Final Results - Part 6 of 8

RNS Number : 7407X

Standard Life plc

24 February 2017

 

Standard Life plc

Full Year Results 2016

Part 6 of 8

31.    Movements in other reserves

In July 2006 Standard Life demutualised and during this process the merger reserve, the reserve arising on Group reconstruction and the special reserve were created.

Merger Reserve: At demutualisation in July 2006 the Company issued shares to former members of the mutual company. The difference between the nominal value of these shares and their issue value was recognised in the merger reserve. The reserve comprises components attaching to each subsidiary that was transferred to the Company at demutualisation based on their fair value at that date. On disposal or impairment of such a subsidiary the related component of the merger reserve is released to retained earnings. 

Reserve arising on Group reconstruction: The value of the shares issued at demutualisation was equal to the fair value of the business at that date. The business's assets and liabilities were recognised at their book value at the time of demutualisation. The difference between the book value of the business's net assets and its fair value was recognised in the reserve arising on Group reconstruction. The reserve comprises components attaching to each subsidiary that was transferred to the Company at demutualisation. On disposal of such a subsidiary the related component of the reserve arising on Group reconstruction is released to retained earnings.

Special reserve: Immediately following demutualisation and the related initial public offering, the Company reduced its share premium reserve by court order giving rise to the special reserve. Dividends can be paid out of this reserve.

The following tables show the movements in other reserves during the year. The movements are aggregated for both continuing and discontinued operations.

		Revaluation of owner occupied property	Foreign currency translation	Available-for-sale financial assets	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
2016	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January		-	(7)	1	2,080	53	241	(1,879)	488	977
Recognised in other comprehensive income
Fair value gains on available-for-sale financial assets		-	-	17	-	-	-	-	-	17
Revaluation of owner occupied property	20	5	-	-	-	-	-	-	-	5
Exchange differences on translating foreign operations		-	173	-	-	-	-	-	-	173
With profits funds: Associated UDS movement recognised in other comprehensive income	33	(5)	(62)	-	-	-	-	-	-	(67)
Aggregate tax effect of items recognised in other comprehensive income		-	-	(3)	-	-	-	-	-	(3)
Total items recognised in other comprehensive income		-	111	14	-	-	-	-	-	125
Recognised directly in equity
Reserves credit for employee share-based payment schemes		-	-	-	-	30	-	-	-	30
Transfer to retained earnings for vested employee share-based payments	30	-	-	-	-	(23)	-	-	-	(23)
Cancellation of capital redemption reserve	28	-	-	-	-	-	-	-	(488)	(488)
Aggregate tax effect of items recognised directly in equity		-	-	-	-	(3)	-	-	-	(3)
Total items recognised directly within equity		-	-	-	-	4	-	-	(488)	(484)
At 31 December		-	104	15	2,080	57	241	(1,879)	-	618

	Revaluation of owner occupied property	Cash flow hedges	Foreign currency translation	Net investment hedge	Available-for-sale financial assets	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
2015	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	20	3	110	54	13	3,108	52	241	(2,100)	-	1,501
Recognised in other comprehensive income
Fair value gains on cash flow hedges	-	57	-	-	-	-	-	-	-	-	57
Net investment hedge	-	-	-	56	-	-	-	-	-	-	56
Fair value gains on available-for-sale financial assets	-	-	-	-	7	-	-	-	-	-	7
Revaluation of owner occupied property	4	-	-	-	-	-	-	-	-	-	4
Exchange differences on translating foreign operations	-	-	(68)	-	-	-	-	-	-	-	(68)
With profits funds: Associated UDS movement recognised in other comprehensive income	(4)	-	1	-	-	-	-	-	-	-	(3)
Aggregate tax effect of items recognised in other comprehensive income	-	-	-	-	(2)	-	-	-	-	-	(2)
Items transferred to profit or loss on disposal of subsidiaries	-	(60)	(50)	(110)	(17)	-	-	-	-	-	(237)
Total items recognised in other comprehensive income	-	(3)	(117)	(54)	(12)	-	-	-	-	-	(186)
Recognised directly in equity
Redemption of 'B' shares	-	-	-	-	-	-	-	-	-	488	488
Reserves credit for employee share-based payment schemes	-	-	-	-	-	-	34	-	-	-	34
Transfer to retained earnings for vested employee share-based payments	-	-	-	-	-	-	(32)	-	-	-	(32)
Transfer to UDS on sale of owner occupied property	(14)	-	-	-	-	-	-	-	-	-	(14)
With profits funds: Associated UDS movement recognised in equity	14	-	-	-	-	-	-	-	-	-	14
Transfer between reserves on disposal of subsidiaries	(20)	-	-	-	-	(1,028)	-	-	221	-	(827)
Aggregate tax effect of items recognised directly in equity	-	-	-	-	-	-	(1)	-	-	-	(1)
Total items recognised directly within equity	(20)	-	-	-	-	(1,028)	1	-	221	488	(338)
At 31 December	-	-	(7)	-	1	2,080	53	241	(1,879)	488	977

32.    Non-controlling interests and third party interest in consolidated funds

(a)        Non-controlling interests

The movement in non-controlling interests during the year was:

		2016	2015
		£m	£m
At 1 January		347	278
Profit in the year attributable to non-controlling interests		51	62
Net contributions		(66)	44
Distributions		(45)	(35)
Foreign exchange differences on translating foreign operations		10	(2)
At 31 December		297	347

Included in non-controlling interests of £297m (2015: £347m) are non-controlling interests of Standard Life European Private Equity Trust plc (SLEPET), which was renamed Standard Life Private Equity Trust plc on 1 February 2017, of £251m (2015: £210m) which is considered material to the Group. Non-controlling interests own 45% (2015: 46%) of the voting rights of SLEPET. The profit allocated to non-controlling interests of SLEPET for the year ended 31 December 2016 is £49m (2015: £31m). Dividends paid to non-controlling interests of SLEPET during the year ended
31 December 2016 were £4m (2015: £5m).

Summarised financial information for SLEPET prior to intercompany eliminations is provided in the following table. The summarised financial information is for the years ended 30 September 2016 and 2015 which is SLEPET's financial reporting date and is considered indicative of the interest that non-controlling interests of SLEPET have in the Group's activities and cash flows. The financial statements of SLEPET for the years ended 30 September 2016 and 2015 have been adjusted for market movements and any other significant events or transactions for the three months to
31 December for the purposes of consolidation into the Group's consolidated financial statements for the years ended 31 December 2016 and 2015 respectively.

	2016	2015
SLEPET 30 September	£m	£m
Statement of financial position:
Total assets	540	439
Total liabilities	7	-
Income statement:
Revenue	119	53
Profit after tax	107	47
Total comprehensive income	107	47
Cash flows:
Cash flows from operating activities	5	8
Cash flows from investing activities	73	22
Cash flows from financing activities	(13)	(20)
Net increase in cash equivalents	65	10

There are no protective rights of non-controlling interests which significantly restrict the Group's ability to access or use the assets and settle the liabilities of the Group.

(b)        Third party interest in consolidated funds

The movement in third party interest in consolidated funds during the year was:

		2016	2015
		£m	£m
At 1 January		17,196	15,805
Change in liability for third party interest in consolidated funds		296	531
Net contributions and movements between classifications of investments		(559)	1,166
Distributions		(298)	(267)
Foreign exchange differences on translating foreign operations		200	(39)
At 31 December		16,835	17,196

33.    Insurance contracts, investment contracts and reinsurance contracts

(i)         Classification of insurance and investment contracts

The measurement basis of assets and liabilities arising from life and pensions business contracts is dependent upon the classification of those contracts as either insurance or investment contracts.

Insurance contracts

A contract is classified as an insurance contract only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred, excluding scenarios that lack commercial substance. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.

Investment contracts

Life and pensions business contracts that are not classified as insurance contracts are classified as investment contracts.

Participating contracts

The Group has written insurance and investment contracts which contain discretionary participating features (e.g. with profits business). These contracts provide a contractual right to receive additional benefits as a supplement to guaranteed benefits. These additional benefits are based on the performance of with profits funds and their amount and timing is at the discretion of the Group. These contracts are referred to as participating insurance contracts if they contain a feature that transfers significant insurance risk and otherwise as participating investment contracts.

Hybrid contracts

Generally, life and pensions business product classes are sufficiently homogeneous to permit a single classification at the level of the product class. However, in some cases, a product class may contain individual contracts that fall across multiple classifications (hybrid contracts). For certain significant hybrid contracts the product class is separated into the insurance element, a non-participating investment element and a participating investment element, so that each element is accounted for separately.

Embedded derivatives

Where a contract contains a feature that meets the definition of both an insurance contract and a derivative, the contract is classified in its entirety as an insurance contract.

The following table summarises the classification of the Group's significant types of life and pensions business contracts as described in Note 3.

Reportable segment	Participating insurance contracts	Non-participating insurance contracts	Participating investment contracts	Non-participating investment contracts
Pensions and Savings	Germany unitised with profits deferred annuity contracts UK & Ireland unitised with profits life contracts	UK & Ireland annuity-in-payment contracts Certain UK & Ireland unit linked investment bonds UK deferred annuity contracts Germany unit linked deferred annuity contracts	UK & Ireland unitised with profits pension contracts	UK & Ireland unit linked pension contracts Certain UK & Ireland unit linked investment bonds
India and China		Hong Kong unit linked life contracts

Details of the accounting policies for non-participating investment contracts are given in Note 34.

(ii)        Income statement presentation - insurance and participating investment contracts

For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for income statement presentation purposes, of accounting policies that were being used at the date of transition to IFRS, except where a change is deemed to make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable, and no less relevant to those needs. Therefore the Group applies accounting policies determined in accordance with the Association of British Insurers Statement of Recommended Practice issued in 2005 (ABI SORP) as described below.

Premiums received on insurance contracts and participating investment contracts are recognised as revenue in the consolidated income statement when due for payment, except for unit linked premiums which are accounted for when the corresponding liabilities are recognised. For single premium business, this is the date from which the policy is effective. For regular (and recurring) premium contracts, receivables are established at the date when payments are due.

Claims paid on insurance contracts and participating investment contracts are recognised as expenses in the consolidated income statement. Maturity claims and annuities are accounted for when due for payment. Surrenders are accounted for when paid or, if earlier, on the date when the policy ceases to be included within the calculation of the insurance liability. Death claims and all other claims are accounted for when notified.

When a policyholder exercises an option within an investment contract to utilise withdrawal proceeds from the investment contract to secure future benefits which contain significant insurance risk, the related investment contract liability is derecognised and an insurance contract liability is recognised. The withdrawal proceeds which are used to secure the insurance contract are recognised as premium income.

Claims payable include the direct costs of settlement. Reinsurance recoveries are accounted for in the same period as the related claim.

The change in insurance and participating investment contract liabilities, comprising the full movement in the corresponding liabilities during the period, is recognised in the consolidated income statement. This also includes the movement in unallocated divisible surplus (UDS) in the period. However, where movements in assets and liabilities which are attributable to participating policyholders are recognised in other comprehensive income, the change in UDS arising from these movements is not recognised in the consolidated income statement as it is also recognised in other comprehensive income.

(iii)       Measurement - insurance and participating investment contract liabilities

For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for measurement purposes, of accounting policies that were being used at the date of transition to IFRS, except where a change is deemed to make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable, and no less relevant to those needs. Therefore the Group applies accounting policies determined in accordance with the ABI SORP as described below. As was permitted under the ABI SORP, the Group adopts local regulatory valuation methods, adjusted for consistency with asset measurement policies, for the measurement of liabilities under insurance contracts and participating investment contracts issued by overseas subsidiaries.          

(iv)       Measurement - participating contract liabilities

Participating contract liabilities are analysed into the following components:

·   Participating insurance contract liabilities

·   Participating investment contract liabilities

·   Present value of future profits on non-participating contracts, which is treated as a deduction from gross participating contract liabilities

·   Unallocated divisible surplus

The policy for measuring each component is noted below.

Participating insurance and investment contract liabilities

Participating contract liabilities arising under contracts issued by with profits funds which were within the scope of the Prudential Regulation Authority (PRA) realistic capital regime prior to the introduction of Solvency II are measured on the PRA realistic basis that was used in the PRA realistic capital regime. Under this approach, the value of participating insurance and participating investment contract liabilities in each with profits fund is calculated as:

·   With profits benefits reserves (WPBR) for the fund as determined under the PRA realistic basis, plus

·   Future policy related liabilities (FPRL) for the fund as determined under the PRA realistic basis, less

·   Any amounts due to equity holders included in FPRL, less

·   The portion of future profits on non-participating contracts included in FPRL not due to equity holders, where this portion can be separately identified

The WPBR is primarily based on the retrospective calculation of accumulated asset shares. The aggregate value of individual policy asset shares reflects the actual premium, expense and charge history of each policy. The net investment return credited to the asset shares is consistent with the return achieved on the assets notionally backing participating business. Any mortality deductions are based on published mortality tables adjusted where necessary for experience variations. For those asset shares on an expense basis, the allowance for expenses attributed to the asset share is, as far as practical, the appropriate share of the actual expenses incurred or charged to the fund. For those on a charges basis, the allowance is consistent with the charges for an equivalent unit linked policy. The FPRL comprises other components such as a market consistent stochastic valuation of the cost of options and guarantees.

The Group's principal with profits fund is the Heritage With Profits Fund (HWPF) operated by Standard Life Assurance Limited (SLAL). The participating contracts held in the HWPF were issued by a with profits fund that fell within the scope of the PRA realistic capital regime. Under the Scheme of Demutualisation (the Scheme), the residual estate of the HWPF exists to meet amounts which may be charged to the HWPF under the Scheme. However, to the extent that SLAL's board is satisfied that there is an excess residual estate, it shall be distributed over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. This planned enhancement to the benefits under with profits contracts held in the HWPF is included in the FPRL under the PRA realistic basis, resulting in a realistic surplus of nil. Applying the policy noted above, this planned enhancement is therefore included within the measurement of participating contract liabilities.

The Scheme provides that certain defined cash flows (recourse cash flows) arising in the HWPF on specified blocks of UK and Ireland business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the Shareholder Fund (SHF) or the Proprietary Business Fund (PBF) of SLAL, and thus accrue to the ultimate benefit of equity holders of the Company. Under the Scheme, such transfers are subject to certain constraints in order to protect policyholders. The Scheme also provides for additional expenses to be charged by the PBF to the HWPF in respect of Germany branch business in SLAL.

Under the PRA realistic basis, the discounted value of expected future cash flows on participating contracts not reflected in the WPBR is included in FPRL (as a reduction in FPRL where future cash flows are expected to be positive). The discounted value of expected future cash flows on non-participating contracts not reflected in the measure on non-participating liabilities is recognised as a separate asset (where future cash flows are expected to be positive). The Scheme requirement to transfer future recourse cash flows out of the HWPF is recognised as an addition to FPRL. The discounted value of expected future cash flows on non-participating contracts can be apportioned between those included in the recourse cash flows and those retained in the HWPF for the benefit of policyholders.

Applying the policy noted above:

·   The value of participating insurance and participating investment contract liabilities is reduced by future expected (net positive) cash flows arising on participating contracts

·   Future expected cash flows on non-participating contracts are not recognised as an asset of the HWPF. However, future expected cash flows on non-participating contracts that are not recourse cash flows under the Scheme are used to adjust the value of participating insurance and participating investment contract liabilities.

Some participating contract liabilities arise under contracts issued by a non-participating fund with a with profits investment element then transferred to a with profits fund within SLAL that fell within the scope of the PRA's realistic capital regime. The with profits investment element of such contracts is measured as described above. In particular the expected future cash flows included in the FPRL reflect the transfer of charges to the non-participating fund only to the extent that solvency of the with profit fund on the realistic basis is maintained. Any liability for insurance features retained in the non-participating fund is measured using the gross premium method applicable to non-participating contracts (see policy (v)).

Present value of future profits (PVFP) on non-participating contracts held in a with profits fund

This applies only to the HWPF as no other with profits funds hold non-participating contracts. An amount is recognised for the PVFP on non-participating contracts since the determination of the realistic value of liabilities for with profits contracts in the HWPF takes account of this value. The amount is recognised as a deduction from liabilities. As this amount can be apportioned between an amount recognised in the realistic value of with profits contract liabilities and an amount recognised in UDS, the apportioned amounts are reflected in the measurement of participating contract liabilities and UDS respectively.

Unallocated divisible surplus (UDS)

The UDS comprises the difference between the assets and all other recognised liabilities in the Group's with profits funds. This amount is recognised as a liability as it is not considered to be allocated to shareholders due to uncertainty regarding transfers from these funds to equity holders.

In relation to the HWPF, amounts are considered to be allocated to equity holders when they emerge as recourse cash flows within the HWPF.

As a result of the policies for measuring the HWPF's assets and all its other recognised liabilities:

·   The UDS of the HWPF comprises the value of future recourse cash flows in participating contracts (but not the value of future recourse cash flows on non-participating contracts), the value of future additional expenses to be charged on Germany branch business and the effect of any measurement differences between the Realistic Balance Sheet value and IFRS accounting policy value of all assets and all liabilities other than participating contract liabilities recognised in the HWPF

·   The recourse cash flows are recognised as they emerge as an addition to equity holders' profits if positive or as a deduction if negative. As the additional expenses are charged in respect of the Germany branch business, they are recognised as an addition to equity holders' profits.

(v)        Measurement - non-participating insurance contract liabilities

Pensions and Savings

The liability for annuity in payment contracts is measured by discounting the expected future annuity payments together with an appropriate estimate of future expenses at an assumed rate of interest derived from yields on the underlying assets.

Other non-participating insurance contracts are measured using the gross premium method. In general terms, a gross premium valuation basis is one in which the premiums brought into account are the full amounts receivable under the contract. The method includes explicit estimates of premiums, expected claims and costs of maintaining contracts. Cash flows are discounted at the valuation rate of interest determined to reflect conditions at the reporting date in accordance with Prudential Regulation Authority (PRA) requirements that existed at 31 December 2015.

India and China

The Group's policy for measuring liabilities for non-participating insurance contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity's local statutory or regulatory reporting.

(vi)       Measurement - liability adequacy test

The Group applies a liability adequacy test at each reporting date to ensure that the insurance and participating contract liabilities (less related deferred acquisition costs) are adequate in the light of the estimated future cash flows. This test is performed by comparing the carrying value of the liability and the discounted projections of future cash flows. 

If a deficiency is found in the liability (i.e. the carrying value amount of its insurance liabilities is less than the future expected cash flows), that deficiency is provided for in full. The deficiency is recognised in the consolidated income statement.

(vii)      Reinsurance contracts

Contracts with reinsurers are assessed to determine whether they contain significant insurance risk. Contracts that do not give rise to a significant transfer of insurance risk to the reinsurer are considered financial reinsurance and are accounted for and disclosed in a manner consistent with financial instruments.

Contracts that give rise to a significant transfer of insurance risk to the reinsurer are assessed to determine whether they contain an element that does not transfer significant insurance risk and which can be measured separately from the insurance component. Where such elements are present, they are accounted for separately with any deposit element being accounted for and disclosed in a manner consistent with financial instruments. The remaining elements, or where no such separate elements are identified, the entire contracts, are classified as reinsurance contracts.

Reinsurance contracts are measured using valuation techniques and assumptions that are consistent with the valuation techniques and assumptions used in measuring the underlying policy benefits and taking into account the terms of the reinsurance contract.

Reinsurance recoveries due from reinsurers and reinsurance premiums due to reinsurers under reinsurance contracts that are contractually due at the reporting date are separately recognised in receivables and other financial assets and other financial liabilities respectively unless a right of offset exists, in which case the net amount is reported on the consolidated statement of financial position.

(a)        Insurance contracts and participating investment contracts

		2016	2015
		£m	£m
Non-participating insurance contract liabilities		23,422	21,206
Participating contract liabilities:
Participating insurance contract liabilities		15,151	14,283
Participating investment contract liabilities		15,537	14,716
Unallocated divisible surplus		585	655
Participating contract liabilities		31,273	29,654

(b)        Change in liabilities and reinsurance contracts

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

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2016	£m	£m	£m	£m	£m	£m
At 1 January	14,283	21,206	14,716	50,205	(5,515)	44,690
Expected change	(1,335)	(662)	(881)	(2,878)	374	(2,504)
Methodology/modelling changes	(45)	1	3	(41)	53	12
Effect of changes in
Economic assumptions	(465)	1,901	194	1,630	(384)	1,246
Non-economic assumptions	(23)	(104)	47	(80)	50	(30)
Effect of
Economic experience	1,193	413	1,426	3,032	41	3,073
Non-economic experience	88	(358)	(106)	(376)	6	(370)
New business	-	794	34	828	-	828
Total change in contract liabilities	(587)	1,985	717	2,115	140	2,255
Foreign exchange adjustment	1,455	231	104	1,790	(11)	1,779
At 31 December	15,151	23,422	15,537	54,110	(5,386)	48,724

Due to changes in economic and non-economic factors, certain assumptions used in estimating insurance and investment contract liabilities have been revised. Therefore, the change in liabilities reflects actual performance over the year, changes in assumptions and, to a limited extent, improvements in modelling techniques.

Non-economic assumptions net of reinsurance decrease of £30m primarily relates to changes in mortality assumptions for non-participating insurance contract liabilities. 

Economic assumptions reflects changes in fixed income yields, leading to lower valuation interest rates for non-participating business, and other market movements. Economic assumptions also include the effect of a change in the discount rate used to measure the liability for non-participating insurance contract liabilities resulting from a change in the way assets are hypothecated between participating and non-participating business in the HWPF. This change has resulted in an increase in non-participating insurance contract liabilities, fully offset by a decrease in participating liabilities.

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2015	£m	£m	£m	£m	£m	£m
At 1 January	15,397	21,841	15,191	52,429	(6,036)	46,393
Expected change	(1,042)	(808)	(902)	(2,752)	388	(2,364)
Methodology/modelling changes	17	19	(22)	14	(3)	11
Effect of changes in
Economic assumptions	148	(491)	(17)	(360)	101	(259)
Non-economic assumptions	(225)	(47)	182	(90)	8	(82)
Effect of
Economic experience	315	129	152	596	11	607
Non-economic experience	107	(378)	142	(129)	15	(114)
New business	37	964	27	1,028	-	1,028
Total change in contract liabilities	(643)	(612)	(438)	(1,693)	520	(1,173)
Foreign exchange adjustment	(471)	(23)	(37)	(531)	1	(530)
At 31 December	14,283	21,206	14,716	50,205	(5,515)	44,690

(c)        Movement in components of unallocated divisible surplus (UDS)

The movement in UDS was as follows:

		2016	2015
		£m	£m
At 1 January		655	688
Change in UDS recognised in the consolidated income statement		53	(117)
Change in UDS recognised in other comprehensive income		67	3
Foreign exchange adjustment		(190)	81
At 31 December		585	655

(d)        Expected settlement and recovery 

An indication of the term to contracted maturity/repricing date for insurance and investment contract liabilities is given in Note 41. Reinsurance contracts are generally structured to match liabilities on a class of business basis. This has a mixture of terms. The reinsurance assets are therefore broadly expected to be realised in line with the settlement of liabilities (as per the terms of the particular treaty) within a reinsured class of business.

Estimates and assumptions

The determination of the valuation interest rates, longevity and mortality assumptions, and expense assumptions are all key accounting estimates.

The principal assumptions are shown in the following tables:

(i)         Non-participating insurance contracts

Pensions and Savings

For non-participating insurance contracts, the assumptions used to determine the liabilities are updated at each reporting date to reflect recent experience. Material judgement is required in calculating these liabilities and, in particular, in the choice of assumptions about which there is uncertainty over future experience. These assumptions are determined as appropriate estimates at the date of valuation. The basis is considered prudent in each aspect. In particular, options and guarantees have been provided for on prudent bases.

The principal assumptions for the main UK non-participating insurance contracts are as follows:

Valuation interest rates

The valuation interest rates used are determined in accordance with the Prudential Regulation Authority's Integrated Prudential Sourcebook that existed at 31 December 2015. The process used to determine the valuation interest rates used in the calculation of the liabilities comprises three stages: determining the current yield on the assets held after allowing for risk and tax, hypothecating the assets to various types of policy and determining the discount rates from the hypothecated assets.

For corporate bonds, a deduction is made for the risk of default which varies by the quality of asset and the credit spread at the valuation date. The yield for each category of asset is taken as the average adjusted yield weighted by the market value of each asset in that category except for UK and Ireland annuity business and Germany non-participating insurance business within the PBF where the internal rate of return of the assets backing the liabilities is used.

The valuation interest rates used are:

Non-participating	2016	2015
1. Business held within the PBF
Annuities: Individual and group
Life	2.06%	3.05%
Pensions	2.06%	3.05%
Linked to RPI	(1.55%)	(0.47%)
2. Business held within the HWPF
Annuities: Individual and group
Non-linked
Life	0.20%	2.30%
Pensions: reinsured externally	1.55%	2.35%
Pensions: not reinsured externally	1.15%	2.80%
Deferred annuities	1.15%	2.80%
Linked to RPI
Reinsured externally	(1.85%)	(0.60%)
Not reinsured externally	(2.10%)	(0.45%)
Deferred annuities	(2.10%)	(1.00%)

Mortality rates

The future mortality assumptions are based on historical experience, with an allowance for future mortality improvement in annuities. The Group's own mortality experience is regularly assessed and analysed, and the larger industry-wide investigations are also taken into account.

Mortality tables used	2016	2015
Annuities
Individual and group in deferment	Males: 64.7% AMC00	Males: 67.0% AMC00
	Females: 65.7% AFC00	Females: 65.2% AFC00
Individual after vesting (business written after 10 July 2006)	Males: 91.2% RMC00	Males: 92.6% RMC00
	Females: 99.9% RFC00	Females: 100.3% RFC00
Individual after vesting (business written prior to 10 July 2006)	Males: 95.7% RMC00	Males: 97.1% RMC00
	Females: 104.7% RFC00	Females: 104.0% RFC00
Group after vesting (business written after 10 July 2006)	Males: 109.8% RMV00	Males: 112.1% RMV00
	Females: 118.3% WA00	Females: 119.9% WA00
Group after vesting (business written prior to 10 July 2006)	Males: 109.3% RMV00	Males: 111.6% RMV00
	Females: 120.1% WA00	Females: 120.8% WA00

In the valuation of the liabilities in respect of annuities and deferred annuities issued in the UK, allowance is made for future improvements in the rates of mortality. For 2016, this is based on the Standard Life Assurance Limited (SLAL) parameterisation of the CMI_2014 model with long-term improvement rates of 1.8% for males and 1.5% for females. The Continuous Mortality Investigation Bureau (CMI) is a body funded by the UK insurance and reinsurance industry that produce industry standard mortality tables and projection bases for mortality improvements. CMI_2014 is a model that was published towards the end of 2014.

At 2015, this was based on the Standard Life Assurance Limited (SLAL) parameterisation of the CMI_2013 model with long-term improvement rates of 1.8% for males and 1.5% for females. CMI_2013 is a model that was published towards the end of 2013.

The SLAL parameterisation of the CMI_2013 and CMI_2014 models make the following changes relative to the 'core' model:

·   Blends period improvements between ages 60 to 80 to the long-term improvement rate over a 15 year period (compared with a 20 year period in the core CMI model)

·   Assumes that cohort improvements dissipate over a 30 year period, or by age 90 if earlier (compared with a 40 year period, or by age 100 if earlier, in the core CMI model)

·   For contingent spouses' benefits an assumption is also made with regard to the proportions married, based on SLAL's historic experience

Expenses

The assumptions for future policy expense levels are determined from the Group's recent expense analyses. No allowance has been made for potential expense improvement and the costs of projects to improve expense efficiency have been ignored. The assumed future expense levels incorporate an annual inflation rate allowance of 3.79% (2015: 3.12%) for UK business derived from the expected RPI implied by current investment yields and an additional allowance for earnings inflation.

For non-participating immediate and deferred annuity contracts, an explicit allowance for maintenance expenses is included in the liabilities. An allowance for investment expenses is reflected in the valuation rate of interest.

In calculating the liabilities for unitised regular premium non-participating insurance contracts, the administration expenses are assumed to be identical to the expense charges made against each policy. Similar assumptions are made, where applicable, in respect of mortality, morbidity and the risk benefit charges made to meet such costs.

Withdrawals

For non-participating insurance business appropriate allowances are made for withdrawals on certain term assurance contracts.

Ireland

The assumptions for business in Ireland are derived in a similar manner to those above.

(ii)        Sensitivity analysis

Refer to Note 41 for sensitivity analysis for the shareholder business.

34.    Non-participating investment contracts

Unit linked non-participating investment contracts are separated into two components being an investment management services component and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services component (refer to Note 5, Note 17 and Note 38). The financial liability component is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets.

Contributions received on non-participating investment contracts are treated as policyholder deposits and not reported as revenue in the consolidated income statement.

Withdrawals paid out to policyholders on non-participating investment contracts are treated as a reduction to policyholder deposits and not recognised as expenses in the consolidated income statement.

Investment return and related benefits credited in respect of non-participating investment contracts are recognised in the consolidated income statement as changes in investment contract liabilities.

The change in non-participating investment contract liabilities was as follows:

		2016	2015
	Notes	£m	£m
At 1 January		92,894	88,207
Contributions		10,776	12,561
Account balances paid on surrender and other terminations in the year		(10,737)	(10,564)
Change in non-participating investment contract liabilities recognised in the consolidated income statement		8,768	3,363
Recurring management charges		(473)	(450)
Foreign exchange adjustment		835	(223)
At 31 December	35	102,063	92,894

35.    Financial liabilities

Management determines the classification of financial liabilities at initial recognition. The majority of the Group's financial liabilities are designated as fair value through profit or loss (FVTPL). The methods and assumptions used to determine fair value of financial liabilities designated at FVTPL are discussed in Note 43. Financial liabilities which are not derivatives and not FVTPL are financial liabilities measured at amortised cost.

		Designated as at fair value through profit or loss	Held for trading	Financial liabilities measured at amortised cost	Total
2016	Notes	£m	£m	£m	£m
Non-participating investment contract liabilities	41	102,059	-	4	102,063
Deposits received from reinsurers	41	-	-	5,093	5,093
Third party interest in consolidated funds	41	16,835	-	-	16,835
Subordinated liabilities	36	-	-	1,319	1,319
Derivative financial liabilities	23	-	965	-	965
Other financial liabilities	39	15	-	3,901	3,916
Total		118,909	965	10,317	130,191

		Designated as at fair value through profit or loss	Held for trading	Financial liabilities measured at amortised cost	Total
2015	Notes	£m	£m	£m	£m
Non-participating investment contract liabilities	41	92,890	-	4	92,894
Deposits received from reinsurers	41	-	-	5,134	5,134
Third party interest in consolidated funds	41	17,196	-	-	17,196
Subordinated liabilities	36	-	-	1,318	1,318
Derivative financial liabilities	23	-	1,254	-	1,254
Other financial liabilities	39	-	-	2,900	2,900
Total		110,086	1,254	9,356	120,696

36.    Subordinated liabilities

Subordinated liabilities are debt instruments issued by the Company which rank below its other obligations in the event of liquidation but above the share capital. All of the Group's subordinated liabilities are classified as liabilities on the consolidated statement of financial position as discussed further below. Subordinated liabilities are initially recognised at the value of proceeds received after deduction of issue expenses. Subsequent measurement is at amortised cost using the effective interest rate method.

		2016		2015
		Principal amount	Carrying value	Principal amount	Carrying value
	Notes	£m	£m	£m	£m
Subordinated notes
5.5% Sterling fixed rate due 4 December 2042		500	499	500	499
Subordinated guaranteed bonds
6.75% Sterling fixed rate perpetual		500	502	500	502
Mutual Assurance Capital Securities
6.546% Sterling fixed rate perpetual		300	318	300	317
Total subordinated liabilities	41		1,319		1,318

The difference between the fair value and carrying value of the subordinated liabilities is presented in Note 43.

The principal amount of all subordinated liabilities is expected to be settled after more than 12 months and accrued interest of £37m (2015: £37m) is expected to be settled within 12 months.

Amounts due under the perpetual subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) are classified as liabilities. This classification is determined by the interaction of these arrangements with a £100 internal subordinated loan note issued by Standard Life Assurance Limited (SLAL) to the Company on 10 July 2006. There is no fixed redemption date for the internal loan note, but interest payments cannot be deferred and must be paid on the date they become due and payable. Under the terms for the subordinated guaranteed bonds and MACS any interest deferred on these instruments becomes immediately due and payable on the date of an interest payment in respect of the internal loan note. The existence of the internal loan note therefore removes the discretionary nature of the interest payments on the subordinated guaranteed bonds and MACS, and results in their classification as liabilities. Under IAS 32 Financial Instruments: Presentation, if the Group were to cancel the internal loan note then this would result in the reclassification of these perpetual instruments from liabilities to equity instruments at that point.

A description of the key features of the Group's subordinated liabilities is as follows:

	5.5% Sterling fixed rate	6.75% Sterling fixed rate	6.546% Sterling fixed rate
Principal amount	£500,000,000	£500,000,000	£300,000,000
Issue date	4 December 2012	12 July 2002	4 November 2004
Maturity date	4 December 2042	Perpetual	Perpetual
Callable at par at option of the Company from	4 December 2022 and on every interest payment date (semi-annually) thereafter	12 July 2027 and on every fifth anniversary thereafter	6 January 2020 and on every anniversary thereafter
If not called by the Company interest will reset to	4.85% over the five year gilt rate (and at each fifth anniversary)	2.85% over the gross redemption yield on the appropriate 5 year benchmark gilt rate	2.7% over the gross redemption yield on the appropriate 1 year benchmark gilt rate
Solvency II own funds treatment	Tier 2	Tier 1	Tier 1

37.    Pension and other post-retirement benefit provisions

The Group operates two types of pension plans:

·   Defined benefit plans which provide pension payments upon retirement to members as defined by the plan rules

·   Defined contribution plans where the Group makes contributions to a member's pension plan but has no further payment obligations once the contributions have been paid

The Group's liabilities in relation to its defined benefit plans are valued by at least annual actuarial calculations. The Group has funded these liabilities in relation to its principal defined benefit plans by ring-fencing assets in trustee-administered funds. The Group has a further smaller defined benefit plan which is unfunded.

The statement of financial position reflects a net asset or net liability for each defined benefit pension plan. The liability recognised is the present value of the defined benefit obligation (estimated future cash flows are discounted using the yields on high quality corporate bonds) less the fair value of plan assets, if any. If the fair value of the plan assets exceeds the defined benefit obligation, a pension surplus is only recognised if the Group considers that it has an unconditional right to a refund. The amount of surplus recognised will be limited by tax and expenses. Our judgement is that, in the UK, an authorised surplus tax charge is not an income tax. Consequently, the surplus is recognised net of this tax charge rather than the tax charge being included within deferred taxation.

For the UK defined benefit plan, the Group considers that it has an unconditional right to a refund of a surplus, assuming the gradual settlement of the plan liabilities over time until all members have left the plan. The plan trustees can purchase annuities to insure member benefits and can, for the majority of benefits, transfer these annuities to members. The trustees cannot unconditionally wind up the plan or use the surplus to enhance member benefits without employer consent. Our judgement is that these trustee rights do not prevent us from recognising an unconditional right to a refund and therefore a surplus.

The IASB are expected to publish an amendment to pension accounting (IFRIC 14) during 2017. This amendment, once effective in future accounting periods, may impact the recognition of the UK pension fund surplus. Management will consider the implications of the amendment once it has been published.

Net interest income (if a plan is in surplus) or interest expense (if a plan is in deficit) is calculated using yields on high quality corporate bonds and recognised in the consolidated income statement. A current service cost is also recognised which represents the expected present value of the defined benefit pension entitlement earned by members in the period.

Remeasurements, which include gains and losses as a result of changes in actuarial assumptions, the effect of the limit on the plan surplus and returns on plan assets (other than amounts included in net interest) are recognised in other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

For defined contribution plans, the Group pays contributions to separately administered pension plans. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised in current service cost in the consolidated income statement as staff costs and other employee-related costs when they are due.

	Defined benefit	Defined contribution
UK	The Group's largest defined benefit plan is for employees based in the UK. It closed to new entrants in November 2004 and changed from a final salary basis to a revalued career average salary basis in 2008. The UK staff defined benefit pension plan was closed to future accrual in April 2016. Since April 2016, all UK employees accrue pension through a defined contribution plan. The defined benefit plan is governed by a trustee board which comprises both employer and employee nominated trustees and an independent trustee. The plan is subject to the statutory funding objective requirements of the Pensions Act 2004. The objective requires that the plan is funded to at least the level of its technical provisions (an actuarial estimate of the assets needed to provide for benefits already built-up under the plan). The trustees perform regular valuations to check that the statutory funding objective continues to be met. The trustees, after consulting with the employer, prepare statements of funding and investment principles and, based on the funding valuation, set out future contributions in a schedule of contributions including a recovery plan, if needed, to restore funding to the level of the technical provisions. No recovery plan is currently required. In their last formal valuation, as at 31 December 2013, the trustees measured the ratio of plan assets to technical provisions to be 112%. The valuation as at 31 December 2016 is currently being completed. The trustees set the plan investment strategy to protect the ratio of plan assets to the trustees' measure of technical provisions. This investment strategy does not aim to protect the IAS 19 surplus or the ratio of plan assets to the IAS 19 measure of liabilities. Falling bond yields over the period, in part due to the result of the EU referendum on 23 June 2016, have led to a significant increase in the IAS 19 surplus. However, the ratio of plan assets to the IAS 19 liabilities has remained relatively stable.	Since April 2016 the Group contributes 12% of pensionable salary to each employee's plan plus a further employer contribution (matching employee contributions) of up to 4%. Prior to this the Group contributed 9% of pensionable salary to each employee's plan. Separate arrangements exist for some employees e.g. those in the executive job family.

	Defined benefit	Defined contribution
Other	The defined benefit plan for employees based in Ireland has been closed to new entrants from 31 December 2009, with future accrual from that point on a career average revalued earnings (CARE) basis.   At the last actuarial valuation effective 1 January 2016 the plan was 70% funded on an ongoing basis. The Group also operates a small unfunded defined benefit plan for employees in Germany.	The Group contributes 9% of members' pensionable salaries to a group flexible retirement plan.

Plan regulations

The plans are administered according to local regulations in each country. Responsibility for the governance of the plans rests with the relevant trustee boards (or equivalent). Trustee boards comprise a mixture of company nominated, member nominated and independent representatives.

Contributions to defined benefit plans

			2016	2015
			£m	£m
UK			2	3
Other			2	1
Canada			-	1

Expected contributions to the defined benefit plans in 2017 are £4m.

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

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

		2016	2015
	Notes	£m	£m
Current service cost		(49)	(80)
Interest income		33	30
Administrative expenses		(3)	(2)
Expense recognised in the consolidated income statement	8	(19)	(52)

Contributions made to defined contribution plans are included within current service cost, with the balance attributed to the Group's defined benefit plans.

During 2015 the terms of a plan amendment to the UK defined benefit plan were agreed which resulted in closure to future accrual from April 2016. This plan amendment did not generate a past service cost. Eligible members of the defined benefit plan received an additional contribution of 6% of pensionable salary into the defined contribution plan in April 2015 and April 2016. These contributions were accrued over the vesting period and are included in current service cost and in the cost of defined contribution plans in Note 8.

(b)        Analysis of amounts recognised in the consolidated statement of financial position

	2016			2015
	UK	Other	Total	UK	Other	Total
	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(3,207)	(117)	(3,324)	(2,525)	(85)	(2,610)
Present value of unfunded obligation	-	(10)	(10)	-	(8)	(8)
Fair value of plan assets	4,927	72	4,999	3,936	60	3,996
Effect of limit on plan surplus	(627)	-	(627)	(514)	-	(514)
Net asset/(liability)	1,093	(55)	1,038	897	(33)	864

The UK plan surplus is considered to be recoverable as a right to a refund exists. The surplus has been reduced to reflect an authorised surplus payments charge that would arise on a refund.

(c)        Movement in the net defined benefit asset

	Present value of obligation	Fair value of plan assets	Total	Effect of limit on plan surpluses	Total
2016	£m	£m	£m	£m	£m
At 1 January	(2,618)	3,996	1,378	(514)	864
Total expense
Current service cost	(16)	-	(16)	-	(16)
Interest (expense)/income	(93)	144	51	(18)	33
Administrative expenses	(3)	-	(3)	-	(3)
Total (expense)/income recognised in consolidated income statement	(112)	144	32	(18)	14
Remeasurements
Return on plan assets, excluding amounts included in interest income	-	1,036	1,036	-	1,036
Gain from change in demographic assumptions	-	-	-	-	-
Loss from change in financial assumptions	(812)	-	(812)	-	(812)
Experience gains	33	-	33	-	33
Change in effect of limit on plan surplus	-	-	-	(95)	(95)
Remeasurement (losses)/gains recognised in other comprehensive income	(779)	1,036	257	(95)	162
Exchange differences	(15)	9	(6)	-	(6)
Employer contributions	-	4	4	-	4
Benefit payments	190	(190)	-	-	-
At 31 December	(3,334)	4,999	1,665	(627)	1,038

	Present value of obligation	Fair value of plan assets	Total	Effect of limit on plan surpluses	Total
2015	£m	£m	£m	£m	£m
At 1 January	(2,922)	4,052	1,130	(414)	716
Total expense
Current service cost	(53)	-	(53)	-	(53)
Interest (expense)/income	(101)	131	30	-	30
Administrative expenses	(2)	-	(2)	-	(2)
Total expense recognised in consolidated income statement	(156)	131	(25)	-	(25)
Remeasurements
Return on plan assets, excluding amounts included in interest income	-	(73)	(73)	-	(73)
Gain from change in demographic assumptions	-	-	-	-	-
Gain from change in financial assumptions	225	-	225	-	225
Experience gains	115	-	115	-	115
Change in effect of limit on plan surplus	-	-	-	(100)	(100)
Remeasurement gains/(losses) recognised in other comprehensive income	340	(73)	267	(100)	167
Exchange differences	5	(3)	2	-	2
Employer contributions	-	4	4	-	4
Benefit payments	115	(115)	-	-	-
At 31 December	(2,618)	3,996	1,378	(514)	864

(d)        Defined benefit plan assets

Investment strategy is directed by the relevant trustee boards who pursue different strategies according to the characteristics and maturity profile of each plan's liabilities. Assets and liabilities are managed holistically to create a portfolio with the dual objectives of return generation and liability management. This is achieved through a diversified multi-asset absolute return strategy seeking consistent positive returns, and hedging techniques which protect liabilities against movements arising from changes in interest rates and inflation expectations. Derivative financial instruments support both of these objectives and may lead to increased or decreased exposures to the physical asset categories disclosed below.

To provide more information on the approach used to determine and measure the fair value of the plan assets, the fair value hierarchy has been used as defined in Note 43. Those assets which cannot be classified as level 1 have been presented together as level 2 or 3.

The distribution of the fair value of the assets of the Group's funded defined benefit plans at 31 December 2016 is as follows:

	UK		Other		Total
	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m
Assets measured at fair value based on level 1 inputs
Derivatives	16	7	-	-	16	7
Equity securities and interests in pooled investment funds	982	850	54	48	1,036	898
Debt securities	3,357	2,029	-	-	3,357	2,029
Total assets measured at fair value based on level 1 inputs	4,355	2,886	54	48	4,409	2,934
Assets measured at fair value based on level 2 or 3 inputs
Derivatives	324	(9)	-	(3)	324	(12)
Equity securities and interests in pooled investment funds	163	185	-	-	163	185
Debt securities	190	589	-	-	190	589
Qualifying insurance policies	5	4	-	-	5	4
Total assets measured at fair value based on level 2 or 3 inputs	682	769	-	(3)	682	766
Cash and cash equivalents	186	281	18	15	204	296
Liability in respect of collateral held	(292)	-	-	-	(292)	-
Other	(4)	-	-	-	(4)	-
Total	4,927	3,936	72	60	4,999	3,996

Investment strategy risks include underperformance of the absolute return strategy and underperformance of the liability hedging strategy. As the trustees set investment strategy to protect their own view of plan strength (not the IAS 19 position), changes in the IAS 19 liabilities (e.g. due to movements in corporate bond prices) may not always result in a similar movement in plan assets. Further information on risks is provided in section (g) of this note. The £3,547m (2015: £2,618m) of debt securities includes £3,357m (2015: £2,068m) government bonds (including conventional and index-linked). Of the remaining £190m (2015: £550m) debt securities, £169m (2015: £532m) are investment grade corporate bonds or certificates of deposit.

Defined benefit plans also use pooled investment vehicles to access a variety of asset classes in an efficient way. The underlying assets of the pooled investment vehicles include, but are not limited to, cash, equity securities, property, debt securities and absolute return portfolios.

(e)        Estimates and assumptions

Determination of the valuation of plan liabilities is a key estimate as a result of the assumptions made relating to both economic and non-economic factors.

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

	2016	2015
	%	%
Discount rate	2.70	3.70
Rates of inflation
Consumer Price Index (CPI)	2.25	2.15
Retail Price Index (RPI)	3.25	3.15

The most significant non-economic assumption is post-retirement longevity which is inherently uncertain. The assumptions (along with sample expectations of life) are illustrated below:

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

			Normal Retirement Age (NRA)	Expectation of life from NRA
				Male age today		Female age today
2015	Table	Improvements		NRA	40	NRA	40
	Plan specific basis (calibrated by Club Vita) reflecting membership demographics	Advanced parameterisation of CMI 2011 mortality improvements model - adjusted to assume that improvements continue to increase in the short-term before declining toward an ultimate long-term rate of 1.375%	60	30	32	32	34

(f)         Duration of defined benefit obligation

The graph below provides an illustration of the undiscounted expected benefit payments included in the valuation of the UK plan obligations. Graph removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

	2016	2015
Weighted average duration	years	years
Current pensioner	19	17
Non-current pensioner	29	27

(g)        Risk

(g)(i)     Risks and mitigating actions

The Group's consolidated statement of financial position is exposed to movements in the defined benefit plans' net asset. In particular, the consolidated statement of financial position could be materially sensitive to reasonably likely movements in the principal assumptions for the UK plan. By offering post-retirement defined benefit pension plans the Group is exposed to a number of risks. An explanation of the key risks and mitigating actions in place for the UK plan is given below.

Asset volatility

Failure of the asset strategy to keep pace with changes in plan liabilities would expose the plan to the risk of a deficit developing, which could increase funding requirements for the Group.

Yields/discount rate

Falls in yields would in isolation be expected to increase the defined benefit plan liabilities.

The UK plan uses both bonds and derivatives to hedge out yield risks on the plan's funding basis, rather than the IAS 19 basis, which is expected to minimise the plan's need to rely on support from the Group.

Inflation

Rises in inflation expectations would in isolation be expected to increase the defined benefit plan liabilities.

The UK plan uses both bonds and derivatives to hedge out inflation risks on the plan's funding basis, rather than the IAS 19 basis, which is expected to minimise the plan's need to rely on support from the Group.

In the UK plan pensions in payment are generally linked to CPI, however inflationary risks are hedged using RPI instruments due to lack of availability of CPI linked instruments. Therefore, the plan is exposed to movements in the actual and expected long-term gap between RPI and CPI.

Life expectancy

Increases in life expectancy beyond those currently assumed will lead to an increase in plan liabilities. Regular reviews of longevity assumptions are performed to ensure assumptions remain appropriate.

(g)(ii)    Sensitivity to principal assumptions

The sensitivity of the UK defined benefit plan's net assets to the principal assumptions is disclosed below.

			2016		2015
	Change in assumption		(Increase)/decrease in present value of obligation	Increase/(decrease) in fair value of plan assets	(Increase)/decrease in present value of obligation	Increase/(decrease) in fair value of plan assets
			£m	£m	£m	£m
Yield/discount rate	Decrease by 1%		(1,040)	1,768	(729)	1,312
	Increase by 1%		739	(1,226)	526	(896)
Rates of inflation	Decrease by 1%		629	(1,089)	459	(823)
	Increase by 1%		(912)	1,553	(635)	1,178
Life expectancy	Decrease by 1 year		101	-	55	-
	Increase by 1 year		(101)	-	(55)	-

38.    Deferred income

Where the Group receives fees in advance (front-end fees) for services it is providing, including investment management services, these fees are initially recognised as a deferred income liability and released to the consolidated income statement on a straight line basis over the period services are provided.

		2016	2015
	Notes	£m	£m
At 1 January		236	276
Additions during the year	5	15	25
Amortised to the consolidated income statement as fee income	5	(61)	(63)
Foreign exchange adjustment		8	(2)
At 31 December		198	236

The amount of deferred income expected to be settled after more than 12 months is £148m (2015: £178m).

39.    Other financial liabilities

		2016	2015
	Notes	£m	£m
Amounts payable on direct insurance business		368	340
Amounts payable on reinsurance contracts		6	7
Outstanding purchases of investment securities		300	180
Accruals		379	403
Creation of units awaiting settlement		251	174
Cash collateral held in respect of derivative contracts	41	2,016	1,166
Bank overdrafts	27	38	49
Property related liabilities		246	223
Contingent consideration liabilities	43	15	-
Other		297	358
Other financial liabilities		3,916	2,900

The amount of other financial liabilities expected to be settled after more than 12 months is £211m (2015: £79m).

40.    Provisions and other liabilities

Provisions are obligations of the Group which are of uncertain timing or amount. They are recognised when the Group has a present obligation as a result of a past event, it is probable that a loss will be incurred in settling the obligation and a reliable estimate of the amount can be made.

(a)        Provisions

The movement in provisions during the year is as follows:

	Provision for annuity sales practices	Legal provisions	Other provisions	Total provisions
2016	£m	£m	£m	£m
At 1 January	-	14	34	48
Charged/(credited) to the consolidated income statement
Additional provisions	175	-	18	193
Release of unused provision	-	(1)	(1)	(2)
Used during the year	-	-	(16)	(16)
Foreign exchange adjustment	-	3	1	4
At 31 December	175	16	36	227

	Legal provisions	Other provisions	Total provisions
2015	£m	£m	£m
At 1 January	1	19	20
Charged/(credited) to the consolidated income statement
Additional provisions	13	16	29
Release of unused provision	-	-	-
Used during the year	-	(1)	(1)
At 31 December	14	34	48

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

The amount of provisions expected to be settled after more than 12 months is £106m (2015: £35m).

Provision for annuity sales practices relating to enhanced annuities

The Group has established a provision of £175m (2015: £nil) for annuity sales practices relating to enhanced annuities.

On 14 October 2016, the Financial Conduct Authority (FCA) published the findings of its thematic review of non-advised annuity sales practices. Standard Life has been a participant in that review. The FCA looked at whether firms provided sufficient information to their customers about their potential eligibility for enhanced annuities.

At the request of the FCA, Standard Life will conduct a review of non-advised annuity sales (with a purchase price above a minimum threshold) to customers eligible to receive an enhanced annuity from 1 July 2008 until such date as Standard Life can demonstrate its compliance with the applicable regulatory standards. The purpose of this review is to identify whether these customers received sufficient information about enhanced annuities to make the right decisions about their purchase, and, where appropriate, provide redress to customers who have suffered loss as a result of not having received sufficient information. Standard Life has been working with the FCA regarding the process for conducting this past business review.

The Group has provided for an estimate of the redress payable to customers, which may comprise both lump sum payments and enhancements to future annuity payments, the costs of conducting the review and other related expenses.

The Group has in place liability insurance and is seeking for up to £100m of the financial impact of the provision to be mitigated by this insurance. Discussions are ongoing with our insurers and, as a result, no insurance recovery has been recognised as an asset in these financial statements.

The Group expects the majority of the outflows associated with this provision, including outflows relating to establishing any reserves for future annuity payments, to have occurred by the end of 2018.

The Group has not provided for any possible FCA-levied financial penalty relating to the review. Disclosure of related contingent liabilities is included in Note 45.

Estimates and assumptions

The key assumptions in relation to the provision for annuity sales practices are:

·   The number of customers entitled to redress

·   The amount of redress payable per customer

·   The costs of conducting the review

The number of customers entitled to redress has been estimated based on:

·   The number of customers in the review population

·   The estimated percentage of these customers eligible for an enhanced annuity

·   The estimated percentage of these eligible customers that did not receive sufficient information from Standard Life about enhanced annuities

The FCA thematic review noted that, for the industry as a whole, between 39% and 48% of customers who bought a standard annuity may potentially have been eligible for an enhanced annuity, and the provision assumes 43.5% of customers were eligible for an enhanced annuity.

The assumption of the percentage of eligible customers that did not receive sufficient information from Standard Life about enhanced annuities and suffered loss as a result is based on a sample of Standard Life customers reviewed as part of the FCA thematic review.

The FCA thematic review noted, for the industry as a whole, a plausible range of lost income for customers who were entitled to enhanced annuities but purchased standard annuities to be between £120 and £240 per annum for an average annuity purchase price of £25,000. The provision assumes lost income of £180 per annum for an average annuity purchase price of £25,000. Assumptions relating to future annuity payments are consistent with other annuity reserving assumptions.

The costs of conducting the review relate to administrative expenses per case and wider project costs. The costs are based on our high level planning.

At this stage there is significant uncertainty relating to the amount of redress payable and the expenses of the review. Sensitivities are provided in the table below.

Assumption	Change in assumption	Consequential change in provision
Percentage of customers eligible for an enhanced annuity	Percentage changed by +/-4.5 (e.g. 43.5% increased to 48%)	+/- £11m
Percentage of eligible customers that did not receive sufficient information from Standard Life about enhanced annuities	Percentage changed by +/-5	+/- £9m
Lost income per annum for an average annuity purchase of £25,000	+/- £60	+/- £43m
Costs per case of conducting the review	+/- 20% of the cost per case	+/- £7m

(b)        Other liabilities

The amount of other liabilities expected to be settled after more than 12 months is £nil (2015: £nil).

41.    Risk management

(a)        Overview

(a)(i)     Application of the risk management framework

The consistent application of effective and pre-emptive risk management across the business protects the value of Standard Life in the short term while encouraging the development of long-term value. The Group ensures that:

·   Well informed risk-reward decisions are taken in pursuit of the business plan objectives

·   Capital is delivered to areas where most value can be created from the risks taken

The Group's approach to risk management, delivered through the Enterprise Risk Management (ERM) framework, is well embedded in the business. The ERM framework enables a risk-based approach to managing the business and integrates concepts of strategic planning, operational management and internal control, and is set out in more detail in the Strategic Report.

For the purposes of managing risks to the Group's financial assets and financial liabilities, the Group considers the following categories:

Risk	Definition
Market	The risk that arises from the Group's exposure to market movements which could result in the value of income, or the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.
Credit	The risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform those obligations in a timely manner.
Demographic	The risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic experience differing from that expected. This class of risk includes risks that meet the definition of insurance risk under IFRS 4 Insurance Contracts and other financial risks.
Expense	The risk that expense levels are higher than planned or revenue falls below that necessary to cover actual expenses. This can arise from an increase in the unit costs of the company or an increase in expense inflation, either company specific or relating to economic conditions. This risk will be present on contracts where the Group cannot or will not pass the increased costs onto the customer. Expense risk can reflect an increase in liabilities or a reduction in expected future profits.
Liquidity	The risk that the Group is unable to realise investments and other assets in order to settle its financial obligations when they fall due, or can do so only at excessive cost.
Operational	The risk of adverse consequences for the Group's business resulting from inadequate or failed internal processes, people or systems, or from external events. This includes conduct risk as defined below.
Conduct	The risk that through our behaviours, strategies, decisions and actions the Group, or individuals within the Group, do not do the right thing and/or do not behave in a manner which: ·   Pays due regard to treating our customers and clients fairly ·   Is consistent with our disclosures and setting of customer and client expectations ·   Supports the integrity of financial markets
Strategic	Risks which threaten the achievement of the strategy through poor strategic decision-making, implementation or response to changing circumstances.

There are a range of sources of risk affecting these risk categories and the principal risks and uncertainties that affect the business model are set out in detail in the Risk management section of the Strategic report.

Risk segments

The assets and liabilities on the Group's consolidated statement of financial position can be split into four categories (risk segments) which give the shareholder different exposures to the risks listed previously. These categories are:

Shareholder business

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

Participating business

Participating business refers to the assets and liabilities of the participating funds of the life operations of the Group. It includes the liabilities for insurance features and financial guarantees contained within contracts held in the HWPF that invest in unit linked funds. It does not include the liabilities for insurance features contained in contracts invested in the GWPF or GSMWPF. Such liabilities are included in shareholder business. 

Unit linked funds

Unit linked funds refers to the assets and liabilities of the unit linked funds of the life operations of the Group. It does not include the cash flows (such as asset management charges or investment expenses) arising from the unit linked fund contracts or the liabilities for insurance features or financial guarantees contained within the unit linked fund contracts. Such cash flows and liabilities are included in shareholder business or participating business.

Third party interest in consolidated funds and non-controlling interests

Third party interest in consolidated funds and non-controlling interests refers to the assets and liabilities recorded on the Group's consolidated statement of financial position which belong to third parties. The Group controls the entities which own the assets and liabilities but the Group does not own 100% of the equity or units of the relevant entities.

The following table sets out the link between the reportable segments set out in Notes 2 and 3 and the risk segments.

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

¹   As discussed in Note 3 and above, unit linked funds does not include cash flows arising from unit linked fund contracts or the liabilities for insurance features or financial guarantees contained within the unit linked fund contracts. Such cash flows and liabilities are included in shareholder or participating business.

The table below sets out how the shareholder is exposed to market, credit, demographic and expense, and liquidity risk at the reporting date, arising from the assets and liabilities of the four risk segments:

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

The shareholder is exposed to operational, conduct and strategic risks arising across the four risk segments and any losses incurred are typically borne by the shareholder.

The shareholder is also exposed to certain risks relating to defined benefit pension plans operated by the Group. These risks are explained in Note 37.

(a)(ii)    Consolidated financial position by risk segment

The table that follows provides an analysis of the consolidated statement of financial position showing the Group's assets and liabilities by risk segment. This categorisation has been used to present the information in this note.

	Shareholder business		Participating business		Unit linked funds		TPICF & NCI1		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Intangible assets	572	566	-	-	-	-	-	-	572	566
Deferred acquisition costs	613	602	38	44	-	-	-	-	651	646
Investments in associates and joint ventures	602	313	847	531	5,605	4,561	894	314	7,948	5,719
Investment property	-	1	1,716	2,167	5,727	5,947	2,486	1,876	9,929	9,991
Property, plant and equipment	31	36	30	55	28	-	-	-	89	91
Pension and other post-retirement benefit assets	1,093	897	-	-	-	-	-	-	1,093	897
Deferred tax assets	42	35	-	-	-	-	-	-	42	35
Reinsurance assets	50	53	5,336	5,462	-	-	-	-	5,386	5,515
Loans	52	75	134	340	102	307	7	89	295	811
Derivative financial assets	19	9	2,211	1,478	1,025	716	279	241	3,534	2,444
Equity securities and interests in pooled investment funds at FVTPL	58	52	8,478	8,187	67,452	56,307	7,319	7,133	83,307	71,679
Debt securities
At FVTPL	7,763	6,833	28,193	25,913	25,885	26,789	5,471	6,379	67,312	65,914
At available-for-sale	621	743	-	-	-	-	-	-	621	743
Receivables and other financial assets	515	495	97	99	533	644	110	209	1,255	1,447
Current tax recoverable	15	27	15	19	128	115	8	7	166	168
Other assets	59	51	13	15	18	18	4	5	94	89
Assets held for sale	27	50	224	82	12	73	-	122	263	327
Cash and cash equivalents	963	691	1,336	1,960	4,636	5,311	1,003	1,678	7,938	9,640
Total assets	13,095	11,529	48,668	46,352	111,151	100,788	17,581	18,053	190,495	176,722
Non-participating insurance contract liabilities	6,192	5,197	9,796	9,556	7,434	6,453	-	-	23,422	21,206
Non-participating investment contract liabilities	4	4	-	-	102,059	92,890	-	-	102,063	92,894
Participating insurance contract liabilities	-	-	15,151	14,283	-	-	-	-	15,151	14,283
Participating investment contract liabilities	-	-	15,537	14,716	-	-	-	-	15,537	14,716
Unallocated divisible surplus	-	-	585	655	-	-	-	-	585	655
Deposits received from reinsurers	-	-	5,093	5,134	-	-	-	-	5,093	5,134
Third party interest in consolidated funds	-	-	-	-	-	-	16,835	17,196	16,835	17,196
Subordinated liabilities	1,319	1,318	-	-	-	-	-	-	1,319	1,318
Pension and other post-retirement benefit provisions	55	33	-	-	-	-	-	-	55	33
Deferred income	154	185	44	51	-	-	-	-	198	236
Deferred tax liabilities	124	114	65	58	70	33	-	-	259	205
Current tax liabilities	35	32	(9)	5	78	66	9	10	113	113
Derivative financial liabilities	12	16	39	88	714	836	200	314	965	1,254
Other financial liabilities	913	867	2,036	1,385	745	532	222	116	3,916	2,900
Provisions	225	46	2	2	-	-	-	-	227	48
Other liabilities	51	49	13	15	37	19	12	16	113	99
Liabilities of operations held for sale	-	-	-	37	-	-	-	46	-	83
Total liabilities	9,084	7,861	48,352	45,985	111,137	100,829	17,278	17,698	185,851	172,373
Net inter-segment assets/(liabilities)	336	334	(316)	(367)	(14)	41	(6)	(8)	-	-
Net assets	4,347	4,002	-	-	-	-	297	347	4,644	4,349

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

(b)        Market risk

As described in the table on page 178, the shareholder is exposed to market risk from the shareholder and participating businesses and as a result the following quantitative market risk disclosures are provided in respect of the financial assets of the shareholder and participating businesses.

Quantitative market risk disclosures are not provided in respect of the assets of the unit linked funds since the shareholder is not exposed to market risks from these assets. The shareholder's exposure to market risk on these assets is limited to variations in the value of future fee based revenue earned on the contracts as fees are based on a percentage of the fund value. The sensitivity to market risk analysis includes the impact on those statement of financial position items which are affected by changes in future fee based revenue due to the market stresses changing the value of assets held by the unit linked funds. The shareholder is also not exposed to the market risk from the assets held by third party interest in consolidated funds and non-controlling interests and therefore they have been excluded from the following quantitative disclosures.

The Group manages market risks through the use of a number of controls and techniques including:

·   Defined lists of permitted securities and/or application of investment constraints and portfolio limits

·   Clearly defined investment benchmarks for policyholder and shareholder funds

·   Stochastic and deterministic asset/liability modelling

·   Active use of derivatives to improve the matching characteristics of assets and liabilities and to reduce the risk exposure of a portfolio

·   Setting risk limits for main market risks and managing exposures against these appetites

The specific controls and techniques used to manage the market risks in the shareholder and participating businesses are discussed below:

Shareholder business

Assets in the shareholder business are managed against benchmarks that ensure they are diversified across a range of asset classes, instruments and geographies. A combination of limits by name of issuer, sector and credit rating are used where relevant to reduce concentration risk among the assets held.

Participating business

The assets of the participating business are principally managed to support the liabilities of those funds and are appropriately diversified by both asset class and geography.

The key considerations in the asset and liability management of the participating business are:

·   The economic liability and how this varies with market conditions

·   The need to invest the assets in a manner consistent with participating policyholders' reasonable expectations and, where appropriate, the Scheme of Demutualisation and the Principles and Practices of Financial Management (PPFM)

·   The need to ensure that regulatory and capital requirements are met

In practice, an element of market risk arises as a consequence of the need to balance these considerations, for example, in certain instances participating policyholders may expect that equity market risk will be taken on their behalf and derivative instruments may be used to manage these risks.

(b)(i)     Elements of market risk

The main elements of market risk to which the Group is exposed are equity risk, property risk, interest rate risk and foreign currency risk, which are discussed on the following pages.

As a result of the diversity of the products offered by the Group and the different regulatory environments in which it operates, the Group employs a range of methods of asset and liability management across its business units.

Information on the methods used to determine fair values for each major category of financial instrument and investment property measured at fair value is presented in Note 43 and Note 19.

(b)(i)(i) Group exposure to equity risk

The Group is exposed to the risk of adverse equity market movements which could result in losses. This applies to daily changes in the market values and returns on the holdings in its equity securities portfolio. The Group's shareholders are exposed to the following sources of equity risk:

·   Direct equity shareholdings in the shareholder business and the Group's defined benefit pension plans

·   Burnthrough from the with profits funds where adverse movements in the market values and returns on holdings in the equity portfolios of these funds mean the assets of the with profits funds are not sufficient to meet their obligations

·   The indirect impact from changes in the value of equities held in funds from which management charges are taken

Exposures to equity securities are primarily controlled through the use of investment mandates including constraints based on appropriate equity indices.

The table below shows the shareholder and participating businesses' exposure to equity markets. Equity securities are analysed by country based on the ultimate parent country of risk.

	Shareholder business		Participating business		Total
	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m
UK	6	10	3,545	3,540	3,551	3,550
Australia	1	-	21	20	22	20
Belgium	-	1	63	27	63	28
Canada	-	-	49	39	49	39
Denmark	2	1	172	126	174	127
Finland	2	1	44	85	46	86
France	4	3	461	412	465	415
Germany	3	3	495	467	498	470
Greece	-	-	1	-	1	-
Ireland	1	1	183	187	184	188
Italy	1	2	73	142	74	144
Japan	1	1	124	118	125	119
Mexico	-	-	-	1	-	1
Netherlands	2	2	335	291	337	293
Norway	-	-	19	24	19	24
Portugal	-	-	65	59	65	59
Russia	-	-	-	3	-	3
Spain	1	1	127	125	128	126
Sweden	2	1	204	165	206	166
Switzerland	2	2	453	601	455	603
US	22	10	1,680	1,506	1,702	1,516
Other	8	13	241	177	249	190
Total	58	52	8,355	8,115	8,413	8,167

In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £nil (2015: £nil) and investments in associates at FVTPL of £30m (2015: £19m). The participating business has interests in pooled investment funds of £123m (2015: £72m) and investments in associates at FVTPL of £847m (2015: £531m).

(b)(i)(ii) Group exposure to property risk

The Group is exposed to the risk of adverse property market movements which could result in losses. This applies to changes in the value and return on holdings in investment property. This risk arises from:

·   Burnthrough from the with profits funds where adverse movements in the market values and returns on investment property in these funds mean the assets of the with profits funds are not sufficient to meet their obligations

·   The indirect impact from changes in the value of property held in funds from which management charges are taken

Exposures to property holdings are primarily controlled through the use of portfolio limits which specify the proportion of the value of the total property portfolio represented by:

·   Any one property or group of properties

·   Geographic area

·   Property type

·   Development property under construction

The shareholder business is not exposed to significant property price risk.

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

Participating business

	Office		Industrial		Retail		Other		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	404	703	206	230	841	938	6	6	1,457	1,877
Belgium	12	12	-	-	9	-	-	-	21	12
France	-	-	-	-	-	-	2	1	2	1
Germany	85	26	6	5	18	15	-	-	109	46
Ireland	-	-	-	-	-	-	32	26	32	26
Netherlands	64	48	31	26	-	-	-	-	95	74
Spain	-	131	-	-	-	-	-	-	-	131
Total	565	920	243	261	868	953	40	33	1,716	2,167

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

(b)(i)(iii) Group exposure to interest rate risk

Interest rate risk is the risk that arises from exposures to changes in the shape and level of yield curves which could result in losses due to the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by different amounts.

The main financial assets held by the Group which give rise to interest rate risk are debt securities, loans and cash and cash equivalents. The main financial liabilities giving rise to interest rate risk principally comprise non-unit linked insurance, participating and non-participating investment contract liabilities and subordinated liabilities. Derivative financial instruments held by the Group also give rise to interest rate risk.

Shareholder business

Under the Group's ERM framework, Group companies are required to manage their interest rate exposures in line with the Group's qualitative risk appetite statements and quantitative risk limits. Group companies typically use a combination of cash flow and duration matching techniques to manage their interest rate risk at an entity level. Hedging is used to mitigate the risk that burnthrough may arise from the with profits funds under certain circumstances where adverse interest rate movements could mean the assets of the with profits funds are not sufficient to meet the obligations of the with profits funds.

Participating business

Duration matching is used to minimise the interest rate risk that arises from mismatches between participating contract liabilities and the assets backing those liabilities. Cash flow matching is used to minimise the interest rate risk that arises in the participating business from mismatches between non-participating insurance contract liabilities and the assets backing those liabilities. A combination of debt securities and derivative financial instruments are held to assist in the management of interest rate sensitivity arising in respect of the cost of guarantees.

The sensitivity of profit after tax to changes in interest rates for both the shareholder business and the participating business is included in the profit after tax sensitivity to market risk table, shown in section (b)(ii).

(b)(i)(iv)            Group exposure to foreign currency risk

The Group's financial assets are generally held in the local currency of its operational geographic locations, principally to assist with the matching of liabilities. However, foreign currency risk arises where adverse movements in currency exchange rates impact the value of revenues received from, and the value of assets and liabilities held in, currencies other than the local currency. The Group can be exposed to foreign currency risk through the need to meet the expectations of particular groups of policyholders or to improve the Group's risk profile through diversification. The Group manages this risk through the use of limits on the amount of foreign currency risk that is permitted.

The tables below summarise the shareholder and participating businesses' exposure to foreign currency risks in Sterling. The tables exclude inter-segment assets and liabilities.

Shareholder business

	UK Sterling		Euro		Canadian Dollar		Hong Kong Dollar		US Dollar		Indian Rupee		Other currencies		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total assets	11,360	10,046	911	956	21	20	53	64	150	117	474	202	126	124	13,095	11,529
Total liabilities	(8,436)	(7,357)	(558)	(416)	(18)	(18)	(26)	(29)	(25)	(26)	-	-	(21)	(15)	(9,084)	(7,861)
Net investment hedges	6	5	-	-	-	-	(6)	(5)	-	-	-	-	-	-	-	-
Cash flow hedges	(9)	(10)	9	10	-	-	-	-	-	-	-	-	-	-	-	-
Non designated derivatives	225	426	(145)	(385)	-	-	-	2	(64)	1	13	10	(29)	(54)	-	-
	3,146	3,110	217	165	3	2	21	32	61	92	487	212	76	55	4,011	3,668

Other currencies include assets of £9m (2015: £3m) and liabilities of £7m (2015: £7m) in relation to the fair value of derivatives used to manage currency risk.

The principal source of foreign currency risk for shareholders arises from the Group's investments in overseas subsidiaries, joint ventures and associates.

Non designated derivatives relate to foreign exchange forward contracts that are not designated as cash flow hedges or net investment hedges.

During 2016 the Group reaffirmed its strategy for hedging foreign currency risks in the shareholder business. The purpose of this strategy is to provide a consistent approach to managing foreign exchange risks in the shareholder business. This includes, within certain parameters, minimising currency volatility within the regulatory capital surplus and reducing the currency risk relating to dividend receipts from overseas operations. The Group does not separately hedge translation of reported earnings from overseas operations in the consolidated financial statements.

Participating business

	UK Sterling		Euro		Canadian Dollar		Hong Kong Dollar		US Dollar		Indian Rupee		Other currencies		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total assets	31,119	31,722	14,703	11,846	51	38	28	31	1,796	1,672	7	6	964	1,037	48,668	46,352
Total liabilities	(37,547)	(36,808)	(10,783)	(9,137)	-	-	-	-	(2)	(2)	-	-	(20)	(38)	(48,352)	(45,985)
Non designated derivatives	1,040	880	(878)	(804)	-	-	-	-	(124)	(35)	-	-	(38)	(41)	-	-
	(5,388)	(4,206)	3,042	1,905	51	38	28	31	1,670	1,635	7	6	906	958	316	367

There are no net investment hedges or cash flow hedges in the participating business. Other currencies include assets of £49m (2015: £3m) and liabilities of £11m (2015: £27m) in relation to the fair value of derivatives used to manage currency risk exposures.

The foreign currency exposures shown above largely reflect the impact of financial assets being denominated in currencies other than the local currency of the operational geographic location. These exposures arise as a result of asset allocation decisions that are intended to meet the expectations of particular groups of policyholders or to improve the risk profile through diversification. The investment mandates used to manage the participating business contain limits to restrict the extent of foreign currency risk that can be taken and currency derivatives are held to provide economic hedges of some of the above exposures. These are typically short dated forward foreign exchange contracts, however the investment mandates do not normally require these contracts to be replaced on maturity providing the foreign currency risk is within limits.

(b)(ii)    Sensitivity to market risk analysis

The Group's profit after tax from continuing operations and equity are sensitive to variations in respect of the Group's market risk exposures and a sensitivity analysis is presented on the following pages. The analysis has been performed by calculating the sensitivity of profit after tax from continuing operations and equity to changes in equity security and property prices and to changes in interest rates as at the reporting date applied to assets and liabilities other than those classified as held for sale.

Unit linked funds

Changes in equity security and property prices and/or fluctuations in interest rates will affect unit linked liabilities and the associated assets by the same amount. Therefore, whilst the profit impact on unit linked funds is included in the sensitivity analysis where there is an impact on the value of other statement of financial position items, the change in unit linked liabilities and the corresponding asset movement has not been presented.

Participating business

For the participating business, in particular the HWPF and the GWPF, the risk to shareholders is that the assets of the fund are insufficient to meet the obligations to policyholders. Given the nature of the Group's participating business, changes in equity security and property prices and/or fluctuations in interest rates will generally affect participating liabilities and the associated assets by the same amount. Therefore the change in participating contract liabilities and the corresponding asset movement has not been presented. However under certain economic scenarios guarantees in participating contracts could require the shareholder to provide support to the participating business. This is presented as follows:

HWPF

For the HWPF, whilst shareholders are only entitled to the recourse cash flows in respect of this business, there can be potential exposure to the full impact of any shortfall if the assets of the fund are insufficient to meet policyholder obligations. The recourse cash flows have been determined in accordance with the Scheme and consider the extent to which shareholders participate in the investment return and surplus of the HWPF. The Scheme, and in particular the Capital Support Mechanism, requires the financial state of the HWPF to be considered before recourse cash flows are transferred to the Shareholder Fund and, under certain circumstances, the payment of recourse cash flows can be withheld to support the financial strength of the HWPF. Therefore, the HWPF has been treated as a whole for the purpose of this sensitivity analysis and only the impact on the recourse cash flows of the sensitivity tests is presented. When assessing the impact of the sensitivity tests on the recourse cash flows, and in particular the risk that the assets of the HWPF may be insufficient to meet the obligations to policyholders, dynamic management actions have been assumed in a manner consistent with the relevant Principles and Practices of Financial Management (PPFM). The sensitivities presented are not sufficiently severe to have restricted recourse cash flows in 2016 and 2015.

GWPF

For the GWPF, whilst shareholders are entitled to charges from this fund, there can be potential exposure to the full impact of any shortfall if the assets of the fund are insufficient to meet policyholder obligations. Profit after tax from continuing operations and equity are sensitive to the extent that the receipt of future charges is not taken into account in the measurement of the non-participating contract liabilities in the shareholder risk segment in economic scenarios where the charges are deemed foregone to support the participating liabilities. This sensitivity is included within the non-participating insurance contract liabilities in the following table.

Limitations

The sensitivity of the Group's profit after tax from continuing operations and equity is non-linear and larger or smaller impacts should not be derived from these results.

The sensitivity analysis represents the impact on profit at year end that the changes in market conditions can have. The sensitivity will vary with time, both due to changes in market conditions and changes in the actual asset mix, and this mix is being actively managed. The results of the sensitivity analysis may also have been different from those illustrated had the sensitivity factors been applied at a date other than the reporting date.

For each sensitivity 'test', the impact of a reasonably possible change in a single sensitivity factor is presented, while the other sensitivity factors remain unchanged. Correlations between the different risks and/or other factors may mean that experience would differ from that expected if more than one risk event occurred simultaneously.

Earnings over a period may be reduced as a consequence of the impact of market movements on charges levied on unit linked business, and other with profits fund business. For example, if the tests had been applied as at 1 January, the profit during the year would have varied due to the different level of funds under management. In illustrating the impact of equity/property risk, the assumption has been made, where relevant, that expectations of corporate earnings and rents remain unchanged and thus yields change accordingly. The sensitivities take into account the likely impact on individual Group companies of local regulatory standards under such a scenario.

Profit after tax of continuing operations sensitivity to market risk

	Equity markets				Property markets				Interest rates
2016	+10%	-10%	+20%	-20%	+10%	-10%	+20%	-20%	+1%	-1%
Increase/(decrease) in profit after tax from continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Pensions and Savings:
Deferred acquisition costs	-	-	-	-	-	-	-	-	-	-
Assets backing non-participating liabilities	-	-	-	-	-	-	-	-	(696)	833
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	673	(790)
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	-	-
Total Pensions and Savings	-	-	-	-	-	-	-	-	(23)	43
Standard Life Investments	4	(4)	7	(7)	-	-	-	-	-	-
India and China:
Deferred acquisition costs	-	-	-	-	-	-	-	-	-	(4)
Assets backing non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Assets backing non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	1	1
Total India and China	-	-	-	-	-	-	-	-	1	(3)
Other	2	(2)	4	(4)	-	-	-	-	(2)	2
Total shareholder business	6	(6)	11	(11)	-	-	-	-	(24)	42
Participating business
Pensions and Savings:
Recourse cash flow	-	-	-	-	-	-	-	-	-	-
Total Pensions and Savings	-	-	-	-	-	-	-	-	-	-
Total participating business	-	-	-	-	-	-	-	-	-	-
Total	6	(6)	11	(11)	-	-	-	-	(24)	42

¹   The amounts in the table above are presented net of tax.

²   A positive number represents a credit to the consolidated income statement.

³   The interest rate sensitivity is a parallel shift subject to a floor of -30bps.

The Company within other shareholder business classifies certain debt securities as available-for-sale (AFS). The Group's sensitivity of profit after tax from continuing operations to changes in interest rates does not include the impact of changes in interest rates for these AFS assets.

	Equity markets				Property markets				Interest rates
2015	+10%	-10%	+20%	-20%	+10%	-10%	+20%	-20%	+1%	-1%
Increase/(decrease) in profit after tax from continuing operations	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Pensions and Savings:
Deferred acquisition costs	-	-	-	(5)	-	-	-	-	-	-
Assets backing non-participating liabilities	-	-	-	-	-	-	-	-	(569)	691
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	538	(642)
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	(17)	18
Total Pensions and Savings	-	-	-	(5)	-	-	-	-	(48)	67
Standard Life Investments	3	(3)	7	(7)	-	-	-	-	-	-
India and China:
Deferred acquisition costs	2	(2)	3	(4)	-	-	-	-	1	(2)
Assets backing non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Assets backing non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-	-	-
Other assets and liabilities	-	-	-	-	-	-	-	-	-	-
Total India and China	2	(2)	3	(4)	-	-	-	-	1	(2)
Other	3	(3)	6	(6)	-	-	-	-	-	-
Total shareholder business	8	(8)	16	(22)	-	-	-	-	(47)	65
	-	-	-	-	-	-	-	-	-	-
Participating business
Pensions and Savings:
Recourse cash flow	-	-	-	-	-	-	-	-	-	-
Total Pensions and Savings	-	-	-	-	-	-	-	-	-	-
Total participating business	-	-	-	-	-	-	-	-	-	-
Total	8	(8)	16	(22)	-	-	-	-	(47)	65

¹   The amounts in the table above are presented net of tax.

²   A positive number represents a credit to the consolidated income statement.

³   The interest rate sensitivity is a parallel shift subject to a floor of nil.

Equity sensitivity to market risk on assets and liabilities other than those classified as held for sale

The shareholder business in the other reportable segment classifies certain debt securities as AFS. These debt securities are measured at fair value. Interest is calculated using the effective interest method and recognised in the consolidated income statement. Other changes in fair value and the related tax are recognised in other comprehensive income. As a result, the sensitivity of the Group's equity to variations in interest rate risk exposures differs from the sensitivity of the Group's profit after tax from continuing operations to variations in interest rate risk exposures.

The Other segment's equity sensitivity to a 1% increase in interest rates is (£17m) (2015: (£14m)) and to a 1% decrease in interest rates is £17m (2015: £15m). The sensitivity of the Group's total equity to a 1% increase in interest rates is (£39m) (2015: (£61m)) and a 1% decrease in interest rates is £57m (2015: £80m).

The sensitivity of the Group's total equity to variations in equity and property prices for assets and liabilities other than those classified as held for sale in respect of each of the scenarios shown in the preceding tables is the same as the sensitivity of the Group's profit after tax.

(c)        Credit risk

As described in the table on page 178, the shareholder is exposed to credit risk from the shareholder and participating businesses and as a result the following quantitative credit risk disclosures are provided in respect of the financial assets of these categories.

Quantitative credit risk disclosures are not provided in respect of the assets of the unit linked funds since the shareholder is not directly exposed to credit risk from these assets. The unit linked business includes £3,779m (2015: £3,228m) of assets that are held as reinsured external funds links. Under certain circumstances the shareholder may be exposed to losses relating to the default of the reinsured external fund links. These exposures are actively monitored and managed by the Group and the Group considers the circumstances under which losses may arise to be very remote.

The shareholder is also not exposed to the credit risk from the assets held by third party interest in consolidated funds and non-controlling interests and therefore these have been excluded from the following quantitative disclosures.

The Group's credit risk exposure mainly arises from its investments in its financial instruments. Concentrations of credit risk are managed by setting maximum exposure limits to types of financial instruments and counterparties. The limits are established using the following controls:

Financial instrument with credit risk exposure	Control
Cash and cash equivalents	Maximum counterparty exposure limits are set with reference to internal credit assessments.
Derivative financial instruments	Maximum counterparty exposure limits, net of collateral, are set with reference to internal credit assessments. The forms of collateral that may be accepted are also specified and minimum transfer amounts in respect of collateral transfers are documented. Refer to (c)(iii) for further details on collateral.
Debt securities	The Group's policy is to set exposure limits by name of issuer, sector and credit rating.
Loans	Portfolio limits are set by individual business units. These limits specify the proportion of the value of the total portfolio of mortgage loans and mortgage bonds that are represented by a single, or group of related counterparties, geographic area, employment status or economic sector, risk rating and loan to value percentage.
Reinsurance assets	The Group's policy is to place reinsurance only with highly rated counterparties, with business units having to assign internal credit ratings to reinsurance counterparties. The Group is restricted from assuming concentrations of risk with few individual reinsurers by specifying certain limits on ceding and the minimum conditions for acceptance and retention of reinsurers.
Other financial instruments	Appropriate limits are set for other financial instruments to which the Group may have exposure at certain times, for example commission terms paid to intermediaries.

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

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

(c)(i)     Credit exposure

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

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

·   A default against the terms of the instrument has occurred

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

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

Shareholder business

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

	Loans to associates and joint ventures		Reinsurance assets		Loans		Derivative financial assets		Debt securities		Receivables and other financial assets		Cash and cash equivalents		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Neither past due nor impaired:
AAA	-	-	-	-	-	-	-	-	481	673	-	-	92	32	573	705
AA	-	-	30	37	-	-	-	-	1,809	1,586	-	-	221	193	2,060	1,816
A	-	-	17	13	51	40	13	5	3,378	2,830	-	-	583	388	4,042	3,276
BBB	-	-	-	-	-	33	2	2	1,483	1,349	-	-	67	78	1,552	1,462
Below BBB	-	-	-	-	-	-	-	-	133	118	-	-	-	-	133	118
Not rated	3	2	-	-	1	2	4	2	13	1	507	475	-	-	528	482
Internally rated	-	-	3	3	-	-	-	-	1,087	1,019	-	-	-	-	1,090	1,022
Past due	-	-	-	-	-	-	-	-	-	-	8	20	-	-	8	20
Impaired	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Total	3	2	50	53	52	75	19	9	8,384	7,576	515	495	963	691	9,986	8,901

At 31 December 2016, receivables and other financial assets of £7m (2015: £19m) were past due by less than three months and £1m (2015: £1m) were past due by three to six months.

An analysis of debt securities by country is as follows:

	Government, provincial and municipal1		Banks		Other financial institutions		Other corporate		Other2		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	594	527	426	389	1,205	1,335	2,006	1,576	-	-	4,231	3,827
Australia	-	-	107	100	17	-	17	9	-	-	141	109
Austria	29	22	-	-	-	-	-	-	-	-	29	22
Belgium	-	-	1	1	-	-	23	12	-	-	24	13
Canada	-	-	105	1	-	-	1	1	-	-	106	2
Denmark	-	-	26	51	-	-	16	15	-	-	42	66
Finland	-	-	-	25	-	-	-	-	-	-	-	25
France	240	201	344	343	3	-	347	306	-	-	934	850
Germany	31	296	167	131	1	1	285	243	-	-	484	671
Greece	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	-	-	-	1	-	-	6	-	-	-	6	1
Italy	-	-	28	27	-	-	82	75	-	-	110	102
Japan	-	-	36	26	-	-	25	22	-	-	61	48
Mexico	-	12	-	-	-	-	115	105	-	-	115	117
Netherlands	22	21	331	257	-	-	35	24	-	-	388	302
Norway	-	-	25	1	-	-	42	39	-	-	67	40
Portugal	-	-	-	-	-	-	-	-	-	-	-	-
Russia	-	-	-	-	-	-	-	-	-	-	-	-
Spain	-	-	55	105	-	-	45	41	-	-	100	146
Sweden	-	-	115	40	1	1	48	58	-	-	164	99
Switzerland	-	-	55	116	-	-	7	7	-	-	62	123
US	14	-	226	217	89	133	450	310	-	-	779	660
Other	46	37	204	51	58	52	14	12	219	201	541	353
Total	976	1,116	2,251	1,882	1,374	1,522	3,564	2,855	219	201	8,384	7,576

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

²   This balance primarily consists of securities held in supranationals.

Participating business

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

	Reinsurance assets		Loans		Derivative financial assets		Debt securities		Receivables and other financial assets		Cash and cash equivalents		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Neither past due nor impaired:
AAA	-	-	-	-	-	-	4,523	4,342	-	-	30	64	4,553	4,406
AA	5,329	5,436	60	139	-	-	16,595	14,917	-	-	337	498	22,321	20,990
A	-	19	-	111	1,056	643	4,682	4,214	-	-	964	1,297	6,702	6,284
BBB	-	-	-	-	668	428	1,771	1,673	-	-	5	101	2,444	2,202
Below BBB	-	-	-	-	-	-	367	434	-	-	-	-	367	434
Not rated	-	-	74	90	487	407	-	34	91	84	-	-	652	615
Internally rated	7	7	-	-	-	-	255	299	-	-	-	-	262	306
Past due	-	-	-	-	-	-	-	-	6	15	-	-	6	15
Impaired	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Total	5,336	5,462	134	340	2,211	1,478	28,193	25,913	97	99	1,336	1,960	37,307	35,252

At 31 December 2016, receivables and other financial assets of £6m (2015: £15m) were past due by less than three months.

Not rated loans of £74m (2015: £90m) relate to mortgages.

The shareholders' exposure to credit risk arising from investments held in the HWPF and other with profits funds is similar in principle to that described for market risk exposures in section (b). As at 31 December 2016, the financial assets of the HWPF include £5,093m (2015: £5,134m) of assets (primarily debt securities) deposited back under the terms of an external annuity reinsurance transaction, the transaction having been structured in this manner specifically to mitigate credit risks associated with default of the reinsurer. Any credit losses and defaults within the portfolio of assets are borne by the external reinsurer.

An analysis of debt securities by country is as follows:

	Government, provincial and municipal1		Banks		Other financial institutions		Other corporate		Other2		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	10,952	10,275	885	925	1,934	1,929	1,875	1,730	-	-	15,646	14,859
Australia	6	-	206	206	50	31	38	35	-	-	300	272
Austria	392	235	4	4	10	-	-	-	-	-	406	239
Belgium	691	452	10	10	-	-	57	15	-	-	758	477
Canada	3	3	67	195	10	8	4	3	-	-	84	209
Denmark	3	4	23	11	-	-	14	22	-	-	40	37
Finland	194	85	69	54	-	-	4	4	-	-	267	143
France	2,009	1,708	450	437	29	24	364	331	-	-	2,852	2,500
Germany	3,118	2,620	196	587	120	122	199	189	-	-	3,633	3,518
Greece	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	25	7	4	9	11	10	18	13	-	-	58	39
Italy	49	4	31	27	11	11	46	120	-	-	137	162
Japan	21	21	172	35	-	-	-	1	-	-	193	57
Mexico	-	-	-	-	-	-	56	58	-	-	56	58
Netherlands	467	403	328	338	36	42	48	34	-	-	879	817
Norway	-	17	24	6	-	-	65	63	-	-	89	86
Portugal	-	-	-	-	-	-	4	5	-	-	4	5
Russia	-	-	-	-	-	-	-	-	-	-	-	-
Spain	13	5	4	11	5	5	38	52	-	-	60	73
Sweden	-	1	367	280	10	6	12	16	-	-	389	303
Switzerland	-	-	150	103	63	59	62	57	-	-	275	219
US	106	107	432	361	151	206	499	437	-	-	1,188	1,111
Other	98	85	247	105	48	62	139	116	347	361	879	729
Total	18,147	16,032	3,669	3,704	2,488	2,515	3,542	3,301	347	361	28,193	25,913

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

²   This balance primarily consists of securities held in supranationals.

(c)(ii)    Credit spreads

As at 31 December 2016, it is expected that an adverse movement in credit spreads of 50 basis points, with no change to default allowance, would result in a reduction to profit for the year from continuing operations of £22m (2015: £23m). A further reduction of £58m (2015: £46m) would arise as a result of a change in assumed default rates of 12.5 basis points per annum (25% of the spread change).

(c)(iii)   Collateral accepted and pledged in respect of financial instruments

Collateral in respect of bilateral over-the-counter (OTC) derivative financial instruments and bilateral repurchase agreements is accepted from and provided to certain market counterparties to mitigate counterparty risk in the event of default. The use of collateral in respect of these instruments is governed by formal bilateral agreements between the parties. For OTC derivatives the amount of collateral required by either party is determined by the daily bilateral OTC exposure calculations in accordance with these agreements and collateral is moved on a daily basis to ensure there is full collateralisation. Under the terms of these agreements, collateral is posted with the ownership captured under title transfer of the contract. With regard to either collateral pledged or accepted, the Group may request the return of, or be required to return, collateral to the extent it differs from that required under the daily bilateral OTC exposure calculations.

Where there is an event of default under the terms of the agreements, any collateral balances will be included in the close-out calculation of net counterparty exposure. At 31 December 2016, the Group had pledged £30m (2015: £448m) of cash and £187m (2015: £36m) of securities as collateral for derivative financial liabilities. At 31 December 2016, the Group had accepted £2,016m (2015: £1,166m) of cash and £808m (2015: £10m) of securities as collateral for derivatives financial assets and reverse repurchase agreements. None of the securities were sold or repledged at the year end. 

(c)(iv)   Offsetting financial assets and liabilities

Financial assets and liabilities are offset and the net amount reported on the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

The Group does not offset financial assets and liabilities on the consolidated statement of financial position, as there are no unconditional rights to set off. Consequently, the gross amount of financial instruments presented on the consolidated statement of financial position is the net amount. The Group's bilateral OTC derivatives are all subject to an International Swaps and Derivative Association (ISDA) master agreement. ISDA master agreements and reverse repurchase agreements entered into by the Group are considered master netting agreements as they provide a right of set off that is enforceable only in the event of default, insolvency, or bankruptcy.

The Group does not hold any other financial instruments which are subject to master netting agreements or similar arrangements.

The following table presents the effect of master netting agreements and similar arrangements.

		Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position	Financial instruments	Financial collateral pledged/(received)	Net position
As at 31 December 2016	£m	£m	£m	£m
Financial assets
Derivatives1	2,654	(558)	(2,000)	96
Reverse repurchase agreements	800	-	(804)	(4)
Total financial assets	3,454	(558)	(2,804)	92
Financial liabilities
Derivatives1	(751)	558	186	(7)
Total financial liabilities	(751)	558	186	(7)

		Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position	Financial instruments	Financial collateral pledged/(received)	Net position
As at 31 December 2015	£m	£m	£m	£m
Financial assets
Derivatives1	1,752	(549)	(1,176)	27
Total financial assets	1,752	(549)	(1,176)	27
Financial liabilities
Derivatives1	(1,070)	549	466	(55)
Total financial liabilities	(1,070)	549	466	(55)

¹   Only OTC derivatives subject to master netting agreements have been included above.

(c)(v)   Credit risk on loans and receivables and financial liabilities designated as at fair value through profit or loss

(c)(v)(i)             Loans and receivables

The Group holds a portfolio of financial instruments which meet the definition of loans and receivables under IAS 39 Financial Instruments: Recognition and Measurement and on initial recognition were designated as at FVTPL. These instruments are included in debt securities on the consolidated statement of financial position. The Group's exposure to such financial instruments at 31 December 2016 was £835m (2015: £652m) of which £116m related to participating business (2015: £140m) and £719m related to shareholder business (2015: £512m). The fair value of these loans and receivables is calculated using a valuation technique which refers to the current fair value of other similar financial instruments in addition to other unobservable market data. During the year, fair value gains of £27m (2015: £4m losses) in relation to these loans and receivables were recognised in the consolidated income statement. The amount of this movement that is attributable to changes in the credit risk of these instruments was gains of £9m (2015: £2m).

As described in section (b), the Group's ERM framework defines market risk as the risk that arises from the Group's exposure to market movements, which could result in the income, or value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts. The movement in the fair value of loans and receivables incorporates both movements arising from credit risk and resulting from changes in market conditions.  

(c)(v)(ii)            Financial liabilities designated at FVTPL

The Group has designated unit linked non-participating investment contract liabilities as at FVTPL. As the fair value of the liability is based on the value of the underlying portfolio of assets, the movement, during the period and cumulatively, in the fair value of the unit linked non-participating investment contract liabilities, is only attributable to market risk.

(d)        Demographic and expense risk

As described in the table on page 178, the shareholder is directly exposed to demographic and expense risk from shareholder business and participating business and, as a result, quantitative demographic and expense risk disclosures are provided in respect of these categories.

Demographic and expense risk is managed by analysing experience and using statistical data to make certain assumptions on the risks associated with the policy during the period that it is in force. Assumptions that are deemed to be financially significant are reviewed at least annually for pricing and reporting purposes. In analysing demographic and expense risk exposures, the Group considers:

·   Historic experience of relevant demographic and expense risks

·   The potential for future experience to differ from that expected or observed historically

·   The financial impact of variances in expectations

·   Other factors relevant to their specific markets, for example obligations to treat customers fairly

Reinsurance and other risk transfer mechanisms are used to manage risk exposures and are taken into account in the Group's assessment of demographic and expense risk exposures.

(d)(i)     Elements of demographic and expense risk

The main elements of demographic and expense risk that give rise to the exposure are discussed below.

(d)(i)(i) Components of insurance risk as defined by IFRS 4 Insurance Contracts

Longevity

The Group defines longevity risk as the risk that policyholders live longer than expected which gives rise to losses for the shareholder. This may arise from current experience differing from that expected, or the rate of improvement in mortality being greater than anticipated. This risk is relevant for contracts where payments are made until the death of the policyholder, for example, annuities.

Experience can vary as a result of statistical uncertainty or as a consequence of systemic (and previously unexpected) changes in the life expectancy of the insured portfolio. The profitability of such business will reduce should policyholders live longer than the Group's expectations and reported profits will be impacted as and when such variances are recognised in liabilities.

Morbidity

The Group defines morbidity risk as the risk that claims dependent on the state of health of a policyholder are incurred at a higher than expected rate or, in the case of income benefits, continue for a longer duration or start earlier than those assumed. This risk will be present on disability income, healthcare and critical illness contracts. This includes the risk of anti-selection that results in a requirement to pay claims that the Group had not expected, for example, due to non-disclosure.

Income protection contracts have the risk that claim duration may be longer than anticipated.

Mortality

The Group defines mortality risk as the risk that death claims are at a higher rate or are more volatile than assumed. This risk will exist on any contracts where the payment on death is greater than the reserve held. This includes the risk of anti-selection that results in a requirement to pay claims that the Group had not expected, for example due to non-disclosure.

(d)(i)(ii) Other financial risks

Persistency - withdrawals and lapse rates

The Group defines persistency risk as the risk that clients redeem their investments and policyholders surrender, lapse or pay-up their policies at different rates than assumed resulting in reduced revenue and/or financial losses. This risk may arise if persistency rates are greater or less than assumed or if policyholders selectively lapse when it is beneficial for them. If the benefits payable on lapse or being paid-up are greater than the reserve held then the risk will be of a worsening of persistency and if benefits are paid out that are lower than the reserve then the risk will be that fewer policyholders will lapse or become paid-up.

Persistency risk also reflects the risk of a reduction in expected future profits arising from early retirements, surrenders - either partial or in full - and similar policyholder options.

Variances in persistency will affect equity holder profit to the extent that charges levied against policies are dependent upon the number of policies in force and/or the average size of those policies. The policies primarily relate to unit linked and unitised with profits business. Profit may also be at risk if it is considered necessary, or prudent, to increase liabilities on certain lines of business.

Expenses

The Group defines expense risk as the risk that expense levels will be higher than assumed. This can arise from an increase in the unit costs of the Group or its businesses or an increase in expense inflation, either Group specific or relating to economic conditions. This risk will be present on contracts where the Group cannot or will not pass the increased costs onto the customer. Expense risk can reflect an increase in liabilities or a reduction in expected future profit.

Profit is directly exposed to the risk of expenses being higher than otherwise expected. It can be further affected if it is considered necessary, or prudent, to increase provisions to reflect increased expectations of future costs of policy administration.

(d)(ii)    Sensitivity to demographic and expenses risk analysis

Recognition of profit after tax and the measurement of equity are dependent on the methodology and key assumptions used to determine the Group's insurance and investment contract liabilities, as described in Note 33.

The tables that follow illustrate the sensitivity of profit after tax from continuing operations and equity to variations in the key assumptions made in relation to the Group's most significant demographic and expense risk exposures, including exposure to persistency risk. The values have, in all cases, been determined by varying the relevant assumption as at the reporting date and considering the consequential impacts assuming other assumptions remain unchanged.

(Decrease)/increase in profit after tax from continuing operations and equity	Longevity		Expenses		Persistency		Morbidity/mortality
	+5%	-5%	+10%	-10%	+10%	-10%	+5%	-5%
2016	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Pensions and Savings:
Reinsurance assets	-	-	-	-	-	-	1	(1)
Non-participating insurance contract liabilities	(136)	128	(8)	8	1	(1)	-	-
India and China
Deferred acquisition costs	-	-	(4)	-	-	-	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-
Total shareholder business	(136)	128	(12)	8	1	(1)	1	(1)
Participating business
Pensions and Savings:
Recourse cash flows	(16)	15	(1)	1	-	-	(2)	2
Total participating business	(16)	15	(1)	1	-	-	(2)	2
Total	(152)	143	(13)	9	1	(1)	(1)	1

(Decrease)/increase in profit after tax from continuing operations and equity	Longevity		Expenses		Persistency		Morbidity/mortality
	+5%	-5%	+10%	-10%	+10%	-10%	+5%	-5%
2015	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Pensions and Savings:
Reinsurance assets	-	-	-	-	-	-	1	(1)
Non-participating insurance contract liabilities	(111)	104	(7)	7	1	(1)	(1)	1
India and China
Deferred acquisition costs	-	-	(5)	3	(1)	1	-	-
Non-participating insurance contract liabilities	-	-	-	-	-	-	-	-
Non-participating investment contract liabilities	-	-	-	-	-	-	-	-
Total shareholder business	(111)	104	(12)	10	-	-	-	-
Participating business
Pensions and Savings:
Recourse cash flows	(17)	16	(3)	3	-	-	(3)	3
Total participating business	(17)	16	(3)	3	-	-	(3)	3
Total	(128)	120	(15)	13	-	-	(3)	3

When the sensitivities presented in the tables above are applied to other with profits funds, there are no significant impacts on net liabilities after reinsurance, equity or profits for either investment or insurance contracts. Amounts in the tables above are presented net of tax and reinsurance.

For the participating business, the tables above illustrate the impact of demographic and expense risk on the recourse cash flows from the HWPF, which have been determined in accordance with the Scheme and take into account the need to consider the impact of risk on the financial position of the HWPF before any recourse cash flows can be transferred to the SHF. The terms of the Scheme provide for the retention of recourse cash flows under certain circumstances to support the financial position of the HWPF. Refer to Section (b)(ii).

The shareholder business of Pensions and Savings currently bears longevity risk both on contracts written in the PBF and on contracts written in the HWPF for which the longevity risk has been transferred to the PBF.

Limitations

The financial impact of certain risks is non-linear and consequently the sensitivity of other events may differ from expectations based on those presented in the table. Correlations between the different risks and/or other factors may mean that experience would differ from that expected if more than one risk event occurred simultaneously. The analysis has been assessed as at the reporting date. The results of the sensitivity analysis may vary as a consequence of the passage of time or as a consequence of changes in underlying market or financial conditions. The sensitivity analysis in respect of longevity risk has been performed on the relevant annuity business and presents, for a +5% longevity test, the impact of a 5% reduction in the underlying mortality rates (and vice versa). It has also been based on instantaneous change in the mortality assumption at all ages, rather than considering gradual changes in mortality rate.

(e)        Liquidity risk

As described in the table on page 178, the shareholder is exposed to liquidity risk from shareholder business, participating business and unit linked funds and, as a result, the following quantitative liquidity risk disclosures are provided in respect of the financial liabilities of these categories.

The shareholder is not exposed to the liquidity risk from the assets held by third party interests in consolidated funds and non-controlling interests and therefore these have been excluded from the following quantitative disclosures.

Business units employ risk management techniques relevant to their product types with the objective of mitigating exposures to liquidity risk. For annuity, with profits, and unit linked business, liquidity risk is primarily managed by holding a range of diversified instruments which are assessed against estimated cash flow and funding requirements.

For annuity contracts, assets are held which are specifically chosen with the intention of matching the expected timing of annuity payments. Business units actively manage and monitor the performance of these assets against liability benchmarks and liquidity risk is minimised through the process of planned asset and liability matching. The Group's assets are analysed in Section (b)(i) and Section (c)(i) of this Note. For Pensions and Savings, the reinsurance treaty between the Group and Canada Life International Re provides for the cash settlement of amounts owed by Canada Life International Re.

For with profits contracts, a portfolio of assets is maintained in the relevant funds appropriate to the nature and term of the expected pattern of payments of liabilities. Within that portfolio, liquidity is provided by substantial holdings of cash and highly liquid assets (principally government bonds).

Where it is necessary to sell less liquid assets within the relevant portfolios, then any incurred losses are generally passed onto policyholders in accordance with policyholders' reasonable expectations. Such losses are managed and mitigated through actively anticipating net disinvestment based on policyholder behaviour and seeking to execute sales of underlying assets in such a way that the cost to policyholders is minimised.

For non-participating unit linked contracts, a core portfolio of assets is maintained and invested in accordance with the mandates of the relevant unit linked funds. Policyholder behaviour and the trading position of asset classes are actively monitored. The unit price and value of any associated contracts would reflect the proceeds of any sales of assets. If considered necessary, deferral terms within the policy conditions applying to the majority of the Group's contracts are invoked.

Business units undertake periodic investigations into liquidity requirements, which include consideration of cash flows in normal conditions, as well as investigation of scenarios where cash flows differ markedly from those expected (primarily due to extreme policyholder behaviour).

All business units are required to monitor, assess, manage and control liquidity risk in accordance with the relevant principles within the Group's policy framework. Oversight is provided both at a Group level and within the business unit. In addition, all business units benefit from membership of a larger Group to the extent that, centrally, the Group:

·   Coordinates strategic planning and funding requirements

·   Monitors, assesses and oversees the investment of assets within the Group

·   Monitors and manages risk, capital requirements and available capital on a group-wide basis

·   Maintains a portfolio of committed bank facilities

The Group's committed bank facilities are currently undrawn.

Liquidity risk is managed by each business unit in consultation with the Group Treasury function and each business unit is responsible for the definition and management of its contingency funding plan.

As a result of the policies and processes established to manage risk, the Group considers the extent of liquidity risk arising from its activities to be de-minimis.

(e)(i)     Maturity analysis

The tables that follow present the expected timing of the cash flows payable on the amounts recognised on the consolidated statement of financial position for the participating and non-participating contract liabilities of the Group as at the reporting date. To align with the risk management approach towards liquidity risk and existing management projections, the analysis that follows facilitates consideration of the settlement obligations of both insurance and investment contracts.

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	No defined maturity	Total
2016	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating insurance contract liabilities	330	1,194	1,351	1,139	881	1,297	-	6,192
Non-participating investment contract liabilities	1	1	1	1	-	-	-	4
Reinsurance liabilities	-	-	-	-	-	-	-	-
Total shareholder business	331	1,195	1,352	1,140	881	1,297	-	6,196
Participating business
Non-participating insurance contract liabilities	618	2,263	2,324	1,685	1,105	1,801	-	9,796
Participating insurance contract liabilities	1,611	3,603	2,867	2,398	2,376	2,296	-	15,151
Participating investment contract liabilities	600	2,649	3,484	3,411	2,692	2,701	-	15,537
Unallocated divisible surplus	-	-	-	-	-	-	585	585
Total participating business	2,829	8,515	8,675	7,494	6,173	6,798	585	41,069
Unit linked funds
Non-participating insurance contract liabilities	6,126	669	368	123	69	79	-	7,434
Non-participating investment contract liabilities	9,951	31,696	26,705	16,024	9,118	8,565	-	102,059
Total unit linked funds	16,077	32,365	27,073	16,147	9,187	8,644	-	109,493
Total	19,237	42,075	37,100	24,781	16,241	16,739	585	156,758

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	No defined maturity	Total
2015	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating insurance contract liabilities	316	1,078	1,165	949	717	972	-	5,197
Non-participating investment contract liabilities	1	1	1	1	-	-	-	4
Reinsurance liabilities	-	-	-	-	-	-	-	-
Total shareholder business	317	1,079	1,166	950	717	972	-	5,201
Participating business
Non-participating insurance contract liabilities	691	2,454	2,387	1,640	1,015	1,369	-	9,556
Participating insurance contract liabilities	2,044	3,668	2,536	1,939	2,019	2,077	-	14,283
Participating investment contract liabilities	582	2,518	3,229	3,174	2,492	2,721	-	14,716
Unallocated divisible surplus	-	-	-	-	-	-	655	655
Total participating business	3,317	8,640	8,152	6,753	5,526	6,167	655	39,210
Unit linked funds
Non-participating insurance contract liabilities	5,267	630	362	96	46	52	-	6,453
Non-participating investment contract liabilities	9,155	29,418	24,351	14,357	8,083	7,526	-	92,890
Total unit linked funds	14,422	30,048	24,713	14,453	8,129	7,578	-	99,343
Total	18,056	39,767	34,031	22,156	14,372	14,717	655	143,754

The analysis that follows presents the undiscounted cash flows payable by remaining contractual maturity at the reporting date for all financial liabilities, including non-participating investment contract liabilities. Given that policyholders can usually choose to surrender, in part or in full, their unit linked contracts at any time, the non-participating investment contract unit linked liabilities of Pensions and Savings life and pensions business presented in the table below have been designated as payable within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. The Group can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The length of any such delay is dependent on the underlying financial assets. In this analysis, the maturity within one year includes liabilities that are repayable on demand.

	Within 1 year		2-5 years		6-10 years		11-15 years		16-20 years		Greater than 20 years		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Non-participating investment contract liabilities	4	4	-	-	-	-	-	-	-	-	-	-	4	4
Subordinated liabilities	81	81	313	324	359	377	290	345	143	208	671	700	1,857	2,035
Other financial liabilities	876	793	40	37	-	2	-	-	-	-	-	-	916	832
Total shareholder business	961	878	353	361	359	379	290	345	143	208	671	700	2,777	2,871
Participating business
Other financial liabilities	2,179	1,317	27	7	6	12	6	6	5	6	85	97	2,308	1,445
Total participating business	2,179	1,317	27	7	6	12	6	6	5	6	85	97	2,308	1,445
Unit linked funds
Non-participating investment contract liabilities	102,059	92,890	-	-	-	-	-	-	-	-	-	-	102,059	92,890
Other financial liabilities	908	481	11	12	9	10	9	8	9	8	141	16	1,087	535
Total unit linked funds	102,967	93,371	11	12	9	10	9	8	9	8	141	16	103,146	93,425
Total	106,107	95,566	391	380	374	401	305	359	157	222	897	813	108,231	97,741

The principal amounts of financial liabilities where the counterparty has no right to repayment are excluded from the above analysis along with interest payments on such instruments after 20 years. Also excluded are deposits received from reinsurers.

Deposits received from reinsurers reflect the liability to repay the deposit received from an external reinsurer under the reinsurance transaction referred to in Section (c). The timing and amount of the payment of the cash flows under this liability are defined by the terms of the treaty, under which there is no defined contractual maturity date to repay the deposit as at 31 December 2016 or 31 December 2015.

Refer to Note 23 for the maturity profile of undiscounted cash flows of derivative financial instruments.

The Group also had unrecognised commitments in respect of financial instruments as at 31 December 2016 with a contractual maturity of within one year and between one and five years of £453m and £nil respectively (2015: £319m and £nil).

(f)         Operational and conduct risk

The Group defines operational risk as the risk of loss, or adverse consequences for the Group's business, resulting from inadequate or failed internal processes, people or systems, or from external events. This includes conduct risk which is defined as the risk that through our behaviours, strategies, decisions and actions the Group, or individuals within the Group, do not do the right thing and/or do not behave in a manner which:

·   Pays due regard to treating our customers and clients fairly

·   Is consistent with our disclosures and setting of customer and client expectations

·   Supports the integrity of financial markets

The policy framework, which includes the Group operational risk policy and the Group conduct risk policy, is used to support the management of operational and conduct risks. Business units adopt the relevant minimum standards and limits contained within these policies and are required to manage risk in accordance with the policies, taking mitigating action as appropriate to operate within appetites.

The types of operational risk to which the Group is exposed are identified using the following operational risk categories:

·   Fraud or irregularities

·   Regulatory or legal

·   Products and practices

·   Business interruption

·   Supplier failure

·   Process execution

·   People

·   Security

Activities undertaken to ensure the practical operation of controls over financial risks, that is, market, credit, liquidity and demographic and expense risk, are treated as an operational risk.

Operational risk exposures are controlled using one or a combination of the following: modifying operations to mitigate the exposure to the risk; accepting exposure to the risk; or accepting exposure to the risk and controlling the exposure by risk transfer or risk treatment. The factors on which the level of control and nature of the controls implemented are based include:

·   The potential cause and impact of the risk

·   The likelihood of the risk being realised in the absence of any controls

·   The ease with which the risk could be insured against

·   The cost of implementing controls to reduce the likelihood of the risk being realised

·   Operational risk appetite

Control Self Assessment (CSA) is a monitoring activity where business managers assess the operation of the controls for which they are responsible and the adequacy of these controls to manage key operational risks and associated business processes. The assessment completed by business managers is validated and challenged by the risk function in its role of 'second line of defence'. Independent assurance as to the effectiveness of the CSA process is provided by Group Internal Audit in its role of 'third line of defence'. The results of CSA are reported through the risk governance structure. 

The assessment of operational risk exposures is performed on a qualitative basis using a combination of impact and likelihood, and on a quantitative basis using objective and verifiable measures. The maximum amount of operational risk the Group is willing to retain is defined using both quantitative limits, for example financial impact, and also qualitative statements of principle that articulate the event, or effect, that needs to be limited.

The operational risks faced by each business unit and its exposure to these risks forms its operational risk profile. Each business unit is required to understand and review its profile based on a combination of the estimated impact and likelihood of risk events occurring in the future, the results of CSA and a review of risk exposures relative to approved limits. 

The impact of a new product, a significant change, or any one-off transaction on the operational risk profile of each business unit is assessed and managed in accordance with established guidelines or standards.

(g)        Strategic risk

The Group defines strategic risk as those risks which threaten the achievement of the strategy through poor strategic decision-making, implementation or response to changing circumstances. Strategic risks are considered across the Group through the business planning process. The strategic risks to which the Group is exposed are reviewed on a regular basis.

42.    Structured entities

A structured entity is an entity that is structured in such a way that voting or similar rights are not the dominant factor in deciding who controls the entity. The Group has interests in structured entities through investments in a range of investment vehicles including:

·   Pooled investment funds managed internally and externally, including OEICs, SICAVs, unit trusts and limited partnerships

·   Debt securitisation vehicles which issue asset-backed securities

The Group consolidates structured entities which it controls. Where the Group has an investment in, but not control over these types of entities, the investment is classified as an investment in associate when the Group has significant influence.

The Group also has interests in structured entities through asset management fees and other fees received from these entities.

(a)  Consolidated structured entities

As at 31 December 2016 and 31 December 2015, the Group has not provided any non-contractual financial or other support to any consolidated structured entity and there are no current intentions to do so.

(b)  Unconsolidated structured entities

As at 31 December 2016 and 31 December 2015, the Group has not provided any non-contractual financial or other support to any unconsolidated structured entities and there are no current intentions to do so.

(b)(i) Investments in unconsolidated structured entities

The following table shows the carrying value of the Group's investments in unconsolidated structured entities by line items in the consolidated statement of financial position and by risk segment as defined in Note 41.

	Shareholder business		Participating business		Unit linked funds		TPICF & NCI1		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
2016	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates	28	19	847	531	5,607	4,561	894	314	7,376	5,425
Equity securities and interests in pooled investment funds	-	-	122	72	21,421	17,406	2,078	1,425	23,621	18,903
Debt securities	664	576	1,490	1,454	1,317	1,381	167	140	3,638	3,551
Total	692	595	2,459	2,057	28,345	23,348	3,139	1,879	34,635	27,879

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

The asset value of unconsolidated structured entities which are managed by the Group and in which the Group's holding is classified as an investment in associate is £41,379m (2015: £28,150m). There are no interests in pooled investment funds managed by the Group other than those classified as investments in associates. The total issuance balance relating to unconsolidated structured debt securitisation vehicles in which the Group has an investment is £57,877m (2015: £54,214m).

The Group's maximum exposure to loss in respect of its investments in unconsolidated structured entities is the carrying value of the Group's investment. As noted in Note 41, the shareholder is not exposed to market or credit risk in respect of investments held in the unit linked funds, and third party interest in consolidated funds and non-controlling interests risk segments.

Additional information on how the Group manages its exposure to risk can be found in Note 41.

(b)(ii) Other interests in unconsolidated structured entities

For those structured entities which the Group receives asset management or other fees from but has no direct investment, the maximum exposure to loss is loss of future fees.

Total assets under management of structured entities in which the Group has no direct investments but has other interests in are £12,634m at
31 December 2016 (2015: £11,599m). The fees received in respect of these assets under management during the year to 31 December 2016 were £61m (2015: £48m).

43.    Fair value of assets and liabilities

The Group uses fair value to measure the majority of its assets and liabilities. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm's length transaction.

Estimates and assumptions

Determination of the fair value of private equity investments, debt securities categorised as level 3 in the fair value hierarchy, over-the-counter derivatives and investment property are key estimates. Further details on the methods and assumptions used to value these investments are set out in section (d) below. Disclosures regarding sensitivity of level 3 instruments measured at fair value on the statement of financial position to changes in key assumptions are set out in (d)(iv) below.

(a)        Determination of fair value hierarchy

To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the following fair value hierarchy categorisation has been used:

·   Level 1 - Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

·   Level 2 - Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

·   Level 3 - Fair values measured using inputs that are not based on observable market data (unobservable inputs)

(b)        Financial investments and financial liabilities

An analysis of the Group's financial investments and financial liabilities in accordance with the categories of financial instrument set out in IAS 39 Financial Instruments: Recognition and Measurement is presented in Notes 21 and 35 and includes those financial assets and liabilities held at fair value.

(c)        Non-financial investments

An analysis of the Group's investment property and owner occupied property within property, plant and equipment in accordance with IAS 40 Investment property and IAS 16 Property, plant and equipment is presented in Notes 19 and 20 respectively and includes those assets held at fair value.

(d)        Methods and assumptions used to determine fair value of assets and liabilities

Information on the methods and assumptions used to determine fair values for each major category of instrument measured at fair value is given below. These methods and assumptions include those used to fair value assets and liabilities held for sale, including the individual assets and liabilities of operations held for sale.

Investments in associates at FVTPL, equity securities and interests in pooled investment funds, and amounts seeded into funds classified as held for sale

Investments in associates at FVTPL are valued in the same manner as the Group's equity securities and interests in pooled investment funds.

Equity instruments listed on a recognised exchange are valued using prices sourced from the primary exchange on which they are listed. These instruments are generally considered to be quoted in an active market and are therefore categorised as level 1 instruments within the fair value hierarchy.

Unlisted equities are valued using an adjusted net asset value. The Group's exposure to unlisted equity securities primarily relates to private equity investments. The majority of the Group's private equity investments are carried out through European fund of funds structures, where the Group receives valuations from the investment managers of the underlying funds.

The valuations received from investment managers of the underlying funds are reviewed and where appropriate adjustments are made to reflect the impact of changes in market conditions between the date of the valuation and the end of the reporting period. The valuation of these securities is largely based on inputs that are not based on observable market data, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.

Where pooled investment funds have been seeded and the investments in the fund have been classified as held for sale, the costs to sell are assumed to be negligible. The fair value of pooled investment funds held for sale is calculated as equal to the observable unit price.

Investment property and owner occupied property

The fair value of investment property and all owner occupied property is based on valuations provided by external property valuation experts. The fair value of investment property is measured based on each property's highest and best use from a market participant's perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible. No adjustment has been made for vacant possession for the Group's owner occupied property.

In the UK and Europe, valuations are completed in accordance with the Royal Institution of Chartered Surveyors (RICS) valuation standards. These are predominantly produced using an income capitalisation approach. The income capitalisation approach is based on capitalising an annual net income stream using an appropriate yield. The annual net income is based on both current and estimated future net income. The yield and future net income used is determined by considering recent transactions involving property with similar characteristics to the property being valued. Where it is not possible to use an income capitalisation approach, for example on property with no rental income, a market comparison approach is used by considering recent transactions involving property with similar characteristics to the property being valued. In both approaches where appropriate, adjustments will be made by the valuer to reflect differences between the characteristics of the property being valued and the recent market transactions considered.

As income capitalisation and market comparison valuations generally include significant unobservable inputs including unobservable adjustments to recent market transactions, these assets are categorised as level 3 within the fair value hierarchy. 

Derivative financial assets and derivative financial liabilities

The majority of the Group's derivatives are over-the-counter derivatives which are measured at fair value using a range of valuation models including discounting future cash flows and option valuation techniques. The inputs are observable market data and over-the-counter derivatives are therefore categorised as level 2 in the fair value hierarchy.

Exchange traded derivatives are valued using prices sourced from the relevant exchange. They are considered to be instruments quoted in an active market and are therefore categorised as level 1 instruments within the fair value hierarchy.

Non-performance risk arising from the credit risk of each counterparty has been considered on a net exposure basis in line with the Group's risk management policies. At 31 December 2016 and 31 December 2015 the residual credit risk is considered immaterial and therefore no credit risk adjustment has been made.

Debt securities         

For debt securities, the Group has determined a hierarchy of pricing sources. The hierarchy consists of reputable external pricing providers who generally use observable market data. If prices are not available from these providers or are considered to be stale, the Group has established procedures to arrive at an internal assessment of the fair value. These procedures are based largely on inputs that are not based on observable market data. A further analysis by category of debt security is as follows:

·   Government, including provincial and municipal, and supranational institution bonds

These instruments are valued using prices received from external pricing providers who generally base the price on quotes received from a number of market participants. They are categorised as level 1 or level 2 instruments within the fair value hierarchy depending upon the nature of the underlying pricing information used for valuation purposes.

·   Corporate bonds listed or quoted in an established over-the-counter market including asset-backed securities

These instruments are generally valued using prices received from external pricing providers who generally consolidate quotes received from a panel of banks into a composite price. As the market becomes less active the quotes provided by some banks may be based on modelled prices rather than on actual transactions. These sources are based largely on observable market data, and therefore these instruments are categorised as level 2 instruments within the fair value hierarchy. When prices received from external pricing providers are based on a single broker indicative quote, the instruments are categorised as level 3 instruments.

For instruments for which prices are either not available from external pricing providers or the prices provided are considered to be stale, the Group performs its own assessment of the fair value of these instruments. This assessment is largely based on inputs that are not based on observable market data, principally single broker indicative quotes, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy.

·   Other corporate bonds including unquoted bonds, commercial paper and certificates of deposit

These instruments are valued using models. For unquoted bonds the model uses inputs from comparable bonds and includes credit spreads which are obtained from brokers or estimated internally. Commercial paper and certificates of deposit are valued using standard valuation formulas. The categorisation of these instruments within the fair value hierarchy will be either level 2 or 3 depending upon the nature of the underlying pricing information used for valuation purposes.

·   Commercial mortgages

These instruments are valued using models. The models use a discount rate adjustment technique which is an income approach. The key inputs for the valuation models are contractual future cash flows, which are discounted using a discount rate that is determined by adding a spread to the current base rate. The spread is derived from a pricing matrix which incorporates data on current spreads for similar assets and which may include an internal underwriting rating. These inputs are generally observable with the exception of the spread adjustment arising from the internal underwriting rating. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending on whether the spread is adjusted by an internal underwriting rating.

Contingent consideration asset and contingent consideration liabilities

A contingent consideration asset was recognised during 2014 in respect of a purchase price adjustment mechanism relating to the acquisition of Ignis. The fair value of the asset is calculated using a binomial tree option pricing model. The main inputs are management fee income and expected probabilities of payouts. These are considered unobservable and as a result the asset is classified as level 3 in the fair value hierarchy.

Contingent consideration liabilities have also been recognised in respect of acquisitions made during the year. The valuations are based on unobservable assumptions regarding expected movements in assets under advice and therefore the liabilities are classified as level 3 in the fair value hierarchy.

Non-participating investment contract liabilities

The fair value of the non-participating investment contract liabilities is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and liabilities in which these funds are invested. The underlying assets and liabilities are predominately categorised as level 1 or 2 and as such, the inputs into the valuation of the liabilities are observable. Therefore, the liabilities are categorised within level 2 of the fair value hierarchy.

Liabilities in respect of third party interest in consolidated funds

The fair value of liabilities in respect of third party interest in consolidated funds is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets in which these funds are invested. When the underlying assets and liabilities are valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 2. Where the underlying assets and liabilities are not valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 3.

(d)(i)     Fair value hierarchy for assets measured at fair value in the statement of financial position

The table below presents the Group's assets measured at fair value by level of the fair value hierarchy.

							Fair value hierarchy
	As recognised in the consolidated statement of financial position line item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates at FVTPL	7,376	5,425	-	33	7,376	5,458	7,211	5,370	2	2	163	86
Investment property	9,929	9,991	228	87	10,157	10,078	-	-	-	-	10,157	10,078
Owner occupied property	58	55	8	-	66	55	-	-	-	-	66	55
Derivative financial assets	3,534	2,444	-	-	3,534	2,444	844	692	2,690	1,752	-	-
Equity securities and interests in pooled investment vehicles	83,307	71,679	27	17	83,334	71,696	82,539	70,877	-	-	795	819
Debt securities	67,933	66,657	-	-	67,933	66,657	28,721	23,210	38,344	42,660	868	787
Contingent consideration asset	10	15	-	-	10	15	-	-	-	-	10	15
Total assets at fair value	172,147	156,266	263	137	172,410	156,403	119,315	100,149	41,036	44,414	12,059	11,840

There were transfers of debt securities of £98m from level 1 to level 2 during the year (2015: no transfers). Refer to 43(d)(iii) for details of movements in level 3.

The table that follows presents an analysis of the Group's assets measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 41.

							Fair value hierarchy
	As recognised in the consolidated statement of financial position line item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Investments in associates at FVTPL	30	19	-	33	30	52	10	36	2	2	18	14
Investment property	-	1	-	-	-	1	-	-	-	-	-	1
Owner occupied property	-	-	-	-	-	-	-	-	-	-	-	-
Derivative financial assets	19	9	-	-	19	9	2	1	17	8	-	-
Equity securities and interests in pooled investment vehicles	58	52	27	17	85	69	78	61	-	-	7	8
Debt securities	8,384	7,576	-	-	8,384	7,576	928	1,089	6,704	5,858	752	629
Contingent consideration asset	10	15	-	-	10	15	-	-	-	-	10	15
Total shareholder business	8,501	7,672	27	50	8,528	7,722	1,018	1,187	6,723	5,868	787	667
Participating business
Investments in associates at FVTPL	847	531	-	-	847	531	702	459	-	-	145	72
Investment property	1,716	2,167	216	-	1,932	2,167	-	-	-	-	1,932	2,167
Owner occupied property	30	55	8	-	38	55	-	-	-	-	38	55
Derivative financial assets	2,211	1,478	-	-	2,211	1,478	480	407	1,731	1,071	-	-
Equity securities and interests in pooled investment vehicles	8,478	8,187	-	-	8,478	8,187	8,159	7,840	-	-	319	347
Debt securities	28,193	25,913	-	-	28,193	25,913	16,994	15,573	11,083	10,198	116	142
Total participating business	41,475	38,331	224	-	41,699	38,331	26,335	24,279	12,814	11,269	2,550	2,783
Unit linked funds
Investments in associates at FVTPL	5,605	4,561	-	-	5,605	4,561	5,605	4,561	-	-	-	-
Investment property	5,727	5,947	12	68	5,739	6,015	-	-	-	-	5,739	6,015
Owner occupied property	28	-	-	-	28	-	-	-	-	-	28	-
Derivative financial assets	1,025	716	-	-	1,025	716	281	220	744	496	-	-
Equity securities and interests in pooled investment vehicles	67,452	56,307	-	-	67,452	56,307	67,252	56,117	-	-	200	190
Debt securities	25,885	26,789	-	-	25,885	26,789	9,434	6,053	16,451	20,720	-	16
Total unit linked funds	105,722	94,320	12	68	105,734	94,388	82,572	66,951	17,195	21,216	5,967	6,221
TPICF and NCI1
Investments in associates at FVTPL	894	314	-	-	894	314	894	314	-	-	-	-
Investment property	2,486	1,876	-	19	2,486	1,895	-	-	-	-	2,486	1,895
Owner occupied property	-	-	-	-	-	-	-	-	-	-	-	-
Derivative financial assets	279	241	-	-	279	241	81	64	198	177	-	-
Equity securities and interests in pooled investment vehicles	7,319	7,133	-	-	7,319	7,133	7,050	6,859	-	-	269	274
Debt securities	5,471	6,379	-	-	5,471	6,379	1,365	495	4,106	5,884	-	-
TPICF and NCI1	16,449	15,943	-	19	16,449	15,962	9,390	7,732	4,304	6,061	2,755	2,169
Total	172,147	156,266	263	137	172,410	156,403	119,315	100,149	41,036	44,414	12,059	11,840

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

(d)(ii)    Fair value hierarchy for liabilities measured at fair value in the statement of financial position

The table below presents the Group's liabilities measured at fair value by level of the fair value hierarchy.

			Fair value hierarchy
	As recognised in the consolidated statement of financial position line item		Level 1		Level 2		Level 3
	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	102,059	92,890	-	-	102,059	92,890	-	-
Liabilities in respect of third party interest in consolidated funds	16,835	17,196	-	-	15,607	15,889	1,228	1,307
Derivative financial liabilities	965	1,254	185	184	780	1,070	-	-
Contingent consideration liabilities	15	-	-	-	-	-	15	-
Total liabilities at fair value	119,874	111,340	185	184	118,446	109,849	1,243	1,307

There were no transfers between levels 1 and 2 during the year (2015: none). Refer to 43(d)(iii) for details of movements in level 3.

The table that follows presents an analysis of the Group's liabilities measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 41.

			Fair value hierarchy
	As recognised in the consolidated statement of financial position line item		Level 1		Level 2		Level 3
	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Derivative financial liabilities	12	16	1	1	11	15	-	-
Contingent consideration liabilities	15	-	-	-	-	-	15	-
Total shareholder business	27	16	1	1	11	15	15	-
Participating business
Derivative financial liabilities	39	88	20	47	19	41	-	-
Total participating business	39	88	20	47	19	41	-	-
Unit linked funds
Non-participating investment contract liabilities	102,059	92,890	-	-	102,059	92,890	-	-
Derivative financial liabilities	714	836	130	103	584	733	-	-
Total unit linked funds	102,773	93,726	130	103	102,643	93,623	-	-
TPICF and NCI1
Liabilities in respect of third party interest in consolidated funds	16,835	17,196	-	-	15,607	15,889	1,228	1,307
Derivative financial liabilities	200	314	34	33	166	281	-	-
TPICF and NCI1	17,035	17,510	34	33	15,773	16,170	1,228	1,307
Total	119,874	111,340	185	184	118,446	109,849	1,243	1,307

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

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

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

	Investments in associates at FVTPL		Investment property		Owner occupied property		Equity securities and interests in pooled investment funds		Debt securities		Liabilities in respect of third party interest in consolidated funds
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	86	83	9,991	9,041	55	138	819	836	787	519	(1,307)	(1,338)
Reclassified to held for sale	-	-	(191)	(87)	(8)	-	-	-	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	10	1	(302)	452	(1)	5	80	135	34	-	19	(47)
Purchases1	103	16	1,755	862	1	-	109	116	183	360	(19)	(91)
Settlement	-	-	-	-	-	-	-	-	-	-	81	169
Sales	(39)	(14)	(1,337)	(290)	(22)	(92)	(242)	(296)	(97)	(111)	-	-
Transfers in to level 32	-	-	-	-	-	-	5	26	-	33	-	-
Transfers out of level 32	-	-	-	-	-	-	(33)	-	(39)	(14)	-	-
Transfers between investment property and owner occupied property	-	-	(28)	-	28	-	-	-	-	-	-	-
Foreign exchange adjustment	3	-	44	(8)	-	-	57	2	-	-	(2)	-
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	-	-	-	5	4	-	-	-	-	-	-
Other	-	-	(3)	21	-	-	-	-	-	-	-	-
At 31 December	163	86	9,929	9,991	58	55	795	819	868	787	(1,228)	(1,307)

¹   Purchases of investment property for the year ended 31 December 2016 includes £1,289m (2015: £nil) relating to the merger of property investment vehicles.

²   Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

In addition to the above, the Group had a contingent consideration asset with a fair value of £10m at 31 December 2016 (2015: £15m) and contingent consideration liabilities with a fair value of £15m (2015: £nil). There were no settlements during the year. Movements in the fair value of contingent consideration assets and liabilities are recognised in other income in the consolidated income statement.

As at 31 December 2016, £119m of total losses from continuing operations (2015: £418m gains) were recognised in the consolidated income statement in respect of assets and liabilities held at fair value classified as level 3 at the year end. Of this amount £137m losses (2015: £460m gains) were recognised in investment return, £1m losses (2015: £5m gains) were recognised in other administrative expenses and £19m gains (2015: £47m losses) were recognised in change in liability for third party interest in consolidated funds.

Transfers of equity securities and interests in pooled investment funds and debt securities into level 3 generally arise when external pricing providers stop providing a price or where the price provided is considered stale. Transfers of equity securities and interests in pooled investment funds and debt securities out of level 3 arise when acceptable prices become available from external pricing providers.

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

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

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

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

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

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

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

The shareholder is directly exposed to movements in the value of level 3 investments held by the shareholder business (to the extent they are not offset by opposite movements in investment and insurance contract liabilities). Movements in level 3 investments held by the other risk segments are offset by an opposite movement in investment and insurance contract liabilities and therefore the shareholder is not directly exposed to such movements unless they are sufficiently severe to cause the assets of the participating business to be insufficient to meet the obligations to policyholders.

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

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

	Fair value
2016	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,567	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.6% to 9.1% (5.4%) £29 to £2,422 (£336)
Investment property (hotels)	596	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.6% to 7.1% (5.7%) £990 to £13,750 (£5,462)
Investment property and owner occupied property	60	Market comparison	Estimated value per square metre	£2 to £12,807 (£4,081)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	958	Adjusted net asset value	Adjustment to net asset value1	N/A
Debt securities (commercial mortgages)	451	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	373	Discounted cash flow	Credit spread	0.2% to 4.3% (1.9%)
Debt securities (infrastructure loans)	11	Discounted cash flow	Credit spread	1.3% (1.3%)
Debt securities (other)	33	Single broker	Single broker indicative price2	N/A

	Fair value
2015	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,496	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	2.1% to 15.5% (5.2%) £3 to £2,422 (£346)3
Investment property (hotels)	515	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.6% to 7.2% (5.9%) £995 to £13,748 (£5,632)
Investment property and owner occupied property	122	Market comparison	Estimated value per square metre	£2 to £14,604 (£4,246)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	905	Adjusted net asset value	Adjustment to net asset value1	N/A
Debt securities (commercial mortgages)	382	Discounted cash flow	Credit spread	1.9% to 2.6% (2.2%)
Debt securities (unquoted corporate bonds)	270	Discounted cash flow	Credit spread	0.2% to 4.0% (1.9%)
Debt securities (other)	135	Single broker	Single broker indicative price2	N/A

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

¹    Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

²    Restated.

(e)        Assets and liabilities not carried at fair value

The table below presents estimated fair values by level of the fair value hierarchy of assets and liabilities whose carrying value does not approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other valuation techniques.

		As recognised in the consolidated statement of financial position line item		Fair value		Level 1		Level 2		Level 3
		2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Loans secured by mortgages	22	73	87	86	84	-	-	86	84	-	-
Liabilities						-	-	-	-	-	-
Non-participating investment contract liabilities	35	4	4	4	4	-	-	-	-	4	4
Subordinated notes	36	499	499	530	530	-	-	530	530	-	-
Subordinated guaranteed bonds	36	502	502	577	579	-	-	577	579	-	-
Mutual Assurance Capital Securities	36	318	317	334	345	-	-	334	345	-	-

The estimated fair values for subordinated liabilities are based on the quoted market offer price. The estimated fair values of the other instruments detailed above are calculated by discounting the expected future cash flows at current market rates.

It is not possible to reliably calculate the fair value of participating investment contract liabilities. The assumptions and methods used in the calculation of these liabilities are set out in Note 33. The carrying value of participating investment contract liabilities at 31 December 2016 was £15,537m (2015: £14,716m). The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.

44.    Statement of cash flows

The tables below provide further analysis of the balances in the statement of cash flows.

(a)        Change in operating assets

	2016	2015
	£m	£m
Investment property	(116)	(1,061)
Equity securities and interests in pooled investment funds	(11,131)	(889)
Debt securities	63	(2,506)
Derivative financial instruments	(1,331)	1,063
Reinsurance assets	140	518
Investments in associates and joint ventures	(1,305)	(1,042)
Receivables and other financial assets and other assets	118	(281)
Deferred acquisition costs	45	114
Loans	497	(593)
Assets held for sale	25	(1,930)
Change in operating assets	(12,995)	(6,607)

(b)        Change in operating liabilities

	2016	2015
	£m	£m
Other financial liabilities, provisions and other liabilities	1,209	(820)
Deposits received from reinsurers	(41)	(507)
Pension and other post-retirement benefit provisions	(19)	21
Deferred income	(46)	(38)
Insurance contract liabilities	1,393	(630)
Investment contract liabilities	9,051	4,945
Change in liability for third party interest in consolidated funds	1,379	285
Liabilities held for sale	-	786
Change in operating liabilities	12,926	4,042

(c)        Other non-cash and non-operating items

		2016	2015
		£m	£m
Gain on sale of subsidiaries excluding transaction costs and provision recognised on disposal		-	(1,136)
Gain on disposal of property, plant and equipment		1	(6)
Depreciation of property, plant and equipment		14	16
Amortisation of intangible assets		64	51
Impairment losses on intangible assets		20	11
Impairment losses on property, plant and equipment		1	4
Impairment losses reversed on property, plant and equipment		-	(5)
Other interest cost		3	7
Finance costs		82	84
Share of profit from associates and joint ventures		(63)	(43)
Other non-cash and non-operating items		122	(1,017)

(d)        Disposal of subsidiaries

There were no operations disposed of in the year ended 31 December 2016. The following table sets out the cash inflows from the disposal of the Canadian business in 2015.

		2015
	Notes	£m
Investment property		1,343
Loans		2,235
Equity securities and interests in pooled investment funds		12,415
Debt securities		11,206
Other assets of operations disposed of excluding cash and cash equivalents		1,354
Non-participating insurance contract liabilities		(9,455)
Non-participating investment contract liabilities		(15,195)
Other liabilities of operations disposed of		(2,702)
Net assets disposed of		1,201
Items transferred to profit or loss on disposal of subsidiaries	12	(237)
Gain on sale	12	1,102
Transaction costs		21
Provision recognised on disposal of subsidiaries		13
Total cash consideration	1	2,100
Cash and cash equivalents disposed of	12	(500)
Cash inflow from disposal of subsidiary		1,600

45.    Contingent liabilities and contingent assets

Contingent liabilities are possible obligations of the Group of which timing and amount are subject to significant uncertainty. Contingent liabilities are not recognised on the consolidated statement of financial position but are disclosed, unless they are considered remote. If such an obligation becomes probable and the amount can be measured reliably it is no longer considered contingent and is recognised as a liability.

Conversely, contingent assets are possible benefits to the Group. Contingent assets are only disclosed if it is probable that the Group will receive the benefit. If such a benefit becomes virtually certain it is no longer considered contingent and is recognised as an asset.

(a)        Annuity sales practices relating to enhanced annuities

As discussed in Note 40, at the request of the Financial Conduct Authority (FCA), Standard Life is conducting a past business review of non-advised annuity sales. The purpose of the review is to identify whether relevant customers received sufficient information about enhanced annuities to make the right decisions about their purchase, and where appropriate provide redress to customers who have suffered loss as a result of not having received sufficient information. In relation to this review, the FCA is carrying out an investigation and it is possible that the FCA may impose a financial penalty on Standard Life. At this stage it is not possible to determine an estimate of the financial effect, if any, of this contingent liability. The Group is also considering whether the FCA's enhanced annuities review could have implications for other past annuity sales practices.

Note 40 also provides disclosure of potential insurance recoveries relating to redress payable to customers, the costs of conducting the review and other related expenses. Any FCA levied financial penalties cannot be covered by such liability insurance.

(b)        Legal proceedings, complaints and regulations

The Group is subject to regulation in all of the territories in which it operates insurance and investment businesses. In the UK, where the Group primarily operates, the FCA has broad powers, including powers to investigate marketing and sales practices.

The Group, like other financial organisations, is subject to legal proceedings, complaints and regulatory discussions, reviews and challenges in the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is established based on management's best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory matters. 

46.    Commitments

The Group has contractual commitments in respect of expenditure on investment property, funding arrangements and leases which will be payable in future periods. These commitments are not recognised on the Group's statement of financial position at the year end but are disclosed to give an indication of the Group's future committed cash flows.

All Group leases are operating leases, being leases where the lessor retains substantially all the risks and rewards of the ownership of the leased asset.

(a)        Capital commitments

As at 31 December 2016, capital expenditure that was authorised and contracted for, but not provided and incurred, was £286m (2015: £231m) in respect of investment property. Of this amount, £220m (2015: £203m) and £66m (2015: £28m) relates to the contractual obligations to purchase, construct, or develop investment property and repair, maintain or enhance investment property respectively.  

(b)        Unrecognised financial instruments

The Group has committed £453m (2015: £343m) in respect of unrecognised financial instruments to customers and third parties. Of this amount £363m (2015: £291m) is committed by consolidated private equity funds. These commitments will be funded through contractually agreed additional investments both by the Group, through its controlling interests, and the funds' non-controlling interests. The level of funding provided by each will not necessarily be in line with the current ownership profile of the funds.

(c)        Operating lease commitments

The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payments under non-cancellable operating leases from continuing operations are as follows:

	2016	2015
	£m	£m
Not later than one year	32	30
Later than one year and no later than five years	70	69
Later than five years	102	111
Total operating lease commitments	204	210

47.    Employee share-based payments

The Group operates share incentive plans for its employees. These generally take the form of an award of options or shares in Standard Life plc (equity-settled share based payments) but can also take the form of a cash award based on the share price of Standard Life plc (cash-settled share based payments). All the Group's incentive plans have conditions attached before the employee becomes entitled to the award. These can be performance and/or service conditions (vesting conditions) or the requirement of employees to save in the save-as-you-earn scheme (non-vesting condition). The period over which all vesting conditions are satisfied is the vesting period and the awards vest at the end of this period.

For all share-based payments services received for the incentive granted are measured at fair value.

For cash-settled share-based payment transactions, services received are measured at the fair value of the liability. The fair value of the liability is remeasured at each reporting date and any changes in fair value are recognised in the consolidated income statement.

For equity-settled share-based payment transactions, the fair value of services received is measured by reference to the fair value of the equity instruments at the grant date. The fair value of the number of instruments expected to vest is charged to the income statement over the vesting period with a corresponding credit to the equity compensation reserve in equity.

At each period end the Group reassesses the number of equity instruments expected to vest and recognises any difference between the revised and original estimate in the consolidated income statement with a corresponding adjustment to the equity compensation reserve.

At the time the equity instruments vest, the amount recognised in the equity compensation reserve in respect of those equity instruments is transferred to retained earnings.

Share options

(i)         Long-term incentive plans

The Group operates the following long-term incentive plans.

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

All of the awards are equity-settled other than awards made under the Standard Life Investments LTIP in respect of employees in the US, France and Asia which are cash-settled.

(ii)         Short-term incentive plan (annual bonus deferred shares)

The majority of the members of the executive and senior management including executive Directors participate in the Group annual bonus. Under the terms of the 2016 and 2015 annual bonus, half of any bonus earned by executive Directors and members of the executive team above 25% of salary will be settled in nil-cost options which are deferred for a period of three years (two years for the 2015 annual bonus), subject to the deferred amount being worth 10% or more of salary. Further details of the annual bonus are set out in the Directors' remuneration report.

Employees may forfeit some or all of awards made under any of the above share-based payment schemes if they leave the Group prior to the end of the awards' vesting periods.

(iii)        Sharesave (Save-as-you-earn)

The Group operates Save-as-you-earn (SAYE) plans, which allow eligible employees in the UK and Ireland the opportunity to save a monthly amount from their salaries, over either a three or five year period, which can be used to purchase shares in the Company. The shares can be purchased at the end of the savings period at a predetermined price. Employees are granted a predetermined number of options based on the monthly savings amount and duration of their contract. The conditions attached to the options are that the employee remains in employment for three years after the grant date of the options and that the employee satisfies the monthly savings requirement. Settlement is made in the form of shares.

Share awards

(i)         Share incentive plan

The Group operates a share incentive plan, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any year is £1,800. The Group offers to match the number of shares bought up to a value of £50 each month (up to a value of £25 until May 2016). The matching shares awarded under the share incentive plan are granted at the end of each month. The matching shares are generally subject to a three year service period.

(a)        Options granted

The number, weighted average exercise price and weighted average remaining contractual life for options outstanding during the year are as follows:

	2016					2015
	Long-term incentive plans (excluding RSP)	RSP	Short-term incentive plan	Sharesave	Weighted average exercise price for Sharesave	Long-term incentive plans (excluding RSP)	RSP	Short-term incentive plan	Sharesave	Weighted average exercise price for Sharesave
Outstanding at 1 January	28,071,264	2,951,682	537,726	9,108,246	255p	25,131,521	2,732,361	557,301	8,235,878	228p
Granted	19,574,146	1,452,614	387,848	3,036,190	283p	14,096,423	1,423,236	305,253	2,091,965	328p
Forfeited	(3,570,503)	(100,580)	-	(497,778)	279p	(2,516,468)	(431,168)	-	(311,887)	260p
Exercised	(4,339,160)	(477,508)	(372,536)	(3,365,277)	188p	(8,640,212)	(772,747)	(324,828)	(847,383)	198p
Expired	-	-	-	-	-	-	-	-	(914)	157p
Cancelled	-	-	-	(706,102)	312p	-	-	-	(59,413)	267p
Outstanding at 31 December	39,735,747	3,826,208	553,038	7,575,279	290p	28,071,264	2,951,682	537,726	9,108,246	255p
Exercisable at 31 December	40,970	25,161	-	302,214	193p	-	-	-	84,517	220p
Weighted average remaining contractual life of options outstanding (years)	2.21	1.35	1.43	2.66		2.18	1.96	1.31	2.34

The exercise price for options granted under long-term and short-term incentive schemes is nil. Fair value of options granted under the Group's incentive schemes is determined using a relevant valuation technique, such as the Black Scholes option pricing model.

The following table shows the weighted average assumptions that were considered in determining the fair value of options granted during the year and the share price at exercise of options exercised during the year.

	Long-term incentive plans (excluding RSP)	RSP	Short-term incentive plan	Sharesave
Options granted during the year
Grant date	24 March 2016	Throughout	24 March 2016	7 October 2016
Share price at grant date	349p	340p	349p	355p
Fair value at grant date	349p	340p	349p	56p
Exercise price	Nil	Nil	Nil	280p-283p
Dividends	The plans include the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date	The plans include the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date	The plan includes the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date	No dividend entitlement
Option term (years)	3.45	2.17	3.23	3.53
Options exercised during the year
Share price at time of exercise	349p	350p	357p	341p

No departures from share option schemes are expected at grant date, with any leavers being accounted for on departure. In determining the fair value of options granted under the Sharesave scheme the historic volatility of the share price over a period of up to five years and a risk free rate determined by reference to swap rates was also considered.                                     

The following table shows the range of exercise prices of options outstanding at 31 December 2016. All options are exercisable for a period of six months after the vesting date.

	2016	2015
	Number of options outstanding	Number of options outstanding
Long-term incentive plans
£nil	43,561,955	31,022,946
Short-term incentive plan
£nil	553,038	537,726
Sharesave
Less than 200p	206,770	2,727,416
200p-320p	5,891,582	4,296,662
321p-400p	1,476,927	2,084,168
Outstanding at 31 December	51,690,272	40,668,918

(b)        Share incentive plan

	2016	2015
Number of instruments granted1	503,931	261,123
Share price at date of grant2	333p	431p
Fair value per granted instrument at grant date2	333p	431p

¹   Included in the number of instruments granted are 11,814 (2015: 11,433) rights to shares granted to eligible employees in Germany and Austria.

²   Weighted average.

The fair value of instruments granted under the share incentive plan is calculated by reference to the share price at grant date. The plan includes the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date. At the grant date all awards are expected to vest. No departures are expected at the grant date, with leavers being accounted for on departure.

(c)        Employee share-based payment expense

The amounts recognised as an expense in Note 8 for equity-settled share-based payment transactions with employees are as follows:

	2016	2015
	£m	£m
Share options granted under long-term incentive plans	25	29
Share options granted under Sharesave	2	1
Share options granted under short-term incentive plan	2	2
Matching shares granted under share incentive plans	1	1
Expense from continuing operations	30	33
Expense from discontinued operations	-	1
	30	34

Additionally, the Group incurred an expense for cash-settled share-based payment schemes from continuing operations of £2m in 2016 (2015: £2m). The liability for cash-settled share-based payments outstanding at 31 December 2016 is £4m (2015: £3m).

48.    Related party transactions

(a)        Transactions and balances with related parties

In the normal course of business, the Group enters into transactions with related parties that relate to insurance and investment management business. 

Transactions with related parties carried out by the Group during the year were as follows:

	2016	2015
	£m	£m
Sales to
Associates	9,328	1,018
Other related parties	66	53
	9,394	1,071
Purchases from
Associates	9,782	1,495
Joint ventures	1	9
	9,783	1,504

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

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

The year end balances arising from transactions carried out by the Group with related parties are as follows:

	2016	2015
	£m	£m
Due from related parties
Associates	16	24
Joint ventures	3	2
	19	26

In addition to the amounts shown above, the Group's defined benefit pension plans have assets of £1,028m (2015: £579m) invested in investment vehicles managed by the Group.

(b)        Compensation of key management personnel

In 2016 key management personnel includes only Directors of Standard Life plc; in 2015 key management personnel also included certain direct reports of the Chief Executive. Detailed disclosures of Directors' remuneration for the year and transactions in which the Directors are interested are contained within the audited section of the Directors' remuneration report.

The summary of compensation of key management personnel is as follows:

	2016	2015
	£m	£m
Salaries and other short-term employee benefits	6	8
Post-employment benefits	1	1
Share-based payments	3	5
Termination benefits	-	2
Total compensation of key management personnel	10	16

 

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

All transactions between key management and their close family members and the Group during the year are on terms which are equivalent to those available to all employees of the Group.

During the year to 31 December 2016, key management personnel and their close family members contributed £1m (2015: £6m) to products sold by the Group. At 31 December 2016 the total value of key management personnel's investments in Group products was £21m (2015: £19m).

49.    Capital management

(a)        Capital management policies and risk management objectives

Managing capital is the ongoing process of determining and maintaining the quantity and quality of capital appropriate for the Group and ensuring capital is deployed in a manner consistent with the expectations of our stakeholders. For these purposes, the Board considers our key stakeholders to be the providers of capital (our equity holders, policyholders and holders of our subordinated liabilities) and the Prudential Regulation Authority (PRA).

There are two primary objectives of capital management within the Group. The first objective is to ensure that capital is, and will continue to be, adequate to maintain the required level of financial stability of the Group and hence to provide an appropriate degree of security to our stakeholders - this aspect is measured by the Group's regulatory solvency position. The second objective is to create equity holder value by driving profit attributable to equity holders.

The liquidity and capital management policy forms one aspect of the Group's overall management framework. Most notably, it operates alongside and complements the strategic investment policy and the Group risk policies. Integrating policies in this way enables the Group to have a capital management framework that robustly links the process of capital allocation, value creation and risk management.

The capital requirements of each business unit are forecast on a periodic basis and the requirements are assessed against the forecast available capital resources. In addition, internal rates of return achieved on capital invested are assessed against hurdle rates, which are intended to represent the minimum acceptable return given the risks associated with each investment. The capital planning process is the responsibility of the Chief Financial Officer. Capital plans are ultimately subject to approval by the Board.

The formal procedures for identifying and assessing risks that could affect the capital position of the Group are described in the risk management policies set out in Note 41.

(b) Regulatory capital

(b)(i) Regulatory capital framework

From 1 January 2016, both the consolidated Group and regulated insurance entities within the Group operating in the EU have been required to measure and monitor their capital resources under the Solvency II (SII) regulatory regime.

The Group's capital position under SII is determined by aggregating the assets and liabilities of the Group recognised and measured on a SII basis (being Own funds) and comparing this to the Group's SII solvency capital requirement (SCR) to determine surplus capital.

There are a number of differences to the recognition and measurement of the Group's assets and liabilities on a SII basis compared to IFRS. These are described in (b)(iii).

The Group's SII SCR primarily consists of the consolidated SII SCR for insurance entities (including Standard Life plc) which is calculated on the basis of management's own regulator-approved internal model. In addition, the Group's SCR also includes SII SCRs for other insurance entities whose SCRs are calculated on the basis of the standard formula within the SII regulations, and the capital requirements of other regulated entities in the Group that are set by their regulator. The SII SCRs for insurance entities are calibrated so that the likelihood of a loss exceeding the SII SCR in one year is less than 0.5%. The SII capital resources are also subject to Minimum Capital Requirements.

Surplus capital at individual entity level is assessed for availability to the Group and therefore may be restricted when determining Group own funds.

This regulatory framework can be summarised as follows for the main regulated entities in the Group:

	Entity level	Contribution to Group SII position
Standard Life Investments Limited	BIPRU1	BIPRU1
Standard Life Assurance Limited (SLAL)	SII internal model	SII internal model
Standard Life International DAC	SII standard formula	SII standard formula
Standard Life plc	-	SII internal model
Standard Life (Asia) Limited	Local regime (Hong Kong)	SII standard formula
Heng An Standard Life Insurance Company Limited	Local regime (China)	SII standard formula
HDFC Standard Life Insurance Company Limited	Local regime (India)	Excluded

¹    Prudential Sourcebook for Banks, Building Societies and Investment Firms.

(b)(ii)    Regulatory capital position (unaudited)

The table below shows the Group's own funds and solvency capital requirement:

	20161	20151
	£bn	£bn
Own funds	7.2	5.5
Solvency capital requirement (SCR)	(4.1)	(3.4)
Solvency II capital surplus	3.1	2.1
Solvency cover	176%	162%

¹   2016 based on draft regulatory returns which are not audited. 2015 based on the position on adoption of the SII regulatory regime at 1 January 2016.

The Group has complied with all externally imposed capital requirements during the year. The Group position can be analysed as follows:

	Own funds	SCR	Surplus
31 December 20161	£bn	£bn	£bn
SLAL	6.0	3.8	2.2
Restriction on SLAL own funds recognised at Group	(0.1)	-	(0.1)
Other businesses	1.3	0.3	1.0
Group total	7.2	4.1	3.1

	Own funds	SCR	Surplus
31 December 20151	£bn	£bn	£bn
SLAL	5.3	3.1	2.2
Restriction on SLAL own funds recognised at Group	(1.1)	-	(1.1)
Other businesses	1.3	0.3	1.0
Group total	5.5	3.4	2.1

¹   2016 based on draft regulatory returns which are not audited. 2015 based on the position on adoption of the SII regulatory regime at 1 January 2016.

The Group's own funds do not take into account capital in subsidiaries that is not deemed to be freely transferable around the Group. The reduction in unrecognised capital in SLAL from £1.1bn at 31 December 2015 to £0.1bn at 31 December 2016 is due to methodology and legislative changes.

(b)(iii) Reconciliation of regulatory capital own funds to IFRS equity

A reconciliation of the Group own funds to the equity attributable to equity holders of Standard Life plc on an IFRS basis is as follows:

	20165	20155
	£bn	£bn
Own funds	7.2	5.5
Add unrecognised Solvency II capital (availability restriction)	0.2	1.2
Remove with profits funds and pension scheme contribution to own funds1	(1.2)	(0.7)
Remove subordinated liabilities contribution to own funds2	(1.6)	(1.5)
Remove value of fee business future profits3	(2.9)	(2.9)
Add IFRS pension scheme surplus1	1.1	0.9
Add IFRS DAC, DIR and other intangibles assets and other valuation differences4	1.5	1.5
IFRS equity attributable to equity holders of Standard Life plc	4.3	4.0

¹   In determining Group own funds the asset recognised for a surplus in a with profits fund or a defined benefit pension scheme is restricted to their capital requirements.

²   Subordinated liabilities provide capital in SII provided certain conditions are met.

³   The measurement of technical provisions in Group own funds reflects the value of future profits on investment fee business which are not included in the measurement of IFRS liabilities.

⁴   Certain items that are recognised as assets and liabilities under IFRS are not recognised as assets and liabilities in Group own funds, being the Group's DAC, DIR and other intangible assets. Other valuation differences are mainly due to differences in the measurement of technical provisions for insurance business.

⁵   2016 based on draft regulatory returns which are not audited. 2015 based on the position on adoption of the SII regulatory regime at 1 January 2016.

50.    Related undertakings

The Companies Act 2006 requires disclosure of certain information about the Group's related undertakings which is set out in this note. Related undertakings are subsidiaries, joint ventures, associates and other significant holdings. In this context significant means either a shareholding greater than or equal to 20% of the nominal value of any class of shares, or a book value greater than 20% of the Group's assets.

The particulars of the Company's related undertakings at 31 December 2016 are listed below. For details of the Group's consolidation policy refer to (b) Basis of consolidation in the Presentation of consolidated financial statements section.

The ability of subsidiaries to transfer cash or other assets within the Group for example through payment of cash dividends is restricted only by local laws and regulations, and solvency requirements. These are not considered significant restrictions on the Group's ability to access or use the assets and settle the liabilities of the Group. 

The Group also has investments in Qualifying Limited Partnerships which are consolidated in these financial statements. For the Qualifying Limited Partnerships, North American Strategic Partners (Feeder) 2006 Limited Partnership and North American Strategic Partners (Feeder) 2008 Limited Partnership an exemption from filing annual financial statements with Companies House has been taken in accordance with the Partnership Accounting Regulations (2008). The registered head office of all related undertakings is 1 George St, Edinburgh, EH2 2LL unless otherwise stated.

(a)        Direct subsidiaries

Name of related undertaking		Share class1	% interest held
30 STMA 1 Limited3		Ordinary Shares	100%
30 STMA 2 Limited3		Ordinary Shares	100%
30 STMA 3 Limited3		Ordinary Shares	100%
30 STMA 4 Limited3		Ordinary Shares	100%
Elevate Portfolio Services Limited3		Ordinary Shares	100%
Focus Solutions Group Limited4		Ordinary Shares	100%
Standard Life (Asia Pacific Holdings) Private Limited5		Ordinary Shares	100%
Standard Life Assurance Limited2		Ordinary Shares Ordinary B Shares	100%
Standard Life (London) Limited3		Ordinary Shares	100%
Standard Life (Mauritius Holdings) 2006 Limited6		Ordinary Shares	100%
Standard Life Employee Services Limited2		Ordinary Shares	100%
Standard Life Finance Limited2		Ordinary Shares	100%
Standard Life Foundation2		N/A	100%
Standard Life Investments (Holdings) Limited		Ordinary Shares	100%
Standard Life Oversea Holdings Limited2		Ordinary Shares	100%
Threesixty Support LLP7		Limited Liability Partnership	100%
Vebnet (Holdings) Limited3		Ordinary Shares	100%

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

Name of related undertaking		Share class1	% interest held
1825 Financial Planning Limited3		Ordinary Shares	100%
28 Ribera del Loira SA8		Ordinary Shares	100%
330 Avenida de Aragon SL8		Ordinary Shares	100%
4th Contact Limited3		Ordinary Shares	100%
Andaes S.à r.l.9		Ordinary Shares	60%
Aurora Kaasunjakelu Oy10		Ordinary Shares	35%
AXA Portfolio Services Limited3		Ordinary Shares Preference Shares	100%
Baigrie Davies & Company Limited3		Ordinary Shares	100%
Baigrie Davies Holdings Limited3		Ordinary Shares	100%
Bardol Inversiones SL8		Ordinary Shares	60%
Bechtel Properties Limited11		Ordinary Shares	100%
Castlepoint General Partner Limited12		Ordinary Shares	100%
Castlepoint LP12		Ordinary Shares	50%
Castlepoint Nominee Limited12		Ordinary Shares	100%
City Road (Jersey) Limited13		Ordinary Shares	100%
Crawley Unit Trust13		Unit Trust	100%
ESP 2006 Conduit LP		Limited Partnership	8%
ESP 2008 Conduit LP		Limited Partnership	4%

Name of related undertaking		Share class1	% interest held
ESP CPPIB European Mid Market Fund		Limited Partnership	1%
ESP General Partner Limited Partnership		Limited Partnership	50%
ESP Golden Bear Europe Fund		Limited Partnership	3%
ESP II Conduit LP		Limited Partnership	46%
ESP II General Partner Limited Partnership		Limited Partnership	46%
ESP Tidal Reach LP		Limited Partnership	1%
European Strategic Partners		Limited Partnership	73%
European Strategic Partners 2006 'B'		Limited Partnership	9%
European Strategic Partners 2008 'B'		Limited Partnership	4%
European Strategic Partners II 'A'		Limited Partnership	1%
European Strategic Partners II 'B'		Limited Partnership	1%
European Strategic Partners II 'C'		Limited Partnership	69%
European Strategic Partners II 'D'		Limited Partnership	1%
European Strategic Partners II 'E'		Limited Partnership	1%
Extraverde Property BV14		Ordinary Shares	60%
Ezraya Sp z.o.o.15		Ordinary Shares	60%
Falcon II Pavlova s.r.o.16		Ordinary Shares	60%
Focus Business Solutions Limited4		Ordinary Shares	100%
Focus Holdings Limited4		Ordinary Shares	100%
Focus Software Limited4		Ordinary Shares	100%
Focus Solutions EBT Trustee Limited4		Ordinary Shares	100%
G Park Management Company Limited11		Preference shares	100%
Gallions Reach Shopping Park (Nominee) Limited11		Ordinary Shares	100%
Gallions Reach Shopping Park Limited Partnership11		Limited Partnership	100%
Gallions Reach Shopping Park Unit Trust13		Unit Trust	100%
GREF Almeda Park SL8		Ordinary Shares	60%
GREF Jersey Esplanade Limited17		Ordinary Shares	60%
GREF Jersey Holding Limited17		Ordinary Shares	60%
GREF Jersey Ireland Holding Limited17		Ordinary Shares	60%
GREF Jersey Ireland Property Limited17		Ordinary Shares	60%
HDFC Asset Management Company Limited18		Ordinary Shares	40%
HDFC International Life and Re Company Limited19		Ordinary shares	35%
HDFC Pension Management Company Limited20		Equity Shares	35%
HDFC Standard Life Insurance Company Limited21		Equity Shares	35%
Heng An Standard Life Insurance Company Limited22		Equity Shares	50%
High Street Nominee No. 1 Limited13		Ordinary Shares	100%
High Street Nominee No. 2 Limited13		Ordinary Shares	100%
Hundred S.à r.l.9		Ordinary Shares	100%
Ibis (748) Limited11		Ordinary Shares	100%
Ibis (749) Limited11		Ordinary Shares	100%
Iceni Nominees (No.2) Limited11		Ordinary Shares	100%
Iceni Nominees (No.2A) Limited11		Ordinary Shares	100%
Ignis Asset Management Limited		Ordinary Shares	100%
Ignis Carry Partner Limited24		Ordinary Shares	100%
Ignis Cayman GP2 Limited24		Ordinary Shares	60%
Ignis Cayman GP3 Limited24		Ordinary Shares	60%
Ignis Fund Managers Limited		Ordinary Shares	100%
Ignis Investment Management Limited		Ordinary Shares	100%
Ignis Investment Services Limited		Ordinary Shares	100%
Ignis Nominees Limited		Ordinary Shares	100%
Inesia S.A.9		Ordinary Shares	100%
Inhoco 3107 Limited11		Ordinary Shares	100%
Invest Park 3 Sp. z.o.o.25		Ordinary Shares	60%
Jones Sheridan Financial Consulting Limited26		Ordinary Shares	100%
Jones Sheridan Holdings Limited26		Ordinary Shares	100%
Lake Meadows Management Company Limited11		Ordinary Shares	100%

Name of related undertaking		Share class1	% interest held
Lincoln St Marks (One) Limited11		Ordinary Shares	100%
Lincoln St Marks (Two) Limited11		Ordinary Shares	100%
Lothian Development III (Nederland) BV14		Ordinary Shares	100%
Lothian Development III SA27		Ordinary Shares	100%
Mallard Investments LLP		Limited Liability Partnership	35%
Mastscreen Limited28		Ordinary Shares	100%
NASP 2006 General Partner Limited Partnership		Limited Partnership	62%
Nordic Hydro AS29		Ordinary Shares	35%
Nordic Hydro Holding AS29		Ordinary Shares	35%
Nordic Power AS29		Ordinary Shares	35%
Nordic Power Torsnes AS29		Ordinary Shares	35%
North American Strategic Partners (Feeder) 2006		Limited Partnership	70%
North American Strategic Partners (Feeder) 2008 Limited Partnership		Limited Partnership	100%
North American Strategic Partners 2006 L.P.30		Limited Partnership	55%
North American Strategic Partners 2008 L.P. 30		Limited Partnership	100%
North American Strategic Partners GP, LP30		Limited Partnership	80%
North American Strategic Partners, LP30		Limited Partnership	41%
North East Trustees Limited31		Ordinary A Shares Ordinary B Shares	100%
Pace Financial Solutions Limited3		Ordinary A Shares Ordinary B Shares Ordinary C Shares	100%
Pace Mortgage Solutions Limited3		Ordinary A Shares Ordinary B Shares	100%
Panker Invest S.à r.l.9		Ordinary Shares	60%
Parnell Fisher Child & Co. Limited3		Ordinary Shares	100%
Parnell Fisher Child Holdings Limited3		Ordinary A Shares Ordinary B Shares	100%
Pearson Jones & Company (Trustees) Limited31		Ordinary Shares	100%
Pearson Jones Nominees Limited31		Ordinary Shares	100%
Pearson Jones plc3		Ordinary A Shares Ordinary B Shares	100%
PLC Poland 20 Sp z.o.o.15		Ordinary Shares	60%
PLC Poland 25 Sp z.o.o.15		Ordinary Shares	60%
PLC Poland 34 Sp z.o.o.15		Ordinary Shares	60%
Property Corporate Director 1 Limited11		Ordinary Shares	100%
Property Corporate Director 2 Limited11		Ordinary Shares	100%
Ravensbourne Retail Park Limited11		Ordinary Shares	100%
Retail Park HANÁ a.s.16		Ordinary Shares	60%
Retail Park Ostrava a.s. 16		Ordinary Shares	60%
Rock Rail East Anglia (Holdings) 1 Limited32		Ordinary Shares	35%
Rock Rail East Anglia (Holdings) 2 Limited32		Ordinary Shares	35%
Rock Rail East Anglia plc32		Ordinary Shares	35%
Rock Rail Moorgate (Holdings) Limited32		Ordinary Shares	35%
Rock Rail Moorgate plc32		Ordinary Shares	35%
Scottish Mutual Investment Managers Limited		Ordinary Shares	100%
Scottish Mutual PEP and ISA Managers Limited3		Ordinary Shares	100%
Seabury Assets Fund plc
The Euro VNAV Liquidity Fund33		OEIC	99%
The No.1 Fund33		OEIC	100%
The Sterling VNAV Liquidity Fund33		OEIC	97%
Select Japan (GK Holdings UK) Limited		Ordinary Shares	60%
Select Japan (TK Holdings UK) Limited		Ordinary Shares	60%
Select Japan G.K.		Limited by members	60%
Select Malta Holdings Limited34		Ordinary Shares	60%
Select Property Holdings (Mauritius) Limited35		Ordinary Shares	60%

Name of related undertaking		Share class1	% interest held
Serin Wealth Limited36		Ordinary Shares	50%
SL (NEWCO) Limited2		Ordinary Shares	100%
SL Capital ESF I LP		Limited Partnership	1%
SL Capital Infrastructure I LP		Limited Partnership	35%
SL Capital NASF I A LP		Limited Partnership	22%
SL Capital NASF I LP30		Limited Partnership	19%
SL Capital Partners (US) Limited		Ordinary Shares	100%
SL Capital Partners LLP		Limited Liability Partnership	60%
SL Capital SOF I Feeder LP		Limited Partnership	0.4%
SL Capital SOF I LP		Limited Partnership	0.3%
SL Capital SOF II Feeder LP		Limited Partnership	1%
SL Capital SOF II LP		Limited Partnership	0.4%
SLA Belgium No. 1. SA27		Ordinary Shares	100%
SLA Germany No. 1 S.à r.l.9		Ordinary Shares	100%
SLA Germany No. 2 S.à r.l. 9		Ordinary Shares	100%
SLA Germany No.3 S.à r.l. 9		Ordinary Shares	100%
SLA Ireland No.1 S.à r.l. 9		Ordinary Shares	100%
SLA Netherlands No.1 B.V. 14		Ordinary Shares	100%
SLACOM (No.8) Limited2		Ordinary Shares	100%
SLACOM (No.9) Limited2		Ordinary Shares	100%
SLACOM (No.10) Limited2		Ordinary Shares	100%
SLCP (Founder Partner Ignis Private Equity) Limited		Ordinary Shares	60%
SLCP (Founder Partner Ignis Strategic Credit) Limited		Ordinary Shares	60%
SLCP (General Partner 2016 Co-investment) Limited		Ordinary Shares	60%
SLCP (General Partner CPP) Limited		Ordinary Shares	100%
SLCP (General Partner EC) Limited		Ordinary Shares	100%
SLCP (General Partner Edcastle) Limited		Ordinary Shares	100%
SLCP (General Partner ESF I) Limited		Ordinary Shares	100%
SLCP (General Partner ESF II) Limited		Ordinary Shares	100%
SLCP (General Partner ESP 2004) Limited		Ordinary Shares	100%
SLCP (General Partner ESP 2006) Limited		Ordinary Shares	100%
SLCP (General Partner ESP 2008 Coinvestment) Limited		Ordinary Shares	100%
SLCP (General Partner ESP 2008) Limited		Ordinary Shares	100%
SLCP (General Partner ESP CAL) Limited		Ordinary Shares	100%
SLCP (General Partner Europe VI) Limited		Ordinary Shares	100%
SLCP (General Partner Infrastructure I) Limited		Ordinary Shares	100%
SLCP (General Partner Infrastructure Secondary I) Limited		Ordinary Shares	100%
SLCP (General Partner NASF I) Limited		Ordinary Shares	100%
SLCP (General Partner NASP 2006) Limited		Ordinary Shares	100%
SLCP (General Partner NASP 2008) Limited		Ordinary Shares	100%
SLCP (General Partner Pearl Private Equity) Limited		Ordinary Shares	100%
SLCP (General Partner Pearl Strategic Credit) Limited		Ordinary Shares	100%
SLCP (General Partner SOF I) Limited		Ordinary Shares	100%
SLCP (General Partner SOF II) Limited		Ordinary Shares	100%
SLCP (General Partner SOF III) Limited		Ordinary Shares	100%
SLCP (General Partner Tidal Reach) Limited		Ordinary Shares	100%
SLCP (General Partner USA) Limited		Ordinary Shares	100%
SLCP (General Partner) Limited		Ordinary Shares	100%
SLCP (General Partner II) Limited		Ordinary Shares	100%
SLCP (Holdings) Limited		Ordinary Shares	100%
SLCP Infrastructure I (Holdings) S.à r.l9		Ordinary Shares	35%
SLCP Infrastructure I-A S.à r.l9		Ordinary Shares	35%
SLIF Property Investment GP Limited		Ordinary Shares	100%
SLTM Limited		Ordinary Shares	100%
Standard Life Active Plus Bond Trust		Unit Trust	100%
Standard Life Agency Services Limited2		Ordinary Shares	100%

Name of related undertaking			Share class1	% interest held
Standard Life (Asia) Limited37			Ordinary Shares	100%
Standard Life Assurance (HWPF) Luxembourg S.à r.l.9			Ordinary Shares	100%
Standard Life Charity Fund2			N/A	100%
Standard Life Client Management Limited2			Ordinary Shares	100%
Standard Life Equity Income Trust PLC28			Ordinary Shares	1%
Standard Life European Private Equity Trust plc			Ordinary Shares	56%
Standard Life European Trust			Unit Trust	98%
Standard Life European Trust II			Unit Trust	100%
Standard Life Global Equity Trust II			Unit Trust	100%
Standard Life International Designated Activity Company38			Ordinary Shares	100%
Standard Life International Trust			Unit Trust	100%
Standard Life Investment Company
AAA Income Fund			OEIC	3%
American Equity Income Fund			OEIC	100%
American Equity Unconstrained Fund			OEIC	56%
Asian Pacific Growth Fund			OEIC	38%
Corporate Bond Fund			OEIC	45%
Emerging Market Debt Fund			OEIC	78%
European Equity Growth Fund			OEIC	44%
European Equity Income Fund			OEIC	19%
Europe ex-UK Smaller Companies Fund			OEIC	23%
Global Emerging Markets Equity Fund			OEIC	97%
Global Emerging Markets Equity Income Fund			OEIC	95%
Global Equity Income Fund			OEIC	19%
Global Equity Unconstrained Fund			OEIC	41%
Global Smaller Companies Fund			OEIC	9%
Higher Income Fund			OEIC	38%
Investment Grade Corporate Bond Fund			OEIC	55%
Japanese Equity Growth Fund			OEIC	95%
Short Duration Credit Fund			OEIC	71%
UK Equity Growth Fund			OEIC	45%
UK Equity High Alpha Fund			OEIC	44%
UK Equity High Income Fund			OEIC	44%
UK Equity Recovery Fund			OEIC	18%
UK Ethical Fund			OEIC	11%
UK Gilt Fund			OEIC	8%
UK Opportunities Fund			OEIC	70%
UK Smaller Companies Fund			OEIC	34%
Standard Life Investment Company II
Standard Life Investments Corporate Debt Fund			OEIC	100%
Standard Life Investments Ethical Corporate Bond Fund			OEIC	67%
Standard Life Investments European Ethical Equity Fund			OEIC	92%
Standard Life Investments Global Index Linked Bond Fund			OEIC	18%
Standard Life Investments Global REIT Fund			OEIC	53%
Standard Life Investments Short Duration Global Index Linked Bond Fund			OEIC	44%
Standard Life Investments Short Dated Corporate Bond Fund			OEIC	45%
Standard Life Investments UK Equity Income Unconstrained Fund			OEIC	30%
Standard Life Investments UK Equity Unconstrained Fund			OEIC	40%
Standard Life Investment Company III
Enhanced-Diversification Growth Fund			OEIC	98%
MyFolio Managed I Fund			OEIC	69%
MyFolio Managed II Fund			OEIC	66%
MyFolio Managed III Fund			OEIC	75%
MyFolio Managed IV Fund			OEIC	58%
MyFolio Managed V Fund			OEIC	69%
MyFolio Managed Income I Fund			OEIC	41%
MyFolio Managed Income II Fund			OEIC	45%
Name of related undertaking			Share class1	% interest held
MyFolio Managed Income III Fund			OEIC	49%
MyFolio Managed Income IV Fund			OEIC	48%
MyFolio Managed Income V Fund			OEIC	57%
MyFolio Market I Fund			OEIC	46%
MyFolio Market II Fund			OEIC	43%
MyFolio Market III Fund			OEIC	63%
MyFolio Market IV Fund			OEIC	62%
MyFolio Market V Fund			OEIC	69%
MyFolio Multi-Manager I Fund			OEIC	52%
MyFolio Multi-Manager II Fund			OEIC	52%
MyFolio Multi-Manager III Fund			OEIC	59%
MyFolio Multi-Manager IV Fund			OEIC	53%
MyFolio Multi-Manager V Fund			OEIC	51%
MyFolio Multi-Manager Income I Fund			OEIC	46%
MyFolio Multi-Manager Income II Fund			OEIC	43%
MyFolio Multi-Manager Income III Fund			OEIC	51%
MyFolio Multi-Manager Income IV Fund			OEIC	40%
MyFolio Multi-Manager Income V Fund			OEIC	56%
Standard Life Investment Funds Limited2			Ordinary Shares	100%
Standard Life Investments Brent Cross General Partner Limited			Ordinary Shares	100%
Standard Life Investments Brent Cross LP			Limited Partnership	100%
Standard Life Investments (Corporate Funds) Limited			Ordinary Shares	100%
Standard Life Investments Dynamic Distribution Fund			Unit Trust	46%
Standard Life Investments European Property Growth Fund L.P.28			Limited Partnership	7%
Standard Life Investments European Real Estate Club LP28			Limited Partnership	2%
Standard Life Investments European Real Estate Club II LP28			Limited Partnership	1%
Standard Life Investments European Real Estate Club III LP28			Limited Partnership	2%
Standard Life Investments (France) SAS39			Ordinary Shares	100%
Standard Life Investments (General Partner CRED) Limited11			Ordinary Shares	100%
Standard Life Investments (General Partner EPGF) Limited			Ordinary Shares	100%
Standard Life Investments (General Partner European Real Estate Club) Limited28			Ordinary Shares	100%
Standard Life Investments (General Partner European Real Estate Club II) Limited28			Ordinary Shares	100%
Standard Life Investments (General Partner European Real Estate Club III) Limited28			Ordinary Shares	100%
Standard Life Investments (General Partner GARS) Limited			Ordinary Shares	100%
Standard Life Investments (General Partner GFS) Limited			Ordinary Shares	100%
Standard Life Investments (General Partner MAC) Limited			Ordinary Shares	100%
Standard Life Investments (General Partner PDFI) Limited			Ordinary Shares	100%
Standard Life Investments (General Partner UK PDF) Limited			Ordinary Shares	100%
Standard Life Investments (General Partner UK Shopping Centre Feeder Fund LP) Limited11			Ordinary Shares	100%
Standard Life Investments Global Absolute Return Strategies Fund			Unit Trust	78%
Standard Life Investments Global Real Estate Fund			Unit Trust	60%
Standard Life Investments Global SICAV
Absolute Return Global Bond Strategies Fund40			SICAV	80%
American Equity Unconstrained Fund40			SICAV	<0.01%
Asian Equities Fund40			SICAV	10%
China Equities Fund40			SICAV	65%
Continental European Equity Income Fund40			SICAV	5%
Emerging Market Corporate Bond Fund40			SICAV	89%
Emerging Market Debt Fund40			SICAV	0.1%
Emerging Market Debt Unconstrained Fund40			SICAV	9%
Emerging Markets Local Currency Debt Fund 40			SICAV	97%
Enhanced Diversification Global Emerging Markets Equities Fund40			SICAV	99%
Euro Government All Stocks Fund40			SICAV	100%
European Corporate Bond Fund40			SICAV	33%
European Corporate Bond Sustainable and Responsible Investment Fund40			SICAV	<0.01%

Name of related undertaking		Share class1	% interest held
European Equities Fund40		SICAV	73%
European Equity Unconstrained Fund40		SICAV	88%
European High Yield Bond Fund40		SICAV	35%
European Smaller Companies Fund40		SICAV	44%
Global Absolute Return Strategies Fund40		SICAV	27%
Global Bond Fund40		SICAV	76%
Global Corporate Bond Fund40		SICAV	46%
Global Emerging Markets Equities Fund40		SICAV	0.03%
Global Emerging Markets Equity Unconstrained Fund40		SICAV	89%
Global Equities Fund40		SICAV	89%
Global Equity Unconstrained Fund40		SICAV	16%
Global Focused Strategies Fund40		SICAV	50%
Global High Yield Bond Fund40		SICAV	78%
Global Inflation-Linked Bond Fund40		SICAV	55%
Global REIT Focus Fund40		SICAV	83%
Indian Equity Midcap Opportunities Fund40		SICAV	87%
Japanese Equities Fund40		SICAV	87%
Japanese Equity High Alpha Fund40		SICAV	0.06%
Total Return Credit Fund40		SICAV	92%
Standard Life Investments Global SICAV II
Enhanced-Diversification Multi Asset Fund40		SICAV	99%
MyFolio Multi-Manager I Fund40		SICAV	100%
MyFolio Multi-Manager II Fund40		SICAV	100%
MyFolio Multi-Manager III Fund40		SICAV	100%
MyFolio Multi-Manager IV Fund40		SICAV	100%
MyFolio Multi-Manager V Fund40		SICAV	100%
Standard Life Investments GS (Mauritius Holdings) Limited6		Ordinary Shares	87%
Standard Life Investments (Hong Kong) Limited41		Ordinary Shares	100%
Standard Life Investments ICVC plc
Global Real Estate Feeder Fund33		OEIC	0.3%
Standard Life Investments - India Advantage Fund6		Ordinary Shares	100%
Standard Life Investments (Japan) Limited42		Ordinary Shares	100%
Standard Life Investments (Jersey) Limited13		Ordinary Shares	100%
Standard Life Investments Liability solutions ICAV
Liability Aware Absolute Return III Nominal Profile Fund33		ICAV	<0.01%
Liability Aware Absolute Return III Real Profile Fund33		ICAV	<0.01%
Standard Life Investments Limited		Ordinary Shares	100%
Standard Life Investments Liquidity Fund plc
Euro Liquidity Fund43		OEIC	19%
Sterling Liquidity Fund43		OEIC	10%
Standard Life Investments Multi Asset Class Company24		Ordinary Shares	100%
Standard Life Investments (Mutual Funds) Limited		Ordinary Shares	100%
Standard Life Investments No. 2 (Hong Kong) Limited41		Ordinary Shares	100%
Standard Life Investments (PDF No. 1) Limited13		Ordinary Shares	50%
Standard Life Investments (Private Capital) Limited		Ordinary Shares	100%
Standard Life Investments Property Income Trust Limited44		Ordinary Shares	4%
Standard Life Investments (Schweiz) AG45		Ordinary Shares	100%
Standard Life Investments Securities LLC30		Ordinary Shares	100%
Standard Life Investments (Singapore) Pte. Ltd46		Ordinary Shares	100%
Standard Life Investments Strategic Bond Fund		Unit Trust	67%
Standard Life Investments (Trustee No. 1 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 2 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 3 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 4 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 5 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 6 UK PDF) Limited		Ordinary Shares	100%

Name of related undertaking		Share class1	% interest held
Standard Life Investments (Trustee No. 7 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 8 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 9 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 10 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 11 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (Trustee No. 12 UK PDF) Limited		Ordinary Shares	100%
Standard Life Investments (USA) Limited		Ordinary Shares	100%
Standard Life Investments UK PDF Investment LP		Limited Partnership	39%
Standard Life Investments UK Property Development Fund L.P.28		Limited Partnership	39%
Standard Life Investments UK Real Estate Funds ICVC
Standard Life Investments UK Real Estate Fund		OEIC	71%
Standard Life Investments UK Real Estate Trust
Standard Life Investments UK Real Estate Accumulation Feeder Fund		Unit Trust	50%
Standard Life Investments UK Real Estate Income Feeder Fund		Unit Trust	1%
Standard Life Investments UK Retail Park Trust47		Unit Trust	57%
Standard Life Investments UK Shopping Centre Feeder Fund Company Limited13		Ordinary Shares	100%
Standard Life Investments UK Shopping Centre Trust47		Unit Trust	47%
Standard Life Japan Trust		Unit Trust	87%
Standard Life Lifetime Mortgages Limited2		Ordinary Shares	100%
Standard Life Master Trust Co. Ltd3		Ordinary Shares	100%
Standard Life Multi-Asset Trust		Unit Trust	100%
Standard Life North American Trust		Unit Trust	100%
Standard Life Pacific Basin Trust		Unit Trust	98%
Standard Life Pan-European Trust		Unit Trust	100%
Standard Life Pension Funds Limited2		N/A	100%
Standard Life Portfolio Investments Limited		Ordinary Shares	100%
Standard Life Premises Services Limited2		Ordinary Shares	100%
Standard Life Property Company Limited2		Ordinary Shares	100%
Standard Life Savings Limited2		Ordinary Shares	100%
Standard Life Savings Nominees Limited2		Ordinary Shares	100%
Standard Life Short Dated UK Government Bond Trust		Unit Trust	100%
Standard Life Strategic Investment Allocation Fund		Unit Trust	<0.01%
Standard Life Trustee Company Limited2		Ordinary Shares	100%
Standard Life UK Corporate Bond Trust		Unit Trust	100%
Standard Life UK Equity General Trust		Unit Trust	100%
Standard Life UK Government Bond Trust		Unit Trust	100%
Standard Life UK Smaller Companies Trust plc48		Ordinary Shares	6%
Standard Life Wealth (CI) Limited49		Ordinary Shares	100%
Standard Life Wealth Balanced Bridge Fund		Unit Trust	<0.01%
Standard Life Wealth Bridge Fund		Unit Trust	<0.01%
Standard Life Wealth Falcon Fund		Unit Trust	<0.01%
Standard Life Wealth International Limited49		Ordinary Shares	100%
Standard Life Wealth Limited		Ordinary Shares	100%
Standard Life Wealth Phoenix Fund		Unit Trust	<0.01%
Suomi Gas Distribution Holdings Oy10		Ordinary Shares	35%
Suomi Gas Distribution Oy10		Ordinary Shares	35%
Telles Holding S.à r.l.9		Ordinary Shares	60%
Tenet Group Limited51		Ordinary B Shares	20%
The Coaching Platform Limited4		Ordinary Shares	100%
The Heritable Securities and Mortgage Investment Association Limited2		Ordinary Shares	100%
The Munro Partnership Ltd.50		Ordinary Shares	100%
The Standard Life Assurance Company 20062		N/A	100%
The Standard Life Assurance Company of Europe (Nederland) BV14		Ordinary Shares	100%
Threesixty Partnerships Limited7		Ordinary Shares	100%
Threesixty Services LLP7		Limited Liability Partnership	100%

Name of related undertaking		Share class1	% interest held
Touchstone Insurance Company Limited23		Ordinary Shares	100%
Vebnet Limited2		Ordinary Shares	100%
Welbrent Property Investment Company Limited11		Ordinary Shares	100%
Whiteleys of Bayswater Limited		Ordinary Shares	100%

¹   OEIC = Open-ended investment company 

    SICAV = Société d'investissement à capital variable

    ICAV = Irish collective asset-management vehicle

Registered offices

²    Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH

³    14th Floor, 30 St Mary Axe, London, EC3A 8BF

⁴    Cranford House, Kenilworth Road, Blackdown, Leamington Spa, CV32 6RQ

⁵    133 Cecil Street, #13-03 Keck Seng Tower, Singapore, 069535

⁶    C/O Cim Fund Services Ltd, 33 Edith Cavell Street, Port Louis, Mauritius

⁷    2nd Floor, The Royals, Altrincham Road, Sharston, Manchester, M22 4BJ

⁸    Avenida de Aragon 330 - Building 5, 3rd Floor, Parque Empresarial Las Mercedes, 28022 - Madrid, Spain

⁹    6B, rue Gabriel Lippmann, Parc d'Activité Syrdall 2, L-5365 Münsbach, Luxembourg

¹⁰   C/O Dittmar & Indrenius, Pohjoiseplanadi 25 A, 00100, Helsinki

¹¹   100 Barbirolli Square, Manchester, M2 3AB

¹²   11th Floor, Two Snowhill, Birmingham, West Midlands,  B4 6WR

¹³   44 Esplanade, St Helier, Jersey, JE4 9WG

¹⁴   Naritaweg 165, 1043 BW Amsterdam, The Netherlands

¹⁵   ul. Skaryszewska 7, 03-802 Warsaw, Poland

¹⁶   V celnici 1031/4, Nové Město, 110 00 Praha 1, Czech Republic

¹⁷   47 Esplanade, St Helier, Jersey , JE1 0BD

¹⁸   HUL House, 2nd floor, H.T. Parekh Marg, 165-166, Backbay Reclamation, Churchgate, Mumbai- 400 020, India

¹⁹   Unit OT 17-30, Level 17, Central Park, Dubai International Financial Centre, Dubai, 114603, United Arab Emirates

²⁰   Lodha Excelus, 14th Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai - 400011, Maharashtra, India

²¹   Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai - 400011, Maharashtra, India

²²   18F, Tower II, The Exchange, 189 Nanjing Road, Heping District, Tianjin, People's Republic of China, 300051

²³   PO Box 33, Maison Trinity, Trinity Square, St Peter Port, Guernsey, GY1 4AT

²⁴   C/O Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104

²⁵   ul. Emilii Plater 53, 00-113, Warszawa, Poland

²⁶   Datum House, Electra Way, Crewe, Cheshire, CW1 6ZF

²⁷   Avenue Louise 326, bte 33, 1050 Brussels, Belgium

²⁸   31st Floor, 30 St Mary Axe, London, EC3A 8BF

²⁹   Dokkveien 1, P.O.Box 1400 Vika, NO-0115 Oslo, Norway

³⁰   C/O Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, County of New Castle, Delaware, 19808, USA

³¹   Clayton Wood Close, West Park Ring Road, Leeds, LS16 6QE

³²   Wesley House, Bull Hill, Leatherhead, KT22 7AH

³³   70 Sir Rogerson's Quay, Dublin, Republic of Ireland

³⁴   Level 2 West, Mercury Tower, The Exchange Financial & Business Centre, Elia Zammit Street, St. Julian's, STJ 3155, Malta

³⁵   C/O Citco (Mauritius) Limited, 4th Floor, Tower A, 1 CyberCity, Ebene, Mauritius (Fax number 00 230 404 2601)

³⁶   Springpark House, Basing View, Basingstoke, RG21 4HG

³⁷   40th Floor, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong

³⁸   90 St. Stephen's Green, Dublin D2, Republic of Ireland

³⁹   100 Avenue des Champs Elysees, 1 Rue de Berri, F- 75008, Paris, France

⁴⁰   2-4, Rue Eugène Ruppert, L-2453 Luxembourg

⁴¹   30th Floor, Jardine House, One Connaught Place, Hong Kong

⁴²   Tokyo Bankers Club Building 15F, 1-3-1 Marunouchi, Chiyoda-ku, Tokyo, Japan

⁴³   25/28 North Wall Quay, Dublin, Republic of Ireland

⁴⁴   PO Box 255, Trafalgar Court, Les Banques, St. Peter Port,Guernsey, GY1 3QL

⁴⁵   Bahnhofstrasse 100, 8001 Zurich, Switzerland

⁴⁶   8 Marina Boulevard #05-02, Marina Bay Financial Centre Tower 1 01 8981, Singapore

⁴⁷   Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4 2QP

⁴⁸   Kintyre House, 205 West George Street, Glasgow, G2 2LW

⁴⁹   Liberte House, 19-23 La Molle Street, St Helier, Jersey, JE4 5RL

⁵⁰   Citadel House, 6 Citadel Place, Ayr, KA7 1JN

⁵¹   5 Lister Hill, Horsforth, Leeds, LS18 5AZ

 

END

 

 

FR LFFSFFLIVFID