QBE European Operations plc

QBE European Operations plc Annual report 2011
72
Notes to the financial statements
continued
For the year ended 31 December 2011
15 Financial risk continued
i) Market risk continued
The table below shows the impact on profit after income tax and equity of changes in foreign currency exchange rates against the UK pound sterling
on our major operational currency exposures.
2011 2010
Movement in Profit/(loss) Equity Profit/(loss) Equity
variable % £000 £000 £000 £000
Australian dollar +10 (75) (75) (572) (1,167)
-10 75 75 572 1,167
Canadian dollar +10 1,511 1,511 (1,306) (1,306)
-10 (1,511) (1,511) 1,306 1,306
Euro +10 (288) (435) 1,570 861
-10 288 435 (1,570) (861)
US dollar +10 7,736 6,979 (4,522) (5,733)
-10 (7,736) (6,979) 4,522 5,733
The above is shown net of taxation at the standard rate of 26% (2010 28%).
Interest rate risk
The Group is exposed to interest rate risk arising on interest bearing assets. Assets with floating interest rates expose the Group to cash flow interest
rate risk. Fixed interest rate assets expose the Group to fair value interest rate risk. The Group’s strategy is to invest in high quality, liquid fixed interest
securities and cash and to actively manage duration. The investment portfolios are actively managed to achieve a balance between cash flow interest
rate risk and fair value interest rate risk bearing in mind the need to meet the liquidity requirements of the business.
The Group’s exposure to interest rate risk for each significant class of interest bearing financial assets and liabilities is as follows:
Fixed interest rate maturing in
Floating One year One to Two to Over three
interest rate or less two years three years years Total
2011 £000 £000 £000 £000 £000 £000
Interest bearing securities 3,041,201 2,204,456 223,651 401,925 419,699 6,290,932
Financial liabilities – – (564,735) – (1,632,465) (2,197,200)
Net interest bearing financial assets/(liabilities) 3,041,201 2,204,456 (341,084) 401,925 (1,212,766) 4,093,732
Fixed interest rate maturing in
Floating One year One to Two to Over three
interest rate or less two years three years years Total
2010 £000 £000 £000 £000 £000 £000
Interest bearing securities 2,656,620 2,169,221 232,674 527,852 534,618 6,120,985
Financial liabilities – – – (546,602) (675,892) (1,222,494)
Net interest bearing financial assets/(liabilities) 2,656,620 2,169,221 232,674 (18,750) (141,274) 4,898,491
The Group’s sensitivity to movements in interest rates in relation to the value of fixed interest securities is shown in the table below. This sensitivity
analysis is presented gross of any inter-dependencies between financial assets and liabilities.
2011 2010
Movement in Profit/(loss) Profit/(loss)
variable % £000 £000
Interest rate movement – fixed +1.5 28,958 43,305
interest securities -1.5 (28,958) (43,305)
The above is shown net of taxation at the standard rate of 26% (2010 28%).