REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2015 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 12
23/03/2016 08:18
- Part 12: For the preceding part double click ID:nRSW9668Sk
reinsurers 408 375 408
Obligations for repayment of collateral received 2 954 - -
Total financial liabilities 18,426 17,592
1 These assets and liabilities have no expected settlement date.
2 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.
E2. FAIR VALUE HIERARCHY
E2.1 Determination of fair value and fair value hierarchy of financial instruments
Level 1 financial instrumentsThe 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 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 instrumentsFinancial 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 instrumentsThe 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.
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 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.
E2.2 Fair value hierarchy of financial instruments
The tables below separately identify financial instruments carried at fair value from those measured on another basis but
for which fair value is disclosed.
2015
Level 1 Level 2 Level 3 Total
£m £m £m fair value
£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 I1.2) - - (149) (149)
Total financial assets measured at fair value 35,192 13,279 1,286 49,757
Financial assets for which fair values are disclosed
Loans and receivables at amortised cost - 309 - 309
Total financial assets 35,192 13,588 1,286 50,066
Level 1 Level 2 Level 3 Total
£m £m £m fair value
£m
Financial liabilities measured 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
Net asset value attributable to unitholders 5,120 - - 5,120
Investment contract liabilities - 7,905 - 7,905
5,120 7,905 194 13,219
Total financial liabilities measured at fair value 5,153 9,232 194 14,579
Financial liabilities for which fair values are disclosed
Borrowings at amortised cost - 970 937 1,907
Deposits received from reinsurers - 378 - 378
Total financial liabilities for which fair values are disclosed - 1,348 937 2,285
Total financial liabilities 5,153 10,580 1,131 16,864
2014
Level 1 Level 2 Level 3 Total
£m £m £m fair value
£m
Financial assets measured 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 venture - - 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 measured at fair value 39,551 12,622 1,653 53,826
Financial assets for which fair values are disclosed
Loans and receivables at amortised cost - 36 186 222
Total financial assets 39,551 12,658 1,839 54,048
Level 1 Level 2 Level 3 Total
£m £m £m fair value
£m
Financial liabilities measured at fair value
Derivatives 40 2,151 1 2,192
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings - - 184 184
Net asset value attributable to unitholders 4,659 - - 4,659
Investment contract liabilities - 8,451 - 8,451
4,659 8,451 184 13,294
Total financial liabilities measured at fair value 4,699 10,602 185 15,486
Financial liabilities for which fair values are disclosed
Borrowings at amortised cost - 553 1,145 1,698
Deposits received from reinsurers - 408 - 408
Total financial liabilities for which fair values are disclosed - 961 1,145 2,106
Total financial liabilities 4,699 11,563 1,330 17,592
E2.3 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 £36
million (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 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 and a spread reduction of 100bps would increase the value by £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 and a 5% reduction would increase the value by £1
million.
Also 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 (2014: £1 million) and a decrease of 25bps would
increase the value by £1 million (2014: £1 million).
Included within loans and receivables are investments in equity release mortgages with a value of £268 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 sales proceeds from the property. The significant sensitivities arise from
movements in gilt curve, inflation rate and house prices.
An increase of 100bps in the gilt curve would decrease the value by £22 million and a decrease of 100bps would increase the
value by £25 million. An increase of 1% in the inflation rate would increase the value by £2 million and a decrease of 1%
would decrease the value by £3 million. An increase of 10% in house prices would increase the value by £1 million and a
decrease of 10% would decrease the value by £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 and a decrease of
1% would increase the value by £5 million. An increase of 1% in the house price inflation rate would increase the value by
£6 million and a decrease of 1% would decrease the value by £6 million. Details of the valuation of the underlying
residential property reversions are included in note G9.
E2.4 Transfers of financial instruments between Level 1 and Level 2
2015
From From
Level 1 to Level 2 to
Level 2 Level 1
£m £m
Financial assets measured at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Fixed and variable rate income securities 173 210
2014
From From
Level 1 to Level 2 to
Level 2 Level 1
£m £m
Financial assets measured 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, in
particular observations with regard to measures of market depth and bid-ask spreads, have resulted in an overall net
movement of financial assets from Level 2 to Level 1 in the current and comparative periods.
E2.5 Movement in Level 3 financial instruments measured at fair value
2015
At Total Purchases Sales Transfers Transfers At Unrealised (losses)/gains on assets held at end of period
1 January 2015 (losses)/gains in income statement £m £m From to 31 December 2015 £m
£m £m Level 1 Level 1 £m
and Level 2 and Level 2
£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 venture 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 I1.2) (133) (16) - - - - (149) -
Total financial assets 1,520 (65) 783 (928) 4 (28) 1,286 (26)
At Total Purchases Sales Transfers Transfers At Unrealised losses on liabilities held at end of period
1 January 2015 losses in income statement £m £m from to 31 December 2015 £m
£m £m Level 1 Level 1 £m
and Level 2 and Level 2
£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
2014
At Total Purchases Sales Transfers Transfers At Unrealised (losses)/gains on assets held at end of period
1 January 2014 (losses)/gains in income statement £m £m From to 31 December 2015 £m
£m £m Level 1 Level 1 £m
and Level 2 and Level 2
£m £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 venture 125 8 - - - - 133 8
935 57 427 (502) 8 (190) 735 19
Fixed and variable rate income securities
116 5 5 (45) - - 81 5
Collective investment schemes
Total financial assets 1,804 110 527 (606) 8 (190) 1,653 92
At Total Purchases Sales Transfers Transfers At Unrealised losses on liabilities held at end of period
1 January 2014 losses in income statement £m £m from to 31 December 2014 £m
£m £m Level 1 Level 1 £m
and Level 2 and Level 2
£m £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
Total financial liabilities 189 20 - (24) - - 185 23
Updates to the Group's observations with regard to measures of market depth, bid-ask spreads and the extent to which inputs
to the valuation of fixed and variable rate income securities are market observable resulted in a net transfer of financial
assets from Level 3 to Level 1 and 2 in both periods.
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 in either the current or comparative
periods.
E3. DERIVATIVES
The Group purchases derivative financial instruments in connection with the management of its insurance contract and investment contract liabilities based on the principles of reduction of risk and efficient portfolio management. The Group does not typically hold derivatives for the purpose of selling or repurchasing in the near term or with the objective of generating a profit from short-term fluctuations in price or margin.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.
E3.1 Summary
The fair values of derivative financial instruments are as follows:
Assets Liabilities Assets Liabilities
2015 2015 2014 2014
£m £m £m £m
Forward currency 35 94 27 23
Credit default options 3 8 1 9
Contract for differences 8 6 8 6
Interest rate swaps 1,046 1,197 1,965 2,062
Swaptions 265 - 355 -
Inflation swaps 13 22 55 52
Equity options 115 - 129 -
Stock index futures 12 27 14 32
Fixed income futures 1 2 2 8
Currency futures - 4 2 -
1,498 1,360 2,558 2,192
E3.2 Warrants over shares
Lenders' warrants
On 2 September 2009, the Company issued 5 million warrants over its shares to the Lenders. These warrants entitled the
holder to purchase one 'B' ordinary share at a price of £15 per share, subject to adjustment. Following the achievement of
the Company's Premium Listing on 5 July 2010, the Lenders' warrants relate to ordinary shares rather than 'B' ordinary
shares. At 31 December 2015 the terms of Lenders' warrants entitled the holders to purchase 1.027873 (2014: 1.027873)
ordinary shares per Lenders' warrant for an exercise price of £14.59 (2014: £14.59).
The exercise period terminates on the first to occur of:
· 15th anniversary of the date issued;
· date fixed for the redemption of the warrants; and
· liquidation of the Company.
All outstanding Lenders' warrants may be redeemed at the option of the Company at any time after they become exercisable
and prior to their expiration at a price of E0.01 per warrant provided that the last closing bid price of the ordinary
shares is equal to or exceeds £18.97 (2014: £18.97) on each of 20 consecutive trading days. The Company must give not less
than 30 days' notice of the redemption date. Each warrant may then be exercised by the warrant holder (in whole or any
part) at its option.
The holders are entitled to exercise their warrants for cash, assignment of an amount of outstanding principal/accrued
interest of any Global Debt (i.e. any debt owed to the registered holder by any Group company) or on a cashless basis where
the Company redeems the warrants. Any warrant either not exercised or tendered back to the Company by the redemption date
shall be cancelled on the books of the Company and have no further value except for the E0.01 redemption price.
These Lenders' warrants are not traded in an active market and have therefore been valued using an extended Black-Scholes
valuation model to capture the embedded barrier feature. The key assumptions used to ascertain a value as at 31 December
2015 are:
· the share price as at 31 December 2015 of £9.17;
· volatility of 30%;
· the warrants are not adjusted for dividends; and
· the valuation incorporates the impact of amending some of the terms of the warrants on 8 May 2012.
The value of the warrants at the year end was £100,000 (2014: £200,000).
Royal London and IPO warrants
The exercise period for the Royal London and IPO warrants expired on 3 September 2014.
E4. COLLATERAL ARRANGEMENTS
The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lending transactions, derivative contracts and reinsurance arrangements in order to reduce the credit risk of these transactions. The amount and type of collateral required where the Group receives collateral depends on an assessment of the credit risk of the counterparty.Collateral received in the form of cash, where the Group has contractual rights to receive the cash flows generated, is recognised as an
asset in the statement of consolidated financial position with a corresponding liability for its repayment. Non-cash collateral received is not recognised in the statement of consolidated financial position, unless the counterparty defaults on its obligations under the relevant agreement.Non-cash collateral pledged where the Group retains the contractual rights to receive the cash flows generated is not derecognised from the statement of consolidated financial position, unless the Group defaults on its
obligations under the relevant agreement. Cash collateral pledged, where the counterparty has contractual rights to receive the cash flows generated, is derecognised from the statement of consolidated financial position and a corresponding receivable is recognised for its return.
E4.1 Financial instrument collateral arrangements
The Group has no financial assets and financial liabilities that have been offset in the statement of consolidated
financial position as at 31 December 2015 (2014: none).
The table below contains disclosures related to financial assets and financial liabilities recognised in the statement of
consolidated financial position that are subject to enforceable master netting arrangements or similar agreements. Such
agreements do not meet the criteria for offsetting in the statement of consolidated financial position as the Group has no
current legally enforceable right to offset recognised financial instruments. Furthermore, certain related assets received
as collateral under the netting arrangements will not be recognised in the statement of consolidated financial position as
the Group does not have permission to sell or re-pledge, except in the case of default. Details of the Group's collateral
arrangements in respect of these recognised assets and liabilities are provided below.
2015
Related amounts not offset
Financial assets Gross and net amounts of recognised financial assets Financial instruments received Cash Derivative liabilities Net
£m £m collateral received £m amount
£m £m
OTC derivatives 1,483 259 725 447 52
Exchange traded derivatives 15 - - 4 11
Stock lending 254 272 - - (18)
Total 1,752 531 725 451 45
Related amounts not offset
Financial liabilities Gross and net amounts of recognised financial liabilities Financial instruments pledged Cash Derivative assets Net
£m £m collateral pledged £m amount
£m £m
OTC derivatives 1,325 455 283 447 140
Exchange traded derivatives 35 - 19 4 12
Total 1,360 455 302 451 152
2014
Related amounts not offset
Financial assets Gross and net amounts of recognisedfinancial assets £m Financial instruments received Cash collateral received Derivative liabilities Net
£m £m £m amount
£m
OTC derivatives 2,540 405 870 1,082 183
Exchange traded derivatives 18 - - 9 9
Stock lending 143 152 3 - (12)
Repurchase arrangements 84 - 84 - -
Total 2,785 557 957 1,091 180
Related amounts not offset
Financial liabilities Gross and net amounts of recognisedfinancial liabilities£m Financial instruments pledged Cash collateral pledged Derivative assets Net
£m £m £m amount
£m
OTC derivatives 2,152 424 537 1,082 109
Exchange traded derivatives 40 - 29 9 2
Total 2,192 424 566 1,091 111
E4.2 Derivative collateral arrangements
Assets accepted
It is the Group's practice to obtain collateral to mitigate the counterparty risk related to over-the-counter ('OTC')
derivatives usually in the form of cash or marketable financial instruments.
The fair value of financial assets accepted as collateral for OTC derivatives but not recognised in the statement of
consolidated financial position amounts to £259 million (2014: £405 million).
The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2015 are set out
below.
OTC derivatives
2015£m 2014£m
Financial assets 725 870
Financial liability (725) (870)
The maximum exposure to credit risk in respect of OTC derivative assets is £1,483 million (2014: £2,540 million) of which
credit risk of £1,408 million (2014: £2,353 million) is mitigated by use of collateral arrangements (which are settled net
after taking account of any OTC derivative liabilities owed to the counterparty).
Credit risk on exchange traded derivative assets of £15 million (2014: £18 million) is mitigated through regular margining
and the protection offered by the exchange.
Assets pledged
The Group pledges collateral in respect of its OTC derivative liabilities. The value of assets pledged at 31 December 2015
in respect of OTC derivative liabilities of £1,325 million (2014: £2,152 million) amounted to £738 million (2014: £961
million).
E4.3 Stock lending collateral arrangements
Certain of the Group's consolidated collective investment schemes lend financial assets held in their investment portfolios
to other institutions.
The consolidated collective investment schemes conduct stock lending only with well-established, reputable institutions in
accordance with established market conventions. The financial assets do not qualify for derecognition as the Group retains
all the risks and rewards of the transferred assets except for the voting rights.
It is the Group's practice to obtain collateral in stock lending transactions, usually in the form of cash or marketable
financial instruments.
The fair value of financial assets accepted as such collateral but not recognised in the statement of financial position
amounts to £272 million (2014: £152 million).
No collateral has been accepted in the form of cash as at 31 December 2015 (2014: £3 million).
The maximum exposure to credit risk in respect of stock lending transactions is £254 million (2014: £143 million) of which
credit risk of £254 million (2014: £143 million) is mitigated through the use of collateral arrangements.
E4.4 Repurchase agreements
In November 2014, the Group entered into agreements to sell securities in the form of UK Treasury Stocks to another party
with an agreement to repurchase these stocks at an agreed date and price in the future. This arrangement was wound down
during 2015 and no related balances are recognised in the statement of consolidated financial position at 31 December
2015.
The repurchase arrangement was in substance a short-term collateralised cash loan with the securities being used as
collateral. These arrangements were completed only with well-established, reputable institutions in accordance with
established market conventions.
Collateral provided did not qualify for derecognition as the Group retained the risk and rewards, although the counterparty
had the right to sell or repledge the assets. The carrying value of the listed financial assets transferred that were not
derecognised as at 31 December 2014 was £84 million of fixed and variable interest rate securities.
The maximum exposure to credit risk in respect of these repurchase transactions as at 31 December 2014 was £84 million and
this was fully mitigated through the use of collateral arrangements.
E4.5 Other collateral arrangements
Collateral has also been pledged and charges granted in respect of certain of the Group's borrowings. The details of these
arrangements are set out in note E5.
E5. BORROWINGS
The Group classifies the majority of its interest bearing borrowings as financial liabilities carried at amortised cost and these 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 in the financial liabilities accounting policy (see note E1). Transaction costs relating to borrowings designated upon initial recognition at fair value through profit or loss are expensed as incurred.Borrowings are classified as either policyholder or shareholder borrowings. Policyholder borrowings are those attributable to with-profit operations and are held by the with-profit funds. Shareholder exposure to these
borrowings is limited to their participation in these with-profit funds.
Carrying value Fair value
2015£m 2014£m 2015£m 2014£m
Limited recourse bonds 2022 7.59% (note a) 66 73 74 92
Property Reversions loan (note b) 194 184 194 184
£80 million facility agreement (note c) - 80 - 80
£150 million term facility (note d) 148 150 148 150
£100 million facility agreement (note e) 99 - 99 -
Total policyholder borrowings 507 487 515 506
£200 million 7.25% unsecured subordinated loan (note f) 158 149 212 212
£300 million senior unsecured bond (note g) 298 298 324 324
£450 million revolving credit facility (note h) 443 441 450 450
£450 million amortising term loan (note h) 199 387 200 390
£428 million subordinated loans (note i) 393 - 400 -
Total shareholder borrowings 1,491 1,275 1,586 1,376
Total borrowings 1,998 1,762 2,101 1,882
Amount due for settlement after 12 months 1,966 1,609
a. In 1998, Mutual Securitisation plc raised £260 million of capital through the securitisation of embedded value on a
block of existing unit-linked and unitised with-profit life and pension policies. The bonds were split between two classes,
which rank pari passu, and were listed on the Irish Stock Exchange The £140 million 7.39% class A1 limited recourse bonds
matured in 2012 with no remaining outstanding principal. The £120 million 7.59% class A2 limited recourse bonds with an
outstanding principal of £83 million (2014: £94 million) have an average remaining life of 3 years maturing in 2022. PLAL
has provided collateral of £34 million (2014: £39 million) to provide security to the holders of the recourse bonds in
issue. During 2015, repayments totalling £11 million were made (2014: £11 million).
b. The Property Reversions loan from Santander UK plc ('Santander') was brought into the consolidated financial
statements at fair value. It relates to the sale of Extra-Income Plan policies that Santander finances to the value of the
associated property reversions. As part of the arrangement Santander receive an amount calculated by reference to the
movement in the Halifax House Price Index and the Group is required to indemnify Santander against profits or losses
arising from mortality or surrender experience which differs from the basis used to calculate the reversion amount.
Repayment will be on a policy-by-policy basis and is expected to occur over the next 10 to 20 years. During 2015,
repayments totalling £27 million were made (2014: £24 million). Note G9 contains details of the assets that support this
loan.
c. In 2008, UKCPT entered into an £80 million revolving loan facility agreement. This loan accrues interest at LIBOR plus
a variable margin of 0.50% to 0.60% per annum. The lender holds a floating charge over certain assets of UKCPT and its
subsidiaries. This facility was due for repayment on 19 June 2015 and was refinanced on 2 April 2015 (see note e).
d. On 19 May 2011, UKCPT entered into a £150 million investment term loan facility agreement. The £150 million investment
term
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