Final Results - Part 6 of 8

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.

Reportable segment	Participating insurance contracts	Non-participating insurance contracts	Participating investment contracts	Non-participating investment contracts
Pensions and Savings	Germany unitised with profits deferred annuity contracts UK & Ireland unitised with profits life contracts	UK & Ireland annuity-in-payment contracts Certain UK & Ireland unit linked investment bonds UK deferred annuity contracts Germany unit linked deferred annuity contracts	UK & Ireland unitised with profits pension contracts	UK & Ireland unit linked pension contracts Certain UK & Ireland unit linked investment bonds
India and China life		Hong Kong unit linked life contracts
Aberdeen Standard Investments				UK unit linked 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
		£m	£m
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	£m	£m
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
	£m	£m
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
		£m	£m
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 £12,667m (2016: £13,532m) and UK deferred annuities of £1,289m (2016: £1,415m).

(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:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contract liabilities	Reinsurance contracts	Net
2017	£m	£m	£m	£m	£m	£m
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 statement1	(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 (£100m) (2016 £nil) and £7m (2016: £nil) 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 £141m includes a decrease of £51m 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 £90m (net of reinsurance) in respect of non-participating business, which primarily relates to changes in mortality assumptions.

	Participating insurance contract liabilities	Non- participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2016	£m	£m	£m	£m	£m	£m
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
		£m	£m
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
Individual and group in deferment	Males: 62.6% AMC00	Males: 64.7% AMC00
	Females: 64.2% AFC00	Females: 65.7% AFC00
Individual after vesting (business written after 10 July 2006)	Males: 95.3% RMC00	Males: 91.2% RMC00
	Females: 99.3% RFC00	Females: 99.9% RFC00
Individual after vesting (business written prior to 10 July 2006)	Males: 100.1% RMC00	Males: 95.7% RMC00
	Females: 105.5% RFC00	Females: 104.7% RFC00
Group after vesting (business written after 10 July 2006)	Males: 113.0% RMV00	Males: 109.8% RMV00
	Females: 117.5% WA00	Females: 118.3% WA00
Group after vesting (business written prior to 10 July 2006)	Males: 112.5% RMV00	Males: 109.3% RMV00
	Females: 120.1% WA00	Females: 120.1% 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	£m	£m
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 statement1		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 £9m (2016 £nil) 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 as at fair value through profit or loss	Held for trading	Cash flow hedge	Financial liabilities measured at amortised cost	Total
2017	Notes	£m	£m	£m	£m	£m
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 at fair value through profit or loss	Held for trading	Financial liabilities measured at amortised cost	Total
2016	Notes	£m	£m	£m	£m
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
	Notes	Principal amount	Carrying value	Principal amount	Carrying value
Capital notes
7.0% US Dollar fixed rate perpetual		$500m	£377m	-	-
Subordinated notes
4.25% US Dollar fixed rate due 30 June 2048		$750m	£556m	-	-
5.5% Sterling fixed rate due 4 December 2042		£500m	£500m	£500m	£499m
Subordinated guaranteed bonds
6.75% Sterling fixed rate perpetual		£500m	£502m	£500m	£502m
Mutual Assurance Capital Securities
6.546% Sterling fixed rate perpetual		£300m	£318m	£300m	£318m
Total subordinated liabilities	39		£2,253m		£1,319m

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 £44m (2016: £37m) 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 £100 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 fixed rate1	5.5% Sterling fixed rate	6.75% Sterling fixed rate	6.546% Sterling fixed rate
Principal amount	$750,000,000	£500,000,000	£500,000,000	£300,000,000
Issue date	18 October 2017	4 December 2012	12 July 2002	4 November 2004
Maturity date	30 June 2048	4 December 2042	Perpetual	Perpetual
Callable at par at option of the Company from	30 June 2028 and on every interest payment date (semi-annually) thereafter	4 December 2022 and on every interest payment date (semi-annually) thereafter	12 July 2027 and on every fifth anniversary thereafter	6 January 2020 and on every anniversary thereafter
If not called by the Company interest will reset to	2.915% over the five-year Treasury rate (and at each fifth anniversary)	4.85% over the five-year gilt rate (and at each fifth anniversary)	2.85% over the gross redemption yield on the appropriate five-year benchmark gilt rate	2.7% over the gross redemption yield on the appropriate one-year benchmark 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 Life Group plan (principal plan)	This is the Group's principal defined benefit plan. The plan closed to new membership in 2004 and changed from a final salary basis to a revalued career average salary basis in 2008. Accrual ceased in April 2016. 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 £4.9bn and £4.2bn respectively. This corresponds to a surplus of £0.7bn and funding level of 117%. As there is currently no deficit, no recovery plan is required.
Other UK plans	The Group also operates two UK defined benefit 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 Standard Life plan	In December 2009 this plan closed to new membership and changed from a final salary basis to a career average revalued earnings (CARE) basis. 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	£m	£m
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 £12m (2016: £4m). Expected contributions to defined benefit plans in 2018 are £15m and are not expected to materially change over the next 3-5 years. These include £7m in 2017 and £11m contributions expected in 2018 to Aberdeen UK plans in respect of deficit funding agreed with the trustees. The current deficit on these plans is £18m.

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 plan	Other	Total	Principal plan	Other	Total
	£m	£m	£m	£m	£m	£m
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

	Present value of obligation	Fair value of plan assets	Total	Effect of limit on plan surpluses	Total
2017	£m	£m	£m	£m	£m
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

	Present value of obligation	Fair value of plan assets	Total	Effect of limit on plan surpluses	Total
2016	£m	£m	£m	£m	£m
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
	£m	£m	£m	£m	£m	£m
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 £2,949m (2016: £3,547m) of debt securities includes £2,858m (2016: £3,357m) government bonds (including conventional and index-linked). Of the remaining £91m (2016: £190m) debt securities, £75m (2016: £169m) 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 £75m (2016: £nil) 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 £nil 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:

			Normal Retirement Age (NRA)	Expectation of life from NRA
				Male age today		Female age today
2017	Table	Improvements		NRA	40	NRA	40
	Plan specific basis (calibrated by Club Vita) reflecting membership demographics	Advanced parameterisation of CMI 2013 mortality improvements model - adjusted to assume that improvements continue to increase in the short term before declining toward an ultimate long-term rate of 1.375%	60	30	32	31	34

			Normal Retirement Age (NRA)	Expectation of life from NRA
				Male age today		Female age today
2016	Table	Improvements		NRA	40	NRA	40
	Plan specific basis (calibrated by Club Vita) reflecting membership demographics	Advanced parameterisation of CMI 2011 mortality improvements model - adjusted to assume that improvements continue to increase in the short term before declining toward an ultimate long-term rate of 1.375%	60	30	32	32	34

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	years1
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
	Change in assumption		(Increase)/decrease in present value of obligation	Increase/(decrease) in fair value of plan assets	(Increase)/decrease in present value of obligation	Increase/(decrease) in fair value of plan assets
			£m	£m	£m	£m
Yield/discount rate	Decrease by 1% (i.e. from 2.60% to 1.60%)		(1,018)	1,634	(1,040)	1,768
	Increase by 1%		727	(1,144)	739	(1,226)
Rates of inflation	Decrease by 1%		624	(987)	629	(1,089)
	Increase by 1%		(883)	1,395	(912)	1,553
Life expectancy	Decrease by 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	£m	£m
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 £115m (2016: £148m).

37.   Other financial liabilities

		2017	2016
	Notes	£m	£m
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 £141m (2016: £211m).

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	£m	£m	£m	£m
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	£m	£m	£m	£m
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 £102m (2016: £106m).

Annuity sales practices relating to enhanced annuities

The provision for annuity sales practices includes £229m (2016: £175m) 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 £100m 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 £25,000, is assumed to be £300 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 £180 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.

Assumption	Change in assumption	Consequential change in provision
Percentage of customers eligible for an enhanced annuity	Percentage changed by +/-4.5 (e.g. 43.5% increased to 48%)	+/- £17m
Percentage of eligible customers that did not receive sufficient information from Standard Life Aberdeen about enhanced annuities	Percentage changed by +/-5	+/- £12m
Lost income per annum for an average annuity purchase of £25,000	+/- £60	+/- £37m
Costs per case of conducting the review	+/- 20% of the cost per case	+/- £6m

(b)     Other liabilities

The amount of other liabilities expected to be settled after more than 12 months is £nil (2016: £nil).

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 & legal	The risk that arises 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.
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
Reportable segment	Shareholder business	Participating business	Unit linked funds1
Pensions and Savings	SLAL - SHF SLAL - PBF (excluding unit linked funds) SLS SLCM Vebnet Group SL Intl (excluding unit linked funds)	SLAL - HWPF SLAL - GWPF SLAL - GSMWPF SLAL - UKSMWPF	SLAL - PBF unit linked funds SL Intl unit linked funds
Aberdeen Standard Investments	SLIH and all its subsidiaries AAM and all its subsidiaries excluding AAMLP	n/a	AAMLP
India and China life	SL Asia (excluding unit linked funds) Interests in Indian and Chinese associates and joint ventures	n/a	SL Asia unit linked funds
Other	Company	n/a	n/a
SLAL = Standard Life Assurance Limited SLIH = Standard Life Investments (Holdings) Limited SL Intl = Standard Life International Designated Activity Company SL Asia = Standard Life (Asia) Limited SLS = Standard Life Savings Limited (including Elevate) SLCM = Standard Life Client Management Limited AAM = Aberdeen Asset Management PLC		HWPF = Heritage With Profits Fund PBF = Proprietary Business Fund GWPF = German With Profits Fund GSMWPF = German Smoothed Managed With Profits Fund SHF = Shareholder Fund UKSMWPF = UK Smoothed Managed With Profits Fund AAMLP = Aberdeen Asset Management 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:

Risk	Shareholder business	Participating business	Unit linked funds	Third party interest in consolidated funds and non-controlling interests (TPICF & NCI)
Market	The shareholder is directly exposed to the impact of movements in equity and property prices, interest rates and foreign exchange rates on the value of assets held by the shareholder business and the associated movements in the value of liabilities.	The shareholder is exposed to the market risk that the assets of the with profits funds are not sufficient to meet their obligations. If this situation occurred the shareholder would be exposed to the full shortfall in the funds.	Assets are managed in accordance with the mandates of the particular funds and the financial risks associated with the assets are borne by the policyholder. The shareholder's exposure arises from the changes in the value of future fee based revenue earned on unit linked funds due to market movements.	The shareholder is not exposed to the market risk from assets in respect of TPICF & NCI since the financial risks of the assets are borne by third parties.
Credit	The shareholder is directly exposed to credit risk from holding cash, debt securities, loans, derivative financial instruments and reinsurance assets and the associated movement in the value of liabilities.	The shareholder is exposed to the credit risk on the assets which could cause the with profits funds to have insufficient resources to meet their obligations. If this situation occurred the shareholder would be exposed to the full shortfall in the funds.	Assets are managed in accordance with the mandates of the particular funds and the financial risks associated with the assets are expected to be borne by the policyholder. The shareholder's exposure is limited to changes in the value of future fee based revenue earned on unit linked funds due to market movements.	The shareholder is not exposed to the credit risk from assets in respect of TPICF & NCI since the financial risks of the assets are borne by third parties.
Demographic and expense	The shareholder is exposed to longevity and mortality risk on annuity contracts held by Pensions and Savings, and mortality risk on contracts held in non-participating funds by Pensions and Savings, and India and China life including those containing insurance features that are invested in unit linked funds or in the GWPF or GSMWPF. The shareholder is also exposed to expenses and persistency being different from expectation on these contracts.	The shareholder receives recourse cash flows and certain other defined payments in accordance with the Scheme of Demutualisation and other relevant agreements. The recourse cash flows are based on several different components of which some are sensitive to demographic and expense risk.	The shareholder is exposed to demographic and expense risk arising on components of a unit linked fund contract, but it is not the assets or liabilities of the fund which gives rise to this exposure.	TPICF & NCI are not exposed to demographic and expense risk.
Liquidity	The shareholder is directly exposed to the liquidity risk from the shareholder business if it 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.	With profits funds are normally expected to meet their obligations through liquidating assets held in the respective with profits fund. If a with profits fund cannot meet its obligations as they fall due, the shareholder will be required to provide liquidity to meet the policyholder claims and benefits as they fall due.	Unit linked funds are normally expected to meet their obligations through liquidating the underlying assets in which they are invested. If a unit linked fund cannot meet its obligations in this way, the shareholder may be required to meet the obligations to the policyholder.	The shareholder is not exposed to the liquidity risk from these liabilities, since the financial risks of the obligations are borne by third parties.

The shareholder is exposed to operational, 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 business		Participating business		Unit linked funds		TPICF & NCI1		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 assets2	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 £8,604m and equity attributable to preference shareholders of £99m.

(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	£m	£m
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 business		Participating business		Total
	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m
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 £204m (2016: £30m). 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 £808m (2016: £970m).

(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
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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

	UK Sterling		Euro		Canadian Dollar		Hong Kong Dollar		US Dollar		Indian Rupee		Singapore Dollar		Other currencies		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £5m (2016: £9m) and liabilities of £36m (2016: £7m) 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

	UK Sterling		Euro		Canadian Dollar		Hong Kong Dollar		US Dollar		Indian Rupee		Singapore Dollar		Other currencies		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £8m (2016: £49m) and liabilities of £3m (2016: £11m) 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

	Equity markets				Interest rates
2017	+10%	-10%	+20%	-20%	+1%	-1%
Increase/(decrease) in profit after tax	£m	£m	£m	£m	£m	£m
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.

	Equity markets				Interest rates
2016	+10%	-10%	+20%	-20%	+1%	-1%
Increase/(decrease) in profit after tax	£m	£m	£m	£m	£m	£m
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 (£15m) (2016: (£17m)) and to a 1% decrease in interest rates is £15m (2016: £17m). The sensitivity of the Group's total equity to a 1% increase in interest rates is (£31m) (2016: (£39m)) and a 1% decrease in interest rates is £33m (2016: £57m).

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 £3,846m (2016: £3,779m) 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 equivalents	Maximum counterparty exposure limits are set with reference to internal credit assessments.
Derivative financial instruments	Maximum counterparty exposure limits, net of collateral, are set with reference to internal credit assessments. The forms of collateral that may be accepted are also specified and minimum transfer amounts in respect of collateral transfers are documented. Refer to 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 instruments	Appropriate limits are set for other financial instruments to which the Group may have exposure at certain times, for example commission terms paid to intermediaries.

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

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

(c)(i) Credit exposure

Assets are deemed to be past due when a counterparty has failed to make a payment when contractually due.

The objective evidence that is taken into account in determining whether any impairment of debt securities has occurred includes:

·  A default against the terms of the instrument has occurred

·  The issuer is subject to bankruptcy proceedings or is seeking protection from creditors through bankruptcy, individual voluntary arrangements or similar process

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

Shareholder business

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

	Loans to associates and joint ventures		Reinsurance assets		Loans		Derivative financial assets		Debt securities		Receivables and other financial assets		Cash and cash equivalents		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £19m (2016: £7m) were past due by less than three months and £2m (2016: £1m) were past due by three to six months and £3m (2016: £nil) 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 and municipal1		Banks		Other financial institutions		Other corporate		Other2		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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:

	Reinsurance assets		Loans		Derivative financial assets		Debt securities		Receivables and other financial assets		Cash and cash equivalents		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £5m (2016: £6m) were past due by less than three months.

Not rated loans of £60m (2016: £74m) 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 £4,621m (2016: £5,093m) 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 and municipal1		Banks		Other financial institutions		Other corporate		Other2		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £18m (2016: £22m). A further reduction of £79m (2016: £58m) 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 £46m (2016: £30m) of cash and £103m (2016: £187m) of securities as collateral for derivative financial liabilities. At 31 December 2017, the Group had accepted £1,501m (2016: £2,016m) of cash and £947m (2016: £808m) 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 of financial position	Financial instruments	Financial collateral pledged/(received)	Net position
As at 31 December 2017	£m	£m	£m	£m
Financial assets
Derivatives1	2,043	(465)	(1,508)	70
Reverse repurchase agreements	900	-	(899)	1
Total financial assets	2,943	(465)	(2,407)	71
Financial liabilities
Derivatives1	(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 of financial position	Financial instruments	Financial collateral pledged/(received)	Net position
As at 31 December 2016	£m	£m	£m	£m
Financial assets
Derivatives1	2,654	(558)	(2,000)	96
Reverse repurchase agreements	800	-	(804)	(4)
Total financial assets	3,454	(558)	(2,804)	92
Financial liabilities
Derivatives1	(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 £1,444m (2016: £835m) of which £59m related to participating business (2016: £116m), £865m related to shareholder business (2016: £719m) and £520m related to unit linked funds (2016: £nil). During the year, fair value gains of £2m (2016: £27m 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 £3m (2016: £9m 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.

(Decrease)/increase in profit after tax and equity	Longevity		Expenses		Persistency		Morbidity/mortality
	+5%	-5%	+10%	-10%	+10%	-10%	+5%	-5%
2017	£m	£m	£m	£m	£m	£m	£m	£m
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

(Decrease)/increase in profit after tax and equity	Longevity		Expenses		Persistency		Morbidity/mortality
	+5%	-5%	+10%	-10%	+10%	-10%	+5%	-5%
2016	£m	£m	£m	£m	£m	£m	£m	£m
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.

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	No defined maturity	Total
2017	£m	£m	£m	£m	£m	£m	£m	£m
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

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	No defined maturity	Total
2016	£m	£m	£m	£m	£m	£m	£m	£m
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.

	Within 1 year		2-5 years		6-10 years		11-15 years		16-20 years		Greater than 20 years		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating investment contract liabilities	4	4	-	-	-	-	-	-	-	-	-	-	4	4
Subordinated liabilities	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 £411m and £36m respectively (2016: £453m and £nil).

(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 business		Participating business		Unit linked funds		TPICF & NCI1		Total
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £11,146m (2016: £7,376m) of unconsolidated structured entities which are managed by the Group and in which the Group has a direct investment of which £5,936m (2016: £4,797m restated; previously reported as £7,376m) relates to investments in associates measured at FVTPL. The asset value of these unconsolidated structured entities is £62,741m (2016: £41,379m) of which £19,219m (2016: £18,198m restated; previously reported as £41,379m) 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 £254m (2016: £265m) of which £31m (2016: £17m restated; previously reported as £265m) 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 £59,169m (2016: £57,877m).

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 £80,454m at 31 December 2017 (2016: £12,634m). The fees recognised in respect of these assets under management during the year to 31 December 2017 were £305m (2016: £61m).

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 £1).

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 item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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: £98m). 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 item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 NCI1
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 NCI1	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 line item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 line item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 NCI1
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 NCI1	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.

	Investment property		Owner occupied property		Equity securities and interests in pooled investment funds		Debt securities		Liabilities in respect of third party interest in consolidated funds
	2017	2016	2017	2016	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 securities1	(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
Purchases2	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 33	-	-	-	-	8	5	27	-	-	-
Transfers out of level 33	-	-	-	-	(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 £319m 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 £nil (2016: £1,289m) 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 £6m at 31 December 2017 (2016: £10m) and contingent consideration liabilities with a fair value of £25m (2016: £15m). Settlements of contingent consideration liabilities during the year were £7m (2016: £nil). Movements in the fair value of contingent consideration assets and liabilities are recognised in the consolidated income statement.

As at 31 December 2017, £425m of total gains (2016: £119m 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 £478m gains (2016: £137m losses) were recognised in investment return, £4m gains (2016: £1m losses) were recognised in other administrative expenses and £57m losses (2016: £19m 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
2017	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,571	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.3% to 9.0% (5.2%) £32 to £1,716 (£326)
Investment property (hotels)	402	Income capitalisation	Equivalent yield Estimated rental value per room per annum	3.8% to 6.6% (5.1%) £995 to £10,000 (£5,841)
Investment property and owner occupied property	68	Market comparison	Estimated value per square metre	£2 to £10,932 (£3,451)
Equity securities and interests in pooled investment funds	997	Adjusted net asset value	Adjustment to net asset value1	N/A
Debt securities (commercial mortgages)	379	Discounted cash flow	Credit spread	1.9% to 2.6% (2.2%)
Debt securities (income strips)	520	Income capitalisation	Equivalent yield	4.1% to 6.5% (5.1%)
Debt securities (unquoted corporate bonds)	506	Discounted cash flow	Credit spread	0.7% to 2.1% (1.6%)
Debt securities (infrastructure loans)	39	Discounted cash flow	Credit spread	1.9% to 2.6% (2.3%)

	Fair value
2016	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,567	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.6% to 9.1% (5.4%) £29 to £2,422 (£336)
Investment property (hotels)	596	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.6% to 7.1% (5.7%) £990 to £13,750 (£5,462)
Investment property and owner occupied property	60	Market comparison	Estimated value per square metre	£2 to £12,807 (£4,081)
Equity securities and interests in pooled investment funds	958	Adjusted net asset value	Adjustment to net asset value1	N/A
Debt securities (commercial mortgages)	451	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	373	Discounted cash flow	Credit spread	0.2% to 4.3% (1.9%)
Debt securities (infrastructure loans)	11	Discounted cash flow	Credit spread	2.2% (2.2%)2
Debt securities (other)	33	Single broker	Single broker indicative price3	N/A

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 £nil (2016: an increase of £40m).

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 £25m for the year to 31 December 2017 for such changes in fair value is to reduce or increase that profit by £24m or £64m 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	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
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 £15,313m (2016: £15,537m). 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
	£m	£m
Investment property	(373)	(116)
Equity securities and interests in pooled investment funds1	(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 method1	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
	£m	£m
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
		£m	£m
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
	Non-controlling interests - ordinary shares	Third party interest in consolidated funds	Total	Non-controlling interests - ordinary shares	Third party interest in consolidated funds	Total
	£m	£m	£m	£m	£m	£m
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
	£m	£m
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 £81m (2016: £81m), interest paid in the consolidated statement of cash flows includes £13m (2016: £nil) 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 £167m (2016: £286m) in respect of investment property and income strips (discussed in Note 41). Of this amount, £147m (2016: £220m) and £20m (2016: £66m) 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 £447m (2016: £453m) in respect of unrecognised financial instruments to customers and third parties. Of this amount £360m (2016: £363m) 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
	£m	£m
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 £74m (2016: £nil). 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.

Plan	Recipients	Conditions which must be met prior to vesting
Standard Life Long-term incentive plan (Standard Life LTIP)	Executives and senior management	Service and performance conditions as set out in the Directors' remuneration report
Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP)	Executives and senior management	Service and performance conditions as set out in the Directors' remuneration report
Standard Life Restricted stock plan (Standard Life RSP)	Executives (other than executive Directors) and senior management	Service, or service and performance 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.

Plan	Recipients	Conditions which must be met prior to vesting
Short-term incentive plan (Standard Life Group STIP)	Executives and senior management	Service and performance conditions as set out in the Directors' remuneration report. There are no outstanding performance conditions.
Aberdeen Asset Management Deferred Share Plan 2009 (Aberdeen Asset Management DSP 2009)	Executives and senior management	Service conditions of one, two and three years after the date of the award (one to 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. 

Plan	Recipients	Conditions which must be met prior to vesting
Aberdeen Asset Management USA Deferred Share Award Plan (Aberdeen Asset Management USA DSAP)	US based executives and senior management	Service conditions of one, two and three years after the date of the 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 £1,800. The Group offers to match the number of shares bought up to a value of £50 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
	Long-term incentive plans (excluding RSP)	RSP	Short-term incentive plans	Sharesave	Weighted average exercise price for Sharesave	Long-term incentive plans (excluding RSP)	RSP	Short-term incentive plan	Sharesave	Weighted average exercise price for 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 plans (excluding RSP)	RSP	Short-term incentive plans	Sharesave
Options granted during the year
Grant date	27 March 2017	Throughout	31 March 2017 and 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 411p1	67p
Exercise price	Nil	Nil	Nil	333p-345p
Dividends	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	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	The plan includes the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date for the Standard Life Group STIP and the exercise date for the Aberdeen Asset Management DSP 2009	No dividend 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
£nil	58,567,339	43,561,955
172p	542,526	-
Short-term incentive plan
£nil	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
	Annual bonus deferred share awards	Share incentive  plan1	Share incentive  plan
Number of share awards granted	955,823	529,277	503,931
Number of share awards replaced	573,099	-	-
Share price at date of grant2	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
	£m	£m
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 £12m (2016: £nil) 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 £3m (2016: £4m).

Deferred fund awards

At 31 December 2017, the liability recognised for cash-settled deferred awards was £52m (2016: £nil). The total intrinsic value of unvested awards at 31 December 2017 was £31m (2016: £nil).

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 £4m (2016: £5m) 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 £1m). 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 £nil (2016: £nil) and from joint ventures of £nil (2016: £3m) at 31 December 2017. The Group's defined benefit pension plans have assets of £1,210m (2016: £1,028m) 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
	£m	£m
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 £nil (2016: £1m) 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 £14m (2016: £16m). 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	BIPRU1	BIPRU1
Aberdeen Asset Management PLC	IFPRU2	IFPRU2
Standard Life Assurance Limited (SLAL)	SII internal model	SII internal model
Standard Life International DAC	SII standard formula	SII standard formula
Aberdeen Asset Management Life and Pensions Limited	SII standard formula	SII standard formula
Standard Life Aberdeen plc	-	SII internal model
Standard Life (Asia) Limited	Local regime (Hong Kong)	SII standard formula
Heng An Standard Life Insurance Company Limited	Local regime (China)	SII standard formula
HDFC Standard Life Insurance Company Limited	Local regime (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:

	20171	20161
	£bn	£bn
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 20171	£bn	£bn	£bn
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 20161	£bn	£bn	£bn
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:

	20175	20165
	£bn	£bn
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 funds1	(0.7)	(1.2)
Remove subordinated liabilities contribution to own funds2	(2.1)	(1.6)
Remove value of fee business future profits3	(3.0)	(2.9)
Add IFRS pension scheme surplus1	1.1	1.1
Add IFRS DAC, DIR and other intangibles assets and other valuation differences4	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 £3.24bn. This comprises cash payable on closing of £2.0bn, a dividend to be paid by SLAL to the Company of £0.3bn 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 £1.0bn 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 £48bn 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 £85m (2016: £3m) 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 class1	% interest held
30 STMA 1 Limited3		Ordinary Shares	100%
30 STMA 2 Limited3		Ordinary Shares	100%
30 STMA 3 Limited3		Ordinary Shares	100%
30 STMA 4 Limited3		Ordinary Shares	100%
30 STMA 5 Limited3		Ordinary Shares	100%
Aberdeen Asset Management PLC4		Ordinary Shares	100%
Focus Solutions Group Limited6		Ordinary Shares	100%
Standard Life (Asia Pacific Holdings) Private Limited7		Ordinary Shares	100%
Standard Life Assurance Limited2		Ordinary Shares Ordinary B Shares	100%
Standard Life (London) Limited3		Ordinary Shares	100%
Standard Life (Mauritius Holdings) 2006 Limited8		Ordinary Shares	100%
Standard Life Employee Services Limited2		Ordinary Shares	100%
Standard Life Finance Limited2		Ordinary Shares	100%
Standard Life Foundation2		N/A	100%
Standard Life Investments (Holdings) Limited		Ordinary Shares	100%
Standard Life Oversea Holdings Limited2		Ordinary Shares	100%
Threesixty Support LLP9		Limited Liability Partnership	100%
Vebnet (Holdings) Limited3		Ordinary Shares	100%

(b)     Other subsidiaries, joint ventures, associates and other significant holdings

Name of related undertaking		Share class1					% interest held
1825 Financial Planning Limited3		Ordinary Shares					100%
28 Ribera del Loira SA10		Ordinary Shares					100%
30 SLH 1 Limited2		Ordinary shares					100%
330 Avenida de Aragon SL10		Ordinary Shares					100%
4th Contact Limited3		Ordinary Shares					100%
Aberdeen ACP LLP4		Limited Liability Partnership					100%
Aberdeen Alternatives (Holdings) Limited4		Ordinary shares					100%
Aberdeen Asia IV (General Partner) S.a.r.l.11		Ordinary shares					100%
Aberdeen Asset Investment Group Limited5		Ordinary shares					100%
Aberdeen Asset Investments Limited5		Ordinary shares					100%
Aberdeen Asset Management (Shanghai) Co. Ltd12		Limited Liability Company					100%
Aberdeen Asset Management Asia Limited13		Ordinary shares					100%
Aberdeen Asset Management Canada Limited14		Ordinary shares					100%
Aberdeen Asset Management Cayman Limited15		Ordinary shares					100%
Aberdeen Asset Management Company Limited16		Ordinary shares					100%
Name of related undertaking		Share class1					% interest held
Aberdeen Asset Management Denmark A/S17		Ordinary shares					100%
Aberdeen Asset Management Deutschland AG18		Ordinary shares					94%
Aberdeen Asset Management Finland Oy19		Ordinary shares					100%
Aberdeen Asset Management Hungary Alapkezelo Zrt20		Ordinary shares					100%
Aberdeen Asset Management Inc.21		Ordinary shares					100%
Aberdeen Asset Management Investment Funds Limited22		Ordinary shares					100%
Aberdeen Asset Management Life and Pensions Limited5		Ordinary shares					100%
Aberdeen Asset Management Limited23		Ordinary shares					100%
Aberdeen Asset Management Nominees Limited24		Ordinary shares					100%
Aberdeen Asset Management Norway AS25		Ordinary shares					100%
Aberdeen Asset Management Norway Holding AS25		Ordinary shares					100%
Aberdeen Asset Management Operations AS25		Ordinary shares					100%
Aberdeen Asset Management SDN BHD26		Ordinary shares					100%
Aberdeen Asset Management Services Limited27		Ordinary shares					100%
Aberdeen Asset Management Sweden AB28		Ordinary shares					100%
Aberdeen Asset Management US GP Control LLC29		Limited Liability Company					100%
Aberdeen Asset Managers (Luxembourg) S.a.r.l.30		Ordinary shares					100%
Aberdeen Asset Managers Limited4		Ordinary shares					100%
Aberdeen Asset Managers Switzerland AG31		Ordinary shares					100%
Aberdeen Asset Middle East Limited32		Ordinary shares					100%
Aberdeen Capital Management LLC33		Limited Liability Company					100%
Aberdeen Capital Managers GP LLC34		Limited Liability Company					100%
Aberdeen Claims Administration, Inc.21		Ordinary shares					100%
Aberdeen Direct Property (Holding) Limited5		Ordinary shares					100%
Aberdeen Diversified Growth Fund5		Unit trust					62%
Aberdeen Diversified-Core Adventurous Fund5		Unit trust					45%
Aberdeen Diversified-Core Cautious Fund5		Unit trust					72%
Aberdeen Diversified-Core Conservative Fund5		Unit trust					90%
Aberdeen do Brasil Gestao de Recursos Ltda35		Limited Liability Company					100%
Aberdeen Emerging Capital Limited22		Ordinary shares					100%
Aberdeen Emerging Market Debt Local Currency Fund36		Commingled fund					25%
Aberdeen European Infrastructure Carry GP Limited4		Ordinary shares					100%
Aberdeen European Infrastructure Carry Limited4		Ordinary shares					100%
Aberdeen European Infrastructure GP II Limited5		Ordinary shares					100%
Aberdeen European Infrastructure GP Limited5		Ordinary shares					100%
Aberdeen France S.A.37		Ordinary shares					100%
Aberdeen Fund Distributors LLC29		Limited Liability Company					100%
Aberdeen Fund Management II Oy19		Ordinary shares					100%
Aberdeen Fund Management Ireland Limited38		Ordinary shares					100%
Aberdeen Fund Management Norway AS25		Ordinary shares					100%
Aberdeen Fund Management Oy19		Ordinary shares					100%
Aberdeen Fund Managers Limited5		Ordinary shares					100%
Aberdeen General Partner 1 Limited4		Ordinary shares					100%
Aberdeen General Partner 2 Limited4		Ordinary shares					100%
Aberdeen General Partner CAPELP Limited15		Ordinary shares					100%
Aberdeen General Partner CGPLP Limited15		Ordinary shares					100%
Aberdeen General Partner CMENAPELP Limited15		Ordinary shares					100%
Aberdeen General Partner CPELP II Limited15		Ordinary shares					100%
Aberdeen General Partner CPELP Limited15		Ordinary shares					100%
Aberdeen Global - Asian Credit Bond Fund39		SICAV					50%
Aberdeen Global - Emerging Markets Local Currency Corporate Bond Fund39		SICAV					71%
Aberdeen Global - European Equity (ex-UK) Fund39		SICAV					42%
Aberdeen Global - German Equity Fund39		SICAV					100%
Aberdeen Global - Swiss Equity Fund39		SICAV					100%
Aberdeen Global ex-Japan GP Limited15		Ordinary shares					100%
Aberdeen Global II - US Dollar Credit Bond Fund39		SICAV					51%
Aberdeen Global Infrastructure Carry GP Limited4		Ordinary shares					100%
Aberdeen Global Infrastructure GP II Limited40		Ordinary shares					100%
Name of related undertaking		Share class1					% interest held
Aberdeen Global Infrastructure GP Limited40		Ordinary shares					100%
Aberdeen Global Services SA39		Ordinary shares					100%
Aberdeen GP 1 LLP4		Limited Liability Partnership					100%
Aberdeen GP 2 LLP4		Limited Liability Partnership					100%
Aberdeen GP 3 LLP4		Limited Liability Partnership					100%
Aberdeen Indonesia Balanced Growth Fund41		Unit trust					78%
Aberdeen Indonesia Government Bond Fund41		Unit trust					39%
Aberdeen Indonesia Money Market Fund41		Unit trust					60%
Aberdeen Infrastructure Feeder GP Limited4		Ordinary shares					100%
Aberdeen Infrastructure Finance GP Limited40		Ordinary shares					100%
Aberdeen Infrastructure GP II Limited5		Ordinary shares					100%
Aberdeen Infrastructure Spain Co-Invest II GP Limited40		Ordinary shares					100%
Aberdeen International Fund Managers Limited42		Ordinary shares					100%
Aberdeen International Securities Investment Consulting Company Limited43		Ordinary shares					100%
Aberdeen Investment Company Limited4		Ordinary shares					100%
Aberdeen Investment Solutions Limited 4		Ordinary shares					100%
Aberdeen Investments Euro Limited5		Ordinary shares					100%
Aberdeen Investments Jersey Limited44		Ordinary shares					100%
Aberdeen Investments Limited5		Ordinary shares					100%
Aberdeen Investments USD Limited5		Ordinary shares					100%
Aberdeen Islamic Asia Pacific ex-Japan Equity Fund45		Unit trust					30%
Aberdeen Islamic Asset Management SDN BHD26		Ordinary shares					100%
Aberdeen Islamic Malaysia Equity Fund45		Unit trust					94%
Aberdeen Japanese Equities Fund36		OEIC					84%
Aberdeen Korea Co., Ltd46		Ordinary shares					100%
Aberdeen Nominees Services Limited42		Ordinary shares					100%
Aberdeen Pension Trustees Limited4		Ordinary shares					100%
Aberdeen Private Equity Advisers Limited22		Ordinary shares					100%
Aberdeen Private Equity Managers Limited22		Ordinary shares					100%
Aberdeen Private Wealth Management Limited44		Ordinary shares					100%
Aberdeen Property Asset Managers Limited22		Ordinary shares					100%
Aberdeen Property Fund Limited Partner Oy19		Ordinary shares					100%
Aberdeen Property Fund Management (Jersey) Limited47		Ordinary shares					100%
Aberdeen Property Fund Management AB28		Ordinary shares					100%
Aberdeen Property Fund Management Estonia Ou48		Ordinary shares					100%
Aberdeen Property Investors (General Partner) S.a.r.l.49		Ordinary shares					100%
Aberdeen Property Investors Estonia Ou48		Ordinary shares					100%
Aberdeen Property Investors France SAS37		Ordinary shares					100%
Aberdeen Property Investors Limited Partner Oy19		Ordinary shares					100%
Aberdeen Property Investors Sweden AB28		Ordinary shares					100%
Aberdeen Property Investors The Netherlands BV50		Ordinary shares					100%
Aberdeen Property Managers Limited22		Ordinary shares					100%
Aberdeen Real Estate Investors Operations (UK) Limited22		Ordinary shares					100%
Aberdeen Real Estate Operations Limited4		Ordinary shares					100%
Aberdeen Residential JV Feeder Limited Partner Oy19		Ordinary shares					100%
Aberdeen Secondaries II GP S.a.r.l.39		Ordinary shares					100%
Aberdeen SP 2013 A/S17		Ordinary shares					100%
Aberdeen Standard Asset Management Limited2		Ordinary shares					100%
Aberdeen Standard Group Limited2		Ordinary shares					100%
Aberdeen Standard Investment Management Limited2		Ordinary shares					100%
Aberdeen Standard Investments (Japan) Limited51		Ordinary shares					100%
Aberdeen Standard Investments Limited2		Ordinary shares					100%
Aberdeen Standard Investments Taiwan Limited43		Ordinary shares					100%
Aberdeen Standard Life Asset Management Limited2		Ordinary shares					100%
Aberdeen Standard Life Group Limited2		Ordinary shares					100%
Aberdeen Standard Life Investments Limited2		Ordinary shares					100%
Aberdeen Standard Life Investments Limited2		Ordinary Shares					100%
Aberdeen Standard Life Limited2		Ordinary shares					100%
Name of related undertaking		Share class1					% interest held
Aberdeen Standard Limited2		Ordinary shares					100%
Aberdeen Sterling Long Dated Corporate Bond Fund4		OEIC					39%
Aberdeen Sterling Long Dated Government Bond Fund4		OEIC					31%
Aberdeen Trust Limited4		Ordinary shares					100%
Aberdeen U.S. Mid Cap Equity Fund36		OEIC					98%
Aberdeen UK Infrastructure Carry GP Limited4		Ordinary shares					100%
Aberdeen UK Infrastructure Carry Limited4		Ordinary shares					100%
Aberdeen UK Infrastructure GP Limited5		Ordinary shares					100%
Aberdeen Unit Trust Managers Limited4		Ordinary shares					100%
AEROF (Luxembourg) GP S.a.r.l.39		Ordinary shares					100%
AFM Nominees Limited24		Ordinary shares					100%
AIPP Pooling I SA39		Ordinary shares					100%
Airport Industrial GP Limited5		Ordinary shares					100%
Amberia General Partner Oy19		Ordinary shares					100%
Andaes S.a r.l.52		Ordinary shares					59%
Andean Social Infrastructure GP Limited15		Ordinary shares					100%
Arden Asset Management (UK) Limited22		Ordinary shares					100%
Arden Asset Management LLC34		Limited Liability Company					100%
Arthur House (No.6) Limited5		Ordinary shares					100%
Artio Global Investors Inc.21		Ordinary shares					100%
Asander Investment Management Ltd53		Ordinary shares					100%
Aspire Financial Management Limited54		Ordinary shares					25%
Auris Kaasunjakelu Oy55		Ordinary shares					26%
Baigrie Davies & Company Limited3		Ordinary shares					100%
Baigrie Davies Holdings Limited3		Ordinary shares					100%
Bardol Inversiones SL10		Ordinary Shares					59 %
Bedfont Lakes Business Park (GP1) Limited22		Ordinary shares					100%
Bedfont Lakes Business Park (GP2) Limited5		Ordinary shares					100%
Brent Cross Partnership56		Limited Partnership					59%
Castlepoint General Partner Limited57		Ordinary Shares					100%
Castlepoint LP57		Ordinary Shares					50%
Castlepoint Nominee Limited57		Ordinary shares					100%
Cockspur Property (General Partner) Limited22		Ordinary shares					100%
Crawley Unit Trust58		Unit Trust					100%
DEGI Beteiligungs GmbH18		Limited Liability Company					94%
Dunedin Fund Managers Limited27		Ordinary shares					100%
Edinburgh Fund Managers Group Limited4		Ordinary shares					100%
Edinburgh Fund Managers Plc59		Ordinary shares					100%
Edinburgh Unit Trust Managers Limited4		Ordinary shares					100%
Elevate Portfolio Services Limited3		Ordinary Shares 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 BV60		Ordinary shares					59%
Ezraya Sp Z.o.o.61		Ordinary Shares					59%
FLAG Squadron Asia Pacific III GP LP15		Limited Partnership					100%
Focus Business Solutions Limited6		Ordinary Shares					100%
Focus Holdings Limited6		Ordinary Shares					100%
Focus Software Limited6		Ordinary Shares					100%
Focus Solutions EBT Trustee Limited6		Ordinary Shares					100%
G Park Management Company Limited62		Preference shares					100%
Gallions Reach Shopping Park (Nominee) Limited62		Ordinary Shares					100%
Gallions Reach Shopping Park Limited Partnership62		Limited Partnership					100%
Gallions Reach Shopping Park Unit Trust58		Unit Trust					100%
Glasgow Investment Managers Limited27		Ordinary shares					100%
Name of related undertaking		Share class1					% interest held
GREF Almeda Park SL63		Ordinary Shares					59%
GREF Jersey Esplanade Limited58		Ordinary Shares					59%
GREF Jersey Holding Limited58		Ordinary Shares					59%
GREF Jersey Ireland Holding Limited64		Ordinary Shares					59%
GREF Jersey Ireland Property Limited64		Ordinary Shares					59%
Griffin Nominees Limited5		Ordinary shares					100%
HDFC Asset Management Company Limited65		Ordinary shares					38%
HDFC International Life and Re Company Limited66		Ordinary shares					29%
HDFC Pension Management Company Limited67		Equity shares					29%
HDFC Standard Life Insurance Company Limited68		Equity shares					29%
Heng An Standard Life Insurance Company Limited69		Equity shares					50%
Hundred S.a r.l.52		Ordinary Shares					100%
Iceni Nominees (No.2) Limited62		Ordinary shares					100%
Iceni Nominees (No.2A) Limited62		Ordinary shares					100%
Ignis Asset Management Limited		Ordinary Shares					100%
Ignis Carry Partner Limited15		Ordinary Shares					100%
Ignis Cayman GP2 Limited15		Ordinary Shares					60%
Ignis Cayman GP3 Limited15		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 Limited62		Ordinary Shares					100%
Invest Park 3 Sp. Z.o.o.70		Ordinary Shares					59%
Jones Sheridan Financial Consulting Limited71		Ordinary shares					100%
Jones Sheridan Holdings Limited71		Ordinary shares					100%
Lake Meadows Management Company Limited62		Ordinary Shares					100%
Living In Retirement Limited54		Ordinary shares					25%
Lothian Development III (Nederland) BV60		Ordinary Shares					100%
M J Founders Limited22		Ordinary shares					100%
Mallard Investments LLP		Limited Liability Partnership					26%
Murray Johnstone Asset Management Limited27		Ordinary shares					100%
Murray Johnstone Holdings Limited4		Ordinary shares					100%
Murray Johnstone Limited4		Ordinary shares					100%
NASP 2006 General Partner Limited Partnership		Limited Partnership					62%
Nordic Hydro AS72		Ordinary shares					26%
Nordic Hydro Holding AS72		Ordinary shares					26%
Nordic Power AS72		Ordinary shares					26%
Nordic Power Torsnes AS72		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, LP21		Limited Partnership					80%
North American Strategic Partners, LP21		Limited Partnership					40%
North East Trustees Limited73		Ordinary A Shares Ordinary B Shares					100%
Pace Financial Solutions Limited3		Ordinary A Shares Ordinary B Shares Ordinary C Shares					100%
Pace Mortgage Solutions Limited3		Ordinary A Shares Ordinary B Shares					100%
Panker Invest S.a r.l.52		Ordinary Shares					59%
Paragon Insurance Company Guernsey Limited74		Ordinary shares					25%
Parmenion Capital Ltd53		Ordinary shares					100%
Parmenion Capital Partners LLP53		Limited Liability Partnership					100%
Parmenion Investment Management Limited53		Ordinary shares					100%
Parmenion Nominees Limited53		Ordinary shares					100%
Parnell Fisher Child & Co. Limited3		Ordinary Shares					100%
Name of related undertaking		Share class1					% interest held
Parnell Fisher Child Holdings Limited3		Ordinary A Shares Ordinary B Shares					100%
Pearson Jones & Company (Trustees) Limited73		Ordinary Shares					100%
Pearson Jones Nominees Limited73		Ordinary Shares					100%
Pearson Jones plc3		Ordinary A Shares 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 Management41		Limited Liability Company					80%
PURetail Luxembourg Management Company S.a r.l.30		Ordinary shares					50%
Regent Property Partners (Retail Parks) Limited5		Ordinary shares					100%
Reksa Dana Syariah Aberdeen Syariah Asia Pacific Equity USD Fund41		Unit trust					25%
Residential Zoning Club General Partner Oy19		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 Limited76		Ordinary shares					26%
Rock Rail East Anglia (Holdings) 2 Limited76		Ordinary shares					26%
Rock Rail East Anglia plc76		Public Limited Company					26%
Rock Rail Moorgate (Holdings) Limited76		Ordinary shares					26%
Rock Rail Moorgate plc76		Public Limited Company					26%
Scottish Mutual Investment Managers Limited		Ordinary Shares					100%
Scottish Mutual PEP and ISA Managers Limited5		Ordinary Shares					100%
Seabury Assets Fund plc
The Euro VNAV Liquidity Fund77		OEIC					100%
The No.1 Fund77		OEIC					100%
The Sterling VNAV Liquidity Fund77		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 Limited78		Ordinary Shares					59%
Select Property Holdings (Mauritius) Limited79		Ordinary Shares					59%
Self Directed Holdings Ltd53		Ordinary A shares Ordinary B shares  Ordinary C shares Preference shares					100%
Self Directed Investments Ltd53		Ordinary shares					100%
Serin Wealth Limited80		Ordinary shares					50%
Sinfonia Asset Management Limited54		Ordinary shares					25%
SL (NEWCO) Limited2		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 SA81		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) Limited2		Ordinary Shares					100%
SLACOM (No.8) Limited2		Ordinary Shares					100%
SLACOM (No.9) Limited2		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 class1					% 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.l52		Ordinary shares					26%
SLCP Infrastructure I-A S.a r.l52		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.l49		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 Limited53		Ordinary shares					100%
Squadron Capital Asia Pacific GP, LP15		Limited Partnership					100%
Squadron Capital Asia Pacific II GP LP15		Limited Partnership					100%
Squadron Capital Management Limited15		Limited Liability Company					100%
Squadron Capital Partners Limited15		Limited Liability Company					100%
Standard Aberdeen Asset Management Limited2		Ordinary shares					100%
Standard Aberdeen Group Limited2		Ordinary shares					100%
Standard Aberdeen Investment Management Limited2		Ordinary shares					100%
Standard Aberdeen Investments Limited2		Ordinary shares					100%
Standard Aberdeen Limited2		Ordinary shares					100%
Standard Life (Asia) Limited82		Ordinary Shares					100%
Standard Life Aberdeen Asset Management Limited2		Ordinary shares					100%
Standard Life Aberdeen Group Limited2		Ordinary shares					100%
Standard Life Active Plus Bond Trust		Unit Trust					100%
Standard Life Agency Services Limited2		Ordinary Shares					100%
Standard Life Assurance Company of Europe BV60		Ordinary shares					100%
Standard Life Assurance (HWPF) Luxembourg S.a r.l.52		Ordinary Shares					100%
Standard Life Charity Fund2		N/A					100%
Standard Life Client Management Limited2		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 Company83		Ordinary shares					100%
Name of related undertaking		Share class1					% 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 class1	% interest held
MyFolio Multi-Manager IV Fund						OEIC	55%
MyFolio Multi-Manager V Fund						OEIC	52%
Standard Life Investment Funds Limited2						Ordinary Shares	100%
Standard Life Investments - India Advantage Fund8						Ordinary Shares	100%
Standard Life Investments (Corporate Funds) Limited						Ordinary Shares	100%
Standard Life Investments (France) SAS84						Ordinary Shares	100%
Standard Life Investments (General Partner CRED) Limited62						Ordinary Shares	100%
Standard Life Investments (General Partner EPGF) Limited						Ordinary Shares	100%
Standard Life Investments (General Partner European Real Estate Club II) Limited85						Ordinary Shares	100%
Standard Life Investments (General Partner European Real Estate Club III) Limited85						Ordinary shares	100%
Standard Life Investments (General Partner European Real Estate Club) Limited85						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) Limited62						Ordinary Shares	100%
Standard Life Investments (Hong Kong) Limited86						Ordinary Shares	100%
Standard Life Investments (Jersey) Limited58						Ordinary Shares	100%
Standard Life Investments (Mutual Funds) Limited						Ordinary Shares	100%
Standard Life Investments (PDF No. 1) Limited58						Ordinary shares	50%
Standard Life Investments (Private Capital) Limited						Ordinary Shares	100%
Standard Life Investments (Schweiz) AG31						Ordinary Shares	100%
Standard Life Investments (Singapore) Pte. Ltd87						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 Fund88						SICAV		70%
Standard Life Investments Global SICAV Asian Equities Fund88						SICAV		22%
Standard Life Investments Global SICAV China Equities Fund88						SICAV		71%
Standard Life Investments Global SICAV Emerging Market Corporate Bond Fund88						SICAV		88%
Standard Life Investments Global SICAV Emerging Market Local Currency Debt Fund88						SICAV		80%
Standard Life Investments Global SICAV Enhanced Diversification Global Emerging Markets Equities Fund88						SICAV		99%
Standard Life Investments Global SICAV Euro Government All Stocks Fund88						SICAV		100%
Standard Life Investments Global SICAV European Corporate Bond Fund88						SICAV		33%
Standard Life Investments Global SICAV European Equities Fund88						SICAV		70%
Standard Life Investments Global SICAV European Equity Unconstrained Fund88						SICAV		86%
Standard Life Investments Global SICAV European High Yield Bond Fund88						SICAV		27%
Standard Life Investments Global SICAV European Smaller Companies Fund88						SICAV		39%
Standard Life Investments Global SICAV Global Absolute Return Strategies Fund88						SICAV		31%
Name of related undertaking					Share class1				% interest held
Standard Life Investments Global SICAV Global Bond Fund88					SICAV				73%
Standard Life Investments Global SICAV Global Corporate Bond Fund88					SICAV				63%
Standard Life Investments Global SICAV Global Emerging Markets Equity Unconstrained Fund88					SICAV				87%
Standard Life Investments Global SICAV Global Equities Fund88					SICAV				90%
Standard Life Investments Global SICAV Global Focused Strategies Fund88					SICAV				64%
Standard Life Investments Global SICAV Global High Yield Bond Fund88					SICAV				81%
Standard Life Investments Global SICAV Global Inflation-Linked Bond Fund88					SICAV				36%
Standard Life Investments Global SICAV Global REIT Focus Fund88					SICAV				89%
Standard Life Investments Global SICAV II
Standard Life Investments Global SICAV II Enhanced-Diversification Multi Asset Fund88					SICAV				85%
Standard Life Investments Global SICAV II Global Equity Impact Fund88					SICAV				100%
Standard Life Investments Global SICAV II Global Short Duration Corporate Bond Fund88					SICAV				100%
Standard Life Investments Global SICAV II MyFolio Multi-Manager I Fund88					SICAV				80%
Standard Life Investments Global SICAV II MyFolio Multi-Manager II Fund88					SICAV				66%
Standard Life Investments Global SICAV II MyFolio Multi-Manager III Fund88					SICAV				61%
Standard Life Investments Global SICAV II MyFolio Multi-Manager IV Fund88					SICAV				89%
Standard Life Investments Global SICAV II MyFolio Multi-Manager V Fund88					SICAV				93%
Standard Life Investments Global SICAV Indian Equity Midcap Opportunities Fund88					SICAV				81%
Standard Life Investments Global SICAV Japanese Equities Fund88					SICAV				97%
Standard Life Investments Global SICAV Total Return Credit Fund88					SICAV				46%
Standard Life Investments GS (Mauritius Holdings) Limited8					Ordinary Shares				81%
Standard Life Investments GTAA Company15					Limited Liability Company				100%
Standard Life Investments Liability Solutions ICAV
Liability Aware Absolute Return II Nominal Profile Fund77					ICAV				54%
Liability Aware Absolute Return II Real Profile Fund77					ICAV				48%
Standard Life Investments Limited					Ordinary Shares				100%
Standard Life Investments Liquidity Fund plc
Euro Liquidity Fund89					OEIC				31%
Standard Life Investments Multi Asset Class Company15					Ordinary Shares				100%
Standard Life Investments Securities LLC21					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 Trust90					Unit Trust				57%
Standard Life Investments UK Shopping Centre Feeder Fund Company Limited58					Ordinary Shares				100%
Standard Life Investments UK Shopping Centre Trust90					Unit Trust				41%
Standard Life Japan Trust					Unit Trust				78%
Standard Life Lifetime Mortgages Limited2					Ordinary Shares				100%
Standard Life Master Trust Co. Ltd3					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 class1			% interest held
Standard Life Wealth (CI) Limited91				Ordinary Shares			100%
Standard Life Wealth International Limited91				Ordinary Shares			100%
Standard Life Wealth Limited				Ordinary Shares			100%
Suomen Kaasuenergia Oy92				Ordinary shares			26%
Suomi Gas Distribution Holdings Oy55				Ordinary Shares			26%
Suomi Gas Distribution Oy55				Ordinary Shares			26%
Telles Holding S.a r.l. 52				Ordinary Shares			59%
Tenet Business Solutions Limited54				Ordinary shares			25%
Tenet Client Services Limited54				Ordinary shares			25%
Tenet Group Limited54				Ordinary B Shares			25%
Tenet Limited54				Ordinary shares			25%
Tenet Valuation Services Limited54				Ordinary shares			25%
TenetConnect Limited54				Ordinary shares			25%
TenetConnect Services Limited54				Ordinary shares			25%
TenetFinancial Solutions Limited54				Ordinary shares			25%
TenetLime Limited54				Ordinary shares			25%
TenetSelect Limited54				Ordinary shares			25%
Tenon Nominees Limited4				Ordinary shares			100%
The Coaching Platform Limited6				Ordinary Shares			100%
The Employee Benefits Corporation Limited54				Ordinary shares			20%
The Heritable Securities and Mortgage Investment Association Limited2				Ordinary Shares			100%
The Munro Partnership Ltd.93				Ordinary Shares			100%
The Standard Life Assurance Company 20062				N/A			100%
Threesixty Partnerships Limited9				Ordinary Shares			100%
Threesixty Services LLP9				Limited Liability Partnership			100%
Touchstone Insurance Company Limited94				Ordinary Shares			100%
Two Rivers One Limited47				Ordinary shares			100%
Two Rivers Two Limited47				Ordinary shares			100%
UK PRS Opportunities General Partner Limited5				Ordinary shares			100%
Vebnet Limited2				Ordinary Shares			100%
VPC Greater China Value Fund43				Investment Trust			71%
Waverley General Private Equity Limited27				Ordinary shares			100%
Waverley Healthcare Private Equity Limited4				Ordinary shares			100%
Wealth Horizon Ltd53				Ordinary shares			100%
Welbrent Property Investment Company Limited62				Ordinary Shares			100%
Whiteleys of Bayswater Limited				Ordinary Shares			100%
Wise Trustee Limited53				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 Město, 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

 

END

 

 

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