Strategic Report Governance
Financial Statements
181
Locked-in rates for underlying business are presented below. Equivalent locked-in reinsurance discount rates vary by reinsurer but are based upon the same underlying reference portfolios as for gross insurance business so will only differ due to the recognition date difference described above. Discount rates have been disclosed in aggregate and have not been split according to their profitability groupings. Discount rate – insurance contracts JRL
31 December 2024
31 December 2023
Valuation rate at 31 December
New business cohort (Locked-in rates)
Valuation rate at 31 December
New business cohort (Locked-in rates)
All products
GIfL
DB
All products
GIfL
DB
1 year 5 year 10 year 20 year 30 year
6.6% 6.2% 6.2% 6.4% 6.4%
6.4% 6.1% 6.1% 6.2% 5.9%
6.2% 5.9% 6.0% 6.2% 5.8%
6.9% 5.5% 5.4% 5.5% 5.5%
7.1% 6.5% 6.2% 6.0% 5.9%
7.0% 6.3% 6.0% 5.9% 5.6%
Discount rate – insurance contracts PLACL
Valuation rate at 31 December 2024
Valuation rate at 31 December 2023
GIfL/DB
Care
GIfL/DB
Care
1 year 5 year 10 year 20 year 30 year
6.6% 6.2% 6.2% 6.4% 6.4%
5.1% 4.6% 4.7% 4.9% 4.8%
6.8% 5.5% 5.4% 5.5% 5.5%
4.9% 3.5% 3.4% 3.6% 3.5%
(iv) Inflation Assumptions for annuity escalation are required for RPI, CPI and LPI index-linked liabilities, the majority of which are within the Defined Benefit business. The inflation curve assumed in each case is that which is implied by market swap rates, using a mark to model basis for LPI inflation, taking into account any escalation caps and/or floors applicable. Compared to the previous period, the approach to the derivation of inflation curves has incorporated additional market data from 2022 and 2023 and extended the term structure to reach the ultimate level but is otherwise unchanged. For the purposes of calculating movements in the CSM relating to each group of contracts, for JRL separate weighted average inflation curves for each index are calculated and locked-in for each annual cohort. The inflation curves from each day are weighted by the business volumes completed on that day to which that inflation variant applies. (v) Future expenses Assumptions for future costs of maintaining policies are set with reference to analysis of the existing expense base and actual fees payable under the contracts for those services outsourced. The assumptions cover both the direct and indirect costs of maintaining policies. The JRL GIfL maintenance expense assumption used was £29.05 per plan (2023: £25.37), and the JRL DB maintenance assumption used was £71.14 per scheme member (2023: £68.49). The PLACL GIfL maintenance expense assumption used was £40.42 per plan (2023: £28.85), and the PLACL DB maintenance assumption used was £119.74 per scheme member (2023: £203.50). The changes in the PLACL maintenance expense assumptions reflect an updated assessment of activity required to support in-force policies. Assumptions for future policy expense levels are determined from the Group’s recent expense analyses and incorporate an annual inflation rate allowance of 3.7% (2023: 3.6%) derived from the expected RPI and CPI implied by inflation swap rates and an additional allowance for earnings inflation. The annual inflation rate allowance is regarded as a financial assumption and therefore all changes in expense inflation rates are recognised immediately within net investment result. (vi) Risk adjustment The best estimate liability represents the present value of future net cash outflows to settle claims and expenses quantified at the 50th percentile confidence interval. The risk adjustment for non-financial risk is determined to reflect the compensation that the Group requires for bearing longevity, expense, and insurance-contract specific operational risks. The risk adjustment represents an additional reserve held that increases the ultimate time horizon confidence interval up to the 70th percentile and amounts to £0.3bn (2023 £0.3bn) net of reinsurance. Based upon the latest risk adjustment calibration exercise, a 5% increase in the ultimate run-off confidence interval would increase the net of reinsurance risk adjustment by c£0.1bn (2023: c£0.1bn).
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