Just Annual Report and Accounts 2019

142 JUST GROUP PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

22 INSURANCE CONTRACTS AND RELATED REINSURANCE continued 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 as follows: Mortality assumptions 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.

2019

2018

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, with CMI 2009model mortality improvements for medically underwritten business Modified E&WPopulationmortality, withmodified CMI 2017model mortality improvements 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

Individually underwritten Guaranteed Income for Life Solutions (JRL)

Individually underwritten Guaranteed Income for Life Solutions (PLACL)

Defined Benefit (JRL)

Defined Benefit (PLACL)

Care Plans and other annuity products (PLACL)

TM/TF00 Select

Protection (PLACL)

TM/TF00 Select

The long term improvement rates in the modified CMI 2017 model are 2.0% for males and 1.75% for females (2018: 2.0% for males and 1.75% for females). The period smoothing parameter in the modified CMI 2017 model has been set to 7.25 (2018: 7.25). 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 16 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 based on a prudent expectation of default experience of each asset class. An additional allowance is made for voluntary redemptions.

2019 % 3.01 2.89 3.01 2.89 0.92 0.98

2018 % 3.51 3.47 3.51 3.47 1.32 1.54

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)

Future expenses Assumptions for future policy expense levels are determined from the Group’s recent expense analyses. The assumed future policy expense levels incorporate an annual inflation rate allowance of 4.4% (2018: 4.6%) derived from the expected retail price index implied by inflation swap rates and an additional allowance for earnings inflation.