208 | Just Group PLC | Annual Report and Accounts 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
34. FINANCIAL AND INSURANCE RISK MANAGEMENT continued (b) Market risk
Market risk is the risk of loss or of adverse change in the financial situation from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments, together with the impact of changes in interest rates. Market risk is implicit in the insurance business model and arises from exposure to interest rates, residential property markets, credit spreads, inflation and exchange rates. The Group is not exposed to any material levels of equity risk. Some very limited equity risk exposure arises from investment into credit funds which have a mandate that allows preferred equity to be held. Changes in the value of the Group’s investment portfolio will also affect the Group’s financial position. In addition falls in the financial markets can reduce the value of pension funds available to purchase Retirement Income products and changes in interest rates can affect the relative attractiveness of Retirement Income products. In mitigation, Retirement Income product premiums are invested to match the asset and liability cash flows as closely as practicable. In practice, it is not possible to eliminate market risk fully as there are inherent uncertainties surrounding many of the assumptions underlying the projected asset and liability cash flows. Just has several EUR denominated bonds that have coupons linked to EURIBOR, which are hedged into fixed GBP coupons. If EURIBOR were no longer produced, there is a risk that the bond coupons would not match the swap EUR leg payments. In mitigation, Just would restructure the related cross currency asset swap to match the new coupon rate. For each of the material components of market risk, described in more detail below, the Group’s Market Risk Policy sets out the Group’s risk appetite and management processes governing how each risk should be measured, managed, monitored and reported. (i) Interest rate risk The Group is exposed to interest rate risk arising from the changes in the values of assets or liabilities as a result of changes in risk-free interest rates. The Group seeks to limit its exposure through appropriate asset and liability matching and hedging strategies. The Group actively hedges its interest rate exposure to protect balance sheet positions on both Solvency II and IFRS bases in accordance with its risk appetite framework and principles. The Group’s main exposure to changes in interest rates is concentrated in the investment portfolio, loans secured by mortgages and its insurance obligations. Changes in investment and loan values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the value of insurance liabilities. The Group monitors this exposure through regular reviews of the asset and liability position, capital modelling, sensitivity testing and scenario analyses. Interest rate risk is also managed using derivative instruments e.g. swaps. The following table indicates the earlier of contractual repricing or maturity dates for the Group’s significant financial assets.
Less than one year £m
One to five years £m
Five to ten years £m
Over ten years £m
No fixed term £m
Total £m
2023
1,141
–
– –
– –
– – – –
1,141
Units in liquidity funds
97
398
495
Investment funds
527 706
1,625
2,513
8,989
13,654
Debt securities and other fixed income securities
– –
– –
– –
706
Deposits with credit institutions
–
5,681
5,681
Loans secured by residential mortgages Loans secured by commercial mortgages
87
378
202
97
– – – – –
764 779
– – 1
4
–
775 795
Long income real estate 1
72
246
1,113
Infrastructure loans
146 177
4
13
164
Other loans
48
573
1,579
2,377
Derivative financial assets
Total investments measured at FVTPL Gilts – subject to repurchase agreements Total investments measured at amortised cost
2,607
2,800
3,538
12,248
5,681
26,874
– –
– –
– –
2,549 2,549
– –
2,549 2,549
Total financial investments
2,607
2,800
3,538
14,797
5,681
29,423
1. Includes residential ground rents of £176m.
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