148 | Just Group PLC | Annual Report and Accounts 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. MATERIAL ACCOUNTING POLICIES continued Fulfilment cash flows, which comprise estimates of current and future cash flows, are adjusted to reflect the time value of money and associated financial risks, and a risk adjustment for non-financial risk. These calculations are maintained at contract level for GIfL and Care business, and at DB scheme member level. Insurance acquisition cash flows which are included in fulfilment cash flows at point of sale are costs incurred in the selling, underwriting and starting a group of contracts that are directly attributable to the portfolio of contracts to which the group of contracts belongs. The risk adjustment for non-financial risk for a group of insurance contracts is the compensation required for bearing uncertainty regarding the amount and timing of the cash flows that arise from non-financial risk. The measurement of the fulfilment cash flows of a group of insurance contracts does not reflect non-performance (own credit) risk of the Group. The detailed policies and methodologies used for the determination of the discount rate and the risk adjustment are included within note 22(b). The CSM of a group of insurance contracts represents the unearned profit that the Group will recognise as it provides services under those contracts. The CSM is recognised at point of sale based on the value of the fulfilment cash flows, including directly attributable acquisition expenses. A group of insurance contracts is not onerous on initial recognition if the total of the fulfilment cash flows, any derecognised assets for insurance acquisition cash flows, and any cash flows arising at that date is a net inflow. In this case, the CSM is measured as the equal and opposite amount of the net inflow, which results in no income or expenses arising on initial recognition. If the total of the fulfilment cash flows is a net outflow, then the CSM grouping of contracts is considered to be onerous. The full value of the fulfilment cash flows is recognised as an insurance contract liability, and the net outflow is recognised as a loss component in profit or loss on initial recognition. Reversals of loss components following re-projection of future cash flows are recognised in profit or loss only to the extent that they reverse the loss previously recorded in profit or loss, with any further amounts recognised on the balance sheet by creation of a CSM. The value of the run-off of the loss component as policyholder benefits are paid is excluded from insurance revenue. 1.7.6. Subsequent measurement The carrying amount of a group of insurance contracts at each reporting date is the sum of the liability for remaining coverage and the liability for incurred claims. The liability for remaining coverage comprises: • the fulfilment cash flows that relate to services that will be provided under the contracts in future periods; and • any remaining CSM at that date. The fulfilment cash flows of groups of insurance contracts are measured at the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-financial risk. Outstanding balances due from or to policyholders and intermediaries are also included within this balance. Payments of annuities made before due dates, for example on the final working day of the month, are shown as a reduction to insurance contract liabilities. The CSM of each group of contracts is calculated on a cumulative year to date basis, rather than being locked in at each interim reporting period. For insurance contracts, the carrying amount of the CSM at the end of each period is the carrying amount at the start of the period, adjusted for: • the CSM of any new contracts that are added to the group in the period; • interest accreted on the carrying amount of the CSM during the period, measured at the discount rates determined on initial recognition of the group of contracts; • changes in fulfilment cash flows that relate to future services, except to the extent that: – any increases in the fulfilment cash flows exceed the carrying amount of the CSM, in which case the excess is recognised as a loss in the profit or loss account and creates a loss component; or – any decreases in the fulfilment cash flows are allocated to the loss component, reversing losses previously recognised in profit or loss account; – the changes are due to financial risk in policyholder cash flows compared with expectations, for example inflation; and
– the amount recognised as insurance revenue is in respect of services provided in the period. Changes in fulfilment cash flows that relate to future services and accordingly adjust the CSM comprise:
• premium adjustments, such as DB true-ups (which can be both positive and negative) to the extent that they relate to future coverage; • changes in estimates of the present value of future cash flows in the liability for remaining coverage, except for those that relate to the effects of the time value of money, benefit inflation, financial risk and changes therein; and • changes in the risk adjustment for non-financial risk that relate to future services. Adjustments to CSM for changes in fulfilment cash flows are measured at the discount rates determined at initial recognition, i.e. are calculated using “locked-in” discount rates. The allowance for benefit inflation within the CSM calculation uses the locked-in inflation assumptions prospectively, with actual inflation experience recognised in the period up to the measurement date. The effect of changes to the related best estimate and risk adjustment balances caused by changes in discount rates and benefit inflation are recognised as insurance finance income or expenses within the profit or loss account.
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