139
FINANCIAL STATEMENTS
23 INSURANCE CONTRACTS AND RELATED REINSURANCE continued
2020
2019
Modified PCMA/PCFA and with CMI 2019model mortality improvements for Care Plans; Modified PCMA/PCFA or modified E&WPopulation mortality with CMI 2019model mortality improvements for other annuity products
Care Plans and other annuity products (PLACL)
Modified PCMA/PCFA and withmodified CMI 2017 model mortality improvements for Care Plans; Modified PCMA/PCFA or modified E&WPopulation mortality withmodified CMI 2017model mortality improvements for other annuity products
TM/TF00 Select
Protection (PLACL)
TM/TF00 Select
All references to the use of the CMI 2019 model relate to improvements for calendar year 2020 onwards. The modified CMI 2017 model has been used to derive base mortality rates and improvements for years up to and including 2019. The long-term improvement rates in the CMI 2019 model are 2.0% for males and 1.75% for females (2019: 2.0% for males and 1.75% for females). The period smoothing parameter in the modified CMI 2019 model has been set to 7.00 (2019: 7.25). The addition to initial rates (‘A’) parameter in the model varies between 0% and 0.25% depending on product (2019: n/a). All other CMI model parameters are the defaults (2019: other parameters set to defaults). For 31 December 2020, full mortality improvements have been applied to all components of the mortality basis for Merica GIfL business in JRL. Previously a proportion of full improvements was applied to excess mortality. This strengthening of the assumption ensures the application of improvements for Merica is aligned with the approach more generally used for other products. Valuation discount rates Valuation discount rate assumptions are set by considering the yields on the assets available to back the liabilities. The yields on lifetime mortgage assets are derived using the assumptions described in note 17 with allowance for risk through the deductions related to the NNEG. An explicit allowance for credit risk is included by making an explicit deduction from the yields on debt and other fixed income securities, loans secured by commercial mortgages, and other loans based on an expectation of default experience of each asset class and application of a prudent loading. Allowances vary by asset category and by rating. Economic uncertainty surrounding COVID-19 increases the risk of credit defaults. Our underlying default methodology allows for the impact of credit rating downgrades and spread widening and hence we have maintained the same methodology at 31 December 2020. The considerations around COVID-19 for property prices affecting the NNEG and corresponding changed to assumption for the valuation discount rate are as described in note 17.
2020 % 2.34 2.21 2.34 2.21 0.06 0.28
2019 % 3.01 2.89 3.01 2.89 0.92 0.98
Valuation discount rates – gross liabilities
Individually underwritten Guaranteed Income for Life Solutions (JRL) Individually underwritten Guaranteed Income for Life Solutions (PLACL)
Defined Benefit (JRL) Defined Benefit (PLACL)
Other annuity products (PLACL)
Term and whole of life products (PLACL)
The overall reduction in yield to allow for the risk of defaults from all non-LTM assets (to include gilts, corporate bonds, infrastructure loans, private placements and commercial mortgages) and NNEG from LTMs was a reduction in yield of 69bps in JRL and 65bps in PLACL (2019: 58bps and 60bps respectively). Future expenses Assumptions for future policy expense levels are determined from the Group’s recent expense analyses. The JRL GIfL maintenance expense assumption used at 31 December 2020 was £28.58 per plan (2019: £28.50), whilst the JRL DB maintenance assumption used at 31 December 2020 was £111.64 per scheme member (2019: £112.71). The PLACL GIfL maintenance expense assumption used at 31 December 2020 was £32.70 per plan (2019: £28.50), whilst the PLACL DB maintenance assumption used at 31 December 2020 was £220.70 per scheme member (2019: £175.40). The assumed future policy expense levels incorporate an annual inflation rate allowance of 3.85% (2019: 4.4%) derived from the expected retail price and consumer price indices implied by inflation swap rates and an additional allowance for earnings inflation. The assumption change includes the revision to the proportions assumed to increase at each RPI, CPI and earnings and reduction in the prudent margin applied. (c) Movements The following movements have occurred in the insurance contract balances for Retirement Income products during the year.
Gross £m
Reinsurance £m
Net £m
Year ended 31 December 2020
19,003.7 (3,732.0) 15,271.7
At 1 January 2020
1,803.0 (1,397.5)
14.1 1,817.1 323.9 (1,073.6)
Increase in liability from premiums Release of liability due to recorded claims
565.6 (103.0) 1,360.3 (252.8)
462.6
Unwinding of discount
1,107.5
Changes in economic assumptions Changes in non-economic assumptions
(142.2)
96.9
(45.3)
(74.5)
787.4 712.9
Other movements1 At 31 December 2020
21,118.4 (2,865.5) 18,252.9
1 Includes the impact of reinsurance recapture (see note 29).
Powered by FlippingBook