Setting new standards - Friends Life

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FINANCIAL STATEMENTS IFRS FINANCIAL STATEMENTS EEV SUPPLEMENTARY INFORMATION Notes to the consolidated accounts continued 31. Investment contracts Movement in investment contracts liabilities 2006 2005 £m £m At 1 January 27,857 18,001 Premiums 5,725 4,349 Claims (3,046) (2,232) Annual management charges (293) (147) Acquisitions through business combinations - 4,187 Investment return and other expenses 2,578 3,699 At 31 December 32,821 27,857 Analysed as follows: Unit-linked contracts 27,066 21,441 Policies with DPF 5,700 6,394 Other 55 22 Total investment contracts liabilities 32,821 27,857 Investment contract liabilities are included at fair value. Unit-linked liabilities are based on the fair value of the underlying assets. Liabilities relating to policies with DPF are determined using methods and principles consistent with those used to fair value other products. 32. Interest-bearing loans and borrowings Subordinated liabilities: 2006 2005 Coupon % £m £m £215m FP Finance PLC undated subordinated guaranteed bonds callable 2006 (i) 9.125 - 215 £260m F&C floating rate subordinated loan notes due 2026 (ii) Various 258 - £10m Lombard undated subordinated loans Various 10 10 £10m F&C subordinated loan 6m LIBOR +1.05 - 10 Debenture loans: £280m Box Hill Life Finance plc securitisation notes – class A-1 due 2016 (iii) 3m LIBOR +0.20 198 280 £100m Box Hill Life Finance plc securitisation notes – class A-2 due 2019 (iii) 3m LIBOR +0.23 100 100 £6m Friends Provident Investment Holdings plc loan notes due 2006 LIBOR – 0.50 - 6 £230m F&C Commercial Property Trust secured bonds due 2017 (iv) 5.23 229 229 €35m Lombard financial reinsurance treaty LIBOR +2.00 24 22 £18m Friends Provident plc loan notes due 2011 (note 41(a)) LIBOR – 0.75 18 - Convertible bonds: £290m Friends Provident plc convertible bonds due 2007 (v) 5.25 283 276 Other: Amounts owed to credit institutions (overdraft facilities) 10 7 Total interest-bearing loans and borrowings 1,130 1,155 152 Friends Provident Annual Report & Accounts 2006
PARENT COMPANY ACCOUNTS ABBREVIATIONS AND DEFINITIONS Notes to the consolidated accounts continued 32. Interest-bearing loans and borrowings continued Unless otherwise stated below, the fair values of interest-bearing loans and borrowings are the same as the carrying values. (i) Issued on 18 November 1996 and guaranteed by Friends Provident Life Office (FPLO). Redemption is at the option of FP Finance PLC and this was exercised on 27 November 2006. The bonds were guaranteed on a subordinated basis by FPLO after the claims of its senior creditors, including all policyholder liabilities. On 9 July 2001, under the Demutualisation Scheme, FPLP replaced FPLO as the guarantor. The fair value of the bonds at 31 December 2005 was £223m. (ii) Subordinated loan notes issued in December 2006 and stated net of issue costs of £2m. The loan notes are redeemable in 2026. For the period 20 December 2006 to 19 December 2016, interest accrues at a rate of 6.75% per annum, payable annually in arrears. For the period 20 December 2016 to 20 December 2026, interest accrues at a rate of 2.69% above 3m LIBOR per annum, payable quarterly in arrears. (iii) On 16 December 2004 FPLP raised £380m of core regulatory capital in the form of floating rate secured notes through a securitisation of the cash flows expected to emerge from a book of life insurance policies. The total cost of funds is approximately 5.5% per annum. The repayment of principal on the notes started on the 15 April 2006 and every year thereafter, dependent on the surplus emerging from the book of life insurance policies. For the purpose of securitisation, two special purpose vehicles were established, namely Box Hill Life Finance plc and Box Hill Loan Finance Limited. Both companies have been treated as Group companies for the purposes of the consolidated accounts. On 16 December 2004 Box Hill Life Finance plc issued the two classes of floating rate secured notes. The notes benefit from a financial guarantee provided by Ambac Assurance UK. Interest is payable quarterly in arrears on 15 January, April, July and October each year. In 2006, £82m of the notes were repaid. Of the remaining £198m notes outstanding, £144m is expected to be repaid in April 2007. (iv) Issued in February 2005. The carrying value is stated net of issue costs of £1m. (v) Issued on 11 December 2002. Convertible at the option of the holder of ordinary shares at any time on or after 21 January 2003 and up to 5 December 2007. The number of ordinary shares to be issued on conversion will be determined by dividing the principal amount of the relevant bonds by the conversion price in effect on the relevant conversion date. The conversion price is £1.71 per ordinary share. Unless previously purchased and cancelled, redeemed or converted, the bonds will be redeemed on 11 December 2007 at their principal amount. The Company may, at its option, redeem all (but not some) of the bonds outstanding at any time on or after 27 December 2005 and up to the final maturity date of 11 December 2007 if certain conditions are met. Interest is payable in equal instalments semi-annually in arrears on 11 June and December each year. The convertible bonds are separated into a liability component, measured at amortised cost, and an embedded derivative being the option to convert to equity. A deed poll election, effective May 2005, eliminated the Group’s ability to settle conversion consideration in cash. The embedded derivative is classified as equity and held at its fair value at May 2005. The liability component is carried at £283m (2005: £276m). The embedded derivative is valued at £51m and included in note 38. Total interest-bearing loans and borrowings are repayable as follows: 2006 2005 £m £m Within one year or on demand 311 238 Between one and two years - 276 Between two and three years - - Between three and four years - - Between four and five years 24 22 In more than five years 795 619 Total interest-bearing loans and borrowings 1,130 1,155 Total interest expenses for financial liabilities not measured at fair value through the income statement, which arises solely from interestbearing loans and borrowings is £88m (2005: £89m). Friends Provident Annual Report & Accounts 2006 153
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Setting new standards Friends Provi
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ANNUAL REVIEW CORPORATE GOVERNANCE
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Group financial highlights Group
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INTERNATIONAL LIFE & PENSIONS ASSET
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DIRECTORS’ REPORT CORPORATE GOVER
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FINANCIAL STATEMENTS Independent Au
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