138 JUST GROUP PLC Annual Report and Accounts 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
23 INSURANCE CONTRACTS AND RELATED REINSURANCE continued (a) Terms and conditions of insurance contracts The Group’s long-term insurance contracts include Retirement Income (Guaranteed Income for Life (“GIfL”), Defined Benefit (“DB”), and immediate needs and deferred Care Plans), and whole of life and term protection insurance. The insurance liabilities are agreed by the Board using recognised actuarial valuation methods proposed by the Group’s Actuarial Reporting Function. In particular, a prospective gross premium valuation method has been adopted for major classes of business. Although the process for the establishment of insurance liabilities follows specified rules and guidelines, the provisions that result from the process remain uncertain. As a consequence of this uncertainty, the eventual value of claims could vary from the amounts provided to cover future claims. The Group seeks to provide for appropriate levels of contract liabilities taking known facts and experiences into account but nevertheless such provisions remain uncertain. The estimation process used in determining insurance liabilities involves projecting future annuity payments and the cost of maintaining the contracts. For non-annuity contracts, the liability is determined as the sum of the discounted value of future benefit payments and future administration expenses less the expected value of premiums payable under the contract. The key sensitivities are the assumed level of interest rates and the mortality experience. (b) Principal assumptions underlying the calculation of insurance contracts The principal assumptions underlying the calculation of insurance contracts are explained below. This includes any areas sensitive to COVID-19 effects or other economic downturn. Mortality assumptions The impact of the COVID-19 pandemic on UK mortality has been significant, and the understanding of excess deaths continues to develop as more data becomes available and is analysed. The Group experienced mortality levels in 2020 which were around 10% higher than expected. This was broadly in line with the wider UK experience (adjusted for the demographic profile of our customers relative to the population as a whole) and primarily reflects the impact of COVID-19. This contributed to the £21.7m of positive mortality experience variance for GIfL, Care and DB reported in 2020, which was partly offset by the negative mortality experience variance for LTM business. The total number of registered deaths in the UK in January and February 2021 has been much higher than normal for the time of year. However, we note that the weekly total has reduced significantly in recent weeks and the number of non-COVID deaths has remained relatively low despite the drop in COVID deaths. At this stage, there is considerable uncertainty as to the degree to which mortality rates might exceed current expectations over the course of 2021. The scale of the variance will depend on factors such as the effectiveness of the vaccine programme and the potential emergence of new variants. However, the experience variance noted for 2020 is a reference point for the potential impact of elevated mortality experience in the short- term. The Group considers that it is still too early to judge the longer-term impact of COVID-19 on mortality and therefore no explicit allowance for the pandemic has been included in future mortality assumptions as at 31 December 2020. The Group will continue to follow closely the actual and potential future impact of COVID-19 on mortality as further information becomes available, and will review its mortality assumptions should credible evidence emerge. In particular, the Group continues to analyse possible direct and indirect impacts of the pandemic, including the possibility there will be enduring influences on the longevity of customers. Mortality assumptions have been set by reference to appropriate standard mortality tables. These tables have been adjusted to reflect the future mortality experience of the policyholders, taking into account the medical and lifestyle evidence collected during the underwriting process, premium size, gender and the Group’s assessment of how this experience will develop in the future. The assessment takes into consideration relevant industry and population studies, published research materials, input from the Group’s lead reinsurer and management’s own industry experience.
The standard tables which underpin the mortality assumptions are summarised in the table below.
2020
2019
Modified E&WPopulationmortality, with CMI 2019 model mortality improvements for both Merica and PrognoSys™underwritten business Modified E&WPopulationmortality, with CMI 2019 model mortality improvements Modified E&WPopulationmortality, with CMI 2019 model mortality improvements for standard underwritten business; Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (“SAPS”) S1 tables, withmodified CMI 2009model mortality improvements for medically underwritten business Modified E&WPopulationmortality, with CMI 2019 model mortality improvements
Individually underwritten Guaranteed Income for Life Solutions (JRL)
Modified E&WPopulationmortality, withmodified CMI 2017model mortality improvements for both Merica and PrognoSys™underwritten business Modified E&WPopulationmortality, withmodified CMI 2017model mortality improvements Modified E&WPopulationmortality, withmodified CMI 2017model mortality improvements for standard underwritten business; Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (“SAPS”) S1 tables, withmodified CMI 2009model mortality improvements for medically underwritten business Modified E&WPopulationmortality, withmodified CMI 2017model mortality improvements
Individually underwritten Guaranteed Income for Life Solutions (PLACL)
Defined Benefit (JRL)
Defined Benefit (PLACL)
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