Notes to the accounts
for the year ended 31 December 2007
14. Assets backing insurance unit-linked liabilities and insurance unit-linked liabilities
Reconciliation of investments in authorised unit trusts to liability linked to life company investments:
| 2007 £mn |
2006 £mn |
|
|---|---|---|
| Investments in authorised unit trusts | 1,818.6 | 1,307.4 |
| Other financial assets1 | 907.8 | 211.7 |
| Cash and cash equivalents1 | 1.4 | 12.9 |
| Insurance unit-linked liabilities | 2,727.8 | 1,532.0 |
1Represents the assets of underlying funds in which the life company invests where the life company is in a position to be able to exercise control over those funds.
The above insurance assets and unit-linked liabilities arise within the Group's wholly-owned entity, Schroder Pension Management Limited (‘the life company'), which purchases units in open-ended authorised unit trusts on behalf of clients seeking to invest in unit trusts with a life assurance wrapper.
The life company may liquidate its investments on demand. The Group has negligible exposure to credit risk in relation to the investments of the life company as the risks and rewards associated with its investments are borne by the investors in the life company's funds and not by the life company itself.
As is common practice in the industry, the life company has granted floating charges over its long-term insurance assets to its reinsured policy holders. The floating charges convert into fixed charges in the event of the insolvency of the life company. The charge ensures that such policy holders rank equally with direct policy holders in the event of the insolvency or winding-up of the life company.