Strategic Report | Governance | Financial Statements | 207
30. DERIVATIVE FINANCIAL INSTRUMENTS continued As at 31 December 2023, the Group had pledged collateral of £4,016m (2022: £1,286m), of which £2,614m were gilts measured at amortised cost (2022: nil), £696m were corporate bonds (2022: £394m) and £706m held in deposits (2022: £892m), which continue to be recognised in financial investments in the statement of financial position as the Group retains the significant risks and rewards of ownership. The Group has received cash collateral of £532m (2022: £623m).
31. OTHER PAYABLES
31 December 2022 (restated) £m
31 December 2023 £m
–
Outstanding investment purchases
66 21
11
Other payables Lease liability
9
9
Total
20
96
Other payables are restated for reclassifications as explained in note 1.2.2. As a result of adoption of IFRS 17, all balances within the boundary of IFRS 17 insurance and reinsurance contracts are reclassified within note 26. In addition, as explained in note 1.2.2, outstanding investment purchases at 31 December 2022 are restated by £148m. 32. COMMITMENTS The Group had £2m of capital commitments at 31 December 2023 in respect of fit-out works to be undertaken during 2024 to the Group’s replacement Belfast office (2022: nil). At 31 December 2023, the Group had £210m unfunded commitments (2022 restated: £148m) primarily related to investments.
33. CONTINGENT LIABILITIES There are no contingent liabilities as at 31 December 2023 (2022: £nil).
34. FINANCIAL AND INSURANCE RISK MANAGEMENT This note presents information about the major financial and insurance risks to which the Group is exposed, and its objectives, policies and processes for their measurement and management. Financial risk comprises exposure to market, credit and liquidity risk. (a) Insurance risk The Group’s insurance risks include exposure to longevity, mortality and morbidity and exposure to factors such as levels of withdrawal from lifetime mortgages and management and administration expenses. The writing of long-term insurance contracts requires a range of assumptions to be made and risk arises from these assumptions being materially inaccurate. The Group’s main insurance risk arises from adverse experience compared with the assumptions used in pricing products and valuing insurance liabilities. Individually underwritten GIfL policies are priced using assumptions about future longevity that are based on historic experience information, lifestyle and medical factors relevant to individual customers, and judgements about the future development of longevity improvements. Our DB business uses our DB pricing platform and we perform regular insurer price monitoring utilising our bulk quotation service. In the event of an increase in longevity, the actuarial reserve required to make future payments to customers may increase. Loans secured by mortgages are used as part of the portfolio to match the liabilities arising from writing long-term insurance policies. In the event that early repayments on LTMs in a given period are higher than anticipated, less interest will have accrued on the mortgages and the amount repayable will be less than assumed at the time of sale. In the event of an increase in longevity, although more interest will have accrued and the amount repayable will be greater than assumed at the time of the sale, the associated cash flows will be received later than had originally been anticipated. In addition, a general increase in longevity would have the effect of increasing the total amount repayable, which would increase the LTV ratio and could increase the risk of failing to be repaid in full as a consequence of the no-negative equity guarantee. There is also exposure to morbidity risk as the LTM is repayable when the customer moves into long-term care. (i) Management of insurance risk Underpinning the management of insurance risk are: • the use of controls around the development of suitable products and their pricing; • adherence to approved underwriting requirements; • the development and use of medical information including PrognoSys™ for both pricing and reserving to assess longevity risk; • the use of reinsurance to transfer longevity risk outside the Group. The Group retains oversight of the risks transferred, uses a range of reinsurers and monitors exposures to ensure the Group remains within the reinsurance counterparty risk appetite;
• review and approval of insurance assumptions used by the Board; and • regular monitoring and analysis of actual experience and expense levels. (ii) Concentrations of insurance risk
Improved longevity arises from enhanced medical treatment and improved life circumstances. Concentration risk to individual groups whose longevity may improve faster than the population is managed by writing business across a wide range of different medical and lifestyle conditions to avoid excessive exposure. Reinsurance is also an important mitigant to concentrations of insurance risk.
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