Just Group plc | Annual Report and Accounts 2024
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PRINCIPAL RISKS AND UNCERTAINTIES continued
risk outlook
how this risk effects just just’s exposure to risk
outlook and how we manage or mitigate the risk
3 Cyber and technology
Trend: STABLE
strategic priorities
Our IT systems are central to conducting our business from delivering outstanding customer service and to the financial management of the business. We maintain a framework of operational resilience and disaster recovery capabilities so that we can continue to operate the business in adverse circumstances. Protecting the personal information of our customers and colleagues is a key priority. Internal controls and our people are integral to protecting the integrity of our systems, with our multi-layered approach to information security supported by training, embedded company policies and governance. We continue to invest in strategic technologies.
The cyber threat to firms is expected to continue at a high level in the coming years and evolve in sophistication, especially with the increased threat of sophisticated and expected high volumes of attacks resulting from Artificial Intelligence. We will continue to closely monitor evolving external cyber threats to ensure our information security measures remain fit for purpose. Further investments in cyber-attack countermeasures were made in 2024, to enable consistent delivery of required security standards, in line with our Cyber strategy. We will continue to evaluate impacts of other new and emerging technologies, such as Artificial Intelligence, during 2025. We also conduct severe but plausible cyber desktop scenarios exercises to find gaps in our controls. To strengthen data security and overall resilience, enhancements to network architecture and data centre upgrades have been implemented in 2024. Our email system continues to be made more resilient to malicious attacks, including detection of emerging types of phishing and malware. A specialist security operations centre monitors all our externally facing infrastructure and services, with threat analysis, incident management and response capabilities. The Group’s cyber defences are subject to regular external penetration tests to drive enhancements to our technology infrastructure. The development of in-house systems and our use of third-party systems, including cloud and via third-party administrators’ arrangements, is continuously monitored by technical teams following established standards and practices.
IT systems are key to serving customers and running the business. These systems may not operate as expected or may be subject to cyber- attack to steal or misuse our data or for financial gain. Any system failure affecting the Group could lead to costs and disruption, adversely affecting its business and ability to serve its Customers, and reputational damage.
4 Insurance risk
Trend: STABLE
strategic priorities
A high proportion of longevity risk on new business Just writes is reinsured, with the exception of the Care business. Care longevity risk is immaterial to the Group and is retained in full. Most of the financial exposure to the longevity risks that are not reinsured relate to business written prior to 2016. Reinsurance treaties include collateral to minimise exposure in the event of a reinsurer default. Analysis of collateral arrangements can be found in Note 29. Mortality experience continues to be volatile and remains above pre-pandemic levels.
Experience and insights emerging since mid-2021 indicate that COVID-19, and the aftermath of the pandemic, has had a material and enduring impact on mortality for existing and future policyholders. Our views on the changes are updated annually taking into account recent data, emerging best practice and expected trends. The assumptions about these changes have been incorporated into Just’s pricing across our Retirement Income and Lifetime Mortgage products and will be updated as more information becomes available. The Group continues to assess its reinsurance strategy in the light of pricing and experience. This has led to an increase in the retained longevity risk for a subset of new policies in the retail business. Changes in customer behaviour due to current higher interest rates have been taken into account where appropriate.
In the long-term, the rates of mortality suffered by our customers may differ from the assumptions made when we priced the contract.
5 Market and credit risk
Trend: INCREASING strategic priorities
Our business model and risk management framework have been designed to manage exposure to market risks within pre-defined limits and to ensure hedge effectiveness remains high. Investment in fixed income investments exposes the Group to default risk and subsequent losses should collateral and recovery be less than the expected investment value. The Group is exposed to concentration risk and to the downgrade of assets which shows an increased probability of default. Credit risk exposures arise due to the potential default of counterparties where we have reinsurance, holding cash balances, or have traded derivatives to mitigate market risk exposures. To reduce risk, the Group ensures it trades with a wide range of counterparties to diversify exposures. Reinsurance and derivative contracts will be collateralised to reduce exposure to counterparty credit risk. Reinsurance contracts are struck on terms with protection against termination. Derivative transactions are under standardised agreements with various collateral arrangements under each master agreement. The Group is aligned to SS5/24 – Funded Reinsurance in respect of reinsurer counterparty risk measurement and management.
Interest rates remain elevated and central banks affirm their intention to lower rates slowly to ensure inflation hits and remains at target. Economic growth has been positive but low. There is a risk rates do not fall leading to wider difficulties due to debt levels and refinancing risk for corporate borrowers. Our investment assets may experience increased movements in downgrade and/or default experience. We continually monitor our portfolio and take necessary actions as part of our overall approach to credit risk management. Sustained high interest rates may result in UK residential property price falls, increasing the Group’s exposure to the risk of shortfalls in expected repayments due to no-negative equity guarantee within its portfolio of lifetime mortgages. Commercial property price falls would reduce the value of collateral held within our loan portfolio secured against commercial properties. Our balance sheet sensitivities to these risks can be found in note 16. Credit risk on cash assets is managed by imposing restrictions over the credit ratings of third parties with whom cash is deposited.
Fluctuations in interest rates, residential property values, credit spreads, inflation and currency may result, directly or indirectly, in changes in the level and volatility of market prices of assets and liabilities. Investment credit risk is a result of investing to generate returns to meet our obligations to policyholders.
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