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Insurance business (Tables)
 12 Months Ended
Dec. 31, 2025
Insurance business [Abstract]  
(A) Insurance service result
2025
£m
2024
£m
2023
£m
Insurance revenue
Amounts relating to the changes in liabilities for remaining coverage:
CSM recognised for services provided
590
449
329
Change in risk adjustments for non-financial risk for risk expired
49
58
84
Expected claims and other insurance service expenses
1,730
1,916
1,907
Charges to funds in respect of policyholder tax and other
200
108
87
2,569
2,531
2,407
Recovery of insurance acquisition cash flows
117
105
87
Total life
2,686
2,636
2,494
Total non-life
752
655
514
Total insurance revenue
3,438
3,291
3,008
Insurance service expense
Incurred claims and other insurance service expenses
(1,749)
(1,978)
(1,897)
Changes that relate to past service: adjustment to liabilities for incurred claims
–
(4)
–
Changes that relate to future service: (losses) reversal of losses on onerous contracts
(84)
(72)
58
Amortisation of insurance acquisition cash flows
(117)
(105)
(88)
Total life excluding net impairment loss on insurance acquisition assets
(1,950)
(2,159)
(1,927)
Net impairment loss on insurance acquisition assets
–
(9)
(7)
Total life
(1,950)
(2,168)
(1,934)
Total non-life1
(593)
(565)
(480)
Total insurance service expense
(2,543)
(2,733)
(2,414)
Net (expense) income from reinsurance contracts held
(139)
(72)
2
Insurance service result
756
486
596
1Includes weather-related claims of £111 million (2024: £82 million; 2023: £57 million), of which £97 million (2024: £64 million; 2023: £51 million) was related to severe weather events.
(B) Net investment return on assets held to back insurance and investment contracts and net insurance finance (expense) income arising from insurance and investment contracts The following table shows the net investment return on assets held to back insurance and participating investment contracts and the net
finance expense arising from insurance, participating investment and reinsurance contracts, as required by IFRS 17. For completeness, the
net investment return on assets held to back third party interests in consolidated funds and non-participating investment contracts and
the related finance expense is also shown. These contracts are accounted for under IFRS 9.
2025
Life
£m
Non-life
£m
Total
£m
Net gains on financial assets and liabilities at fair value through profit or loss
15,408
34
15,442
Foreign exchange
(42)
–
(42)
Investment property losses
(4)
–
(4)
Net investment return on assets held to back insurance and participating investment contracts
15,362
34
15,396
Net investment return on assets held to back third party interests in consolidated funds
2,054
Net investment return on assets held to back non-participating investment contracts
6,394
Investment return on assets held to back insurance and investment contracts1
23,844
Changes in fair value of underlying items of direct participating contracts
(14,943)
–
(14,943)
Effects of risk mitigation option
174
–
174
Interest accreted
(701)
(14)
(715)
Effect of changes in interest rates and other financial assumptions
64
–
64
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates
69
–
69
Net finance expense from insurance and participating investment contracts
(15,337)
(14)
(15,351)
Net finance income from reinsurance contracts held
54
–
54
Net finance expense from insurance, participating investment and reinsurance contracts
(15,283)
(14)
(15,297)
Movement in third party interests in consolidated funds
(1,954)
Change in non-participating investment contracts
(6,793)
Net finance expense arising from insurance and investment contracts
(24,044)
Net investment return and finance result in respect of insurance and investment contracts
(200)
Note 8: Insurance business continued
2024
Life
£m
Non-life
£m
Total
£m
Net gains on financial assets and liabilities at fair value through profit or loss
10,247
38
10,285
Foreign exchange
196
–
196
Investment property losses
(4)
–
(4)
Net investment return on assets held to back insurance and participating investment contracts
10,439
38
10,477
Net investment return on assets held to back third party interests in consolidated funds
1,105
Net investment return on assets held to back non-participating investment contracts
4,431
Net investment return on assets held to back insurance and investment contracts1
16,013
Changes in fair value of underlying items of direct participating contracts
(10,844)
–
(10,844)
Effects of risk mitigation option
161
–
161
Interest accreted
(839)
(7)
(846)
Effect of changes in interest rates and other financial assumptions
1,001
–
1,001
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates
140
–
140
Net finance expense from insurance and participating investment contracts
(10,381)
(7)
(10,388)
Net finance income from reinsurance contracts held
47
–
47
Net finance expense from insurance, participating investment and reinsurance contracts
(10,334)
(7)
(10,341)
Movement in third party interests in consolidated funds
(1,059)
Change in non-participating investment contracts
(4,878)
Net finance expense arising from insurance and investment contracts
(16,278)
Net investment return and finance result in respect of insurance and investment contracts
(265)
2023
Life
£m
Non-life
£m
Total
£m
Net gains on financial assets and liabilities at fair value through profit or loss
11,218
35
11,253
Foreign exchange
542
–
542
Investment property losses
(4)
–
(4)
Net investment return on assets held to back insurance and participating investment contracts
11,756
35
11,791
Net investment return on assets held to back third party interests in consolidated funds
1,179
Net investment return on assets held to back non-participating investment contracts
3,772
Net investment return on assets held to back insurance and investment contracts1
16,742
Changes in fair value of underlying items of direct participating contracts
(10,293)
–
(10,293)
Effects of risk mitigation option
172
–
172
Interest accreted
(874)
(6)
(880)
Effect of changes in interest rates and other financial assumptions
(654)
–
(654)
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates
(80)
–
(80)
Net finance expense from insurance and participating investment contracts
(11,729)
(6)
(11,735)
Net finance expense from reinsurance contracts held
51
–
51
Net finance expense from insurance, participating investment and reinsurance contracts
(11,678)
(6)
(11,684)
Movement in third party interests in consolidated funds
(1,109)
Change in non-participating investment contracts
(3,983)
Net finance income arising from insurance and investment contracts
(16,776)
Net investment return and finance result in respect of insurance and investment contracts
(34)
1Includes income of £15,009 million (2024: income of £10,688 million; 2023: income of £10,200 million) in respect of unit-linked and with-profit contracts measured applying the
variable fee approach. The assets generating the investment return held to back insurance and investment contracts are carried at fair value on the Group’s balance sheet.
(C) Insurance and participating investment contracts assets and liabilities
2025
2024
Life
£m
Non-life
£m
Total
£m
Life
£m
Non-life
£m
Total
£m
Insurance contract assets
113
–
113
–
–
–
Liabilities arising from insurance and participating investment
contracts1
(134,906)
(412)
(135,318)
(121,700)
(387)
(122,087)
Other liabilities2
–
–
–
(5,268)
–
(5,268)
Net liability
(134,793)
(412)
(135,205)
(126,968)
(387)
(127,355)
Insurance acquisition assets
–
34
34
–
23
23
Insurance and participating investment contacts net liability
(134,793)
(378)
(135,171)
(126,968)
(364)
(127,332)
1Excluding insurance acquisition assets.
2Liabilities arising from insurance contracts relating to the disposal of the Group's bulk annuity business were classified as disposal group liabilities in 2024 and presented in Other
liabilities in note 27.
2025
2024
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Life
Excluding loss
component
£m
Loss
component
£m
Total
£m
Excluding loss
component
£m
Loss
component
£m
Total
£m
Net liability at 1 January1
(125,854)
(515)
(599)
(126,968)
(118,724)
(466)
(593)
(119,783)
Contracts under the fair value
transition approach
1,651
–
–
1,651
1,498
–
–
1,498
Other contracts
1,035
–
–
1,035
1,138
–
–
1,138
Insurance revenue
2,686
–
–
2,686
2,636
–
–
2,636
Insurance service expenses2
(120)
(40)
(1,790)
(1,950)
(105)
(44)
(2,010)
(2,159)
Insurance service result
2,566
(40)
(1,790)
736
2,531
(44)
(2,010)
477
Net finance expense from
insurance and participating
investment contracts
(15,313)
(19)
(5)
(15,337)
(10,371)
(5)
(5)
(10,381)
Exchange differences
(84)
–
–
(84)
80
–
–
80
Total change in profit or loss
(12,831)
(59)
(1,795)
(14,685)
(7,760)
(49)
(2,015)
(9,824)
Investment components
10,411
–
(10,411)
–
10,205
–
(10,205)
–
Premiums received
(10,618)
–
–
(10,618)
(10,679)
–
–
(10,679)
Claims and other insurance
service expenses paid
–
–
12,240
12,240
849
–
12,214
13,063
Insurance acquisition cash flows
306
–
–
306
265
–
–
265
Cash flows
(10,312)
–
12,240
1,928
(9,565)
–
12,214
2,649
Derecognition Consideration3
4,932
–
–
4,932
–
–
–
–
Transfer to other items in the
balance sheet
–
–
–
–
(10)
–
–
(10)
Net liability at 31 December1
(133,654)
(574)
(565)
(134,793)
(125,854)
(515)
(599)
(126,968)
1Excluding insurance acquisition assets.
2Losses and reversal of losses on onerous contracts amounted to a net loss of £84 million (2024: net losses of £72 million). Amortisation of insurance acquisition cash flows amounted to
£117 million (2024: £105 million).
3Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).
2025
2024
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Non-life
Excluding loss
component
£m
Loss
component
£m
Total
£m
Excluding loss
component
£m
Loss
component
£m
Total
£m
Net liability at 1 January1
(32)
–
(355)
(387)
(25)
–
(339)
(364)
Contracts under the fair value
transition approach
–
–
–
–
–
–
–
–
Other contracts
752
–
–
752
655
–
–
655
Insurance revenue
752
–
–
752
655
–
–
655
Insurance service expenses2
(31)
–
(562)
(593)
(32)
–
(533)
(565)
Insurance service result
721
–
(562)
159
623
–
(533)
90
Net finance income (expense)
from insurance and participating
investment contracts
–
–
(14)
(14)
–
–
(7)
(7)
Total change in profit or loss
721
–
(576)
145
623
–
(540)
83
Premiums received
(744)
–
–
(744)
(659)
–
–
(659)
Claims and other insurance
service expenses paid
–
–
540
540
–
–
524
524
Insurance acquisition cash flows
34
–
–
34
29
–
–
29
Cash flows
(710)
–
540
(170)
(630)
–
524
(106)
Net liability at 31 December1
(21)
–
(391)
(412)
(32)
–
(355)
(387)
1Excluding insurance acquisition assets.
2Losses and reversal of losses on onerous contracts amounted to £nil (2024: £nil). Amortisation of insurance acquisition cash flows amounted to £31 million (2024: £32 million).
(D) Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims
2025
2024
Life
£m
Non-life
£m
Total
£m
Life
£m
Non-life
£m
Total
£m
Insurance contract assets
113
–
113
–
–
–
Liabilities arising from insurance and participating investment
contracts1
(134,906)
(412)
(135,318)
(121,700)
(387)
(122,087)
Other liabilities2
–
–
–
(5,268)
–
(5,268)
Net liability
(134,793)
(412)
(135,205)
(126,968)
(387)
(127,355)
Insurance acquisition assets
–
34
34
–
23
23
Insurance and participating investment contacts net liability
(134,793)
(378)
(135,171)
(126,968)
(364)
(127,332)
1Excluding insurance acquisition assets.
2Liabilities arising from insurance contracts relating to the disposal of the Group's bulk annuity business were classified as disposal group liabilities in 2024 and presented in Other
liabilities in note 27.
2025
2024
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Life
Excluding loss
component
£m
Loss
component
£m
Total
£m
Excluding loss
component
£m
Loss
component
£m
Total
£m
Net liability at 1 January1
(125,854)
(515)
(599)
(126,968)
(118,724)
(466)
(593)
(119,783)
Contracts under the fair value
transition approach
1,651
–
–
1,651
1,498
–
–
1,498
Other contracts
1,035
–
–
1,035
1,138
–
–
1,138
Insurance revenue
2,686
–
–
2,686
2,636
–
–
2,636
Insurance service expenses2
(120)
(40)
(1,790)
(1,950)
(105)
(44)
(2,010)
(2,159)
Insurance service result
2,566
(40)
(1,790)
736
2,531
(44)
(2,010)
477
Net finance expense from
insurance and participating
investment contracts
(15,313)
(19)
(5)
(15,337)
(10,371)
(5)
(5)
(10,381)
Exchange differences
(84)
–
–
(84)
80
–
–
80
Total change in profit or loss
(12,831)
(59)
(1,795)
(14,685)
(7,760)
(49)
(2,015)
(9,824)
Investment components
10,411
–
(10,411)
–
10,205
–
(10,205)
–
Premiums received
(10,618)
–
–
(10,618)
(10,679)
–
–
(10,679)
Claims and other insurance
service expenses paid
–
–
12,240
12,240
849
–
12,214
13,063
Insurance acquisition cash flows
306
–
–
306
265
–
–
265
Cash flows
(10,312)
–
12,240
1,928
(9,565)
–
12,214
2,649
Derecognition Consideration3
4,932
–
–
4,932
–
–
–
–
Transfer to other items in the
balance sheet
–
–
–
–
(10)
–
–
(10)
Net liability at 31 December1
(133,654)
(574)
(565)
(134,793)
(125,854)
(515)
(599)
(126,968)
1Excluding insurance acquisition assets.
2Losses and reversal of losses on onerous contracts amounted to a net loss of £84 million (2024: net losses of £72 million). Amortisation of insurance acquisition cash flows amounted to
£117 million (2024: £105 million).
3Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).
2025
2024
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Non-life
Excluding loss
component
£m
Loss
component
£m
Total
£m
Excluding loss
component
£m
Loss
component
£m
Total
£m
Net liability at 1 January1
(32)
–
(355)
(387)
(25)
–
(339)
(364)
Contracts under the fair value
transition approach
–
–
–
–
–
–
–
–
Other contracts
752
–
–
752
655
–
–
655
Insurance revenue
752
–
–
752
655
–
–
655
Insurance service expenses2
(31)
–
(562)
(593)
(32)
–
(533)
(565)
Insurance service result
721
–
(562)
159
623
–
(533)
90
Net finance income (expense)
from insurance and participating
investment contracts
–
–
(14)
(14)
–
–
(7)
(7)
Total change in profit or loss
721
–
(576)
145
623
–
(540)
83
Premiums received
(744)
–
–
(744)
(659)
–
–
(659)
Claims and other insurance
service expenses paid
–
–
540
540
–
–
524
524
Insurance acquisition cash flows
34
–
–
34
29
–
–
29
Cash flows
(710)
–
540
(170)
(630)
–
524
(106)
Net liability at 31 December1
(21)
–
(391)
(412)
(32)
–
(355)
(387)
1Excluding insurance acquisition assets.
2Losses and reversal of losses on onerous contracts amounted to £nil (2024: £nil). Amortisation of insurance acquisition cash flows amounted to £31 million (2024: £32 million).
(E) Summary of contractual service margin and risk adjustment
2025
2024
Life
£m
Non-life
£m
Total
£m
Life
£m
Non-life
£m
Total
£m
CSM on insurance and participating investment contracts1
4,385
–
4,385
4,646
–
4,646
CSM on reinsurance contracts2
(90)
–
(90)
(467)
–
(467)
Total CSM
4,295
–
4,295
4,179
–
4,179
Risk adjustment on insurance and participating investment contracts1
946
23
969
891
19
910
Risk adjustment on reinsurance contracts2
(39)
–
(39)
(68)
(1)
(69)
Total risk adjustment
907
23
930
823
18
841
Total
5,202
23
5,225
5,002
18
5,020
1Includes CSM of £nil (2024: £544 million) and risk adjustment of £nil (2024: £36 million) arising from insurance contracts classified as disposal group liabilities and presented in other
liabilities. Further information on the disposal group is provided in section (C).
2Includes CSM of £nil (2024: £(426) million) and risk adjustment of £nil (2024: £(36) million) on reinsurance contracts classified as disposal group assets and presented in other assets.
Further information on the disposal group is provided in section (C).
The following table analyses the expected recognition of the contractual service margin (CSM) in profit or loss.
At 31 December 2025
Less than 1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
5 to 10
years
£m
Over 10
years
£m
Total
£m
Pensions and investments
(277)
(251)
(207)
(189)
(172)
(663)
(1,358)
(3,117)
Annuities, protection and other
(106)
(98)
(90)
(83)
(78)
(306)
(507)
(1,268)
Insurance and participating
investment contracts
(383)
(349)
(297)
(272)
(250)
(969)
(1,865)
(4,385)
Reinsurance contracts held
12
10
8
7
6
18
29
90
Total
(371)
(339)
(289)
(265)
(244)
(951)
(1,836)
(4,295)
At 31 December 2024
Less than 1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
5 to 10
years
£m
Over 10
years
£m
Total
£m
Pensions and investments
(240)
(218)
(199)
(164)
(152)
(591)
(1,169)
(2,733)
Annuities, protection and other1
(660)
(106)
(98)
(90)
(83)
(331)
(545)
(1,913)
Insurance and participating
investment contracts
(900)
(324)
(297)
(254)
(235)
(922)
(1,714)
(4,646)
Reinsurance contracts held2
433
5
4
3
3
8
11
467
Total
(467)
(319)
(293)
(251)
(232)
(914)
(1,703)
(4,179)
1CSM of £(544) million arising from insurance contracts classified as disposal group liabilities was included in less than one year.
2CSM of £426 million arising from reinsurance contracts held classified as disposal group assets was included in less than one year.
(F) Reconciliation of measurement components of insurance contract balances
2025
Contractual service margin (CSM)
Life
Present
value of
future
cash
flows
£m
Risk
adjustment
for non-
financial
risk
£m
Contracts
measured
under the
fair value
approach
£m
Other
contracts
£m
Total CSM
£m
Total
£m
Net liability at 1 January1
(121,431)
(891)
(1,415)
(3,231)
(4,646)
(126,968)
Relating to current services
179
51
190
400
590
820
Contracts initially recognised in the year
(14)
(60)
–
(18)
(18)
(92)
Changes in estimates that adjust the CSM
319
(49)
65
(335)
(270)
–
Changes in estimates that result in losses and reversal
of losses on onerous contracts
10
(2)
–
–
–
8
Relating to future services
315
(111)
65
(353)
(288)
(84)
Relating to past services
(6)
6
–
–
–
–
Insurance service result
488
(54)
255
47
302
736
Net finance expense from insurance and participating
investment contracts
(15,302)
–
5
(40)
(35)
(15,337)
Exchange differences
(77)
(1)
(6)
–
(6)
(84)
Total change in profit or loss
(14,891)
(55)
254
7
261
(14,685)
Premiums received
(10,618)
–
–
–
–
(10,618)
Claims and other insurance service expenses paid
12,240
–
–
–
–
12,240
Insurance acquisition cash flows
306
–
–
–
–
306
Cash flows
1,928
–
–
–
–
1,928
Derecognition Consideration2
4,932
–
–
–
–
4,932
Transfer to other items in the balance sheet
–
–
–
–
–
–
Net liability at 31 December1
(129,462)
(946)
(1,161)
(3,224)
(4,385)
(134,793)
1Excluding insurance acquisition assets.
2Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).
2024
Contractual service margin (CSM)
Life
Present
value of
future
cash
flows
£m
Risk
adjustment
for non-
financial
risk
£m
Contracts
measured
under the
fair value
approach
£m
Other
contracts
£m
Total CSM
£m
Total
£m
Net liability at 1 January1
(114,209)
(1,159)
(1,473)
(2,942)
(4,415)
(119,783)
Relating to current services
46
58
155
294
449
553
Contracts initially recognised in the year
33
(65)
–
(61)
(61)
(93)
Changes in estimates that adjust the CSM
334
252
(95)
(491)
(586)
–
Changes in estimates that result in losses and reversal
of losses on onerous contracts
(2)
23
–
–
–
21
Relating to future services
365
210
(95)
(552)
(647)
(72)
Relating to past services
(3)
(1)
–
–
–
(4)
Insurance service result
408
267
60
(258)
(198)
477
Net finance (expense) income from insurance and
participating investment contracts
(10,341)
–
(9)
(31)
(40)
(10,381)
Exchange differences
72
1
7
–
7
80
Total change in profit or loss
(9,861)
268
58
(289)
(231)
(9,824)
Premiums received
(10,679)
–
–
–
–
(10,679)
Claims and other insurance service expenses paid
13,063
–
–
–
–
13,063
Insurance acquisition cash flows
265
–
–
–
–
265
Cash flows
2,649
–
–
–
–
2,649
Derecognition Consideration
–
–
–
–
–
–
Transfer to other items in the balance sheet
(10)
–
–
–
–
(10)
Net liability at 31 December1
(121,431)
(891)
(1,415)
(3,231)
(4,646)
(126,968)
1Excluding insurance acquisition assets.
(G) Impacts of insurance and participating investment contracts recognised in the year
2025
2024
Life
Profitable
contracts
issued
£m
Onerous
contracts
issued
£m
Total
£m
Profitable
contracts
issued
£m
Onerous
contracts
issued
£m
Total
£m
Insurance and participating investment contracts
Insurance acquisition cash flows
123
185
308
56
203
259
Claims and other directly attributable expenses
5,573
524
6,097
1,446
4,498
5,944
Estimates of the present value of future cash outflows
5,696
709
6,405
1,502
4,701
6,203
Estimates of the present value of future cash inflows
(5,761)
(630)
(6,391)
(1,577)
(4,659)
(6,236)
Risk adjustment for non-financial risk
47
13
60
14
51
65
Contractual service margin
18
–
18
61
–
61
Losses recognised on initial recognition
–
92
92
–
93
93
(H) Life business contractual service margin run-off
2025
2024
Life
£m
Non-life
£m
Total
£m
Life
£m
Non-life
£m
Total
£m
CSM on insurance and participating investment contracts1
4,385
–
4,385
4,646
–
4,646
CSM on reinsurance contracts2
(90)
–
(90)
(467)
–
(467)
Total CSM
4,295
–
4,295
4,179
–
4,179
Risk adjustment on insurance and participating investment contracts1
946
23
969
891
19
910
Risk adjustment on reinsurance contracts2
(39)
–
(39)
(68)
(1)
(69)
Total risk adjustment
907
23
930
823
18
841
Total
5,202
23
5,225
5,002
18
5,020
1Includes CSM of £nil (2024: £544 million) and risk adjustment of £nil (2024: £36 million) arising from insurance contracts classified as disposal group liabilities and presented in other
liabilities. Further information on the disposal group is provided in section (C).
2Includes CSM of £nil (2024: £(426) million) and risk adjustment of £nil (2024: £(36) million) on reinsurance contracts classified as disposal group assets and presented in other assets.
Further information on the disposal group is provided in section (C).
The following table analyses the expected recognition of the contractual service margin (CSM) in profit or loss.
At 31 December 2025
Less than 1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
5 to 10
years
£m
Over 10
years
£m
Total
£m
Pensions and investments
(277)
(251)
(207)
(189)
(172)
(663)
(1,358)
(3,117)
Annuities, protection and other
(106)
(98)
(90)
(83)
(78)
(306)
(507)
(1,268)
Insurance and participating
investment contracts
(383)
(349)
(297)
(272)
(250)
(969)
(1,865)
(4,385)
Reinsurance contracts held
12
10
8
7
6
18
29
90
Total
(371)
(339)
(289)
(265)
(244)
(951)
(1,836)
(4,295)
At 31 December 2024
Less than 1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
5 to 10
years
£m
Over 10
years
£m
Total
£m
Pensions and investments
(240)
(218)
(199)
(164)
(152)
(591)
(1,169)
(2,733)
Annuities, protection and other1
(660)
(106)
(98)
(90)
(83)
(331)
(545)
(1,913)
Insurance and participating
investment contracts
(900)
(324)
(297)
(254)
(235)
(922)
(1,714)
(4,646)
Reinsurance contracts held2
433
5
4
3
3
8
11
467
Total
(467)
(319)
(293)
(251)
(232)
(914)
(1,703)
(4,179)
1CSM of £(544) million arising from insurance contracts classified as disposal group liabilities was included in less than one year.
2CSM of £426 million arising from reinsurance contracts held classified as disposal group assets was included in less than one year.
Critical accounting judgements and key sources of estimation uncertainty Note 3: Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Group’s financial statements in accordance with IFRS Accounting Standards requires management to make
judgements, estimates and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income
and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts
which differ from those estimates.
Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the Group
has considered the impact of climate-related risks on its financial position and performance. While the effects of climate change represent
a source of uncertainty, the Group does not consider there to be a material impact on its judgements and estimates from the physical,
transition and other climate-related risks in the short term.
The significant judgements, apart from those involving estimation, made by management in applying the Group’s accounting policies in
these financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a
material adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimation uncertainty),
which together are considered critical to the Group’s results and financial position, are disclosed within the following notes:
•Insurance business (note 8(I))
•Retirement benefit obligations (note 12)
•Tax (note 15)
•Fair value of financial assets and liabilities (note 17(D))
•Allowance for expected credit losses (note 21)
•Provisions (note 28)
Consideration of climate change
Financial statement preparation includes the consideration of the impact of climate change on the Group’s financial statements. There has
been no material impact identified on the financial reporting judgements and estimates. In particular, the directors considered the impact
of climate change in respect of the:
•Going concern of the Group for a period of at least 12 months from the date of approval of the financial statements
•Assessment of impairment of non-financial assets
•Carrying value and useful economic lives of property, plant and equipment
•Fair value of financial assets and liabilities. These are generally based on market indicators which include the market’s assessment of
climate risk
•Assessments on expected credit loss, focusing on specific climate-related macroeconomic, physical and transition risk impacts on credit
quality at a sector and segment level
•Forecasting of the Group’s future UK taxable profits, which impacts deferred tax recognition
Whilst there is currently no material short-term impact of climate change expected, the Group acknowledges the long-term nature of
climate risk and continues to monitor and assess climate risks highlighted in the risk management section on pages 150 to 152.
Critical judgements:
Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to
the discount rate of different products and how the illiquidity premium is determined
Key sources of estimation uncertainty:
Increase in illiquidity premia and widening of credit default spreads
2025
2024
Change in variable
Increase
(reduction)
in profit
before tax
£m
Increase
(reduction)
in equity
£m
Increase
(reduction)
in profit
before tax
£m
Increase
(reduction)
in equity
£m
Key sources of estimation uncertainty
Risk free rate, including illiquidity premia
1% reduction
271
157
272
204
1% increase
(237)
(136)
(227)
(171)
Widening of credit default spreads on corporate bonds
and other credit risky assets
0.25% addition
(186)
(140)
(174)
(131)
Other market exposure
Equity
10% reduction
64
145
137
103
10% increase
(58)
(144)
(127)
(95)
Inflation
50bps reduction
(77)
(58)
(88)
(66)
50bps increase
84
63
98
73
Other accounting estimates
Annuitant mortality
5% reduction
33
25
48
36
5% increase
(37)
(28)
(45)
(33)
Future maintenance and investment expenses
10% reduction
29
22
30
23
10% increase
(31)
(23)
(30)
(23)
Non-annuitant mortality and morbidity
5% reduction
31
24
17
13
5% increase
(26)
(20)
(10)
(8)
Lapse rates
10% reduction
8
6
5
4
10% increase
(9)
(6)
(4)
(3)
Critical judgement:
Determining whether a present obligation exists and whether it is more likely than not that an outflow of
resources will be required to settle that obligation
Key sources of estimation uncertainty:
Populations impacted, level of remediation and response rates
(I) Life insurance sensitivity analysis Note 3: Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Group’s financial statements in accordance with IFRS Accounting Standards requires management to make
judgements, estimates and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income
and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts
which differ from those estimates.
Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the Group
has considered the impact of climate-related risks on its financial position and performance. While the effects of climate change represent
a source of uncertainty, the Group does not consider there to be a material impact on its judgements and estimates from the physical,
transition and other climate-related risks in the short term.
The significant judgements, apart from those involving estimation, made by management in applying the Group’s accounting policies in
these financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a
material adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimation uncertainty),
which together are considered critical to the Group’s results and financial position, are disclosed within the following notes:
•Insurance business (note 8(I))
•Retirement benefit obligations (note 12)
•Tax (note 15)
•Fair value of financial assets and liabilities (note 17(D))
•Allowance for expected credit losses (note 21)
•Provisions (note 28)
Consideration of climate change
Financial statement preparation includes the consideration of the impact of climate change on the Group’s financial statements. There has
been no material impact identified on the financial reporting judgements and estimates. In particular, the directors considered the impact
of climate change in respect of the:
•Going concern of the Group for a period of at least 12 months from the date of approval of the financial statements
•Assessment of impairment of non-financial assets
•Carrying value and useful economic lives of property, plant and equipment
•Fair value of financial assets and liabilities. These are generally based on market indicators which include the market’s assessment of
climate risk
•Assessments on expected credit loss, focusing on specific climate-related macroeconomic, physical and transition risk impacts on credit
quality at a sector and segment level
•Forecasting of the Group’s future UK taxable profits, which impacts deferred tax recognition
Whilst there is currently no material short-term impact of climate change expected, the Group acknowledges the long-term nature of
climate risk and continues to monitor and assess climate risks highlighted in the risk management section on pages 150 to 152.
Critical judgements:
Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to
the discount rate of different products and how the illiquidity premium is determined
Key sources of estimation uncertainty:
Increase in illiquidity premia and widening of credit default spreads
2025
2024
Change in variable
Increase
(reduction)
in profit
before tax
£m
Increase
(reduction)
in equity
£m
Increase
(reduction)
in profit
before tax
£m
Increase
(reduction)
in equity
£m
Key sources of estimation uncertainty
Risk free rate, including illiquidity premia
1% reduction
271
157
272
204
1% increase
(237)
(136)
(227)
(171)
Widening of credit default spreads on corporate bonds
and other credit risky assets
0.25% addition
(186)
(140)
(174)
(131)
Other market exposure
Equity
10% reduction
64
145
137
103
10% increase
(58)
(144)
(127)
(95)
Inflation
50bps reduction
(77)
(58)
(88)
(66)
50bps increase
84
63
98
73
Other accounting estimates
Annuitant mortality
5% reduction
33
25
48
36
5% increase
(37)
(28)
(45)
(33)
Future maintenance and investment expenses
10% reduction
29
22
30
23
10% increase
(31)
(23)
(30)
(23)
Non-annuitant mortality and morbidity
5% reduction
31
24
17
13
5% increase
(26)
(20)
(10)
(8)
Lapse rates
10% reduction
8
6
5
4
10% increase
(9)
(6)
(4)
(3)
Critical judgement:
Determining whether a present obligation exists and whether it is more likely than not that an outflow of
resources will be required to settle that obligation
Key sources of estimation uncertainty:
Populations impacted, level of remediation and response rates
Schedule of Average Yield Curves The average sterling yield curves that were used to discount the estimates of future cash flows that do not vary based on the returns of the
underlying items are as follows:
1 year
5 year
10 year
20 year
30 year
2025
4.74
5.25
6.00
6.24
5.57
2024
5.58
5.17
5.66
5.71
5.06