Strategic Report | Governance | Financial Statements | 191
26. INSURANCE CONTRACTS AND RELATED REINSURANCE continued The Group will continue to follow closely the actual impact of COVID-19 on mortality and separately consider direct and indirect future impacts of the pandemic. The Group will consider the conclusions of such analysis, alongside assessment of other factors influencing mortality trends, in keeping its assumptions under regular review. The standard tables which underpin the mortality assumptions are summarised in the table below.
2023
Product group
Entity
2022
Modified E and W Population mortality, with CMI 2022 model mortality improvements Modified E and W Population mortality, with CMI 2022 model mortality improvements Modified E and W Population mortality, with CMI 2022 model mortality improvements. Medically underwritten unchanged from 2022 Modified E and W Population mortality, with CMI 2022 model mortality improvements Modified PCMA/PCFA or modified E and W Population mortality with CMI 2022 model mortality improvements
Individually underwritten Guaranteed Income for Life Solutions Individually underwritten Guaranteed Income for Life Solutions
JRL
Modified E and W Population mortality, with CMI 2021 model mortality improvements Modified E and W Population mortality, with CMI 2021 model mortality improvements Modified E and W Population mortality, with CMI 2021 model mortality improvements. Medically underwritten unchanged from 2021 Modified E and W Population mortality, with CMI 2021 model mortality improvements Modified PCMA/PCFA or modified E and W Population mortality with CMI 2019 model mortality improvements
PLACL
Defined Benefit
JRL
Defined Benefit
PLACL
Care Plans and other annuity products PLACL
Unchanged from 2022
Protection
PLACL
TM/TF00 Select
The long-term improvement rates in the CMI 2022 model are 1.5% for males and 1.25% for females (2022: 1.5% for males and 1.25% for females). The period smoothing parameter in the modified CMI 2022 model has been set to 7.0 (2022: 7.0). The addition to initial rates (“A”) parameter in the model varies between 0% and 0.25% depending on product (2022: between 0% and 0.25% depending on product). A 0% weighting has been given to 2022 CMI mortality experience (2022: n/a for CMI 2021 model). All other CMI model parameters are the defaults (2022: other parameters set to defaults). (iii) Discount rates All cash flows are discounted using investment yield curves adjusted to allow for expected and unexpected credit risk. For non-lifetime mortgage assets, this adjustment is comprised of an element based upon historic default experience and an element based upon current spread levels where both elements are relevant to the asset in question. The yields on lifetime mortgage assets are derived using the assumptions described in note 20 with an additional reduction to the future house price growth rate of 50bps (2022: 50bps) allowed for. The yields on residential ground rents are derived using the assumptions described in note 20(d)(v) and the adjustments set out in note 1.7 in light of the uncertainty introduced by the announcement of the government consultation regarding these investments. The overall reduction in yield to allow for the risk of defaults from all non-LTM assets (including gilts, corporate bonds, infrastructure loans, private placements and commercial mortgages) and the adjustment from LTMs, which included a combination of the NNEG and the additional reduction to future house price growth rate, was 58bps for JRL (2022: 58bps) and 69bps for PLACL (2022: 69bps). Discount rates at the inception of each contract are based on the yields within a hypothetical reference portfolio of assets which the Group expects to acquire to back the portfolio of new insurance liabilities (the “target portfolio”). A weighted average of these discount rate curves is determined for the purpose of calculating movements in the CSM relating to each group of contracts. Separate weighted average discount curves are calculated for each new business product line. The point of sale discount curves are weighted by the value of projected claims payments. At each valuation date, the estimate of the present value of future liability cash flows and the risk adjustment for non-financial risks are discounted based on the yields from a reference portfolio consisting of the actual asset portfolio backing the net of reinsurance best estimate liabilities and risk adjustment. The reference portfolio is adjusted in respect of new contracts incepting in the period to allow for a period of transition from the actual asset holdings to the target portfolio where necessary. Typically, this period of transition can be up to six months but is dependent on the volume of new business transactions completed. The target asset portfolio seeks to select the appropriate mix of assets to match the underlying net insurance contract liabilities. The target asset portfolio consists of listed bonds, unlisted illiquid investments and loans secured by residential mortgages.
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