JUST GROUP PLC Annual Report and Accounts 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
23 INSURANCE CONTRACTS AND RELATED REINSURANCE continued Principal assumptions underlying the calculation of insurance contracts continued Mortality assumptions The COVID-19 pandemic has had a significant effect on mortality rates. There were particularly high rates in the spring of 2020, and the early part of 2021, which contributed significantly to positive mortality experience variances in the respective reporting periods. Over the second half of 2021 there was a more modest but sustained elevation of mortality rates, relative to expected levels, for the UK population overall. However, the extent to which mortality rates will continue to be elevated is subject to considerable uncertainty. The Group considers that it is still too early to judge the longer-term impact of COVID-19 on mortality and therefore no explicit allowance for the pandemic has been included in future mortality assumptions at 31 December 2021. Moreover, mortality assumptions for each future year have been maintained at the same level as assumed at 31 December 2020. The Group will continue to follow closely the actual and potential future impact of COVID-19 on mortality as further information becomes available, and will review its mortality assumptions should credible evidence emerge. In particular, the Group continues to analyse potential direct and indirect impacts of the pandemic, including the possibility there will be enduring influences on the longevity of customers. Mortality assumptions have been set by reference to appropriate standard mortality tables. These tables have been adjusted to reflect the future mortality experience of the policyholders, taking into account the medical and lifestyle evidence collected during the underwriting process, premium size, gender and the Group’s assessment of how this experience will develop in the future. The assessment takes into consideration relevant industry and population studies, published research materials, and management’s own industry experience.
The standard tables which underpin the mortality assumptions are summarised in the table below.
2021
2020
Unchanged from2020
Individually underwritten Guaranteed Income for Life Solutions (JRL) Individually underwritten Guaranteed Income for Life Solutions (PLACL)
Modified E&WPopulationmortality, with CMI 2019 model mortality improvements Modified E&WPopulationmortality, with CMI 2019 model mortality improvements Modified E&WPopulationmortality, with CMI 2019 model mortality improvements for standard underwritten business; Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (“SAPS”) S1 tables, withmodified CMI 2009model mortality improvements for medically underwritten business Modified E&WPopulationmortality, with CMI 2019 model mortality improvements Modified PCMA/PCFA and with CMI 2019model mortality improvements for Care Plans; Modified PCMA/PCFA or modified E&WPopulation mortality with CMI 2019model mortality improvements for other annuity products
Unchanged from2020
Unchanged from2020
Defined Benefit (JRL)
Unchanged from2020
Defined Benefit (PLACL)
Unchanged from2020
Care Plans and other annuity products (PLACL)
Unchanged from2020
Protection (PLACL)
TM/TF00 Select
All references to the use of the CMI 2019 model relate to improvements for calendar year 2020 onwards.
The long-term improvement rates in the CMI 2019 model are 2.0% for males and 1.75% for females (2020: 2.0% for males and 1.75% for females). The period smoothing parameter in the modified CMI 2019 model has been set to 7.00 (2020: 7.00). The addition to initial rates (“A”) parameter in the model varies between 0% and 0.25% depending on product (2020: between 0% and 0.25% depending on product). All other CMI model parameters are the defaults (2020: other parameters set to defaults). Valuation discount rates Valuation discount rate assumptions are set by considering the yields on the assets allocated to back the liabilities. The yields on lifetime mortgage assets are derived using the assumptions described in note 17 with allowance for risk through the deductions related to the NNEG. An explicit allowance for credit risk is included by making an explicit deduction from the yields on debt and other fixed income securities, loans secured by commercial mortgages, and other loans based on an expectation of default experience of each asset class and application of a prudent loading. Allowances vary by asset category and by rating. Economic uncertainty surrounding COVID-19 increases the risk of credit defaults. Our underlying default methodology allows for the impact of credit rating downgrades and spread widening and hence we have maintained the same methodology at 31 December 2021. The considerations around COVID-19 for property prices affecting the NNEG are as described in note 17.
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