REG - Phoenix Grp Hldgs - 2015 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 5
20/08/2015 07:01
- Part 5: For the preceding part double click ID:nRST5619Wd
12,830
Investment in joint ventures - - 138 138
Fixed and variable rate income securities 24,073 11,180 686 35,939
Collective investment schemes 2,844 756 103 3,703
38,925 12,129 1,829 52,883
Less amounts classified as held for sale (note 3.2) (168) - - (168)
Total financial assets at fair value 38,795 13,751 1,829 54,375
Level 1£m Level 2£m Level 3£m Totalfair value £m
Financial liabilities at fair value
Derivatives 4 1,696 - 1,700
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Investment contract liabilities - 8,250 - 8,250
Borrowings - - 173 173
Net asset value attributable to unitholders 5,218 - - 5,218
5,218 8,250 173 13,641
Total financial liabilities at fair value 5,222 9,946 173 15,341
At 30 June 2014
Level 1 £m Level 2 £m Level 3 £m Total 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
Investment in joint ventures - - 118 118
Fixed and variable rate income securities 25,119 9,586 938 35,643
Collective investment schemes 1,413 947 115 2,475
39,639 10,681 1,785 52,105
Less amounts classified as held for sale (note 3.2) (1) (36) - (37)
Total financial assets at fair value 39,652 11,980 1,785 53,417
Level 1 £m Level 2 £m Level 3 £m Total fair value £m
Financial liabilities at fair value
Derivatives 6 1,605 5 1,616
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Investment contract liabilities - 8,508 - 8,508
Borrowings - - 185 185
Net asset value attributable to unitholders 5,431 - - 5,431
5,431 8,508 185 14,124
Total financial liabilities at fair value 5,437 10,113 190 15,740
At 31 December 2014
Level 1 £m Level 2 £m Level 3 £m Total fair value £m
Financial assets at fair value
Derivatives 18 2,540 - 2,558
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 12,315 149 704 13,168
Investment in joint ventures - - 133 133
Fixed and variable rate income securities 24,639 9,010 735 34,384
Collective investment schemes 2,579 923 81 3,583
39,533 10,082 1,653 51,268
Total financial assets at fair value 39,551 12,622 1,653 53,826
Level 1 £m Level 2 £m Level 3 £m Total fair value £m
Financial liabilities at fair value
Derivatives 40 2,151 1 2,192
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Investment contract liabilities - 8,451 - 8,451
Borrowings - - 184 184
Net asset value attributable to unitholders 4,659 - - 4,659
4,659 8,451 184 13,294
Total financial liabilities at fair value 4,699 10,602 185 15,486
14.2.3 Level 3 financial instrument sensitivities
Included in Level 3 investments is a property investment structure with a value of £138 million within investment in joint
ventures (30 June 2014: £118 million; 31 December 2014: £133 million). This investment has been valued by taking the fair
value of the property within the structure, which has been independently valued, less the fair value of the debt within the
structure. The valuation is sensitive to movements in yields on the underlying property portfolio.
An increase in yields of 25bps would reduce the value of the investment by £22 million (30 June 2014: £21 million; 31
December 2014: £23 million). A reduction in yields of 25bps would increase the value of the investment by £23 million (30
June 2014: £25 million; 31 December 2014: £25 million).
Level 3 investments in fixed and variable income securities include a property investment structure with a value of £41
million (30 June 2014: £29 million; 31 December 2014: £59 million). This investment was restructured during the year and
inputs to the valuation have changed.
The investment is valued by taking the fair value of the equity holdings in the structure, using market data less a
discount spread to reflect reduced liquidity due to redemption restrictions. The fair value of the debt in the structure is
valued using a simple calculation model taking a comparable overseas bond issue and applying a credit spread to reflect
reduced liquidity.
The valuation is most sensitive to a change in the credit spread on the debt investment, whereby an increase of 100bps
would decrease the value by £3 million and a spread reduction of 100bps would increase the value by £4 million.
Level 3 investments in indirect property, equities (including private equity) and collective investment schemes (including
hedge funds) are valued using net asset statements provided by independent third parties, and therefore no sensitivity
analysis has been prepared.
Debt securities categorised as Level 3 investments, with the exception of local authority loans, are valued using broker
quotes. Although 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.
Included within fixed and variable rate securities are investments in local authority loans. These investments are valued
using a simple calculation model taking a comparable UK Treasury stock and applying a credit spread to reflect reduced
liquidity. The credit spread is derived from a sample broker quote. The valuations are sensitive to movements in this
spread, an increase of 25bps would decrease the value by £1 million (30 June 2014: £1 million; 31 December 2014: £1
million) and a decrease of 25bps would increase the value by £1 million (30 June 2014: £1 million; 31 December 2014: £1
million).
Borrowings measured at fair value and categorised as Level 3 financial liabilities comprise the property reversion loans,
measured using an internally developed model. The valuation is sensitive to increases/(decreases) in the fair value of
relevant residential property reversions which would result in a higher/(lower) fair value of property reversion loans.
Included within loans and receivables are investments in equity release mortgages with a value of £273 million, acquired in
January 2015. The loans are valued using a discounted cash flow model, the key inputs to which include demographic
assumptions, economic assumptions (including house price index) and the use of a Black Scholes model for valuation of the
no-negative equity guarantee. The no-negative equity guarantee caps the loan repayment in the event of death or entry into
long-term care to be no greater than the sale proceeds from the property.
The valuation is most sensitive to movements in gilt curves whereby an increase of 100bps would decrease the value by £21
million and a decrease of 100bps would increase the value by £25 million.
14.2.4 Transfers of financial instruments between Level 1 and Level 2
At 30 June 2015
From Level 1 to Level 2 £m From Level 2 to Level 1 £m
Financial assets at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Fixed and variable rate income securities 73 330
At 30 June 2014
From Level 1 to Level 2 £m From Level 2 to Level 1 £m
Financial assets at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Fixed and variable rate income securities 86 539
Collective investment schemes 2 -
At 31 December 2014
From Level 1 to Level 2 £m From Level 2 to Level 1 £m
Financial assets at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Fixed and variable rate income securities 167 372
Collective investment schemes 2 -
Consistent with the prior year, all the Group's Level 1 and Level 2 assets have been valued using standard market pricing
sources.
The application of the Group's fair value hierarchy classification methodology at an individual security level with regard
to bid-ask spreads on fixed and variable rate income securities have resulted in an overall net movement of financial
assets from Level 2 to Level 1 in the period.
14.2.5 Movement in Level 3 financial instruments measured at fair value
At 30 June 2015
At 1 January 2015 £m Total (losses)/ gains in income statement £m Purchases £m Sales £m Transfers from Level 1 and Level 2 £m Transfers to Level 1 and Level 2 £m At 30 June 2015 £m Unrealised (losses)/
gains on assets held at end of period £m
Financial assets
Financial assets designated at fair value through profit or loss upon initial recognition:
Loans and receivables - (25) 298 - - - 273 (25)
Equities 704 19 31 (125) 7 (7) 629 5
Investment in joint ventures 133 5 - - - - 138 5
Fixed and variable rate income securities 735 (38) 390 (356) 6 (51) 686 (41)
Collective investment schemes 81 10 27 (15) - - 103 9
Total financial assets 1,653 (29) 746 (496) 13 (58) 1,829 (47)
At 1 January 2015 £m Total (gains)/ Purchases £m Sales £m Transfers from Level 1 and Level 2 £m Transfers to Level 1 and Level 2 £m At 30 June 2015 £m Unrealised losses on liabilities held at end of period £m
losses in income statement £m
Financial liabilities
Derivatives 1 (1) - - - - - -
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings 184 3 - (14) - - 173 3
Total financial liabilities 185 2 - (14) - - 173 3
During the period, updates to the Group's observations, in particular with regard to bid-ask spreads of fixed and variable
rate income securities, resulted in a net transfer from Level 3 to Levels 1 and 2.
Gains and losses on Level 3 financial instruments are included in net investment income in the consolidated income
statement. There were no gains or losses recognised in other comprehensive income.
At 30 June 2014
At 1 January 2014 £m Total gains/(losses) in income statement £m Purchases £m Sales £m Transfers from Level 1 and Level 2 £m Transfers to Level 1 and Level 2 £m At 30 June 2014 £m Unrealised gains on assets held at end of period £m
Financial assets
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 628 18 28 (61) 1 - 614 9
Investment in joint ventures 125 (7) - - - - 118 -
Fixed and variable rate income securities 935 29 193 (202) 34 (51) 938 25
Collective investment schemes 116 8 - (16) 7 - 115 6
Total financial assets 1,804 48 221 (279) 42 (51) 1,785 40
At 1 January 2014 £m Total losses in income statement £m Purchases £m Sales £m Transfers from Level 1 and Level 2 £m Transfers to Level 1 and Level 2 £m At 30 June 2014 £m Unrealised gains on liabilities held at end of period £m
Financial liabilities
Derivatives 3 2 - - - - 5 (1)
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings 186 14 - (15) - - 185 (1)
Total financial liabilities 189 16 - (15) - - 190 (2)
At 31 December 2014
At 1 January 2014 £m Total gains in income statement £m Purchases £m Sales £m Transfers from Level 1 and Level 2 £m Transfers to Level 1 and Level 2 £m At 31 December 2014 £m Unrealised gains on assets held at end of period £m
Financial assets
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 628 40 95 (59) - - 704 60
Investment in joint ventures 125 8 - - - - 133 8
Fixed and variable rate income securities 935 57 427 (502) 8 (190) 735 19
Collective investment schemes 116 5 5 (45) - - 81 5
Total financial assets 1,804 110 527 (606) 8 (190) 1,653 92
At 1 January 2014 £m Total (gains)/losses in income statement £m Purchases £m Sales £m Transfers from Level 1 and Level 2 £m Transfers to Level 1 and Level 2 £m At 31 December 2014 £m Unrealised losses on liabilities held at end of period £m
Financial liabilities
Derivatives 3 (2) - - - - 1 1
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings 186 22 - (24) - - 184 22
Net asset value attributable to unitholders - - - - - - - -
Total financial liabilities 189 20 - (24) - - 185 23
15. Cash flows from operating activities
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Profit for the period before tax from continuing operations 48 290 465
Loss for the period before tax from discontinued operations - (27) (27)
Profit for the period before tax 48 263 438
Non-cash movements in profit for the period before tax
Fair value (gains)/losses on:
Investment property (52) (120) (200)
Financial assets 744 (670) (3,494)
Change in fair value of borrowings 7 20 19
Amortisation of intangible assets 52 60 113
Change in present value of future profits 4 8 9
Change in unallocated surplus (40) 19 11
Share-based payment charge 2 3 7
Interest expense on borrowings 69 82 156
Net interest income on Group defined benefit pension scheme asset/liability (8) (6) (4)
Pension scheme administration expenses 1 - 3
Gain on sale of BAGI - (4) (4)
Gain on divestment of Ignis - - (107)
(Increase)/decrease in investment assets (1,125) 2,073 5,556
Decrease/(increase) in reinsurance assets 207 (4) 43
(Decrease)/increase in insurance contract and investment contract liabilities (1,916) (133) 37
(Decrease)/increase in deposits received from reinsurers (23) (1) 23
Decrease in obligation for repayment of collateral received (136) (1,961) (6,330)
Net decrease in working capital 615 61 8
Cash utilised by operations (1,551) (310) (3,716)
Cash flows from discontinued operations are disclosed in note 3.1.
16. related party transactions
The nature of the related party transactions of the Group has not changed from those referred to in the Group's
consolidated financial statements for the year ended 31 December 2014.
There were no transactions with related parties during the six months ended 30 June 2015, which have had a material effect
on the results or financial position of the Group.
17. contingent liabilities
In the normal course of business the Group is exposed to certain legal issues, which involve litigation and arbitration. At
the period end, the Group has a number of contingent liabilities in this regard, none of which are considered by the
Directors to be material.
18. Events after the reporting period
On 19 August 2015, the Board declared an interim dividend per share of 26.7p for the half year ended 30 June 2015 (30 June
2014: 26.7p). The cost of this dividend has not been recognised as a liability in the interim financial statements for the
period to 30 June 2015 and will be charged to the statement of consolidated changes in equity when paid.
ADDITIONAL LIFE COMPANY ASSET DISCLOSURES
The analysis of the asset portfolio provided below comprises the assets held by the Group's life companies. It excludes
other Group assets such as cash held in the holding and service companies; the assets held by the non-controlling interest
in consolidated collective investment schemes and the UK Commercial Property Trust; and is stated net of derivative
liabilities.
The following table provides an overview of the exposure by asset category of the Group's life companies' shareholder and
policyholder funds:
30 June 2015
Carrying value Shareholder and non-profit funds1 £m Participating supported1 £m Participating non-supported2 £m Unit-linked2 £m Total3 £m
Cash and cash equivalents 1,941 726 3,430 1,185 7,282
Debt securities - gilts 1,544 2,430 8,413 665 13,052
Debt securities - bonds 5,832 1,648 6,223 713 14,416
Equity securities 281 58 5,454 7,656 13,449
Property investments 222 64 993 354 1,633
Other investments4 357 (65) 623 40 955
At 30 June 2015 10,177 4,861 25,136 10,613 50,787
Cash and cash equivalents in Group holding companies 916
Cash and financial assets in other Group companies 152
Financial assets held by the non-controlling interest in the consolidated UKCPT 752
Financial assets held by the non-controlling interest in consolidated collective investment schemes 5,539
Total Group consolidated assets 58,146
Comprised of:
Investment property 1,817
Financial assets 54,556
Cash and cash equivalents 3,245
Assets held for sale5 228
Derivative liabilities (1,700)
58,146
1 Includes assets where shareholders of the life companies bear the investment risk.
2 Includes assets where policyholders bear most of the investment risk.
3 This information is presented on a look through basis to underlying funds where available.
4 Includes equity release mortgages of £273 million, policy loans of £11 million, other loans of £108 million, net
derivative liabilities of £(40) million and other investments of £603 million.
5 Comprises financial assets of £177 million and cash and cash equivalents of £51 million.
31 December 2014
Carrying value Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
Cash and cash equivalents 1,429 728 2,861 1,176 6,194
Debt securities - gilts 1,485 2,348 8,756 661 13,250
Debt securities - bonds 6,379 1,936 7,082 815 16,212
Equity securities 367 67 5,613 7,787 13,834
Property investments 191 67 997 346 1,601
Other investments1 402 (22) 806 - 1,186
At 31 December 2014 10,253 5,124 26,115 10,785 52,277
Cash and cash equivalents in Group holding companies 988
Cash and financial assets in other Group companies 116
Financial assets held by the non-controlling interest in the consolidated UKCPT 736
Financial assets held by the non-controlling interest in consolidated collective investment schemes 4,652
Adjustments on consolidation (14)
Total Group consolidated assets 58,755
Comprised of:
Investment property 1,858
Financial assets 54,022
Cash and cash equivalents 5,067
Derivative liabilities (2,192)
58,755
1 Includes policy loans of £12 million, other loans of £24 million, net derivative assets of £362 million and other
investments of £788 million.
The following table analyses by type the debt securities of the life companies:
30 June 2015
Analysis by type of debt securities Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
Gilts 1,544 2,430 8,413 665 13,052
Other government and supranational1 1,189 687 2,237 90 4,203
Corporate - financial institutions 1,877 362 1,718 106 4,063
Corporate - other 2,220 307 1,792 468 4,787
Asset backed securities ('ABS') 545 293 476 49 1,363
At 30 June 2015 7,375 4,079 14,636 1,378 27,468
1 Includes debt issued by governments; public and statutory bodies; government backed institutions and supranationals.
31 December 2014
Analysis by type of debt securities Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
Gilts 1,485 2,348 8,756 661 13,250
Other government and supranational 1,196 753 2,432 116 4,497
Corporate - financial institutions 2,185 506 2,192 196 5,079
Corporate - other 2,394 346 1,889 445 5,074
Asset backed securities ('ABS') 604 331 569 58 1,562
At 31 December 2014 7,864 4,284 15,838 1,476 29,462
The following table sets out a breakdown of the life companies' sovereign and supranational debt security holdings by
country:
30 June 2015
Analysis of sovereign and supranational debt security holdings by country Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
UK 1,706 2,513 8,755 673 13,647
Supranationals 566 275 698 18 1,557
USA 3 7 23 21 54
Germany 400 246 707 15 1,368
France 48 51 61 5 165
Netherlands - - 4 1 5
Italy - - - 4 4
Spain - 5 - 3 8
Other - non-Eurozone 8 9 367 15 399
Other - Eurozone 2 11 35 - 48
At 30 June 2015 2,733 3,117 10,650 755 17,255
31 December 2014
Analysis of sovereign and supranational debt security holdings by country Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
UK 1,605 2,424 9,200 670 13,899
Supranationals 571 327 661 24 1,583
USA 3 7 119 26 155
Germany 425 263 787 22 1,497
France 49 50 59 5 163
Netherlands - - 4 2 6
Italy - - - 4 4
Spain - 5 - 3 8
Other - non-Eurozone 18 10 282 14 324
Other - Eurozone 10 15 76 7 108
At 31 December 2014 2,681 3,101 11,188 777 17,747
The following table sets out a breakdown of the life companies' financial institution corporate debt security holdings by
country:
30 June 2015
Analysis of financial institution corporate debt security holdings by country Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
UK 974 255 888 74 2,191
USA 412 68 400 16 896
Germany 31 2 44 1 78
France 86 - 66 3 155
Netherlands 156 20 147 7 330
Italy 1 - 6 - 7
Ireland 28 2 23 - 53
Spain 1 - 10 - 11
Other - non-Eurozone 141 13 89 3 246
Other - Eurozone 47 2 45 2 96
At 30 June 2015 1,877 362 1,718 106 4,063
31 December 2014
Analysis of financial institution corporate debt security holdings by country Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
UK 1,181 301 959 95 2,536
USA 397 84 420 14 915
Germany 46 3 44 - 93
France 126 10 115 10 261
Netherlands 218 50 272 31 571
Italy 3 - 13 - 16
Spain 2 - 20 - 22
Other - non-Eurozone 177 54 305 45 581
Other - Eurozone 35 4 44 1 84
At 31 December 2014 2,185 506 2,192 196 5,079
The following table sets out a breakdown of the life companies' corporate - other debt security holdings by country:
30 June 2015
Analysis of corporate - other debt security holdings by country Shareholder and non-profit funds £m Participating supported £m Participating non-supported £m Unit-linked £m Total £m
UK 1,031
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