Strategic Report | Governance | Financial Statements | 31
31 December 2022 £m (restated)
HIGHLIGHTS FROM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2023 £m
The table on page 31 presents selected items from the Condensed consolidated statement of financial position. The information below is extracted from the statutory consolidated statement of financial position. Financial investments During the year, financial investments increased by £6bn to £29.4bn (2022: £23.4bn). Excluding the derivatives and collateral, and gilts purchased in relation to the interest rate hedging, the core Investments portfolio on which we take credit risk increased by 18% to £24bn. Over the past two years, central banks have rapidly raised base rates from their historical low levels to counteract the effect of inflation and prevent it becoming embedded in the economy. Base rates are expected to have peaked, with progressive interest rate cuts expected later this year and into 2025. The year on year portfolio increase to £24bn has been driven by investment of the Group’s £4.3bn of new business premiums, credit spread tightening, and the decrease in long-term risk-free rates at year end cut-off, which increased the value of the assets (and matched liabilities). The credit quality of the Group’s bond portfolio remains resilient, with 54% rated A or above (31 December 2022: 50%), driven by an increase in A rated consumer staples and infrastructure assets. Our diversified portfolio continues to grow and is well balanced across a range of industry sectors and geographies. We continue to position the portfolio with a defensive bias, and year to date have experienced positive ratings performance as 11% of the Group’s bond portfolio (excluding gilts) was upgraded, offset by 8% being downgraded. The Group continues to have very limited exposure to those sectors that are most sensitive to structural change or macroeconomic conditions, such as auto manufacturers, consumer (cyclical), energy and basic materials. The Group has increased its infrastructure, utilities and long income real estate (primarily commercial) investments, and selectively added to consumer and banks investments. The BBB-rated bonds are weighted towards the most defensive sectors including utilities, communications and technology, and infrastructure. The Group continues to have ample liquidity. We prudently manage the balance sheet by hedging all foreign exchange and inflation exposure, and fully implemented a revised interest rate hedging strategy during the first half of 2023. This involved the purchase of £2.5bn of long dated gilts, which are held at amortised cost under IFRS. The effect is to significantly reduce the Solvency II sensitivity to future interest rate movements, with a much reduced volatility on the IFRS position. The table opposite presents selected items from the Condensed consolidated statement of financial position. The information below is extracted from the statutory consolidated statement of financial position.
Assets Financial investments
29,423
23,352
1,143
Reinsurance contract assets
776 107 482 802
100 546 726
of which CSM
Cash available on demand
Other assets Total assets
31,838
25,412
199 943
Share capital and share premium
199 938
Other reserves
(259)
Accumulated profit and other adjustments Total equity attributable to ordinary shareholders of Just Group plc
(354)
883 322
783 322
Tier 1 notes
(2)
Non-controlling interest
(2)
Total equity
1,203
1,103
Liabilities Insurance contract liabilities
24,131
19,647
2,449
of which CSM
1,943
125
Reinsurance contract liabilities
121
(296)
of which CSM
(225)
5,588
Other financial liabilities
3,669
791
Other liabilities Total liabilities
872
30,635 31,838
24,309 25,412
Total equity and liabilities
Total Net Contractual Service Margin included above Net Contractual Service Margin net of deferred tax
1,959
1,611
1,471
1,212
Other illiquid assets and lifetime mortgages To support new business pricing, optimise back book returns, and to further diversify its investments, the Group originates other illiquid assets including infrastructure, real estate investments and private placements. Income producing real estate investments are typically much longer duration and hence the cash flow profile is very beneficial, especially to match DB deferred liabilities. In 2023, we originated £1,550m of other illiquid assets (68 investments) and funded £164m of lifetime mortgages, which together represent a 44% new business backing ratio. Other illiquid assets are originated via a panel of 14 specialist external asset managers, each carefully selected based on their particular area of expertise. Our illiquid asset origination strategy allows us to efficiently scale origination of new investments, and to flex allocations between sectors depending on market conditions and risk adjusted returns.
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