145
FINANCIAL STATEMENTS
29 REINSURANCE continued In addition to the deposits received from reinsurers recognised within other financial liabilities (see note 27(b)), certain reinsurance arrangements give rise to deposits from reinsurers that are not included in the Consolidated statement of financial position of the Group as described below: • The Group has an agreement with two reinsurers whereby financial assets arising from the payment of reinsurance premiums, less the repayment of claims, in relation to specific treaties, are legally and physically deposited back with the Group. Although the funds are managed by the Group (as the Group controls the investment of the asset), no future benefits accrue to the Group as any returns on the deposits are paid to reinsurers. Consequently, the deposits are not recognised as assets of the Group and the investment income they produce does not accrue to the Group. • The Group has an agreement with one reinsurer whereby assets equal to the reinsurer’s full obligation under the treaty are deposited into a ringfenced collateral account. The Group has first claim over these assets should the reinsurer default, but as the Group has no control over these funds and does not accrue any future benefit, this fund is not recognised as an asset of the Group. • The Group has an agreement with one reinsurer whereby assets equal to the reinsurers full obligation under the treaty are either deposited into a ringfenced collateral account if corporate bonds or held under a funds withheld structure if Lifetime Mortgages. The latter are legally and physically held by the Group. Although the funds are managed by the Group (as the Group controls the investment of the asset), no future benefits accrue to the Group as returns on the assets are paid to reinsurers. Consequently, the lifetime mortgages are not recognised as assets of the Group and the investment income they produce does not accrue to the Group. The reinsurer also deposits cash into a bank account held legally by the Group to fund future lifetime mortgages but as this cash is ringfenced for issued lifetime mortgage quotes agreed by the reinsurer, it is also not recognised as an asset by the Group. 2020 £m 2019 £m Deposits managed by the Group 249.0 194.5 Deposits held in trust 492.0 283.4 Total deposits not included in the Consolidated statement of financial position 741.0 477.9 The Group is exposed to a minimal amount of reinsurance counterparty default risk in respect of the above arrangements and calculates a counterparty default reserve accordingly. At 31 December 2020, this reserve totalled £3.6m (2019: £2.5m) and largely relates to the Hannover Re and Pacific Life Re reinsurance treaties in PLACL.
30 OTHER PROVISIONS
Year ended 31 December 2020 £m
Year ended 31 December 2019 £m
1.8
At 1 January
0.7
(1.1)
Amounts utilised
(1.7)
0.3 1.0
Amounts charged to profit and loss
2.8 1.8
At 31 December
The amount of provisions that is expected to be settled more than 12 months after the Consolidated statement of financial position date is £0.5m (2019: £1.2m).
31 INSURANCE AND OTHER PAYABLES
2020 £m 24.6 67.0 91.6
2019 £m 22.4 50.2 72.6
Payables arising from insurance and reinsurance contracts
Other payables
Total insurance and other payables
Other payables includes unsettled investment purchases. Insurance and other payables due in more than one year are £nil (2019: £nil).
32 COMMITMENTS Capital commitments The Group had no capital commitments as at 31 December 2020 (2019: £nil).
33 CONTINGENT LIABILITIES There are no contingent liabilities as at 31 December 2020.
34 FINANCIAL AND INSURANCE RISK MANAGEMENT This note presents information about the major financial and insurance risks to which the Group is exposed, and its objectives, policies and processes for their measurement and management. Financial risk comprises exposure to market, credit and liquidity risk. (a) Insurance risk The writing of long-term insurance contracts requires a range of assumptions to be made and risk arises from these assumptions being materially inaccurate. The Group’s main insurance risk arises from adverse experience compared with the assumptions used in pricing products and valuing insurance liabilities, and in addition its reinsurance treaties may be terminated, not renewed, or renewed on terms less favourable than those under existing treaties.
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