128 | Just Group PLC | Annual Report and Accounts 2023
INDEPENDENT AUDITORS’ REPORT continued to the members of Just Group plc
Key audit matter
How our audit addressed the key audit matter
Valuation of insurance contract liabilities – Annuitant mortality assumptions (Group) Refer to Group Audit Committee Report, Accounting policy 1.5 IFRS 17 accounting policies and note 26 Insurance contracts and related reinsurance. Annuitant mortality assumptions are an area of significant management judgement due to the inherent uncertainty involved. Annuity liabilities are sensitive to the choice of best estimate annuitant mortality assumptions due to the large volume of annuity business. The best estimate annuitant mortality assumption has two main components: Base mortality assumptions This part of the assumption is mainly driven by internal experience analyses, but judgement is also required. For example, in determining the most appropriate granularity at which to carry out the analysis; the time window used for historic experience, or whether data should be excluded from the analysis; and in selecting an appropriate industry mortality table to which management overlays the results of the experience analysis. Rate of future mortality improvements This part of the assumption is more subjective given the lack of data and the uncertainty over how life expectancy will change in the future. The allowance for future mortality improvements is inherently subjective, as improvements develop over long timescales and cannot be captured by analysis of internal experience data. The extent to which mortality rates may remain elevated in future, as a result of COVID-19 and other trends in the UK, is subject to considerable uncertainty. Judgement is required in estimating the allowance for expected high future mortality rates in the long term. The Continuous Mortality Investigation Bureau provides mortality projection models which are widely used throughout the industry and contain a standard core set of assumptions calculated by the CMIB based on the most In addition, under IFRS 17, an allowance for risk in excess of the best estimate and representing the view of compensation for non-financial risk that management required is held (known as the risk adjustment). The primary component of the risk adjustment is annuity mortality risk and the selection of the distribution and associated stresses is a matter of judgement. recent available population data. Risk adjustment for longevity risk
We performed the following audit procedures to test the annuitant mortality assumptions (including base mortality assumptions, rate of future mortality improvements and the risk adjustment): • Tested the reasonableness of the methodology used to perform the annual experience studies and the exclusion of 2020-2022 data when deriving base mortality rates. This involves the assessment of key judgements with reference to relevant rules, actuarial guidance and • Tested the controls in place over the performance of annuitant mortality experience analysis studies, approval of the proposed assumptions and implementation within the actuarial model; • Assessed the appropriateness of any expert judgments used in the development of the mortality improvement assumptions, including the selection and parameterisation of the CMI model (e.g. the choice of the smoothing parameter, initial rate, long term rate and tapering at older ages); • Assessed management’s adjustments to uplift the future mortality rates in relation to the long term impacts of COVID-19 and other trends in the UK. This included the selection and calibration of the drivers of these potential trends; by applying our industry knowledge and experience; • For a sample, agreed experience analysis data used to source documentation; • Assessed management’s risk adjustment methodology relative to the compensation required by management for non-financial risk, including the selected confidence level and calibration, as well as testing management’s controls over the processes; and • Compared the annuitant mortality assumptions selected by management against those adopted by peers using our independent annual benchmarking survey of assumptions (to the extent available). Based on the work performed and the evidence obtained, we consider the assumptions used for annuitant mortality to be appropriate.
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