176 | Just Group PLC | Annual Report and Accounts 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
16. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES continued Voluntary redemptions
Assumptions for future voluntary redemption levels are based on the Group’s recent experience analyses and management’s expert judgement. The assumed redemption rate varies by factors such as product type, duration, issue age and property value with base assumptions varying between 0.5% and 3.7% for loans in JRL (2023: 0.5% and 4.1%) and between 0.2% and 6.0% for loans in PLACL (2023: 0.6% and 6.8%). Liquidity premium The liquidity premium at initial recognition is set such that the fair value of each loan is equal to the face value of the loan. The liquidity premium partly reflects the illiquidity of the loan and also spreads the recognition of profit over the lifetime of the loan. Once calculated, the liquidity premium remains unchanged at future valuations except when further advances are taken out. In this situation, the single liquidity premium to apply to that loan is recalculated allowing for all advances. The average liquidity premium for loans held within JRL is 3.2% (2023: 3.2%) and for loans held within PLACL is 3.3% (2023: 3.3%). The movement over the period observed in both JRL and PLACL is a function of the liquidity premiums on new loan originations compared to the liquidity premiums on those policies which have redeemed over the period, both in reference to the average spread on the in-force portfolio of LTMs. Sensitivity analysis Reasonably possible alternative assumptions for unobservable inputs used in the valuation model could give rise to significant changes in the fair value of the assets. The Group has estimated the impact on fair value to changes to these inputs as follows:
Immediate property price fall -10%
Future property price growth -0.5%
Future property price volatility +1%
Maintenance expenses +10%
Base mortality -5%
Mortality improvement +10%
Voluntary redemptions +10%
Liquidity premium +10bps
Lifetime mortgages net increase/ (decrease) in fair value (£m)
2024 2023
(5) (5)
(23) (15)
(3) (3)
(88) (83)
(51) (50)
(33) (34)
27 19
(46) (49)
The sensitivity factors are applied via financial models either as at the valuation date or from a suitable recent reporting period where appropriate to do so. The analysis has been prepared for a change in each variable with other assumptions remaining constant. In reality such an occurrence is unlikely due to correlation between the assumptions and other factors. It should be noted that some of these sensitivities are non-linear and larger or smaller impacts should not be simply interpolated or extrapolated from these results. For example, the impact from a 5% fall in property prices would be slightly less than half of that disclosed in the table above. The impact on insurance liabilities of sensitivities to mortality is included in note 22(h). Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk that only represents the Group’s view of reasonably possible near-term market changes that cannot be predicted with any certainty. (vii) Other loans Other loans classified as Level 3 are mainly commodity trade finance loans. These are valued using discounted cash flow analyses. Sensitivity analysis The sensitivity of fair value to changes in credit spread assumptions in respect of other loans is not material.
17. DEFERRED TAX ASSETS
31 December 2024 £m
31 December 2023 £m
Transitional tax relief on adoption of IFRS 17
273 113
307
Tax losses and other Land and buildings
99
1
–
Total
387
406
The £273m (2023: £341m) deferred tax asset was recognised on adoption of IFRS 17 for transitional tax relief and is being amortised over a period of ten years from 1 January 2023. The movement in the net deferred tax balance was as follows: Year ended 31 December 2024 £m Year ended 31 December 2023 £m Net balance at 1 January 406 449 Recognised in profit or loss (24) (43) Recognised in other comprehensive income 1 – Recognised in equity 4 – Net balance at 31 December 387 406
The Group has unrecognised deferred tax assets of £8m (2023: £6m).
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