114 | FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
37. The extent of risks arising from financial instruments continued The financial impact of market risk sensitivities, after taxation, are summarised below:
As at 31 December 2011 Exchange rate movement* Sterling/Euro exchange rates
Sterling/USD exchange rates
Fair value movement – Investments Sterling equity prices
Interest rate movement Sterling market interest rates
As at 31 December 2010 Exchange rate movement* Sterling/Euro exchange rates
Sterling/USD exchange rates
Fair value movement – Investments Sterling equity prices
Interest rate movement Sterling market interest rates
Profit or loss Profit or loss sensitivity £m
sensitivity £m
+10% 1.0
0.1
+10% 0.4
+1% 1.5
+10% 0.8
0.4
+10% 0.6
+1% 1.5
* +10% represents a movement in favour of the Group and -10% represents a movement against the Group.
In addition, the F&C REIT put options are disclosed in note 28 at fair value. A 10% movement in the fair value of the options at 31 December 2011 would result in a £4.5m (31 December 2010: £5.4m) charge or credit to the Income Statement and to equity. Impairment of financial assets can also be affected by changes in the relevant underlying risk.
(d) Capital A summary of the Group’s capital and the net assets which it represents is shown below:
31 December 31 December 2011 £m
2010 £m
Share capital
Share premium account Capital redemption reserve Merger reserve Other reserves
Retained earnings
Non-controlling interests Total equity Net assets
Note 36 describes the Group’s management of capital, working capital and regulatory capital requirements.
38. Insurance risk management The Group’s insurance contracts are all annuity contracts which guarantee payment during the lifetime of the annuitant at a specified level or with a specified escalation factor. They are all 100% reinsured with Friends Life Limited.
The only risk that the Group is subject to in respect of these contracts is the credit risk of the reinsurer. Given the small amount at risk (£2.0m at 31 December 2011; £2.0m at 31 December 2010), this is not considered to be significant.
0.5
51.8 0.8
359.7 (22.8) 154.3 12.5
556.8 556.8
0.5
51.8 0.8
383.3 (19.5) 138.2 16.5
571.6 571.6
-10% (1.2)
(0.2)
-10% (0.4)
-1% (1.5)
-10% (0.9)
(0.6)
-10% (0.6)
-1% (1.5)
Equity
sensitivity £m
+10% 5.5
0.1
+10% 0.6
+1% 1.5
+10% 6.5
0.4
+10% 0.8
+1% 1.5
Equity
sensitivity £m
-10% (6.7)
(0.2)
-10% (0.6)
-1% (1.5)
-10% (7.8)
(0.6)
-10% (0.8)
-1% (1.5)
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