REG - Phoenix Grp Hldgs - 2016 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 4
25/08/2016 07:07
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deems
that it no longer exercises control over UKCPT and as a result UKCPT has been deconsolidated from the effective date of
this loss of control. The Group's remaining interest in UKCPT is recognised as an associate and held at fair value (see
note 3.2.4).
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 2016. The pension scheme asset of the PGL Pension Scheme amounted to
£536 million (30 June 2015: £363 million; 31 December 2015: £401 million); this has been adjusted by £21 million (30 June
2015: £23 million; 31 December 2015: £22 million) to eliminate on consolidation the carrying value of insurance policies
effected by the PGL Pension Scheme with the Group. The pension scheme asset of the Pearl Group Staff Pension Scheme
amounted to £227 million (30 June 2015: £33 million; 31 December 2015: £105 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.
The triennial funding valuation of the PGL Pension Scheme as at 30 June 2015 was completed in June 2016. This showed a
surplus as at 30 June 2015 of £164 million. There has been no change made to the current schedule of contributions and cash
contributions of £15 million per annum will be paid to the PGL Pension Scheme until 31 August 2017. The triennial funding
valuation of the Pearl Group Staff Pension Scheme is expected to be completed in the second half of 2016.
In January 2016, the Group carried out a pension increase exchange exercise in respect of the PGL Pension Scheme. Existing
in-scope pensioners were offered the option to exchange future non-statutory pension increases for a one-off uplift to
their current pension, thereby reducing longevity and inflation risk for the Group. The financial effect of all acceptances
received in the period has been recognised in the interim financial statements as a reduction in scheme liabilities of £3
million shown as a past service credit in the condensed consolidated income statement.
In February 2016, the Group commenced a flexible retirement option exercise whereby in scope members who are eligible to
retire within the PGL Pension Scheme were offered paid for financial advice to assist them in making the decision whether
to transfer out of the Scheme (based on standard terms) or to take a pension. The financial effect of all acceptances
received as at 30 June 2016 have been recognised in the interim financial statements and no experience gain or loss on
liabilities arose as a result of this exercise.
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
Following the implementation of the Solvency II regulatory regime effective from 1 January 2016, the Group has made certain
changes to the assumptions and estimates used in the valuation of insurance contracts, as follows:
· In determining the discount rate to be applied when calculating participating and non-participating insurance contract
liabilities, the Group has amended the risk-free reference curve from a gilt yield curve plus a liquidity premium of 10bps
to the EIOPA swap curve plus 10bps.
· For non-participating insurance contract liabilities, the Group has previously used a valuation rate of interest and
adjusted the liability discount rate by reference to the yield on the assets backing the liabilities to account for credit,
default and reinvestment risk. The Group now makes an explicit adjustment to the risk-free rate to adjust for illiquidity
in respect of assets backing illiquid liabilities. The new approach does not take any additional credit for investment
margins compared to the previous methodology.
For non-participating insurance contract liabilities, the Group previously derived demographic assumptions by adding an
implicit prudent margin to best estimate assumptions. The Group has amended its approach in this regard and now sets
assumptions at management's best estimates and recognises an explicit margin for demographic risks. For participating
business in realistic basis companies, the assumptions about future demographic trends continue to represent 'best
estimates'.
The assumption changes have been made to align the IFRS basis more closely with the requirements of Solvency II and move
the basis closer to the Group's expectations of the requirements under the anticipated new IFRS on insurance contracts. As
the Group manages its capital in accordance with Solvency II, the changes outlined above will mean the IFRS results will
more closely reflect the way the business is managed and the Group's risk hedging strategies. In particular, the
sensitivity of the Group's results to movements in interest rates is significantly reduced.
The amendments to the risk-free reference rate and the approach for adjusting for illiquidity increased insurance
liabilities by £77 million. This has been more than offset by the impact of the change in approach for determining the
demographic prudence margin, which reduced insurance liabilities by £122 million. After allowing for other second order
impacts of the changes (including the revaluation of certain current liabilities using the swap rather than gilt curve),
the overall impact of the above changes in the period is a benefit to IFRS profit before tax of £38 million.
During the period a number of other changes were made to assumptions to reflect changes in expected experience or to
harmonise the approach across the enlarged Group. The impact of the more significant changes during the period was as
follows:
(Decrease)/ Increase in (Decrease)/
increase in insurance liabilities 30 Jun insurance increase in
2016 liabilities insurance
£m 30 Jun liabilities
2015 31 Dec
£m 2015
£m
Change in longevity assumptions (15) 10 (3)
Change in assumptions regarding policyholder take-up of options and guarantees 16 - -
Change in persistency assumptions - - 1
Change in mortality assumptions - - 3
Change in expenses assumptions - - 5
13. BORROWINGS
30 Jun 30 Jun 31 Dec
2016 2015 2015
£m £m £m
Carrying value
Limited recourse bonds 2022 7.59% 67 74 66
Property reversions loan 186 173 194
£150 million term facility - 148 148
£100 million facility agreement - 99 99
Total policyholder borrowings 253 494 507
£200 million 7.25% unsecured subordinated loan 163 153 158
£300 million senior unsecured bond 298 298 298
£450 million revolving credit facility - 442 443
£450 million amortising term loan - 328 199
£428 million subordinated notes 393 393 393
£650 million unsecured revolving credit facility 641 - -
Total shareholder borrowings 1,495 1,614 1,491
Total borrowings 1,748 2,108 1,998
In February 2016, the Group assessed that it no longer controlled UKCPT and consequently deconsolidated this group of
subsidiaries effective from this date (see note 3.2.4). As a result the UKCPT £150 million and £100 million policyholder
borrowings are no longer included within Group borrowings as at 30 June 2016.
In March 2016, the Group agreed an amendment of its £900 million 5 year unsecured bank facility into a £650 million
unsecured revolving credit facility, maturing in June 2020. There are no mandatory amortisation or target amortisation
payments associated with the facility but prepayments are permissible. The facility accrues interest at LIBOR plus 1.35%
per annum, which would change if there were a change in the guarantor's credit rating. A utilisation fee of 0.40% per annum
is payable in respect of the facility, which would reduce if the amount outstanding under the facility reduced to 67% or
below. In June 2016, the £650 million facility was fully drawn.
In May 2016, the Group entered into a £220 million short-term debt facility as part of the financing of the planned
acquisition of AXA Wealth's pensions and protection businesses (see note 3.1). The facility matures 12 months after the
transaction closes and, subject to fees, can be extended by two further six month periods. The facility accrues interest at
LIBOR plus 0.85% for the first six months from draw down. As at 30 June 2016, the facility had not been drawn down.
14. FINANCIAL INSTRUMENTS
14.1 FAIR VALUES
The table below sets out a comparison of the carrying amounts and fair values of financial instruments:
Financial assets
30 Jun 2016 30 Jun 2015 31 Dec 2015
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial assets at fair value through profit or loss:
Held for trading - derivatives 3,881 3,881 1,660 1,660 1,498 1,498
Designated upon initial recognition:
Loans and receivables 331 331 273 273 268 268
Equities 12,322 12,322 12,830 12,830 12,351 12,351
Investment in associate 458 458 - - - -
Investment in joint venture - - 138 138 149 149
Fixed and variable rate income securities 34,028 34,028 35,939 35,939 31,814 31,814
Collective investment schemes 3,312 3,312 3,703 3,703 3,826 3,826
Loans and receivables at amortised cost 597 597 190 190 309 309
54,929 54,929 54,733 54,733 50,215 50,215
Less amounts classified as held for sale (note 3.2) - - (177) (177) (149) (149)
54,929 54,929 54,556 54,556 50,066 50,066
Financial liabilities
30 Jun 2016 30 Jun 2015 31 Dec 2015
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial liabilities at fair value through profit or loss:
Held for trading - derivatives 1,780 1,780 1,700 1,700 1,360 1,360
Designated upon initial recognition:
Borrowings 186 186 173 173 194 194
Net asset value attributable to unitholders 6,499 6,499 5,218 5,218 5,120 5,120
Investment contract liabilities 7,867 7,867 8,250 8,250 7,905 7,905
Financial liabilities measured at amortised cost:
Borrowings 1,562 1,629 1,935 2,046 1,804 1,907
Deposits received from reinsurers 414 414 385 385 378 378
Obligations for repayment of collateral received1 2,064 - 818 - 725 -
20,372 18,375 18,479 17,772 17,486 16,864
1 These liabilities have no expected settlement date. 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 Group 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 2016
Level 1 Level 2 Level 3 Total fair value
£m £m £m £m
Financial assets measured at fair value
Derivatives 30 3,851 - 3,881
Financial assets designated at fair value through profit or loss upon initial recognition:
Loans and receivables - - 331 331
Equities 11,602 74 646 12,322
Investment in associate 458 - - 458
Fixed and variable rate income securities 19,772 14,013 243 34,028
Collective investment schemes 2,727 499 86 3,312
34,559 14,586 1,306 50,451
Total financial assets at fair value 34,589 18,437 1,306 54,332
Level 1 Level 2 Level 3 Total fair value
£m £m £m £m
Financial liabilities measured at fair value
Derivatives 38 1,742 - 1,780
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings - - 186 186
Investment contract liabilities - 7,867 - 7,867
Net asset value attributable to unitholders 6,499 - - 6,499
6,499 7,867 186 14,552
Total financial liabilities at fair value 6,537 9,609 186 16,332
At 30 June 2015
Level 1 Level 2 Level 3 Total fair value
£m £m £m £m
Financial assets measured 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 12,830
Investment in joint venture - - 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 Level 2 Level 3 Total fair value
£m £m £m £m
Financial liabilities measured at fair value
Derivatives 4 1,696 - 1,700
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings - - 173 173
Investment contract liabilities - 8,250 - 8,250
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 31 December 2015
Level 1 Level 2 Level 3 Total fair value
£m £m £m £m
Financial assets measured at fair value
Derivatives 14 1,484 - 1,498
Financial assets designated at fair value through profit or loss upon initial recognition:
Loans and receivables - - 268 268
Equities 11,734 11 606 12,351
Investment in joint venture - - 149 149
Fixed and variable rate income securities 20,346 11,138 330 31,814
Collective investment schemes 3,098 646 82 3,826
35,178 11,795 1,435 48,408
Less amounts classified as held for sale (see note 3.2) - - (149) (149)
Total financial assets at fair value 35,192 13,279 1,286 49,757
Level 1 Level 2 Level 3 Total fair value
£m £m £m £m
Financial liabilities at fair value
Derivatives 33 1,327 - 1,360
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings - - 194 194
Investment contract liabilities - 7,905 - 5,120
Net asset value attributable to unitholders 5,120 - - 7,905
5,120 7,905 194 13,219
Total financial liabilities at fair value 5,153 9,232 194 14,579
14.2.3 Level 3 financial instrument sensitivities
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.
Fixed and variable rate securities categorised as Level 3 investments, with the exception of a property investment
structure and certain 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.
Level 3 investments in fixed and variable income securities include a property investment structure with a value of £41
million (half year ended 30 June 2015: £41 million; year ended 31 December 2015: £36 million).
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. The fair value of the debt in the structure is valued using a calculation
model that takes a comparable overseas bond issue and applies a credit spread to reflect reduced liquidity.
The valuation of the debt investment is sensitive to a change in the credit spread whereby an increase of 100bps in the
credit spread would decrease the value by £1 million (half year ended 30 June 2015: £3 million; year ended 31 December
2015: £1 million) and a spread reduction of 100bps would increase the value by £1 million (half year ended 30 June 2015: £4
million; year ended 31 December 2015: £1 million). The valuation of the equity investment is sensitive to changes in the
equity discount rate, whereby an increase of 5% in the discount spread would decrease the value by £2 million (half year
ended 30 June 2015: £2 million; year ended 31 December 2015: £2 million) and a 5% reduction would increase the value by £1
million (half year ended 30 June 2015: £3 million; year ended 31 December 2015: £1 million).
Also included within fixed and variable rate securities are investments in local authority loans. These investments are
valued using a calculation model that takes a comparable UK Treasury stock and applies 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 (half year ended 30 June 2015: £1 million; year ended
31 December 2015: £1 million) and a decrease of 25bps would increase the value by £1 million (half year ended 30 June 2015:
£1 million; year ended 31 December 2015: £1 million).
Included within loans and receivables are investments in equity release mortgages with a value of £331 million (30 June
2015: £273 million; 31 December 2015: £268 million). 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 sales proceeds from the property.
The significant sensitivities arise from movements in the yield curve, inflation rate and house prices.
An increase of 100bps in the yield curve would decrease the value by £30 million (half year ended 30 June 2015: £21
million; year ended 31 December 2015: £22 million) and a decrease of 100bps would increase the value by £35 million (half
year ended 30 June 2015: £25 million; year ended 31 December 2015: £25 million). An increase of 1% in the inflation rate
would increase the value by £3 million (half year ended 30 June 2015: £2 million; year ended 31 December 2015: £2 million)
and a decrease of 1% would decrease the value by £4 million (half year ended 30 June 2015: £3 million; year ended 31
December 2015: £3 million).
An increase of 10% in house prices would increase the value by £4 million (half year ended 30 June 2015: £2 million; year
ended 31 December 2015: £1 million) and a decrease of 10% would decrease the value by £2 million (half year ended 30 June
2015: £2 million; year ended 31 December 2015: £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 key assumptions of the discount rate and the
house price inflation rate. An increase in the discount rate of 1% would decrease the value by £5 million (half year ended
30 June 2015: £4 million; year ended 31 December 2015: £5 million) and a decrease of 1% would increase the value by £5
million (half year ended 30 June 2015: £4 million; year ended 31 December 2015: £5 million). An increase of 1% in the house
price inflation rate would increase the value by £6 million (half year ended 30 June 2015: £5 million; year ended 31
December 2015: £6 million) and a decrease of 1% would decrease the value by £6 million (half year ended 30 June 2015: £5
million; year ended 31 December 2015: £6 million).
14.2.4 Transfers of financial instruments between Level 1 and Level 2
At 30 June 2016
From From
Level 1 to Level 2 Level 2 to Level 1
£m £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 293 234
Collective investment schemes 6 -
At 30 June 2015
From From
Level 1 to Level 2 Level 2 to Level 1
£m £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 31 December 2015
From From
Level 1 to Level 2 Level 2 to Level 1
£m £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 173 210
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 market depth and bid-ask spreads on fixed and variable rate income securities and collective investment schemes has
resulted in an overall net movement of financial assets from Level 1 to Level 2 in the period.
14.2.5 Movement in Level 3 financial instruments measured at fair value
30 June 2016
At Total Purchases Sales Transfers Transfers At Unrealised gains on assets
1 January gains/ (losses) in £m £m from to 30 June held at end
2016 income Level 1 Level 1 2016 of period
£m statement and Level 2 and Level 2 £m £m
£m £m £m
Financial assets
Financial assets designated at fair value through profit or loss upon initial recognition:
Loans and receivables 268 25 43 (5) - - 331 25
Equities 606 59 31 (51) 2 (1) 646 58
Investment in joint venture 149 - - (149) - - - -
Fixed and variable rate income securities 330 (2) - (97) 12 - 243 -
Collective investment schemes 82 1 2 1 - - 86 1
1,435 83 76 (301) 14 (1) 1,306 84
Less amounts classified as held for sale (see note 3.2.3) (149) - - 149 - - - -
Total financial assets 1,286 83 76 (152) 14 (1) 1,306 84
At Total Purchases Repay-ments Transfers Transfers At Unrealised
1 January losses in £m £m from to 30 June losses on
2016 income Level 1 Level 1 2016 liabilities
£m statement and Level 2 and Level 2 £m held at end
£m £m £m of period
£m
Financial liabilities
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings 194 4 - (12) - - 186 4
Total financial liabilities 194 4 - (12) - - 186 4
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 Levels 1 and 2 to Level 3.
Gains and losses on Level 3 financial instruments are included in net investment income in the condensed consolidated
income statement. There were no gains or losses recognised in other comprehensive income.
30 June 2015
At Total Purchases Sales Transfers Transfers At Unrealised
1 January (losses) £m £m from to 30 June (losses)/
2015 /gains in Level 1 Level 1 2015 gains on
£m income statement and Level 2 and Level 2 £m assets
£m £m £m 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 venture 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 Total Purchases Sales/ (repay- ments) Transfers Transfers At Unrealised
1 January (gains) £m £m from to 30 June losses on
2015 /losses in Level 1 Level 1 2015 liabilities held at end
£m income and Level 2 and Level 2 £m of period
statement £m £m £m
£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
31 December 2015
At Total Purchases Sales Transfers Transfers At Unrealised
1 January (losses)/ £m £m from to 31 December (losses)/gains on
2015 gains in Level 1 Level 1 2015 assets
£m income and Level 2 and Level 2 £m held at end
statement £m £m of period
£m £m
Financial assets
Financial assets designated at fair value through profit or loss upon initial recognition:
Loans and receivables - (15) 298 (15) - - 268 (12)
Equities 704 (26) 79 (152) 4 (3) 606 (9)
Investment in joint ventures 133 16 - - - - 149 16
Fixed and variable rate income securities 735 (34) 378 (724) - (25) 330 (26)
Collective investment schemes 81 10 28 (37) - - 82 5
1,653 (49) 783 (928) 4 (28) 1,435 (26)
Less amounts classified as held for sale (see note 3.2.3) (133) (16) - - - - (149) -
Total financial assets 1,520 (65) 783 (928) 4 (28) 1,286 (26)
At Total Purchases Sales/ repayments Transfers Transfers At Unrealised losses on
1 January losses in £m £m from to 31 December 2015 liabilities
2015 income Level 1 Level 1 £m held at end
£m statement and Level 2 and Level 2 of period
£m £m £m £m
Financial liabilities
Derivatives 1 - - - - (1) - -
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings 184 37 - (27) - - 194 37
Total financial liabilities 185 37 - (27) - (1) 194 37
15. CASH FLOWS FROM OPERATING ACTIVITIES
The following analysis gives further detail behind the 'cash generated/(utilised) by operations' figure in the statement of
consolidated cash flows.
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Profit for the period before tax 60 48 152
Non-cash movements in profit for the period before tax
Fair value losses/(gains) on:
Investment property 23 (52) (140)
Financial assets (3,497) 744 1,125
Change in fair value of borrowings 10 7 48
Amortisation and impairment of intangible assets 45 52 163
Change in present value of future profits 5 4 6
Change in unallocated surplus 32 (40) (84)
Share-based payment charge 2 2 4
Interest expense on borrowings 62 69 136
Net interest income on Group defined benefit pension scheme asset (10) (8) (17)
Pension scheme administrative expenses 1 1 3
Other gains on pension scheme (3) - -
Cash in subsidiary disposed of net of cash received (28) - -
Decrease/(increase) in investment assets 886 (1,125) 2,468
Decrease/(increase) in reinsurance assets 25 207 (1,134)
Increase/(decrease) in insurance contract and investment contract liabilities 2,688 (1,916) (3,487)
Increase/(decrease) in deposits received from reinsurers 36 (23) (30)
Increase/(decrease) in obligation for repayment of collateral received 1,339 (136) (229)
Net (increase)/decrease in working capital (75) 615 440
Cash generated/(utilised) by operations 1,601 (1,551) (576)
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 2015.
There were no transactions with related parties during the half year ended 30 June 2016 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 24 August 2016, the Board declared an interim dividend per share of 26.7p for the half year ended 30 June 2016 (half
year ended 30 June 2015: 26.7p). The cost of this dividend has not been recognised as a liability in the interim financial
statements for the half year ended 30 June 2016 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 and the assets held by the non-controlling
interest in consolidated collective investment schemes; 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 2016
Carrying value Shareholder and non-profit funds1£m Participating supported1£m Participating non-supported2£m Unit-linked2£m Total3£m
Cash and cash equivalents
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