REG - Phoenix Grp Hldgs - 2015 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 4
20/08/2015 07:01
- Part 4: For the preceding part double click ID:nRST5619Wc
(57) - 66 - - 9
(521) (47) 52 38 47 (431)
Total operating expenses (2,311) (47) 52 38 47 (2,221)
Profit before finance costs and tax 270 11 64 - 27 372
Finance costs (34) - (48) - - (82)
Profit before tax 236 11 16 - 27 290
Tax attributable to policyholders' returns (32) - - - - (32)
Segmental result before the tax attributable to owners 204 11 16 - 27 258
Year ended 31 December 2014
Phoenix Life £m Ignis £m Unallocated Group £m Eliminations £m Discontinued operations eliminations £m Total £m
Net premiums written from:
External customers (811) - - - - (811)
Fees from:
External customers 94 26 - - (26) 94
Other segment - 38 - (38) - -
94 64 - (38) (26) 94
Net investment income:
Recurring 6,027 - 5 - - 6,032
Non-recurring - (6) 2 - 6 2
6,027 (6) 7 - 6 6,034
Other operating income:
Recurring 9 - - - - 9
Gain on transfer of business:
Non-recurring (18) - 129 - (107) 4
Net income 5,301 58 136 (38) (127) 5,330
Net policyholder claims and benefits incurred:
Recurring (3,733) - - - - (3,733)
Impairment and amortisation:
Amortisation of acquired in-force business (98) - - - - (98)
Amortisation of customer relationships (15) - - - - (15)
(113) - - - - (113)
Other operating expenses:
Recurring (888) (47) (32) 38 47 (882)
Non-recurring (38) - 57 - - 19
(926) (47) 25 38 47 (863)
Total operating expenses (4,772) (47) 25 38 47 (4,709)
Profit/(loss) before finance costs and tax 529 11 161 - (80) 621
Finance costs (91) - (65) - - (156)
Profit/(loss) before tax 438 11 96 - (80) 465
Tax attributable to policyholders' returns (129) - - - - (129)
Segmental result before the tax attributable to owners 309 11 96 - (80) 336
4.2 Reconciliation of operating profit/(LOSS) before adjusting items to the segmental result
Half year ended 30 June 2015
Phoenix Life £m Unallocated Group £m Total £m
Operating profit/(loss) before adjusting items 141 (6) 135
Investment return variances and economic assumption changes on long-term business 44 - 44
Variance on owners' funds (1) (3) (4)
Amortisation of acquired in-force business (41) - (41)
Amortisation of customer relationships (7) - (7)
Non-recurring items 2 (1) 1
Finance costs attributable to owners - (49) (49)
Segment result before the tax attributable to owners from continuing operations 138 (59) 79
Non-recurring items include:
- the release of cost provisions associated with external regulatory changes, including the cap on workplace pension
charges and the pension guidance levy of £11 million;
- corporate project costs of £8 million; and
- net other one-off items totalling a cost of £2 million.
Half year ended 30 June 2014
Phoenix Life £m Ignis £m Unallocated Group £m Total £m
Operating profit/(loss) before adjusting items 256 17 (7) 266
Investment return variances and economic assumption changes on long-term business 59 - - 59
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
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.
Year ended 31 December 2014
Phoenix Life £m Ignis £m Unallocated Group £m Total £m
Operating profit/(loss) before adjusting items 487 17 (21) 483
Investment return variances and economic assumption changes on long-term business 12 - - 12
Variance on owners' funds (8) - (6) (14)
Amortisation of acquired in-force business (88) - - (88)
Amortisation of customer relationships (15) - - (15)
Non-recurring items (56) (6) 188 126
Finance costs attributable to owners (23) - (65) (88)
Segment result before the tax attributable to owners 309 11 96 416
Adjust for:
Profit before the tax attributable to owners from discontinued operations (see note 3.1) (80)
Profit before tax attributable to owners from continuing operations 336
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;
- the profit arising as a result of the divestment of Ignis of £107 million (see note 3.1);
- costs associated with external regulatory changes, including the cap on workplace pension charges of £17 million;
- corporate project costs of £15 million; and
- net other one-off items (including Solvency II implementation and systems transformation costs) totalling a cost of £17
million.
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.
The movement in liabilities included in operating profit reflects both the change in liabilities due to the expected return
on investments and the impact of experience variances and assumption changes for non-economic items.
The effect of differences between actual and expected economic experience on liabilities, and changes to economic
assumptions used to value liabilities, are taken 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 return variances and economic assumption changes excluded from the long-term business operating profit are
as follows:
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Investment return variances and economic assumption changes on long-term business 44 59 12
Positive investment return variances and economic assumption changes on long-term business of £44 million in the first half
of 2015 (half year ended 30 June 2014: £59 million; year ended 31 December 2014: £12 million) include the minority share of
the result of the consolidated UKCPT property investment structure of £26 million (half year ended 30 June 2014: £37
million; year ended 31 December 2014: £75 million). The remaining positive variance of £18 million reflects a gain on the
purchase of a portfolio of equity release mortgages arising from the yield uplift on assets available to back annuity
liabilities and the positive impact of increasing yields on short asset positions held relative to the longer term IFRS
basis liabilities.
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 ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Variance on owners' funds of:
Subsidiary undertakings (4) (4) (19)
The Company - 4 5
(4) - (14)
The negative variance on owners' funds of subsidiary undertakings of £4 million (30 June 2014: £4 million; 31 December
2014: £19 million) is principally driven by negative investment return variances on investments and hedging positions held
by the shareholder funds and holding companies.
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 long-term
risk-free rate is defined as the annualised return on the FTSE UK Gilt Index plus 10bps. 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 ended 30 Jun 2015 % Half year ended 30 Jun 2014 % Year ended 31 Dec 2014 %
Equities 5.3 6.6 6.6
Properties 4.3 5.6 5.6
Gilts (15 year gilt) 2.3 3.6 3.6
Other fixed interest 3.3 4.6 4.6
6. Tax (CREDIT)/CHARGE
6.1 Current period tax (CREDIT)/CHARGE
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Current tax:
UK corporation tax 7 74 120
Overseas tax 6 14 18
13 88 138
Adjustment in respect of prior years (10) (1) (11)
Total current tax charge 3 87 127
Deferred tax:
Origination and reversal of temporary differences (33) (7) 28
Change in the rate of UK corporation tax - 1 (2)
Movement in unrecognised deferred tax - - (2)
Total deferred tax (credit)/charge (33) (6) 24
Total tax (credit)/charge (30) 81 151
Attributable to:
- Policyholders (31) 32 129
- Owners 1 49 22
Total tax (credit)/charge (30) 81 151
The Group, as a proxy for policyholders in the UK, is required to pay taxes on investment income and gains each year.
Accordingly, the tax credit or expense attributable to UK life assurance policyholder earnings is included in income tax
expense. The tax (credit)/charge attributable to policyholder earnings was £(31) million (half year ended 30 June 2014: £32
million; year ended 31 December 2014: £129 million).
The tax (credit)/charge is from continuing operations. The tax credit for the prior periods from discontinued operations is
shown in note 3.1.
6.2 Tax credited to other comprehensive income
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Current tax credit on share schemes - - (2)
Deferred tax credit on defined benefit schemes - (8) (9)
Deferred tax credit on share schemes (1) - -
(1) (8) (11)
6.3 Reconciliation of tax (credit)/charge
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Profit before tax 48 290 465
Policyholder tax credit/(charge) 31 (32) (129)
Profit before the tax attributable to owners 79 258 336
Tax charge at standard UK1 rate of 20.25% (30 June 2014: 21.5%; 31 December 2014: 21.5%) 16 56 72
Non-taxable income and gains (12) (1) (6)
Disallowable expenses 3 3 7
Adjustment to shareholders' tax charge in respect of prior periods 5 (1) (16)
Movement on acquired in-force amortisation at less than 20.25% (30 June 2014: 21.5%; 31 December 2014: 21.5%) 1 1 2
Profits taxed at rates other than 20.25% (30 June 2014: 21.5%; 31 December 2014: 21.5%) (10) (5) (21)
Recognition of previously unrecognised deferred tax asset (3) - (19)
Deferred tax rate change - - (7)
Temporary differences not valued - (5) 4
Other 1 1 6
Owners' tax charge 1 49 22
Policyholder tax (credit)/charge (31) 32 129
Total tax (credit)/charge for the period (30) 81 151
1 The Phoenix Life operating segment operates 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 2014 set the rate of corporation tax at 20% from 1 April 2015. Consequently, a rate of 20% has been used
for the purposes of providing for deferred tax in these interim financial statements.
The Summer Budget 2015 introduced various changes that, when substantively enacted, would impact the valuation of deferred
tax in these interim financial statements. Further reductions to the rate of corporation tax, to 19% in April 2017 and 18%
from April 2020 have been announced and will be introduced by future legislation. In addition, changes have been proposed
that would impact the valuation of deferred tax assets in relation to certain brought forward losses. The net impact of
these changes is expected to be immaterial.
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 ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Deferred tax assets have not been recognised in respect of:
Tax losses carried forward 18 46 39
Excess expenses and deferred acquisition costs - 1 -
Provisions and other temporary differences 6 8 6
Deferred tax assets not recognised in capital losses1 114 119 116
1 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 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 ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Profit for the period 78 191 406
Share of result attributable to non-controlling interests (27) (47) (96)
Profit attributable to owners of the parent 51 144 310
Analysed as:
Profit attributable to owners of the parent from continuing operations 51 162 218
(Loss)/profit attributable to owners of the parent from discontinued operations - (18) 92
The weighted average number of ordinary shares outstanding during the period is calculated as follows:
Half year ended 30 Jun 2015 No. million Half year ended 30 Jun 2014 No. million Year ended 31 Dec 2014 No. million
Issued ordinary shares at beginning of the period 225 225 225
Effect of ordinary shares issued - 1 1
Own shares held by employee trust and Group entities (1) (1) (1)
Weighted average number of ordinary shares 224 225 225
Basic earnings per share is as follows:
Half year ended 30 Jun 2015pence Half year ended 30 Jun 2014pence Year ended 31 Dec 2014pence
Basic earnings per share from continuing operations 22.7p 72.3p 96.7p
Basic (loss)/earnings per share from discontinued operations - (8.2)p 41.0p
Total basic earnings per share 22.7p 64.1p 137.7p
7.2 DILUTED EARNINGS PER SHARE
The result attributable to owners of the parent used in the calculation of diluted earnings/(loss) per share is the same as
that used in the basic earnings 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 2014: 225 million; year ended 31 December 2014: 225
million). The Group's deferred bonus share scheme and sharesave share-based schemes increased the weighted average number
of shares on a diluted basis by 637,830 for the half year ended 30 June 2015 (half year ended 30 June 2014: 85,037; year
ended 31 December 2014: 465,256).
Diluted earnings per share is as follows:
Half year ended 30 Jun 2015 pence Half year ended 30 Jun 2014 pence Year ended 31 Dec 2014 pence
Diluted earnings per share from continuing operations 22.7p 72.3p 96.5p
Diluted (loss)/earnings per share from discontinued operations - (8.2)p 41.0p
Total diluted earnings per share 22.7p 64.1p 137.5p
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.
8. Dividends on ordinary shares
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Dividend declared and paid in 2015 at 26.7p per share (half year ended 30 June 2014: 26.7p; year ended 31 December 2014: 53.4p) 60 60 120
On 17 March 2015, 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 23 April 2015. The dividend was settled on
27 April 2015.
9. Share capital
30 Jun 2015 £ 30 Jun 2014 £ 31 Dec 2014 £
Authorised:
410 million (30 June 2014: 410 million; 31 December 2014: 410 million) ordinary shares of E0.0001 each 31,750 31,750 31,750
Issued and fully paid:
225.3 million (30 June 2014: 224.9 million; 31 December 2014: 225.1 million) ordinary shares of E0.0001 each 18,457 18,421 18,439
Movements in share capital during the period:
Number £
Shares in issue at 1 January 2015 225,090,284 18,439
Other ordinary shares issued in the period 256,156 18
Shares in issue at 30 June 2015 225,346,440 18,457
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
Other ordinary shares issued in the period 233,123 18
Shares in issue at 31 December 2014 225,090,284 18,439
During the year, the Company issued 256,156 shares at a total premium of £2 million in order to satisfy its obligation to
employees under the Group's share schemes.
10. Non-controlling interests
Perpetual Reset Capital Securities £m UK Commercial Property Trust Limited £m Total £m
At 1 January 2015 408 505 913
Profit for the period 1 26 27
Dividends paid - (11) (11)
Coupons paid, net of tax relief (15) - (15)
Exchange of Notes for subordinated notes (388) - (388)
Shares in subsidiaries subscribed for by non-controlling interests - 10 10
At 30 June 2015 6 530 536
Perpetual Reset Capital Securities £m UK Commercial Property Trust Limited £m Total £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
Profit for the period 11 38 49
Dividends paid - (10) (10)
Shares in subsidiaries subscribed for by non-controlling interests - 49 49
At 31 December 2014 408 505 913
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 was £425 million. On 23 January 2015, the Group exchanged 99% of the Notes for £428 million of new subordinated
notes, issued by PGH Capital Limited and £3 million of cash. £32 million of the new notes are held by Group Companies. The
exchange resulted in a loss of £12 million which has been recognised in equity. On 23 January 2015, the coupon that was due
on the Notes was settled with the noteholders that exchanged their Notes. On 25 April 2015, the 2015 coupon was settled in
full with the remaining noteholders.
10.2 UK Commercial Property Trust Limited
UK Commercial Property Trust Limited is a property investment subsidiary 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 52% as at 30
June 2015 (half year ended 30 June 2014: 56%; year ended 31 December 2014: 53%) of the issued share capital of UKCPT.
11. Pension schemes
The condensed statement of consolidated financial position incorporates the pension scheme assets of the PGL Pension Scheme
and the Pearl Group Staff Pension Scheme as at 30 June 2015. The pension scheme asset of the PGL Pension Scheme amounted to
£363 million (30 June 2014: £276 million, 31 December 2014: £370 million); this has been adjusted by £23 million (30 June
2014: £22 million, 31 December 2014: £23 million) to eliminate on consolidation the carrying value of insurance policies
effected by the PGL Pension Scheme with the Group. The pension scheme asset/(liability) of the Pearl Group Staff Pension
Scheme amounted to £33 million (30 June 2014: £(98) million, 31 December 2014: £56 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 and after adjusting for the irrecoverable amount of minimum funding requirement obligations.
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, longevity improvement assumptions have been updated to reflect the latest available published tables,
increasing insurance liabilities by £10 million in the period.
In the prior period, persistency assumptions were updated to reflect the anticipated impact of pensions reforms announced
in the March 2014 Budget, which was expected to reduce the cost of meeting valuable policyholder guarantees. This change
reduced insurance liabilities by £12 million.
Increase in insurance liabilities 30 Jun 2015 £m Decrease in insurance liabilities 30 Jun 2014 £m Decrease in insurance liabilities 31 Dec 2014 £m
Change in longevity assumptions 10 - (14)
Change in persistency assumptions - (12) (13)
13. Borrowings
30 Jun 2015 £m 30 Jun 2014 £m 31 Dec 2014 £m
Carrying value
Limited recourse bonds 2022 7.59% 74 88 73
Property reversions loan 173 185 184
£80 million facility agreement - 80 80
£150 million term facility 148 150 150
£100 million facility agreement 99 - -
Total policyholder borrowings 494 503 487
£200 million 7.25% unsecured subordinated loan 153 155 149
£300 million senior unsecured bond 298 - 298
£450 million revolving credit facility 442 - 441
£450 million amortising term loan 328 - 387
£428 million subordinated notes 393 - -
£2,260 million syndicated loan - 1,122 -
£100 million PIK notes and facility - 124 -
£75 million secured loan note - 77 -
£425 million loan facility - 304 -
Total shareholder borrowings 1,614 1,782 1,275
Total borrowings 2,108 2,285 1,762
On 23 January 2015, PGH Capital Limited issued £428 million of subordinated notes due 2025 at a coupon of 6.625%. Upon
exchange, £32 million of these notes were held and continued to be held as at 30 June 2015 by Group companies. Fees
associated with these notes of £3 million have been deferred and amortised over the life of the notes in the condensed
statement of consolidated financial position.
On 2 April 2015, UK Commercial Property Finance Holdings Limited, a wholly owned subsidiary of UKCPT, entered into a new
£100 million 12 year fixed rate term loan facility agreement with Cornerstone Real Estate Advisors Europe LLP. This
facility accrues interest at a rate of 3.03% per annum. The lender holds security over the assets of UK Commercial Property
Finance Holdings Limited, and further subsidiary of UKCPT. As at 30 June 2015, the facility was fully drawn down. This new
facility was provided for the purpose of refinancing the £80 million revolving loan facility agreement which was due for
repayment on 19 April 2015.
On 8 April 2015, UKCPT amended the £150 million investment term loan facility agreement, extending the repayment date to
April 2020. As at 30 June 2015, the facility was fully drawn down. This facility accrues interest at LIBOR plus 1.50% per
annum. The amendment includes the provision of a five year additional revolving credit facility of up to £50 million. As at
30 June 2015, the additional facility had not been drawn down.
On 30 June 2015, a £60 million repayment was made in respect of targeted and mandatory repayments due on the £450 million
amortising term loan.
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 2015:
Financial assets
30 Jun 2015 30 Jun 2014 31 Dec 2014
Carrying value £m Fair value £m Carrying value £m Fair value £m Carrying value £m Fair value £m
Loans and receivables at amortised cost 190 190 1,560 1,568 196 196
Financial assets at fair value through profit or loss:
Held for trading - derivatives 1,660 1,660 1,349 1,349 2,558 2,558
Designated upon initial recognition:
Loans and receivables 273 273 - - - -
Equities 12,830 12,830 13,869 13,869 13,168 13,168
Investment in joint ventures 138 138 118 118 133 133
Fixed and variable rate income securities 35,939 35,939 35,643 35,643 34,384 34,384
Collective investment schemes 3,703 3,703 2,475 2,475 3,583 3,583
54,733 54,733 55,014 55,022 54,022 54,022
Less amounts classified as held for sale (note 3.2) (177) (177) (37) (37) - -
Total financial assets 54,556 54,556 54,977 54,985 54,022 54,022
Financial liabilities
30 Jun 2015 30 Jun 2014 31 Dec 2014
Carrying value £m Fair value £m Carrying value £m Fair value £m Carrying value £m Fair value £m
Financial liabilities measured at amortised cost:
Borrowings 1,935 2,046 2,100 2,147 1,578 1,698
Obligations for repayment of collateral received1 818 - 5,324 - 954 -
Deposits received from reinsurers 385 385 384 384 408 408
Financial liabilities at fair value through profit or loss:
Held for trading - derivatives 1,700 1,700 1,616 1,616 2,192 2,192
Designated upon initial recognition:
Borrowings 173 173 185 185 184 184
Net asset value attributable to unitholders 5,218 5,218 5,431 5,431 4,659 4,659
Investment contract liabilities 8,250 8,250 8,508 8,508 8,451 8,451
Total financial liabilities 18,479 17,772 23,548 18,271 18,426 17,592
1 As the obligations relate to the repayment of collateral received in the form of cash, the liability is stated at the
value of the consideration received and therefore no fair value has been disclosed.
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
appropriate assumptions 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 2015
Level 1£m Level 2£m Level 3£m Totalfair value £m
Financial assets at fair value
Derivatives 38 1,622 - 1,660
Financial assets designated at fair value through profit or loss upon initial recognition:
Loans and receivables - - 273 273
Equities 12,008 193 629
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AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
Announcement