FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
Quantification of the financial impact of climate risk is subject to significant uncertainty. Risks arising from the transition risk to a lower carbon economy are heavily dependent on government policy developments and social responses to policy. Just’s initial focus has therefore been placed on implementation of strategies to reduce the likely risk exposure to this risk. Just will continue to adapt its view of climate risk as more data and methodologies emerge. The aggregate exposure to climate risk is assessed against existing risk appetites, with climate risk a factor to be considered in the management of these risks. Risk appetite tolerances will be reviewed as further stress-testing results become available. OWN RISK AND SOLVENCY ASSESSMENT The Group’s Own Risk and Solvency Assessment (“ORSA”) process embeds comprehensive risk reviews into our Group management activities. Our annual ORSA report is a key part of our business risk management cycle. It summarises work done through the year on business model and strategic risks, tests the business in a variety of quantitative scenarios and integrates findings from recovery and run-off analysis. The report provides an opinion on the viability and sustainability of the Group and thus informs strategic decision making. Updates are prepared each quarter, including factors such as key risk limit consumption as well as operational and market risk developments, to keep the Board appraised of the Group’s evolving risk profile. Reporting on climate risk is being integrated into the Group’s regular reporting processes to its Risk Committees, including the Group ORSA. Reporting will evolve as quantification of risk exposures develops and further key risk indicators (“KRIs”) are identified.
VIABILITY STATEMENT The Directors have carried out a robust assessment of the principal risks facing the Group, including those that could threaten its business model, future performance, solvency or liquidity, and make this assessment with reference to the risk appetite of the Board and the processes and controls in place to mitigate the principal risks and uncertainties as detailed in the Strategic Report. Based on the assessment, the Directors confirm that they have a reasonable expectation that the Group will continue in operation and meet its liabilities, as they fall due, over the next five years. In making the viability assessment the Group considers the Group’s business plan approved by the Board, steps taken by the Group over the last three years to improve capital efficiency; the projected liquidity position of the Company and the Group, ongoing impacts of COVID-19, current financing arrangements, contingent liabilities and a range of forecast scenarios with differing levels of new business and associated additional capital requirements to write anticipated levels of new business. Consistent with the Group’s going concern assessment, the Group’s resilience to the solvency capital position, is tested under a range of adverse scenarios which considers the possible impacts on the Group’s business, including stresses to UK residential property prices, house price inflation, the credit quality of assets, mortality, and risk-free rates, together with a reduction in new business levels. In addition, the results of extreme property stress tests were considered, including a property price fall in excess of 40%. Eligible own funds exceeded the minimum capital requirements in all stressed scenarios described above. The scenarios considered are consistent with the going concern assessment (see page 127 of this Annual Report and Accounts). The review also considers mitigating actions available to the Group should a severe stress scenario occur, with the analysis considered by the Board including those actions deemed to be more fully within the Group’s control. Additionally, a scenario where the Group ceases to write new business is considered. In particular, if adequate capital is not available to fund continued writing of material levels of new business, the scope of the Group’s business would change. In that case, even if the Group ceases to write new business, the Group would still be viable, although as a Group managing its existing book of business in run-off. The Directors note that the Group is subject to the Prudential Regulatory Regime for Insurance Groups which monitors the Group’s compliance with Solvency Capital Requirements. Given the inherent uncertainty which increases as longer time frames are considered, the Directors consider five years to be an appropriate time frame upon which they can report with a reasonable degree of confidence. A five year time frame has been selected for this statement, although the Group, as with any insurance group, has policyholder liabilities in excess of five years and therefore performs its modelling and stress and scenario testing on time frames extending to the expected settlement of these liabilities, with results reported in the Group’s ORSA. The Directors have no reason to believe that the Group will not be viable over a longer period.
3 RD LINE
INDEPENDENT ASSURANCE Internal Audit is the third line of defence, offering independent challenge to the levels of assurance provided by business operations and oversight functions.
RISK & CONTROL • Provide independent challenge and assurance
59
Powered by FlippingBook