152 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. MATERIAL ACCOUNTING POLICIES continued 1.5.6. Subsequent measurement The carrying amount of a group of insurance contracts at each reporting date is the sum of the liability for remaining coverage and the liability for incurred claims. The liability for remaining coverage comprises: • the fulfilment cash flows that relate to services that will be provided under the contracts in future periods; and • any remaining CSM at that date. The fulfilment cash flows of groups of insurance contracts are measured at the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-financial risk. Outstanding balances due from or to policyholders and intermediaries are also included within this balance. Payments of annuities made before due dates owing to the timing of non-working days are included within insurance contract liabilities. The CSM of each group of contracts is calculated on a cumulative year to date basis, rather than being locked in at each interim reporting period. For insurance contracts, the carrying amount of the CSM at the end of each period is the carrying amount at the start of the period, adjusted for: • the CSM of any new contracts that are added to the group in the period; • interest accreted on the carrying amount of the CSM during the period, measured at the discount rates determined on initial recognition of the group of contracts; • changes in fulfilment cash flows that relate to future services, except to the extent that: – any increases in the fulfilment cash flows exceed the carrying amount of the CSM, in which case the excess is recognised as a loss in the profit or loss account and creates a loss component; or – any decreases in the fulfilment cash flows are allocated to the loss component, reversing losses previously recognised in profit or loss account; – the changes are due to financial risk in policyholder cash flows compared with expectations, for example inflation; and • the amount recognised as insurance revenue in respect of services provided in the period. Changes in fulfilment cash flows that relate to future services and accordingly adjust the CSM comprise: • premium adjustments, such as DB true-ups (which can be both positive and negative) to the extent that they relate to future coverage; • changes in estimates of the present value of future cash flows in the liability for remaining coverage, except for those that relate to the effects of Adjustments to CSM for changes in fulfilment cash flows are measured at the discount rates determined at initial recognition, i.e. are calculated using “locked-in” discount rates. The allowance for benefit inflation within the CSM calculation uses the locked-in inflation assumptions prospectively, with actual inflation experience recognised in the period up to the measurement date. The effect of changes to the related best estimate and risk adjustment balances caused by changes in discount rates and benefit inflation are recognised as insurance finance income or expenses within the profit or loss account. The standard requires that the CSM is recognised in profit and loss over the period of the contracts issued. The recognition of amounts in profit and loss is based on coverage units which represent the services that are received by the customers. The Group provides the following services to customers: the time value of money, benefit inflation, financial risk and changes therein; and • changes in the risk adjustment for non-financial risk that relate to future services.
• investment return service when a customer is in the deferred or guarantee phase; and • insurance coverage services when an annuitant is in payment period for annuitants.
By their nature, coverage units vary depending on the type of service provided. A weighting then needs to be applied to the different types of coverage unit in order to calculate an aggregate value of the proportion of the CSM balance that is to be released. The Group uses the probability of the policy being in force in each time period for weighting the disparate types of coverage units. This weighting reflects management’s view that the value of services provided to policyholders is broadly equivalent across the different phases in the life of contracts. The coverage units and the weightings used to combine coverage units are discounted using the locked-in discount rates and financial risk assumptions as at inception of the contracts. The weightings applied are updated each period for changes in life expectancies of annuitants.
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