FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
17 FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE continued Level 2
Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the instrument. Level 2 inputs include the following: • quoted prices for similar assets and liabilities in active markets; • quoted prices for identical assets or similar assets in markets that are not active, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which very little information is released publicly; • inputs other than quoted prices that are observable for the asset or liability; and • market-corroborated inputs. Where the Group uses broker/asset manager quotes and no information as to observability of inputs is provided by the broker/asset manager, the investments are classified as follows: • where the broker/asset manager price is validated by using internal models with market-observable inputs and the values are similar, the investment is classified as Level 2; and • in circumstances where internal models cannot be used to validate broker/asset manager prices as the observability of inputs used by brokers/asset managers is unavailable, the investment is classified as Level 3. Debt securities held at fair value and financial derivatives are valued using independent pricing services or third party broker quotes are classified as Inputs to Level 3 fair values are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Unobservable inputs reflect the same assumptions as those that the market participant would use in pricing the asset or liability. The Group’s assets and liabilities held at fair value which are valued using valuation techniques for which significant observable market data is not available and classified as Level 3 include loans secured by mortgages, infrastructure loans, private placement debt securities, investment funds, investment contract liabilities, and deposits received from reinsurers. Other than freehold land and buildings included in note 14, there are no non- recurring fair value measurements as at 31 December 2021 (2020: nil). (b) Analysis of assets and liabilities held at fair value according to fair value hierarchy 2021 2020 Level 1 £m Level 2 £m Level 3 £m Total £m Level 1 £m Level 2 £m Level 3 £m Total £m Assets held at fair value through profit or loss Investment property – – 69.6 69.6 – – – – Units in liquidity funds 1,304.9 5.6 – 1,310.5 1,123.2 5.3 – 1,128.5 Investment funds – 68.5 233.3 301.8 – 37.1 139.0 176.1 Debt securities and other fixed income securities 4,302.5 7,172.0 1,449.5 12,924.0 809.3 8,995.3 1,256.8 11,061.4 Deposits with credit institutions 50.3 2.6 – 52.9 97.7 2.0 – 99.7 Derivative financial assets – 682.7 8.5 691.2 – 796.4 3.6 800.0 Loans secured by residential mortgages – – 7,422.8 7,422.8 – – 8,261.1 8,261.1 Loans secured by commercial mortgages – – 677.8 677.8 – – 592.1 592.1 Loans secured by ground rents – – 189.7 189.7 – – 114.9 114.9 Infrastructure loans – – 993.1 993.1 – – 945.0 945.0 Other loans 15.6 12.6 89.7 117.9 13.1 11.8 66.1 91.0 Assets classified as held for sale – – 3.1 3.1 – – – – Total financial assets 5,673.3 7,944.0 11,137.1 24,754.4 2,043.3 9,847.9 11,378.6 23,269.8 Liabilities held at fair value through profit of loss Investment contract liabilities – – 33.6 33.6 – – 42.8 42.8 Derivative financial liabilities – 386.1 8.6 394.7 – 509.4 3.3 512.7 Obligations for repayment of cash collateral received 311.7 14.5 – 326.2 351.3 26.1 – 377.4 Deposits received from reinsurers – – 2,144.7 2,144.7 – – 2,415.0 2,415.0 Other financial liabilities Fair value of loans and borrowings at amortised cost1 – 936.8 – 936.8 – 894.3 – 894.3 Total financial liabilities 311.7 1,337.4 2,186.9 3,836.0 351.3 1,429.8 2,461.1 4,242.2 Level 2. Level 3
1 The fair value disclosed for loans and borrowings for 2020 has been restated to correct the basis on which the fair value was determined – see note 25.
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