168 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
9. SEGMENTAL REPORTING continued Underlying operating profit
The Group reports underlying operating profit as an alternative measure of profit which is used for decision making and performance measurement. The Board believes that underlying operating profit, which represents a combination of both the future profit generated from new business written in the year and additional profit emerging from the in-force book of business, provides a better view of the development of the business. Moreover, the net underlying CSM increase is added back when calculating the underlying operating profit as the Board considers the value of new business is significant in assessing business performance. Actual operating experience, where different from that assumed at the start of the year, and the impacts of changes to future operating assumptions applied in the year, are then also included in arriving at adjusted operating profit. New business profits represent expected investment returns on the financial instruments assumed to be newly purchased to back that business after allowances for expected movements in liabilities and deduction of acquisition costs. New business profits are based on valuation of investment returns as at the date of quoting for new business whereas the CSM on new business is computed as at the date of inception of new contracts. Profits arising from the in-force book of business represent an expected return on surplus assets of 4% (2022: 2% H1, 3% H2), the expected unwind of allowances for credit default and the release of the risk adjustment. Underlying operating profit excludes the impairment and amortisation of intangible assets arising on consolidation, and strategic expenditure, since these items arise outside the normal course of business in the year. Underlying operating profit also excludes exceptional items. Exceptional items are those items that, in the Directors’ view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group’s financial performance. Variances between actual and expected investment returns due to economic and market changes, including on surplus assets and on assets assumed to back new business, and gains and losses on the revaluation of land and buildings, are also disclosed outside underlying operating profit. Segmental reporting and reconciliation to financial information Year ended 31 December 2023 Year ended 31 December 2022 (restated) Insurance £m Other £m Total £m Insurance £m Other £m Total £m New business profits 355 – 355 266 – 266 CSM amortisation 1 (62) – (62) (61) – (61) Net underlying CSM increase 2 293 – 293 205 – 205 In-force operating profit 3 185 6 191 153 3 156 Other Group companies’ operating results – (22) (22) – (16) (16) Development expenditure (16) (1) (17) (14) (1) (15) Finance costs (84) 16 (68) (87) 14 (73) Underlying operating profit 378 (1) 377 257 – 257 Operating experience and assumption changes 4 52 – 52 104 – 104 Adjusted operating profit/(loss) before tax 430 (1) 429 361 – 361 Investment and economic movements 106 (14) 92 (557) 20 (537) Strategic expenditure (8) (9) (17) (7) – (7)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity Adjusted profit/(loss) before tax
28
(12) (36)
16
28
(12)
16
556
520
(175) (327) (502)
8 – 8
(167) (327) (494)
(348)
–
(348)
Deferral of profit in CSM 5 Profit/(loss) before tax
208
(36)
172
1 C SM amortisation represents the net release from the CSM reserve into profit as services are provided. The figures are net of accretion (unwind of discount), and the release is computed based on the closing CSM reserve balance for the period. 2 N et underlying CSM increase excludes the impact of using quote date for profitability measurement. Just recognises contracts based on their completion dates for IFRS 17, but bases its assessment of new business profitability for management purposes on the economic parameters prevailing at the quote date of the business. 3 In-force operating profit represents profits from the in force portfolio before investment and insurance experience variances, and assumption changes. It mainly represents release of risk adjustment for non-financial risk and of allowances for credit default in the period, investment returns earned on shareholder assets, together with the value of the CSM amortisation. 4 O perating experience and assumption changes represent changes to cash flows in the current and future periods valued based on end of period economic assumptions. 5 D eferral of profit in CSM represents the total movement in the CSM in the year. The figure represents CSM recognised on new business, accretion of CSM (unwind of discount), transfers to CSM related to changes to future cash flows at locked-in economic assumptions, less CSM release in respect of services provided. The reconciliation of the non-GAAP new business profit to the new business contractual service margin (IFRS measure) is included in the Additional financial information.
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