150 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. MATERIAL ACCOUNTING POLICIES continued 1.4.6. Sensitivities
The following table provides sensitivities to changes in key inputs used to determine the fair value of net insurance contract liabilities. Figures shown in the table represent the estimated impact on the fair value of each sensitivity in isolation. The SCR coverage ratio and Return on Capital sensitivities can be interpreted as the corresponding impact on the contractual service margin. However, the Matching Adjustment sensitivity may not display the same relationship as there may be linkages between the asset portfolio referenced by a market participant in the calculation of the fair value and the asset portfolio underlying the calculation of IFRS 17 best estimate and risk adjustment liabilities. This linkage has not been allowed for in the sensitivity.
Insurance contract liabilities net of reinsurance (increase)/decrease £m
Insurance contract liabilities (increase)/ decrease £m
Reinsurance contract (net) increase/ (decrease) £m
Reported balances
20,475
(551)
19,924
SCR coverage ratio +10%
103
(25)
78
-10%
(103)
25
(78)
Return on capital +1%
177
(60)
117
-1%
(201)
68
(133)
Matching adjustment +10bps
(49)
2
(47)
-10bps
50
(2)
48
1.5. IFRS 17 Accounting policies The Group uses the General Measurement Model to measure all insurance and reinsurance contracts and consequently does not apply the Variable Fee Approach or the Premium Allocation Approach to the measurement of any of its liabilities. IFRS 17 is only applied to insurance and reinsurance contracts and not to any other ancillary agreements which represent the provision of distinct non-insurance services including LTM servicing as part of reinsurance arrangements, see note 34(c)(iii). 1.5.1. Classification of insurance and investment contracts The measurement and presentation of assets, liabilities, income and expenses arising from Retirement Income contracts issued and associated reinsurance contracts held is dependent upon the classification of those contracts as either insurance or investment contracts. A contract is classified as insurance only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. DB, GIfL, Care Plan and Protection policies currently written by the Group are classified as insurance contracts. Any contracts not considered to be insurance contracts under IFRS are classified as investment contracts. Capped Drawdown pension business in JRL and Linked endowment contracts and term-certain GIfL contracts in the South African business are classified as investment contracts as there is limited transfer of longevity risk. Capped Drawdown contracts are no longer marketed by JRL. IFRS 17 includes an election to treat lifetime mortgages as either as financial instruments or insurance contracts, Just has chosen to report lifetime mortgages as financial assets, measured at FVTPL in accordance with IFRS 9. 1.5.2. Recognition The Group recognises a group of insurance contracts issued from the earliest of the following dates (point of sale): • The date of the beginning of the insurance coverage period of the group of contracts. • The date when the first payment from a policyholder in the group becomes due. • The date when facts and circumstances indicate that the group to which an insurance contract will belong is onerous. Premiums are considered to be due and the Group is “on risk” only after a contract with a policyholder has been completed. New contracts are added to the annual cohort group when they are issued, provided that all contracts in the Group are issued in the same financial year. Reinsurance is recognised from the start of the period during which the Group receives coverage for claims arising from the reinsured portions of the underlying insurance contracts. From time to time the Group may transact reinsurance coverage in respect of underlying contracts already in force, in which case recognition is from the date of the reinsurance contract. The Group recognises a group of contracts acquired as part of a business transfer as at the date of acquisition.
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