Strategic Report Governance
Financial Statements
155
1.16. Taxation The current tax expense is based on the taxable profits for the year, using blended rates determined from tax rates substantively enacted at the Consolidated statement of financial position date, and after any adjustments in respect of prior years. Current and deferred tax is charged or credited to Profit or loss unless it relates to items recognised in Other comprehensive income or directly in equity. Provision is made for deferred tax liabilities, or credit taken for deferred tax assets, using the liability method, on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from the transitional tax adjustments resulting from the implementation of IFRS 17. The principal temporary differences arise from the transitional tax adjustments resulting from the implementation of IFRS 17 and are being amortised over a period of 10 years from 1 January 2023. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The deferred tax assets and liabilities are measured using substantively enacted corporation tax rates based on the timings of when they are expected to reverse.
2. SEGMENTAL REPORTING Segmental analysis
The Group has a single reportable segment “Insurance” which is reconciled to the total Group result by including the non-reportable segments plus the other companies’ results. This includes the Group’s corporate activities that are primarily involved in managing the Group’s liquidity, capital and investment activities. The Insurance segment writes insurance products for distribution to the at/in-retirement market and the DB de-risking market. The primary products written by the Group are DB and GIfL and the Group invests the premiums received from these contracts in debt and other fixed income securities, gilts, liquidity funds, Lifetime Mortgage advances and other illiquid assets. The Group’s other segment which is not currently sufficiently significant to disclose separately as a reportable segment is the Advisory segment. This segment performs the arranging of retirement income products through regulated advice and intermediary services and the provision of licensed software to financial advisers, banks, building societies, life assurance companies and pension trustees. The Group primarily operates in the material geographical segment the United Kingdom. The internal reporting used by the CODM includes segmental information regarding premiums and profit. Material product information is analysed by product line and includes shareholder funded DB, GIfL, DB Partner (funded re), Care Plans, Protection, LTM and Drawdown products. Further information on the DB Partner (funded re) transactions is included in the Business review. The information on adjusted operating profit and profit before tax used by the CODM is presented on a combined product basis within the insurance operating segment and is not analysed further by product. Underlying operating profit The Group reports underlying operating profit as an alternative measure of profit which is used for decision making and performance measurement. The Board believes that underlying operating profit, which represents a combination of both the future profit generated from new business written in the year and additional profit emerging from the in-force book of business, provides a view of the development of the business aligned to growth and future cash release. The underlying operating profit metric is presented prior to deferring new business profit to the CSM as the Board considers the value of new business is significant in assessing business performance. Actual operating experience, where different from that assumed at the start of the year, and the impacts of changes to future operating assumptions applied in the year, are then also included in arriving at adjusted operating profit. New business profits incorporate expected investment returns on the financial instruments assumed to be newly purchased to back that business after allowances for expected movements in liabilities and deduction of acquisition costs. New business profits are based on valuation of investment returns as at the date of quoting for new business whereas the CSM on new business is computed as at the date of inception of new contracts. Profits arising from the in-force book of business represent an expected return on surplus assets of 4% (2023: 4%) which is primarily based upon short-term risk-free rates, the expected unwind of allowances for credit default and the release of the risk adjustment. Underlying operating profit excludes strategic expenditure, and where applicable any impairments, exceptional items and amortisation of intangible assets arising on consolidation, since these items arise outside the normal course of business in the year. Variances between actual and expected investment returns due to economic and market changes, including on surplus assets and on assets assumed to back new business, and gains and losses on the revaluation of land and buildings, are also disclosed outside underlying operating profit.
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