TIDM40VY
RNS Number : 4750A
Scottish Widows Limited
24 March 2017
24 March, 2017
SCOTTISH WIDOWS LIMITED
PUBLICATION OF THE ANNUAL REPORT AND ACCOUNTS FOR THE YEARED 31
DECEMBER 2016
Scottish Widows Limited has published its Annual Report and
Accounts for the year ended 31 December 2016 (the "Accounts") which
will shortly be available on the Scottish Widows website at
www.scottishwidows.co.uk Copies of the Accounts have also been
submitted to the National Storage Mechanism and will shortly be
available for inspection at www.morningstar.co.uk/uk/NSM
ADDITIONAL INFORMATION REQUIRED BY THE DISCLOSURE AND
TRANSPARENCY RULES ("DTR")
The information below is extracted from the Accounts and
constitutes the material required by DTR 6.3.5 to be communicated
to the media in unedited full text through a Regulatory Information
Service. This material is not a substitute for reading the full
Accounts and is provided solely for the purposes of complying with
DTR 6.3.5. Page numbers and cross-references in the extracted
information below refer to page numbers and cross-references in the
Accounts.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and company financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and Company and of the profit or loss of the Group and Company for
that period.
In preparing these financial statements, the Directors are
required to:
- select suitable accounting policies and then apply them consistently;
- state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements and
IFRSs as adopted by the European Union have been followed for the
company financial statements, subject to any material departures
disclosed and explained in the financial statements;
- make judgments and accounting estimates that are reasonable and prudent; and
- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the group and company
will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the Group and Company's website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors whose names are listed on page 3 confirms
that, to the best of their knowledge:
- the Group and Company financial statements, which have been
prepared in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group and Company; and
- the Strategic Report on pages 4 to 7, and the Directors'
Report on pages 8 to 10 include a fair review of the development
and performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces.
PRINCIPAL RISKS AND UNCERTAINTIES
During the ordinary course of business the Group is subject to
complaints and threatened or actual legal proceedings (including
class or group action claims) brought by or on behalf of current or
former employees, customers, investors or other third parties, as
well as legal and regulatory reviews, challenges, investigations
and enforcement actions, both in the United Kingdom and
overseas.
All such material matters are periodically reassessed, with the
assistance of external professional advisors where appropriate, to
determine the likelihood of the Group incurring a liability. In
those instances where it is concluded that it is more likely than
not that a payment will be made, a provision is established to
management's best estimate of the amount required at the relevant
balance sheet date. 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 assess the situation, and no provisions
are held in relation to such matters. However the Group does not
currently expect the final outcome of any such case to have a
material adverse effect on its financial position, operations or
cash flows.
37. Risk management
The principal activity of the Group is the undertaking of
ordinary long-term insurance and savings business and associated
investment activities in the United Kingdom. The Group offers a
wide range of life insurance products such as annuities, pensions,
whole life, term life and investment type products through
independent financial advisors, the LBG network and direct sales.
The Company also reinsures business with insurance entities
external to the Group.
The Group assesses the relative costs and concentrations of each
type of risk and material issues are escalated to the Insurance
Risk Committee and the Insurance Executive Committee.
This note summarises these risks and the way in which the Group
manages them.
(a) Governance framework
The Group is part of LBG, which has established a risk
management function with responsibility for implementing the LBG
risk management framework (with appropriate Insurance focus) within
the Group.
This enterprise-wide risk management framework for the
identification, assessment, measurement and management of risk
covers the full spectrum of risks that the Group and Company are
exposed to, with risks categorised according to an approved LBG
risk language. This covers the principal risks faced by the Group,
including the exposures to market, insurance, credit, capital,
liquidity, regulatory & legal, conduct, people, governance,
operational and financial reporting risks. The performance of the
Group, its continuing ability to write business and the strategic
management of the business depend on its ability to manage these
risks.
Responsibility for setting and managing risk appetite and risk
policy resides with the Board. Risks are managed in line with LBG
and Insurance risk policies. The Board has delegated certain risk
matters to the Insurance Risk Oversight Committee with operational
implementation assigned to the Insurance Risk Committee.
The risk management approach aims to ensure effective
independent checking or "oversight" of key decisions by operating a
"three lines of defence" model. The first line of defence is line
management, who have direct accountability for risk decisions. The
Risk function provides oversight and challenge and is the second
line of defence. Internal Audit, the third line of defence, provide
independent assurance to the Audit Committee and the Board that
risks are recognised, monitored and managed within acceptable
parameters.
Policy owners, identified from appropriate areas of the LBG and
Insurance business, are responsible for drafting risk policies, for
ensuring that they remain up-to-date and for facilitating any
changes. Policies are subject to at least an annual review. Limits
are prescribed within which those responsible for the day to day
management of each Group company can take decisions. Line
management are required to follow prescribed reporting procedures
to the bodies responsible for monitoring compliance with policy and
controlling the risks.
(b) Risk appetite
Risk appetite is the amount and type of risk that the Board is
prepared to seek, accept or tolerate and is fully aligned to Group
and LBG strategy. The Board has defined a framework for the
management of risk and approved a set of risk appetite statements
that cover financial risks (earnings, capital, insurance, credit,
market and liquidity), operational risks, people, conduct risks,
regulatory & legal risks, financial reporting and governance
risks. The risk appetite statements set limits for exposures to the
key risks faced by the business. Risk appetite is reviewed at least
annually by the Board. Executive owned Tier 2 and Tier 3 limits sit
beneath Board owned risk appetite (Tier 1) and are managed and
governed within the Insurance business.
Experience against Risk Appetite is reported monthly (by
exception) and quarterly (in full) to the Insurance Risk Committee
("IRC"), quarterly (by exception) to the Risk Oversight Committee
("ROC") and bi-annually (in full) to the Insurance Board. Copies
are also supplied regularly to the Group's regulators as part of
the close and continuous relationship. Reporting focuses on
ensuring, and demonstrating to the Board, and their delegate the
Insurance Risk Oversight Committee ("IROC") that the Group is run
in line with approved risk appetite. Any breaches of risk appetite
require clear plans and timescales for resolution.
(c) Financial risks
The Group writes a variety of insurance and investment contracts
which are subject to a variety of financial risks, as set out
below. Contracts can be either single or regular premium and
conventional (non-profit), with profits or unit-linked in
nature.
The Group is exposed to a range of financial risks through its
financial assets, financial liabilities, assets arising from
reinsurance contracts and liabilities arising from insurance and
investment contracts. In particular, the key financial risk is that
long-term investment proceeds are not sufficient to fund the
obligations arising from its insurance and investment contracts.
The most important components of financial risk are market,
insurance, credit, capital and liquidity risk.
The Group manages these risks in a numbers of ways, including
risk appetite assessment and monitoring of capital resource
requirements. In addition, the Principles and Practices of
Financial Management ("PPFM") set out the way in which the with
profits business is managed. The Group also uses financial
instruments (including derivatives) as part of its business
activities and to reduce its own exposure to market risk and credit
risk.
For with profits business, subject to minimum guarantees,
policyholders' benefits are influenced by the smoothed investment
returns on assets held in the With Profits Funds. The smoothing
cushions policyholders from daily fluctuations in investment
markets. This process is managed in accordance with the published
PPFM's.
The financial risks arising from providing minimum guaranteed
benefits are borne in the With Profits Funds, but the Group bears
financial risk in relation to the possibility that in extreme
market conditions the With Profits Funds might be unable to bear
the full costs of the guarantees. The amount of the guaranteed
benefits increases as additional benefits are declared and
allocated to policies.
For unit-linked business, policyholders' benefits are closely
linked to the investment returns on the underlying funds. In the
short term, profit and equity are therefore largely unaffected by
investment returns on assets in internal unit-linked funds as any
gains or losses will be largely offset by changes in the
corresponding insurance and investment contract liabilities,
provided that there is appropriate matching of assets and
liabilities within these funds. However, any change in the market
value of these funds will have an indirect impact on the Group and
Company through the collection of annual management and other fund
related charges. As markets rise or fall, the value of these
charges rises or falls correspondingly.
For non-participating business, the principal market risk is
interest rate risk, which arises because assets and liabilities may
exhibit differing changes in market value as a result of changes in
interest rates. Asset and liability matching is used to mitigate
the impact of changes in interest rates where the difference is
material.
Financial assets and financial liabilities are measured on an
ongoing basis either at fair value or at amortised cost. The
summary of significant accounting policies (note 1) describes how
the classes of financial instruments are measured and how income
and expenses, including fair value gains and losses, are
recognised.
The timing of the unwind of the deferred tax assets and
liabilities is dependent on the timing of the unwind of the
temporary timing differences, arising between the tax bases of the
assets and liabilities and their carrying amounts for financial
reporting purposes, to which these balances relate.
The sensitivity analyses given throughout this note are based on
a change in an assumption while holding all other assumptions
constant. In practice, this is unlikely to occur as changes in some
of the assumptions may be correlated, for example changes in
interest rates and changes in market values. The sensitivity
analysis presented also represents management's assessment of a
reasonably possible alternative in respect of each sensitivity,
rather than worst case scenario positions.
(1) Market risk
Market risk is defined as the risk that unfavourable market
movements (including changes in and increased volatility of
interest rates, market-implied inflation rates, credit spreads and
prices for bonds, foreign exchange rates, equity, property and
commodity prices and other instruments) lead to reductions in
earnings and/or value.
Investment holdings within the Group are diversified across
markets and, within markets, across sectors. Holdings of individual
assets are diversified to minimise specific risk and large
individual exposures are monitored closely. For assets held with
unit-linked funds, investments are only permitted in countries and
markets which are sufficiently regulated and liquid.
Market risk policy is dependent on the nature of the funds in
question, and can be broadly summarised as follows:
-- Assets held in shareholder funds are invested in money market
funds, gilts, loans and investment grade bonds to match regulatory
capital requirements. The balance of the shareholder fund assets is
managed in line with the policies of LBG to optimise shareholder
risk and return. This includes suitable use of derivatives to
minimise shareholder risk.
--Unit-linked assets are invested in accordance with the nature
of the fund mandates.
-- Conventional non-profit liabilities are "close matched" as
far as possible in relation to currency, nature and duration.
-- With Profits Funds are managed in line with the published
PPFMs. Benchmarks and minimum and maximum holdings in asset classes
are specified to allow limited investment management discretion
whilst ensuring adequate diversification. Swaps and swaptions
provide significant protection to the With Profits Funds from the
effects of interest rate falls in respect of the cost of guaranteed
annuity rates.
Below is an analysis of assets and liabilities at fair value
through profit or loss and assets and liabilities for which a fair
value is required to be disclosed, according to their fair value
hierarchy (as defined in note 1 (e)).
Group As at 31 December 2016
Fair value hierarchy
Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
=========================================== ====== ====== ====== =======
Investment properties - - 3,643 3,643
Assets arising from reinsurance contracts
held at fair value through profit or loss - 6,683 - 6,683
Equity securities 76,289 13 917 77,219
Debt securities 13,185 20,968 6,931 41,084
Derivative financial assets 267 3,489 44 3,800
Total assets 89,741 31,153 11,535 132,429
------------------------------------------- ------ ------ ------ -------
Derivative financial liabilities 355 2,653 - 3,008
Liabilities arising from non-participating
investment contracts - 20,112 - 20,112
Subordinated debt - 1,819 - 1,819
Total liabilities 355 24,584 - 24,939
------------------------------------------- ------ ------ ------ -------
Company As at 31 December 2016
Fair value hierarchy
Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
=========================================== ====== ====== ===== =======
Investment properties - - 178 178
Assets arising from reinsurance contracts
held at fair value through profit or loss - 6,683 - 6,683
Equity securities 88,327 210 909 89,446
Debt securities 5,354 6,601 6,929 18,884
Derivative financial assets 224 3,452 43 3,719
Total assets 93,905 16,946 8,059 118,910
Derivative financial liabilities 332 2,598 - 2,930
Liabilities arising from non-participating
investment contracts - 20,112 - 20,112
Subordinated debt - 1,848 - 1,848
Total liabilities 332 24,558 - 24,890
------------------------------------------- ------ ------ ----- -------
Group As at 31 December 2015
Fair value hierarchy
Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
=========================================== ====== ====== ====== =======
Investment properties - - 4,228 4,228
Assets arising from reinsurance contracts
held at fair value through profit or loss - 7,760 - 7,760
Equity securities 65,622 171 1,161 66,954
Debt securities 8,557 20,776 6,856 36,189
Derivative financial assets 43 1,990 31 2,064
Total assets 74,222 30,697 12,276 117,195
------------------------------------------- ------ ------ ------ -------
Derivative financial liabilities 40 1,817 - 1,857
Liabilities arising from non-participating
investment contracts - 22,759 - 22,759
Subordinated debt - 1,671 - 1,671
Total liabilities 40 26,247 - 26,287
------------------------------------------- ------ ------ ------ -------
Company As at 31 December 2015
Fair value hierarchy
Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
=========================================== ====== ====== ===== =======
Investment properties - - 315 315
Assets arising from reinsurance contracts
held at fair value through profit or loss - 7,760 - 7,760
Equity securities 78,939 292 977 80,208
Debt securities 2,119 7,870 6,787 16,776
Derivative financial assets 5 1,950 31 1,986
Total assets 81,063 17,872 8,110 107,045
------------------------------------------- ------ ------ ----- -------
Derivative financial liabilities 20 1,771 - 1,791
Liabilities arising from non-participating
investment contracts - 22,759 - 22,759
Subordinated debt - 1,688 - 1,688
Total liabilities 20 26,218 - 26,238
------------------------------------------- ------ ------ ----- -------
Transfers between level 1 and level 2
A total of GBPnil of FX Forwards were transferred from level one
to level two during 2016 (2015: GBP30m). FX Forwards are short
dated instruments that are modelled using current exchange rates
and interest rates and are therefore classified as level two in the
fair value hierarchy in line with IFRS 13.
A total of GBPnil of investments in equities were transferred
from level one to level two during 2016 (2015: GBP287m). The Level
2 equity securities are investments in private equity fund of funds
which are valued using the published price for the fund from the
prior quarter.
Assets arising from reinsurance contracts held at fair value
through profit and loss are valued in using the published price for
the funds invested in. Participating investment contracts are not
included above, on the basis that fair value and carrying value
would not be materially different.
The derivative securities classified as Level 2 above have been
valued using a tri-party pricing model as determined by the Pricing
Source Agreement between Aberdeen Asset Management (formally
Scottish Widows Investment Partnership - SWIP) and State Street.
Prices are sourced from external sources, counterparties, and the
Investment Manager (Aberdeen Asset Management). Further detail on
valuation is given in note 1(p).
Assets classified as level 3 comprise private equity investments
and property investment vehicles within equity securities,
investment properties, certain loans assets, certain asset backed
securities and equity release mortgages within debt securities and
a prepayment hedge within derivative financial assets.
Private equity investments are valued using the financial
statements of the underlying companies prepared by the general
partners, adjusted for known cash flows since valuation and subject
to a fair value review to take account of other relevant
information. Property investment vehicles are valued based on the
net asset value of the relevant company which incorporates
surveyors' valuations of property. Investment property is
independently valued as described in note 16. Valuations are based
on observable market prices for similar properties. Adjustments are
applied, if necessary, for specific characteristics of the
property, such as the nature, location, or condition of the
specific asset. If such information is not available alternative
valuation methods such as discounted cash flow analysis or recent
prices in less active markets are used. Where any significant
adjustments to observable market prices are required, the property
would be classified as level 3. Whilst such valuations are
sensitive to estimates, it is believed that changing one or more of
the assumptions to reasonably possible alternative assumptions
would not change the fair value significantly.
Loan assets
Loans classified as level 3 within debt securities are valued
using a discounted cash flow model. The discount rate comprises
market observable interest rates, a risk margin that reflect loan
credit ratings and calibrated to weighted average life on borrower
level using sector bond spread curves for each rating, and an
incremental liquidity premium that is estimated by reference to
historical spreads at origination on similar loans where available
and established measures of market liquidity. Libor tenor and base
rate options are valued stochastically using expected value
approach, where simulated market data is based on historical market
information. Prepayment options are valued using a monthly time
step binomial tree approach.
Unobservable inputs in the valuation model include an
Illiquidity premium (2016 spreads: 20bps to 70bps) and Inferred
spreads (2016 weighted averages: 160bps to 329bps). The effect of
applying reasonably possible alternative assumptions to the value
of these loans would be to decrease the fair value by GBP304m
(2015: GBP262m) or increase it by GBP315m (2015: GBP324m).
Structured bond
The structured bond is a bespoke transaction between LBG and the
European Investment bank, included within debt securities in the
prior year; the asset was disposed of during the current year. It
is structured as a long chain of swaptions linked to annuity
schedules detailed in the product specification. It is valued using
the hull white swaption valuation model. The expected cash flows
from the asset are impacted by both intrinsic movements in rates
and volatility (potential for rates to move into the money in the
future). The asset is discounted using the EIB credit curve and an
additional illiquidity premium. The asset was sold in March
2016.
Equity release mortgages - ERM SPV
A portfolio of Equity Released Mortgages is securitised through
a Special Purpose Vehicle into a Senior Note (A Note) and a Junior
Note (B Note). These notes are classified as level 3 within debt
securities.
The equity release mortgages are valued using a discounted cash
flow approach. Decrements (mortality, voluntary early repayment,
entry into long-term care) are used to determine the incidence of
cash flows. The discount rate is based on a risk free rate plus a
spread to compensate for the risks associated with the loans which
is determined on a portfolio level. There is a No Negative Equity
Guarantee on the mortgages which is valued with a time-dependent
Black-Scholes model.
Unobservable inputs in the valuation model include gross
interest rate on mortgages (2016: 5.75% to 7.25%), spread over
risk-free (over swap) (2016: 4.03% to 4.57%), residential property
volatility and value (2016: 3.6% to 16.4%), voluntary early
repayment rate (2016: 6.26% to 9.08%), delay in settlement of loan
(2016: 3 months to 26 months), property valuation haircut (2016:
-5% to -10%), and expected equity return (2016: 8% to 12%).
The effect of applying reasonably possible alternative
assumptions to the value of these loans would be to decrease the
fair value by GBP12m (2015: GBP14m) or increase it by GBP7m (2015:
GBP13m).
Prepayment hedge
Level 3 derivatives include a bespoke prepayment hedge executed
to mitigate prepayment risk within debt securities. An expected
value approach based on historical data using a stochastic process
is applied to value the derivative. Unobservable inputs include
asset swap spreads (2016 weighted averages: 160bps to 329bps). The
effect of applying a reasonably possible alternative assumption to
the value of this asset would be to decrease the fair value by
GBP27m (2015: GBPnil) or increase it by GBP24m (2015: GBPnil).
AgFe RESDF
The AgFe UK Real Estate Senior Debt Fund (known as AgFe RESDF)
is a limited partnership set up and managed by AgFe. The asset is
classified as a level 3 asset and is included within equity
securities. The fund holds a portfolio of underlying commercial
real estate loans and is administered by Langham Hall. The AgFe
RESDF fund consists of 10 senior loans which are marked-to-model
valued using a discounted cash flow approach. The single source of
valuation uncertainty for these loans is concerned with property
values (2016 stresses: 7.5% to 12.5%). The effect of applying
reasonably possible alternative assumptions to the value of these
loans would be to decrease the fair value by GBP10.5m or increase
it by GBP0.2m.
Agricultural Loans - AMC SPV
A portfolio of agricultural loans is securitised through a
Special Purpose Vehicle into a Senior Note (A Note) and a Junior
Note (E Note). These notes are classified as level 3 within debt
securities.
The agricultural loans are valued using a discounted cash flow
approach. The discount rate is based on a risk free rate plus a
spread to compensate for the risks associated with the loans, which
is determined on a portfolio level.
Unobservable inputs in the valuation model include: Illiquidity
premium and Commercial Mortgage Backed Securities (CMBS) spreads
(2016 total spreads: 86bps to 404bps) and Equity spreads and
Prepayment rates (2016 total spreads: 15bps to 1414bps).
The effect of applying reasonably possible alternative
assumptions to the value of these loans would be to decrease the
fair value by GBP79m or increase it by GBP68m.
The table below shows movements in the assets and liabilities
measured at fair value based on valuation techniques for which any
significant input is not based on observable market data (level 3
only).
Group
2016 2015
GBPm GBPm GBPm GBPm
============================================ ======= ============= ======= =============
Assets Liabilities Assets Liabilities
Balance at 1 January 12,276 - 2,647 -
Transfers in 143 - 27 -
Transfers out (308) - (12) -
Purchases 1,980 - 662 -
Disposals (2,977) - (1,097) -
Net gains recognised within net gains
on assets and liabilities at fair value
through profit or loss in the statement
of comprehensive income 421 - 94 -
Transfers in from fellow group undertakings
(see note 41) - - 9,955 -
-------------------------------------------- ------- ------------- ------- -------------
Balance at 31 December 11,535 - 12,276 -
-------------------------------------------- ------- ------------- ------- -------------
Total unrealised gains for the period
included in the statement of comprehensive
income for assets and liabilities held
at 31 December 64 - 59 -
-------------------------------------------- ------- ------------- ------- -------------
Company
2016 2015
GBPm GBPm GBPm GBPm
============================================ ======= ============= ====== ===============
Assets Liabilities Assets Liabilities
Balance at 1 January 8,110 - 2,082 -
Transfers in 2 - 11 -
Transfers out (94) - (9) -
Purchases 1,681 - 168 -
Disposals (2,085) - (675) -
Net gains recognised within net gains
on assets and liabilities at fair value
through profit or loss in the statement
of comprehensive income 445 - 9 -
Transfers in from fellow group undertakings
(see note 41) - - 6,524 -
Balance at 31 December 8,059 - 8,110 -
-------------------------------------------- ------- ------------- ------ -------------
Total unrealised gains for the period
included in the statement
of comprehensive income for assets
and liabilities held at 31 December 196 - 29 -
-------------------------------------------- ------- ------------- ------ ---------------
Total gains or losses for the period included in the statement
of comprehensive income, as well as total gains or losses relating
to assets and liabilities held at the reporting date, are presented
in the statement of comprehensive income, through net gains/losses
on assets and liabilities at fair value through profit or loss.
(i) Equity and property risk
The exposure of the Group's insurance and investment contract
business to equity risk relates to financial assets and financial
liabilities whose values will fluctuate as a result of changes in
market prices other than from interest and foreign exchange
fluctuations. This is due to factors specific to individual
instruments, their issuers or factors affecting all instruments
traded in the market. Accordingly, the Group monitors exposure
limits both to any one counterparty, and any one market.
The sensitivity analysis below illustrates how the fair value of
future cash flows in respect of equities and properties, net of
offsetting movements in insurance and investment contract
liabilities, will fluctuate because of changes in market prices at
the reporting date.
Impact on profit
after tax and
equity for the
year
2016 2015
GBPm GBPm
============================================= ========= ========
10% decrease (2015: 10% increase) in equity
prices (3) (9)
10% (2015:10%) decrease in property prices (2) -
(ii) Interest rate risk
Interest rate risk is the risk that the value of future cash
flows of a financial instrument will fluctuate because of changes
in interest rates and the shape of the yield curve. Interest rate
risk in respect of the Group's insurance and investment contracts
arises when there is a mismatch in duration or yield between
liabilities and the assets backing those liabilities.
The Group's interest rate risk policy requires that the maturity
profile of interest-bearing financial assets is appropriately
matched to the guaranteed elements of the financial
liabilities.
A fall in market interest rates will result in a lower yield on
the assets supporting guaranteed investment returns payable to
policyholders. This investment return guarantee risk is managed by
matching assets to liabilities as closely as possible. An increase
in market interest rates will result in a reduction in the value of
assets subject to fixed rates of interest which result in losses
may if, as a result of an increase in the level of surrenders, the
corresponding fixed income securities have to be sold.
The effect of changes in interest rates in respect of financial
assets which back insurance contract liabilities is given in note
35. The effect on the Group of changes in the value of investments
held in respect of investment contract liabilities due to
fluctuations in market interest rates is negligible as any changes
will be offset by movements in the corresponding liability.
The sensitivity analysis below illustrates how the fair value of
future cash flows in respect of interest-bearing financial assets,
net of offsetting movements in insurance and investment contract
liabilities, will fluctuate because of changes in market interest
rates at the reporting date.
Impact on profit
after tax and
equity for the
year
2016 2015
GBPm GBPm
=================================================== ========= ========
25 basis points (2015: 25 basis points ) increase
in yield curves 72 43
25 basis points (2015: 25 basis points ) decrease
in yield curves (80) (43)
(iii) Foreign exchange risk
Foreign exchange risk relates to the effects of movements in
exchange markets including changes in exchange rates.
US corporate bonds are held within the annuity portfolio, the
cash flows of which are hedged to ensure close matching of the
annuity liabilities is maintained. Foreign exchange risk arises on
these investments as there may be a mismatch in fair values of the
bonds and derivatives resulting from movements in US dollar -
sterling exchange rates.
With the exception of these holdings, the overall risk to the
Group is minimal due to the following:
--The Group's principal transactions are carried out in pounds
sterling;
--The Group's financial assets are primarily denominated in the
same currencies as its insurance and investment contract
liabilities; and
--Other than shareholder funds, all non-linked investments of
the non-profit funds are in sterling or are currency matched. The
effect on the Group of changes in the value of investments held in
respect of investment contract liabilities due to fluctuations in
foreign exchange rates is negligible as any changes will be offset
by movements in the corresponding liability.
The fair value of US dollar assets and liabilities, net of
offsetting movements in insurance and investment contract
liabilities, will fluctuate because of changes in exchange rates at
the reporting date. Sensitivity analysis for the impact of a 10%
depreciation of sterling against the US dollar shows a GBP(1)m
impact for 2016 on profit after tax and equity (2015: GBPnil).
(2) Insurance risk
Insurance risk is defined as the risk of adverse developments in
the timing, frequency and severity of claims for
insured/underwritten events and in customer behaviour, leading to
reductions or volatility in earnings and/or value.
The principal risk the Group faces under insurance contracts is
that the actual claims and benefit payments exceed the amounts
expected at the time of determining the insurance liabilities.
The nature of the Group's business involves the accepting of
insurance risks which primarily relate to mortality, longevity,
morbidity, persistency and expenses. Each company within the Group
which transacts new business underwrites policies to ensure an
appropriate premium is charged for the risk or that the risk is
declined.
The Group principally writes the following types of life
insurance contracts:
- Life assurance - where the life of the policyholder is insured
against death or permanent disability, usually for pre-determined
amounts;
- Annuity products - where typically the policyholder is
entitled to payments which cease upon death; and
- Morbidity products - where the policyholder is insured against
the risk of contracting a defined illness.
For contracts where death is the insured risk, the most
significant factors that could increase the overall level of claims
are epidemics or widespread changes in lifestyle, such as eating,
smoking and exercise habits, resulting in earlier or more claims
than expected. The possibility of a pandemic, for example one
arising from Ebola, is regarded as a potentially significant
mortality risk. For contracts where survival is the insured risk,
the most significant factor is continued improvement in medical
science and social conditions that would increase longevity.
For contracts with fixed and guaranteed benefits and fixed
future premiums, there are no mitigating terms and conditions that
significantly reduce the insurance risk accepted. For participating
investment contracts, the participating nature of these contracts
results in a significant portion of the insurance risk being shared
with the policyholder.
Insurance risk is also affected by the policyholders' right to
pay reduced or no future premiums, to terminate the contract
completely, to exercise a guaranteed annuity option or, for bulk
annuity business, for pensioners to exercise options following
retirement. As a result, the amount of insurance risk is also
subject to policyholder behaviour. On the assumption that
policyholders will make decisions that are in their best interests,
overall insurance risk will generally be aggravated by policyholder
behaviour. For example, it is likely that policyholders whose
health has deteriorated significantly will be less inclined to
terminate contracts insuring death benefits than those
policyholders who remain in good health.
The Group has taken account of the expected impact of
policyholder behaviour in setting the assumptions used to measure
insurance and investment contract liabilities.
The principal methods available to the Group to control or
mitigate longevity, mortality and morbidity risk are through the
following processes:
-- Underwriting (the process to ensure that new insurance
proposals are properly assessed);
-- Pricing-to-risk (new insurance proposals would usually be
priced in accordance with the underwriting assessment);
-- Demographics to accurately assess mortality risk;
-- Claims management;
-- Product design;
-- Policy wording; and
-- The use of reinsurance and other risk mitigation
techniques.
Rates of mortality and morbidity are investigated annually based
on the Group's recent experience. Future mortality improvement
assumptions are set using the latest population data available. In
addition, bulk annuity business pricing and valuation assumptions
also consider underlying experience of the scheme where available.
Where they exist, the reinsurance arrangements of each company in
the Group are reviewed at least annually.
Persistency risk is the risk associated with the ability to
retain long-term business and the ability to renew short-term
business. The Group aims to reduce its exposure to persistency risk
by undertaking various initiatives to promote customer loyalty.
These initiatives are aimed both at the point of sale and through
direct contact with existing policyholders, for example through
annual statement information packs.
Further information on assumptions, changes in assumptions and
sensitivities in respect of insurance and participating investment
contracts is given in note 36.
(3) Credit risk
The risk that counterparties with whom we have contracted, fail
to meet their financial obligations, resulting in loss to the
Group.
The Group accepts credit risk with a variety of counterparties
through invested assets which are primarily used to back annuity
business, cash in liquidity funds and bank accounts, derivatives
and reinsurance. These are managed through a credit control
framework which uses a tiered approach to set credit limits:
-- Tier 1: Credit limits are set by the Insurance Board as part
of the overall Insurance Risk Appetite.
-- Tier 2: Insurance Investment Strategy Committee ('IISC')
assists the IISC Chair to set additional controls, sub limits and
guidelines. These operate within the boundaries of the Board's Tier
1 Risk Appetite statements and are designed to assist the business
with more efficient utilisation of higher level Board Risk Appetite
statements in delivery of Insurance's investment strategy.
-- Tier 3: Insurance Credit approvers have individual personal
delegated authorities from the Insurance Board to approve exposures
to individual counterparties. Amounts above these delegated
authorities require approval by the Insurance Board.
Group exposure limits are set for the maximum single name
concentration, industry sector, country of risk and portfolio
quality. In addition, each individual counterparty exposure
requires a counterparty limit or is within the criteria of an
approved sanction matrix.
Group exposures are reported on a monthly basis to the Insurance
Shareholder Investment Management Committee ('ISIM') and
semi-annually to IISC, and other senior committees. Any exceptions
to limits must be approved in advance by the relevant authority
that owns that limit, and any unapproved excesses notified to that
authority as a breach.
A core part of the invested asset portfolio which backs the
annuity business is invested in loan assets. These have
predominately been purchased from LBG although the Group has also
started originating new business. All loan assets are assessed and
monitored using established robust processes and controls.
Reinsurance is primarily used to reduce insurance risk. However,
it is also sought for other reasons such as improving
profitability, reducing capital requirements and obtaining
technical support. In addition, reinsurance is also used to offer
Investment Fund Links which we are unable to provide through other
means. The Group's reinsurance strategy is to reduce the volatility
of profits through the use of reinsurance whilst managing the
insurance and credit risk within the constraints of the risk
appetite limits.
The Group has reinsurance on all significant lines of business
where mortality, morbidity or property risks exceed set retention
limits. This does not, however, discharge the Group's liability as
primary insurer. If a reinsurer fails to pay a claim for any
reason, the Group remains liable for the payment to the
policyholder. All new material reinsurance treaties are subject to
Board approval and reinsurance arrangements are reviewed annually
to ensure that the reinsurance strategy is being achieved.
Reinsurance for Investment Fund Links is not assessed as a
counterparty exposure for the Group since with invested assets
matching liabilities, any loss to the Group would only be the
result of operational failures of internal controls and as such it
is outside of the credit control framework described above.
Shareholder funds are managed in line with the Insurance Credit
Risk Policy and the wider LBG Credit Risk Policy which set out the
principles of the credit control framework outlined above.
Credit risk in respect of unit-linked funds and With Profits
Funds is largely borne by the policyholders. Consequently, the
Group has no significant exposure to credit risk for those
funds.
The tables below analyse financial assets subject to credit risk
using Standard & Poor's rating or equivalent. This includes
credit assets held in both shareholder and policyholder funds. No
account is taken of any collateral held to mitigate the risk.
Group As at 31 December 2016
BBB or
Total AAA AA A lower Not rated
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ====== ======= ======= ======= ==========
Assets arising
from reinsurance
contracts held 7,387 - 736 6,642 9 -
Debt securities 41,084 3,433 14,870 12,996 8,823 962
Derivative financial
instruments 3,800 - 412 2,738 383 267
Loans and receivables 6,227 8 67 817 4,415 920
Cash at bank 2,207 140 1,017 1,002 37 11
Total 60,705 3,581 17,102 24,195 13,667 2,160
----------------------- -------- ------ ------- ------- ------- ----------
Group As at 31 December 2015
BBB or
Total AAA AA A lower Not rated
GBPm GBPm GBPm GBPm GBPm GBPm
======================== ======== ======= ======= ======= ======= ==========
Assets arising from
reinsurance contracts
held 8,396 - 121 2,094 33 6,148
Debt securities 36,189 10,905 6,939 9,706 8,562 77
Derivative financial
instruments 2,064 - 2 969 1,019 74
Loans and receivables 12,799 303 3,909 6,120 684 1,783
Cash at bank 2,106 114 518 780 304 390
------------------------ -------- ------- ------- ------- ------- ----------
Total 61,554 11,322 11,489 19,669 10,602 8,472
------------------------ -------- ------- ------- ------- ------- ----------
Company As at 31 December 2016
BBB or
Total AAA AA A lower Not rated
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ====== ====== ======= ======= ==========
Assets arising
from reinsurance
contracts held 7,387 - 736 6,642 9 -
Debt securities 18,884 810 7,466 6,642 3,183 783
Derivative financial
instruments 3,719 - 390 2,722 383 224
Loans and receivables 5,162 8 40 455 4,420 239
Cash at bank 1,291 - 688 597 6 -
Total 36,443 818 9,320 17,058 8,001 1,246
----------------------- -------- ------ ------ ------- ------- ----------
Company As at 31 December 2015
BBB or
Total AAA AA A lower Not rated
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ====== ====== ======= ======= ==========
Assets arising
from reinsurance
contracts held 8,396 - 121 2,094 33 6,148
Debt securities 16,776 4,499 3,110 5,693 3,377 97
Derivative financial
instruments 1,986 - 2 968 1,011 5
Loans and receivables 4,885 7 9 3,407 683 779
Cash at bank 880 - 461 112 285 22
Total 32,923 4,506 3,703 12,274 5,389 7,051
----------------------- -------- ------ ------ ------- ------- ----------
Amounts classified as "not rated" within assets arising from
reinsurance contracts held principally relate to amounts due from
other Group companies which are not rated by Standard & Poor's
or an equivalent rating agency.
Maximum credit exposure
The maximum credit risk exposure of the Group in the event of
other parties failing to perform their obligations is detailed
below. No account is taken of any collateral held and the maximum
exposure to loss, which includes amounts held to cover unit-linked
and With Profits Funds liabilities, is considered to be the balance
sheet carrying amount.
Group 2016 2015
Maximum Offset Net exposure Maximum Offset Net exposure
exposure exposure
=================================
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========= ====== ============ ========= ====== ============
Loans and receivables 6,227 - 6,227 12,799 - 12,799
Investments at fair value
through profit or loss:
Debt Securities 41,084 - 41,084 36,189 - 36,189
Assets arising from reinsurance
contracts held 7,387 7,387 8,396 - 8,396
Derivative financial instruments 3,800 - 3,800 2,064 - 2,064
Cash and cash equivalents 2,207 - 2,207 2,106 - 2,106
--------------------------------- --------- ------ ------------ --------- ------ ------------
At 31 December 60,705 - 60,705 61,554 - 61,554
--------------------------------- --------- ------ ------------ --------- ------ ------------
Company 2016 2015
Maximum Offset Net exposure Maximum Offset Net exposure
exposure exposure
=================================
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========= ====== ============ ========= ====== ============
Loans and receivables 5,162 - 5,162 4,885 - 4,885
Investments at fair value
through profit or loss:
Debt Securities 18,884 - 18,884 16,776 - 16,776
Assets arising from reinsurance
contracts held 7,387 - 7,387 8,396 - 8,396
Derivative financial instruments 3,719 - 3,719 1,986 - 1,986
Cash and cash equivalents 1,291 - 1,291 880 - 880
--------------------------------- --------- ------ ------------ --------- ------ ------------
At 31 December 36,443 36,443 32,923 - 32,923
--------------------------------- --------- ------ ------------ --------- ------ ------------
(i) Concentration risk
Credit concentration risk
Credit concentration risk relates to the inadequate
diversification of credit risk.
Credit risk is managed through the setting and regular review of
counterparty credit and concentration limits on asset types which
are considered more likely to lead to a concentration of credit
risk. For other asset types, such as UK government securities or
investments in funds falling under the Undertakings for Collective
Investment in Transferable Securities "UCITS" Directive, no limits
are prescribed as the risk of credit concentration is deemed to be
immaterial. This policy supports the approach mandated by the PRA
for regulatory reporting.
At 31 December 2016 and 31 December 2015, the Group did not have
any significant concentration of credit risk with a single
counterparty or group of counterparties where limits applied. With
the exception of Government bonds and UCITS funds, the largest
aggregated counterparty exposure is 1.6% (2015: 1.9% of the Group's
total assets).
Liquidity concentration risk
Liquidity concentration risk arises where the Group is unable to
meet its obligations as they fall due or do so only at an excessive
cost, due to over-concentration of investments in particular
financial assets or classes of financial asset.
As most of the Group's invested assets are diversified across a
range of marketable equity and debt securities in line with the
investment options offered to policyholders it is unlikely that a
material concentration of liquidity concentration could arise.
This is supplemented by active liquidity management in the
Group, to ensure that even under stress conditions the Group has
sufficient liquidity as required to meet its obligations. This is
delegated by the Board to and monitored through the Insurance
Finance Committee ("IFC"), IRC, Insurance Shareholder Investment
Management Committee ("ISIM") and Banking and Liquidity Operating
Committee ("BLOC").
(ii) Collateral management
Collateral in respect of derivatives
The requirement for collateralisation of OTC derivatives,
including the levels at which collateral is required and the types
of asset that are deemed to be acceptable collateral, are set out
in a Credit Support Annex ("CSA"), which forms part of the
International Swaps and Derivatives Association ("ISDA") agreement
between the Company and the counterparty.
The CSA will require collateralisation where any net exposure to
a counterparty exceeds the OTC counterparty limit, which must be
established in accordance with the Derivatives Risk Policy ("DRP").
The aggregate uncollateralised exposure to any one counterparty
must not exceed limits specified in the DRP. Where derivative
counterparties are related, the aggregate net exposure is
considered for the purposes of applying these limits.
Acceptable collateral is defined in each instance and must take
into account the quality and appropriateness of the proposed
collateral as well as being acceptable to the entity receiving the
collateral. Collateral may include cash, corporate bonds,
supranational debt and government debt.
Assets with the following carrying amounts have been pledged in
accordance with the terms of the relevant CSAs entered into in
respect of various OTC and other derivative contracts:
2016 2015
GBPm GBPm GBPm GBPm
======================================== ====== ======== ====== ========
Group Company Group Company
Financial assets:
Investments at fair value through
profit or loss 202 202 322 322
Cash and cash equivalents 413 410 273 273
---------------------------------------- ------ -------- ------ --------
Total 615 612 595 595
---------------------------------------- ------ -------- ------ --------
Collateral pledged in form of financial assets, is continued to
be recognised in the balance sheet as the Group and Company retains
all risks and rewards of the transferred assets. The Group and the
Company has the right to recall any collateral pledged provided
that this is replaced with alternative acceptable assets. The
counterparty has right to repledge or sell the collateral in the
absence of default by the Group and Company.
Cash collateral pledged where the counterparty retains the risks
and rewards is derecognised from the balance sheet and a
corresponding receivable is recognised for its return.
Where the Group and Company receives collateral in form of
financial instruments for which counterparty retains all risks and
rewards, it is not recognised in the balance sheet. The fair value
of financial assets accepted as collateral for OTC derivatives but
not recognised in the balance sheet amounts to GBP1,255m (2015:
GBP471m) by the Group and GBP1,255m (2015: GBP471m) by the Company,
all of which is permitted to be sold or repledged in the absence of
default. However the policy of the Group and Company is not to
repledge assets, and hence no collateral was sold or repledged by
the Group or Company during the year or in the prior year.
Where the Group and Company receives collateral in form of cash,
it is recognised in the balance sheet along with a corresponding
liability to repay the amount of collateral received within other
financial liabilities. The amount of cash collateral received by
the Group and Company amounts to GBP230m (2015: GBP425m) and
GBP221m (2015: GBP416m) respectively.
Collateral in respect of Stock Lending
The Group and Company lend financial assets held in its
portfolio to other institutions. The Insurance Investment Strategy
Committee (IISC) and its sub-committee Investment Management
Operational Review Committee (IMOR) are responsible for setting the
parameters of stock lending. Stock lending is permitted in
accordance with the Insurance Stock Lending Policy. All stock
lending takes place on an open/call basis, enabling the loan to be
recalled at any time within the standard settlement terms of the
market concerned
The financial assets lent do not qualify for derecognition as
the Group and Company retains all risks and rewards of the
transferred assets except for the voting rights. The aggregate
carrying value of securities on loan by the Group is GBP5,048m
(2015 GBP4,658m) and by the Company is GBP748m (2015: GBP550m).
It is Group's and Company's practice to obtain collateral in
stock lending transactions. The accepted collateral can include
cash, equities, certain bonds and money market instruments. On a
daily basis, the fair value of collateral is compared to the fair
value of stock on loan. The value of collateral must always exceed
the value of stock on loan.
Where the Group and Company receives collateral in form of
financial instruments for which counterparty retains all risks and
rewards, it is not recognised in the balance sheet. The fair value
of financial assets accepted as collateral but not recognised in
the balance sheet amounts to GBP4,969m (2015: GBP3,998m) by the
Group and GBP762m (2015: GBP440m) by the Company. The Group and the
Company is not permitted to sell or repledge the collateral in the
absence of default.
Where the Group and Company receives collateral in form of cash,
it is recognised in the balance sheet along with a corresponding
liability to repay the amount of collateral received within other
financial liabilities. The amount of cash collateral received by
the Group and Company amounts to GBP465m (2015: GBP963m) and GBP41m
(2015: GBP135m) respectively.
There were no defaults in respect of stock lending during the
year ended 31 December 2016 (2015: none) which required a call to
be made on collateral.
Collateral in respect of Reverse Repurchase Agreement
The Group and Company entered into Reverse Repurchase Agreements
whereby it purchased financial instruments with an agreement to
resell them back to the counterparty at an agreed price. These
transactions are in effect collateralised loans and are reported
accordingly. The cash on loan is recognised as Loans and
Receivables. The amount of cash on loan in this regard is GBP465m
(2015: GBP963m) for the Group and GBP41m (2015: GBP135m) for
Company.
The financial assets received as collateral are not recognised
on the balance sheet as the counterparty retains all risks and
rewards. The fair value of financial assets accepted as collateral
amounted to is GBP493m (2015: GBP1,009m) for the Group and GBP43m
(2015: GBP142m) for Company.
Collateral in respect of Repurchase Agreement
Collateral pledged in respect of a repurchase agreement with
HBOS treasury continues to be recognised on the Company's balance
sheet, the amount pledged was GBP595m (2015: GBP516m) for Group and
Company.
Collateral in respect of loans to related parties
The Company has made loans to related parties against which
collateral is held. The collateral includes asset backed securities
and covered bonds with a fair value of at least 130% of the cash
lent. The minimum 130% collateral to loan ratio reflects the
illiquid nature of some of the asset backed securities used in the
collateral arrangement. If any of the collateral was not readily
realisable the Company would hold it for investment purposes.
Collateral amounts held are not recognised as assets. At 31
December 2016, collateral with a fair value of GBP1,840m (2015:
GBP1,846m) was held by the group and GBP1,840m (2015: GBP1,577m)
available to the Group to sell or repledge in the absence of
default by the counterparty. Of this, GBP1,840m (2015: GBP1,846m)
was held by the Company and GBP1,840m (2015: GBP1,577m) available
to the Company to sell or repledge in the absence of default by the
counterparty. No other collateral (2015: GBPnil) was repledged
during the year by the Group or Company. The Group and Company have
an obligation to return these assets to the pledgor.
Collateral in respect of Bulk Annuity Business
Acceptable collateral is defined in each instance and must take
into account the quality and appropriateness of the proposed
collateral as well as being acceptable to the entity receiving the
collateral. Collateral may include cash, corporate bonds,
supranational debt and government debt.
During 2016, SWL purchased Bulk Annuity contracts which provide
buy in and buy out solutions to defined benefit pension schemes. To
enter into the transaction some trustees may seek collateral to
cover the counterparty default scenario. Collateral pledged in
respect of Bulk Annuity business was GBP1,333m (2015: nil) for
Group and Company.
(iii) Offsetting
The following tables show financial assets and liabilities which
have been set off in the balance sheet and those which have not
been set off but for which the Group and the Company has
enforceable master netting agreements in place with counterparties.
They include Derivatives, Repurchase and Reverse Repurchase
arrangements.
a) Derivatives
The derivative assets and liabilities in the tables below
consist of over-the-counter (OTC) and exchange traded (ET)
derivatives. The value of gross/net amounts for derivatives in the
table below comprises those that are subject to master netting
arrangements. The right to set off balances under these master
netting agreements or to set off cash and securities collateral
only arises in the event of non payment or default and, as a
result, these arrangements do not qualify for offsetting under IAS
32. As a result no amount has been set off in the balance sheet.
Total derivatives presented in the balance sheet are shown in note
19.
The "financial instruments" amounts in the tables below show the
values that can be set off against the relevant derivatives asset
and liabilities in the event of default under master netting
agreements. In addition, the Group and the Company holds and
provides cash and securities collateral in respective of derivative
transactions to mitigate credit risks.
In the tables below, the amounts of derivatives assets or
liabilities presented are offset first by financial instruments
that have the right of offset under master netting with any
remaining amount reduced by the amount collateral.
b) Repurchase and Reverse Repurchase Arrangements
The Group and the Company participates in repurchase (repo) and
reverse repurchase arrangements (reverse repo). The gross/net
amount in the table shows the relevant assets that the Group and
the Company has been transferred to counterparties under these
arrangements. Cash and non cash collateral is received by the Group
and the Company for securities transferred. Cash collateral may be
reinvested by the Group and Company through reverse repurchase
arrangements (reverse repo) against non cash collateral.
In the tables below, the amounts that are subject to repo and
reverse repo are set off against the amount of collateral received
according to the relevant legal agreements, showing the potential
net amounts.
The actual fair value of collateral may be greater than amounts
presented in the tables below in the case of over
collateralisation.
Detailed disclosure on collateral management can be found in the
notes below:
Group as at 31 December 2016
Related amounts
where set off
not permitted
in the balance
sheet(2)
Potential
Amounts Net amounts net amounts
Gross set off presented if offset
amounts in the in the of related
of assets balance balance Financial amounts
/ liabilities sheet sheet(1) instruments Collateral permitted
GBPm GBPm GBPm GBPm GBPm GBPm
========================= =============== ========= ============ ============= =========== =============
Financial assets
OTC Derivatives 3,474 - 3,474 (1,957) (1,485) 32
ET Derivatives 267 - 267 (240) (27) -
Repo 595 - 595 - (587) 8
Reverse Repo 465 - 465 - (465) -
Financial liabilities
OTC Derivatives (2,563) - (2,563) 1,957 602 (4)
ET Derivatives (355) - (355) 240 56 (59)
------------------------- --------------- --------- ------------ ------------- ----------- -------------
Group as at 31 December 2015
Related amounts
where set off
not permitted
in the balance
sheet(2)
Potential
Amounts Net amounts net amounts
Gross set off presented if offset
amounts in the in the of related
of assets balance balance Financial amounts
/ liabilities sheet sheet(1) instruments Collateral permitted
GBPm GBPm GBPm GBPm GBPm GBPm
========================= =============== ========= ============ ============= =========== =============
Financial assets
OTC Derivatives 1,962 - 1,962 (1,089) (854) 19
ET Derivatives 43 - 43 (17) (21) 5
Repo 516 - 516 - (516) -
Reverse Repo 963 - 963 - (963) -
Financial liabilities
OTC Derivatives (1,727) - (1,727) 1,089 577 (61)
ET Derivatives (40) - (40) 17 23 -
------------------------- --------------- --------- ------------ ------------- ----------- -------------
Company as at 31 December 2016
Related amounts
where set off
not permitted
in the balance
sheet(2)
Amounts Net amounts Potential
Gross set off presented net amounts
amounts in the in the if offset
of assets balance balance Financial of related
/ liabilities sheet sheet(1) instruments Collateral amounts permitted
GBPm GBPm GBPm GBPm GBPm GBPm
========================= =============== ========= ============ ============= =========== ===================
Financial assets
OTC Derivatives 3,465 - 3,465 (1,957) (1,476) 32
ET Derivatives 224 - 224 (223) (1) -
Repo 595 - 595 - (587) 8
Reverse Repo 41 - 41 - (41) -
Financial liabilities
OTC Derivatives (2,560) - (2,560) 1,956 600 (4)
ET Derivatives (333) - (333) 223 51 (59)
------------------------- --------------- --------- ------------ ------------- ----------- -------------------
Company as at 31 December 2015
Related amounts
where set off
not permitted
in the balance
sheet(2)
Amounts Net amounts Potential
Gross set off presented net amounts
amounts in the in the if offset
of assets balance balance Financial of related
/ liabilities sheet sheet(1) instruments Collateral amounts permitted
GBPm GBPm GBPm GBPm GBPm GBPm
========================= =============== ========= ============ ============= =========== ===================
Financial assets
OTC Derivatives 1,954 - 1,954 (1,089) (845) 20
ET Derivatives 5 - 5 (4) (1) -
Repo 516 - 516 - (516) -
Reverse Repo 135 - 135 - (135) -
Financial liabilities
OTC Derivatives (1,727) - (1,727) 1,089 577 (61)
ET Derivatives (20) - (20) 4 16 -
------------------------- --------------- --------- ------------ ------------- ----------- -------------------
The following notes are relevant to the tables on the preceding
page:
1. The value of net amounts presented in the balance sheet for
derivatives comprises those derivatives held by the Group and the
Company that are subject to master netting arrangements. Total
derivatives presented in the balance sheet are shown in note
19.
2. The Group and the Company enters into derivative transactions
with various counterparties which are governed by industry standard
master netting agreements. The Group and the Company holds and
provides cash and securities collateral in respective of derivative
transactions covered by these agreements. The right to set off
balances under these master netting agreements or to set off cash
and securities collateral only arises in the event of non--payment
or default and, as a result, these arrangements do not qualify for
offsetting under IAS 32.
(iv) Liquidity risk
Liquidity risk is defined as the risk that the Group has
insufficient financial resources to meet its commitments as they
fall due, or can only secure them at excessive cost.
Liquidity risk may result from either the inability to sell
financial assets quickly at their fair values; or from an insurance
liability falling due for payment earlier than expected; or from
the inability to generate cash inflows as anticipated.
Liquidity risk has been analysed as arising from payments to
policyholders (including those where payment is at the discretion
of the policyholder) and non policyholder related activity (such as
investment purchases and the payment of shareholder expenses).
In order to measure liquidity risk exposure the Group's
liquidity is assessed in a stress scenario. Liquidity risk is
actively managed and monitored to ensure that, even under stress
conditions, the Company and Group has sufficient liquidity to meet
its obligations and remains within approved risk appetite.
Liquidity risk appetite considers two time periods; three month
stressed outflows are required to be covered by primary liquid
assets; and one year stressed outflows are required to be covered
by primary and secondary liquid assets, after taking account of
management actions. Primary liquid assets are gilts or cash, and
secondary liquid assets are tradable non-primary assets. The
stressed outflows also make allowance for the increased collateral
that needs to be posted under derivative contracts in stressed
conditions. Liquidity risk is actively managed and monitored to
ensure that, even under stress conditions, the Group has sufficient
liquidity to meet its obligations and remains within approved risk
appetite.
Liquidity methodology and reporting was updated to ensure
compliance with Solvency II.
Liquidity risk is managed in line with the Insurance Liquidity
Risk Policy and the wider LBG Funding and Liquidity Policy.
Liquidity risk in respect of each of the major product areas is
primarily mitigated as follows:
Annuity contracts
Assets are held which are specifically chosen to correspond to
the expectation of timing of annuity payments. Gilts, corporate
bonds, loans and, where required, derivatives are selected to
reflect the expected annuity payments as closely as possible and
are regularly rebalanced to ensure that this remains the case in
future.
With profits contracts
For with profits business, a portfolio of assets is held in line
with investment mandates which will reflect policyholders'
reasonable expectations.
Liquidity is maintained within the portfolio via the holding of
cash balances and a substantial number of highly liquid assets,
principally gilts, bonds and listed equities. Management also have
the ability to sell less liquid assets at a reduced price if
necessary, with any loss being borne within the With Profits Fund.
Losses are managed and mitigated by anticipating policyholder claim
payments to plan sales of underlying assets within funds.
Non-participating contracts
For unit-linked products, portfolios are invested in accordance
with unit fund mandates. Deferral clauses are included in
policyholder contracts to give time, when necessary, to realise
linked assets without being a forced seller. As at 31 December
2016, there are no funds under management subject to deferral.
For non-linked products other than annuity contracts, backing
investments are mostly held in gilts with minimal liquidity risk.
Investments are arranged to minimise the possibility of being a
distressed seller whilst at the same time investing to meet
policyholder obligations. This is achieved by anticipating
policyholder behaviour and sales of underlying assets within
funds.
Shareholder funds
For shareholder funds, liquidity is maintained within the
portfolio via the holding of cash balances and a substantial number
of highly liquid assets, principally gilts and bonds.
The following tables indicate the timing of the contractual cash
flows arising from the Group and Company's financial liabilities,
as required by IFRS 7. The table is based on the undiscounted cash
flows of financial liabilities based on the earliest date on which
the Company is obliged to pay. The table includes both interest and
principal cash flows.
Liquidity risk in respect of liabilities arising from insurance
contracts and participating investment contracts has been analysed
based on the expected pattern of maturities as permitted by IFRS 4
rather than by contractual maturity. A maturity analysis of
liabilities arising from non-participating investment contracts
based on expected contract maturities is also given as it is
considered that this analysis provides additional useful
information in respect of the liquidity risk relating to contracts
written by the Group and Company.
Group As at 31 December Carrying Contractual cash flows
2016 amount
No stated Less 1-3 3-12 1-5 More
Liabilities maturity than months months years than
1 month 5 years
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------------------- ---------- --------- -------- -------- ------- ---------
Liabilities arising
from non-participating
investment contracts 20,112 - 20,112 - - - -
External interests
in collective investment
vehicles 14,207 14,207 - - - - -
Derivatives held
for trading 3,008 - 56 114 469 707 2,071
Subordinated debt 1,819 51 - - 92 462 2,424
Borrowings 12 - 12 - - - -
Other financial
liabilities 3,153 355 2,204 24 570 - -
--------------------------- --------------------- ---------- --------- -------- -------- ------- ---------
Total 42,311 14,613 22,384 138 1,131 1,169 4,495
--------------------------- --------------------- ---------- --------- -------- -------- ------- ---------
Group As at 31 December Carrying Contractual cash flows
2015 amount
Liabilities No stated Less 1-3 3-12 1-5 More
maturity than months months years than
1 month 5 years
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ---------- --------- -------- -------- ------- ---------
Liabilities arising
from non-participating
investment contracts 22,759 - 22,759 - - - -
External interests
in collective investment
vehicles 16,889 16,889 - - - - -
Derivatives held
for trading 1,857 - 41 121 111 500 1,579
Subordinated debt 1,671 51 - - 92 461 2,528
Borrowings 6 - 4 - - 2 -
Other financial
liabilities 4,484 518 2,455 310 118 1,083 -
--------------------------- --------- ---------- --------- -------- -------- ------- ---------
Total 47,666 17,458 25,259 431 321 2,046 4,107
--------------------------- --------- ---------- --------- -------- -------- ------- ---------
The contractual cash flow analysis set out above has been based
on the earliest possible contractual date, regardless of the
surrender penalties that might apply and has not been adjusted to
take account of such penalties.
An analysis of the contractual cash flows in respect of
insurance and investment contract liabilities by expected contract
maturity, on a discounted basis, is shown below:
Group As at 31 December Less More
2016 than 1-3 3-12 1-5 than
Total 1 month months months years 5
Maturity Analysis for insurance GBPm GBPm GBPm GBPm GBPm years
and investment contracts GBPm
================================== ======== ========= ========= ========= ======== =======
Insurance and participating
investment contracts 93,799 989 1,418 4,616 21,461 65,315
Non-participating investment
contracts 20,112 123 232 1,025 4,929 13,803
---------------------------------- -------- --------- --------- --------- -------- -------
Group As at 31 December Less More
2015 than than
1 month 5
GBPm years
GBPm
======= ========= ============= ======== ======= =======
Maturity Analysis for liabilities 1-3 3-12 1-5
arising from insurance Total Months months years
and investment contracts GBPm GBPm GBPm GBPm
=================================== ======= ========= ============= ======== ======= =======
Insurance and participating
investment contracts 79,716 993 1,006 4,634 20,794 52,289
Non-participating investment
contracts 22,759 397 310 1,414 6,434 14,204
----------------------------------- ------- --------- ------------- -------- ------- -------
Company As at 31 December Carrying Contractual cash flows
2016 amount
No stated Less 1-3 3-12 1-5 More
Liabilities maturity than months months years than
1 month 5 years
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- --------- ---------- --------- -------- -------- ------- ---------
Borrowings 4 - 4 - - - -
Liabilities arising
from non-participating
investment contracts 20,112 - 20,112 - - - -
Derivative financial
instruments 2,930 - 9 89 465 702 2,071
Subordinated debt 1,848 51 - - 92 461 2,453
Other financial liabilities 2,204 340 1,347 - 517 - -
----------------------------- --------- ---------- --------- -------- -------- ------- ---------
Total 27,098 391 21,472 89 1,074 1,163 4,524
----------------------------- --------- ---------- --------- -------- -------- ------- ---------
Company As at 31 December Contractual cash flows
2015
Carrying No stated Less 1-3 3-12 1-5 More
Liabilities amount maturity than months months years than
1 month 5 years
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- --------- ---------- --------- -------- -------- ------- ---------
Borrowings 4 - 4 - - - -
Liabilities arising
from non-participating
investment contracts 22,759 - 22,759 - - - -
Derivative financial
instruments 1,791 - 9 90 108 500 1,579
Subordinated debt 1,688 52 - - 92 461 2,545
Other financial liabilities 2,361 538 1,155 - 92 576 -
----------------------------- --------- ---------- --------- -------- -------- ------- ---------
Total 28,603 590 23,927 90 292 1,537 4,124
----------------------------- --------- ---------- --------- -------- -------- ------- ---------
The contractual cash flow analysis set out above has been based
on the earliest possible contractual date, regardless of the
surrender penalties that might apply and has not been adjusted to
take account of such penalties.
An analysis of liabilities arising from insurance and investment
contracts by expected contract maturity, on a discounted basis, is
shown below:
Company As at 31 December Total Less 1-3 3-12 1-5 More
2016 than months months years than
1 month 5
GBPm GBPm GBPm GBPm years
GBPm GBPm
Maturity Analysis for liabilities
arising from insurance contracts
and investment contracts
Insurance and participating
investment contracts 93,799 989 1,418 4,616 21,461 65,315
Non-participating investment
contracts 20,112 123 232 1,025 4,929 13,803
------------------------------------- ------- --------- -------- -------- ------- ---------
Company As at 31 December Total Less 1-3 3-12 1-5 More
2015 than months months years than
1 month 5
Maturity Analysis for insurance GBPm GBPm GBPm GBPm years
and investment contract GBPm GBPm
liabilities
================================== ======= ========= ======== ======== ======= =======
Insurance and participating
investment contracts 79,716 993 1,006 4,634 20,794 52,289
Non-participating investment
contracts 22,759 397 310 1,414 6,434 14,204
---------------------------------- ------- --------- -------- -------- ------- -------
(v) Capital risk
Capital risk is defined as the risk that the Group has a
sub-optimal amount or quality of capital or that capital is
inefficiently deployed across the Group. The risk that:
- the Group, or one of its separately regulated subsidiaries,
has insufficient capital to meet its regulatory capital
requirements;
- the Group has insufficient capital to provide a stable
resource to absorb all losses up to a confidence level defined in
the risk appetite;
- the Group loses reputational status by having capital that is
regarded as inappropriate, either in quantity, type or
distribution; and/or
- the capital structure is inefficient.
The business of several of the companies within the Group is
regulated by the PRA and the Financial Conduct Authority ("FCA").
The PRA rules, which incorporate all Solvency II requirements,
specify the minimum amount of capital that must be held by the
regulated companies within the Group in addition to their insurance
liabilities. Under the Solvency II rules, each insurance company
within the Group must hold assets in excess of this minimum amount,
which is derived from an economic capital assessment undertaken by
each regulated company and the quality of capital held must also
satisfy Solvency II tiering rules. This is reviewed on a quarterly
basis by the PRA.
The Solvency II minimum required capital must be maintained at
all times throughout the year. These capital requirements and the
capital available to meet them are regularly estimated in order to
ensure that capital maintenance requirements are being met.
The Group's objectives when managing capital are:
- to have sufficient capital to safeguard the Group's ability to
continue as a going concern so that it can continue to provide
returns for the shareholder and benefits for other
stakeholders;
- to comply with the insurance capital requirements set out by the PRA in the UK;
- when capital is needed, to require an adequate return to the
shareholder by pricing insurance and investment contracts according
to the level of risk associated with the business written; and
- to meet the requirements of the Schemes of Transfer.
The capital management strategy is such that the integrated
insurance business (comprising SWG and its subsidiaries, including
the Group) will hold capital in line with the stated risk appetite
for the business, which is to be able to withstand a one in ten
year stress event without breaching the capital requirements. At
SWG level it is intended that all surplus capital above that
required to absorb a one in ten year stress event will be
distributed to LBG.
The Company's capital comprises all components of equity,
movements in which are set out in the statement of changes in
equity and includes subordinated debt (note 30).
The table below sets out the regulatory capital and the required
capital held at 31 December in each year for the Company on a
Solvency II basis. The current year information is an estimate of
the final result:
Company
2016 2015
GBPm GBPm
======================== ===== =====
Regulatory Capital held 7,882 8,560
------------------------ ----- -----
All minimum regulatory requirements were met during the
year.
(d) Operational risk
Operational risk is defined as the risk of loss resulting from
inadequate or failed internal processes, people and systems or from
external events. There are a number of secondary categories of
operational risk including the undernoted:
Financial crime and fraud risk
Financial crime concerns activity related to money laundering,
sanctions, terrorist financing and bribery. Fraud covers acts
intended to defraud, misappropriate property or circumvent the law.
These activities could give rise to risk of reduction in earnings
and/or value, through financial or reputational loss. Losses may
include censure, fines or the cost of litigation.
Information security and physical security risk
Information security risk relates to the risk of reductions in
earnings and/or value, through financial or reputational loss,
resulting from theft of or damage to the security of the Group's
information and data. Physical security risk relates to the risk to
the security of people and property.
Operational resilience risk
Operational resilience risk covers the risk or instances of
interruptions to business operations (including critical buildings,
critical and core infrastructure and IT systems, suppliers and
colleagues), as a consequence of external or internal events due to
insufficient resilience, inadequate recovery strategies and/or
continuity systems and controls.
Change risk
Change risk is related to the management of change - designing
and implementing key projects or programme. Potential loss could
arise from failure requirements, budget or timescale; failure to
implement change effectively; or failure to realise desired
benefits.
Sourcing and service provision risk
Sourcing risk covers the risk of reductions in earnings and/or
value through financial or reputational loss from risks associated
with activity related to the agreement and management of services
provided by third parties including outsourcing.
Service provision risk covers the risks associated with
provision of services to a third party and with the management of
internal intra-group service arrangements.
IT systems and cyber risk
The risk of reductions in earnings and/or value through
financial or reputational loss resulting from the failure to
develop, deliver or maintain a resilient IT solution or protect
against cyber attack and other system disruption. The Directors
have embedded a risk framework and monitor the effective operation
of this across the Group.
(e) People risk
People risk is defined as the risk that the Group fails to lead,
manage and enable colleagues to deliver to customers, shareholders
and regulators leading to an inability to deliver the Group's
strategy.
(f) Regulatory and Legal risk
Regulatory and legal risk is defined as the risk that the Group
is exposed to fines, censure, legal or enforcement action, civil or
criminal proceedings in the courts (or equivalent) and risk that
the Group is unable to enforce its rights as anticipated.
Regulators aim to protect the rights of customers, ensuring
firms satisfactorily manage their affairs for the benefit of
customers and that they retain sufficient capital and liquidity.
The Group has embedded a risk framework to closely monitor and
manage its legal and regulatory risks, and maintains regular
interaction with its regulators.
(g) Conduct risk
Conduct risk is defined as the risk of customer detriment or
regulatory censure and/or a reduction in earnings/value, through
financial or reputational loss, from inappropriate or poor customer
treatment or business conduct.
The Group is focused on delivering fair customer outcomes, and
has embedded a risk framework to effectively monitor and manage its
conduct risks.
(h) Financial reporting risk
Financial reporting risk is defined as the risk that the Group
suffers reputational damage, loss of investor confidence and/or
financial loss arising from the adoption of inappropriate
accounting policies, ineffective controls over financial and
regulatory reporting, failure to manage the associated risks of
changes in taxation rates, law, ownership or corporate structure
and the failure to disclose accurate and timely information.
(i) Governance risk
Governance risk is defined as the risk that the Group's
organisational infrastructure fails to provide robust oversight of
decision making and the control mechanisms to ensure strategies and
management instructions are implemented effectively.
RELATED PARTY TRANSACTIONS
38. Related party transactions
(a) Ultimate parent and shareholding
The Group's immediate parent undertaking is Scottish Widows
Group Limited, a company registered in the United Kingdom. Scottish
Widows Group Limited has taken advantage of the provisions of the
Companies Act 2006 and has not produced consolidated financial
statements.
The Company's ultimate parent company and ultimate controlling
party is Lloyds Banking Group plc, which is also the parent
undertaking of the largest group of undertakings for which group
accounts are drawn up and of which the Company is a member. Lloyds
Bank plc is the parent undertaking of the smallest such group of
undertakings for which group accounts are drawn up and of which the
Company is a member. Copies of the Lloyds Banking Group plc
financial statements in which the Company is consolidated can be
obtained from the Group Secretary's Department, Lloyds Banking
Group plc, 25 Gresham Street, London EC2V 7HN or downloaded via
www.lloydsbankinggroup.com.
(b) Transactions and balances with related parties
Transactions with other LBG companies
In accordance with IAS 24 "Related Party Disclosures",
transactions and balances between Group companies have been
eliminated on consolidation and have not been reported as part of
the consolidated financial statements.
The Group has entered into transactions with related parties in
the normal course of business during the year.
2016
Income Expenses Payable at Receivable
during period during period period end at period
end
GBPm GBPm GBPm GBPm
====================== ============== ============== =========== ==========
Relationship
Parent 32 (250) (7) 2,271
Other related parties 849 (587) (1,923) 3,206
---------------------- -------------- -------------- ----------- ----------
2015
Income Expenses Payable at Receivable
during period during period period end at period
end
GBPm GBPm GBPm GBPm
====================== ============== ============== =========== ==========
Relationship
Parent - - - 2,261
Subsidiary 4 (69) - -
Other related parties 186 (431) (2,218) 2,436
---------------------- -------------- -------------- ----------- ----------
The Company has entered into transactions with related parties
in the normal course of business during the year.
2016
Income Expenses Payable at Receivable
during period during period period end at period
end
GBPm GBPm GBPm GBPm
====================== ============== ============== =========== ==========
Relationship
Parent 32 (250) (7) 2,271
Subsidiary 37 (629) (409) 674
Other related parties 614 (119) (1,617) 3,158
---------------------- -------------- -------------- ----------- ----------
2015
Income Expenses Payable at Receivable
during period during period period end at period
end
GBPm GBPm GBPm GBPm
====================== ============== ============== =========== ==========
Relationship
Parent - - - 2,261
Subsidiary 474 (69) (266) 302
Other related parties 183 (155) (1,771) 2,342
---------------------- -------------- -------------- ----------- ----------
Further, amounts relating to other related parties of GBP11,586m
due from OEICs investments were outstanding at 31 December 2016
(2015: GBP8,053m). The above balances are unsecured in nature and
are expected to be settled in cash.
Included within the consolidated statement of comprehensive
income were net income amounts relating to related other parties of
GBP336m (2015: GBP56m) from OEIC investments.
Parent undertaking transactions relate to all reported
transactions and balances with Scottish Widows Group Limited, the
group's immediate parent. Such transactions with the parent company
are primarily financing (through capital and sub-ordinated debt),
provision of loans and payment of dividends.
Transactions with other related parties (which including
Subsidiary and Other categories above) are primarily in relation to
intra-group reinsurance and operating and employee expenses.
For 2015, staff costs were borne by a related party company
outside the Group.
Details of the Insurance Business Transfer Scheme, which was
undertaken in 2015 with related parties in the LBG group Insurance
Division, are provided separately in Note 41.
Change to IAS 24 Related Party Disclosures (Key Management
Personnel)
The amendment to IAS 24 clarifies that a management entity
providing key management personnel services to a reporting entity
is a related party of the reporting entity. Consequently, the
reporting entity must disclose as related party transaction the
amounts incurred for the service paid or payable to the management
entity that provides the key management personnel services.
Transactions between the Group and entity employing key
management
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Company which, for the Company, are all directors
and Insurance Executive Committee ("IEC") members. Key management
personnel, as defined by IAS 24, are employed by a management
entity, transactions with this entity are as follows:
Key management compensation:
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
============================= ===== ======= ===== =======
Group Company Group Company
Short-term employee benefits 5.5 5.5 0.7 0.4
Post-employment benefits 0.2 0.2 0 0
Share-based payments 1.6 1.6 0.4 0.2
----------------------------- ----- ------- ----- -------
Total 7.3 7.3 1.1 0.6
----------------------------- ----- ------- ----- -------
Included in short term employee benefits is the aggregate amount
of emoluments paid to or receivable by directors in respect of
qualifying services of GBP2.8m (2015: GBP0.9m).
There were no retirement benefits accrued to directors (2015:
one director) under defined benefit pension schemes. Six directors
(2015: six directors) are paying into a defined contribution
scheme. The aggregate value of contributions paid to a pension
scheme for qualifying services was GBP15.7k (2015: GBP16.3k) for
Group and Company.
Certain members of key management in the Group, including the
highest paid director, provide services to other companies within
LBG. In such cases, for the purposes of this note, figures have
been included based on an apportionment to the Group of the total
compensation earned.
The aggregate amount of money receivable and the net value of
assets received/receivable under share based incentive schemes in
respect of directors qualifying services was GBP1.1m (2015:
GBP0.6m). During the year, three directors exercised share options
(2015: two directors) and eight directors' received qualifying
services shares under long term incentive schemes (2015: five
directors).
In addition, during the year amounts of GBPnil (2015: GBP99k)
became payable to the highest paid director in relation to their
retirement from office.
Detail regarding the highest paid Director is as follows:
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
===================================== ===== ======= ===== =======
Group Company Group Company
Apportioned aggregate emoluments 2.2 2.2 0.5 0.1
Apportioned post-employment benefits 0.0 0.0 1.0 1.0
Apportioned share-based payments 0.8 0.8 0.2 0.2
The highest paid Director did exercise share options during the
year. (2015: The highest paid director did not exercise share
options during the year, but was granted shares in respect of
qualifying service).
Further details of the above can also be obtained by contacting
Secretariat, Insurance, Lloyds Banking Group plc, Level 7 Block E,
Port Hamilton, 69 Morrison Street, Edinburgh EH3 8YF.
LEI NUMBER: 549300ZT0RVWCG8T4L55
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKQDBDBKDFNB
(END) Dow Jones Newswires
March 24, 2017 07:33 ET (11:33 GMT)
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