Analysis of assets

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Total assets - Valuation bases/fair value hierarchy

Valuation bases

The valuation of the group's assets can be categorised into the following major categories:

1. Fair value - Fair value is the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm's length transaction;
2. 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;
3. 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 statement of financial position. 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
4. Within the group's statement of financial position, 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.

Assets have been valued with 82% of assets (including 100% of financial investments) measured at fair value.

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 30 June 2009 financial position. Furthermore, all other assets have been tested for impairment and, in the case of financial assets (which includes loans, receivables and cash) 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 hierarchy

To provide further information on the valuation techniques used to measure assets carried at fair value, this disclosure categorises the measurement basis for assets carried at fair value into a "fair value hierarchy" as follows:

Quoted market prices in active markets - ("Level 1")

Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets. An active market is a market in which transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Examples are listed equities in active markets, listed debt securities in active markets and quoted unit trusts in active markets.

Valued using models with significant observable market parameters - ("Level 2")

Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. If the asset has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset.

Level 2 inputs include the following:

• Quoted prices for similar (ie not identical) assets in active markets;
• Quoted prices for identical or similar assets in markets that are not active, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
• Inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates); and
• Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).

Examples are securities measured using discounted cash flow models based on market observable swap yields, investment property measured using market observable information and listed debt or equity securities in a market that is inactive.

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