Governance Financial Statements
Strategic Report
39
REINSURANCE CONTRACT ASSETS AND LIABILITIES The Group has identified separate portfolios of reinsurance contracts, based on whether or not the underlying contracts transfer financial risk in addition to longevity risk. The Group’s contracts transferring financial risk are quota share arrangements which are in asset positions. Since the introduction of Solvency II in 2016, the Group has increased its use of reinsurance swaps rather than quota share treaties and these are in liability positions. Reinsurance assets increased to £2,067m at 31 December 2024 (31 December 2023: £1,143m) as the funded reinsurance in relation to the DB Partner transaction in November 2024 was partially offset by other reinsurance quota share treaties which are in gradual run-off. CASH AND OTHER ASSETS Other assets (primarily cash) remained consistent at £1.5bn at 31 December 2024 (31 December 2023: £1.3bn). The Group holds significant amounts of assets in cash, so as to protect against liquidity stresses. INSURANCE CONTRACT LIABILITIES Insurance contract liabilities increased to £27.8bn at 31 December 2024 (31 December 2023: £24.1bn). The increase in liabilities reflects the new business premiums written, offset by an increase to the valuation rate of interest and policyholder payments over the period. PAYABLES AND OTHER FINANCIAL LIABILITIES Payables and other financial liabilities increased to £7.9bn at 31 December 2024 (31 December 2023: £5.6bn) due to an increase in repurchase agreements used to fund the Group’s amortised cost portfolio of gilts which has increased by £1.4bn during 2024.
OTHER LIABILITIES Other liability balances increased to £940m at 31 December 2024 (31 December 2023: £771m).
IFRS NET ASSETS The Group’s total equity at 31 December 2024 was £1.2bn (31 December 2023: £1.2bn). Total equity includes the Restricted Tier 1 notes of £322m (after issue costs) issued by the Group. The total equity attributable to ordinary shareholders increased to £924m (31 December 2023: £883m). DEFERRAL OF PROFIT IN CSM As noted above, underlying operating profit is the performance metric on which we had based our profit growth target. This includes new business profits deferred in CSM that will be released in future. When reconciling the underlying operating profit with the statutory IFRS profit it is necessary to adjust for the value of the net deferral of profit in CSM. Net transfers to contractual service margin includes amounts that are recognised in profit or loss including the accretion and the amortisation of the contractual service margin. The table below is on a pre-tax basis:
Year ended 31 December 2024
Year ended 31 December 2023
Gross insurance contracts £m
Reinsurance contracts £m
Gross insurance contracts £m
Reinsurance contracts £m
Total £m
Total £m
CSM balance at 1 January
2,449
(490)
1,959
1,943
(332)
1,611
New Business initial CSM recognised Accretion of interest on CSM Changes to future cash flows at locked-in economic assumptions
438 113
24
462
380
(37) (12)
343
(30)
83
79
67
(92)
70 23 87
(22)
203
(136)
67
Release of CSM
(177)
(154)
(156)
27
(129)
Net transfers to CSM
282
369
506
(158) (490)
348
CSM balance at 31 December 1,959 The closing CSM balance (post tax) at 31 December 2024 is £1,750m (2023: £1,471m), which when added to £924m of total equity attributable to ordinary shareholders (2023: £883m) less £39m (post tax) intangible assets (2023: £39m), results in Tangible Net Assets of £2,635m or 254p per share (2023: £2,315m and 224p respectively), on which we earned a 15.3% Return on equity (2023: 13.5%). DIVIDENDS 2,731 (403) 2,328 2,449 In line with our stated policy to grow the dividend over time, the Board is recommending a final dividend of 1.8 pence per share, or £19m, bringing the total dividend for the year ended 31 December 2024 to 2.5 pence per share, or £26m. The 20% growth in total dividend is a repeat of the 2023 dividend growth rate.
MARK GODSON Group Chief Financial Officer
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