TIDMSLA
RNS Number : 7247F
Standard Life Aberdeen plc
23 February 2018
Standard Life Aberdeen plc
Full Year Results 2017
Part 6 of 8
31. 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. Our judgement
is that where death benefits exceed maturity benefits by 10% or
more a contract is classified as an insurance contract, by 5% or
less it is not an insurance contract. There are no material
contracts within the 5% to 10% range. 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 our judgement is that it is appropriate to separate the
product class 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.
Participating Non-participating Participating Non-participating
Reportable insurance insurance investment investment
segment contracts contracts contracts contracts
----------------- ----------------- ------------------- ------------- ------------------
Pensions and Germany unitised UK & Ireland UK & Ireland UK & Ireland
Savings with profits annuity-in-payment unitised unit linked
deferred annuity contracts with profits pension contracts
contracts Certain UK & pension Certain UK
UK & Ireland Ireland unit contracts & Ireland
unitised with linked investment unit linked
profits life bonds investment
contracts UK deferred bonds
annuity contracts
Germany unit
linked deferred
annuity contracts
----------------- ----------------- ------------------- ------------- ------------------
India and Hong Kong unit
China life linked life
contracts
----------------- ----------------- ------------------- ------------- ------------------
Aberdeen Standard UK unit linked
Investments investment
contracts
----------------- ----------------- ------------------- ------------- ------------------
Details of the accounting policies for non-participating
investment contracts are given in Note 32.
(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.
Participating insurance and investment contract liabilities
Participating contract liabilities arising under contracts
issued by with profits funds which were within the scope of the
Prudential Regulation Authority (PRA) realistic capital regime
prior to the introduction of Solvency II are measured on the PRA
realistic basis that was used in the PRA realistic capital regime.
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 asset 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 that fell 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
Ireland 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 Germany 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 on the consolidated statement of
financial position 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 on the consolidated
statement of financial position. 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 on the consolidated statement of financial
position.
Some participating contract liabilities arise under contracts
issued by a non-participating fund with a with profits investment
element then transferred to a with profits fund within SLAL that
fell 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 Section
(v)).
Present value of future profits (PVFP) on non-participating
contracts held in a with profits fund
This applies only to the HWPF as no other with profits funds
hold non-participating contracts. An amount is recognised for the
PVFP on non-participating contracts since the determination of the
realistic value of liabilities for with profits contracts in the
HWPF takes account of this value. The amount is recognised as a
deduction from liabilities. As 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.
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 Germany 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 Germany branch business, they are recognised as an addition to
equity holders' profits.
(v) Measurement - non-participating insurance contract liabilities
Pensions and Savings
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 to reflect conditions at the
reporting date in accordance with Prudential Regulation Authority
(PRA) requirements that existed at 31 December 2015.
India and China life
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.
(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.
Expenses, including interest, arising under elements of
contracts with reinsurers that do not transfer significant
insurance risk are recognised on an accruals basis in the
consolidated income statement as expenses under arrangements with
reinsurers.
A presentational change has been made to the face of the
consolidated income statement from prior year. Details of the
breakdown of insurance related income and expenses which were
previously shown on the face of the consolidated income statement
are now included in the sections that follow. Our judgement is that
this more concise presentation is more relevant to the users of the
financial statements.
(a) Insurance and participating investment contract premium income
2017 2016
GBPm GBPm
--------------------------------------- ----- -----
Gross earned premium 2,190 2,139
Premium ceded to reinsurers (47) (47)
Insurance and participating investment
contract premium income 2,143 2,092
---------------------------------------- ----- -----
(b) Insurance and participating investment contract claims and change in liabilities
2017 2016
Notes GBPm GBPm
------------------------------------------- ------ ------- -----
Claims and benefits paid 4,449 4,801
Claim recoveries from reinsurers (480) (492)
------------------------------------------- ------ ------- -----
Net insurance claims 3,969 4,309
Change in reinsurance assets and
liabilities 31(e) 561 140
Change in insurance and participating
contract liabilities 31(e) (1,244) 2,115
Change in unallocated divisible
surplus 31(f) 140 53
Expenses under arrangements with
reinsurers 31(c) 202 509
------------------------------------------- ------ ------- -----
Insurance and participating investment
contract claims and change in liabilities 3,628 7,126
------------------------------------------- ------ ------- -----
(c) Expenses under arrangements with reinsurers
2017 2016
GBPm GBPm
--------------------------------------------- ---- ----
Interest payable on deposits from reinsurers 21 31
Premium Adjustments 181 478
--------------------------------------------- ---- ----
Expenses under arrangements with reinsurers 202 509
--------------------------------------------- ---- ----
The Group has reinsured the longevity and investment risk
related to a portfolio of annuity contracts held within its
Heritage With Profits Fund. At inception of the reinsurance
contract the reinsurer was required to deposit an amount equal to
the reinsurance premium with the Group. Interest is payable on the
deposit at a floating rate. The Group maintains a ring fenced pool
of assets to back this deposit liability. Annuity payments under
the reinsured contracts are made by the Group from the ring fenced
assets and the deposit liability is reduced by the amount of these
payments. Periodically the Group is required to pay to the
reinsurer or receive from the reinsurer Premium Adjustments defined
as the difference between the fair value of the ring fenced assets
and the deposit amount, such that the deposit amount equals the
fair value of the ring fenced assets. This has the effect of
ensuring that the investment risk on the ring fenced pool of assets
falls on the reinsurer. The investment return on the ring fenced
assets included in investment return in the consolidated income
statement is equal to these expenses under arrangements with
reinsurers.
(d) Insurance and participating investment contract liabilities
2017 2016
GBPm GBPm
---------------------------- ------ ------
Non-participating insurance
contract liabilities 22,740 23,422
----------------------------- ------ ------
Participating contract
liabilities:
Participating insurance
contract liabilities 14,659 15,151
Participating investment
contract liabilities 15,313 15,537
Unallocated divisible
surplus 675 585
----------------------------- ------ ------
Participating contract
liabilities 30,647 31,273
----------------------------- ------ ------
Non-participating insurance contract liabilities includes UK
immediate annuities of GBP12,667m (2016: GBP13,532m) and UK
deferred annuities of GBP1,289m (2016: GBP1,415m).
(e) 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:
Total
insurance
Participating Non-participating Participating and
insurance insurance investment participating
contract contract contract contract Reinsurance
liabilities liabilities liabilities liabilities contracts Net
2017 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ----------------- ------------- -------------- ----------- -------
At 1 January 15,151 23,422 15,537 54,110 (5,386) 48,724
Reclassified as held
for sale during the
year - (550) - (550) 7 (543)
Change in contract
liabilities recognised
in the consolidated
income statement
Expected change (896) (898) (1,034) (2,828) 397 (2,431)
Methodology/modelling
changes (58) 10 51 3 - 3
Effect of changes in
Economic assumptions (37) (81) 79 (39) 8 (31)
Non-economic assumptions (66) (235) 6 (295) 154 (141)
Effect of
Economic experience 126 532 573 1,231 3 1,234
Non-economic experience 15 (381) 39 (327) 6 (321)
New business - 878 33 911 - 911
---------------------------- ------------- ----------------- ------------- -------------- ----------- -------
Total change in contract
liabilities recognised
in the consolidated
income statement(1) (916) (175) (253) (1,344) 568 (776)
---------------------------- ------------- ----------------- ------------- -------------- ----------- -------
Foreign exchange adjustment 424 43 29 496 - 496
---------------------------- ------------- ----------------- ------------- -------------- ----------- -------
At 31 December 14,659 22,740 15,313 52,712 (4,811) 47,901
---------------------------- ------------- ----------------- ------------- -------------- ----------- -------
(1) Total change in contract liabilities recognised in the
consolidated income statement in the table above excludes (GBP100m)
(2016 GBPnil) and GBP7m (2016: GBPnil) of insurance and
participating contract liabilities and reinsurance contracts
respectively relating to assets and liabilities held for sale.
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 period, changes in assumptions
and, to a limited extent, improvements in modelling techniques.
Economic assumptions reflect changes in fixed income yields,
leading to small changes in valuation interest rates for
non-participating business, and other market movements.
Economic assumptions also include the effect of changes in the
inflation scenarios that are used to value inflation linked
annuities. This change has resulted in a decrease in
non-participating insurance contract liabilities, predominantly
offset by an increase in participating liabilities.
Non-economic assumptions decrease net of reinsurance of GBP141m
includes a decrease of GBP51m 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 GBP90m (net of reinsurance)
in respect of non-participating business, which primarily relates
to changes in mortality assumptions.
Non-
Participating participating Participating Total
insurance insurance investment insurance
contract contract contract and participating Reinsurance
liabilities liabilities liabilities contracts contracts Net
2016 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------------- -------------- ------------- ------------------ ----------- -------
At 1 January 14,283 21,206 14,716 50,205 (5,515) 44,690
Expected change (1,335) (662) (881) (2,878) 374 (2,504)
Methodology/modelling
changes (45) 1 3 (41) 53 12
Effect of changes
in
Economic assumptions (465) 1,901 194 1,630 (384) 1,246
Non-economic
assumptions (23) (104) 47 (80) 50 (30)
Effect of
Economic experience 1,193 413 1,426 3,032 41 3,073
Non-economic
experience 88 (358) (106) (376) 6 (370)
New business - 794 34 828 - 828
------------------------- ------------- -------------- ------------- ------------------ ----------- -------
Total change
in contract liabilities (587) 1,985 717 2,115 140 2,255
------------------------- ------------- -------------- ------------- ------------------ ----------- -------
Foreign exchange
adjustment 1,455 231 104 1,790 (11) 1,779
------------------------- ------------- -------------- ------------- ------------------ ----------- -------
At 31 December 15,151 23,422 15,537 54,110 (5,386) 48,724
------------------------- ------------- -------------- ------------- ------------------ ----------- -------
(f) Movement in components of unallocated divisible surplus (UDS)
The movement in UDS was as follows:
2017 2016
GBPm GBPm
---------------------------------- ---- -----
At 1 January 585 655
Change in UDS recognised in the
consolidated income statement 140 53
Change in UDS recognised in other
comprehensive income (12) 67
Foreign exchange adjustment (38) (190)
----------------------------------- ---- -----
At 31 December 675 585
----------------------------------- ---- -----
(g) Expected settlement and recovery
An indication of the term to contracted maturity/repricing date
for insurance and investment contract liabilities is given in Note
39. 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 longevity
assumptions are key accounting estimates for UK immediate and UK
deferred annuity non-participating insurance contracts.
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 that existed at 31 December 2015. 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 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 Ireland annuity business
and Germany 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 2017 2016
------------------------------------- ------- -------
1. Business held within the PBF
Annuities: Individual and group
Life 1.96% 2.06%
Pensions 1.96% 2.06%
Linked to RPI (1.53%) (1.55%)
2. Business held within the HWPF
Annuities: Individual and group
Non-linked
Life 0.45% 0.20%
Pensions: reinsured externally 1.50% 1.55%
Pensions: not reinsured externally 1.15% 1.15%
Deferred annuities 1.15% 1.15%
Linked to RPI
Reinsured externally (1.50%) (1.85%)
Not reinsured externally (2.00%) (2.10%)
Deferred annuities (2.00%) (2.10%)
------------------------------------- ------- -------
Longevity assumptions
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 2017 2016
---------------------------------- --------------- ---------------
Annuities
Males: 62.6% Males: 64.7%
Individual and group in deferment AMC00 AMC00
Females: 64.2% Females: 65.7%
AFC00 AFC00
Individual after vesting (business Males: 95.3% Males: 91.2%
written after 10 July 2006) RMC00 RMC00
Females: 99.3% Females: 99.9%
RFC00 RFC00
Individual after vesting (business Males: 100.1% Males: 95.7%
written prior to 10 July 2006) RMC00 RMC00
Females: 105.5% Females: 104.7%
RFC00 RFC00
Group after vesting (business Males: 113.0% Males: 109.8%
written after 10 July 2006) RMV00 RMV00
Females: 117.5% Females: 118.3%
WA00 WA00
Group after vesting (business Males: 112.5% Males: 109.3%
written prior to 10 July 2006) RMV00 RMV00
Females: 120.1% Females: 120.1%
WA00 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. For 2017, this is based on
the Standard Life Assurance Limited (SLAL) parameterisation of the
CMI_2015 model with long-term improvement rates of 2.0% for males
and 1.7% for females. 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_2015 is a model that was
published towards the end of 2015.
At 2016, this was based on the SLAL parameterisation of the
CMI_2014 model with long-term improvement rates of 1.8% for males
and 1.5% for females. CMI_2014 is a model that was published
towards the end of 2014.
The SLAL parameterisation of the CMI_2015 and CMI_2014 models
make 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
In addition the SLAL parameterisation of the CMI_2015 model
makes the following change relative to the 'core' model:
-- Tapers long-term improvements rates to 1.25% at age 100+ from
age 82 (compared with tapering to 0% at age 110 over a 25-year
period, in the core CMI model)
Other assumptions
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
3.65% (2016: 3.79%) 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.
Sensitivity analysis
Refer Note 39 for sensitivity analysis for the shareholder
business.
32. 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 Note 5, Note 15 and
Note 36). 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:
2017 2016
Notes GBPm GBPm
----------------------------------------- ----- -------- --------
At 1 January 102,063 92,894
Reclassified as held for sale
during the year (68) -
Acquired through business combinations 1,411 -
Contributions 9,579 10,776
Account balances paid on surrender
and other terminations in the
year (15,903) (10,737)
Change in non-participating investment
contract liabilities recognised
in the consolidated income statement(1) 8,954 8,768
Recurring management charges (490) (473)
Foreign exchange adjustment 223 835
----------------------------------------- ----- -------- --------
At 31 December 33 105,769 102,063
----------------------------------------- ----- -------- --------
(1) Change in non-participating investment contract liabilities
recognised in the consolidated income statement in the table above
excludes GBP9m (2016 GBPnil) in relation to non-participating
investment contract liabilities classified as held for sale.
33. 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 41. Financial liabilities which are not derivatives and not
FVTPL are financial liabilities measured at amortised cost.
Designated Financial
as at fair liabilities
value through Cash measured
profit Held for flow at amortised
or loss trading hedge cost Total
2017 Notes GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- -------------- -------- ------ ------------- -------
Non-participating investment
contract liabilities 39 105,765 - - 4 105,769
Deposits received from
reinsurers 39 - - - 4,633 4,633
Third party interest
in consolidated funds 39 16,457 - - - 16,457
Subordinated liabilities 34 - - - 2,253 2,253
Derivative financial
liabilities 21 - 780 33 - 813
Other financial liabilities 37 25 - - 3,871 3,896
----------------------------- ----- -------------- -------- ------ ------------- -------
Total 122,247 780 33 10,761 133,821
----------------------------- ----- -------------- -------- ------ ------------- -------
Designated as Financial
at liabilities
fair value measured
through Held for at amortised
profit or loss trading cost Total
2016 Notes GBPm GBPm GBPm GBPm
----------------------------- ----- --------------- -------- ------------- -------
Non-participating investment
contract liabilities 39 102,059 - 4 102,063
Deposits received from
reinsurers 39 - - 5,093 5,093
Third party interest
in consolidated funds 39 16,835 - - 16,835
Subordinated liabilities 34 - - 1,319 1,319
Derivative financial
liabilities 21 - 965 - 965
Other financial liabilities 37 15 - 3,901 3,916
----------------------------- ----- --------------- -------- ------------- -------
Total 118,909 965 10,317 130,191
----------------------------- ----- --------------- -------- ------------- -------
34. 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. Classification of the
Group's subordinated liabilities as liabilities on the consolidated
statement of financial position is 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.
2017 2016
-------------------- --------------------
Principal Carrying Principal Carrying
Notes amount value amount value
Capital notes
7.0% US Dollar fixed rate
perpetual $500m GBP377m - -
Subordinated notes
4.25% US Dollar fixed rate
due 30 June 2048 $750m GBP556m - -
5.5% Sterling fixed rate
due 4 December 2042 GBP500m GBP500m GBP500m GBP499m
Subordinated guaranteed
bonds
6.75% Sterling fixed rate
perpetual GBP500m GBP502m GBP500m GBP502m
Mutual Assurance Capital
Securities
6.546% Sterling fixed rate
perpetual GBP300m GBP318m GBP300m GBP318m
--------------------------------------- --------- --------- --------- ---------
Total subordinated liabilities 39 GBP2,253m GBP1,319m
------------------------------- ------ --------- --------- --------- ---------
On 18 October 2017, the Company issued US Dollar subordinated
notes with a principal amount of $750m. Further details are
included in the table below.
The difference between the fair value and carrying value of the
subordinated liabilities is presented in Note 41. A reconciliation
of movements in subordinated liabilities in the year is provided in
Note 42.
The US$500m capital notes will be redeemed on 1 March 2018. The
principal amount of all other subordinated liabilities is expected
to be settled after more than 12 months and accrued interest of
GBP44m (2016: GBP37m) is expected to be settled within 12
months.
Amounts due under the perpetual subordinated guaranteed bonds
and Mutual Assurance Capital Securities (MACS) are classified as
liabilities. This classification is determined by the interaction
of these arrangements with a GBP100 internal subordinated loan note
issued by Standard Life Assurance Limited (SLAL) to the Company on
10 July 2006. There is no fixed redemption date for the internal
loan note, but interest payments cannot be deferred and must be
paid on the date they become due and payable. Under the terms for
the subordinated guaranteed bonds and MACS any interest deferred on
these instruments becomes immediately due and payable on the date
of an interest payment in respect of the internal loan note. The
existence of the internal loan note therefore removes the
discretionary nature of the interest payments on the subordinated
guaranteed bonds and MACS, and results in their classification as
liabilities. Under IAS 32 Financial Instruments: Presentation, if
the Group were to cancel the internal loan note then this would
result in the reclassification of these perpetual instruments from
liabilities to equity instruments at that point.
A description of the key features of the Group's subordinated
liabilities is as follows:
4.25% US Dollar 5.5% Sterling 6.75% Sterling 6.546% Sterling
fixed rate(1) fixed rate fixed rate fixed rate
--------------- --------------------- ------------------- ------------------ -------------------
Principal
amount $750,000,000 GBP500,000,000 GBP500,000,000 GBP300,000,000
--------------- --------------------- ------------------- ------------------ -------------------
18 October 4 December 4 November
Issue date 2017 2012 12 July 2002 2004
--------------- --------------------- ------------------- ------------------ -------------------
Maturity 4 December
date 30 June 2048 2042 Perpetual Perpetual
--------------- --------------------- ------------------- ------------------ -------------------
4 December
Callable 30 June 2028 2022 and on
at par at and on every every interest 12 July 2027 6 January
option of interest payment payment date and on every 2020 and on
the Company date (semi-annually) (semi-annually) fifth anniversary every anniversary
from thereafter thereafter thereafter thereafter
--------------- --------------------- ------------------- ------------------ -------------------
2.85% over
the gross 2.7% over
redemption the gross
If not called 2.915% over 4.85% over yield on the redemption
by the Company the five-year the five-year appropriate yield on the
interest Treasury rate gilt rate five-year appropriate
will reset (and at each (and at each benchmark one-year benchmark
to fifth anniversary) fifth anniversary) gilt rate gilt rate
--------------- --------------------- ------------------- ------------------ -------------------
Solvency
II own funds
treatment Tier 2 Tier 2 Tier 1 Tier 1
--------------- --------------------- ------------------- ------------------ -------------------
(1) The cash flows arising from the US dollar subordinated notes
give rise to foreign exchange exposure which the Group manages with
a cross-currency swap designated as a cash flow hedge. Refer Note
21 for further details.
In addition to the subordinated liabilities included in the key
features table above, 7% US Dollar fixed rate perpetual capital
notes with a principal amount of $500m were reclassified from
equity during the year ended 31 December 2017, these instruments
will be redeemed on 1 March 2018. Refer Note 30 for further
details. Following the irrevocable notification to redeem these
instruments, they no longer qualify as Tier 2 capital within the
Group's Solvency II own funds.
35. Pension and other post-retirement benefit provisions
The Group operates two types of pension plans:
-- Defined benefit plans which provide pension payments upon
retirement to members as defined by the plan rules. All of the
Group's defined benefit plans, with the exception of a small plan
in Ireland are closed to future service accrual.
-- Defined contribution plans where the Group makes
contributions 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 valued by at least annual actuarial calculations. The Group has
funded these liabilities in relation to its UK and Ireland defined
benefit plans by ring-fencing assets in trustee-administered funds.
The Group has further smaller defined benefit plans some of which
are unfunded.
The statement of financial position reflects a net asset or net
liability for 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 of
the surplus from the plan. 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 principal defined benefit plan (UK Standard Life Group
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 a plan is in surplus) or interest
expense (if a 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 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 contribution plans
-----------------------------------------------------------------
The defined contribution plans comprise a mixture of arrangements
depending on the employing entity and other factors. Some
of these plans are located within the same legal vehicles
as defined benefit plans. The Group contributes a percentage
of pensionable salary to each employee's plan. The contribution
levels vary by employing entity and other factors.
-----------------------------------------------------------------
Defined benefit plans
--------------------------------------------------------------------
UK plans
--------------------------------------------------------------------
These plans are governed by trustee boards, which comprise
employer and employee nominated trustees and an independent
trustee. The plans are subject to the statutory funding
objective requirements of the Pensions Act 2004, which
require that plans be funded to at least the level
of their 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 plans meet the statutory
funding objective.
While the IAS 19 valuation reflects a best estimate
of the financial position of the plan, the funding
valuation reflects a prudent estimate. There is no
material difference in how assets are measured. The
funding measure of liabilities ('technical provisions')
and the IAS 19 measure are materially different. The
key differences are the discount rate and inflation
assumptions. While IAS 19 requires that the discount
rate reflect corporate bond yields, the funding measure
discount rate reflects a prudent estimate of future
investment returns based on the actual investment strategy.
The funding valuation adopts a market consistent measure
of inflation without any adjustment. The IAS 19 assumption
incorporates an adjustment to remove the inflation
risk premium believed to exist within market prices.
The trustees set the plan investment strategy to protect
the ratio of plan assets to the trustees' measure of
technical provisions. This investment strategy does
not aim to protect the IAS 19 surplus or the ratio
of plan assets to the IAS 19 measure of liabilities.
After consulting the relevant employers, the trustees
prepare statements of funding and investment principles
and set a schedule of contributions. If necessary,
this schedule includes a recovery plan that aims to
restore the funding level to the level of the technical
provisions.
--------------------------------------------------------------------
UK Standard This is the Group's principal defined benefit
Life plan. The plan closed to new membership in 2004
Group and changed from a final salary basis to a revalued
plan career average salary basis in 2008. Accrual ceased
(principal in April 2016.
plan) The funding of the plan depends on the statutory
valuation performed by the trustees, and the relevant
employers, with the assistance of the scheme actuary
- i.e. not the IAS 19 valuation. The funding valuation
was last completed as at 31 December 2016, and
measured plan assets and liabilities to be GBP4.9bn
and GBP4.2bn respectively. This corresponds to
a surplus of GBP0.7bn and funding level of 117%.
As there is currently no deficit, no recovery
plan is required.
----------- -------------------------------------------------------
Other The Group also operates two UK defined benefit
UK plans plans as a result of the merger with Aberdeen.
These plans are final salary based, with benefits
depending on members' length of service and salary
prior to retirement. These plans are currently
in deficit and the Group has agreed funding plans,
which aim to eliminate the current deficits, with
the plans' trustees.
----------- -------------------------------------------------------
Other plans
--------------------------------------------------------------------
Ireland In December 2009 this plan closed to new membership
Standard and changed from a final salary basis to a career
Life average revalued earnings (CARE) basis.
plan At the last trustee valuation, effective 1 January
2016, the plan was 70% funded on an ongoing basis.
----------- -------------------------------------------------------
Other The Group operates smaller funded and unfunded
defined benefit plans in other countries.
----------- -------------------------------------------------------
Plan regulations
The plans are administered according to local laws and
regulations in each country. Responsibility for the governance of
the plans rests with the relevant trustee boards (or
equivalent).
(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:
2017 2016
Notes GBPm GBPm
------------------------------- ----- ---- ----
Current service cost (60) (49)
Net interest income 28 33
Administrative expenses (3) (3)
------------------------------- ----- ---- ----
Expense recognised in the
consolidated income statement 7 (35) (19)
------------------------------- ----- ---- ----
Contributions made to defined contribution plans are included
within current service cost, with the balance attributed to the
Group's defined benefit plans.
Contributions to defined benefit plans in the year ended 31
December 2017 were GBP12m (2016: GBP4m). Expected contributions to
defined benefit plans in 2018 are GBP15m and are not expected to
materially change over the next 3-5 years. These include GBP7m in
2017 and GBP11m contributions expected in 2018 to Aberdeen UK plans
in respect of deficit funding agreed with the trustees. The current
deficit on these plans is GBP18m.
During 2015 the terms of a plan amendment to the principal 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. Eligible members of the defined
benefit plan received an additional contribution of 6% of
pensionable salary into the defined contribution plan in April
2016. These contributions were accrued over the vesting period and
are included in current service cost and in the cost of defined
contribution plans in Note 7 for the year ended 31 December
2016.
(b) Analysis of amounts recognised in the consolidated statement of financial position
2017 2016
------------------------- -------------------------
Principal Principal
plan Other Total plan Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- ----- ------- --------- ----- -------
Present value
of funded obligation (2,839) (345) (3,184) (3,207) (117) (3,324)
Present value
of unfunded obligation - (9) (9) - (10) (10)
Fair value of
plan assets 4,530 276 4,806 4,927 72 4,999
Effect of limit
on plan surplus (592) - (592) (627) - (627)
------------------------ --------- ----- ------- --------- ----- -------
Net asset/(liability) 1,099 (78) 1,021 1,093 (55) 1,038
------------------------ --------- ----- ------- --------- ----- -------
The principal 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
Fair value Effect
Present of of limit
value plan on plan
of obligation assets Total surpluses Total
2017 GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------------- ---------- ----- ---------- -----
At 1 January (3,334) 4,999 1,665 (627) 1,038
Acquired through business
combinations (221) 191 (30) - (30)
Total expense
Current service cost (3) - (3) - (3)
Interest (expense)/income (84) 128 44 (16) 28
Administrative expenses (3) - (3) - (3)
----------------------------------- -------------- ---------- ----- ---------- -----
Total (expense)/income
recognised in consolidated
income statement (90) 128 38 (16) 22
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurements
Return on plan assets,
excluding amounts included
in interest income - 69 69 - 69
Loss from change in demographic
assumptions (111) - (111) - (111)
Loss from change in financial
assumptions (37) - (37) - (37)
Experience gains 10 - 10 - 10
Change in effect of limit
on plan surplus - - - 51 51
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurement (losses)/gains
recognised in other comprehensive
income (138) 69 (69) 51 (18)
----------------------------------- -------------- ---------- ----- ---------- -----
Exchange differences (5) 2 (3) - (3)
Employer contributions - 12 12 - 12
Benefit payments 595 (595) - - -
----------------------------------- -------------- ---------- ----- ---------- -----
At 31 December (3,193) 4,806 1,613 (592) 1,021
----------------------------------- -------------- ---------- ----- ---------- -----
Fair value Effect
Present of of limit
value plan on plan
of obligation assets Total surpluses Total
2016 GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------------- ---------- ----- ---------- -----
At 1 January (2,618) 3,996 1,378 (514) 864
Total expense
Current service cost (16) - (16) - (16)
Interest (expense)/income (93) 144 51 (18) 33
Administrative expenses (3) - (3) - (3)
----------------------------------- -------------- ---------- ----- ---------- -----
Total (expense)/income
recognised in consolidated
income statement (112) 144 32 (18) 14
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurements
Return on plan assets,
excluding amounts included
in interest income - 1,036 1,036 - 1,036
Gain from change in demographic
assumptions - - - - -
Loss from change in financial
assumptions (812) - (812) - (812)
Experience gains 33 - 33 - 33
Change in effect of limit
on plan surplus - - - (95) (95)
----------------------------------- -------------- ---------- ----- ---------- -----
Remeasurement (losses)/gains
recognised in other comprehensive
income (779) 1,036 257 (95) 162
----------------------------------- -------------- ---------- ----- ---------- -----
Exchange differences (15) 9 (6) - (6)
Employer contributions - 4 4 - 4
Benefit payments 190 (190) - - -
----------------------------------- -------------- ---------- ----- ---------- -----
At 31 December (3,334) 4,999 1,665 (627) 1,038
----------------------------------- -------------- ---------- ----- ---------- -----
(d) Defined benefit plan assets
Investment strategy is directed by the trustee boards (where
relevant) who pursue different strategies according to the
characteristics and maturity profile of each plan's liabilities.
Assets and liabilities are managed holistically to create a
portfolio with the dual objectives of return generation and
liability management. In the principal plan this is achieved
through a diversified multi-asset absolute return strategy seeking
consistent positive returns, and hedging techniques which protect
liabilities against movements arising from changes in interest
rates and inflation expectations. Derivative financial instruments
support both of these objectives and may lead to increased or
decreased exposures to the physical asset categories disclosed
below.
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 41. 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 defined benefit plans is as follows:
Principal
plan Other Total
------------ ---------- ------------
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----- ----- ---- ---- ----- -----
Assets measured at fair value
based on level 1 inputs
Derivatives 33 16 1 - 34 16
Equity securities - 112 - - - 112
Interests in pooled investment
funds
Debt 372 372 - - 372 372
Equity - 93 29 - 29 93
Property 62 57 20 - 82 57
Absolute return 64 62 102 54 166 116
Cash 339 286 - - 339 286
Debt securities 2,841 3,357 32 - 2,873 3,357
----------------------------------- ----- ----- ---- ---- ----- -----
Total assets measured at fair
value based on level 1 inputs 3,711 4,355 184 54 3,895 4,409
----------------------------------- ----- ----- ---- ---- ----- -----
Assets measured at fair value
based on level 2 or 3 inputs
Derivatives 334 324 - - 334 324
Equity securities 197 163 - - 197 163
Interests in pooled investment
funds
Debt 100 - - - 100 -
Debt securities 76 190 - - 76 190
Qualifying insurance policies 5 5 75 - 80 5
----------------------------------- ----- ----- ---- ---- ----- -----
Total assets measured at fair
value based on level 2 or
3 inputs 712 682 75 - 787 682
----------------------------------- ----- ----- ---- ---- ----- -----
Cash and cash equivalents 446 186 17 18 463 204
Liability in respect of collateral
held (339) (292) - - (339) (292)
Other - (4) - - - (4)
----------------------------------- ----- ----- ---- ---- ----- -----
Total 4,530 4,927 276 72 4,806 4,999
----------------------------------- ----- ----- ---- ---- ----- -----
Further information on risks is provided in Section (g) of this
note. The GBP2,949m (2016: GBP3,547m) of debt securities includes
GBP2,858m (2016: GBP3,357m) government bonds (including
conventional and index-linked). Of the remaining GBP91m (2016:
GBP190m) debt securities, GBP75m (2016: GBP169m) are investment
grade corporate bonds or certificates of deposit.
In 2015, the trustees of one of the Aberdeen UK plans purchased
an insurance policy to protect the plan against future investment
and actuarial risks. The GBP75m (2016: GBPnil) qualifying insurance
asset has been calculated by valuing the estimated benefits that
will be paid by the insurer using the reporting date IAS 19
assumptions and the same approach used to value the year end
liabilities. The other Aberdeen UK plan has a contract in place to
hedge longevity risk for pensioners. The fair value of this
derivative is GBPnil at 31 December 2017.
(e) Estimates and assumptions
Determination of the valuation of principal plan liabilities is
a key estimate as a result of the assumptions made relating to both
economic and non-economic factors.
The key economic assumptions for the principal plan which are
based in part on current market conditions are shown below:
2017 2016
% %
----------------------------- ---- ----
Discount rate 2.60 2.70
Rates of inflation
Consumer Price Index (CPI) 2.20 2.25
Retail Price Index (RPI) 3.20 3.25
----------------------------- ---- ----
The changes in economic assumptions over the period reflect
small changes in both corporate bond prices and market implied
inflation.
The most significant non-economic assumption for the principal
plan is post-retirement longevity which is inherently uncertain.
The assumptions (along with sample expectations of life) are
illustrated below:
Expectation of
life from NRA
----------- -------------------------
Male age Female
today age today
----------- ------------
Normal
Retirement
2017 Table Improvements Age (NRA) NRA 40 NRA 40
----- ------------------- -------------------------- ----------- ------ --- ------ ----
Advanced parameterisation
of CMI 2013 mortality
improvements model
- adjusted to assume
that improvements
Plan specific continue to increase
basis (calibrated in the short term
by Club Vita) before declining
reflecting toward an ultimate
membership long-term rate of
demographics 1.375% 60 30 32 31 34
------------------- -------------------------------- ----------- ------ --- ------ ----
Expectation of
life from NRA
----------- -------------------------
Male age Female
today age today
----------- ------------
Normal
Retirement
2016 Table Improvements Age (NRA) NRA 40 NRA 40
----- ------------------- -------------------------- ----------- ------ --- ------ ----
Advanced parameterisation
of CMI 2011 mortality
improvements model
- adjusted to assume
that improvements
Plan specific continue to increase
basis (calibrated in the short term
by Club Vita) before declining
reflecting toward an ultimate
membership long-term rate of
demographics 1.375% 60 30 32 32 34
------------------- -------------------------------- ----------- ------ --- ------ ----
The change in longevity assumptions over the period reflects the
assumptions that have been agreed with the trustees for the 2016
triennial funding valuation. These assumptions reflect a cautious
allowance for the recently observed slowdown in longevity
improvements.
(f) Duration of defined benefit obligation
The graph below provides an illustration of the undiscounted
expected benefit payments included in the valuation of the
principal plan obligations.
Chart removed for the purposes of this announcement. However it
can be viewed in full in the pdf document.
2017 2016
Weighted average duration years years(1)
-------------------------- ----- --------
Current pensioner 15 15
Non-current pensioner 29 29
-------------------------- ----- --------
(1) Restated due to updated methodology.
(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 principal plan. 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 for the principal plan is given
below.
Asset volatility
Investment strategy risks include underperformance of the
absolute return strategy and underperformance of the liability
hedging strategy. As the trustees set investment strategy to
protect their own view of plan strength (not the IAS 19 position),
changes in the IAS 19 liabilities (e.g. due to movements in
corporate bond prices) may not always result in a similar movement
in plan assets.
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 principal 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 principal 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 principal 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 key assumptions
The sensitivity of the principal plan's obligation and assets to
the key assumptions is disclosed below.
2017 2016
---------------------------------------- ----------------------------------------
(Increase)/decrease Increase/(decrease) (Increase)/decrease Increase/(decrease)
in present in fair in present in fair
Change in value of value of value of value of
assumption obligation plan assets obligation plan assets
GBPm GBPm GBPm GBPm
--------------- -------------- ------------------- ------------------- ------------------- -------------------
Decrease by
1% (i.e. from
Yield/discount 2.60% to
rate 1.60%) (1,018) 1,634 (1,040) 1,768
---------------
Increase by
1% 727 (1,144) 739 (1,226)
Rates of Decrease by
inflation 1% 624 (987) 629 (1,089)
---------------
Increase by
1% (883) 1,395 (912) 1,553
Decrease by
Life expectancy 1 year 79 - 101 -
---------------
Increase by
1 year (78) - (101) -
36. 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.
2017 2016
Notes GBPm GBPm
------------------------------ ----- ---- ----
At 1 January 198 236
Reclassified as held for
sale during the year (2) -
Additions during the year 5 11 15
Amortised to the consolidated
income statement as fee
income 5 (52) (61)
Foreign exchange adjustment 2 8
------------------------------ ----- ---- ----
At 31 December 157 198
------------------------------ ----- ---- ----
The amount of deferred income expected to be settled after more
than 12 months is GBP115m (2016: GBP148m).
37. Other financial liabilities
2017 2016
Notes GBPm GBPm
--------------------------------- ----- ----- -----
Amounts payable on direct
insurance business 318 368
Amounts payable on reinsurance
contracts 5 6
Outstanding purchases of
investment securities 194 300
Accruals 576 379
Creation of units awaiting
settlement 205 251
Cash collateral held in
respect of derivative contracts 39 1,501 2,016
Bank overdrafts 25 542 38
Property related liabilities 198 246
Contingent consideration
liabilities 41 25 15
Other 332 297
--------------------------------- ----- ----- -----
Other financial liabilities 3,896 3,916
--------------------------------- ----- ----- -----
The amount of other financial liabilities expected to be settled
after more than 12 months is GBP141m (2016: GBP211m).
38. Provisions and 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.
(a) Provisions
The movement in provisions during the year is as follows:
Provision
for annuity
sales practices Legal provisions Other provisions Total provisions
2017 GBPm GBPm GBPm GBPm
------------------------------ ---------------- ---------------- ---------------- ----------------
At 1 January 175 16 36 227
Charged/(credited) to
the consolidated income
statement
Additional provisions 100 - 58 158
Release of unused provision - - (5) (5)
Used during the year (27) (16) (21) (64)
Foreign exchange adjustment - - - -
------------------------------ ---------------- ---------------- ---------------- ----------------
At 31 December 248 - 68 316
------------------------------ ---------------- ---------------- ---------------- ----------------
Provision
for annuity
sales practices Legal provisions Other provisions Total provisions
2016 GBPm GBPm GBPm GBPm
------------------------------ ---------------- ---------------- ---------------- ----------------
At 1 January - 14 34 48
Charged/(credited) to
the consolidated income
statement
Additional provisions 175 - 18 193
Release of unused provision - (1) (1) (2)
Used during the year - - (16) (16)
Foreign exchange adjustment - 3 1 4
At 31 December 175 16 36 227
------------------------------ ---------------- ---------------- ---------------- ----------------
Other provisions comprise obligations in respect of
compensation, staff entitlements, vacant property and
reorganisations.
The amount of provisions expected to be settled after more than
12 months is GBP102m (2016: GBP106m).
Annuity sales practices relating to enhanced annuities
The provision for annuity sales practices includes GBP229m
(2016: GBP175m) in relation to enhanced annuities.
On 14 October 2016, the Financial Conduct Authority (FCA)
published the findings of its thematic review of non-advised
annuity sales practices. Standard Life Aberdeen has been a
participant in that review. The FCA looked at whether firms
provided sufficient information to their customers about their
potential eligibility for enhanced annuities.
At the request of the FCA, Standard Life Aberdeen are conducting
a review of non-advised annuity sales (with a purchase price above
a minimum threshold) to customers eligible to receive an enhanced
annuity from 1 July 2008 until 31 May 2016. The purpose of this
review is to identify whether these customers received sufficient
information about enhanced annuities to make the right decisions
about their purchase, and, where appropriate, provide redress to
customers who have suffered loss as a result of not having received
sufficient information. Standard Life Aberdeen has been working
with the FCA regarding the process for conducting this past
business review.
The Group has provided for an estimate of the redress payable to
customers, which may comprise both lump sum payments and
enhancements to future annuity payments, the costs of conducting
the review and other related expenses.
The Group has in place liability insurance and is seeking for up
to GBP100m of the financial impact of the provision to be mitigated
by this insurance. Discussions are ongoing with our insurers and,
as a result, no insurance recovery has been recognised as an asset
in these financial statements.
The Group expects the majority of the outflows associated with
this provision, including outflows relating to establishing any
reserves for future annuity payments, to have occurred by mid
2019.
The Group has not provided for any possible FCA-levied financial
penalty relating to the review. Disclosure of related contingent
liabilities is included in Note 43.
Estimates and assumptions
The key assumptions underlying the provision for annuity sales
practices relating to enhanced annuities are:
-- The number of customers entitled to redress
-- The amount of redress payable per customer
-- The costs of conducting the review
The number of customers entitled to redress has been estimated
based on:
-- The number of customers in the review population
-- The estimated percentage of these customers eligible for an
enhanced annuity
-- The estimated percentage of these eligible customers that did
not receive sufficient information from Standard Life Aberdeen
about enhanced annuities
The FCA thematic review noted that between 39% and 48% of
customers who bought a standard annuity may potentially have been
eligible for an enhanced annuity, and the provision assumes 43.5%
of customers were eligible for an enhanced annuity.
The assumption of the percentage of eligible customers that did
not receive sufficient information from Standard Life Aberdeen
about enhanced annuities and suffered loss as a result is based on
the sample of Standard Life Aberdeen customers reviewed to
date.
The lost income for customers who were entitled to enhanced
annuities, for an average purchase price of GBP25,000, is assumed
to be GBP300 per annum. This assumption is based on sample testing
using the redress calculator provided by the FCA in early 2018.
This assumption is higher than the assumption of GBP180 per annum
used at end 2016, which was based on the FCA thematic review and
was prior to receiving the FCA redress calculator. This assumption
change is the main reason for the increase in the provision
compared to 2016.
Assumptions relating to future annuity payments are consistent
with other annuity reserving assumptions.
The costs of conducting the review relate to administrative
expenses per case and wider project costs. The costs are based on
our project planning.
At this stage there is significant uncertainty relating to the
amount of redress payable and the expenses of the review.
Sensitivities are provided in the table below.
Consequential change
Assumption Change in assumption in provision
------------------------- -------------------- --------------------
Percentage changed
Percentage of customers by +/-4.5 (e.g.
eligible for an 43.5% increased
enhanced annuity to 48%) +/- GBP17m
Percentage of eligible
customers that did
not receive sufficient
information from
Standard Life Aberdeen Percentage changed
about enhanced annuities by +/-5 +/- GBP12m
Lost income per
annum for an average
annuity purchase
of GBP25,000 +/- GBP60 +/- GBP37m
Costs per case of +/- 20% of the cost
conducting the review per case +/- GBP6m
------------------------- -------------------- --------------------
(b) Other liabilities
The amount of other liabilities expected to be settled after
more than 12 months is GBPnil (2016: GBPnil).
39. Risk management
(a) Overview
(a)(i) Application of the risk management framework
The Group's approach to effective risk management is predicated
on strong risk awareness and risk accountability across all of our
business. This approach aims to deliver long-term value for
clients, customers and shareholders and protect their interests.
The Group ensures that:
-- Well informed risk-reward decisions are taken in pursuit of
the business plan objectives
-- Our fiduciary responsibilities are prioritised
-- Capital is delivered to areas where most value can be created
from the risks taken
The Group's risk framework operates through a well-embedded risk
culture, effective risk control processes, robust risk governance,
sound financial management and active monitoring of risks. The
Enterprise Risk Management (ERM) framework enables a risk-based
approach to managing the business and integrates concepts of
strategic planning, operational management and internal control,
and is set out in more detail in the Strategic report.
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.
----------- -------------------------------------------------------
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 are higher than
planned or revenue falls below that necessary
to cover actual expenses. 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 delivers unfair
outcomes to our customer/client and/or poor
market conduct.
----------- -------------------------------------------------------
Regulatory The risk that arises from violation, or non-conformance
& legal with laws, rules, regulations, prescribed practices
or ethical standards which may result in fines,
payments of damages, the voiding of contracts
and damaged reputation.
----------- -------------------------------------------------------
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 the Risk management
section 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
and the preference shareholders.
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 funds
Unit linked funds refers to the assets and liabilities of the
unit linked 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 fund contracts or
the liabilities for insurance features or financial guarantees
contained within the unit linked 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
-------------------------------------------------------------------
Participating Unit linked
Reportable segment Shareholder business business funds(1)
------------------ ----------------------------- ----------------- -----------------
Pensions and SLAL - SHF SLAL - HWPF SLAL - PBF unit
Savings SLAL - PBF (excluding SLAL - GWPF linked funds
unit linked funds) SLAL - GSMWPF SL Intl unit
SLS SLAL - UKSMWPF linked funds
SLCM
Vebnet Group
SL Intl (excluding unit
linked funds)
------------------ ----------------------------- ----------------- -----------------
Aberdeen Standard SLIH and all its subsidiaries n/a AAMLP
Investments AAM and all its subsidiaries
excluding AAMLP
------------------ ----------------------------- ----------------- -----------------
India and China SL Asia (excluding unit n/a SL Asia unit
life linked funds) linked funds
Interests in Indian and
Chinese associates and
joint ventures
------------------ ----------------------------- ----------------- -----------------
Other Company n/a n/a
------------------ ----------------------------- ----------------- -----------------
SLAL = Standard Life Assurance
Limited HWPF = Heritage With Profits
SLIH = Standard Life Investments Fund
(Holdings) Limited PBF = Proprietary Business
SL Intl = Standard Life International Fund
Designated Activity Company GWPF = German With Profits
SL Asia = Standard Life (Asia) Fund
Limited GSMWPF = German Smoothed
SLS = Standard Life Savings Managed With Profits Fund
Limited (including Elevate) SHF = Shareholder Fund
SLCM = Standard Life Client UKSMWPF = UK Smoothed Managed
Management Limited With Profits Fund
AAM = Aberdeen Asset Management AAMLP = Aberdeen Asset Management
PLC Life and Pensions Limited
(1) As discussed in Note 3 and above, unit linked funds does not
include cash flows arising from unit linked fund contracts or the
liabilities for insurance features or financial guarantees
contained within the unit linked fund contracts. Such cash flows
and liabilities are included in shareholder or participating
business.
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:
Third party
interest in
consolidated
funds and non-controlling
Shareholder Participating Unit linked interests (TPICF
Risk business business funds & NCI)
------------ -------------------------- ---------------------- --------------------- --------------------------
Market The shareholder The shareholder Assets are The shareholder
is directly is exposed managed in is not exposed
exposed to to the market accordance to the market
the impact risk that the with the mandates risk from assets
of movements assets of the of the particular in respect
in equity and with profits funds and the of TPICF &
property prices, funds are not financial risks NCI since the
interest rates sufficient associated financial risks
and foreign to meet their with the assets of the assets
exchange rates obligations. are borne by are borne by
on the value If this situation the policyholder. third parties.
of assets held occurred the The shareholder's
by the shareholder shareholder exposure arises
business and would be exposed from the changes
the associated to the full in the value
movements in shortfall in of future fee
the value of the funds. based revenue
liabilities. earned on unit
linked funds
due to market
movements.
------------ -------------------------- ---------------------- --------------------- --------------------------
Credit The shareholder The shareholder Assets are The shareholder
is directly is exposed managed in is not exposed
exposed to to the credit accordance to the credit
credit risk risk on the with the mandates risk from assets
from holding assets which of the particular in respect
cash, debt could cause funds and the of TPICF &
securities, the with profits financial risks NCI since the
loans, derivative funds to have associated financial risks
financial instruments insufficient with the assets of the assets
and reinsurance resources to are expected are borne by
assets and meet their to be borne third parties.
the associated obligations. by the policyholder.
movement in If this situation The shareholder's
the value of occurred the exposure is
liabilities. shareholder limited to
would be exposed changes in
to the full the value of
shortfall in future fee
the funds. based revenue
earned on unit
linked funds
due to market
movements.
------------ -------------------------- ---------------------- --------------------- --------------------------
Demographic The shareholder The shareholder The shareholder TPICF & NCI
and expense is exposed receives recourse is exposed are not exposed
to longevity cash flows to demographic to demographic
and mortality and certain and expense and expense
risk on annuity other defined risk arising risk.
contracts held payments in on components
by Pensions accordance of a unit linked
and Savings, with the Scheme fund contract,
and mortality of Demutualisation but it is not
risk on contracts and other relevant the assets
held in non-participating agreements. or liabilities
funds by Pensions The recourse of the fund
and Savings, cash flows which gives
and India and are based on rise to this
China life several different exposure.
including those components
containing of which some
insurance features are sensitive
that are invested to demographic
in unit linked and expense
funds or in risk.
the GWPF or
GSMWPF. The
shareholder
is also exposed
to expenses
and persistency
being different
from expectation
on these contracts.
------------ -------------------------- ---------------------- --------------------- --------------------------
Liquidity The shareholder With profits Unit linked The shareholder
is directly funds are normally funds are normally is not exposed
exposed to expected to expected to to the liquidity
the liquidity meet their meet their risk from these
risk from the obligations obligations liabilities,
shareholder through liquidating through liquidating since the financial
business if assets held the underlying risks of the
it is unable in the respective assets in which obligations
to realise with profits they are invested. are borne by
investments fund. If a If a unit linked third parties.
and other assets with profits fund cannot
in order to fund cannot meet its obligations
settle its meet its obligations in this way,
financial obligations as they fall the shareholder
when they fall due, the shareholder may be required
due, or can will be required to meet the
do so only to provide obligations
at excessive liquidity to to the policyholder.
cost. meet the policyholder
claims and
benefits as
they fall due.
------------ -------------------------- ---------------------- --------------------- --------------------------
The shareholder is exposed to operational, conduct, regulatory
and legal, and strategic risks 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 35.
(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.
Shareholder Participating Unit linked TPICF &
business business funds NCI(1) Total
-------------- --------------- ---------------- -------------- ----------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Intangible assets 4,514 572 - - - - - - 4,514 572
Deferred acquisition
costs 581 613 31 38 - - - - 612 651
Investments
in associates
and joint ventures
accounted for
using the equity
method 503 572 - - - - - - 503 572
Investment property - - 1,480 1,716 5,721 5,727 2,548 2,486 9,749 9,929
Property, plant
and equipment 67 31 30 30 49 28 - - 146 89
Pension and
other post-retirement
benefit assets 1,099 1,093 - - - - - - 1,099 1,093
Deferred tax
assets 65 42 - - - - - - 65 42
Reinsurance
assets 44 50 4,767 5,336 - - - - 4,811 5,386
Loans - 52 80 134 11 102 - 7 91 295
Derivative financial
assets 21 19 1,565 2,211 1,164 1,025 303 279 3,053 3,534
Equity securities
and interests
in pooled investment
funds at FVTPL 331 88 10,327 9,325 80,099 73,057 8,263 8,213 99,020 90,683
Debt securities
At FVTPL 7,781 7,763 26,107 28,193 22,191 25,885 4,630 5,471 60,709 67,312
At available-for-sale 856 621 - - - - - - 856 621
Receivables
and other financial
assets 697 515 70 97 366 533 109 110 1,242 1,255
Current tax
recoverable 36 15 12 15 135 128 9 8 192 166
Other assets 103 59 11 13 68 18 3 4 185 94
Assets held
for sale 180 27 174 224 648 12 36 - 1,038 263
Cash and cash
equivalents 2,433 963 1,581 1,336 5,037 4,636 1,175 1,003 10,226 7,938
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Total assets 19,311 13,095 46,235 48,668 115,489 111,151 17,076 17,581 198,111 190,495
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Non-participating
insurance contract
liabilities 6,068 6,192 8,878 9,796 7,794 7,434 - - 22,740 23,422
Non-participating
investment contract
liabilities 4 4 - - 105,765 102,059 - - 105,769 102,063
Participating
insurance contract
liabilities - - 14,659 15,151 - - - - 14,659 15,151
Participating
investment contract
liabilities - - 15,313 15,537 - - - - 15,313 15,537
Unallocated
divisible surplus - - 675 585 - - - - 675 585
Deposits received
from reinsurers 12 - 4,621 5,093 - - - - 4,633 5,093
Third party
interest in
consolidated
funds - - - - - - 16,457 16,835 16,457 16,835
Subordinated
liabilities 2,253 1,319 - - - - - - 2,253 1,319
Pension and
other post-retirement
benefit provisions 78 55 - - - - - - 78 55
Deferred income 124 154 33 44 - - - - 157 198
Deferred tax
liabilities 221 124 59 65 87 70 - - 367 259
Current tax
liabilities 77 35 (3) (9) 83 78 9 9 166 113
Derivative financial
liabilities 46 12 64 39 556 714 147 200 813 965
Other financial
liabilities 1,588 913 1,631 2,036 527 745 150 222 3,896 3,916
Provisions 295 225 21 2 - - - - 316 227
Other liabilities 58 51 10 13 41 37 12 12 121 113
Liabilities
of operations
held for sale 59 - - - 641 - 6 - 706 -
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Total liabilities 10,883 9,084 45,961 48,352 115,494 111,137 16,781 17,278 189,119 185,851
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
Net inter-segment
assets/(liabilities) 275 336 (274) (316) 5 (14) (6) (6) - -
Net assets(2) 8,703 4,347 - - - - 289 297 8,992 4,644
------------------------ ------ ------ ------- ------ ------- ------- ------ ------ ------- -------
(1) Third party interest in consolidated funds and
non-controlling interests.
(2) Net assets of the shareholder business comprises equity
attributable to equity holders of Standard Life Aberdeen plc of
GBP8,604m and equity attributable to preference shareholders of
GBP99m.
(b) Market risk
As described in the table on page 216, 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 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 funds. The shareholder is also not
exposed to the market risk from the assets held by third party
interest 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 and to reduce the risk
exposure of a portfolio
-- 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.
The shareholder business holds interests in newly established
investment vehicles which the Group has seeded but is actively
seeking to divest from. Seed capital is classified as held for sale
when it is the intention to dispose of the vehicle in a single
transaction and within one year. The shareholder balance sheet
includes the following amounts in respect of seed capital.
2017 2016
Seed capital Notes GBPm GBPm
-------------------------------- ----- ---- ----
Equity securities and interests
in pooled investment funds at
FVTPL 96 -
Debt securities 34 -
Assets held for sale 24 63 27
-------------------------------- ----- ---- ----
Total 193 27
-------------------------------- ----- ---- ----
Seed capital is typically invested in quoted funds. The Group
sets the limits for investing in seed capital and regularly
monitors the exposure. The Group will consider hedging its exposure
to market and currency risk in respect of seed capital investments
where it is appropriate and efficient to do so.
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
-- 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 41 and Note 17.
(b)(i)(i) Group exposure to equity risk
The Group is exposed to the risk of adverse equity market
movements which could result in losses. This applies 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 Participating
business business Total
------------- --------------- ------------
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------ ----- ------- ------ ----- -----
UK 50 6 3,794 3,545 3,844 3,551
Australia - 1 31 21 31 22
Belgium 1 - 63 63 64 63
Canada - - 36 49 36 49
Denmark 2 2 175 172 177 174
Finland 1 2 9 44 10 46
France 8 4 562 461 570 465
Germany 7 3 608 495 615 498
Greece - - 1 1 1 1
Ireland 1 1 207 183 208 184
Italy 5 1 120 73 125 74
Japan 1 1 193 124 194 125
Mexico - - - - - -
Netherlands 4 2 443 335 447 337
Norway - - 33 19 33 19
Portugal - - 38 65 38 65
Russia 1 - - - 1 -
Spain 6 1 141 127 147 128
Sweden 2 2 231 204 233 206
Switzerland 4 2 527 453 531 455
US 11 22 2,008 1,680 2,019 1,702
Other 23 8 299 241 322 249
------------ ------ ----- ------- ------ ----- -----
Total 127 58 9,519 8,355 9,646 8,413
------------ ------ ----- ------- ------ ----- -----
In addition to the equity securities analysed above, the
shareholder business has interests in pooled investment funds of
GBP204m (2016: GBP30m). The shareholder exposure to interests in
pooled investment funds primarily relates to:
-- Co-investment holdings in property and infrastructure
funds
-- Investments in certain Aberdeen managed funds to hedge
against liabilities from variable pay awards that are deferred and
settled in cash by reference to the share price of those funds
-- Seed capital in funds which are not consolidated
The participating business has interests in pooled investment
funds of GBP808m (2016: GBP970m).
(b)(i)(ii) Group exposure to property risk
The Group is exposed to the risk of adverse property market
movements which could result in losses. This applies to changes in
the value and return on holdings in investment property. This risk
arises from:
-- 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 shareholder business is not exposed to significant property
price risk.
The table below analyses investment property held by the
participating business by country and sector:
Participating business
Office Industrial Retail Other Total
---------- ------------ ---------- ---------- ------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ---- ---- ----- ----- ---- ---- ---- ---- ----- -----
UK 241 404 247 206 699 841 6 6 1,193 1,457
Belgium - 12 - - 7 9 - - 7 21
France - - - - - - 2 2 2 2
Germany 104 85 7 6 19 18 - - 130 109
Ireland - - - - - - 32 32 32 32
Netherlands 75 64 41 31 - - - - 116 95
Spain - - - - - - - - - -
------------ ---- ---- ----- ----- ---- ---- ---- ---- ----- -----
Total 420 565 295 243 725 868 40 40 1,480 1,716
------------ ---- ---- ----- ----- ---- ---- ---- ---- ----- -----
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 losses due to 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 ERM 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 adverse movements in currency exchange rates
impact the value of revenues received from, and the value of assets
and liabilities held in, currencies other than the local currency.
The Group can be exposed to foreign currency risk through the need
to meet the expectations of particular groups of policyholders or
to improve the Group's 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
Hong
UK Canadian Kong US Indian Singapore Other
Sterling Euro Dollar Dollar Dollar Rupee Dollar currencies Total
---------------- ------------ ---------- ---------- ------------- ---------- ----------- ------------ -----------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------- ------- ----- ----- ---- ---- ---- ---- ------- ---- ---- ---- ----- ---- ----- ----- -------- -------
Total
assets 16,353 11,360 1,175 911 8 21 74 53 722 150 396 474 154 - 429 126 19,311 13,095
Total
liabilities (9,186) (8,436) (547) (558) - (18) (41) (26) (1,007) (25) - - (19) - (83) (21) (10,883) (9,084)
Net
investment
hedges 6 6 - - - - (6) (6) - - - - - - - - - -
Cash
flow
hedges (567) (9) 8 9 - - - - 559 - - - - - - - - -
Non
designated
derivatives 255 225 (146) (145) (5) - (1) - (119) (64) 18 13 (3) (8) 1 (21) - -
------------ ------- ------- ----- ----- ---- ---- ---- ---- ------- ---- ---- ---- ----- ---- ----- ----- -------- -------
6,861 3,146 490 217 3 3 26 21 155 61 414 487 132 (8) 347 84 8,428 4,011
------------ ------- ------- ----- ----- ---- ---- ---- ---- ------- ---- ---- ---- ----- ---- ----- ----- -------- -------
Other currencies include assets of GBP5m (2016: GBP9m) and
liabilities of GBP36m (2016: GBP7m) 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 accounted for using the equity method. On
18 October 2017, the Group issued US dollar subordinated notes with
a principal amount of US $750m. The related cash flows expose the
Group to foreign currency risk on the principal and coupons
payable. The Group manages the foreign exchange risk with a
cross-currency swap which is designated as a cash flow hedge.
Non designated derivatives relate to foreign exchange forward
contracts that are not designated as cash flow hedges or net
investment hedges.
During 2017 the Group reaffirmed its strategy for hedging
foreign currency risks in the shareholder business. This strategy
provides a consistent approach to managing these foreign exchange
risks. This includes, within certain parameters, minimising
currency volatility within the regulatory capital surplus, aside
from the Solvency II volatility created by holding a cross currency
swap to hedge the economic foreign exchange risk arising from
issuing US Dollar denominated notes. The Group does not separately
hedge translation of reported earnings from overseas operations in
the consolidated financial statements.
Participating business
Hong
UK Canadian Kong US Indian Singapore Other
Sterling Euro Dollar Dollar Dollar Rupee Dollar currencies Total
------------------ ------------------ ---------- ---------- ------------ ---------- ----------- ------------ ------------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- -------- -------- -------- ---- ---- ---- ---- ----- ----- ---- ---- ----- ---- ------ ---- -------- --------
Total
assets 29,109 31,119 13,999 14,703 27 51 30 28 1,950 1,796 6 7 4 3 1,110 961 46,235 48,668
Total
liabilities (34,682) (37,547) (11,262) (10,783) - - - - (3) (2) - - - - (14) (20) (45,961) (48,352)
Non
designated
derivatives 693 1,040 (641) (878) - - - - (34) (124) - - (2) (1) (16) (37) - -
------------ -------- -------- -------- -------- ---- ---- ---- ---- ----- ----- ---- ---- ----- ---- ------ ---- -------- --------
(4,880) (5,388) 2,096 3,042 27 51 30 28 1,913 1,670 6 7 2 2 1,080 904 274 316
------------ -------- -------- -------- -------- ---- ---- ---- ---- ----- ----- ---- ---- ----- ---- ------ ---- -------- --------
There are no net investment hedges or cash flow hedges in the
participating business. Other currencies include assets of GBP8m
(2016: GBP49m) and liabilities of GBP3m (2016: GBP11m) 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 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 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.
Unit linked funds
Changes in equity security and property prices and/or
fluctuations in interest rates will affect unit linked liabilities
and the associated assets by the same amount. Therefore, whilst the
profit impact on unit linked 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.
Participating business
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. Given the
nature of the Group's participating business, changes in equity
security and property prices and/or fluctuations in interest rates
will generally affect participating liabilities and the associated
assets by the same amount. Therefore the change in participating
contract liabilities and the corresponding asset movement has not
been presented. However under certain economic scenarios guarantees
in participating contracts could require the shareholder to provide
support to the participating business. This is presented as
follows:
HWPF
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 recourse cash flows have been determined in
accordance with the Scheme and consider the extent to which
shareholders participate in the investment return and surplus 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 flows 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 and only the
impact on the recourse cash flows of the sensitivity tests is
presented. 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. The sensitivities presented are not
sufficiently severe to have restricted recourse cash flows in 2017
and 2016.
GWPF
For the GWPF, whilst shareholders are entitled to charges from
this fund, there can be potential exposure to the full impact of
any shortfall if the assets of the fund are insufficient to meet
policyholder obligations. Profit after tax and equity are sensitive
to the extent that the receipt of future charges is not taken into
account in the measurement of the non-participating contract
liabilities in the shareholder risk segment in economic scenarios
where the charges are deemed foregone to support the participating
liabilities. This sensitivity is included within the
non-participating insurance contract liabilities in the following
table.
Limitations
The sensitivity of the Group's profit after tax and equity 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 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.
Earnings over a period may be reduced as a consequence of the
impact of market movements on charges levied on unit linked
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.
Profit after tax sensitivity to market risk
Interest
Equity markets rates
---------------------- ------------
2017 +10% -10% +20% -20% +1% -1%
Increase/(decrease)
in profit after
tax GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---- ---- ---- ---- ----- -----
Shareholder business
Pensions and Savings:
Deferred acquisition
costs - - - - - -
Assets backing non-participating
liabilities - - - - (662) 778
Non-participating
insurance contract
liabilities - - - - 642 (756)
Non-participating
investment contract
liabilities - - - - - -
Other assets and
liabilities - - - - (6) 8
--------------------------------- ---- ---- ---- ---- ----- -----
Total Pensions and
Savings - - - - (26) 30
--------------------------------- ---- ---- ---- ---- ----- -----
Aberdeen Standard
Investments 10 (10) 21 (21) 5 (5)
--------------------------------- ---- ---- ---- ---- ----- -----
India and China
life:
Deferred acquisition
costs - - - - - -
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 life - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Other 3 (3) 5 (5) (3) 3
--------------------------------- ---- ---- ---- ---- ----- -----
Total shareholder
business 13 (13) 26 (26) (24) 28
--------------------------------- ---- ---- ---- ---- ----- -----
Participating business
Pensions and Savings:
Recourse cash flow - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total Pensions and
Savings - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total participating
business - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total 13 (13) 26 (26) (24) 28
--------------------------------- ---- ---- ---- ---- ----- -----
(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 to changes in interest rates does
not include the impact of changes in interest rates for these AFS
assets. There is no impact in 2017 or 2016 on profit after tax to
changes in property prices.
Interest
Equity markets rates
---------------------- ------------
2016 +10% -10% +20% -20% +1% -1%
Increase/(decrease) in
profit after tax GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---- ---- ---- ---- ----- -----
Shareholder business
Pensions and Savings:
Deferred acquisition costs - - - - - -
Assets backing non-participating
liabilities - - - - (696) 833
Non-participating insurance
contract liabilities - - - - 673 (790)
Non-participating investment
contract liabilities - - - - - -
Other assets and liabilities - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total Pensions and Savings - - - - (23) 43
--------------------------------- ---- ---- ---- ---- ----- -----
Aberdeen Standard Investments 4 (4) 7 (7) - -
--------------------------------- ---- ---- ---- ---- ----- -----
India and China life:
Deferred acquisition costs - - - - - (4)
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 - - - - 1 1
--------------------------------- ---- ---- ---- ---- ----- -----
Total India and China
life - - - - 1 (3)
--------------------------------- ---- ---- ---- ---- ----- -----
Other 2 (2) 4 (4) (2) 2
--------------------------------- ---- ---- ---- ---- ----- -----
Total shareholder business 6 (6) 11 (11) (24) 42
--------------------------------- ---- ---- ---- ---- ----- -----
Participating business
Pensions and Savings:
Recourse cash flow - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total Pensions and Savings - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total participating business - - - - - -
--------------------------------- ---- ---- ---- ---- ----- -----
Total 6 (6) 11 (11) (24) 42
--------------------------------- ---- ---- ---- ---- ----- -----
(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.
Equity sensitivity to market risk on assets and liabilities
other than those classified as held for sale
The shareholder business in the corporate centre and related
activities classified as Other includes 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 to variations in interest rate risk
exposures.
The Other segment's equity sensitivity to a 1% increase in
interest rates is (GBP15m) (2016: (GBP17m)) and to a 1% decrease in
interest rates is GBP15m (2016: GBP17m). The sensitivity of the
Group's total equity to a 1% increase in interest rates is (GBP31m)
(2016: (GBP39m)) and a 1% decrease in interest rates is GBP33m
(2016: GBP57m).
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 page 216, 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 funds since the shareholder is not
directly exposed to credit risk from these assets. The unit linked
business includes GBP3,846m (2016: GBP3,779m) 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 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 Maximum counterparty exposure limits
equivalents are set with reference to internal credit
assessments.
-------------------- ---------------------------------------------
Derivative financial Maximum counterparty exposure limits,
instruments 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 Section (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,
with business units having to assign
internal credit ratings to reinsurance
counterparties. The Group is restricted
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 Appropriate limits are set for other
instruments 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 and reinsurance assets by credit rating
is as follows:
Loans to Receivables
associates Derivative and other Cash
and joint Reinsurance financial Debt financial and cash
ventures assets Loans assets securities assets equivalents Total
------------ ------------- ---------- ------------ ------------ ------------- ------------- -------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----- ----- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ------ ----- ------ -----
Neither
past due
nor
impaired:
AAA - - - - - - - - 475 481 - - 612 92 1,087 573
AA - - 30 30 - - - - 1,719 1,809 - - 947 221 2,696 2,060
A - - 14 17 - 51 10 13 3,782 3,378 - - 849 583 4,655 4,042
BBB - - - - - - 1 2 1,271 1,483 - - 22 67 1,294 1,552
Below
BBB - - - - - - - - 155 133 - - 1 - 156 133
Not rated - 3 - - - 1 10 4 51 13 673 507 2 - 736 528
Internally
rated - - - 3 - - - - 1,184 1,087 - - - - 1,184 1,090
----------- ----- ----- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ------ ----- ------ -----
Past due - - - - - - - - - - 24 8 - - 24 8
Impaired - - - - - - - - - - - - - - - -
----------- ----- ----- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ------ ----- ------ -----
Total - 3 44 50 - 52 21 19 8,637 8,384 697 515 2,433 963 11,832 9,986
----------- ----- ----- ----- ------ ---- ---- ----- ----- ----- ----- ----- ------ ------ ----- ------ -----
At 31 December 2017, receivables and other financial assets of
GBP19m (2016: GBP7m) were past due by less than three months and
GBP2m (2016: GBP1m) were past due by three to six months and GBP3m
(2016: GBPnil) were past due by six to twelve months.
An analysis of debt securities by country based on the ultimate
parent country of risk is as follows:
Government,
provincial Other financial Other
and municipal(1) Banks institutions corporate Other(2) Total
------------------- ------------ ----------------- ------------ ---------- ------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ --------- -------- ----- ----- -------- ------- ----- ----- ---- ---- ----- -----
UK 495 594 429 426 1,206 1,205 1,791 2,006 10 - 3,931 4,231
Australia - - 126 107 17 17 14 17 - - 157 141
Austria 29 29 - - - - - - - - 29 29
Belgium 3 - 1 1 - - 43 23 - - 47 24
Canada - - 151 105 - - - 1 - - 151 106
Denmark - - 103 26 - - 17 16 - - 120 42
Finland - - - - - - - - - - - -
France 192 240 507 344 4 3 272 347 - - 975 934
Germany 11 31 67 167 1 1 312 285 - - 391 484
Greece - - - - - - - - - - - -
Ireland - - - - - - 6 6 - - 6 6
Italy - - 29 28 - - 86 82 - - 115 110
Japan - - 90 36 - - 25 25 - - 115 61
Mexico 3 - - - - - 105 115 - - 108 115
Netherlands 22 22 294 331 - - 107 35 - - 423 388
Norway - - - 25 - - 42 42 - - 42 67
Portugal - - - - - - - - - - - -
Russia 3 - - - - - - - - - 3 -
Spain - - 176 55 - - 71 45 - - 247 100
Sweden - - 121 115 1 1 8 48 - - 130 164
Switzerland - - 78 55 - - 1 7 - - 79 62
US 25 14 182 226 102 89 440 450 - - 749 779
Other 66 46 275 204 114 58 151 14 213 219 819 541
------------ --------- -------- ----- ----- -------- ------- ----- ----- ---- ---- ----- -----
Total 849 976 2,629 2,251 1,445 1,374 3,491 3,564 223 219 8,637 8,384
------------ --------- -------- ----- ----- -------- ------- ----- ----- ---- ---- ----- -----
(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 and reinsurance assets by credit rating
is as follows:
Receivables
Derivative and other
Reinsurance financial Debt financial Cash and
assets Loans assets securities assets cash equivalents Total
------------- ---------- ------------ -------------- ------------- ----------------- --------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
Neither
past due
nor
impaired:
AAA - - - - - - 4,396 4,523 - - 124 30 4,520 4,553
AA 4,761 5,329 20 60 - - 15,101 16,595 - - 199 337 20,081 22,321
A 6 - - - 808 1,056 4,322 4,682 - - 1,258 964 6,394 6,702
BBB - - - - 499 668 1,791 1,771 - - - 5 2,290 2,444
Below
BBB - - - - - - 269 367 - - - - 269 367
Not rated - - 60 74 258 487 30 - 65 91 - - 413 652
Internally
rated - 7 - - - - 198 255 - - - - 198 262
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
Past due - - - - - - - - 5 6 - - 5 6
Impaired - - - - - - - - - - - - - -
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
Total 4,767 5,336 80 134 1,565 2,211 26,107 28,193 70 97 1,581 1,336 34,170 37,307
----------- ------ ----- ---- ---- ----- ----- ------ ------ ------ ----- ------- -------- ------ ------
At 31 December 2017, receivables and other financial assets of
GBP5m (2016: GBP6m) were past due by less than three months.
Not rated loans of GBP60m (2016: GBP74m) 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 2017, the financial assets of the
HWPF include GBP4,621m (2016: GBP5,093m) 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 based on the ultimate
parent country of risk is as follows:
Government,
provincial Other financial
and municipal(1) Banks institutions Other corporate Other(2) Total
------------------- ------------ ----------------- ----------------- ---------- --------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ --------- -------- ----- ----- -------- ------- -------- ------- ---- ---- ------ ------
UK 10,109 10,952 667 885 1,579 1,934 1,479 1,875 - - 13,834 15,646
Australia - 6 137 206 50 50 30 38 - - 217 300
Austria 408 392 - 4 9 10 - - - - 417 406
Belgium 624 691 5 10 87 - 58 57 - - 774 758
Canada 26 3 84 67 21 10 - 4 - - 131 84
Denmark 3 3 13 23 - - 16 14 - - 32 40
Finland 203 194 42 69 - - - 4 - - 245 267
France 2,181 2,009 475 450 40 29 320 364 - - 3,016 2,852
Germany 3,066 3,118 172 196 104 120 231 199 - - 3,573 3,633
Greece - - - - - - - - - - - -
Ireland - 25 - 4 20 11 20 18 - - 40 58
Italy 16 49 23 31 15 11 34 46 - - 88 137
Japan 10 21 99 172 - - 9 - - - 118 193
Mexico - - - - - - 56 56 - - 56 56
Netherlands 457 467 234 328 64 36 68 48 - - 823 879
Norway 5 - 6 24 - - 61 65 - - 72 89
Portugal - - - - - - 2 4 - - 2 4
Russia - - - - - - - - - - - -
Spain - 13 93 4 5 5 41 38 - - 139 60
Sweden - - 231 367 - 10 18 12 - - 249 389
Switzerland - - 112 150 29 63 27 62 - - 168 275
US 13 106 378 432 162 151 534 499 - - 1,087 1,188
Other 77 98 190 247 117 48 279 139 363 347 1,026 879
------------ --------- -------- ----- ----- -------- ------- -------- ------- ---- ---- ------ ------
Total 17,198 18,147 2,961 3,669 2,302 2,488 3,283 3,542 363 347 26,107 28,193
------------ --------- -------- ----- ----- -------- ------- -------- ------- ---- ---- ------ ------
(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 2017, 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 of
GBP18m (2016: GBP22m). A further reduction of GBP79m (2016: GBP58m)
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 and bilateral repurchase
agreements 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. For
OTC derivatives 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.
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
2017, the Group had pledged GBP46m (2016: GBP30m) of cash and
GBP103m (2016: GBP187m) of securities as collateral for derivative
financial liabilities. At 31 December 2017, the Group had accepted
GBP1,501m (2016: GBP2,016m) of cash and GBP947m (2016: GBP808m) of
securities as collateral for derivatives financial assets and
reverse repurchase agreements. 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.
Other than cash and cash equivalents disclosed in Note 25, 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
other 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. ISDA master
agreements and reverse repurchase agreements entered into by the
Group are considered master netting agreements as they provide a
right of set off that is enforceable only in the event of default,
insolvency, or bankruptcy.
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 Financial
of financial Financial collateral
position instruments pledged/(received) Net position
As at 31 December
2017 GBPm GBPm GBPm GBPm
------------------- -------------------- ------------ ------------------- ------------
Financial
assets
Derivatives(1) 2,043 (465) (1,508) 70
Reverse repurchase
agreements 900 - (899) 1
------------------- -------------------- ------------ ------------------- ------------
Total financial
assets 2,943 (465) (2,407) 71
------------------- -------------------- ------------ ------------------- ------------
Financial
liabilities
Derivatives(1) (647) 465 95 (87)
------------------- -------------------- ------------ ------------------- ------------
Total financial
liabilities (647) 465 95 (87)
------------------- -------------------- ------------ ------------------- ------------
Related amounts not
offset on the consolidated
statement of financial
position
---------------------------------
Gross amounts
of financial
instruments
as presented
on the consolidated
statement Financial
of financial Financial collateral
position instruments pledged/(received) Net position
As at 31 December
2016 GBPm GBPm GBPm GBPm
------------------- -------------------- ------------ ------------------- ------------
Financial
assets
Derivatives(1) 2,654 (558) (2,000) 96
Reverse repurchase
agreements 800 - (804) (4)
------------------- -------------------- ------------ ------------------- ------------
Total financial
assets 3,454 (558) (2,804) 92
------------------- -------------------- ------------ ------------------- ------------
Financial
liabilities
Derivatives(1) (751) 558 186 (7)
------------------- -------------------- ------------ ------------------- ------------
Total financial
liabilities (751) 558 186 (7)
------------------- -------------------- ------------ ------------------- ------------
(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 2017
was GBP1,444m (2016: GBP835m) of which GBP59m related to
participating business (2016: GBP116m), GBP865m related to
shareholder business (2016: GBP719m) and GBP520m related to unit
linked funds (2016: GBPnil). During the year, fair value gains of
GBP2m (2016: GBP27m gains) in relation to the participating and
shareholder business 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
losses of GBP3m (2016: GBP9m gains). The loans and receivables
relating to unit linked business consist solely of income strips
(refer Note 41). Due to the long-term nature of these instruments
it is not possible to identify the associated credit risk. The
shareholder has no exposure to such risk.
As described in Section (b), the Group's ERM 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 page 216, 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 analysing experience
and using statistical data to make 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 policyholders
live longer than expected which gives rise to losses for the
shareholder. This may arise from current experience differing from
that expected, or the rate of improvement in mortality being
greater than anticipated. This risk is relevant for contracts where
payments are made until the death of the policyholder, for example,
annuities.
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 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
and could either arise over time or as a result of a single
catastrophic event such as a pandemic. This risk will be present on
disability income, healthcare and critical illness contracts.
Income protection contracts have the risk that claim duration
may be longer than anticipated.
Mortality
The Group defines mortality risk as the risk that death claims
are at a higher rate than assumed and could either arise over time
or as a result of a single catastrophic event such as a pandemic.
This risk will exist on any contracts where the payment on death is
greater than the reserve held.
(d)(i)(ii) Other financial risks
Persistency - withdrawals and lapse rates
The Group defines persistency risk as the risk that clients or
policyholders redeem their investments or surrender, lapse or
pay-up their policies at different rates than assumed resulting in
reduced revenue and/or financial losses. 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
are higher than planned or revenue falls below that necessary to
cover actual expenses. 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 profit.
Profit is directly exposed to the risk of expenses being higher
than otherwise expected. It 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 31.
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.
Longevity Expenses Persistency Morbidity/mortality
----------- ---------- ------------- ---------------------
(Decrease)/increase
in profit after
tax and equity +5% -5% +10% -10% +10% -10% +5% -5%
2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Shareholder business
Pensions and Savings:
Reinsurance assets - - - - - - 1 (1)
Non-participating
insurance contract
liabilities (142) 133 (8) 8 1 (1) (1) 1
India and China life
Deferred acquisition
costs - - - - - - - -
Non-participating
insurance contract
liabilities - - - - - - - -
Non-participating
investment contract
liabilities - - - - - - - -
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total shareholder
business (142) 133 (8) 8 1 (1) - -
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Participating business
Pensions and Savings:
Recourse cash flows (19) 18 (2) 2 - - (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total participating
business (19) 18 (2) 2 - - (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total (161) 151 (10) 10 1 (1) (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Longevity Expenses Persistency Morbidity/mortality
----------- ---------- ------------- ---------------------
(Decrease)/increase
in profit after
tax and equity +5% -5% +10% -10% +10% -10% +5% -5%
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Shareholder business
Pensions and Savings:
Reinsurance assets - - - - - - 1 (1)
Non-participating
insurance contract
liabilities (136) 128 (8) 8 1 (1) - -
India and China
Deferred acquisition
costs - - (4) - - - - -
Non-participating
insurance contract
liabilities - - - - - - - -
Non-participating
investment contract
liabilities - - - - - - - -
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total shareholder
business (136) 128 (12) 8 1 (1) 1 (1)
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Participating business
Pensions and Savings:
Recourse cash flows (16) 15 (1) 1 - - (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total participating
business (16) 15 (1) 1 - - (2) 2
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
Total (152) 143 (13) 9 1 (1) (1) 1
----------------------- ----- ---- ---- ---- ------ ----- ---------- ---------
When the sensitivities presented in the tables above are applied
to with profits funds other than HWPF, there are no significant
impacts on net liabilities after reinsurance, equity or profit 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 Pensions and Savings 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 tables above.
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 page 216, the shareholder is
exposed to liquidity risk from shareholder business, participating
business and unit linked 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). For Pensions and Savings, 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.
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 expects to be able to manage liquidity risk on an
ongoing basis. We recognise there are a number of scenarios that
can impact the liquid resources of a business as discussed in the
Risk management section of the Strategic report.
(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.
Greater
Within 2-5 6-10 11-15 16-20 than No defined
1 year years years years years 20 years maturity Total
2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Shareholder business
Non-participating
insurance contract
liabilities 318 1,216 1,375 1,143 864 1,152 - 6,068
Non-participating
investment contract
liabilities - 1 1 1 1 - - 4
Reinsurance liabilities - - - - - - - -
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total shareholder
business 318 1,217 1,376 1,144 865 1,152 - 6,072
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Participating business
Non-participating
insurance contract
liabilities 651 2,286 2,171 1,445 883 1,442 - 8,878
Participating insurance
contract liabilities 1,392 3,461 2,862 2,708 2,109 2,127 - 14,659
Participating investment
contract liabilities 1,358 5,441 4,356 2,432 1,121 605 - 15,313
Unallocated divisible
surplus - - - - - - 675 675
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total participating
business 3,401 11,188 9,389 6,585 4,113 4,174 675 39,525
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Unit linked funds
Non-participating
insurance contract
liabilities 6,443 650 354 120 98 129 - 7,794
Non-participating
investment contract
liabilities 11,911 32,806 26,883 16,181 9,343 8,641 - 105,765
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total unit linked
funds 18,354 33,456 27,237 16,301 9,441 8,770 - 113,559
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total 22,073 45,861 38,002 24,030 14,419 14,096 675 159,156
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Greater
Within 2-5 6-10 11-15 16-20 than No defined
1 year years years years years 20 years maturity Total
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Shareholder business
Non-participating
insurance contract
liabilities 330 1,194 1,351 1,139 881 1,297 - 6,192
Non-participating
investment contract
liabilities 1 1 1 1 - - - 4
Reinsurance liabilities - - - - - - - -
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total shareholder
business 331 1,195 1,352 1,140 881 1,297 - 6,196
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Participating business
Non-participating
insurance contract
liabilities 618 2,263 2,324 1,685 1,105 1,801 - 9,796
Participating insurance
contract liabilities 1,611 3,603 2,867 2,398 2,376 2,296 - 15,151
Participating investment
contract liabilities 600 2,649 3,484 3,411 2,692 2,701 - 15,537
Unallocated divisible
surplus - - - - - - 585 585
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total participating
business 2,829 8,515 8,675 7,494 6,173 6,798 585 41,069
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Unit linked funds
Non-participating
insurance contract
liabilities 6,126 669 368 123 69 79 - 7,434
Non-participating
investment contract
liabilities 9,951 31,696 26,705 16,024 9,118 8,565 - 102,059
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total unit linked
funds 16,077 32,365 27,073 16,147 9,187 8,644 - 109,493
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
Total 19,237 42,075 37,100 24,781 16,241 16,739 585 156,758
------------------------- ------- ------ ------ ------ ------ --------- ---------- -------
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 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.
Greater
Within 2-5 6-10 11-15 16-20 than
1 year years years years years 20 years Total
---------------- ---------- ---------- ---------- ---------- ----------- ----------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Shareholder
business
Non-participating
investment
contract liabilities 4 4 - - - - - - - - - - 4 4
Subordinated
liabilities 486 81 390 313 461 359 422 290 422 143 1,493 671 3,674 1,857
Other financial
liabilities 1,822 876 16 40 - - - - - - - - 1,838 916
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Total shareholder
business 2,312 961 406 353 461 359 422 290 422 143 1,493 671 5,516 2,777
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Participating
business
Other financial
liabilities 1,631 2,179 3 27 3 6 2 6 2 5 70 85 1,711 2,308
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Total participating
business 1,631 2,179 3 27 3 6 2 6 2 5 70 85 1,711 2,308
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Unit linked
funds
Non-participating
investment
contract liabilities 105,765 102,059 - - - - - - - - - - 105,765 102,059
Other financial
liabilities 382 908 9 11 8 9 8 9 8 9 118 141 533 1,087
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Total unit
linked funds 106,147 102,967 9 11 8 9 8 9 8 9 118 141 106,298 103,146
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
Total 110,090 106,107 418 391 472 374 432 305 432 157 1,681 897 113,525 108,231
--------------------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---- ------- -------
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
2017 or 31 December 2016.
Refer Note 21 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 2017 with a contractual
maturity of within one year and between one and five years of
GBP411m and GBP36m respectively (2016: GBP453m and GBPnil).
(f) Operational 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.
The Group conduct and operational risk policy framework is used
to support the management of operational risks. Business units
adopt the relevant minimum standards 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:
-- Data and cyber
-- Change management
-- Third party
-- Process execution
-- Business continuity
-- People
-- Fraud and irregularities
-- Model
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 to mitigate the
exposure to the risk; accepting exposure to 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
Risk 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 on a risk-basis by the risk function in its role of
'second line of defence'. Independent assurance as to the
effectiveness of the Risk CSA process is provided by Group Internal
Audit in its role of 'third line of defence'. The results of Risk
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 Risk 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) Conduct risk
The Group defines conduct risk as the risk that through our
behaviours, strategies, decisions and actions the Group delivers
unfair outcomes to our customer/client and/or poor market conduct.
Conduct risk can occur across multiple areas and from multiple
sources, including the crystallisation of an operational risk.
The Group has a single conduct and operational risk framework
that utilises the tools, such as Risk CSAs, outlined under
operational risk (f) to ensure the appropriate identification and
management of conduct risk. Business units adopt the relevant
minimum standards contained within the conduct risk policy and are
required to manage risk in accordance with this and other policies
that have an impact on the overall conduct risk, taking mitigating
action as appropriate to operate within appetites.
The following conduct risk policy standards have defined
outcomes against which conduct risk is assessed within the
Group:
-- Culture
-- Proposition design
-- Communication and information
-- Advice and distribution
-- Service
-- Barriers
-- Proposition performance
-- Market integrity
(h) Regulatory and legal risk
The Group defines regulatory and legal risk as the risk arising
from violation, or non-conformance with laws, rules, regulations,
prescribed practices or ethical standards which may result in
fines, payments of damages, the voiding of contracts and damaged
reputation.
Business units must have in place procedures to identify, report
and analyse all regulatory compliance breaches to the relevant
business unit compliance function. Additionally, business units are
required to have procedures in place to identify, assess and
monitor the impact of changes to laws, regulations and rules,
prescribed practices and external regulatory events in
jurisdictions where they choose to carry on regulated financial
services activity.
(i) 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.
40. Structured entities
A structured entity is an entity that is structured in such a
way that voting or similar rights are not the dominant factor in
deciding who controls the entity. The Group has interests in
structured entities through investments in a range of investment
vehicles including:
-- Pooled investment funds managed internally and externally,
including OEICs, SICAVs, unit trusts and limited partnerships
-- Debt securitisation vehicles which issue asset-backed
securities
The Group consolidates structured entities which it controls.
Where the Group has an investment in, but not control over these
types of entities, the investment is classified as an investment in
associate when the Group has significant influence.
The Group also has interests in structured entities through
asset management fees and other fees received from these
entities.
(a) Consolidated structured entities
As at 31 December 2017 and 31 December 2016, the Group has not
provided any non-contractual financial or other support to any
consolidated structured entity and there are no current intentions
to do so.
(b) Unconsolidated structured entities
As at 31 December 2017 and 31 December 2016, the Group has not
provided any non-contractual financial or other support to any
unconsolidated structured entities and there are no current
intentions to do so.
(b)(i) Investments in unconsolidated structured entities
The following table shows the carrying value of the Group's
investments in unconsolidated structured entities by line item in
the consolidated statement of financial position and by risk
segment as defined in Note 39.
Shareholder Participating Unit linked TPICF &
business business funds NCI(1) Total
------------- --------------- -------------- ------------ --------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equity securities
and interests
in pooled investment
funds 202 28 806 969 32,229 27,028 3,484 2,972 36,721 30,997
Debt securities 682 664 1,468 1,490 945 1,317 138 167 3,233 3,638
Total 884 692 2,274 2,459 33,174 28,345 3,622 3,139 39,954 34,635
(1) Third party interest in consolidated funds and
non-controlling interests.
Equity securities and interests in pooled investment funds
includes GBP11,146m (2016: GBP7,376m) of unconsolidated structured
entities which are managed by the Group and in which the Group has
a direct investment of which GBP5,936m (2016: GBP4,797m restated;
previously reported as GBP7,376m) relates to investments in
associates measured at FVTPL. The asset value of these
unconsolidated structured entities is GBP62,741m (2016: GBP41,379m)
of which GBP19,219m (2016: GBP18,198m restated; previously reported
as GBP41,379m) relates to investments in associates measured at
FVTPL. The total fees recognised in respect of these assets under
management during the year to 31 December 2017 were GBP254m (2016:
GBP265m) of which GBP31m (2016: GBP17m restated; previously
reported as GBP265m) relates to structured entities where the
Group's holding is classified as an investment in an associate
measured at FVTPL. For details of the background of the restatement
to 2016 comparatives refer Note 16.
The total issuance balance relating to unconsolidated structured
debt securitisation vehicles in which the Group has an investment
is GBP59,169m (2016: GBP57,877m).
The Group's maximum exposure to loss in respect of its
investments in unconsolidated structured entities is the carrying
value of the Group's investment and, where the structured entity is
managed by the Group, loss of future fees. As noted in Note 39, the
shareholder is not exposed to market or credit risk in respect of
investments held in the unit linked funds, and third party interest
in consolidated funds and non-controlling interests risk
segments.
Additional information on how the Group manages its exposure to
risk can be found in Note 39.
(b)(ii) Other interests in unconsolidated structured
entities
For those structured entities which the Group receives asset
management or other fees from but has no direct investment, the
maximum exposure to loss is loss of future fees.
Total assets under management of structured entities in which
the Group has no direct investments but has other interests in are
GBP80,454m at 31 December 2017 (2016: GBP12,634m). The fees
recognised in respect of these assets under management during the
year to 31 December 2017 were GBP305m (2016: GBP61m).
41. Fair value of assets and liabilities
The Group uses fair value to measure the majority of its assets
and liabilities. Fair value is the amount for which an asset could
be exchanged, or a liability settled, between knowledgeable willing
parties in an arm's length transaction.
Estimates and assumptions
Determination of the fair value of private equity investments
and debt securities categorised as level 3 in the fair value
hierarchy are key estimates. Further details on the methods and
assumptions used to value these investments are set out in Section
(d) below. Disclosures regarding sensitivity of level 3 instruments
measured at fair value on the statement of financial position to
changes in key assumptions are set out in (d)(v) below.
(a) Determination of fair value hierarchy
To provide further information on the approach used to determine
and measure the fair value of certain assets and liabilities, the
following fair value hierarchy categorisation has been used:
-- Level 1 - Fair values measured using quoted prices
(unadjusted) in active markets for identical assets or liabilities.
An active market exists where transactions take place with
sufficient frequency and volume to provide pricing information on
an ongoing basis.
-- Level 2 - Fair values measured using inputs other than quoted
prices included within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices)
-- Level 3 - Fair values measured using inputs that are not
based on observable market data (unobservable inputs)
(b) Financial investments and financial liabilities
An analysis of the Group's financial investments and financial
liabilities in accordance with the categories of financial
instrument set out in IAS 39 Financial Instruments: Recognition and
Measurement is presented in Notes 19 and 33 and includes those
financial assets and liabilities held at fair value.
(c) Non-financial investments
An analysis of the Group's investment property and owner
occupied property within property, plant and equipment in
accordance with IAS 40 Investment property and IAS 16 Property,
plant and equipment is presented in Notes 17 and 18 respectively
and includes those assets held at fair value.
(d) Methods and assumptions used to determine fair value of assets and liabilities
Information on the methods and assumptions used to determine
fair values for each major category of instrument measured at fair
value is given below. These methods and assumptions include those
used to fair value assets and liabilities held for sale, including
the individual assets and liabilities of operations held for
sale.
Investments in associates at FVTPL, equity securities and
interests in pooled investment funds, and amounts seeded into funds
classified as held for sale
Investments in associates at FVTPL are valued in the same manner
as the Group's equity securities and interests in pooled investment
funds.
Equity instruments listed on a recognised exchange are valued
using prices sourced from the primary exchange on which they are
listed. These instruments are generally considered to be quoted in
an active market and are therefore categorised as level 1
instruments within the fair value hierarchy.
Unlisted equities are valued using an adjusted net asset value.
The Group's exposure to unlisted equity securities primarily
relates to private equity investments. The majority of the Group's
private equity investments are carried out through European fund of
funds structures, where the Group receives valuations from the
investment managers of the underlying funds.
The valuations received from investment managers of the
underlying funds are reviewed and where appropriate adjustments are
made to reflect the impact of changes in market conditions between
the date of the valuation and the end of the reporting period. The
valuation of these securities is largely based on inputs that are
not based on observable market data, and accordingly these
instruments are categorised as level 3 instruments within the fair
value hierarchy. Where appropriate, reference is made to observable
market data.
Where pooled investment funds have been seeded and the
investment in the funds have been classified as held for sale, the
costs to sell are assumed to be negligible. The fair value of
pooled investment funds held for sale is calculated as equal to the
observable unit price.
Investment property and owner occupied property
The fair value of investment property and all owner occupied
property is based on valuations provided by external property
valuation experts. The fair value of investment property is
measured based on each property's highest and best use from a
market participant's perspective and considers the potential uses
of the property that are physically possible, legally permissible
and financially feasible. No adjustment has been made for vacant
possession for the Group's owner occupied property.
In the UK and Europe, valuations are completed in accordance
with the Royal Institution of Chartered Surveyors (RICS) valuation
standards. These are predominantly produced using an income
capitalisation approach. The income capitalisation approach is
based on capitalising an annual net income stream using an
appropriate yield. The annual net income is based on both current
and estimated future net income. The yield and future net income
used is determined by considering recent transactions involving
property with similar characteristics to the property being valued.
Where it is not possible to use an income capitalisation approach,
for example on property with no rental income, a market comparison
approach is used by considering recent transactions involving
property with similar characteristics to the property being valued.
In both approaches where appropriate, adjustments will be made by
the valuer to reflect differences between the characteristics of
the property being valued and the recent market transactions
considered.
As income capitalisation and market comparison valuations
generally include significant unobservable inputs including
unobservable adjustments to recent market transactions, these
assets are categorised as level 3 within the fair value
hierarchy.
Derivative financial assets and derivative financial
liabilities
The majority of the Group's derivatives are over-the-counter
derivatives which are measured at fair value using a range of
valuation models including discounting future cash flows and option
valuation techniques. The inputs are observable market data and
over-the-counter derivatives are therefore categorised as level 2
in the fair value hierarchy.
Exchange traded derivatives are valued using prices sourced from
the relevant exchange. They are considered to be instruments quoted
in an active market and are therefore categorised as level 1
instruments within the fair value hierarchy.
Non-performance risk arising from the credit risk of each
counterparty has been considered on a net exposure basis in line
with the Group's risk management policies. At 31 December 2017 and
31 December 2016 the residual credit risk is considered immaterial
and therefore no credit risk adjustment has been made.
Debt securities
For debt securities, the Group has determined a hierarchy of
pricing sources. The hierarchy consists of reputable external
pricing providers who generally use observable market data. If
prices are not available from these providers or are considered to
be stale, the Group has established procedures to arrive at an
internal assessment of the fair value. These procedures are based
largely on inputs that are not based on observable market data. A
further analysis by category of debt security is as follows:
-- Government, including provincial and municipal, and
supranational institution bonds
These instruments are valued using prices received from external
pricing providers who generally base the price on quotes received
from a number of market participants. They are categorised as level
1 or level 2 instruments within the fair value hierarchy depending
upon the nature of the underlying pricing information used for
valuation purposes.
-- Corporate bonds listed or quoted in an established
over-the-counter market including asset-backed securities
These instruments are generally valued using prices received
from external pricing providers who generally consolidate quotes
received from a panel of banks into a composite price. As the
market becomes less active the quotes provided by some banks may be
based on modelled prices rather than on actual transactions. These
sources are based largely on observable market data, and therefore
these instruments are categorised as level 2 instruments within the
fair value hierarchy. When prices received from external pricing
providers are based on a single broker indicative quote, the
instruments are categorised as level 3 instruments.
For instruments for which prices are either not available from
external pricing providers or the prices provided are considered to
be stale, the Group performs its own assessment of the fair value
of these instruments. This assessment is largely based on inputs
that are not based on observable market data, principally single
broker indicative quotes, and accordingly these instruments are
categorised as level 3 instruments within the fair value
hierarchy.
-- Other corporate bonds including unquoted bonds, commercial
paper and certificates of deposit
These instruments are valued using models. For unquoted bonds
the model uses inputs from comparable bonds and includes credit
spreads which are obtained from brokers or estimated internally.
Commercial paper and certificates of deposit are valued using
standard valuation formulas. The categorisation of these
instruments within the fair value hierarchy will be either level 2
or 3 depending upon the nature of the underlying pricing
information used for valuation purposes.
-- Commercial mortgages
These instruments are valued using models. The models use a
discount rate adjustment technique which is an income approach. The
key inputs for the valuation models are contractual future cash
flows, which are discounted using a discount rate that is
determined by adding a spread to the current base rate. The spread
is derived from a pricing matrix which incorporates data on current
spreads for similar assets and which may include an internal
underwriting rating. These inputs are generally observable with the
exception of the spread adjustment arising from the internal
underwriting rating. The classification of these instruments within
the fair value hierarchy will be either level 2 or 3 depending on
whether the spread is adjusted by an internal underwriting
rating
-- Income strips
Income strips are transactions where an owner-occupier of a
property has sold a freehold or long leasehold interest to the
Group, and has signed a long lease (typically 30 - 45 years) or a
ground lease (typically 45-175 years) and retains the right to
repurchase the property at the end of the lease for a nominal sum
(usually GBP1).
The valuation technique used by the Group to value these
instruments is an income capitalisation approach, where the annual
rental income is capitalised using an appropriate yield. The yield
is determined by considering recent transactions involving similar
income strips. Unlike investment properties which typically are
leased on shorter lease terms, the estimated rental value is not a
significant unobservable input. This is due to the length of the
lease together with the nature of the rent reviews where the annual
rental increases over the term of the lease in line with inflation
or fixed increases. As the income capitalisation valuations
generally include significant unobservable inputs including
unobservable adjustments to the yield observed in other income
strip transactions, these assets are categorised as level 3 in the
fair value hierarchy.
Contingent consideration asset and contingent consideration
liabilities
A contingent consideration asset was recognised during 2014 in
respect of a purchase price adjustment mechanism relating to the
acquisition of Ignis. The fair value of the asset is calculated
using a binomial tree option pricing model. The main inputs are
management fee income and expected probabilities of payouts. These
are considered unobservable and as a result the asset is classified
as level 3 in the fair value hierarchy.
Contingent consideration liabilities have also been recognised
in respect of acquisitions. Generally valuations are based on
unobservable assumptions regarding the probability weighted
expected return and growth over the contractual period, discounted
present value and therefore the liabilities are classified as level
3 in the fair value hierarchy.
Non-participating investment contract liabilities
The fair value of the non-participating investment contract
liabilities is calculated equal to the fair value of the underlying
assets and liabilities in the funds. Thus, the value of these
liabilities is dependent on the methods and assumptions set out
above in relation to the underlying assets and liabilities in which
these funds are invested. The underlying assets and liabilities are
predominately categorised as level 1 or 2 and as such, the inputs
into the valuation of the liabilities are observable. Therefore,
the liabilities are categorised within level 2 of the fair value
hierarchy.
Liabilities in respect of third party interest in consolidated
funds
The fair value of liabilities in respect of third party interest
in consolidated funds is calculated equal to the fair value of the
underlying assets and liabilities in the funds. Thus, the value of
these liabilities is dependent on the methods and assumptions set
out above in relation to the underlying assets in which these funds
are invested. When the underlying assets and liabilities are valued
using readily available market information the liabilities in
respect of third party interest in consolidated funds are treated
as level 2. Where the underlying assets and liabilities are not
valued using readily available market information the liabilities
in respect of third party interest in consolidated funds are
treated as level 3.
(d)(i) Fair value hierarchy for assets measured at fair value in
the statement of financial position
The table below presents the Group's assets measured at fair
value by level of the fair value hierarchy.
Fair value hierarchy
As recognised in
the consolidated
statement of
financial
position line Classified as
item held for sale Total Level 1 Level 2 Level 3
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------- ------ ------
Investment
property 9,749 9,929 200 228 9,949 10,157 - - - - 9,949 10,157
Owner occupied
property 81 58 11 8 92 66 - - - - 92 66
Derivative
financial
assets 3,053 3,534 - - 3,053 3,534 990 844 2,063 2,690 - -
Equity
securities
and interests
in pooled
investment
vehicles 99,020 90,683 763 27 99,783 90,710 98,750 89,750 36 2 997 958
Debt
securities 61,565 67,933 14 - 61,579 67,933 25,230 28,721 34,905 38,344 1,444 868
Contingent
consideration
asset 6 10 - - 6 10 - - - - 6 10
------- ------- ------- ------ ------
Total assets
at fair value 173,474 172,147 988 263 174,462 172,410 124,970 119,315 37,004 41,036 12,488 12,059
------- ------- ------- ------ ------
There were no transfers between levels 1 and 2 during the year
(2016: GBP98m). Refer to 41(d)(iii) for details of movements in
level 3.
The table that follows presents an analysis of the Group's
assets measured at fair value by level of the fair value hierarchy
for each risk segment as set out in Note 39.
Fair value hierarchy
As recognised in
the consolidated
statement of
financial
position line Classified as
item held for sale Total Level 1 Level 2 Level 3
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Shareholder
business
Investment
property - - - - - - - - - - - -
Owner occupied
property 2 - - - 2 - - - - - 2 -
Derivative
financial
assets 21 19 - - 21 19 6 2 15 17 - -
Equity
securities
and interests
in pooled
investment
vehicles 331 88 122 27 453 115 335 88 36 2 82 25
Debt
securities 8,637 8,384 14 - 8,651 8,384 790 928 6,996 6,704 865 752
Contingent
consideration
asset 6 10 - - 6 10 - - - - 6 10
Total
shareholder
business 8,997 8,501 136 27 9,133 8,528 1,131 1,018 7,047 6,723 955 787
Participating
business
Investment
property 1,480 1,716 163 216 1,643 1,932 - - - - 1,643 1,932
Owner occupied
property 30 30 11 8 41 38 - - - - 41 38
Derivative
financial
assets 1,565 2,211 - - 1,565 2,211 251 480 1,314 1,731 - -
Equity
securities
and interests
in pooled
investment
vehicles 10,327 9,325 - - 10,327 9,325 9,929 8,861 - - 398 464
Debt
securities 26,107 28,193 - - 26,107 28,193 16,197 16,994 9,851 11,083 59 116
Total
participating
business 39,509 41,475 174 224 39,683 41,699 26,377 26,335 11,165 12,814 2,141 2,550
Unit linked
funds
Investment
property 5,721 5,727 4 12 5,725 5,739 - - - - 5,725 5,739
Owner occupied
property 49 28 - - 49 28 - - - - 49 28
Derivative
financial
assets 1,164 1,025 - - 1,164 1,025 586 281 578 744 - -
Equity
securities
and interests
in pooled
investment
vehicles 80,099 73,057 639 - 80,738 73,057 80,483 72,857 - - 255 200
Debt
securities 22,191 25,885 - - 22,191 25,885 7,354 9,434 14,317 16,451 520 -
Total unit
linked funds 109,224 105,722 643 12 109,867 105,734 88,423 82,572 14,895 17,195 6,549 5,967
TPICF and
NCI(1)
Investment
property 2,548 2,486 33 - 2,581 2,486 - - - - 2,581 2,486
Owner occupied
property - - - - - - - - - - - -
Derivative
financial
assets 303 279 - - 303 279 147 81 156 198 - -
Equity
securities
and interests
in pooled
investment
vehicles 8,263 8,213 2 - 8,265 8,213 8,003 7,944 - - 262 269
Debt
securities 4,630 5,471 - - 4,630 5,471 889 1,365 3,741 4,106 - -
TPICF and
NCI(1) 15,744 16,449 35 - 15,779 16,449 9,039 9,390 3,897 4,304 2,843 2,755
Total 173,474 172,147 988 263 174,462 172,410 124,970 119,315 37,004 41,036 12,488 12,059
(1) Third party interest in consolidated funds and
non-controlling interests.
(d)(ii) Fair value hierarchy for liabilities measured at fair
value in the statement of financial position
The table below presents the Group's liabilities measured at
fair value by level of the fair value hierarchy.
Fair value hierarchy
As recognised in
the consolidated
statement of
financial
position Classified as
line item held for sale Total Level 1 Level 2 Level 3
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ----- -----
Non-participating
investment
contract
liabilities 105,765 102,059 62 - 105,827 102,059 - - 105,827 102,059 - -
Liabilities in
respect of third
party interest in
consolidated
funds 16,457 16,835 28 - 16,485 16,835 - - 15,187 15,607 1,298 1,228
Derivative
financial
liabilities 813 965 - - 813 965 161 185 652 780 - -
Contingent
consideration
liabilities 25 15 - - 25 15 - - - - 25 15
------- ----- -----
Total liabilities
at fair value 123,060 119,874 90 - 123,150 119,874 161 185 121,666 118,446 1,323 1,243
------- ----- -----
There were no transfers between levels 1 and 2 during the year
(2016: none). Refer to 41(d)(iii) for details of movements in level
3.
The table that follows presents an analysis of the Group's
liabilities measured at fair value by level of the fair value
hierarchy for each risk segment as set out in Note 39.
Fair value hierarchy
As recognised in
the consolidated
statement of
financial
position Classified as
line item held for sale Total Level 1 Level 2 Level 3
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Shareholder
business
Derivative
financial
liabilities 46 12 - - 46 12 1 1 45 11 - -
Contingent
consideration
liabilities 25 15 - - 25 15 - - - - 25 15
Total shareholder
business 71 27 - - 71 27 1 1 45 11 25 15
Participating
business
Derivative
financial
liabilities 64 39 - - 64 39 44 20 20 19 - -
Total
participating
business 64 39 - - 64 39 44 20 20 19 - -
Unit linked funds
Non-participating
investment
contract
liabilities 105,765 102,059 62 - 105,827 102,059 - - 105,827 102,059 - -
Derivative
financial
liabilities 556 714 - - 556 714 100 130 456 584 - -
Total unit linked
funds 106,321 102,773 62 - 106,383 102,773 100 130 106,283 102,643 - -
TPICF and NCI(1)
Liabilities in
respect of third
party interest in
consolidated
funds 16,457 16,835 28 - 16,485 16,835 - - 15,187 15,607 1,298 1,228
Derivative
financial
liabilities 147 200 - - 147 200 16 34 131 166 - -
TPICF and NCI(1) 16,604 17,035 28 - 16,632 17,035 16 34 15,318 15,773 1,298 1,228
Total 123,060 119,874 90 - 123,150 119,874 161 185 121,666 118,446 1,323 1,243
(1) Third party interest in consolidated funds and
non-controlling interests.
(d)(iii) Reconciliation of movements in level 3 instruments
The movements during the year of level 3 assets and liabilities
held at fair value, excluding assets and liabilities held for sale,
are analysed below.
Equity securities Liabilities in
and interests in respect of third
Owner occupied pooled investment party interest in
Investment property property funds Debt securities consolidated funds
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 9,929 9,991 58 55 958 905 868 787 (1,228) (1,307)
Reclassified to
held for sale (225) (191) (4) (8) - - - - - -
Reclassification
between
investment
property and
debt
securities(1) (319) - - - - - 319 - - -
Acquired through
business
combinations - - 2 - 100 - - - - -
Total
gains/(losses)
recognised in
the consolidated
income statement 485 (302) 4 (1) 72 90 35 34 (57) 19
Purchases(2) 413 1,755 3 1 191 212 362 183 (88) (19)
Settlement - - - - - - - - 75 81
Sales (525) (1,337) - (22) (317) (281) (125) (97) - -
Transfers in to
level 3(3) - - - - 8 5 27 - - -
Transfers out of
level 3(3) - - - - (7) (33) (42) (39) - -
Transfers between
investment
property and
owner occupied
property (17) (28) 17 28 - - - - - -
Foreign exchange
adjustment 11 44 - - (13) 60 - - - (2)
Total gains
recognised on
revaluation of
owner occupied
property within
other
comprehensive
income - - 1 5 - - - - - -
Other (3) (3) - - 2 - - - - -
At 31 December 9,749 9,929 81 58 994 958 1,444 868 (1,298) (1,228)
(1) During 2017 income strips measured at GBP319m which were
previously included within investment property were reclassified as
debt securities to reflect the underlying nature of these
instruments.
(2) Purchases of investment property for the year ended 31
December 2017 includes GBPnil (2016: GBP1,289m) relating to the
merger of property investment vehicles.
(3) Transfers are deemed to have occurred at the end of the
calendar quarter in which they arose.
In addition to the above, the Group had a contingent
consideration asset with a fair value of GBP6m at 31 December 2017
(2016: GBP10m) and contingent consideration liabilities with a fair
value of GBP25m (2016: GBP15m). Settlements of contingent
consideration liabilities during the year were GBP7m (2016:
GBPnil). Movements in the fair value of contingent consideration
assets and liabilities are recognised in the consolidated income
statement.
As at 31 December 2017, GBP425m of total gains (2016: GBP119m
losses) were recognised in the consolidated income statement in
respect of assets and liabilities held at fair value classified as
level 3 at the year end. Of this amount GBP478m gains (2016:
GBP137m losses) were recognised in investment return, GBP4m gains
(2016: GBP1m losses) were recognised in other administrative
expenses and GBP57m losses (2016: GBP19m gains) were recognised in
change in liability for third party interest in consolidated
funds.
Transfers of equity securities and interests in pooled
investment funds and debt securities into level 3 generally arise
when external pricing providers stop providing a price or where the
price provided is considered stale. Transfers of equity securities
and interests in pooled investment funds and debt securities out of
level 3 arise when acceptable prices become available from external
pricing providers.
(d)(iv) Significant unobservable inputs in level 3 instrument
valuations
The table below identifies the significant unobservable inputs
used in determining the fair value of level 3 instruments and
quantifies the range of these inputs used in the valuation at the
reporting date:
Fair value
Range (weighted
2017 GBPm Valuation technique Unobservable input average)
--------------------------
Investment property and 9,571 Income capitalisation Equivalent yield 3.3% to 9.0% (5.2%)
owner occupied property Estimated rental value GBP32 to GBP1,716 (GBP326)
per square metre per
annum
Investment property 402 Income capitalisation Equivalent yield 3.8% to 6.6% (5.1%)
(hotels) Estimated rental value GBP995 to GBP10,000
per room per annum (GBP5,841)
Investment property and 68 Market comparison Estimated value per GBP2 to GBP10,932
owner occupied property square metre (GBP3,451)
Equity securities and 997 Adjusted net asset value Adjustment to net asset N/A
interests in pooled value(1)
investment funds
Debt securities 379 Discounted cash flow Credit spread 1.9% to 2.6% (2.2%)
(commercial mortgages)
Debt securities 520 Income capitalisation Equivalent yield 4.1% to 6.5% (5.1%)
(income strips)
Debt securities 506 Discounted cash flow Credit spread 0.7% to 2.1% (1.6%)
(unquoted corporate
bonds)
Debt securities 39 Discounted cash flow Credit spread 1.9% to 2.6% (2.3%)
(infrastructure loans)
Fair value
Range (weighted
2016 GBPm Valuation technique Unobservable input average)
--------------------------
Investment property and 9,567 Income capitalisation Equivalent yield 3.6% to 9.1% (5.4%)
owner occupied property Estimated rental value GBP29 to GBP2,422 (GBP336)
per square metre per
annum
Investment property 596 Income capitalisation Equivalent yield 4.6% to 7.1% (5.7%)
(hotels) Estimated rental value GBP990 to GBP13,750
per room per annum (GBP5,462)
Investment property and 60 Market comparison Estimated value per GBP2 to GBP12,807
owner occupied property square metre (GBP4,081)
Equity securities and 958 Adjusted net asset value Adjustment to net asset N/A
interests in pooled value(1)
investment funds
Debt securities 451 Discounted cash flow Credit spread 1.9% to 2.6% (2.1%)
(commercial mortgages)
Debt securities 373 Discounted cash flow Credit spread 0.2% to 4.3% (1.9%)
(unquoted corporate
bonds)
Debt securities 11 Discounted cash flow Credit spread 2.2% (2.2%)(2)
(infrastructure loans)
Debt securities 33 Single broker Single broker indicative N/A
(other) price(3)
(1) An adjustment is made to the valuations of private equity
investments received from the investment managers of the underlying
funds to estimate the effect of changes in market conditions
between the date of their valuations and the end of the reporting
period using market indices. The adjustment made at 31 December
2017 was GBPnil (2016: an increase of GBP40m).
(2) Restated.
(3) Debt securities which are valued using single broker
indicative quotes are disclosed in level 3 in the fair value
hierarchy. No adjustment is made to these prices.
(d)(v) Sensitivity of the fair value of level 3 instruments to
changes in key assumptions
The shareholder is directly exposed to movements in the value of
level 3 instruments held by the shareholder business (to the extent
they are not offset by opposite movements in investment and
insurance contract liabilities). Movements in level 3 instruments
held by the participating business and unit linked funds risk
segments are offset by an opposite movement in investment and
insurance contract liabilities and therefore the shareholder is not
directly exposed to such movements unless they are sufficiently
severe to cause the assets of the participating business to be
insufficient to meet the obligations to policyholders. Movements in
level 3 instruments held in the TPICF and NCI risk segment are
offset by opposite movements in the liabilities in respect of third
party interest in consolidated funds and in equity attributable to
non-controlling interest and therefore the shareholder is not
directly exposed to such movements.
Changing unobservable inputs in the measurement of the fair
value of level 3 financial assets and financial liabilities to
reasonably possible alternative assumptions would not have a
significant impact on profit attributable to equity holders or on
total assets. The alternative assumptions used in this assessment
for debt securities are:
Reasonably possible alternative assumptions
2017 2016
-------------------------
Unquoted corporate bonds Credit spread +/- 0.45% Credit spread +/- 0.45%
Commercial mortgages Credit spread +/- 0.40% Credit spread +/- 0.40%
Profit attributable to non-controlling interests - ordinary
shares is exposed to movements in private equity investments,
predominantly those held by Standard Life Private Equity Trust plc.
The Group considers that a plausible range for the fair value of
such private equity investments at 31 December 2017 is -10% to +25%
of the 31 December valuation. The impact on profit attributable to
non-controlling interests - ordinary shares of GBP25m for the year
to 31 December 2017 for such changes in fair value is to reduce or
increase that profit by GBP24m or GBP64m respectively with no
impact on profit attributable to equity holders.
Whilst not having an impact on profit for the year, the Group
has also considered the plausible range for the fair value of
investment property at 31 December 2017. Based on independent
research that has considered the reasonableness of historic UK
property values by comparing valuations with actual sales prices
achieved a plausible range for the fair value of the Group's UK
property portfolio, comprising over 90% of the Group investment
property portfolio is considered to be -5% to +8.5% of the 31
December valuation.
(e) Assets and liabilities not carried at fair value
The table below presents estimated fair values by level of the
fair value hierarchy of assets and liabilities whose carrying value
does not approximate fair value. Fair values of assets and
liabilities are based on observable market inputs where available,
or are estimated using other valuation techniques.
As recognised in the consolidated
statement of financial position line
item Fair value Level 1 Level 2 Level 3
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------
Assets
Loans secured by
mortgages 20 57 73 64 86 - - 64 86 - -
Liabilities
Non-participating
investment
contract
liabilities 33 4 4 4 4 - - - - 4 4
Capital notes 34 377 - 377 - - - 377 - - -
Subordinated notes 34 1,056 499 1,128 530 - - 1,128 530 - -
Subordinated
guaranteed bonds 34 502 502 650 577 - - 650 577 - -
Mutual Assurance
Capital Securities 34 318 318 349 334 - - 349 334 - -
The estimated fair values for subordinated liabilities are based
on the quoted market offer price. The estimated fair values of the
other instruments detailed above are calculated by discounting the
expected future cash flows at current market rates.
It is not possible to reliably calculate the fair value of
participating investment contract liabilities. The assumptions and
methods used in the calculation of these liabilities are set out in
Note 31. The carrying value of participating investment contract
liabilities at 31 December 2017 was GBP15,313m (2016: GBP15,537m).
The carrying value of all other financial assets and liabilities
measured at amortised cost approximates their fair value.
42. Statement of cash flows
The tables below provide further analysis of the balances in the
statement of cash flows.
(a) Change in operating assets
2017 2016
GBPm GBPm
------- --------
Investment property (373) (116)
Equity securities and interests in pooled investment funds(1) (6,958) (12,453)
Debt securities 7,279 63
Derivative financial instruments 305 (1,331)
Reinsurance assets 568 140
Investments in associates and joint ventures accounted for using the equity method(1) 21 17
Receivables and other financial assets and other assets 211 118
Deferred acquisition costs 30 45
Loans 206 497
Assets held for sale 62 25
------- --------
Change in operating assets 1,351 (12,995)
------- --------
(1) Presentation changed and comparative restated. Refer Note
16(c).
(b) Change in operating liabilities
2017 2016
GBPm GBPm
-------
Other financial liabilities, provisions and other liabilities (897) 1,209
Deposits received from reinsurers (460) (41)
Pension and other post-retirement benefit provisions (33) (19)
Deferred income (41) (46)
Insurance contract liabilities (1,090) 1,393
Investment contract liabilities 1,853 9,051
Change in liability for third party interest in consolidated funds 480 1,379
Liabilities held for sale 104 -
-------
Change in operating liabilities (84) 12,926
-------
(c) Other non-cash and non-operating items
2017 2016
GBPm GBPm
-----
Profit on disposal of associates (319) -
Loss on disposal of property, plant and equipment 1 1
Depreciation of property, plant and equipment 15 14
Amortisation of intangible assets 124 64
Impairment losses on intangible assets 77 20
Impairment losses (reversed)/recognised on property, plant and equipment (4) 1
Impairment losses on disposal group held for sale 24 -
Equity settled share-based payments 39 -
Other interest cost 3 3
Finance costs 88 82
Share of profit from associates and joint ventures accounted for using the equity method (45) (63)
-----
Other non-cash and non-operating items 3 122
-----
(d) Movement in non-controlling interests - ordinary shares and
third party interest in consolidated funds arising from financing
activities
The following table reconciles the movement in non-controlling
interests and third party interests in consolidated funds in the
year, split between cash and non-cash items.
2017 2016
Third party
interest Third party
Non-controlling in Non-controlling interest
interests - ordinary consolidated interests - ordinary in consolidated
shares funds Total shares funds Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------- ----------------
At 1 January 297 16,835 17,132 347 17,196 17,543
Cash flows from
financing
activities
Net additions of
units
by third parties (5) (1,006) (1,011) (7) (1,838) (1,845)
Cash distributions (7) (102) (109) (4) (105) (109)
---------------------- ------------- ----------------
Cash flows from
financing
activities (12) (1,108) (1,120) (11) (1,943) (1,954)
Non-cash items
Foreign exchange
differences
on translating
foreign
operations - (54) (54) 10 200 210
Profit in the year
attributable
to non-controlling
interests
- ordinary shares 25 - 25 51 - 51
Change in liability
for
third party
interest
in consolidated
funds - 1,124 1,124 - 296 296
Movements arising
from
changes in control
of
subsidiaries and
other
non-cash movements (1) (157) (158) (59) 1,279 1,220
Non-cash
distributions (20) (183) (203) (41) (193) (234)
At 31 December 289 16,457 16,746 297 (16,835) 17,132
---------------------- ---------------------
(e) Movement in subordinated liabilities
The following table reconciles the movement in subordinated
liabilities in the year, split between cash and non-cash items.
2017 2016
GBPm GBPm
At 1 January 1,319 1,318
Cash flows from financing activities
Proceeds of issue of subordinated liabilities 565 -
Interest paid (81) (81)
Cash flows from financing activities 484 (81)
Non-cash items
Amounts reclassified from equity 380 -
Interest expense 88 81
Amortisation 1 1
Foreign exchange adjustment (19) -
At 31 December 2,253 1,319
In addition to the interest paid on subordinated liabilities of
GBP81m (2016: GBP81m), interest paid in the consolidated statement
of cash flows includes GBP13m (2016: GBPnil) in relation to
interest paid on perpetual notes classified as equity.
43. Contingent liabilities and contingent assets
Contingent liabilities are possible obligations of the Group of
which timing and amount are subject to significant uncertainty.
Contingent liabilities are not recognised on the consolidated
statement of financial position but are disclosed, unless they are
considered remote. If such an obligation becomes probable and the
amount can be measured reliably it is no longer considered
contingent and is recognised as a liability.
Conversely, contingent assets are possible benefits to the
Group. Contingent assets are only disclosed if it is probable that
the Group will receive the benefit. If such a benefit becomes
virtually certain it is no longer considered contingent and is
recognised as an asset.
(a) Annuity sales practices relating to enhanced annuities
As discussed in Note 38, at the request of the Financial Conduct
Authority (FCA), Standard Life Aberdeen is conducting a past
business review of non-advised annuity sales. The purpose of the
review is to identify whether relevant customers received
sufficient information about enhanced annuities to make the right
decisions about their purchase, and where appropriate provide
redress to customers who have suffered loss as a result of not
having received sufficient information. In relation to this review,
the FCA is carrying out an investigation and it is possible that
the FCA may impose a financial penalty on Standard Life Aberdeen.
At this stage it is not possible to determine an estimate of the
financial effect, if any, of this contingent liability.
Note 38 also provides disclosure of potential insurance
recoveries relating to redress payable to customers, the costs of
conducting the review and other related expenses. Any FCA levied
financial penalties cannot be covered by such liability
insurance.
(b) Legal proceedings, complaints and regulations
The Group is subject to regulation in all of the territories in
which it operates insurance and investment businesses. In the UK,
where the Group primarily operates, the FCA has broad powers,
including powers to investigate marketing and sales practices.
The Group, like other financial organisations, is subject to
legal proceedings, complaints and regulatory discussions, reviews
and challenges in the normal course of its business. All such
material matters are periodically reassessed, with the assistance
of external professional advisers where appropriate, to determine
the likelihood of the Group incurring a liability. Where it is
concluded that it is more likely than not that a material outflow
will be made a provision is established based on management's best
estimate of the amount that will be payable. In some cases it will
not be possible to form a view, for example because the facts are
unclear or because further time is needed to properly investigate,
and no provisions are held for such matters. It is not possible to
predict with certainty the extent and timing of the financial
impact of legal proceedings, complaints and related regulatory
matters.
44. Commitments
The Group has contractual commitments in respect of expenditure
on investment property, funding arrangements and leases which will
be payable in future periods. These commitments are not recognised
on the Group's statement of financial position at the year end but
are disclosed to give an indication of the Group's future committed
cash flows.
All Group leases are operating leases, being leases where the
lessor retains substantially all the risks and rewards of the
ownership of the leased asset.
(a) Capital commitments
As at 31 December 2017, capital expenditure that was authorised
and contracted for, but not provided and incurred, was GBP167m
(2016: GBP286m) in respect of investment property and income strips
(discussed in Note 41). Of this amount, GBP147m (2016: GBP220m) and
GBP20m (2016: GBP66m) relates to the contractual obligations to
purchase, construct, or develop property and repair, maintain or
enhance property respectively.
(b) Unrecognised financial instruments
The Group has committed GBP447m (2016: GBP453m) in respect of
unrecognised financial instruments to customers and third parties.
Of this amount GBP360m (2016: GBP363m) is committed by consolidated
private equity funds. These commitments will be funded through
contractually agreed additional investments both by the Group,
through its controlling interests, and the funds' non-controlling
interests. The level of funding provided by each will not
necessarily be in line with the current ownership profile of the
funds.
(c) Operating lease commitments
The Group has entered into commercial non-cancellable leases on
certain property, plant and equipment where it is not in the best
interest of the Group to purchase these assets. Such leases have
varying terms, escalation clauses and renewal rights.
The future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
2017 2016
GBPm GBPm
Not later than one year 56 32
Later than one year and no later than five years 137 70
Later than five years 104 102
Total operating lease commitments 297 204
(d) Asset acquisitions
At 31 December 2017 the Group has contractual commitments in
place to acquire assets under management for GBP74m (2016: GBPnil).
These acquisitions remain subject to certain approvals and other
conditions to closing.
45. Employee share-based payments and deferred fund awards
The Group operates share incentive plans for its employees.
These generally take the form of an award of options or shares in
Standard Life Aberdeen plc (equity-settled share based payments)
but can also take the form of a cash award based on the share price
of Standard Life Aberdeen plc (cash-settled share based payments).
Aberdeen Asset Management PLC and its subsidiaries also incentivise
certain employees through the award of units in Group managed funds
(deferred fund awards) which are cash-settled. All the Group's
incentive plans have conditions attached before the employee
becomes entitled to the award. These can be performance and/or
service conditions (vesting conditions) or the requirement of
employees to save in the save-as-you-earn scheme (non-vesting
condition). The period over which all vesting conditions are
satisfied is the vesting period and the awards vest at the end of
this period.
For all share-based payments services received for the incentive
granted are measured at fair value.
For cash-settled share-based payment and deferred fund awards
transactions, services received are measured at the fair value of
the liability. The fair value of the liability is remeasured at
each reporting date and any changes in fair value are recognised in
the consolidated income statement.
For equity-settled share-based payment transactions, the fair
value of services received is measured by reference to the fair
value of the equity instruments at the grant date. The fair value
of the number of instruments expected to vest is charged to the
income statement over the vesting period with a corresponding
credit to the equity compensation reserve in equity.
At each period end the Group reassesses the number of equity
instruments expected to vest and recognises any difference between
the revised and original estimate in the consolidated income
statement with a corresponding adjustment to the equity
compensation reserve.
Replacement share-based payment awards granted in a business
combination are included in determining the consideration
transferred. The amount included is calculated by reference to the
pre-combination service and the market-measure of the replaced
awards.
At the time the equity instruments vest, the amount recognised
in the equity compensation reserve in respect of those equity
instruments is transferred to retained earnings.
Share options
(i) Long-term incentive plans
The Group operates the following long-term incentive plans.
Conditions which must be met prior to
Plan Recipients vesting
Standard Life Long-term incentive plan Executives and senior management Service and performance conditions as
(Standard Life LTIP) set out in the Directors' remuneration
report
Standard Life Investments Long-Term Executives and senior management Service and performance conditions as
Incentive Plan (Standard Life set out in the Directors' remuneration
Investments LTIP) report
Standard Life Restricted stock plan Executives (other than executive Service, or service and performance
(Standard Life RSP) Directors) and senior management conditions. These are tailored to the
individual award
All of the awards are equity-settled other than awards made
under the Standard Life Investments LTIP in respect of employees in
the US, France and Asia which are cash-settled.
(ii) Short-term incentive plan (annual bonus deferred share options)
The Group operates the following short-term incentive plans
which award share options.
Conditions which must be met prior to
Plan Recipients vesting
Short-term incentive plan (Standard Life Executives and senior management Service and performance conditions as set
Group STIP) out in the Directors' remuneration
report. There
are no outstanding performance
conditions.
Aberdeen Asset Management Deferred Share Executives and senior management Service conditions of one, two and three
Plan 2009 (Aberdeen Asset Management DSP years after the date of the award (one to
2009) five years
for executive management). There are no
outstanding performance conditions.
(iii) Sharesave (Save-as-you-earn)
The Group operates Save-as-you-earn (SAYE) plans, which allow
eligible employees in the UK and Ireland the opportunity to save a
monthly amount from their salaries, over either a three or five
year period, which can be used to purchase shares in the Company.
The shares can be purchased at the end of the savings period at a
predetermined price. Employees are granted a predetermined number
of options based on the monthly savings amount and duration of
their contract. The conditions attached to the options are that the
employee remains in employment for three years after the grant date
of the options and that the employee satisfies the monthly savings
requirement. Settlement is made in the form of shares.
Other share plans
(i) Short-term incentive plan (annual bonus deferred share awards)
The Group operates the following short-term incentive plan which
awards conditional shares.
Conditions which must be met prior to
Plan Recipients vesting
Aberdeen Asset Management USA Deferred US based executives and senior Service conditions of one, two and
Share Award Plan (Aberdeen Asset management three years after the date of the
Management USA DSAP) award (one to five years
for executive management). There are
no outstanding performance conditions.
Unlike share options under the Aberdeen Asset Management DSP
2009 which have a ten year exercise period, conditional shares
awarded under the Aberdeen Asset Management USA DSAP have no
exercise period and the employee receives the shares at the end of
the award's vesting period.
(ii) Share incentive plan
The Group operates a share incentive plan, allowing employees
the opportunity to buy shares from their salary each month. The
maximum purchase that an employee can make in any year is GBP1,800.
The Group offers to match the number of shares bought up to a value
of GBP50 each month. The matching shares awarded under the share
incentive plan are granted at the end of each month. The matching
shares are generally subject to a three year service period.
Employees may forfeit some or all of share options or awards
made under any of the above share-based payment schemes if they
leave the Group prior to the end of the awards' vesting
periods.
Replacement awards
On the acquisition of Aberdeen on 14 August 2017, the
outstanding options and awards for Aberdeen Asset Management PLC
shares under the Aberdeen Asset Management DSP 2009 and Aberdeen
Asset Management USA DSAP were replaced with equivalent options and
awards for Standard Life Aberdeen plc shares. Aberdeen also
operated a long-term incentive plan which was fully vested prior to
acquisition and replaced awards were also issued for the remaining
unexercised options. At the same date, options and awards for
Standard Life Aberdeen plc shares were made to relevant Aberdeen
employees by the plan in respect of pre-acquisition bonus.
(a) Options granted
The number, weighted average exercise price and weighted average
remaining contractual life for options outstanding during the year
are as follows:
2017 2016
Weighted Weighted
average average
Long-term Short-term exercise Long-term Short-term exercise
incentive plans incentive price for incentive plans incentive price for
(excluding RSP) RSP plans Sharesave Sharesave (excluding RSP) RSP plan Sharesave Sharesave
-----------
Outstanding
at
1 January 39,735,747 3,826,208 553,038 7,575,279 290p 28,071,264 2,951,682 537,726 9,108,246 255p
Granted 23,088,821 4,909,639 4,320,815 3,701,031 345p 19,574,146 1,452,614 387,848 3,036,190 283p
Replaced 615,761 - 29,081,898 - - - - - - -
Forfeited (7,653,616) (123,520) (80,319) (220,088) 302p (3,570,503) (100,580) - (497,778) 279p
Exercised (3,778,506) (1,464,118) (5,621,989) (1,898,442) 274p (4,339,160) (477,508) (372,536) (3,365,277) 188p
Expired (2,431) - - (22,259) 233p - - - - -
Cancelled - (44,120) (36,809) (131,151) 298p - - - (706,102) 312p
Outstanding
at
31 December 52,005,776 7,104,089 28,216,634 9,004,370 316p 39,735,747 3,826,208 553,038 7,575,279 290p
-----------
Exercisable
at
31 December 585,889 59,611 8,447,606 291,259 288p 40,970 25,161 - 302,214 193p
-----------
Weighted
average
remaining
contractual
life of
options
outstanding
(years) 2.06 1.63 10.36 2.84 2.21 1.35 1.43 2.66
-----------
The exercise price for options granted under all long-term and
short-term incentive schemes is nil. The fair value of options
granted under the Group's incentive schemes is determined using a
relevant valuation technique, such as the Black Scholes option
pricing model.
The following table shows the weighted average assumptions that
were considered in determining the fair value of options granted
during the year and the share price at exercise of options
exercised during the year.
Long-term incentive Short-term incentive
plans (excluding RSP) RSP plans Sharesave
Options granted during
the year
31 March 2017 and
Grant date 27 March 2017 Throughout 14 August 2017 17 October 2017
Share price at grant
date 354p 367p 355p and 411p 429p
Fair value at grant
date 354p 367p 355p and 411p(1) 67p
Exercise price Nil Nil Nil 333p-345p
The plan includes the
entitlement to the
receipt of dividends
in respect of awards
that ultimately
The plans include the The plans include the vest between the date
entitlement to the entitlement to the of grant and the
receipt of dividends receipt of dividends vesting date for the
in respect of awards in respect of awards Standard Life Group
that ultimately that ultimately STIP and the
vest between the date vest between the date exercise date for the
of grant and the of grant and the Aberdeen Asset No dividend
Dividends vesting date vesting date Management DSP 2009 entitlement
Option term (years) 3.43 2.26 3.27 3.53
Options exercised
during the year
Share price at time of
exercise 358p 364p 423p 419p
(1) The fair value of options granted under the Aberdeen Asset
Management DSP 2009 in respect of pre-acquisition bonus was
calculated by reference to the share price on acquisition of
Aberdeen adjusted for pre-combination service. The fair value of
replaced awards was calculated in the same way.
No departures from share option schemes are expected at grant
date, with any leavers being accounted for on departure. In
determining the fair value of options granted under the Sharesave
scheme the historic volatility of the share price over a period of
up to five years and a risk free rate determined by reference to
swap rates was also considered.
The following table shows the range of exercise prices of
options outstanding at 31 December 2017. All options are
exercisable for a period of six months after the vesting date
except for the options under the Aberdeen Asset Management DSP 2009
which are exercisable for a period of ten years after the vesting
period.
2017 2016
Number of options outstanding Number of options outstanding
Long-term incentive plans
GBPnil 58,567,339 43,561,955
172p 542,526 -
Short-term incentive plan
GBPnil 28,216,634 553,038
Sharesave
Less than 200p - 206,770
200p-327p 3,949,902 5,891,582
328p-400p 5,054,468 1,476,927
Outstanding at 31 December 96,330,869 51,690,272
(b) Other share plans
2017 2016
Share Share
incentive incentive
Annual bonus deferred share awards plan(1) plan
Number of share awards granted 955,823 529,277 503,931
Number of share awards replaced 573,099 - -
Share price at date of grant(2) 411p 396p 333p
Fair value per granted instrument at grant date 411p 396p 333p
----------
(1) Included in the number of instruments granted are 9,048
(2016: 11,814) rights to shares granted to eligible employees in
Germany and Austria.
(2) Weighted average.
The fair value of share awards replaced under the Annual bonus
deferred share awards was calculated by reference to the share
price on acquisition of Aberdeen adjusted for pre-combination
service. The fair value of instruments granted is calculated by
reference to the share price at grant date. The plans include the
entitlement to the receipt of dividends in respect of awards that
ultimately vest between the date of grant and the vesting date. At
the grant date all awards are expected to vest. No departures are
expected at the grant date, with leavers being accounted for on
departure.
(c) Employee share-based payment expense and deferred fund awards
The amounts recognised as an expense for equity-settled
share-based payment transactions and deferred fund awards with
employees are as follows:
2017 2016
GBPm GBPm
Share options granted under long-term incentive plans 19 25
Share options granted under Sharesave 1 2
Share options and share awards granted under short-term incentive plans 18 2
Matching shares granted under share incentive plans 1 1
Equity-settled share-based payments 39 30
Cash-settled share-based payments 1 2
Cash-settled deferred fund awards 10 -
Total expense 50 32
Included in the expense above is GBP12m (2016: GBPnil) of
share-based payment expenses which are included in restructuring
and corporate transaction expenses in the consolidated income
statement.
The liability for cash-settled share-based payments outstanding
at 31 December 2017 is GBP3m (2016: GBP4m).
Deferred fund awards
At 31 December 2017, the liability recognised for cash-settled
deferred awards was GBP52m (2016: GBPnil). The total intrinsic
value of unvested awards at 31 December 2017 was GBP31m (2016:
GBPnil).
46. Related party transactions
(a) Transactions and balances with related parties
In the normal course of business, the Group enters into
transactions with related parties that relate to insurance and
investment management business.
During the year, the Group recognised management fees from Group
managed non-consolidated investment vehicles. These fees are
disclosed in Note 40. It also recognised management fees of GBP4m
(2016: GBP5m) from the Group's defined benefit pension plans. There
were no sales to or purchases from associates accounted for under
the equity method during the year ended 31 December 2017 or 31
December 2016.
There were no sales to or purchases from joint ventures during
the year ended 31 December 2017 (2016: purchases of GBP1m). Details
of the proposed sale of a subsidiary to our joint venture business
are included in Note 24.
In addition to these transactions between the Group and related
parties during the year, in the normal course of business the Group
made a number of investments into/divestments from investment
vehicles managed by the Group including investment vehicles which
are classified as investments in associates measured at FVTPL.
Group entities paid amounts for the issue of shares or units and
received amounts for the cancellation of shares or units.
The Group had balances due from associates accounted for using
the equity method of GBPnil (2016: GBPnil) and from joint ventures
of GBPnil (2016: GBP3m) at 31 December 2017. The Group's defined
benefit pension plans have assets of GBP1,210m (2016: GBP1,028m)
invested in investment vehicles managed by the Group.
(b) Compensation of key management personnel
In 2017 key management personnel includes Directors of Standard
Life Aberdeen plc (since appointment) and the Chief Executive
Officer Pensions and Savings; in 2016 key management personnel
included Directors of Standard Life plc only. Detailed disclosures
of Directors' remuneration for the year and transactions in which
the Directors are interested are contained within the audited
section of the Directors' remuneration report.
The summary of compensation of key management personnel is as
follows:
2017 2016
GBPm GBPm
Salaries and other short-term employee benefits 9 6
Post-employment benefits - 1
Share-based payments 3 3
Termination benefits 1 -
Total compensation of key management personnel 13 10
(c) Transactions with key management personnel and their close family members
All transactions between key management and their close family
members and the Group during the year are on terms which are
equivalent to those available to all employees of the Group.
During the year to 31 December 2017, key management personnel
and their close family members contributed GBPnil (2016: GBP1m) to
Pensions and Savings products sold by the Group. At 31 December
2017 the total value of key management personnel's investments in
Group Pensions and Savings products was GBP14m (2016: GBP16m).
Certain members of key management personnel also hold investments
in Aberdeen Standard Investments products which are managed by the
Group. None of the amounts concerned are material in the context of
funds managed by Aberdeen Standard Investments.
47. Capital management
(a) Capital management policies and risk management objectives
Managing capital is the ongoing process of determining and
maintaining the quantity and quality of capital appropriate for the
Group and ensuring capital is deployed in a manner consistent with
the expectations of our stakeholders. For these purposes, the Board
considers our key stakeholders to be the providers of capital (our
equity holders, policyholders and holders of our subordinated
liabilities) and the Prudential Regulation Authority (PRA).
There are two primary objectives of capital management within
the Group. The first objective is to ensure that capital is, and
will continue to be, adequate to maintain the required level of
financial stability of the Group and hence to provide an
appropriate degree of security to our stakeholders - this aspect is
measured by the Group's regulatory solvency position. The second
objective is to create equity holder value by driving profit
attributable to equity holders.
The liquidity and capital management policy forms one aspect of
the Group's overall management framework. Most notably, it operates
alongside and complements the strategic investment policy and the
Group risk policies. Integrating policies in this way enables the
Group to have a capital management framework that robustly links
the process of capital allocation, value creation and risk
management.
The capital requirements of each business unit are forecast on a
periodic basis and the requirements are assessed against the
forecast available capital resources. In addition, internal rates
of return achieved on capital invested are assessed against hurdle
rates, which are intended to represent the minimum acceptable
return given the risks associated with each investment. The capital
planning process is the responsibility of the Chief Financial
Officer. Capital plans are ultimately subject to approval by the
Board.
The formal procedures for identifying and assessing risks that
could affect the capital position of the Group are described in the
risk management policies set out in Note 39.
(b) Regulatory capital
(b)(i) Regulatory capital framework
From 1 January 2016, both the consolidated Group and regulated
insurance entities within the Group operating in the EU have been
required to measure and monitor their capital resources under the
Solvency II (SII) regulatory regime.
The Group's capital position under SII is determined by
aggregating the assets and liabilities of the Group recognised and
measured on a SII basis (being own funds) and comparing this to the
Group's SII solvency capital requirement (SCR) to determine surplus
capital.
There are a number of differences to the recognition and
measurement of the Group's assets and liabilities on a SII basis
compared to IFRS. These are described in (b)(iii).
The Group's SII SCR primarily consists of the consolidated SII
SCR for insurance entities (including Standard Life Aberdeen plc)
which is calculated on the basis of management's own
regulator-approved internal model. In addition, the Group's SCR
also includes SII SCRs for other insurance entities whose SCRs are
calculated on the basis of the standard formula within the SII
regulations, and the capital requirements of other regulated
entities in the Group that are set by their regulator. The SII SCRs
for insurance entities are calibrated so that the likelihood of a
loss exceeding the SII SCR in one year is less than 0.5%. The SII
capital resources are also subject to Minimum Capital Requirements.
The capital requirements of regulated non-insurance entities are
included in the Group SCR on a Pillar 1 basis, with Pillar 2 and
Individual Capital Guidance (ICG) requirements allowed for by a
deduction to Group own funds.
Surplus capital at individual entity level is assessed for
availability to the Group and therefore may be restricted when
determining Group own funds.
This regulatory framework can be summarised as follows for the
main regulated entities in the Group:
Entity level Contribution to Group SII position
----------------------------
Standard Life Investments
Limited BIPRU(1) BIPRU(1)
Aberdeen Asset Management
PLC IFPRU(2) IFPRU(2)
Standard Life Assurance SII internal
Limited (SLAL) model SII internal model
Standard Life International SII standard
DAC formula SII standard formula
Aberdeen Asset Management SII standard
Life and Pensions Limited formula SII standard formula
Standard Life Aberdeen
plc - SII internal model
Standard Life (Asia) Local regime
Limited (Hong Kong) SII standard formula
Heng An Standard Life Local regime
Insurance Company Limited (China) SII standard formula
HDFC Standard Life Insurance Local regime
Company Limited (India) Excluded
---------------------------- ------------
(1) Prudential Sourcebook for Banks, Building Societies and
Investment Firms.
(2) Prudential Sourcebook for Investment Firms.
(b)(ii) Regulatory capital position (unaudited)
The table below shows the Group's own funds and solvency capital
requirement:
2017(1) 2016(1)
GBPbn GBPbn
Own funds 7.3 7.2
Solvency capital requirement (SCR) (3.7) (4.1)
Solvency II capital surplus 3.6 3.1
Solvency cover 197% 177%
(1) 2017 based on draft regulatory returns, 2016 based on final
regulatory returns.
The Group has complied with all externally imposed capital
requirements during the year. The Group position can be analysed as
follows:
Own funds SCR Surplus
31 December 2017(1) GBPbn GBPbn GBPbn
------------------------------
SLAL 6.4 3.2 3.2
Restriction on SLAL own funds
recognised at Group (1.1) - (1.1)
Other businesses 2.0 0.5 1.5
------------------------------
Group total 7.3 3.7 3.6
------------------------------
Own funds SCR Surplus
31 December 2016(1) GBPbn GBPbn GBPbn
------------------------------ ---------
SLAL 6.7 3.8 2.9
Restriction on SLAL own funds
recognised at Group (0.8) - (0.8)
Other businesses 1.3 0.3 1.0
------------------------------ ---------
Group total 7.2 4.1 3.1
------------------------------ ---------
(1) 2017 based on draft regulatory returns, 2016 based on final
regulatory returns.
The Group's own funds do not take into account capital in
subsidiaries that is not deemed to be freely transferable around
the Group.
(b)(iii) Reconciliation of regulatory capital own funds to IFRS
equity (unaudited)
A reconciliation of the Group own funds to the equity
attributable to equity holders of Standard Life Aberdeen plc on an
IFRS basis is as follows:
2017(5) 2016(5)
GBPbn GBPbn
Own funds 7.3 7.2
Add unrecognised Solvency II capital (availability restriction) 0.2 0.2
Remove with profits funds and pension scheme contribution to own funds(1) (0.7) (1.2)
Remove subordinated liabilities contribution to own funds(2) (2.1) (1.6)
Remove value of fee business future profits(3) (3.0) (2.9)
Add IFRS pension scheme surplus(1) 1.1 1.1
Add IFRS DAC, DIR and other intangibles assets and other valuation differences(4) 5.8 1.5
IFRS equity attributable to equity holders of Standard Life Aberdeen plc 8.6 4.3
(1) In determining Group own funds the asset recognised for a
surplus in a with profits fund or a defined benefit pension scheme
is restricted to their capital requirements.
(2) Subordinated liabilities provide capital in SII provided
certain conditions are met.
(3) The measurement of technical provisions in Group own funds
reflects the value of future profits on investment fee business
which are not included in the measurement of IFRS liabilities.
(4) Certain items that are recognised as assets and liabilities
under IFRS are not recognised as assets and liabilities in Group
own funds, being the Group's DAC, DIR and other intangible assets.
Intangible assets include goodwill acquired through business
combinations. Other valuation differences are mainly due to
differences in the measurement of technical provisions for
insurance business.
(5) 2017 based on draft regulatory returns, 2016 based on final
regulatory returns.
48. Events after the reporting date
The impact of the review of long term asset management
arrangements by Lloyds Banking Group and Scottish Widows is
discussed in Note 14.
On 23 February 2018 the Group announced the sale of the majority
of the business within the Pensions and Savings reportable segment
to Phoenix Group Holdings (Phoenix) (the Sale), conditional on
shareholder and relevant regulatory approvals. The Sale includes
the disposal of Standard Life Assurance Limited (SLAL).
Under the transaction the following businesses will be retained
by the Group:
-- UK retail platforms, including Wrap and Elevate
-- 1825, our financial advice business
In addition, the assets and liabilities of both the UK and
Ireland Standard Life defined benefit pension plans will be
retained by the Group.
The total consideration payable to the Group by Phoenix in
respect of the Sale is GBP3.24bn. This comprises cash payable on
closing of GBP2.0bn, a dividend to be paid by SLAL to the Company
of GBP0.3bn in Q2 2018 and new shares issued at completion
representing 20% of the then issued share capital of Phoenix
following the completion of the rights issue undertaken to part
finance the acquisition and worth GBP1.0bn based on Phoenix's share
price on 22 February 2018. The shareholding in Phoenix is subject
to a lock-up of 12 months from completion.
The Group and Phoenix have also agreed to significantly expand
their existing long-term strategic partnership whereby the Group
continues as Phoenix's long-term asset management partner for the
business acquired by Phoenix and the existing arrangements between
the parties under which the Group manages GBP48bn of assets for
Phoenix have been extended.
The financial effect of the transaction, if it completes, is
expected to be as follows at completion:
-- recognition of a gain on disposal in the consolidated income
statement. The magnitude of the gain will be dependent on the net
asset value of the business disposed of at completion and the share
price of Phoenix at completion.
-- recognition of the cash proceeds as detailed above
-- recognition of an investment in associate relating to the 20%
shareholding in the enlarged Phoenix group
The sale is also expected to result in a material capital
release for the Group.
The earnings of the group post completion will reflect the
disposal of the majority of the Pensions and Savings reportable
segment and a share of profit or loss from associates relating to
the investment in associate set out above.
49. Related undertakings
The Companies Act 2006 requires disclosure of certain
information about the Group's related undertakings which is set out
in this note. Related undertakings are subsidiaries, joint
ventures, associates and other significant holdings. In this
context significant means either a shareholding greater than or
equal to 20% of the nominal value of any class of shares, or a book
value greater than 20% of the Group's assets.
The particulars of the Company's related undertakings at 31
December 2017 are listed below. For details of the Group's
consolidation policy refer to (b) Basis of consolidation in the
Presentation of consolidated financial statements section.
The ability of subsidiaries to transfer cash or other assets
within the Group for example through payment of cash dividends is
generally restricted only by local laws and regulations, and
solvency requirements. Included in equity attributable to equity
holders of Standard Life Aberdeen plc at 31 December 2017 is GBP85m
(2016: GBP3m) related to the Standard Life Foundation, a subsidiary
undertaking of the Group. During the year to 31 December 2017 the
Company made a donation to the Standard Life Foundation related to
the unclaimed shares and unclaimed cash that were transferred to
the Company on expiry of the Unclaimed Asset Trust claim period in
2016. These assets are now restricted to be used for charitable
purposes. Additionally dividends and coupons payable on Aberdeen's
preference shares or perpetual notes rank ahead of any dividends
paid on Aberdeen's ordinary shares. These are not considered
significant restrictions on the Group's ability to access or use
the assets and settle the liabilities of the Group.
The Group also has investments in Qualifying Limited
Partnerships which are consolidated in these financial statements.
For the Qualifying Limited Partnerships, North American Strategic
Partners (Feeder) 2006 Limited Partnership and North American
Strategic Partners (Feeder) 2008 Limited Partnership an exemption
from filing annual financial statements with Companies House has
been taken in accordance with the Partnership Accounting
Regulations (2008).
The registered head office of all related undertakings is 1
George St, Edinburgh, EH2 2LL unless otherwise stated.
(a) Direct subsidiaries
Name of related undertaking Share class(1) % interest held
30 STMA 1 Limited(3) Ordinary Shares 100%
30 STMA 2 Limited(3) Ordinary Shares 100%
30 STMA 3 Limited(3) Ordinary Shares 100%
30 STMA 4 Limited(3) Ordinary Shares 100%
30 STMA 5 Limited(3) Ordinary Shares 100%
Aberdeen Asset Management PLC(4) Ordinary Shares 100%
Focus Solutions Group Limited(6) Ordinary Shares 100%
Standard Life (Asia Pacific Holdings) Private Limited(7) Ordinary Shares 100%
Ordinary Shares
Standard Life Assurance Limited(2) Ordinary B Shares 100%
Standard Life (London) Limited(3) Ordinary Shares 100%
Standard Life (Mauritius Holdings) 2006 Limited(8) Ordinary Shares 100%
Standard Life Employee Services Limited(2) Ordinary Shares 100%
Standard Life Finance Limited(2) Ordinary Shares 100%
Standard Life Foundation(2) N/A 100%
Standard Life Investments (Holdings) Limited Ordinary Shares 100%
Standard Life Oversea Holdings Limited(2) Ordinary Shares 100%
Threesixty Support LLP(9) Limited Liability Partnership 100%
Vebnet (Holdings) Limited(3) Ordinary Shares 100%
(b) Other subsidiaries, joint ventures, associates and other significant holdings
Name of related undertaking Share class(1) % interest held
1825 Financial Planning Limited(3) Ordinary Shares 100%
28 Ribera del Loira SA(10) Ordinary Shares 100%
30 SLH 1 Limited(2) Ordinary shares 100%
330 Avenida de Aragon SL(10) Ordinary Shares 100%
4th Contact Limited(3) Ordinary Shares 100%
Aberdeen ACP LLP(4) Limited Liability Partnership 100%
Aberdeen Alternatives (Holdings) Limited(4) Ordinary shares 100%
Aberdeen Asia IV (General Partner) S.a.r.l.(11) Ordinary shares 100%
Aberdeen Asset Investment Group Limited(5) Ordinary shares 100%
Aberdeen Asset Investments Limited(5) Ordinary shares 100%
Aberdeen Asset Management (Shanghai) Co. Ltd(12) Limited Liability Company 100%
Aberdeen Asset Management Asia Limited(13) Ordinary shares 100%
Aberdeen Asset Management Canada Limited(14) Ordinary shares 100%
Aberdeen Asset Management Cayman Limited(15) Ordinary shares 100%
Aberdeen Asset Management Company Limited(16) Ordinary shares 100%
Name of related undertaking Share class(1) % interest held
Aberdeen Asset Management Denmark A/S(17) Ordinary shares 100%
Aberdeen Asset Management Deutschland AG(18) Ordinary shares 94%
Aberdeen Asset Management Finland Oy(19) Ordinary shares 100%
Aberdeen Asset Management Hungary Alapkezelo
Zrt(20) Ordinary shares 100%
Aberdeen Asset Management Inc.(21) Ordinary shares 100%
Aberdeen Asset Management Investment Funds
Limited(22) Ordinary shares 100%
Aberdeen Asset Management Life and Pensions
Limited(5) Ordinary shares 100%
Aberdeen Asset Management Limited(23) Ordinary shares 100%
Aberdeen Asset Management Nominees Limited(24) Ordinary shares 100%
Aberdeen Asset Management Norway AS(25) Ordinary shares 100%
Aberdeen Asset Management Norway Holding AS(25) Ordinary shares 100%
Aberdeen Asset Management Operations AS(25) Ordinary shares 100%
Aberdeen Asset Management SDN BHD(26) Ordinary shares 100%
Aberdeen Asset Management Services Limited(27) Ordinary shares 100%
Aberdeen Asset Management Sweden AB(28) Ordinary shares 100%
Aberdeen Asset Management US GP Control LLC(29) Limited Liability Company 100%
Aberdeen Asset Managers (Luxembourg) S.a.r.l.(30) Ordinary shares 100%
Aberdeen Asset Managers Limited(4) Ordinary shares 100%
Aberdeen Asset Managers Switzerland AG(31) Ordinary shares 100%
Aberdeen Asset Middle East Limited(32) Ordinary shares 100%
Aberdeen Capital Management LLC(33) Limited Liability Company 100%
Aberdeen Capital Managers GP LLC(34) Limited Liability Company 100%
Aberdeen Claims Administration, Inc.(21) Ordinary shares 100%
Aberdeen Direct Property (Holding) Limited(5) Ordinary shares 100%
Aberdeen Diversified Growth Fund(5) Unit trust 62%
Aberdeen Diversified-Core Adventurous Fund(5) Unit trust 45%
Aberdeen Diversified-Core Cautious Fund(5) Unit trust 72%
Aberdeen Diversified-Core Conservative Fund(5) Unit trust 90%
Aberdeen do Brasil Gestao de Recursos Ltda(35) Limited Liability Company 100%
Aberdeen Emerging Capital Limited(22) Ordinary shares 100%
Aberdeen Emerging Market Debt Local Currency
Fund(36) Commingled fund 25%
Aberdeen European Infrastructure Carry GP
Limited(4) Ordinary shares 100%
Aberdeen European Infrastructure Carry Limited(4) Ordinary shares 100%
Aberdeen European Infrastructure GP II Limited(5) Ordinary shares 100%
Aberdeen European Infrastructure GP Limited(5) Ordinary shares 100%
Aberdeen France S.A.(37) Ordinary shares 100%
Aberdeen Fund Distributors LLC(29) Limited Liability Company 100%
Aberdeen Fund Management II Oy(19) Ordinary shares 100%
Aberdeen Fund Management Ireland Limited(38) Ordinary shares 100%
Aberdeen Fund Management Norway AS(25) Ordinary shares 100%
Aberdeen Fund Management Oy(19) Ordinary shares 100%
Aberdeen Fund Managers Limited(5) Ordinary shares 100%
Aberdeen General Partner 1 Limited(4) Ordinary shares 100%
Aberdeen General Partner 2 Limited(4) Ordinary shares 100%
Aberdeen General Partner CAPELP Limited(15) Ordinary shares 100%
Aberdeen General Partner CGPLP Limited(15) Ordinary shares 100%
Aberdeen General Partner CMENAPELP Limited(15) Ordinary shares 100%
Aberdeen General Partner CPELP II Limited(15) Ordinary shares 100%
Aberdeen General Partner CPELP Limited(15) Ordinary shares 100%
Aberdeen Global - Asian Credit Bond Fund(39) SICAV 50%
Aberdeen Global - Emerging Markets Local Currency
Corporate Bond Fund(39) SICAV 71%
Aberdeen Global - European Equity (ex-UK) Fund(39) SICAV 42%
Aberdeen Global - German Equity Fund(39) SICAV 100%
Aberdeen Global - Swiss Equity Fund(39) SICAV 100%
Aberdeen Global ex-Japan GP Limited(15) Ordinary shares 100%
Aberdeen Global II - US Dollar Credit Bond Fund(39) SICAV 51%
Aberdeen Global Infrastructure Carry GP Limited(4) Ordinary shares 100%
Aberdeen Global Infrastructure GP II Limited(40) Ordinary shares 100%
Name of related undertaking Share class(1) % interest held
Aberdeen Global Infrastructure GP Limited(40) Ordinary shares 100%
Aberdeen Global Services SA(39) Ordinary shares 100%
Aberdeen GP 1 LLP(4) Limited Liability Partnership 100%
Aberdeen GP 2 LLP(4) Limited Liability Partnership 100%
Aberdeen GP 3 LLP(4) Limited Liability Partnership 100%
Aberdeen Indonesia Balanced Growth Fund(41) Unit trust 78%
Aberdeen Indonesia Government Bond Fund(41) Unit trust 39%
Aberdeen Indonesia Money Market Fund(41) Unit trust 60%
Aberdeen Infrastructure Feeder GP Limited(4) Ordinary shares 100%
Aberdeen Infrastructure Finance GP Limited(40) Ordinary shares 100%
Aberdeen Infrastructure GP II Limited(5) Ordinary shares 100%
Aberdeen Infrastructure Spain Co-Invest II GP
Limited(40) Ordinary shares 100%
Aberdeen International Fund Managers Limited(42) Ordinary shares 100%
Aberdeen International Securities Investment
Consulting Company Limited(43) Ordinary shares 100%
Aberdeen Investment Company Limited(4) Ordinary shares 100%
Aberdeen Investment Solutions Limited (4) Ordinary shares 100%
Aberdeen Investments Euro Limited(5) Ordinary shares 100%
Aberdeen Investments Jersey Limited(44) Ordinary shares 100%
Aberdeen Investments Limited(5) Ordinary shares 100%
Aberdeen Investments USD Limited(5) Ordinary shares 100%
Aberdeen Islamic Asia Pacific ex-Japan Equity
Fund(45) Unit trust 30%
Aberdeen Islamic Asset Management SDN BHD(26) Ordinary shares 100%
Aberdeen Islamic Malaysia Equity Fund(45) Unit trust 94%
Aberdeen Japanese Equities Fund(36) OEIC 84%
Aberdeen Korea Co., Ltd(46) Ordinary shares 100%
Aberdeen Nominees Services Limited(42) Ordinary shares 100%
Aberdeen Pension Trustees Limited(4) Ordinary shares 100%
Aberdeen Private Equity Advisers Limited(22) Ordinary shares 100%
Aberdeen Private Equity Managers Limited(22) Ordinary shares 100%
Aberdeen Private Wealth Management Limited(44) Ordinary shares 100%
Aberdeen Property Asset Managers Limited(22) Ordinary shares 100%
Aberdeen Property Fund Limited Partner Oy(19) Ordinary shares 100%
Aberdeen Property Fund Management (Jersey)
Limited(47) Ordinary shares 100%
Aberdeen Property Fund Management AB(28) Ordinary shares 100%
Aberdeen Property Fund Management Estonia Ou(48) Ordinary shares 100%
Aberdeen Property Investors (General Partner)
S.a.r.l.(49) Ordinary shares 100%
Aberdeen Property Investors Estonia Ou(48) Ordinary shares 100%
Aberdeen Property Investors France SAS(37) Ordinary shares 100%
Aberdeen Property Investors Limited Partner Oy(19) Ordinary shares 100%
Aberdeen Property Investors Sweden AB(28) Ordinary shares 100%
Aberdeen Property Investors The Netherlands BV(50) Ordinary shares 100%
Aberdeen Property Managers Limited(22) Ordinary shares 100%
Aberdeen Real Estate Investors Operations (UK)
Limited(22) Ordinary shares 100%
Aberdeen Real Estate Operations Limited(4) Ordinary shares 100%
Aberdeen Residential JV Feeder Limited Partner
Oy(19) Ordinary shares 100%
Aberdeen Secondaries II GP S.a.r.l.(39) Ordinary shares 100%
Aberdeen SP 2013 A/S(17) Ordinary shares 100%
Aberdeen Standard Asset Management Limited(2) Ordinary shares 100%
Aberdeen Standard Group Limited(2) Ordinary shares 100%
Aberdeen Standard Investment Management Limited(2) Ordinary shares 100%
Aberdeen Standard Investments (Japan) Limited(51) Ordinary shares 100%
Aberdeen Standard Investments Limited(2) Ordinary shares 100%
Aberdeen Standard Investments Taiwan Limited(43) Ordinary shares 100%
Aberdeen Standard Life Asset Management Limited(2) Ordinary shares 100%
Aberdeen Standard Life Group Limited(2) Ordinary shares 100%
Aberdeen Standard Life Investments Limited(2) Ordinary shares 100%
Aberdeen Standard Life Investments Limited(2) Ordinary Shares 100%
Aberdeen Standard Life Limited(2) Ordinary shares 100%
Name of related undertaking Share class(1) % interest held
Aberdeen Standard Limited(2) Ordinary shares 100%
Aberdeen Sterling Long Dated Corporate Bond Fund(4) OEIC 39%
Aberdeen Sterling Long Dated Government Bond
Fund(4) OEIC 31%
Aberdeen Trust Limited(4) Ordinary shares 100%
Aberdeen U.S. Mid Cap Equity Fund(36) OEIC 98%
Aberdeen UK Infrastructure Carry GP Limited(4) Ordinary shares 100%
Aberdeen UK Infrastructure Carry Limited(4) Ordinary shares 100%
Aberdeen UK Infrastructure GP Limited(5) Ordinary shares 100%
Aberdeen Unit Trust Managers Limited(4) Ordinary shares 100%
AEROF (Luxembourg) GP S.a.r.l.(39) Ordinary shares 100%
AFM Nominees Limited(24) Ordinary shares 100%
AIPP Pooling I SA(39) Ordinary shares 100%
Airport Industrial GP Limited(5) Ordinary shares 100%
Amberia General Partner Oy(19) Ordinary shares 100%
Andaes S.a r.l.(52) Ordinary shares 59%
Andean Social Infrastructure GP Limited(15) Ordinary shares 100%
Arden Asset Management (UK) Limited(22) Ordinary shares 100%
Arden Asset Management LLC(34) Limited Liability Company 100%
Arthur House (No.6) Limited(5) Ordinary shares 100%
Artio Global Investors Inc.(21) Ordinary shares 100%
Asander Investment Management Ltd(53) Ordinary shares 100%
Aspire Financial Management Limited(54) Ordinary shares 25%
Auris Kaasunjakelu Oy(55) Ordinary shares 26%
Baigrie Davies & Company Limited(3) Ordinary shares 100%
Baigrie Davies Holdings Limited(3) Ordinary shares 100%
Bardol Inversiones SL(10) Ordinary Shares 59 %
Bedfont Lakes Business Park (GP1) Limited(22) Ordinary shares 100%
Bedfont Lakes Business Park (GP2) Limited(5) Ordinary shares 100%
Brent Cross Partnership(56) Limited Partnership 59%
Castlepoint General Partner Limited(57) Ordinary Shares 100%
Castlepoint LP(57) Ordinary Shares 50%
Castlepoint Nominee Limited(57) Ordinary shares 100%
Cockspur Property (General Partner) Limited(22) Ordinary shares 100%
Crawley Unit Trust(58) Unit Trust 100%
DEGI Beteiligungs GmbH(18) Limited Liability Company 94%
Dunedin Fund Managers Limited(27) Ordinary shares 100%
Edinburgh Fund Managers Group Limited(4) Ordinary shares 100%
Edinburgh Fund Managers Plc(59) Ordinary shares 100%
Edinburgh Unit Trust Managers Limited(4) Ordinary shares 100%
Ordinary Shares
Elevate Portfolio Services Limited(3) Preference Shares 100%
ESP General Partner Limited Partnership Limited Partnership 50%
ESP II Conduit LP Limited Partnership 46%
ESP II General Partner Limited Partnership Limited Partnership 46%
European Strategic Partners Limited Partnership 73%
European Strategic Partners II 'C' Limited Partnership 69%
Extraverde Property BV(60) Ordinary shares 59%
Ezraya Sp Z.o.o.(61) Ordinary Shares 59%
FLAG Squadron Asia Pacific III GP LP(15) Limited Partnership 100%
Focus Business Solutions Limited(6) Ordinary Shares 100%
Focus Holdings Limited(6) Ordinary Shares 100%
Focus Software Limited(6) Ordinary Shares 100%
Focus Solutions EBT Trustee Limited(6) Ordinary Shares 100%
G Park Management Company Limited(62) Preference shares 100%
Gallions Reach Shopping Park (Nominee) Limited(62) Ordinary Shares 100%
Gallions Reach Shopping Park Limited
Partnership(62) Limited Partnership 100%
Gallions Reach Shopping Park Unit Trust(58) Unit Trust 100%
Glasgow Investment Managers Limited(27) Ordinary shares 100%
Name of related undertaking Share class(1) % interest held
GREF Almeda Park SL(63) Ordinary Shares 59%
GREF Jersey Esplanade Limited(58) Ordinary Shares 59%
GREF Jersey Holding Limited(58) Ordinary Shares 59%
GREF Jersey Ireland Holding Limited(64) Ordinary Shares 59%
GREF Jersey Ireland Property Limited(64) Ordinary Shares 59%
Griffin Nominees Limited(5) Ordinary shares 100%
HDFC Asset Management Company Limited(65) Ordinary shares 38%
HDFC International Life and Re Company Limited(66) Ordinary shares 29%
HDFC Pension Management Company Limited(67) Equity shares 29%
HDFC Standard Life Insurance Company Limited(68) Equity shares 29%
Heng An Standard Life Insurance Company Limited(69) Equity shares 50%
Hundred S.a r.l.(52) Ordinary Shares 100%
Iceni Nominees (No.2) Limited(62) Ordinary shares 100%
Iceni Nominees (No.2A) Limited(62) Ordinary shares 100%
Ignis Asset Management Limited Ordinary Shares 100%
Ignis Carry Partner Limited(15) Ordinary Shares 100%
Ignis Cayman GP2 Limited(15) Ordinary Shares 60%
Ignis Cayman GP3 Limited(15) Ordinary Shares 60%
Ignis Fund Managers Limited Ordinary Shares 100%
Ignis Investment Management Limited Ordinary Shares 100%
Ignis Investment Services Limited Ordinary Shares 100%
Inesia S.A. (52) Ordinary shares 100%
Inhoco 3107 Limited(62) Ordinary Shares 100%
Invest Park 3 Sp. Z.o.o.(70) Ordinary Shares 59%
Jones Sheridan Financial Consulting Limited(71) Ordinary shares 100%
Jones Sheridan Holdings Limited(71) Ordinary shares 100%
Lake Meadows Management Company Limited(62) Ordinary Shares 100%
Living In Retirement Limited(54) Ordinary shares 25%
Lothian Development III (Nederland) BV(60) Ordinary Shares 100%
M J Founders Limited(22) Ordinary shares 100%
Mallard Investments LLP Limited Liability Partnership 26%
Murray Johnstone Asset Management Limited(27) Ordinary shares 100%
Murray Johnstone Holdings Limited(4) Ordinary shares 100%
Murray Johnstone Limited(4) Ordinary shares 100%
NASP 2006 General Partner Limited Partnership Limited Partnership 62%
Nordic Hydro AS(72) Ordinary shares 26%
Nordic Hydro Holding AS(72) Ordinary shares 26%
Nordic Power AS(72) Ordinary shares 26%
Nordic Power Torsnes AS(72) Ordinary shares 26%
North American Strategic Partners (Feeder) 2006 Limited Partnership 70%
North American Strategic Partners (Feeder) 2008
Limited Partnership Limited Partnership 100%
North American Strategic Partners 2006 L.P.(21) Limited Partnership 100%
North American Strategic Partners 2008 L.P.(21) Limited Partnership 100%
North American Strategic Partners GP, LP(21) Limited Partnership 80%
North American Strategic Partners, LP(21) Limited Partnership 40%
Ordinary A Shares
North East Trustees Limited(73) Ordinary B Shares 100%
Ordinary A Shares
Ordinary B Shares
Pace Financial Solutions Limited(3) Ordinary C Shares 100%
Ordinary A Shares
Pace Mortgage Solutions Limited(3) Ordinary B Shares 100%
Panker Invest S.a r.l.(52) Ordinary Shares 59%
Paragon Insurance Company Guernsey Limited(74) Ordinary shares 25%
Parmenion Capital Ltd(53) Ordinary shares 100%
Parmenion Capital Partners LLP(53) Limited Liability Partnership 100%
Parmenion Investment Management Limited(53) Ordinary shares 100%
Parmenion Nominees Limited(53) Ordinary shares 100%
Parnell Fisher Child & Co. Limited(3) Ordinary Shares 100%
Name of related undertaking Share class(1) % interest held
Ordinary A Shares
Parnell Fisher Child Holdings Limited(3) Ordinary B Shares 100%
Pearson Jones & Company (Trustees) Limited(73) Ordinary Shares 100%
Pearson Jones Nominees Limited(73) Ordinary Shares 100%
Ordinary A Shares
Pearson Jones plc(3) Ordinary B Shares 100%
PLC Poland 20 Sp Z.o.o.(61) Ordinary Shares 59%
PLC Poland 25 Sp Z.o.o.(61) Ordinary Shares 59%
PLC Poland 34 Sp Z.o.o.(61) Ordinary Shares 59%
PT Aberdeen Asset Management(41) Limited Liability Company 80%
PURetail Luxembourg Management Company S.a r.l.(30) Ordinary shares 50%
Regent Property Partners (Retail Parks) Limited(5) Ordinary shares 100%
Reksa Dana Syariah Aberdeen Syariah Asia Pacific
Equity USD Fund(41) Unit trust 25%
Residential Zoning Club General Partner Oy(19) Ordinary shares 100%
Retail Park HANÁ a.s.(75) Ordinary shares 59%
Retail Park Ostrava a.s.(75) Ordinary Shares 59%
Rock Rail East Anglia (Holdings) 1 Limited(76) Ordinary shares 26%
Rock Rail East Anglia (Holdings) 2 Limited(76) Ordinary shares 26%
Rock Rail East Anglia plc(76) Public Limited Company 26%
Rock Rail Moorgate (Holdings) Limited(76) Ordinary shares 26%
Rock Rail Moorgate plc(76) Public Limited Company 26%
Scottish Mutual Investment Managers Limited Ordinary Shares 100%
Scottish Mutual PEP and ISA Managers Limited(5) Ordinary Shares 100%
Seabury Assets Fund plc
The Euro VNAV Liquidity Fund(77) OEIC 100%
The No.1 Fund(77) OEIC 100%
The Sterling VNAV Liquidity Fund(77) OEIC 100%
Select Japan (GK Holdings UK) Limited Ordinary Shares 59%
Select Japan (TK Holdings UK) Limited Ordinary Shares 59%
Select Japan G.K. Limited by members 59%
Select Malta Holdings Limited(78) Ordinary Shares 59%
Select Property Holdings (Mauritius) Limited(79) Ordinary Shares 59%
Ordinary A shares
Ordinary B shares
Ordinary C shares
Self Directed Holdings Ltd(53) Preference shares 100%
Self Directed Investments Ltd(53) Ordinary shares 100%
Serin Wealth Limited(80) Ordinary shares 50%
Sinfonia Asset Management Limited(54) Ordinary shares 25%
SL (NEWCO) Limited(2) Ordinary Shares 100%
SL Capital Infrastructure I LP Limited Partnership 26%
SL Capital NASF I A LP Limited Partnership 22%
SL Capital Partners (US) Limited Ordinary Shares 100%
SL Capital Partners LLP Limited Liability Partnership 60%
SLA Belgium No.1 SA(81) Ordinary shares 100%
SLA Germany No.1 S.a r.l.(52) Ordinary shares 100%
SLA Germany No.2 S.a r.l.(52) Ordinary shares 100%
SLA Germany No.3 S.a r.l.(52) Ordinary shares 100%
SLA Ireland No.1 S.a r.l.(52) Ordinary Shares 100%
SLA Netherlands No.1 B.V.(52) Ordinary Shares 100%
SLACOM (No.10) Limited(2) Ordinary Shares 100%
SLACOM (No.8) Limited(2) Ordinary Shares 100%
SLACOM (No.9) Limited(2) Ordinary Shares 100%
SLCP (Founder Partner Ignis Private Equity) Limited Ordinary shares 60%
SLCP (Founder Partner Ignis Strategic Credit)
Limited Ordinary shares 60%
SLCP (General Partner 2016 Co-investment) Limited Ordinary shares 60%
SLCP (General Partner CPP) Limited Ordinary Shares 100%
SLCP (General Partner EC) Limited Ordinary Shares 100%
SLCP (General Partner Edcastle) Limited Ordinary Shares 100%
Name of related undertaking Share class(1) % interest held
SLCP (General Partner ESF I) Limited Ordinary Shares 100%
SLCP (General Partner ESF II) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2004) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2006) Limited Ordinary Shares 100%
SLCP (General Partner ESP 2008 Coinvestment)
Limited Ordinary Shares 100%
SLCP (General Partner ESP 2008) Limited Ordinary Shares 100%
SLCP (General Partner ESP CAL) Limited Ordinary Shares 100%
SLCP (General Partner Europe VI) Limited Ordinary Shares 100%
SLCP (General Partner II) Limited Ordinary Shares 100%
SLCP (General Partner Infrastructure I) Limited Ordinary Shares 100%
SLCP (General Partner Infrastructure Secondary I)
Limited Ordinary Shares 100%
SLCP (General Partner NASF I) Limited Ordinary Shares 100%
SLCP (General Partner NASP 2006) Limited Ordinary Shares 100%
SLCP (General Partner NASP 2008) Limited Ordinary Shares 100%
SLCP (General Partner Pearl Private Equity) Limited Ordinary Shares 100%
SLCP (General Partner Pearl Strategic Credit)
Limited Ordinary Shares 100%
SLCP (General Partner SOF I) Limited Ordinary Shares 100%
SLCP (General Partner SOF II) Limited Ordinary Shares 100%
SLCP (General Partner SOF III) Limited Ordinary shares 100%
SLCP (General Partner Tidal Reach) Limited Ordinary Shares 100%
SLCP (General Partner USA) Limited Ordinary Shares 100%
SLCP (General Partner) Limited Ordinary Shares 100%
SLCP (Holdings) Limited Ordinary Shares 100%
SLCP Infrastructure I (Holdings) S.a r.l(52) Ordinary shares 26%
SLCP Infrastructure I-A S.a r.l(52) Ordinary shares 26%
SLIF Property Investment GP Limited Ordinary Shares 100%
SLIF Property Investment LP Ordinary shares 100%
SLIPC (General Partner PMD Co-Invest 2017) Limited Ordinary shares 100%
SLIPC (General Partner SCF 1) Ltd Ordinary shares 100%
SLIPC General Partner (Infrastructure II LTP 2017)
Limited Ordinary shares 100%
SLIPC General Partner (Infrastructure II)
S.a.r.l(49) Ordinary shares 100%
SLM Trust
SLMT American Equity Unconstrained Fund Unit Trust 100%
SLMT Standard Life Japan Fund Unit Trust 100%
SLTM Limited Ordinary Shares 100%
Sorbin Systems Limited(53) Ordinary shares 100%
Squadron Capital Asia Pacific GP, LP(15) Limited Partnership 100%
Squadron Capital Asia Pacific II GP LP(15) Limited Partnership 100%
Squadron Capital Management Limited(15) Limited Liability Company 100%
Squadron Capital Partners Limited(15) Limited Liability Company 100%
Standard Aberdeen Asset Management Limited(2) Ordinary shares 100%
Standard Aberdeen Group Limited(2) Ordinary shares 100%
Standard Aberdeen Investment Management Limited(2) Ordinary shares 100%
Standard Aberdeen Investments Limited(2) Ordinary shares 100%
Standard Aberdeen Limited(2) Ordinary shares 100%
Standard Life (Asia) Limited(82) Ordinary Shares 100%
Standard Life Aberdeen Asset Management Limited(2) Ordinary shares 100%
Standard Life Aberdeen Group Limited(2) Ordinary shares 100%
Standard Life Active Plus Bond Trust Unit Trust 100%
Standard Life Agency Services Limited(2) Ordinary Shares 100%
Standard Life Assurance Company of Europe BV(60) Ordinary shares 100%
Standard Life Assurance (HWPF) Luxembourg S.a
r.l.(52) Ordinary Shares 100%
Standard Life Charity Fund(2) N/A 100%
Standard Life Client Management Limited(2) Ordinary Shares 100%
Standard Life European Trust Unit Trust 98%
Standard Life European Trust II Unit Trust 100%
Standard Life Global Equity Trust II Unit Trust 100%
Standard Life International Designated Activity
Company(83) Ordinary shares 100%
Name of related undertaking Share class(1) % interest held
Standard Life International Trust Unit Trust 100%
Standard Life Investment Company
American Equity Income Fund OEIC 100%
American Equity Unconstrained Fund OEIC 56%
Asian Pacific Growth Fund OEIC 45%
Corporate Bond Fund OEIC 48%
Emerging Market Debt Fund OEIC 86%
Europe ex-UK Smaller Companies Fund OEIC 23%
European Equity Growth Fund OEIC 48%
European Equity Income Fund OEIC 31%
Global Emerging Markets Equity Fund OEIC 97%
Global Emerging Markets Equity Income Fund OEIC 89%
Global Equity Unconstrained Fund OEIC 38%
Higher Income Fund OEIC 36%
Investment Grade Corporate Bond Fund OEIC 22%
Japanese Equity Growth Fund OEIC 98%
Short Duration Credit Fund OEIC 65%
UK Equity Growth Fund OEIC 47%
UK Equity High Alpha Fund OEIC 47%
UK Equity High Income Fund OEIC 48%
UK Equity Recovery Fund OEIC 25%
UK Opportunities Fund OEIC 67%
UK Smaller Companies Fund OEIC 35%
Standard Life Investment Company II
Standard Life Investments Corporate Debt Fund OEIC 100%
Standard Life Investments Ethical Corporate Bond
Fund OEIC 68%
Standard Life Investments European Ethical Equity
Fund OEIC 89%
Standard Life Investments Global Index Linked
Bond Fund OEIC 22%
Standard Life Investments Global REIT Fund OEIC 61%
Standard Life Investments Short Dated Corporate
Bond Fund OEIC 52%
Standard Life Investments Short Duration Global
Index Linked Bond Fund OEIC 39%
Standard Life Investments UK Equity Income
Unconstrained Fund OEIC 30%
Standard Life Investments UK Equity Unconstrained
Fund OEIC 46%
Standard Life Investment Company III
Enhanced-Diversification Growth Fund OEIC 98%
MyFolio Managed I Fund OEIC 63%
MyFolio Managed II Fund OEIC 65%
MyFolio Managed III Fund OEIC 75%
MyFolio Managed Income I Fund OEIC 44%
MyFolio Managed Income II Fund OEIC 49%
MyFolio Managed Income III Fund OEIC 55%
MyFolio Managed Income IV Fund OEIC 46%
MyFolio Managed Income V Fund OEIC 57%
MyFolio Managed IV Fund OEIC 61%
MyFolio Managed V Fund OEIC 69%
MyFolio Market I Fund OEIC 52%
MyFolio Market II Fund OEIC 45%
MyFolio Market III Fund OEIC 63%
MyFolio Market IV Fund OEIC 62%
MyFolio Market V Fund OEIC 70%
MyFolio Multi-Manager I Fund OEIC 54%
MyFolio Multi-Manager II Fund OEIC 56%
MyFolio Multi-Manager III Fund OEIC 62%
MyFolio Multi-Manager Income I Fund OEIC 44%
MyFolio Multi-Manager Income II Fund OEIC 40%
MyFolio Multi-Manager Income III Fund OEIC 53%
MyFolio Multi-Manager Income IV Fund OEIC 40%
MyFolio Multi-Manager Income V Fund OEIC 55%
Name of related undertaking Share class(1) % interest held
MyFolio Multi-Manager IV Fund OEIC 55%
MyFolio Multi-Manager V Fund OEIC 52%
Standard Life Investment Funds Limited(2) Ordinary Shares 100%
Standard Life Investments - India Advantage Fund(8) Ordinary Shares 100%
Standard Life Investments (Corporate Funds) Limited Ordinary Shares 100%
Standard Life Investments (France) SAS(84) Ordinary Shares 100%
Standard Life Investments (General Partner CRED)
Limited(62) Ordinary Shares 100%
Standard Life Investments (General Partner EPGF)
Limited Ordinary Shares 100%
Standard Life Investments (General Partner European
Real Estate Club II) Limited(85) Ordinary Shares 100%
Standard Life Investments (General Partner European
Real Estate Club III) Limited(85) Ordinary shares 100%
Standard Life Investments (General Partner European
Real Estate Club) Limited(85) Ordinary Shares 100%
Standard Life Investments (General Partner GARS)
Limited Ordinary Shares 100%
Standard Life Investments (General Partner GFS) Limited Ordinary Shares 100%
Standard Life Investments (General Partner Global
Tactical Asset Allocation) Limited Ordinary shares 100%
Standard Life Investments (General Partner MAC) Limited Ordinary Shares 100%
Standard Life Investments (General Partner PDFI)
Limited Ordinary Shares 100%
Standard Life Investments (General Partner UK PDF)
Limited Ordinary Shares 100%
Standard Life Investments (General Partner UK Shopping
Centre Feeder Fund LP) Limited(62) Ordinary Shares 100%
Standard Life Investments (Hong Kong) Limited(86) Ordinary Shares 100%
Standard Life Investments (Jersey) Limited(58) Ordinary Shares 100%
Standard Life Investments (Mutual Funds) Limited Ordinary Shares 100%
Standard Life Investments (PDF No. 1) Limited(58) Ordinary shares 50%
Standard Life Investments (Private Capital) Limited Ordinary Shares 100%
Standard Life Investments (Schweiz) AG(31) Ordinary Shares 100%
Standard Life Investments (Singapore) Pte. Ltd(87) Ordinary Shares 100%
Standard Life Investments (Trustee No. 1 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 2 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 3 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 4 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 5 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 6 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 7 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 8 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 9 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 10 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 11 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (Trustee No. 12 UK PDF)
Limited Ordinary shares 100%
Standard Life Investments (USA) Limited Ordinary Shares 100%
Standard Life Investments Brent Cross General Partner
Limited Ordinary Shares 100%
Standard Life Investments Brent Cross LP Limited Partnership 100%
Standard Life Investments Dynamic Distribution Fund Unit Trust 49%
Standard Life Investments Global Absolute Return
Strategies Fund Unit Trust 82%
Standard Life Investments Global Real Estate Fund Unit Trust 59%
Standard Life Investments Global SICAV
Standard Life Investments Global SICAV Absolute
Return Global Bond Strategies Fund(88) SICAV 70%
Standard Life Investments Global SICAV Asian Equities
Fund(88) SICAV 22%
Standard Life Investments Global SICAV China Equities
Fund(88) SICAV 71%
Standard Life Investments Global SICAV Emerging
Market Corporate Bond Fund(88) SICAV 88%
Standard Life Investments Global SICAV Emerging
Market Local Currency Debt Fund(88) SICAV 80%
Standard Life Investments Global SICAV Enhanced
Diversification Global Emerging Markets Equities
Fund(88) SICAV 99%
Standard Life Investments Global SICAV Euro
Government All Stocks Fund(88) SICAV 100%
Standard Life Investments Global SICAV European
Corporate Bond Fund(88) SICAV 33%
Standard Life Investments Global SICAV European
Equities Fund(88) SICAV 70%
Standard Life Investments Global SICAV European
Equity Unconstrained Fund(88) SICAV 86%
Standard Life Investments Global SICAV European High
Yield Bond Fund(88) SICAV 27%
Standard Life Investments Global SICAV European
Smaller Companies Fund(88) SICAV 39%
Standard Life Investments Global SICAV Global
Absolute Return Strategies Fund(88) SICAV 31%
Name of related undertaking Share class(1) % interest held
Standard Life Investments Global SICAV Global Bond
Fund(88) SICAV 73%
Standard Life Investments Global SICAV Global
Corporate Bond Fund(88) SICAV 63%
Standard Life Investments Global SICAV Global
Emerging Markets Equity Unconstrained Fund(88) SICAV 87%
Standard Life Investments Global SICAV Global
Equities Fund(88) SICAV 90%
Standard Life Investments Global SICAV Global
Focused Strategies Fund(88) SICAV 64%
Standard Life Investments Global SICAV Global High
Yield Bond Fund(88) SICAV 81%
Standard Life Investments Global SICAV Global
Inflation-Linked Bond Fund(88) SICAV 36%
Standard Life Investments Global SICAV Global REIT
Focus Fund(88) SICAV 89%
Standard Life Investments Global SICAV II
Standard Life Investments Global SICAV II
Enhanced-Diversification Multi Asset Fund(88) SICAV 85%
Standard Life Investments Global SICAV II Global
Equity Impact Fund(88) SICAV 100%
Standard Life Investments Global SICAV II Global
Short Duration Corporate Bond Fund(88) SICAV 100%
Standard Life Investments Global SICAV II MyFolio
Multi-Manager I Fund(88) SICAV 80%
Standard Life Investments Global SICAV II MyFolio
Multi-Manager II Fund(88) SICAV 66%
Standard Life Investments Global SICAV II MyFolio
Multi-Manager III Fund(88) SICAV 61%
Standard Life Investments Global SICAV II MyFolio
Multi-Manager IV Fund(88) SICAV 89%
Standard Life Investments Global SICAV II MyFolio
Multi-Manager V Fund(88) SICAV 93%
Standard Life Investments Global SICAV Indian Equity
Midcap Opportunities Fund(88) SICAV 81%
Standard Life Investments Global SICAV Japanese
Equities Fund(88) SICAV 97%
Standard Life Investments Global SICAV Total Return
Credit Fund(88) SICAV 46%
Standard Life Investments GS (Mauritius Holdings)
Limited(8) Ordinary Shares 81%
Standard Life Investments GTAA Company(15) Limited Liability Company 100%
Standard Life Investments Liability Solutions ICAV
Liability Aware Absolute Return II Nominal Profile
Fund(77) ICAV 54%
Liability Aware Absolute Return II Real Profile
Fund(77) ICAV 48%
Standard Life Investments Limited Ordinary Shares 100%
Standard Life Investments Liquidity Fund plc
Euro Liquidity Fund(89) OEIC 31%
Standard Life Investments Multi Asset Class
Company(15) Ordinary Shares 100%
Standard Life Investments Securities LLC(21) Ordinary Shares 100%
Standard Life Investments Strategic Bond Fund Unit Trust 66%
Standard Life Investments UK Real Estate Funds ICVC
Standard Life Investments UK Real Estate Fund OEIC 69%
Standard Life Investments UK Real Estate Trust
Standard Life Investments UK Real Estate
Accumulation Feeder Fund Unit Trust 56%
Standard Life Investments UK Retail Park Trust(90) Unit Trust 57%
Standard Life Investments UK Shopping Centre Feeder
Fund Company Limited(58) Ordinary Shares 100%
Standard Life Investments UK Shopping Centre Trust(90) Unit Trust 41%
Standard Life Japan Trust Unit Trust 78%
Standard Life Lifetime Mortgages Limited(2) Ordinary Shares 100%
Standard Life Master Trust Co. Ltd(3) Ordinary Shares 100%
Standard Life Multi-Asset Trust Unit Trust 100%
Standard Life North American Trust Unit Trust 100%
Standard Life Pacific Basin Trust Unit Trust 98%
Standard Life Pan-European Trust Unit Trust 100%
Standard Life Pension Funds Limited N/A 100%
Standard Life Portfolio Investments Limited Ordinary Shares 100%
Standard Life Premises Services Limited Ordinary Shares 100%
Standard Life Private Equity Trust plc Ordinary Shares 56%
Standard Life Property Company Limited Ordinary Shares 100%
Standard Life Savings Limited Ordinary Shares 100%
Standard Life Savings Nominees Limited Ordinary Shares 100%
Standard Life Short Dated UK Government Bond Trust Unit Trust 100%
Standard Life Trustee Company Limited Ordinary Shares 100%
Standard Life UK Corporate Bond Trust Unit Trust 100%
Standard Life UK Equity General Trust Unit Trust 100%
Standard Life UK Government Bond Trust Unit Trust 100%
Name of related undertaking Share class(1) % interest held
Standard Life Wealth (CI) Limited(91) Ordinary Shares 100%
Standard Life Wealth International Limited(91) Ordinary Shares 100%
Standard Life Wealth Limited Ordinary Shares 100%
Suomen Kaasuenergia Oy(92) Ordinary shares 26%
Suomi Gas Distribution Holdings Oy(55) Ordinary Shares 26%
Suomi Gas Distribution Oy(55) Ordinary Shares 26%
Telles Holding S.a r.l. (52) Ordinary Shares 59%
Tenet Business Solutions Limited(54) Ordinary shares 25%
Tenet Client Services Limited(54) Ordinary shares 25%
Tenet Group Limited(54) Ordinary B Shares 25%
Tenet Limited(54) Ordinary shares 25%
Tenet Valuation Services Limited(54) Ordinary shares 25%
TenetConnect Limited(54) Ordinary shares 25%
TenetConnect Services Limited(54) Ordinary shares 25%
TenetFinancial Solutions Limited(54) Ordinary shares 25%
TenetLime Limited(54) Ordinary shares 25%
TenetSelect Limited(54) Ordinary shares 25%
Tenon Nominees Limited(4) Ordinary shares 100%
The Coaching Platform Limited(6) Ordinary Shares 100%
The Employee Benefits Corporation Limited(54) Ordinary shares 20%
The Heritable Securities and Mortgage Investment
Association Limited(2) Ordinary Shares 100%
The Munro Partnership Ltd.(93) Ordinary Shares 100%
The Standard Life Assurance Company 2006(2) N/A 100%
Threesixty Partnerships Limited(9) Ordinary Shares 100%
Threesixty Services LLP(9) Limited Liability Partnership 100%
Touchstone Insurance Company Limited(94) Ordinary Shares 100%
Two Rivers One Limited(47) Ordinary shares 100%
Two Rivers Two Limited(47) Ordinary shares 100%
UK PRS Opportunities General Partner Limited(5) Ordinary shares 100%
Vebnet Limited(2) Ordinary Shares 100%
VPC Greater China Value Fund(43) Investment Trust 71%
Waverley General Private Equity Limited(27) Ordinary shares 100%
Waverley Healthcare Private Equity Limited(4) Ordinary shares 100%
Wealth Horizon Ltd(53) Ordinary shares 100%
Welbrent Property Investment Company Limited(62) Ordinary Shares 100%
Whiteleys of Bayswater Limited Ordinary Shares 100%
Wise Trustee Limited(53) Ordinary shares 100%
(1) OEIC = Open-ended investment company
SICAV = Société d'investissement à capital variable
ICAV = Irish collective asset-management vehicle
Registered offices
(2) Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH
(3) 14th Floor, 30 St Mary Axe, London, EC3A 8BF
(4) 10 Queen's Terrace, Aberdeen, AB10 1YG
(5) Bow Bells House, 1 Bread Street, London, EC4M 9HH
(6) Cranford House, Kenilworth Road, Blackdown, Leamington Spa,
CV32 6RQ
(7) 133 Cecil Street, #13-03 Keck Seng Tower, 069535,
Singapore
(8) c/o Cim Fund Services Ltd, 33 Edith Cavell Street, Port
Louis, Mauritius
(9) 2nd Floor, The Royals, Altrincham Road, Sharston,
Manchester, M22 4BJ
(10) Avenida de Aragon 330 - Building 5, 3rd Floor, Parque
Empresarial Las Mercedes, 28022 - Madrid, Spain
(11) 2-8 avenue Charles De Gaulle, L-1653 Luxembourg,
Luxembourg
(12) West Area, 2F, No.707 Zhangyang Road, China (Shanghai)
Pilot Free Trade Zone
(13) 21 Church Street, #01-01, Capital Square Two, 049480,
Singapore
(14) 44 Chipman Hill, Suite 1000 POX Box 7283, Stn. "A" Saint
John, N.B. E2L 4S6, Canada
(15) PO Box 309GT, Ugland House, South Church Street, George
Town, KY1-1104, Cayman Islands
(16) Bangkok City Tower, 28th Floor, 179 South Sathorn Road,
Thungmahamek, Sathorn, Bangkok, 10120, Thailand
(17) Strandvejen 58, 2, Hellerup, 2900, Denmark
(18) Bockenheimer Landstrasse 25, 60325 Frankfurt am Main,
Germany
(19) Kaivokatu 6, Helsinki, 00100, Finland
(20) 6th Floor, "B" Torony, Westend Office Building, Vaci Ut
1-3, 1062 Budapest, Hungary
(21) c/o Corporation Service Company, 2711 Centerville Road,
Suite 400, Wilmington, 19808, USA
(22) 1 More London Place, London, SE1 2AF
(23) Level 10, 255 George Street, Sydney, NSW 2000,
Australia
(24) Atria One, 144 Morrison Street, Edinburgh, EH3 8EX
(25) Henrik Ibsens gate 100, PO Box 2882 Solli, 0230 Oslo,
Norway
(26) Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing No.1, Leboh
Ampang 50100 Kuala Lumpur, Indonesia
(27) Ten, George Street, Edinburgh, EH2 2DZ
(28) Box 3039, Stockholm, 103 63, Sweden
(29) c/o Corporation Service Company, 251 Little Falls Drive,
Wilmington, New Castle, 19808, USA
(30) 80, route d'Esch, L-1470 Luxembourg, Luxembourg
(31) Schweizergasse 14, Zurich, 8001, Switzerland
(32) Al Sila Tower, 24th Floor, Abu Dhabi Global Market Square,
Al Maryah Island, PO Box 5100737, Abu Dhabi, United Arab
Emirates
(33) 1266 East Main Street, 5th Floor, Stamford, CT 06902,
USA
(34) c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, DE 19801 Wilmington, USA
(35) Rua Joaquim Floriano, 913 - 7th floor - Cj. 71 São Paulo SP
04534-013, Brazil
(36) 1735 Market St, 32nd FL, Philadelphia, PA 19103, USA
(37) 29 Rue De Berri, Paris, 75008, France
(38) 40 Upper Mount Street, Dublin 2, Republic of Ireland
(39) 35a Avenue John F. Kennedy, L-1855 Luxembourg,
Luxembourg
(40) State Street (Guernsey) Limited, First Floor Dorey Court,
Admiral Park, St Peter Port, Guernsey, GY1 6HJ
(41) 16th Floor, Menara Dea Tower 2, Kawasan Mega Kuningan, Jl
Mega Kuningan Barat Kav. E4.3 No. 1-2, 12950 Jakarta, Indonesia
(42) 6th Floor, Alexandra House, 18 Chater Road, Central, Hong
Kong
(43) 8F-1, No. 101, Songren Road, Taipei City, 110, Taiwan,
Republic of China
(44) First Floor, Sir Walter Raleigh House, 48-50 Esplanade, St
Helier, JE2 3QB, Jersey
(45) Suite 26.3, Level 26, Menara IMC, Letter Box No.66, No. 8,
Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
(46) 13th Fl., B Tower (Seocho-dong, Kyobo Tower Building), 465,
Gangnam-daero, Seocho-gu, Seoul, Korea
(47) Lime Grove House,Green Street, St Helier, JE1 2ST,
Jersey
(48) Ahtri 6a, Tallinn, 10151, Estonia
(49) 2 Boulevard de la Foire, L-1528 Luxembourg, Luxembourg
(50) WTC, H-Tower, 20th Floor, Zuiplein 166, 1077 XV Amsterdam,
The Netherlands
(51) Toranomon Seiwa Building 11F, 1-2-3 Toranomon Minato-Ku,
105-0001 Tokyo, Japan
(52) 6B, rue Gabriel Lippmann, Parc d'Activité Syrdall 2, L-5365
Münsbach, Luxembourg
(53) 2 College Square, Anchor Road, Bristol , BS1 5UE
(54) 5 Lister Hill, Horsforth, Leeds, LS18 5AZ
(55) c/o Dittmar & Indrenius, Pohjoiseplanadi 25 A, 00100,
Helsinki, Finland
(56) Kings Place, 90 York Way, London, N1 9AG,
(57) 11th Floor, Two Snowhill, Birmingham, West Midlands, B4
6WR
(58) 44 Esplanade, St Helier, Jersey, JE4 9WG
(59) 7th Floor, 40 Princes Street, Edinburgh, EH2 2BY
(60) Naritaweg 165, 1043 BW Amsterdam, The Netherlands
(61) ul. Skaryszewska 7, 03-802 Warsaw, Poland
(62) 100 Barbirolli Square, Manchester, M2 3AB
(63) Calle Nanclares de Oca, 1B, 28022 Madrid, Spain
(64) 47 Esplanade, St Helier, Jersey , JE1 0BD
(65) HDFC House, 2nd floor, H.T. Parekh Marg, 165-166, Backbay
Reclamation, Churchgate, Mumbai- 400 020, India
(66) Unit OT 17-30, Level 17, Central Park, Dubai International
Financial Centre, Dubai, 114603, United Arab Emirates
(67) Lodha Excelus, 14th Floor, Apollo Mills Compound, N.M.
Joshi Marg, Mahalaxmi, Mumbai - 400011, Maharashtra, India
(68) Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M.
Joshi Marg, Mahalaxmi, Mumbai - 400011, Maharashtra, India
(69) 18F, Tower II, The Exchange, 189 Nanjing Road, Heping
District, Tianjin, People's Republic of China, 300051
(70) ul. Emilii Plater 53, 00-113, Warszawa, Poland
(71) Datum House, Electra Way, Crewe, Cheshire, CW1 6ZF
(72) Dokkveien 1, P.O.Box 1400 Vika, NO-0115 Oslo, Norway
(73) Clayton Wood Close, West Park Ring Road, Leeds, LS16
6QE
(74) St Martin's House, LE Bordage, St Peter Port, Guernsey, GY1
4AU
(75) V celnici 1031/4, Nové M sto, 110 00 Praha 1, Czech
Republic
(76) Wesley House, Bull Hill, Leatherhead, KT22 7AH
(77) 70 Sir Rogerson's Quay, Dublin 2, Republic of Ireland
(78) Level 2 West, Mercury Tower, The Exchange Financial &
Business Centre, Elia Zammit Street, St Julian's, STJ 3155,
Malta
(79) c/o Citco (Mauritius) Limited, 4th Floor, Tower A, 1
CyberCity, Ebene, Mauritius
(80) Springpark House, Basing View, Basingstoke, RG21 4HG
(81) Avenue Louise 326, bte 33, 1050 Brussels, Belgium
(82) 40th Floor, Tower One, Times Square, 1 Matheson Street,
Causeway Bay, Hong Kong
(83) 90 St Stephen's Green, Dublin 2, Republic of Ireland
(84) 100 Avenue des Champs Elysees, 1 Rue de Berri, F- 75008,
Paris, France
(85) 31st Floor, 30 St Mary Axe, London, EC3A 8BF
(86) 30th Floor, Jardine House, One Connaught Place, Hong
Kong
(87) 8 Marina Boulevard #05-02, Marina Bay Financial Centre
Tower 1 01 8981, Singapore
(88) 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
(89) 25/28 North Wall Quay, Dublin 1, Republic of Ireland
(90) Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4
2QP
(91) Liberte House, 19-23 La Molle Street, St Helier, Jersey,
JE4 5RL
(92) Pulttikatu 1, 48770 Kotka, Finland
(93) Citadel House, 6 Citadel Place, Ayr, KA7 1JN
(94) PO Box 33, Maison Trinity, Trinity Square, St Peter Port,
Guernsey, GY1 4AT
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DMGZZZFVGRZG
(END) Dow Jones Newswires
February 23, 2018 02:01 ET (07:01 GMT)
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