Strategic Report | Governance | Financial Statements | 167
7. NET FINANCE INCOME/(EXPENSES) FROM REINSURANCE CONTRACTS
Year ended 31 December 2022 (restated) £m
Year ended 31 December 2023 £m
34 32
Interest accreted
15
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
(169)
49
63
(7)
Effect of changes in non-performance risk of reinsurers
–
Total
108
(91)
Interest accreted for reinsurance The interest accretion on reinsurance balances of £34m (2022: £15m) represents the unwind of discounting across the components of the reinsurance contracts balance, namely the future cash flows, risk adjustment and CSM. The future cash flows and CSM amount may be in either an asset or liability position. Effect of changes in interest rates and other financial assumptions Consistent with the underlying business, the principal economic assumption changes impacting the movement in reinsurance liabilities relate to discount rates and inflation. Effect of measuring changes in estimates at current and locked-in rates The CSM is valued using economic parameters locked-in at point of sale. During the year, the impact of £49m (2022: £63m) on reinsurance is from demographic assumption changes alone.
8. OTHER FINANCE COSTS
Year ended 31 December 2022 (restated) £m
Year ended 31 December 2023 £m
49 70
Interest payable on subordinated debt (loans and borrowings)
54
Interest payable on repurchase agreements
– 3
3
Other interest payable
Total
122
57
Interest payable on loans and borrowings has reduced as a result of the repurchase of Tier 2 debt in October 2022 and 2023. The amortised cost Gilt portfolio was funded by repurchase agreements; interest on these is recorded in Other finance costs above.
9. SEGMENTAL REPORTING Segmental analysis The operating segments from which the Group derives income and incurs expenses are as follows: • the writing of insurance products for distribution to the at- or in-retirement market and the DB de-risking market; • the arranging of guaranteed income for life contracts and lifetime mortgages through regulated advice and intermediary services and the provision of licensed software to financial advisers, banks, building societies, life assurance companies and pension trustees. The insurance segment writes insurance products for the retirement market – which include Guaranteed Income for Life Solutions, Defined Benefit De-risking Solutions, Care Plans and Protection − and invests the premiums received from these contracts in debt and other fixed income securities, gilts, liquidity funds, Lifetime Mortgage advances and other illiquid assets. The advisory and Destination retirement revenue streams of the professional services business, HUB, represents the other two operating segments. The HUB operating segments are not currently sufficiently significant to disclose separately as a reportable segment. In the segmental profit table below, the single reportable segment for Insurance is reconciled to the total Group result by including an “Other” column which includes the non-reportable segments plus the other companies’ results. This includes the Group’s corporate activities that are primarily involved in managing the Group’s liquidity, capital and investment activities. The Group operates in one material geographical segment which is the United Kingdom. The internal reporting used by the CODM includes segmental information regarding premiums and profit. Material product information is analysed by product line and includes shareholder funded DB, GIfL, DB Partnering, Care Plans, Protection, LTM and Drawdown products. Further information on the DB partnering transactions is included in the Business review. The information on adjusted operating profit and profit before tax used by the CODM is presented on a combined product basis within the insurance operating segment and is not analysed further by product.
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