Final Results - Part 5a of 7

RNS Number : 5289P

Standard Life plc

19 February 2016

 

Standard Life plc

Full year results 2015

Part 5a of 7

31.  Movements in other reserves

In July 2006 Standard Life demutualised and during this process the merger reserve, the reserve arising on Group reconstruction and the special reserve were created.

Merger Reserve: At demutualisation in July 2006 the Company issued shares to former members of the mutual company. The difference between the nominal value of these shares and their issue value was recognised in the merger reserve. The reserve comprises components attaching to each subsidiary that was transferred to the Company at demutualisation based on their fair value at that date. On disposal or impairment of such a subsidiary the related component of the merger reserve is released to retained earnings. 

Reserve arising on Group reconstruction: The value of the shares issued at demutualisation was equal to the fair value of the business at that date. The business's assets and liabilities were recognised at their book value at the time of demutualisation. The difference between the book value of the business's net assets and its fair value was recognised in the reserve arising on Group reconstruction. The reserve comprises components attaching to each subsidiary that was transferred to the Company at demutualisation. On disposal of such a subsidiary the related component of the reserve arising on Group reconstruction is released to retained earnings.

Special reserve: Immediately following demutualisation and the related initial public offering, the Company reduced its share premium reserve by court order giving rise to the special reserve. Dividends can be paid out of this reserve.

The following table shows the movements in other reserves during the year. The movements are aggregated for both continuing and discontinued operations.

		Revaluation of owner occupied property	Cash flow hedges	Foreign currency translation	Net investment hedge	Available-for-sale financial assets	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
2015	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January		20	3	110	54	13	3,108	52	241	(2,100)	-	1,501
Recognised in other comprehensive income
Fair value gains on cash flow hedges		-	57	-	-	-	-	-	-	-	-	57
Net investment hedge		-	-	-	56	-	-	-	-	-	-	56
Fair value gains on available-for-sale financial assets		-	-	-	-	7	-	-	-	-	-	7
Revaluation of owner occupied property		4	-	-	-	-	-	-	-	-	-	4
Exchange differences on translating foreign operations		-	-	(68)	-	-	-	-	-	-	-	(68)
With profits funds: Associated UDS movement recognised in other comprehensive income		(4)	-	1	-	-	-	-	-	-	-	(3)
Aggregate tax effect of items recognised in other comprehensive income		-	-	-	-	(2)	-	-	-	-	-	(2)
Items transferred to profit or loss on disposal of subsidiaries	1	-	(60)	(50)	(110)	(17)	-	-	-	-	-	(237)
Total items recognised in other comprehensive income		-	(3)	(117)	(54)	(12)	-	-	-	-	-	(186)
Recognised directly in equity
Redemption of 'B' shares	28	-	-	-	-	-	-	-	-	-	488	488
Reserves credit for employee share-based payment schemes		-	-	-	-	-	-	34	-	-	-	34
Transfer to retained earnings for vested employee share-based payments		-	-	-	-	-	-	(32)	-	-	-	(32)
Transfer to UDS on sale of owner occupied property		(14)	-	-	-	-	-	-	-	-	-	(14)
With profits funds: Associated UDS movement recognised in equity		14	-	-	-	-	-	-	-	-	-	14
Transfer between reserves on disposal of subsidiaries	1	(20)	-	-	-	-	(1,028)	-	-	221	-	(827)
Aggregate tax effect of items recognised directly in equity		-	-	-	-	-	-	(1)	-	-	-	(1)
Total items recognised directly within equity		(20)	-	-	-	-	(1,028)	1	-	221	488	(338)
At 31 December		-	-	(7)	-	1	2,080	53	241	(1,879)	488	977
Balance at 31 December 2015 comprises:
Total reserve before with profits fund adjustment		36	-	206	-	1	2,080	53	241	(1,879)	488	1,226
Total with profits fund adjustment		(36)	-	(213)	-	-	-	-	-	-	-	(249)
At 31 December		-	-	(7)	-	1	2,080	53	241	(1,879)	488	977

The with profits fund adjustment represents the cumulative amounts transferred to the unallocated divisible surplus as they represent movements attributable to participating policyholders, which would otherwise have been included in other reserves.

	Revaluation of owner occupied property	Cash flow hedges	Foreign currency translation	Net investment hedge	Available-for-sale financial assets	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Total
2014	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	25	-	153	39	(25)	3,108	53	241	(2,100)	1,494
Recognised in other comprehensive income
Fair value gains on cash flow hedges	-	3	-	-	-	-	-	-	-	3
Net investment hedge	-	-	-	15	-	-	-	-	-	15
Fair value gains on available-for-sale financial assets	-	-	-	-	49	-	-	-	-	49
Revaluation of owner occupied property	3	-	-	-	-	-	-	-	-	3
Exchange differences on translating foreign operations	-	-	(49)	-	-	-	-	-	-	(49)
With profits funds: Associated UDS movement recognised in other comprehensive income	(4)	-	6	-	-	-	-	-	-	2
Aggregate tax effect of items recognised in other comprehensive income	-	-	-	-	(11)	-	-	-	-	(11)
Total items recognised in other comprehensive income	(1)	3	(43)	15	38	-	-	-	-	12
Recognised directly in equity
Reserves credit for employee share-based payment schemes	-	-	-	-	-	-	27	-	-	27
Transfer to retained earnings on sale of owner occupied property	(4)	-	-	-	-	-	-	-	-	(4)
Transfer to retained earnings for vested employee share-based payments	-	-	-	-	-	-	(27)	-	-	(27)
Dividends paid on ordinary shares	-	-	-	-	-	-	-	-	-	-
Aggregate tax effect of items recognised directly in equity	-	-	-	-	-	-	(1)	-	-	(1)
Total items recognised directly within equity	(4)	-	-	-	-	-	(1)	-	-	(5)
At 31 December	20	3	110	54	13	3,108	52	241	(2,100)	1,501
Balance at 31 December 2014 comprises:
Total reserve before with profits fund adjustment	66	3	324	54	13	3,108	52	241	(2,100)	1,761
Total with profits fund adjustment	(46)	-	(214)	-	-	-	-	-	-	(260)
At 31 December	20	3	110	54	13	3,108	52	241	(2,100)	1,501

32.  Non-controlling interests and third party interest in consolidated funds

(a)     Non-controlling interests

The movement in non-controlling interests during the year was:

		2015	2014
		£m	£m
At 1 January		278	333
Foreign exchange differences on translating foreign operations		(2)	(4)
Profit in the year attributable to non-controlling interests		62	4
Net contributions		44	(15)
Distributions		(35)	(40)
At 31 December		347	278

Included in non-controlling interests of £347m (2014: £278m) is £210m (2014: £190m) of non-controlling interests of Standard Life European Private Equity Trust plc (SLEPET) which is considered material to the Group. Non-controlling interests own 46% (2014: 46%) of the voting rights of SLEPET. The profit allocated to non-controlling interests of SLEPET for the year ended 31 December 2015 is £31m (2014: £2m). Dividends paid to non-controlling interests of SLEPET during the year ended 31 December 2015 were £5m (2014: £4m).

Summarised financial information for SLEPET prior to intercompany eliminations is provided in the following table. The summarised financial information is for the years ended 30 September 2015 and 2014 which is SLEPET's financial reporting date and is considered indicative of the interest that non-controlling interests of SLEPET have in the Group's activities and cash flows. The financial statements of SLEPET for the years ended 30 September 2015 and 2014 have been adjusted for market movements and any other significant events or transactions for the three months to 31 December for the purposes of consolidation into the Group's consolidated financial statements for the years ended 31 December 2015 and 2014 respectively.

	2015	2014
SLEPET 30 September	£m	£m
Statement of financial position:
Total assets	439	410
Total liabilities	-	1
Income statement:
Revenue	53	33
Profit after tax	47	28
Total comprehensive income	47	28
Cash flows:
Cash flows from operating activities	8	8
Cash flows from investing activities	22	(6)
Cash flows from financing activities	(20)	(21)
Net increase/(decrease) in cash equivalents	10	(19)

There are no protective rights of non-controlling interests which significantly restrict the Group's ability to access or use the assets and settle the liabilities of the Group.

(b)     Third party interest in consolidated funds

The movement in third party interest in consolidated funds during the year was:

		2015	2014
		£m	£m
At 1 January		15,805	16,058
Reclassified as held for sale during the year		-	(965)
Foreign exchange differences on translating foreign operations		(39)	(137)
Change in liability for third party interest in consolidated funds		531	758
Net contributions and movements between classifications of investments		1,166	328
Distributions		(267)	(237)
At 31 December		17,196	15,805

33.  Insurance contracts, investment contracts and reinsurance contracts

(i)       Classification of insurance and investment contracts

The measurement basis of assets and liabilities arising from life and pensions business contracts is dependent upon the classification of those contracts as either insurance or investment contracts.

Insurance contracts

A contract is classified as an insurance contract only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred, excluding scenarios that lack commercial substance. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.

Investment contracts

Life and pensions business contracts that are not classified as insurance contracts are classified as investment contracts.

Participating contracts

The Group has written insurance and investment contracts which contain discretionary participating features (e.g. with profits business). These contracts provide a contractual right to receive additional benefits as a supplement to guaranteed benefits. These additional benefits are based on the performance of with profits funds and their amount and timing is at the discretion of the Group. These contracts are referred to as participating insurance contracts if they contain a feature that transfers significant insurance risk and otherwise as participating investment contracts.

Hybrid contracts

Generally, life and pensions business product classes are sufficiently homogeneous to permit a single classification at the level of the product class. However, in some cases, a product class may contain individual contracts that fall across multiple classifications (hybrid contracts). For certain significant hybrid contracts the product class is separated into the insurance element, a non-participating investment element and a participating investment element, so that each element is accounted for separately.

Embedded derivatives

Where a contract contains a feature that meets the definition of both an insurance contract and a derivative, the contract is classified in its entirety as an insurance contract.

The following table summarises the classification of the Group's significant types of life and pensions business contracts as described in Note 3.

Reportable segment	Participating insurance contracts	Non-participating insurance contracts	Participating investment contracts	Non-participating investment contracts
UK and Europe	German unitised with profits deferred annuity contracts UK & Irish unitised with profits life contracts	UK & Irish annuity-in-payment contracts Certain UK & Irish unit linked investment bonds UK deferred annuity contracts	UK & Irish unitised with profits pension contracts	UK & Irish unit linked pension contracts Certain UK & Irish unit linked investment bonds
India and China		Hong Kong unit linked life contracts

Details of the accounting policies for non-participating investment contracts are given in Note 34.

(ii)      Income statement presentation - insurance and participating investment contracts

For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for income statement presentation purposes, of accounting policies that were being used at the date of transition to IFRS, except where a change is deemed to make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable, and no less relevant to those needs. Therefore the Group applies accounting policies determined in accordance with the Association of British Insurers Statement of Recommended Practice issued in 2005 (ABI SORP) as described below.

Premiums received on insurance contracts and participating investment contracts are recognised as revenue in the consolidated income statement when due for payment, except for unit linked premiums which are accounted for when the corresponding liabilities are recognised. For single premium business, this is the date from which the policy is effective. For regular (and recurring) premium contracts, receivables are established at the date when payments are due.

Claims paid on insurance contracts and participating investment contracts are recognised as expenses in the consolidated income statement. Maturity claims and annuities are accounted for when due for payment. Surrenders are accounted for when paid or, if earlier, on the date when the policy ceases to be included within the calculation of the insurance liability. Death claims and all other claims are accounted for when notified.

When a policyholder exercises an option within an investment contract to utilise withdrawal proceeds from the investment contract to secure future benefits which contain significant insurance risk, the related investment contract liability is derecognised and an insurance contract liability is recognised. The withdrawal proceeds which are used to secure the insurance contract are recognised as premium income.

Claims payable include the direct costs of settlement. Reinsurance recoveries are accounted for in the same period as the related claim.

The change in insurance and participating investment contract liabilities, comprising the full movement in the corresponding liabilities during the period, is recognised in the consolidated income statement. This also includes the movement in unallocated divisible surplus (UDS) in the period. However, where movements in assets and liabilities which are attributable to participating policyholders are recognised in other comprehensive income, the change in UDS arising from these movements is not recognised in the consolidated income statement as it is also recognised in other comprehensive income.

(iii)     Measurement - insurance and participating investment contract liabilities

For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for measurement purposes, of accounting policies that were being used at the date of transition to IFRS, except where a change is deemed to make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable, and no less relevant to those needs. Therefore the Group applies accounting policies determined in accordance with the ABI SORP as described below. As was permitted under the ABI SORP, the Group adopts local regulatory valuation methods, adjusted for consistency with asset measurement policies, for the measurement of liabilities under insurance contracts and participating investment contracts issued by overseas subsidiaries.

(iv)     Measurement - participating contract liabilities

Participating contract liabilities are analysed into the following components:

·   Participating insurance contract liabilities

·   Participating investment contract liabilities

·   Present value of future profits on non-participating contracts, which is treated as a deduction from gross participating contract liabilities

·   Unallocated divisible surplus

The policy for measuring each component is noted below.

UK and Europe

Participating contract liabilities arising under contracts issued by a with profits fund falling within the scope of the Prudential Regulation Authority (PRA) realistic capital regime are measured on the PRA realistic basis. Under this approach, the value of participating insurance and participating investment contract liabilities in each with profits fund is calculated as:

·   With profits benefits reserves (WPBR) for the fund as determined under the PRA realistic basis, plus

·   Future policy related liabilities (FPRL) for the fund as determined under the PRA realistic basis, less

·   Any amounts due to equity holders included in FPRL, less

·   The portion of future profits on non-participating contracts included in FPRL not due to equity holders, where this portion can be separately identified

The WPBR is primarily based on the retrospective calculation of accumulated assets shares. The aggregate value of individual policy asset shares reflects the actual premium, expense and charge history of each policy. The net investment return credited to the asset shares is consistent with the return achieved on the assets notionally backing participating business. Any mortality deductions are based on published mortality tables adjusted where necessary for experience variations. For those asset shares on an expense basis, the allowance for expenses attributed to the asset share is, as far as practical, the appropriate share of the actual expenses incurred or charged to the fund. For those on a charges basis, the allowance is consistent with the charges for an equivalent unit linked policy. The FPRL comprises other components such as a market consistent stochastic valuation of the cost of options and guarantees.

The Group's principal with profits fund is the Heritage With Profits Fund (HWPF) operated by Standard Life Assurance Limited (SLAL). The participating contracts held in the HWPF were issued by a with profits fund falling within the scope of the PRA realistic capital regime. Under the Scheme of Demutualisation (the Scheme), the residual estate of the HWPF exists to meet amounts which may be charged to the HWPF under the Scheme. However, to the extent that SLAL's board is satisfied that there is an excess residual estate, it shall be distributed over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. This planned enhancement to the benefits under with profits contracts held in the HWPF is included in the FPRL under the PRA realistic basis, resulting in a realistic surplus of nil. Applying the policy noted above, this planned enhancement is therefore included within the measurement of participating contract liabilities.

The Scheme provides that certain defined cash flows (recourse cash flows) arising in the HWPF on specified blocks of UK and Irish business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the Shareholder Fund (SHF) or the Proprietary Business Fund (PBF) of SLAL, and thus accrue to the ultimate benefit of equity holders of the Company. Under the Scheme, such transfers are subject to certain constraints in order to protect policyholders. The Scheme also provides for additional expenses to be charged by the PBF to the HWPF in respect of German branch business in SLAL.

Under the PRA realistic basis, the discounted value of expected future cash flows on participating contracts not reflected in the WPBR is included in FPRL (as a reduction in FPRL where future cash flows are expected to be positive). The discounted value of expected future cash flows on non-participating contracts not reflected in the measure on non-participating liabilities is recognised as a separate asset (where future cash flows are expected to be positive). The Scheme requirement to transfer future recourse cash flows out of the HWPF is recognised as an addition to FPRL. The discounted value of expected future cash flows on non-participating contracts can be apportioned between those included in the recourse cash flows and those retained in the HWPF for the benefit of policyholders.

Applying the policy noted above:

·   The value of participating insurance and participating investment contract liabilities is reduced by future expected (net positive) cash flows arising on participating contracts

·   Future expected cash flows on non-participating contracts are not recognised as an asset of the HWPF. However, future expected cash flows on non-participating contracts that are not recourse cash flows under the Scheme are used to adjust the value of participating insurance and participating investment contract liabilities.

Some participating contracts are issued by a non-participating fund with a with profits investment element then transferred to a with profits fund within SLAL falling within the scope of the PRA's realistic capital regime. The with profits investment element of such contracts is measured as described above. Any liability for insurance features retained in the non-participating fund is measured using the gross premium method applicable to non-participating contracts (see policy (v)).

Present value of future profits (PVFP) on non-participating contracts held in a with profits fund

For with profits funds falling within the scope of the PRA's realistic capital regime, an amount is recognised for the PVFP on non-participating contracts where the determination of the realistic value of liabilities for with profits contracts in that with profits fund takes account of this value directly or indirectly. The amount is recognised as a deduction from liabilities. Where this amount can be apportioned between an amount recognised in the realistic value of with profits contract liabilities and an amount recognised in UDS, the apportioned amounts are reflected in the measurement of participating contract liabilities and UDS respectively. Otherwise it is recognised as a separate amount reflected in liabilities comprising participating contract liabilities and UDS.

Unallocated divisible surplus (UDS)

The UDS comprises the difference between the assets and all other recognised liabilities in the Group's with profits funds. This amount is recognised as a liability as it is not considered to be allocated to shareholders due to uncertainty regarding transfers from these funds to equity holders.

In relation to the HWPF, amounts are considered to be allocated to equity holders when they emerge as recourse cash flows within the HWPF.

As a result of the policies for measuring the HWPF's assets and all its other recognised liabilities:

·   The UDS of the HWPF comprises the value of future recourse cash flows in participating contracts (but not the value of future recourse cash flows on non-participating contracts), the value of future additional expenses to be charged on German branch business and the effect of any measurement differences between the Realistic Balance Sheet value and IFRS accounting policy value of all assets and all liabilities other than participating contract liabilities recognised in the HWPF

·   The recourse cash flows are recognised as they emerge as an addition to equity holders' profits if positive or as a deduction if negative. As the additional expenses are charged in respect of the German branch business, they are recognised as an addition to equity holders' profits.

Canada

The Group's policy for measuring liabilities for participating contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity's local statutory or regulatory reporting. Therefore, for participating contracts issued by The Standard Life Assurance Company of Canada (SLCC), the Canadian regulatory valuation technique was applied, under which for most participating business the value of participating policy liabilities was set equal to the value of the assets set aside in a separate fund for this business, unless this was insufficient to cover guaranteed benefits, in which case a higher liability was recognised.

(v)      Measurement - non-participating insurance contract liabilities

UK and Europe

The liability for annuity in payment contracts is measured by discounting the expected future annuity payments together with an appropriate estimate of future expenses at an assumed rate of interest derived from yields on the underlying assets.

Other non-participating insurance contracts are measured using the gross premium method. In general terms, a gross premium valuation basis is one in which the premiums brought into account are the full amounts receivable under the contract. The method includes explicit estimates of premiums, expected claims and costs of maintaining contracts. Cash flows are discounted at the valuation rate of interest determined in accordance with Prudential Regulation Authority (PRA) requirements.

Canada and India and China

The Group's policy for measuring liabilities for non-participating insurance contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity's local statutory or regulatory reporting.

For non-participating insurance contracts issued by SLCC, the Canadian regulatory valuation technique was applied. Under Canadian regulations, liabilities were determined according to the Canadian Asset Liability Method (CALM). Assets and liabilities were projected under a number of different economic scenarios. These scenarios included the current yield curve as at the valuation date and a number of various rising and falling interest rate environments. Under each scenario, the assets required to support the liabilities were the value of assets which would achieve zero surplus at the end of the projection period. In this valuation allowance was made for income taxes arising from differences between tax and accounting bases that were policy related. Under CALM the deferred taxes recognised under IAS 12 relating directly to policy related items included in the computation of liabilities are eliminated in the liabilities and discounted deferred taxes were added. The liability was set equal to the greatest value of the required assets.

(vi)     Measurement - liability adequacy test

The Group applies a liability adequacy test at each reporting date to ensure that the insurance and participating contract liabilities (less related deferred acquisition costs) are adequate in the light of the estimated future cash flows. This test is performed by comparing the carrying value of the liability and the discounted projections of future cash flows. 

If a deficiency is found in the liability (i.e. the carrying value amount of its insurance liabilities is less than the future expected cash flows), that deficiency is provided for in full. The deficiency is recognised in the consolidated income statement.

(vii)    Reinsurance contracts

Contracts with reinsurers are assessed to determine whether they contain significant insurance risk. Contracts that do not give rise to a significant transfer of insurance risk to the reinsurer are considered financial reinsurance and are accounted for and disclosed in a manner consistent with financial instruments.

Contracts that give rise to a significant transfer of insurance risk to the reinsurer are assessed to determine whether they contain an element that does not transfer significant insurance risk and which can be measured separately from the insurance component.  Where such elements are present, they are accounted for separately with any deposit element being accounted for and disclosed in a manner consistent with financial instruments. The remaining elements, or where no such separate elements are identified, the entire contracts, are classified as reinsurance contracts.

Reinsurance contracts are measured using valuation techniques and assumptions that are consistent with the valuation techniques and assumptions used in measuring the underlying policy benefits and taking into account the terms of the reinsurance contract.

Reinsurance recoveries due from reinsurers and reinsurance premiums due to reinsurers under reinsurance contracts that are contractually due at the reporting date are separately recognised in receivables and other financial assets and other financial liabilities respectively unless a right of offset exists, in which case the net amount is reported on the consolidated statement of financial position.

(a)     Insurance contracts and participating investment contracts

		2015	2014
	Notes	£m	£m
Non-participating insurance contract liabilities		21,206	31,266
Less: Non-participating insurance contract liabilities classified as held for sale	26	-	(9,425)
	33(b)	21,206	21,841

		2015	2014
	Notes	£m	£m
Participating insurance contract liabilities		14,283	16,099
Less: Participating insurance contract liabilities classified as held for sale		-	(702)
	33(b)	14,283	15,397
Participating investment contract liabilities		14,716	15,193
Less: Participating investment contract liabilities classified as held for sale		-	(2)
	33(b)	14,716	15,191
Unallocated divisible surplus		655	688
Less : Unallocated divisible surplus classified as held for sale		-	-
	33(d)	655	688
Participating contract liabilities		29,654	31,980
Less: Participating contract liabilities classified as held for sale	26	-	(704)
		29,654	31,276

(b)     Change in liabilities and reinsurance contracts

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total  insurance and participating contracts	Reinsurance contracts	Net
2015	£m	£m	£m	£m	£m	£m
At 1 January	15,397	21,841	15,191	52,429	(6,036)	46,393
Expected change	(1,042)	(808)	(902)	(2,752)	388	(2,364)
Methodology/modelling changes	17	19	(22)	14	(3)	11
Effect of changes in
Economic assumptions	148	(491)	(17)	(360)	101	(259)
Non-economic assumptions	(225)	(47)	182	(90)	8	(82)
Effect of
Economic experience	315	129	152	596	11	607
Non-economic experience	107	(378)	142	(129)	15	(114)
New business	37	964	27	1,028	-	1,028
Total change in contract liabilities	(643)	(612)	(438)	(1,693)	520	(1,173)
Foreign exchange adjustment	(471)	(23)	(37)	(531)	1	(530)
At 31 December	14,283	21,206	14,716	50,205	(5,515)	44,690

Due to changes in economic and non-economic factors, certain assumptions used in estimating insurance and investment contract liabilities have been revised. Therefore, the change in liabilities reflects actual performance over the year, changes in assumptions and, to a limited extent, improvements in modelling techniques.

Non-economic assumptions decrease net of reinsurance of £82m includes a decrease of £43m in respect of participating business which is primarily in respect of changes in the best estimate non-economic assumptions used in calculating the value of future transfers to equity holders in respect of participating business in the HWPF.  Non-economic assumptions also includes a decrease of £39m (net of reinsurance) in respect of non-participating business, which primarily relates to changes in mortality assumptions.

Economic assumptions reflects changes in fixed income yields, leading to higher valuation interest rates on non-participating business, and other market movements.

Following demutualisation, it is necessary to recognise the residual estate in the HWPF as a liability within participating contract liabilities, since this will in due course be distributed to existing HWPF policyholders if it is not otherwise required to meet liabilities chargeable to the HWPF in accordance with the Scheme of Demutualisation (the Scheme). The movement for the year therefore includes the movement in the residual estate.

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2014	£m	£m	£m	£m	£m	£m
At 1 January	15,060	28,312	14,707	58,079	(5,857)	52,222
Reclassified as held for sale during the year	(667)	(8,135)	(3)	(8,805)	(123)	(8,928)
	14,393	20,177	14,704	49,274	(5,980)	43,294
Expected change	(1,014)	(717)	(701)	(2,432)	350	(2,082)
Methodology/modelling changes	(3)	(81)	44	(40)	-	(40)
Effect of changes in
Economic assumptions	356	1,625	(344)	1,637	(410)	1,227
Non-economic assumptions	37	(65)	(52)	(80)	7	(73)
Effect of
Economic experience	2,092	207	1,319	3,618	6	3,624
Non-economic experience	79	(264)	252	67	(1)	66
New business	42	1,000	22	1,064	(12)	1,052
Total change in contract liabilities	1,589	1,705	540	3,834	(60)	3,774
Foreign exchange adjustment	(585)	(41)	(53)	(679)	4	(675)
At 31 December	15,397	21,841	15,191	52,429	(6,036)	46,393

(c)     Present value of future profits on non-participating contracts in the Heritage With Profits Fund

The HWPF was established as part of the demutualisation transaction on 10 July 2006. Under the Scheme certain non-participating contracts were transferred to the HWPF. The present value of future profits (PVFP) on these non-participating contracts can be apportioned between the component related to contracts whose future cash flows under the Scheme are expected to be transferred out of the HWPF to equity holders, and the component related to contracts whose future cash flows will remain in the HWPF, to be applied either to meet amounts that may be charged to the HWPF under the Scheme or distributed over time as enhancements to final bonuses payable on the remaining policies invested in the fund.

These components are apportioned in arriving at the amount of participating contract liabilities and unallocated divisible surplus as follows:

		2015	2014
		£m	£m
Participating contract liabilities before apportionment		28,890	31,216
Apportionment of non-participating PVFP		109	76
		28,999	31,292
Participating insurance contracts		14,283	16,099
Participating investment contracts		14,716	15,193
Participating contract liabilities after apportionment		28,999	31,292
Unallocated divisible surplus before apportionment		1,639	1,712
Apportionment of non-participating PVFP		(984)	(1,024)
Unallocated divisible surplus after apportionment		655	688

(d)     Movement in components of unallocated divisible surplus (UDS)

The movement in UDS was as follows:

		2015	2014
		£m	£m
At 1 January		688	680
Change in UDS recognised in the consolidated income statement		(117)	(71)
Change in UDS recognised in other comprehensive income		3	(2)
Foreign exchange adjustment		81	81
At 31 December		655	688

(e)     Expected settlement and recovery 

An indication of the term to contracted maturity/repricing date for insurance and investment contract liabilities is given in Note 41. Reinsurance contracts are generally structured to match liabilities on a class of business basis. This has a mixture of terms. The reinsurance assets are therefore broadly expected to be realised in line with the settlement of liabilities (as per the terms of the particular treaty) within a reinsured class of business.

Estimates and assumptions

The determination of the valuation interest rates and investment returns, longevity and mortality assumptions, and expense assumptions are all key accounting estimates.

The principal assumptions are shown in the tables below:

(i)       Non-participating insurance contracts 

UK and Europe

For non-participating insurance contracts, the assumptions used to determine the liabilities are updated at each reporting date to reflect recent experience. Material judgement is required in calculating these liabilities and, in particular, in the choice of assumptions about which there is uncertainty over future experience. These assumptions are determined as appropriate estimates at the date of valuation. The basis is considered prudent in each aspect. In particular, options and guarantees have been provided for on prudent bases.

The principal assumptions for the main UK non-participating insurance contracts are as follows:

Valuation interest rates

The valuation interest rates used are determined in accordance with the Prudential Regulation Authority's Integrated Prudential Sourcebook. The process used to determine the valuation interest rates used in the calculation of the liabilities comprises three stages: determining the current yield on the assets held after allowing for risk and tax, hypothecating the assets to various types of policy and determining the discount rates from the hypothecated assets.

For equity assets, the current dividends and earnings are considered and, if necessary, a deduction is made to reflect sustainability. Similarly, a deduction to the yields on property assets is made where necessary, to reflect sustainability and also to allow for the possibility of rental defaults. For corporate bonds, a deduction is made for the risk of default which varies by the quality of asset and the credit spread at the valuation date. The yield for each category of asset is taken as the average adjusted yield weighted by the market value of each asset in that category except for UK and Irish annuity business and German non-participating insurance business within the PBF where the internal rate of return of the assets backing the liabilities is used.

The valuation interest rates used are:

Non-participating	2015	2014
1. Business held within the PBF
Annuities: Individual and group
Life	3.05%	2.69%
Pensions	3.05%	2.69%
Linked to RPI	(0.47%)	(0.72%)
2. Business held within the HWPF
Annuities: Individual and group
Non-linked
Life	2.30%	2.20%
Pensions: reinsured externally	2.35%	2.15%
Pensions: not reinsured externally	2.80%	2.55%
Deferred annuities	2.80%	2.55%
Linked to RPI
Reinsured externally	(0.60%)	(0.80%)
Not reinsured externally	(0.45%)	(0.90%)
Deferred annuities	(1.00%)	(1.95%)

Mortality rates

The future mortality assumptions are based on historical experience, with an allowance for future mortality improvement in annuities. The Group's own mortality experience is regularly assessed and analysed, and the larger industry-wide investigations are also taken into account.

Mortality tables used	2015	2014
Annuities
Individual and group in deferment	Males: 67.0% AMC00	Males: 71.5% AMC00
	Females: 65.2% AFC00	Females: 70.8% AFC00
Individual after vesting (business written after 10 July 2006)	Males: 92.6% RMC00	Males: 92.2% RMC00
	Females: 100.3% RFC00	Females: 99.5% RFC00
Individual after vesting (business written prior to 10 July 2006)	Males: 97.1% RMC00	Males: 96.7% RMC00
	Females: 104.0% RFC00	Females: 103.7% RFC00
Group after vesting (business written after 10 July 2006)	Males: 112.1% RMV00	Males: 111.1% RMV00
	Females: 119.9% WA00	Females: 115.0% WA00
Group after vesting (business written prior to 10 July 2006)	Males: 111.6% RMV00	Males: 110.7% RMV00
	Females: 120.8% WA00	Females: 115.8% WA00

In the valuation of the liabilities in respect of annuities and deferred annuities issued in the UK, allowance is made for future improvements in the rates of mortality. This is based on the Standard Life Assurance Limited (SLAL) parameterisation of the CMI_2013 model with long-term improvement rates of 1.8% for males and 1.5% for females in 2015 (1.8% for males and 1.5% for females in 2014). The Continuous Mortality Investigation Bureau (CMI) is a body funded by the UK insurance and reinsurance industry that produce industry standard mortality tables and projection bases for mortality improvements. CMI_2013 is a model that was published towards the end of 2013.

The SLAL parameterisation of the CMI_2013 model makes the following changes relative to the 'core' model:

Blends period improvements between ages 60 to 80 to the long-term improvement rate over a 15 year period (compared with a 20 year period in the core CMI model)

Assumes that cohort improvements dissipate over a 30 year period, or by age 90 if earlier (compared with a 40 year period, or by age 100 if earlier, in the core CMI model).

For contingent spouses' benefits an assumption is also made with regard to the proportions married, based on SLAL's historic experience.

Expenses

The assumptions for future policy expense levels are determined from the Group's recent expense analyses. No allowance has been made for potential expense improvement and the costs of projects to improve expense efficiency have been ignored. The assumed future expense levels incorporate an annual inflation rate allowance of 3.12% (2014: 3.61%) for UK business derived from the expected RPI implied by current investment yields and an additional allowance for earnings inflation.

For non-participating immediate and deferred annuity contracts, an explicit allowance for maintenance expenses is included in the liabilities. An allowance for investment expenses is reflected in the valuation rate of interest.

In calculating the liabilities for unitised regular premium non-participating insurance contracts, the administration expenses are assumed to be identical to the expense charges made against each policy. Similar assumptions are made, where applicable, in respect of mortality, morbidity and the risk benefit charges made to meet such costs.

Withdrawals

For non-participating insurance business appropriate allowances are made for withdrawals on certain term assurance contracts.

Ireland

The assumptions for business in Ireland are derived in a similar manner to those above.

(ii)      Assumptions used in the calculation of the present value of future profits on non-participating insurance and investment contracts in the HWPF were as follows:

Economic assumptions

	2015	2014
Risk discount rate	3.91% - 4.12%	3.06% - 3.27%
Investment returns
Equity securities	2.01%	1.86%
Property	2.01%	1.86%
Fixed interest - annuity/protection	2.22%	2.07%
Fixed interest - other business	2.01%	1.86%
Expense inflation	3.12%	3.61%

The table above shows the changes in the basis between 2014 and 2015. The risk discount rates are calculated on a market consistent basis and are set equal to the risk free rate plus a margin to allow for the non-market risks inherent in the cash flows being discounted.

The investment returns are the risk free rate of returns that are used to value the non-participating business on a market consistent basis.

Non-economic assumptions

The expense and mortality assumptions are best estimate assumptions determined from the Group's recent analyses. They are consistent with the assumptions for non-participating insurance contracts and any explicit margins for prudence are removed.

A withdrawal investigation is carried out each year and assumptions are set with reference to recent levels taking into account any trends evident. However, in general the participating business is not particularly sensitive to the overall level of withdrawals. For non-participating insurance business, appropriate allowances are made for withdrawals on certain term assurance contracts.

(iii)     Sensitivity analysis

Refer to Note 41 for sensitivity analysis for the shareholder business.

34.  Non-participating investment contracts

Unit linked non-participating investment contracts are separated into two components being an investment management services component and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services component (refer to Note 5, Note 17 and Note 38). The financial liability component is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets.

Contributions received on non-participating investment contracts are treated as policyholder deposits and not reported as revenue in the consolidated income statement.

Withdrawals paid out to policyholders on non-participating investment contracts are treated as a reduction to policyholder deposits and not recognised as expenses in the consolidated income statement.

Investment return and related benefits credited in respect of non-participating investment contracts are recognised in the consolidated income statement as changes in investment contract liabilities.

The change in non-participating investment contract liabilities was as follows:

		2015	2014
	Notes	£m	£m
At 1 January		88,207	97,659
Reclassified as held for sale during the year		-	(15,097)
Contributions		12,561	11,261
Initial charges and reduced allocations		-	(3)
Account balances paid on surrender and other terminations in the year		(10,564)	(10,230)
Change in non-participating investment contract liabilities recognised in the consolidated income statement		3,363	5,362
Foreign exchange adjustment		(223)	(306)
Recurring management charges		(450)	(439)
At 31 December	35	92,894	88,207

35.  Financial liabilities

Management determines the classification of financial liabilities at initial recognition. The majority of the Group's financial liabilities are designated as fair value through profit or loss (FVTPL).  The methods and assumptions used to determine fair value of financial liabilities designated at FVTPL are discussed in Note 43. Financial liabilities which are not derivatives and not FVTPL are financial liabilities measured at amortised cost.

		Designated as at fair value through profit or loss	Held for trading	Net investment hedge	Financial liabilities measured at amortised cost	Total
2015	Notes	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	41	92,890	-	-	4	92,894
Deposits received from reinsurers	41	-	-	-	5,134	5,134
Third party interest in consolidated funds	41	17,196	-	-	-	17,196
Subordinated liabilities	36	-	-	-	1,318	1,318
Derivative financial liabilities	23	-	1,254	-	-	1,254
Other financial liabilities	39	-	-	-	2,900	2,900
Total		110,086	1,254	-	9,356	120,696

		Designated as at fair value through profit or loss	Held for trading	Net investment hedge	Financial liabilities measured at amortised cost	Total
2014	Notes	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	41	88,203	-	-	4	88,207
Deposits received from reinsurers	41	-	-	-	5,642	5,642
Third party interest in consolidated funds	41	15,805	-	-	-	15,805
Subordinated liabilities	36	-	-	-	1,612	1,612
Derivative financial liabilities	23	-	1,681	12	-	1,693
Other financial liabilities	39	3	-	-	3,731	3,734
Total		104,011	1,681	12	10,989	116,693

36.  Subordinated liabilities

Subordinated liabilities are debt instruments issued by the Company which rank below its other obligations in the event of liquidation but above the share capital. All of the Group's subordinated liabilities are classified as liabilities on the consolidated statement of financial position as discussed further below. Subordinated liabilities are initially recognised at the value of proceeds received after deduction of issue expenses. Subsequent measurement is at amortised cost using the effective interest rate method.

		2015		2014
		Principal amount	Carrying value	Principal amount	Carrying Value
	Notes		£m		£m
Subordinated notes
5.5% Sterling fixed rate due 4 December 2042		£500,000,000	499	£500,000,000	499
3.938% Canadian dollar fixed/floating rate due 21 September 2022		-	-	CA$400,000,000	223
Subordinated guaranteed bonds
6.75% Sterling fixed rate perpetual		£500,000,000	502	£500,000,000	502
Mutual Assurance Capital Securities
6.546% Sterling fixed rate perpetual		£300,000,000	317	£300,000,000	317
5.314% Euro fixed/floating rate perpetual		-	-	€360,000,000	294
Subordinated liabilities			1,318		1,835
Less: Subordinated liabilities classified as held for sale
3.938% Canadian dollar fixed/floating rate due 21 September 2022	26	-	-	CA$400,000,000	(223)
Total subordinated liabilities	41		1,318		1,612

The difference between the fair value and carrying value of the subordinated liabilities is presented in Note 43.

Subordinated liabilities are considered current if the contractual repricing or maturity dates are within one year. On 6 January 2015 the Company redeemed in full the 5.314% Euro fixed/floating rate perpetual Mutual Assurance Capital Securities at their outstanding principal amount of €360,000,000. Accrued interest of £15m relating to these securities was also settled. The principal amount of all other subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the remaining subordinated liabilities, excluding those classified as held for sale, of £37m (2014: £37m) is expected to be settled within 12 months.

Amounts due under the subordinated guaranteed bonds and Mutual Assurance Capital Securities are classified as liabilities. This classification is determined by the interaction of these arrangements with the internal subordinated loan note issued by Standard Life Assurance Limited (SLAL) to the Company, as set out in the internal subordinated loan note section below.

Subordinated notes

The Sterling subordinated notes were issued by the Company on 4 December 2012 pursuant to its EUR3,000,000,000 Euro Medium Term Note Programme dated 10 May 2012. The maturity date of the notes is 4 December 2042. Interest is payable each six months in arrears. The Company has the option to redeem the notes at par on 4 December 2022 and on every interest payment date thereafter until maturity. If the notes are not redeemed the interest rate payable will be reset on 4 December 2022 and on each fifth anniversary thereafter to 4.85% over the five year gilt rate. The notes are direct, unsecured obligations of the Company that rank subordinate to all senior creditors of the Company.

Subordinated guaranteed bonds

The subordinated guaranteed bonds were issued on 12 July 2002. The payment of principal and interest in respect of the bonds has been irrevocably and unconditionally guaranteed by SLAL. The claims of the bondholders to payment under the guarantee will rank below the claims of all senior creditors of SLAL including policyholders.

The bonds are perpetual securities and as such have no fixed redemption date. However, the bonds are redeemable at par at the option of the Company on 12 July 2027 and on every fifth anniversary thereafter. If the bonds are not redeemed on 12 July 2027, the interest rate payable will be reset to 2.85% over the gross redemption yield on the appropriate five year benchmark gilt on the reset date. The Company can elect to defer the payment of interest on the bonds. Interest will accrue on any interest deferred at the then current rate of interest on the bonds. Any interest deferred becomes immediately due and payable on: the date of declaration or payment of dividends, interest or other payment in respect of any equally ranked securities or securities that rank junior to the bonds; the date any of the securities are purchased by the Company, SLAL or a subsidiary of the Company; the date fixed for any payment under a guarantee that ranks junior to the bonds; the date of any redemption or purchase of bonds; or the commencement of winding up of the Company or SLAL. 

Mutual Assurance Capital Securities (MACS)

The MACS were issued on 4 November 2004. The payment of principal and interest in respect of the MACS is irrevocably and unconditionally guaranteed by SLAL. The claims of the holders of the MACS to payment under the guarantee will rank below the claims of all senior creditors of SLAL including policyholders. The MACS are perpetual securities and as such have no fixed redemption date. The Sterling denominated MACS started accruing interest from 4 November 2004 and bear interest at a rate of 6.546% per annum payable annually in arrears on 6 January each year, commencing on 6 January 2006. The Euro denominated MACS started accruing interest from 4 November 2004 at a rate of 5.314% per annum and were redeemed in full on 6 January 2015.

The payment of interest can be deferred at the option of the Company on an interest payment date and is mandatorily deferred on any interest payment date on which the Company does not satisfy certain specified solvency conditions. SLAL has corresponding mandatory deferral rights in relation to payments under the guarantee. Any interest deferred becomes immediately due and payable on the date the payment of interest is resumed by the Company or SLAL, the date fixed for the redemption or purchase of MACS by the Company, the commencement of winding up of the Company or the date of any declaration or payment of securities that rank junior to MACS or the date any of these junior securities are purchased by the Company, SLAL or a subsidiary of the Company.

The obligation to pay any deferred interest must be satisfied with cash raised from the issue of ordinary shares or the sale of treasury shares.

Internal subordinated loan note

SLAL issued a subordinated loan note to the Company on 10 July 2006. The loan note at all times ranks senior to ordinary share capital and junior to Innovative Tier 1 capital of SLAL. There is no fixed redemption date for the note, but interest payments cannot be deferred and must be paid on the date they become due and payable. The note is ranked junior to the subordinated guaranteed bonds and MACS, therefore any interest deferred on the Sterling guaranteed bonds or MACS becomes immediately due and payable on the date of interest payment in respect of the note. This removes the discretionary nature of the interest payments on the Sterling guaranteed bonds and MACS.

37.  Pension and other post-retirement benefit provisions

The Group operates two types of pension plans for staff employed by the Group:

·   Defined benefit plans where the scheme is obligated to provide pension payments upon retirement to members as defined by the scheme rules

·   Defined contribution plans where the Group has agreed to contribute to a member's pension plan but has no further payment obligations once the contributions have been paid

The Group's liabilities in relation to its defined benefit plans are determined by annual actuarial calculations. The Group has funded these liabilities in relation to its principal defined benefit plans by ring-fencing assets in an independent trustee-administered fund. The Group has further smaller defined benefit plans which are unfunded.

The statement of financial position must reflect assets or liabilities relating to each defined benefit pension plan. The liability recognised is the present value of the defined benefit obligation (estimated future cash flows are discounted using the yields on high quality corporate bonds) less the fair value of plan assets, if any. If the fair value of the plan assets exceeds the defined benefit obligation, a pension surplus is only recognised if the Group considers that it has an unconditional right to a refund. The amount of surplus recognised will be limited by tax and expenses. Our judgement is that, in the UK, an authorised surplus tax charge is not an income tax. Consequently, the surplus is recognised net of this tax charge rather than the tax charge being included within deferred taxation.

For the UK defined benefit plan, the Group considers that it has an unconditional right to a refund of a surplus, assuming the gradual settlement of the plan liabilities over time until all members have left the plan. The plan trustees can purchase annuities to insure member benefits and can, for the majority of benefits, transfer these annuities to members. The trustees cannot unconditionally wind up the plan or use the surplus to enhance member benefits without employer consent. Our judgement is that these trustee rights do not prevent us from recognising an unconditional right to a refund and therefore a surplus.

Net interest income (if the plan is in surplus) or interest expense (if the plan is in deficit) is calculated using yields on high quality corporate bonds and recognised in the consolidated income statement. A current service cost is also recognised which represents the expected present value of the defined benefit pension entitlement earned by members in the period.

Remeasurements, which include gains and losses as a result of changes in actuarial assumptions, the effect of the limit on the plan surplus and returns on plan assets (other than amounts included in net interest) are recognised in other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

For defined contribution plans, the Group pays contributions to separately administered pension insurance plans. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised in current service cost in the consolidated income statement as staff costs and other employee-related costs when they are due.

	Defined benefit	Defined contribution
UK	The Group's largest defined benefit plan is for employees based in the UK. It closed to new entrants in November 2004 and changed from a final salary basis to a revalued career average salary basis in 2008. In December 2014, following a staff consultation, the Group announced that the UK defined benefit plan would be closed to future accrual effective April 2016. The plan is governed by a trustee board which comprises both employer and employee nominated trustees and an independent trustee. The plan is subject to the statutory funding objective requirements of the Pensions Act 2004. The objective requires that the plan is funded to at least the level of its technical provisions (an actuarial estimate of the assets needed to provide for benefits already built-up under the plan). The Trustees perform regular valuations to check that the statutory funding objective continues to be met. The Trustees, after consulting with the employer, prepare statements of funding and investment principles and, based on the funding valuation, set out future contributions in a schedule of contributions including a recovery plan, if needed, to restore funding to the level of the technical provisions. No recovery plan is currently required. The Trustees of the UK defined benefit plan set the investment strategy to protect the funding ratio of the Trustees' funding position. At the 31 December 2013 triennial actuarial valuation the plan was 112% funded on the Trustees' technical provisions basis. The administrative expenses of this plan for the year ended 31 December 2015 were met by the plan. The administrative expenses of this plan for the year ended 31 December 2014 were met by the Group.	The Group currently contributes 9% of pensionable salary to each employee's plan. In December 2014 the Group announced that the contribution rate will be increased in April 2016 to 12% plus a further employer contribution (matching employee contributions) of up to 4%. Separate arrangements exist for some employees e.g. those in the executive job family. All UK based employees will be offered membership of the plan from April 2016 - including those currently in the defined benefit plan.
	Defined benefit	Defined contribution
Other	The defined benefit plan for employees based in Ireland has been closed to new entrants from 31 December 2009, with future accrual from that point on a career average revalued earnings (CARE) basis. At the last actuarial valuation effective 1 January 2013 the plan was 99% funded on an ongoing basis. The effective date of the next valuation is 1 January 2016. The Group also operates a small unfunded defined benefit plan for employees in Germany.	The Group contributes 9% of members' pensionable salaries to a group flexible retirement plan.

Canada

All assets and liabilities relating to the defined benefit plan were included in the sale of the Canadian business which completed on 30 January 2015, and the net liability was classified as held for sale at 31 December 2014.

Plan regulations

The plans are administered according to local regulations in each country. Responsibility for the governance of the plans rests with the relevant trustee boards (or equivalent). Trustee boards comprise a mixture of company nominated, member nominated and independent representatives.

Contributions to defined benefit plans

			2015	2014
			£m	£m
UK			3	37
Other			1	1
Canada			1	9

Expected contributions to the defined benefit plans in 2016 are as follows:

		2016
		£m
UK		-
Other		1

(a)     Analysis of amounts recognised in the consolidated income statement

The amounts recognised in the consolidated income statement for defined contribution and defined benefit plans are as follows:

		2015	2014
	Notes	£m	£m
Current service cost		(80)	(60)
Interest income		30	21
Administrative expenses		(2)	-
Expense recognised in the consolidated income statement	8	(52)	(39)

Contributions made to defined contribution plans are included within current service cost, with the balance attributed to the Group's defined benefit plans.

During 2015 the terms of a plan amendment to the UK defined benefit plan were agreed which resulted in closure to future accrual from April 2016. This plan amendment did not generate a past service cost. An additional pension contribution of 6% of pensionable salary into the defined contribution plan for eligible members of the defined benefit plan on 16 March 2015 was made on 16 April 2015. A further additional contribution of 6% will be made on 16 April 2016. These contributions have been accrued over the vesting period and are included in current service cost and in the cost of defined contribution plans in Note 8.

(b)     Analysis of amounts recognised in the consolidated statement of financial position

	2015			2014
	UK	Other	Total	UK	Other	Total	Canada1
	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(2,525)	(85)	(2,610)	(2,816)	(98)	(2,914)	(242)
Present value of unfunded obligation	-	(8)	(8)	-	(8)	(8)	(73)
Fair value of plan assets	3,936	60	3,996	3,990	62	4,052	214
Effect of limit on plan surplus	(514)	-	(514)	(414)	-	(414)	-
Net asset/(liability)	897	(33)	864	760	(44)	716	(101)

¹    The net liability for the Canada plan was classified as held for sale at 31 December 2014.

The UK plan surplus is considered to be recoverable as a right to a refund exists. The surplus has been reduced to reflect an authorised surplus payments charge that would arise on a refund.

(c)     Movement in the net defined benefit asset

	Present value of obligation	Fair value of plan assets	Total	Effect of limit on plan surpluses	Total
2015	£m	£m	£m	£m	£m
At 1 January	(2,922)	4,052	1,130	(414)	716
Total expense
Current service cost	(53)	-	(53)	-	(53)
Interest (expense)/income	(101)	131	30	-	30
Administrative expenses	(2)	-	(2)	-	(2)
Total expense recognised in consolidated income statement	(156)	131	(25)	-	(25)
Remeasurements
Return on plan assets, excluding amounts included in interest income	-	(73)	(73)	-	(73)
Gain from change in demographic assumptions	-	-	-	-	-
Gain from change in financial assumptions	225	-	225	-	225
Experience gains	115	-	115	-	115
Change in effect of limit on plan surplus	-	-	-	(100)	(100)
Remeasurement gains/(losses) recognised in other comprehensive income	340	(73)	267	(100)	167
Exchange differences	5	(3)	2	-	2
Employer contributions	-	4	4	-	4
Benefit payments	115	(115)	-	-	-
At 31 December	(2,618)	3,996	1,378	(514)	864

	Present value of obligation	Fair value of plan assets	Total	Effect of limit on plan surpluses	Total
2014	£m	£m	£m	£m	£m
At 1 January	(2,683)	3,244	561	(233)	328
Reclassified as held for sale	273	(192)	81	-	81
Total expense
Current service cost	(45)	-	(45)	-	(45)
Interest (expense)/income	(108)	129	21	-	21
Total expense recognised in consolidated income statement	(153)	129	(24)	-	(24)
Remeasurements
Return on plan assets, excluding amounts included in interest income	-	896	896	-	896
Loss from change in demographic assumptions	(56)	-	(56)	-	(56)
Loss from change in financial assumptions	(375)	-	(375)	-	(375)
Experience gains	8	-	8	-	8
Change in effect of limit on plan surplus	-	-	-	(181)	(181)
Remeasurement (losses)/gains recognised in other comprehensive income	(423)	896	473	(181)	292
Exchange differences	5	(4)	1	-	1
Employer contributions	-	38	38	-	38
Benefit payments	59	(59)	-	-	-
At 31 December	(2,922)	4,052	1,130	(414)	716

(d)     Plan assets

Investment strategy is directed by the relevant trustee boards who pursue different strategies according to the characteristics and maturity profile of each plan's liabilities. To provide more information on the approach used to determine and measure the fair value of the plan assets, the fair value hierarchy has been used as defined in Note 43. Those assets which cannot be classified as level 1 have been presented together as level 2 or 3.

The distribution of the fair value of the assets of the Group's funded plans at 31 December 2015 is as follows:

	UK		Other		Canada		Total
	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m
Assets measured at fair value based on level 1 inputs
Derivatives	7	38	-	-	-	-	7	38
Equity securities and interests in pooled investment funds	850	1,220	48	49	-	146	898	1,415
Debt securities	2,029	1,239	-	-	-	-	2,029	1,239
Total assets measured at fair value based on level 1 inputs	2,886	2,497	48	49	-	146	2,934	2,692
Assets measured at fair value based on level 2 or 3 inputs
Derivatives	(9)	827	(3)	13	-	-	(12)	840
Equity securities and interests in pooled investment funds	185	92	-	-	-	-	185	92
Debt securities	589	325	-	-	-	59	589	384
Qualifying insurance policies	4	4	-	-	-	-	4	4
Total assets measured at fair value based on level 2 or 3 inputs	769	1,248	(3)	13	-	59	766	1,320
Cash and cash equivalents	281	245	15	-	-	9	296	254
Total	3,936	3,990	60	62	-	214	3,996	4,266

Derivative financial instruments are used to modify the profile of the assets of the plans to better match the plans' liabilities and to execute specific strategies as defined within the plans' investment guidelines. Derivative holdings may lead to increased or decreased exposures to the physical asset categories disclosed above.

Defined benefit plans also use pooled investment vehicles to access a variety of asset classes in an efficient way. The underlying assets of the pooled investment vehicles include, but are not limited to, equity securities, property, debt securities and absolute return portfolios.

(e)     Estimates and assumptions

Determination of the valuation of plan liabilities is a key estimate as a result of the assumptions made relating to both economic and non-economic factors.

The principal economic assumptions for the plans which are based in part on current market conditions are shown below:

	2015	2014
	UK	UK	Canada
	%	%	%
Discount rate	3.70	3.60	4.00
Rates of inflation
Consumer Price Index (CPI)	2.15	2.45	2.00
Retail Price Index (RPI) (UK only)	3.15	3.35	-
Salary inflation (Canada only)	-	-	3.50

The most significant non-economic assumption is post-retirement longevity which is inherently uncertain. The assumptions (along with sample expectations of life) are illustrated below:

			Normal Retirement Age (NRA)	Expectation of life from NRA
				Male, age today		Female, age today
2015	Table	Improvements		NRA	40	NRA	40
UK	Plan specific basis (calibrated by Club Vita) reflecting membership demographics	Advanced parameterisation of CMI 2011 mortality improvements model - adjusted to assume that improvements continue to increase in the short-term before declining toward an ultimate long-term rate of 1.375%	60	30	32	32	34

			Normal Retirement Age (NRA)	Expectation of life from NRA
				Male, age today		Female,  age today
2014	Table	Improvements		NRA	40	NRA	40
UK	Plan specific basis (calibrated by Club Vita) reflecting membership demographics	Advanced parameterisation of CMI 2011 mortality improvements model - adjusted to assume that improvements continue to increase in the short-term before declining toward an ultimate long-term rate of 1.375%	60	29	32	31	34

(f)      Duration of defined benefit obligation

The graph below provides an illustration of the undiscounted expected benefit payments included in the valuation of the UK plan obligations. Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document.

	2015	2014
	UK	UK	Canada
Weighted average duration	years	years	years
Current pensioner	17	16	11
Non-current pensioner	27	28	22

(g)     Risk

(g)(i)   Risks and mitigating actions

The Group's consolidated statement of financial position is exposed to movements in the defined benefit plans' net asset. In particular, the consolidated statement of financial position could be materially sensitive to reasonably likely movements in the principal assumptions for the UK. By offering post-retirement defined benefit pension plans the Group is exposed to a number of risks. An explanation of the key risks and mitigating actions in place is given below.

Asset volatility

Failure of the asset strategy to keep pace with changes in plan liabilities would expose the plan to the risk of a deficit developing, which could increase funding requirements for the Group.

Yields/discount rate

Falls in yields would in isolation be expected to increase the defined benefit plan liabilities.

The UK plan uses both bonds and derivatives to hedge out yield risks on the plan's funding basis, rather than the IAS 19 basis, which is expected to minimise the plan's need to rely on support from the Group.

Inflation

Rises in inflation expectations would in isolation be expected to increase the defined benefit plan liabilities.

The UK plan uses both bonds and derivatives to hedge out inflation risks on the plan's funding basis, rather than the IAS 19 basis, which is expected to minimise the plan's need to rely on support from the Group.

In the UK plan pensions in payment are generally linked to CPI, however inflationary risks are hedged using RPI instruments due to lack of availability of CPI linked instruments. Therefore, the plan is exposed to movements in the actual and expected long-term gap between RPI and CPI.

Life expectancy

Increases in life expectancy beyond those currently assumed will lead to an increase in plan liabilities. Regular reviews of longevity assumptions are performed to ensure assumptions remain appropriate.

(g)(ii)  Sensitivity to principal assumptions

The sensitivity of the UK defined benefit plan's net assets to the principal assumptions is disclosed below.

			2015		2014
	Change in assumption		(Increase)/decrease in present value of obligation	Increase/(decrease) in fair value of plan assets	(Increase)/decrease in present value of obligation	Increase/(decrease) in fair value of plan assets
			£m	£m	£m	£m
Yield/ discount rate	Decrease by 1%		(729)	1,312	(837)	1,262
	Increase by 1%		526	(896)	596	(900)
Rates of inflation	Decrease by 1%		459	(823)	539	(780)
	Increase by 1%		(635)	1,178	(827)	1,111
Life expectancy	Decrease by 1 year		55	-	62	-
	Increase by 1 year		(55)	-	(62)	-

38.  Deferred income     

Where the Group receives fees in advance (front-end fees) for services it is providing, including investment management services, these fees are initially recognised as a deferred income liability and released to the consolidated income statement on a straight line basis over the period services are provided.

		2015	2014
	Notes	£m	£m
At 1 January		276	316
Reclassified as held for sale		-	(1)
Additions during the year	5	25	35
Amortised to the consolidated income statement as fee income	5	(63)	(66)
Release of deferred income	5	-	(5)
Foreign exchange adjustment		(2)	(3)
At 31 December		236	276

The amount of deferred income expected to be settled after more than 12 months is £178m (2014: £216m).

39.  Other financial liabilities

		2015	2014
	Notes	£m	£m
Amounts payable on direct insurance business		340	310
Amounts payable on reinsurance contracts		7	5
Outstanding purchases of investment securities		180	369
Accruals		403	406
Creation of units awaiting settlement		174	196
Cash collateral held in respect of derivative contracts	41	1,166	1,847
Bank overdrafts	27	49	33
Property related liabilities		223	191
Contingent consideration liability		-	3
Other		358	374
Other financial liabilities		2,900	3,734

The amount of other financial liabilities expected to be settled after more than 12 months is £79m (2014: £65m).

40.  Other liabilities

Provisions are obligations of the Group which are of uncertain timing or amount. They are recognised when the Group has a present obligation as a result of a past event, it is probable that a loss will be incurred in settling the obligation and a reliable estimate of the amount can be made.

	2015	2014
	£m	£m
Provisions	48	20
Other	99	80
At 31 December	147	100

The amount of other liabilities expected to be settled after more than 12 months is £35m (2014: £15m).

	Legal provisions	Other provisions	Total provisions
2015	£m	£m	£m
At 1 January	1	19	20
Charged/(credited) to the consolidated income statement
Additional provisions	13	16	29
Release of unused provision	-	-	-
Used during the year	-	(1)	(1)
At 31 December	14	34	48

	Legal provisions	Other provisions	Total provisions
2014	£m	£m	£m
At 1 January	1	18	19
Charged/(credited) to the consolidated income statement
Additional provisions	1	8	9
Release of unused provision	-	(4)	(4)
Used during the year	(1)	(3)	(4)
At 31 December	1	19	20

Other provisions comprise obligations in respect of compensation, staff entitlements, vacant property and reorganisations.

41.  Risk management

(a)     Overview

(a)(i)   Application of the risk management framework

The Group's risk management activities support the creation of long-term value by ensuring well-informed risk-reward decisions are taken in pursuit of the Group's business plan objectives and by ensuring capital is delivered to areas where most value can be created for the risks taken.

The risk management framework used by the Group in 2015 to identify, assess, control and monitor risks is set out in the Strategic report. This includes information on the use of qualitative risk appetite statements and quantitative risk limits in order to manage the Group's risks.

For the purposes of managing risks to the Group's financial assets and financial liabilities, the Group considers the following categories:

Risk	Definition
Market	The risk that arises from the Group's exposure to market movements which could result in the value of income, or the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.
Credit	The risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform those obligations in a timely manner. It also includes the risk of a reduction in the value of assets due to a widening of mortgage, bond and swap spreads.
Demographic	The risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic experience differing from that expected. This class of risk includes risks that meet the definition of insurance risk under IFRS 4 Insurance Contracts and other financial risks.
Expense	The risk that expense levels will be higher than assumed. This can arise from an increase in the unit costs of the company or an increase in expense inflation, either company specific or relating to economic conditions. This risk will be present on contracts where the Group cannot or will not pass the increased costs onto the customer. Expense risk can reflect an increase in liabilities or a reduction in expected future profits.
Liquidity	The risk that the Group is unable to realise investments and other assets in order to settle its financial obligations when they fall due, or can do so only at excessive cost.
Operational	The risk of adverse consequences for the Group's business resulting from inadequate or failed internal processes, people or systems, or from external events. This includes conduct risk as defined below.
Conduct	The risk that through our behaviours, strategies, decisions and actions the Group, or individuals within the Group, do not do the right thing and/or do not behave in a manner which: ·   Pays due regard to treating our customers and clients fairly ·   Is consistent with our disclosures and setting of customer and client expectations ·   Supports the integrity of financial markets
Strategic	Risks which threaten the achievement of the strategy through poor strategic decision-making, implementation or response to changing circumstances.

There are a range of sources of risk affecting these risk categories and the principal risks and uncertainties that affect the business model are set out in detail in Section 1.5 of the Strategic report.

Risk segments

The assets and liabilities on the Group's consolidated statement of financial position can be split into four categories (risk segments) which give the shareholder different exposures to the risks listed previously. These categories are:

Shareholder business

Shareholder business refers to the assets and liabilities to which the shareholder is directly exposed. For the purposes of this note, the shareholder refers to the equity holders of the Company.

Participating business

Participating business refers to the assets and liabilities of the participating funds of the life operations of the Group. It includes the liabilities for insurance features and financial guarantees contained within contracts held in the HWPF that invest in unit linked funds. It does not include the liabilities for insurance features contained in contracts invested in the GWPF or GSMWPF. Such liabilities are included in shareholder business. 

Unit linked and segregated funds

Unit linked and segregated funds refers to the assets and liabilities of the unit linked and segregated funds of the life operations of the Group. It does not include the cash flows (such as asset management charges or investment expenses) arising from the unit linked or segregated fund contracts or the liabilities for insurance features or financial guarantees contained within the unit linked or segregated fund contracts. Such cash flows and liabilities are included in shareholder business or participating business.

Third party interest in consolidated funds and non-controlling interests

Third party interest in consolidated funds and non-controlling interests refers to the assets and liabilities recorded on the Group's consolidated statement of financial position which belong to third parties. The Group controls the entities which own the assets and liabilities but the Group does not own 100% of the equity or units of the relevant entities.

The following table sets out the link between the reportable segments set out in Notes 2 and 3 and the risk segments.

	Risk segment
Reportable segment	Shareholder business	Participating business	Unit linked and segregated funds1
UK and Europe	SLAL - SHF SLAL - PBF (excluding unit linked funds and Canadian branch) SLS SLCM Vebnet Group SLIL (excluding unit linked funds)2	SLAL - HWPF SLAL - GWPF SLAL - GSMWPF SLAL - UKSMWPF	SLAL - PBF unit linked funds SLIL unit linked funds2
Standard Life Investments	SLIH and all its subsidiaries (excluding SLI Inc.)	n/a	n/a
India and China4	SLIL (excluding unit linked funds)3 SLA (excluding unit linked funds) Interests in Indian and Chinese associates and joint ventures	n/a	SLIL unit linked funds3 SLA unit linked funds
Other	Company	n/a	n/a
Discontinued operations4	SLCC (excluding segregated funds and participating fund) SLAL - PBF Canadian branch SLI Inc.	SLCC participating fund	SLCC segregated funds
SLAL = Standard Life Assurance Limited SLIH = Standard Life Investments (Holdings) Limited SLCC = The Standard Life Assurance Company of Canada SLIL = Standard Life International Limited SLA = Standard Life (Asia) Limited SLI Inc. = Standard Life Investments Inc.   SLS = Standard Life Savings Limited SLCM = Standard Life Client Management Limited		HWPF = Heritage With Profits Fund PBF = Proprietary Business Fund GWPF = German With Profits Fund GSMWPF = German Smoothed Managed With Profits Fund SHF = Shareholder Fund UKSMWPF = UK Smoothed Managed With Profits Fund

¹    As discussed in Note 3 and above, unit linked and segregated funds does not include cash flows arising from unit linked or segregated fund contracts or the liabilities for insurance features or financial guarantees contained within the unit linked or segregated fund contracts. Such cash flows and liabilities are included in shareholder or participating business.

²    Related to SLIL's International Bond business.

³    Related to SLIL's business excluding International Bond business.

⁴    For the purposes of this table, Dubai and Singapore businesses are included in India and China and not Discontinued operations as they do not meet the definition of a discontinued operation under IFRS 5.

The table below sets out how the shareholder is exposed to market, credit, demographic and expense, and liquidity risk at the reporting date, arising from the assets and liabilities of the four risk segments:

Risk	Shareholder business	Participating business	Unit linked and segregated funds	Third party interest in consolidated funds and non-controlling interests (TPICF & NCI)
Market	The shareholder is directly exposed to the impact of movements in equity and property prices, interest rates and foreign exchange rates on the value of assets held by the shareholder business and the associated movements in the value of liabilities.	The shareholder is exposed to the market risk that the assets of the with profits funds are not sufficient to meet their obligations. If this situation occurred the shareholder would be exposed to the full shortfall in the funds.	Assets are managed in accordance with the mandates of the particular funds and the financial risks associated with the assets are borne by the policyholder. The shareholder's exposure arises from the changes in the value of future fee based revenue earned on unit linked and segregated funds due to market movements.	The shareholder is not exposed to the market risk from assets in respect of TPICF & NCI since the financial risks of the assets are borne by third parties.
Credit	The shareholder is directly exposed to credit risk from holding cash, debt securities, loans, derivative financial instruments and reinsurance assets and the associated movement in the value of liabilities.	The shareholder is exposed to the credit risk on the assets which could cause the with profits funds to have insufficient resources to meet their obligations. If this situation occurred the shareholder would be exposed to the full shortfall in the funds.	Assets are managed in accordance with the mandates of the particular funds and the financial risks associated with the assets are expected to be borne by the policyholder. The shareholder's exposure is limited to changes in the value of future fee based revenue earned on unit linked and segregated funds due to market movements.	The shareholder is not exposed to the credit risk from assets in respect of TPICF & NCI since the financial risks of the assets are borne by third parties.

Risk	Shareholder business	Participating business	Unit linked and segregated funds	Third party interest in consolidated funds and non-controlling interests (TPICF & NCI)
Demographic and expense	The shareholder is exposed to longevity and mortality risk on annuity contracts held by UK and Europe, and mortality risk on contracts held in non-participating funds by UK and Europe and India and China including those containing insurance features that are invested in unit linked funds or in the GWPF or GSMWPF. The shareholder is also exposed to expenses and persistency being different from expectation on these contracts.	The shareholder receives recourse cash flows and certain other defined payments in accordance with the Scheme of Demutualisation and other relevant agreements. The recourse cash flows are based on several different components of which some are sensitive to demographic and expense risk.	The shareholder is exposed to demographic and expense risk arising on components of a unit linked or segregated fund contract, but it is not the assets or liabilities of the fund which gives rise to this exposure.	TPICF & NCI are not exposed to demographic and expense risk.
Liquidity	The shareholder is directly exposed to the liquidity risk from the shareholder business.	With profits funds are normally expected to meet their obligations through liquidating assets held in the respective with profits fund. If a with profits fund cannot meet its obligations as they fall due, the shareholder will be required to provide liquidity to meet the policyholder claims and benefits as they fall due.	Unit linked and segregated funds are normally expected to meet their obligations through liquidating the underlying assets in which they are invested. If a unit linked or segregated fund cannot meet its obligations in this way, the shareholder may be required to meet the obligations to the policyholder.	The shareholder is not exposed to the liquidity risk from these liabilities, since the financial risks of the obligations are borne by third parties.

The shareholder is exposed to operational and strategic risk arising across the four risk segments and any losses incurred are typically borne by the shareholder.

The shareholder is also exposed to certain risks relating to defined benefit pension plans operated by the Group. These risks are explained in Note 37.

(a)(ii) Consolidated financial position by risk segment

The table that follows provides an analysis of the consolidated statement of financial position showing the Group's assets and liabilities by risk segment. This categorisation has been used to present the information in this note.

The assets and liabilities of the Group's Canadian business were reclassified as held for sale in the consolidated statement of financial position for the year ended 31 December 2014 as detailed in Note 26 and are not included in the tables in this note.

	Shareholder  business		Participating business		Unit linked and segregated funds		Third party interest in consolidated funds and non-controlling interests			Total
	2015	2014	2015	2014	2015	2014	2015	2014		2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m		£m	£m
Intangible assets	566	565	-	-	-	-	-	-		566	565
Deferred acquisition costs	602	717	44	54	-	-	-	-		646	771
Investments in associates and joint ventures	313	260	531	535	4,561	3,568	314	145		5,719	4,508
Investment property	1	-	2,167	2,090	5,947	5,223	1,876	1,728		9,991	9,041
Property, plant and equipment	36	50	55	136	-	-	-	-		91	186
Pension and other post-retirement benefit assets	897	760	-	-	-	-	-	-		897	760
Deferred tax assets	35	33	-	-	-	-	-	-		35	33
Reinsurance assets	53	47	5,462	5,989	-	-	-	-		5,515	6,036
Loans	75	4	340	194	307	166	89	36		811	400
Derivative financial assets	9	18	1,478	1,649	716	1,711	241	643		2,444	4,021
Equity securities and interests in pooled investment funds at FVTPL	52	31	8,187	9,658	56,307	55,471	7,133	6,167		71,679	71,327
Debt securities
At FVTPL	6,833	6,879	25,913	27,785	26,789	23,597	6,379	5,824		65,914	64,085
At available-for-sale	743	356	-	-	-	-	-	-		743	356
Receivables and other financial assets	495	468	99	98	644	534	209	148		1,447	1,248
Current tax recoverable	27	27	19	19	115	138	7	7		168	191
Other assets	51	52	15	21	18	38	5	5		89	116
Assets held for sale	50	9,837	82	857	73	17,679	122	965		327	29,338
Cash and cash equivalents	691	976	1,960	1,778	5,311	5,751	1,678	2,112		9,640	10,617
Total assets	11,529	21,080	46,352	50,863	100,788	113,876	18,053	17,780		176,722	203,599
Non-participating insurance contract liabilities	5,197	5,276	9,556	10,753	6,453	5,812	-	-		21,206	21,841
Non-participating investment contract liabilities	4	4	-	-	92,890	88,203	-	-		92,894	88,207
Participating insurance contract liabilities	-	-	14,283	15,397	-	-	-	-		14,283	15,397
Participating investment contract liabilities	-	-	14,716	15,191	-	-	-	-		14,716	15,191
Unallocated divisible surplus	-	-	655	688	-	-	-	-		655	688
Deposits received from reinsurers	-	-	5,134	5,642	-	-	-	-		5,134	5,642
Third party interest in consolidated funds	-	-	-	-	-	-	17,196	15,805		17,196	15,805
Subordinated liabilities	1,318	1,612	-	-	-	-	-	-		1,318	1,612
Pension and other post-retirement benefit provisions	33	44	-	-	-	-	-	-		33	44
Deferred income	185	216	51	60	-	-	-	-		236	276
Deferred tax liabilities	114	86	58	79	33	49	-	-	205		214
Current tax liabilities	32	38	5	73	66	56	10	5		113	172
Derivative financial liabilities	16	17	88	80	836	1,187	314	409		1,254	1,693
Other financial liabilities	867	966	1,385	1,548	532	928	116	292		2,900	3,734
Other liabilities	95	52	17	17	19	16	16	15		147	100
Liabilities of operations held for sale	-	8,725	37	858	-	17,492	46	958		83	28,033
Total liabilities	7,861	17,036	45,985	50,386	100,829	113,743	17,698	17,484		172,373	198,649
Net inter-segment assets/(liabilities)	334	628	(367)	(477)	41	(133)	(8)	(18)		-	-
Net assets	4,002	4,672	-	-	-	-	347	278		4,349	4,950

(b)      Market risk

As described in the table on pages 184 to 185, the shareholder is exposed to market risk from the shareholder and participating businesses and as a result the following quantitative market risk disclosures are provided in respect of the financial assets of the shareholder and participating businesses.

Quantitative market risk disclosures are not provided in respect of the assets of the unit linked and segregated funds since the shareholder is not exposed to market risks from these assets. The shareholder's exposure to market risk on these assets is limited to variations in the value of future fee based revenue earned on the contracts as fees are based on a percentage of the fund value. The sensitivity to market risk analysis includes the impact on those statement of financial position items which are affected by changes in future fee based revenue due to the market stresses changing the value of assets held by the unit linked and segregated funds. The shareholder is also not exposed to the market risk from the assets held by third party interests in consolidated funds and non-controlling interests and therefore they have been excluded from the following quantitative disclosures.

The Group manages market risks through the use of a number of controls and techniques including:

·   Defined lists of permitted securities and/or application of investment constraints and portfolio limits

·   Clearly defined investment benchmarks for policyholder and shareholder funds

·   Stochastic and deterministic asset/liability modelling

·   Active use of derivatives to improve the matching characteristics of assets and liabilities

·   Setting risk limits for main market risks and managing exposures against these appetites

The specific controls and techniques used to manage the market risks in the shareholder and participating businesses are discussed below:

Shareholder business

Assets in the shareholder business are managed against benchmarks that ensure they are diversified across a range of asset classes, instruments and geographies. A combination of limits by name of issuer, sector and credit rating are used where relevant to reduce concentration risk among the assets held.

Participating business

The assets of the participating business are principally managed to support the liabilities of those funds and are appropriately diversified by both asset class and geography.

The key considerations in the asset and liability management of the participating business are:

·   The economic liability and how this varies with market conditions

·   The need to invest the assets in a manner consistent with participating policyholders' reasonable expectations and, where appropriate, the Scheme of Demutualisation and the Principles and Practices of Financial Management (PPFM)

·   The need to ensure that regulatory 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.

(b)(i)    Elements of market risk

The main elements of market risk to which the Group is exposed are equity risk, property risk, interest rate risk and foreign currency risk, which are discussed on the following pages.

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 a range of methods of asset and liability management across its business units.

Information on the methods used to determine fair values for each major category of financial instrument and investment property measured at fair value is presented in Note 43 and Note 19.

(b)(i)(i)   Group exposure to equity risk

The Group is subject to equity price risk due to daily changes in the market values and returns on the holdings in its equity securities portfolio. The Group's shareholders are exposed to the following sources of equity risk:

·   Direct equity shareholdings in the shareholder business and the Group's defined benefit pension plans

·   Burnthrough from the with profits funds where adverse movements in the market values and returns on holdings in the equity portfolios of these funds mean the assets of the with profits funds are not sufficient to meet their obligations

·   The indirect impact from changes in the value of equities held in funds from which management charges are taken

Exposures to equity securities are primarily controlled through the use of investment mandates including constraints based on appropriate equity indices.

The table below shows the shareholder and participating businesses' exposure to equity markets. Equity securities are analysed by country based on the ultimate parent country of risk.

	Shareholder business		Participating business		Total
	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m
UK	10	-	3,540	4,060	3,550	4,060
Canada	-	-	39	42	39	42
Australia	-	1	20	53	20	54
Belgium	1	-	27	73	28	73
Denmark	1	-	126	165	127	165
Finland	1	-	85	48	86	48
France	3	1	412	453	415	454
Germany	3	1	467	523	470	524
Greece	-	-	-	12	-	12
Ireland	1	-	187	137	188	137
Italy	2	-	142	100	144	100
Japan	1	1	118	114	119	115
Mexico	-	-	1	1	1	1
Netherlands	2	1	291	364	293	365
Norway	-	-	24	44	24	44
Portugal	-	-	59	19	59	19
Russia	-	-	3	4	3	4
Spain	1	-	125	161	126	161
Sweden	1	-	165	236	166	236
Switzerland	2	-	601	669	603	669
US	10	-	1,506	1,977	1,516	1,977
Other	13	7	177	311	190	318
Total	52	12	8,115	9,566	8,167	9,578

In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £nil (2014: £19m) and investments in associates at FVTPL of £19m (2014: £16m). The participating business has interests in pooled investment funds of £72m (2014: £92m) and investments in associates at FVTPL of £531m (2014: £535m).

(b)(i)(ii)   Group exposure to property risk

The Group is subject to property risk due to changes in the value and return on holdings in investment property. This risk arises from:

·   Direct property holdings in the shareholder business

·   Burnthrough from the with profits funds where adverse movements in the market values and returns on investment property in these funds mean the assets of the with profits funds are not sufficient to meet their obligations

·   The indirect impact from changes in the value of property held in funds from which management charges are taken

Exposures to property holdings are primarily controlled through the use of portfolio limits which specify the proportion of the value of the total property portfolio represented by:

·   Any one property or group of properties

·   Geographic area

·   Property type

·   Development property under construction

The tables below show the shareholder and the participating businesses' direct exposure to investment property analysed by country and sector:

Shareholder business

	Office		Industrial		Retail		Other		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	-	-	-	-	1	-	-	-	1	-

Participating business

	Office		Industrial		Retail		Other		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	703	608	230	237	938	1,051	6	6	1,877	1,902
Belgium	12	14	-	-	-	-	-	-	12	14
France	-	-	-	3	-	-	1	2	1	5
Germany	26	-	5	-	15	-	-	-	46	-
Ireland	-	-	-	-	-	-	26	26	26	26
Netherlands	48	-	26	14	-	-	-	-	74	14
Spain	131	129	-	-	-	-	-	-	131	129
Total	920	751	261	254	953	1,051	33	34	2,167	2,090

There is no direct exposure to residential property in the shareholder and participating businesses.

(b)(i)(iii) Group exposure to interest rate risk

Interest rate risk is the risk that arises from exposures to changes in the shape and level of yield curves which could result in the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by different amounts.

The main financial assets held by the Group which give rise to interest rate risk are debt securities, loans and cash and cash equivalents. The main financial liabilities giving rise to interest rate risk principally comprise non-unit linked insurance, participating and non-participating investment contract liabilities and subordinated liabilities. Derivative financial instruments held by the Group also give rise to interest rate risk.

Shareholder business

Under the Group's risk management framework, Group companies are required to manage their interest rate exposures in line with the Group's qualitative risk appetite statements and quantitative risk limits. Group companies typically use a combination of cash flow and duration matching techniques to manage their interest rate risk at an entity level. Hedging is used to mitigate the risk that burnthrough may arise from the with profits funds under certain circumstances where adverse interest rate movements could mean the assets of the with profits funds are not sufficient to meet the obligations of the with profits funds.

Participating business

Duration matching is used to minimise the interest rate risk that arises from mismatches between participating contract liabilities and the assets backing those liabilities. Cash flow matching is used to minimise the interest rate risk that arises in the participating business from mismatches between non-participating insurance contract liabilities and the assets backing those liabilities. A combination of debt securities and derivative financial instruments are held to assist in the management of interest rate sensitivity arising in respect of the cost of guarantees.

The sensitivity of profit after tax to changes in interest rates for both the shareholder business and the participating business is included in the profit after tax sensitivity to market risk table, shown in section (b)(ii).

(b)(i)(iv)   Group exposure to foreign currency risk

The Group's financial assets are generally held in the local currency of its operational geographic locations, principally to assist with the matching of liabilities. However, foreign currency risk arises where financial assets are held in other currencies, for example to meet the expectations of particular groups of policyholders or to improve the risk profile through diversification. The Group manages this risk through the use of limits on the amount of foreign currency risk that is permitted.

The tables below summarise the shareholder and participating businesses' exposure to foreign currency risks in Sterling. The tables exclude inter-segment assets and liabilities.

Shareholder business

	UK Sterling		Euro		Canadian Dollar		Hong Kong Dollar		US Dollar		Indian Rupee		Other currencies		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total assets	10,046	9,566	956	1,194	20	9,741	64	92	117	153	202	159	124	175	11,529	21,080
Total liabilities	(7,357)	(7,511)	(416)	(702)	(18)	(8,728)	(29)	(39)	(26)	(26)	-	-	(15)	(30)	(7,861)	(17,036)
Net investment hedges	5	1,107	-	-	-	(1,085)	(5)	(22)	-	-	-	-	-	-	-	-
Cash flow hedges	(10)	1,100	10	18	-	(1,118)	-	-	-	-	-	-	-	-	-	-
Non designated derivatives	426	433	(385)	(427)	-	-	2	(1)	1	15	10	2	(54)	(22)	-	-
	3,110	4,695	165	83	2	(1,190)	32	30	92	142	212	161	55	123	3,668	4,044

Other currencies include assets of £3m (2014: £15m) and liabilities of £7m (2014: £16m) in relation to the fair value of derivatives used to manage currency risk.

The principal source of foreign currency risk for shareholders arises from the Group's investments in overseas subsidiaries, joint ventures and associates.

Non designated derivatives relate to foreign exchange forward contracts that are not designated as cash flow hedges or net investment hedges.

During 2015 the Group reaffirmed its strategy for hedging foreign currency risks in the shareholder business. The purpose of this strategy is to provide a consistent approach to managing foreign exchange risks in the shareholder business. This includes, within certain parameters, minimising currency volatility within the regulatory capital surplus and reducing the currency risk relating to dividend receipts from overseas operations. The Group does not separately hedge translation of reported earnings from overseas operations in the consolidated financial statements. The Group fully hedged the currency risk relating to the sale of its Canadian operations which it completed in January 2015.

Participating business

	UK Sterling		Euro		Canadian Dollar		Hong Kong Dollar		US Dollar		Indian Rupee		Other currencies		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total assets	31,722	34,323	11,846	11,654	38	883	31	42	1,672	2,744	6	2	1,037	1,215	46,352	50,863
Total liabilities	(36,808)	(40,341)	(9,137)	(9,142)	-	(858)	-	-	(2)	(26)	-	-	(38)	(19)	(45,985)	(50,386)
Non designated derivatives	880	1,471	(804)	(1,109)	-	-	-	-	(35)	(329)	-	-	(41)	(33)	-	-
	(4,206)	(4,547)	1,905	1,403	38	25	31	42	1,635	2,389	6	2	958	1,163	367	477

There are no net investment hedges or cash flow hedges in the participating business. Other currencies include assets of £3m (2014: £29m) and liabilities of £27m (2014: £14m) in relation to the fair value of derivatives used to manage currency risk exposures.

The foreign currency exposures shown above largely reflect the impact of financial assets being denominated in currencies other than the local currency of the operational geographic location. These exposures arise as a result of asset allocation decisions that are intended to meet the expectations of particular groups of policyholders or to improve the risk profile through diversification. The investment mandates used to manage the participating business contain limits to restrict the extent of foreign currency risk that can be taken and currency derivatives are held to provide economic hedges of some of the above exposures. These are typically short dated forward foreign exchange contracts, however the investment mandates do not normally require these contracts to be replaced on maturity providing the foreign currency risk is within limits.

(b)(ii)    Sensitivity to market risk analysis

The Group's profit after tax and equity from continuing operations are sensitive to variations in respect of the Group's market risk exposures and a sensitivity analysis is presented on the following pages. The analysis has been performed by calculating the sensitivity of profit after tax from continuing operations and equity to changes in equity security and property prices and to changes in interest rates as at the reporting date applied to assets and liabilities other than those classified as held for sale. For each sensitivity 'test', the impact of a reasonably possible change in a single sensitivity factor is presented, 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 funds is included in the sensitivity analysis where there is an impact on the value of other statement of financial position items, the change in unit linked liabilities and the corresponding asset movement has not been presented. This is also true of the other with profits funds with the exception of the German With Profits Fund (GWPF). As at 31 December 2015 there is no direct impact of market risk on the sensitivity of GWPF. However, there is an indirect impact on the PBF due to a realistic Capital Support Arrangement that was introduced during 2011 for the GWPF. This provides support by reducing the liability to transfer future annual management charges to the PBF hence increasing the assets on the statement of financial position to the extent necessary to avoid a realistic deficit (if possible). There is no impact on GWPF participating liabilities. At 31 December 2015 support is provided under the realistic Capital Support Arrangement and there is an increase in expense reserves in the PBF. Further realistic support may be required for changes in interest rates and the sensitivity of this is included within the non-participating insurance contract liabilities in the table below.

Earnings over a period may be reduced as a consequence of the impact of market movements on charges levied on unit linked business, segregated fund business and other with profits fund business. 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 change 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 consider the extent to which shareholders 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.

Limitations

The sensitivity of the Group's profit after tax and equity from continuing operations is non-linear and larger or smaller impacts should not be derived from these results. The sensitivity analysis represents the impact on profit at 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 reporting date.

For the participating business, in particular the HWPF and the GWPF, the risk to shareholders is that the assets of the fund are insufficient to meet the obligations to policyholders.

For the HWPF, whilst shareholders are only entitled to the recourse cash flows in respect of this business, there can be potential exposure to the full impact of any shortfall if the assets of the fund are insufficient to meet policyholder obligations. The sensitivities presented in the table are not sufficiently severe to have restricted recourse cash flows in 2015 and 2014.

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 Principles and Practices of Financial Management (PPFM).

Profit after tax of continuing operations sensitivity to market risk

	Equity markets				Property markets				Interest rates
2015	+10%	-10%	+20%	-20%	+10%	-10%	+20%	-20%	+1%	-1%
Increase/(decrease) in profit after tax from continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
UK and Europe:
Deferred acquisition costs	-	-	-	(5)	-	-	-	-	-	-
Assets backing non-participating liabilities	-	-	-	-	-	-	-	-	(569)	691
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	538	(642)
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	(17)	18
Total UK and Europe	-	-	-	(5)	-	-	-	-	(48)	67
Standard Life Investments	3	(3)	7	(7)	-	-	-	-	-	-
India and China:
Deferred acquisition costs	2	(2)	3	(4)	-	-	-	-	1	(2)
Assets backing non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Assets backing non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	-	-
Total India and China	2	(2)	3	(4)	-	-	-	-	1	(2)
Other	3	(3)	6	(6)	-	-	-	-	-	-
Total shareholder business	8	(8)	16	(22)	-	-	-	-	(47)	65
	-	-	-	-	-	-	-	-	-	-
Participating business
UK and Europe:
Recourse cash flow	-	-	-	-	-	-	-	-	-	-
Total UK and Europe	-	-	-	-	-	-	-	-	-	-
Total participating business	-	-	-	-	-	-	-	-	-	-
Total	8	(8)	16	(22)	-	-	-	-	(47)	65

¹    The amounts in the table above are presented net of tax.

²    A positive number represents a credit to the consolidated income statement.

³    The interest rate sensitivity is a parallel shift subject to a floor of -30bps.

The Company within other shareholder business classifies certain debt securities as available-for-sale (AFS). The Group's sensitivity of profit after tax of continuing operations to changes in interest rates does not include the impact of changes in interest rates for these AFS assets.

	Equity markets				Property markets				Interest rates
2014	+10%	-10%	+20%	-20%	+10%	-10%	+20%	-20%	+1%	-1%
Increase/(decrease) in profit after tax from continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
UK and Europe:
Deferred acquisition costs	-	-	-	(4)	-	-	-	-	-	-
Assets backing non-participating liabilities	-	-	-	-	-	-	-	-	(595)	721
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	567	(702)
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	(10)	11
Total UK and Europe	-	-	-	(4)	-	-	-	-	(38)	30
Standard Life Investments	3	(3)	7	(7)	-	-	-	-	-	-
India and China:
Deferred acquisition costs	-	-	-	(1)	-	-	-	-	-	-
Assets backing non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Assets backing non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	-	-
Total India and China	-	-	-	(1)	-	-	-	-	-	-
Other	1	(1)	2	(2)	-	-	-	-	1	(1)
Total shareholder business	4	(4)	9	(14)	-	-	-	-	(37)	29
Participating business
UK and Europe:
Recourse cash flow	-	-	-	-	-	-	-	-	-	-
Total UK and Europe	-	-	-	-	-	-	-	-	-	-
Total participating business	-	-	-	-	-	-	-	-	-	-
Total	4	(4)	9	(14)	-	-	-	-	(37)	29

¹    The amounts in the table above are presented net of tax.

²    A positive number represents a credit to the consolidated income statement.

³      The interest rate sensitivity is a parallel shift subject to a floor of nil.

Equity sensitivity to market risk on assets and liabilities other than those classified as held for sale

The shareholder business in the other reportable segment classifies certain debt securities as AFS. These debt securities are measured at fair value. Interest is calculated using the effective interest method and recognised in the consolidated income statement. Other changes in fair value and the related tax are recognised in other comprehensive income. As a result, the sensitivity of the Group's equity to variations in interest rate risk exposures differs from the sensitivity of the Group's profit after tax from continuing operations to variations in interest rate risk exposures.

Other's equity sensitivity to a 1% increase in interest rates is (£14m) (2014: (£15m)) and to a 1% decrease in interest rates is £15m (2014: £15m). The sensitivity of the Group's total equity from continuing operations to a 1% increase in interest rates is (£61m) (2014: (£53m)) and a 1% decrease in interest rates is £80m (2014: £45m).

The sensitivity of the Group's total equity to variations in equity and property prices for assets and liabilities other than those classified as held for sale in respect of each of the scenarios shown in the preceding tables is the same as the sensitivity of the Group's profit after tax.

(c)     Credit risk

As described in the table on pages 184 to 185, the shareholder is exposed to credit risk from the shareholder and participating businesses and as a result the following quantitative credit risk disclosures are provided in respect of the financial assets of these categories.

Quantitative credit risk disclosures are not provided in respect of the assets of the unit linked and segregated funds since the shareholder is not directly exposed to credit risks from these assets. The unit linked business includes £3,228m (2014: £3,523m) of assets that are held as reinsured external funds links. Under certain circumstances the shareholder may be exposed to losses relating to the default of the reinsured external fund links. These exposures are actively monitored and managed by the Group and the Group considers the circumstances under which losses may arise to be very remote.

The shareholder is also not exposed to the credit risk from the assets held by third party interest in consolidated funds and non-controlling interests and therefore these have been excluded from the following quantitative disclosures.

The Group's credit risk exposure mainly arises from its investments in its financial instruments. 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 counterparty exposure limits are set with reference to internal credit assessments.
Derivative financial instruments	Maximum counterparty exposure limits, net of collateral, are set with reference to internal credit assessments. The forms of collateral that may be accepted are also specified and minimum transfer amounts in respect of collateral transfers are documented. Refer to (c)(iii) for further details on collateral.
Debt securities	The Group's policy is to set exposure limits by name of issuer, sector and credit rating.
Loans	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	Appropriate limits are set for other financial instruments to which the Group may have exposure at certain times, for example commission terms paid to intermediaries.

Individual business units are responsible for implementing processes to ensure that credit exposures are managed within any limits that have been established and for the reporting of exposures and any limit breaches to the Group Credit Risk Committee.

The tables that follow provide an analysis of the quality of financial assets that are neither past due nor impaired at the reporting date and are exposed to credit risk. For those financial assets with credit ratings assigned by external rating agencies, classification is within the range of AAA to BBB. AAA is the highest possible rating and rated financial assets that fall outside the range of AAA to BBB have been classified as below BBB with rules followed for determining the credit rating to be disclosed when different credit ratings are assigned by different external rating agencies. For those financial assets that do not have credit ratings assigned by external rating agencies but where the Group has assigned internal ratings for use in managing and monitoring credit risk, the assets have been classified in the analysis that follows as 'internally rated'. If a financial asset is neither rated by an external agency nor 'internally rated', it is classified as 'not rated'. The total amounts presented represent the Group's maximum exposure to credit risk at the reporting date without taking into account any collateral held. The analysis also provides information on the concentration of credit risk.

(c)(i)   Credit exposure

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:

·   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

The following tables show the shareholder and participating businesses' exposure to credit risk from financial assets analysed by credit rating and country.

Shareholder business

An analysis of financial assets by credit rating is as follows:

	Loans to associates and joint ventures		Reinsurance assets		Loans		Derivative financial assets		Debt Securities		Receivables and other  financial assets		Cash and cash equivalents		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Neither past due nor impaired:
AAA	-	-	-	-	-	-	-	-	673	524	-	-	32	-	705	524
AA	-	-	37	34	-	-	-	1	1,586	1,517	-	-	193	228	1,816	1,780
A	-	-	13	10	40	4	5	6	2,830	3,293	-	-	388	718	3,276	4,031
BBB	-	-	-	-	33	-	2	9	1,349	1,105	-	-	78	30	1,462	1,144
Below BBB	-	-	-	-	-	-	-	-	118	31	-	-	-	-	118	31
Not rated	2	2	-	-	2	-	2	2	1	1	475	448	-	-	482	453
Internally rated	-	-	3	3	-	-	-	-	1,019	764	-	-	-	-	1,022	767
Past due	-	-	-	-	-	-	-	-	-	-	20	20	-	-	20	20
Impaired	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Total	2	2	53	47	75	4	9	18	7,576	7,235	495	468	691	976	8,901	8,750

At 31 December 2015, receivables and other financial assets of £19m (2014: £17m) were past due by less than three months and £1m (2014: £3m) were past due by three to six months.

An analysis of debt securities by country is as follows:

	Government, Provincial and Municipal1		Banks		Other financial institutions		Other corporate		Other2		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	527	565	389	377	1,335	1,286	1,576	1,330	-	-	3,827	3,558
Canada	-	3	1	25	-	-	1	1	-	-	2	29
Australia	-	-	100	72	-	6	9	10	-	-	109	88
Austria	22	25	-	-	-	-	-	-	-	-	22	25
Belgium	-	-	1	25	-	-	12	11	-	-	13	36
Denmark	-	-	51	41	-	-	15	16	-	-	66	57
Finland	-	-	25	25	-	-	-	-	-	-	25	25
France	201	209	343	228	-	-	306	347	-	-	850	784
Germany	296	87	131	115	1	1	243	300	-	-	671	503
Greece	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	-	-	1	-	-	3	-	-	-	-	1	3
Italy	-	-	27	36	-	-	75	86	-	-	102	122
Japan	-	-	26	119	-	10	22	32	-	-	48	161
Mexico	12	1	-	-	-	-	105	112	-	-	117	113
Netherlands	21	-	257	313	-	-	24	24	-	-	302	337
Norway	-	-	1	-	-	-	39	40	-	-	40	40
Portugal	-	-	-	-	-	-	-	-	-	-	-	-
Spain	-	-	105	37	-	-	41	52	-	-	146	89
Sweden	-	-	40	38	1	1	58	66	-	-	99	105
Switzerland	-	-	116	87	-	-	7	7	-	-	123	94
US	-	-	217	302	133	133	310	283	-	-	660	718
Other	37	48	51	61	52	2	12	11	201	226	353	348
Total	1,116	938	1,882	1,901	1,522	1,442	2,855	2,728	201	226	7,576	7,235

¹    Government, Provincial and Municipal includes debt securities which are issued by or explicitly guaranteed by the national government.

²    This balance primarily consists of securities held in supranationals. 

Participating business

An analysis of financial assets by credit rating is as follows:

	Reinsurance assets		Loans		Derivative financial assets		Debt Securities		Receivables and other financial assets		Cash and cash equivalents		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Neither past due nor impaired:
AAA	-	-	-	-	-	-	4,342	4,842	-	-	64	-	4,406	4,842
AA	5,436	5,962	139	84	-	55	14,917	15,608	-	-	498	275	20,990	21,984
A	19	20	111	-	643	1,262	4,214	4,902	-	-	1,297	1,502	6,284	7,686
BBB	-	-	-	-	428	-	1,673	1,578	-	-	101	-	2,202	1,578
Below BBB	-	-	-	-	-	-	434	481	-	-	-	-	434	481
Not rated	-	-	90	110	407	332	34	33	84	83	-	1	615	559
Internally rated	7	7	-	-	-	-	299	335	-	-	-	-	306	342
Past due	-	-	-	-	-	-	-	-	15	15	-	-	15	15
Impaired	-	-	-	-	-	-	-	6	-	-	-	-	-	6
Total	5,462	5,989	340	194	1,478	1,649	25,913	27,785	99	98	1,960	1,778	35,252	37,493

At 31 December 2015, receivables and other financial assets of £15m (2014: £15m) were past due by less than three months.

Not rated loans of £90m (2014: £110m) relate to mortgages.

The shareholders' exposure to credit risk arising from investments held in the HWPF and other with profits funds is similar in principle to that described for market risk exposures in section (b). As at 31 December 2015, the financial assets of the HWPF include £5,134m (2014: £5,642m) of assets (primarily debt securities) deposited back under the terms of an external annuity reinsurance transaction, the transaction having been structured in this manner specifically to mitigate credit risks associated with default of the reinsurer. Any credit losses and defaults within the portfolio of assets are borne by the external reinsurer.

An analysis of debt securities by country is as follows:

	Government, Provincial and Municipal1		Banks		Other financial institutions		Other corporate		Other2		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	10,275	11,030	925	926	1,929	2,050	1,730	1,966	-	-	14,859	15,972
Canada	3	35	195	77	8	10	3	1	-	-	209	123
Australia	-	-	206	199	31	39	35	42	-	-	272	280
Austria	235	240	4	8	-	-	-	-	-	-	239	248
Belgium	452	381	10	16	-	-	15	16	-	-	477	413
Denmark	4	5	11	10	-	-	22	32	-	-	37	47
Finland	85	83	54	57	-	-	4	5	-	-	143	145
France	1,708	1,641	437	473	24	19	331	375	-	-	2,500	2,508
Germany	2,620	2,996	587	440	122	114	189	214	-	-	3,518	3,764
Greece	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	7	1	9	6	10	10	13	13	-	-	39	30
Italy	4	3	27	31	11	13	120	138	-	-	162	185
Japan	21	20	35	295	-	-	1	10	-	-	57	325
Mexico	-	-	-	-	-	-	58	64	-	-	58	64
Netherlands	403	358	338	228	42	46	34	31	-	-	817	663
Norway	17	18	6	16	-	-	63	72	-	-	86	106
Portugal	-	-	-	-	-	-	5	3	-	-	5	3
Russia	-	-	-	-	-	-	-	7	-	-	-	7
Spain	5	8	11	8	5	-	52	62	-	-	73	78
Sweden	1	1	280	261	6	8	16	20	-	-	303	290
Switzerland	-	-	103	182	59	35	57	56	-	-	219	273
US	107	434	361	383	206	254	437	408	-	-	1,111	1,479
Other	85	92	105	161	62	92	116	146	361	291	729	782
Total	16,032	17,346	3,704	3,777	2,515	2,690	3,301	3,681	361	291	25,913	27,785

¹    Government, Provincial and Municipal includes debt securities which are issued by or explicitly guaranteed by the national government.

²    This balance primarily consists of securities held in supranationals. 

(c)(ii)   Credit spreads

As at 31 December 2015, it is expected that an adverse movement in credit spreads of 50 basis points, with no change to default allowance, would result in a reduction to profit for the year from continuing operations of £23m (2014: £24m). A further reduction of £46m (2014: £39m) would arise as a result of a change in assumed default rates of 12.5 basis points per annum (25% of the spread change).

(c)(iii)  Collateral accepted and pledged in respect of financial instruments

Collateral in respect of bilateral over-the-counter (OTC) derivative financial instruments is accepted from and provided to certain market counterparties to mitigate counterparty risk in the event of default. The use of collateral in respect of these instruments is governed by formal bilateral agreements between the parties. The amount of collateral required by either party is determined by the daily bilateral OTC exposure calculations in accordance with these agreements and collateral is moved on a daily basis to ensure there is full collateralisation. Under the terms of these agreements, collateral is posted with the ownership captured under title transfer of the contract. 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 bilateral OTC exposure 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. At 31 December 2015, the Group had pledged £448m (2014: £202m) of cash and £36m (2014: £58m) of securities as collateral for derivative financial liabilities. At 31 December 2015, the Group had accepted £1,166m (2014: £1,847m) of cash and £10m (2014: £16m) of securities as collateral. None of the securities were sold or repledged at the year end.  

(c)(iv)  Offsetting financial assets and liabilities

Financial assets and liabilities are offset and the net amount reported on the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

The Group does not offset financial assets and liabilities on the consolidated statement of financial position, as there are no unconditional rights to set off. Consequently, the gross amount of financial instruments presented on the consolidated statement of financial position is the net amount. The Group's bilateral OTC derivatives are all subject to an International Swaps and Derivative Association (ISDA) master agreement, which provide a right of set off that is enforceable only in the event of default, insolvency, or bankruptcy. An ISDA master agreement is considered a master netting agreement.

The Group does not hold any other financial instruments which are subject to master netting agreements or similar arrangements. The following table presents the effect of master netting agreements and similar arrangements.

		Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position	Financial instruments	Financial collateral pledged/(received)	Net position
As at 31 December 2015	£m	£m	£m	£m
Financial assets
Derivatives1	1,752	(549)	(1,176)	27
Total financial assets	1,752	(549)	(1,176)	27
Financial liabilities
Derivatives1	(1,070)	549	466	(55)
Total financial liabilities	(1,070)	549	466	(55)

¹    Only OTC derivatives subject to master netting agreements have been included above.

		Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position	Financial instruments	Financial collateral pledged/(received)	Net position
As at 31 December 2014	£m	£m	£m	£m
Financial assets
Derivatives1	3,051	(1,057)	(1,863)	131
Total financial assets	3,051	(1,057)	(1,863)	131
Financial liabilities
Derivatives1	(1,260)	1,057	194	(9)
Total financial liabilities	(1,260)	1,057	194	(9)

¹    Only OTC derivatives subject to master netting agreements have been included above.

(c)(v)    Credit risk on loans and receivables and financial liabilities designated as at fair value through profit or loss

(c)(v)(i)  Loans and receivables

The Group holds a portfolio of financial instruments which meet the definition of loans and receivables under IAS 39 Financial Instruments: Recognition and Measurement and on initial recognition were designated as at FVTPL. These instruments are included in debt securities on the consolidated statement of financial position. The Group's exposure to such financial instruments at 31 December 2015 was £652m (2014: £442m) of which £140m related to participating business (2014: £237m) and £512m related to shareholder business (2014: £205m). The fair value of these loans and receivables 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 losses of £4m (2014: £22m gains) in relation to these loans and receivables were recognised in the consolidated income statement. The amount of this movement that is attributable to changes in the credit risk of these instruments was gains of £2m (2014: £3m loss).

As described in section (b), the Group's 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 loans and receivables incorporates both movements arising from credit risk and resulting from changes in market conditions. 

(c)(v)(ii)  Financial liabilities designated at FVTPL

The Group has designated unit linked non-participating investment contract liabilities as at FVTPL. As the fair value of the liability is based on the value of the underlying portfolio of assets, 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.

(d)      Demographic and expense risk

As described in the table on pages 184 to 185, the shareholder is directly exposed to demographic and expense risk from shareholder business and participating business and, as a result, quantitative demographic and expense risk disclosures are provided in respect of these categories.

Demographic and expense risk is managed by assessing certain characteristics based on experience and statistical data and by making certain assumptions on the risks associated with the policy during the period that it is in force. Assumptions that are deemed to be financially significant are reviewed at least annually for pricing and reporting purposes. In analysing demographic and expense risk exposures, the Group considers:

·   Historic experience of relevant demographic and expense risks

·   The potential for future experience to differ from that expected or observed historically

·   The financial impact of variances in expectations

·   Other factors relevant to their specific markets, for example obligations to treat customers fairly

Reinsurance and other risk transfer mechanisms are used to manage risk exposures and are taken into account in the Group's assessment of demographic and expense risk exposures.

(d)(i)    Elements of demographic and expense risk

The main elements of demographic and expense risk that give rise to the exposure are discussed below.

(d)(i)(i)   Components of insurance risk as defined by IFRS 4 Insurance Contracts

Longevity

The Group defines longevity risk as the risk that the policyholder lives longer than expected and therefore gives rise to a loss. This risk is relevant for contracts where payments are made until the death of the policyholder, for example, annuities. This may arise from current experience differing from that expected, more volatility of experience than expected, or the rate of improvement in mortality being greater than anticipated.

Experience can vary as a result of statistical uncertainty or as a consequence of systemic (and previously unexpected) changes in the life expectancy of the insured portfolio. The profitability of such business will reduce should policyholders live longer than the Group's expectations and reported profits will be impacted as and when such variances are recognised in liabilities.

Morbidity

The Group defines morbidity risk as the risk that paid claims dependent on the state of health of a policyholder are incurred at a higher than expected rate or, in the case of income benefits, continue for a longer duration or start earlier than those assumed. This risk will be present on disability income, healthcare and critical illness contracts. This includes the risk of anti-selection that results in a requirement to pay claims that the Group had not expected, for example, due to non-disclosure.

Income protection contracts have the risk that claim duration may be longer than anticipated.

Mortality

The Group defines mortality risk as the risk that paid death claims are at a higher rate or are more volatile than assumed. This risk will exist on any contracts where the payment on death is greater than the reserve held. This includes the risk of anti-selection that results in a requirement to pay claims that the Group had not expected, for example due to non-disclosure.

(d)(i)(ii)  Other financial risks

Persistency - withdrawals and lapse rates

The Group defines persistency risk as the risk that business lapses or becomes paid-up at a different rate than assumed. This risk may arise if persistency rates are greater or less than assumed or if policyholders selectively lapse when it is beneficial for them. If the benefits payable on lapse or being paid-up are greater than the reserve held then the risk will be of a worsening of persistency and if benefits are paid out that are lower than the reserve then the risk will be that fewer policyholders will lapse or become paid-up.

Persistency risk also reflects the risk of a reduction in expected future profits arising from early retirements, surrenders - either partial or in full - and similar policyholder options.

Variances in persistency will affect equity holder profit to the extent that charges levied against policies are dependent upon the number of policies in force and/or the average size of those policies. The policies primarily relate to unit linked and unitised with profits business. Profit may also be at risk if it is considered necessary, or prudent, to increase liabilities on certain lines of business.

Expenses

The Group defines expense risk as the risk that expense levels will be higher than assumed. This can arise from an increase in the unit costs of the Group or its businesses or an increase in expense inflation, either Group specific or relating to economic conditions. This risk will be present on contracts where the Group cannot or will not pass the increased costs onto the customer. Expense risk can reflect an increase in liabilities or a reduction in expected future profits.

Profit is directly exposed to the risk of expenses being higher than otherwise expected. They can be further affected if it is considered necessary, or prudent, to increase provisions to reflect increased expectations of future costs of policy administration.

(d)(ii)   Sensitivity to demographic and expenses risk analysis

Recognition of profit after tax and the measurement of equity are dependent on the methodology and key assumptions used to determine the Group's insurance and investment contract liabilities, as described in Note 3.

The tables that follow illustrate the sensitivity of profit after tax and equity to variations in the key assumptions made in relation to the Group's most significant demographic and expense risk exposures, including exposure to persistency risk. The values have, in all cases, been determined by varying the relevant assumption as at the reporting date and considering the consequential impacts assuming other assumptions remain unchanged.

(Decrease)/increase in profit after tax from continuing operations and equity	Longevity		Expenses		Persistency		Morbidity/ mortality
	+5%	-5%	+10%	-10%	+10%	-10%	+5%	-5%
2015	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
UK and Europe
Reinsurance assets	-	-	-	-	-	-	1	(1)
Non-participating insurance contract liabilities	(111)	104	(7)	7	1	(1)	(1)	1
India and China
Deferred acquisition costs	-	-	(5)	3	(1)	1	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-
Total shareholder business	(111)	104	(12)	10	-	-	-	-
Participating business
UK and Europe
Recourse cash flows	(17)	16	(3)	3	-	-	(3)	3
Total participating business	(17)	16	(3)	3	-	-	(3)	3
Total	(128)	120	(15)	13	-	-	(3)	3

(Decrease)/increase in profit after tax from continuing operations and equity	Longevity		Expenses		Persistency		Morbidity/ mortality
	+5%	-5%	+10%	-10%	+10%	-10%	+5%	-5%
2014	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
UK and Europe
Reinsurance assets	-	-	-	-	-	-	1	(1)
Non-participating insurance contract liabilities	(117)	110	(7)	6	1	(1)	(1)	1
India and China
Deferred acquisition costs	-	-	-	-	-	-	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-
Total shareholder business	(117)	110	(7)	6	1	(1)	-	-
Participating business
UK and Europe
Recourse cash flows	(13)	12	(3)	3	-	-	(3)	3
Total participating business	(13)	12	(3)	3	-	-	(3)	3
Total	(130)	122	(10)	9	1	(1)	(3)	3

When the sensitivities presented in the tables 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. Amounts in the tables above are presented net of tax and reinsurance.

For the participating business, the tables above illustrate the impact of demographic and expense risk on the recourse cash flows from the HWPF, which have been determined in accordance with the Scheme and take into account the need to consider the impact of risk on the financial position of the HWPF before any recourse cash flows can be transferred to the SHF. The terms of the Scheme provide for the retention of recourse cash flows under certain circumstances to support the financial position of the HWPF. Refer to Section (b)(ii).

The shareholder business of UK and Europe currently bears longevity risk both on contracts written in the PBF and on contracts written in the HWPF for which the longevity risk has been transferred to the PBF.

Limitations

The financial impact of certain risks is non-linear and consequently the sensitivity of other events may differ from expectations based on those presented in the table. 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. The analysis has been assessed as at the reporting date. The results of the sensitivity analysis may vary as a consequence of the passage of time or as a consequence of changes in underlying market or financial conditions. The sensitivity analysis in respect of longevity risk has been performed on the relevant annuity business and presents, for a +5% longevity test, the impact of a 5% reduction in the underlying mortality rates (and vice versa). It has also been based on instantaneous change in the mortality assumption at all ages, rather than considering gradual changes in mortality rate.

(e)     Liquidity risk

As described in the table on pages 184 to 185, the shareholder is exposed to liquidity risk from shareholder business, participating business and unit linked and segregated funds and, as a result, the following quantitative liquidity risk disclosures are provided in respect of the financial liabilities of these categories.

The shareholder is not exposed to the liquidity risk from the assets held by third party interests in consolidated funds and non-controlling interests and therefore these have been excluded from the following quantitative disclosures.

Business units employ risk management techniques relevant to their product types with the objective of mitigating exposures to liquidity risk. For annuity, with profits, and unit linked business, liquidity risk is primarily managed by holding a range of diversified instruments which are assessed against estimated cash flow and funding requirements.

For annuity contracts, assets are held which are specifically chosen with the intention of matching the expected timing of annuity payments. Business units actively manage and monitor the performance of these assets against liability benchmarks and liquidity risk is minimised through the process of planned asset and liability matching. The Group's assets are analysed in Section (b)(i) and Section (c)(i) of this Note. For UK and Europe, the reinsurance treaty between the Group and Canada Life International Re provides for the cash settlement of amounts owed by Canada Life International Re.

For with profits contracts, a portfolio of assets is maintained in the relevant funds appropriate to the nature and term of the expected pattern of payments of liabilities. Within that portfolio, liquidity is provided by substantial holdings of cash and highly liquid assets (principally government bonds).

Where it is necessary to sell less liquid assets within the relevant portfolios, then any incurred losses are generally passed onto policyholders in accordance with policyholders' reasonable expectations. Such losses are managed and mitigated through actively anticipating net disinvestment based on policyholder behaviour and seeking to execute sales of underlying assets in such a way that the cost to policyholders is minimised.

For non-participating unit linked contracts, a core portfolio of assets is maintained and invested in accordance with the mandates of the relevant unit linked funds. Policyholder behaviour and the trading position of asset classes are actively monitored. The unit price and value of any associated contracts would reflect the proceeds of any sales of assets. If considered necessary, deferral terms within the policy conditions applying to the majority of the Group's contracts are invoked. As at 31 December 2015 and 31 December 2014, none of the funds under management were subject to deferral.

Business units undertake periodic investigations into liquidity requirements, which include consideration of cash flows in normal conditions, as well as investigation of scenarios where cash flows differ markedly from those expected (primarily due to extreme policyholder behaviour).

All business units are required to monitor, assess, manage and control liquidity risk in accordance with the relevant principles within the Group's policy framework. Oversight is provided both at a Group level and within the business unit. In addition, all business units benefit from membership of a larger Group to the extent that, centrally, the Group:

·   Coordinates strategic planning and funding requirements

·   Monitors, assesses and oversees the investment of assets within the Group

·   Monitors and manages risk, capital requirements and available capital on a group-wide basis

·   Maintains a portfolio of committed bank facilities

The Group's committed bank facilities are currently undrawn.

Liquidity risk is managed by each business unit in consultation with the Group Treasury function and each business unit is responsible for the definition and management of its contingency funding plan.

As a result of the policies and processes established to manage risk, the Group considers the extent of liquidity risk arising from its activities to be de-minimis.

(e)(i)   Maturity analysis

The tables that follow present the expected timing of the cash flows payable on the amounts recognised on the consolidated statement of financial position for the participating and non-participating contract liabilities of the Group as at the reporting date. To align with the risk management approach towards liquidity risk and existing management projections, the analysis that follows facilitates consideration of the settlement obligations of both insurance and investment contracts.

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	No defined maturity	Total
2015	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating insurance contract liabilities	316	1,078	1,165	949	717	972	-	5,197
Non-participating investment contract liabilities	1	1	1	1	-	-	-	4
Reinsurance liabilities	-	-	-	-	-	-	-	-
Total shareholder business	317	1,079	1,166	950	717	972	-	5,201
Participating business
Non-participating insurance contract liabilities	691	2,454	2,387	1,640	1,015	1,369	-	9,556
Participating insurance contract liabilities	2,044	3,668	2,536	1,939	2,019	2,077	-	14,283
Participating investment contract liabilities	582	2,518	3,229	3,174	2,492	2,721	-	14,716
Unallocated divisible surplus	-	-	-	-	-	-	655	655
Total participating business	3,317	8,640	8,152	6,753	5,526	6,167	655	39,210
Unit linked and segregated funds
Non-participating insurance contract liabilities	5,267	630	362	96	46	52	-	6,453
Non-participating investment contract liabilities	9,155	29,418	24,351	14,357	8,083	7,526	-	92,890
Total unit linked and segregated funds	14,422	30,048	24,713	14,453	8,129	7,578	-	99,343
Total	18,056	39,767	34,031	22,156	14,372	14,717	655	143,754

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	No defined maturity	Total
2014	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating insurance contract liabilities	319	1,044	1,143	948	737	1,085	-	5,276
Non-participating investment contract liabilities	-	1	1	1	-	1	-	4
Reinsurance liabilities	-	-	-	-	-	-	-	-
Total shareholder business	319	1,045	1,144	949	737	1,086	-	5,280
Participating business
Non-participating insurance contract liabilities	723	2,597	2,597	1,852	1,194	1,790	-	10,753
Participating insurance contract liabilities	1,532	5,139	2,715	1,740	1,865	2,406	-	15,397
Participating investment contract liabilities	634	2,634	3,414	3,300	2,533	2,676	-	15,191
Unallocated divisible surplus	-	-	-	-	-	-	688	688
Total participating business	2,889	10,370	8,726	6,892	5,592	6,872	688	42,029
Unit linked and segregated funds
Non-participating insurance contract liabilities	4,628	644	378	84	38	40	-	5,812
Non-participating investment contract liabilities	8,060	26,779	23,034	14,152	8,271	7,907	-	88,203
Total unit linked and segregated funds	12,688	27,423	23,412	14,236	8,309	7,947	-	94,015
Total	15,896	38,838	33,282	22,077	14,638	15,905	688	141,324

The analysis that follows presents the undiscounted cash flows payable by remaining contractual maturity at the reporting date for all financial liabilities, including non-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 non-participating investment contract unit linked liabilities of UK and Europe life and pensions business presented in the table below have been designated as payable within 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. In this analysis, the maturity within one year includes liabilities that are repayable on demand.

	Within 1 year		2-5 years		6-10 years		11-15 years		16-20 years		Greater than 20 years		Total
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating investment contract liabilities	4	4	-	-	-	-	-	-	-	-	-	-	4	4
Subordinated liabilities	81	390	324	324	377	375	345	341	208	206	700	449	2,035	2,085
Other financial liabilities	793	907	37	25	2	2	-	-	-	-	-	-	832	934
Total shareholder business	878	1,301	361	349	379	377	345	341	208	206	700	449	2,871	3,023
Participating business
Other financial liabilities	1,317	1,462	7	12	12	19	6	11	6	11	97	242	1,445	1,757
Total participating business	1,317	1,462	7	12	12	19	6	11	6	11	97	242	1,445	1,757
Unit linked and segregated funds
Non-participating investment contract liabilities	92,890	88,203	-	-	-	-	-	-	-	-	-	-	92,890	88,203
Other financial liabilities	481	860	12	14	10	9	8	7	8	7	16	99	535	996
Total unit linked and segregated funds	93,371	89,063	12	14	10	9	8	7	8	7	16	99	93,425	89,199
Total	95,566	91,826	380	375	401	405	359	359	222	224	813	790	97,741	93,979

The principal amounts of financial liabilities where the counterparty has no right to repayment are excluded from the above analysis along with interest payments on such instruments after 20 years. Also excluded are deposits received from reinsurers.

Deposits received from reinsurers reflect the liability to repay the deposit received from an external reinsurer under the reinsurance transaction referred to in Section (c). 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 2015 or 31 December 2014.

Refer to Note 23 for the maturity profile of undiscounted cash flows of derivative financial instruments.

The Group also had unrecognised commitments in respect of financial instruments as at 31 December 2015 of £319m and £nil with a contractual maturity of within one year and between one and five years respectively (2014: £312m and £nil).

(f)      Operational and conduct risk

The Group defines operational risk as the risk of loss, or adverse consequences for the Group's business, resulting from inadequate or failed internal processes, people or systems, or from external events. This includes conduct risk which is defined as the risk that through our behaviours, strategies, decisions and actions the Group, or individuals within the Group, do not do the right thing and/or do not behave in a manner which:

·   Pays due regard to treating our customers and clients fairly

·   Is consistent with our disclosures and setting of customer and client expectations

·   Supports the integrity of financial markets

The policy framework, which includes the Group operational risk policy and the Group conduct risk policy, is used to support the management of operational and conduct risks. Business units adopt the relevant minimum standards and limits contained within these policies and are required to manage risk in accordance with the policies, taking mitigating action as appropriate to operate within appetites.

The types of operational risk to which the Group is exposed are identified using the following operational risk categories:

·   Fraud or irregularities

·   Regulatory or legal

·   Customer treatment

·   Business interruption

·   Supplier failure

·   Planning

·   Process execution

·   People

Activities undertaken to ensure the practical operation of controls over financial risks, that is, market, credit, liquidity and demographic and expense risk, are treated as an operational risk.

Operational risk exposures are controlled using one or a combination of the following: modifying operations such that there is no exposure to the risk; accepting exposure to the risk and choosing not to control the risk; or accepting exposure to the risk and controlling the exposure by risk transfer or risk treatment. The factors on which the level of control and nature of the controls implemented are based include:

·   The potential cause and impact of the risk

·   The likelihood of the risk being realised in the absence of any controls

·   The ease with which the risk could be insured against

·   The cost of implementing controls to reduce the likelihood of the risk being realised

·   Operational risk appetite

Control Self Assessment (CSA) is a monitoring activity where business managers assess the operation of the controls for which they are responsible and the adequacy of these controls to manage key operational risks and associated business processes. The assessment completed by business managers is validated and challenged by the risk function in its role of 'second line of defence'. Independent assurance as to the effectiveness of the CSA process is provided by Group Internal Audit in its role of 'third line of defence'. The results of CSA are reported through the risk governance structure. 

The assessment of operational risk exposures is performed on a qualitative basis using a combination of impact and likelihood, and on a quantitative basis using objective and verifiable measures. The maximum amount of operational risk the Group is willing to retain is defined using both quantitative limits, for example financial impact, and also qualitative statements of principle that articulate the event, or effect, that needs to be limited.

The operational risks faced by each business unit and its exposure to these risks forms its operational risk profile. Each business unit is required to understand and review its profile based on a combination of the estimated impact and likelihood of risk events occurring in the future, the results of CSA and a review of risk exposures relative to approved limits. 

The impact of a new product, a significant change, or any one-off transaction on the operational risk profile of each business unit is assessed and managed in accordance with established guidelines or standards.

(g)     Strategic risk

The Group defines strategic risk as those risks which threaten the achievement of the strategy through poor strategic decision-making, implementation or response to changing circumstances. Strategic risks are considered across the Group through the business planning process. The strategic risks to which the Group is exposed are reviewed on a regular basis.

 

END

 

 

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