REG - Legal & General Grp - L&G Half Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 5
09/08/2016 07:08
- Part 5: For the preceding part double click ID:nRSI5967Gd
119,931 82,388 37,537 6
Accrued interest 890 310 580 -
Derivative assets 5,795 332 5,463 -
Investment property 4,805 - - 4,805
Total financial investments and investment property at fair value1 361,680 262,292 88,987 10,401
1. This table excludes loans and receivables of £465m, which are held at amortised cost.
IFRS and Operational Cash Generation
Page 48
2.13 Financial investments and investment property (continued)
(b) Assets measured at fair value based on level 3
Level 3 assets where internal models are used, represent a small proportion of assets to which shareholders are exposed.
These comprise property, unquoted equities, untraded debt securities and securities where the broker methodology is
unknown. Unquoted equities include suspended securities and investments in private equity and property vehicles. Untraded
debt securities include private placements, commercial real estate loans and lifetime mortgages.
In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the
fair value hierarchy. In these situations, the group determines the level in which the fair value falls based upon the
lowest level input that is significant to the determination of the fair value. As a result, both observable and
unobservable inputs may be used in the determination of fair values that the group has classified within level 3.
The group determines the fair values of certain financial assets and liabilities based on quoted market prices, where
available. The group also determines fair value based on estimated future cash flows discounted at the appropriate current
market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the group's credit standing,
liquidity and risk margins on unobservable inputs.
Where quoted market prices are not available, 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 categorisation of financial assets at the end of each reporting period and to recognise
transfers between levels at that point in time.
IFRS and Operational Cash Generation
Page 49
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
30.06.16 30.06.16 30.06.16 30.06.16 30.06.15 30.06.15 30.06.15 30.06.15
£m £m £m £m £m £m £m £m
As at 1 January 863 1,456 8,082 10,401 1,142 1,243 8,152 10,537
Total gains or (losses) for the period
recognised in profit:
- in other comprehensive income - 15 - 15 - - - -
- realised and unrealised
gains or (losses)2 9 269 (51) 227 97 (21) 226 302
Purchases / Additions 260 586 283 1,129 26 164 512 702
Improvements - - - - - - 63 63
Sales / Disposals (244) (112) (87) (443) (140) (105) (174) (419)
Transfers into level 33 26 1,670 - 1,696 12 5 - 17
Transfers out of level 33 (3) (56) - (59) (126) (144) - (270)
Other - - - - (7) 7 - -
As at 30 June 911 3,828- 8,227 12,966 1,004 1,149- 8,779 10,932
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 2016, transfers into level 3 included £1,670m 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
31.12.15 31.12.15 31.12.15 31.12.15
£m £m £m £m
As at 1 January 1,142 1,243 8,152 10,537
Total gains or (losses) for the year
recognised in profit:
- in other comprehensive income - (12) - (12)
- realised and unrealised
gains or (losses)2 110 (10) 486 586
Purchases / Additions 68 394 1,061 1,523
Sales / Disposals (246) (234) (482) (962)
Transfers into level 33 66 76 - 142
Transfers out of level 33 (260) - - (260)
Transfers to held for sale4 (17) (1) (1,135) (1,153)
As at 31 December 863 1,456 8,082 10,401
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.
4. The Suffolk Life Group was sold in May 2016 and therefore was classified as held for sale at 31 December 2015.
IFRS and Operational Cash Generation
Page 50
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 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; LTVs 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 property2,4 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)
- Untraded and other debt securities3 Cash flows; expected defaults 10 - -
- Investment property2 Property yield 920 47 (92)
Unit linked
- Private equity investment vehicles1 Price earnings multiple 1 - -
- Unquoted investments in property vehicles2 Property yield 369 19 (38)
- Suspended securities Estimated recoverable amount 11 - -
- Investment property2 Property yield 4,850 247 (485)
Total 12,966 436 (817)
1. 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.
2. 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.
3. No reasonably possible increases or decreases in fair
values have been given for securities where the broker
methodology is unknown.
4. The sensitivity of the non profit non-linked property
to reasonably possible alternative assumptions is
primarily driven by the vacant property value at the end
of the lease, which represents only a partial component
of the overall valuation calculation. The properties
are primarily let to investment grade tenants on long
-term leases and as a consequence of this, the cash
flows received from these leases are deemed less
sensitive to market fluctuation by the group.
IFRS and Operational Cash Generation
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 (continued)
Reasonably possible
alternative assumptions
Current Increase Decrease
fair in fair in fair
For the six months ended 30 June 2015 Main value value value
Financial instruments and investment property assumptions £m £m £m
Assets
Shareholder
- Private equity investment vehicles1 Price earnings multiple 15 1 (1)
- Unquoted investments in property vehicles2 Property yield 137 7 (7)
- Untraded and other debt securities3 Cash flows; expected defaults 268 13 (13)
- Unquoted and other securities3 Cash flows; expected defaults 99 3 (3)
- Investment property2 Property yield 183 9 (9)
Non profit non-linked
- Asset backed securities Cash flows; expected defaults 725 36 (36)
- Untraded and other debt securities3 Cash flows; expected defaults 3 - -
- Unquoted and other securities3 Cash flows; expected defaults 129 6 (6)
- Investment property2 Property yield 2,037 102 (102)
With-profits
- Private equity investment vehicles1 Price earnings multiple 140 8 (8)
- Asset backed securities Cash flows; expected defaults 5 - -
- Unquoted and other securities3 Cash flows; expected defaults 379 19 (19)
- Other 3 - -
- Investment property2 Property yield 1,057 53 (53)
Unit linked
- Unquoted investments in property vehicles2 Property yield 37 2 (2)
- Suspended securities Estimated recoverable amount 11 1 (1)
- Asset backed securities Cash flows; expected defaults 4 - -
- Untraded and other debt securities3 Cash flows; expected defaults 2 - -
- Unquoted and other securities3 Cash flows; expected defaults 196 22 (22)
- Investment property2 Property yield 5,502 276 (276)
- More to follow, for following part double click ID:nRSI5967GfRecent news on Legal & General
See all newsREG - Legal & General Grp - Transaction in Own Shares
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
AnnouncementREG - Legal & General Grp - Transaction in Own Shares
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
Announcement