Fair value measurement (Tables)

6 Months Ended

Jun. 30, 2022

At fair value

Financial instruments

Schedule of fair value of assets and liabilities

	30 Jun 2022 $m
	Level 1		Level 2		Level 3
			Valuation		Valuation
	Quoted prices		based on		based on
	(unadjusted)		significant		significant
	in active		observable		unobservable
	markets		market inputs		market inputs		Total
			note (i)		note (ii)
Loans	—		471		4		475
Equity securities and holdings in collective investment schemes	49,727		7,193		577		57,497
Debt securities	57,125		21,954		40		79,119
Derivative assets	48		134		—		182
Derivative liabilities	(461)		(310)		—		(771)
Total financial investments, net of derivative liabilities	106,439		29,442		621		136,502
Investment contract liabilities without discretionary participation features	—		(727)		—		(727)
Net asset value attributable to unit holders of consolidated investment funds	(4,546)		(3)		—		(4,549)
Total financial instruments at fair value	101,893		28,712		621		131,226
Percentage of total (%)	78	%	22	%	0	%	100	%
Analysed by business type:
Financial investments, net of derivative liabilities at fair value:
With-profits	66,775		15,612		503		82,890
Unit-linked	21,201		2,084		4		23,289
Non-linked shareholder-backed business	18,463		11,746		114		30,323
Total financial investments net of derivative liabilities, at fair value	106,439		29,442		621		136,502
Percentage of total (%)	78	%	22	%	0	%	100	%
Total financial investments net of derivative liabilities, at fair value	106,439		29,442		621		136,502
Other financial liabilities at fair value	(4,546)		(730)		—		(5,276)
Total financial instruments at fair value	101,893		28,712		621		131,226

	31 Dec 2021 $m
	Level 1		Level 2		Level 3
			Valuation		Valuation
	Quoted prices		based on		based on
	(unadjusted)		significant		significant
	in active		observable		unobservable
	markets		market inputs		market inputs		Total
			note (i)		note (ii)
Loans	—		616		5		621
Equity securities and holdings in collective investment schemes	54,107		6,917		577		61,601
Debt securities	76,049		22,987		58		99,094
Derivative assets	359		122		—		481
Derivative liabilities	(146)		(116)		—		(262)
Total financial investments, net of derivative liabilities	130,369		30,526		640		161,535
Investment contract liabilities without discretionary participation features	—		(814)		—		(814)
Net asset value attributable to unit holders of consolidated investment funds	(5,618)		(46)		—		(5,664)
Total financial instruments at fair value	124,751		29,666		640		155,057
Percentage of total (%)	81	%	19	%	0	%	100	%
Analysed by business type:
Financial investments net of derivative liabilities, at fair value
With-profits	82,489		15,438		506		98,433
Unit-linked	24,024		2,343		5		26,372
Non-linked shareholder-backed business	23,856		12,745		129		36,730
Total financial investments net of derivative liabilities, at fair value	130,369		30,526		640		161,535
Percentage of total (%)	81	%	19	%	0	%	100	%
Total financial investments net of derivative liabilities, at fair value	130,369		30,526		640		161,535
Other financial liabilities at fair value	(5,618)		(860)		—		(6,478)
Total financial instruments at fair value	124,751		29,666		640		155,057

Notes

(i) Of the total level 2 debt securities of $21,954 million at 30 June 2022, (31 December 2021: $22,987 million), $33 million (31 December 2021: $24 million) are valued internally.

(ii) At 30 June 2022, the Group held $621 million (31 December 2021: $640 million) of net financial instruments at fair value within level 3. This represents less than 0.5 per cent of the total fair valued financial assets, net of financial liabilities, for all periods and comprises the following:

- Equity securities and holdings in collective investment schemes of $577 million (31 December 2021: $577 million) consisting primarily of property and infrastructure funds held by the participating funds, which are externally valued using the net asset value of the invested entities. Equity securities of $1 million (31 December 2021: $1 million) are internally valued, representing less than 0.1 per cent for all periods of the total fair valued financial assets net of financial liabilities. Internal valuations are inherently more subjective than external valuations; and

- Other sundry individual financial instruments of a net asset of $44 million (31 December 2021: $63 million).

Of the net financial instruments of $621 million at 30 June 2022 (31 December 2021: $640 million) referred to above:

- A net asset of $507 million (31 December 2021: $511 million) is held by the Group's with-profits and unit-linked funds and therefore shareholders' profit and equity are not impacted by movements in the valuation of these financial instruments; and

- A net asset of $114 million (31 December 2021: $129 million) is held to support non-linked shareholder-backed business, of which $112 million (31 December 2021: $112 million) are primarily private equity investments and corporate bonds externally valued using the net asset value of the invested entities and external prices adjusted to reflect the specific known conditions relating the these bonds (eg distressed securities) and are therefore inherently less subjective than internal valuations. If the value of all these level 3 financial instruments decreased by 10 per cent, the change in valuation would be $(11) million (31 December 2021: $(26) million), which would reduce shareholders' equity by this amount before tax. All of this amount would pass through the income statement substantially as part of short-term fluctuations in investment returns outside of adjusted operating profit.

Schedule of reconciliation of movements in level 3 financial instruments measured at fair value

	Half year 2022 $m
		Equity securities
		and holdings in
		collective investment	Debt	Group
	Loans	schemes	securities	total
Balance at beginning of period	5	577	58	640
Total losses in income statementnote	(1)	(47)	(1)	(49)
Total losses recorded in other comprehensive income	—	(14)	(2)	(16)
Purchases and other additions	—	61	—	61
Transfers out of level 3	—	—	(15)	(15)
Balance at end of period	4	577	40	621

	Full year 2021 $m
		Equity securities
		and holdings in
		collective investment	Debt	Group
Continuing operations	Loans	schemes	securities	total
Balance at beginning of year	6	445	33	484
Total (losses) gains in income statementnote	(1)	6	(3)	2
Total losses recorded in other comprehensive income	—	(5)	(2)	(7)
Purchases and other additions	—	143	—	143
Transfers (out of) into level 3	—	(12)	30	18
Balance at end of year	5	577	58	640

Note

Of the total net (losses) gains in the income statement of $(49) million at half year 2022 (full year 2021: $2 million), $(26) million (full year 2021: $2 million) relates to net unrealised gains and losses of financial instruments still held at the end of the period, which can be analysed as follows:

	2022 $m	2021 $m
	Half year	Full year
Loans	(1)	(1)
Equity securities and holdings in collective investment schemes	(24)	6
Debt securities	(1)	(3)
Total net (losses) gains	(26)	2

Schedule of net unrealised gains and losses in the income statement for financial instruments still held at the end of the year

	2022 $m	2021 $m
	Half year	Full year
Loans	(1)	(1)
Equity securities and holdings in collective investment schemes	(24)	6
Debt securities	(1)	(3)
Total net (losses) gains	(26)	2

Assets and liabilities at amortised cost for which fair value is disclosed

Financial instruments

Schedule of fair value of assets and liabilities

The table below shows the financial assets and liabilities carried at amortised cost on the statement of financial position and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities are excluded from the analysis below, as these are carried at amortised cost which approximates fair value. The carrying value of investment contracts with discretionary participation features is on an IFRS 4 basis, which is also excluded from the analysis below, as it is impractical to determine the fair value of these contracts due to the lack of a reliable basis to measure participation features.

	2022 $m		2021 $m
	30 Jun		31 Dec
	Carrying	Fair	Carrying	Fair
	value	value	value	value
Assets:
Loans	1,954	2,103	1,941	2,152
Liabilities:
Core structural borrowings of shareholder-financed businesses	(4,266)	(4,073)	(6,127)	(6,565)
Operational borrowings (excluding lease liabilities)	(568)	(568)	(514)	(514)
Obligations under funding, securities lending and sale and repurchase agreements	(799)	(799)	(223)	(223)
Total net financial assets (liabilities) at amortised cost	(3,679)	(3,337)	(4,923)	(5,150)