Strategic Report | Governance | Financial Statements | 203
26. INSURANCE CONTRACTS AND RELATED REINSURANCE continued Sensitivity factor Description of sensitivity factor applied
Interest rate and investment return
The impact of a change in the market interest rates by +/- 1% (e.g. if a current interest rate is 5%, the impact of an immediate change to 4% and 6% respectively). The test consistently allows for similar changes to both assets and liabilities
Expenses
The impact of an increase in maintenance expenses by 10%
Base mortality rates The impact of a decrease in base table mortality rates by 5% applied to both Retirement Income liabilities and loans secured by residential mortgages Mortality improvement rates The impact of a level increase in mortality improvement rates of 10% for both Retirement Income liabilities and LTMs. This sensitivity applies a multiplicative adjustment to the improvement rates. Immediate property price fall The impact of an immediate decrease in the value of properties on loans secured by residential mortgages by 10% Future property price growth The impact of a reduction in future property price growth on loans secured by residential mortgages by 0.5% Future property price volatility The impact of an increase in future property price volatility on loans secured by residential mortgages by 1% Voluntary redemptions The impact of an increase in voluntary redemption rates on loans secured by residential mortgages by 10% Credit defaults The impact of an increase in the credit default assumption of 10bps
Impact of sensitivities
Reinsurance contracts (net) held £m
Insurance contract liabilities £m
Net insurance contract liabilities £m
Valuation of assets £m
Net impact on profit and loss £m
31 December 2023
1,970
(77)
1,893
– –
– –
Fulfilment cash flows
–
–
–
Interest rate and investments +1%
Contractual service margin
1,970
(77)
1,893
(1,933)
(40)
Profit/(loss) before tax Fulfilment cash flows
(2,366)
100
(2,266)
– –
– –
–
–
–
Interest rate and investments -1%
Contractual service margin
(2,366)
100
(2,266)
2,316
49
Profit/(loss) before tax Fulfilment cash flows
(30)
– – –
(30)
– –
– –
31
31
Maintenance expenses +10%
Contractual service margin
1
1
(5)
(5)
Profit/(loss) before tax Fulfilment cash flows
(327)
196
(131)
– –
– –
476 148
(293)
182
Decrease in base mortality by 5%
Contractual service margin
(97)
51
(14)
37
Profit/(loss) before tax Fulfilment cash flows
(178)
106
(72)
– –
– –
263
(172)
91 20
Mortality improvements rates +10%
Contractual service margin
85
(66)
(3)
17
Profit/(loss) before tax Fulfilment cash flows
(46)
2 – 2 2 – 2 1 – 1 1 – 1 9 – 9
(44)
– –
– –
–
–
Immediate fall of 10% in house prices
Contractual service margin
(46) (38)
(44) (36)
(68)
(113)
Profit/(loss) before tax Fulfilment cash flows
– –
– –
Future property price growth reduces by 0.5%
–
–
Contractual service margin
(38) (18)
(36) (17)
(38)
(74)
Profit/(loss) before tax Fulfilment cash flows
– –
– –
Future property price volatility increase by 1%
–
–
Contractual service margin
(18) (24)
(17) (23)
(27)
(44)
Profit/(loss) before tax Fulfilment cash flows
– –
– –
Voluntary redemptions increase by 10%
–
–
Contractual service margin
(24)
(23)
19
(4)
Profit/(loss) before tax Fulfilment cash flows
(213)
(204)
– – –
– –
Credit default allowance – increase by 10bps 1
–
–
Contractual service margin
(213)
(204)
(204)
Profit/(loss) before tax
1 Over that included in the discount rate section in note 26(b).
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