154 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. MATERIAL ACCOUNTING POLICIES continued 1.5.9.1. Insurance revenue
The Group recognises insurance revenue as it satisfies its performance obligations – i.e. as it provides coverage or other services under groups of insurance contracts through the payment of annuities and expenses. Repayment of investment components do not represent provision of services. In addition, the Group allocates a portion of premiums that relate to recovery of insurance acquisition cash flows to each period in a systematic way based on CSM coverage units. The Group recognises the allocated amount as insurance revenue and an equal amount as insurance service expenses. The proportion of the CSM account balance recognised as insurance revenue in each period is based on the proportion of insurance contract services provided in the period compared with the value of services expected to be provided in future periods. The proportion of CSM is based on “coverage units” which represent the quantity of insurance coverage provided by the contracts in the group, determined by considering for each contract the quantity of benefits provided and its expected coverage duration. Further information on the calculation of CSM is given in note 1.5.6. Policyholder cash flows that may occur regardless of an insurance event are deemed to be “investment components” or other non-insurance components (such as a premium refund) or a combination. This includes the guarantees that the Group offers to policyholders which provide for annuity payments to continue after death until the policy reaches a predetermined anniversary of its start date (the guarantee period), tax-free cash payments that DB scheme members may select at retirement, and payments on surrenders and transfers to other retirement schemes. All investment components are regarded as non-distinct as they only exist as a result of the underlying insurance contract, and are measured consistently with future insurance cash flows included in the Estimate of present value of future cash flows. The value of payments made within investment components and other non-insurance payments are excluded from both insurance revenue and expenses. 1.5.9.2. Insurance service expenses The Group recognises insurance service expenses arising from groups of insurance contracts issued comprising incurred claims (excluding repayments of investment components); maintenance expenses; amortisation of insurance acquisition cash flows; and the impact of changes that relate to either past service (changes in fulfilment cash flows relating to the liability for incurred claims) or future service (loss component). 1.5.9.3. Loss component The Group establishes a loss component of the liability for remaining coverage for onerous groups of insurance contracts, if any. The Group writes only single premium contracts which are generally profitable, and hence loss components are not expected to occur. The loss component represents the amount of fulfilment cash outflows that exceed the premium income, and hence are excluded from insurance revenue. Loss components are recognised in the statement of comprehensive income within insurance service expenses when they occur. The balance sheet disclosures in note 26 present the allocation between the loss component and the liability for remaining coverage excluding the loss component, if any. This run-off of the loss component element of the liability for remaining coverage is determined based on coverage units (as used for CSM amortisation) such that the loss component is nil at the end of the contracts. Once a loss component is established, changes in estimates of cash flows relating to future services are allocated solely to the loss component. If the loss component is reduced to zero, then any excess over the amount allocated to the loss component creates a new CSM for the group of contracts. 1.6. IFRS 9 Financial instruments 1.6.1. Summary of impact of adoption of IFRS 9 1.6.1.1. Financial assets The Group classifies financial assets on the basis of both the business model for which the portfolio is held and the contractual cash flow characteristics of the financial asset. The Group’s business model is to manage the financial assets and liabilities which back its net insurance contract fulfilment cash flows on a fair value basis. The Group will therefore adopt the approach allowed within the standard to continue to measure the majority of its financial assets at Fair Value Through Profit or Loss (“FVTPL”). On the adoption of the standards (IFRS 17 and IFRS 9), the Group has elected to apply the option contained in paragraph 8A in IFRS 17 to recognise and measure Lifetime Mortgages, including the No Negative Equity Guarantee component, as financial instruments in terms of IFRS 9, rather than as insurance contracts. For the residual financial assets which are measured at amortised cost, IFRS 9 operates an expected credit loss model rather than an incurred credit loss model. Providing for an expected credit loss on the existing financial assets measured at amortised cost has not had a material impact on Group shareholders’ funds. During 2023, the Group has acquired a portfolio of sovereign gilts which it has classified at amortised cost due to the Group’s intention to collect solely payments of principal and interest. Further details have been provided in note 19 Financial Investments. 1.6.1.2. Financial liabilities IFRS 9 retains the requirements in IAS 39 for the classi cation and measurement of nancial liabilities, and hence there are no changes required in this area. 1.6.1.3. Hedge accounting The Group does not currently apply hedge accounting and therefore was not impacted by the requirements of IFRS 9.
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