Notes to the consolidated accounts

Unless otherwise stated below, the carrying values of interest-bearing loans and borrowings closely approximate fair value.

1. Subordinated loan notes issued in December 2006 and initially recognised 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.

2. 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, with a further £144m repaid in April 2007.

3. Issued in February 2005. The carrying value is initially recognised net of amortised issue costs of £1m.

4. Issued on 16 April 2006 in respect of the 2005 earn-out payment relating to the acquisition of Lombard in 2005, in addition to a cash payment of £40m. Interest is payable quarterly in arrears at a rate of 3m LIBOR – 0.75%.

   The Notes are repayable on 18 April 2011 or at the Noteholders request on any interest payment date falling six months or more after the date of issue of the Notes.

5. Issued on 16 April 2007 in respect of the 2006 earn-out payment relating to the acquisition of Lombard in 2005, in addition to a cash payment of £49m. Interest is payable quarterly in arrears at a rate of 3m LIBOR – 0.75%.

   The Notes are repayable on 18 April 2012 or at the Noteholders request on any interest payment date falling six months or more after the date of issue of the Notes.

6. During April 2007 Friends Provident Pensions Limited (FPP) entered into a reinsurance treaty with Windsor Life Assurance Company Limited, a subsidiary of Swiss Re. The agreement, which took effect from 1 January 2007, reinsures the mortality and investment risk, but not expense risk, of 100% of FPP's in-force post demutualisation annuity books as at 31 December 2006. Business written after 31 December 2006 is not reinsured under the treaty. The liability due to Swiss Re represents future reassurance premiums payable and is accounted for as a financial liability at fair value through the income statement, thereby avoiding a mismatch with the assets backing the liability. Reassurance premium payments are funded from the fixed return on an investment in a collateralised HSBC Amortising Note, purchased with a transfer of the assets previously tracking the annuity policies.

   Included in this carrying amount is £1,489m that is expected to be settled more than 12 months after the balance sheet date.