FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
33 FINANCIAL AND INSURANCE RISK MANAGEMENT continued Liquidity risk is managed by ensuring that assets of a suitable maturity and marketability are held to meet liabilities as they fall due. The Group’s short-term liquidity requirements are predominantly funded by advance Retirement Income premium payments, investment coupon receipts, and bond principal repayments out of which contractual payments need to be made. There are significant barriers for policyholders to withdraw funds that have already been paid to the Group in the form of premiums. Cash outflows associated with Retirement Income liabilities can be reasonably estimated and liquidity can be arranged to meet this expected outflow through asset-liability matching and new business premiums. The cash flow characteristics of the lifetime mortgages are reversed when compared with Retirement Income products, with cash flows effectively representing an advance payment, which is eventually funded by repayment of principal plus accrued interest. Policyholders are able to redeem mortgages, albeit at a cost. The mortgage assets are considered illiquid, as they are not readily saleable due to the uncertainty about their value and the lack of a market in which to trade them individually. Cash flow forecasts over the short, medium and long term are regularly prepared to predict and monitor liquidity levels in line with limits set on the minimum amount of liquid assets required. Cash flow forecasts include an assessment of the impact of a 1-in-200 year event on the Group’s liquidity and increasing the minimum cash and cash equivalent levels to cover enhanced stresses. Derivative stresses have been revised to take into account the market volatility caused by COVID-19, and focus on the worst observed movements over the last 40 years, in shorter periods up to and including one month. The table below summarises the maturity profile of the financial liabilities, including both principal and interest payments, of the Group based on remaining undiscounted contractual obligations:
Within one year or payable on demand £m
One to five years £m
More than five years £m
2021
10.2
21.1
1.5
Investment contract liabilities
71.8 684.2 899.2
Subordinated debt
7.3
41.9 344.6
Derivative financial liabilities
326.2
–
–
Obligations for repayment of cash collateral received
192.0 679.8 1,924.0
Deposits received from reinsurers
Within one year or payable on demand £m
One to five years £m
More than five years £m
2020
Investment contract liabilities
9.8
31.1
2.8
Subordinated debt
66.2 53.3
674.9
595.8
Derivative financial liabilities
189.0 1,408.6
Obligations for repayment of cash collateral received
377.4 201.7
–
–
Deposits received from reinsurers
712.0 2,073.3
34 CAPITAL Group capital position The Group’s estimated capital surplus position at 31 December 2021 was as follows:
Solvency Capital Requirement
MinimumGroup Solvency Capital Requirement
2021 1 £m
2021 £m
20202 £m
2020 £m
3,004
2,263
Eligible Own Funds
3,009 (1,938) 1,071 155%
2,262
(1,836) 3
(482) 3
Solvency Capital Requirement
(476)
Excess Own Funds
1,168 3 164% 3
1,781 3 469% 3
1,786 475%
Solvency coverage ratio
1 Estimated regulatory position. These figures reflect the estimated impact of a TMTP recalculation as at 31 December 2021. The LTMs that have been sold on 22 February 2022 were originally written to back the liabilities written pre the Solvency II regime and hence has contributed to the TMTP in the past. However, given the biennial reset of the TMTP as at 31 December 2021 and sale of these
LTMs shortly after the valuation date, these LTMs have been excluded from the determination of the TMTP as at 31 December 2021. 2 This is the reported regulatory position as included in the Group’s Solvency and Financial Condition Report as at 31 December 2020. 3 Unaudited.
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