66 | Just Group PLC | Annual Report and Accounts 2023
PRINCIPAL RISKS AND UNCERTAINTIES
Risks and uncertainties are presented in this report in two separate sections: (1) the first section summarises the Group’s ongoing core risks and how they are managed in business as usual; and (2) the second section calls out the risk outlook for subjects that are evolving and are of material importance from a Group perspective.
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1. 3. 2. 4.
STRATEGIC PRIORITIES
Grow sustainably
5.
ONGOING PRINCIPAL RISKS
RISK
HOW WE MANAGE OR MITIGATE THE RISK
• Premiums are invested to match asset and liability cash flows as closely as practicable; • Market risk exposures are managed within pre-defined limits aligned to risk appetite for individual risks; • Exposure is managed using regulatory and economic metrics to achieve desired financial outcomes; • Balance sheet is managed by hedging exposures, including currency and inflation where cost effective to do so; and • Interest rate hedging is in place to manage Solvency II capital coverage and IFRS equity positions. • Investments are restricted to permitted asset classes and concentration limits; • Credit risk exposures are monitored in line with credit risk framework, driving corrective action where required; • External events that could impact credit markets are tracked continuously; • Credit risks from reinsurance balances are mitigated by the reinsurer depositing back premiums ceded and through collateral arrangements or recapture plans; and • The external fund managers we use are subject to Investment Management Agreements and additional credit guidelines. • Controls are maintained over insurance risks related to product development and pricing; • Approved underwriting requirements are adhered to; • Medical information is developed and used for pricing and reserving to assess longevity risk; • Reinsurance used to reduce longevity risk, with oversight by Just of overall exposures and the aggregate risk ceded; • Group Board review and approve assumption used; and • Regular monitoring, control and analysis of actual experience and expense levels is conducted. • Stress and scenario testing and analysis is conducted: including collateral margin stresses, asset eligibility and haircuts under stress; • Corporate collateral capacity to reduce liquidity demands and improve our liquidity stress resilience is monitored; • Risk assessment reporting and risk event logs inform governance and enable effective oversight; and • Contingency funding plan is maintained with funding options and process for determining actions. • Implement policies, controls, and mitigating activities to keep risks within appetite; • Oversee risk status reports and any actions needed to bring risks back within appetite; • Scenario-based assessment is in place to establish the level of capital needed for conduct and operational risks; • Monitor conduct and customer risk indicators and their underlying drivers prompting action to protect customers; • Conduct risk management training and other actions to embed regulatory changes; and • Ensure data subjects can exercise their GDPR rights including their right to be forgotten and subject access requests to obtain their data held by Just. • The Group operates an annual strategic review cycle; • Information on the strategic environment, which includes both external market and economic factors and those internal factors which affect our ability to maintain our competitiveness, is regularly analysed to assess the impact on the Group’s business models; • Engagement with industry bodies supports our information gathering; and • The Group responds to consultations through trade bodies where appropriate.
Arises from changes in interest rates, residential property prices, credit spreads, inflation, and exchange rates, which affect, directly or indirectly, the level and volatility of market prices of assets and liabilities. 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. Arises if another party fails to perform its financial obligations to the Group, including failing to perform them in a timely manner.
A
MARKET RISK
STRATEGIC PRIORITIES 1. 5.
B
CREDIT RISK
STRATEGIC PRIORITIES 1. 3. 5.
Arises through exposure to longevity, mortality, morbidity risks and related factors such as levels of withdrawal from lifetime mortgages and management and administration expenses.
C
INSURANCE RISK
STRATEGIC PRIORITIES 1. 3. 5.
The risk of insufficient suitable assets available to meet the Group’s financial obligations as they fall due.
D
LIQUIDITY RISK
STRATEGIC PRIORITIES 1. 3. 5.
Arise from inadequate internal processes, people and systems, or external events including changes in the regulatory environment. Such risks can result in harm to our customers, the markets in which we do business or our regulatory relationships as well as direct or indirect loss, or reputational impacts.
E
CONDUCT AND OPERATIONAL RISK
STRATEGIC PRIORITIES 1. 2. 3. 4. 5.
Arises from the choices the Group makes about the markets in which it competes and the environment in which it competes. These risks include the risk of changes to regulation, competition, or social changes which affect the desirability of the Group’s products and services.
f
STRATEGIC RISK
STRATEGIC PRIORITIES 1. 2. 3. 4. 5.
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