Just group PLC | Annual Report and accounts 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
17 FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE continued The sensitivities above only consider the impact of the change in these assumptions on the fair value of the asset. Some of these sensitivities would also impact the yield on this asset and hence the valuation discount rate used to determine liabilities. For some of these sensitivities, the impact on the value of insurance liabilities and hence profit before tax is included in note 23(e). Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk that only represents the Group’s view of reasonably possible near-term market changes that cannot be predicted with any certainty. Loans secured by commercial mortgages Loans secured by commercial mortgages are valued using discounted cash flow analysis using assumptions based on the repayment of the underlying loan. Principal assumptions underlying the calculation of loans secured by commercial mortgages Credit spreads The valuation model discounts the expected future cash flows using a discount rate which includes a credit spread allowance associated with that asset. Sensitivity analysis Reasonably possible alternative assumptions for unobservable inputs used in the valuation model either as at the valuation date or from a suitable recent reporting period where appropriate to do so could give rise to significant changes in the fair value of the assets. The sensitivity of the valuation of commercial mortgages 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:
Loans secured by commercial mortgages net increase/(decrease) in fair value (£m)
Credit spreads +100bps
2022 2021
(19.2) (25.0)
Loans secured by ground rents Loans secured by ground rents are valued using discounted cash flow analysis using assumptions based on the repayment of the underlying loan. Principal assumptions underlying the calculation of loans secured by ground rents Credit spreads The valuation model discounts the expected future cash flows using a discount rate which includes a credit spread allowance associated with that asset. Sensitivity analysis Reasonably possible alternative assumptions for unobservable inputs used in the valuation model either as at the valuation date or from a suitable recent reporting period where appropriate to do so could give rise to significant changes in the fair value of the assets. The sensitivity of the valuation of ground rents 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:
Loans secured by ground rents net increase/(decrease) in fair value (£m)
Credit spreads +100bps
2022 2021
(77.9) (59.2)
Infrastructure loans Infrastructure loans are valued using discounted cash flow analyses. Principal assumptions underlying the calculation of infrastructure loans classified as Level 3 Credit spreads The valuation model discounts the expected future cash flows using a discount rate which includes a credit spread allowance associated with that asset. Sensitivity analysis Reasonably possible alternative assumptions for unobservable inputs used in the valuation model either as at the valuation date or from a suitable recent reporting period where appropriate to do so could give rise to significant changes in the fair value of the assets. The sensitivity of the valuation of infrastructure loans 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:
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