Annual Financial Report (Part
Standard Life plc
Annual Report
and Accounts
2008
PART 4 OF 6
39. Risk management continued
(e) Market risk
The Group defines market risk as the risk that arises from the Group's exposure to market movements which could result in the value of income, or value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.
The Group ensures that risks remain within the approved market risk appetite through the use of a number of specific controls and techniques including:
-
Defined lists of permitted securities and/or application of investment constraints
-
Clearly defined investment benchmarks for policyholder and equity holder funds
-
Stochastic and deterministic asset/liability modelling, and
-
Active use of derivatives to improve the matching characteristics of assets and liabilities
(e)(i) Elements of market risk
(e)(i)(i) Equity and property risk
The Group is exposed to fluctuations in the equity securities and property markets, changes in the value of its holdings and the return on those holdings. The Group manages its exposure to equity and property risk on a combined basis.
The proper diversification of equity securities and properties is ensured by the specification of portfolio limits by each of the relevant business units. Portfolio holdings for equity securities may be expressed as limits on deviations from benchmarks, stock and sector levels, either in absolute amounts or as tracking errors.
Portfolio limits for property holdings will specify the proportion of the value of the total property portfolio represented by:
-
Any one property or group of properties
-
Geographic area
-
Property type, and
-
Development property under construction
Note 45 presents information on the methods used to determine fair values for each major category of financial instrument measured at fair value and for properties.
(e)(i)(ii) Interest rate risk
The Group is exposed to changes in the shape and level of yield curves, changes in correlation of interest rates between different financial instruments (basis risk) and prepayment options embedded in loans and advances to customers.
Insurance and investment contract liabilities exposed to interest rate risk principally comprise participating and non-participating non-unit linked liabilities. Other financial liabilities subject to interest rate risk include customer accounts relating to banking activities, derivative financial instruments, subordinated liabilities and borrowings. The financial assets which are subject to the most significant exposure to interest rate risk include assets backing participating insurance and investment business and loans and advances to customers.
The Group is also exposed to interest rate risk as a result of off balance sheet credit commitments and guarantees as detailed in Note 42. Under such arrangements, the Group is contractually obliged to extend financing facilities to such counterparties at agreed terms and conditions. These commitments are subject to the counterparties continuing to satisfy certain conditions and are normally renewed on an annual basis.
As a result of the diversity of the products offered by the Group and the different regulatory environments in which it operates, the Group employs different methods of asset and liability management across its business units.
(e)(i)(iii) Foreign currency risk
The Group's investments are generally held in the currency of its operational geographical locations, principally to assist with matching of liabilities. However, assets may be held in other currencies, for example, if such investments are considered to be in accordance with the expectations of particular groups of policyholders. The Group may also hold assets in different currencies where doing so would improve the risk profile of the portfolio through diversification.
Standard Life Bank may raise funds in currencies other than sterling and uses derivative instruments to hedge all such currency exposures back into sterling. Financial derivatives may also be employed to manage other currency exposures within the Group.
(e)(i)(iv) Risks associated with derivative financial instruments
Derivative financial instruments are utilised to match contractual liabilities for efficient portfolio management by either reducing investment risk or reducing cost, or for the transfer of risk between business units. The derivative financial instruments that the Group transacts include interest rate swaps, options, equity swaps, futures, foreign exchange forwards and cross-currency swaps, or any contract or asset having the effect of such a derivative. Derivative financial instruments used are listed on a regulated market or are with an approved counterparty. In employing derivatives, the relevant business unit must always have sufficient cash equivalents or underlying assets to cover any potential obligation or exercise right. Further information on derivative financial instruments can be found in Note 20.
(e)(ii) Market risk concentrations
The Group manages market risk concentrations principally by ensuring that exposures are divided among a number of asset classes, instruments and geographies appropriate to the liabilities and objectives of the relevant business unit.
Benchmarks are established for assets held within business units appropriate to the purpose for which those assets are held. Business units are responsible for setting adequately diversified benchmarks with respect to risk appetite, as defined by the Group.
The detail below provides information on the diversity of the Group's investments, including investment securities, investment property, loans and receivables and cash and cash equivalents by asset class as at 31 December 2008 and 31 December 2007. The information shown excludes the financial assets held by third parties which are included in the consolidated balance sheet as a result of the consolidation of investment vehicles the Group controls. The Group is not exposed to market risk on these financial assets since the risk is attributable to the third parties and there is a corresponding liability included in the consolidated balance sheet which represents the interests of the third parties (shown as 'Third party interests in consolidated funds').
Financial assets and investment property of Standard Life Group
|
|
2008 |
2007 |
|
|
£m |
£m |
|
UK and Europe life and pensions |
98,975 |
105,093 |
|
Canada |
17,104 |
16,707 |
|
Standard Life Bank |
11,422 |
13,206 |
|
Other |
1,869 |
1,011 |
|
Total |
129,370 |
136,017 |
This information has been grouped and summarised to highlight both the degree of risk borne by the Group's principal business units and by policyholders and equity holders. To facilitate this, a further subdivision of the assets of the UK and Europe life and pensions and Canadian operations is shown below.
Financial assets and investment property of UK and Europe life and pensions
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Heritage With Profits Fund |
51,473 |
51,120 |
|
Proprietary Business Fund |
450 |
399 |
|
Standard Life Investment Funds |
2,191 |
1,250 |
|
Other with profits funds |
285 |
204 |
|
Shareholder Fund |
2,027 |
2,300 |
|
Unit linked business |
42,549 |
49,820 |
|
Total |
98,975 |
105,093 |
Financial assets and investment property of Canada
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Non-segregated funds |
9,216 |
8,757 |
|
Segregated funds |
7,888 |
7,950 |
|
Total |
17,104 |
16,707 |
UK and Europe life and pensions: Heritage With Profits Fund
Financial assets and investment property £51,473m (2007: £51,120m)
Heritage With Profits Fund by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
The assets of the Heritage With Profits Fund (HWPF) are principally managed to support the liabilities of the HWPF and are appropriately diversified by both asset class and geography. The above charts for HWPF exclude the assets backing unit linked policies as the market risk on these contracts is borne principally by the policyholder. Refer to Notes 29 and 30 for details of the corresponding non-unit linked liabilities, principally annuity and participating contract liabilities.
As referred to in Section (d)(ii), in 2008 the Group entered into a reinsurance contract with Canada Life International Re to transfer the mortality and market risk of certain annuities from the Group to that organisation (for further detail on this transaction, refer to Note 31 Annuity reinsurance). The assets of the HWPF include £6bn of assets (primarily debt securities) deposited back under the terms of the transaction and £5.4bn of other financial assets representing the value of business reinsured, with corresponding liabilities recognised in respect of each.
The other contractual obligations of the fund were primarily determined at the time of the demutualisation of SLAC, and are principally:
-
Conventional and unitised with profit policies, and
-
Annuities in payment
The HWPF also recognises liabilities in respect of a number of other less material contract types, and some new business, which is mostly incremental, continues to accrue.
The key considerations in asset and liability management of the HWPF are:
-
The economic liability and how this varies with market conditions
-
That assets supporting participating business are invested in a manner consistent with the participating policyholders' expectations and the HWPF's PPFM, and
-
The need to ensure that regulatory reserving and capital requirements are met
In practice, an element of market risk arises as a consequence of the need to balance these considerations, for example, in certain instances participating policyholders may expect that equity market risk will be taken on their behalf, and derivative instruments may be used to manage these risks.
Equity holders receive recourse cash flows and certain other defined payments in accordance with the Scheme and other relevant agreements. The recourse cash flows calculations are based on several different components of which some are sensitive to market movements. Investment returns are specifically excluded from the calculations and are borne by the HWPF, and will ultimately impact the returns to the HWPF participating policyholders. The equity holders' principal exposure arises in respect of unitised business where fluctuations in income from charges, calculated by reference to the market value of relevant funds, may be experienced.
The terms of the Scheme provide for the retention of recourse cash flows under certain circumstances to support the financial position of the HWPF. The equity holder is also exposed to the market risk that the assets of the fund may be insufficient in total to meet obligations and the equity holders would be exposed to the full potential cost of any shortfall should such a situation arise.
39. Risk management continued
(e) Market risk continued
(e)(ii) Market risk concentrations continued
UK and Europe life and pensions: Standard Life Assurance Limited Shareholder Fund
Financial assets and investment property £2,027m (2007: £2,300m)
Shareholder Fund by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
The equity holder is fully exposed to market risk of the assets held within the Standard Life Assurance Limited (SLAL) Shareholder Fund.
Cash is held by the Shareholder Fund to support the normal business activity of SLAL, including the provision of capital to the SLAL Proprietary Business Fund (PBF), a long-term business fund, and subsidiaries of SLAL.
A diversified range of debt securities and other financial instruments is held within the Shareholder Fund to support SLAL's subordinated liabilities. Although assets are invested to match the subordinated liabilities, and derivative instruments are used to improve matching characteristics, accounting volatility arises as a consequence of the liability being held at amortised cost.
UK and Europe life and pensions: Standard Life Assurance Limited Proprietary Business Fund
Financial assets and investment property £450m (2007: £399m)
Proprietary Business Fund by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
If adverse market fluctuations are such that they result in insufficient assets being available within the PBF to meet contractual obligations, equity holders may be exposed to the full extent of the shortfall. The assets of this fund are primarily held to support the normal business activities of the fund including the establishment of reserves and provisions for business written directly by the fund and not reinsured.
UK and Europe life and pensions: Standard Life Investment Funds
Financial assets and investment property £2,191m (2007: £1,250m)
Standard Life Investment Funds by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
The increase in financial assets compared to the prior year is primarily attributable to the ongoing expansion of annuity business in SLIF. The asset distribution reflects the benchmark for assets held to match annuitant and other liabilities of SLIF as well as its surplus assets.
Equity holders are exposed to market risk in a similar way to their exposure in the SLAL PBF, that is, if market fluctuations result in insufficient assets being available to meet obligations, capital support would be sought from SLAL and subsequently from equity holders if required. The assets of Standard Life Investment Funds (SLIF) are primarily held for the purposes of supporting the normal business activities of the fund, including the establishment of reserves for obligations accepted under reinsurance (as SLIF does not write any direct business) and to satisfy capital requirements.
UK and Europe life and pensions: Other with profits funds
Financial assets and investment property £285m (2007: £204m)
Other with profits funds by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
Following the demutualisation of SLAC, new participating business is written in the PBF, with the exception of certain increments on contracts in-force prior to demutualisation, which are written in the HWPF. For the new participating business written in the PBF, the investment element is passed to the appropriate with profits fund, for example for new members of certain group schemes the investment element is passed to HWPF and for other new business the investment element is passed to the appropriate long-term business funds established specifically for that purpose. Two of these with profits funds have been established to accept business written principally through the German branch of SLAL, the other accepts business written in the UK. Over 80% of the assets shown are attributable to German branch business.
Equity holders are exposed to the market risk that the assets of the with profit funds may be insufficient to meet the obligations of the funds and the equity holders would be exposed to the full potential cost of any shortfall should such a situation arise.
39. Risk management continued
(e) Market risk continued
(e)(ii) Market risk concentrations continued
Canada: Non-segregated funds
Financial assets and investment property £9,216m (2007: £8,757m)
Non-segregated funds by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
Equity holders are exposed to market risks from Canada - non-segregated fund business including losses from mismatches between financial assets and liabilities.
Group wide: Unit linked and segregated funds
Financial assets and investment property £50,437m (2007: £57,770m)
Segregated fund and unit linked assets are largely managed in accordance with the mandates of particular funds, and losses occurring as a result of market risk are normally attributed to those funds. The exposure of equity holders to market risk is predominantly limited to variations in charges arising as a consequence of changes in the value of assets under management.
Unit linked business by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
Segregated funds by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
Equity holders also have exposure to variations in costs of meeting guarantees to policyholders, and changes in fund charges, made in respect of certain contracts, which may arise as a consequence of changes in the value of underlying assets.
Standard Life Bank
Financial assets: £11,422m (2007: £13,206m)
Standard Life Bank by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
The primary exposure to market risk within Standard Life Bank arises as a consequence of mortgage and savings products issued by Standard Life Bank with either fixed interest rates or variable rates linked or related to Bank of England base rate, funded with London Inter Bank Offer Rate (LIBOR) related liabilities.
The reduction in financial assets primarily reflects the measures that Standard Life Bank has established with the aim of managing mortgage exposures in the light of market conditions.
Interest rate risk arises as a result of timing differences on the re-pricing of assets and liabilities, unexpected changes in the shape of yield curves, by changes in correlation of interest rates between different financial instruments (basis risk) and by prepayment options embedded in loans and advances to customers.
Standard Life Bank uses interest rate sensitivity analysis and interest rate gap analysis to monitor and control interest rate risk. Interest rate sensitivity analysis assesses the impact on estimated asset/liability market values and earnings under a range of deterministic shocks to the interest rate curve. Dedicated quantitative risk management models and software are used to implement these measures for internal management purposes. Interest rate gap analysis assesses the difference in carrying value between assets and liabilities repricing in various gap periods. Part of the Group's return on financial instruments is obtained from the controlled mismatching of the dates on which interest receivable on assets and interest payable on liabilities next reset to market rates. Each of these measures is reviewed on a monthly basis.
Other business units
Financial assets and investment property £1,869m (2007: £1,011m)
The financial assets of 'Other' business units comprise primarily those held to support the liabilities, capital requirements and strategic activities of Standard Life Investments and Standard Life Healthcare, as well as other investments of the Group.
Other by asset class
2008
(Pie chart removed for the purposes of this announcement)
2007
(Pie chart removed for the purposes of this announcement)
The increase in financial assets held by 'Other' business units primarily reflects policyholder deposits of customers of Standard Life International Limited.
39. Risk management continued
(e) Market risk continued
(e)(iii) Sensitivity analysis - market risk
The Group's profit after tax and equity are sensitive to variations in respect of the Group's most significant market risk exposures. The sensitivity analysis in respect of each of the business units is shown in the table on the following page. The analysis has been performed by calculating the sensitivity of profit after tax and equity to changes in equity security and property prices and to changes in interest rates as at the balance sheet date. For each sensitivity 'test', the impact of a reasonably possible change in a single sensitivity factor is shown, while the other sensitivity factors remain unchanged.
Correlations between the different risks and/or other factors may mean that experience would differ from that expected if more than one risk event occurred simultaneously.
Changes in equity security and property prices and/or fluctuations in interest rates will affect non-participating unit linked liabilities and the associated assets by the same amount. Therefore, whilst the profit impact on unit linked and segregated fund business has been included in the sensitivity analysis, the change in unit linked liabilities and the corresponding asset movement has not been shown.
Earnings over a period may be reduced as a consequence of the impact of market movements on charges levied on these contracts. For example, if the tests had been applied as at 1 January, the profit during the year would have varied due to the different level of funds under management. In illustrating the impact of equity/property risk the assumption has been made, where relevant, that expectations of corporate earnings and rents remain unchanged and thus yields rise accordingly. The sensitivities take into account the likely impact on individual Group companies of local regulatory standards under such a scenario.
The recourse cash flows have been determined in accordance with the Scheme and the Heritage With Profits Fund (HWPF) PPFM and consider the extent to which equity holders participate in the investment returns and surpluses of the HWPF. The Scheme, and in particular the Capital Support Mechanism, requires the financial state of the HWPF to be considered before recourse cash flows are transferred to the Shareholder Fund and, under certain circumstances, the payment of recourse cash flow can be withheld to support the financial strength of the HWPF. Therefore, the HWPF has been treated as a whole for the purpose of this sensitivity analysis.
The analysis does not show the effect of the sensitivity factors on the third party assets and liabilities held by third parties and the liability for 'Third party interests in consolidated funds' since the total net impact on profits after tax and equity will be nil.
|
|
Equity/property |
|
Interest |
|
|
|||
|
|
+10% |
-10% |
+1% |
|
-1% |
|
||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|
Increase/(decrease) in profit after tax |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
UK and Europe life and pensions |
|
|
|
|
|
|
|
|
|
Heritage With Profits Fund: |
|
|
|
|
|
|
|
|
|
Recourse cash flow |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
- |
- |
- |
- |
- |
- |
- |
- |
|
Proprietary Business Fund: |
|
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities |
- |
- |
- |
- |
- |
- |
- |
- |
|
Assets backing |
- |
- |
- |
- |
(6) |
(1) |
7 |
1 |
|
|
- |
- |
- |
- |
(6) |
(1) |
7 |
1 |
|
Standard Life Investment Funds: |
|
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities |
- |
- |
- |
- |
61 |
47 |
(93) |
(149) |
|
Deferred acquisition costs |
- |
- |
(7) |
- |
- |
- |
- |
- |
|
Financial assets |
- |
- |
- |
- |
(120) |
(87) |
148 |
148 |
|
|
- |
- |
(7) |
- |
(59) |
(40) |
55 |
(1) |
|
Shareholder Fund: |
|
|
|
|
|
|
|
|
|
Financial assets |
- |
- |
- |
- |
(91) |
(125) |
87 |
109 |
|
|
- |
- |
- |
- |
(91) |
(125) |
87 |
109 |
|
Canada |
|
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities |
36 |
9 |
(39) |
(11) |
200 |
234 |
(284) |
(245) |
|
Non-participating investment contract liabilities |
- |
- |
- |
- |
- |
- |
- |
- |
|
Participating insurance contract liabilities |
(14) |
(14) |
14 |
14 |
20 |
12 |
(24) |
(12) |
|
Assets backing - participating insurance |
14 |
14 |
(14) |
(14) |
(20) |
(12) |
24 |
12 |
|
Assets backing - non-participating insurance |
42 |
36 |
(42) |
(36) |
(175) |
(208) |
212 |
207 |
|
Assets backing - non-participating investment |
- |
- |
- |
- |
(70) |
(73) |
84 |
73 |
|
Other assets and liabilities |
23 |
20 |
(23) |
(20) |
(31) |
(29) |
38 |
29 |
|
|
101 |
65 |
(104) |
(67) |
(76) |
(76) |
50 |
64 |
|
Standard Life Bank |
|
|
|
|
|
|
|
|
|
Customer accounts relating to banking activities and deposits by banks |
- |
- |
- |
- |
(44) |
(39) |
44 |
39 |
|
Borrowings |
- |
- |
- |
- |
(14) |
(31) |
14 |
30 |
|
Subordinated liabilities |
- |
- |
- |
- |
(2) |
(2) |
2 |
2 |
|
Loans and receivables |
- |
- |
- |
- |
68 |
70 |
(68) |
(69) |
|
Investments securities |
- |
- |
- |
- |
5 |
1 |
(5) |
(1) |
|
Derivative financial instruments |
- |
- |
- |
- |
32 |
18 |
(33) |
(19) |
|
Other assets |
- |
- |
- |
- |
- |
3 |
- |
(3) |
|
|
- |
- |
- |
- |
45 |
20 |
(46) |
(21) |
|
Other |
|
|
|
|
|
|
|
|
|
Other assets and liabilities |
7 |
1 |
(7) |
(1) |
- |
4 |
- |
(4) |
|
|
7 |
1 |
(7) |
(1) |
- |
4 |
- |
(4) |
|
Total |
108 |
66 |
(118) |
(68) |
(187) |
(218) |
153 |
148 |
1. When the sensitivities presented in the table above are applied to other with profits funds, there are no significant impacts on net liabilities after reinsurance, equity or profits for either investment or insurance contracts.
2. The amounts in the table above are presented net of tax
3. A positive number represents a credit to the income statement.
A movement in equity security and property prices of +20%/-20% as at 31 December 2008 would have an impact on profit after tax for Canada, as follows:
-
Non-participating insurance contract liabilities +£75m/-£82m
-
Participating insurance contract liabilities -£29m/+£29m
-
Assets backing participating insurance contract liabilities +£29m/-£29m
-
Assets backing non-participating insurance contract liabilities +£85m/-£85m, and
-
Other assets and liabilities +£46m/-£46m
A movement in equity security and property prices of -20% as at 31 December 2008 would have an impact of -£15m on profit after tax in respect of deferred acquisition costs of SLIF within UK and Europe life and pensions. A movement in equity/property prices of +20%/-20% as at 31 December 2008 would have an impact on profit after tax for other assets and liabilities within the 'Other' business units of +£13m/-£13m respectively. A movement in equity/property prices of +20%/
-20% as at 31 December 2008 would have no other impact on profit after tax for UK and Europe life and pensions or the 'Other' business units, or any impact for Standard Life Bank.
39. Risk management continued
(e) Market risk continued
(e)(iii) Sensitivity analysis - market risk continued
The impact on total equity is equal to that in the table above in respect of each of the scenarios shown, with the exception of the impact presented for Standard Life Bank. The cash flow hedging performed by Standard Life Bank results in an additional impact of +£9m and -£9m (2007: +£13m and -£13m) on equity, to that shown above, given a movement in interest rates of +1% and -1% respectively.
As at 31 December 2008, a movement in credit spreads of 50 basis points would result in a reduction to net profit after tax of £108m of which £64m arises as a consequence of an accounting mismatch which would be excluded from underlying profit. A further reduction of net profit after tax of £14m would arise as a result of a change in assumed default rates of 12.5 basis points per annum (25% of the spread change).
Limitations
The sensitivity analysis is non-linear and larger or smaller impacts should not be derived from these results. The sensitivity analysis represents the impact on profits at the year end that the changes in market conditions can have. The sensitivity will vary with time, both due to changes in market conditions and changes in the actual asset mix, and this mix is being actively managed. The results of the sensitivity analysis may also have been different from those illustrated had the sensitivity factors been applied at a date other than the balance sheet date.
For Canada's non-participating investment business the liability does not change in the circumstances considered, as it is measured on an amortised cost basis. Given that the backing assets are measured at FVTPL, their value is sensitive to the circumstances considered. The risk shown for Canada is largely due to a mismatch between these measurement bases.
For Canada's non-participating insurance contract liabilities, the Canadian Asset Liability Method seeks to find asset cash flows that match the expected future liability cash flows. The value placed on the actuarial liabilities is the value of the assets that provide the matching cash flows. The Appointed Actuary's assumption for future cash flows from equity securities and property is not based on current dividend or rental yields, but is a long-term assumption based on historic average yields. In the event of a one-off fall in equity security and property values, the Appointed Actuary would not necessarily increase the assumed yields, and the assumed future cash flows from these assets would fall. Therefore additional assets would be required to cover the expected future liability cash flows.
For the with profits funds, and in particular the HWPF, the risk to equity holders is that the assets of the fund are insufficient to meet the obligations to policyholders. For the HWPF, whilst equity holders are only entitled to the recourse cash flows in respect of this business, there can be potential exposure to the full cost if the assets of the fund are insufficient to meet policyholder obligations. The factors used in the sensitivity analysis presented in the table are not sufficiently severe for such an event to occur.
When assessing the impact of the sensitivity tests on the recourse cash flows, and in particular the risk that the assets of the HWPF may be insufficient to meet the obligations to policyholders, dynamic management actions have been assumed in a manner consistent with the relevant PPFM.
(f) Credit risk
The Group defines credit risk as the risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform these obligations in a timely manner. It also includes the risk of a reduction in the value of corporate bonds due to widening of corporate bond spreads.
The Group's credit risk exposure mainly arises from its investments in the following financial instruments:
-
Cash and cash equivalents
-
Derivative financial assets
-
Debt securities
-
Loans and receivables
-
Reinsurance assets
-
Other financial instruments and liabilities
Concentrations of credit risk are managed by setting maximum exposure limits to types of financial instruments and counterparties. The limits are established using the following controls:
|
Financial instrument with credit risk exposure |
Control |
|
Cash and cash equivalents |
Maximum exposure limits are set with reference to credit ratings issued by Standard & Poor's and Moody's. |
|
Derivative financial assets |
Maximum exposure limits, net of collateral, are set with reference to long-term credit ratings issued by Standard & Poor's and Moody's. The forms of collateral that may be accepted are also specified and minimum transfer amounts in respect of margin deposits are also set by reference to the counterparty's rating. Refer to (f)(iii) for further details on collateral. |
|
Debt securities |
Limits are set on the proportion of the total portfolio of debt securities which may be placed with counterparties rated below certain credit rating levels. |
|
Loans and receivables |
Portfolio limits are set by individual business units. These limits specify the proportion of the value of the total portfolio of mortgage loans and mortgage bonds that are represented by a single, or group of related counterparties, geographic area, employment status or economic sector, risk rating and loan to value percentage. |
|
Reinsurance assets |
The Group's policy is to place reinsurance only with highly rated counterparties. The policy restricts the Group from assuming concentrations of risk with few individual reinsurers by specifying certain limits on ceding and the minimum conditions for acceptance and retention of reinsurers. |
|
Other financial instruments and liabilities |
Appropriate limits are set for other financial instruments and liabilities to which the Group may have exposure at certain times, for example, commission terms paid to intermediaries. |
As a result of the policy outlined above, at 31 December 2008 credit exposure is primarily concentrated in UK and Canadian Government Securities, supranationals and appropriately rated counterparties.
Financial assets held by custodians are properly segregated from the proprietary assets of the custodian and are free of the entitlements of creditors of the custodian in accordance with market conventions.
(f)(i) Credit exposure of financial assets that are neither past due nor impaired
The following tables provide information by business area regarding the quality of financial assets exposed to credit risk that are neither past due nor impaired at the balance sheet date, by classifying those financial assets according to Standard & Poor's credit ratings of the counterparties. The analysis also provides information on the concentration of credit risk.
AAA is the highest possible rating and rated financial assets that fall outside the range of AAA to BBB are classified as below BBB. Issues that are not rated by Standard & Poor's, and are rated by another agency, are categorised on a basis consistent with the Standard & Poor's rating. If a financial asset is not rated by an external agency or 'internally rated', it is classified as not rated. Financial assets classified as 'internally rated' are those which are assigned an internal performance risk grade under the internal rating system adopted by the Group. For example, in respect of loans and advances, the risk grade is based on credit score and other related factors.
For reinsurance assets, where the counterparty is part of a group and a rating only exists for the parent of the group, the rating of the parent company has been used.
The total amounts in the tables below represent the Group's maximum exposure to credit risk at the year end without taking into account any collateral held.
UK and Europe life and pensions: Heritage With Profits Fund
Total credit exposure £40.4bn (2007: £33.8bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
AAA |
AA |
A |
|
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||
|
Debt securities |
21,845 |
22,247 |
1,826 |
1,666 |
3,337 |
3,013 |
817 |
1,002 |
176 |
149 |
790 |
515 |
336 |
60 |
29,127 |
28,652 |
|||||
|
Loans and receivables |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
32 |
42 |
218 |
253 |
250 |
295 |
|||||
|
Cash and cash equivalents |
362 |
313 |
2,001 |
3,030 |
737 |
1,184 |
42 |
- |
- |
- |
6 |
- |
- |
- |
3,148 |
4,527 |
|||||
|
Derivative financial assets |
9 |
- |
551 |
227 |
632 |
18 |
- |
- |
- |
- |
451 |
12 |
- |
- |
1,643 |
257 |
|||||
|
Reinsurance assets |
93 |
112 |
5,632 |
77 |
- |
- |
- |
- |
- |
- |
- |
- |
7 |
13 |
5,732 |
202 |
|||||
|
Other assets 1 |
- |
1 |
- |
- |
- |
- |
- |
- |
- |
- |
455 |
(135) |
- |
- |
455 |
(134) |
|||||
|
|
22,309 |
22,673 |
10,010 |
5,000 |
4,706 |
4,215 |
859 |
1,002 |
176 |
149 |
1,734 |
434 |
561 |
326 |
40,355 |
33,799 |
|||||
1 As a result of the split presentation of UK and Europe life and pensions, other assets include 'intra-fund' balances. These amounts are not rated. Included within assets at 31 December 2008 are amounts which are due to the Shareholder Fund in respect of recourse cash flows.
The equity holders' exposure to credit risk arising from investments held in the Heritage With Profits Fund (HWPF) is similar in principle to that described for market risk exposures in Section (e).
The financial assets of the HWPF include £6bn of assets (primarily debt securities) deposited back under the terms of the external annuity reinsurance transaction noted previously (Section d(ii)), the transaction having been structured in this manner specifically to mitigate credit risks associated with reinsurer default credit losses and defaults within the portfolio of assets are borne by the external reinsurer.
UK and Europe life and pensions: Standard Life Assurance Limited - Proprietary Business Fund
Total credit exposure £0.4bn (2007: £0.4bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
|||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||
|
Debt securities |
102 |
91 |
1 |
- |
2 |
- |
- |
- |
1 |
- |
- |
- |
- |
- |
106 |
91 |
|||||
|
Cash and cash equivalents |
8 |
58 |
59 |
113 |
44 |
10 |
- |
- |
- |
- |
- |
- |
- |
- |
111 |
181 |
|||||
|
Derivative financial assets |
- |
- |
- |
- |
3 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
3 |
- |
|||||
|
Reinsurance assets |
1 |
4 |
- |
1 |
- |
- |
- |
7 |
- |
- |
- |
- |
3 |
3 |
4 |
15 |
|||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
198 |
90 |
- |
- |
198 |
90 |
|||||
|
|
111 |
153 |
60 |
114 |
49 |
10 |
- |
7 |
1 |
- |
198 |
90 |
3 |
3 |
422 |
377 |
|||||
The equity holder is exposed to credit risk of the assets held within the Proprietary Business Fund (PBF) in a similar manner to that for market risk, as described in Section (e).
UK and Europe life and pensions: Standard Life Investment Funds
Total credit exposure £2.2bn (2007: £1.2bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||
|
Debt securities |
823 |
516 |
145 |
100 |
331 |
245 |
114 |
76 |
20 |
10 |
30 |
35 |
- |
- |
1,463 |
982 |
||||
|
Cash and cash equivalents |
108 |
15 |
299 |
197 |
170 |
23 |
- |
- |
- |
- |
- |
- |
- |
- |
577 |
235 |
||||
|
Derivative financial assets |
- |
- |
36 |
5 |
60 |
1 |
- |
- |
- |
- |
- |
- |
- |
- |
96 |
6 |
||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
51 |
24 |
- |
- |
51 |
24 |
||||
|
|
931 |
531 |
480 |
302 |
561 |
269 |
114 |
76 |
20 |
10 |
81 |
59 |
- |
- |
2,187 |
1,247 |
||||
The equity holder is exposed to credit risk of the assets held within Standard Life Investment Funds in a similar manner to that for market risk, as described in Section (e).
UK and Europe life and pensions: Other with profits funds
Total credit exposure £0.2bn (2007: £0.1bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
|||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||
|
Debt securities |
86 |
91 |
12 |
1 |
26 |
4 |
1 |
- |
2 |
1 |
3 |
3 |
- |
- |
130 |
100 |
|||||
|
Cash and cash equivalents |
9 |
1 |
14 |
16 |
2 |
6 |
- |
- |
- |
- |
- |
- |
- |
- |
25 |
23 |
|||||
|
Derivative financial assets |
- |
- |
9 |
- |
5 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
14 |
- |
|||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
13 |
17 |
- |
- |
13 |
17 |
|||||
|
|
95 |
92 |
35 |
17 |
33 |
10 |
1 |
- |
2 |
1 |
16 |
20 |
- |
- |
182 |
140 |
|||||
The equity holder is exposed to the credit risk of the assets held within the other with profits funds in a similar manner to market risk, as described in Section (e).
UK and Europe life and pensions: Standard Life Assurance Limited - Shareholder Fund
Total credit exposure £2.0bn (2007: £2.3bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
|||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||
|
Debt securities |
353 |
161 |
37 |
201 |
89 |
579 |
42 |
270 |
14 |
23 |
- |
38 |
- |
- |
535 |
1,272 |
|||
|
Cash and cash equivalents |
98 |
15 |
711 |
244 |
26 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
835 |
259 |
|||
|
Derivative financial assets |
- |
- |
342 |
79 |
44 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
386 |
79 |
|||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
262 |
686 |
- |
- |
262 |
686 |
|||
|
|
451 |
176 |
1,090 |
524 |
159 |
579 |
42 |
270 |
14 |
23 |
262 |
724 |
- |
- |
2,018 |
2,296 |
|||
The equity holder is fully exposed to credit risk of the assets held within the SLAL Shareholder Fund in a similar manner to that for market risk, including credit risk arising on assets held to support the subordinated debt liability. The assets of this fund are managed and invested to support the activities of the fund.
During the year the Shareholder Fund acquired, as a consequence of the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc, a unit trust which invests primarily in cash and asset backed securities. These assets are reflected in the above analysis.
The fund is also exposed to changes in the value of the contractual arrangements intended to mitigate and manage certain credit risks associated with the securities lending programme managed by SLTM Limited (a subsidiary of Standard Life Investments).
39. Risk management continued
(f) Credit risk continued
(f)(i) Credit exposure of financial assets that are neither past due nor impaired continued
Canada: Non-segregated funds
Total credit exposure £8.0bn (2007: £7.4bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||
|
Debt securities |
1,441 |
1,358 |
1,459 |
1,550 |
2,136 |
1,948 |
237 |
289 |
76 |
79 |
- |
- |
71 |
81 |
5,420 |
5,305 |
||||
|
Loans and advances |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
80 |
73 |
2,036 |
1,532 |
2,116 |
1,605 |
||||
|
Cash and cash equivalents |
17 |
11 |
2 |
85 |
4 |
35 |
- |
- |
- |
- |
- |
- |
- |
- |
23 |
131 |
||||
|
Reinsurance assets |
- |
- |
251 |
148 |
18 |
- |
- |
- |
- |
- |
68 |
107 |
- |
- |
337 |
255 |
||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
98 |
118 |
- |
- |
98 |
118 |
||||
|
|
1,458 |
1,369 |
1,712 |
1,783 |
2,158 |
1,983 |
237 |
289 |
76 |
79 |
246 |
298 |
2,107 |
1,613 |
7,994 |
7,414 |
||||
The equity holder is exposed to credit risk of the assets held within Canadian non-segregated funds.
As at 31 December 2008 67% (2007: 69%) of the Canadian non-segregated funds credit exposure was to entities rated A or above. Of the remaining exposure, 25% (2007: 21%) was to internally rated loans and advances to customers which are collateralised via the taking of a first charge over the property. Canada also has off balance sheet commitments in respect of financial instruments including stand by letter of credit and commitments to extend credit of £109m as at 31 December 2008 (2007: £84m).
Group wide unit linked and segregated funds
UK and Europe life and pensions: Unit linked business
Total credit exposure £15.6bn (2007: £12bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
|||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||
|
Debt securities |
6,932 |
6,083 |
1,307 |
788 |
2,049 |
1,337 |
731 |
659 |
116 |
126 |
92 |
135 |
5 |
4 |
11,232 |
9,132 |
|||||
|
Loans and receivables |
- |
- |
29 |
- |
85 |
3 |
- |
- |
- |
- |
- |
- |
- |
- |
114 |
3 |
|||||
|
Cash and cash equivalents |
176 |
162 |
977 |
1,004 |
1,288 |
368 |
- |
- |
- |
- |
- |
11 |
- |
- |
2,441 |
1,545 |
|||||
|
Interests in pooled investment funds |
- |
- |
687 |
594 |
136 |
94 |
- |
- |
- |
- |
164 |
170 |
- |
- |
987 |
858 |
|||||
|
Derivative financial assets |
- |
- |
143 |
40 |
193 |
- |
- |
- |
- |
- |
- |
1 |
- |
- |
336 |
41 |
|||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
454 |
374 |
- |
- |
454 |
374 |
|||||
|
|
7,108 |
6,245 |
3,143 |
2,426 |
3,751 |
1,802 |
731 |
659 |
116 |
126 |
710 |
691 |
5 |
4 |
15,564 |
11,953 |
|||||
Canada: Segregated funds
Total credit exposure £2.4bn (2007: £2bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||
|
Debt Securities |
996 |
811 |
541 |
483 |
568 |
486 |
85 |
50 |
7 |
3 |
1 |
1 |
- |
- |
2,198 |
1,834 |
||||
|
Loans and advances |
12 |
- |
8 |
- |
13 |
- |
2 |
- |
- |
- |
- |
- |
- |
28 |
35 |
28 |
||||
|
Cash and cash equivalents |
71 |
24 |
39 |
82 |
23 |
27 |
- |
- |
- |
- |
- |
- |
- |
- |
133 |
133 |
||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
37 |
47 |
- |
- |
37 |
47 |
||||
|
|
1,079 |
835 |
588 |
565 |
604 |
513 |
87 |
50 |
7 |
3 |
38 |
48 |
- |
28 |
2,403 |
2,042 |
||||
The implications of credit risk exposures arising within segregated funds and unit linked contracts are in effect the same as those outlined under market risk in Section (e). The exposure of equity holders to credit risk arising from the financial assets held by the unit linked and segregated funds is predominantly limited to variations in charges arising as a consequence of changes in the value of the financial assets.
Standard Life Bank
Total credit exposure £11.2bn (2007: £13.1bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
|||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||
|
Treasury Bills |
60 |
158 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
60 |
158 |
|||||
|
Loans and advances to customers |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
9,298 |
10,971 |
9,298 |
10,971 |
|||||
|
Loans and advances to banks |
156 |
60 |
- |
542 |
117 |
290 |
- |
- |
- |
- |
- |
106 |
- |
- |
273 |
998 |
|||||
|
Certificates of deposit |
- |
- |
287 |
44 |
175 |
71 |
- |
- |
- |
- |
122 |
- |
- |
- |
584 |
115 |
|||||
|
Floating rate notes |
- |
- |
39 |
50 |
20 |
60 |
- |
- |
- |
- |
- |
- |
- |
- |
59 |
110 |
|||||
|
Derivative financial assets |
- |
- |
215 |
133 |
82 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
297 |
133 |
|||||
|
Cash and cash equivalents |
350 |
213 |
203 |
333 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
553 |
546 |
|||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
79 |
42 |
- |
- |
79 |
42 |
|||||
|
Total |
566 |
431 |
744 |
1,102 |
394 |
421 |
- |
- |
- |
- |
201 |
148 |
9,298 |
10,971 |
11,203 |
13,073 |
|||||
As at 31 December 2008, 83% (2007: 85%) of Standard Life Bank's credit exposure was to internally rated loans and advances to customers which are collateralised via the taking of a first charge over the property. Of the remaining exposure, 15% (2007: 14%) was to entities rated A and above.
Although Standard Life Bank's mortgage arrears levels have increased they remain significantly below industry average at 0.4% (2007: 0.18%), primarily as a result of close monitoring and high credit quality of loans and advances to customers.
At 31 December 2008 Standard Life Bank also had off balance sheet commitments to lend to mortgage customers of £2,165m (2007: £2,237m).
Other
Total credit exposure £1.6bn (2007: £0.8bn)
|
|
|
|
|
|
Credit rating |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
AAA |
AA |
A |
BBB |
Below BBB |
Not rated |
Internally rated |
Total |
||||||||||||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||
|
Debt securities |
188 |
108 |
29 |
12 |
57 |
3 |
12 |
- |
- |
1 |
5 |
6 |
- |
- |
291 |
130 |
||||
|
Loans and receivables |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
16 |
- |
- |
15 |
16 |
15 |
||||
|
Cash and cash equivalents |
60 |
19 |
342 |
329 |
643 |
133 |
104 |
- |
- |
- |
- |
- |
- |
- |
1,149 |
481 |
||||
|
Reinsurance assets |
- |
- |
3 |
4 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
3 |
4 |
||||
|
Derivative financial assets |
- |
- |
- |
- |
2 |
- |
- |
- |
- |
- |
- |
1 |
- |
- |
2 |
1 |
||||
|
Other assets |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
142 |
22 |
- |
123 |
142 |
145 |
||||
|
Total |
248 |
127 |
374 |
345 |
702 |
136 |
116 |
- |
- |
1 |
163 |
29 |
- |
138 |
1,603 |
776 |
||||
As at 31 December 2008, 65% (2007: 62%) of assets held by the 'Other' business units was in cash and cash equivalents rated A and above.
The increase in cash and cash equivalents reflects policyholder deposits of customers of Standard Life International Limited as noted in Section (e).
The 'Other' business units also had off balance sheet financial instrument commitments made by Private Equity Funds (refer to Note 42(b)) of £942m at 31 December 2008 (2007: £752m). These include amounts committed by limited partnerships to raise funding during 'investment periods'.
At 31 December 2008, £601m (2007: £198m) of the financial assets exposed to credit risk included in the consolidated balance sheet were held by third parties. The credit quality of this amount was £345m (57%) (2007: £110m; 55%) rated AAA, £104m (17%) (2007: £38m; 19%) rated AA, £70m (12%) (2007: £29m; 15%) rated A, £14m (3%) (2007: £3m; 2%) rated BBB or below BBB and £66m (11%) (2007: £18m; 9%) not rated. Of the amount not rated £2m (2007: £1m) was considered past due by less than three months. None of these financial assets were considered to be impaired.
Within the wider securities lending programme (refer to Section (h)), Citibank N.A, as agent, manages a portfolio of cash collateral having a value of £2.9bn and a corresponding liability. Standard Life Investments has indemnified the liability to cash collateral providers and the risks of this indemnity are borne by the equity holders. Standard Life Investments has entered into a contractual arrangement with Standard Life Assurance Limited (SLAL) which has resulted in transferring the risk of default on the part of the portfolio of cash to SLAL. Collateral indemnities of other securities lending activity are provided by Citibank N.A.
(f)(ii) Credit exposure to financial assets that are past due or impaired
UK and Europe life and pensions
At 31 December 2008, the total carrying value of other assets of UK and Europe life and pensions was £1,526m (2007: £1,148m). Of this amount, other assets of £74m (2007: £86m) were past due by less than three months, £7m (2007: £2m) were past due by between three and six months, £3m (2007: £2m) were past due by between six and 12 months, and £5m (2007: £1m) were past due by over one year. The majority of the other assets which were past due as at 31 December 2008 and at 31 December 2007 were held in the HWPF. These balances are in respect of financial assets which are not rated. Assets are deemed to be past due when a counterparty has failed to make a payment when contractually due.
The objective evidence that is taken into account in determining whether any impairment of debt securities has occurred includes the following:
-
A default against the terms of the instrument has occurred
-
The issuer is subject to bankruptcy proceedings or is seeking protection from creditors through bankruptcy, individual voluntary arrangements or similar process, and
-
The fair value of the instrument is less than 30% of its original cost and it is considered that a permanent impairment has taken place
As at 31 December 2008, £35m of the financial assets held by UK and Europe life and pensions are considered to be impaired (2007: £nil), comprising other assets which are not rated of £4m (£2m were held in the HWPF and £2m were in respect of unit linked business) and debt securities of £31m. The impaired debt securities comprise £9m in the HWPF (of which £2m are rated A, £6m rated below BBB and £1m which are not rated), £12m in respect of unit linked business (of which £1m are rated A, £2m are rated BBB, £2m are rated below BBB and £7m which are not rated), £9m in the Shareholder Fund rated below BBB and £1m in SLIF which are not rated. An allowance account is not used to record separately any impairment of assets by credit losses. Instead the carrying amount of an asset subject to any impairment charge is directly reduced by the amount of the impairment.
Canada
At 31 December 2008, the total carrying value of loans and advances by Canada was £2,172m (2007: £1,638m). Of this amount, £0.4m (2007: £5m) was past due by less than three months and the balance is internally rated. At 31 December 2008, £1m (2007: £11m) of collateral was held in respect of loans and advances which are past due. At 31 December 2008, £21m (2007: £nil) of loans and advances were individually impaired (these are not rated) and the estimated gross fair value of collateral held against loans and advances that were impaired was £21m (2007: £nil). This also equates to the balance sheet carrying value. The objective evidence that is taken into account in determining whether any impairment of loans and advances has occurred includes the following:
-
Loans and advances to customers that are contractually 90 days in arrears with uncertainty as to collectability or asset not well secured
-
Performing and non-performing loans with provision
-
Reasonable doubt as to collectibility of full amount of principal and interest, and
-
A significant decline in the value of a security underlying a mortgage unless reasonably assumed that mortgage terms and conditions will be met
An allowance account is not used by Canada to record separately any impairment of assets by credit losses. Instead the carrying amount of an asset subject to any impairment charge is directly reduced by the amount of the impairment. Canada follows a similar process as that described below in respect of Standard Life Bank to determine if any of its other financial assets are impaired, and at 31 December 2008 none (2007: £nil) of its financial assets, excluding loans and advances, were considered to be past due or impaired.
Standard Life Bank
At 31 December 2008, the carrying value of loans and advances to customers by Standard Life Bank was £9,517m (2007: £11,105m), which are internally rated. This included £92m (2007: £67m) of loans and advances which were past due by less than 30 days. Standard Life Bank does not consider loans and advances to customers less than 30 days past due to be impaired, unless additional information is available which provides evidence to indicate the contrary.
Loans and advances to customers are determined to be impaired where the account is more than 30 days (one payment) in arrears. In addition, other forms of objective evidence are considered where available, such as:
-
The borrower is subject to bankruptcy proceedings
-
The borrower is seeking protection from creditors through bankruptcy, individual voluntary arrangements or similar process, and
-
The voluntary surrender of collateral by the borrower
There are other forms of objective evidence of impairment but in practice they are not appropriate to this asset class. The remaining loans and advances to customers including those that are past due (up to 30 days in arrears) and those that are neither past due nor impaired are assessed on a collective basis.
For those loans and advances where such evidence exists, Standard Life Bank individually determines the value of impairment loss as the difference between the carrying amount and present value of the estimated future cash flows. Those loans and advances against which objective evidence of impairment does not exist are assessed collectively to establish the value of the impairment loss as a result of a loss event having occurred but for which no objective evidence is currently available.
At 31 December 2008, £127m (2007: £67m) of loans and advances to customers were individually impaired (these are internally rated). The total allowance for impairment for the year for loans and advances is £5.0m (2007: £1.2m) of which £3.8m (2007: £0.9m) represents the individually impaired loans and the remaining amount of £1.2m (2007: £0.3m) represents the collective allowance for impairment. Individual or collective impairment allowances are not currently considered necessary for financial assets other than loans and advances to customers because all other exposures are investment graded, with counterparty credit quality subject to an ongoing monitoring process including monthly reporting to and review by Standard Life Bank's Asset and Liability Committee (ALCO).
At 31 December 2008, the estimated gross fair value of collateral held against loans and advances to customers that were past due but not impaired was £92m (2007: £67m).
The fair value of individually impaired loans and advances to customers after taking into consideration the cash flows from collateral held is £127m (2007: £67m).
Following restructuring, which can include extended payment arrangements, modification and deferral of payments a previously overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgement of Standard Life Bank's management, indicate that payment will most likely continue. These policies are kept under continuous review. Renegotiated loans that would otherwise be past due or impaired totalled £1m at 31 December 2008 (2007: £1m).
Loans and advances to customers are collaterised via the taking of a first charge over the property. Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of similar assets. During 2008, Standard Life Bank obtained £8m (2007: £2m) of assets by taking possession of property collateral held as security against loans and advances to customers. Repossessed properties are sold as soon as practicable on the open market, with the proceeds used to reduce the outstanding indebtedness. Repossessed properties are included in the total loans and advances to customers.
Standard Life Bank follows a similar process to that described above in determining if any of its other financial assets are impaired and at 31 December 2008 none (2007: £nil) of its financial assets, excluding loans and advances to customers, were deemed to be past due or impaired.
Other
At 31 December 2008, £7m (2007: £50m) of other assets which totalled £149m (2007: £195m), were deemed to be past due, the majority of which for less than three months. This amount is in respect of financial assets that are not rated.
An allowance account is not used to record separately any impairment of assets by credit losses. Instead the carrying amount of an asset subject to any impairment charge is directly reduced by the amount of any impairment. As at 31 December 2008, none (2007: £nil) of the financial assets held were deemed to be impaired, either collectively or on an individual basis.
(f)(iii) Collateral accepted and pledged in respect of financial instruments
Collateral is accepted from and provided to certain market counterparties in respect of derivative financial instruments to mitigate counterparty risk in the event of default. The use of collateral in these circumstances is governed by formal bilateral agreements between the parties. The amount of collateral required by either party is calculated daily based on the value of derivative transactions in accordance with these agreements and collateral is moved on a daily basis to ensure there is full collateralisation. Any collateral moved under the terms of these agreements is transferred outright. With regard to either collateral pledged or accepted the Group may request the return of, or be required to return, collateral to the extent it differs from that required under the daily margin calculations. Furthermore alternative collateral, such as securities, may be provided if acceptable to both parties.
Where there is an event of default under the terms of the agreements, any collateral balances will be included in the close-out calculation of net counterparty exposure.
Assets pledged as collateral for liabilities
At 31 December 2008, the Group had pledged £166m (2007: £48m), cash and £1,874m (2007: £287m) of securities as collateral for derivative financial liabilities.
Assets accepted as collateral
At 31 December 2008, the Group had accepted £3,687m (2007: £3,746m) of cash and £5,607m (2007: £7,447m) of securities as collateral. Included within these amounts is collateral which has been accepted in relation to stock lending.
None of the above securities were sold or repledged at the year end. Where there is an event of default under the terms of the agreements, any collateral balances will be included in the close-out calculation of net counterparty exposure.
39. Risk management continued
(f)(iv) Credit risk on loans and receivables and financial liabilities designated as fair value through profit or loss
(f)(iv)(i) Loans and receivables
The Group holds a portfolio of unquoted bonds, which meet the definition of loans and receivables under IAS 39 Financial Instruments: Recognition and Measurement and on initial recognition were designated as fair value through profit or loss (FVTPL). The Group's exposure to unquoted bonds at 31 December 2008 was £349m (2007: £575m). The fair value of these bonds is calculated using a valuation technique which refers to the current fair value of other similar financial instruments in addition to other unobservable market data. During the year, fair value movements of a £14m gain (2007: £32m gain) in relation to these bonds were recognised in the income statement. The table below shows the movement during the period and cumulatively in the fair value of the unquoted bonds attributable to changes in credit risk and changes in market conditions that give rise to market risk.
|
|
Cumulative fair value at 1 January |
Fair value movement through the income statement during the year |
Additions during the year |
Maturities/ disposals during the year |
Fair value at 31 December |
||||||||||
|
|
Attributable to credit risk |
Attributable to market risk |
Total |
Attributable to credit risk |
Attributable to market risk |
Total |
Attributable to credit risk |
Attributable to market risk |
Total |
Attributable to credit risk |
Attributable to market risk |
Total |
Attributable to credit risk |
Attributable to market risk |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
UK and Europe life and pensions |
(9) |
187 |
178 |
(24) |
15 |
(9) |
- |
- |
- |
- |
(11) |
(11) |
(33) |
191 |
158 |
|
Canada |
- |
397 |
397 |
(19) |
42 |
23 |
- |
12 |
12 |
- |
(241) |
(241) |
(19) |
210 |
191 |
|
Total |
(9) |
584 |
575 |
(43) |
57 |
14 |
- |
12 |
12 |
- |
(252) |
(252) |
(52) |
401 |
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK and Europe life and pensions |
(1) |
183 |
182 |
(8) |
(3) |
(11) |
- |
11 |
11 |
- |
(4) |
(4) |
(9) |
187 |
178 |
|
Canada |
- |
306 |
306 |
- |
43 |
43 |
- |
91 |
91 |
- |
(43) |
(43) |
- |
397 |
397 |
|
Total |
(1) |
489 |
488 |
(8) |
40 |
32 |
- |
102 |
102 |
- |
(47) |
(47) |
(9) |
584 |
575 |
As described in Section (e) above, the Group risk management framework defines market risk as the risk that arises from the Group's exposure to market movements, which could result in the income, or value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts. The movement in the fair value of the bonds in the tables above that has been attributed to credit risk is the component that is not attributable to changes in market conditions that give risk to market risk. For financial liabilities at fair value through profit or loss, the Group does not hold any credit related derivatives for the purpose of mitigating the maximum exposure to credit risk.
(f)(iv)(ii) Financial liabilities
The Group has designated unit linked non-participating investment contract liabilities as FVTPL. These liabilities are implicitly managed on a fair value basis as their value is directly linked to the market value of the underlying portfolio of assets. The Group is not exposed to credit risk in respect of these liabilities since the unit holders bear the financial risks associated with these contracts.
Therefore, the movement, during the period and cumulatively, in the fair value of the unit linked non-participating investment contract liabilities is only attributable to market risk.
(g) Liquidity risk
The Group defines liquidity risk as the risk that the Group or individual business units, although solvent, do not have sufficient financial resources available to meet their obligations as they fall due, or can secure them only at excessive cost. The Group manages liquidity risk primarily by:
-
Monitoring, assessment and oversight of invested assets within the Group
-
Use of diversified instruments across a range of durations
-
Central co-ordination of strategic planning and funding requirements
-
Operation of contingency funding plans
-
Regular cash flow assessments against forecasted funding requirements
-
Monitoring capital requirements and capital available to the Group and business units, and
-
Maintenance of a portfolio (currently undrawn) of committed bank facilities
Liquidity risk is managed by each business unit in consultation with the central Group treasury function. Each business unit is responsible for the definition and management of its contingency funding plans. Contingency funding plans operate on a continuous basis and are fully documented. Each business unit maintains a portfolio of high quality liquid assets to enable payment of expected claims as and when they fall due.
The liquidity of Standard Life Bank is supported by funding from a diverse range of third party sources including:
-
Retail deposits
-
Commercial paper and medium term loans note issues
-
Collateralised borrowings
-
Long-term securitisation programmes, and
-
Committed bank facilities
Standard Life Bank manages its funding requirements by monitoring future cash flows to ensure that requirements can be met, including replenishment of funds as they mature or are borrowed by customers.
During 2008 Standard Life Bank, in common with the banking industry as a whole, has been impacted by the global credit crisis and its associated impact on liquidity. In response, Standard Life Bank has continued to enhance its liquidity management processes, including contingency planning and sensitivity testing, and reporting to ensure sufficient liquidity is available to fund maturing liabilities and manage the balance sheet under current market conditions.
(g)(i) Maturity analysis
The cash flows payable by the Group under its financial liabilities have been analysed by remaining contractual and/or expected maturities at the balance sheet date for each business area in the following ways:
Expected cash flows - insurance and investment contract liabilities
The tables showing the expected cash flows payable under the insurance and investment contract liabilities of UK and Europe life and pensions, Canada and Other provide an analysis of the amounts recognised on the balance sheet by their expected maturity at that date.
Contractual cash flows - financial liabilities excluding insurance and participating investment contract liabilities and derivative financial instruments settled on a gross basis
The analysis presents the contractual cash flows payable by the Group under these instruments by remaining contractual maturity as at 31 December 2008. The amounts shown are the contractual undiscounted cash flows, whereas the Group manages inherent liquidity risk based on expected discounted cash flows. The Group's derivative financial instruments that will be settled on a net basis include interest rate swaps, credit default swaps and equity futures.
Contractual cash flows - derivative financial instruments settled on a gross basis
The Group's derivative financial instruments that will be settled on a gross basis include foreign exchange forward contracts and cross-currency swaps. The analysis presents the Group's derivative financial instruments that will be settled on a gross basis by relevant maturity groupings by remaining contractual maturity as at 31 December 2008. The amounts disclosed are the contractual undiscounted cash flows both in respect of derivative financial instruments that are in either a liability or an asset position at 31 December 2008.
UK and Europe life and pensions
The following tables show the expected timing of the cash flows payable on the amounts recognised on the balance sheet for the insurance and investment contract liabilities of UK and Europe life and pensions as at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Heritage With Profits Fund |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities - annuities |
857 |
2,848 |
2,515 |
1,628 |
991 |
1,316 |
10,155 |
|
Non-participating insurance contract liabilities - other (excluding unit linked) |
10 |
- |
38 |
69 |
65 |
47 |
229 |
|
Non-participating investment contract liabilities (excluding unit linked) |
10 |
7 |
1 |
1 |
- |
- |
19 |
|
Participating insurance contract liabilities |
2,011 |
7,739 |
4,324 |
1,101 |
611 |
1,071 |
16,857 |
|
Participating investment contract liabilities |
792 |
3,149 |
3,613 |
3,188 |
2,162 |
2,757 |
15,661 |
|
|
3,680 |
13,743 |
10,491 |
5,987 |
3,829 |
5,191 |
42,921 |
|
Proprietary Business Fund |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities - other (excluding unit linked) |
(2) |
(5) |
(1) |
5 |
12 |
12 |
21 |
|
Non-participating insurance contract liabilities - unit linked |
2 |
6 |
5 |
4 |
2 |
3 |
22 |
|
|
- |
1 |
4 |
9 |
14 |
15 |
43 |
|
Standard Life Investment Funds |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities - annuities |
90 |
324 |
326 |
264 |
206 |
344 |
1,554 |
|
Non-participating investment contract liabilities (excluding unit linked) |
- |
1 |
1 |
- |
- |
- |
2 |
|
Non-participating insurance contract liabilities - unit linked |
167 |
457 |
327 |
155 |
27 |
7 |
1,140 |
|
Non-participating investment contract liabilities - unit linked (excluding SLPF*) |
3,940 |
11,788 |
9,991 |
6,780 |
4,204 |
4,628 |
41,331 |
|
Non-participating investment contract liabilities - unit linked (SLPF) |
65 |
227 |
205 |
141 |
100 |
137 |
875 |
|
|
4,262 |
12,797 |
10,850 |
7,340 |
4,537 |
5,116 |
44,902 |
|
Other with profits funds |
|
|
|
|
|
|
|
|
Participating insurance contract liabilities |
5 |
26 |
44 |
46 |
43 |
66 |
230 |
|
Participating investment contract liabilities |
- |
2 |
2 |
2 |
1 |
1 |
8 |
|
|
5 |
28 |
46 |
48 |
44 |
67 |
238 |
|
Total |
7,947 |
26,569 |
21,391 |
13,384 |
8,424 |
10,389 |
88,104 |
* Standard Life Pension Funds Limited
At 31 December 2008 the unallocated divisible surplus of £863m (2007: £950m) had no defined maturity date. This financial liability is recognised in the Heritage With Profits Fund.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2007 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Heritage With Profits Fund |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities - annuities |
844 |
2,939 |
2,825 |
2,000 |
1,312 |
1,802 |
11,722 |
|
Non-participating insurance contract liabilities - other (excluding unit linked) |
8 |
9 |
55 |
82 |
79 |
58 |
291 |
|
Non-participating investment contract liabilities (excluding unit linked) |
30 |
18 |
1 |
1 |
1 |
1 |
52 |
|
Participating insurance contract liabilities |
2,580 |
8,177 |
5,636 |
1,215 |
552 |
649 |
18,809 |
|
Participating investment contract liabilities |
918 |
3,373 |
3,940 |
3,582 |
2,451 |
3,218 |
17,482 |
|
|
4,380 |
14,516 |
12,457 |
6,880 |
4,395 |
5,728 |
48,356 |
|
|
|
|
|
|
|
|
|
|
Proprietary Business Fund |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities - other (excluding unit linked) |
(1) |
(1) |
3 |
7 |
11 |
14 |
33 |
|
Non-participating investment contract liabilities (excluding unit linked) |
1 |
3 |
5 |
4 |
3 |
3 |
19 |
|
Non-participating insurance contract liabilities - unit linked |
1 |
3 |
3 |
2 |
2 |
3 |
14 |
|
|
1 |
5 |
11 |
13 |
16 |
20 |
66 |
|
|
|
|
|
|
|
|
|
|
Standard Life Investment Funds |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities - annuities |
58 |
204 |
221 |
213 |
187 |
321 |
1,204 |
|
Non-participating investment contract liabilities (excluding unit linked) |
- |
2 |
1 |
1 |
- |
1 |
5 |
|
Non-participating insurance contract liabilities - unit linked |
248 |
589 |
424 |
204 |
46 |
11 |
1,522 |
|
Non-participating investment contract liabilities - unit linked (excluding SLPF*) |
3,517 |
13,446 |
11,859 |
8,186 |
5,380 |
5,995 |
48,383 |
|
Non-participating investment contract liabilities - unit linked (SLPF) |
84 |
304 |
256 |
164 |
116 |
126 |
1,050 |
|
|
3,907 |
14,545 |
12,761 |
8,768 |
5,729 |
6,454 |
52,164 |
|
|
|
|
|
|
|
|
|
|
Other with profits funds |
|
|
|
|
|
|
|
|
Participating insurance contract liabilities |
2 |
11 |
20 |
26 |
24 |
27 |
110 |
|
Participating investment contract liabilities |
- |
1 |
1 |
1 |
1 |
1 |
5 |
|
|
2 |
12 |
21 |
27 |
25 |
28 |
115 |
|
|
|
|
|
|
|
|
|
|
Total |
8,290 |
29,078 |
25,250 |
15,688 |
10,165 |
12,230 |
100,701 |
* Standard Life Pension Funds Limited
UK and Europe life and pensions maintains a portfolio of high quality liquid assets at all times therefore ensuring that it can meet its financial obligations as they fall due.
To align with the risk management approach towards liquidity risk and existing management projections, the analysis above facilitates consideration of the settlement obligations of both insurance and investment contracts.
The tables below present the undiscounted cash flows payable by UK and Europe life and pensions under financial instruments by remaining contractual maturity at the balance sheet date and include the non-participating investment contract liabilities. The analysis excludes derivative financial instruments that will be settled on a gross basis and insurance and participating investment contract liabilities. Given that policyholders can usually choose to surrender in part or in full their unit linked contracts at any time, the Group's non-participating investment contract unit linked liabilities presented in the table below have been designated as less than one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. The Group can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The length of any such delay is dependent on the underlying financial assets.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Heritage With Profits Fund |
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities (excluding unit linked) |
13 |
6 |
- |
- |
- |
- |
19 |
|
Interest rate swaps |
19 |
213 |
65 |
27 |
8 |
(50) |
282 |
|
Inflation swaps |
- |
- |
- |
- |
- |
12 |
12 |
|
Equity futures |
12 |
- |
- |
- |
- |
- |
12 |
|
Other liabilities |
3,293 |
741 |
16 |
10 |
9 |
115 |
4,184 |
|
|
3,337 |
960 |
81 |
37 |
17 |
77 |
4,509 |
|
Proprietary Business Fund |
|
|
|
|
|
|
|
|
Interest rate swaps |
1 |
6 |
4 |
2 |
3 |
7 |
23 |
|
Other liabilities |
202 |
2 |
- |
- |
- |
- |
204 |
|
|
203 |
8 |
4 |
2 |
3 |
7 |
227 |
|
Standard Life Investment Funds |
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities (excluding unit linked) |
2 |
- |
- |
- |
- |
- |
2 |
|
Non-participating investment contract liabilities - unit linked (excluding SLPF) |
41,331 |
- |
- |
- |
- |
- |
41,331 |
|
Non-participating investment contract liabilities - unit linked (SLPF) |
875 |
- |
- |
- |
- |
- |
875 |
|
Interest rate swaps |
6 |
28 |
8 |
1 |
1 |
- |
44 |
|
Other liabilities |
370 |
- |
- |
- |
- |
- |
370 |
|
|
42,584 |
28 |
8 |
1 |
1 |
- |
42,622 |
|
Other with profits funds |
|
|
|
|
|
|
|
|
Interest rate swaps |
- |
- |
- |
- |
(1) |
(11) |
(12) |
|
Other liabilities |
1 |
- |
- |
- |
- |
- |
1 |
|
|
1 |
- |
- |
- |
(1) |
(11) |
(11) |
|
Shareholder Fund |
|
|
|
|
|
|
|
|
Subordinated liabilities |
118 |
1,151 |
652 |
508 |
635 |
- |
3,064 |
|
Interest rate swaps |
(1) |
(2) |
- |
- |
(1) |
- |
(4) |
|
Other liabilities |
200 |
- |
- |
- |
- |
- |
200 |
|
|
317 |
1,149 |
652 |
508 |
634 |
- |
3,260 |
|
Unit linked liabilities |
|
|
|
|
|
|
|
|
Other liabilities |
195 |
13 |
11 |
9 |
5 |
75 |
308 |
|
Interest rate swaps |
6 |
36 |
18 |
4 |
11 |
32 |
107 |
|
Property Index swaps |
30 |
20 |
- |
- |
- |
- |
50 |
|
Inflation swaps |
- |
- |
1 |
3 |
16 |
97 |
117 |
|
Variance swaps |
20 |
- |
- |
- |
- |
- |
20 |
|
Currency options |
23 |
3 |
- |
- |
- |
- |
26 |
|
|
274 |
72 |
30 |
16 |
32 |
204 |
628 |
|
Total |
46,716 |
2,217 |
775 |
564 |
686 |
277 |
51,235 |
39. Risk management continued
(g) Liquidity risk continued
(g)(i) Maturity analysis continued
'Deposits received from reinsurers' are held in the Heritage With Profits Fund (HWPF) and reflect the liability to repay the deposit received from an external reinsurer under the reinsurance transaction referred to in Sections (d) and (e). The timing and amount of the payment of the cash flows under this liability are defined by the terms of the treaty under which there is no defined contractual maturity date to repay the deposit as at 31 December 2008. Further information relating to the repayment of the deposit or the making of further deposits is included in Note 31.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2007 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Heritage With Profits Fund |
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities (excluding unit linked) |
34 |
16 |
- |
- |
- |
- |
50 |
|
Interest rate swaps |
70 |
99 |
126 |
114 |
60 |
(63) |
406 |
|
Credit default swaps |
2 |
8 |
- |
- |
- |
- |
10 |
|
Other liabilities |
3,833 |
36 |
6 |
6 |
6 |
100 |
3,987 |
|
|
3,939 |
159 |
132 |
120 |
66 |
37 |
4,453 |
|
Proprietary Business Fund |
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities (excluding unit linked) |
22 |
- |
- |
- |
- |
- |
22 |
|
Interest rate swaps |
- |
1 |
2 |
2 |
2 |
4 |
11 |
|
Other liabilities |
107 |
- |
- |
- |
- |
- |
107 |
|
|
129 |
1 |
2 |
2 |
2 |
4 |
140 |
|
Standard Life Investment Funds |
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities (excluding unit linked) |
6 |
- |
- |
- |
- |
- |
6 |
|
Non-participating investment contract liabilities - unit linked (excluding SLPF) |
48,383 |
- |
- |
- |
- |
- |
48,383 |
|
Non-participating investment contract liabilities - unit linked (SLPF) |
1,050 |
- |
- |
- |
- |
- |
1,050 |
|
Interest rate swaps |
3 |
9 |
6 |
2 |
- |
(11) |
9 |
|
Basis swaps |
- |
- |
- |
- |
- |
2 |
2 |
|
Equity futures |
2 |
- |
- |
- |
- |
- |
2 |
|
Options |
- |
(1) |
- |
- |
- |
- |
(1) |
|
Other liabilities |
263 |
11 |
14 |
13 |
8 |
127 |
436 |
|
|
49,707 |
19 |
20 |
15 |
8 |
118 |
49,887 |
|
Other with profits funds |
|
|
|
|
|
|
|
|
Interest rate swaps |
- |
- |
- |
1 |
1 |
- |
2 |
|
Other liabilities |
15 |
- |
- |
- |
- |
- |
15 |
|
|
15 |
- |
- |
1 |
1 |
- |
17 |
|
Shareholder Fund |
|
|
|
|
|
|
|
|
Subordinated liabilities |
103 |
961 |
574 |
528 |
669 |
- |
2,835 |
|
Interest rate swaps |
6 |
9 |
7 |
4 |
1 |
- |
27 |
|
|
109 |
970 |
581 |
532 |
670 |
- |
2,862 |
|
Unit linked liabilities |
|
|
|
|
|
|
|
|
Other liabilities |
106 |
- |
- |
- |
- |
- |
106 |
|
|
106 |
- |
- |
- |
- |
- |
106 |
|
|
|
|
|
|
|
|
|
|
Total |
54,005 |
1,149 |
735 |
670 |
747 |
159 |
57,465 |
At 31 December 2008, the undiscounted cash flows which were repayable on demand were £170m (2007: £446m). These comprise other liabilities of £84m (2007: £98m) of the HWPF, £63m (2007: £124m) of the Proprietary Business Fund (PBF), £2m (2007: £224m) of Standard Life Investment Funds (SLIF), £1m of Other with profits funds (2007: nil) and £20m of unit linked business (2007: £nil). At 31 December 2008 the undiscounted cash flows which had no contractual maturity date were £4m (2007: nil).
The following tables show the undiscounted cash flows payable by UK and Europe life and pensions under those derivative financial instruments that will be settled on a gross basis by remaining contractual maturity at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Heritage With Profits Fund |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(1,497) |
(320) |
- |
- |
- |
- |
(1,817) |
|
Inflow |
1,372 |
238 |
- |
- |
- |
- |
1,610 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(601) |
- |
- |
- |
- |
- |
(601) |
|
Inflow |
469 |
- |
- |
- |
- |
- |
469 |
|
Inflow/(outflow) |
(257) |
(82) |
- |
- |
- |
- |
(339) |
|
Proprietary Business Fund |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(6) |
- |
- |
- |
- |
- |
(6) |
|
Inflow |
5 |
- |
- |
- |
- |
- |
5 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(4) |
- |
- |
- |
- |
- |
(4) |
|
Inflow |
2 |
- |
- |
- |
- |
- |
2 |
|
Inflow/(outflow) |
(3) |
- |
- |
- |
- |
- |
(3) |
|
Standard Life Investment Funds |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(66) |
- |
- |
- |
- |
- |
(66) |
|
Inflow |
63 |
- |
- |
- |
- |
- |
63 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
- |
- |
- |
- |
- |
- |
- |
|
Inflow |
3 |
- |
- |
- |
- |
- |
3 |
|
Inflow/(outflow) |
- |
- |
- |
- |
- |
- |
- |
|
Shareholder Fund |
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
|
|
|
|
|
|
|
Outflow |
(35) |
(585) |
- |
- |
- |
- |
(620) |
|
Inflow |
46 |
864 |
- |
- |
- |
- |
910 |
|
Inflow/(outflow) |
11 |
279 |
- |
- |
- |
- |
290 |
|
Unit Linked Liabilities |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(2,159) |
- |
- |
- |
- |
- |
(2,159) |
|
Inflow |
2,074 |
- |
- |
- |
- |
- |
2,074 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(387) |
- |
- |
- |
- |
- |
(387) |
|
Inflow |
241 |
- |
- |
- |
- |
- |
241 |
|
Cross-currency swaps |
|
|
|
|
|
|
|
|
Outflow |
(4) |
- |
- |
- |
- |
- |
(4) |
|
Inflow |
5 |
- |
- |
- |
- |
- |
5 |
|
Swaptions |
|
|
|
|
|
|
|
|
Outflow |
(1) |
(15) |
(18) |
(18) |
(18) |
(36) |
(106) |
|
Inflow |
- |
6 |
12 |
16 |
19 |
30 |
83 |
|
Inflow/(outflow) |
(231) |
(9) |
(6) |
(2) |
1 |
(6) |
(253) |
|
Other with profits funds |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(15) |
- |
- |
- |
- |
- |
(15) |
|
Inflow |
16 |
- |
- |
- |
- |
- |
16 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(1) |
- |
- |
- |
- |
- |
(1) |
|
Inflow |
15 |
- |
- |
- |
- |
- |
15 |
|
Inflow/(outflow) |
15 |
- |
- |
- |
- |
- |
15 |
|
Total inflow/(outflow) |
(465) |
188 |
(6) |
(2) |
1 |
(6) |
(290) |
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater 20 years |
Total |
|
2007 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Heritage With Profits Fund |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(806) |
(506) |
- |
- |
- |
- |
(1,312) |
|
Inflow |
801 |
488 |
- |
- |
- |
- |
1,289 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(2) |
- |
- |
- |
- |
- |
(2) |
|
Inflow |
- |
- |
- |
- |
- |
- |
- |
|
Inflow/(outflow) |
(7) |
(18) |
- |
- |
- |
- |
(25) |
|
|
|
|
|
|
|
|
|
|
Proprietary Business Fund |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(2) |
- |
- |
- |
- |
- |
(2) |
|
Inflow |
2 |
- |
- |
- |
- |
- |
2 |
|
Inflow/(outflow) |
- |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
Standard Life Investment Funds |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(730) |
- |
- |
- |
- |
- |
(730) |
|
Inflow |
713 |
- |
- |
- |
- |
- |
713 |
|
Cross-currency swap |
|
|
|
|
|
|
|
|
Outflow |
(3) |
(5) |
- |
- |
- |
- |
(8) |
|
Inflow |
4 |
6 |
- |
- |
- |
- |
10 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(1) |
- |
- |
- |
- |
- |
(1) |
|
Inflow |
2 |
- |
- |
- |
- |
- |
2 |
|
Swaptions |
|
|
|
|
|
|
|
|
Outflow |
- |
(1) |
(1) |
(1) |
(1) |
(2) |
(6) |
|
Inflow |
- |
- |
1 |
1 |
1 |
2 |
5 |
|
Inflow/(outflow) |
(15) |
- |
- |
- |
- |
- |
(15) |
|
|
|
|
|
|
|
|
|
|
Shareholder Fund |
|
|
|
|
|
|
|
|
Cross-currency swap |
|
|
|
|
|
|
|
|
Outflow |
(35) |
(620) |
- |
- |
- |
- |
(655) |
|
Inflow |
35 |
692 |
- |
- |
- |
- |
727 |
|
Inflow/(outflow) |
- |
72 |
- |
- |
- |
- |
72 |
|
|
|
|
|
|
|
|
|
|
Total inflow/(outflow) |
(22) |
54 |
- |
- |
- |
- |
32 |
At 31 December 2008, none of the undiscounted cash flows under those derivative financial instruments that will be settled on a gross basis were either repayable on demand (2007: £nil) or had no contractual maturity date (2007: £nil).
Canada
The following tables show the expected timing of the cash flows payable on the amounts recognised on the balance sheet for the insurance and investment contract liabilities of Canada as at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Participating insurance contract liabilities |
2 |
9 |
24 |
32 |
39 |
432 |
538 |
|
Participating investment contract liabilities |
- |
5 |
- |
- |
- |
- |
5 |
|
Non-participating insurance contract liabilities |
321 |
1,060 |
1,216 |
730 |
482 |
2,538 |
6,347 |
|
Non-participating investment contract liabililities |
1,448 |
3,712 |
1,946 |
954 |
499 |
554 |
9,113 |
|
Total |
1,771 |
4,786 |
3,186 |
1,716 |
1,020 |
3,524 |
16,003 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Participating insurance contract liabilities |
3 |
11 |
27 |
35 |
42 |
408 |
526 |
|
Participating investment contract liabilities |
- |
5 |
- |
- |
- |
- |
5 |
|
Non-participating insurance contract liabilities |
170 |
509 |
528 |
436 |
355 |
4,020 |
6,018 |
|
Non-participating investment contract liabililities |
2,332 |
4,932 |
1,115 |
285 |
129 |
114 |
8,907 |
|
Total |
2,505 |
5,457 |
1,670 |
756 |
526 |
4,542 |
15,456 |
At 31 December 2008 Canada's unallocated divisible surplus of £1m (2007: £1m) had no defined maturity date and there were no expected cash flows which were repayable on demand (2007: £nil).
Canada maintains a portfolio of high quality liquid assets at all times therefore ensuring that it can meet its financial obligations as they fall due.
To align with the risk management approach towards liquidity risk and existing management projections, the analysis above facilitates consideration of the settlement obligations of both insurance and investment contracts.
The tables below present the undiscounted cash flows payable by Canada under financial instruments by remaining contractual maturity at the balance sheet date and include the non-participating investment contract liabilities. The analysis excludes insurance and participating investment contract liabilities.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Borrowings |
30 |
13 |
- |
- |
- |
- |
43 |
|
Non-participating investment contract liabilities |
8,733 |
147 |
115 |
61 |
30 |
27 |
9,113 |
|
Other liabilities |
108 |
26 |
11 |
7 |
5 |
12 |
169 |
|
Total |
8,871 |
186 |
126 |
68 |
35 |
39 |
9,325 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Borrowings |
35 |
12 |
- |
- |
- |
- |
47 |
|
Non-participating investment contract liabilities |
8,568 |
134 |
106 |
52 |
25 |
22 |
8,907 |
|
Other liabilities |
109 |
22 |
10 |
6 |
5 |
9 |
161 |
|
Total |
8,712 |
168 |
116 |
58 |
30 |
31 |
9,115 |
At 31 December 2008, the undiscounted cash flows which were repayable on demand were £nil (2007: £nil) and the undiscounted cash flows which had no contractual maturity date were other liabilities of £39m (2007: £94m).
Canada also had off balance sheet commitments in respect of financial instruments including stand by letter of credit and commitments to extend credit as at 31 December 2008 of £95m and £14m with a contractual maturity of within one year and between one and five years respectively (2007: £68m, £16m).
39. Risk management continued
(g) Liquidity risk continued
(g)(i) Maturity analysis continued
Standard Life Bank
The following tables show the undiscounted cash flows payable by Standard Life Bank under financial liabilities (excluding derivative financial instruments that will be settled on a gross basis) by remaining contractual maturities as at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Customer accounts |
4,991 |
42 |
- |
- |
- |
- |
5,033 |
|
Deposits by banks |
2,004 |
3 |
- |
- |
- |
- |
2,007 |
|
Securitised notes in issue |
463 |
2,113 |
- |
- |
- |
- |
2,576 |
|
Certificates of deposit |
229 |
- |
- |
- |
- |
- |
229 |
|
Commercial paper |
229 |
- |
- |
- |
- |
- |
229 |
|
Medium term notes |
4 |
16 |
121 |
- |
- |
- |
141 |
|
Subordinated liabilities |
16 |
65 |
289 |
- |
- |
- |
370 |
|
Interest rate swaps |
67 |
73 |
7 |
- |
- |
- |
147 |
|
Other liabilities |
23 |
- |
- |
- |
- |
- |
23 |
|
Total |
8,026 |
2,312 |
417 |
- |
- |
- |
10,755 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Customer accounts |
4,544 |
65 |
- |
- |
- |
- |
4,609 |
|
Deposits by banks |
1,130 |
382 |
- |
- |
- |
- |
1,512 |
|
Securitised notes in issue |
1,940 |
2,483 |
- |
- |
- |
- |
4,423 |
|
Certificates of deposit |
1,059 |
- |
- |
- |
- |
- |
1,059 |
|
Commercial paper |
696 |
- |
- |
- |
- |
- |
696 |
|
Medium term notes |
13 |
25 |
93 |
- |
- |
- |
131 |
|
Subordinated liabilities |
16 |
65 |
306 |
- |
- |
- |
387 |
|
Interest rate swaps |
4 |
33 |
- |
- |
- |
- |
37 |
|
Embedded derivatives |
- |
1 |
- |
- |
- |
- |
1 |
|
Other liabilities |
45 |
- |
- |
- |
- |
- |
45 |
|
Total |
9,447 |
3,054 |
399 |
- |
- |
- |
12,900 |
At 31 December 2008, Standard Life Bank also had commitments to lend to mortgage customers of £2,165m (2007: £2,237m). These amounts relate to mortgage customers who have overpaid on flexible mortgages or who have drawn down a smaller mortgage than they were offered, the difference remaining available to draw down at a future date. Standard Life Bank retains liquidity to fund these draw downs and can limit the level of draw downs in the event of property price declines or where specific customers experience arrears.
The assets which are available to meet all of the liabilities and to cover outstanding loan commitments include cash, operational balances with the Bank of England and loans and advances to banks. Standard Life Bank also plans to be able to meet unexpected net cash outflows by selling securities held at fair value through profit or loss, raising funding in the wholesale markets, accessing additional funding sources and entering into asset sale and repurchase agreements.
The following tables present the undiscounted cash flows payable by Standard Life Bank under those derivative financial instruments that will be settled on a gross basis by remaining contractual maturity at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(123) |
- |
- |
- |
- |
- |
(123) |
|
Inflow |
140 |
- |
- |
- |
- |
- |
140 |
|
Cross-currency swap |
|
|
|
|
|
|
|
|
Outflow |
(229) |
(340) |
(90) |
- |
- |
- |
(659) |
|
Inflow |
313 |
479 |
121 |
- |
- |
- |
913 |
|
Total inflow/(outflow) |
101 |
139 |
31 |
- |
- |
- |
271 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(582) |
- |
- |
- |
- |
- |
(582) |
|
Inflow |
599 |
- |
- |
- |
- |
- |
599 |
|
Cross-currency swap |
|
|
|
|
|
|
|
|
Outflow |
(1,202) |
(949) |
(95) |
- |
- |
- |
(2,246) |
|
Inflow |
1,177 |
983 |
97 |
- |
- |
- |
2,257 |
|
Total inflow/(outflow) |
(8) |
34 |
2 |
- |
- |
- |
28 |
At 31 December 2008, Standard Life Bank did not have any undiscounted cash flows which were repayable on demand (2007: £nil) or any undiscounted cash flows which had no contractual maturity date (2007: £nil).
Other
The following tables show the expected timing of the cash flows payable on the amounts recognised on the balance sheet of the insurance and investment contract liabilities as at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Non-participating insurance contract liabilities |
164 |
2 |
1 |
- |
- |
- |
167 |
|
Non-participating investment contract liabilities |
67 |
182 |
228 |
228 |
228 |
- |
933 |
|
Total |
231 |
184 |
229 |
228 |
228 |
- |
1,100 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Non-participating insurance contract liabilities |
177 |
- |
- |
- |
- |
- |
177 |
|
Non-participating investment contract liabilities |
35 |
64 |
82 |
82 |
82 |
- |
345 |
|
Total |
212 |
64 |
82 |
82 |
82 |
- |
522 |
To align with the risk management approach towards liquidity risk and existing management projections, the analysis above facilitates consideration of the settlement obligations of both insurance and investment contracts.
The tables below present the undiscounted cash flows payable under financial instruments by remaining contractual maturity at the balance sheet date and include the non-participating investment contract liabilities. The analysis excludes derivative financial instruments that will be settled on a gross basis and insurance and participating investment contract liabilities. The non-participating investment contract liabilities are presented in the earliest period, on the basis that all policyholders have the option of immediate surrender.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Non-participating investment contract liabilities |
912 |
- |
- |
- |
- |
- |
912 |
|
Inflation swaps |
- |
- |
- |
- |
- |
1 |
1 |
|
Other liabilities |
27 |
- |
- |
- |
- |
- |
27 |
|
Total |
939 |
- |
- |
- |
- |
1 |
940 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities |
326 |
- |
- |
- |
- |
- |
326 |
|
Other liabilities |
284 |
12 |
3 |
1 |
1 |
- |
301 |
|
Total |
610 |
12 |
3 |
1 |
1 |
- |
627 |
At 31 December 2008, the undiscounted cash flows which were repayable on demand were £942m (2007: £752m). These are in respect of off balance sheet financial instrument commitments made by Private Equity Funds (refer to Note 42(b)) and include amounts committed by limited partnerships to raise funding during 'investment periods'. The undiscounted cash flows which had no contractual maturity date were other liabilities of £51m (2007: £84m).
The Group companies within 'Other' ensure that they can meet their financial obligations as they fall due by maintaining suitable levels of liquid assets.
The following table presents the undiscounted cash flows payable by 'Other' under those derivative financial instruments that will be settled on a gross basis by remaining contractual maturity at the balance sheet date.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(837) |
- |
- |
- |
- |
- |
(837) |
|
Inflow |
811 |
- |
- |
- |
- |
- |
811 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(4) |
- |
- |
- |
- |
- |
(4) |
|
Inflow |
6 |
- |
- |
- |
- |
- |
6 |
|
Total inflow/(outflow) |
(24) |
- |
- |
- |
- |
- |
(24) |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(8) |
- |
- |
- |
- |
- |
(8) |
|
Inflow |
- |
- |
- |
- |
- |
- |
- |
|
Total inflow/(outflow) |
(8) |
- |
- |
- |
- |
- |
(8) |
At 31 December 2008, none of the undiscounted cash flows under those derivative financial instruments that will be settled on a gross basis were either repayable on demand (2007: £nil) or had no contractual maturity date (2007: £nil).
At 31 December 2008, the undiscounted contractual cash flows payable in respect of financial liabilities (excluding derivative financial instruments) held by third parties, included in the consolidated balance sheet, was £61m (2007: £26m), which was all due within one year.
The following table presents the undiscounted contractual cash flows payable in respect of derivative financial instruments held by third parties, included in the consolidated balance sheet, that will be settled on a gross basis.
|
|
Within 1 year |
1-5 years |
5-10 years |
10-15 years |
15-20 years |
Greater than 20 years |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(493) |
- |
- |
- |
- |
- |
(493) |
|
Inflow |
457 |
- |
- |
- |
- |
- |
457 |
|
Bond futures |
|
|
|
|
|
|
|
|
Outflow |
(37) |
- |
- |
- |
- |
- |
(37) |
|
Inflow |
30 |
- |
- |
- |
- |
- |
30 |
|
Swaptions |
|
|
|
|
|
|
|
|
Outflow |
- |
(1) |
(2) |
(2) |
(2) |
(3) |
(10) |
|
Inflow |
- |
- |
1 |
1 |
2 |
3 |
7 |
|
Total inflow/(outflow) |
(43) |
(1) |
(1) |
(1) |
- |
- |
(46) |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
|
|
|
|
|
|
Outflow |
(12) |
- |
- |
- |
- |
- |
(12) |
|
Inflow |
12 |
- |
- |
- |
- |
- |
12 |
|
Total inflow/(outflow) |
- |
- |
- |
- |
- |
- |
- |
At 31 December 2008, 'Third party interests in consolidated funds' was £1,603m (2007: £1,501m), of which the contractual maturity was £1,366m (2007: £1,354m) within one year, £12m (2007: £17m) in five to ten years and £225m (2007: £130m) in ten to 15 years.
END OF PART 4 OF 6
This information is provided by RNS
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