132 JUST GROUP PLC Annual Report and Accounts 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
17 FAIR VALUE continued
Debt securities and other fixed income securities £m
Recoveries from reinsurers on investment contracts £m
Loans secured by residential mortgages £m
Loans secured by commercial mortgages £m
Derivative financial assets £m
Investment contract liabilities £m
Deposits received from reinsurers £m
Investment funds £m
Other loans £m
Year ended 31 December 2019
At 1 January 2019
69.8 68.2
616.0
– 7,191.5
392.3
723.2
102.2 (197.8)
(2,443.5)
Purchases/advances/deposits
72.7 50.4
–
415.8
97.7
76.7
51.3
(26.7)
(1.5)
Transfers from Level 2
–
3.3
–
–
–
–
–
–
Sales/redemptions/payments
(26.0)
(4.3)
–
(337.9)
(5.8)
(11.0)
(160.4)
78.3
221.1
Realised gains and losses recognised in profit or loss within net investment income Unrealised gains and losses recognised in profit or loss within net investment income1
0.1
0.3
–
102.1
–
–
–
–
–
(0.3)
(1.4) (4.5)
0.7
338.1 270.9
9.8 0.5
47.0
6.9
– –
(107.3) (86.5)
Interest accrued
–
–
–
–
Change in fair value of liabilities recognised in profit or loss
–
–
–
–
–
–
– –
92.2
–
At 31 December 2019
111.8
729.2
4.0 7,980.5
494.5
835.9
(54.0)
(2,417.7)
1 Includes the impact of property growth experience changes, a charge of £33m.
For Level 1 and Level 2 assets measured at fair value, unrealised gains during the year were gains of £23.2m and £241.1m respectively (2019: gains of £15.7m and £284.8m respectively). Investment funds Investment funds classified as Level 3 are structured entities that operate under contractual arrangements which allow a group of investors to invest in a pool of corporate loans without any one investor having overall control of the entity. There have not been any significant impacts to these investments in relation to COVID-19. Principal assumptions underlying the calculation of investment funds classified as Level 3 Discount rate Discount rates are the most significant assumption applied in calculating the fair value of investment funds. The average discount rate used is 7.0% (2019: 7.0%). Sensitivity analysis Reasonable possible alternative assumptions for unobservable inputs used in the valuation model could give rise to significant changes in the fair value of the assets. The sensitivity of the valuation of bonds to the default assumption is determined by reference to movement in credit spreads. The Group has estimated the impact on fair value to changes to these inputs as follows:
Credit spreads +100bps
Investment funds net increase/(decrease) in fair value (£m)
2020 2019
(4.9) (3.9)
Debt securities and other fixed income securities Debt securities classified as Level 3 are infrastructure private placement bonds and asset-backed securities. Such securities are valued using discounted cash flow analyses. The impact of COVID-19 has been taken into account in the assessment of the future cash flows default risk at 31 December 2020. Due to the nature of these assets and the sectors in which they operate, being primarily utilities and universities sectors, the Group has assessed that there is no significant impact from COVID-19 on the valuation at 31 December 2020. Principal assumptions underlying the calculation of the debt securities and other fixed income securities classified as Level 3 Redemption and defaults The redemption and default assumptions used in the valuation of infrastructure private placement bonds are similar to the rest of the Group’s bond portfolio. For asset-backed securities, the assumptions are that the underlying loans supporting the securities are redeemed in the future in a similar profile to the existing redemptions on an average rate of 3% per annum, and that default levels on the underlying basis remain at the current level of the Group’s bond portfolio.
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