L&G 2011 HY Results - Part 4

RNS Number : 6174L

Legal & General Group Plc

03 August 2011

 



Asset Disclosures										Page 59
4.01  Investment portfolio
								Market	Market	Market
								value	value	value
								At	At	At
								30.06.11	30.06.10	31.12.10
								£m	£m	£m
Worldwide funds under management								370,338	330,959	364,846
Client and policyholder assets								(315,528)	(278,337)	(310,546)
Non-unit linked with-profits assets1								(19,732)	(19,505)	(19,927)
Assets to which shareholders are directly exposed								35,078	33,117	34,373
Comprising:
Assets held to back the UK non-linked non profit business:
	Legal & General Pensions Limited (LGPL)2							25,528	24,169	25,107
	Other UK non profit insurance business							552	922	642
								26,080	25,091	25,749
Assets held to back other insurance businesses (including Triple-X reserves)								3,105	3,180	3,280
Group capital and financing assets3								4,369	3,252	3,656
Other shareholder assets3								1,524	1,594	1,688
								35,078	33,117	34,373
1. Includes assets backing participating business in France of £2,468m (H1 10: £2,196m; FY 10: £2,304m).
2. LGPL is the main operating subsidiary for the UK's annuity business.
3. The presentation of shareholder assets has been amended to align the presentation with the Group's reporting segments. 2010 comparatives have been restated accordingly.
Analysed by asset class:
				Other
				UK		Group	Other
			LGPL	non	Other	capital	share-	Total	Total	Total
				profit	insurance	and	holder
				insurance	business	financing	assets
				business		assets
			At	At	At	At	At	At	At	At
			30.06.11	30.06.11	30.06.11	30.06.11	30.06.11	30.06.11	30.06.10	31.12.10
		Notes	£m	£m	£m	£m	£m	£m	£m	£m
Equities			-	-	-	989	10	999	830	975
Bonds		4.02	23,834	191	2,942	1,868	1,070	29,905	28,084	28,870
Derivative assets1			1,013	237	12	298	-	1,560	1,925	1,713
Property			187	9	-	131	6	333	178	275
Cash (including cash
equivalents)			494	115	151	1,083	438	2,281	2,100	2,540
			25,528	552	3,105	4,369	1,524	35,078	33,117	34,373
1. Derivative assets are shown gross of derivative liabilities. Exposures arise from:
a. The use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management;
b. Derivatives matching guaranteed equity bonds within the Nationwide Life portfolio.
Asset Disclosures										Page 60
4.02  Bond portfolio summary
(i) Analysed by sector
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.11	30.06.11	30.06.11	30.06.11
						Notes	£m	%	£m	%
Sovereigns, Supras and Sub-Sovereigns							3,255	14	5,257	18
Banks	- Tier 11					4.04	366	2	398	1
	- Tier 2 and other subordinated					4.04	1,414	6	1,602	5
	- Senior						1,521	6	2,558	9
Utilities							2,980	13	3,217	11
Consumer Services and Goods							2,123	9	2,458	8
Financial Services							762	3	1,013	3
Technology and Telecoms							1,574	7	1,845	6
Insurance							1,026	4	1,192	4
Industrials							1,235	5	1,462	5
Oil and Gas							1,309	6	1,513	5
Health Care							558	2	615	2
Property							550	2	617	2
Traditional and secured asset backed securities						4.03	4,113	17	5,105	17
CDO							1,048	4	1,053	4
Total							23,834	100	29,905	100
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.10	30.06.10	30.06.10	30.06.10
						Notes	£m	%	£m	%
Sovereigns, Supras and Sub-Sovereigns							2,709	12	4,658	16
Banks	- Tier 11					4.04	490	2	517	2
	- Tier 2 and other subordinated					4.04	1,656	7	1,884	7
	- Senior						1,353	6	2,063	7
Utilities							2,714	12	2,962	11
Consumer Services and Goods							2,195	10	2,556	9
Financial Services							794	4	1,012	4
Technology and Telecoms							1,455	7	1,729	6
Insurance							937	4	1,072	4
Industrials							963	4	1,160	4
Oil and Gas							1,253	6	1,488	5
Health Care							529	2	556	2
Property							494	2	553	2
Traditional and secured asset backed securities						4.03	3,748	17	4,745	17
CDO							1,124	5	1,129	4
Total							22,414	100	28,084	100
Asset Disclosures										Page 61
4.02  Bond portfolio summary (continued)
(i) Analysed by sector (continued)
							LGPL	LGPL	Total	Total
							At	At	At	At
							31.12.10	31.12.10	31.12.10	31.12.10
						Notes	£m	%	£m	%
Sovereigns, Supras and Sub-Sovereigns							3,042	13	5,034	17
Banks	- Tier 11					4.04	480	2	513	2
	- Tier 2 and other subordinated					4.04	1,619	7	1,811	6
	- Senior						1,448	6	2,168	8
Utilities							2,831	12	3,033	11
Consumer Services and Goods							2,160	9	2,503	9
Financial Services							776	3	1,036	4
Technology and Telecoms							1,538	7	1,768	6
Insurance							978	5	1,103	4
Industrials							1,124	5	1,299	4
Oil and Gas							1,321	6	1,509	5
Health Care							551	2	563	2
Property							552	2	588	2
Traditional and secured asset backed securities						4.03	3,996	17	4,920	16
CDO							1,017	4	1,022	4
Total							23,433	100	28,870	100
1. Tier 1 holdings include £55m (H1 10: £53m; FY 10: £55m) of preference shares.
Additional analysis of sovereign debt exposures
							Sovereigns, Supras and Sub-Sovereigns
							LGPL	Total	LGPL	Total
							At	At	At	At
							30.06.11	30.06.11	31.12.10	31.12.10
							£m	£m	£m	£m
Market value by region
United Kingdom1							1,972	2,383	1,909	2,366
USA							283	574	276	524
Portugal							-	6	-	12
Italy							207	301	77	189
Ireland							-	4	29	45
Greece							-	1	-	15
Spain							-	32	-	43
Subtotal							207	344	106	304
Germany							132	365	131	359
Netherlands							28	552	28	553
France							121	325	117	251
Belgium							-	35	-	31
Europe - Other							427	576	413	543
Rest of World							85	103	62	103
Total							3,255	5,257	3,042	5,034
1. LGPL holds liquidity in the form of cash and cash equivalents of £494m (FY 10: £496m) and gilts of £1,972m (FY 10: £1,909m).
Asset Disclosures										Page 62
4.02  Bond portfolio summary (continued)
(ii) Analysed by domicile
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.11	30.06.11	30.06.11	30.06.11
							£m	%	£m	%
United Kingdom							9,367	40	10,766	37
USA							6,999	29	9,365	31
Europe							5,707	24	7,859	26
Other							1,761	7	1,915	6
Total							23,834	100	29,905	100
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.10	30.06.10	30.06.10	30.06.10
							£m	%	£m	%
United Kingdom							9,014	40	10,393	37
USA							7,053	31	9,458	34
Europe							5,061	23	6,852	24
Other							1,286	6	1,381	5
Total							22,414	100	28,084	100
							LGPL	LGPL	Total	Total
							At	At	At	At
							31.12.10	31.12.10	31.12.10	31.12.10
							£m	%	£m	%
United Kingdom							9,246	39	10,517	36
USA							7,528	32	9,790	34
Europe							5,302	23	7,130	25
Other							1,357	6	1,433	5
Total							23,433	100	28,870	100
Within LGPL, all non-sterling denominated bonds are currency hedged back to sterling.
(iii) Analysed by credit rating
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.11	30.06.11	30.06.11	30.06.11
							£m	%	£m	%
AAA							4,317	18	7,209	24
AA							2,695	11	3,686	12
A							8,773	38	10,104	34
BBB							5,974	25	6,735	23
BB or below							347	1	415	1
Unrated: Bespoke CDOs							936	4	936	3
Other							792	3	820	3
							23,834	100	29,905	100
Asset Disclosures										Page 63
4.02  Bond portfolio summary (continued)
(iii) Analysed by credit rating (continued)
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.10	30.06.10	30.06.10	30.06.10
							£m	%	£m	%
AAA							3,911	17	6,669	24
AA							2,337	10	3,002	11
A							8,704	39	10,030	35
BBB							5,297	24	6,057	21
BB or below							397	2	476	2
Unrated: Bespoke CDOs							1,028	5	1,028	4
Other							740	3	822	3
							22,414	100	28,084	100
							LGPL	LGPL	Total	Total
							At	At	At	At
							31.12.10	31.12.10	31.12.10	31.12.10
							£m	%	£m	%
AAA							4,218	18	6,996	24
AA							2,444	10	3,092	11
A							8,949	39	10,125	35
BBB							5,718	24	6,424	22
BB or below							379	2	479	2
Unrated: Bespoke CDOs							912	4	912	3
Other							813	3	842	3
							23,433	100	28,870	100
Other unrated bonds have been assessed and rated internally and are all assessed as investment grade.
Asset Disclosures										Page 64
4.02  Bond portfolio summary (continued)
(iv) CDOs
The Group holds collateralised debt obligations (CDOs) with a market value of £1,053m at 30 June 2011 (H1 10: £1,129m; FY 10: £1,022m).
These holdings include £899m (H1 10: £992m; FY 10: £875m) relating to four CDOs that were constructed in 2007 and 2008 in accordance with terms specified by Legal & General as part of a strategic review of the assets backing the annuity portfolio.  These CDOs mature in 2017 and 2018. The Group selected at outset and manages the reference portfolios underlying the CDOs to give exposure to globally diversified portfolios of investment grade corporate bonds. The Group is able to substitute the constituents of the original reference portfolios with new reference assets, allowing the management of the underlying credit risk although no substitutions were made in 2010 or for the six months ended 30 June 2011. A breakdown of the underlying CDO reference portfolio by sector is provided below:
Sector
								At	At	At
								30.06.11	30.06.10	31.12.10
								%	%	%
Banks								14	14	14
Utilities								10	10	10
Consumer Services & Goods								26	26	26
Financial Services								6	6	6
Technology & Telecoms								9	9	9
Insurance								6	6	6
Industrials								20	20	20
Oil & Gas								6	6	6
Health Care								3	3	3
								100	100	100
The CDOs are termed as super senior since default losses on the reference portfolio have to exceed 27.5%, on average across the four CDOs, before the CDOs incur any default losses. Assuming an average recovery rate of 30%, then over 39% of the reference names would have to default before the CDOs incur any default losses.
Beyond 27.5% of default losses on the reference portfolio, losses to the CDO would occur at a rate that is a multiple of the loss rate on the reference portfolio.  For illustration a £200m loss could be incurred if default losses to the reference portfolios exceeded 30.4% or if 43.4% of the names in the diversified global investment grade portfolio defaulted, with an average 30% recovery rate.  (All figures are averages across the four CDOs.)
The underlying reference portfolio has had no reference entity defaults in 2010 or for the six months ended 30 June 2011.
Losses are limited under the terms of the CDOs to assets and collateral invested.
These CDOs also incorporate features under which, in certain circumstances, the Group can choose either to post additional cash collateral or to allow wind up of the structures. These features are dependant on the portfolios' weighted average spreads, default experience to date and time to maturity. No additional collateral was posted to any of the CDOs during the six months ended 30 June 2011 (H1 10: £nil; FY 10: £nil). During the period, the Group received £nil (H1 10: £nil; FY 10: £155m) of previously posted collateral.
These CDOs are valued using an external valuation which is based on observable market inputs. This is then validated against the internal valuation.
For the purposes of valuing the non profit annuity regulatory and IFRS liabilities the yield on the CDOs is included within the calculation of the yield used to calculate the valuation discount rate for the annuity liabilities. An allowance for the risks, including default, is also made.  For EEV purposes, the yield on the CDOs, reduced by the realistic default assumption, is similarly included in assumed future investment returns.
The balance of £154m (H1 10: £137m; FY 10: £147m)  of CDO holdings includes a £37m (H1 10: £36m; FY 10: £37m) exposure to an equity tranche of a bespoke CDO.
Asset Disclosures										Page 65
4.03  Traditional and secured asset backed securities summary
(i) By security
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.11	30.06.11	30.06.11	30.06.11
							£m	%	£m	%
Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1							469	12	830	16
Residential Mortgage-Backed Securities - Sub-prime2							-	-	25	-
Commercial Mortgage-Backed Securities							250	6	461	9
Credit Card							6	-	196	4
Auto							10	-	76	2
Consumer Loans							42	1	44	1
Student Loans							20	-	53	1
							797	19	1,685	33
Securitisations and debentures:
Secured Bond							1,743	43	1,784	35
Commercial Property Backed Bonds							224	5	224	5
Infrastructure / Private Finance Initiative / Social housing							1,025	25	1,029	20
Whole Business Securitisation							269	7	272	5
Other secured holdings3							55	1	111	2
							3,316	81	3,420	67
Total traditional and secured asset backed securities							4,113	100	5,105	100
The two categories above are based on the following definitions:  Traditional Asset Backed Securities are securities, often with variable expected redemption profiles issued by Special Purpose Vehicles and typically backed by pools of receivables from loans or personal credit.  Debentures are securities with fixed redemption profiles issued by firms typically secured on property and  Securitisations are securities with fixed redemption profiles that are issued by Special Purpose Vehicles and secured on revenues from specific assets or operating companies.
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.10	30.06.10	30.06.10	30.06.10
							£m	%	£m	%
Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1							369	10	650	14
Residential Mortgage-Backed Securities - Sub-prime2							-	-	21	-
Commercial Mortgage-Backed Securities							230	6	419	9
Credit Card							9	-	285	6
Auto							14	-	119	2
Consumer Loans							43	1	47	1
Student Loans							21	1	42	1
							686	18	1,583	33
Securitisations and debentures:
Secured Bond							1,525	41	1,571	33
Commercial Property Backed Bonds							227	6	227	5
Infrastructure / Private Finance Initiative / Social housing							989	27	991	21
Whole Business Securitisation							273	7	276	6
Other secured holdings3							48	1	97	2
							3,062	82	3,162	67
Total traditional and secured asset backed securities							3,748	100	4,745	100
Asset Disclosures										Page 66
4.03  Traditional and secured asset backed securities summary (continued)
(i) By security (continued)
							LGPL	LGPL	Total	Total
							At	At	At	At
							31.12.10	31.12.10	31.12.10	31.12.10
							£m	%	£m	%
Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1							453	11	714	15
Residential Mortgage-Backed Securities - Sub-prime2							-	-	18	-
Commercial Mortgage-Backed Securities							242	6	439	9
Credit Card							12	-	242	5
Auto							12	-	128	3
Consumer Loans							41	1	47	1
Student Loans							20	1	39	1
							780	19	1,627	34
Securitisations and debentures
Secured Bond							1,668	42	1,687	34
Commercial Property Backed Bonds							227	6	230	5
Infrastructure / Private Finance Initiative / Social housing							1,002	25	1,004	20
Whole Business Securitisation							267	7	269	5
Other secured holdings3							52	1	103	2
							3,216	81	3,293	66
Total traditional and secured asset backed securities							3,996	100	4,920	100
1. 57% (H1 10: 61%; FY 10: 54%) of Prime RMBS holdings relate to UK mortgages.
2. 51% (H1 10: 52%; FY 10: 52%) of Sub-prime RMBS holdings have a credit rating of AAA and 70% (H1 10: 55%; FY 10: 54%) relate to the UK.
3. Other secured holdings in LGPL include covered bonds of £20m (H1 10: £13m; FY 10: £17m).
Asset Disclosures										Page 67
4.03  Traditional and secured asset backed securities summary (continued)
(ii) By credit rating
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.11	30.06.11	30.06.11	30.06.11
							£m	%	£m	%
AAA							1,072	26	1,831	36
AA							825	20	891	17
A							1,453	36	1,510	30
BBB							595	14	663	13
BB or below							30	1	70	1
Unrated							138	3	140	3
Total							4,113	100	5,105	100
							LGPL	LGPL	Total	Total
							At	At	At	At
							30.06.10	30.06.10	30.06.10	30.06.10
							£m	%	£m	%
AAA							1,133	30	1,862	40
AA							769	21	855	18
A							1,156	31	1,244	26
BBB							544	14	607	13
BB or below							14	-	21	-
Unrated							132	4	156	3
Total							3,748	100	4,745	100
							LGPL	LGPL	Total	Total
							At	At	At	At
							31.12.10	31.12.10	31.12.10	31.12.10
							£m	%	£m	%
AAA							1,223	31	1,939	39
AA							788	20	848	17
A							1,263	31	1,314	27
BBB							567	14	626	13
BB or below							23	1	61	1
Unrated							132	3	132	3
Total							3,996	100	4,920	100
Of the £888m (H1 10: £897m; FY 10: £847m) of traditional ABS holdings held outside of LGPL, 76% are rated AAA (H1 10: 76%; FY 10: 79%).
The credit ratings of monoline wrapped bonds are based on the rating of the underlying securities.
Asset Disclosures										Page 68
4.04  Group subordinated bank exposures
					Total	Total	Total	Total	Total	Total
					At	At	At	At	At	At
					30.06.11	30.06.11	30.06.10	30.06.10	31.12.10	31.12.10
					£m	%	£m	%	£m	%
Tier 1
	United Kingdom1				169	8	264	11	244	10
	USA				84	4	106	4	119	5
	Europe				115	6	118	5	114	5
	Others				30	2	29	1	36	2
Total tier 1					398	20	517	21	513	22
Lower tier 2
	United Kingdom				704	34	804	34	806	35
	USA				430	22	502	21	520	22
	Europe				193	10	213	9	184	8
	Others				74	4	84	4	79	3
Upper tier 2
	United Kingdom				75	4	94	4	94	4
	USA				19	1	26	1	19	1
	Europe				57	3	68	3	55	3
	Others				3	-	5	-	3	-
Other subordinated
	United Kingdom				-	-	5	-	-	-
	USA				47	2	76	3	51	2
	Europe				-	-	-	-	-	-
	Others				-	-	7	-	-	-
Total tier 2 and other subordinated					1,602	80	1,884	79	1,811	78
Total					2,000	100	2,401	100	2,324	100
1. The exposure to UK tier 1 debt includes issuances from the UK subsidiaries of European banks where there is no explicit parental guarantee.
4.05  Value of policyholder assets held in Society and LGPL
								At 30.06.11	At 30.06.10	At 31.12.10
								£m	£m	£m
With-profits business								25,987	25,072	26,442
Non profit business								40,864	37,286	40,244
								66,851	62,358	66,686
Asset Disclosures										Page 69
4.06  With-profits non-linked business invested asset mix and investment return
							Investment	UK	UK	UK
							return	with-	with-	with-
								profits	profits	profits
								asset
								share	non par	other
As at 30 June 2011							%	%	%	%
Equities							2	41	3	(63)
Bonds							3	40	87	150
Property							4	14	-	-
Cash							-	5	10	13
								100	100	100
Investment return (% pa)							2	3	3	-
Invested assets (£bn):
Net of derivative liabilities								13.4	2.4	1.4
Gross of derivative liabilities								13.5	2.4	1.4
As at 30 June 2010
Equities							(4)	36	4	(55)
Bonds							7	43	85	153
Property							8	14	1	-
Cash							-	7	10	2
								100	100	100
Investment return (% pa)							4	2	5	17
Invested assets (£bn):
Net of derivative liabilities								13.3	2.4	1.6
Gross of derivative liabilities								13.4	2.4	1.6
As at 31 December 2010
Equities							13	40	3	(65)
Bonds							9	39	86	153
Property							17	15	-	(1)
Cash							1	6	11	13
								100	100	100
Investment return (% pa)							10	12	8	4
Invested assets (£bn):
Net of derivative liabilities								13.8	2.4	1.5
Gross of derivative liabilities								14.0	2.4	1.5
All investment return percentages reflect actual investment returns on average asset holdings for the period.
Asset Disclosures										Page 70
4.07  Analysis of fair value measurement bases
							Fair value measurement at the
							end of the reporting period based on:
							Level 1	Level 2	Level 3	Total
As at 30 June 2011							£m	£m	£m	£m
Group capital and other insurance business
Equities							657	206	136	999
Bonds1							2,210	3,646	8	5,864
Derivative assets							31	279	-	310
							2,898	4,131	144	7,173
Non profit non-unit linked
Bonds1							2,674	21,351	-	24,025
Derivative assets							30	1,220	-	1,250
							2,704	22,571	-	25,275
							Fair value measurement at the
							end of the reporting period based on:
							Level 1	Level 2	Level 3	Total
As at 30 June 2010							£m	£m	£m	£m
Group capital and other insurance business
Equities							606	106	118	830
Bonds1							1,894	3,356	10	5,260
Derivative assets							3	270	-	273
							2,503	3,732	128	6,363
Non profit non-unit linked
Bonds1							2,355	20,397	-	22,752
Derivative assets							168	1,466	-	1,634
							2,523	21,863	-	24,386
							Fair value measurement at the
							end of the reporting period based on:
							Level 1	Level 2	Level 3	Total
As at 31 December 2010							£m	£m	£m	£m
Group capital and other insurance business
Equities							730	115	130	975
Bonds1							2,093	3,134	9	5,236
Derivative assets							5	282	-	287
							2,828	3,531	139	6,498
Non profit non-unit linked
Bonds1							2,562	21,116	-	23,678
Derivative assets							78	1,348	-	1,426
							2,640	22,464	-	25,104
1. Consolidated CDO holdings have been presented on a net basis within level 2. The analysis excludes cash, loans and receivables and property investments of £2,614m (H1 10: £2,278m; FY 10: £2,815m), as disclosed in Note 4.01.
Asset Disclosures										Page 70
4.07  Analysis of fair value measurement bases (continued)
Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm's length transaction.
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflects the Group's view of market assumptions in the absence of observable market information. The Group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs significant to the measurement 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 valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs).
In current market conditions, the liquidity of financial instruments is lower than it has been in the past. All of the Group's level 2 assets have been valued using standard market pricing sources, such as iBoxx, IDC and Bloomberg except for bespoke CDO and swaps holdings (see below). In normal market conditions, we would consider these market prices to be observable market prices. However, following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have prudently classified them as level 2.
Our holdings in bespoke CDOs and swaps are priced using an external model which utilise market assumptions. The CDO valuations have also been verified using an internal model. Accordingly, these assets have also been classified in level 2.
Level 3 assets, where internal models are used to represent a small proportion of assets to which shareholders are exposed and reflect unquoted equities including investments in private equity, property vehicles and suspended securities.
In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the Group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the Group has classified within level 3.
The Group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The Group also determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the Group's credit standing, liquidity and risk margins on unobservable inputs.
Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. Illiquid market conditions have resulted in inactive markets for certain of the Group's financial instruments. As a result, there is generally limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ significantly from the values that would have been used had a ready market existed, and the differences could be material. As a result, such calculated fair value estimates may not be realisable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independently of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee.
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for the six months ended 30 June 2011 (H1 10 and FY 10: No significant transfers between levels 1, 2 and 3).

 

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