REG - Legal & General Grp - L&G Half-year Report 2017 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 6
09/08/2017 07:07
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fair value estimates are made at a point in time, based on relevant market
data, as well as the best information about the individual financial instrument. Illiquid market conditions have resulted
in inactive markets for certain of the group's financial instruments. As a result, there is generally no or limited
observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an
illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and
interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable
uncertainty and variability as a result of the inputs selected and may differ significantly from the values that would have
been used had a ready market existed, and the differences could be material. As a result, such calculated fair value
estimates may not be realisable in an immediate sale or settlement of the instrument. In addition, changes in the
underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent
of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee and validated independently
as appropriate.
The group's policy is to re-assess the categorisation of financial assets at the end of each reporting period and to
recognise transfers between levels at that point in time.
IFRS and Release from Operations
Page 50
2.13 Financial investments and investment property (continued)
(b) Assets measured at fair value based on level 3 (continued)
Other Other
financial financial
Equity invest- Investment Equity invest- Investment
securities ments1 property Total securities ments1 property Total
30.06.17 30.06.17 30.06.17 30.06.17 30.06.16 30.06.16 30.06.16 30.06.16
£m £m £m £m £m £m £m £m
As at 1 January 1,101 4,390 8,150 13,641 863 1,456 8,082 10,401
Total gains / (losses) for the period
recognised in profit:
- in other comprehensive income - 7 - 7 - 15 - 15
- realised and unrealised
(losses) / gains2 (23) 234 217 428 9 269 (51) 227
Purchases / Additions 156 1,283 402 1,841 260 586 283 1,129
Sales / Disposals (34) (39) (166) (239) (244) (112) (87) (443)
Transfers into level 33 118 1,714 101 1,933 26 1,670 - 1,696
Transfers out of level 33 - (5) - (5) (3) (56) - (59)
Other 2 5 10 17 - - - -
As at 30 June 1,320 7,589 8,714 17,623 911 3,828- 8,227 12,966
1. Other financial investments comprise debt securities, lifetime mortgages and derivative assets.
2. The realised and unrealised gains and losses have been recognised in investment return in the Consolidated Income Statement.
3. The group holds regular discussions with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as a result of this process. In H1 17, transfers into level 3 include £874m of private placement and £795m of income strips, which were previously classified as level 2. In H1 16, transfers into level 3 included £1.6bn of commercial real estate loans,
which were previously classified as level 2.
Other
financial
Equity invest- Investment
securities ments1 property Total
Full year Full year Full year Full year
31.12.16 31.12.16 31.12.16 31.12.16
£m £m £m £m
As at 1 January 863 1,456 8,082 10,401
Total gains / (losses) for the year
recognised in profit:
- in other comprehensive income - 5 - 5
- realised and unrealised
gains / (losses)2 40 350 (78) 312
Purchases / Additions 473 1,161 692 2,326
Sales / Disposals (302) (139) (494) (935)
Transfers into level 33 22 1,590 - 1,612
Transfers out of level 33 - (33) - (33)
Transfers to held for sale - - (53) (53)
Other 5 - 1 6
As at 31 December 1,101 4,390 8,150 13,641
1. Other financial investments comprise debt securities, lifetime mortgages and derivative assets.
2. The realised and unrealised gains and losses have been recognised in investment return in the Consolidated Income Statement.
3. The group holds regular discussion with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as result of this process. In 2016, transfers into level 3 included £1.6bn of commercial real estate loans, which were previously classified as level 2.
IFRS and Release from Operations
Page 51
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets
Fair values of financial instruments are, in certain
circumstances, measured using valuation techniques that
incorporate assumptions that are not evidenced by prices
from observable current market transactions in the same
instrument and are not based on observable market data.
The following table shows the level 3 financial
instruments carried at fair value as at the balance
sheet date, the valuation basis, main assumptions used
in the valuation of these instruments and reasonably
possible increases or decreases in fair value based on
reasonably possible alternative assumptions.
Reasonably possible
alternative assumptions
Current Increase Decrease
fair in fair in fair
For the six months ended 30 June 2017 Main value value value
Financial instruments and investment property assumptions £m £m £m
Assets
Shareholder
- Unquoted investments in property vehicles1 Property yield 565 15 (15)
- Untraded and other debt securities2 Cash flows; expected defaults 401 4 (4)
- Unquoted and other securities2 Cash flows; expected defaults 67 3 (3)
- Investment property1 Property yield 200 23 (23)
Non profit non-linked
- Lifetime mortgage loans Market spreads; LTVs 1,433 77 (83)
- Untraded and other debt securities2 Cash flows; expected defaults 3,602 102 (100)
- Commercial real estate loans Cash flows; expected defaults 2,136 43 (43)
- Investment property1 Cash flows; property yield 2,687 138 (138)
- Other Cash flows 5 - -
With-profits
- Unquoted investments in property vehicles1 Property yield 209 13 (13)
- Untraded and other debt securities2 Cash flows; expected defaults 5 - -
- Investment property1 Cash flows; Property yield 740 38 (38)
Unit linked
- Unquoted investments in property vehicles1 Cash flows; Property yield 92 6 (6)
- Suspended securities Estimated recoverable amount 26 - -
- Untraded and other debt securities3 Cash flows; expected defaults 7 - -
- Unquoted and other securities2 Cash flows; expected defaults 361 18 (18)
- Investment property1 Cash flows; Property yield 5,087 256 (256)
Total 17,623 736 (740)
1. Unquoted investments in property vehicles and direct
holdings in investment property are valued using
valuations provided by independent valuers on the basis
of open market value as defined in the appraisal and
valuation manual of the Royal Institute of Chartered
Surveyors. Reasonably possible alternative valuations
have been determined using alternative yields.
2. No reasonably possible increases or decreases in fair
values have been given for securities where the broker
valuation methodology is unknown.
3. Private equity investments are valued in accordance
with the International Private Equity and Venture
Capital Valuation Guidelines. Reasonably possible
alternative valuations have been determined using
alternative price earnings multiples.
IFRS and Release from Operations
Page 52
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets
(continued)
Reasonably possible
alternative assumptions
Current Increase Decrease
fair in fair in fair
For the six months ended 30 June 2016 Main value value value
Financial instruments and investment property assumptions £m £m £m
Assets
Shareholder
- Private equity investment vehicles1 Price earnings multiple 16 1 (1)
- Unquoted investments in property vehicles2 Property yield 283 1 (2)
- Asset backed securities Cash flows; expected defaults 2 - -
- Untraded and other debt securities3 Cash flows; expected defaults 358 2 (2)
- Unquoted and other securities3 Cash flows; expected defaults 7 - -
- Investment property2 Property yield 200 10 (20)
Non profit non-linked
- Lifetime Mortgage loans Market Spreads; LTV's 440 8 (7)
- Untraded and other debt securities3 Cash flows; expected defaults 1,197 - -
- Commercial real estate loans Cash flows; expected defaults 1,811 32 (32)
- Investment property2 Cash flows; Property yield 2,257 56 (113)
- Other Cash flows 10 - -
With-profits
- Private equity investment vehicles1 Price earnings multiple 17 - -
- Unquoted investments in property vehicles2 Property yield 207 13 (25)
- Unquoted and other securities3 Cash flows; expected defaults 10 - -
- Investment property2 Property yield 920 47 (92)
Unit linked
- Unquoted investments in property vehicles2 Property yield 369 19 (38)
- Private equity investment vehicles1 Price earnings multiple 1 - -
- Suspended securities Cash flows; expected defaults 11 - -
- Investment property2 Property yield 4,850 247 (485)
Total 12,966 436 (817)
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