166 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
6. NET FINANCE (EXPENSES)/INCOME FROM INSURANCE CONTRACTS
Year ended 31 December 2022 (restated) £m
Year ended 31 December 2023 £m
(1,317)
Interest accreted
(607)
(622)
Effect of changes in interest rates and other financial assumptions Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition
5,544
(67)
(114)
Total
(2,006)
4,823
Interest accreted Interest accreted of £1,317m (2022: £607m) represents the effect of unwinding of the discount rates on the future cash flow and risk adjustment components of the insurance contract liabilities and the effect of interest accretion on the CSM. The increase of accretion in the current period compared with the prior year reflects the impact of higher discount rates at the start of 2023 compared with the start of 2022, combined with growth in the size of the insurance portfolio. The future cash flows and risk adjustment are interest rate sensitive and represent 90% of the total value of insurance contract liabilities. The CSM is measured using historic “locked-in” discount rate curves. The majority of the CSM arises from the fair value approach on transition to IFRS 17 which is measured using the locked-in discount rate curve as at 1 January 2022. This curve is upward sloping in the early years which, combined with an increasing CSM balance attributable to new business and demographic assumption changes, has resulted in increased accretion. Effect of changes in interest rates and other financial assumptions The principal economic assumption changes adversely impacting the movement in insurance liabilities during the year of £(622)m (2022: £5,544m gain) relate to discount rates and inflation. The CSM is held at locked-in discount rates and benefit inflation, and hence the effect of the increase in interest rates experienced in the year applies only to the future cash flows and the risk adjustment components of the insurance contract liabilities. It is expected that amounts recognised in “investment return” will broadly offset the “net finance (expense)/income from insurance contracts”. The principal driver for these amounts recognised in the Consolidated statement of comprehensive income observed over the year is the changes in the value of the investment assets and net insurance liabilities due to changes in interest rates. During 2023, the Group created a portfolio of investments that are expected to be held to maturity, and which are valued at amortised cost rather than at fair value. As a result, the valuation of these assets is not sensitive to interest rate movements. The amounts recognised in profit and loss will not completely offset for a number of reasons, including: • the term structures for financial investments held and net insurance liabilities are not identical; • the existence of surplus assets held on the balance sheet which do not back insurance liabilities and the value of which are subject to changes in interest rates; and • the deduction of a credit default allowance from the interest rate used to value insurance liabilities. Insurance liabilities for inflation-linked products, most notably Defined Benefit business, and expenses on all products are impacted by changes in future expectations of Retail Price Inflation (RPI), Consumers Price Inflation (CPI), Linked Price Indexation (LPI) and earnings inflation. The relationship between changes in key inputs used in determining the value of net insurance liabilities and financial assets is explained in note 26(h). Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition The difference in the measurement of changes in estimates relating to future coverage at current discount rates of £136m (2022: £99m) compared to locked-in rates of £203m (2022: £213m), amounting to a £67m loss (2022: £114m loss), is recognised within net finance expenses. Significant assumption changes in estimates mainly relates to the demographic basis change on a gross of reinsurance basis.
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