JUST GROUP PLC Annual Report and Accounts 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
23 INSURANCE CONTRACTS AND RELATED REINSURANCE continued Effect of changes in assumptions and estimates during the year Economic assumption changes The principal economic assumption changes impacting the movement in insurance liabilities during the year relates to discount rates and inflation. Discount rates The movement in the valuation interest rate captures the impact of underlying changes in risk-free curves and spreads and cash flows arising on backing assets held over the course of the year. The movement of the discount rate includes purchases to support new business and trading for risk management purposes. For the year to 31 December 2021, changes in discount rates resulted in a net reduction of insurance liabilities of £813m (2020: £1,189m) which was largely due to increases in the risk-free rate and changes to the backing asset portfolio, in particular as a consequence of the LTM portfolio sale. Inflation Insurance liabilities for inflation-linked products, most notably Defined Benefit business and expenses on all products are impacted by changes in future expectations of RPI, CPI and earnings inflation. For the year to 31 December 2021, changes in inflation, driven by a rise in market-implied expectations of future RPI and CPI inflation, resulted in a net increase of insurance liabilities of £348m (2020: £(81)m). Non-economic assumption changes The principal non-economic assumption changes impacting the movement in insurance liabilities during the year relate to maintenance expense assumptions for both JRL and PLACL products. Note that impacts quoted below relate specifically to the liability cash flow impact of these changes; any resulting change to the discount rate is captured above. Maintenance expenses This item primarily reflects a decrease in maintenance expense assumptions, most notably for Defined Benefit business. For the year to 31 December 2021 this resulted in a net reduction in insurance liabilities of £10m (2020: £(19)m). (d) Estimated timing of net cash outflows from insurance contract liabilities The following table shows the insurance contract balances analysed by duration. The total balances are split by duration of payments in proportion to the policy cash flows estimated to arise during the year.
Expected cash flows (undiscounted)
Carrying value (discounted) £m
Within 1 year £m
Over 10 years £m
1-5 years £m
5-10 years £m
Total £m
2021
1,435.4 5,465.3 6,356.3 16,893.6 30,150.6 21,812.9
Gross
(201.7)
(733.5)
(786.3) (1,650.8) (3,372.3) (2,533.5)
Reinsurance
Net
1,233.7 4,731.8 5,570.0 15,242.8 26,778.3 19,279.4
Expected cash flows (undiscounted)
Carrying value (discounted) £m
Within 1 year £m
Over 10 years £m
1-5 years £m
5-10 years £m
Total £m
2020
Gross
1,356.5 5,139.3 5,893.8 15,250.4 27,640.0 21,118.4
Reinsurance
(211.6)
(766.6)
(818.8)
(1,815.6)
(3,612.6)
(2,865.5)
Net
1,144.9 4,372.7 5,075.0 13,434.8 24,027.4 18,252.9
Reinsurance in the table above includes reinsurance assets net of reinsurance liability positions that can arise on longevity swaps which are presented as liabilities in the Consolidated statement of financial position. (e) Sensitivity analysis The Group has estimated the impact on profit before tax for the year in relation to insurance contracts and related reinsurance from reasonably possible changes in key assumptions relating to financial assets and to liabilities. The sensitivities capture the liability impacts arising from the impact on the yields of the assets backing liabilities in each sensitivity. The impact of changes in the value of assets and liabilities has been shown separately to aid the comparison with the change in value of assets for the relevant sensitivities in note 17. To further assist with this comparison, any impact on reinsurance assets has also been included within the liabilities line item.
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