Financial Statements

Notes to the consolidated accounts

40. Step-up Tier one Insurance Capital Securities

	2003 STICS £m	2005 STICS £m	Total £m
At 1 January 2006	299	511	810
Interest payable in the year	21	31	52
Interest paid in the year	(21)	(31)	(52)
At 31 December 2006	299	511	810
Interest payable in the year	21	31	52
Interest paid in the year	(21)	(31)	(52)
At 31 December 2007	299	511	810

The Company has issued two STICS. These are identified as the 2003 STICS and the 2005 STICS. Under IFRS, it is necessary to treat STICS as equity as there is no requirement to settle the obligation in cash or another financial asset. Interest and dividends on instruments classified as equity are not treated as expenses but as an appropriation of profit. The Group considers that the commercial intent of the instruments is debt, accordingly the interest is included in the underlying profit calculation of the Group.

2003 STICS:
On 21 November 2003, the Company issued £300m of STICS, which bear interest from November 2003 to November 2019 at a rate of 6.875%. The STICS have no maturity date but will be redeemable at the option of the Company on 21 November 2019, thereafter on the coupon payment date falling on or nearest successive fifth anniversaries of this date. The STICS are perpetual securities and are not redeemable at the option of the holders at any time. The STICS are irrevocably guaranteed on a subordinated basis by FPLP. The guarantee is intended to provide holders with rights against FPLP in respect of the guaranteed payments which are as near as possible equivalent to those which they would have had if the STICS had been directly issued preference shares of FPLP. For each coupon period after 20 November 2019, the STICS will bear interest that is reset every five years. The STICS are carried at £299m, being £300m principal less capitalised issue costs of £3m, plus interest due of £2m not yet paid to STICS holders. Interest is payable in equal instalments in arrears on 21 May and 21 November of each year.

2005 STICS:
On 27 June 2005, the Company issued £500m of STICS, which bear interest from 30 June 2005 to 30 June 2015 at a rate of 6.292%. The STICS have no maturity date but will be redeemable in whole or part at the option of the Company on 1 July 2015, thereafter on every fifth anniversary of this date. The STICS are perpetual securities and are not redeemable at the option of the holders at any time. The STICS are guaranteed on a limited and subordinated basis by FPLP. For each coupon period after 1 July 2015, the STICS will bear interest that is reset every five years. The STICS are carried at £511m, being £500m principal less capitalised issue costs of £5m, plus interest due of £16m not yet paid to STICS holders. Interest is payable in arrears on 30 June of each year.