REG - Phoenix Grp Hldgs - 2014 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 4
29/10/2014 14:21
- Part 4: For the preceding part double click ID:nRSU6799Pc
Recurring (513) - - - - (513)
Depreciation and amortisation:
Depreciation of property, plant and equipment - (2) - - 2 -
Amortisation of acquired in-force business (58) - - - - (58)
Amortisation of customer relationships (7) (2) - - 2 (7)
(65) (4) - - 4 (65)
Other operating expenses:
Recurring (959) (41) - 43 41 (916)
Non-recurring (11) (2) (27) - 2 (38)
(970) (43) (27) 43 43 (954)
Total operating expenses (1,548) (47) (27) 43 47 (1,532)
Profit/(loss) before finance costs and tax 100 15 (27) - 28 116
Finance costs (64) - (65) - - (129)
Profit/(loss) before tax 36 15 (92) - 28 (13)
Tax attributable to policyholders' returns 29 - - - - 29
Segmental result before the tax attributable to owners 65 15 (92) - 28 16
Year ended 31 December 2013 Restated
Phoenix Life Ignis Asset Management Unallocated Eliminations Discontinued operation Total
£m £m Group £m eliminations £m
£m £m
Net premiums written from:
External customers 1,344 `- - - - 1,344
Fees from:
External customers 132 48 - - (48) 132
Other segment - 102 - (102) - -
132 150 - (102) (48) 132
Net investment income
Recurring 2,748 - (1) - - 2,747
Non-recurring - 7 - - (7) -
2,748 7 (1) - (7) 2,747
Other operating income:
Recurring 7 - - - - 7
Gain on transfer of business:
Non-recurring 42 - - - - 42
Net income 4,273 157 (1) (102) (55) 4,272
Net policyholder claims and benefits incurred:
Recurring (1,742) - - - - (1,742)
Depreciation and amortisation:
Depreciation of property, plant and equipment - (3) - - 3 -
Amortisation of acquired in-force business (111) - - - - (111)
Amortisation of customer relationships (16) (3) - - 3 (16)
(127) (6) - - 6 (127)
Other operating expenses:
Recurring (1,989) (98) 13 102 98 (1,874)
Non-recurring (11) (2) (47) - 2 (58)
(2,000) (100) (34) 102 100 (1,932)
Total operating expenses (3,869) (106) (34) 102 106 (3,801)
Profit before finance costs and tax 404 51 (35) - 51 471
Finance costs (104) - (126) - - (230)
Profit/(loss) before tax 300 51 (161) - 51 241
Tax attributable to policyholders' returns 27 - - - - 27
Segmental result before the tax attributable to owners 327 51 (161) - 51 268
4.2 Reconciliation of operating profit/(loss) before adjusting items to the segmental result
Half year ended 30 June 2014
Phoenix Ignis Asset Management Unallocated Total
Life £m Group £m
£m £m
Operating profit/(loss) before adjusting items 256 17 (7) 266
Investment return variances and economic assumption changes 59 - - 59
on long-term business
Variance on owners' funds 1 - (1) -
Amortisation of acquired in-force business (48) - - (48)
Amortisation of customer relationships (7) - - (7)
Non-recurring items (57) (6) 72 9
Finance costs attributable to owners - - (48) (48)
Segment result before the tax attributable to owners 204 11 16 231
Adjust for:
Loss before the tax attributable to owners from discontinued operations (see note 3.1) 27
Profit before tax attributable to owners from continuing operations 258
Operating profit/(loss) before adjusting items
Non-recurring items include:
− income received in relation to the close-out of the PGL Pension Scheme longevity agreement with the with-profit funds of
£68 million;
− capitalised VAT costs on future investment management expenses arising as a result of the divestment of Ignis of £27
million;
− costs associated with external regulatory changes with regard to the cap on workplace pension charges of £14 million;
− corporate project costs of £11 million; and
− net other one-off items totalling a cost of £7 million.
Half year ended 30 June 2013
Phoenix Ignis Asset Management Unallocated Total
Life £m Group £m
£m £m
Operating profit/(loss) before adjusting items 178 19 (11) 186
Investment return variances and economic assumption changes (13) - - (13)
on long-term business
Variance on owners' funds (31) - 11 (20)
Amortisation of acquired in-force business (51) - - (51)
Amortisation of customer relationships (7) (2) - (9)
Non-recurring items (11) (2) (27) (40)
Finance costs attributable to owners - - (65) (65)
Segment result before the tax attributable to owners 65 15 (92) (12)
Adjust for:
Loss before the tax attributable to owners from discontinued operations 28
(see note 3.1)
Profit before tax attributable to owners from continuing operations 16
Non-recurring items include:
− arrangement and structuring fees of £21 million associated with the re-terming of the Impala loan facility;
− regulatory change and systems transformation costs of £10 million; and
− restructuring costs and other one-off items of £9 million.
Year ended 31 December 2013
Phoenix Ignis Asset Management Unallocated Total
Life £m Group £m
£m £m
Operating profit/(loss) before adjusting items 414 49 (24) 439
Investment return variances and economic assumption changes 64 - - 64
on long-term business
Variance on owners' funds (67) - 36 (31)
Amortisation of acquired in-force business (99) - - (99)
Amortisation of customer relationships (16) (3) - (19)
Non-recurring items 31 5 (47) (11)
Finance costs attributable to owners - - (126) (126)
Segment result before the tax attributable to owners 327 51 (161) 217
Adjust for:
Loss before the tax attributable to owners from discontinued operations 51
(see note 3.1)
Profit before tax attributable to owners from continuing operations 268
Non-recurring items include:
− arrangement and structuring fees of £21 million associated with the extinguishment and re-terming of the Impala loan
facility;
− gain on transfer of business of £42 million (see note 3.4);
− regulatory change and systems transformation costs of £25 million;
− net settlement cost of pension liability management initiatives of £9 million; and
− net other items of positive £2 million includes a gain on the reinsurance agreement with Guardian offset by corporate
project costs.
5. Investment return variances and economic assumption changes
The long-term nature of much of the Group's operations means that, for internal performance management, the effects of
short-term economic volatility are treated as non-operating items. The Group focuses instead on an operating profit measure
that incorporates an expected return on investments supporting its long-term business. This note explains the methodology
behind this.
5.1 Life assurance business
Operating profit for life assurance business is based on expected investment returns on financial investments backing
owners' and policyholder funds over the reporting period, with consistent allowance for the corresponding expected
movements in liabilities. Operating profit includes the effect of variance in experience for non-economic items, for
example mortality, persistency and expenses, and the effect of changes in non-economic assumptions. Changes due to economic
items, for example market value movements and interest rate changes, which give rise to variances between actual and
expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately
outside operating profit.
For many types of long-term business, including unit-linked and with-profit funds, movements in asset values are offset by
corresponding changes in liabilities, limiting the net impact on profit. For other long-term business the profit impact of
economic volatility depends on the degree of matching of assets and liabilities, and exposure to financial options and
guarantees.
The investment variances and economic assumption changes excluded from the long-term business operating profit reflect the
impact of the increase in credit spreads on corporate bonds and movements in equities, properties and yields.
5.2 Owners' funds
For non long-term business including owners' funds, the total investment income, including fair value gains, is analysed
between a calculated long-term return and short-term fluctuations.
The variances excluded from operating profit in relation to owners' funds are as follows:
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
£m £m £m
Variance on owners' funds of:
Subsidiary undertakings (4) (19) (29)
The Company 4 (1) (2)
- (20) (31)
The negative variance on owners' funds of subsidiary undertakings of £4 million primarily relates to fair value losses on
swap and equity hedging positions held within the shareholder funds. The variance on owners' funds of the Company comprises
fair value gains arising from movements in the fair value of warrants in issue over the Company's shares.
5.3 Calculation of the long-term investment return
The expected return on investments for both owner and policyholder funds is based on opening economic assumptions applied
to the funds under management at the beginning of the reporting period. Expected investment return assumptions are derived
actively, based on market yields on risk-free fixed interest assets at the start of each financial year. The same margins
are applied on a consistent basis across the Group to gross risk-free yields, to obtain investment return assumptions for
equities and properties.
The principal assumptions underlying the calculation of the long-term investment return are:
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
% % %
Equities 6.6 5.4 5.4
Properties 5.6 4.4 4.4
Gilts (15 year gilt) 3.6 2.4 2.4
Other fixed interest 4.6 3.4 3.4
6. Tax charge/(CREDIT)
6.1 Current period tax CHARGE/(credit) from continuing operations
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013Restated 31 Dec 2013Restated
£m £m £m
Current tax:
UK corporation tax 74 11 62
Overseas tax 14 9 14
88 20 76
Adjustment in respect of prior years (1) (4) (8)
Total current tax charge 87 16 68
Deferred tax:
Origination and reversal of temporary differences (7) (64) (62)
Change in the rate of UK corporation tax 1 - (32)
Movement in unrecognised deferred tax - 21 25
Total deferred tax credit (6) (43) (69)
Total tax charge/(credit) 81 (27) (1)
Attributable to:
- Policyholders 32 (29) (27)
- Owners 49 2 26
81 (27) (1)
The Group, as a proxy for policyholders in the UK, is required to pay taxes on policyholder investment income and gains
each year. Accordingly, the tax benefit or charge attributable to UK life assurance policyholder earnings is included in
income tax. The tax charge/(benefit) attributable to policyholder earnings was £32 million (half year ended 30 June 2013:
£(29) million; year ended 31 December 2013: £(27) million).
The tax credit for the period from discontinued operations is shown in note 3.1.
6.2 Tax (credited)/charged to other comprehensive income from continuing operations
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
£m £m £m
Deferred tax (credit)/charge on defined benefit schemes (8) - 12
6.3 Reconciliation of tax charge/(credit) from continuing operations
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013Restated 31 Dec 2013Restated
£m £m £m
Profit/(loss) before tax 290 (13) 241
Policyholder tax (charge)/credit (32) 29 27
Profit before the tax attributable to owners 258 16 268
Tax charge at standard UK1 rate of 21.5% (2013: 23.25%) 56 4 63
Non-taxable income and gains (1) (5) 4
Disallowable expenses 3 3 6
Adjustment to shareholders' tax charge in respect of prior periods (1) 9 23
Movement on acquired in-force amortisation at less than 21.5% (2013: 23.25%) 1 (1) -
Profits taxed at rates other than 21.5% (2013: 23.25%) (5) (20) (39)
Deferred tax rate change - - (33)
Current year losses not valued - 13 -
Temporary differences not valued (5) (1) 4
Other 1 - (2)
Owners' tax charge 49 2 26
Policyholder tax charge/(credit) 32 (29) (27)
Total tax charge/(credit) for the period 81 (27) (1)
1 The Group's two operating segments operate predominately in the UK. The reconciliation of the tax credit has,
therefore, been completed by reference to the standard rate of UK tax rather than by reference to the Jersey income tax
rate of 0% which is applicable to Phoenix Group Holdings.
The Finance Act 2012 set the rate of corporation tax at 23% from 1 April 2013 and further reductions to 21% from 1 April
2014 and 20% from 1 April 2015 were set by the Finance Act 2013. Consequently, a blended rate of tax has been used for the
purposes of providing for deferred tax in these financial statements.
Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the related
tax benefit is probable.
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
£m £m £m
Deferred tax assets have not been recognised in respect of:
Tax losses carried forward 46 67 50
Excess expenses and deferred acquisition costs 1 2 2
Provisions and other temporary differences 8 2 9
Capital losses2 119 191 121
2 These can only be recognised against future capital gains and have no expiry date.
7. Earnings per share
The earnings/(loss) per share is calculated by reference to the profit/(loss) attributable to owners of the parent divided
by the weighted average numbers of shares in issue during each period.
7.1 Basic earnings/(loss) per share
The result attributable to owners of the parent for the purposes of computing earnings per share has been calculated as set
out below. This is after adjusting for the result attributable to non-controlling interests.
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
£m £m £m
Profit/(loss) for the period 191 (8) 207
Share of result attributable to non-controlling interests (47) (19) (62)
Profit/(loss) attributable to owners of the parent 144 (27) 145
Analysed as:
Profit/(loss) attributable to owners of the parent from continuing operations 162 (5) 180
Loss attributable to owners of the parent from discontinued operations (18) (22) (35)
The weighted average number of ordinary shares outstanding during the period is calculated as follows:
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
No. No. No.
million million million
Issued ordinary shares at beginning of the period 225 174 174
Effect of ordinary shares issued 1 37 39
Own shares held by employee benefit trust and Group entities (1) (2) (1)
Weighted average number of ordinary shares 225 209 212
Basic earnings/(loss) per share is as follows:
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
pence pence pence
Basic earnings/(loss) per share from continuing operations 72.3p (3.0)p 85.3p
Basic loss per share from discontinued operations (8.2)p (10.1)p (17.1)p
Total basic earnings/(loss) per share 64.1p (13.1)p 68.2p
7.2 Diluted earnings/(loss) per share
The result attributable to owners for the parent used in the calculation of diluted earnings/(loss) per share is the same
as that used in the basic earnings/(loss) per share calculation in 7.1 above. The diluted weighted average number of
ordinary shares outstanding during the period is 225 million (half year ended 30 June 2013: 209 million; year ended 31
December 2013: 212 million). The Group's deferred BSP share-based scheme increased the weighted average number of shares on
a diluted basis by 85,037 for the half year ended 30 June 2014 and by 176,832 shares for the year ended 31 December 2013.
As losses have an anti-dilutive effect none of the share-based awards have a dilutive effect for the half year ended 30
June 2013.
Diluted earnings/(loss) per share is as follows:
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
pence pence pence
Diluted earnings/(loss) per share from continuing operations 72.3p (3.0)p 85.2p
Diluted loss per share from discontinued operations (8.2)p (10.1)p (17.1)p
Total diluted earnings/(loss) per share 64.1p (13.1)p 68.1p
The following instruments could potentially dilute basic earnings per share in the future but have not been included in the
diluted earnings per share figure because they did not have a dilutive effect for the periods presented due to the exercise
price of the warrants being significantly higher than the share price of the Company:
− 5 million warrants issued to certain entities providing finance to the Group on 2 September 2009;
− 12.36 million warrants issued to Royal London on 2 September 2009; and
− IPO warrants from 2 September 2009 on which date the exercise price of the outstanding warrants was increased from E7 to
E11.
8. Dividends on ordinary shares
Half year Half year Year
ended ended ended
30 Jun 2014 30 Jun 2013 31 Dec 2013
£m £m £m
Dividend declared and paid in 2014 at 26.7p per share (half year ended 30 June 2013: 26.7p;year ended 31 December 2013: 53.4p) 60 60 120
On 25 March 2014, the Board recommended a dividend of 26.7p per share in respect of the year ended 31 December 2014. The
dividend was approved at the Company's Annual General Meeting, which was held on 30 April 2014. The dividend was settled on
2 May 2014.
9. Share capital
30 Jun 2014 30 Jun 2013 31 Dec 2013
£ £ £
Authorised:
410 million (30 June 2013: 410 million; 31 December 2013: 410 million) ordinary shares of E0.0001 each 31,750 31,750 31,750
Issued and fully paid:
224.9 million (30 June 2013: 224.8 million; 31 December 2013: 224.8 million) ordinary shares of E0.0001 each 18,421 18,415 18,418
Movements in share capital during the period:
Number £
Shares in issue at 1 January 2014 224,818,301 18,418
Other ordinary shares issued in the period 38,860 3
Shares in issue at 30 June 2014 224,857,161 18,421
Number £
Shares in issue at 1 January 2013 174,587,148 14,174
Placement and open offer ordinary shares 50,000,000 4,224
Other ordinary shares issued in the period 198,441 17
Shares in issue at 30 June 2013 224,785,589 18,415
Other ordinary shares issued in the period 32,712 3
Shares in issue at 31 December 2013 224,818,301 18,418
During the year, the Company issued 38,860 shares at a total premium of £213,000 in order to satisfy its obligation to
employees under the Group's share schemes.
10. Non-controlling interests
Perpetual Reset Capital Securities UK Commercial Property Trust Limited Total
£m £m £m
At 1 January 2014 408 370 778
Profit for the period 10 37 47
Dividends paid - (12) (12)
Coupons paid, net of tax relief (21) - (21)
Shares in subsidiaries subscribed for by non-controlling interests - 33 33
At 30 June 2014 397 428 825
Perpetual Reset Capital Securities UK Commercial Property Trust Limited Total
£m £m £m
At 1 January 2013 408 316 724
Profit for the period 10 9 19
Dividends paid - (12) (12)
Coupons paid, net of tax relief (20) - (20)
At 30 June 2013 398 313 711
Profit for the period 10 33 43
Dividends paid - (13) (13)
Shares in subsidiaries subscribed for by non-controlling interests - 37 37
At 31 December 2013 408 370 778
10.1 Perpetual Reset Capital Securities
On 1 January 2010, Pearl Group Holdings (No.1) Limited ('PGH1') had in issue £500 million of Perpetual Reset Capital
Securities ('the Notes'). Following amendments made to the Notes during 2010, the aggregate amount payable on redemption of
the Notes is £425 million. On 25 April 2014, the 2014 coupon that was due on the Notes was settled in full by PGH1, other
than to two companies within the Group which waived their right to receive that coupon.
10.2 UK Commercial Property Trust Limited
UK Commercial Property Trust Limited is a property investment vehicle which is domiciled in Guernsey and is admitted to the
Official List of the UK Listing Authority and to trading on the London Stock Exchange. The Group holds 56% as at 30 June
2014 (year ended 31 December 2013: 58%) of the issued share capital of UKCPT.
11. Pension schemes
The condensed statement of consolidated financial position incorporates the pension scheme asset of the PGL Pension Scheme
and the pension scheme liability of the Pearl Group Staff Pension Scheme as at 30 June 2014. The pension scheme asset of
the PGL Pension Scheme amounted to £276 million (30 June 2013: £139 million, 31 December 2013: £160 million); this has been
adjusted by £22 million (30 June 2013: £94 million, 31 December 2013: £95 million) to eliminate on consolidation the
carrying value of insurance policies effected by the PGL Pension Scheme with the Group. The pension scheme liability of the
Pearl Group Staff Pension Scheme amounted to £98 million (30 June 2013: £192 million, 31 December 2013: £137 million).
Pension scheme assets are stated after deduction of the provision for tax on that part of the economic surplus available as
a refund on a winding-up of the scheme. Pension scheme assets and liabilities are stated after adjusting for the
irrecoverable amount of minimum funding requirement obligations.
In accordance with an agreement dated November 2005 in respect of the PGL Pension Scheme, certain of the Group's
with-profit funds had indemnified the shareholders in respect of contribution calls equal to their share of the cost of
changes in longevity assumptions. In January 2014 PGH1 received £8 million under this agreement. In June 2014 PGH1 and
Phoenix Life Limited ('PLL') entered into an agreement whereby in exchange for a payment by the PLL with-profit funds to
PGH1 of £68 million, PGH1 released the with-profit funds from any future obligations to indemnify the company.
On the same date, the PGL Pension Scheme entered into a longevity swap with PLL with effect from 1 January 2014, under
which the Scheme has transferred the risk of longevity improvements in respect of its in-payment members to PLL.
12. Liabilities under insurance contracts - assumptions
12.1 Valuation of participating insurance and investment contracts
For participating business, which is with-profit business (insurance and investment contracts), the insurance contract
liability is calculated on a realistic basis, adjusted to exclude the shareholders' share of future bonuses and the
associated tax liability. This is a market consistent valuation, which involves placing a value on liabilities similar to
the market value of assets with similar cash flow patterns.
12.2 Valuation of non-participating insurance contracts
The non-participating insurance contract liabilities are determined using either a net premium or gross premium valuation
method.
12.3 Process used to determine assumptions
For participating business in realistic basis companies the assumptions about future demographic trends are intended to be
'best estimates'. They are determined after considering the companies' recent experience and/or relevant industry data.
Economic assumptions are market consistent.
For other business, demographic assumptions are derived by adding a prudent margin to best estimate assumptions. Economic
assumptions are prudent estimates of the returns expected to be achieved on the assets backing the liabilities.
During the period, persistency assumptions have been updated to reflect the anticipated impact of pensions reforms
announced in the March Budget, which is expected to reduce the cost of meeting valuable policyholder guarantees. This
change reduced insurance liabilities by £12 million in the period.
In the prior period, longevity improvement assumptions were updated to reflect latest available published tables, reducing
insurance liabilities by £12 million.
Decrease in insurance liabilities Decrease in insurance liabilities30 Jun 2013 (Decrease)/ increase in insurance liabilities
30 Jun 2014 £m 31 Dec 2013
£m £m
Change in longevity assumptions - (12) (6)
Change in persistency assumptions (12) - 6
Change in expense assumptions - - (7)
13. Borrowings
30 Jun 2014 30 Jun 2013 31 Dec 2013
£m £m £m
Carrying value
Limited recourse bonds 2022 7.59% 88 95 86
Property reversions loan 185 192 186
£80 million facility agreement 80 80 80
£150 million term facility 150 148 150
Total policyholder borrowings 503 515 502
£200 million 7.25% unsecured subordinated loan 155 147 151
£2,260 million syndicated loan 1,122 1,342 1,182
£100 million PIK notes and facility 124 119 121
£75 million secured loan note 77 76 76
£425 million loan facility 304 328 327
Total shareholder borrowings 1,782 2,012 1,857
Total borrowings 2,285 2,527 2,359
On 30 June 2014, a scheduled repayment of £30 million was made in respect of the £2,260 million syndicated loan ('Impala
facility') in addition to a targeted repayment of £30 million made on 30 April 2014.
On 30 June 2014, a scheduled repayment of £23 million was made on the £425 million loan facility ('Pearl facility').
A number of repayments have been made since the end of the reporting period as set out below.
On 1 July 2014 a £250 million debt prepayment was made in respect of the £2,260 million syndicated loan following the
divestment of Ignis Asset Management to Standard Life Investments.
On 7 July 2014 the Group's new financing subsidiary, PGH Capital Limited, issued a £300 million 7 year senior unsecured
bond at an annual coupon rate of 5.75%. The net proceeds from the bond issue of £296 million were used to prepay the Impala
facility.
On 23 July 2014 PGH Capital Limited entered into a new £900 million five year unsecured bank facility to refinance the
Group's existing bank facilities and PIK notes with a single debt facility. A further £206 million debt prepayment was made
on draw down of this facility. The new facility, together with the £206 million debt prepayment has fully refinanced the
Impala facility, the £100 million PIK notes and facility, the £75 million secured loan note and the £425 million loan
facility. Further details of the new £900 million debt facility are included in note 18.
14. Financial instruments
14.1 Fair values
The table below sets out a comparison of the carrying amounts and fair values of financial instruments as at 30 June 2014:
Financial assets
30 Jun 2014 30 Jun 2013 Restated 31 Dec 2013 Restated
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Loans and receivables at amortised cost 1,560 1,568 2,271 2,274 1,977 1,985
Financial assets at fair value through profit or loss:
Held for trading - derivatives 1,349 1,349 2,674 2,674 1,966 1,966
Designated upon initial recognition:
Equities 13,869 13,869 13,539 13,539 13,913 13,913
Investment in joint ventures 118 118 104 104 125 125
Fixed and variable rate income securities 35,643 35,643 38,580 38,580 35,510 35,510
Collective investment schemes 2,475 2,475 4,092 4,092 3,772 3,772
55,014 55,022 61,260 61,263 57,263 57,271
Less amounts classified as held for sale (note 3.2) (37) (37) (55) (55) (55) (55)
54,977 54,985 61,205 61,208 57,208 57,216
Financial liabilities
30 Jun 2014 30 Jun 2013 Restated 31 Dec 2013 Restated
Carrying Fairvalue Carrying Fairvalue Carrying Fair
value £m value £m value value
£m £m £m £m
Financial liabilities at fair value through profit or loss:
Held for trading - derivatives 1,616 1,616 2,783 2,783 2,161 2,161
Designated upon initial recognition:
Borrowings 185 185 192 192 186 186
Net asset value attributable to unitholders 5,431 5,431 5,767 5,767 5,744 5,744
Investment contract liabilities 8,508 8,508 8,327 8,327 8,578 8,578
Financial liabilities measured at amortised cost:
Borrowings 2,100 2,147 2,335 2,270 2,173 2,194
Obligations for repayment of collateral received 5,324 - 9,344 - 7,284 -
Deposits received from reinsurers 384 384 412 412 385 385
23,548 18,271 29,160 19,751 26,511 19,248
14.2 Fair value hierarchy
14.2.1 Determination of fair value and fair value hierarchy of financial instruments
Level 1 financial instruments
The fair value of financial instruments traded in active markets (such as exchange traded securities and derivatives) is
based on quoted market prices at the period end provided by recognised pricing services. Market depth and bid ask spreads
are used to corroborate whether an active market exists for an instrument. Greater depth and narrower bid-ask spread
indicates a higher liquidity in the instrument and are classed as Level 1 inputs. For collective investment schemes, fair
value is by reference to published bid prices.
Level 2 financial instruments
Financial instruments traded in active markets with less depth or wider bid-ask spreads which do not meet the
classification as Level 1 inputs, are classified as Level 2. The fair values of financial instruments not traded in active
markets are determined using broker quotes or valuation techniques with observable market inputs. Financial instruments
valued using broker quotes are classified at Level 2, only where there is a sufficient range of available quotes. The fair
value of unquoted equities, over-the-counter derivatives, loans and deposits and collective investment schemes, where
published bid prices are not available, are estimated using pricing models or discounted cash flow techniques. Where
pricing models are used, inputs are based on market related data at the period end. Where discounted cash flows are used,
estimated future cash flows are based on management's best estimates and the discount rate used is a market related rate
for a similar instrument.
Level 3 financial instruments
The Group's financial instruments determined by valuation techniques using non-observable market inputs are based on a
combination of independent third party evidence and internally developed models. In relation to investments in hedge funds
and private equity investments, non-observable third party evidence in the form of net asset valuation statements are used
as the basis for the valuation. Adjustments may be made to the net asset valuation where other evidence, for example recent
sales of the underlying investments in the fund, indicates this is required. Securities that are valued using broker quotes
which could not be corroborated across a sufficient range of quotes are considered as Level 3. For a small number of
investment vehicles and debt securities, standard valuation models are used, as due to their nature and complexity they
have no external market. Inputs into such models are based on observable market data where applicable. The fair value of
loans and some borrowings with no external market is determined by internally developed discounted cash flow models using a
risk adjusted discount rate corroborated with external market data where possible.
For financial instruments that are recognised at fair value on a recurring basis, the Company determines whether transfers
have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the start of each reporting period.
14.2.2 Fair value hierarchy of financial instruments measured at fair value
At 30 June 2014
Level 1 Level 2 Level 3 Total
£m £m £m fair value
£m
Financial assets at fair value
Derivatives 14 1,335 - 1,349
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 13,107 148 614 13,869
Fixed and variable
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See all newsREG - Phoenix Group Hldgs - Result of AGM
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Total Voting Rights
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
Announcement