REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2014 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 10

Phoenix groupAnnouncement

18/03/2015 07:01

- Part 10: For the preceding part double click  ID:nRSR7166Hi 

contract liabilities given in note 40. 
 
Embedded derivatives 
 
Embedded derivatives, including options to surrender insurance contracts, that meet the definition of insurance contracts
or are closely related to the host insurance contract, are not separately measured. All other embedded derivatives are
separated from the host contract and measured at fair value through profit or loss. 
 
Liability adequacy 
 
At each reporting date, liability adequacy tests are performed to assess whether the insurance contract and investment
contract with DPF liabilities are adequate. Current best estimates of future cash flows are compared to the carrying value
of the liabilities. Any deficiency is charged to the consolidated income statement. 
 
The Group's accounting policies for insurance contracts meet the minimum specified requirements for liability adequacy
testing under IFRS 4 Insurance Contracts, as they allow for current estimates of all contractual cash flows and of related
cash flows such as claims handling costs. Cash flows resulting from embedded options and guarantees are also allowed for,
with any deficiency being recognised in the consolidated income statement. 
 
Unallocated surplus 
 
The unallocated surplus comprises the excess of the assets over the policyholder liabilities of the with-profit business of
the Group's life operations. For the Group's with-profit funds this represents amounts which have yet to be allocated to
owners since the unallocated surplus attributable to policyholders has been included within liabilities under insurance
contracts. 
 
If the realistic value of liabilities to policyholders exceeds the value of the assets in the with-profit fund, the
unallocated surplus is valued at £nil. 
 
(f) Investment contracts without DPF 
 
Receipts and payments on investment contracts without DPF are accounted for using deposit accounting, under which the
amounts collected and paid out are recognised in the statement of consolidated financial position as an adjustment to the
liability to the policyholder. 
 
The valuation of liabilities on unit-linked contracts is held at fair value of the related assets and liabilities. The
liability is the sum of the unit-linked liabilities plus an additional amount to cover the present value of the excess of
future policy costs over future charges. 
 
Movements in the fair value of investment contracts without DPF are included in the 'change in investment contract
liabilities' in the consolidated income statement. 
 
(g) Financial liabilities 
 
On initial recognition, financial liabilities are recognised when due and measured at the fair value of the consideration
received less directly attributable transaction costs (with the exception of liabilities at fair value through profit or
loss for which all transaction costs are expensed). 
 
Subsequent to initial recognition, financial liabilities (except for liabilities under investment contracts and other
liabilities designated at fair value through profit or loss) are measured at amortised cost using the effective interest
method. Financial liabilities are designated upon initial recognition at fair value through profit or loss and where doing
so results in more meaningful information because either: 
 
-  it eliminates or significantly reduces accounting mismatches that would otherwise arise from measuring assets or
liabilities or recognising the gains and losses on them on different bases; or 
 
-  a group of financial assets, financial liabilities or both is managed and its performance is evaluated and managed on a
fair value basis, in accordance with a documented risk management or investment strategy, and information about the
investments is provided internally on that basis to the Group's key management personnel. 
 
Warrants issued by the Company are recognised as a financial liability unless they can be exchanged for a fixed number of
the Company's own shares, or meet the definition of equity-settled share-based payments, in which case they are recognised
as equity. 
 
(h) Borrowings 
 
The majority of interest bearing borrowings are recognised initially at fair value less any attributable transaction costs.
The difference between initial cost and the redemption value is amortised through the consolidated income statement over
the period of the borrowing using the effective interest method. 
 
Certain borrowings are designated upon initial recognition at fair value through profit or loss and measured at fair value
where doing so provides more meaningful information due to the reasons stated above in the financial liabilities accounting
policy. Transaction costs relating to borrowings designated upon initial recognition at fair value through profit or loss
are expensed as incurred. 
 
(i) Deposits from reinsurers 
 
It is the Group's practice to obtain collateral to cover certain reinsurance transactions, usually in the form of cash or
marketable securities. Where cash collateral is available to the Group for investment purposes, it is recognised as a
'financial asset' and the collateral repayable is recognised as 'deposits received from reinsurers' in the statement of
consolidated financial position. 
 
(j) Net asset value attributable to unitholders 
 
The net asset value attributable to unitholders represents the non-controlling interest in collective investment schemes
which are consolidated by the Group. This interest is classified at fair value through profit or loss and measured at fair
value, which is equal to the bid value of the number of units of the collective investment scheme not owned by the Group. 
 
(k) Obligations for repayment of collateral received 
 
It is the Group's practice to obtain collateral in stock lending and derivative transactions, usually in the form of cash
or marketable securities. Where cash collateral is available to the Group for investment purposes, it is recognised as a
'financial asset' and the collateral repayable is recognised as 'obligations for repayment of collateral received' in the
statement of consolidated financial position. The 'obligations for repayment of collateral received' are measured at
amortised cost, which in the case of cash is equivalent to the fair value of the consideration received. 
 
(l) Income tax 
 
Income tax comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the
extent that it relates to items recognised in the statement of consolidated comprehensive income or the statement of
consolidated changes in equity, in which case it is recognised in these statements. 
 
Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws enacted or
substantively enacted at the date of the statement of consolidated financial position together with adjustments to tax
payable in respect of previous years. 
 
Deferred tax is provided for on temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not provided in respect of temporary
differences arising from the initial recognition of goodwill and the initial recognition of assets or liabilities in a
transaction that is not a business combination and that, at the time of the transaction, affects neither accounting nor
taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at the period end. 
 
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realised. The tax charge is analysed between tax that is payable in respect of
policyholders' returns and tax that is payable on owners' returns. This allocation is calculated based on an assessment of
the effective rate of tax that is applicable to owners for the year. 
 
(m) Employee Benefits 
 
Defined contribution pension schemes 
 
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the consolidated
income statement as incurred. 
 
Defined benefit pension schemes 
 
The net surplus or deficit (the economic surplus or deficit) in respect of the defined benefit pension schemes is
calculated by estimating the amount of future benefit that employees have earned in return for their service in the current
and prior years; that benefit is discounted to determine its present value and the fair value of any scheme assets is
deducted. 
 
The economic surplus or deficit is subsequently adjusted to eliminate on consolidation the carrying value of insurance
policies issued by Group entities to the defined benefit pension schemes (the reported surplus or deficit). A corresponding
adjustment is made to the carrying values of insurance contract liabilities and investment contract liabilities. 
 
As required by IFRIC 14, IAS 19 -The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction,
to the extent that the economic surplus will be available as a refund, the economic surplus is stated after a provision for
tax that would be borne by the scheme administrators when the refund is made. Additionally under IFRIC 14 pension funding
contributions are considered to be a minimum funding requirement and, to the extent that the contributions payable will not
be available to the Group after they are paid into the scheme, a liability is recognised when the obligation arises. The
net defined benefit asset/liability represents the economic surplus net of all adjustments noted above. 
 
The Group determines the net interest expense or income on the net defined benefit asset/liability for the period by
applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net
defined benefit asset/liability. The discount rate is the yield at the period end on AA credit rated bonds that have
maturity dates approximating to the terms of the Group's obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. 
 
The movement in the net defined benefit asset/liability is analysed between the service cost, past service cost,
curtailments and settlements (all recognised within administrative expenses in the consolidated income statement), the net
interest cost on the net defined benefit asset/liability, including any reimbursement assets (recognised within net
investment income in the consolidated income statement), remeasurements of the net defined
asset/liability (recognised in other comprehensive income) and employer contributions. 
 
(n) Intangible assets 
 
Goodwill 
 
Business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the
cost of the acquisition and the fair value of the net identifiable assets acquired. 
 
Goodwill is measured on initial recognition at cost. Following
initial recognition, goodwill is stated at cost less any accumulated impairment losses. It is tested for impairment
annually or when there is evidence of possible impairment. Goodwill is not amortised. For impairment testing, goodwill is
allocated to cash generating units (Phoenix Life and Ignis). Goodwill is impaired when the recoverable amount is less than
the carrying value. 
 
Acquired in-force business 
 
Insurance and investment contracts with and without DPF acquired in business combinations and portfolio transfers are
measured at fair value at the time of acquisition. The difference between the fair value of the contractual rights acquired
and obligations assumed and the liability measured in accordance with the Group's accounting policies for such contracts is
recognised as acquired in-force business. 
 
Acquired in-force business is amortised over the estimated life of the contracts on a basis which recognises the emergence
of the economic benefits. 
 
An impairment review is performed whenever there is an indication of impairment. When the recoverable amount is less than
the carrying value, an impairment loss is recognised in the consolidated income statement. Acquired in force business is
also considered in the liability adequacy test for each reporting period. 
 
Customer relationships 
 
Intangible assets include vesting pension premiums and investment management contracts as detailed in note 31. These are
measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair
value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised
and expenditure is reflected in the consolidated income statement in the year in which the expenditure is incurred. 
 
Intangible assets with finite lives are amortised on a straight-line basis over their useful economic lives and assessed
for impairment whenever there is an indication that the recoverable amount of the intangible asset is less than its
carrying value. 
 
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the
cash-generating unit level. Such intangibles are not amortised. 
 
(o) Property, plant and equipment 
 
Owner-occupied property is stated at revalued amount, being its fair value at the date of the revaluation less any
subsequent accumulated depreciation and impairment. Owner-occupied property is depreciated over its estimated useful life,
which is taken as 50 years, except where the residual value is greater than its carrying value in which case no
depreciation is charged to profit or loss. Land is not depreciated. Gains and losses on owner-occupied property are
recognised in the statement of consolidated comprehensive income. 
 
Plant and equipment is stated at cost less accumulated depreciation. Depreciation is charged to the consolidated income
statement on a straight-line basis over the estimated useful lives. 
 
(p) Investment property 
 
Investment property is stated at fair value. Fair value is the price that would be received to sell a property in an
orderly transaction between market participants at the measurement date. Gains and losses arising from the change in fair
value are recognised in the consolidated income statement. 
 
(q) Investments in associates and joint ventures 
 
Investments in associates and joint ventures that are held for investment purposes are accounted for under IAS 39 Financial
Instruments: Recognition and Measurement as permitted by IAS 28 Interests in Associates and IFRS 11 Joint Arrangements.
These are measured at fair value through profit or loss. There are no investments in associates and joint ventures which
are of a strategic nature. 
 
(r) Financial assets 
 
Purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits to
purchase or sell the asset. 
 
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an
active market. These investments are initially recognised at cost, being the fair value of the consideration paid for the
acquisition of the investment. All transaction costs directly attributable to the acquisition are also included in the cost
of the investment. Subsequent to initial recognition, these investments are carried at amortised cost, using the effective
interest method. 
 
Derivative financial instruments are classified as held for trading. They are recognised initially at fair value and
subsequently are remeasured to fair value. The gain or loss on remeasurement to fair value is recognised in the
consolidated income statement. 
 
Equities, fixed and variable rate income securities and collective investment schemes are designated at fair value through
profit or loss and accordingly are stated in the statement of consolidated financial position at fair value. They are
designated at fair value through profit or loss because this is reflective of the manner in which they are managed and the
risks are evaluated. 
 
Impairment of financial assets 
 
The Group assesses at each period end whether a financial asset or group of financial assets held at amortised cost is
impaired. The Group first assesses whether objective evidence of impairment exists. If it is determined that no objective
evidence of impairment exists for an individually assessed financial asset, the asset is included in a group of financial
assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised,
are not included in the collective assessment of impairment. 
 
Fair value estimation 
 
The fair value of financial instruments traded in active markets such as publicly traded securities and derivatives are
based on quoted market prices at the period end. The quoted market price used for financial assets is the applicable bid
price on the trade date. The fair value of investments that are not traded in an active market is determined using
valuation techniques such as broker quotes, 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 flow techniques are used, estimated
future cash flows are based on contractual cash flows using current market conditions and market calibrated discount rates
and interest rate assumptions for similar instruments. 
 
For units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published
bid-values. The fair value of receivables and floating rate and overnight deposits with credit institutions is their
carrying value. The fair value of fixed interest-bearing deposits is estimated using discounted cash flow techniques. 
 
Stock lending 
 
Financial assets that are lent under the Group's stock lending programme do not qualify for derecognition from the
statement of consolidated financial position as the Group retains substantially all the risks and rewards of the
transferred assets. 
 
Collateral 
 
The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lend