180 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
20. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES This note explains the methodology for valuing the Group’s financial assets and liabilities fair value, including financial investments, and provides disclosures in accordance with IFRS 13 “Fair value measurement” including an analysis of such assets and liabilities categorised in a fair value hierarchy based on market observability of valuation inputs. (a) Determination of fair value and fair value hierarchy All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy described as follows, based on the lowest level input that is significant to the fair value measurement as a whole. Level 1 Inputs to Level 1 fair values are unadjusted quoted prices in active markets for identical assets and liabilities that the entity can access at the measurement date. Level 2 Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the instrument. Level 2 inputs include the following: • quoted prices for similar assets and liabilities in active markets; • quoted prices for identical assets or similar assets in markets that are not active, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which very little information is released publicly; • inputs other than quoted prices that are observable for the asset or liability; and • market-corroborated inputs. Level 3 Inputs to Level 3 fair values include significant unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Unobservable inputs reflect the same assumptions as those that the market participant would use in pricing the asset or liability including those about risk. The sensitivity of Level 3 investments to reasonably possible alternative assumptions for unobservable inputs used in the valuation model that could give rise to significant changes in the fair value of the assets is included in section (d). The sensitivities in this note only consider the impact of the change in these assumptions on the fair value of the asset. Some of these sensitivities would also impact the yield on assets and hence the valuation discount rate used to determine liabilities. For some of these sensitivities, the impact on the value of insurance liabilities and hence profit before tax is included in note 26(h). Assessment of the observability of pricing information All Level 1 and 2 assets continue to have pricing available from actively quoted prices or observable market data. Where the Group receives broker/asset manager quotes and the information is given a low score by Bloomberg’s pricing service (BVAL), the investments are classified as Level 3 as are assets valued internally. Debt securities and financial derivatives which are valued using independent pricing services or third party broker quotes are classified as Level 2. The Group’s assets and liabilities held at fair value which are valued using valuation techniques for which significant observable market data is not available and classified as Level 3 include loans secured by mortgages, long income real estate, infrastructure loans, private placement debt securities, investment funds, investment contract liabilities, and other loans.
Powered by FlippingBook