Strategic Report Governance
Financial Statements
197
(i) Interest rate risk The Group is exposed to interest rate risk arising from the changes in the values of assets or liabilities as a result of changes in risk-free interest rates. The Group seeks to limit its exposure through appropriate asset and liability matching and hedging strategies. The Group actively hedges its interest rate exposure to protect balance sheet positions on both Solvency II and IFRS bases in accordance with its risk appetite framework and principles. The Group continues to increase its portfolio of amortised cost gilts as part of managing the exposure of the Group’s Solvency II balance sheet to interest rate movements, whilst limiting the market risk exposure on the IFRS balance sheet. The Group’s main exposure to changes in interest rates is concentrated in the investment portfolio, loans secured by mortgages and its insurance obligations. Changes in investment and loan values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the value of insurance liabilities. The Group monitors this exposure through regular reviews of the asset and liability position, capital modelling, sensitivity testing and scenario analyses. Interest rate risk is also managed using derivative instruments e.g. swaps. The following table indicates the earlier of contractual repricing or maturity dates for the Group’s significant financial assets.
Less than one year £m
One to five years £m
Five to ten years £m
Over ten years £m
No fixed term £m
Total £m
31 December 2024
Units in liquidity funds
1,792
–
– –
– –
– 2 – – – – – – 2
1,792
Investment funds
108 499 808
289
399
Debt securities and other fixed income securities
1,675
2,708
11,128
16,010
Deposits with credit institutions
–
–
–
808 809 787
Loans secured by commercial mortgages
8
475
165
161 766 854
21
–
–
Long income real estate 1
Infrastructure loans
– 1
132 168
260
1,246
Other loans
4
22
195
Total investments measured at FVTPL – designated
3,237
2,739
3,137
12,931
22,046
Lifetime mortgages
–
–
–
–
5,637
5,637 2,756 8,393 3,951 3,951
Derivative financial assets
52 52
351 351
526 526
1,827 1,827 3,951 3,951
–
Total investments measured at FVTPL – mandatory Gilts – subject to repurchase agreements Total investments measured at amortised cost
5,637
– –
– –
– –
– –
Total financial investments
3,289
3,090
3,663
18,709
5,639
34,390
1 Includes residential ground rents of £157m.
Less than one year £m
One to five years £m
Five to ten years £m
Over ten years £m
No fixed term £m
Total £m
31 December 2023
Units in liquidity funds
1,141
–
– –
– –
– – – – – – – – –
1,141
Investment funds
97
398
495
Debt securities and other fixed income securities
527 706
1,625
2,513
8,989
13,654
Deposits with credit institutions
–
–
–
706 764 779
Loans secured by commercial mortgages
87
378
202
97
– – 1
4
–
775 795
Long income real estate 1
Infrastructure loans
72
246
1,113
Other loans
146
4
13
164
Total investments measured at FVTPL – designated
2,559
2,623
2,965
10,669
18,816
Lifetime mortgages
–
–
–
–
5,681
5,681 2,377 8,058 2,549 2,549
Derivative financial assets
48 48
177 177
573 573
1,579 1,579 2,549 2,549
–
Total investments measured at FVTPL – mandatory Gilts – subject to repurchase agreements Total investments measured at amortised cost
5,681
– –
– –
– –
– –
Total financial investments
2,607
2,800
3,538
14,797
5,681
29,423
1 Includes residential ground rents of £176m. A sensitivity analysis of the impact of interest rate movements on profit before tax is included in note 22(h).
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