Half-year Report - Part 3 of 4

RNS Number : 3374N

Standard Life plc

08 August 2017

Standard Life plc

Half year results 2017

Part 3 of 4

2. Statement of Directors' responsibilities

Each of the Directors, whose names and functions are listed on the Standard Life plc website, www.standardlife.com, confirms to the best of his or her knowledge and belief that:

· The International Financial Reporting Standards (IFRS) condensed consolidated income statement, the IFRS condensed consolidated statement of comprehensive income, the IFRS condensed consolidated statement of financial position, the IFRS condensed consolidated statement of changes in equity and the IFRS condensed consolidated statement of cash flows and associated notes, have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the EU

· The interim management report includes a fair review of the information required by:

- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the IFRS condensed consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the year

- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so

· As per provision C1 of the UK Corporate Governance Code, the Half year results 2017 taken as a whole, present a fair, balanced and understandable position of the Company's prospects

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Changes to Directors during the period

As previously announced, Paul Matthews resigned as an executive Director on 1 March 2017 and Barry O'Dwyer was appointed as an executive Director on the same date.

By order of the Board

Sir Gerry Grimstone

Chairman

8 August 2017

Luke Savage

Chief Financial Officer

8 August 2017

3. Independent review report to Standard Life plc

Conclusion

We have been engaged by the Company to review the IFRS condensed consolidated financial information in the Half year results for the six months ended 30 June 2017 which comprises the:

· IFRS condensed consolidated income statement

· IFRS condensed consolidated statement of comprehensive income

· IFRS condensed consolidated statement of financial position

· IFRS condensed consolidated statement of changes in equity

· IFRS condensed consolidated statement of cash flows

· Related explanatory notes, which include the pro forma reconciliation of consolidated operating profit to IFRS profit

Based on our review, nothing has come to our attention that causes us to believe that the IFRS condensed consolidated financial information in the Half year results for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules (the DTR) of the UK's Financial Conduct Authority (the UK FCA).

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the Half year results and consider whether it contains any apparent misstatements or material inconsistencies with the information in the IFRS condensed consolidated financial information.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The Half year results is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half year results in accordance with the DTR of the UK FCA.

As disclosed in Note 4.1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the IFRS condensed consolidated financial information included in the Half year results in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the IFRS condensed consolidated financial information in the Half year results based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Jonathan Mills

for and on behalf of KPMG LLP

Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG

8 August 2017

4. Financial information

IFRS condensed consolidated income statement

For the six months ended 30 June 2017

		6 months 2017	6 months 2016	Full year 2016
	Notes	£m	£m	£m
Revenue
Gross earned premium		1,080	1,080	2,139
Premium ceded to reinsurers		(24)	(25)	(47)
Net earned premium		1,056	1,055	2,092
Investment return		5,703	6,031	15,376
Fee income		610	575	1,186
Other income		30	38	75
Total revenue		7,399	7,699	18,729

Expenses
Claims and benefits paid		2,259	2,250	4,801
Claim recoveries from reinsurers		(243)	(249)	(492)
Net insurance benefits and claims		2,016	2,001	4,309
Change in reinsurance assets and liabilities		223	(61)	140
Change in insurance and participating contract liabilities		(922)	2,941	2,115
Change in unallocated divisible surplus		(2)	82	53
Change in non-participating investment contract liabilities		4,329	1,560	8,768
Expenses under arrangements with reinsurers		112	361	509
Administrative expenses
Restructuring and corporate transaction expenses	4.4	61	31	62
Other administrative expenses		743	723	1,494
Total administrative expenses	4.4	804	754	1,556
Provision for annuity sales practices		-	-	175
Change in liability for third party interest in consolidated funds		470	(385)	296
Finance costs		41	41	82
Total expenses		7,071	7,294	18,003

Share of profit from associates and joint ventures		46	32	63

Profit before tax		374	437	789

Tax expense attributable to policyholders' returns	4.5	53	148	302

Profit before tax expense attributable to equity holders' profits		321	289	487

Total tax expense	4.5	76	197	370
Less: Tax attributable to policyholders' returns	4.5	(53)	(148)	(302)
Tax expense attributable to equity holders' profits	4.5	23	49	68
Profit for the period		298	240	419

Attributable to:
Equity holders of Standard Life plc		292	226	368
Non-controlling interests		6	14	51
		298	240	419

Earnings per share
Basic (pence per share)	4.6	14.8	11.5	18.7
Diluted (pence per share)	4.6	14.8	11.4	18.6

IFRS condensed consolidated statement of comprehensive income

For the six months ended 30 June 2017

		6 months 2017	6 months 2016	Full year 2016
	Notes	£m	£m	£m
Profit for the period		298	240	419
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension plans		-	209	162
Revaluation of owner occupied property		1	5	5
Change in unallocated divisible surplus recognised in other comprehensive income		-	(5)	(5)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	4.5	-	-	2
Total items that will not be reclassified subsequently to profit or loss		1	209	164

Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges		-	(1)	-
Fair value gains on available-for-sale financial assets		-	14	17
Exchange differences on translating foreign operations		(3)	101	173
Change in unallocated divisible surplus recognised in other comprehensive income		6	(38)	(62)
Share of other comprehensive income/(expense) of associates and joint ventures		2	(4)	(10)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	4.5	-	(3)	(3)
Total items that may be reclassified subsequently to profit or loss		5	69	115
Other comprehensive income for the period		6	278	279
Total comprehensive income for the period		304	518	698

Attributable to:
Equity holders of Standard Life plc		298	504	647
Non-controlling interests		6	14	51
		304	518	698

Pro forma reconciliation of consolidated operating profit to IFRS profit for the period

For the six months ended 30 June 2017

		6 months 2017	6 months 2016	Full year 2016
	Notes	£m	£m	£m
Operating profit/(loss) before tax
Standard Life Investments		190	176	383
Pensions and Savings		167	169	362
India and China		33	19	36
Other		(28)	(23)	(58)
Operating profit before tax	4.3	362	341	723
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes		55	(17)	8
Restructuring and corporate transaction expenses		(61)	(36)	(67)
Impairment of intangible assets acquired in business combinations		-	-	(19)
Provision for annuity sales practices		-	-	(175)
Other¹		(34)	(8)	(21)
Total non-operating items	4.3	(40)	(61)	(274)
Share of associates' and joint ventures' tax expense	4.3	(7)	(5)	(13)
Profit attributable to non-controlling interests	4.3	6	14	51
Profit before tax expense attributable to equity holders' profits²		321	289	487
Tax (expense)/credit attributable to
Operating profit	4.3	(31)	(69)	(127)
Non-operating items	4.3	8	20	59
Total tax expense attributable to equity holders' profits		(23)	(49)	(68)
Profit for the period		298	240	419

¹Other non-operating items for the six months ended 30 June 2017 includes £24m (six months ended 30 June 2016: £nil; 12 months ended 31 December 2016: £nil) in relation to the impairment of a disposal group classified as held for sale. Refer Note 4.2 (b) for further details.

²Profit before tax expense attributable to equity holders' profits consists of profit before tax of £374m (six months ended 30 June 2016: £437m; 12 months ended 31 December 2016: £789m) less tax expense attributable to policyholders' returns of £53m (six months ended 30 June 2016: £148m; 12 months ended 31 December 2016: £302m).

The Group's key alternative performance measure is operating profit. Refer to Note 4.7 for further details.

IFRS condensed consolidated statement of financial position

As at 30 June 2017

		30 June 2017	30 June 2016	31 December 2016
	Notes	£m	£m	£m
Assets
Intangible assets		566	557	572
Deferred acquisition costs		622	666	651
Investments in associates and joint ventures		9,880	7,481	7,948
Investment property	4.13	10,038	10,919	9,929
Property, plant and equipment		117	91	89
Pension and other post-retirement benefit assets	4.11	1,107	1,110	1,093
Deferred tax assets		57	36	42
Reinsurance assets		5,155	5,583	5,386
Loans	4.13	197	468	295
Derivative financial assets	4.13	2,844	4,685	3,534
Equity securities and interests in pooled investment funds	4.13	85,261	70,862	83,307
Debt securities	4.13	63,887	72,128	67,933
Receivables and other financial assets	4.13	1,597	3,806	1,255
Current tax recoverable		226	202	166
Other assets		115	92	94
Assets held for sale	4.13	757	188	263
Cash and cash equivalents	4.13	8,025	9,171	7,938
Total assets		190,451	188,045	190,495
Equity
Share capital	4.9	242	241	242
Shares held by trusts	4.9	(14)	(3)	(2)
Share premium reserve	4.9	635	629	634
Retained earnings		2,909	2,852	2,855
Other reserves		611	557	618
Equity attributable to equity holders of Standard Life plc		4,383	4,276	4,347
Non-controlling interests		287	276	297
Total equity		4,670	4,552	4,644
Liabilities
Non-participating insurance contract liabilities	4.10	22,894	22,849	23,422
Non-participating investment contract liabilities		103,456	95,738	102,063
Participating contract liabilities	4.10	30,615	32,390	31,273
Deposits received from reinsurers		4,810	5,178	5,093
Third party interest in consolidated funds	4.14	16,080	16,376	16,835
Subordinated liabilities		1,327	1,326	1,319
Pension and other post-retirement benefit provisions	4.11	57	38	55
Deferred income		175	220	198
Deferred tax liabilities		254	202	259
Current tax liabilities		132	192	113
Derivative financial liabilities	4.14	894	3,706	965
Other financial liabilities		4,135	5,145	3,916
Provisions	4.12	217	41	227
Other liabilities		95	92	113
Liabilities of operations held for sale		640	-	-
Total liabilities		185,781	183,493	185,851
Total equity and liabilities		190,451	188,045	190,495

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2017

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2017	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		242	(2)	634	2,855	618	4,347	297	4,644
Profit for the period		-	-	-	292	-	292	6	298
Other comprehensive income for the period		-	-	-	2	4	6	-	6
Total comprehensive income for the period		-	-	-	294	4	298	6	304
Dividends paid on ordinary shares	4.8	-	-	-	(263)	-	(263)	-	(263)
Issue of share capital	4.9	-	-	1	-	-	1	-	1
Reserves credit for employee share-based payments		-	-	-	-	10	10	-	10
Transfer to retained earnings for vested employee share-based payments		-	-	-	21	(21)	-	-	-
Shares acquired by employee trusts		-	(14)	-	-	-	(14)	-	(14)
Shares distributed by employee and other trusts		-	2	-	(2)	-	-	-	-
Sale of shares held by trusts		-	-	-	4	-	4	-	4
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(16)	(16)
Aggregate tax effect of items recognised directly in equity	4.5	-	-	-	-	-	-	-	-
30 June		242	(14)	635	2,909	611	4,383	287	4,670

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2016	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		241	(6)	628	2,162	977	4,002	347	4,349
Profit for the period		-	-	-	226	-	226	14	240
Other comprehensive income for the period		-	-	-	205	73	278	-	278
Total comprehensive income for the period		-	-	-	431	73	504	14	518
Dividends paid on ordinary shares	4.8	-	-	-	(243)	-	(243)	-	(243)
Issue of share capital	4.9	-	-	1	-	-	1	-	1
Reserves credit for employee share-based payments		-	-	-	-	16	16	-	16
Transfer to retained earnings for vested employee share-based payments		-	-	-	18	(18)	-	-	-
Shares acquired by employee trusts		-	(2)	-	-	-	(2)	-	(2)
Shares distributed by employee and other trusts		-	5	-	(5)	-	-	-	-
Cancellation of capital redemption reserve		-	-	-	488	(488)	-	-	-
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(85)	(85)
Aggregate tax effect of items recognised directly in equity	4.5	-	-	-	1	(3)	(2)	-	(2)
30 June		241	(3)	629	2,852	557	4,276	276	4,552

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2016	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		241	(6)	628	2,162	977	4,002	347	4,349
Profit for the year		-	-	-	368	-	368	51	419
Other comprehensive income for the year		-	-	-	154	125	279	-	279
Total comprehensive income for the year		-	-	-	522	125	647	51	698
Dividends paid on ordinary shares	4.8	-	-	-	(370)	-	(370)	-	(370)
Issue of share capital	4.9	1	-	6	-	-	7	-	7
Reserves credit for employee share-based payments		-	-	-	-	30	30	-	30
Transfer to retained earnings for vested employee share-based payments		-	-	-	23	(23)	-	-	-
Shares acquired by employee trusts		-	(3)	-	-	-	(3)	-	(3)
Shares distributed by employee and other trusts		-	7	-	(7)	-	-	-	-
Expiry of unclaimed asset trust claim period		-	-	-	41	-	41	-	41
Cancellation of capital redemption reserve		-	-	-	488	(488)	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(101)	(101)
Aggregate tax effect of items recognised directly in equity	4.5	-	-	-	(4)	(3)	(7)	-	(7)
31 December		242	(2)	634	2,855	618	4,347	297	4,644

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2017

		6 months 2017	6 months 2016	Full year 2016
	Notes	£m	£m	£m
Cash flows from operating activities
Profit before tax		374	437	789
Change in operating assets		665	(7,066)	(12,995)
Change in operating liabilities		415	7,562	12,926
Adjustment for non-cash movements in investment income		(17)	104	174
Change in unallocated divisible surplus		(2)	82	53
Other non-cash and non-operating items		39	56	122
Taxation paid		(135)	(161)	(333)
Net cash flows from operating activities		1,339	1,014	736

Cash flows from investing activities
Purchase of property, plant and equipment		(15)	(6)	(10)
Proceeds from sale of property, plant and equipment		-	-	22
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		-	-	(5)
Acquisition of investments in associates and joint ventures		-	(179)	(179)
Purchase of intangible assets not acquired through business combinations		(32)	(26)	(61)
Net cash flows from investing activities		(47)	(211)	(233)
Cash flows from financing activities
Repayment of other borrowings		(1)	(1)	(2)
Capital flows to third party interest in consolidated funds and non-controlling interests		(848)	(1,138)	(1,845)
Distributions paid to third party interest in consolidated funds and non-controlling interests		(56)	(53)	(109)
Shares acquired by trusts		(14)	(2)	(3)
Sale of shares held by trusts		4	-	-
Proceeds from issue of shares		1	-	6
Interest paid		(34)	(35)	(83)
Ordinary dividends paid	4.8	(263)	(243)	(370)
Net cash flows from financing activities		(1,211)	(1,472)	(2,406)
Net increase/(decrease) in cash and cash equivalents		81	(669)	(1,903)
Cash and cash equivalents at the beginning of the period		7,900	9,591	9,591
Effects of exchange rate changes on cash and cash equivalents		33	201	212
Cash and cash equivalents at the end of the period¹		8,014	9,123	7,900
Supplemental disclosures on cash flows from operating activities
Interest paid		2	1	3
Interest received		841	995	1,929
Dividends received		1,141	1,205	2,023
Rental income received on investment property		257	287	564

¹Comprises £8,052m (30 June 2016: £9,171m; 31 December 2016: £7,938m) of cash and cash equivalents, including cash and cash equivalents held for sale and (£38m) (30 June 2016: (£48m); 31 December 2016: (£38m)) of overdrafts which are reported in other financial liabilities in the IFRS condensed consolidated statement of financial position.

Notes to the IFRS condensed consolidated financial information

4.1 Accounting policies

(a) Basis of preparation

The IFRS condensed consolidated half year financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board as endorsed by the European Union (EU).

The accounting policies for recognition, measurement, consolidation and presentation as set out in the Group's Annual report and accounts for the year ended 31 December 2016 have been applied in the preparation of the IFRS condensed consolidated half year financial information.

(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group

There were no new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), interpretations or amendments to existing standards, which were effective by EU endorsement for annual periods beginning on or after 1 January 2017.

(b) IFRS condensed consolidated half year financial information

This IFRS condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act. Additionally, the comparative figures for the financial year ended 31 December 2016 are not the Company's statutory accounts for that financial year. The statutory accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The IFRS condensed consolidated half year financial information has been reviewed, not audited.

(c) Exchange rates

The income statements and cash flows, and statements of financial position of Group entities that have a different functional currency from the Group's presentation currency have been translated using the following principal exchange rates:

	6 months 2017		6 months 2016		Full year 2016
	Income statement and cash flows (average rate)	Statement of financial position (closing rate)	Income statement and cash flows (average rate)	Statement of financial position (closing rate)	Income statement and cash flows (average rate)	Statement of financial position (closing rate)
Euro	1.164	1.139	1.286	1.203	1.229	1.171
US Dollar	1.267	1.299	1.426	1.337	1.356	1.236
Indian Rupee	83.417	83.963	95.666	90.228	91.058	83.864
Chinese Renminbi	8.705	8.806	9.327	8.881	8.999	8.587
Hong Kong Dollar	9.854	10.140	11.069	10.371	10.521	9.580

4.2 Acquisitions and disposals

(a) Aberdeen Asset Management plc

On 6 March 2017, the boards of Standard Life plc and Aberdeen Asset Management plc (Aberdeen) announced that they had reached agreement on the terms of a recommended merger of Standard Life and Aberdeen, through the acquisition by Standard Life of the entire issued ordinary share capital of Aberdeen, to be effected by means of a court-sanctioned scheme of arrangement between Aberdeen and Aberdeen shareholders under Part 26 of the Companies Act 2006. Following completion of the merger, Aberdeen shareholders would own approximately 33.3% and Standard Life shareholders would own approximately 66.7% of the combined group on a diluted basis. On 9 May 2017, Standard Life published a prospectus and circular relating to the proposed merger and gave notice of a general meeting to take place on 19 June 2017. The proposed merger was approved by shareholders of both Standard Life and Aberdeen on 19 June 2017. Completion of the merger is subject to court and other necessary approvals and if approved is expected to complete on 14 August 2017.

(b) Standard Life (Asia) Limited

On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, Standard Life (Asia) Limited to Standard Life's Chinese joint venture business, Heng An Standard Life Insurance Company Limited, both of which are reported within the India and China segment. The transaction is subject to obtaining local regulatory and other approvals in mainland China and Hong Kong.

Following the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell, an impairment loss of £24m has been included in Other administrative expenses in the IFRS condensed consolidated income statement. Fair value has been determined by reference to the expected sale price.

At 30 June 2017, the disposal group was measured at fair value less cost to sell and comprised the following assets and liabilities:

	30 Jun 2017
	£m
Assets of operations held for sale
Equity securities and interests in pooled investment funds	590
Cash and cash equivalents	27
Other assets	34
Total assets of operations held for sale	651
Liabilities of operations held for sale
Non-participating insurance contract liabilities	553
Non-participating investment contract liabilities	65
Other liabilities	12
Total liabilities of operations held for sale	630
Net assets of operations held for sale	21

4.3 Segmental analysis

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker'. The Chief Operating Decision Maker for the Group is the strategic executive committee.

(a) Basis of segmentation

The Group's reportable segments are as follows:

Standard Life Investments

Standard Life Investments provides a range of investment products for individuals and institutional customers through a number of different investment vehicles. Investment management services are also provided by Standard Life Investments to the Group's other reportable segments. This segment includes the Group's share of the results of HDFC Asset Management Company Limited.

Pensions and Savings

Pensions and Savings provides a broad range of long-term, savings and investment products to individual and corporate customers in the UK, Germany, Austria and Ireland.

India and China

The businesses included in India and China offer a range of insurance and savings products and comprise our life insurance associate in India, our life insurance joint venture in China and wholly owned operations in Hong Kong, the assets and liabilities of which are classified as held for sale.

Other

This primarily includes the corporate centre and related activities.

(b) Reportable segments - Group operating profit and revenue information

(b)(i) Analysis of Group operating profit by segment

Operating profit is the key alternative performance measure utilised by the Group's management in their evaluation of segmental performance and is therefore also presented by reportable segment.

		Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations	Total
6 months 2017	Notes	£m	£m	£m	£m	£m	£m
Fee based revenue		429	461	7	-	(61)	836
Spread/risk margin		-	49	-	-	-	49
Total operating income		429	510	7	-	(61)	885
Total operating expenses		(259)	(350)	(7)	(26)	61	(581)
Capital management		-	7	-	(2)	-	5
Share of associates' and joint ventures' profit before tax¹		20	-	33	-	-	53
Operating profit/(loss) before tax		190	167	33	(28)	-	362
Tax on operating profit		(33)	1	-	1	-	(31)
Share of associates' and joint ventures' tax expense	4.5	(5)	-	(2)	-	-	(7)
Operating profit/(loss) after tax		152	168	31	(27)	-	324
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	4.7	(1)	59	-	(3)	-	55
Restructuring and corporate transaction expenses	4.4	(10)	(9)	-	(42)	-	(61)
Other		(8)	(3)	(24)	1	-	(34)
Total non-operating items		(19)	47	(24)	(44)	-	(40)
Tax on non-operating items		3	(12)	-	17	-	8
Profit/(loss) for the period attributable to equity holders of Standard Life plc		136	203	7	(54)	-	292
Profit attributable to non-controlling interests							6
Profit for the period							298

¹ Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

Each operating segment reports total operating income as its measure of revenue in its analysis of operating profit. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and actuarial reserving changes.

The Group has a widely diversified customer base and is therefore not reliant on any individual customers.

		Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations	Total
6 months 2016	Notes	£m	£m	£m	£m	£m	£m
Fee based revenue		431	407	10	-	(54)	794
Spread/risk margin		-	63	-	-	-	63
Total operating income		431	470	10	-	(54)	857
Total operating expenses		(271)	(313)	(12)	(24)	54	(566)
Capital management		-	12	-	1	-	13
Share of associates' and joint ventures' profit before tax¹		16	-	21	-	-	37
Operating profit/(loss) before tax		176	169	19	(23)	-	341
Tax on operating profit		(35)	(42)	-	8	-	(69)
Share of associates' and joint ventures' tax expense	4.5	(5)	-	-	-	-	(5)
Operating profit/(loss) after tax		136	127	19	(15)	-	267
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	4.7	1	(10)	-	(8)	-	(17)
Restructuring and corporate transaction expenses	4.4	(10)	(26)	-	-	-	(36)
Other		(7)	(1)	-	-	-	(8)
Total non-operating items		(16)	(37)	-	(8)	-	(61)
Tax on non-operating items		3	14	-	3	-	20
Profit/(loss) for the period attributable to equity holders of Standard Life plc		123	104	19	(20)	-	226
Profit attributable to non-controlling interests							14
Profit for the period							240

		Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations	Total
Full year 2016	Notes	£m	£m	£m	£m	£m	£m
Fee based revenue		885	861	17	-	(112)	1,651
Spread/risk margin		-	134	-	-	-	134
Total operating income		885	995	17	-	(112)	1,785
Total operating expenses		(537)	(655)	(22)	(57)	112	(1,159)
Capital management		-	22	-	(1)	-	21
Share of associates' and joint ventures' profit before tax¹		35	-	41	-	-	76
Operating profit/(loss) before tax		383	362	36	(58)	-	723
Tax on operating profit		(72)	(71)	-	16	-	(127)
Share of associates' and joint ventures' tax expense	4.5	(11)	-	(2)	-	-	(13)
Operating profit/(loss) after tax		300	291	34	(42)	-	583
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	4.7	3	13	-	(8)	-	8
Restructuring and corporate transaction expenses	4.4	(23)	(38)	(3)	(3)	-	(67)
Impairment of intangible assets acquired in business combinations		(9)	(10)	-	-	-	(19)
Provision for annuity sales practices	4.12	-	(175)	-	-	-	(175)
Other		(21)	3	-	(3)	-	(21)
Total non-operating items		(50)	(207)	(3)	(14)	-	(274)
Tax on non-operating items		9	46	-	4	-	59
Profit/(loss) for the year attributable to equity holders of Standard Life plc		259	130	31	(52)	-	368
Profit attributable to non-controlling interests							51
Profit for the year							419

(b)(ii) Total income and expenses

The following table provides a reconciliation of total operating income and total operating expenses, as presented in the analysis of Group operating profit by segment, to total revenue and total expenses respectively, as presented in the IFRS condensed consolidated income statement:

	6 months 2017		6 months 2016		Full year 2016
	Income	Expenses	Income	Expenses	Income	Expenses
	£m	£m	£m	£m	£m	£m
Total operating income or operating expenses as presented in the analysis of Group operating profit by segment	885	(581)	857	(566)	1,785	(1,159)
Net insurance benefits and claims	2,016	(2,016)	2,001	(2,001)	4,309	(4,309)
Change in reinsurance assets and liabilities	223	(223)	(61)	61	140	(140)
Change in insurance and participating contract liabilities	(922)	922	2,941	(2,941)	2,115	(2,115)
Change in unallocated divisible surplus	(2)	2	82	(82)	53	(53)
Change in non-participating investment contract liabilities	4,329	(4,329)	1,560	(1,560)	8,768	(8,768)
Expenses under arrangements with reinsurers	112	(112)	361	(361)	509	(509)
Change in liability for third party interest in consolidated funds	470	(470)	(385)	385	296	(296)
Other presentation differences	224	(224)	173	(173)	380	(380)
Tax expense attributable to policyholders' returns	53	-	148	-	302	-
Non-operating items	-	(40)	(5)	(56)	-	(274)
Non-controlling interests and capital management	11	-	27	-	72	-
Total revenue or expenses as presented in the IFRS condensed consolidated income statement	7,399	(7,071)	7,699	(7,294)	18,729	(18,003)

This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of operating income and expenses. Operating income and expenses exclude items which have an equal and opposite effect on IFRS revenue and IFRS expenses in the consolidated income statement, such as investment returns which are for the account of policyholders. Other presentation differences in the above reconciliation generally relate to items included in administrative expenses which are borne by policyholders, for example investment property management expenses, or are directly related to fee income.

4.4 Administrative expenses

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Restructuring and corporate transaction expenses	61	31	62
Interest expense	3	3	5
Commission expenses	72	73	153
Staff costs and other employee-related costs	284	295	596
Impairment of disposal group classified as held for sale	24	-	-
Other administrative expenses	344	334	695
	788	736	1,511
Acquisition costs deferred during the period	(27)	(32)	(51)
Amortisation of deferred acquisition costs	43	50	96
Total administrative expenses	804	754	1,556

Total restructuring and corporate transaction expenses incurred during the period were £61m (six months ended 30 June 2016: £31m; 12 months ended 31 December 2016: £62m). The expenses mainly relate to the proposed merger with Aberdeen, Ignis integration, Elevate integration and a number of other business unit restructuring programmes.

If the merger with Aberdeen completes, stamp duty of approximately £20m (dependent on the Aberdeen share price at completion) will be recognised in the consolidated income statement on completion.

In December 2014, the Group announced that the UK staff defined benefit pension plan would be closed to future accrual. On 16 April 2016, all employees in the closing plan were transferred to the UK defined contribution plan for future service and employer contributions into the defined contribution plan were amended. Following this restructuring of the pension plans, operating profit for the six months ended 30 June 2016 was increased by £5m (12 months ended 31 December 2016: £5m) so that operating profit reflected the expected long-term pension expense for the period and was therefore more indicative of the long-term operating performance of the Group. As a result for the six months ended 30 June 2016, £5m (12 months ended 31 December 2016: £5m) of pension costs that were included in staff costs in the IFRS condensed consolidated income statement, were included in restructuring and corporate transaction expenses in determining operating profit.

4.5 Tax expense

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Current tax:
UK	82	194	316
Double tax relief	(1)	(1)	(3)
Overseas	14	14	23
Adjustment to tax expense in respect of prior years	3	(2)	(3)
Total current tax	98	205	333

Deferred tax:
Deferred tax (credit)/expense arising from the current periods	(22)	(8)	37
Total deferred tax	(22)	(8)	37

Total tax expense	76	197	370

Attributable to policyholders' investment return	53	148	302
Attributable to equity holders' profits	23	49	68
Total tax expense	76	197	370

The standard UK corporation tax rate for the accounting period is 19.25% (six months ended 30 June 2016: 20%; 12 months ended 31 December 2016: 20%). The UK corporation tax rate was reduced to 19% from 1 April 2017 and will reduce to 17% from 1 April 2020. These changes have been taken into account in the calculation of the UK deferred tax balance at 30 June 2017.

The Group provides additional disclosure in relation to the total tax expense. Certain products are subject to tax on policyholders' investment returns. This tax, 'policyholder tax', is accounted for as an element of income tax. To make the tax expense disclosure more meaningful, we disclose policyholder tax and tax payable on equity holders' profits separately. The policyholder tax expense is the amount payable in the period plus the movement of amounts expected to be payable in future periods by policyholders on their investment return. The remainder of the tax expense is attributed to equity holders as tax payable on equity holders' profit.

The share of associates' and joint ventures' tax expense is £7m (six months ended 30 June 2016: £5m; 12 months ended 31 December 2016: £13m) and is included in profit before tax in the IFRS condensed consolidated income statement in Share of profit from associates and joint ventures.

Certain Group entities are party to claims and proceedings to recover tax suffered in respect of overseas income. These claims and proceedings predominantly relate to assets in policyholder funds, primarily SLAL's Heritage With Profits Fund. There is significant uncertainty on the outcome of these claims and they are not expected to materially impact profit for the period attributable to equity holders or total equity.

Tax relating to components of other comprehensive income is as follows:

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Tax relating to defined benefit pension plan deficit	-	-	(2)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	-	-	(2)
Current tax on net change in financial assets designated as available-for-sale	-	3	3
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	-	3	3
Tax relating to other comprehensive income	-	3	1

All of the amounts presented above are in respect of equity holders of Standard Life plc.

Tax relating to items taken directly to equity is as follows:

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Tax relating to expiry of unclaimed asset trust claim period	-	-	7
Tax expense on reserves for employee share-based payments	-	2	-
Tax relating to items taken directly to equity	-	2	7

4.6 Earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the period excluding shares owned by the employee trusts that have not vested unconditionally to employees.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume the conversion of all dilutive potential ordinary shares, such as share options granted to employees.

Alternative earnings per share is calculated on operating profit after tax.

The following table shows details of basic, diluted and alternative earnings per share for the period:

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Operating profit before tax	362	341	723
Tax on operating profit	(31)	(69)	(127)
Share of associates' and joint ventures' tax expense	(7)	(5)	(13)
Operating profit after tax	324	267	583
Total non-operating items	(40)	(61)	(274)
Tax on non-operating items	8	20	59
Profit attributable to equity holders of Standard Life plc	292	226	368
	Millions	Millions	Millions
Weighted average number of ordinary shares outstanding	1,972	1,970	1,972
Dilutive effect of share options and awards	3	4	6
Weighted average number of diluted ordinary shares outstanding	1,975	1,974	1,978
	Pence	Pence	Pence
Basic earnings per share	14.8	11.5	18.7
Diluted earnings per share	14.8	11.4	18.6
Alternative earnings per share	16.4	13.6	29.6
Diluted alternative earnings per share	16.4	13.5	29.5

4.7 Operating profit and non-operating items

Operating profit is the Group's key alternative performance measure. Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from operating profit and is presented within profit before tax.

Operating profit also excludes the impact of the following items:

· Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.

· Impairment of intangible assets acquired in business combinations

· Profit or loss arising on the disposal of a subsidiary, joint venture or associate

· Amortisation of intangibles acquired in business combinations and fair value movements in contingent consideration

· Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group

(a) Short-term fluctuations in investment return and economic assumptions changes

The components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movement in equity holder liabilities, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from operating profit. Investments backing equity holder funds include investments backing annuities and subordinated debt, investments from surplus capital in insurance companies, and investments held by holding companies and other non-insurance entities.

For annuities this means that all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk) movements over the period are excluded from operating profit.

The expected rates of return for debt securities and equity securities are determined separately. The expected rates of return for equity securities are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium of 3% (2016: 3%). Investments in pooled investment funds which target equity returns over the longer term, including absolute return funds, also use an expected rate of return determined based on the gilt spot rates of an appropriate duration plus a risk premium of 3% (2016: 3%).

In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields for the debt securities actually held. For debt securities classified as available-for-sale that support liabilities measured at amortised cost, the expected rate of return is the effective interest rate adjusted for an allowance, established at initial recognition, for expected defaults. If debt securities classified as available-for-sale are sold, any gain or loss is amortised within the expected return over the period to the earlier of the maturity date of the sold debt security, or the redemption date of the supported liability.

The expected rates of return used for both the assets backing subordinated liabilities and the subordinated liabilities themselves include a discount for expected credit defaults. This means that the interest expense included in operating profit for subordinated liabilities is after deducting a margin for own credit risk. Additionally, the effect of the accounting mismatch, where subordinated liabilities are measured at amortised cost and certain assets backing the liabilities are measured at fair value, is also excluded from operating profit.

There have been no actual defaults or impairments of assets backing subordinated liabilities during the six months ended 30 June 2017 or 30 June 2016, or the 12 months ended 31 December 2016. If these were to arise they would be excluded from operating profit.

Gains and losses on foreign exchange are deemed to represent short-term fluctuations in investment return and economic assumption changes and thus are excluded from operating profit.

For the six months ended 30 June 2017, short-term fluctuations in investment return and economic assumption changes resulted in gains of £55m (six months ended 30 June 2016: losses of £17m; 12 months ended 31 December 2016: gains of £8m). Short-term fluctuations in investment return relate principally to the impact of interest rate changes on UK annuity liabilities and the assets backing those liabilities.

(b) Other

In the pro forma reconciliation of consolidated operating profit to IFRS profit for the period ended 30 June 2017 the Other non-operating sub-total includes £24m (six months ended 30 June 2016: £nil; 12 months ended 31 December 2016: £nil) in relation to the impairment of a disposal group classified as held for sale and £10m (six months ended 30 June 2016: £9m; 12 months ended 31 December 2016: £19m) in relation to amortisation of intangible assets acquired through business combinations.

4.8 Dividends on ordinary shares

	6 months 2017	6 months 2016		Full year 2016
	Pence per share	Pence per share	£m	Pence per share	£m
Dividends relating to reporting period
Interim dividend (2017 and 2016)	7.00	6.47	127	6.47	127
Final dividend (2016)	-	-	-	13.35	263
Total	7.00	6.47	127	19.82	390

Dividends paid in reporting period
Current year interim dividend	-	-	-	6.47	127
Final dividend for prior year	13.35	12.34	243	12.34	243
Total			243		370

Subsequent to 30 June 2017, the Directors have proposed an interim dividend for 2017 of 7.00 pence per ordinary share (interim 2016: 6.47 pence). If the merger with Aberdeen completes as expected prior to the record date, the dividend will be paid on the revised number of shares. This would equate to a cash payment of an estimated £207m. If the merger does not complete prior to the record date, the estimated payment will be £138m. The dividend is expected to be paid on 18 October 2017 and will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2017.

4.9 Issued share capital, share premium and shares held by trusts

(a) Issued share capital

The movement in the issued ordinary share capital of the Company is:

	6 months 2017		6 months 2016		Full year 2016
Issued shares fully paid	12 2/9p each	£m	12 2/9p each	£m	12 2/9p each	£m
At start of period	1,978,884,437	242	1,969,937,375	241	1,969,937,375	241
Shares issued in respect of share incentive plans	285,582	-	197,255	-	460,194	-
Shares issued in respect of share options	338,450	-	5,332,837	-	8,486,868	1
At end of period	1,979,508,469	242	1,975,467,467	241	1,978,884,437	242

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights to receive dividends and other distributions declared or paid by the Company.

The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders.

(b) Share premium

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
At start of period	634	628	628
Shares issued in respect of share options	1	1	6
At end of period	635	629	634

(c) Shares held by trusts

Shares held by trusts relates to shares in Standard Life plc that are held by the Employee Share Trust (EST) and the Unclaimed Asset Trust (UAT).

The EST purchases shares in the Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them. Where new shares are issued to the EST the price paid is the nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.

In July 2006, Standard Life demutualised and former members of the mutual company were allocated shares in the new listed Company. Some former members were yet to claim their shares and the UAT held these on their behalf. There was an off-setting obligation to deliver these shares which was also recognised in the shares held by trusts reserve. The shares and the off-setting obligation were both measured at £nil. The claim entitlement period for the UAT expired on 9 July 2016. Shares remaining in the UAT after 9 July 2016 continue to be measured at £nil.

The number of shares held in trust at 30 June 2017 was as follows:

	6 months 2017	6 months 2016	Full year 2016
Number of shares held in trust
Employee Share Trust	11,123,356	2,363,153	1,287,431
Unclaimed Asset Trust	188,646	13,750,053	12,999,801

On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed shares remaining in the UAT transferred to the Company. During the period to 30 June 2017, 11,719,073 shares were transferred from the UAT to the EST for £nil consideration. An amount equivalent to the fair value of the shares as at the date of transfer was donated by the Company to the Standard Life Foundation.

4.10 Insurance contracts, participating investment contracts and reinsurance contracts

	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m
Non-participating insurance contract liabilities	23,447	22,849	23,422
Less: Non-participating contract liabilities classified as held for sale	(553)	-	-
	22,894	22,849	23,422

	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m
Participating insurance contract liabilities	14,769	16,201	15,151
Participating investment contract liabilities	15,300	15,581	15,537
Unallocated divisible surplus	546	608	585
Participating contract liabilities	30,615	32,390	31,273

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the six months ended 30 June 2017 and the six months ended 30 June 2016 arising from changes in estimates are set out below:

	Participating insurance contract liabilities	Non- participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
6 months 2017	£m	£m	£m	£m	£m	£m
Changes in
Methodology/modelling	(11)	-	11	-	-	-
Economic assumptions	(2)	(86)	47	(41)	7	(34)
Non-economic assumptions	1	-	(4)	(3)	-	(3)
6 months 2016
Changes in
Methodology/modelling	(48)	-	11	(37)	53	16
Economic assumptions	(332)	1,667	88	1,423	(330)	1,093
Non-economic assumptions	-	(9)	-	(9)	6	(3)

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 experience 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, largely offset by an increase in participating liabilities.

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year ended 31 December 2016 was as follows:

	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
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
31 December	15,151	23,422	15,537	54,110	(5,386)	48,724

4.11 Pension and other post-retirement benefit provisions

The UK staff defined benefit pension plan was closed to future accrual in April 2016. From April 2016, all UK employees accrue pension through a defined contribution plan.

The trustees of the defined benefit pension plan set the investment strategy to protect the ratio of plan assets to the trustees' measure of technical provisions. Technical provisions represent the trustees' prudent view of the amount of assets needed to pay future benefits. The investment strategy does not aim to protect the IAS 19 surplus or ratio of plan assets to the IAS 19 measure of liabilities.

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

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

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Current service cost	25	26	49
Interest income	(15)	(17)	(33)
Administrative expenses	1	1	3
Expense recognised in the IFRS condensed consolidated income statement	11	10	19

An additional pension contribution of 6% of pensionable salary into the defined contribution plan for eligible members of the defined benefit plan was made on 16 April 2016. This contribution was accrued over the vesting period and was included in current service cost for the six months ended 30 June 2016 and the 12 months ended 31 December 2016.

(b) Analysis of amounts recognised on the IFRS condensed consolidated statement of financial position

	30 June 2017			30 June 2016			31 December 2016
	UK	Other	Total	UK	Other	Total	UK	Other	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(2,762)	(121)	(2,883)	(2,972)	(96)	(3,068)	(3,207)	(117)	(3,324)
Present value of unfunded obligation	-	(10)	(10)	-	(9)	(9)	-	(10)	(10)
Fair value of plan assets	4,465	74	4,539	4,718	67	4,785	4,927	72	4,999
Effect of limit on plan surplus	(596)	-	(596)	(636)	-	(636)	(627)	-	(627)
Net asset/(liability)	1,107	(57)	1,050	1,110	(38)	1,072	1,093	(55)	1,038

(c) Principal assumptions

The principal economic assumptions for the UK plan which are based in part on current market conditions are as follows:

	30 Jun 2017	30 Jun 2016	31 Dec 2016
	%	%	%
Discount rate	2.70	2.80	2.70
Rates of inflation
Consumer Price Index (CPI)	2.15	1.85	2.25
Retail Price Index (RPI)	3.15	2.85	3.25

4.12 Provisions

(a) Provisions

	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m
Provision for annuity sales practices	164	-	175
Legal provisions	16	16	16
Other provisions	37	25	36
Total provisions	217	41	227

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

Provision for annuity sales practices relating 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 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 will conduct 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 such date as Standard Life can demonstrate its compliance with the applicable regulatory standards. 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 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.

During the year to 31 December 2016, the Group established a provision of £175m for annuity sales practices relating to enhanced annuities. At 30 June 2017 £11m of the provision had been utilised. There were no additional amounts charged to the income statement in respect of provisions for annuity sales practices relating to enhanced annuities during the six months ended 30 June 2017.

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 the end of 2018.

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 4.15.

4.13 Risk management

(a) Overview

The Group's strategic objectives and performance against them is subject to a number of financial and non-financial risks. The principal risks and uncertainties that affect the business model are set out in detail in the Group's Annual report and accounts for the year ended 31 December 2016. Key developments in the Group's principal risks in the six months to 30 June 2017 are discussed in the Risk management section of the Management report.

The Group's IFRS condensed consolidated half year financial information does not include all financial risk management information and disclosures required in the Group's Annual report and accounts. This note should therefore be read in conjunction with the Group's Annual report and accounts for the year ended 31 December 2016. The information presented in this note has been prepared on the same basis as that presented in the Group's Annual report and accounts.

There have been no significant changes to the Group's risk management framework since 31 December 2016 and no changes have been made to the Group's qualitative risk appetites. The business continues to be managed through a range of risk, capital and profit metrics.

On 29 March 2017, the Group announced the proposed sale of Standard Life (Asia) Limited. Refer to Note 4.2. The assets and liabilities of this business were classified as held for sale from this date. Comparatives at 30 June 2016 and 31 December 2016 have not been updated to reflect the sale. The transaction does not impact the classification of the Group's assets and liabilities within the risk segments.

The assets and liabilities on the Group's IFRS condensed consolidated statement of financial position can be split into four categories (risk segments) which give the shareholder different exposures to these risks as follows:

Shareholder business

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

Participating business

Participating business refers to the assets and liabilities of the participating funds of the life operations of the Group. It includes the liabilities for insurance features and financial guarantees contained within contracts held in the Heritage With Profits Fund that invest in unit linked funds. It does not include the liabilities for insurance features contained in contracts invested in the German With Profits Fund or German Smoothed Managed With Profits Fund. 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.

(b) Investment property and financial assets

The values of the Group's holdings of investment property and financial assets are impacted by the Group's exposure to adverse fluctuations in property and financial markets (referred to as market risk) and counterparty failure (referred to as credit risk).

The total Group holding in investment property and financial assets has been presented below based on risk segment.

	Shareholder business		Participating business		Unit linked funds		TPICF and NCI¹		Total
	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates²	38	30	823	847	7,500	5,605	916	894	9,277	7,376
Investment property	-	-	1,723	1,716	5,871	5,727	2,444	2,486	10,038	9,929
Loans	26	52	125	134	46	102	-	7	197	295
Derivative financial assets	16	19	1,606	2,211	972	1,025	250	279	2,844	3,534
Equity securities and interests in pooled investment funds	68	58	9,403	8,478	68,850	67,452	6,940	7,319	85,261	83,307
Debt securities	8,355	8,384	26,481	28,193	23,917	25,885	5,134	5,471	63,887	67,933
Receivables and other financial assets	663	515	133	97	653	533	148	110	1,597	1,255
Assets held for sale	118	27	8	224	627	12	4	-	757	263
Cash and cash equivalents	1,004	963	1,493	1,336	4,571	4,636	957	1,003	8,025	7,938
Total	10,288	10,048	41,795	43,236	113,007	110,977	16,793	17,569	181,883	181,830

	Shareholder business	Participating business	Unit linked funds	TPICF and NCI¹	Total
30 June 2016	£m	£m	£m	£m	£m
Investments in associates²	24	679	5,470	782	6,955
Investment property	-	2,007	6,062	2,850	10,919
Loans	57	247	155	9	468
Derivative financial assets	12	2,923	1,333	417	4,685
Equity securities and interests in pooled investment funds	49	7,932	57,169	5,712	70,862
Debt securities	8,252	29,058	28,491	6,327	72,128
Receivables and other financial assets	745	200	2,194	667	3,806
Assets held for sale	62	-	72	54	188
Cash and cash equivalents	677	2,159	5,224	1,111	9,171
Total	9,878	45,205	106,170	17,929	179,182

¹ Third party interest in consolidated funds and non-controlling interests.

² Comprises investments in associates at FVTPL.

The shareholder is exposed to the impact of market movements such as in property prices, interest rates and foreign exchange rates and the impact of defaults and movements in credit spreads on the value of assets held by the shareholder business. Appropriate risk oversight, risk management and mitigation actions are in place. The shareholder is also exposed to the market and credit risk that the assets of the participating funds of the life operations of the Group are not sufficient to meet their obligations. In this situation, the shareholder would be exposed to the full shortfall in the funds.

No further analysis is provided on the assets of the remaining risk segments - unit linked funds and TPICF and NCI. Assets of the unit linked funds are managed in accordance with the mandates of the particular funds and the financial risks of the assets are expected to be borne by the policyholder. The unit linked business includes £3,990m (30 June 2016: £3,396m; 31 December 2016: £3,779m) of assets that are held as reinsured external fund 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 not exposed to market and credit risk from assets in respect of TPICF and NCI since the financial risks of the assets are borne by third parties.

Further information on the investment property and financial assets of the shareholder and participating business at the reporting date are provided in the sections that follow.

Investment property

The shareholder business is not exposed to significant property price risk. The participating business is subject to property price risk due to changes in the value and return on holdings in investment property. This risk arises from various direct and indirect holdings which are controlled through the use of portfolio limits.

The table below analyses investment property held by the participating business by country and sector.

Participating business

	Office			Industrial			Retail			Other			Total
	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	419	623	404	224	213	206	808	863	841	6	5	6	1,457	1,704	1,457
Belgium	-	14	12	-	-	-	7	10	9	-	-	-	7	24	21
France	-	-	-	-	-	-	-	-	-	2	2	2	2	2	2
Germany	93	81	85	6	5	6	19	17	18	-	-	-	118	103	109
Ireland	-	-	-	-	-	-	-	-	-	32	29	32	32	29	32
Netherlands	68	60	64	39	30	31	-	-	-	-	-	-	107	90	95
Spain	-	55	-	-	-	-	-	-	-	-	-	-	-	55	-
Total	580	833	565	269	248	243	834	890	868	40	36	40	1,723	2,007	1,716

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

Equity securities

The Group is subject to equity price risk due to daily changes in the market value and returns on the holdings in its equity security portfolio. Exposures to equity securities are primarily controlled through the use of investment mandates including constraints based on appropriate equity indices.

The following table analyses equity securities held by the shareholder and participating businesses by country based on the ultimate parent country of risk.

	Shareholder business			Participating business			Total
	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	6	6	6	3,734	3,311	3,545	3,740	3,317	3,551
Australia	1	-	1	23	19	21	24	19	22
Belgium	1	-	-	57	70	63	58	70	63
Canada	1	-	-	40	62	49	41	62	49
Denmark	2	1	2	198	156	172	200	157	174
Finland	2	1	2	38	67	44	40	68	46
France	4	3	4	578	431	461	582	434	465
Germany	3	2	3	548	455	495	551	457	498
Greece	-	-	-	1	-	1	1	-	1
Ireland	1	1	1	212	157	183	213	158	184
Italy	2	1	1	63	74	73	65	75	74
Japan	2	1	1	177	119	124	179	120	125
Mexico	-	-	-	-	1	-	-	1	-
Netherlands	3	2	2	390	357	335	393	359	337
Norway	-	-	-	17	19	19	17	19	19
Portugal	-	-	-	69	62	65	69	62	65
Russia	1	-	-	-	-	-	1	-	-
Spain	2	1	1	160	99	127	162	100	128
Sweden	3	2	2	273	208	204	276	210	206
Switzerland	3	2	2	466	476	453	469	478	455
US	30	11	22	2,045	1,560	1,680	2,075	1,571	1,702
Other	1	14	8	246	175	241	247	189	249
Total	68	48	58	9,335	7,878	8,355	9,403	7,926	8,413

In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £nil (30 June 2016: £1m; 31 December 2016: £nil) and investments in associates at FVTPL of £38m (30 June 2016: £24m; 31 December 2016: £30m). The participating business has interests in pooled investment funds of £68m (30 June 2016: £54m; 31 December 2016: £123m) and investments in associates at FVTPL of £823m (30 June 2016: £679m; 31 December 2016: £847m).

Debt securities

The Group is exposed to interest rate risk and credit risk through its holdings in debt securities. The Group manages its exposure to debt securities through the use of investment mandates including setting exposure limits by issuer, sector and credit rating.

The following tables show the shareholder and participating businesses' exposure to credit risk from debt securities analysed by country.

Shareholder business

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	486	543	594	453	423	426	1,303	1,236	1,205	1,973	1,879	2,006	-	-	-	4,215	4,081	4,231
Australia	-	-	-	124	128	107	7	15	17	15	12	17	-	-	-	146	155	141
Austria	27	30	29	-	-	-	-	-	-	-	-	-	-	-	-	27	30	29
Belgium	-	-	-	1	1	1	-	-	-	42	22	23	-	-	-	43	23	24
Canada	-	-	-	80	75	105	-	-	-	1	1	1	-	-	-	81	76	106
Denmark	-	-	-	30	26	26	-	-	-	16	16	16	-	-	-	46	42	42
Finland	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
France	216	242	240	397	215	344	4	3	3	312	352	347	-	-	-	929	812	934
Germany	11	404	31	79	105	167	1	2	1	312	268	285	-	-	-	403	779	484
Greece	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	-	-	-	-	1	-	-	-	-	6	4	6	-	-	-	6	5	6
Italy	-	-	-	28	27	28	-	-	-	84	82	82	-	-	-	112	109	110
Japan	-	-	-	2	1	36	-	-	-	24	24	25	-	-	-	26	25	61
Mexico	3	-	-	-	-	-	-	-	-	105	111	115	-	-	-	108	111	115
Netherlands	23	23	22	293	273	331	-	-	-	37	28	35	-	-	-	353	324	388
Norway	-	-	-	-	28	25	-	-	-	41	41	42	-	-	-	41	69	67
Portugal	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Russia	2	-	-	-	-	-	-	-	-	-	-	-	-	-	-	2	-	-
Spain	-	-	-	105	55	55	-	-	-	46	45	45	-	-	-	151	100	100
Sweden	-	-	-	64	89	115	1	1	1	48	51	48	-	-	-	113	141	164
Switzerland	-	-	-	106	105	55	-	-	-	7	7	7	-	-	-	113	112	62
US	39	20	14	200	252	226	103	88	89	435	413	450	-	-	-	777	773	779
Other	60	42	46	359	152	204	61	55	58	14	13	14	169	223	219	663	485	541
Total	867	1,304	976	2,321	1,956	2,251	1,480	1,400	1,374	3,518	3,369	3,564	169	223	219	8,355	8,252	8,384

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

²This balance primarily consists of securities held in supranationals.

Participating business

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	10,447	10,709	10,952	704	872	885	1,749	1,967	1,934	1,784	1,823	1,875	-	-	-	14,684	15,371	15,646
Australia	-	-	6	157	311	206	44	50	50	37	38	38	-	-	-	238	399	300
Austria	362	355	392	-	4	4	12	-	10	-	-	-	-	-	-	374	359	406
Belgium	725	590	691	5	11	10	-	-	-	63	50	57	-	-	-	793	651	758
Canada	27	3	3	42	139	67	19	9	10	3	3	4	-	-	-	91	154	84
Denmark	4	5	3	13	22	23	-	-	-	13	18	14	-	-	-	30	45	40
Finland	200	113	194	7	78	69	-	-	-	-	4	4	-	-	-	207	195	267
France	2,037	2,106	2,009	342	420	450	33	28	29	358	372	364	-	-	-	2,770	2,926	2,852
Germany	3,088	3,456	3,118	75	377	196	107	125	120	223	217	199	-	-	-	3,493	4,175	3,633
Greece	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	1	1	25	-	7	4	11	11	11	14	18	18	-	-	-	26	37	58
Italy	18	90	49	23	31	31	15	9	11	29	55	46	-	-	-	85	185	137
Japan	17	24	21	163	172	172	-	-	-	-	-	-	-	-	-	180	196	193
Mexico	-	-	-	-	-	-	-	-	-	52	62	56	-	-	-	52	62	56
Netherlands	474	543	467	157	391	328	36	51	36	45	39	48	-	-	-	712	1,024	879
Norway	5	17	-	6	88	24	-	-	-	61	66	65	-	-	-	72	171	89
Portugal	-	-	-	-	-	-	-	-	-	5	4	4	-	-	-	5	4	4
Russia	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Spain	2	2	13	12	8	4	4	7	5	26	46	38	-	-	-	44	63	60
Sweden	-	1	-	269	378	367	8	6	10	22	18	12	-	-	-	299	403	389
Switzerland	-	-	-	147	224	150	63	62	63	53	55	62	-	-	-	263	341	275
US	22	95	106	452	552	432	148	155	151	478	537	499	-	-	-	1,100	1,339	1,188
Other	83	45	98	292	285	247	32	83	48	138	128	139	418	417	347	963	958	879
Total	17,512	18,155	18,147	2,866	4,370	3,669	2,281	2,563	2,488	3,404	3,553	3,542	418	417	347	26,481	29,058	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.

Loans

The Group is exposed to interest rate risk and credit risk from loans issued. The Group manages its exposure by setting portfolio limits for business units specifying the proportion of the value of the total portfolio loans that can be represented by a single counterparty or a group of related counterparties and requires each business unit to implement appropriate portfolio limits and benchmarks for the assets.

The shareholder business holding of loans of £26m (30 June 2016: £57m; 31 December 2016: £52m) primarily comprises bank deposits of more than three months maturity.

The participating business holding of loans of £125m (30 June 2016: £247m; 31 December 2016: £134m) comprises bank deposits of more than three months maturity and UK mortgages.

4.14 Fair value of assets and liabilities

(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) 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 investments in the fund 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 30 June 2017, 30 June 2016 and 31 December 2016, the residual credit risk is considered immaterial and 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.

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 made during 2016. The valuations are based on the unobservable assumptions regarding expected movements in assets under advice 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 categorised 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 categorised as level 3.

(b)(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
	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates at FVTPL	9,277	7,376	8	-	9,285	7,376	9,108	7,211	2	2	175	163
Investment property	10,038	9,929	26	228	10,064	10,157	-	-	-	-	10,064	10,157
Owner occupied property	77	58	8	8	85	66	-	-	-	-	85	66
Derivative financial assets	2,844	3,534	-	-	2,844	3,534	851	844	1,993	2,690	-	-
Equity securities and interests in pooled investment vehicles	85,261	83,307	656	27	85,917	83,334	85,170	82,539	-	-	747	795
Debt securities	63,887	67,933	11	-	63,898	67,933	26,874	28,721	36,084	38,344	940	868
Contingent consideration asset	10	10	-	-	10	10	-	-	-	-	10	10
Total assets at fair value	171,394	172,147	709	263	172,103	172,410	122,003	119,315	38,079	41,036	12,021	12,059

				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
30 June 2016	£m	£m	£m	£m	£m	£m
Investments in associates at FVTPL	6,955	52	7,007	6,871	-	136
Investment property	10,919	126	11,045	-	-	11,045
Owner occupied property	58	-	58	-	-	58
Derivative financial assets	4,685	-	4,685	1,034	3,651	-
Equity securities and interests in pooled investment vehicles	70,862	10	70,872	70,126	-	746
Debt securities	72,128	-	72,128	30,170	41,087	871
Contingent consideration asset	15	-	15	-	-	15
Total assets at fair value	165,622	188	165,810	108,201	44,738	12,871

There were no significant transfers between levels 1 and 2 during the period (six months ended 30 June 2016: none; 12 months ended 31 December 2016: £98m transferred from level 1 to level 2). Refer to 4.14 (b)(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 4.13.

							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
	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Investments in associates at FVTPL	38	30	6	-	44	30	19	10	2	2	23	18
Investment property	-	-	-	-	-	-	-	-	-	-	-	-
Owner occupied property	-	-	-	-	-	-	-	-	-	-	-	-
Derivative financial assets	16	19	-	-	16	19	3	2	13	17	-	-
Equity securities and interests in pooled investment funds	68	58	61	27	129	85	122	78	-	-	7	7
Debt securities	8,355	8,384	11	-	8,366	8,384	783	928	6,728	6,704	855	752
Contingent consideration asset	10	10	-	-	10	10	-	-	-	-	10	10
Total shareholder business	8,487	8,501	78	27	8,565	8,528	927	1,018	6,743	6,723	895	787
Participating business
Investments in associates at FVTPL	823	847	-	-	823	847	671	702	-	-	152	145
Investment property	1,723	1,716	-	216	1,723	1,932	-	-	-	-	1,723	1,932
Owner occupied property	30	30	8	8	38	38	-	-	-	-	38	38
Derivative financial assets	1,606	2,211	-	-	1,606	2,211	334	480	1,272	1,731	-	-
Equity securities and interests in pooled investment funds	9,403	8,478	-	-	9,403	8,478	9,131	8,159	-	-	272	319
Debt securities	26,481	28,193	-	-	26,481	28,193	16,451	16,994	9,945	11,083	85	116
Total participating business	40,066	41,475	8	224	40,074	41,699	26,587	26,335	11,217	12,814	2,270	2,550
Unit linked funds
Investments in associates at FVTPL	7,500	5,605	2	-	7,502	5,605	7,502	5,605	-	-	-	-
Investment property	5,871	5,727	26	12	5,897	5,739	-	-	-	-	5,897	5,739
Owner occupied property	47	28	-	-	47	28	-	-	-	-	47	28
Derivative financial assets	972	1,025	-	-	972	1,025	412	281	560	744	-	-
Equity securities and interests in pooled investment funds	68,850	67,452	591	-	69,441	67,452	69,231	67,252	-	-	210	200
Debt securities	23,917	25,885	-	-	23,917	25,885	8,435	9,434	15,482	16,451	-	-
Total unit linked funds	107,157	105,722	619	12	107,776	105,734	85,580	82,572	16,042	17,195	6,154	5,967
TPICF and NCI¹
Investments in associates at FVTPL	916	894	-	-	916	894	916	894	-	-	-	-
Investment property	2,444	2,486	-	-	2,444	2,486	-	-	-	-	2,444	2,486
Owner occupied property	-	-	-	-	-	-	-	-	-	-	-	-
Derivative financial assets	250	279	-	-	250	279	102	81	148	198	-	-
Equity securities and interests in pooled investment funds	6,940	7,319	4	-	6,944	7,319	6,686	7,050	-	-	258	269
Debt securities	5,134	5,471	-	-	5,134	5,471	1,205	1,365	3,929	4,106	-	-
Total TPICF and NCI¹	15,684	16,449	4	-	15,688	16,449	8,909	9,390	4,077	4,304	2,702	2,755
Total	171,394	172,147	709	263	172,103	172,410	122,003	119,315	38,079	41,036	12,021	12,059

¹ Third party interest in consolidated funds and non-controlling interests.

				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
30 June 2016	£m	£m	£m	£m	£m	£m
Shareholder business
Investments in associates at FVTPL	24	52	76	60	-	16
Investment property	-	-	-	-	-	-
Owner occupied property	-	-	-	-	-	-
Derivative financial assets	12	-	12	2	10	-
Equity securities and interests in pooled investment funds	49	10	59	53	-	6
Debt securities	8,252	-	8,252	1,293	6,227	732
Contingent consideration asset	15	-	15	-	-	15
Total shareholder business	8,352	62	8,414	1,408	6,237	769
Participating business
Investments in associates at FVTPL	679	-	679	559	-	120
Investment property	2,007	-	2,007	-	-	2,007
Owner occupied property	58	-	58	-	-	58
Derivative financial assets	2,923	-	2,923	581	2,342	-
Equity securities and interests in pooled investment funds	7,932	-	7,932	7,623	-	309
Debt securities	29,058	-	29,058	17,114	11,826	118
Total participating business	42,657	-	42,657	25,877	14,168	2,612
Unit linked funds
Investments in associates at FVTPL	5,470	-	5,470	5,470	-	-
Investment property	6,062	72	6,134	-	-	6,134
Owner occupied property	-	-	-	-	-	-
Derivative financial assets	1,333	-	1,333	338	995	-
Equity securities and interests in pooled investment funds	57,169	-	57,169	56,990	-	179
Debt securities	28,491	-	28,491	10,060	18,413	18
Total unit linked funds	98,525	72	98,597	72,858	19,408	6,331
TPICF and NCI¹
Investments in associates at FVTPL	782	-	782	782	-	-
Investment property	2,850	54	2,904	-	-	2,904
Owner occupied property	-	-	-	-	-	-
Derivative financial assets	417	-	417	113	304	-
Equity securities and interests in pooled investment funds	5,712	-	5,712	5,460	-	252
Debt securities	6,327	-	6,327	1,703	4,621	3
Total TPICF and NCI¹	16,088	54	16,142	8,058	4,925	3,159
Total	165,622	188	165,810	108,201	44,738	12,871

¹ Third party interest in consolidated funds and non-controlling interests.

(b)(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				Level 1			Level 2			Level 3
	30 Jun 2017	30 Jun 2016	31 Dec 2016		30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m		£m	£m	£m	£m	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	103,452	95,734	102,059		-	-	-	103,452	95,734	102,059	-	-	-
Liabilities in respect of third party interest in consolidated funds	16,080	16,376	16,835		-	-	-	14,857	15,133	15,607	1,223	1,243	1,228
Derivative financial liabilities	894	3,706	965		193	365	185	701	3,341	780	-	-	-
Contingent consideration liabilities	14	-	15		-	-	-	-	-	-	14	-	15
Total liabilities at fair value	120,440	115,816	119,874		193	365	185	119,010	114,208	118,446	1,237	1,243	1,243

There were no transfers between levels 1 and 2 during the six months ended 30 June 2017 (six months ended 30 June 2016: none; 12 months ended 31 December 2016: none). Refer to 4.14 (b)(iii) for details of movements in level 3.

The table that follows presents an analysis of the Group's financial liabilities measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 4.13.

				Fair value hierarchy
	As recognised in the consolidated statement of financial position line item				Level 1			Level 2			Level 3
	30 Jun 2017	30 Jun 2016	31 Dec 2016		30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m		£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Derivative financial liabilities	13	62	12		1	2	1	12	60	11	-	-	-
Contingent consideration liabilities	14	-	15		-	-	-	-	-	-	14	-	15
Total shareholder business	27	62	27		1	2	1	12	60	11	14	-	15
Participating business
Derivative financial liabilities	87	150	39		31	31	20	56	119	19	-	-	-
Total participating business	87	150	39		31	31	20	56	119	19	-	-	-
Unit linked funds
Non-participating investment contract liabilities	103,452	95,734	102,059		-	-	-	103,452	95,734	102,059	-	-	-
Derivative financial liabilities	624	2,610	714		132	266	130	492	2,344	584	-	-	-
Total unit linked funds	104,076	98,344	102,773		132	266	130	103,944	98,078	102,643	-	-	-
TPICF and NCI¹
Liabilities in respect of third party interest in consolidated funds	16,080	16,376	16,835		-	-	-	14,857	15,133	15,607	1,223	1,243	1,228
Derivative financial liabilities	170	884	200		29	66	34	141	818	166	-	-	-
Total TPICF and NCI¹	16,250	17,260	17,035		29	66	34	14,998	15,951	15,773	1,223	1,243	1,228
Total	120,440	115,816	119,874		193	365	185	119,010	114,208	118,446	1,237	1,243	1,243

¹ Third party interest in consolidated funds and non-controlling interests.

In addition to the tables above there are £65m (30 June 2016: £nil; 31 December 2016: £nil) of non-participating investment contract liabilities in the unit linked funds segment and £11m (30 June 2016: £nil; 31 December 2016: £nil) of liabilities in respect of third party interest in consolidated funds in the TPICF and NCI segment classified as held for sale at 30 June 2017. These are categorised as level 2 in the fair value hierarchy.

(b)(iii) Reconciliation of movements in level 3 instruments

The movements during the period of level 3 assets and liabilities held at fair value, excluding assets and liabilities held for sale, are analysed below.

	Investments in associates at FVTPL		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
	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016	30 Jun 2017	31 Dec 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At start of period	163	86	9,929	9,991	58	55	795	819	868	787	(1,228)	(1,307)
Reclassified (to)/from held for sale	-	-	(26)	(191)	-	(8)	-	-	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	13	10	229	(302)	-	(1)	(1)	80	18	34	(18)	19
Purchases¹	26	103	234	1,755	1	1	77	109	103	183	-	(19)
Settlement	-	-	-	-	-	-	-	-	-	-	23	81
Sales	(30)	(39)	(327)	(1,337)	-	(22)	(122)	(242)	(60)	(97)	-	-
Transfers in to level 3²	-	-	-	-	-	-	8	5	27	-	-	-
Transfers out of level 3²	-	-	-	-	-	-	-	(33)	(16)	(39)	-	-
Transfers between investment property and owner occupied property	-	-	(17)	(28)	17	28	-	-	-	-	-	-
Foreign exchange adjustment	3	3	8	44	-	-	(10)	57	-	-	-	(2)
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	-	-	-	1	5	-	-	-	-	-	-
Other	-	-	8	(3)	-	-	-	-	-	-	-	-
At end of period	175	163	10,038	9,929	77	58	747	795	940	868	(1,223)	(1,228)

	Investments in associates at FVTPL	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
2016	£m	£m	£m	£m	£m	£m
1 January	86	9,991	55	819	787	(1,307)
Reclassified (to)/from held for sale	-	(87)	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	7	(472)	(2)	(6)	35	53
Purchases¹	68	1,645	-	59	100	(19)
Settlement	-	-	-	-	-	30
Sales	(29)	(199)	-	(153)	(35)	-
Transfers in to level 3²	-	-	-	9	6	-
Transfers out of level 3²	-	-	-	(17)	(22)	-
Foreign exchange adjustment	3	36	-	35	-	-
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	-	5	-	-	-
Other	1	5	-	-	-	-
30 June	136	10,919	58	746	871	(1,243)

¹Purchases of investment property for the periods ended 31 December 2016 and 30 June 2016 included £1,289m relating to the merger of property investment vehicles.

²Transfers 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 £10m at 30 June 2017 (30 June 2016: £15m; 31 December 2016: £10m) and contingent consideration liabilities with a fair value of £14m (30 June 2016: £nil; 31 December 2016: £15m). There were no settlements during the period. Movements in the fair value of contingent consideration assets and liabilities are recognised in the consolidated income statement.

For the six months ended 30 June 2017, gains of £198m (six months ended 30 June 2016: losses of £349m; 12 months ended 31 December 2016: losses of £119m) were recognised in the IFRS condensed consolidated income statement in respect of assets and liabilities held at fair value classified as level 3 at the period end. Of this amount gains of £216m (30 June 2016: losses of £400m; 31 December 2016: losses of £137m) were recognised in investment return, losses of £nil (30 June 2016: losses of £2m, 31 December 2016: losses of £1m) were recognised in other administrative expenses and losses of £18m (30 June 2016: gains of £53m; 31 December 2016: gains of £19m) 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.

(b)(iv) Sensitivity of level 3 instruments measured at fair value on the statement of financial position to changes in key assumptions

Effect of changes of significant unobservable assumptions to reasonable possible alternative assumptions

For the majority of level 3 investments, other than commercial mortgages and unquoted corporate bonds, the Group does not use internal models to value the investments but rather obtains valuations from external parties. The Group reviews the appropriateness of these valuations on the following basis:

· For investment property and owner occupied property (including property that is classified as held for sale), the valuations are obtained from external valuers and are assessed on an individual property basis. The principal assumptions will differ depending on the valuation technique employed and sensitivities are determined by flexing the key inputs listed in the following table using knowledge of the investment property market.

· Private equity fund valuations are provided by the respective managers of the underlying funds and are assessed on an individual investment basis, with an adjustment made for significant movements between the date of the valuation and the end of the reporting period. Sensitivities are determined by comparison to the private equity market.

· Unquoted corporate bonds are valued using internal models on an individual instrument basis. Sensitivities are determined by adjusting internally estimated credit spreads.

· Commercial mortgage valuations are obtained from internal models on an individual instrument basis. Sensitivities are determined by adjusting the spread added to the current base rate.

The shareholder is directly exposed to movements in the value of level 3 investments 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 investments held by the other 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.

Changing unobservable inputs in the measurement of the fair value of level 3 financial assets to reasonably possible alternative assumptions would not have a significant impact on profit for the period or total assets.

The table below presents quantitative information about the significant unobservable inputs for level 3 instruments:

	Fair value
30 June 2017	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,478	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.4% to 8.9% (5.3%) £16 to £1,711 (£319)
Investment property (hotels)	608	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.0% to 6.5% (5.2%) £995 to £13,750 (£5,569)
Investment property and owner occupied property	63	Market comparison	Estimated value per square metre	£2 to £10,932 (£3,246)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	922	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (commercial mortgages)	447	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	449	Discounted cash flow	Credit spread	0.2% to 1.8% (1.6%)
Debt securities (infrastructure loans)	16	Discounted cash flow	Credit spread	1.4% (1.4%)
Debt securities (other)	28	Single broker	Single broker indicative price²	N/A

¹ A Group level adjustment is made for significant movements in private equity values.

² 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.

	Fair value
30 June 2016	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	10,380	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.5% to 9.2% (5.4%) £10 to £2,422 (£342)
Investment property (hotels)	569	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.6% to 7.9% (5.9%) £995 to £13,750 (£5,895)
Investment property and owner occupied property	154	Market comparison	Estimated value per square metre	£2 to £8,945 (£2,854)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	882	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (commercial mortgages)	442	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	371	Discounted cash flow	Credit spread	0.2% to 3.9% (1.9%)
Debt securities (other)	58	Single broker	Single broker indicative price²	N/A

	Fair value
31 December 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 and investments in associates at FVTPL (private equity investments)	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	1.3% (1.3%)
Debt securities (other)	33	Single broker	Single broker indicative price²	N/A

¹ A Group level adjustment is made for significant movements in private equity values.

² 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.

(c) 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
	30 Jun 2017	30 Jun 2016	31 Dec 2016	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m	£m	£m	£m
Assets
Loans secured by mortgages	63	80	73	71	77	86
Liabilities
Non-participating investment contract liabilities	4	4	4	4	4	4
Subordinated notes	500	499	499	558	512	530
Subordinated guaranteed bonds	519	520	502	626	548	577
Mutual Assurance Capital Securities	308	307	318	340	320	334

The estimated fair values of the 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 33 of the Group's Annual report and accounts 2016. The carrying value of participating investment contract liabilities at 30 June 2017 was £15,300m (30 June 2016: £15,581m; 31 December 2016: £15,537m). The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.

4.15 Contingent liabilities and contingent assets

(a) Annuity sales practices relating to enhanced annuities

As discussed in Note 4.12, at the request of the Financial Conduct Authority (FCA), Standard Life 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. At this stage it is not possible to determine an estimate of the financial effect, if any, of this contingent liability. The Group is also considering whether the FCA's enhanced annuities review could have implications for other past annuity sales practices.

Note 4.12 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.

4.16 Commitments

(a) Capital commitments

As at 30 June 2017, capital expenditure that was authorised and contracted for, but not provided and incurred, was £260m (30 June 2016: £340m; 31 December 2016: £286m) in respect of investment property. Of this amount, £199m (30 June 2016: £289m; 31 December 2016: £220m) and £61m (30 June 2016: £51m; 31 December 2016: £66m) relates to the contractual obligations to purchase, construct or develop investment property and repair, maintain or enhance investment property respectively.

(b) Unrecognised financial instruments

The Group has committed £449m (30 June 2016: £371m; 31 December 2016: £453m) in respect of unrecognised financial instruments to customers and third parties. Of this amount £357m (30 June 2016: £333m; 31 December 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:

	30 Jun 2017	30 Jun 2016	31 Dec 2016
	£m	£m	£m
Not later than one year	34	45	32
Later than one year and no later than five years	92	79	70
Later than five years	93	112	102
Total operating lease commitments	219	236	204

4.17 Related party transactions

(a) Transactions 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. Transactions with related parties carried out by the Group during the period were as follows:

	6 months 2017	6 months 2016	Full year 2016
	£m	£m	£m
Sales to
Associates	10,307	4,710	9,328
Other related parties	21	37	66
	10,328	4,747	9,394
Purchases from
Associates	11,640	5,066	9,782
Joint ventures	-	-	1
	11,640	5,066	9,783

Sales to and purchases from associates primarily relate to transactions with Group managed investment vehicles which are classified as associates measured at FVTPL.

Sales to other related parties include management fees received from non-consolidated investment vehicles managed by Standard Life Investments and from the Group's defined benefit pension plans.

The Group's defined benefit pension plans have assets of £1,041m (30 June 2016: £1,595m; 31 December 2016: £1,028m) invested in investment vehicles managed by the Group.

Refer to Note 4.2 (b) for details of the proposed sale of a subsidiary to our joint venture business.

(b) Transactions with key management personnel and their close family members

All transactions between key management personnel and their close family members and the Group during the period are on terms which are equivalent to those available to all employees of the Group. Key management personnel includes only Directors of Standard Life plc.

During the six months ended 30 June 2017, key management personnel and their close family members contributed £1m (six months ended 30 June 2016: £2m; 12 months ended 31 December 2016: £2m) to products sold by the Group. At 30 June 2017, the total value of key management personnel's investments in Group products was £22m (30 June 2016: £21m; 31 December 2016: £21m).

4.18 Events after the reporting date

HDFC Standard Life Insurance Company Limited (HDFC Life), the Group's associate Indian life business, announced in July 2017 that its Board of Directors approved proceeding with an initial public offering (IPO), with Standard Life (Mauritius Holdings) 2006 Limited offering up to 5.43% and HDFC Limited offering up to 9.57% of HDFC Life's equity shares representing, in aggregate, up to 15% of the paid-up equity share capital of HDFC Life. The IPO is subject to relevant regulatory and other necessary approvals. It is not possible to estimate the financial effect of the transaction if it completes as it is dependent on a number of unknown factors including the number of shares that might be sold and the consideration per share.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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