annual report 2007 - the Admiral Group plc

72 FINANCIAL STATEMENTS18. Financial instrumentsThe Group’s financial instruments can be analysed as follows:31 December200731 December2006Financial assets and liabilities £000 £000Investments held at fair value 335,608 257,634Receivables – amounts owed by policyholders 146,240 138,304Total financial assets per consolidatedbalance sheet 481,848 395,938Trade and other receivables 22,633 16,931Cash and cash equivalents 155,773 191,242Financial liabilities: 660,254 604,111Trade and other payables 239,593 215,137All receivables from policyholders are due within 12 months of the balance sheet date.All investments held at fair value are invested in AAA-rated money market liquidity funds. Thesefunds (spread across three very large providers) target a 7day LIBID return with capital securityand low volatility and continue to achieve these goals.Objectives, policies and procedures for managing financial assets and liabilitiesThe Group’s activities expose it primarily to the significant financial risks of credit risk, liquidityrisk, interest rate risk and foreign exchange risk. The Board of Directors has delegated the taskof supervising risk management and internal control to the Risk Management Committee (RMC).There is also an Investment Committee that makes recommendations to the Board on theGroup’s investment strategy.There are several key elements to the risk management environment throughout the Group.These are detailed in full in the corporate governance statement. Specific considerations for therisks arising from financial assets and liabilities are detailed below.Interest rate riskThe Group considers interest rate risk to be the risk that unfavourable movements in interestrates could adversely impact on the capital values of financial assets and liabilities. This relatesprimarily to investments held at fair value.The Group has a policy of investing in AAA-rated money market liquidity funds, which invest ina mixture of very short dated fixed and variable rate securities, such as certificates of deposits,floating rate notes and other commercial paper.The funds are not permitted to have an average maturity greater than 60 days and hence are notsubject to large movements in yield and value resulting from changes in market interest rates (aslonger duration fixed income portfolios experience). Returns are likely to closely track the 7 dayLIBID benchmark and hence while the Group’s investment return will vary according to marketinterest rates, the capital value of the investment funds will not be impacted by rate movements.The interest rate risk arising is therefore considered to be minimal.Although the Group had no financial liabilities at 31 December 2007 or 31 December 2006, itcurrently holds a facility of £30m which allows it to draw down interest bearing borrowings on