parties.
Of this amount GBP363m (2015: GBP291m) is committed by consolidated
private equity funds. These commitments will be funded through
contractually agreed additional investments both by the Group,
through its controlling interests, and the funds' non-controlling
interests. The level of funding provided by each will not
necessarily be in line with the current ownership profile of the
funds.
(c) Operating lease commitments
The Group has entered into commercial non-cancellable leases on
certain property, plant and equipment where it is not in the best
interest of the Group to purchase these assets. Such leases have
varying terms, escalation clauses and renewal rights.
The future aggregate minimum lease payments under
non-cancellable operating leases from continuing operations are as
follows:
2016 2015
GBPm GBPm
Not later than one year 32 30
Later than one year and no later than five years 70 69
Later than five years 102 111
Total operating lease commitments 204 210
47. Employee share-based payments
The Group operates share incentive plans for its employees.
These generally take the form of an award of options or shares in
Standard Life plc (equity-settled share based payments) but can
also take the form of a cash award based on the share price of
Standard Life plc (cash-settled share based payments). All the
Group's incentive plans have conditions attached before the
employee becomes entitled to the award. These can be performance
and/or service conditions (vesting conditions) or the requirement
of employees to save in the save-as-you-earn scheme (non-vesting
condition). The period over which all vesting conditions are
satisfied is the vesting period and the awards vest at the end of
this period.
For all share-based payments services received for the incentive
granted are measured at fair value.
For cash-settled share-based payment transactions, services
received are measured at the fair value of the liability. The fair
value of the liability is remeasured at each reporting date and any
changes in fair value are recognised in the consolidated income
statement.
For equity-settled share-based payment transactions, the fair
value of services received is measured by reference to the fair
value of the equity instruments at the grant date. The fair value
of the number of instruments expected to vest is charged to the
income statement over the vesting period with a corresponding
credit to the equity compensation reserve in equity.
At each period end the Group reassesses the number of equity
instruments expected to vest and recognises any difference between
the revised and original estimate in the consolidated income
statement with a corresponding adjustment to the equity
compensation reserve.
At the time the equity instruments vest, the amount recognised
in the equity compensation reserve in respect of those equity
instruments is transferred to retained earnings.
Share options
(i) Long-term incentive plans
The Group operates the following long-term incentive plans.
Conditions which must be met prior to
Plan Recipients vesting
Long-term incentive plan Executives and senior management Service and performance conditions as
set out in the Directors' remuneration
report
Standard Life Investments Long-Term Executives and senior management of Service and performance conditions as
Incentive Plan (Standard Life Standard Life Investments set out in the Directors' remuneration
Investments LTIP) report
Restricted stock plan (RSP) Executives (other than executive Service, or service and performance
Directors) and senior management conditions. These are tailored to the
individual award
All of the awards are equity-settled other than awards made
under the Standard Life Investments LTIP in respect of employees in
the US, France and Asia which are cash-settled.
(ii) Short-term incentive plan (annual bonus deferred shares)
The majority of the members of the executive and senior
management including executive Directors participate in the Group
annual bonus. Under the terms of the 2016 and 2015 annual bonus,
half of any bonus earned by executive Directors and members of the
executive team above 25% of salary will be settled in nil-cost
options which are deferred for a period of three years (two years
for the 2015 annual bonus), subject to the deferred amount being
worth 10% or more of salary. Further details of the annual bonus
are set out in the Directors' remuneration report.
Employees may forfeit some or all of awards made under any of
the above share-based payment schemes if they leave the Group prior
to the end of the awards' vesting periods.
(iii) Sharesave (Save-as-you-earn)
The Group operates Save-as-you-earn (SAYE) plans, which allow
eligible employees in the UK and Ireland the opportunity to save a
monthly amount from their salaries, over either a three or five
year period, which can be used to purchase shares in the Company.
The shares can be purchased at the end of the savings period at a
predetermined price. Employees are granted a predetermined number
of options based on the monthly savings amount and duration of
their contract. The conditions attached to the options are that the
employee remains in employment for three years after the grant date
of the options and that the employee satisfies the monthly savings
requirement. Settlement is made in the form of shares.
Share awards
(i) Share incentive plan
The Group operates a share incentive plan, allowing employees
the opportunity to buy shares from their salary each month. The
maximum purchase that an employee can make in any year is GBP1,800.
The Group offers to match the number of shares bought up to a value
of GBP50 each month (up to a value of GBP25 until May 2016). The
matching shares awarded under the share incentive plan are granted
at the end of each month. The matching shares are generally subject
to a three year service period.
(a) Options granted
The number, weighted average exercise price and weighted average
remaining contractual life for options outstanding during the year
are as follows:
2016 2015
Weighted Weighted
average average
Long-term Short-term exercise Long-term Short-term exercise
incentive plans incentive price for incentive plans incentive price for
(excluding RSP) RSP plan Sharesave Sharesave (excluding RSP) RSP plan Sharesave Sharesave
------------ ---------
Outstanding
at
1 January 28,071,264 2,951,682 537,726 9,108,246 255p 25,131,521 2,732,361 557,301 8,235,878 228p
Granted 19,574,146 1,452,614 387,848 3,036,190 283p 14,096,423 1,423,236 305,253 2,091,965 328p
Forfeited (3,570,503) (100,580) - (497,778) 279p (2,516,468) (431,168) - (311,887) 260p
Exercised (4,339,160) (477,508) (372,536) (3,365,277) 188p (8,640,212) (772,747) (324,828) (847,383) 198p
Expired - - - - - - - - (914) 157p
Cancelled - - - (706,102) 312p - - - (59,413) 267p
Outstanding
at
31 December 39,735,747 3,826,208 553,038 7,575,279 290p 28,071,264 2,951,682 537,726 9,108,246 255p
------------ ---------
Exercisable
at
31 December 40,970 25,161 - 302,214 193p - - - 84,517 220p
------------ ---------
Weighted
average
remaining
contractual
life of
options
outstanding
(years) 2.21 1.35 1.43 2.66 2.18 1.96 1.31 2.34
------------ ---------
The exercise price for options granted under long-term and
short-term incentive schemes is nil. Fair value of options granted
under the Group's incentive schemes is determined using a relevant
valuation technique, such as the Black Scholes option pricing
model.
The following table shows the weighted average assumptions that
were considered in determining the fair value of options granted
during the year and the share price at exercise of options
exercised during the year.
Long-term incentive Short-term incentive
plans (excluding RSP) RSP plan Sharesave
-----------------------
Options granted during
the year
Grant date 24 March 2016 Throughout 24 March 2016 7 October 2016
----------------------
Share price at grant
date 349p 340p 349p 355p
----------------------
Fair value at grant
date 349p 340p 349p 56p
----------------------
Exercise price Nil Nil Nil 280p-283p
----------------------
The plans
include the
entitlement
to the receipt
of dividends
in respect The plans include the The plan includes the
of awards entitlement to the entitlement to the
that ultimately receipt of dividends receipt of dividends
vest between in respect of awards in respect of awards
the date of that ultimately that ultimately
grant and vest between the date vest between the date
the vesting of grant and the of grant and the No dividend
Dividends date vesting date vesting date entitlement
----------------------
Option term (years) 3.45 2.17 3.23 3.53
----------------------
Options exercised
during the year
Share price at time of
exercise 349p 350p 357p 341p
----------------------
No departures from share option schemes are expected at grant
date, with any leavers being accounted for on departure. In
determining the fair value of options granted under the Sharesave
scheme the historic volatility of the share price over a period of
up to five years and a risk free rate determined by reference to
swap rates was also considered.
The following table shows the range of exercise prices of
options outstanding at 31 December 2016. All options are
exercisable for a period of six months after the vesting date.
2016 2015
Number of options outstanding Number of options outstanding
--------------------------
Long-term incentive plans
GBPnil 43,561,955 31,022,946
Short-term incentive plan
GBPnil 553,038 537,726
Sharesave
Less than 200p 206,770 2,727,416
200p-320p 5,891,582 4,296,662
321p-400p 1,476,927 2,084,168
--------------------------
Outstanding at 31 December 51,690,272 40,668,918
--------------------------
(b) Share incentive plan
2016 2015
Number of instruments granted(1) 503,931 261,123
Share price at date of grant(2) 333p 431p
Fair value per granted instrument at
grant date(2) 333p 431p
-------------------------------------
(1) Included in the number of instruments granted are 11,814
(2015: 11,433) rights to shares granted to eligible employees in
Germany and Austria.
(2) Weighted average.
The fair value of instruments granted under the share incentive
plan is calculated by reference to the share price at grant date.
The plan includes the entitlement to the receipt of dividends in
respect of awards that ultimately vest between the date of grant
and the vesting date. At the grant date all awards are expected to
vest. No departures are expected at the grant date, with leavers
being accounted for on departure.
(c) Employee share-based payment expense
The amounts recognised as an expense in Note 8 for
equity-settled share-based payment transactions with employees are
as follows:
2016 2015
GBPm GBPm
----------------------------------------------
Share options granted under long-term
incentive plans 25 29
Share options granted under Sharesave 2 1
Share options granted under short-term
incentive plan 2 2
Matching shares granted under share incentive
plans 1 1
----------------------------------------------
Expense from continuing operations 30 33
Expense from discontinued operations - 1
----------------------------------------------
30 34
----------------------------------------------
Additionally, the Group incurred an expense for cash-settled
share-based payment schemes from continuing operations of GBP2m in
2016 (2015: GBP2m). The liability for cash-settled share-based
payments outstanding at 31 December 2016 is GBP4m (2015:
GBP3m).
48. Related party transactions
(a) Transactions and balances with related parties
In the normal course of business, the Group enters into
transactions with related parties that relate to insurance and
investment management business.
Transactions with related parties carried out by the Group
during the year were as follows:
2016 2015
GBPm GBPm
------------------------
Sales to
Associates 9,328 1,018
Other related parties 66 53
------------------------
9,394 1,071
------------------------
Purchases from
Associates 9,782 1,495
Joint ventures 1 9
------------------------
9,783 1,504
------------------------
Sales to and purchases from associates primarily relate to
transactions with Group managed investment vehicles which are
classified as associates measured at FVTPL.
Sales to and amounts due from other related parties include
management fees received/receivable from non-consolidated
investment vehicles managed by Standard Life Investments and from
the Group's defined benefit pension plans.
The year end balances arising from transactions carried out by
the Group with related parties are as follows:
2016 2015
GBPm GBPm
----
Due from related parties
Associates 16 24
Joint ventures 3 2
----
19 26
----
In addition to the amounts shown above, the Group's defined
benefit pension plans have assets of GBP1,028m (2015: GBP579m)
invested in investment vehicles managed by the Group.
(b) Compensation of key management personnel
In 2016 key management personnel includes only Directors of
Standard Life plc; in 2015 key management personnel also included
certain direct reports of the Chief Executive. Detailed disclosures
of Directors' remuneration for the year and transactions in which
the Directors are interested are contained within the audited
section of the Directors' remuneration report.
The summary of compensation of key management personnel is as
follows:
2016 2015
GBPm GBPm
Salaries and other short-term employee benefits 6 8
Post-employment benefits 1 1
Share-based payments 3 5
Termination benefits - 2
Total compensation of key management personnel 10 16
(c) Transactions with key management personnel and their close family members
All transactions between key management and their close family
members and the Group during the year are on terms which are
equivalent to those available to all employees of the Group.
During the year to 31 December 2016, key management personnel
and their close family members contributed GBP1m (2015: GBP6m) to
products sold by the Group. At 31 December 2016 the total value of
key management personnel's investments in Group products was GBP21m
(2015: GBP19m).
49. Capital management
(a) Capital management policies and risk management objectives
Managing capital is the ongoing process of determining and
maintaining the quantity and quality of capital appropriate for the
Group and ensuring capital is deployed in a manner consistent with
the expectations of our stakeholders. For these purposes, the Board
considers our key stakeholders to be the providers of capital (our
equity holders, policyholders and holders of our subordinated
liabilities) and the Prudential Regulation Authority (PRA).
There are two primary objectives of capital management within
the Group. The first objective is to ensure that capital is, and
will continue to be, adequate to maintain the required level of
financial stability of the Group and hence to provide an
appropriate degree of security to our stakeholders - this aspect is
measured by the Group's regulatory solvency position. The second
objective is to create equity holder value by driving profit
attributable to equity holders.
The liquidity and capital management policy forms one aspect of
the Group's overall management framework. Most notably, it operates
alongside and complements the strategic investment policy and the
Group risk policies. Integrating policies in this way enables the
Group to have a capital management framework that robustly links
the process of capital allocation, value creation and risk
management.
The capital requirements of each business unit are forecast on a
periodic basis and the requirements are assessed against the
forecast available capital resources. In addition, internal rates
of return achieved on capital invested are assessed against hurdle
rates, which are intended to represent the minimum acceptable
return given the risks associated with each investment. The capital
planning process is the responsibility of the Chief Financial
Officer. Capital plans are ultimately subject to approval by the
Board.
The formal procedures for identifying and assessing risks that
could affect the capital position of the Group are described in the
risk management policies set out in Note 41.
(b) Regulatory capital
(b)(i) Regulatory capital framework
From 1 January 2016, both the consolidated Group and regulated
insurance entities within the Group operating in the EU have been
required to measure and monitor their capital resources under the
Solvency II (SII) regulatory regime.
The Group's capital position under SII is determined by
aggregating the assets and liabilities of the Group recognised and
measured on a SII basis (being Own funds) and comparing this to the
Group's SII solvency capital requirement (SCR) to determine surplus
capital.
There are a number of differences to the recognition and
measurement of the Group's assets and liabilities on a SII basis
compared to IFRS. These are described in (b)(iii).
The Group's SII SCR primarily consists of the consolidated SII
SCR for insurance entities (including Standard Life plc) which is
calculated on the basis of management's own regulator-approved
internal model. In addition, the Group's SCR also includes SII SCRs
for other insurance entities whose SCRs are calculated on the basis
of the standard formula within the SII regulations, and the capital
requirements of other regulated entities in the Group that are set
by their regulator. The SII SCRs for insurance entities are
calibrated so that the likelihood of a loss exceeding the SII SCR
in one year is less than 0.5%. The SII capital resources are also
subject to Minimum Capital Requirements.
Surplus capital at individual entity level is assessed for
availability to the Group and therefore may be restricted when
determining Group own funds.
This regulatory framework can be summarised as follows for the
main regulated entities in the Group:
Entity level Contribution to Group SII position
Standard Life Investments
Limited BIPRU(1) BIPRU(1)
Standard Life Assurance SII internal
Limited (SLAL) model SII internal model
Standard Life International SII standard
DAC formula SII standard formula
Standard Life plc - SII internal model
Standard Life (Asia) Local regime
Limited (Hong Kong) SII standard formula
Heng An Standard Life Local regime
Insurance Company Limited (China) SII standard formula
HDFC Standard Life Insurance Local regime
Company Limited (India) Excluded
---------------------------- ------------
(1) Prudential Sourcebook for Banks, Building Societies and
Investment Firms.
(b)(ii) Regulatory capital position (unaudited)
The table below shows the Group's own funds and solvency capital
requirement:
2016(1) 2015(1)
GBPbn GBPbn
-----------------------------------
Own funds 7.2 5.5
Solvency capital requirement (SCR) (4.1) (3.4)
-----------------------------------
Solvency II capital surplus 3.1 2.1
-----------------------------------
Solvency cover 176% 162%
-----------------------------------
(1) 2016 based on draft regulatory returns which are not
audited. 2015 based on the position on adoption of the SII
regulatory regime at 1 January 2016.
The Group has complied with all externally imposed capital
requirements during the year. The Group position can be analysed as
follows:
Own funds SCR Surplus
31 December 2016(1) GBPbn GBPbn GBPbn
------------------------------
SLAL 6.0 3.8 2.2
Restriction on SLAL own funds
recognised at Group (0.1) - (0.1)
Other businesses 1.3 0.3 1.0
------------------------------
Group total 7.2 4.1 3.1
------------------------------
Own funds SCR Surplus
31 December 2015(1) GBPbn GBPbn GBPbn
------------------------------
SLAL 5.3 3.1 2.2
Restriction on SLAL own funds
recognised at Group (1.1) - (1.1)
Other businesses 1.3 0.3 1.0
------------------------------
Group total 5.5 3.4 2.1
------------------------------
(1) 2016 based on draft regulatory returns which are not
audited. 2015 based on the position on adoption of the SII
regulatory regime at 1 January 2016.
The Group's own funds do not take into account capital in
subsidiaries that is not deemed to be freely transferable around
the Group. The reduction in unrecognised capital in SLAL from
GBP1.1bn at 31 December 2015 to GBP0.1bn at 31 December 2016 is due
to methodology and legislative changes.
(b)(iii) Reconciliation of regulatory capital own funds to IFRS
equity
A reconciliation of the Group own funds to the equity
attributable to equity holders of Standard Life plc on an IFRS
basis is as follows:
2016(5) 2015(5)
GBPbn GBPbn
Own funds 7.2 5.5
Add unrecognised Solvency II capital (availability restriction) 0.2 1.2
Remove with profits funds and pension scheme contribution to own funds(1) (1.2) (0.7)
Remove subordinated liabilities contribution to own funds(2) (1.6) (1.5)
Remove value of fee business future profits(3) (2.9) (2.9)
Add IFRS pension scheme surplus(1) 1.1 0.9
Add IFRS DAC, DIR and other intangibles assets and other valuation differences(4) 1.5 1.5
IFRS equity attributable to equity holders of Standard Life plc 4.3 4.0
(1) In determining Group own funds the asset recognised for a
surplus in a with profits fund or a defined benefit pension scheme
is restricted to their capital requirements.
(2) Subordinated liabilities provide capital in SII provided certain conditions are met.
(3) The measurement of technical provisions in Group own funds
reflects the value of future profits on investment fee business
which are not included in the measurement of IFRS liabilities.
(4) Certain items that are recognised as assets and liabilities
under IFRS are not recognised as assets and liabilities in Group
own funds, being the Group's DAC, DIR and other intangible assets.
Other valuation differences are mainly due to differences in the
measurement of technical provisions for insurance business.
(5) 2016 based on draft regulatory returns which are not
audited. 2015 based on the position on adoption of the SII
regulatory regime at 1 January 2016.
50. Related undertakings
The Companies Act 2006 requires disclosure of certain
information about the Group's related undertakings which is set out
in this note. Related undertakings are subsidiaries, joint
ventures, associates and other significant holdings. In this
context significant means either a shareholding greater than or
equal to 20% of the nominal value of any class of shares, or a book
value greater than 20% of the Group's assets.
The particulars of the Company's related undertakings at 31
December 2016 are listed below. For details of the Group's
consolidation policy refer to (b) Basis of consolidation in the
Presentation of consolidated financial statements section.
The ability of subsidiaries to transfer cash or other assets
within the Group for example through payment of cash dividends is
restricted only by local laws and regulations, and solvency
requirements. These are not considered significant restrictions on
the Group's ability to access or use the assets and settle the
liabilities of the Group.
The Group also has investments in Qualifying Limited
Partnerships which are consolidated in these financial statements.
For the Qualifying Limited Partnerships, North American Strategic
Partners (Feeder) 2006 Limited Partnership and North American
Strategic Partners (Feeder) 2008 Limited Partnership an exemption
from filing annual financial statements with Companies House has
been taken in accordance with the Partnership Accounting
Regulations (2008). The registered head office of all related
undertakings is 1 George St, Edinburgh, EH2 2LL unless otherwise
stated.
(a) Direct subsidiaries
Name of related undertaking Share class(1) % interest held
30 STMA 1 Limited(3) Ordinary Shares 100%
30 STMA 2 Limited(3) Ordinary Shares 100%
30 STMA 3 Limited(3) Ordinary Shares 100%
30 STMA 4 Limited(3) Ordinary Shares 100%
Elevate Portfolio Services Limited(3) Ordinary Shares 100%
Focus Solutions Group Limited(4) Ordinary Shares 100%
Standard Life (Asia Pacific Holdings) Private Limited(5) Ordinary Shares 100%
Ordinary Shares
Standard Life Assurance Limited(2) Ordinary B Shares 100%
Standard Life (London) Limited(3) Ordinary Shares 100%
Standard Life (Mauritius Holdings) 2006 Limited(6) Ordinary Shares 100%
Standard Life Employee Services Limited(2) Ordinary Shares 100%
Standard Life Finance Limited(2) Ordinary Shares 100%
Standard Life Foundation(2) N/A 100%
Standard Life Investments (Holdings) Limited Ordinary Shares 100%
Standard Life Oversea Holdings Limited(2) Ordinary Shares 100%
Threesixty Support LLP(7) Limited Liability Partnership 100%
Vebnet (Holdings) Limited(3) Ordinary Shares 100%
(b) Other subsidiaries, joint ventures, associates and other significant holdings
Name of related undertaking Share class(1) % interest held
1825 Financial Planning Limited(3) Ordinary Shares 100%
28 Ribera del Loira SA(8) Ordinary Shares 100%
330 Avenida de Aragon SL(8) Ordinary Shares 100%
4th Contact Limited(3) Ordinary Shares 100%
Andaes S.à r.l.(9) Ordinary Shares 60%
Aurora Kaasunjakelu Oy(10) Ordinary Shares 35%
Ordinary Shares
AXA Portfolio Services Limited(3) Preference Shares 100%
Baigrie Davies & Company Limited(3) Ordinary Shares 100%
Baigrie Davies Holdings Limited(3) Ordinary Shares 100%
Bardol Inversiones SL(8) Ordinary Shares 60%
Bechtel Properties Limited(11) Ordinary Shares 100%
Castlepoint General Partner Limited(12) Ordinary Shares 100%
Castlepoint LP(12) Ordinary Shares 50%
Castlepoint Nominee Limited(12) Ordinary Shares 100%
City Road (Jersey) Limited(13) Ordinary Shares 100%
Crawley Unit Trust(13) Unit Trust 100%
ESP 2006 Conduit LP Limited Partnership 8%
ESP 2008 Conduit LP Limited Partnership 4%
Name of related undertaking Share class(1) % interest held
ESP CPPIB European Mid Market Fund Limited Partnership 1%
ESP General Partner Limited Partnership Limited Partnership 50%
ESP Golden Bear Europe Fund Limited Partnership 3%
ESP II Conduit LP Limited Partnership 46%
ESP II General Partner Limited Partnership Limited Partnership 46%
ESP Tidal Reach LP Limited Partnership 1%
European Strategic Partners Limited Partnership 73%
European Strategic Partners 2006 'B' Limited Partnership 9%
European Strategic Partners 2008 'B' Limited Partnership 4%
European Strategic Partners II 'A' Limited Partnership 1%
European Strategic Partners II 'B' Limited Partnership 1%
European Strategic Partners II 'C' Limited Partnership 69%
European Strategic Partners II 'D' Limited Partnership 1%
European Strategic Partners II 'E' Limited Partnership 1%
Extraverde Property BV(14) Ordinary Shares 60%
Ezraya Sp z.o.o.(15) Ordinary Shares 60%
Falcon II Pavlova s.r.o.(16) Ordinary Shares 60%
Focus Business Solutions Limited(4) Ordinary Shares 100%
Focus Holdings Limited(4) Ordinary Shares 100%
Focus Software Limited(4) Ordinary Shares 100%
Focus Solutions EBT Trustee Limited(4) Ordinary Shares 100%
G Park Management Company Limited(11) Preference shares 100%
Gallions Reach Shopping Park (Nominee) Limited(11) Ordinary Shares 100%
Gallions Reach Shopping Park Limited Partnership(11) Limited Partnership 100%
Gallions Reach Shopping Park Unit Trust(13) Unit Trust 100%
GREF Almeda Park SL(8) Ordinary Shares 60%
GREF Jersey Esplanade Limited(17) Ordinary Shares 60%
GREF Jersey Holding Limited(17) Ordinary Shares 60%
GREF Jersey Ireland Holding Limited(17) Ordinary Shares 60%
GREF Jersey Ireland Property Limited(17) Ordinary Shares 60%
HDFC Asset Management Company Limited(18) Ordinary Shares 40%
HDFC International Life and Re Company Limited(19) Ordinary shares 35%
HDFC Pension Management Company Limited(20) Equity Shares 35%
HDFC Standard Life Insurance Company Limited(21) Equity Shares 35%
Heng An Standard Life Insurance Company Limited(22) Equity Shares 50%
High Street Nominee No. 1 Limited(13) Ordinary Shares 100%
High Street Nominee No. 2 Limited(13) Ordinary Shares 100%
Hundred S.à r.l.(9) Ordinary Shares 100%
Ibis (748) Limited(11) Ordinary Shares 100%
Ibis (749) Limited(11) Ordinary Shares 100%
Iceni Nominees (No.2) Limited(11) Ordinary Shares 100%
Iceni Nominees (No.2A) Limited(11) Ordinary Shares 100%
Ignis Asset Management Limited Ordinary Shares 100%
Ignis Carry Partner Limited(24) Ordinary Shares 100%
Ignis Cayman GP2 Limited(24) Ordinary Shares 60%
Ignis Cayman GP3 Limited(24) Ordinary Shares 60%
Ignis Fund Managers Limited Ordinary Shares 100%
Ignis Investment Management Limited Ordinary Shares 100%
Ignis Investment Services Limited Ordinary Shares 100%
Ignis Nominees Limited Ordinary Shares 100%
Inesia S.A.(9) Ordinary Shares 100%
Inhoco 3107 Limited(11) Ordinary Shares 100%
Invest Park 3 Sp. z.o.o.(25) Ordinary Shares 60%
Jones Sheridan Financial Consulting Limited(26) Ordinary Shares 100%
Jones Sheridan Holdings Limited(26) Ordinary Shares 100%
Lake Meadows Management Company Limited(11) Ordinary Shares 100%
Name of related undertaking Share class(1) % interest held
Lincoln St Marks (One) Limited(11) Ordinary Shares 100%
Lincoln St Marks (Two) Limited(11) Ordinary Shares 100%
Lothian Development III (Nederland) BV(14) Ordinary Shares 100%
Lothian Development III SA(27) Ordinary Shares 100%
Limited Liability
Mallard Investments LLP Partnership 35%
Mastscreen Limited(28) Ordinary Shares 100%
NASP 2006 General Partner Limited Partnership Limited Partnership 62%
Nordic Hydro AS(29) Ordinary Shares 35%
Nordic Hydro Holding AS(29) Ordinary Shares 35%
Nordic Power AS(29) Ordinary Shares 35%
Nordic Power Torsnes AS(29) Ordinary Shares 35%
North American Strategic Partners (Feeder) 2006 Limited Partnership 70%
North American Strategic Partners (Feeder) 2008 Limited Partnership Limited Partnership 100%
North American Strategic Partners 2006 L.P.(30) Limited Partnership 55%
North American Strategic Partners 2008 L.P. (30) Limited Partnership 100%
North American Strategic Partners GP, LP(30) Limited Partnership 80%
North American Strategic Partners, LP(30) Limited Partnership 41%
Ordinary A Shares
North East Trustees Limited(31) Ordinary B Shares 100%
Ordinary A Shares
Ordinary B Shares
Pace Financial Solutions Limited(3) Ordinary C Shares 100%
Ordinary A Shares
Pace Mortgage Solutions Limited(3) Ordinary B Shares 100%
Panker Invest S.à r.l.(9) Ordinary Shares 60%
Parnell Fisher Child & Co. Limited(3) Ordinary Shares 100%
Ordinary A Shares
Parnell Fisher Child Holdings Limited(3) Ordinary B Shares 100%
Pearson Jones & Company (Trustees) Limited(31) Ordinary Shares 100%
Pearson Jones Nominees Limited(31) Ordinary Shares 100%
Ordinary A Shares
Pearson Jones plc(3) Ordinary B Shares 100%
PLC Poland 20 Sp z.o.o.(15) Ordinary Shares 60%
PLC Poland 25 Sp z.o.o.(15) Ordinary Shares 60%
PLC Poland 34 Sp z.o.o.(15) Ordinary Shares 60%
Property Corporate Director 1 Limited(11) Ordinary Shares 100%
Property Corporate Director 2 Limited(11) Ordinary Shares 100%
Ravensbourne Retail Park Limited(11) Ordinary Shares 100%
Retail Park HANÁ a.s.(16) Ordinary Shares 60%
Retail Park Ostrava a.s. (16) Ordinary Shares 60%
Rock Rail East Anglia (Holdings) 1 Limited(32) Ordinary Shares 35%
Rock Rail East Anglia (Holdings) 2 Limited(32) Ordinary Shares 35%
Rock Rail East Anglia plc(32) Ordinary Shares 35%
Rock Rail Moorgate (Holdings) Limited(32) Ordinary Shares 35%
Rock Rail Moorgate plc(32) Ordinary Shares 35%
Scottish Mutual Investment Managers Limited Ordinary Shares 100%
Scottish Mutual PEP and ISA Managers Limited(3) Ordinary Shares 100%
Seabury Assets Fund plc
The Euro VNAV Liquidity Fund(33) OEIC 99%
The No.1 Fund(33) OEIC 100%
The Sterling VNAV Liquidity Fund(33) OEIC 97%
Select Japan (GK Holdings UK) Limited Ordinary Shares 60%
Select Japan (TK Holdings UK) Limited Ordinary Shares 60%
Select Japan G.K. Limited by members 60%
Select Malta Holdings Limited(34) Ordinary Shares 60%
Select Property Holdings (Mauritius) Limited(35) Ordinary Shares 60%
Name of related undertaking Share class(1) % interest held
Serin Wealth Limited(36) Ordinary Shares 50%
SL (NEWCO) Limited(2) Ordinary Shares 100%
SL Capital ESF I LP Limited Partnership 1%
SL Capital Infrastructure I LP Limited Partnership 35%
SL Capital NASF I A LP Limited Partnership 22%
SL Capital NASF I LP(30) Limited Partnership 19%
SL Capital Partners (US) Limited Ordinary Shares 100%
Limited Liability
SL Capital Partners LLP Partnership 60%
SL Capital SOF I Feeder LP Limited Partnership 0.4%
SL Capital SOF I LP Limited Partnership 0.3%
SL Capital SOF II Feeder LP Limited Partnership 1%
SL Capital SOF II LP Limited Partnership 0.4%
SLA Belgium No. 1. SA(27) Ordinary Shares 100%
SLA Germany No. 1 S.à r.l.(9) Ordinary Shares 100%
SLA Germany No. 2 S.à r.l. (9) Ordinary Shares 100%
SLA Germany No.3 S.à r.l. (9) Ordinary Shares 100%
SLA Ireland No.1 S.à r.l. (9) Ordinary Shares 100%
SLA Netherlands No.1 B.V. (14) Ordinary Shares 100%
SLACOM (No.8) Limited(2) Ordinary Shares 100%
SLACOM (No.9) Limited(2) Ordinary Shares 100%
SLACOM (No.10) Limited(2) Ordinary Shares 100%
SLCP (Founder Partner Ignis Private Equity) Limited Ordinary Shares 60%
SLCP (Founder Partner Ignis Strategic Credit) Limited Ordinary Shares 60%
SLCP (General Partner 2016 Co-investment) Limited Ordinary Shares 60%
SLCP (General Partner CPP) Limited Ordinary Shares 100%
SLCP (General Partner EC) Limited Ordinary Shares 100%
SLCP (General Partner Edcastle) Limited Ordinary Shares 100%
SLCP (General Partner ESF I) Limited Ordinary Shares 100%
SLCP (General Partner ESF II) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2004) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2006) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2008 Coinvestment) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2008) Limited Ordinary Shares 100%
SLCP (General Partner ESP CAL) Limited Ordinary Shares 100%
SLCP (General Partner Europe VI) Limited Ordinary Shares 100%
SLCP (General Partner Infrastructure I) Limited Ordinary Shares 100%
SLCP (General Partner Infrastructure Secondary I) Limited Ordinary Shares 100%
SLCP (General Partner NASF I) Limited Ordinary Shares 100%
SLCP (General Partner NASP 2006) Limited Ordinary Shares 100%
SLCP (General Partner NASP 2008) Limited Ordinary Shares 100%
SLCP (General Partner Pearl Private Equity) Limited Ordinary Shares 100%
SLCP (General Partner Pearl Strategic Credit) Limited Ordinary Shares 100%
SLCP (General Partner SOF I) Limited Ordinary Shares 100%
SLCP (General Partner SOF II) Limited Ordinary Shares 100%
SLCP (General Partner SOF III) Limited Ordinary Shares 100%
SLCP (General Partner Tidal Reach) Limited Ordinary Shares 100%
SLCP (General Partner USA) Limited Ordinary Shares 100%
SLCP (General Partner) Limited Ordinary Shares 100%
SLCP (General Partner II) Limited Ordinary Shares 100%
SLCP (Holdings) Limited Ordinary Shares 100%
SLCP Infrastructure I (Holdings) S.à r.l(9) Ordinary Shares 35%
SLCP Infrastructure I-A S.à r.l(9) Ordinary Shares 35%
SLIF Property Investment GP Limited Ordinary Shares 100%
SLTM Limited Ordinary Shares 100%
Standard Life Active Plus Bond Trust Unit Trust 100%
Standard Life Agency Services Limited(2) Ordinary Shares 100%
Name of related undertaking Share class(1) % interest held
Standard Life (Asia) Limited(37) Ordinary Shares 100%
Standard Life Assurance (HWPF) Luxembourg S.à r.l.(9) Ordinary Shares 100%
Standard Life Charity Fund(2) N/A 100%
Standard Life Client Management Limited(2) Ordinary Shares 100%
Standard Life Equity Income Trust PLC(28) Ordinary Shares 1%
Standard Life European Private Equity Trust plc Ordinary Shares 56%
Standard Life European Trust Unit Trust 98%
Standard Life European Trust II Unit Trust 100%
Standard Life Global Equity Trust II Unit Trust 100%
Standard Life International Designated Activity Company(38) Ordinary Shares 100%
Standard Life International Trust Unit Trust 100%
Standard Life Investment Company
AAA Income Fund OEIC 3%
American Equity Income Fund OEIC 100%
American Equity Unconstrained Fund OEIC 56%
Asian Pacific Growth Fund OEIC 38%
Corporate Bond Fund OEIC 45%
Emerging Market Debt Fund OEIC 78%
European Equity Growth Fund OEIC 44%
European Equity Income Fund OEIC 19%
Europe ex-UK Smaller Companies Fund OEIC 23%
Global Emerging Markets Equity Fund OEIC 97%
Global Emerging Markets Equity Income Fund OEIC 95%
Global Equity Income Fund OEIC 19%
Global Equity Unconstrained Fund OEIC 41%
Global Smaller Companies Fund OEIC 9%
Higher Income Fund OEIC 38%
Investment Grade Corporate Bond Fund OEIC 55%
Japanese Equity Growth Fund OEIC 95%
Short Duration Credit Fund OEIC 71%
UK Equity Growth Fund OEIC 45%
UK Equity High Alpha Fund OEIC 44%
UK Equity High Income Fund OEIC 44%
UK Equity Recovery Fund OEIC 18%
UK Ethical Fund OEIC 11%
UK Gilt Fund OEIC 8%
UK Opportunities Fund OEIC 70%
UK Smaller Companies Fund OEIC 34%
Standard Life Investment Company II
Standard Life Investments Corporate Debt Fund OEIC 100%
Standard Life Investments Ethical Corporate Bond Fund OEIC 67%
Standard Life Investments European Ethical Equity Fund OEIC 92%
Standard Life Investments Global Index Linked Bond Fund OEIC 18%
Standard Life Investments Global REIT Fund OEIC 53%
Standard Life Investments Short Duration Global Index Linked Bond Fund OEIC 44%
Standard Life Investments Short Dated Corporate Bond Fund OEIC 45%
Standard Life Investments UK Equity Income Unconstrained Fund OEIC 30%
Standard Life Investments UK Equity Unconstrained Fund OEIC 40%
Standard Life Investment Company III
Enhanced-Diversification Growth Fund OEIC 98%
MyFolio Managed I Fund OEIC 69%
MyFolio Managed II Fund OEIC 66%
MyFolio Managed III Fund OEIC 75%
MyFolio Managed IV Fund OEIC 58%
MyFolio Managed V Fund OEIC 69%
MyFolio Managed Income I Fund OEIC 41%
MyFolio Managed Income II Fund OEIC 45%
Name of related undertaking Share class(1) % interest held
MyFolio Managed Income III Fund OEIC 49%
MyFolio Managed Income IV Fund OEIC 48%
MyFolio Managed Income V Fund OEIC 57%
MyFolio Market I Fund OEIC 46%
MyFolio Market II Fund OEIC 43%
MyFolio Market III Fund OEIC 63%
MyFolio Market IV Fund OEIC 62%
MyFolio Market V Fund OEIC 69%
MyFolio Multi-Manager I Fund OEIC 52%
MyFolio Multi-Manager II Fund OEIC 52%
MyFolio Multi-Manager III Fund OEIC 59%
MyFolio Multi-Manager IV Fund OEIC 53%
MyFolio Multi-Manager V Fund OEIC 51%
MyFolio Multi-Manager Income I Fund OEIC 46%
MyFolio Multi-Manager Income II Fund OEIC 43%
MyFolio Multi-Manager Income III Fund OEIC 51%
MyFolio Multi-Manager Income IV Fund OEIC 40%
MyFolio Multi-Manager Income V Fund OEIC 56%
Standard Life Investment Funds Limited(2) Ordinary Shares 100%
Standard Life Investments Brent Cross General Partner Limited Ordinary Shares 100%
Standard Life Investments Brent Cross LP Limited Partnership 100%
Standard Life Investments (Corporate Funds) Limited Ordinary Shares 100%
Standard Life Investments Dynamic Distribution Fund Unit Trust 46%
Standard Life Investments European Property Growth Fund L.P.(28) Limited Partnership 7%
Standard Life Investments European Real Estate Club LP(28) Limited Partnership 2%
Standard Life Investments European Real Estate Club II LP(28) Limited Partnership 1%
Standard Life Investments European Real Estate Club III LP(28) Limited Partnership 2%
Standard Life Investments (France) SAS(39) Ordinary Shares 100%
Standard Life Investments (General Partner CRED) Limited(11) Ordinary Shares 100%
Standard Life Investments (General Partner EPGF) Limited Ordinary Shares 100%
Standard Life Investments (General Partner European Real Estate Club)
Limited(28) Ordinary Shares 100%
Standard Life Investments (General Partner European Real Estate Club II)
Limited(28) Ordinary Shares 100%
Standard Life Investments (General Partner European Real Estate Club III)
Limited(28) Ordinary Shares 100%
Standard Life Investments (General Partner GARS) Limited Ordinary Shares 100%
Standard Life Investments (General Partner GFS) Limited Ordinary Shares 100%
Standard Life Investments (General Partner MAC) Limited Ordinary Shares 100%
Standard Life Investments (General Partner PDFI) Limited Ordinary Shares 100%
Standard Life Investments (General Partner UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (General Partner UK Shopping Centre Feeder Fund
LP) Limited(11) Ordinary Shares 100%
Standard Life Investments Global Absolute Return Strategies Fund Unit Trust 78%
Standard Life Investments Global Real Estate Fund Unit Trust 60%
Standard Life Investments Global SICAV
Absolute Return Global Bond Strategies Fund(40) SICAV 80%
American Equity Unconstrained Fund(40) SICAV <0.01%
Asian Equities Fund(40) SICAV 10%
China Equities Fund(40) SICAV 65%
Continental European Equity Income Fund(40) SICAV 5%
Emerging Market Corporate Bond Fund(40) SICAV 89%
Emerging Market Debt Fund(40) SICAV 0.1%
Emerging Market Debt Unconstrained Fund(40) SICAV 9%
Emerging Markets Local Currency Debt Fund (40) SICAV 97%
Enhanced Diversification Global Emerging Markets Equities Fund(40) SICAV 99%
Euro Government All Stocks Fund(40) SICAV 100%
European Corporate Bond Fund(40) SICAV 33%
European Corporate Bond Sustainable and Responsible Investment Fund(40) SICAV <0.01%
Name of related undertaking Share class(1) % interest held
European Equities Fund(40) SICAV 73%
European Equity Unconstrained Fund(40) SICAV 88%
European High Yield Bond Fund(40) SICAV 35%
European Smaller Companies Fund(40) SICAV 44%
Global Absolute Return Strategies Fund(40) SICAV 27%
Global Bond Fund(40) SICAV 76%
Global Corporate Bond Fund(40) SICAV 46%
Global Emerging Markets Equities Fund(40) SICAV 0.03%
Global Emerging Markets Equity Unconstrained Fund(40) SICAV 89%
Global Equities Fund(40) SICAV 89%
Global Equity Unconstrained Fund(40) SICAV 16%
Global Focused Strategies Fund(40) SICAV 50%
Global High Yield Bond Fund(40) SICAV 78%
Global Inflation-Linked Bond Fund(40) SICAV 55%
Global REIT Focus Fund(40) SICAV 83%
Indian Equity Midcap Opportunities Fund(40) SICAV 87%
Japanese Equities Fund(40) SICAV 87%
Japanese Equity High Alpha Fund(40) SICAV 0.06%
Total Return Credit Fund(40) SICAV 92%
Standard Life Investments Global SICAV II
Enhanced-Diversification Multi Asset Fund(40) SICAV 99%
MyFolio Multi-Manager I Fund(40) SICAV 100%
MyFolio Multi-Manager II Fund(40) SICAV 100%
MyFolio Multi-Manager III Fund(40) SICAV 100%
MyFolio Multi-Manager IV Fund(40) SICAV 100%
MyFolio Multi-Manager V Fund(40) SICAV 100%
Standard Life Investments GS (Mauritius Holdings) Limited(6) Ordinary Shares 87%
Standard Life Investments (Hong Kong) Limited(41) Ordinary Shares 100%
Standard Life Investments ICVC plc
Global Real Estate Feeder Fund(33) OEIC 0.3%
Standard Life Investments - India Advantage Fund(6) Ordinary Shares 100%
Standard Life Investments (Japan) Limited(42) Ordinary Shares 100%
Standard Life Investments (Jersey) Limited(13) Ordinary Shares 100%
Standard Life Investments Liability solutions ICAV
Liability Aware Absolute Return III Nominal Profile Fund(33) ICAV <0.01%
Liability Aware Absolute Return III Real Profile Fund(33) ICAV <0.01%
Standard Life Investments Limited Ordinary Shares 100%
Standard Life Investments Liquidity Fund plc
Euro Liquidity Fund(43) OEIC 19%
Sterling Liquidity Fund(43) OEIC 10%
Standard Life Investments Multi Asset Class Company(24) Ordinary Shares 100%
Standard Life Investments (Mutual Funds) Limited Ordinary Shares 100%
Standard Life Investments No. 2 (Hong Kong) Limited(41) Ordinary Shares 100%
Standard Life Investments (PDF No. 1) Limited(13) Ordinary Shares 50%
Standard Life Investments (Private Capital) Limited Ordinary Shares 100%
Standard Life Investments Property Income Trust Limited(44) Ordinary Shares 4%
Standard Life Investments (Schweiz) AG(45) Ordinary Shares 100%
Standard Life Investments Securities LLC(30) Ordinary Shares 100%
Standard Life Investments (Singapore) Pte. Ltd(46) Ordinary Shares 100%
Standard Life Investments Strategic Bond Fund Unit Trust 67%
Standard Life Investments (Trustee No. 1 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 2 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 3 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 4 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 5 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 6 UK PDF) Limited Ordinary Shares 100%
Name of related undertaking Share class(1) % interest held
Standard Life Investments (Trustee No. 7 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 8 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 9 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 10 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 11 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (Trustee No. 12 UK PDF) Limited Ordinary Shares 100%
Standard Life Investments (USA) Limited Ordinary Shares 100%
Standard Life Investments UK PDF Investment LP Limited Partnership 39%
Standard Life Investments UK Property Development Fund L.P.(28) Limited Partnership 39%
Standard Life Investments UK Real Estate Funds ICVC
Standard Life Investments UK Real Estate Fund OEIC 71%
Standard Life Investments UK Real Estate Trust
Standard Life Investments UK Real Estate Accumulation Feeder Fund Unit Trust 50%
Standard Life Investments UK Real Estate Income Feeder Fund Unit Trust 1%
Standard Life Investments UK Retail Park Trust(47) Unit Trust 57%
Standard Life Investments UK Shopping Centre Feeder Fund Company Limited(13) Ordinary Shares 100%
Standard Life Investments UK Shopping Centre Trust(47) Unit Trust 47%
Standard Life Japan Trust Unit Trust 87%
Standard Life Lifetime Mortgages Limited(2) Ordinary Shares 100%
Standard Life Master Trust Co. Ltd(3) Ordinary Shares 100%
Standard Life Multi-Asset Trust Unit Trust 100%
Standard Life North American Trust Unit Trust 100%
Standard Life Pacific Basin Trust Unit Trust 98%
Standard Life Pan-European Trust Unit Trust 100%
Standard Life Pension Funds Limited(2) N/A 100%
Standard Life Portfolio Investments Limited Ordinary Shares 100%
Standard Life Premises Services Limited(2) Ordinary Shares 100%
Standard Life Property Company Limited(2) Ordinary Shares 100%
Standard Life Savings Limited(2) Ordinary Shares 100%
Standard Life Savings Nominees Limited(2) Ordinary Shares 100%
Standard Life Short Dated UK Government Bond Trust Unit Trust 100%
Standard Life Strategic Investment Allocation Fund Unit Trust <0.01%
Standard Life Trustee Company Limited(2) Ordinary Shares 100%
Standard Life UK Corporate Bond Trust Unit Trust 100%
Standard Life UK Equity General Trust Unit Trust 100%
Standard Life UK Government Bond Trust Unit Trust 100%
Standard Life UK Smaller Companies Trust plc(48) Ordinary Shares 6%
Standard Life Wealth (CI) Limited(49) Ordinary Shares 100%
Standard Life Wealth Balanced Bridge Fund Unit Trust <0.01%
Standard Life Wealth Bridge Fund Unit Trust <0.01%
Standard Life Wealth Falcon Fund Unit Trust <0.01%
Standard Life Wealth International Limited(49) Ordinary Shares 100%
Standard Life Wealth Limited Ordinary Shares 100%
Standard Life Wealth Phoenix Fund Unit Trust <0.01%
Suomi Gas Distribution Holdings Oy(10) Ordinary Shares 35%
Suomi Gas Distribution Oy(10) Ordinary Shares 35%
Telles Holding S.à r.l.(9) Ordinary Shares 60%
Tenet Group Limited(51) Ordinary B Shares 20%
The Coaching Platform Limited(4) Ordinary Shares 100%
The Heritable Securities and Mortgage Investment Association Limited(2) Ordinary Shares 100%
The Munro Partnership Ltd.(50) Ordinary Shares 100%
The Standard Life Assurance Company 2006(2) N/A 100%
The Standard Life Assurance Company of Europe (Nederland) BV(14) Ordinary Shares 100%
Threesixty Partnerships Limited(7) Ordinary Shares 100%
Limited Liability
Threesixty Services LLP(7) Partnership 100%
Name of related undertaking Share class(1) % interest held
Touchstone Insurance Company Limited(23) Ordinary Shares 100%
Vebnet Limited(2) Ordinary Shares 100%
Welbrent Property Investment Company Limited(11) Ordinary Shares 100%
Whiteleys of Bayswater Limited Ordinary Shares 100%
(1) OEIC = Open-ended investment company
SICAV = Société d'investissement à capital variable
ICAV = Irish collective asset-management vehicle
Registered offices
(2) Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH
(3) 14th Floor, 30 St Mary Axe, London, EC3A 8BF
(4) Cranford House, Kenilworth Road, Blackdown, Leamington Spa,
CV32 6RQ
(5) 133 Cecil Street, #13-03 Keck Seng Tower, Singapore,
069535
(6) C/O Cim Fund Services Ltd, 33 Edith Cavell Street, Port
Louis, Mauritius
(7) 2nd Floor, The Royals, Altrincham Road, Sharston,
Manchester, M22 4BJ
(8) Avenida de Aragon 330 - Building 5, 3rd Floor, Parque
Empresarial Las Mercedes, 28022 - Madrid, Spain
(9) 6B, rue Gabriel Lippmann, Parc d'Activité Syrdall 2, L-5365
Münsbach, Luxembourg
(10) C/O Dittmar & Indrenius, Pohjoiseplanadi 25 A, 00100,
Helsinki
(11) 100 Barbirolli Square, Manchester, M2 3AB
(12) 11th Floor, Two Snowhill, Birmingham, West Midlands, B4
6WR
(13) 44 Esplanade, St Helier, Jersey, JE4 9WG
(14) Naritaweg 165, 1043 BW Amsterdam, The Netherlands
(15) ul. Skaryszewska 7, 03-802 Warsaw, Poland
(16) V celnici 1031/4, Nové M sto, 110 00 Praha 1, Czech
Republic
(17) 47 Esplanade, St Helier, Jersey , JE1 0BD
(18) HUL House, 2nd floor, H.T. Parekh Marg, 165-166, Backbay
Reclamation, Churchgate, Mumbai- 400 020, India
(19) Unit OT 17-30, Level 17, Central Park, Dubai International
Financial Centre, Dubai, 114603, United Arab Emirates
(20) Lodha Excelus, 14th Floor, Apollo Mills Compound, N.M.
Joshi Marg, Mahalaxmi, Mumbai - 400011, Maharashtra, India
(21) Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M.
Joshi Marg, Mahalaxmi, Mumbai - 400011, Maharashtra, India
(22) 18F, Tower II, The Exchange, 189 Nanjing Road, Heping
District, Tianjin, People's Republic of China, 300051
(23) PO Box 33, Maison Trinity, Trinity Square, St Peter Port,
Guernsey, GY1 4AT
(24) C/O Maples Corporate Services Limited, PO Box 309, Ugland
House, Grand Cayman, KY1-1104
(25) ul. Emilii Plater 53, 00-113, Warszawa, Poland
(26) Datum House, Electra Way, Crewe, Cheshire, CW1 6ZF
(27) Avenue Louise 326, bte 33, 1050 Brussels, Belgium
(28) 31st Floor, 30 St Mary Axe, London, EC3A 8BF
(29) Dokkveien 1, P.O.Box 1400 Vika, NO-0115 Oslo, Norway
(30) C/O Corporation Service Company, 2711 Centerville Road,
Suite 400, Wilmington, County of New Castle, Delaware, 19808,
USA
(31) Clayton Wood Close, West Park Ring Road, Leeds, LS16
6QE
(32) Wesley House, Bull Hill, Leatherhead, KT22 7AH
(33) 70 Sir Rogerson's Quay, Dublin, Republic of Ireland
(34) Level 2 West, Mercury Tower, The Exchange Financial &
Business Centre, Elia Zammit Street, St. Julian's, STJ 3155,
Malta
(35) C/O Citco (Mauritius) Limited, 4th Floor, Tower A, 1
CyberCity, Ebene, Mauritius (Fax number 00 230 404 2601)
(36) Springpark House, Basing View, Basingstoke, RG21 4HG
(37) 40th Floor, Tower One, Times Square, 1 Matheson Street,
Causeway Bay, Hong Kong
(38) 90 St. Stephen's Green, Dublin D2, Republic of Ireland
(39) 100 Avenue des Champs Elysees, 1 Rue de Berri, F- 75008,
Paris, France
(40) 2-4, Rue Eugène Ruppert, L-2453 Luxembourg
(41) 30th Floor, Jardine House, One Connaught Place, Hong
Kong
(42) Tokyo Bankers Club Building 15F, 1-3-1 Marunouchi,
Chiyoda-ku, Tokyo, Japan
(43) 25/28 North Wall Quay, Dublin, Republic of Ireland
(44) PO Box 255, Trafalgar Court, Les Banques, St. Peter
Port,Guernsey, GY1 3QL
(45) Bahnhofstrasse 100, 8001 Zurich, Switzerland
(46) 8 Marina Boulevard #05-02, Marina Bay Financial Centre
Tower 1 01 8981, Singapore
(47) Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4
2QP
(48) Kintyre House, 205 West George Street, Glasgow, G2 2LW
(49) Liberte House, 19-23 La Molle Street, St Helier, Jersey,
JE4 5RL
(50) Citadel House, 6 Citadel Place, Ayr, KA7 1JN
(51) 5 Lister Hill, Horsforth, Leeds, LS18 5AZ
This information is provided by RNS
The company news service from the London Stock Exchange
END
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February 24, 2017 02:02 ET (07:02 GMT)
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