Setting new standards - Friends Life

FINANCIAL STATEMENTS
IFRS FINANCIAL STATEMENTS
EEV SUPPLEMENTARY INFORMATION
Notes to the consolidated accounts continued
30. Risk management objectives and policies for mitigating risks continued
Concentrations of credit risk might exist where the Group has significant exposure to an individual counterparty or to a group of
counterparties with similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by
changes in economic and other conditions. The Group has most of its counterparty risk within its Life & Pensions business. As noted above
this is monitored by the counterparty limits contained within the Group’s investment guidelines, overlaid with regulatory requirements.
F&C is exposed to a concentration of credit risk to the extent of timing differences between the recognition of income for services rendered
and the timing of receipt of management fees from clients. The specific concentration of risk from clients where trade debtors and accrued
income for any one client or group of connected clients is £1m or more at 31 December is as follows:
2006 2005
Amounts due from: £m £m
The Achmea group 4 6
Resolution Life plc - 3
RSA plc 1 1
OEICs (management fees) 3 3
8 13
Certain derivatives are subject to a legal right of set-off.
The amount disclosed in the balance sheet in respect of financial assets represents the Group’s maximum exposure to credit risk.
An indication of the Group’s exposure to credit risk is the quality of the investments and counterparties with which it transacts. The Group is
most exposed to credit risk on debt and other fixed income securities, derivative financial instruments, deposits with credit institutions,
reinsurance arrangements and cash and cash equivalents. Debt and other fixed income securities mainly comprise government bonds and
corporate bonds. Given the nature of the Group’s investments in government bonds the credit risk associated with these is considered small
and the Group therefore focuses on monitoring the quality of its corporate bonds.
The following table gives an indication of the level of creditworthiness of those categories of assets which are most exposed to credit risk
using principally ratings prescribed by Standard & Poor’s and Moody’s. Assets held within unit-linked funds have been excluded from the table
below as the credit risk on these assets is borne by the policyholders rather than the shareholders.
31 December 2006
AAA AA A BBB BB B Not rated Total
£m £m £m £m £m £m £m £m
Corporate bonds 2,641 1,676 2,424 652 7 7 210 7,617
Derivative financial instruments - 181 1 - - - - 182
Reinsurance assets - 85 - - - - - 85
31 December 2005
AAA AA A BBB BB B Not rated Total
£m £m £m £m £m £m £m £m
Corporate bonds 2,952 1,900 2,810 703 - - 276 8,641
Derivative financial instruments - 24 225 - - - - 249
Reinsurance assets - 26 157 - - - - 183
150 Friends Provident Annual Report & Accounts 2006