182 | Just Group PLC | Annual Report and Accounts 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
22. INSURANCE CONTRACTS AND RELATED REINSURANCE continued The Group determines the risk adjustment for non-financial risk using a “value at risk” technique. The primary non-financial risks allowed for are longevity and expenses, which is consistent with the primary life underwriting risks allowed for in Solvency II reporting. On an annual basis, the Group uses the probability distributions of the future net of reinsurance cash flows from insurance contracts on a one-year time horizon as used within the respective JRL and PLACL internal models for Solvency II reporting for the aforementioned non-financial risks, which are then converted to ultimate horizon distributions in order to determine stress parameters at the target percentile. This represents a change from the approach adopted for 31 December 2023 following the adoption of a Solvency II internal model for PLACL in 2024. Financial risks are reflected as adjustments to discount rates (by comparison, both financial and non-financial risks are included in the Solvency II SCR). The risk adjustment for non-financial risk is then calculated as the excess of the value at risk at the target confidence level percentile over the expected present value of the future cash flows. The Group targets an ultimate confidence interval at the 70th percentile. At the point of calibration, this calibration represents an approximately one-in-ten year stress on a one-year basis. The calibration is carried out on an annual basis ahead of the financial reporting year end, therefore the actual confidence interval as at the valuation date may differ slightly, for example, due to economic movements in the intervening period. The Group’s IFRS risk adjustment for non-financial risk is considered by management to provide an economic view of the profitability of new business and is therefore used for pricing purposes as well as representing the basis used within the new business profits KPI. The confidence level is targeted on a net of reinsurance basis as this reflects how insurance risk is managed by the Group. The reinsurance risk adjustment represents the amount of risk being transferred by the holder of the reinsurance contract to the issuer of that contract. Reinsurance contracts held by the Group transfer longevity risk proportional to the underlying insurance contract. Consequently, the same risk adjustment stresses for this non-financial risk are applied to both gross and reinsurance contracts to determine the respective risk adjustment for each. Expense and operational risks are not transferred to reinsurers as part of the reinsurance contract held by the Group and hence there are no stresses applied for these in the reinsurance risk adjustment. Allowance is made for diversification between risks within legal entities, but not between the different legal entities within the Group. (c) Movements analyses – insurance contracts (i) Insurance contracts analysis of remaining coverage
Liability for remaining coverage £m
Incurred claims £m
Total £m
Year ended 31 December 2024
Note
Opening insurance contract liabilities balance (restated 1 )
24,208
(77)
24,131
Changes in the statement of comprehensive income Insurance revenue Insurance service expenses – Incurred claims and directly attributable expenses – Amortisation of insurance acquisition cash flows
3(a)
(1,809)
–
(1,809)
–
1,589
1,589
32 32
–
32
1,589 1,589
1,621
3(b)
Insurance service result Investment component
(1,777)
(188)
(296) (480)
296
–
Net finance income from insurance contracts
4(b)
– –
(480)
Exchange rate movements
(4)
(4)
Total changes in the statement of comprehensive income
(2,557)
1,885
(672)
Cash flows Premiums received
2
6,413
–
6,413
Claims and other insurance service expenses paid, including investment components
–
(1,904)
(1,904)
Insurance acquisition cash flows
3(b)
(215)
–
(215)
Total cash flows
6,198
(1,904)
4,294
Closing insurance contract liabilities balance
27,849
(96)
27,753
1 The analysis of the opening balance between Liability for remaining coverage and Incurred claims has been restated by £34m as a result of a correction to the amounts reported for the investment component in the comparative table on the next page.
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