JUST GROUP PLC Annual Report and Accounts 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 SIGNIFICANT ACCOUNTING POLICIES continued 1.2 Significant accounting policies and the use of judgements, estimates and assumptions continued
The table below sets out those items the Group considers susceptible to changes in critical estimates and assumptions. Management applies judgement in making estimates and assumptions that are applied to the balances described in the table below.
Accounting policy and notes
Item involving estimates and assumptions
Critical estimates and assumptions
1.17, 17(a) and (d)
Measurement of fair value of loans secured by residential mortgages, including measurement of the no- negative equity guarantees
The critical estimates used in valuing loans secured by residential mortgages include the projected future receipts of interest and loan repayments, and the future costs of administering the loan portfolio. The key assumptions used as part of the valuation calculation include future property prices and their volatility, mortality, the rate of voluntary redemptions and the liquidity premium added to the risk-free curve and used to discount the mortgage cash flows. The critical estimates used in measuring the value of reinsurance assets include the projected future cash flows arising from reinsurers’ share of the Group’s insurance liabilities. The key assumptions used in the valuation include discount rates, as described below, and assumptions around the reinsurers’ ability to meet its claim obligations. Deposits received from reinsurers are measured in accordance with the reinsurance contract and taking account of an appropriate discount rate for the timing of the expected cash flows of the liabilities. For deposits received from reinsurers measured at fair value through profit or loss, the key assumption used in the valuation is the discount rate. The critical estimates used in measuring insurance liabilities include the projected future Retirement Income payments and the cost of administering payments to policyholders. The key assumptions are the discount rates and mortality experience used in the valuation of future Retirement Income payments, and level and inflation of costs of administration. The valuation discount rates are derived from yields on supporting assets after deducting allowances for default. Mortality assumptions are derived from the appropriate standard mortality tables, adjusted to reflect the future expected mortality experience of the policyholders. Maintenance expenses are determined from expense analyses and are assumed to inflate at market-implied rates.
1.18, 17(a) and (d), 23, 27 Measurement of reinsurance assets and deposits received from reinsurers arising from reinsurance arrangements
1.21, 23(b)
Measurement of insurance liabilities arising fromwriting Retirement Income insurance
All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that knowledge and predictions of future events and actions. Actual results may differ significantly from those estimates. Where relevant the impact of COVID-19 has been considered and detail included in the relevant note disclosures. 1.3 Consolidation principles The consolidated financial statements incorporate the assets, liabilities, results and cash flows of the Company and its subsidiaries. Subsidiaries are those investees over which the Group has control. The Group has control over an investee if all of the following are met: (1) it has power over the investee; (2) it is exposed, or has rights, to variable returns from its involvement with the investee; and (3) it has the ability to use its power over the investee to affect its own returns. Subsidiaries are consolidated from the date on which control is transferred to the Group and are excluded from consolidation from the date on which control ceases. All inter-company transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated. Accounting policies of subsidiaries are aligned on acquisition to ensure consistency with Group policies. The Group uses the acquisition method of accounting for business combinations. Under this method, the cost of acquisition is measured as the aggregate of the fair value of the consideration at date of acquisition and the amount of any non-controlling interest in the acquiree. The excess of the consideration transferred over the identifiable net assets acquired is recognised as goodwill. The Group uses the equity method to consolidate its investments in joint ventures and associates. Under the equity method of accounting the investment is initially recognised at fair value and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the joint ventures and associates. 1.4 Segments The Group’s segmental results are presented on a basis consistent with internal reporting used by the Chief Operating Decision Maker (“CODM”) to assess the performance of operating segments and the allocation of resources. The CODM has been identified as the Group Executive Committee. The internal reporting used by the CODM includes product information (which comprises analysis of product revenues, LTM advances and amounts written under investment contracts) and information on adjusted operating profit and profit before tax and amortisation costs for the Group’s operating segments. Material product information is analysed by product line and includes DB, GIfL, Care Plans, Protection, LTM and Drawdown products.
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