Net other - - - - (646,046) (646,046)
------------- ---------- --------------- -------------- -------------- -------------
Total 938,383 158 236,563 (31,571) (649,390) 494,143
------------- ---------- --------------- -------------- -------------- -------------
* Cash and cash equivalents have been presented with loans and receivables.
** Financial liabilities are held at amortised cost.
*** In the prior year financial investments included mortgages secured
on residential property which are classified as held for sale in
the current year.
(b) Fair value hierarchy
The fair value measurement basis used to value those financial
assets and financial liabilities held at fair value is categorised
into a fair value hierarchy as follows:
Level 1: fair values measured using quoted bid prices
(unadjusted) in active markets for identical assets or liabilities.
This category includes listed equities in active markets, listed
debt securities in active markets and exchange-traded
derivatives.
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). This category includes listed debt or equity
securities in a market that is not active and derivatives that are
not exchange-traded.
Level 3: fair values measured using inputs for the asset or
liability that are not based on observable market data
(unobservable inputs). This category includes unlisted debt and
equities, including investments in venture capital, and suspended
securities. Where a look-through valuation approach is applied,
underlying net asset values are sourced from the investee and
adjusted to reflect illiquidity where appropriate, with the fair
values disclosed being directly sensitive to this input.
There have been no transfers between investment categories in
the current year.
Analysis of fair value measurement bases Fair value measurement
at the
end of the reporting
period based on
-----------------------------
Level Level Level Total
1 2 3
GBP000 GBP000 GBP000 GBP000
At 31 December 2014
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 269,347 209 20,349 289,905
Debt securities 591,542 4,485 238 596,265
Total financial assets at fair value through
profit or loss 860,889 4,694 20,587 886,170
--------- ------- --------- ---------
At 31 December 2013
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 276,660 270 19,390 296,320
Debt securities 636,330 5,416 317 642,063
Derivatives - 158 - 158
--------- ------- --------- ---------
Total financial assets at fair value through
profit or loss 912,990 5,844 19,707 938,541
--------- ------- --------- ---------
Fair value measurements based on level 3
Fair value measurements in level 3 for the Group consist of
financial assets, analysed as follows:
Financial assets at fair
value
through profit and loss
----------------------------------
Equity Debt
securities securities Total
GBP000 GBP000 GBP000
At 31 December 2014
Opening balance 19,390 317 19,707
Total gains/(losses) recognised in profit or
loss 959 (79) 880
Closing balance 20,349 238 20,587
----------- ----------- --------
Total gains/(losses) for the period included
in profit or loss for assets
held at the end of the reporting period 959 (79) 880
----------- ----------- --------
At 31 December 2013
Opening balance 18,558 6,176 24,734
Total gains/(losses) recognised in profit or
loss 832 (5,782) (4,950)
Disposal proceeds - (77) (77)
----------- ----------- --------
Closing balance 19,390 317 19,707
----------- ----------- --------
Total gains/(losses) for the period included
in profit or loss for assets
held at the end of the reporting period 832 (5,782) (4,950)
----------- ----------- --------
All the above gains or losses included in profit or loss for the period
are presented in net investment return within the statement of profit
or loss.
(c) Interest rate risk
The Group's exposure to interest rate risk arises primarily from
movements on financial investments that are measured at fair value
and have fixed interest rates, which represent a significant
proportion of the Group's assets, and from those insurance
liabilities for which discounting is applied at a market interest
rate. Investment strategy is set in order to control the impact of
interest rate risk on anticipated Group cash flows and asset and
liability values. The fair value of the Group's investment
portfolio of fixed income securities reduces as market interest
rates rise as does the present value of discounted insurance
liabilities, and vice versa.
Interest rate risk concentration is reduced by adopting
asset-liability duration matching principles where appropriate.
Excluding assets held to back the long-term business, the average
duration of the Group's fixed income portfolio is two years (2013:
two years), reflecting the relatively short-term average duration
of its general insurance liabilities. The mean term of discounted
general insurance liabilities is disclosed in note 27 (a) part (iv)
to the full financial statements.
For the Group's long-term insurance funeral plan business,
benefits payable to policyholders are independent of the returns
generated by interest-bearing assets. Therefore the interest rate
risk on the invested assets supporting these liabilities is borne
by the Group. This risk can be mitigated by purchasing fixed
interest investments with durations that precisely match the
profile of the liabilities. For funeral plan policies, benefits are
linked to the Retail Prices Index (RPI). Assets backing these
liabilities are also linked to the RPI, and include index-linked
gilts and corporate bonds. For practical purposes it is not
possible to exactly match the durations due to the uncertain
profile of liabilities (e.g. mortality risk) and the availability
of suitable assets, therefore some interest rate risk will persist.
The Group monitors its exposure by comparing projected cash flows
for these assets and liabilities and making appropriate adjustments
to its investment portfolio.
The table below summarises the maturities of long-term business
assets and liabilities that are exposed to interest rate risk.
Maturity
---------------------------
Within Between After
1 year 1 & 5 5 years Total
Group long-term business years
GBP000 GBP000 GBP000 GBP000
At 31 December 2014
Assets
Debt securities 1,053 24,311 79,490 104,854
Cash and cash equivalents 1,924 - - 1,924
------- -------- -------- ---------
2,977 24,311 79,490 106,778
------- -------- -------- ---------
Liabilities
Long-term business provision 6,014 21,816 66,494 94,324
------- -------- -------- ---------
At 31 December 2013
Assets
Debt securities 1,104 27,024 73,075 101,203
Cash and cash equivalents 2,214 - - 2,214
------- -------- -------- ---------
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