Strategic Report | Governance | Financial Statements | 65
Reporting on climate risk is being integrated into the Group’s regular reporting processes, which will continue to evolve as the quantification of risk exposures develops and key risk indicators (“KRIs”) are identified. VIABILITY STATEMENT The Directors have carried out a robust assessment of the principal risks facing the Group, including those that could threaten its business model, future performance, solvency or liquidity, and make this assessment with reference to the risk appetite of the Board and the processes and controls in place to mitigate the principal risks and uncertainties as detailed in the Strategic Report. Based on the assessments made, the Directors confirm that they have a reasonable expectation that the Group will continue in operation and meet its liabilities, as they fall due, over the next five years. In making the viability assessment, the Group considers the Group’s business plan approved by the Board, the projected liquidity position of the Company and the Group, impacts of potential economic stresses, current financing arrangements, contingent liabilities and a range of forecast scenarios with differing levels of new business and associated additional capital requirements to write anticipated levels of new business. The resilience of the Group’s capital position is tested under a range of adverse stresses and scenarios. These include testing against Group risk appetites, severe stresses and specific scenarios which reflect the Group’s exposures to risks. The factors stressed include UK residential property prices, house price inflation, the credit quality of assets, mortality rates and trends and interest rates. Scenarios include a run-off scenario where the Group is closed to new business, liquidity scenarios, and a scenario of the worst case outcome peppercorn rent from the Government consultation regarding restriction of ground rent for existing residential leases. The review also considers mitigating actions available to the Group should a severe stress scenario occur, with the analysis considered by the Board including those actions deemed to be more fully within the Group’s control. In addition, as part of the viability assessment after severe shocks, an extreme property stress test is considered including severe property price falls coupled with long-term zero HPI. Eligible own funds exceeded the minimum capital requirements in all stressed scenarios described above. The scenarios considered are consistent with the going concern assessment in the Financial Statements in the Annual Report. In this case, even if the Group ceases to write new business and is subject to such scenarios the Group would still be expected to remain a going concern and able to meet its liabilities as they fall due although as a Group managing its existing book of business in run-off. The Directors note that the Group is subject to the Prudential Regulatory Regime for Insurance Groups, which monitors the Group’s compliance with Solvency Capital Requirements. A five-year time- frame has been selected for this statement, although the Group, as with any insurance group, has policyholder liabilities in excess of five years and, therefore, performs its modelling and stress and scenario testing on time frames extending to the expected settlement of these liabilities, with results reported in the Group’s ORSA. Given the inherent uncertainty increases as longer time frames are considered, the Directors consider five years to be an appropriate time frame upon which they can report with a reasonable degree of confidence. The Directors have no reason to believe that the Group will not be viable over a longer period.
PURPOSE The Group risk management framework supports management in making decisions that balance the competing risks and rewards. This allows them to generate value for shareholders, deliver appropriate outcomes for customers, and help our business partners and other stakeholders have confidence in us. Our approach to risk management is designed to ensure that our understanding of risk underpins how we run the business. RISK FRAMEWORK Our risk framework, owned by the Group Board, covers all aspects involved in the successful management of risk, including governance, reporting and policies. Our appetite for different types of risk is embedded across the business to create a culture of confident risk-taking. The framework is continually developed to reflect our risk environment and emerging best practice. RISK EVALUATION AND REPORTING We evaluate our principal and emerging risks to decide how best to manage them within our risk appetite. Management regularly reviews its risks and produces management information to provide assurance that material risks in the business are being appropriately mitigated. The Risk function, led by the Group Chief Risk officer (“GCRO”), challenges the management team on the effectiveness of its risk identification, measurement, management, monitoring, and reporting. The GCRO provides the Group Risk and Compliance Committee (“GRCC”) with his independent assessment of the principal and emerging risks to the business. Company policies govern the exposure of risks to which the Group is exposed and define the risk management activities to ensure these risks remain within appetite. Financial risk modelling is used to assess the amount of each risk type against our capital risk appetite. This modelling is principally aligned to our regulatory capital metrics. The results of the modelling allow the Board to understand the risks included in the Solvency Capital Requirement (“SCR”) and how they translate into regulatory capital needs. By applying stress and scenario testing, we gain insights into how risks might impact the Group in different circumstances. Quantification of the financial impact of climate risk is subject to significant uncertainty. Climate-related transition and physical risks are heavily dependent on government policy developments, social responses to these developments and market trends. Just’s initial focus has been on the implementation of strategies to reduce the likely exposure to this risk. Just will continue to adapt its view of climate risk as both methodologies and data quality improve. The identification, disclosure and management of climate-related risks and broader sustainability risks are embedded within Just’s Enterprise Risk Management Framework. This includes climate-related scenario analysis, based on Network for Greening the Financial System scenarios, which is a key tool for ensuring we have a deep understanding of the risks the Group faces over a long-term time horizon. OWN RISK AND SOLVENCY ASSESSMENT The Group’s Own Risk and Solvency Assessment (“ORSA”) process embeds comprehensive risk reviews into our Group management activities. Our annual ORSA report is an important part of our business risk management cycle. It summarises work carried out in assessing the Group’s risks related to its strategy and business plan, supported by a variety of quantitative scenarios, and integrates findings from recovery and run-off analysis. The report provides an opinion on the viability and sustainability of the Group and informs strategic decision making. Updates are provided to the GRCC each quarter, including factors such as key risk limit consumption, and conduct, operational and market risk developments, to keep the Board appraised of the Group’s evolving risk profile.
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