Quilter Full Year Results 2019 - Part 2

RNS Number : 6876F

Quilter PLC

11 March 2020

Statement of Directors' responsibilities

in respect of the preliminary announcement of the Annual report and accounts and the financial statements

The Directors confirm that to the best of their knowledge:

· The results in this preliminary announcement have been taken from the Group's 2019 Annual report and accounts, which will be available on the Company's website on 26 March 2020; and

· The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group.

Approved by the Board on 11 March 2020.

Paul Feeney Mark Satchel
Chief Executive Officer Chief Financial Officer

Consolidated income statement

For the year ended 31 December 2019

	Notes	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Revenue
Fee income and other income from service activities		936	954
Investment return		6,866	(2,712)
Other income		22	35
Total revenue		7,824	(1,723)
Expenses
Insurance contract claims and changes in liabilities		(1)	(1)
Change in investment contract liabilities	14(c)	(5,810)	2,499
Fee and commission expenses, and other acquisition costs		(294)	(398)
Change in third party interest in consolidated funds		(917)	369
Other operating and administrative expenses		(740)	(750)
Finance costs1		(17)	(16)
Total expenses		(7,779)	1,703
Profit/(loss) before tax from continuing operations		45	(20)
Tax (expense)/credit attributable to policyholder returns	6(a)	(98)	61
(Loss)/profit before tax attributable to equity holders from continuing operations		(53)	41
Income tax (expense)/credit	6(a)	(66)	86
Less: tax expense/(credit) attributable to policyholder returns		98	(61)
Tax credit attributable to equity holders		32	25
(Loss)/profit after tax from continuing operations		(21)	66
Profit after tax from discontinued operations	3(c)	167	422
Profit after tax		146	488

Attributable to:
Equity holders of Quilter plc		146	488

Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc
Basic
From continuing operations (pence)	7(b)	(1.1)	3.5
From discontinued operations (pence)	3(c)	9.1	23.1
Basic earnings per ordinary share (pence)	7(b)	8.0	26.6
Diluted
From continuing operations (pence)	7(b)	(1.1)	3.5
From discontinued operations (pence)	3(c)	8.9	23.0
Diluted earnings per ordinary share (pence)	7(b)	7.8	26.5

¹ The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.

Consolidated statement of comprehensive income

For the year ended 31 December 2019

	Note	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Profit after tax		146	488
Exchange losses on translation of foreign operations		(1)	-
Items that may be reclassified subsequently to income statement		(1)	-

Measurement movements on defined benefit plans		(7)	-
Tax on amounts related to defined benefit pension plans		1	-
Items that will not be reclassified subsequently to income statement		(6)	-
Total other comprehensive expense, net of tax		(7)	-

Total comprehensive income		139	488
Attributable to:
Continuing operations		(28)	66
Discontinued operations	3(d)	167	422
Equity holders of Quilter plc		139	488

Reconciliation of adjusted profit to profit after tax

For the year ended 31 December 2019

		Year ended 31 December 2019			Year ended 31 December 2018
	Notes	Continuing operations £m	Discontinued operations¹ £m	Total £m	Continuing operations £m	Discontinued operations¹ £m	Total £m
Advice and Wealth Management		103	-	103	102	26	128
Wealth Platforms		112	53	165	105	57	162
Head Office		(33)	-	(33)	(31)	-	(31)
Adjusted profit before tax before reallocation		182	53	235	176	83	259
Reallocation of QLA costs2		(26)	26	-	(28)	28	-
Adjusted profit before tax	4(b)(i)	156	79	235	148	111	259
Adjusted for the following:
Goodwill impairment and impact of acquisition accounting	5(a)(i)	(54)	-	(54)	(50)	-	(50)
Profit on business disposals	3(b)	-	103	103	-	290	290
Business transformation costs	5(a)(ii)	(77)	-	(77)	(84)	-	(84)
Managed Separation costs	5(a)(iii)	(6)	-	(6)	(24)	-	(24)
Finance costs	5(a)(iv)	(10)	-	(10)	(13)	-	(13)
Policyholder tax adjustments	5(a)(v)	(62)	(12)	(74)	64	37	101
Voluntary customer remediation provision	5(a)(vi)	-	10	10	-	-	-
Total adjusting items before tax		(209)	101	(108)	(107)	327	220
(Loss)/profit before tax attributable to equity holders		(53)	180	127	41	438	479
Tax attributable to policyholder returns	6(a)	98	76	174	(61)	(97)	(158)
Income tax (expense)/credit	6(a),(b)	(66)	(89)	(155)	86	81	167
(Loss)/profit after tax		(21)	167	146	66	422	488

Adjusted earnings per share
		Year ended 31 December 2019			Year ended 31 December 2018
	Notes	Continuing operations £m	Discontinued operations £m	Total £m	Continuing operations £m	Discontinued operations £m	Total £m
Adjusted profit before tax before reallocation		182	53	235	176	83	259
Shareholder tax on adjusted profit before reallocation	6(c)	(22)	(3)	(25)	(13)	2	(11)
Adjusted profit after tax before reallocation	7(b)	160	50	210	163	85	248
Basic weighted average number of ordinary shares (millions)	7(a)			1,835			1,832
Adjusted basic earnings per share (pence)	7(b)	8.7	2.7	11.4	8.9	4.6	13.5
Diluted weighted average number of ordinary shares (millions)	7(a)			1,863			1,839
Adjusted diluted earnings per share (pence)	7(b)	8.6	2.7	11.3	8.9	4.6	13.5

¹ Discontinued operations includes the results of the Quilter Life Assurance ("QLA") business. In 2018, it also includes the Single Strategy business up to the date of its disposal in June 2018. For further details of the Group's segmentation, see note 4.

² Adjusted profit from continuing operations includes £26 million of costs (2018: £28 million) previously reported as part of the QLA business which has been reclassified from discontinued to continuing operations as these costs do not transfer to ReAssure on disposal at 31 December 2019. See note 3(c) for further information.

Basis of preparation of adjusted profit

Adjusted profit is one of the Group's Alternative Performance Measures and reflects the Directors' view of the underlying performance of the Group. It is used for management decision making and internal performance management and is the profit measure presented in the Group's segmental reporting. Adjusted profit is a non-GAAP measure which adjusts the IFRS profit for specified items as detailed in note 5(a).

Adjusted profit excludes significant costs or income that are non-operating or one-off in nature, which includes but is not limited to: the impact of acquisition accounting and any impairment of goodwill, any profit or loss on business acquisitions and disposals, costs related to business transformation, and finance costs on external borrowings. Adjusted profit also treats policyholder tax (adjusted to remove the impact of non-operating tax items) as a pre-tax charge (to offset against the related income collected from policyholders). Full details of the Group's adjusting items are described in note 5(a).

Adjusted earnings applied in the calculation of adjusted earnings per share is calculated based on adjusted profit after tax. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds.

The Board Audit Committee regularly reviews the use of adjusted profit to confirm that it remains an appropriate basis on which to analyse the operating performance of the business. The Group seeks to minimise such changes in order to maintain consistency over time. The Committee assesses refinements to the policy on a case-by-case basis.

Consolidated statement of changes in equity

For the year ended 31 December 2019

31 December 2019	Note	Share capital £m	Share premium £m	Merger reserve £m	Share-based payments reserve £m	Other reserves £m	Retained earnings £m	Total share- holders' equity £m
Shareholders' equity at beginning of the year		133	58	588	34	1	1,191	2,005
Adjustment on initial application of IFRS 16 (net of tax) ¹		-	-	-	-	-	(5)	(5)
Balance at 1 January 2019		133	58	588	34	1	1,186	2,000
Profit for the year		-	-	-	-	-	146	146
Other comprehensive expense		-	-	-	-	-	(7)	(7)
Total comprehensive income		-	-	-	-	-	139	139
Dividends	8	-	-	-	-	-	(92)	(92)
Release of merger reserve		-	-	(439)	-	-	439	-
Movement in own shares		-	-	-	-	-	(2)	(2)
Equity share-based payment transactions2		-	-	-	11	-	15	26
Total transactions with the owners of the Company		-	-	(439)	11	-	360	(68)
Balance at 31 December 2019		133	58	149	45	1	1,685	2,071

31 December 2018	Note	Share capital £m	Share premium £m	Merger reserve £m	Share-based payments reserve £m	Other reserves £m	Retained earnings £m	Total share- holders' equity £m
Balance at 1 January 2018		130	58	-	38	1	872	1,099
Profit for the year		-	-	-	-	-	488	488
Total comprehensive income		-	-	-	-	-	488	488
Dividends	8	-	-	-	-	-	(221)	(221)
Acquisition of entities due to Managed Separation restructure		-	-	591	-	-	-	591
Issue of share capital		3	-	(3)	-	-	-	-
Movement in own shares		-	-	-	-	-	5	5
Equity share-based payment transactions2		-	-	-	7	-	35	42
Change in participation in subsidiaries		-	-	-	(12)	-	12	-
Aggregate tax effects of items recognised directly in equity		-	-	-	1	-	-	1
Total transactions with the owners of the Company		3	-	588	(4)	-	(169)	418
Balance at 31 December 2018		133	58	588	34	1	1,191	2,005

² Equity-settled share-based payment transactions of £26 million (December 2018: £42 million) consists of IFRS 2 costs of £26 million (December 2018: £27 million). In the year ended 31 December 2019, £15 million has transferred from share-based payments reserve to retained earnings representing share-based payment schemes that have fully vested (December 2018: £35 million). The year ended 31 December 2018 also included a transfer of £15 million previously recognised within liabilities to the share-based payment reserve, including cash awards that were converted to equity-settled awards.

Consolidated statement of financial position

At 31 December 2019

	Notes	At 31 December 20191 £m	At 31 December 2018 £m
Assets
Goodwill and intangible assets	9	592	550
Property, plant and equipment2		143	17
Investments in associated undertakings		1	2
Deferred acquisition costs		-	11
Contract costs		455	551
Loans and advances		217	222
Financial investments	10	59,345	59,219
Reinsurers' share of policyholder liabilities	14	-	2,162
Deferred tax assets		43	38
Current tax receivable		13	47
Trade, other receivables and other assets3		424	530
Derivative assets		32	46
Cash and cash equivalents	13(a)	2,473	2,395
Total assets		63,738	65,790
Equity and liabilities
Equity
Ordinary Share capital		133	133
Ordinary Share premium reserve		58	58
Merger reserve		149	588
Share-based payments reserve		45	34
Other reserves		1	1
Retained earnings		1,685	1,191
Total equity		2,071	2,005
Liabilities
Insurance contract liabilities	14	-	602
Investment contract liabilities	14	52,455	56,450
Third-party interests in consolidated funds		7,675	5,116
Provisions	15	64	94
Deferred tax liabilities		88	59
Current tax payable		6	5
Borrowings and lease liabilities2		335	197
Trade, other payables and other liabilities		836	999
Contract liabilities and deferred revenue		191	226
Derivative liabilities		17	37
Total liabilities		61,667	63,785
Total equity and liabilities		63,738	65,790

¹The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.

²Following the adoption of IFRS 16, the Group has presented right-of-use assets within Property, plant and equipment and lease liabilities within Borrowings and lease liabilities.

³The Group's contract assets are now included within Trade, other receivables and other assets, having previously been shown separately on the statement of financial position.

Approved by the Board on 11 March 2020.

Paul Feeney Mark Satchel

Chief Executive Officer Chief Financial Officer

Consolidated statement of cash flows

For the year ended 31 December 2019

The cash flows presented in this statement cover all the Group's activities (continuing and discontinued operations and cash that is held for sale) and includes flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group except for cash and cash equivalents in consolidated funds.

	Notes	Year ended 31 December 2019¹ £m	Year ended 31 December 2018 £m
Cash flows from operating activities
Profit/(loss) before tax from continuing operations		45	(20)
Profit before tax from discontinued operations	3(c)	256	341
Non-cash movements in profit before tax		(2,268)	584
Net changes in working capital2		(39)	(662)
Taxation paid		(37)	(92)
Total net cash (used in)/from operating activities		(2,043)	151
Cash flows from investing activities
Net disposals/(acquisitions) of financial investments		2,260	(366)
Acquisition of property, plant and equipment		(8)	(7)
Acquisition of intangible assets		(5)	(4)
Net acquisition of interests in subsidiaries2,3		(87)	13
Net proceeds from the disposal of interests in subsidiaries		78	350
Total net cash from/(used in) investing activities		2,238	(14)
Cash flows from financing activities
Dividends paid to ordinary equity holders of the Company		(92)	(221)
Finance costs on external borrowings		(10)	(8)
Payment of interest on lease liabilities		(3)	-
Payment of principal lease liabilities		(13)	-
Proceeds from issue of subordinated and other debt		-	497
Subordinated and other debt repaid		-	(516)
Total net cash used in financing activities		(118)	(248)
Net increase/(decrease) in cash and cash equivalents		77	(111)
Cash and cash equivalents at the beginning of the year		2,395	2,507
Effects of exchange rate changes on cash and cash equivalents		1	(1)
Cash and cash equivalents at end of the year	13(a)	2,473	2,395

¹The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.

²There has been a £7 million reallocation between net changes in working capital and acquisitions of interests in subsidiaries in respect of the comparative figures to conform with the current year presentation of contingent consideration payments (see note 3(a)).

³The acquisition of interests in subsidiaries balance also includes £21 million paid in the year in respect of contingent consideration payments relating to historical acquisitions.

Basis of preparation and significant accounting policies

For the year ended 31 December 2019

General information

Quilter plc (the "Company"), a public limited company incorporated and domiciled in the United Kingdom ("UK"), together with its subsidiaries (collectively, the "Group") offers investment and wealth management services, long-term savings and financial advice through its subsidiaries and associates primarily in the UK with a presence in a number of cross-border markets.

The address of the registered office is Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ.

The Company was, until 25 June 2018, a wholly owned subsidiary of Old Mutual plc, a FTSE-100 listed group. The Company formed part of the Old Mutual Wealth division of Old Mutual plc, for which it acted as a holding company and delivered strategic and governance oversight. On 25 June 2018, Quilter plc was listed on the London and the Johannesburg Stock Exchanges and is no longer part of the Old Mutual plc Group.

1: Basis of preparation

The results in this preliminary announcement have been taken from the Group's 2019 Annual report and accounts ("ARA") which will be available on the Company's website on 26 March 2020. These condensed consolidated financial statements of Quilter plc for the year ended 31 December 2019 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union ("EU"), and those parts of the Companies Act 2006 applicable to those reporting under IFRS.

Significant accounting policies applicable to the Group's condensed consolidated financial statements can be found in note 4 of the consolidated financial statements within the Group's 2019 ARA.

The preliminary announcement for the year ended 31 December 2019 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The consolidated financial statements for full year 2019 have been audited by KPMG. Comparative financial information for full year 2018 has been taken from the Group's 2018 ARA, which has been filed with the Registrar of Companies and was prepared in accordance with IFRS, as endorsed by the EU. KPMG provided an unqualified report that did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

This is the first set of the Group's annual financial statements in which IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments have been applied. Changes in significant accounting policies to reflect these new IFRSs are explained in note 2. All other accounting policies for recognition, measurement, consolidation and presentation are as outlined in the Group's 2019 ARA.

These condensed consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates.

Going concern

The Directors have considered the resilience of the Group, taking into account its current financial position, the principal risks facing the business and the effectiveness of the mitigating strategies which are or will be applied. As a result, the Directors believe that the Group is well placed to manage its business risks in the context of the current economic outlook and have sufficient financial resources to continue in business for a period of at least 12 months from the date of approval of these consolidated financial statements, and continue to adopt the going concern basis in preparing the consolidated financial statements.

Critical accounting estimates and judgements

The preparation of financial statements requires management to exercise judgement in applying the Group's significant accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. The Group Audit Committee reviews these areas of judgement and estimates and the appropriateness of significant accounting policies adopted in the preparation of these financial statements.

The Group's critical accounting judgements are detailed below and are those that management makes when applying its significant accounting policies and that have the most effect on the amounts recognised in the Group's financial statements.

Area	Critical accounting judgements	Related notes
Consolidation of investment funds	The Group's interest in investment funds can fluctuate according to the Group's participation in them as clients' underlying investment choices change. The Group exercises judgement in assessing its level of power, exposure to variable returns and its ability to use such power to affect those returns relative to the power of other investors in those funds, when evaluating the need to consolidate those funds. In particular, management uses its judgement when assessing rights held by other parties including substantive removal ("kick-out" rights).	n/a¹
Recognition of provisions and contingent liabilities in respect of Lighthouse complaints	Complaints were received after the reporting date in relation to advice provided by Lighthouse before its acquisition by the Group. Judgement is required to determine whether a provision can be reasonably estimated in relation to the complaints and whether redress is probable, and therefore whether a provision can be recognised. Judgement is also required to determine the treatment for advice where no complaint has been received and there is no present obligation, and these cases have been treated as a contingent liability.	5(a), 15, 16, 19
Discontinued operations	Management judgement was applied in the classification of the QLA business (disposed in December 2019) as a discontinued operation. Management concluded that QLA represented a separate major line of business, being the Group's closed book of legacy business and as such, met the discontinued operations criteria, restating prior year comparatives accordingly. Judgement has also been applied in the reallocation of specific on-going costs to the Group's continuing operations that will remain in the business after the disposal of QLA.	3(c)
Apportionment of goodwill to business disposals	Judgement was applied in the allocation of goodwill in relation to the QLA business, impacting the profit on disposal of that business. The allocation was based on QLA's fair value relative to the other businesses within the Wealth Platforms cash generating unit ("CGU").	9(c)
Recognition of provisions following the disposal of QLA	The Group has exercised significant judgement in determining the accounting treatment for a number of provisions in respect of the disposal of QLA. The disposal of QLA has led to a series of business activities related to the sale of the business resulting in costs to separate the business from the Group, including its separation from a significant number of shared IT systems. Provisions have been established where costs are either contractual within the disposal agreement or represent a constructive liability in respect of ancillary work to separate the businesses. Significant judgement was required to assess whether the costs were directly attributable and incremental to the sale and whether a legal or constructive obligation existed in order to recognise certain provisions.	15


Area	Critical accounting judgements	Related notes
Uncertain tax position	Due to the complexity of tax law, the tax treatment of specific transactions may be uncertain. In assessing uncertain tax positions, the Group considers the likelihood that the tax authority may take a different view to that reached by management. In that regard, the Group has exercised judgement in assessing the accounting tax position in relation to transactions undertaken as part of the demerger from Old Mutual plc in 2018.	n/a²

The Group's critical accounting estimates are shown below and involve the most complex or subjective assessments and assumptions, which have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next financial year. Management uses its knowledge of current facts and circumstances and applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting guidance to make predictions about future actions and events. Actual results may differ from those estimates.

Area	Critical accounting estimates	Related notes
Consolidation of investment funds	Where the Group consolidates investment funds, estimation is required in some circumstances when sourcing the up-to-date financial information, aligned to the Group's reporting date. In instances where financial information is unavailable for the Group's reporting dates, the Group sources the most recently available financial information for those funds, as the best reliable estimate.	n/a¹
Provision for cost of Lighthouse complaints	An estimation of the provision required for the complaints received was determined based upon a sample of cases which was deemed representative of the broader population to form a reasonable estimate. The estimation per case is based upon FCA guidelines and modelling performed based upon factors, including pension transfer value, discount rate, and retail price indexation. The sample was then extrapolated to the entire population of complaint cases.	15
Goodwill and intangible assets	The valuation of goodwill and intangible assets that are recognised as the result of a business combination involves the use of valuation models. During the current year, these assets have arisen on the acquisition of the Charles Derby Group, Lighthouse Group and various smaller adviser businesses. In relation to goodwill impairment, the determination of a CGU's recoverable value is based on the discounted value of the expected future profits of each business. Significant estimates include forecast cash flows, new business growth and discount rates. Estimation was also used in the valuation of goodwill attributable to the disposal of the QLA business.	9
Valuation of investments	Where quoted market prices are not available, valuation techniques are used to measure financial investments. When valuation techniques use significant unobservable inputs they are subject to estimation uncertainty and are categorised as level 3 in the fair value hierarchy. Matching liabilities are similarly categorised as level 3.	12
Insurance contracts measurement and the impact upon profit on disposal of QLA	Measurement of insurance contracts involves significant use of assumptions including mortality, morbidity, persistency, expense valuation and interest rates. This measurement impacted upon the closing net asset value of QLA, and therefore the profit recognised by the Group on the disposal of QLA.	3(b) 14
Measurement of deferred tax	The estimation of future taxable profits is performed as part of the annual business planning process, and is based on estimated levels of assets under management, which are subject to a large number of factors including worldwide stock market movements, related movements in foreign exchange rates and net client cash flow, together with estimates of expenses and other charges. The business plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised. In general the Group assesses recoverability based on estimated taxable profits over a 3 year planning horizon. Where credible longer term profit forecasts are available (e.g. for the life insurance companies) the specific entity may assess recoverability over a longer period, subject to a higher level of sensitivity testing.	n/a²

¹Refer to note 4(a) in the financial statements included within the Group's 2019 Annual Report and Accounts.

²Refer to note 28 in the financial statements included within the Group's 2019 Annual Report and Accounts.

During the year, the Group reassessed its critical accounting estimates and judgements and no longer considers the judgements and estimates relating to the classification and measurement of insurance contracts to be critical to the Group, following the sale of the QLA business (see note 3(b) for further details of the sale). In addition, the estimates and judgements involved in the recognition and measurement of the voluntary customer remediation provision is no longer relevant to the Group as the provision was part of the QLA net assets sold.

2: New standards, amendments to standards, and interpretations adopted by the Group

The Group adopted IFRS 16 Leases for the first time in 2019. The Group has applied the simplified transition approach and has not restated comparative amounts for the period prior to initial adoption. The impact of adopting this new standard is explained in detail in note 4(s) of the consolidated financial statements within the Group's 2019 Annual report and accounts.

The Group has also adopted IFRIC 23 Uncertainty over Income Tax Treatments during the year ended 31 December 2019. This interpretation sets out how to determine taxable profits/losses, tax bases, unused tax losses, unused tax credits and tax rates (collectively referred to as the "accounting tax position") where there is uncertainty over treatment. In applying IFRIC 23, the Group has made judgements on whether tax authorities will accept the Group's tax filing position and estimated the likely impact on the Group's tax assets and liabilities. The adoption of this interpretation during 2019 has had no material impact on the Group's consolidated financial statements other than a reduction in unrecognised deferred tax assets.

Other standards:

In addition to IFRS 16 and IFRIC 23, the following amendments to the accounting standards, issued by the International Accounting Standards Board ("IASB") and endorsed by the EU, have been adopted by the Group from 1 January 2019 with no material impact on the Group's consolidated results, financial position or disclosures:

· Amendments to IFRS 9 Financial Instruments - Prepayment features with negative compensation.

· Amendments to IAS 28 Investments in Associates - Long-term interests in associates and joint ventures.

· Amendments to IAS 19 Employee Benefits - Plan amendments, curtailments or settlements.

· Annual improvements to IFRSs 2015-2017 Cycle - Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs.

Notes to the consolidated financial statements

For the year ended 31 December 2019

3: Acquisitions, disposals and discontinued operations

This note provides details of the Group's acquisitions and disposals of subsidiaries during the financial periods covered by these financial statements.

3(a): Business acquisitions

Business acquisitions completed during the year ended 31 December 2019

Charles Derby Group Limited acquisition:

On 14 February 2019, the Group acquired the Charles Derby Group ("CDG") of companies (recently rebranded "Quilter Financial Advisers"). CDG is a financial planning business based in the UK. The acquisition complements the growth of Quilter Private Client Advisers which serves upper affluent and high net worth customers. CDG has over 200 restricted advisers (as at 31 December 2018), and represents the next stage of Quilter's ambition to broaden out its national advice business.

Prior to acquisition, the Group had previously invested £2 million for a 10% stake in CDG. At December 2018, the business was valued at £34 million, resulting in a fair value gain of £1 million being recognised, representing the increase in the value on the 10% share in the business. Immediately prior to acquisition, CDG undertook a share issue to other shareholders, which diluted the Group's stake to 6%, with a fair value of £2 million. The resulting fair value loss of £1 million (reducing the carrying value from £3 million to £2 million) has been recognised by the Group in 'Other operating and administrative expenses' in the consolidated income statement in 2019. On acquisition, the Group acquired the remaining share capital and associated voting rights.

The table below sets out the consolidated assets and liabilities acquired:

	Acquiree's carrying amount £m	Fair value £m
Assets
Intangible assets	1	15
Loans and advances	1	1
Cash and cash equivalents	1	1
Trade, other receivables and other assets	2	2
Total assets	5	19
Liabilities
Deferred tax liabilities	-	(2)
Trade, other payables and other liabilities	(9)	(9)
Total liabilities	(9)	(11)
Total net (liabilities)/assets acquired	(4)	8
Total consideration		31
Goodwill recognised		23

After an initial cash payment of £15 million at acquisition, a further payment of £5 million was made on 1 April 2019. Further contingent payments based on a percentage of the level of assets under administration at 2020 and 2022 are expected to be made. Management's best estimate of the net present value of these payments total £9 million. These amounts exclude the £2 million value of the 6% stake already held.

The purchase price has been allocated based on the fair value of assets acquired and liabilities at the date of acquisition determined in accordance to IFRS 3 Business Combinations. The allocation required significant use of assumptions regarding cash flows, profit margin and discount, attrition and growth rates.

Based on the purchase price of £31 million and the fair value of net liabilities acquired of £5 million (excluding acquired intangible assets of £1 million), the value of goodwill and intangible assets is £36 million. Intangible assets representing the value of customer advice contracts have been valued at £15 million, less an associated deferred tax liability of £(2) million, with an estimated useful life of 8 years over which the intangible assets and the associated tax provision will be amortised on a straight line basis. The balance of £23 million is recognised as goodwill in the statement of financial position.

The goodwill recognised is not expected to be deductible for tax purposes, and represents:

· net client cash flow and fee earning productivity of the acquired advisers;

· quality and experience of the existing executive team;

· creation of scale and increased service range to the National channel proposition; and

· ability to generate growth in Restricted Financial Planners and client numbers.

The carrying value of tangible assets and liabilities in CDG's consolidated statement of financial position on acquisition date approximates the fair value of these items determined by the Group.

As part of the acquisition of CDG, a Long Term Incentive Plan scheme was set up with a maximum value up to £10 million worth of Quilter plc shares. Vesting of awards is up to 50% after three years (31 December 2021), 25% after 4 years, and 25% after 5 years.

The fair value at grant date was £1.39 per share, with an estimated fair value of £7 million. The cost of the awards is expected to be £2 million per annum across years 1 - 3 and £1 million in year 4.

Transaction costs of £1 million relating to the acquisition have been recognised within other operating and administrative expenses in the Group's consolidated income statement. These costs are not included within adjusted profit.

No contingent liabilities have been acquired.

The post-acquisition results from the business, excluding integration costs of £2 million, have been consolidated since the date of acquisition, contributing £6 million of revenue (£3 million, net of cost of sales) and a loss of £6 million to the Group's consolidated profit after tax.

Lighthouse Group plc acquisition:

On 3 April 2019, the Group made a cash offer to acquire the entire share capital (and associated voting rights) of Lighthouse Group plc ("Lighthouse"), and the acquisition completed on 12 June 2019. This acquisition helps to position Quilter as the best place for trusted financial advice in the UK, bringing together Quilter's strengths in its new platform with Lighthouse's strength in its customer relationships and partnerships, covering more than 6 million affluent and mass affluent customers in the UK.

There were 139,864,270 shares in issue for which the offer was 33 pence per share, valuing the business at £46 million.

The Group held 3.99% of the issued share capital of Lighthouse prior to acquisition. This holding was valued at £2 million, based on the 33 pence per share offer.

The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance to IFRS 3 Business Combinations. The provisional allocation required significant use of assumptions regarding cash flows, profit margin and discount, attrition and growth rates. It is possible that the preliminary estimates may change as the purchase price allocations are finalised. The accounting must be finalised within 12 months of the acquisition date.

Based on the purchase price of £46 million and fair value of net tangible liabilities acquired of £8 million (excluding acquired intangible assets of £5 million), the value of goodwill and intangible assets is £54 million. Intangible assets representing the value of customer advice contracts have been valued at £21 million (£24 million gross, less an associated deferred tax liability of £(3) million), with an estimated useful life of 8 years over which the intangible and associated tax provision will be amortised on a straight line basis. The balance of £33 million is recognised as goodwill in the Group's statement of financial position.

The goodwill recognised is not expected to be deductible for tax purposes, and represents:

· synergies arising from the alignment of the advisers into a restricted model;

· generation of additional net client cash flows into the integrated solutions offered through the wider Quilter Group; and

· cost saving synergies arising through de-listing the business and integrating with Quilter Financial Planning.

Transaction costs of £2 million relating to the acquisition have been recognised within 'Other operating and administrative expenses' in the Group's consolidated income statement, but not included within adjusted profit.

No contingent liabilities have been recognised in the fair value statement of financial position.

The table below sets out the consolidated assets and liabilities acquired:

	Acquiree's carrying amount £m	Fair value £m
Assets
Intangible assets	5	24
Property, plant and equipment	2	2
Investments and securities	1	1
Cash and cash equivalents	7	7
Trade, other receivables and other assets	7	7
Total assets	22	41
Liabilities
Deferred tax liabilities	-	(3)
Trade, other payables and other liabilities	(13)	(13)
Provision in respect of British Steel pension scheme members complaints	(12)	(12)
Total liabilities	(25)	(28)
Total net (liabilities)/assets acquired	(3)	13
Total consideration		46
Goodwill recognised		33

The post-acquisition results from the business, excluding integration costs of £3 million, have been consolidated since the date of acquisition, contributing £9 million of revenue and a profit of £1 million to the Group's consolidated profit after tax.

As disclosed in notes 15, 16 and 19, the Group was advised after the reporting date of a number of complaints received in respect of pension transfer advice provided to certain Lighthouse clients between 2016 and 2018, prior to the Group's acquisition of Lighthouse in June 2019. As the advice was provided before the Group's acquisition of Lighthouse, any redress costs will be recognised as a pre-acquisition liability within the fair value of the net assets acquired, with a corresponding increase in goodwill. A provision of £12 million has been calculated for the potential redress of the complaints received to date together with related legal and professional costs, which is reflected in the acquisition balance sheet above, along with the corresponding increase in goodwill. Any additional liability in respect of any other cases remains uncertain, as explained further in note 16. If further information is received by June 2020, the 12 month point post acquisition, further adjustments will be made to the acquisition balance sheet as appropriate.

Acquisition of adviser businesses by Quilter Financial Planning ("QFP")

During the year, the Group continued the expansion of the Quilter Private Client Advisers ("QPCA") business, with the acquisition of a further seven adviser businesses, including the acquisition of Prescient Financial Intelligence Limited on 20 December 2019. The purchase price has been allocated based on the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance to IFRS 3 Business Combinations.

The aggregate estimated consideration payable was £22 million, of which £14 million was cash consideration and up to £8 million in contingent consideration. The amount of contingent consideration, which is expected to be paid in full (discounted to net present value), is dependent upon meeting certain performance targets, generally relating to the value of funds under management and levels of on-going fee income. Tangible net assets of £1 million were acquired in these purchases. Total intangible assets of £9 million (£10 million gross, less an associated deferred tax liability of £(1) million) in respect of customer relationships and goodwill of £12 million have been recognised as a result of the acquisitions.

Transaction costs of £1 million relating to these acquisitions have been recognised within other operating expenses in the Group's consolidated income statement, but not included within adjusted profit.

Impact of acquisitions on Group revenue and profit

If all of the above acquisitions had occurred on 1 January 2019, management estimates that the Group's consolidated revenues would have been £10 million higher at £7,774 million, and consolidated profit after tax for the year would have been £5 million lower at £141 million.

Business acquisitions completed during year ended 31 December 2018

Acquisition of Skandia UK Limited from Old Mutual plc

The Group acquired the Skandia UK Limited group of entities from Old Mutual plc on 31 January 2018, comprising seven Old Mutual plc group entities with a net asset value ("NAV") of £591 million. The transfer was effected by the issue of a share and with the balance represented by a merger reserve. No debt was taken on as a result of this transaction. The most significant asset within these entities was a £566 million receivable which had a corresponding equivalent payable within the Group's statement of financial position. The net effect of this transaction for the Group was to replace a payable due to Old Mutual plc with equity.

Acquisition of adviser businesses by Quilter Financial Planning ("QFP")

During 2018 the Group completed the acquisition of fourteen adviser businesses as part of the expansion of the QPCA business. The total cash consideration paid was an initial £5 million with additional potential contingent consideration of £6 million which is expected to be paid in full (discounted to net present value for this and all other acquisitions listed below), dependent upon meeting certain performance targets generally relating to funds under management. Goodwill of £5 million, other intangible assets of £7 million and a deferred tax liability of £1 million were recognised as a result of the transaction. The contingent consideration was capitalised in the calculation of goodwill recognised.

Contingent consideration arising from business combinations

The table below details the movements in the contingent consideration balance during the current and prior year arising from the business acquisitions detailed above and in earlier years.

	31 December 2019 £m	31 December 2018 £m
Opening balance at 1 January	37	35
Acquisitions during the year	22	7
Payments	(21)	(7)
Financing interest charge	3	2
Other movements	(2)	-
Closing balance at 31 December	39	37

Contingent consideration represents management's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis of each acquisition varies but includes payments based upon a percentage of the level of assets under administration, funds under management and levels of on-going fee income at future dates. Management estimate a provision sensitivity of +/- 5% (£2 million).

3(b): Business disposals

Year ended 31 December 2019

On 31 December 2019, the Group completed the sale of the Quilter Life Assurance ("QLA") business (consisting two of the Group's subsidiary undertakings: Old Mutual Wealth Life Assurance Limited and Old Mutual Wealth Pensions Trustee Limited) to ReAssure Group for total consideration of £446 million. The Group has recognised a profit on the disposal of QLA of £103 million. Provisions established in respect of this disposal are shown in note 15.

Year ended 31 December 2018

On 29 June 2018, the Group completed the sale of its Single Strategy Asset Management business ("Single Strategy business") for a total consideration of £583 million, comprising cash consideration of £540 million on completion, with an additional £7 million payable before 2022 as surplus capital associated with the separation from the Group is released in the business, to a special purpose vehicle ultimately owned by funds managed by TA Associates and certain members of the Single Strategy management team (together "the Acquirer"). The contingent consideration was not subject to performance conditions. The remaining proceeds of £36 million were received in cash as a pre-completion dividend on 15 June 2018. Economic ownership of the Single Strategy business passed to the Acquirer effective from 1 January 2018 with all profits and performance fees generated up until 31 December 2017 for the account of Quilter plc.

The results of the Single Strategy business continued to be included as part of the Group up until the date of sale on the 29 June 2018. The Group recognised a post tax profit on disposal of the Single Strategy business of £292 million.

Profit on sale of operations

	Year ended 31 December 2019	Year ended 31 December 2018
	Quilter Life Assurance £m	Single Strategy business and Old Mutual Wealth Italy adjustment £m
Consideration received¹	446	546
Less: transaction and separation costs²	(19)	(20)
Plus: release of accrued expenses in relation to OMW Italy S.p.A disposal	-	2
Net proceeds from sale	427	528
Carrying value of net assets disposed	(294)	(155)
Goodwill allocated and disposed	(30)	(83)
Profit on sale of operations before tax	103	290
Tax on disposals	-	4
Profit on sale of operations after tax	103	294

¹Consideration received in 2018 in respect of the Single Strategy business comprises £540 million of cash received together with the discounted contingent consideration of £6 million, and excludes the £36 million pre-completion dividend received in June 2018.

²Of the £19 million transaction and separation costs relating to the sale of the QLA business in year ended 31 December 2019, £7 million has been expensed, with £12 million of accruals and provisions remaining at 31 December 2019.

Carrying value of net assets disposed

	Year ended 31 December 2019	Year ended 31 December 2018
	Quilter Life Assurance £m	Single Strategy business £m
Assets
Deferred acquisition costs	8	-
Contract costs	39	5
Financial investments	8,646	-
Reinsurers' share of policyholder liabilities	1,341	-
Deferred tax assets	-	5
Current tax receivable	14	-
Trade, other receivables and other assets	45	74
Cash and cash equivalents	361	170
Total assets	10,454	254

Liabilities
Long-term business insurance policyholder liabilities	736	-
Investment contract liabilities	9,183	-
Provisions	12	3
Deferred tax liabilities	70	-
Current tax payable	7	3
Trade, other payables and other liabilities	129	93
Contract liabilities	23	-
Total liabilities	10,160	99
Carrying value of net assets disposed	294	155

3(c): Discontinued operations - income statement

During 2019, the Group's discontinued operations consisted solely of the QLA business up to its disposal date of 31 December 2019 and the associated profit on sale of that business. For 2018, in addition to QLA's profit after tax, the Group's discontinued operations also included the profit after tax of the Single Strategy business up to the date of disposal on 29 June 2018 and the related profit on sale of that business.

	Notes	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Revenue
Gross earned premiums		145	147
Premiums ceded to reinsurers		(86)	(87)
Net earned premiums		59	60
Fee income and other income from service activities¹		164	206
Investment return^1,2		1,386	(770)
Other income		-	2
Total revenue		1,609	(502)
Expenses
Claims and benefits paid		(98)	(86)
Reinsurance recoveries		72	60
Net insurance claims and benefits incurred		(26)	(26)
Change in reinsurance assets and liabilities		121	103
Change in insurance contract liabilities		(134)	(109)
Change in investment contract liabilities²	14(c)	(1,364)	772
Fee and commission expenses, and other acquisition costs		(45)	(84)
Other operating and administrative expenses		(8)	(102)
Finance costs		-	(1)
Total expenses		(1,456)	553
Profit on sale of operations before tax	3(b)	103	290
Profit before tax from discontinued operations		256	341
Tax (expense)/credit attributable to policyholder returns	6(a)	(76)	97
Profit before tax from discontinued operations attributable to equity holders		180	438
Income tax (expense)/credit	6(a)	(89)	81
Less: tax expense/(credit) attributable to policyholder returns		76	(97)
Tax expense attributable to equity holders		(13)	(16)
Profit after tax from discontinued operations		167	422
Attributable to:
Equity holders of Quilter plc		167	422

Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc
Basic - from discontinued operations (pence)	7(b)	9.1	23.1
Diluted - from discontinued operations (pence)	7(b)	8.9	23.0

¹In the year ended 31 December 2018, the Group has reclassified £36 million from Fee income and other income from service activities to Investment return to conform with current year

presentation.

²In the year ended 31 December 2018, the Group has reclassified £35 million from Investment return to Change in investment contract liabilities to conform with current year presentation.

Operating and administration expenses shown within discontinued operations for the current and prior year have been amended in order to reallocate costs historically charged to QLA from Group service entities (31 December 2019: £26 million and 31 December 2018: £28 million) back to the Group's continuing operations. This principally reflects those costs previously recharged from Group central support functions to QLA that the Group will continue to incur after the disposal of QLA but will no longer be recharged to that business subsequent to its disposal. For more information on these costs and related revenues in 2020 (as part of the Transitional Service Arrangement ("TSA") with ReAssure ("The Acquirer", in respect of QLA)) see the Financial Review.

3(d): Discontinued operations - Statement of comprehensive income

	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Profit after tax	167	422
Total comprehensive income for the year from discontinued operations	167	422

3(e): Discontinued operations - Net cash flows

	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Total net cash used in operating activities	(3,789)	(2,437)
Total net cash from investing activities	3,765	2,529
Total net cash used in financing activities	(130)	(46)
Net (decrease)/increase in cash and cash equivalents	(154)	46

4: Segmental information

4(a): Segmental presentation

The Group's operating segments comprise Advice and Wealth Management and Wealth Platforms, which is consistent with the way in which the Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income statement. Head Office includes certain revenues and central costs that are not allocated to the segments.

Adjusted profit is an Alternative Performance Measure ("APM") reported to the Group's management and Board. Management and the Board use additional APMs to assess the performance of each of the segments, including net client cash flows, assets under management and administration, revenue and operating margin.

Consistent with internal reporting, assets, liabilities, revenues and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of those costs resulting from the disposal of those businesses.

The segmental information in this note reflects the adjusted and IFRS profit measures and the assets and liabilities for each operating segment as provided to management and the Board.

Continuing operations:

Advice and Wealth Management

This segment comprises Quilter Investors, Quilter Cheviot and Quilter Financial Planning.

Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form of funds for the Group and third party clients. It has several fund ranges which vary in breadth of underlying asset class.

Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to the individual needs of affluent and high-net worth customers, charities, companies and institutions through a network of branches in London and the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland.

Quilter Financial Planning is a restricted and independent financial adviser network, including Quilter Private Client Advisers ("QPCA"), CDG and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with property wealth and personal and business protection needs.

Wealth Platforms

This segment comprises Quilter Wealth Solutions ("QWS") and Quilter International.

Quilter Wealth Solutions is a leading investment platform provider of advice-based wealth management products and services in the UK, which serves a largely affluent customer base through advised multi-channel distribution.

Quilter International is a cross-border business, focusing on high net worth and affluent local customers and expatriates in the UK, Asia, the Middle East, Europe and Latin America.

Head office

In addition to the two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances in the segmental statement of financial position.

Discontinued operations:

The disposal of Quilter Life Assurance ("QLA") on 31 December 2019, previously part of the Wealth Platforms operating segment, has resulted in its classification as a discontinued operation. For the year ended 31 December 2018, the Single Strategy Asset Management business (disposed of on 29 June 2018) is also included as a discontinued operation. The results of these two businesses, along with the profits on disposal, have been presented as discontinued operations. See note 3(b) and note 3(c) for further information.

4(b)(i): Adjusted profit statement - segmental information for the year ended 31 December 2019

This reconciliation presents the Group's operating segments' IFRS income statements and reconcile to pre-tax adjusted profit and to the Group's consolidated income statement, including the 'Profit/(loss) before tax attributable to equity holders' (for continuing operations only).

		Operating segments
Continuing operations	Notes	Advice and Wealth Management £m	Wealth Platforms £m	Head Office £m	Reallocation of QLA costs¹ £m	Consolidation adjustments² £m	Consolidated income statement £m
Revenue
Fee income and other income from service activities		486	438	-	-	12	936
Investment return		10	5,823	3	-	1,030	6,866
Other income		1	160	6	-	(145)	22
Segmental revenue		497	6,421	9	-	897	7,824
Expenses
Insurance contract claims and changes in liabilities		-	(1)	-	-	-	(1)
Change in investment contract liabilities	14(c)	-	(5,810)	-	-	-	(5,810)
Fee and commission expenses, and other acquisition costs		(73)	(110)	-	-	(111)	(294)
Change in third party interest in consolidated funds		-	-	-	-	(917)	(917)
Other operating and administrative expenses		(368)	(409)	(68)	(26)	131	(740)
Finance costs		(4)	(3)	(10)	-	-	(17)
Segmental expenses		(445)	(6,333)	(78)	(26)	(897)	(7,779)
Profit/(loss) before tax from continuing operations		52	88	(69)	(26)	-	45
Tax attributable to policyholder returns		-	(98)	-	-	-	(98)
Profit/(loss) before tax attributable to equity holders from continuing operations		52	(10)	(69)	(26)	-	(53)

Adjusted for non-operating items:
Goodwill impairment and impact of acquisition accounting	5(a)(i)	52	1	1	-	-	54
Business transformation costs	5(a)(ii)	(1)	58	20	-	-	77
Managed Separation costs	5(a)(iii)	-	1	5	-	-	6
Finance costs	5(a)(iv)	-	-	10	-	-	10
Policyholder tax adjustments	5(a)(v)	-	62	-	-	-	62
Adjusting items before tax		51	122	36	-	-	209
Adjusted profit/(loss) before tax - continuing operations		103	112	(33)	(26)	-	156

Adjusted profit before tax - discontinued operations		-	53	-	26	-	79
Total adjusted profit/(loss) before tax		103	165	(33)	-	-	235

¹Reallocation of QLA costs includes £26 million of costs previously reported as part of the QLA business which has been reallocated from discontinued to continuing operations as these costs do not transfer to ReAssure on disposal at 31 December 2019. See note 3(c) for further information.

²Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

4(b)(ii): Adjusted profit statement - segmental information for the year ended 31 December 2018

		Operating segments
Continuing operations	Notes	Advice and Wealth Management £m	Wealth Platforms £m	Head Office £m	Reallocation of QLA costs¹ £m	Consolidation adjustments² £m	Consolidated income statement £m
Revenue
Fee income and other income from service activities		547	402	-	-	5	954
Investment return		9	(2,478)	3	-	(246)	(2,712)
Other income		2	101	6	-	(74)	35
Segmental revenue		558	(1,975)	9	-	(315)	(1,723)
Expenses
Insurance contract claims and changes in liabilities		-	(1)	-	-	-	(1)
Change in investment contract liabilities	14(c)	-	2,499	-	-	-	2,499
Fee and commission expenses, and other acquisition costs		(163)	(117)	-	-	(118)	(398)
Change in third party interest in consolidated funds		-	-	-	-	369	369
Other operating and administrative expenses		(358)	(360)	(68)	(28)	64	(750)
Finance costs		(3)	-	(13)	-	-	(16)
Segmental expenses		(524)	2,021	(81)	(28)	315	1,703
Profit/(loss) before tax from continuing operations		34	46	(72)	(28)	-	(20)
Tax attributable to policyholder returns		-	61	-	-	-	61
Profit/(loss) before tax attributable to equity holders from continuing operations		34	107	(72)	(28)	-	41

Adjusted for non-operating items:
Goodwill impairment and impact of acquisition accounting	5(a)(i)	49	1	-	-	-	50
Business transformation costs	5(a)(ii)	19	58	7	-	-	84
Managed Separation costs	5(a)(iii)	-	1	23	-	-	24
Finance costs	5(a)(iv)	-	-	13	-	-	13
Policyholder tax adjustments	5(a)(v)	-	(64)	-	-	-	(64)
Reallocation of central costs³		-	2	(2)	-	-	-
Adjusting items before tax		68	(2)	41	-	-	107
Adjusted profit/(loss) before tax - continuing operations		102	105	(31)	(28)	-	148

Adjusted profit before tax - discontinued operations		26	57	-	28	-	111
Total adjusted profit/(loss) before tax		128	162	(31)	-	-	259

¹Reallocation of QLA costs includes £28 million of costs previously reported as part of the QLA business which has been reallocated from discontinued to continuing operations as these costs do not transfer to ReAssure on disposal at 31 December 2019. See note 3(c) for further information.

²Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

³Reallocation of central costs reverses management reallocations included within adjusted profit to reconcile back to IFRS profit.

4(c)(i): Statement of financial position - segmental information at 31 December 2019

	Notes	Advice & Wealth Management £m	Wealth Platforms £m	Head Office £m	Discontinued Operations £m	Consolidation Adjustments¹ £m	Total £m
Assets
Goodwill and intangible assets	9	458	134	-	-	-	592
Property, plant and equipment		30	111	2	-	-	143
Investments in associated undertakings		-	-	1	-	-	1
Contract costs		-	455	-	-	-	455
Loans and advances		31	180	6	-	-	217
Financial investments	10	1	52,249	-	-	7,095	59,345
Deferred tax assets		11	22	10	-	-	43
Current tax receivable		-	-	13	-	-	13
Trade, other receivables and other assets		207	177	3	-	37	424
Derivative assets		-	-	-	-	32	32
Cash and cash equivalents	13(a)	383	725	838	-	527	2,473
Inter-segment funding - assets		-	12	-	-	(12)	-
Total assets		1,121	54,065	873	-	7,679	63,738

Liabilities
Investment contract liabilities	14	-	52,455	-	-	-	52,455
Third-party interests in consolidated funds		-	-	-	-	7,675	7,675
Provisions	15	28	26	10	-	-	64
Deferred tax liabilities		38	50	-	-	-	88
Current tax payable/(receivable)²		1	(7)	12	-	-	6
Borrowings and lease liabilities³		26	108	201	-	-	335
Trade, other payables and other liabilities		322	477	37	-	-	836
Contract liabilities and deferred revenue		1	190	-	-	-	191
Derivative liabilities		-	-	-	-	17	17
Inter-segment funding - liabilities		-	-	12	-	(12)	-
Total liabilities		416	53,299	272	-	7,680	61,667
Total equity							2,071
Total equity and liabilities							63,738

¹Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

²Current tax payable/(receivable) includes Group relief payable and receivable that net to £nil on a consolidated basis but may appear as a receivable within individual segments.

³The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.

4(c)(ii): Statement of financial position - segmental information at 31 December 2018

	Notes	Advice & Wealth Management £m	Wealth Platforms £m	Head Office £m	Discontinued Operations £m	Consolidation Adjustments¹ £m	Total £m
Assets
Goodwill and intangible assets	9	386	164	-	-	-	550
Property, plant and equipment		10	7	-	-	-	17
Investments in associated undertakings		-	-	2	-	-	2
Deferred acquisition costs		-	-	-	11	-	11
Contract costs		-	498	-	53	-	551
Loans and advances		27	188	7	-	-	222
Financial investments	10	3	44,950	2	9,686	4,578	59,219
Reinsurers' share of policyholder liabilities		-	-	-	2,162	-	2,162
Deferred tax assets		7	22	9	-	-	38
Current tax receivable		-	23	1	23	-	47
Trade, other receivables and other assets²		241	151	8	30	100	530
Derivative assets		-	-	-	-	46	46
Cash and cash equivalents	13(a)	358	599	440	514	484	2,395
Inter-segment funding - assets		-	12	-	-	(12)	-
Total assets		1,032	46,614	469	12,479	5,196	65,790

Liabilities
Insurance contract liabilities	14	-	-	-	602	-	602
Investment contract liabilities	14	-	45,211	-	11,239	-	56,450
Third-party interests in consolidated funds		-	-	-	-	5,116	5,116
Provisions	15	26	20	9	39	-	94
Deferred tax liabilities		40	-	-	19	-	59
Current tax payable/(receivable)³		9	5	(18)	9	-	5
Borrowings		-	-	197	-	-	197
Trade, other payables and other liabilities		340	425	20	158	56	999
Contract liabilities and deferred revenue		1	194	-	31	-	226
Derivative liabilities		-	1	-	-	36	37
Inter-segment funding - liabilities		-	-	12	-	(12)	-
Total liabilities		416	45,856	220	12,097	5,196	63,785
Total equity							2,005
Total equity and liabilities							65,790

¹Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

²The Group's contract assets are now included within Trade, other receivables and other assets, having previously been shown separately on the statement of financial position.

³Current tax payable/(receivable) includes Group relief payable and receivable that net to £nil on a consolidated basis but may appear as a receivable within individual segments.

-5: Alternative performance measures ("APMs")

5(a): Adjusted profit and adjusting items

In determining adjusted profit before tax, certain adjustments are made to IFRS profit before tax to reflect the underlying performance of the Group. These are detailed below.

5(a)(i): Goodwill impairment and impact of acquisition accounting

The recognition of goodwill and other acquired intangibles is created on the acquisition of a business and represents the premium paid over the fair value of the Group's share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired other intangible assets, any acquisition costs and finance costs related to the discounting of contingent consideration.

The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations.

	Note	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Amortisation of other acquired intangible assets	9(a)	45	41
Acquisition costs¹		6	5
Impairment of other intangible assets		-	1
Unwinding of discount on contingent consideration		3	3
Total goodwill impairment and impact of acquisition accounting		54	50

¹Acquisition costs include items such as transaction costs or deferred incentives arising on the acquisition of businesses.

5(a)(ii): Business transformation costs

Business transformation costs include four items: costs associated with the UK Platform Transformation Programme, build out costs incurred within Quilter Investors as a result of the sale of the Single Strategy business, restructuring costs incurred as a result of the sale of Quilter Life Assurance, and the Optimisation Programme costs. All items are within the Group's continuing operations and are described in detail below. For the year ended 31 December 2019, these costs totalled £77 million (31 December 2018: £84 million) in aggregate.

UK Platform Transformation Programme - 31 December 2019: £57 million, 31 December 2018: £58 million

The Group embarked on a significant programme to develop new platform capabilities and to outsource UK business administration. This involved replacing many aspects of the existing UK Platform, and on completion certain elements of service provision will be migrated to FNZ under a long-term outsourcing agreement. The costs of developing the new technology do not meet the criteria for capitalisation and have therefore been expensed. These direct costs and the costs of decommissioning existing technology and migrating of services to FNZ are excluded from adjusted profit.

In partnership with FNZ, the Group expects to deliver all the existing functionality of the platform with increased levels of straight-through processing and enhanced functionality for new business and to migrate the in-force (UK Platform) business during 2020.

Quilter Investors' build out costs - 31 December 2019: £(1) million, 31 December 2018: £19 million

In March 2016, the Group's former parent company, Old Mutual plc, announced its Managed Separation strategy that sought to unlock and create significant long-term value for Old Mutual plc shareholders. As part of this strategy, Quilter's Multi-Asset (now renamed as Quilter Investors) and Single Strategy teams were to develop as separate distinct businesses, and the Single Strategy business was sold to its management and TA Associates on 29 June 2018. As a result, the Group incurred £24 million of one-off costs in the year ended 31 December 2018, £5 million of which were included in profit on disposal within discontinued operations and £19 million is an adjusting item within continuing business. During 2019, the build has been substantially completed resulting in the release of £1 million of the provision established to complete the build.

Optimisation Programme costs - 31 December 2019: £18 million, 31 December 2018: £7 million

The Group initiated a phased, multi-year Optimisation Programme in March 2019 targeting a 4 percentage point uplift in the Group's operating margin by 2021. Phase 1 is aiming to unify and simplify the Group through a number of efficiency initiatives that will deliver improvements in operational performance.

A number of quick win tactical efficiencies have been delivered, which included targeted staff restructuring, third party contract renegotiation and termination, and property and facilities savings. Some more complex initiatives, such as the insourcing of certain technology capabilities as well as the simplification of certain group support functions, have also been delivered. All the planned programmes that will transform our business through technology enablement, such as the consolidation and modernisation of our general ledgers and other associated finance, HR and procurement modules, have been initiated. The use of robotics to automate manual operational processes in our International business as well as streamlining and automating some of the processes used in our advice business, are also underway.

Restructuring costs following disposal of Quilter Life Assurance - 31 December 2019: £3 million, 31 December 2018: £nil

As a result of the disposal of QLA on the 31 December 2019, the Group has recognised £3 million as an adjusting item principally in respect of redundancy costs incurred during the year. The Group expects to incur further restructuring costs during the following two years, including the cost of decommissioning IT systems as the TSA runs off and the remaining business is restructured following the disposal.

5(a)(iii): Managed Separation costs

One-off costs related to the Managed Separation from Old Mutual plc, recognised in the IFRS income statement, have been excluded from adjusted profit on the basis that they are not representative of the operating activity of the Group. These costs relate to preparing the Group to operate as a standalone business and the execution of various transactions required to implement its Managed Separation strategy. For the year ended 31 December 2019 these costs were £6 million (31 December 2018: £24 million). In 2019 these costs primarily relate to post-listing rebranding. These costs are not expected to persist in the long term as they relate to a fundamental restructuring of the Group.

5(a)(iv): Finance costs

The nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of interest costs on external borrowings are removed when calculating adjusted profit. For the year ended 31 December 2019 finance costs were £10 million (31 December 2018: £13 million).

5(a)(v): Policyholder tax adjustments

For the year ended 31 December 2019 the total of policyholder tax adjustments to adjusted profit is £74 million (31 December 2018: £(101) million) relating to both continuing and discontinued operations, as shown in note 5(c). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS (loss)/profit before tax attributable to equity holders. For a further explanation of the impact of markets on the policyholder tax charge see note 6(a). Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items.

5(a)(vi): Voluntary customer remediation

Within QLA, the voluntary customer remediation provision was established in 2017 following product reviews consistent with recommendations from the Financial Conduct Authority's ("FCA") thematic review and the FCA's guidance FG16/8 Fair treatment of long-standing customers in the life assurance sector. During 2019 the components of the remaining provision have been reviewed and £10 million of the provision released (as detailed in note 15), wholly relating to discontinued operations and hence the remaining provision is not included in the Group's statement of financial position as at 31 December 2019.

5(b): IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items)

For remuneration purposes, the Group uses IFRS profit before tax adjusted to exclude agreed non-operating, one-off items as shown below. For further details please refer to the remuneration report and KPIs section within the Group's 2018 ARA.

	Notes	Year ended 31 December 2019 £m	Year ended 31 December 2018¹ £m
(Loss)/profit before tax attributable to equity holders - continuing operations		(53)	41
Profit before tax attributable to equity holders - discontinued operations	3(c)	180	438
Adjusted for the following:
Profit on business disposals	3(b)	(103)	(290)
Goodwill impairment and impact of acquisition accounting	5(a)(i)	54	50
Policyholder tax adjustments	5(a)(v)	74	(101)
Voluntary customer remediation provision	5(a)(vi)	(10)	-
Quilter Investors' build out costs	5(a)(ii)	(1)	19
2018 Single Strategy business profit before tax		-	(26)
IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items)		141	131

¹The 2018 comparative has been restated from £112 million to £131 million to include the adjustment for the Quilter Investors' build out costs of £19 million (as shown in the table above.

5(c): Reconciliation of IFRS revenue and expenses to adjusted profit total fee revenue and expenses

This reconciliation shows how each line of the Group's consolidated IFRS income statement is allocated to the Group's APMs: Net management fee, Total net fee revenue and Expenses as part of the Group's adjusted profit. Allocations are determined by management and aim to show the sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability.

Year ended 31 December 2019	Net mgmt fees¹ £m	Other revenue² £m	Total net fee revenue³ £m	Expenses £m	Adjusted profit incl. QLA £m	Consol. of funds⁴ £m	Deduct QLA (incl. interco elims)⁵ £m	IFRS income statement⁶ £m
Revenue
Net earned premiums	-	59	59	-	59	-	(59)	-
Fee income and other income from service activities	871	203	1,074	-	1,074	17	(155)	936
Investment return	-	7,384	7,384	-	7,384	1,031	(1,549)	6,866
Other income	-	1	1	-	1	21	-	22
Total revenue	871	7,647	8,518	-	8,518	1,069	(1,763)	7,824
Expenses
Insurance contract claims and changes in liabilities	-	(40)	(40)	-	(40)	-	39	(1)
Change in investment contract liabilities	-	(7,339)	(7,339)	-	(7,339)	-	1,529	(5,810)
Fee and commission expenses, and other acquisition costs	(108)	(103)	(211)	-	(211)	(117)	34	(294)
Change in third-party interest in consolidated funds	-	-	-	-	-	(917)	-	(917)
Other operating and administrative expenses	(14)	(2)	(16)	(697)	(713)	(35)	8	(740)
Finance costs	-	(4)	(4)	(13)	(17)	-	-	(17)
Total expenses	(122)	(7,488)	(7,610)	(710)	(8,320)	(1,069)	1,610	(7,779)
Tax (expense)/credit attributable to policyholder returns	(174)	-	(174)	-	(174)	-	76	(98)
Total before adjusting items	575	159	734	(710)	24	-	(77)	(53)
Adjusting items:
Goodwill impairment and impact of acquisition accounting	-	-	-	54	54
Business transformation costs	-	-	-	77	77
Managed Separation costs	-	-	-	6	6
Finance costs	-	-	-	10	10
Policyholder tax adjustments	74	-	74	-	74
Voluntary customer remediation provision	-	-	-	(10)	(10)
Adjusting items	74	-	74	137	211
Adjusted profit before tax - continuing operations and QLA	649	159	808	(573)	235

Year ended 31 December 2018	Net mgmt fees¹ £m	Other revenue² £m	Total net fee revenue³ £m	Expenses £m	Adjusted profit incl. QLA £m	Consol. of funds⁴ £m	Deduct QLA (incl. interco elims)⁵ £m	IFRS income statement⁶ £m
Revenue
Net earned premiums	-	60	60	-	60	-	(60)	-
Fee income and other income from service activities⁸	801	195	996	-	996	14	(56)	954
Investment return^8,9	10	(3,245)	(3,235)	-	(3,235)	(246)	769	(2,712)
Other income	-	6	6	-	6	29	-	35
Total revenue	811	(2,984)	(2,173)	-	(2,173)	(203)	653	(1,723)
Expenses
Insurance contract claims and changes in liabilities	-	(33)	(33)	-	(33)	-	32	(1)
Change in investment contract liabilities⁹	-	3,271	3,271	-	3,271	-	(772)	2,499
Fee and commission expenses, and other acquisition costs	(199)	(112)	(311)	-	(311)	(126)	39	(398)
Change in third-party interest in consolidated funds	-	-	-	-	-	369	-	369
Other operating and administrative expenses	(22)	-	(22)	(710)	(732)	(40)	22	(750)
Finance costs	-	(1)	(1)	(16)	(17)	-	1	(16)
Total expenses	(221)	3,125	2,904	(726)	2,178	203	(678)	1,703
Tax credit/(expense)attributable to policyholder returns	158	-	158	-	158	-	(97)	61
Total before adjusting items	748	141	889	(726)	163	-	(122)	41
Adjusting items:
Goodwill impairment and impact of acquisition accounting	-	-	-	50	50
Business transformation costs	-	-	-	84	84
Managed Separation costs	-	-	-	24	24
Finance costs	-	-	-	13	13
Policyholder tax adjustments	(101)	-	(101)	-	(101)
Adjusting items	(101)	-	(101)	171	70
Adjusted profit before tax - continuing operations and QLA⁷	647	141	788	(555)	233

¹Net Management Fees are commented on within the Financial Review and explained in the Alternative Performance Measures within the Group's 2019 ARA.

²Other revenue is commented on within the Financial Review and explained in the Alternative Performance Measures on page 202 within the Group's 2019 ARA.

³Total net fee revenue is commented on within the Financial Review and explained in the Alternative Performance Measures on page 202 within the Group's 2019 ARA.

⁴Consol of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds. This grossing up is excluded from the Group's adjusted profit.

⁵The results of QLA are deducted in order to reconcile to the Group's consolidated income statement. QLA is presented as a discontinued operation. This includes intercompany eliminations that are required when the Group's results are split between continuing and discontinued operations.

⁶The IFRS income statement column in the table above, down to Total before adjusting items, reconciles to each line of the Group's consolidated income statement down to (Loss)/profit before tax attributable to equity holders.

⁷Adjusted profit before tax - continuing operations and QLA of £233 million for year ended 31 December 2018 represents the Group's total adjusted profit before tax of £259 million (see "Reconciliation of adjusted profit to profit after tax" statement), less £26 million of adjusted profit before tax attributable to the Single Strategy business.

⁸In the year ended 31 December 2018, the Group has reclassified £36 million from Fee income and other income from service activities to Investment return to conform with current year presentation.

⁹In the year ended 31 December 2018, the Group has reclassified £35 million from Investment return to Change in investment contract liabilities to conform with current year presentation.

6: Tax

6(a): Tax charged to the income statement

	Note	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Current tax
United Kingdom		33	(10)
International		5	3
Adjustments to current tax in respect of prior periods		(11)	(11)
Total current tax		27	(18)
Deferred tax
Origination and reversal of temporary differences		40	(61)
Effect on deferred tax of changes in tax rates		2	-
Adjustments to deferred tax in respect of prior periods		(3)	(7)
Total deferred tax		39	(68)
Total tax charged/(credited) to income statement - continuing operations		66	(86)
Total tax charged/(credited) to income statement - discontinued operations	3(c)	89	(81)
Total tax charged/(credited) to income statement		155	(167)

Attributable to policyholder returns - continuing operations		98	(61)
Attributable to equity holders - continuing operations		(32)	(25)
Total tax charged/(credited) to income statement - continuing operations		66	(86)
Attributable to policyholder returns - discontinued operations		76	(97)
Attributable to equity holders - discontinued operations		13	16
Total tax charged/(credited) to income statement - discontinued operations		89	(81)
Total tax charged/(credited) to income statement		155	(167)

Policyholder tax

Certain products are subject to tax on policyholders' investment returns. This "policyholder tax" is an element of total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders' profits are shown separately in the income statement.

The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future years. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders.

The Group's income tax expense on continuing operations was £66 million for the year ended 31 December 2019, compared to a credit of £(86) million for the prior year. This income tax expense/(credit) can vary significantly period on period as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in note 5(a)(v).

Significant market volatility during the year ended 31 December 2018 led to large investment losses that have reversed in 2019, resulting in investment gains of £833 million on products subject to policyholder tax. The gain is a component of the total "investment return" gain of £6,806 million shown in the income statement and £1,386 million shown in the discontinued operations income statement. The impact of the £833 million investment return gain is the primary reason for the £174 million tax charge attributable to policyholder returns in respect of both continuing (£98 million) and discontinued (£76 million) operations for the year ended 31 December 2019 (31 December 2018: £(61) million credit in respect of continuing operations and £(97) million in respect of discontinued operations).

First time recognition of deferred tax asset on accelerated depreciation

Within the £39 million total deferred tax charge and the £(32) million tax credit attributable to equity holders (continuing operations) above, the Group has recognised a £7 million deferred tax credit for the first time in the current year. This is in respect of a change in recognition of deferred tax assets where the Group now recognises the future reversal of temporary differences in respect of capital allowances against matching temporary differences in respect of amortisation of acquired intangible assets. Had this been in place in the prior year, the equivalent adjustment in 2018 would have been a £9 million deferred tax credit, with a corresponding £2 million charge in the current year.

6(b): Reconciliation of total income tax expense

The income tax charged to profit or loss differs from the amount that would apply if all of the Group's profits from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below:

	Note	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Profit before tax from continuing operations		45	(20)
Tax at UK standard rate of 19% (2018: 19%)		9	(4)
Different tax rate or basis on overseas operations		(6)	(5)
Untaxed and low taxed income		1	(8)
Disallowable expenses		3	6
Adjustments to current tax in respect of prior years		(11)	(11)
Net movement on deferred tax assets not recognised		(11)	(11)
Effect on deferred tax of changes in tax rates		2	-
Adjustments to deferred tax in respect of prior years		(3)	(7)
Income tax attributable to policyholder returns		82	(46)
Total tax charged/(credited) to income statement - continuing operations		66	(86)
Total tax charged/(credited) to income statement - discontinued operations	3(c)	89	(81)
Total tax charged/(credited) to income statement		155	(167)

6(c): Reconciliation of income tax expense in the income statement to income tax on adjusted profit

	Notes	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
Income tax expense/(credit) on continuing operations¹		66	(86)
Tax on adjusting items
Goodwill impairment and impact of acquisition accounting		8	8
Business transformation costs		14	16
Managed Separation costs		1	2
Finance costs		2	2
Tax adjusting items
Policyholder tax adjustments	5(a)(v)	(62)	64
Other shareholder tax adjustments²		24	5
Tax on adjusting items - continuing operations		(13)	97
Less: Tax attributable to policyholder returns within adjusted profit - continuing operations³		(36)	(3)
Tax charged on adjusted profit - continuing operations		17	8
Reversal of income tax expense on the reallocation of QLA costs		5	5
Tax charged on adjusted profit - continuing operations before the reallocation of QLA costs		22	13
Income tax expense/(credit) on discontinued operations¹	3(c)	89	(81)
Tax on adjusting items
Profit on business disposals		-	4
Voluntary customer remediation provision		(2)	-
Tax adjusting items
Policyholder tax adjustments	5(a)(v)	(12)	37
Other shareholder tax adjustments²		(3)	(17)
Tax on adjusting items - discontinued operations		(17)	24
Less: Tax attributable to policyholder returns within adjusted profit - discontinued operations³		(64)	60
Tax charged on adjusted profit - discontinued operations		8	3
Reversal of income tax credit on the reallocation of QLA costs		(5)	(5)
Tax charged/(credited) on adjusted profit - discontinued operations before the reallocation of QLA costs		3	(2)
Tax charged on total adjusted profit		25	11

¹Includes both tax attributable to policyholders and shareholders, in compliance with IFRS reporting.

²Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 5(a)(v) together with other adjustments made to deferred tax to remove distortions arising from timing differences in respect of acquisition accounting. As such, the £7 million deferred tax credit in respect of a change of deferred tax asset recognition described in note 6(a) has been removed from the tax charge on adjusted profit.

³Adjusted profit treats policyholder tax as a pre-tax charge (this includes policyholder tax under IFRS and the policyholder tax adjustments) and is therefore removed from tax charge on adjusted profit.

7: Earnings per share

The Group calculates earnings per share ("EPS") on a number of different bases. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS reflects earnings that are consistent with the Group's adjusted profit measure before and after the reallocation of QLA costs, and Headline EPS is a requirement of the Johannesburg Stock Exchange. The Group's EPS (in aggregate, including both continuing and discontinued operations) on these different bases are summarised below.

Basic EPS is calculated by dividing profit after tax attributable to ordinary equity shareholders of the parent by the weighted average number of Ordinary Shares in issue during the year. The weighted average number of shares excludes Quilter plc shares held within Employee Benefit Trusts ("EBTs") to satisfy the Group's obligations under employee share awards, and Quilter plc shares held in consolidated funds ("Own shares"). Own shares are deducted for the purpose of calculating both basic and diluted EPS.

Diluted EPS recognises the dilutive impact of shares awarded and options granted to employees under share-based payment arrangements, to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period.

The Group is also required to calculate headline earnings per share ("HEPS") in accordance with the Johannesburg Stock Exchange Limited ("JSE") Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 02/2015 Headline Earnings. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa.

	Source of guidance	Notes	Year ended 31 December 2019 Pence	Year ended 31 December 2018 Pence
Basic earnings per share	IFRS	7(b)	8.0	26.6
Diluted basic earnings per share	IFRS	7(b)	7.8	26.5
Adjusted basic earnings per share	Group policy	7(b)	11.4	13.5
Adjusted diluted earnings per share	Group policy	7(b)	11.3	13.5
Headline basic earnings per share (net of tax)	JSE Listing Requirements	7(c)	2.3	10.6
Headline diluted earnings per share (net of tax)	JSE Listing Requirements	7(c)	2.3	10.5

7(a): Weighted average number of Ordinary Shares

The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit):

	Year ended 31 December 2019 Millions	Year ended 31 December 2018 Millions
Weighted average number of Ordinary Shares	1,902	1,902
Own shares including those held in EBTs	(67)	(70)
Basic weighted average number of Ordinary Shares	1,835	1,832
Adjustment for dilutive share awards and options	28	7
Diluted weighted average number of Ordinary Shares	1,863	1,839

7(b): Basic and diluted EPS (IFRS and adjusted profit)

The table below shows the profit measures used in the EPS calculations.

		Year ended 31 December 2019			Year ended 31 December 2018
	Notes	Continuing operations £m	Discontinued operations £m	Total £m	Continuing operations £m	Discontinued operations £m	Total £m
(Loss)/profit after tax		(21)	167	146	66	422	488
Total adjusting items before tax		209	(101)	108	107	(327)	(220)
Tax on adjusting items	6(c)	13	17	30	(97)	(24)	(121)
Less: Policyholder tax adjustments	6(c)	(62)	(12)	(74)	64	37	101
Adjusted profit after tax		139	71	210	140	108	248
Reversal of:
Reallocation of QLA costs¹		26	(26)	-	28	(28)	-
Income tax on reallocation of QLA costs	6(c)	(5)	5	-	(5)	5	-
Adjusted profit after tax before reallocation		160	50	210	163	85	248

¹Adjusted profit from continuing operations includes £26 million of costs (2018: £28 million) previously reported as part of the QLA business which has been reallocated from discontinued to continuing operations as these costs do not transfer to ReAssure on disposal at 31 December 2019. See note 3(b) for further information.

		Year ended 31 December 2019			Year ended 31 December 2018
	Post-tax profit measure used	Continuing operations Pence	Discontinued operations Pence	Total Pence	Continuing operations Pence	Discontinued operations Pence	Total Pence
Basic EPS	IFRS profit	(1.1)	9.1	8.0	3.5	23.1	26.6
Diluted EPS	IFRS profit	(1.1)	8.9	7.8	3.5	23.0	26.5
Adjusted basic EPS	Adjusted profit	7.5	3.9	11.4	7.6	5.9	13.5
Adjusted diluted EPS	Adjusted profit	7.5	3.8	11.3	7.6	5.9	13.5
Adjusted basic EPS before reallocation	Adjusted profit before reallocation	8.7	2.7	11.4	8.9	4.6	13.5
Adjusted diluted EPS before reallocation	Adjusted profit before reallocation	8.6	2.7	11.3	8.9	4.6	13.5

7(c): Headline earnings per share

		Year ended 31 December 2019		Year ended 31 December 2018
	Gross £m	Net of tax £m	Gross £m	Net of tax £m
Profit attributable to ordinary equity holders		146		488
Adjusting items:
Less: profit on business disposals	(103)	(103)	(290)	(294)
Headline earnings	(103)	43	(290)	194
Headline basic EPS (pence)		2.3		10.6
Headline diluted EPS (pence)		2.3		10.5

8: Dividends

	Payment date	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
2018 Special interim dividend paid - 12.0p per ordinary share	21 September 2018	-	221
2018 Final dividend paid - 3.3p per ordinary share	20 May 2019	61	-
2019 Interim dividend paid - 1.7p per ordinary share	20 September 2019	31	-
Dividends paid to ordinary shareholders		92	221

Subsequent to year ended 31 December 2019, the Directors proposed a final dividend for 2019 of 3.5 pence per Ordinary Share amounting to £65 million in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 18 May 2020. In compliance with the rules issued by the Prudential Regulation Authority ("PRA") in relation to the implementation of the Solvency II ("SII") regime and other regulatory requirements to which the Group is subject, the dividend is required to remain cancellable at any point prior to it becoming due and payable on 18 May 2020 and to be cancelled if, prior to payment, the Group ceases to hold capital resources equal to or in excess of its Solvency Capital Requirement, or if that would be the case if the dividend was paid. The Directors have no intention of exercising this cancellation right, other than where required to do so by the PRA or for regulatory capital purposes. Final and interim dividends paid to ordinary shareholders are calculated using the number of shares in issue at the record date less own shares held in Employee Benefit Trusts.

9: Goodwill and intangible assets

9(a): Analysis of goodwill and intangible assets

The table below shows the movements in cost, amortisation and impairment of goodwill and intangible assets.

	Goodwill £m	Software development costs £m	Other intangible assets £m	Total £m
Gross amount
1 January 2018	306	97	371	774
Acquisitions through business combinations	5	-	9	14
Additions	-	4	-	4
Transfer to non-current assets held for sale	(1)	-	-	(1)
Other movements¹	4	(1)	-	3
31 December 2018	314	100	380	794
Acquisitions through business combinations	68	-	49	117
Additions	-	5	-	5
Disposals	(30)	(4)	(4)	(38)
Other movements²	(2)	-	3	1
31 December 2019	350	101	428	879

Amortisation and impairment losses
1 January 2018	-	(92)	(108)	(200)
Amortisation charge for the year	-	(4)	(41)	(45)
Impairment of other acquired intangibles	-	-	(1)	(1)
Other movements	-	1	1	2
31 December 2018	-	(95)	(149)	(244)
Amortisation charge for the year	-	(2)	(45)	(47)
Disposals	-	4	4	8
Other movements²	-	-	(4)	(4)
31 December 2019	-	(93)	(194)	(287)

Carrying amount
31 December 2018	314	5	231	550
31 December 2019	350	8	234	592

¹Goodwill increased by £4 million in 2018 due to a review of the Purchase Price Allocation ("PPA") calculation at 31 December 2017 year end relating to the Quilter Financial Planning acquisitions.

²During the year, there has been a gross up of fully amortised intangible assets in the Quilter Financial Planning and Quilter Cheviot businesses arising from previous business combinations.

9(b): Analysis of other intangible assets

	31 December 2019 £m	31 December 2018 £m	Average estimated useful life	Average period remaining
Net carrying value
Distribution channels	22	28	8 years	4 years
Customer relationships	211	199	10 years	6 years
Brand	1	4	5 years	1 year
Total other intangible assets	234	231

Distribution channel assets are in relation to various Quilter Financial Planning businesses. Customer relationship assets are largely in relation to the Quilter Cheviot and Quilter Financial Planning businesses, the latter element increasing due to the 2019 acquisitions of Charles Derby Group and Lighthouse plc, of which Lighthouse plc is still a provisional calculation and therefore the apportionment between goodwill and other intangibles for this acquisition is subject to change. The brand asset is in relation to the Quilter Cheviot business.

9(c): Allocation of goodwill to cash generating units ("CGUs") and impairment testing

The Group's CGUs are based on the Advice and Wealth Management and Wealth Platforms operating segments, as defined in note 4(a). Goodwill is allocated to these CGUs as follows:

	31 December 2019 £m	31 December 2018 £m
Goodwill (net carrying amount)
Advice and Wealth Management	219	153
Wealth Platforms	131	161
Total goodwill	350	314

Annual impairment review

In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Advice and Wealth Management and Wealth Platforms CGUs is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU to which the goodwill relates to the recoverable value of that CGU, being the higher of that CGU's value-in-use or fair value less costs to sell. If applicable, an impairment charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls, the absence of NCCF, significant falls in profit and an increase in the discount rate.

The annual impairment test performed in November 2019 continued to show that there was significant headroom in the recoverable amount over the carrying value of the CGUs. The goodwill model is subject to stress tests, including the impact of a 20% and 40% decrease in profitability and the impact of an increase in discount rates. None of the stress test scenarios have resulted in any indication of impairment.

The impact on expected future profits resulting from muted flows and the IFRS loss after tax for continuing operations of £21 million in the year has been partially offset by the effect of a 0.8% decrease in the Group's cost of capital rate, used as part of the value-in-use calculation, from 10.8% in 2018 to 10.0% in 2019. The significant headroom in the recoverable amount over the carrying value for both CGUs also means the impact of the lower NCCF and IFRS loss from continuing operations in the current year are not considered sufficiently material to be indicators of impairment.

Following the sale of the QLA business in the year, there has been a £30 million disposal of associated goodwill. This represented the share of goodwill in the Wealth Platforms CGU applicable to QLA, based on its fair value relative to the fair values of the other businesses within that CGU. The annual impairment assessment performed in November 2019 excluded the impact of QLA in the Wealth Platforms CGU. This resulted in a small decrease in headroom in the Wealth Platforms CGU, as the value-in-use of QLA was only slightly higher than its carrying value.

Value-in-use methodology

The value-in-use calculations for life assurance operations are determined as the sum of net tangible assets, the expected future profits arising from the in-force business, together with the expected profits from future new business derived from the business plans. Future profit elements allow for the cost of capital needed to support the business.

The net tangible assets and future profits arising from the in-force business are derived from Solvency II ("SII") calculations. The value of in-force ("VIF") is calculated as the prospective value of future expected cash flows on all in-force policies at the valuation date on a policy-by-policy basis allowing for surrender or transfer payments, death claims, income withdrawals, maintenance expenses, fund-based fees, mortality charge/ protection premiums and other policy charges. The underlying assumptions are based on the best estimate view for the future, which is largely based on recent business experience and any emerging trends. The unit fund growth rates (gross of investment charges) and the risk discount rates are set using the prescribed SII term-dependent risk-free interest rates. The SII calculations are adjusted for a risk margin using the prescribed SII rules.

The value-in-use calculations for asset management operations are determined as the sum of net tangible assets and the expected profits from existing and expected future new business.

The cash flows that have been used to determine the value-in-use of the cash generating units are based on three year business plans. These cash flows grow at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the recent past, the profits are forecast to grow faster than the more mature businesses. Post the three year business plan, the growth rate used to determine the terminal value of the CGUs in the annual assessment approximates to the UK long-term growth rate of 1.7% (2018: 2.1%). Market share and market growth information are also used to inform the expected volumes of future new business.

The Group uses a single cost of capital of 10.0% (2018: 10.8%) to discount future expected business plan cash flows across its two CGUs because they are perceived to present a similar level of risk and are integrated. Capital is provided to the Group predominantly by shareholders with only a small amount of debt. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return required by bond holders). When assessing the systematic risk (i.e. beta value) within the calculation of the cost of equity, a triangulation approach is used that combines beta values obtained from historical data, a forward looking view on the progression of beta values and the external views of investors.

10: Financial investments

The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf of third parties (policyholder funds).

	Notes	31 December 2019 £m	31 December 2018 £m
Government and government-guaranteed securities		1,018	1,175
Other debt securities, preference shares and debentures	10(a)	2,160	2,095
Equity securities	10(b)	12,051	10,006
Pooled investments		44,101	45,931
Short-term funds and securities treated as investments		15	12
Total financial investments		59,345	59,219

Recoverable within 12 months		59,344	59,044
Recoverable after 12 months		1	175
Total financial investments		59,345	59,219

The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets, together with the reinsurers' share of investment contract liabilities, are held to cover the liabilities for linked investment contracts (net of reinsurance), all of which can be withdrawn by policyholders on demand.

10(a): Other debt securities, preference shares and debentures

Debt securities, preference shares and debentures are neither past due nor impaired. These debt instruments and similar securities are classified according to their local credit rating (Standard & Poor's or an equivalent), by investment grade.

10(b): Equity securities

Equity securities are held to cover the liabilities for linked investment contracts. The majority of the listed securities are traded on the London Stock Exchange. The majority of the Group's holdings of unlisted equity securities arise principally from private equity investments, held exclusively on behalf of policyholders.

11: Categories of financial instruments

The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities category.

For information about the methods and assumptions used in determining fair value please refer to note 12. The Group's exposure to various risks associated with financial instruments is discussed in note 17(b).

31 December 2019 - Measurement basis		Fair value	Amortised cost £m	Non-financial assets and liabilities £m	Total £m
31 December 2019 - Measurement basis	Mandatorily at FVTPL m	Designated at FVTPL £m	Amortised cost £m	Non-financial assets and liabilities £m	Total £m
Assets
Investments in associated undertakings¹	-	-	-	1	1
Loans and advances	180	-	37	-	217
Financial investments	59,343	2	-	-	59,345
Trade, other receivables and other assets	-	-	373	51	424
Derivative assets	32	-	-	-	32
Cash and cash equivalents	1,159	-	1,314	-	2,473
Total assets that include financial instruments	60,714	2	1,724	52	62,492
Total other non-financial assets	-	-	-	1,246	1,246
Total assets	60,714	2	1,724	1,298	63,738

Liabilities
Investment contract liabilities	52,455	-	-	-	52,455
Third-party interests in consolidation of funds	7,675	-	-	-	7,675
Borrowings and lease liabilities²	-	-	335	-	335
Trade, other payables and other liabilities	-	-	730	106	836
Derivative liabilities	17	-	-	-	17
Total liabilities that include financial instruments	60,147	-	1,065	106	61,318
Total other non-financial liabilities	-	-	-	349	349
Total liabilities	60,147	-	1,065	455	61,667

¹Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

²The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated.

31 December 2018 - Measurement basis		Fair value	Amortised cost £m	Non-financial assets and liabilities £m	Total £m
31 December 2018 - Measurement basis	Mandatorily at FVTPL £m	Designated at FVTPL £m	Amortised cost £m	Non-financial assets and liabilities £m	Total £m
Assets
Investments in associated undertakings¹	-	-	-	2	2
Loans and advances	189	-	33	-	222
Financial investments	59,052	167	-	-	59,219
Reinsurers' share of policyholder liabilities	1,671	-	-	491	2,162
Trade, other receivables and other assets²	-	-	486	44	530
Derivative assets	46	-	-	-	46
Cash and cash equivalents	1,361	-	1,034	-	2,395
Total assets that include financial instruments	62,319	167	1,553	537	64,576
Total other non-financial assets	-	-	-	1,214	1,214
Total assets	62,319	167	1,553	1,751	65,790

Liabilities
Insurance contract liabilities	-	-	-	602	602
Investment contract liabilities	56,450	-	-	-	56,450
Third-party interests in consolidation of funds	5,116	-	-	-	5,116
Borrowings	-	-	197	-	197
Trade, other payables and other liabilities	-	-	840	159	999
Derivative liabilities	37	-	-	-	37
Total liabilities that include financial instruments	61,603	-	1,037	761	63,401
Total other non-financial liabilities	-	-	-	384	384
Total liabilities	61,603	-	1,037	1,145	63,785

¹Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

²The Group's contract assets are now included within Trade, other receivables and other assets, having previously been shown separately on the statement of financial position.

12: Fair value methodology

This section explains the judgements and estimates made in determining the fair values of financial instruments that are recognised and measured at fair value in the financial statements. Classifying financial instruments into the three levels of fair value hierarchy (see note 12(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value.

12(a): Determination of fair value

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market exit prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs:

· for units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published quoted prices representing exit values in an active market;

· for equity and debt securities not actively traded in organised markets and where the price cannot be retrieved, the fair value is determined by reference to similar instruments for which market observable prices exist;

· for assets that have been suspended from trading on an active market, the last published price is used. Many suspended assets are still regularly priced. At the reporting date all suspended assets are assessed for impairment; and

· where the assets are private company shares or within consolidated investment funds the valuation is based on the latest available set of audited financial statements where available, or if more recent, a statement of valuation provided by the private company's management.

There have been no significant changes in the valuation techniques applied when valuing financial instruments. Where assets are valued by the Group, the general principles applied to those instruments measured at fair value are outlined below:

Reinsurers' share of policyholder liabilities

Reinsurers' share of policyholder liabilities are measured on a basis that is consistent with the measurement of the provisions held in respect of the related insurance contracts. Reinsurance contracts which cover financial risk are measured at fair value of the underlying assets.

Loans and advances

Loans and advances include loans to policyholders, loans to brokers, and other secured and unsecured loans. Loans and advances to policyholders of investment linked contracts are measured at fair value. All other loans are stated at their amortised cost.

Financial investments

Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as investments and certain other securities.

Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that are regularly updated.

Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market prices, these investments and securities are fair valued utilising various approaches including discounted cash flows, the application of an earnings before interest, tax, depreciation and amortisation multiple or any other relevant technique.

Derivatives

The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. The fair value of the Group's over the counter forward foreign exchange contracts is determined by the underlying foreign currency exchange rates.

Investment contract liabilities

The fair value of the investment contract liabilities is determined with reference to the underlying funds that are held by the Group.

Third-party interest in consolidated funds

Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.

Borrowings and lease liabilities

Borrowings and lease liabilities are stated at amortised cost.

12(b): Fair value hierarchy

Fair values are determined according to the following hierarchy:

Description of hierarchy		Types of instruments classified in the respective levels
Level 1 - quoted market prices: financial assets and liabilities with quoted prices for identical instruments in active markets.		Listed equity securities, government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities, reinsurers' share of investment contract liabilities and investment contract liabilities directly linked to other Level 1 financial assets.
Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable.		Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data. Over the counter ("OTC") derivatives, certain privately placed debt instruments and third-party interests in consolidated funds.
Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable.		Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments.

The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process.

The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs.

In this context, 'unobservable' means that there is little or no current market data available for which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the asset or liability being measured.

12(c): Transfer between fair value hierarchies

The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of the instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.

There were transfers of financial investments of £139 million from Level 1 to Level 2 during the year (31 December 2018: £13 million). There were transfers of financial investments of £76 million from Level 2 to Level 1 during the year (31 December 2018: £107 million). These movements are matched exactly by transfers of investment contract liabilities. See note 12(e) for the reconciliation of Level 3 financial instruments.

12(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy

The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there have been no significant changes during the year.

The linked assets, together with the reinsurers' share of investment contract liabilities, are held to cover the liabilities for linked investment contracts (net of reinsurance). The difference between linked assets and linked liabilities is principally due to short term timing differences between policyholder premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within the Group's tax liabilities.

Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2.

The table below presents a summary of the Group's financial assets and liabilities that are measured at fair value in the consolidated statement of financial position according to their IFRS 9 classification (see note 11 for full details).

		31 December 2019		31 December 2018
	£m	%	£m	%
Financial assets measured at fair value
Level 1	46,904	77.3%	52,060	83.4%
Level 2	12,095	19.9%	9,272	14.8%
Level 3	1,717	2.8%	1,154	1.8%
Total	60,716	100.0%	62,486	100.0%
Financial liabilities measured at fair value
Level 1	50,315	83.6%	54,944	89.2%
Level 2	8,115	13.5%	5,508	8.9%
Level 3	1,717	2.9%	1,151	1.9%
Total	60,147	100.0%	61,603	100.0%

The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 12(b):

31 December 2019	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)	46,902	12,095	1,717	60,714
Loans and advances	180	-	-	180
Financial investments	45,563	12,063	1,717	59,343
Cash and cash equivalents	1,159	-	-	1,159
Derivative assets	-	32	-	32
Designated (fair value through profit or loss)	2	-	-	2
Financial investments	2	-	-	2

Total assets measured at fair value	46,904	12,095	1,717	60,716
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)	50,315	8,115	1,717	60,147
Investment contract liabilities	50,315	423	1,717	52,455
Third-party interests in consolidated funds	-	7,675	-	7,675
Derivative liabilities	-	17	-	17

Total liabilities measured at fair value	50,315	8,115	1,717	60,147

31 December 2018	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)	51,893	9,272	1,154	62,319
Reinsurers' share of policyholder liabilities	1,671	-	-	1,671
Loans and advances	189	-	-	189
Financial investments	48,672	9,226	1,154	59,052
Cash and cash equivalents	1,361	-	-	1,361
Derivative assets	-	46	-	46
Designated (fair value through profit or loss)	167	-	-	167
Financial investments	167	-	-	167

Total assets measured at fair value	52,060	9,272	1,154	62,486
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)	54,944	5,508	1,151	61,603
Investment contract liabilities	54,944	355	1,151	56,450
Third-party interests in consolidated funds	-	5,116	-	5,116
Derivative liabilities	-	37	-	37

Total liabilities measured at fair value	54,944	5,508	1,151	61,603

12(e): Level 3 fair value hierarchy disclosure

All of the assets that are classified as Level 3 are held within linked policyholder funds. This means that all of the investment risk associated with these assets is borne by policyholders and that the value of these assets is exactly matched by a corresponding liability due to policyholders. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned.

In the prior year, included within the assets classified as Level 3 was a shareholder investment in an unlisted equity (31 December 2018: £3 million); this was not matched by a corresponding liability and therefore any changes in market value were recognised in the Group's income statement. Following the acquisition of the Charles Derby Group during the year, the Group's investment is no longer held as a Level 3 financial investment, but instead as an investment in subsidiary which is eliminated on consolidation.

The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end:

	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
At beginning of the year	1,154	1,169
Total net fair value gains recognised in:
- profit or loss	(20)	54
Purchases	314	38
Sales	(24)	(25)
Transfers in	369	69
Transfers out	(71)	(151)
Foreign exchange and other	(5)	-
Total Level 3 financial assets	1,717	1,154
Unrealised fair value gains/(losses) relating to assets held at the year end recognised in:
- profit or loss	(20)	54

Amounts shown as sales arise principally from the sale of private company shares, unlisted pooled investments and from distributions received in respect of holdings in property funds.

Transfers into Level 3 assets in the current year total £369 million (31 December 2018: £69 million). This is due to a combination of stale priced assets that were previously shown within Level 2 and for which price updates have not been received for more than six months, and an increase in suspended funds previously showed within Level 1. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current year comprise £71 million (31 December 2018: £151 million) of stale priced assets that were not previously being repriced and that have been transferred into Level 2 as they are now actively priced.

The table below analyses the type of Level 3 financial assets held:

	31 December 2019 £m	31 December 2018 £m
Pooled investments	361	86
Unlisted and stale price pooled investments	133	82
Suspended funds	228	4
Private equity investments	1,356	1,068
Total Level 3 financial assets	1,717	1,154

All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked policyholder funds.

The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end:

	Year ended 31 December 2019 £m	Year ended 31 December 2018 £m
At beginning of the year	1,151	1,167
Total net fair value gains recognised in:
- profit or loss	(20)	53
Purchases	314	38
Sales	(24)	(25)
Transfers in	369	69
Transfers out	(71)	(151)
Foreign exchange and other	(2)	-
Total Level 3 financial liabilities	1,717	1,151
Unrealised fair value gains/(losses) relating to liabilities held at the year end recognised in:
- profit or loss	(20)	53

12(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives

Details of the valuation techniques applied to the different categories of financial instruments can be found in note 12(a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets.

The majority of the Group's Level 3 assets are held within private equity investments, where the valuation of these assets is performed on an asset-by-asset basis using a valuation methodology appropriate to the specific investment and in line with industry guidelines. Private equity investments are valued at the value disclosed in the latest available set of audited financial statements or, if more recent information is available, from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment. For this reason, no reasonable alternative assumptions are applicable and management therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (31 December 2018: 10%), representing a reasonable possible alternative judgement in the context of the current macro-economic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of £172 million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2018: £115 million). As described in note 12(e), changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value of liabilities due to policyholders and therefore have no impact on the Group's net asset value or profit or loss, except to the extent that it has an impact on management fees earned.

12(g): Fair value hierarchy for assets and liabilities not measured at fair value

Certain financial instruments of the Group are not carried at fair value. The carrying values of these are considered reasonable approximations of their respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. Their classification within the fair value hierarchy would be as follows:

Trade, other receivables, and other assets	Level 3
Trade, other payables, and other liabilities	Level 3

Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.

Loans and advances are financial assets held at amortised cost and therefore not carried at fair value, with the exception of policyholder loans which are categorised as FVTPL. The loans and advances that are held at amortised cost would be classified as Level 3 in the fair value hierarchy.

Borrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. Borrowed funds relate to subordinated liabilities and would be classified as Level 2 in the fair value hierarchy.

Lease liabilities valued under IFRS 16 are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the fair value hierarchy.

13: Cash and cash equivalents

13(a): Analysis of cash and cash equivalents

	31 December 2019 £m	31 December 2018 £m
Cash at bank	787	550
Money market funds	1,159	1,361
Cash and cash equivalents in consolidated funds	527	484
Total cash and cash equivalents	2,473	2,395

Except for cash and cash equivalents subject to consolidation of funds of £527 million (2018: £484 million), management do not consider that there are any material amounts of cash and cash equivalents which are not available for use in the Group's day-to-day operations.

14: Insurance and investment contract liabilities

The following table provides a summary of the Group's insurance and investment contract liabilities and related reinsurance assets. Following the sale of QLA (see note 3) the Group has no pure insurance contracts (unbundled elements of linked investment contracts are included within "unit linked investment contracts and similar contracts") and as a result the Group no longer has any insurance liabilities or related reinsurance assets.

		31 December 2019			31 December 2018
	Notes	Gross £m	Reinsurance £m	Net m	Gross £m	Reinsurance £m	Net £m
Insurance contract liabilities
Life assurance policyholder liabilities	14(a)	-	-	-	588	(478)	110
Outstanding claims		-	-	-	14	(13)	1
Insurance contract liabilities		-	-	-	602	(491)	111

Investment contract liabilities	14(c)	52,455	-	52,455	56,450	(1,671)	54,779
Total life assurance policyholder liabilities		52,455	-	52,455	57,052	(2,162)	54,890

14(a): Insurance contract liabilities

Movements in the amounts outstanding in respect of life assurance policyholder liabilities, other than outstanding claims, are set out below:

		31 December 2019			31 December 2018
	Note	Gross £m	Reinsurance £m	Net £m	Gross £m	Reinsurance £m	Net £m
Carrying amount at 1 January		588	(478)	110	480	(375)	105
Impact of new business		4	(11)	(7)	2	(10)	(8)
Impact of experience effects¹		36	(24)	12	38	(26)	12
Impact of assumption changes		91	(86)	5	69	(68)	1
Other movements		-	-	-	(1)	1	-
Movement shown in discontinued operations income statement²	3(c)	131	(121)	10	108	(103)	5
Disposal of subsidiaries		(719)	599	(120)	-	-	-
Life assurance policyholder liabilities		-	-	-	588	(478)	110

¹Impact of experience effects includes the difference between the assumptions made and the actual experience during the period.

²The movement in gross insurance contract liabilities for 2019 of £131 million is a £134 million change in insurance contract liabilities and a £(3) million claim reported within gross premiums in the discontinued operations income statement.

14(b): Assumptions - life assurance

The key assumptions considered are mortality/morbidity rates, maintenance expenses, interest rates, persistency rates and maintenance expense inflation. These assumptions are based on market data and internal experience data. External data is also used where either no internal experience data exists or where internal data is too sparse to give credible estimates of the true expectation of experience. Anticipated future trends have been allowed for in deriving mortality and morbidity assumptions.

The liabilities for non-linked contracts have been calculated using a gross premium discounted cash flow approach on a policy by policy basis, using the following assumptions. The Continuous Mortality Investigation ("CMI"), supported by the Institute and Faculty of Actuaries ("IFoA"), provides mortality and sickness rate tables for UK life insurers and pension funds. The interest rate assumption is set with reference to a matching portfolio of gilts.

Class of business	Mortality/morbidity		Interest rates
Class of business	2019	2018	2019	2018
Non-linked protection business (pre 1 January 2013)¹ excluding stand-alone critical illness policies	Based on relevant CMI tables		0.993%	1.378%
Non-linked protection business (post 31 December 2012)¹ and all stand-alone critical illness policies	Based on relevant CMI tables		1.242%	1.724%
Pension annuity payment	100% PA92 (C2030) ult. projected using the long-term cohort basis²		1.050%	1.420%

¹On 1 January 2013, the discount rate was impacted by the Finance Act 2012 amendments to the life tax rules.

²PA92 (C2030) ult. is the CMI reference for the relevant Pension Annuity table.

For non-linked contracts (defined as insurance contracts under IFRS 4), the margin of prudence for the individual assumptions is generally taken as the 60% confidence interval over a one year timeframe so that, broadly speaking, in 100 scenarios the reserves are expected to cover the liabilities in 60 of those scenarios. Overall, the level of confidence is likely to be greater than 60% on the basis that these margins are applied to several assumptions at the same time and prudence is applied to all future years.

The liability values did not make allowance for the amortisation of the DAC asset. A separate liability adequacy test was carried out on best estimate assumptions allowing for all of the cash flows used to derive the liability values and the run off of the DAC.

Impact of assumption changes

Assumptions are reviewed annually and updated as appropriate. The impact of the assumption changes on the Group's annual IFRS profit before tax are as follows:

2019	Impact on IFRS profit before tax (before reinsurance) £m	Impact of reinsurance £m	Impact on IFRS profit before tax (after reinsurance) £m
Assumption
Mortality/morbidity rates	5	(5)	-
Maintenance expense inflation	1	-	1
Interest rates	(104)	90	(14)
Methodology changes	8	-	8
Persistency rates	(1)	1	-
Total	(91)	86	(5)

2018	Impact on IFRS profit before tax (before reinsurance) £m	Impact of reinsurance £m	Impact on IFRS profit before tax (after reinsurance) £m
Assumption
Mortality/morbidity rates	(86)	81	(5)
Maintenance expense	2	-	2
Interest rates	21	(18)	3
Persistency rates	(6)	5	(1)
Total	(69)	68	(1)

The sensitivity of IFRS profit before tax to variations in key assumptions are shown below. The values for 2018 have been determined by varying the relevant assumption as at the reporting date and considering the consequential impact assuming other assumptions remain unchanged. Sensitivities have not been included for 2019 due to the disposal of QLA.

(Decrease)/Increase in IFRS profit before tax		2018
(Decrease)/Increase in IFRS profit before tax	+10% £m	-10% £m
Mortality/morbidity rates	(3.3)	3.4
Maintenance expenses	(2.2)	2.2
Persistency rates	2.6	(2.8)

14(c): Investment contract liabilities

Movements in the amounts outstanding in respect of unit-linked and other investment contracts are set out below:

	31 December 2019			31 December 2018
	Gross £m	Reinsurance £m	Net £m	Gross £m	Reinsurance £m	Net £m
Carrying amount at 1 January	56,450	(1,671)	54,779	59,139	(2,525)	56,614
From continuing operations
Fair value movements	5,091	-	5,091	(3,109)	-	(3,109)
Investment income	719	-	719	610	-	610
Movements arising from investment return	5,810	-	5,810	(2,499)	-	(2,499)
From discontinued operations
Fair value movements	1,427	(205)	1,222	(1,010)	78	(932)
Investment income¹	142	-	142	160	-	160
Movements arising from investment return	1,569	(205)	1,364	(850)	78	(772)
Contributions received¹	5,718	1,148	6,866	7,152	774	7,926
Maturities	(166)	-	(166)	(183)	-	(183)
Withdrawals and surrenders	(7,419)	-	(7,419)	(6,091)	-	(6,091)
Claims and benefits	(205)	-	(205)	(234)	-	(234)
Other movements	2	(1)	1	(2)	2	-
Change in liability	5,309	942	6,251	(2,707)	854	(1,853)
Currency translation (gain)/loss	(121)	-	(121)	18	-	18
Disposal of subsidiaries	(9,183)	729	(8,454)	-	-	-
Investment contract liabilities	52,455	-	52,455	56,450	(1,671)	54,779

¹In the year ended 31 December 2018, within discontinued operations, the Group has reclassified £35 million from Investment income to Contributions received to conform with current year presentation.

For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.

The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This investment mix is unique to individual policyholders.

The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date. There will be no difference between the carrying amount and the maturity amount at maturity date.

The reinsurers' share of policyholder liabilities relating to investment contract liabilities has reduced to £nil (2018: £1,671 million) due to the disposal of QLA. Reinsurance contributions received of £1,148 million are disclosed net of withdrawals, reflecting the total of payments made to and settlements received from the reinsurer. The underlying movements in the investment funds to which the reinsurance arrangements relate indicate contributions received of £(219) million (2018: £(202) million) and withdrawals of £1,367 million (2018: £976 million). In the prior year the reinsurers' share of policyholder liabilities were rated according to the credit ratings in note 17.

14(d): Methodology and assumptions - investment contracts

For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on a retrospective basis no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in assessing whether the total of the contract costs asset and contract liability is greater than the present value of future profits expected to arise on the relevant blocks of business (the "recoverability test"). If this is the case, then the contract costs asset is restricted to the recoverable amount. For linked contracts, the assumptions are on a best estimate basis.

15: Provisions

31 December 2019	Sale of QLA £m	Compensation provisions £m	Sale of Single Strategy business £m	Other £m	Total £m
Balance at beginning of the year	-	54	20	20	94
Adjustment on initial application of IFRS 16	-	-	-	(5)	(5)
Additions from business combinations	-	14	-	1	15
Charge to income statement¹	6	9	1	7	23
Utilised during the year	-	(19)	(11)	(1)	(31)
Unused amounts reversed	-	(13)	-	(4)	(17)
Reclassification within Statement of Financial Position	-	(3)	-	-	(3)
Disposals	-	(11)	-	(1)	(12)
Balance at 31 December 2019	6	31	10	17	64

31 December 2018	Compensation provisions £m	Sale of Single Strategy business £m	Other £m	Total £m
Balance at beginning of the year	82	-	22	104
Additions from business combinations	-	-	1	1
Charge to income statement¹	11	25	3	39
Utilised during the year	(31)	(5)	(5)	(41)
Unused amounts reversed	(4)	-	(1)	(5)
Reclassification within Statement of Financial Position	(4)	-	-	(4)
Balance at 31 December 2018	54	20	20	94

¹Part of the charge to income statement in both 2019 and 2018 is included within the discontinued operations income statement.

Provisions arising on the disposal of Quilter Life Assurance

The QLA business was sold on 31 December 2019 (see note 3), resulting in a number of provisions totalling £6 million being established in respect of the costs of disposing the business and the related costs of business separation.

The costs of business separation arise from the process to separate QLA's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, contracts and facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimations, and estimates of the time required for incremental resource costs to achieve the separation.

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work will take place during 2020 and 2021. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management have made use of their past experience of previous IT migrations following business disposals. Management estimate a provision sensitivity of +/-25% (£1.5 million).

Of the total £6 million provision, £2 million is estimated to be payable after one year.

Compensation provisions

Compensation provisions total £31 million (31 December 2018: £54 million), and are comprised of the following:

QLA Voluntary client remediation provision of £nil (31 December 2018: £38 million)

This provision was established within the QLA business and has therefore formed part of the Group's discontinued operations, which were subsequently disposed of on 31 December 2019.

During 2017, as part of its ongoing work to promote fair customer outcomes, the Group conducted product reviews consistent with the recommendations from the FCA's thematic feedback and the FCA's guidance FG16/8 Fair treatment of long-standing customers in the life insurance sector. Following these reviews, the Group decided to commence voluntary remediation to customers with certain legacy products, establishing a provision for £69 million. The redress relates to early encashment charges and contribution servicing charges made on pension products and, following the re-introduction of annual reviews, compensation payable to a subset of protection plan holders.

During 2018, £27 million was utilised against programme costs and pension remediation incurred. In addition £4 million was reclassified to "investment contract liabilities", reflecting the capping of early encashment charges on live pension plans. At the end of 2018 there was £38 million of the provision remaining, including £6 million of programme costs.

During 2019, the components of the remaining provision were reviewed as refinements in supporting data emerged together with improvements in estimation methodology and modelling, resulting in a £10 million release. A further £14 million (31 December 2018: £27 million) was utilised during the year, with £3 million reclassified as "Trade, other payables and other liabilities". The remaining £11 million provision prior to the sale of QLA was transferred to the acquirer on 31 December 2019.

Lighthouse pension transfer advice complaints of £12 million (31 December 2018: £nil)

A provision was established within the fair value of the Lighthouse assets and liabilities acquired. The provision relates to approximately 30 complaints received on advice provided by Lighthouse in respect of pension transfers for British Steel pension scheme members, prior to the Group's acquisition of Lighthouse in June 2019. All the complaints received relate to transfers before that date.

The Group has performed a detailed case file review of a sample of 5 of the complaints, as a sample representative of the overall population. The loss per client as a proportion of the transfer value of the pension was determined and extrapolated to the overall complaint population. The methodology employed to assess the probable redress payable uses assumptions and estimation techniques which are consistent with principles under the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers". A provision of £9 million has been calculated for the potential redress of all complaints received to date. The final costs of redress for complaints upheld will depend on specific calculations on a case-by-case basis and therefore may vary from the currently provided amounts. Further details are provided in note 34.

An additional provision for £3 million has been established in respect of the cost of legal and professional fees related to the complaints and redress process, which includes the anticipated costs to review advice provided of a similar nature in relation to cases that management believe may have similar characteristics.

No reduction in the provision has been recognised at the reporting date in relation to recoverability of any redress or other costs under Lighthouse's professional indemnity insurance policy.

Compensation provisions (other) of £19 million (31 December 2018: £16 million)

Other compensation provisions of £19 million are all held within the Group's continuing operations and include amounts relating to the cost of correcting deficiencies in policy administration systems, including restatements and clawbacks, any associated litigation costs and the related costs to compensate previous or existing policyholders. This provision represents management's best estimate of expected outcomes based upon previous experience. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. Estimates are reviewed annually and adjusted as appropriate for new circumstances. Management estimate a provision sensitivity of +/-25% (£5 million).

Sale of Single Strategy Asset Management business provision

In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business to enable the remaining Quilter Investors business to function as a standalone operation going forward. The provision includes those costs directly related to replacing and restoring the operational capability that previously underpinned and supported both parts of the asset management business. Key parts of this capability had either been disposed of or disrupted as a consequence of the sale. The provision established for restructuring was £19 million, of which £5 million was utilised during 2018. In 2019, a further £11 million of the restructuring provision was utilised and therefore £3 million of the provision remains at year end 31 December 2019. Management estimate a provision sensitivity of +/-20% (£0.6 million).

Additional provisions totalling £6 million were also made in the year ended 31 December 2018 as a consequence of the sale of the Single Strategy Asset Management business. These were in relation to various sale related future commitments, the outcome of which was uncertain at the time of the sale and the most significant of which is in relation to the guarantee of revenues in future years. A further £1 million was added to the provision during 2019, bringing the closing balance to £7 million at 31 December 2019.

The provision takes into account sensitivities including potential scenarios which would result in a reduction in Group assets under management held in Merian (Single Strategy Asset Management business) funds, leading to a reduction in the management fees paid to Merian. The maximum potential exposure is £29 million, arising between 2020 and 2022.

Of the total £10 million provision outstanding, £3 million (2018: £6 million) is estimated to be payable after one year.

Other provisions

Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties, property dilapidation provisions (up to the end of 31 December 2018) and indemnity commission provisions. Where material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded. During 2019, provisions related to dilapidations were removed as part of the establishment of right-of-use assets and lease liabilities under IFRS 16 Leases. Management estimate a provision sensitivity of +/-20% (£3 million).

The total £17 million provision outstanding is all estimated to be payable within one year (2018: £6 million).

16: Contingent liabilities

The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. The Group recognises a provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made (see note 15). Possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Tax

The Revenue authorities in the principal jurisdictions in which the Group operates routinely review historical transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with reference to the specific facts and circumstances of the transaction and the relevant legislation.

There are occasions where the Group's interpretation of tax law may be challenged by the Revenue authorities. The financial statements include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such potential settlements are sufficient.

Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised.

Complaints and disputes

The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. The Group does from time to time receive complaints and claims, and enters into commercial disputes with service providers, in the normal course of business. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established under IAS 37.

Contingent liabilities - acquisitions and disposals

The Group routinely monitors and assesses contingent liabilities arising from matters such as litigation, warranties and indemnities relating to past acquisitions and disposals.

Prior to the Group's acquisition of Lighthouse in June 2019, Lighthouse provided pension transfer advice to around 300 British Steel pension scheme members between 2016 and 2018. The Group was advised after the reporting date of a number of complaints on the advice given by Lighthouse. The Group has initiated a review of all cases advised by Lighthouse, prior to its acquisition by Quilter in June 2019, to assess the standard of advice given to British Steel pension scheme members.

For the cases where a complaint has been received on the advice given by Lighthouse, the likelihood of redress is probable. An estimate of the amount of redress payable has been made and is included within Provisions in note 15. For the remaining cases, it is possible that further costs of redress may be incurred following the outcome of the reviews. Of the pension transfers Lighthouse advised on between 2016 and 2018, approximately 80 cases were undertaken prior to mid-2017 after which the British Steel pension scheme was restructured and transfer values were enhanced considerably.

As the advice was provided before the Group's acquisition of Lighthouse, any further redress costs will be recognised as a pre-acquisition liability within the fair value of the net assets acquired (as disclosed in note 5), with a corresponding increase in the goodwill recognised. Any adjustments to the acquisition balance sheet must be finalised within 12 months after the acquisition, in June 2020.

17: Capital and financial risk management

17(a): Capital management

The Group manages its capital with a focus on capital efficiency and effective risk management. The capital objectives are to maintain the Group's ability to continue as a going concern while supporting the optimisation of return relative to the risks. The Group ensures that it can meet its expected capital and financing needs at all times having regard to the Group's business plans, forecasts and strategic initiatives and regulatory requirements in all businesses in the Group. The Group's overall capital risk appetite is set with reference to the requirements of the relevant stakeholders and seeks to:

· maintain sufficient, but not excessive, financial strength to support stakeholder requirements;

· optimise debt to equity structure to enhance shareholder returns; and

· retain financial flexibility by maintaining liquidity including unutilised committed credit lines.

The primary sources of capital used by the Group are equity shareholders' funds of £2,071 million (31 December 2018: £2,005 million) and subordinated debt which was issued at £200 million in February 2018. Alternative resources are utilised where appropriate. Risk appetite has been defined for the level of capital, liquidity and debt within the Group. The risk appetite includes long-term targets, early warning thresholds and risk appetite limits. The dividend policy sets out the target dividend level in relation to profits.

The regulatory capital for the Group is assessed under Solvency II requirements.

17(a)(i): Regulatory capital (unaudited)

The Group is subject to Solvency II group supervision by the PRA. The Group is required to measure and monitor its capital resources under the Solvency II regulatory regime.

The Group's insurance undertakings are included in the Group solvency calculation on a Solvency II basis. Other regulated entities are included in the Group solvency calculation according to the relevant sectoral rules. The Group's Solvency II surplus is the amount by which the Group's capital on a Solvency II basis (own funds) exceeds the Solvency II capital requirement (the Solvency Capital Requirement or "SCR").

The Group's Solvency II surplus is £1,168 million at 31 December 2019 (2018: £1,059 million), representing a Solvency II ratio of 221% (2018: 190%) calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2019 allows for the impact of the recommended final dividend payment of £65 million (2018: £61 million). The disclosure does not include the impact of any future distribution of the net surplus proceeds from the QLA sale to shareholders or the impact of the odd-lot offer.

The Solvency II estimated results for year ended 31 December 2019 (unaudited) and 31 December 2018 were as follows:

	31 December 2019¹ £m	31 December 2018² £m
Own funds	2,132	2,237
Solvency capital requirement (SCR)	964	1,178
Solvency II surplus	1,168	1,059
Solvency II coverage ratio	221%	190%

¹Based on preliminary estimates. Formal annual filing due to the PRA by 19 May 2020.

²As represented within the Quilter plc Group Solvency and Financial Condition report for the year ended 31 December 2018.

The Group own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.

Group own funds	31 December 2019 £m	31 December 2018 £m
Tier 1¹	1,925	2,036
Tier 2²	207	201
Total Group Solvency II own funds	2,132	2,237

¹All Tier 1 capital is unrestricted for tiering purposes.

²Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018.

The Group's insurance subsidiaries based in the UK and in Ireland are also subject to Solvency II at entity level. The Group's asset management and advisory businesses are subject to group supervision by the FCA under the Capital Requirement Directive IV regime ("CRD IV"). Other regulated entities in the Group are subject to the locally applicable entity-level capital requirements in the jurisdictions in which they operate.

The solvency and the capital requirements for the Group and each of its regulated subsidiaries are reported and monitored through monthly Capital Management Forum meetings. Throughout 2019, the Group and each of its regulated subsidiaries have complied with the applicable regulatory capital requirements.

17(a)(ii): Loan covenants

Under the terms of the revolving credit facility agreement, the Group is required to comply with the following financial covenant: the ratio of total net borrowings to consolidated equity shareholders' funds shall not exceed 0.5.

	31 December 2019 £m	31 December 2018 £m
Total external borrowings of the Company	198	197
Less: cash and cash equivalents of the Company	(559)	(281)
Total net external borrowings of the Company	(361)	(84)
Total shareholders' equity of the Group	2,071	2,005
Tier 2 bond	198	197
Total Group equity (including Tier 2 bond)	2,269	2,202
Ratio of Company net external borrowings to Group equity	-0.159	-0.038

The Group has complied with the covenant since the facility was created in February 2018.

17(a)(iii): Own Risk and Solvency Assessment ("ORSA") and Internal Capital Adequacy Assessment Process ("ICAAP")

The Group ORSA process is an ongoing cycle of risk and capital management processes which provides an overall assessment of the current and future risk profile of the Group and demonstrates the relationship between business strategy, risk appetite, risk profile and solvency needs. These assessments support strategic planning and risk-based decision making.

The underlying ORSA processes cover the Group and consider how risks and solvency needs may evolve over the planning period. The ORSA includes stress and scenario tests, which are performed to assess the financial and operational resilience of the Group.

The Group ORSA report is produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the Group. The ORSA report is submitted to the PRA as part of the normal supervisory process and may be supplemented by ad hoc assessments where there is a material change in the risk profile of the Group outside the usual reporting cycle.

In addition to the Group ORSA process, entity level ORSA processes are performed for each of the solo insurance entities within the Group.

The Group ICAAP process is similar to the ORSA process although the ICAAP process is performed for a subset of the Group consisting of the investment and advisory firms within the Group (the "ICAAP Group"). The Group ICAAP report is also produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the ICAAP Group. The ICAAP report is submitted to the FCA as part of the normal supervisory process and may be supplemented by ad-hoc assessments where there is a material change in the risk profile of the ICAAP Group outside the usual reporting cycle.

The conclusions of ORSA and ICAAP processes are reviewed by management and the Board throughout the year.

17(b): Credit risk

Overall exposure to credit risk

Credit risk is the risk of adverse movements in credit spreads (relative to the reference yield curve), credit ratings or default rates leading to a deterioration in the level or volatility of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. This includes counterparty default risk, counterparty concentration risk and spread risk.

The Group has established a Credit Risk Framework that includes a Credit Risk Policy, Credit Risk Standard and Credit Risk Appetite Statement. This framework applies to all activities where the shareholder is exposed to credit risk, either directly or indirectly, ensuring appropriate identification, measurement, management, monitoring and reporting of the Group's credit risk exposures.

The credit risk arising from all exposures is mitigated through ensuring the Group only enters into relationships with appropriately robust counterparties, adhering to the Group Credit Risk Policy. For each asset, consideration is given as to:

· the credit rating of the counterparty, which is used to derive the probability of default;

· the loss given default;

· the potential recovery which may be made in the event of default;

· the extent of any collateral that the firm has in respect of the exposures; and

· any second order risks that may arise where the firm has collateral against the credit risk exposure.

The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, to ensure there is appropriate diversification of counterparties and to ensure that exposures are within approved limits. At 31 December 2019, the Group's material credit exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund managers and reinsurers) and individuals (primarily through fund management trade settlement activities).

There is no direct exposure to European sovereign debt (outside of the UK) within the shareholder investments. The Group has no significant concentrations of credit risk exposure.

Reinsurance arrangements

The Group has reinsurance arrangements in place to mitigate the risk of excessive claims on unit-linked and, prior to the sale of QLA, non-linked protection contracts. Also specific to QLA before its disposal, reinsurance arrangements were used in respect of unit-linked institutional business to access specific funds not available through direct fund links and to provide liquidity. Since the Group uses reinsurance as a means of mitigating insurance risk, reinsurance counterparties bear a significant financial obligation to the Group.

In general, credit risk in respect of reinsurance counterparties is controlled through the use of risk premium reinsurance terms, where reinsurance cover is paid for as the cover is provided. In these arrangements credit risk is limited to the risk of being unable to recover amounts due as a result of claims arising over the latest quarter, since reinsurance accounts are settled quarterly in arrears. This risk is largely mitigated since the Group would be able to withhold amounts due to the reinsurer to offset amounts due from the reinsurer.

The Group also has reinsurance arrangements in which there is a timing difference between the reinsurance premium payment and the provision of cover, which results in prepayment for cover by the company. In respect of these arrangements, a credit risk exposure can arise.

Reinsurance credit risk is managed by dealing only with reinsurance firms with credit ratings which meet the requirements of the company's credit risk policy on inception of new reinsurance arrangements. The Group monitors the exposure to and credit rating of reinsurance counterparties regularly to ensure that these remain within acceptable limits. Legal agreements are in place for all reinsurance arrangements which set out the terms of the arrangement and the rights of both the Group and the reinsurance providers.

Details of the age analyses and credit quality of reinsurance assets in respect of insurance contracts and investment contracts are included below.

Investment of shareholder funds

The risk of counterparty default in respect of the investment of shareholder funds is managed through:

· setting minimum credit rating requirements for counterparties;

· setting limits and key risk indicators for individual counterparties and counterparty concentrations;

· monitoring exposures regularly against approved limits; and

· on-going monitoring of counterparties and associated limits.

Other credit risks

The Group is exposed to financial adviser counterparty risk through a number of loans that it makes to its advisers and the payment of upfront commission on the sale of certain types of business. The risk of default by financial advisers is managed through monthly monitoring of loan and commission debt balances.

The Group is exposed to the risk of default by fund management groups in respect of settlements and rebates of fund management charges on collective investments held for the benefit of policyholders. This risk is managed through the due diligence process which is completed before entering into any relationship with a fund group. Amounts due to and from fund groups are monitored for prompt settlement and appropriate action is taken where settlement is not timely.

Legal contracts are maintained where the Group enters into credit transactions with a counterparty.

Details of the credit quality of debt securities can be found in this note in the table below.

Impact of credit risk on fair value

Due to the limited exposure that the Group has to credit risk, credit risk does not have a material impact on the fair value movement of financial instruments for the year under review. The fair value movements on these instruments are mainly due to changes in market conditions.

Maximum exposure to credit risk

The Group's maximum exposure to credit risk does not differ from the carrying value disclosed in the relevant notes to the financial statements.

Loans and advances subject to 12 month expected credit losses ("12 month ECL") are £37 million (2018: £33 million) and other receivables subject to lifetime expected credit losses ("lifetime ECL") are £246 million (2018: 335 million). These balances are not rated; they represent the pool of counterparties that do not require a rating. These counterparties individually generate no material credit exposure and this pool is highly diversified, monitored and subject to limits.

The table below represents the Group's exposure to credit risk from cash and cash equivalents.

Exposure arising from financial instruments not recognised on the statement of financial position is measured as the maximum amount that the Group would have to pay, which may be significantly greater than the amount that would be recognised as a liability. The Group does not have any significant exposure arising from items not recognised on the statement of financial position.

31 December 2019	Credit rating relating to financial assets that are neither past due nor impaired
31 December 2019	AAA £m	AA £m	A £m	BBB £m	<BBB £m	Not rated¹ £m	Carrying value £m
Cash at amortised cost, subject to 12 month ECL	-	272	511	2	2	527	1,314
Money market funds at FVTPL	1,156	-	-	3	-	-	1,159
Total cash and cash equivalents	1,156	272	511	5	2	527	2,473

31 December 2018	Credit rating relating to financial assets that are neither past due nor impaired
31 December 2018	AAA £m	AA £m	A £m	BBB £m	<BBB £m	Not rated¹ £m	Carrying value £m
Cash at amortised cost, subject to 12 month ECL	-	60	451	1	3	519	1,034
Money market funds at FVTPL	1,358	-	-	-	3	-	1,361
Total cash and cash equivalents	1,358	60	451	1	6	519	2,395

¹Cash included in the consolidation of funds is not rated.

Impairment allowance

Assets that are measured and classified as amortised costs are monitored for any expected credit loss ("ECL") on either a 12 month or lifetime ECL model. The majority of such assets within the Group are measured on the lifetime ECL model, with the exception of some specific loans that are on the 12 month ECL model.

Impairment allowance	£m
2018 Opening impairment allowance under IAS 39	(0.3)
Impact upon adoption of IFRS 9	(0.2)
Additions due to increased broker loans	(0.4)
31 December 2018	(0.9)
Additions due to increased broker loans	(0.3)
31 December 2019	(1.2)

17(c): Market risk

Market risk is the risk of an adverse change in the level or volatility of market prices of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. Market risk arises from changes in equity, bond and property prices, interest rates and foreign exchange rates. Market risk arises differently across the Group's businesses depending on the types of financial assets and liabilities held.

The Group has a market risk policy which sets out the risk management framework, permitted and prohibited market risk exposures, maximum limits on market risk exposures, management information and stress testing requirements which are used to monitor and manage market risk. The policy is cascaded to the businesses across the Group and Group level governance and monitoring processes provide oversight of the management of market risk by the individual businesses.

The Group does not undertake any principal trading for its own account. The Group's revenue is however affected by the value of assets under management and consequently it has exposure to equity market levels and economic conditions. Scenario testing is undertaken to test the resilience of the business to severe but plausible events and to assist in the identification of management actions.

17(c)(i): Equity and property price risk

In accordance with the market risk policy, the company does not invest shareholder assets in equity or property, or related collective investments, except where the exposure arises due to:

· mismatches between unitised fund assets and liabilities. These mismatches are permitted, subject to maximum limits, to avoid excessive dealing costs; and

· seed capital investments. Seed capital is invested within new unit-linked funds at the time when these funds are launched. The seed capital is then withdrawn from the funds as policyholders invest in the funds.

The above exposures are not material to the Group.

The Group derives fees (e.g. annual management charges) and incurs costs (e.g. adviser fund based renewal commissions) which are linked to the performance of the underlying assets. Therefore future earnings will be affected by equity and property market performance.

Equity and property price sensitivity testing

A movement in equity and property prices would impact the fee income that is based on the market value of the investments held for the policyholders. In this analysis, all linked renewal commission is assumed to be fund based. The sensitivity is applied as an instantaneous shock to equity and property prices at the start of the year. The sensitivity analysis is not limited to the unit-linked business and therefore reflects the sensitivity of the Group as a whole.

	Impact on profit after tax and shareholders' equity
	31 December 2019 £m	31 December 2018 £m
Impact of 10% increase in equity and property prices	32	36
Impact of 10% decrease in equity and property prices	(32)	(36)

17(c)(ii): Interest rate risk

Interest rate risk arises primarily from bank balances held with financial institutions. A small amount of the company assets are held in fixed interest UK government bonds, which are exposed to fluctuations in interest rates. Fixed interest UK government bonds are mainly held to match liabilities by durations and so the exposure to interest rate risk is not material.

A rise in interest rates would also cause an immediate fall in the value of investments in fixed income securities within unit-linked funds. The unit-linked funds asset look-through analysis has revealed that less than 30% of the Group's linked assets are invested in the fixed income securities which generally have short durations, resulting in a low material impact in fund based revenues.

Exposure of the IFRS income statement and statement of financial position equity to interest rates are summarised below.

Interest rate sensitivity testing

The impact of an increase and decrease in market interest rates of 1% is tested (e.g. if the current interest rate is 5%, the test allows for the effects of an instantaneous change to 4% and 6% from the start of the year). The test allows consistently for similar changes in investment returns and movements in the market value of any fixed interest assets backing the liabilities. The sensitivity of profit to changes in interest rates is provided.

	Impact on profit after tax and shareholders' equity
	31 December 2019 £m	31 December 2018 £m
Impact of 1% increase in interest rates	16	19
Impact of 1% decrease in interest rates	(12)	(12)

17(c)(iii): Currency translation risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's functional currency is Sterling, which accounts for the majority of the Group's transactions, but the Group also has minor exposures to foreign exchange risk in respect to accounts receivable and future revenues denominated in US Dollars, Euros and Swedish Krona through its International business. The currency risk is mitigated using derivative financial instruments such as forward foreign exchange contracts. After risk mitigation, the Group does not have material foreign currency risk exposure.

17(d): Liquidity risk

Liquidity risk is the risk that there are insufficient assets or that assets cannot be realised in order to settle financial obligations as they fall due or that market conditions preclude the ability of the Group to trade in illiquid assets in order to maintain its asset and liability matching ("ALM") profile. The Group manages liquidity on a daily basis through:

· maintaining adequate high quality liquid assets and banking facilities, the level of which is informed through appropriate liquidity stress testing;

· continuously monitoring forecast and actual cash flows; and

· monitoring a number of key risk indicators to help in the identification of a liquidity stress.

Individual businesses maintain and manage their local liquidity requirements according to their business needs within the overall Group Liquidity Risk Framework that includes a Group Liquidity Risk Policy, Group Liquidity Risk Standard and Group Liquidity Risk Appetite Statement. The Group framework is applied consistently across all businesses in the Group to identify, manage, measure, monitor and report on all liquidity risks that have a material impact on liquidity levels. This framework considers both short-term liquidity and cash management considerations and longer-term funding risk considerations.

Liquidity is monitored centrally by Group Treasury, with management actions taken at a business level to ensure each business has liquidity to cover its minimum liquidity requirement, with an appropriate buffer set in line with the Group Risk Appetite Statement.

The Group maintains contingency funding arrangements to provide liquidity support to businesses in the event of liquidity stresses that are greater than their risk appetite. Contingency Funding Plans are in place for each individual business in order to set out the approach and management actions that would be taken should liquidity levels fall below minimum liquidity requirements. The plans undergo an annual review and testing cycle to ensure they are fit for purpose and can be relied upon during a liquidity stress.

Information on the nature of the investments and securities held is given in note 10.

The Group has a £125 million 5 year Revolving Credit Facility with a 5 bank club that represents a form of contingency liquidity for the Group. No drawdown on this facility has been made since inception. The Group has the option to extend the facility for a further 2 year period.

The financing arrangements are considered sufficient to maintain the target liquidity levels of the Group and offer coverage for appropriate stress scenarios identified within the liquidity stress testing undertaken across the Group.

Further details, together with information on the Group's borrowed funds, are given in note 29 of the financial statements within the Group's 2019 Annual report and accounts.

The Group does not have material liquidity exposure to special purpose entities or investment funds.

17(e): Insurance Risk

17(e)(i): Overview

The Group assumes insurance risk by providing life assurance cover to customers within insurance policies, under which the Group agrees to compensate the policyholder or other beneficiary in the event that a specified uncertain future event (the insured event) affecting the policyholder occurs. The Group offers life assurance and, within QLA prior to its disposal, offered critical illness protection business. The Group does not offer general insurance business and therefore does not take on other forms of insurance risk such as motor and property insurance risks. The QLA business was part of the Group until it was sold on 31 December 2019. Therefore, the insurance risks associated with this business were managed by the Group throughout the year and so are described below.

Insurance risk arises through exposure to variable claims experience on life assurance and critical illness, exposure to variable operating experience in respect of factors such as persistency levels and management expenses. Unfavourable persistency, expenses and mortality and morbidity claim rates, relative to the actuarial assumptions made in the pricing process, may result in profit margins reducing below the target levels included in the pricing process.

The Group has implemented an insurance risk policy which sets out the Group requirements for the management, measurement, monitoring and reporting of insurance risks. The Group has implemented three standards to support the insurance risk policy, as follows:

· Underwriting and Claims Standard;

· Reinsurance Standard; and

· Technical Provisions Standard.

The sensitivity of the Group's earnings and capital position to insurance risks is monitored through the Group's capital management processes.

The Group manages its insurance risks through the following mechanisms:

· management of expense levels relative to approved budgets;

· pricing of insurance contracts utilising analysis of mortality and morbidity, persistency and expense experience;

· underwriting of mortality risks;

· reinsurance, which is used to limit the Group's exposure to large single claims and catastrophes through transfer of mortality and morbidity risk exposures; and

· the Group does not offer group insurance business in order to avoid risk concentrations of insurance risk.

Mortality and morbidity

Mortality and morbidity risk is the risk that death, critical illness and disability claims experience is higher than the rates assumed when pricing contracts.

For unit-linked contracts a risk charge is applied to meet the expected cost of the insured benefit (in excess of the unit value). This risk charge can be altered in the event of changes in the expectation for future claims experience, subject to the objective to provide fair customer outcomes.

Persistency

Persistency risk is the risk that the level of surrenders or withdrawals on insurance policies occur at levels that are different to the levels assumed in the pricing process and relative to the levels assumed in determination of technical provisions. Persistency statistics are monitored monthly and a detailed persistency analysis at a product group level is carried out on an annual basis. Management actions may be triggered if persistency statistics indicate significant adverse movement or emerging trends in experience.

Expenses

Expense risk is the risk that actual expenses and expense inflation differ from the levels expected and allowed for within the pricing process. Expense levels are monitored quarterly against budgets and forecasts. Expense drivers are used to allocate expenses to entities and products. Some product structures include maintenance charges. These charges are reviewed annually in light of changes in maintenance expense levels and the market rate of inflation. This review may result in changes in charge levels.

17(e)(ii): Sensitivity analysis

Changes in key assumptions used to value contracts would result in increases or decreases to the contract liabilities recognised, with impact on profit/(loss) and/or shareholders' equity.

Sensitivity analysis has been performed by applying the following parameters to the statement of financial position and income statement as at 31 December 2019 and 31 December 2018. Interest rate and equity and property price sensitivities are included within the Group market sensitivities above.

Expenses

The increase in expenses is assumed to apply to the costs associated with the maintenance and acquisition of contracts. It is assumed that these expenses are increased by 10% from the start of the year, so is applied as an expense shock rather than a gradual increase. The only administrative expenses that are deferrable are sales bonuses but as new business volumes are unchanged in this sensitivity, sales bonuses and the associated deferrals have not been increased. Administrative expenses have been allocated equally between life and pensions.

An increase in expenses of 10% would have decreased profit by £13 million after tax (2018: £15 million).

Mortality

Mortality risk is not material as the Group does not provide material mortality insurance on its products and mortality benefits are reinsured.

17(f): Operational risk

Operational risk is the risk that failure of people, processes, systems or external events results in financial loss, damage to brand/reputation or adverse regulatory intervention, or government or regulatory fine. Operational risk includes all risks resulting from operational activities, excluding the risks already described above and excluding strategic risks and risks resulting from being part of a wider group of companies.

Operational risk includes the effects of failure of administration processes, IT maintenance and development processes, investment processes (including settlements with fund managers, fund pricing and matching and dealing), product development and management processes, legal risks (e.g. risk of inadequate legal contract with third parties), risks relating to the relationship with third party suppliers and outsourcers, and the consequences of financial crime and business interruption events.

In accordance with Group policies, management have primary responsibility for the identification, assessment, management and monitoring of risks, and the escalation and reporting on issues to executive management.

The Group executive management have responsibility for implementing the Group Operational Risk management methodologies and frameworks and for development and implementation of action plans to manage risk levels within acceptable tolerances and to resolve issues identified.

17(g): Contractual maturity analysis

The following table provides a maturity analysis of liability cash flows based on the contractual maturity dates for investment contract liabilities and expected claim dates for insurance contracts. Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies, and these liabilities are therefore classified as less than three months maturity. Although these liabilities are payable on demand, the Group does not expect that all liabilities will be settled within this period. Following the sale of QLA (see note 3) the Group has no pure insurance contracts (unbundled elements of linked investment contracts are included within "Investment contracts and similar contracts").

	Undiscounted cash flows
31 December 2019	Carrying amount £m	Up to three months £m	Three months to one year £m	Between one and five years £m	More than five years £m	Total £m
Investment contracts
Investment contracts and similar contracts	52,455	52,455	-	-	-	52,455
Total policyholder liabilities	52,455	52,455	-	-	-	52,455

	Undiscounted cash flows
31 December 2018	Carrying amount £m	Up to three months £m	Three months to one year £m	Between one and five years £m	More than five years £m	Total £m
Insurance contracts	602	21	11	46	992	1,070
Life assurance policyholder liabilities	588	7	11	46	992	1,056
Outstanding claims	14	14	-	-	-	14
Investment contracts
Investment contracts and similar contracts	56,450	56,450	-	-	-	56,450
Total policyholder liabilities	57,052	56,471	11	46	992	57,520

18: Related party transactions

In the normal course of business, the Group enters into transactions with related parties. Loans to related parties are conducted on an arm's length basis and are not material to the Group's results. There were no transactions with related parties during the current and prior year which had a material effect on the results or financial position of the Group except for the repayment of intercompany indebtedness with Old Mutual plc in 2018. The nature of the related party transactions of the Group has not changed over the course of the year. Full details of transactions with related parties, including key management personnel compensation is included within note 38 of the financial statements within in the Group's 2019 Annual Report and Accounts ("ARA"). The Group's interests in subsidiaries and related undertakings are set out in Appendix B of the financial statements within the Group's 2019 ARA.

19: Events after the reporting date

Complaints provision and contingent liability

The Group was advised after the reporting date of a number of complaints received in respect of pensions transfer advice given to clients of Lighthouse, for advice provided between 2016 and 2018, prior to the Group's acquisition of Lighthouse in June 2019. Further details are provided in notes 3(a), 15 and 16.

Coronavirus

In early 2020, the existence of a new coronavirus ("COVID-19") was confirmed which has since spread across a significant number of countries, leading to disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. The Group considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event. Given the inherent uncertainties, it is not practicable at this time to determine the impact of COVID-19 on the Group or to provide a quantitative estimate of this impact.

Share buyback programme

Following the sale of QLA to ReAssure, on 2 January 2020 the Group announced that it intends to return the £375 million net surplus proceeds of the sale to shareholders via a share buyback programme. This will be conducted concurrently on the London and Johannesburg stock exchanges. The buyback is dependent on regulatory and Board approval and the renewal of share repurchase authorities at the Group's 2020 Annual General Meeting ("AGM"), and will be subject to periodic Board review to ensure that this remains the most effective and timely method of returning capital to shareholders. Given the size of the capital return relative to the current trading liquidity in Quilter shares, the Group currently expect the buyback programme to complete by the time of the 2021 AGM.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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