Preliminary results year ended 31 December 2008
05 March 2009
Appendix B – Analysis of assets
B4 – Total assets – Valuation bases/fair value hierarchy
Valuation Bases
The valuation of the group’s assets can be categorised into the following major categories:
- Fair Value – Fair value is the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm’s length transaction;
- Cost/Amortised Cost – The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition less principal repayments, plus or minus the cumulative amortisation (using the effective interest method) of any difference between the initial amount and the maturity amount, and less any reduction for impairment or uncollectibility. The cost/amortised cost of a non-financial asset is the amount at which the asset is initially recognised less any cumulative amortisation/depreciation (if applicable), and less any reduction for impairment.
- Equity Accounted and tax assets – Investments in associates and joint ventures are accounted for using the equity method of accounting. Under this method, the cost of the investment in a given associate or joint venture, together with the group’s share of that entity’s post-acquisition changes to shareholders’ funds, is included as an asset in the consolidated balance sheet. The group’s share of their post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. Distributions received from the investee reduce the group’s carrying amount of the investment; and
Within the group’s balance sheet, assets are recognised for deferred tax and current tax. The valuation basis of these assets does not directly fall within any of the categories outlined above. As such, these assets have been reported together with Equity Accounted within the analysis of the group’s assets in the table below.
| Fair value £m |
Amortised cost £m |
Equity accounted/ tax assets £m |
Total £m |
|
|---|---|---|---|---|
| Assets | ||||
| Goodwill and Acquired value of in-force business and intangible assets | – | 7,630 | – | 7,630 |
| Interests in joint ventures and associates | – | – | 2,983 | 2,983 |
| Property and equipment | 566 | 500 | – | 1,066 |
| Investment property | 14,426 | – | – | 14,426 |
| Loans | 21,468 | 20,769 | – | 42,237 |
| Financial investments | ||||
| Debt securities | 150,591 | – | – | 150,591 |
| Equity securities | 43,411 | – | – | 43,411 |
| Other investments | 36,116 | – | – | 36,116 |
| Reinsurance assets | – | 7,894 | – | 7,894 |
| Deferred tax assets | – | – | 2,642 | 2,642 |
| Current tax assets | – | – | 622 | 622 |
| Receivables and other financial assets | – | 10,202 | – | 10,202 |
| Deferred acquisition costs and other assets | – | 6,148 | – | 6,148 |
| Prepayments and accrued income | – | 3,920 | – | 3,920 |
| Cash and cash equivalents | 24,674 | – | – | 24,674 |
| Total | 291,252 | 57,063 | 6,247 | 354,562 |
| Total % | 82.1% | 16.1% | 1.8% | |
| FY 2007 | 267,124 | 49,438 | 4,764 | 321,326 |
| FY 2007 % | 83.1% | 15.4% | 1.5% |
As shown in the above table, 82% of the group’s total assets are carried at fair value (inclusive of cash and cash equivalents).
With such a significant portion of the group’s total assets carried at fair value, the impact of market risks and credit risks of these assets has been fully reflected within the group’s reported 31 December 2008 financial position. Furthermore, all other assets have been tested for impairment and, in the case of financial assets carried at amortised cost, this has included a specific analysis of the recoverability of the assets by reference to the credit risk of the counterparty.
The carrying values of assets on the different valuation bases are analysed in the tables below between Policyholder, Participating Fund and Shareholder Assets respectively.
| Fair value £m |
Amortised cost £m |
Equity accounted/ tax assets £m |
Total £m |
|
|---|---|---|---|---|
| Assets – Policyholder assets | ||||
| Goodwill and Acquired value of in-force business and intangible assets | – | – | – | – |
| Interests in joint ventures and associates | – | – | 194 | 194 |
| Property and equipment | 38 | – | – | 38 |
| Investment property | 4,126 | – | – | 4,126 |
| Loans | 147 | 1,652 | – | 1,799 |
| Financial investments | ||||
| Debt securities | 19,588 | – | – | 19,588 |
| Equity securities | 23,840 | – | – | 23,840 |
| Other investments | 23,527 | – | – | 23,527 |
| Reinsurance assets | – | 1,704 | – | 1,704 |
| Deferred tax assets | – | – | – | – |
| Current tax assets | – | – | – | – |
| Receivables and other financial assets | – | 470 | – | 470 |
| Deferred acquisition costs and other assets | – | 233 | – | 233 |
| Prepayments and accrued income | – | 249 | – | 249 |
| Cash and cash equivalents | 4,125 | – | – | 4,125 |
| Total | 75,391 | 4,308 | 194 | 79,893 |
| Total % | 94.4% | 5.4% | 0.2% | |
| FY 2007 | 80,187 | 2,905 | 749 | 83,841 |
| FY 2007 % | 95.6% | 3.5% | 0.9% |
| Fair value £m |
Amortised cost £m |
Equity accounted/ tax assets £m |
Total £m |
|
|---|---|---|---|---|
| Assets – Participating fund assets | ||||
| Goodwill and Acquired value of in-force business and intangible assets | – | – | – | – |
| Interests in joint ventures and associates | – | – | 950 | 950 |
| Property and equipment | 65 | 28 | – | 93 |
| Investment property | 7,555 | – | – | 7,555 |
| Loans | 1,167 | 7,535 | – | 8,702 |
| Financial investments | ||||
| Debt securities | 79,566 | – | – | 79,566 |
| Equity securities | 13,817 | – | – | 13,817 |
| Other investments | 9,443 | – | – | 9,443 |
| Reinsurance assets | – | 803 | – | 803 |
| Deferred tax assets | – | – | – | – |
| Current tax assets | – | – | – | – |
| Receivables and other financial assets | – | 2,038 | – | 2,038 |
| Deferred acquisition costs and other assets | – | 1,011 | – | 1,011 |
| Prepayments and accrued income | – | 1,355 | – | 1,355 |
| Cash and cash equivalents | 9,332 | – | – | 9,332 |
| Total | 120,945 | 12,770 | 950 | 134,665 |
| Total % | 89.8% | 9.5% | 0.7% | |
| FY 2007 | 109,109 | 12,913 | 1,675 | 123,697 |
| FY 2007 % | 88.2% | 10.4% | 1.4% |
| Fair value £m |
Amortised cost £m |
Equity accounted/ tax assets £m |
Total £m |
|
|---|---|---|---|---|
| Assets – Shareholder assets | ||||
| Goodwill and Acquired value of in-force business and intangible assets | – | 7,630 | – | 7,630 |
| Interests in joint ventures and associates | – | – | 1,839 | 1,839 |
| Property and equipment | 463 | 472 | – | 935 |
| Investment property | 2,745 | – | – | 2,745 |
| Loans | 20,154 | 11,582 | – | 31,736 |
| Financial investments | ||||
| Debt securities | 51,437 | – | – | 51,437 |
| Equity securities | 5,754 | – | – | 5,754 |
| Other investments | 3,146 | – | – | 3,146 |
| Reinsurance assets | – | 5,387 | – | 5,387 |
| Deferred tax assets | – | – | 2,642 | 2,642 |
| Current tax assets | – | – | 622 | 622 |
| Receivables and other financial assets | – | 7,694 | – | 7,694 |
| Deferred acquisition costs and other assets | – | 4,904 | – | 4,904 |
| Prepayments and accrued income | – | 2,316 | – | 2,316 |
| Cash and cash equivalents | 11,217 | – | – | 11,217 |
| Total | 94,916 | 39,985 | 5,103 | 140,004 |
| Total % | 67.8% | 28.6% | 3.6% | |
| FY 2007 | 77,828 | 33,620 | 2,340 | 113,788 |
| FY 2007 % | 68.4% | 29.5% | 2.1% |
68% of shareholder assets are measured at fair value (inclusive of cash and cash equivalents). The remaining assets include goodwill, loans, reinsurance assets and receivables; all carried at amortised cost and are subject to regular impairment reviews.
