136 JUST GROUP PLC Annual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 FAIR VALUE continued
Recoveries from reinsurers on investment contracts £m
Debt securities and other fixed income securities £m
Loans secured by commercial mortgages £m
Loans secured by residential mortgages £m
Deposits received from reinsurers £m
Investment contract liabilities £m
Derivative financial assets £m
Other loans £m
Investment funds £m
Year ended 31 December 2018
At 1 January 2018
–
740.5
– 6,833.3
215.4 177.8
433.3 295.5
72.3 (220.7)
(2,654.1)
Purchases/advances/deposits
79.0
78.1
– – –
602.1
54.6
(51.0)
(20.2)
Transfers to Level 2
–
(158.3)
–
–
–
–
–
–
Sales/redemptions/payments
(9.7)
(26.6)
(297.2)
(18.0)
(4.7)
(24.5)
73.5
227.7
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
–
(2.4)
–
78.7
–
–
–
–
–
–
(9.7) (5.6)
– –
(291.4)
27.1
(0.9)
(0.2)
– –
92.0
Interest accrued
0.5
266.0
(10.0)
–
–
(88.9)
Change in fair value of liabilities recognised in profit or loss
–
–
–
–
–
–
–
0.4
–
At 31 December 2018
69.8
616.0
– 7,191.5
392.3
723.2
102.2 (197.8)
(2,443.5)
1 Includes the impact of changes in assumptions in respect of the valuation of loans secured by residential mortgages of £112m, which includes £61m in relation to property growth assumptions and £51m in relation to property volatility assumptions.
For Level 1 and Level 2 assets measured at fair value, unrealised gains during the year were gains of £15.7m and £284.8m respectively (year ended 31 December 2018: losses of £66.3m and £181.0m 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. 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%. 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 Group has estimated the impact on fair value to changes to these inputs as follows: Debt securities and other fixed income securities Debt securities classified as Level 3 are either private placement bonds or asset-backed securities. Such securities are valued using discounted cash flow analyses using prudent assumptions based on the repayment of the underlying bond. 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. 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: Investment funds net increase/(decrease) in fair value (£m) Credit spreads +100bps 2019 2018 (3.9) (3.1)
Credit spreads +100bps
Debt securities and other fixed income securities net increase/(decrease) in fair value (£m)
2019 2018
(52.5) (28.9)
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